Pegasus Solutions Reports Second Quarter 2005 Results

Pegasus Solutions, Inc. (Nasdaq:PEGS):

   Q2 2005 Results

   --  Revenues (GAAP): $47.3 million

   --  Revenues (adjusted): $46.7 million

   --  Net loss per share (GAAP): Basic ($0.43) Diluted ($0.35)

   --  Diluted income from continuing operations per share (GAAP):
        $0.13

   --  Diluted income from continuing operations per share
        (adjusted): $0.13

   Q3 2005 Estimates

   --  Revenues: $45 million to $47 million

   --  Net income per share (GAAP): Diluted $0.12 to $0.15

   --  Diluted income from continuing operations per share (GAAP):
        $0.13 to $0.16

   --  Diluted income from continuing operations per share
        (adjusted): $0.16 to $0.19

   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 second quarter ended June
30, 2005.
   "The second quarter was a very active one for us," said John F.
Davis III, president, chief executive officer and chairman of Pegasus
Solutions. Davis continued: "We executed on several key initiatives,
including a decision to exit the property management systems business.
We also launched hotelbook.com(TM), which creates another way for
independent hoteliers to compete online with the major hotel brand Web
sites. And we expanded our presence in China by opening an office in
Beijing, which is a key part of our strategy to expand our business in
the Asia-Pacific region. While we have challenges, we are very focused
on the current opportunities."

   Second 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 $47.3 million. Adjusted for
        higher revenues due to the impact of transitioning to weekly
        commission processing, revenues were $46.7 million, compared
        to $48.6 in the second quarter of 2004.

   --  In the second quarter of 2005, the company announced that it
        is exiting the property management systems business and
        recorded an after-tax impairment charge of $10.2 million
        related to this asset group (further discussion is provided
        below). As a result, on a GAAP basis, net income (loss) was
        $(9.0) million, $(0.35) per diluted share, compared to $3.4
        million, $0.14 per diluted share, in the same quarter of 2004.
        Diluted loss per share from discontinued operations was
        $(0.48) as compared to $(0.04) in 2004.

   --  Income from continuing operations per diluted share was $0.13,
        compared to $0.18 in the second quarter of 2004.

   --  Adjusted income from continuing operations per diluted share
        was $0.13, compared to $0.16 in the year ago quarter.

   --  EBITDA was $8.9 million, or 19 percent of revenues, compared
        to EBITDA of $10.3 million, or 21 percent of revenues, in the
        year-ago quarter.

   --  Adjusted EBITDA was $8.5 million, or 18 percent of revenues,
        compared to adjusted EBITDA of $10.3 million, or 21 percent of
        revenues, in the same quarter last year.

   --  Operating cash flows increased to $9.7 million, compared to
        $7.4 million in the second quarter of 2004.

   --  Through the cessation of the share repurchase plan effective
        April 12, 2005, Pegasus repurchased an additional 30,000
        shares of common stock at an aggregate cost of $0.4 million
        during the second quarter. Over the last 18 months, the
        company has repurchased 5.2 million shares of common stock at
        an aggregate cost of $61.9 million.

   --  During the quarter, Pegasus made significant headway on
        several development projects, including a new release of its
        NetBooker(R) booking engine and a new rate tracking service,
        as well as a strategic relationship with Open Hospitality for
        Web services.

   Service Line Review

   --  Representation services revenues were $18.3 million, down 5
        percent compared to the prior year. Consistent with last
        quarter, this is primarily due to the continued impact of
        reduced pricing and the transition of a significant customer
        to the company's central reservation service (CRS). Average
        daily room rates increased 4 percent for the company's Utell
        by Pegasus(TM) service. This was offset by a slight decrease
        in reservation volume and a decrease in the average commission
        earned.

   --  Reservation services revenues were $8.3 million, down 9
        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. Total net CRS reservations decreased compared to the
        same quarter last year; however, excluding the reservations
        attributable to those two customers, CRS transactions
        increased 6 percent. Reduced pricing on contract renewals also
        continued to drive the year-over-year decrease in revenue for
        the company's CRS.

