[May 06, 2014] |
|
Datalink Reports 2014 First Quarter Operating Results
EDEN PRAIRIE, Minn. --(Business Wire)--
Datalink
(Nasdaq: DTLK), a leading provider of data center infrastructure and
services, today reported results for its first quarter ended March 31,
2014. Revenues for the quarter ended March 31, 2014, increased 5% to
$139.5 million compared to $133.5 million for the quarter ended March
31, 2013. Product revenues decreased 1% to $83.2 million and services
revenues increased 15% to $56.3 million year over year.
The company's results for the quarter ended March 31, 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 on GAAP and non-GAAP earnings from the additional
shares outstanding on the 2014 first quarter was approximately $0.01 per
share.
The first quarter of 2014 GAAP results also includes an $876,000 or
$0.02 per share gain relating to the escrow settlement agreement reached
with StraTech in January 2014. Under the terms of the agreement, related
to Datalink's acquisition of StraTech in October 2012, the former owners
of StraTech agreed to release the entire 242,805 shares of Datalink
common stock that were being held in escrow in exchange for a payment of
$100,000 and the release of certain other claims. The gain is based on
the value of Datalink common stock on the date of the agreement. In the
fourth quarter of 2013 we recorded a write-down of $611,000 of the
account receivable from StraTech to its estimated realizable value. The
net impact on our financial statements between the fourth quarter of
2013 and the first quarter of 2014 is a net gain of $265,000.
GAAP Results On a GAAP basis, the company reported net
earnings of $301,000 or $0.01 per diluted share for the first quarter
ended March 31, 2014. This compares to net earnings of $1.1 million or
$0.06 per diluted share in the first quarter of 2013.
Non-GAAP Results Non-GAAP net earnings for the first quarter
of 2014 were $1.2 million, or $0.06 per diluted share, compared to $3.1
million, or $0.18 per diluted share, in the first quarter of 2013. A
detailed reconciliation between GAAP and non-GAAP information is
contained in the tables included herein.
"These first quarter results produced top line growth greater than most
of our OEM partners are experiencing but were less than the revenue and
earnings guidance we gave in February and reflect a greater decline in
our overall gross margin than we expected. This decline in gross margin
was caused by storage orders forecasted to close during Q1 that were
delayed because customers were still evaluating their hybrid cloud and
solid state storage strategies," said Paul Lidsky (News - Alert), president and CEO of
Datalink. "Since these delays primarily affected storage decisions, a
higher percentage of our revenues came from lower-margin server and
networking purchases, which in turn produced lower overall gross
margins. While we believe that we will see these orders materialize
later in the year and our storage/server and networking mix will return
to expected levels, we have taken multiple cost reduction and
organizational actions to protect our earnings and help the company
increase its top line growth."
These actions - effective immediately - will reduce operating expenses
by approximately $3.6 million for the remainder of the year or $0.10 per
fully diluted share. They include a restructuring of the sales
operations and services delivery organizations which will provide
greater efficiency while driving increased growth. In the second
quarter, the company will take a one-time charge of approximately
$350,000 relating to severance payments from these actions.
The company is also continuing to focus on driving higher-margin
services revenues. That focus yielded a strong Q1 services performance,
including:
-
A 15% year-over-year increase in total services revenues, including a
28% increase in professional services revenues.
-
An increase in professional services to 8.1% of total revenues
compared to 6.6% in the first quarter of 2013.
-
Major new engagements in the company's recently expanded Advanced
Services practice, ranging from data center relocations,
infrastructure migrations and hybrid cloud orchestration and
management to a $1.9 million data migration contract with a large
banking institution.
"In the past few years we have steadily broadened our services portfolio
to provide a higher-margin revenue stream as well as to help our
customers address the growing complexity of the data center
infrastructure in the face of new developments like converged
architectures, cloud computing and the transition of IT teams to become
service organizations. These numbers show that the strategy is
succeeding even in a down quarter," Lidsky said. "Services will play an
increasingly important role in our growth moving forward, continue to
increase our wallet share with customers, and provide a strong
competitive advantage over providers that lack our full-service
capabilities."
During the first quarter, Datalink continued to maintain a strong
balance sheet with cash and investments of over $71 million, no debt and
working capital of $93 million.
