Datalink: Fiscal 4Q09 Financial Results

Datalink reported results for its fourth quarter and year ended December 31, 2009.

For the fourth quarter, revenues were $51.8 million compared to $48.2 million for the prior-year period. Revenues for the full year were $178.1 million compared to $195.6 million for the prior year. Datalink’s results for the 2009 fourth quarter and full year include $4.4 million of revenues from the value added reseller business of Incentra, LLC, which the company acquired on December 17, 2009.

GAAP Results
On a GAAP basis, the company reported a net loss of $158,000, or $0.01 per diluted share, for the fourth quarter ended December 31, 2009. This compares to net earnings of $843,000, or $0.07 per diluted share, in the fourth quarter of 2008. For the year ended December 31, 2009, the company reported a net loss of $555,000, or $0.04 per diluted share, compared to net earnings of $3.4 million, or $0.27 per diluted share, for the year ended December 31, 2008. Included in the 2009 results was a $624,000, or $0.03 per share, charge for cash and non-cash items related to the severance agreement with Datalink’s former President and CEO. Excluding the third quarter charge, 2009 net earnings would have totalled $69,000.

Non-GAAP Results
Non-GAAP net earnings for the fourth quarter of 2009 were $1.3 million, or $0.10 per diluted share, compared to non-GAAP net earnings of $1.1 million, or $0.09 per diluted share, in the fourth quarter of 2008. For the year ended December 31, 2009, the company reported non-GAAP net earnings of $1.8 million, or $0.14 per diluted share, compared to non-GAAP net earnings of $4.5 million, or $0.36 per diluted share, for 2008. Included in the 2009 results was a $329,000, or $0.02 per share, charge for cash items related to the severance agreement with Datalink’s former President and CEO. Non-GAAP earnings per share exclude the effect of purchase accounting adjustments from the Incentra VAR Business acquisition to deferred revenue, acquisition and transition costs related to the acquisition, stock-based compensation expense, amortization of acquisition related intangible assets, and the related effects on income taxes. A detailed reconciliation between GAAP and non-GAAP information is found at the end of this press release.

Paul Lidsky, Datalink’s President and CEO, commented: "Despite a challenging economic environment, we are very pleased with our performance in the fourth quarter and our accomplishments in 2009. Fourth quarter revenue of $51.8 million was up on both a year-over-year and sequential basis. Additionally our backlog was up over 39 percent from the prior year. While net earnings, on a non-GAAP basis, exceeded the guidance we had provided last quarter, GAAP net earnings came in slightly below the guidance range as a result of the transaction and integration costs associated with the acquisition of Incentra’s reseller business. We will complete the organization and back office integration of Incentra within the next couple of weeks and will continue to work to extract the synergies of our combined business."

"While a sluggish economy dampened demand throughout 2009 and delayed the start of larger project implementations, we focused on positioning the company for future growth and success," continued Lidsky. "Our efforts culminated with the completion of the acquisitions of Cross Telecom’s networking business and the reseller business of Incentra. Through these acquisitions we have positioned Datalink as a national solution provider expanding our footprint into 32 markets with more than 2,500 customers and while significantly expanding our skill sets related to storage, networking and enterprise computing."

In 2009, Datalink continued investments in its data center strategy. The company’s strong legacy of storage solutions and expanded expertise in networking and computing combined with its keen focus and expertise in virtualization will help customers build next generation data centers. Focusing on our customer centric approach and offering a robust set of product solutions and services continues to be the cornerstone of the business. Through our acquisitions in 2009, the company has strengthened its ability to provide customers with solutions that span the data center. Datalink can now deliver solutions that solve the complexities of a virtualized data center, which in the long-run delivers increased productivity and efficiency for its customers’ IT operations. Over time, Datalink believes that this comprehensive solution set will result in expanded relationships with current clients as well as the addition of new clients.

"In summary, we are pleased with the company’s stability during the recent economic turbulence and our ability to remain focused on growth opportunities including acquisitions and continued expansion of our sales and field engineering organizations. As we enter 2010, our focus remains on expanding our wallet share with our current customer base, expanding our market share with new customer acquisition, increasing productivity and profitability, and continuing to leverage and actively market our specialization in designing and implementing next generation data centers. At the end of the first quarter we will have completed the organization and back office integration of the Incentra business and will continue to work to extract all operational synergies from the acquisition as we move forward. We look forward to continued growth and progress throughout the new year," concluded Lidsky.

Outlook
The company ended the fourth quarter of 2009 with a record backlog of $46 million. This backlog includes approximately $9 million carried over from the Incentra VAR Business acquisition in December 2009. Based on this backlog and the current business environment, the company expects revenues to be between $62 million and $66 million for the first quarter of 2010. Datalink’s first quarter expenses typically increase due to payroll taxes, accounting for employee benefits and audit related costs. In addition, the company expects to incur some transition expenses associated with the Incentra acquisition, through the end of the quarter. As a result of the sequentially higher expenses and transition costs applied to the forecasted range of revenues for the quarter, the company expects a net loss per diluted share in the first quarter of 2010 to be between $0.08 and $0.04 per diluted share on a GAAP basis, and a net loss of between $0.02 and net earnings of $0.02 per diluted share on a non-GAAP basis. This compares to revenues of $39.9 million with a GAAP loss of $0.05 per diluted share and a non-GAAP loss of $0.02 per diluted share in the first quarter of 2009.

Non-GAAP earnings per share exclude the effect of purchase accounting adjustments from the Incentra VAR Business acquisition to deferred revenue, acquisition and transition costs related to the acquisition, 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 $.06 per diluted share for the first quarter of 2010.