Intersections Inc. Reports Third Quarter 2006 Earnings

Intersections Inc. (Nasdaq:INTX) today announced financial results for the quarter and nine months ended September 30, 2006. Revenue for the third quarter of 2006 was $55.3 million, compared to $45.4 million for the quarter ended June 30, 2006 and $42.6 million for the quarter ended September 30, 2005. Net income for the quarter ended September 30, 2006 was $2.6 million, compared to $2.7 million for the quarter ended June 30, 2006 and $3.5 million for the quarter ended September 30, 2005. Diluted earnings per share ("EPS”) were $0.15 for the third quarter of 2006, compared to $0.16 for the second quarter of 2006 and $0.20 for the third quarter of 2005. Revenue for nine months ended September 30, 2006 was $146.3 million, an increase of 20.0 percent over the same period last year. Net income for the nine months ended September 30, 2006 was $ 8.8 million, compared to $8.5 million for the nine months ended September 30, 2005, an increase of 3.8 percent. Diluted earnings per share ("EPS”) were $0.50 for the nine months ended September 30, 2006, compared to $0.47 for the same period last year. 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 with Control Risks Group Holdings Limited’s (CRG) background screening business, for the period May 31, 2006 through September 30, 2006. Our financial results also include the results for Chartered Marketing Services, Inc. (CMSI), which we acquired on July 3, 2006. CMSI’s results will not be separately reported. "Our results in the third quarter of 2006 exceeded our expectations with respect to subscriber, revenue and earnings levels due to strong results in our indirect business with financial institutions. Additionally, we are progressing positively in the strategic initiatives we previously outlined," said Chairman and Chief Executive Officer, Michael Stanfield. Third Quarter 2006 Financial Highlights: Total subscribers increased to approximately 4.33 million as of September 30, 2006, compared to approximately 3.66 million as of December 31, 2005, an increase of 18.2 percent. Subscriber additions in the third quarter of 2006 were approximately 1.2 million. Subscribers for CMSI were 323 thousand as of the beginning of the 3rd quarter of 2006. Total revenue for the third quarter of 2006 was $55.3 million, including $7.5 million from Screening International, compared to $45.4 million, including $6.1 million from ABI and Screening International, for the second quarter of 2006, and $42.6 million for the third quarter of 2005, including $3.8 million from ABI. Subscription revenue, net of marketing and commissions associated with subscription revenue, increased to $31.8 million for the third quarter of 2006 from $26.2 million for the second quarter of 2006, and increased from $26.3 million for the third quarter of 2005, an increase of 21.5 percent and an increase of 21.0 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. Depreciation and amortization expense for the third quarter of 2006 was $2.9 million compared to $2.3 million for the second quarter of 2006 and $1.7 million for the third quarter of 2005. Depreciation and amortization for the third quarter of 2006 included amortization of $610 thousand for intangibles related to the purchase of SI and CMSI. Pre-tax income was $4.6 million or 8.4 percent of revenue, for the third quarter of 2006, compared to $4.7 million or 10.4 percent of revenue, for the second quarter of 2006, and $5.8 million or 13.6 percent of revenue, for the third quarter of 2005. Cash flow provided by operations for the quarter ended September 30, 2006, was approximately $8.4 million. Nine Month Results: Total revenue increased 20.0 percent to $146.3 million, for the nine months ended September 30, 2006, including $17.3 million from SI, and from $122.0 million including $10.4 million from ABI, for the comparable period in 2005. Subscription revenue, net of marketing and commissions associated with subscription revenue, increased 16.7 percent to $87.5 million for the nine months ended September 30, 2006, from $74.9 million for the comparable period in 2005. Pre-tax income increased 7.3 percent to $15.0 million for the nine months ended September 30, 2006, from $14.0 million for the nine months ended September 30, 2005. 