RPX Corporation
Aug 1, 2017

RPX Announces Second Quarter 2017 Financial Results

SAN FRANCISCO, Aug. 1, 2017 /PRNewswire/ -- RPX Corporation (NASDAQ: RPXC), the leading provider of patent risk and discovery management solutions, today announced its financial results for the second quarter ended June 30, 2017.

Highlights

Total revenue was $80.4 million, compared to $83.1 million in the second quarter of 2016.

  • Subscription revenue from patent risk management services—including insurance—was $61.6 million, compared to $63.2 million in the prior year period.
  • Discovery services revenue was $18.8 million, compared to $19.3 million in the prior year period.

"We are pleased that our increased operational focus is already showing positive results, allowing us to exceed our adjusted EBITDA target on in-line revenues," said Marty Roberts, Chief Executive Officer. "At the same time, we continue to develop strategic initiatives and opportunities to expand our service offering."

Summary Results

GAAP net income for the second quarter was $4.2 million or $0.08 per diluted share, compared to $4.2 million or $0.08 per diluted share in the second quarter of 2016.

Non-GAAP net income for the second quarter, which excludes stock-based compensation, the amortization of acquired intangibles, fair value adjustments on deferred payment obligations, gains on extinguishment of deferred payment obligations, realized losses on exchange of short-term investments, and their related tax effects, was $9.2 million or $0.18 per diluted share, compared to $9.1 million or $0.18 per diluted share in the second quarter of 2016.

Non-GAAP adjusted EBITDA was $53.6 million for the second quarter of 2017, less net patent spend of $10.5 million, resulting in non-GAAP adjusted EBITDA less net patent spend, the Company's preferred measure of adjusted pre-tax free cash flow, of $43.1 million for the second quarter of 2017.

As of June 30, 2017, RPX's patent segment had more than 320 clients, consisting of patent risk management network members and insurance clients. The Company provides patent risk management services to more than 400 companies, including those insured under policies sold to venture funds and industry trade associations.

Net patent acquisition spend during the quarter totaled $10.5 million, and included nine patent transactions.

As of June 30, 2017, RPX had cash, cash equivalents and short-term investments of $244.5 million and long-term debt of $91.7 million.

Inventus Management Change

Separately, the Company announced that Trevor Campion, CEO of its Inventus subsidiary, is leaving the Company effective August 1. Paul Mankoo has been promoted to CEO. Mankoo, who is currently President of Inventus, joined the Company as part of its acquisition of Unified in March 2015. Prior to becoming President, Paul headed Inventus's sales effort, so he is the ideal candidate to further the cross-selling program in place, along with managing day-to-day operations.

"We appreciate all of Trevor's efforts during the integration of Inventus into RPX, and we wish him the best in his future endeavors," said Marty Roberts. "I have worked closely with Paul since he was named President in February and I am delighted to partner with him as we continue to explore ways to leverage the strength of the RPX and Inventus combination, identifying ways to bring new cost efficiency to corporations."

Business Outlook

This outlook reflects the Company's current and preliminary view and may be subject to change. Please see the paragraph regarding "Forward-Looking Statements" at the end of this news release.

The Company provided the following business outlook for the third quarter of fiscal 2017:

Subscription and Discovery revenue[1]

 

$79 - $82 million

Fee-related revenue

 

$2 million

Total revenue

 

$81 - $84 million

Operating income (non-GAAP)

 

$12 - $14 million

Net income (non-GAAP)

 

$7 - $9 million

Consolidated adjusted EBITDA (non-GAAP)

 

$53 - $55 million

Effective tax rate (non-GAAP)

 

35%

Weighted-average diluted shares outstanding

 

50 million

The Company provided the following updated business outlook for the full year 2017:

Subscription revenue[1]

 

$243 - $250 million

Discovery revenue

 

$71 - $79 million

Fee-related revenue

 

$5 - $10 million

Total revenue

 

$319 - $339 million

Cost of revenue (non-GAAP)

 

