Intersections Inc. Reports Fourth Quarter 2015 Results

  • Identity Guard® subscriber base and revenue continue
    year-over-year growth
  • Restructuring plan started in 2014 and further actions in 2015
    expected to generate $19.0 million in annualized cost savings
  • Raised $7.5 million gross proceeds from private placement of common
    stock
  • Completed a $20 million long term debt financing in March 2016

CHANTILLY, Va.–(BUSINESS WIRE)–Intersections Inc. (NASDAQ: INTX) today announced financial results for
the quarter ended December 31, 2015.

“We have implemented our cost reduction program, raised incremental
equity and debt capital, and are well positioned to grow our Identity
Guard® business and our new Voyce® animal health
monitoring business. I am pleased that our efforts in 2015 yielded over
16% revenue growth in our U.S. Identity Guard business compared to 2014
and that our restructuring and cost reduction initiatives are expected
to achieve the $19.0 million of annualized cost savings that we targeted
when the effort began in 2014,” said Michael Stanfield, Chairman and
Chief Executive Officer. “Our team’s efforts to reposition Intersections
with new and different business models are beginning to bear fruit. I
applaud the fortitude and perseverance of our dedicated and resourceful
team.”

Consolidated revenue for the quarter ended December 31, 2015 was $47.4
million, compared to $56.6 million for the quarter ended December 31,
2014. Consolidated adjusted EBITDA (loss) before share related
compensation and non-cash impairment charges for the quarter ended
December 31, 2015 was $(6.0) million, compared to $693 thousand for the
quarter ended December 31, 2014. Net loss for the quarter ended December
31, 2015 was $(14.1) million, compared to $(22.0) million for the
quarter ended December 31, 2014.

Consolidated revenue for the year ended December 31, 2015 was $203.8
million, compared to $246.6 million for the year ended December 31,
2014. Consolidated adjusted EBITDA (loss) before share related
compensation and non-cash impairment charges for the year ended December
31, 2015 was $(8.5) million, compared to $(2.6) million for the year
ended December 31, 2014. Net loss for the year ended December 31, 2015
was $(44.5) million, compared to $(30.7) million for the year ended
December 31, 2014. As previously announced, the Company recorded
non-cash expenses of $7.4 million and $14.1 million related to the
remeasurement of its investment in White Sky, Inc. and a valuation
allowance on its net deferred tax assets, respectively, in the year
ended December 31, 2015. Additionally, in the fourth quarter of 2015,
the Company recorded a non-cash impairment of goodwill of $10.3 million.
Diluted loss per share for the year ended December 31, 2015 was $(2.26),
compared to $(1.66) for the year ended December 31, 2014.

As of December 31, 2015, the Company had a cash balance of $11.5
million, including aggregate gross proceeds of $7.5 million from the
sale of its common stock through a private placement, and no debt
outstanding under its revolving credit facility. On March 21, 2016, the
Company completed a $20 million term loan financing with Crystal
Financial LLC. The Company will use up to a maximum of $15 million of
the proceeds from the term loan in connection with the market launch of
the Voyce pet health monitoring business, with the remaining portion to
be used for general corporate purposes of the Company’s Identity Guard
and other businesses. For the duration of the three-year term of the
Crystal debt financing, any additional capital needs of Voyce can only
be funded from cash generated from Voyce’s operations or a third-party
equity investment directly into Voyce, which is subject to limitations
in the credit agreement. In connection with the term loan, the Company
terminated its existing loan agreement with Silicon Valley Bank. Loeb
Partners served as the exclusive placement agent in this transaction.

Fourth Quarter Financial Highlights:

