Intersections Inc. Reports Third Quarter 2007 Earnings

Intersections Inc. (NASDAQ:INTX) today announced financial results for the quarter ended September 30, 2007. Revenue for the third quarter of 2007 was $71.4 million, compared to $65.1 million for the quarter ended June 30, 2007 and $55.3 million for the quarter ended September 30, 2006, an increase of 9.7 percent and 29.2 percent, respectively. Net income for the quarter ended September 30, 2007 was $1.7 million, compared to $1.3 million for the quarter ended June 30, 2007. Net income decreased 34.6 percent from $2.6 million for the quarter ended September 30, 2006 to the third quarter of 2007. Diluted earnings per share ("EPS”) were $0.10 for the third quarter of 2007, compared to $0.08 for the second quarter of 2007 and $0.15 for the third quarter of 2006. "The third 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 increases in direct marketing enrollments and the percentage of revenue coming from direct marketing programs, which creates top line growth and enhance subscriber value in our Consumer Products and Services segment. We believe this top line growth is starting to translate into earnings growth. Our Background Screening segment continues to not fully meet our expectations, but we are pleased with its improvements and continue to believe our investment in this business 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 September 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. Our financial results also include our Other reporting segment, which includes Captira Analytical LLC, which was acquired on August 7, 2007. Third Quarter 2007 Financial Highlights: Total subscribers increased to approximately 5.0 million as of September 30, 2007, compared to approximately 4.6 million subscribers as of December 31, 2006. Subscriber additions of approximately 1.1 million in the third quarter of 2007 were partially offset by subscriber cancels of 950 thousand. Total revenue for the third quarter of 2007 was $71.4 million, including $7.7 million from SI, compared to $65.1 million, including $7.9 million from SI, for the second quarter of 2007 and $55.3 million for the third quarter of 2006, including $7.5 million from SI. Subscription revenue, net of marketing and commissions associated with subscription revenue, increased to $39.4 million for the third quarter of 2007 from $35.1 million for the second quarter of 2007, and from $31.8 million for the third quarter of 2006, an increase of 12.1 percent and 23.8 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 $2.7 million for the third quarter of 2007, including a loss before taxes and minority interest of $1.2 million for SI, compared to $1.7 million for the second quarter of 2007 which included a loss before taxes and minority interest of $1.3 million for SI. Income before taxes and minority interest was $4.6 million for the third quarter of 2006, which included income before taxes and minority interest of $673 thousand for SI. Income before taxes includes a net impact of $1.1 million in settlement payments from ongoing partner relationships in the normal course of business. Net income was $1.7 million, or $0.10 per diluted share, for the quarter ended September 30, 2007, compared to $2.6 million, or $0.15 per diluted share, for the quarter ended September 30, 2006. Cash flow used in operations for the quarter ended September 30, 2007, was approximately $2.2 million, primarily driven by our increased investment in marketing. Nine Month Results: Total revenue increased 33.1 percent to $194.7 million for the nine months ending September 30, 2007, including $22.2 million from SI, from $146.3 million including $17.3 million from SI, for the comparable period in 2006. Subscription revenue, net of marketing and commissions associated with subscription revenue, increased 21.6 percent to $106.3 million for the nine months ending September 30, 2007, from $87.5 million for the comparable period in 2006. Income