Datalink Lowered Guidance for 3FQ12

Datalink Corporation announced the closing of the transaction to acquire substantially all of the assets and liabilities, of Cary, NC-based Strategic Technologies, Inc., which was announced on October 2, 2012.

StraTech is an IT services and solutions firm that shares Datalink’s focus on optimizing enterprise data centers and IT infrastructure through a common product and services portfolio designed to help customers increase business agility.

The acquisition increases Datalink’s market share and physical presence across the Eastern seaboard, including North Carolina, Florida and the Mid-Atlantic; adds an estimated $65 million in annualized product and services revenues; and contributes more than 400 additional businesses to the customer base.

It will also advance Datalink’s
strategic initiatives by delivering:

• Expanded sales, engineering, managed services, customer support, consulting and marketing teams to support ongoing growth.
• A continued focus on both the storage and unified computing aspects of its data center integration business, including significant increases in Symantec, NetApp and HDS revenues.
• More than $20 million in additional annual recurring OneCall technical support revenues, along with a second call center providing increased capacity and enhanced failover and redundancy.
• Larger professional and managed services organizations to handle consulting projects as well as managed archiving, backup, security and monitoring services.

Datalink purchased StraTech for approximately $13.2 million in cash and the issuance of 269,802 shares of Datalink common stock, assumed approximately $20.8 million of StraTech’s liabilities and acquired approximately $16.0 million of assets, subject to a final audit expected to be performed within 90-120 days after the closing.

With the addition of StraTech, Datalink will be positioned to close 2012 with an anticipated annualized run rate of more than $500 million and a workforce of over 450 employees.

"This is a strategic acquisition that will expand our East Coast footprint, increase our technical support staff, bolster our professional and managed services capabilities, and maintain our core business focus on products and services related to data center infrastructure in general and newer virtualized data center technology in particular," said Paul Lidsky, president and CEO, Datalink. "With StraTech’s similar business model, nearly identical product mix, strong customer base and team of 100-plus field personnel, this is an ideal match that we believe will be a tremendous opportunity for our customers, partners, employees, and stockholders."

Datalink anticipates that, based on its internal projections, the transaction will become accretive to net income within one quarter. Datalink will record a charge associated with the acquisition in the fourth quarter of 2012 of approximately $300,000, or $0.01 per fully diluted share. Datalink expects the full effect of cost synergies to take effect in the first quarter of 2013.

The acquisition will be Datalink’s second in the last 12 months following the purchase of Minneapolis-based data center IT services firm Midwave Corporation in October, 2011. Both transactions are part of Datalink’s ongoing objective to accelerate business growth through both organic and acquired strategies.

3Q 2012 Guidance
Datalink also lowered its guidance for the third quarter of 2012. It expects third quarter 2012 revenues to be in the range of $105 million to $106 million. This compares to revenues of $90.1 million in the third quarter of 2011. It expects earnings per share to be in the range of $0.10 per share to $0.11 per share on a GAAP basis; and in the range of $0.14 per share to $0.15 per share on a non-GAAP basis. This compares to GAAP earnings of $0.16 per share and non-GAAP earnings of $0.20 per share in the third quarter of 2011.

"We continue to see strong demand and a growing pipeline for our data center solutions, especially virtualized data center solutions and big data, as well as all aspects of storage. However, we also continue to see our customers remain cautious regarding large capital expenditures, especially with the uncertainty surrounding the current economic environment," Lidsky said. "As a result, we saw expected contracts push out as much as 90 days or more. This customer behavior has caused us to miss our previous guidance."

Datalink will report its third quarter financial results and hold an investor conference call after the market closes on October 25, 2012.