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Executives

Todd Kehrli – IR, MKR Group

Max Carnecchia – President & CEO

Michael Piraino – SVP & CFO

Analysts

Chad Bennett – Northland Securities

Ragh Sarathy – Dougherty & Company

Accelrys, Inc. (ACCL) F4Q10 (Qtr End 03/31/10) Earnings Call Transcript May 20, 2010 5:00 PM ET

Operator

Good afternoon. My name is Britney and I will be your conference operator today. At this time, I would like to welcome to the Q4 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. (Operator instructions) Thank you. I would now like to turn the call over to our host, Mr. Todd Kehrli from the MKR Group. Sir, you may begin.

Todd Kehrli

Thank you, operator, and welcome everyone. Thank you for joining Accelrys’s fiscal 2010 fourth quarter and year-end earnings conference call. A press release was issued this afternoon detailing our financial results and may be accessed on the company’s website at accelrys.com under the Investor Relations section of the site.

On the call today to comment on the fourth quarter and year-end results will be Accelrys’s CEO, Max Carnecchia, and CFO, Michael Piraino. Before I turn the call over to Max, I’d like to remind you that the company’s comments today which are not statements of historical fact are forward-looking statements.

Such statements include the company’s expectations regarding the time, anticipated completion of the merger with Symyx Technologies and the benefits and synergies resulting therefrom, as well as projections or forecasts of future financial results whether as a result of the merger with Symyx or otherwise, including statements regarding future order intake, revenue, operating income and cash flow.

These forward-looking statements are subject to a number of risks and uncertainties, including the risk that the merger will not be completed as expected due to among other potential events, litigation or failure to obtain the approval, or that synergy that’s from the merger will not allow due to a number of factors, including adverse reaction in the company’s relationship with customers, failure to effectively (inaudible) the combined companies, expected costs or (inaudible) resulting from the merger.

Also the company’s financial projections or expectations may not be real due to the factors discussed above, as well as macroeconomic conditions, lack of demand for the company’s products, failure to timely develop our products, or complete our services or inability to complete and recognize revenue from service engagements. Because of these risks and uncertainties, actual results may differ materially from these forward-looking statements.

Additional factors that could cause actual results to differ materially from these forward-looking statements are set forth in the company’s quarter report on Form 10-Q for the quarter ended December 31, 2009 and the quarter report on Form 10-Q for Symyx for the quarter ended March 31, 2010, and in subsequent reports on forms 10-K, 10-Q and 8-K and other filings made with the SEC by both Accelrys and Symyx. These forward-looking statements speak as of the day they are made and the company undertakes no obligation to update or revise these statements, whether as a result of new information, future events or otherwise.

In addition, the information provided on this call does not constitute an offer to sell or the solicitation of an offer to buy any securities or solicitation of any vote or approval. In connection with the merger, the company and Symyx have filed relevant materials with the SEC, including a joint proxy statement. Investors are strongly urged to read the joint proxy statement because it contains important information about the company, Symyx and the proposed merger.

In the press release issued earlier today, references were made to both GAAP and non-GAAP financial measures relating to operating income, net income, and earnings per share. The GAAP income statement includes in the listed [ph] expenses, costs related to restructuring, amortization of purchased tangibles, and stock compensation expense, which are excluded from the non-GAAP financial measures. As a result, we have provided in the press release and in the Investor Relations section of the company’s website a complete reconciliation of these non-GAAP financial measures to the applicable GAAP measures.

Although not a substitute for a GAAP presentation, we feel that the non-GAAP information allows for meaningful year-over-year comparison and fairly identifies the actual operating results of the company. That is this non-GAAP information that we use internally to monitor our financial performance. As a result, references will be made to non-GAAP financial measures for the rest of this call.

I will now hand the call over to Max.

Max Carnecchia

Todd, that was a mouthful. I’m pleased with our financial performance, both in this quarter and for our full 2010 fiscal year. We have increased revenue by 2% over our prior year and did even better in our fourth quarter, increasing revenue by 4% from the fourth quarter of prior fiscal year.