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. Depreciation and amortization expense for the nine months ended September 30, 2006 was $7.3 million compared to $4.6 million for the nine months ended September 30, 2005. Net income was $8.8 million, or $0.50 per diluted share, for the nine months ended September 30, 2006, compared to $8.5 million, or $0.47 per diluted share, for the nine months ended September 30, 2005. Cash flow provided by operations for the nine months ended September 30, 2006 was $20.0 million. Intersections’ quarter end September 30, 2006 results will be discussed in more detail on October 30, 2006 at 5:00 pm EST 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. Monday, October 30, through 11:59 p.m. Wednesday, November 1, 2006, at 888-286-8010, or if you are based internationally at, +1-617-801-6888 (Passcode: 86002907). 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, Chartered Marketing 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)   2006  2005  2006  2005    Revenue $ 55,261  $ 42,612  $ 146,318  $ 121,952  Operating expenses: Marketing 6,473  5,059  18,454  14,621  Commissions 7,389  6,557  18,007  20,208  Cost of revenue 19,967  14,900  54,217  42,177  General and administrative 13,815  8,974  34,560  25,639  Depreciation and amortization 2,895  1,660  7,298  4,631  Impairment of software development -  -  -  1,515    Total operating expenses 50,539  37,150  132,536  108,791    Income from operations 4,722  5,462  13,782  13,161  Interest income, net (107) 316  865  786  Other income, net 3  15  324  6    Income before income taxes and minority interest 4,618  5,793  14,971  13,953    Income tax expense (1,850) (2,286) (5,936) (5,479)   Income before minority interest 2,768  3,507  9,035  8,474    Minority Interest (132) -  (238) -    Net income $ 2,636  $ 3,507  $ 8,797  $ 8,474      Net income per basic share $ 0.16  $ 0.21  $ 0.53  $ 0.50    Net income per diluted share $ 0.15  $ 0.20  $ 0.50  $ 0.47    Weighted average common shares outstanding 16,788  16,819  16,746  17,078  Dilutive effect of common stock equivalents 1,067  708  796  838  Weighted average common shares outstanding – assuming dilution 17,855  17,527  17,542  17,916  INTERSECTIONS INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)   September 30, December 31, 2006  2005  (in thousands) ASSETS   CURRENT ASSETS: Cash and cash equivalents $ 21,750  $ 17,555  Short-term investments 6,413  34,087  Accounts receivable, net 23,047  14,746  Prepaid expenses and other current assets 5,854  3,071  Deferred subscription solicitation costs 11,062  8,818  Total current assets 68,126  78,277    PROPERTY AND EQUIPMENT—Net 21,845  20,653  GOODWILL 66,370  16,741  INTANGIBLE ASSETS 16,239  1,325  OTHER ASSETS 9,910  6,191  TOTAL ASSETS $ 182,490  $123,187    LIABILITIES AND STOCKHOLDERS' EQUITY   CURRENT LIABILITIES: Accounts payable $ 5,480  $ 3,863  Accrued expenses and other current liabilities 15,648  8,480  Accrued payroll and employee benefits 5,241  3,094  Commissions payable 875  1,966  Deferred revenue 7,133  3,888  Current obligations under capital leases 1,151  1,370  Note payable 2,222  —  Deferred tax liability 4,313  2,007  Income tax payable 1,657  1,116  Total current liabilities 43,720  25,784    OBLIGATIONS UNDER CAPITAL LEASES—Less current portion 1,953  2,797  OTHER LONG-TERM LIABILITIES 564  292  NOTE PAYABLE 12,778  —  DEFERRED TAX LIABILITY 9,057  1,370    Minority Interest 11,527  —    STOCKHOLDERS' EQUITY:   Common stock 178  176  Deferred compensation —  (10) Additional paid-in capital 94,496  93,367  Treasury stock, 965,000 shares at cost (8,600) (8,600) Retained earnings 16,807  8,011  Accumulated other comprehensive loss 10  —    Total stockholders' equity 102,891  92,944    TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 182,490  $ 123,187    This balance sheet reflects the