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): July 27, 2004
____________________
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 NO. 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 July 27, 2004, Pegasus Solutions, Inc. issued a press release announcing its
unaudited financial results for the second quarter ending June 30, 2004 as well
as other business matters. Attached to this current report on Form 8-K is a
copy of the related press release dated July 27, 2004.
The information included herein and in Exhibit 99.1 shall not be deemed "filed"
for purposes of 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 July 27, 2004
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.
July 27, 2004 /s/ SUSAN K. COLE
-------------------------
Chief Financial Officer
5
EXHIBIT INDEX
Exhibit Number Description
--------------- -----------
99.1 Press release issued July 27, 2004
Exhibit 99.1 Press release issued July 27, 2004
Contacts:
Pegasus Solutions
Marcie Hyder 214-234-4120
Press: Cindy Foor 214-234-4129
PEGASUS SOLUTIONS REPORTS STRONG SECOND QUARTER 2004 RESULTS
DOUBLE-DIGIT REVENUE GROWTH AT THE HIGH-END OF GUIDANCE
EPS GROWTH TOPS COMPANY'S GUIDANCE
- - Q2 2004 revenues - $50.0 million
- - Q2 2004 diluted EPS (GAAP) - $0.14
- - Q2 2004 diluted EPS (Cash) - $0.13
- - Estimated revenues - Q3 2004 $49 million to $51 million; FY 2004 $192
million to $198 million
- - Estimated diluted EPS (GAAP) - Q3 2004 $0.12 to $0.14; FY 2004 $0.30 to
$0.36
- - Estimated diluted EPS (Cash) - Q3 2004 $0.17 to $0.19; FY 2004 $0.49 to
$0.55
DALLAS, JULY 27, 2004 - Pegasus Solutions, Inc. (Nasdaq: PEGS), a leading global
provider of hotel reservations-related services and technology, today reported
its financial results for the second quarter ended June 30, 2004. Revenues and
earnings per share for the quarter topped the high end of the company's
guidance, with strong performance from its hotel representation and financial
services lines.
"I am pleased with the strong second quarter performance, highlighted by
double-digit growth in our representation and financial service lines," said
John F. Davis III, president, chief executive officer and chairman of Pegasus
Solutions. Davis continued: "Travel trends have continued to improve, and we
experienced increased reservation volumes for most service lines and increased
gross commissions, which indicate higher average daily room rates. We have made
good progress on the product development priorities we set at the beginning of
the year, including bringing PegasusCentralTM back on line and introducing our
new PegsTourTM service. In addition, we have completed the leadership changes
in our IT department, and the team is now focused on improving our speed to
market on new products and enhancements to existing products."
SECOND QUARTER 2004 FINANCIAL HIGHLIGHTS (See attached tables for reconciliation
- ----------------------------------------
of non-GAAP measures.)
- - Revenues increased 16 percent to $50.0 million compared to $42.9 million
in the second quarter of 2003.
- - On a GAAP basis, net income per diluted share was $0.14 compared to
breakeven in the same quarter in 2003. For the current year quarter, GAAP
net income included a $2.0 million gain on the sale of Travelweb, LLC.
- - Cash earnings increased 86 percent to $0.13 per diluted share compared to
$0.07 per diluted share in the second quarter of 2003.
- - EBITDA was $9.9 million, or 20 percent of revenues, compared to $4.3
million, or 10 percent of revenues, in the year-ago quarter. Net income
was $3.4 million compared to a net loss of $17,000 in the year-ago
quarter.
- - Adjusted EBITDA was $9.9 million, or 20 percent of revenues, compared to
$7.3 million, or 17 percent of revenues in the second quarter of 2003.
- - Pegasus repurchased 1.2 million shares of common stock at an aggregate
cost of $14.3 million during the second quarter. As of July 26, the
company has repurchased more than 3.3 million shares year-to-date at an
aggregate cost of $39.9 million.
- - Operating cash flows were $7.4 million, compared to $4.1 million in the
second quarter last year.
- - By selling its stake in Travelweb, Pegasus realized a 66 percent return on
investment.
SECOND QUARTER 2004 SERVICE LINE REVIEW
- ------------------------------------------
- - Service revenues for representation services were $19.3 million in the
second quarter, an increase of 35 percent year-over-year. A significant
portion of this increase was related to the company's new
connectivity-service offering - Unirez by PegasusTM. In addition, the
company's full-service offering - Utell by PegasusTM - continued to post
year-over-year gains with a 10 percent increase in reservations and an 8
percent increase in implied average daily room rates. Pegasus added a net
274 properties to its representation portfolio and now serves more than
7,500 independent and small hotel group properties.
