Navisite 8-K NaviSite Reports Second Quarter Fiscal Year 2010 Financial Results

Exhibit 99.1

FOR IMMEDIATE RELEASE

Contact:

Claudine Bianchi
978-946-7726
cbianchi@navisite.com

NaviSite Reports Second Quarter Fiscal Year 2010 Financial Results

Bookings of recurring revenue of $0.9 million, up 23% over prior year

Quarterly adjusted EBITDA of $9.1 million, up 4% over prior year

Andover, MA, March 11, 2010— NaviSite, Inc. (NASDAQ: NAVI), a leading provider of cloud enabled enterprise-hosting and application-management services, today reported financial results for the second quarter fiscal year 2010, which ended on January 31, 2010.

• Recurring hosting revenue was $36.1 million for the second quarter, an increase of 2%, compared to $35.3 million for the second quarter of fiscal year 2009. The second quarter of fiscal year 2009 included $0.8 million of hosting revenue from NaviSite’s former Los Angeles data center, which lease NaviSite did not renew at the end of the third quarter of fiscal year 2009. Excluding the Los Angeles hosting revenue in the second quarter of fiscal year 2009, recurring hosting revenue increased 4%.

• Total revenue for the quarter ended on January 31, 2010, was $37.7 million, compared to $38.0 million in the second quarter of fiscal year 2009, representing a year-over-year decrease of 1%. The expected decrease in total revenue for the quarter was due to the planned decline in NaviSite’s recurring hosting revenue resulting from the nonrenewal of the Los Angeles data center and due to a reduction of professional-services revenue during these periods.

• Gross margin improved to 34% for the second quarter, representing a two-percentage-point increase from the 32% recorded in the second quarter of the previous year.

• Income from operations improved 30% for the second quarter of fiscal year 2010, increasing to $2.2 million, compared to $1.7 million in the second quarter of fiscal year 2009.

• EBITDA, excluding impairment costs, stock-based compensation, severance and other non-operational charges (“EBITDA, as adjusted”), for the second quarter was $9.1 million, representing a year-over-year increase of 4%.

• Net loss attributable to common shareholders for the second quarter of fiscal year 2010 was $2.9 million, or $(0.08) per share, compared to a loss of $3.3 million, or $(0.09) per share, in the second quarter of fiscal year 2009.

• Cash generated from operating activities for the second quarter of fiscal year 2010 was $12.5 million, representing an increase of 396% from the $2.5 million recorded in the second quarter of fiscal year 2009.

“We are on track to see accelerated growth in our bookings and hosting revenue from our Enterprise Customers. Our increased focus on this customer segment is yielding new and significantly larger opportunities as we leverage our experience in complex hosting solutions and prepare to launch our Managed Cloud Offering to these Enterprise customers,” said Arthur Becker, Chief Executive Officer of NaviSite.

Quarterly Business Highlights

• Booked approximately $0.86 million of new monthly recurring hosting revenue (“MRR”) in the second quarter of fiscal year 2010, an increase of 112% from the $0.40 million booked in the first quarter of fiscal year 2010 and an increase of 23% from the $0.70 million booked in the second quarter of fiscal year 2009.

• Signed $25.3 million of hosting contract value, with an average contract term of 30 months during the second quarter of fiscal year 2010 for recurring enterprise-hosting business, an increase of 183% compared to bookings of $8.9 million in recurring hosting-contract value in the previous quarter and $18.9 million in hosting-contract value in the second quarter of 2009.

• Customer churn, defined as the percentage loss of a customer or a reduction in a customer’s monthly recurring revenue from our active customer pool, was 1.1% per month during the quarter, compared to 1.3% in the prior quarter and 1.0% a year ago.

Subsequent Event

• Announced the sale on February 19, 2010 of our Lawson / Kronos Application Services business to Velocity Technology Solutions, Inc. for $56.0 million in cash. NaviSite will use all of the net sale proceeds for debt repayment.

Conference Call Scheduled for March 11, 2010

NaviSite, Inc. Chief Executive Officer Arthur Becker and Chief Financial Officer Jim Pluntze will host a conference call on Thursday, March 11, 2010, at 5:00 p.m. Eastern Time to discuss the company’s financial results for its second quarter fiscal year 2010.

UPDATE NaviSite’s conference call can be accessed by dialing 866.314.9013 (International: +1.617.213.8053) and entering passcode 32048078. Alternatively, participants can listen to a live webcast of the call available through NaviSite’s website at http://navisite.com/investors/events. A replay of the call will be accessible following the conference call by dialing 888.286.8010 (International: +1.617.801.6888) and using passcode 33055006.

