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Press Release -- October 7th, 2010
Source: Navisite
Tags: Exchange

NaviSite Reports Fourth Quarter and Fiscal Year 2010 Financial Results

Andover, MA,October 7, 2010 – NaviSite, Inc. (NASDAQ:NAVI, news, filings), a premier provider of enterprise-class hosting, managed application, managed messaging and managed cloud services, today reported financial results for the fourth quarter and full fiscal year 2010 ended July 31, 2010.

During the third quarter of fiscal year 2010, NaviSite completed three asset sale transactions, generating initial gross cash proceeds of $56.9 million, including up to $4.5 million to be received upon release of escrow balances. The following results exclude discontinued operations for the periods presented.

Financial Results for the Fourth Quarter and Fiscal Year 2010

• Total revenue for the quarter ended July 31, 2010, was $32.7 million, representing a year-over-year increase of 8% and a sequential quarterly increase of 4%. Total revenue for the full fiscal year 2010 was $126.1 million, representing a 1% increase over revenue of $125.4 million in fiscal year 2009.

• Recurring hosting revenue was $32.4 million for the fourth quarter, representing a year-over-year increase of 11% and a sequential quarterly increase of 5%. Recurring hosting revenue was $123.6 million for the year, representing a growth of 4% over the $119.2 million recorded in fiscal year 2009.

• Gross margin was 37% for the fourth quarter compared to 38% recorded in the fourth quarter last year and 37% during the third quarter of fiscal year 2010. Gross margin for fiscal year 2010 was 38%, representing a 3 percentage point increase from the 35% recorded in fiscal year 2009. Cash gross margin which excludes depreciation, amortization and non cash stock compensation was 51% for the fourth quarter and for the full fiscal year.

• Income from operations for the fourth quarter was $1.4 million compared to a loss of $4.5 million last year and income of $0.8 million during the third quarter of fiscal year 2010. Income from operations for the full fiscal year was $5.1 million as compared to a loss from operations of $4.0 million in fiscal year 2009. Operating income was impacted negatively in fiscal year 2009 from a $5.7 million charge from an arbitration settlement entered into during the fourth quarter of fiscal year 2009.

• EBITDA, excluding impairment costs, stock-based compensation, severance and other non-operational charges (“EBITDA, as adjusted”) for the fourth quarter was $7.2 million, representing a year-over-year increase of 13% and a sequential quarterly increase of 20%. EBITDA, as adjusted for the full fiscal year 2010 was $26.6 million, representing an increase of 9% over the EBITDA, as adjusted of $24.4 million in fiscal year 2009.

• Net loss attributable to common shareholders for the fourth quarter was $1.4 million, or $(0.04) per share, compared to a loss of $8.6 million, or $(0.24) per share, in the fourth quarter of fiscal year 2009. Net income attributable to common shareholders for the full fiscal year 2010 was $9.8 million, or $0.27 per share, compared to a loss of $18.5 million or $(0.52) per share for the fiscal year 2009.

• Cash generated from operating activities for the fourth quarter of fiscal year 2010 was $3.6 million compared to $4.1 million recorded in the fourth quarter of fiscal year 2009. Cash generated from operating activities for fiscal year 2010 was $24.6 million, representing an increase of 14% from the $21.6 million recorded in fiscal year 2009.

“Fiscal 2010 was a year of significant transformation, as we sharpened our enterprise focus, restructured the sales organization, divested non-core assets and deleveraged our balance sheet,” stated Brooks Borcherding, President and Chief Executive Officer of NaviSite. “The successful execution of our strategy, combined with the launch of our innovative, enterprise-class cloud offerings, positions us for continued growth as we head into fiscal 2011.”

Financial and Business Highlights

• Booked approximately $0.6 million of new monthly recurring hosting revenue (“MRR”) in the fourth quarter of fiscal year 2010 compared to $0.7 million booked in the third quarter of fiscal year 2010. During fiscal year 2010, NaviSite booked approximately $2.4 million of new MRR.

• Signed $28.8 million of annual hosting contract value for recurring applications services and enterprise-hosting business with an average contract term of 22 months during fiscal year 2010 compared to bookings of $27.4 million in annual hosting contract value with an average term of 23 months in fiscal year 2009.

• Customer churn, defined as the 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 1.0% per month in the prior quarter and 1.7% a year ago. Churn for the full fiscal year was 1.1% per month compared to 1.2% per month for the full year of fiscal 2009.

• Reduced senior debt leverage by 54% during fiscal year 2010 through sales of non-core assets.

• Launched NaviSite’s Enterprise-Class Managed Cloud Services during the fourth quarter.

Conference Call Scheduled for October 7, 2010

NaviSite President and Chief Executive Officer Brooks Borcherding and Chief Financial Officer Jim Pluntze will host a conference call on Thursday, October 7, 2010, at 5 pm Eastern Time to discuss the company’s results for its fourth quarter and 2010 fiscal year. NaviSite’s conference call can be accessed by dialing 866.730.5763 (International: +1.857.350.1587) and entering passcode 53317271. A replay of the call will be accessible on October 7, 2010 at 8 pm Eastern time through October 14, 2010 by dialing 888.286.8010 (International: +1.617.801.6888) and entering passcode 64935761.

