Applied Signal Technology, Inc.

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Applied Signal Technology, Inc.

FORMATION IN 1984

1993 INITIAL PUBLIC OFFERING

POST–SEPTEMBER 11, 2001

FORMATION IN 1984

Applied Signal Technology, Inc., was formed 1984 by Gary Yancey and John Treichler, who were former employees of electronic reconnaissance system manufacturer ARGOSystems, Inc. (which was later acquired by The Boeing Company). These two would hold top positions at the company for some time—Treichler as Applied Signal Technology’s senior scientist and later chief technology officer, Yancey as president, chairman, and CEO; there were also two other founders. Yancey, originally from Oregon, had earned a master’s degree in electrical engineering at San Jose State University before starting his career at defense contractor GTE Sylvania, Inc.

Applied Signal Technology was incorporated in California and headquartered in Sunnyvale in Silicon Valley. Its first business was performing research studies and producing signal intelligence hardware for U.S. government agencies. It later began creating highly customized software solutions. First year sales were reportedly $80,000.

COMMERCIAL ATTEMPTS

Revenues were $11.9 million by fiscal 1988 and they continued to grow dramatically, reaching $50.9 million in fiscal 1992. Net profit grew from $600,000 to $3.4 million over the same period. By this time Applied Signal Technology had 400 employees.

Applied Signal Technology made the Inc. 500 list of fastest-growing U.S. private companies in 1991, as cofounder Gary Yancey was named “Entrepreneur of the Year” by Ernst & Young. In the same year the company opened offices in Jessup, Maryland, near such intelligence community clients as the National Security Agency. In addition to supplying engineering support, the East Coast staffers were active in the design of PC-based signal processors.

The rapid rise was not without its growing pains. Yancey later revealed to San Jose’s Business Journal that the company had to scramble for cash in 1990 in spite of a doubling of revenues that year.

1993 INITIAL PUBLIC OFFERING

The company went public on the NASDAQ in March 1993. Its initial public offering raised about $13 million.

The slowdown in government spending following the end of the Cold War had Applied Signal Technology, like many other contractors, looking to make up lost revenues by developing products for the commercial market, such as tools to help cell phone companies fight fraud, for example.

Applied Signal Technology created a Commercial Telecommunications Division and a Military Reconnaissance Division in the fall of 1994. In the mid-1990s, the government still accounted for 98 percent of revenues, which were $67.7 million in 1995; net income slipped 71 percent in that year to $904,000. Until this point, Applied Signal Technology had dealt mostly with the intelligence community, including the National Security Agency, Department of Energy, and Drug Enforcement Agency. U.S. armed forces, however, were beginning to draw on the company’s telecommunications surveillance technology. A portion of the company’s equipment was approved for export to other friendly governments.

The company increased its space in Maryland fivefold in 1996 by leasing 30,000 square feet of a new office building in Annapolis Junction. It was also preparing to more than double the size of its 215,000-square-foot Silicon Valley campus. This site, once occupied by Libby’s Canning Co., featured a historical landmark: a water tower shaped like a giant can of fruit cocktail.

By 1997, revenues were $96.7 million and the company had more than 600 employees. In a bid to attract increasingly scarce tech talent, in 1998 Applied Signal Technology opened offices in Salt Lake City and Portland. By this time, it also had a location in the Washington, D.C., suburb of Herndon, Virginia. Ample training opportunities and tuition reimbursement were other ways for the company to keep turnover low. The corporate culture was said to be egalitarian and hardworking.

Two subsidiaries were established in 2000: Transcendent Technologies focused on bandwidth management tools, while eNetSecure supplied products to protect companies’ telecommunications networks. Both of these would be quietly reabsorbed into the company after a year or so, however. In the meantime, eNetSecure released ICEMON, an intrusion detection system.

POST–SEPTEMBER 11, 2001

After 16 consecutive years of growth, revenues slipped 9 percent in fiscal 2000 to $104.6 million. Still, the emphasis remained on government work. Poor results led to layoffs and plant closings; world events, however, would soon produce unprecedented demand for the company’s technology. CEO Gary Yancey told a California business journal that orders rose more than 30 percent within a couple of weeks of the September 11, 2001, terrorist attacks on the United States (9/11). Many of Applied Signal Technology’s products were designed for precisely the kind of communications surveillance called for in the homeland security mission. Investors took immediate notice, sending the stock price up 50 percent within three days. Over the next four years, it would rise to nearly five times pre-9/11 levels.

COMPANY PERSPECTIVES

Overall, our company provides a unique capability in helping to protect the U.S. and allied nations against military and terrorist threats. Our deep knowledge of science and engineering is unmatched in the industry and leads to unique solutions for our customers. Applied Signal Technology systems and personnel are significant contributors to our national security.

Applied Signal Technology was unique among its competitors in that it had not been swallowed up in previous waves of industry consolidation. The company felt this made it more flexible than most of its rivals, most of whom had become divisions of large defense contractors.

The signal intelligence marketplace continued to evolve, following technologies introduced by the telecommunications industry. New cellular networks, Wi-Fi, and voice-over Internet protocol kept the company busy.

It was also entering other new realms of signal intelligence. In fiscal 2004, the company began investing in electronic intelligence (ELINT), or gathering of signals related to radars and weapons systems. Applied Signal Technology bought another defense electronics firm, Dynamics Technology Inc. (DTI) of Torrance, California, in 2005. The price was $30 million. DTI had 110 employees and offices in California and Virginia.

Applied Signal Technology had developed a specialty in low size, weight, and power (SWAP) electronics. In October 2005, the company opened an R&D center in Allen, Texas, to develop and test these modular, scalable devices, which could be used on a variety of platforms, including UAVs (unmanned aerial vehicles).

Hiring adequate numbers of capable technical staffers continued to be a priority. The Salt Lake satellite office had doubled in size in the previous few years, to 70 employees, and the company was leasing additional space there.

Frederick C. Ingram

PRINCIPAL COMPETITORS

BAE Systems plc; The Boeing Company; L-3 Communications Holdings Inc.; Lockheed Martin Corporation; Raytheon Corporation.

KEY DATES

1984:: Company is founded in Silicon Valley by former ARGO Systems employees.
1992:: Revenues exceed $50 million.
1993:: Initial public offering on the NASDAQ raises $13 million.
1998:: Revenues reach $110 million.
1999:: Satellite offices open in Portland and Salt Lake City.
2001:: September 11 terrorist attacks on the United States result in increased orders, soaring share price.
2005:: Defense electronics company Dynamics Technology Inc. is acquired for $30 million; R&D center opens in Allen, Texas.