Intersections Inc. Reports Second Quarter 2007 Earnings

Intersections Inc. (NASDAQ:INTX) today announced financial results for the quarter ended June 30, 2007. Revenue for the second quarter of 2007 was $65.1 million, compared to $58.2 million for the quarter ended March 31, 2007 and $45.4 million for the quarter ended June 30, 2006, an increase of 11.9 percent and 43.5 percent, respectively. Net income for the quarter ended June 30, 2007 was $1.3 million, compared to $484 thousand for the quarter ended March 31, 2007. Net income decreased 51.4 percent from $2.7 million for the quarter ended June 30, 2006 to the second quarter of 2007. Diluted earnings per share ("EPS”) were $0.08 for the second quarter of 2007, compared to $0.03 for the first quarter of 2007 and $0.16 for the second quarter of 2006. "The second quarter of 2007 was another record setting quarter in terms of revenue and gross subscriber additions for Intersections,” said Chairman and Chief Executive Officer, Michael Stanfield. "We are very pleased with our overall business growth in the quarter, led by strong top line growth in our Consumer Products and Services segment. We expect this strong top line growth to translate into robust earnings growth in the second half of 2007, as fulfillment costs and some of the front-loaded marketing are now behind us for new subscribers signed the first half of this year. While our Background Screening segment is not fully meeting our expectations, we are pleased with its growth trajectory and continue to believe our investments will generate strong long term value for shareholders.” Our financial results include American Background Information Services, Inc. (ABI) for the period January 1, 2006 through May 30, 2006, and Screening International, LLC (SI), our joint venture that combined ABI, a US based company, with Control Risks Group Holdings Limited’s (CRG) background screening business located in the UK, for the period May 31, 2006 through June 30, 2007. Our financial results also include Intersections Insurance Services Inc. (IISI), formerly known as Chartered Marketing Services, Inc., which we acquired on July 3, 2006. IISI’s results are not separately reported. Second Quarter 2007 Financial Highlights: Total subscribers increased to approximately 4.85 million as of June 30, 2007, compared to approximately 4.63 million subscribers as of December 31, 2006. Subscriber additions of approximately 991 thousand in the second quarter of 2007 were partially offset by subscriber cancels of 828 thousand. Total revenue for the second quarter of 2007 was $65.1 million, including $7.9 million from SI, compared to $58.2 million, including $6.6 million from SI, for the first quarter of 2007 and $45.4 million for the second quarter of 2006, including $6.1 million from SI. Subscription revenue, net of marketing and commissions associated with subscription revenue, increased to $35.1 million for the second quarter of 2007 from $31.9 million for the first quarter of 2007, and from $26.2 million for the second quarter of 2006, an increase of 10.1 percent and 34.1 percent, respectively. Subscription revenue, net of marketing and commissions associated with subscription revenue, is a non-GAAP financial measure that we believe is important to investors and one that we utilize in managing our business as subscription revenue normalizes the effect of changes in the mix of indirect and direct marketing arrangements. Income before taxes and minority interest was $1.7 million for the second quarter of 2007, including a loss before taxes and minority interest of $1.3 million for SI, compared to $456 thousand for the first quarter of 2007 which included a loss before taxes and minority interest of $684 thousand for SI. Income before taxes and minority interest was $4.7 million for the second quarter of 2006, which included income before taxes and monitory interest of $887 thousand for SI. Net income was $1.3 million, or $0.08 per diluted share, for the three months ending June 30, 2007, compared to $2.7 million, or $0.16 per diluted share, for the three months ending June 30, 2006. Cash flow used in operations for the quarter ended June 30, 2007, was approximately $923 thousand, primarily driven by our increased investment in marketing. Six Month Results: Total revenue increased 35.4 percent to $123.3 million for the six months ending June 30, 2007, including $14.5 million from SI, from $91.1 million including $9.8 million from SI, for the comparable period in 2006. Subscription revenue, net of marketing and commissions associated with subscription revenue, increased 20.3 percent to $67.0 million for the six months ending June 30, 2007, from $55.7 million for the comparable period in 2006. Income before taxes and minority interest decreased 78.8 percent to $2.2 million for the six months ending June 30, 2007, including a loss before taxes and minority interest of $2.0 million for SI, compared to $10.4 million for the six months ending June 30, 2006 which included income before taxes and minority interest of $1.1 million for SI. Net income was $1.8 million, or $0.10 per diluted share, for the six months ending June 30, 