RPX Announces First Quarter 2018 Financial Results
RPX Announces First Quarter 2018 Financial Results
SAN FRANCISCO, May 1, 2018 /PRNewswire/ -- RPX Corporation (NASDAQ: RPXC), the leading provider of patent risk and discovery management solutions, today announced its financial results for the first quarter ended March 31, 2018.
Highlights
-- Cash provided by operating activities in the first quarter ended March
31, 2018 was $33.2 million.
-- The Company generated $15.1 million of free cash flow in the quarter.
-- Total revenue for the quarter was $67.1 million compared to $75.4
million in the prior year period.
-- Subscription revenue from patent risk management services--including
insurance--was $40.5 million compared to $47.0 million in the prior year
period.
-- Discovery services revenue was $20.4 million compared to $18.0 million
in the prior year period.
-- This quarter's results and prior periods are presented under the new
revenue recognition standard, ASC 606.
Management noted that the quarter's discovery services revenue included the positive impact from a few large European review projects ramping down slower than anticipated.
Summary Results
Revenue for the first quarter of 2018 and 2017 was $67.1 million and $75.4 million, respectively.
GAAP net income for the first quarter was $0.1 million or $0.00 per diluted share, compared to $5.7 million or $0.11 per diluted share in the first quarter of 2017.
Non-GAAP net income for the first quarter, which excludes stock-based compensation, the amortization of acquired intangibles and their related tax effects, was $4.9 million or $0.10 per diluted share, compared to $9.2 million or $0.19 per diluted share in the first quarter of 2017.
The Company generated free cash flow of $15.1 million of free cash flow in the first quarter ended March 31, 2018, which it defines as cash flow from operating activities less capital expenditures such as property and equipment and patent assets. Non-GAAP adjusted EBITDA was $37.1 million for the first quarter of 2018, less net patent spend of $17.3 million, resulting in non-GAAP adjusted EBITDA less net patent spend, of $19.8 million for the first quarter of 2018.
As of March 31, 2018, RPX's patent segment had approximately 320 clients, consisting of patent risk management network members and insurance clients.
Net patent acquisition spend during the quarter totaled $17.3 million, and included 12 patent transactions.
As of March 31, 2018, RPX had cash, cash equivalents and short-term investments of $168.2 million.
New Accounting Standard
RPX adopted Accounting Standards Codification ("ASC") 606, Revenue from Contracts with Customers ("ASC 606") as of January 1, 2018 using the full retrospective method. The prior periods presented here have been adjusted to reflect the adoption of ASC 606.
Transaction Announcement
Separately, RPX today announced it has entered into a definitive agreement to be acquired by HGGC, a leading middle market private equity firm, in an all-cash transaction valued at approximately $555 million. Due to the strategic review process, the Company did not repurchase shares during the first quarter. Further, as part of the announced agreement, the Company will suspend its dividend.
Due to the announced transaction, RPX will not be hosting the conference call and webcast previously scheduled for Tuesday, May 8, 2018 to discuss its first quarter 2018 financial results and will not be updating previously disclosed guidance.
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 March 31, 2018, RPX had invested over $2.4 billion to acquire more than 26,000 US and international patent assets and rights on behalf approximately 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 May 1, 2018 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 provision for income taxes, non-GAAP net income, non-GAAP adjusted EBITDA, non-GAAP net income per share, non-GAAP adjusted EBITDA less net patent spend, and free cash flow.
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), and (3) the related tax effects of these exclusions.
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.
