Datalink Reports 2013 Second Quarter And Six Month Operating Results

Datalink (Nasdaq: DTLK), a leading provider of data center infrastructure and services, today reported results for its second quarter and six months that ended June 30, 2013. Revenues for the quarter ended June 30, 2013, increased 23% to $148.2 million compared to $120.0 million for the quarter ended June 30, 2012 and increased 11% over revenues of $133.6 million in the first quarter of 2013. Revenues for the six months ended June 30, 2013, increased 18% to $281.7 million compared to $239.1 million for the six months ended June 30, 2012.

The company’s results for the quarter and six months ended June 30, 2013, include the results of operations from the acquisition of Strategic Technologies, Inc. (“StraTech”), which was completed on October 4, 2012.

GAAP ResultsOn a GAAP basis, the company reported net earnings of $2.9 million or $0.16 per diluted share for the second quarter ended June 30, 2013. This compares to net earnings of $3.2 million or $0.18 per diluted share in the second quarter of 2012. For the six months ended June 30, 2013, the company reported net earnings of $4.0 million or $0.22 per diluted share, compared to net earnings of $5.4 million, or $0.31 per diluted share, for the six months ended June 30, 2012. The decrease in net earnings is due to the amortization of intangible assets related to the acquisition of StraTech.

Non-GAAP ResultsNon-GAAP net earnings for the second quarter of 2013 were $4.7 million, or $0.26 per diluted share, compared to non-GAAP net earnings of $4.0 million, or $0.23 per diluted share, in the second quarter of 2012. For the six months ended June 30, 2013, the company reported non-GAAP net earnings of $7.9 million, or $0.44 per diluted share, compared to non-GAAP net earnings of $6.9 million, or $0.40 per diluted share, for the six months ended June 30, 2012. A detailed reconciliation between GAAP and non-GAAP information is contained in the tables included herein.

Highlights of the quarter and six months ended June 30, 2013, include:
  • Record second quarter and first six month non-GAAP revenues and earnings.
  • Record $54.9 million combined customer support and professional services revenues in second quarter 2013, up 28% from second quarter 2012 and 12% from first quarter 2013. Second quarter professional services revenues alone were up 24% from the second quarter of 2012 and up 30% from first quarter 2013.
  • Continued growth in customers who did over $1 million of business with the company from 22 in second quarter 2012 to 26 in second quarter 2013.
  • Selection as the first Hitachi Data Systems partner authorized to provide OneCall support for Hitachi Unified Compute Platform Select for VMware vSphere with Cisco Unified Computing System, and for Hitachi Virtual Storage Platform, converged infrastructure solutions.
  • Authorized by Cisco to provide OneCall support on all Cisco products Datalink sells with an initial focus on data center products.
  • A major expansion of Datalink’s professional services portfolio with the addition of application, data, and infrastructure migration services.
  • Ranked #52 on CRN’s 2013 Solution Provider 500 list of North America’s top technology integrators – up from 59th last year and 72nd and 195th previous to that – based on annual revenues.

“We turned in a solid revenue and earnings performance in the second quarter and first half of 2013. That performance was fueled by three factors: our continually expanding mix of data center products and services, our emphasis on selling more complex projects with higher wallet share, and rising market demand for modern data center infrastructures,” said Paul Lidsky, Datalink’s president and CEO. “Companies are increasingly aware of our ability to transform their data centers allowing them to drive business agility and facilitate advances such as private and hybrid cloud deployments. This continues to provide a strong foundation for our growth.”

OutlookBased on the company’s current backlog, sales pipeline and lengthening sales cycles, the company projects revenues of $140.0 million to $150.0 million for the third quarter of 2013 compared to $104.8 million for the third quarter of 2012. This represents an increase in expected revenues of between 34% and 43%. The company expects third quarter 2013 net earnings to be between $0.12 and $0.18 per diluted share on a GAAP basis, and net earnings of between $0.23 and $0.29 per diluted share on a non-GAAP basis. This compares to net earnings of $0.11 per diluted share and $0.16 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 $0.11 per diluted share for the third quarter of 2013.

