Pegasus Solutions, Inc. reported its financial results for the third quarter ended September 30, 2005.

"With the assistance of Bear Stearns, we continue to make considerable progress evaluating our strategic alternatives," said John F. Davis III, president, chief executive officer and chairman of Pegasus Solutions. "While no assurance can be given as to the outcome, we expect to make an announcement regarding the results of this process in the near future."

Davis continued: "During the third quarter we delivered solid financial results. Our sales and marketing focus has expanded our presence throughout the Asia-Pacific region; we launched our new travel Web site, hotelbook.com; we initiated transactions using our new PegsTour(R) service; and completed numerous technology enhancements."

Third Quarter and Other 2005 Highlights (See tables included with this release for reconciliation of non-GAAP measures to GAAP measures.)

-- On a GAAP basis, revenues were $45.7 million for the quarter, compared to $48.4 million in the third quarter of 2004.

-- Income from continuing operations per diluted share was $0.12 for the quarter, compared to $0.20 in the third quarter of 2004.

-- Adjusted income from continuing operations per diluted share was $0.17 for the quarter, compared to $0.22 in the year ago quarter. In addition to the exclusion of amortization of software and identifiable assets obtained through acquisitions in both quarters, third quarter 2005 adjusted per share results also exclude facility closing and severance costs of $985,000.

-- Adjusted EBITDA was $9.9 million, or 22 percent of revenues for the quarter, compared to adjusted EBITDA of $11.8 million, or 24 percent of revenues, in the same quarter last year.

-- Year-to-date operating cash flows increased to $21.2 million, compared to $20.4 million through the third quarter of 2004.

-- During the quarter, Pegasus launched its travel Web site, hotelbook.com(TM); began processing transactions using its new PegsTour(R) service; increased the functionality of its NetBooker(R) booking engine; added a new rate tracking service; and continued customer conversions onto its new release of the RezView(R) central reservation system (CRS).

-- In October 2005, Pegasus initiated development work for property management system (PMS) interfaces to its RezView CRS including Multi-Systems, Inc.'s (MSI) WinPM system, as well as an Open Travel Alliance (OTA) interface.

-- The cash balance (including auction rate securities) increased to $30.2 million versus $26.7 million at June 30, 2005 as a result of positive operating cash flows and the expected slow-down in capital expenditures.

-- Pegasus' decision to exit the PMS business resulted in the October sale of its NovaPlus and GuestView business to MSI. The financial impact of this transaction is not expected to be material to the operations of the company and will be recorded in discontinued operations in the fourth quarter.

Service Line Review

-- Representation services revenues were $16.9 million, down 9 percent compared to the prior year, primarily due to the sustained impact of reduced pricing and the transition of a significant Unirez by Pegasus(TM) customer to the company's central reservation service (CRS). Average daily room rates increased 1 percent for the company's Utell by Pegasus(TM) service, offset by a 5 percent decrease in reservation volume and average commission earned. On a sequential quarter basis, the Utell by Pegasus(TM) average commission earned has stabilized and the representation portfolio count has increased over 2 percent. Pegasus fourth quarter initiatives include representation product road shows and customer focused revenue and yield management programs.

-- Reservation services revenues were $8.3 million, down 11 percent compared to the same period last year. The loss of a CRS customer was partially offset by the positive impact from a significant representation customer converting to the CRS service. Excluding the reservations attributable to those two customers, CRS transactions increased 6 percent. However, reduced pricing on contract renewals continued to drive the year-over-year decrease in revenue.

-- For Pegasus' distribution services, revenues were $7.6 million, up 5 percent from the year-ago quarter. During the third quarter switch transactions increased 5 percent in total. The company expects the positive trends in distribution services to continue in the fourth quarter.

-- Revenues for the company's financial services were $8.5 million, down 9 percent year-over-year. Financial services revenues were impacted by reduced transactions and pricing, resulting from travel agency consolidations, partially offset by the continued benefit from improved average daily room rates.

Outlook for Fourth Quarter and Full Year 2005

-- Q4 2005 revenues: $40 million to $42 million

-- Q4 2005 diluted income from continuing operations per share (GAAP): $0.03 to $0.06

-- Q4 2005 diluted income from continuing operations per share (adjusted): $0.05 to $0.08

-- Full year 2005 revenues: $174 million to $176 million; $175 million to $177 million on an adjusted basis

-- Full year diluted income from continuing operations per share (GAAP): $0.25 to $0.28

-- Full year diluted income from continuing operations per share (adjusted): $0.42 to $0.45

Financial Outlook

"We are very pleased to report third quarter revenues and adjusted EPS results in-line with our previous guidance," said Susan K. Conner, executive vice president and chief financial officer. "As a result of usual seasonality and continued top-line pressure, we expect fourth quarter revenues to range from $40 million to $42 million. As we have done all year, we will continue to operate with a cost-conscious focus and expect fourth quarter adjusted diluted income from continuing operations to range from $0.05 to $0.08 per share."

Davis added: "As part of our strategy to provide integrated technology and business process solutions with best of breed capabilities, we are beginning to see the benefits of our technology development that we focused on so heavily earlier this year, as well as the integration of capabilities from our partners. In 2005, we have delivered significant enhancements to each of our service lines. Financial services started weekly commission processing. In reservation services, RezView had a major release and we supplemented our offering with rate checking capabilities. In the representation services group, we rolled out significant upgrades to the HotelFactory(TM) CRS and launched our own travel Web site. In distribution services, we initiated transactions for our wholesale travel companies and tour operator customers using the PegsTour service. We have also delivered on our strategy of providing outstanding customer service, expanding into emerging hospitality markets and building strategic alliances and partnerships."

Davis concluded: "Pegasus has a rich heritage of providing technology solutions for hotels and travel distributors throughout the world. Our ability to anticipate industry trends and respond to customer needs is how we built this company. Moving forward, we plan to intensify our efforts on what we do best -- helping our customers grow by providing our leading technology solutions to the market."