PSPT Peoplesupport (MM)

PeopleSupport, Inc. (Nasdaq:PSPT), a leading offshore business process outsourcing (BPO) provider, today announced financial results for its second quarter ended June 30, 2008. Revenues for the second quarter were $36.4 million, a 6% increase from $34.3 million in the second quarter of 2007. Income loss from operations for the second quarter was $0.7 million, as compared to income from operations of $0.5 million in the year-ago quarter. Net loss was $1.3 million, or a loss of $0.06 per diluted share based on 20.2 million diluted weighted average shares outstanding, compared to a net income of $3.9 million, or $0.16 per diluted share based on 24.0 million diluted weighted average shares outstanding in the same quarter last year. Second quarter 2008 cost of revenues was $25.3 million or 70% of revenues, as compared to $24.0 million or 70% of revenues in the year-ago quarter. Second quarter 2008 operating margins were negative 1.9%, as compared to a positive 1.5% in the year-ago quarter. Operating margins were impacted by increased employee compensation costs, facility costs, and the Philippine Peso appreciation compared to a year-ago, on average. The appreciation of the Philippine Peso against the U.S. dollar, including the impact of our foreign exchange hedge, compared to a year-ago reduced PeopleSupport�s second quarter 2008 operating income by an estimated $2.3 million, and operating margins by approximately 6% compared to the second quarter of 2007. Non-cash, stock-based compensation expense was $1.6 million in the second quarter, compared to $1.4 million in the year-ago quarter, further reducing operating margins by 4.5% in the second quarter of 2008 and 5.0% in the second quarter of 2007. Net cash provided by operating activities for the quarter was negative $0.8 million. Net cash used for financing activities included $21.7 million in the acquisition of PeopleSupport�s common stock as a part of the Company�s second $25 million common stock repurchase program, which was started in the first quarter and completed in the second quarter. Capital expenditures were $0.7 million in the second quarter of 2008, as compared to $3.1 million in the second quarter of 2007. As of June 30, 2008, PeopleSupport had $114.1 million in cash and cash equivalents and marketable securities and no debt. In July 2008, PeopleSupport sold its interest in its undeveloped property in Manila and expects cash proceeds of approximately $12 million net of estimated taxes and expenses. About PeopleSupport PeopleSupport, Inc. (Nasdaq:PSPT), is a leading offshore business process outsourcing (BPO) provider that offers customer management, transcription and captioning and additional BPO services for global enterprise clients. From its world-class service delivery centers in the Philippines and Costa Rica, PeopleSupport offers high performance services with deep industry domain knowledge and expertise, resulting in customizable and best practice solutions. By delivering high quality services from offshore locations, PeopleSupport�s service delivery centers reduce costs, improve performance and increase revenues. A majority of PeopleSupport's services are performed in the Philippines, where PeopleSupport is one of the largest outsourcing companies, employing approximately 8,000 college-educated, fluent English speaking personnel. Headquartered in Los Angeles, California, with approximately 8,500 employees worldwide, PeopleSupport serves clients in a variety of industries, such as travel, consumer, financial services, healthcare, insurance, technology, telecommunications, entertainment and education. For more information, visit www.peoplesupport.com. PEOPLESUPPORT, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited, in thousands, except share amounts) � � � June 30, � December 31, 2008 2007 � � ASSETS Current assets: Cash and cash equivalents $ 84,269 $ 78,403 Marketable securities 5,813 19,996 Accounts receivable, net of allowance for doubtful accounts of $375 and $329 18,446 19,206 Land held for sale 6,948 - Prepaid expenses and other current assets � 4,417 � � 17,149 Total current assets 