Accelrys Announces Fiscal 2006 Financial Results; Net Loss Reduced by Over 50%; Positive Operating Cash Flow of $5.8 Million; Company Completes Restatement of Historical Financial Statements

Fiscal 2006 Results

Revenue for the fiscal year ended March 31, 2006 was $82.0million, an increase of 4% from $79.0 million for the fiscal yearended March 31, 2005. The increase in revenue reflects organic growthin sales of the Company's platform and solutions offerings as well asthe additive effect of a full year of revenue from our SciTegicsubsidiary included in fiscal year 2006, as compared to only sixmonths of SciTegic revenues included in fiscal year 2005. Theseincreases in revenue were partially offset by continued declines insales of some of our traditional modeling and simulation products tolife sciences companies.

"We are very pleased with our financial performance in fiscal2006," said Mark J. Emkjer, Accelrys President and Chief ExecutiveOfficer. "We reported revenue growth, reduced our net loss by over 50percent, and generated positive cash flow. In addition, our deferredrevenue and backlog of signed, multi-year customer contracts continuesto grow, reflecting the increased confidence our customers have inAccelrys. We are particularly pleased that our strategic focus onproviding platform and solutions offerings resulted in increasedrevenue during the year. We continue to believe that these offeringsrepresent a significant growth opportunity."

Total operating costs and expenses for the fiscal year ended March31, 2006 were $90.7 million compared to $96.8 million for the fiscalyear ended March 31, 2005. Included in total operating costs andexpenses were severance and lease abandonment costs of $3.2 million infiscal 2006 and $5.1 million in fiscal 2005. Fiscal 2006 also included$1.1 million in professional services costs related to therestatement, while fiscal 2005 expenses also included $0.5 million incosts associated with the acquisition of SciTegic, Inc. Excluding theimpact of these costs, total operating costs and expenses declined 5%from the prior year.

The Company reported a loss from continuing operations of $(7.7)million, or $(0.30) per share for the fiscal year ended March 31, 2006compared to a loss from continuing operations of $(15.5) million, or$(0.62) per share, for the fiscal year ended March 31, 2005. Excludingthe severance, lease abandonment, restatement and acquisition costsfrom both fiscal years, the loss from continuing operations narrowedto $(3.5) million in fiscal 2006, from $(9.9) million in fiscal 2005.

The Company reported a net loss of $(7.7) million, or $(0.30) pershare, for the fiscal year ended March 31, 2006 compared to a net lossof $(16.6) million, or $(0.66) per share, for the fiscal year endedMarch 31, 2005. The net loss in fiscal 2005 included a net loss fromdiscontinued operations of $(1.1) million, or $(0.04) per share. Therewere no discontinued operations in fiscal 2006.

The Company reported total cash, restricted cash and investmentsof $66.0 million at March 31, 2006, up from $63.3 million at March 31,2005. The Company also reported positive operating cash flow of $5.8million for the fiscal year ended March 31, 2006 as compared tonegative operating cash flow of $(14.2) million for the fiscal yearended March 31, 2005. In addition, total deferred revenue increased to$61.3 million at March 31, 2006, up from $58.6 million at March 31,2005.

Fourth Quarter Fiscal 2006 Results

Revenue for the quarter ended March 31, 2006 was $19.4 million,down from $20.9 million for the quarter ended March 31, 2005. Thedecrease in revenue is due to lower order levels earlier in fiscal2006, which, due to our ratable revenue recognition policy, negativelyimpacted revenue in the fourth fiscal quarter. However, orders in thefourth quarter were strong, and we ended the year with higher levelsof deferred revenue than a year ago.

Total operating costs and expenses for the quarter ended March 31,2006 were $25.8 million compared to $29.5 million for the quarterended March 31, 2005. Included in total operating costs and expenseswere severance and lease abandonment costs of $3.2 million in thefourth quarter of fiscal 2006 and $1.5 million in the fourth quarterof fiscal 2005. The fourth quarter of fiscal 2006 also included $1.1million in professional services costs related to the restatement.Excluding the impact of these costs, total operating costs andexpenses were $21.5 million for the quarter ended March 31, 2006, a23% reduction from $28.0 million in the same quarter of last year.

