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8-K - 8-K - DATALINK CORPa12-25171_18k.htm

Exhibit 99.1

 

DATALINK REPORTS 2012 THIRD QUARTER AND NINE MONTH OPERATING RESULTS

 

Third Quarter and Nine Month Revenues Up 16% and 30% Year-Over-Year, Respectively

 

EDEN PRAIRIE, Minn., October 25, 2012 — Datalink (Nasdaq: DTLK), a leading provider of data center infrastructure and services, today reported results for its third quarter and nine months that ended September 30, 2012.  Revenues for the quarter ended September 30, 2012, increased 16% to $104.8 million compared to $90.1 million for the quarter ended September 30, 2011.  Revenues for the nine months ended September 30, 2012, increased 30% to $343.9 million compared to $265.3 million for the nine months ended September 30, 2011.  Datalink’s results for the first three quarters of 2012 include results of operations from the acquisition of Midwave Corporation, which was completed on October 3, 2011.

 

We continue to see strong demand as evidenced by our strong pipeline of data center solutions prospects, especially virtualized data center solutions and big data, as well as all aspects of storage. However, as we said in our October 4, 2012, pre-release, customers are delaying large capital expenditures because of the challenging economic environment and we did experience a 13% sequential decline in revenues,” said Paul Lidsky, President and CEO of Datalink. “That caused us to lower our third quarter guidance, but projects are not being cancelled, and both our pipeline and overall industry adoption of the unified data center model continue to grow. We believe that these factors, our continued investments in the business, and our strategic emphasis on areas like services and consulting that can increase margins as well as customer wallet share position the company to return to sequential revenue and earnings growth as the economy recovers.”

 



 

GAAP Results

 

On a GAAP basis, the company reported net earnings of $1.9 million or $0.11 per diluted share for the third quarter ended September 30, 2012.  This compares to net earnings of $2.8 million or $0.16 per diluted share in the third quarter of 2011. For the nine months ended September 30, 2012, the company reported net earnings of $7.3 million or $0.42 per diluted share, compared to net earnings of $7.2 million, or $0.45 per diluted share, for the nine months ended September 30, 2011.

 

Non-GAAP Results

 

Non-GAAP net earnings for the third quarter of 2012 were $2.8 million, or $0.16 per diluted share, compared to non-GAAP net earnings of $3.5 million, or $0.21 per diluted share, in the third quarter of 2011.  For the nine months ended September 30, 2012, the company reported non-GAAP net earnings of $9.7 million, or $0.56 per diluted share, compared to non-GAAP net earnings of $8.9 million, or $0.56 per diluted share, for the nine months ended September 30, 2011.  A detailed reconciliation between GAAP and non-GAAP information is contained in the tables included herein.

 

Third-quarter and year-to-date highlights include:

 

·                  The acquisition of Cary, North Carolina-based Strategic Technologies, Inc. (“StraTech”) on October 4, 2012. The acquisition increases Datalink’s market share and physical presence across the Eastern seaboard; adds an estimated $65 million in annualized product and services revenues; and positions Datalink to close 2012 with an anticipated annualized run rate of more than $500 million and a workforce of over 450 employees. Datalink expects the transaction to become accretive to net income within one quarter. Datalink will record a charge associated with the acquisition in the fourth quarter of 2012 of approximately $300,000, or $0.01 per fully diluted share. Datalink expects the full effect of cost synergies to take effect in the first quarter of 2013.

 



 

·                  Significant third-quarter wins in virtual data center, private cloud, big data and data protection solutions, including $8.4 million in EMC Isilon revenues for big data storage from two existing customers that required additional capacity for unstructured data.

 

·                  A 35% year-over-year increase in the number of $1 million+ customers, rising from 52 to 70 in the first nine months of 2011 and 2012, respectively.

 

·                  A 128% year-over-year increase in the number of virtual data center (VDC) sales, with 64 VDC projects valued at $53.4 million in the first nine months of 2012 compared to 28 VDC projects valued at $17.3 million in the comparable period in 2011.

