InfoSpace Announces Record Third Quarter Revenue and Raises Full Year 2004 Guidance; Third Quarter R, Web Hosting and Dedicated Servers

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InfoSpace Announces Record Third Quarter Revenue and Raises Full Year 2004 Guidance; Third Quarter R

BELLEVUE, Wash.--(BUSINESS WIRE)--Oct. 25, 2004--InfoSpace, Inc. (NASDAQ:INSP) today announced financial results for the three months ended September 30, 2004.

Revenues for the third quarter of 2004 were $67.2 million, reflecting an increase of 115% over $31.2 million in revenues for the third quarter of 2003. Net income for the third quarter of 2004 was $13.4 million, or $0.37 per diluted share, versus net income of $1.6 million, or $0.05 per diluted share, in the third quarter of 2003.
Cash, cash equivalents, and marketable investments at September 30, 2004 totaled approximately $310 million, an increase of approximately $18 million from the second quarter of 2004. The Company had no debt obligations at the end of the quarter.

"Third quarter was a record revenue quarter for InfoSpace, and we are raising guidance for the fourth quarter," said Jim Voelker, chairman and chief executive officer of InfoSpace, Inc. "We are excited about our markets in search, directory and mobile, and look forward to continued growth."

Third Quarter Highlights and Recent Developments

-- InfoSpace partnered with Virgin Mobile U.K., providing their subscribers with ringtones, graphics, wallpaper, games and TruTones(TM), as well as promotional marketing programs featuring artists and other specialized content. This marks InfoSpace's first mobile content agreement in Europe.

-- InfoSpace acquired the assets of Atlas Mobile, a provider of multiplayer tournament-style games, such as Tetris(R) for Prizes(TM), Hold'em Poker for Prizes(TM) and Solitaire for Prizes(TM). The acquisition gives the Company established gaming distribution relationships with Verizon Wireless, Alltel, Midwest Wireless, U.S. Cellular and Western Wireless.

-- InfoSpace introduced several feature improvements to the Switchboard Web site, leveraging InfoSpace's core metasearch capabilities to make searching for local businesses faster and easier. Improvements include the addition of a downloadable Switchboard Toolbar, a Web search tab with metasearch capabilities, enhanced zip code and area code searching, and classified advertising.

-- InfoSpace received Frost & Sullivan's 2004 Mobile Music Product Suite of the Year Award, as part of Frost & Sullivan's annual Excellence in Mobile Communications Awards.

Segment Information

Segment income for each reportable operating segment does not include allocations for general, administrative and other overhead costs, depreciation and amortization expense, restructuring and other charges and non-operating gains or losses.

Search & Directory

Search & Directory revenues were $42.0 million in the third quarter of 2004, an increase of $18.2 million or 77% from the third quarter of 2003. The increase in revenue is due to growth in the search business as well as a full quarter of Switchboard's operating results. During the quarter, total paid searches in North America for both Search and Directory were approximately 193 million, an increase of 38% from the prior year third quarter. Average revenue per paid search was approximately $0.17, an increase of 21% over the prior year third quarter. Search & Directory segment income was $18.5 million or 44% of revenues for the third quarter of 2004.

Mobile

Mobile revenues were $25.1 million in the third quarter of 2004, an increase of $19.5 million or 343% from the third quarter of 2003. The increase in revenue is due to growth in the Company's media download business. Mobile segment income totaled $7.2 million or 28.5% of revenues for the third quarter of 2004.

Other Item

The Company today announced that Kendra VanderMeulen, executive vice president, InfoSpace Mobile, has resigned to pursue personal interests. "Kendra has been a valued member of our management team," said Jim Voelker. "She was instrumental in helping the company identify growth opportunities within the mobile space and establish a leadership position in the delivery of mobile entertainment and information. We thank Kendra for her significant contributions and wish her well in her future endeavors."

Outlook

The Company's guidance excludes the potential impact of any future one-time gains or losses.

Fourth Quarter 2004 Outlook

For the fourth quarter of 2004 the Company expects revenue to be between $71.0 million and $73.0 million. The Company also expects income from continuing operations to be $14.0 million and fully diluted earnings per share of $0.38 (based on 37 million fully diluted shares).