We also increased our non-GAAP operating income by 24% from our prior year and improved our rock solid balance sheet by increasing cash approximately 20%. We now have $93 million in cash and no debt. We delivered these results in a fiscal year in which the economic environment remained extremely challenging while entering into a merger of equals with Symyx Technologies and while making significant changes to our executive leadership team. In short, I am proud of our financial performance.

Michael will provide you with more color regarding our financial performance later. I will now provide you with highlights of our operating performance with which I’m also extremely pleased. From an order intake standpoint, we had our second consecutive solid quarter, as orders for software and services increased from the prior fiscal year’s fourth quarter order level.

These results enabled us to build on our third quarter results and conclude a successful fiscal year with our full year order intake exceeding our previous guidance and last year’s order intake. Order intake was solid in both the Americas and Asia-Pacific, but remained flat in EMEA as a result of customers undergoing budget cutbacks, continuing economic uncertainty, and some sales execution issues having to do with territory coverage.

Accelrys Pipeline Pilot and Accelrys Materials Studio were our best performing product lines with double-digit and high-single digit software growth respectively for the fiscal year. Customers continue to benefit from our products and services. We concluded the Accelrys Biological Special Interest Group after successfully developing requirements for state-of-the-art biological registration. These were used to resign, develop and deliver the world’s first commercially available biological registration system, which is currently being implemented at SIG participant sites.

Other recent business highlights include the successful conclusion of the North American Customer User Group Conference in Boston, Massachusetts. A record number of Accelrys customers and partners attended the conference, which showcased how Accelrys’s products and services can significantly improve the performance of scientific research and development organizations.

We also announced the release of Pipeline Pilot 8.0, the latest version of Accelrys’s scientific informatics platform. This version has been enhanced to support a greater number of scientists and researchers working individually and/or as collaborative teams across a wider scientific R&D enterprise.

We have appointed Mr. Todd Johnson as Executive Vice President of Sales, Marketing and Services. Mr. Johnson initially joined the company in January 2009 as its Interim Chief Executive Officer and remained as Senior Vice President of Marketing and Operations following my joining the company as CEO. We believe Todd’s experience brings critical go-to-market expertise to Accelrys, which will further enhance our ability to achieve our goals.

Let me now turn the call over to Michael Piraino.

Michael Piraino

Thanks, Max. And thanks to everyone for joining us this afternoon or this evening and allowing me to update you on our Q4 performance. I will be providing, as I did in the third quarter, some detailed financial information, commenting on a few key financial highlights from our fourth quarter.

In prior quarters, the company has made reference to certain seasonality trends or financial policies of Accelrys. These trends include the impact of seasonality on orders, expenses, cash flow, billings and collections, and explain how subscription accounting differs revenue from orders received to subsequent quarters. We believe this information can be helpful to investors understanding Accelrys on a quarterly basis. This information can be located on our website in the Investor Relations section under Financial Modeling.

Our performance in Q4 was very solid on a number of fronts. Orders for the quarter were above Q4 fiscal 2009 level. We did close a number of large transactions during the quarter. There were aggregate orders from four customers in excess of $1 million in software, maintenance and services. That compares to aggregate orders from one customer in excess of $1 million in the same quarter a year ago.

Our major customers renewed their subscription licenses during the quarter. Subscription renewal rates averaged above 90% across all product categories for the quarter. This quarter, we have again achieved significant growth in orders from our scientific informatics platform Pipeline Pilot. This platform is the backbone of our scientific business intelligence strategy. And although the follow-on solutions will include the pull-through of many other Accelrys products and services, the platform orders are a good indicator of our success in providing scientific business intelligence solutions to our customers.

Our sales and marketing departments track and analyze for the company the customer orders by product type. Based on this analysis, our scientific informatics platform orders continued to grow by robust double digits for both the fourth quarter and the year. We believe that the platform orders will continue to enjoy a double-digit growth rate throughout fiscal year 2011.

Business remains concentrated with our top-25 customers accounting for approximately 50% of total orders for the quarter. However, no customer accounted for more than 6% of orders for the quarter. Revenue for the fourth quarter was $20.8 million compared to $20.0 million even in Q4 2009, which represented a 4% increase over the prior year. Excluding the impact of foreign currency fluctuations, our revenue would have increased 1% over the prior year.

