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): October 28, 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 October 28, 2003, Pegasus Solutions, Inc. issued a press release announcing
its unaudited financial results for the third quarter ended September 30, 2003.
Attached to this current report on Form 8-K is a copy of the related press
release dated October 28, 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 October 28, 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.
October 28, 2003 /s/ SUSAN K. COLE
--------------------
Chief Financial Officer
Exhibit 99.1 Press release issued October 28, 2003
Contacts:
Pegasus Solutions
Marcie Hyder
Press: Cindy Foor 214-234-4000
PEGASUS SOLUTIONS REPORTS SEQUENTIAL GROWTH IN THE THIRD QUARTER 2003
RESULTS IN LINE WITH PRIOR GUIDANCE
REPORTS SOLID OPERATING CASH FLOW GENERATION AND IMPROVING MARGINS
DALLAS, OCTOBER 28, 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 September 30, 2003.
Results were in line with the company's previous guidance, and highlights from
the quarter are below.
THIRD QUARTER FINANCIAL HIGHLIGHTS
- -------------------------------------
- - Revenues - $45.8 million compared to $42.9 million in Q2 2003
- - GAAP net income - $0.15 per diluted share compared to breakeven in Q2 2003
- - Cash earnings - $0.18 per diluted share compared to $0.07 in Q2 2003
- - EBITDA - $11.6 million, or 25 percent of revenues, compared to $4.3
million, or 10 percent of revenues, in Q2 2003
- - Adjusted EBITDA (excluding restructure and transition-related costs) -
$11.9 million, or 26 percent of revenues, compared to $7.3 million, or 17
percent of revenues, in Q2 2003
- - Cash flow from operating activities - $11.0 million compared to $4.1
million in Q2 2003
- - Cash and short-term investments at September 30, 2003 - $94.6 million
- - Convertible debt issuance - $75 million principal amount
"I am pleased with our third quarter results, which indicate a return to typical
seasonality in our business," said John F. Davis III, president, chief executive
officer and chairman of Pegasus Solutions. "The recovery in our Utell
representation service has been slower than we would like, primarily because the
demand for transatlantic travel has not picked up."
Commenting on recent strategic initiatives, Davis said, "Post-integration, we
have been very focused on customer satisfaction and are committed to providing
quality solutions that meet our customer needs. In addition to strengthening
customer relationships, we have begun other initiatives that are expected to
improve our competitive position and expedite our time to market on new
services. Furthermore, we expect these initiatives will continue to protect our
margins and profitability."
On a GAAP basis, the company reported third quarter 2003 revenues of $45.8
million and net income per diluted share of $0.15. This compares to revenues of
$49.2 million and net income per diluted share of $0.03 for the third quarter of
2002. Cash earnings for the third quarter 2003 were $0.18 per diluted share,
compared to $0.22 per diluted share for the same period in 2002.
Third quarter 2003 EBITDA was $11.6 million, or 25 percent of revenues, compared
to $13.2 million, or 27 percent of revenues, in the third quarter of 2002.
Adjusted for restructure costs and transition related expenses, third quarter
2003 EBITDA was $11.9 million, or 26 percent of revenues.
SERVICE LINE REVIEW
- ---------------------
- - Electronic Distribution service revenues increased to $8.3 million, up 20
percent on a year-over-year basis, primarily due to a 41 percent increase in
Internet transactions. Pegasus added several new electronic distribution
customers during the quarter, including suppliers such as hubX inc. and demand
customers such as Extended Stay Network, SIRI, Inc. and Tournet.
- - Despite continued pressure on average daily room rates, Financial Services
revenues were $8.2 million, which was essentially flat compared to the third
quarter of 2002. During the quarter, the company added hundreds of new travel
agency locations to its commission processing service, including Carlson
Wagonlit (France), and renewed and expanded its agreement with Orbitz. Also, on
the supply side, Pegasus renewed commission processing agreements with Hilton
Hotels Corporation and Grupo Posadas.
