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Ikanos Communications Announces Results for the Second Quarter 2014

Companies mentioned in this article: Ikanos Communications

FREMONT, CA -- (Marketwired) -- 07/31/14 -- Ikanos Communications, Inc. (NASDAQ: IKAN)

Second Quarter Highlights

  • Revenue of $11.3 million
  • GAAP net loss of $(12.3) million, or $(0.12) per share
  • Ending cash, cash equivalents and short-term investments of $20.6 million

Ikanos Communications, Inc. (NASDAQ: IKAN), a leading provider of advanced broadband semiconductor and software products for the digital home, today announced its financial results for the second quarter of 2014, ended June 29, 2014.

"We achieved second quarter revenue of $11.3 million, within our guidance, while exceeding our margin expectations with a GAAP gross profit of 49%," said Dennis Bencala, CFO of Ikanos. "During the quarter, we continued to effectively manage our business and cash position, recording operating expenses of $17.5 million, at the low-end of the guidance, with cash and short-term investments totaling $20.6 million at quarter end."

Omid Tahernia, president and CEO of Ikanos, said, "As anticipated, the rapid drop in demand for our legacy products in certain maturing markets, most notably Korea, resulted in a decline in revenue for the second quarter. While we navigate through our revenue transition, we have taken meaningful steps to manage operating expenses which we expect to result in up to a 20% reduction in costs for the second half of 2014, as compared to the first half of 2014. In the meantime, our new products continue to show positive momentum, with Velocity-3 and inSIGHT making great progress at carrier trials and Vx500 receiving tremendous market interest following its official roll-out at Computex in June."

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.

Second Quarter 2014 Results

Revenue for the second quarter of 2014 was $11.3 million, compared to revenue of $19.1 million for the second quarter of 2013 and revenue of $14.5 million for the first quarter of 2014. GAAP gross profit for the second quarter of 2014 was 49%, compared to a GAAP gross profit of 49% for the second quarter of 2013 and GAAP gross profit of 49% for the first quarter of 2014.

Non-GAAP gross profit for the second quarter of 2014 was 50%, compared to a non-GAAP gross profit of 49% for the second quarter of 2013 and 50% for the first quarter of 2014.

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

Non-GAAP operating expenses for the second quarter of 2014 were $16.6 million, compared to non-GAAP operating expenses of $16.5 million for the second quarter of 2013 and non-GAAP operating expenses of $16.5 million for the first quarter of 2014.

GAAP net loss for the second quarter of 2014 was $(12.3) million, or a loss of $(0.12) per share on 99.1 million weighted average shares outstanding, compared to a GAAP net loss of $(8.7) million, or $(0.12) per share on 71.2 million weighted average shares outstanding, for the second quarter of 2013 and a GAAP net loss of $(10.3) million, or $(0.10) per share on 98.7 million weighted shares outstanding, for the first quarter of 2014.

Non-GAAP net loss for the second quarter of 2014 was $(11.3) million, or a loss of $(0.11) per share on 99.1 million weighted average shares outstanding, compared to a non-GAAP net loss of $(7.5) million, or $(0.11) per share on 71.2 million weighted average shares outstanding, for the second quarter of 2013 and a non-GAAP loss of $(9.2) million, or $(0.09) per share on 98.7 million weighted average shares outstanding, for the first quarter of 2014.

Cash and cash equivalents and short-term investments at the end of the second quarter of 2014 were $20.6 million, compared to $33.7 million at the end of the first quarter of 2014. Additionally, at the end of the second quarter of 2014, inventory was $2.2 million, compared to $1.3 million at the end of the first quarter of 2014. Current liabilities at the end of the second quarter of 2014 were $21.6 million, compared to $22.5 million at the end of the first quarter of 2014. For both the second quarter of 2014 and first quarter of 2014, current liabilities included an accounts receivable-backed revolving line of credit advance of $6.9 million and $8.5 million, respectively.

For a more complete review of our Q2 2014 results and quarter over quarter comparisons please see the attached financial schedules.

Outlook

Revenue is expected to be between $11.0 million and $13.0 million for the third quarter of 2014.

"While we anticipate returning to revenue growth by year end, the third quarter is expected to remain sequentially flat," said Tahernia. "This is due to a combination of two factors; our reduced but now stable legacy revenue, and delay in customer ramps of certain new multi-mode gateway designs."