Revenue breakout for the quarter by geography was as follows. North America, 47%; EMEA, 28%; and Asia-Pac, 25%; approximately the same contributions as the third quarter. We do have some exposure to the Euro and are monitoring the European contagion situation closely, as I’m sure you all are.

Non-GAAP cost of revenue was $3.4 million for the fourth quarter compared to $3.9 million for the same quarter of the prior year. Non-GAAP cost of revenue was minimally affected by foreign currency fluctuations. Cost of revenue includes expenses related to royalties, product distribution, and professional services. The decrease in cost of revenue was primarily attributable to a decrease in software royalties.

Our non-GAAP gross profit for the fourth quarter was $17.4 million or 83.8% of revenue compared to $16.0 million or 80.2% of revenue for the same period last year. This represented an improvement over Q4 fiscal 2009 as well as sequential improvement over Q3 fiscal 2010 gross profit of 82%. As you know, royalties and sales commissions are expensed on orders as opposed to revenues, which impact sequential comparisons of our gross profit and sales and marketing expenses.

Total non-GAAP operating expenses, defined as GAAP operating expenses less charges for non-cash stock compensation, restructuring and transaction costs, for the quarter increased $0.4 million to $18.2 million or 87.6% of revenue, down slightly as a percentage of revenue when compared to Q4 2009 non-GAAP operating expenses of $17.7 million or 88.9% of revenue.

This increase breaks down as follows. Product development, sales and marketing, and general and administrative increased by $2 million due to incentive-based compensation expense directly related to incremental orders and non-GAAP operating income performance above planned level for the year, as well as approximately $0.6 million in other personnel expenses. This increase is partially offset by a decrease in severance cost of $2 million in Q4 2009 associated with executive management changes. The $2 million in severance charges was recorded in G&A expenses in Q4 2009.

Non-GAAP operating expenses were negatively affected by foreign currency fluctuations by approximately 2% when compared to Q1 fiscal 2009. On a constant dollar basis, fourth quarter non-GAAP operating expenses would have been $17.8 million. Non-GAAP operating loss for the quarter was negative $0.8 million or a loss of $0.02 – negative $0.02 per diluted share compared to Q4 2009 non-GAAP operating loss of negative $1.7 million or a loss of negative $0.05 per diluted share.

Non-GAAP net loss for the quarter was $0.06 million or a loss of $0.02 per diluted share compared to Q4 non-GAAP net loss of $1.5 million or negative $0.05 per diluted share. Free cash flow for the quarter ended March 31, 2010 was a cash outflow of $0.7 million. This compares to cash outflow of negative $1.4 million for the same period of last year.

For the year ended March 31, 2010, free cash flow generated was approximately $8 million. We define free cash flow as non-GAAP operating income or loss plus interest income and depreciation less capital expenditures. Depreciation expense was $348,000 for the current quarter. This compares to $440,000 for the same period a year ago.

Now moving on to the balance sheet. Keeping in mind the highly seasonal nature of orders, we believe that a year-over-year comparison of cash, accounts receivable and deferred revenue would be a more relevant measurement than a sequential quarterly comparison. We had total cash and investments of $93.1 million at March 31, 2010, which represented $11.3 million increase from the $81.8 million we reported a year ago.

Accounts receivable were $22.7 million at March 31, 2010 compared to $21.9 million a year ago. Cash collection against accounts receivable were $36 million during the quarter versus $29.5 million a year ago. There were no substantial bad debt write-offs for the year. Total current and long-term deferred revenue at the end of Q4 was $61.3 million compared to $57.2 million a year ago, an increase of 7%.

The company has no interest-bearing debt outstanding. Capital expenditures for the quarter amounted to $300,000. On the employee front, worldwide headcount at March 31, 2010 was 362 compared to 364 employees a year ago. In summary, Q4 was a solid financial quarter, one in which orders, revenue, non-GAAP operating income, and non-GAAP operating earnings per share exceeded the prior year.