The Company reported a net loss of $(6.4) million, or $(0.25) pershare for the quarter ended March 31, 2006 compared to a net loss of$(7.3) million, or $(0.28) per share, for the quarter ended March 31,2005. Excluding the severance, lease abandonment and restatement costsfrom both quarters, the net loss narrowed to $(2.1) million in fiscal2006, from $(5.8) million in fiscal 2005.

Restatement

The Company also announced today that it has completed therestatement of its historical financial statements and is now currentin its filings with the SEC. As a result, the Company expects toreceive notification that it is compliant with NASDAQ's listingrequirements.

The restated consolidated financial statements reflect changes tothe timing of revenue recognized under term-based and perpetualsoftware license arrangements which include multiple elements(typically software licenses and post-contract customer support,referred to as "PCS") and a change in accounting for softwaredevelopment costs. The restated consolidated financial statements alsoreflect the reclassification of general and administrative expensesand interest income between continuing and discontinued operations,the reclassification of cash flows from discontinued operations as netcash provided by (used in) discontinued operating, investing andfinancing activities, as opposed to a single line item as previouslyreported, and the reclassification of investments in auction ratesecurities to marketable securities from cash and cash equivalents.

The Company also noted that following review and consultation withthe SEC, no restatement adjustments are required for the Company'sterm-based, subscription software license contracts entered into afterJanuary 2004.

The nature of the restatement adjustments and the impact of therestatement on the Company's previously issued consolidated financialstatements are described more fully in Note 2 to the restatedconsolidated financial statements and in "Management's Discussion andAnalysis of Financial Condition and Results of Operations" included inthe Company's Annual Report on Form 10-K for the year ended March 31,2006.

In summary, the restatement adjustments relating to revenuerecognition resulted in ratable revenue recognition for the majorityof our historical software license contracts. Since the adjustmentswere solely related to the timing of revenue recognition, the totalrevenue and profits associated with the contracts remain the same overthe life of the contracts. The restated financial statements nowreflect higher levels of deferred revenue at the end of each of thepreviously reported three fiscal periods included in our Annual Reporton Form 10-K, and higher reported revenue and reduced losses fromcontinuing operations in each of those three periods. The restatedfinancial statements also reflect reduced net losses in two of thosethree periods. The following table presents the impact of therestatement on revenue, total operating costs and expenses, loss fromcontinuing operations, loss from discontinued operations, net loss,total deferred revenue and accumulated deficit for the previouslyreported three fiscal periods (in thousands):
Fiscal Three Fiscal
year months year
ended ended ended
March March December
31, 31, 31,
2005 2004 2003
-------- -------- ---------
Increase in "Revenue" $9,399 $8,224 $648
Decrease (increase) in "Total operating
costs and expenses" (805) 424 (197)
Decrease in "Loss from continuing
operations" 8,594 8,648 451
Decrease (increase) in "Loss from
discontinued operations" 0 (538) (1,550)
Decrease (increase) in "Net loss" 8,594 8,110 (1,099)

At At At
March March December
31, 31, 31,
2005 2004 2003
-------- -------- ---------
Increase in "Total deferred revenue" $16,018 $25,417 $33,641
(Increase) in "Accumulated deficit" (24,157) (32,751) (40,861)

Non-GAAP Measures

This press release includes certain non-GAAP financial measures asoutlined below. The Company believes the non-GAAP measures of totalcosts and expenses and loss from continuing operations adjusted toexclude the effect of acquisition, restatement, severance and leaseabandonment costs are useful for evaluating the operating performanceof the Company because this information provides investors and otherswith a measure of operating results which allows for ease ofcomparison with historical results and with the results of othercompanies, and provides insight into on-going performance. Further,the Company's management and Board of Directors utilize these measureswhen evaluating and comparing the Company's performance againstinternal financial forecasts and budgets. The non-GAAP financialmeasures should not be considered as a substitute for, or superior to,measures of financial performance prepared in accordance with GAAP.These non-GAAP financial measures may be different from non-GAAPfinancial measures used by other companies. The following tablecontains a reconciliation of these measures to the Company's GAAPresults (in thousands):
Three Three Fiscal Fiscal
months months year year
ended ended ended ended
March March March March
31, 31, 31, 31,
2006 2005 2006 2005
-------- -------- -------- ---------
GAAP Total costs and expenses $25,809 $29,497 $90,711 $96,800
Less: Severance and lease
abandonment expenses (3,182) (1,497) (3,178) (5,110)
Less: Restatement costs (1,099) -- (1,099) --
Less: Acquisition related
expenses -- -- -- (450)
-------- -------- -------- ---------
Non-GAAP Total costs and expenses $21,528 $28,000 $86,434 $91,240

