Media Relations

PeoplePC Announces Continued Improvement in Operating Results for the Third Quarter; Company Narrows Net Loss to $1.9 Million

11/14/2001 4:04:00 PM

SAN FRANCISCO--(BUSINESS WIRE)--Nov. 14, 2001--PeoplePC Inc. (Nasdaq:PEOP), the company that makes it easy and affordable to get online, today announced continued improvement in operating results for the third quarter ended September 30, 2001.

PeoplePC's net loss for the quarter decreased 97% to just $1.9 million, or less than $0.02 per basic and diluted share, compared to a loss of $64.2 million, or $0.91 per basic and diluted share, in the third quarter of 2000.

The company's net revenue increased to $48 million, compared to $25.3 million in the third quarter of 2000.

PeoplePC reported a positive gross margin of $10.5 million compared to a loss of $14.6 million in the third quarter of 2000. The continued improvement is reflective of the improved profitability of the company's bundled PC and Internet offerings and its aggressive efforts to reduce its costs of sales, including the cost to provide Internet access to members. Due in part to cost-cutting measures, the company reversed $7.0 million of an accrual previously reserved for future Internet access. Excluding the reversal, the company reported a positive gross margin of $3.5 million. Operating expenses were $13.2 million, a significant decrease over $51.5 million in the third quarter of 2000.

"The changes we instituted in the first and second quarter of this year are clearly reflected in this quarter's results," said Nick Grouf, chairman and chief executive officer, PeoplePC Inc. "PeoplePC was able to establish new sales channels that allowed us to grow our member base and also realize cost efficiencies of scale."

Nasdaq has terminated its proceeding to delist the Company's stock. The action was related to Nasdaq's recent suspension of its bid price and market value of public float listing requirements. As a result, PeoplePC's listing status will continue, and its common stock will continue to trade under the symbol PEOP.

Highlights of the third quarter include:

• PeoplePC Online(TM) became the most widely distributed dial-up network in the U.S., with nearly 7,000 access numbers. The network now exceeds AOL, MSN and Earthlink in number of area codes served and local dial up numbers.

• The launch of a co-marketing program with AAA Southern New England, offering PeoplePC's affordable computing solutions and online services to its 1.8 million members.

• An agreement with Bertelsmann, the world's most international media company and corporate parent of BMG Entertainment (RCA, Arista, Ariola), Random House, and over 40 other media properties, to provide 11,000 of the company's U.S. and Canadian employees with unlimited Internet access at home. Bertelsmann is providing PeoplePC Online to employees free of charge as part of its "PC/Web Offer for All" program.

• The successful completion of the rollout of the Cinergy employee connectivity program, enrolling 6,200 of its 8,000 employees.

• An agreement with the Health Alliance Plan to offer its 600,000 members, 6,000 affiliated physicians, and 1,000 employees access to discounts on PCs and Internet connectivity.

• The rollout of the Ingersoll-Rand corporate connectivity program for IR's approximately 50,000 active and retired employees, offering a PeoplePC computer and Internet service bundle to employees.

• A co-marketing agreement with Motivano, the employee benefits and human resource services company, to offer PeoplePC's bundled computing packages and ISP service to Motivano's client companies and their one million employees for use at home.

• The completion of the rollout of the Powergen employee connectivity program in the UK. Powergen, a leading UK supplier of gas, electric and telephone services, subsidized the program that is providing the company's more than 5,000 employees with all-in-one home computing packages.

• The continuation of the rollout of the Vivendi employee program in France, bringing the number of Vivendi/PeoplePC members to over 91,000 to date.

• The completion of the launch of key technology and implementation solutions for Yahoo Japan Corporation's Internet broadband service, making it possible for Yahoo! Japan to sign more than 130,000 members between July and September and accommodate over 560,000 new applications.

PeoplePC has a plan to hold a separate conference call in December to give guidance for the fourth quarter and the year 2002.

PeoplePC will be holding a conference call with investors today, November 14, 2001 at 5:00 p.m. EDT. A live webcast of the conference call will be available on the company's Investor Relations site at http://www.peoplepc.com.

About PeoplePC

Founded in 1999, PeoplePC (Nasdaq:PEOP) is a company that provides hassle-free digital solutions for people and connects corporations to those who matter most to their business. PeoplePC takes the frustration out of technology by bundling all the compatible components people need in one place, making it quick and easy to get online and add new capabilities to their systems. The pioneer in Custom Connections programs, PeoplePC also works with Fortune 500 companies and other kinds of organizations to create ongoing, relevant digital connections to the people who are important to their success, including employees, partners, customers, salespeople, members, and constituents of all sorts. A global company with offices in the US and Europe, PeoplePC provides complete, simple, and affordable digital solutions so people around the world can enjoy everything technology has to offer without any of the worry. For more information about PeoplePC, visit www.peoplepc.com.

