Datalink Reports 2012 Fourth Quarter and Year-End Operating Results

  Datalink Reports 2012 Fourth Quarter and Year-End Operating Results

   Record Fourth Quarter and Annual Revenue Up 28% and 29% Year-Over-Year,
                                 Respectively

Business Wire

EDEN PRAIRIE, Minn. -- February 14, 2013

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, 2012. Revenues for the quarter ended December 31, 2012, increased
28% to $147.3 million compared to $114.7 million for the prior-year period.
Revenues for year ended December 31, 2012, increased 29% to $491.2 million
compared to $380.0 million for the year ended December 31, 2011.

GAAP Results
On a GAAP basis, the company reported net earnings of $3.2 million or $0.18
per diluted share for the fourth quarter ended December 31, 2012. This
compares to net earnings of $2.6 million or $0.15 per diluted share in the
fourth quarter of 2011. For the year ended December 31, 2012, the company
reported net earnings of $10.5 million or $0.60 per diluted share, compared to
net earnings of $9.8 million, or $0.61 per diluted share, for the year ended
December 31, 2011.

Non-GAAP Results
Non-GAAP net earnings for the fourth quarter of 2012 were $5.6 million, or
$0.31 per diluted share, compared to non-GAAP net earnings of $4.1 million, or
$0.24 per diluted share, in the fourth quarter of 2011. For the year ended
December 31, 2012, the company reported non-GAAP net earnings of $15.3
million, or $0.88 per diluted share, compared to net earnings of $13.0
million, or $0.80 per diluted share, for the year ended December 31, 2011. A
detailed reconciliation between GAAP and non-GAAP information is contained in
the tables included herein.

The company’s results for the quarter and year ended December 31, 2012,
include the results of operations from the acquisition of StraTech, which was
completed on October 4, 2012. Excluding StraTech, revenues for the fourth
quarter and year ended December 31, 2012, would have increased approximately
17% and 26%, respectively, compared to the prior year periods.

Paul Lidsky, Datalink’s president and CEO, commented, “2012 was another record
year for Datalink. We reported record revenues and earnings for the fourth
quarter and fiscal year in large part due to our continued focus on our
expanded data center product and services offerings.”

Other significant accomplishments for 2012 and the fourth quarter include:

  *A record $97.5 million in product revenues for the quarter, representing a
    52% increase from the previous quarter and a 25% increase over the same
    period in 2011. In addition, service revenues were a record $49.8 million
    in the fourth quarter, up 22% over the previous quarter and 36% over the
    same period in 2011. These increases include incremental revenues from our
    StraTech acquisition, the contribution from 27 customers that purchased
    over one million dollars in product and services in the fourth quarter,
    and strong organic growth throughout the year.
  *Continued growth in the customer base as well as multi-million dollar
    accounts among Global 1000 companies. The number of new customers jumped
    from 290 to 452 between 2011 and 2012, while the number of customers
    purchasing over $1 million worth of product and services rose from 77 to
    102 in the same period.
  *Acquisition of the assets of StraTech on October 4, 2012, which
    significantly increased the company’s footprint along the East Coast
    adding 400 new accounts, a second customer support center, and expanded
    managed services offerings and expertise. In addition, on a non-GAAP
    basis, the acquisition was accretive in its first quarter of operations,
    adding approximately $13.4 million of revenues during the quarter and
    $0.03 per share.
  *Accelerating momentum for the company’s virtualized data center (VDC)
    solutions, with 20 solution projects sold in the fourth quarter compared
    to 7 in the comparable period in 2011, and 82 deals for the fiscal year
    compared to 35 in 2011.
  *Major new services offerings, including unified monitoring and managed
    infrastructure services for the entire multi-vendor VDC stack and new
    managed services for backup, monitoring, archiving, cloud backup and cloud
    enablement services to help companies analyze the impact of cloud
    deployments on their business before full-scale cloud initiatives.
  *Significant investments in customer support, information technology, human
    resources and field engineering to prepare the company for continued
    growth.

“Datalink’s collective accomplishments during 2012 reflect the successful
execution on our acquisition and data center strategies. In addition, our
strong fourth quarter 2012 performance left us with a record backlog going
into the first quarter and accelerated activity that has carried over with
strong sales in the first months of first quarter,” Lidsky added. “As we
exited the year, we continued to see increasing 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 deliver
unified platforms to our customers should fuel continued growth in 2013.”

Outlook
Based on the company’s current backlog, sales pipeline, historical seasonal
trends and the addition of StraTech revenues, Datalink projects revenues of in
the range of $127.0 million to $137.0 million for the first quarter of 2013
compared to $119.1 million for the first quarter of 2012. First quarter 2013
net earnings results are expected to be between $0.03 and $0.08 per diluted
share on a GAAP basis, and between $0.15 and $0.20 per diluted share on a
non-GAAP basis. This compares to net earnings of $0.12 per diluted share and
$0.17 per diluted share on a GAAP and non-GAAP basis, respectively, for the
same period in 2012.