$201 - $204 million

SG&A (non-GAAP)

 

$68 - $71 million

Operating income (non-GAAP)

 

$50 - $59 million

Net income (non-GAAP)

 

$32 - $38 million

     

Patent risk management adjusted EBITDA (non-GAAP)

 

$193 - $202 million

Discovery services adjusted EBITDA (non-GAAP)

 

$19 - $23 million

Total adjusted EBITDA (non-GAAP)

 

$212 - $225 million

Net patent spend

 

$110 - $115 million

Consolidated adjusted EBITDA less net patent spend (non-GAAP)

 

$97 - $115 million

     

Effective tax rate (non-GAAP)

 

35%

Weighted-average diluted shares outstanding

 

50 million

The Company provided the following updated supplemental information regarding amortization expense for the full year 2017:

Amortization of patent assets acquired through December 31, 2016

 

$127 million

Amortization of patent assets to be acquired during fiscal 2017

 

$32 - $34 million

Total amortization of patent assets

 

$159 - $161 million

     

Amortization of acquired intangible assets[2]

 

$8 - $9 million

 

————————

[1]

Subscription revenue is comprised of revenue generated from membership subscription services, premiums earned, net of ceding commissions, from insurance policies, and management fees related to the Company's insurance business.

[2]

RPX excludes amortization expense related to intangible assets (other than patents) acquired in conjunction with the acquisition of businesses from its non-GAAP financial measures.

The above outlook is forward-looking. Actual results may differ materially. The Company is not able, at this time, to provide a forward-looking reconciliation to GAAP outlook for the non-GAAP financial metric outlook it has provided above for the third quarter and full year 2017 because of the difficulty of estimating certain items that are excluded from the non-GAAP financial metrics, including those items listed in "Use of Non-GAAP Financial Information" below, the effect of which may be significant. Please refer to the information under the caption "Use of Non-GAAP Financial Information" below.

Conference Call

RPX management will host a conference call and live webcast for analysts and investors at 2:00 p.m. PDT/5:00 p.m. EDT on August 1, 2017. Parties in the United States and Canada can access the call by dialing 1-866-564-2842, using conference code 8515327. International parties can access the call by dialing 1-323-794-2130, using conference code 8515327.

The conference call will be webcast and investors will be able to access the webcast and slide presentation from the "Investor Relations" section of the company's website at www.rpxcorp.com. A replay of the webcast will be available online at the aforementioned website following the conclusion of the conference call.

About RPX

RPX Corporation (NASDAQ: RPXC) is the leading provider of patent risk management and discovery management solutions. Since its founding in 2008, RPX has introduced efficiency to the patent market by providing a rational alternative to litigation. The San Francisco-based company's pioneering approach combines principal capital, deep patent expertise, and client contributions to generate enhanced patent buying power. By acquiring patents and patent rights, RPX helps to mitigate and manage patent risk for its growing client network.

As of June 30, 2017, RPX had invested over $2 billion to acquire more than 18,000 US and international patent assets and rights on behalf of over 320 clients in eight key sectors: automotive, consumer electronics and PCs, E-commerce and software, financial services, media content and distribution, mobile communications and devices, networking, and semiconductors.

RPX subsidiary Inventus is a leading international discovery management provider focused on reducing the costs and risks associated with the discovery process through the effective use of technology solutions. Inventus has been providing litigation support services to corporate legal departments, law firms and government agencies since 1991.

Use of Non-GAAP Financial Information

This news release dated August 1, 2017 contains non-GAAP financial measures. Tables are provided in this news release that reconcile the historical non-GAAP financial measures to the most directly comparable financial measures prepared in accordance with Generally Accepted Accounting Principles (GAAP). These non-GAAP financial measures include non-GAAP cost of revenue, non-GAAP selling, general and administrative expenses, non-GAAP operating income, non-GAAP interest and other income (expense), net, non-GAAP net income, non-GAAP adjusted EBITDA, non-GAAP net income per share, and non-GAAP adjusted EBITDA less net patent spend.

