Isilon Restates its Financial Figures

Isilon Systems, Inc.
announced that, on February 29, 2008, the Company’s Board
of Directors, based upon the recommendation of the Audit Committee, determined
that the Company should restate its financial statements for 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. Accordingly, the Company’s
previously released financial statements for these periods and all related
earnings press releases and communications relating to these periods should no
longer be relied upon. The Company has discussed this conclusion with its
independent registered public accounting firm.

The Audit Committee, assisted by independent forensic accounting and legal
advisors, has been conducting an independent review of certain sales to
resellers and other customers to determine whether commitments were made that
have an impact on the timing and treatment of revenue recognition and whether
the Company’s internal controls relating to revenue recognition are sufficient.
The Audit Committee has identified errors in the Company’s previous
recognition of revenue. In addition, the Audit Committee recommended the
consideration and adoption of certain remedial measures, enhanced training,
and modification of revenue recognition policies and procedures. The Company
is reassessing its conclusions regarding the effectiveness of its disclosure
controls and procedures.

The Audit Committee concluded that none of the Company’s current senior
executives engaged in improper practices or are otherwise responsible for the
errors in revenue recognition.

The Company estimates that $7.0 million of the approximately $67.4 million
of previously reported revenue from the fourth quarter of 2006 through the
second quarter of 2007 is expected to be adjusted. Approximately $3.0 million
of the adjusted revenue will be recorded in periods subsequent to the second
quarter of 2007. Approximately $2.1 million of the adjustment is not expected
to be recorded as revenue, and approximately $1.9 million of the adjustment
will be reversed and recorded as revenue only to the extent that products are
sold through to end-user customers and collection is reasonably assured and
all other criteria for the recognition of revenue are met.

For the fourth quarter of 2006, the Company estimates that restated
revenues will be $19.6 million compared to previously reported revenues of
$20.7 million and that net loss per share will increase to $0.75 from
$0.72. For fiscal 2006, restated revenues are expected to be $61.2 million
compared to previously reported revenues of $62.3 million. Net loss per share
for fiscal 2006 is expected to be $3.09 per share compared to the previously
reported $3.02 per share. For the first quarter of 2007, the Company
estimates that restated revenues will be $17.8 million, compared to previously
reported revenues of $21.6 million, and that net loss will increase to
$0.11 per share compared to the previously reported $0.06 per share. For the
second quarter of 2007, the Company estimates that restated revenues will be
$22.9 million, compared to previously reported revenues of $25.1 million and
that net loss will increase to $0.08 per share compared to the previously
reported $0.06 per share.

The Company has identified the following principal errors:

• For sales to resellers, the Company’s accounting policy is to recognize revenue upon shipment provided that certain criteria are met, including persuasive evidence of an identified end-user customer and evidence of a reseller’s ability to pay. In certain instances, however, revenue was recognized when persuasive evidence of an end-user did not exist, when oral arrangements may have existed that would have precluded revenue recognition or when resellers did not have the ability or intent to pay independent of payment by the end-user customer. Revenue from these transactions is being adjusted and will be recognized upon sell-through of the product to end-users and when collection is reasonably assured.
• The Company recognized revenue in a transaction with a customer that included a commitment from the Company to acquire software from the customer. Based upon facts discovered during the investigation, the Company has now concluded that revenue recognition was inconsistent with the accounting rules applicable to reciprocal sales transactions.
• The Company recognized revenue on a sale directly to an end-user customer for which the terms and conditions were not fixed or determinable. This revenue will be recognized in a subsequent period when the terms become fixed or determinable and all other criteria for the recognition of revenue are met.

Isilon Systems, Inc.