RPX Corporation
Aug 2, 2016

RPX Announces Second Quarter 2016 Financial Results

SAN FRANCISCO, Aug. 2, 2016 /PRNewswire/ -- RPX Corporation (NASDAQ: RPXC), the leading provider of patent risk management and discovery management solutions, today announced its financial results for the second quarter ended June 30, 2016.

"Our strategy of diversifying RPX's operations is clearly helping the Company navigate a challenging near term patent environment," said John Amster, CEO of RPX Corporation. "In the second quarter the Discovery Services business posted solid results, our patent risk business continued to deliver value to 300+ clients, and we took appropriate operational steps to ensure we achieve our cash generation goals for the year."

Summary Results for the Second Quarter of 2016

Total revenue was $83.1 million, compared to $67.6 million in the second quarter of 2015.

  • Subscription revenue from patent risk management services - including insurance - was $63.2 million, compared to $67.6 million in the prior year period.
  • Discovery services revenue was $19.3 million.
  • Fee-related revenue was $0.6 million, compared to nil in the prior year period.

GAAP net income for the second quarter was $4.2 million or $0.08 per diluted share, compared to $8.0 million or $0.14 per diluted share in the second quarter of 2015.

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, and realized losses on exchange of short-term investments, and their related tax effects, was $9.1 million or $0.18 per diluted share, compared to $11.2 million or $0.20 per diluted share in the second quarter of 2015.

Non-GAAP Adjusted EBITDA less Net Patent Spend, the Company's preferred measure of adjusted pre-tax free cash flow, was $33.3 million in the second quarter of 2016.

RPX's patent risk management client network included 317 clients, including insurance clients, as of June 30, 2016.

Net patent acquisition spend during the quarter totaled $20.9 million, and included 20 patent transactions.

As of June 30, 2016, RPX had cash, cash equivalents and short-term investments of $199.1 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 third quarter of fiscal 2016:

Subscription and Discovery revenue[1]


$81 - $83 million

Fee-related revenue


$6 million

Total revenue


$87 - $89 million

Operating income (non-GAAP)


$16 - $17 million

Net income (non-GAAP)


$10 - $11 million

Total Adjusted EBITDA (non-GAAP)


$58 - $59 million

Effective tax rate (non-GAAP)


37%

Weighted-average diluted shares outstanding


50 million

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

Subscription revenue[1]


$255 - $260 million

Discovery revenue


$67 - $69 million

Fee-related revenue


$8 - $15 million

Total revenue


$330 - $344 million

Cost of revenue (non-GAAP)


$198 - $200 million

SG&A (non-GAAP)


$76 - $78 million

Operating income (non-GAAP)


$56 - $66 million

Net income (non-GAAP)


$35 - $40 million




RPX adjusted EBITDA (non-GAAP)


$198 - $206 million

Discovery adjusted EBITDA (non-GAAP)


$19 - $21 million

Total adjusted EBITDA (non-GAAP)


$217 - $227 million

Net patent spend


$115 - $120 million

Adjusted EBITDA less net patent spend (non-GAAP)


$97 - $112 million




Effective tax rate (non-GAAP)


37%

Weighted-average diluted shares outstanding


51 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. 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 2016 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.

————————

[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 August 2, 2016. Parties in the United States and Canada can access the call by dialing 1-800-896-8445, using conference code 6392847. International parties can access the call by dialing 1-785-830-1916, using conference code 6392847.

