NaviSite Reports Fourth Quarter and Fiscal Year 2007 Results

09-25-2007

Annual EBITDA Growth of 40% on Annual Revenue Growth of 16%; Annual Bookings Growth of 49%

Andover, MA. September 25, 2007 — NaviSite, Inc. (NASDAQ: NAVI), a leading provider of application management and managed hosting solutions, today reported financial results for the fiscal fourth quarter and year ended July 31, 2007.

Financial Results:

Revenue for the fourth quarter of fiscal year 2007 increased 18% to $34.7 million, compared to $29.4 million for the fourth quarter of fiscal year 2006. Sequentially, revenue for the fourth quarter increased 6% compared to $32.7 million in the third quarter of fiscal year 2007. For the full year, revenue increased 16% to $126.2 million compared to $109.1 million in fiscal year 2006.

Income from operations was $1.0 million in the fourth quarter of fiscal year 2007, as compared to $0.4 million in the fourth quarter of fiscal year 2006 and $1.1 million for the third quarter of fiscal year 2007. For the full year, income from operations was $2.3 million compared to a loss from operations of $3.9 million for fiscal year 2006.

NaviSite reported $6.6 million of EBITDA, excluding impairment costs, stock-based compensation and one-time charges (EBITDA), for the fourth quarter of fiscal year 2007, representing a 3% increase over the $6.4 million of EBITDA reported in the fourth quarter of fiscal year 2006 and a 9% increase compared to the $6.0 million reported in the third quarter of fiscal year 2007. For the full year, NaviSite reported $23.1 million in EBITDA, representing a 40% increase over the $16.4 million of EBITDA reported for fiscal year 2006.

The Company reported a net loss of $17.1 million, or $(0.53) per share, for the fourth quarter of fiscal year 2007, including a loss on debt extinguishment of $15.7 million. Excluding the loss on debt extinguishment, the net loss was $1.4 million, or $(0.04) per share, as compared with a net loss of $ 3.0 million, or $(0.11) per share, for the fourth quarter of fiscal year 2006. For the full year, NaviSite recorded a net loss of $25.9 million, or $(0.85) per share, including the loss on debt extinguishment. Excluding the loss on debt extinguishment, the net loss for fiscal year 2007 was $10.2 million, or $(0.33) per share, as compared with a net loss of $13.9 million, or $(0.49) per share, for fiscal year 2006.

NaviSite generated positive cash flow from operations during the fourth quarter of fiscal year 2007, ending the year with a cash balance of $11.7 million, up from $3.4 million at the end of fiscal year 2006.

“We are very pleased with our strategic, operational and financing accomplishments this year,” said Arthur Becker, CEO, NaviSite. “Fiscal year 2007 was a period of solid growth for NaviSite, with significant improvements in both organic revenue and EBITDA on the strength of a record level of new bookings and an expanding customer base. We made several strategic investments in developing our sales and business development capabilities, and those investments are now working to our advantage. We look forward to continuing these positive trends in fiscal 2008 and to leveraging the recent acquisitions of Alabanza, Jupiter Hosting, and netASPx.”

Business Highlights for the Fourth Quarter of Fiscal Year 2007:

• Achieved strong bookings in NaviSite™s application management and managed hosting solutions with approximately $1.0 million of new monthly recurring revenue booked in the fourth quarter of fiscal year 2007 and $3.6 million for the full fiscal year. This represents an increase of 137% from the fourth quarter of fiscal year 2006, a sequential increase of 28% from the third quarter of fiscal year 2007 and a 49% increase from the full fiscal year 2006.
• Executed $44.6 million of total contract value in our application management and hosting solutions business representing an increase of 251% from the $12.7 million executed in the fourth quarter of fiscal year 2006 and a sequential increase of 26% over the $35.5 million executed in the third quarter of fiscal year 2007. The average term of these contracts was 42 months, representing a 62% increase in contract term lengths over the fourth quarter of fiscal year 2006.
• Signed professional services contracts with a total value of $7.8 million, compared to $7.6 million signed in the third quarter of fiscal year 2007 and an increase of 131% from the $3.4 million signed in the fourth quarter of fiscal year 2006.
• Signed 67 new customers.
• Had customer churn, defined as the loss of a customer or a reduction in a customer’s monthly revenue run rate, excluding our major accounts, of 2.5% per month for the fourth quarter of fiscal year 2007 compared to 1.1% per month for the fourth quarter of fiscal year 2006 and 1.3% for the third quarter of fiscal year 2007. The higher churn in this quarter is mainly related to the loss of one customer from one of our channel partners.
• Enhanced America™s Job Exchange (www.americasjobexchange.com) career site and rapidly grew key metrics of traffic and page views. Monthly site visits are expected to cross one million in September and, based on public information, America™s Job Exchange (AJE) has surpassed and quickly widened its lead over competing sites. The site now offers more than 600,000 job postings to seekers and provides free postings and OFCCP compliance to employers. America™s Job Exchange has also begun traffic monetization through partnerships and targeted ad-serving. AJE is the successor to the America™s Job Bank contract which expired on June 30.
• Closed a $100 million Senior Secured Debt facility, which includes a six year $90 million term loan and a five year $10 million revolving credit facility. Proceeds from the term loan facility were used to extinguish NaviSite™s previous debt with Silver Point Finance LLC, pay transaction fees and expenses and provide funds to support NaviSite™s expansion plans.

