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PeoplePC Reports Fourth Quarter, Year End 2001 Financial Results; Results Yield Significant Improvement in Gross Margins and Operating Costs
2/13/2002 4:06:00 PM
SAN FRANCISCO, Feb 13, 2002 (BUSINESS WIRE) -- PeoplePC Inc. (Nasdaq:PEOP), today announced results for the fiscal fourth quarter and the fiscal year ended December 31, 2002.
Year 2001 Results
For fiscal year 2001, PeoplePC reported positive gross margins of $19.7 million compared to a loss of $29.2 million in fiscal 2000. Operating expenses decreased by 52% to $98.0 million in fiscal 2001 from $205.8 million in fiscal 2000. Net revenues were $174 million compared to $90.2 million in the year 2000. Excluding charges related to a beneficial conversion feature of preferred stock issued of $21.2 million in 2001 and $18.2 million in 2000, the company reported a net loss for fiscal 2001 of $74.9 million, or $0.67 per basic and diluted share, compared to $236.0 million, or $3.86 per basic and diluted share for fiscal 2000. Including the accounting charges, net loss per basic and diluted share was $0.86 in 2001 and $4.15 in 2002.
Fourth Quarter Results
PeoplePC reported a positive gross margin of $4.2 million in the fourth quarter 2001 compared to a loss of $8.7 million in the fourth quarter of 2000. Operating expenses were $14.7 million, a 71% improvement over $51.7 million of a year ago. The changes are reflective of the cost cutting measures instituted throughout the year in addition to the improved profitability of the company's Internet offerings and reduced amortization of deferred stock-based compensation. The company's total net revenue was $45.9 million, which is equal to Q4 of 2000. Excluding charges taken in relation to a beneficial conversion feature of preferred stock issued the company's net loss for the quarter was $10.0 million, or $.09 per basic and diluted share, compared to $64.9 million, or $.60 per basic and diluted share, in the fourth quarter of 2000. Including the $21.2 million charge taken in relation to the beneficial conversion feature, the net loss for the quarter was $31.2 million, or $.28 per basic and diluted share.
Total PeoplePC membership at the end of fourth quarter 2001 increased to 582,000 versus 430,000 members at the end of fourth quarter 2000.
Commenting on the results, Nick Grouf, president and chief executive officer, PeoplePC said, "In 2001, PeoplePC navigated through a difficult macro-economic environment by diversifying our business and reducing costs, as exemplified by today's results. Through technical innovation and operational diligence, we now provide what we believe to be the highest quality, lowest cost ISP infrastructure in the United States."
Additional Funding and Commercial Commitments of $33.2 million
In December 2001, PeoplePC announced it had received $33.2 million of equity investment and commercial commitments. Existing shareholder Softbank Capital Partners led the investor group in the funding. The deal involved equity investments of $21.9 million for 4.4 million shares of Series B preferred stock. PeoplePC will hold a special shareholder meeting to approve the transaction on February 19, 2002. Upon approval, each of the Series B preferred shares will automatically convert into 100 shares of the company's common stock.
Concurrently, PeoplePC announced that it has obtained approximately $11.2 million in performance bonuses and sales incentives arising out of commercial transactions and relationships, including a new long-term relationship with a major telecommunications company. The company received $2.0 million of this amount in December of 2001. An additional $4.9 million is payable in the first half of 2002, and the remainder is payable over the following 14 months.
Reverse Stock Split
The shareholders at the special meeting to be held on February 19, 2002, will also be asked to approve a reverse stock split in the range of 1-for-15 to 1-for-20. On February 12, 2002, the company's Board of Directors fixed the reverse split ratio at 1-for-20. Subject to shareholder approval, the company expects the reverse stock split to become effective in mid-March, 2002.
Strategy and Goals for 2002
The following forward-looking statements reflect PeoplePC's expectations as of February 13, 2002. Given the various risk factors discussed below, actual results may differ materially.
PeoplePC has made tremendous progress since its inception in 1999, and has built one of the industry's most cost-efficient and scalable platforms for organizations looking to develop and maintain deep digital relationships with their constituencies. The success of programs with companies such as Vivendi-Universal (NYSE: VU), The Ford Motor Company (NYSE: F), Delta Air Lines (NYSE: DAL), The New York Times Company (NYSE: NYT), Ingersoll-Rand (NYSE: IR), and AAA New England, has positioned the Company as one of the leaders in its field.
The company has been aggressive in reducing its operating costs over the past year. The company will continue to emphasize cost control.
The company's future success and viability depends largely upon its ability to grow its ISP monthly subscriber base and its recurring revenue streams. PeoplePC believes that recurring subscription fees, which offer high margins and stable revenue, are the key to the company reaching positive cash flow and profitability. PeoplePC plans to achieve its goal through the following strategic initiatives:
- Acquire new monthly subscribers by delivering the highest quality, lowest cost, customizable ISP platform in the United States
- Acquire monthly subscribers through wholesale and private label arrangements, enterprise relationships and acquisitions
- Closely monitor broadband adoption and introduce services in concert with broad, consumer demand
- Maintain commitment to the bundle business and anticipate its resurgence as the economy recovers Quarterly Conference Call
PeoplePC will host a conference call today to discuss fourth quarter and year end results at 2:00 p.m. Pacific Standard Time or 5:00 p.m. Eastern Standard Time. A live webcast of the conference call can be accessed through http://www.corporate-ir.net/ireye/ir_site.zhtml?ticker=PEOP&script=2100. A replay will be available after the call for thirty days.
