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Press Release: Pegasus Solutions, Inc.
October 30, 2002
DALLAS, TX -- Pegasus Solutions, Inc. (Nasdaq: PEGS), a leading worldwide provider of hotel reservations-related
services and technology, yesterday announced financial results for the third quarter ended September 30, 2002.
Total revenues were $45.6 million for the third quarter of 2002, compared to $45.2 million for the third quarter
of 2001. The Company's net income per diluted share for the three months ended September 30, 2002 was $0.03, compared
to a net loss per diluted share of $0.44 for the third quarter of 2001. For comparative purposes, the Company adopted
Statement of Financial Accounting Standards (SFAS) No. 142, "Goodwill and Other Intangible Assets," on
January 1, 2002, and, accordingly, did not record goodwill amortization during 2002. If SFAS 142 had been in effect
during the third quarter of 2001, comparable net loss per share would have been $0.29.
Cash earnings, which excludes non-cash items in 2002 and 2001, and non-recurring items in 2001, were $0.22 per
diluted share for the third quarter, a 29 percent increase compared to $0.17 per diluted share for the same quarter
last year. Non-cash items consisted of amortization expense for purchased intangible assets, while non-recurring
items in the third quarter of 2001 included $8.1 million of one-time restructuring charges and consulting fees
associated with the restructuring.
"Considering the difficult economic climate, I am extremely pleased with our third quarter results,"
said John F. Davis III, chairman and chief executive officer of Pegasus Solutions. "When we originally budgeted
for 2002, we had anticipated an improvement in the economy in the second half of this year. Unfortunately, we,
and others in the industry, have not seen the expected improvement in various key hotel industry metrics, including
the number of reservations and average daily room rates. Since we cannot control these and other macro economic
factors, we have focused on managing our discretionary costs, which has helped us overcome the lingering adverse
effects of the weak economy. We have also invested internally in preparation for an eventual economic rebound.
Until then, we remain committed to attaining our goal of delivering EBITDA margins on an annual basis in excess
of 20 percent."
Third Quarter Highlights
* Consolidated EBITDA increased to $13.2 million, a 35 percent increase
over adjusted EBITDA for the third quarter of 2001.
* EBITDA margins for Pegasus' two divisions, technology and hospitality
(Utell), each improved to 29 percent, compared to third quarter 2001
adjusted EBITDA margins of 23 percent and 19 percent, respectively.
* Higher margin Internet hotel reservation transaction volumes increased
38 percent over the third quarter of 2001, and 4 percent over the
second quarter of 2002.
* Financial Services continued its impressive sales performance by adding
approximately 2,500 new travel agency locations to its commission
processing customer base.
* Pegasus' balance sheet remains strong, including $27.0 million of cash,
cash equivalents and short-term investments with no outstanding debt.
* Cash flow generated from operations during the third quarter of 2002
was $10.0 million.
* In its October 28, 2002 issue, Forbes magazine named Pegasus to its 200
Best Small Companies list.
* Pegasus added a new independent board member, Pamela H. Patsley, who
also serves on its audit and corporate governance committees.
Technology Segment
Pegasus' technology division, comprised of Reservation Services, Financial Services and Property Systems and Services,
generated revenues of $28.7 million for the three months ended September 30, 2002, representing a 5 percent increase
over the third quarter of 2001.
Within the technology division, third quarter 2002 Reservation Services revenues were $18.7 million, a decrease
of two percent compared to the third quarter of 2001. The decrease in revenues was primarily due to the early termination
of a central reservation system (CRS) customer contract, which was substantially offset by revenues from new customers,
incremental increases in revenues from existing customers and a 38 percent increase in higher margin Internet transactions
year-over-year.
During the third quarter, Financial Services revenues increased to $8.2 million, or 13 percent from the prior year,
due to increased transaction volume and a higher average travel agent fee earned from each transaction. The Company
continues to receive strong interest in the new PegsPay service, which automates the exchange of funds and incentives
between travel distributors and any type of travel supplier.