before taxes and minority interest decreased 67.4 percent to $4.9 million for the nine months ending September 30, 2007, including a loss before taxes and minority interest of $3.1 million for SI, compared to $15.0 million for the nine months ending September 30, 2006 which included income before taxes and minority interest of $1.8 million for SI. Net income was $3.5 million, or $0.20 per diluted share, for the nine months ending September 30, 2007, compared to $8.8 million, or $0.50 per diluted share, for the nine months ending September 30, 2006. Cash flow used in operations for the nine months ending September 30, 2007 was approximately $4.5 million. The results of Intersections’ quarter ended September 30, 2007 will be discussed in more detail on November 8, 2007 at 5:00 pm EST via teleconference. A live audio webcast will be available on Intersections’ Web site at www.intersections.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. Thursday, November 8, through 5:00 p.m. Monday, November 12, 2007, at 888.286.8010, or if you are based internationally, at +1-617-801-6888 (Passcode: 38469268). 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 7 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   Nine Months Ended September 30, September 30, (in thousands, except per share data)       2007     2006     2007     2006     Revenue $ 71,403 $ 55,261 $ 194,708 $ 146,318 Operating expenses: Marketing 9,390 6,473 25,325 18,454 Commissions 13,992 7,389 35,830 18,007 Cost of revenue 27,074 19,967 75,070 54,217 General and administrative 14,968 13,815 44,268 34,560 Depreciation and amortization   3,132     2,895     9,005     7,298     Total operating expenses   68,556     50,539     189,498     132,536     Income from operations 2,847 4,722 5,210 13,782 Interest income 171 248 667 1,384 Interest expense (304 ) (355 ) (968 ) (519 ) Other (expense)/income, net   (18 )   3     (23 )   324     Income before income taxes and minority interest 2,696 4,618 4,886 14,971   Income tax expense   (1,269 )   (1,850 )   (2,196 )   (5,936 )   Income before minority interest 1,427 2,768 2,690 9,035   Minority interest in net loss (income) of Screening International, LLC   297     (132 )   853     (238 )   Net income $ 1,724   $ 2,636   $ 3,543   $ 8,797       Net income per share - basic $ 0.10 $ 0.16 $ 0.21 $ 0.53   Net income per share - diluted $ 0.10 $ 0.15 $ 0.20 $ 0.50   Weighted average common shares outstanding - basic 17,156 16,788 17,086 16,746 Weighted average common shares outstanding – diluted 17,560 17,855 17,492 17,542 INTERSECTIONS INC. CONSOLIDATED BALANCE SHEETS (Unaudited)     September 30,   December 31,   2007     2006   (in thousands) ASSETS   CURRENT ASSETS: Cash and cash equivalents $ 13,533 $ 15,580 Short-term investments - 10,453 Accounts receivable, net 26,874 22,369 Prepaid expenses and other current assets 6,688 5,241 Income tax receivable 818 2,113 Note receivable - 750 Deferred subscription solicitation costs   21,782     11,786   Total current assets 69,695 68,292   PROPERTY AND EQUIPMENT—Net 19,735 21,699 GOODWILL 67,961 66,663 INTANGIBLE ASSETS—Net 11,755 12,388 OTHER ASSETS   17,011     10,425   TOTAL ASSETS $ 186,157   $ 179,467     LIABILITIES AND STOCKHOLDERS' EQUITY   CURRENT LIABILITIES: Note payable – current portion $ 3,345 $ 3,333 Note payable to Control Risks Group Ltd 450 - Capital leases – current portion 1,104 1,176 Accounts payable 8,342 5,193 Accrued expenses and other current liabilities 18,433 15,690 Accrued payroll and employee benefits 4,600 7,073 Commissions payable 2,066 1,194 Deferred revenue 2,745 5,292 Deferred tax liability – current portion   2,385     2,483   Total current liabilities   43,470     41,434     NOTE PAYABLE - less current portion 9,183 11,667 OBLIGATIONS UNDER CAPITAL LEASES – less current portion 814 1,637 OTHER LONG-TERM LIABILITIES 2,836 551 DEFERRED TAX LIABILITY – less current portion   8,127     8,152   TOTAL LIABILITIES $ 64,430   $ 63,441     MINORITY