To supplement the Company's condensed consolidated financial statements presented on a GAAP basis, management believes that these non-GAAP measures provide useful information about the Company's core operating results and thus are appropriate to enhance the overall understanding of the Company's past financial performance and its prospects for the future. Management is excluding from some or all of its non-GAAP operating results (1) stock-based compensation expenses (inclusive of related employer payroll taxes), (2) the amortization of acquired intangible assets (other than patents), (3) fair value adjustments on deferred payment obligations, (4) gains on extinguishment of deferred payment obligations, (5) other-than-temporary impairment on short-term investments, (6) realized losses on exchange of short-term investments, and (7) their related tax effects.

Management uses these non-GAAP measures to evaluate the Company's financial results and trends, allocate internal resources, prepare and approve our annual budget, develop short- and long-term operating plans, assess the health of our business and determine company-wide incentive compensation. Management believes these non-GAAP measures may prove useful to investors who wish to consider the impact of certain items when comparing the Company's financial performance with that of other companies. The adjustments to the Company's GAAP results are made with the intent of providing both management and investors a more complete understanding of the Company's underlying operational results, trends and performance.

There are limitations in using non-GAAP financial measures because non-GAAP financial measures are not prepared in accordance with GAAP and may be different from non-GAAP financial measures used by other companies. The non-GAAP financial measures are limited in value because they exclude certain items that may have a material impact on our reported financial results. In addition, they are subject to inherent limitations as they reflect the exercise of judgment by management about which items are adjusted to calculate our non-GAAP financial measures. Management compensates for these limitations by analyzing current and future results on a GAAP basis as well as a non-GAAP basis and also by providing GAAP measures in our public disclosures.

The presentation of additional information should not be considered in isolation or as a substitute for or superior to financial results determined in accordance with GAAP. Investors are encouraged to review the reconciliation of these non-GAAP measures to their most directly comparable GAAP financial measure and not to rely on any single financial measure to evaluate our business.

Forward-Looking Statements

This news release and its attachments contain forward-looking statements within the meaning of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements include the statements by management, statements regarding RPX's future financial performance as well as any statements regarding the Company's strategic and operational plans. The Company's actual results may differ materially from those anticipated in these forward-looking statements. Factors that may contribute to such differences include, among others, the Company's ability to maintain an adequate rate of growth, the success of the Company's new initiatives, and the Company's ability to attract new clients and retain existing clients. Forward-looking statements are often identified by the use of words such as, but not limited to, "anticipate," "believe," "can," "continue," "could," "estimate," "expect," "intend," "may," "plan," "project," "seek," "should," "target," "will," "would," and similar expressions or variations intended to identify forward-looking statements.  More information about potential factors that could affect the Company's business and financial results is contained in the Company's most recent annual report on Form 10-K, its quarterly reports on Form 10-Q, and the Company's other filings with the SEC. The Company does not intend, and undertakes no duty, to update any forward-looking statements to reflect future events or circumstances.

Contacts:

Investor Relations

Media Relations

JoAnn Horne

Jen Costa

Market Street Partners

RPX Corporation

+1 415-445-3233

+1 415-852-3180

ir@rpxcorp.com

media@rpxcorp.com

 

RPX Corporation

Condensed Consolidated Statements of Operations

(in thousands, except per share data)

(unaudited)

         
   

Three Months Ended June 30,

 

Six Months Ended June 30,

   

2017

 

2016

 

2017

 

2016

Revenue

 

$

80,434

   

$

83,109

   

$

162,946

   

$

162,844

Cost of revenue

 

51,142

   

49,070

   

102,440

   

96,736

Selling, general and administrative expenses

 

23,124

   

25,904

   

44,245

   

52,799

Operating income

 

6,168

   

8,135

   

16,261

   

13,309

Interest and other income (expense), net:

               

Interest income

 

257

   

102

   

422

   

186

Interest expense

 

(949)

   

(883)

   

(1,857)

   

