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Datalink: Fiscal 4Q15 Financial Results

(in $ million) 4Q14 4Q15 FY14 FY15
Revenue 186.4 208.8 630.2 764.8
Growth   12%   21%
Net income (loss) 4.5 2.7 11.1 4.7

Datalink Corp. reported results for its fourth quarter and twelve months that ended December 31, 2015.

Financial results for both reporting periods include the results of operations from the acquisition of Bear Data Solutions, which closed on October 19, 2014.

Revenues for the quarter ended December 31, 2015 increased 12% to $208.8 million compared to $186.4 million for the quarter ended December 31, 2014, and increased 5% over revenues of $198.0 million in the third quarter of 2015. Revenues for the twelve months ended December 31, 2015, increased 21% to $764.8 million compared to $630.2 million for the twelve months ended December 31, 2014.

The company’s fourth quarter results include a series of additional, low-margin fulfillment orders from one of Datalink’s largest customers totaling approximately $11 million. Without these orders, revenue growth for the fourth quarter would have been 6%. In addition, without these orders, overall gross margin for the fourth quarter would have increased to approximately 18.3%.

GAAP Results
On a GAAP basis, the company reported net earnings of $2.7 million or $0.12 per diluted share for the fourth quarter ended December 31, 2015. This compares to net earnings of $4.5 million or $0.20 per diluted share in the fourth quarter of 2014. For the twelve months ended December 31, 2015, the company reported net earnings of $4.7 million or $0.21 per diluted share, compared to net earnings of $11.1 million, or $0.50 per diluted share, for the twelve months ended December 31, 2014.

Non-GAAP Results
Non-GAAP net earnings for the fourth quarter of 2015 were $4.5 million, or $0.20 per diluted share, compared to non-GAAP net earnings of $6.4 million, or $0.28 per diluted share, in the fourth quarter of 2014. For the twelve months ended December 31, 2015, the company reported non-GAAP net earnings of $12.4 million, or $0.56 per diluted share, compared to non-GAAP net earnings of $16.5 million, or $0.75 per diluted share, for the twelve months ended December 31, 2014. A detailed reconciliation between GAAP and non-GAAP information is contained in the tables included herein.

Highlights of quarter and twelve months ended December 31, 2015, include:

  • An 18% year-over-year increase in total services revenues in the twelve months ended December 31, 2015 and a 16% increase in the fourth quarter of 2015 compared to the same periods in 2014, marking continued progress toward the goal of building the company’s higher-margin, business outcome-oriented services.
  • A 28% year-over-year increase in professional services revenues to a record $67.1 million, increasing the portion of Datalink revenues coming from professional services from 8% in 2014 to 9% in 2015.
  • A record number of seven-figure contracts awarded to Datalink’s Consulting Services practice, including engagements for large data center consolidation and transformation, infrastructure virtualization, and application and data migration projects.
  • A 13% year-over-year increase in the number of converged data center infrastructure sales, providing a key building block for other IT initiatives like private clouds where Datalink can offer additional consulting, managed and support services.
  • A 48% year-over-year increase in twelve-month Cisco revenues, reflecting ongoing growth in the company’s networking products business.
  • A quadrupling of solid state storage revenues during 2015 – with flash storage now representing 27% of Datalink’s storage sales compared to 6% in 2014 – yielding lower gross margins than traditional storage but helping to offset continued declines in traditional storage revenues.
  • Multiple industry recognitions, including a 2015 CRNTriple Crown Award for achievements in the areas of revenue, growth and certifications.
  • Fourth-quarter company re-purchase of 600,000 shares of common stock at an average price of $7.74 per share. Through February 24, 2016, the company has re-purchased a total of 1,229,000 shares at an average price of $7.33 per share.

    The company also eliminated approximately $10 million in operating expenses on an annualized basis in 2015 in an expense control initiative announced at the end of the second quarter to deal with ongoing margin erosion. The full impact of that workforce rebalancing will be realized in 2016.

    IT sales today have moved away from three- to five-year technology refresh cycles toward utilizing IT to achieve specific business benefits such as cost management, efficiency improvements, risk mitigation, increased IT security and better user experiences. We have adjusted our sales model accordingly, and the change is helping us navigate the shift in IT spending,” said Paul Lidsky, Datalink’s president and CEO. “Over time, we expect these changes to offset continued margin pressures caused by growth in our networking and solid state storage business and deliver strong results for our investors.”

    Outlook
    Due to the volatility of current IT spending patterns and the recent cautionary comments made by some our larger strategic OEM partners we will not be issuing quarterly guidance for the near future,” stated Lidsky. “Datalink intends to continue to execute against its strategy to improve upon its position as an IT services and solutions provider. The company’s long term strategy is focused on supporting its clients’ success at improving operational efficiency, managing costs, and migrating risk via improvements in IT security and compliance.”

    For the year ending December 31, 2016, Datalink expects to grow revenues between 4% and 6%, or about 2% and 3% higher than the current industry IT spending estimates of between 2% and 3%. These estimates exclude approximately $22 million of low margin fulfillment revenues in 2015 that the company will not pursue in 2016. The decrease in these fulfillment revenues are not expected to have an impact on our earnings as associated costs will also be eliminated. The company will continue to focus on growing Datalink-delivered professional services revenues at a much faster pace by delivering more value added consulting services such as data center relocation, cloud consulting and security assessments. The company expects this continued focus on professional services growth will in turn result in improved earnings.

    To read the earnings call transcript

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