GAAP Loss from continuing
operations $(6,427) $(7,301) $(7,739) $(15,461)
Add back: Severance and lease
abandonment expenses 3,182 1,497 3,178 5,110
Add back: Restatement costs 1,099 -- 1,099 --
Add back: Acquisition related
expenses -- -- -- 450
-------- -------- -------- ---------
Non-GAAP Loss from continuing
operations $(2,146) $(5,804) $(3,462) $(9,901)

Conference Call Details

At 5:00 p.m. EDT today, Accelrys will conduct a conference call todiscuss its fiscal 2006 financial results and the restatement. Toparticipate, please dial 1-866-510-0708 (1-617-597-5377 outside theUnited States) and enter the access code, 55736528, approximately 15minutes before the scheduled start of the call. The conference callwill also be accessible live on the Investor Relations section of theAccelrys website at www.accelrys.com.

A replay of the conference call will be available online atwww.accelrys.com and via telephone by dialing 1-888-286-8010(1-617-801-6888 outside the United States) and entering access code25066868 from 7:00 p.m. ET May 24, through 11:59 p.m. ET, June 23,2006.

About Accelrys

Accelrys, Inc. (ACCL) is a leading provider of software forcomputation, simulation, and the management and mining of scientificdata used by biologists, chemists and materials scientists, includingnanotechnology researchers for product design as well as drugdiscovery and development. Accelrys technology and services aredesigned to meet the needs of today's leading research organizations.The company is headquartered in San Diego, California. Its materialsresearch and development team is based at its European Headquartersand Centre of Excellence in Cambridge, UK. For more information seehttp://www.accelrys.com/.

Forward-Looking Statements

Statements contained in this press release relating to theCompany's or management's intentions, hopes, beliefs, expectations orpredictions of the future, including statements relating to the growthin backlog, deferred revenue and customer confidence as well asstatements regarding growth opportunities and notification from NASDAQthat the Company is compliant with its listing requirements, areforward-looking statements. The Company's actual results could differmaterially from those projected in these forward looking statementsdue to a number of factors, including without limitation, thesuccessful release and customer acceptance of new products and demandfor the Company's new and existing products, as well as NASDAQ'sconcurrence with the Company regarding the Company's compliance withNASDAQ's listing requirements. Additional information concerningfactors that could cause actual results to differ materially fromthose in the forward-looking statements is contained from time to timein the Company's SEC filings, including but not limited to theCompany's Annual Report on Form 10-K for the year ended March 31,2006. The Company disclaims any intention or obligation to revise anyforward-looking statements whether as a result of new information,future events or otherwise.
ACCELRYS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS AND YEARS ENDED MARCH 31, 2006 AND 2005
(In thousands, except per share amounts)

Three Months Ended Years Ended
------------------- -------------------
March 31, March 31, March 31, March 31,
2006 2005 2006 2005
-------- ---------- -------- ----------
(Restated) (Restated)

Revenue $19,429 $20,892 $82,001 $79,030
Operating costs and expenses:
Cost of revenue 4,426 4,834 17,095 14,317
Product development 5,347 6,135 21,721 22,717
Sales and marketing 8,097 11,568 32,657 36,916
General and administrative 4,757 5,463 16,060 17,290
Severance and lease
abandonment charges 3,182 1,497 3,178 5,110
Acquired in-process product
development -- -- -- 450
-------- ---------- -------- ----------
Total operating costs and
expenses 25,809 29,497 90,711 96,800
-------- ---------- -------- ----------
Operating loss from continuing
operations (6,380) (8,605) (8,710) (17,770)
Interest and other income, net 239 481 1,869 1,738
-------- ---------- -------- ----------
Loss from continuing operations
before taxes (6,141) (8,124) (6,841) (16,032)
Income tax expense (benefit) 286 (823) 898 (571)
-------- ---------- -------- ----------
Loss from continuing operations (6,427) (7,301) (7,739) (15,461)
Loss from discontinued
operations -- -- -- (1,117)
-------- ---------- -------- ----------
Net loss $(6,427) $(7,301) $(7,739) $(16,578)
======== ========== ======== ==========
Basic and diluted loss per
share amounts:
Loss from continuing operations $(0.25) $(0.28) $(0.30) $(0.62)
Loss from discontinued
operations -- -- -- (0.04)
-------- ---------- -------- ----------
Net loss $(0.25) $(0.28) $(0.30) $(0.66)
======== ========== ======== ==========
Weighted averaged shares used
to compute basic and diluted
loss per share amounts 26,195 25,920 26,116 25,137


