##### Table of Contents



UNITED STATES SECURITIES AND
    EXCHANGE COMMISSION
 Washington, D.C.
    20549
  Form 10-Q
  (Mark One)þ

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended
    March 31, 2007oro

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the transition period
    from          to    Commission File Number:
    333-115328
  PeopleSupport, Inc.
 (Exact name of Registrant as
    specified in its charter)
   Delaware

95-4695021(State or other jurisdiction of

(I.R.S. Employerincorporation or
    organization)

Identification No.)   1100 Glendon Ave., Suite 1250, Los Angeles, California
    90024
 (Address of principal executive
    offices)
  (310) 824-6200
 (Registrants telephone
    number, including area code)
      þ o
  Rule 12b-2
  o þ o
  Rule 12b-2 o þ




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##### 



PEOPLESUPPORT,
    INC.FORM 10-Q
    FOR THE QUARTER ENDED
    March 31, 2007
  INDEX
  
  PagePART I 
    FINANCIAL INFORMATION


1ITEM 1.


Financial
    Statements


1Consolidated
    Balance Sheets as of March 31, 2007 (unaudited) and
    December 31, 2006 (unaudited)


1Consolidated
    Statements of Operations and Other Comprehensive Income for the
    three months ended March 31, 2007 (unaudited) and 2006
    (unaudited)


2Consolidated
    Statements of Cash Flows for the three months ended
    March 31, 2007 (unaudited) and 2006 (unaudited)


3Notes to
    Consolidated Financial Statements (unaudited)


4ITEM 2.


Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations


14ITEM 3.


Quantitative and
    Qualitative Disclosures about Market Risk


21ITEM 4.


Controls and
    Procedures


22PART II 
    OTHER INFORMATION


22ITEM 1.


Legal
    Proceedings


22ITEM 1A.


Risk
    Factors


22ITEM 6.


Exhibits


24Signature


24EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2




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##### Table of Contents



PART I 
    FINANCIAL INFORMATION  ITEM 1.
    Financial
    Statements  PEOPLESUPPORT,
    INC. AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS(Unaudited, in thousands)
  March 31,


December 31,2007


2006ASSETSCurrent assets:Cash and cash equivalents

$
57,956


$
80,880Marketable securities


39,341



39,520Accounts receivable, net of
    allowances of $1,485 and $947, respectively


27,059



18,127Deferred tax assets


1,888



1,888Prepaid expenses and other current
    assets


5,510



5,745Total current assets


131,754



146,160Property and equipment, net


33,960



22,080Marketable securities


27,149



20,133Deferred tax assets


18,668



18,372Goodwill and other intangible
    assets


8,393



9,181Other long-term assets


2,471



1,665Total assets

$
222,395


$
217,591LIABILITIES AND
    STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable

$
5,205


$
7,389Accrued liabilities


10,407



9,963Deferred revenue


5,492



4,515Other current liabilities


84



106Total current liabilities


21,188



21,973Deferred rent


2,041



1,812Other long-term liabilities


1,146



1,347Total liabilities


24,375



25,132Commitments and contingencies
    (Note 12)Minority interest






29Stockholders equity:Common stock; $0.01 par
    value; authorized 87,000 shares; 23,528 and
    23,479 shares issued and outstanding at March 31, 2007
    and December 31, 2006, respectively


23



23Additional paid-in capital


209,282



208,044Accumulated deficit


(12,200
)


(16,062
)Accumulated other comprehensive
    income


915



425Total stockholders equity


198,020



192,430Total liabilities and
    stockholders equity

$
222,395


$
217,591    1




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##### Table of Contents



PEOPLESUPPORT,
    INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF OPERATIONS
    AND OTHER COMPREHENSIVE INCOME(Unaudited, in thousands, except per share data)
  Three Months EndedMarch 31,2007


2006Revenues

$
33,597


$
23,047Cost of revenues (exclusive of
    depreciation and amortization expense shown below)


