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8-K - 8-K - DATALINK CORPa12-5183_18k.htm
EX-99.2 - EX-99.2 - DATALINK CORPa12-5183_1ex99d2.htm

Exhibit 99.1

 

DATALINK REPORTS 2011 FOURTH QUARTER AND YEAR-END OPERATING RESULTS

 

Record Fourth Quarter and Annual Revenue Up 26% and 29% Year-Over-Year, Respectively

 

CHANHASSEN, Minn., February 16, 2012 — Datalink (Nasdaq: DTLK), a leading provider of data center infrastructure and services, today reported results for its fourth quarter and year that ended December 31, 2011.  Revenues for the quarter ended December 31, 2011, increased 26% to $114.7 million compared to $91.0 million for the prior-year period.  Revenues for year ended December 31, 2011, increased 29% to $380.0 million compared to $293.7 million for the year ended December 31, 2010.

 

GAAP Results

 

On a GAAP basis, the company reported net earnings of $2.6 million or $0.15 per diluted share for the fourth quarter ended December 31, 2011.  This compares to net earnings of $2.4 million or $0.19 per diluted share in the fourth quarter of 2010. For the year ended December 31, 2011, the company reported net earnings of $9.8 million or $0.61 per diluted share, compared to net earnings of $2.3 million, or $0.18 per basic and diluted share, for the year ended December 31, 2010.

 

Non-GAAP Results

 

Non-GAAP net earnings for the fourth quarter of 2011 were $4.1 million, or $0.24 per diluted share, compared to non-GAAP net earnings of $3.1 million, or $0.24 per diluted share, in the fourth quarter of 2010.  For the year ended December 31, 2011, the company reported non-GAAP net earnings of $13.0 million, or $0.80 per diluted share, compared to net earnings of $5.4 million, or $0.41 per diluted share, for the year ended December 31, 2010.  A detailed

 



 

reconciliation between GAAP and non-GAAP information is contained in the tables included herein.

 

The company’s results for the quarter and year ended December 31, 2011 include:

 

·                  The additional 3.3 million common shares issued in connection with the follow-on stock offering in March 2011.  The dilution on GAAP and non-GAAP earnings from the additional shares outstanding on the 2011 fourth quarter and full year’s earnings was approximately $0.05 per share and $0.16 per share, respectively.

 

·                  The results of operations from the acquisition of Midwave Corporation, which was completed on October 3, 2011. Excluding Midwave, revenues for the fourth quarter and year ended December 31, 2011, would have increased approximately 12% and 25%, respectively compared to the prior year periods.  The acquisition had no impact on GAAP or non-GAAP earnings in the fourth quarter of 2011.

 

·                  For the fourth quarter GAAP results, the benefit of the receipt of a $553,000, or approximately $0.02 per share early termination payment relating to the earn-out under the October 2009 purchase agreement with Cross Telecom.  Under the terms of the purchase agreement, Cross was required to expend $600,000 with Datalink for goods and services for the period October 2011 through September 2012.  Cross elected to terminate the commitment with a lump sum buy-out payment in October 2011. The benefit from this payment is not included in Non-GAAP earnings for the fourth quarter of 2011.

 

Paul Lidsky, Datalink’s president and CEO, commented, “2011 was a record year for Datalink.  We reported revenues of $380 million and our highest earnings ever.  In addition, the $114.7 million of revenues in the fourth quarter of 2011 is a quarterly record for Datalink.  We also reported our eleventh consecutive quarter of non-GAAP net earnings.”

 

Other significant accomplishments for 2011 and the fourth quarter include:

 



 

·                  A record $77.9 million in product revenues for the quarter, which represents a 40% increase over third quarter and a 32% increase over the same period in 2010.  In addition, service revenues were a record $36.8 million in the fourth quarter. These increases reflect both the acquisition of Midwave Corporation and Datalink’s ability to continue to close multi-million dollar accounts during the fourth quarter.

 

·                  Continued growth in multi-million dollar accounts among Global 1000 companies. In 2011, the company saw 77 customers purchase over $1 million of product and services from Datalink as compared to 55 customers in 2010.  In addition, the company acquired 290 new customers in 2011 as compared to 272 in 2010.

 

·                  A follow on offering 3.3 million shares that closed in March 2011, generating approximately $17 million of cash to be primarily used for acquisitions.  On October 3, 2011, the company used these funds to acquire the assets of Midwave Corporation, doubling its footprint in the Twin Cities and making Datalink the dominant data center services and infrastructure provider in the region.  The acquisition also doubled the company’s Cisco technology and services revenues, expanded its managed services portfolio with the addition of a data center infrastructure monitoring service, added an established security practice including product, services and consulting, and doubled the size of Datalink’s consulting services team.  While the acquisition was only slightly accretive in its first quarter of operations and as expected did not generate enough earnings to offset the dilution from the follow-on offering, the company expects the acquisition to have a positive earnings impact once all of the synergies are recognized by the second half of 2012.