This press release contains forward-looking statements that are subject to the assumptions, risks, and uncertainties discussed below. Actual results may vary from those projected in the forward-looking statements. If the Company's assumptions about the future do not materialize or prove to be incorrect, the Company's results could differ materially from those expressed or implied by such forward-looking statements. A forward-looking statement is any statement that looks to future events, including any projections of earnings, revenues, or other financial items; any statements of plans, strategies and objectives of management for future operations; any statements regarding proposed new products, services or developments; any statements regarding future economic conditions or performance; statements of belief and any statement of assumptions underlying any of the foregoing.

In addition, the above forward-looking statements depend on assumptions relating to our ability to expand our membership and enter into new enterprise agreements, our ability to provide consumer financing for the purchase of our products and services, the willingness of third party vendors to provide products and services on acceptable terms, our ability to meet our obligations under enterprise agreements, the containment of the costs of providing products and services, the containment of customer acquisition costs, our ability to generate revenues from merchant partners, our ability to generate, through operating revenues or through the proceeds of equity or debt financing, sufficient cash to implement our business plan, competition, international expansion, and other risks described from time to time in PeoplePC's Securities and Exchange Commission periodic reports and filings. The Company assumes no obligation to update these forward-looking statements to reflect events that occur or circumstances that exist after the date on which they were made. 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.

Note to Editors: PeoplePC and its logos are among trademarks of PeoplePC, Inc. in the U.S. and other countries. All other trademarks belong to their respective holders.

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

                        Three months ended        Nine Months Ended
                      Sept. 30     Sept. 30,    Sept. 30    Sept. 30,
                     ---------    ---------    ---------    ---------
                        2001         2000         2001         2000
                     ---------    ---------    ---------    ---------

Net Revenues:
Membership revenues
 earned              $  45,618    $  10,829    $ 120,868    $  23,901
Other revenues           2,386       14,464        7,176       20,325
                     ---------    ---------    ---------    ---------
Total Net Revenues      48,004       25,293      128,044       44,226

Cost of revenues        37,479       39,849      112,598       64,708
                     ---------    ---------    ---------    ---------
Gross profit / (loss)   10,525      (14,556)      15,446      (20,482)

Operating expenses:
Sales and marketing      2,691       19,167       15,221       78,113
General and 
 administrative         17,690       20,458       68,074       43,627
Amortization of
 deferred stock
 based compensation        451       11,910        6,478       32,266
Contract cancellation 
 fee                         0            0        2,876            0
Other operating expense (7,598)           0       (9,427)           0
                     ---------    ---------    ---------    ---------
Total operating 
 expenses               13,234       51,535       83,222      154,006
                     ---------    ---------    ---------    ---------
Operating loss          (2,709)     (66,091)     (67,776)    (174,488)

Minority interest          719            0        4,778            0
Net interest and other      42        1,918       (1,951)       3,317
                     ---------    ---------    ---------    ---------
Net loss             ($  1,948)   ($ 64,173)   ($ 64,949)   ($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 net
 loss per share      ($   0.02)   ($   0.91)   ($   0.59)   ($   4.16)
Shares used in 
 computing basic 
 and diluted net 
 loss per share        111,312       70,164      110,531       45,533


                             PEOPLEPC INC
                      Consolidated Balance Sheet
                            (In thousands)


                                        Sept. 30,   Dec. 31,
                                          2001        2000
                                      (Unaudited)
                                     ------------------------
Assets:
Cash, cash equivalents,
 short-term investments
 and restricted cash                     $17,967     $88,447
Accounts receivable,
 net short term                            7,036      41,864
Prepaid/Other current assets               2,068       2,177
                                    ------------------------
Total current assets                      27,071     132,488

Accounts receivable,
 net long-term                             1,880      11,589
Residual asset                             2,107           0
Property and equipment, net                6,561       7,688
Other assets                               1,051       1,266
                                    ------------------------
Total assets                             $38,670    $153,031
                                    ========================

Liabilities, Minority Interest
 & Stockholders' Deficit:
Accounts payable                          $9,059     $23,745
Borrowings under line of credit                0       5,176
Deferred revenue - net short term         25,459      19,047
Accruals/Other current liabilities        12,339      39,193
                                    ------------------------
Total Current liabilities                 46,857      87,161

Deferred revenue - net long term          17,740      28,121
Other long term liabilities                  195           0
                                    ------------------------
Total Liabilities                         64,792     115,282

Minority Interest                        $41,264     $46,700
Stockholders' deficit                    (67,386)     (8,951)
                                    ------------------------
Total liabilities, minority
 interest and stockholders' deficit      $38,670    $153,031
                                    ========================

As of September 30, 2001 there were 115,486 shares of common stock
issued and outstanding and 111,570 shares of common stock issued,
outstanding and fully vested.