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Exhibit 99.1

 

DATALINK REPORTS 2013 FOURTH QUARTER AND YEAR-END OPERATING RESULTS

 

Fourth Quarter and Annual Revenues Up 18% and 21% Year-Over-Year, Respectively;

Record Results in Line with Updated Guidance

 

EDEN PRAIRIE, Minn., February 20, 2014 — Datalink (Nasdaq: DTLK), a leading provider of data center infrastructure and services, today reported results for its fourth quarter and the year ended December 31, 2013.  Revenues for the quarter ended December 31, 2013, increased 18% to a record $173.4 million compared to $147.3 million for the quarter ended December 31, 2012.  Revenues for the year ended December 31, 2013, increased 21% to a record $594.2 million compared to $491.2 million for the year ended December 31, 2012.  For the year, product revenues increased 17% to $373.0 million and services revenues increased 28% to $221.2 million.

 

The company’s results for the quarter and year ended December 31, 2013, include the results of operations from the acquisition of substantially all of the assets of Strategic Technologies, Inc. (“StraTech”), which was completed on October 4, 2012.  The results for the fourth quarter of 2013 reflect the full impact of the additional 3.8 million common shares issued in connection with the follow-on stock offering which closed on August 14, 2013.  The dilution on GAAP and non-GAAP earnings from the additional shares outstanding on the 2013 fourth quarter and year end was approximately $0.05 per share and $0.04 per share, respectively.

 

The fourth quarter of 2013 also includes a $611,000 or $0.02 per share charge for the write-down of the account receivable from StraTech to its estimated realizable value. After the end of the quarter, the company reached a settlement agreement with the former owners of StraTech.

 



 

Under the terms of the agreement, the former owners of StraTech agreed to release the entire 242,805 shares of Datalink common stock that were being held in escrow in exchange for a payment of $100,000 and the release of certain other claims.  Based upon the value of the Datalink common stock on the date of the agreement, the company will record income before tax of approximately $877,000 or $0.02 per share in the first quarter of 2014.  The net impact on our financial statements between fourth quarter of 2013 and first quarter of 2014 will be a net gain of approximately $266,000.

 

GAAP Results

 

On a GAAP basis, the company reported net earnings of $5.2 million or $0.24 per diluted share for the fourth quarter ended December 31, 2013.  This compares to net earnings of $3.2 million or $0.18 per diluted share in the fourth quarter of 2012.  For the year ended December 31, 2013, the company reported net earnings of $10.0 million or $0.52 per diluted share, compared to net earnings of $10.5 million, or $0.60 per diluted share, for the year ended December 31, 2012.  The decrease in net earnings per share for the year is primarily due to the amortization of intangible assets related to the acquisition of substantially all of the assets of StraTech, the additional dilution from the follow-on offering in August 2013, and the charge relating to the write down of the receivable from StraTech.

 

Non-GAAP Results

 

Non-GAAP net earnings for the fourth quarter of 2013 were $7.4 million, or $0.34 per diluted share, compared to $5.6 million, or $0.31 per diluted share, in the fourth quarter of 2012.  For the year ended December 31, 2013, the company reported non-GAAP net earnings of $17.9 million, or $0.93 per diluted share, compared to $15.3 million, or $0.88 per diluted share, for the year ended December 31, 2012.  A detailed reconciliation between GAAP and non-GAAP information is contained in the tables included herein.

 



 

Fourth-quarter and year-end highlights include:

 

·                  Record fourth quarter revenues exceeding initial guidance, as well as record annual revenues.

·                  A 17% year-over-year increase in product revenues to a record $373.0 million, including a record number of converged data center infrastructure sales.

·                  A 28% year-over-year increase in total services revenues to a record $222.0 million, including 26% and 39% increases in customer support and professional services, respectively.

·                  An expansion of the company’s Advanced Services portfolio spanning data center relocation and migration services, cloud enablement and related IT-as-a-service consulting, and business continuity/disaster recovery.

·                  Continued growth in customers who did over $1 million of business with the company, up from 102 in 2012 to 124 in 2013.

·                  Generated $15.3 million of cash from operations in 2013, contributing to an end-of-year total of more than $76.1 million of cash and investments.

