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Accelrys (NASDAQ:ACCL)

Q2 2013 Earnings Call

July 31, 2013 5:00 pm ET

Executives

Todd Kehrli - Co-founder and Executive Vice President

Scipio Carnecchia - Chief Executive Officer, President and Director

Michael A. Piraino - Chief Financial Officer, Principal Accounting Officer, Executive Vice President and Secretary

Analysts

Greg McDowell - JMP Securities LLC, Research Division

Chad M. Bennett - Craig-Hallum Capital Group LLC, Research Division

Scott R. Berg - Northland Capital Markets, Research Division

Sung Ji Nam - Cantor Fitzgerald & Co., Research Division

Operator

Good afternoon. My name is Sharon, and I will be your conference operator today. At this time, I would like to welcome everyone to the Accelrys Q2 2013 Earnings Conference Call. [Operator Instructions] Mr. Todd Kehrli from the MKR Group, you may begin your conference.

Todd Kehrli

Thank you, operator. Good afternoon, and welcome to Accelrys' 2013 Second Quarter Financial Results Conference Call. A press release was issued this afternoon detailing these results and maybe accessed on the company's website at accelrys.com, under the Investor Relations section. Speaking today will be Max Carnecchia, Accelrys' President and Chief Executive Officer; and Michael Piraino, Accelrys' Chief Financial Officer.

Before we begin, I'd like to remind everyone that the remarks made during this conference call will contain forward-looking statements made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are neither promises nor guarantees that involve risks and uncertainties that could cause actual results to differ materially from those set forth in the forward-looking statements, including without limitation, those risks detailed in Accelrys' filings with the SEC, including our most recent annual report on Form 10-K for the year ended December 31, 2012, and our most recent quarterly report on Form 10-Q for the quarter ended March 31, 2013.

Accelrys disclaims any obligation to publicly update or revise any such statements to reflect any change in the company's expectations or in events, conditions or circumstances on which these such statement may be based or that may affect the likelihood that actual results will differ from those set fourth in the forward-looking statements. I'd now like to introduce the company's President and CEO, Max Carnecchia.

Scipio Carnecchia

Good afternoon. In Q2, we delivered solid execution, continuing to implement the go-to-market changes introduced at the beginning of this year. In addition, we had strong orders results in Q2, with a significant year-over-year increase in orders intake. Our Q2 operating results demonstrate continued progress, delivering against our strategy and further validate our position as the leading provider of scientific innovation life cycle management or scientific ILM solutions. We delivered several important product and partner releases during the quarter, including the introduction of the Accelrys Experiment Knowledge Base, an industry-first laboratory informatics system specifically designed for research and development that allow scientists for the first time to search and mine experimentation data from almost any source.

The release of Accelrys Discovery 4.3, our product included in the Aegis acquisition, and a key application within the Accelrys Process Management and Compliance Suite, with significant enhancements and new capabilities that improve the ability of our life science customers to analyze and make decisions based on product stability test results. We introduced expanded capabilities within Accelrys Enterprise Platform 9.0 for managing large and complex data sets, administration and security improvements and additional functionality for efficient interaction among externalized collaboration work groups. And we continue to expand our relationship with BT through the release of our industry-leading research and collaboration workspace, HEOS, on the BT life science R&D cloud, and through development of innovative data mining strategies using Accelrys Enterprise Platform's ability to manage large sets of structured and unstructured data, such as BT's coalition of public health data, which is proven difficult, if not, impossible to manage with other technologies.

In the beginning of 2013, we rolled out the go-to-market coverage model required to create momentum for the segments critical to executing our scientific ILM strategy. As a reminder, these segments are: life science research and development, life science analytical development, quality and manufacturing and material science and engineering. Through the course of Q2, we made good strides in maturing the adoption of this market segment based model and associated go-to-market approach.

Let me provide you an update on each market segment. The life science research and development segment represents the heritage Accelrys market, spanning basic research to preclinical development. While the evolution has created some disruption to our legacy product business, it has also created a tremendous opportunity to connect our customers with the solutions that will support their evolving business models. The Accelrys externalized collaboration suite, announced at the beginning of Q2, is helping our customers address their challenges by providing cloud-based solutions while delivering a more holistic strategy for partnering organizations. As we have previously stated, this is a strategically focused investment area for Accelrys, targeting a rotation of spend from the historic BioPharma software footprint, which supported legacy drug discovery approaches to the new business models and future path for drug innovation.

