Fourth Quarter and Annual Revenues Up 18% and
21% Year-Over-Year, Respectively; Record Results in Line with
Updated Guidance
Datalink (Nasdaq:DTLK), a leading provider of data center
infrastructure and services, today reported results for its fourth
quarter and the year ended December 31, 2013. Revenues for the
quarter ended December 31, 2013, increased 18% to a record $173.4
million compared to $147.3 million for the quarter ended December
31, 2012. Revenues for the year ended December 31, 2013, increased
21% to a record $594.2 million compared to $491.2 million for the
year ended December 31, 2012. For the year, product revenues
increased 17% to $373.0 million and services revenues increased 28%
to $221.2 million.
The company’s results for the quarter and year ended December
31, 2013, include the results of operations from the acquisition of
substantially all of the assets of Strategic Technologies, Inc.
(“StraTech”), which was completed on October 4, 2012. The results
for the fourth quarter of 2013 reflect the full 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 fourth quarter and year end was
approximately $0.05 per share and $0.04 per share,
respectively.
The fourth quarter of 2013 also includes a $611,000 or $0.02 per
share charge for the write-down of the account receivable from
StraTech to its estimated realizable value. After the end of the
quarter, the company reached a settlement agreement with the former
owners of StraTech. Under the terms of the agreement, the former
owners of StraTech agreed to release the entire 242,805 shares of
Datalink common stock that were being held in escrow in exchange
for a payment of $100,000 and the release of certain other claims.
Based upon the value of the Datalink common stock on the date of
the agreement, the company will record income before tax of
approximately $877,000 or $0.02 per share in the first quarter of
2014. The net impact on our financial statements between fourth
quarter of 2013 and first quarter of 2014 will be a net gain of
approximately $266,000.
GAAP ResultsOn a GAAP basis, the company reported net
earnings of $5.2 million or $0.24 per diluted share for the fourth
quarter ended December 31, 2013. This compares to net earnings of
$3.2 million or $0.18 per diluted share in the fourth quarter of
2012. For the year ended December 31, 2013, the company reported
net earnings of $10.0 million or $0.52 per diluted share, compared
to net earnings of $10.5 million, or $0.60 per diluted share, for
the year ended December 31, 2012. The decrease in net earnings per
share for the year is primarily due to the amortization of
intangible assets related to the acquisition of substantially all
of the assets of StraTech, the additional dilution from the
follow-on offering in August 2013, and the charge relating to the
write down of the receivable from StraTech.
Non-GAAP ResultsNon-GAAP net earnings for the fourth
quarter of 2013 were $7.4 million, or $0.34 per diluted share,
compared to $5.6 million, or $0.31 per diluted share, in the fourth
quarter of 2012. For the year ended December 31, 2013, the company
reported non-GAAP net earnings of $17.9 million, or $0.93 per
diluted share, compared to $15.3 million, or $0.88 per diluted
share, for the year ended December 31, 2012. A detailed
reconciliation between GAAP and non-GAAP information is contained
in the tables included herein.
Fourth-quarter and year-end highlights include:
- Record fourth quarter revenues
exceeding initial guidance, as well as record annual revenues.
- A 17% year-over-year increase in
product revenues to a record $373.0 million, including a record
number of converged data center infrastructure sales.
- A 28% year-over-year increase in total
services revenues to a record $222.0 million, including 26% and 39%
increases in customer support and professional services,
respectively.
- An expansion of the company’s Advanced
Services portfolio spanning data center relocation and migration
services, cloud enablement and related IT-as-a-service consulting,
and business continuity/disaster recovery.
- Continued growth in customers who did
over $1 million of business with the company, up from 102 in 2012
to 124 in 2013.
- Generated $15.3 million of cash from
operations in 2013, contributing to an end-of-year total of more
than $76.1 million of cash and investments.
OutlookDatalink projects revenues of $152.0 million to
$162.0 million for the first quarter of 2014 compared to $133.6
million for the first quarter of 2013. This represents an increase
in expected revenues of between 14% and 21%, based on the company’s
current backlog, sales pipeline, and historical trends. The company
expects first quarter 2014 net earnings to be between $0.08 and
$0.13 per diluted share on a GAAP basis, and net earnings of
between $0.14 and $0.19 per diluted share on a non-GAAP basis. This
compares to net earnings of $0.06 per diluted share and $0.18 per
diluted share on a GAAP and non-GAAP basis, respectively, for the
same period in 2013.
