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Wireless Equipment

VirnetX Holding Corporation

Outperform (1)

July 6, 2011

Analysts

Increasing VirnetX Valuation Post Nortel Patent Auction

Conclusion: We are raising our valuation of VHC on the heels of last week's Nortel patent auction. Our new DCF values the patents VHC holds - which the company deems essential to the LTE Advanced, Release 10 Series 33 spec - at $2.8B midpoint, up from our previous $1.8B midpoint valuation. Our meetings with management last week again highlighted the need for OEMs to own IPR in the major wireless standards, an effect on full display given the stunning $4.5B paid for Nortel's patents on 7/1. We expect VHC shares to appreciate 50% relative to the market over the next 12 months - despite another 52-week high yesterday - as the company's opportunities in the LTE standards bodies and OEM licensing take hold.

Matthew Hoffman (617) 946-3936 [email protected] Bryan Prohm (617) 946-3733 [email protected]

Increasing VHC Valuation. We continue to believe VHC's patent position in the emerging 4G LTE Advanced standard remains underappreciated by investors. We are increasing our estimated value of VHC's patents to $2.4$3.2B (midpoint $2.8B), up from the $1.8B midpoint in our 5/27 initiation note. We arrive at the new figure by 1) reducing the higher than average equity risk premium we used in our original DCF and 2) increasing our terminal multiple as the scarcity value of (declared) essential LTE patents increases and the number of related acquisition targets decreases. Management Meetings Highlight LTE IPR. On 6/30 we traveled with VHC management to visit with investors. Though the company said nothing new, the VHC story remains little-known. The SAIC spin-out holds IPR the company has declared essential to the LTE Advanced, Series 10 - Release 33 specification. As security is pushed to 4G LTE devices via VPN - bringing security to the mobile device itself, not just the application or network VHC believes its patents relating to auto VPN lookup and connection will be infringed by OEMs (if not otherwise licensed). VirnetX continues to stress it is not an NPE - the inventors of its key patents remain with the company and VHC continues to innovate and receive new patent awards.

2010 Actual 0.0 0.0 0.0 0.0 0.1 -- 2011E Prior Current -- 0.0A -- 0.0 -- 0.0 -- 0.9 -- 1.0 -- -- 2012E Prior Current -- 2.2 -- 2.8 -- 4.2 -- 5.5 -- 14.6 -- -- 2013E Current 9.7 12.4 21.1 26.2 69.4 -- 2014E Current 36.1 43.3 49.4 56.0 184.8 --

VHC (07/05) Mkt cap Dil shares out Avg daily vol 52-wk range Dividend Dividend yield BV/sh Net cash/sh Debt/cap ROIC (LTM) 5-yr fwd EPS growth (Norm)

$32.64 $1.8B 55.3MM 1,346.4K $5.4-32.7 Nil Nil $1.18 $1.35 NA NA NA

FY Dec Q1 Q2 Q3 Q4 Year EV/S

Revenue $MM

EPS* $

FY Dec Q1 Q2 Q3 Q4 Year P/E

*

S&P 500

1337.9

2010 Actual (0.22) 1.66 (0.49) (0.06) 0.84 --

2011E Prior Current -- (0.14)A -- (0.08) -- (0.06) -- (0.04) -- (0.32) -- --

2012E Prior Current -- (0.02) -- (0.02) -- (0.01) -- 0.00 -- (0.05) -- --

2013E Current 0.05 0.07 0.13 0.16 0.40 81.6x

2014E Current 0.24 0.30 0.34 0.37 1.25 26.1x

GAAP EPS, diluted

Please see addendum of this report for important disclosures.

www.cowen.com

[email protected] Sharon Coyne 07/06/11 12:31:48 PM Reuters - Knowledge Sales Specialists Employee ID's ONLY

