RPX Corporation (RPXC)

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RPX Corporation (RPXC)

Barclays Global Technology, Media and Telecommunications Conference Call

May 22, 2013 15:40 ET


John Amster - Chief Executive Officer

Ned Segal - Chief Financial Officer


Adam Carron - Barclays Capital

Darrin Peller - Barclays Capital


Adam Carron - Barclays Capital

Alright, good afternoon everyone. My name is Adam Carron, I work as an Associate Analyst on the IT consulting and computer services sector working for Darrin Peller over at Barclays. So with us this afternoon we have John Amster the CEO of RPX Corporation as well as Ned Segal, the newly appointed CFO. RPX is a name we’ve covered since the company was IPOed back in the spring of 2011. And for those of you who are unfamiliar with the story it’s essentially a company that helps operating companies reduce patent-related risk and exposure. So moving on to the questions, guys perhaps the best way to start this, we’d provide maybe a brief overview of your respective backgrounds and then maybe a description of RPX. And John maybe you can talk about how the company has evolved from the founding days back in 2008 to where it is now and what’s your overall vision is for the company going forward.

John Amster - Chief Executive Officer

Sure. And I’ll not give the full answer to that because otherwise Ned will kick me for using the whole 37 minutes. My background is I started as an attorney and through a variety of different things ended up working on a variety of patent-related matters, I’m not a patent attorney, I’m not an engineer, but basically worked on things that were at the intersection of patents and finance. I found myself at a firm called Intellectual Ventures which where I led the buying for three years and it was one of the first firms to raise money to go speculate on buying patents.

And so it was one of the most active buyers - patents in the market and in absorbing the market kind of put in “in 2008 timeframe there was an emerging problem of lots of companies buying patents to them - serve against operating companies”. We - the term for them of non-practicing any of the NPEs, they’re commonly referred to as patent controls, we prefer to not use that pejorative term because basically what they’re doing is they’re taking assets and they’re trying to monetize them on behalf of the owners of the assets and often they’re paying cash for the privilege to be able to do that.

When we look at that market we saw a couple of observations. One, most of the cases ended up in litigation and 100s of companies were being sued in fact it was 1000s, there just wasn’t lot of data on it. The average length of the litigation was 18 months generally you’re taking about a cost of litigation of $1 million and up with 50% of the cost going to lawyers. And the transaction cost piece of it was seemed highly inefficient especially when you’re going through 18 months of litigation you would think you’d be able to settle the case for cheaper at the beginning of the case.

The other thing we notice in that in most of the cases roughly 85% of them the NPEs that acquired the patents within a reasonably short period of time prior to bringing litigation. So there was implicit in what the NPEs are doing an arbitrage opportunity to buy the assets and then go serve them. So the idea for RPX was really quite simple, it was that if these 100s of companies, 1000s of companies that get sued by these NPEs on a regular basis paid us a reasonable amount of money we could collect, use that collective amount of money to go buy as many of these patents as we could before they ended up in the hands of NPEs.

And thereby lowering the cost dramatically because we’re taking advantage of the same arbitrage they’re trying to take advantage of. Basically that’s the vision that we started on, the idea was to charge people a subscription fee on a transparent rate that has worked almost exactly to plan. Our predictions of how that business would grow are pretty remarkably accurate over the first five years of the business, we’ve now got 146 clients paying us subscription, the average length of contract is 2.8 years and we also have been very consistent in what the vision was for expanding beyond the core service and then the main thing is we always believe to that, that the core service that we offer is really applicable to companies that get sued frequently, that get sued multiple times a year very consistently. They can buy into and we can show them an ROI on our service for the buying service, but companies that get sued once every three years companies that maybe are less than $500 million in revenue or even bigger companies that get sued once every three years they don’t need risk mitigation which is really what our core services, what they need is risk transfer or insurance.

And so even at the IPO term we talked about insurance is being one of the pillars of our business and that’s still on track in fact we have now 11 insurance policies. So since the IPO we’ve gone through all the regulatory hurdles and brought on reinsurance partners in order to be able to launch the insurance product which we’ve now done. The third pillar of the business again that was part of the story at the IPO was the fact that this trusted position that we have in the market with an expanding network of clients and the only one in the patent market that’s not suing people puts us in a very special position in the market to do things like syndicated transactions where we can organize large buyers on behalf of our clients and get paid for that. And that business continues to go in the right direction since the IPO we’ve now started charging for that and so there is being good progress on all three fronts. Four minutes not even.

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