MELBOURNE, Fla. — (BUSINESS WIRE) — August 4, 2011 — AuthenTec (NASDAQ: AUTH), a leading provider of security and identity management solutions, today reported financial results for the second quarter ended July 1, 2011.

Highlights:

• Second quarter revenue of $16.2 million exceeded guidance and was up 5 percent sequentially
• Smart Sensor revenue grew 5 percent sequentially and 43 percent year over year
• Embedded Security revenue grew 4 percent sequentially and 75 percent year over year
• Forecast third quarter revenue of $18.2 million to $19.2 million and a return to non-GAAP profitability

Revenue for the second quarter of 2011 was $16.2 million, which was above the Company’s guidance of $15.0 million to $16.0 million. Second quarter revenue included $11.3 million from Smart Sensor Solutions (SSS), and $4.9 million from Embedded Security Solutions (ESS). This compares to revenue of $15.5 million in the first quarter of 2011, which consisted of $10.8 million of SSS revenue and $4.7 million of ESS revenue, and $10.7 million in the second quarter of 2010, which consisted of $7.9 million of SSS revenue and $2.8 million of ESS revenue.

GAAP Results:

Under Generally Accepted Accounting Principles in the United States of America (GAAP), consolidated net loss for the second quarter of 2011 was $4.8 million, or $0.11 per diluted share. This compares to a GAAP net loss of $5.6 million, or $0.13 per diluted share, in the first quarter of 2011 and a GAAP net loss of $3.9 million, or $0.13 per diluted share, in the second quarter of 2010.

GAAP gross margin in the second quarter of 47.8 percent was in line with the 48.0 percent in the first quarter of 2011 and compares to 51.4 percent in the second quarter of 2010. The year over year decrease in GAAP gross margin was due to increased sales mix of certain PC products acquired in connection with the UPEK transaction along with increased amortization of purchased intangibles. This impact was partially offset by higher margins in the Embedded Security Segment from increased licensing and royalty revenue in the quarter. Total operating expenses on a GAAP basis were $12.3 million, compared to $12.6 million in the first quarter of 2011 and $10.1 million in the second quarter of 2010. The $0.3 million sequential decrease in operating expenses was due to lower Selling and Marketing, General and Administrative and restructuring costs, which were slightly offset by higher R&D spending in the quarter.

Non-GAAP Results:

On a non-GAAP basis, consolidated net loss for the second quarter of 2011 was $1.9 million, or $0.04 per diluted share, which exceeded the Company’s guidance of a non-GAAP loss of $0.05 to $0.07 per share. Non-GAAP results exclude certain legal and other costs as well as stock-based compensation, the amortization of acquired intangible assets and severance. The second quarter loss compares to a non-GAAP net loss of $2.6 million, or $0.06 per diluted share, in the first quarter of 2011 and a non-GAAP net loss of $2.5 million, or $0.08 per diluted share, in the second quarter of 2010.

Non-GAAP gross margin in the second quarter was 53.7 percent, compared to 52.6 percent in the first quarter of 2011 and 54.6 percent in the second quarter of 2010. The sequential increase in gross margin was due primarily to the higher mix of Government and Access Control revenue and the year-over-year decrease can be attributed to increased sales mix of certain PC products in the Smart Sensor business in the quarter.

Total operating expenses on a non-GAAP basis were $10.4 million, which were in line with the first quarter of 2011 and up from $8.3 million in the second quarter of 2010. Operating expenses reflect higher R & D expenses within the Embedded Security business partially offset by lower General and Administrative expenses in the quarter. A reconciliation of second quarter GAAP to non-GAAP results is provided in Table 2 following the text of this press release.

As of July 1, 2011, AuthenTec had approximately $20.2 million in cash and investments, compared to $24.4 million in cash and investments at the end of the first quarter of 2011. AuthenTec had no debt as of July 1, 2011 and April 1, 2011.

Business Update:

“Our strong second quarter results reflect continued growth across both of our business segments, driven by increased demand for our portfolio of mobile and network security solutions. This growth, combined with the cost synergies realized as a result of the UPEK acquisition, contributed to revenue and EPS exceeding our guidance for the quarter,” said AuthenTec CEO Larry Ciaccia.

“During this past quarter, we increased sales of our TrueSuite identity management software which is now being shipped on HP consumer notebooks and is available on our new Web store. As the year continues, we expect versions of our software to be integrated on many more consumer notebook models. Also during the quarter, we secured several new sensor design wins for both the remainder of 2011 and into the 2012 production cycle, including a new laptop design win from a major OEM that should start volume production later this year.