Datalink Reports 2012 Third Quarter And Nine Month Operating Results

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 ResultsOn 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 ResultsNon-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.

OutlookDatalink 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.

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