PEGS Pegasus Solutions (MM)

Pegasus Solutions, Inc. (Nasdaq:PEGS): Q2 2005 Results -- Revenues (GAAP): $47.3 million -- Revenues (adjusted): $46.7 million -- Net loss per share (GAAP): Basic ($0.43) Diluted ($0.35) -- Diluted income from continuing operations per share (GAAP): $0.13 -- Diluted income from continuing operations per share (adjusted): $0.13 Q3 2005 Estimates -- Revenues: $45 million to $47 million -- Net income per share (GAAP): Diluted $0.12 to $0.15 -- Diluted income from continuing operations per share (GAAP): $0.13 to $0.16 -- Diluted income from continuing operations per share (adjusted): $0.16 to $0.19 Pegasus Solutions, Inc. (Nasdaq:PEGS), a global leader in providing technology and services to hotels and travel distributors, today reported its financial results for the second quarter ended June 30, 2005. "The second quarter was a very active one for us," said John F. Davis III, president, chief executive officer and chairman of Pegasus Solutions. Davis continued: "We executed on several key initiatives, including a decision to exit the property management systems business. We also launched hotelbook.com(TM), which creates another way for independent hoteliers to compete online with the major hotel brand Web sites. And we expanded our presence in China by opening an office in Beijing, which is a key part of our strategy to expand our business in the Asia-Pacific region. While we have challenges, we are very focused on the current opportunities." Second Quarter and Other 2005 Highlights (See tables included with this release for reconciliation of non-GAAP measures to GAAP measures.) -- On a GAAP basis, revenues were $47.3 million. Adjusted for higher revenues due to the impact of transitioning to weekly commission processing, revenues were $46.7 million, compared to $48.6 in the second quarter of 2004. -- In the second quarter of 2005, the company announced that it is exiting the property management systems business and recorded an after-tax impairment charge of $10.2 million related to this asset group (further discussion is provided below). As a result, on a GAAP basis, net income (loss) was $(9.0) million, $(0.35) per diluted share, compared to $3.4 million, $0.14 per diluted share, in the same quarter of 2004. Diluted loss per share from discontinued operations was $(0.48) as compared to $(0.04) in 2004. -- Income from continuing operations per diluted share was $0.13, compared to $0.18 in the second quarter of 2004. -- Adjusted income from continuing operations per diluted share was $0.13, compared to $0.16 in the year ago quarter. -- EBITDA was $8.9 million, or 19 percent of revenues, compared to EBITDA of $10.3 million, or 21 percent of revenues, in the year-ago quarter. -- Adjusted EBITDA was $8.5 million, or 18 percent of revenues, compared to adjusted EBITDA of $10.3 million, or 21 percent of revenues, in the same quarter last year. -- Operating cash flows increased to $9.7 million, compared to $7.4 million in the second quarter of 2004. -- Through the cessation of the share repurchase plan effective April 12, 2005, Pegasus repurchased an additional 30,000 shares of common stock at an aggregate cost of $0.4 million during the second quarter. Over the last 18 months, the company has repurchased 5.2 million shares of common stock at an aggregate cost of $61.9 million. -- During the quarter, Pegasus made significant headway on several development projects, including a new release of its NetBooker(R) booking engine and a new rate tracking service, as well as a strategic relationship with Open Hospitality for Web services. Service Line Review -- Representation services revenues were $18.3 million, down 5 percent compared to the prior year. Consistent with last quarter, this is primarily due to the continued impact of reduced pricing and the transition of a significant customer to the company's central reservation service (CRS). Average daily room rates increased 4 percent for the company's Utell by Pegasus(TM) service. This was offset by a slight decrease in reservation volume and a decrease in the average commission earned. -- Reservation services revenues were $8.3 million, down 9 percent compared to the same period last year. The loss of a CRS customer was partially offset by the positive impact from a significant representation customer converting to the CRS service. Total net CRS reservations decreased compared to the same quarter last year; however, excluding the reservations attributable to those two