VirnetX Holding Corporation

Stunning Price Paid for Nortel Patent Portfolio On 7/1/11 BMO Nortel Networks announced the "successful auction of all of Nortel's remaining patents and patent applications". The winning consortium - comprised of Apple, EMC, Ericsson, Microsoft, RIM and Sony ­ bid US$4.5B in cash. Per Nortel's 7/1/11 press release, the sale "includes more than 6,000 patents and patent applications spanning wireless, wireless 4G (LTE), data networking, optical, voice, internet, service provider, semiconductors and other patents". The sale should close in C3Q11 but remains subject to U.S. and Canadian bankruptcy court approvals. Nortel Sale Highlights Value of Essential Patents The 5X premium paid for Nortel's remaining patents and patent applications by the winning consortium (versus Google's original 5/2/11 $900MM stalking horse agreement) suggests the value of 4G LTE intellectual property and patents has appreciated significantly. We believe the $4.5B value of the Nortel patent portfolio was directly attributable to 1) the widespread belief that several of the ex-Nortel Networks patents are either "essential" to the current 4G LTE standard or applicable to future LTE standards (e.g. Nortel held many OFDM patents) and 2) a number of key bidders* (see below) lacked a significant 4G LTE IPR position pre-auction. Once complete, the Nortel sale should help Apple, Microsoft, RIMM and Sony move into the "pool" of 4G LTE cross-licensing players. Google remains notably weak in LTE IPR.

Cowen Estimate of Key 4G LTE IPR Holders ­ Pre-Nortel Consortium Impact

Others ZTE Samsung Ericsson

Limited LTE IPR: Apple * Microsoft *

LG

Qualcomm

Google * Intel

Huawei Nokia/NSN DCM ALU

Cisco LTE Operators

VHC IDCC

PC OEMs Japanese OEMs

Source: Cowen and Company

OEMs with patents applicable to a standard (called "essential") can cross-license with other IPR holders in that standard's patent pool. Cross-licensing IPR gives essential IPR holders a cost advantage over those without IPR because 1) OEMs with weak IPR in a given standard have to pay a percentage of a product's value (often 1-2%, up to 15% in LTE, we believe) to essential IPR holders, while 2) essential IPR holders simply pay each other (largely negating the effect). We believe the value of 4G LTE IPR (i.e. monetary payments made to license or cross-license IPR) should be larger than 3G because 1) the 4G LTE market will include both the CDMA (3GPP2) and GSM/W-CDMA (3GPP) families, 2) 4G LTE IPR is more widely distributed across industry OEMs in comparison to previous standards, and 3) device patent stacking will be greater in

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July 6, 2011

[email protected] Sharon Coyne 07/06/11 12:31:48 PM Reuters - Knowledge Sales Specialists Employee ID's ONLY

VirnetX Holding Corporation

4G LTE versus previous standards, in part because of the fragmentation created by the effects of #1 and #2 (note: we believe Google bid for Nortel's patents in order to reduce Android device patent stacking). Re-Cap: VHC's Valuable 4G LTE Patents On 4/28/11 VirnetX announced it had agreed to update its original (12/09) European Telecommunications Standards Institute (ETSI) licensing declaration. The April 2011 announcement stated that in response to feedback VHC received on its 3/15/11 Statement of Patent Holder document, VirnetX would begin to make available nonexclusive patent licenses to its IPR to interested companies under FRAND terms (fair, reasonable and non-discriminatory terms and conditions, with compensation). In that statement, VirnetX identified a group of its patents and patent applications the company believed would be (or may become) essential to the 3GPP LTE, SAE project Series 33 specification being developed for Release 10. VirnetX has indicated OEMs (mostly 3GPP members) making equipment tied to LTE Release 10 will likely need to license its patents to develop and ship equipment built to the specification. According to the company, the specification as currently constructed pushes VPN level security to the device, beyond the application-byapplication level where security exists today. The company believes the quality of its portfolio around automated (zero or one click, no password entered) VPN setup ­ is unrivaled and virtually impossible to work around. Auto-lookup secure DNS will make all applications on the device, from video chat to movie recording to VoIP, more secure and easier to use. Please see our 5/27/11 initiation for more details. Increasing VHC Valuation In our 5/27 initiation we estimated the value of VHC's patents - those the company has deemed essential to the LTE Advanced standard (Release 10, Series 33) - at $1.62.0B. However, we now believe the much higher than expected winning bid for Nortel's patent (5X the original bid) significantly increases the market value of IPR essential to the 4G LTE standard; we are increasing our estimated valuation of VHC's patent portfolio to $2.4-$3.2B ($2.8B midpoint) as a result.

