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EX-99.2 - EX-99.2 - DATALINK CORPa11-20461_1ex99d2.htm
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Exhibit 99.1

 

DATALINK REPORTS 2011 SECOND QUARTER AND SIX MONTH OPERATING RESULTS

 

Record Second Quarter and Six Month Revenue Up 26% and 31% Year-Over-Year, Respectively

 

CHANHASSEN, Minn., July 20, 2011 — Datalink (Nasdaq: DTLK), a leading provider of data center infrastructure and services, today reported results for its second quarter and six month period that ended June 30, 2011.  Revenues for the quarter ended June 30, 2011, increased 26% to $89.5 million compared to $70.9 million for the prior-year period.  Revenues for six months ended June 30, 2011, increased 31% to $175.2 million compared to $133.4 million for the six months ended June 30, 2010.

 

GAAP Results

 

On a GAAP basis, the company reported net earnings of $2.7 million or $0.16 per diluted share for the second quarter ended June 30, 2011.  This compares to break-even in the second quarter of 2010.  For the six months ended June 30, 2011, the company reported net earnings of $4.4 million or $0.29 per diluted share, compared to a net loss of $886,000, or $0.07 per diluted share, for the six months ended June 30, 2010.

 

Non-GAAP Results

 

Non-GAAP net earnings for the second quarter of 2011 were $3.3 million, or $0.19 per diluted share, compared to non-GAAP net earnings of $748,000, or $0.06 per diluted share, in the second quarter of 2010.  For the six months ended June 30, 2011, the company reported non-GAAP net earnings of $5.5 million, or $0.36 per diluted share, compared to net earnings of $850,000, or $0.07 per diluted share, for the six months ended June 30, 2010.  A detailed reconciliation between GAAP and non-GAAP information is contained in the tables included herein.

 

Paul Lidsky, Datalink’s president and CEO, commented, “The second quarter of 2011 was another record quarter for Datalink.  Our momentum from a record 2010 and record first quarter of 2011 has continued.  We reported record second quarter and six month revenues and earnings, which exceeded the investor guidance given at the beginning of the quarter.  This represents our ninth consecutive quarter of non-GAAP net earnings.   Other significant accomplishments for the second quarter of 2011 include:

 

·                  We continue to see an increase in multi-million dollar accounts with Global 500 companies. In the first six months of 2011 we had 36 customers each purchase over $1

 



 

million of product and services from us as compared to 23 customers in the first six months of 2010.  In addition, we acquired 77 new customers in the second quarter of 2011.

·                  Our customer intimacy is a cornerstone to our go-to-market strategy to deliver premier services to our customers, as demonstrated by our 21% increase in services to a record $33.0 million in the second quarter.  This represents our second quarter in a row with twenty plus percent service revenue growth.

·                  We exited the quarter with a strong balance sheet.  Our working capital increased $3.6 million to $46.2 million and we have no debt.

·                  Our company’s growth was also spotlighted by our recognition from CRN Everything Channel.  Our VAR500 ranking was elevated to 72, compared to 195 in 2010, and furthermore we were awarded the “Top Services Sales Growth” at the VAR500 executive conference and profiled as one of the “Titans of Transformation” editorial follow up to the event.

·                  We were one of the first partners worldwide to achieve the Advanced Data Center Architecture (DCA) Specialization from Cisco, recognized for continuing to make significant investment to ensure our customers can make their data centers more efficient, agile and resilient.  Our diligence has not waivered to provide our customers with the most technically adept professionals in the market”.

 

Outlook

 

Based on the company’s backlog and sales pipeline we expect revenues to be between $85 million and $90 million for the third quarter of 2011 and we expect third quarter 2011 net earnings to be between $0.12 and $0.16 per diluted share on a GAAP basis, and net earnings to be between $0.15 and $0.19 per diluted share on a non-GAAP basis.  This compares to revenues of $69.2 million in the third quarter of 2010.  GAAP net earnings per share in the third quarter of 2010 were $0.06 and non-GAAP net earnings per share were $0.11 per share.

 

“Our third quarter guidance represents a 23% to 30% increase in revenues and a 36% to 72% increase in non-GAAP net earnings per share over the same period last year” said Lidsky.  “I believe that our first half results and third quarter forecast are both indicative of the steadily increasing demand for unified data center infrastructure and that our customers and prospects continue to invest in this area.  Our investments in expanded product and services portfolio are allowing us to take full advantage of this growing market,” he added.

 

Non-GAAP earnings per share exclude the effect of acquisition accounting adjustments from the Incentra acquisition to deferred revenue and costs, integration and transaction costs related to acquisitions, stock-based compensation expense, amortization of intangible assets, and the related effects on income taxes. The company estimates this total effect will be approximately $0.03 per diluted share for the third quarter of 2011.