Outlook Datalink projects revenues of $145 million to $155
million for the second quarter of 2014 compared to $148.2 million for
the second quarter of 2013. The company expects second quarter 2014 net
earnings to be between $0.04 and $0.09 per diluted share on a GAAP
basis, and net earnings of between $0.11 and $0.16 per diluted share on
a non-GAAP basis. This compares to net earnings of $0.16 per diluted
share and $0.26 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 asset acquisition to deferred revenue and
costs, integration and transaction costs related to acquisitions,
stock-based compensation expense, amortization of intangible assets,
severance costs, and the related effects on income taxes. The company
estimates this total effect will be approximately $0.07 per diluted
share for the second quarter of 2014.
Conference Call and Webcast Today Datalink 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 (877) 703-6108. Participants will be asked to identify the
Datalink conference call and provide the designated identification
number (77580976). A live webcast of the conference call can be accessed here
or via Datalink's investor relations 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 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 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
|
STATEMENTS OF OPERATIONS
|
(In thousands, except per share data)
|
(Unaudited)
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
March 31,
|
|
|
2014
|
|
2013
|
|
|
|
|
|
Net sales:
|
|
|
|
|
Products
|
|
$
|
83,195
|
|
|
$
|
84,422
|
|
Services
|
|
|
56,340
|
|
|
|
49,096
|
|
Total net sales
|
|
|
139,535
|
|
|
|
133,518
|
|
|
|
|
|
|
Cost of sales:
|
|
|
|
|
Cost of products
|
|
|
66,770
|
|
|
|
66,065
|
|
Cost of services
|
|
|
43,283
|
|
|
|
37,620
|
|
Total cost of sales
|
|
|
110,053
|
|
|
|
103,685
|
|
Gross profit
|
|
|
29,482
|
|
|
|
29,833
|
|
Operating expenses:
|
|
|
|
|
Sales and marketing
|
|
|
15,664
|
|
|
|
13,208
|
|
General and administrative
|
|
|
5,301
|
|
|
|
5,642
|
|
Engineering
|
|
|
7,514
|
|
|
|
6,987
|
|
Integration and transaction costs
|
|
|
-
|
|
|
|
48
|
|
Amortization of intangibles
|
|
|
1,416
|
|
|
|
1,982
|
|
Total operating expenses
|
|
|
29,895
|
|
|
|
27,867
|
|
Earnings (loss) from operations
|
|
|
(413
|
)
|
|
|
1,966
|
|
Gain on settlement related to StraTech acquisition
|
|
|
876
|
|
|
|
-
|
|
Interest income
|
|
|
48
|
|
|
|
16
|
|
Interest expense
|
|
|
(29
|
)
|
|
|
(116
|
)
|
Earnings before income taxes
|
|
|
482
|
|
|
|
1,866
|
|
Income tax expense
|
|
|
181
|
|
|
|
768
|
|
Net earnings
|
|
$
|
301
|
|
|
$
|
1,098
|
|
|
|
|
|
|
Earnings per common share:
|
|
|
|
|
Basic
|
|
$
|
0.01
|
|
|
$
|
0.06
|
|
Diluted
|
|
$
|
0.01
|
|
|
$
|
0.06
|
|
Weighted average common shares outstanding:
|
|
|
|
|
Basic
|
|
|
21,537
|
|
|
|
17,532
|
|
Diluted
|
|
|
22,009
|
|
|
|
17,927
|
|
|
|
|
|
|
|
|
|
|
|
|
DATALINK CORPORATION
|
BALANCE SHEETS
|
(In thousands, except share data)
|
|
|
|
|
|
|
|
|
March 31,
|
|
December 31,
|
|
|
2014
|
|
2013
|
|
|
(Unaudited)
|
|
|
|
Assets
|
Current assets
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
35,460
|
|
|
$
|
24,871
|
|
Short term investments
|
|
|
36,147
|
|
|
|
51,214
|
|
Accounts receivable, net
|
|
|
98,047
|
|
|
|
131,246
|
|
Inventories, net
|
|
|
2,341
|
|