(1,233

Other income (expense), net

 

1,119

   

(768)

   

1,329

   

1,303

Total interest and other income (expense), net

 

427

   

(1,549)

   

(106)

   

256

Income before provision for income taxes

 

6,595

   

6,586

   

16,155

   

13,565

Provision for income taxes

 

2,403

   

2,436

   

5,970

   

5,178

Net income

 

$

4,192

   

$

4,150

   

$

10,185

   

$

8,387

                 

Net income per share:

               

Basic

 

$

0.09

   

$

0.08

   

$

0.21

   

$

0.16

Diluted

 

$

0.08

   

$

0.08

   

$

0.20

   

$

0.16

Weighted-average shares used in computing net income per share:

               

Basic

 

49,142

   

51,034

   

48,910

   

51,548

Diluted

 

50,107

   

51,557

   

49,690

   

52,089


 

RPX Corporation

Condensed Consolidated Balance Sheets

(in thousands)

(unaudited)

       
 

June 30,
 2017

 

December 31,
 2016

Assets

     

Current assets:

     

Cash and cash equivalents

$

189,270

   

$

100,111

 

Short-term investments

55,271

   

90,877

 

Restricted cash

1,102

   

500

 

Accounts receivable, net

38,567

   

64,395

 

Prepaid expenses and other current assets

13,935

   

4,524

 

Total current assets

298,145

   

260,407

 

Patent assets, net

175,009

   

212,999

 

Property and equipment, net

6,294

   

6,948

 

Intangible assets, net

52,518

   

56,050

 

Goodwill

156,337

   

151,322

 

Restricted cash, less current portion

965

   

965

 

Deferred tax assets

34,042

   

38,261

 

Other assets

10,326

   

8,337

 

Total assets

$

733,636

   

$

735,289

 
       

Liabilities and stockholders' equity

     

Current liabilities:

     

Accounts payable

$

2,468

   

$

3,197

 

Accrued liabilities

13,905

   

16,798

 

Deferred revenue

108,334

   

118,856

 

Current portion of long-term debt

7,724

   

6,474

 

Other current liabilities

1,008

   

1,484

 

Total current liabilities

133,439

   

146,809

 

Deferred revenue, less current portion

6,227

   

11,552

 

Deferred tax liabilities

3,830

   

4,023

 

Long-term debt, less current portion

83,935

   

88,110

 

Other liabilities

10,486

   

10,514

 

Total liabilities

237,917

   

261,008

 

Stockholders' equity:

     

Common stock

5

   

5

 

Additional paid-in capital

371,566

   

360,462

 

Retained earnings

134,730

   

130,249

 

Accumulated other comprehensive loss

(10,582)

   

(16,435)

 

Total stockholders' equity

495,719

   

474,281

 

Total liabilities and stockholders' equity

$

733,636

   

$

735,289

 

 

RPX Corporation

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

   
 

Six Months Ended June 30,

 

2017

 

2016

Operating activities

     

Net income

$

10,185

   

$

8,387

 

Adjustments to reconcile net income to net cash provided by operating activities:

     

Depreciation and amortization

85,855

   

85,585

 

Stock-based compensation

7,077

   

9,828

 

Excess tax benefit from stock-based compensation

   

(33)

 

Amortization of premium on investments

890

   

972

 

Deferred income taxes

4,299

   

198

 

Unrealized foreign currency (gain) loss

(1,047)

   

1,213

 

Fair value adjustment on deferred payment obligations

   

(1,920)

 

Gain on extinguishment of deferred payment obligation

   

(463)

 

Realized loss on exchange of short-term investments

   

290

 

Other

43

   

169

 

Changes in assets and liabilities, net of business acquired:

     

   Accounts receivable

26,761

   

(15,207)

 

   Prepaid expenses and other assets

(11,342)

   

(1,281)

 

   Accounts payable

(961)

   

211

 

   Accrued and other liabilities

(3,015)

   

(6,097)

 

   Deferred revenue

(15,847)

   

7,379

 

