Isilon Restates its Financial Figures

On February 29, 2008, the Board of Directors of Isilon Systems, Inc., 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.

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.

The Company has not completed its analysis of the expected changes in results of operations for the fiscal year ended December 30, 2007
as compared to the previous fiscal year and is unable to provide a
narrative and quantitative explanation of these changes at this time. A
narrative explanation of the anticipated changes will be set forth in the Company?s annual report on Form 10-K for fiscal 2007.

Isilon Systems, Inc.