Property Systems and Services generated revenues of $1.8 million for the third quarter of 2002, up $750,000 over
the third quarter of 2001. This increase was due to the September 2001 acquisition of Tempe-based Global Enterprise
Technology Solutions, LLC (GETS) and increasing revenues from the continued rollout of PegasusCentral(TM), the
Company's Web-based property system.
Hospitality Segment
The Company's Utell subsidiary had revenues for the quarter totaling $16.9 million, down 5 percent from the third
quarter of 2001, due in large part to the planned strategic reduction in the number of Utell member hotels. As
an expected result from the portfolio rationalization, Utell's third quarter EBITDA margin improved to 29 percent,
compared to 19 percent for the same quarter in 2001.
"Our Utell team continues to execute initiatives to increase Utell revenues and margins on a per-hotel basis,"
stated Davis. "On a 'comparable hotel' basis, reservations made during the third quarter of 2002 for the U.S.
and Asia Pacific regions experienced double-digit gains over the prior year. However, 'comparable hotel' reservations
for Europe, which is our largest market, were down primarily because of decreased outbound traffic from the U.S.
to Europe."
New Business and Contract Renewals
Commenting on new business and contract renewals, Davis said, "Although our sales cycle has lengthened due
to the stagnant economy and weak lodging environment, we signed or renewed 37 technology customer contracts during
the third quarter. In addition, I am extremely pleased that we signed a new contract with Travelodge UK earlier
this month to provide both CRS and Property Systems services to its approximately 230 properties. This new contract
gives us a strong presence in the European marketplace for PegasusCentral, our new Web-based property management
system."
Outlook
"A year ago, we announced a strategic restructuring plan and estimated annual savings to range from $9 million
to $11 million. Our ability to execute against this plan has resulted in greater than planned efficiencies. These
savings have allowed us to overcome the shortfall in expected revenues," commented Susan K. Cole, chief financial
officer of Pegasus Solutions. "Additionally, our strong balance sheet and operating cash flows have allowed
us to continue investing in technology that has upgraded and improved the capacity of our IT infrastructure, enhancing
both our operations and customer service. I remain confident that, when the economy improves, we have positioned
our Company's cost structure to take full advantage of any incremental revenue growth. The slower than anticipated
recovery in the nation's economy, the continued lack of corporate business travel and the anniversary of September
11th have all negatively affected our topline results. As a result of these factors and the uncertain timing of
an economic recovery, we now project our fourth quarter 2002 revenue and cash earnings estimates to be in the range
of $39 million to $42 million and $0.11 to $0.15, respectively."
Cole further commented, "We have historically had good visibility into economic and booking patterns. However,
with the continued threat of war and terrorist-related activities, as well as an increasing trend of last minute
travel, our visibility is not as clear. We are working hard at understanding the trends we are seeing and will
hold a conference call later this year to discuss our 2003 outlook."
Davis concluded, "Because we strategically reorganized our company last year, we were well-positioned to weather
the economic storm which began after September 11, 2001, and continues through today. Similarly, we continued to
invest in our business, demonstrating our commitment to providing world-class operations and customer service.
We intend to continue investing in new services and in enhancements to existing services so we will be at the forefront
of any economic recovery or improvement in business and leisure travel."
Conference Call
Following this release, Pegasus Solutions hosted a conference call yesterday at 4:45 p.m. (EST), 3:45 p.m. (CST).
The call was simultaneously Webcast over the Internet. To access the Webcast, go to the Company's Web site, http://www.pegs.com . Click on "investor information," or go directly
to http://www.pegs.com/investor/investor.htm
.
