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8-K - 8-K - DATALINK CORPa11-6182_28k.htm

Exhibit 99.1

DATALINK REPORTS 2010 FOURTH QUARTER AND YEAR-END OPERATING RESULTS

Record Fourth Quarter and Annual Revenue Up 76% and 65% Year-Over-Year, Respectively

 

CHANHASSEN, Minn., February 17, 2011 — Datalink (Nasdaq: DTLK), a leading provider of data center infrastructure and services, today reported results for its fourth quarter and year that ended December 31, 2010.  Revenues for the quarter ended December 31, 2010, increased 76% to $91.0 million compared to $51.8 million for the prior-year period.  Sequentially, revenues were up 32% from $69.2 million in the third quarter of 2010.  Revenues for year ended December 31, 2010, increased 65% to $293.7 million compared to $178.1 million for the year ended December 31, 2009.

 

GAAP Results

 

On a GAAP basis, the company reported net earnings of $2.4 million or $0.19 per basic and diluted share for the fourth quarter ended December 31, 2010.  This compares to a net loss of $158,000 or $0.01 per basic and diluted share in the fourth quarter of 2009 and earnings of $771,000 or $0.06 per basic and diluted share in the third quarter of 2010.  For the year ended December 31, 2010, the company reported net earnings of $2.3 million or $0.18 per basic and diluted share, compared to a net loss of $555,000, or $0.04 per basic and diluted share, for the year ended December 31, 2009.

 

Non-GAAP Results

 

Non-GAAP net earnings for the fourth quarter of 2010 were $3.1 million, or $0.24 per basic and diluted share, compared to non-GAAP net earnings of $1.3 million, or $0.10 per basic and diluted share, in the fourth quarter of 2009.  Sequentially, non-GAAP earnings grew 125% from

 



 

$1.4 million in the third quarter.  For the year ended December 31, 2010, the company reported non-GAAP net earnings of $5.4 million, or $0.42 per basic share and $.041 per diluted share, compared to net earnings of $1.8 million, or $0.14 per basic and diluted share, for the year ended December 31, 2009.  A detailed reconciliation between GAAP and non-GAAP information is contained in the tables included herein.

 

The company’s results for the year ended December 31, 2010 include Incentra, LLC results of operations for the full year, while 2009 only includes Incentra from December 17, 2009, the acquisition date.

 

Paul Lidsky, Datalink’s president and CEO, commented, “2010 was a record year for Datalink.  We reported record revenues of $294 million and our highest earnings since 2006.  In addition, the $91.0 million of revenues and $3.1 million of non-GAAP net earnings in the fourth quarter of 2010 were both quarterly records.  We also reported our seventh consecutive quarter of non-GAAP net earnings.   Other significant accomplishments for 2010 and the fourth quarter and the year include:

 

·                  Product revenues for the quarter were a record $59.1 million which represents a 51% increase over third quarter and a 96% increase over the same period in 2009.  This increase reflects our ability to close several multi-million dollar accounts with Global 100 companies during the fourth quarter.

·                  Service revenues for the quarter were a record $31.9 million which represents a 6% increase over third quarter and a 48% increase over the same period in 2009.  This reflects our continued emphasis on increasing Datalink’s share of professional services and support services, which supports our customer intimacy go-to-market model.

·                  In 2010 we had 55 customers each purchase over $1 million of product and services from us as compared to 31 customers in 2009.

 



 

·                  We exited the quarter with a healthy and strengthening balance sheet.  Our working capital increased $3.5 million to $21.6 million from the third quarter and we have no debt.

 

Our collective accomplishments during 2010 reaffirm our successful execution on our acquisition and data center strategies.  These strategies, coupled with improving economic conditions, resulted in increased revenue and gross margin dollars, throughout the year.  This allowed us to leverage our G&A culminating in a fourth quarter operating profit margin of 5% and 2010 operating earnings of $4.0 million as compared to a 2009 operating loss of $451,000.  We continue to see an increase in demand for unified data center solutions with flexible architectures.  Our investments in our expanded data center portfolio support these market conditions and our ability to continue to deliver unified platforms to our customers should fuel growth in 2011,” said Lidsky.

 

Outlook

 

Based on the company’s sales pipeline and the traditional cyclical decline in first quarter revenues when compared to the previous fourth quarters, we expect revenues to be between $77 million and $82 million for the first quarter of 2011.  Datalink’s first quarter operating expenses are typically higher than other quarters. Therefore the company expects first quarter 2011 net earnings to be between $0.03 and $0.08 per diluted share on a GAAP basis, and net earnings of between $0.09 and $0.14 per diluted share on a non-GAAP basis.