In the life science analytical development of quality manufacturing market segment covers the processes that stands from preclinical through the commercialization and manufacturing, and primarily includes the product lines introduced with our acquisition of VelQuest, Aegis Analytical and Vialis, along with the Accelrys ELN. In Q2, we made significant progress in our efforts to integrate the acquired products and operations and in maturing our field coverage for this segment. In addition, we have been working to evolve our product and service offerings to mitigate the impact of longer sales cycle and the complexity of this market segment.

The material science and engineering market segment consists of the industries and organizations outside of life sciences that exploits scientific innovation in their products and processes. For example, chemical companies, consumer package goods, food and beverage producers and energy companies. This is a large and predominantly greenfield market and we enjoyed some very positive market uptake of our products -- product offerings to this segment during Q2.

Conventional enterprise software has historically failed to meet the automation capture storage analysis and sharing needs of scientific information, a value Accelrys is uniquely positioned to provide through our highly differentiated product offering. We have made some significant investments in our field and service organizations this year in order to support and grow this market. In addition, we have sharpened our corporate development focus to identify additional acquisition opportunities for this promising market.

While there is still more work to do, our strategic vision around scientific ILM and our market segment approach was further validated through significant new contract wins in the quarter within our key customer accounts. During Q2, we also recognized Sanofi-Aventis with our first Accelrys scientific innovation life cycle leaders award, a new award honoring the companies that are closing the productivity gap from innovation through commercialization.

Last week, we strengthened our Board of Directors through the addition of a new independent Director, Heidi Melin. Ms. Melin is an experienced executive, with more than 20 years of marketing experience in the high technology industry, and currently serves as the Chief Marketing Officer of Plex Systems, a cloud enterprise resource planning technology company. We are excited about the addition of Ms. Melin, and look forward to leveraging her expertise and experience in pursuit of our strategic goals.

The steps we have taken over the last 18 months to introduce the scientific ILM strategy, strengthen the team and align our field operations, have provided us with the right leaders to drive change in our operation necessary to serve our changing markets and to further enhance and expand our operational performance. Earlier today, we filed an 8-K, summarizing the details of the corporate restructuring directed at rebalancing resources around growth products and the significant opportunities we have as the leader in scientific ILM. We have leveraged product portfolio management for some time, and this latest action properly positions us for a profitable execution of our updated 3-year plan. Michael will show more details about this activity and its related benefits shortly.

Finally, we recently completed, on time and on budget, the build-out and relocation of our new headquarters facility in San Diego, with no operational service disruption. With that, I'll turn the call over to Michael to update you on the financial performance of the business.

Michael A. Piraino

Thanks, Max. In addition to information contained in our press release and our prepared remarks today, the investor fact sheet can be found later today on the company's website under the Investor Relations section, along with a full reconciliation of GAAP to non-GAAP results. Q2 is rapidly becoming a more significant quarter for the company in terms of order inflow. In the past Q1, because of our legacy March 31 pre-Symyx merger year ending, was the second-largest quarter of the year. The business is now reflecting a more traditional software company cadence, with Q2 and Q4 contributing in combination between 60% and 70% of orders for the year. Overall orders, including orders for professional service for the quarter, were up double-digit when compared to the same period a year ago. All geographies, except for Asia-Pac, were up significantly, with particular strength in EMEA. As noted last quarter, FX headwind continues to challenge reported results coming out of Japan. On a reported basis, Asia-Pac orders were down double digits. However, on a constant-currency basis, Asia-Pac orders would have been up approximately mid-single digits when compared to the prior year. So you could see the impact of FX there.

The new field coverage model, identifying the market segments of life science research and development, life science analytical development, quality and manufacturing, and material science and engineering continue to settle in. Sales of platform products, consisting of the AEP, Pipeline Pilot and the associated science collection have been allocated to their respective end market segments. Market segments should not be considered a line of business, but a field coverage model and strategy that drives effective go-to-market strategy and successfully moves clusters of products to a defined market.

