Press Release: Pegasus Solutions, Inc.
February 5, 2002
DALLAS, TX -- Pegasus Solutions, Inc. (Nasdaq: PEGS), a leading provider of transaction processing and electronic
commerce solutions to the hotel industry worldwide, yesterday announced financial results for the fourth quarter
and year ended December 31, 2001.
Cash earnings per share (EPS), which excludes non-cash and non-recurring items, exceeded analysts' consensus estimates,
and totaled $0.05 per diluted share for the fourth quarter of 2001. This compared to $0.06 for the fourth quarter
of 2000. Revenues were $38.9 million for the fourth quarter of 2001, compared to revenues from continuing operations
of $39.6 million for the fourth quarter of the prior year. Fourth quarter EBITDA was $5.2 million, representing
a 13 percent margin and a 9 percent margin increase from the fourth quarter of 2000. On a GAAP basis, net loss
per share for the fourth quarter of 2001 was $0.14 compared to a net loss per share of $0.46 for the fourth quarter
of 2000.
Fourth Quarter Highlights and Financial Results Compared to Fourth Quarter
of 2000
-- Technology segment revenues grew 8 percent.
-- EBITDA margins were 13 percent.
-- CRS revenues increased 13 percent.
-- Internet transactions soared 48 percent.
-- Average travel agency fees for Financial Services increased
15 percent.
John F. Davis, chairman and chief executive officer of Pegasus Solutions said, ``The events of 2001 created
what was possibly the worst downturn in the history of travel. However, we are encouraged by trends indicating
a recovery advancing faster than we expected, and as our core technology business continues to grow and produce
favorable results.''
Pegasus' technology business, comprised of Central Reservation Services (CRS), Electronic Distribution, Financial
Services and Property Systems and Services, grew 8 percent from the fourth quarter of 2000, and generated revenues
of $24.6 million in the three months ended December 31, 2001.
CRS fourth quarter revenues increased 13 percent on a year-over-year basis primarily due to increased transaction
volumes, resulting from customers added during the year. The revenue increase also reflects that, although travel
in general had decreased, the rebound appears to continue stronger than initially expected. The Company's outsourcing
initiative for voice reservations also resulted in decreased headcount and improved margins for this business.
Although Internet transactions grew an impressive 48 percent, there continues to be a decrease in GDS (global distribution
system) transactions that resulted in a 10 percent decrease in fourth quarter Electronic Distribution revenue.
GDS bookings, which are closely tied to air travel, have been the slowest channel to recover from September 11.
Beginning in 2002, the Electronic Distribution business unit will be combined with the CRS unit to form Reservation
Services.
During the fourth quarter, Financial Services increased its customer base by enrolling over 5,500 travel agencies,
primarily through the addition of TQ3 Maritz Travel Solutions, increased penetration in the Asia Pacific region
and expanding its services to Vacation.com and TravelSavers. Additionally, the average travel agency fee increased
15 percent on a year-over-year basis due to the continued success of the Reconciliation and Tracking Service, which
was a new product offering in 2001. Commission Processing revenues decreased 5 percent from the same quarter in
2000, as the Company's Commission Processing service was negatively impacted by increased cancellations and lower
average daily room rates as a result of September 11.
Property Systems and Services generated revenue of $1.9 million for the fourth quarter of 2001, up $1.2 million
from the fourth quarter of 2000. The year-over-year increase was primarily due to the Company's acquisition of
Tempe-based Global Enterprise Technology Solutions LLC (GETS) in September 2001. The integration of GETS employees
within Pegasus' existing Phoenix office was completed ahead of schedule and continues to benefit the ongoing development
of PegasusCentral(TM), Pegasus' new Web-based hospitality management system. In addition, the Company has recently
signed an agreement with TravelLodge UK to introduce beta testing of PegasusCentral in the UK.
``Acquiring GETS ahead of schedule allowed us to accelerate the development and implementation of PegasusCentral.
We continue to move ahead with plans for the Six Continents Hotel rollout, which anticipates replacement of existing
property systems at all 2,500 North American properties by the end of 2004. PegasusCentral was officially presented
at the Six Continent Hotel's Owners meeting last week as one of two technology replacements at these properties.
In addition, we are currently in discussions with several other large hotel chains who are also interested in PegasusCentral,''
Davis said.
The Company's Utell subsidiary had revenues for the quarter totaling $14.3 million, down 15 percent from the comparable
period a year ago. The decrease primarily resulted from the weakened economy and the impact of September 11, both
of which contributed to fewer reservations and sluggish average daily rates.
