Wright Express Corporation

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Wright Express Corporation

97 Darling Avenue
South Portland, Maine 04106
U.S.A.
Telephone: (207) 773-8171
Fax: (207) 828-5181
Web site: http://www.wrightexpress.com

Public Company
Incorporated: 1983
Employees: 650
Sales: $241.3 million (2005)
Stock Exchanges: New York
Ticker Symbol: WXS
NAIC: 523910 Miscellaneous Intermediation

With its headquarters in South Portland, Maine, Wright Express Corporation is a leader in the field of payment processing and information management services for commercial and government vehicle fleets in the United States, Canada, and Puerto Rico. Utah-based subsidiary Wright Express Financial Services Corporation provides fleet and corporate credit cards. When the cards are used, the company is able to collect point-of-sale information, including the identification of the driver and the vehicle, the vehicle's odometer reading, and the amount of the expenditure for fuel or maintenance and its provider. In this way, fleet operators are able to eliminate fraud, such as old-time collusion between a driver and service station attendant to pad a bill. Wright also provides analysis tools to allow customers to use the data collected to better manage their fleets. Operators, for example, can determine if a vehicle is costing too much to fuel or service and decide if it should be retired. More than 180,000 fuel and vehicle maintenance locations, covering over 90 percent of the America's retail fuel locations, are compatible with the Wright system. Wright is a public company listed on the New York Stock Exchange.

19TH CENTURY ROOTS

Wright Express started out as a sideline for A.R. Wright Company, a family business founded in the 1890s by Augustus R. Wright, which sold coal and ice to Portland, Maine. Later it began selling gasoline and focused on the home heating fuel business. In 1983, according to New England Business, Parker Poole III, the grandson of Augustus Wright and an executive in the company, "had a brainstorm: a way to raise capital and expand the oil delivery-based enterprise. The little company had thought a POS credit card system, sort of like an ATM (Automated Teller Machine) network, was the wave of the future and that Wright could be a forerunner in software production and sales." Along with his uncle (and A.R. Wright's president), William Richardson, Poole formed Wright Express Corporation in 1983. The new company with its handful of employees set up shop in the A.R. Wright offices. The business almost proved to be too visionary, however. At the time, less than 3 percent of all gas stations in the United States had the electronic equipment necessary to process MasterCard and Visa transactions, let alone accommodate Wright's plan to collect data and provide fleet operators with useful information.

Wright's modified concept was to offer a WEX fuel credit card that could be used by trucks at three unattended stations in Portland. Fortunately Oakhurst Dairy signed on as a customer. "Simultaneously," wrote New England Business, "Shell and Mobil announced plans to launch their own credit business, one very similar to what A.R. Wright had in mind. The proliferation of ATMs in everyday life, the initiation of PIN numbers and itemized billings by banks and major credit card companies gave A.R. Wright the credibility it needed."

With national aspirations, the young company was no longer a good fit for the local home-heating fuel company and required more capital than its parent could provide. Hence in 1985 it was reincorporated in Delaware and Richardson cast about for venture capital, securing some locally and in Boston, and far away as Texas. Now under the control of the venture capitalists, Wright sought out relationships with the major oil companies, hoping to take advantage of their automation programs to make the WEX card accessible at their electronic networks. Moreover, according to Forbes, "Wright didn't have the money to send salesmen across the country begging gas station owners to accept a card they had never heard of. Instead, it won over thousands of stations at a clip by selling to large oil companies like Getty, Texaco and Exxon. The oil companies would then tell their stations to take the card as a way to win fleet business."

GETTY ON BOARD: 1987

A major turning point occurred in 1987 when Wright signed its first agreement with a major oil company, Getty Petroleum, which was interested in having a fleet card but not the burden of carrying the credit. In addition, it wanted to deal with just one company and one bank. Wright made the decision to carry the credit and sought out a financial backer. It found one in GE Capital, which was willing to sign on if Getty was. Getty was equally cautious and it took some time before both parties signed on to the deal. "Then relationships with banks evolved," according to National Petroleum News, which added, "Wright Express began working with Getty's financial network, Philadelphia National Bank. Wright Express got PNB to accept their card through the PNB network, and the mechanics were in place."

With Getty and GE Capital on board, Wright began adding other oil companies, including 11 majors and semi-major oil companies, over the next seven years. For many the Wright offered a private label card, one under the oil company's name as a way to build brand loyalty with fleet customers. The addition of so many oil company customers also served to, in effect, multiply Wright's sales force. It was not surprising, therefore, that the company signed up fleet customers at a rapid clip, and annual revenues doubled for each of the next several years. Furthermore, as had been the case with Getty, Wright was able to get its cards accepted by the networks used by their other oil company clients. In this way, Wright avoided the expense of creating its own proprietary network. "Fina was on the Buypass systems, so Wright Express got on the system," reported National Petroleum News. "Crown and Total were on the JCPenney network, so they got on there. Clark was on Sears and on and on." In 1989 Wright also began to sign up tire, service, and quick-lube companies, which began accepting the WEX card, thus making Wright into a full-service automotive services provider.

By the end of 1990, 50,000 sites accepted the WEX card. Two years later Wright recorded its first profitable year. Not only did the information collected at the post of sale help fleet customers to uncover fraud and better manage their costs, it provided Wright with information that helped its CEO, John R. Birk, who joined the company in August 1992, to anticipate changes in the economy and make preparations. According to a 1995 Inc. article: "Ninety to 120 days before the economy comes out of a recession, the number of monthly transactions and the average size of those transactions start to climb. In 1993 Birk's model told him that the economy was in danger of overheating. Consequently, he figured the United States was due for some inflation and a rise in interest rates." Even though Wright was growing quickly and hiring more people, Birk implemented an aggressive cost-control program and restructured his debt before interest rates rose.

