UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): August 5, 2003
____________________
Commission File Number 0-22935
PEGASUS SOLUTIONS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 75-2605174
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
CAMPBELL CENTRE I, 8350 NORTH CENTRAL EXPRESSWAY, SUITE 1900, DALLAS, TEXAS
75206
(Address of principal executive office)
(Zip Code)
Registrant's telephone number, including area code: (214) 234-4000
Item 12. Results of Operations and Financial Condition
On August 5, 2003, Pegasus Solutions, Inc. issued a press release announcing its
unaudited financial results for the second quarter ended June 30, 2003.
Attached to this current report on Form 8-K is a copy of the related press
release dated August 5, 2003.
The information included herein and in Exhibit 99.1 shall not be deemed "filed"
for purposes on Section 18 of the Securities and Exchange Act of 1934, nor shall
it be incorporated by reference in any filing under the Securities Act of 1933.
Exhibit Number Description
- --------------- -----------
99.1 Press release issued August 5, 2003
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this current report on Form 8-K to be signed on its
behalf by the undersigned hereunto duly authorized.
PEGASUS SOLUTIONS, INC.
August 5, 2003 /s/ SUSAN K. COLE
---------------------
Chief Financial Officer
EXHIBIT INDEX
Exhibit Number Description
--------------- -----------
99.1 Press release issued August 5, 2003
Exhibit 99.1 Press release issued August 5, 2003
Contacts:
Pegasus Solutions Financial Dynamics
Marcie Hyder Press: Evan Goetz
Press: Michael Brophy 212-850-5600
214-234-4000
PEGASUS SOLUTIONS REPORTS SECOND QUARTER 2003 RESULTS IN LINE WITH PRIOR
GUIDANCE
STRONG CASH GENERATION ENHANCES BALANCE SHEET WITH $24.4 MILLION IN CASH AND
SHORT TERM INVESTMENTS
DALLAS, AUGUST 5, 2003 - Pegasus Solutions, Inc. (Nasdaq: PEGS), a leading
global provider of hotel reservations-related services and technology, today
reported its financial results for the three months ended June 30, 2003.
SECOND QUARTER FINANCIAL HIGHLIGHTS
- --------------------------------------
- - Revenues of $42.9 million and breakeven GAAP net loss per share
- - Diluted cash EPS of $0.07
- - EBITDA of $4.6 million, or 11 percent of revenues
- - Adjusted EBITDA (excluding restructure and transition-related costs) of
$7.6 million, or 18 percent of revenues
"We are pleased to report results that were in line with our prior expectations.
We continue to prudently invest in technology and infrastructure so that we are
positioned to outpace our competitors when the travel market fully recovers.
Additionally, cost savings from our strategic integration are expected to
further protect our margins and position us strongly for the eventual rebound,"
said John F. Davis III, president, chief executive officer and chairman of
Pegasus Solutions. "As expected, the negative impact of the war in Iraq and
SARS carried over into April and May, and our second quarter revenues clearly
reflect these events. However, I am encouraged that June revenues began to show
improvement. Based on June's results, and with travel bookings apparently
stabilizing, I am hopeful that we are beginning a recovery period, and ideally
future reservation volumes will continue to improve."
On a GAAP basis, the company reported second quarter 2003 revenues of $42.9
million and breakeven net loss per diluted share. This compares to revenues of
$48.6 million and net loss per diluted share of $0.08 for the second quarter of
2002. Diluted cash earnings per share (EPS) for the second quarter 2003 was
$0.07, compared to $0.11 for the same period in 2002. Reconciling items between
GAAP net loss per share and cash EPS primarily consist of purchase accounting
amortization and restructure costs.
Second quarter 2003 EBITDA was $4.6 million, or 11 percent of revenues, compared
to $9.1 million, or 19 percent of revenues, in the second quarter of 2002.
Adjusted for restructure costs and transition-related activities resulting from
the company's strategic integration, second quarter 2003 EBITDA was $7.6
million, or 18 percent of revenues. Despite a very difficult environment for
the first half of the second quarter 2003, the company was able to preserve
EBITDA margins through controlling discretionary costs. Schedules that
reconcile cash EPS and adjusted EBITDA to the most directly comparable GAAP
amounts are included with this release and the presentation accompanying the
company's conference call Webcast.
BRAND REVIEW
- -------------
- - Electronic Distribution service revenues increased to $7.2 million, up 13
percent on a year-over-year basis, due to a 30 percent increase in Internet
transactions. Pegasus renewed or expanded electronic distribution agreements
with SynXis Corporation, Accor and La Quinta Corporation. The company also
added WestCoast Hospitality Corporation as a new electronic distribution
customer.
