Datalink (DTLK) 8-K Datalink Reports 2011 Third Quarter and Nine Month Operating Results

Exhibit 99.1

DATALINK REPORTS 2011 THIRD QUARTER AND NINE MONTH OPERATING RESULTS

Record Third Quarter and Nine Month Revenues Up 30% and 31% Year-Over-Year, Respectively

CHANHASSEN, Minn., October 19, 2011 — Datalink (Nasdaq: DTLK), a leading provider of data center infrastructure and services, today reported results for its third quarter and nine month period that ended September 30, 2011.  Revenues for the quarter ended September 30, 2011, increased 30% to $90.1 million compared to $69.2 million for the prior-year period.  Revenues for nine months ended September 30, 2011, increased 31% to $265.3 million compared to $202.6 million for the nine months ended September 30, 2010.

GAAP Results

On a GAAP basis, the company reported net earnings of $2.8 million or $0.16 per diluted share for the third quarter ended September 30, 2011.  This compares to net earnings of $771,000 or $0.06 per diluted share in the third quarter of 2010.  For the nine months ended September 30, 2011, the company reported net earnings of $7.2 million, or $0.45 per diluted share, compared to a net loss of $115,000, or $0.01 per diluted share, for the nine months ended September 30, 2010.

Non-GAAP Results

Non-GAAP net earnings for the third quarter of 2011 were $3.5 million, or $0.21 per diluted share, compared to non-GAAP net earnings of $1.4 million or $0.11 per diluted share, in the third quarter of 2010.  For the nine months ended September 30, 2011, the company reported non-GAAP net earnings of $8.9 million, or $0.56 per diluted share, compared to net earnings of $2.2 million, or $0.17 per diluted share, for the nine months ended September 30, 2010.  A detailed reconciliation between GAAP and non-GAAP information is contained in the tables included herein.

Paul Lidsky, Datalink President and CEO, commented, “Both revenue and earnings for the third quarter and first nine months of 2011 were records for Datalink.  In addition, this represents our tenth consecutive quarter of non-GAAP net earnings.  Our momentum from a record first half of 2011 has continued and our pipeline, and order flow in the first few weeks of the quarter indicate that this momentum should continue through the fourth quarter.”

Significant accomplishments for the third quarter of 2011 include:

·Continued growth in multi-million dollar accounts among Global 1000 companies. In the first nine months of 2011, we had 52 customers purchase over $1 million of product and services from Datalink as compared to 37 customers in the first nine months of 2010.  In addition, the company acquired 69 new customers in the third quarter of 2011.

·Validating Datalink’s commitment to customer intimacy as a cornerstone of its go-to-market strategy to deliver premier services to our customers, the company experienced a 14% increase in services to a record $34.5 million in the third quarter.

·On October 3, 2011 Datalink acquired the assets of Midwave Corporation, doubling the company’s footprint in the Twin Cities and making it the dominant data center services and infrastructure provider in the region.  The acquisition also doubles Datalink’s Cisco technology and services revenues, expands its managed services portfolio with the addition of a data center infrastructure monitoring service, adds an established security practice including product, services and consulting, and doubles the size of its consulting services team.

·Datalink exited the quarter with a strong balance sheet.  The company’s working capital increased $5.5 million to $51.6 million, with no debt outstanding.  After the Midwave acquisition the company will still have working capital in excess of $35 million, cash and investments of approximately $20 million and no debt.

Outlook

Based on the company’s backlog, sales pipeline, and the results from the acquisition of Midwave, we expect revenues to be between $110 million and $115 million for the fourth quarter of 2011.  This compares to revenues of $91.1 million in the fourth quarter of 2010.  Fourth quarter 2011 net earnings are anticipated to be between $0.17 and $0.22 per diluted share on a GAAP basis, and net earnings to be between $0.22 and $0.27 per diluted share on a non-GAAP basis.  This guidance includes an expected $15 million of revenues from the Midwave acquisition in the fourth quarter.

Non-GAAP earnings per share exclude the effect of acquisition accounting adjustments from the Incentra 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 $0.05 per diluted share for the fourth quarter of 2011.