- - Compared to the second quarter of 2003, financial services revenues
increased 19 percent to $8.8 million, primarily due to a 12 percent
increase in gross commissions processed. This service line also
benefited from improved average daily room rates.
- - Second quarter service revenues for Pegasus' distribution services were
$7.3 million, a 2 percent increase year-over-year, driven by a 13
percent increase in GDS transactions and partially offset by a
slight decrease in Internet transactions. During the quarter, the
company experienced the effects of increased bookings at hotel companies'
proprietary Web sites; such transactions do not utilize Pegasus'
Internet distribution service. By introducing PegsTour - an innovative
service designed to automate hotel bookings for wholesale and tour
operators - the company is entering an untapped distribution channel.
Although it is not expected to yield significant revenues this year,
PegsTour has generated strong interest in the marketplace, with a
number of hotel companies and tour/wholesale operators already signed up.
- - Second quarter service revenues for the company's central reservation
service were $9.1 million, down 4 percent on a year-over-year basis,
despite a 6 percent increase in net transactions processed. During the
past year, Pegasus has been successful at renewing contracts albeit at
lower unit pricing, which negatively impacted year-over-year revenue
comparisons.
- - Property services revenues were $1.4 million in the second quarter
compared to $1.7 million in the second quarter of 2003. The company
remains on schedule for bringing PegasusCentral back on line.
OUTLOOK FOR 2004
- ------------------
- - Q3 2004 revenues estimated to range from $49 million to $51 million
- - Q3 2004 diluted EPS (GAAP) estimated to range from $0.12 to $0.14
- - Q3 2004 diluted EPS (Cash) estimated to range from $0.17 to $0.19
- - Full year 2004 revenue estimate of $192 million to $198 million
- - Full year 2004 diluted EPS (GAAP) estimate of $0.30 to $0.36
- - Full year 2004 diluted EPS (Cash) estimated to range from $0.49 to $0.55
Regarding the company's financial outlook, Cole said: "Our sales pipeline
remains strong but very back-end weighted. Based on our relatively long sales
and implementation cycle for several of our services and our current visibility,
we are narrowing the range of our full year revenue outlook." Cole continued:
"As a result of the anticipated benefit from our share buyback plan as well as
our strong second quarter performance, we are now increasing our estimate for
cash EPS for the full year."
Davis concluded: "As I mentioned at the beginning of the year, 2004 would be a
rebuilding year for Pegasus with a new management team in place and a renewed
commitment to sales and marketing efforts. These efforts have been key to
building our strong sales pipeline. We are also focusing on regions such as
Asia Pacific and new market segments like tour and wholesale operators to drive
revenue growth."
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
- -------------------------------------------------
Reconciling items between GAAP net income (loss) and cash earnings primarily
consist of purchase accounting amortization, restructure costs and other items
the company expects to be non-recurring. 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.
Reconciling items between EBITDA and adjusted EBITDA consist of restructure
charges and other non-recurring items.
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.
ABOUT PEGASUS SOLUTIONS, INC.
- --------------------------------
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 50,000 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 representation services, including Utell
by Pegasus and Unirez by Pegasus, are used by more than 7,500 member hotels in
140 countries, making Pegasus the hotel industry's largest third-party marketing
and reservations provider. Pegasus has 17 offices in 12 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 2003 Annual Report on Form 10-K
and Form S-3, as amended, declared effective in November 2003.
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."
------------
The company 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 the company 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 the United States. 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 Six Months Ended
June 30, June 30,
-------- --------
2004 2003 2004 2003
-------- -------- -------- ---------
Revenues:
Service revenues $45,860 $40,104 $87,705 $ 78,494
Customer reimbursements 4,141 2,827 7,620 5,350
-------- -------- -------- ---------
Total revenues 50,001 42,931 95,325 83,844
-------- -------- -------- ---------
Costs of services:
Cost of services 23,980 21,652 48,300 43,142
Customer reimbursements 4,141 2,827 7,620 5,350
-------- -------- -------- ---------
Total costs of services 28,121 24,479 55,920 48,492
-------- -------- -------- ---------
Research and development 1,128 1,083 2,531 2,596
General and administrative expenses 5,867 6,247 12,224 12,382
Marketing and promotion expenses 4,981 4,177 9,694 8,415
Depreciation and amortization 5,794 5,156 11,676 17,274
Restructure costs - 2,676 - 5,869
-------- -------- -------- ---------
Operating income (loss) 4,110 (887) 3,280 (11,184)
Other income (expense):
Gain on sale 1,961 - 1,961 -
Interest income (expense), net (524) 220 (1,025) 600
Other (86) 64 (293) 30
-------- -------- -------- ---------
Income (loss) before income taxes 5,461 (603) 3,923 (10,554)
Income tax benefit (expense) (2,058) 586 (1,499) 4,260
-------- -------- -------- ---------
Net income (loss) $ 3,403 $ (17) $ 2,424 $ (6,294)
======== ======== ======== =========
Net income (loss) per share:
Basic $ 0.15 $ (0.00) $ 0.10 $ (0.25)
======== ======== ======== =========
Diluted $ 0.14 $ (0.00) $ 0.10 $ (0.25)
======== ======== ======== =========
Weighted average shares outstanding:
Basic 23,230 24,768 23,974 24,710
======== ======== ======== =========
Diluted 23,527 24,768 24,277 24,710
======== ======== ======== =========
PEGASUS SOLUTIONS, INC.