 

Effect of Accounting Change

 

Effective January 1, 2011, the company was required to adopt a new revenue recognition accounting standard.  This new standard, which applies to all resellers of computer hardware,

 



 

requires that the company now recognize product revenues upon shipment versus upon installation under its old revenue recognition method.  Accordingly the company’s first quarter and six months of 2011 results reflects this new revenue recognition policy.  The company’s revenue for the first six months of 2011 includes $8.3 million of revenues that were recognized in the first six months of 2011 that would have been recognized in the fourth quarter of 2010 if the company had been recognizing revenue upon shipment in 2010.

 

Conference Call and Webcast Today

 

Datalink will hold a conference call at 4:00 p.m. central time, during which Datalink’s president and chief executive officer, Paul Lidsky, and vice president of finance and chief financial officer, Greg Barnum, will discuss company results and provide a business overview. Participants can access the conference call by dialing (877) 277-9804. Participants will be asked to identify the Datalink conference call and provide the designated identification number (80915432). A live Webcast of the conference call can be heard via Datalink’s website at www.datalink.com.

 

About Datalink

 

A complete data center solutions and services provider for Fortune 500 and mid-tier enterprises, Datalink transforms data centers so they become more efficient, manageable and responsive to changing business needs. Datalink helps leverage and protect storage, server, and network investments with a focus on long-term value, offering a full lifecycle of services, from consulting and design to implementation, management and support. Datalink solutions span virtualization and consolidation, data storage and protection, advanced networks, and business continuity. Each delivers measurable performance gains and maximizes the business value of IT. For more information, call 800.448.6314 or visit www.datalink.com.

 

The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for certain forward-looking statements.  This press release contains forward-looking statements, including our internal projections of anticipated 2011 results, which reflect our views regarding future events and financial performance.  These forward-looking statements are subject to certain risks and uncertainties, including those identified below, which could cause actual results to differ materially from historical results or those anticipated.  The words “aim, “believe,” “expect,” “anticipate,” “intend,” “estimate”, “should” and other expressions which indicate future events and trends identify forward-looking statements.  Actual future results and trends may differ materially from historical results or those anticipated depending upon a variety of factors, including, but not limited to:  the level of continuing demand for storage, including the effects of current economic and credit conditions; competition and pricing pressures and timing of our installations that may adversely affect our revenues and profits; fixed employment costs that may impact profitability if we suffer revenue shortfalls; revenue recognition policies that may unpredictably defer reporting of our revenues; our ability to hire and retain key technical and sales personnel; our dependence on key suppliers; our ability to adapt to rapid technological change; risks associated with integrating possible future acquisitions; fluctuations in our quarterly operating results; future changes in applicable accounting rules; and volatility in our stock price. Further, our revenues for any particular quarter are not necessarily reflected by our backlog of contracted orders, which also may fluctuate unpredictably.  We cannot assure that we can grow or maintain our revenue and backlog from current levels.

 



 

Non-GAAP Details

 

Non-GAAP financial measures exclude the impact from acquisition accounting adjustments to deferred revenue and costs, stock-based compensation expense, amortization of acquisition intangible assets, integration and transaction costs related to acquisitions and the related effects on income taxes.  These non-GAAP measures are not in accordance with, or an alternative 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. We believe that non-GAAP measures have limitations in that they do not reflect all of the amounts associated with our results of operations as determined in accordance with GAAP and that these measures should only be used to evaluate our results of operations in conjunction with the corresponding GAAP measures.

 

These non-GAAP financial measures facilitate management’s internal comparisons to our historical operating results and comparisons to competitors’ operating results. We include these non-GAAP financial measures in our earnings announcement because we believe they are useful to investors in allowing for greater transparency with respect to supplemental information used by management in its financial and operational decision making, such as employee compensation planning. We believe that the presentation of these non-GAAP measures when shown in conjunction with the corresponding GAAP measures provides useful information to investors and management regarding financial and business trends relating to our financial condition and results of operations.

 

# # #

 

Company Contacts:

 

Media & Alliances:

Investors & Analysts:

Suzanne Gallagher

Greg Barnum

SVP of Marketing

Vice President and CFO

Phone: 720-566-5110

Phone: 952-279-4816

Email: sgallagher@datalink.com

Email: gbarnum@datalink.com

 

 

Investor Relations:

 

Kim Payne

 

Investor Relations Coordinator

 

Phone: 952-279-4794

 

Fax:    952-944-7869

 

Email: einvestor@datalink.com

 

website: www.datalink.com

 

 



 

DATALINK CORPORATION

STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 30,

 

June 30,

 

 

 

2011

 

2010

 

2011

 

2010

 

 

 

