FreeMarkets Reports First Quarter Results; Company Beats Consensus Earnings Estimates by Two Cents Per Share; On Track to Break Even in Q1 2002.
PITTSBURGH--(BUSINESS WIRE)--April 23, 2001
FreeMarkets, Inc. (Nasdaq:FMKT FMKT Freemarkets, Inc. (stock abbreviation, AMEX) ), the leading B2B (Business to Business) Refers to one business communicating with or selling to another. See B2B e-commerce, B2C and B2G.
B2B - business to business Global Marketplace and eSourcing See e-sourcing. solutions provider, today reported results for the first quarter ended March 31, 2001.
Revenues for the first quarter were $33.0 million, an increase of 205% over the same period a year earlier. Net loss for the first quarter, excluding stock-based expense and non-cash acquisition-related costs, was $9.3 million, or $0.24 cents per diluted di·lute
tr.v. di·lut·ed, di·lut·ing, di·lutes
1. To make thinner or less concentrated by adding a liquid such as water.
2. To lessen the force, strength, purity, or brilliance of, especially by admixture. share, beating the First Call estimate by $0.02 per share, and bettering the $0.27 per diluted share loss reported for the fourth quarter of 2000. Gross margins increased for the fifth consecutive quarter, rising to 51%, compared to 41% in the first quarter of 2000. Market volumes of $2.6 billion were consistent with first quarter guidance, and an increase of 92% over the same period a year earlier. Please see the "Recent Developments" section below for more information.
"We are pleased with our bottom-line bot·tom-line
1. Concerned exclusively with costs and profits: bottom-line issues.
2. Ruthlessly realistic; pragmatic: a bottom-line political strategy. performance for the first quarter," said FreeMarkets Senior Vice President and Chief Financial Officer Joan Joan
of Arc, St. (1412–1431) heroically followed call to save France. [Christian Hagiog.: Attwater, 187]
See : Patriotism Hooper hoop·er
A maker or repairer of barrels and tubs; a cooper. . "The visibility of our revenue model enables us to see potential shortfalls before they occur, and this visibility, combined with our strong operational controls, allowed us to contain costs and exceed our earnings estimate. While our revenues fell slightly short of our expectations due to longer sales cycles driven by a softening softening /sof·ten·ing/ (sof´en-ing) malacia.
a change of consistency, with loss of firmness or hardness. economy, we are very encouraged by the deals we signed late in the quarter, which should enable us to achieve sequential revenue growth of 10% to 15% in the second quarter."
"Although demand for eSourcing solutions softened soft·en
v. soft·ened, soft·en·ing, soft·ens
1. To make soft or softer.
2. To undermine or reduce the strength, morale, or resistance of.
3. during the quarter due to the weakening weak·en
tr. & intr.v. weak·ened, weak·en·ing, weak·ens
To make or become weak or weaker.
weaken·er n. economy, our customers continued to leverage our technologies, market information and services to generate savings and efficiencies for their organizations," said FreeMarkets Chairman and CEO (1) (Chief Executive Officer) The highest individual in command of an organization. Typically the president of the company, the CEO reports to the Chairman of the Board. Glen Meakem. "During the first quarter, the number of customers using FreeMarkets to source significant volumes of goods and services In economics, economic output is divided into physical goods and intangible services. Consumption of goods and services is assumed to produce utility (unless the "good" is a "bad"). It is often used when referring to a Goods and Services Tax. continued to increase, as did our traction Traction Definition
Traction is the use of a pulling force to treat muscle and skeleton disorders.
Traction is usually applied to the arms and legs, the neck, the backbone, or the pelvis. in key industry sectors, including automotive and energy, process and engineering. We maintained our track record of delivering substantial results to our customers, generating approximately $500 million in savings and a significant return on investment for our customers."
"We also continued to enhance our productivity and the scalability How much a system can be expanded. See scalable.
scalability - How well a solution to some problem will work when the size of the problem increases.
