Exhibit 99.1
DATALINK REPORTS FIRST QUARTER 2016 OPERATING RESULTS
Revenues Affected by Late Orders & Shipments; Flash Storage & Services Sales Continue to Increase
EDEN PRAIRIE, Minn., April 27, 2016 — Datalink (Nasdaq: DTLK), a leading provider of IT services and solutions, today reported first quarter 2016 financial results. Revenues for the quarter ended March 31, 2016, declined 6% to $164.6 million compared to $175.4 million for same period in 2015. Results were affected by approximately $10 million of delayed shipments from three of our primary vendors. Shipment of those orders, as expected in the first quarter, would have produced revenues comparable to the first quarter of 2015. The delayed shipments created a record backlog going into our second quarter.
On a GAAP basis, the company reported a net loss of $433,000 or $0.02 per diluted share for the first quarter of 2016. This compares to a net loss of $14,000 or $0.00 per diluted share in the first quarter of 2015. Non-GAAP net earnings for the first quarter of 2016 were $1.2 million, or $0.05 per diluted share, compared to non-GAAP net earnings of $2.4 million, or $0.11 per diluted share, in the first quarter of 2015. A detailed reconciliation between GAAP and non-GAAP information is contained in the tables included herein.
“Our first-quarter performance was impacted by both unfulfilled orders and the unusually slow early-quarter spending cadence that has also been reported by other major industry manufacturers, but we believe those are anomalies that will be corrected in the second quarter. Our sales momentum has been strong since late March and both our flash storage business and the number of large projects in our pipeline continue to grow,” said Paul Lidsky, Datalink’s president and CEO. “We still face the challenges created by the shift in IT spending habits away from regular technology refreshes to business-driven IT investments, but we continue to
rebalance our workforce skill sets to address that shift. We also have a strong balance sheet that enables us to invest in new services and next-generation technology that meets the evolving needs of our clients and allows us to take advantage of new strategic acquisition opportunities.”
First-Quarter Highlights
· A 149% year-over-year increase in sales of all-flash storage, with flash now representing 56% of Datalink’s storage sales compared to 22% 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.
· An 8% year-over-year increase in total services revenues, including an increase in managed services that are a source of recurring income. Services comprised 45% of revenues during the quarter compared to 39% in the comparable quarter of 2015.
· Industry recognition, including placement on the 2016 CRN Tech Elite 250 and 2016 CRN Elite 150 Managed Service Provider lists.
· Strong balance sheet with the company ending the quarter with over $66 million of cash and investments and no debt.
· Stock re-purchase program, the company repurchased 600,000 shares of common stock at an average price of $6.98 per share in the first quarter. The company has re-purchased a total of 1,229,000 shares at an average price of $7.33 per share since the inception of the program in September 2015.
Outlook
“Based on our current sales momentum, the major transformational projects currently in our pipeline, and growth drivers like flash storage and our new security practice, we believe the 4% to 6% growth rates that we projected in February are still attainable. That is double the annual 2% to 3% growth predicted for the industry overall,” Lidsky said. “This remains a challenging
time, but our initiatives over the past few years to help clients utilize IT to support business objectives have positioned the company to adapt to the new ways in which organizations want to consume IT services and technologies.”
As previously reported, the company has discontinued near-term quarterly guidance because of the volatility of current IT spending patterns, revenue fluctuations from quarter to quarter related to variable delivery timetables for complex consulting services and associated products, and a transition to annual guidance that has been adopted by other IT companies.
Conference Call and Webcast Today
Datalink will hold a conference call shortly after 4:00 p.m. Central Time during which time Datalink’s 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 (40502972). 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.
# # #
Company Contacts:
Investors & Analysts
Greg Barnum
Vice President and CFO
Phone: 952-279-4816
Email: gbarnum@datalink.com
Press
Jill Schmidt
S&S Public Relations, Inc.
