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 26, 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 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 2.02 Results of Operations and Financial Condition
On October 26, 2004, Pegasus Solutions, Inc. issued a press release announcing
its unaudited financial results for the third quarter ended September 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 October 26, 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 October 26, 2004
2
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 26, 2004 /s/ SUSAN K. COLE
-------------------------
Chief Financial Officer
3
EXHIBIT INDEX
Exhibit Number Description
--------------- -----------
99.1 Press release issued October 26, 2004
4
Exhibit 99.1 Press release issued October 26, 2004
Contacts:
Pegasus Solutions
Marcie Hyder 214-234-4120
Press: Cindy Foor 214-234-4129
PEGASUS SOLUTIONS REPORTS SOLID THIRD QUARTER 2004 RESULTS
REVENUE AND EPS IN LINE WITH COMPANY'S GUIDANCE
- - Q3 2004 revenues - $49.5 million
- - Q3 2004 diluted EPS (GAAP) - $0.17
- - Q3 2004 diluted EPS (Cash) - $0.19
- - Estimated revenues - Q4 2004 $44 million to $46 million; FY 2004 $190
million to $192 million
- - Estimated diluted EPS (GAAP) - Q4 2004 $0.08 to $0.10; FY 2004 $0.34 to
$0.36
- - Estimated diluted EPS (Cash) - Q4 2004 $0.12 to $0.14; FY 2004 $0.49 to
$0.51
DALLAS, OCTOBER 26, 2004 - 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,
2004. Revenues and cash earnings per share for the quarter were in line with
the company's guidance, and cash earnings per share reached the high end of the
company's guidance.
"I am happy to report another solid quarter," said John F. Davis III, president,
chief executive officer and chairman of Pegasus Solutions. Davis continued:
"We have made significant progress on the product development priorities we set
for this year, including bringing PegasusCentralTM back on line and introducing
our new PegsTourTM service. I am also proud to announce that we closed more
business during the third quarter than any other quarter in company history.
This is a direct result of our commitment to executing and our improved focus on
sales and marketing efforts this year."
THIRD QUARTER 2004 FINANCIAL HIGHLIGHTS (See attached tables for reconciliation
- ---------------------------------------- to non-GAAP measures).
- - Revenues increased 8 percent to $49.5 million compared to $45.8 million in
the third quarter of 2003.
- - On a GAAP basis, net income per diluted share was $0.17 compared to $0.15
in the same quarter in 2003.
- - Cash earnings increased 6 percent to $0.19 per diluted share compared to
$0.18 per diluted share in the third quarter of 2003.
- - EBITDA was $11.2 million, or 23 percent of revenues, compared to EBITDA of
$11.6 million, or 25 percent of revenues, and adjusted EBITDA margin of 26
percent in the year-ago quarter. Net income was $3.8 million, which was
flat compared to the year-ago quarter.
- - Pegasus repurchased 1.2 million shares of common stock at an aggregate cost
of $15.0 million during the third quarter, completing two stock buyback
programs for a total of 4.0 million shares at $48.0 million year to date.
- - Operating cash flows were $11.8 million, compared to $11.0 million in the
third quarter last year.
1
"We continue to have year-over-year growth in our top line despite price
competition," said Susan K. Cole, executive vice president and chief financial
officer. "And operating cash flow increased 7 percent, even though we had
higher expenses primarily related to sales and marketing and other activities
with a focus on increasing revenues."
THIRD QUARTER 2004 SERVICE LINE REVIEW
- -----------------------------------------
- - Service revenues for representation services were $18.7 million in the
third quarter, an increase of 27 percent year-over-year. A significant
portion of this increase was related to Unirez by PegasusTM, the company's
high-tech reservation and distribution toolkit for independent hotels. In
addition, the company's full-service offering, Utell by PegasusTM, which
includes additional marketing and revenue management, experienced a 2
percent increase in reservation volume and a 9 percent increase in implied
average daily room rates. These increases were offset by a decrease in
non-reservation revenues and the average commission earned percentage.
Pegasus added a net 352 properties to its representation portfolio and now
serves nearly 8,000 independent and small hotel group properties.
- - Compared to the third quarter of 2003, financial services revenues
increased 15 percent to $9.4 million, primarily due to a 10 percent
increase in gross commissions processed. This service line also benefited
from improved average daily room rates. During the quarter, the company
extended its agreement with Hyatt Hotels & Resorts to provide commission
processing services.