23,531



13,482Selling, general and
    administrative expenses


6,522



4,926Depreciation and amortization
    expense


2,462



1,286Income from operations


1,082



3,353Interest income


(1,474
)


(419
)Other income


(1,123
)


(23
)Income before benefit/provision
    for income taxes


3,679



3,795(Benefit)/provision for income
    taxes


(184
)


921Net income


3,863



2,874Foreign currency translation gains


(370
)


(258
)Unrealized holding (gains)/losses
    on marketable securities


(111
)


34Minimum pension liability
    adjustment


(9
)


Comprehensive income

$
4,353


$
3,098Basic earnings per share

$
0.16


$
0.16Diluted earnings per share

$
0.16


$
0.15Basic weighted average shares
    outstanding


23,500



18,422Diluted weighted average shares
    outstanding


24,289



19,154    2




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##### Table of Contents



PEOPLESUPPORT,
    INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS(Unaudited, in thousands)
  Three Months EndedMarch 31,2007


2006OPERATING ACTIVITIESNet income

$
3,863


$
2,874Adjustments to reconcile net
    income to net cash (used in)/provided by operating activities:Depreciation and amortization


2,462



1,286Provision for doubtful accounts


589



8Stock-based compensation


1,156



489Amortization of deferred
    compensation costs


86



85Deferred income taxes


(410
)


957Tax benefits from employee stock
    option exercises


(37
)


(16
)Changes in operating assets and
    liabilities:Accounts receivable


(9,520
)


(3,497
)Prepaid expenses and other assets


425



4Accounts payable and accrued
    liabilities


(1,564
)


2,614Deferred rent


217



87Deferred revenue


958



621Net cash (used in)/or provided by
    operating activities


(1,775
)


5,512INVESTING ACTIVITIESProceeds from sale of marketable
    securities


39,303



Purchases of property and equipment


(14,306
)


(2,750
)Purchases of marketable securities


(46,140
)


(4,000
)Acquisitions, net of cash received






(8,967
)Net cash used in investing
    activities


(21,143
)


(15,717
)FINANCING ACTIVITIESPayments of capital lease
    obligation


(14
)


(57
)Tax benefits from employee stock
    option exercises


37



16Net proceeds from the exercise of
    stock options


143



96Public offering costs


(168
)


Net cash (used in)/provided by
    financing activities


(2
)


55Effect of exchange rate changes on
    cash


(4
)


16Net decrease in cash and cash
    equivalents


(22,924
)


(10,134
)Cash and cash equivalents,
    beginning of period


80,880



27,760Cash and cash equivalents, end of
    period

$
57,956


$
17,626NON-CASH INVESTING AND
    FINANCING ACTIVITIESUnrealized holding gains/(losses)
    on marketable securities

$
111


$
(34
)Construction in progress costs
    incurred but not paid


75



893Non-cash tax benefit from
    disqualifying dispositions


112



48    3




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##### Table of Contents



PEOPLESUPPORT,
    INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS
 (In thousands, except per share data)
  Note 1.
    Description
    of Business      Note 2.
    Basis of
    Presentation  Basis
    of Presentation
  Form 10-Q Regulation S-X. Form 10-K.
  Reclassifications
    Use of
    Estimates
    Concentrations
    of Risk
   4




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##### Table of Contents



PEOPLESUPPORT,
    INC. AND SUBSIDIARIES
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    (In thousands, except per share data)
         Revenue
    Recognition
    Cost
    of Revenues
    Impairment
    of Long-lived Assets
    Goodwill,
    Intangible Assets, Long-lived Assets and
    Investments
  Goodwill and Other Intangible Assets
  and/or
 5




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##### Table of Contents



PEOPLESUPPORT,
    INC. AND SUBSIDIARIES
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    (In thousands, except per share data)
   Stock-based
    Compensation Expense
    Note 3.
    Concentration
    of Revenue    As of and for theThree Months EndedMarch 31,2007


