Good day, ladies and gentlemen, and welcome to the fiscal year 2011 first quarter NaviSite earnings conference call. My name is Dick, and I will be your operator for today. (Operator instructions) I would now turn the conference over to the Chief Financial Officer, Mr. Jim Pluntze. You may proceed.

Thank you. Good afternoon and welcome to NaviSite's first quarter fiscal year 2011 earnings conference call. Today, Brooks Borcherding, NaviSite's President and Chief Executive Officer, will begin by discussing our key accomplishments over the past quarter. I'll then review our financial results and business highlights for the first quarter, which ended October 31, 2010. I'll then conclude with our outlook for revenue and adjusted EBITDA for our second quarter of fiscal year 2011 before turning the call back over to Brooks for closing comments. First, I'll read the required Safe Harbor statements. Please be aware that the information we're about to discuss includes forward-looking statements for the purposes of the Safe Harbor provisions 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 and cash gross margin performance for the first quarter of fiscal year 2011. Please note that adjusted EBITDA and cash gross margin are not recognized measures for financial statement presentation under United States Generally Accepted Accounting Principles, U.S. GAAP. The company believes that the non-GAAP measures, such as EBITDA, adjusted EBITDA, and cash gross margin provide investors with useful supplemental measures of the company's actual and expected operating and financial performance. EBITDA, adjusted EBITDA, and cash gross margin…

Thank you, Jim, and just to commend you on the excellent job you do on the safe harbor. And I want to welcome everyone to today's call. Well Q1 was an exciting quarter for NaviSite, as it represents our first full quarter with our new managed cloud services offering. And I’m pleased with our performance. Let me start with the headline results, and then provide specific details around our cloud progress. Total revenue for Q1 was $33.4 million, representing a 9% year-over-year increase and 2% increase versus prior quarter. Adjusted EBITDA for Q1 was $7.7 million, representing a 20% increase year-over-year and 7% increase versus prior quarter. And we also delivered another solid bookings quarter at $600,000, representing 49% increase year-over-year, and a 7% increase versus prior quarter. We continue to successfully manage churn at 1.2% per month for the quarter, representing what we believe to be best in class performance. In Q1, we experienced particular success with our new innovative enterprise class cloud offering, which we brought to market in June. Cloud represented a significant portion of our success in the quarter as we closed 13 new cloud contracts with immediate bookings of $50,000. In addition we recognized $27,000 of incremental bookings for our 4 initial cloud customers, reflecting their consumption of cloud resources above and beyond the originally booked right to use fees. Combined, this represents total quarterly cloud bookings of $77,000 of monthly recurring revenue or 13% of our overall quarterly bookings. And as we experienced with our initial cloud customers, we expect the actual revenues related to these new cloud bookings to grow substantially, as customers embraced our managed cloud services for their business. Going forward, we plan to continue reporting the true up to the bookings each quarter to capture the incremental cloud revenues based…

Thank you, Brooks. During the call today, I will be providing some additional details about NaviSite's first quarter fiscal year 2011 financial results, which ended on October 31, 2010, and then provide an update on NaviSite's second quarter fiscal year 2011 guidance. The first-quarter results represent another solid quarter across-the-board from an execution standpoint. Our performance this quarter was primarily driven by the growth of recurring revenue due to the implementation and revenue generated from some of our recent large customer wins. The revenue growth enabled us to meet the high end of our revenue guidance range, and exceed the high end of our adjusted EBITDA guidance range. As reported in our press release earlier today, total revenue for the first quarter ended on October 31, 2010 was 33.4 million, which was at the upper end of our guidance range of 32.9 million to 33.4 million, and represented a year-over-year increase of 9% and a sequential increase of 2%. Recurring hosting revenue was 32.9 million for the first quarter compared to 29.6 million in the first quarter fiscal year 2010, and compared to 32.4 million in the prior quarter, an increase of 11% over the prior year and a sequential increase of 2%. Recurring hosting revenue accounted for about 99% of our revenue in the first quarter. During the first quarter, we recorded bookings of approximately 600,000 of new monthly revenue, about 500,000 in monthly recurring revenue, MRR, and 97,000 in a long-term delivery contract to a long-term hosting customer for a total of 600,000. This compares to 553,000 booked in the fourth quarter of fiscal year 2010, and about 396,000 booked in the first quarter of fiscal year 2010. In the first quarter, 37% of our recurring revenue bookings came from new customers, and 63% came from the existing…

Thank you, Jim. As you all may recall, fiscal year 2010 was a year of significant transformation for NaviSite, a year in which we sharpened our focus on the enterprise market, divested non-core assets, delevered our balance sheet, upgraded our core infrastructure, and brought to market our superior cloud offering. In the first quarter of fiscal year 2011, NaviSite delivered solid results across all metrics as we exhibited our ability to execute on our strategy. As we continue to build momentum as illustrated by our early cloud successes and rapidly expanding cloud pipeline, our focus is now turning to one of acceleration, as we look to increase the velocity of our new bookings going forward, while continuing to successfully manage churn and deliver exceptional service. We are on the right path and excited about the future for NaviSite. And with that, I would like to close our prepared remarks and open the call to questions. Operator.