VHC's Long-Term LTE Licensing Stream Opportunity Could Be Significant

LTE Market Total Revenue C14E: ~$38B VHC C14 Royalty Revenue of ~$175MM

LTE IPR C14E: ~$5.5B

Source: Cowen and Company

July 6, 2011

3

[email protected] Sharon Coyne 07/06/11 12:31:48 PM Reuters - Knowledge Sales Specialists Employee ID's ONLY

VirnetX Holding Corporation

VHC DCF Details Our DCF (see below) shows the aggregate 2012-2021 LTE market should be ~$625B (with market size peaking outside of that window). We continue to believe VHC could receive a >1.0% royalty from the overall LTE equipment market long-term, though the company's effective royalty rate in C14 is slightly lower in our model to account for the (likely) slow pace of licensee sign-up and accounting for early incentive discounting.

Cowen's (Condensed) VirnetX DCF Model

Market revenue Effective Royalty Rate Royalty Revenue FCF margin FCF on royalty revenue Taxed @ 30% Discount rate - Today 2012 $6,708 0.2% $13 90% $12 $8 $8 2013 $17,829 0.4% $65 90% $58 $41 $34 2014 $32,108 0.6% $177 90% $159 $111 $84 2015 $38,058 0.6% $228 90% $206 $144 $98 2016 $49,476 0.7% $346 90% $312 $218 $135 2017 $64,319 0.8% $515 90% $463 $324 $183 2018 $83,614 0.9% $753 90% $677 $474 $243 2019 $96,157 1.0% $962 90% $865 $606 $283 2020 $110,580 1.1% $1,216 90% $1,095 $766 $325 2021 $127,167 1.1% $1,399 90% $1,259 $881 $1,359

Source: Cowen and Company

Our new $2.4-3.2 ($2.8B midpoint) valuation in our DCF model is driven by: 1) a reduction of the WACC in our 10-year DCF to 10% (from 13% previously) and 2) an increase in our terminal multiple from 1 to 3. The changes reflect our view postNortel that VHC's assumed equity risk premium should be more in line with the market and the greater value OEMs are placing on 4G LTE IPR (respectively).

Cowen's VHC WACC Worksheet

WACC CALCULATION Risk-free rate (10-Year T-Bond), Rf Required Equity Mkt. Return, Rm Equity Risk Premium, (Rm-Rf) Beta, B Cost of Equity, Ke = Rf + B x (Rm-Rf) Avg. Cost of Debt Capital, Pre-tax, D Tax Rate, t Cost of Debt, After Tax, Kd = D x (1-t) Debt/Total Capital Share Price (7/05/11) Shares Outstanding (Diluted, MM) MV of Equity Long Term Debt Enterprise Value Debt/Enterprise Value Equity/Total Capital WACC

Source: Cowen and Company

5.0% 10.0% 5.0% 1.00 10.0% 6.5% 30.0% 4.6% 0.0% $32.64 55.3 1,804 1,804 0.0% 100.0% 10.0%

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July 6, 2011

[email protected] Sharon Coyne 07/06/11 12:31:48 PM Reuters - Knowledge Sales Specialists Employee ID's ONLY

