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Accelrys Posts Modest Revenue Growth for Q4 and Full Year; Expects Symyx Merger to Close in July


By Bernadette Toner

Accelrys today reported "solid" performance for its fourth fiscal quarter and full fiscal year as revenues increased in the low single digits and orders beat expectations.

In addition, Accelrys officials said that the planned "merger of equals" with scientific software firm Symyx, which the companies announced last month (BioInform 4/9/10), has cleared the waiting period under Hart-Scott-Rodino antitrust regulations and should close during the first week of July, subject to shareholder approval.

In a conference call to discuss the company's financial results, CEO Max Carnecchia said that the three months ended March 31 marked the "second consecutive solid quarter for order intake" for the company. While he did not disclose specifics, he said that orders for software and services beat the year-ago quarter's order levels, while full-year order intake exceeded the company's guidance and the prior year's orders.

CFO Michael Piraino also described the quarter's performance as "very solid on a number of fronts." He noted that there were aggregate orders from four customers exceeding a million dollars, compared to aggregate orders from one customer exceeding a million dollars in the same quarter a year ago. In addition, he said that "all major customers" renewed their software subscription licenses during the quarter and that the company saw subscription renewal rates above 90 percent "across all product categories for the quarter."

The company's best-selling product remains Pipeline Pilot, which continues to experience order growth in the "robust double digits," Piraino said. He forecast that the platform will continue to grow at this clip through fiscal year 2011, which ends March 31, 2011.

Carnecchia added that Pipeline Pilot orders have "crested" to the point where the platform now contributes more than 50 percent of the company's revenues.

Growth in Pipeline Pilot revenues was offset in both the quarter and the full year by the continuing decline of the company's Discovery Studio modeling and simulation platform.

As a result, total revenues for the fourth quarter increased 4 percent to $20.8 million from $20 million for the comparable period of the previous year. Excluding currency effects, revenue growth was only 1 percent. In addition, the company missed analysts' estimates of $21.08 million for the quarter.

For the full year, revenues increased 2 percent to $83 million from $81 million for the previous year, meeting analysts estimates.

The company's fourth-quarter net loss widened to $2.4 million from $2.2 million for the prior-year quarter, while full-year net income rose to $1.2 million from $100,000 in the previous year.

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For the fiscal year ending March 31, 2011, Accelrys expects both orders and revenue to grow at low single digit rates over 2010. This estimate does not account for projected revenues from Symyx. Piraino said that the firm will not provide combined guidance until after the merger closes.

As of March 31, Accelrys held cash and cash equivalents of $77 million. Including marketable securities and restricted cash, the company's cash position was $93.1 million.

Tying the Knot

Carnecchia said that both Accelrys and Symyx are taking steps to ensure that the upcoming merger closes smoothly with as little disruption as possible to employees and customers.

"The integration process is progressing very well with cross-functional integration teams of both companies meeting weekly," he said. "We are well into developing a combined operating model and optimized organizational structure and are confident that we will have a plan to capture the previously announced net synergies well in advance of closing the merger."

Last month, the firms forecast full-year net synergies of between $10 million and $15 million following the merger.

Carnecchia said that nearly every hurdle has been cleared to close the transaction.

"Our Hart-Scott-Rodino filing cleared on May 12 and we received notice of no review from the [Securities and Exchange Commission]. The registration statement was declared effective on May 18, and our shareholder of record date and shareholder meeting dates have been set," he said. "Given the current series of activities, we would expect the merger to close in the first week of July."

He added that employees, customers, and investors "have been extremely supportive of the merger."

Carnecchia reiterated previous comments that the companies' technology portfolios will be entirely complementary — a characteristic that sets this agreement apart from most other mergers.

"In my experience, mergers of equals typically occur when two companies who sell competing products to the same customers decide to merge," he said. "The combination therefore results in fewer choices for these customers, requires the combined company to make painful investment decisions between competing products, and usually results in lower growth prospects for the combined company as customers rarely need both competing products — especially in the long run."

He said that the Symyx/Accelrys merger is "uniquely different" from this model.
"While both companies largely sell to the same customers, the products sold are complementary with very little overlap," he said. "Overwhelmingly, we will not require our customers to make a choice between two competing products, but will instead offer to them an integrated suite of complementary products, which in numerous ways — and across their entire research and development organization — will enable them to utilize their scientific data more effectively in order to make better business decisions, enhance their scientists' productivity, and create better products faster."

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