RPX Corporation Investor Presentation
Q1 2014
John Amster, Chief Executive Officer and Co-founder
Ned Segal, Chief Financial Officer
© RPX CORPORATION 2013
DO NOT COPY, DISTRIBUTE, BROADCAST OR INCORPORATE THESE MATERIALS
WITHOUT THE EXPRESS WRITTEN CONSENT OF RPX CORPORATION
Safe Harbor
The following presentation contains forward-looking statements, including statements regarding our
future financial performance and business strategy, our plans and objectives for future operations,
and our expectations regarding the future growth of a market for patents.
These forward-looking statements are subject to risks and uncertainties that could cause our actual
results to differ materially from those reflected in the forward-looking statements. Many of the
factors that could cause or contribute to such differences are described in the “Risk Factors” section
of our most recent report on Form 10-K filed with the SEC, including:
- the market for our solution is immature,
- we may experience significant quarterly fluctuations in our operating results,
- new legislation, regulations or court rulings related to enforcing patents could reduce the value
of our service to clients or potential clients, and
- we may not be able to compete effectively against others to attract new clients or acquire
patent assets.
In light of these risks and uncertainties, the forward-looking statements contained in this
presentation may not occur, and actual results could differ materially and adversely from those
anticipated or implied in the forward-looking statements. We do not intend, and undertake no duty,
to update any forward-looking statements to reflect future events or circumstances.
© RPX CORPORATION 2013. ALL RIGHTS RESERVED
2
Leader in Patent Risk Management
Large, underserved market
Unique approach
Proven solution for operating companies and patent owners
Clear alignment with client interests
● $750+ million spent to acquire patents and patent rights
Predictable subscription-based model
Strong operating momentum
● 168 clients (at 12/31/2013)
● Q4’13 revenue: $60.3 million, free cash flow: $10.8 million
Multiple avenues for growth
Experienced team
© RPX CORPORATION 2013. ALL RIGHTS RESERVED
3
Global Network of 168 Clients
Representative List
AVG
Cisco
IAC/InterActiveCorp
Oracle
Sony
Acer
Citrix
Intel
Pandora
Sophos
Adobe
Cloudera
IBM
Palo Alto Networks
Symantec
AOL
Crate & Barrel
Jawbone
Pioneer
TSMC
AU Optronics
Dell
Juniper Networks
Polycom
Target
Avaya
DIRECTV
LG Electronics
Red Hat
TiVo
Barnes & Noble
EarthLink
LinkedIn
Samsung Electronics
Toshiba
Best Buy
eBay
Microsoft
Seiko Epson
TradeKing
Broadcom
F5 Networks
Nanya Technology
Sharp
UMC
Brocade
Fujitsu
NEC
ShoreTel
Verizon
Canon
Google
Nikon
Shutterfly
Vonage
Cavium
HP
Novell
Sierra Wireless
Walgreens
CBS Interactive
HTC
Olympus
SK hynix
ZTE
Chegg
Huawei
ON Semiconductor
Sonus Networks
Zynga
Note: RPX is not permitted to disclose certain clients; as of December 31, 2013
© RPX CORPORATION 2013. ALL RIGHTS RESERVED
4
NPE Problem Affects Thousands of Operating
Companies
Unique Defendants
NPE Suits Filed
3608
2905
3042
2570
1547
589
622
640
744
2007
2008
2009
2010
2011
2012
2013
1493
1635
1536
2007
2008
2009
2010
2457
2011
2012
2670
2013
Source: RPX Research and PACER
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5
Growing Cost of NPE Litigation
Total Costs Almost $11 Billion in 2012
$10.9B
$10.1B
$7.6B
$6.0B
$5.3B
2008
2009
2010
Settlements
2011
2012
Defense Costs
Source: RPX Research
Note: Costs above are estimates of what was spent by all defendants in a given year. Settlements have only been allocated into the actual
year of settlement
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6
Perception: Patents Are a “Special” Class of Asset
Only lawyers can evaluate
Transaction data sparse and difficult to assess
Every patent is unique
Litigation lottery ticket
Patents are infinitely divisible
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NPE Strategy
Divide and Conquer
NPEs
Operating Companies
Patent Market
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Reality: Patents Can Be Valued Like Any Asset
Residential Real Estate
Attributes of the property
● # of Bedrooms, square footage, age of
structure, view, etc.
Key value drivers
● Neighborhood, schools, curb appeal, etc.
Property history
● Prior transactions, improvements, etc.
Similar properties
● Size, neighborhood, features, etc.
Transaction costs
● Brokerage fees, closing costs, etc.
Comparable transactions
● Transactions on better/worse properties
Patents
Attributes of the patent (on its face)
● # of Claims, # of forward/backward citations,
class codes, etc.
Portfolio value drivers
● Addressable market, strategic buyers, etc.
Patent history
● Prosecution/litigation history, encumbrances
Related patents
● Cited patents, semantically related patents
Patent transaction costs
● Litigation costs, brokerage costs, etc.