VirnetX Holding Corporation

Cowen VHC Estimates versus Consensus

FY11 In USD Revenue ($MM) Patent & Licensing ($MM) EPS Cowen $1.0 $1.0 -$0.32

Source: Thomson, Cowen and Company

FY12 Cowen $14.6 $13.4 -$0.05 Cons. n/a n/a n/a

FY13 Cowen $69.4 $64.6 $0.40 Cons. n/a n/a n/a

Cons. $13.0 n/a -$0.27

Conclusion We are raising our valuation of VHC on the heels of last week's Nortel patent auction. Our new DCF values the patents VHC holds - which the company deems essential to the LTE Advanced, Release 10 Series 33 spec - at $2.8B midpoint, up from our previous $1.8B midpoint valuation. Our meetings with management last week again highlighted the need for OEMs to own IPR in the major wireless standards, an effect on full display given the stunning $4.5B paid for Nortel's patents on 7/1. We expect VHC shares to appreciate 50% relative to the market over the next 12 months despite another 52-week high yesterday - as the company's opportunities in the LTE standards bodies and OEM licensing take hold.

July 6, 2011

5

[email protected] Sharon Coyne 07/06/11 12:31:48 PM Reuters - Knowledge Sales Specialists Employee ID's ONLY

VirnetX Holding Corporation

VirnetX Income Statement

US $MM, except per share data Total Revenue % Change Q/Q % Change Y/Y Revenue - Patent Licensing % Change Q/Q % Change Y/Y Revenue - SDNI & Registry % Change Q/Q % Change Y/Y Cost of revenue Operating margin Operating margin (%) Operating expenses Royalty expense Research and development General, selling and administrative Gain on settlement Total operating expenses % of revenue Income (loss) from operations % of revenue Interest and other income, net Income (loss) before taxes Income tax benefit (provision) tax rate Net income (loss) Shares outstanding Basic Diluted GAAP EPS, Basic GAAP EPS, Diluted 37.9 37.9 -0.33 -0.33 45.5 49.1 0.91 0.84 49.5 55.3 -0.14 -0.14 49.7 55.5 -0.08 -0.08 49.9 55.7 -0.06 -0.06 50.1 55.9 -0.04 -0.04 49.8 55.6 -0.32 -0.32 56.2 56.2 -0.02 -0.02 56.4 56.4 -0.02 -0.02 56.6 56.6 -0.01 -0.01 56.8 56.8 