 

Effective January 1, 2011, the company was required to adopt a new revenue recognition accounting standard.  This new standard, which applies to all resellers of computer hardware, requires that Datalink now recognize product revenues upon shipment versus upon installation under our old revenue recognition method.  Accordingly Datalink’s first quarter 2011 guidance reflects this new revenue recognition policy.  Datalink estimates that the effect of this accounting change, which is included in our first quarter 2011 revenue and earnings guidance, is approximately $8 million of product revenue or about $0.05 of GAAP and non-GAAP earnings

 



 

per share. These product revenues and earnings would have been recognized in the fourth quarter of 2010 if the company had been recognizing revenue upon shipment.  Without the change in its revenue recognition policy, the company’s 2011 first quarter guidance would have been between $69 million and $74 million compared to first quarter 2010 actual revenue of $62.5 million, or a 10% to 18% increase, and our GAAP and non-GAAP earnings per share range would be approximately $0.05 lower.  This compares to a GAAP net loss of $0.07 per diluted share and non-GAAP earnings of $0.01 per diluted share in the first quarter of 2010.

 

“I am pleased with the strong start to the new year as our first quarter guidance suggests a 10% to 18% increase in revenues, before our changes in revenue recognition, year over year,” said Lidsky.  “I believe that our first quarter forecast is indicative of the steadily increasing demand for unified data center infrastructure and that our customers and prospects continue to invest in this area.  Datalink’s investments in our expanded product and services portfolio position us to take full advantage of this expanding market,” he added.

 

Non-GAAP earnings per share exclude the effect of acquisition accounting adjustments from the Incentra 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 first quarter of 2011.

 

Conference Call and Webcast Today

 

Datalink will hold a conference call at 4:00 p.m. central time, during which Datalink’s president and chief executive officer, Paul Lidsky, and vice president of finance and chief financial officer, Greg Barnum, will discuss company results and provide a business overview. Participants can access the conference call by dialing (877) 277-9804. Participants will be asked to identify the Datalink conference call and provide the designated identification number (36524198). A live Webcast of the conference call can be heard via Datalink’s website at www.datalink.com.

 



 

About Datalink

 

A 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 networks, and business continuity. 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 anticipated 2011 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, including, but not limited to:  the level of continuing demand for storage, including the effects of current economic and credit conditions; 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; revenue recognition policies that may unpredictably defer reporting of our revenues; our ability to hire and retain key technical and sales personnel; our dependence on key suppliers; our ability to adapt to rapid technological change; risks associated with integrating possible future acquisitions; fluctuations in our quarterly operating results; future changes in applicable accounting rules; and volatility in our stock price. Further, our revenues for any particular quarter are not necessarily reflected by our backlog of contracted orders, which also may fluctuate unpredictably.  We cannot assure that we can grow or maintain our revenue and backlog from current levels.

 

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 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.

 

# # #

 

Company Contacts:

 

Media & Alliances:

 

Investors & Analysts:

Suzanne Gallagher

 

Greg Barnum

SVP of Marketing

 

Vice President and CFO

Phone: 720-566-5110

 

Phone: 952-944-3462

Email: sgallagher@datalink.com

 

Email: gbarnum@datalink.com

 

Investor Relations:

Kim Payne

Investor Relations Coordinator

Phone:

952-279-4794

Fax:

952-944-7869

Email:

einvestor@datalink.com

website:

www.datalink.com

 



 

DATALINK CORPORATION

STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

 

 

 

Three Months Ended

 

Twelve Months Ended

 

 

 

December 31,

 

December 31,

 

 

 

2010

 

2009

 

2010

 

2009

 

 

 

 

 

 

 

 

 

 

 

Net sales:

 

 

 

 

 

 

 

 

 

Products

 

$

59,092

 

$

30,209

 

$

180,424

 

$

94,788

 

Services

 

31,948

 

21,597

 

113,255

 

83,294

 

Total net sales

 

91,040

 

51,806

 

293,679

 

178,082

 

 

 

 

 

 

 

 

 

 

 

Cost of sales:

 

 

 

 

 

 

 

 

 

Cost of products

 

46,989

 

22,755

 

140,984

 

71,303

 

Cost of services

 

23,895

 

15,787

 

83,951

 

