Third Quarter and Nine Month Revenues Up 4% and
5% Year-Over-Year, Respectively
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, 2014. Revenues for
the quarter ended September 30, 2014 increased 4% to $144.9 million
compared to $139.5 million for the quarter ended September 30,
2013. Revenues for the nine months ended September 30, 2014,
increased 5% to $443.9 million compared to $420.8 million for the
nine months ended September 30, 2013.
GAAP ResultsOn a GAAP basis, the company reported net
earnings of $3.5 million or $0.16 per diluted share for the third
quarter ended September 30, 2014. This compares to net earnings of
$818,000 or $0.04 per diluted share in the third quarter of 2013.
For the nine months ended September 30, 2014, the company reported
net earnings of $7.4 million or $0.34 per diluted share, compared
to net earnings of $4.8 million, or $0.26 per diluted share, for
the nine months ended September 30, 2013.
Non-GAAP ResultsNon-GAAP net earnings for the third
quarter of 2014 were $4.2 million, or $0.19 per diluted share,
compared to non-GAAP net earnings of $2.5 million, or $0.13 per
diluted share, in the third quarter of 2013. For the nine months
ended September 30, 2014, the company reported non-GAAP net
earnings of $10.3 million, or $0.47 per diluted share, compared to
non-GAAP net earnings of $10.6 million, or $0.57 per diluted share,
for the nine months ended September 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 nine months ended
September 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.
Highlights of the quarter and nine months ended September 30,
2014, include:
- Record third quarter and first nine
month revenues, all from organic growth.
- 14% and 13% year-over-year increases in
total services revenues during both the third quarter and nine
months, respectively, continuing Datalink’s strategic emphasis on
growing services to help increase gross margins and drive greater
relevancy with customers.
- An 8% increase in the number of
customers spending more than $1 million with the company during the
first nine months of 2014 compared to the first nine months of
2013.
- The addition of new cloud and residency
services to Datalink’s Advanced Services portfolio, which is
designed to support complex needs ranging from data migration and
data center relocation to cloud service management and business
continuity/disaster recovery.
In addition, on October 20, 2014, the company announced the
acquisition of California-based Bear Data Solutions, Inc., which
will quadruple its West Coast revenue base to more than $200
million and add more than 1,000 new midmarket and enterprise
customers for Datalink’s products and services
“One of the most striking achievements of this reporting period
is our continued growth in the services segment. Fully 44% of our
Q3 revenues came from services compared to 40% a year ago. That
includes professional, advanced and managed services that enhance
our margins and open up new account opportunities from customers
that want a true technology partner – not just a hardware
reseller,” said Paul Lidsky, Datalink’s president and CEO. “In
addition, we continue to grow faster overall than most of the IT
market as a result of our ongoing product and services
diversification and our ability to support a full range of data
center needs, including complex projects like converged data center
infrastructure deployments, cloud enablement, data migration and
data center relocation. We expect the acquisition of Bear to
accelerate that growth and strengthen our foothold in the key West
Coast market.”
OutlookBased on the company’s current backlog and sales
pipeline, the company projects revenues of $165.0 million to $175.0
million for the fourth quarter of 2014 compared to $173.4 million
for the fourth quarter of 2013. The company expects fourth quarter
2014 net earnings to be between $0.20 and $0.25 per diluted share
on a GAAP basis, and net earnings of between $0.27 and $0.32 per
diluted share on a non-GAAP basis. This compares to net earnings of
$0.24 per diluted share and $0.34 per diluted share on a GAAP and
non-GAAP basis, respectively, for the same period in 2013. This
guidance does not include the results from the recently announced
acquisition of Bear Data Systems, Inc.
