Second Quarter and Six Month Revenues Up 8% and
6% Year-Over-Year, Respectively
Revenue and Earnings Exceed High-End of
Guidance
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, 2014. Revenues for the
quarter ended June 30, 2014 increased 8% to $159.4 million compared
to $147.8 million for the quarter ended June 30, 2013, and
increased 14% over revenues of $139.5 million in the first quarter
of 2014. Revenues for the six months ended June 30, 2014, increased
6% to $298.9 million compared to $281.3 million for the six months
ended June 30, 2013.
GAAP ResultsOn a GAAP basis, the company reported net
earnings of $3.6 million or $0.16 per diluted share for the second
quarter ended June 30, 2014. This compares to net earnings of $2.9
million or $0.16 per diluted share in the second quarter of 2013.
For the six months ended June 30, 2014, the company reported net
earnings of $3.9 million or $0.18 per diluted share, compared to
net earnings of $4.0 million, or $0.22 per diluted share, for the
six months ended June 30, 2013.
Non-GAAP ResultsNon-GAAP net earnings for the second
quarter of 2014 were $4.9 million, or $0.22 per diluted share,
compared to non-GAAP net earnings of $4.7 million, or $0.26 per
diluted share, in the second quarter of 2013. For the six months
ended June 30, 2014, the company reported non-GAAP net earnings of
$6.1 million, or $0.28 per diluted share, compared to non-GAAP net
earnings of $7.8 million, or $0.43 per diluted share, for the six
months ended June 30, 2013. A detailed reconciliation between GAAP
and non-GAAP information is contained in the tables included
herein.
The company’s results for the quarter and six months ended June
30, 2014, 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 earnings
from the additional shares outstanding on the 2014 first quarter
and six months were approximately $0.05 and $0.06 per share,
respectively.
Highlights of the quarter and six months ended June 30, 2014,
include:
- Record second quarter and first six
month revenues, exceeding guidance issued in May and fueled in part
by placement of orders that had been delayed in the 1st quarter of
2014 as customers evaluated newer solid state storage and hybrid
cloud strategies.
- 11% and 13% year-over-year increases in
total services revenues during the second quarter and six months,
respectively.
- Continued increases in converged data
center infrastructure orders, including a 7% quarter-over-quarter
and 18% year-over-year increase.
- A 15% increase in the number of
customers spending more than $1 million with the company during the
first six months of 2014 compared to the first six months of
2013.
- A #1 partner ranking for NetApp FlexPod
and clustered Data ONTAP sales in the Americas during NetApp’s 2014
fiscal year, based on revenues.
- Continued investment in Datalink’s
Advanced Services offerings, with revenues increasing 43% to $3.1
million in the second quarter of 2014 as compared to the first
quarter of 2014.
- A #47 ranking on CRN’s 2014 Solution
Provider 500 list of North America’s top technology integrators
based on annual revenues, marking a steady climb from #72 just four
years ago.
“The second quarter of 2014 saw a partial return to a normal
sales cadence as some customers completed their due diligence on
newer technologies like flash storage and cloud computing that had
postponed sales we originally expected to close in the first
quarter. We expect more of these delayed orders to get placed in
the third quarter and that is reflected in our guidance,” said Paul
Lidsky, Datalink’s president and CEO. “At the same time, the
combination of increased services and converged technologies
revenues demonstrates the validity of our end-to-end data center
product and services model and its potential for building our
business.”
OutlookBased on the company’s current backlog and sales
pipeline, the company projects revenues of $150.0 million to $160.0
million for the third quarter of 2014 compared to $139.6 million
for the third quarter of 2013. This represents an increase in
expected revenues of between 7% and 15%. The company expects third
quarter 2014 net earnings to be between $0.11 and $0.17 per diluted
share on a GAAP basis, and net earnings of between $0.16 and $0.22
per diluted share on a non-GAAP basis. This compares to net
earnings of $0.04 per diluted share and $0.13 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 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 $0.05 per
diluted share for the third quarter of 2014.