We would like now to provide our annual guidance for fiscal 2011. For the fiscal year ending March 31, 2011, we expect orders and revenue to grow at low-single digit rates and non-operating income and non-GAAP earnings per share to grow at low-double digit rates over fiscal year 2010. Please note that the aforementioned guidance relates to Accelrys as a standalone company. We will not be providing combined company guidance until after the merger with Symyx closes, which pending shareholder approval is anticipated in early July.

That’s my report, and I will turn the call back to Max.

Max Carnecchia

Thank you, Michael. In addition to the solid financial performance that was just reviewed, we made continued progress in important non-financial areas. We delivered a clear compelling vision and direction for Accelrys to be the leader in scientific software. We started to improve our go-to-market execution, had a highly productive year in research and development with new releases of every major Accelrys product family, made significant changes in our senior leadership team, and continued to provide top rated support to our customers worldwide.

The Accelrys team entered fiscal year 2011 with enthusiasm, excitement, and momentum to execute on our vision. A significant source of that enthusiasm is our planned merger with Symyx. Let me share with you why I am so personally excited by the potential combination of Symyx and Accelrys and why I believe it has such powerful potential for both companies’ investors, customers and partners.

In my experience, mergers of equals typically occur when two companies who sell competing products to the same customers decide to merge. The combination therefore results in fewer choices for these customers, requires the combined company to make painful investment decisions between competing products, and usually results in lower growth prospects for the combined company, as customers rarely need both competing products especially in the long run.

The Symyx-Accelrys combination is uniquely different. While both companies largely sell to the same customers, the products sold are complementary with very little overlap. Overwhelmingly, we will not require our customers to make a choice between two competing products, but will instead offer to them an integrated suite of complementary products, which in numerous ways and across their entire research and development organizations will enable them to utilize their scientific data more effectively in order to make better business decisions, enhance their scientist productivity, and create better products faster. This is a vision that no other company can fulfill and that neither one of us can fulfill nearly as effectively standalone. With this combination, we believe our value to our customers and investors will increase dramatically.

And let’s talk about these customers. As I noted, individually, we each serve substantially the same customers. The world’s largest life science organizations, the world’s largest energy producers, multi-national consumer packaged good manufacturers, and other science-based organizations, which collectively invest billions in research and development.

As a combined company, we will have unmatched resources enabling us to deliver critical and unparallel value to these organizations. No other provider will have our scientific expertise, breadth of capabilities, and number of valued employees. It is our vision to take these unique assets to become a critical business partner to these blue chip companies. I believe that upon closing the merger, we and we alone will have the building blocks necessary to execute on this vision.

As we have shared our vision with our employees, customers and investors, they have been extremely supportive of the merger and have asked on numerous occasions why did it take so long to bring these two scientific software leaders together. The industrial logic and synergistic benefits of the merger are indisputable.

With this combination, we create the leading enterprise scientific informatics software company; we provide the unparalleled capabilities of managing end-to-end scientific workflows to achieve better outcomes; we offer deep expertise in chemistry, biology, material science, creating a sustainable competitive advantage and barrier to entry; we create a financially stable company with powerful cash position and a debt-free balance sheet, establish the premier platform for future strategic acquisitions, and are uniquely positioned for sustainable profitable revenue growth, having a highly predictable revenue model.

Now let me tell you about the progress of the merger. The integration process is progressing very well with cross-functional integration teams of both companies meeting weekly. We are well into developing a combined operating model and optimized organizational structure and are confident that we will have a plan to capture the previously announced net synergies well in advance of closing the merger.

Our Hart-Scott-Rodino filing cleared on May 12, and we received notice of no review from the SEC. The registration statement was declared effective on May 18, and our shareholder of record date and meeting dates have been set. Given the current series of activities, we would expect the merger to close in the first week of July. Now that our respective record rates and special shareholder meetings have been set, investors will be given the opportunity to express their support to the merger.

And with these concluding remarks, Michael and I will now take questions. Operator?

Question-and-Answer Session

Operator

(Operator instructions) Your first question comes from Chad Bennett.

Chad Bennett – Northland Securities

Hey, guys.

Max Carnecchia

Hi, Chad.

