ADDING and REPLACING Datalink Reports 2016 Second Quarter and Six Month Operating Results

Second Quarter and Six Month Revenues Up 9% and 2% Year-Over-Year, Respectively

Second Quarter and Six Month Earnings from Operations Up 212% and 182% Year-Over-Year, Respectively

EDEN PRAIRIE, Minn.--()--Adding financial tables after last paragraph of release.

The corrected release reads:

DATALINK REPORTS 2016 SECOND QUARTER AND SIX MONTH OPERATING RESULTS

Second Quarter and Six Month Revenues Up 9% and 2% Year-Over-Year, Respectively

Second Quarter and Six Month Earnings from Operations Up 212% and 182% Year-Over-Year, Respectively

Datalink (Nasdaq: DTLK), a leading provider of IT services and solutions, today reported results for its second quarter and six months that ended June 30, 2016. Revenues for the quarter ended June 30, 2016, increased 9% to $199.2 million compared to $182.6 million for the quarter ended June 30, 2015, and increased 21% over revenues of $164.6 million in the first quarter of 2016. Revenues for the six months ended June 30, 2016, increased 2% to $363.8 million compared to $358.0 million for the six months ended June 30, 2015.

GAAP Results

On a GAAP basis, the company reported net earnings of $3.9 million or $0.18 per diluted share for the second quarter ended June 30, 2016. This compares to net earnings of $661,000 or $0.03 per diluted share in the second quarter of 2015. For the six months ended June 30, 2016, the company reported net earnings of $3.4 million or $0.16 per diluted share, compared to net earnings of $647,000, or $0.03 per diluted share, for the six months ended June 30, 2015. The income tax expense for the quarter and six months ended June 30, 2016 includes discrete tax benefits of approximately $1.6 million and $1.4 million, respectively, primarily due to research and development tax credits for 2012 thru 2016. The company has determined that certain activities it performs qualify for research and development tax credits as defined by Internal Revenue Code Section 41. Excluding this credit, earnings per diluted share for the quarter and six months ended June 30, 2016 would have been $0.10 and $0.08, respectively.

Non-GAAP Results

Non-GAAP net earnings for the second quarter of 2016 were $3.9 million, or $0.18 per diluted share, compared to non-GAAP net earnings of $2.7 million, or $0.12 per diluted share, in the second quarter of 2015. For the six months ended June 30, 2016, the company reported non-GAAP net earnings of $5.2 million, or $0.24 per diluted share, compared to non-GAAP net earnings of $5.0 million, or $0.22 per diluted share, for the six months ended June 30, 2015. A detailed reconciliation between GAAP and non-GAAP information is contained in the tables included herein. The income tax expense for the quarter and six months ended June 30, 2016 includes discrete tax benefits primarily for research and development tax credits of $500,000 on an annualized basis for 2016. Excluding this credit, non-GAAP earnings per diluted share for the quarter and six months ended June 30, 2016 would have been $0.17 and $0.22, respectively.

Highlights

  • Second quarter earnings from operations increased 212% to $3.7 million on a GAAP basis and 35% to $6.4 million on a non-GAAP basis compared to second quarter 2015.
  • A 132% year-over-year increase in sales of all-flash storage, with flash now representing 51% of the company’s storage sales compared to 21% in 2015. Flash storage yields lower gross margins than traditional storage but helps to offset continued declines in traditional storage revenues and also drives migration and other consulting services when part of a converged solution.
  • A 5% year-over-year increase in total services revenues, reflecting the company’s emphasis on growing its services business. Services comprised 41% of the company’s year to date revenues in 2016, up from 40% in the first six months of 2015.
  • A continued increase in $1 million+ customers, with seven-figure spending by 40 organizations in the second quarter of 2016 compared to 30 in the same period in 2015.
  • A #45 ranking on CRN’s 2016 Solution Provider 500 list of the top technology integrators, solution providers and IT consultants in North America by revenue, as well as its fifth consecutive CRN Tech Elite 250 honor reflecting the company’s extensive list of advanced technical certifications.
  • Strong balance sheet with the company ending the quarter with over $70.8 million of cash and investments and no debt.

Outlook

“We had a solid second quarter, highlighted by strong revenue and earnings growth. Contributing to this growth were several seven-figure data center modernization contracts that demonstrate the complex mix of technologies and services required to optimize data center operations today. Our ability to provide a full range of consulting, project planning and management, implementation, data migration and automation services were instrumental in securing these contracts,” said Paul Lidsky, Datalink’s president and CEO. “At the same time, the market has accepted flash storage at a faster rate than we expected earlier in the year, which impacts our overall revenue growth and gross margins. As a result we no longer believe our annual growth rate will reach our original forecast of 4% to 6% and instead our annual growth rate will be more in line with industry averages.”

