NaviSite, Inc. F3Q10 (Qtr End 04/30/10) Earnings Call Transcript - TheStreet

NaviSite, Inc. F3Q10 (Qtr End 04/30/10) Earnings Call Transcript

NaviSite, Inc. F3Q10 (Qtr End 04/30/10) Earnings Call Transcript
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NaviSite, Inc. (NAVI)

F3Q10 (Qtr End 04/30/10) Earnings Call

June 10, 2010 5:00 pm ET

Executives

Brooks Borcherding – President

Jim Pluntze – CFO

Arthur Becker – CEO

Analysts

Alex Kurtz – Merriman and Company

Presentation

Operator

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Good day, ladies and gentlemen, and welcome to the third quarter 2010 NaviSite earnings conference call. My name is Regina and I will be your operator for today. At this time, all participants are in a listen-only mode. Later, we will be conducting a question-and-answer session. (Operator instructions) As a reminder, today’s conference is being recorded for replay purposes.

I would now like to turn the conference over to your host for today, Mr. Brooks Borcherding, President of NaviSite. You may proceed, sir.

Brooks Borcherding

Thank you, Regina, and good afternoon, everyone. Welcome to NaviSite’s third quarter fiscal year 2010 earnings conference call. Arthur Becker, NaviSite’s CEO and Jim Pluntze, NaviSite’s CFO, are also with me here in Andover, Massachusetts. Today, we will be discussing our business transformation, financial results and key business highlights from our third quarter, which ended April 30th, 2010. We will also be issuing both revenue and adjusted EBITDA guidance for our fourth quarter of fiscal year 2010.

Before we start, let me turn the call over to Jim for the required Safe Harbor statement. Jim, over to you.

Jim Pluntze

Thanks, Brooks, and welcome to the call. Please be aware that the information we are about to discuss includes forward-looking statements for the purposes of the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995. Such statements involve risks and uncertainties. The Company’s actual results could differ materially from those discussed in this call. Factors that could contribute to such differences include, but are not limited to, those items noted and included in the Company’s SEC filings.

The forward-looking information that is provided by the Company in this call represents the Company’s outlook as of today and we do not undertake any obligation to update forward-looking statements made by us. Subsequent events and other developments may cause the Company’s outlook to change from that which is discussed today.

We will also discuss NaviSite’s adjusted EBITDA performance for the third quarter of fiscal year 2010. Please note that adjusted 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 interests, taxes, depreciation and amortization. The Company also excludes impairment costs, stock-based compensation, severance, and other non-operational charges as such items are considered to be of a non-operational nature.

Adjusted EBITDA does not have any standard definition and therefore may not be comparable to similar measures presented by other reporting companies. Management uses adjusted 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 from 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 adjusted EBTIDA is included in the condensed, consolidated financial statements included in NaviSite’s third quarter of fiscal year 2010 financial results press release.

Now, I would like to turn the call over to Arthur Becker, NaviSite’s Chief Executive Officer, to provide insights into the status of our transformation throughout Q3. Arthur?

Arthur Becker

Thank you, Jim. As we’ve communicated on previous calls, our strategy has been to narrow our focus on complex managed hosting, application management, and managed cloud solutions for enterprise customers. I am pleased to say that we’ve significant progress in the execution of our strategy throughout this fiscal year and particularly in this most recent quarter.

I’ll breakdown our progress into three categories: divestitures and deleveraging, investment and reorganization.

With respect to the first category, deleveraging, NaviSite (inaudible) the sale of our Lawson and Kronos hosting business for $56 million in cash to Velocity Technology Solutions, Inc. on February 19

th

, 2010. We also closed on the sale of two co-location data centers in Vienna and San Francisco, $5.4 million in cash to Virtustream on March 31

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, 2010.

To mind, these asset sales enabled us to repay approximately $52 million of senior debt in the quarter, reducing our senior debt balance by 55% since the end of our fiscal year in July of ’09, down from $117 million in the fourth quarter of ’09 to $53 million at the end of the second quarter in FY10.

As a result, our senior leverage has been reduced from 3.3 times LTM adjusted EBITDA at the end of the fourth quarter to 2.1 times LTM adjusted EBITDA as of the end of this third quarter, April 30

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, 2010. Our success in delivering our balance sheet also enabled us to amend the covenants of our senior loan in the third quarter to ensure that we will have the flexibility required to support the expected growth in the business moving forward.

The next category of investment, the third quarter represented and Q4 will represent an invested period for NaviSite as we launch our NaviCloud managed cloud services platform and upgrade the core infrastructure of our three cloud data centers in Andover, Massachusetts, San Jose, California, and London. For NaviCloud, we have invested significantly in the deployment of the fiscal infrastructure in Andover and San Jose as well as the deployment of our AppCenter intellectual property, which is the customer portal for our NaviCloud service. For our core infrastructure, we are upgrading our aggregate network connectivity to enable 10 gig throughput in each data center at full end times to redundancy.

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