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Orders Decline but Revenues Rise at Accelrys; SciTegic Gets Bigger Role in Product Strategy

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Accelrys last week reported a 31-percent increase in revenues for the first quarter of its 2006 fiscal year, but a 5-percent decline in orders. The company attributed both the increase and the decline to accounting changes it made after spinning off from PPD last year.

After the spin-off, the company moved the end of its fiscal year to March 31 from Dec. 31 — a transition that "benefited the March quarter at the expense of the June quarter," according to David Sankaran, Accelrys CFO. During a conference call last week to discuss the company's financial results, Sankaran explained that under the company's sales compensation plan, sales reps earn higher commission rates at the end of the fiscal year, "and thus they are highly incented to close deals before the year ends, rather than let them slip into Q1 when they would get a lower commission rate."

Sankaran said that this strategy was partially responsible for the 88-percent boost in orders that Accelrys saw in its fourth fiscal quarter, which ended in March, [" target="_blank">BioInform 05-23-05], but that it had a negative impact on the June quarter, resulting in a 5-percent falloff in orders to $14.1 million from $14.9 million in the same quarter of last year.

This order decrease "was partially offset by the addition of orders from SciTegic," Sankaran said, but the company declined to break out sales for the subsidiary.

Orders are expected to remain slow for the company's second fiscal quarter, which ends in September, due to the slowdown in the summer months. Accelrys officials are forecasting a pickup in orders for the quarter ending in December, however, which is when the bulk of its renewals occur.


"A key part of this strategy is to drive SciTegic's Pipeline Pilot workflow platform to ubiquity within our target markets."

In contrast to the dip in bookings, reported revenues actually benefited from accounting changes that the company made last year when it adopted a subscription accounting model that recognizes revenues over the length of a licensing agreement rather than as a lump sum.

The impact of deferred revenue under this model boosted revenues for the quarter by 31 percent to $18.6 million from $14.2 million in the same quarter of last year. Sankaran said that around 69 percent of orders in the June quarter fell under the subscription accounting model, compared to 54 percent of orders a year ago. The company expects 80 percent of orders will be subject to the ratable revenue-recognition model by the end of the year.

Accelrys reduced its net loss by 27 percent in the quarter, posting a loss of $3.7 million, or $.14 per share, compared to $5.1 million, or $.21 per share, in the year-ago quarter. The company beat analyst estimates for a net loss of $.19 per share.

Driving to 'Ubiquity'

Accelrys CEO Mark Emkjer said that while he is "encouraged" by the company's financial progress and the reduction in its net loss, "I realize we have significant work in front of us to get to profitability."

The company has not provided a date at which it expects to turn a profit, and has not provided any guidance for the remainder of its 2006 fiscal year. During the conference call to discuss the company's Q4 financial results in March, Emkjer said that the company would not promise any revenue numbers "in the midst of a turnaround."

Nevertheless, he was optimistic about the company's "key objective" of becoming "the de facto scientific software platform provider" — a goal that he said the company is "driving aggressively toward" during the year.

"A key part of this strategy is to drive SciTegic's Pipeline Pilot workflow platform to ubiquity within our target markets," Emkjer said.

Emkjer said that the company's entire sales force has now been trained to sell Pipeline Pilot, "and our service organization is creating a portfolio of advanced solutions combining Pipeline Pilot with Accelrys' and other third party applications."

In addition, he said, there are now 17 companies enrolled in SciTegic's ISV partnership program, including Tripos, one of Accelrys' primary competitors.

Sankaran said that one of the reasons the company does not break out sales for Pipeline Pilot "is that the products are becoming a bit intertwined in some ways." As an example, he noted that Pipeline Pilot is being incorporated into the company's upcoming Discovery Studio 1.5 product, which will be shipped before the end of the fiscal year.

— Bernadette Toner ([email protected])

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