RPX Announces Third Quarter 2014 Financial Results

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Oct 28, 2014, 04:05 ET

SAN FRANCISCO, Oct. 28, 2014 /PRNewswire/ -- RPX Corporation (NASDAQ: RPXC), the leading provider of patent risk management solutions, today announced its financial results for the third quarter ended September 30, 2014.

Financial Highlights

Subscription revenue for the third quarter of fiscal 2014 was $62.7 million, up 9% compared to $57.8 million in the prior year period
Client count for the third quarter of fiscal 2014 increased by eleven members bringing our total client network to 195 as of September 30, 2014

"We continue to build out the network and reduce patent risk for our clients. We are pleased with the recent developments around the business and look forward to closing out the year with further progress against our goals," said John A. Amster, Chief Executive and Co-founder of RPX Corporation.

Summary Results

Revenue for the third quarter was $65.4 million, compared to $58.6 million in the third quarter of 2013.

Net acquisition spend during the quarter totaled $42.2 million, and included 19 new acquisitions of patent assets, in addition to the exercise of previously negotiated options to acquire licenses for new clients.

GAAP net income for the third quarter was $10.8 million or $0.20 per diluted share, compared to $8.4 million or $0.16 per diluted share in the third quarter of 2013.

Non-GAAP net income for the third quarter, which excludes stock-based compensation and the amortization of acquired intangibles (in each case, net of tax), was $14.3 million or $0.26 per pro forma diluted share^[1], compared to $11.4 million or $0.21 per pro forma diluted share^[1] in the third quarter of 2013.

As of September 30, 2014, RPX had cash, cash equivalents and short-term investments of $303.1 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 fourth quarter of fiscal 2014:

Subscription revenue^[2]		$62.8 - $63.4 million
Fee-related revenue		$4.2 - $6.2 million
Total revenue		$67.0 - $69.6 million
Net income (non-GAAP)		$12.0 - $13.7 million
Effective tax rate (non-GAAP)		37%
Pro forma weighted-average diluted shares outstanding		55.3 million

The Company provided the following business outlook for the full year 2014:

Subscription revenue^[2]		$250.6 - $251.2 million
Fee-related revenue		$8.0 - $10 million
Total revenue		$258.6 - $261.2 million
Cost of revenue (non-GAAP)		$124.5 - $125.5 million
SG&A (non-GAAP)		$52.0 - $52.8 million
Net income (non-GAAP)		$52.0 - $53.7 million
Effective tax rate (non-GAAP)		37%
Pro forma weighted-average diluted shares outstanding		55.0 million
Net acquisition spend		$135 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.

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^[1]	Pro forma diluted shares computed to give effect to the shares of restricted stock outstanding as of the original date of issuance.
^[2]	Subscription revenue is comprised of revenue generated from membership subscription services and premiums earned from insurance policies.

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 October 28, 2014. Parties in the United States and Canada can access the call by dialing 1-888-572-7033, using conference code 3976582. International parties can access the call by dialing 1-719-325-2469, using conference code 3976582.

RPX will offer a live webcast of the conference call which can be accessed from the "Investor Relations" section of the Company's website at http://ir.rpxcorp.com. An audio replay of the conference call will also be available approximately two hours after the call and will be available for 30 days. To hear the replay, parties in the United States and Canada should call 1-888-203-1112 and enter conference code 3976582. International parties should call 1-719-457-0820 and enter conference code 3976582.

About RPX Corporation

RPX Corporation (NASDAQ: RPXC) is the leading provider of patent risk solutions, offering defensive buying, acquisition syndication, patent intelligence, insurance services, and advisory services. 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.

Use of Non-GAAP Financial Information

This news release dated October 28, 2014 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 net income, 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) and 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 business and 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.