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) 510-0712. Participants
will be asked to identify the Datalink conference call and provide
the designated identification number (54017216). 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,
2013, 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, severance costs 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,
2014
2013
2014
2013
Net sales: Products $ 98,252 $ 93,295 $ 181,447 $ 177,699
Services 61,128 54,484
117,468 103,598 Total net sales
159,380 147,779 298,915
281,297 Cost of sales: Cost of products
76,411 72,747 143,181 138,813 Cost of services 47,486
41,471 90,769
79,090 Total cost of sales 123,897
114,218 233,950 217,903
Gross profit 35,483 33,561
64,965 63,394 Operating
expenses: Sales and marketing 15,867 15,572 31,531 28,779 General
and administrative 4,837 5,051 10,138 10,694 Engineering 7,446
6,136 14,960 13,124 Integration and transaction costs - 25 - 73
Amortization of intangibles 1,359 1,841
2,775 3,823 Total
operating expenses 29,509 28,625
59,404 56,493 Earnings from
operations 5,974 4,936 5,561 6,901 Gain on settlement related to
StraTech acquisition - - 876 - Interest income 72 13 120 29
Interest expense (79 ) (30 ) (108 )
(145 ) Earnings before income taxes 5,967 4,919 6,449
6,785 Income tax expense 2,404 2,015
2,585 2,783 Net earnings
$ 3,563 $ 2,904 $ 3,864 $ 4,002
Earnings per common share: Basic $ 0.17 $ 0.17 $ 0.18
$ 0.23 Diluted $ 0.16 $ 0.16 $ 0.18 $ 0.22 Weighted average common
shares outstanding: Basic 21,519 17,600 21,528 17,566 Diluted
22,039 18,103 22,007 17,986
DATALINK CORPORATION
BALANCE SHEETS (In thousands, except share data)
June 30, December 31,
2014
2013
(Unaudited) Assets Current assets Cash and cash
equivalents $ 33,399 $ 24,871 Short term investments 45,037 51,214
Accounts receivable, net 102,211 131,246 Inventories, net 18 4,120
Current deferred customer support contract costs 98,893 89,304
Inventories shipped but not installed 10,580 16,000 Income tax
receivable 1,481 - Other current assets 1,059 1,279
Total current assets 292,678 318,034 Deferred
customer support contract costs non-current 49,217 49,044 Property
and equipment, net 6,838 6,722 Goodwill 37,780 37,780 Finite-lived
intangibles, net 10,734 13,509 Deferred taxes 6,800 7,116 Long term
lease receivable 2,811 510 Other assets 661 393 Total
assets $ 407,519 $ 433,108
Liabilities and Stockholders'
Equity Current liabilities Floor plan line of credit $ 16,991 $
19,977 Accounts payable 33,766 61,296 Accrued commissions 4,729
7,133 Accrued sales and use tax 1,713 2,067 Accrued expenses, other
5,888 8,033 Income tax payable - 11,586 Current deferred taxes
1,694 1,694 Customer deposits 4,892 4,240 Current deferred revenue
from customer support contracts 123,152 110,567 Other current
liabilities 1,109 187 Total current liabilities
193,934 226,780 Deferred revenue from customer support contracts
non-current 60,312 59,576 Long term lease payable 2,385 - Other
liabilities non-current 561 956 Total liabilities
257,192 287,312 Stockholders' equity
Common stock, $.001 par value, 50,000,000 shares authorized,
22,492,992 and 22,785,422 shares issued and outstanding as of June
30, 2014 and December 31, 2013, respectively 22 23 Additional
paid-in capital 111,907 111,239 Retained earnings 38,398
34,534 Total stockholders' equity 150,327
145,796 Total liabilities and stockholders' equity $ 407,519 $
433,108
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, 2014 2013 2014
