NaviSite Announces Second Quarter Fiscal Year 2008 Results

NaviSite, Inc. (NASDAQ: NAVI), a leading provider of application management and managed hosting solutions, today reported financial results for its second quarter of fiscal year 2008, which ended January 31, 2008. Financial Results: Revenue for the second quarter of fiscal year 2008 increased 29% to $38.9 million, compared to $30.2 million in the second quarter of fiscal year 2007, and compared to $36.1 million in the first quarter of fiscal year 2008. Income from operations was $1.3 million in the second quarter of fiscal year 2008, compared to a loss from operations of $0.4 million in the second quarter of fiscal year 2007, and income from operations of $0.3 million for the first quarter of fiscal year 2008. EBITDA, excluding impairment, stock-based compensation, costs related to the discontinued operations of America’s Job Exchange and non-operational charges ("EBITDA”), for the second quarter of fiscal year 2008 increased 65% to $8.6 million compared to $5.2 million reported in the second quarter of fiscal year 2007 and $6.9 million reported in the first quarter of fiscal year 2008. For the second quarter of fiscal year 2008, the Company reported a loss from continuing operations of $1.9 million and a net loss attributable to common shareholders of $2.9 million as compared to a net loss of $3.8 million in the second quarter of fiscal year 2007. On a per share basis, the Company reported a net loss attributable to common stockholders of $(0.08) for the second quarter of fiscal year 2008 compared to a per share net loss of $(0.13) for the second quarter of fiscal year 2007. NaviSite ended the quarter with a cash balance of $4.9 million. "Our results in the second quarter reflect the continuation of our growth with record bookings and our strongest ever EBITDA performance,” said Arthur Becker, Chief Executive Officer, NaviSite. "The strategy of offering both managed hosting and application services has enabled us to win new customer accounts and deals with multiple service offerings to existing customers through our up-sell and cross-sell activities.” Business Highlights: Achieved record bookings of approximately $1.1 million of incremental monthly recurring revenue (MRR) in the second quarter of fiscal year 2008 representing an increase of 36% from same period in fiscal year 2007 and 63% over the first quarter of fiscal year 2008. Total contract value (TCV) of bookings was a record of $37.4 million: $31.5 million of MRR and $5.9 million of non recurring contracts. The average term of the MRR contracts booked during the quarter was 28 months. Signed 112 new recurring revenue customers during the second quarter of the fiscal year 2008—up from 70 new customers won during the first quarter of fiscal year 2008 and 72 new customers during the second quarter of fiscal year 2007. Reduced customer churn, defined as the loss of a customer or a reduction in a customer’s monthly revenue run rate, excluding major accounts, to 0.8% per month for the second quarter of fiscal year 2008 from 1.0% in the first quarter of fiscal year 2008, and down from 1.4% per month for the second quarter of fiscal year 2007. Guidance: NaviSite projects revenue for the third quarter of fiscal year 2008 to be between $41.0 and $42.0 million and projects revenue for fiscal year 2008 to be between $160.0 and $165.0 million. EBITDA, excluding impairment, stock-based compensation, costs related to the discontinued operations of America’s Job Exchange and non-operational charges, is projected to be between $9.0 and $9.5 million for the third quarter of fiscal year 2008 and between $35.0 and $38.0 million for fiscal year 2008. Conference Call Scheduled for March 4, 2008: NaviSite, Inc. Chief Executive Officer, Arthur Becker, and Chief Financial Officer, Jim Pluntze, will host a conference call on Tuesday, March 4, 2008, at 5:00 p.m. Eastern Time to discuss the Company’s financial results for its second quarter of fiscal year 2008. NaviSite’s conference call can be accessed by dialing 888.679.8018 (International: 617.213.4845) and entering passcode 18563425. Alternatively, participants can listen to a live webcast of the call available through NaviSite’s website at http://www.navisite.com/about-navisite/investors/ events-earning-calls.php. (Due to its length, this URL may need to be copied/pasted into your Internet browser's address field.  