   Net cash provided by operating activities

102,898

   

89,231

 

Investing activities

     

Purchases of investments

(25,071)

   

(31,150)

 

Maturities of investments

59,820

   

42,393

 

Sales of investments

   

145,925

 

Business acquisition, net of cash acquired

   

(228,453)

 

Decrease (Increase) in restricted cash

(602)

   

225

 

Purchases of property and equipment

(730)

   

(2,087)

 

Acquisitions of patent assets

(41,918)

   

(36,546)

 

   Net cash used in investing activities

(8,501)

   

(109,693)

 

Financing activities

     

Proceeds from issuance of term debt

   

100,000

 

Payments of debt issuance costs

   

(2,003)

 

Repayment of principal on term debt

(3,125)

   

(1,250)

 

Proceeds from exercise of stock options

5,894

   

247

 

Taxes paid related to net-share settlements of restricted stock units

(3,291)

   

(2,048)

 

Excess tax benefit from stock-based compensation

   

33

 

Payments of capital leases

(209)

   

(236)

 

Repurchase of common stock

(4,783)

   

(39,072)

 

   Net cash provided by (used in) financing activities

(5,514)

   

55,671

 

Foreign-currency effect on cash and cash equivalents

276

   

(152)

 

   Net increase in cash and cash equivalents

89,159

   

35,057

 

Cash and cash equivalents at beginning of period

100,111

   

94,983

 

Cash and cash equivalents at end of period

$

189,270

   

$

130,040

 

 

RPX Corporation

Reconciliation of GAAP to Non-GAAP Net Income Per Share

(in thousands, except per share data)

(unaudited)

         
   

Three Months Ended June 30,

 

Six Months Ended June 30,

   

2017

 

2016

 

2017

 

2016

Net income

 

$

4,192

   

$

4,150

   

$

10,185

   

$

8,387

 

Stock-based compensation[1]

 

4,479

   

4,976

   

7,354

   

9,998

 

Amortization of acquired intangible assets[2]

 

2,326

   

2,585

   

4,674

   

4,752

 

Fair value adjustment on deferred payment obligations[3]

 

   

   

   

(1,920)

 

Gain on extinguishment of deferred payment obligations[3]

 

   

(463)

   

   

(463)

 

Realized loss on exchange of short-term investments[3]

 

   

188

   

   

188

 

Income tax adjustments[4]

 

(1,764)

   

(2,383)

   

(3,403)

   

(4,095)

 

Non-GAAP net income

 

$

9,233

   

$

9,053

   

$

18,810

   

$

16,847

 
                 

Non-GAAP net income per share:

               

Basic

 

$

0.19

   

$

0.18

   

$

0.38

   

$

0.33

 

Diluted

 

$

0.18

   

$

0.18

   

$

0.38

   

$

0.32

 

Weighted-average shares used in computing non-GAAP net income per share:

               

Basic

 

49,142

   

51,034

   

48,910

   

51,548

 

Diluted

 

50,107

   

51,557

   

49,690

   

52,089

 

 

RPX Corporation

Reconciliation of GAAP to Non-GAAP Cost of Revenue

(in thousands)

(unaudited)

         
   

Three Months Ended June 30,

 

Six Months Ended June 30,

   

2017

 

2016

 

2017

 

2016

Cost of revenue

 

$

51,142

   

$

49,070

   

$

102,440

   

$

96,736

Stock-based compensation[1]

 

(126)

   

   

(221)

   

Amortization of acquired intangible assets[2]

 

(531)

   

(586)

   

(1,056)

   

(1,044

Non-GAAP cost of revenue

 

$

50,485

   

$

48,484

   

$

101,163

   

$

95,692


 

RPX Corporation

Reconciliation of GAAP to Non-GAAP Selling, General and Administrative Expenses

(in thousands)

(unaudited)

         
   

Three Months Ended June 30,

 

Six Months Ended June 30,

   

2017

 

2016

 

2017

 

2016

Selling, general and administrative expenses

 