About PeoplePC
PeoplePC is the leading global provider of complete Internet access solutions, enabling its partners to reduce costs, generate revenues and deepen relationships with their constituencies. It works with ISPs, employers, membership organizations and individuals. PeoplePC's Custom Connections service is built on a high-quality dial-up network, aggregated through relationships with a dozen major telecommunications providers. The service has a number of tiers of customization: I) billing management and customer care; II) branded or private label email and online experience; III) a suite of Customer Relationship Management tools; IV) PC and other hardware options. PeoplePC's clients include some of the world's largest corporations such as The Ford Motor Company, Delta Air Lines, Vivendi Universal; and some of the most powerful affinity groups including AAA.
For more information, visit http://www.peoplepc.com.
The 2001 financial information provided above is based upon preliminary, unaudited financial results. Our audited financial results will appear in our 10K to be filed with the Securities Exchange Commission.
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 including the company's plan to achieve profitability, through various strategic initiatives; any statements regarding proposed new products, services, business opportunities, 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, PeopleShop, and their respective logos, are among the trademarks and/or service marks 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 Year Ended
Dec. 31, Dec. 31, Dec. 31, Dec. 31,
2001 2000 2001 2000
Net Revenues:
Membership revenues
earned $ 44,968 $ 34,131 $165,836 $ 58,033
Other revenues 966 11,804 8,142 32,128
--------- --------- --------- ---------
Total Net Revenues 45,934 45,935 173,978 90,161
Cost of revenues 41,714 54,611 154,312 119,320
--------- --------- --------- ---------
Gross profit/(loss) 4,220 (8,676) 19,666 (29,159)
Operating expenses:
Sales and marketing 2,557 13,862 17,778 91,984
General and
administrative 14,912 33,922 82,986 77,562
Amortization of
deferred stock based
compensation (2,528) 10,856 3,950 43,113
Contract cancellation
fee 0 2,876 0
Other operating expense (194) (6,900) (9,621) (6,900)
--------- --------- --------- ---------
Total operating
expenses 14,747 51,740 97,969 205,759
--------- --------- --------- ---------
Operating loss (10,527) (60,416) (78,303) (234,918)
Net interest and other (410) (2,825) (2,361) (502)
Minority interest 950 2,233 5,728 3,226
--------- --------- --------- ---------
Net loss before
cumulative effect of
accounting change (9,987) (61,008) (74,936) (232,194)
Cumulative effect of
accounting change (3,844) (3,844)
--------- --------- --------- ---------
Net loss ($9,987) ($64,852) ($74,936) ($236,038)
Dividend related to
beneficial conversion
feature of preferred
stock (21,191) (21,191) (18,209)
--------- --------- --------- ---------
Net loss attributable
to common stockholders ($31,178) ($64,852) ($96,127) ($254,247)
========= ========= ========= =========
Basic and diluted net
loss per share
Net loss per share ($0.28) ($0.60) ($0.86) ($4.15)
Shares used in
computing basic and
diluted net loss
per share 111,698 108,574 111,825 61,218
PEOPLEPC INC
Consolidated Balance Sheet
(In thousands)
December 31, December 31,
2001 2000
Assets:
Cash, cash equivalents, short-term
investments and restricted cash $ 24,678 $ 88,447
Accounts receivable, net short term 4,254 41,864
Prepaid/Other current assets 2,065 2,177
--------- ---------
Total current assets 30,997 132,488
Accounts receivable, net long-term 1,836 11,589
Residual asset 2,070 0
Property and equipment, net 5,396 7,688
Other assets 970 1,266
--------- ---------
Total assets $ 41,269 $153,031
========= =========
Liabilities, Minority Interest
& Stockholders' Deficit:
Accounts payable $ 8,741 $ 23,745
Borrowings under line of credit 0 5,176
Deferred revenue - net short term 28,868 19,047
Accruals/Other current liabilities 9,188 39,193
--------- ---------
Total Current liabilities 46,797 87,161
Deferred revenue - net long term 13,178 28,121
Other long term liabilities 141 0
--------- ---------
Total Liabilities 60,116 115,282
Minority Interest $ 40,313 $ 46,700
Mandatorily Redeemable
Convertible Preferred Stock $ 21,191 $ 0
Stockholders' deficit (80,351) (8,951)
--------- ---------
Total liabilities, minority
interest, mandatorily redeemable
convertible preferred stock and
stockholders' deficit $ 41,269 $153,031
========= =========
As of December 31, 2001 there were 114,002 shares of common stock
issued and outstanding and 111,883 shares of common stock issued,
outstanding and fully vested.
CONTACT:
PeoplePC
Lisa Murray, 415/901-6987
lmurray@peoplepchq.com
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