Pegasus Solutions Reports Strong Second Quarter 2004 Results; Double-digit Revenue Growth at the High-end of Guidance; EPS Growth Tops Company's Guidance

Business Wire, July 27, 2004

DALLAS -- Pegasus Solutions, Inc. (Nasdaq:PEGS):

--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

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 PegasusCentral(TM) back on line and introducing our new PegsTour(TM) 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 Pegasus(TM). In addition, the company's full-service offering -- Utell by Pegasus(TM) -- 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.