Intersections Inc.
NASDAQ : INTX

November 01, 2005 16:05 ET

Intersections Inc. Reports Third Quarter 2005 Financial Results

CHANTILLY, Va.--(CCNMatthews - Nov 1, 2005) -

Intersections Inc. (Nasdaq:INTX) today announced financial results for the quarter and nine months ended September 30, 2005. Net income for the quarter ended September 30, 2005 was $3.5 million, compared to $3.5 million for the quarter ended September 30, 2004. Diluted earnings per share ("EPS") were $0.20 for the third quarter of 2005.

"Strong subscriber additions in the third quarter demonstrate continued solid growth in our existing business," said Chairman and Chief Executive Officer Michael Stanfield. "As we prepare to launch our new product, we believe it will define a new standard in the market of identity theft protection services that will set the stage for future growth."

Third Quarter 2005 Financial Highlights:

-- Total subscribers increased to approximately 3.4 million as of September 30, 2005, compared to approximately 3.2 million as of June 30, 2005, an increase of 7.4 percent. Subscriber additions in the third quarter of 2005 were approximately 770,000.

-- Total revenue for the third quarter of 2005 was $42.6 million, including $3.8 million from American Background Information Services, Inc. ("ABI"), compared to $40.8 million, including $3.7 million from ABI, for the second quarter of 2005 and $38.6 million for the third quarter of 2004.

-- Subscription revenue, net of marketing and commissions associated with subscription revenue, increased to $26.3 million for the third quarter of 2005 from $25.1 million for the second quarter of 2005, and from $21.8 million for the third quarter of 2004, increases of 4.8 percent and 20.7 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 it normalizes the effect of changes in the mix of indirect and direct marketing arrangements.

-- Pre-tax income was $5.8 million, or 13.6 percent of revenue, for the third quarter of 2005, compared to $5.2 million or 12.6 percent of revenue, for the second quarter of 2005 and $5.6 million, or 14.4 percent of revenue, for the third quarter of 2004.

-- Cash flow provided by operations for the quarter ended September 30, 2005 was $4.2 million.

Nine Month Results:

-- Total revenue for the nine months ended September 30, 2005 was $122.0 million, including $10.4 million from ABI, compared to $117.0 million for the comparable period in 2004.

-- Subscription revenue, net of marketing and commissions associated with subscription revenue, increased 21.8 percent to $74.9 million for the nine months ended September 30, 2005, from $61.5 million for the comparable period in 2004.

-- Pre-tax income increased 0.3 percent to $14.0 million for the nine months ended September 30, 2005, from $13.9 million for the nine months ended September 30, 2004. Pre-tax income for the nine months ended September 30, 2005 included a software impairment charge recognized during the first quarter of 2005 of approximately $1.5 million that was due primarily to the decision to revise our development approach for our small business product in an effort to accelerate its launch while reducing our overall investment in the project.

-- Net income was $8.5 million, or $0.47 per diluted share, for the nine months ended September 30, 2005, compared to $8.6 million, or $0.52 per diluted share, for the nine months ended September 30, 2004.

-- Cash flow provided by operations for the nine months ended September 30, 2005 was $8.7 million, including a $5.5 million cash outflow in the first quarter for prepaid royalty payments incurred in connection with certain exclusive rights under two agreements that provide for the receipt of data and other information to be used primarily in our identity theft prevention product currently under development.

Intersections' third quarter 2005 results will be discussed in more detail on November 1, 2005 at 5:00 pm Eastern via teleconference. A live audio webcast will be available on Intersections' Web site at www.intersections.com or at 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 approximately 7:00 p.m. Tuesday, November 1 through 11:59 p.m. Thursday, November 3, 2005 at 888.286.8010 (Passcode: 40640944).

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. is the leading provider of branded and fully-customized consumer credit management and identity theft detection, protection and resolution services to the customers of many of North America's largest financial services companies. By integrating our technology solutions, marketing capabilities, and end-to-end production and fulfillment infrastructure, we assist these companies in meeting the needs of their customers in a secure, efficient and ethical environment. We currently provide our consumer services to more than 3.4 million subscribers in the U.S. and Canada, primarily through our partners, as well as direct-to-consumer through our Identity Guard® brand. Intersections also offers enterprise services, including pre-employment background screening, which is provided through our wholly-owned subsidiary, American Background Information Services Inc. Learn more about Intersections at www.intersections.com.



