Datalink Reports 2009 Third Quarter Operating Results
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MINNEAPOLIS--(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 178 178 533 533
intangibles
11,345 12,048 34,031 36,202
Earnings (loss) from (386 ) 1,709 (859 ) 3,893
operations
Interest income, net 21 125 83 472
Other expense (1 ) (24 ) (2 ) (38 )
Earnings (loss) before (366 ) 1,810 (778 ) 4,327
income taxes
Income tax expense (282 ) 742 (381 ) 1,774
(benefit)
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
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, 12,943,594
and 12,930,264 shares issued and outstanding as of 13 13
September 30, 2009
and December 31, 2008, respectively
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.
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 $ (84 ) $ 1,068 $ (397 ) $ 2,553
GAAP basis
Adjustments:
Purchase accounting
adjustment to MCSI deferred 10 35 37 129
revenue
Total gross margin 10 35 37 129
adjustments
Stock based compensation
expense included in sales 76 75 223 216
and marketing
Stock based compensation
expense included in general 431 108 675 297
and administrative
Stock based compensation
expense included in 176 68 291 203
engineering
Amortization of 178 178 533 533
intangible assets
Total operating 861 429 1,722 1,249
expense adjustments
Income tax effect (671 ) (190 ) (862 ) (565 )
Non-GAAP net earnings $ 116 $ 1,342 $ 500 $ 3,366
Non-GAAP net earnings $ 0.01 $ 0.11 $ 0.04 $ 0.27
per share - Basic
Non-GAAP net earnings $ 0.01 $ 0.11 $ 0.04 $ 0.27
per share - Diluted
Shares used in non-GAAP
per share calculation - 12,564 12,373 12,520 12,365
Basic
Shares used in non-GAAP per 12,668 12,667 12,570 12,546
share calculation - Diluted
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 91 61
exercise
Tax withholding payments reimbursed by restricted (129 ) (68 )
stock
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 $ -
Source: Datalink
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