EBITDA

EBITDA is not a recognized measure for financial-statement presentation under United States generally accepted accounting principles (“GAAP”). NaviSite believes that the non-GAAP measure of EBITDA, as adjusted, provides investors with a useful supplemental measure of our actual and expected operating and financial performance by excluding the impact of interest, taxes, depreciation and amortization. We also exclude impairment costs, stock-based compensation, severance and other non-recurring charges from our non-GAAP measure, as such items may be considered to be of a non-operational nature. EBITDA does not have any standardized definition and therefore may not be comparable to similar measures presented by other reporting companies. We use EBITDA, as adjusted, to assist in evaluating our actual and expected operating and financial performance. These non-GAAP results should not be evaluated in isolation from, or as a substitute for, our financial results prepared in accordance with GAAP. A table reconciling our net loss, as reported, to EBITDA, as adjusted, is included in the condensed consolidated financial statements in this release. We believe that using EBITDA, as adjusted, as a performance measure, together with net loss, will help investors better understand our underlying financial performance.

About NaviSite

NaviSite, Inc. (NASDAQ: NAVI) is a leading worldwide provider of enterprise-class, cloud-enabled hosting, managed applications and services. With over 20 years experience, the Company provides a full suite of reliable and scalable managed services, including Applications Services, industry-leading Enterprise Hosting, and Managed Cloud Services for enterprises looking to outsource IT infrastructures and lower their capital and operational costs. Over 1,400 customers depend on NaviSite for customized solutions, delivered through a global footprint of over a dozen state-of-the-art data centers supported by approximately 650 professionals. For more information on NaviSite services, please visit www.navisite.com.

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This release contains forward-looking statements that address a variety of subjects, including NaviSite’s expected future operating and financial results, such as profitability, revenue growth and EBITDA, the success and performance of our product and service offerings and our 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 our goals, plans and strategies set forth herein — are forward-looking statements. The following important factors and uncertainties, along with general economic conditions, changes in economic conditions and others, could cause actual results to differ materially from those described in these forward-looking statements. Our success — including our ability to improve our gross profit, to improve our cash flows, to expand our operations and revenue and to reach and sustain profitability — depends in part on our ability to execute on our business strategy and the continued and increased demand for, and market acceptance of, our products and services. We may not remain compliant with our agreement with our senior secured lenders, including financial covenants. Our financial forecasts may not be achieved, including those as to expected EBITDA and revenue. We may be unable to raise the necessary funds to meet our payment obligations to our lending group under our senior secured credit facility and other creditors. We may not be able to expand our operations in accordance with our business strategy. We may experience difficulties integrating technologies, operations and personnel in accordance with our business strategy. Our products, technologies and resources may not successfully operate with the technology, resources and applications of third parties. We derive a significant portion of our revenue from a small number of customers, and the loss of any of those customers could significantly damage our financial condition and results of operations. Competition has increased, and technological changes made, in the markets in which we compete. For a detailed discussion of cautionary statements that may affect our future results of operations and financial results, please refer to our filings with the Securities and Exchange Commission, including our most recent annual report on Form 10-K and our quarterly reports on Form 10-Q. Forward-looking statements

represent our current expectations and are inherently uncertain. We do not undertake any obligation to update forward-looking statements that we make. All logos, company and product names may be trademarks or registered trademarks of their respective owners.

NaviSite Financial Tables

Condensed Consolidated Statements of Operations

	For the Three Months Ended						For the Six Months Ended
	January 31, 2010			January 31, 2009			January 31, 2010			January 31, 2009
	Unaudited
	(In thousands, except per share amounts)
Revenue	$	37,617		$	37,907		$	74,331		$	77,989
Revenue, related parties		74			111			168			194
Total revenue		37,691			38,018			74,499			78,183
Cost of revenue, excluding stock compensation, restructuring, depreciation and amortization		18,776			19,822			37,164			41,234
Depreciation and amortization		5,665			5,698			11,219			11,430
Stock compensation		287			307			581			697
Restructuring charge		—			(5	)		—			209
Cost of revenue		24,728			25,822			48,964			53,570
Gross profit		12,963			12,196			25,535			24,613
Operating expenses:
Selling and marketing, excluding stock compensation and restructuring charge		5,250			4,900			10,065			10,379
General and administrative, excluding stock compensation and restructuring charge		5,017			5,289			10,170			10,579
Stock compensation		543			429			1,120			1,060
Restructuring charge		—			(82	)		—			180
Total operating expenses		10,810			10,536			21,355			22,198
Income from operations		2,153			1,660			4,180			2,415
Other income (expense):
Interest income		4			21			11			25
Interest expense		(3,778	)		(3,905	)		(7,755	)		(7,173	)
Other income (expense), net		182			232			280			693
Loss from operations before income taxes		(1,439	)		(1,992	)		(3,284	)		(4,040	)
Income taxes		(499	)		(499	)		(1,038	)		(998	)
Net loss		(1,938	)		(2,491	)		(4,322	)		(5,038	)
Accretion of preferred stock dividends		(925	)		(825	)		(1,824	)		(1,627	)
Net loss attributable to common stockholders	$	(2,863	)	$	(3,316	)	$	(6,146	)	$	(6,665	)
Basic and diluted net loss per common share:
Net loss attributable to common stockholders	$	(0.08	)	$	(0.09	)	$	(0.17	)	$	(0.19	)
Basic and diluted weighted average number of common shares outstanding		36,269			35,457			36,136			35,401