   --  Revenues for the company's financial services, adjusted for
        the impact of transitioning to weekly commission processing,
        were $8.2 million, down 6 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.

   --  For Pegasus' distribution services, revenues were $7.1
        million, down 2 percent from the year-ago quarter. GDS
        transactions increased 8 percent, and Internet transactions
        were slightly below last year. Reduced volumes and pricing,
        which resulted from the company's second quarter 2004 sale of
        Travelweb LLC to Priceline.com, negatively affected
        year-over-year comparisons.

   In June, the company's board of directors approved and committed
to a formal plan to exit the property management systems (PMS)
business by selling the company's PMS operations. As a result, PMS
operations have been classified as discontinued operations for all
periods presented. The company concluded that the carrying amount of
such operation's net assets exceeded the estimated fair value, less
costs to sell, of these operations. Accordingly, the company recorded
an after-tax charge of approximately $10.2 million to write down the
PMS assets to their estimated net realizable value. Additionally, the
company recorded after-tax exit costs of approximately $0.6 million.
The impact of these charges, approximately $(0.44) per share on a
diluted basis, are included in discontinued operations.

   Financial Outlook

   "For the second quarter, we reported adjusted diluted income from
continuing operations per share of $0.13," said Susan K. Cole-Conner,
executive vice president and chief financial officer. "Considering the
$0.03 loss per diluted share attributable to the net run-rate PMS
business, adjusted diluted earnings per share is $0.10. With adjusted
revenues of $46.7 million and our continued active management of
costs, we delivered results at the high-end range of our expected
second quarter earnings of $0.08 and $0.11."
   Cole-Conner continued: "With the announcement of our discontinued
operations, we have adjusted our expectations internally and are
providing our third quarter guidance. With ongoing top-line pressure,
we expect third quarter revenues to range from $45 million to $47
million. By remaining focused on costs, we expect adjusted diluted
income from continuing operations to range from $0.16 to $0.19 per
share."
   Davis concluded: "Bear Stearns continues to assist us in
evaluating strategic alternatives, and we are staying focused on our
day-to-day business and delivering value to our customers and
shareholders."

   Conference Call

   Pegasus will host a conference call today at 5:00 p.m. ET 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.

   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 60,000 hotel properties
around the globe. Pegasus' services include central reservation
systems, electronic distribution services, commission processing and
payment services, and marketing representation services, including the
consumer Web site, hotelbook.com. The company's representation
services, including Utell by Pegasus(TM) and Unirez by Pegasus(TM),
are used by nearly 7,000 member hotels in 140 countries, making
Pegasus the hotel industry's largest third-party marketing and
reservations provider. Pegasus has 18 offices in 13 countries,
including regional hubs in London, Scottsdale and Singapore. For more
information, please visit www.pegs.com.

   Forward-Looking Statements

   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, any strategic alternative undertaken by the company, the
inability of the company to sell the PMS operations, risks associated
with a PMS sale transaction and the inability of the company to
terminate the PMS services as expected, 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 Dec. 31,
2004.
   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."