 

Outlook

 

Datalink projects revenues of $125 million to $135 million for the fourth quarter of 2012 compared to $114.7 million for the fourth quarter of 2011.  This represents an increase in expected revenues of between 9% and 18%, based on the company’s current backlog, sales pipeline, historical seasonal trends and the addition of StraTech revenues, while also taking into account continued lengthening sales cycles. The company expects fourth quarter 2012 net earnings to be between $0.13 and $0.19 per diluted share on a GAAP basis, and net earnings of between $0.20 and $0.26 per diluted share on a non-GAAP basis.  This compares to net earnings of $0.15 per diluted share and $0.24 per diluted share on a GAAP and non-GAAP basis, respectively, for the same period in 2011.  The fourth quarter guidance includes the results of operations for three months of the acquisition of StraTech.

 

Non-GAAP earnings per share exclude the effect of acquisition accounting adjustments from the StraTech and Incentra acquisitions to deferred revenue and costs, integration and transaction costs related to the StraTech and Midwave 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 $0.07 per diluted share for the fourth quarter of 2012.

 



 

Conference Call and Webcast Today

 

Datalink will hold a conference call today at 4:00 p.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) 277-1182. Participants will be asked to identify the Datalink conference call and provide the designated identification number (41699602). A live Webcast of the conference call can be viewed 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 the financial impact of the StraTech acquisition and our internal projections of anticipated 2012 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, many of which are included under “Risk Factors” in our annual report on Form 10-K for our year ended December 31, 2011, 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; the length of our sales cycle; 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 completed and future acquisitions; fluctuations in our quarterly operating results; future changes in applicable accounting rules; and volatility in our stock price. Furthermore, our revenues for any particular

 



 

quarter are not necessarily reflected by our backlog of contracted orders, which also may fluctuate unpredictably. We cannot assure you that we can grow or maintain our revenue and backlog from current levels.  Additional factors that may cause actual results to differ from our assumptions and expectations include those set forth in our most recent filing on Form 10-K filed with the Securities and Exchange Commission.  Any forward-looking statement made by us in this press release is based only on information currently available to us and speaks only as of the date on which it is made.  We undertake no obligation to publicly update any forward-looking statement, whether written or oral, that may be made from time to time, whether as a result of new information, future developments or otherwise.

 

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:

 

Investors & Analysts:

Greg Barnum

Vice President and CFO

Phone:  952-279-4816

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

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

 

 

2012

 

2011

 

2012

 

2011

 

 

 

 

 

 

 

 

 

 

 

Net sales:

 

 

 

 

 

 

 

 

 

Products

 

$

64,052

 

$

55,671

 

$

221,586

 

$

167,811

 

Services

 

40,722

 

34,469

 

122,318

 

97,504

 

Total net sales

 

104,774

 

90,140

 

343,904

 

265,315

 

 

 

 

 

 

 

 

 

 

 

Cost of sales:

 

 

 

 

 

 

 

 

 

Cost of products

 

49,795

 

42,963

 

172,184

 

128,156

 

Cost of services

 

30,967

 

25,937

 

92,349

 

73,485

 

Total cost of sales

 

80,762

 

68,900

 

264,533

 

201,641

 

Gross profit

 

24,012

 

21,240

 

79,371

 

63,674

 

Operating expenses:

 

 

 

 

 

 

 

 

 

Sales and marketing

 

10,052

 

8,760

 

34,829

 

27,321

 

General and administrative

 

4,228

 

3,802

 

13,580

 

11,326

 

Engineering

 

5,755

 

3,886

 

16,704

 

12,091

 

Other income

 

 

(574

)

 

(574

)

Integration and transaction costs

 

103

 

125

 

123

 

125

 

Amortization of intangibles

 

619

 

382

 

1,857

 

1,147

 

Total operating expenses

 

20,757

 

16,381

 

67,093

 

51,436

 

Earnings from operations

 

3,255

 

4,859

 

12,278

 

12,238

 

Interest income (expense), net

 

13

 

(8

)

1

 

(4

)

Earnings before income taxes

 

3,268

 

4,851

 

12,279

 

12,234

 

