(Source: Business Wire)
Datalink (Nasdaq: DTLK), a leading provider of data center
infrastructure solutions and services, reported that revenues for the
quarter ended September 30, 2009, were $42.7 million compared to $50
million for the prior-year period, and $43.7 million for the second
quarter of 2009. Revenues for the nine month period ended September 30,
2009 were $126.3 million compared to $147.4 million for the prior year
nine month period.
GAAP Results
On a GAAP basis, the company reported a net loss of $84,000, or $0.01
per diluted share, for the third quarter ended September 30, 2009. This
compares to net earnings of $1.1 million, or $0.08 per diluted share, in
the third quarter of 2008. For the nine months ended September 30, 2009,
the company reported a net loss of $397,000, or $0.03 per diluted share,
compared to net earnings of $2.6 million, or $0.20 per diluted share, in
the first nine months of 2008. Included in the third quarter and nine
months ended September 30, 2009 was a $624,000 or $0.02 per share charge
related to the severance agreement with our former president and CEO.
Non-GAAP Results
Non-GAAP net earnings for the third quarter of 2009 were $116,000, or
$0.01 per diluted share, compared to non-GAAP net earnings of $1.3
million, or $0.11 per diluted share, in the third quarter of 2008. For
the nine months ended September 30, 2009, the company reported non-GAAP
net earnings of $500,000, or $0.04 per diluted share, compared to net
earnings of $3.4 million, or $0.27 per diluted share, in the first nine
months of 2008. Included in the third quarter and nine months ended
September 30, 2009 is a $329,000 or $0.01 per share charge related to
severance paid to our former president and CEO. A detailed
reconciliation between GAAP and non-GAAP information is contained in the
tables included herein.
Paul Lidsky, Datalink's President and CEO, commented, "We are pleased
that third quarter revenue levels were within the guidance range we
provided at the beginning of the quarter and in-line with the analyst
consensus estimate. However, while third quarter earnings levels were at
the low-end of our guidance, quarterly results were constrained by the
severance agreement with our former president and CEO and a drop in our
product gross margins due to our renewed focus on pursuing new customer
account opportunities which may initially drive lower than normal
product margins. As we noted at the beginning of the quarter, we did not
expect to see any improvement in demand for storage solutions in the
third quarter, as customers continue to scrutinize projects very closely
and further delay larger implementations in an effort to conserve cash
in this still uncertain environment. However, we saw several positives
during the quarter, including:
Service gross profit margin in the third quarter remained strong at
27.8 percent;
Good progress was made in reducing our cost structure through various
initiatives undertaken midway through the first quarter. Our operating
expenses, excluding severance charges paid to our former president and
CEO, decreased to 25.1 percent of revenues in the third quarter from
25.8 percent and 28.7 percent in the second and first quarter of this
year, respectively; and
At the beginning of the fourth quarter, we announced that we acquired
the networking solutions team from Cross Telecom. This team of
certified Cisco networking experts will be additive to our expertise
in designing, implementing and managing sophisticated virtualized data
center, storage and back and recovery solutions. In addition we
obtained Cross' Cisco Silver certification."
Lidsky continued, "Against a continued backdrop of economic challenges
as we head into the fourth quarter of 2009, we plan to continue to focus
on growing market share, leveraging our recent acquisition, managing our
cost structure efficiently and expanding our services offerings to
deliver more value to our customers."
Outlook
The company ended the third quarter of 2009 with a backlog of
approximately $27 million, which represents firm orders expected to be
recognized as revenue within the next 90 days. This compares to a
backlog of $28 million at the end of the second quarter of 2009. Based
on the level of activity that we are currently seeing in our sales
opportunity pipeline, we expect revenues to be between $45 million and
$49 million for the fourth quarter, with GAAP earnings in the range of
breakeven to $0.04 per diluted share, and on a non-GAAP basis, earnings
in the range of $0.03 to $0.07 per diluted share. This compares with
revenues of $48.2 million in the fourth quarter of 2008 with GAAP
earnings of $0.07 per diluted share and non-GAAP earnings of $0.09 per
diluted share. Non-GAAP earnings per share exclude the effect of
purchase accounting adjustments from the MCSI acquisition to deferred
revenue, stock-based compensation expense, amortization of acquisition
related intangible assets, and the related effects on income taxes. The
company estimates this total effect will be approximately $0.03 per
diluted share for the fourth quarter of 2009.