   Use of Non-GAAP Financial Measures

   Pegasus provides financial measures and terms not calculated in
accordance with generally accepted accounting principles in the United
States (GAAP). We believe that presentation of non-GAAP measures such
as adjusted revenues, adjusted income from continuing operations per
share, EBITDA and adjusted EBITDA provide investors with an
alternative method for assessing our operating results in a manner
that enables investors to more thoroughly evaluate our current
performance as compared to past performance. We also believe these
non-GAAP measures provide investors with a better baseline for
assessing the company's future earnings expectations. Our management
uses these non-GAAP measures for the same purpose. The non-GAAP
measures included in this release are provided to give investors
access to the types of measures that we use in analyzing our results.
   Adjusted revenues consist of GAAP revenues adjusted for the items
included in the accompanying reconciliation. Adjusted income from
continuing operations per share consists of GAAP income from
continuing operations per share adjusted for the items included in the
accompanying reconciliation. We believe these measures enable
management and investors to more thoroughly evaluate our current
performance as compared to past performance and provide a better
baseline for assessing the company's future earnings expectations.
However, these measures do not provide a complete picture of our
operations. Therefore net income (loss) per share and revenues and
income from continuing operations per share on both a non-GAAP basis
and GAAP basis may need to be considered to get a comprehensive view
of our results.
   EBITDA consists of GAAP net income (loss) adjusted for the items
included in the accompanying reconciliation. We believe that EBITDA
provides useful information to investors about the company's
performance because it eliminates the effects of period to period
changes in taxes, discontinued operations, cost associated with
capital investments and interest income (expense). Adjusted EBITDA
consists of EBITDA adjusted for the items included in the accompanying
reconciliation. EBITDA and adjusted EBITDA do not give effect to the
cash the company must use to service its debt or pay its income taxes
and thus do not reflect the funds generated from operations or
actually available for capital expenditures.
   Pegasus' calculation of adjusted revenues, adjusted income from
continuing operations per share, EBITDA and adjusted EBITDA is not
necessarily comparable to similarly titled measures reported by other
companies. These non-GAAP measures may be considered in addition to
results prepared in accordance with GAAP, but should not be considered
a substitute for or superior to GAAP results. Schedules that reconcile
adjusted revenues and adjusted income from continuing operations per
share to their most directly comparable GAAP measure and EBITDA and
adjusted EBITDA to GAAP net income (loss) are included with this
release and the presentation accompanying the company's conference
call webcast.

-0-
*T

                       PEGASUS SOLUTIONS, INC.
           CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
               (In thousands, except per share amounts)
                             (Unaudited)


                                 Three Months Ended  Six Months Ended
                                      June 30,           June 30,
                                 ------------------ ------------------
                                   2005     2004      2005     2004
                                 --------- -------- --------- --------

Revenues:
  Service revenues                $42,515  $44,498   $79,605  $84,949
  Customer reimbursements           4,806    4,141     8,714    7,620
                                 --------- -------- --------- --------
  Total revenues                   47,321   48,639    88,319   92,569
                                 --------- -------- --------- --------

Costs of services (exclusive of
 depreciation and amortization
 shown separately below):
  Cost of services                 21,133   22,098    42,108   44,807
  Customer reimbursements           4,806    4,141     8,714    7,620
                                 --------- -------- --------- --------
  Total costs of services          25,939   26,239    50,822   52,427
                                 --------- -------- --------- --------

Research and development              876    1,041     1,583    2,363
General and administrative
 expenses                           5,933    6,045    11,946   12,426
Marketing and promotion expenses    5,638    4,981    10,949    9,694
Depreciation and amortization       4,659    4,591     8,935    9,291
                                 --------- -------- --------- --------
Operating income                    4,276    5,742     4,084    6,368

Other income (expense):
  Gain on sale                         --    1,961        --    1,961
  Interest expense, net              (382)    (524)     (727)  (1,025)
  Other                               (35)     (86)      139     (293)
                                 --------- -------- --------- --------
Income from continuing
 operations before income taxes     3,859    7,093     3,496    7,011

Income tax expense                 (1,168)  (2,687)   (1,286)  (2,690)
                                 --------- -------- --------- --------

Income from continuing
 operations                         2,691    4,406     2,210    4,321

Discontinued operations, net of
 tax                              (11,697)  (1,003)  (12,857)  (1,897)
                                 --------- -------- --------- --------

Net income (loss)                 $(9,006)  $3,403  $(10,647)  $2,424
                                 ========= ======== ========= ========

Basic income (loss) per share:
  Continuing operations             $0.13    $0.19     $0.11    $0.18
  Discontinued operations           (0.56)   (0.04)    (0.62)   (0.08)
                                 --------- -------- --------- --------
  Net income (loss)                $(0.43)   $0.15    $(0.51)   $0.10
                                 ========= ======== ========= ========

Diluted income (loss) per share:
  Continuing operations             $0.13    $0.18     $0.11    $0.18
  Discontinued operations           (0.48)   (0.04)    (0.62)   (0.08)
                                 --------- -------- --------- --------
  Net income (loss)                $(0.35)   $0.14    $(0.51)   $0.10
                                 ========= ======== ========= ========

