Media Relations

PeoplePC Announces Record Fourth Quarter and Year-End Results

2/14/2001 5:01:00 PM

SAN FRANCISCO--(BUSINESS WIRE)--Feb. 14, 2001--

Gross Sales in First Full Fiscal Year Exceed $374 Million

4Q Net Revenues Exceed $45 Million, Up 81% Over 3Q

Accelerated Member Monetization Drives Improved Gross Margins

PeoplePC, Inc. (NASDAQ: PEOP), the company that makes it easy and affordable to get online, today announced record revenue for the fourth quarter and year ended December 31, 2000.

FOURTH QUARTER RESULTS

PeoplePC reported that total gross sales grew to $153.6 million for the fourth quarter and that after deferring $130.5 million, total net revenue rose to $45.9 million, up 81% over $25.3 million reported in the third quarter of this year, and up over 13 times the net revenue reported for the fourth quarter of last year, driven by the success of the consumer channel and the execution of wired workforce programs of Ford Motor Company, Delta Airlines, the New York Times, and the National Trades union Congress in Singapore.

Total cost of revenues, excluding the non-cash gross acquisition discount related primarily to Ford Motor Company and Delta Airlines, was $42.2 million. Net cost of revenues were $54.6 million, when including the acquisition discount related to PeoplePC's agreements with Ford Motor Company and Delta.

As expected, PeoplePC reported an operating and net loss for the fourth quarter. Excluding a non-cash charge related to the amortization of deferred stock-based compensation, the company reported a net operating loss of $49.6 million, or $0.46 per fully diluted share, compared to a net loss of $0.72 per fully diluted share in the same period a year ago (per share calculations based on pro forma basic and diluted net loss per share on an as converted basis). Including the non-cash charge for the amortization of deferred stock-based compensation, the company reported a net loss of $64.9 million for the quarter, or a net loss of $0.60 per fully diluted share, compared to a net loss of $0.75 per share (on an as converted basis) in the same period a year ago.

Total PeoplePC membership at the end of the fourth quarter increased to 430,000 members versus 28,000 at the end of the fourth quarter of 1999.

Stronger Member Monetization Drives Improved Margins

Record sales and improved gross margins in the fourth quarter reflected stronger member monetization and demand for high-margin peripheral products. Over 50% of new members upgraded to higher-performance, higher-margin computer bundles and peripherals during the quarter, up from approximately 35% of new members in the previous quarter.

Commenting on the results, Nick Grouf, Chairman and Chief Executive officer, stated, "Our strong results for 2000 reflect the competitive advantage of our current channel mix and the impressive execution that we expect to continue into 2001. For the second quarter in a row, we dramatically outpaced industry demand. At the same time, we are significantly narrowing our operating losses. As a result, PeoplePC is now planning to turn cash flow positive in the second half of 2001."

KEY MILESTONES

Key achievements in the fourth quarter, 2000, include:

• Vivendi Universal and Vivendi Environnement (NYSE: V) contracted PeoplePC to offer comprehensive computer and Internet packages to its 300,000 employees worldwide, creating PeoplePC's first major European deal;

• Ford Motor Company (NYSE: F) expanded its program with PeoplePC by making computer bundles available to up to 285,000 U.S. Blue Oval Certified Ford dealerships and their employees and families;

• Ogilvy & Mather Advertising and OgilvyOne contracted PeoplePC to provide computer and internet solutions to its employees;

• Terra Lycos (Nasdaq:TRLY) named PeoplePC the preferred Internet Service Provider (ISP) for its displaced Lycos Free ISP (1stUp) users;

• PeoplePC broadened its global operations and infrastructure in the United Kingdom in addition to the United States, Singapore, Venezuela, France, Argentina, and Canada; and

• PeoplePC formed a new merchant partnership with Office Depot (NYSE: ODP), who joined other top existing offline and online merchants such as Budget Rent-A-Car, ZDNet (NYSE: ZDZ), Amazon (AMZN: NASDAQ) and Land's End. FISCAL YEAR 2000 RESULTS

For the year ended December 31, 2000, PeoplePC reported that total gross sales grew to $374.1 million, up over fifteen times the $24.9 million in total gross sales that the company reported for the year ended December 31, 1999. After deferring $325.4 million of sales, the company reported net revenue of $90.2 million for the year. PeoplePC ended 2000 with $308.4 million of gross deferred revenue, compared to $21.5 million of deferred revenue at the end of 1999.