Notice to Investors and Security Holders
The tender offer for the outstanding common stock of RPX Corporation ("RPX") related to the acquisition of RPX referred to in this communication has not yet commenced. This communication is neither a recommendation, an offer to purchase nor a solicitation of an offer to sell any securities. The solicitation and the offer to buy the shares of RPX's common stock will be made pursuant to an offer to purchase and related materials that Riptide Parent, LLC ("Parent") and Riptide Purchaser, Inc. ("Purchaser") intend to file with the Securities and Exchange Commission (the "SEC"). At the time the tender offer is commenced, Purchaser will file a Tender Offer Statement on Schedule TO with the SEC, and thereafter RPX will file a Solicitation/Recommendation Statement on Schedule 14D-9 with respect to the tender offer. The Tender Offer Statement (including an offer to purchase, a related letter of transmittal and other offer documents) and the Solicitation/Recommendation Statement will contain important information that should be read carefully and considered before any decision is made with respect to the tender offer. RPX, Purchaser and Parent will file other relevant materials in connection with the proposed acquisition of RPX by Purchaser pursuant to the terms of the merger agreement. RPX, Purchaser and Parent intend to mail these documents to the stockholders of RPX. All of the tender offer materials (and all other materials filed by RPX with the SEC) will also be available free of charge from the SEC through its website at www.sec.gov. INVESTORS AND STOCKHOLDERS OF RPX ARE ADVISED TO READ THE SCHEDULE TO AND THE SCHEDULE 14D-9, INCLUDING THE SOLICITATION/RECOMMENDATION STATEMENT OF RPX, AS EACH MAY BE AMENDED OR SUPPLEMENTED FROM TIME TO TIME, AS WELL AS ANY OTHER RELEVANT DOCUMENTS FILED WITH THE SEC WHEN THEY BECOME AVAILABLE CAREFULLY AND IN THEIR ENTIRETY PRIOR TO MAKING ANY DECISIONS WITH RESPECT TO THE TENDER OFFER OR WHETHER TO TENDER THEIR SHARES OF RPX COMMON STOCK PURSUANT TO THE OFFER, BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED TRANSACTION (INCLUDING THE TERMS AND CONDITIONS OF THE TENDER OFFER) AND THE PARTIES THERETO.
Forward-Looking Statements
Certain statements in this communication are forward-looking statements, including, without limitation, the statements made concerning the pending acquisition of RPX by Purchaser. In some cases, you can identify forward-looking statements by the following words: "may," "will," "could," "would," "should," "expect," "intend," "plan," "anticipate," "believe," "estimate," "predict," "project," "aim," "potential," "continue," "ongoing," "goal," "can," "seek," "target" or the negative of these terms or other similar expressions, although not all forward-looking statements contain these words. These statements reflect RPX's current views concerning future events, including the planned completion of the tender offer and the anticipated merger, and are based on a number of assumptions that could ultimately prove inaccurate. As a general matter, forward-looking statements are those focused upon anticipated events or trends, expectations, and beliefs relating to matters that are not historical in nature. Such forward-looking statements are subject to uncertainties and factors relating to RPX's operations and business environment, all of which are difficult to predict and many of which are beyond the control of RPX. Among others, the following factors could cause actual results to differ materially from those set forth in the forward-looking statements: (i) uncertainties as to the timing of the tender offer and the anticipated merger; (ii) uncertainties as to how many RPX stockholders will tender their shares of RPX common stock in the anticipated merger; (iii) the possibility that competing offers will be made, (iv) the possibility that various closing conditions for the transaction may not be satisfied or waived; (v) the risk that the merger agreement may be terminated in circumstances requiring RPX to pay a termination fee; (vi) risks related to obtaining the requisite consents to the tender offer and the anticipated merger, including, without limitation, the risk that a regulatory approval that may be required for the proposed transaction, including under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (HSR Act) and the German Act of Restraints of Competition 1957, as amended (GWB), is delayed, is not obtained, or is obtained subject to conditions that are not anticipated; (vii) the possibility that the transaction may not be timely completed, if at all; (viii) the risk that, prior to the completion of the transaction, if at all, RPX's business and its relationships with employees, collaborators, vendors and other business partners could experience significant disruption due to transaction-related uncertainty; (ix) the risk that stockholder litigation in connection with the tender offer or the anticipated merger may result in significant costs of defense, indemnification and liability; and (x) the risks and uncertainties pertaining to RPX's business, including those detailed under "Risk Factors" and elsewhere in RPX's public periodic filings with the SEC, as well as the tender offer materials to be filed by Purchaser and the Solicitation/Recommendation Statement to be filed by RPX in connection with the tender offer. Other factors that could cause actual results to differ materially include those set forth in RPX's SEC reports, including, without limitation, the risks described in RPX's Annual Report on Form 10-K for its fiscal year ended December 31, 2017, which is on file with the SEC. The reader is cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. All forward-looking statements are qualified in their entirety by this cautionary statement and RPX undertakes no obligation to revise or update this report to reflect events or circumstances after the date hereof, except as required by law.