Comparable transactions
● Transactions of similar portfolios
● Licensing fees
● Settlements
© RPX CORPORATION 2013. ALL RIGHTS RESERVED
9
RPX Solution
Aggregate and Protect
NPEs
Operating Companies
• Defensive patent acquisition
• Annual subscription
• Market intelligence
- $85K-$7M+/year
• Patent strategy
- Multi-year contracts
Patent Market
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RPX Solution
Trusted Market Intermediary
NPEs
Operating Companies
$750+ million spent on patent acquisition
• Open market buying
• Litigation acquisitions
• Syndicated/structured
opportunities
- 24 transactions to date
Patent Market
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Open Market Acquisitions
Avoid Risk and Cost
PACid Patent Portfolio
2008:
Missed Opportunity
$2.5M
Open Market Price
2009 – 2011:
Costly Litigation
$58M1
$20M1
Legal Expense
Settlements
● Four patents
● Six infringement suits
● No acceptable offers
● 117 defendants
- Microsoft
- LG
- Samsung
- Apple
- Sony
- Cisco
● PACid hires contingency
counsel
1Estimates based on publicly disclosed and confidential information for patent suits filed by PACid Group against 117 defendants in 2008 and
2009; average of $0.5 million of legal costs per defendant
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Litigation Acquisitions
Limit Risk and Cost
Settlement Costs
Cost
Legal Costs
• Acquire rights early in litigation
$$$
• Release members from liability
• Minimize costs
$
Time
Open Market
NPE Litigation
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Compelling Client Savings
Case Categories
Nuisance
$
Quick to Settle
Credible
Sophisticated
Will Fight Some
In for Long Haul
Legal Fees:
$50,000 - 500,000
$500,000 - 1 million
$1 million+
Settlement:
$50,000 - 250,000
$500,000+
$10 million+
Financial Risk:
$100,000 - 750,000+
$1 million+
$10 million+
$$$
Client Example
RPX Acquisitions
Financial Risk*
x Probability of Assertion = Avoided Risk
Client Total Savings
Avoided Risk
$3,150,000
$1,125,000
Membership Fee
$1,750,000
$1,600,000
Total Savings
$1,400,000
Portfolio A
$850,000
50%
$425,000
Portfolio B
$1,500,000
75%
Portfolio C
$1,600,000
100%
$3,150,000
*Legal fees + likely settlement fees
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RPX Has Access and Understanding of Unique Data
Public and proprietary data sources
Industry and client relationships
● 168 member network
● Patent broker and NPE relationships
Core business
● Patent buying
● Advisory and market intelligence
Insurance
● Applications
● Underwriting
● Claims management
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Data Is a Competitive Advantage for RPX
Improved value prop
Better underwriting
More clients
More data
More market interaction
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Expanding the Addressable Market
Large opportunity set remains in sweet spot
Data allows us to approach more prospects
Insurance helps attack the long tail
Fee-related opportunities within core
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Syndicated Acquisitions
Risk Management
Portfolios with significant risk and cost
Coordinate multi-client syndications
Align companies with shared risk
Leverage collective buying power
Increase ability to clear high-value patents
Established track record
24 syndicated acquisitions with $800 million in transactions
© RPX CORPORATION 2013. ALL RIGHTS RESERVED
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RPX Insurance Solution
Risk Transfer
Large, underserved, newly-forming market
Leverages core service
Converts RPX data into actuarial model
insurance offering
Risk transfer and advisory solution
Rigorous control of risk
Typically $150k - $250k per policy holder
● 25 policy holders as of December 31, 2013
© RPX CORPORATION 2013. ALL RIGHTS RESERVED
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Growth Strategy
Expand client network
● Hundreds of prospects
● TAM: 2,500+ companies
Fee-related opportunities
● Syndicated transactions
Insurance business
● Validate, scale, evolve
● 1,200 prospects in outreach
Strengthen/lengthen existing relationships
● Continued focus on renewals
● Client Portal and unique data drives stickiness
© RPX CORPORATION 2013. ALL RIGHTS RESERVED
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Financial Overview
Financial Highlights
FY2013 revenue: $237.5M in fifth full year
Growth
4Q13 revenue: $60.3M
Clients: 168
~10% of open market patent buying activity
