Please ensure Javascript is enabled for purposes of website accessibility

Discovery Pushes RPX Forward

By Dan Caplinger – May 2, 2017 at 7:02PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Growth at the company's core patent business has stalled out, but the newer discovery segment is doing well.

Often, companies have to adapt to succeed. RPX (RPXC) is currently facing a tough situation in which its subscription-based patent protection business has seen sales start to decline, but its newer discovery services business has attracted new clients and helped reignite overall growth for the company.

Coming into Tuesday's first-quarter earnings report, RPX investors expected slightly declines in year-over-year earnings and only modest revenue growth. RPX's numbers were better than most expected, but they still involve what could become a transformation for the company away from its original core mission. Let's take a closer look at RPX and what it said about its recent results and future prospects.

Courtroom from jury perspective.

Image source: Getty Images.

RPX scores a win

RPX's first-quarter results were encouraging on the whole. Revenue climbed by about 3.5% to $82.5 million, which was better than the roughly $81 million figure that most investors were expecting. RPX's bottom line was even stronger, with net income of $5.99 million climbing by more than 40% from year-ago figures. After making typical exclusions for extraordinary items, adjusted earnings came in at $0.19 per share, which was well above the $0.12 per share consensus forecast among those following the stock.

RPX is still working to expand its patent protection business. The company had net spending of $31.1 million on acquiring patents during the quarter, with 19 separate patent transactions. Gross patent spend was roughly double the net figure, at $62.8 million. The net amount was almost twice what RPX spent in the first quarter of 2016, although the numbers have been quite volatile from quarter to quarter.

Looking more closely at RPX's segments reveals some ongoing trends. Subscription-based revenue for patent protection was down 6%, but revenue from the Inventus legal discovery management provider jumped more than 70%. Discovery still makes up only about a fifth of RPX's total sales, but if the pace of growth continues, it will quickly become critically important to the company's overall growth trajectory. Yet it's also important to note that the discovery sales figure has remained relatively constant over the past couple of quarters, and that could signal an end to year-over-year growth as soon as next quarter without further business expansion.

CEO Martin Roberts reiterated the core mission that the company has. "RPX made a solid start to 2017," Roberts said, "with top and bottom line results in line with our expectations." The CEO noted that "as the nature of patent risk has evolved in recent years, we continue to develop new services to address that risk."

What's ahead for RPX?

RPX is still enthusiastic about its growth prospects. The company boasts more than 300 clients in its patent segment, with patent risk management services to more than 400 companies.

Yet RPX's immediate guidance still raises doubts. Second-quarter projections show sales of $79 million to $82 million, and adjusted net income of $5 million to $7 million implies earnings in the range of $0.10 to $0.14 per share. With investors looking for $84 million in revenue and $0.20 per share in earnings, the guidance could be disappointing.

Still, RPX kept its full-year 2017 guidance unchanged. Total sales of between $315 million and $344 million should produce adjusted net income of $31 million to $42 million, or $0.62 to $0.84 per share in earnings. Sales from discovery services of $70 million to $79 million imply an end to significant growth in the near future, which could hurt sentiment among investors looking for more growth.

RPX also announced some leadership changes. Robert Heath will move from the CFO role to become chief strategy officer, with David Anderson assuming CFO responsibilities. The move should free up Heath to spend all of his time working on strategy, which will be crucial in determining the company's path forward.

RPX investors didn't immediately react to the news, and the stock stayed in unchanged in the after-hours market following the announcement. Yet without a better-defined strategy, RPX isn't inspiring the confidence that long-term investors want to see from the innovative company.

Dan Caplinger has no position in any stocks mentioned. The Motley Fool recommends RPX. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

RPX Corporation Stock Quote
RPX Corporation
RPXC

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
351%
 
S&P 500 Returns
115%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 11/29/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.