INTEREST 10,642 11,450   STOCKHOLDERS' EQUITY:   Common stock 181 178 Additional paid-in capital 98,796 95,462 Treasury stock (9,071 ) (8,600 ) Retained earnings 21,035 17,447 Accumulated other comprehensive loss   144     89   Total stockholders' equity   111,085     104,576     TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 186,157   $ 179,467   INTERSECTIONS INC. CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)     Nine Months Ended September 30,   2007       2006   (in thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 3,543 $ 8,797 Adjustments to reconcile net income to net cash (used in) provided by Depreciation and amortization 9,092 7,370 Amortization of gain from sale leaseback (72 ) (72 ) Loss on disposal of fixed asset 60 54 Amortization of debt issuance cost 57 16 Deferred tax (26 ) 2,275 Provision for doubtful accounts 19 104 Stock based compensation 2,026 919 Amortization of deferred subscription solicitation costs 24,125 15,458 Minority interest (853 ) 238 Foreign currency transaction losses, net 29 - Changes in assets and liabilities: Accounts receivable (4,523 ) (4,836 ) Prepaid expenses and other current assets (1,505 ) (608 ) Income tax receivable 1,296 - Deferred subscription solicitation costs (34,122 ) (14,141 ) Other assets (6,585 ) (3,570 ) Accounts payable 2,605 (1,910 ) Accrued expenses and other current liabilities 2,228 3,882 Accrued payroll and employee benefits (2,473 ) 1,162 Commissions payable 872 (1,091 ) Income tax payable - (168 ) Deferred revenue (2,546 ) 3,245 Other long-term liabilities   2,273     462   Net cash (used in)/provided by operating activities   (4,480 )   17,586     NET CASH PROVIDED BY/(USED IN) INVESTING ACTIVITIES: Sale of short term investments 10,453 27,673 Cash paid in the acquisition of Intersections Insurance Services, Inc. (5 ) (50,609 ) Cash received in the acquisition of Screening International, LLC - 1,710 Cash paid in the acquisition of Hide N’Seek, LLC (936 ) - Acquisition of property and equipment   (4,325 )   (6,113 ) Net cash provided by/(used in) investing activities   5,187     (27,339 )   NET CASH (USED IN)/PROVIDED BY FINANCING ACTIVITIES: Cash proceeds from stock options exercised 940 220 Tax benefit of stock options exercised 372 - Proceeds from debt issuance 450 15,000 Debt issuance costs - (243 ) Repurchase of treasury stock (471 ) - Repayments on note payable (2,546 ) - Note receivable (750 ) - Capital lease payments   (820 )   (1,062 ) Net cash (used in)/provided by financing activities   (2,825 )   13,915     EFFECT OF EXCHANGE RATE ON CASH 71 33 (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS (2,047 ) 4,195 CASH AND CASH EQUIVALENTS—Beginning of period   15,580     17,555   CASH AND CASH EQUIVALENTS—End of period $ 13,533   $ 21,750   INTERSECTIONS INC. OTHER DATA (Unaudited)       Three Months Ended Nine Months Ended September 30, September 30, (dollars in thousands)     2007 2006 2007 2006   Subscribers at beginning of period 4,850 3,744 4,626 3,660 New subscribers – indirect 578 707 1,659 1,875 New subscribers – direct 472 503 1,331 892   Cancelled subscribers within first 90 days of subscription (258 ) (226 ) (768 ) (683 )   Cancelled subscribers after first 90 days of subscription   (691 ) (400 )   (1,897 )   (1,416 ) Subscribers at end of period   4,951   4,328     4,951     4,328     Indirect subscribers 63.1 % 69.1 % 63.1 % 69.1 % Direct subscribers   36.9   30.9     36.9     30.9     100.0 % 100.0 %   100.0 %   100.0 %   *Cancellations within first 90 days of subscription 24.6 % 18.7 % 25.7 % 24.7 % **Cancellations after first 90 days of subscription 31.3 % 28.8 % 31.3 % 28.8 %   ***Overall retention 60.5 % 62.3 % 60.5 62.3 %   Percentage of revenue from indirect marketing arrangements to total subscription revenue 29.8 % 40.3 % 33.0 % 41.0 %   Percentage of revenue from direct marketing arrangements to total subscription revenue   70.2   59.7     67.0     59.0     Total subscription revenue   100.0 % 