Orders contribution for the second quarter, when compared to the second quarter of 2012, is as follows: Life science research and development, representing 43% of orders for the current quarter was up approximately 14% versus the prior year. Analytical development, quality and manufacturing, representing 29% of orders for the current quarter, was up approximately 95% versus the prior year. This includes the contributions from Aegis and Vialis. Material science and engineering, representing 28% of orders for the current quarter, was up approximately 6% versus the prior year. Just as in Q1, the prior year order numbers that were used as the basis for the comparisons have been calculated using allocations since the business was not organized according to market segments during that period. The current year order numbers do not represent specific market -- do represent, excuse me, specific market segment assignments. These year-on-year comparison should be considered preliminary.

Trailing 12-month renewal rates for subscriptions on term licenses were 88%. Trailing 12-month renewal rates for maintenance averaged approximately 86%, and trailing 12-month renewal rates for content were 88%. There were 7 customers with aggregate orders during the quarter that exceeded $1 million. Approximate non-GAAP revenue breakout for the quarter by geography was as follows: North America, 53%; EMEA, 29%; and Asia-Pac, 18%. Non-GAAP revenue for the quarter ended June 30, 2013, was $41.8 million, compared to $41.5 million in Q2 calendar year 2012, representing a modest increase of 1%. The Aegis and Vialis contributions to revenue for the year-to-date period were approximately $6 million, resulting in organic non-GAAP revenue decrease for the period of approximately 5%. Non-GAAP revenue for the quarter on a constant-currency basis was $43.6 million, a direct result of a $1.7 million of continued unfavorable foreign currency translations coming from the JPY-USD pair. Content revenue for the quarter decreased 20% from $3 million to $2.4 million.

Gross margin, as a percentage of non-GAAP revenue, was flat compared to the prior period. This represents an improvement in gross margin percentage, reversing a 3 quarter trend of declines. Total non-GAAP operating expenses for the second quarter were $27.2 million versus $26.2 million a year ago or an increase of 4%. Compared to the same period a year ago, sales and marketing expenses were up approximately $1.6 million, the result of additional quota carriers and expenses associated with the Aegis and Vialis acquisitions.

Research and Development was down slightly when compared to the prior year, and G&A was down approximately $0.5 million or 13%, the result of expense management and lower accrued corporate incentive. Non-GAAP operating income was $4.2 million versus $5 million for Q2 2013 and 2012, respectively. Aegis was accretive, and Vialis was slightly dilutive to non-GAAP operating income, adjusted EBITDA and non-GAAP EPS for the second quarter of 2013. Adjusted EBITDA for Q2 was $6.6 million or 15.8% of non-GAAP revenue compared to $7.2 million or 17.3% of non-GAAP revenue for Q2 2012. Non-GAAP earnings per share was $0.07 for both quarterly periods.

Looking at the balance sheet, we had total cash investments and secured notes receivable of $164 million as of June 30, 2013, as compared to $202 million a year ago. That comparison comprehends $37 million for acquisitions, $13 million for stock buyback and $10 million for capital expenditures during the past 12 months, and early collection at full value of the Intermolecular Inc. note receivable valued at $26 million.

Collection of the IM note triggered the recognition for GAAP purposes of a deferred gain of approximately $25.8 million. This gain has been adjusted out of our non-GAAP earnings presentation. Depreciation expense was $0.9 million for both periods. Capital expenditures for the quarter amounted to approximately $6.3 million compared to $1.5 million for the same period a year ago. The increase in Q2 was almost entirely due to the completion of our new headquarters facility in San Diego. Cash taxes for the quarter were $0.2 million compared to $0.9 million a year ago.

Finally, we'd like to provide our revised guidance, reflecting the company's expectations for calendar 2013. For the year ending December 31, 2013, we expect non-GAAP revenue to be between $176 million and $179 million. We expect non-GAAP diluted earnings per share to be between $0.32, $0.34, our fully diluted weighted average shares outstanding at $57 million and using an effective pro forma tax rate of 40%. This guidance comprehends the operating benefit of the restructuring approval outlined in our 8-K filing today, in which we implemented a plan to terminate the employment of many employees in the U.S. and the UK. In connection with the termination, we will incur up to $6 million in severance, retention and relocation charges during the next several quarters.

