Accelrys Announces Third Quarter Ended September 30, 2011 Financial Results

SAN DIEGO--(BUSINESS WIRE)-- Accelrys, Inc. (NASDAQ: ACCL) today reported financial results for the fiscal quarter ended September 30, 2011. Non-GAAP revenue for the quarter ended September 30, 2011 decreased $3.7 million to $38.0 million from $41.7 million for the same quarter of the previous year, or a decrease of 9%. Non-GAAP revenue for the nine months ended September 30, 2011 increased $32.0 million to $114.1 million from $82.2 million for the same period of the previous year, or an increase of 39%.

Non-GAAP net income was $5.4 million, or $0.10 per diluted share, for the quarter ended September 30, 2011 compared to non-GAAP net income of $5.7 million, or $0.10 per diluted share, for the same quarter of the previous year. Non-GAAP net income was $14.5 million, or $0.26 per diluted share, for the nine months ended September 30, 2011 compared to non-GAAP net income of $6.3 million, or $0.17 per diluted share, for the same period of the previous year.

Non-GAAP free cash flow was $9.3 million for both the quarter ended September 30, 2011 and the same quarter of the previous year. Non-GAAP free cash flow was $25.3 million for the nine months ended September 30, 2011 compared to non-GAAP free cash flow of $9.8 million for the same period of the previous year.

The GAAP results for the three and nine months ended September 30, 2011 were impacted by the business combination accounting associated with the Symyx Technologies, Inc. ("Symyx") merger completed on July 1, 2010 and the acquisition of Contur Industry Holding AB and Contur Software AB (collectively, "Contur") on May 19, 2011, and by other nonrecurring acquisition-related and restructuring costs. GAAP revenue, GAAP operating loss, and GAAP net loss for the three and nine months ended September 30, 2011 were affected by fair value adjustments to deferred revenue ($1.7 million and $9.6 million, respectively). GAAP operating loss was additionally affected by business consolidation, transaction and restructuring costs ($2.3 million and $6.2 million, respectively) and purchased intangible asset amortization ($4.7 million and $13.6 million, respectively). In addition to the aforementioned items, GAAP net loss was also impacted by additional purchased intangible asset amortization ($0.6 million and $1.8 million, respectively) and fair value adjustments to deferred royalty income ($0.2 million and $0.6 million, respectively).

GAAP revenue for the quarter ended September 30, 2011 increased $7.1 million to $36.3 million from $29.1 million for the same quarter of the previous year, or an increase of 25%. GAAP revenue for the nine months ended September 30, 2011 increased $34.9 million to $104.6 million from $69.6 million for the same period of the previous year, or an increase of 50%.

GAAP net loss was ($2.2) million or ($0.04) per diluted share, for the quarter ended September 30, 2011 compared to GAAP net loss of ($3.4) million, or ($0.06) per diluted share, for the same quarter of the previous year. GAAP net loss was ($12.4) million or ($0.22) per diluted share, for the nine months ended September 30, 2011 compared to GAAP net loss of ($7.3) million, or ($0.20) per diluted share, for the same period of the previous year.

"I am pleased with the progress we made over the past quarter advancing our strategy, product roadmap and partner relationships. These efforts put us in a strong position to help our customers effectively manage the industry trends towards biotherapeutics development and the externalization of core research projects," said Max Carnecchia, Chief Executive Officer of Accelrys. "We delivered two new releases that are fundamental to our Enterprise R&D Platform, further reinforcing our commitment to keep pace with scientific advancements."

Recent Business Highlights:

* Announced the latest release of Discovery Studio, incorporating the first commercially available software for predicting protein-protein aggregation to advance biotherapeutics research, a growing segment of the pharmaceutical and biotechnology markets.
* Announced industry-first, enterprise-wide Cheminformatics Suite, featuring a new Web-based chemical registration system. The Cheminformatics Suite also includes HEOS by SCYNEXIS, expanding the partnership with SCYNEXIS to deliver a Software-as-a-Service (SaaS) workspace that addresses the need to manage the growing trend of drug discovery via partner networks.
* Announced a New Unified Product Suite for Biology Assay and Study management needs via strategic collaboration with The Edge Software Consultancy Ltd. Accelrys and The Edge will work to integrate the solutions with Symyx Notebook by Accelrys to deliver a best-in-class solution for biology data management.
* Named the "Cool Vendor in Product Design and Life Cycle Management" by Gartner, Inc., the leading technology research and advisory company. Vendors selected for the report are innovative, impactful and intriguing and address key challenges to delivering profitable, innovative products faster and at a lower cost.