 

Outlook

 

Datalink projects revenues of $152.0 million to $162.0 million for the first quarter of 2014 compared to $133.6 million for the first quarter of 2013.  This represents an increase in expected revenues of between 14% and 21%, based on the company’s current backlog, sales pipeline, and historical trends.  The company expects first quarter 2014 net earnings to be between $0.08 and $0.13 per diluted share on a GAAP basis, and net earnings of between $0.14 and $0.19 per diluted share on a non-GAAP basis.  This compares to net earnings of $0.06 per diluted share and $0.18 per diluted share on a GAAP and non-GAAP basis, respectively, for the same period in 2013.

 

Non-GAAP earnings per share exclude the effect of acquisition accounting adjustments from the StraTech asset 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 2013.

 

Conference Call and Webcast Today

 

Datalink will hold a conference call shortly afterward at 4:00 p.m. Central Time during which time Datalink president and chief executive officer, Paul Lidsky, and chief financial officer, Greg Barnum, will discuss company results and provide a business overview. Participants can access the conference call by dialing (866) 318-8618. Participants will be asked to identify the Datalink conference call and provide the designated identification number (54485769). A live webcast of the conference call can be accessed here or via Datalink’s investor relations 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 network infrastructures, business continuity, and cloud enablement. 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 certain anticipated 2014 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, 2012, including, but not limited to: the level of continuing demand for data center solutions and services including the effects of current economic and credit conditions and the ability of organizations to outsource data center infrastructure-related services to service providers such as us; the migration of organizations to virtualized server environments, including using a private cloud computing infrastructure; the extent to which customers deploy disk-based backup recovery solutions; the realization of the expected trends identified for advanced network

 



 

infrastructures; reliance by manufacturers on their data service partners to integrate their specialized products; continued preferred status with certain principal suppliers; 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; our ability to hire and retain key technical and sales personnel; continued productivity of our sales personnel; our dependence on key suppliers; our ability to adapt to rapid technological change; success of the implementation of our enterprise resource planning system; risks associated with integrating completed and future acquisitions; the ability to execute our acquisition strategy; 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

 

 

 

Press

 

Jill Schmidt

 

S&S Public Relations, Inc.

 

Phone: 847-415-9311

 

Email: jills@sspr.com

 

 

 

Investor Relations

 

Kim Payne

 

Investor Relations Coordinator

 

Phone: 952-279-4794

 

Fax:     952-944-7869

 

Email: einvestor@datalink.com

 

 



 

DATALINK CORPORATION

STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

 

 

 

Three Months Ended

 

Twelve Months Ended

 

 

 

December 31,

 

December 31,

 

 

2013

 

2012

 

2013

 

2012

 

 

 

 

 

 

 

 

 

 

 

Net sales:

 

 

 

 

 

 

 

 

 

Products

 

$

111,553

 

$

97,455

 

$

373,008

 

$

319,041

 

Services

 

61,815

 

49,843

 

221,176

 

172,161

 

Total net sales

 

173,368

 

147,298

 

594,184

 

491,202

 

 

 

 

 

 

 

 

 

 

 

Cost of sales:

 

 

 

 

 

 

 

 

 

Cost of products

 

85,752

 

76,102

 

291,671

 

248,286

 

Cost of services

 

46,957

 

38,541

 

168,655

 

130,890

 

Total cost of sales

 

132,709

 

114,643

 

460,326

 

379,176

 

Gross profit

 

40,659

 

32,655

 

133,858

 

112,026

 

Operating expenses:

 

 

 

 

 

 

 

 

 

Sales and marketing

 

17,551

 

13,724

 

60,842

 

48,553

 

General and administrative

 

4,948

 

4,647

 

20,729

 

18,227

 

Engineering

 

7,126

 

6,270

 

27,536

 

22,974

 

Integration and transaction costs

 

15

 

236

 

95

 

359

 

Amortization of intangibles

 

1,671

 

2,338

 

7,251

 

4,195

 

Total operating expenses

 

31,311

 

27,215

 

116,453

 

94,308

 

Earnings from operations

 

9,348

 

5,440

 

17,405

 

17,718

 

Loss on settlement related to StraTech acquisition

 

(611

)

 

(611

)

 

Interest income (expense), net

 

19

 

2

 

(107

)

3

 

Earnings before income taxes

 

8,756

 

5,442

 

16,687

 

17,721

 

Income tax expense

 

3,531

 

2,210

 

6,642

 

7,186

 

Net earnings

 

$

5,225

 

$

3,232

 

$

10,045

 

$

10,535

 

 

 

 

 

 

