Media Relations

PeoplePC Announces Record Third Quarter Results

10/25/2000

SAN FRANCISCO--(BUSINESS WIRE)--Oct. 25, 2000-- Net Revenue Increases 129 Percent Topping $25 Million

Membership Reaches Record Level Surpassing 300,000

PeoplePC, Inc. (NASDAQ:PEOP) today announced record revenue for the third quarter and nine months ended September 30, 2000.

GROSS SALES TOPS $138 MILLION IN FIRST PUBLIC QUARTER

PeoplePC reported that total gross sales grew to $138.8 million for the third quarter, up 212% from $44.5 million in this year's second quarter.

After deferring a net $113.6 million of sales, the company reported that total net revenue rose to $25.3 million, up 129% over $11.0 million reported in the second quarter of this year. Gross sales and net revenue growth were driven by the increase of over 125,000 new PeoplePC members that enrolled during the third quarter, compared to 40,000 new members in the previous quarter. Total membership at the end of the third quarter increased to over 300,000 members versus 175,000 members at the end of the second quarter.

Total cost of revenues, excluding the loss provision for the acquisition discount related primarily to Ford Motor Company and Delta Airlines, was $25.3 million, leading to a breakeven gross margin. Including this provision for the non-cash acquisition discount related to the Ford and Delta agreements, net cost of revenues were $39.8 million. As expected, PeoplePC reported an operating and net loss for the quarter. Excluding a non-cash charge related to the amortization of deferred stock based compensation, the company reported a net loss of $52.3 million, or a loss of $0.51 per share. Including the non-cash charge for the amortization of deferred stock based compensation, the company reported a net loss of $64.2 million, or a net loss of $0.63 per share.

For the nine-month period ended September 30, 2000, PeoplePC reported that total gross sales grew to $220.5 million, up over eight times the $24.9 million of total gross sales that the company reported for the fiscal year ended December 31, 1999. After deferring a net $176.3 million of sales during the first nine months of this year, the company reported net revenue of $44.2 million. As expected, PeoplePC reported an operating and net loss for the nine-month period. Excluding non-cash charges related to the amortization of deferred stock based compensation, warrants, rights and a non-cash dividend related to the beneficial conversion feature of preferred stock, the company reported a net loss of $112.8 million, or $1.27 per share for the nine-month period. Including the non-cash charges related to the amortization of deferred stock based compensation, warrants, rights and a non-cash dividend related to the beneficial conversion feature of preferred stock, the company reported a net loss of $189.4 million, or a net loss of $2.13 per share. The company ended the September quarter with over $191.0 million of deferred revenue.

Commenting on the results, Nick Grouf, Chairman and Chief Executive officer, stated, ''We are very pleased with our revenue growth, our aggressive addition of new members and the execution PeoplePC exhibited during the quarter. Our record revenue this past quarter was driven by stronger-than-expected demand, particularly from our corporate customers. Importantly, we have augmented our business dramatically with our new enterprise channel, which offers PeoplePC a more efficient means of growing our membership. Overall quality of members improves with this channel and customer acquisition costs decline. We believe that our financial performance will continue to strengthen, and we believe that we have sufficient cash to reach profitability.''

HIGHLIGHTS INCLUDE STRONG CASH POSITION, NEW CUSTOMERS AND PARTNERS

Recent highlights since June 30, 2000 for PeoplePC include:

• PeoplePC Initial Public Offering on August 16, raising $79 million;
• Ford Motor Company (NYSE:F) invested an additional $19.5 million alongside the IPO;
• PeoplePC secured a $50 million credit facility from Chase Manhattan Bank to bolster working capital;
• Visa U.S.A. (330 million cardholders) signed a channel marketing agreement with PeoplePC;
• Highmark BlueCross BlueShield (2.5 million subscribers) signed a channel marketing agreement with PeoplePC;
• New York Times (NYSE:NYT;10,000 employees) entered into a new enterprise agreement with PeoplePC;
• PeoplePC expanded its product line and now offers four SKUs, including an IBM Intel Pentium III desktop and an IBM Thinkpad. This compares to only one during the end of last year.
• Lycos was chosen as preferred portal partner for PeoplePC's member community. Lycos joins PeoplePC's other leading category partners, such as IBM (NYSE:IBM), Compaq (NYSE:CPQ), Hewlett-Packard (NYSE:HP), Microsoft (NASDAQ:MSFT), MBNA (NYSE:KRB), Ingram Micro (NYSE:IM), MCI/Worldcom (NASDAQ:WCOM) and their UUNet Division, Verizon (NYSE:VZ) and their Genuity unit (NASDAQ:GENU), Intuit (NASDAQ:INTU), McAfee (NASDAQ:MCAF), and over 100 other partners across the globe.
• PeoplePC formed new merchant partnerships with Amazon (NASDAQ:AMAZ), E-Bay (NASDAQ:EBAY), Land's End (NYSE:LE) and Disney (NYSE:DIS), who joined other top existing offline and online merchants such as Budget Rent-A-Car, ZDNet (NYSE:ZDZ), and Orvis.
• PeoplePC commenced global expansion and is now shipping in the Philippines, Venezuela, France, and Canada;
• Marketing Awards PeoplePC was named the winner of the Direct Marketing Association's (DMA) 2000 Diamond Echo Award. This award is given for creativity and effectiveness in the market place. The campaign beat out an international field of 875 entries in 10 advertising media categories.

Commenting on the company's financial position, John Adams, PeoplePC's chief financial officer, stated, ''With the capital from our recent IPO, PeoplePC ended the third quarter with over $118 million in cash. Together with the credit facility with Chase Manhattan Bank, as well as our $59 million in accounts receivable, we believe that the funds provide PeoplePC with the capital necessary to grow our business globally in 2001.''

OUTLOOK

''PeoplePC continues to experience strong individual and enterprise demand for our products, as well as significant traction building key strategic relationships with our business partners. Looking ahead, we see powerful opportunities, both domestically and abroad, for our compelling, value-added memberships. With our strong financial position and partnerships around the globe, PeoplePC has the flexibility to capitalize on the fast growing market for affordable access to the latest technology,'' said Mr. Grouf.

''PeoplePC's performance going forward will be driven by four key factors: continued growth in our enterprise channel, continued expansion in our product offerings where we expect to increase margins, the ongoing development of relationships with our best-of-breed partners, and the long-term development of a world-class brand. Taken together, the company expects that these key growth areas will continue to produce significant sequential revenue growth and gross and operating margin improvement into 2001 and beyond.''

About PeoplePC

PeoplePC, founded in March 1999, provides a hassle-free and more affordable way to get online so that everyone can have access to and participate in the digital economy. PeoplePC offers its unique end-to-end solution both to individual consumers and to major corporations interested in wiring their workforces and creating deeper relationships with customers through PeoplePC real estate. A PeoplePC membership comes complete with a new, brand-name computer system, unlimited Internet access, and high-quality customer support and service. There's also a value-packed, customizable online community that fosters long-term, substantive connections with PeoplePC members and ongoing revenue possibilities. PeoplePC offers its services on a global basis, allowing people across the world to reap the rewards of the digital age. For more information, visit http://www.peoplepc.com.

This release contains forward-looking statements related to the company's financial and business performance, liquidity and capital resources, growth in the enterprise channel, product offerings, relationships with partners, brand development, revenues, and gross and operating margins, all which are subject to risks and uncertainties. Actual results may vary from those projected in the forward-looking statements. Potential risks and uncertainties include, without limitation, our limited operating history, our ability to enter into enterprise agreements, our ability to obtain financing for the purchase of our products and services, the failure of third parties to provide products and services, meeting our obligations under enterprise agreements, the costs of providing products and services, customer acquisition costs, the mix of products and services, uncertain future capital needs, our ability to generate revenues from merchants in our buyers club, competition, international expansion, management of growth and our stock price. Further information on potential factors that could affect these forward looking statements and the company's financial results are included in our filings with the Securities and Exchange Commission, including the company's final prospectus filed on August 16, 2000.