Company Information
Dallas-based Pegasus Solutions, Inc. (http://www.pegs.com) is a leading global provider of hotel reservations-related
services and technologies. Its services include central reservations systems; electronic distribution services
that connect more than 44,000 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 (http://www.Utell.com);
and PegasusCentral(TM), a Web-based enterprise solution with property management applications. Pegasus' customers
comprise tens of thousands of travel agencies around the world, including the top 10 largest U.S.-based travel
agencies(1); more than 48,000 hotel properties around the globe, including the 50 largest hotel brands in the world
based on total number of guest rooms(2); and thousands of Web sites/services have their hotel reservations Powered
by Pegasus(TM). In addition to its corporate headquarters in Dallas, Pegasus has 20 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.
The statements made in this press release that are not purely historical 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,
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 2001 Annual Report
on Form 10-K and Quarterly Reports on Form 10-Q filed since the Annual Report.
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 24, 2002, "Top 50 Travel Agencies"
(2) Hotel Business, February 7, 2002, "The Top Hotel Brands" -- ranked
by total number of rooms (2001)
PEGASUS SOLUTIONS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS -- CASH EARNINGS
(In thousands, except for per share amounts)
(Unaudited)
Three Months Ended
September 30, 2002
As Cash Earnings Cash
Reported Adjustments Earnings
Net revenues $45,619 $-- $45,619
Cost of services 21,471 -- 21,471
Research and development 1,332 -- 1,332
General and administrative expenses 5,053 -- 5,053
Marketing and promotion expenses 4,560 -- 4,560
Depreciation and amortization 12,058 (7,803) (1) 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 694 2,790 (2) 3,484
Net income $672 $5,013 $5,685
Diluted net income per share $0.03 $0.22
Diluted weighted average shares
outstanding 25,642 25,642
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.
PEGASUS SOLUTIONS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
September 30, December 31,
2002 2001
ASSETS
Cash and cash equivalents $25,932 $13,438
Short-term investments 1,022 9,167
Accounts receivable, net 29,171 29,228
Other current assets 6,080 5,309
Total current assets 62,205 57,142
Intangible assets, net 10,436 32,505
Property and equipment, net 72,047 67,365
Goodwill, net 141,594 136,921
Other noncurrent assets 11,507 9,737
Total assets $297,789 $303,670
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued liabilities $30,775 $39,203
Unearned income 9,060 8,585
Deferred tax liability 1,964 12,301
Customer deposits 3,931 2,170
Other current liabilities 745 424
Total current liabilities 46,475 62,683
Uncleared commission checks 4,995 4,004
Other noncurrent liabilities 15,738 5,782
Commitments and contingencies -- --
Stockholders' equity:
Common stock 254 251
Additional paid-in capital 293,971 290,444
Unearned compensation (905) (34)
Accumulated comprehensive gain -- 21
Accumulated deficit (58,283) (56,238)
Less treasury stock at cost (4,456) (3,243)
Total stockholders' equity 230,581 231,201
Total liabilities and
stockholders' equity $297,789 $303,670
PEGASUS SOLUTIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except for per share amounts)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
2002 2001 2002 2001
Net revenues $45,619 $45,226 $135,906 $141,102
Cost of services 21,471 24,613 67,233 75,802
Research and development 1,332 2,313 4,621 5,886
General and administrative expenses 5,053 5,436 17,659 19,460
Marketing and promotion expenses 4,560 4,917 13,622 17,335
Depreciation and amortization 12,058 16,349 36,452 49,177
Restructure costs -- 6,302 -- 7,099
Operating income (loss) 1,145 (14,704) (3,681) (33,657)
Other income (expense):
Interest income, net 360 362 917 575
Equity in loss of investee (179) -- (634)
Gain on sale of business units -- -- -- 78
Other (139) (166) (405) (130)
Income (loss) before income taxes 1,366 (14,687) (3,169) (33,768)
Income tax expense (benefit) 694 (3,836) (1,124) (7,367)
Net income (loss) $672 $(10,851) $(2,045) $(26,401)
Net income (loss) per share:
Basic and diluted $0.03 $(0.44) $(0.08) $(1.08)
Weighted average shares outstanding:
Basic 24,880 24,567 24,817 24,549
Diluted 25,642 24,567 24,817 24,549
Source: Pegasus Solutions, Inc.