Datalink: Fiscal 2Q09 Financial Results

Datalink Corporation reported that revenues for the quarter ended June 30, 2009, were $43.7 million compared to $49.7 million for the prior-year period, and $39.9 million for the first quarter of 2009. Revenues for the six month period ended June 30, 2009 were $83.6 million compared to $97.4 million for the prior year six month period.

GAAP Results
On a GAAP basis, the company reported net earnings of $283,000 or $0.02 per basic and diluted share for the second quarter ended June 30, 2009. This compares to net earnings of $979,000 or $0.08 per basic and diluted share in the second quarter of 2008. For the six months ended June 30, 2009, the company reported a net loss of $313,000, or $0.03 per basic and diluted share, compared to net earnings of $1.5 million, or $0.12 per basic and diluted share, in the first six months of 2008.

Non-GAAP Results
Non-GAAP net earnings for the second quarter of 2009 were $595,000, or $0.05 per basic and diluted share, compared to non-GAAP net earnings of $1.3 million, or $0.10 per basic and diluted share, in the second quarter of 2008. For the six months ended June 30, 2009, the company reported non-GAAP net earnings of $362,000, or $0.03 per basic and diluted share, compared to net earnings of $2 million, or $0.16 per basic and diluted share, in the first six months of 2008. A detailed reconciliation between GAAP and non-GAAP information is contained in the tables included herein.

Charlie Westling, Datalink’s President and CEO, commented, “Second quarter results were in line with our expectations and at the high end of our guidance. While we believe that the second quarter represents a slight improvement in demand for storage solutions, customers continue to scrutinize projects very closely and delay larger implementations wherever possible in an effort to conserve cash in this still uncertain environment. Despite these challenging conditions, we were pleased to be able to come through the quarter with a 9.6 percent sequential growth in revenues, a return to profitability, and a stronger working capital position. We saw several positives during the quarter, including:

• Overall gross profit margin in the second quarter remained strong at 26.6 percent, which represents the eighth consecutive quarter of gross margin in excess of 26 percent;
• 
  Continued growth in our customer support business. Customer support revenues increased 6.1 percent through the first six months of this year from the prior year period, as we are leading with customer support wins in many new customer situations;
• 
  Good progress was made in reducing our cost structure through various initiatives undertaken midway through the first quarter. Our operating expenses decreased to 25.8 percent of revenues in the second quarter from 28.7 percent in the first quarter of this year;
• 
  Virtualization activity continues to grow, with revenues from this practice up over 50 percent during the first six months of this year versus the comparable period last year; and
• 
  Tools-based services customer engagements, which play a key role in helping to identify and position new projects, increased over 55 percent in the first half of this year, relative to the same six month period a year ago.”

Westling continued: “Against the backdrop of continuing economic challenges as we head into the third quarter of 2009, we plan to continue to focus on growing market share, managing our cost structure efficiently and expanding our services offerings to deliver more value to our customers.”

Outlook
The company ended the second quarter of 2009 with a backlog of approximately $28 million, which represents firm orders expected to be recognized as revenue within the next 90 days. This compares to a backlog of $29 million at the end of the first quarter of 2009. Based on the level of activity that we are currently seeing in our sales opportunity pipeline, we are cautiously optimistic that customer storage spending levels may improve during the second half of this year. However, we do expect to see some slow down in activity during the third quarter, as projects get delayed due to vacations and other data center availability issues during the summer months. Combining all of these factors leads us to expect revenues to be between $41 million and $45 million for the third quarter, with GAAP results ranging from a loss of $0.01 per diluted share to earnings of $0.04 per diluted share and on a non-GAAP basis earnings in the range of $0.01 to $0.06 per diluted share. This compares with revenues of $50 million in the third quarter of 2008 with GAAP earnings of $0.08 per diluted share and non-GAAP earnings of $0.11 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 $.02 per diluted share for the third quarter of 2009.