Effect of Accounting Change

Effective January 1, 2011, the company was required to adopt a new revenue recognition accounting standard.  This new standard, which applies to all resellers of computer hardware, requires that the company now recognize product revenues upon shipment versus upon installation under its old revenue recognition method.  Accordingly the company’s third quarter and nine months of 2011 results reflects this new revenue recognition policy.  The company’s revenue for the first nine months of 2011 includes $8.6 million of revenues that were recognized in the first nine months of 2011 that would have been recognized in the fourth quarter of 2010 if the company had been recognizing revenue upon shipment in 2010.

Conference Call and Webcast Today

Datalink will hold a conference call at 4:00 p.m. central 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 (877) 277-9804. Participants will be asked to identify the Datalink conference call and provide the designated identification number (15261354). 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 our internal projections of anticipated 2011 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, 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; 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 our acquisition of Midwave Corporation or any 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 we can grow or maintain our revenue and backlog from current levels.

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.

# # #

Company Contacts:

Investors & Analysts:

Greg Barnum

Vice President and CFO

Phone:  952-279-4816

Email:  gbarnum@datalink.com

Media & Alliances:

S&S Public Relations, Inc.

Mallory Primm

Phone: 847-415-9301

Email: mprimm@sspr.com

Investor Relations:

Kim Payne

Investor Relations Coordinator

Phone:  952-279-4794

Fax:      952-944-7869

Email:  einvestor@datalink.com

website: www.datalink.com

DATALINK CORPORATION

STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2011			2010			2011			2010
Net sales:
Products	$	55,671		$	39,166		$	167,811		$	121,332
Services	34,469			30,054			97,504			81,307
Total net sales	90,140			69,220			265,315			202,639
Cost of sales:
Cost of products	42,963			30,014			128,156			93,995
Cost of services	25,937			22,264			73,485			60,056
Amortization of intangibles	—			277			—			831
Total cost of sales	68,900			52,555			201,641			154,882
Gross profit	21,240			16,665			63,674			47,757
Operating expenses:
Sales and marketing	8,760			8,270			27,321			24,035
General and administrative	3,927			3,361			11,451			10,686
Engineering	3,886			3,730			12,091			11,986
Other income	(574		)	(503		)	(574		)	(503		)
Integration and transaction costs	—			—			—			581
Amortization of intangibles	382			382			1,147			1,147
Total operating expenses	16,381			15,240			51,436			47,932
Earnings (loss) from operations	4,859			1,425			12,238			(175		)
Interest income (expense)	(8		)	3			(4		)	11
Earnings (loss) before income taxes	4,851			1,428			12,234			(164		)
Income tax expense (benefit)	2,058			657			4,996			(49		)
Net earnings (loss)	$	2,793		$	771		$	7,238		$	(115	)
Earnings (loss) per common share:
Basic	$	0.17		$	0.06		$	0.47		$	(0.01	)
Diluted	$	0.16		$	0.06		$	0.45		$	(0.01	)
Weighted average common shares outstanding:
Basic	16,432			12,821			15,488			12,783
Diluted	16,963			12,909			15,962			12,783

DATALINK CORPORATION

BALANCE SHEETS

(In thousands, except share data)