Calendar Year 2011 Outlook

For the year ending December 31, 2011, the Company expects non-GAAP revenue to be between $152 million and $155 million, and non-GAAP diluted earnings per share to be between $0.32 and $0.34 per diluted share on fully diluted weighted average shares outstanding of 56.1 million and using an effective tax rate of 40%.

Non-GAAP Financial Measures:

This press release describes financial measures for revenue, operating income, net income, net income per diluted share and free cash flow that exclude deferred revenue fair value adjustments, stock-based compensation expense, purchased intangible assets amortization, business consolidation, transaction and restructuring costs, non-GAAP income tax adjustments and royalty income fair value adjustments. These financial measures are not calculated in accordance with generally accepted accounting principles (GAAP) and are not based on any comprehensive set of accounting rules or principles.

Management believes these non-GAAP financial measures provide a useful measure of the Company's operating results, a meaningful comparison with historical results and with the results of other companies and insight into the Company's ongoing operating performance. Further, management and the Board of Directors utilize these measures, in addition to GAAP measures, when evaluating and comparing the Company's operating performance against internal financial forecasts and budgets. These non-GAAP financial measures should not be considered as a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP. In addition, these non-GAAP financial measures may be different from non-GAAP financial measures used by other companies.

For additional information on the items excluded by the Company from its non-GAAP financial measures please refer to the Form 8-K regarding this release that was furnished today to the Securities and Exchange Commission.

The following table contains a reconciliation of the non-GAAP financial measures to the most directly comparable GAAP financial measures (unaudited, amounts in thousands, except per share amounts, including footnotes):
Three Months Ended Nine Months Ended
September 30, September 30,
2011 2010 2011 2010
GAAP Revenue $ 36,251 $ 29,114 $ 104,577 $ 69,634
Deferred revenue fair value adjustment1 1,732 12,561 9,571 12,561
Non-GAAP Revenue $ 37,983 $ 41,675 $ 114,148 $ 82,195


GAAP Operating loss $ (2,898 ) $ (20,429 ) $ (16,775 ) $ (24,199 )
Deferred revenue fair value adjustment1 1,732 12,561 9,571 12,561
Business consolidation, transaction and restructuring costs2 2,266 9,479 6,234 11,871
Stock-based compensation expense3 1,464 2,375 4,148 4,528
Purchased intangible asset amortization4 4,739 3,729 13,601 3,811
Non-GAAP Operating income $ 7,303 $ 7,715 $ 16,779 $ 8,572

Non-GAAP Operating income $ 7,303 $ 7,715 $ 16,779 $ 8,572
Depreciation expense 956 945 2,877 1,625
Cash received for interest and royalty income 1,963 1,149 7,305 1,277
Cash (paid) for income taxes, net of refunds received (215 ) (37 ) 1,335 (256 )
Capital expenditures (680 ) (465 ) (2,974 ) (1,416 )
Non-GAAP Free cash flow $ 9,327 $ 9,307 $ 25,322 $ 9,802


GAAP Net loss $ (2,206 ) $ (3,379 ) $ (12,440 ) $ (7,335 )
Deferred revenue fair value adjustment1 1,732 12,561 9,571 12,561
Business consolidation, transaction and restructuring costs2 2,266 9,479 6,234 11,871
Stock-based compensation expense3 1,464 2,375 4,148 4,528
Purchased intangible asset amortization4 5,330 4,352 15,374 4,434
Royalty income fair value adjustment5 200 204 603 204
Income tax6 (3,400 ) (19,906 ) (8,998 ) (19,967 )
Non-GAAP Net income $ 5,386 $ 5,686 $ 14,492 $ 6,296


GAAP Diluted net loss per share $ (0.04 ) $ (0.06 ) $ (0.22 ) $ (0.20 )
Deferred revenue fair value adjustment1 0.03 0.22 0.17 0.33
Business consolidation, transaction and restructuring costs2 0.04 0.17 0.11 0.32
Stock-based compensation expense3 0.03 0.04 0.07 0.12
Purchased intangible asset amortization4 0.10 0.08 0.27 0.12
Royalty income fair value adjustment5