RECONCILIATION OF CASH EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
Three Months Ended
June 30, 2004
------------------------------ -------------
As Reported Adjustments Cash Earnings
------------- ------------- ---------------
Revenues:
Service revenues $ 45,860 $ - $ 45,860
Customer reimbursements 4,141 - 4,141
------------- ------------- ---------------
Total revenues 50,001 - 50,001
------------- ------------- ---------------
Costs of services:
Cost of services 23,980 23,980
Customer reimbursements 4,141 - 4,141
------------- ------------- ---------------
Total costs of services 28,121 - 28,121
------------- ------------- ---------------
Research and development 1,128 - 1,128
General and administrative expenses 5,867 5,867
Marketing and promotion expenses 4,981 - 4,981
Depreciation and amortization 5,794 (1,393) (1) 4,401
------------- ------------- -------
Operating income 4,110 1,393 5,503
Other income (expense):
Gain on sale 1,961 (1,961) (2) -
Interest income (expense), net (524) - (524)
Other (86) - (86)
------------- ------------- ---------------
Income before income taxes 5,461 (568) 4,893
Income tax benefit (expense) (2,058) 199 (3) (1,859)
------------- ------------- -------
Net income $ 3,403 $ (369) $ 3,034
============= ============= ===============
Diluted net income per share $ 0.14 $ (0.01) $ 0.13
============= ============= ===============
Diluted weighted average shares outstanding 23,527 - 23,527
============= ============= ===============
Notes:
------
(1) To adjust for amortization of purchased identifiable intangible
assets.
(2) To adjust for non-recurring gain on sale of Travelweb LLC.
(3) To adjust income tax expense 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
--------------------------------------------
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 5,156 (811) (1) 4,345
Restructure costs 2,676 (2,676) (2) -
------------- ------------- -------
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) 586 (1,682) (3) (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 (4) 25,372
============= ============= ===============
Notes:
------
(1) To adjust for amortization of purchased identifiable intangible
assets.
(2) To adjust for non-recurring restructure costs.
(3) To adjust income tax benefit (expense) for assumed 38% tax rate for
cash earnings.
(4) Represents shares issuable upon the exercise of stock options.
PEGASUS SOLUTIONS, INC.
RECONCILIATION OF CASH EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
Six Months Ended
June 30, 2004
-------------
As Reported Adjustments Cash Earnings
------------- ------------- ---------------
Revenues:
Service revenues $ 87,705 $ - $ 87,705
Customer reimbursements 7,620 - 7,620
------------- ------------- ---------------
Total revenues 95,325 - 95,325
------------- ------------- ---------------
Costs of services:
Cost of services 48,300 (1,915) (1) 46,385
Customer reimbursements 7,620 - 7,620
------------- ------------- ---------------
Total costs of services 55,920 (1,915) 54,005
------------- ------------- ---------------
Research and development 2,531 - 2,531
General and administrative expenses 12,224 (465) (1) 11,759
Marketing and promotion expenses 9,694 - 9,694
Depreciation and amortization 11,676 (2,787) (2) 8,889
------------- ------------- -------
Operating income 3,280 5,167 8,447
Other income (expense):
Gain on sale 1,961 (1,961) (3) -
Interest income (expense), net (1,025) - (1,025)
Other (293) - (293)
------------- ------------- ---------------
Income before income taxes 3,923 3,206 7,129
Income tax expense (1,499) (1,210) (4) (2,709)
------------- ------------- -------
Net income $ 2,424 $ 1,996 $ 4,420
============= ============= ===============
Diluted net income per share $ 0.10 $ 0.08 $ 0.18
============= ============= ===============
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 purchased identifiable intangible
assets.
(3) To adjust for gain on sale of Travelweb LLC.
(4) To adjust income tax expense for assumed 38% tax rate for cash
earnings.
PEGASUS SOLUTIONS, INC.
