Symyx Technologies, Inc. Q1 2009 Earnings Call Transcript

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 |  About: Symyx Technologies Inc. (SMMX)
by: SA Transcripts

Symyx Technologies, Inc. (SMMX)

Q1 2009 Earnings Call Transcript

April 29, 2009 5:00 pm ET

Executives

Isy Goldwasser – CEO

Rex Jackson – EVP and CFO

Analysts

Alan Fishman – Thomas Weisel Partners

Dan Leonard – First Analysis

Linda Keller [ph] – MKM Management

Bill Gibson – Nollenberger Capital

Jerry Kahn [ph] – Kahn Investors [ph]

Operator

Good afternoon and thank you for joining us to discuss Symyx Technologies first quarter 2009 results. Joining me on the call today are Isy Goldwasser, Chief Executive Officer, and Rex Jackson, Chief Financial Officer.

Before we begin, please note that management will make forward-looking statements in this call based on the environment as management sees it today and that these statements thus involve risks and uncertainties. You should refer to the company’s press release and the SEC filing reference there. For information on risks and uncertainties that could cause actual results to differ materially from the results forecasted today. The company expressly disclaims any obligation to update or revise information contained in these forward-looking statements, except as required by law.

An archived webcast of the teleconference will be available up to one year on Symyx website at www.symyx.com. In addition, a telephonic tape replay will be available for two weeks by dialing 888-203-1112 for the US and Canada and 719-457-0820 for international callers, using reservation number 5354872.

Now I’d like to turn the conference over to Isy Goldwasser, Symyx’s Chief Executive Officer. Please go ahead.

Isy Goldwasser

Good afternoon, everyone, and thank you for joining today’s call. Today I will detail Symyx’s Q1 results and provide summary updates for our two business units. Rex will then review our financial results for the quarter and provide our business outlook for the second quarter and full year 2009. I’ll then close with a few comments on the remainder of 2009 before opening it up for questions.

Turning to first quarter results, revenue came in at the low end of our previously expected range of $33 million to $37 million. Despite low end of range revenues, our non-GAAP net loss for the quarter was $0.03 per share at the better end of our estimates, reflecting not only the results of our expense reduction in Q4 but continued diligence in Q1 of our ongoing operating expenses in the face of a challenging environment.

Despite a lighter than expected fourth quarter for tool shipments seasonally in our tools business in the first quarter, Symyx turned in a strong first quarter with respect to cash, improving from $66.4 million on December 31st to $81.8 million on March 31st, a sequential increase of $15.4 million, driven by renewal activity in Symyx software that is typically strongest in Q1. Our cash position and debt-free balance sheet continue to be an asset and provide us with the operational flexibility to invest in our businesses.

Moving to results by business units, Symyx Software revenue increased 9% year-over-year, as higher maintenance offset current software in consulting services. Looking forward to the next three quarters, our bookings activity and pipeline progression are advancing at an encouraging pace. Equally important, Symyx Software continues to successfully develop key products against an aggressive technology roadmap.

Recent advances include expanding our Electronic Lab Notebook or ELN offering with two major releases. Symyx Notebook 6.1 and 6.2. SN 6.1 announced in January enables scientist to capture query and report on methods and data specifically encountered by analytical chemists and biologists, our target market groups. And SN 6.2 enables scientists from different departments to collaborate effectively using a single, flexible enterprise ELN platform.

With four major ELN releases in 2009, we are continuing to expand Symyx Notebooks' robust capabilities to meet the need of large and growing enterprises. Since Symyx Notebook 6 was launched in April of last year, SN 6 has generated significant customer interest. We have achieved demonstrable success with leading pharmaceutical, including Eli Lilly and Schering-Plough. And we are pursuing several significant bookings we expect to close this year.

These large scale adoptions of SN 6 provide strong customer validation for the value of our enterprise platform strategy and we are focused on continuing to drive SN 6 through the life science marketplace. This quarter, we also released our DiscoveryGate Web Service, our key addition to our DiscoveryGate platform supporting our approximately $25 million content business.

DiscoveryGate is our host of content platform that enables researchers through a web browser based environment to execute single searches across the wealth of scientific content. The new DiscoveryGate Web Service enables DiscoveryGate content to be delivered via the Web Service protocol. As a host of solutions, this new service greatly reduces customers’ maintenance and support costs, consistent with their objectives to streamline their R&D organizations.