Weighted average shares
 outstanding:
  Basic                            20,707   23,230    20,734   23,974
                                 ========= ======== ========= ========
  Diluted (See Note 1)             24,639   27,253    20,989   24,277
                                 ========= ======== ========= ========

Note
(1) The company's second quarter 2005 and 2004 diluted per share data
    includes approximately 3.7 million additional shares, applicable
    to its contingently convertible debt, in the weighted average
    share base used in the diluted per share computations. See
    attached reconciliation of per share computations.

    Subject to certain conditions, the company's convertible debt is
    convertible into common stock at a conversion price of
    approximately $20.13 per share.



                       PEGASUS SOLUTIONS, INC.
               RECONCILIATION OF PER SHARE COMPUTATIONS
               (In thousands, except per share amounts)
                             (Unaudited)

                                     Three Months       Six Months
                                          Ended            Ended
                                        June 30,         June 30,
                                    ---------------- -----------------
                                     2005     2004     2005     2004
                                    -------- ------- --------- -------


Income from continuing
 operations                    (a)   $2,691  $4,406    $2,210  $4,321

Discontinued operations, net
 of tax                        (b)  (11,697) (1,003)  (12,857) (1,897)
                                    -------- ------- --------- -------

Net income (loss)              (c)  $(9,006) $3,403  $(10,647) $2,424
                                    ======== ======= ========= =======


Income from continuing
 operations                    (a)   $2,691  $4,406    $2,210  $4,321
  Adjustment for interest on
   convertible debt, net of
   tax                                  414     460        --      --
                                    -------- ------- --------- -------
Income from continuing
 operations, as adjusted       (d)   $3,105  $4,866    $2,210  $4,321
                                    ======== ======= ========= =======

Net income (loss)              (c)  $(9,006) $3,403  $(10,647) $2,424
  Adjustment for interest on
   convertible debt, net of
   tax                                  414     460        --      --
                                    -------- ------- --------- -------
Net Income (loss), as
 adjusted                      (e)  $(8,592) $3,863  $(10,647) $2,424
                                    ======== ======= ========= =======

Basic income (loss) per
 share:
  Continuing operations      (a)/(f)  $0.13   $0.19     $0.11   $0.18
  Discontinued operations    (b)/(f)  (0.56)  (0.04)    (0.62)  (0.08)
                                    -------- ------- --------- -------
  Net income (loss)          (c)/(f) $(0.43)  $0.15    $(0.51)  $0.10
                                    ======== ======= ========= =======

Diluted income (loss) per
 share:
  Continuing operations      (d)/(g)  $0.13   $0.18     $0.11   $0.18
  Discontinued operations    (b)/(g)  (0.48)  (0.04)    (0.62)  (0.08)
                                    -------- ------- --------- -------
  Net income (loss)          (e)/(g) $(0.35)  $0.14    $(0.51)  $0.10
                                    ======== ======= ========= =======


  Basic weighted average
   shares outstanding          (f)   20,707  23,230    20,734  23,974
  Dilutive effect of stock
   options                              206     297       255     303
  Dilutive effect of
   convertible debt (See Note
   1)                                 3,726   3,726        --      --
                                    -------- ------- --------- -------
  Diluted weighted average
   shares outstanding          (g)   24,639  27,253    20,989  24,277
                                    -------- ------- --------- -------


Note
(1) Subject to certain conditions, the company's convertible debt is
    convertible into common stock at a conversion price of
    approximately $20.13 per share.


