Datalink: Fiscal 1Q16 Financial Results

Datalink, Corp. reported first quarter 2016 financial results.

Revenues for the quarter ended March 31, 2016, declined 6% to $164.6 million compared to $175.4 million for same period in 2015.

Results were affected by approximately $10 million of delayed shipments from three of our primary vendors. Shipment of those orders, as expected in the first quarter, would have produced revenues comparable to the first quarter of 2015. The delayed shipments created a record backlog going into our second quarter.

On a GAAP basis, the company reported a net loss of $433,000 or $0.02 per diluted share for the first quarter of 2016. This compares to a net loss of $14,000 or $0.00 per diluted share in the first quarter of 2015. Non-GAAP net earnings for the first quarter of 2016 were $1.2 million, or $0.05 per diluted share, compared to non-GAAP net earnings of $2.4 million, or $0.11 per diluted share, in the first quarter of 2015. A detailed reconciliation between GAAP and non-GAAP information is contained in the tables included herein.

“Our first-quarter performance was impacted by both unfulfilled orders and the unusually slow early-quarter spending cadence that has also been reported by other major industry manufacturers, but we believe those are anomalies that will be corrected in the second quarter. Our sales momentum has been strong since late March and both our flash storage business and the number of large projects in our pipeline continue to grow,” said Paul Lidsky, president and CEO. “We still face the challenges created by the shift in IT spending habits away from regular technology refreshes to business-driven IT investments, but we continue to rebalance our workforce skill sets to address that shift. We also have a strong balance sheet that enables us to invest in new services and next-generation technology that meets the evolving needs of our clients and allows us to take advantage of new strategic acquisition opportunities.“

First-Quarter Highlights

• A 149% year-over-year increase in sales of all-flash storage, with flash now representing 56% of Datalink’s storage sales compared to 22% in 2015. Flash storage yields lower gross margins than traditional storage but helps to offset continued declines in traditional storage revenues and also drives migration and other consulting services.An 8% year-over-year increase in total services revenues, including an increase in managed services that are a source of recurring income.
• Services comprised 45% of revenues during the quarter compared to 39% in the comparable quarter of 2015.
• Industry recognition, including placement on the 2016 CRN Tech Elite 250 and 2016 CRNElite 150 MSP lists.
• Strong balance sheet with the company ending the quarter with over $66 million of cash and investments and no debt.
• Stock re-purchase program, the company repurchased 600,000 shares of common stock at an average price of $6.98 per share in the first quarter. The company has re-purchased a total of 1,229,000 shares at an average price of $7.33 per share since the inception of the program in September 2015.

Outlook
“Based on our current sales momentum, the major transformational projects currently in our pipeline, and growth drivers like flash storage and our new security practice, we believe the 4% to 6% growth rates that we projected in February are still attainable. That is double the annual 2% to 3% growth predicted for the industry overall,” Lidsky said. “This remains a challenging time, but our initiatives over the past few years to help clients utilize IT to support business objectives have positioned the company to adapt to the new ways in which organizations want to consume IT services and technologies.”

As previously reported, the company has discontinued near-term quarterly guidance because of the volatility of current IT spending patterns, revenue fluctuations from quarter to quarter related to variable delivery timetables for complex consulting services and associated products, and a transition to annual guidance that has been adopted by other IT companies.