Non-GAAP earnings per share exclude the effect of acquisition
accounting adjustments from the StraTech asset 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 $0.06 per diluted share for the first quarter of
2013.
Conference Call and Webcast TodayDatalink will hold a
conference call shortly afterward at 4:00 p.m. Central Time during
which time Datalink 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 (866) 318-8618. Participants
will be asked to identify the Datalink conference call and provide
the designated identification number (54485769). A live webcast of
the conference call can be accessed here or via Datalink’s investor
relations 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 network
infrastructures, business continuity, and cloud enablement. 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 2014 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 Twelve Months Ended December 31,
December 31, 2013
2012 2013
2012 Net sales: Products $ 111,553 $
97,455 $ 373,008 $ 319,041 Services 61,815
49,843 221,176
172,161 Total net sales 173,368
147,298 594,184 491,202
Cost of sales: Cost of products 85,752 76,102 291,671 248,286 Cost
of services 46,957 38,541
168,655 130,890 Total cost of sales
132,709 114,643 460,326
379,176 Gross profit 40,659
32,655 133,858
112,026 Operating expenses: Sales and marketing
17,551 13,724 60,842 48,553 General and administrative 4,948 4,647
20,729 18,227 Engineering 7,126 6,270 27,536 22,974 Integration and
transaction costs 15 236 95 359 Amortization of intangibles
1,671 2,338 7,251
4,195 Total operating expenses 31,311
27,215 116,453
94,308 Earnings from operations 9,348 5,440 17,405 17,718
Loss on settlement related to StraTech acquisition (611 ) - (611 )
- Interest income (expense), net 19
2 (107 ) 3 Earnings before
income taxes 8,756 5,442 16,687 17,721 Income tax expense
3,531 2,210 6,642
7,186 Net earnings $ 5,225 $
3,232 $ 10,045 $ 10,535 Earnings per
common share: Basic $ 0.24 $ 0.19 $ 0.53 $ 0.62 Diluted $ 0.24 $
0.18 $ 0.52 $ 0.60 Weighted average common shares outstanding:
Basic 21,516 17,348 19,078 17,114 Diluted 21,991 17,866 19,338
17,491
DATALINK CORPORATION BALANCE
SHEETS (In thousands, except share data)
December 31, December 31,
2013 2012
(Unaudited) Assets Current assets Cash and cash
equivalents $ 24,871 $ 10,315 Short term investments 51,214 -
Accounts receivable, net 131,246 144,780 Receivable due from seller
of StraTech acquisition - 3,307 Inventories, net 4,120 2,554
Current deferred customer support contract costs 89,304 87,052
Inventories shipped but not installed 16,000 8,784 Income tax
receivable - 2,430 Other current assets 1,279 852
Total current assets 318,034 260,074 Property and
equipment, net 6,722 6,082 Goodwill 37,780 37,780 Finite-lived
intangibles, net 13,509 20,760 Deferred customer support contract
costs non-current 49,044 40,771 Deferred tax asset 7,116 4,471 Long
term lease receivable 510 - Other assets 393 455
Total assets $ 433,108 $ 370,393
Liabilities and
Stockholders' Equity Current liabilities Line of credit $ - $
6,000 Floor plan line of credit 19,977 - Accounts payable 61,296
84,716 Accrued commissions 7,133 8,531 Accrued sales and use tax
2,067 3,489 Accrued expenses, other 8,033 6,027 Income tax payable
11,586 - Current deferred taxes 1,694 9,034 Customer deposits 4,240
2,894 Current deferred revenue from customer support contracts
110,567 105,167 Other current liabilities 187 157
Total current liabilities 226,780 226,015 Deferred revenue from
customer support contracts non-current 59,576 48,167 Other
liabilities non-current 956 828 Total liabilities
287,312 275,010 Stockholders' equity
Common stock, $.001 par value, 50,000,000 shares authorized,
22,785,422 and 18,726,723 shares issued and outstanding as of
December 31, 2013 and December 31, 2012, respectively 23 19
Additional paid-in capital 111,239 70,875 Retained earnings
34,534 24,489 Total stockholders' equity 145,796
95,383 Total liabilities and stockholders' equity $ 433,108
$ 370,393
DATALINK CORPORATION
RECONCILIATION BETWEEN GAAP AND NON-GAAP NET INCOME (In