                       PEGASUS SOLUTIONS, INC.
   RECONCILIATION OF GAAP FINANCIAL MEASURES TO NON-GAAP FINANCIAL
                               MEASURES
               (In thousands, except per share amounts)
                             (Unaudited)


                                           Three Months Ended
                                             June 30, 2005
                                  ------------------------------------

                                     As
                                   Reported   Adjustments     Adjusted
                                  ----------  -----------     --------

Revenues:
  Service revenues                  $42,515        $(600) (1) $41,915
  Customer reimbursements             4,806           --        4,806
                                  ----------  -----------     --------
  Total revenues                     47,321         (600)      46,721
                                  ----------  -----------     --------

Costs of services (exclusive of
 depreciation and amortization
 shown separately below):
  Cost of services                   21,133         (150) (1)  20,983
  Customer reimbursements             4,806           --        4,806
                                  ----------  -----------     --------
  Total costs of services            25,939         (150)      25,789
                                  ----------  -----------     --------

Research and development                876           --          876
General and administrative
 expenses                             5,933           --        5,933
Marketing and promotion expenses      5,638           --        5,638
Depreciation and amortization         4,659         (789) (2)   3,870
                                  ----------  -----------     --------
Operating income                      4,276          339        4,615

Other income (expense):
  Interest expense, net                (382)          --         (382)
  Other                                 (35)          --          (35)
                                  ----------  -----------     --------
Income from continuing operations
 before income taxes                  3,859          339        4,198

Income tax expense                   (1,168)        (343) (3)  (1,511)
                                  ----------  -----------     --------

Income from continuing operations     2,691          $(4)      $2,687
                                              ===========     ========

Discontinued operations, net of
 tax                                (11,697)
                                  ----------

Net loss                            $(9,006)
                                  ==========

Diluted income (loss) per share:
  Continuing operations               $0.13                     $0.13
                                                              ========
  Discontinued operations             (0.48)
                                  ----------
  Net loss                           $(0.35)
                                  ==========

Diluted weighted average shares
 outstanding                         24,639       (3,726) (4)  20,913
                                  ==========  ===========     ========




Notes:
(1) To adjust for the impact of converting from monthly to weekly
    commission processing.
(2) To adjust for amortization of software and identifiable intangible
    assets obtained through acquisitions.
(3) To adjust income tax expense for assumed 36% tax rate.
(4) To exclude the dilutive effect of convertible debt -- convertible
    at $20.13 per share.


                       PEGASUS SOLUTIONS, INC.
   RECONCILIATION OF GAAP FINANCIAL MEASURES TO NON-GAAP FINANCIAL
                               MEASURES
               (In thousands, except per share amounts)
                             (Unaudited)




                                           Three Months Ended
                                             June 30, 2004
                                  ------------------------------------

                                     As
                                   Reported   Adjustments     Adjusted
                                  ----------  -----------     --------
Revenues:
  Service revenues                  $44,498          $--      $44,498
  Customer reimbursements             4,141           --        4,141
                                  ----------  -----------     --------
  Total revenues                     48,639           --       48,639
                                  ----------  -----------     --------

Costs of services (exclusive of
 depreciation and amortization
 shown separately below):
  Cost of services                   22,098                    22,098
  Customer reimbursements             4,141           --        4,141
                                  ----------  -----------     --------
  Total costs of services            26,239           --       26,239
                                  ----------  -----------     --------

Research and development              1,041           --        1,041
General and administrative
 expenses                             6,045                     6,045
Marketing and promotion expenses      4,981           --        4,981
Depreciation and amortization         4,591         (767) (1)   3,824
                                  ----------  -----------     --------
Operating income                      5,742          767        6,509

Other income (expense):
  Gain on sale                        1,961       (1,961) (2)      --
  Interest expense, net                (524)          --         (524)
  Other                                 (86)          --          (86)
                                  ----------  -----------     --------
Income from continuing operations
 before income taxes                  7,093       (1,194)       5,899

Income tax expense                   (2,687)         445  (3)  (2,242)
                                  ----------  -----------     --------

Income from continuing operations     4,406        $(749)      $3,657
                                              ===========     ========

Discontinued operations, net of
 tax                                 (1,003)
                                  ----------

Net income                           $3,403
                                  ==========

Diluted income (loss) per share:
  Continuing operations               $0.18                     $0.16
                                                              ========
  Discontinued operations             (0.04)
                                  ----------
  Net income                          $0.14
                                  ==========

Diluted weighted average shares
 outstanding                         27,253       (3,726) (4)  23,527
                                  ==========  ===========     ========




Notes:
(1) To adjust for amortization of software and identifiable intangible
    assets obtained through acquisitions.
(2) To adjust for non-recurring gain on sale of Travelweb LLC.
(3) To adjust income tax expense for assumed 38% tax rate.
(4) To exclude the dilutive effect of convertible debt -- convertible
    at $20.13 per share.