customers, CRS transactions increased 6 percent. Reduced pricing on contract renewals also continued to drive the year-over-year decrease in revenue for the company's CRS. -- Revenues for the company's financial services, adjusted for the impact of transitioning to weekly commission processing, were $8.2 million, down 6 percent year-over-year. Financial services revenues were impacted by reduced transactions and pricing, resulting from travel agency consolidations, partially offset by the continued benefit from improved average daily room rates. -- For Pegasus' distribution services, revenues were $7.1 million, down 2 percent from the year-ago quarter. GDS transactions increased 8 percent, and Internet transactions were slightly below last year. Reduced volumes and pricing, which resulted from the company's second quarter 2004 sale of Travelweb LLC to Priceline.com, negatively affected year-over-year comparisons. In June, the company's board of directors approved and committed to a formal plan to exit the property management systems (PMS) business by selling the company's PMS operations. As a result, PMS operations have been classified as discontinued operations for all periods presented. The company concluded that the carrying amount of such operation's net assets exceeded the estimated fair value, less costs to sell, of these operations. Accordingly, the company recorded an after-tax charge of approximately $10.2 million to write down the PMS assets to their estimated net realizable value. Additionally, the company recorded after-tax exit costs of approximately $0.6 million. The impact of these charges, approximately $(0.44) per share on a diluted basis, are included in discontinued operations. Financial Outlook "For the second quarter, we reported adjusted diluted income from continuing operations per share of $0.13," said Susan K. Cole-Conner, executive vice president and chief financial officer. "Considering the $0.03 loss per diluted share attributable to the net run-rate PMS business, adjusted diluted earnings per share is $0.10. With adjusted revenues of $46.7 million and our continued active management of costs, we delivered results at the high-end range of our expected second quarter earnings of $0.08 and $0.11." Cole-Conner continued: "With the announcement of our discontinued operations, we have adjusted our expectations internally and are providing our third quarter guidance. With ongoing top-line pressure, we expect third quarter revenues to range from $45 million to $47 million. By remaining focused on costs, we expect adjusted diluted income from continuing operations to range from $0.16 to $0.19 per share." Davis concluded: "Bear Stearns continues to assist us in evaluating strategic alternatives, and we are staying focused on our day-to-day business and delivering value to our customers and shareholders." Conference Call Pegasus will host a conference call today at 5:00 p.m. ET and will simultaneously broadcast it live over the Internet. To access the webcast, go to www.pegs.com and click "Investor." The online archive of the webcast will be available two hours after the call for 30 days. About Pegasus Solutions, Inc. Dallas-based Pegasus Solutions, Inc. (Nasdaq:PEGS) is a global leader in providing technology and services to hotels and travel distributors. Founded in 1989, Pegasus' customers include a majority of the world's travel agencies and more than 60,000 hotel properties around the globe. Pegasus' services include central reservation systems, electronic distribution services, commission processing and payment services, and marketing representation services, including the consumer Web site, hotelbook.com. The company's representation services, including Utell by Pegasus(TM) and Unirez by Pegasus(TM), are used by nearly 7,000 member hotels in 140 countries, making Pegasus the hotel industry's largest third-party marketing and reservations provider. Pegasus has 18 offices in 13 countries, including regional hubs in London, Scottsdale and Singapore. For more information, please visit www.pegs.com. Forward-Looking Statements Some statements made in this press release are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements regarding future events, financial projections, estimated transaction volumes and expected average daily room rates, as well as management's expectations, beliefs, hopes, intentions or strategies regarding the future. Because such statements deal with future events, they are subject to various