Intersections Inc. Reports Third Quarter 2016 Results

CHANTILLY, Va.–(BUSINESS WIRE)–Intersections Inc. (NASDAQ: INTX) today announced financial results for
the quarter ended September 30, 2016.

Consolidated revenue for the quarter ended September 30, 2016 was $43.1
million, compared to $48.9 million for the quarter ended September 30,
2015. Loss before income taxes for the quarter ended September 30, 2016
was $(8.2) million, compared to $(6.7) million for the quarter ended
September 30, 2015. Consolidated adjusted EBITDA (loss) before share
related compensation and non-cash impairment charges for the quarter
ended September 30, 2016 was $(2.8) million, compared to $(3.5) million
for the quarter ended September 30, 2015. Diluted loss per share for the
quarter ended September 30, 2016 was $(0.35), compared to $(0.22) for
the quarter ended September 30, 2015. Consolidated revenue for the nine
months ended September 30, 2016 was $133.5 million, compared to $156.4
million for the nine months ended September 30, 2015. Loss before income
taxes for the nine months ended September 30, 2016 was $(17.8) million,
compared to $(19.4) million for the nine months ended September 30,
2015. Consolidated adjusted EBITDA (loss) before share related
compensation and non-cash impairment charges for the nine months ended
September 30, 2016 was $(4.8) million, compared to $(2.6) million for
the nine months ended September 30, 2015. Diluted loss per share for the
nine months ended September 30, 2016 was $(0.76), compared to $(1.57)
for the nine months ended September 30, 2015.

“The improvement in our third quarter consolidated adjusted EBITDA
compared to the prior year was driven by our Core Business and is
particularly encouraging as we prepared for the fourth quarter launch of
our exciting new product, Privacy Now™ with Watson,” said Michael
Stanfield, Chairman and Chief Executive Officer. “Privacy Now™ with
Watson demonstrates our commitment to driving growth through innovative,
data-driven technologies. We are pleased with the advancement of our
Voyce technology and product offerings while we evaluate the previously
announced proposal to divest the Voyce business and consider other
alternatives that we believe will enhance shareholder value.”

The Company previously announced on October 28, 2016, that it received a
non-binding proposal from Loeb Holding Corporation (“LHC”), the
Company’s largest stockholder, to acquire the Company’s Pet Health
Monitoring Segment. The process of evaluating the proposal and
negotiating a possible transaction is being overseen by a Special
Committee of three independent members of our Board of Directors. The
Special Committee has retained independent legal counsel and financial
advisors to assist in evaluating the LHC proposal.

Third Quarter Results:

  • Revenue from the Company’s U.S. Consumer Direct, or Identity Guard®,
    subscriber base was $13.3 million for the quarter ended September 30,
    2016 with a base of 375 thousand subscribers as of September 30, 2016,
    0.3% higher than December 31, 2015. Revenue and subscriber growth
    during the quarter was negatively impacted by reduced marketing
    efforts in the third quarter and on a year to date basis compared to
    the prior year periods, as the Company prepared for the launch of its
    new product, Privacy Now™ with Watson, in the fourth quarter of 2016.
  • Revenue from the Company’s U.S. financial institution clients was
    $23.5 million for the quarter ended September 30, 2016 with a base of
    732 thousand subscribers as of September 30, 2016. The subscriber base
    decreased by 1.1% per month during the third quarter, which the
    Company believes is representative of normal attrition given the
    discontinuation of marketing and retention efforts for this population.
  • Core Business (the aggregate of all businesses of Intersections Inc.
    except for its Pet Health Monitoring, or Voyce, business) loss before
    income taxes for the quarter ended September 30, 2016 was $(1.9)
    million compared to $(2.0) million for the quarter ended September 30,
    2015. Core Business adjusted EBITDA before share related compensation
    and non-cash impairment charges for the quarter ended September 30,
    2016 was $2.3 million compared to $734 thousand for the quarter ended
    September 30, 2015.
  • Voyce loss before income taxes for the quarter ended September 30,
    2016 was $(6.4) million compared to $(4.7) million for the quarter
    ended September 30, 2015. Voyce adjusted EBITDA (loss) before share
    related compensation and non-cash impairment charges for the quarter
    ended September 30, 2016 was $(5.1) million compared to $(4.3) million
    for the quarter ended September 30, 2015.
  • As of September 30, 2016, the Company had a cash balance of $13.8
    million, and an outstanding principal balance of $17.1 million under
    its term loan with Crystal Financial SPV LLC. For additional
    information, Please see “Item 2. Management’s Discussion and Analysis
    of Financial Condition and Results of Operations—Liquidity and Capital
    Resources” in our most recent Form 10-Q.

