Ikanos Communications Announces Results for the Third Quarter 2014

FREMONT, CA--(Marketwired - Oct 30, 2014) -   Ikanos Communications, Inc. (NASDAQ: IKAN)

Third Quarter Highlights

• Revenue of $11.1 million
• GAAP net loss of $(10.3) million, or $(0.10) per share
• Ending cash, cash equivalents and short-term investments of $6.7 million

Ikanos Communications, Inc. (NASDAQ: IKAN), a leading provider of advanced broadband semiconductor and software products for the connected home, today announced its financial results for the third quarter of 2014, ended September 28, 2014.

"We achieved third quarter revenue of $11.1 million, within our guidance, with a GAAP gross profit of 44%, below our guidance, which resulted from a product mix shift at the end of the quarter," said Dennis Bencala, CFO of Ikanos. "During the third quarter, we continued to carefully manage our business and cash position, recording operating expenses of $14.8 million, below the mid-point of our guidance, with cash and short-term investments totaling $6.7 million at quarter end, which excludes the gross proceeds of our announced private placement funding of $16.3 million that occurred on September 29, 2014."

"The third quarter marked a significant milestone in Ikanos' recent history," said Omid Tahernia, president and CEO of Ikanos. "The agreement with Alcatel-Lucent and the associated investment that were announced on September 29, 2014 were testaments to Ikanos' technology leadership and strongly validate the strategy and the vision we have been executing on for the past two years. We believe our partnership with this market leader will significantly strengthen our position within the access product segment, and also broaden our reach among global carriers, which in turn will positively impact our gateway and inSIGHT business opportunities. I'm very excited about this engagement and its potential impact on Ikanos' future growth. In addition, we now have access to China, the world's largest telecom market, through the adoption of our Velocity-3 chipset by FiberHome."

Financial Details
Ikanos reports its financial results in accordance with U.S. generally accepted accounting principles (GAAP) and additionally on a non-GAAP basis. Non-GAAP net income (loss), non-GAAP gross profits and non-GAAP operating expenses, where applicable, exclude the income statement effects of stock-based compensation and the amortization of intangible assets. Ikanos has provided these measures because its management believes these additional non-GAAP measures are useful to investors for performing financial analysis, as these additional measures highlight Ikanos' recurring operating results. Ikanos' management uses these non-GAAP measures internally to evaluate its operating performance and to plan for its future. However, non-GAAP measures are not a substitute for GAAP reporting. For a reconciliation of GAAP versus non-GAAP financial information, please see the attached schedules.

Third Quarter 2014 Results

Revenue for the third quarter of 2014 was $11.1 million, compared to revenue of $16.9 million for the third quarter of 2013 and revenue of $11.3 million for the second quarter of 2014. GAAP gross profit for the third quarter of 2014 was 44%, compared to a GAAP gross profit of 51% for the third quarter of 2013 and GAAP gross profit of 49% for the second quarter of 2014.

Non-GAAP gross profit for the third quarter of 2014 was 45%, compared to a non-GAAP gross profit of 52% for the third quarter of 2013 and 50% for the second quarter of 2014.

GAAP operating expenses for the third quarter of 2014 were $14.8 million, compared to operating expenses of $17.0 million for the third quarter of 2013 and operating expenses of $17.5 million for the second quarter of 2014.

Non-GAAP operating expenses for the third quarter of 2014 were $13.9 million, compared to non-GAAP operating expenses of $16.0 million for the third quarter of 2013 and non-GAAP operating expenses of $16.6 million for the second quarter of 2014.

GAAP net loss for the third quarter of 2014 was $(10.3) million, or a loss of $(0.10) per share on 99.3 million weighted average shares outstanding, compared to a GAAP net loss of $(8.7) million, or $(0.12) per share on 71.7 million weighted average shares outstanding, for the second quarter of 2013 and a GAAP net loss of $(12.3) million, or $(0.12) per share on 99.1 million weighted shares outstanding, for the second quarter of 2014.

Non-GAAP net loss for the third quarter of 2014 was $(9.3) million, or a loss of $(0.09) per share on 99.3 million weighted average shares outstanding, compared to a non-GAAP net loss of $(7.5) million, or $(0.11) per share on 71.7 million weighted average shares outstanding, for the second quarter of 2013 and a non-GAAP loss of $(11.3) million, or $(0.11) per share on 99.1 million weighted average shares outstanding, for the second quarter of 2014.

Cash and cash equivalents and short-term investments at the end of the third quarter of 2014 were $6.7 million, compared to $20.6 million at the end of the second quarter of 2014. Additionally, at the end of the third quarter of 2014, inventory was $0.9 million, compared to $2.2 million at the end of the second quarter of 2014. Current liabilities at the end of the third quarter of 2014 were $16.7 million, compared to $21.6 million at the end of the second quarter of 2014. For both the third quarter and second quarter of 2014, current liabilities included an accounts receivable-backed revolving line of credit advance of $4.9 million and $6.9 million, respectively.