Full Year 2004 Outlook

The Company is raising guidance for full year 2004. The Company expects revenue to be between $241.0 million and $243.0 million (up from previous guidance of $227.0 to $237.0 million). The Company expects income from continuing operations to be approximately $46 million (up from previous guidance of $36.0 to $40.0 million), and fully diluted earnings per share to be $1.27.

A conference call will be held today at 2 p.m. Pacific/ 5 p.m. Eastern. The live Webcast can be accessed in the Investor Relations section of the InfoSpace corporate Web site, at http://www.infospaceinc.com. A replay of the call will be available approximately one hour after the call through November 8, 2004 at 7:30 p.m. Pacific/ 10:30 p.m. Eastern.

All information in this release is as of October 25, 2004. InfoSpace undertakes no duty to update any forward-looking statements to actual results or changes in the Company's expectations.

About InfoSpace, Inc.

InfoSpace, Inc. (NASDAQ:INSP) is a diversified technology and services company that develops Internet and wireless solutions for a wide range of customers. InfoSpace Search & Directory provides Web search and online directory products that help users find the information they need while creating opportunities for merchants. InfoSpace Mobile provides content and applications that enable carriers and content providers to efficiently develop and deliver mobile data services across multiple devices. More information can be found at http://www.infospaceinc.com.

This release contains forward-looking statements relating to InfoSpace, Inc.'s products and services and future operating results that are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected. The words "believe," "expect," "intend," "anticipate," variations of such words, and similar expressions identify forward-looking statements, but their absence does not mean that the statement is not forward looking. Forward-looking statements include without limitation statements regarding the projected results of the Company's strategic plan and efforts to achieve long-term sustainable growth; projected consolidated revenue and net income for the Company for the fourth quarter and full year. These statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to predict. Factors that could affect InfoSpace's actual results include general economic, industry and market sector conditions, the progress and costs of the development of our products and services, the timing and extent of market acceptance of those products and services, our dependence on companies to distribute our products and services, the ability to successfully integrate acquired businesses and the successful execution of the Company's strategic initiatives. A more detailed description of certain factors that could affect actual results include, but are not limited to, those discussed in InfoSpace's most recent Quarterly Report on Form 10-Q, in the section entitled "Factors Affecting Our Operating Results, Business Prospects and Market Price of Stock." Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this release. InfoSpace undertakes no obligation to update publicly any forward-looking statements to reflect new information, events or circumstances after the date of this release or to reflect the occurrence of unanticipated events.

 InfoSpace, Inc. Consolidated Statements of Operations (Unaudited) (Amounts in thousands, except per share data) Three months Nine months ended ended ----------------- ------------------- September 30, September 30, 2004 (1) 2003 2004 (1) 2003 -------- -------- --------- --------- Revenues $67,151 $31,232 $169,680 $93,200 Operating expenses(2): Content and distribution costs 24,537 7,389 60,034 16,271 Systems and network operations 3,498 2,240 10,529 8,404 Product development 6,436 3,747 16,454 13,610 Sales and marketing 6,212 3,999 16,753 12,655 General and administrative 9,565 7,372 28,057 24,376 Depreciation 1,681 2,342 5,225 8,852 Amortization of intangible assets 3,061 1,622 6,804 4,867 Impairment of other intangible assets - 1,151 - 1,151 Restructuring charges and other, net (246) 1,405 (2,856) 15,830 -------- -------- --------- --------- Total operating expenses 54,744 31,267 141,000 106,016 -------- -------- --------- --------- Operating income (loss) 12,407 (35) 28,680 (12,816) Gain (loss) on equity investments (33) 74 425 (11,940) Other income, net 1,000 681 3,161 7,470 -------- -------- --------- --------- Income (loss) from continuing operations before income taxes 13,374 720 32,266 (17,286) Income tax benefit (expense) (18) 85 (121) 152 -------- -------- --------- --------- Income (loss) from continuing operations 13,356 805 32,145 (17,134) Income from discontinued operations, net of tax (3) - 787 31,399 927 -------- -------- --------- --------- Net income (loss) $13,356 $1,592 $63,544 $(16,207) ======== ======== ========= ========= Earnings per share - Basic Income (loss) from continuing operations $0.42 $0.03 1.01 $(0.55) Income from discontinued operations $ - $0.02 0.98 $ 0.03 -------- -------- --------- --------- Net income (loss) per share $0.42 $0.05 $1.99 $(0.52) ======== ======== ========= ========= Weighted average shares outstanding used in computing basic net income (loss) per share 32,183 31,337 31,889 31,157 ======== ======== ========= ========= Earnings per share - Diluted Income (loss) from continuing operations $0.37 $0.03 $0.90 $(0.55) Income from discontinued operations $ - $0.02 $0.87 $ 0.03 -------- -------- --------- --------- Net income (loss) per share $0.37 $0.05 $1.77 $(0.52) ======== ======== ========= ========= Weighted average shares outstanding used in computing diluted net income (loss) per share 36,411 33,259 35,955 31,157 ======== ======== ========= =========

