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Ikanos Communications Announces Results for the Third Quarter 2014

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

Third Quarter Highlights

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 (800) 768-6569 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 (888) 203-1112 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   September   September   September 
                              28, 2014    29, 2013    28, 2014    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   June 29,    September 
                                          28, 2014      2014      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                 
                                     ------------------------------------ 
                                         As       Non-GAAP                
                                      Reported  Adjustments      Non-GAAP 
                                     ---------  -----------     --------- 
Revenue                              $  11,079  $         -     $  11,079 
Cost of revenue                          6,227           (4) (a)    6,104 
                                                       (119) (b)          
                                                                          
                                     ---------  -----------     --------- 
    Gross profit                         4,852         (123)        4,975 
                                     ---------  -----------     --------- 
                                                                          
Operating expenses:                                                       
  Research and development              10,822         (531) (a)   10,291 
                                                                          
  Selling, general and                                                    
   administrative                        4,000         (343) (a)    3,657 
                                                                          
                                     ---------  -----------     --------- 
    Total operating expenses            14,822         (874)       13,948 
                                     ---------  -----------     --------- 
Loss from operations                    (9,970)         997        (8,973)
  Interest and other income                                               
   (expense), net                         (120)           -          (120)
                                     ---------  -----------     --------- 
Loss before income taxes               (10,090)         997        (9,093)
  Provision for income taxes               190            -           190 
                                     ---------  -----------     --------- 
Net loss                             $ (10,280) $       997     $  (9,283)
                                     =========  ===========     ========= 
                                                                          
Net loss per share:                                                       
  Basic and diluted                  $   (0.10)                 $   (0.09)
                                     =========                  ========= 
                                                                          
Weighted average outstanding shares:                                      
  Basic and diluted                     99,284                     99,284 
                                     =========                  ========= 

                                                                            
                                      Three Months Ended September 29, 2013 
                                     -------------------------------------- 
                                         As       Non-GAAP                  
                                      Reported  Adjustments       Non-GAAP  
                                     ---------  -----------      ---------- 
Revenue                              $  16,900  $         -      $   16,900 
Cost of revenue                          8,263           (2) (a)      8,141 
                                                       (120) (b)            
                                                                            
                                     ---------  -----------      ---------- 
    Gross profit                         8,637         (122)          8,759 
                                     ---------  -----------      ---------- 
                                                                            
Operating expenses:                                                         
  Research and development              12,455         (673) (a)     11,782 
                                                                            
  Selling, general and                                                      
   administrative                        4,589         (250) (a)      4,255 
                                                        (84) (b)            
                                     ---------  -----------      ---------- 
    Total operating expenses            17,044       (1,007)         16,037 
                                     ---------  -----------      ---------- 
Loss from operations                    (8,407)       1,129          (7,278)
  Interest and other income                                                 
   (expense), net                         (147)           -            (147)
                                     ---------  -----------      ---------- 
Loss before income taxes                (8,554)       1,129          (7,425)
  Provision for income taxes               111            -             111 
                                     ---------  -----------      ---------- 
Net loss                             $  (8,665) $     1,129      $   (7,536)
                                     =========  ===========      ========== 
                                                                            
Net loss per share:                                                         
  Basic and diluted                  $   (0.12)                  $    (0.11)
                                     =========                   ========== 
                                                                            
Weighted average outstanding shares:                                        
  Basic and diluted                     71,662                       71,662 
                                     =========                   ========== 

                                                                                                                    

                                                                        
Notes:                                           Three Months Ended     
                                            --------------------------- 
                                             September        September 
                                              28, 2014        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     
                                  ----------------------------------------- 
                                                 Non-GAAP                   
                                  As 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 
                                  ===========                   =========== 
                                                                            
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 
                                      ------------------------------------- 
                                          As       Non-GAAP                 
                                       Reported  Adjustments       Non-GAAP 
                                      ---------  -----------      --------- 
Revenue                               $  36,847  $         -      $  36,847 
Cost of revenue                          19,438          (10) (a)    19,069 
                                                        (359) (b)           
                                      ---------  -----------      --------- 
    Gross profit                         17,409         (369)        17,778 
                                      ---------  -----------      --------- 
                                                                            
Operating expenses:                                                         
  Research and development               36,906       (1,767) (a)    35,139 
                                                                            
  Selling, general and administrative    12,926       (1,016) (a)    11,910 
                                                                            
                                                                            
                                      ---------  -----------      --------- 
    Total operating expenses             49,832       (2,783)        47,049 
                                      ---------  -----------      --------- 
Loss from operations                    (32,423)       3,152        (29,271)
  Interest and other income                                                 
   (expense), net                            (7)           -             (7)
                                      ---------  -----------      --------- 
Loss before income taxes                (32,430)       3,152        (29,278)
  Provision for income taxes                485            -            485 
                                      ---------  -----------      --------- 
Net loss                              $ (32,915) $     3,152      $ (29,763)
                                      =========  ===========      ========= 
                                                                            
Net loss per share:                                                         
  Basic and diluted                   $   (0.33)                  $   (0.30)
                                      =========                   ========= 
                                                                            
Weighted average outstanding shares:                                        
  Basic and dilluted                     99,045                      99,045 
                                      =========                   ========= 

                                                                            
                                       Nine Months Ended September 29, 2013 
                                      ------------------------------------- 
                                          As       Non-GAAP                 
                                       Reported  Adjustments       Non-GAAP 
                                      ---------  -----------      --------- 
Revenue                               $  62,167  $         -      $  62,167 
Cost of revenue                          30,272           (5) (a)    29,908 
                                                        (359) (b)           
                                      ---------  -----------      --------- 
    Gross profit                         31,895         (364)        32,259 
                                      ---------  -----------      --------- 
                                                                            
Operating expenses:                                                         
  Research and development               38,572       (1,795) (a)    36,777 
                                                                            
  Selling, general and administrative    14,227         (850) (a)    13,044 
                                                        (333) (b)           
                                                                            
                                      ---------  -----------      --------- 
    Total operating expenses             52,799       (2,978)        49,821 
                                      ---------  -----------      --------- 
Loss from operations                    (20,904)       3,342        (17,562)
  Interest and other income                                                 
   (expense), net                          (507)           -           (507)
                                      ---------  -----------      --------- 
Loss before income taxes                (21,411)       3,342        (18,069)
  Provision for income taxes                343            -            343 
                                      ---------  -----------      --------- 
Net loss                              $ (21,754) $     3,342      $ (18,412)
                                      =========  ===========      ========= 
                                                                            
Net loss per share:                                                         
  Basic and diluted                   $   (0.31)                  $   (0.26)
                                      =========                   ========= 
                                                                            
Weighted average outstanding shares:                                        
  Basic and dilluted                     71,086                      71,086 
                                      =========                   ========= 

                                                 

                                                                        
Notes:                                            Nine Months Ended     
                                             -------------------------- 
                                              September       September 
                                               28, 2014        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,                 December 29, 
                                     2014       June 29, 2014      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
                                ============== ============== ==============