Nine Months Results:

  • Revenue from the Company’s U.S. Consumer Direct, or Identity Guard®,
    subscriber base for the nine months ended September 30, 2016 was $41.2
    million. Revenue from the Company’s U.S. financial institution clients
    for the nine months ended September 30, 2016 was $73.4 million.
  • Core Business income (loss) before income taxes for the nine months
    ended September 30, 2016 was $(1.2) million compared to $(5.1) million
    for the nine months ended September 30, 2015. Core Business adjusted
    EBITDA before share related compensation and non-cash impairment
    charges for the nine months ended September 30, 2016 was $9.6 million
    compared to $10.8 million for the nine months ended September 30, 2015.
  • Voyce loss before income taxes for the nine months ended September 30,
    2016 was $(16.6) million compared to $(14.3) million for the nine
    months ended September 30, 2015. Voyce adjusted EBITDA (loss) before
    share related compensation and non-cash impairment charges for the
    nine months ended September 30, 2016 was $(14.4) million compared to
    $(13.4) million for the nine months ended September 30, 2015.

Non-GAAP Financial Measures:

Intersections’ Consolidated Financial Statements, “Other Data” and
reconciliations of these non-GAAP financial measures to the most
directly comparable GAAP financial measures and related notes can be
found in the accompanying tables and footnotes to this release and in
the “GAAP and Non-GAAP Measures” link under the “Investor & Media” page
on our website at www.intersections.com.

Forward-Looking Statements:

Statements in this release relating to future plans, results,
performance, expectations, achievements and the like are considered
“forward-looking statements”
under the Private Securities
Litigation Reform Act of 1995. You can identify forward-looking
statements by the fact that they do not relate strictly to historical or
current facts. These statements may include words such as “anticipate,”
“estimate,” “expect,” “project,” “plan,” “intend,” “believe,” “may,”
“should,” “can have,” “likely” and other words and terms of similar
meaning in connection with any discussion of the timing or nature of
future operating or financial performance or other events. Those
forward-looking statements involve known and unknown risks and
uncertainties 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 whether we are
able to obtain financing for our Pet Health Monitoring segment prior to
December 31, 2016, whether
on terms acceptable to us and our
lender, or at all; any decisions made by us regarding strategic
alternatives for our Pet Health Monitoring segment, including with
respect to the LHC proposal; the timing and success of new product
launches, including our Identity Guard
®, Voyce®
and Voyce Pro™ platforms, and other growth initiatives; the continuing
impact of the regulatory environment on our business; the continued
dependence on a small number of financial institutions
for a
majority of our revenue and to service our U.S. financial institution
customer base; our ability to execute our strategy and previously
announced transformation plan; our incurring additional restructuring
charges; our incurring impairment charges on goodwill and/or assets,
including assets related to our Voyce
®
business; our ability to control costs; and our needs for additional
capital to grow our business, including our ability to maintain
compliance with the covenants under our new term loan or seek additional
sources of debt and/or equity financing. Factors and uncertainties that
may cause actual results to differ include but are not limited to the
risks disclosed under “Forward-Looking Statements,” “Item 1.
Business—Government Regulation” and “Item 1A. Risk Factors” in the
Company’s most recent Annual Report on Form 10-K and Quarterly Reports
on Form 10-Q and in its recent other filings with the U.S. Securities
and Exchange Commission. The Company undertakes no obligation to revise
or update any forward-looking statements unless required by applicable
law.

About Intersections:

Intersections Inc. (Nasdaq: INTX) provides innovative, information based
solutions that help consumers manage risks and make better informed life
decisions. Under its Identity Guard® brand and other brands,
the company helps consumers monitor, manage and protect against the
risks associated with their identities and personal information. The
company’s subsidiary Intersections Insurance Services provides insurance
and other services that help consumers manage risks and achieve personal
goals. The company’s i4C Innovations subsidiary provides Voyce®,
a groundbreaking pet wellness monitoring system for pet owners and
veterinarians. Headquartered in Chantilly, Virginia, the company was
founded in 1996. To learn more, visit www.intersections.com.