COMPANY PERSPECTIVES

In the simplest terms, Wright Express, along with its wholly owned subsidiary Wright Express Financial Services Corporation, is a leading provider of fleet and corporate charge cards. Flexible, pre-set cardholder limits and robust data capture from each card transaction provide users with valuable information to better manage corporate expenses. And the powerful backend processing of those transactions helps streamline your entire process of tracking and paying for employee business expenses, be they for fuel, supply purchases or travel and entertainment.

To help him pursue the next phase of Wright's growth, Birk also added seasoned executives to the management team in early 1994. Taking over as senior vice-president of product management was Paul J. Novak, formerly with MasterCard International. Coming over from L.L. Bean Inc., where he served as credit manager, was Roland L. Tufts, who now became Wright's vice-president of credit and collections. They joined a company that generated just $11.2 million in revenues in 1993, but Wright clearly held great promise, enough to attract the attention of Cheyenne, Wyoming-based SafeCard Services Inc., a credit card-registration company whose business was to quickly notify credit card issuers when a subscriber's card was lost or stolen. About ten times larger, SafeCard agreed in July 1994 to pay $35.5 million in cash for Wright. SafeCard was headed by Paul G. Kahn, former president of AT&T Universal Card, the telecom's credit card division. After leaving AT&T in 1993 he became SafeCard's CEO and chairman as well as a member of Wright's board of directors. Once he learned more about Wright's business, he became excited about adding it to the SafeCard operation, which would gain product diversification. In turn, Wright would be able to take advantage of SafeCard's platform to expand its geographic reach.

Wright also hoped to tap into SafeCard's cash reserves to further grow the business, but the new ownership soon encountered problems. SafeCard was renamed Ideon Group Inc. and under Kahn ran off the racks. "During his watch," reported South Florida Business Journal, "Ideon started and scrapped two expensive and money-losing businesses, ran up overhead, and spent lavishly on parties, a corporate jet and other items. Kahn hired friends, relatives, several personal assistants and a corporate historian. He also paid millions to consultants, including Martin A. Siegel, the ex-Kidder Peabody investment banker/convicted felon." When Kahn's ventures failed to pan out and the price of Ideon stock plummeted, hundreds of employees were fired to cut costs in 1995. In February 1996, Kahn joined their ranks.

In 1996 Wright reached a milestone when it issued its one-millionth commercial charge card. It also received a new corporate parent that year, when CUC International, Inc. agreed to acquire Ideon in a $375 million deal. Later in the year CUC merged with HFS Incorporated to form Cendent Corporation. This ownership arrangement would last three years. (Before then, Wright would establish, in 1997, a wholly owned banking subsidiary, Wright Express Financial Services Corporation in Utah.) In May 1999 Avis Rent-A-Car agreed to pay $1.8 billion to acquire Cendant's fleet management business, which included Wright as well as the PHH Vehicle Management Services unit. There was no significant impact on Wright, however. It continued to chart its own course with its management team left in place, now headed by CEO Michael E. Dubyak, who had been with Wright for a dozen years before ascending to the top post in 1998. Moreover, Cendant, which held Avis stock, would buy the remaining shares of Avis common stock to gain control of Avis in 2001 and once again become Wright's corporate parent.

KEY DATES

1983:: Company is founded.
1987:: Getty Petroleum is signed as a customer.
1994:: Company is acquired by Safecard Services Inc.
1997:: Wright Express Financial Services Corporation is formed.
2001:: Company becomes a Cendant Corporation subsidiary.
2005:: Wright is spun off as public company.

INDEPENDENCE: 2005

Wright ended the 1990s with more than 500 employees, a significant increase over the 80 that it employed just eight years earlier. Expansion continued in the new century. The company posted revenues of $126.6 million and net income of $24.4 million in 2002. A year later those totals improved to $156.9 million and $34.6 million. Cendant now felt the time was right to spin off Wright in an initial public offering of stock and announced its intention in November 2004. With Credit Suisse First Boston and Merrill Lynch acting as underwriters, the offering was completed in February 2005, netting $1 billion for Cendant. While Wright did not receive any of the proceeds, it at least gained the use of its stock as currency should it opt to make acquisitions. The spin-off agreement also contained several anti-takeover provisions, perhaps a reflection of management's weariness of having constantly changed hands in the 1990s. The election of the board of directors was staggered so that only one-third could be changed each year. As a result, three years would be required to complete a buy out of the company. The provisions also hindered a party in calling a shareholder election, and once an outside shareholder gained a 15 percent stake in the business, investors received additional rights. While it might have become more difficult to remove poor management, the agreement offered no severance package to Dubyak and other senior members of management. In this way, they did not have an incentive to find a buyer for the company in order to cash in their severance packages.

Investors were not especially excited about the Wright offering, however. The company's stock immediately dipped below its initial $18 price. Nevertheless, the company continued to grow its balance sheet, posting revenues of $241.3 million and earnings of $18.7 million in 2005. Wright also introduced a new business card that it hoped would spur further sales growth. In addition to being accepted at more than 180,000 fuel and service locations and providing information to help a fleet operator manage costs, the new card offered a roadside assistance program; a online employment application screening service to help fleets comply with the U.S. Department of Transportation's mandatory screening requirements; and WrightRewards, a rewards programs that allowed fleet operators to accumulate points on every transaction, redeemable for travel, entertainment, and other retail premiums.