Chad Bennett – Northland Securities

Just a couple questions. It sounds like bookings were ahead of your expectations for the quarter and for the year, for that matter. And it seems like Pipeline Pilot did very well, both in the quarter and the year. I guess, just looking into your ’11 guidance, bookings are kind of growing – they did this quarter high-single digits year-over-year and we’re guiding for kind of a low-single digit revenue and order growth number next year. I guess, is there something that we are missing there? Because I would assume Pipeline Pilot is now kind of 50% of revenue or plus and Materials Studio is, I don’t know, another maybe 10%, 15%, 20%, and they are both growing at good rates. Are we worried about FX or something like that?

Max Carnecchia

Chad, this is Max. First, you used the term bookings. I think we use this term orders. And just in review of the year, you will recall that in FY ’10, the year we just finished, we got off to a pretty bumpy start. Q1 was a little underwhelming. We made somewhat of a comeback in Q2 and it was really back-end loaded with the performance that we delivered in Q3 and what we just talked about here, the outstanding performance in bookings of orders in Q4 that really put it together. So when you compare that against last year – the previous year, and you compare that against the guidance that was delivered, we beat both of those numbers, but really the momentum was into the home stretch, into the back half of the year in a really big way.

We did – this was the year where Pipeline Pilot, from a software orders perspective, has corrected – or the platform has corrected over 50% of the business. And that’s something that we’ve been working towards and the company has been predicting for a couple of years now. So, good work there, and I think that’s going to serve us well going forward. That’s kind of the color that we would provide. I don’t know, Michael, if you want to talk about how that translates into revenue.

Michael Piraino

Yes, I would like to do that. In response to color, the first part of your question, I think you are a little bit worried about FX. I mean, we do have some exposure to the pound and the euro. We have some yen transactions. But it doesn’t look like that the currency that’s affected at the moment. But I think the fact that orders are back-end loaded kind of every year creates a little bit of a lag in the revenue number. One thing that’s somewhat encouraging is you probably – I think it was in my script, you notice that there was an increase in deferred revenue year-on-year of about 7%. Most of that is software. Probably 80% of that deferred revenue number is software.

So that leads its way into the income statement in the form of revenue in fiscal 2011. But we still have – as kind of we pointed out here, we still have this mix issue with one product growing fairly nicely and other product that – the Materials Studio business is somewhat favorable but close to break even, and then you thought Discovery Studio, which continues its declines, which is of no surprise. So if you kind of put all that together, and again I think we’re trying to be reasonable yet conservative about our outlook for fiscal 2011.

Chad Bennett – Northland Securities

Can you say how much Discovery Studio is, kind of going into this year, of the business?

Max Carnecchia

We haven’t broken out, Chad. We don’t break out the products in any detail more than what we shared on Pipeline Pilot. I think directionally the company has previously provided that Discovery Studio’s life science modeling and simulation product line has been in – it's been in decline. That continued in FY ’10. I will say that that rate of decline has slowed. I don’t think we are in a position to predict kind of a turnaround there at this point, but over the last four quarters, we’ve seen that rate of decline be reduced.

One other thing, Chad, just kind of coming back to the product breakout. More and more work has been done by Matt Hahn and his team to put products – our products on the platform, on the Pipeline Pilot platform, it becomes – I think it’s going to become more challenging for us to really break out even directionally products. We’ve now got Discovery Studio completely on the platform. You’ve got all the collections of course in the platform. We’ve got the Accord Cartridge on the platform, and later this year – we’ve already announced it. Later this year, we will be releasing Materials Studio collection on the platform. So it’s going to get a little murky, and Michael and I are going to have to work on a better way to give you guys some insight on what’s going on with the business at a product level.

Chad Bennett – Northland Securities

Okay. And then just digging into sales and marketing a little bit, probably for Michael, you have some detail into the increase sequentially and year-over-year. Is there a way to dig even deeper into how much of that was more kind of higher bookings related commissions versus I think you talked about incentive comp related to operating profits?