 

 

 

 

 

 

 

 

Net sales:

 

 

 

 

 

 

 

 

 

Products

 

$

56,540

 

$

43,990

 

$

112,140

 

$

82,166

 

Services

 

32,941

 

26,885

 

63,035

 

51,253

 

Total net sales

 

89,481

 

70,875

 

175,175

 

133,419

 

 

 

 

 

 

 

 

 

 

 

Cost of sales:

 

 

 

 

 

 

 

 

 

Cost of products

 

42,967

 

34,119

 

85,193

 

63,981

 

Cost of services

 

24,835

 

19,719

 

47,548

 

37,792

 

Amortization of intangibles

 

 

277

 

 

554

 

Total cost of sales

 

67,802

 

54,115

 

132,741

 

102,327

 

Gross profit

 

21,679

 

16,760

 

42,434

 

31,092

 

Operating expenses:

 

 

 

 

 

 

 

 

 

Sales and marketing

 

9,404

 

8,098

 

18,561

 

15,765

 

General and administrative

 

3,695

 

3,822

 

7,524

 

7,325

 

Engineering

 

3,818

 

4,330

 

8,205

 

8,256

 

Integration and transaction costs

 

 

192

 

 

581

 

Amortization of intangibles

 

383

 

383

 

765

 

765

 

Total operating expenses

 

17,300

 

16,825

 

35,055

 

32,692

 

Earnings (loss) from operations

 

4,379

 

(65

)

7,379

 

(1,600

)

Interest income (expense)

 

1

 

3

 

4

 

8

 

Earnings (loss) before income taxes

 

4,380

 

(62

)

7,383

 

(1,592

)

Income tax expense (benefit)

 

1,683

 

(67

)

2,938

 

(706

)

Net earnings (loss)

 

$

2,697

 

$

5

 

$

4,445

 

$

(886

)

 

 

 

 

 

 

 

 

 

 

Earnings (loss) per common share:

 

 

 

 

 

 

 

 

 

Basic

 

$

0.16

 

$

0.00

 

$

0.30

 

$

(0.07

)

Diluted

 

$

0.16

 

$

0.00

 

$

0.29

 

$

(0.07

)

Weighted average common shares outstanding:

 

 

 

 

 

 

 

 

 

Basic

 

16,357

 

12,789

 

15,006

 

12,763

 

Diluted

 

16,840

 

13,005

 

15,456

 

12,763

 

 



 

DATALINK CORPORATION

BALANCE SHEETS

(In thousands, except share data)

 

 

 

June 30,

 

December 31,

 

 

 

2011

 

2010

 

 

 

(Unaudited)

 

 

 

Assets

Current assets

 

 

 

 

 

Cash and cash equivalents

 

$

23,282

 

$

8,988

 

Short term investments

 

9,729

 

 

Accounts receivable, net

 

49,955

 

57,779

 

Inventories

 

1,415

 

2,210

 

Current deferred customer support contract costs

 

53,745

 

48,715

 

Inventories shipped but not installed

 

4,878

 

7,191

 

Income tax receivable

 

65

 

1,064

 

Other current assets

 

550

 

607

 

Total current assets

 

143,619

 

126,554

 

Property and equipment, net

 

2,258

 

2,126

 

Goodwill

 

23,146

 

23,146

 

Finite life intangibles, net

 

4,454

 

5,219

 

Deferred customer support contract costs non-current

 

23,800

 

18,742

 

Other assets

 

281

 

285

 

Total assets

 

$

197,558

 

$

176,072

 

Liabilities and Stockholders’ Equity

Current liabilities

 

 

 

 

 

Accounts payable

 

$

16,157

 

$

28,749

 

Accrued commissions

 

3,092

 

3,546

 

Accrued sales and use tax

 

581

 

1,414

 

Accrued expenses, other

 

3,759

 

3,427

 

Income tax payable

 

 

 

Current deferred tax liability

 

3,723

 

3,723

 

Customer deposits

 

2,769

 

2,209

 

Current deferred revenue from customer support contracts

 

67,152

 

61,571

 

Other current liabilities

 

195

 

279

 

Total current liabilities

 

97,428

 

104,918

 

Deferred income tax liability

 

203

 

203

 

Deferred revenue from customer support contracts non-current

 

28,940

 

23,284

 

Other liabilities non-current

 

102

 

212

 

Total liabilities

 

126,673

 

128,617

 

 

 

 

 

 

 

Stockholders’ equity

 

 

 

 

 

Common stock, $.001 par value, 50,000,000 shares authorized,17,189,509 and 13,569,533 shares issued and outstanding as of June 30, 2011 and December 31, 2010, respectively

 

17

 

14

 

Additional paid-in capital

 

62,314

 

