Datalink: Fiscal 3Q15 Financial Results

Datalink Corp. reported results for its third quarter and nine months that ended September 30, 2015.

Financial results for both reporting periods include the results of operations from the acquisition of Bear Data Solutions, which closed on October 19, 2014.

Revenues for the quarter ended September 30, 2015 increased 37% to $198.0 million compared to $145.0 million for the quarter ended September 30, 2014, and increased 8% over revenues of $182.6 million in the second quarter of 2015.

Revenues for the nine months ended September 30, 2015, increased 25% to $556.0 million compared to $443.9 million for the nine months ended September 30, 2014.

GAAP Results
On a GAAP basis, the company reported net earnings of $1.3 million or $0.06 per diluted share for the third quarter ended September 30, 2015. This compares to net earnings of $3.5 million or $0.16 per diluted share in the third quarter of 2014. For the nine months ended September 30, 2015, the company reported net earnings of $2.0 million or $0.09 per diluted share, compared to net earnings of $7.4 million, or $0.33 per diluted share, for the nine months ended September 30, 2014.

Non-GAAP Results
Non-GAAP net earnings for the third quarter of 2015 were $3.3 million, or $0.15 per diluted share, compared to non-GAAP net earnings of $4.2 million, or $0.19 per diluted share, in the third quarter of 2014. For the nine months ended September 30, 2015, the company reported non-GAAP net earnings of $8.3 million, or $0.37 per diluted share, compared to non-GAAP net earnings of $10.3 million, or $0.46 per diluted share, for the nine months ended September 30, 2014. A detailed reconciliation between GAAP and non-GAAP information is contained in the tables included herein.

Highlights of the quarter and nine months

ended September 30, 2015, include:

• 20% year-over-year increase in total services revenues in the first nine months of 2015 and a 16% increase in the third quarter of 2015 compared to 2014, marking continued progress toward our goal of building the company’s higher margin services business that helps customers transform their data centers to support their business needs.
• A 33% year-over-year increase in professional services revenuesto a record $48.5 million in the first nine months of 2015, simultaneously increasing the portion of Datalink revenues coming from professional services to 9% of total revenues from 8% in the first nine months of 2014.
• Multiple new seven-figure contracts awarded to Datalink’s Advanced Services practice, including engagements for large data center consolidation and transformation, infrastructure virtualization and application and data migration projects.
• A 21% quarter-over-quarter increase in the number of converged data center infrastructure sales, a key building block for other IT initiatives like private clouds, where Datalink can offer additional consulting, managed and support services. A 55% year-over-year increase in nine month Cisco revenues, reflecting ongoing growth in the company’s networking products business.
• A five-fold increase in our revenues from the emerging solid state storage providers in the first nine months of 2015 yielding lower gross margins than traditional storage but helping to offset continued declines in traditional storage revenues caused by the transition to flash storage, falling storage prices, and an industry wide move away from three-year technology refresh cycles in favor of upgrading technology to achieve specific business benefits.

The company is on track with the workforce rebalancing and other expense control strategies that were announced at the end of the second quarter that the company anticipates it will eliminate approximately $10 million of operating expenses on an annualized basis when fully implemented in the first quarter of 2016.

“Included in our third quarter results are a number of one-time, low margin fulfillment orders from one of our largest customers totaling $10.7 million. Without these orders our revenue growth for the third quarter would have been a solid 29%, which is higher than our OEM partners, and our third-quarter gross margins and operating margin%ages would have been higher as well,” said Paul Lidsky, president and CEO. “At the same time, we expect continued margin pressures because of the growth in our networking and solid state storage business. We have responded by building our services revenues and adjusting our expense model, and we will continue to do both in order to drive profitable growth and deliver strong results for our investors.“

Outlook
Datalink projects revenues of $195.0 million to $210.0 million for the fourth quarter of 2015, compared to $186.4 million for the fourth quarter of 2014. This represents an increase in expected revenues of between 5% and 13%, based on the company’s current backlog, sales pipeline, historical trends, and expected continued softness in storage spending countered by continued growth in the company’s networking and services business during the quarter.

The company expects fourth quarter 2015 net earnings to be between $0.13 and $0.19 per diluted share on a GAAP basis, and net earnings of between $0.20 and $0.26 per diluted share on a non-GAAP basis. This compares to net earnings of $0.16 per diluted share and $0.28 per diluted share on a GAAP and non-GAAP basis, respectively, for the same period in 2014.