 

·                  Achievement of the industry’s first NetApp Specialization in “Data Center - FlexPod” Unified Architectures certification.  The new specialization recognizes Datalink as having fulfilled one of the most rigorous levels of solution competency recognized by NetApp and includes NetApp, Cisco and VMware top certification requirements.

 

·                  Significant momentum for the company’s virtualized data center (VDC) solutions, with 22 solution projects sold in Q4 compared to 6 in the comparable period in 2010, and 89 deals for the whole year compared to 33 in 2010.

 



 

·                  Exiting the quarter with a healthy and strong balance sheet with working capital of $37.9 million, cash and investments of $22.4 million, and continued debt-free status.

 

“Datalink’s collective accomplishments during 2011 reaffirm our successful execution on our acquisition and data center strategies.  These strategies, coupled with improving economic conditions, resulted in increased revenue and gross margin dollars throughout the year,” Lidsky said.  “This allowed us to leverage our fixed expenses culminating in a 2011 non-GAAP operating profit margin of 5.8% and 2011 non-GAAP operating earnings of $21.9 million as compared to a 2010 non-GAAP operating profit margin of 3.3% and 2010 non-GAAP operating income of $9.6 million.

 

“In addition, our strong 2011 performance left us with a record backlog going into the first quarter and accelerated activity that has carried over with strong sales in the first months of Q1,” Lidsky added. “As we exit the year, we continue to see increasing demand for unified data center solutions with flexible architectures. Our investments in our expanded data center portfolio support these market conditions, and our ability to deliver unified platforms to our customers should fuel growth in 2012.”

 

Outlook

 

With the strong start to the new year, Datalink’s first quarter guidance suggests a 17% to 24% year-over-year revenue increase in fiscal 2012.  Based on the company’s current backlog and sales pipeline, the company projects revenues of $108 million to $116 million for Q1 2012 compared to $85.7 million for Q1 2011. In addition, Datalink’s first quarter operating expenses are typically higher than other quarters. Therefore the company expects first quarter 2012 net earnings to be between $0.07 and $0.12 per diluted share on a GAAP basis, and net earnings of between $0.13 and $0.18 per diluted share on a non-GAAP basis.  This compares to net earnings of $0.12 per diluted share and $0.16 per diluted share on a GAAP and non-GAAP basis, respectively, for the same period in 2011.

 



 

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 $0.06 per diluted share for the first quarter of 2012.

 

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 fourth quarter and twelve months of 2011 results reflects this new revenue recognition policy.  The company’s revenue for 2011 includes $8.6 million of revenues that would have been recognized in the fourth quarter of 2010 if the company had been recognizing revenue upon shipment in 2010.   These revenues were recognized in the first and second quarters of 2011.

 

Conference Call and Webcast Today

 

Datalink will hold a conference call at 7:30 a.m. Central Standard 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 (42977576). 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, early termination payments related to the Cross acquisition 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:

 

Investors & Analysts:

Greg Barnum

Vice President and CFO

Phone:  952=944-3462

Email:  gbarnum@datalink.com

 

Media & Alliances:

Suzanne Gallagher

SVP of Marketing

Phone: 720-566-5110

Email: sgallagher@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

 

Twelve Months Ended

 

 

 

December 31,

 

December 31,

 

 

 

2011

 

2010

 

2011

 

2010

 

 

 

 

 

 

 

 

 

 

 

Net sales:

 

 

 

 

 

 

 

 

 

Products

 

$

77,932

 

$

59,092

 

$

245,743

 

$

180,424

 

Services

 

36,780

 

31,948

 

134,284

 

113,255

 

Total net sales

 

114,712

 

91,040

 

380,027

 

293,679

 

 

 

 

 

 

 

 

 

 

 

Cost of sales:

 

 

 

 

 

 

 

 

 

Cost of products

 

60,228

 

46,989

 

188,384

 

140,984

 

Cost of services

 

27,493

 

23,895

 

100,978

 

83,951

 

Amortization of intangibles

 

1,053

 

277

 

1,053

 

1,108

 

Total cost of sales

 

88,774

 

71,161

 

290,415

 

226,043

 

Gross profit

 

25,938

 

19,879

 

89,612

 

67,636

 

Operating expenses:

 

 

 

 

 

 

 

