Many tech companies are emerging from the downturn in better shape than before, but the turnaround for Seattle’s Isilon Systems is striking.
The storage-system manufacturer Thursday is reporting its first profitable quarter – by a hair – and record sales of $37.5 million, up 18 percent from the same period last year. It’s reporting a profit of $140,000, after losing $4.3 million a year ago.
Whether the profitability continues remains to be seen, but founder and Chief Executive Sujal Patel characterized the quarter as a turning point for the company he started after leaving RealNetworks in 2001.
“For us this is a pretty significant step because it really leaves 2009, a year where we were playing defense, behind and sets us up to play offense in 2010 and really grow this business aggressively,” he said.
Isilon went from Wall Street darling and the state’s largest IPO in 2006 to an outcast of sorts after it missed projections, fumbled its expansion and was accused by the SEC of inflating sales reports.
It came to a head in late 2007, when the company announced it was delaying its earnings report and that Chief Executive Steve Goldman and Chief Financial Officer Stuart Fuhlendorf had quit.
Patel, who had given up the chief spot in 2003 to focus on technology, resumed the position and began replacing nearly every top executive at the company.
The New Jersey native is now 35 years old. He joined Real in 1996 after graduating from University of Maryland.
Patel said the earnings being reported Thursday validate Isilon’s business and its reorganization over the past two years. He’s performing a victory lap today in New York, where he’s meeting with analysts and ringing the Nasdaq bell.
Timing worked out, because the recession provided a sort of cover for Isilon to work out its problems. Now, as tech spending is recovering, “a lot of the initiatives we’ve put in place have really begun to bear fruit,” Patel said.
Isilon’s on track to reach $1 billion in sales and 3,000 employees in five years, he said, up from its current 360 employees and $124 million in 2009 sales.
Board member Matt McIlwain said Isilon is filling the gap in Seattle’s tech community between numerous small companies and a relatively small handful of big ones.
“We need more of these kind of small to medium-size public tech companies in this town – we don’t want them all bought up,” said McIlwain, managing director of Madrona Venture Group. “They’re in position where they have a chance to remain independent.”
But Isilon has regained its footing, and its blue-chip customer list could make it a candidate for acquisition as the big enterprise hardware vendors build out their portfolios this year. Customers include Facebook, MySpace, NBC Sports and director James Cameron’s Lightstorm Entertainment, which used Isilon systems in its production of “Avatar.”
Patel said Isilon has diversified beyond entretainment companies recently, with increased sales to life-sciences and semiconductor companies, government and Microsoft.
Isilon storage boxes range in price from $22,000 to $175,000. They’re basically servers with hard drives, RAM and network switches, but Isilon’s software binds clusters of them together so they operate as a single network-attached storage drive with up to 10.5 petabytes of capacity.
“You can have a 10.5 petabyte C drive,” said Chris Blessington, senior director of marketing, as he showed off the datacenter Isilon runs in the former Airborne Express building overlooking Elliott Bay.
Here are some excerpts of the conversation with Patel:
Q: Will Wall Street still be concerned about your organizational challenges?
A: Posting this quarter will be an important step, but one or two more quarters like this and we’ll really move to positive sentiment in the marketplace. Because what we have done over the past year is we’ve been very clear with the street about what we intend to accomplish over the next quarter, how you should expect us to spend money. We’ve been right on our guidance and ahead of our guidance throughout the year.
We’ve been very focused on rebuilding our credibility with the street. I think we’re basically there. This quarter will definitely put us on the right path as we go forward.
Q: Are you going to get acquired — there is a lot of merger and acquisition activity now?
A: There is a lot of that shaping the marketplace. We as a company are very, very focused on growing our business into an independent, large storage company.
Q: Where will you be in five years?
A: I look out and I look at $500 million of revenue and $1 billion of revenue as the next two steps. Certainly in five years we have the opportunity to get to that billion dollar run rate, that is something we are definitely focused on.
If you look at our company’s history, from 2003 to IPO we grew at 200 percent year over year each year so it tripled our revenue every year. In our post IPO period, if you take out ’09, which obviously was a very tough year with the recession, the other two we grew about 35 to 40 percent which is sufficient to get to a billion dollar run rate in that five year timeframe. What we’re focused on is being able to put up 25, 30 percent more growth at a minium than the [storage] market is doing in general.