BARRY SIEGEL - FIRST PRIORITY GROUP - (FPGP)
CEO Interview - published 09/25/00

DOCUMENT # KAW608

BARRY SIEGEL, Chairman of the Board and CEO of First Priority Group, Inc., has been with the company since its inception and will continue to manage the general direction of the company while seeking new synergistic opportunities, handle the negotiations with the financial community and possible mergers, partnerships and/or acquisitions. Mr. Siegel founded the parent company, First Priority Group, Inc., in 1985. In 1986, the parent went public through a reverse blind pool acquisition and raised $1.2 million. In 1995, the parent became profitable and was named one of America’s finest service companies by Inc. Magazine and MCI in a national competition. In a recent study conducted by Ernst & Young, it was determined that the parent’s services far exceeded Ernst & Young’s “Gold” standard of performance, which is further evidence of the parent’s outstanding achievements. In 1997 Mr. Siegel raised an additional $6 million for the parent company. In 1998, sales reached $14.5 million. Mr. Siegel gained his auto industry expertise as an executive in the franchised auto repair center business. As a Certified Sales Trainer, Mr. Siegel was Director of Franchise Sales for Gibraltar Transmissions from 1980 to 1983. His duties encompassed everything from site location to finding and evaluating franchise prospects and assessing their ability to manage a franchise. As Franchise Director, he opened a new franchise every few weeks, handled all resales and financial negotiations. Prior to becoming Franchise Director, Mr. Siegel was the company’s national troubleshooter, responsible for optimizing the results for problematic stores.

Sector: Business Services

TWST: Would you provide an overview of First Priority Group, including its history, developments, markets, and your view of the firm’s future potential?

Mr. Siegel: First Priority Group has been in business approximately 17 years. Our original thrust in the marketplace was to create a niche-wide management opportunity for the largest vehicle fleets in the country to be able to manage their collision repair process and some of the ancillary services that go along with that. For example, most of the nation’s largest companies, like IBM, Coca-Cola, Hershey, Walt Disney, Time Warner, AT&T and Lucent have two things in common: they have very large vehicle fleets that they use for sales or service, and they are all self-insured for collision damage repair. If any of their drivers are involved in an accident anywhere in the United States, they need to get that vehicle repaired in a very timely, efficient, cost-controlled manner. They need to have all of the financial arrangements made to have their driver and the vehicle taken care of. These services would include arranging for a rental car, subrogating the claim when appropriate and if necessary, disposing of the vehicle in a salvage bidding process. Subrogation is the process by which we would seek to recover from the responsible party all costs associated with repairing our client’s vehicle. So what we have done is create management programs along with a nationwide network of the best, most highly qualified body shops across the country. We’ve created contracts with these facilities to perform services for us under very strict guidelines. So the simple process would be: a driver gets into an accident and calls our 800 number; that call comes to one of our representatives, who takes that driver through the entire process from beginning to end. With that, we would guarantee the repairs and provide other types of programs that would enhance a company’s ability to service its fleet and get its vehicles back in service in a very timely manner. We offer two other services. One is the nation’s finest auto club program, whereby we offer a complete answer to maintaining and repairing a vehicle anywhere in the United States. That would include anything from an oil change to tires, brakes and shocks, right through an engine replacement, collision repair and any other major repair. What we do is package specific discounts and services under the name Driver’s Shield®, and we wholesale it to very large banking institutions, financial groups, credit card companies and affinity groups. We are working with such world-class companies as Providian Bank, Priceline.com, Spiegel Catalogue, Aon, Protective Life and many others. They can private label the program, or license the Driver’s Shield® name at no extra charge, and then sell the program to their customers through various offerings. At the present time we have over 600,000 consumers on our auto club program. The other service that we offer, which I think is one of the most exciting things that we’ve ever introduced, is through a partnership we’ve formed with Electronic Data Systems (EDS) and a company called United Financial Adjusters, which is in the process of changing its name to Netrex and which is partly owned by Progressive Insurance, the fifth largest insurer in the country. We’ve developed a Web-based process that empowers insurance companies without interfering with their legacy systems, and it enables them to take advantage of all of the things we’ve been providing the fleet and consumer audience for almost two decades — things such as timely, cost-effective collision repairs and tremendous consumer benefits to enhance their customer relationships and retention. We help reduce costs, headaches and administration through a smooth, systematic, very fast answer to handling everything. The service eliminates virtually all check-writing and the dozen-plus phone calls usually associated with a collision claim. That’s a huge savings and benefit to any insurer. It’s already up and running, and we have several clients concluding pilot programs and moving into full roll-out. The program is proving very successful and we’re expanding the services every day. We’ve recently added such features as digital imaging and completely automated estimating services. We will have our wireless features implemented within the next few weeks, enabling complete communication from any wireless device that is Web-compatible. That, essentially, describes the three businesses that we’re in and the history of the company.