GAAP gross profit for the third quarter of 2014 is expected to be between 48% and 50%. Non-GAAP gross profit is expected to be between 49% and 51% for third quarter of 2014. GAAP operating expenses for third quarter of 2014 are expected to be in the range of $14.5 million to $15.5 million. Non-GAAP operating expenses are expected to be in the range of $13.5 million to $14.5 million for third quarter of 2014. GAAP net loss for third quarter of 2014 is expected to be in the range of approximately $(8.3) million to $(10.5) million, or a GAAP loss per share of $(0.08) to $(0.11). Non-GAAP net loss is expected to be in the range of approximately $(7.2) million to $(9.4) million, or a non-GAAP loss per share of $(0.07) to $(0.09).

Second Quarter Conference Call
Management will review the second quarter financial results and its expectations for subsequent periods at a conference call on July 31, 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 (888) 283-6901 and enter conference ID 5286731. 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 October 29, 2014 by dialing (888) 203-1112 and entering conference ID 5286731.

About Ikanos Communications, Inc.
Ikanos Communications, Inc. (NASDAQ: IKAN) is a leading provider of advanced broadband semiconductor and software products for the digital 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: 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 Annual Report on Form 10-K filed on February 28, 2014.


                        IKANOS COMMUNICATIONS, INC.
         Unaudited Condensed Consolidated Statements of Operations
                   (In thousands, except per share data)

                                  Three Months Ended     Six Months Ended
                                 --------------------  --------------------
                                  June 29,   June 30,   June 29,   June 30,
                                    2014       2013       2014       2013
                                 ---------  ---------  ---------  ---------

Revenue                          $  11,255  $  19,115  $  25,768  $  45,267
Cost of revenue                      5,775      9,813     13,211     22,009
                                 ---------  ---------  ---------  ---------
    Gross profit                     5,480      9,302     12,557     23,258
                                 ---------  ---------  ---------  ---------
Operating expenses:
  Research and development          13,408     12,599     26,084     26,117
  Selling, general and
   administrative                    4,105      4,866      8,926      9,638
                                 ---------  ---------  ---------  ---------
    Total operating expenses        17,513     17,465     35,010     35,755
                                 ---------  ---------  ---------  ---------
Loss from operations               (12,033)    (8,163)   (22,453)   (12,497)
  Interest and other income
   (expense), net                     (129)      (442)       113       (360)
                                 ---------  ---------  ---------  ---------
Loss before income taxes           (12,162)    (8,605)   (22,340)   (12,857)
  Provision for income taxes           168         68        295        232
                                 ---------  ---------  ---------  ---------
Net loss                         $ (12,330) $  (8,673) $ (22,635) $ (13,089)
                                 =========  =========  =========  =========

Net loss per share
  Basic and diluted              $   (0.12) $   (0.12) $   (0.23) $   (0.18)
                                 =========  =========  =========  =========
Weighted average number of shares
  Basic and diluted                 99,102     71,182     98,926     70,798
                                 =========  =========  =========  =========



                        IKANOS COMMUNICATIONS, INC.
         Unaudited Condensed Consolidated Statements of Operations
                   (In thousands, except per share data)

                                                   Three Months Ended
                                            -------------------------------
                                             June 29,  March 30,   June 30,
                                               2014       2014       2013
                                            ---------  ---------  ---------

Revenue                                     $  11,255  $  14,513  $  19,115
Cost of revenue                                 5,775      7,436      9,813
                                            ---------  ---------  ---------
    Gross profit                                5,480      7,077      9,302
                                            ---------  ---------  ---------
Operating expenses:
  Research and development                     13,408     12,676     12,599
  Selling, general and administrative           4,105      4,821      4,866
                                            ---------  ---------  ---------
    Total operating expenses                   17,513     17,497     17,465
                                            ---------  ---------  ---------
Loss from operations                          (12,033)   (10,420)    (8,163)
  Interest and other income (expense), net       (129)       242       (442)
                                            ---------  ---------  ---------
Loss before income taxes                      (12,162)   (10,178)    (8,605)
  Provision for income taxes                      168        127         68
                                            ---------  ---------  ---------
Net loss                                    $ (12,330) $ (10,305) $  (8,673)
                                            =========  =========  =========

