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Isilon Restates Financials, Plans New Policies
Revenue recognition procedures failed the acid test
April 3, 2008
2 Min Read
The other shoe has dropped for Isilon, whose finances became a dog's dinner shortly after the company went public last year. The subsequent executive upheavals, shareholder litigation, and other unpleasantness dogged the vendor through its latest product announcements. Now, maybe, the air can be cleared.
Isilon is restating its financials as follows: A little over $1 million has been removed from year-end revenues for 2006, resulting in restated revenues of $61.2 million for the year ended Dec. 31, 2006; and nearly $6 million has been sucked from revenues for the six months ended July 1, 2007, resulting in restated revenues of $40.7 million.
Isilon's independent audit of the situation, which according to an SEC filing today was exhaustively thorough, turned up a compendium of problems in revenue recognition. In the fourth quarter of 2006, for instance, Isilon states that:
A single transaction with a reseller was identified for $1.1 million where a contingency related to the qualification of the product performing to certain specifications in the identified end user network existed at the time of sale. This qualification was not communicated to legal and finance personnel or the Company's independent registered public accounting firm in order to facilitate a proper evaluation of the transaction for revenue recognition purposes. The reseller paid for only a portion of the original transaction and the Company has since negotiated a return for the remaining product.
Other woes in 2007 resulted from a botched deal with a customer transaction in which Isilon was supposed to acquire software. (Who can figure that one out?) Elsewhere, revenue was recognized for a sale that basically didn't take place.
Isilon says that no executives or employees who were involved in any of these mishaps remain at the company. But that won't stop Isilon's board from considering "possible remedial actions for any of our remaining personnel who may have been aware or involved in the subject transactions." Further, Isilon is looking at nailing down its revenue recognition policy, retraining its sales and accounting staff on the new policy, and working with the Audit Committee to keep things tightly wrapped from here on out.All of this is understandable, if unfortunate. And Isilon continues to play out its unhappy role as poster child for the problems that can surface when a company goes public without proper preparation.
Here's to better days ahead.
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Isilon Systems Inc.
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