Michael Piraino

Yes. I mean, in sales and marketing, I think my comment was made in the context of overall operating expenses. But specifically with respect to sales and marketing, as you would expect, it’s mostly related to commissions. Now interestingly enough, if you look at commissions as a percentage of revenue for the entire year, it’s about the same as it was last year, around 6%, something like that. But we – intentionally I wasn’t here and Max wasn’t here, maybe you did that shortly after you got here. But the plans were – the sales plans were redesigned to make them a little more back end loaded, and that’s exactly what we’ve got. We’ve got commissions in the fourth quarter certainly more than the average for the year.

Max Carnecchia

And they match the order –

Michael Piraino

Yes. And they did match the good order performance that we had in Q4.

Chad Bennett – Northland Securities

Okay. That’s all I have. Thanks.

Michael Piraino

Thank you.

Operator

Your next question comes from Ragh Sarathy.

Ragh Sarathy – Dougherty & Company

Good afternoon. Thanks for taking my questions. I’m trying to understand the FX impact. And Mike, you talked about the FX impact on the expense side. What was the FX impact on revenue and deferred revenue?

Michael Piraino

On revenue, it was about 3%. I think my comments were that revenue was up 4% and would have been up only 1%. So it was about $0.5 million on the revenue side that’s a positive effect of course, and about $400,000 on the expense side.

Ragh Sarathy – Dougherty & Company

Right. And what about on the deferred revenue side?

Michael Piraino

I don’t have that number handy, Ragh. I’m sorry.

Ragh Sarathy – Dougherty & Company

Okay. Sorry. And then I know you don’t provide quarterly guidance. Can you give some color on what to expect in terms of revenue growth, non-GAAP operating income growth, and EPS, at least some color on the distribution?

Michael Piraino

Well, I think from a seasonality perspective, I think – first off, I would say that from a seasonality perspective, fiscal ’11 is going to look like fiscal 2010, which is weaker in the first half, then in the second half with the third quarter being –

Max Carnecchia

From an orders perspective –

Michael Piraino

From an orders perspective, being the highest quarter. I would suspect that growth toward the end of the year probably ends up being a little bit higher. We have rolled out the new Bio Reg product, and I know that that’s kind of baked into the orders forecast, but closer to the end of the year. And I also know that at least from a budget perspective, services are weighted – professional services are weighted a little bit higher toward the end of the year. As you would expect, right, the services essentially are associated with the sale of the software. So you would expect some of that to occur a little bit later in the year.

Max Carnecchia

Ragh, the only thing I’d add to that is, it’s easy to kind of see both sides of the aisle here, if you will, both sides of the ledger, it’s fair to say that our field organization, probably our whole company is a little distracted based on the very significant and exciting combination with Symyx. We’ve got a lot of people in the organization in middle-level management involved in the integration planning and those themes. And so I’m sure that’s costing us some cycles. I mean, between Michael and I, we’ve been involved in something close to 60 or 70 acquisitions and mergers. And so it’s – if you draw on that experience, you know that that’s going on.

On the other side of the ledger, last year Q1, the company got off to a pretty slow start. We were in the middle of a succession exercise at the CEO level. Todd and the team did a very fantastic job, but I’m sure that was really distracting for the team. And quite frankly, I think we got off to a slow start with getting our comp plans and getting our territories out there and stuff like that, put our field organization in a position to kind of spring load themselves in this year. We had our kickoff in the second week of April. We had everybody in. Everybody has got a territory. Everybody knows who they work for. Everybody knows how they get paid if they are successful and what hill they have got to go climb and what resources are available to them. So I am encouraged that we will get off to a better start and a crisper execution of the year.

Michael Piraino

It’s amazing what happens to the salespeople when you put a sales plan on their hand on the first day of the year.

Max Carnecchia

And they know what they got to do, yes.

Michael Piraino

Yes, exactly. Ragh, I do have that deferred revenue number for you. It was benefited by $1.3 million of a base of I think around $62 million – I think the total – I'm sorry, $61.3 million was the total deferred revenue.

Ragh Sarathy – Dougherty & Company

Okay. And then just two more questions, I’ll jump back into queue. I think you’ve kind of touched on this. EMEA was flat. Are you seeing some impact from what’s going on in Europe already?