   
INTERSECTIONS INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
 
Three Months Ended Nine Months Ended
September 30, September 30,
2016   2015 2016   2015
REVENUE:
Services $ 43,040 $ 48,932 $ 133,421 $ 156,379
Hardware   22   7   40   40
Net revenue   43,062   48,939   133,461   156,419
OPERATING EXPENSES:
Marketing 3,589 5,289 11,685 16,325
Commission 10,527 12,307 32,636 39,226
Cost of services revenue 13,722 16,038 41,395 48,983
Cost of hardware revenue 1,001 149 1,277 391
General and administrative 20,024 20,037 56,943 58,411
Impairment of intangibles and other long-lived assets 7,355
Depreciation 1,486 1,488 4,731 4,398
Amortization   99   206   484   481
Total operating expenses   50,448   55,514   149,151   175,570
LOSS FROM OPERATIONS (7,386 ) (6,575 ) (15,690 ) (19,151 )
Interest expense, net (621 ) (71 ) (1,704 ) (153 )
Other expense, net   (234 )   (65 )   (414 )   (137 )
LOSS BEFORE INCOME TAXES (8,241 ) (6,711 ) (17,808 ) (19,441 )
INCOME TAX BENEFIT (EXPENSE)   133   2,383   126   (10,950 )
NET LOSS $ (8,108 ) $ (4,328 ) $ (17,682 ) $ (30,391 )
 
Net loss per common share—basic and diluted $ (0.35 ) $ (0.22 ) $ (0.76 ) $ (1.57 )
Weighted average common shares outstanding—basic and diluted 23,378 19,673 23,178 19,304
   
INTERSECTIONS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except par value)
(unaudited)
 
September 30, December 31,
2016 2015
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 13,797 $ 11,471
Accounts receivable, net of allowance for doubtful accounts of $144
(2016) and $115 (2015)
9,272 8,163
Prepaid expenses and other current assets 4,603 7,524
Inventory 4,060 2,253
Income tax receivable 7,136 7,730
Deferred subscription solicitation and commission costs   4,145   6,961
Total current assets 43,013 44,102
PROPERTY AND EQUIPMENT, net 13,999 13,438
GOODWILL 9,763 9,763
INTANGIBLE ASSETS, net 1,209 1,693
OTHER ASSETS   543   1,034
TOTAL ASSETS $ 68,527 $ 70,030
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable $ 2,447 $ 3,207
Accrued expenses and other current liabilities 16,202 15,845
Accrued payroll and employee benefits 3,590 7,091
Commissions payable 304 375
Current portion of long-term debt, net 8,004
Capital leases, current portion 613 631
Deferred revenue   3,023   2,380
Total current liabilities 34,183 29,529
LONG-TERM DEBT, net 7,816
OBLIGATIONS UNDER CAPITAL LEASES, less current portion 739 1,147
OTHER LONG-TERM LIABILITIES 3,589 3,971
DEFERRED TAX LIABILITY, net   1,905   1,905
TOTAL LIABILITIES   48,232   36,552
COMMITMENTS AND CONTINGENCIES (see Notes 14 and 16)
STOCKHOLDERS’ EQUITY:
Common stock at $0.01 par value, shares authorized 50,000; shares
issued 27,284 (2016) and 26,730 (2015); shares outstanding 23,723
(2016) and 23,236 (2015)
273 267
Additional paid-in capital 142,374 137,705
Treasury stock, shares at cost; 3,561 (2016) and 3,494 (2015) (33,808 ) (33,632 )
Accumulated deficit   (88,544 )   (70,862 )
TOTAL STOCKHOLDERS’ EQUITY   20,295   33,478
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 68,527 $ 70,030
 