For example, a central server of some kind with ten clients may perform adequately but with a thousand clients it of our business, and further strengthened our product offering and footprint The amount of geographic space covered by an object. A computer footprint is the desk or floor surface it occupies. A satellite's footprint is the earth area covered by its downlink. See form factor.
1. with the introduction of the FreeMarkets(R) QuickSource(TM) solution, an ASP-based application that allows our customers to create their own online markets," Meakem continued. "We look forward to building on the momentum we have gained to extend our global leadership position even further in the months ahead."
Increasing Customers and Traction
The number of customers using FreeMarkets' eSourcing solutions continued to increase during the first quarter. In addition to signing several new agreements, FreeMarkets extended existing long-term Long-term
Three or more years. In the context of accounting, more than 1 year.
1. Of or relating to a gain or loss in the value of a security that has been held over a specific length of time. Compare short-term. relationships and converted a number of key pilots. The number of long-term customers using FreeMarkets' eSourcing solutions grew to 60 during the first quarter, up from 43 in the previous quarter, bringing the total number of companies sourcing goods and services through FreeMarkets to 111.
FreeMarkets continued to gain traction across the industry sectors it serves, adding customers in key sectors such as automotive, energy, process and engineering, high technology and financial services The examples and perspective in this article or section may not represent a worldwide view of the subject.
Please [ improve this article] or discuss the issue on the talk page. .
Among the companies FreeMarkets signed agreements with during the quarter in new business sectors like financial services were Royal Bank of Scotland
The Royal Bank of Scotland Plc (Scottish Gaelic: Banca Rìoghail na h-Alba and PNC Financial Services PNC Financial Services (NYSE: PNC) is a U.S.-based financial services corporation, with assets of $92.0 billion. PNC operations include a regional banking franchise operating primarily in eight states and the District of Columbia, specialized financial businesses serving . FreeMarkets also announced the extension of its long-term relationships with Owens Corning Owens Corning Corporation is the world's largest manufacturer of fiberglass and related products. It was formed in 1935 as a partnership between two major American glassworks, Corning Glass Works and Owens-Illinois. The company was spun off as a separate entity November 1, 1938. and FirstEnergy
Already in the second quarter, FreeMarkets has announced new agreements with Marathon Oil Marathon Oil Corporation NYSE: MRO, based in Houston, Texas, is a worldwide oil and natural gas exploration and production company. Principal exploration activities are in the United States, Norway, Equatorial Guinea, Angola and Canada. , EVA Eva
to marry winner of singing contest. [Ger. Opera: Wagner, Meistersinger, Westerman, 225–228]
See : Prize
1. Eva - A toy ALGOL-like language used in "Formal Specification of Programming Languages: A Panoramic Primer", F.G. Airways airways Anatomy The 'pipes'–trachea, bronchi, bronchioles–through which air passes to and from the alveoli. See Small airways. and oneworld(R), extended its long-term relationships with GlaxoSmithKline and Eaton, and converted a pilot with Murphy Oil Murphy Oil Corporation NYSE: MUR is a petroleum corporation. It is a S&P 500 company. In 2007, it was ranked as the 169th largest company in America on the Fortune 500.
The current President & CEO is Claiborne Deming. .
Delivering Savings and Customer ROI (Return On Investment) The monetary benefits derived from having spent money on developing or revising a system. In the IT world, there are more ways to compute ROI than Carter has liver pills (and for those of you who never heard of that expression, it means a lot).
FreeMarkets maintained its track record of delivering fast, measurable savings and immediate and ongoing returns on investment to customers during the first quarter, creating savings of approximately $500 million, or 16%, and substantial returns on customer investments. To date, FreeMarkets has generated more than $3.2 billion in savings for its customers around the globe.