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 (855) 826-6150. Participants will be asked to identify the Datalink conference call and provide the designated identification number (40503009). A live webcast of the conference call can be accessed here or via Datalink’s investor relations website at www.datalink.com.

About Datalink

Datalink is a complete IT services provider that helps companies transform their technology, operations, and service delivery to meet business challenges. Combining extensive experience, a full lifecycle of services and a comprehensive approach to producing IT innovations that empower positive business outcomes, Datalink delivers success across cloud IT transformation, next generation technology, and security. 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 (i) anticipated margin pressure and plans to drive profitable growth, and (ii) Datalink’s projections of certain anticipated 2016 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, 2015, including, but not limited to: the level of continuing demand for IT services and solutions 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; customers switching to solid state storage solutions; 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; risks associated with integrating completed and future acquisitions (including a failure of anticipated synergies to materialize); 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
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
       
Three Months Ended Six Months Ended
June 30, June 30,
2016 2015 2016 2015
 
Net sales:
Products $ 123,631 $ 108,787 $ 214,306 $ 215,523
Services   75,562     73,844     149,519     142,460  
Total net sales   199,193     182,631     363,825     357,983  
 
Cost of sales:
Cost of products 99,959 88,186 173,058 173,968
Cost of services   60,662     57,973     120,723     112,375  
Total cost of sales   160,621     146,159     293,781     286,343  
Gross profit   38,572     36,472     70,044     71,640  
Operating expenses:
Sales and marketing 18,036 18,289 33,671 35,711
General and administrative 7,293 6,475 14,126 13,484
Engineering 8,011 8,626 16,043 16,868
Integration and transaction costs 184 70 184 520
Amortization of intangibles   1,370     1,833     2,775     3,906  
Total operating expenses   34,894     35,293     66,799     70,489  
Earnings from operations 3,678 1,179 3,245 1,151
Interest income 152 56 280 127
Interest expense (75 ) (46 ) (148 ) (113 )
Other, net   (137 )   (25 )   (187 )   (24 )
Earnings before income taxes 3,618 1,164 3,190 1,141
Income tax expense (benefit)   (245 )   503     (240 )   494  
Net earnings $ 3,863   $ 661   $ 3,430   $ 647  
 
Earnings per common share:
Basic $ 0.18 $ 0.03 $ 0.16 $ 0.03
Diluted $ 0.18 $ 0.03 $ 0.16 $ 0.03
Weighted average common shares outstanding:
Basic 21,050 22,004 21,094 21,977
Diluted 21,733 22,639 21,654 22,518
 
DATALINK CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
  June 30,   December 31,
2016 2015
(Unaudited)
Assets
Current assets
Cash and cash equivalents $ 43,783 $ 39,397
Short term investments 26,968 20,579
Accounts receivable, net 126,175 163,900
Lease receivable 4,486 3,895
Inventories, net 7,615 7,997
Current deferred customer support contract costs 126,727 124,705
Inventories shipped but not installed 17,635 16,616
Income tax receivable 922 -
Other current assets   6,272   3,251

Total current assets

  360,583   380,340
Property and equipment, net 8,784 7,963
Goodwill 47,101 47,101
Finite-lived intangibles, net 6,481 9,256
Deferred customer support contract costs, non-current 61,752 60,240
Deferred taxes 9,177 9,177
Long-term lease receivable 6,342 7,017
Other assets   642   703
Total assets $ 500,862 $ 521,797
 
Liabilities and Stockholders' Equity
Current liabilities
Floor plan line of credit $ 26,980 $ 24,340
Accounts payable 48,775 73,959
Lease payable 4,110 3,643
Accrued commissions 3,585 3,687
Accrued sales and use taxes 3,906 3,782
Accrued expenses, other 8,347 6,998
Accrued income tax payable - 4,492
Customer deposits 4,436 4,398
Current deferred revenue from customer support contracts 154,088 151,619
Other current liabilities   509   1,050
Total current liabilities 254,736 277,968
Deferred revenue from customer support contracts, non-current 73,966 72,262
Long-term lease payable 4,857 5,857
Other liabilities, non-current   1,907   942
Total liabilities   335,466   357,029
 
 
Stockholders' equity
Common stock, $.001 par value, 50,000,000 shares authorized, 22,464,328 and 22,627,322 shares issued and outstanding as of June 30, 2016 and December 31, 2015, respectively 22 23
Additional paid-in capital 115,820 114,431
Retained earnings   49,554   50,314
Total stockholders' equity   165,396   164,768
Total liabilities and stockholders' equity $ 500,862 $ 521,797
       
DATALINK CORPORATION
RECONCILIATION BETWEEN GAAP AND NON-GAAP NET INCOME
(In thousands, except per share data)
(Unaudited)
 
Three Months Ended Six Months Ended
June 30, June 30,
2016 2015 2016 2015
       
Earnings from operations on a GAAP basis $ 3,678   $ 1,179   $ 3,245   $ 1,151  
GAAP operating margin 1.8 % 0.6 % 0.9 % 0.3 %
 
