RPX Corporation
May 3, 2016

RPX Announces First Quarter 2016 Financial Results

SAN FRANCISCO, May 3, 2016 /PRNewswire/ -- RPX Corporation (NASDAQ: RPXC), the leading provider of patent risk management and discovery management solutions, today announced its financial results for the first quarter ended March 31, 2016.

"RPX executed on multiple fronts during the first quarter," said John Amster, CEO of RPX Corporation. "Both the patent risk management and Inventus discovery services businesses performed in-line with expectations. We closed the Inventus acquisition on January 22nd, our Board approved a $25 million increase in our share repurchase authorization, and we raised $100 million through a Term Loan Facility and established a $50 million revolver to provide financial flexibility and support growth initiatives."

Summary Results for the First Quarter of 2016

Total revenue was $79.7 million, compared to $83.3 million in the first quarter of 2015.

  • Subscription revenue from patent risk management services - including insurance - was $67.1 million, compared to $66.2 million in the prior year period.
  • Discovery services revenue, included from January 23rd, was $10.6 million.
  • Fee-related revenue was $2.0 million, compared to $17.0 million in the prior year period.

GAAP net income for the first quarter was $4.2 million or $0.08 per diluted share, compared to $18.0 million or $0.33 per diluted share in the first quarter of 2015.

Non-GAAP net income for the first quarter, which excludes stock-based compensation, the amortization of acquired intangibles, and fair value adjustments on deferred payment obligations (in all cases, net of tax), was $7.8 million or $0.15 per diluted share, compared to $21.2 million or $0.38 per diluted share in the first quarter of 2015.

EBITDA less Net Patent Spend, the Company's preferred measure of pre-tax free cash flow, was $38.5 million in the first quarter of 2016.

Including insurance clients, there were 286 clients in RPX's patent risk network as of March 31, 2016.

Net patent acquisition spend during the quarter totaled $16.2 million, and included 23 patent transactions.

As of March 31, 2016, RPX had cash, cash equivalents and short-term investments of $204.2 million.

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 second quarter of fiscal 2016:

Subscription and Discovery revenue[1]


$81 - $82 million

Fee-related revenue


$0 million

Total revenue


$81 - $82 million

Operating income (non-GAAP)


$11 - $12 million

Net income (non-GAAP)


$6 - $7 million

Total EBITDA (non-GAAP)


$52 - $53 million

Effective tax rate (non-GAAP)


37%

Weighted-average diluted shares outstanding


52 million

The Company provided the following business outlook for the full year 2016:

Subscription revenue[1]


$265 - $270 million

Discovery revenue


$61 - $64 million

Fee-related revenue


$5 - $15 million

Total revenue


$331 - $349 million

Cost of revenue (non-GAAP)


$194 - $200 million

SG&A (non-GAAP)


$77 - $82 million

Operating income (non-GAAP)


$60 - $67 million

Net income (non-GAAP)


$36 - $41 million




RPX EBITDA (non-GAAP)


$202 - $211 million

Discovery EBITDA (non-GAAP)


$19 - $21 million

Total EBITDA (non-GAAP)


$221 - $232 million

Net patent spend


$125 - $130 million

EBITDA less net patent spend (non-GAAP)


$91 - $107 million




Effective tax rate (non-GAAP)


37%

Weighted-average diluted shares outstanding


52 million

The Company provided the following supplemental information regarding amortization expense for the full year 2016:

Amortization of patent assets acquired through December 31, 2015


$136.3 million

Amortization of patent assets to be acquired during fiscal 2016


$20.0 - $26.0 million

Total amortization of patent assets


$156.3 - $162.3 million




Amortization of Inventus's acquired intangible assets[2]


$8.6 - $9.6 million

Other intangible amortization expenses[2]


$1.3 million

The above outlook is forward-looking. Actual results may differ materially. Please refer to the information under the caption "Use of Non-GAAP Financial Information" below.

———————

[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 its 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.

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 May 3, 2016. Parties in the United States and Canada can access the call by dialing 1-877-876-9177, using conference code 1262740. International parties can access the call by dialing 1-785-424-1666, using conference code 1262740.

