EX-99.1 2 ex99_1.htm PRESS RELEASE ex99_1.htm
Exhibit 99.1
 

FOR RELEASE
4:01 p.m. ET
October 30, 2008

ISILON SYSTEMS ANNOUNCES 2008 THIRD QUARTER FINANCIAL RESULTS
 
Record Revenues and Increased Operating Leverage Drive Continued Bottom Line Improvement;

Company’s Fifth Generation Clustered Storage Systems Set Standard For Scale-Out File Storage


SEATTLE, WA — October 30, 2008 — Isilon® Systems (NASDAQ: ISLN), the leader in clustered storage, today announced its financial results for the third quarter ended September 30, 2008.  Revenue for the third quarter was $30.3 million, up 8 percent sequentially compared with $28.2 million in the second quarter of 2008.  Revenue increased 40 percent compared with $21.6 million in the third quarter of 2007.

“In the third quarter, our solid execution in growing revenue and driving increased operating leverage in our business generated significant bottom line improvement and positive cash flows,” said Sujal Patel, President and Chief Executive Officer, Isilon Systems.  “Our customers are deriving significant value from Isilon’s ‛pay-as-you-grow’ clustered storage solutions which provide the flexibility to align capital expenditures directly with the inevitable growth of file-based data.”

During the third quarter, Isilon released its OneFS 5.0® operating system software and the new Accelerator-x.  “In addition to our strong operational performance in the quarter, Isilon released its fifth generation clustered systems, setting the standard for scale-out file storage in the enterprise,” said Patel.

Financial results for the third quarter of 2008 included the following:
 
 
·
Gross margin for the third quarter of 2008 was 57.2 percent, compared with 56.9 percent in the second quarter of 2008.  Gross margin in the third quarter last year was 55.7 percent.  On a non-GAAP basis, gross margin for the third quarter was 57.3 percent, compared with 57.0 percent in the second quarter of 2008.  Non-GAAP gross margin in the third quarter last year was 55.9 percent.

 
·
Loss from operations for the third quarter of 2008 was $5.2 million, compared with $6.4 million in the second quarter of 2008.  Loss from operations in the third quarter last year was $8.3 million.  On a non-GAAP basis, loss from operations for the third quarter of 2008 was $3.6 million, compared with $4.9 million in the second quarter of 2008.  Non-GAAP loss from operations in the third quarter last year was $7.0 million.

 
·
Net loss for the third quarter of 2008 was $4.8 million, or $0.08 per share, compared with net loss of $5.8 million, or $0.09 per share, in the second quarter of 2008.  Net loss in the third quarter last year was $7.2 million, or $0.12 per share.  Non-GAAP net loss for the third quarter was $3.3 million, or $0.05 per share, compared with non-GAAP net loss of $4.3 million, or $0.07 per share, in the second quarter of 2008.  Non-GAAP net loss in the third quarter last year was $5.9 million, or $0.10 per share.

 
·
As of September 30, 2008, cash, cash equivalents and marketable securities were $76.7 million, compared with $75.1 million as of June 30, 2008

 
 
 


Conference Call

Isilon management will host a conference call today at 2:00 p.m. PT (5:00 p.m. ET) to discuss Isilon’s third quarter financial results.  The call will be accessible via webcast on the Investor Relations section of Isilon’s website at www.isilon.com/company/, where it will be archived.  In addition, the live conference call will be accessible by telephone at 866-825-3209 or 617-213-8061; the passcode is 46417142.

A replay of the conference call will be available by telephone approximately two hours after the call ends until 9:00 p.m. PT (12:00 midnight ET), November 13, 2008, at 888-286-8010 or 617-801-6888; the passcode for the replay is 71344791.
 
About Isilon Systems

Isilon Systems (NASDAQ: ISLN) is the worldwide leader in clustered storage systems and software for file-based 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.
Use of Non-GAAP Financial Measures

To supplement our consolidated financial statements prepared in accordance with GAAP, this press release includes non-GAAP gross margin, non-GAAP loss from operations, non-GAAP net loss, and non-GAAP loss per share.  Isilon provides non-GAAP information to enhance investors’ overall understanding of the company’s current financial performance and the company’s prospects for the future and to aid in comparing current operating results with those of past periods.  The company believes the non-GAAP measures provide useful information to management and investors by excluding certain items that may not be indicative of Isilon’s core operating results and business outlook.