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, 2016, RPX had invested over $2 billion to acquire more than 15,500 US and international patent assets and rights on behalf of nearly 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 2, 2016 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 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 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) realized losses on exchange of short-term investments, and (6) 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 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

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,



2016


2015


2016


2015

Revenue


$

83,109



$

67,551



$

162,844



$

150,838


Cost of revenue


49,070



36,985



96,736



71,744


Selling, general and administrative expenses


25,904



18,997



52,799



38,456


Gain on sale of patent assets, net




(592)





(592)


Operating income


8,135



12,161



13,309



41,230


Other income (expense), net


(1,549)



934



256



1,055


Income before provision for income taxes


6,586



13,095



13,565



42,285


Provision for income taxes


2,436



5,065



5,178



16,224


Net income


$

4,150



$

8,030



$

8,387



$

26,061











Net income per share:









Basic


$

0.08



$

0.15



$

0.16



$

0.48


Diluted


$

0.08



$

0.14



$

0.16



$

0.47


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









Basic


51,034



54,490



51,548



54,334


Diluted


51,557



55,687



52,089



55,457



RPX Corporation

Condensed Consolidated Balance Sheets

(in thousands)

(unaudited)






June 30,
2016


December 31,
2015

Assets




Current assets:




Cash and cash equivalents

$

130,040



$

94,983


Short-term investments

69,051



231,015


Restricted cash

476



701


Accounts receivable, net

41,714



13,905


Prepaid expenses and other current assets

17,221



12,643


Total current assets

258,502



353,247


Patent assets, net

212,245



254,560


Property and equipment, net

8,033



4,733


Intangible assets, net

63,130



1,801


Goodwill

160,122



19,978


Restricted cash, less current portion

1,062



727


Deferred tax assets

25,504



6,896


Other assets

8,503



16,619


Total assets

$

737,101



$

658,561






Liabilities and stockholders' equity




Current liabilities:




Accounts payable

$

2,964



$

959


Accrued liabilities

11,456



14,842


Deferred revenue

119,856



110,921


Deferred payment obligations

1,301



2,383


Current portion of long-term debt

5,224




Other current liabilities

1,587



467


Total current liabilities

142,388



129,572


Deferred revenue, less current portion

3,277



4,731


Deferred tax liabilities

4,837




Long-term debt

91,660




Other liabilities

8,410



7,779


Total liabilities

250,572



142,082


Stockholders' equity:




Common stock

5



5


Additional paid-in capital

351,577



344,610


Retained earnings

141,431



172,115


Accumulated other comprehensive loss

(6,484)



(251)


Total stockholders' equity

486,529



516,479


Total liabilities and stockholders' equity

$

737,101



$

658,561


 


RPX Corporation

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)




Six Months Ended June 30,


2016


2015

Operating activities




Net income

$

8,387



$

26,061


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




Depreciation and amortization

85,585



69,991


Stock-based compensation

9,828



8,525


Excess tax benefit from stock-based compensation

(33)



(1,195)


Gain on sale of patent assets, net



(592)


Amortization of premium on investments

972



3,181


Deferred taxes

198



(186)


Unrealized foreign currency loss

1,213




Fair value adjustment on deferred payment obligations

(1,920)



(705)


Gain on extinguishment of deferred payment obligation

(463)




Realized loss on exchange of short-term investments

290




Other

169




Changes in assets and liabilities, net of business acquired:




Accounts receivable, net

(15,207)



13,203


Prepaid expenses and other assets

(1,479)



(12,097)


Accounts payable

211



418


Accrued and other liabilities

(6,097)



(4,850)


Deferred revenue

7,379



6,314


Net cash provided by operating activities

89,033



108,068


Investing activities




Purchases of investments

(31,150)



(137,663)


Maturities of investments

42,590



100,548


Sales of investments

145,925




Business acquisition, net of cash acquired

(228,453)



(425)


Decrease in restricted cash

225



269


Purchases of property and equipment

(2,087)



(1,134)


Acquisitions of patent assets

(36,546)



(48,936)


Proceeds from sale of patent assets



650


Acquisition of other assets



(2,500)


Net cash used in investing activities

(109,496)



(89,191)


Financing activities




Repayment of principal on deferred payment obligations



(935)


Proceeds from deferred payment obligations



6,270


Proceeds from issuance of term debt

100,000




Payments of debt issuance costs

(2,003)




Repayment of principal on term debt

(1,250)




