PEGS Pegasus Solutions (MM)

Pegasus Solutions, Inc. (Nasdaq:PEGS): Q3 2005 Results -- Revenues (GAAP): $45.7 million -- Net income per share (GAAP): Basic and Diluted: $0.11 -- Diluted income from continuing operations per share (GAAP): $0.12 -- Diluted income from continuing operations per share (adjusted): $0.17 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 third quarter ended September 30, 2005. "With the assistance of Bear Stearns, we continue to make considerable progress evaluating our strategic alternatives," said John F. Davis III, president, chief executive officer and chairman of Pegasus Solutions. "While no assurance can be given as to the outcome, we expect to make an announcement regarding the results of this process in the near future." Davis continued: "During the third quarter we delivered solid financial results. Our sales and marketing focus has expanded our presence throughout the Asia-Pacific region; we launched our new travel Web site, hotelbook.com(TM); we initiated transactions using our new PegsTour(R) service; and completed numerous technology enhancements." Third 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 $45.7 million for the quarter, compared to $48.4 million in the third quarter of 2004. -- Income from continuing operations per diluted share was $0.12 for the quarter, compared to $0.20 in the third quarter of 2004. -- Adjusted income from continuing operations per diluted share was $0.17 for the quarter, compared to $0.22 in the year ago quarter. In addition to the exclusion of amortization of software and identifiable assets obtained through acquisitions in both quarters, third quarter 2005 adjusted per share results also exclude facility closing and severance costs of $985,000. -- Adjusted EBITDA was $9.9 million, or 22 percent of revenues for the quarter, compared to adjusted EBITDA of $11.8 million, or 24 percent of revenues, in the same quarter last year. -- Year-to-date operating cash flows increased to $21.2 million, compared to $20.4 million through the third quarter of 2004. -- During the quarter, Pegasus launched its travel Web site, hotelbook.com(TM); began processing transactions using its new PegsTour(R) service; increased the functionality of its NetBooker(R) booking engine; added a new rate tracking service; and continued customer conversions onto its new release of the RezView(R) central reservation system (CRS). -- In October 2005, Pegasus initiated development work for property management system (PMS) interfaces to its RezView CRS including Multi-Systems, Inc.'s (MSI) WinPM system, as well as an Open Travel Alliance (OTA) interface. -- The cash balance (including auction rate securities) increased to $30.2 million versus $26.7 million at June 30, 2005 as a result of positive operating cash flows and the expected slow-down in capital expenditures. -- Pegasus' decision to exit the PMS business resulted in the October sale of its NovaPlus and GuestView business to MSI. The financial impact of this transaction is not expected to be material to the operations of the company and will be recorded in discontinued operations in the fourth quarter. Service Line Review -- Representation services revenues were $16.9 million, down 9 percent compared to the prior year, primarily due to the sustained impact of reduced pricing and the transition of a significant Unirez by Pegasus(TM) customer to the company's central reservation service (CRS). Average daily room rates increased 1 percent for the company's Utell by Pegasus(TM) service, offset by a 5 percent decrease in reservation volume and average commission earned. On a sequential quarter basis, the Utell by Pegasus(TM) average commission earned has stabilized and the representation portfolio count has increased over 2 percent. Pegasus fourth quarter initiatives include representation product road shows and customer focused revenue and yield management programs. -- Reservation services revenues were $8.3 million, down 11 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. Excluding the reservations attributable to those two customers, CRS transactions increased 6 percent. However, reduced pricing on