risks and uncertainties, and actual results could differ materially from current expectations. Factors that could cause or contribute to such difference include, but are not limited to, terrorist acts or war, global health epidemics, variation in demand for and acceptance of the company's products and services, the level of product and price competition from existing and new competitors, delays in developing, marketing and deploying new products and services, any strategic alternative undertaken by the company, the inability of the company to sell the PMS operations, risks associated with a PMS sale transaction and the inability of the company to terminate the PMS services as expected, as well as other risks identified in the company's Securities and Exchange Commission filings, including those appearing under the caption Risk Factors in the company's Annual Report on Form 10-K for the year ended Dec. 31, 2004. The conference call may include other forward-looking statements related to transaction volume and average daily room rates. Such information can be found in the presentation accompanying the conference call webcast. To access the webcast, go to www.pegs.com and click "Investor." Use of Non-GAAP Financial Measures Pegasus provides financial measures and terms not calculated in accordance with generally accepted accounting principles in the United States (GAAP). We believe that presentation of non-GAAP measures such as adjusted revenues, adjusted income from continuing operations per share, EBITDA and adjusted EBITDA provide investors with an alternative method for assessing our operating results in a manner that enables investors to more thoroughly evaluate our current performance as compared to past performance. We also believe these non-GAAP measures provide investors with a better baseline for assessing the company's future earnings expectations. Our management uses these non-GAAP measures for the same purpose. The non-GAAP measures included in this release are provided to give investors access to the types of measures that we use in analyzing our results. Adjusted revenues consist of GAAP revenues adjusted for the items included in the accompanying reconciliation. Adjusted income from continuing operations per share consists of GAAP income from continuing operations per share adjusted for the items included in the accompanying reconciliation. We believe these measures enable management and investors to more thoroughly evaluate our current performance as compared to past performance and provide a better baseline for assessing the company's future earnings expectations. However, these measures do not provide a complete picture of our operations. Therefore net income (loss) per share and revenues and income from continuing operations per share on both a non-GAAP basis and GAAP basis may need to be considered to get a comprehensive view of our results. EBITDA consists of GAAP net income (loss) adjusted for the items included in the accompanying reconciliation. We believe that EBITDA provides useful information to investors about the company's performance because it eliminates the effects of period to period changes in taxes, discontinued operations, cost associated with capital investments and interest income (expense). Adjusted EBITDA consists of EBITDA adjusted for the items included in the accompanying reconciliation. EBITDA and adjusted EBITDA do not give effect to the cash the company must use to service its debt or pay its income taxes and thus do not reflect the funds generated from operations or actually available for capital expenditures. Pegasus' calculation of adjusted revenues, adjusted income from continuing operations per share, EBITDA and adjusted EBITDA is not necessarily comparable to similarly titled measures reported by other companies. These non-GAAP measures may be considered in addition to results prepared in accordance with GAAP, but should not be considered a substitute for or superior to GAAP results. Schedules that reconcile adjusted revenues and adjusted income from continuing operations per share to their most directly comparable GAAP measure and EBITDA and adjusted EBITDA to GAAP net income (loss) are included with this release and the presentation accompanying the company's conference call webcast. -0- *T PEGASUS SOLUTIONS, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share amounts) (Unaudited) Three Months Ended Six Months Ended June 30, June 30, ------------------ ------------------ 2005 2004 