- - Third quarter central reservation system (CRS) service revenues were $10.0
million, down 22 percent on a year-over-year basis, primarily due to the lost
contract with Prime Hospitality. The company's RezView central reservation
system was recently named the "World's Leading Hotel Reservation Service" for
the second year in a row by World Travel Group, a prominent travel industry
media firm.
- - Property Systems revenues were $1.6 million in the third quarter 2003
compared to $1.7 million in the second quarter of 2003.
- - Service revenues for the Utell representation service were $14.7 million
in the third quarter, down 13 percent from the same quarter last year, primarily
due to a reduction in the number of hotels in the Utell portfolio and the
continued soft recovery in transatlantic travel. The company recently
introduced a new Web portal as part of its representation service line. The
portal, accessed through www.UtellAgent.com, gives travel agents the ability to
monitor commission payments from Utell member properties worldwide. The global
launch of this portal, set for next month at World Travel Market in London, is
another example of the company's commitment to facilitating the timely payment
of travel agent commissions.
OUTLOOK
- -------
- - Q4 2003 revenues estimated to range from $42 million to $44 million
- - Q4 2003 cash earnings estimated to range from $0.14 to $0.16 per diluted
share
"We have seen improvements in some of our service lines, but we have not
experienced the significant increase in volume that the high end of our second
half 2003 guidance reflected. In addition, we continue to have low visibility
into bookings as a result of continued last minute booking trends," said Susan
K. Cole, executive vice president and chief financial officer of Pegasus
Solutions. "Impacting our fourth quarter guidance are soft transaction volumes,
particularly for our Utell representation service, as well as delays in the
roll-out of PegasusCentralTM due to stability issues with our latest release."
Cole continued, "The cost savings from our strategic integration have proved
instrumental in preserving our margins and profitability during a difficult
period for the travel industry. Due to the challenging environment, we have
also focused on controlling discretionary spending. Going into 2004, we expect
our post-integration cost structure will allow us to strategically invest in our
people, products and customers while maintaining an EBITDA margin in excess of
20 percent."
Davis concluded, "With the travel industry and economy showing incremental signs
of improvement, I am confident that the strategic decisions we have made to
improve customer satisfaction and expedite the time to market on new services
will further expand our market share. With the proceeds from our convertible
debt offering, we have the flexibility to take advantage of opportunities to
grow our business through prudent acquisitions that complement our existing
services and add economic value to our shareholders."
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
- -------------------------------------------------
Reconciling items between GAAP net income and cash earnings primarily consist of
purchase accounting amortization and restructure costs. Schedules that
reconcile GAAP amounts to cash earnings, EBITDA and adjusted EBITDA are included
with this release, as well as the presentation accompanying the company's
conference call Webcast.
In addition to the types of reconciling items included in the attached tables,
fourth quarter GAAP net income will include the cumulative effect of adopting
Financial Accounting Standards Board Interpretation No. 46, "Consolidation of
Variable Interest Entities" (FIN 46). The FASB has postponed the effective
date, and it will be effective for Pegasus on December 31, 2003. You can find
more information on how FIN 46 will affect Pegasus in the company's Form 10-Q,
which was filed with the Securities and Exchange Commission on August 14, 2003.
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 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. (Nasdaq: PEGS) is a leading global provider
of hotel reservations-related services and technology. Founded in 1989,
Pegasus' customers include a majority of the world's travel agencies and more
than 48,000 hotel properties around the globe. Pegasus' services include
central reservation systems, electronic distribution services, commission
processing and payment services, property management systems, and marketing
representation services. The company's Utell representation service is used by
nearly 4,400 member hotels in over 140 countries, making Pegasus the hotel
industry's largest third-party marketing and reservations provider. Pegasus has
18 offices in 11 countries, including regional hubs in London, Scottsdale and
Singapore. For more information, please visit www.pegs.com.
