Isilon Systems Announces 2010 Third Quarter Financial Results

SEATTLE, Oct. 21 /PRNewswire-FirstCall/ -- Isilon® (Nasdaq: ISLN) today announced its financial results for the quarter ended September 30, 2010. Revenue for the quarter was $53.8 million, up 19% sequentially compared to $45.1 million in the second quarter of 2010 and up 77% from $30.5 million in the third quarter of 2009.  

"Isilon's record third quarter growth is the strongest indication to date that there is a fundamental shift occurring in the enterprise data center," said Sujal Patel, chief executive officer, Isilon.  "Enterprises have grown increasingly aware of the critically important role that scale-out architectures play in the future of their rapidly expanding data centers," said Patel. "As the leading provider of unified scale-out storage solutions, Isilon is very well-positioned to take an increasing share of this expanding sector."  

Financial results for the third quarter of 2010 included the following:  

• Gross margin for the third quarter of 2010 was 63.5%, compared with 62.0% in the second quarter of 2010 and 56.9% in the third quarter of 2009.
• Net income for the third quarter of 2010 was $4.0 million, or $0.05 per diluted share, compared with net income of $2.0 million, or $0.03 per diluted share in the second quarter of 2010.  Net loss in the third quarter of 2009 was $4.9 million, or $0.08 per diluted share. The third quarter 2009 net loss per share included $2.0 million, or $0.03 per share, of expenses related to the class action legal settlement.  Non-GAAP net income for the third quarter of 2010 was $6.9 million, or $0.09 per diluted share, compared with non-GAAP net income of $4.1 million, or $0.06 per diluted share in the second quarter of 2010.  Non-GAAP net loss in the third quarter of 2009 was $1.4 million, or $0.02 per diluted share.
• In connection with the SEC's civil action against our former CFO, the Company, pursuant to its indemnification obligations, has incurred and will likely continue to incur substantial legal expenses.  Legal expenses associated with such indemnification obligations, along with discovery related costs incurred by the Company and certain other related costs, net for the third quarter of 2010 were $2.3 million, or $0.03 per diluted share, compared with $0.1 million, or $0.00 per diluted share, in the third quarter of 2009. These expenses are included in both our GAAP and non-GAAP results of operations.
• Cash flows generated from operations in the third quarter of 2010 were $13.1 million compared with $10.0 million in the second quarter of 2010 and $0.9 million in the third quarter of 2009.  
• As of September 30, 2010, cash, cash equivalents and marketable securities were $114 million, compared with $100 million as of June 30, 2010.

Conference Call

Isilon management will host a conference call today at 5:30 a.m. PT (8:30 a.m. ET) to discuss Isilon's third quarter financial results.  The conference call will be webcast on the Investor Relations section of Isilon's website at http://www.isilon.com/company/ where it will be archived. In addition, the live conference call will be accessible by telephone at 866-770-7051 or 617-213-8064, passcode 80081247.

A replay of the call will be available by telephone approximately two hours after the call ends until 12:00 midnight ET, October 28, 2010, at 888-286-8010 or 617-801-6888. The replay passcode is 20621487.

About Isilon

As a global leader in scale-out storage, Isilon delivers powerful yet simple solutions for enterprises that want to manage their data, not their storage. Learn more 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 income (loss) from operations, non-GAAP net income (loss), and non-GAAP income (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 income (loss) from operations, non-GAAP net income (loss), and non-GAAP income (loss) per share exclude stock-based compensation expenses, restructuring charges and expenses related to the settlement of our shareholder litigation. 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.  Non-GAAP results also exclude a restructuring charge related to expenses incurred during the second quarter of 2009 in connection with a reduction in the company's workforce, and charges from the settlement of the shareholder class action incurred during the third quarter of 2009. The restructuring and legal settlement charges are excluded because management believes that they are not indicative of on-going results.

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 non-GAAP 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 ability to increase market share,  foundation for continued growth, and our expectations regarding ongoing legal expenses.    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 data;  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 macro-economic conditions.    These and other important risk factors and assumptions are detailed in documents filed with the Securities and Exchange Commission, including our most recent  Form 10-Q,  our Annual Report on Form 10-K for 2009 and other reports and filings with the Securities and Exchange Commission, and could cause actual results to vary from expectations.  The Company makes no commitment to revise or update any forward-looking statements in order to reflect subsequent events or circumstances.

SOURCE Isilon