(1) On June 3, 2004, the Company completed the acquisition of
Switchboard Incorporated, and since the acquisition date, the
Company's operating results include the results of Switchboard.

(2) The Consolidated Statements of Operations have been revised to
eliminate the caption cost of revenues, and separately present content
and distribution costs, depreciation expense and systems and network
operations costs. Content and distribution costs were previously
included in cost of revenues and sales and marketing expense. Certain
reclassifications have been made to the accounts for the three and
nine months ended September 30, 2003 to conform to the current
presentation. The reclassifications did not impact previously reported
revenue, total operating expenses, operating income or net loss.

(3) On March 31, 2004, the sale of the Payment Solutions business
was consummated. The operating results of Payment Solutions have been
presented as a discontinued operation for all periods presented and
includes income of $2.3 million and gain on sale of $29.1 million for
the nine months ended Sept. 30, 2004.

 InfoSpace, Inc. Consolidated Balance Sheets (Unaudited) (Amounts in thousands) September December 30, 31, 2004 2003 ----------- ----------- ASSETS Current assets: Cash and cash equivalents $194,046 $223,858 Short-term investments, available-for-sale 46,111 71,465 Accounts receivable, net 44,763 24,585 Notes and other receivables, net 6,881 4,454 Payroll tax receivable 13,214 13,214 Prepaid expenses and other current assets 4,680 3,425 Assets of discontinued operations, including cash of $5,187 - 58,366 ----------- ----------- Total current assets 309,695 399,367 Long-term investments, available-for-sale 70,259 - Property and equipment, net 15,085 13,281 Other investments - 1,396 Goodwill 149,870 57,133 Other intangible assets, net 41,509 20,388 Other long-term assets 1,447 750 ----------- ----------- Total assets $587,865 $492,315 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $3,364 $4,363 Accrued expenses and other current liabilities 34,168 29,529 Deferred revenue 9,971 3,315 Liabilities of discontinued operations - 8,501 ----------- ----------- Total current liabilities 47,503 45,708 Long-term liabilities: Long-term deferred revenue - 75 Deferred taxes 5,390 - ----------- ----------- Total long-term liabilities 5,390 75 Total liabilities 52,893 45,783 Stockholders' equity: Preferred stock - - Common stock 3 3 Additional paid-in capital 1,732,983 1,707,617 Accumulated deficit (1,198,750) (1,262,294) Accumulated other comprehensive income 736 1,206 ----------- ----------- Total stockholders' equity 534,972 446,532 ----------- ----------- Total liabilities and stockholders' equity $587,865 $492,315 =========== =========== Summary of cash and marketable investments: Cash and cash equivalents $194,046 $223,858 Short-term investments, available-for- sale 46,111 71,465 Long-term investments, available-for- sale 70,259 - ----------- ----------- Cash and marketable investments $310,416 $295,323 =========== =========== InfoSpace, Inc. Consolidated Statements of Cash Flows (Unaudited) (Amounts in thousands) Nine months ended September 30, --------------------- 2004 2003 --------- --------- Operating Activities: Net income (loss) $63,544 $(16,207) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Income from discontinued operations (31,399) (927) Depreciation and amortization 12,029 13,719 Impairment of other intangible assets - 1,151 Warrant and stock-related revenue - (135) Warrant and stock-based compensation expense 981 360 Bad debt expense (recovery) 276 (1,066) Loss (gain) on equity investments (425) 11,940 Restructuring charges and other, net (400) 2,059 Loss on disposal of assets 28 451 Gain on sale of non-core services - (4,152) Other 19 (46) Cash provided (used) by changes in operating assets and liabilities: Accounts receivable (18,933) (974) Notes and other receivables (763) (2,066) Prepaid expenses and other