preliminary purchase price allocation related to the purchase of CMSI and SI. INTERSECTIONS INC. CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)   Nine Months Ended September 30, 2006  2005  (in thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 8,797  $ 8,474  Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization 7,370  4,631  Amortization of gain from sale leaseback (72) -  Loss on disposal of fixed asset 54  15  Minority interest 238  -  Amortization of debt issuance cost 16  -  Increase in allowance for doubtful accounts 104  33  Deferred compensation 10  15  Deferred income tax 2,275  77  Stock based compensation 909  -  Amortization of deferred subscription solicitation costs 15,458  16,404  Impairment of software development costs -  1,515    Changes in assets and liabilities: Accounts receivable (4,836) (3,925) Prepaid expenses and other current assets (608) (451) Deferred subscription solicitation costs (14,027) (16,607) Other assets (3,570) (5,660) Accounts payable (1,910) (574) Accrued expenses and other current liabilities 6,214  1,146  Accrued payroll and employee benefits 1,162  (14) Commissions payable (1,091) 35  Income tax payable (168) 3,767  Deferred revenue 3,245  (137) Other long-term liabilities 462  (94)   Net cash provided by operating activities 20,032  8,650    NET CASH PROVIDED BY INVESTING ACTIVITIES: Investments 27,673  6,553  Investment - Screening International 1,710  -  Investment – Chartered Marketing Services Incorporated (53,055) -  Acquisition of property and equipment (6,113) (8,286)   Net cash provided by investing activities (29,785) (1,733)   NET CASH USED IN FINANCING ACTIVITIES: Options exercised 220  1,124  Proceeds from note 15,000  -  Capital lease payments (1,062) (1,001) Debt issuance costs (243) -  Repurchase of treasury stock -  (6,569)   Net cash used in financing activities 13,915  (6,446)   EFFECT OF EXCHANGE RATE ON CASH 33  -  INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 4,195  471  CASH AND CASH EQUIVALENTS—Beginning of period 17,555  12,027  CASH AND CASH EQUIVALENTS—End of period $ 21,750  $ 12,498  INTERSECTIONS INC. OTHER DATA (Unaudited)   Three Months Ended Nine Months Ended September 30, September 30, (dollars in thousands)   2006  2005  2006  2005    Subscribers at beginning of period 3,743,858  3,179,181  3,659,975  2,885,223  New subscribers – indirect 706,503  578,476  1,875,375  1,560,201  New subscribers – direct 503,100  191,749  891,100  551,124  Cancelled subscribers within first 90 days of subscription 226,012  218,934  682,885  637,019  Cancelled subscribers after first 90 days of subscription 399,710  317,160  1,415,826  946,217  Subscribers at end of period 4,327,739  3,413,312  4,327,739  3,413,312    Indirect subscribers 69.1% 65.4% 70.1% 63.7% Direct subscribers 30.9  34.6  29.9  36.3  Subscribers at end of period 100.0% 100.0% 100.0% 100.0%   *Cancellations within first 90 days of subscription 18.7% 28.4% 24.7% 30.2% **Cancellations after first 90 days of subscription 28.8% 26.4% 28.8% 26.4%   ***Overall retention 62.3% 63.0% 62.3% 63.0%   Percentage of revenue from indirect marketing arrangements to total subscription revenue 40.3% 34.6% 41.0% 32.8%   Percentage of revenue from direct marketing arrangements to total subscription revenue 59.7  65.4  59.0  67.2    Total subscription revenue 100.0% 100.0% 100.0% 100.0%   Total revenue $ 55,261  $ 42,612  $146,318  $121,952  Revenue from transactional sales (9,600) (4,731) (22,379) (12,249) Revenue from lost/stolen credit card registry (20) (20) (60) (57) Subscription revenue 45,641  37,861  123,879  109,646    Marketing and commissions 13,862  11,616  36,461  34,829  Commissions paid on transactional sales (6) (22) (25) (85) Commissions paid on lost/stolen credit card registry (9) (5) (22) (29) Marketing and commissions associated with subscription revenue 13,847  11,589  36,414  34,715    Subscription revenue, net of marketing and commissions associated with subscription revenue $ 31,794  $ 26,272  $ 87,465  $ 74,931    * 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