INTERSECTIONS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
 
Nine Months Ended
September 30,
2016   2015
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (17,682 ) $ (30,391 )
Adjustments to reconcile net loss to cash flows (used in) provided
by operating activities:
Depreciation 4,731 4,398
Depreciation of other operating assets 20
Amortization 484 481
Deferred income tax, net 15,252
Amortization of debt issuance cost 658 80
Provision for doubtful accounts (54 ) 84
Adjustment for surplus and obsolete inventories 801
Loss on disposal of fixed assets 358 61
Share based compensation 4,920 4,423
Amortization of deferred subscription solicitation costs 9,981 13,167
Impairment of intangibles and other long-lived assets 7,355
Changes in assets and liabilities:
Accounts receivable (1,113 ) 6,781
Prepaid expenses and other current assets 3,062 2,118
Inventory (2,608 ) (1,949 )
Income tax receivable, net 594 (2,829 )
Deferred subscription solicitation and commission costs (7,164 ) (13,593 )
Other assets 405 1,600
Accounts payable (818 ) (876 )
Accrued expenses and other current liabilities 17 (2,167 )
Accrued payroll and employee benefits (3,515 ) (1,021 )
Commissions payable (71 ) (56 )
Deferred revenue 643 (121 )
Other long-term liabilities   (382 )   (333 )
Cash flows (used in) provided by operating activities   (6,733 )   2,464
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash received for the liquidating distribution of White Sky, Inc. 57
Cash paid for acquisition of technology related intangible (202 )
Cash paid for business acquisitions (626 )
Increase in restricted cash (375 )
Proceeds from sale of property and equipment 394
Acquisition of property and equipment   (5,334 )   (3,237 )
Cash flows used in investing activities   (5,258 )   (4,065 )
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of debt 20,000
Repayments of debt (2,895 )
Cash paid for debt issuance costs (1,856 )
Capital lease payments (524 ) (559 )
Withholding tax payment on vesting of restricted stock units   (408 )   (987 )
Cash flows provided by (used in) financing activities   14,317   (1,546 )
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 2,326 (3,147 )
CASH AND CASH EQUIVALENTS — Beginning of period   11,471   11,325
CASH AND CASH EQUIVALENTS — End of period $ 13,797 $ 8,178
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING AND INVESTING
ACTIVITIES:
Equipment obtained under capital lease, including acquisition costs $ 101 $ 713
Equipment additions accrued but not paid $ 490 $ 205
Shares withheld in lieu of withholding taxes on vesting of
restricted stock awards
$ 15 $ 62
Shares issued in the business acquired from White Sky, Inc. $ $ 576
Shares issued in the business acquired from Health at Work Wellness
Actuaries LLC
$ $ 1,551
 

INTERSECTIONS INC.
OTHER DATA
(unaudited)

Personal Information Services Segment Revenue

The following tables provide details of our Personal Information
Services segment revenue information for the three and nine months ended
September 30, 2016 and 2015:

  Three Months Ended September 30,
2016     2015     2016   2015
(In thousands) (Percent of total)
Bank of America $ 19,091 $ 22,045 47.6% 48.4%
All other financial institution clients 4,442 5,234 11.1% 11.5%
Consumer direct 13,256 14,914 33.1% 32.8%
Canadian business lines 3,157 3,325 7.9% 7.3%
Other   125   0.3% 0.0%
Total Personal Information Services revenue $ 40,071 $ 45,518 100.0% 100.0%
  Nine Months Ended September 30,
2016     2015     2016   2015
(In thousands) (Percent of total)
Bank of America $ 59,344 $ 68,685 47.8% 47.5%
All other financial institution clients 14,055 20,076 11.3% 13.9%
Consumer direct 41,190 41,415 33.2% 28.6%
Canadian business lines 9,404 14,435 7.6% 10.0%
Other   125   0.1% 0.0%
Total Personal Information Services revenue $ 124,118 $ 144,611 100.0% 100.0%
 

INTERSECTIONS INC.
OTHER DATA, continued
(unaudited)

Personal Information Services Segment Subscribers

The following tables provide details of our Personal Information
Services segment subscriber information for the three and nine months
ended September 30, 2016 and 2015:

Three months ended:

       
Financial

Institution

Consumer

Direct

Canadian

Business Lines

Total
(in thousands)
Balance at June 30, 2016   757   394   166   1,317
Additions 33 27 60
Cancellations   (25 )   (52 )   (32 )   (109 )
Balance at September 30, 2016   732   375   161   1,268
Balance at June 30, 2015 893 379 176 1,448
Additions 1 61 30 92
Cancellations   (33 )   (51 )   (42 )   (126 )
Balance at September 30, 2015   861   389   164   1,414

 

Nine months ended:

       
Financial

Institution

Consumer

Direct

Canadian

Business Lines

Total
(in thousands)
Balance at December 31, 2015   829   363   165   1,357
Reclassification (1) (11 ) 11
Additions 1 159 93 253
Cancellations   (87 )   (158 )   (97 )   (342 )
Balance at September 30, 2016   732   375   161   1,268
Balance at December 31, 2014 1,421 342 296 2,059
Additions 2 216 73 291
Cancellations   (562 )   (169 )   (205 )   (936 )
Balance at September 30, 2015   861   389   164   1,414
____________________________

(1)

 

We periodically refine the criteria used to calculate and report
our subscriber data. In the nine months ended September 30, 2016,
we reclassified certain subscribers that receive our breach
response services, and the associated revenue, from the Financial
Institution category to the Consumer Direct category. The
reclassification is excluded from our calculations of decrease and
increase in subscribers in our Financial Institution and Consumer
Direct categories, respectively.

 

INTERSECTIONS INC.
OTHER DATA, continued
(unaudited)

Intersections Inc.
Reconciliation of Non-GAAP Financial Measures

The table below 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. Consolidated adjusted EBITDA before share related
compensation and non-cash impairment charges is presented in a manner
consistent with the way management evaluates operating results and which
management believes is useful to investors and others. Share related
compensation includes non-cash share based compensation. 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 (loss) and the other information prepared in accordance with
GAAP, and may not be comparable to similarly titled measures reported by
other companies. Management strongly encourages shareholders to review
our financial statements and publicly-filed reports in their entirety
and not to rely on any single financial measure.

Consolidated adjusted EBITDA before share related compensation and
non-cash impairment charges represents consolidated loss before income
taxes plus: share related compensation; non-cash impairment of goodwill,
intangibles and other long-lived assets; (gain) loss on disposal of
fixed assets; adjustment for surplus and obsolete inventories;
depreciation and amortization; and interest (income) expense. We believe
that the consolidated adjusted EBITDA before share related compensation
and non-cash impairment charges calculation provides useful information
to investors because they are indicators of our operating performance,
and we use these measures in communications with our board of directors,
creditors, investors and others concerning our financial performance.
Consolidated adjusted EBITDA before share related compensation and
non-cash impairment charges 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 consolidated adjusted EBITDA before share
related compensation and non-cash impairment charges to evaluate the
operating performance of the company. In addition, consolidated and Core
Business adjusted EBITDA before share related compensation and non-cash
impairment charges are used to measure covenant compliance under our
credit agreement with Crystal Financial SPV LLC (“Credit Agreement”).

We provide this information to show the impact of share related
compensation on our operating results, as it is excluded from our
internal operating and budgeting plans and measurements of financial
performance; however, we do consider the dilutive impact to our
shareholders when awarding share related compensation and consider both
the Black-Scholes value and GAAP value (to the extent applicable) in
connection therewith, and value such awards accordingly.

INTERSECTIONS INC.
OTHER DATA, continued
(unaudited)

We do not consider share related compensation charges when we evaluate
the performance of our individual business groups or formulate our short
and long-term operating plans. Due to its nature, individual managers
generally are unable to project the impact of share related compensation
and accordingly we do not hold them accountable for the impact of equity
award grants. When we consider making share related compensation grants,
we primarily take into account the need to attract and retain high
quality employees, overall shareholder dilution and the Black-Scholes
values of the equity grant to the recipient, rather than the potential
accounting charges associated with such grants. For comparability
purposes, we believe it is useful to provide a non-GAAP financial
measure that excludes share related compensation in order to better
understand the long-term performance of our core business and to compare
our results to the results of our peer companies because of varying
available valuation methodologies and the variety of award types that
companies can use under GAAP. Furthermore, the value of share related
compensation is determined using a complex formula that incorporates
factors, such as market volatility, that are beyond our control.
Accordingly, we believe that the presentation of consolidated adjusted
EBITDA before share related compensation and non-cash impairment charges
when read in conjunction with our reported GAAP results can provide
useful supplemental information to our management, to investors and to
our lenders regarding financial and business trends relating to our
financial condition and results of operations.

Consolidated adjusted EBITDA before share related compensation and
non-cash impairment charges has limitations due to the fact it does not
include all compensation related expenses.

Contacts

Intersections Inc.
Ron Barden, 703-488-6810
IR@intersections.com

Read full story here

?>