Non-GAAP gross margin, non-GAAP loss from operations, non-GAAP net loss, and non-GAAP loss per share exclude charges related to stock-based compensation.  Isilon excludes stock-based compensation expenses from its non-GAAP measures primarily because they are non-cash expenses that Isilon does not believe reflect core operating results.  Stock-based compensation expense is dependent on a number of factors over which management has limited control and is not a factor management utilizes in operating the business.

These non-GAAP measures are not calculated in accordance with GAAP and should be considered supplemental to, and not a substitute for, measures prepared in accordance with GAAP and may be different from non-GAAP measures used by other companies.  In addition, these non-GAAP measures are not based on any comprehensive set of accounting rules or principles.  Isilon believes that non-GAAP measures have inherent limitations in that they do not reflect all of the amounts associated with Isilon's results of operations as determined in accordance with GAAP and that these measures should only be used to evaluate Isilon's results of operations in conjunction with the corresponding GAAP measures.  We compensate for these limitations by analyzing current and future results on a GAAP basis as well as a non-GAAP basis, prominently disclosing GAAP results and providing reconciliations from GAAP results to operational measures.  We expect to continue to incur expenses similar to the non-GAAP adjustments described above, and the exclusion or inclusion of these items from our non-GAAP financial measures should not be construed as an inference that these costs are unusual or infrequent.
 
A table following the financial statements provides a reconciliation of the most directly comparable GAAP measures to the non-GAAP measures used by management.

 
 
 
Safe Harbor for Forward Looking Statements

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 concerning our future financial and operating results, the benefits of our products, technologies and services, and our ability to achieve our goals, plans and objectives, including our efforts to further grow into enterprise accounts and broaden the recognition of our value proposition.  These statements are not guarantees of future performance, but are based on management's expectations as of the date of this press release and assumptions that are inherently subject to uncertainties, risks and changes in circumstances that are difficult to predict.  Forward-looking statements involve risks, uncertainties, and assumptions.  If the risks or uncertainties ever materialize, or the assumptions prove incorrect, our actual results may differ materially from those expressed or implied by our forward-looking statements.  There can be no assurances that forward-looking statements will be achieved.  Important factors that could cause actual results to differ materially from those indicated in forward-looking statements include the following: risks associated with anticipated growth in the storage of unstructured, digital content; competitive factors, including changes in the competitive environment, pricing pressures, sales cycle time and increased competition; our ability to build and expand our direct sales operations and reseller distribution channels; our ability to build sales backlogs and improve sales linearity; general economic and industry conditions, including expenditure trends for storage-related products; new product introductions and our ability to develop and deliver innovative products; our ability to provide high-quality service and support offerings; our reliance on a limited number of suppliers and our ability to forecast demand for our products and potential shortages or price fluctuations in our supply chain; risks associated with international operations; and, macroeconomic factors affecting the United States.  These and other important risk factors and assumptions are described in detail in our 2007 Annual Report on Form 10-K and other periodic reports filed with the Securities and Exchange Commission.  The Company makes no commitment to revise or update any forward-looking statements in order to reflect subsequent events or circumstances.
###

(Financial Statements Follow)

Contacts:

Press:
Jay Wampold, Senior Director of Marketing and Communications, Isilon Systems,
+1-206-315-7620, jay.wampold@isilon.com

Investors:
Rosemary Moothart, Director of Investor Relations, Isilon Systems,
+1-206-315-7509, rosemary.moothart@isilon.com

 
 
 

Isilon Systems, Inc.
Condensed Consolidated Statements of Operations
 (unaudited)

   
Three Months Ended
    
Nine Months Ended
  
     September 30,    
 September 30,
 
   
 2008
    
2007
    
2008
    
 2007
  
   
(in thousands, except per share data)
  
Revenue:
                        
Product
   $ 24,418     $ 17,627     $ 66,827     $ 52,197  
Services
     5,914       4,016       15,811       10,203  
Total revenue
     30,332       21,643       82,638       62,400  
                                 
Cost of revenue:
                                
Product
     9,176       7,059       26,740       24,365  
Services (1)
     3,810       2,524       9,623       5,794  
Total cost of revenue
     12,986       9,583       36,363       30,159  
                                 
