Basil QunibiBasil Qunibi

January 29, 2001

FreeMarkets (FMKT)

•FreeMarkets is the leading global provider of e-sourcing software and service solutions.

•These e-sourcing software and service solutions help suppliers to win new business and buying organizations to business and buying organizations to dramatically improve their sourcing process and identify immediate and ongoing savings

•FreeMarkets also creates B2B online markets and provides electronic commerce technology and services

At A Glance

•Founded: 1995

•Headquarters: Pittsburgh, PA

•Market Volume: Over $30B in 195 different supply verticals

•Savings to Customers: Over $6.4B•Savings to Customers: Over $6.4B

•Active Supplier Participants: Over 19K from over 70 countries

•Languages Spoken: More than 30

•Headcount: 1000

•Locations: 17 Locations in 13 countries and 5 continents

•Recent Price: $23.3

•Market Cap: $937.7M

•Estimated 2002 Revenue Growth: 30%

•Estimated 2002 Earnings Growth: From •Estimated 2002 Earnings Growth: From (-) to (+)

•52 Week Range: 6.25-27.45

•Current Ratio: 3.83

•Sourcing through FreeMarkets

•Organizational Benefits

•Proof of Performance

•The Sourcing Process

•Supplying•Supplying

•Benefits for Suppliers

•Results

•The Supplying Process

E-Sourcing Software

•QuickSource™

•QuickSource is the only e-sourcing solution designed for sourcing professionals by sourcing professionals. This comprehensive full-featured e-sourcing platform is local for full-featured e-sourcing platform is local for automating, streamlining and providing visibility into the sourcing processes. Based on the industry leading e-sourcing technologies developed by FreeMarkets, QuickSource contains a robust set of features that allow buyers to create and conduct online auctions right from their desktops

E-Sourcing Software

•QuickSource™

•Create re-usable templates for Requests for Information and Quotations (RFxs)

•Collaborate with and manage suppliers •Collaborate with and manage suppliers

•Create and run a wide variety of real-time, competitive bidding and negotiation activities

•Conduct offline negotiations

E-Sourcing Software

•QuickSource™ Add on Services

•Market Operations Services

•E-Sourcing Support Desk

•QuickSource Supplier Training •QuickSource Supplier Training

•QuickSource™ Rapid Implementation and Deployment

•15 Days to e-sourcing process

•QuickSource website readiness

•QuickSource team readiness

•QuickSource launch preparation

E-Sourcing Services

•FullSource™ (E-Sourcing Acceleration Program)

•19% average savings per contract for direct and indirect goods and services

•30-50% cycle time reduction in the •30-50% cycle time reduction in the sourcing decision process

•Average return on investment of more than 20 to 1

•An average of nine more suppliers per negotiation for greater pricing competition

•FullSource™ (E-Source Acceleration Program)

•Industry-specific program management driven by a dedicated, experienced team who will help design and implement a unique e-sourcing program for each customer

•Expert e-sourcing services in hundreds of •Expert e-sourcing services in hundreds of spend categories

•Information and knowledge about specific commodities and supply market dynamics

•FreeMarkets' industry-leading, real-time, advanced e-sourcing technology

•24-hour technical and operational support in over 30 languages

•FullSource™ (E-Sourcing Software )

•Transformation bidding

•Index bidding

•Net Present Value (NPV) bidding •Net Present Value (NPV) bidding

•Multiple Offering bidding

•Rank-Only bidding

FreeMarkets is the only e-sourcing solution provider willing to share responsibility with an organization to meet its strategic sourcing objectives.

•FullSource™ Global Market Operations

•FreeMarkets' Global Market Operations Centers (GMOCs) are located in Singapore, Brussels, and Pittsburgh to service customers across world markets

• Coordinate and test events Develop and enforce market rules

•Proactively monitor bidder connections and bidding activity

•Provide surrogate bidding for any bidders that experience technical difficulties

•Train and support all participating suppliers

•Provide real-time event support

•Asset Management

•Fast, market-based pricing when selling surplus assets

•Quick, easy access to needed assets for buyers

•A variety of sales venues, including Online Asset Auctions and Onsite Asset Auctions Auctions and Onsite Asset Auctions

•Support by dedicated customer service teams

•Ability to create a fair, neutral marketplace with equal access for all participants

•Public or private access to a global asset database and trading environment

•FreeMarkets Online Asset Auctions

•FreeMarkets Onsite Asset Auctions

•2001 Total Revenue: $159M, up 74% year over year

•2001 Gross Margin: 55% vs. 46% year over year

•Q4 2001 Revenue: $47.6M up 38% year over

Financial Overview

•Q4 2001 Revenue: $47.6M up 38% year over year, up 17% sequentially

oVariab1e Based Fees: $8M or 17% of revenues vs. $4M or 11% sequentially

o30% of revenue can be attributed to international operations, a slight increase sequentially

•Q4 Gross profit: $28.8M or 60% of revenue verses 50% year over year and 55% sequentially

•Customer count (if each unique division is counted): 500

oHigher variable fees

Financial Overview

oHigher variable fees

•Q4 total operating expenses: $24.4M, down $5M or 17% annually, and flat sequentially

•Q4 Total global headcount: 1000, up slightly sequentially

oHeadcount added to software development and sales during Q4 quarter

•Q4 Net income (excluding non cash expense and goodwill charges): $3.9M or $.09/diluted share vs. loss of $.27/share year over year

oFully diluted shares used

•Percent of customers who purchased multiple

Financial Overview

•Percent of customers who purchased multiple FreeMarkets solutions in Q4: 38% verses 32% sequentially

