- The Washington Times - Monday, March 5, 2007

Profits fell by 84 percent for Intersections Inc. in the fourth quarter of 2006 compared with a year earlier, but stock market analysts say prospects remain good for the Chantilly identity theft protection and credit management firm.

Its revenue and fundamental business strategy are positive, despite a drop in income from a major client and a big severance package for top executives, analysts say.

“I view it as more short-term,” said Kevane Wong, research analyst for JMP Securities, a San Francisco investment banking firm. “Revenues actually looked good.”

The company had a profit of $639,000 (4 cents per diluted share) in the fourth quarter of 2006 compared with a profit of $4.0 million (23 cents) one year earlier. Intersections’ stock, INTX on the Nasdaq, closed yesterday at $10.07 per share, up 4 cents, or less than 1 percent, from Friday’s close.

Intersections had revenue of $54.7 million in the fourth quarter of 2006 compared with $43.2 million one year earlier.

Nevertheless, the company struggled to maintain profitability after business changes by a client caused Intersections to lose about $1.4 million of income in the final three months of 2006.

“Despite this, we believe the company is exhibiting stronger than expected business momentum,” Mr. Wong said.

Other analysts agreed with the JMP Securities assessment.

“The company looks forward to 30 percent or greater growth in 2007” helped in part by its international background screening business, said Bruce Simpson, research analyst for the financial firm William Blair & Co.

Both JMP Securities and William Blair & Co. invest in Intersections.

The problems late last year arose when one large client changed the way it administers services to customers. At the same time, the client was undergoing a “systems conversion,” Intersections reported. Intersections did not identify the client.

Intersections continued to provide subscriber services to the client’s customers despite the fact no revenue was coming in to the accounts. Intersections recovered about $500,000 by rebilling the customers but might have lost much of the rest of the revenue.

It also incurred expenses of $1.2 million in severance payments to senior executives, plus $300,000 for consulting services related to the management restructuring.

The company still serves about 4.6 million subscribers and said it expects to earn revenue of more than $260 million this year.

Its clients include Bank of America and major credit card companies.

The company was founded in 1996 to provide credit report monitoring, identity theft and lost account recovery services, primarily to the credit and charge card industries. It also provides pre-employment background screening services.

It competes with credit monitoring companies such as Equifax Inc.

Major achievements for Intersections in 2006 included acquisition of Chartered Marketing Services, Inc., the organization of the Screening International LLC joint venture and new contracts with major clients, according to Michael Stanfield, Intersections’ chief executive officer.

“Despite the surprise we faced in the fourth quarter at a major client, we are pleased with our overall performance for the year in 2006,” Mr. Stanfield said.

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