Basic and diluted net loss per share        $   (0.12) $   (0.10) $   (0.12)
                                            =========  =========  =========
Weighted average outstanding shares:
  Basic and diluted                            99,102     98,749     71,182
                                            =========  =========  =========




    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        Non-GAAP
                                     Reported   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
                                    ==========                  ==========


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

                                        Three Months Ended June 30, 2013
                                     --------------------------------------
                                         As        Non-GAAP
                                      Reported   Adjustments      Non-GAAP
                                     ----------  -----------     ----------
Revenue                              $   19,115  $         -     $   19,115
Cost of revenue                           9,813           (2)(a)      9,692
                                                        (119)(b)

                                     ----------  -----------     ----------
    Gross profit                          9,302         (121)         9,423
                                     ----------  -----------     ----------

Operating expenses:
  Research and development               12,599         (551)(a)     12,048

  Selling, general and
   administrative                         4,866         (337)(a)      4,404
                                                        (125)(b)
                                     ----------  -----------     ----------
    Total operating expenses             17,465       (1,013)        16,452
                                     ----------  -----------     ----------
Loss from operations                     (8,163)       1,134         (7,029)
  Interest and other income
   (expense), net                          (442)           -           (442)
                                     ----------  -----------     ----------
Loss before income taxes                 (8,605)       1,134         (7,471)
  Provision for income taxes                 68            -             68
                                     ----------  -----------     ----------
Net loss                             $   (8,673) $     1,134     $   (7,539)
                                     ==========  ===========     ==========

Net loss per share:
  Basic and diluted                  $    (0.12)                 $    (0.11)
                                     ==========                  ==========

Weighted average outstanding shares:
  Basic and diluted                      71,182                      71,182
                                     ==========                  ==========

Notes:                                                  Three Months Ended
                                                      ---------------------
                                                       June 29,    June 30,
                                                         2014        2013
                                                      ---------   ---------
  (a)  Stock-based compensation                       $     923   $     890
  (b)  Amortization of acquired
       intangible assets                                    120         244
                                                      ---------   ---------
       Total non-GAAP
        adjustments                                   $   1,043   $   1,134
                                                      =========   =========



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

                                        Three Months Ended March 30, 2014
                                     --------------------------------------
                                         As        Non-GAAP
                                      Reported   Adjustments      Non-GAAP
                                     ----------  -----------     ----------
Revenue                              $   14,513  $         -     $   14,513
Cost of revenue                           7,436           (2)(a)      7,314
                                                        (120)(b)

                                     ----------  -----------     ----------
    Gross profit                          7,077         (122)         7,199
                                     ----------  -----------     ----------
Operating expenses:
  Research and development               12,676         (640)(a)     12,036

  Selling, general and administrative     4,821         (347)(a)      4,474

                                     ----------  -----------     ----------
    Total operating expenses             17,497         (987)        16,510
                                     ----------  -----------     ----------
Loss from operations                    (10,420)       1,109         (9,311)
  Interest and other income
   (expense), net                           242            -            242
                                     ----------  -----------     ----------
Loss before income taxes                (10,178)       1,109         (9,069)
  Provision for income taxes                127            -            127
                                     ----------  -----------     ----------
Net loss                             $  (10,305) $     1,109     $   (9,196)
                                     ==========  ===========     ==========
Net loss per share:
  Basic and diluted                  $    (0.10)                 $    (0.09)
                                     ==========                  ==========

Weighted average outstanding shares:
  Basic and diluted                      98,749                      98,749
                                     ==========                  ==========

Notes:                                          Three Months
                                                    Ended
                                                  March 30,
                                                    2014
                                                ------------
  (a)  Stock-based compensation                 $        989
  (b)  Amortization of acquired intangible
        assets                                           120
                                                ------------
       Total non-GAAP adjustments               $      1,109
                                                ============



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

                                        Six Months Ended June 29, 2014
                                    --------------------------------------
                                        As        Non-GAAP
                                     Reported   Adjustments      Non-GAAP
                                    ----------  -----------     ----------
Revenue                             $   25,768  $         -     $   25,768
Cost of revenue                         13,211           (6)(a)     12,965
                                                       (240)(b)
                                    ----------  -----------     ----------
    Gross profit                        12,557         (246)        12,803
                                    ----------  -----------     ----------

Operating expenses:
  Research and development              26,084       (1,235)(a)     24,849

  Selling, general and
   administrative                        8,926         (671)(a)      8,255
                                                          - (b)

