RPX Announces Second Quarter 2014 Financial Results

PR Newswire

SAN FRANCISCO, July 29, 2014 /PRNewswire/ -- RPX Corporation (RPXC), the leading provider of patent risk management solutions, today announced its financial results for the second quarter ended June 30, 2014.

Financial Highlights

  • Subscription revenue for the second quarter of fiscal 2014 was $64.3 million, up 17% compared to $55.0 million in the prior year period
  • Client count for the second quarter of fiscal 2014 increased by six members bringing our total client network to 184 as of June 30, 2014

"It was another quarter of solid operating results for RPX," said John Amster, President and CEO. "We grew the network, continued building the insurance business and made good progress rolling out our new initiatives."

Summary Results

Revenue for the second quarter of fiscal 2014 was $64.3 million, compared to $57.5 million in the prior year period.

Net acquisition spend during the quarter totaled $17.8 million, and included 13 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 second quarter was $9.4 million or $0.17 per diluted share, compared to $10.7 million or $0.20 per diluted share in the second quarter of 2013.

Non-GAAP net income for the second quarter, which excludes stock-based compensation and the amortization of acquired intangibles (in each case, net of tax), was $12.9 million or $0.24 per pro forma diluted share[1], compared to $14.0 million or $0.26 per pro forma diluted share[1] in the second quarter of 2013.

As of June 30, 2014, RPX had cash, cash equivalents and short-term investments of $317.6 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 2014:

Subscription revenue[2]


$62.3 - $63.0 million

Fee-related revenue


$0.8 million

Total revenue


$63.1 - $63.8 million

Net income (non-GAAP)


$12.0 - $12.6 million

Effective tax rate (non-GAAP)


37%

Pro forma weighted-average diluted shares outstanding


55.0 million

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

Subscription revenue[2]


$246 - $258 million

Fee-related revenue


$8 - $10 million

Total revenue


$254 - $268 million

Cost of revenue (non-GAAP)


$120 - $124 million

SG&A (non-GAAP)


$51 - $55 million

Net income (non-GAAP)


$53 - $57 million

Effective tax rate (non-GAAP)


37%

Pro forma weighted-average diluted shares outstanding


54.6 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.





















[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 July 29, 2014. Parties in the United States and Canada can access the call by dialing 1-888-572-7025, using conference code 1619659. International parties can access the call by dialing 1-719-325-2454, using conference code 1619659.

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 1619659. International parties should call 1-719-457-0820 and enter conference code 1619659.

About RPX Corporation

RPX Corporation (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 July 29, 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 June 30,


Six Months Ended June 30,



2014


2013


2014


2013

Revenue


$

64,293



$

57,481



$

126,181



$

118,675


Cost of revenue


31,542



24,694



60,462



48,364


Selling, general and administrative expenses


18,579



15,736



35,834



30,209


(Gain) loss on sale of patent assets, net


(699)



126



(699)



126


Operating income


14,871



16,925



30,584



39,976


Other income, net


94



63



193



114


Income before provision for income taxes


14,965



16,988



30,777



40,090


Provision for income taxes


5,566



6,291



11,518



14,698


Net income


$

9,399



$

10,697



$

19,259



$

25,392















Net income available to common stockholders:


$

9,399



$

10,691



$

19,259



$

25,370


Net income available to common stockholders per common share:













Basic


$

0.18



$

0.21



$

0.36



$

0.49


Diluted


$

0.17



$

0.20



$

0.35



$

0.48


Weighted-average shares used in computing net income available to common stockholders per common share:













Basic


53,203



51,774



53,004



51,489


Diluted


54,776



53,463



54,622



53,055




RPX Corporation

Condensed Consolidated Balance Sheets

(in thousands)

(unaudited)








June 30, 
2014


December 31,
 2013

Assets






Current assets:






Cash and cash equivalents

$

118,589



$

100,155


Short-term investments

198,965



190,567


Restricted cash

583



364


Accounts receivable

12,385



38,477


Prepaid expenses and other current assets

13,776



10,546


Deferred tax assets

4,082



3,817


Total current assets

348,380



343,926


Patent assets, net

235,501



219,954


Property and equipment, net

4,391



4,667


Intangible assets, net

4,441



1,718


Goodwill

19,978



16,460


Restricted cash, less current portion

1,091



1,454


Other assets

584



622


Total assets

$

614,366



$

588,801


Liabilities and stockholders' equity






Current liabilities:






Accounts payable

$

343



$

332


Accrued liabilities

8,442



8,784


Deferred revenue

129,009



131,808


Deferred payment obligations



500


Other current liabilities

4,418



1,638


Total current liabilities

142,212



143,062


Deferred revenue, less current portion

2,198



5,935


Deferred tax liabilities

12,182



11,654


Other liabilities

3,086



3,227


Total liabilities

159,678



163,878


Stockholders' equity:






Common stock

5



5


Additional paid-in capital

315,868



305,343


Retained earnings

138,786



119,527


Accumulated other comprehensive income

29



48


Total stockholders' equity

454,688



424,923


Total liabilities and stockholders' equity

$

614,366



$

588,801




RPX Corporation

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)




