RPX Corporation (RPXC)

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RPX Corporation (RPXC)

Q3 2012 Earnings Conference Call

October 30, 2012, 17:00 p.m. ET


Cynthia Hiponia - IR

John Amster - CEO

Adam Spiegel - CFO


Tim Quillin - Stephens, Inc.

Daniel Leben - Robert W. Baird

Brian Karimzad - Goldman Sachs

Daniel Amir - Lazard Capital Markets



Good day ladies and gentlemen and thank you for standing by. Welcome to the RPX Corporation Third Quarter 2012 Financial Earnings Conference Call. During today’s presentation all parties will be in a listen-only mode. Following the presentation, the conference will be opened for questions. (Operator Instructions) Today’s conference is being recorded today Tuesday October 30, 2012.

And I’d now like to turn the conference over to Cynthia Hiponia, Investor Relations, RPX. Please go ahead.

Cynthia Hiponia

Thank you, Britney. Good afternoon and welcome to RPX Corporation’s third quarter 2012 fiscal results conference call. Joining the call today are John Amster, CEO; and Adam Spiegel, CFO.

The agenda for today’s call includes commentary from John followed by a discussion of the financial results from Adam.

This afternoon RPX issued a press release announcing its third quarter financial results, which is available on the company’s website at 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 this conference call will contain forward-looking statements that are not historical facts, but rather are 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 the table attached to the earnings release on the website.

One final note, we may have a disruption from the building Intercom system, if this happens we will hit mute and continue the call momentarily. And now I’d like to introduce John Amster.

John Amster

Thank you for joining us on our call today. We especially appreciated given what’s going on in the East Coast and we hope everyone is okay in that regard. I’m going to start by running through some quick highlights for the quarter and then Adam will discuss our financial results in more detail.

We were pleased with our performance in Q3, revenues were up 23% from year ago to $47 million and non-GAAP net income grew $9.4 million or $0.18 per pro forma diluted share. Our net acquisition spend in the quarter was $26.4 million covering eight transactions. We also expanded our client network and continue to see a very positive renewal momentum which I will discuss in more detail in a moment.

I want to start by updating you on the key external driver of our market MPE litigation. We were operating in a multi-billion dollar market that has a large and growing patent solutions we provide. More and more companies are experiencing MPE litigation and its associated costs and risks. In Q3 for example more than 680 suits were filed against more than 770 independence. More than 80 of these companies were sued twice or more in the quarter and more than 50 of these companies are not yet our best clients. In more than 375 companies experienced MPE assertion for the first time in the third quarter.

As we said in the past these companies are not yet near-term prospects for our core service, but this naturally does provide a good sense or how the addressable market for our insurance operating and longer term market for our core service our development. The costs of dealing with this growing threat are large. Two academics who wrote the first in-depth analysis of the MPE cost study that we conducted had a total cost of MPE assertion at $29 billion last year. At RPX we look at direct cost only and we still conserve it we estimate the annual cost of MPE litigation are nearing $10 billion whichever approach you take to quantify the impact, the most significant fact to bear in mind is that the vast majority of MPE cases more than half the cost for operating companies are legal expenses. In other words this is in market with transaction cost of around 50%. It's incredibly wasteful and an ecosystem with billions of dollars being spent, it amounts to a massive tax on operating companies.

Before we begin operating our defensive patent acquisition services, there were few if any adaptive ways for companies to lower this tax. There was a clear market need and we believe the growth of our network to more than 120 companies is proved that our solution meets that need.

By aggregating capital from a large group of participants we have been able to become a large scale buyer in the market acquiring patents before they become a costly problem for our clients. We also use this aggregating capital to acquire licensing ways to patents already in litigation, thus securing dismissals for our clients and in the process saving and legal and potential settlement costs.

From inception through the end of Q3, RPX has deployed more than $0.5 billion including client contributions to purchase patent assets. For our clients that is translated into very tangible risk production. More than 270 dismissals from litigation and hundreds of other litigations that we believe were prevented from ever occurring.

Read the rest of this transcript for free on seekingalpha.com