Non-GAAP earnings per share exclude the effect of acquisition accounting
adjustments from the StraTech 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 $0.12 per diluted share for the first quarter of 2013.

Conference Call and Webcast Today
Datalink will hold a conference call at 4:00 p.m. Central Standard 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 (866-700-6979). Participants will be
asked to identify the Datalink conference call and provide the designated
identification number (14986898). 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 the financial impact of the StraTech
acquisition and our internal projections of anticipated 2012 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, 2011, 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; the
length of our sales cycle; 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 completed and future acquisitions; 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 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              Twelve Months Ended
                   December 31,                    December 31,
                   2012            2011            2012            2011
                                                                   
Net sales:
Products           $ 97,455        $ 77,932        $ 319,041       $ 245,743
Services            49,843      36,780        172,161     134,284 
Total net           147,298     114,712       491,202     380,027 
sales
                                                                   
Cost of sales:
Cost of              76,102          60,228          248,286         188,384
products
Cost of              38,541          27,493          130,890         100,978
services
Amortization        -           1,053         -           1,053   
of intangibles
Total cost of       114,643     88,774        379,176     290,415 
sales
Gross profit        32,655      25,938        112,026     89,612  
Operating
expenses:
Sales and            13,724          11,402          48,553          38,723
marketing
General and          4,647           4,142           18,227          15,468
administrative
Engineering          6,270           5,444           22,974          17,535
Other income         -               (553    )       -               (1,127  )
Integration
and                  236             329             359             454
transaction
costs
Amortization        2,339       619           4,196       1,766   
of intangibles
Total
operating           27,216      21,383        94,309      72,819  
expenses
Earnings from        5,439           4,555           17,717          16,793
operations
Interest             19              28              59              50
income
Interest            (17     )    (14     )      (56     )    (40     )
expense
Earnings
before income        5,441           4,569           17,720          16,803
taxes
Income tax          2,214       1,962         7,190       6,958   
expense
Net earnings       $ 3,227      $ 2,607        $ 10,530     $ 9,845   
                                                                   
Earnings per
common share:
Basic              $ 0.19          $ 0.16          $ 0.62          $ 0.62
Diluted            $ 0.18          $ 0.15          $ 0.60          $ 0.61
Weighted
average common
shares
outstanding:
Basic                17,348          16,736          17,114          15,803
Diluted              17,866          17,206          17,491          16,213
                                                                   


DATALINK CORPORATION
BALANCE SHEETS
(In thousands, except share data)
                                               December 31,   December 31,
                                                 2012             2011
                                                 (Unaudited)
Assets
Current assets
Cash and cash equivalents                        $   10,315       $   18,947
Short term investments                               -                3,486
Accounts receivable, net                             143,958          102,289
Receivable due from seller of StraTech               4,243            -
acquisition
Inventories                                          2,554            1,736
Deferred customer support contract costs             86,604           62,901
Inventories shipped but not installed                8,784            9,779
Income tax receivable                                2,430            405
Other current assets                                852             1,169
Total current assets                                259,740         200,712
Property and equipment, net                          6,082            3,453
Goodwill                                             37,780           32,446
Finite life intangibles, net                         20,759           9,035
Deferred customer support contract costs             40,723           28,785
non-current
Deferred tax asset                                   4,467            3,159
Other assets                                        455             361
Total assets                                     $   370,006      $   277,951
                                                                  
Liabilities and Stockholders' Equity
Current liabilities
Line of credit                                   $   6,000        $   -
Accounts payable                                     83,880           63,292
Accrued commissions                                  8,730            5,069
Accrued sales and use tax                            3,489            2,574
Accrued expenses, other                              6,027            5,209
Deferred tax liability                               9,034            7,459
Customer deposits                                    3,645            2,145
Deferred revenue from customer support               106,510          76,998
contracts
Other current liabilities                           157             85
Total current liabilities                            227,472          162,831
Deferred revenue from customer support               46,328           34,740
contracts non-current
Other liabilities non-current                       828             195
Total liabilities                                   274,628         197,766
                                                                  
Stockholders' equity
Common stock, $.001 par value, 50,000,000
shares authorized, 18,726,723 and 17,899,171         19               18
shares issued and outstanding as of December
31, 2012 and December 31, 2011, respectively
Additional paid-in capital                           70,875           66,213
Retained earnings                                   24,484          13,954
Total stockholders' equity                          95,378          80,185
Total liabilities and stockholders' equity       $   370,006      $   277,951
                                                                      


