Isilon’s Third Quarter, and its Future

Isilon Systems Inc., the Seattle data storage company, posted its third-quarter earnings this morning, beating analyst estimates on Wall Street. In normal years, this would fall under the category of “yet-another-company-report-during-earnings-season.” But these aren’t normal years.

By our count, more than 20 Washington-based businesses have been acquired this year by companies based outside Washington state. The reasons for these are many, ranging from strategic acquisitions (Trubion Pharmaceuticals) to bankruptcy auctions (Taco Del Mar). The recession and continuing economic doldrums had led to a consolidation in businesses remniscient of the dot-com collapse. Successful businesses are looking around and seeing other companies that might not be perfoming as well as they could and snatching them up while the prices are good.

This is to be expected, after all. The difference this time out is that we don’t have as many companies coming up, maturing past the startup stage and making a go of it as a solid independent company. In our October issue (which will be online next week) Bill Virgin laments our lack of home-grown IPOs, and we’ve lost more public companies in the past two years than … well, in a long time. Washington CEO Magazine, which we acquired in 2006, used to run a list of the top 100 public companies in the state. We’re hovering around 80 these days, and that’s including over-the-counter stocks (Our Washington 80 Index includes Boeing, given its large presence here, even though its headquarters is long gone, and Gold Reserve Inc., which, while based in Spokane, has most of its operations overseas).

Back to Isilon. We published a story of this company‘s growing importance in data storage in our June 2010 issue, and Isilon is considered a candidate for takeover, probably by EMC, the market leader, at a price of $2 billion, according to reports this week.

(The other big local company in play on Wall Street is F5 Networks (NASDAQ: FFIV), another infrastructure company, which has drawn interest from IBM, Cisco Systems, HP, Dell, Oracle and Juniper Networks. Its stock price has more than doubled in the past year. We wrote about F5 in our December 2009 issue.)

This quarter’s earnings have only upped the interest in Isilon (NASDAQ: ISLN) and it’s potential purchase price, as the company’s stock got a nice bump this morning after the markets opened and is now several hundred percent higher than it was a year ago. Revenues for the quarter were $53.8 million, compared with analysts’ expectations of $46.3 million, and profits were 9 cents per share, compared with Wall Street’s preduction of 5 cents per share. Revenues were up 19 percent from the second quarter and 77 percent over the third quarter of 2009. The company’s net profit for the quarter was $4 million, up from $2 million the previous quarter and up from a loss of $4.9 million in the year-ago period. The company has $114 million on hand in cash or cash-equivalent assets. (Here’s the press release at Yahoo! Finance.)

According to the New York Post story linked above, the acquisition will likely be done this year.