RPX Corp. (RPXC), the patent aggregator and provider of patent risk management services run by CEO John Amster, said its second quarter net income fell 14.8% to $8 million, or 14 cents a share on higher costs and expenses.
San Francisco-based RPX’s net income compared with net income of $9.4 million, or 17 cents a share, a year ago.
Non-GAAP net income for the second quarter, which excludes stock-based compensation, the amortization of acquired intangibles, and fair value adjustments on deferred payment obligations, was $11.2 million or 20 cents a share, compared to $12.9 million or 24 cents a share, a year ago.
The company had previously estimated non-GAAP net income in the range of $9.1 million to $9.6 million.
The company had been expected to report earnings per share of 17 cents and revenue of $67.3 million, according to the average analyst estimate.
RPX said it added only 1 client in the second quarter bringing its total to 225 as of June 30, including 62 insurance policy holders. This compared with 24 new clients in the first quarter.
"It highlights the lumpiness of the business model and in the timing of adding new clients," said Tim Quillin, an analyst at Stephens Inc., who rates RPX an "overweight" and has a $18 price target. "In the context of the first half, things still look on track."
Quillin, noting the maturity of RPX's business, said the company probably can't expect to bring in too many more large clients. But it can be expected make inroads with smaller companies. For example, he said, citing RPX data, that during the second quarter more than 100 smaller companies were sued by patent trolls for the first time. He said some of them could be turned into RPX customers.
Rob Kramer, managing director of Altitude Capital Partners, who once sold a patent portfolio to RPX, in an email, echoed Quillen's take on the lumpiness of RPX's revenue, saying it often is because of "one big deal a year."
"I see no reason why that will not continue as RPX has deep relationships with its client base and has effectively orchestrated substantial consortiums," Kramer said. "Nobody else has demonstrated that they can do that."
Speaking of rivals, during a conference call with investors, Amster was asked whether RPX's business has been affected by Google Inc.'s Patent Purchase Promotion, which was announced in May and recently closed.
Google has provided little information so far on the promotion, except that it was pleased with the number of patent portfolios brought to it and that it purchased a small number of portfolios for up to $250,000 each.
Amster described the promotion as interesting, but added that RPX's business has not been affected by it.
Revenue rose 5 percent to $67.6 million from $64.3 million. Subscription revenue was the same, meaning the company produced no fee related revenue in the quarter.
The cost of revenue was $37 million in the second quarter, versus $31.5 million, a year ago, reflecting an increase in the number of large shorter term patent acquisitions, which must be amortized more quickly than longer term acquisitions.
Selling, general and administrative expenses rose to $19 million from $18.6 million.
The company took a loss of $592,000 on sale of patent assets in the quarter, versus a loss of $699,000 a year ago.
Shares of RPX gained 8 cents or 0.5% to $16.11 in trading today on the Nasdaq. They’ve traded between $11.94 and $17.31 over the past year.
The company’s net acquisition spending during the second quarter totaled $20.5 million and included 21 new acquisitions of patents in addition to the exercise of previously negotiated options to acquire licenses for new clients.
As of June 30, RPX had cash, cash equivalents and short-term investments of $381.1 million, compared with $370.6 million at the end of the first quarter.
The company said its forecast for the third quarter included subscription revenue of $67.7 million to $68.2 million, no fee related revenue, and net income of $7.8 million to $8.5 million.
For the year, RPX said it expects subscription revenue of $265 million to $275 million, fee related income of $20 million to $25 million, cost of revenue of $145 million to $150 million, selling, general and administrative expenses of $60 million to $64 million, and net income of $50 million to $54 million.
As of March 31, RPX had invested nearly $2 billion to acquire more than 10,000 U.S. and international patent assets and rights on behalf of more than 220 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.
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