- - Third quarter service revenues for Pegasus' distribution services were $7.2
million, a 14 percent decrease year-over-year, primarily driven by a 9
decrease in Internet transactions. The decrease in Internet transactions
reflects an increase in the percentage of Internet bookings made at hotel
companies' proprietary Web sites; these transactions do not utilize
Pegasus' Internet distribution service. In addition, reduced pricing
resulting from Priceline.com's purchase of Travelweb LLC negatively
affected year-over-year comparisons, as expected. However, GDS transactions
increased 6 percent, partially offsetting lower Internet volumes. During
the quarter, Pegasus renewed its agreement with Hyatt Hotels & Resorts to
provide GDS and Internet distribution services and signed a new agreement
with Lastminute.com. The company also signed up a number of hotel companies
and tour/wholesale operators for PegsTour - an innovative service designed
to automate hotel bookings for wholesale and tour operators.
- - Third quarter service revenues for the company's central reservation
service were $9.3 million, down 7 percent on a year-over-year basis,
despite a slight increase in net transactions processed. Pegasus has been
successful at renewing central reservation system (CRS) contracts in a
competitive marketplace and has not lost an existing CRS customer to a
competitor this year. However, lower unit pricing on contract renewals has
negatively impacted year-over-year revenue comparisons.
- - Property services revenues were $1.1 million in the third quarter compared
to $1.6 million in the third quarter of 2003. The company remains on
schedule for bringing PegasusCentral back on line.
2
OUTLOOK FOR 2004
- ------------------
- - Q4 2004 revenues estimated to range from $44 million to $46 million
- - Q4 2004 diluted EPS (GAAP) estimated to range from $0.08 to $0.10
- - Q4 2004 diluted EPS (Cash) estimated to range from $0.12 to $0.14
- - Full year 2004 revenue estimate of $190 million to $192 million
- - Full year 2004 diluted EPS (GAAP) estimate of $0.34 to $0.36
- - Full year 2004 diluted EPS (Cash) estimated to range from $0.49 to $0.51
Regarding the company's financial outlook, Cole said: "I am very pleased with
our strong sales pipeline, and we are closing record numbers of deals. However,
new business was back-end weighted in our original guidance, and we did not
close enough new business earlier in the year to meet the high end of our fourth
quarter revenue target. This is why - combined with our relatively long sales
and implementation cycle - we expect to come in closer to the low end of our
original revenue guidance."
Davis concluded: "From the beginning of this year, we have been firmly focused
on delivering on promises made to our customers, our shareholders and our
employees. I believe the commitments we have made to product development,
customer satisfaction and sales and marketing efforts have positioned us well
for 2005 and beyond."
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 "Investor." The online archive of the webcast will be
------------
available two hours after the call for 30 days.
3
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 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 nearly 8,000 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, the level of product and price competition from
existing and new competitors, 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 Annual Report on Form 10-K for the year
ended December 31, 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 "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.
# # #
4
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,
------------- -------------
2004 2003 2004 2003
-------- -------- --------- ---------
Revenues:
Service revenues $45,574 $42,868 $133,279 $121,362
Customer reimbursements 3,929 2,892 11,549 8,242
-------- -------- --------- ---------
Total revenues 49,503 45,760 144,828 129,604
-------- -------- --------- ---------
Costs of services:
Cost of services 23,191 21,141 71,491 64,283
Customer reimbursements 3,929 2,892 11,549 8,242
-------- -------- --------- ---------
Total costs of services 27,120 24,033 83,040 72,525
-------- -------- --------- ---------
Research and development 758 949 3,289 3,545
General and administrative expenses 5,589 5,543 17,813 17,925
Marketing and promotion expenses 4,815 3,531 14,509 11,946
Depreciation and amortization 5,401 5,185 17,077 22,459
Restructure costs - 80 - 5,949
-------- -------- --------- ---------
Operating income (loss) 5,820 6,439 9,100 (4,745)
Other income (expense):
Gain on sale - - 1,961 -
Interest income (expense), net (498) (254) (1,523) 346
Other 159 240 (134) 270
-------- -------- --------- ---------
Income (loss) before income taxes 5,481 6,425 9,404 (4,129)
Income tax benefit (expense) (1,695) (2,578) (3,194) 1,682
-------- -------- --------- ---------
Net income (loss) $ 3,786 $ 3,847 $ 6,210 $ (2,447)
======== ======== ========= =========
Net income (loss) per share:
Basic $ 0.17 $ 0.15 $ 0.27 $ (0.10)
======== ======== ========= =========
Diluted $ 0.17 $ 0.15 $ 0.26 $ (0.10)
======== ======== ========= =========
Weighted average shares outstanding:
Basic 22,131 24,986 23,355 24,803
======== ======== ========= =========
Diluted 22,498 25,711 23,680 24,803
======== ======== ========= =========
5
PEGASUS SOLUTIONS, INC.