For a more complete review of our third quarter 2014 results and quarter-over-quarter comparisons, please see the attached financial schedules.

Outlook

Revenue is expected to be between $10.0 million and $12.0 million for the fourth quarter of 2014.

GAAP gross profit for the fourth quarter of 2014 is expected to be between 46% and 48%. Non-GAAP gross profit is expected to be between 47% and 49% for the fourth quarter of 2014. GAAP operating expenses for the fourth quarter of 2014 are expected to be in the range of $14.0 million to $15.0 million. Non-GAAP operating expenses are expected to be in the range of $13.0 million to $14.0 million for the fourth quarter of 2014. GAAP net loss for the fourth quarter of 2014 is expected to be in the range of approximately $(8.5) million to $(10.7) million, or a GAAP loss per share of $(0.06) to $(0.08). Non-GAAP net loss is expected to be in the range of approximately $(7.4) million to $(9.6) million, or a non-GAAP loss per share of $(0.05) to $(0.07).

Third Quarter Conference Call
 Management will review the third quarter financial results and its expectations for subsequent periods at a conference call on October 30, 2014 at 1:30 p.m. Pacific Time. To listen to the call, please visit http://www.ikanos.com/investor/irevents/ and click on the link provided for the webcast or dial [phone] and enter conference ID 2359596. The webcast will be archived and available for 90 days at http://www.ikanos.com/investor/irevents/. A replay of the conference call will be accessible until January 28, 2015 by dialing [phone] and entering conference ID 2359596.

About Ikanos Communications, Inc.
Ikanos Communications, Inc. (NASDAQ: IKAN) is a leading provider of advanced broadband semiconductor and software products for the connected home. The company's broadband DSL, communications processors and other offerings power access infrastructure and customer premises equipment for many of the world's leading network equipment manufacturers and telecommunications service providers. For more information, visit www.ikanos.com.

© 2014 Ikanos Communications, Inc. All Rights Reserved. Ikanos Communications, Ikanos and the Ikanos logo, the Bandwidth without boundaries tagline, Fusiv, inSIGHT, Neos, Ikanos Velocity, and Ikanos NodeScale are among the trademarks or registered trademarks of Ikanos Communications. All other trademarks mentioned herein are properties of their respective holders.

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995
 Some of the statements included in this press release constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. You should not place undue reliance on these statements. These forward-looking statements include statements that reflect the current views of our senior management with respect to future events with respect to our business and our industry in general. Statements that include the words "expect," "intend," "plan," "believe," "anticipate," "estimate," and similar statements of a future or forward-looking nature identify forward-looking statements.

Forward-looking statements address matters that involve risks and uncertainties. Accordingly, there are or will be important factors that could cause our actual results to differ materially from those indicated in these statements. We believe that these factors include, but are not limited to, the following: our ability to achieve the anticipated benefits of our partnership with Alcatel-Lucent, including the strengthening of our position within the access product segment, broadening our reach among global carriers, and the potential impact on our gateway and inSIGHT businesses; our ability to capitalize on our access to China's telecom market through the adoption of our Velocity-3 chipset by FiberHome; new product revenue momentum may not materialize at the rate anticipated, or at all; the transition to new products will take longer than anticipated; our ability to manage operating expenses will be less successful than anticipated and not result in the cost reductions expected; the revenue generated by our mature products will decline at a rate greater than anticipated; that new designs and design wins will result in sales of our products at the levels anticipated, or at all; that our carrier trials will be successful and, if successful, will eventually result in field trials or market deployments; that the delays in new customer product ramps will continue longer than anticipated; that the return to sequential revenue growth will not occur by the end of the year and may take longer than anticipated; that the rate of acceptance of our new and future products, including our G.fast products, by our customers and telecommunications service providers, may be lower than anticipated; our ability to complete future products, including our G.fast products, when anticipated or at all; that the unfavorable trends in certain maturing markets, such as Japan and Korea, will continue longer than anticipated; that our design win pipeline will continue to expand as anticipated; macroeconomic or other conditions which may cause our customers to defer purchasing plans or cancel any purchasing plans altogether despite successful design wins or successful field trials; the continued demand by telecommunications service providers for our specific xDSL semiconductor products; our ability to continue to effectively manage our business, operating expenses, and cash position; the failure of telecommunications service providers to implement deployment plans on schedule, or at all, despite increased performance results; our ability to generate demand and close transactions for the sale of our products; competition in the markets in which we operate; and the fact that the products we sell may not satisfy shifting customer demand or compete successfully with our competitors' products. For a more detailed discussion of how these and other risks and uncertainties could cause our actual results to differ materially from those indicated in our forward-looking statements, see our reports filed with SEC (available at www.sec.gov), including our Quarterly Report on Form 10-Q for the quarter ended June 29, 2014 filed on August 8, 2014.

