Internet America Announces Third Fiscal Quarter Financial Results and Provides Operational Update [May 12, 2005]

DALLAS, May 12, 2005 /PRNewswire-FirstCall via COMTEX/ -- Internet America, Inc. (GEEK) today announced results for its third fiscal quarter ending March 31, 2005. Results for the third quarter were a loss of $258,000 versus a loss of $104,000 for the quarter ending March 31, 2004. EBITDA (earnings before interest, taxes, depreciation and amortization) was ($68,000) for the third quarter versus ($108,000) for the third quarter of 2004.

The Company reported 3rd quarter 2005 revenue of $2,787,000 versus revenue of $2,771,000 in the 2nd quarter ended December 31, 2004 and revenue of $2,832,000 for the 3rd quarter of 2004. The Company recorded a net loss of $257,681 or ($0.02) per share for the third quarter compared to net loss of $104,200 or ($0.01) per share for the 3rd quarter of 2004. Internet America's subscriber count was 55,158 on March 31, 2005, compared to 57,915 on December 31, 2004.

"Our quarterly results were negatively impacted this quarter by severance costs, increased advertising expenditures normally incurred during this time of year as well as an additional reserve recorded for an on-going sales tax audit," said Billy Ladin, CEO of Internet America. "We are pleased with the speed and success of our continuing integration of our recent acquisitions and the continued development of our new markets. While proceeding with our rural expansion, we have been able to significantly reduce our operating expenses."

Reduction in Workforce

During March 2005 and April 2005 the Company laid off 41 employees, which, combined with normal attrition, reduced the total employee head count from 108 to 63. This reduction in head count is expected to result in a total annual savings of approximately $1,797,000. The reduction in workforce was facilitated by substantial simplification in our systems and departmental structures as well as empowerment of our existing staff. The Company does not expect to make additional reductions in its workforce in the near future.

Reduction in Expenses

In addition to the direct cost reduction in payroll, payroll taxes and benefits realized to date following our recent reductions in workforce, we feel that we can expect additional savings in occupancy costs such as office space, telephone expenses, etc. as a result of our operating with fewer people in our central Dallas office. For instance, in May 2005 and June 2005 we expect additional monthly telecom savings of approximately $29,000 and $23,000, respectively. Overall we expect the reduction in head count and related reduction in occupancy costs to translate into an annual savings of approximately $2.4 million. While we incurred additional severance costs in April, we feel that these expenses are behind us and we look forward to returning to a profitable quarter ending June 30, 2005.

Sales Tax Liability

The Texas State Comptroller's office has been conducting a routine sales tax audit for the calendar years 2001 through 2003. Based upon a preliminary review by the Company and its outside consultants, management believes that an additional sales tax assessment for that period is probable. Management estimates the liability to be in the range of approximately $100,000 to $250,000 including penalties and interest. Management believes that all current sales taxes are being calculated and paid correctly. Regardless, the Company expects to resolve this issue during the next few months.

Mr. Ladin continued, "At this time, management feels that it has integrated our new acquisitions, consolidated our existing operations, reduced our workforce, simplified our systems, and refocused the Company on non- metropolitan wireless growth and on additional acquisition opportunities. We are comfortable with our present position and enthusiastic about our renewed direction and focus."

3rd Quarter Conference Call Scheduled

Internet America has scheduled a conference call that will be held on May 13, 2005 at 9:00 a.m. central (10:00 a.m. eastern) to discuss the Company's financial results for the third quarter ended March 31, 2005.

What: Internet America Third Quarter Earnings Release

When: Friday, May 13, 2005, at 9:00 a.m. central time
(10:00 a.m. eastern time)

How: Dial (800) 240-2430 to access the call

Who: William E. Ladin, Jr., Chief Executive Officer
Sandra T. Everett, Controller

A playback of the call will be available through May 20, 2005 by calling (800) 405-2236.

Internet America is a leading Internet service provider primarily serving the Texas market. Based in Dallas, Internet America offers businesses and individuals a wide array of Internet services including broadband Internet delivered wirelessly and over DSL, dedicated high-speed access, web hosting, and dial-up Internet access. Internet America provides customers a wide range of related value-added services, including Fax2email, online backup and storage solutions, parental control software, and global roaming solutions. Internet America focuses on the speed and quality of its Internet services and its commitment to providing excellent customer care. Additional information on Internet America is available on the Company's web site at http://www.internetamerica.com .

In this press release, the Company refers to a non-GAAP financial measure called EBITDA because of management's belief that this measure is a financial indicator of the Company's ability to internally generate operating funds. Management also believes that this non-GAAP financial measure is useful information to investors because it is widely used by professional research analysts in the valuation and investments recommendations of companies in the Company's peer group. EBITDA should not be considered an alternative to net income, as defined by GAAP.

This press release may contain forward-looking statements relating to future business expectations. These statements, specifically including management's beliefs, expectations and goals, are subject to many uncertainties that exist in Internet America's operations and business environment. Business plans may change and actual results may differ materially as a result of a number of risk factors. These risk factors include, without limitation, that the Company (1) will not be able to maximize the integration efficiencies of these recently completed acquisitions, (2) will not introduce new applications and products or the applications and products introduced by the Company will not be accepted by current and/or new customers, (3) will not be able to consummate additional acquisitions, (4) will not continue to achieve operating efficiencies, and (5) will be adversely affected by dependence on network infrastructure, telecommunications carriers and other suppliers, by regulatory changes and by general competitive, economic and business conditions. These risk factors are not intended to represent a complete list of all risks and uncertainties in the Company's business and should be read in conjunction with the more detailed cautionary statements included in the Company's most recent SEC filings.

Internet America, Inc.
(GEEK)
Unaudited Financial Summary
(in thousands, except per share data and subscriber count)

Three Months Ended
03/31/05 03/31/04

Subscribers 55,000 65,000

Internet services revenue $2,570 $2,827
Other revenue 217 5
Total revenue 2,787 2,832

Connectivity and operations 1,923 1,342
Sales & marketing 181 314
General & administrative 751 1,284

EBITDA (A) (68) (108)

Depreciation and Amortization (184) (67)
Interest (expense) income, net (6) 71

Net loss $(258) $(104)

Basic and diluted loss per share $(0.02) $(0.01)
Weighted average shares - basic
and diluted 10,578,144 10,418,944

Reconciliation of net income (a GAAP measure) to EBITDA (a Non-GAAP
measure)
(in thousands)

Three Months Ended
03/31/05 03/31/04

Net loss $(258) $(104)
Add:
Depreciation and Amortization 184 67
Interest expense (income), net 6 (71)

EBITDA (A) $(68) $(108)

Three Months Ended
03/31/05 03/31/04
Current assets $1,528 $2,460
Property and equipment, net 691 176
Other assets 5,031 4,361
Total assets $7,250 $6,997

Current liabilities $2,896 $3,518
Long-term debt 115 ---
Long-term capital lease obligations 204 ---
Total liabilities 3,215 3,518
Total stockholders' equity 4,035 3,479
Total liabilities and stockholders'
equity $7,250 $6,997

(A) EBITDA: Earnings before Interest, Taxes and Depreciation and
Amortization. EBITDA is not a measurement of financial performance
under generally accepted accounting principles (GAAP) and should not
be considered an alternative to net income as a measure of
performance. Management has consistently used EBITDA on a
historical basis as a measurement of the Company's current operating
cash income.

SOURCE Internet America, Inc.