  • Revenue from the Company’s U.S. financial institution clients for the
    fourth quarter was $26.7 million with a base of 829 thousand
    subscribers as of December 31, 2015. The subscriber base decreased by
    3.8% compared to September 30, 2015, which the Company believes is
    representative of normal attrition given the ceased marketing and
    retention efforts for this population.
  • Revenue from the Company’s Consumer Direct, or Identity Guard,
    subscriber base for the fourth quarter was $14.2 million, 17.2% higher
    than the fourth quarter of 2014. The Identity Guard subscriber base
    was 363 thousand as of December 31, 2015, 6.5% higher than December
    31, 2014.
  • During the quarter ended December 31, 2015, the Company determined
    that goodwill associated with the Insurance and Other Consumer
    Services reporting unit was impaired and recorded a goodwill
    impairment charge of $10.3 million, which increased consolidated net
    loss for the period.
  • Consolidated adjusted EBITDA (loss) before share related compensation
    and non-cash impairment charges for the quarter ended December 31,
    2015 includes approximately $(4.4) million from our Pet Health
    Monitoring segment, which was funded from available cash on hand,
    compared to $(3.0) million for the quarter ended December 31, 2014.
  • Consolidated cash flows (used in) operations for the quarter ended
    December 31, 2015 were approximately $(2.7) million, compared to cash
    flows provided by operations of $2.3 million for the quarter ended
    December 31, 2014.

2015 Results:

  • The 16.1% growth in our Identity Guard revenue in 2015 and the savings
    from cost reduction initiatives partially offset the revenue and
    profitability declines principally caused by the declining subscriber
    base acquired through U.S. financial institution clients and the
    increased costs associated with the product launch of our Pet Health
    Monitoring segment.
  • Actions taken in connection with our plan to streamline operations and
    reduce our cost structures, which was initiated in late 2014, and the
    continued evaluation of our cost structure in 2015, are expected to
    achieve more than $19.0 million of aggregate annualized cost savings.
  • Consolidated adjusted EBITDA (loss) before share related compensation
    and non-cash impairment charges for the year ended December 31, 2015
    includes approximately $(16.9) million from our Pet Health Monitoring
    segment, which was funded from available cash on hand, compared to
    $(13.4) million for the year ended December 31, 2014.
  • As a result of the Company’s declining profitability, the Company
    increased income tax expense in its consolidated statements of
    operations in the year ended December 31, 2015, primarily related to
    the establishment of a valuation allowance on its net deferred tax
    assets for the portion of the future tax benefit that, more likely
    than not, will not be realized. The valuation allowance increased by
    $14.1 million in the year ended December 31, 2015. The timing of
    realization of these deferred tax assets will depend on the timing of
    the Company’s future profitability.
  • As previously announced, on June 26, 2015, the Company acquired
    substantially all of the net assets of White Sky, Inc., in which it
    previously held an equity interest that was recorded as a long-term,
    cost method investment. This acquisition provides opportunities to
    expand the Company’s product integration and development, marketing
    and operational efficiencies. Based upon the estimated fair value of
    the business prior to the acquisition, the Company recorded a non-cash
    impairment charge of $7.4 million before income taxes in the year
    ended December 31, 2015.
  • Consolidated cash flows (used in) operations for the year ended
    December 31, 2015 were approximately $(269) thousand, compared to cash
    flows provided by operations of $4.9 million for the year ended
    December 31, 2014.

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.” 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
®,
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 and/or impairment charges; 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 in its Quarterly Reports on Form 10-Q
and 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.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

 

Three Months Ended
December 31,

Year Ended
December 31,

2014   2015 2014   2015
REVENUE
Services $ 56,556 $ 47,400 $ 246,642 $ 203,779
Hardware       8         48  
Net revenue   56,556     47,408     246,642     203,827  
OPERATING EXPENSES:
Marketing 4,518 4,243 23,227 20,568
Commission 14,303 11,611 63,130 50,837
Cost of services revenue 19,969 15,949 86,675 64,932
Cost of hardware revenue 57 217 135 608
General and administrative 18,256 22,388 80,935 80,799
Impairment of goodwill 25,837 10,318 25,837 10,318
Impairment of intangibles and other long-lived assets 7,355
Depreciation 1,401 1,579 5,656 5,977
Amortization   848     206     3,407     687  
Total operating expenses   85,189     66,511     289,002     242,081  
LOSS FROM OPERATIONS (28,633 ) (19,103 ) (42,360 ) (38,254 )
Interest expense (87 ) (160 ) (604 ) (313 )
Other (expense) income, net   (291 )   319     (669 )   181  
LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES (29,011 ) (18,944 ) (43,633 ) (38,386 )
INCOME TAX BENEFIT (EXPENSE)   7,042     4,848     14,086     (6,102 )
LOSS FROM CONTINUING OPERATIONS (21,969 ) (14,096 ) (29,547 ) (44,488 )
LOSS FROM DISCONTINUED OPERATIONS, NET OF TAX           (1,147 )    
NET LOSS $ (21,969 ) $ (14,096 ) $ (30,694 ) $ (44,488 )
Basic and diluted loss per common share:
Loss from continuing operations $ (1.19 ) $ (0.68 ) $ (1.60 ) $ (2.26 )
Loss from discontinued operations           (0.06 )    
Basic and diluted loss per common share $ (1.19 ) $ (0.68 ) $ (1.66 ) $ (2.26 )
Cash dividends declared per common share $ $ $ 0.20 $
Weighted average shares outstanding, basic and diluted 18,579 20,782 18,487 19,677
 
