Intersections Inc. Reports Fourth Quarter 2016 Results And Announces Year-End Business Update Call

  • Largest independent operator in the Identity Theft Monitoring space in
    the U.S. and Canada
  • Strategic refocus only on identity and privacy protection services
  • Identity Guard® subscriber base increased to 380 thousand
    subscribers
  • Voyce primary operations were ceased in December 2016
  • Captira and Habits at Work to be sold off in first half of 2017

CHANTILLY, Va.–(BUSINESS WIRE)–Intersections Inc. (NASDAQ: INTX) today announced financial results for
the quarter ended December 31, 2016.

“We made significant advances in our Identity Guard® product
portfolio in 2016, initially with the release of a beta version of our
new flagship product at the IBM World of Watson Conference on October
24, 2016 and thereafter with further development and testing,” said
Johan Roets, Chief Executive Officer. “These actions help to ensure that
by the summer of 2017, the product will be best-in-class to address
three strategic objectives: 1) knowing that a consumer has an identity
theft problem earlier is better than knowing later; 2) taking
preventative measures to limit one’s risk profile and digital footprint
can and will reduce the risk of identity theft; and 3) that everyone’s
risk profile is unique and therefore must receive customized advice and
tools on how to protect themselves. Our innovation on the IBM Watson
technology platform will allow us to address the 88% of data in the
world that is stored in unstructured format, but which could contain
valuable information about our subscribers’ and their families’ personal
information and risks thereto. No one else in the Identity Theft
Monitoring space currently has this capability. We have also made
significant investments in business development resources in the U.S. in
order to avail ourselves of new market opportunities. In Canada, our new
distribution partner, Sigma Loyalty Group, is solely dedicated to
helping us grow the Canadian market in new segments and win back
business lost in existing segments.

“We are very pleased to be entering 2017 with a complete focus on
personal information security for consumers and families, as threats
have never been greater,” Mr. Roets continued. “The decision to wind
down Voyce operations and exit other non-core businesses not only allows
us to focus our resources and leverage our core competencies in identity
and personal information security, but also to provide an opportunity to
significantly improve our future financial results compared to 2016. The
competitive landscape in our industry in the U.S. and Canada has seen
very telling changes in 2016. Experian acquired CS Identity (which had
approximately $120 million of revenue in 2016) in April 2016 for $360
million. Further, Symantec acquired LifeLock (which had approximately
$660 million of revenue in 2016) in September 2016 for $2.3 billion. Not
only do these acquisitions change the competitive landscape for us, they
also demonstrate the potential value that Intersections Inc. can create
with a focused growth business in the Identity Theft Monitoring space.
The two acquisitions leave Intersections Inc. as the largest independent
identity theft monitoring provider in the U.S., with personal
information services revenue in 2016 of $164 million and a market
capitalization of approximately $93 million (as of March 24, 2017).”

Consolidated revenue for the quarter ended December 31, 2016 was $42.2
million, compared to $47.4 million for the quarter ended December 31,
2015. Loss before income taxes for the quarter ended December 31, 2016
was $(12.6) million, compared to $(18.9) million for the quarter ended
December 31, 2015. Consolidated adjusted EBITDA (loss) before share
related compensation and non-cash impairment charges (“Adjusted EBITDA”)
for the quarter ended December 31, 2016 was $(1.8) million, compared to
$(5.7) million for the quarter ended December 31, 2015. Diluted loss per
share for the quarter ended December 31, 2016 was $(0.54), compared to
$(0.68) for the quarter ended December 31, 2015. Consolidated revenue
for the year ended December 31, 2016 was $175.7 million, compared to
$203.8 million for the year ended December 31, 2015. Loss before income
taxes for the year ended December 31, 2016 was $(30.5) million, compared
to $(38.4) million for the year ended December 31, 2015. Consolidated
Adjusted EBITDA (loss) for the year ended December 31, 2016 was $(6.6)
million, compared to $(8.2) million for the year ended December 31,
2015. Diluted loss per share for the year ended December 31, 2016 was
$(1.31), compared to $(2.26) for the year ended December 31, 2015.

In late 2016, the Board of Directors approved the closure of the
Company’s Pet Health Monitoring business, also known as Voyce, which
generated a loss before income taxes of $(29.4) million for the year
ended December 31, 2016. The discontinuation of Voyce commercial
operations will enable the Company’s growth strategy and capital to be
directed to the Identity Guard® business. To further the
Company’s strategic focus, it also sold the business comprising the Bail
Bonds Industry Solutions segment in early 2017.