Gross profit
     17,346       12,060       46,275       32,241  
                                 
Operating expenses:
                                
Research and development  (1)
     6,318       5,374       17,788       14,778  
Sales and marketing  (1)
     11,341       11,282       35,546       30,111  
General and administrative (1)
     4,843       3,687       15,303       9,769  
Total operating expenses
     22,502       20,343       68,637       54,658  
                                 
Loss from operations
     (5,156 )     (8,283 )     (22,362 )     (22,417 )
                                 
Interest income and other
     398       1,141       1,860       3,472  
                                 
Loss before income tax expense
     (4,758 )     (7,142 )     (20,502 )     (18,945 )
                                 
Income tax expense
     (70 )     (41 )     (243 )     (116 )
                                 
Net loss
   $ (4,828 )   $ (7,183 )   $ (20,745 )   $ (19,061 )
                                 
Net loss per share, basic and diluted
   $ (0.08 )   $ (0.12 )   $ (0.33 )   $ (0.31 )
Shares used in computing basic and diluted net loss per share
     63,615       61,771       63,171       61,217  
                                 
                                 
(1) Includes stock-based compensation as follows:
                                
Cost of revenue
   $ 46     $ 48     $ 124     $ 92  
Research and development
     376       167       788       488  
Sales and marketing
     470       509       1,655       1,059  
General and administrative
     681       522       1,799       1,081  

 
 
 
Isilon Systems, Inc.
Condensed Consolidated Balance Sheets
 (unaudited)
 (in thousands)
 
   
As of
  
   
September 30, 2008
    
December 30, 2007
  
ASSETS
  
Current assets:
            
Cash and cash equivalents
   $ 46,911     $ 38,999  
Marketable securities
     29,806       46,862  
Trade receivables, net of allowances of $228 and $324, respectively
     15,158       20,152  
Inventories
     10,536       9,430  
Other current assets
     5,740       5,524  
Total current assets
     108,151       120,967  
                 
Property and equipment, net
     10,992       10,571  
Total assets
   $ 119,143     $ 131,538  
                 
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY
  
Current liabilities:
                
Accounts payable
   $ 9,840     $ 10,962  
Accrued liabilities
     4,638       5,182  
Accrued compensation and related benefits
     5,329       5,180  
Deferred revenue
     15,786       12,392  
Total current liabilities
     35,593       33,716  
                 
Deferred revenue, net of current portion
     7,927       5,819  
Deferred rent, net of current portion
     3,230       3,414  
Total liabilities
     46,750       42,949  
                 
Commitments and contingencies
                
                 
Stockholders' equity:
                
Common stock
     1       1  
Additional paid-in capital
     196,107       191,254  
Accumulated other comprehensive loss
     (380 )     (76 )
Accumulated deficit
     (123,335 )     (102,590 )
Total stockholders' equity
     72,393       88,589  
Total liabilities and stockholders' equity
   $ 119,143     $ 131,538  

 
 
 
 
Isilon Systems, Inc.
Condensed Consolidated Statements of Cash Flows
 (unaudited)
 (in thousands)
 
   
Nine Months Ended
  
     September 30,  
   
 2008
    
 2007
  
Cash flows from operating activities
            
Net loss
   $ (20,745 )   $ (19,061 )
                 
Adjustments to reconcile net loss to net cash used in operating activities:
                
Depreciation and amortization
     4,690       3,835  
Amortization of discount on marketable securities
     (141 )     (83 )
Stock-based compensation
     4,366       2,720  
Changes in operating assets and liabilities:
                
Accounts receivable, net
     4,993       4,604  
Inventories
     (1,197 )     (2,683 )
Other current assets
     (144 )     (3,859 )
Accounts payable
     (1,694 )     7,046  
Accrued liabilities, compensation payable and deferred rent
     (530 )     134  
Deferred revenue
     5,503       5,485  
                 
Net cash used in operating activities
     (4,899 )     (1,862 )
                 
Cash flows from investing activities
                
Purchases of property and equipment
     (4,594 )     (5,675 )
Purchases of marketable securities
     (31,665 )     (48,333 )
Proceeds from sales and maturities of marketable securities
     48,677       13,695  
                 
Net cash provided by (used in) investing activities
     12,418       (40,313 )
                 