ACCELRYS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE AND NINE MONTHS ENDED DECEMBER 31, 2005 AND 2004
(In thousands, except per share amounts)

Three Months Ended Nine Months Ended
------------------- -------------------
December December December December
31, 31, 31, 31,
2005 2004 2005 2004
-------- ---------- -------- ----------
(Restated) (Restated)

Revenue $20,433 $19,600 $62,572 $58,138
Operating costs and expenses:
Cost of revenue 4,361 4,210 12,669 9,483
Product development 4,952 6,409 16,374 16,582
Sales and marketing 8,675 10,109 24,560 25,348
General and administrative 3,612 4,139 11,304 11,827
Severance and lease
abandonment charges
(recoveries) -- 3,612 (4) 3,612
Acquired in-process product
development -- (250) -- 450
-------- ---------- -------- ----------
Total operating costs and
expenses 21,600 28,229 64,903 67,302
-------- ---------- -------- ----------
Operating loss from continuing
operations (1,167) (8,629) (2,331) (9,164)
Interest and other income, net 530 184 1,630 1,257
-------- ---------- -------- ----------
Loss from continuing operations
before taxes (637) (8,445) (701) (7,907)
Income tax expense (benefit) (70) (362) 611 252
-------- ---------- -------- ----------
Loss from continuing operations (567) (8,083) (1,312) (8,159)
Loss from discontinued
operations -- -- -- (1,117)
-------- ---------- -------- ----------
Net loss $(567) $(8,083) $(1,312) $(9,276)
======== ========== ======== ==========
Basic and diluted loss per
share amounts:
Loss from continuing operations $(0.02) $(0.31) $(0.05) $(0.33)
Loss from discontinued
operations -- -- -- (0.04)
-------- ---------- -------- ----------
Net loss $(0.02) $(0.31) $(0.05) $(0.37)
======== ========== ======== ==========
Weighted averaged shares used
to compute basic and diluted
loss per share amounts 26,143 25,841 26,090 24,876


ACCELRYS, INC.
CONSOLIDATED BALANCE SHEET INFORMATION
AS OF MARCH 31, 2006 AND 2005
(In thousands)

March 31,
--------------------
2006 2005
--------- ----------
(Restated)
Assets
Cash, cash equivalents, restricted cash and
marketable securities $66,022 $63,304
Trade receivables, net 17,289 20,006
Other assets, net 63,444 69,105
--------- ----------
Total assets $146,755 $152,415
========= ==========
Liabilities and stockholders' equity
Current liabilities, excluding deferred revenue 16,536 19,074
Total deferred revenue 61,269 58,614
Noncurrent liabilities, excluding deferred revenue 5,742 5,131
Total stockholders' equity 63,208 69,596
--------- ----------
Total liabilities and stockholders' equity $146,755 $152,415
========= ==========


ACCELRYS, INC.
CONSOLIDATED BALANCE SHEET INFORMATION
AS OF DECEMBER 31, 2005 AND MARCH 31, 2005
(In thousands)

December 31, March 31,
2005 2005
----------- ----------
(Restated)
Assets
Cash, cash equivalents, restricted cash and
marketable securities $50,079 $63,304
Trade receivables, net 37,434 20,006
Other assets, net 64,181 69,105
--------- ----------
Total assets $151,694 $152,415
========= ==========
Liabilities and stockholders' equity
Current liabilities, excluding deferred revenue 15,715 19,074
Total deferred revenue 61,765 58,614
Noncurrent liabilities, excluding deferred revenue 5,018 5,131
Total stockholders' equity 69,196 69,596
--------- ----------
Total liabilities and stockholders' equity $151,694 $152,415
========= ==========