43,332

 

Retained earnings

 

8,554

 

4,109

 

Total stockholders’ equity

 

70,885

 

47,455

 

Total liabilities and stockholders’ equity

 

$

197,558

 

$

176,072

 

 



 

DATALINK CORPORATION

RECONCILIATION  BETWEEN GAAP AND NON-GAAP NET INCOME

(In thousands, except per share data)

(Unaudited)

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 30,

 

June 30,

 

 

 

2011

 

2010

 

2011

 

2010

 

 

 

 

 

 

 

 

 

 

 

Net earnings (loss) on a GAAP basis

 

$

2,697

 

$

5

 

$

4,445

 

$

(886

)

Adjustments:

 

 

 

 

 

 

 

 

 

Amortization of intangible assets

 

 

277

 

 

554

 

Purchase accounting adjustment to Incentra and MCSI deferred revenue and cost, net

 

33

 

283

 

69

 

656

 

Total gross margin adjustments

 

33

 

560

 

69

 

1,210

 

 

 

 

 

 

 

 

 

 

 

Stock based compensation expense included in sales and marketing

 

87

 

90

 

117

 

179

 

Stock based compensation expense included in general and administrative

 

312

 

107

 

608

 

234

 

Stock based compensation expense included in engineering

 

101

 

76

 

200

 

152

 

Integration and transaction costs

 

 

 

192

 

 

581

 

Amortization of intangible assets

 

383

 

383

 

765

 

765

 

Total operating expense adjustments

 

883

 

848

 

1,690

 

1,911

 

 

 

 

 

 

 

 

 

 

 

Income tax expense

 

348

 

665

 

700

 

1,385

 

 

 

 

 

 

 

 

 

 

 

Non-GAAP net earnings

 

$

3,265

 

$

748

 

$

5,504

 

$

850

 

 

 

 

 

 

 

 

 

 

 

Non-GAAP net earnings per share - Basic

 

$

0.20

 

$

0.06

 

$

0.37

 

$

0.07

 

Non-GAAP net earnings per share - Diluted

 

$

0.19

 

$

0.06

 

$

0.36

 

$

0.07

 

 

 

 

 

 

 

 

 

 

 

Shares used in non-GAAP per share calculation - Basic

 

16,357

 

12,789

 

15,006

 

12,763

 

Shares used in non-GAAP per share calculation - Diluted

 

16,840

 

13,005

 

15,456

 

12,924

 

 



 

DATALINK CORPORATION

STATEMENT OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

 

Six Months Ended

 

 

 

June 30,

 

 

 

2011

 

2010

 

 

 

 

 

 

 

Cash flows from operating activities:

 

 

 

 

 

Net earnings (loss)

 

$

4,445

 

$

(886

)

Adjustments to reconcile net earnings (loss) to net cash provided by operating activities:

 

 

 

 

 

Provision for bad debts

 

(4

)

(11

)

Depreciation

 

478

 

441

 

Amortization of finite lived intangibles

 

765

 

1,319

 

Amortization of discount on short term investments

 

 

 

Income tax payable (receivable)

 

999

 

(197

)

Stock based compensation expense

 

925

 

567

 

Changes in operating assets and liabilities, in 2010 net of effects of acquisition:

 

 

 

 

 

Accounts receivable, net

 

7,828

 

10,708

 

Inventories

 

3,108

 

(510

)

Deferred costs/revenues/customer deposits, net

 

1,709

 

3,109

 

Accounts payable

 

(12,592

)

(13,154

)

Accrued expenses

 

(955

)

(921

)

Other

 

(133

)

(203

)

Net cash provided by operating activities

 

6,573

 

262

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

Sale (purchase) of investments

 

(9,729

)

2,730

 

Purchases of property and equipment

 

(610

)

(769

)

Net cash provided by (used in) investing activities

 

(10,339

)

1,961

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

Proceeds from stock offering

 

17,453

 

 

Payment of note payable due to seller of acquired business

 

 

(3,000

)

Excess tax from stock compensation

 

113

 

(29

)

Proceeds from issuance of common stock from option exercise

 

494

 

251

 

Tax withholding payments reimbursed by restricted stock

 

 

(78

)

Net cash provided by (used in) financing activities

 

18,060

 

(2,856

)

 

 

 

 

 

 

Increase (decrease) in cash and cash equivalents

 

14,294

 

(633

)

Cash and cash equivalents, beginning of period

 

8,988

 

12,901

 

Cash and cash equivalents, end of period

 

$

23,282

 

$

12,268

 

 

 

 

 

 

 

Supplemental cash flow information:

 

 

 

 

 

Cash paid for income taxes

 

$

1,942

 

$

57

 

Cash received for income tax refunds

 

$

117

 

$

538