First-Quarter Revenues Up 26% Year-Over-Year,
Including 28% Increase in Professional Services Revenues
Datalink (Nasdaq:DTLK), a leading provider of data center
infrastructure and services, today reported results for its first
quarter ended March 31, 2015. Financial results for the first
quarter of 2015 include the results of operations from the
acquisition of Bear Data Solutions, which closed on October 19,
2014.
Revenues for the quarter ended March 31, 2015, increased 26% to
$175.4 million compared to $139.5 million for the quarter ended
March 31, 2014. Product revenues increased 28% to $106.7 million
and services revenues increased 22% to $68.6 million
year-over-year. Within services revenues, professional services
revenues increased 28% to $14.6 million or 8.3% of total
revenues.
GAAP ResultsOn a GAAP basis, the company reported a net
loss of $14,000 or $0.00 per diluted share for the first quarter
ended March 31, 2015. This compares to net earnings of $301,000 or
$0.01 per diluted share in the first quarter of 2014. The decline
in earnings is primarily due to the costs associated with
integration and amortization of intangibles related to our Bear
Data Solutions acquisition and lower overall gross margins for the
quarter.
Non-GAAP ResultsNon-GAAP net earnings for the first
quarter of 2015 were $2.4 million, or $0.11 per diluted share,
compared to $1.2 million, or $0.06 per diluted share, in the first
quarter of 2014. A detailed reconciliation between GAAP and
non-GAAP information is contained in the tables included
herein.
Factors affecting Datalink’s performance during the quarter
included a decline in overall gross margins to 20.1% compared to
21.2% in the first and fourth quarters of 2014. This was caused
primarily by a change in the product mix due to a significant
increase in sales of lower-margin networking and server products
(increasing to 32% of revenues in Q1 2015 compared to 22% in the
first and fourth quarters of 2014), along with a decrease in sales
of higher-margin storage products (decreasing to approximately 20%
of revenues in the Q1 2015 compared to 28% and 29% in the first and
fourth quarters of 2014). The softness in storage spend is an
industry-wide phenomenon due to customer’s taking additional time
to evaluate newer storage technologies, the movement of some IT
workloads to the public cloud as customers implement hybrid storage
solutions, and a change in the frequency of storage upgrades as
many customers are delaying technology refreshes until they can
realize additional business growth and profitability from the
investment. In addition, CIO’s are redirecting a portion of their
capital spend budget to security and upgrading core networks.
Achievements during the first quarter included:
- A 147% increase in the percentage of
revenue coming from Advanced Services, a key strategic practice
that spans projects like private and hybrid cloud enablement,
application and data migration, data center relocation, disaster
recovery planning and residency services.
- A 39% year-over-year increase in the
number of customers spending more than $1 million per quarter.
- A 162% year-over-year increase in new
customers.
- A 63% year-over-year increase in orders
for converged data infrastructures, which require Datalink’s
higher-margin consulting services and also provide opportunities
for future engagements to help customers meet the challenges of
deploying private and hybrid clouds.
- A strong balance sheet with cash and
investments of $52.7 million, no debt and working capital of $96.8
million.
“Our first quarter results came in at the low end of our revenue
guidance and below our earnings per share guidance that we gave in
February, primarily due to changes in IT spending habits that
caused a greater-than-expected decline in our expected overall
revenue and gross margin,” said Datalink President & CEO Paul
Lidsky. “We believe that ongoing initiatives to diversify both our
product and services portfolio will allow us to continue to grow at
two to three times the industry average. Our continued investment
in Advanced Services, as well as Managed Services, will also help
us increase margins and allow us to participate in additional
opportunities that can expand both our services and product growth
rates.”
OutlookDatalink projects revenues of $185.0 million to
$195.0 million for the second quarter of 2015, compared to $159.4
million for the second quarter of 2014. This represents an increase
in expected revenues of between 16% and 22%, based on the company’s
current backlog, sales pipeline, historical trends, and expected
continued softness in storage spending countered by continued
growth in our networking and services business during the quarter.