Phone: 847-415-9311
Email: jills@sspr.com
DATALINK CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
| | Three Months Ended | |
| | March 31, | |
| | 2016 | | 2015 | |
| | | | | |
Net sales: | | | | | |
Products | | $ | 90,675 | | $ | 106,736 | |
Services | | 73,957 | | 68,616 | |
Total net sales | | 164,632 | | 175,352 | |
| | | | | |
Cost of sales: | | | | | |
Cost of products | | 73,099 | | 85,782 | |
Cost of services | | 60,061 | | 54,402 | |
Total cost of sales | | 133,160 | | 140,184 | |
Gross profit | | 31,472 | | 35,168 | |
Operating expenses: | | | | | |
Sales and marketing | | 15,635 | | 17,422 | |
General and administrative | | 6,870 | | 6,989 | |
Engineering | | 8,032 | | 8,242 | |
Integration and transaction costs | | — | | 450 | |
Amortization of intangibles | | 1,405 | | 2,073 | |
Total operating expenses | | 31,942 | | 35,176 | |
Loss from operations | | (470 | ) | (8 | ) |
Interest income | | 165 | | 71 | |
Interest expense | | (73 | ) | (67 | ) |
Other, net | | (50 | ) | (19 | ) |
Loss before income taxes | | (428 | ) | (23 | ) |
Income tax expense (benefit) | | 5 | | (9 | ) |
Net loss | | $ | (433 | ) | $ | (14 | ) |
| | | | | |
Loss per common share: | | | | | |
Basic | | $ | (0.02 | ) | $ | (0.00 | ) |
Diluted | | $ | (0.02 | ) | $ | (0.00 | ) |
Weighted average common shares outstanding: | | | | | |
Basic | | 21,158 | | 21,949 | |
Diluted | | 21,158 | | 21,949 | |
DATALINK CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(Unaudited)
| | March 31, | | December 31, | |
| | 2016 | | 2015 | |
| | | | | |
Assets | |
Current assets | | | | | |
Cash and cash equivalents | | $ | 30,128 | | $ | 39,397 | |
Short-term investments | | 35,974 | | 20,579 | |
Accounts receivable, net | | 111,960 | | 163,900 | |
Lease receivable | | 3,816 | | 3,895 | |
Inventories, net | | 9,399 | | 7,997 | |
Current deferred customer support contract costs | | 123,280 | | 124,705 | |
Inventories shipped but not installed | | 16,498 | | 16,616 | |
Income tax receivable | | 691 | | — | |
Other current assets | | 3,176 | | 3,251 | |
Total current assets | | 334,922 | | 380,340 | |
Property and equipment, net | | 8,324 | | 7,963 | |
Goodwill | | 47,101 | | 47,101 | |
Finite-lived intangibles, net | | 7,851 | | 9,256 | |
Deferred customer support contract costs, non-current | | 58,533 | | 60,240 | |
Deferred tax asset | | 9,177 | | 9,177 | |
Long-term lease receivable | | 6,513 | | 7,017 | |
Other assets | | 735 | | 703 | |
Total assets | | $ | 473,156 | | $ | 521,797 | |
| | | | | |
Liabilities and Stockholders’ Equity | |
Current liabilities | | | | | |
Floor plan line of credit | | $ | 25,159 | | $ | 24,340 | |
Accounts payable | | 42,312 | | 73,959 | |
Lease payable | | 3,882 | | 3,643 | |
Accrued commissions | | 1,729 | | 3,687 | |
Accrued sales and use taxes | | 2,204 | | 3,782 | |
Accrued expenses, other | | 5,961 | | 6,998 | |
Accrued income tax payable | | — | | 4,492 | |
Customer deposits | | 4,122 | | 4,398 | |
Current deferred revenue from customer support contracts | | 149,766 | | 151,619 | |
Other current liabilities | | 451 | | 1,050 | |
Total current liabilities | | 235,586 | | 277,968 | |
Deferred revenue from customer support contracts, non-current | | 70,123 | | 72,262 | |
Long-term lease payable | | 5,105 | | 5,857 | |
Other liabilities non-current | | 1,739 | | 942 | |
Total liabilities | | 312,553 | | 357,029 | |
| | | | | |
Stockholders’ equity | | | | | |
Common stock, $.001 par value, 50,000,000 shares authorized, 22,577,888 and 22,627,322 shares issued and outstanding as of March 31, 2016 and December 31, 2015, respectively | | 22 | | 23 | |
Additional paid-in capital | | 110,700 | | 114,431 | |
Retained earnings | | 49,881 | | 50,314 | |
Total stockholders’ equity | | 160,603 | | 164,768 | |
Total liabilities and stockholders’ equity | | $ | 473,156 | | $ | 521,797 | |
DATALINK CORPORATION