thousands, except per share data) (Unaudited)
Three Months
Ended Twelve Months Ended December 31,
December 31, 2013 2012 2013 2012
Earnings from operations on a GAAP
basis $ 9,348 $ 5,440 $ 17,405 $ 17,718
GAAP operating margin 5.4 % 3.7 % 2.9 % 3.6 % Non-GAAP
Adjustments: Purchase accounting adjustment to StraTech deferred
revenue and cost, net 66 849
1,051 874 Total gross margin adjustments 66
849 1,051 874 Stock based compensation expense included in
sales and marketing 285 97 1,228 640 Stock based compensation
expense included in general and administrative 396 213 1,672 1,341
Stock based compensation expense included in engineering 450 224
1,149 594 Integration and transaction costs 15 236 95 359
Amortization of intangible assets 1,671 2,339
7,251 4,196 Total operating
expense adjustments 2,817 3,109
11,395 7,130 Non-GAAP earnings from
operations 12,231 9,398 29,851 25,722 Non-GAAP operating margin 7.1
% 6.4 % 5.0 % 5.2 % Interest income (expense), net 19 2 (107
) 3 Income tax expense impact including Non-GAAP items 4,876
3,807 11,838 10,419
Non-GAAP net earnings $ 7,375 $ 5,593 $
17,906 $ 15,306 Non-GAAP net earnings per
share - Basic $ 0.34 $ 0.32 $ 0.94 $ 0.89
Non-GAAP net earnings per share - Diluted $ 0.34 $
0.31 $ 0.93 $ 0.88 Shares used in
non-GAAP per share calculation - Basic 21,516
17,348 19,078 17,114 Shares used
in non-GAAP per share calculation - Diluted 21,991
17,866 19,338 17,491
DATALINK CORPORATION STATEMENT OF CASH
FLOWS (In thousands) (Unaudited)
Twelve Months Ended December 31,
2013 2012 Cash flows
from operating activities: Net earnings $ 10,045 $ 10,535
Adjustments to reconcile net earnings to net cash provided by (used
in) operating activities: Change in fair value of trading
securities (187 ) - Provision (benefit) for bad debts 115 (6 )
Depreciation 2,102 1,627 Amortization of finite lived intangibles
7,251 4,195 Loss on settlement related to StraTech acquisition 611
- Deferred income taxes (9,985 ) 262 Stock based compensation
expense 4,049 2,576 Changes in operating assets and liabilities:
Accounts receivable, net 12,909 (31,544 ) Inventories (8,782 ) 177
Deferred costs/revenues/customer deposits, net 7,630 4,440 Accounts
payable (23,420 ) 2,943 Accrued expenses (814 ) 4,629 Income tax
payable (receivable) 14,016 (2,025 ) Other (270 )
1,007 Net cash provided by (used in) operating
activities 15,270 (1,184 )
Cash flows from investing activities: Purchases of trading
securities, net (51,027 ) - Maturities of investments - 1,192 Sales
of investments - 2,294 Purchases of property and equipment (2,742 )
(3,824 ) Payment for acquisitions, net of cash acquired -
(13,172 ) Net cash used in investing
activities (53,769 ) (13,510 )
Cash flows from financing activities: Net borrowings (payments)
under line of credit (6,000 ) 6,000 Proceeds from floorplan line of
credit 19,977 - Proceeds from stock offering 39,021 - Excess tax
from stock compensation 885 780 Proceeds from issuance of common
stock from option exercise 252 347 Tax withholding payments
reimbursed by restricted stock (1,080 )
(1,065 ) Net cash provided by financing activities 53,055
6,062 Increase in cash
and cash equivalents 14,556 (8,632 ) Cash and cash equivalents,
beginning of period 10,315
18,947 Cash and cash equivalents, end of period $ 24,871
$ 10,315 Supplemental cash flow
information: Cash paid for income taxes $ 1,738 $ 8,191 Cash
received for income tax refunds $ 11 $ 25 Cash paid for interest
expense $ 154 $ 25 Supplemental non-cash investing and
financing activities: Non-cash stock issued as consideration for
acquisition $ - $ 2,025 Non-cash stock received for settlement of
StraTech acquisition $ 2,647 $ -
For DatalinkCompany Contacts:Investors & AnalystsGreg Barnum,
952-279-4816Vice President and CFOEmail:
gbarnum@datalink.comorPressS&S
Public Relations, Inc.Jill Schmidt, 847-415-9311Email:
jills@sspr.comorInvestor RelationsKim
Payne, 952-279-4794Investor Relations CoordinatorFax:
952-944-7869Email: einvestor@datalink.com
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