 

INTERSECTIONS INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except par value)

 
  As of December 31,
2014   2015
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 11,325 $ 11,471
Accounts receivable, net of allowance for doubtful accounts of $5
(2014) and $115 (2015)
15,479 8,163
Prepaid expenses and other current assets 8,289 7,524
Inventory, net 2,253
Income tax receivable 8,107 7,730
Deferred subscription solicitation costs   6,922     6,961  
Total current assets 50,122 44,102
PROPERTY AND EQUIPMENT, net 14,764 13,438
DEFERRED TAX ASSET, net 11,849
LONG-TERM INVESTMENT 8,384
GOODWILL 17,398 9,763
INTANGIBLE ASSETS, net 763 1,693
OTHER ASSETS   1,301     1,034  
TOTAL ASSETS $ 104,581   $ 70,030  
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable $ 5,356 $ 3,207
Accrued expenses and other current liabilities 18,907 15,845
Accrued payroll and employee benefits 5,034 7,091
Commissions payable 468 375
Capital leases, current portion 592 631
Deferred revenue 2,869 2,380
Deferred tax liability, net, current portion   702      
Total current liabilities 33,928 29,529
OBLIGATIONS UNDER CAPITAL LEASES, less current portion 981 1,147
OTHER LONG-TERM LIABILITIES 4,545 3,971
DEFERRED TAX LIABILITY, net       1,905  
TOTAL LIABILITIES   39,454     36,552  
COMMITMENTS AND CONTINGENCIES (see Notes 17 and 18)
STOCKHOLDERS’ EQUITY:
Common stock at $0.01 par value, shares authorized 50,000; shares
issued 22,158 (2014) and 26,730 (2015); shares outstanding 18,978
(2014) and 23,236 (2015)
222 267
Additional paid-in capital 123,975 137,705
Treasury stock, shares at cost; 3,180 (2014) and 3,494 (2015) (32,696 ) (33,632 )
Accumulated deficit   (26,374 )   (70,862 )
TOTAL STOCKHOLDERS’ EQUITY   65,127     33,478  
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 104,581   $ 70,030  
 
 

INTERSECTIONS INC.

CONSOLIDATED STATEMENT OF CASH FLOWS

(in thousands)

