Datalink: Fiscal 2Q08 Financial Results

Datalink Corporation reported that revenues for the quarter ended June 30, 2008, were $49.7 million compared to $40.3 million for the prior-year period, an increase of 23 percent. Revenues for the six month period ended June 30, 2008 were $97.4 compared to $81.2 for the prior year six month period, an increase of 20 percent. Datalink’s results for the second quarter and first six months of 2008 include three months and six months, respectively, of Midrange Computer Solutions, Inc. (MCSI) results of operations following the acquisition which closed on January 31, 2007 and results for the 2007 second quarter and six months include three and five months respectively, of MCSI.

GAAP Results
On a GAAP basis, the company reported net earnings of approximately $1 million or $0.08 per basic and diluted share for the second quarter ended June 30, 2008. This compares to a net loss of $346,000 or $0.03 per basic and diluted share in the second quarter of 2007. For the six months ended June 30, 2008, the company reported net earnings of $1.5 million, or $0.12 per basic and diluted share, compared to a net loss of $1.1 million, or $0.09 per basic and diluted share, in the first six months of 2007.

Non-GAAP Results
Non-GAAP net earnings for the second quarter of 2008 were $1.3 million, or $0.10 per basic and diluted share, compared to a non-GAAP net loss of $23,000, or breakeven on a per share basis, in the second quarter of 2007. For the six months ended June 30, 2008, the company reported non-GAAP net earnings of $2.0 million, or $0.16 per basic and diluted share, compared to a net loss of $175,000, or $0.01 per basic and diluted share, in the first six months of 2007. A detailed reconciliation between GAAP and non-GAAP information is contained in the tables included herein.

Charlie Westling, Datalink’s President and CEO, commented: "We are pleased with our revenue and earnings growth both on a year-over-year and sequential basis. Our record second quarter revenue was particularly strong on a year-over-year basis considering both periods include the full impact of the MCSI acquisition. When we acquired MCSI, we believed we would benefit from being better positioned to deliver comprehensive storage solutions while creating efficiencies in bringing the two companies together. Our performance this quarter reflects this and was supported by continued favorable customer spending activity, especially on our Datalink value added services."

Highlights for the quarter included:

• Improved operating income margin of 3.1 percent, which compares to 1.4 percent in the first quarter of 2008 and (1.9) percent in the second quarter of 2007;
• Record level of services revenue totaling $20.7 million, up 29 percent from the prior year period;
• Improved levels of productivity, as gross profit dollars per employee on an annualized basis increased to $259,000 in the second quarter of 2008, up 32 percent from $196,000 in the second quarter of 2007;
• Successful launch of our backup and recovery reporting and assessment services, which provides customers with real-time performance reporting and strategies for optimizing their storage backup environment; and
• Strong cash and investment position of $28 million at the end of the second quarter, up from $26.4 million at the end of the first quarter of 2008.

Westling continued: "As we head into the third quarter of 2008 we believe that we can build upon our strong performance from the last four quarters and continue our profitable growth this year by executing on our key initiatives. Datalink’s priorities are:

• Continuing to increase employee productivity by leveraging investments in field and customer support areas;
• Further penetrating the enterprise customer base;
• Targeting high growth market segments and deploying new technologies;
• Delivering greater value to customers through more solutions and services, such as our backup and recovery reporting and assessment services offering; and
• Pursuing acquisitions that will enable the company to build critical mass in key locations and provide additional services to our customers."

Outlook
The company ended the quarter with a backlog of $32 million compared to $30 million at the end of the first quarter of 2008. Based on Datalink’s current backlog and opportunities that Datalink is currently pursuing across its customer base, the company expects revenue to be between $49 million and $53 million, with GAAP net earnings to be between $0.06 and $0.10 per diluted share in the third quarter of 2008. On a non-GAAP basis, the company expects third quarter earnings to be in the range of $0.09 to $0.13 per diluted share. This compares with revenues of $45.8 million in the third quarter of 2007 and net earnings of $0.07 per diluted share and $0.09 per diluted share on a GAAP and non-GAAP basis, respectively. Non-GAAP earnings per share exclude the effect of purchase accounting adjustments to deferred revenue, stock-based compensation expense, amortization of intangible assets, MCSI integration costs in 2007 and the related effects on income taxes. The company estimates this total effect will be $.03 per diluted share for the third quarter of 2008.