Conference Call and Webcast Today
Datalink will hold a conference call today at 4:00 p.m. Central Time
during which time 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 and
provide the designated identification number (31986470). A live Webcast
of the conference call can be heard via Datalink's Website at www.datalink.com.
About Datalink
A virtual data center infrastructure, solutions and services provider,
Datalink helps organizations store, manage and protect one of their most
critical assets--information. The company's solutions and services span
four practices: backup and recovery; consolidation and virtualization;
archive and compliance; and business applications. From analysis and
design to implementation, management and support, Datalink is focused on
maximizing the business value of IT. For more information about Datalink
services, contact Datalink at (800) 448-6314, or visit Datalink online
at 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 2009 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" 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; 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 current
and 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
our acquisition of Cross Telecom assets will increase our revenues or
profits.
Non-GAAP Details
Non-GAAP financial measures exclude the impact from purchase accounting
adjustments to deferred revenue from our MCSI acquisition, stock-based
compensation expense, amortization of intangible assets, 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. Datalink believes that non-GAAP
measures have limitations in that they do not reflect all of the amounts
associated with Datalink's results of operations as determined in
accordance with GAAP and that these measures should only be used to
evaluate Datalink's results of operations in conjunction with the
corresponding GAAP measures.
These non-GAAP financial measures facilitate management's internal
comparisons to the Datalink's 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.
Datalink believes 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 its 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,
2009 2008 2009 2008
Net sales:
Products $ 22,412 $ 28,832 $ 64,579 $ 86,410
Services 20,299 21,148 61,697 61,002
Total net sales 42,711 49,980 126,276 147,412
Cost of sales:
Cost of products 17,086 21,418 48,548 64,244
Cost of services 14,666 14,805 44,556 43,073
Total cost of sales 31,752 36,223 93,104 107,317
Gross profit 10,959 13,757 33,172 40,095
Operating expenses:
Sales and marketing 5,041 5,879 15,817 17,639
General and administrative 3,297 3,167 9,062 9,241
Engineering 2,829 2,824 8,619 8,789
Amortization of intangibles 178 178 533 533
11,345 12,048 34,031 36,202
Earnings (loss) from operations (386 ) 1,709 (859 ) 3,893
Interest income, net 21 125 83 472
Other expense (1 ) (24 ) (2 ) (38 )
Earnings (loss) before income taxes (366 ) 1,810 (778 ) 4,327
Income tax expense (benefit) (282 ) 742 (381 ) 1,774
Net earnings (loss) $ (84 ) $ 1,068 $ (397 ) $ 2,553
Net earnings (loss) per common share:
Basic $ (0.01 ) $ 0.09 $ (0.03 ) $ 0.21
Diluted $ (0.01 ) $ 0.08 $ (0.03 ) $ 0.20
Weighted average common shares outstanding:
Basic 12,564 12,373 12,520 12,365
Diluted 12,564 12,667 12,520 12,546
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DATALINK CORPORATION
BALANCE SHEETS
(In thousands, except share data)
September 30, December 31,
2009 2008 *
(Unaudited)
Assets
Current assets
Cash and cash equivalents $ 21,426 $ 26,257
Short term investments 2,730 1,473
Accounts receivable, net 17,411 28,366
Inventories 685 1,230
Deferred customer support contract costs 41,494 43,674
Inventories shipped but not installed 7,236 10,235
Current deferred income taxes 302 1,417
Income tax receivable 2,806 14
Other current assets 230 219
Total current assets 94,320 112,885
Property and equipment, net 1,616 2,088
Goodwill 17,748 17,748
Finite life intangibles, net 2,367 2,900
Other assets 219 271
Total assets $ 116,270 $ 135,892
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable $ 9,922 $ 23,377
Accrued commissions 1,050 1,328
Accrued sales and use tax 389 403
Accrued expenses, other 2,268 3,451
Sublease reserve current 293 311
Customer deposits 3,376 6,073
Deferred revenue from customer support contracts 53,378 56,915
Total current liabilities 70,676 91,858
Deferred rent 111 157
Deferred income tax liability 1,953 723
Sublease reserve non-current 420 635
Total liabilities 73,160 93,373
Stockholders' equity
Common stock, $.001 par value, 50,000,000 shares authorized, 12,943,594and 12,930,264 shares issued and outstanding as of September 30, 2009and December 31, 2008, respectively 13 13
Additional paid-in capital 41,132 40,144
Retained earnings 1,965 2,362
Total stockholders' equity 43,110 42,519
Total liabilities and stockholders' equity $ 116,270 $ 135,892
* A reclassification has been made to the 2008 Balance Sheet to conform with the September 30, 2009 presentation.
