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Corio Reports Record Quarter, Expects Profits Soon

About six months after acquiring Qwest CyberSolutions (QCS), enterprise ASP Corio Inc. appears to be reaping some financial rewards from its $15 million dollar purchase (see Corio Snaps Up Qwest's ASP Business).

San Carlos, Calif.-based Corio yesterday reported financial results for its fourth quarter (which ended Dec. 31, 2002). Total revenue for the quarter was $17.8 million, up 36 percent from $13.0 million for the same period in 2001. Application management services revenue (i.e, non-professional services) for the quarter was $15.1 million, more than a 60 percent increase both sequentially and compared to same period in 2001 ($9.3 million).

A large chunk of that revenue increase — $8.7 million in the fourth quarter — is related to QCS business. QCS customers also played a big part in generating a nice burst of cash flow in the quarter, Brett White, Corio's executive vice president and chief financial officer, said during a conference call yesterday.

White said that Corio generated $2 million in cash from operations in Q4 "from successful collection of net accounts receivable from the QCS acquisition and aggressive cash management." However, White added, "We don't expect this to repeat in Q1 2003."

Of course, the flipside is that QCS also accounted for a fair share of expenses. Of the company's $16 million in expenses related to application management services, $7.4 million are tied to QCS, White said, adding that Corio also incurred an additional $1 million in transition expenses.

Don't expect to hear much more talk about QCS in coming quarters. "We're done with transition costs for QCS and have stopped viewing it a separate business."

Corio's chairman, president and CEO George Kadifa concurred, saying "We expect a dip in expenses in the coming quarter. We have completed the QCS integration, so all the expenses have been in Q3 and Q4."

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With QCS now woven into the company's fabric, Kadifa said that Corio can focus on "our path to profitability," which it expects to reach in the latter part of 2003. "We have a laser focus on achieveing EDITDA profitability and a cash-flow positive position in 2003," Kadifa said.

For the first quarter of 2003, Kadifa said, Corio expects revenues to be between $17.5 and $18.5 million, with an EBITDA loss of in the $1 to $2 million range.

"There's good demand out there," Kadifa said, referring to Corio's current sales pipeline. "Q1 is very encouraging, much better than the Q1 pipeline last year."

While acknowledging the need to translate that demand into customers, Kadifa is not worried about competition coming from other ASPs. "In terms of pureplay ASPs, we are basically it at this stage. We have a very strong presence and our win rate is very high." The competition Corio faces, Kadifa said, comes more from systems integrators, outsourcers and, occasionally, software companies.

Articulating the value of the ASP model may be an easier conversation to have now than it was when Corio started more than three years ago, but it's a argument that the company still has to make. "We have to prove to people we can deliver value in a superior way than they can do on their own."

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


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