EBITDA

EBITDA and cash gross margin are not a recognized measures for financial-statement presentation under United States generally accepted accounting principles (“GAAP”). NaviSite believes that the non-GAAP measures of EBITDA, as adjusted and cash gross margin, provides investors with useful supplemental measures of our actual and expected operating and financial performance by excluding the impact of interest, taxes, depreciation and amortization from net income (loss) and depreciation and amortization from gross margin. We also exclude impairment costs, stock-based compensation (from both net income (loss) and gross margin), severance, discontinued operations, related gain on discontinued operations, and other non-recurring charges from our non-GAAP measure, as such items may be considered to be of a non-operational nature. EBITDA and cash gross margin do not have any standardized definition and therefore may not be comparable to similar measures presented by other reporting companies. We use EBITDA, as adjusted and cash gross margin, 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 income (loss), as reported, to EBITDA, as adjusted and gross margin to cash gross margin, are included in the condensed consolidated financial statements in this release. We believe that using EBITDA, as adjusted and cash gross margin, as performance measures, together with gross margin and net income (loss), will help investors better understand our underlying financial performance.

About NaviSite

NaviSite, Inc. (NASDAQ: NAVI) is the premier provider of complex hosting, application management and managed cloud services for enterprises. NaviSite provides a full suite of reliable and scalable managed services, including Application Services, industry-leading Enterprise Hosting, and Managed Cloud Services for enterprises looking to outsource IT infrastructure and lower their capital and operational costs. Nearly 1,400 customers depend on NaviSite for customized solutions, delivered through a global footprint of state-of-the-art data centers supported by approximately 600 professionals. For more information on NaviSite services, please visit www.navisite.com .

This release may contain 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 our customer base. 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

(in thousands, except per share data)

For the Three Months Ended For the Year Ended
July 31, 2010 July 31, 2009 July 31, 2010 July 31, 2009
—————————————————-Unaudited————————————————–
—————————————–(In thousands, except per share amounts)——————————————-
Revenue $ 32,621 $ 30,328 $ 125,844 $ 125,033
Revenue, related parties 68 64 303 346
Total revenue 32,689 30,392 126,147 125,379
Cost of revenue, excluding stock compensation, restructuring, depreciation and amortization 15,932 14,498 61,288 62,580
Depreciation and amortization 4,446 3,961 16,524 17,211
Stock compensation 217 292 1,026 1,274
Restructuring charge - - - 209
Cost of revenue 20,595 18,751 78,838 81,274
Gross profit 12,094 11,641 47,309 44,105
Operating expenses:
Selling and marketing, excluding stock compensation and restructuring charge 5,151 4,478 19,887 18,649
General and administrative, excluding stock compensation and restructuring charge 5,176 5,369 20,320 21,556
Loss on settlement - 5,736 - 5,736
Stock compensation 378 374 1,979 1,868
Transaction fees - 145 - 145
Restructuring charge - - - 180
Total operating expenses 10,705 16,102 42,186 48,134
Income (loss) from operations 1,389 (4,461 ) 5,123 (4,029 )
Other income (expense):
Interest income 6 7 23 43
Interest expense (1,627 ) (2,303 ) (8,096 ) (9,142 )
Other income (expense), net 74 10 288 545
Loss from continuing operations before income taxes and discontinued operations (158 ) (6,747 ) (2,662 ) (12,583 )
Income taxes (276 ) (215 ) (755 ) (1,166 )
Net Loss from continuing operations before discontinued operations (434 ) (6,962 ) (3,417 ) (13,749 )
Income (loss) from discontinued operations, net of income taxes 189 (715 ) (3,604 ) (1,362 )
Gain (loss) from sale of discontinued operations, net of income taxes (259 ) - 20,494 -
Net Income (loss) (504 ) (7,677 ) 13,473 (15,111 )
Accretion of preferred stock dividends (942 ) (874 ) (3,718 ) (3,350 )
Net Income (loss) attributable to common stockholders $ (1,446 ) $ (8,551 ) $ 9,755 $ (18,461 )
Basic and diluted net loss per common share:
Loss from continuing operations attributable to common shareholders $ (0.04 ) $ (0.22 ) $ (0.19 ) $ (0.48 )
Income (loss) from discontinued operations $ 0.01 $ (0.02 ) $ (0.10 ) $ (0.04 )
Gain (loss) from sale of discontinued operations $ (0.01 ) $ - $ 0.56 $ -
Net income (loss) attributable to common stockholders $ (0.04 ) $ (0.24 ) $ 0.27 $ (0.52 )
Basic and diluted weighted average number of common shares outstanding 36,684 35,714 36,354 35,528
NaviSite Financial Tables