In February, we added the SPRESI structure and reaction database from InfoChem to our content offering. The addition of SPRESI extend the existing set of reactions available from Symyx, enabling us to offer reactions portfolio that is one of the broadest in the industry.

Also during the quarter we announced an important partnership with Thermo Fisher Scientific. We are working closely with Thermo Fisher to deliver enhanced integration between our laboratory information management systems and our ELN and Isentris products. So we can achieve fully electronic laboratory involvement for our clients. Thermo Fisher will market and sell our Notebook and Isentris products with its systems, expanding our market footprint.

Overall during this past quarter, Symyx Software performed well within the challenging environment. Despite rejected softwares and services during the first half of the year, we expect Symyx Software to deliver double-digit operating margins in 2009. In addition, this business unit is expanding its footprint within the life science market through the addition of hosted solutions that provide exciting growth opportunities in the mid-term.

Turning now to our HPR business unit, total HPR revenue was down year-over-year and sequentially. The year-over-year decline was primarily due to a substantial reduction in research service revenue from ExxonMobil. The sequential decline reflects lower tools revenues in the first quarter, both due to general market weakness in the area of major capital purchases and for seasonality.

HPR continues to provide our life science and chemicals and energy customers with important tools and services to leverage and improve their R&D programs. We took steps in the fourth quarter to size HPR’s activities with market demand and our margin goals, including setting research staff activity levels against trended contract projections, deemphasizing market segments where products are not highly differentiated and/or where markets are severely challenged, and managing operating expenses closely.

We are focused on building a high performance HPR business that delivers premium parallel experimentation capabilities to the life sciences and chemicals industry based on three core competencies; HPR formulation, HPR catalysis and HPR biologics. This business unit is pursuing in growth markets in alternative energy and biologics to expand the business going forward.

In Q1, Symyx HPR announced the launch of Symyx Contract Development and Manufacturing Organization. Symyx CDMO allows us to offer our customers in biologics formulations and preclinical expertise, enhanced by our HPR capabilities. During the quarter, recognized revenue and committed backlog for Symyx HPR increased to more than 75% of its 2009 plan.

The pipeline for HPR is encouraging but subject to continued risk as a result of the economic environment. Nevertheless we are committed to improving the profitability of Symyx HPR on a quarterly basis as we develop the business and we expect these improvements to become apparent in 2009.

In summary, we are pleased with the improvements in operations within Symyx Software and Symyx HPR in Q1. We expect to achieve our financial objectives for 2009, including 10% EBITDA for 2009. As we convert open opportunities and achieve revenue recognition on long-term contracts, we are forecasting bottom-line financial results will improve as the year progresses.

I’ll now turn the call over to Rex to detail Q1 financial performance and provide our outlook for the second quarter and full year 2009. Rex?

Rex Jackson

Thank you, Isy. Today I will review our first quarter GAAP and non-GAAP operating results and our outlook for Q2 and full year 2009. As Isy noted, while revenue for the quarter came in at the low end of our range, our non-GAAP loss per share was better than expected. Q1 revenue was $33.4 million at the low end of our estimated range of $33 million to $37 million. This compares with $36.9 million for the first quarter of 2008.

The year-over-year decline was due to lower High Productivity Research or HPR revenue across all of their lines, partially offset by higher software revenues. Software revenues for Q1 was $21.8 million, up 9% from $20 million for the same period a year ago, as higher maintenance revenue offset lower consulting services revenue in the current quarter.

As you may have noticed in our press release today, for 2009 we are providing non-GAAP earnings per share and the company’s earnings before interest, taxes, depreciation and amortization. We reconciled these non-GAAP financial measures in the exhibits included with the release.

Using that same methodology and as reconciled in the materials available in the Investors section of our website at www.symyx.com, we are providing non-GAAP operating results for our business units. Non-GAAP EPS and business unit operating income exclude amortization of intangibles and other acquisition related items, as well as significant non-recurring items such as impairments and restructuring expenses, but include stock-based compensation.

EBITDA excludes the same items, but also excludes stock-based compensation. For the first quarter Symyx Software contributed non-GAAP non-net operating income of $2 million or 9% of sales. Software remains a major contributor to our business and cash flow, and we expect this unit to improve its operating margins for full year 2009.