60,343

 

Amortization of intangibles

 

277

 

 

1,108

 

 

Total cost of sales

 

71,161

 

38,542

 

226,043

 

131,646

 

Gross profit

 

19,879

 

13,264

 

67,636

 

46,436

 

Operating expenses:

 

 

 

 

 

 

 

 

 

Sales and marketing

 

8,318

 

5,591

 

32,353

 

21,408

 

General and administrative

 

3,406

 

2,881

 

14,092

 

11,943

 

Engineering

 

3,666

 

3,031

 

15,652

 

11,650

 

Other income

 

 

 

(503

)

 

Integration and transaction costs

 

 

1,043

 

581

 

1,043

 

Amortization of intangibles

 

336

 

310

 

1,483

 

843

 

 

 

15,726

 

12,856

 

63,658

 

46,887

 

Earnings (loss) from operations

 

4,153

 

408

 

3,978

 

(451

)

Interest income, net

 

3

 

12

 

14

 

93

 

Earnings (loss) before income taxes

 

4,156

 

420

 

3,992

 

(358

)

Income tax expense

 

1,739

 

578

 

1,690

 

197

 

Net earnings (loss)

 

$

2,417

 

$

(158

)

$

2,302

 

$

(555

)

 

 

 

 

 

 

 

 

 

 

Net earnings (loss) per common share:

 

 

 

 

 

 

 

 

 

Basic

 

$

0.19

 

$

(0.01

)

$

0.18

 

$

(0.04

)

Diluted

 

$

0.19

 

$

(0.01

)

$

0.18

 

$

(0.04

)

Weighted average common shares outstanding:

 

 

 

 

 

 

 

 

 

Basic

 

12,855

 

12,636

 

12,801

 

12,550

 

Diluted

 

13,054

 

12,636

 

12,981

 

12,550

 

 



 

DATALINK CORPORATION

BALANCE SHEETS

(In thousands, except share data)

 

 

 

December 31,

 

December 31,

 

 

 

2010

 

2009

 

 

 

(Unaudited)

 

 

 

Assets

 

 

 

 

 

Current assets

 

 

 

 

 

Cash and cash equivalents

 

$

8,988

 

$

12,901

 

Short term investments

 

 

2,730

 

Accounts receivable, net

 

57,779

 

44,109

 

Inventories

 

2,210

 

1,561

 

Current deferred customer support contract costs

 

48,715

 

38,050

 

Inventories shipped but not installed

 

7,191

 

8,973

 

Income tax receivable

 

1,064

 

1,073

 

Other current assets

 

607

 

205

 

Total current assets

 

126,554

 

109,602

 

Property and equipment, net

 

2,126

 

1,808

 

Goodwill

 

23,146

 

23,178

 

Finite life intangibles, net

 

5,219

 

7,810

 

Deferred customer support contract costs non-current

 

18,742

 

11,186

 

Other assets

 

285

 

394

 

Total assets

 

$

176,072

 

$

153,978

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

Current liabilities

 

 

 

 

 

Accounts payable

 

$

28,749

 

$

31,025

 

Note payable due to seller of acquired business

 

 

3,000

 

Accrued commissions

 

3,546

 

2,680

 

Accrued sales and use tax

 

1,414

 

1,228

 

Accrued expenses, other

 

3,427

 

3,092

 

Current deferred tax liability

 

3,723

 

814

 

Customer deposits

 

2,209

 

3,994

 

Current deferred revenue from customer support contracts

 

61,571

 

48,765

 

Other current liabilities

 

279

 

302

 

Total current liabilities

 

104,918

 

94,900

 

Deferred income tax liability

 

203

 

1,357

 

Deferred revenue from customer support contracts non-current

 

23,284

 

13,850

 

Other current liabilities non-current

 

212

 

456

 

Total liabilities

 

128,617

 

110,563

 

 

 

 

 

 

 

Stockholders’ equity

 

 

 

 

 

Common stock, $.001 par value, 50,000,000 shares authorized, 13,569,533 and 13,260,788 shares issued and outstanding as of December 31, 2010 and December 31, 2009, respectively

 

14

 

13

 

Additional paid-in capital

 

43,332

 

41,595

 

Retained earnings

 

4,109

 

1,807

 

Total stockholders’ equity

 

47,455

 

43,415

 

Total liabilities and stockholders’ equity

 

$

176,072

 

$

153,978

 

 



 

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,

 

 

 

2010

 

2009

 