RECONCILIATION OF GAAP EARNINGS PER SHARE TO CASH EARNINGS PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
Three Months Ended
September 30, 2004
-------------------------------------------
As Reported Adjustments Cash Earnings
------------- ------------- ---------------
Revenues:
Service revenues $ 45,574 $ - $ 45,574
Customer reimbursements 3,929 - 3,929
------------- ------------- ---------------
Total revenues 49,503 - 49,503
------------- ------------- ---------------
Costs of services:
Cost of services 23,191 - 23,191
Customer reimbursements 3,929 - 3,929
------------- ------------- ---------------
Total costs of services 27,120 - 27,120
------------- ------------- ---------------
Research and development 758 - 758
General and administrative expenses 5,589 - 5,589
Marketing and promotion expenses 4,815 - 4,815
Depreciation and amortization 5,401 (1,393) (1) 4,008
------------- ------------- -------
Operating income 5,820 1,393 7,213
Other income (expense):
Gain on sale - - -
Interest income (expense), net (498) - (498)
Other 159 - 159
------------- ------------- ---------------
Income before income taxes 5,481 1,393 6,874
Income tax expense (1,695) (917) (2) (2,612)
------------- ------------- -------
Net income $ 3,786 $ 476 $ 4,262
============= ============= ===============
Diluted net income per share $ 0.17 $ 0.02 $ 0.19
============= ============= ===============
Diluted weighted average shares outstanding 22,498 - 22,498
============= ============= ===============
<FN>
Notes:
------
(1) To adjust for amortization of purchased identifiable intangible assets.
(2) To adjust income tax expense for assumed 38% tax rate for cash earnings.
6
PEGASUS SOLUTIONS, INC.
RECONCILIATION OF GAAP EARNINGS PER SHARE TO CASH EARNINGS PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
Three Months Ended
September 30, 2003
-------------------------------------------
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 5,185 (810) (1) 4,375
Restructure costs 80 (80) (2) -
------------- ------------- -------
Operating income 6,439 890 7,329
Other income (expense):
Interest income, net (254) - (254)
Other 240 - 240
------------- ------------- ---------------
Income before income taxes 6,425 890 7,315
Income tax expense (2,578) (202) (3) (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.
(3) To adjust income tax benefit (expense) for assumed 38% tax rate for cash earnings.
7
PEGASUS SOLUTIONS, INC.
RECONCILIATION OF GAAP EARNINGS PER SHARE TO CASH EARNINGS PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
Nine Months Ended
September 30, 2004
------------------------------------------
As Reported Adjustments Cash Earnings
------------- ------------- ---------------
Revenues:
Service revenues $ 133,279 $ - $ 133,279
Customer reimbursements 11,549 - 11,549
------------- ------------- ---------------
Total revenues 144,828 - 144,828
------------- ------------- ---------------
Costs of services:
Cost of services 71,491 (1,915) (1) 69,576
Customer reimbursements 11,549 - 11,549
------------- ------------- ---------------
Total costs of services 83,040 (1,915) 81,125
------------- ------------- ---------------
Research and development 3,289 - 3,289
General and administrative expenses 17,813 (465) (1) 17,348
Marketing and promotion expenses 14,509 - 14,509
Depreciation and amortization 17,077 (4,180) (2) 12,897
------------- ------------- -------
Operating income 9,100 6,560 15,660
Other income (expense):
Gain on sale 1,961 (1,961) (3) -
Interest income (expense), net (1,523) - (1,523)
Other (134) - (134)
------------- ------------- ---------------
Income before income taxes 9,404 4,599 14,003
Income tax expense (3,194) (2,127) (4) (5,321)
------------- ------------- -------
Net income $ 6,210 $ 2,472 $ 8,682
============= ============= ===============
Diluted net income per share $ 0.26 $ 0.11 $ 0.37
============= ============= ===============
Diluted weighted average shares outstanding 23,680 - 23,680
============= ============= ===============
<FN>
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.