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,
                       2012           2011           2012           2011
                                                                 
Earnings from
operations on a        $ 5,439       $ 4,555       $ 17,717      $ 16,793 
GAAP basis
GAAP operating           3.7    %       4.0    %       3.6    %       4.4    %
margin
                                                                    
Non-GAAP
Adjustments:
Amortization of          -              1,053          -              1,053
intangible assets
Purchase
accounting
adjustment to
StraTech &              849          15           874          108    
Incentra deferred
revenue and cost,
net
Total gross margin       849            1,068          874            1,161
adjustments
                                                                    
Stock based
compensation
expense included         97             389            640            782
in sales and
marketing
Stock based
compensation
expense included         213            351            1,341          1,259
in general and
administrative
Stock based
compensation             224            143            594            516
expense included
in engineering
Other income from        -              (553   )       -              (553   )
Cross buyout
Integration and          236            329            359            454
transaction costs
Amortization of         2,339        619          4,196        1,766  
intangible assets
Total operating
expense                 3,109        1,278        7,130        4,224  
adjustments
                                                                    
Non-GAAP earnings        9,397          6,901          25,721         22,178
from operations
Non-GAAP operating       6.4    %       6.0    %       5.2    %       5.8    %
margin
                                                                    
Interest income,         1              14             3              10
net
Income tax expense
impact including        3,806        2,863        10,418       9,186  
Non-GAAP items
                                                                    
Non-GAAP net           $ 5,592       $ 4,052       $ 15,306      $ 13,002 
earnings
                                                                    
Non-GAAP net
earnings per share     $ 0.32        $ 0.24        $ 0.89        $ 0.82   
- Basic
Non-GAAP net
earnings per share     $ 0.31        $ 0.24        $ 0.88        $ 0.80   
- Diluted
                                                                    
Shares used in
non-GAAP per share      17,348       16,736       17,114       15,803 
calculation -
Basic
Shares used in
non-GAAP per share      17,866       17,206       17,491       16,213 
calculation -
Diluted
                                                                    


DATALINK CORPORATION
STATEMENT OF CASH FLOWS
(In thousands)
(Unaudited)
                                                              
                                                   Twelve Months Ended
                                                   December 31,
                                                   2012            2011
                                                                   
                                                                   
Cash flows from operating activities:
Net earnings                                       $ 10,530        $ 9,845
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Provision (benefit) for bad debts                    (6      )       84
Depreciation                                         1,627           1,045
Amortization of finite lived intangibles             4,196           2,819
Deferred income taxes                                267             374
Stock based compensation expense                     2,576           2,557
Changes in operating assets and liabilities:
Accounts receivable, net                             (31,544 )       (33,019 )
Inventories                                          177             (2,114  )
Deferred costs/revenues/customer deposits, net       4,440           2,485
Accounts payable                                     2,943           25,610
Accrued expenses                                     4,629           3,605
Income tax receivable                                (2,025  )       659
Other                                               1,006       (625    )
Net cash provided by (used in) operating            (1,184  )    13,325  
activities
                                                                   
Cash flows from investing activities:
Purchase of investments                              -               (9,978  )
Maturities of investments                            1,192           6,492
Sales of investments                                 2,294           -
Payment for acquisitions                             (13,172 )       (17,542 )
Purchases of property and equipment                 (3,824  )    (1,102  )
Net cash used in investing activities               (13,510 )    (22,130 )
                                                                   
Cash flows from financing activities:
Proceeds from stock offering, net of offering        -               17,454
costs
Line of credit                                       6,000           -
Excess tax from stock compensation                   780             276
Proceeds from issuance of common stock from          347             1,034
option exercise
Tax withholding payments reimbursed by              (1,065  )    -       
restricted stock
Net cash provided by financing activities           6,062       18,764  
                                                                   
Increase (decrease) in cash and cash                 (8,632  )       9,959
equivalents
Cash, beginning of period                           18,947      8,988   
Cash, end of period                                $ 10,315     $ 18,947  
                                                                   
Supplemental cash flow information:
Cash paid for income taxes                         $ 8,191         $ 5,934
Cash received for income tax refunds               $ 25            $ 469
                                                                   
Supplemental disclosure of non-cash investing
activities:
Non-cash stock issued as consideration for         $ 2,025         $ 1,564
acquisition
                                                                             

Contact:

Datalink
Investors & Analysts:
Greg Barnum, 952-279-4816
Vice President and CFO
gbarnum@datalink.com
or
Media & Alliances:
Suzanne Gallagher, 720-566-5110
SVP of Marketing
sgallagher@datalink.com
or
Investor Relations:
Kim Payne, 952-279-4794
Investor Relations Coordinator
Fax: 952-944-7869
einvestor@datalink.com
www.datalink.com
 
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