EDEN PRAIRIE, Minn.--(BUSINESS WIRE)--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.
| 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 | ||||||