-

-
0.01 0.01
Income tax6 (0.06 ) (0.36 ) (0.16 ) (0.53 )
Non-GAAP Diluted net income per share7 $ 0.10 $ 0.10 $ 0.26 $ 0.17

Weighted average shares used to compute net income (loss) per share
Basic 55,373 55,479 55,420 37,136
Diluted 55,631 55,836 56,036 37,510

1
Deferred revenue fair value adjustment relates to our merger with Symyx and acquisition of Contur, and adds back the impact of writing down the acquired historical deferred revenue to fair value as required by purchase accounting guidance.

2

Business consolidation, transaction and restructuring costs are included in the business consolidation, transaction and restructuring costs line in our condensed consolidated statements of operations and consist of accounting, legal and other fees incurred in connection with our acquisition activities, including our merger with Symyx and acquisition of Contur, as well as integration costs, comprised primarily of consultant and employee related costs incurred during integration and transition periods. Also included are acquisition related contingent compensation costs related to the Contur acquisition as well as lease obligation exit costs, facility closure costs and severance and other related costs incurred in connection with the various restructuring activities commenced by the Company.

3
Stock-based compensation expense is included in our condensed consolidated statements of operations as follows:

Three Months Ended Nine Months Ended
September 30, September 30,
2011 2010 2011 2010
Cost of revenue $ 79 $ 51 $ 216 $ 181
Product development 356 306 823 768
Sales and marketing 425 334 1,310 968
General and administrative 665 480 1,808 1,407
Business consolidation, transaction and restructuring costs (61 ) 1,204 (9 ) 1,204
Total stock-based compensation expense $ 1,464 $ 2,375 $ 4,148 $ 4,528

4
Purchased intangible asset amortization is included in our condensed consolidated statements of operations as follows:

Three Months Ended
Nine Months Ended
September 30, September 30,
2011 2010 2011 2010
Amortization of completed technology $ 2,184 $ 2,373 $ 6,258 $ 2,455
Purchased intangible asset amortization 2,555 1,356 7,343 1,356
Royalty and other income, net 591 623 1,773 623
Total purchased intangible amortization expense $ 5,330 $ 4,352 $ 15,374 $ 4,434

5
Royalty income fair value adjustment relates to our merger with Symyx, and adds back the impact of writing down acquired deferred royalty income to fair value as required in purchase accounting.

6
Income tax adjustments relate to adjusting our non-GAAP operating results to reflect an effective tax rate of 40% that would be applied if the Company was in a taxable income position and was not able to utilize its net operating loss carryforwards. The income tax adjustment also excludes any impact of a release of our valuation allowance against deferred tax assets. We have restated prior year amounts to include this income tax adjustment to conform to current period presentation.

7
Earnings per share amounts for the nine months ended September 30, 2011 and the three months ended September 30, 2010 do not add due to rounding.

Conference Call Details:

At 5:00 p.m. ET, November 3, 2011, Accelrys will conduct a conference call to discuss its financial results. To participate, please dial (866) 309-0459 (+ (937) 999-3232 outside the United States) and enter the access code, 22546559, approximately 15 minutes before the scheduled start of the call. The conference call will also be accessible live on the Investor Relations section of the Accelrys website at www.accelrys.com.

A replay of the conference call will be available online at www.accelrys.com and via telephone by dialing (855) 859-2056 (+1 (404) 537-3406 outside the United States) and entering access code, 22546559, beginning 8:00 p.m. ET on November 3, 2011 through 11:59 p.m. ET on January 3, 2012.

About Accelrys:

Accelrys (NASDAQ:ACCL), a leading scientific enterprise R&D software and services company, supports industries and organizations that rely on science as a differentiator. Accelrys' Enterprise Research & Development Architecture, built on the industry-leading Pipeline PilotTM platform, provides a broad, flexible scientific solution optimized to integrate the diversity of science, experimental processes and information requirements across the research, development, process scale-up and early manufacturing phases of product development. Through its Enterprise R&D Architecture and market-leading electronic laboratory notebooks (ELNs), <org value="NASDAQ-NMS:ACCL"

 

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