- - Despite continued pressure on average daily room rates, Financial Services
revenues were $7.4 million, which was essentially flat compared to the second
quarter of 2002. The company added more than 1,000 new travel agency locations
to its commission processing service during the quarter and renewed or expanded
agreements with Navigant International and Hillgate Travel.
- - Second quarter central reservation system (CRS) service revenues were $9.6
million, down 24 percent on a year-over-year basis primarily due to the lost
contract with Prime Hospitality. In addition, Pegasus recently signed an
agreement with Orient-Express Hotels to provide CRS services.
- - Property Systems revenues increased to $1.7 million in the second quarter
2003, up 11 percent from the second quarter 2002 and up 15 percent from the
first quarter 2003. More than 160 hotel properties are currently using the
Web-based PegasusCentral (TM).
- - Service revenues for the Utell brand were $14.3 million in the second
quarter, down 19 percent from the same quarter last year, primarily due to
negative industry events, notably the war in Iraq and SARS, carrying over into
the first half of the second quarter as well as a reduction in the number of
hotels in the Utell portfolio. Despite this challenging environment, the
company signed Utell brand preferred supplier agreements with eight of the top
50 travel agencies in the United States.
CONVERTIBLE DEBT OFFERING
- ---------------------------
On July 21, 2003, the company completed a private placement offering of $75
million of 3.875% Convertible Senior Notes due 2023. The initial purchasers of
the notes have a 30-day option to purchase an additional aggregate principal
amount equal to $15 million. Pegasus intends to use the net proceeds of the
notes for working capital and other general corporate purposes.
OUTLOOK
- -------
- - Q3 2003 revenues estimated to range from $45 million to $47 million
- - Q3 2003 cash EPS estimated to range from $0.18 to $0.21
- - Reaffirms full year cash EPS guidance of $0.45 to $0.55
Commenting on the company's outlook, Susan K. Cole, executive vice president and
chief financial officer of Pegasus Solutions, said, "We were pleased to see some
positive volume trends late in the second quarter, particularly in our
Electronic Distribution service. Even though these positive developments have
continued into the third quarter, it seems to be a gradual recovery in
transaction volume. Although we are not experiencing it now, the high end of
the range for our third quarter and full year guidance assumes some realization
of pent-up demand."
In addition to the types of reconciling items included in the attached tables,
third quarter and full year GAAP EPS will include the cumulative effect of
adopting Financial Accounting Standards Board Interpretation No. 46,
"Consolidation of Variable Interest Entities" (FIN 46). The company's adoption
of FIN 46 was disclosed in a current report on Form 8-K filed with the
Securities and Exchange Commission on July 11, 2003.
Davis concluded, "I am optimistic we have seen the bottom, and I have many
reasons to be excited about our future. First, we appointed Robert J. Boles,
Jr. to the newly created position of executive vice president of sales and
marketing. Boles brings more than 20 years of technology sales and marketing
experience to Pegasus and is charged with enhancing our sales strategy and
expanding our market share. Second, with seasonality beginning to return to our
business and with the economy beginning to firm up, I believe the demand for
travel will increase. And finally, the proceeds from the recently announced
debt offering give us more flexibility as we continue to seek opportunities to
grow our business through enhancements to existing services, new product
development or strategic acquisitions that complement our existing services and
meet our return on investment criteria."
CONFERENCE CALL
- ----------------
In conjunction with the earnings release, Pegasus will host a conference call
today at 5:00 p.m. Eastern Time. The call will be simultaneously broadcast live
over the Internet. To access the conference call Webcast, go to www.pegs.com
and click on "Investor." The online archive of the Webcast will be available
two hours after the call for 30 days.
COMPANY INFORMATION
- --------------------
Dallas-based PEGASUS SOLUTIONS, INC. (www.pegs.com) is a leading global provider
of hotel reservations-related services and technology. Its services include
central reservations systems; electronic distribution services that connect more
than 45,000 hotels to the Internet and to the global distribution systems (GDS);
travel agent commission processing and payment services; the Utell marketing and
reservation representation service (www.Utell.com); and PegasusCentral(TM), a
Web-based enterprise solution with property management applications. Pegasus'
customers comprise the majority of travel agencies around the world, including
the top 10 largest U.S.-based travel agencies1; more than 48,000 hotel
properties around the globe, including all of the 50 largest hotel brands in the
world based on total number of guest rooms2; and thousands of Web sites/services
have their hotel reservations Powered by Pegasus (TM). In addition to its
corporate headquarters in Dallas, Pegasus has 18 offices in 11 countries,
including regional hubs in Phoenix, London and Singapore. The company's stock
is traded on the Nasdaq National Market under the symbol PEGS.