INTERSECTIONS INC.
CONSOLIDATED STATEMENTS OF INCOME

(In Thousands, except per share data)

(Unaudited)

Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- --------------------
2005 2004 2005 2004


Revenue $42,612 $38,594 $121,952 $116,982
Operating expenses:
Marketing and commissions 11,616 16,663 34,829 54,390
Cost of revenue 14,900 9,710 42,177 28,811
General and
administrative 8,974 5,920 25,639 17,018
Depreciation and
amortization 1,660 900 4,631 2,695
Impairment of software
development - - 1,515 -
----------- -------- ---------- ---------
Total operating expenses 37,150 33,193 108,791 102,914
----------- -------- ---------- ---------
Income from operations 5,462 5,401 13,161 14,068
Interest income (expense) 316 143 786 (140)

Other income (expense) 15 15 6 (20)
----------- -------- ---------- ---------

Income before income taxes 5,793 5,559 13,953 13,908

Income tax expense (2,286) (2,100) (5,479) (5,348)
----------- -------- ---------- ---------
Net income $3,507 $3,459 $8,474 $8,560
=========== ======== ========== =========

Net income per basic share $.21 $.20 $.50 $.74
=========== ======== ========== =========

Net income per diluted share $.20 $.19 $.47 $.52
=========== ======== ========== =========

Weighted average common
shares outstanding 16,819 17,013 17,078 11,496
Dilutive effect of common
stock equivalents 708 1,556 838 5,737
----------- -------- ---------- ---------
Weighted average common
shares outstanding -
assuming dilution 17,527 18,569 17,916 17,233
=========== ======== ========== =========




INTERSECTIONS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)

September 30, December 31,
2005 2004
------------- -------------

ASSETS

CURRENT ASSETS:
Cash and cash equivalents $12,498 $12,027
Short term investments 33,618 40,171
Accounts receivable, net 13,862 9,970
Prepaid expenses and other current assets 3,313 2,795
Deferred subscription solicitation costs 9,388 9,185
Deferred tax asset 589 490
------------- -------------
Total current assets 73,268 74,638
PROPERTY AND EQUIPMENT--Net 19,422 15,821
GOODWILL 16,737 16,314
CUSTOMER INTANGIBLE ASSETS 1,410 1,954
OTHER ASSETS 6,044 384
------------- -------------
TOTAL ASSETS $116,881 $109,111
============= =============

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
Accounts payable $3,050 $3,593
Accrued expenses and other current
liabilities 7,629 6,051
Accrued payroll and employee benefits 2,192 2,206
Commissions payable 1,967 1,932
Deferred revenue 3,554 3,691
Current obligations under capital leases 1,092 1,181
Current tax payable 3,767 -
------------- -------------
Total current liabilities 23,251 18,654
------------- -------------
OBLIGATIONS UNDER CAPITAL LEASES--Less
current portion 1,660 1,764
OTHER LONG-TERM LIABILITIES 162 117
DEFERRED TAX LIABILITY 1,637 1,449

STOCKHOLDERS' EQUITY:

Common stock 176 173
Deferred compensation (15) (30)
Additional paid-in capital 92,565 91,443
Treasury stock (6,569) -
Retained earnings (deficit) 4,014 (4,459)
------------- -------------

Total stockholders' equity 90,171 87,127
------------- -------------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $116,881 $109,111
============= =============




INTERSECTIONS INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
(Unaudited)

Nine Months Nine Months
Ended Ended
September 30, September 30,
2005 2004
------------- -------------
CASH FLOW FROM OPERATING ACTIVITIES:
Net Income $8,474 $8,560
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation and amortization 4,631 2,695
Loss on disposal of fixed asset 15 -
Compensation expense related to warrants
and options 15 15
Increase in allowance for doubtful
accounts 33 -
Non-cash interest expense - 321
Deferred income tax 77 5,048
Amortization of deferred subscription
solicitation costs 16,405 16,296
Impairment of software development 1,515 -

Changes in assets and liabilities:

Accounts receivable (3,925) (2,595)
Prepaid expenses and other current
assets (451) (1,338)
Deferred subscription solicitation
costs (16,607) (15,122)
Other assets (5,662) (211)
Accounts payable (574) 1,004
Accrued expenses and other current
liabilities 1,146 (1,448)
Accrued payroll and employee benefits (14) (533)
Commissions payable 34 (229)
Deferred revenue (137) (515)
Income tax payable 3,767 -
Other long-term liabilities (92) 12
------------- -------------

Net cash provided by operating
activities 8,650 11,960

NET CASH USED IN INVESTING ACTIVITIES:
Acquisition of property and equipment (8,286) (6,034)
Restricted cash - 140
Investments 6,553 (22,380)
------------- -------------

Net cash used in investing
activities (1,733) (28,274)

CASH FLOW (USED IN) FROM FINANCING
ACTIVITIES:
Issuance of new common stock through IPO - 44,950
Options exercised 1,124 27
Repurchase of treasury stock (6,569) -
Capital lease payments (1,001) (855)
------------- -------------

Net cash (used in) provided by
financing activities (6,446) 44,122

INCREASE IN CASH AND CASH EQUIVALENTS 471 27,808

CASH AND CASH EQUIVALENTS - Beginning of
period 12,027 14,411
------------- -------------

CASH AND CASH EQUIVALENTS - End of period $12,498 $42,219
============= =============




INTERSECTIONS INC.
OTHER DATA
(dollars in thousands)

Three Months Ended Nine Months Ended
September 30, September 30,
--------------------- -----------------------
2005 2004 2005 2004

Subscribers at
beginning of period 3,179,181 2,581,931 2,885,223 2,274,605
New subscribers -
indirect 578,476 309,996 1,560,201 1,064,319
New subscribers -
direct 191,749 201,915 551,124 596,181
Cancelled subscribers
within first 90 days
of subscription 218,934 145,775 637,019 440,611
Cancelled subscribers
after first 90 days of
subscription 317,160 393,050 946,217 939,477
---------- ---------- ---------- ----------
Subscribers at end of
period 3,413,312 2,555,017 3,413,312 2,555,017
========== ========== ========== ==========

Indirect subscribers 65.4% 56.2% 65.4% 56.2%
Direct subscribers 34.6 43.8 34.6 43.8
---------- ---------- ---------- ----------
Subscribers at end of
period 100.0% 100.0% 100.0% 100.0%
========== ========== ========== ==========

Percentage of revenue
from indirect
marketing arrangements
to total subscription
revenue 34.6% 36.5% 32.8% 38.2%

Percentage of revenue
from direct marketing
arrangements to total
subscription revenue 65.4% 63.5% 67.2% 61.8%
---------- ---------- ---------- ----------
Total subscription
revenue 100.0% 100.0% 100.0% 100.0%
========== ========== ========== ==========


Total revenue $42,612 $38,594 $121,952 (1) $116,982
Revenue from
transactional sales (4,731) (246) (12,249) (1,729)
Revenue from
lost/stolen credit
card registry (20) (20) (57) (67)
---------- ---------- ---------- ----------
Subscription revenue $37,861 $38,328 $109,646 $115,186
========== ========== ========== ==========
Marketing and
commissions $11,616 $16,663 $34,829 $54,390
Commissions paid on
transactional sales
And other revenue (27) (101) (114) (738)
---------- ---------- ---------- ----------
Marketing and
commissions associated
with subscription
revenue $11,589 $16,562 $34,715 $53,652
========== ========== ========== ==========
Subscription revenue,
net of marketing and
commissions associated
with subscription
revenue $26,272 $21,766 $74,931 $61,534
========== ========== ========== ==========

(1) Total revenue in the third quarter of 2005, excluding $3.8 million
from ABI, was $38.8 million compared to total revenue in the
third quarter of 2004 of $38.6 million. As previously disclosed,
the reduction in revenue is primarily due to a new marketing
agreement with one of our clients which became effective September
1, 2004. Prior to the new agreement, revenue was recognized on a
gross basis in the amount billed to the subscriber. Pursuant to
the new agreement, we record revenue based on the amount billed to
the client not the amount billed to the subscriber. These revised
terms and the corresponding change in revenue recognition for this
agreement will also reduce our expenses as a percentage of
revenue.



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