MELBOURNE, Fla. — (BUSINESS WIRE) — July 29, 2010 — AuthenTec (NASDAQ: AUTH), a leading provider of security, identity management and touch control solutions, today reported financial results for the second quarter 2010 ended July 2, 2010.

Highlights:

• Second quarter consolidated revenue of $10.7 million, up 27 percent year over year
• Wireless revenues increased over 100 percent above year-ago quarter and 28 percent sequentially
• Recently acquired Embedded Security Solutions business was non-GAAP accretive in second quarter
• Announced smart sensor design wins for multiple new mobile phones, PCs and PNDs

Revenue for the second quarter of 2010 was $10.7 million, which was within the Company’s previously provided guidance, and reflects an increase of 27 percent over the year-ago period and 17 percent sequentially. The second quarter revenue included $2.8 million from Embedded Security Solutions (ESS) and $7.9 million from Smart Sensor Solutions (SSS). This compares to $0.9 million of ESS revenue from one month of sales during the first quarter of 2010 and $8.2 million of SSS sales.

GAAP Results:

Under Generally Accepted Accounting Principles (GAAP), consolidated net loss for the second quarter of 2010 was $3.9 million, or $0.13 per diluted share. This represents an improvement from a GAAP net loss of $5.8 million, or $0.20 per diluted share, in the second quarter of 2009 and a GAAP net loss of $4.7 million, or $0.16 per diluted share, in the first quarter of 2010.

GAAP gross margin in the second quarter improved to 51.4 percent, compared to 46.0 percent in the second quarter of 2009 and 48.5 percent in the first quarter of 2010. Total operating expenses on a GAAP basis were $10.1 million, compared to $9.7 million in the second quarter of 2009 and $9.2 million in the first quarter of 2010. Operating expenses included $0.6 million for legal and acquisition costs related to completing the ESS acquisition along with other M&A-related activities and $0.4 million for costs related to a reduction in workforce primarily in Europe. These items were partially offset by $0.7 million of other income related to a reduction of liability for a potential earn out payment related to the ESS purchase. 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 second quarter of 2010 was $2.5 million, or $0.08 per diluted share, which compares to previous guidance of a loss of $0.06 to $0.10 per share. Non-GAAP results exclude certain legal and other costs including those associated with the Embedded Security acquisition and the UPEK proxy action, along with stock-based compensation and amortization of acquired intangible assets. The second quarter loss compares with a non-GAAP net loss of $2.2 million, or $0.08 per diluted share, in the second quarter of 2009, and non-GAAP loss of $2.4 million, or $0.08 per diluted share, in the first quarter of 2010.

Non-GAAP gross margin in the second quarter was 54.6 percent, up 770 basis points from the 46.9 percent in the second quarter of 2009 and compares to 50.2 percent in the first quarter of 2010. The increase in gross margin was primarily due to the full quarter revenue contribution from ESS, which has a substantially higher margin than SSS, partially offset by higher inventory provisions in the Smart Sensor business during the quarter.

Total operating expenses on a non-GAAP basis were $8.3 million, compared to $6.2 million in the second quarter of 2009 and $7.1 million in the first quarter of 2010. Operating expenses increased due to the inclusion of a full quarter of operating expenses from Embedded Security, partially offset by lower expenses in the SSS business.

AuthenTec ended the second quarter of 2010 with $43.2 million in cash and investments, compared to $45.3 million in cash and investments at the end of the first quarter of 2010.

Business Update:

“During the second quarter, we successfully completed the integration of ESS and its complementary portfolio of TrueProtect™ products and intellectual property. This new business unit significantly expands our customer base, and broadens and diversifies our revenue opportunities,” said AuthenTec CEO Scott Moody. “We secured material design wins for our Embedded products during the quarter including: a mobile VPN for new Android phones from a top-tier mobile phone OEM; Digital Rights Management (DRM) server solutions for web-based video downloads from another top-tier mobile OEM; security IP (IPsec) for a leading Smart Grid supplier; and a DRM solution for an e-book reader application targeted for PCs and smartphones. We are also seeing a large number of synergistic opportunities between our ESS and SSS businesses, especially in the wireless end market and with our identity management software offerings.