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Exhibit 99.1

 

DATALINK REPORTS FIRST QUARTER 2016 OPERATING RESULTS

 

Revenues Affected by Late Orders & Shipments; Flash Storage & Services Sales Continue to Increase

 

EDEN PRAIRIE, Minn., April 27, 2016 — Datalink (Nasdaq: DTLK), a leading provider of IT services and solutions, today reported first quarter 2016 financial results. Revenues for the quarter ended March 31, 2016, declined 6% to $164.6 million compared to $175.4 million for same period in 2015.  Results were affected by approximately $10 million of delayed shipments from three of our primary vendors. Shipment of those orders, as expected in the first quarter, would have produced revenues comparable to the first quarter of 2015. The delayed shipments created a record backlog going into our second quarter.

 

On a GAAP basis, the company reported a net loss of $433,000 or $0.02 per diluted share for the first quarter of 2016.  This compares to a net loss of $14,000 or $0.00 per diluted share in the first quarter of 2015. Non-GAAP net earnings for the first quarter of 2016 were $1.2 million, or $0.05 per diluted share, compared to non-GAAP net earnings of $2.4 million, or $0.11 per diluted share, in the first quarter of 2015.  A detailed reconciliation between GAAP and non-GAAP information is contained in the tables included herein.

 

“Our first-quarter performance was impacted by both unfulfilled orders and the unusually slow early-quarter spending cadence that has also been reported by other major industry manufacturers, but we believe those are anomalies that will be corrected in the second quarter. Our sales momentum has been strong since late March and both our flash storage business and the number of large projects in our pipeline continue to grow,” said Paul Lidsky, Datalink’s president and CEO.  “We still face the challenges created by the shift in IT spending habits away from regular technology refreshes to business-driven IT investments, but we continue to

 



 

rebalance our workforce skill sets to address that shift. We also have a strong balance sheet that enables us to invest in new services and next-generation technology that meets the evolving needs of our clients and allows us to take advantage of new strategic acquisition opportunities.”

 

First-Quarter Highlights

 

·                  A 149% year-over-year increase in sales of all-flash storage, with flash now representing 56% of Datalink’s storage sales compared to 22% in 2015. Flash storage yields lower gross margins than traditional storage but helps to offset continued declines in traditional storage revenues and also drives migration and other consulting services.

 

·                  An 8% year-over-year increase in total services revenues, including an increase in managed services that are a source of recurring income. Services comprised 45% of revenues during the quarter compared to 39% in the comparable quarter of 2015.

 

·                  Industry recognition, including placement on the 2016 CRN Tech Elite 250 and 2016 CRN Elite 150 Managed Service Provider lists.

 

·                  Strong balance sheet with the company ending the quarter with over $66 million of cash and investments and no debt.

 

·                  Stock re-purchase program, the company repurchased 600,000 shares of common stock at an average price of $6.98 per share in the first quarter.  The company has re-purchased a total of 1,229,000 shares at an average price of $7.33 per share since the inception of the program in September 2015.

 

Outlook

 

“Based on our current sales momentum, the major transformational projects currently in our pipeline, and growth drivers like flash storage and our new security practice, we believe the 4% to 6% growth rates that we projected in February are still attainable. That is double the annual 2% to 3% growth predicted for the industry overall,” Lidsky said. “This remains a challenging

 



 

time, but our initiatives over the past few years to help clients utilize IT to support business objectives have positioned the company to adapt to the new ways in which organizations want to consume IT services and technologies.”

 

As previously reported, the company has discontinued near-term quarterly guidance because of the volatility of current IT spending patterns, revenue fluctuations from quarter to quarter related to variable delivery timetables for complex consulting services and associated products, and a transition to annual guidance that has been adopted by other IT companies.

 

Conference Call and Webcast Today

 

Datalink will hold a conference call shortly after 4:00 p.m. Central Time during which time Datalink’s 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 (855) 826-6150. Participants will be asked to identify the Datalink conference call and provide the designated identification number (40502972). A live webcast of the conference call can be accessed here or via Datalink’s investor relations website at www.datalink.com.