119,893 134,754 Property and equipment, net 24,085 33,761 Marketable securities 24,028 23,326 Deferred tax assets 3,292 23,366 Goodwill and other intangible assets, net 8,182 8,267 Other non-current assets � 2,425 � � 9,736 Total assets $ 181,905 � $ 233,210 � LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 1,933 $ 2,446 Accrued compensation 5,128 4,218 Accrued liabilities 5,626 6,965 Deferred revenue 2,797 5,252 Deferred tax liabilities 850 4,205 Derivative liabilities 4,647 - Other current liabilities � 23 � � 66 Total current liabilities 21,004 23,152 Deferred rent 3,028 2,580 Other non-current liabilities � 38 � � 47 Total liabilities � 24,070 � � 25,779 Commitments and contingencies Stockholders' equity: Common stock; $0.001 par value; authorized 87,000 shares; 19,034 and 21,599 shares issued and outstanding at June 30, 2008 and December 31, 2007, respectively 19 22 Additional paid-in capital 175,031 195,472 Retained (deficit) earnings (13,433 ) 10,700 Accumulated other comprehensive (loss) income � (3,782 ) � 1,237 Total stockholders' equity � 157,835 � � 207,431 Total liabilities and stockholders' equity $ 181,905 � $ 233,210 � PEOPLESUPPORT, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE INCOME (Unaudited, in thousands, except share amounts) � � � � � � Three Months Ended June 30, Six Months Ended June 30, 2008 2007 2008 2007 � Revenues $ 36,375 $ 34,328 $ 72,095 $ 67,925 Cost of revenues 25,269 23,985 49,103 45,679 Selling, general and administrative 9,234 7,491 17,599 15,849 Depreciation and amortization � 2,582 � � 2,334 � � 5,197 � � 4,795 � (Loss) income from operations (710 ) 518 196 1,602 Interest income, net 881 1,530 2,113 3,003 Other (expense) income � (1,239 ) � 2,115 � � (7,701 ) � 3,238 � (Loss) income before provision for income taxes (1,068 ) 4,163 (5,392 ) 7,843 Income tax provision � (203 ) � (256 ) � (17,712 ) � (72 ) Net (loss) income $ (1,271 ) $ 3,907 � $ (23,104 ) $ 7,771 � � Basic (loss) earnings per share $ (0.06 ) $ 0.17 $ (1.11 ) $ 0.33 Diluted (loss) earnings per share $ (0.06 ) $ 0.16 $ (1.11 ) $ 0.32 Basic weighted average shares outstanding 20,219 23,561 20,878 23,531 Diluted weighted average shares outstanding 20,219 24,025 20,878 24,197 � PEOPLESUPPORT, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited, in thousands) � � � Six Months Ended June 30, 2008 2007 OPERATING ACTIVITIES Net (loss) income $ (23,104 ) $ 7,771 Adjustments to reconcile net (loss) income to net cash provided by operating activities: Depreciation and amortization 5,197 4,795 Allowance for doubtful accounts 27 588 Stock-based compensation expense 3,315 2,515 Amortization of deferred compensation costs - 171 Unrealized loss on derivatives 5,868 - Deferred income taxes 16,718 (612 ) Tax benefits from employee stock option exercises - (37 ) � Changes in operating assets and liabilities: Accounts receivable 734 (2,643 ) Prepaid expenses and other assets 13,952 (1,187 ) Accounts payable and accrued liabilities (1,066 ) (1,352 ) Deferred rent 416 467 Deferred revenue � (2,462 ) � 1,623 � Net cash provided by operating activities 19,595 12,099 � INVESTING ACTIVITIES � Proceeds from sale/maturities of marketable securities 24,726 58,951 � Purchases of marketable securities (11,475 ) (62,411 ) � Purchases of property and equipment � (2,181 ) � (17,434 ) Net cash provided by (used for) investing activities 11,070 (20,894 ) � FINANCING ACTIVITIES � Payments of capital lease obligation (10 ) (29 ) � Tax benefits from employee stock option exercises - 37 � Proceeds from the exercise of stock options 355 361 � Repurchase of common stock (25,144 ) - � Public offering costs � - � � (168 ) Net cash (used for) provided by financing activities (24,799 ) 201 Effect of exchange rate changes on cash � - � � (4 ) Net increase (decrease) in cash and cash equivalents 5,866 (8,598 ) Cash and cash equivalents, beginning of period � 78,403 � � 80,880 � Cash and cash equivalents, end of period $ 84,269 � $ 72,282 � � NON-CASH ACTIVITIES Unrealized holding losses on marketable securities $ (230 ) $ (525 ) Non-cash other comprehensive (loss) income adjustment for pension liabilities (163 ) $ (26 )