contract renewals continued to drive the year-over-year decrease in revenue. -- For Pegasus' distribution services, revenues were $7.6 million, up 5 percent from the year-ago quarter. During the third quarter switch transactions increased 5 percent in total. The company expects the positive trends in distribution services to continue in the fourth quarter. -- Revenues for the company's financial services were $8.5 million, down 9 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. Outlook for Fourth Quarter and Full Year 2005 -- Q4 2005 revenues: $40 million to $42 million -- Q4 2005 diluted income from continuing operations per share (GAAP): $0.03 to $0.06 -- Q4 2005 diluted income from continuing operations per share (adjusted): $0.05 to $0.08 -- Full year 2005 revenues: $174 million to $176 million; $175 million to $177 million on an adjusted basis -- Full year diluted income from continuing operations per share (GAAP): $0.25 to $0.28 -- Full year diluted income from continuing operations per share (adjusted): $0.42 to $0.45 Financial Outlook "We are very pleased to report third quarter revenues and adjusted EPS results in-line with our previous guidance," said Susan K. Conner, executive vice president and chief financial officer. "As a result of usual seasonality and continued top-line pressure, we expect fourth quarter revenues to range from $40 million to $42 million. As we have done all year, we will continue to operate with a cost-conscious focus and expect fourth quarter adjusted diluted income from continuing operations to range from $0.05 to $0.08 per share." Davis added: "As part of our strategy to provide integrated technology and business process solutions with best of breed capabilities, we are beginning to see the benefits of our technology development that we focused on so heavily earlier this year, as well as the integration of capabilities from our partners. In 2005, we have delivered significant enhancements to each of our service lines. Financial services started weekly commission processing. In reservation services, RezView had a major release and we supplemented our offering with rate checking capabilities. In the representation services group, we rolled out significant upgrades to the HotelFactory(TM) CRS and launched our own travel Web site. In distribution services, we initiated transactions for our wholesale travel companies and tour operator customers using the PegsTour service. We have also delivered on our strategy of providing outstanding customer service, expanding into emerging hospitality markets and building strategic alliances and partnerships." Davis concluded: "Pegasus has a rich heritage of providing technology solutions for hotels and travel distributors throughout the world. Our ability to anticipate industry trends and respond to customer needs is how we built this company. Moving forward, we plan to intensify our efforts on what we do best -- helping our customers grow by providing our leading technology solutions to the market." Conference Call Pegasus will host a conference call today at 5:00 p.m. Eastern Time and will simultaneously broadcast it live over the Internet. To access the webcast, go to www.pegs.com and click "Investor Center." 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, www.hotelbook.com(TM). 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 December 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 Nine Months Ended Ended September 30, September 30, ----------------- ------------------- 2005 2004 2005 2004 -------- -------- --------- --------- Revenues: Service revenues $41,278 $44,470 $120,883 $129,419 Customer reimbursements 4,397 3,929 13,111 11,549 -------- -------- --------- --------- Total revenues 45,675 48,399 133,994 140,968 -------- -------- --------- --------- Costs of services (exclusive of depreciation and amortization shown separately below): Cost of services 20,822 21,422 62,930 66,229 Customer reimbursements 4,397 3,929 13,111 11,549 -------- -------- --------- --------- Total costs of services 25,219 25,351 76,041 77,778 -------- -------- --------- --------- Research and development 879 676 2,462 3,039 General