 

About Datalink

 

Datalink is a complete IT services provider that helps companies transform their technology, operations, and service delivery to meet business challenges. Combining extensive experience, a full lifecycle of services and a comprehensive approach to producing IT innovations that empower positive business outcomes, Datalink delivers success across cloud IT transformation, next generation technology, and security. 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 (i) anticipated margin pressure and plans to drive profitable growth, and (ii) Datalink’s projections of certain anticipated 2016 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, 2015, including, but not limited to: the level of continuing demand for IT services and solutions 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; customers switching to solid state storage solutions; 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; risks associated with integrating completed and future acquisitions (including a failure of anticipated synergies to materialize); 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, severance costs 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

 



 

DATALINK CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2016

 

2015

 

 

 

 

 

 

 

Net sales:

 

 

 

 

 

Products

 

$

90,675

 

$

106,736

 

Services

 

73,957

 

68,616

 

Total net sales

 

164,632

 

175,352

 

 

 

 

 

 

 

Cost of sales:

 

 

 

 

 

Cost of products

 

73,099

 

85,782

 

Cost of services

 

60,061

 

54,402

 

Total cost of sales

 

133,160

 

140,184

 

Gross profit

 

31,472

 

35,168

 

Operating expenses:

 

 

 

 

 

Sales and marketing

 

15,635

 

17,422

 

General and administrative

 

6,870

 

6,989

 

Engineering

 

8,032

 

8,242

 

Integration and transaction costs

 

 

450

 

Amortization of intangibles

 

1,405

 

2,073

 

Total operating expenses

 

31,942

 

35,176

 

Loss from operations

 

(470

)

(8

)

Interest income

 

165

 

71

 

Interest expense

 

(73

)

(67

)

Other, net

 

(50

)

(19

)

Loss before income taxes

 

(428

)

(23

)

Income tax expense (benefit)

 

5

 

(9

)

Net loss

 

$

(433

)

$

(14

)

 

 

 

 

 

 

Loss per common share:

 

 

 

 

 

Basic

 

$

(0.02

)

$

(0.00

)

Diluted

 

$

(0.02

)

$

(0.00

)

Weighted average common shares outstanding:

 

 

 

 

 

Basic

 

21,158

 

21,949

 

Diluted

 

21,158

 

21,949

 

 



 

DATALINK CORPORATION

CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

(Unaudited)

 

 

 

March 31,

 

December 31,

 

 

 

2016

 

2015

 

 

 

 

 

 

 

Assets

 

Current assets

 

 

 

 

 

Cash and cash equivalents

 

$

30,128

 

$

39,397

 

Short-term investments

 

35,974

 

20,579

 

Accounts receivable, net

 

111,960

 

163,900

 

Lease receivable

 

3,816

 

3,895

 

Inventories, net

 

9,399

 

7,997

 

Current deferred customer support contract costs

 

123,280

 

124,705

 

Inventories shipped but not installed

 

16,498

 

16,616

 

Income tax receivable

 

691

 

 

Other current assets

 

3,176

 

3,251

 

Total current assets

 

334,922

 

380,340

 

Property and equipment, net

 

8,324

 

7,963

 

Goodwill

 

47,101

 

47,101

 

Finite-lived intangibles, net

 

7,851

 

9,256

 

Deferred customer support contract costs, non-current

 

58,533

 

60,240

 

Deferred tax asset

 

9,177

 

9,177

 

Long-term lease receivable

 

6,513

 

7,017

 

Other assets

 

735

 

703

 

Total assets

 

$

473,156

 

$

521,797

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

Current liabilities

 

 

 

 

 

Floor plan line of credit

 

$

25,159

 

$

24,340

 

Accounts payable

 

42,312

 

73,959

 

Lease payable

 

3,882

 

3,643

 

Accrued commissions

 

1,729

 

3,687

 

Accrued sales and use taxes

 

2,204

 

3,782

 

Accrued expenses, other

 

5,961

 

6,998

 

Accrued income tax payable

 

 

4,492

 

Customer deposits

 

4,122

 

4,398

 

Current deferred revenue from customer support contracts

 

149,766

 

151,619

 

Other current liabilities

 

451

 

1,050

 

Total current liabilities

 

235,586

 

277,968

 

Deferred revenue from customer support contracts, non-current

 

70,123

 

72,262

 

Long-term lease payable

 

5,105

 

5,857

 

Other liabilities non-current

 

1,739

 

942

 

Total liabilities

 

312,553

 

357,029

 

 

 

 

 

 

 

Stockholders’ equity

 

 

 

 

 

Common stock, $.001 par value, 50,000,000 shares authorized, 22,577,888 and 22,627,322 shares issued and outstanding as of March 31, 2016 and December 31, 2015, respectively

 

22

 

23

 

Additional paid-in capital

 