2006


2007


2006% of revenue


% of A/R, netCustomer A


17
%


20
%


22
%


12
%Customer B


16



0



20



1Customer C


15



17



13



21Customer D


10



5



8



6Customer E


8



14



10



19Customer F


7



10



3



3   Note 4.
    Cash,
    Cash Equivalents and Marketable Securities      Short Term


Long TermAmortized


Unrealized


Market


Cash & Cash


Marketable


MarketableCost


(Gains)/Losses


Value


Equivalents


Securities


SecuritiesCash and cash equivalents

$
57,956


$



$
57,956


$
57,956


$



$
Government bonds


32,993



(28
)


32,965







24,974



7,991Corporate bonds


19,122



7



19,129







14,367



4,762Mortgage backed securities


13,403



(3
)


13,400











13,400Preferred stock


1,000



(4
)


996











996Total

$
124,474


$
(28
)

$
124,446


$
57,956


$
39,341


$
27,149  6




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##### Table of Contents



PEOPLESUPPORT,
    INC. AND SUBSIDIARIES
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    (In thousands, except per share data)
    MortgageCorporate


Government


BackedMaturities

Bonds


Bonds


Securities


Preferred Stock


Total1 year

$
14,367


$
24,974


$



$



$
39,3411 to 5 years


4,762



7,746



671



996



14,1755 to 10 years






245



193







43810+ years










12,536







12,536Total

$
19,129


$
32,965


$
13,400


$
996


$
66,490     Short Term


Long TermAmortized


Unrealized


Market


Cash &


Marketable


MarketableCost


Losses


Value


Equivalents


Securities


SecuritiesCash and Cash Equivalents

$
80,880


$



$
80,880


$
80,880


$



$
Government Bonds


33,992



(77
)


33,915







24,942



8,973Corporate Bonds


16,184



(9
)


16,175







14,578



1,597Mortgage Backed Securities


9,615



(52
)


9,563











9,563Total

$
140,671


$
(138
)

$
140,533


$
80,880


$
39,520


$
20,133     MortgageCorporate


Government


BackedMaturities

Bonds


Bonds


Securities


Total1 year

$
14,578


$
24,942


$



$
39,5201 to 5 years


1,597



8,729







10,3265 to 10 years






244



715



95910+ years










8,848



8,848Total

$
16,175


$
33,915


$
9,563


$
59,653   Note 5.
    Comprehensive
    Income    Foreign


UnrealizedCurrency


Loss on


Additional PensionItems


Securities


Liability


TotalBalance, December 31, 2006

$
1,127


$
(146
)

$
(556
)

$
425Quarterly change


370



111



9



490Balance, March 31, 2007

$
1,497


$
(35
)

$
(547
)

$
915   Note 6.
    Computation
    of Earnings Per Share   7




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##### Table of Contents



PEOPLESUPPORT,
    INC. AND SUBSIDIARIES
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    (In thousands, except per share data)
      Three Months EndedMarch 31,2007


2006Options


466



108Common stock warrants






4     Three Months Ended March 31,2007


2006Income


Shares


Per Share


Income


Shares


Per Share(Numerator)


(Denominator)


Amount


(Numerator)


(Denominator)


AmountBasic earnings per share:Income to common stockholders

$
3,863



23,500


$
0.16


$
2,874



18,422


$
0.16Effect of dilutive securities:Options






722











656Restricted Stock Units






67











76Income available to common
    stockholders

$
3,863



24,289


$
0.16


$
2,874



19,154


$
0.15   Note 7.
    Equity-Based
    Compensation    Three MonthsEndedMarch 31,2007


2006Net proceeds from stock options
    exercised

$
143


$
96Tax benefits related to stock
    options exercised


37



16Intrinsic value of stock options
    exercised


481



288  8




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##### Table of Contents



PEOPLESUPPORT,
    INC. AND SUBSIDIARIES
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    (In thousands, except per share data)
    Stock OptionsWeighted


WeightedNumber of


Average


Remaining


AggregateOptions


Exercise


Contractual


IntrinsicOutstanding


Price


Term


ValueBalance at December 31, 2006


1,948


$
9.56



8.2


$
22,383Granted


117



20.95Forfeited


(76
)


10.77Expired


(1
)


7.77Exercised


(42
)


5.73Balance at March 31, 2007


1,946


$
10.38



8.1


$
6,619       Restricted Stock UnitsWt. Avg.