Conference Call and Webcast TodayDatalink will hold a
conference call today 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 (800) 901-5213. Participants will be
asked to identify the Datalink conference call and provide the
designated identification number (88934806). 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 (i) the
anticipated timing of the acquisition, (ii) the expected impact of
the acquisition on Datalink, (iii) Datalink’s plans with respect to
the acquired business and (iv) 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 (including a failure
of anticipated synergies to materialize); 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 Nine
Months Ended September 30, September 30,
2014
2013
2014
2013
Net sales: Products $ 81,209 $ 83,756 $ 262,656 $ 261,455
Services 63,738 55,763
181,206 159,361 Total net sales
144,947 139,519 443,862
420,816 Cost of sales: Cost of products
63,276 67,106 206,457 205,919 Cost of services 49,338
42,608 140,107
121,698 Total cost of sales 112,614
109,714 346,564 327,617
Gross profit 32,333 29,805
97,298 93,199 Operating
expenses: Sales and marketing 13,943 14,512 45,474 43,291 General
and administrative 5,858 5,087 15,996 15,781 Engineering 6,661
7,286 21,621 20,410 Integration and transaction costs - 7 - 80
Amortization of intangibles 1,307 1,757
4,082 5,580 Total
operating expenses 27,769 28,649
87,173 85,142 Earnings from
operations 4,564 1,156 10,125 8,057 Gain on settlement related to
StraTech acquisition - - 876 - Interest income 95 24 215 54
Interest expense (93 ) (34 ) (201 )
(180 ) Earnings before income taxes 4,566 1,146
11,015 7,931 Income tax expense 1,020
328 3,605 3,111 Net
earnings $ 3,546 $ 818 $ 7,410 $
4,820 Earnings per common share: Basic $ 0.16 $ 0.04
$ 0.34 $ 0.26 Diluted $ 0.16 $ 0.04 $ 0.34 $ 0.26 Weighted average
common shares outstanding: Basic 21,563 19,619 21,540 18,253
Diluted 22,092 20,120 21,987 18,624
DATALINK
CORPORATION BALANCE SHEETS (In thousands, except
share data) September 30,
December 31,
2014
2013
(Unaudited) Assets Current assets Cash and cash
equivalents $ 46,872 $ 24,871 Short-term investments 36,002 51,214
Accounts receivable, net 97,632 130,380 Lease receivable 2,759 866
Inventories, net 2,272 4,120 Current deferred customer support
contract costs 96,949 89,304 Inventories shipped but not installed
7,839 16,000 Income tax receivable 4,734 - Other current assets
1,193 1,279 Total current assets 296,252
318,034 Property and equipment, net 6,451 6,722 Goodwill
37,780 37,780 Finite-lived intangibles, net 9,427 13,509 Deferred
customer support contract costs, non-current 48,360 49,044 Deferred
tax asset 7,295 7,116 Long-term lease receivable 4,097 510 Other
assets 695 393 Total assets $ 410,357 $ 433,108
Liabilities and Stockholders' Equity Current
liabilities Floor plan line of credit $ 15,021 $ 19,977 Accounts
payable 34,566 60,421 Lease payable 2,132 409 Accrued commissions
3,803 7,133 Accrued sales and use tax 2,314 2,067 Accrued expenses,
other 6,327 8,033 Income tax payable - 11,586 Deferred taxes 1,419
1,694 Customer deposits 4,464 4,240 Current deferred revenue from
customer support contracts 120,687 110,567 Other current
liabilities 712 187 Total current liabilities 191,445
226,314 Deferred revenue from customer support contracts,
non-current 59,487 59,576 Long-term lease payable 3,674 466 Other
liabilities non-current 1,031 956 Total liabilities
255,637 287,312 Stockholders' equity
Common stock, $.001 par value, 50,000,000 shares authorized,
22,786,258 and 22,785,422 shares issued and outstanding as of
September 30, 2014 and December 31, 2013, respectively 23 23
Additional paid-in capital 112,753 111,239 Retained earnings