TWST: How do you get compensated? Is it on a fee basis? How does that work?

Mr. Siegel: Several ways. It depends on what type of service we’re providing and the client’s specific needs. If it’s a fleet organization, which usually involves a tremendous amount of administrative work, we charge them fees to handle the administrative process. We also receive fees from our body shops for providing them with work that they would not have if it weren’t for us. We act as their sales rep, garnering new business for them.

TWST: Could you give us an idea of the size and growth potential of your markets?

Mr. Siegel: In the fleet industry, there are literally thousands of companies that have vehicle fleets that range anywhere from just a few vehicles all the way up to tens of thousands — some of which are our clients, we’re happy to report. On the insurance side of the business, last year there were about 17 million accidents in the United States, accounting for approximately $28 billion in collision repairs. That represents a very large opportunity for us. In the auto club marketplace, anyone who owns and maintains a vehicle is a potential customer. The American marketplace has several hundred million vehicles on the road and spends in the hundreds of billions on maintenance and repairs. As far as we can tell, there are only a handful of players in the auto club market, with at least one that has captured several million customers. We are being told that our program of services is better than anything out there. Our sales for this program have tripled over the past 18 months, going from approximately 200,000 members to over 600,000. We are throttling up quickly and believe that with the help of our world-class partners, we will capture more than one million members over the next 24 months and dramatically boost revenues and profits for this program. We have been approached by auto service providers in other countries who would like to take advantage of the programs and services we have developed. We are preparing to license and/or help these providers with the management process in a number of different ways, thereby creating additional revenue opportunities for us. We’re now offering first notice of claim. Instead of the insurance company taking the initial report of claim themselves, we can handle that process for them. We can also handle the reporting for liability, bodily injury and third party information. We are now expanding our offerings to insurance companies and giving them the opportunity to outsource many of the services they have traditionally performed in-house. The insurance industry spends over $13 billion on administrative functions every year. The opportunity for capturing the outsourcing of some of those services is enormous. Now that banks and other financial institutions have been given the green light to sell insurance, they’re going to have to set up internal operations or outsource the administrative functions to someone else. We can do it cheaper and better than they can, while increasing customer satisfaction and retention. So you can see our opportunity is vast. Last year our sales were just under $13 million, the bulk of which was in our fleet business. With our new services up and running, we are approaching a much larger audience. We predict that in 2001 our sales will exceed $65 million, and the following year our sales could exceed $200 million. Needless to say, with EDS as a revenue-sharing partner, there is a significant incentive for them to see our revenues skyrocket. They have put up tremendous resources to help us build what we have today. It would be fair to assume that a company that size, the number two computer services company in the world, wouldn’t get involved with a company our size to do anything unless they believed it would have a significant ROI.

TWST: How’s the competitive situation? What are First Priority Group’s competitive advantages? What sets the company apart?

Mr. Siegel: We believe we are the only company that has an Internet strategy that’s up and running and doing all of the things insurance companies need right now to advance to the Web-based service environment as it relates to collision repair management. There are other companies that are being funded right now to try to develop services and systems to compete with us, but to date, the insurance community has told us that we are the only ones that actually have a system that works. The reviews have been very good. The good news about the competition is that with several companies entering the marketplace and trying to compete with us, it has again validated our business plan. There are some other features and things that I didn’t mention, such as Web-based digital imaging, where our body shops take digital photos of the vehicles before, during and after the repair process, which are posted and stored on the Web. Anyone involved in the repair or claims process can follow and track the entire claim, 24 hours a day, seven days a week. The estimate and photos are available to the insurance company’s personnel at the click of a mouse. And the information can be sent to anyone with Web access. These are very unique capabilities. We’ve already begun to build in wireless access. So if you have a Palm computer system or a wireless telephone that’s Web-capable and so on, you would also be able to communicate with us through those means. As far as we know, no one in our industry has the years of knowledge, background, capabilities and experience or has developed their system to do what ours does. During our 17 years of operation we have successfully processed hundreds of thousands of claims. The combination of driversshield.com, EDS and United Financial truly makes us the most powerful, competent and logical choice for any insurance company looking to enter the Web-based marketplace for collision claims management.

TWST: What significant changes do you expect in your markets in the future?

