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Corio Reports Profitability in Sight

Calling its September purchase of rival enterprise ASP Qwest Cyber.Solutions, "a great win for us," Corio president and CEO George Kadifa reported that the veteran ASP is "making significant progress" toward reaching EBITDA (earnings before interest, taxes, depreciation and amortization) profitability in 2003.

The comments came yesterday during a conference call in which Corio reported financial results for the third quarter of 2002, which ended on Sept. 30, 2002.

The San Carlos, Calif.-based ASP reported revenues of $13.4 million for the third quarter, an increase of 5.5 percent over $12.7 million for the third quarter of 2001 and a 12.4 percent sequential increase over second-quarter revenue of $11.9 million.

The company reported that its application management services revenue, which consists of monthly fees from application maintenance and monitoring, declined 5.6 percent to $9.4 million from the $9.9 million it reported for the same quarter last year. However, the company saw a 46-percent increase in professional services and other revenue, recording $4 million for the third quarter versus $2.7 million for the third quarter of 2001. Sequentially, professional services increased 37 percent from 2.9 million in the second quarter.

Corio reported a pro forma operating loss of $6.4 million ($0.12 per share) for the quarter. The figure excludes non-cash amortization charges, net interest income, and restructuring and impairment charges from net income. The results improve on a pro forma operating loss of $11.7 million ($0.23 per share) for the third quarter of 2001.

Net loss for the third quarter was $10.2 million ($0.19 per share), which includes a $400,000 tax benefit, compared with a net loss of $12.4 million ($0.25 per share) for the same period last year.

"The third quarter was our ninth consecutive quarter of declining EBITDA losses and, excluding the initial costs associated with servicing our QCS acquired customers, the fourth consecutive quarter of positive gross margin," said Kadifa. On September 20, 2002, Corio completed the purchase of all of the ASP assets of QCS for $15 million in cash (see Corio Snaps Up Qwest's ASP Business).

"We continue to see demand from small and larger companies in terms of utilizing ASP services, new system implementation, cost avoidance, continuity and enterprise software upgrades," Kadifa said. He said that the company expects 2002 revenues to be approximately $55 and 2003 revenue to be approximately $75-80 million.

"We have won the leadership of the enterprise ASP marketplace and have reached a turning point," Kadifa said. He said that the company continues to build on its existing customer base and also added 40 new enterprise customers from the purchase of QCS. "We expect to see a sequential fourth quarter increase of 30 percent due to the QCS revenue." He added that Corio has also lowered it operating expenses, "which will be sustainable in the future."

During the third quarter, Corio reports, it vacated a portion of its headquarters building in San Carlos, resulting in a third-quarter impairment charge of approximately $3.8 million to write off the costs associated with a portion of the lease obligation.

Barbara Posch, Corio's senior vice president and chief financial officer, provided fourth-quarter revenue guidance of $17-18 million — 75-85 percent coming from application management and 15-25 percent coming from professional services. Posch said the company expects a net loss of approximately $11 million for the fourth quarter and $36-37 million for the fiscal year.

"In order to obtain EBITDA profitability, we will need to reach $24-$25 million in quarterly revenue," said Posch. However, she said, the figure could be lower as the company continues to evolve the costs of serving its customers.

Corio is listed by ASPnews as a Top 20 Service Provider.


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