SOURCE: Ikanos Communications

Ikanos Communications

August 06, 2015 07:45 ET

Ikanos Communications Announces Results for Second Quarter 2015 and Proposed Sale

FREMONT, CA--(Marketwired - Aug 6, 2015) - Ikanos Communications, Inc. (NASDAQ: IKAN)

Second Quarter Highlights

  • Revenue of $11.1 million
  • Net loss of $(12.3) million, or $(0.72) per share
  • Ending cash and cash equivalents of $16.0 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 second quarter of 2015, ended June 28, 2015 and its proposed sale.

"As announced earlier today by Qualcomm, Ikanos has entered into a definitive agreement to be acquired by Qualcomm Atheros, Inc., a subsidiary of Qualcomm Incorporated," said Dennis Bencala, CFO of Ikanos. "I am also pleased to announce that second quarter revenue was $11.1 million, above the mid-point of our guidance. Gross profit was 51%, which was below our guidance for the quarter, primarily due to a change in our product mix. Operating expenses came in at the low end of our guidance at $17.5 million, resulting in cash and short-term investments of $16.0 million at the end of the quarter."

About the Tender Offer and Merger

On August 5, 2015, Qualcomm Atheros, Inc., a subsidiary of Qualcomm Incorporated, King Acquisition Co., a subsidiary of Qualcomm Atheros, and Ikanos entered into an Agreement and Plan of Merger (the "Merger Agreement"). Pursuant to the Merger Agreement, Qualcomm Atheros, through King Acquisition Co., will commence a tender offer (the "Offer") to acquire all of the issued and outstanding shares (the "Shares") of Ikanos common stock, $0.001 par value, for $2.75 per share, without interest (the "Offer Price"), in cash, subject to any applicable withholding taxes, and assume all outstanding indebtedness at the closing of the transaction.

Consummation of the Offer is subject to various conditions, including, but not limited to at least a majority of Shares being tendered in the Offer; the receipt of required regulatory approvals and other conditions set forth in the Merger Agreement.

Following consummation of the Offer, King Acquisition Co. will merge with and into Ikanos with Ikanos surviving as a subsidiary of Qualcomm Atheros (the "Merger"). In the Merger, each Share that is not tendered and accepted pursuant to the Offer (other than the Shares held in the treasury of Ikanos, Shares held directly or indirectly by Qualcomm Atheros or its subsidiaries, and Shares as to which appraisal rights have been perfected in accordance with applicable law) will be cancelled and converted into the right to receive the Offer Price, on the terms and conditions set forth in the Merger Agreement.

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 2015 Results

Revenue for the second quarter of 2015 was $11.1 million, compared to revenue of $11.3 million for the second quarter of 2014 and revenue of $10.2 million for the first quarter of 2015. Gross profit for the second quarter of 2015 was 51%, compared to gross profit of 49% for the second quarter of 2014 and gross profit of 49% for the first quarter of 2015.

Non-GAAP gross profit for the second quarter of 2015 was 53%, compared to a non-GAAP gross profit of 50% for the second quarter of 2014 and 50% for the first quarter of 2015.

Operating expenses for the second quarter of 2015 were $17.5 million, compared to operating expenses of $17.5 million for the second quarter of 2014 and operating expenses of $16.8 million for the first quarter of 2015.

Non-GAAP operating expenses for the second quarter of 2015 were $16.6 million, compared to non-GAAP operating expenses of $16.6 million for the second quarter of 2014 and non-GAAP operating expenses of $15.8 million for the first quarter of 2015.

Net loss for the second quarter of 2015 was $(12.3) million, or a loss of $(0.72) per share on 17.1 million weighted average shares outstanding, compared to a net loss of $(12.3) million, or $(1.24) per share on 9.9 million weighted average shares outstanding, for the second quarter of 2014 and a net loss of $(12.0) million, or $(0.77) per share on 15.6 million weighted shares outstanding, for the first quarter of 2015.

