WEX continues to eye expansion: A decade after IPO, technology is integral to global growth
Photo / Tim Greenway
Melissa Smith, WEX president and CEO, with Stephen Crowley, senior vice president of shared services and CIO, at the company's South Portland office.
WEX President and CEO Melissa Smith has a well-honed elevator pitch about the company's prospects for continuing the 10% to 15% annual growth rate it's achieved since becoming publicly traded in 2005. Her strategic objectives can be summed up in just seven words: Accelerate growth, make targeted investments, drive scale.
Next, she'll tell you that her confidence in achieving those objectives is based on the convergence of several trends that have helped WEX evolve from a simple fleet card business into a global company that's added travel, corporate and health payments to its business portfolio. The latter three “verticals,” as she prefers to call them, now comprise more than 30% of the company's total revenues: $253 million in 2014, which represents a 47% compounded annual growth rate since 2009, when the three verticals generated $37 million in revenue. The trends driving that growth have been the globalization of WEX's travel, corporate and fleet businesses, new technology driving consumer demand (such as mobile apps) and evolving payment types, such as electronic payments and virtual credit cards.
“You think of life in terms of trajectory points,” Smith says of the critical milestone of the company's successful IPO in 2005, a five-month effort she led as CFO of what was then called Wright Express Corp. “Going public was clearly one of those pivotal points. It gave us a lot more freedom to allocate capital and acquire businesses. For us, it gave us the ability to have independence and created more surety around the business itself [since] we'd gone through several ownership changes prior to the IPO. It opened up our options as a company and has led to diversification.”
Since 2005, WEX's trajectory has been a steep and steady rise in every way. Total revenues have grown from $241 million in 2005 to $817.6 million in 2014. Adjusted net income for the same period went from $49 million to $202.2 million. The number of employees has jumped from 650 to 2,000, with almost two-thirds now working out of WEX offices located in nine countries (soon to be 10, with the opening of an office in Singapore this year). All told, WEX does business in 200 countries around the world.
Major acquisitions
Smith says her optimism about being able to continue the company's double-digit yearly revenue and net income trajectories is based, in part, on two strategic purchases completed in 2014: the $532.5 million cash purchase of Evolution1, a cloud-based technology and health care payment services company based in Fargo, N.D., and the purchase of ExxonMobil's European commercial fuel card program for an undisclosed sum that closed late last year.
“It's a huge pipeline,” Smith says regarding the purchase of ExxonMobil's ESSO Card program through a majority owned joint venture, WEX Europe Services Ltd. “The European market has great potential for us, and the ExxonMobil brand is very well respected. It puts us in a very strong position in that marketplace.”
The purchase gives WEX a customer base in nine European countries, with physical offices in five countries. Noting there are more than 56 million commercial vehicles in the European market, Smith sees great potential in expanding the ESSO Card's share by taking advantage of WEX's well-established fleet card expertise.
As the leading fleet card provider in the United States, WEX has a 16% market share of 41 million commercial vehicles. By comparison, she says, Exxon's ESSO Card only has a 2% share of its marketplace — which leaves plenty of room for expansion. To get there, Smith says WEX plans to spend this year transferring ESSO's portfolio onto the WEX platform, working with vendors to identify opportunities for improvement and working on creating back office efficiencies. She expects that “migration” to be completed by 2016.
A key player in that transition is Stephen Crowley, WEX's senior vice president of shared services and chief information officer. Hired in August 2013, Crowley is responsible for WEX's global information technology, program management office and client operations. He brings to that assignment more than 25 years of experience in those areas, including senior leadership positions at Bank of America, NCR Corp. and General Electric.
“Think of WEX in terms of competencies,” Crowley says. “What we do is get rid of complexity, we get rid of paper and we give our customers access to more information quickly. Those competencies are very real and very adaptable … Customers are our partners: They want to do what they do really well. They help us by telling us what they want our technology to do for them and then it's our job to accomplish that.”
