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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.