RPX Corporation
Condensed Consolidated Statements of Operations
(in thousands, except per share data)
(unaudited)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2014		2013		2014		2013
Revenue	$	65,407	$	58,554	$	191,588	$	177,229
Cost of revenue	30,444		29,766		90,906		78,130
Selling, general and administrative expenses	17,786		15,584		53,620		45,793
(Gain) loss on sale of patent assets, net	(8)		—		(707)		126
Operating income	17,185		13,204		47,769		53,180
Other income, net	73		56		266		170
Income before provision for income taxes	17,258		13,260		48,035		53,350
Provision for income taxes	6,425		4,863		17,943		19,561
Net income	$	10,833	$	8,397	$	30,092	$	33,789

Net income available to common stockholders:	$	10,833	$	8,395	$	30,092	$	33,767
Net income available to common stockholders per common share:
Basic	$	0.20	$	0.16	$	0.56	$	0.65
Diluted	$	0.20	$	0.16	$	0.55	$	0.63
Weighted-average shares used in computing net income available to common stockholders per common share:
Basic	53,773		52,267		53,263		51,751
Diluted	55,029		54,055		54,742		53,415

RPX Corporation
Condensed Consolidated Balance Sheets
(in thousands)
(unaudited)

	September 30, 2014		December 31, 2013
Assets
Current assets:
Cash and cash equivalents	$	83,326	$	100,155
Short-term investments	219,804		190,567
Restricted cash	660		364
Accounts receivable	21,572		38,477
Prepaid expenses and other current assets	17,381		10,546
Deferred tax assets	4,136		3,817
Total current assets	346,879		343,926
Patent assets, net	248,051		219,954
Property and equipment, net	4,214		4,667
Intangible assets, net	3,962		1,718
Goodwill	19,978		16,460
Restricted cash, less current portion	1,091		1,454
Other assets	785		622
Total assets	$	624,960	$	588,801
Liabilities and stockholders' equity
Current liabilities:
Accounts payable	$	596	$	332
Accrued liabilities	10,993		8,784
Deferred revenue	110,874		131,808
Deferred payment obligations	—		500
Other current liabilities	13,316		1,638
Total current liabilities	135,779		143,062
Deferred revenue, less current portion	1,946		5,935
Deferred tax liabilities	11,846		11,654
Other liabilities	3,043		3,227
Total liabilities	152,614		163,878
Stockholders' equity:
Common stock	5		5
Additional paid-in capital	322,774		305,343
Retained earnings	149,619		119,527
Accumulated other comprehensive income	(52)		48
Total stockholders' equity	472,346		424,923
Total liabilities and stockholders' equity	$	624,960	$	588,801

RPX Corporation
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)

	Nine Months Ended September 30,
	2014		2013
Cash flows from operating activities
Net income	$	30,092	$	33,789
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	89,700		76,767
Stock-based compensation	13,353		12,081
Excess tax benefit from stock-based compensation	(2,394)		(2,752)
(Gain) loss on sale of patent assets	(707)		126
Amortization of premium on investments	5,031		4,496
Deferred taxes	(1,797)		(2,772)
Other	(500)		13
Changes in assets and liabilities, net of business acquired:
Accounts receivable	17,227		5,259
Other receivables	—		33,775
Prepaid expenses and other assets	(8,833)		(6,392)
Accounts payable	264		143
Accrued and other liabilities	1,507		1,134
Deferred revenue	(25,023)		859
Net cash provided by operating activities	117,920		156,526
Cash flows from investing activities
Purchases of investments classified as available-for-sale	(176,209)		(134,155)
Maturities of investments classified as available-for-sale	146,225		115,122
Sales of investments classified as available-for-sale	—		1,099
Business acquisition, net of cash	(2,286)		—
Decrease in restricted cash	67		(1,818)
Purchases of property and equipment	(1,084)		(2,073)
Acquisitions of patent assets	(103,958)		(82,751)
Proceeds from sale of patent assets	1,086		100
Net cash used in investing activities	(136,159)		(104,476)
Cash flows from financing activities
Proceeds from exercise of stock options and other common stock issuances	2,864		4,174
Tax withholdings related to net share settlements of restricted stock units	(3,848)		—
Excess tax benefit from stock-based compensation	2,394		2,752
Net cash provided by financing activities	1,410		6,926
Net increase in cash and cash equivalents	(16,829)		58,976
Cash and cash equivalents at beginning of period	100,155		73,638
Cash and cash equivalents at end of period	$	83,326	$	132,614