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
performance and financial projections, 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
and timing of sales, general economic conditions including a slowdown in
technology spending by the company's current and prospective customers, failure
to maintain successful relationships with and to establish new relationships
with customers, the success of the company's international operations, the level
of product and price competition from existing and new competitors, changes in
the company's level of operating expenses and its ability to control costs,
delays in developing, marketing and deploying new products and services, 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 2002 Annual Report on Form 10-K.
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 http://www.pegs.com/investor.html .
Management believes that presentation of non-GAAP financial measures such as
cash earnings per share and adjusted EBITDA is useful because it allows
investors and management to evaluate and compare the company's core cash-based
operating results from ongoing operations from period to period in a more
meaningful and consistent manner than relying exclusively on GAAP financial
measures. Non-GAAP financial measures however should not be considered in
isolation or as an alternative to financial measures calculated and presented in
accordance with GAAP. In addition, Pegasus' calculation of cash earning per
share and adjusted EBITDA is not necessarily comparable to similarly titled
measures reported by other companies. Schedules that reconcile cash earnings per
share and adjusted EBITDA to the most directly comparable GAAP amounts are
included with this release and the presentation accompanying the company's
conference call Webcast.
# # #
1 Travel Weekly, June 23, 2003, "Top 50 Travel Agencies"
2 Hotel Business, February 7, 2002, "The Top Hotel Brands" - ranked by total
number of rooms (2001)
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,
-------- --------
2003 2002 2003 2002
-------- -------- --------- --------
Revenues:
Service revenues $40,104 $45,584 $ 78,494 $91,491
Customer reimbursements 2,827 3,042 5,350 5,845
-------- -------- --------- --------
Total revenues 42,931 48,626 83,844 97,336
-------- -------- --------- --------
Cost of services:
Cost of services 21,652 23,918 43,142 46,966
Customer reimbursements 2,827 3,042 5,350 5,845
-------- -------- --------- --------
Total cost of services 24,479 26,960 48,492 52,811
-------- -------- --------- --------
Research and development 1,083 1,280 2,596 3,289
General and administrative expenses 6,247 6,772 12,382 12,606
Marketing and promotion expenses 4,177 4,845 8,415 9,062
Depreciation and amortization 5,156 12,254 17,274 24,394
Restructure costs 2,676 - 5,869 -
-------- -------- --------- --------
Operating loss (887) (3,485) (11,184) (4,826)
Other income (expense):
Interest income, net 220 295 600 557
Other 64 (13) 30 (266)
-------- -------- --------- --------
Loss before income taxes (603) (3,203) (10,554) (4,535)
Income tax benefit 586 1,285 4,260 1,818
-------- -------- --------- --------
Net loss $ (17) $(1,918) $ (6,294) $(2,717)
======== ======== ========= ========
Net loss per share:
Basic and diluted $ (0.00) $ (0.08) $ (0.25) $ (0.11)
======== ======== ========= ========
Weighted average shares outstanding:
Basic and diluted 24,768 24,837 24,710 24,785
======== ======== ========= ========
PEGASUS SOLUTIONS, INC.
RECONCILIATION OF CASH EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
Three Months Ended
June 30, 2003
-------------
Cash Earnings
As Reported Adjustments Cash Earnings
------------- ------------- ---------------
Revenues:
Service revenues $ 40,104 $ - $ 40,104
Customer reimbursements 2,827 - 2,827
------------- ------------- ---------------
Total revenues 42,931 - 42,931
------------- ------------- ---------------
Cost of services:
Cost of services 21,652 - 21,652
Customer reimbursements 2,827 - 2,827
------------- ------------- ---------------
Total cost of services 24,479 - 24,479
------------- ------------- ---------------
Research and development 1,083 - 1,083
General and administrative expenses 6,247 - 6,247
Marketing and promotion expenses 4,177 - 4,177
Depreciation and amortization1 5,156 (811) 4,345
Restructure costs2 2,676 (2,676) -
------------- ------------- ---------------
Operating income (loss) (887) 3,487 2,600
Other income (expense):
Interest income, net 220 - 220
Other 64 - 64
------------- ------------- ---------------
Income (loss) before income taxes (603) 3,487 2,884
Income tax benefit (expense)3 586 (1,682) (1,096)
------------- ------------- ---------------
Net income (loss) $ (17) $ 1,805 $ 1,788
============= ============= ===============
Diluted net income (loss) per share $ (0.00) $ 0.07
============= =============
Diluted weighted average shares outstanding4 24,768 604 25,372
============= ============= ===============
<FN>
Notes:
------
(1) To adjust for amortization of purchased identifiable intangible assets.