|
|
4,120
|
|
Current deferred customer support contract costs
|
|
|
92,075
|
|
|
|
89,304
|
|
Inventories shipped but not installed
|
|
|
11,647
|
|
|
|
16,000
|
|
Income tax receivable
|
|
|
1,608
|
|
|
|
-
|
|
Other current assets
|
|
|
1,784
|
|
|
|
1,279
|
|
Total current assets
|
|
|
279,109
|
|
|
|
318,034
|
|
Property and equipment, net
|
|
|
6,562
|
|
|
|
6,722
|
|
Goodwill
|
|
|
37,780
|
|
|
|
37,780
|
|
Finite-lived intangibles, net
|
|
|
12,093
|
|
|
|
13,509
|
|
Deferred customer support contract costs non-current
|
|
|
49,615
|
|
|
|
49,044
|
|
Deferred tax asset
|
|
|
6,800
|
|
|
|
7,116
|
|
Long term lease receivable
|
|
|
2,264
|
|
|
|
510
|
|
Other assets
|
|
|
684
|
|
|
|
393
|
|
Total assets
|
|
$
|
394,907
|
|
|
$
|
433,108
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders' Equity
|
Current liabilities
|
|
|
|
|
|
|
Floor plan line of credit
|
|
$
|
14,124
|
|
|
$
|
19,977
|
|
Accounts payable
|
|
|
40,158
|
|
|
|
61,296
|
|
Accrued commissions
|
|
|
4,838
|
|
|
|
7,133
|
|
Accrued sales and use tax
|
|
|
1,547
|
|
|
|
2,067
|
|
Accrued expenses, other
|
|
|
4,836
|
|
|
|
8,033
|
|
Income tax payable
|
|
|
-
|
|
|
|
11,586
|
|
Current deferred taxes
|
|
|
1,694
|
|
|
|
1,694
|
|
Customer deposits
|
|
|
4,674
|
|
|
|
4,240
|
|
Current deferred revenue from customer support contracts
|
|
|
113,977
|
|
|
|
110,567
|
|
Other current liabilities
|
|
|
603
|
|
|
|
187
|
|
Total current liabilities
|
|
|
186,451
|
|
|
|
226,780
|
|
Deferred revenue from customer support contracts non-current
|
|
|
60,119
|
|
|
|
59,576
|
|
Long term lease payable
|
|
|
1,902
|
|
|
|
-
|
|
Other liabilities, non-current
|
|
|
608
|
|
|
|
956
|
|
Total liabilities
|
|
|
249,080
|
|
|
|
287,312
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders' equity
|
|
|
|
|
|
|
Common stock, $.001 par value, 50,000,000 shares authorized,
22,490,892 and 22,785,422 shares issued and outstanding as of March
31, 2014 and December 31, 2013, respectively
|
|
|
22
|
|
|
|
23
|
|
Additional paid-in capital
|
|
|
110,970
|
|
|
|
111,239
|
|
Retained earnings
|
|
|
34,835
|
|
|
|
34,534
|
|
Total stockholders' equity
|
|
|
145,827
|
|
|
|
145,796
|
|
Total liabilities and stockholders' equity
|
|
$
|
394,907
|
|
|
$
|
433,108
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DATALINK CORPORATION
|
RECONCILIATION BETWEEN GAAP AND NON-GAAP NET (News - Alert) INCOME
|
(In thousands, except per share data)
|
(Unaudited)
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
March 31,
|
|
|
2014
|
|
2013
|
|
|
|
|
|
Earnings (loss) from operations on a GAAP basis
|
|
$
|
(413
|
)
|
|
$
|
1,966
|
|
GAAP operating margin
|
|
|
-0.3
|
%
|
|
|
1.5
|
%
|
|
|
|
|
|
Non-GAAP Adjustments:
|
|
|
|
|
Purchase accounting adjustment to acquired deferred revenue and
cost, net
|
|
|
57
|
|
|
|
512
|
|
Total gross margin adjustments
|
|
|
57
|
|
|
|
512
|
|
|
|
|
|
|
Stock based compensation expense included in sales and marketing
|
|
|
320
|
|
|
|
272
|
|
Stock based compensation expense included in general and
administrative
|
|
|
421
|
|
|
|
526
|
|
Stock based compensation expense included in engineering
|
|
|
243
|
|
|
|
143
|
|
Integration and transaction costs
|
|
|
-
|
|
|
|
48
|
|
Amortization of intangible assets
|
|
|
1,416
|
|
|
|
1,982
|
|
Total operating expense adjustments
|
|