IKANOS COMMUNICATIONS, INC.
Unaudited Condensed Consolidated Statements of Operations
(In thousands, except per share data)
				Three Months Ended								Nine Months Ended
				September 28, 2014				September 29, 2013				September 28, 2014				September 29, 2013
Revenue				$	11,079			$	16,900			$	36,847			$	62,167
Cost of revenue					6,227				8,263				19,438				30,272
		Gross profit			4,852				8,637				17,409				31,895
Operating expenses:
	Research and development				10,822				12,455				36,906				38,572
	Selling, general and administrative				4,000				4,589				12,926				14,227
		Total operating expenses			14,822				17,044				49,832				52,799
Loss from operations					(9,970	)			(8,407	)			(32,423	)			(20,904	)
	Interest and other income (expense), net				(120	)			(147	)			(7	)			(507	)
Loss before income taxes					(10,090	)			(8,554	)			(32,430	)			(21,411	)
	Provision for income taxes				190				111				485				343
Net loss				$	(10,280	)		$	(8,665	)		$	(32,915	)		$	(21,754	)
Net loss per share
	Basic and diluted			$	(0.10	)		$	(0.12	)		$	(0.33	)		$	(0.31	)
Weighted average number of shares
	Basic and diluted				99,284				71,662				99,045				71,086

IKANOS COMMUNICATIONS, INC.
Unaudited Condensed Consolidated Statements of Operations
(In thousands, except per share data)
				Three Months Ended
				September 28, 2014				June 29, 2014				September 29, 2013
Revenue				$	11,079			$	11,255			$	16,900
Cost of revenue					6,227				5,775				8,263
		Gross profit			4,852				5,480				8,637
Operating expenses:
	Research and development				10,822				13,408				12,455
	Selling, general and administrative				4,000				4,105				4,589
		Total operating expenses			14,822				17,513				17,044
Loss from operations					(9,970	)			(12,033	)			(8,407	)
	Interest and other income (expense), net				(120	)			(129	)			(147	)
Loss before income taxes					(10,090	)			(12,162	)			(8,554	)
	Provision for income taxes				190				168				111
Net loss				$	(10,280	)		$	(12,330	)		$	(8,665	)
Basic and diluted net loss per share				$	(0.10	)		$	(0.12	)		$	(0.12	)
Weighted average outstanding shares:
	Basic and diluted				99,284				99,102				71,662

IKANOS COMMUNICATIONS, INC.
Unaudited Reconciliation of GAAP to Non-GAAP Condensed Consolidated Statements of Operations
(In thousands, except per share data)

				Three Months Ended September 28, 2014													Three Months Ended September 29, 2013
				As Reported				Non-GAAP Adjustments					Non-GAAP				As Reported				Non-GAAP Adjustments						Non-GAAP
Revenue				$	11,079			$	-				$	11,079			$	16,900			$	-					$	16,900
Cost of revenue					6,227				(4	)	(a	)		6,104				8,263				(2	)	(a	)			8,141
									(119	)	(b	)										(120	)	(b	)
		Gross profit			4,852				(123	)				4,975				8,637				(122	)					8,759
Operating expenses:
	Research and development				10,822				(531	)	(a	)		10,291				12,455				(673	)	(a	)			11,782
	Selling, general and administrative				4,000				(343	)	(a	)		3,657				4,589				(250	)	(a	)			4,255
																						(84	)	(b	)
		Total operating expenses			14,822				(874	)				13,948				17,044				(1,007	)					16,037
Loss from operations					(9,970	)			997					(8,973	)			(8,407	)			1,129						(7,278	)
	Interest and other income (expense), net				(120	)			-					(120	)			(147	)			-						(147	)
Loss before income taxes					(10,090	)			997					(9,093	)			(8,554	)			1,129						(7,425	)
	Provision for income taxes				190				-					190				111				-						111
Net loss				$	(10,280	)		$	997				$	(9,283	)		$	(8,665	)		$	1,129					$	(7,536	)
Net loss per share:
	Basic and diluted			$	(0.10	)							$	(0.09	)		$	(0.12	)								$	(0.11	)
Weighted average outstanding shares:
	Basic and diluted				99,284									99,284				71,662										71,662

Notes:																			Three Months Ended
																			September 28, 2014						September 29, 2013
(a) Stock-based compensation																			$	878					$	925
(b) Amortization of acquired intangible assets																				119						204
Total non-GAAP adjustments																			$	997					$	1,129