 

 

 

 

 

Earnings per common share:

 

 

 

 

 

 

 

 

 

Basic

 

$

0.24

 

$

0.19

 

$

0.53

 

$

0.62

 

Diluted

 

$

0.24

 

$

0.18

 

$

0.52

 

$

0.60

 

Weighted average common shares outstanding:

 

 

 

 

 

 

 

 

 

Basic

 

21,516

 

17,348

 

19,078

 

17,114

 

Diluted

 

21,991

 

17,866

 

19,338

 

17,491

 

 



 

DATALINK CORPORATION

BALANCE SHEETS

(In thousands, except share data)

 

 

 

December 31,

 

December 31,

 

 

 

2013

 

2012

 

 

 

(Unaudited)

 

 

 

Assets

 

 

 

 

 

Current assets

 

 

 

 

 

Cash and cash equivalents

 

$

24,871

 

$

10,315

 

Short term investments

 

51,214

 

 

Accounts receivable, net

 

131,246

 

144,780

 

Receivable due from seller of StraTech acquisition

 

 

3,307

 

Inventories, net

 

4,120

 

2,554

 

Current deferred customer support contract costs

 

89,304

 

87,052

 

Inventories shipped but not installed

 

16,000

 

8,784

 

Income tax receivable

 

 

2,430

 

Other current assets

 

1,279

 

852

 

Total current assets

 

318,034

 

260,074

 

Property and equipment, net

 

6,722

 

6,082

 

Goodwill

 

37,780

 

37,780

 

Finite-lived intangibles, net

 

13,509

 

20,760

 

Deferred customer support contract costs non-current

 

49,044

 

40,771

 

Deferred tax asset

 

7,116

 

4,471

 

Long term lease receivable

 

510

 

 

Other assets

 

393

 

455

 

Total assets

 

$

433,108

 

$

370,393

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

Current liabilities

 

 

 

 

 

Line of credit

 

$

 

$

6,000

 

Floor plan line of credit

 

19,977

 

 

Accounts payable

 

61,296

 

84,716

 

Accrued commissions

 

7,133

 

8,531

 

Accrued sales and use tax

 

2,067

 

3,489

 

Accrued expenses, other

 

8,033

 

6,027

 

Income tax payable

 

11,586

 

 

Current deferred taxes

 

1,694

 

9,034

 

Customer deposits

 

4,240

 

2,894

 

Current deferred revenue from customer support contracts

 

110,567

 

105,167

 

Other current liabilities

 

187

 

157

 

Total current liabilities

 

226,780

 

226,015

 

Deferred revenue from customer support contracts non-current

 

59,576

 

48,167

 

Other liabilities non-current

 

956

 

828

 

Total liabilities

 

287,312

 

275,010

 

 

 

 

 

 

 

Stockholders’ equity

 

 

 

 

 

Common stock, $.001 par value, 50,000,000 shares authorized, 22,785,422 and 18,726,723 shares issued and outstanding as of December 31, 2013 and December 31, 2012, respectively

 

23

 

19

 

Additional paid-in capital

 

111,239

 

70,875

 

Retained earnings

 

34,534

 

24,489

 

Total stockholders’ equity

 

145,796

 

95,383

 

Total liabilities and stockholders’ equity

 

$

433,108

 

$

370,393

 

 



 

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,

 

 

 

2013

 

2012

 

2013

 

2012

 

 

 

 

 

 

 

 

 

 

 

Earnings from operations on a GAAP basis

 

$

9,348

 

$

5,440

 

$

17,405

 

$

17,718

 

GAAP operating margin

 

5.4

%

3.7

%

2.9

%

3.6

%

 

 

 

 

 

 

 

 

 

 

Non-GAAP Adjustments:

 

 

 

 

 

 

 

 

 

Purchase accounting adjustment to StraTech deferred revenue and cost, net

 

66

 

849

 

1,051

 

874

 

Total gross margin adjustments

 

66

 

849

 

1,051

 

874

 

 

 

 

 

 

 

 

 

 

 

Stock based compensation expense included in sales and marketing

 

285

 

97

 

1,228

 

640

 

Stock based compensation expense included in general and administrative

 

396

 

213

 

1,672

 

1,341

 

Stock based compensation expense included in engineering

 

450

 

224

 

1,149

 

594

 

Integration and transaction costs

 

15

 

236

 

95

 

359

 

Amortization of intangible assets

 

