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Orders are Up at Accelrys, but Accounting Changes Drag Down Reported Revenues

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Accelrys last week reported an increase in quarterly bookings for the period ended Dec. 31, 2004, but the company is still experiencing a negative impact on its revenues due to its transition to a subscription accounting model that began last January.

The company reported total bookings of $37.9 million for the third quarter of its 2005 fiscal year — an increase of 9 percent over $34.8 million booked for the same quarter of 2003. Reported revenues, however, which the company now recognizes ratably over the term of a subscription, declined to $22.2 million — a 30-percent drop from revenues of $31.6 million in the year-ago period.

In line with the change in the company’s revenue-recognition practice, short- and long-term deferred revenue increased during the quarter, reaching a record high of $43.4 million as of Dec. 31, 2004. This represented a 47-percent increase from $29.5 million in the year-ago period.

More than half of the company’s quarterly orders fell under the subscription accounting model for the period ended Dec. 31, 2004, and 44 percent of its orders for the fiscal year-to-date fell in that category. The company did not book any subscription-based sales in 2003 (see table, this page, for details).

Accelrys anticipates that up to 85 percent of its customer contracts will eventually require subscription accounting.

The company’s expenses rose to $28.5 million during the quarter from $23.5 million in the year-ago period. Accelrys said that $3.3 million of its expenses during the quarter were associated with its September acquisition of SciTegic [BioInform 09-20-04]. The company also posted a charge of $4.7 million during the quarter related to the move of its headquarters to another location in San Diego.

During a conference call to discuss the company’s earnings, John Hanlon, scheduled to step down as CFO at the end of the month, said that if these one-time charges were excluded, Accelrys’ expenses would be 11 percent lower than they were in the comparable period of 2003.

In addition, he said, Accelrys will be reimbursed for the $4.7 million moving charge in the form of free rent for its current facility for a period of time.

Accelrys spent $4.7 million on R&D during the quarter, a slight increase from $4.6 million in the prior year.

The company posted a quarterly net loss of $5.7 million, compared to $7.9 million in net income that it reported for the comparable period of 2003.

Accelrys held cash, cash equivalents, restricted cash, and marketable securities totaling $59.1 million as of Dec. 31, 2004.

David Sankaran, the company’s newly appointed CFO, pegged the company’s cash burn at around $10 million for its first full fiscal year of operations, which will end March 31, 2005. He said that the company should have a cash position of around $70 million at that time.

Sankaran said that Accelrys expects orders to increase “modestly” in fiscal 2005. In addition, he said, as the company continues to transition to subscription revenue accounting over the next several quarters, “reported revenue will continue to lag orders and deferred revenue is expected to continue to increase over the same time frame.”

The company did not provide a target date for break-even.

CEO Mark Emjker was sanguine during the conference call, noting that sales from the newly acquired SciTegic business — its first full quarter on the Accelrys books — “exceeded expectations.”

Emjker said that Accelrys plans to launch version 1.5 of its DiscoveryStudio integrated informatics platform — which will include some of SciTegic’s technology as a “middle layer” — by December of this year.

In addition, the Z-Dock software that Accelrys in-licensed from Boston University in June [BioInform 06-21-04] will be fully integrated into the Insight II package before the end of March, he said.

Finally, Emjker said, “We’re beginning to experience releases very important to our future in the bioinformatics space” from the company’s R&D group in Bangalore, India.

Accelrys was not able to provide further details on these upcoming products before press time.

Emjker noted that the company recently worked with an outside party to conduct a web-based customer survey during the quarter. Around 920 customers responded. The results were “encouraging,” Emjker said, and showed improvement over a similar survey that the company conducted in 2003.

— BT

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