Driving Force | Wright Express builds on fuel card business to keep up in the information age

A 2005 Chevy Express van is traveling 68 miles per hour on Interstate 295 in Glen Allen, Va. Just a few hours earlier, at 1:34 p.m. to be exact, it was zipping along the adjacent I-64 at 70 mph. It’s taken 19 trips during the week and spent 16% of its time idling. Back in December of last year, it required repairs because the engine was revving too high.

All of this information is displayed on a screen almost 700 miles away in a conference room at Wright Express in South Portland. Mark Goettel, the company’s market and customer research manager, has tapped into the van’s information through WEXSmart, an Internet GPS-based fleet management program. It’s one of the latest products in Wright Express’ somewhat complex portfolio, but is hardly its mainstay.

Wright Express, a publicly traded payment processer and data manager for commercial and government vehicle fleets, was founded in 1983 with a mission to make it easier for businesses to gas up their vehicles and pay for their fuel. It all started with three Portland-area gas stations that hooked the pumps to ATMs. But as the company enters its 26th year, its focus has shifted to what all those billing transactions yield: information. “We have a lot of data on companies across America,” says Michael Dubyak, president, chairman and CEO of Wright Express. “What we’re really supplying is an information product.”

Core products

Wright Express issues credit cards to businesses that are accepted at 90% of the nation’s gas stations. When an authorized driver swipes one of their cards, the date, time, exact location, type and quantity of gas are recorded. Controls can be implemented that range from prohibiting nonfuel purchases, like candy bars and cigarettes, to allowing oil changes and other maintenance costs. If a parameter is violated — say a Maine plumber is gassing up at 2 a.m. on a Saturday morning in Vegas — a text or email alert can be sent to the boss. All of the information about the transaction is beamed to a Wright Express server, which makes it accessible through a secure online site, WEXOnline. Or, for the more old-fashioned, account holders can receive a paper statement and report. Along with invoicing, the system allows businesses to use the data to determine miles per gallon, fuel cost per mile and other calculations, Dubyak says.

Wright Express also teams up with the nation’s six largest fleet leasing companies, including Enterprise, to co-brand its cards. The third prong of the company’s fleet business is private label cards, which don’t display the Wright Express logo. ExxonMobil, for example, can issue cards that work only at its gas stations. For those customers, “we’re just the back office,” Dubyak says.

The company services 4.7 million vehicles and processed 216 million transactions last year. Its fleet business made up 86% of revenues in the first quarter, which fell 26% to $69.2 million from the same time last year. Net income in the first quarter fell 24%, but the earnings beat Wall Street’s expectations. The company’s stock ranged from $8.21 to $38.38 per share in 2008, according to the annual report.

The company is sensitive to fluctuations in gas prices and the economy. Wright Express benefits from high fuel prices because of its percentage-based payment processing fee, but soaring prices can drive businesses to cut down on gas consumption and reduce their fleets. “Rising gas prices are good for the company to a point, until they hit the point where people stop driving,” says Tom McCrohan, an analyst with Philadelphia-based Janney Montgomery Scott, a financial services firm. Wright Express’ number of fuel transactions processed fell 2% in the first quarter from the same time last year, to 63.3 million, while average expenditure per payment dropped 38% to $4.78, according to the latest earnings report.

The company’s data tracking capabilities also allow it to market itself as a national source for fuel price information. When AAA reports on daily gas prices, the data comes from Wright Express. The company considers itself a bellwether for the industry and the overall economy. In the third quarter of 2007, its customers started cutting back. “It was the existing businesses that slowed down,” Dubyak says. “They usually track the GDP.” The slowdown wasn’t widely recognized then, but the recession was later determined to have officially started that next quarter. “People thought we were crazy,” he says. Last year, overdue accounts rose dramatically, so the company has tightened up terms on its cards, charged higher late fees and made a practice of more stringent follow-up. “One of the things we have to do is control bad debt,” Dubyak says. The company added 600,000 new vehicles to its portfolio last year, nearly half from federal government agencies that signed up for Wright Express cards, according to its annual report. Voluntary attrition was 1.8% for the year, below a target of 3%.

The company’s competitors — such as Georgia’s Fleetcor Technologies and Comdata Corp. of Tennessee — rely on funding through today’s tight capital markets, says McCrohan, who doesn’t officially follow the companies. The fact that Wright Express owns a bank, Wright Express Financial Services in Salt Lake City, is a distinct advantage, he says. What McCrohan finds intriguing is that gas retailers, who accept Wright Express software at their pumps to increase traffic, subsidize the service for fleet operators through the fees the retailers pay. “What’s really interesting about their customer is, who is their customer?” McCrohan says.

Branching out

The definition of just who is a Wright Express customer has broadened. With 40.7 million fleet vehicles operating in the United States, only two-thirds of which use fuel cards, there’s plenty of room for growth, Dubyak says. A surprising 50% of that group still uses cash, according to the company’s data.

In 2000, Wright Express launched a MasterCard program that now makes up about 7% of total revenues. It’s not limited to fuel services or even to fleet operators. Targeted to small and mid-sized businesses overlooked by mega-providers like Wells Fargo and American Express, the card offers the same data and controls but for business-to-business transactions. Purchase volume in that segment climbed 23% in the first quarter to $649 million from the same time last year, according to the company’s latest earnings report. The company’s also starting a new portfolio with Citi that’s expected to bring in 2 million more transactions this year.

The $9 million acquisition last year of New Zealand-based Financial Automation Limited, a provider of fuel card processing software to major oil companies, marked the company’s first international foray. Wright Express recently signed a contract to host the product in Vienna, Austria, with hopes to become oil companies’ lead processor internationally, Dubyak says. The acquisition was an early step, but competitor Fleetcor has so far proven more aggressive in expanding beyond the U.S., analyst McCrohan says.