Fourth Quarter Results:

  • Revenue from the Company’s Identity Guard® subscriber base
    was $13.4 million for the quarter ended December 31, 2016 with a base
    of 380 thousand subscribers as of December 31, 2016, 1.6% higher than
    as of December 31, 2015.
  • Revenue from the Company’s U.S. financial institution clients was
    $22.8 million for the quarter ended December 31, 2016 with a base of
    705 thousand subscribers as of December 31, 2016. The subscriber base
    decreased by 1.2% per month during the fourth 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) income
    (loss) before income taxes for the quarter ended December 31, 2016 was
    $190 thousand compared to $(13.8) million for the quarter ended
    December 31, 2015. Core Business Adjusted EBITDA (loss) for the
    quarter ended December 31, 2016 was $3.6 million compared to $(973)
    thousand for the quarter ended December 31, 2015. As a result of the
    decision to exit the Bail Bonds Industry Solutions segment and the
    Habits at Work consulting business, we recorded non-cash asset
    impairments totaling $1.4 million in the fourth quarter of 2016.
  • Voyce loss before income taxes for the quarter ended December 31, 2016
    was $(12.8) million compared to $(5.1) million for the quarter ended
    December 31, 2015. Voyce Adjusted EBITDA (loss) for the quarter ended
    December 31, 2016 was $(5.4) million compared to $(4.7) million for
    the quarter ended December 31, 2015. As a result of the ceased
    operations, we recorded non-cash asset impairments totaling $7.0
    million in the fourth quarter of 2016.
  • As of December 31, 2016, the Company had a cash balance of $10.9
    million, and an outstanding principal balance of $13.4 million under
    its term loan with Crystal Financial SPV LLC. For additional
    information, Please see “Item 7. Management’s Discussion and Analysis
    of Financial Condition and Results of Operations—Liquidity and Capital
    Resources” in our most recent Form 10-K.

Year-End Results:

  • Revenue from the Company’s Identity Guard® subscriber base
    for the year ended December 31, 2016 was $54.5 million compared to
    $55.6 million for the prior year. Revenue and subscriber growth during
    the year was negatively impacted by reduced marketing on a year to
    date basis compared to the prior year, as the Company prepared for the
    launch of its new product utilizing the IBM Watson
    platform in the fourth quarter of 2016.
  • Revenue from the Company’s U.S. financial institution clients for the
    year ended December 31, 2016 was $96.2 million.
  • Core Business (loss) before income taxes for the year ended December
    31, 2016 was $(1.1) million compared to $(19.0) million for the year
    ended December 31, 2015. Core Business Adjusted EBITDA for the year
    ended December 31, 2016 was $13.2 million compared to $9.9 million for
    the year ended December 31, 2015.
  • Voyce loss before income taxes for the year ended December 31, 2016
    was $(29.4) million compared to $(19.4) million for the year ended
    December 31, 2015. Voyce Adjusted EBITDA (loss) for the year ended
    December 31, 2016 was $(19.8) million compared to $(18.1) million for
    the year ended December 31, 2015.

Year-End 2016 Business Update Conference Call:

The Company also announced today that it will hold a conference call to
provide a year-end 2016 business update on Monday, April 3, 2017 at 4:00
p.m. Eastern Time.

You may access the live webcast on the Investor’s page at Intersections
Inc.’s website www.intersections.com.

You can also access the call by dialing the toll free numbers below. If
you wish to participate in the Q&A session, you must dial in.

WHAT:     Q4 2016 Intersections Inc. Earnings Conference Call
 
WHEN: April 3, 2017
4:00 p.m. Eastern Time
 
HOW:

To register for the conference, please
click here
.

You will receive an email confirmation that will include the dial-in
number, passcode, and PIN to be used when joining your event.

The replay of the webcast will be available on this website for four
business days after the live call. The dial-in for the replay is either
888.843.7419 or 630.652.3042 with the replay access code of 5795601#.