Building Marketplace Liquidity
FreeMarkets continued to build liquidity in its Global Marketplace during the first quarter, creating 2,275 online markets for more than $2.6 billion worth of direct and indirect materials and services. Since 1995, FreeMarkets has created more than 11,500 online markets for over $16.6 billion in goods and services.
The number of suppliers who have actively participated in the FreeMarkets B2B Global Marketplace jumped substantially to 11,100 during the quarter, up from 9,300 in the fourth quarter of 2000, an increase of nearly 20%.
Enhancing Productivity and Scalability
FreeMarkets continued to develop and expand its portfolio of eSourcing solutions during the first quarter, adding technologies that increase the productivity and scalability of its business. On February 15, we launched our QuickSource offering, an ASP-based private marketplace application. Based on our industry-leading eSourcing technologies that we use to power our B2B Global Marketplace, our QuickSource solution enables procurement The fancy word for "purchasing." The procurement department within an organization manages all the major purchases. professionals to create and manage their own online markets for direct and indirect materials, as well as services.
A number of customers have already added the FreeMarkets' QuickSource offering to their portfolio of eSourcing solutions, including: GlaxoSmithKline, Alcoa, United Technologies Corp., and others.
Expanding Market Share and Leadership
During the first quarter, FreeMarkets announced a definitive agreement to acquire Adexa, Inc., a leading provider of collaborative commerce solutions. The acquisition of Adexa will extend FreeMarkets' eSourcing leadership into supply chain collaboration Working together on a project. See collaborative software. and optimization optimization
Field of applied mathematics whose principles and methods are used to solve quantitative problems in disciplines including physics, biology, engineering, and economics. . For the first time, global enterprises will be able to manage their direct materials from end to end, using the combined company's next generation solutions to both create and operate their supply chains. We expect the acquisition to close by the end of the second quarter of 2000.
By acquiring Adexa, FreeMarkets will increase both the breadth and depth of its customer base. Some of these benefits have already begun. FreeMarkets recently signed an agreement with one of Asia's leading manufacturers of computer systems, which had previously adopted and implemented Adexa's iCollaboration suite to manage and optimize optimize - optimisation its global supply chain operations.
FreeMarkets is in discussions with the SEC regarding the classification in our income statement of the revenue we receive from Visteon, which is currently our largest customer. In 2000, our revenue from Visteon was approximately $8 million and in the first quarter of 2001, it was approximately $2.8 million. Our discussions with the SEC are in response to a question asked by the SEC in connection with its review of our S-4 filing for the Adexa acquisition.
On Friday, April 20, the SEC staff informed us that, in its view, the payments that we earn from Visteon under our service contract should not be classified as revenue in our income statement, because we also granted a warrant for 1.75 million shares to Visteon at the time we signed the contract. The warrant was valued at $95.5 million, which reflects the value of our stock in April of 2000, when we announced the contract with Visteon. We granted the warrant to Visteon in exchange for sales and marketing benefits and we have been amortizing the $95.5 million as a sales and marketing expense over the 5 years of our service contract. In the SEC's view, even though we are performing standard commercial services and receiving standard commercial cash fees for these services under the Visteon contract, the amounts that we earn from Visteon should be classified as money paid for the warrant instead of revenue.
Our Audit Committee has authorized au·thor·ize
tr.v. au·thor·ized, au·thor·iz·ing, au·thor·iz·es
1. To grant authority or power to.
2. To give permission for; sanction: us to consider an appeal of the staff's position. However, an appeal may delay the closing of the Adexa acquisition, and we have not yet decided whether to pursue an appeal. If we do not appeal the SEC staff's view, we will amend our 2000 financial statements to eliminate all revenue we earned from Visteon, and our GAAP GAAP
See: Generally Accepted Accounting Principles
See generally accepted accounting principles (GAAP). income statements in the future (including for the quarter ended March 31, 2001) will no longer include revenue from Visteon. An amendment of our 2000 financial statements will also include changes to the costs associated with performing our obligations to Visteon under the service contract, and to our sales and marketing costs related to the amortization of the warrant. Because we are concerned that the SEC staff's suggested income statement classification will be confusing con·fuse
v. con·fused, con·fus·ing, con·fus·es
a. To cause to be unable to think with clarity or act with intelligence or understanding; throw off.
b. to investors, we plan under any circumstances CIRCUMSTANCES, evidence. The particulars which accompany a fact.
