Releases

posted on 03 April 2008 14:42

SEATTLE, WA - April 2, 2008 - Isilon® Systems (NASDAQ: ISLN) today announced its financial results for the fiscal year ended December 30, 2007, including the third and fourth quarters of 2007.

Isilon also announced that its Audit Committee has concluded its independent review of the timing and treatment of revenue recognition and the Company has completed the restatement of financial statements for certain previous periods. The Company filed its Quarterly Report on Form 10-Q for the third quarter of 2007 and its 2007 Annual Report on Form 10-K with the Securities and Exchange Commission ("SEC"). >

Isilon today reported that revenue for the 2007 fiscal year was $89.0 million. Revenue for the third and fourth quarters of 2007 was $21.6 million and $26.6 million, respectively.

Restatement of Prior Period Financial Statements

The Audit Committee, assisted by independent forensic accounting and legal advisors, has completed its review of the Company's prior revenue recognition practices. The Board of Directors, based on the recommendation of the Audit Committee, concluded that the Company should restate its financial statements for the fourth quarter and fiscal year ended December 31, 2006, and for the first and second quarters of fiscal 2007 ended April 1, 2007, and July 1, 2007, respectively. A detailed description of the Audit Committee's findings and of the restatement are included in the Company's 2007 Annual Report on Form 10-K that was filed today.

As a result of the Audit Committee's review, the Company identified errors in its previous recognition of revenue. To correct these errors, $7.0 million of the $67.4 million of revenue previously recorded from the fourth quarter of 2006 through the second quarter of 2007 has been adjusted. Of the $7.0 million of adjusted revenue, $4.0 million was reversed and will not be recorded as revenue in any future period. The remaining $3.0 million of the adjusted revenue was reversed, with $0.5 million and $1.5 million recognized as revenue in the third and fourth quarters of 2007, respectively, and the remaining $1.0 million expected to be recognized as revenue in fiscal 2008.

As noted in the Annual Report on Form 10-K and the Quarterly Report on Form 10-Q filed today, a material weakness was identified as of September 30, 2007, which rendered the Company's disclosure controls and procedures ineffective. As a result of actions taken during the quarter and fiscal year ended December 30, 2007, it has been concluded that the material weakness has been remediated and that the Company's internal control over financial reporting was effective as of December 30, 2007.

2007 Financial Summary: Third Quarter, Fourth Quarter and Full Year

In addition to disclosing financial measures prepared in accordance with Generally Accepted Accounting Principles (GAAP), this press release contains non-GAAP financial measures. For a description of these non-GAAP financial measures, including the reasons why management uses each measure, the inherent limitations of non-GAAP measures and reconciliations to the most directly comparable GAAP financial measures, please see the section of the accompanying tables titled "Use of Non-GAAP Financial Measures" as well as the related tables that follow it.

Financial statements for each period are included at the end of this press release. Data refers to periods in 2007 unless noted and includes the effect of the restatement.
Revenue for the third quarter was $21.6 million and for the fourth quarter was $26.6 million. Revenue for fiscal 2007 was $89.0 million, compared with $61.2 million for fiscal 2006.

Gross margin for the third quarter was 55.7 percent and for the fourth quarter was 52.7 percent. Gross margin for fiscal 2007 was 52.0 percent, compared with 52.9 percent in 2006. On a non-GAAP basis, gross margin for fiscal 2007 was 52.1 percent, compared with 53.0 percent for 2006.

Loss from operations for the third quarter was $8.3 million and for the fourth quarter was $8.8 million. Loss from operations for fiscal 2007 was $31.2 million, compared with $16.0 million in fiscal 2006. On a non-GAAP basis, loss from operations for the third quarter was $7.0 million, and for the fourth quarter was $7.5 million. Non-GAAP loss from operations for fiscal 2007 was $27.2 million, compared with $15.3 million in fiscal 2006.

Net loss for the third quarter was $7.2 million, or $0.12 per share, and for the fourth quarter was $7.9 million, or $0.13 per share. Net loss for fiscal 2007 was $26.9 million, or $0.44 per share, based on 61.5 million shares outstanding. This compares with net loss for fiscal 2006 of $26.0 million, or $3.09 per share, based on 8.4 million shares outstanding. On a non-GAAP basis, net loss for the third quarter was $5.9 million, or $0.10 per share, and for the fourth quarter was $6.6 million, or $0.11 per share. Non-GAAP net loss for fiscal 2007 was $23.0 million, or $0.37 per share, based on 61.5 million shares outstanding. This compares with non-GAAP net loss for fiscal 2006 of $16.9 million, or $0.34 per share, based on 49.6 million shares outstanding.

At December 31, 2007, cash, cash equivalents and marketable securities were $85.9 million, compared with $99.9 million at the end of 2006, and the company had no outstanding debt.

Operating results in the fourth quarter of 2007 were impacted by $1.5 million in professional fees and expenses related to the Audit Committee's independent review. In completing the Audit Committee review, the Company expects additional fees and expenses in the range of $2.5 million to $3.0 million in the first quarter of 2008.

Status of NASDAQ Listing

As previously announced, the Company received a notice from The NASDAQ Stock Market stating that the company is not in compliance with NASDAQ's Marketplace Rule 4310(c)(14) because the Company had not timely filed its periodic report for the quarter ended September 30, 2007, with the SEC. With the conclusion of the Company's financial restatement and filing of the Company's Form 10-Q for the quarter ended September 30, 2007, and Form 10-K for fiscal year 2007, the Company believes that it has now regained compliance with the requirements for continued listing on The NASDAQ Stock Market.

About Isilon Systems

Isilon Systems (NASDAQ: ISLN) is the worldwide leader in clustered storage systems and software for digital content and unstructured data, enabling enterprises to transform data into information - and information into breakthroughs. Isilon's award-winning family of IQ clustered storage systems combines Isilon's OneFS® operating system software with the latest advances in industry-standard hardware to deliver modular, pay-as-you-grow, enterprise-class storage systems. Isilon's clustered storage solutions speed access to critical business information while dramatically reducing the cost and complexity of storing it. Information about Isilon can be found at http://www.isilon.com.

^{[Formatted by Paul Warren.]}