PeopleSupport Reports Record Financial Results for First Quarter 2006

PeopleSupport, Inc., a leading business process outsourcing (BPO) provider that offers customer management, transcription, captioning, accounts receivable management and additional BPO services, today announced financial results for its first quarter ended March 31, 2006.

• Revenue in the first quarter of 2006 was a record $23.0 million, an increase of 64% from $14.1 million reported in the first quarter of 2005.

• Net income for the first quarter of 2006 was $2.9 million or $0.15 per diluted share, as compared with $2.8 million or $0.15 per diluted share for the first quarter of 2005.

• Operating cash flow in the first quarter of 2006 was a robust $5.5 million, as compared to $5.1 million in the first quarter of 2005.

“PeopleSupport started 2006 by delivering record revenues and strong cash flow while also expanding our service offering to address a larger portion of the global BPO market,” said Lance Rosenzweig, PeopleSupport’s Chairman and Chief Executive Officer. “In the first quarter of 2006, revenues increased 64% compared to the first quarter of 2005 and we delivered strong operating cash flow of $5.5 million.

“Our vision for the future is to be a diversified global BPO provider delivering a range of complementary outsourcing solutions where we can continue to leverage our core competence. Our strategic plan is to deliver high value-added, multilingual, cost-effective services from a variety of geographic locations. In the first quarter of 2006, PeopleSupport continued to deliver on this strategy by entering the transcription and captioning market through its acquisition of Rapidtext. PeopleSupport also opened a new facility in Costa Rica to enhance our Spanish and bilingual capabilities for customer management and additional BPO services. To address this growing market, PeopleSupport plans to increase our production seat capacity in the first half of 2006 by more than 60% worldwide. These actions confirm our commitment to the many growth opportunities ahead for PeopleSupport.”

Q1 2006 Financial Highlights

Revenues — For the first quarter of 2006, PeopleSupport reported record revenues of $23.0 million, as compared to $14.1 million in the first quarter of 2005, representing 64% growth over the prior year quarter. The substantial revenue increase was the result of growth from our existing clients in the travel, technology, financial services and telecommunications industries. Additionally, PeopleSupport acquired Rapidtext and its subsidiary, The Transcription Company, on January 9, 2006 and began recognizing transcription and captioning revenues as of this date.

Cost of Revenues — During the first quarter of 2006, cost of revenues was $13.5 million, or 58% of revenues, as compared to $7.8 million, or 55% of revenues, in the first quarter of 2005. Cost of revenues were impacted by SFAS 123R non-cash stock-based compensation charges, the Philippine peso appreciating, and PeopleSupport’s initial investments starting mid quarter in Costa Rica and the Philippines to expand our production seat capacity.

Selling, General and Administrative — For the first quarter of 2006, selling, general and administrative expense was $4.9 million, or 21% of revenues, as compared to $2.7 million, or 19% of revenues, in the first quarter of 2005. In line with our expectations, selling, general and administrative expenses were impacted in the first quarter of 2006 by our acquisition of Rapidtext, SFAS 123R non-cash stock-based compensation charges and Sarbanes-Oxley related expenses, which were minimal in the first quarter of 2005. The company adopted the new SFAS 123R rules related to expensing stock-based compensation effective January 1, 2006.

Income from Operations — PeopleSupport’s first quarter 2006 operating income was $3.4 million, up $0.8 million compared to operating income of $2.6 million in the first quarter of 2005.

Net Income — Net income for the first quarter of 2006 was $2.9 million or $0.16 per basic share and $0.15 per diluted share, as compared with net income of $2.8 million or $0.15 per basic and diluted share for the first quarter of 2005. Net income for the first quarter of 2006 included $0.5 million or $0.02 per share impact on a diluted basis of non-cash, stock-based compensation charges resulting from SFAS 123R. This compares to a charge of $0.2 million or $0.01 per diluted share during the first quarter of 2005 for non-cash, stock-based compensation relating to pre-IPO stock options. SFAS 123R charges are expected to increase quarter-over-quarter throughout 2006. Net income for the first quarter of 2006 includes a primarily non-cash GAAP tax rate of 24%.

Cash Flow — Net cash provided by operating activities for the three months ended March 31, 2006 was $5.5 million, as compared with $5.1 million for the first quarter of 2005. Capital expenditures were $2.8 million in the three months ended March 31, 2006, as compared with $0.6 million in the same period in 2005. In the first half of 2006, PeopleSupport is increasing its production seat capacity in the Philippines and Costa Rica to approximately 5,000 seats, an increase of over 60%.

PeopleSupport had cash and cash equivalents and marketable securities totaling $45.4 million as of March 31, 2006, down from $51.6 million at the end of 2005. In January 2006, PeopleSupport acquired Rapidtext, a transcription and captioning firm, for approximately $9.0 million cash, including acquisition costs, plus a $1.0 million equity earn-out dependant on achieving revenue targets. The company has no significant long-term debt.

As of March 31, 2006, PeopleSupport employed more than 5,400 employees worldwide, an increase of approximately 1,200 employees since December 31, 2005.

Business Outlook

For the second quarter of 2006, the company expects revenues to be between $23.2 million and $24.0 million. For the same period, the company expects diluted earnings per share to be $0.10 to $0.11 based on approximately 19.3 million shares outstanding on a diluted basis. Guidance includes a primarily non-cash GAAP tax rate of 25% and accounts for SFAS 123R, resulting in non-cash, stock-based compensation charges of approximately $0.6 million or $0.02 per share impact on a diluted basis in the second quarter of 2006.

For the full year of 2006, the company expects revenues to be between $94 million and $98 million. For the same period, the company expects diluted earnings per share to be $0.42 to $0.48 based on approximately 19.4 million shares outstanding on a diluted basis. Guidance includes a primarily non-cash GAAP tax rate of approximately 25% and accounts for SFAS 123R, resulting in non-cash, stock-based compensation charges of approximately $3.3 million or $0.13 per share impact on a diluted basis for the full year 2006.

Conference Call with Management

PeopleSupport’s executive management will host a conference call for investors and all interested parties today at 5:30 p.m. Eastern Time (2:30 p.m. Pacific Time). The call will be broadcast over the Internet. To listen to the event via the Internet, please follow the instructions that will be available on the investor relations section of PeopleSupport’s website at www.peoplesupport.com. A replay of the conference call will be available on the company’s website for an extended period of time.