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Accelrys Announces Fourth Quarter and Full Year 2013 Results

Accelrys, Inc. (NASDAQ: ACCL) today reported financial results for the fiscal quarter ended December 31, 2013. Non-GAAP revenue for the quarter ended December 31, 2013 increased to $47.6 million from $47.5 million for the same quarter of the previous year. Non-GAAP revenue for the year ended December 31, 2013 increased $3.4 million to $177.7 million from $174.3 million for the year ended December 31, 2012 or an increase of 1.9 percent.

Non-GAAP net income was $5.3 million, or $0.09 per diluted share, for the quarter ended December 31, 2013, compared to non-GAAP net income of $4.5 million, or $0.08 per diluted share, for the same quarter of the previous year. Non-GAAP net income was $20.5 million, or $0.36 per diluted share, for the year ended December 31, 2013, compared to non-GAAP net income of $19.6 million, or $0.35 per diluted share, for the year ended December 31, 2012.

GAAP revenue for the quarter ended December 31, 2013 increased $2.3 million to $46.5 million from $44.2 million for the same quarter of the previous year, or an increase of 5 percent. GAAP revenue for the year ended December 31, 2013 increased $6.0 million to $168.5 million from $162.5 million for the year ended December 31, 2012, or an increase of 3.7 percent.

GAAP net loss was $(0.1) million, or $(0.001) per diluted share, for the quarter ended December 31, 2013 compared to GAAP net loss of $(8.2) million, or $(0.15) per diluted share, for the same quarter of the previous year. GAAP net income was $5.7 million, or $0.10 per diluted share, for the year ended December 31, 2013 compared to GAAP net loss of $(10.4) million, or $(0.19) per diluted share, for the year ended December 31, 2012. GAAP net income for year ended December 31, 2013 included a one-time gain of $25.9 million, or $0.45 per diluted share, recognized upon the payoff of the promissory note receivable from Intermolecular, Inc. (“Intermolecular”) in May 2013.

Recent Business Highlights:

  • Launch of Accelrys Materials Studio® 7.0 modeling and simulation environment for chemists, polymer scientists and other materials scientists, with enhancements in quantum mechanics, classical simulation, usability, visualization and collaboration to enable scientists to engineer better performing and more cost-effective materials across a wide range of applications.
  • Acquisition of Ireland-based QUMAS, a leading global provider of Cloud-based and on-premises enterprise compliance software for regulatory and quality operations in highly regulated industries, for $50 million in cash, extending Accelrys' informatics portfolio with mission-critical, end-to-end document and process management compliance solutions.
  • Received highest rating in Gartner Inc.’s latest laboratory informatics system report, and was the only vendor to receive a "very high" rating in all five phases of new product development concept, research, development, tech transfer and manufacturing. Accelrys was among four of 23 ELN vendors to offer a Laboratory Information Management System (LIMS) solution.
  • Introduction of Accelrys Insight offering life scientists an entirely new way to access, visualize and share disparate scientific information in real time.
  • Launch of Accelrys Predictive Sciences accelerating drug discovery research with software for investigating and testing hypotheses in silico prior to costly experimentation.

Non-GAAP Financial Measures:

This press release describes financial measures for non-GAAP revenue, operating income, net income, net income per diluted share and free cash flow that exclude deferred revenue fair value adjustments, acquisition-related cost of revenue, business consolidation, restructuring and headquarter-relocation costs, stock-based compensation expense, note receivable impairment, purchased intangible asset amortization, royalty income fair value adjustments, amortization of note receivable discount, gain on sale of real estate, gain on sale of intellectual property, write-off of lease related assets and other non-operating expense. Additionally, our non-GAAP net income reflects an effective pro-forma tax rate of 40 percent. 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   Year Ended
December 31, December 31,
2013   2012 2013   2012
GAAP revenue $ 46,475 $ 44,194 $ 168,526 $ 162,526
Deferred revenue fair value adjustment1 1,100   3,332   9,127   11,758  
Non-GAAP revenue $ 47,575   $ 47,526   $ 177,653   $ 174,284  
 