	September 30,		December 31,
	2011		2010
	(Unaudited)
Assets
Current assets
Cash and cash equivalents	$	30,820	$	8,988
Short term investments	4,241		—
Accounts receivable, net	50,918		57,779
Inventories	662		2,210
Current deferred customer support contract costs	52,213		48,715
Inventories shipped but not installed	3,239		7,191
Income tax receivable	466		1,064
Other current assets	454		607
Total current assets	143,013		126,554
Property and equipment, net	2,106		2,126
Goodwill	23,146		23,146
Finite life intangibles, net	4,072		5,219
Deferred customer support contract costs non-current	24,924		18,742
Other assets	327		285
Total assets	$	197,588	$	176,072
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable	$	14,012	$	28,749
Accrued commissions	2,536		3,546
Accrued sales and use tax	767		1,414
Accrued expenses, other	4,187		3,427
Deferred taxes	3,188		3,723
Customer deposits	1,841		2,209
Deferred revenue from customer support contracts	64,688		61,571
Other current liabilities	150		279
Total current liabilities	91,369		104,918
Deferred income taxes	925		203
Deferred revenue from customer support contracts non-current	30,234		23,284
Other liabilities non-current	116		212
Total liabilities	122,644		128,617
Stockholders’ equity
Common stock, $.001 par value, 50,000,000 shares authorized, 17,531,236 and 13,569,533 shares issued and outstanding as of September 30, 2011 and December 31, 2010, respectively	17		14
Additional paid-in capital	63,580		43,332
Retained earnings	11,347		4,109
Total stockholders’ equity	74,944		47,455
Total liabilities and stockholders’ equity	$	197,588	$	176,072

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,
	2011		2010		2011		2010
Net earnings (loss) on a GAAP basis	$	2,793	$	771	$	7,238	$	(115	)
Adjustments:
Amortization of intangible assets	—		277		—		831
Purchase accounting adjustment to Incentra and MCSI deferred revenue and cost, net	23		127		92		783
Total gross margin adjustments	23		404		92		1,614
Stock based compensation expense included in sales and marketing	276		135		393		314
Stock based compensation expense included in general and administrative	240		125		848		359
Stock based compensation expense included in engineering	169		76		369		229
Integration and transaction costs	—		—		—		581
Amortization of intangible assets	382		382		1,147		1,147
Total operating expense adjustments	1,067		718		2,757		2,630
Income tax expense	366		516		1,162		1,897
Non-GAAP net earnings	$	3,517	$	1,377	$	8,925	$	2,232
Non-GAAP net earnings per share - Basic	$	0.21	$	0.11	$	0.58	$	0.17
Non-GAAP net earnings per share - Diluted	$	0.21	$	0.11	$	0.56	$	0.17
Shares used in non-GAAP per share calculation - Basic	16,432		12,821		15,488		12,783
Shares used in non-GAAP per share calculation - Diluted	16,963		12,909		15,962		12,890

DATALINK CORPORATION

STATEMENT OF CASH FLOWS

(In thousands)

(Unaudited)

	Nine Months Ended
	September 30,
	2011			2010
Cash flows from operating activities:
Net earnings (loss)	$	7,238		$	(115	)
Adjustments to reconcile net earnings (loss) to net cash provided by operating activities:
Provision for bad debts	(6		)	14
Depreciation	716			681
Amortization of finite lived intangibles	1,147			1,978
Deferred income taxes	187			—
Stock based compensation expense	1,670			902
Changes in operating assets and liabilities, in 2010 net of effects of acquisition:
Accounts receivable, net	6,867			8,185
Inventories	5,500			(8,383		)
Deferred costs/revenues/customer deposits, net	19			7,637
Accounts payable	(14,737		)	(5,772		)
Accrued expenses	(897		)	71
Income tax payable	598			456
Other	(114		)	(228		)
Net cash provided by operating activities	8,188			5,426
Cash flows from investing activities:
Sale of short term investments	5,737			2,730
Purchase of short term investments	(9,978		)	—
Purchases of property and equipment	(696		)	(1,027		)
Net cash provided by (used in) investing activities	(4,937		)	1,703
Cash flows from financing activities:
Proceeds from stock offering, net of offering costs	17,453			—
Payment of note payable due to seller of acquired business	—			(3,000		)
Excess tax from stock compensation	287			(28		)
Proceeds from issuance of common stock from option exercise	841			251
Tax withholding payments reimbursed by restricted stock	—			(100		)
Net cash provided by (used in) financing activities	18,581			(2,877		)
Increase in cash and cash equivalents	21,832			4,252
Cash and cash equivalents, beginning of period	8,988			12,901
Cash and cash equivalents, end of period	$	30,820		$	17,153
Supplemental cash flow information:
Cash paid for income taxes	$	4,010		$	62
Cash received for income tax refunds	$	113		$	538