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 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 www.pegs.com and click on "Investor."
Management believes that presentation of non-GAAP financial measures such as
cash earnings per share, EBITDA 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, EBITDA and adjusted EBITDA is not necessarily comparable to similarly
titled measures reported by other companies. Schedules that reconcile cash
earnings per share, EBITDA 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.
# # #
PEGASUS SOLUTIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
2003 2002 2003 2002
-------- -------- --------- ---------
Revenues:
Service revenues $42,868 $46,614 $121,362 $138,105
Customer reimbursements 2,892 2,556 8,242 8,401
-------- -------- --------- ---------
Total revenues 45,760 49,170 129,604 146,506
-------- -------- --------- ---------
Costs of services:
Cost of services 21,141 21,810 64,283 68,777
Customer reimbursements 2,892 2,556 8,242 8,401
-------- -------- --------- ---------
Total costs of services 24,033 24,366 72,525 77,178
-------- -------- --------- ---------
Research and development 949 1,215 3,545 4,503
General and administrative expenses 5,543 6,070 17,925 18,676
Marketing and promotion expenses 3,531 4,316 11,946 13,378
Depreciation and amortization 5,185 12,058 22,459 36,452
Restructure costs 80 - 5,949 -
-------- -------- --------- ---------
Operating income (loss) 6,439 1,145 (4,745) (3,681)
Other income (expense):
Interest income (expense), net (254) 360 346 917
Other 240 (139) 270 (405)
-------- -------- --------- ---------
Income (loss) before income taxes 6,425 1,366 (4,129) (3,169)
Income tax benefit (expense) (2,578) (694) 1,682 1,124
-------- -------- --------- ---------
Net income (loss) $ 3,847 $ 672 $ (2,447) $ (2,045)
======== ======== ========= =========
Basic and diluted net income (loss) per share $ 0.15 $ 0.03 $ (0.10) $ (0.08)
======== ======== ========= =========
Weighted average shares outstanding:
Basic 24,986 24,880 24,803 24,817
======== ======== ========= =========
Diluted 25,711 25,642 24,803 24,817
======== ======== ========= =========
PEGASUS SOLUTIONS, INC.
RECONCILIATION OF CASH EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
Three Months Ended
September 30, 2003
------------------
Cash Earnings
As Reported Adjustments Cash Earnings
------------- ------------- ---------------
Revenues:
Service revenues $ 42,868 $ - $ 42,868
Customer reimbursements 2,892 - 2,892
------------- ------------- ---------------
Total revenues 45,760 - 45,760
------------- ------------- ---------------
Costs of services:
Cost of services 21,141 - 21,141
Customer reimbursements 2,892 - 2,892
------------- ------------- ---------------
Total costs of services 24,033 - 24,033
------------- ------------- ---------------
Research and development 949 - 949
General and administrative expenses 5,543 - 5,543
Marketing and promotion expenses 3,531 - 3,531
Depreciation and amortization (1) 5,185 (810) 4,375
Restructure costs (2) 80 (80) -
------------- ------------- -------
Operating income 6,439 890 7,329
Other income (expense):
Interest income (expense), net (254) - (254)
Other 240 - 240
------------- ------------- ---------------
Income before income taxes 6,425 890 7,315
Income tax expense (3) (2,578) (202) (2,780)
------------- ------------- -------
Net income $ 3,847 $ 688 $ 4,535
============= ============= ===============
Diluted net income per share $ 0.15 $ 0.03 $ 0.18
============= ============= ===============
Diluted weighted average shares outstanding 25,711 - 25,711
============= ============= ===============
<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.
PEGASUS SOLUTIONS, INC.