As expected, PeoplePC reported an operating and net loss for the twelve-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 $162.9 million, or $1.66 per fully diluted share, for the twelve-month period (based on pro forma basic and diluted net loss per share on an as converted basis). 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 $254.2 million, or $2.58 per fully diluted share (on an as converted basis).

OUTLOOK

The following forward looking-statements reflect PeoplePC's expectations as of February 14, 2001. Given the various risk factors discussed below, actual results may differ materially. The company intends to continue its practice of not updating forward-looking statements until its next quarterly results announcement. PeoplePC Increases Corporate Enterprise and Affinity Program Activities

To accelerate the timing to cash flow breakeven and profitability, PeoplePC is increasing its emphasis on its corporate enterprise and affinity programs and reducing its spending in the consumer channel. The effect will be to leverage operating efficiencies, reduce customer acquisition costs, and generate a more consistent, predicable member backlog.

Regarding plans for 2001, Grouf remarked, "The results of the last quarter demonstrate the strength of our business model and our ability to monetize the long-term relationships we enjoy with our members. Based on the success of the past year and our key learnings, we have refined our business strategy in order to achieve cash-flow breakeven significantly faster than planned."

Commenting on the company's financial position, John Adams, Chief Financial Officer, stated, "PeoplePC's financial position remains very strong, with cash and cash equivalents of over $88 million. With the $50 million credit facility with Chase Manhattan Bank, as well as our $55 million in accounts receivable, we believe PeoplePC is well capitalized to achieve our current and future plans."

PeoplePC will be holding a conference call with investors today, February 14, at 2:00 p.m. PST. A live webcast of the conference call will be available on the company's Investor Relations site at www.peoplepc.com/investors.

About PeoplePC

PeoplePC, founded in early 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 online 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. PeoplePC's partners include 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 its UUNet Division, Verizon (NYSE: VZ) and its Genuity unit (NASDAQ: GENU), Intuit (NASDAQ: INTU), McAfee (NASDAQ: MCAF), and numerous other partners across the globe. For more information, visit http://www.peoplepc.com.

This release contains forward-looking statements related to the company's financial and business performance, monetization efforts, operating losses, liquidity and capital resources, business strategy, and growth in the enterprise channel, 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 quarterly report on Form 10-Q filed on November 14, 2000. (c)2001 PeoplePC, Inc. PeoplePC is a trademark of PeoplePC, Inc. in the U.S. and other countries. All other trademarks belong to their respective holders

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

                           Three Months ended     Twelve Months ended 
                          --------------------  ---------------------
                              December 31,            December 31,
                          2000          1999       2000          1999
                          --------------------  ---------------------
Net Revenues:
Membership revenues 
 earned                  $34,131       $1,255     $58,033       $1,255
Other revenues            11,804        2,188      32,128        2,188
                          --------------------  ---------------------
Total Net Revenues        45,935        3,443      90,161        3,443

Cost of revenues          54,611        7,034     119,320        7,034
                          --------------------  ---------------------
Gross loss                (8,676)      (3,591)    (29,159)     (3,591)

Operating expenses:
Sales and marketing       13,862       33,848      91,975       38,279
General and 
 administrative           33,922        4,673      77,562        6,197
Amortization of deferred
 stock based compensation 10,856        2,403      43,122        3,039
Other operating expense   (6,900)      15,550      (6,900)      15,550
                          --------------------  ---------------------
Total operating expenses  51,740       56,474     205,759       63,065

                          --------------------  ---------------------
Operating loss:          (60,416)     (60,065)   (234,918)    (66,656)

Net interest, minority 
 share and other            (592)         360       2,725          405

Net loss before cumulative 
 effect of accounting 
                          --------------------  ---------------------
 change                 ($61,008)    ($59,706)  ($232,193)   ($66,251)
                                     =========              ==========
Cumulative effect of 
 accounting change       ($3,844)                 ($3,844)
                          ---------             -----------

