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FNJN: Finjan Unexpectedly Reports Higher Q2 Results on Accounting Change

08/03/2018
By Lisa Thompson

NASDAQ:FNJN

READ THE FULL FNJN RESEARCH REPORT

While investors typically know the quarterly revenue results for Finjan (NASDAQ:FNJN) as soon as the quarter ends due to its reporting of every meaningful license deal as it happens, investors were pleasantly surprised this quarter. In the June 30, 2018 quarter, Finjan reported revenues of $17.3 million rather than the expected $14.7 million. This was due to the adoption of a revenue recognition policy that requires the company to recognize revenue when it has signed a licensing deal regardless of when it collects its money. As a result, the company booked the remaining revenues from Carbon Black that will be paid in future quarters with a corresponding increase in accounts receivable.

This quarter’s $17.3 million in revenues compared with $2.3 million generated in Q2 2017.

Since all the revenues in the quarter were from license deals, gross margin was high at 91%, and virtually the same as last year.

Operating expenses increased to $6.4 million from $5.0 million a year ago. The company expects SG&A to vary between $5 million and $6 million dollars per quarter with the possibility of it increasing as much as $2 million per quarter if the company needs to go to jury trial, due primarily to legal expenses.

Finjan paid $1.9 million in taxes in the quarter at a 21% tax rate, however it expects to be fully taxed for the year at 28%. It has used up all its NOLs.

Net income to common shareholders was $7 million versus a loss of $6.8 million last year. In last year’s quarter it had a $3.9 million expense for accretion for preferred stock. The company has redeemed all its preferred stock and it will have no impact going forward.

EPS was $0.24 versus a loss of $0.29 a year ago on a 28% in share count.

Events During the Quarter

On May 3, 2018, Finjan filed a complaint against Check Point both in the U.S. and Israel. The complaint filed in the U.S. District Court for the Northern District of California alleges that the Check Point products listed below infringe at least one or more of the following Finjan patents: 6,154,844, 6,965,968, 7,418,731, 7,647,633, 8,079,086, 8,141,154, and 8,677,494. The accused products include Check Point’s: Next Generation Firewalls and Security Gateways for Cloud, Data Center, Midsized and Enterprise, Small Business, Consumer, and Home Office; CloudGuard products; Endpoint Protection products; Advanced Threat Prevention products, including with Sandblast technology, for Network Security, Endpoint Protection, and Mobile Threat Prevention; ZoneAlarm products; Threat Intelligence; ThreatCloud; Security Management products, including Smart-1 appliances; and Infinity, including R80.10. Finjan is seeking a judgment of infringement, a preliminary and permanent injunction, past damages no less than a reasonable royalty, attorneys’ fees, pre- and post-judgment infringement, and any other relief deemed proper by the Court.

On May 10, 2018 Finjan announced a share repurchase program of Finjan’s outstanding common stock of up to $10 million. During the second quarter the company spent $2 million buying back stock at an average price of $2.95 per share.

On May 15, 2018, Finjan Blue, Inc., a wholly-owned subsidiary of Finjan Holdings, Inc. was assigned by IBM: 30 U.S. patents, 11 related international patents and one European pending patent application, for an undisclosed amount in cash.

On June 29, 2018 Trend Micro agreed to pay Finjan a $13.4 million license fee, which was paid and booked as revenue that day. The agreement further stipulated that upon acquisition by the Trend Micro of certain entities, Trend Micro would pay additional license fees to Finjan, unless otherwise mutually agreed. Further, the agreement has additional provisions relating to certain unlicensed products of any company that acquires a Trend Micro party, in which case, additional license fees may apply. Trend Micro also transferred 18 patents to Finjan that it had previously bought from IBM.

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