Applied Signal Technology, Inc. Reports Third Quarter

-- Operating Margin Increases to 9.8% versus 6.4% in Year-ago Quarter --

-- Earnings per Share grow 67% to $0.25 versus $0.15 in Year-ago Quarter –

• Press Release
• Source: Applied Signal Technology, Inc.
• On 4:10 pm EDT, Tuesday September 1, 2009

SUNNYVALE, Calif.--(BUSINESS WIRE)--Applied Signal Technology, Inc. (NASDAQ:APSG - News) today announced operating results for the third quarter and first nine months of fiscal 2009, ended July 31, 2009.

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Symbol	Price	Change
APSG	20.15	-0.37

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The Company reported revenues for the third quarter of $49,500,000 versus the year-ago quarter’s revenues of $49,948,000. Strength in the Company’s broadband communications and sensor businesses was offset by order delays for tactical SIGINT contracts. The Company’s operating income for the third quarter of fiscal 2009 increased by 51% to $4,844,000, a margin of 9.8%, as compared to $3,218,000, a margin of 6.4%, in the third quarter of fiscal year 2008. This improvement was primarily driven by several factors, including a reduction in stock-based compensation expense and an improved mix of royalty revenue and fixed-price contracts, including product sales.

The significant year-over-year margin improvement enabled the Company to grow earnings per share during the third quarter to $0.25, an increase of 67% versus the year-ago level of $0.15 per share.

Revenues for the first nine months of fiscal year 2009 increased 8% to $148,384,000, versus revenues of $137,957,000 for the comparable period of fiscal year 2008. Operating income for the first nine months of fiscal 2009 increased by 101% to $16,947,000 as compared to $8,433,000 in the comparable year-ago period. Net income for the first nine months of fiscal year 2009 increased by 100% to $10,919,000 or $0.83 per diluted share compared to the year-ago level of $5,468,000 or $0.43 per diluted share.

The Company reported that new orders received during the third quarter of fiscal year 2009 were $51,235,000 compared to new orders of $70,275,000 during the third quarter of fiscal year 2008. New orders for the first nine months of fiscal year 2009 were $140,810,000 compared to new orders of $145,314,000 for the same period of fiscal year 2008. The Company noted that the year-over-year reduction in new orders was due to the timing of certain material contract awards. It further disclosed that since the close of the third quarter, it has received 7 separate ISR program awards with a total value of $44 million; initial letter contracts granted under these awards are approximately $16 million and the company expects to definitize these contracts by the end of the fiscal year.

Mr. William Van Vleet, President and Chief Executive Officer of Applied Signal Technology commented, “We are pleased to have continued to execute well for our customers during the third quarter. Our recent contract awards have given us increased visibility and confidence in the strength of our core business. There continues to be strong demand for our core broadband communications equipment as well as solid, near term opportunities for our sensor and tactical SIGINT products. We are also pleased to have continued to enhance our margin structure. In our core business, improvements in operations initiated last year are resulting in sustained gains in profitability. ”

In a separate release issued earlier today, the Company also announced that it has completed the acquisition of Pyxis Engineering, which will provide immediate scale into cyber-related projects and their associated revenue streams. Applied Signal has agreed to acquire Pyxis Engineering for $16,250,000 in cash, funded from current investments, with a stock-based earn-out potential of $3,750,000. For the fiscal year ended December 31, 2008, Pyxis recognized revenues of approximately $11.7 million. For the period January 1, 2009 through May 31, 2009, Pyxis recognized revenues of approximately $6.3 million. The unaudited trailing twelve months revenues ended July 31, 2009 are estimated at approximately $14 million. The acquisition is anticipated to be accretive in its first twelve months of operation.

Mr. Van Vleet continued, “We believe that the strength of our balance sheet gives us an excellent opportunity to grow through acquisition, as well as organically, and that it can support additional, future transactions. We will integrate Pyxis with our existing software services teams to create a business platform that will create scale, better support our customers and accelerate our growth into the exciting, large cyber intelligence market.”

Attached to this news release are condensed, consolidated statements of income, balance sheets and statements of cash flows for the third quarter and first nine months of fiscal year 2009 ended July 31, 2009.

Conference Call

The Company will host a conference call on September 1, 2009 to discuss third quarter fiscal 2009 results. If you wish to participate in the conference call, please dial 1-877-407-8035 for domestic callers or 1-201-689-8035 for international callers on September 1, 2009 at 5:00 p.m. eastern time/2:00 p.m. pacific time. There is no pass code required. This call may be listened to simultaneously at the Web site www.InvestorCalendar.com. A rebroadcast of the call will be available upon its completion and will remain available for a limited time.

Applied Signal Technology, Inc. provides advanced intelligence, surveillance and reconnaissance (ISR) products, systems and services to enhance global security. For further information about Applied Signal Technology visit our website at www.appsig.com.

Except for historical information contained herein, matters discussed in this news release may contain forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially. Statements as to the continued strong demand for core broadband communications equipment and opportunities for sensor and tactical wireless products, future organic and new complimentary growth opportunities, the order opportunities available to AST in the rapidly developing intelligence, surveillance and reconnaissance (ISR) and cyber-security markets, the ability of the acquisition of Pyxis to provide immediate scale into cyber-related projects and their associated revenue streams, the ability to create a business platform that will create scale, better support our customers and accelerate growth in the large cyber market and the ability of the acquisition to be accretive in the first twelve months and enable AST to capture incremental share of this market over time are all forward-looking statements. The risks and uncertainties associated with these statements include AST’s ability to capture organic growth opportunities, the ability to utilize the strategic advantages of a strong capital position, the ability to execute the acquisition of Pyxis and realize the expected benefits of the acquisition whether orders will be issued by procurers, including the U. S. Government; the timing of any orders placed by procurers; whether AST will be successful in obtaining contracts for these orders if they are forthcoming; whether any contracts obtained by AST will be performed well and be profitable and whether any such contracts might be terminated prior to completion; whether AST will be able to hire qualified staff as needed; and other risks detailed from time to time in our SEC reports including the latest Form 10-K filed for the fiscal year ended October 31, 2008. The Company assumes no obligation to update the information provided in this news release.

Applied Signal Technology, Inc.
James Doyle, 408-749-1888
Chief Financial Officer
or
Integrated Corporate Relations, Inc.
James R. Palczynski, 203-682-8229