WeightedRestricted


Value of


Remaining


AggregateStock Units


Awards


Contractual


IntrinsicOutstanding


at Grant


Term


ValueBalance at December 31, 2006


178


$
13.90



1.5


$
3,747Granted


32



20.95Canceled


(1
)


8.63Released


(14
)


9.91Balance at March 31, 2007


195


$
15.45



1.5


$
2,279       Three Months EndedMarch 31,2007


2006Cost of revenues

$
402


$
109Selling, general &
    administrative


754



380$
1,156


$
489  9




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##### Table of Contents



PEOPLESUPPORT,
    INC. AND SUBSIDIARIES
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    (In thousands, except per share data)
  Note 8.
    Pension
    Plan    Period EndedMarch 31,2007Service cost

$
197Interest cost


23Expected return on plan assets


Unrecognized net actuarial loss


7Net periodic benefit cost

$
227     Note 9.
    Forward
    Foreign Currency Contracts      Note 10.
    Income
    Taxes     10




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##### Table of Contents



PEOPLESUPPORT,
    INC. AND SUBSIDIARIES
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    (In thousands, except per share data)
   Accounting
    for Uncertainty in Income Taxes
      and/or
  Note 11.
    Segment
    and Geographic Information  U.S.-based
  Periods EndedMarch 31,2007


2006Revenues:U.S.

$
28,470


$
23,047Philippines


5,127



Total

$
33,597


$
23,047     As ofMarch 31,Long-Lived Assets, Net:

2007


2006U.S.Property and equipment

$
4,909


$
2,698Goodwill


7,628



8,262Intangibles


685



832PhilippinesProperty and equipment


27,370



10,051Intangibles


80



106Costa RicaProperty and equipment


1,681



Total

$
42,353


$
21,949  11




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##### Table of Contents



PEOPLESUPPORT,
    INC. AND SUBSIDIARIES
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    (In thousands, except per share data)
  Periods Ended March 31,Depreciation and Amortization, Net:

2007


2006U.S.Property and equipment

$
478


$
281Intangibles


28



20PhilippinesProperty and equipment


1,805



977Intangibles


8



8Costa RicaProperty and equipment


143



Total

$
2,462


$
1,286   Note 12.
    Commitments
    and Contingencies  Leases
    OperatingYears Ending December 31,

Lease2007

$
3,8392008


5,3202009


3,9302010


4,1912011


4,208Thereafter


16,234Total

$
37,722     Note 13.
    Property
    Company    Note 14.
    Line of
    Credit   12




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##### Table of Contents



PEOPLESUPPORT,
    INC. AND SUBSIDIARIES
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    (In thousands, except per share data)
   Note 15.
    New
    Accounting Pronouncements     13




