VirnetX Holding Corp (VHC)·Q3 2017 Earnings Summary

Executive Summary

• Q3 2017 revenue was $0.375M and diluted EPS was $(0.06); net loss was $3.552M, with YoY revenue down sharply (Q3 2016: $1.146M) but net loss improved on lower legal expenses .
• Management’s preliminary guidance on Oct 19 projected Q3 revenue of $1.0–$1.2M and diluted loss per share of $(0.18)–$(0.20); actual revenue materially missed and loss per share was far smaller than guided, a significant surprise relative to the company’s own outlook .
• Legal catalyst: the Eastern District of Texas entered a final judgment against Apple of $439.7M (verdict, willfulness, interest, costs, attorneys’ fees); Apple filed a notice of appeal on Oct 27, 2017. This judgment is subject to appeal and remains a key stock narrative driver .
• Liquidity tightened: cash and investments were ~$4.312M at quarter end; subsequent ATM sales after quarter added ~$2.806M gross proceeds, modestly improving liquidity .

What Went Well and What Went Wrong

What Went Well

• Legal win affirmed: “We are elated with the Court’s Final Judgement of $439 million… This is the third time a jury has ruled in our favor against Apple,” said CEO Kendall Larsen, highlighting the per-device rate’s licensing relevance .
• Operating discipline: SG&A (driven by legal fees) fell meaningfully YoY; management cites an ~$8.2M nine‑month legal fee reduction and lower quarterly SG&A versus 2016, improving the net loss trajectory .
• Japan go‑to‑market structure sustained: termination of the equity Purchase Agreement was offset by amended and restated Revenue Sharing and Gabriel License Agreements to continue marketing and revenue sharing in Japan .

What Went Wrong

• Revenue miss vs company guidance: preliminary revenue expectation of $1.0–$1.2M contrasted with actual revenue of $0.375M, with no specific explanation provided, implying expected receipts or recognition did not occur before quarter close .
• Liquidity pressure: cash fell to $1.647M and investments to $2.665M, underscoring limited near‑term flexibility (working capital $1.958M) .
• PITA equity infusion did not close and was terminated, reducing anticipated capital inflow; equity raise efforts therefore shifted back to the ATM program post‑quarter .

Financial Results

Quarterly trend (Q1–Q3 2017)

Year-over-year comparison (Q3 2016 vs Q3 2017)

KPIs and Balance-Sheet Items

Segment breakdown and gross margin are not applicable; revenue derives from licensing and deferred settlement amortization per revenue recognition policy .

Guidance Changes

Management did not provide forward guidance ranges beyond the preliminary Q3 update; the variance implies expected receipts or recognition did not occur prior to quarter end. No formal revenue, margin, or tax guidance is provided for future periods in the filings .

Earnings Call Themes & Trends

No earnings call transcript was found for Q3 2017.

Management Commentary

• “We are elated with the Court’s Final Judgement of $439 million… The cost of our security technology in infringing devices has been apportioned and is less than a quarter of one percent of the device’s cost… will greatly assist us with our domestic and global licensing efforts.” — Kendall Larsen, CEO .
• Company overview emphasizes patented technology for secure communications (LTE security, secure domain name registry) and continued product enhancement and licensing efforts across OEMs and service providers .
• Liquidity and capital resources: management expects cash, investments, and potential ATM/shelf activity to be sufficient to fund current SG&A and legal costs near‑term; long‑term revenue expected to derive from license fees and royalties .

Q&A Highlights

No Q3 2017 earnings call transcript was found; no analyst Q&A highlights are available in filings [ListDocuments returned none].

Estimates Context

• Wall Street consensus (S&P Global) for Q3 2017 EPS and revenue was unavailable at the time of this analysis (data access limit). Comparisons to Street estimates cannot be provided.
• The company’s preliminary guidance (Oct 19) indicated revenue of $1.0–$1.2M and diluted loss per share of $(0.18)–$(0.20), which materially diverged from actual reported results, implying that anticipated events or receipts did not occur before quarter close .

Key Takeaways for Investors

• The $439.7M Apple judgment is the dominant stock catalyst; monitor the Federal Circuit appeal timeline and any stays or remands, as cash realization is contingent on the appellate outcome .
• Operational revenue remains small and timing‑sensitive, driven by deferred settlement amortization; expect lumpiness in quarterly reported revenue absent new license agreements .
• Liquidity is tight but supported by ATM capacity; subsequent ATM proceeds (~$2.806M) modestly extended runway amid ongoing legal expenses .
• The Japan partner structure (Amended Revenue Sharing and Gabriel License Agreements) sustains international commercialization efforts without closing the terminated equity financing; watch for tangible customer wins in Japan .
• SG&A reductions (legal fees) improved the loss trajectory YoY, but management cautions legal expenses could be similar or higher over the next two quarters given litigation intensity .
• The large variance between preliminary Q3 guidance and actual revenue underscores execution/recognition risk; treat company‑provided intra‑quarter updates cautiously absent closed transactions .
• Position sizing should reflect binary legal outcomes and funding flexibility; near‑term trading likely reacts to appellate milestones and any licensing announcements .