Max Carnecchia

This is Max, Ragh. I think what we are seeing is the impact of few things. We’re seeing the macroeconomic impact and then what’s happening specifically in the vertical industry that we specialize in. And that’s a significant factor. We also – again, and we mentioned in the prepared remarks, we’ve had some territory coverage issues in Europe in our field organization. And I think most companies planned for that and we planned for that as well, but we had probably an outlier in the kind of turnover that would test that planning. And so through the course of FY 2010, we were under-covered in Europe. So that compounded the macroeconomic issue.

So when I think about going into this year, again, the Greek crisis, everything that has happened with the euro, I mean, that is not going to help us and it’s probably a little worse than it was last year from a commercial environment. Having said that, we are in a much better position to execute in Europe in go-to-market. We’ve got the right team. We’ve populated those open territories with senior professional salespeople. We’ve got the right support infrastructure. So again, I’m trying to give you a balance perspective. Market environment is going to be really tough. I think we’re much better prepared this year to take it on.

Michael Piraino

And the volcano is not going to help either.

Max Carnecchia

Yes, volcano.

Ragh Sarathy – Dougherty & Company

And then if I can dig into this annual orders growth, the original expectation was you would kind of grow platform about 30% or so. It seems like you had a pretty strong fourth quarter on bookings in the high-single digit. Is it reasonable to assume that you exceeded that expectation? And then on the modeling and simulation, it seems to me that the lay-offs in pharma land is starting to abate. And are you starting to see stabilization in terms of renewals of the product?

Max Carnecchia

Yes. So there are a couple of questions in there. To answer your first question, yes. I mean, we had a very strong Q3 and Q4 and very robust platform and Pipeline Product orders growth in keeping with expectation there. On the modeling and simulation side, you know that there are actually two product lines that are modeling and simulation. There are products focused on – Discovery Studio, which is focused on the life science industry, and then Materials Studio, which is focused on probably 12 or 13 different vertical industries that use material science.

As we mentioned in the prepared remarks, the modeling and simulation for Materials Studio was a grower. It was a single-digit grower, but it was a grower. And Discovery Studio has for the last three or four years, maybe longer, been in decline. That decline was through the four quarters of FY 2010. That rate of decline slowed, but continued to be in decline. The reason for that decline is both the economic situation within the life science industry, but it’s also a competitive dynamic where there are four or five very significant competitors for that product today that didn’t exist five or six years ago.

So while we are encouraged that the headwind in the life science industry is still coming at us, it’s coming at us that – maybe not gale force winds like it was over the last two years. I don’t know that that’s going to help us with Discovery Studio. It’s going to help us with Bio Reg; it’s going to help us with Pipeline Pilot; it’s going to help us with all the new collections that we are delivering. It certainly would help the combined organization when we are together with Symyx with the electronic lab notebook that they have and the real scientific foundation and chemical registration that they have with ISIS to Isentris in their content business. So it probably covered the waterfront on the series of questions there, but that’s the way to look at it.

Michael Piraino

One other thing regarding Pipeline Pilot, I mean, just remember there is not a competing product. There is no other product out there that’s like it. And from that standpoint, obviously enjoyed a very secure position and no reason for us to believe that we won’t continue to grow that product.

Ragh Sarathy – Dougherty & Company

And is it reasonable to assume we should expect similar level of growth this year as it was last year?

Michael Piraino

Yes. I think we said that the platform will continue to enjoy double-digit growth rate through fiscal 2011.

Max Carnecchia

Yes. And I would add to that, Ragh, that in combination with Symyx, with the electronic lab notebook and some of the other integration points that we have, it’s only going to help that. It would only be a wind in the sales in being able to live up to that.

Ragh Sarathy – Dougherty & Company

Okay. All right. Thank you.

Operator

And this concludes the Q&A portion. I will now turn the call back over to management for closing remarks.

Max Carnecchia

That’s great. Well, thank you everybody for joining us. We look forward to updating you in approximately 90 days. With that, we will conclude the call.

Michael Piraino

Thank you.

Operator

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Source: Accelrys, Inc. F4Q10 (Qtr End 03/31/10) Earnings Call Transcript
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