We continue to make progress advancing our software business with initiatives underway to leverage the four primary aspects of our core software business; licenses, maintenance, content, and consulting services. While we see some softness in consulting services and content, overall this business unit continues to perform well in the current environment.

Software bookings at our pipeline are healthy, but we have experienced renewal rates slightly below our expectations as the pharma industry consolidates and retrenches. In addition, as Isy noted, our software product development activities are proceeding well and on track to support continued progress through 2009.

Total HPR revenue for Q1 was $11.6 million, down from $16.9 million for the same period a year ago. The research services and licenses and royalties components of HPR contributed $7.1 million of Q1 revenue, down from $11.1 million for Q1 of 2008 due primarily to the expiration of our primary alliance agreement with ExxonMobil at the end of May last year.

Tools revenue was $4.5 million compared with $5.8 million for the same period a year ago, reflecting both normal seasonality and external market conditions. HPR posted a non-GAAP net operating loss for the first quarter of $2.2 million or 19% of sales.

Looking on to customers, Dow, our largest customer, contributed first quarter revenue of $5.5 million, slightly down from $5.8 million for the first quarter of 2008. ExxonMobil, our second largest customer, contributed revenue of $3.4 million, down significantly from $7.7 million for the first quarter of 2008. Our next three largest customers for the quarter are all top 15 pharmaceutical companies collectively contributed $5.1 million.

Turning to operating margins and expenses, gross margin for the first quarter was 68%, down from 72% for the first quarter of last year. The year-over-year decline is primarily the result of incremental expenses and cost of services from our new HPR formulations business. Also as we expand our life sciences and chemicals and energy research services activity, personnel currently in our R&D line will be increasingly included in cost of service. Accordingly, to the extent we are successful in expanding our research services and formulations businesses, our overall gross margin percentage could be under pressure, but we would obtain some corresponding relief on R&D expenditures.

Operating expenses for the first quarter were $26.3 million, down from $37.4 million in Q1 of last year. Operating expenses for the first quarter of 2008 included expenses associated with the MDL Information Systems acquisition, including expenses for personnel and short-term transition roles that were thus higher than the normal run rates. However, current quarter expenses reflect a significant favorable expense impact of our restructuring efforts made in Q4 ’08, lower depreciation resulted from the charges we took in Q4, and additional savings due to a continued focus on reducing expenses.

Our GAAP net loss for the quarter was $3.1 million or a loss of $0.09 per share compared with a net loss of $6.8 million or $0.20 per share for Q1 of ’08. Bottom line results for the first quarter of 2009 benefited from the recent steps we have taken to improve our financial results as we were able to narrow our loss despite lower quarter-to-quarter revenues. Non-GAAP adjusted net loss for the first quarter was $0.9 million or a loss of $0.03 per share compared with a non-GAAP net loss for the first quarter of 2008 of $5.1 million or a loss of $0.15 per share.

Now turning to cash, cash and cash equivalents at March 31, 2009 were $81.8 million, up $15.4 million from $66.4 million at December 31, 2008. Cash receipts in Q1 were strong as we collected on Symyx Software 2009 renewals and Q4 tool sales. We continue to execute on our stated goal of maintaining positive cash flow and continuing to build our cash position, and are pleased with our progress. Accordingly, we continue to expect positive cash flow for 2009. Capital commitments for the quarter were $1.7 million, down from $2.1 million for Q4. Commitments for the quarter included investments in our new HPR formulation operations and certain financial and operational reporting systems.

Looking forward for Q2, we expect revenue in the range of $32 million to $36 million. Non-GAAP EPS for Q2 is expected in the range of a loss of $0.07 to a loss of $0.03. For fiscal 2009, visibility continues to be challenging in a tough global economic environment. However, based on our backlog, bookings pipeline and the initiatives we have in place to drive long-term progress in our Software and HPR units, we continue to estimate 2009 revenue in the range of $145 million to $155 million.

Also, though we remain focused on greater operational efficiencies and improved margins and are pleased with the progress this quarter, given this environment we are also holding our full year 2009 guidance for non-GAAP EPS a breakeven to earnings of $0.10. Our estimated tax rate for Q2 and for 2009 is a benefit rate of 32%.

Finally, to reiterate Isy’s comments on EBITDA, Q1 EBITDA was $2 million. We expect EBITDA to generally improve through the year, especially given our expectation that revenue in the second half would be seasonally higher than in the first half of the year.