0.00 0.00 56.5 56.5 -0.05 -0.05 57.0 57.4 0.41 0.40 57.3 58.3 1.27 1.25 $0.0 -$0.9 -$12.3 $0.0 -$13.1 NM -$13.1 NM $0.6 -$12.5 $0.0 N/M -$12.5 -$59.2 -$2.4 -$33.8 $200.0 $104.6 NM $104.7 NM -$29.2 $75.5 -$34.1 -45.1% $41.4 $0.0 -$0.2 -$2.6 $0.0 -$2.8 NM -$2.8 NM -$5.1 -$7.8 $0.7 N/M -$7.1 $0.0 -$0.2 -$2.9 $0.0 -$3.1 NM -$3.1 NM -$2.7 -$5.8 -$1.7 30.0% -$4.0 $0.0 -$0.2 -$3.2 $0.0 -$3.5 NM -$3.4 NM -$0.5 -$3.9 -$1.2 30.0% -$2.8 -$0.3 -$0.3 -$3.1 $0.0 -$3.7 NM -$2.7 NM $0.0 -$2.7 -$0.8 30.0% -$1.9 -$0.3 -$0.9 -$11.8 $0.0 -$13.0 NM -$12.0 NM -$8.3 -$20.3 -$3.0 15.0% -$15.8 -$0.6 -$0.3 -$3.3 $0.0 -$4.2 NM -$2.1 -96.2% $0.3 -$1.8 -$0.5 30.0% -$1.3 -$0.8 -$0.3 -$3.3 $0.0 -$4.5 NM -$1.7 -62.3% $0.3 -$1.5 -$0.4 30.0% -$1.0 -$1.1 -$0.3 -$3.4 $0.0 -$4.8 NM -$0.8 -20.2% $0.3 -$0.6 -$0.2 30.0% -$0.4 -$1.4 -$0.3 -$3.6 $0.0 -$5.3 96.9% -$0.1 -1.3% $0.3 $0.3 $0.1 30.0% $0.2 -$4.0 -$1.1 -$13.6 $0.0 -$18.8 NM -$4.7 -32.4% $1.1 -$3.6 -$1.1 30.0% -$2.5 -$14.5 -$1.4 -$15.8 $0.0 -$31.7 45.7% $35.0 50.5% $1.2 $36.2 $13.0 36.0% $23.2 -$39.7 -$2.4 -$23.4 $0.0 -$65.5 35.5% $112.5 60.9% $1.5 $114.0 $41.0 36.0% $72.9 $0.0 $0.0 100.0% $0.0 $0.1 100.0% $0.0 $0.0 100.0% $0.0 $0.0 100.0% $0.0 $0.0 100.0% $0.0 $0.9 97.0% $0.0 $1.0 97.2% $0.1 $2.1 97.0% $0.1 $2.7 96.9% $0.2 $4.0 95.7% $0.0 $0.0 FY09A C09 $0.03 FY10A C10 $0.1 159.2% $0.1 159.2% $0.0 1Q11A MAR $0.0 100.3% -18.1% $0.0 100.3% -18.1% $0.0 2Q11E JUN $0.0 15.9% -15.8% $0.0 15.9% -15.8% $0.0 3Q11E SEPT $0.0 36.1% 72.6% $0.0 36.1% 72.6% $0.0 4Q11E DEC $0.9 3369.2% 10862.7% $0.9 3369.2% 10862.7% $0.0 FY11E C11 $1.0 1357.5% $0.99 1357.5% $0.00 1Q12E MAR $2.2 132.5% 12624.7% $2.2 132.5% 12624.7% $0.0 2Q12E JUN $2.8 29.3% 14097.3% $2.8 29.3% 14097.3% $0.0 3Q12E SEPT $4.2 48.9% 15431.1% $3.7 31.0% 13566.5% $0.5 4Q12E DEC $5.5 31.6% 489.3% $4.8 30.7% 415.1% $0.7 38.2% 300.2% $0.2 $5.2 95.5% $0.6 $14.0 96.1% $2.6 $66.7 96.2% 72.5% $6.8 $178.0 96.3% FY12E C12 $14.6 1369.9% $13.4 1250.0% $1.2 FY13E C13 $69.4 374.8% $64.6 381.4% $4.8 FY14E C14 $184.8 166.5% $176.6 173.4% $8.2

