AuthenTec's CEO Discusses Q4 2011 And Full Year 2011 Results - Earnings Call Transcript (Prepared Remarks)

AuthenTec, Inc. (AUTH)

Q4 2011 and Full Year 2011 Earnings Conference Call

March 1, 2012, 5:00 p.m. ET

Executives

Larry Ciaccia - CEO

Philip Calamia - CFO

Brett Perry - Director of IR, Shelton Group

Presentation

Operator

Welcome to AuthenTec’s fourth quarter and full year 2011 financial results conference call. At this time all participants are in a listen only mode. At the conclusion of today’s call instructions will be given for a question and answer session. As a reminder, this conference is being recorded today, Thursday, March 1, 2012. I would now like to turn the call over to Brett Perry with Shelton Group, Investor Relations Agency of Record for AuthenTec.

Brett Perry

Thank you everyone for joining us today to discuss AuthenTec’s fourth quarter and full year 2011 financial results. With me today on the call are Larry Ciaccia, AuthenTec’s CEO, and Philip Calamia, CFO. As the operator mentioned, this call is being recorded. It is also being broadcast live over the Internet and may be accessed in the investor relations section of AuthenTec’s website at investors.authentec.com.

After the market closed today AuthenTec issued a press release discussing its financial results for the fourth quarter and year ended December 30, 2011. By now everyone should have access to the press release and financial tables. However, if you do not, they are available on the Company’s website.

Please be advised that the matters discussed in this teleconference contain forward-looking statements regarding future results or events. We caution you that such statements are in fact predictions that are subject to risks and uncertainties that could cause actual events or results to differ materially. Additional risks and uncertainties that could cause actual events or results to differ materially from these forward-looking statements may be found in the company’s filings with the Securities & Exchange Commission.

Forward-looking statements are based on the company’s beliefs as of today, Thursday, March 1, 2012. AuthenTec undertakes no obligation or responsibility to publicly update any forward-looking statements for any reason except as is required by law even if new information becomes available or other events occur in the future.

Additionally, in the company’s press release and during this teleconference management will discuss certain measures and information in GAAP and non-GAAP terms. A reconciliation of GAAP to non-GAAP results is provided in the financial tables following the text of today’s press release.

I will now turn the call over to AuthenTec’s CEO, Larry Ciaccia. Please go ahead Larry.

Larry Ciaccia

Thanks Brett. Good afternoon and thank you for joining our call today. Phil and I will be reviewing our fourth quarter results in detail but before we do that I would like to recap and highlight what was a very successful 2011 for AuthenTec.

We ended the year at $69.8M in revenue, up 56% Y/Y from the $44.7M in 2010

Were profitable on a non-GAAP basis for the last 2 quarters of the year

2H’10 to 2H ’11 we improved our non-GAAP operating income from a loss of $7.3M to a profit of nearly $3.5M, an improvement of over $10M on an operating basis

Full Year Gross margin up nearly 500 basis points from prior year

Successfully completed a major integration of UPEK ahead of our cost synergy targets

Completed 2 tuck-in acquisitions to advance our strategic direction

Had several major customer programs launch including : the first Android smartphone in the US with fingerprint sensor, HBO Go with our content protection services, multiple smartphones with our IPSec VPN clients, HP consumer notebooks with a version of our TrueSuite Software called SimplePass, and also announced architectures with ecosystem partners around NFC based mobile payments.

With regards to our Q4 results we had revenues of $18.8M at the midpoint of our guidance, down 2.7% sequentially and up 30% Y/Y. On a non-GAAP basis our EPS was $.04 per share, ahead of our guidance of $.01 to $.02 per share.

Our Smart Sensor Revenue in the quarter was $10.4M, down 13% sequentially and up 5% Y/Y. The sequential decline was due to several factors, including softness in the PC market and platform transitions in Wireless.

In our Embedded Security business, we had an outstanding Q4 with revenue of $8.4M, a record quarter for this business -- up 15% sequentially and 83% Y/Y. This achievement was driven in part by ongoing growth in the two revenue categories that we view as key: license revenue from new design wins, and royalty revenue. A primary driver of the sequential growth was royalties associated with our HW IP and DRM product lines. This business, by its nature, is subject to variability quarter by quarter and we have benefited from particularly strong royalty revenues over the last several quarters. We continue to focus on a solutions-based market approach, leveraging our broad portfolio of mobile and network security products in order to provide security to and from client devices and the cloud. During the quarter we announced several new initiatives and customer programs in support of this.

Our content protection and DRM solutions for server, iOS and Android devices are experiencing solid revenue growth, and numerous customer programs have recently launched. Three North American content providers launched new mobile services using our DRM solution. We are now part of live content services in 8 European countries, some of which are associated with very well known network and content providers; and our second DRM customer in Asia, a large wireless carrier, launched a major mobile video service.

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