Also last year, Wright Express acquired Pacific Pride Services Inc. for $32 million. The Oregon fuel card software franchise, with over 2,000 locations in the United States and Canada, allows the company to get closer to smaller fleets through local distributors, who control 70% of all gas stations, Dubyak says. In Maine, with the exception of Irving, distributors like C.N. Brown and Dead River Co. own all of the state’s gas stations, he says. In 2007, Wright Express bought Louisville, Ky.-based Telapoint for $40 million, which provides browser-based software that monitors gas station inventories. Food retailer Albertsons, which operates Shaw’s supermarkets, and transportation company Penske use the software to track their supplies nationwide, Dubyak says. Geared toward merchants, the acquisition marked a slight departure from Wright Express’ traditional fleet service focus, he says. The company’s latest offering, announced in April, is a partnership with Pricelock, an electronic marketplace that allows businesses to hedge on fuel prices. It’s similar to the heating oil contracts many Mainers sign up for, and allows businesses to buy fuel at a fixed daily price for a set volume. Wright Express thought its customers might like it — it uses the strategy itself.

The company uses fuel price derivatives, an investment tool designed to hedge against the market’s volatility. The tactic was instituted when the company went public in 2005, after former parent Cendant Corp. sold off 40 million shares of the company. In an unusual arrangement, the proceeds went back to Cendant instead of raising money for the initial public offering, Dubyak says. He’s seated in his office across a photo of him and his executive team ringing the opening bell at the New York Stock Exchange on the February morning of the IPO. Cendant’s move left Wright Express with a lot of debt, and banks wanted some security against the ups and downs of fuel prices, Dubyak says. As it turned out, investors liked it too. “They appreciate not having volatility,” McCrohan says. How much to hedge is always a tough call, but investors who want exposure to that kind of risk can buy commodities, he says. Wright Express hedges 80% of its earnings exposure, and realized a $7.1 million gain on the instruments in the first quarter. If the company’s objective was speculative, it could cash in on its hedged bets, which extend to mid-2010.

Watchful eye

Back in the Wright Express conference room, Mark Goettel brings up a “breadcrumb trail” of the Chevy van, showing its exact location in 2-minute increments. Most business owners and fleet managers aren’t monitoring their vehicles quite that closely though, he says. New customers typically play with all the features at first, but then set up alerts and reports “so they can manage by exception,” he says. A manager could receive an email at the end of every week detailing drivers who drove over 75 mph. If a driver pushes 90 mph, the manager could receive notification right away. The system also ties into vehicles’ diagnostics, and can send an alert if the check engine light comes on or the temperature gauge rises too high. The same goes for regularly scheduled maintenance, like oil changes.

Wright Express has sold 8,000 units of the WEXSmart program, which comes with dashboard-mounted computers, to roughly 500 customers since July 2007. The device costs $480 plus a monthly service fee. The efficiencies the program uncovers can allow a business, like a furnace repairer, to add one job a week with the extra time and cost savings in fuel and maintenance, Goettel says. One customer installed the system in two branches and saw fuel consumption drop 13%, he says. Businesses also can save 10% to 20% on insurance costs because the system acts as a stolen vehicle recovery system, he says. A particularly clever use of the program includes installation of a sensor that detects when the engine is on but only to power auxiliary equipment, like a cherry picker or wood chipper. Businesses can use the program to prove that the vehicle wasn’t on the road, and recover some of the excise tax they pay on fuel, Goettel says.

Installation of the WEXSmart program also makes drivers think twice before knocking off early or doing a side job with a company vehicle, he says. A fleet manager can see what time a driver turned on his vehicle and use it as a payroll tool. “My driver told me he was starting at 8 o’clock but he was really watching Good Morning America,” as Goettel put it. Drivers don’t always react well to that “big brother” oversight. Ian Moriarty, controller at Dean & Allyn Inc. in Gray, which installs and inspects fire equipment, says his drivers came around after realizing the roadside assistance that comes with the program would help when their vehicles break down. “They were a little reluctant at first but the guys have come around to it,” he says. He did have to “have a talk” with employees about speed, he added. The business, which also uses Wright Express fuel cards, installed the program in 12 of its 20 vehicles in December of last year, but has yet to analyze whether it’s saved the company money, Moriarty says. They use it mostly to verify to customers that employees showed up and to check on diagnostic problems before sending vehicles to the shop. Moriarty checks the program once a week, unless there’s a problem, he says. “It was really easy to install these units and they’ve worked since the get-go.”

In his office, Dubyak points to a painting on the wall of a child playing in an overturned coal bucket. It reads “A.R. Wright,” the name of the heating oil company from which Wright Express eventually grew. Back then, fuel companies were still imprinting cards manually. When Dubyak joined the company in 1986, oil companies were just beginning to accept electronic payments. “We were pioneers,” he says.

Jackie Farwell, Mainebiz staff reporter, can be reached at jfarwell@mainebiz.biz.

Wright Express

97 Darling Ave., South Portland

Founded: 1983

President, chairman and CEO: Michael Dubyak

Services: Payment processing/data management for commercial and government vehicle fleets

2008 revenues: $393.6 million

Employees: 700; 685 in Maine

NYSE symbol: WXS

Contact: 773-8171 www.wrightexpress.com

A history of Wright Express

1983 Wright Express founded

1994-2004 Company undergoes five ownership changes

2005 Company goes public

2007 Telapoint acquired

Feb. 2008 Pacific Pride Services acquired

July 2008 Financial Automation Limited acquired