Pegasus Solutions Provides Financial Outlook for 2003 - Company Reaffirms 20% EBITDA Margin Goal and Commitment to Invest in Product Development

"As we approach 2003, there is still much uncertainty related to the threat of war and the health of the economy, and specifically, their impact on the travel industry. As a result, we expect modest revenue growth in the year ahead, while maintaining our margins and generating positive free cash flow," said John F. Davis III, chairman and chief executive officer of Pegasus Solutions. "We do not believe 2003 will offer the travel industry a significant increase in either business or leisure travelers, nor do we believe there will be any significant increase in hotel rates. However, Pegasus has a central industry position and the financial strength to weather the storm. To date, we have successfully and profitably managed our way through an unpredictable environment as evidenced in 2002 by our 20 percent plus EBITDA margin and positive operating cash flow. And we remain committed to doing the same in 2003."

Davis continued, "As we move forward, we are in a unique position to build and prepare our company to be even more successful when the economy turns around. Pegasus has the financial resources to build and test new products in this down period. We believe the best opportunity for near and long-term growth will be from the introduction of new products and enhancements to existing products. Given our commitment to maintaining EBITDA margins in excess of 20 percent, we have the opportunity to fund these efforts through positive cash flow."

By continuing to invest in its business, Pegasus should be in a position to benefit immediately from any economic recovery or improvement in business and leisure travel. Specific initiatives planned for 2003 include:

• New release of its central reservation system (CRS) RezView(TM)
• New releases of its Web-based property management system PegasusCentral(TM) to serve full-service hotels and the European market
• Enhancements to Financial Services products such as Reconciliation and Tracking Service and PegsPay(TM)
• Automating data management by creating a single point of entry for all inventory and rate information

In addition, Pegasus expects its business unit lines to become more aligned in a fully integrated product offering similar to the service agreement it signed with Travelodge UK in October. Davis added, "By packaging many of our services into one customer agreement, we can provide our hotel customers with a single-source solution for their hotel reservation and distribution needs while reducing our operating and administrative costs."

"The modest top-line and bottom-line growth we've forecasted for next year reflects the persisting economic uncertainty," said Susan K. Cole, executive vice president and chief financial officer of Pegasus Solutions. "Given this uncertainty, we will continue to take appropriate actions to reduce our cost structure as we remain dedicated to our goal to deliver EBITDA margins on an annual basis in excess of 20 percent, in addition to focusing on improving our technology and service."

Pegasus expects year-over-year revenue growth in four of its five business units. The company estimates 2003 annual revenue growth by business unit to be as follows:

• Property Systems revenue is expected to almost double as the PegasusCentral rollout ramps up.
• Financial Services revenue is expected to increase 5 percent to 10 percent as a result of increasing market share and expanding relationships with existing customers to include new complementary services.
• Utell revenue is expected to increase by 8 percent to 10 percent primarily due to the addition of new hotels expected under contract, continued improvements in the quality of its hotel portfolio and a focus on preferred supplier corporate travel agreements.
• Electronic Distribution revenue is expected to increase by 8 percent to 12 percent primarily due to growth in Internet distribution.
• Central Reservation System revenue is expected to decrease by 15 percent to 20 percent primarily due to the loss of two central reservation system customers in 2002.

As the company provides more fully integrated and seamless services in response to customer demand, EBITDA margins by business unit will be less meaningful. As a result, Pegasus is only providing margin information for its two reporting segments - Technology and Hospitality. The company expects 2003 full year EBITDA margin for Technology to range from 20 percent to 22 percent and Hospitality EBITDA margin to range from 24 percent to 26 percent.

Based on enhancements and new product introductions anticipated for 2003, Pegasus has slightly increased its original 2003 capital expenditures budget to be in the range of $18 million to $20 million. The company anticipates capital expenditures to be funded by operating cash flow, currently expected to be in the range of $19 million to $22 million for 2003.

For the first quarter of 2003, Pegasus expects revenue to range from $39 million to $42 million and cash earnings to range from $0.04 to $0.06 per diluted share. This compares to revenue of $41.9 million and cash EPS of $0.08 for the first quarter of 2002, excluding the one-time payment for the early termination of a customer contract. The primary reason for the year-over-year decline in revenue and cash earnings is the loss of two CRS customers in 2002, the revenue from which has not been fully replaced by new customers.

Davis concluded, "During 2002, we have proven our ability to manage our business through a difficult economic and industry climate. Our continued investment in new services and enhancements to existing services in the upcoming year expresses the confidence I have in our services, our employees and our strong business model."

Conference Call - Following this release, Pegasus Solutions will host a conference call today at 4:45 p.m. (EST), 3:45 p.m. (CST). The call will be simultaneously Webcast over the Internet. To access the Webcast, go to the Company's Web site, www.pegs.com. Click on "investor information," or go directly to .

Company Information - Dallas-based Pegasus Solutions, Inc. (www.pegs.com) is a leading global provider of hotel reservations-related services and technology. 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 (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)