Mr. Siegel: No doubt you’ve recently seen this enormous preponderance of companies now marketing auto insurance on TV, radio and other media. You’ve never seen so much advertising done by insurance companies before! The problem is, the population isn’t growing fast enough for all of them to acquire enough customers to obtain an appropriate growth rate. Insurance companies realize they can only offer two things — better price and better service than the next guy. Right now, they’re all trying to take each other’s customers. They’re searching for an immediate solution to gain better control of costs and increase customer satisfaction and retention, the very things that you would expect a company to be focused on when they know there’s fierce competition. In the past, insurance companies did so well at managing their assets and were making so much money on the premiums they were charging, they were actually willing to lose money selling auto insurance. For every $1 they would take in, they would spend a $1.10. Everything’s changed now! Insurance companies are now focused on actually making money on auto premiums. It takes over seven years to amortize the acquisition of a new insurance customer. If you lose that customer before that time, you’ve got a serious loss. If you keep that same customer for life, he or she can be worth over $100,000 in premiums. We believe that we have the answer — and the feedback we’re getting from the insurance community is telling us that we do. We can have our system up and operating in an insurance company in a matter of hours and the benefits are immediate, profound and measurable.

TWST: Where do you see the single biggest opportunity for First Priority down the road?

Mr. Siegel: Within the insurance environment and working closely with insurance companies. That represents a multibillion-dollar marketplace for us, and we’ve just begun to tap into it and prove that our services and systems work. There’s a huge opportunity here. Just in this industry alone, we believe that we can grow to well over $1 billion in sales. I will also say that the systems that we’re developing are applicable to other areas, for example, the home repair marketplace. When an insured calls in and says, “I’ve had a severe problem with my home, lightning damaged some things in my house” — or a flood, or a burst pipe, a hurricane, whatever — that person, of course, expects the insurance company to pay the claim. But we could also create a Web-based systematic approach, providing access to all the repairers who would be the most highly approved and regarded in that area. It would obtain discounts based on volumes, giving the insurance companies a better opportunity to service their customers and provide greater cost savings. So those systems we created for the collision repair marketplace would be completely applicable to that marketplace as well. There’s a lot of opportunity for this type of systematic approach within the medical community, too. You could log on to find a doctor and track the progress of a medical claim and keep a history of the claim on the Web. We’ve already been contacted by two medical companies that heard about our system and they tell us it’s completely applicable to what they’re trying to do, enabling someone to log on and find a doctor or a specialist and make the appointment online. By the way, that’s what our system does: you literally make the appointment online, and the whole process is taken care of with just a few clicks of the mouse.

TWST: How about acquisitions? Will they play a part in your future?

Mr. Siegel: Absolutely! We’re looking at several acquisitions and mergers right now, companies that have very synergistic services in the marketplace. In fact, several competitors have already contacted us and said, “You know, maybe one and one equals a whole lot more than two.” We are looking at those opportunities right now, and we will be making some decisions very soon.

TWST: What are the risks or general concerns regarding the company? Is there anything that keeps you awake at night about First Priority?

Mr. Siegel: Everything keeps me awake! I mean, what we’re doing is quite revolutionary, and it requires an enormous change in methodology for the industry to embrace something new — and we all know that insurance companies by nature are very conservative and slow to move in new arenas. But, the word on the street, the word out there, is that insurance companies are in fact looking to embrace new technologies and systems that will give them an advantage. And we are getting phone calls — we’re not even doing much in the way of advertising yet, but we have insurance companies calling us every day saying, “We saw your Web-site,” “We heard such and such,” “We saw an interview,” something like that. We’ve been featured in several news articles reporting that what we are doing is very revolutionary. What I think makes this so unique is that our Web-browser technology does not require any change in legacy systems for an insurance company, and that’s a very big issue because any time you approach an insurance company and suggest that they make a change to their computer system, it’s over, right then and there! You need to get their CTO, and/or CIO involved and the rest of their team. Our system does not require any legacy changes whatsoever. It’s a very simple Web-browsing system that can be installed in a matter of minutes; the entire claims staff can be trained in a half day and they’re off and running.

TWST: How’s your management team doing? Are they equipped to accomplish your ambitious goals?

Mr. Siegel: One of the first things that I did was seek out an individual to lead the charge, and that individual is Gerry Zutler. He is the ex-CEO of Lockheed Martin Canada and he’s also the ex-CEO of Unisys Canada. This is a gentleman who has built very large technological organizations with worldwide reach and has tremendous expertise in developing very large companies, which is what he has done. Some of the other folks on my team are: Frank Mena, who was a Founder and the Chief Technology Officer of Cheyenne Software, which was successfully sold to Computer Associates and is still today a very successful organization; B.J. Spiegel, President of our Affinity Auto Club Group, who was one of the top executives at American Bankers Insurance, which is now called Assurant and is owned by Fortis, and they were the largest insurance affinity marketers in the world. This is a fellow who ran a very large division at American Bankers. Our Chief Technology Officer was one of the chief technologists at Reuters, and his name is Randy Dunaieff. And through the relationships that we’ve developed, and the partnership with EDS, we now have the power of 140,000 employees worldwide with the largest computer services company in the insurance industry. United Financial Adjusters, which grew out of the Progressive insurance group with many of their senior executives, is now our exclusive partner in the marketing of our services to the insurance industry. They own Frontier Adjusters, one of the nation’s largest and best-known adjusting firms. So all of these folks are participating in building the success of this organization, and we’re doing it with a very methodical approach, one that we are carefully monitoring and measuring as we move forward so we don’t make any big mistakes.