Thank you. And now I’ll turn it back to Isy for closing comments.

Isy Goldwasser

Thank you, Rex. Symyx continues to be well positioned in the markets we serve. And relative to our competition and the environment, we are gaining ground through product leadership and our focus on customers. Furthermore, we believe we have the balance sheet strength and financial flexibility to execute on plan and deliver improved financial results, while at the same time investing as needed to take market share as conditions improve. Toward that goal, we are taking appropriate steps to drive both of our business units towards improved execution, market share gains and profitability as we move through the year. As we continue to execute in that regard, we expect to achieve EBITDA of 10% for full year 2009.

Thank you very much. Now I’ll open the call for questions. Operator?

Question-and-Answer Session

Operator

(Operator instructions) We’ll have our first question from Alan Fishman with Thomas Weisel Partners.

Alan Fishman – Thomas Weisel Partners

Hi, guys, how are you doing?

Isy Goldwasser

Hi.

Alan Fishman – Thomas Weisel Partners

Hi. So I wanted to start on the software segment. Isy, could you talk there briefly about the acceptance of Isentris and how you are seeing that product? It seems like a lot of the uptick in software was due to maintenance. I wanted to see how the product is doing.

Isy Goldwasser

Good question. We are seeing adoption of Isentris, especially since we’ve been successful really with the modular approach. We were able to deploy Isentris side-by-side with ISIS so that customers could deploy specific capabilities of Isentris without having to lift the foundation and change the entire platform. So we continue to see growth there. It’s part of our core business and I think we are pleased with that. And we do have, again, second half transactions that are important for that product.

Alan Fishman – Thomas Weisel Partners

So basically you’re seeing so far most customers just choosing modules of Isentris and not totally swapping out ISIS particularly in this environment?

Isy Goldwasser

That’s right. And also we’ve made significant progress for the past 12 months of the product. We’ve had key releases that have been well received. And Isentris personnel, again, was improved in the first quarter. So I think we’ve been very true to our promises with the clients and they're very pleased with the product.

Alan Fishman – Thomas Weisel Partners

Okay. And then on the two releases in the quarter, what’s the sales cycle like for that in this environment, as pharma looks to cut costs and presumably drive efficiency?

Isy Goldwasser

The majority of our pipeline in software of new business, new bookings is driven by the Notebook market, the ELN market. And we’ve been again quite pleased with that level of activity. There are over I think 25 pilots. Ten of those are of, I would say, material size. We would consider tier one type of deals. In a normal environment, you would see quite a number of those come to fruition, given that we've been working it for sometime. They come to fruition probably within a three to four-month period. In this environment, you could add another three to five months just due to the fact that there are delays. But we are again very encouraged by the level of activity of Notebook pipeline.

Alan Fishman – Thomas Weisel Partners

Great. And then on switching over to the research side, I guess comparables are going to improve in the back half of ’09. But to what extent do you think the research is going to get worse before it gets better in terms of the new areas that you are working on in terms of the alternative energy and the biologics areas?

Isy Goldwasser

In HPR, for 2009 we don’t expect things to get worse unless the pipeline turns in the negative, if it turns against us. We have again an encouraging pipeline there. We have – as you know, last quarter, in Q4 we took steps to size our business to a lower demand base. We took steps to really curb expenses. We took steps to withdraw from market segments where we did not absolutely have a strong lead on products or services, or market segments that were just going to be challenged for a long time. And we did all of that and then really repositioned the focus on some growth markets and alternative energy and biologics. So we expect that we will improve that business, and Symyx HPR will be better and better from this point forward.

Alan Fishman – Thomas Weisel Partners

I think on a revenue line as well?

Isy Goldwasser

On a revenue line as well.

Alan Fishman – Thomas Weisel Partners

Okay. All right, that’s great. And I guess my last question maybe for Rex. Can you explain the switch of R&D personnel to cost of service and kind of how that’s going to work, how that’s going to run off for the rest of the year from a modeling perspective?