IKANOS COMMUNICATIONS, INC.
Unaudited Reconciliation of GAAP to Non-GAAP Condensed Consolidated Statements of Operations
(In thousands, except per share data)
				Three Months Ended June 29, 2014
				As Reported				Non-GAAP Adjustments						Non-GAAP
Revenue				$	11,255			$	-					$	11,255
Cost of revenue					5,775				(3	)	(a	)			5,652
									(120	)	(b	)
		Gross profit			5,480				(123	)					5,603
Operating expenses:
	Research and development				13,408				(595	)	(a	)			12,813
	Selling, general and administrative				4,105				(325	)	(a	)			3,780
		Total operating expenses			17,513				(920	)					16,593
Loss from operations					(12,033	)			1,043						(10,990	)
	Interest and other income (expense), net				(129	)			-						(129	)
Loss before income taxes					(12,162	)			1,043						(11,119	)
	Provision for income taxes				168				-						168
Net loss				$	(12,330	)		$	1,043					$	(11,287	)
Net loss per share:
	Basic and diluted			$	(0.12	)								$	(0.11	)
Weighted average outstanding shares:
	Basic and diluted				99,102										99,102
Notes:								Three Months Ended
								June 29, 2014
	(a) Stock-based compensation							$	923
	(b) Amortization of acquired intangible assets								120
	Total non-GAAP adjustments							$	1,043

IKANOS COMMUNICATIONS, INC.
Unaudited Reconciliation of GAAP to Non-GAAP Condensed Consolidated Statements of Operations
(In thousands, except per share data)

				Nine Months Ended September 28, 2014														Nine Months Ended September 29, 2013
				As Reported				Non-GAAP Adjustments						Non-GAAP				As Reported				Non-GAAP Adjustments						Non-GAAP
Revenue				$	36,847			$	-					$	36,847			$	62,167			$	-					$	62,167
Cost of revenue					19,438				(10	)	(a	)			19,069				30,272				(5	)	(a	)			29,908
									(359	)	(b	)											(359	)	(b	)
		Gross profit			17,409				(369	)					17,778				31,895				(364	)					32,259
Operating expenses:
	Research and development				36,906				(1,767	)	(a	)			35,139				38,572				(1,795	)	(a	)			36,777
	Selling, general and administrative				12,926				(1,016	)	(a	)			11,910				14,227				(850	)	(a	)			13,044
																							(333	)	(b	)
		Total operating expenses			49,832				(2,783	)					47,049				52,799				(2,978	)					49,821
Loss from operations					(32,423	)			3,152						(29,271	)			(20,904	)			3,342						(17,562	)
	Interest and other income (expense), net				(7	)			-						(7	)			(507	)			-						(507	)
Loss before income taxes					(32,430	)			3,152						(29,278	)			(21,411	)			3,342						(18,069	)
	Provision for income taxes				485				-						485				343				-						343
Net loss				$	(32,915	)		$	3,152					$	(29,763	)		$	(21,754	)		$	3,342					$	(18,412	)
Net loss per share:
	Basic and diluted			$	(0.33	)								$	(0.30	)		$	(0.31	)								$	(0.26	)
Weighted average outstanding shares:
	Basic and dilluted				99,045										99,045				71,086										71,086

Notes:																				Nine Months Ended
																				September 28, 2014						September 29, 2013
(a) Stock-based compensation																				$	2,793					$	2,650
(b) Amortization of acquired intangible assets																					359						692
Total non-GAAP adjustments																				$	3,152					$	3,342

IKANOS COMMUNICATIONS, INC.
Unaudited Condensed Consolidated Balance Sheets
(In thousands)
				September 28, 2014			June 29, 2014			December 29, 2013
Assets
Current assets:
	Cash, cash equivalents and short-term investments			$	6,685		$	20,592		$	39,516
	Accounts receivable				11,003			9,393			15,892
	Inventory				886			2,160			2,017
	Prepaid expenses and other current assets				3,452			3,793			3,245
		Total current assets			22,026			35,938			60,670
Property and equipment, net					9,355			9,761			8,612
Intangible assets, net					358			478			718
Other assets					1,976			1,912			1,952
				$	33,715		$	48,089		$	71,952
Liabilities and Stockholders' Equity
Current liabilities:
	Revolving line			$	4,937		$	6,912		$	12,000
	Accounts payable				4,116			7,252			4,692
	Accrued liabilities				7,679			7,433			8,232
		Total current liabilities			16,732			21,597			24,924
Other liabilities					1,337			1,445			1,637
		Total liabilities			18,069			23,042			26,561
Stockholders' equity					15,646			25,047			45,391
				$	33,715		$	48,089		$	71,952