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 the timing and
success of new product launches, including our Identity Guard
®
platform 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 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.
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 Year Ended
December 31, December 31,
2016   2015 2016   2015
NET REVENUE $ 42,201 $ 47,408 $ 175,662 $ 203,827
OPERATING EXPENSES:
Marketing 3,022 4,243 14,707 20,568
Commission 10,140 11,611 42,776 50,837
Cost of services revenue 12,442 15,949 53,837 64,932
Cost of hardware revenue 104 217 1,381 608
General and administrative 18,331 22,388 75,274 80,799
Impairment of goodwill 10,318 10,318
Impairment of intangibles and other assets 8,471 8,471 7,355
Depreciation 1,507 1,579 6,238 5,977
Amortization   93   206   577   687
Total operating expenses   54,110   66,511   203,261   242,081
LOSS FROM OPERATIONS (11,909 ) (19,103 ) (27,599 ) (38,254 )
Interest expense (666 ) (160 ) (2,369 ) (313 )
Other (expense) income, net   (68 )   319   (482 )   181
LOSS BEFORE INCOME TAXES (12,643 ) (18,944 ) (30,450 ) (38,386 )
INCOME TAX BENEFIT (EXPENSE)   (145 )   4,848   (19 )   (6,102 )
NET LOSS $ (12,788 ) $ (14,096 ) $ (30,469 ) $ (44,488 )
 
Basic and diluted loss per common share $ (0.54 ) $ (0.68 ) $ (1.31 ) $ (2.26 )
Weighted average shares outstanding, basic and diluted 23,500 20,782 23,259 19,677
 
INTERSECTIONS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except par value)
(unaudited)
 
December 31,
2016   2015
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 10,857 $ 11,471
Accounts receivable, net of allowance for doubtful accounts of $15
(2016) and $115 (2015)
7,972 8,163
Prepaid expenses and other current assets 3,864 7,524
Inventory, net 250 2,253
Income tax receivable 3,314 7,730
Deferred subscription solicitation and commission costs 5,050 6,961
Assets held for sale   104  
Total current assets 31,411 44,102
PROPERTY AND EQUIPMENT, net 10,611 13,438
GOODWILL 9,763 9,763
INTANGIBLE ASSETS, net 210 1,693
OTHER ASSETS   862   1,034
TOTAL ASSETS $ 52,857 $ 70,030
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable $ 2,536 $ 3,207
Accrued expenses and other current liabilities 11,068 15,845
Accrued payroll and employee benefits 4,256 7,091
Commissions payable 316 375
Current portion of long-term debt, net 2,146
Capital leases, current portion 471 631
Deferred revenue 8,295 2,380
Liabilities held for sale   104  
Total current liabilities 29,192 29,529
LONG-TERM DEBT, net 10,092
OBLIGATIONS UNDER CAPITAL LEASES, less current portion 865 1,147
OTHER LONG-TERM LIABILITIES 3,436 3,971
DEFERRED TAX LIABILITY, net   1,905   1,905
TOTAL LIABILITIES   45,490   36,552
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS’ EQUITY:
Common stock at $0.01 par value, shares authorized 50,000; shares
issued 27,303 (2016) and 26,730 (2015); shares outstanding 23,733
(2016) and 23,236 (2015)
273 267
Additional paid-in capital 142,247 137,705
Treasury stock, shares at cost; 3,570 (2016) and 3,494 (2015) (33,822 ) (33,632 )
Accumulated deficit   (101,331 )   (70,862 )
TOTAL STOCKHOLDERS’ EQUITY   7,367   33,478
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 52,857 $ 70,030
   