In addition, we committed to a plan to exit a significant portion of our facility in San Ramon, California, in which we will incur up to 1.5 million hours in facilities abandonment and contract termination and other charges. These actions represent Q3 2013 events, and will be reflected in those results -- those GAAP results. The strategy and tactics driving this restructuring revolves around our continued commitment to investing in growth products and markets, and divesting in non-growth areas.

Additional comments with regard to our revised 2013 guidance are as follows: Aegis and Vialis are expected to be accretive to non-GAAP earnings per share for the entire year. Aegis and Vialis are expected to contribute in the aggregate approximately $10 million to $12 million in revenue for 2013. We expect revenue and earnings per share headwind from foreign currency for the remainder of the year. The guidance presumes that adjusted EBITDA to be in the range of $33 million to $35 million for the year. With that, I will turn the call back to Max.

Scipio Carnecchia

Thank you, Michael. As I discussed at the start of the call, we are pleased with our Q2 financial and operating performance. More important than the solid financial results is the traction and momentum we are seeing from the implementation of our market segment strategy and field coverage model. In Q2, we made important progress in improving our execution. For the second half of the year, our team remains head-sound focused on execution and on achieving our targets. The restructuring we announced today will further strengthen our financial position, and will also help us to better align our people and operations around the evolving market opportunity. We believe the market opportunity in front of us is as strong as ever, and that we are uniquely suited to meet the needs of the research and development community and organizations that drive product innovation from lab to market. Our strategy continues to be well-received, changing our relationship with customers from point solution vendor to a strategic enterprise class partner.

In conclusion, with a healthy balance sheet and strong cash position serving as a solid foundation, we are well-positioned to continue to execute our strategy and create value for our shareholders, our employees and our customers. With that, operator, we'll open the call for questions.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from Greg McDowell from JMP Securities.

Greg McDowell - JMP Securities LLC, Research Division

I'm just trying to reconcile your commentary on the strength of order inflow and double-digit order growth with sort of lowered guidance for the full year. Could you just walk us through -- why bring down revenue by revenue guidance by $2 million at the high end when it sounds, based on your commentary, that you guys had a decent quarter?

Michael A. Piraino

Sure. So Greg, it's Michael. Really, 2 things at work there. The commentary around the orders performance for the quarter is really in comparison to the second quarter of the prior year in 2012. So compared to 2012, the order increases were, as I outlined them, double-digit in total and by those various categories. We did not make up some of the shortfall that we had in the first quarter. So that's part of what's reflected in the guidance. And the other impact, as I'm sure you're seeing with most of your companies that are reporting, is that we continue to get FX headwind out of Asia-Pac. So just like we did in the first quarter, trying to estimate what that headwind and translation and impact is going to be for the balance of the year. There's some estimate in there for that. So we haven't really broken it out, but you should think about it as probably $1 million kind of having to do with first half orders versus first half orders last year and the other $1 million associated with FX.

Greg McDowell - JMP Securities LLC, Research Division

That's helpful. So I guess maybe another way to ask, and maybe I'll direct this to you, Max, is were you satisfied with your sales team performance in the second quarter, because I know in Q1, they performed below your expectations, and I think there was some thoughts out there that some of that Q1 orders would be mopped up into Q2. I guess, did some of those slipped deals just not come to fruition in Q2? And do you consider those deals still in the pipeline or have they completely split out for whatever reason?

Scipio Carnecchia

Yes, so just to take the front end of your question directly, yes, I'm pleased with the performance of our field organization in Q2. I think that what we outlined for you in April was that we instituted a lot of change into our field with the market segment approach, the coverage model, the go-to-market, and that created some indigestion and just kind of some processing that needed to take place. The expectation we tried to set in April was that while we were anticipating being able to get through a lot of that in Q2, that it was going to be a multi quarter -- it was going to take us a couple of quarters to kind of get back to full throttle, if you will. So I think the point that Michael is making is we had a very strong quarter on a year-over-year comparison in Q2 from an orders intake perspective, but very difficult to make up all of that difference from an orders perspective, and then the way that we do revenue recognition, you've got a knock-on effect with the...