Crowley says the technology platform that WEX brings to its new fleet market in Europe delivers three basic solutions to commercial customers: security in the form of driver IDs and real-time updates; purchase controls that can be customized and are able to flag unusual items; and reporting tools that capture essential information, such as the vehicle ID or odometer reading, which lowers the risk of fraud.
He's confident the company's fleet-card technology, coupled with its focus on 24/7 customer service, will expand WEX's share of the European market, as well as the Asia Pacific market of 30 million commercial vehicles, which WEX now serves through a Shell prepaid product that has gained a 1% market share. The company is opening an office in Singapore this year to facilitate the expansion of its business in Asia.
Smith says the Evolution1 acquisition, which closed last July, opens up the huge and complex health care payments market for WEX, which had been slowly expanding its footprint in that business sector. The purchase delivers, in one fell swoop, three elements that immediately strengthen WEX's health care vertical: A large and growing market, industry-leading innovation and an innovative partner network.
“We see health care as an important part of the future growth of our company,” she says. “There's a huge amount of upside to that investment.”
First and foremost, she says, is the fact that Evolution1 already has a 7% share of what is now a $1 billion market in the growing sector of health savings, flexible spending and health reimbursement accounts. Named one of the health care industry's 40 fastest-growing companies by Modern Healthcare, Evolution1 processed more than 80 million claims in 2014, and serves more than 100,000 employer groups and 11 million consumers in the United States and Canada.
Evolution1 also fits the WEX model of providing unique solutions in complicated markets — in its case, it has developed a cloud-based technology that provides an easier and faster system for consumers, employers and health care administrators to manage health savings and medical reimbursement accounts. Importantly, that technology has been adapted to allow consumers to view, add or pay their expenses on mobile devices.
“The opportunity for us to learn in that environment is huge,” says Crowley, noting that WEX's global expansion and acquisitions of innovative companies like Evolution1 is creating opportunities for “cross-pollinating solutions from one location to another.”
Smith says WEX's purchase of Evolution1 enables both companies to greatly expand their partner networks, given the underlying dynamics of a health care marketplace in which an increasing number of employers are shifting to high-deductible plans in which employees have a greater responsibility of managing their accounts. It also expands WEX's traditional business-to-business focus into the much larger business-to-business-to-consumer arena.
Like WEX's longstanding business relationships with major fuel companies and fleet customers, she adds, Evolution1's nearly 500 partnerships with third-party administrators, health plans, insurers and financial institutions create a very predictable revenue stream so long as they remain continuing customers. The key to that, she says, is continuing to deliver solutions unique to those partners' needs and then backing that up with strong customer service.
Travel payments also growing
WEX's travel payments vertical, like its fleet card business, now has a global footprint. Since 2000, the company's pioneering single-use payment technology, commonly referred to as a “virtual credit card,” has been embraced by online travel agencies as an efficient solution to the inherent complexities of millions of consumers making their own travel reservations. It's now used at more than 110,000 hotels in more than 200 countries by the likes of Priceline and Expedia. Because the virtual card is a one-time-use secure account number that's created as soon as the reservation is made, it gives all parties greater protection against fraud. It also streamlines payments and reconciliations when travel plans are changed.
“We help companies remove friction from the transaction,” says Crowley. “We also listen to the voice of their customers. We have seasoned teams on the ground that know and live and breathe those customers' needs. That makes the technology side of life much easier. Our goal is always to deliver a payment solution that's truly unique to the customer.”
Security is a top priority, he adds, for all of WEX's payment services. “It's dangerous out there,” Crowley says. “Our customers don't think about that as much as we do. They believe they will be taken care of, so that means we have to be well ahead of the bad guys. We need to be in front of our customers in terms of anticipating what their needs are before they're even aware of them.”
Smith agrees, noting that the company has several “innovation centers” that are expressly set up to develop new technology for improving its services across each of its business verticals. Those centers also are identifying technologies already in place in one geographic region — such as identity chips embedded within credit cards, commonplace in Europe — that could be beneficial elsewhere.
“Technology is the enabler for us,” she says. “But it's also about our relationship with our customers and our employees, the people who every day do what they do to make it all happen.”
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