Fourth Quarter and Twelve Month Revenues Up 12%
and 21% Year-Over-Year, Respectively;
Professional Services Revenues Increased 28% to
9% of Total Revenues in 2015
Datalink (Nasdaq: DTLK), a leading provider of IT services and
solutions, today reported results for its fourth quarter and twelve
months that ended December 31, 2015. Financial results for both
reporting periods include the results of operations from the
acquisition of Bear Data Solutions, which closed on October 19,
2014.
Revenues for the quarter ended December 31, 2015 increased 12%
to $208.8 million compared to $186.4 million for the quarter ended
December 31, 2014, and increased 5% over revenues of $198.0 million
in the third quarter of 2015. Revenues for the twelve months ended
December 31, 2015, increased 21% to $764.8 million compared to
$630.2 million for the twelve months ended December 31, 2014.
The company’s fourth quarter results include a series of
additional, low-margin fulfillment orders from one of Datalink’s
largest customers totaling approximately $11 million. Without these
orders, revenue growth for the fourth quarter would have been 6%.
In addition, without these orders, overall gross margin for the
fourth quarter would have increased to approximately 18.3%.
GAAP Results
On a GAAP basis, the company reported net earnings of $2.7
million or $0.12 per diluted share for the fourth quarter ended
December 31, 2015. This compares to net earnings of $4.5 million or
$0.20 per diluted share in the fourth quarter of 2014. For the
twelve months ended December 31, 2015, the company reported net
earnings of $4.7 million or $0.21 per diluted share, compared to
net earnings of $11.1 million, or $0.50 per diluted share, for the
twelve months ended December 31, 2014.
Non-GAAP Results
Non-GAAP net earnings for the fourth quarter of 2015 were $4.5
million, or $0.20 per diluted share, compared to non-GAAP net
earnings of $6.4 million, or $0.28 per diluted share, in the fourth
quarter of 2014. For the twelve months ended December 31, 2015, the
company reported non-GAAP net earnings of $12.4 million, or $0.56
per diluted share, compared to non-GAAP net earnings of $16.5
million, or $0.75 per diluted share, for the twelve months ended
December 31, 2014. A detailed reconciliation between GAAP and
non-GAAP information is contained in the tables included
herein.
Highlights of the quarter and twelve months ended December 31,
2015, include:
- An 18% year-over-year increase in
total services revenues in the twelve months ended December 31,
2015 and a 16% increase in the fourth quarter of 2015 compared to
the same periods in 2014, marking continued progress toward the
goal of building the company’s higher-margin, business
outcome-oriented services.
- A 28% year-over-year increase in
professional services revenues to a record $67.1 million,
increasing the portion of Datalink revenues coming from
professional services from 8% in 2014 to 9% in 2015.
- A record number of seven-figure
contracts awarded to Datalink’s Consulting Services practice,
including engagements for large data center consolidation and
transformation, infrastructure virtualization, and application and
data migration projects.
- A 13% year-over-year increase in the
number of converged data center infrastructure sales, providing
a key building block for other IT initiatives like private clouds
where Datalink can offer additional consulting, managed and support
services.
- A 48% year-over-year increase in
twelve-month Cisco revenues, reflecting ongoing growth in the
company’s networking products business.
- A quadrupling of solid state storage
revenues during 2015 – with flash storage now representing 27%
of Datalink’s storage sales compared to 6% in 2014 - yielding lower
gross margins than traditional storage but helping to offset
continued declines in traditional storage revenues.
- Multiple industry recognitions,
including a 2015 CRN® Triple Crown Award for achievements in the
areas of revenue, growth and certifications.
- Fourth-quarter company re-purchase
of 600,000 shares of common stock at an average price of $7.74
per share. Through February 24, 2016, the company has re-purchased
a total of 1,229,000 shares at an average price of $7.33 per
share.
The company also eliminated approximately $10 million in
operating expenses on an annualized basis in 2015 in an expense
control initiative announced at the end of the second quarter to
deal with ongoing margin erosion. The full impact of that workforce
rebalancing will be realized in 2016.
“IT sales today have moved away from three- to five-year
technology refresh cycles toward utilizing IT to achieve specific
business benefits such as cost management, efficiency improvements,
risk mitigation, increased IT security and better user experiences.
We have adjusted our sales model accordingly, and the change is
helping us navigate the shift in IT spending,” said Paul Lidsky,
Datalink’s president and CEO. “Over time, we expect these changes
to offset continued margin pressures caused by growth in our
networking and solid state storage business and deliver strong
results for our investors.”