RECONCILIATION OF CASH EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
Six Months Ended
June 30, 2003
-------------------------------------------
As Reported Adjustments Cash Earnings
------------- ------------- ---------------
Revenues:
Service revenues $ 78,494 $ - $ 78,494
Customer reimbursements 5,350 - 5,350
------------- ------------- ---------------
Total revenues 83,844 - 83,844
------------- ------------- ---------------
Costs of services:
Cost of services 43,142 - 43,142
Customer reimbursements 5,350 - 5,350
------------- ------------- ---------------
Total costs of services 48,492 - 48,492
------------- ------------- ---------------
Research and development 2,596 - 2,596
General and administrative expenses 12,382 - 12,382
Marketing and promotion expenses 8,415 - 8,415
Depreciation and amortization 17,274 (8,614) (1) 8,660
Restructure costs 5,869 (5,869) (2) -
------------- ------------- -------
Operating income (loss) (11,184) 14,483 3,299
Other income (expense):
Interest income (expense), net 600 - 600
Other 30 - 30
------------- ------------- ---------------
Income (loss) before income taxes (10,554) 14,483 3,929
Income tax benefit (expense) 4,260 (5,753) (3) (1,493)
------------- ------------- -------
Net income (loss) $ (6,294) $ 8,730 $ 2,436
============= ============= ===============
Diluted net income (loss) per share $ (0.25) $ 0.35 $ 0.10
============= ============= ===============
Diluted weighted average shares outstanding 24,710 502 (4) 25,212
============= ============= =======
Notes:
------
(1) To adjust for amortization of purchased identifiable intangible
assets.
(2) To adjust for non-recurring restructure costs.
(3) To adjust income tax benefit (expense) for assumed 38% tax rate for
cash earnings.
(4) Represents shares issuable upon the exercise of stock options.
PEGASUS SOLUTIONS, INC.
RECONCILIATION OF EBITDA AND ADJUSTED EBITDA
(IN THOUSANDS)
(UNAUDITED)
Three Months Ended June 30,
---------------------------
2004 2003
-------- ---------
Total revenues $50,001 $ 42,931
======== =========
Operating income (loss) (1) 4,110 (887)
Add: depreciation and amortization 5,794 5,156
-------- ---------
EBITDA $ 9,904 $ 4,269
======== =========
EBITDA margin 20% 10%
Adjustments:
Restructure costs - 2,676
Non-recurring items - 358 (3)
-------- ---------
Adjusted EBITDA $ 9,904 $ 7,303
======== =========
Adjusted EBITDA margin 20% 17%
Six months Ended June 30,
------------------------------------
2004 2003
-------- ---------
Total revenues $95,325 $ 83,844
======== =========
Operating income (loss) (1) 3,280 (11,184)
Add: depreciation and amortization 11,676 17,274
-------- ---------
EBITDA $14,956 $ 6,090
======== =========
EBITDA margin 16% 7%
Adjustments:
Restructure costs - 5,869
Non-recurring items 2,380 (2) 1,258 (3), (4)
-------- ------
Adjusted EBITDA $17,336 $ 13,217
======== =========
Adjusted EBITDA margin 18% 16%
(1) For reconciling items between operating income (loss) and net
income (loss), see the Condensed Consolidated Statements of
Operations (unaudited) included in this release.
(2) Amount represents severance and other non-recurring costs related
to changes in the company's information technology organization.
(3) 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.
(4) Amount includes costs related to moving the company's Phoenix
facilities.
PEGASUS SOLUTIONS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)
JUNE 30, DECEMBER 31,
2004 2003
--------- ---------
ASSETS
Cash and cash equivalents $ 36,354 $ 58,983
Short-term investments 6,057 4,046
Accounts receivable, net 29,334 22,298
Other current assets 11,078 11,092
--------- ---------
Total current assets 82,823 96,419
Goodwill, net 164,120 164,120
Intangible assets, net 6,829 7,831
Property and equipment, net 74,460 75,474
Other noncurrent assets 15,294 22,716
--------- ---------
Total assets $343,526 $366,560
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued liabilities $ 26,289 $ 24,672
Unearned income 6,465 7,213
Other current liabilities 6,257 5,477
--------- ---------
Total current liabilities 39,011 37,362
Noncurrent uncleared commission checks 5,032 4,545
Other noncurrent liabilities 20,995 20,997
Convertible debt 75,000 75,000
Commitments and contingencies
Stockholders' equity:
Common stock 228 251
Additional paid-in capital 263,738 290,828
Unearned compensation (467) -
Accumulated other comprehensive loss (846) (834)
Accumulated deficit (59,165) (61,589)
--------- ---------
Total stockholders' equity 203,488 228,656
--------- ---------
Total liabilities and stockholders' equity $343,526 $366,560
========= =========