110,700

 

114,431

 

Retained earnings

 

49,881

 

50,314

 

Total stockholders’ equity

 

160,603

 

164,768

 

Total liabilities and stockholders’ equity

 

$

473,156

 

$

521,797

 

 



 

DATALINK CORPORATION

RECONCILIATION  BETWEEN GAAP AND NON-GAAP NET INCOME

(In thousands, except per share data)

(Unaudited)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2016

 

2015

 

 

 

 

 

 

 

Loss from operations on a GAAP basis

 

$

(470

)

$

(8

)

GAAP operating margin

 

-0.3

%

0.0

%

 

 

 

 

 

 

Non-GAAP Adjustments:

 

 

 

 

 

Purchase accounting adjustment to StraTech deferred revenue and cost, net

 

1

 

12

 

Total gross margin adjustments

 

1

 

12

 

 

 

 

 

 

 

Stock based compensation expense included in sales and marketing

 

265

 

418

 

Stock based compensation expense included in general and administrative

 

369

 

433

 

Stock based compensation expense included in engineering

 

409

 

591

 

Integration and transaction costs

 

 

450

 

Amortization of intangible assets

 

1,405

 

2,073

 

Total operating expense adjustments

 

2,448

 

3,965

 

 

 

 

 

 

 

Non-GAAP earnings from operations

 

1,979

 

3,969

 

Non-GAAP operating margin

 

1.2

%

2.3

%

 

 

 

 

 

 

Interest & other income (expense), net

 

42

 

(15

)

Income tax expense impact including Non-GAAP items

 

849

 

1,593

 

 

 

 

 

 

 

Non-GAAP net earnings

 

$

1,172

 

$

2,361

 

 

 

 

 

 

 

Non-GAAP net earnings per share - Basic

 

$

0.06

 

$

0.11

 

Non-GAAP net earnings per share - Diluted

 

$

0.05

 

$

0.11

 

 

 

 

 

 

 

Shares used in non-GAAP per share calculation - Basic

 

21,158

 

21,949

 

Shares used in non-GAAP per share calculation - Diluted

 

22,115

 

22,466

 

 



 

DATALINK CORPORATION

CONSOLIDATED STATEMENT OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

 

Three Months Ended
March 31,

 

 

 

2016

 

2015

 

 

 

 

 

 

 

Cash flows from operating activities:

 

 

 

 

 

Net loss

 

$

(433

)

$

(14

)

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

 

 

 

 

 

Change in fair value of trading securities

 

37

 

 

Benefit for bad debts

 

(49

)

(94

)

Depreciation

 

756

 

843

 

Amortization of finite-lived intangibles

 

1,405

 

2,073

 

Stock-based compensation expense

 

1,043

 

1,442

 

Changes in operating assets and liabilities:

 

 

 

 

 

Accounts receivable, net and leases receivable

 

52,572

 

30,298

 

Inventories

 

(1,284

)

8,687

 

Deferred costs/revenues/customer deposits, net

 

(1,136

)

2,299

 

Accounts payable and leases payable

 

(32,160

)

(41,917

)

Accrued expenses

 

(4,573

)

(3,316

)

Income tax receivable

 

(691

)

(284

)

Income tax payable

 

(4,492

)

 

Other

 

240

 

1,649

 

Net cash provided by operating activities

 

11,235

 

1,666

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

Purchases, sales and maturities of trading securities, net

 

(15,432

)

22,994

 

Purchases of property and equipment

 

(1,117

)

(1,216

)

Net cash (used in) provided by investing activities

 

(16,549

)

21,778

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

Net payments under floor plan line of credit

 

819

 

1,991

 

Repurchase of common stock

 

(4,191

)

 

Excess tax (benefit) from stock compensation

 

(277

)

179

 

Tax withholdings related to stock-based awards

 

(306

)

(639

)

Net cash (used in) provided by financing activities

 

(3,955

)

1,531

 

 

 

 

 

 

 

Increase (decrease) in cash and cash equivalents

 

(9,269

)

24,975

 

Cash and cash equivalents, beginning of period

 

39,397

 

27,725

 

Cash and cash equivalents, end of period

 

$

30,128

 

$

52,700

 

 

 

 

 

 

 

Supplemental cash flow information:

 

 

 

 

 

Cash paid for income taxes

 

$

5,463

 

$

97

 

Cash received for income tax refunds

 

$

 

$

2

 

Cash paid for interest expense

 

$

73

 

$

21