Non-GAAP net loss for the second quarter of 2015 was $(11.3) million, or a loss of $(0.66) per share on 17.1 million weighted average shares outstanding, compared to a non-GAAP net loss of $(11.3) million, or $(1.14) per share on 9.9 million weighted average shares outstanding, for the second quarter of 2014 and a non-GAAP loss of $(10.8) million, or $(0.69) per share on 15.6 million weighted average shares outstanding, for the first quarter of 2015.

Cash and cash equivalents at the end of the second quarter of 2015 were $16.0 million, compared to $13.0 million at the end of the first quarter of 2015. Additionally, at the end of the second quarter of 2015, inventory was $2.0 million, compared to $2.1 million at the end of the first quarter of 2015. Current liabilities at the end of the second quarter of 2015 were $20.6 million, compared to $18.1 million at the end of the first quarter of 2015. For both the second quarter of 2015 and first quarter of 2015, current liabilities included an accounts receivable-backed revolving line of credit advance of $5.0 million. The second quarter of 2015 reflects our $10.0 million term loan from Alcatel-Lucent, net of debt discount of $0.5 million.

For a more complete review of our second quarter 2015 results please see the attached financial schedules.

Outlook and Second Quarter Earnings Call

Given the pending acquisition by Qualcomm Atheros, Ikanos will not be providing guidance for the third quarter and will not be holding a second quarter results conference call.

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.

© 2015 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, Inc. 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 that are not statements of historical fact 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. Forward-looking statements include statements relating to the potential acquisition of the company by Qualcomm Atheros.

Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those indicated in these forward looking statements. These risks and uncertainties include, but are not limited to, the following: the risk that the acquisition of the company may not be completed in a timely manner, if at all; risks relating to the consummation of the Offer and the Merger, including the risk that closing conditions to the Offer or the proposed Merger will not be satisfied; changes in business relationships or litigation or adverse judgments relating to the Offer or the proposed Merger; delays or issues related to inquiries by, or requests or directions from, governmental authorities, including antitrust authorities, in connection with their reviews of the transaction; changes in general economic or industry-specific conditions, as well as the risks set forth in our reports filed with SEC (available at www.sec.gov), including the risks set forth in the section entitled "Risk Factors" in our Quarterly Report on Form 10-Q for the quarter ended March 29, 2015. These forward-looking statements speak only as of the date hereof. Ikanos Communications, Inc. disclaims any obligation to update these forward-looking statements.

The Offer described herein has not yet commenced. This press release shall not constitute an offer to sell or the solicitation of an offer to buy any securities, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. Any offer will only be made through a Tender Offer Statement on Schedule TO, which will contain an offer to purchase, form of letter of transmittal and other documents relating to the tender offer (collectively, the " Offer Materials"), each to be filed with the SEC by King Acquisition Co.. In addition, Ikanos will file with the SEC a solicitation/recommendation statement on Schedule 14D-9 with respect to the Offer. King Acquisition Co. and Ikanos expect to mail the Offer Materials and the Schedule 14D-9 to Ikanos stockholders. Investors and stockholders are urged to carefully read these documents and the other documents relating to the transactions contemplated by the Merger Agreement when they become available because these documents will contain important information relating to the Offer and related transactions. The Offer Materials and the Schedule 14D-9 will also be available at no cost on the SEC's web site at www.sec.gov.

 
IKANOS COMMUNICATIONS, INC.
Unaudited Condensed Consolidated Statements of Operations
(In thousands, except per share data)
         
    Three Months Ended   Six Months Ended
    June 28,
2015
  June 29,
2014
  June 28,
2015
  June 29,
2014
                 
Revenue   $ 11,068     $ 11,255     $ 21,249     $ 25,768  
Cost of revenue     5,392       5,775       10,585       13,211  
    Gross profit     5,676       5,480       10,664       12,557  
Operating expenses:                                
  Research and development     12,618       13,408       24,431       26,084  
  Selling, general and administrative     4,901       4,105       9,907       8,926  
    Total operating expenses     17,519       17,513       34,338       35,010  
Loss from operations     (11,843 )     (12,033 )     (23,674 )     (22,453 )
  Interest and other income (expense), net     (378 )     (129 )     (486 )     113  
Loss before income taxes     (12,221 )     (12,162 )     (24,160 )     (22,340 )
  Provision for income taxes     95       168       149       295  
Net loss   $ (12,316 )   $ (12,330 )   $ (24,309 )   $ (22,635 )
                                 