Rex Jackson

First comment I would make is that the – if you track this obviously in the cost of service versus the R&D lines, which I think you’ve already got that figured out, from a modeling perspective, you look at this quarter, quarter-on-quarter going 4.7 up to 6.5. Most of that was the Integrity Bio operation or HPR formulations business. I would say that at the moment there is not – there is probably 25% of the delta here, maybe 30% of the delta is attributable to the little bit I described in the call. Over time, however, as we are reporting additional services revenue, you’re going to go and move out of R&D and up to cost of service. And I would hesitate to give you a margin on that, but use what you think is an appropriate services margin and decrement R&D and add cost of service in accordance with that revenue. Revenue for services this quarter in terms of ex of our alliances, just a couple of million bucks. And so I would carry that number out with a slight growth rate and then choose your margin and calculate it accordingly.

Alan Fishman – Thomas Weisel Partners

Okay, that’s helpful. And then I guess I have one more. I lied [ph]. So, Isy, can you give any commentary broadly maybe segmenting your customers between your larger – in the software market, between large pharma and smaller biotechs? Is there any kind of – have you seen anything in April to make you more bullish, or kind of what’s going on right now in the market?

Isy Goldwasser

Sure. As you know, we are clearly focused on helping our customers drive better innovation and better productivity in their R&D organization through our software and through our HPR capabilities. And we tend to focus on the tier one segment, which are the larger customers, particularly in software and also HPR, just overall. And I would say that the reason why we are seeing healthy activity is because most of the transactions and relations we have with these clients tend to be more strategic in nature. They impact large numbers of people over a long-term period. And that’s why there is more of long-term outlooks when people buy notebook and deploy it across hundreds of thousands of users. They are doing it for a ten-year period, even longer perhaps. It could be 15 years. And so it’s a major decision. And we are seeing all those processes that began 12 months, 18 months ago that they continue. They're not being stopped. So we haven't seen really any major initiatives to deploy electronic solutions. We haven’t seen those cancelled in life sciences.

Alan Fishman – Thomas Weisel Partners

They've just elongated, I would imagine.

Isy Goldwasser

That's the healthy part. We have seen, of course, as people try to save money, they tried to look at how many users they need or any software or any content. And where we see softness, and we have softness in services, softness in some of the content as well, it’s all due to the fact that people are trying to optimize their budgets.

Alan Fishman – Thomas Weisel Partners

Okay, that's very helpful. Thanks, guys.

Operator

And we’ll have our next question from Dan Leonard with First Analysis.

Dan Leonard – First Analysis

Hi.

Rex Jackson

Hi, Dan.

Dan Leonard – First Analysis

Hi, Rex. I don’t think my questions are in any particular order. So I’ll just fire away. The operating expenses in the first quarter, outside of the move you mentioned of some R&D possibly getting reported in cost of service line going forward as you do business in service, is the Q1 operating expense rate, is that kind of what we would expect going forward throughout 2009?

Rex Jackson

I think as I said in the earlier commentary, we are very pleased with how we did in Q1, but we are not yet prepared to state that that’s your run rate for the rest of the year. I think I would be more comfortable with something that averaged 28 or so. And then obviously our goal is to work it back down from there. Going into this quarter, that was the target. We were able to beat it. So that’s the new target and an effective run rate for the year.

Dan Leonard – First Analysis

So were some of the reduction in the first quarter, would you classify that as temporary and not sustainable then?

Rex Jackson

It really is a series of gives and takes. There are some one-times in there. Some of that has to do with level business where you are and build and that sort of things. So I think we are optimistic. We may be able to do – turn in another good performance in Q2. We are not committing to that just yet. There is nothing that was so obvious that you go great, let's just carry that through the rest of the year.

Dan Leonard – First Analysis

Okay. And Rex, I know you gave the software EBIT number for the first time and I missed it. Could you give that to me again, please?

Rex Jackson

I believe it was $2 million. Not EBIT. We gave a net operating income number for software of $2 million. The EBITDA for the company was $2 million as well.

Dan Leonard – First Analysis

So did you subtract interest income or interest expense from the software number?

Rex Jackson

Well, the software number, I guess if you want to kind of back it into, yes, it is, before interest and taxes. Yes, it’s an op-inc [ph] number. So you never get to the noise at the bottom of, you know –

Dan Leonard – First Analysis

Okay. So software was positive 2 and high productivity was about negative 2?

Rex Jackson

Negative 2.2.

Dan Leonard – First Analysis

Okay. And then, Isy, you talked about a couple of large pharma deals on the ELN side. Could you give me some appreciation of what size we are talking about?

