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Accelrys' Q3 Revenues Rise with Symyx Acquisition; Integration Roadmap Proceeding as Planned

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By Uduak Grace Thomas

This week, Accelrys reported that at the end of its first combined quarter with Symyx Technologies, the company's integration roadmap is proceeding according to plan and it should finish the year at the "high end" of its previously announced savings target of $15 million.

The acquisition of Symyx contributed to a 46 percent increase in third-quarter revenues for the combined firm, to $29.1 million from $20 million for the same period in 2009.

The company did not provide combined figures for Symyx and Accelrys in the year-ago period.

During a conference call to discuss the results, Accelrys CEO Max Carnecchia said that the combined company has made "considerable progress in bringing our people, processes, [and] systems together" and is "hitting key milestones on the integration plan" as well as "delivering against pre-merger operational targets."

As part of its roadmap, Carnecchia said the company has integrated corporate websites, "transitioned product names," and unified customer and partner communications under the Accelrys brand.

He also said that the company "accelerated" the integration of its field sales organization for North America and Europe, the Middle East, and Africa to early October — ahead of its two largest renewal quarters — to "minimize the risk of confusing our customer base" since both companies share many customers.

He added that because the company's Asia-Pacific team has a different distribution model, integration efforts in that region are expected to wrap up by the end of the year.

Carnecchia said that the company also held several customer roadshows in North America, Asia Pacific, and Europe during the third quarter in which it shared its product roadmap and company vision, and demonstrated the early integration between its Pipeline Pilot software and Symyx Notebook as well as between Pipeline Pilot and Isentris. He did not provide additional details about the combined products portfolio going forward.

A key focus of the company, Carnecchia said, was to ensure that its integration with Symyx proceeded with "minimal disruptions" to its existing customers. He noted that the company recently released new versions of several existing products, including Symyx Notebook 6.5, Isentris 3.3, and Materials Studio 5.5.

Chief Financial Officer Michael Piraino reported that for Q3, software orders and maintenance orders for the legacy Accelrys business were up slightly when compared to the prior year, while services orders were down year-over-year. He did not provide specific numbers.

Subscription renewal rates on term licenses for products averaged around 95 percent and maintenance renewal rates on perpetual licenses were around 85 percent across product categories. Piraino said these rates were "slightly below historical levels and internal expectation."

There were no orders in excess of a million dollars during the quarter.

Orders for the company's Pipeline Pilot software were flat compared to that same period in the prior year because Q3 is traditionally the smallest quarter of the year for the product line and represents about 10 percent of the annual orders planned, according to Accelrys. However, Piraino said that the company still expects sales for the platform to grow in the double digits for the quarter ending Dec. 31.

Piraino also said that the company is "convinced" that when it completes its integration of Pipeline Pilot with Symyx Notebook the new product will "drive additional demand" for both products. He did not say when the integration process would be completed.

He noted that although electronic notebook sales were below projections for the third quarter because a booking with large pharmaceutical account that was expected to close in Q3 "slipped" into Q4, the company expects its bookings though the end of the year to "line up with internal expectations."

Piraino also said that sales of its Accelrys Materials Studio posted year-on-year gains; and sales of the company's Discovery Studio, previously reported as declining, were flat compared to the same period last year as a result of "recent corrective actions taken." He did not elaborate on what those actions were.

Revenue breakouts for the quarter by geographical region were 50 percent for North America; 30 percent for Europe, Middle East, and Africa; and 20 percent for Asia-Pacific.

R&D spending increased 144 percent to $9.2 million from $3.8 million in the year-ago period, while SG&A expenses doubled to $21.4 million from $10.9 million in the comparable quarter of 2009.

Accelrys reported a third-quarter net loss of $3.4 million compared to a $1.8 million profit for the same quarter last year.

During the quarter, revenue, operating income, and net income were negatively affected by fair value adjustments to deferred revenue of $12.6 million and a $200,000 adjustment to deferred royalty income.

Accelrys' operating income was also affected by business consolidation costs, including $9.5 million in personnel costs associated with transitioning responsibilities, severance costs, and professional fees payable upon close of the Symyx merger, $2.4 million in stock-based compensation expenses, and $3.7 million in purchased intangible asset amortization.

The firm had total cash and investments of $148.5 million as of Sept. 30. Accelrys officials said that the Symyx acquisition contributed more than $74.4 million in cash.

Worldwide employee head count for the combined companies was 595 — down from 641 employees at the close of the merger and compared to 364 employees last year prior to the merger.

The company expects non-GAAP revenues for the fourth quarter, adjusted for the expected write-down of deferred revenue, to be in the range of $42 million to $43 million.

Furthermore, Accelrys' board of directors has authorized a stock buyback of up to $6 million over the next two fiscal quarters for the repurchase of the company's common stock.

Carnecchia added that the company plans to use some of its excess cash to "be active in additional mergers and acquisitions," but did not elaborate.

Recently, company shareholder Arcadia advised the company to invest its excess cash in a share buyback or special dividends for its shareholders rather than in making additional acquisitions (BI 10/01/2010).

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