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FreeMarkets bullish on sales despite woes

The business-to-business software maker, which expects better-than-expected third-quarter sales, stands tall despite the economy and shareholder lawsuits.

Business-to-business software maker FreeMarkets is showing its resiliency despite a sluggish economy and a series of class-action lawsuits from disgruntled investors.

On Thursday, the Pittsburgh-based company, which provides hosted software and services to buyers looking to locate suppliers online, said it expects revenue for the third quarter to be higher than previously forecast.

Executives told analysts that sales and fees for the third quarter are expected to grow between 6 percent and 8 percent sequentially to between $39.8 million and $40.6 million. That figure, the company said, is about $300,000 to $1.1 million higher than estimates given when it reported earnings in July.

The better-than-expected outlook reflects the company's continued momentum, despite the dark times facing the business-to-business market, said John Gibs, an analyst with New York-based Jupiter Media Metrix.

"The company is doing better than other software providers in the market one on either side has to integrate their software because (FreeMarkets) hosts it and manages it," Gibs said. "On either side, there are very little up-front costs."

Gibs said the low up-front costs help attract companies, especially during tough economic times.

FreeMarkets' rosy outlook comes as the company's stock hovers around $15, above its 52-week low of $6.25 but well below its 52-week high of $92.06.

Because of the stock's rapid decline, many investors have tried to recoup their losses by going after the company in court. In one instance, shareholders who purchased the stock between July 24, 2000, and April 23, 2001, filed a class-action suit against the company. The complaint, filed by a Washington, D.C., law firm in May, says FreeMarkets "improperly accounted for its financial results for the second, third and fourth quarters and the year of fiscal 2000."

But despite seeing its stock plummet, the company has been able to maintain a steady flow of new customers and expand on older deals.

The company on Thursday said that it expanded its deal with SPX, an industrial products and service provider. Under terms of the deal, SPX will continue to use FreeMarkets' tools and services through 2002.

FreeMarkets also said that it has signed an agreement with Tomkins, an engineering organization, to provide it with hosted-sourcing software and services. Tomkins will use the software to locate and purchase goods and services for its operations.

Although it appears that FreeMarkets is standing tall amid tough times, the economic slowdown has caught up with the company in other ways. In June, it was unable to complete its acquisition of Adexa, an e-commerce software maker. Both companies attributed the failed merger to the slowing economy, sour market conditions, and delays in winning the approval of the Securities and Exchange Commission.

Gibs said FreeMarkets may also run into trouble as the economy rebounds because companies using its software and services will find themselves with more money on hand, giving them more options.

"It will be interesting to see if these companies stay with the hosted model," Gibs said, as opposed to just implementing and managing the software themselves.