TWST: As Chairman and CEO, where are you spending your time at the company? What are you focusing on now?

Mr. Siegel: Naturally, since I’m the Founder of the company, I’m interested and involved in virtually all aspects of our company. I am continuously examining new opportunities, acquisitions and mergers, raising money and very recently have begun to search for ways to get the investment community to take a look at us. We’ve had some issues with our stock price, as many other small cap companies. We’ve also had to deal with the overhang of stock from some large shareholders that were intimately involved with the company many years ago. We’ve already remedied a significant amount of overhang recently and are hopeful we will succeed in remedying the rest very shortly. I’m working to create a better market for our stock as well. Several institutional investors have become interested in owning some of our shares, and I would very much like to increase the number of investors with a long-term outlook.

TWST: What should long-term investors look at in your financial reports?

Mr. Siegel: In addition to the fact that we have this large opportunity which I’ve described, it’s important to note that this company is debt-free, we have a very good cash position, we have positive cash flow and we turned profitable in January of this year, so our losses over the last few years seem to be behind us. So here we are as a developing Internet company that’s got a positive cash flow, is profitable, and has cash in the bank. I think that’s unusual in today’s marketplace as it relates to developing Internet companies, and very positive. We’ve spent 17 years developing systems and services that are now applicable to a much larger audience. Sales for 1999 were just under $13 million but until recently, we were only marketing fleet and auto-club businesses. Now we are marketing services to a significantly larger audience where we’ve already received acceptance. Our system works. Our Web-based services just went live on June 1, so we’re relatively new in terms of having our systems up and running, and the reception has been phenomenal. So we expect to accelerate our growth. We also expect to be announcing additional insurance company sign-ons, household names with large books of premium business. We’re already doing business with one of the 50 largest insurers in the country, and that program is due to go nationwide in November. We expect our sales to rise dramatically to around $200 million over the next 24 months.

TWST: How do you feel about your current stock price?

Mr. Siegel: I feel that the company is extremely undervalued. Our stock price, which is right now around $2, was as high as around $7 before we suffered a severe drop in price as a result of the March-April NASDAQ fall. In addition, we had some large shareholders who, at the time the company was losing about $200,000 per month, decided that perhaps they would follow the market in selling their shares and trying to preserve their cash. That didn’t help our stock price either. I guess their confidence level in what we were developing may not have been there at a time when we really needed the support. But since that time, we proved that we could turn the company around and develop an Internet strategy that would work. We turned profitable as well. So those folks who sold their shares, I think, are going to realize that they may have made a big mistake in bailing out too soon, and the folks who haven’t sold perhaps will sell their shares at much higher levels or wait for a while to see how things develop later on. We have some challenges with regard to our stock price. We believe we’re undiscovered, undervalued, and we had some issues that we had to take care of, and we are doing that. The fact that we’ve got a company that’s profitable, a system that works and market acceptance, I think, speaks volumes to what people can expect. In terms of our near-term and long-term growth, we’re doing very well. We do have some institutional people who have recently entered the market and have accumulated some shares of our stock. One is Spear Leeds & Kellogg; I noticed that Goldman, Sachs and PaineWebber have both accumulated a few shares here, too. It looks as if some institutional investors are starting to take a look at what we’re doing here.

TWST: What additional two or three reasons would you give long-term investors to buy stock in First Priority Group today?

Mr. Siegel: When you have a stock price that’s as low as this, with a company that’s proven that it can deliver, I think this is an amazing opportunity to get involved right now and potentially experience enormous growth in value. After all, when you have a company with solid financials and a huge opportunity in a $30 billion marketplace, with an accepted service, I don’t see any way you can lose on an investment like that, when you’re starting with a $2 stock price. Going from $2 to $4 would seem very realistic in the short term, and by any measure doubling your money is tough to do in any market. When you look at our long-standing reputation in business and what we’ve recently developed with our new world-class partners, I think it would be reasonable to assume that we’re headed for something really good. I’m betting on it.

TWST: Thank you. (RF)

BARRY SIEGEL
 Chairman & CEO
 First Priority Group, Inc.
 51 East Bethpage Road
 Plainview, NY 11803
 (516) 694-1010
 (516) 694-1051 - FAX
 www.firstprioritygroup.com

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