Michael A. Piraino

Subscription accounting.

Scipio Carnecchia

Subscription accounting that then ensues.

Operator

Your next question comes from Chad Bennett from Craig-Hallum.

Chad M. Bennett - Craig-Hallum Capital Group LLC, Research Division

Just a question for me. Michael, are you able to quantify the FX impact on deferred revs on a year-over-year basis?

Michael A. Piraino

Yes, I think, if I recall, I think you asked me that question last quarter.

Chad M. Bennett - Craig-Hallum Capital Group LLC, Research Division

I think so.

Michael A. Piraino

And yes, we can. I mean, it's a couple of million dollars, and the way you should think about is there's roughly a non-GAAP deferred revenue around $90 million in Asia-Pac, although it included more than Japan, it's mostly Japan, and that's around 20%. We've had about a 10% movement in the currency. So you should think about it as around $2 million reduction to deferred or increase if you did it on a constant-currency basis.

Chad M. Bennett - Craig-Hallum Capital Group LLC, Research Division

Okay, and Michael, again, remind us again the order growth in the quarter looked -- again, bounced back from March and looked really good on a year-over-year basis, but remind us again the disconnect between deferreds and orders on a year-over-year basis?

Michael A. Piraino

Yes, it's -- this question comes up from time to time, and that is looking at non-GAAP deferred, is that the right way to think about a proxy when you compare periods, is that a proper proxy from a growth perspective, and it continues to be somewhat of a challenge to try to do that, right? I mean, there's so many things that go in and out of the deferred account. We also account -- every services order doesn't go through the deferred account. A lot of services orders, those that are on a time and material basis, don't even go through the deferred accounts, or if they do, they do on a very delayed basis. So again, I caution you and I caution other listeners that looking at the change in deferred can give you a false positive or a false-negative. You have FX in there, which you just asked about. When we do acquisitions, obviously, we're loading up the balance sheet with opening deferrals, and taking those down during subsequent periods based on the deferral triggers. So again, I just -- I caution you not to take too much out of that trend there.

Chad M. Bennett - Craig-Hallum Capital Group LLC, Research Division

Okay, and then Max, can you speak to -- I'm kind of jumping between calls today, but can you speak to where we are in terms of maturity on the sales kind of re-org or -- strategy, I guess, I should say around the new segments, and I understand it's a work in process, but do you feel like people are understanding the segments they're going after, the sweet pitch within those segments? And I don't know if you could quantify it, but do you feel like we're 50% away there, if that's a way of looking at it? So any type of idea of when we're kind of -- I know you're never firing on all cylinders, but when you'll -- you think you will get there in terms of everybody understanding the new strategy?

Scipio Carnecchia

Right on, I'll take that head on. So I think where you ended is kind of where I would start. Having run a large field organizations for 20 years, you're never done operating your team. The heart of your question has more to do with all of, I would assume, has all to do with the changes that we injected in the coverage model and many of the acquisition integration things we wrestled with in Q1, and the digestion that created from an orders intake perspective. We made really good progress in Q2, progressing up that maturity curve and [indiscernible] reiterating. This isn't going to be a one quarter and you're back to where you were. It's going to take us a couple of quarters, and I feel good about the progress we made in Q2. I'm optimistic that we'll continue to make progress in Q3, and set ourselves up going into October ready for what is the largest orders quarter for us -- opportunity quarter for us, and Q2 is better -- a lot better than Q1, and I think Q3 will be better than Q2. We got the -- largely, the right team out there, the right field talent. We filled a lot of the bad roles that we had. We've added some leadership. We had an open leadership position in Europe at the beginning of the year, and on around the middle of May, we were able to bring on a big upgrade for ourselves in Europe from a leadership perspective.

Michael A. Piraino

Over some of these segment.

Scipio Carnecchia

Yes. So I feel good that we're on the right trajectory, and have confidence we're going to get there before the end of the year.