Outlook
“Due to the volatility of current IT spending patterns and the
recent cautionary comments made by some our larger strategic OEM
partners we will not be issuing quarterly guidance for the near
future,” stated Paul Lidsky. “Datalink intends to continue to
execute against its strategy to improve upon its position as an IT
services and solutions provider. The company’s long term strategy
is focused on supporting its clients’ success at improving
operational efficiency, managing costs, and migrating risk via
improvements in IT security and compliance.” For the year ending
December 31, 2016, Datalink expects to grow revenues between 4% and
6%, or about 2% and 3% higher than the current industry IT spending
estimates of between 2% and 3%. These estimates exclude
approximately $22 million of low margin fulfillment revenues in
2015 that the company will not pursue in 2016. The decrease in
these fulfillment revenues are not expected to have an impact on
our earnings as associated costs will also be eliminated. The
company will continue to focus on growing Datalink-delivered
professional services revenues at a much faster pace by delivering
more value added consulting services such as data center
relocation, cloud consulting and security assessments. The company
expects this continued focus on professional services growth will
in turn result in improved earnings.
Conference Call and Webcast Today
Datalink 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) 826-6120. Participants will be asked to identify the Datalink
conference call and provide the designated identification number
(40502959). A live webcast of the conference call can be accessed
here or via Datalink’s investor relations website at
www.datalink.com.
About Datalink
Datalink is a complete IT services provider that helps companies
transform their technology, operations, and service delivery to
meet business challenges. Combining extensive experience, a full
lifecycle of services and a comprehensive approach to producing IT
innovations that empower positive business outcomes, Datalink
delivers success across cloud IT transformation, next generation
technology, and security. 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)
anticipated margin pressure and plans to drive profitable growth,
(ii) anticipated financial performance for fourth quarter and
months ended December 31, 2015 and, (iii) Datalink’s projections of
certain anticipated 2016 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; customers switching to solid state storage
solutions; 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 Details
Non-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)
Three Months Ended
Twelve Months Ended December 31, December 31,
2015
2014
2015
2014
Net sales: Products $ 129,717 $ 117,975 $ 469,111 $ 380,631
Services 79,033 68,399 295,654
249,605 Total net sales 208,750 186,374
764,765 630,236 Cost of sales: Cost of
products 107,475 94,395 385,624 300,852 Cost of services
64,366 52,450 235,711 192,557
Total cost of sales 171,841 146,845
621,335 493,409 Gross profit 36,909
39,529 143,430 136,827 Operating
expenses: Sales and marketing 17,054 16,403 69,141 61,877 General
and administrative 6,038 6,275 25,784 22,271 Engineering 6,634
7,507 31,104 29,128 Integration and transaction costs 61 626 1,000
626 Amortization of intangibles 1,695 2,346
7,347 6,428 Total operating expenses
31,482 33,157 134,376 120,330
Earnings from operations 5,427 6,372 9,054 16,497 Gain on
settlement related to StraTech acquisition - 877 - 877 Interest
income 193 63 434 90 Interest expense (81) (75) (263) (270) Other,
net (221) 2 (242) 184
Earnings before income taxes 5,318 7,239 8,983 17,378 Income tax
expense 2,580 2,692 4,284
6,297 Net earnings $ 2,738 $ 4,547 $ 4,699 $ 11,081
Earnings per common share: Basic $ 0.13 $ 0.21 $ 0.21 $ 0.51
Diluted $ 0.12 $ 0.20 $ 0.21 $ 0.50 Weighted average common shares
outstanding: Basic 21,750 21,723 21,941 21,598 Diluted 22,389
22,327 22,364 22,039
DATALINK CORPORATION
CONSOLIDATED BALANCE SHEETS (In thousands, except share
data) December 31,
December 31,
2015
2014
Assets Current assets Cash and cash equivalents $
39,397 $ 27,725 Short-term investments 20,579 22,994 Accounts
receivable, net 163,900 171,531 Net working capital receivable from
acquisition - 741 Lease receivable 3,895 2,482 Inventories, net
7,997 5,447 Current deferred customer support contract costs
124,705 106,497 Inventories shipped but not installed 16,616 20,035
Income tax receivable - 4,194 Other current assets 3,251
3,563 Total current assets 380,340 365,209
Property and equipment, net 7,963 7,244 Goodwill 47,101 47,101
Finite-lived intangibles, net 9,256 16,603 Deferred customer
support contract costs, non-current 60,240 58,484 Deferred tax
asset 9,177 4,593 Long-term lease receivable 7,017 4,016 Other