2005 2004 --------- -------- --------- -------- Revenues: Service revenues $42,515 $44,498 $79,605 $84,949 Customer reimbursements 4,806 4,141 8,714 7,620 --------- -------- --------- -------- Total revenues 47,321 48,639 88,319 92,569 --------- -------- --------- -------- Costs of services (exclusive of depreciation and amortization shown separately below): Cost of services 21,133 22,098 42,108 44,807 Customer reimbursements 4,806 4,141 8,714 7,620 --------- -------- --------- -------- Total costs of services 25,939 26,239 50,822 52,427 --------- -------- --------- -------- Research and development 876 1,041 1,583 2,363 General and administrative expenses 5,933 6,045 11,946 12,426 Marketing and promotion expenses 5,638 4,981 10,949 9,694 Depreciation and amortization 4,659 4,591 8,935 9,291 --------- -------- --------- -------- Operating income 4,276 5,742 4,084 6,368 Other income (expense): Gain on sale -- 1,961 -- 1,961 Interest expense, net (382) (524) (727) (1,025) Other (35) (86) 139 (293) --------- -------- --------- -------- Income from continuing operations before income taxes 3,859 7,093 3,496 7,011 Income tax expense (1,168) (2,687) (1,286) (2,690) --------- -------- --------- -------- Income from continuing operations 2,691 4,406 2,210 4,321 Discontinued operations, net of tax (11,697) (1,003) (12,857) (1,897) --------- -------- --------- -------- Net income (loss) $(9,006) $3,403 $(10,647) $2,424 ========= ======== ========= ======== Basic income (loss) per share: Continuing operations $0.13 $0.19 $0.11 $0.18 Discontinued operations (0.56) (0.04) (0.62) (0.08) --------- -------- --------- -------- Net income (loss) $(0.43) $0.15 $(0.51) $0.10 ========= ======== ========= ======== Diluted income (loss) per share: Continuing operations $0.13 $0.18 $0.11 $0.18 Discontinued operations (0.48) (0.04) (0.62) (0.08) --------- -------- --------- -------- Net income (loss) $(0.35) $0.14 $(0.51) $0.10 ========= ======== ========= ======== Weighted average shares outstanding: Basic 20,707 23,230 20,734 23,974 ========= ======== ========= ======== Diluted (See Note 1) 24,639 27,253 20,989 24,277 ========= ======== ========= ======== Note (1) The company's second quarter 2005 and 2004 diluted per share data includes approximately 3.7 million additional shares, applicable to its contingently convertible debt, in the weighted average share base used in the diluted per share computations. See attached reconciliation of per share computations. Subject to certain conditions, the company's convertible debt is convertible into common stock at a conversion price of approximately $20.13 per share. PEGASUS SOLUTIONS, INC. RECONCILIATION OF PER SHARE COMPUTATIONS (In thousands, except per share amounts) (Unaudited) Three Months Six Months Ended Ended June 30, June 30, ---------------- ----------------- 2005 2004 2005 2004 -------- ------- --------- ------- Income from continuing operations (a) $2,691 $4,406 $2,210 $4,321 Discontinued operations, net of tax (b) (11,697) (1,003) (12,857) (1,897) -------- ------- --------- ------- Net income (loss) (c) $(9,006) $3,403 $(10,647) $2,424 ======== ======= ========= ======= Income from continuing operations (a) $2,691 $4,406 $2,210 $4,321 Adjustment for interest on convertible debt, net of tax 414 460 -- -- -------- ------- --------- ------- Income from continuing operations, as adjusted (d) $3,105 $4,866 $2,210 $4,321 ======== ======= ========= ======= Net income (loss) (c) $(9,006) $3,403 $(10,647) $2,424 Adjustment for interest on convertible debt, net of tax 414 460 -- -- -------- ------- --------- ------- Net Income (loss), as adjusted (e) $(8,592) $3,863 $(10,647) $2,424 ======== ======= ========= ======= Basic income (loss) per share: Continuing operations (a)/(f) $0.13 $0.19 $0.11 $0.18 Discontinued operations (b)/(f) (0.56) (0.04) (0.62) (0.08) -------- ------- --------- ------- Net income (loss) (c)/(f) $(0.43) $0.15 $(0.51) $0.10 ======== ======= ========= ======= Diluted income (loss) per share: Continuing operations (d)/(g) $0.13 $0.18 $0.11 $0.18 Discontinued operations (b)/(g) (0.48) (0.04) (0.62) (0.08) -------- ------- --------- ------- Net income (loss) (e)/(g) $(0.35) $0.14 $(0.51) $0.10 ======== ======= ========= ======= Basic weighted average shares outstanding (f) 20,707 23,230 20,734 23,974 Dilutive effect of stock options 206 297 255 303 Dilutive effect of convertible debt (See Note 1) 3,726 3,726 -- -- -------- ------- --------- ------- Diluted weighted average shares outstanding (g) 