Conference Call and Webcast TodayDatalink 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 (866) 318-8611. Participants will be asked to identify the Datalink conference call and provide the designated identification number (27422046). A live Webcast of the conference call can be heard via Datalink’s website at www.datalink.com.

About DatalinkA 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 our internal projections of certain anticipated 2013 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 DetailsNon-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 Six Months Ended
June 30, June 30,

2013

2012

2013

2012
 
Net sales:
Products $ 93,295 $ 77,294 $ 177,699 $ 157,534
Services   54,860         42,748     104,043         81,596  
Total net sales   148,155         120,042     281,742         239,130  
 
Cost of sales:
Cost of products 72,747 59,805 138,813 122,389
Cost of services   41,804         32,204     79,476         61,382  
Total cost of sales   114,551         92,009     218,289         183,771  
Gross profit   33,604         28,033     63,453         55,359  
Operating expenses:
Sales and marketing 15,572 12,220 28,779 24,777
General and administrative 5,051 4,628 10,694 9,352
Engineering 6,136 5,155 13,124 10,949
Integration and transaction costs 25 - 73 20
Amortization of intangibles   1,841         619     3,823         1,238  
Total operating expenses   28,625         22,622     56,493         46,336  
Earnings from operations 4,979 5,411 6,960 9,023
Interest expense, net   (17 )       (2 )   (116 )       (12 )
Earnings before income taxes 4,962 5,409 6,844 9,011
Income tax expense   2,032         2,190     2,806         3,631  
Net earnings $ 2,930       $ 3,219   $ 4,038       $ 5,380  
 
Earnings per common share:
Basic $ 0.17 $ 0.19 $ 0.23 $ 0.32
Diluted $ 0.16 $ 0.18 $ 0.22 $ 0.31
Weighted average common shares outstanding:
Basic 17,600 17,053 17,566 17,012
Diluted 18,103 17,445 17,986 17,383
 
 
DATALINK CORPORATION
BALANCE SHEETS
(In thousands, except share data)
 
    June 30,     December 31,

2013

2012
(Unaudited)
Assets
Current assets
Cash and cash equivalents $ 23,102 $ 10,315
Accounts receivable, net 92,443 143,958
Receivable due from seller of StraTech acquisition 4,243 4,243
Inventories, net 1,417 2,554
Current deferred customer support contract costs 89,335 87,052
Inventories shipped but not installed 12,257 8,784
Income tax receivable 318 2,430
Other current assets   818   852
Total current assets   223,933   260,188
Property and equipment, net 6,772 6,082
Goodwill 37,780 37,780
Finite-lived intangibles, net 16,937 20,760
Deferred customer support contract costs non-current 43,865 40,771
Deferred tax asset 4,297 4,471
Long term lease receivable 803 -
Other assets   455   455
Total assets $ 334,842 $ 370,507
 
Liabilities and Stockholders' Equity
Current liabilities
Line of credit $ - $ 6,000
Accounts payable 43,494 83,880
Accrued commissions 5,200 8,730
Accrued sales and use tax 905 3,489
Accrued expenses, other 6,211 6,027
Current deferred taxes 9,034 9,034
Customer deposits 5,077 3,645
Current deferred revenue from customer support contracts 110,029 105,167
Other current liabilities   162   157
Total current liabilities 180,112 226,129
Deferred revenue from customer support contracts non-current 52,494 48,167
Other liabilities non-current   751   828
Total liabilities   233,357   275,124
 
 
Stockholders' equity
Common stock, $.001 par value, 50,000,000 shares authorized, 18,919,304 and 18,726,723 shares issued and outstanding as of June 30, 2013 and December 31, 2012, respectively 19 19
Additional paid-in capital 72,938 70,875
Retained earnings   28,528   24,489
Total stockholders' equity   101,485   95,383
Total liabilities and stockholders' equity $ 334,842 $ 370,507
 
