Interland Reports Record Results; Primary Financial Goal Achieved

Company Generates $3.6 Million Positive EBITDA For Fourth Quarter 2003

 

10/15/2003

Atlanta, GA — (BUSINESS WIRE) — Interland, Inc.

(Nasdaq: INLD), a leading provider of business-class Web hosting and

online services to small and medium businesses (SMBs), today announced

financial results for its fourth fiscal quarter and fiscal year, ended

August 31, 2003.

“We are delighted to announce the achievement of our financial goal

for FY2003 with the attainment of $3.6 million of positive EBITDA in the

fourth quarter. We have improved our EBITDA performance from a loss of

$13.2 million just 6 quarters ago by relentlessly executing on an

aggressive acquisition and integration plan,” said Joel J. Kocher,

Interland’s chairman and chief executive officer. “Now that we have

scale and have established very attractive incremental margins, proving

the value of our model and of our vision, we can confidently invest in

growing our business by bringing the world of mainstream small business

to the Web.”

The company reported revenues of $27.3 million for the quarter and

$106.6 million for fiscal year 2003, an increase of 4.9 percent over

fiscal year 2002. Net loss from continuing operations was $5.9 million

for the quarter equating to a loss of $0.40 per share on 14.8 million

shares outstanding. Including discontinued operations, net loss for the

quarter was $0.6 million, or $0.04 per share. Net loss for the fiscal

year was $173.9 million, or $11.86 per share. The company reported its

first quarter of positive EBITDA(1) from continuing operations with $3.6

million in EBITDA for the period.

Allen L. Shulman, Interland’s chief financial officer, said, “Our

integration efforts resulted in more than $7 million in expense

reductions in the fourth quarter compared to the first quarter, and in

some $16 million in reductions compared to the first quarter of FY02,

before the impact of the Hostcentric acquisition. Significant reductions

in connectivity, facility, and labor costs arising from the closure of

nine acquired data centers, and the successful relocation of close to

4,000 servers, made these savings possible.”

This quarter’s results validate the profitability potential of

Interland’s business model at scale. Even after net expenses of about $1

million attributable to the company’s mainstream market growth

initiative, the company produced $3.6 million in EBITDA, representing an

EBITDA margin of more than 13%.

The acquisition of Hostcentric, effective June 13, 2003, contributed

revenues of $3.2 million and EBITDA of $0.6 million in the fourth

quarter. No significant integration expenses related to the Hostcentric

acquisition are expected.

Cash Position

Interland maintained a strong cash position while further reducing

liabilities on its balance sheet. As of August 31, 2003, Interland’s

cash position, which includes cash and equivalents ($35.2 million),

short term unrestricted investments ($16.3 million) and restricted

investments ($18.6 million), was $70.1 million. The change in cash

balances from last quarter consists of: cash used in operating

activities during the quarter ($6.4 million), including payments of

previously recorded liabilities of $1.8 million due to integration;

repayments of debt and capital lease obligations ($3.3 million); cash

used in the acquisition of Hostcentric ($1.4 million); capital

expenditures ($3.1 million); and cash used in discontinued operations

($1.2 million).

Organic Growth Phase

The completion of the integration phase achieves a primary goal of

Interland’s strategy: the creation of a large integrated hosting

business, at scale, and generating positive EBITDA. This accomplishment

now enables the company to concentrate on the execution of its organic

growth strategies, including reducing churn through customer-focused

improvements in its infrastructure, processes and systems.

Organic growth in the core hosting business will be driven by the

company’s renewed focus on improving the Interland customer experience.

“We recognize that the necessary relocation of servers has

inconvenienced some of our customers, and has led to substantially

higher churn rates among migrated customers,” Kocher said. “It’s not

enough for us to be the biggest, we want to and intend to be the best.”

Accordingly, the company announces the launch of a broad, multi-million

dollar initiative designed to enhance network security, self-service and

live technical support. The company’s scale and strong financial

position should enable it to distance itself from its competition by

making infrastructure investments that provide meaningful service level

improvements at a substantially lower cost per customer.

Interland’s most exciting growth initiative for fiscal 2004 and

beyond is to make it easy and affordable for the more than 20 million

mainstream small businesses to have the effective Web presence they want

and need. Serving this segment represents a very attractive long-term

growth, profitability and strategic opportunity. Coupled with its highly

efficient hosting platform, Interland’s unique suite of website

development tools enables it to profitably provide a low-cost

professional Web presence to small businesses. The company plans to

increase its investment in this area, going to market with a broad array

of products, services and distribution channels, including those

targeted at the general market as well as those tailored to specific

verticals.

The company made further progress in its program of mainstream market

direct sales testing in the fourth quarter, confirming this Spring’s

encouraging preliminary results, and leading to the transition from

testing to production. Overall, the company devoted about $1.0 million

in the fourth quarter to the mainstream market, and expects a net

expenditure of about $1.5 million in the first quarter.

Future Guidance

In fiscal year 2004, the company expects to invest heavily in its

organic growth initiatives while maintaining positive EBITDA for the

first quarter and the year as a whole, on flat to slightly higher

revenues. The level of EBITDA will be primarily dependent upon the

amount and timing of the investments the company elects to make.

The company anticipates about $10 million in depreciation and

amortization expenses each quarter, resulting in a net loss in each

quarter and the fiscal year.

Over the course of the year, the company expects to devote about $6

million in capital expenditures to its mainstream and customer

satisfaction initiatives. The company’s other capital expenditures,

primarily for new servers and related equipment, are expected to remain

at about $1.5 million each quarter.

Conference Call

Interland will conduct a conference call today at 4:30 p.m. EST,

accessible by calling 312-461-1932, no pass code necessary, or via the

Internet at www.interland.com

under the Investor Relations section. A replay of the conference call

will also be available at 402-220-2306, passcode: 5866465, and at the

Web site. The audio archive of the conference call on the website will

be available for a period of at least one year.

About Interland

Interland, Inc. (Nasdaq: INLD) is a leading Web hosting and online

services company dedicated to helping small and medium businesses

achieve success by providing the knowledge, services and tools to build,

manage and promote businesses online. Interland offers a wide selection

of online services, including standardized Web hosting, e-commerce,

application hosting, and Web site development, marketing and

optimization tools. For more information about Interland, please visit www.interland.com.