2007, compared to $6.2 million, or $0.35 per diluted share, for the six months ending June 30, 2006. Cash flow used in operations for the six months ending June 30, 2007 was approximately $2.3 million. The results of Intersections’ quarter ended June 30, 2007 will be discussed in more detail on August 8, 2007 at 5:00 pm EDT via teleconference. A live audio webcast will be available on Intersections’ Web site at www.intersections.com or www.fulldisclosure.com. Participants are encouraged to go to the selected Web site at least 15 minutes in advance to register, download, and install any necessary audio software. This webcast will be archived and available for replay after the teleconference. Additionally, the call will be available for telephonic replay from 7:00 p.m. Wednesday, August 8, through 5:00 p.m. Wednesday, August 15, 2007, at 888.286.8010, or if you are based internationally, at +1-617-801-6888 (Passcode: 78327368). Statements in this press release relating to future plans, results, performance, expectations, achievements and the like are considered "forward-looking statements.” Those forward-looking statements involve known and unknown risks and are subject to change based on various factors and uncertainties that may cause actual results to differ materially from those expressed or implied by those statements, including without limitation the effect of new subscriber additions. Factors and uncertainties that may cause actual results to differ include but are not limited to the risks disclosed in the Company’s filings with the U.S. Securities and Exchange Commission. The Company undertakes no obligation to revise or update any forward-looking statements. About Intersections Inc. Intersections Inc. (NASDAQ:INTX) is a leading provider of branded and fully customized identity management solutions. By integrating its technology solutions with its comprehensive services, Intersections safeguards more than 5 million customers, who are primarily received through marketing partnerships and consumer-direct marketing of the company’s Identity Guard® brand. Intersections also provides consumer-oriented insurance and membership products through marketing partnerships with the major mortgage servicers in the United States as well as other financial institutions through its subsidiary, Intersections Insurance Services Inc. Additionally, through majority-owned Screening International LLC, Intersections provides pre-employment background screening services domestically and internationally in partnership with Control Risks Group Limited of the United Kingdom. Learn more about Intersections Inc. at www.intersections.com/aboutus.asp. INTERSECTIONS INC. CONSOLIDATED STATEMENTS OF INCOME (Unaudited)   Three Months Ended Six Months Ended June 30, June 30, (in thousands, except per share data)     2007     2006     2007     2006     Revenue $ 65,105 $ 45,368 $ 123,305 $ 91,057 Operating expenses: Marketing 7,951 6,696 15,935 11,980 Commissions 12,195 4,475 21,838 10,619 Cost of revenue 24,951 17,705 47,997 34,249 General and administrative 15,057 10,317 29,300 20,746 Depreciation and amortization   3,140     2,316     5,873     4,403     Total operating expenses   63,294     41,509     120,943     81,997     Income from operations 1,811 3,859 2,362 9,060 Interest income 211 601 497 1,136 Interest expense (326 ) (72 ) (663 ) (164 ) Other income/(expense), net   37     320     (6 )   321     Income before income taxes and minority interest 1,733 4,708 2,190 10,353   Income tax expense   (743 )   (1,853 )   (927 )   (4,086 )   Income before minority interest 990 2,855 1,263 6,267   Minority interest in net loss (income) of Screening International, LLC   345     (106 )   556     (106 )   Net income $ 1,335   $ 2,749   $ 1,819   $ 6,161       Net income per share - basic $ 0.08 $ 0.16 $ 0.11 $ 0.37   Net income per share - diluted $ 0.08 $ 0.16 $ 0.10 $ 0.35   Weighted average common shares outstanding - basic 17,142 16,745 17,050 16,724 Weighted average common shares outstanding – diluted 17,558 17,523 17,497 17,375 INTERSECTIONS INC. CONSOLIDATED BALANCE SHEETS (Unaudited)   June 30, December 31,   2007     2006   (in thousands) ASSETS   CURRENT ASSETS: Cash and cash equivalents $ 14,342 $ 15,580 Short-term investments 4,491 10,453 Accounts receivable, net 30,291 22,369 Deferred subscription solicitation costs 17,576 11,786 Prepaid expenses and other current assets 5,407 5,241 Income tax receivable 1,636 2,113 Note receivable   1,450     750   Total current assets 75,193 68,292   PROPERTY AND EQUIPMENT—Net 20,734 21,699 GOODWILL 66,818 66,663 INTANGIBLE ASSETS—Net 10,962 12,388 OTHER ASSETS   15,592     10,425   TOTAL ASSETS $ 189,299   $ 179,467     LIABILITIES AND STOCKHOLDERS' EQUITY   CURRENT LIABILITIES: Note payable – current portion $ 3,333 $ 3,333 Capital leases – current portion 1,125 1,176 Accounts payable 12,866 5,193 Accrued expenses and other current liabilities 17,745 15,690 Accrued payroll and employee benefits 5,171 7,073 Commissions payable 1,745 1,194 Deferred revenue 3,051 5,292 Deferred tax liability – current portion   2,385     2,483   Total current liabilities   47,421     41,434     NOTE