Accelrys Announces Fiscal Third Quarter 2008 Financial Results

Accelrys, Inc. (NASDAQ:ACCL) today reported financial results for its fiscal third quarter ended December 31, 2007. "During our fiscal third quarter, we made significant progress on the execution of our strategy to increase usage of our scientific operating platform in order to deliver scientific business solutions,” said Mark Emkjer, Accelrys’ President and Chief Executive Officer. "Although revenue is down from the prior year quarter, orders for our scientific operating platform increased substantially. Our clients see the value of our platform and solutions, and as such, many have enhanced our platform’s footprint within their organizations. In fact, in this quarter, two of the largest pharmaceutical companies have significantly increased their investments in our platform – a true testament to our growth strategy.” Financial Results: Revenue for the quarter ended December 31, 2007 was $19.6 million, compared to revenue of $20.7 million for the same quarter of the previous fiscal year. The decrease in revenue resulted from lower overall order intake over the prior four quarters and a one-time service revenue benefit of $0.3 million that occurred in the third quarter of our prior fiscal year. The reduced order intake in prior quarters resulted primarily from decreased orders of our de-emphasized products, partially offset by continued growth in the sales of solutions and services related to the Company’s scientific operating platform. Non-GAAP operating loss was $0.5 million for the current quarter compared to $0.2 million non-GAAP operating income in the same quarter of the previous fiscal year. On a GAAP basis, the operating loss for the current quarter was $2.0 million, compared to a GAAP operating loss of $1.5 million for the same quarter of the previous fiscal year. The increased operating loss on both a GAAP and non-GAAP basis is attributable to a combination of reduced revenues and increased sales and marketing expenses, partially offset by lower product development costs and general administrative expenses. In addition, the GAAP operating loss for the prior year included $0.3 million of non-recurring restructuring charges. The Company typically receives more than 40% of its orders for the year in its fiscal third quarter. Because the Company recognizes revenue on a ratable basis, while expensing royalties and commissions on order intake, it has incurred a significant portion of its royalty and commission expenses in this fiscal third quarter. Non-GAAP net income was $0.2 million or $0.01 per share, for the current quarter, compared to non-GAAP net income of $0.6 million, or $0.02 per share, for the same quarter of the previous fiscal year. On a GAAP basis, the Company reported a net loss of $1.2 million, or $0.05 per share, for the current quarter, as compared to the GAAP net loss of $1.1 million, or $0.04 per share, for the same quarter of the previous fiscal year. The results, on both a GAAP and non-GAAP basis, reflected lower revenues in the current quarter offset by both the savings realized in operating income noted above and increased interest and other income due to favorable fluctuations in foreign currencies and higher interest rates and cash balances in this quarter versus the third quarter of the prior year. At December 31, 2007, the Company had total cash, cash equivalents, restricted cash and marketable securities of $65.8 million, an increase of $5.8 million from December 31, 2006. Recent Financial, Business and Product Development Highlights: • Released SciTegic Pipeline Pilot™ Student Edition software, a free stand-alone version of the Accelrys scientific operating platform, which will enable academic researchers to create scientific software applications, integrate their scientific code and share their innovations within the academic and commercial scientific community. • Released the Advanced Imaging Collection for SciTegic Pipeline Pilot™, an extensive ensemble of image processing and analysis tools in a user-friendly environment that will allow drug discovery researchers to improve accuracy and throughput. • Released the Gene Expression Collection for SciTegic Pipeline Pilot to enable easy processing, analysis, exploration and reporting of genomic data. • Established a collaborative development agreement with three of the top 10 pharmaceutical companies to develop a solution for the identification, registration, storage, searching and Intellectual Property (IP) protection of biological entities. • Appointed Bill Stevens as Vice President, Life Science Industry. Mr. Stevens joins the company from Cognos Corporation, one of the leading business intelligence vendors, where he was responsible for the development and execution of the marketing & sales strategy for the global life sciences market. Non-GAAP Financial Measures: This press release describes financial measures for operating income (loss), net income (loss), and net income (loss) per share that exclude stock-based compensation expense, amortization of purchased intangible assets, restructuring charges and costs incurred in the prior year to complete the Company’s restatement. 