Non-GAAP Adjustments:
Purchase accounting adjustment to StraTech deferred revenue and cost, net   104     6     105     18  
Total gross margin adjustments 104 6 105 18
 
Stock based compensation expense included in sales and marketing 174 565 439 983
Stock based compensation expense included in general and administrative 514 305 883 738
Stock based compensation expense included in engineering 399 784 808 1,375
Integration and transaction costs 184 70 184 520
Amortization of intangible assets   1,370     1,833     2,775     3,906  
Total operating expense adjustments   2,641     3,557     5,089     7,522  
 
Non-GAAP earnings from operations 6,423 4,742 8,439 8,691
Non-GAAP operating margin 3.2 % 2.6 % 2.3 % 2.4 %
 
Interest income (expense), net (60 ) (15 ) (55 ) (10 )
Income tax expense impact including Non-GAAP items   2,418     1,981     3,186     3,637  
 
Non-GAAP net earnings $ 3,945   $ 2,746   $ 5,198   $ 5,044  
 
Shares used in non-GAAP per share calculation - Basic   21,050     22,004     21,094     21,977  
Shares used in non-GAAP per share calculation - Diluted   21,733     22,639     21,654     22,518  
 
 
Net earnings per common share - Basic $ 0.184 $ 0.030 $ 0.163 $ 0.029
Add:
Impact of gross margin adjustments $ 0.005 $ 0.000 $ 0.005 $ 0.001
Impact of operating expense adjustments $ 0.125 $ 0.162 $ 0.241 $ 0.342
Tax impact on gross margin and operating expense adjustments $ (0.127 ) $ (0.067 ) $ (0.162 ) $ (0.143 )
Non-GAAP net earnings per share - Basic $ 0.187   $ 0.125   $ 0.246   $ 0.230  
 
Net earnings per common share - Diluted $ 0.178 $ 0.029 $ 0.158 $ 0.029
Add:
Impact of gross margin adjustments $ 0.005 $ 0.000 $ 0.005 $ 0.001
Impact of operating expense adjustments $ 0.122 $ 0.157 $ 0.235 $ 0.334
Tax impact on gross margin and operating expense adjustments $ (0.123 ) $ (0.065 ) $ (0.158 ) $ (0.140 )
Non-GAAP net earnings per share - Diluted $ 0.182   $ 0.121   $ 0.240   $ 0.224  
 
DATALINK CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
(Unaudited)
   
Six Months Ended
June 30,
2016 2015
 
Cash flows from operating activities:
Net earnings $ 3,430 $ 647
Adjustments to reconcile net earnings to net cash provided by operating activities:
Change in fair value of trading securities (121 ) 8
Provision (benefit) for bad debts 48 (160 )
Depreciation 1,526 1,679
Amortization of finite-lived intangibles 2,775 3,906
Stock based compensation expense 2,129 3,096
Changes in operating assets and liabilities:
Accounts receivable, net, and leases receivable 37,761 40,071
Inventories (637 ) 3,935
Deferred costs/revenues/customer deposits, net 677 3,722
Accounts payable and leases payable (25,717 ) (39,437 )
Accrued expenses 1,371 (4,189 )
Income tax receivable (922 ) 333
Income tax payable (4,492 ) -
Other   (2,537 )     2,372  
Net cash provided by operating activities   15,291       15,983  
 
Cash flows from investing activities:
Purchases, sales, and maturities of trading securities, net (6,268 ) 5,511
Purchases of property and equipment   (2,347 )     (1,758 )
Net cash provided by (used in) investing activities   (8,615 )     3,753  
 
Cash flows from financing activities:
Net payments under floor plan line of credit 2,640 (3,344 )
Repurchase of common stock (4,191 ) -
Excess tax (benefit) from stock compensation (310 ) 170
Tax withholding related to stock-based awards   (429 )     (887 )
Net cash used in financing activities   (2,290 )     (4,061 )
 
Increase in cash and cash equivalents 4,386 15,675
Cash and cash equivalents, beginning of period   39,397       27,725  
Cash and cash equivalents, end of period $ 43,783     $ 43,400  
 
Supplemental cash flow information:
Cash paid for income taxes $ 5,481 $ 113
Cash received for income tax refunds - 88
Cash paid for interest expense 148 21

Contacts

Datalink
Investors & Analysts
Greg Barnum
Vice President and CFO
Phone: 952-279-4816
Email: gbarnum@datalink.com
or
Press
Jill Schmidt
Jill Schmidt PR
847-904-2912
jill@jillschmidtpr.com

Contacts

Datalink
Investors & Analysts
Greg Barnum
Vice President and CFO
Phone: 952-279-4816
Email: gbarnum@datalink.com
or
Press
Jill Schmidt
Jill Schmidt PR
847-904-2912
jill@jillschmidtpr.com