NaviSite also achieved a number of significant milestones in fiscal year 2007:

NaviSite celebrated its 10th anniversary, attributing its success to the expertise of its employees, partnership approach with customers, and ability to offer a broad range of flexible and scalable solutions that can be customized to meet customers™ specific needs.

The Company continued to make strategic investments in its data center infrastructure. In May 2007, NaviSite opened a new Content Delivery Network node in Hong Kong, which is now actively serving customers. In that same month, NaviSite leased an additional 10,000 feet of data center space in the U.K. and signed a colocation agreement for the entire space with an $80 billion technology company.

NaviSite also continued to develop several strategic partnerships. The Company furthered its long-standing relationship with Oracle by achieving Oracle Certified Advantage Partner status. NaviSite also announced its collaboration with Sun Microsystems to offer Independent Software Vendors (ISVs) and startup companies the ability to easily develop and/or deploy their software applications in an on-demand environment hosted and supported by NaviSite on Sun™s platform of products. Also in May 2007, the Company announced its partnership with vidavee, a video web services company, to combine NaviSite™s managed infrastructure and content delivery network (CDN) with vidavee™s patented video publishing technologies to offer NaviSite™s Online Video Publishing Platform. In addition, NaviSite introduced a new Monitoring and Alerting service for the Amazon Elastic Compute Cloud (Amazon EC2) and Amazon Simple Storage Service (Amazon S3), which are web-scale infrastructure solutions offered by Amazon Web Services (AWS).

The Company also completed a secondary offering of shares held by third parties in February of nearly 10 million shares, providing additional liquidity, increasing institutional ownership, and reducing the overhang from certain shareholders.

Subsequent Events:

In August, NaviSite announced the purchase of Alabanza and Jupiter Hosting and in September the Company announced the purchase of netASPx. We also reported that these acquisitions were financed with a combination of cash from the Company™s balance sheet, a $20 million addition to the Company™s Term Loan and the issuance to the Seller of $25 million of Convertible Preferred Equity.

Guidance:

Including the recent acquisitions of Alabanza, Jupiter Hosting, and NetASPx, NaviSite projects revenue for the first quarter of fiscal year 2008 to be between $36.0 and $37.0 million, expected growth of 28% over the first quarter of fiscal year 2007. EBITDA, excluding impairment costs, stock-based compensation and one-time charges, is projected to be between $6.7 and $7.2 million for the first quarter of fiscal year 2008, representing 32% growth over the first quarter of fiscal year 2007. The EBITDA guidance for the first quarter includes approximately $1.5 to $2.0 million of operating costs from the acquired companies that we expect will be reduced and/or eliminated during the next 2 quarters.

Updating guidance for fiscal year 2008 to include the recent acquisitions of Alabanza, Jupiter Hosting, and NetASPx, NaviSite projects revenue for fiscal year 2008 to be between $170.0 and $180.0 million. EBITDA for fiscal year 2008, excluding impairment costs, stock-based compensation and one-time charges, is projected to be between $38.0 and $43.0 million.

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Conference Call Scheduled for September 25, 2007:

NaviSite, Inc. Chief Executive Officer, Arthur Becker, and Chief Financial Officer, Jim Pluntze will host a conference call on Tuesday, September 25, 2007 at 4:30 p.m. Eastern Time to discuss the Company’s results for its fourth quarter and fiscal year 2007.

NaviSite™s conference call can be accessed by dialing 866.578.5747 (International: 617.213.8054) and entering passcode 11102866. 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 for one week following the conference call by dialing 888-286-8010 (International: 617-801-6888) and using passcode 64243380.

EBITDA:

EBITDA is not a recognized measure for financial statement presentation under United States generally accepted accounting principles (U.S. 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 costs, stock-based compensation and one-time charges from its 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. 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 U.S. GAAP. A table reconciling the Company’s net loss, as reported, to EBITDA is included in the condensed consolidated financial statements in this release. The Company believes that using EBITDA as a performance measure, together with 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 1400 customers depend on NaviSite for application development, implementation and management on its web infrastructure platforms in 16 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.

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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 NaviSites product and service offerings, and NaviSites 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 NaviSites 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: NaviSites 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; NaviSites 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; NaviSites acquisition of companies and businesses may not produce expected cost savings, operational efficiencies or revenue; NaviSites 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 NaviSites financial condition and results of operations; and increased competition and technological changes in the markets in which NaviSites competes. For a detailed discussion of cautionary statements that may affect NaviSites future results of operations and financial results, please refer to NaviSites filings with the Securities and Exchange Commission, including NaviSites most recent Annual Report on Form 10-K and its Quarterly Reports on Form 10-Q. Forward-looking statements represent managements 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.