MELBOURNE, Fla. — (BUSINESS WIRE) — May 12, 2010 — AuthenTec (NASDAQ: AUTH), a leading provider of security, identity management and touch control solutions, today reported financial results for the first quarter 2010 ended April 2, 2010.

Highlights:

• First quarter consolidated revenue of $9.2 million, up 30 percent year over year
• Completed acquisition of SafeNet’s Embedded Security Solutions Division
• Introduced two smart sensors, the AES1750 for wireless market and the AES2660 for PCs
• Awarded significant design win with a leading PC OEM for 2011 models

Consolidated revenue was $9.2 million for the first quarter of 2010, a 30 percent increase over the prior year. The first quarter included $900,000 of revenue from AuthenTec’s Embedded Security Solutions, which was acquired from SafeNet, Inc. in late February. AuthenTec’s fingerprint sensor business, now called Smart Sensor Solutions, reported revenue of $8.2 million during the quarter, which was at the midpoint of the $8.0 million to $8.4 million guidance previously provided. Smart Sensor revenue increased 17 percent over the $7.0 million reported in the first quarter of 2009, and was comparable with the $8.3 million recorded in the fourth quarter of 2009. The year-on-year revenue growth in Smart Sensors was driven by increased sales of both PC and wireless products, reflecting improved economic conditions.

GAAP Results:

Under Generally Accepted Accounting Principles (GAAP), consolidated net loss for the first quarter of 2010 was $4.7 million, or $0.16 per diluted share. This compares to a GAAP net loss of $4.5 million, or $0.16 per diluted share, in the first quarter of 2009 and a GAAP net loss of $3.0 million, or $0.10 per diluted share, in the fourth quarter of 2009.

GAAP gross margin in the first quarter improved to 48.5 percent, compared to 48.0 percent in the first quarter of 2009, and 45.5 percent in the fourth quarter of 2009. Total operating expenses on a GAAP basis were $9.2 million, compared to $8.0 million in the first quarter of 2009 and $6.8 million in the fourth quarter of 2009. A reconciliation of GAAP to non-GAAP results is provided in Table 2 following the text of this press release.

Non-GAAP Results:

On a non-GAAP basis, consolidated net loss for the first quarter of 2010 was $2.4 million or $0.08 per diluted share. Non-GAAP net loss for Smart Sensors was approximately $2.4 million and $50,000 for the Embedded Security business. The non-GAAP results exclude certain legal and other costs including those associated with the Embedded Security Solutions acquisition and the UPEK proxy action, along with stock-based compensation and amortization of acquired intangible assets. This compares to a non-GAAP net loss of $3.6 million, or $0.12 per diluted share, in the first quarter of 2009 and non-GAAP loss of $1.7 million, or $0.06 per diluted share, in the fourth quarter of 2009. The sequential increase in operating loss was primarily due to increased legal expenses related to the patent litigation with UPEK and higher costs related to the year-end financial audit.

Non-GAAP gross margin in the first quarter was 50.2 percent, compared to 48.8 percent in the first quarter of 2009 and 46.1 percent in the fourth quarter of 2009. The sequential increase in gross margin was due primarily to one month of Embedded Security revenue contribution, which has a substantially higher margin than Smart Sensors, combined with lower inventory provisions in the Smart Sensor business during the quarter.

Total operating expenses on a non-GAAP basis were $7.1 million, compared to $7.2 million in the first quarter of 2009 and $5.6 million in the fourth quarter of 2009. Excluding $800,000 in operating expenses of the Embedded Security business for one month, operating expenses were lower in the first quarter of 2010 as compared to the first quarter of 2009 primarily due to reductions in the use of contractors and other outside services.

AuthenTec ended the first quarter of 2010 with $45.3 million in cash and investments. This compares to $55.5 million in cash and investments at the end of the fourth quarter of 2009. The use of cash primarily reflects the purchase of the Embedded Security business which included a cash payment of $8.5 million. The Embedded Security acquisition was recorded under purchase accounting based on preliminary valuation estimates which will be further refined in the second quarter.

Business Update:

“We made outstanding progress since our last earnings call in several areas including new product introductions, important design wins in the PC market, continued progress in the wireless market, and finally, the acquisition of SafeNet’s Embedded Security Solutions division,” said AuthenTec CEO Scott Moody. “These factors have moved us closer to our goal of becoming a more comprehensive provider of security, identity management and touch control solutions. The addition of the Embedded Security business greatly strengthens our security and identity management solutions, while also expanding our addressable markets as evidenced by our recently announced security solutions for smart grid infrastructure.