Six Months Ended June 30,


2014


2013

Cash flows from operating activities






Net income

$

19,259



$

25,392


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






Depreciation and amortization

59,289



47,798


Stock-based compensation

8,868



8,186


Excess tax benefit from stock-based compensation

(2,006)



(2,009)


(Gain) loss on sale of patent assets

(699)



126


Amortization of premium on investments

3,380



2,995


Deferred taxes

(978)



(1,906)


Other

(500)



13


Changes in assets and liabilities:






Accounts receivable

26,414



216


Other receivables



33,775


Prepaid expenses and other assets

(5,274)



(3,348)


Accounts payable

11



130


Accrued and other liabilities

(823)



(1,191)


Deferred revenue

(6,636)



13,202


Net cash provided by operating activities

100,305



123,379


Cash flows from investing activities






Purchases of investments classified as available-for-sale

(106,618)



(98,950)


Maturities of investments classified as available-for-sale

98,920



65,787


Sales of investments classified as available-for-sale



1,099


Business acquisition, net of cash

(2,169)




Decrease in restricted cash

144




Purchases of property and equipment

(790)



(874)


Acquisitions of patent assets

(73,948)



(69,637)


Proceeds from sale of patent assets

860



100


Net cash used in investing activities

(83,601)



(102,475)


Cash flows from financing activities






Proceeds from exercise of stock options and other common stock issuances

2,399



2,727


Tax withholdings related to net share settlements of restricted stock units

(2,675)




Excess tax benefit from stock-based compensation

2,006



2,009


Net cash provided by financing activities

1,730



4,736


Net increase in cash and cash equivalents

18,434



25,640


Cash and cash equivalents at beginning of period

100,155



73,638


Cash and cash equivalents at end of period

$

118,589



$

99,278




RPX Corporation

Reconciliation of Pro Forma Net Income Per Share

(in thousands, except per share data)

(unaudited)








Three Months Ended June 30,


Six Months Ended June 30,



2014


2013


2014


2013

Net income


$

9,399



$

10,697



$

19,259



$

25,392


Pro forma net income per share:













Basic


$

0.18



$

0.21



$

0.36



$

0.49


Diluted


$

0.17



$

0.20



$

0.35



$

0.48


Shares used in computing pro forma net income per share:













Basic:













Basic weighted-average common shares


53,203



51,774



53,004



51,489


Add: Restricted stock




31





45


Shares used in computing pro forma basic net income per share


53,203



51,805



53,004



51,534


Diluted:













Diluted weighted-average common shares


54,776



53,463



54,622



53,055


Add: Restricted stock




31





45


Shares used in computing pro forma diluted net income per share


54,776



53,494



54,622



53,100




RPX Corporation

Reconciliation of GAAP to Pro Forma Non-GAAP Net Income Per Share

(in thousands, except per share data)

(unaudited)








Three Months Ended June 30,


Six Months Ended June 30,



2014


2013


2014


2013

Net income


$

9,399



$

10,697



$

19,259



$

25,392


Stock-based compensation[1]


5,162



4,658



9,081



8,436


Amortization of acquired intangible assets[2]


257



358



562



718


Income tax adjustments[3]


(1,873)



(1,676)



(3,242)



(2,961)


Non-GAAP net income


$

12,945



$

14,037



$

25,660



$

31,585


Pro forma non-GAAP net income per share:













Basic


$

0.24



$

0.27



$

0.48



$

0.61


Diluted


$

0.24



$

0.26



$

0.47



$

0.59


Shares used in computing pro forma net income per share:













Basic


53,203



51,805



53,004



51,534


Diluted


54,776



53,494



54,622



53,100




RPX Corporation

Reconciliation of GAAP to Non-GAAP Cost of Revenue

(in thousands)

(unaudited)








Three Months Ended June 30,


Six Months Ended June 30,



2014


2013


2014


2013

Cost of revenue


$

31,542



$

24,694



$

60,462



$

48,364


Amortization of acquired intangible assets[2]


(47)



(56)



(103)



(112)


Non-GAAP cost of revenue


$

31,495



$

24,638



$

60,359



$

48,252




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,



2014


2013


2014


2013

Selling, general and administrative expenses


$

18,579



$

15,736



$

35,834



$

30,209


Stock-based compensation[1]


(5,162)



(4,658)



(9,081)



(8,436)


Amortization of acquired intangible assets[2]


(210)



(302)



(459)



(606)


Non-GAAP selling, general and administrative expenses


$

13,207



$

10,776



$

26,294



$

21,167




RPX Corporation

Additional Metrics

(in thousands, except client and headcount data)

(unaudited)






As of and for the Three Months Ended June 30,

Operating Metrics


2014


2013

Number of clients


184



157


Net additions


6



11


Trailing four quarters


27



37


Gross acquisition spend


$

18,795



$

41,100


Trailing four quarters


$

139,162



$

201,273


Net acquisition spend


$

17,795



$

39,100


Trailing four quarters


$

131,412



$

118,073


Full time equivalent headcount


138



123







As of and for the Three Months Ended June 30,

Financial Metrics


2014


2013

Subscription revenue[4]


$

64,293



$

54,979


Fee-related revenue




2,502


Total revenue


$

64,293



$

57,481


Cash, cash equivalents and short-term investments


$

317,554



$

259,305


Deferred revenue, current and noncurrent


$

131,207



$

117,573




[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.

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