assets 703 759 Total assets $ 521,797 $ 504,009
Liabilities and Stockholders' Equity Current
liabilities Floor plan line of credit $ 24,340 $ 27,656 Accounts
payable 73,959 86,266 Lease payable 3,643 2,319 Accrued commissions
3,687 5,334 Accrued sales and use taxes 3,782 4,117 Accrued
expenses, other 6,998 7,730 Accrued income tax payable 4,492 -
Customer deposits 4,398 3,325 Current deferred revenue from
customer support contracts 151,619 131,061 Other current
liabilities 1,050 746 Total current liabilities
277,968 268,554 Deferred revenue from customer support contracts,
non-current 72,262 70,663 Long-term lease payable 5,857 3,278 Other
liabilities non-current 942 828 Total liabilities
357,029 343,323 Stockholders' equity
Common stock, $.001 par value, 50,000,000 shares authorized,
22,627,322 and 22,876,753 shares issued and outstanding as of
December 31, 2015 and December 31, 2014, respectively 23 23
Additional paid-in capital 114,431 115,048 Retained earnings
50,314 45,615 Total stockholders' equity 164,768
160,686 Total liabilities and stockholders' equity $ 521,797
$ 504,009
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, 2015
2014 2015 2014
Earnings from operations on a GAAP basis $ 5,427 $
6,372 $ 9,054 $ 16,497 GAAP operating margin 2.6% 3.4% 1.2% 2.6%
Non-GAAP Adjustments: Purchase accounting adjustment to
StraTech deferred revenue and cost, net 1 26
22 170 Total gross margin adjustments 1 26 22 170
Stock based compensation expense included in sales and marketing
244 405 1,492 1,113 Stock based compensation expense included in
general and administrative 331 543 1,405 1,867 Stock based
compensation expense included in engineering 511 374 2,454 1,061
Integration and transaction costs 61 626 1,000 626 Amortization of
intangible assets 1,695 2,346 7,347
6,428 Total operating expense adjustments 2,842 4,294
13,698 11,095 Non-GAAP earnings from
operations 8,270 10,692 22,774 27,762 Non-GAAP operating margin
4.0% 5.7% 3.0% 4.4% Interest & other income (expense),
net (109) (10) (71) 4 Income tax expense impact including Non-GAAP
items 3,695 4,326 10,280 11,245
Non-GAAP net earnings $ 4,466 $ 6,356 $ 12,423 $ 16,521
Non-GAAP net earnings per share - Basic $ 0.21 $ 0.29 $ 0.57 $ 0.76
Non-GAAP net earnings per share - Diluted $ 0.20 $ 0.28 $ 0.56 $
0.75 Shares used in non-GAAP per share calculation - Basic
21,750 21,723 21,941 21,598 Shares used
in non-GAAP per share calculation - Diluted 22,389
22,327 22,364 22,039
DATALINK
CORPORATION CONSOLIDATED STATEMENT OF CASH FLOWS (In
thousands) Twelve Months Ended
December 31,
2015
2014
Cash flows from operating activities: Net earnings $ 4,699 $
11,081 Adjustments to reconcile net earnings to net cash provided
by operating activities: Change in fair value of trading securities
104 5 Provision (benefit) for bad debts 38 (152) Depreciation 3,222
2,667 Amortization of finite-lived intangibles 7,347 6,428 Gain on
settlement related to StraTech acquisition - (877) Deferred income
taxes (4,584) (1,278) Stock-based compensation expense 5,351 4,041
Changes in operating assets and liabilities: Accounts receivable,
net and leases receivable 3,920 (30,471) Inventories 869 (4,587)
Deferred costs/revenues/customer deposits, net 3,267 4,033 Accounts
payable and leases payable (8,404) 13,150 Accrued expenses (2,714)
(3,588) Income tax receivable - (15,780) Income tax payable 8,686 -
Other 785 (1,962) Net cash (used in)
provided by operating activities 22,586
(17,290) Cash flows from investing activities: Purchases,
sales and maturities of trading securities, net 2,311 28,215
Purchases of property and equipment (3,941) (2,214) Payment for
acquisition, net of cash acquired -
(12,707) Net cash (used in) provided by investing activities
(1,630) 13,294 Cash flows from
financing activities: Net payments under floor plan line of credit
(3,316) 7,679 Repurchase of common stock (4,817) - Excess tax
(benefit) from stock compensation (3) 817 Proceeds from issuance of
common stock from option exercise 34 89 Tax withholding payments
reimbursed by restricted stock (1,182)
(1,735) Net cash (used in) provided by financing activities
(9,284) 6,850 Increase in cash and cash
equivalents 11,672 2,854 Cash and cash equivalents, beginning of
period 27,725 24,871 Cash and cash
equivalents, end of period $ 39,397 $ 27,725
Supplemental cash flow information: Cash paid for income taxes $
343 $ 22,579 Cash received for income tax refunds $ 95 $ 99 Cash
paid for interest expense $ 242 $ 278
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version on businesswire.com: http://www.businesswire.com/news/home/20160224006400/en/
For DatalinkInvestors &
AnalystsGreg BarnumVice President and CFOPhone:
952-279-4816Email: gbarnum@datalink.comorPressJill SchmidtJill Schmidt PRPhone:
847-921-1295Email:jill@jillschmidtpr.com
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