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##### Table of Contents



PEOPLESUPPORT,
    INC. AND SUBSIDIARIESFORM 10-Q
    FOR THE QUARTER
    ENDED MARCH 31, 2007
  CAUTIONARY
    NOTE REGARDING FORWARD-LOOKING STATEMENTS
  This report on
    Form 10-Q
    contains forward-looking statements within the meaning of the
    federal securities laws that involve material risks and
    uncertainties, including, without limitation, statements about
    our expectations regarding our revenues, our clients, our
    expenses, our anticipated cash needs, our estimates regarding
    our capital requirements and our needs for additional financing.
    We generally identify forward-looking statements by using such
    terms as may, will, could,
    should, potential, continue,
    expect, intend, plan,
    estimate, anticipate,
    believe or similar phrases or the negatives of such
    terms. We base these statements on our beliefs as well as
    assumptions we made using information currently available to us.
    These forward-looking statements are subject to risks,
    uncertainties and assumptions, including those identified below
    in Managements Discussion and Analysis of Financial
    Condition and Results of Operations  Risk
    Factors, as well as other matters not yet known to us or
    not currently considered material by us. Should one or more of
    these risks or uncertainties materialize, or should underlying
    assumptions prove incorrect, actual results may vary materially
    from those anticipated, estimated or projected. These risks,
    uncertainties and assumptions include, but are not limited to,
    our dependence on a limited number of clients, negative public
    reaction to offshore outsourcing and the effect of recently
    proposed legislation, competitive conditions in the markets we
    serve, our ability to manage our growth, the risks associated
    with our operations in the Philippines and Costa Rica, and other
    risks discussed in Managements Discussion and
    Analysis of Financial Condition and Results of
    Operations  Risk Factors in this report and in
    our latest report on
    Form 10-K
    filed with the Securities and Exchange Commission
    (SEC). These forward-looking statements represent
    our estimates and assumptions only as of the date of this report
    and, unless required by law, we undertake no obligation to
    update or revise these forward-looking statements. You should,
    however, review the factors and risks we describe in other
    reports and registration statements that we file from time to
    time with the SEC.
  ITEM 2.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations    Overview
     14




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##### Table of Contents



PEOPLESUPPORT,
    INC. AND SUBSIDIARIESFORM 10-Q
    FOR THE QUARTER
    ENDED MARCH 31, 2007
   Sources
    of Revenues
    
    time-delineated or production-based fees, including hourly or
    per minute charges and charges per interaction or transaction,
    and training fees, all of which are separately negotiated on an
    individual client basis; and
    implementation fees, including revenue associated with the
    installation and integration of new clients into our
    telecommunications, information technology and client reporting
    structures.  U.S.-based
    Key
    Expense Categories
  Cost of revenues.
  U.S.-based
    Selling, general and administrative. U.S.-based
 15




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##### Table of Contents



PEOPLESUPPORT,
    INC. AND SUBSIDIARIESFORM 10-Q
    FOR THE QUARTER
    ENDED MARCH 31, 2007
    Depreciation and amortization.
  Critical
    Accounting Policies and Estimates
    Revenues
    and Deferred Revenue Recognition
        Accounting
    for Stock-based Awards
       16




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##### Table of Contents



PEOPLESUPPORT,
    INC. AND SUBSIDIARIESFORM 10-Q
    FOR THE QUARTER
    ENDED MARCH 31, 2007
   Accounting
    for Income Taxes
      Accounting for Uncertainty in Income Taxes 
    an Interpretation of FASB Statement No. 109. Accounting for Income
    Taxes
  Long-lived
    Asset Impairment
    Recent
    Accounting Pronouncements
     17




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##### Table of Contents



PEOPLESUPPORT,
    INC. AND SUBSIDIARIESFORM 10-Q
    FOR THE QUARTER
    ENDED MARCH 31, 2007
   Results
    of Operations
    Three Months EndedMarch 31,2007


2006Revenues


100
%


100
%Cost of revenues (exclusive of
    depreciation and amortization expense shown below)


70



58Selling, general, and
    administrative expenses


20



21Depreciation and amortization
    expense


7



6Income from operations


3



15Interest income


(4
)


(2
)Other income


(3
)


Income before benefit/provision
    for income taxes


11



16(Benefit)/provision for income
    taxes


(1
)


4Net income


12
%


13
%   Three
    Months Ended March 31, 2007 compared with Three Months
    Ended March 31, 2006
  Revenues
    Cost
    of Revenues
     18




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##### Table of Contents



PEOPLESUPPORT,
    INC. AND SUBSIDIARIESFORM 10-Q
    FOR THE QUARTER
    ENDED MARCH 31, 2007
   Selling,
    General, and Administrative
    Depreciation
    and Amortization
    Interest
    Income
    Other
    Income
    Benefit
    for Income Taxes
    Liquidity
    and Capital Resources
   19




