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Accelrys Says Pipeline Pilot Orders Rise Amid Expected Decline in ‘Sunsetted’ Tools

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Accelrys officials this week said that the company’s Pipeline Pilot “scientific operating platform” will likely be the key to moving closer to profitability in the year ahead.
 
Amid an expected decline in revenues from the company’s “sunsetted” legacy products, sales of the Pipeline Pilot platform are growing 40 percent annually, CFO Rick Russo said during a conference call to discuss the company’s financial results for the third quarter of its 2008 fiscal year.
 
Russo said that Pipeline Pilot sales contributed $16 million, or around 20 percent, to the company’s FY 2007 revenues. With sales of the software growing 40 percent, the firm stands to generate $22.4 million in Pipeline Pilot revenues for its 2008 fiscal year, which ends March 31.
 
For the quarter ended Dec. 31, 2007, however, growth in Pipeline Pilot sales was offset by the expected fall-off in revenues in “de-emphasized products,” with the net result being a 5-percent drop in revenues to $19.6 million from $20.7 million in the comparable period of the prior year.
 
Accelrys said that a one-time “service revenue benefit” of $300,000 in the third quarter of the prior fiscal year also contributed to the year-over-year revenue decline.
 
Mark Emkjer, president and CEO of Accelrys, said during the call that the company saw “slight” growth in orders during its third quarter — an anticipated improvement that also occurred during its second fiscal quarter [BioInform 11-02-07].
 
“These results were achieved despite the continued intentional wind-down of de-emphasized products and continued challenging market conditions in the biopharmaceutical sector,” he said.
 
Russo noted that because the company prorates its revenues over 12 months, “the benefits from this quarter’s increased order rates over Q3 of last year will be first reflected in increased revenues in the coming Q4.”
 
Emkjer said that during the third quarter, “two of the largest pharmaceutical companies in the world greatly expanded their relationship with Accelrys, specifically surrounding our scientific operating platform.”
 
In both cases, he said, “it is clear that our scientific operating platform is now being adopted at an enterprise level to promote productivity and efficiency.”  
 

“We do not feel compelled whatsoever to complete an M&A transaction near term.”

While Emkjer did not disclose the identities of the customers or the financial terms of the agreements, he said that one deal “extends over a five-year period with a negotiated minimum floor and structures for upside compensation based on increased usage.”
 
These deals are in line with Acclerys’ strategy “to expand our footprint significantly within our existing customer base by moving beyond pure research,” he said.
 
Going forward, Emkjer said that the company intends to be “cash-flow positive and profitable from a non-GAAP perspective on an annual basis,” but he did not provide further financial guidance.
 
For the quarter ended Dec. 31, the company’s net loss grew by 9 percent to $1.2 million from $1.1 million in the prior-year quarter.
 
Spending on product development fell by 4 percent to $4.5 million from $4.7 million, while sales and marketing expenses grew by nearly 8 percent to $9.6 million from $8.9 million.
 
Accelrys cut its general and administrative costs by 17 percent to $3.4 million from $4.1 million in the comparable quarter of 2007.
 
As of Dec. 31, Accelrys had $65.8 million in cash, cash equivalents, restricted cash, and marketable securities.
 
Emkjer said that the company intends to invest “significantly” in its scientific operating platform over the next year in an effort to exploit the organic growth potential of that product line, while investments in the company’s core modeling and simulation business will be “appropriate” for “stabilizing order intake levels, at a minimum.”
 
The overall growth strategy, he said, “is to accelerate our investment in the high-growth organic opportunities, while protecting our core legacy applications.”
 
As far as inorganic growth, Emkjer said that the firm is considering “select M&A opportunities,” but stressed that “we do not feel compelled whatsoever to complete an M&A transaction near term.”
 
Accelrys has adopted a “rigid process” to guide its M&A strategy, he said. “When the right opportunity presents itself, passes due diligence hurdles, and can be consummated at a fair price, we will proceed,” he added.

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