2. The facts proved are either possible or impossible, ordinary and probable, or extraordinary and improbable, recent or ancient; they may have happened near us, or afar off; they are public or to disclose the amounts we earn under our Visteon service contract in our earnings releases, our MD & A, the footnotes to our financial statements and our presentations to analysts and investors.
The SEC staff's view does not affect the accounting for any of our contracts other than Visteon, and any accounting changes that we make as a result of our discussions with the SEC staff will have no impact on our business relationship with Visteon.
The results for the quarter ended March 31, 2001 and the financial guidance disclosed in this press release treat the amounts that we receive from Visteon under our service contract as revenue, and the costs of serving Visteon as costs of revenue, and also treat the amortization of the Visteon warrant as a sales and marketing expense. As explained above, these classifications would change in our GAAP financial statements if we accept the SEC staff's position.
In early April, we made a decision to relocate re·lo·cate
v. re·lo·cat·ed, re·lo·cat·ing, re·lo·cates
To move to or establish in a new place: relocated the business.
v.intr. our asset recovery business to Pittsburgh and close our Austin, Texas facility. This move will position us to drive revenue more effectively by leveraging our existing sales and marketing channels, customer relationships and industry specialists of our core eSourcing business. As a result of the closing of the Austin office, we will take a restructuring charge restructuring charge
The expense of reorganizing a company's operations. A restructuring charge is an infrequent expense that generally results from asset writedowns or facility closings. of approximately $3 million to $4 million in the second quarter, approximately half of which is a non-cash, asset write-off Write-Off
A reduction in the value of an asset or earnings by the amount of an expense or loss. Companies are able to write off certain expenses that are required to run the business, or have been incurred in the operation of the business and detract from retained revenues. .
Despite the slowing economy, FreeMarkets has continued to attract new customers due to our ability to deliver immediate and ongoing returns on their investment.
Based on the deals we've signed and our pipeline, we expect 10% to 15% sequential revenue growth in the second quarter, and approximately 5% sequential growth in the third and fourth quarters of 2001. As a result, we estimate revenues for the full year 2001 at approximately $150 million, or 65% year-over-year growth. Although this represents a slight lowering of previous revenue guidance, we believe we can still achieve the current operational EPS (Encapsulated PostScript) A PostScript file format used to transfer a graphic image between applications and platforms. EPS files contain PostScript code as well as an optional preview image in TIFF, WMF, PICT or EPSI, the latter being an ASCII-only format. guidance of a $0.22 loss in the second quarter, and a $0.73 loss for the year. We remain confident that we will reach our operational breakeven breakeven
1. The level of output or sales necessary to cover fixed expenses. Companies in industries that have high fixed costs and, consequently, high breakevens, such as automobile and steel manufacturing, are likely to exhibit large fluctuations point in the first quarter of 2002. These loss figures exclude stock-based expense, non-cash acquisition costs and restructuring charges, and all of the numbers above exclude any changes that may result from our discussions with the SEC staff concerning our contract with Visteon.
We expect to end the second quarter with over $80 million in cash, and the year with over $60 million. We believe that FreeMarkets will be cash flow positive in the second quarter of 2002.