current assets (162) (896) Other long-term assets (697) 81 Accounts payable (3,926) (1,875) Accrued expenses and other current liabilities 4,336 18,378 Deferred revenue 6,581 231 Discontinued operations net assets - 4,965 --------- --------- Net cash provided by operating activities 31,089 24,991 Investing Activities: Business acquisitions, net of cash acquired (115,633) (270) Purchase of intangible assets - (55) Purchases of property and equipment (6,864) (780) Proceeds from the sale of assets 320 - Proceeds from the sale of non-core services - 3,070 Proceeds from the sale of discontinued operation 82,000 - Proceeds from the sale of equity investments 81 11,937 Short-term investments, net 24,965 49,113 Long-term investments, net (70,259) - --------- --------- Net cash provided (used) by investing activities (85,390) 63,015 Financing activities: Proceeds from exercise of stock options 23,342 2,222 Proceeds from issuance of stock through employee stock purchase plan 1,147 906 --------- --------- Net cash provided by financing activities 24,489 3,128 --------- --------- Net increase (decrease) in cash and cash equivalents (29,812) 91,134 Cash and cash equivalents: Beginning of period 223,858 120,092 --------- --------- End of period $194,046 $211,226 ========= ========= InfoSpace, Inc Segment Information (Unaudited) (Amounts in thousands) Three Months Ended Nine months ended ------------------- ------------------- September 30, September 30, 2004 2003 2004 2003 --------- --------- --------- --------- Search & Directory Revenue $42,012 $23,777 $109,664 $65,552 Operating expense 23,544 11,492 62,764 29,337 --------- --------- --------- --------- Segment income (1) 18,468 12,285 46,900 36,215 Segment margin 44.0% 51.7% 42.8% 55.2% Mobile Revenue 25,139 5,677 60,016 18,650 Operating expense 17,974 4,843 42,540 15,145 --------- --------- --------- --------- Segment income (1) 7,165 834 17,476 3,505 Segment margin 28.5% 14.7% 29.1% 18.8% Non-Core Services Revenue - 1,778 - 8,998 Operating expense - 917 - 4,895 --------- --------- --------- --------- Income (1) - 861 - 4,103 Total Total segment revenue 67,151 31,232 169,680 93,200 Total segment operating expense 41,518 17,252 105,304 49,377 --------- --------- --------- --------- Total segment income (1) 25,633 13,980 64,376 43,823 Total segment margin 38.2% 44.8% 37.9% 47.0% Corporate Operating Expenses 8,730 7,495 26,523 25,939 Depreciation 1,681 2,342 5,225 8,852 Amortization of intangible assets 3,061 1,622 6,804 4,867 Impairment of other intangible assets - 1,151 - 1,151 Restructuring charges and other, net (246) 1,405 (2,856) 15,830 Loss (gain) on investments 33 (74) (425) 11,940 Other income, net (1,000) (681) (3,161) (7,470) Income tax expense (benefit) 18 (85) 121 (152) Income from discontinued operations (2) - (787) (31,399) (927) --------- --------- --------- --------- 12,277 12,388 832 60,030 --------- --------- --------- --------- Total Net Income (Loss) $13,356 $1,592 $63,544 $(16,207) ========= ========= ========= =========

For each of the business segments, Search & Directory and Mobile,
the financial information above is presented to the Company's chief
operating decision maker.

(1) Amounts exclude depreciation, amortization and allocation of
corporate expenses.

(2) On March 31, 2004, the sale of the Payment Solutions business
was consummated. The operating results of Payment Solutions have been presented as a discontinued operation for all periods presented.
Income from discontinued operations is comprised of segment results
from Payment Solutions, which includes previously reported segment
revenues, segment income and unallocated depreciation, amortization
and corporate expenses that were attributed to Payment Solutions, less
allocated income taxes. Additionally, in the nine months ended
September 30, 2004, the Company recorded a gain on the sale of the
Payment Solutions business of $29.1 million.

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