Net loss per share                                
  Basic and diluted   $ (0.72 )   $ (1.24 )   $ (1.49 )   $ (2.29 )
Weighted average number of shares                                
  Basic and diluted     17,103       9,910       16,339       9,893  
                                   
 
IKANOS COMMUNICATIONS, INC.
Unaudited Condensed Consolidated Statements of Operations
(In thousands, except per share data)
 
    Three Months Ended
    June 28,
2015
  March 29,
2015
  June 29,
2014
             
Revenue   $ 11,068     $ 10,181     $ 11,255  
Cost of revenue     5,392       5,193       5,775  
    Gross profit     5,676       4,988       5,480  
Operating expenses:                        
  Research and development     12,618       11,813       13,408  
  Selling, general and administrative     4,901       5,006       4,105  
    Total operating expenses     17,519       16,819       17,513  
Loss from operations     (11,843 )     (11,831 )     (12,033 )
  Interest and other income (expense), net     (378 )     (108 )     (129 )
Loss before income taxes     (12,221 )     (11,939 )     (12,162 )
  Provision for income taxes     95       54       168  
Net loss   $ (12,316 )   $ (11,993 )   $ (12,330 )
                         
Basic and diluted net loss per share   $ (0.72 )   $ (0.77 )   $ (1.24 )
Weighted average outstanding shares:                        
  Basic and diluted     17,103       15,575       9,910  
                           
 
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 28, 2015   Three Months Ended June 29, 2014
    As Reported   Non-GAAP Adjustments     Non-GAAP   As Reported   Non-GAAP Adjustments     Non-GAAP
Revenue   $ 11,068     $ -         $ 11,068     $ 11,255     $ -         $ 11,255  
Cost of revenue     5,392       (15 ) (a )     5,257       5,775       (3 ) (a )     5,652  
              (120 ) (b )                     (120 ) (b )        
                                                         
    Gross profit     5,676       (135 )         5,811       5,480       (123 )         5,603  
                                                         
Operating expenses:                                                        
  Research and development     12,618       (494 ) (a )     12,124       13,408       (595 ) (a )     12,813  
                                                         
  Selling, general and administrative     4,901       (433 ) (a )     4,468       4,105       (325 ) (a )     3,780  
                                                         
    Total operating expenses     17,519       (927 )         16,592       17,513       (920 )         16,593  
Loss from operations     (11,843 )     1,062           (10,781 )     (12,033 )     1,043           (10,990 )
  Interest and other income (expense), net     (378 )     -           (378 )     (129 )     -           (129 )
Loss before income taxes     (12,221 )     1,062           (11,159 )     (12,162 )     1,043           (11,119 )
  Provision for income taxes     95       -           95       168       -           168  
Net loss   $ (12,316 )   $ 1,062         $ (11,254 )   $ (12,330 )   $ 1,043         $ (11,287 )
                                                         
Net loss per share:                                                        
  Basic and diluted   $ (0.72 )               $ (0.66 )   $ (1.24 )               $ (1.14 )
                                                         
Weighted average outstanding shares:                                                        
  Basic and diluted     17,103                   17,103       9,910                   9,910  
                                                           
         
Notes:     Three Months Ended
      June 28,
2015
  June 29,
2014
(a) Stock-based compensation   $ 942   $ 923
(b) Amortization of acquired intangible assets     120     120
  Total non-GAAP adjustments   $ 1,062   $ 1,043
               
 
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 29, 2015
    As Reported   Non-GAAP
Adjustments
    Non-GAAP
Revenue   $ 10,181     $ -         $ 10,181  
Cost of revenue     5,193       (22 ) (a )     5,052  
              (119 ) (b )        
                             
    Gross profit     4,988       (141 )         5,129  
                             
Operating expenses:                            
  Research and development     11,813       (612 ) (a )     11,201  
                             