and administrative expenses 5,775 5,797 17,721 18,223 Marketing and promotion expenses 4,860 4,815 15,809 14,509 Depreciation and amortization 4,955 4,156 13,890 13,447 -------- -------- --------- --------- Operating income 3,987 7,604 8,071 13,972 Other income (expense): Gain on sale -- -- -- 1,961 Interest expense, net (323) (498) (1,050) (1,523) Other 129 159 268 (134) -------- -------- --------- --------- Income from continuing operations before income taxes 3,793 7,265 7,289 14,276 Income tax expense (1,361) (2,383) (2,647) (5,073) -------- -------- --------- --------- Income from continuing operations 2,432 4,882 4,642 9,203 Discontinued operations, net of tax (226) (1,096) (13,083) (2,993) -------- -------- --------- --------- Net income (loss) $2,206 $3,786 $(8,441) $6,210 ======== ======== ========= ========= Basic income (loss) per share: Continuing operations $0.12 $0.22 $0.22 $0.39 Discontinued operations (0.01) (0.05) (0.63) (0.12) -------- -------- --------- --------- Net income (loss) $0.11 $0.17 $(0.41) $0.27 ======== ======== ========= ========= Diluted income (loss) per share: Continuing operations $0.12 $0.20 $0.22 $0.39 Discontinued operations (0.01) (0.04) (0.62) (0.11) -------- -------- --------- --------- Net income (loss) $0.11 $0.16 $(0.40) $0.28 ======== ======== ========= ========= Weighted average shares outstanding: Basic 20,758 22,131 20,743 23,355 ======== ======== ========= ========= Diluted (See Note 1) 20,941 26,224 20,973 27,406 ======== ======== ========= ========= Note: (1) The company's third quarter and year-to-date 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 Nine Months Ended Ended September 30, September 30, --------------- ----------------- 2005 2004 2005 2004 ------- ------- -------- -------- Income from continuing operations (a) $2,432 $4,882 $4,642 $9,203 Discontinued operations, net of tax (b) (226) (1,096) (13,083) (2,993) ------- ------- -------- -------- Net income (loss) (c) $2,206 $3,786 $(8,441) $6,210 ======= ======= ======== ======== Income from continuing operations (a) $2,432 $4,882 $4,642 $9,203 Adjustment for interest on convertible debt, net of tax -- 444 -- 1,383 ------- ------- -------- -------- Income from continuing operations, as adjusted (d) $2,432 $5,326 $4,642 $10,586 ======= ======= ======== ======== Net income (loss) (c) $2,206 $3,786 $(8,441) $6,210 Adjustment for interest on convertible debt, net of tax -- 444 -- 1,383 ------- ------- -------- -------- Net Income (loss), as adjusted (e) $2,206 $4,230 $(8,441) $7,593 ======= ======= ======== ======== Basic income (loss) per share: Continuing operations (a)/(f) $0.12 $0.22 $0.22 $0.39 Discontinued operations (b)/(f) $(0.01) (0.05) (0.63) (0.12) ------- ------- -------- -------- Net income (loss) (c)/(f) $0.11 $0.17 $(0.41) $0.27 ======= ======= ======== ======== Diluted income (loss) per share: Continuing operations (d)/(g) $0.12 $0.20 $0.22 $0.39 Discontinued operations (b)/(g) $(0.01) (0.04) (0.62) (0.11) ------- ------- -------- -------- Net income (loss) (e)/(g) $0.11 $0.16 $(0.40) $0.28 ======= ======= ======== ======== Basic weighted average shares outstanding (f) 20,758 22,131 20,743 23,355 Dilutive effect of stock options 183 367 230 325 Dilutive effect of convertible debt (See Note 1) -- 3,726 -- 3,726 ------- ------- -------- -------- Diluted weighted average shares outstanding (g) 20,941 26,224 20,973 27,406 ------- ------- -------- -------- 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 September 30, 2005 -------------------------------- As Reported Adjustments Adjusted --------- ----------- -------- Revenues: Service revenues $41,278 $-- $41,278 Customer reimbursements 4,397 -- 4,397 --------- ----------- -------- Total revenues 45,675 -- 45,675 --------- ----------- -------- Costs of services (exclusive of depreciation and amortization shown separately below): Cost of services 20,822 (389)(1) 20,433 Customer reimbursements 4,397 -- 4,397 --------- ----------- -------- Total costs of services 25,219 (389) 24,830 --------- ----------- -------- Research and development 879 (46)(1) 833 General and administrative expenses 5,775 (467)(1) 5,308 Marketing and