RPX CORP SAN FRANCISCO, Oct. 30, 2017 /PRNewswire/ -- RPX Corporation (NASDAQ: RPXC), the leading provider of patent risk and discovery management solutions, today announced its financial results for the third quarter ended September 30, 2017.
Highlights
Total revenue was $85.7 million, compared to $88.5 million in the third quarter of 2016.
-- Subscription revenue from patent risk management services--including
insurance--was $62.3 million, compared to $62.4 million in the prior
year period.
-- Discovery services revenue was $21.1 million, compared to $18.0 million
in the prior year period.
"RPX posted a solid third quarter, with results exceeding expectations in both our patent risk management and discovery services businesses, along with increasing cash flow," Marty Roberts, CEO of RPX Corp. "We also have made progress in identifying new emerging business opportunities that leverage our unique position in the patent space, including tech-enabled services, new licensing models and expansion into foreign jurisdictions."
Summary Results
GAAP net income for the third quarter was $6.4 million or $0.13 per diluted share, compared to $8.1 million or $0.16 per diluted share in the third quarter of 2016.
Non-GAAP net income for the third 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 $10.9 million or $0.22 per diluted share, compared to $12.7 million or $0.25 per diluted share in the third quarter of 2016.
Non-GAAP adjusted EBITDA was $57.2 million for the third quarter of 2017, less net patent spend of $13.0 million, resulting in non-GAAP adjusted EBITDA less net patent spend, the Company's preferred measure of adjusted pre-tax free cash flow, of $44.2 million for the third quarter of 2017.
As of September 30, 2017, RPX's patent segment had more than 325 clients, consisting of patent risk management network members and insurance clients. The Company provides patent risk management services to nearly 450 companies, including those insured under policies sold to venture funds and industry trade associations.
Net patent acquisition spend during the quarter totaled $13.0 million, and included 11 patent transactions.
As of September 30, 2017, RPX had cash, cash equivalents and short-term investments of $267.5 million and long-term debt of $89.9 million.
Quarterly Dividend and Repayment of Term Facility
The Company also announced that its Board of Directors had approved a regular quarterly cash dividend of $0.05 per share of common stock, the first of which is payable on December 5, 2017, to stockholders of record on November 20, 2017.
In addition, the Company announced that it will be repaying the approximately $91.3 million outstanding under its term facility in the fourth quarter of 2017. The original terms of the five-year term facility entered into in February 2016 required quarterly repayments through 2021. Pursuant to the terms of the credit agreement, the Company will not incur any early termination costs by early repayment of this facility. The revolving credit facility will remain available for use.
"These changes to our capital structure reflect the Board's confidence in the long term opportunity for RPX and reinforce its commitment to delivering value to shareholders, even as we continue investing to grow the business," said Marty Roberts.
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 2017:
Subscription and Discovery
revenue[1] $77 - $80 million
Fee-related revenue $0 - $2 million
---------------
Total revenue $77 - $82 million
Operating income (non-GAAP) $9 - $12 million
Net income (non-GAAP) $6 - $8 million
Consolidated adjusted EBITDA (non-
GAAP) $49 - $53 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] $245 - $246 million
Discovery revenue $77 - $79 million
----------------- -----------------
Fee-related revenue $3 - $5 million
------------------- ---------------
Total revenue $325 - $330 million
Cost of revenue (non-GAAP) $203 - $205 million
SG&A (non-GAAP) $67 - $70 million
Operating income (non-GAAP) $54 - $57 million
-------------------------- -----------------
Net income (non-GAAP) $36 - $38 million
-------------------- -----------------
Patent risk management adjusted
EBITDA (non-GAAP) $196 - $198 million
-------------------
Discovery services adjusted EBITDA
(non-GAAP) $20 - $22 million
-----------------
Total adjusted EBITDA (non-GAAP) $216 - $220 million
-------------------
Net patent spend $110 - $115 million
---------------- -------------------
Consolidated adjusted EBITDA less
net patent spend (non-GAAP) $101 - $110 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 $31 - $33 million
----------------------------------- -----------------
Total amortization of patent assets $158 - $160 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 fourth 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 October 30, 2017. Parties in the United States and Canada can access the call by dialing 1-866-564-2842, using conference code 7073187. International parties can access the call by dialing 1-323-794-2094, using conference code 7073187.