Income tax expense

 

1,345

 

2,058

 

4,976

 

4,996

 

Net earnings

 

$

1,923

 

$

2,793

 

$

7,303

 

$

7,238

 

 

 

 

 

 

 

 

 

 

 

Earnings per common share:

 

 

 

 

 

 

 

 

 

Basic

 

$

0.11

 

$

0.17

 

$

0.43

 

$

0.47

 

Diluted

 

$

0.11

 

$

0.16

 

$

0.42

 

$

0.45

 

Weighted average common shares outstanding:

 

 

 

 

 

 

 

 

 

Basic

 

17,085

 

16,432

 

17,036

 

15,488

 

Diluted

 

17,585

 

16,963

 

17,465

 

15,962

 

 

 

 

 

 

 

 

 

 

 

 



 

DATALINK CORPORATION

BALANCE SHEETS

(In thousands, except share data)

 

 

 

September 30,

 

December 31,

 

 

 

2012

 

2011

 

 

 

(Unaudited)

 

 

 

Assets

 

 

 

 

 

Current assets

 

 

 

 

 

Cash and cash equivalents

 

$

29,156

 

$

18,947

 

Short term investments

 

 

3,486

 

Accounts receivable, net

 

69,621

 

102,289

 

Inventories

 

1,728

 

1,736

 

Deferred customer support contract costs

 

69,613

 

62,901

 

Inventories shipped but not installed

 

6,046

 

9,779

 

Income tax receivable

 

3,557

 

405

 

Other current assets

 

599

 

1,169

 

Total current assets

 

180,320

 

200,712

 

Property and equipment, net

 

5,745

 

3,453

 

Goodwill

 

32,446

 

32,446

 

Finite life intangibles, net

 

7,178

 

9,035

 

Deferred customer support contract costs non-current

 

34,224

 

28,785

 

Deferred tax asset

 

3,191

 

3,159

 

Other assets

 

294

 

361

 

Total assets

 

$

263,398

 

$

277,951

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

Current liabilities

 

 

 

 

 

Accounts payable

 

$

26,816

 

$

63,292

 

Accrued commissions

 

4,639

 

5,069

 

Accrued sales and use tax

 

1,385

 

2,574

 

Accrued expenses, other

 

5,047

 

5,209

 

Deferred tax liability

 

7,459

 

7,459

 

Customer deposits

 

2,518

 

2,145

 

Deferred revenue from customer support contracts

 

84,228

 

76,998

 

Other current liabilities

 

99

 

85

 

Total current liabilities

 

132,191

 

162,831

 

Deferred revenue from customer support contracts non-current

 

40,625

 

34,740

 

Other liabilities non-current

 

896

 

195

 

Total liabilities

 

173,712

 

197,766

 

 

 

 

 

 

 

Stockholders’ equity

 

 

 

 

 

Common stock, $.001 par value, 50,000,000 shares authorized, 18,056,551 and 17,899,171 shares issued and outstanding as of September 30, 2012 and December 31, 2011, respectively

 

18

 

18

 

Additional paid-in capital

 

68,411

 

66,213

 

Retained earnings

 

21,257

 

13,954

 

Total stockholders’ equity

 

89,686

 

80,185

 

Total liabilities and stockholders’ equity

 

$

263,398

 

$

277,951

 

 



 

DATALINK CORPORATION

RECONCILIATION  BETWEEN GAAP AND NON-GAAP NET INCOME

(In thousands, except per share data)

(Unaudited)

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

 

 

2012

 

2011

 

2012

 

2011

 

 

 

 

 

 

 

 

 

 

 

Earnings from operations on a GAAP basis

 

$

3,255

 

$

4,859

 

$

12,278

 

$

12,238

 

GAAP operating margin

 

3.1

%

5.4

%

3.6

%

4.6

%

 

 

 

 

 

 

 

 

 

 

Non-GAAP Adjustments:

 

 

 

 

 

 

 

 

 

Amortization of intangible assets

 

 

 

 

 

Purchase accounting adjustment to Incentra deferred revenue and cost, net

 

6

 

23

 

