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Accelrys Eyes Further Acquisitions as Q3 Revenues Grow 25 Percent

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By Bernadette Toner

Having wrapped up two mergers in a little over a year, Accelrys views additional acquisitions as a key part of its future growth strategy and is on the hunt for viable candidates, company officials said this week.

In a call to discuss the company's third-quarter financial results, Accelrys CEO Max Carnecchia said the firm views acquisitions as one component of a "three-pronged" growth strategy that also includes organic product development and an expanded partner network.

Regarding M&A, "we continue to evaluate candidates that add important product capabilities, move us further down the value chain from research towards commercialization, and support our growth agenda," Carnecchia said.

He added later in the call that the company's "appetite is significant" when it comes to M&A and that the firm has been "hard at work" identifying "a lot of targets," but did not provide further details.

Carnecchia noted that the company is already delivering on the other two facets of its growth strategy. He cited the July launch of the latest version of the company's Discovery Studio platform (BI 7/15/2011) as an example of its in-house development activities. Likewise, he said that the company's deal with Scynexis to resell that firm's Hit Explorer Operating System, or HEOS, data-sharing software as part of its Cheminformatics Suite illustrates its partnership strategy (BI 10/14/2011).

The company's most recent acquisitions — of Symyx Technologies last July and of Contur Software this May (BI 5/27/2011) — contributed to a 25 percent spike in third-quarter revenue to $36.3 million from $29.1 million for the comparable period of 2010.

CFO Michael Piraino said during the call that average subscription renewal rates on term licenses were 87 percent during the quarter while maintenance renewal rates on perpetual licenses were around 83 percent and renewal rates for content products were 63 percent.

Compared to the year-ago quarter, sales of the company's modeling and simulation products increased 10 percent while sales of workflow automation and analytics products increased around 5 percent.

Piraino said that sales for the company's enterprise-wide management products increased 90 percent year-over year on account of a "small base" for the prior year and the addition of Contur's products to this business segment in the current quarter.

Sales of data-management and informatics products fell by around 20 percent. Piraino said this segment contains the company's content and Isentris products, "which will continue to be under pressure for the balance of the year and into 2012."

For the year to date, modeling and simulation software comprised around 33 percent of orders; enterprise-wide management tools accounted for approximately 14 percent of orders; data management and informatics comprised around 29 percent of orders, and workflow automation and analytics tools were around 24 percent of orders.

The company's headcount was 545 as of Sept. 30.

Accelrys cut its third-quarter product development costs 10 percent year-over-year to $8.3 million from $9.2 million.

Sales and marketing costs dipped 5 percent to $11.5 million from $12.2 million, while general and administrative spending decreased 12 percent to $4 million from $4.6 million.

The company narrowed its net loss by 35 percent to $2.2 million, or $.04 per share, from $3.4 million, or $.06 per share, in the third quarter of 2010.

Accelrys noted that its GAAP results for the quarter were affected by "business combination accounting" associated with its acquisitions of Contur and Symyx and "other nonrecurring acquisition-related and restructuring costs."

Specifically, GAAP revenue and GAAP net loss for the third quarter were affected by fair value adjustments to deferred revenue of $1.7 million while GAAP net loss was impacted by $600,000 in additional purchased intangible asset amortization and $200,000 in fair value adjustments to deferred royalty income.

As of Sept. 30, Accelrys held $145.5 million in cash, cash equivalents, and marketable securities.


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