VirnetX Holding Corp. (AMEX: VHC) $260M (MarketCap) Gets $200M

VirnetX Holdings, a development stage company focused on commercializing a patent portfolio for providing solutions to secure real-time communications such as instant messaging, or "IM," and voice over internet protocol, or "VoIP." To date, the company's principle focus has been to derive revenue from their commercialized patent portfolio and developing certain patents into marketable products. While the company does generate meager revenues, developmental stage operations are prone to some major disruptions that include all kinds of shareholder value-crushing expenditures like cash raising and defeating operating costs, and VirnetX is no exception to those uncertainties.


 
However, the company has an ace up its sleeve their competitors do not – a patent infringement settlement from Microsoft Corp. worth $200M in cash. In the original 2007 filing, VirnetX sued for patent infringement concerning two patents, "Agile Network Protocol for Secure Communication with Assured System Availability", and "Method for Establishing Secure Communication Link between Computers of Virtual Private Network", resulting in the jury finding Microsoft's infringement was just and willful and awarded $105,750,000. It was found that Microsoft infringed with the release of the Windows and Office Communications Server products. The next day, March 17th, 2010, VirnetX brought about another lawsuit alleging the same patents being infringed upon, but this time by Microsoft's Windows 7 and Windows Server 2008 R2 software products.



 
Only two months later to the day, on May 17th, 2010, VirnetX announced they had reached a settlement with Microsoft to dismiss the patent suit for $200 million in cash by Microsoft taking a license to the company's patent. The settlement not only shows VirnetX ability to successfully prove its case before the courts but levies new credibility on the quality and need for the company's product, the Secure Domain Name Initiative. If the technology is good enough for Microsoft to sell, it must be powerful. Microsoft was relieved to put the suit behind them and eager to make the one-time payment (according to Greg Wood, the Corporate Director of Communications said the payment has in fact been made when I spoke to him today).



 
So what's a small cap company with $4.5M in cash on its books at the end of the first quarter March 31st, 2010 to do? First things first, the company announced: pay a handsome dividend to shareholders.



 
For shareholders on record as of July 1st, 2010, the board of directors approved a one-time cash dividend of $.50 per share payable on July 15th, 2010, an approximately 12% dividend yield to the intraday price of $6.40 per share. With about 44M shares outstanding as of the end of the first quarter, that dividend payment should cost the company about $22M. 


 
I wanted to know what the plan was for the rest of the money, roughly $178M, but the company cited legal obligations for not disclosing that kind of information. But with only about $4M in operating expenses and $.5M in research and development spent for the first quarter of 2010, I suspect VirnetX has a lot of options, a luxury other competitors and other startups can only dream of having.
 

 

 

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Disclosure: no positions

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