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Edited Transcript of INTX earnings conference call or presentation 10-May-18 8:30pm GMT

Q1 2018 Intersections Inc Earnings Call

CHANTILLY May 18, 2018 (Thomson StreetEvents) -- Edited Transcript of Intersections Inc earnings conference call or presentation Thursday, May 10, 2018 at 8:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Ronald L. Barden

Intersections Inc. - CFO

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Conference Call Participants

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* Patrick Retzer

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Presentation

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Operator [1]

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Good afternoon, ladies and gentlemen, and welcome to the Intersections First Quarter 2018 Earnings and Business Update Call. (Operator Instructions)

As a reminder, this call is being recorded for replay purposes.

During this call, Intersections will make certain projections and forward-looking statements, including, without limitation, statements relating to the company's future revenues, expenses and earnings, plans, strategies, objectives, expectations and intentions. These projections and forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that such forward-looking statements are inherently subject to risks and uncertainties, many of which cannot be predicted with accuracy and that actual results could differ materially from the results projected in these forward-looking statements.

For some of the factors that could cause actual results to differ materially, you should review the SEC filings at our corporate website at www.intersections.com. We do not intend to and do not undertake any obligation to update any forward-looking statements or projections we may make unless required by applicable law. The financial highlights and certain non-GAAP financial measures discussed during this call are also available in the press release Intersections distributed for our fourth quarter 2017 earnings release and the investor update, which is available currently on our website at www.intersections.com.

I will now introduce Ron Barden, Chief Financial Officer of Interactions Inc. Mr. Barden, you may begin the call.

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Ronald L. Barden, Intersections Inc. - CFO [2]

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Good afternoon, and welcome to the Intersections First Quarter 2018 Earnings Call and Business Update.

You're hearing my voice today rather than Michael Stanfield because he picked up a bug last night that continued into today and will, unfortunately, not be able to participate in today's call.

If you are logged in, you should see a presentation that we posted to our Investor Relations website that will be used as a guide for today's update.

If not logged on, I recommend you access the document at our Investor Relations page.

I will review the first quarter 2018 progress and results and make comments about our objectives going forward.

I will then open up the call for questions.

I'm not going to walk through every page in detail but will hit the highlights.

Let's start on Page 4. In our 2017 year-end business update call, we discussed our strategic objectives over the next 3 years. We believe the overall business transition is on track to meet our objectives, and we were very pleased with our first quarter results.

Let's move to Page 5 to review the first quarter results. Consolidated revenue from continuing operations for the quarter ended March 31, 2018 was $39.1 million, which was in line with management's expectations.

This is slightly below the $40 million of consolidated revenue generated in the fourth quarter due to runoff of the legacy business and some attrition in Identity Guard subscriber increases in the fourth quarter in our consumer channel. You may recall that we had an increase in the consumer subscribers in the fourth quarter related to marketing just after the announcement of the Equifax breach.

Our new growth areas, including the employee benefit channel, performed as expected in the quarter. Consolidated income from continuing operations before income taxes in the fourth -- in the first quarter was $1.3 million, which was consistent with the fourth quarter 2017 results. Prior to the fourth quarter, we had reported losses for the prior 6 quarters.

Throughout this presentation, we will be referring to certain non-GAAP financial measures, including adjusted EBITDA before share-related compensation and noncash impairment charges and adjusted G&A expense.

A reconciliation of non-GAAP financial measures to the most comparable GAAP measures is provided in the appendix to this presentation.

Further description of the non-GAAP financial measures can be found in the tables and footnotes accompanying the company's earnings release and the GAAP and non-GAAP measures link under the Investor and Media page on our website.

Adjusted EBITDA was $3.3 million for the first quarter 2018 compared to $4 million for the fourth quarter 2017 and an adjusted EBITDA loss of $1 million for the first quarter 2017.

We had 1.1 million subscribers as of March 31, 2018.

Our Identity Guard U.S. subscriber base was consistent with the December 31, 2017 subscriber base and with 7.2% higher than the base 1 year ago as of March 31, 2017.

The year-over-year increase is the result of growth in the subscribers acquired through our employee benefit programs and direct-to-consumer business lines.

We had cash on hand of $8.4 million as of March 31, 2018 compared to $8.5 million as of December 31, 2017.

On Page 6, we provide an update on our new CEO search. Our national search for a new CEO was launched in the first quarter. A number of candidates have been identified, screened and interviewed as the search continues. The search committee's objective is to complete the search process over the next few months, with the new CEO on board by the end of the third quarter.

In the meantime, the management team led by Michael Stanfield continues to aggressively pursue our operating plans during the search process.

Page 7 summarizes many of the details of how Identity Guard with Watson accomplishes a broad range of protective services for different markets.

We provided this slide in our year-end business update, and in the interest of time, I am not going to go into further details.

Page 8 summarizes our sales and marketing transformation, which Michael spoke about on our last call as well. We are pleased with the progress and direction of the transformation and believe we are on track.

On Page 9, we take a look at our revenue trends. As we discussed in our last call, one of our objectives is to grow the Identity Guard revenue base to more than 50% of total revenue on a quarterly run-rate basis by the end of 2018. We are on track to accomplish this objective. We are pleased with the growth of quality partner opportunities that have potential for meaningful revenue growth. I will note that because we are rebuilding our partner marketing channel, the launch dates of the partner opportunities can be difficult to predict and may have impact -- may impact timing of revenue but offer substantial growth opportunities.

On Page 10, we -- it includes the first quarter results along with the 2018 goals and 3-year financial objectives. Given our first quarter results, we believe we are on track to meet our 2018 goals. We -- at this time, we are not making updates to our 2018 or our long-term goals.