                                    ----------  -----------     ----------
    Total operating expenses            35,010       (1,906)        33,104
                                    ----------  -----------     ----------
Loss from operations                   (22,453)       2,152        (20,301)
  Interest and other income
   (expense), net                          113            -            113
                                    ----------  -----------     ----------
Loss before income taxes               (22,340)       2,152        (20,188)
  Provision for income taxes               295            -            295
                                    ----------  -----------     ----------
Net loss                            $  (22,635) $     2,152     $  (20,483)
                                    ==========  ===========     ==========

Net loss per share:
  Basic and diluted                 $    (0.23)                 $    (0.21)
                                    ==========                  ==========

Weighted average outstanding shares:
  Basic and dilluted                    98,926                      98,926
                                    ==========                  ==========

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

                                         Six Months Ended June 30, 2013
                                     --------------------------------------
                                         As        Non-GAAP
                                      Reported   Adjustments      Non-GAAP
                                     ----------  -----------     ----------
Revenue                              $   45,267  $         -     $   45,267
Cost of revenue                          22,009           (3)(a)     21,767
                                                        (239)(b)
                                     ----------  -----------     ----------
    Gross profit                         23,258         (242)        23,500
                                     ----------  -----------     ----------

Operating expenses:
  Research and development               26,117       (1,122)(a)     24,995

  Selling, general and
   administrative                         9,638         (599)(a)      8,789
                                                        (250)(b)

                                     ----------  -----------     ----------
    Total operating expenses             35,755       (1,971)        33,784
                                     ----------  -----------     ----------
Loss from operations                    (12,497)       2,213        (10,284)
  Interest and other income
   (expense), net                          (360)           -           (360)
                                     ----------  -----------     ----------
Loss before income taxes                (12,857)       2,213        (10,644)
  Provision for income taxes                232            -            232
                                     ----------  -----------     ----------
Net loss                             $  (13,089) $     2,213     $  (10,876)
                                     ==========  ===========     ==========

Net loss per share:
  Basic and diluted                  $    (0.18)                 $    (0.15)
                                     ==========                  ==========

Weighted average outstanding shares:
  Basic and dilluted                     70,798                      70,798
                                     ==========                  ==========

Notes:



  (a)  Stock-based compensation
  (b)  Amortization of acquired intangible
       assets

       Total non-GAAP adjustments






Notes:                                                  Six Months Ended
                                                    -----------------------
                                                     June 29,     June 30,
                                                       2014         2013
                                                    ----------   ----------
  (a)  Stock-based compensation                     $    1,912   $    1,724
  (b)  Amortization of acquired intangible
       assets                                              240          489
                                                    ----------   ----------
       Total non-GAAP adjustments                   $    2,152   $    2,213
                                                    ==========   ==========



                         IKANOS COMMUNICATIONS, INC.
               Unaudited Condensed Consolidated Balance Sheets
                               (In thousands)

                                      June 29,      March 30,   December 29,
                                        2014          2014          2013
                                    ------------  ------------  ------------
               Assets
Current assets:
  Cash, cash equivalents and short-
   term investments                 $     20,592  $     33,660  $     39,516
  Accounts receivable                      9,393        10,962        15,892
  Inventory                                2,160         1,314         2,017
  Prepaid expenses and other current
   assets                                  3,793         3,075         3,245
                                    ------------  ------------  ------------
    Total current assets                  35,938        49,011        60,670
Property and equipment, net                9,761         8,666         8,612
Intangible assets, net                       478           598           718
Other assets                               1,912         1,949         1,952
                                    ------------  ------------  ------------
                                    $     48,089  $     60,224  $     71,952
                                    ============  ============  ============

Liabilities and Stockholders' Equity
  Current liabilities:
  Revolving line                    $      6,912  $      8,480  $     12,000
  Accounts payable                         7,252         5,919         4,692
  Accrued liabilities                      7,433         8,093         8,232
                                    ------------  ------------  ------------
    Total current liabilities             21,597        22,492        24,924
Other liabilities                          1,445         1,541         1,637
                                    ------------  ------------  ------------
    Total liabilities                     23,042        24,033        26,561
Stockholders' equity                      25,047        36,191        45,391
                                    ------------  ------------  ------------
                                    $     48,089  $     60,224  $     71,952
                                    ============  ============  ============


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