                          PEOPLEPC INC
      Unaudited Pro Forma Consolidated Statement of Operations
              (In thousands, except per share amounts)



                       Three Months ended          Nine months ended
                            Sept. 30,                   Sept. 30,
                        1999       2000            1999       2000

Net Revenues:
   Membership revenues
    earned                  $0     $10,829           $0     $23,901
   Other revenues            0      14,464            0      20,325
   Total Net Revenues        0      25,293            0      44,226
   Cost of revenues          0      39,849            0      64,708
   Gross loss                0     (14,556)           0     (20,482)
Operating expenses:
   Sales and marketing   4,428      19,167        4,430      52,038
   General and
    administrative       1,262      20,458        1,525      43,627
   Total operating
    expenses             5,690      39,625        5,955      95,665
Operating loss:         (5,690)    (54,181)      (5,955)   (116,147)
   Net interest,
    other income
    and minority
    share                   36       1,918           45       3,317
Net loss               ($5,654)   ($52,263)     ($5,910)  ($112,830)
Pro forma basic and
 diluted net loss
 per share on an as
 converted basis        ($0.10)     ($0.51)      ($0.12)     ($1.27)
Shares used in
 computing pro forma
 basic and diluted
 net loss per share
 on an as converted
 basis                  56,682     102,509       48,275      88,936

                        PEOPLEPC INC
                 Unaudited Consolidated Balance Sheet
                            (In thousands)

                                            June 30,    Sept. 30,
                                             2000         2000
Assets:
Cash, cash equivalents and
 short-term investments                     $25,055    $118,867
Accounts receivable, net                     12,020      58,862
Prepaid/Other current assets                 16,953         696
Total current assets                         54,028     178,425

Property and equipment, net                   1,776       4,186
Other assets                                  1,265       1,390
Total assets                                $57,069    $184,001

Liabilities & Stockholders' Equity:
Accounts payable                            $15,739     $17,413
Deferred revenue - net short term             7,211      11,105
Accruals/Other current liabilities           23,794      31,716
Total Current liabilities                    46,744      60,234

Deferred revenue - net long term             13,452      18,067
Other long term liabilities                     129      15,550
Total Liabilities                            60,325      93,851

Minority Interest                                $0     $49,007

Stockholders' equity (deficit)               (3,256)     41,143
Total liabilities and stockholders' equity  $57,069    $184,001

                          PEOPLEPC INC
         Unaudited Consolidated Statement of Operations
            (In thousands, except per share amounts)


                          Three Months ended       Nine Months ended
                             September 30,            September 30,
                           1999         2000      1999         2000

Net Revenues:
   Membership
    revenues earned          $0      $10,829         $0      $23,901
   Other revenues             0       14,464          0       20,325
   Total Net Revenues         0       25,293          0       44,226

   Cost of revenues           0       39,849          0       64,708
   Gross loss                 0      (14,556)         0      (20,482)

Operating expenses:
   Sales and
    marketing             4,428       19,167      4,430       78,113
   General and
    administrative        1,262       20,458      1,525       43,627
   Amortization of
    deferred stock
    based compensation      611       11,910        636       32,266
   Total operating
    expenses              6,301       51,535      6,591      154,006

Operating loss:          (6,301)     (66,091)    (6,591)    (174,488)

   Net interest, other
    income and
    minority share           36        1,918         45        3,317

Net loss                ($6,265)    ($64,173)   ($6,546)   ($171,171)

Dividend related to
 beneficial conversion
 feature of preferred stock                                  (18,209)

Net loss attributable to
 common stockholders                                       ($189,380)

Basic and diluted net
 loss per share on an
 as converted basis      ($0.11)      ($0.63)    ($0.14)      ($2.13)
Shares used in computing
 basic and diluted net
 loss per share on an
 as converted basis      56,682       102,509    48,275       88,936

Basic and diluted net
 loss per share          ($0.19)       ($0.91)   ($0.20)      ($4.17)
Shares used in computing
 basic and diluted net
 loss per share          32,682        70,164    32,236       45,433