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A Year After SciTegic Buy, Accelrys Posts Revenue Increase; Integration a Success

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Accelrys last week reported a 30-percent increase in revenues for its second fiscal quarter — the third consecutive quarter in which the company has posted double-digit year-over-year growth.

While the increase in revenues was the result of a transition to a subscription accounting model over the last year and a half, Accelrys officials said that the firm's recent — and future — success hinge on its SciTegic subsidiary, which it acquired last September [BioInform 10-04-2004].

"It has been one year since we acquired SciTegic and I can say that this has been a very successful acquisition," Mark Emkjer, Accelrys CEO, said in a conference call to discuss the company's financial results. "I cannot over-emphasize the importance the acquisition has had and will continue to have for the future of Accelrys."

Emkjer added that SciTegic's Pipeline Pilot technology "moves us closer to becoming the de facto scientific software platform provider," and that the subsidiary "provides a catalyst in our transformation to a customer-centric solutions company."

Revenue for the quarter ended Sept. 30 rose to $18.6 million from $14.3 million in the same quarter of 2004. Accelrys did not break out sales figures for SciTegic, nor did it provide any information on orders, though it did in the last several quarters while it switched to the new accounting model [BioInform 08-08-05].


"I cannot over-emphasize the importance the [SciTegic] acquisition has had and will continue to have for the future of Accelrys."

David Sankaran, senior vice president and chief financial officer, said during the call that "given the transition to subscription accounting we thought it made sense to give the orders during that period." Now that the changeover to the new accounting model is complete, he said, the company has stopped reporting orders because they are a non-GAAP measure.

Nevertheless, the firm's deferred revenues indicate that overall orders are indeed up year-over-year. For its second quarter of 2005, the company said reported and deferred revenues totaled $50.1 million, a 14-percent increase from $43.8 million in reported and deferred revenues in the year-ago quarter.

Geographically, the United States is generating a larger portion of the company's sales than it did a year ago. For the second quarter of 2005, $10.9 million, or 59 percent, of revenues came from the US, compared to $7 million, or 49 percent, in the year-ago quarter. Europe, Middle East, and Africa made up $4.2 million, or 22 percent, of Accelrys' sales in the current quarter, compared to $3.9 million, or 28 percent, in the second quarter of 2004; while Asia-Pacific generated $3.5 million, or 19 percent, of the company's revenues, compared to $3.3 million, or 23 percent, in the prior-year period.

Company officials did not address the change in geographical sales distribution during the call.

Product development costs rose slightly to $4.7 million for the second quarter, compared to $4.4 million in the year-ago period — an increase of 7 percent that the company attributed to "the increase in product development workforce as a result of the SciTegic acquisition."

Overall expenses rose slightly to $21.1 million from $19.4 million in the year-ago quarter, but Sankaran noted that this was the first complete quarter to include expenses from SciTegic, and that "core business expenses" were flat year-over-year.

Accelrys reported a 54-percent reduction in net losses, to $2.3 million, or $.09 per share, for the second quarter, from $5.1 million, or $.21 per share, in the second quarter of 2004.

The company had $52.8 million in cash, restricted cash, cash equivalents, and marketable securities as of Sept. 30.

In response to an analyst question regarding "a lot of turnover" of "relatively key personnel" at the firm, Emkjer acknowledged that seven of the company's nine executive team members have switched over in the last year. "In any turnaround there's always going to be turnover," he said. "We believe we had to import some talent, people with different experience, to help us along with this turnaround."

Emkjer said that the recent hire of Richard Murphy as senior vice president of worldwide sales and services [BioInform 10-24-05] "completes the management team now." Murphy, who most recently worked at engineering software firm MSC Software, "has led an organization through the transformation from a point product provider to a solutions company," Emkjer said, noting that Accelrys "is in the midst of just such a transformation."

The company is "on track" to release its Discovery Studio 1.5 platform by the end of the year, Emkjer said, noting that feedback from ongoing beta testing has been "tremendously positive." Another new product, Material Studio 4.0, is slated for release before the end of the company's fiscal year, which ends March 31.

Emkjer called the software releases "two of the largest, most significant product releases in our company's history."

Accelrys did not provide any guidance for the remainder of its 2006 fiscal year, nor did it estimate when it expects to reach profitability.

— Bernadette Toner ([email protected])

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