 

 

Sales and marketing

 

11,402

 

8,318

 

38,723

 

32,353

 

General and administrative

 

4,142

 

3,406

 

15,468

 

14,092

 

Engineering

 

5,444

 

3,666

 

17,535

 

15,652

 

Other income

 

(553

)

 

(1,127

)

(503

)

Integration and transaction costs

 

329

 

 

454

 

581

 

Amortization of intangibles

 

619

 

336

 

1,766

 

1,483

 

 

 

21,383

 

15,726

 

72,819

 

63,658

 

Earnings from operations

 

4,555

 

4,153

 

16,793

 

3,978

 

Interest income

 

28

 

3

 

50

 

15

 

Interest expense

 

(14

)

 

(40

)

(1

)

Earnings before income taxes

 

4,569

 

4,156

 

16,803

 

3,992

 

Income tax expense

 

1,962

 

1,739

 

6,958

 

1,690

 

Net earnings

 

$

2,607

 

$

2,417

 

$

9,845

 

$

2,302

 

 

 

 

 

 

 

 

 

 

 

Net earnings per common share:

 

 

 

 

 

 

 

 

 

Basic

 

$

0.16

 

$

0.19

 

$

0.62

 

$

0.18

 

Diluted

 

$

0.15

 

$

0.19

 

$

0.61

 

$

0.18

 

Weighted average common shares outstanding:

 

 

 

 

 

 

 

 

 

Basic

 

16,736

 

12,855

 

15,803

 

12,801

 

Diluted

 

17,206

 

13,054

 

16,213

 

12,981

 

 



 

DATALINK CORPORATION

BALANCE SHEETS

(In thousands, except share data)

 

 

 

December 31,

 

December 31,

 

 

 

2011

 

2010

 

 

 

(Unaudited)

 

 

 

Assets

 

 

 

 

 

Current assets

 

 

 

 

 

Cash and cash equivalents

 

$

18,947

 

$

8,988

 

Short term investments

 

3,486

 

 

Accounts receivable, net

 

102,289

 

57,779

 

Inventories

 

1,736

 

2,210

 

Current deferred customer support contract costs

 

62,901

 

48,715

 

Inventories shipped but not installed

 

9,779

 

7,191

 

Income tax receivable

 

405

 

1,064

 

Other current assets

 

1,169

 

607

 

Total current assets

 

200,712

 

126,554

 

Property and equipment, net

 

3,453

 

2,126

 

Goodwill

 

32,446

 

23,146

 

Finite life intangibles, net

 

9,035

 

5,219

 

Deferred customer support contract costs non-current

 

28,785

 

18,742

 

Deferred tax asset

 

3,159

 

 

Other assets

 

361

 

285

 

Total assets

 

$

277,951

 

$

176,072

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

Current liabilities

 

 

 

 

 

Accounts payable

 

$

63,292

 

$

28,749

 

Accrued commissions

 

5,069

 

3,546

 

Accrued sales and use tax

 

2,574

 

1,414

 

Accrued expenses, other

 

5,209

 

3,427

 

Current deferred tax liability

 

7,459

 

3,723

 

Customer deposits

 

2,145

 

2,209

 

Current deferred revenue from customer support contracts

 

76,998

 

61,571

 

Other current liabilities

 

85

 

279

 

Total current liabilities

 

162,831

 

104,918

 

Deferred income tax liability

 

 

203

 

Deferred revenue from customer support contracts non-current

 

34,740

 

23,284

 

Other current liabilities non-current

 

195

 

212

 

Total liabilities

 

197,766

 

128,617

 

 

 

 

 

 

 

Stockholders’ equity

 

 

 

 

 

Common stock, $.001 par value, 50,000,000 shares authorized, 17,899,171 and 13,569,533 shares issued and outstanding as of December 31, 2011 and December 31, 2010, respectively

 

18

 

14

 

Additional paid-in capital

 

66,212

 

43,332

 

Retained earnings

 

13,955

 

4,109

 

Total stockholders’ equity

 

80,185

 

47,455

 

Total liabilities and stockholders’ equity

 

$

277,951

 

$

176,072

 

 



 

DATALINK CORPORATION

RECONCILIATION  BETWEEN GAAP AND NON-GAAP NET INCOME

(In thousands, except per share data)

(Unaudited)

 

 

 

Three Months Ended

 

Twelve Months Ended

 

 

 

December 31,

 

December 31,

 

 

 

2011

 

2010

 

2011

 

2010

 

 

 

 

 

 

 

 

 

 

 

Net earnings on a GAAP basis

 

$

2,607

 

$

2,417

 

$

9,845

 