                       PEGASUS SOLUTIONS, INC.
   RECONCILIATION OF GAAP FINANCIAL MEASURES TO NON-GAAP FINANCIAL
                               MEASURES
               (In thousands, except per share amounts)
                             (Unaudited)


                                            Six Months Ended
                                             June 30, 2005
                                  ------------------------------------

                                     As
                                   Reported   Adjustments     Adjusted
                                  ----------  -----------     --------

Revenues:
  Service revenues                  $79,605       $1,500  (1) $81,105
  Customer reimbursements             8,714           --        8,714
                                  ----------  -----------     --------
  Total revenues                     88,319        1,500       89,819
                                  ----------  -----------     --------

Costs of services (exclusive of
 depreciation and amortization
 shown separately below):
  Cost of services                   42,108          150  (1)  42,258
  Customer reimbursements             8,714           --        8,714
                                  ----------  -----------     --------
  Total costs of services            50,822          150       50,972
                                  ----------  -----------     --------

Research and development              1,583           --        1,583
General and administrative
 expenses                            11,946           --       11,946
Marketing and promotion expenses     10,949           --       10,949
Depreciation and amortization         8,935       (1,556) (2)   7,379
                                  ----------  -----------     --------
Operating income                      4,084        2,906        6,990

Other income (expense):
  Interest expense, net                (727)          --         (727)
  Other                                 139           --          139
                                  ----------  -----------     --------
Income from continuing operations
 before income taxes                  3,496        2,906        6,402

Income tax expense                   (1,286)      (1,018) (3)  (2,304)
                                  ----------  -----------     --------

Income from continuing operations     2,210       $1,888       $4,098
                                              ===========     ========

Discontinued operations, net of
 tax                                (12,857)
                                  ----------

Net loss                           $(10,647)
                                  ==========

Diluted income (loss) per share:
  Continuing operations               $0.11                     $0.20
                                                              ========
  Discontinued operations             (0.62)
                                  ----------
  Net loss                           $(0.51)
                                  ==========

Diluted weighted average shares
 outstanding                         20,989           --       20,989
                                  ==========  ===========     ========




Notes:
(1) To adjust for the impact of converting from monthly to weekly
    commission processing.
(2) To adjust for amortization of software and identifiable intangible
    assets obtained through acquisitions.
(3) To adjust income tax expense for assumed 36% tax rate.


                       PEGASUS SOLUTIONS, INC.
   RECONCILIATION OF GAAP FINANCIAL MEASURES TO NON-GAAP FINANCIAL
                               MEASURES
               (In thousands, except per share amounts)
                             (Unaudited)


                                            Six Months Ended
                                             June 30, 2004
                                  ------------------------------------

                                     As
                                   Reported   Adjustments     Adjusted
                                  ----------  -----------     --------
Revenues:
  Service revenues                  $84,949          $--      $84,949
  Customer reimbursements             7,620           --        7,620
                                  ----------  -----------     --------
  Total revenues                     92,569           --       92,569
                                  ----------  -----------     --------

Costs of services (exclusive of
 depreciation and amortization
 shown separately below):
  Cost of services                   44,807       (1,915) (1)  42,892
  Customer reimbursements             7,620           --        7,620
                                  ----------  -----------     --------
  Total costs of services            52,427       (1,915)      50,512
                                  ----------  -----------     --------

Research and development              2,363           --        2,363
General and administrative
 expenses                            12,426         (465) (1)  11,961
Marketing and promotion expenses      9,694           --        9,694
Depreciation and amortization         9,291       (1,534) (2)   7,757
                                  ----------  -----------     --------
Operating income                      6,368        3,914       10,282

