FreeMarkets Reports 2Q Loss, But Revenue Is Rising

FreeMarkets' second-quarter earnings report shows that it's on track to achieve profitability next year.
FreeMarkets Inc. is bucking the trend among many business-to-business companies, reporting earnings that keep it on track to achieve profitability next year despite the slowing economy.

The Pittsburgh company, which sells software and services that let manufacturers conduct online auctions with suppliers, Monday reported revenue of $37.6 million for the second quarter ended June 30, a 94% increase over the same period last year. On a quarter-to-quarter basis, revenue jumped 14%.

However, the revenue increases weren't enough to take the company into the black. Excluding noncash stock-based expense, noncash goodwill charges, restructuring charges, and a charge for costs related to the failed merger with Adexa, FreeMarkets lost $6.6 million for the quarter, or 17 cents per diluted share. The company reported a loss of 24 cents per diluted share in the first quarter.

Despite the loss, Joan Hooper, executive VP and chief financial officer, told financial analysts Monday that FreeMarkets is on target to break even in the first quarter of next year and expects to post a profit of 15 cents to 20 cents per share, excluding certain items, for 2002.

FreeMarkets executives attributed the company's growth, despite the economic conditions that have stymied competitors Commerce One, E.piphany, and i2 Technologies, to the high return on investment achieved through its software. The company says its applications reduced costs for customers an average of 18%. Besides auction capabilities, FreeMarkets software also provides spending analyses and helps companies choose suppliers and decide which products are best for auction.

In February, FreeMarkets introduced version 2.0 of QuickSource, its online auction software for the small and midsize market. Version 3.0, scheduled for general availability later in the year, contains expanded bidding formats to accommodate more complex transactions and support of negotiations with suppliers that don't use auctions. Executives declined to discuss pricing.

Despite the good news, FreeMarkets has not been immune to the economic downturn. In June, the company laid off about 8% of its 1,059 workforce worldwide, but it expects the remaining head count to remain unchanged the rest of the year. Also, analysts have questioned whether the company has been adding new customers fast enough, prompting executives Monday to point out that the number of customers grew from 111 to 123 in the third quarter. "As we grow and scale this business, we look for both Asia and Europe to grow dramatically both in revenue and customer count," FreeMarket chief executive Glen Meakem told analysts. International business currently accounts for 20% to 25% of the company's total revenue.

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