RPX Corporation (RPXC)

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RPX Corporation (RPXC)

Q1 2013 Earnings Conference Call

April 30, 2013 5:00 PM ET


Joann Horne – IR

John Amster – CEO and Co-Founder

Ned Segal – CFO


Tim Quillin – Stephens, Inc.

Daniel Amir – Lazard Capital Markets

Jeff Meuler – Robert W. Baird

Eric Ghernati – Bank of America Merrill Lynch



Good day ladies and gentlemen and welcome to the RPX Corporation’s First Quarter 2013 Earnings Conference Call. At this time, all parties are in a listen-only mode. Following today’s presentation, the conference will be opened for questions. (Operator Instructions) As a reminder this conference is being recorded today April 30, 2013.

I would now like to turn the conference over to Joann Horne with Investor Relations. Please go ahead ma’am.

Joann Horne

Thank you, operator and good afternoon everyone and welcome to RPX Corporation’s first quarter 2013 financial results conference call. Joining the call today are John Amster, Chief Executive Officer; and Ned Segal, Chief Financial Officer.

The agenda for today’s call includes commentary from John followed by a discussion of the financial results from Ned and then Q&A

This afternoon RPX issued a press release announcing its first quarter 2013 financial results, which is available on the company’s website at www.rpxcorp.com. This call is being broadcast live over the Internet and the audio of this call will be available on the Investor Relations page of the company’s website.

I’d like to remind everyone that the conference call will contain forward-looking statements that are not historical facts, but are rather based on the company’s current expectations and beliefs. RPX’s actual results may differ materially from these forward-looking statements. Please refer to the company’s SEC filings for detailed information.

In addition, non-GAAP financial measures may be discussed during this call. Reconciliations to the most directly comparable GAAP financial measures are included in a table attached to the earnings release on the website.

Now I’d like to turn the call over to John Amster. John?

John Amster

Thanks Joann. Hello, thanks for joining us today. I want to start by welcoming our new CFO, Ned Segal. Ned has been on board essentially for less than a week now, but he is fully engaged and we both look forward to your questions at the end of the call.

The first quarter was a solid start to 2013 for RPX with revenue up 40% and non-GAAP net income up 76% year-to-year. We added a net of six clients to the RPX network, continue to execute on pipeline development and renewals and continue to reinforce our position as one of the patent markets’ leading acquirers and syndicators.

As we noted in past calls, the nature of our client prospects and their experiences with patent risk means that our sales cycle will vary from quarter-to-quarter. With the growing frequency in cost of patent risk means that our services are increasingly valuable for a broad group of companies.

I want to spend a moment describing this addressable market in terms of the frequency of cases and the number of total companies affected. Since the beginning of 2010, there have been 6200 unique companies that are been sued by an NPE, 450 of those 6200 companies have been sued five times or more since 2010.

In Q1 of this year alone, there were 852 NPE lawsuits against 807 unique company defendants, 747 of which are still prospective clients of RPX. Of these prospects, 97 were sued more than once last quarter alone. When you consider these numbers and the scale of the problem, it isn’t hard to see how NPE litigation represented nearly $11 billion in total cost to operating companies in 2012.

This we’ve shown that these companies are going to see more not less NPE litigation, again the nature and timing of how these companies experience patent risk to make our sales cycle variable in the short-term. But we noticed patent risk continues to rise and we believe we have proven that our network is the single most effective way for companies to reduce these costs.

Given the breadth of companies affected and the growing frequency and cost they are facing, you can understand our confidence in RPX’s long-term prospects for renewals and the continued growth of our network.

With that in mind, let me share some highlights from the first quarter before handing it over to Ned for a bit more detail. Revenue for the first quarter of 2013 totaled $61.2 million, up 40% from the prior year period.

Non-GAAP net income for the first quarter of 2013 was $17.5 million or $0.33 per pro forma diluted share. Net acquisition spend during the quarter totaled $29.4 million and included eleven new acquisitions of patent assets.

We ended the quarter with 146 clients, of note, you might remember that I mentioned on the last call that getting an anchored tenant in a new vertical can be a catalyst for further progress in that vertical. Our expectation is that this process may take longer than it did in our first two or three years of operation.

In fact, we saw evidence of this in the first quarter, after signing a strong anchored tenant in media and content distribution in Q2 of last year, this past quarter, we began to expand our presence in that vertical with two new clients. Last quarter, we think we began this process in another new vertical landing an important new client in financial services.

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