GAAP operating loss $ (5,257 ) $ (11,203 ) $ (28,057 ) $ (19,054 )
Deferred revenue fair value adjustment1 1,100 3,332 9,127 11,758
Acquisition-related cost of revenue2 (762 ) (124 ) (1,921 )
Business consolidation, restructuring and headquarter-relocation costs3 1,447 6,583 15,415 7,845
Stock-based compensation expense4 2,198 2,505 9,019 8,115
Note receivable impairment 5 1,663 1,663
Purchased intangible asset amortization6 5,899   5,199   19,886   17,782  
Non-GAAP operating income $ 7,050 $ 5,654 $ 26,929 $ 24,525
Depreciation expense 1,198 872 4,183 3,325
Cash received for interest and royalty income 2,004 2,002 8,643 9,265
Cash paid for income taxes, net of refunds received 74 (198 ) (2,251 ) (2,690 )
Capital expenditures (656 ) (3,043 ) (11,486 ) (6,332 )
Non-GAAP free cash flow $ 9,670   $ 5,287   $ 26,018   $ 28,093  
 
GAAP net income (loss) $ (76 ) $ (8,229 ) $ 5,690 $ (10,402 )
Deferred revenue fair value adjustment1 1,100 3,332 9,127 11,758
Acquisition-related cost of revenue2 (762 ) (124 ) (1,921 )
Business consolidation, restructuring and headquarter-relocation costs3 1,447 6,583 15,415 7,845
Stock-based compensation expense4 2,198 2,505 9,019 8,115
Note receivable impairment 5 1,663 1,663
Purchased intangible asset amortization6 6,304 5,623 21,506 19,477
Royalty income fair value adjustment7 600
Amortization of note receivable discount8 (270 ) (685 ) (932 )
Gain on sale of real estate9 (2,744 )
Gain on sale of intellectual property10 (25,895 )
Write-off of lease related assets11 670
Other non-operating expense12 (150 ) (117 )
Income tax13 (7,201 ) (4,239 ) (15,138 ) (12,855 )
Non-GAAP net income $ 5,285   $ 4,543   $ 20,461   $ 19,611  
 
GAAP diluted net income (loss) per share $ (0.001 ) $ (0.15 ) $ 0.10 $ (0.19 )
Deferred revenue fair value adjustment1 0.02 0.06 0.16 0.21
Acquisition-related cost of revenue2 (0.01 ) (0.03 )
Business consolidation, restructuring and headquarter-relocation costs3 0.03 0.12 0.27 0.14
Stock-based compensation expense4 0.04 0.04 0.16 0.14
Note receivable impairment 5 0.03 0.03
Purchased intangible asset amortization6 0.11 0.10 0.38 0.34
Royalty income fair value adjustment7 0.01
Amortization of note receivable discount8 (0.01 ) (0.02 )
Gain on sale of real estate9 (0.05 )
Gain on sale of intellectual property10 (0.45 )
Write-off of lease related assets11 0.01
Other non-operating expense12
Income tax13 (0.13 ) (0.07 ) (0.27 ) (0.23 )
Non-GAAP diluted net income per share14 $ 0.09   $ 0.08   $ 0.36   $ 0.35  
 
Weighted average shares used to compute net income per share:
Basic 55,697 55,713 55,686 55,696
Diluted 57,027 56,848 57,061 56,563

1Deferred revenue fair value adjustment relates to our acquisitions of Qumas, ChemSW, Vialis, Aegis, VelQuest and Contur and our merger with Symyx, and adds back the impact of writing down the acquired historical deferred revenue to fair value as required by purchase accounting guidance.
2Acquisition-related cost of revenue relates to our acquisition of VelQuest, and adds back the impact of writing down the acquired deferred cost of revenue as required by purchase accounting guidance.
3Business consolidation, restructuring and headquarter-relocation costs consist of professional services, legal, litigation, employee-related and other costs incurred in connection with our acquisition and related integration activities, as well as lease obligation exit costs, severance and other costs incurred in connection with the various restructuring activities commenced by the Company. Also included are contingent compensation costs relating to the ChemSW, the Vialis and the Contur acquisitions as well as costs associated with our headquarter relocation in July 2013, including professional services and additional rent expense during the transition to the new facility.
4Stock-based compensation expense is included in our consolidated statements of operations as follows:

   
Three Months Ended Year Ended
December 31, December 31,
2013   2012 2013   2012
(in thousands)
Cost of revenue $ 238 $ 263 $ 838 $ 755
Product development 373 517 1,813 1,763
Sales and marketing 794 854 3,086 2,545
General and administrative 761 866 3,220 3,093
Business consolidation, restructuring and headquarter-relocation costs 32   5   62   (41 )
Total stock-based compensation expense $ 2,198   $ 2,505   $ 9,019   $ 8,115  

5Note receivable impairment relates to an impairment charge incurred in the three months ended December 31, 2013 restated to an unsecured note receivable.
6Purchased intangible asset amortization is included in our consolidated statements of operations as follows:

   
Three Months Ended Year Ended
December 31, December 31,
2013   2012   2013   2012
(in thousands)
Amortization of completed technology $ 2,848   $ 2,580 $ 9,576   $ 8,843
Purchased intangible asset amortization 3,051 2,619 10,310 8,939
Royalty and other income, net 405   424   1,620   1,695
Total purchased intangible amortization expense $ 6,304   $ 5,623   $ 21,506   $ 19,477

7Royalty income fair value adjustment relates to our merger with Symyx, and adds back the impact of writing down deferred royalty income to fair value as required by purchase accounting guidance.
8Amortization of note receivable discount adjusts the amortization of the discount on our promissory note receivable from Intermolecular in connection with the sale of intellectual property in November 2011.
9Gain on sale of real estate relates to the sale of real property, comprised of land and an office building located in Santa Clara, California, which we sold in June 2012. This property was acquired as a result of our merger with Symyx and was not utilized in our ongoing operations.
10Gain on sale of intellectual property to Intermolecular reflects the gain recognized upon the payoff of the promissory note receivable from Intermolecular in May 2013.
11Write-off of lease related assets relates to the write off in June 2012 of certain assets in connection with exiting the lease of a restructured facility.
12Other non-operating income for the three months ended December 31, 2013 relates to income as a result of a working capital adjustment received in connection with the Aegis acquisition. Other non-operating income for the year ended December 31, 2013 relates to $0.2 million income as a result of a working capital adjustment received in connection with the Aegis acquisition, offset by a loss on disposal of certain fixed assets as a result of the relocation of our corporate headquarters.
13Income tax adjustments relate to adjusting our non-GAAP operating results to reflect an effective tax rate of 40 percent 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.
14Earnings per share amounts for the three months and the years ended December 31, 2013 and December 31, 2012 do not add due to rounding.

About Accelrys:

Accelrys (NASDAQ: ACCL), a leading provider of scientific innovation lifecycle management software, supports industries and organizations that rely on scientific innovation to differentiate themselves. The industry-leading Accelrys Enterprise Platform provides a broad, flexible scientific foundation optimized to integrate the diversity of science, experimental processes and information requirements across the research, development, QA/QC and manufacturing phases of product development. Accelrys offers capabilities in scientific data management, modeling and simulation, research informatics, laboratory informatics, enterprise quality management, environmental health & safety and operations intelligence for customers in science-driven industries. Using Accelrys technology, scientific innovators can access, organize, analyze and share data in unprecedented ways across the research, laboratory and manufacturing continuum, ultimately enhancing innovation, improving productivity and compliance, reducing costs and accelerating product development from research to manufacturing.