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 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 September 30, 2017, RPX had invested over $2 billion to acquire more than 18,500 US and international patent assets and rights on behalf of more than 325 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 October 30, 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 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 success of the Company's new initiatives, changes in our subscription fee rates, changes in the accounting treatment associated with how we recognize revenue under subscription agreements, and the Company's ability to attract new clients and retain existing clients with respect to our patent risk management and discovery services. 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 Nine Months Ended
September 30, September 30,
2017 2016 2017 2016
---- ---- ---- ----
Revenue $85,702 $88,461 $248,648 $251,305
Cost of revenue 52,282 50,830 154,722 147,566
Selling, general and
administrative expenses 22,517 23,615 66,762 76,414
Operating income 10,903 14,016 27,164 27,325
------ ------ ------ ------
Interest and other income
(expense), net:
Interest income 339 162 761 348
Interest expense (981) (922) (2,838) (2,155)
Other income (expense), net 730 (490) 2,059 813
--- ---- ----- ---
Total interest and other
income (expense), net 88 (1,250) (18) (994)
--- ------ --- ----
Income before provision for
income taxes 10,991 12,766 27,146 26,331
Provision for income taxes 4,625 4,651 10,595 9,829
----- ----- ------ -----
Net income $6,366 $8,115 $16,551 $16,502
====== ====== ======= =======
Net income per share:
Basic $0.13 $0.16 $0.34 $0.32
===== ===== ===== =====
Diluted $0.13 $0.16 $0.33 $0.32
===== ===== ===== =====
Weighted-average shares used
in computing net income per
share:
Basic 49,556 49,713 49,128 50,932
====== ====== ====== ======
Diluted 50,317 50,247 49,887 51,462
====== ====== ====== ======
RPX Corporation
Condensed Consolidated Balance Sheets
(in thousands)
(unaudited)
September 30, December 31,
2017 2016
---- ----
Assets
Current assets:
Cash and cash equivalents $228,410 $100,111
Short-term investments 39,045 90,877
Restricted cash 513 500
Accounts receivable, net 41,027 64,395
Prepaid expenses and other
current assets 10,248 4,524
Total current assets 319,243 260,407
Patent assets, net 148,507 212,999
Property and equipment, net 5,691 6,948
Intangible assets, net 51,067 56,050
Goodwill 159,434 151,322
Restricted cash, less current
portion 965 965
Deferred tax assets 37,410 38,261
Other assets 9,537 8,337
----- -----
Total assets $731,854 $735,289
======== ========
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $3,081 $3,197
Accrued liabilities 13,543 16,798
Deferred revenue 99,259 118,856
Current portion of long-term
debt 8,349 6,474
Other current liabilities 1,244 1,484
----- -----
Total current liabilities 125,476 146,809
Deferred revenue, less
current portion 3,680 11,552
Deferred tax liabilities 3,819 4,023
Long-term debt, less current
portion 81,535 88,110
Other liabilities 10,834 10,514
------ ------
Total liabilities 225,344 261,008
------- -------
Stockholders' equity:
Common stock 5 5
Additional paid-in capital 374,213 360,462
Retained earnings 139,250 130,249
Accumulated other
comprehensive loss (6,958) (16,435)
------ -------
Total stockholders' equity 506,510 474,281
------- -------
Total liabilities and
stockholders' equity $731,854 $735,289
======== ========
RPX Corporation
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
Nine Months Ended September 30,
2017 2016
---- ----
Operating activities
Net income $16,551 $16,502
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation
and
amortization 128,278 129,312
Stock-
based
compensation 10,875 14,097
Excess tax
benefit
from
stock-
based
compensation - (90)
Amortization
of premium
on
investments 1,139 1,564
Deferred
income
taxes 799 (5,975)
Unrealized
foreign
currency
(gain)
loss (1,709) 2,006
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 157 902
Changes in assets and
liabilities, net of
business acquired:
Accounts
receivable 24,787 (8,168)
Prepaid
expenses
and other
assets (6,630) (11,177)
Accounts
payable (225) (276)
Accrued and
other
liabilities (3,239) (3,742)
Deferred
revenue (27,470) (13,063)
------- -------
Net cash
provided
by
operating
activities 143,313 119,799
------- -------
Investing activities
Purchases
of
investments (32,811) (62,955)
Maturities
of
investments 83,335 48,073
Sales of
investments - 145,925
Business
acquisition,
net of
cash
acquired - (228,453)
Decrease
(increase)
in
restricted
cash (13) 427
Purchases
of
property
and
equipment (1,079) (3,004)
Acquisitions
of patent
assets (54,492) (71,021)
Net cash
used in
investing
activities (5,060) (171,008)
------ --------
Financing activities
Proceeds
from
issuance
of term
debt - 100,000
Payments of
debt
issuance