Isy Goldwasser

These are deals that are multi-year engagements that cover – and they are covering many hundreds to low thousands number of users. And they are enterprise-wide. And they are very similar to what we do with Eli Lilly and Schering-Plough. They are basically clearly in the seven figures in terms of deals and some could get to the high numbers there, but it just depends on the specifics of deployments. So they're significant. And we expect, like I said, to have additional significant deals this year.

Dan Leonard – First Analysis

And when you say seven figures, is that an annual run rate number or does that include, say, upfront consulting?

Isy Goldwasser

It’s a combined figure. It includes licenses, license payments, maintenance and consulting services, which tend to be a minor fraction of the deal.

Dan Leonard – First Analysis

Okay. And is that single-digit seven figures or did they get bigger than that?

Isy Goldwasser

On an annual basis, it’s more single-digit, for user. I mean, it's certainly single digit, low-single digit. It’s annualized.

Dan Leonard – First Analysis

Okay. And Isy, do you have any idea – you mentioned the partnership with Thermo Fisher. Do you have an idea how much that expands your market reach in software?

Isy Goldwasser

Well, we certainly qualitatively certainly have an idea. We qualitatively have a plan on obviously how to make sure our products would be successful for both sides. We are going to measure it closely and manage it closely. And basically it expands it in a material way because they have a strong installed base in the preclinical toxicology, in PK-PB area, pharmacokinetics area and also in analytical chemistry, of course. And those two markets, they just give us just much broader reach. So I think there is a great synergy between their Lynn [ph] systems and our Notebook and Isentris. And that is what we are going after.

Dan Leonard – First Analysis

Okay. I mean, would there be any way you can quantify that? I mean, do you think it would double your market reach or the number of accounts you could feasibly touch in any given time, or more than that or less than that?

Isy Goldwasser

No, I really couldn’t quantify it now. I think once we have tangible success, we will begin to quantify what we forecast for that partnership.

Dan Leonard – First Analysis

Okay. And then my final question, Isy, on the contract biopharm business that you announced in the quarter, how do you size the market opportunity for that?

Isy Goldwasser

It’s a great question. There is still an existing market that is geared towards smaller companies. And what’s emerging is really a larger market for the tier one, tier two segments, because as we know, the tier one and tier two segments of life sciences are really tasked to minimize their infrastructure to outsource more of their R&D. And what we are providing is a state-of-the-art service to basically take a protein and move it through the formulation and then the supply – the early supply phase for the first stage basic clinical trials. That’s an expertise that we believe is very valuable once it's enhanced with our HPR capabilities. So what we are doing is we are miniaturizing and automating that process with our capabilities in HPR. And that's creating a one-of-a-kind offering.

Dan Leonard – First Analysis

Okay. Thank you, both.

Rex Jackson

Thanks, Dan.

Isy Goldwasser

Thanks.

Operator

We’ll go next to Linda Keller [ph] with MKM Management.

Linda Keller – MKM Management

Hi. Isy, you mentioned that you expect double-digit operating margin for the software business this year, could you maybe give us a little more specifics as to how you’re going to achieve that?

Isy Goldwasser

Sure, I’d be glad to do that. First off, let’s go back to previous statements we made that we're very much committed to, that the software business is a business that should run at 20% operating margins. And long-term that’s where we want to have this business. In 2008, the business delivered in excess of 15% operating margins. And this year we knew it would be challenging, so we expect it to be somewhat lower but so solidly in the double-digit range for profitability. And so you can see we are not – it's not that we are far away from our goal of 20%, it’s a matter of executing on our product roadmap and being successful in the field with our customers and our solution selling. And we are – I think we are certainly within reach of our goal. That’s why we are so excited about the software business.

Linda Keller – MKM Management

And also what kind of emerging or new opportunities looking down the road that you might have in software?

Isy Goldwasser

In software we have, of course, our core business with ISIS and Isentris and a host of other platforms that we have built here over a long period of time and deployed. We then have our growth initiatives led by ELN that we spoke about earlier in the call. And if you really look forward beyond that, I think the real exciting opportunity for our business in software is to really capitalize on the hosted solution space. Hosted solutions as a general trend across industry sectors is really taking hold. It's obviously a very good fit with the outsourcing and the efficiency we will bring to life sciences. And we are intent on playing that space within our strengths, between scientific software space to host scientific software. We are really making that a priority. If you look at how Symyx Software makes money through maintenance, of course licenses and content, which is another very different source of revenue, services, and if we can add hosted program as well, it will just be another dimension another way for Symyx Software to monetize platforms and to improve growth and profitability.