24,639 27,253 20,989 24,277 -------- ------- --------- ------- Note (1) Subject to certain conditions, the company's convertible debt is convertible into common stock at a conversion price of approximately $20.13 per share. PEGASUS SOLUTIONS, INC. RECONCILIATION OF GAAP FINANCIAL MEASURES TO NON-GAAP FINANCIAL MEASURES (In thousands, except per share amounts) (Unaudited) Three Months Ended June 30, 2005 ------------------------------------ As Reported Adjustments Adjusted ---------- ----------- -------- Revenues: Service revenues $42,515 $(600) (1) $41,915 Customer reimbursements 4,806 -- 4,806 ---------- ----------- -------- Total revenues 47,321 (600) 46,721 ---------- ----------- -------- Costs of services (exclusive of depreciation and amortization shown separately below): Cost of services 21,133 (150) (1) 20,983 Customer reimbursements 4,806 -- 4,806 ---------- ----------- -------- Total costs of services 25,939 (150) 25,789 ---------- ----------- -------- Research and development 876 -- 876 General and administrative expenses 5,933 -- 5,933 Marketing and promotion expenses 5,638 -- 5,638 Depreciation and amortization 4,659 (789) (2) 3,870 ---------- ----------- -------- Operating income 4,276 339 4,615 Other income (expense): Interest expense, net (382) -- (382) Other (35) -- (35) ---------- ----------- -------- Income from continuing operations before income taxes 3,859 339 4,198 Income tax expense (1,168) (343) (3) (1,511) ---------- ----------- -------- Income from continuing operations 2,691 $(4) $2,687 =========== ======== Discontinued operations, net of tax (11,697) ---------- Net loss $(9,006) ========== Diluted income (loss) per share: Continuing operations $0.13 $0.13 ======== Discontinued operations (0.48) ---------- Net loss $(0.35) ========== Diluted weighted average shares outstanding 24,639 (3,726) (4) 20,913 ========== =========== ======== Notes: (1) To adjust for the impact of converting from monthly to weekly commission processing. (2) To adjust for amortization of software and identifiable intangible assets obtained through acquisitions. (3) To adjust income tax expense for assumed 36% tax rate. (4) To exclude the dilutive effect of convertible debt -- convertible at $20.13 per share. PEGASUS SOLUTIONS, INC. RECONCILIATION OF GAAP FINANCIAL MEASURES TO NON-GAAP FINANCIAL MEASURES (In thousands, except per share amounts) (Unaudited) Three Months Ended June 30, 2004 ------------------------------------ As Reported Adjustments Adjusted ---------- ----------- -------- Revenues: Service revenues $44,498 $-- $44,498 Customer reimbursements 4,141 -- 4,141 ---------- ----------- -------- Total revenues 48,639 -- 48,639 ---------- ----------- -------- Costs of services (exclusive of depreciation and amortization shown separately below): Cost of services 22,098 22,098 Customer reimbursements 4,141 -- 4,141 ---------- ----------- -------- Total costs of services 26,239 -- 26,239 ---------- ----------- -------- Research and development 1,041 -- 1,041 General and administrative expenses 6,045 6,045 Marketing and promotion expenses 4,981 -- 4,981 Depreciation and amortization 4,591 (767) (1) 3,824 ---------- ----------- -------- Operating income 5,742 767 6,509 Other income (expense): Gain on sale 1,961 (1,961) (2) -- Interest expense, net (524) -- (524) Other (86) -- (86) ---------- ----------- -------- Income from continuing operations before income taxes 7,093 (1,194) 5,899 Income tax expense (2,687) 445 (3) (2,242) ---------- ----------- -------- Income from continuing operations 4,406 $(749) $3,657 =========== ======== Discontinued operations, net of tax (1,003) ---------- Net income $3,403 ========== Diluted income (loss) per share: Continuing operations $0.18 $0.16 ======== Discontinued operations (0.04) ---------- Net income $0.14 ========== Diluted weighted average shares outstanding 27,253 (3,726) (4) 23,527 ========== =========== ======== Notes: (1) To adjust for amortization of software and identifiable intangible assets obtained through acquisitions. (2) To adjust for non-recurring gain on sale of Travelweb LLC. (3) To adjust income tax expense for assumed 38% tax rate. (4) To exclude the dilutive effect of convertible debt -- convertible at $20.13 per share. PEGASUS SOLUTIONS, INC. RECONCILIATION OF GAAP FINANCIAL MEASURES TO NON-GAAP FINANCIAL MEASURES (In thousands, except per share amounts) (Unaudited) Six Months Ended June 30, 2005 ------------------------------------ As Reported Adjustments Adjusted ---------- ----------- -------- Revenues: Service revenues $79,605 $1,500 (1) $81,105 Customer reimbursements 8,714 -- 8,714 ---------- ----------- -------- Total revenues 88,319 1,500 89,819 ---------- ----------- -------- Costs of services (exclusive of depreciation and amortization shown separately below): Cost of services 42,108 150 (1) 42,258 Customer reimbursements 8,714 -- 8,714 ---------- ----------- -------- Total costs of services 50,822 150 50,972 ---------- ----------- -------- Research and development 1,583 -- 1,583 General and administrative expenses 11,946 -- 11,946 Marketing and promotion expenses 10,949 -- 10,949 Depreciation and amortization 8,935 (1,556) (2) 7,379 ---------- ----------- -------- Operating income 4,084 2,906 6,990 Other income (expense): Interest expense, net (727) -- (727) Other 139 -- 139 ---------- ----------- -------- Income from continuing operations before income taxes 3,496 2,906 6,402 Income tax expense (1,286) (1,018) (3) (2,304) ---------- ----------- -------- Income from continuing operations 2,210 $1,888 $4,098 =========== ======== Discontinued operations, net of tax (12,857) ---------- Net loss $(10,647) ========== Diluted income (loss) per share: Continuing operations $0.11 $0.20 ======== Discontinued operations (0.62) ---------- Net loss $(0.51) ========== Diluted weighted average shares outstanding 20,989 -- 20,989 ========== =========== ======== Notes: (1) To adjust for the impact of converting from monthly to weekly commission processing. (2) To adjust for amortization of software and identifiable intangible assets obtained through acquisitions. (3) To adjust income tax expense for assumed 36% tax rate. PEGASUS SOLUTIONS, INC. RECONCILIATION OF GAAP FINANCIAL MEASURES TO NON-GAAP FINANCIAL MEASURES (In thousands, except per share amounts) (Unaudited) Six Months Ended June 30, 2004 ------------------------------------ As Reported Adjustments Adjusted ---------- ----------- -------- Revenues: Service revenues $84,949 $-- $84,949 Customer reimbursements 7,620 -- 7,620 ---------- ----------- -------- Total revenues 92,569 -- 92,569 ---------- ----------- -------- Costs of services (exclusive of depreciation and amortization shown separately below): Cost of services 44,807 (1,915) (1) 42,892 Customer reimbursements 7,620 -- 7,620 ---------- ----------- -------- Total costs of services 52,427 (1,915) 50,512 ---------- ----------- -------- Research and development 2,363 -- 2,363 General and administrative expenses 12,426 (465) (1) 11,961 Marketing and promotion expenses 9,694 -- 9,694 Depreciation and amortization 9,291 (1,534) (2) 7,757 ---------- ----------- -------- Operating income 6,368 3,914 10,282 Other income (expense): Gain on sale 1,961 (1,961) (3) -- Interest expense, net (1,025) -- (1,025) Other (293) -- (293) ---------- ----------- -------- Income from continuing operations before income taxes 7,011 1,953 8,964 Income tax expense (2,690) (717) (4) (3,407) ---------- ----------- -------- Income from continuing operations 4,321 $1,236 $5,557 =========== ======== Discontinued operations, net of tax (1,897) ---------- Net income $2,424 ========== Diluted income (loss) per share: Continuing operations $0.18 $0.23 ======== Discontinued operations (0.08) ---------- Net income $0.10 ========== Diluted weighted average shares outstanding 24,277 -- 24,277 ========== =========== ======== Notes: (1) To adjust for severance and other non-recurring costs related to the company's information technology organization. (2) To adjust for amortization of software and identifiable intangible assets obtained through acquisitions. (3) To adjust for gain on sale of Travelweb LLC. (4) To adjust income tax expense for assumed 38% tax rate. PEGASUS SOLUTIONS, INC. RECONCILIATION OF GAAP FINANCIAL MEASURES TO NON-GAAP FINANCIAL MEASURES (In thousands) (Unaudited) Three Months Ended June 30, ------------------- 2005 2004 --------- --------- Total revenues $47,321 $48,639 Adjustment: Impact of converting from monthly to weekly commission processing (600) -- --------- --------- Adjusted revenues $46,721 $48,639 ========= ========= Net income (loss) $(9,006) $3,403 Reconciling items: Discontinued operations, net of tax 11,697 1,003 Income tax expense 1,168 2,687 Gain on sale -- (1,961) Interest expense, net 382 524 Other income 35 86 Depreciation and amortization 4,659 4,591 --------- --------- EBITDA $8,935 $10,333 ========= ========= EBITDA margin 19% 21% ========= ========= Adjustments: Net impact of converting from