Datalink: Fiscal 2Q12 Financial Results

Datalink Corporation reported results for its second quarter and six months that ended June 30, 2012.

Revenues for the quarter ended June 30, 2012, increased 34% to $120.0 million compared to $89.5 million for the quarter ended June 30, 2011. Revenues for the six months ended June 30, 2012, increased 36% to $239.1 million compared to $175.2 million for the six months ended June 30, 2011.

GAAP Results
On a GAAP basis, the company reported net earnings of $3.2 million or $0.18 per diluted share for the second quarter ended June 30, 2012. This compares to net earnings of $2.7 million or $0.16 per diluted share in the second quarter of 2011. For the six months ended June 30, 2012, the company reported net earnings of $5.4 million or $0.31 per diluted share, compared to net earnings of $4.4 million, or $0.29 per diluted share, for the six months ended June 30, 2011.

Non-GAAP Results
Non-GAAP net earnings for the second quarter of 2012 were $4.0 million, or $0.23 per diluted share, compared to non-GAAP net earnings of $3.3 million, or $0.19 per diluted share, in the second quarter of 2011. For the six months ended June 30, 2012, the company reported non-GAAP net earnings of $6.9 million, or $0.40 per diluted share, compared to non-GAAP net earnings of $5.5 million, or $0.36 per diluted share, for the six months ended June 30, 2011.

Datalink’s results for the first two quarters of 2012 include the additional 3.3 million common shares issued by the company in connection with the follow-on stock offering in March 2011 and the results of operations from the acquisition of Midwave Corporation, which was completed on October 3, 2011.

Highlights of the quarter and six months
ended June 30, 2012, include:

• Record second quarter and first six month revenues and earnings.
• Continuing improvement in non-GAAP operating margin, reaching 5.6% in second quarter 2012 compared to 4.1% in the previous quarter.
• Record $42.7 million combined customer support and professional services revenues in second quarter 2012, up 29% from second quarter 2011 and 10% from first quarter 2012. Second quarter professional services revenues alone were up 17% from first quarter 2012 and 100% from the comparable quarter in 2011.
• Continued growth in customers who did over $1 million of business with the company from 15 in second quarter 2011 to 22 in second quarter 2012.
• A 31% second quarter increase in virtual data center (VDC) sales, with 24 VDC projects valued at $21.7 million in second quarter 2012 compared to 17 VDC projects valued at $16.6 million in first quarter 2012.
• Achievement of Flexpod Premium Partner status from Cisco and NetApp, becoming the first North American channel partner to achieve the new certification.
• Introduction of new managed monitoring and managed backup services, which are among the latest initiatives to increase margins by expanding the company’s services portfolio.

"We turned in a solid revenue and earnings performance in the first half of 2012, and our pipeline continues to grow because of rising demand for modern data center infrastructures. At the same time, longer sales cycles that we began to see the last month of the quarter impacted our second quarter revenue. Companies are scrutinizing large capital expenditures more carefully than in the past, and we expect that pattern to continue for the remainder of the year," said Paul Lidsky, Datalink’s president and CEO. "We have taken that into account in our third-quarter guidance."

Outlook
Based on the company’s current backlog, sales pipeline and lengthening sales cycles, the company projects revenues of $117 million to $122 million for the third quarter of 2012 compared to $90.2 million for the third quarter of 2011. This represents an increase in expected revenues of between 30% and 35%. The company expects third quarter 2012 net earnings to be between $0.16 and $0.21 per diluted share on a GAAP basis, and net earnings of between $0.20 and $0.25 per diluted share on a non-GAAP basis. This compares to net earnings of $0.16 per diluted share and $0.21 per diluted share on a GAAP and non-GAAP basis, respectively, for the same period in 2011.

Non-GAAP earnings per share exclude the effect of acquisition accounting adjustments from the Incentra acquisition to deferred revenue and costs, integration and transaction costs related to the Midwave acquisition, stock-based compensation expense, amortization of intangible assets, and the related effects on income taxes. The company estimates this total effect will be approximately $0.04 per diluted share for the third quarter of 2012.