INTERSECTIONS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
 
2016 2015
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (30,469 ) $ (44,488 )
Adjustments to reconcile net loss to cash flows used in operating
activities:
Depreciation 6,238 5,977
Depreciation of other operating assets 24
Amortization 577 687
Deferred income tax, net 13,356
Amortization of debt issuance cost 884 109
Provision for doubtful accounts (89 ) 100
Adjustment for surplus and obsolete inventories 801
Loss on disposal of fixed assets 451 65
Share based compensation 4,882 5,441
Amortization of deferred subscription solicitation and commission
costs
12,656 17,538
Impairment of goodwill, intangibles and other assets 8,471 17,673
Changes in assets and liabilities:
Accounts receivable 57 7,221
Prepaid expenses and other current assets 3,661 979
Inventory, net (2,585 ) (2,253 )
Income tax, net 4,415 (1,036 )
Deferred subscription solicitation and commission costs (10,744 ) (17,578 )
Other assets 79 782
Accounts payable (845 ) (2,147 )
Accrued expenses and other current liabilities (4,895 ) (3,305 )
Accrued payroll and employee benefits (2,793 ) 1,810
Commissions payable (59 ) (94 )
Deferred revenue 5,916 (532 )
Other long-term liabilities   (554 )   (574 )
Cash flows used in operating activities   (3,921 )   (269 )
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 the business acquisitions (626 )
Increase in restricted cash (375 )
Proceeds from sale of property and equipment 394
Acquisition of property and equipment   (6,685 )   (4,212 )
Cash flows used in investing activities   (6,609 )   (5,040 )
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of debt 20,000
Repayments of debt (6,568 )
Cash paid for debt issuance costs (1,990 )
Stock issuance proceeds, net of stock issuance costs 7,394
Capital lease payments (719 ) (696 )
Withholding tax payment on vesting of restricted stock units and
stock option exercises
  (486 )   (1,243 )
Cash flows provided by financing activities   10,237   5,455
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (293 ) 146
CASH AND CASH EQUIVALENTS — Beginning of period 11,471 11,325
Less: cash reclassified to assets held for sale at end of period   (321 )  
CASH AND CASH EQUIVALENTS — End of period $ 10,857 $ 11,471
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest $ 1,641 $ 179
Cash paid for taxes $ 28 $ 230
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING AND INVESTING
ACTIVITIES:
Equipment obtained under capital lease, including acquisition costs $ 923 $ 926
Equipment additions accrued but not paid $ 423 $ 115
Shares withheld in lieu of withholding taxes on vesting of
restricted stock awards
$ 39 $ 141
Shares issued in the business acquired from White Sky, Inc., net of
liquidating distributions
$ $ 576
Shares issued in the business acquired from Health at Work Wellness
Actuaries LLC
$ $ 1,551
Transfer of land and building to held for sale $ $ 214
 

INTERSECTIONS INC.

OTHER DATA

(in thousands)

(unaudited)

 

Personal Information Services Segment Revenue

 
The following tables provide details of our Personal Information
Services segment revenue information for the three months and years
ended December 31, 2016 and 2015:
 
Quarters Ended December 31,
2016     2015     2016   2015
Bank of America $ 18,497 $ 21,247 46.7 % 48.4 %
All other financial institution clients 4,306 5,416 10.9 % 12.3 %
IDENTITY GUARD® 13,355 14,179 33.7 % 32.3 %
Canadian business lines 3,084 3,076 7.8 % 7.0 %
Other   343   0.9 % 0.0 %
Total Personal Information Services revenue $ 39,585 $ 43,918 100.0 % 100.0 %
 
Years Ended December 31,
2016     2015     2016   2015
Bank of America $ 77,841 $ 89,932 47.6 % 47.7 %
All other financial institution clients 18,361 25,492 11.2 % 13.5 %
IDENTITY GUARD® 54,545 55,594 33.3 % 29.5 %
Canadian business lines 12,488 17,511 7.6 % 9.3 %
Other   467   0.3 % 0.0 %
Total Personal Information Services revenue $ 163,702 $ 188,529 100.0 % 100.0 %
 

INTERSECTIONS INC.

OTHER DATA, continued

(in thousands)

(unaudited)

 

Personal Information Services Segment Subscribers

 
The following tables provide details of our Personal Information
Services segment subscriber information for the three months and
years ended December 31, 2016 and 2015:
 

Three months ended:

 

Financial
Institution

 

IDENTITY
GUARD®

 

Canadian
Business Lines

  Total
Balance at September 30, 2016   732   375   161   1,268
Additions 1 41 30 72
Cancellations   (28 )   (36 )   (29 )   (93 )
Balance at December 31, 2016   705   380   162   1,247
Balance at September 30, 2015 861 389 164 1,414
Additions 2 37 30 69
Cancellations   (34 )   (63 )   (29 )   (126 )
Balance at December 31, 2015   829   363   165   1,357

Years ended:

       

Financial
Institution

IDENTITY
GUARD®

Canadian
Business Lines

Total
Balance at December 31, 2014   1,421   342   296   2,059
Additions 4 253 103 360
Cancellations   (596 )   (232 )   (234 )   (1,062 )
Balance at December 31, 2015 829 363 165 1,357
Reclassification (1) (11 ) 11
Additions 2 200 123 325
Cancellations   (115 )   (194 )   (126 )   (435 )
Balance at December 31, 2016   705   380   162   1,247
  ____________________________
(1) We periodically refine the criteria used to calculate and report our
subscriber data. In the year ended December 31, 2016, we
reclassified certain subscribers that receive our breach response
services, and the associated revenue, from the Financial Institution
category to the Identity Guard® 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 (“Adjusted EBITDA”) 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 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 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 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.

Contacts

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

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