RPX Corp. (RPXC), the patent aggregator and provider of litigation risk management services run by CEO John Amster, posted a 27.6% drop in net income in the third quarter of 2015 on an increase in smaller-sized clients and higher than expected cost of revenue.
San Francisco-based RPX said its third quarter net income rose to $7.8 million, or 14 cents a share, from $10.8 million or 20 cents a share a year ago.
Non-GAAP net income, which excludes stock-based compensation, the amortization of acquired intangibles, and fair value adjustments on deferred payment obligations, was $10.65 million, or 19 cents a share, compared with $14.28 million, or 26 cents a share a year ago.
The non-GAAP numbers compared with the average analyst estimate of 15 cents. The average estimate for fourth quarter earnings per share is 22 cents and for the year 95 cents. The average estimate for 2016 is $1.01.
Subscription revenue rose 8.8% to $68.2 million from $62.7 million.
The company previously forecasted 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.
The average analyst estimate of subscription revenue was $68.13 million. Analysts are expecting $73.23 million in the fourth quarter, $292.1 million for the year and $306 million for 2016.
For the fourth quarter, RPX said it expects subscription revenue of $67.4 million to $68 million, no fee income, net income of $7.3 million to $8.5 million.
RPX said it has 245 clients as of Sept. 30, including 77 insurance policy holders, up from 225 clients, including 62 insurance policy holders, in the second quarter.
Amster said during a conference call with analysts and investors that the company "experienced a client loss and renewed some others at a lower rate."
"The subscription revenue guidance for the fourth quarter was a little light," said Tim Quillin, an analyst at Stephen Inc., who rates RPX "overweight."
"They added quite a few clients in the third quarter though they appeared to be on the smaller side," he said.
The cost of revenue was $37.64 million in the third quarter, versus $30.4 million, a year ago.
The higher cost of revenue, which is based on amortization of patents and can vary quarter to quarter, is less of a concern than the lower fourth quarter subscription revenue guidance, Quillin said.
Selling, general and administrative expenses rose to $18.77 million from $17.79 million.
The company broke even on the sale of patent assets in the quarter, versus a loss of $8,000 a year ago.
Shares of RPX fell 13 cents to $15.13 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 third quarter totaled $36.2 million and included 22 new acquisitions of patents in addition to the exercise of previously negotiated options to acquire licenses for new clients.
As of Sept. 30, RPX had cash, cash equivalents and short-term investments of $368 million, compared with $381.1 million at the end of the second quarter.
For the year, RPX said it expects subscription revenue of $269.4 million to $270 million, fee related income of $17.1 million, cost of revenue of $149.5 million to $150.5 million, selling, general and administrative expenses of $57 million to $58 million, and net income of $50.4 million to $51.4 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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