Other income (expense):
  Gain on sale                        1,961       (1,961) (3)      --
  Interest expense, net              (1,025)          --       (1,025)
  Other                                (293)          --         (293)
                                  ----------  -----------     --------
Income from continuing operations
 before income taxes                  7,011        1,953        8,964

Income tax expense                   (2,690)        (717) (4)  (3,407)
                                  ----------  -----------     --------

Income from continuing operations     4,321       $1,236       $5,557
                                              ===========     ========

Discontinued operations, net of
 tax                                 (1,897)
                                  ----------

Net income                           $2,424
                                  ==========

Diluted income (loss) per share:
  Continuing operations               $0.18                     $0.23
                                                              ========
  Discontinued operations             (0.08)
                                  ----------
  Net income                          $0.10
                                  ==========

Diluted weighted average shares
 outstanding                         24,277           --       24,277
                                  ==========  ===========     ========


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 software and identifiable intangible
    assets obtained through acquisitions.
(3) To adjust for gain on sale of Travelweb LLC.
(4) To adjust income tax expense for assumed 38% tax rate.


                       PEGASUS SOLUTIONS, INC.
   RECONCILIATION OF GAAP FINANCIAL MEASURES TO NON-GAAP FINANCIAL
                               MEASURES
                            (In thousands)
                             (Unaudited)

                                                   Three Months Ended
                                                         June 30,
                                                   -------------------
                                                     2005      2004
                                                   --------- ---------

Total revenues                                      $47,321   $48,639
Adjustment:
  Impact of converting from monthly to weekly
   commission processing                               (600)       --
                                                   --------- ---------

Adjusted revenues                                   $46,721   $48,639
                                                   ========= =========


Net income (loss)                                   $(9,006)   $3,403
Reconciling items:
  Discontinued operations, net of tax                11,697     1,003
  Income tax expense                                  1,168     2,687
  Gain on sale                                           --    (1,961)
  Interest expense, net                                 382       524
  Other income                                           35        86
  Depreciation and amortization                       4,659     4,591
                                                   --------- ---------

EBITDA                                               $8,935   $10,333
                                                   ========= =========

EBITDA margin                                            19%       21%
                                                   ========= =========

Adjustments:
  Net impact of converting from monthly to weekly
   commission processing                               (450)       --
                                                   --------- ---------

Adjusted EBITDA                                      $8,485   $10,333
                                                   ========= =========

Adjusted EBITDA margin                                   18%       21%
                                                   ========= =========



                       PEGASUS SOLUTIONS, INC.
   RECONCILIATION OF GAAP FINANCIAL MEASURES TO NON-GAAP FINANCIAL
                               MEASURES
                            (In thousands)
                             (Unaudited)


                                                      Six Months
                                                    Ended June 30,
                                                 ---------------------
                                                   2005       2004
                                                 ---------- ----------

Total revenues                                     $88,319    $92,569
Adjustment:
  Impact of converting from monthly to weekly
   commission processing                             1,500         --
                                                 ---------- ----------

Adjusted revenues                                  $89,819    $92,569
                                                 ========== ==========


Net income (loss)                                 $(10,647)    $2,424
Reconciling items:
  Discontinued operations, net of tax               12,857      1,897
  Income tax expense                                 1,286      2,690
  Gain on sale                                          --     (1,961)
  Interest expense, net                                727      1,025
  Other income (expense)                              (139)       293
  Depreciation and amortization                      8,935      9,291
                                                 ---------- ----------

EBITDA                                             $13,019    $15,659
                                                 ========== ==========

EBITDA margin                                           15%        17%
                                                 ========== ==========

Adjustments:
  Net impact of converting from monthly to
   weekly commission processing                      1,350         --
  Severance and other costs related to changes
   in the company's information technology
   organization                                         --      2,380
                                                 ---------- ----------

Adjusted EBITDA                                    $14,369    $18,039
                                                 ========== ==========

Adjusted EBITDA margin                                  16%        19%
                                                 ========== ==========


