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NaviSite, Inc. Reports Second Quarter 2004 Results

Company Announces Second Consecutive Quarter ofEBITDA(1) Profitability and Achieves Goal of Positive Cash Flow from Operations;Gross Profit Percentage Increases to 25%; 31 New Customers Added

NaviSite, Inc. (NASDAQ SC: NAVI), a provider of outsourced hosting andmanaged application services, today reported financial results for its secondquarter of fiscal year 2004, which ended January 31, 2004.

For the second quarter of fiscal year 2004, total revenue increased 19% to$22.3 million from $18.8 million in the second quarter of fiscal year 2003.Gross profit grew for the second quarter of fiscal year 2004 to $5.6 million (or25% of revenue), compared to a gross profit of $1.8 million (or 9.3% of revenue)in the second quarter of fiscal year 2003. Net loss for the second quarter infiscal year 2004 totaled $3.4 million, or a loss of $0.14 per share, versus anet loss of $20.2 million, or a net loss of $2.07 per share, in the secondquarter of fiscal year 2003.

The Company reported its second consecutive quarter of positive EBITDA(1)(Earnings Before Interest, Taxes, Depreciation, Amortization and non-cashcompensation), with a gain of approximately $1.5 million for the second quarterof fiscal year 2004, excluding impairment charges of $946,000. This compares toa positive EBITDA(1) of $1.8 million for the first quarter of fiscal year 2004,excluding $1.1 million of impairment charges and an EBITDA(1) loss of $869,000in the second quarter of fiscal year 2003. Including impairment charges, EBITDA(1) was $583,000 for the second quarter of fiscal year 2004 as compared to$676,000 for the prior quarter of fiscal year 2004. Cash flow from operatingactivities for second quarter fiscal year 2004 was $3.0 million, compared tocash used for operating activities of $549,000 in the second quarter in fiscalyear 2003.

Gross profit as a percentage of revenue continued to increase in fiscal year2004 to 25% in the second quarter, up from 21% in the prior quarter. Thisoccurred despite a 5% decrease in total revenue to $22.3 million in the quarterfrom $23.5 million for the first quarter of fiscal year 2004. Comparative secondquarter fiscal year 2003 operating results have been restated to reflect, on an”as if pooling” basis, our related party acquisitions of certain subsidiaries ofClearBlue Technologies, Inc., as explained in our quarterly report on Form 10-Qfor our second quarter of fiscal year 2004, to be filed later today with theSEC.

“NaviSite continues to deliver on the goal of improving our financialperformance, despite a lower billing rate from our largest customer. We’vesubstantially completed our planned integrations and continued to reduce costsin our operational platform,” said Arthur Becker, chief executive officer ofNaviSite.

Becker continued, “These results represent another positive step towardreaching our goal of profitability and mark the second straight quarter we haveshown positive EBITDA(1) and the first quarter we have shown a positive cashflow from operating activities. We will continue to look to increase revenue byboth growing our customer base and improving on our ability to sell new productsinto our approximately 900 customers.”

Key Highlights and Subsequent Events

– In November, NaviSite named industry veteran Stephen Scott as managingdirector of the Company’s newly reorganized UK operations. Mr. Scott bringssignificant experience in the managed services industry to NaviSite, having heldthe position of Managing Director at PSInet Europe, and European Vice Presidentwith service providers Global Switch and Keybridge.

– On November 25, 2003, we announced that the New York State Department ofLabor added $52 million to its existing contract with us to provide applicationhosting and application development services in support of the America’s JobBank Web site and related programs. This amendment to the existing five-year,$83 million hosting and services contract also decreased the hourly rates forvarious services that we provide under the contract by an average ofapproximately 21%. The New York State Department of Labor has the ability topurchase additional services to meet the projected contract needs until theexpiration of the contract in 2005.

– We added 31 new customers to offset the 23 non-renewals during thequarter.

“We continue to work through the final stages of integration for ouracquisitions in our drive to sustain profitability and positive cash flow.Notably, in the most recent quarter, we experienced one-time move andseverance-related charges for our UK facility of approximately $359,000 which iscontained in our cost of operations. Were we to exclude those charges, ourreported EBITDA(1) would be higher by an equivalent amount,” said Becker.”Similarly, we reached an oral agreement with one of our landlords torestructure a lease that we anticipate will benefit future quarters withincreased profitability. We are finalizing these amounts and the specific termsof the contract and expect to provide an update on the status of this and otherinitiatives next quarter.”

The Company believes that its non-GAAP measure of EBITDA(1) providesinvestors with a useful supplemental measure of the Company’s operatingperformance by excluding the impact of Interest, Taxes, Depreciation, andAmortization and non-cash compensation. Management uses EBITDA(1) to assist inevaluating the Company’s operating performance. These non-GAAP results should beevaluated in light of the Company’s financial results prepared in accordancewith United States generally accepted accounting principles (”GAAP”). A tablereconciling the Company’s EBITDA(1) to net loss is included in the consolidatedfinancial statements in this release. The presentation of this additionalinformation is not meant to be considered in isolation or as a substitute fornet income and net income per share prepared in accordance with GAAP.

Conference Call Scheduled for Tuesday, March 16th

NaviSite’s President and CEO, Arthur Becker, will host a conference call todiscuss its fiscal 2004 second quarter results at 9:00 a.m. Eastern Time onMarch 16, 2004.

Date: Tuesday, March 16, 2004, 9:00 A.M. EST
Call In #: Toll free: 888- 346 5716 (INTL: 404 - 260 5386)
Pass Code (Verbal): NaviSite
Dial In Replay #: Toll Free: 888 - 346 3949 (INTL: 404 - 2605385)
Password # 031604
Available 15 min after conclusion of call until
3/26/04
Webcast Replay: www.navisite.com/investors.cfm
Available 1 hour following call
(1) EBITDA is not a recognized measure for financial statement presentationunder United States generally accepted accounting principles (U.S. GAAP).Non-U.S. GAAP earnings measures do not have any standardized definition and aretherefore unlikely to be comparable to similar measures presented by otherreporting companies. This non-U.S. GAAP measure is provided to assist readers inevaluating NaviSite’s operating performance. Readers are encouraged to considerthis non-U.S. GAAP measure in conjunction with NaviSite’s U.S. GAAP results.

About NaviSite, Inc.

NaviSite is a leading provider of outsourced hosting and managed applicationservices for middle-market organizations, which include mid-sized companies,divisions of large multi-national companies and government agencies.

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