$

2,302

 

Adjustments:

 

 

 

 

 

 

 

 

 

Amortization of intangible assets

 

$

1,053

 

$

277

 

$

1,053

 

$

1,108

 

Acquisition accounting adjustment to Incentra and MCSI deferred revenue, net

 

15

 

71

 

108

 

853

 

Total gross margin adjustments

 

1,068

 

348

 

1,161

 

1,961

 

 

 

 

 

 

 

 

 

 

 

Stock based compensation expense included in sales and marketing

 

389

 

195

 

782

 

509

 

Stock based compensation expense included in general and administrative

 

351

 

395

 

1,259

 

754

 

Stock based compensation expense included in engineering

 

143

 

100

 

516

 

329

 

Other income from Cross buyout

 

(553

)

 

(553

)

 

Integration and transaction costs

 

329

 

 

454

 

581

 

Amortization of acquisition intangible assets

 

619

 

336

 

1,766

 

1,483

 

Total operating expense adjustments

 

1,278

 

1,026

 

4,224

 

3,656

 

 

 

 

 

 

 

 

 

 

 

Income tax expense

 

901

 

694

 

2,228

 

2,538

 

 

 

 

 

 

 

 

 

 

 

Non-GAAP net earnings

 

$

4,052

 

$

3,097

 

$

13,002

 

$

5,381

 

 

 

 

 

 

 

 

 

 

 

Non-GAAP net earnings per share - Basic

 

$

0.24

 

$

0.24

 

$

0.82

 

$

0.42

 

Non-GAAP net earnings per share - Diluted

 

$

0.24

 

$

0.24

 

$

0.80

 

$

0.41

 

 

 

 

 

 

 

 

 

 

 

Shares used in non-GAAP per share calculation - Basic

 

16,736

 

12,855

 

15,803

 

12,801

 

Shares used in non-GAAP per share calculation - Diluted

 

17,206

 

13,054

 

16,213

 

12,981

 

 



 

DATALINK CORPORATION

STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

 

Twelve Months Ended

 

 

 

December 31,

 

 

 

2011

 

2010

 

 

 

 

 

 

 

Cash flows from operating activities:

 

 

 

 

 

Net earnings

 

$

9,845

 

$

2,302

 

Adjustments to reconcile net earnings to net cash provided by operating activities:

 

 

 

 

 

Provision for bad debts

 

84

 

73

 

Depreciation

 

1,045

 

945

 

Amortization of finite lived intangibles

 

2,819

 

2,591

 

Deferred income taxes

 

374

 

1,755

 

Stock based compensation expense

 

2,557

 

1,592

 

Changes in operating assets and liabilities, net of effects of acquisitions

 

 

 

 

 

Accounts receivable

 

(33,019

)

(13,742

)

Inventories

 

(2,114

)

1,133

 

Deferred costs/revenues/customer deposits, net

 

2,485

 

2,234

 

Accounts payable

 

25,610

 

(2,276

)

Accrued expenses

 

3,605

 

1,387

 

Income tax receivable

 

659

 

9

 

Other

 

(625

)

(528

)

Net cash provide by (used in) operating activities

 

13,325

 

(2,525

)

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

Proceeds from short term investments

 

6,492

 

2,730

 

Purchase of short term investments

 

(9,978

)

 

Payment for acquisitions

 

(17,542

)

 

Purchases of property and equipment

 

(1,102

)

(1,263

)

Net cash provided by (used in) investing activities

 

(22,130

)

1,467

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

Proceeds from stock offering, net of offering costs

 

17,454

 

 

Payment of note payable due to seller of acquired business

 

 

(3,000

)

Excess tax from stock compensation and restricted stock vesting

 

276

 

(16

)

Proceeds from issuance of common stock from option exercise

 

1,034

 

364

 

Tax withholding payments reimbursed by restricted stock

 

 

(203

)

Net cash provided by (used in) financing activities

 

18,764

 

(2,855

)

 

 

 

 

 

 

Increase (decrease) in cash and cash equivalents

 

9,959

 

(3,913

)

Cash and cash equivalents, beginning of period

 

8,988

 

12,901

 

Cash and cash equivalents, end of period

 

$

18,947

 

$

8,988

 

 

 

 

 

 

 

Supplemental cash flow information:

 

 

 

 

 

Cash paid for income taxes

 

$

5,934

 

$

509

 

Cash received for income tax refunds

 

$

469

 

$

568

 

 

 

 

 

 

 

Supplemental disclosure of non-cash investing activities:

 

 

 

 

 

Non-cash stock issued as consideration for acquisition

 

$

1,564

 

$