RECONCILIATION OF CASH EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
Three Months Ended
September 30, 2002
------------------
Cash Earnings
As Reported Adjustments Cash Earnings
------------- ------------- ---------------
Revenues:
Service revenues $ 46,614 $ - $ 46,614
Customer reimbursements 2,556 - 2,556
------------- ------------- ---------------
Total revenues 49,170 - 49,170
------------- ------------- ---------------
Costs of services:
Cost of services 21,810 - 21,810
Customer reimbursements 2,556 - 2,556
------------- ------------- ---------------
Total costs of services 24,366 - 24,366
------------- ------------- ---------------
Research and development 1,215 - 1,215
General and administrative expenses 6,070 - 6,070
Marketing and promotion expenses 4,316 - 4,316
Depreciation and amortization (1) 12,058 (7,803) 4,255
------------- ------------- -------
Operating income 1,145 7,803 8,948
Other income (expense):
Interest income, net 360 - 360
Other (139) - (139)
------------- ------------- ---------------
Income before income taxes 1,366 7,803 9,169
Income tax expense (2) (694) (2,790) (3,484)
------------- ------------- -------
Net income $ 672 $ 5,013 $ 5,685
============= ============= ===============
Diluted net income per share $ 0.03 $ 0.19 $ 0.22
============= ============= ===============
Diluted weighted average shares outstanding 25,642 - 25,642
============= ============= ===============
<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.
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
------------- ------------- ---------------
Costs of services:
Cost of services 21,652 - 21,652
Customer reimbursements 2,827 - 2,827
------------- ------------- ---------------
Total costs 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 amortization (1) 5,156 (811) 4,345
Restructure costs (2) 2,676 (2,676) -
------------- ------------- -------
Operating income (loss) (887) 3,487 2,600
Other income (expense):
Interest income (expense), 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 $ 0.07
============= ============= ===============
Diluted weighted average shares outstanding 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.
PEGASUS SOLUTIONS, INC.
RECONCILIATION OF ADJUSTED EBITDA
(IN THOUSANDS)
(UNAUDITED)
Three Months Ended
------------------
September 30, 2003 September 30, 2002 June 30, 2003
-------------------- -------------------- ---------------
Total revenues $ 45,760 $ 49,170 $ 42,931
==================== ==================== ===============
Operating income (loss) 6,439 1,145 (887)
Add: depreciation and amortization 5,185 12,058 5,156
-------------------- -------------------- ---------------
EBITDA $ 11,624 $ 13,203 $ 4,269
==================== ==================== ===============
EBITDA margin 25% 27% 10%
Adjustments:
Restructure costs 80 - 2,676
Other non-recurring items (1) 170 - 358
-------------------- -------------- -------
Adjusted EBITDA $ 11,874 $ 13,203 $ 7,303
==================== ==================== ===============
Adjusted EBITDA margin 26% 27% 17%
<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)
SEPTEMBER 30, DECEMBER 31,
2003 2002
--------- ---------
ASSETS
Cash and cash equivalents $ 89,514 $ 19,893
Short-term investments 5,071 4,033
Accounts receivable, net 23,622 25,886
Other current assets 9,028 8,368
--------- ---------
Total current assets 127,235 58,180
Goodwill, net 139,533 139,533
Intangible assets, net 1,206 6,013
Property and equipment, net 70,727 71,442
Other noncurrent assets 24,322 12,927
--------- ---------
Total assets $363,023 $288,095
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued liabilities $ 21,327 $ 26,574
Unearned income 9,243 7,812
Other current liabilities 7,035 6,799
--------- ---------
Total current liabilities 37,605 41,185
Noncurrent uncleared commission checks 5,389 4,641
Other noncurrent liabilities 18,570 16,379
Convertible debt 75,000 -
Commitments and contingencies
Stockholders' equity:
Common stock 250 247
Additional paid-in capital 290,107 287,676
Unearned compensation - (571)
Accumulated other comprehensive loss (1,694) (1,705)
Accumulated deficit (62,204) (59,757)
--------- ---------
Total stockholders' equity 226,459 225,890
--------- ---------
Total liabilities and stockholders' equity $363,023 $288,095
========= =========