Cash flows from financing activities
                
Proceeds from issuance of common stock, option exercises
     453       424  
Proceeds from issuance of common stock, employee stock purchase plan
     —       365  
Repurchases of unvested common stock
     (13 )     (78 )
Payments of offering costs
     —       (1,135 )
                 
Net cash provided by (used in) financing activities
     440       (424 )
                 
Effect of exchange rate changes on cash and cash equivalents
     (47 )     6  
Net increase (decrease) in cash and cash equivalents
     7,912       (42,593 )
                 
Cash and cash equivalents at beginning of period
     38,999       99,899  
Cash and cash equivalents at end of period
   $ 46,911     $ 57,306  

 
 
 
 
Isilon Systems, Inc.
Reconciliation of GAAP to non-GAAP results
(in thousands, except percentages and per share data)
 
         
Operating Expenses
                    
   
Gross margin %
    
Research and development
    
Sales and marketing
    
General and administrative
    
Total
    
Loss from operations
    
Net loss
    
Net loss per share,
basic and diluted
  
Three Months Ended
                                                
September 30, 2008
                                                
GAAP
    
57.2
%
  
$
6,318
    
$
11,341
    
$
4,843
    
$
22,502
    
$
(5,156
)
  
$
(4,828
)
  
$
(0.08
)
Adjustments:
                                                                
Stock-based compensation
    
0.1
%
    
(376
)
    
(470
)
    
(681
)
    
(1,527
)
    
1,573
      
1,573
          
Non-GAAP
    
57.3
%
  
$
5,942
    
$
10,871
    
$
4,162
    
$
20,975
    
$
(3,583
)
  
$
(3,255
)
  
$
(0.05
)
 
                                                               
June 30, 2008
                                                                
GAAP
    
56.9
%
  
$
5,980
    
$
12,405
    
$
4,064
    
$
22,449
    
$
(6,415
)
  
$
(5,819
)
  
$
(0.09
)
Adjustments:
                                                                
Stock-based compensation
    
0.1
%
    
(231
)
    
(554
)
    
(693
)
    
(1,478
)
    
1,496
      
1,496
          
Non-GAAP
    
57.0
%
  
$
5,749
    
$
11,851
    
$
3,371
    
$
20,971
    
$
(4,919
)
  
$
(4,323
)
  
$
(0.07
)
 
                                                               
September 30, 2007
                                                                
GAAP
    
55.7
%
  
$
5,374
    
$
11,282
    
$
3,687
    
$
20,343
    
$
(8,283
)
  
$
(7,183
)
  
$
(0.12
)
Adjustments:
                                                                
Stock-based compensation
    
0.2
%
    
(167
)
    
(509
)
    
(522
)
    
(1,198
)
    
1,246
      
1,246
          
Non-GAAP
    
55.9
%
  
$
5,207
    
$
10,773
    
$
3,165
    
$
19,145
    
$
(7,037
)
  
$
(5,937
)
  
$
(0.10
)
 
                                                               
 
                                                               
Nine Months Ended
                                                                
September 30, 2008
                                                                
GAAP
    
56.0
%
  
$
17,788
    
$
35,546
    
$
15,303
    
$
68,637
    
$
(22,362
)
  
$
(20,745
)
  
$
(0.33
)
Adjustments:
                                                                
Stock-based compensation
    
0.1
%
    
(788
)
    
(1,655
)
    
(1,799
)
    
(4,242
)
    
4,366
      
4,366
          
Non-GAAP
    
56.1
%
  
$
17,000
    
$
33,891
    
$
13,504
    
$
64,395
    
$
(17,996
)
  
$
(16,379
)
  
$
(0.26
)
 
                                                               
September 30, 2007
                                                                
GAAP
    
51.7
%
  
$
14,778
    
$
30,111
    
$
9,769
    
$
54,658
    
$
(22,417
)
  
$
(19,061
)
  
$
(0.31
)
Adjustments:
                                                                
Stock-based compensation
    
0.1
%
    
(488
)
    
(1,059
)
    
(1,081
)
    
(2,628
)
    
2,720
      
2,720
          
Non-GAAP
    
51.8
%
  
$
14,290
    
$
29,052
    
$
8,688
    
$
52,030
    
$
(19,697
)
  
$
(16,341
)
  
$
(0.27
)