The company expects second quarter 2015 net earnings to be between
$0.07 and $0.12 per diluted share on a GAAP basis, and net earnings
of between $0.16 and $0.21 per diluted share on a non-GAAP basis.
This compares to net earnings of $0.16 per diluted share and $0.22
per diluted share on a GAAP and non-GAAP basis, respectively, for
the same period in 2014.
Non-GAAP earnings per share exclude the effect of acquisition
accounting adjustments 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 second
quarter of 2015.
Conference Call and Webcast TodayDatalink will hold a
conference call shortly after 4:00 p.m. Central Time during which
time Datalink’s 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 (855) 793-2451. Participants will be
asked to identify the Datalink conference call and provide the
designated identification number (35362980). 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 2015 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, 2014, 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 CONSOLIDATED STATEMENTS OF
OPERATIONS (In thousands, except per share data)
(Unaudited) Three Months
Ended March 31,
2015
2014
Net sales: Products $ 106,736 $ 83,195 Services
68,616 56,340 Total net sales
175,352 139,535
Cost of sales: Cost of products 85,782 66,770 Cost of services
54,402 43,283 Total cost
of sales 140,184 110,053
Gross profit 35,168 29,482
Operating expenses: Sales and marketing 17,422 15,664
General and administrative 6,989 5,301 Engineering 8,242 7,514
Integration and transaction costs 450 - Amortization of intangibles
2,073 1,416 Total
operating expenses 35,176 29,895
Loss from operations (8 ) (413 ) Other income (expense);
Gain on settlement related to StraTech acquisition - 876 Interest
income 71 48 Interest/other expenses, net (86 )
(29 ) Earnings (loss) before income taxes (23 ) 482
Income tax expense (benefit) (9 ) 181
Net earnings (loss) $ (14 ) $ 301
Earnings (loss) per common share: Basic $ (0.00 ) $ 0.01
Diluted $ (0.00 ) $ 0.01 Weighted average common shares
outstanding: Basic 21,949 21,537 Diluted 21,949 22,188
DATALINK CORPORATION CONSOLIDATED BALANCE
SHEETS (In thousands, except share data)
March
31,
December 31,
2015
2014
(Unaudited) Assets Current assets Cash and cash
equivalents $ 52,700 $ 27,725 Short term investments - 22,994
Accounts receivable, net 141,530 171,531 Net working capital
receivable from acquisition 741 741 Lease receivable 2,430 2,482
Inventories, net 6,868 5,447 Current deferred customer support
contract costs 116,764 106,497 Inventories shipped but not
installed 9,927 20,035 Income tax receivable 4,478 4,194 Other
current assets 1,716 3,563 Total current assets
337,154 365,209 Property and equipment, net 7,617
7,244 Goodwill 48,016 48,016 Finite-lived intangibles, net 14,530
16,603 Deferred customer support contract costs non-current 58,828
58,484 Deferred taxes 5,660 5,660 Long-term lease receivable 3,865
4,016 Other assets 706 759 Total assets $ 476,376 $
505,991
Liabilities and Stockholders' Equity Current
liabilities Floor plan line of credit $ 29,647 $ 27,656 Accounts
payable 45,063 86,266 Lease payable 1,883 2,319 Accrued commissions
4,354 5,334 Accrued sales and use taxes 2,825 4,117 Accrued
expenses, other 6,686 7,730 Deferred taxes 1,982 1,982 Customer
deposits 4,653 3,325 Current deferred revenue from customer support
contracts 142,543 131,061 Other current liabilities 701
746 Total current liabilities 240,337 270,536 Deferred
revenue from customer support contracts non-current 70,763 70,663
Long-term lease payable 3,000 3,278 Other liabilities non-current
622 828 Total liabilities 314,722
345,305 Stockholders' equity Common stock, $.001 par value,
50,000,000 shares authorized, 23,410,923 and 22,876,753 shares