FreeMarkets is the leading B2B Global Marketplace and eSourcing solutions provider. FreeMarkets combines its industry-leading technology platform with unparalleled sourcing information, commodity-specific domain knowledge, world-class services and purchasing scale to deliver fast, measurable savings to customers. FreeMarkets has created over 11,500 online markets for more than $16.6 billion worth of goods and services and created estimated savings of over $3.2 billion for its customers. More than 11,100 suppliers from over 64 countries have participated in the FreeMarkets B2B Global Marketplace. The Company also operates FreeMarkets Asset Exchange, the leading B2B Global Marketplace for surplus assets and inventory. FreeMarkets can be found on the Web at www.freemarkets.com. FreeMarkets(R) and BidWare(R) are registered trademarks of FreeMarkets, Inc., and FullSource(TM) and QuickSource(TM) are pending trademarks of FreeMarkets, Inc.
Forward-looking statements forward-looking statement
A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections.
Statements in this press release that are not historical facts, including the information under the headings "Recent Developments" and "Financial Guidance" and other statements that refer to FreeMarkets' plans, prospects, expectations, strategies, intentions, and beliefs, are forward-looking statements. These forward-looking statements are based on information available to FreeMarkets today, and FreeMarkets assumes no obligation to update these statements as circumstances change. There are risks and uncertainties that could cause actual results to differ materially from the forward-looking statements, including, without limitation, market acceptance of FreeMarkets' B2B Global Marketplace and new products and services that FreeMarkets introduces, the competitive nature of the market for business-to-business online auction and e-commerce e-commerce, commerce conducted over the Internet, most often via the World Wide Web. E-commerce can apply to purchases made through the Web or to business-to-business activities such as inventory transfers. services, FreeMarkets' ability to attract new customers, through its own efforts and through partnerships and alliances, to retain and increase revenue from existing customers and to attract new customers, FreeMarkets' ability to attract and retain qualified personnel, the size of the market for used equipment and surplus inventory, the demand for online auction and other asset recovery services by buyers and suppliers, FreeMarkets' ability to integrate acquisitions and manage growth, the risks associated with the acquisition of Adexa and the timing of the acquisition, the risks that the visibility of our revenue model may be adversely affected by changes in our business, the acquisition of Adexa or other economic factors, and the outcome of FreeMarkets' discussions with the SEC staff. You should carefully review these and other risk factors that are described in more detail in FreeMarkets' filings with the Securities and Exchange Commission, including its Form 10-K Form 10-K
A report required by the SEC from exchange-listed companies that provides for annual disclosure of certain financial information.
See 10-K. for the year ended December 31, 2000 and the Form S-4 filed in connection with the acquisition of Adexa.
Where you can find additional information
FreeMarkets has filed a Registration Statement on SEC Form S-4 in connection with the acquisition of Adexa, and FreeMarkets expects to mail a Proxy Statement/Prospectus to stockholders of FreeMarkets and Adexa containing information about the transaction. Investors and security holders are urged to read the Registration and Proxy Statement/Prospectus carefully. The Registration Statement and the Proxy Statement/Prospectus contain important
information about FreeMarkets, Adexa, the transaction and related matters. Investors and security holders will be able to obtain free copies of these documents through the website maintained by the U.S. Securities and Exchange Commission at www.sec.gov. Free copies of the Proxy Statement/Prospectus and these other documents may also be obtained from FreeMarkets by directing a request through the Corporate Info/Investor Relations portion of FreeMarkets' website at www.freemarkets.com or by mail to FreeMarkets, Inc., Investor Relations Investor relations
The process by which the corporation communicates with its investors. , FreeMarkets Center, 210 Sixth Avenue, Pittsburgh, PA 15222, telephone 412-297-8950.