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 March 31,
2018 2017
---- ----
Revenue $67,121 $75,415
Cost of
revenue 42,230 44,130
Selling,
general
and
administrative
expenses 24,252 21,728
Operating
income 639 9,557
--- -----
Interest and other income
(expense), net:
Interest
income 327 165
Interest
expense (11) (908)
Other
income
(expense),
net 546 210
--- ---
Total
interest
and other
income
(expense),
net 862 (533)
--- ----
Income
before
provision
for income
taxes 1,501 9,024
Provision
for income
taxes 1,421 3,369
----- -----
Net income $80 $5,655
=== ======
Net income per share:
Basic $ - $0.12
=== === =====
Diluted $ - $0.11
=== === =====
Weighted-average shares
used in computing net
income per share:
Basic 49,755 48,676
====== ======
Diluted 50,267 49,305
====== ======
Dividends
declared
per common
share $0.05 $ -
===== === ===
RPX Corporation
Condensed Consolidated Balance Sheets
(in thousands)
(unaudited)
March 31, December 31,
2018 2017
---- ----
Assets
Current assets:
Cash and
cash
equivalents $159,220 $138,710
Short-term
investments 9,027 18,455
Restricted
cash 192 249
Accounts
receivable,
net 77,485 63,860
Prepaid
expenses
and other
current
assets 26,228 34,398
Total
current
assets 272,152 255,672
Patent
assets,
net 119,619 131,888
Property
and
equipment,
net 5,025 5,090
Intangible
assets,
net 47,716 49,087
Goodwill 72,511 70,756
Restricted
cash, less
current
portion 968 968
Deferred
tax assets 27,257 27,939
Other
assets 18,985 20,233
------ ------
Total
assets $564,233 $561,633
======== ========
Liabilities and
stockholders' equity
Current liabilities:
Accounts
payable $3,610 $2,225
Accrued
liabilities 11,011 15,736
Deferred
revenue 89,246 85,790
Other
current
liabilities 2,115 1,485
----- -----
Total
current
liabilities 105,982 105,236
Deferred
revenue,
less
current
portion 349 484
Deferred
tax
liabilities 3,697 3,657
Other
liabilities 11,012 11,104
------ ------
Total
liabilities 121,040 120,481
------- -------
Stockholders' equity:
Common
stock 5 5
Additional
paid-in
capital 378,748 376,793
Retained
earnings 68,390 70,808
Accumulated
other
comprehensive
loss (3,950) (6,454)
------ ------
Total
stockholders'
equity 443,193 441,152
------- -------
Total
liabilities
and
stockholders'
equity $564,233 $561,633
======== ========
RPX Corporation
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
Three Months Ended March 31,
2018 2017
---- ----
Operating activities
Net income $80 $5,655
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation
and
amortization 32,593 35,731
Stock-
based
compensation 3,690 2,734
Amortization
of premium
on
investments 68 471
Deferred
income
taxes 580 1,911
Unrealized
foreign
currency
gain (751) (169)
Other 81 55
Changes in assets and
liabilities, net of business
acquired:
Accounts
receivable (13,126) 32,303
Prepaid
expenses
and other
assets 9,543 (8,000)
Accounts
payable 1,348 (819)
Accrued and
other
liabilities (4,259) (5,624)
Deferred
revenue 3,320 6,996
----- -----
Net cash
provided
by
operating
activities 33,167 71,244
------ ------
Investing activities
Purchases
of
investments (3,250) (3,875)
Maturities
of
investments 12,515 25,875
Purchases
of
property
and
equipment (731) (362)
Acquisitions
of patent
assets (17,321) (27,421)
Net cash
used in
investing
activities (8,787) (5,783)
------ ------
Financing activities
Repayment
of
principal
on term
debt - (1,250)
Proceeds
from
exercise
of stock
options 142 422
Taxes paid
related to
net-share
settlements
of
restricted
stock
units (1,895) (1,708)
Payments of
capital
leases (38) (104)
Payments of
dividends
to
stockholders (2,498) -
Repurchase
of common
stock - (4,491)
--- ------
Net cash
used in
financing
activities (4,289) (7,131)
------ ------
Foreign-
currency
effect on
cash, cash
equivalents,
and
restricted
cash 362 35
Net
increase
in cash,
cash
equivalents,
and
restricted
cash 20,453 58,365
Cash, cash