Proceeds from exercise of stock options

247



4,294


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

(2,048)



(2,307)


Excess tax benefit from stock-based compensation

33



1,195


Payments of capital leases

(236)




Repurchase of common stock

(39,072)



(3,541)


Net cash provided by financing activities

55,671



4,976


Foreign-currency effect on cash and cash equivalents

(151)




Net increase in cash and cash equivalents

35,057



23,853


Cash and cash equivalents at beginning of period

94,983



78,019


Cash and cash equivalents at end of period

$

130,040



$

101,872



 

RPX Corporation

Reconciliation to Non-GAAP Net Income Per Share

(in thousands, except per share data)

(unaudited)






Three Months Ended June 30,


Six Months Ended June 30,


2016


2015


2016


2015

Revenue

$

83,109



$

67,551



$

162,844



$

150,838










Cost of revenue

49,070



36,985



96,736



71,744


Amortization of acquired intangible assets[2]

(586)



(50)



(1,044)



(100)


Non-GAAP cost of revenue

48,484



36,935



95,692



71,644










Selling, general and administrative expenses

25,904



18,997



52,799



38,456


Stock-based compensation[1]

(4,976)



(4,810)



(9,998)



(8,802)


Amortization of acquired intangible assets[2]

(1,999)



(381)



(3,708)



(762)


Non-GAAP selling, general and administrative expenses

18,929



13,806



39,093



28,892










Gain on sale of patent assets, net



(592)





(592)


Non-GAAP operating income

15,696



17,402



28,059



50,894










Other income (expense), net

(1,549)



934



256



1,055


Fair value adjustment on deferred payment obligation[3]



(705)



(1,920)



(705)


Gain on extinguishment of deferred payment obligations[3]

(463)





(463)




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

188





188




Non-GAAP other income (expense), net

(1,824)



229



(1,939)



350










Non-GAAP income before provision for income taxes

13,872



17,631



26,120



51,244










Provision for income taxes

2,436



5,065



5,178



16,224


Income tax adjustments[4]

2,383



1,410



4,095



2,700


Non-GAAP provision for income taxes

4,819



6,475



9,273



18,924


Non-GAAP net income

$

9,053



$

11,156



$

16,847



$

32,320










Non-GAAP net income per share:








Basic

$

0.18



$

0.20



$

0.33



$

0.59


Diluted

$

0.18



$

0.20



$

0.33



$

0.58


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








Basic

51,034



54,490



51,548



54,334


Diluted

51,557



55,687



52,089



55,457


 


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,


2016


2015


2016


2015

Net income

$

4,150



$

8,030



$

8,387



$

26,061


Provision for income taxes

2,436



5,065



5,178



16,224


Other (income) expense, net

1,549



(934)



(256)



(1,055)


Stock-based compensation[1]

4,976



4,810



9,998



8,802


Depreciation and amortization

41,032



35,978



85,587



69,988


Non-GAAP adjusted EBITDA[5]

54,143



52,949



108,894



120,020


Net patent spend

(20,885)



(20,500)



(37,134)



(74,136)


Non-GAAP adjusted EBITDA less net patent spend

$

33,258



$

32,449



$

71,760



$

45,884


 


RPX Corporation

Additional Metrics

(in thousands, except client data)

(unaudited)






As of and for the Three
Months Ended June 30,

Operating Metrics


2016


2015

Number of clients[7]


317



225


Net additions[7]


31



1


Gross patent spend


$

21,115



$

20,575


Net patent spend


$

20,885



$

20,500









As of and for the Three
Months Ended June 30,

Financial Metrics


2016


2015

Subscription revenue[6]


$

63,219



$

67,551


Discovery revenue


19,258




Fee-related revenue


632




Total revenue


$

83,109



$

67,551


Cash, cash equivalents and short-term investments


$

199,091



$

381,154


Deferred revenue, current and non-current


$

123,133



$

142,623


 


[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, 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 services clients.

 

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SOURCE RPX Corporation

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