1,671

 

2,339

 

7,251

 

4,196

 

Total operating expense adjustments

 

2,817

 

3,109

 

11,395

 

7,130

 

 

 

 

 

 

 

 

 

 

 

Non-GAAP earnings from operations

 

12,231

 

9,398

 

29,851

 

25,722

 

Non-GAAP operating margin

 

7.1

%

6.4

%

5.0

%

5.2

%

 

 

 

 

 

 

 

 

 

 

Interest income (expense), net

 

19

 

2

 

(107

)

3

 

Income tax expense impact including Non-GAAP items

 

4,876

 

3,807

 

11,838

 

10,419

 

 

 

 

 

 

 

 

 

 

 

Non-GAAP net earnings

 

$

7,375

 

$

5,593

 

$

17,906

 

$

15,306

 

 

 

 

 

 

 

 

 

 

 

Non-GAAP net earnings per share - Basic

 

$

0.34

 

$

0.32

 

$

0.94

 

$

0.89

 

Non-GAAP net earnings per share - Diluted

 

$

0.34

 

$

0.31

 

$

0.93

 

$

0.88

 

 

 

 

 

 

 

 

 

 

 

Shares used in non-GAAP per share calculation - Basic

 

21,516

 

17,348

 

19,078

 

17,114

 

Shares used in non-GAAP per share calculation - Diluted

 

21,991

 

17,866

 

19,338

 

17,491

 

 



 

DATALINK CORPORATION

STATEMENT OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

 

Twelve Months Ended

 

 

 

December 31,

 

 

 

2013

 

2012

 

Cash flows from operating activities:

 

 

 

 

 

Net earnings

 

$

10,045

 

$

10,535

 

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

 

 

 

 

 

 

 

 

 

 

 

Change in fair value of trading securities

 

(187

)

 

Provision (benefit) for bad debts

 

115

 

(6

)

Depreciation

 

2,102

 

1,627

 

Amortization of finite lived intangibles

 

7,251

 

4,195

 

Loss on settlement related to StraTech acquisition

 

611

 

 

Deferred income taxes

 

(9,985

)

262

 

Stock based compensation expense

 

4,049

 

2,576

 

Changes in operating assets and liabilities:

 

 

 

 

 

Accounts receivable, net

 

12,909

 

(31,544

)

Inventories

 

(8,782

)

177

 

Deferred costs/revenues/customer deposits, net

 

7,630

 

4,440

 

Accounts payable

 

(23,420

)

2,943

 

Accrued expenses

 

(814

)

4,629

 

Income tax payable (receivable)

 

14,016

 

(2,025

)

Other

 

(270

)

1,007

 

Net cash provided by (used in) operating activities

 

15,270

 

(1,184

)

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

Purchases of trading securities, net

 

(51,027

)

 

Maturities of investments

 

 

1,192

 

Sales of investments

 

 

2,294

 

Purchases of property and equipment

 

(2,742

)

(3,824

)

Payment for acquisitions, net of cash acquired

 

 

(13,172

)

Net cash used in investing activities

 

(53,769

)

(13,510

)

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

Net borrowings (payments) under line of credit

 

(6,000

)

6,000

 

Proceeds from floorplan line of credit

 

19,977

 

 

Proceeds from stock offering

 

39,021

 

 

Excess tax from stock compensation

 

885

 

780

 

Proceeds from issuance of common stock from option exercise

 

252

 

347

 

Tax withholding payments reimbursed by restricted stock

 

(1,080

)

(1,065

)

Net cash provided by financing activities

 

53,055

 

6,062

 

 

 

 

 

 

 

Increase in cash and cash equivalents

 

14,556

 

(8,632

)

Cash and cash equivalents, beginning of period

 

10,315

 

18,947

 

Cash and cash equivalents, end of period

 

$

24,871

 

$

10,315

 

 

 

 

 

 

 

Supplemental cash flow information:

 

 

 

 

 

Cash paid for income taxes

 

$

1,738

 

$

8,191

 

Cash received for income tax refunds

 

$

11

 

$

25

 

Cash paid for interest expense

 

$

154

 

$

25

 

 

 

 

 

 

 

Supplemental non-cash investing and financing activities:

 

 

 

 

 

Non-cash stock issued as consideration for acquisition

 

$

 

$

2,025

 

Non-cash stock received for settlement of StraTech acquisition

 

$

2,647

 

$