Datalink: Fiscal 1Q10 Financial Results

Datalink Corporation reported results for its first quarter that ended March 31, 2010.

For the first quarter, revenues were $62.5 million compared to $39.9 million for the prior-year period, a 57 percent increase and 21 percent sequential increase. Product revenue was $38.2 million, up 98% from the first quarter of 2009 and 26% sequentially. Services revenue was $24.4 million, up 18 percent year over year and 13 percent sequentially.

GAAP Results
On a GAAP basis, the company reported a net loss of $891,000, or $0.07 per diluted share, for the first quarter ending March 31, 2010. This compares to loss of $596,000, or $0.05 per diluted share, in the first quarter of 2009.

Non-GAAP Results
Non-GAAP net earnings for the first quarter of 2010 were $107,000, or $0.01 per diluted share, compared to a non-GAAP net loss of $273,000, or $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 and costs, integration and transaction costs related to the acquisition, stock-based compensation expense, amortization of 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: “We performed within our forecasted range and are encouraged by the early signs of success from the investments we made to expand Datalink’s market share around data center solutions. Our revenue growth in the first quarter was partially fuelled by our previous acquisitions as well as expanded solutions-selling from our enhanced products and services portfolio. Backlog remained strong at $43.4 million. We saw first quarter order activity increase and we doubled the number of transactions over $500,000 within the quarter compared to the first quarter of 2009. Our customers and prospects are responding to our comprehensive capabilities as seen with our strong backlog and the beginning of expanded sales into the full data center stack. We successfully completed the integration of Incentra at the end of March, and the combined post-acquisition business has increased our pipeline of opportunities 55% over the last six months. We will continue to capitalize on the go-to-market synergies of our combined business.”

The company also continues to make significant investments in portfolio expansion, partner alignment and training. In the first quarter, Datalink completed the Cisco Data Center Unified Computing Authorized Technology Partner (UCS ATP) program and the Gold Certification audit. These latest accomplishments in Cisco’s extensive certification qualifications program enable Datalink to offer customers the most advanced networking and data center solutions available under the Cisco brand. In addition, field personnel completed more than 2,300 hours of training to ensure they can deliver on Datalink’s strategy in every market we serve. Additionally, Datalink has advanced its efforts in customer support and managed services operations with the addition of several new platforms and offerings around infrastructure management. These efforts produced the company’s largest ever managed services contract during the quarter, a $1.6M dollar deal to support key data infrastructure elements for a Global 500 customer. Investments like these ensure that Datalink continues to offer the advanced services and support its customers have come to rely upon.

“Our data center solutions strategy is in full motion with expanded messaging, training and a continued focus with our key partners to deliver comprehensive solutions with unsurpassed services and support. We are in the process of completing focused training around advanced server, network and storage solutions. These efforts coupled with our expanded practice and marketing enablement activities, strengthen the foundation to deliver solutions that provide greater returns to our customers on their IT investments and simplify their vendor management process,” continued Lidsky.

Outlook
The company ended the first quarter of 2010 with a significant backlog of $43.4 million. Based on this backlog and the current business environment, the company expects revenues to be between $68 million and $72 million for the second quarter of 2010. The company expects second quarter 2010 results to be between a net loss $0.02 and net earnings of $0.02 per diluted share on a GAAP basis, and net earnings of between $0.04 and $0.08 per diluted share on a non-GAAP basis. This compares to revenues of $43.7 million with GAAP earnings of $0.02 per diluted share and non-GAAP earnings of $0.05 per diluted share in the second quarter of 2009.

Non-GAAP earnings per share exclude the effect of purchase accounting adjustments from the Incentra acquisition to deferred revenue and costs, integration and transaction costs related to the acquisition, stock-based compensation expense, amortization intangible assets, and the related effects on income taxes. The company estimates this total effect will be approximately $.06 per diluted share for the second quarter of 2010.