 
  Year Ended December 31,
2014   2015
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (30,694 ) $ (44,488 )
Adjustments to reconcile net loss to cash flows provided by (used
in) operating activities:
Depreciation 6,615 5,977
Amortization 3,407 687
Deferred income tax, net (10,555 ) 13,356
Amortization of debt issuance cost 156 109
Provision for doubtful accounts (21 ) 100
Loss on disposal of fixed assets 893 65
Share based compensation 4,425 5,441
Excess tax benefit upon vesting of restricted stock units and stock
option exercises
(284 )
Amortization of non-cash consideration exchanged for additional
investment
(618 )
Amortization of deferred subscription solicitation costs 16,642 17,538
Impairment of goodwill, intangibles and other long-lived assets 25,837 17,673
Changes in assets and liabilities:
Accounts receivable 5,616 7,221
Prepaid expenses and other current assets (2,774 ) 979
Inventory, net (2,253 )
Income tax, net (9,059 ) (1,036 )
Deferred subscription solicitation costs (16,476 ) (17,578 )
Other assets 48 782
Accounts payable 4,417 (2,147 )
Accrued expenses and other current liabilities 5,557 (3,305 )
Accrued payroll and employee benefits 1,779 1,810
Commissions payable (34 ) (94 )
Deferred revenue (800 ) (532 )
Other long-term liabilities   849     (574 )
Cash flows provided by (used in) operating activities   4,926     (269 )
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for acquisition of technology related intangible (150 ) (202 )
Cash paid for the business acquired from White Sky, Inc., net of
cash received
(625 )
Cash paid for the business acquired from Health at Work Wellness
Actuaries LLC
(1 )
Acquisition of property and equipment   (7,957 )   (4,212 )
Cash flows used in investing activities   (8,107 )   (5,040 )
CASH FLOWS FROM FINANCING ACTIVITIES:
Stock issuance proceeds, net of stock issuance costs 7,394
Cash dividends paid on common shares (3,674 )
Excess tax benefit upon vesting of restricted stock units and stock
option exercises
284
Capital lease payments (853 ) (696 )
Cash proceeds from stock option exercises 105
Withholding tax payment on vesting of restricted stock units and
stock option exercises
  (2,276 )   (1,243 )
Cash flows (used in) provided by financing activities   (6,414 )   5,455  
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (9,595 ) 146
CASH AND CASH EQUIVALENTS — Beginning of period   20,920     11,325  
CASH AND CASH EQUIVALENTS — End of period $ 11,325   $ 11,471  
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest $ 161 $ 179
Cash paid for taxes $ 5,703 $ 230
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING AND INVESTING
ACTIVITIES:
Equipment obtained under capital lease, including acquisition costs $ $ 926
Equipment additions accrued but not paid $ 174 $ 115
Shares withheld in lieu of withholding taxes on vesting of
restricted stock awards
$ 58 $ 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 2014, we reorganized our business into one that we believe will build
our Identity Guard® brand and Canadian business lines as growth engines
for our identity theft and privacy protection solution, and we believe
we continue to provide the highest level of service for our existing
U.S. financial institution clients. As a result of the reorganization,
we refined our criteria used to calculate and report the other data in
the tables below.

The following tables provide details of our Personal Information
Services segment revenue information for the three months and years
ended December 31, 2014 and 2015 (in thousands):

 

Personal Information Services Segment Revenue

 
Three Months Ended December 31,
2014   2015   2014   2015
Bank of America $ 24,929 $ 21,247 47.6 % 48.4 %
All other financial institution clients 8,747 5,416 16.7 % 12.3 %
Consumer direct 12,099 14,179 23.1 % 32.3 %
Canadian business lines   6,600   3,076 12.6 % 7.0 %
Total Personal Information Services revenue $ 52,375 $ 43,918 100.0 % 100.0 %
 
 
Year Ended December 31,
2014 2015 2014 2015
Bank of America $ 105,372 $ 89,932 46.2 % 47.7 %
All other financial institution clients 45,436 25,492 19.9 % 13.5 %
Consumer direct 47,869 55,594 21.0 % 29.5 %
Canadian business lines   29,422   17,511 12.9 % 9.3 %
Total Personal Information Services revenue $ 228,099 $ 188,529 100.0 % 100.0 %
 

INTERSECTIONS INC.
OTHER DATA, continued

The following tables provide details of our Personal Information
Services segment subscriber information for the three months and years
ended December 31, 2014 and 2015 (in thousands):

 

Personal Information Services Segment Subscribers

 

Three months ended December 31, 2014 and 2015:

 

Financial
Institution

 

Consumer
Direct

 

Canadian
Business
Lines

  Total
Balance at September 30, 2014 1,477 337 315 2,129
Additions 2 56 23 81
Cancellations (58 ) (51 ) (42 ) (151 )
Balance at December 31, 2014 1,421   342   296   2,059  
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 December 31, 2014 and 2015:

Financial
Institution

Consumer
Direct

Canadian
Business
Lines

Total
Balance at December 31, 2013 2,067 301 332 2,700
Additions 29 239 123 391
Cancellations (675 ) (198 ) (159 ) (1,032 )
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  
 

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, as well as
dividend equivalent cash payments to restricted stock unit (“RSU”)
holders. 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, depreciation and amortization,
interest (income) expense and other (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.
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 and to make compensation
determinations.

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.

Contacts

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

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