$

23,124

   

$

25,904

   

$

44,245

   

$

52,799

Stock-based compensation[1]

 

(4,353)

   

(4,976)

   

(7,133)

   

(9,998

Amortization of acquired intangible assets[2]

 

(1,795)

   

(1,999)

   

(3,618)

   

(3,708

Non-GAAP selling, general and administrative expenses

 

$

16,976

   

$

18,929

   

$

33,494

   

$

39,093


 

RPX Corporation

Reconciliation of GAAP to Non-GAAP Interest and Other Income (Expense), Net

(in thousands)

(unaudited)

         
   

Three Months Ended June 30,

 

Six Months Ended June 30,

   

2017

 

2016

 

2017

 

2016

Interest and other income (expense), net

 

$

427

   

$

(1,549)

   

$

(106)

   

$

256

 

Fair value adjustment on deferred payment obligation[3]

 

   

   

   

(1,920)

 

Gain on extinguishment of deferred payment obligations[3]

 

   

(463)

   

   

(463)

 

Realized loss on exchange of short-term investments[3]

 

   

188

   

   

188

 

Non-GAAP interest and other income (expense), net

 

$

427

   

$

(1,824)

   

$

(106)

   

$

(1,939)

 

 

RPX Corporation

Reconciliation of Net Income to Non-GAAP Adjusted EBITDA Less Net Patent Spend

(in thousands)

(unaudited)

       
 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

2017

 

2016

 

2017

 

2016

Net income

$

4,192

   

$

4,150

   

$

10,185

   

$

8,387

 

Provision for income taxes

2,403

   

2,436

   

5,970

   

5,178

 

Interest and other (income) expense, net

(427)

   

1,549

   

106

   

(256)

 

Stock-based compensation[1]

4,479

   

4,976

   

7,354

   

9,998

 

Depreciation and amortization

42,926

   

41,030

   

85,855

   

85,585

 

Non-GAAP adjusted EBITDA[5]

53,573

   

54,141

   

109,470

   

108,892

 

Net patent spend

(10,455)

   

(20,885)

   

(41,585)

   

(37,134)

 

Non-GAAP adjusted EBITDA less net patent spend

$

43,118

   

$

33,256

   

$

67,885

   

$

71,758

 

 

RPX Corporation

Additional Metrics

(in thousands, except client data)

(unaudited)

     
   

Three Months Ended June 30,

Operating Metrics

 

2017

 

2016

Gross patent spend

 

$

10,455

   

$

21,115

Net patent spend

 

$

10,455

   

$

20,885

         
   

As of and for the Three Months Ended June 30,

Financial Metrics

 

2017

 

2016

Subscription revenue[6]

 

$

61,583

   

$

63,219

Discovery revenue

 

18,819

   

19,258

Fee-related revenue

 

32

   

632

Total revenue

 

$

80,434

   

$

83,109

Cash, cash equivalents and short-term investments

 

$

244,541

   

$

199,091

Deferred revenue, current and non-current

 

$

114,561

   

$

123,133

   

[1] 

RPX excludes stock-based compensation and related employer payroll taxes from its non-GAAP financial measures.

[2]

RPX excludes amortization expense related to intangible assets (other than patents) acquired in conjunction with the acquisition of businesses from its non-GAAP financial measures.

[3] 

RPX excludes fair value adjustments and gains on extinguishment related to its deferred payment obligations and realized losses on exchanges of short-term investments from its non-GAAP financial measures.

[4]

Amount reflects income taxes associated with the above noted non-GAAP exclusions.

[5]

RPX calculates non-GAAP adjusted EBITDA as GAAP earnings before other income or expenses, net, provision for income taxes, depreciation, amortization, and stock-based compensation expenses (inclusive of related employer payroll taxes).

[6]

Subscription revenue is comprised of revenue generated from membership subscription services, premiums earned, net of ceding commissions, from insurance policies, and management fees related to its insurance business.

 

 

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SOURCE RPX Corporation

 

 

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