(2) To adjust for non-recurring restructure costs related to the company's
strategic integration.
(3) To adjust income tax expense (benefit) for assumed 38% tax rate for cash
earnings.
(4) Represents shares issuable upon the exercise of in-the-money stock options.
PEGASUS SOLUTIONS, INC.
RECONCILIATION OF CASH EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
Three Months Ended
June 30, 2002
-------------
Cash Earnings
As Reported Adjustments Cash Earnings
------------- ------------- ---------------
Revenues:
Service revenues $ 45,584 $ - $ 45,584
Customer reimbursements 3,042 - 3,042
------------- ------------- ---------------
Total revenues 48,626 - 48,626
------------- ------------- ---------------
Cost of services:
Cost of services 23,918 - 23,918
Customer reimbursements 3,042 - 3,042
------------- ------------- ---------------
Total cost of services 26,960 - 26,960
------------- ------------- ---------------
Research and development 1,280 - 1,280
General and administrative expenses 6,772 - 6,772
Marketing and promotion expenses 4,845 - 4,845
Depreciation and amortization1 12,254 (7,874) 4,380
------------- ------------- ---------------
Operating income (loss) (3,485) 7,874 4,389
Other income (expense):
Interest income, net 295 - 295
Other (13) - (13)
------------- ------------- ---------------
Income (loss) before income taxes (3,203) 7,874 4,671
Income tax benefit (expense)2 1,285 (3,060) (1,775)
------------- ------------- ---------------
Net income (loss) $ (1,918) $ 4,814 $ 2,896
============= ============= ===============
Diluted net income (loss) per share $ (0.08) $ 0.11
============= =============
Diluted weighted average shares outstanding3 24,837 809 25,646
============= ============= ===============
<FN>
Notes:
------
(1) To adjust for amortization of purchased identifiable intangible assets.
(2) To adjust income tax expense (benefit) for assumed 38% tax rate for cash
earnings.
(3) Represents shares issuable upon the exercise of in-the-money stock options.
PEGASUS SOLUTIONS, INC.
RECONCILIATION OF ADJUSTED EBITDA
(IN THOUSANDS)
(UNAUDITED)
Three Months Ended
June 30,
--------
2003 2002
-------- --------
Total revenues $42,931 $48,626
======== ========
Loss before income taxes (603) (3,203)
Add: depreciation and amortization 5,156 12,254
-------- --------
EBITDA $ 4,553 $ 9,051
======== ========
EBITDA margin 11% 19%
Adjustments:
Restructure costs 2,676 -
Other non-recurring items1 358 -
-------- --------
Adjusted EBITDA $ 7,587 $ 9,051
======== ========
Adjusted EBITDA margin 18% 19%
<FN>
(1) Amount includes transition-related activities resulting from
the company's strategic integration. These costs cannot be classified
as restructure costs because they provide some future benefit to
ongoing operations.
PEGASUS SOLUTIONS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)
JUNE 30, DECEMBER 31,
2003 2002
--------- ---------
ASSETS
Cash and cash equivalents $ 20,363 $ 19,893
Short-term investments 4,051 4,033
Accounts receivable, net 26,492 25,886
Other current assets 7,892 8,368
--------- ---------
Total current assets 58,798 58,180
Goodwill, net 139,533 139,533
Intangible assets, net 1,398 6,013
Property and equipment, net 68,738 71,442
Other noncurrent assets 15,278 12,927
--------- ---------
Total assets $283,745 $288,095
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued liabilities $ 22,959 $ 26,574
Unearned income 11,217 7,812
Other current liabilities 6,633 6,799
--------- ---------
Total current liabilities 40,809 41,185
Noncurrent uncleared commission checks 5,059 4,641
Other noncurrent liabilities 16,058 16,379
Commitments and contingencies
Stockholders' equity:
Common stock 249 247
Additional paid-in capital 289,326 287,676
Unearned compensation - (571)
Accumulated other comprehensive loss (1,705) (1,705)
Accumulated deficit (66,051) (59,757)
--------- ---------
Total stockholders' equity 221,819 225,890
--------- ---------
Total liabilities and stockholders' equity $283,745 $288,095
========= =========