Ikanos Communications Reports Results for Third Quarter 2008

FREMONT, Calif., Oct. 23 /PRNewswire-FirstCall/ -- Ikanos Communications,
Inc. (Nasdaq: IKAN), a leading provider of semiconductor and software products
for the digital home, today reported its financial results for the third
quarter ended September 28, 2008.
"Our third quarter results represent continued deployments of our VDSL2
and residential gateway products used by service providers worldwide. These
deployments underscore the desire for higher levels of bandwidth to support
new revenue-generating services like high-definition IPTV," said Michael
Gulett, Ikanos' president and CEO. "Since the Board appointed me to the CEO
role three months ago, I have refined Ikanos' priorities, realigned our
resources to better serve our customers, and have begun to improve the way we
define our new products to address broader markets. These changes will help us
build upon our leadership position in designing and developing products that
enable advanced broadband services in the digital home."
Financial Highlights:
Revenue for the third quarter of 2008 was $24.2 million compared with
revenue of $29.9 million for the second quarter of 2008 and revenue of $27.3
million for the year ago period.
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), where applicable, excludes the income statement
effects of stock-based compensation, asset impairments, one time severance
expenses and certain expenses resulting from acquisitions such as amortization
of intangible assets, fair value adjustment of the acquired inventory and
in-process research and development charges. Ikanos has provided these
measures because 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 measures. For a reconciliation of GAAP versus non-GAAP financial
information, please see the attached schedule.
GAAP net loss for the third quarter of 2008 was $26.7 million, or $0.93
per share, on 28.6 million weighted average shares. This compares with a net
loss of $4.0 million, or $0.14 per share, on 29.3 million weighted average
shares in the second quarter of 2008 and with a net loss of $13.0 million, or
$0.45 per share, on 28.7 million weighted average shares in the third quarter
of 2007.
In the third quarter of 2008, the Company recorded asset impairment
charges of $18.7 million that included write-downs of prepaid license fees,
auction rate securities, goodwill and acquisition-related intangibles.
Non-GAAP net loss for the third quarter of 2008 was $2.2 million, or $0.08
per diluted share, on 28.6 million weighted average shares. This compares with
non-GAAP net income of $1.0 million, or $0.03 per diluted share, in the second
quarter of fiscal 2008, and with a non-GAAP net loss of $4.9 million, or $0.17
per share, in the third quarter of 2007.
Revenue for the nine months ended September 28, 2008 was $83.7 million, an
increase of 8%, compared with the $77.6 million reported for the nine months
ended September 30, 2007.
GAAP net loss for the nine months ended September 28, 2008 was $35.4
million, or $1.22 per share, on 29.1 million weighted average shares. This
compares with a net loss of $29.2 million, or $1.03 per share, on 28.4 million
weighted average shares for the year ago period.
Non-GAAP net loss for the nine months ended September 28, 2008 was $0.6
million, or $0.02 per share, compared with non-GAAP net loss of $12.4 million,
or $0.44 per share, for the year ago period. Weighted average shares used in
computing non-GAAP net income (loss) per share were 29.1 million in 2008 and
28.4 million in 2007.
Financial Advisor:
Ikanos has retained the investment banking firm Barclays Capital as its
financial advisor to assist it in exploring and evaluating strategic
alternatives to maximize shareholder value.
Outlook:
-- Revenue is expected to be between $22 million and $24 million for the
fourth quarter of 2008.
-- Non-GAAP gross margins are expected to be between 44% and 46% in the
fourth quarter of 2008. GAAP gross margins in the fourth quarter of 2008 will
be lower than non-GAAP gross margins, as they will include amortization of
acquisition-related intangibles of approximately $0.8 to $1.0 million and
charges related to stock-based compensation expense in accordance with FAS
123(R) of approximately $0.1 million.
-- Non-GAAP operating expenses are expected to be in the range of $13.5 to
$14.5 million in the fourth quarter of 2008. GAAP operating expenses in the
fourth quarter of 2008 will be higher, as they will include amortization of
acquisition-related intangibles of $0.4 million and charges related to stock-
based compensation expense in accordance with FAS 123(R) of $2.2 to $3.2
million.
Recent Highlights:
-- Ikanos chaired a session at Broadband World Forum Europe's technical
conference entitled the High Quality Home Delivery: the Role of Home