promotion expenses 4,860 (83)(1) 4,777 Depreciation and amortization 4,955 (789)(2) 4,166 --------- ----------- -------- Operating income 3,987 1,774 5,761 Other income (expense): Interest expense, net (323) -- (323) Other 129 -- 129 --------- ----------- -------- Income from continuing operations before income taxes 3,793 1,774 5,567 Income tax expense (1,361) (643)(3) (2,004) --------- ----------- -------- Income from continuing operations 2,432 $1,131 $3,563 =========== ======== Discontinued operations, net of tax (226) --------- Net loss $2,206 ========= Diluted income (loss) per share: Continuing operations $0.12 $0.17 ======== Discontinued operations (0.01) --------- Net loss $0.11 ========= Diluted weighted average shares outstanding 20,941 -- 20,941 ========= =========== ======== Notes: (1) To adjust for the impact of severance and facility closure costs. (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) Three Months Ended September 30, 2004 -------------------------------- As Reported Adjustments Adjusted --------- ----------- -------- Revenues: Service revenues $44,470 $-- $44,470 Customer reimbursements 3,929 -- 3,929 --------- ----------- -------- Total revenues 48,399 -- 48,399 --------- ----------- -------- Costs of services (exclusive of depreciation and amortization shown separately below): Cost of services 21,422 -- 21,422 Customer reimbursements 3,929 -- 3,929 --------- ----------- -------- Total costs of services 25,351 -- 25,351 --------- ----------- -------- Research and development 676 -- 676 General and administrative expenses 5,797 -- 5,797 Marketing and promotion expenses 4,815 -- 4,815 Depreciation and amortization 4,156 (767)(1) 3,389 --------- ----------- -------- Operating income 7,604 767 8,371 Other income (expense): Gain on sale -- -- -- Interest expense, net (498) -- (498) Other 159 -- 159 --------- ----------- -------- Income from continuing operations before income taxes 7,265 767 8,032 Income tax expense (2,383) (669)(2) (3,052) --------- ----------- -------- Income from continuing operations 4,882 $98 $4,980 =========== ======== Discontinued operations, net of tax (1,096) --------- Net income $3,786 ========= Diluted income (loss) per share: Continuing operations $0.20 $0.22 ======== Discontinued operations (0.04) --------- Net income $0.16 ========= Diluted weighted average shares outstanding 26,224 (3,726)(3) 22,498 ========= =========== ======== Notes: (1) To adjust for amortization of software and identifiable intangible assets obtained through acquisitions. (2) To adjust income tax expense for assumed 38% tax rate. (3) 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) Nine Months Ended September 30, 2005 -------------------------------------- As Reported Adjustments Adjusted --------- ----------- --------- Revenues: Service revenues $120,883 $1,500 (1) $122,383 Customer reimbursements 13,111 -- 13,111 --------- ----------- --------- Total revenues 133,994 1,500 135,494 --------- ----------- --------- Costs of services (exclusive of depreciation and amortization shown separately below): Cost of services 62,930 (239)(1), (2) 62,691 Customer reimbursements 13,111 -- 13,111 --------- ----------- --------- Total costs of services 76,041 (239) 75,802 --------- ----------- --------- Research and development 2,462 (46)(2) 2,416 General and administrative expenses 17,721 (467)(2) 17,254 Marketing and promotion expenses 15,809 (83)(2) 15,726 Depreciation and amortization 13,890 (2,345)(3) 11,545 --------- ----------- --------- Operating income 8,071 4,680 12,751 Other income (expense): Interest expense, net (1,050) -- (1,050) Other 268 -- 268 --------- ----------- --------- Income from continuing operations before income taxes 7,289 4,680 11,969 Income tax expense (2,647) (1,662)(4) (4,309) --------- ----------- --------- Income from continuing operations 4,642 $3,018 $7,660 =========== ========= Discontinued operations, net of tax (13,083) --------- Net loss $(8,441) ========= Diluted income (loss) per share: Continuing operations $0.22 $0.37 ========= Discontinued operations (0.62) --------- Net loss $(0.40) ========= Diluted weighted average shares outstanding 