(Operator instructions) And our first question will be coming from the line of Alex Kurtz from Merriman & Company. You may proceed.

Hi, guys. Thanks for taking the questions. I have got a bunch here. So I will try to go through it pretty quickly here. Jim, if we were to normalize the G&A number, it sounds like there was some additional severance cost in there, is that right?

Yes. Well, there were some severance costs and there were also cost relating to the assignment of our New Year office [ph] to our former CEO, which accelerated some leasehold improvement, depreciation, so the combined impact was about $700,000.

Okay. About $700,000. Okay, great. It looks like your stock based comp sort of kicked up a little bit from last quarter, is that right?

Yes, there was also some accelerated stock compensation due to the same event.

Where do we think that should normalize then, $600,000 to $700,000 a quarter or so?

Yes, I think that is probably approximately a reasonable number.

Okay. And if I – just filling up the pieces here, how many new customers have you guys signed in the quarter.

So, I think we had about – now let me – why don’t you ask the other question, I will say the answer to that in a second.

Okay. I guess to you Brooks on the year-over-year growth in the bookings has been impressive, but the sort of the implied growth rate based on the MRR is sort of been around 7% for the last couple of quarters. You know, so when do we think we will start to see an acceleration in sort of the implied growth rate, or I guess another way to think about it is with all this pipeline out in the cloud, do you expect to start to see a step function in bookings going into January and April?

Well, Alex, first of all thank you for recognizing the year-over-year performance in our bookings, and certainly we hope that that is indicative of the positive execution of our strategy. And I understand the implied growth rate as you are looking at the 2% in the quarter, and the 2% in the guidance. Certainly the upside for us is going to be based off of the conversion of cloud and acceleration of the consumption of those cloud-based services. So, as you saw, they already had a significant contribution to our first quarter with 13% plus impact on our bookings. And we did see the contributions, well to the first four customers somewhat significant incremental booking number that was coming from them. So assuming that type of trajectory proceeds that would be upside opportunity for us to maintain kind of the basis of our booking through our core lines of business, the enterprise hosting, application management, and accelerate the cloud-based bookings. Also what we are seeing with the increase in brand recognition based on the success we are having in cloud, and certainly that is breathing some new life into the pipelines of our traditional lines of business, and then even on top of that we are cloud enabling those, and bringing them out as more dynamic offers in the market. So we are hoping that between those several initiatives that is what will drive the acceleration in our bookings that I referenced in my closing remarks.

I guess another way to ask you Brooks is looking at the pipeline and knowing when certain yields are supposed to close, are you expecting to see that acceleration in the next quarter or you are expecting that sort of exiting the fiscal year.

Well, we have already guided for the coming quarter and we don’t provide that guidance for bookings. But we have given you the trajectory of cloud, and that is a variable, cloud is a variable that has many short-term upside opportunities for us Alex, and beyond just the opportunity for new customers and new bookings, and the second impact, meaning the ability for customers to add additional services as we have already started to see. The third is the faster time to revenue recognition for us for cloud based services, instead of having to have physical hardware deployed and consumed; they can essentially provision those immediately. So, those are all factors that can lead to the upside in those bookings, and I understand that your question is really driving to when can we look to get into view [ph] of more double-digit or high double-digit, high teens type of growth and those are the dependencies that we are focused on, and the real priority of our business is accelerating those bookings, and driving our successful cloud.

Got it. I appreciate that. And Jim, do you have the answer on that?

Yes, 14 new customers in the quarter. 14 new names.

So, what is the – you added a bit of pretty good clip last year, I think you had 33 exiting Q4, what is the dip down for?

Well, I mean, I think in the end what we’re looking at is obviously new customers are important to the business, but overall bookings as you are pointing out is the driver for revenue going forward. So, you know, does it matter each quarter how many new customers? I think what matters is the nominal number and how fast we can drive our revenue growth.

Yes. I do think Alex you are also starting to see that the results of the enterprise focus of our business is it does represent significantly new cross sell, up sell opportunity within the larger accounts as we bring them onboard and they become more comfortable with quality of the primary service that we deliver. So we hope to see that as we continue to land more new large enterprise accounts that we will continue to drive that behavior.

All right, guys, thanks and congrats on the good EBITDA number this quarter.

Thank you.

(Operator instructions) At this time, I’m showing no further questions in queue. I would like to turn the call back over to the CEO, Mr. Brooks Borcherding, for closing remarks.

Thank you, and thank you everyone again for your interest in NaviSite. It is certainly an exciting time for us, and I look forward to continuing to have your participation and engagement on the call. So thank you again, and operator that brings us to an end.

Ladies and gentlemen that concludes today’s conference. Thank you for your participation. You may now disconnect. Have a great day.