Networking Technology in Ensuring Quality of Experience. Presenters included
Alcatel-Lucent, Belgacom, France Telecom and Sagem Communications. In
addition, at the exhibition, Ikanos demonstrated many of its industry leading
technologies including Ikanos' Vx180 ADSL/VDSL triple play gateway, Vx170 FTTH
gateway, dual bearer dual latency Rapid Rate Adaptation technology and
integrated ONT/RG GPON technology.
-- Ikanos' latest VDSL2 central office (CO) and customer premises chipsets
have been selected by Zhone Technologies, Inc. (NASDAQ: ZHNE) for integration
into their next-generation Bitstorm-HP compact IP-DSLAM products. With Ikanos'
industry leading VDSL2 products, Zhone -- a global provider of advanced
communications equipment and a leader in enabling VoIP, IPTV, and Ethernet
over copper and fiber access lines -- plans to deliver broadband access
equipment capable of symmetrical speeds of up to 100 Megabits/second for
infrastructure upgrades to VDSL2 while also providing ADSL2+ compatibility
from the same device.
-- Ikanos' high performance residential gateway products -- including the
Fusiv(R) Vx160 processor, voice over Internet protocol (VoIP) engine and
multi-mode VDSL2/ADSL2+ chipsets -- have been integrated into Sagem
Communications' residential gateway. The Sagem F@st 3464 is being used as the
customer premises equipment (CPE) for a major European carrier's
next-generation VDSL2 access network, which is capable of delivering high
definition Internet protocol television (HD IPTV).
Third Quarter Fiscal Year 2008 Conference Call:
Management will review the third quarter of 2008 financial results and its
expectations for subsequent periods at a conference call on October 23rd at
1:30 p.m. Pacific Standard Time. To listen to the call, please visit
http://ir.ikanos.com/ and click on the link provided for the web cast or dial
706-902-1343 and enter pass code 63325164. The web cast will be archived and
available through October 29, 2008 at http://ir.ikanos.com/ or by calling
706-645-9291 and enter pass code 63325164.
About Ikanos Communications, Inc.
Ikanos Communications, Inc. (Nasdaq: IKAN) is a leading provider of
semiconductor and software products that deliver broadband to the digital
home. The company's multi-mode VDSL2/ADSLx, network processor and other
products power the access infrastructure and customer premises equipment for
many of the world's leading network equipment manufacturers and
telecommunications service providers. For more information, visit
http://www.ikanos.com.
(C) 2008 Ikanos Communications, Inc. All Rights Reserved. Ikanos
Communications, Ikanos, the Ikanos logo, Ikanos Programmable Operating System,
Arion, CleverConnect, Eagle, Fiber Fast, Fusiv, Fx, FxS, LoopNostics, Maximus,
Palladia, RRA, SmartLeap and VLR are among the trademarks or registered
trademarks of Ikanos.
Safe Harbor Statement under the Private Securities Litigation Reform Act
of 1995
This document contains forward-looking statements that involve risks and
uncertainties concerning Ikanos Communications, including statements regarding
the demand for its products, customers' expected deployment plans, expected
revenue for the fourth quarter of 2008, expected gross margins for the fourth
quarter of 2008, expected operating expenses for the fourth quarter of 2008,
and the on-going work of the Company's financial advisors in assisting with
evaluation of strategic alternatives. Actual events or results may differ
materially from those described in this document due to a number of risks and
uncertainties. These potential risks and uncertainties include, among others,
the ability of the Company to deliver full production releases of our newer
products that are accepted by our customers, the continued demand by
telecommunications service providers for ADSL and VDSL semiconductor products,
the failure of service providers to implement deployment plans on schedule or
at all, Ikanos' continued ability to deliver production volumes of new
products and technologies, our ability to generate demand and close
transactions for the sale of our products, unexpected future costs, expenses
and financing requirements, and the inability to execute strategic
alternatives which may be identified by our financial advisors and which would
result in greater returns for investors than actual results. In addition, for
a more extensive discussion of such risks and uncertainties, which could cause
actual results to differ from those contained in the forward-looking
statements, see the section entitled "Risk Factors" in Ikanos' Annual Report
on Form 10-K and Quarterly Report on Form 10-Q, as well as other reports that
Ikanos files from time to time with the Securities and Exchange Commission.
Ikanos is under no obligation to update these forward-looking statements to
reflect events or circumstances subsequent to date of this press release.