Remove the extra space if one exists.) A replay of the call will be accessible for one week following the conference call by dialing 888-286-8010 (International: 617-801-6888) and using passcode 65698472. EBITDA: EBITDA is not a recognized measure for financial statement presentation under United States generally accepted accounting principles (GAAP). The Company believes that the non-GAAP measure of EBITDA provides investors with a useful supplemental measure of the Company's actual and expected operating and financial performance by excluding the impact of interest, taxes, depreciation and amortization. The Company also excludes impairment, non-cash stock-based compensation, costs related to the discontinued operations of America’s Job Exchange and non-operational charges from its non-GAAP measure, as such items are considered to be non-operational in nature. EBITDA does not have any standardized definition and therefore may not be comparable to similar measures presented by other reporting companies. Management uses EBITDA to assist in evaluating the Company's actual and expected operating and financial performance. These non-GAAP results should not be evaluated in isolation of, or as a substitute for, the Company's financial results prepared in accordance with GAAP. A table reconciling the Company's net loss, as reported, to EBITDA is included in the financial tables in this release. The Company believes that using expected EBITDA as a performance measure, together with expected net loss, will help investors better understand the Company's underlying financial performance. About NaviSite, Inc. NaviSite is a leading provider of application management and managed hosting solutions. More than 1,400 customers depend on NaviSite for application development, implementation and management on its web infrastructure platforms in 17 state-of-the art data centers supported by more than 700 professionals. NaviSite provides customized and scalable solutions leveraging its broad range of application development capabilities, packaged software implementation expertise, deep portfolio of best in class technologies and a full suite of web-hosting and internet infrastructure options. For more information, please visit www.navisite.com. This release contains forward-looking statements, which address a variety of subjects including the expected future operating and financial results, including profitability, revenue growth and EBITDA, success and performance of NaviSite’s product and service offerings, and NaviSite’s strategic business plans for growing its customer base and increasing sales. All statements other than statements of historical fact, including without limitation those with respect to NaviSite’s goals, plans and strategies set forth herein, are forward-looking statements. The following important factors and uncertainties, among others, could cause actual results to differ materially from those described in these forward-looking statements. NaviSite’s success, including its ability to improve its gross profit, improve its cash flows, expand its operations and revenue, and reach and sustain profitability, depends on its ability to execute on its business strategy and the continued and increased demand for and market acceptance of its products and services; the possibility that financial forecasts of the Company may not be achieved, including those as to expected EBITDA and revenue, or an inability to realize expected synergies or make expected future investments in NaviSite' businesses or NaviSite may be unable to raise the necessary funds to meet its payment obligations to its lending group under its senior secured credit facility and other creditors; NaviSite’s management may face strain on managerial and operational resources as they try to oversee the expanded operations; NaviSite may not be able to expand its operations in accordance with its business strategy; NaviSite may experience difficulties integrating technologies, operations and personnel in accordance with its business strategy; NaviSite’s acquisition of companies and businesses may not produce expected cost savings, operational efficiencies or revenue; NaviSite’s products, technologies, and resources may not successfully operate with the technology, resources and/or applications of third parties; NaviSite derives a significant portion of its revenue from a small number of customers and the loss of any of those customers could significantly damage NaviSite’s financial condition and results of operations; and increased competition and technological changes in the markets in which NaviSite’s competes. For a detailed discussion of cautionary statements that may affect NaviSite’s future results of operations and financial results, please refer to NaviSite’s filings with the Securities and Exchange Commission, including NaviSite’s most recent Annual Report on Form 10-K and its Quarterly Reports on Form 10-Q. Forward-looking statements represent management’s current expectations and are inherently uncertain. We do not undertake any obligation to update forward-looking statements made by us. All logos, company and product names may be trademarks or registered trademarks of their respective owners. NAVISITE FINANCIAL TABLES EBITDA Summaries     For the Three Months Ended January 31, 2008   January 31, 2007 --------Unaudited-------- ----(In thousands)----   Net loss, as reported $ (2,139) $ (3,816)   Depreciation, net of discontinued operations 3,186 2,402 Interest income/expense, net 2,947 3,148 Income taxes 500 294 Amortization 2,208 981   EBITDA 6,702 3,009   Stock based compensation 1,271 1,005 Severance 113 33 Securities offering costs - 624 Discontinued operations 237 - Transaction fees and integration costs 228 523   EBITDA (excludes impairment costs, stock based compensation, severance, securities offering costs, loss on debt extinguishment and transaction fees and integration costs) $ 