20,973 -- 20,973 ========= =========== ========= Notes: (1) To adjust for the impact of converting from monthly to weekly commission processing. (2) To adjust for the $985 impact of severance and facility closure costs. (3) To adjust for amortization of software and identifiable intangible assets obtained through acquisitions. (4) 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) Nine Months Ended September 30, 2004 --------------------------------- As Reported Adjustments Adjusted --------- ----------- --------- Revenues: Service revenues $129,419 $-- $129,419 Customer reimbursements 11,549 -- 11,549 --------- ----------- --------- Total revenues 140,968 -- 140,968 --------- ----------- --------- Costs of services (exclusive of depreciation and amortization shown separately below): Cost of services 66,229 (1,915)(1) 64,314 Customer reimbursements 11,549 -- 11,549 --------- ----------- --------- Total costs of services 77,778 (1,915) 75,863 --------- ----------- --------- Research and development 3,039 -- 3,039 General and administrative expenses 18,223 (465)(1) 17,758 Marketing and promotion expenses 14,509 -- 14,509 Depreciation and amortization 13,447 (2,301)(2) 11,146 --------- ----------- --------- Operating income 13,972 4,681 18,653 Other income (expense): Gain on sale 1,961 (1,961)(3) -- Interest expense, net (1,523) -- (1,523) Other (134) -- (134) --------- ----------- --------- Income from continuing operations before income taxes 14,276 2,720 16,996 Income tax expense (5,073) (1,386)(4) (6,459) --------- ----------- --------- Income from continuing operations 9,203 $1,334 $10,537 =========== ========= Discontinued operations, net of tax (2,993) --------- Net income $6,210 ========= Diluted income (loss) per share: Continuing operations $0.39 $0.44 ========= Discontinued operations (0.11) --------- Net income $0.28 ========= Diluted weighted average shares outstanding 27,406 (3,726)(5) 23,680 ========= =========== ========= 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. (5) 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) (Unaudited) Three Months Ended September 30, ------------------ 2005 2004 -------- --------- Total revenues $45,675 $48,399 ======== ========= Net income $2,206 $3,786 Reconciling items: Discontinued operations, net of tax 226 1,096 Income tax expense 1,361 2,383 Gain on sale -- -- Interest expense, net 323 498 Other income (129) (159) Depreciation and amortization 4,955 4,156 -------- --------- EBITDA $8,942 $11,760 ======== ========= EBITDA margin 20% 24% ======== ========= Adjustments: Severance and facility closure costs 985 -- -------- --------- Adjusted EBITDA $9,927 $11,760 ======== ========= Adjusted EBITDA margin 22% 24% ======== ========= PEGASUS SOLUTIONS, INC. RECONCILIATION OF GAAP FINANCIAL MEASURES TO NON-GAAP FINANCIAL MEASURES (In thousands) (Unaudited) Nine Months Ended September 30, ------------------- 2005 2004 --------- --------- Total revenues $133,994 $140,968 Adjustment: Impact of converting from monthly to weekly commission processing 1,500 -- --------- --------- Adjusted revenues $135,494 $140,968 ========= ========= Net income (loss) $(8,441) $6,210 Reconciling items: Discontinued operations, net of tax 13,083 2,993 Income tax expense 2,647 5,073 Gain on sale -- (1,961) Interest expense, net 1,050 1,523 Other income (expense) (268) 134 Depreciation and amortization 13,890 13,447 --------- --------- EBITDA $21,961 $27,419 ========= ========= EBITDA margin 16% 19% ========= ========= Adjustments: Net impact of converting from monthly to weekly commission processing 1,350 -- Severance and facility closure costs 985 2,380 --------- --------- Adjusted EBITDA $24,296 $29,799 ========= ========= Adjusted EBITDA margin 18% 21% ========= ========= 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 December 31, 2005 --------------------------------- GAAP Adjustments Adjusted -------- ------------------------ Low End of Range: Revenues $40,000 $-- $40,000 ======== ============ ========= Income before income taxes 900 789 (1) 1,689 Income tax expense (324) (284)(2) (608) -------- ------------ --------- Income from continuing operations 576 505 