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

Three Months Ended Nine Months Ended
Sept. 28, Sept. 30, Sept. 28, Sept. 30,
2008 2007 2008 2007

Revenue $24,178 $27,275 $83,730 $77,601
Cost of revenue 14,212 17,190 48,265 47,060
Gross margin 9,966 10,085 35,465 30,541
Operating expenses:
Research and development 10,282 13,908 33,516 38,940
Selling, general and
administrative 8,142 6,832 20,282 20,973
Restructuring charges - 3,468 - 3,468
Asset impairments 12,496 - 12,496 -
Total operating expenses 30,920 24,208 66,294 63,381
Loss from operations (20,954) (14,123) (30,829) (32,840)
Investment impairment (6,166) - (6,166) -
Interest income, net 427 1,226 1,669 3,851
Loss before income taxes (26,693) (12,897) (35,326) (28,989)
Provision for income taxes (27) 70 97 224
Net loss $(26,666) $(12,967) $(35,423) $(29,213)

Basic and diluted net loss per
share $(0.93) $(0.45) $(1.22) $(1.03)
Weighted average number of shares 28,565 28,711 29,139 28,377

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

Three Months Ended
September 28, 2008

Non-GAAP
As Reported Adjustments Non-GAAP

Revenue $24,178 $- $24,178
Cost of revenue 14,212 7 (a) 13,090
(762)(b)
(367)(d)
Gross margin 9,966 (1,122) 11,088
Operating expenses:
Research and development 10,282 (1,185)(a) 8,870
(125)(b)
(102)(c)
Selling, general and
administrative 8,142 (2,035)(a) 4,864
(611)(b)
(632)(c)
Restructuring charges - - (e)
Asset impairments 12,496 (12,496)(f) -
Total operating expenses 30,920 (17,186) 13,734
Income (loss) from operations (20,954) 18,308 (2,646)
Investment impairment (6,166) 6,166 (g) -
Interest income and other, net 427 - 427
Income (loss) before income taxes (26,693) 24,474 (2,219)
Provision for income taxes (27) - (27)
Net income (loss) $(26,666) $24,474 $(2,192)

Net income (loss) per shares:
Basic $(0.93) $(0.08)
Diluted $(0.93) $(0.08)
Weighted average number of shares:
Basic 28,565 28,565
Diluted 28,565 28,565

Three Months Ended
September 30,2007

Non-GAAP
As Reported Adjustments Non-GAAP

Revenue $27,275 $- $27,275
Cost of revenue 17,190 (38)(a) 16,458
(694)(b)

Gross margin 10,085 (732) 10,817
Operating expenses:
Research and development 13,908 (2,067)(a) 11,716
(125)(b)

Selling, general and
administrative 6,832 (1,459)(a) 5,155
(218)(b)

Restructuring charges 3,468 (3,468)(e) -
Asset impairments - - -
Total operating expenses 24,208 (7,337) 16,871
Income (loss) from operations (14,123) 8,069 (6,054)
Investment impairment - - -
Interest income and other, net 1,226 - 1,226
Income (loss) before income taxes (12,897) 8,069 (4,828)
Provision for income taxes 70 - 70
Net income (loss) $(12,967) $8,069 $(4,898)

Net income (loss) per shares:
Basic $(0.45) $(0.17)
Diluted $(0.45) $(0.17)
Weighted average number of shares:
Basic 28,711 28,711
Diluted 28,711 28,711

Notes:
Three Months Ended
Sept. 28, Sept. 30,
2008 2007

(a) Stock-based compensation $3,213 $3,564
(b) Amortization of acquired intangible assets 1,498 1,037
(c) Severence 734 -
(d) Fair value adjustment of acquired inventory 367 -
(e) Restructuring charges - 3,468
(f) Asset impairments 12,496 -
(g) Investment impairment 6,166 -
Total non-GAAP adjustments $24,474 $8,069