8
PEGASUS SOLUTIONS, INC.
RECONCILIATION OF GAAP EARNINGS PER SHARE TO CASH EARNINGS PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
Nine Months Ended
September 30, 2003
-------------------------------------------
As Reported Adjustments Cash Earnings
------------- ------------- ---------------
Revenues:
Service revenues $ 121,362 $ - $ 121,362
Customer reimbursements 8,242 - 8,242
------------- ------------- ---------------
Total revenues 129,604 - 129,604
------------- ------------- ---------------
Costs of services:
Cost of services 64,283 - 64,283
Customer reimbursements 8,242 - 8,242
------------- ------------- ---------------
Total costs of services 72,525 - 72,525
------------- ------------- ---------------
Research and development 3,545 - 3,545
General and administrative expenses 17,925 - 17,925
Marketing and promotion expenses 11,946 - 11,946
Depreciation and amortization 22,459 (9,424) (1) 13,035
Restructure costs 5,949 (5,949) (2) -
------------- ------------- -------
Operating income (loss) (4,745) 15,373 10,628
Other income (expense):
Interest income (expense), net 346 - 346
Other 270 - 270
------------- ------------- ---------------
Income (loss) before income taxes (4,129) 15,373 11,244
Income tax benefit (expense) 1,682 (5,955) (3) (4,273)
------------- ------------- -------
Net income (loss) $ (2,447) $ 9,418 $ 6,971
============= ============= ===============
Diluted net income (loss) per share $ (0.10) $ 0.37 $ 0.27
============= ============= ===============
Diluted weighted average shares outstanding 24,803 577 (4) 25,380
============= ============= =======
<FN>
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.
9
PEGASUS SOLUTIONS, INC.
RECONCILIATION OF EBITDA AND ADJUSTED EBITDA
(IN THOUSANDS)
(UNAUDITED)
Three Months Ended September 30,
--------------------
2004 2003
--------- ---------
Total revenues $ 49,503 $ 45,760
========= =========
Operating income (1) 5,820 6,439
Add: depreciation and amortization 5,401 5,185
--------- ---------
EBITDA $ 11,221 $ 11,624
========= =========
EBITDA margin 23% 25%
Adjustments:
Restructure costs - 80
Non-recurring items - 170 (3)
--------- ---------
Adjusted EBITDA $ 11,221 $ 11,874
========= =========
Adjusted EBITDA margin 23% 26%
Nine Months Ended September 30,
--------------------
2004 2003
--------- ---------
Total revenues $144,828 $129,604
========= =========
Operating income (loss) (1) 9,100 (4,745)
Add: depreciation and amortization 17,077 22,459
--------- ---------
EBITDA $ 26,177 $ 17,714
========= =========
EBITDA margin 18% 14%
Adjustments:
Restructure costs - 5,949
Non-recurring items 2,380 (2) 1,428 (3), (4)
--------- ------
Adjusted EBITDA $ 28,557 $ 25,091
========= =========
Adjusted EBITDA margin 20% 19%
<FN>
(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.
10
PEGASUS SOLUTIONS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)
SEPTEMBER 30, DECEMBER 31,
2004 2003
--------- ---------
ASSETS
Cash and cash equivalents $ 28,814 $ 58,983
Short-term investments 7,033 4,046
Accounts receivable, net 29,108 22,298
Other current assets 12,126 11,092
--------- ---------
Total current assets 77,081 96,419
Goodwill, net 164,120 164,120
Intangible assets, net 6,328 7,831
Property and equipment, net 75,095 75,474
Other noncurrent assets 12,884 22,716
--------- ---------
Total assets $335,508 $366,560
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued liabilities $ 28,323 $ 24,672
Unearned income 7,130 7,213
Other current liabilities 5,693 5,477
--------- ---------
Total current liabilities 41,146 37,362
Noncurrent uncleared commission checks 5,267 4,545
Other noncurrent liabilities 21,032 20,997
Convertible debt 75,000 75,000
Commitments and contingencies
Stockholders' equity:
Common stock 218 251
Additional paid-in capital 249,499 290,828
Unearned compensation (437) -
Accumulated other comprehensive loss (838) (834)
Accumulated deficit (55,379) (61,589)
--------- ---------
Total stockholders' equity 193,063 228,656
--------- ---------
Total liabilities and stockholders' equity $335,508 $366,560
========= =========
11