PAYABLE - less current portion 10,018 11,667 OBLIGATIONS UNDER CAPITAL LEASES – less current portion 1,052 1,637 OTHER LONG-TERM LIABILITIES 2,781 551 DEFERRED TAX LIABILITY – less current portion 8,127 8,152   MINORITY INTEREST 10,921 11,450   STOCKHOLDERS' EQUITY:   Common stock 181 178 Additional paid-in capital 97,966 95,462 Treasury stock (8,600 ) (8,600 ) Retained earnings 19,310 17,447 Accumulated other comprehensive loss   122     89   Total stockholders' equity   108,979     104,576     TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 189,299   $ 179,467     INTERSECTIONS INC. CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)     Six Months Ended June 30, 2007 2006 (in thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 1,819 $ 6,161 Adjustments to reconcile net income to net cash (used in) provided by Depreciation and amortization 5,921 4,451 Amortization of gain from sale leaseback (48 ) (48 ) Loss on disposal of fixed asset - 54 Amortization of debt issuance cost 39 - Deferred tax (26 ) - Provision for doubtful accounts 14 18 Stock based compensation 1,289 265 Amortization of deferred subscription solicitation costs 14,706 10,505 Minority interest (556 ) 106 Changes in assets and liabilities: Accounts receivable (7,903 ) (3,695 ) Prepaid expenses and other current assets (282 ) (812 ) Income tax receivable 480 - Deferred subscription solicitation costs (20,496 ) (8,790 ) Other assets (5,072 ) (2,527 ) Accounts payable 7,458 1,830 Accrued expenses and other current liabilities 1,937 978 Accrued payroll and employee benefits (2,061 ) 851 Commissions payable 551 (1,071 ) Income tax payable - 122 Deferred revenue (2,241 ) 2,970 Other long-term liabilities   2,157     247     Net cash (used in)/provided by operating activities   (2,314 )   11,615     NET CASH PROVIDED BY INVESTING ACTIVITIES: Sale of short term investments 5,962 25,712 Professional fees related to the acquisition of Intersections Insurance Services, Inc. (5 ) - Cash received in the acquisition of Screening International, LLC - 1,710 Acquisition of property and equipment   (3,126 )   (3,993 )   Net cash provided by investing activities   2,831     23,429     NET CASH USED IN FINANCING ACTIVITIES: Cash proceeds from stock options exercised 927 63 Tax benefit of stock options exercised 291 - Repayments on note payable (1,673 ) - Note receivable (700 ) - Debt issuance costs - (50 ) Capital lease payments   (612 )   (753 )   Net cash used in financing activities   (1,767 )   (740 )   EFFECT OF EXCHANGE RATE ON CASH 12 (79 ) (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS (1,238 ) 34,225 CASH AND CASH EQUIVALENTS—Beginning of period   15,580     17,555   CASH AND CASH EQUIVALENTS—End of period $ 14,342   $ 51,780       INTERSECTIONS INC. OTHER DATA (Unaudited)     Three Months Ended Six Months Ended June 30, June 30, (dollars in thousands)   2007 2006 2007 2006   Subscribers at beginning of period 4,686,397 3,749,214 4,625,831 3,659,975 New subscribers – indirect 520,020 596,903 1,080,468 1,168,872 New subscribers – direct 470,874 245,867 858,967 388,000 Cancelled subscribers within first 90 days of subscription (271,826 ) (206,093 ) (509,825 ) (456,873 ) Cancelled subscribers after first 90 days of subscription (555,904 ) (642,033 ) (1,205,880 ) (1,016,116 ) Subscribers at end of period   4,849,561     3,743,858     4,849,561     3,743,858     Indirect subscribers 64.6 % 73.1 % 64.6 % 73.1 % Direct subscribers   35.4     26.9     35.4     26.9     100.0 %   100.0 %   100.0 %   100.0 %   *Cancellations within first 90 days of subscription 27.4 % 24.5 % 26.3 % 29.3 % **Cancellations after first 90 days of subscription 28.8 % 30.8 % 28.8 % 30.8 %   ***Overall retention 62.5 % 59.7 % 62.5 % 59.7 %   Percentage of revenue from indirect marketing arrangements to total subscription revenue 33.2 % 42.6 % 34.9 % 41.4 %   Percentage of revenue from direct marketing arrangements to total subscription revenue   66.8     57.4     65.1     58.6     Total subscription revenue   100.0 %   100.0 %   100.0 %   100.0 %   Total revenue $ 65,105 $ 45,368 $ 123,305 $ 91,057 Revenue from transactional sales (9,864 ) (8,022 ) (18,556 ) (12,778 ) Revenue from lost/stolen credit card registry   (10 )   (20 )   (30 )   (41 ) Subscription revenue   55,231     37,326     104,719     78,238     Marketing and commissions 20,146 11,171 37,773 22,599 Commissions paid on transactional sales (4 ) (7 ) (9 ) (18 ) Commissions paid on lost/stolen credit card registry   (9 )   (5 )   (15 )   (13 ) Marketing and commissions associated with subscription revenue   20,133     11,159     37,749     22,568     Subscription revenue, net of marketing and commissions associated with subscription revenue $ 35,098   $ 26,167   $ 66,970   $ 55,670     * Percentage of cancellation with in the first 90 days to new subscribers   ** Percentage of the number of subscribers at the beginning of the period plus new subscribers during the period less cancellations within the first 90 days   *** On a rolling 12 month basis by taking subscribers at the end of the period divided by the sum of the subscribers at the beginning of the period plus additions for the period