Linda Keller – MKM Management

And also anything new in the competitive landscape that we should be aware of?

Isy Goldwasser

Competitive landscape remains largely the same. I do think relative to our competitors we are gaining ground just because of our stability and the pace of which we are expanding our products, particularly in the software space. And within HPR, we already have a demonstrate lead in technology. So there is nothing dramatic to report on the competitive landscape.

Linda Keller – MKM Management

Okay. And then lastly, what would be typical multiples for software companies in your space?

Isy Goldwasser

I'd like Rex to actually answer that question. I can comment further after that.

Rex Jackson

I think that in a normalized environment, Linda, that you would be looking at EBITDA multiples in the 10 to 14 range. And certainly that's a historical experience of a year or two ago, and frankly that's where the number was when we acquired MDL Information Systems based on work done with our bankers. Nowadays I think you are looking at roughly half of that.

Linda Keller – MKM Management

Okay, good. Thanks so much to you guys.

Isy Goldwasser

Thank you.

Operator

(Operator instructions) We’ll go next to Bill Gibson with Nollenberger Capital.

Bill Gibson – Nollenberger Capital

Just one last question here, or at least one from me. And that’s on the HPR pipeline. Could you give us a little more granularity, Isy, as to perhaps some of the segments? And are you sensing a will on the part of your customers to outsource more here and maybe just being held back in the current environment?

Isy Goldwasser

Sure. I mean, there is no question this is a challenging environment. So I think most customers are trying to be more efficient in R&D just as a rule, as a ground rule. We have I think a planned for that. And that was the basis of the restructuring at the end of last year. If you look at our backlog, first, let me just say the backlog for HPR is – for the 2009 plan is around 75% of the plan. So we are in a very good position from that perspective. And then when you look at the pipeline that’s in front of us, there are a number of deals that we are confident about. In a normal environment, we would be almost certain about. But in this environment we have continued risk, so we can’t be as bullish. But those deals are largely in the chemicals and energy space. They encompass home and personal care applications. They encompass alternative energy applications and as well as expansion beyond typical geographies. And so we are – again, we're encouraged, but until there are signs, we obviously aren’t going to be satisfied or any more bullish on the business.

Bill Gibson – Nollenberger Capital

And on those deals, is there a – is it mainly services or are there also tools involved, which is probably at least to my mind an easier thing for a potential customer to push out?

Isy Goldwasser

It’s both services and products. I would say the majority of it would be product-related.

Bill Gibson – Nollenberger Capital

Okay. Thank you.

Operator

(Operator instructions) And we’ll go next to Jerry Kahn [ph] with Kahn Investors [ph].

Jerry Kahn – Kahn Investors

Isy, hi, it’s Jerry.

Isy Goldwasser

Jerry, how are you?

Jerry Kahn – Kahn Investors

I’m doing okay. Looking at your recent release from the Department of Energy as it relates to the solar project, you did say that you have development efforts with automotive and energy companies on alternative fuels. Could you expand on or elaborate on that as to what the potential is and what the format of the project is?

Isy Goldwasser

Sure. I’d be happy to explain it. We all know that there are obviously very large energy challenges. And there are a host of technologies that are being developed and that funding for those technologies is going to increase, at least from the government perspective. Many of those technologies require new processes or improved materials. And in the case of solar thermal, we are basically attacking one of the materials used in that technology. And our approach really allows years of research to be done in months with a lot of higher probability of success. And that’s the basis of the contract with DOE. We have other programs that we are pursuing that we’ve engaged in other programs as well and they all relate to different aspects of alternative energy. And it’s really going to lead to growth in HPR services. It will also lead to HPR product sales. And in some cases, it could lead to other sources of revenue.

Jerry Kahn – Kahn Investors

I got it.

Operator

(Operator instructions) And at this time, we have no further questions in the queue. I’ll turn the conference back over to our speakers for any additional or closing remarks.

Isy Goldwasser

Thank you, everyone, for joining and we look forward to updating you on our progress next quarter. Good afternoon.

Operator

That concludes today's conference. Thank you for your participation.

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