                       PEGASUS SOLUTIONS, INC.
   RECONCILIATION OF GAAP FINANCIAL MEASURES TO NON-GAAP FINANCIAL
                               MEASURES
                 (In 000's, except per share amounts)
                              (Unaudited)

                                          Estimated Results
                               Three Months Ending September 30, 2005
                               ---------------------------------------
                                 GAAP        Adjustments     Adjusted
                               ---------     -----------     ---------

Low End of Range:
Revenues                        $45,000             $--       $45,000
                               =========     ===========     =========

Income before income taxes        4,450             789  (1)    5,239
Income tax expense               (1,602)           (284) (2)   (1,886)
                               ---------     -----------     ---------

 Income from continuing
  operations                      2,848             505         3,353
                                                             =========

Discontinued operations, net of
 tax                               (250)
                               ---------

Net income                       $2,598
                               =========

Diluted income per share:
  Continuing operations           $0.13  (4)                    $0.16
                                                             =========
  Discontinued operations         (0.01)
                               ---------
  Net income                      $0.12  (4)
                               =========


  Diluted weighted average
   shares outstanding:           24,826          (3,726) (3)   21,100
                               =========     ===========     =========


High End of Range:
Revenues                        $47,000             $--       $47,000
                               =========     ===========     =========

Income before income taxes        5,450             789  (1)    6,239
Income tax expense               (1,962)           (284) (2)   (2,246)
                               ---------     -----------     ---------

 Income from continuing
  operations                      3,488             505         3,993

Discontinued operations, net of
 tax                               (250)
                               ---------

Net income                       $3,238
                               =========

Diluted income per share:
  Continuing operations           $0.16  (4)                    $0.19
                                                             =========
  Discontinued operations         (0.01)
                               ---------
  Net income                      $0.15  (4)
                               =========


  Diluted weighted average
   shares outstanding:           24,826          (3,726) (3)   21,100
                               =========     ===========     =========



Notes (in 000's):
(1) Represents $789 for the amortization of software and identifiable
    intangible assets obtained through acquisitions.
(2) Assumes a 36% tax rate on both a GAAP and an adjusted basis.
(3) To exclude the dilutive effect of convertible debt -- convertible
    at $20.13 per share.
(4) Includes the impact of adding back interest expense of $475
    applicable to contingently convertible debt.


                       PEGASUS SOLUTIONS, INC.
                CONDENSED CONSOLIDATED BALANCE SHEETS
                            (In thousands)
                             (Unaudited)

                                               June 30,   December 31,
                                                2005         2004
                                             ------------ ------------
ASSETS

Cash and cash equivalents                        $21,683      $17,599
Auction rate securities                            5,000        5,650
Short-term investments                                --        6,001
Accounts receivable, net                          27,149       28,551
Other current assets                               8,086        9,061
                                             ------------ ------------
  Total current assets                            61,918       66,862

Goodwill                                         163,585      163,585
Intangible assets, net                             4,978        5,827
Property and equipment, net                       62,954       80,326
Other noncurrent assets                           21,679       12,614
                                             ------------ ------------
    Total assets                                $315,114     $329,214
                                             ============ ============

LIABILITIES AND STOCKHOLDERS' EQUITY

Accounts payable and accrued liabilities         $29,998      $29,531
Unearned revenue                                   6,768        6,763
Other current liabilities                          7,424        5,621
                                             ------------ ------------
  Total current liabilities                       44,190       41,915

Noncurrent uncleared commission checks             4,966        5,576
Other noncurrent liabilities                      19,206       19,407
Convertible debt                                  75,000       75,000

Commitments and contingencies

Stockholders' equity:
  Common stock                                       207          211
  Additional paid-in capital                     237,120      242,112
  Unearned compensation                             (370)        (408)
  Accumulated other comprehensive loss              (954)        (995)
  Accumulated deficit                            (64,251)     (53,604)
                                             ------------ ------------
    Total stockholders' equity                   171,752      187,316
                                             ------------ ------------
    Total liabilities and stockholders'
     equity                                     $315,114     $329,214
                                             ============ ============
*T