Chad M. Bennett - Craig-Hallum Capital Group LLC, Research Division

Okay, and excuse me if it's redundant, but did -- of your annual orders, I know the June quarter typically isn't a big quarter, but because of what happened in March, was the June quarter greater than the normal 10% to 15% of annual orders based on what your guidance is today?

Michael A. Piraino

Yes, Chad, it was. This is Michael. You might have missed some of my opening comments, but the cadence has changed to really kind of a more normal software into Q2 and Q4. We now think the combination of Q2 and Q4 is 60% to 70% of our orders for the year.

Scipio Carnecchia

And some of that, Chad, is a result of what happened in Q1, but I think if we look back, Q1, for us, the March ending quarter, if you go back in the way back machine, was the fiscal year end for Accelrys for the merger with Symyx, and so there was a natural forcing function for our sales teams. It was the end of a plan year, and you'd end up with this bigger quarter because, historically, it was a Q4, not a Q1. To Michael's point, we definitely think the cadence of our business is changing, and overtime, we'll continue to change to look much more like the conventional software company, where from an orders intake perspective, Q2 will be the second largest quarter, Q4 will be the first largest quarter and then we'll probably have a toss ball between Q1 and Q3.

Operator

Your next question comes from Scott Berg from Northland.

Scott R. Berg - Northland Capital Markets, Research Division

Couple of quick ones. First, for you, Max, is -- you seem to obviously very pleased with the order flow in Q2, but can you quantify a little bit maybe on how much of that order flow was based on catch-up from Q1 that got pushed through versus what should be expected as kind of a normal Q2 deal flow?

Scipio Carnecchia

Yes, so to try to -- it's difficult for me to quantify that as we used orders directionally, but Scott, we have -- trying to say it a different way, if we took out the slipped orders from Q1 that we mopped up in April and May, early in the quarter in Q2 and then compared our Q2 of 2013 to our Q2 2012, we still have double-digit growth in orders. So we feel -- we try to do it on that comparison so that you got a little bit more of a true view, again, coming back to why we have confidence and why we feel good about the progress we've made and where the team, the field team is. That's some of the background.

Scott R. Berg - Northland Capital Markets, Research Division

Excellent, exactly what I was looking for. And then just a kind of a broader level macro picture is -- are you seeing any changes from the demand environment, whether it's in one of these 3 particular new segments domestically or internationally that would, I guess, change the view of over the next 6 to 12 months and how you're looking at the market today?

Scipio Carnecchia

Yes, so I think from a -- just a strictly a geo perspective, it's fair to say that we've seen the European market stabilize, where at the end of last year and particularly in Q1, which was probably some of our own execution of course, it did not seem to be flat. It seemed to be going down. So that headwind has abated a little bit. I don't feel like we've seen -- we're not huge in China. We're big in Asia-Pac, but that's a combination of Japan, Korea, Singapore and China. Whatever kind of headwind is happening or slowdown that's happening in China, it's not impacting us just because it's a smaller part of our business. Michael, comments on FX?

Michael A. Piraino

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Well, again, I think, we've had FX of the first half of the year, it's been relatively significant, $3.2 million, $3.3 million in revenue as it triggers in the first half. So our guidance kind of presumes that we're going to see something similar to that for the balance of the year and we've adjusted for that. So I think that's what's going on in Asia-Pac. Europe. I completely agree. I think it's recovering. Maybe we bottomed out there. I think relative to U.S., I think some of the budget footing that we were struggling with in the first quarter has abated, and I think we're starting to stabilize now in terms of releasing budgets, and I think whether it's NIH or sequestration, it's also kind of modulated somewhat now. Now when we get to the fall, and we deal that credit line again, things may be different, but at least for now, I think it's -- things have settled down here in the U.S.

Operator

Your next question comes from Sung Ji Nam from Cantor.

Sung Ji Nam - Cantor Fitzgerald & Co., Research Division

I was wondering if you could maybe talk -- breakdown your organic decline -- revenue decline year-to-date, the 5% decline? Kind of what are maybe the biggest contributors of that in terms of maybe to the extent if possible, the different product lines that you have?