41,944 34,534 Total stockholders' equity 154,720
145,796 Total liabilities and stockholders' equity $ 410,357
$ 433,108
DATALINK CORPORATION RECONCILIATION
BETWEEN GAAP AND NON-GAAP NET INCOME (In thousands, except
per share data) (Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30, 2014 2013
2014 2013 Earnings from
operations on a GAAP basis $ 4,564 $ 1,156 $ 10,125
$ 8,057 GAAP operating margin 3.1 % 0.8 % 2.3 % 1.9 %
Non-GAAP Adjustments: Purchase accounting adjustment to
StraTech deferred revenue and cost, net 36 176
144 985 Total gross margin
adjustments 36 176 144 985 Stock based compensation expense
included in sales and marketing 257 337 708 943 Stock based
compensation expense included in general and administrative 534 448
1,324 1,276 Stock based compensation expense included in
engineering 204 339 687 699 Integration and transaction costs - 7 -
80 Amortization of intangible assets 1,307
1,757 4,082 5,580 Total
operating expense adjustments 2,302 2,888
6,801 8,578 Non-GAAP
earnings from operations 6,902 4,220 17,070 17,620 Non-GAAP
operating margin 4.8 % 3.0 % 3.8 % 4.2 % Interest income
(expense), net 2 (10 ) 14 (126 ) Income tax expense impact
including Non-GAAP items 2,748 1,663
6,799 6,910 Non-GAAP net
earnings $ 4,156 $ 2,547 $ 10,285 $ 10,584
Non-GAAP net earnings per share - Basic $ 0.19
$ 0.13 $ 0.48 $ 0.58 Non-GAAP net earnings per
share - Diluted $ 0.19 $ 0.13 $ 0.47 $ 0.57
Shares used in non-GAAP per share calculation - Basic
21,563 19,619 21,540
18,253 Shares used in non-GAAP per share calculation
- Diluted 22,092 20,120 21,987
18,624
DATALINK CORPORATION
STATEMENT OF CASH FLOWS (In thousands)
(Unaudited) Nine Months Ended
September 30,
2014
2013
Cash flows from operating activities: Net earnings $ 7,410 $
4,820 Adjustments to reconcile net earnings to net cash provided by
operating activities: Change in fair value of trading securities
(93 ) (54 ) Provision (benefit) for bad debts 114 (103 )
Depreciation 1,891 1,527 Amortization of finite-lived intangibles
4,082 5,580 Gain on settlement related to StraTech acquisition (876
) - Deferred income taxes (454 ) 253 Stock-based compensation
expense 2,719 2,918 Changes in operating assets and liabilities:
Accounts receivable, net and leases receivable 27,154 52,715
Inventories 10,009 (35 ) Deferred costs/revenues/customer deposits,
net 3,294 5,569 Accounts payable and leases payable (20,924 )
(51,028 ) Accrued expenses (4,789 ) (6,058 ) Income tax payable
(receivable) (16,320 ) 810 Other 384 (8
) Net cash provided by operating activities 13,601
16,906 Cash flows from investing
activities: Sales and maturities of trading securities 81,390 3,108
Purchases of trading securities (66,085 ) (48,342 ) Purchases of
property and equipment (1,620 ) (2,261 ) Net
cash provided by (used in) investing activities 13,685
(47,495 ) Cash flows from financing
activities: Net payments under line of credit - (6,000 ) Net
payments under floor plan line of credit (4,956 ) 12,253 Proceeds
from stock offering - 39,021 Excess tax from stock compensation 583
393 Proceeds from issuance of common stock from option exercise 88
252 Tax withholding payments reimbursed by restricted stock
(1,000 ) (504 ) Net cash provided by (used in)
financing activities (5,285 ) 45,415
Increase in cash and cash equivalents 22,001 14,826 Cash,
beginning of period 24,871 10,315
Cash, end of period $ 46,872 $ 25,141
Supplemental cash flow information: Cash paid for income
taxes $ 19,799 $ 1,715 Cash received for income tax refunds $ 4 $ -
Cash paid for interest expense $ - $ 115
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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