 
DATALINK CORPORATION
RECONCILIATION BETWEEN GAAP AND NON-GAAP NET INCOME
(In thousands, except per share data)
(Unaudited)
           
Three Months Ended Six Months Ended
June 30, June 30,
2013 2012 2013 2012
       
Earnings from operations on a GAAP basis $ 4,979   $ 5,411   $ 6,960   $ 9,023  
GAAP operating margin 3.4 % 4.5 % 2.5 % 3.8 %
 
Non-GAAP Adjustments:
Purchase accounting adjustment to StraTech deferred revenue and cost, net   297     8     809     20  
Total gross margin adjustments 297 8 809 20
 
Stock based compensation expense included in sales and marketing 334 209 606 372
Stock based compensation expense included in general and administrative 302 421 828 708
Stock based compensation expense included in engineering 217 95 360 235
Integration and transaction costs 25 - 73 20
Amortization of intangible assets   1,841     619     3,823     1,238  
Total operating expense adjustments   2,719     1,344     5,690     2,573  
 
Non-GAAP earnings from operations 7,995 6,763 13,459 11,616
Non-GAAP operating margin 5.4 % 5.6 % 4.8 % 4.9 %
 
Interest income (expense), net (17 ) (2 ) (116 ) (12 )
Income tax expense impact including Non-GAAP items   3,271     2,738     5,471     4,700  
 
Non-GAAP net earnings $ 4,707   $ 4,023   $ 7,872   $ 6,904  
 
Non-GAAP net earnings per share - Basic $ 0.27   $ 0.24   $ 0.45   $ 0.41  
Non-GAAP net earnings per share - Diluted $ 0.26   $ 0.23   $ 0.44   $ 0.40  
 
Shares used in non-GAAP per share calculation - Basic   17,600     17,053     17,566     17,012  
Shares used in non-GAAP per share calculation - Diluted   18,103     17,445     17,986     17,383  
 
 
DATALINK CORPORATION
STATEMENT OF CASH FLOWS
(In thousands)
(Unaudited)
       
Six Months Ended
June 30,

2013

2012
 
 
Cash flows from operating activities:
Net earnings $ 4,038 $ 5,380
Adjustments to reconcile net earnings to net cash provided by operating activities:
Benefit for bad debts (44 ) (4 )
Depreciation 989 861
Amortization of finite lived intangibles 3,823 1,238
Deferred income taxes 174 -
Stock based compensation expense 1,794 1,316
Changes in operating assets and liabilities:
Accounts receivable, net 50,756 16,313
Inventories (2,336 ) 3,974
Deferred costs/revenues/customer deposits, net 5,244 1,758
Accounts payable (40,386 ) (25,770 )
Accrued expenses (5,930 ) (1,410 )
Income tax payable (receivable) 2,112 (871 )
Other   (38 )       1,246  
Net cash provided by operating activities   20,196         4,031  
 
Cash flows from investing activities:
Maturities of investments - 596
Sale of investments - 2,294
Purchases of property and equipment   (1,679 )       (2,479 )
Net cash provided by (used in) investing activities   (1,679 )       411  
 
Cash flows from financing activities:
Net payments under line of credit (6,000 ) -
Excess tax from stock compensation 277 553
Proceeds from issuance of common stock from option exercise 237 321
Tax withholding payments reimbursed by restricted stock   (244 )       (730 )
Net cash provided by (used in) financing activities   (5,730 )       144  
 
Increase in cash and cash equivalents 12,787 4,586
Cash, beginning of period   10,315         18,947  
Cash, end of period $ 23,102       $ 23,533  
 
Supplemental cash flow information:
Cash paid for income taxes $ 242 $ 3,949
Cash paid for interest expense $ 68 $ -
 

Copyright Business Wire 2010

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