Utell continues to review and strategically upgrade its portfolio of properties with a focus on maintaining relationships
with properties that use more services, while reducing Utell's fixed costs. Although this results in decreased
membership revenue in the short-term, operating margins are expected to continue to improve over the longer term.
Furthermore, upon the completion of Utell's reservation center consolidation plan, the number of reservation centers
will be reduced from 29 to nine.
``I am pleased with the actions we are taking at Utell to improve its bottom line performance. I was further encouraged
by the recent announcement that Utell has been the most popular hotel group booked through Orbitz (www.orbitz.com)
since the site launched hotel reservation capabilities in June 2001,'' said Davis.
Full Year 2001 Highlights and Financial Results Compared to 2000
-- Technology segment revenues grew 11 percent.
-- Cash EPS, which excludes non-cash and non-recurring items, increased
7 percent.
-- EBITDA margins improved to 17 percent compared to 15 percent a
year ago.
-- Financial Services revenues were up 13 percent.
Revenues for the full year ended December 31, 2001 increased $2.7 million to $173.0 million, compared to pro
forma revenues for 2000, which excluded revenues from discontinued and divested businesses. Cash earnings, excluding
non-cash and non-recurring items, increased 7 percent to $0.45 per diluted share for 2001, compared to pro forma
cash EPS for 2000. Excluding non-cash and non-recurring items, 2001 EBITDA was $30.4 million, and the EBITDA margin
increased to 17 percent from a pro forma 15 percent margin for the year ended December 31, 2000.
``While facing an extremely difficult environment, Pegasus' technology revenue and EBITDA margins increased in
2001, and continue to improve today. As a result, we are moving forward into 2002 as a stronger, leaner and more
focused company.'' Davis said.
Outlook
``By thoroughly reviewing all of the aspects of our business in 2001, we have successfully reduced costs and improved
customer service,'' commented Susan K. Cole, chief financial officer of Pegasus Solutions. ``Our operations are
now better aligned to have our Company's bottom line benefit as the travel industry recovers,'' Cole continued.
``We are confirming the guidance provided in October, estimating 2002 revenues to be in the range of $180 million
to $185 million, and 2002 cash EPS to be in the range of $0.52 to $0.60.''
``2002 is starting off well, and I am very encouraged by the trends we are seeing. As the recovery continues, I
look forward to facing new opportunities in 2002, such as enhancing our existing services or expanding into emerging
markets that complement our existing service offerings, '' Davis concluded.
Conference Call
In conjunction with this release, Pegasus Solutions will host a conference call today at 4:45 (ET), 3:45 (CT).
The call will be simultaneously Webcast over the Internet. To access the Webcast, go to the Company's Web site,
http://www.pegs.com. Click on ``investor information.''
Company Information
Dallas-based Pegasus Solutions, Inc. (www.pegs.com) is a leading global provider
of hotel reservation technologies. Its services include central reservations systems; electronic distribution services
that connect more than 42,000 hotels to the Internet and to the global distribution systems (GDS); travel agent
commission processing and payment services; the consumer Internet site TravelWeb.com (www.travelweb.com);
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 agencies(1);
more than 46,000 hotel properties around the globe, including 48 of the 50 largest hotel brands in the world based
on total number of guest rooms(2); and more than a thousand Web sites/services have their hotel reservations Powered
by Pegasus(TM). In addition to its corporate headquarters in Dallas, Pegasus has 23 offices in 16 countries, including
regional hubs in Phoenix, London and Singapore. The company's stock is traded on the Nasdaq National Market under
the symbol PEGS.
This statement contains references to future events and projected results, including anticipated transactions involving
the Company and its service offerings. There can be no assurance that the referenced future events or projected
results will actually occur or that the future financial performance of the Company will be as projected. Actual
occurrences, results and performance may differ substantially and materially from those projected as a result of
a number of risks and uncertainties, such as adverse changes in general market conditions for business and leisure
travel as a result of additional terrorist activities, action by U.S. military forces, changes in hotel room rates,
capacity adjustments by airlines, trends in the overall demand for travel, and the inherent difficulty in making
projections during this period of uncertainty, as well as other risks and uncertainties mentioned in this statement
or detailed in the Company's periodic reports and registration statements filed with the Securities and Exchange
Commission including its Form 10-K for the year ended December 31, 2000.
Management evaluates Company performance based on earnings before interest, income tax, depreciation, amortization
and other non-recurring items (EBITDA). Although EBITDA is not calculated in accordance with generally accepted
accounting principles, the Company believes that EBITDA is widely used by analysts, investors and others as a measure
of operating performance. Nevertheless, this measure should not be considered in isolation of, or as a substitute
for, operating income, cash flows from operating activities or any other measure for determining the Company's
operating performance or liquidity that is calculated in accordance with generally accepted accounting principles.