RPX Corporation
Reconciliation of Pro Forma Net Income Per Share
(in thousands, except per share data)
(unaudited)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2014		2013		2014		2013
Net income	$	10,833	$	8,397	$	30,092	$	33,789
Pro forma net income per share:
Basic	$	0.20	$	0.16	$	0.56	$	0.65
Diluted	$	0.20	$	0.16	$	0.55	$	0.63
Shares used in computing pro forma net income per share:
Basic:
Basic weighted-average common shares	53,773		52,267		53,263		51,751
Add: Restricted stock	—		13		—		34
Shares used in computing pro forma basic net income per share	53,773		52,280		53,263		51,785
Diluted:
Diluted weighted-average common shares	55,029		54,055		54,742		53,415
Add: Restricted stock	—		13		—		34
Shares used in computing pro forma diluted net income per share	55,029		54,068		54,742		53,449

RPX Corporation
Reconciliation of GAAP to Pro Forma Non-GAAP Net Income Per Share
(in thousands, except per share data)
(unaudited)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2014		2013		2014		2013
Net income	$	10,833	$	8,397	$	30,092	$	33,789
Stock-based compensation^[1]	4,613		4,017		13,694		12,453
Amortization of acquired intangible assets^[2]	478		351		1,040		1,069
Income tax adjustments^[3]	(1,648)		(1,396)		(4,890)		(4,357)
Non-GAAP net income	$	14,276	$	11,369	$	39,936	$	42,954
Pro forma non-GAAP net income per share:
Basic	$	0.27	$	0.22	$	0.75	$	0.83
Diluted	$	0.26	$	0.21	$	0.73	$	0.80
Shares used in computing pro forma net income per share:
Basic	53,773		52,280		53,263		51,785
Diluted	55,029		54,068		54,742		53,449

RPX Corporation
Reconciliation of GAAP to Non-GAAP Cost of Revenue
(in thousands)
(unaudited)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2014		2013		2014		2013
Cost of revenue	$	30,444	$	29,766	$	90,906	$	78,130
Amortization of acquired intangible assets^[2]	(67)		(56)		(170)		(168)
Non-GAAP cost of revenue	$	30,377	$	29,710	$	90,736	$	77,962

RPX Corporation
Reconciliation of GAAP to Non-GAAP Selling, General and Administrative Expenses
(in thousands)
(unaudited)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2014		2013		2014		2013
Selling, general and administrative expenses	$	17,786	$	15,584	$	53,620	$	45,793
Stock-based compensation^[1]	(4,613)		(4,017)		(13,694)		(12,453)
Amortization of acquired intangible assets^[2]	(411)		(295)		(870)		(901)
Non-GAAP selling, general and administrative expenses	$	12,762	$	11,272	$	39,056	$	32,439

RPX Corporation
Additional Metrics
(in thousands, except client and headcount data)
(unaudited)

	As of and for the Three Months Ended September 30,
Operating Metrics	2014		2013
Number of clients	195		160
Net additions	11		3
Trailing four quarters	35		32
Gross acquisition spend	$	59,960	$	20,591
Trailing four quarters	$	178,508	$	195,488
Net acquisition spend	$	42,210	$	17,591
Trailing four quarters	$	156,008	$	109,288
Full time equivalent headcount	149		136
	As of and for the Three Months Ended September 30,
Financial Metrics	2014		2013
Subscription revenue^[4]	$	62,749	$	57,829
Fee-related revenue	2,658		725
Total revenue	$	65,407	$	58,554
Cash, cash equivalents and short-term investments	$	303,130	$	277,607
Deferred revenue, current and noncurrent	$	112,820	$	105,230

^[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]	Amount reflects income taxes associated with the above noted non-GAAP exclusions.
^[4]	Subscription revenue is comprised of revenue generated from membership subscription services and premiums earned from insurance policies.