•Long term customers: 72, up from 68

•Cash and Investments: $103M, up $13M sequentially

•$3M investment by Mitsubishi Corporation in Japan during Q4 2001

•Q4 Contract Volume: $5.2B, up 51% year over year and down 23% sequentially

oLargest sequential increases in retail, consumer, automotive, and aerospace sectors

Operational Overview

sectors

oHigh tech and energy sectors weak

oGreater shift towards direct spend vs. previous quarter

o3K new suppliers bid on contracts through FreeMarkets in Q4

•2001 Contract Volume: $16.7B, up 68% year over year

o19K suppliers from over 70 countries have participated since 1995

•FreeMarkets identified customer savings of over $1.2B or 19% in Q4

•Customer savings of $3.7B in 2001

Operational Overview

•Customer savings of $3.7B in 2001

•2001 average savings rate: 18% verses 16% year over year

•Customers have sourced over $30B in goods and services through FreeMarkets, identifying savings of over $6.4B dollars

•FullSource offering: $16.7B in contracts sold by customers

•QuickSource now powers the private sourcing marketplace for over 40 major companies

•In Q4, FreeMarkets launched a number of

Business Overview

•In Q4, FreeMarkets launched a number of optional add-on services designed to enhance the use of QuickSource that provided customers with additional capabilities including market operation services, professional education and training, and e-sourcing support

oVast majority of QuickSource customers have purchased these add-on services since release

•FreeMarkets continues to develop end-to-end enterprise e-sourcing platform code named Sierra Nevada

oFunctions of Sierra Nevada

o1) Collecting and analyzing data

o2) Developing sourcing strategies

o3) Locating, managing, and evaluating suppliers

Business Overview

o3) Locating, managing, and evaluating suppliers

o4) Creating requests for information, proposals, and quotations

o5) Selecting price discovery methods and executing negotiations

o6) Analyzing price discovery responses

o7) Awarding contracts and tracking implementation

o8) Managing awarded contracts and supplier performance

•Release of Sierra Nevada in summer of 2002

•Q1 2002

oRevenue: $42M, down 12% sequentially

oLess variable revenue

oSeasonal lag in contract renewals

oSequential revenue decline followed by sequential

Future Financial Guidance

oSequential revenue decline followed by sequential growth of 10-15%/ quarter for remainder of 2002

oGross margin: down to 55-57%

oOperating EPS: $.03-.05/share vs. CE of $.01/share (Excluding non-cash stock based expense)

oFully diluted shares used

oNegative cash flow

oCash burn: $5M-10M

oContract volume: $3.5-4B, down 25-30% sequentially due to normal seasonality

•Positive cash flow after Q1 2002

•2002

oRevenue: $ 200M up 30% year over year

o2002 EPS: $.20-.25/share, up $.05/share from previous guidance

Future Financial Guidance

previous guidance

oCash Flow Positive in 2002

•Analysts predict e-sourcing market to reach $5B in next 5 years

•This guidance recently up from $3B in Q2

•Awarded patents on auction pending status, overtime extensions, locked online bidding, and unlocked online bidding

•Plan to build business into the asset recovery market

•Released QuickSource 3.0 in Q3 of 2001

oAdvanced auction formats, non-auction negotiation capabilities, ERP integration

•FreeMarkets expected to release QuickSource 4.0 in English, French, and German early next year

•LISA FLEMING, FreeMarkets

•2 Core products

•QuickSource is a self-serve product

•FullSource is a product that lets FMKT manage sourcing, supply chain, and auctions for you through GMOC

•Competitive landscape:

•QuickSource: active competition, many small private companies

•FullSource: nothing similar, very little competition if any

•FMKT is building on those two products with newer versions, better features, more customization, etc.

•Lower R&D expense

•H. J. Heinz –

“We are pleased to be expanding our portfolio of e-sourcing solutions to include FreeMarkets QuickSource and Market Operations services offerings,'' said Scott Allen, vice president and chief procurement officer for Heinz.

FreeMarkets Customers

Heinz.

“We have already generated substantial savings and efficiencies for our global organization by working with FreeMarkets to create online markets that deliver results through its FullSource offering. With QuickSource, we can create additional value by arming our sourcing professionals with self-service technology and value-added services that will allow them to structure and execute successful online negotiations on their own.''

•Pilkington

“…. we will use FreeMarkets' QuickSource to structure effective online negotiations on our own in order to further streamline our procurement process, generate additional savings and meet our overall e-sourcing objectives.''

FreeMarkets Customers

objectives.''

•Phelps Dodge

•“As part of our overall e-business strategy, Phelps

Dodge is aggressively adopting and implementing technologies and services that enhance the efficiency and effectiveness of our global organization,'' said Nancy Mailhot, vice president of Global Sourcing at Phelps Dodge.

•Visteon

•“FreeMarkets' FullSource and QuickSource offerings provide us with flexible solutions that enable us to create online markets, as well as leverage the experience of our own procurement professionals. We look forward to working with FreeMarkets to

FreeMarkets Customers

professionals. We look forward to working with FreeMarkets to create successful online markets that generate savings and efficiencies for our company.”

•Visteon will expand its portfolio of e-sourcing solutions to include QuickSource. By adding QuickSource, Visteon is empowering its sourcing professionals to create their own online markets for goods and services right from their desktops. The company will also continue to use FreeMarkets' FullSource solution under the terms of a five-year strategic agreement that began in June 2000. To date, Visteon has auctioned more than $1 billion worth of supply contracts through FreeMarkets.

•Questions?

The End