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, including footnotes):   Three Months EndedDecember 31,   Nine Months EndedDecember 31,   2007       2006     2007     2006   GAAP Operating income (loss) $ (1,984 ) $ (1,484 ) $ 100 $ (1,056 ) Stock-based compensation expense1 1,074 1,004 2,943 3,344 Purchased intangible asset amortization2 381 384 1,144 1,152 Restructuring charges3 22 252 47 252 Restatement-related costs3   —     —     —   493   Non-GAAP Operating income (loss) $ (507 ) $ 156   $ 4,234 $ 4,185   GAAP Net income (loss) $ (1,231 ) $ (1,081 ) $ 1,828 $ (475 ) Stock-based compensation expense 1,074 1,004 2,943 3,344 Purchased intangible asset amortization 381 384 1,144 1,152 Restructuring charges3 22 252 47 252 Restatement-related costs3   —     —     —   493   Non-GAAP Net income $ 246   $ 559   $ 5,962 $ 4,766   GAAP Basic and diluted net income (loss) per share $ (0.05 ) (0.04 ) $ 0.07 $ (0.02 ) Stock-based compensation expense 0.04 0.04 0.11 0.13 Purchased intangible asset amortization 0.02 0.01 0.04 0.04 Restructuring charges3 — 0.01 — 0.01 Restatement-related costs3   —     —     —   0.02   Non-GAAP Basic and diluted net income per share $ 0.01   $ 0.02   $ 0.22 $ 0.18   1 Stock-based compensation expense is included in our condensed consolidated statement of operations as follows:   Three Months EndedDecember 31,   Nine Months EndedDecember 31,   2007     2006   2007     2006 Cost of revenue $ 83 $ 90 $ 248 $ 245 Product development 250 236 707 977 Sales and marketing 253 211 704 590 General and administrative   488   467   1,284   1,532 Total stock-based compensation expense $ 1,074 $ 1,004 $ 2,943 $ 3,344 2 Purchased intangible asset amortization is included in the cost of revenue line in our condensed consolidated statement of operations. 3 Restructuring charges and restatement-related costs are included in the general and administrative expenses line in our condensed consolidated statement of operations. Conference Call Details: At 5:00 p.m. ET today, Accelrys will conduct a conference call to discuss its financial results. To participate, please dial (800) 659-1942 (+(617) 614-2710 outside the United States) and enter the access code, 83807253, 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 (888) 286-8010 (+1 (617) 801-6888 outside the United States) and entering access code, 72072103, beginning 7:00 p.m. ET on February 5, 2008 through 5:00 p.m. ET on May 5, 2008. About Accelrys: Accelrys develops and commercializes scientific business intelligence software for the integration, mining, analysis, modeling and simulation, management and interactive reporting of scientific data. Our solutions are used by biologists, chemists, materials scientists, and information technology professionals for product design and drug discovery and development. Our technology and services are designed to meet the needs of today’s leading research and development organizations including leading commercial, government and academic organizations. Many of the largest pharmaceutical, biotechnology, chemical, and petroleum companies worldwide use our solutions. Accelrys is headquartered in San Diego, California. For more information about Accelrys, visit its website at http://www.accelrys.com/. Forward-Looking Statements: Statements contained in this press release relating to the Company’s or management’s intentions, hopes, beliefs, expectations or predictions of the future are forward-looking statements. Such forward-looking statements including, but not limited to, statements relating to the impact of the Company’s relationship with Agilent Technologies and the growth of the Company, are subject to a number of risks and uncertainties. These include risks that the Company will not achieve its anticipated results or growth plans, that the Company’s competitive position will not improve, and/or that such growth will not occur due to, among other possibilities, a lack of demand for or market acceptance of the Company’s products, as well as the risks and uncertainties that are contained from time to time in the Company’s SEC filings, including, but not limited to, the Company’s Annual Report on Form 10-K for the year ended March 31, 2007, quarterly reports on Form 10-Q and current reports on Form 8-K. The Company’s actual results could differ materially from those projected in such forward-looking statements due to these risks and uncertainties, and the Company disclaims any intention or obligation to revise any forward-looking statements whether as a result of new information, future events or otherwise. ACCELRYS, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share amounts) (Unaudited)   Three Months EndedDecember 31, Nine Months EndedDecember 31,   2007       2006     2007     2006   Revenue $ 19,566 $ 20,684 $ 59,329 $ 61,066 Cost of revenue   4,074     4,264     11,028   11,457   Gross profit 15,492 16,420 48,301 49,609   Operating expenses: Product development 4,497 4,697 13,101 14,739 Sales and marketing 9,564 8,878 24,244 22,512 General and administrative 3,393 4,077 10,809 13,162 Restructuring charges   22     252     47   252   Total operating expenses   17,476     17,904     48,201   50,665   Operating income (loss) (1,984 ) (1,484 ) 100 (1,056 ) Interest and other income, net   839     601     2,534   1,445   Income (loss) before taxes (1,145 ) (883 ) 2,634 389 Income tax expense   86     198     806   864   Net income (loss) $ (1,231 ) $ (1,081 ) $ 1,828 $ (475 ) Basic and diluted net income (loss) per share $ (0.05 ) $ (0.04 ) $ 0.07 $ (0.02 )   Weighted average shares used to compute basic and diluted net income (loss) per share Basic 26,744 26,387 26,671 26,297 Diluted 26,744 26,387 27,168 26,297 ACCELRYS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands) (Unaudited)   December 31,2007 March 31,2007 Assets Cash and marketable securities1 $ 65,817 $ 70,757 Trade receivables, net 29,473 18,617 Other assets, net2   57,891   65,227 Total assets $ 153,181 $ 154,601 Liabilities and stockholders’ equity Current liabilities, excluding deferred revenue 14,826 21,136 Total deferred revenue3 54,988 56,133 Noncurrent liabilities, excluding deferred revenue 8,140 8,342 Total stockholders’ equity   75,227   68,990 Total liabilities and stockholders’ equity $ 153,181 $ 154,601 1Cash, cash equivalents, and marketable securities consist of the following line items in our condensed consolidated balance sheet: Cash and cash equivalents; Marketable securities; and Restricted cash and marketable securities 2Other assets, net, consists of the following line items in our condensed consolidated balance sheet: Prepaid expenses, deferred tax assets and other current assets; Property and equipment, net; Goodwill; Purchased intangible assets, net; Other assets 3Total deferred revenue consists of the following line items in our condensed consolidated balance sheet: Current portion of deferred revenue; and Deferred revenue, net of current portion