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Datalink Reports 2013 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, 2013. Revenues for the quarter ended September 30, 2013, increased 33% to $139.6 million compared to $104.8 million for the quarter ended September 30, 2012. Revenues for the nine months ended September 30, 2013, increased 23% to $421.3 million compared to $343.9 million for the nine months ended September 30, 2012.

The company’s results for the quarter and nine months ended September 30, 2013, include the results of operations from the acquisition of Strategic Technologies, Inc. (“StraTech”), which was completed on October 4, 2012. The results for the third quarter of 2013 also reflect the partial 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 third quarter and nine months was approximately $0.01 per share.

“Year over year, these numbers show substantial performance gains in every product and service category in our portfolio, reflecting the range of our product line as well as our ability to design, deploy, migrate and support new data center installations. Sequentially, unexpected product shortages and delivery issues with one of our top storage partners contributed to a 6% revenue decline that brought the third-quarter numbers in at the low end of our guidance, but those orders remain on the books and the revenues will be realized in the fourth quarter,” said Datalink President and CEO Paul Lidsky. “With those orders as well as newer sales in the pipeline, our end-of-quarter backlog is 46% higher this year than last, and that positions the company for a strong fourth quarter.”

GAAP ResultsOn a GAAP basis, the company reported net earnings of $828,000 or $0.04 per diluted share for the third quarter ended September 30, 2013. This compares to net earnings of $1.9 million or $0.11 per diluted share in the third quarter of 2012. For the nine months ended September 30, 2013, the company reported net earnings of $4.9 million or $0.26 per diluted share, compared to net earnings of $7.3 million, or $0.42 per diluted share, for the nine months ended September 30, 2012. The decrease in net earnings is due to the amortization of intangible assets related to the acquisition of StraTech, gross margin declines, end-of-quarter delivery issues along with higher operating expenses associated with investments in our Advanced Services and network engineering talent to support our growing Cisco business.

Non-GAAP ResultsNon-GAAP net earnings for the third quarter of 2013 were $2.6 million, or $0.13 per diluted share, compared to $2.8 million, or $0.16 per diluted share, in the third quarter of 2012. For the nine months ended September 30, 2013, the company reported non-GAAP net earnings of $10.6 million, or $0.57 per diluted share, compared to $9.7 million, or $0.56 per diluted share, for the nine months ended September 30, 2012. A detailed reconciliation between GAAP and non-GAAP information is contained in the tables included herein.

Third-quarter and year-to-date highlights include:
  • Record third quarter and first nine month non-GAAP revenues.
  • A 37% year-over-year increase in combined customer support and professional services revenues to a record $56.0 million in the third quarter of 2013. That included a 64% increase in third-quarter professional services revenues compared to the same quarter in 2012.
  • Expansion of the company’s OneCall Support services to include coverage for all Cisco products sold by Datalink, providing opportunities for incremental services revenue increases.
  • Continued growth in customers who did over $1 million of business with the company to 21 for the third quarter of 2013 from 11 for the third quarter of 2012.
  • Generated $16.9 million of cash from operations year to date, contributing to an end-of-quarter total of more than $70.4 million of cash and investments.
  • A #37 ranking on Forbes’s 2013 Best Small Companies, based on return on equity, sales and earnings growth over the past year as well as growth over the past five years.

OutlookDatalink projects revenues of $160.0 million to $170.0 million for the fourth quarter of 2013 compared to $147.3 million for the fourth quarter of 2012. This represents an increase in expected revenues of between 9% and 15%, based on the company’s current backlog, sales pipeline, and historical trends. The company expects fourth quarter 2013 net earnings to be between $0.15 and $0.21 per diluted share on a GAAP basis, and net earnings of between $0.24 and $0.30 per diluted share on a non-GAAP basis. This compares to net earnings of $0.18 per diluted share and $0.31 per diluted share on a GAAP and non-GAAP basis, respectively, for the same period in 2012.

Non-GAAP earnings per share exclude the effect of acquisition accounting adjustments from the StraTech 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 $0.09 per diluted share for the fourth quarter of 2013.

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