Isilon: Fiscal 4Q07 and FY07 Financial Results

Isilon Systems 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.

Isilon Systems