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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,
2009 2008 2009 2008
Net earnings (loss) on a GAAP basis $ (84 ) $ 1,068 $ (397 ) $ 2,553
Adjustments:
Purchase accounting adjustment to MCSI deferred revenue 10 35 37 129
Total gross margin adjustments 10 35 37 129
Stock based compensation expense included in sales and marketing 76 75 223 216
Stock based compensation expense included in general and administrative 431 108 675 297
Stock based compensation expense included in engineering 176 68 291 203
Amortization of intangible assets 178 178 533 533
Total operating expense adjustments 861 429 1,722 1,249
Income tax effect (671 ) (190 ) (862 ) (565 )
Non-GAAP net earnings $ 116 $ 1,342 $ 500 $ 3,366
Non-GAAP net earnings per share - Basic $ 0.01 $ 0.11 $ 0.04 $ 0.27
Non-GAAP net earnings per share - Diluted $ 0.01 $ 0.11 $ 0.04 $ 0.27
Shares used in non-GAAP per share calculation - Basic 12,564 12,373 12,520 12,365
Shares used in non-GAAP per share calculation - Diluted 12,668 12,667 12,570 12,546
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DATALINK CORPORATION
STATEMENT OF CASH FLOWS
(In thousands)
(Unaudited)
Nine Months Ended
September 30,
2009 2008
Cash flows from operating activities:
Net earnings (loss) $ (397 ) $ 2,553
Adjustments to reconcile net earnings (loss) to net cash provided by operating activities:
Provision for bad debts 14 91
Depreciation 628 721
Amortization of intangibles 533 533
Amortization of discount on short term investments (2 ) -
Deferred rent (46 ) (54 )
Deferred income taxes 2,345 -
Amortization of sublease reserve (233 ) (252 )
Stock based compensation expense 1,189 717
Changes in operating assets and liabilities
Accounts receivable 10,943 8,929
Inventories 3,544 2,796
Deferred costs/revenues/customer deposits, net (4,054 ) 534
Accounts payable (13,455 ) (14,678 )
Accrued expenses (1,475 ) (921 )
Other (2,751 ) 181
Net cash provide by (used in) operating activities (3,217 ) 1,150
Cash flows from investing activities:
Proceeds from (purchases of) short term investments (1,257 ) 2,477
Purchases of property and equipment (156 ) (585 )
Net cash provided by (used in) investing activities (1,413 ) 1,892
Cash flows from financing activities:
Excess tax from stock compensation (163 ) -
Proceeds from issuance of common stock from option exercise 91 61
Tax withholding payments reimbursed by restricted stock (129 ) (68 )
Net cash used in financing activities (201 ) (7 )
Increase (decrease) in cash and cash equivalents (4,831 ) 3,035
Cash and cash equivalents, beginning of period 26,257 22,687
Cash and cash equivalents, end of period $ 21,426 $ 25,722
Supplemental cash flow information:
Cash paid for income taxes $ 277 $ -
Cash received for income tax refunds $ 47 $ -
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