Scipio Carnecchia

Yes, you want to talk about product lines or do you want to...

Michael A. Piraino

Well, I mean, I think the starting point is the decline is primarily based on what happened with the order shortfall

Scipio Carnecchia

In Q1.

Michael A. Piraino

In Q1, which was a combination of our execution issues with the changes we included and then the FX. Q1 for us, particularly March, is a very big quarter for us in Japan because it's a fiscal year end there for the government, for many companies, and I think those 2 things are the biggest contributing factors. If we wanted to peer into it and say what does that mean from a product perspective, it probably had more to do with some of the legacy products, the things that we had inherited from the Symyx merger or some of the life science research products that are from some of the legacy Accelrys heritage market.

Michael A. Piraino

Yes, so Sung Ji, this is Michael. I agree with everything Max said there. If you think about organic revenue that's implied by kind of the midrange of the guidance, so we're now $176 million to $179 million. If you go back to last year's full year revenue, about $174 million -- we just contributed about $1 million to that last year so you're kind of baseline is $173 million. If you take the mid-point of our guidance and also the mid-point of Aegis and Vialis contributions for the year, that mid-point puts you at $166.5 million, something like that, which would suggest down year-on-year. And then if you add the FX, which is $3 million for the half year and probably $6 million for the year, I think what's presumed there is basically kind of a flat year-on-year organic number. I mean, that's what's really presumed by the midrange of the guidance.

Sung Ji Nam - Cantor Fitzgerald & Co., Research Division

Okay. That's helpful. And then secondly, you talked about kind of the macro environment by geography. I was wondering, I know you had some good account wins in the quarter, is there any kind of either trends you're seeing? I know, obviously, you can't -- it's difficult to see trends on a quarter-to-quarter basis, but from your -- some of your customer segment, pharma and BioPharma versus some of the other ones? That would be helpful.

Scipio Carnecchia

This is Max. Sung Ji, this is Max. So let me try to take that through a market segment lens. Just to start with life science research and development, there's been an ongoing headwind there relative to conventional small molecule. Spends amongst BioPharma companies, what we've seen is a big move to external collaboration and some of the tools and applications and solutions we've introduced in the first 6 months of this year really hit that sweet spot. So I think we're setting ourselves up to take that headwind and actually flip it around and turn it into some new opportunities for us. I think that's what was announced in April and May, and some things that we've got in the shock year that we'll announce through the end of this year. On the ADQM side, the Analytical Development and Quality Manufacturing market segment, well, the sales cycles there are a little longer because of the validated and regulated nature of downstream pharma. We do see the pipeline building very nicely and have high confidence in being able to execute on that pipeline. So that digestion, when Chad asked this question, the digestion of all those changes and getting our go-to-market and field organization and coverage model right, I think, plays a part there. And then lastly, and probably most significantly, the material science and engineering is just a huge opportunity, and the conventional enterprise software companies have not been able to deliver solutions to that sort of organizations in research and development because of the unique nature of the scientific information, and we have and we find ourselves in sale cycles where we're competing with either homegrown solutions or really manual paper processes. So we're very excited, not only about what that means in 2013, but what would go in 2014 and 2015 in the MS&E segment. So hopefully, that color is valuable to you.

Operator

[Operator Instructions] And we have no further questions at this time. I'll turn the call over to the presenters.

Scipio Carnecchia

Great. So this is Max. Just some closing comments here. We're really excited about the big market opportunity that we find ourselves standing in front of. We feel we've got the right strategy certainly from scientific ILM category and then the strategy of attacking that through the market segment approach. We're investing in the right people and the right talent in our business. The restructuring that we announced today is key to rebalancing our resources, people programs and dollars on our growth opportunities and through that market segment lens, sharpens our focus from an M&A perspective on where the real opportunities for us to pursue and add to our portfolio -- the capabilities that our customers really require over the next 5 to 10 years. So we're excited to share that with you, and with that, we'll bring the call to a close.

Michael A. Piraino

Have a good evening. Thank you.

Operator

That concludes today's conference call. You may now disconnect.

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Source: Accelrys Management Discusses Q2 2013 Results - Earnings Call Transcript
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