monthly to weekly commission processing (450) -- --------- --------- Adjusted EBITDA $8,485 $10,333 ========= ========= Adjusted EBITDA margin 18% 21% ========= ========= PEGASUS SOLUTIONS, INC. RECONCILIATION OF GAAP FINANCIAL MEASURES TO NON-GAAP FINANCIAL MEASURES (In thousands) (Unaudited) Six Months Ended June 30, --------------------- 2005 2004 ---------- ---------- Total revenues $88,319 $92,569 Adjustment: Impact of converting from monthly to weekly commission processing 1,500 -- ---------- ---------- Adjusted revenues $89,819 $92,569 ========== ========== Net income (loss) $(10,647) $2,424 Reconciling items: Discontinued operations, net of tax 12,857 1,897 Income tax expense 1,286 2,690 Gain on sale -- (1,961) Interest expense, net 727 1,025 Other income (expense) (139) 293 Depreciation and amortization 8,935 9,291 ---------- ---------- EBITDA $13,019 $15,659 ========== ========== EBITDA margin 15% 17% ========== ========== Adjustments: Net impact of converting from monthly to weekly commission processing 1,350 -- Severance and other costs related to changes in the company's information technology organization -- 2,380 ---------- ---------- Adjusted EBITDA $14,369 $18,039 ========== ========== Adjusted EBITDA margin 16% 19% ========== ========== PEGASUS SOLUTIONS, INC. RECONCILIATION OF GAAP FINANCIAL MEASURES TO NON-GAAP FINANCIAL MEASURES (In 000's, except per share amounts) (Unaudited) Estimated Results Three Months Ending September 30, 2005 --------------------------------------- GAAP Adjustments Adjusted --------- ----------- --------- Low End of Range: Revenues $45,000 $-- $45,000 ========= =========== ========= Income before income taxes 4,450 789 (1) 5,239 Income tax expense (1,602) (284) (2) (1,886) --------- ----------- --------- Income from continuing operations 2,848 505 3,353 ========= Discontinued operations, net of tax (250) --------- Net income $2,598 ========= Diluted income per share: Continuing operations $0.13 (4) $0.16 ========= Discontinued operations (0.01) --------- Net income $0.12 (4) ========= Diluted weighted average shares outstanding: 24,826 (3,726) (3) 21,100 ========= =========== ========= High End of Range: Revenues $47,000 $-- $47,000 ========= =========== ========= Income before income taxes 5,450 789 (1) 6,239 Income tax expense (1,962) (284) (2) (2,246) --------- ----------- --------- Income from continuing operations 3,488 505 3,993 Discontinued operations, net of tax (250) --------- Net income $3,238 ========= Diluted income per share: Continuing operations $0.16 (4) $0.19 ========= Discontinued operations (0.01) --------- Net income $0.15 (4) ========= Diluted weighted average shares outstanding: 24,826 (3,726) (3) 21,100 ========= =========== ========= Notes (in 000's): (1) Represents $789 for the amortization of software and identifiable intangible assets obtained through acquisitions. (2) Assumes a 36% tax rate on both a GAAP and an adjusted basis. (3) To exclude the dilutive effect of convertible debt -- convertible at $20.13 per share. (4) Includes the impact of adding back interest expense of $475 applicable to contingently convertible debt. PEGASUS SOLUTIONS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands) (Unaudited) June 30, December 31, 2005 2004 ------------ ------------ ASSETS Cash and cash equivalents $21,683 $17,599 Auction rate securities 5,000 5,650 Short-term investments -- 6,001 Accounts receivable, net 27,149 28,551 Other current assets 8,086 9,061 ------------ ------------ Total current assets 61,918 66,862 Goodwill 163,585 163,585 Intangible assets, net 4,978 5,827 Property and equipment, net 62,954 80,326 Other noncurrent assets 21,679 12,614 ------------ ------------ Total assets $315,114 $329,214 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable and accrued liabilities $29,998 $29,531 Unearned revenue 6,768 6,763 Other current liabilities 7,424 5,621 ------------ ------------ Total current liabilities 44,190 41,915 Noncurrent uncleared commission checks 4,966 5,576 Other noncurrent liabilities 19,206 19,407 Convertible debt 75,000 75,000 Commitments and contingencies Stockholders' equity: Common stock 207 211 Additional paid-in capital 237,120 242,112 Unearned compensation (370) (408) Accumulated other comprehensive loss (954) (995) Accumulated deficit (64,251) (53,604) ------------ ------------ Total stockholders' equity 171,752 187,316 ------------ ------------ Total liabilities and stockholders' equity $315,114 $329,214 ============ ============ *T