2013 Earnings from operations on
a GAAP basis $ 5,974 $ 4,936 $ 5,561 $ 6,901
GAAP operating margin 3.7 % 3.3 % 1.9 % 2.5 %
Non-GAAP Adjustments: Purchase accounting adjustment to StraTech
deferred revenue and cost, net 51 297
108 809 Total gross margin adjustments
51 297 108 809 Stock based compensation expense included in
sales and marketing 131 334 451 606 Stock based compensation
expense included in general and administrative 370 302 790 828
Stock based compensation expense included in engineering 239 217
483 360 Integration and transaction costs - 25 - 73 Amortization of
intangible assets 1,359 1,841
2,775 3,823 Total operating expense
adjustments 2,099 2,719 4,499
5,690 Non-GAAP earnings from operations
8,124 7,952 10,168 13,400 Non-GAAP operating margin 5.1 % 5.4 % 3.4
% 4.8 % Interest expense, net (7 ) (17 ) 12 (116 ) Income
tax expense impact including Non-GAAP items 3,247
3,271 4,072 5,471
Non-GAAP net earnings $ 4,870 $ 4,664 $ 6,108
$ 7,813 Non-GAAP net earnings per share - Basic $
0.23 $ 0.27 $ 0.28 $ 0.44 Non-GAAP net
earnings per share - Diluted $ 0.22 $ 0.26 $ 0.28
$ 0.43 Shares used in non-GAAP per share
calculation - Basic 21,519 17,600
21,528 17,566 Shares used in non-GAAP
per share calculation - Diluted 22,039 18,103
22,007 17,986
DATALINK
CORPORATION STATEMENT OF CASH FLOWS (In
thousands) (Unaudited) Six Months
Ended June 30,
2014
2013
Cash flows from operating activities: Net earnings $ 3,864 $
4,002 Adjustments to reconcile net earnings to net cash provided by
operating activities: Change in fair value of short term
investments 4 - Provision (benefit) for bad debts 71 (44 )
Depreciation 1,222 989 Amortization of finite-lived intangibles
2,775 3,823 Gain on settlement related to StraTech acquisition (876
) - Deferred income taxes 316 174 Stock based compensation expense
1,724 1,794 Changes in operating assets and liabilities: Accounts
receivable, net and leases receivable 26,663 50,756 Inventories
9,522 (2,336 ) Deferred costs/revenues/customer deposits, net 4,211
5,257 Accounts payable and leases payable (25,145 ) (40,386 )
Accrued expenses (4,903 ) (5,930 ) Income tax receivable (1,481 )
2,135 Income tax payable (11,586 ) - Other 479
(38 ) Net cash provided by operating activities 6,860
20,196 Cash flows from investing
activities: Sales of short term investments 6,173 - Purchases of
property and equipment (1,338 ) (1,679 ) Net
cash provided by (used in) investing activities 4,835
(1,679 ) Cash flows from financing activities:
Net payments under line of credit - (6,000 ) Net payments under
floor plan line of credit (2,986 ) - Excess tax from stock
compensation 526 277 Proceeds from issuance of common stock from
option exercise 88 237 Tax withholding payments reimbursed by
restricted stock (795 ) (244 ) Net cash used
in financing activities (3,167 ) (5,730 )
Increase in cash and cash equivalents 8,528 12,787 Cash and
cash equivalents, beginning of period 24,871
10,315 Cash and cash equivalents, end of period $
33,399 $ 23,102 Supplemental cash flow
information: Cash paid for income taxes $ 14,809 $ 242 Cash paid
for interest expense $ - $ 68
DatalinkInvestors &
AnalystsGreg Barnum, 952-279-4816Vice President and
CFOEmail: gbarnum@datalink.comorPressJill Schmidt, 847-415-9311S&S Public
Relations, Inc.Email: jills@sspr.comorInvestor RelationsKim Payne, 952-279-4794Investor
Relations CoordinatorFax: 952-944-7869Email:
einvestor@datalink.com
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