equivalents,
and
restricted
cash at
beginning
of period 139,927 101,576
------- -------
Cash, cash
equivalents,
and
restricted
cash at
end of
period $160,380 $159,941
======== ========
RPX Corporation
Reconciliation of GAAP to Non-GAAP Net Income Per Share
(in thousands, except per share data)
(unaudited)
Three Months Ended March 31,
2018 2017
---- ----
Net income $80 $5,655
Stock-based
compensation[1] 3,868 2,875
Amortization of
acquired
intangible
assets[2] 2,172 2,348
Tax effects of
non-GAAP
exclusions[3] (1,226) (1,639)
------ ------
Non-GAAP net
income $4,894 $9,239
====== ======
Non-GAAP net income per share:
Basic $0.10 $0.19
===== =====
Diluted $0.10 $0.19
===== =====
Weighted-average shares used
in computing non-GAAP net
income per share:
Basic 49,755 48,676
====== ======
Diluted 50,267 49,305
====== ======
RPX Corporation
Reconciliation of GAAP to Non-GAAP Cost of Revenue
(in thousands)
(unaudited)
Three Months Ended March 31,
2018 2017
---- ----
Cost of revenue $42,230 $44,130
Stock-based
compensation[1] (81) (95)
Amortization of
acquired
intangible
assets[2] (523) (525)
Non-GAAP cost of
revenue $41,626 $43,510
======= =======
RPX Corporation
Reconciliation of GAAP to Non-GAAP Selling, General and Administrative Expenses
(in thousands)
(unaudited)
Three Months Ended March 31,
2018 2017
---- ----
Selling,
general
and
administrative
expenses $24,252 $21,728
Stock-
based
compensation[1] (3,787) (2,780)
Amortization
of
acquired
intangible
assets[2] (1,649) (1,823)
Non-GAAP
selling,
general
and
administrative
expenses $18,816 $17,125
======= =======
RPX Corporation
Reconciliation of GAAP to Non-GAAP Provision for Income Taxes
(in thousands)
(unaudited)
Three Months Ended March 31,
2018 2017
---- ----
Provision for
income taxes $1,421 $3,369
Tax effects of
non-GAAP
exclusions[4] 1,226 1,639
Non-GAAP
provision for
income taxes $2,647 $5,008
====== ======
RPX Corporation
Reconciliation of Net Income to Non-GAAP Adjusted EBITDA Less Net Patent Spend
(in thousands)
(unaudited)
Three Months Ended March 31,
2018 2017
---- ----
Net income $80 $5,655
Provision
for
income
taxes 1,421 3,369
Interest
and other
(income)
expense,
net (862) 533
Stock-
based
compensation[1] 3,868 2,875
Depreciation
and
amortization 32,593 35,731
------ ------
Non-GAAP
adjusted
EBITDA[4] 37,100 48,163
Net patent
spend (17,321) (27,172)
------- -------
Non-GAAP
adjusted
EBITDA
less net
patent
spend $19,779 $20,991
======= =======
RPX Corporation
Reconciliation of Cash Provided by Operating Activities to Free Cash Flow
(in thousands)
(unaudited)
Three Months Ended March 31,
2018 2017
---- ----
Net cash
provided by
operating
activities $33,167 $71,244
Purchases of
property
and
equipment (731) (362)
Acquisitions
of patent
assets (17,321) (27,421)
------- -------
Free cash
flow[6] $15,115 $43,461
======= =======
RPX Corporation
Additional Metrics
(in thousands)
(unaudited)
Three Months Ended March 31,
Operating Metrics 2018 2017
----------------- ---- ----
Gross patent spend $19,464 $62,795
Net patent spend 17,321 27,172
As of and for the Three Months
Ended March 31,
Financial Metrics 2018 2017
----------------- ---- ----
Subscription
revenue[5] $40,540 $47,046
Fee-related revenue 6,202 10,343
Discovery revenue 20,379 18,026
Total revenue $67,121 $75,415
======= =======
Cash, cash
equivalents and
short-term
investments $168,247 $226,606
Deferred revenue,
current and non-
current $89,595 $105,847
[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] 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).
[5] 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.
[6] Free cash flow is a non-GAAP
financial measure which the
Company defines as cash flow from
operating activities less capital
expenditures such as property and
equipment and patent assets.
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SOURCE RPX Corporation