Moving on to Page 11. In summary, we believe we continue to be the leading product innovator in our space.

Our first quarter results of $39.1 million of revenue and $3.3 million of adjusted EBITDA support our 2018 financial goals.

We have a strong service offering that meets many needs. We have a scalable and stable platform for operations, and we have a history and culture of providing the strongest customer service.

As a result, we believe we're well positioned to meet the objectives that we laid out above.

At this time, I will now take questions.

Operator, please open up the call for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And from Retzer Capital markets -- Capital Management, excuse me, we have Patrick Retzer.

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Patrick Retzer, [2]

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Have you guys continued to add new partners here in the first quarter? Or are you pretty much where you want to be there? Or how would you describe that roll out?

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Ronald L. Barden, Intersections Inc. - CFO [3]

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We've continued to add partners through the first quarter. We continue to have a very nice pipeline of new partners that will -- are -- will be coming on as we move forward and that we'll continue to grow that pipeline. So there's more to come there.

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Patrick Retzer, [4]

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Okay. What about the bank business? Has -- it's been in runoff for quite a while. Is there any current possibility of restarting that business or reigniting it? Or do you anticipate it'll continue in runoff, even with the new administration?

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Ronald L. Barden, Intersections Inc. - CFO [5]

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Well, our existing business that we have on the books from the financial institutions isn't runoff, and we expect that to continue to run off at a very consistent rate as we discussed in our presentations before. At this time, we have not built anything into our plans for any sort of new marketing with financial institutions on the basis that have been done in the past. And beyond that, I really don't have any further comments about what could happen with the changes that are taking place and the administration. But we have not anticipated the type of situation or marketing opportunities that existed in the past with the financial institutions.

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Patrick Retzer, [6]

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Okay. Today, Apple announced they were coming out with a branded credit card in conjunction with Goldman Sachs. Have you folks ever considered doing a co-branded card? It seems like Identity Guard would be a natural for that.

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Ronald L. Barden, Intersections Inc. - CFO [7]

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In terms of issuing a credit card, that is not part of what our business plan will call for now. In terms of working with partners, we may work with -- in general, in a co-branded manner, but not specifically have we had any areas where we're doing co-branded credit cards at this point.

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Operator [8]

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From Chesapeake Securities, we have [Alex Ovechkin].

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Unidentified Analyst, [9]

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I have 2 questions. In terms of revenue variations in the upcoming quarters, can you talk about what type of revenue, up or down, percentage-wise you would expect going forward for the next couple of quarters, even though you said that your guidance is going to be in line for the 2018 fiscal year?

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Ronald L. Barden, Intersections Inc. - CFO [10]

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Yes. So we haven't given specific guidance on quarters which -- we feel like we're on track in terms of our 2018 goal. As we're rebuilding our partner channel, and we are new to the employee benefits channel, sometimes it's hard to predict when those arrangements will come online and start to produce revenue. So we may have some timing differences there. So we're not providing quarterly guidance. And once we get through the second quarter, obviously, on the next call, we'll provide whatever updates that we will deem necessary at that time for the 2018 goals.

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Unidentified Analyst, [11]

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Okay. And then the second part of that question is, in terms of customer acquisition costs, regarding the total customer base you have reported for the first quarter, is it in line with what you were expecting in terms of the -- at the margin for the number of customers you've added on? Or are the customer acquisition costs higher or lower? And where do you see that going forward for the next couple of quarters?

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Ronald L. Barden, Intersections Inc. - CFO [12]

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The customer acquisition costs for us, were in line with our expectations during the first quarter. In our channels, such as employee benefits, that is a little bit of a different model. It's employee benefit programs, so there's not a, sort of, a marketing acquisition cost. But otherwise, it was in line with our expectations.

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Unidentified Analyst, [13]

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Okay. And if I may ask one more question. In terms of your prepayment of your term loan, what precipitated the $1 million voluntary prepayment that had occurred on April 3, 2018?

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Ronald L. Barden, Intersections Inc. - CFO [14]

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We had on our books an income tax refund receivable that had been our books when we entered into our loan facility with our current lender and had always had discussions about when we collected those refunds, whether we may prepay some of the principal. So we did collect the refund in the first quarter. And we elected to make a voluntary prepayment of $1 million from that refund to the lender.

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Unidentified Analyst, [15]

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Okay. And in terms of liquidity needs, do you foresee any needs of having additional liquidity added on because of maybe changes in markets? Or do you see the current term loan that you have, being satisfactory for whatever you're going to be using it for?

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Ronald L. Barden, Intersections Inc. - CFO [16]

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So we're always looking to evaluate our capital structure and what our capital needs are going to be in the most cost-effective basis for us. Our current plans are supported by our existing liquidity projections. However, we -- again, we're always looking for opportunities, and depending on the pace of growth, as we go forward, it is possible that we may be in -- looking for additional liquidity to support those plans. So that's something that we're always looking at and assessing what options would be available for us in that regard.

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Unidentified Analyst, [17]

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And then, could you also explain how the current credit facility is, in terms of costs for financing? Is it variable or is it fixed?

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Ronald L. Barden, Intersections Inc. - CFO [18]

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The rate adjust annually, and the total rate is right around 10%.

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Operator [19]

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(Operator Instructions) All right. Looks like we have no further questions at this time. I'll turn it back to you for any closing remarks.

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Ronald L. Barden, Intersections Inc. - CFO [20]

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No further remarks. Thanks, everyone, for attending the call. And we look forward to having our call at the end of the second quarter.

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Operator [21]

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Thank you. Ladies and gentlemen, this concludes today's conference. Thank you for joining, you may all disconnect.