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 March 31, 2016, RPX had invested over $2 billion to acquire more than 15,500 US and international patent assets and rights on behalf of nearly 290 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 May 3, 2016 contains non-GAAP financial measures. Tables are provided in this news release that reconcile the 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 other income (expense), net, non-GAAP net income, non-GAAP EBITDA, and non-GAAP net income per share.

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 its non-GAAP operating results stock-based compensation expenses (inclusive of related employer payroll taxes), the amortization of acquired intangible assets (other than patents), fair value adjustments on deferred payment obligations, and their related tax effects. Management uses these non-GAAP measures to evaluate the Company's financial results, and 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. 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.

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 statements regarding the future financial performance of RPX as well as any statements regarding the Company's strategic and operational plans. The Company's actual results may differ materially from those predicted or implied 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 insurance and discovery management businesses as well as other 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 included under the captions "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company's most recent annual report on Form 10-K and its quarterly reports on Form 10-Q on file and available at the SEC's website at www.sec.gov. 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

Allan W. Whitescarver

Market Street Partners

RPX Corporation

+1-415-445-3233

+1-415-852-3171

ir@rpxcorp.com

media@rpxcorp.com

 

RPX Corporation

Condensed Consolidated Statements of Operations

(in thousands, except per share data)

(unaudited)






Three Months Ended March 31,



2016


2015

Revenue


$

79,735



$

83,287


Cost of revenue


47,666



34,759


Selling, general and administrative expenses


26,895



19,459


Operating income


5,174



29,069


Other income, net


1,805



121


Income before provision for income taxes


6,979



29,190


Provision for income taxes


2,742



11,159


Net income


$

4,237



$

18,031







Net income per share:





Basic


$

0.08



$

0.33


Diluted


$

0.08



$

0.33


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





Basic


52,063



54,175


Diluted


52,616



55,197


 

RPX Corporation

Condensed Consolidated Balance Sheets

(in thousands)

(unaudited)






March 31,
 2016


December 31,
 2015

Assets




Current assets:




Cash and cash equivalents

$

157,713



$

94,983


Short-term investments

46,533



231,015


Restricted cash

1,188



701


Accounts receivable, net

46,531



13,905


Prepaid expenses and other current assets

12,704



12,643


Total current assets

264,669



353,247


Patent assets, net

229,025



254,560


Property and equipment, net

7,289



4,733


Intangible assets, net

67,466



1,801


Goodwill

166,825



19,978


Restricted cash, less current portion

727



727


Deferred tax assets

25,973



6,896


Other assets

7,802



16,619


Total assets

$

769,776



$

658,561






Liabilities and stockholders' equity




Current liabilities:




Accounts payable

$

2,615



$

959


Accrued liabilities

10,490



14,842


Deferred revenue

135,518



110,921


Deferred payment obligations

1,831



2,383


Current portion of long-term debt

4,599




Other current liabilities

1,370



467


Total current liabilities

156,423



129,572


Deferred revenue, less current portion

4,474



4,731


Deferred tax liabilities

5,378




Long-term debt

93,435




Other liabilities

8,460



7,779


Total liabilities

268,170



142,082


Stockholders' equity:




Common stock

5



5


Additional paid-in capital

348,271



344,610


Retained earnings

152,499



172,115


Accumulated other comprehensive income (loss)

831



(251)


Total stockholders' equity

501,606



516,479


Total liabilities and stockholders' equity

$

769,776



$

658,561


 

RPX Corporation

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)




Three Months Ended March 31,


2016


2015

Operating activities




Net income

$

4,237



$

18,031


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




Depreciation and amortization

44,555



34,011


Stock-based compensation

4,929



3,881


Excess tax benefit from stock-based compensation

(23)



(316)


Amortization of premium on investments

549



1,435


Deferred taxes

690



(738)


Unrealized foreign currency gain

(158)




Fair value adjustment on deferred payment obligations

(1,920)




Other

152




Changes in assets and liabilities, net of business acquired:




Accounts receivable, net

(19,277)