Net Income (Loss) to EBITDA, as Adjusted, Reconciliation

For the Three Months Ended
July 31, 2010 July 31, 2009
———————Unaudited———————
——————(In thousands)——————
Net income (loss), as reported $ (504 ) $ (7,677 )
Depreciation 4,066 3,282
Amortization 651 850
Interest income/expense, net 1,620 2,296
Income taxes 276 215
EBITDA 6,109 (1,034 )
Stock-based compensation 596 666
Severance 153 145
Income (loss) from discontinued operations (189 ) 715
Loss from sale of discontinued operations 259 -
Transaction fees, integration costs and settlement charge 223 5,863
EBITDA, as adjusted (excludes impairment costs, stock based
compensation, severance, discontinued operations, related gain on
sale of discontinued operations, transaction fees, integration costs
and settlement charge)
$ 7,151 $ 6,355
For the Year Ended
July 31, 2010 July 31, 2009
———————Unaudited———————
——————(In thousands)——————
Net income (loss), as reported $ 13,473 $ (15,111 )
Depreciation 14,839 14,079
Amortization 2,684 3,820
Interest income/expense, net 8,072 9,099
Income taxes 755 1,166
EBITDA 39,823 13,053
Stock based compensation 3,006 3,142
Severance 507 841
Loss from discontinued operations 3,604 1,362
Gain from sale of discontinued operations (20,494 ) -
Transaction fees, integration costs and settlement charge 174 6,008
EBITDA, as adjusted (excludes impairment costs, stock based
compensation, severance, discontinued operations, related gain on
sale of discontinued operations, transaction fees, integration costs
and settlement charge)
$ 26,620 $ 24,406
NaviSite Financial Tables

Condensed Consolidated Balance Sheets

July 31, 2010 July 31, 2009
ASSETS ——Unaudited—— ——Unaudited——
—————–(In thousands)—————–
Current assets:
Cash and cash equivalents $ 4,620 $ 10,534
Accounts receivable, less allowance for doubtful accounts of $1,812
and $1,820 at July 31, 2010 and July 31, 2009, respectively
12,532 16,417
Unbilled accounts receivable 730 1,361
Prepaid expenses and other current assets 11,244 6,336
Total current assets 29,126 34,648
Non-current assets 87,911 129,032
Total assets $ 117,037 $ 163,680
LIABILITIES, PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current liabilities:
Notes payable, current portion $ 4,150 $ 10,603
Capital lease obligations, current portion 4,830 3,040
Accounts payable 7,379 5,375
Accrued expenses, deferred revenue, deferred
other income and customer deposits 19,237 16,606
Total current liabilities 35,596 35,624
Total non-current liabilities 67,977 132,280
Total liabilities 103,573 167,904
Preferred stock 34,284 30,879
Total stockholders’ equity (deficit) (20,820 ) (35,103 )
Total liabilities, preferred stock and stockholders’ equity (deficit) $ 117,037 $ 163,680
NaviSite Financial Tables

Condensed Consolidated Statements of Cash Flow

For the Three Months Ended
July 31, 2010 July 31, 2009
———————Unaudited———————
——————(In thousands)——————
Net cash provided by operating activities $ 3,580 $ 4,099
Net cash used for investing activities (5,002 ) (1,140 )
Net cash provided by (used for) financing activities (1,762 ) 4,537
Effect of exchange rate changes on cash 4 149
Net increase (decrease) in cash and cash equivalents (3,180 ) 7,645
Cash and cash equivalents, beginning of period 7,800 2,889
Cash and cash equivalents, end of period $ 4,620 $ 10,534
For the Year Ended
July 31, 2010 July 31, 2009
———————Unaudited———————
——————(In thousands)——————
Net cash provided by operating activities $ 24,591 $ 21,574
Net cash provided by (used for) investing activities 39,342 (10,571 )
Net cash used for financing activities (69,811 ) (3,572 )
Effect of exchange rate changes on cash (36 ) (158 )
Net increase (decrease) in cash and cash equivalents (5,914 ) 7,273
Cash and cash equivalents, beginning of period 10,534 3,261
Cash and cash equivalents, end of period $ 4,620 $ 10,534
NaviSite Financial Tables

Gross Margin to Cash Gross Margin Reconciliation

For the Three Months Ended
July 31, 2010 July 31, 2009
———————Unaudited———————
——————(In thousands)——————
Total revenue $ 32,689 $ 30,392
Gross margin 12,094 11,641
Gross margin % to total revenue 37 % 38 %
Depreciation & amortization 4,446 3,961
Stock-based compensation 217 292
Cash basis gross margin $ 16,757 $ 15,894
Cash gross margin % to total revenue 51 % 52 %
For the Twelve Months Ended
July 31, 2010 July 31, 2009
———————Unaudited———————
——————(In thousands)——————
Total revenue $ 126,147 $ 125,379
Gross margin 47,309 44,105
Gross margin % to total revenue 38 % 35 %
Depreciation & amortization 16,524 17,211
Stock-based compensation 1,026 1,274
Cash basis gross margin $ 64,859 $ 62,590
Cash gross margin % to total revenue 51 % 50 %

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