100.0 %   100.0 %   100.0 %   Total revenue $ 71,403 $ 55,261 $ 194,708 $ 146,318 Revenue from transactional sales (8,673 ) (9,600 ) (27,229 ) (22,379 ) Revenue from lost/stolen credit card registry   (7 ) (20 )   (37 )   (60 ) Subscription revenue   62,723   45,641     167,442     123,879     Marketing and commissions 23,382 13,862 61,155 36,461 Commissions paid on transactional sales (2 ) (6 ) (11 ) (25 ) Commissions paid on lost/stolen credit card registry   (10 ) (9 )   (25 )   (22 ) Marketing and commissions associated with subscription revenue   23,370   13,847     61,119     36,414     Subscription revenue, net of marketing and commissions associated with subscription revenue $ 39,353   $ 31,794   $ 106,323   $ 87,465   * Percentage of cancellation within 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   INTERSECTIONS INC. OTHER DATA, continued (Unaudited)             The following table provides components of Intersections’ Consumer Products and Services (CPS) segment on a per ending subscriber per quarter basis:   2006 2007 For the Three Months Ended For the Three Months Ended June 30 September 30 December 31 March 31 June 30 September 30   Per Ending Subscriber per Quarter   Revenue $ 10.49 $ 11.04 $ 10.36 $ 11.01 $ 11.81 $ 12.86 Cost of revenue 3.91 3.68 3.71 4.12 4.14 4.52 Gross margin (2)(A) 6.58 7.35 6.65 6.89 7.66 8.35 Marketing 1.79 1.50 1.45 1.70 1.64 1.90 Commissions 1.20 1.71 1.68 2.06 2.51 2.83 Revenue less marketing and commissions (2)(B) 7.51 7.83 7.22 7.24 7.65 8.14 General and Administrative 2.24 2.61 2.69 2.35 2.30 2.18 EBITDA (2)(C) 1.36 1.54 0.83 0.78 1.21 1.44   Intersections Inc. Reconciliation of Non-GAAP Financial Measures (dollars in thousands, except for per subscriber information)   The table above includes financial information prepared in accordance with accounting principles generally accepted in the United States, or GAAP, as well as other financial measures referred to as non-GAAP financial measures. EBITDA, CPS Gross margin per ending subscriber, CPS Revenue less marketing and commissions per ending subscriber and CPS EBITDA per ending subscriber are non-GAAP financial measures that are presented in a manner consistent with the way management evaluates operating results, and which management believes is useful to investors and others. An explanation regarding the company's use of non-GAAP financial measures and a reconciliation of non-GAAP financial measures used by the company to GAAP measures is provided below. These non-GAAP financial measures should be considered in addition to, but not as a substitute for, net income and the other information prepared in accordance with GAAP, and may not be comparable to similarly titled measures reported by other companies.   (1) CPS earnings before interest, tax, depreciation and amortization, or EBITDA, represents income before income taxes plus depreciation and amortization, investment income (expense), and other income (expense) for the CPS segment. We believe that the EBITDA calculation provides useful information to investors because they are indicators of our operating performance. EBITDA is commonly used as a basis for investors and analysts to evaluate and compare the periodic and future operating performance and value of companies within our industry. Our Board of Directors and management use EBITDA to evaluate the operating performance of the CPS segment and to make compensation and bonus determinations, and our lenders use EBITDA as a measure of our ability to make interest payments and to comply with our debt covenants. INTERSECTIONS INC. OTHER DATA, continued (Unaudited)   The following table reconciles income before income taxes to EBITDA, as defined for the previous six quarters and nine months year-to-date through September 30, 2006 and September 30, 2007. In managing our business, we analyze the performance of our segments quarterly on an income before income tax basis.     