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##### Table of Contents



PEOPLESUPPORT,
    INC. AND SUBSIDIARIESFORM 10-Q
    FOR THE QUARTER
    ENDED MARCH 31, 2007
    Operating
    Activities
    Investing
    Activities
      Financing
    Activities
      Off-Balance
    Sheet Arrangements
  Line
    of Credit
   20




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##### Table of Contents



PEOPLESUPPORT,
    INC. AND SUBSIDIARIESFORM 10-Q
    FOR THE QUARTER
    ENDED MARCH 31, 2007
    Forward
    Contracts
      Contractual
    Obligations
    ITEM 3.
    Quantitative
    and Qualitative Disclosures About Market Risk  Foreign
    Currency Exchange Risk
      Interest
    Rate Sensitivity
   21




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##### Table of Contents



PEOPLESUPPORT,
    INC. AND SUBSIDIARIESFORM 10-Q
    FOR THE QUARTER
    ENDED MARCH 31, 2007
    Inflation
    Rate Sensitivity
    ITEM 4.
    Controls
    and Procedures  Evaluation of disclosure controls and
    procedures. Rule 13a-15(e) Rules 13a-15(e) 15d-15(e)
  Changes in internal control over financial
    reporting. Rule 13a-15(f) Form 10-Q
 PART II 
    OTHER INFORMATION  ITEM 1.
    Legal
    Proceedings    ITEM 1A.
    Risk
    Factors  Form 10-Q Form 10-Q. Form 10-K 10-K 10-K.
 22




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##### Table of Contents



PEOPLESUPPORT,
    INC. AND SUBSIDIARIESFORM 10-Q
    FOR THE QUARTER
    ENDED MARCH 31, 2007
   Our
    revenues are highly dependent on four major clients that
    collectively accounted for 57% of our revenues for the quarter
    ended March 31, 2007, and any loss of business from our
    major clients would reduce our revenues and seriously harm
    us.
    We
    recently entered into forward foreign currency contracts. These
    instruments are volatile and may cause our financial results to
    vary significantly from period to period.
    We may
    be unable to obtain, at rates acceptable to us, sufficient space
    to accommodate our growth.
    We
    have no experience developing land or buildings and as a result,
    we may incur unexpected expenses
    and/or
    losses which may harm our business and financial
    results.
    Our
    clients may not pay us for services we have
    provided.
    Substantial
    future sales of our common stock in the public market could
    cause our stock price to fall.
   23




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##### Table of Contents



PEOPLESUPPORT,
    INC. AND SUBSIDIARIESFORM 10-Q
    FOR THE QUARTER
    ENDED MARCH 31, 2007
   If we
    fail to maintain an effective system of internal controls or
    discover material weaknesses in our internal controls over
    financial reporting, we may not be able to report our financial
    results accurately, which could harm our business and cause our
    stock price to drop.
    Item 6.
    Exhibits  ExhibitNumber31
.1

Rule 13a-14(a)
    Certification of Chief Executive Officer of the Company in
    accordance with Section 302 of the Sarbanes-Oxley Act of
    200231
.2

Rule 13a-14(a)
    Certification of Chief Financial Officer of the Company in
    accordance with Section 302 of the Sarbanes-Oxley Act of
    200232
.1*

Section 1350 Certification of
    Chief Executive Officer of the Company in accordance with
    Section 906 of the Sarbanes-Oxley Act of 200232
.2*

Section 1350 Certification of
    Chief Financial Officer of the Company in accordance with
    Section 906 of the Sarbanes-Oxley Act of 2002     *
    
    The material contained in this exhibit is not deemed
    filed with the SEC and is not to be incorporated by
    reference into any filing of the Registrant under the Securities
    Act of 1933 or the Securities Exchange Act of 1934, whether made
    before or after the date hereof and irrespective of any general
    incorporation language contained in such filing, except to the
    extent that the Registrant specifically incorporates it by
    reference.  SIGNATURE    PeopleSupport, Inc.
  By:
    /s/  Caroline
    Rook   Chief Financial Officer
 (Principal Financial and Accounting Officer)
 24