8,551 $ 5,194         For the Six Months Ended January 31, 2008 January 31, 2007 --------Unaudited-------- -------(In thousands)-------   Net loss, as reported $ (6,509) $ (6,459)   Depreciation, net of discontinued operations 5,855 4,699 Interest income/expense, net 5,490 6,344 Income taxes 913 587 Amortization 3,926 2,088   EBITDA 9,675 7,259   Impairment costs (recoveries) - (287) Stock based compensation 2,508 1,834 Severance 275 120 Securities offering costs 11 624 Discontinued operations 551 - Loss on debt extinguishment 1,651 - Transaction fees and integration costs 779 922   EBITDA (excludes impairment costs, stock based compensation, severance, securities offering costs, loss on debt extinguishment and transaction fees and integration costs) $ 15,450 $ 10,472 NAVISITE FINANCIAL TABLES Condensed Consolidated Statements of Operations     For the Three Months Ended For the Six Months Ended   January 31, 2008   January 31, 2007 January 31, 2008   January 31, 2007 ------Unaudited------ ----Unaudited---- (In thousands, except per share amounts) (In thousands, except per share amounts)     Revenue $ 38,831 $ 30,115 $ 74,863 $ 58,561 Revenue, related parties 72 82 147 176 Total revenue 38,903 30,197 75,010 58,737   Cost of revenue, excluding depreciation and amortization 21,734 17,448 42,592 33,593 Depreciation and amortization 5,216 3,098 9,403 6,196 Cost of revenue 26,950 20,546 51,995 39,789   Gross profit 11,953 9,651 23,015 18,948   Operating expenses: Selling and marketing 5,112 4,222 10,276 7,855 General and administrative 5,498 5,857 11,120 11,154 Impairment costs (recoveries) - - - (287) Total operating expenses 10,610 10,079 21,396 18,722   Income (loss) from operations 1,343 (428) 1,619 226   Other income (expense): Interest income 63 42 177 84 Interest expense (3,010) (3,190) (5,667) (6,428) Loss on debt extinguishment - - (1,651) - Other income (expense), net 202 54 477 246   Loss from continuing operations before income taxes and discontinued operations (1,402) (3,522) (5,045) (5,872)   Income taxes (500) (294) (913) (587)   Loss from continuing operations before discontinued operations (1,902) (3,816) (5,958) (6,459)   Discontinued operations, net of income taxes (237) - (551) -   Net loss (2,139) (3,816) (6,509) (6,459)   Accretion of preferred stock dividends (736) - (1,120) -     Net loss attributable to common stockholders $ (2,875) $ (3,816) $ (7,629) $ (6,459)   Basic and diluted net loss per common share: Loss from continuing operations before discontinued operations available to common shareholders $ (0.07) $ (0.13) $ (0.20) $ (0.22) Loss from discontinued operations, net of income taxes (0.01) - (0.02) -   Net loss attributable to common stockholders $ (0.08) $ (0.13) $ (0.22) $ (0.22)   Basic and diluted weighted average number of common shares outstanding 34,927 29,714 34,422 29,376 NAVISITE FINANCIAL TABLES Condensed Consolidated Balance Sheets     January 31, 2008 July 31, 2007 ASSETS --------Unaudited-------- --------(In thousands)--------   Current assets: Cash and cash equivalents $ 4,905 $ 11,701 Accounts receivable, less allowance for doubtful accounts of $682 and $781 at January 31, 2008 and July 31, 2007, respectively 17,848 15,051 Unbilled accounts receivable 2,009 920 Prepaid expenses and other current assets 10,045 15,975 Total current assets 34,807 43,647   Non-current assets 153,625 72,597   Total assets $ 188,432 $ 116,244   LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)   Current liabilities: Notes payable, current portion $ 6,479 $ 1,063 Notes payable to AppliedTheory Estate 6,000 6,000 Capital lease obligations, current portion 2,912 1,829 Accounts payable 7,518 3,913 Accrued expenses, deferred revenue, deferred other income and customer deposits 20,271 20,231 Total current liabilities 43,180 33,036   Total non-current liabilities 136,558 97,072 Total liabilities 179,738 130,108   Preferred stock 25,993 -   Total stockholders' equity (deficit) (17,299) (13,864)   Total liabilities and stockholders' equity (deficit) $ 188,432 $ 116,244 NAVISITE FINANCIAL TABLES Condensed Consolidated Statements of Cash Flows   For the Three Months Ended   January 31, 2008   January 31, 2007 ----------Unaudited----------- ------(In thousands)-------   Net cash provided by (used for) operating activities $ (1,162) $ 3,019   Net cash used for investing activities (2,930) (1,522)   Net cash provided by (used for) financing activities 3,755 (52)   Net cash used for discontinued operations (237) -   Net increase (decrease) in cash (574) 1,445   Cash and cash equivalents, beginning of period 5,479 1,530 Cash and cash equivalents, end of period $ 4,905 $ 2,975         For the Six Months Ended January 31, 2008 January 31, 2007 ---------Unaudited--------- -------(In thousands)-------   Net cash provided by (used for) operating activities $ (1,049) $ 2,606   Net cash used for investing activities (28,352) (2,942)   Net cash provided by (used for) financing activities 23,156 (49)   Net cash used for discontinued operations (551) -   Net decrease in cash (6,796) (385)   Cash and cash equivalents, beginning of period 11,701 3,360 Cash and cash equivalents, end of period $ 4,905 $ 2,975