Datalink Reports 2009 Third Quarter Operating Results

• Press Release
• Source: Datalink
• On 4:00 pm EDT, Wednesday October 14, 2009

MINNEAPOLIS--(BUSINESS WIRE)--Datalink (Nasdaq: DTLK - News), a leading provider of data center infrastructure solutions and services, reported that revenues for the quarter ended September 30, 2009, were $42.7 million compared to $50 million for the prior-year period, and $43.7 million for the second quarter of 2009. Revenues for the nine month period ended September 30, 2009 were $126.3 million compared to $147.4 million for the prior year nine month period.

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GAAP Results

On a GAAP basis, the company reported a net loss of $84,000, or $0.01 per diluted share, for the third quarter ended September 30, 2009. This compares to net earnings of $1.1 million, or $0.08 per diluted share, in the third quarter of 2008. For the nine months ended September 30, 2009, the company reported a net loss of $397,000, or $0.03 per diluted share, compared to net earnings of $2.6 million, or $0.20 per diluted share, in the first nine months of 2008. Included in the third quarter and nine months ended September 30, 2009 was a $624,000 or $0.02 per share charge related to the severance agreement with our former president and CEO.

Non-GAAP Results

Non-GAAP net earnings for the third quarter of 2009 were $116,000, or $0.01 per diluted share, compared to non-GAAP net earnings of $1.3 million, or $0.11 per diluted share, in the third quarter of 2008. For the nine months ended September 30, 2009, the company reported non-GAAP net earnings of $500,000, or $0.04 per diluted share, compared to net earnings of $3.4 million, or $0.27 per diluted share, in the first nine months of 2008. Included in the third quarter and nine months ended September 30, 2009 is a $329,000 or $0.01 per share charge related to severance paid to our former president and CEO. A detailed reconciliation between GAAP and non-GAAP information is contained in the tables included herein.

Paul Lidsky, Datalink’s President and CEO, commented, “We are pleased that third quarter revenue levels were within the guidance range we provided at the beginning of the quarter and in-line with the analyst consensus estimate. However, while third quarter earnings levels were at the low-end of our guidance, quarterly results were constrained by the severance agreement with our former president and CEO and a drop in our product gross margins due to our renewed focus on pursuing new customer account opportunities which may initially drive lower than normal product margins. As we noted at the beginning of the quarter, we did not expect to see any improvement in demand for storage solutions in the third quarter, as customers continue to scrutinize projects very closely and further delay larger implementations in an effort to conserve cash in this still uncertain environment. However, we saw several positives during the quarter, including:

• Service gross profit margin in the third quarter remained strong at 27.8 percent;
• Good progress was made in reducing our cost structure through various initiatives undertaken midway through the first quarter. Our operating expenses, excluding severance charges paid to our former president and CEO, decreased to 25.1 percent of revenues in the third quarter from 25.8 percent and 28.7 percent in the second and first quarter of this year, respectively; and
• At the beginning of the fourth quarter, we announced that we acquired the networking solutions team from Cross Telecom. This team of certified Cisco networking experts will be additive to our expertise in designing, implementing and managing sophisticated virtualized data center, storage and back and recovery solutions. In addition we obtained Cross’ Cisco Silver certification.”

Lidsky continued, “Against a continued backdrop of economic challenges as we head into the fourth quarter of 2009, we plan to continue to focus on growing market share, leveraging our recent acquisition, managing our cost structure efficiently and expanding our services offerings to deliver more value to our customers.”

Outlook

The company ended the third quarter of 2009 with a backlog of approximately $27 million, which represents firm orders expected to be recognized as revenue within the next 90 days. This compares to a backlog of $28 million at the end of the second quarter of 2009. Based on the level of activity that we are currently seeing in our sales opportunity pipeline, we expect revenues to be between $45 million and $49 million for the fourth quarter, with GAAP earnings in the range of breakeven to $0.04 per diluted share, and on a non-GAAP basis, earnings in the range of $0.03 to $0.07 per diluted share. This compares with revenues of $48.2 million in the fourth quarter of 2008 with GAAP earnings of $0.07 per diluted share and non-GAAP earnings of $0.09 per diluted share. Non-GAAP earnings per share exclude the effect of purchase accounting adjustments from the MCSI acquisition to deferred revenue, stock-based compensation expense, amortization of acquisition related intangible assets, and the related effects on income taxes. The company estimates this total effect will be approximately $0.03 per diluted share for the fourth quarter of 2009.

Conference Call and Webcast Today

Datalink will hold a conference call today at 4:00 p.m. Central Time during which time 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 and provide the designated identification number (31986470). A live Webcast of the conference call can be heard via Datalink’s Website at www.datalink.com.

About Datalink

A virtual data center infrastructure, solutions and services provider, Datalink helps organizations store, manage and protect one of their most critical assets--information. The company's solutions and services span four practices: backup and recovery; consolidation and virtualization; archive and compliance; and business applications. From analysis and design to implementation, management and support, Datalink is focused on maximizing the business value of IT. For more information about Datalink services, contact Datalink at (800) 448-6314, or visit Datalink online at 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 2009 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” 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; 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 current and 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 our acquisition of Cross Telecom assets will increase our revenues or profits.

Non-GAAP Details

Non-GAAP financial measures exclude the impact from purchase accounting adjustments to deferred revenue from our MCSI acquisition, stock-based compensation expense, amortization of intangible assets, 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. Datalink believes that non-GAAP measures have limitations in that they do not reflect all of the amounts associated with Datalink’s results of operations as determined in accordance with GAAP and that these measures should only be used to evaluate Datalink’s results of operations in conjunction with the corresponding GAAP measures.

These non-GAAP financial measures facilitate management's internal comparisons to the Datalink's 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. Datalink believes 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 its financial condition and results of operations.

Datalink
Investor Relations:
Kim Payne, 952-279-4794
Investor Relations Coordinator
Fax: 952-944-7869
einvestor@datalink.com
www.datalink.com
or
Analyst Contact:
Greg Barnum, 952-279-4816
Chief Financial Officer