Source: Company reports and Cowen and Company estimates

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July 6, 2011

[email protected] Sharon Coyne 07/06/11 12:31:48 PM Reuters - Knowledge Sales Specialists Employee ID's ONLY

VirnetX Holding Corporation

VirnetX Balance Sheet

VirnetX Holding Corp (VHC)

FY End December ($MM) Assets: Current assets: Cash and cash equivalents Investments available for sale Accounts receivable, net Inventories Prepaid taxes Current deferred tax benefit Prepaid expense and other current assets Total current assets Property and equipment, net Intangible and other assets Long term deferred tax benefit Total assets Liabilities: Current liabilities: Accounts payable and accrued liabilities Income tax liability Current portion of long-term obligation Derivative liability Total current liabilities Long-term obligation, net of current portion Total liabilities Stockholders' equity Preferred stock

par value $0.0001 per share

FY09 C09

FY10 C10

1Q11A MAR

2Q11E JUN

3Q11E SEPT

4Q11E DEC

FY11E C11

1Q12E MAR

2Q12E JUN

3Q12E SEPT

4Q12E DEC

FY12E C12

FY13E C13

FY14E C14

2.0 0.0 0.0 0.0 0.0 0.0 0.0 2.1 0.0 0.2 0.0 2.2

34.6 43.5 0.0 0.0 0.0 1.7 0.1 79.9 0.0 0.1 1.6 81.7

43.6 23.3 0.0 0.0 6.4 0.0 0.3 73.5 0.0 0.1 0.1 73.7

43.6 23.5 0.0 0.0 6.4 0.0 0.3 73.7 0.0 0.1 0.1 73.9

39.7 23.8 0.0 0.0 6.4 0.0 0.3 70.1 0.0 0.1 0.1 70.2

37.0 24.0 0.2 0.0 6.4 0.0 0.3 67.9 0.0 0.1 0.1 68.0

37.0 24.0 0.2 0.0 6.4 0.0 0.3 67.9 0.0 0.1 0.1 68.0

35.1 24.2 0.4 0.0 6.4 0.0 0.3 66.4 0.0 0.1 0.1 66.6

32.8 24.5 0.5 0.0 6.4 0.0 0.3 64.4 0.1 0.1 0.1 64.6

30.8 24.7 0.7 0.0 6.4 0.0 0.3 62.9 0.1 0.1 0.1 63.2

29.4 25.0 0.9 0.0 6.4 0.0 0.3 61.9 0.2 0.1 0.1 62.3

29.4 25.0 0.9 0.0 6.4 0.0 0.3 61.9 0.2 0.1 0.1 62.3

41.7 26.0 4.4 0.0 6.4 0.0 0.3 78.7 1.5 0.1 0.1 80.4

98.3 27.0 9.3 0.0 6.4 0.0 0.3 141.3 5.2 0.1 0.1 146.7

4.5 0.0 0.0 6.3 10.8 0.1 10.9

0.5 7.4 0.0 14.4 22.2 0.0 22.2

0.5 0.0 0.0 14.9 15.4 0.0 15.4

0.0 0.0 0.0 15.2 15.2 0.0 15.2

0.0 0.0 0.0 15.5 15.5 0.0 15.5

0.0 0.0 0.0 15.8 15.8 0.0 15.8

0.0 0.0 0.0 15.8 15.8 0.0 15.8

0.1 0.0 0.0 16.1 16.2 0.0 16.2

0.1 0.0 0.0 16.4 16.5 0.0 16.5

0.2 0.0 0.0 16.8 16.9 0.0 16.9

0.2 0.0 0.0 17.1 17.4 0.0 17.4

0.2 0.0 0.0 17.1 17.4 0.0 17.4

1.0 0.0 0.0 18.5 19.5 0.0 19.5

2.1 0.0 0.0 20.0 22.1 0.0 22.1

0.0 0.0 26.9 -35.6 0.0 -8.7 2.2

0.0 0.0 78.2 -17.8 -1.0 59.5 81.7

0.0 0.0 84.2 -25.9 0.0 58.3 73.7

0.0 0.0 84.2 -25.9 0.0 58.7 73.9

0.0 0.0 84.2 -25.9 0.0 54.7 70.2

0.0 0.0 84.2 -25.9 0.0 52.2 68.0

0.0 0.0 84.2 -25.9 0.0 52.2 68.0

0.0 0.0 84.2 -25.9 0.0 50.4 66.6

0.0 0.0 84.2 -25.9 0.0 48.1 64.6

0.0 0.0 84.2 -25.9 0.0 46.2 63.2

0.0 0.0 84.2 -25.9 0.0 44.9 62.3

0.0 0.0 84.2 -25.9 0.0 44.9 62.3

0.0 0.0 84.2 -25.9 0.0 60.9 80.4

0.0 0.0 84.2 -25.9 0.0 124.6 146.7

Common stock

par value $0.0001 per share

Additional paid-in capital Accumulated deficit Accumulated other comprehensive loss Stockholders' equity Total liabilities and equity

Source: Company reports and Cowen and Company estimates

July 6, 2011

7

[email protected] Sharon Coyne 07/06/11 12:31:48 PM Reuters - Knowledge Sales Specialists Employee ID's ONLY

VirnetX Holding Corporation

VirnetX Cash Flow Statement

VirnetX Holding Corp (VHC)