1,081 ========= Discontinued operations, net of tax 150 -------- Net income $726 ======== Diluted income per share: Continuing operations $0.03 $0.05 ========= Discontinued operations -- -------- Net income $0.03 ======== Diluted weighted average shares outstanding: 21,000 -- 21,000 ======== ============ ========= High End of Range: Revenues $42,000 $-- $42,000 ======== ============ ========= Income before income taxes 1,900 789 (1) 2,689 Income tax expense (684) (284)(2) (968) -------- ------------ --------- Income from continuing operations 1,216 505 1,721 Discontinued operations, net of tax 150 -------- Net income $1,366 ======== Diluted income per share: Continuing operations $0.06 $0.08 ========= Discontinued operations 0.01 -------- Net income $0.07 ======== Diluted weighted average shares outstanding: 21,000 -- 21,000 ======== ============ ========= 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. PEGASUS SOLUTIONS, INC. RECONCILIATION OF GAAP FINANCIAL MEASURES TO NON-GAAP FINANCIAL MEASURES (In 000's, except per share amounts) (Unaudited) Estimated Results Full Year Ending December 31, 2005 -------------------------------------------- GAAP Adjustments Adjusted --------- ---------------------------------- Low End of Range: Revenues $173,994 $1,500 (1) $175,494 ========= ============ ========= Income before income taxes 8,189 5,469 (1), (2), (3) 13,658 Income tax expense (2,948) (1,969)(4) (4,917) --------- ------------ --------- Income from continuing operations 5,241 3,500 8,741 ========= Discontinued operations, net of tax (12,933) --------- Net income $(7,692) ========= Diluted income per share: Continuing operations $0.25 $0.42 ========= Discontinued operations (0.62) --------- Net income $(0.37) ========= Diluted weighted average shares outstanding: 21,000 -- 21,000 ========= ============ ========= High End of Range: Revenues $175,994 $1,500 (1) $177,494 ========= ============ ========= Income before income taxes 9,189 5,469 (1), (2), (3) 14,658 Income tax expense (3,308) (1,969)(4) (5,277) --------- ------------ --------- Income from continuing operations 5,881 3,500 9,381 Discontinued operations, net of tax (12,933) --------- Net income $(7,052) ========= Diluted income per share: Continuing operations $0.28 $0.45 ========= Discontinued operations (0.62) --------- Net income $(0.34) ========= Diluted weighted average shares outstanding: 21,000 -- 21,000 ========= ============ ========= Notes (in 000's): (1) To adjust for the impact of converting from monthly to weekly commission processing. (2) Represents $3,134 for the amortization of software and identifiable intangible assets obtained through acquisitions. (3) To adjust for the $985 impact of severance and facility closure costs. (4) Assumes a 36% tax rate on both a GAAP and an adjusted basis. PEGASUS SOLUTIONS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands) (Unaudited) September December 30, 31, 2005 2004 --------- ---------- ASSETS Cash and cash equivalents $27,175 $17,599 Auction rate securities 3,000 5,650 Short-term investments -- 6,001 Accounts receivable, net 27,402 28,551 Other current assets 8,292 9,061 --------- ---------- Total current assets 65,869 66,862 Goodwill 163,585 163,585 Intangible assets, net 4,667 5,827 Property and equipment, net 61,185 80,326 Other noncurrent assets 17,919 12,614 --------- ---------- Total assets $313,225 $329,214 ========= ========== LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable and accrued liabilities $28,411 $29,531 Unearned revenue 6,926 6,763 Other current liabilities 6,809 5,621 --------- ---------- Total current liabilities 42,146 41,915 Noncurrent uncleared commission checks 5,387 5,576 Other noncurrent liabilities 16,228 19,407 Convertible debt 75,000 75,000 Commitments and contingencies Stockholders' equity: Common stock 208 211 Additional paid-in capital 237,570 242,112 Unearned compensation (339) (408) Accumulated other comprehensive loss (930) (995) Accumulated deficit (62,045) (53,604) --------- ---------- Total stockholders' equity 174,464 187,316 --------- ---------- Total liabilities and stockholders' equity $313,225 $329,214 ========= ========== *T