NaviSite Financial Tables

Net Loss to EBITDA, as Adjusted, Reconciliation

	For the Three Months Ended
	January 31, 2010			January 31, 2009
	Unaudited
	(In thousands)
Net loss, as reported	$	(1,938	)	$	(2,491	)
Depreciation		4,373			4,039
Amortization		1,504			1,832
Interest income/expense, net		3,774			3,884
Income taxes		499			499
EBITDA		8,212			7,763
Stock-based compensation		830			769
Severance		38			116
Transaction fees and integration costs		33			111
EBITDA, as adjusted (excludes impairment costs, stock based compensation, severance transaction fees and integration costs)	$	9,113		$	8,759

	For the Six Months Ended
	January 31, 2010			January 31, 2009
	Unaudited
	(In thousands)
Net loss, as reported	$	(4,322	)	$	(5,038	)
Depreciation		8,543			8,105
Amortization		3,074			3,670
Interest income/expense, net		7,744			7,148
Income taxes		1,038			998
EBITDA		16,077			14,883
Stock based compensation		1,701			1,737
Severance		73			649
Transaction fees and integration costs		34			115
EBITDA, as adjusted (excludes impairment costs, stock based compensation, severance transaction fees and integration costs)	$	17,885		$	17,384

NaviSite Financial Tables

Condensed Consolidated Balance Sheets

	January 31, 2010			July 31, 2009
	Unaudited
	(In thousands)
ASSETS
Current assets:
Cash and cash equivalents	$	945		$	10,534
Accounts receivable, less allowance for doubtful accounts of $1,887 and $1,820 at January 31, 2010 and July 31, 2009, respectively		15,940			16,417
Unbilled accounts receivable		1,599			1,361
Prepaid expenses and other current assets		7,937			6,336
Total current assets		26,421			34,648
Non-current assets		115,254			129,032
Total assets	$	141,675		$	163,680
LIABILITIES, PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current liabilities:
Notes payable, current portion	$	199		$	10,603
Capital lease obligations, current portion		2,035			3,040
Accounts payable		8,617			5,375
Accrued expenses, deferred revenue, deferred other income and customer deposits		19,794			16,606
Total current liabilities		30,645			35,624
Total non-current liabilities		117,080			132,280
Total liabilities		147,725			167,904
Preferred stock		32,703			30,879
Total stockholders’ equity (deficit)		(38,753	)		(35,103	)
Total liabilities, preferred stock and stockholders’ equity (deficit)	$	141,675		$	163,680

NaviSite Financial Tables

Condensed Consolidated Statements of Cash Flow

	For the Three Months Ended
	January 31, 2010			January 31, 2009
	Unaudited
	(In thousands)
Net cash provided by operating activities	$	12,476		$	2,496
Net cash used for investing activities		(4,570	)		(2,543	)
Net cash used for financing activities		(11,122	)		(1,873	)
	��
Effect of exchange rate changes on cash		(17	)		(142	)
Net increase (decrease) in cash and cash equivalents		(3,233	)		(2,062	)
Cash and cash equivalents, beginning of period		4,178			5,020
Cash and cash equivalents, end of period	$	945		$	2,958

	For the Six Months Ended
	January 31, 2010			January 31, 2009
	Unaudited
	(In thousands)
Net cash provided by operating activities	$	17,081		$	12,045
Net cash used for investing activities		(8,321	)		(6,280	)
Net cash provided by (used for) financing activities		(18,336	)		(5,727	)
Effect of exchange rate changes on cash		(13	)		(341	)
Net increase (decrease) in cash and cash equivalents		(9,589	)		(303	)
Cash and cash equivalents, beginning of period		10,534			3,261
Cash and cash equivalents, end of period	$	945		$	2,958