FY End December ($MM) Cash flows from operating activities: Net income (loss) Adjustments to reconcile net income (loss) to cash used in operating activities: Stock-based compensation Depreciation and amortization Unrealized gain (loss) Net change in deferred taxes Change in value of derivative liability Other Changes in assets and liabilities Receivables and other current assets Prepaid expenses and other current assets Accounts payable and accrued liabilities Income tax liability Net cash provided by (used in) operating activities Cash flows from investing activities: Purchases of property and equipment Purchases of investments Proceeds from sale of investments Net cash provided by (used in) investing activities Cash flows from financing activities: Payment of dividend Payment of royalty obligation less imputed interest Proceeds from exercise of options Proceeds from exercise of warrants Proceeds from sale of common stock Other Net cash provided by (used in) financing activities Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning end of period Cash and cash equivalents at end end of period FY09 C09 FY10 C10 1Q11A MAR 2Q11E JUN 3Q11E SEPT 4Q11E DEC FY11E C11 1Q12E MAR 2Q12E JUN 3Q12E SEPT 4Q12E DEC FY12E C12 FY13E C13 FY14E C14

(12.5)

41.4

(7.1)

(4.0)

(2.8)

(1.9)

(15.8)

(1.3)

(1.0)

(0.4)

0.2

(2.5)

23.2

72.9

3.0 0.1 (0.6) -

3.4 0.1 (1.0) (2.9) 30.5 -

0.6 0.0 (0.1) 3.3 5.1 -

0.6 0.0 -

0.7 0.0 -

0.7 0.0 -

2.6 0.1 (0.1) 3.3 5.1 -

0.7 0.0 -

0.7 0.0 -

0.7 0.0 -

0.7 0.0 -

2.7 0.1 -

2.8 0.1 -

2.9 0.1 -

0.1 0.1 2.8 (6.9)

(0.0) 3.4 74.9

(0.0) (0.2) (0.0) (13.7) (12.0)

0.0 (0.5) (3.9)

(0.0) (0.5) (2.6)

(0.2) (0.5) (1.9)

(0.2) (0) (1.5) (13.7) (20.4)

(0.2) (1.5) (2.3)

(0.1) (1.5) (1.9)

(0.2) (1.4) (1.3)

(0.2) (1.3) (0.7)

(0.8) (5.7) (6.2)

(3.5) 0.7 23.4

(5.0) 1.1 72.1

(0.0) (0.0)

(0.0) (43.5) (43.5)

(10.2) 30.4 20.2

(0.0) (0.0)

(0.0) (0.0)

(0.0) (0.0)

(0.0) (10.2) 30.4 20.2

(0.0) (0)

(0.1) (0)

(0.1) (0)

(0.1) (0)

(0.3) (0)

(1.4) (1)

(3.7) (4)

(0.0) 8.5 8.5 1.6 0.5 2.0

(23.6) (0.2) 1.3 23.6 1.2 32.6 2.0 34.6

0.7 0.7 8.9 34.6 43.6

(3.9) 43.6 39.7

(2.6) 39.7 37.0

(1.9) 37.0 35.1

0.7 0.7 0.5 34.6 35.1

(2.4) 35.1 32.8

(2.0) 32.8 30.8

(1.4) 30.8 29.4

(0.8) 29.4 28.6

(6.5) 35.1 28.6

22.0 28.6 50.6

68.4 50.6 118.9

Source: Company reports and Cowen and Company estimates

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July 6, 2011

[email protected] Sharon Coyne 07/06/11 12:31:48 PM Reuters - Knowledge Sales Specialists Employee ID's ONLY