2010

 

2009

 

 

 

 

 

 

 

 

 

 

 

Net earnings (loss) on a GAAP basis

 

$

2,417

 

$

(158

)

$

2,302

 

$

(555

)

Adjustments:

 

 

 

 

 

 

 

 

 

Amortization of intangible assets

 

$

277

 

 

$

1,108

 

 

Acquisition accounting adjustment to Incentra and MCSI deferred revenue, net

 

71

 

82

 

853

 

120

 

Total gross margin adjustments

 

348

 

82

 

1,961

 

120

 

 

 

 

 

 

 

 

 

 

 

Stock based compensation expense included in sales and marketing

 

195

 

75

 

509

 

300

 

Stock based compensation expense included in general and administrative

 

395

 

146

 

754

 

820

 

Stock based compensation expense included in engineering

 

100

 

75

 

329

 

366

 

Integration and transaction costs

 

 

1,043

 

581

 

1,043

 

Amortization of acquisition intangible assets

 

336

 

310

 

1,483

 

843

 

Total operating expense adjustments

 

1,026

 

1,649

 

3,656

 

3,372

 

 

 

 

 

 

 

 

 

 

 

Income tax expense

 

694

 

271

 

2,538

 

1,135

 

 

 

 

 

 

 

 

 

 

 

Non-GAAP net earnings

 

$

3,097

 

$

1,302

 

$

5,381

 

$

1,802

 

 

 

 

 

 

 

 

 

 

 

Non-GAAP net earnings per share - Basic

 

$

0.24

 

$

0.10

 

$

0.42

 

$

0.14

 

Non-GAAP net earnings per share - Diluted

 

$

0.24

 

$

0.10

 

$

0.41

 

$

0.14

 

 

 

 

 

 

 

 

 

 

 

Shares used in non-GAAP per share calculation - Basic

 

12,855

 

12,636

 

12,801

 

12,550

 

Shares used in non-GAAP per share calculation - Diluted

 

13,054

 

12,731

 

12,981

 

12,594

 

 



 

DATALINK CORPORATION

STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

 

Twelve Months Ended
December 31,

 

 

 

2010

 

2009

 

 

 

 

 

 

 

Cash flows from operating activities:

 

 

 

 

 

Net earnings (loss)

 

$

2,302

 

$

(555

)

Adjustments to reconcile net earnings (loss) to net cash provided by operating activities:

 

 

 

 

 

 

 

 

 

 

 

Provision for bad debts

 

73

 

57

 

Depreciation

 

945

 

838

 

Amortization of intangibles

 

2,591

 

843

 

Amortization of discount on short term investments

 

 

(15

)

Income taxes

 

9

 

 

Amortization of sublease reserve

 

(288

)

(310

)

Deferred income taxes

 

1,755

 

2,866

 

Stock based compensation expense

 

1,592

 

1,485

 

Changes in operating assets and liabilities, net of effects of acquisitions

 

 

 

 

 

Accounts receivable

 

(13,742

)

(8,226

)

Inventories

 

1,133

 

1,098

 

Deferred costs/revenues/customer deposits, net

 

2,234

 

(567

)

Accounts payable

 

(2,276

)

2,606

 

Accrued expenses

 

1,387

 

460

 

Other

 

(240

)

106

 

Net cash provide by (used in) operating activities

 

(2,525

)

686

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

Proceeds from short term investments

 

2,730

 

(1,257

)

Payment for acquisitions, net of cash acquired

 

 

(12,360

)

Purchases of property and equipment

 

(1,263

)

(391

)

Net cash provided by (used in) investing activities

 

1,467

 

(14,008

)

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

Payment of note payable due to seller of acquired business

 

(3,000

)

 

Excess tax from stock compensation

 

(16

)

 

Proceeds from issuance of common stock from option exercise

 

364

 

174

 

Tax withholding payments reimbursed by restricted stock

 

(203

)

(208

)

Net cash used in financing activities

 

(2,855

)

(34

)

 

 

 

 

 

 

Decrease in cash and cash equivalents

 

(3,913

)

(13,356

)

Cash and cash equivalents, beginning of period

 

12,901

 

26,257

 

Cash and cash equivalents, end of period

 

$

8,988

 

$

12,901

 

 

 

 

 

 

 

Supplemental cash flow information:

 

 

 

 

 

Cash paid for income taxes

 

$

509

 

$

278

 

Cash received for income tax refunds

 

$

568

 

$

1,888