NaviSite Reports Q1 Results

Funding and lease restructuring improves NaviSite's financial position as the Managed Services Provider announces results for the first fiscal quarter, 2002.

by InternetNews.com Staff [December 12, 2001]

NaviSite, Inc. (NASDAQ:NAVI), the Andover, Mass.-based webhosting and managed services provider (MSP), and a majority-owned operating company of CMGI, Inc. (NASDAQ:CMGI), yesterday announced its first fiscal quarter results for the quarter ended October 31, 2001.

Revenue for the fiscal 2002 first quarter was $19.3 million, exceeding guidance by 7 percent, compared to revenue of $22.8 million for the fiscal 2001 fourth quarter. Net loss for the fiscal 2002 first quarter was $44.3 million, or ($.71) per share.

This amount included asset impairment charges of $27.4 million or ($.44) per share related to NaviSite's financing agreement with Compaq Financial Services and other lease buyout arrangements. Without this charge, NaviSite's pro forma net loss would have been $17.0 million or ($.27) per share. Net loss for the fourth quarter of fiscal 2001 was $38.7 million, or ($0.57) per share.

Without the asset impairment charge in Q1 and restructuring charge in Q4, pro forma EBITDA loss for the fiscal 2002 first quarter would have been approximately $8.1 million, or a decrease of $14.6 million from the pro forma fiscal 2001 fourth quarter. With the charges, EBITDA losses increased to $35.4 million in the fiscal 2002 first quarter from $32.6 million in the fiscal 2001 fourth quarter.

"NaviSite is in a significantly different, stronger financial position than we were at the end of last quarter, thanks to our new financing arrangement with Compaq Financial Services and CMGI," commented Tricia Gilligan, president and CEO of NaviSite, Inc.

Due to financial troubles, CMGI put NaviSite up for sale in March, 2001. In August, the firm cut 25 percent of its staff after the resignation of CEO Joel Rosen. For the past eight months NaviSite has been refocusing its marketing efforts away from its ASP business to concentrate on the provision of managed services.

"Going forward, we are laser focused on further strengthening our financials, extending our commitment to operational excellence and laying the groundwork for healthy growth going forward. We believe that success in these areas will position NaviSite to take the leadership role in the managed services industry," Gilligan continues.

In November 2001, NaviSite completed a restructuring of certain operating lease obligations with Compaq Financial Services whereby NaviSite purchased the assets under lease in exchange for a six-year $35 million convertible note.

Together with the restructuring, NaviSite also received $20 million and $10 million in funding from Compaq Financial Services and CMGI, respectively, in exchange for a six-year convertible note. Under the convertible notes interest is payable in years one through three and interest and principal is paid in years four through six. Issuance of the shares pursuant to the conversion of the notes is subject to the Company's stockholder approval.

The combination of this financing arrangement and NaviSite's improved cost structure, which resulted from the lease restructuring and right-sizing of operations, is expected to enable the company to accelerate EBITDA breakeven. NaviSite has lowered its target for turning EBITDA positive to approximately $27 million quarterly revenue run rate from initial projections of approximately $44 million quarterly revenue run rate.

At October 31, 2001 NaviSite had $12.2 million in available cash, excluding $4.4 million in restricted cash. NaviSite's closing cash balance at December 10, 2001 is approximately $39 million in available cash, including $20 million and $10 million in funding received in November, from Compaq and CMGI, respectively.

Major developments related to the company include:

• $65 million in financing from Compaq Financial Services and CMGI, which includes $30 million in cash and $35 million in restructured lease obligations, fundamentally improves both the Company's cash position and cost structure

• Restructured outstanding lease obligations with Compaq

• Restructured certain other outstanding obligations through a lease-buyout arrangement

• Added five new managed services customers, primarily in the enterprise space, and eight new streaming customers; churn for the quarter was a total of 77 customers, approximately 90 percent of which were unproductive accounts proactively managed out of the base

• Launched Operational Metrics campaign through which NaviSite becomes the first company in the managed hosting industry to openly publish its operational metric

• Announced Security Healthcheck and VPN services geared toward security-conscious enterprise customers

• Generated 70 percent of revenue in fiscal Q1 2002 from non-CMGI related companies and increased average annualized revenue per customer to $356,000 in Q1 from $322,000 in Q4

NaviSite's current estimates for the Company's business in the second fiscal quarter of 2002 are, exclusive of impairment and restructuring costs, as follows:

• Revenue of approximately $14.5 million to $15.5 million

• Gross margin of negative 30 percent to negative 35 percent

• EBITDA loss in the range of approximately $11 to $13 million

• Loss per share between negative $0.30 and negative $0.35

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