9,442


Prepaid expenses and other assets

4,508



(5,323)


Accounts payable

144



1,348


Accrued and other liabilities

(7,495)



(6,802)


Deferred revenue

24,238



22,102


Net cash provided by operating activities

55,129



77,071


Investing activities




Purchases of investments

(1,000)



(57,663)


Maturities of investments

35,136



44,559


Sales of investments

145,925




Business acquisition, net of cash acquired

(228,453)




Increase in restricted cash

(152)



(201)


Purchases of property and equipment

(983)



(547)


Acquisitions of patent assets

(16,048)



(28,636)


Net cash used in investing activities

(65,575)



(42,488)


Financing activities




Proceeds from deferred payment obligations



6,270


Proceeds from issuance of debt

100,000




Payments of debt issuance costs

(2,003)




Proceeds from exercise of stock options

79



671


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

(993)



(857)


Excess tax benefit from stock-based compensation

23



316


Payments of capital leases

(99)




Repurchase of common stock

(23,853)



(144)


Net cash provided by financing activities

73,154



6,256


Foreign-currency effect on cash and cash equivalents

22




Net increase in cash and cash equivalents

62,730



40,839


Cash and cash equivalents at beginning of period

94,983



78,019


Cash and cash equivalents at end of period

$

157,713



$

118,858


 

RPX Corporation

Reconciliation to Non-GAAP Net Income Per Share

(in thousands, except per share data)

(unaudited)


Three Months Ended March 31,


2016


2015

Revenue

$

79,735



$

83,287






Cost of revenue

47,666



34,759


Amortization of acquired intangible assets[2]

(458)



(50)


Non-GAAP cost of revenue

47,208



34,709






Selling, general and administrative expenses

26,895



19,459


Stock-based compensation[1]

(5,022)



(3,992)


Amortization of acquired intangible assets[2]

(1,709)



(381)


Non-GAAP selling, general and administrative expenses

20,164



15,086


Non-GAAP operating income

12,363



33,492






Other income, net

1,805



121


Fair value adjustment on deferred payment obligations[3]

(1,920)




Non-GAAP other income (expense), net

(115)



121






Provision for income taxes

2,742



11,159


Income tax adjustments[4]

1,712



1,290


Non-GAAP provision for income taxes

4,454



12,449


Non-GAAP net income

$

7,794



$

21,164






Non-GAAP net income per share:




Basic

$

0.15



$

0.39


Diluted

$

0.15



$

0.38


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




Basic

52,063



54,175


Diluted

52,616



55,197


 

RPX Corporation

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

(in thousands)

(unaudited)



Three Months Ended March 31,


2016


2015

Net income

$

4,237



$

18,031


Provision for income taxes

2,742



11,159


Other income, net

(1,805)



(121)


Stock-based compensation[1]

5,022



3,992


Depreciation and amortization

44,555



34,011


Non-GAAP EBITDA[5]

54,751



67,072


Net patent spend

(16,249)



(53,636)


Non-GAAP EBITDA less net patent spend

$

38,502



$

13,436


 

RPX Corporation

Additional Metrics

(in thousands, except client and headcount data)

(unaudited)






As of and for the Three
Months Ended March 31,

Operating Metrics


2016


2015

Number of clients[7]


286



224


Net additions[7]


31



20


Gross patent spend


$

16,324



$

924,718


Net patent spend


$

16,249



$

53,636













As of and for the Three
Months Ended March 31,

Financial Metrics


2016


2015

Subscription revenue[6]


$

67,112



$

66,244


Discovery revenue


10,578




Fee-related revenue


2,045



17,043


Total revenue


$

79,735



$

83,287


Cash, cash equivalents and short-term investments


$

204,246



$

374,980


Deferred revenue, current and non-current


$

139,992



$

158,411




[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 related to its deferred payment obligations from its non-GAAP financial measures.

[4]

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

[5]

RPX calculates non-GAAP EBITDA as GAAP earnings before other income or expenses, net, 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.

[7]

Represents clients receiving RPX's patent risk management services only; does not include RPX's discovery management services clients.

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SOURCE RPX Corporation

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