Accelrys solutions are used by more than 2,000 customers in the pharmaceutical, biotechnology, energy, chemicals, aerospace, consumer packaged goods and industrial products industries. Headquartered in San Diego, Calif., Accelrys employs approximately 225 full-time PhD scientists. For more information about Accelrys, visit 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, including, but not limited to, statements relating to the Company's execution of its strategic business initiatives, are forward-looking statements. Such forward-looking statements are subject to a number of risks and uncertainties, including, but not limited to, risks that the Company will not successfully execute its strategic business initiatives, in each case due to, among other possibilities, an inability to withstand negative conditions in the global economy or a lack of demand for or market acceptance of the Company's products. Additional risks and uncertainties faced by the Company are contained from time to time in the Company's filings with the U.S. Securities and Exchange Commission, including, but not limited to, the Company's Annual Report on Form 10-K for the year ended December 31, 2012, quarterly reports on Form 10-Q and current reports on Form 8-K. Collectively, these risks and uncertainties could cause the Company's actual results to differ materially from those projected in its forward-looking statements, 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.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(unaudited)
   
Three Months Ended December 31, Year Ended December 31,
2013   2012 2013   2012
Revenue:
License and subscription revenue $ 22,918 $ 23,149 $ 86,393 $ 89,440
Maintenance on perpetual licenses 10,709 10,035 40,196 38,254
Content 2,505 2,991 9,864 12,485
Professional services and other 10,343   8,019   32,073   22,347  
Total revenue 46,475   44,194   168,526   162,526  
Cost of revenue:
Cost of revenue 12,642 11,961 44,791 41,695
Amortization of completed technology 2,848   2,580   9,576   8,843  
Total cost of revenue 15,490   14,541   54,367   50,538  
Gross profit 30,985 29,653 114,159 111,988
Operating expenses:
Product development 8,758 9,892 37,477 38,849
Sales and marketing 16,925 17,528 60,786 57,971
General and administrative 4,366 4,229 16,503 17,480
Business consolidation, restructuring and headquarter-relocation costs 1,479 6,588 15,477 7,803
Note receivable impairment 1,663 1,663
Purchased intangible asset amortization 3,051   2,619   10,310   8,939  
Total operating expenses 36,242   40,856   142,216   131,042  
Operating loss (5,257 ) (11,203 ) (28,057 ) (19,054 )
Gain on sale of intellectual property 25,895
Royalty and other income, net 1,504   1,763   6,356   8,870  
Income (loss) before income taxes (3,753 ) (9,440 ) 4,194 (10,184 )
Income tax expense (benefit) (3,677 ) (1,211 ) (1,496 ) 218  
Net income (loss) $ (76 ) $ (8,229 ) $ 5,690   $ (10,402 )
 
Net income (loss) per share amounts:
Basic $ (0.001 ) $ (0.15 ) $ 0.10 $ (0.19 )
Diluted $ (0.001 ) $ (0.15 ) $ 0.10 $ (0.19 )
 
Weighted average shares used to compute net income (loss) per share
Basic 55,697 55,713 55,686 55,696
Diluted 55,697 55,713 57,061 55,696
 
ACCELRYS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
   
December 31,
2013
December 31,
2012
(unaudited) (audited)
Assets
Cash, cash equivalents, and marketable securities1 $ 66,903 $ 115,646
Trade receivables, net 45,510 47,196
Notes receivable 7,393 34,796
Other assets, net2 272,760   208,204
Total assets $ 392,566   $ 405,842
Liabilities and stockholders’ equity
Current liabilities, excluding deferred revenue 32,139 37,877
Deferred revenue, including current portion3 85,617 89,151
Deferred gain on sale of intellectual property 25,895
Non-current liabilities, excluding deferred revenue4 26,351 10,098
Total stockholders’ equity 248,459   242,821
Total liabilities and stockholders’ equity $ 392,566   $ 405,842

1Cash, cash equivalents, and marketable securities consist of the following line items in our consolidated balance sheet: Cash and cash equivalents; Restricted cash; Marketable securities; Marketable securities, net of current portion; and Restricted cash, net of current portion.
2Other assets, net, consists of the following line items in our consolidated balance sheet: Prepaid expenses, deferred tax assets and other current assets; Property and equipment, net; Goodwill; Purchased intangible assets, net; and Other assets.
3Total deferred revenue consists of the following line items in our consolidated balance sheet: Current portion of deferred revenue; and Deferred revenue, net of current portion.
4Noncurrent liabilities, excluding deferred revenue consists of the following line items in our consolidated balance sheet: Accrued income tax; Accrued restructuring charges, net of current portion and Lease-related liabilities, net of current portion.

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