2006 2007 For the Three Months Ended For the Three Months Ended June 30   September 30   December 31 March 31   June 30   September 30   CPS reconciliation from income before income taxes to EBITDA CPS Income before income taxes $ 3,821 $ 3,945 $ 1,342 $ 1,141 $ 2,999 $ 4,278 Plus Depreciation & Amortization 2,108 2,600 2,376 2,414 2,792 2,696 Investment income (expense) (530 ) 116 95 60 122 134 Other income (expense)   (320 )   (4 )   9     41     (65 )   18   EBITDA (1) $ 5,079 $ 6,657 $ 3,822 $ 3,656 $ 5,848 $ 7,126       For the Nine Months Ended September 30 2006 2007 CPS reconciliation from income before income taxes to EBITDA CPS Income before income taxes $ 13,215 $ 8,418 Plus Depreciation & Amortization 6.628 7,902 Investment income (expense) (867 ) 316 Other income (expense)   (325 )   (5 ) EBITDA (1) $ 18,651 $ 16,631   (2) A. CPS gross margin per ending subscriber represents CPS revenue less cost of revenue divided by the ending number of subscribers. We believe this measure is important to investors because it demonstrates our profitability trend on a per subscriber basis and is one that we use in managing our CPS business because it demonstrates our profitability trend on a per subscriber basis. B. CPS Revenue less marketing and commissions per ending subscriber represents CPS revenue less marketing and commissions divided by the ending number of subscribers. We believe this measure is important to investors and is one that we use in managing our CPS business because it normalizes the effect of changes in the mix of direct and indirect marketing arrangements and it demonstrates our profitability trend on a per subscriber basis. C. CPS EBITDA per ending subscriber represents CPS EBITDA (defined in section (1) above) divided by the ending number of subscribers. We believe this measure is important to investors because it demonstrates our profitability trend on a per subscriber basis and is one that we use in managing our CPS business because it demonstrates our profitability trend on a per subscriber basis.   INTERSECTIONS INC. OTHER DATA, continued (Unaudited)             2006 2007 For the Three Months Ended For the Three Months Ended June 30 September 30 December 31 March 31 June 30 September 30 A. CPS Gross Margin per Ending Subscriber Revenue $ 39,273 $ 47,758 $ 47,903 $ 51,577 $ 57,251 $ 63,678 Less Cost of Revenue   14,645   15,941   17,161   19,296   20,094   22,366 Gross Margin 24,628 31,817 30,742 32,281 37,157 41,312 Ending Subscribers 3,744 4,328 4,626 4,686 4,850 4,950 CPS Gross Margin per Ending Subscriber 6.58 7.35 6.65 6.89 7.66 8.35   B. CPS Revenue Less Marketing and Commissions per Ending Subscriber Revenue $ 39,273 $ 47,758 $ 47,903 $ 51,577 $ 57,251 $ 63,678 Less: Marketing 6,696 6,473 6,720 7,984 7,951 9,390 Commissions   4,475   7,389   7,779   9,642   12,195   13,992 Revenue Less Marketing and Commissions 28,102 33,896 33,404 33,951 37,105 40,296 Ending Subscribers 3,744 4,328 4,626 4,686 4,850 4,950 CPS Revenue Less Marketing and Commissions per Ending Subscriber 7.51 7.83 7.22 7.25 7.65 8.14   C. CPS EBITDA per Ending Subscriber           EBITDA $ 5,079 $ 6,657 $ 3,822 $ 3,656 $ 5,848 $ 7,126 Ending Subscribers 3,744 4,328 4,626 4,686 4,850 4,950 CPS EBITDA per Ending Subscriber 1.36 1.54 0.83 0.78 1.21 1.44       For the Nine Months Ended September 30 2006 2007 A. CPS Gross Margin per Ending Subscriber       Revenue $ 129,038 $ 172,506 Less Cost of Revenue   45,383   61,755 Gross Margin 83,655 110,751 Ending Subscribers 4,328 4,950 CPS Gross Margin per Ending Subscriber 19.33 22.37   B. CPS Revenue Less Marketing and Commissions per Ending Subscriber Revenue $ 129,038 $ 172,506 Less: Marketing 18,454 25,325 Commissions   18,007   35,829 Revenue Less Marketing and Commissions 92,577 111,352 Ending Subscribers 4,328 4,950 CPS Revenue Less Marketing and Commissions per Ending Subscriber 21.39 22.49   C. CPS EBITDA per Ending Subscriber EBITDA $ 18,651 $ 16,630 Ending Subscribers 4,328 4,950 CPS EBITDA per Ending Subscriber 4.31 3.36