costs - (2,003)
Repayment
of
principal
on term
debt (5,000) (2,500)
Deferred
acquisition
payment - (1,320)
Proceeds
from
exercise
of stock
options 5,964 3,657
Taxes paid
related to
net-share
settlements
of
restricted
stock
units (4,526) (3,135)
Excess tax
benefit
from
stock-
based
compensation - 90
Payments of
capital
leases (278) (352)
Repurchase
of common
stock (6,629) (50,752)
------ -------
Net cash
provided
by (used
in)
financing
activities (10,469) 43,685
------- ------
Foreign-
currency
effect on
cash and
cash
equivalents 515 (291)
Net
increase
(decrease)
in cash
and cash
equivalents 128,299 (7,815)
Cash and
cash
equivalents
at
beginning
of period 100,111 94,983
------- ------
Cash and
cash
equivalents
at end of
period $228,410 $87,168
======== =======
RPX Corporation
Reconciliation of GAAP to Non-GAAP Net Income Per Share
(in thousands, except per share data)
(unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
2017 2016 2017 2016
---- ---- ---- ----
Net income $6,366 $8,115 $16,551 $16,502
Stock-based compensation[1] 3,857 4,341 11,211 14,339
Amortization of acquired intangible
assets[2] 2,110 2,457 6,784 7,209
Fair value adjustment on deferred
payment obligations[3] - - - (1,920)
Gain on extinguishment of deferred
payment obligations[3] - - - (463)
Realized loss on exchange of short-term
investments[3] - - - 188
Income tax adjustments[4] (1,471) (2,216) (4,874) (6,311)
------ ------ ------ ------
Non-GAAP net income $10,862 $12,697 $29,672 $29,544
======= ======= ======= =======
Non-GAAP net income per share:
Basic $0.22 $0.26 $0.60 $0.58
===== ===== ===== =====
Diluted $0.22 $0.25 $0.59 $0.57
===== ===== ===== =====
Weighted-average shares used in
computing non-GAAP net income per
share:
Basic 49,556 49,713 49,128 50,932
====== ====== ====== ======
Diluted 50,317 50,247 49,887 51,462
====== ====== ====== ======
RPX Corporation
Reconciliation of GAAP to Non-GAAP Cost of Revenue
(in thousands)
(unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
2017 2016 2017 2016
---- ---- ---- ----
Cost of revenue $52,282 $50,830 $154,722 $147,566
Stock-based compensation[1] (126) - (347) -
Amortization of acquired intangible
assets[2] (497) (548) (1,553) (1,592
Non-GAAP cost of revenue $51,659 $50,282 $152,822 $145,974
======= ======= ======== ========
RPX Corporation
Reconciliation of GAAP to Non-GAAP Selling, General and Administrative Expenses
(in thousands)
(unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
2017 2016 2017 2016
---- ---- ---- ----
Selling, general and administrative
expenses $22,517 $23,615 $66,762 $76,414
Stock-based compensation[1] (3,731) (4,341) (10,864) (14,339
Amortization of acquired intangible
assets[2] (1,613) (1,909) (5,231) (5,617
Non-GAAP selling, general and
administrative expenses $17,173 $17,365 $50,667 $56,458
======= ======= ======= =======
RPX Corporation
Reconciliation of GAAP to Non-GAAP Interest and Other Income (Expense), Net
(in thousands)
(unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
2017 2016 2017 2016
---- ---- ---- ----
Interest and other income (expense), net $88 $(1,250) $(18) $(994)
Fair value adjustment on deferred
payment obligation[3] - - - (1,920)
Gain on extinguishment of deferred
payment obligations[3] - - - (463)
Realized loss on exchange of short-term
investments[3] - - - 188
Non-GAAP interest and other income
(expense), net $88 $(1,250) $(18) $(3,189)
=== ======= ==== =======
RPX Corporation
Reconciliation of Net Income to Non-GAAP Adjusted EBITDA Less Net Patent Spend
(in thousands)
(unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
2017 2016 2017 2016
---- ---- ---- ----
Net income $6,366 $8,115 $16,551 $16,502
Provision for income taxes 4,625 4,651 10,595 9,829
Interest and other (income)
expense, net (88) 1,250 18 994
Stock-based compensation[1] 3,857 4,341 11,211 14,339
Depreciation and
amortization 42,423 43,725 128,278 129,312
------ ------ ------- -------
Non-GAAP adjusted EBITDA[5] 57,183 62,082 166,653 170,976
Net patent spend (12,990) (34,800) (54,575) (71,934
------- ------- ------- -------
Non-GAAP adjusted EBITDA
less net patent spend $44,193 $27,282 $112,078 $99,042
======= ======= ======== =======
RPX Corporation
Additional Metrics
(in thousands, except client data)
(unaudited)
Three Months Ended
September 30,
Operating
Metrics 2017 2016
--------- ---- ----
Gross patent
spend $41,490 $98,380
Net patent spend $12,990 $34,800
As of and for the Three Months
Ended September 30,
Financial
Metrics 2017 2016
--------- ---- ----
Subscription
revenue[6] $62,346 $62,414
Discovery
revenue 21,080 17,987
Fee-related
revenue 2,276 8,060
----- -----
Total revenue $85,702 $88,461
======= =======
Cash, cash
equivalents and
short-term
investments $267,455 $182,707
Deferred
revenue,
current and
non-current $102,939 $102,691
[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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