26

 

92

 

Total gross margin adjustments

 

6

 

23

 

26

 

92

 

 

 

 

 

 

 

 

 

 

 

Stock based compensation expense included in sales and marketing

 

171

 

276

 

543

 

393

 

Stock based compensation expense included in general and administrative

 

421

 

240

 

1,129

 

848

 

Stock based compensation expense included in engineering

 

134

 

169

 

369

 

369

 

Integration and transaction costs

 

103

 

 

123

 

 

Amortization of intangible assets

 

619

 

382

 

1,857

 

1,147

 

Total operating expense adjustments

 

1,448

 

1,067

 

4,021

 

2,757

 

 

 

 

 

 

 

 

 

 

 

Non-GAAP earnings from operations

 

4,709

 

5,949

 

16,325

 

15,087

 

Non-GAAP operating margin

 

4.5

%

6.6

%

4.7

%

5.7

%

 

 

 

 

 

 

 

 

 

 

Interest income (expense), net

 

13

 

(8

)

1

 

(4

)

Income tax expense impact including Non-GAAP items

 

1,917

 

2,424

 

6,628

 

6,158

 

 

 

 

 

 

 

 

 

 

 

Non-GAAP net earnings

 

$

2,805

 

$

3,517

 

$

9,698

 

$

8,925

 

 

 

 

 

 

 

 

 

 

 

Non-GAAP net earnings per share - Basic

 

$

0.16

 

$

0.21

 

$

0.57

 

$

0.58

 

Non-GAAP net earnings per share - Diluted

 

$

0.16

 

$

0.21

 

$

0.56

 

$

0.56

 

 

 

 

 

 

 

 

 

 

 

Shares used in non-GAAP per share calculation - Basic

 

17,085

 

16,432

 

17,036

 

15,488

 

Shares used in non-GAAP per share calculation - Diluted

 

17,585

 

16,963

 

17,465

 

15,962

 

 



 

DATALINK CORPORATION

STATEMENT OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

 

Nine Months Ended
September 30,

 

 

 

2012

 

2011

 

 

 

 

 

 

 

Cash flows from operating activities:

 

 

 

 

 

Net earnings

 

$

7,303

 

$

7,238

 

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

 

 

 

 

 

Benefit for bad debts

 

(35

)

(6

)

Depreciation

 

1,201

 

716

 

Amortization of finite lived intangibles

 

1,857

 

1,147

 

Deferred income taxes

 

(32

)

187

 

Stock based compensation expense

 

2,041

 

1,670

 

Changes in operating assets and liabilities:

 

 

 

 

 

Accounts receivable, net

 

32,703

 

6,867

 

Inventories

 

3,741

 

5,500

 

Deferred costs/revenues/customer deposits, net

 

1,337

 

19

 

Accounts payable

 

(36,476

)

(14,737

)

Accrued expenses

 

(1,781

)

(897

)

Income tax payable (receivable)

 

(3,152

)

598

 

Other

 

1,352

 

(114

)

Net cash provided by operating activities

 

10,059

 

8,188

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

Purchase of investments

 

 

(9,978

)

Maturities of investments

 

1,192

 

 

Sale of investments

 

2,294

 

5,737

 

Purchases of property and equipment

 

(3,493

)

(696

)

Net cash used in investing activities

 

(7

)

(4,937

)

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

Proceeds from stock offering

 

 

17,453

 

Excess tax from stock compensation

 

557

 

287

 

Proceeds from issuance of common stock from option exercise

 

330

 

841

 

Tax withholding payments reimbursed by restricted stock

 

(730

)

 

Net cash provided by financing activities

 

157

 

18,581

 

 

 

 

 

 

 

Increase in cash and cash equivalents

 

10,209

 

21,832

 

Cash, beginning of period

 

18,947

 

8,988

 

Cash, end of period

 

$

29,156

 

$

30,820

 

 

 

 

 

 

 

Supplemental cash flow information:

 

 

 

 

 

Cash paid for income taxes

 

$

7,604

 

$

62

 

Cash received for income tax refunds

 

$

 

$

538