VirnetX Holding Corporation

Addendum

STOCKS MENTIONED IN IMPORTANT DISCLOSURES

Ticker VHC Company Name VirnetX Holding Corporation

ANALYST CERTIFICATION Each author of this research report hereby certifies that (i) the views expressed in the research report accurately reflect his or her personal views about any and all of the subject securities or issuers, and (ii) no part of his or her compensation was, is, or will be related, directly or indirectly, to the specific recommendations or views expressed in this report. IMPORTANT DISCLOSURES Cowen and Company, LLC and or its affiliates make a market in the stock of VHC securities. Cowen and Company, LLC compensates research analysts for activities and services intended to benefit the firm's investor clients. Individual compensation determinations for research analysts, including the author(s) of this report, are based on a variety of factors, including the overall profitability of the firm and the total revenue derived from all sources, including revenues from investment banking. Cowen and Company, LLC does not compensate research analysts based on specific investment banking transactions. DISCLAIMER This research is for our clients only. Our research is disseminated primarily electronically and, in some cases, in printed form. Research distributed electronically is available simultaneously to all Cowen and Company, LLC clients. All published research, including required disclosures, can be obtained on the Firm's client website, www.cowenresearch.com. Further information on any of the above securities may be obtained from our offices. This report is published solely for information purposes, and is not to be construed as an offer to sell or the solicitation of an offer to buy any security in any state where such an offer or solicitation would be illegal. Other than disclosures relating to Cowen and Company, LLC, the information herein is based on sources we believe to be reliable but is not guaranteed by us and does not purport to be a complete statement or summary of the available data. Any opinions expressed herein are statements of our judgment on this date and are subject to change without notice. Notice to UK Investors: This publication is produced by Cowen and Company, LLC, which is regulated in the United States by FINRA and is disseminated in the United Kingdom by Cowen International Limited ("CIL"). In the United Kingdom, `Cowen and Company' is a Trading Name of CIL. It is communicated only to persons of a kind described in Articles 19 and 49 of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005. It must not be further transmitted to any other person without the consent of CIL. Copyright, User Agreement and other general information related to this report © 2011 Cowen and Company, LLC. Member NYSE, FINRA and SIPC. All rights reserved. This research report is prepared for the exclusive use of Cowen clients and may not be reproduced, displayed, modified, distributed, transmitted or disclosed, in whole or in part, or in any form or manner, to others outside your organization without the express prior written consent of Cowen. Cowen research reports are distributed simultaneously to all clients eligible to receive such research prior to any public dissemination by Cowen of the research report or information or opinion contained therein. Any unauthorized use or disclosure is prohibited. Receipt and/or review of this research constitutes your agreement not to reproduce, display, modify, distribute, transmit, or disclose to others outside your organization the contents, opinions, conclusion, or information contained in this report (including any investment recommendations, estimates or price targets). All Cowen trademarks displayed in this report are owned by Cowen and may not be used without its prior written consent. Cowen and Company, LLC. New York (646) 562-1000 Boston (617) 946-3700 San Francisco (415) 646-7200 Chicago (312) 577-2240 Cleveland (440) 331-3531 Atlanta (866) 544-7009 Dallas (214) 978-0107 London (affiliate) 44-207-071-7500 Geneva (affiliate) 41-22-707-6900

July 6, 2011

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[email protected] Sharon Coyne 07/06/11 12:31:48 PM Reuters - Knowledge Sales Specialists Employee ID's ONLY

VirnetX Holding Corporation

COWEN AND COMPANY RATING DEFINITIONS (a)

Rating Outperform (1) Neutral (2) Underperform (3)

(a) Assumptions: Time horizon is 12 months; S&P 500 is flat over forecast period.

Definition Stock expected to outperform the S&P 500 Stock expected to perform in line with the S&P 500 Stock expected to underperform the S&P 500

COWEN AND COMPANY RATING ALLOCATION (a)

Rating Buy (b) Hold (c) Sell (d) Pct of companies under coverage with this rating 51.1% 45.9% 3.0% Pct for which Investment Banking services have been provided within the past 12 months 7.5% 2.1% 0.0%

(a) As of 06/30/2011. (b) Corresponds to "Outperform" rated stocks as defined in Cowen and Company, LLC's rating definitions (see above). (c) Corresponds to "Neutral" as defined in Cowen and Company, LLC's ratings definitions (see above). (d) Corresponds to "Underperform" as defined in Cowen and Company, LLC's ratings definitions (see above). Note: "Buy," "Hold" and "Sell" are not terms that Cowen and Company, LLC uses in its ratings system and should not be construed as investment options. Rather, these ratings terms are used illustratively to comply with NASD and NYSE regulations.

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July 6, 2011

[email protected] Sharon Coyne 07/06/11 12:31:48 PM Reuters - Knowledge Sales Specialists Employee ID's ONLY

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