Datalink: Fiscal 4Q13 Financial Results

Datalink Corp. reported results for its fourth quarter and the year ended December 31, 2013.

Revenues for the quarter ended December 31, 2013, increased 18% to a record $173.4 million compared to $147.3 million for the quarter ended December 31, 2012. Revenues for the year ended December 31, 2013, increased 21% to a record $594.2 million compared to $491.2 million for the year ended December 31, 2012.

For the year, product revenues increased 17% to $373.0 million and services revenues increased 28% to $221.2 million.

The company’s results for the quarter and year ended December 31, 2013, include the results of operations from the acquisition of substantially all of the assets of Strategic Technologies, Inc. (StraTech), which was completed on October 4, 2012. The results for the fourth quarter of 2013 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 2013 fourth quarter and year end was approximately $0.05 per share and $0.04 per share, respectively.

The fourth quarter of 2013 also includes a $611,000 or $0.02 per share charge for the write-down of the account receivable from StraTech to its estimated realizable value. After the end of the quarter, the company reached a settlement agreement with the former owners of StraTech. Under the terms of the agreement, 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. Based upon the value of the Datalink common stock on the date of the agreement, the company will record income before tax of approximately $877,000 or $0.02 per share in the first quarter of 2014. The net impact on our financial statements between fourth quarter of 2013 and first quarter of 2014 will be a net gain of approximately $266,000.

GAAP Results
On a GAAP basis, the company reported net earnings of $5.2 million or $0.24 per diluted share for the fourth quarter ended December 31, 2013. This compares to net earnings of $3.2 million or $0.18 per diluted share in the fourth quarter of 2012. For the year ended December 31, 2013, the company reported net earnings of $10.0 million or $0.52 per diluted share, compared to net earnings of $10.5 million, or $0.60 per diluted share, for the year ended December 31, 2012. The decrease in net earnings per share for the year is primarily due to the amortization of intangible assets related to the acquisition of substantially all of the assets of StraTech, the additional dilution from the follow-on offering in August 2013, and the charge relating to the write down of the receivable from StraTech.

Non-GAAP Results
Non-GAAP net earnings for the fourth quarter of 2013 were $7.4 million, or $0.34 per diluted share, compared to $5.6 million, or $0.31 per diluted share, in the fourth quarter of 2012. For the year ended December 31, 2013, the company reported non-GAAP net earnings of $17.9 million, or $0.93 per diluted share, compared to $15.3 million, or $0.88 per diluted share, for the year ended December 31, 2012. A detailed reconciliation between GAAP and non-GAAP information is contained in the tables included herein.

Fourth-quarter and year-end highlights include:

• Record fourth quarter revenues exceeding initial guidance, as well as record annual revenues.
• A 17% year-over-year increase in product revenues to a record $373.0 million, including a record number of converged data center infrastructure sales.
• A 28% year-over-year increase in total services revenues to a record $222.0 million, including 26% and 39% increases in customer support and professional services, respectively.
• An expansion of the company’s Advanced Services portfolio spanning data center relocation and migration services, cloud enablement and related IT-as-a-service consulting, and BC/DR.
• Continued growth in customers who did over $1 million of business with the company, up from 102 in 2012 to 124 in 2013.
• Generated $15.3 million of cash from operations in 2013, contributing to an end-of-year total of more than $76.1 million of cash and investments.

Outlook
Datalink projects revenues of $152.0 million to $162.0 million for the first quarter of 2014 compared to $133.6 million for the first quarter of 2013. This represents an increase in expected revenues of between 14% and 21%, based on the company’s current backlog, sales pipeline, and historical trends. The company expects first quarter 2014 net earnings to be between $0.08 and $0.13 per diluted share on a GAAP basis, and net earnings of between $0.14 and $0.19 per diluted share on a non-GAAP basis. This compares to net earnings of $0.06 per diluted share and $0.18 per diluted share on a GAAP and non-GAAP basis, respectively, for the same period in 2013.