In addition, the Company's calculation of EBITDA is not necessarily comparable to similarly titled measures reported
by other companies.
(1) Travel Weekly, June 25, 2001, "Top 50 Travel Agencies"
(2) Hotel Business, February 7, 2001, "The Top Hotel Brands"
PEGASUS SOLUTIONS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS - CASH EARNINGS
(In thousands except for per share amounts)
(Unaudited)
Three Months Ended
December 31, 2001
As Cash Earnings Cash
Reported Adjustments Earnings
Net revenues $38,860 $-- $38,860
Cost of services 22,330 -- 22,330
Research and development 1,956 -- 1,956
General and administrative expenses 5,741 (709)(1) 5,032
Marketing and promotion expenses 4,374 -- 4,374
Depreciation and amortization 16,474 (13,128)(2) 3,346
Restructure costs 597 (597)(1) --
Operating income (loss) (12,612) 14,434 1,822
Other income (expense):
Interest income, net 193 -- 193
Equity in loss of investee -- -- --
Gain on sale of business unit 5,460 (5,460)(3) --
Other 2,044 (2,000)(1) 44
Income (loss) before income taxes (4,915) 6,974 2,059
Income tax expense (benefit) (1,579) 2,361(4) 782
Net income (loss) $(3,336) $4,613 $1,277
Diluted net income per share $0.05
Diluted weighted average shares
outstanding 25,171
Notes:
(1) To adjust for non-recurring charges and gains.
(2) To adjust for amortization of purchased goodwill and intangible
assets.
(3) To adjust for gain on sale of Summit/Sterling business
(4) To adjust income tax expense (benefit) for assumed 38% tax rate for
cash earnings.
PEGASUS SOLUTIONS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
December December 31,
2001 2000
ASSETS
Cash and cash equivalents $7,210 $32,576
Restricted cash 6,228 4,574
Short-term investments 9,167 1,563
Accounts receivable, net 29,228 29,889
Income tax receivable 375 --
Other current assets 4,934 4,189
Total current assets 57,142 72,791
Goodwill, net 135,321 149,764
Intangible assets, net 32,505 62,909
Property and equipment, net 68,965 64,434
Deferred tax asset 4,569 --
Other noncurrent assets 9,737 7,807
Total assets $308,239 $357,705
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued
liabilities $43,207 $36,097
Deferred tax liability 12,301 12,078
Unearned income 8,585 9,428
Income tax payable -- 6,212
Customer deposits 2,170 2,691
Other current liabilities 424 80
Total current liabilities 66,687 66,586
Note payable 111 20,000
Deferred tax liability -- 8,961
Other noncurrent liabilities 10,534 1,586
Stockholders' equity:
Common stock 251 249
Additional paid-in capital 290,444 288,422
Unearned compensation (34) (157)
Accumulated comprehensive loss (273) (265)
Accumulated deficit (56,238) (26,501)
Less treasury stock (3,243) (1,176)
Total stockholders' equity 230,907 260,572
Total liabilities and
stockholders' equity $308,239 $357,705
PEGASUS SOLUTIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except for per share amounts)
(Unaudited)
Three Months Ended Year Ended
December 31, December 31,
2001 2000 2001 2000
Net revenues $38,860 $46,326 $179,962 $162,199
Cost of services 22,330 26,027 98,132 80,377
Research and development 1,956 1,995 7,842 8,033
General and administrative expenses 5,741 6,427 25,201 20,404
Marketing and promotion expenses 4,374 7,260 21,709 24,843
Depreciation and amortization 16,474 17,065 65,651 51,549
Restructure costs 597 3,421 7,696 3,421
Write-off of purchased in-process
research
and development -- -- -- 8,000
Operating loss (12,612) (15,869) (46,269) (34,428)
Other income (expense):
Interest income, net 193 168 768 1,777
Equity in loss of investee -- -- (634) --
Gain on sale of business units 5,460 -- 5,538 --
Other 2,044 (33) 1,914 151
Loss before income taxes (4,915) (15,734) (38,683) (32,500)
Income tax benefit (1,579) (4,333) (8,946) (5,918)
Net loss $(3,336) $(11,401) $(29,737) $(26,582)
Basic and diluted net loss per
share $(0.14) $(0.46) $(1.21) $(1.14)
Basic and diluted weighted average
shares outstanding 24,632 24,588 24,570 23,380
SOURCE: Pegasus Solutions, Inc.