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

Nine Months Ended
September 28, 2008

Non-GAAP
As Reported Adjustments Non-GAAP

Revenue $83,730 $- $83,730
Cost of revenue 48,265 (230)(a) 43,828
(2,744)(b)
(1,463)(d)
Gross margin 35,465 (4,437) 39,902
Operating expenses:
Research and development 33,516 (4,227)(a) 28,502
(375)(b)
(102)(c)
(310)(g)
Selling, general and
administrative 20,282 (4,189)(a) 13,562
(1,899)(b)
(632)(c)
Restructuring charges - -
Asset impairments 12,496 (12,496)(f) -
Total operating expenses 66,294 (24,230) 42,064
Income (loss) from operations (30,829) 28,667 (2,162)
Investment impairment (6,166) 6,166 (h) -
Interest income and other, net 1,669 - 1,669
Income (loss) before income taxes (35,326) 34,833 (493)
Provision for income taxes 97 - 97
Net income (loss) $(35,423) $34,833 $(590)

Net income (loss) per shares:
Basic $(1.22) $(0.02)
Diluted $(1.22) $(0.02)
Weighted average number of shares:
Basic 29,139 29,139
Diluted 29,139 29,139

Nine Months Ended
September 30, 2007

Non-GAAP
As Reported Adjustments Non-GAAP

Revenue $77,601 $- $77,601
Cost of revenue 47,060 (125)(a) 44,980
(1,955)(b)

Gross margin 30,541 (2,080) 32,621
Operating expenses:
Research and development 38,940 (5,814)(a) 32,751
(375)(b)

Selling, general and
administrative 20,973 (4,446)(a) 15,851
(676)(b)

Restructuring charges 3,468 (3,468)(e) -
Asset impairments - - -
Total operating expenses 63,381 (14,779) 48,602
Income (loss) from operations (32,840) 16,859 (15,981)
Investment impairment - - -
Interest income and other, net 3,851 - 3,851
Income (loss) before income taxes (28,989) 16,859 (12,130)
Provision for income taxes 224 - 224
Net income (loss) $(29,213) $16,859 $(12,354)

Net income (loss) per shares:
Basic $(1.03) $(0.44)
Diluted $(1.03) $(0.44)
Weighted average number of shares:
Basic 28,377 28,377
Diluted 28,377 28,377

Notes:
Nine Months Ended
Sept. 28, Sept. 30,
2008 2007

(a) Stock-based compensation $8,646 $10,385
(b) Amortization of acquired intangible assets 5,018 3,006
(c) Severence 734 -
(d) Fair value adjustment of acquired inventory 1,463 -
(e) Restructuring charges - 3,468
(f) Asset impairments 12,496 -
(g) In-process research and development 310 -
(h) Investment impairment 6,166 -
Total non-GAAP adjustments $34,833 $16,859

IKANOS COMMUNICATIONS, INC.
Unaudited Condensed Consolidated Balance Sheets
(In thousands)
September 28, December 30,
2008 2007
Assets
Current assets:
Cash, cash equivalents and short-term
investments $66,197 $83,972
Accounts receivable, net 13,756 17,081
Inventory 16,476 13,025
Prepaid expenses and other current assets 1,662 3,192
Total current assets 98,091 117,270
Long-term investments 1,034 7,001
Property and equipment, net 10,625 13,916
Intangible assets, net 7,425 6,564
Goodwill - 6,247
Other assets 620 2,158
$117,795 $153,156

Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $12,870 $12,852
Accrued liabilities 12,163 15,371
Total current liabilities 25,033 28,223
Stockholders' equity 92,762 124,933
$117,795 $153,156

SOURCE Ikanos Communications, Inc.

Investor Relations, Bonnie Mott, +1-510-438-5360, bmott@ikanos.com, or Media
Relations, Margo Westfall, +1-510-438-6276, mwestfall@ikanos.com, both of
Ikanos Communications