Interland Release Third-Quarter 2004 Results

ATLANTA -- July 7, 2004 -- 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 third fiscal quarter of 2004, ended on May 31, 2004.

The company reported revenues of $25.7 million for the quarter, a decrease of 1.3 percent from the prior quarter and 0.8 percent from the same quarter last year. Net loss from continuing operations was $81.2 million for the quarter equating to a loss of $5.07 per share on 16.0 million shares used in the per share calculation compared to a loss of $9.4 million or $0.58 per share the previous quarter and to a loss of $136.3 million, or $9.41 per share during the same quarter last year. Including discontinued operations, net loss for the quarter was $81.7 million, or $5.10 per share. EBITDA(1) loss from continuing operations was $74.0 million for the period. Consistent with generally accepted accounting principles, the company performed its annual impairment test, which resulted in the recognition of impairment charges and write downs of acquisition-related goodwill in the amount of $66.6 million, and other identifiable intangible assets of $7.0 million. Consequently, these results include unusual items totaling $75.2 million consisting of the $73.6 million in non-cash impairment and write down charges mentioned above, and $1.6 million in severance payments and accruals. Furthermore, the Company has now removed all goodwill from its balance sheet.

Indirect Channel Distribution Agreement with Advanta Bank Corp.

The Company also announced today that it had entered into a five-year arrangement with Advanta Bank Corp, the nation's second largest issuer of business credit cards to small businesses, to market and promote website and online services and applications to small businesses across the country. This reflects the company's long-held intention to place more emphasis on further developing indirect channel distribution and improving the efficiency of its delivery. Joel Kocher, Interland Chairman and CEO said, "We are very excited that Advanta has agreed to become our first indirect channel partner. Advanta is exactly the right sort of partner to be able to extend our marketing reach to small businesses because of the work they have done to know and understand their customers and the needs of their businesses. Together we will be offering our suites of services and applications to those most likely to benefit from them. With this deal alone we are able to apply what we learned through direct sales to a number of potential buyers that dwarfs anything we could approach with a direct sales force, and on a much more efficient basis. In the coming months we expect to announce additional channel partners."

Interland also announced that it was further leveraging its direct sales experience by launching a variety of new products based on the unbundling of its proprietary website creation, online marketing, and e-commerce solutions. Both newcomers to the Web as well as those who have had a website for years can now use Interland's innovative and easy-to-use features to find and serve customers online.

Cash Position

Interland ended the period with a healthy cash position and balance sheet. As of May 31, 2004, Interland's cash and investments position, which includes cash and cash equivalents of $31.0 million (down $6.0 million from the prior quarter), short-term investments of $2.5 million (up $0.5 million from the prior quarter), current restricted investments of $0.3 million and long term restricted investments of $10.8 million (combined, down $0.2 million from the prior quarter), was $44.6 million (down $5.7 million from the prior quarter). The $6.0 million change in cash and cash equivalent balances from last quarter consists of: cash provided by operating activities of $0.4 million (including payments of previously recorded liabilities of $0.2 million); repayments of debt and capital lease obligations of $1.6 million; capital expenditures of $4.2 million (including $1.2 million related to customer satisfaction initiatives and equipment lease buyouts of $1.5 million); cash used in discontinued operations of $0.5 million and net cash used in other investing activities of $0.1 million.

Future Guidance

The company's expectations for the fourth quarter are based largely on the continuation and improvement of the third quarter's underlying EBITDA performance. Since the impairment and restructuring charges of $75.2 million will not recur next quarter, a continuation of the Company's third quarter performance would contribute $1.1 million of positive EBITDA to the fourth quarter. Adding the effect of a full quarter of the cost savings achieved in the third quarter lends confidence to the Company's expectation of positive EBITDA approaching $2 million for the fourth quarter. The company anticipates about $7.0 million in non-cash depreciation and amortization expenses so that the company nonetheless expects to report a GAAP net loss for the quarter. Further, since the customer satisfaction initiatives announced at the beginning of the fiscal year have been largely implemented, capital expenditures in the fourth quarter are expected to be reduced to about $2.0 million, reflecting a more typical rate of expenditure.

Conference Call

Interland will conduct a conference call today at 4:30 p.m. EST, accessible by calling 312-461-0745, no pass code necessary, or via the Internet at www.interland.com under "Investor Relations" in the "About Interland" section. A replay of the conference call will also be available at 402-220-2306, passcode: 6444335, and at the Web site. The audio archive of the conference call on the Web site 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.