Interland, Inc. (NASDAQ:INLD), a leading provider of business-class Web hosting services to small and medium businesses, today reiterated and provided further details on the guidance provided at its December 19, 2002 announcement of financial results for its first fiscal quarter, ended November 30, 2002. In accordance with disclosure rules and in anticipation of a series of meetings with the investment community to discuss the company's progress, Interland provided greater details on its plans over the next three quarters. The information illustrates how integration spending throughout the year is expected to yield progressive cost savings, resulting in Net Income before non-cash Depreciation and Amortization ("EBDA") of $3 to $4 million in the fourth fiscal quarter ending August 31, 2003, an improvement of $5 to $6 million over the first quarter of fiscal 2003.

To report its progress in achieving these results, the company will in future periods report, in addition to GAAP Net Income, its "Generated Cash," a metric that represents GAAP Net Income before Depreciation and Amortization, less Capital Expenditures.

In its first fiscal quarter of 2003, Interland reported $(4.2) million in Generated Cash, after expending nearly $2 million in integration costs. Generated Cash before integration costs is expected to improve by $700,000 in the second quarter to $(1.5) million, by an additional $2.5 to $3 million in the third quarter, resulting in $1 to $1.5 million in Generated Cash before integration costs, and by a further $1.5 to $2 million in the fourth quarter to $2.5 to $3.5 million. As a consequence EBDA would show a $5 to $6 million improvement from the first to the fourth fiscal quarters. In order to achieve this significant level of improvement, the company anticipates using up to about $10 million in cash before turning positive in the fiscal fourth quarter. With a cash balance of $134.5 million at November 30, 2002, the company has ample resources to reach its goals.


As mentioned in prior earnings releases, conference calls and investor presentations, Interland has two core objectives for fiscal year 2003:

1 - Completing the integration of its acquisitions, thereby exploiting
economies of scale resulting in significant expense reductions and
positive cash generation

2 - Setting the stage for organic growth beginning in fiscal 2004


Interland's primary focus currently is to complete its first objective of integration and infrastructure improvement. Consequently, details of the company's organic growth plans will be disclosed at a later date, but the company has been making significant progress in reducing its level of churn, as announced during its last earnings conference call, while implementing a broad range of initiatives aimed at generating organic growth. The company also recently acquired Trellix, a key step in its drive to tap the mass market of Web services for the 20 million small businesses in the United States.

Interland's strategy over the past two years has been to attain most efficiently the economies of scale potential inherent in the Web hosting business by growing rapidly through acquisitions and by integrating these corporations and customer accounts into a centralized, highly efficient platform. Since the merger of Interland and HostPro in mid-2001, the company has announced seven acquisitions, achieving the leadership position in the industry and generating revenues in excess of $100 million annually. Following the successful integration of Interland and HostPro during fiscal 2002, which resulted in dramatic reductions in expenses, the company is now tackling the final phase of its integration program. Along with bringing the company's centralized platform to the next level of efficiency and industry leadership, this year's integration program is designed to yield progressively significant expense reductions and should result in dramatically improved financial results.

The integration program expenditures, which are divided roughly equally between capital expenditures and operating expenses, are aimed at the company's infrastructure, completing the integration of acquisitions, and the migration of consolidated customers to the blueHALO(SM) shared architecture, upgrading internal systems, divesting acquired data centers, and consolidating operations. In line with previously announced estimates, the company's integration expenditures are expected to total $8 to $9 million during fiscal 2003. As previously disclosed, the company will also take $3 million in restructuring charges to cover real estate lease and bandwidth contract terminations. In the future, the company may identify and undertake additional integration opportunities with similarly attractive and timely results.

While Interland very recently closed on its acquisition of Trellix and announced the execution of a definitive agreement to acquire Hostcentric, the impact of these acquisitions is not factored into the above guidance. Preliminary estimates, however, indicate that the Trellix acquisition should have a negative EBDA impact in the order of $750,000 in the second quarter, while Trellix and Hostcentric (assuming a third quarter closing) should together contribute positively to Generated Cash in the third quarter and beyond. Before considering the effect of these acquisitions, the assumption is that revenues should be about flat for the balance of the fiscal year.