RECONCILIATION BETWEEN GAAP AND NON-GAAP NET INCOME
(In thousands, except per share data)
(Unaudited)
| | Three Months Ended | |
| | March 31, | |
| | 2016 | | 2015 | |
| | | | | |
Loss from operations on a GAAP basis | | $ | (470 | ) | $ | (8 | ) |
GAAP operating margin | | -0.3 | % | 0.0 | % |
| | | | | |
Non-GAAP Adjustments: | | | | | |
Purchase accounting adjustment to StraTech deferred revenue and cost, net | | 1 | | 12 | |
Total gross margin adjustments | | 1 | | 12 | |
| | | | | |
Stock based compensation expense included in sales and marketing | | 265 | | 418 | |
Stock based compensation expense included in general and administrative | | 369 | | 433 | |
Stock based compensation expense included in engineering | | 409 | | 591 | |
Integration and transaction costs | | — | | 450 | |
Amortization of intangible assets | | 1,405 | | 2,073 | |
Total operating expense adjustments | | 2,448 | | 3,965 | |
| | | | | |
Non-GAAP earnings from operations | | 1,979 | | 3,969 | |
Non-GAAP operating margin | | 1.2 | % | 2.3 | % |
| | | | | |
Interest & other income (expense), net | | 42 | | (15 | ) |
Income tax expense impact including Non-GAAP items | | 849 | | 1,593 | |
| | | | | |
Non-GAAP net earnings | | $ | 1,172 | | $ | 2,361 | |
| | | | | |
Non-GAAP net earnings per share - Basic | | $ | 0.06 | | $ | 0.11 | |
Non-GAAP net earnings per share - Diluted | | $ | 0.05 | | $ | 0.11 | |
| | | | | |
Shares used in non-GAAP per share calculation - Basic | | 21,158 | | 21,949 | |
Shares used in non-GAAP per share calculation - Diluted | | 22,115 | | 22,466 | |
DATALINK CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
(Unaudited)
| | Three Months Ended
March 31, | |
| | 2016 | | 2015 | |
| | | | | |
Cash flows from operating activities: | | | | | |
Net loss | | $ | (433 | ) | $ | (14 | ) |
Adjustments to reconcile net earnings to net cash provided by operating activities: | | | | | |
Change in fair value of trading securities | | 37 | | — | |
Benefit for bad debts | | (49 | ) | (94 | ) |
Depreciation | | 756 | | 843 | |
Amortization of finite-lived intangibles | | 1,405 | | 2,073 | |
Stock-based compensation expense | | 1,043 | | 1,442 | |
Changes in operating assets and liabilities: | | | | | |
Accounts receivable, net and leases receivable | | 52,572 | | 30,298 | |
Inventories | | (1,284 | ) | 8,687 | |
Deferred costs/revenues/customer deposits, net | | (1,136 | ) | 2,299 | |
Accounts payable and leases payable | | (32,160 | ) | (41,917 | ) |
Accrued expenses | | (4,573 | ) | (3,316 | ) |
Income tax receivable | | (691 | ) | (284 | ) |
Income tax payable | | (4,492 | ) | — | |
Other | | 240 | | 1,649 | |
Net cash provided by operating activities | | 11,235 | | 1,666 | |
| | | | | |
Cash flows from investing activities: | | | | | |
Purchases, sales and maturities of trading securities, net | | (15,432 | ) | 22,994 | |
Purchases of property and equipment | | (1,117 | ) | (1,216 | ) |
Net cash (used in) provided by investing activities | | (16,549 | ) | 21,778 | |
| | | | | |
Cash flows from financing activities: | | | | | |
Net payments under floor plan line of credit | | 819 | | 1,991 | |
Repurchase of common stock | | (4,191 | ) | — | |
Excess tax (benefit) from stock compensation | | (277 | ) | 179 | |
Tax withholdings related to stock-based awards | | (306 | ) | (639 | ) |
Net cash (used in) provided by financing activities | | (3,955 | ) | 1,531 | |
| | | | | |
Increase (decrease) in cash and cash equivalents | | (9,269 | ) | 24,975 | |
Cash and cash equivalents, beginning of period | | 39,397 | | 27,725 | |
Cash and cash equivalents, end of period | | $ | 30,128 | | $ | 52,700 | |
| | | | | |
Supplemental cash flow information: | | | | | |
Cash paid for income taxes | | $ | 5,463 | | $ | 97 | |
Cash received for income tax refunds | | $ | — | | $ | 2 | |
Cash paid for interest expense | | $ | 73 | | $ | 21 | |
