Datalink: Fiscal 4Q07 Financial Results

Datalink Corporation reported that revenues for the quarter ended December
31, 2007, were $50.7 million compared to $38.7 million for the
prior-year period and $45.8 million in the third quarter of 2007, an
increase of 31 percent and 11 percent, respectively. Revenues for the
year ended December 31, 2007, increased 22 percent to $177.8 million
compared to $146.0 million for the prior-year period. Datalink’s
results for the 2007 fourth quarter and full year include three and 11
months respectively, of Midrange Computer Solutions, Inc. (MCSI) results
of operations following the acquisition which closed on January 31, 2007.

On a GAAP basis, the company reported net earnings of $1.4 million, or
$0.11 per diluted share for the fourth quarter ended December 31, 2007.
This compares to net earnings of $4.4 million, or $0.38 per diluted
share, in the fourth quarter of 2006. For the year ended December 31,
2007, the company reported net earnings of $1.2 million, or $0.10 per
diluted share, compared to net earnings of $8.5 million, or $0.76 per
diluted share for the year ended December 31, 2006.

Non-GAAP net earnings for the fourth quarter of 2007 were $1.6 million,
or $0.13 per diluted share, compared to non-GAAP net earnings of $1.4
million or $0.12 per diluted share, in the fourth quarter of 2006. For
the year ended December 31, 2007, the company reported non-GAAP net
earnings of $2.6 million, or $0.21 per diluted share, compared to net
earnings of $4.0 million, or $0.36 per diluted share for 2006.

Charlie Westling, Datalink’s President and
CEO, commented, “We are pleased with our
performance in the fourth quarter and that the company was able to
report results that were at the high end of our previous guidance range.
This performance is a result of increased customer spending in the
fourth quarter and delivering on several strategic initiatives we set
for ourselves at the beginning of the year. The initiatives were:

• 
  Successful integration of the MCSI acquisition. In addition to
  achieving cost synergy savings of over $1 million, Datalink was also
  successful in training the MCSI sales force to sell higher margin
  solutions. This was evidenced by the increase in overall gross margins
  from 24.1 percent in the first quarter of 2007 to 26.5 percent in the
  fourth quarter of 2007.
  
• 
  Improved productivity across the sales organization with more balanced
  performance as evidenced by a 25 percent increase in the annualized
  gross profit contributed per account executive in the fourth quarter
  of 2007 versus the third quarter of 2007, following an 18 percent rise
  in the third quarter over the second quarter of 2007. In addition, the
  company saw continued leverage in its corporate functions. For the
  full year 2007, general and administrative expenses grew 12 percent
  over 2006, while revenues and gross profit grew over 22 percent in the
  same period.
  
• 
  Continued growth in customer support and professional services
  business as evidenced by service revenues increasing 53 percent in
  2007 to a record $66.6 million, with the customer support portion of
  service revenues growing 62 percent on a year-over-year basis.
  
• Continued to maintain a strong balance sheet. During the year the
  company generated over $5 million of cash from operations ending 2007
  with over $25 million in cash and investments and no debt.”

Westling continued, “As we head into 2008 we
believe that we can build off our strong performance in the second half
of 2007 and continue our profitable growth this year by executing on our
key initiatives. Datalink’s priorities are:

• 
  Continuing to increase employee productivity by leveraging investments
  in field and customer support areas;
  
• 
  Further penetrating the enterprise customer base;
  
• 
  Targeting high growth market segments and deploying new technologies;
  
• 
  Delivering greater value to customers through more solutions and
  services; and
  
• Pursuing acquisitions that will enable the company to achieve critical
  mass in key locations faster or provide additional services to its
  customers.”

Outlook
The company ended the quarter with a backlog of $31 million as a result
of traditionally strong year-end sales activities and the continued
growth of the customer support business. “We
have traditionally seen an increase in customer spending at year-end as
customers spend their remaining budget dollars, followed by slower
spending in the first quarter. We expect this trend to continue in 2008.
Combined with higher first quarter expenses we believe we will see a
sequential decrease in revenues and earnings in the first quarter,”
continued Westling. The company expects revenue between $44 million and
$48 million, with GAAP net earnings to be between break-even and $0.04
per diluted share in the first quarter of 2008. This compares with
revenues of $40.9 million in the first quarter of 2007 and a GAAP loss
of $0.06 per diluted share. The 2007 first quarter included two months
of results from the acquisition of MCSI. On a non-GAAP basis, the
company expects first quarter earnings per share to be in the range of
$0.02 to $0.06 per diluted share. Non-GAAP earnings per share exclude
the effect of purchase accounting adjustments to deferred revenue,
stock-based compensation expense, amortization of intangible assets, and
the related effects on income taxes. The company estimates this total
effect will be $.02 per diluted share for the first quarter.

Datalink Corporation