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Accelrys Posts $33.7M in Q2 Revenues as Post-Merger Restructuring Winds Down

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By Uduak Grace Thomas

Accelrys this week reported second-quarter revenues of $33.7 million and a net loss of $4.5 million.

The revenues represent a 71 percent increase over the $19.8 million that Accelrys posted in the comparable quarter of 2010, but that period does not include sales from Symyx, which Accelrys acquired last June. According to pro forma numbers that the company provided in a filing with the US Securities and Exchange Commission this week, combined revenues would have been $39.4 million in the year-ago period if the firms had been operating as a single entity, while the pro forma net loss for the combined firm would have been $15 million.

CEO Max Carnecchia said in a statement that in the year following the Symyx merger the combined company has achieved related "key objectives" which include "significant operating synergies, an integrated product roadmap," and integration of "key products and out-field organization."

He noted that the company has also made investments that it expects will expand its reach in the electronic laboratory notebook market, including the acquisition of Contur software in May (BI 5/27/11).

Furthermore, company officials hinted that a broad post-merger restructuring that has resulted in two rounds of layoffs (BI 5/27/2011) and the phase-out of several underperforming product lines in Symyx content (BI 5/6/2011) may be drawing to a close.

CFO Michael Piraino said during a conference call this week that $2.4 million in business consolidation, restructuring, and transaction costs for the quarter — representing personnel costs associated with transitioning responsibilities to remaining employees, severance costs, and professional fees related to infrastructure integration — are "the final restructuring component associated with the Symyx merger."

Subscription renewal rates on term licenses for the quarter were 90 percent on a dollar basis while maintenance renewal rates on perpetual licenses averaged 94 percent, and content renewal rates on subscriptions were 88 percent, officials said during the call.

Furthermore, there were three renewals from existing customers that exceeded $1 million during Q2.

Software orders for legacy Accelrys products as well as orders for its Pipeline Pilot platform were up year over year but officials didn’t provide additional details. Carnecchia said Accelrys expects Pipeline Pilot orders to exhibit double-digit growth on a full-year basis.

In future reports, Accelrys plans to provide details of each of its four product lines' contribution to orders and to "discuss performance trends on a year-over-year basis" in an effort "to make the business more transparent to investors," Piraino said.

Breakouts for each of these four business areas for the first half of 2011 — excluding service orders — were as follows: modeling and simulation was approximately 30 percent of year-to-date orders, enterprise laboratory management was about 15 percent, data management informatics accounted for about 30 percent, and workflow automation made up about 25 percent of the orders.

Piraino also noted that orders for the data management and informatics business "have been under pressure since the [Symyx] merger" as a result of a "shift in big pharma research and development spending and a related emphasis on outsourcing to China and India," which has "reduced the number of chemists working in these organizations."

The business is expected "to remain under pressure for the balance of the year and into 2012."

Revenue breakout for the quarter by geography was relatively unchanged over the comparable period of 2010, at 47 percent for North America; 29 percent for Europe, Middle East, and Africa; and 24 percent for Asia-Pacific. The majority of Asian sales are in Japan, where Carnecchia said the firm is seeing "positive signs" that the negative impact of the March earthquake and tsunami, which affected the company's first-quarter results, "is mitigating."

In the short term, Accelrys is "cautiously optimistic" that business in this locale will continue to improve but in the long term, there is still some uncertainty on that front, Carnecchia said.

Accelrys expects its non-GAAP revenue for the year ending Dec. 31, 2011 — adjusted for expected write-down of deferred revenue — to be between $152 million and $155 million and non-GAAP fully diluted earnings per share to be between $0.32 and $0.34.

The company also expects its $13.1 million acquisition of Contur to be "slightly dilutive" to non-GAAP earnings per share for the year.

Without disclosing specific details, official said that Contur provided a "small contribution" to the company's finances for the second quarter.

GAAP revenue, operating loss, and net loss for the three months ended June 30 were affected by fair value adjustments to deferred revenue of $3 million.

As of June 30, the company had approximately $150.8 million in cash, cash equivalents, and marketable securities.

Currently, Accelrys has 562 employees, an increase from 358 for the same period last year, which did not include the Symyx business.

Cashing Out

Accelrys stands to gain a minimum of $67 million via the planned initial public offering of Intermolecular — a semiconductor and clean energy technology platform company that filed for an IPO on July 29. Accelrys owns approximately 11 percent of Intermolecular's shares through a licensing agreement between Symyx and Intermolecular dating back to 2005.

That agreement was related to Symyx's high-throughput experimentation equipment business, which it divested prior to its merger with Accelrys.

Accelrys and Intermolecular signed an asset-purchase agreement subsequent to Intermolecular's IPO filing that will terminate all of Intermolecular's royalty obligations to Accelrys after Dec. 31. Accelrys' expected royalty income from Intermolecular for the year ending Dec. 31 is about $2 million.

In addition, Accelrys will transfer to Intermolecular "certain patents relating to Symyx’s legacy high-throughput research business," according to SEC filings.

In exchange, Accelrys will be included as a selling stockholder in the IPO. If the gross proceeds from the sale of all of its shares in the IPO are less than $67 million, Intermolecular will issue the company "a secured promissory note … in an amount equal to such shortfall."

These proceeds would "add to our consolidated cash position," Piraino said during the call.

Carnecchia said Accelrys isn't factoring the expected proceeds from the Intermolecular arrangement into its financial plans, however, "given the uncertainty" around either the IPO occurring or Accelrys being able to sell off all its equity interest in the company.


Have topics you'd like to see covered in BioInform? Contact the editor at uthomas [at] genomeweb [.] com.

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