|
2,400
|
|
|
|
2,971
|
|
|
|
|
|
|
Non-GAAP earnings from operations
|
|
|
2,044
|
|
|
|
5,449
|
|
Non-GAAP operating margin
|
|
|
1.5
|
%
|
|
|
4.1
|
%
|
|
|
|
|
|
Interest expense, net
|
|
|
19
|
|
|
|
(100
|
)
|
Income tax expense impact including Non-GAAP items
|
|
|
831
|
|
|
|
2,205
|
|
|
|
|
|
|
Non-GAAP net earnings
|
|
$
|
1,232
|
|
|
$
|
3,144
|
|
|
|
|
|
|
Non-GAAP net earnings per share - Basic
|
|
$
|
0.06
|
|
|
$
|
0.18
|
|
Non-GAAP net earnings per share - Diluted
|
|
$
|
0.06
|
|
|
$
|
0.18
|
|
|
|
|
|
|
Shares used in non-GAAP per share calculation - Basic
|
|
|
21,537
|
|
|
|
17,532
|
|
Shares used in non-GAAP per share calculation - Diluted
|
|
|
22,009
|
|
|
|
17,927
|
|
|
|
|
|
|
|
DATALINK CORPORATION
|
STATEMENT OF CASH FLOWS
|
(In thousands)
|
(Unaudited)
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
March 31,
|
|
|
2014
|
|
2013
|
|
|
|
|
|
|
|
|
|
|
Cash flows from operating activities:
|
|
|
|
|
Net earnings
|
|
$
|
301
|
|
|
$
|
1,098
|
|
Adjustments to reconcile net earnings to net cash provided by
operating activities:
|
|
|
|
|
Change in fair value of trading securities
|
|
|
17
|
|
|
|
-
|
|
Provision (benefit) for bad debts
|
|
|
(23
|
)
|
|
|
8
|
|
Depreciation
|
|
|
574
|
|
|
|
487
|
|
Amortization of finite lived intangibles
|
|
|
1,416
|
|
|
|
1,982
|
|
Gain on settlement related to StraTech acquisition
|
|
|
(876
|
)
|
|
|
-
|
|
Deferred income taxes
|
|
|
316
|
|
|
|
175
|
|
Stock based compensation expense
|
|
|
984
|
|
|
|
941
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
Accounts receivable, net
|
|
|
31,468
|
|
|
|
16,202
|
|
Inventories
|
|
|
6,132
|
|
|
|
(4,492
|
)
|
Deferred costs/revenues/customer deposits, net
|
|
|
1,045
|
|
|
|
2,178
|
|
Accounts payable
|
|
|
(19,236
|
)
|
|
|
(20,495
|
)
|
Accrued expenses
|
|
|
(6,012
|
)
|
|
|
(3,584
|
)
|
Income tax receivable
|
|
|
(1,608
|
)
|
|
|
153
|
|
Income tax payable
|
|
|
(11,586
|
)
|
|
|
-
|
|
Other
|
|
|
(728
|
)
|
|
|
(549
|
)
|
Net cash provided by (used in) operating activities
|
|
|
2,184
|
|
|
|
(5,896
|
)
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
Sale of investments
|
|
|
15,050
|
|
|
|
-
|
|
Purchases of property and equipment
|
|
|
(414
|
)
|
|
|
(973
|
)
|
Net cash provided by (used in) investing activities
|
|
|
14,636
|
|
|
|
(973
|
)
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
Net proceeds under line of credit
|
|
|
-
|
|
|
|
2,000
|
|
Net borrowings (payments) under floor plan line of credit
|
|
|
(5,853
|
)
|
|
|
-
|
|
Excess tax from stock compensation
|
|
|
340
|
|
|
|
277
|
|
Proceeds from issuance of common stock from option exercise
|
|
|
77
|
|
|
|
176
|
|
Tax withholding payments reimbursed by restricted stock
|
|
|
(795
|
)
|
|
|
(244
|
)
|
Net cash provided by (used in) financing activities
|
|
|
(6,231
|
)
|
|
|
2,209
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents
|
|
|
10,589
|
|
|
|
(4,660
|
)
|
Cash and cash equivalents, beginning of period
|
|
|
24,871
|
|
|
|
10,315
|
|
Cash and cash equivalents, end of period
|
|
$
|
35,460
|
|
|
$
|
5,655
|
|
|
|
|
|
|
Supplemental cash flow information:
|
|
|
|
|
Cash paid for income taxes
|
|
$
|
12,718
|
|
|
$
|
175
|
|
Cash paid for interest expense
|
|
|
3
|
|
|
|
88
|
|
|
|
|
|
|
|
|
|
|
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