In addition to the Registration Statement and the Proxy Statement/Prospectus, FreeMarkets files annual, quarterly and special reports, proxy statements Proxy Statement
A document containing the information that a company is required by the SEC to provide to shareholders so they can make informed decisions about matters that will be brought up at an annual stockholder meeting. and other information with the Securities Exchange Commission. You may read and copy any reports, statements or other information filed by FreeMarkets at the SEC's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549 or at any of the SEC's other Public Reference Rooms in New York New York, state, United States
New York, Middle Atlantic state of the United States. It is bordered by Vermont, Massachusetts, Connecticut, and the Atlantic Ocean (E), New Jersey and Pennsylvania (S), Lakes Erie and Ontario and the Canadian province of , New York and Chicago, Illinois Illinois, river, United States
Illinois, river, 273 mi (439 km) long, formed by the confluence of the Des Plaines and Kankakee rivers, NE Ill., and flowing SW to the Mississippi at Grafton, Ill. It is an important commercial and recreational waterway. . Please call the SEC at 1-800-SEC-0330 for further information on the operation of the Public Reference Rooms. FreeMarkets' filings with the SEC are also available to the public from commercial documents-retrieval services and at the website maintained by the SEC at www.sec.gov.
FreeMarkets and Adexa and their respective directors, executive officers and certain other members of management and employees may be soliciting proxies from FreeMarkets stockholders in favor of upon the side of; favorable to; for the advantage of.
See also: favor the issuance of FreeMarkets stock in the transaction and from Adexa shareholders in favor of the adoption of the definitive agreement. A description of any interests that such directors and executive officers have in the transaction is available in the Proxy Statement/Prospectus.
FreeMarkets, Inc. (Unaudited;$ in thousands, except per share amounts) Three Months Ended March 31, 2001 2000 -------------- -------------- Revenues $ 33,010 $ 10,808 Cost of revenues 16,230 6,334 -------------- -------------- Gross profit 16,780 4,474 -------------- -------------- Operating costs: Research & development 5,625 2,884 Sales & marketing 12,203 7,420 General & administrative 9,641 5,091 Stock-based expense 4,902 226 Non-cash acquisition- related costs 29,523 9,542 -------------- -------------- Total operating costs 61,894 25,163 -------------- -------------- Operating loss (45,114) (20,689) Other income, net 1,529 2,627 -------------- -------------- Net loss before income taxes (43,585) (18,062) Provision for income taxes 149 75 -------------- -------------- Net loss $ (43,734) $ (18,137) ============== ============== Basic & diluted EPS $ (1.13) $ (0.51) Weighted average shares 38,871,938 35,498,829 -------------------------------------------------------------------- Net loss excluding stock-based expense & non-cash acquisition-related costs $ (9,309) $ (8,369) Per basic & diluted share $ (0.24) $ (0.24) -------------------------------------------------------------------- Operational data: Auction volume $ 2,602,428 $ 1,355,092 Revenue as a percentage volume 1.27% 0.80% Number of auctions 2,275 884 Estimated potential savings $ 496,000 $ 300,000 Number of customers 111 47 Cumulative number of suppliers 11,100 4,000 Cumulative number of product categories 175 100 Number of employees 1,059 497 See "Recent Developments" FreeMarkets, Inc. (Unaudited; $ in thousands) March 31, December 31, Assets 2001 2000 ------------- ------------- Current assets: Cash, cash equivalents and short-term investments $ 97,624 $ 121,148 Accounts receivable, net 26,326 27,861 Other current assets 6,790 5,069 ------------- ------------- Total current assets 130,740 154,078 Property & equipment, net 48,248 43,714 Goodwill & other assets, net 231,804 264,754 ------------- ------------- Total assets $ 410,792 $ 462,546 ============= ============= Liabilities & Stockholders' Equity Current liabilities: Accounts payable $ 9,832 $ 9,517 Accrued incentive compensation 2,419 10,235 Accrued acquisition costs 1,173 4,676 Other current liabilities 14,263 16,889 Current portion of long-term debt 3,891 3,887 ------------- ------------- Total current liabilities 31,578 45,204 Long-term debt 495 544 ------------- ------------- Total liabilities 32,073 45,748 Total stockholders' equity 378,719 416,798 ------------- ------------- Total liabilities & stockholders' equity $ 410,792 $ 462,546 ============= =============