  Selling, general and administrative     5,006       (451 ) (a )     4,555  
                             
    Total operating expenses     16,819       (1,063 )         15,756  
Loss from operations     (11,831 )     1,204           (10,627 )
  Interest and other income (expense), net     (108 )     -           (108 )
Loss before income taxes     (11,939 )     1,204           (10,735 )
  Provision for income taxes     54       -           54  
Net loss   $ (11,993 )   $ 1,204         $ (10,789 )
                             
Net loss per share:                            
  Basic and diluted   $ (0.77 )               $ (0.69 )
                             
Weighted average outstanding shares:                            
  Basic and diluted     15,575                   15,575  
                               
Notes:       Three Months Ended
        March 29, 2015
(a)   Stock-based compensation   $ 1,085
(b)   Amortization of acquired intangible assets     119
    Total non-GAAP adjustments   $ 1,204
           
 
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 28, 2015   Six Months Ended June 29, 2014
    As Reported   Non-GAAP Adjustments     Non-GAAP   As Reported   Non-GAAP Adjustments     Non-GAAP
Revenue   $ 21,249     $ -         $ 21,249     $ 25,768     $ -         $ 25,768  
Cost of revenue     10,585       (36 ) (a )     10,310       13,211       (6 ) (a )     12,965  
              (239 ) (b )                     (240 ) (b )        
    Gross profit     10,664       (275 )         10,939       12,557       (246 )         12,803  
                                                         
Operating expenses:                                                        
  Research and development     24,431       (1,106 ) (a )     23,325       26,084       (1,235 ) (a )     24,849  
                                                         
  Selling, general and administrative     9,907       (885 ) (a )     9,022       8,926       (671 ) (a )     8,255  
                                                         
    Total operating expenses     34,338       (1,991 )         32,347       35,010       (1,906 )         33,104  
Loss from operations     (23,674 )     2,266           (21,408 )     (22,453 )     2,152           (20,301 )
  Interest and other income (expense), net     (486 )     -           (486 )     113       -           113  
Loss before income taxes     (24,160 )     2,266           (21,894 )     (22,340 )     2,152           (20,188 )
  Provision for income taxes     149       -           149       295       -           295  
Net loss   $ (24,309 )   $ 2,266         $ (22,043 )   $ (22,635 )   $ 2,152         $ (20,483 )
                                                         
Net loss per share:                                                        
  Basic and diluted   $ (1.49 )               $ (1.35 )   $ (2.29 )               $ (2.07 )
                                                         
Weighted average outstanding shares:                                                        
  Basic and diluted     16,339                   16,339       9,893                   9,893  
                                                           
Notes:     Six Months Ended
      June 28,
2015
  June 29,
2014
(a) Stock-based compensation   $ 2,027   $ 1,912
(b) Amortization of acquired intangible assets     239     240
  Total non-GAAP adjustments   $ 2,266   $ 2,152
               
 
IKANOS COMMUNICATIONS, INC.
Unaudited Condensed Consolidated Balance Sheets
(In thousands)
             
    June 28,
2015
  March 29,
2015
  December 28, 2014
Assets            
Current assets:            
  Cash, cash equivalents and short-term investments   $ 16,032   $ 12,965   $ 15,691
  Accounts receivable     10,765     11,364     13,849
  Inventory     1,991     2,117     1,964
  Prepaid expenses and other current assets     1,799     2,612     3,682
    Total current assets     30,587     29,058     35,186
Property and equipment, net     13,947     13,908     8,581
Other assets     2,018     2,184     2,343
    $ 46,552   $ 45,150   $ 46,110
                   
Liabilities and Stockholders' Equity                  
Current liabilities:                  
  Revolving line   $ 4,979   $ 5,000   $ 10,841
  Accounts payable     4,553     4,019     5,054
  Accrued liabilities     11,042     9,063     6,460
    Total current liabilities     20,574     18,082     22,355
Long-term debt     9,528     -     -
Other liabilities     5,195     4,424     1,740
    Total liabilities     35,297     22,506     24,095
Stockholders' equity     11,255     22,644     22,015
    $ 46,552   $ 45,150   $ 46,110