Scale
$290.7 million cash & investments
$750+ million invested in 160+ transactions
Subscription/deferred revenue model
Predictable
Revenue
Multi-year customer contracts
90%+ renewal rate
As of December 31, 2013
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Core Business Model
Subscription model
● Pricing based on rate card in effect at time of membership
● Fees generally paid annually in advance
● Revenue recognized ratably over membership year
● Multi-year contracts – 2.6 year average term
Cost of revenues
● Principal component: amortization of acquired patent assets
● Useful life based upon expected cash flows, not life of patents
● Life estimated for each asset, generally ranges from 24 to 60 months, average of 47
months since inception
Acquisition metrics
● Net: RPX investment per balance sheet
● Gross: includes clients’ syndicated contributions
As of December 31, 2013
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Consistent Revenue Growth
Annual
Quarterly
($ in millions)
($ in millions)
Total Revenue
Total Revenue
$61.2
$237.5
$57.5 $58.6
$55.2
$197.7
$51.6
$224.7
$47.0
$42.4
$185.6
$43.8
$54.0
$55.0
$57.8
$60.3
$57.9
$48.9
$45.8
$38.9 $38.4
$154.0
$34.4
$150.7
$35.6
$94.9
$94.1
2010
Net
Clients
Added
49
2011
40
2012
28
Q1'11 Q2'11 Q3'11 Q4'11 Q1'12 Q2'12 Q3'12 Q4'12 Q1'13 Q2'13 Q3'13 Q4'13
2013
28
Net
Clients
Added
9
Subscription revenue
15
7
9
4
4
8
12
6
11
3
8
Fee-related revenue
© RPX CORPORATION 2013. ALL RIGHTS RESERVED
24
Profitable Growth – Net Income
Annual
Quarterly
($ in millions)
($ in millions)
$17.5
$52.7
$15.4
$14.0
$47.1
$12.3
$11.3
$37.1
$10.0
$9.1
$9.0
$11.4
$9.4
$9.7
$7.7
$15.0
2010
2011
2012
2013
Q1'11 Q2'11 Q3'11 Q4'11 Q1'12 Q2'12 Q3'12 Q4'12 Q1'13 Q2'13 Q3'13 Q4'13
Note: Non-GAAP net income excludes stock-based compensation, the amortization of acquired intangibles and in Q4 2011, a payment in
lieu of a contingent obligation, net of tax effect
© RPX CORPORATION 2013. ALL RIGHTS RESERVED
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Profitable Growth – Free Cash Flow
Annual
Quarterly
($ in millions)
($ in millions)
Reflects collection of
$33.8 receivable in
Q1’13 from Q4’12
$80.3
$82.5
$47.5
$21.3
$20.0
$17.2
($8.8)
($25.6)
2010
2011
$18.8
$12.6
2012
($15.3)
$10.8
($16.0)
($10.5) ($11.7)
($27.5)
2013
Q1'11 Q2'11 Q3'11 Q4'11 Q1'12 Q2'12 Q3'12 Q4'12 Q1'13 Q2'13 Q3'13 Q4'13
Free cash flow is defined as operating cash flow minus capital expenditures (i.e. purchases of intangible assets, property and equipment,
patent assets and patent assets acquired in a business combination). Q2 2012 and FY 2012 take into account $27.9 million of patent
assets acquired in the Digitude transaction.
© RPX CORPORATION 2013. ALL RIGHTS RESERVED
26
Q4 2013 Key Performance Metrics
(in millions, except per share data)
Revenue
$61.2
$51.6
$57.5 $58.6
Subscription Revenue
$60.3
$57.8
$54.0
$57.9
$55.0
$29.7
$48.9
Q4
2012
Q1
2013
Q2
2013
Q3
2013
Q4
2013
SG&A[1]
$10.5
Q4
2012
[1] Cost
$10.4 $10.8
Q1
2013
Q2
2013
$11.3
Q4
2012
Q1
2013
Q2
2013
Q3
2013
Q4
2013
$21.8
$23.6
$24.6
Q4
2012
Q1
2013
Q2
2013
Operating Margin[1]
Q4
2013
Q3
2013
$32.6
Q4
2013
Net Income[1]
$17.5
$12.3
44%
37%
Q3
2013
Cost of Revenue[1]
Q4
2012
38%
30%
Q1
2013
Q2
2013
Q3
2013
$14.0
$12.3
$11.4
26%
Q4
2013
Q4
2012
Q1
2013
Q2
2013
Q3
2013
$9.7
Q4
2013
of Revenue, SG&A, Operating Margin and Net Income are non-GAAP performance metrics
© RPX CORPORATION 2013. ALL RIGHTS RESERVED
27
Recent Results
Total revenue:
Q4 2013
$60.3 million
FY 2013
$237.5 million
Subscription revenue:
$57.9 million
$224.7 million
Net patent spend:
$40.4 million
$126.5 million
Net income:
$9.7 million
$52.7 million
Free cash flow:
$10.8 million
$82.5 million
Q1 2014
FY 2014
$60.8 - $61.3
$246.0 - $258.0
Other revenue
$1.1
$8.0 - $10.0
Total revenue
$61.9 - $62.4
$254.0 - $268.0
Cost of revenue
--
$120.0 - $124.0
SG&A
--
$51.0 - $55.0
$11.8 - $12.4
$53.0 - $57.0
Effective tax rate
36%
36%
Pro forma WA diluted shares
54.3
54.6
--
$135.0
Subscription revenue
Current
Guidance
Net income
Net acquisition spend
Note: All amounts are non-GAAP unless otherwise noted
© RPX CORPORATION 2013. ALL RIGHTS RESERVED
28
The RPX Opportunity
Large, underserved market
Unique approach
Proven market-based solution to a rapidly growing problem
Clear alignment with client interests
Predictable subscription-based model
Strong operating momentum
Multiple avenues for growth
© RPX CORPORATION 2013. ALL RIGHTS RESERVED
29
Thank You