issued and outstanding as of March 31, 2015 and December 31, 2014,
respectively 23 23 Additional paid-in capital 116,028 115,048
Retained earnings 45,603 45,615 Total stockholders'
equity 161,654 160,686 Total liabilities and
stockholders' equity $ 476,376 $ 505,991
DATALINK
CORPORATION RECONCILIATION BETWEEN GAAP AND NON-GAAP NET
INCOME (In thousands, except per share data)
(Unaudited) Three Months
Ended March 31, 2015 2014
Loss from operations on a GAAP basis $ (8 ) $ (413 ) GAAP operating
margin 0.0 % -0.3 % Non-GAAP Adjustments: Purchase
accounting adjustment to StraTech deferred revenue and cost, net
12 57 Total gross margin adjustments 12
57 Stock based compensation expense included in sales and
marketing 418 320 Stock based compensation expense included in
general and administrative 433 421 Stock based compensation expense
included in engineering 591 243 Integration and transaction costs
450 - Amortization of intangible assets 2,073
1,416 Total operating expense adjustments 3,965
2,400 Non-GAAP earnings from operations
3,969 2,044 Non-GAAP operating margin 2.3 % 1.5 % Interest
& other income (expense), net (15 ) 19 Income tax expense
impact including Non-GAAP items 1,593 831
Non-GAAP net earnings $ 2,361 $ 1,232
Non-GAAP net earnings per share - Basic $ 0.11 $ 0.06
Non-GAAP net earnings per share - Diluted $ 0.11 $
0.06 Shares used in non-GAAP per share calculation -
Basic 21,949 21,537 Shares used in
non-GAAP per share calculation - Diluted 22,466
22,188
DATALINK CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS (In thousands)
(Unaudited)
Three Months
Ended
March 31,
2015
2014
Cash flows from operating activities: Net earnings (loss) $
(14 ) $ 301 Adjustments to reconcile net earnings (loss) to net
cash provided by (used in) operating activities: Change in
fair value of short term investments - 17 Benefit for bad debts (94
) (23 ) Depreciation 843 574 Amortization of finite-lived
intangibles 2,073 1,416 Gain on settlement related to StraTech
acquisition - (876 ) Deferred income taxes - 316 Stock based
compensation expense 1,442 984 Changes in operating assets and
liabilities, net of acquisitions: Accounts receivable and lease
receivable, net 30,298 31,468 Inventories 8,687 6,132 Deferred
costs/revenues/customer deposits, net 2,299 1,045 Accounts payable
and lease payable (41,917 ) (19,236 ) Accrued expenses (3,316 )
(6,012 ) Income tax receivable (284 ) (13,194 ) Other 1,649
(728 ) Net cash provided by operating
activities 1,666 2,184
Cash flows from investing activities: Sales and maturities
of trading securities 22,994 15,050 Purchases of property and
equipment (1,216 ) (414 ) Net cash
provided by investing activities 21,778
14,636 Cash flows from financing activities:
Net proceeds (payments) from floorplan line of credit 1,991 (5,853
) Excess tax benefit from stock compensation 179 340 Proceeds from
issuance of common stock from option exercise - 77 Tax withholding
payments reimbursed by restricted stock (639 )
(795 ) Net cash provided by (used in) financing activities
1,531 (6,231 ) Increase
in cash and cash equivalents 24,975 10,589 Cash and cash
equivalents, beginning of period 27,725
24,871 Cash and cash equivalents, end of period $
52,700 $ 35,460 Supplemental
cash flow information: Cash paid for income taxes $ 97 $ 12,718
Cash received for income tax refunds $ 2 $ - Cash paid for interest
expense $ 21 $ 3
Investors &
Analysts:DatalinkGreg Barnum, 952-279-4816Vice President and
CFOgbarnum@datalink.comorPress:S&S
Public Relations, Inc.Jill Schmidt,
847-415-9311jills@sspr.comorInvestor
Relations:DatalinkKim Payne, 952-279-4794Investor Relations
CoordinatorFax: 952-944-7869einvestor@datalink.com
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