Net Loss                ($64,852)                (236,037)
                          =========   

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

Net loss attributable 
 to common stockholders                          ($254,246)
                                                ===========

Basic and diluted net 
 loss per share on an 
 as converted basis:
 loss before cumulative 
 effect of accounting 
 change                   ($0.56)                  ($2.54)
 cumulative effect of 
 accounting change        ($0.04)                  ($0.04)
                          ---------             -----------
 net loss per share       ($0.60)      ($0.75)     ($2.58)     ($1.15)
                          ====================  ======================
Shares used in computing 
 basic and diluted net 
 loss per share on an as 
 converted basis         108,574       79,638      98,449       57,747

Basic and diluted net 
 loss per share
 loss before cumulative
 effect of accounting 
 change                   ($0.56)                  ($4.09)
 cumulative effect of 
 accounting change        ($0.04)                  ($0.06)
                          ---------             -----------
 net loss per share       ($0.60)      ($1.82)     ($4.15)     ($2.04)
                          ===================== ======================
Shares used in computing 
 basic and diluted net 
 loss per share          108,574       32,778      61,218       32,400


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


                          Three Months ended    Twelve Months ended 
                              December 31,          December 31,
                         --------------------  ---------------------
                            2000      1999         2000      1999
                         --------------------  ---------------------

Net Revenues:
   Membership revenues 
    earned                 $34,131    $1,255     $58,033     $1,255
   Other revenues           11,804     2,188      32,128      2,188
                         --------------------  ---------------------
   Total Net Revenues       45,935     3,443      90,161      3,443

   Cost of revenues         54,611     7,034     119,320      7,034
                         --------------------  ---------------------
   Gross loss               (8,676)   (3,591)    (29,159)    (3,591)

Operating expenses:
   Sales and marketing      13,862    33,848      65,900     38,279
   General and 
    administrative          33,922     4,673      77,562      6,197
   Other operating 
    expenses                (6,900)   15,550      (6,900)    15,550
                         --------------------  ---------------------
   Total operating 
    expenses                40,884    54,071     136,562     60,026

                         --------------------  ---------------------
Operating loss:            (49,560)  (57,662)   (165,721)   (63,617)

   Net interest, minority
    share and other           (591)      360       2,725        405
                         --------------------  ---------------------

Net loss                  ($50,151) ($57,302)  ($162,996)  ($63,212)
                         ====================  =====================

Pro forma basic and 
 diluted net loss 
 per share on an as 
 converted basis            ($0.46)   ($0.72)     ($1.66)    ($1.09)

Shares used in computing 
 pro forma basic and 
 diluted net loss per 
 share on an as converted
 basis                      108,574   79,638      98,449     57,747

                                 PEOPLEPC INC
                     Unaudited Consolidated Balance Sheet
                                (In thousands)
                                                          Pro Forma
                                         December 31,    December 31,
                                             2000            1999
                                         --------------  -------------
   Assets:
   Cash, cash equivalents and 
    short-term investments                     $88,447         $51,858
   Accounts receivable, net                     53,453             311
   Prepaid/Other current assets                  2,177              66
                                         --------------  -------------
   Total current assets                        144,077          52,235

   Property and equipment, net                   7,688             300
   Other assets                                  1,266             335
                                         --------------  -------------
   Total assets                               $153,031         $52,870
                                         ==============  =============

   Liabilities & Stockholders' Equity:
   Accounts payable                            $23,745          $9,766
   Deferred revenue - net short term            19,047           1,496
   Accruals/Other current liabilities           44,369          33,783
                                         --------------  -------------
   Total Current liabilities                    87,161          45,045

   Deferred revenue - net long term             28,121           2,825
   Other long term liabilities                       0             236
                                         --------------  -------------
   Total Liabilities                           115,282          48,106

   Minority Interest                           $46,700              $0

   Stockholders' equity (deficit)               (8,951)          4,764
                                         --------------  -------------
   Total liabilities and 
    stockholders' equity                      $153,031         $52,870
                                         ==============  =============