InfoSpace Reports Second Quarter Financial Results

Business Wire, July 26, 2005

BELLEVUE, Wash. -- InfoSpace, Inc. (NASDAQ:INSP) today announced financial results for the three months ended June 30, 2005.

Revenues for the second quarter of 2005 were $83.2 million, reflecting an increase of 53 percent over revenues of $54.4 million in the second quarter of 2004. Net income for the second quarter of 2005 was $16.3 million, or $0.44 per diluted share, compared to net income of $13.5 million, or $0.37 per diluted share, in the second quarter of 2004.

Cash, cash equivalents, and marketable investments at June 30, 2005 totaled approximately $407 million, an increase of approximately $23 million from the first quarter of 2005. At the end of the second quarter, the Company had no debt obligations.

"InfoSpace delivered revenue within our expectations and strong bottom-line results," said Jim Voelker, chairman and CEO of InfoSpace. "However, given current trends, we anticipate revenues to decline in the third quarter and to grow in the fourth quarter. In the second half of the year, we will continue to invest in new products that leverage our unique search and mobile assets."

Second Quarter Highlights and Recent Developments

--InfoSpace signed a distribution agreement to feature YellowPages.com, SBC SMARTpages.com and BellSouth RealPages.com advertisers on its Switchboard network.

--InfoSpace became the ringtone provider to Cingular Wireless for their newly launched Cingular Sounds(TM) program, which debuts new ringtones from premier artists. Additionally, InfoSpace added Cingular to its growing list of games distribution partners.

--InfoSpace launched several mobile gaming titles, including BMW Williams F1 Team Racing Challenge, X-Files, Gem Jam Fever, Wheel of Fortune for Prizes and more. Additionally, InfoSpace launched "For Prizes" games with T-Mobile.

--InfoSpace launched a send-to-mobile capability on Switchboard.com, allowing users to send directory information to their mobile phone.

--InfoSpace announced a $100 million stock repurchase program. In the second quarter, the Company spent approximately $11 million to purchase 336,000 shares of its outstanding common stock.

Segment Information and Adjusted EBITDA

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

Search & Directory

Search & Directory revenues were $46.1 million in the second quarter of 2005, an increase of $11.7 million or 34 percent from the second quarter 2004. The increase in revenue is due to growth in total paid searches, as well as growth in average revenue per paid search. During the quarter, total paid searches in North America for both search and directory were approximately 214 million. Average revenue per paid search was approximately $0.18, an increase of 13 percent over the prior year second quarter. Search & Directory segment income was $20.3 million or 44 percent of revenues for the second quarter of 2005.

Mobile

Mobile revenues were $37.1 million in the second quarter of 2005, an increase of $17.0 million or 85 percent from the second quarter of 2004. The increase in revenue is due to year-over-year growth in the Company's media download business. Mobile segment income totaled $8.3 million or 22 percent of revenues for the second quarter of 2005.

Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization ("Adjusted EBITDA")

Adjusted EBITDA was $19.2 million in the second quarter of 2005, an increase of $7.1 million or 59 percent from the prior year second quarter. The Adjusted EBITDA results should be evaluated in light of the Company's financial results prepared in accordance with GAAP. A table reconciling the Company's Adjusted EBITDA to income from continuing operations in accordance with GAAP is included in the accompanying condensed consolidated financial statements in this release. InfoSpace's Adjusted EBITDA results are calculated by adjusting income from continuing operations in accordance with GAAP to exclude the effects of interest income, income taxes, depreciation, amortization, litigation settlements, foreign currency gains or losses, and gains or losses from the disposal of assets, as detailed in the accompanying table.

Outlook

The Company's guidance excludes the gain from the first quarter litigation settlement and the potential impact of any one-time gains or losses. The Adjusted EBITDA guidance below has been prepared in a manner consistent with the historical Adjusted EBITDA data provided above and a table reconciling Adjusted EBITDA to net income in accordance with GAAP is included in the accompanying condensed consolidated financial statements in this release.

If the Company is able to achieve a certain level of profitability during the second half of 2005, absent other business factors, the Company may reduce the reserve on its deferred tax asset. The impact of reducing the reserve would provide a one-time income tax benefit in the period it is reduced and the Company would then begin recording an income tax expense, which would be substantially non-cash due to the Company's net operating loss carry-forwards. The Company's guidance has assumed an effective income tax rate of 38 percent in determining its income tax expense in the fourth quarter.