Datalink Reports 2014 Third Quarter and Nine Month Operating Results

Datalink (Nasdaq: DTLK), a leading provider of data center infrastructure and services, today reported results for its third quarter and nine months that ended September 30, 2014. Revenues for the quarter ended September 30, 2014 increased 4% to $144.9 million compared to $139.5 million for the quarter ended September 30, 2013. Revenues for the nine months ended September 30, 2014, increased 5% to $443.9 million compared to $420.8 million for the nine months ended September 30, 2013.

GAAP Results
On a GAAP basis, the company reported net earnings of $3.5 million or $0.16 per diluted share for the third quarter ended September 30, 2014. This compares to net earnings of $818,000 or $0.04 per diluted share in the third quarter of 2013. For the nine months ended September 30, 2014, the company reported net earnings of $7.4 million or $0.34 per diluted share, compared to net earnings of $4.8 million, or $0.26 per diluted share, for the nine months ended September 30, 2013.

Non-GAAP Results
Non-GAAP net earnings for the third quarter of 2014 were $4.2 million, or $0.19 per diluted share, compared to non-GAAP net earnings of $2.5 million, or $0.13 per diluted share, in the third quarter of 2013. For the nine months ended September 30, 2014, the company reported non-GAAP net earnings of $10.3 million, or $0.47 per diluted share, compared to non-GAAP net earnings of $10.6 million, or $0.57 per diluted share, for the nine months ended September 30, 2013. A detailed reconciliation between GAAP and non-GAAP information is contained in the tables included herein.

The company’s results for the quarter and nine months ended September 30, 2014, reflect the full impact of the additional 3.8 million common shares issued in connection with the follow-on stock offering which closed on August 14, 2013.

Highlights of the quarter and nine months ended September 30, 2014, include:

• Record third quarter and first nine month revenues, all from organic growth.
• 14% and 13% year-over-year increases in total services revenues during both the third quarter and nine months, respectively, continuing Datalink’s strategic emphasis on growing services to help increase gross margins and drive greater relevancy with customers.
• An 8% increase in the number of customers spending more than $1 million with the company during the first nine months of 2014 compared to the first nine months of 2013.
• The addition of new cloud and residency services to Datalink’s Advanced Services portfolio, which is designed to support complex needs ranging from data migration and data center relocation to cloud service management and business continuity/disaster recovery.

In addition, on October 20, 2014, the company announced the acquisition of California-based Bear Data Solutions, Inc., which will quadruple its West Coast revenue base to more than $200 million and add more than 1,000 new midmarket and enterprise customers for Datalink’s products and services

“One of the most striking achievements of this reporting period is our continued growth in the services segment. Fully 44% of our Q3 revenues came from services compared to 40% a year ago. That includes professional, advanced and managed services that enhance our margins and open up new account opportunities from customers that want a true technology partner – not just a hardware reseller,” said Paul Lidsky, Datalink’s president and CEO. “In addition, we continue to grow faster overall than most of the IT market as a result of our ongoing product and services diversification and our ability to support a full range of data center needs, including complex projects like converged data center infrastructure deployments, cloud enablement, data migration and data center relocation. We expect the acquisition of Bear to accelerate that growth and strengthen our foothold in the key West Coast market.”

Outlook
Based on the company’s current backlog and sales pipeline, the company projects revenues of $165.0 million to $175.0 million for the fourth quarter of 2014 compared to $173.4 million for the fourth quarter of 2013. The company expects fourth quarter 2014 net earnings to be between $0.20 and $0.25 per diluted share on a GAAP basis, and net earnings of between $0.27 and $0.32 per diluted share on a non-GAAP basis. This compares to net earnings of $0.24 per diluted share and $0.34 per diluted share on a GAAP and non-GAAP basis, respectively, for the same period in 2013. This guidance does not include the results from the recently announced acquisition of Bear Data Systems, Inc.

Conference Call and Webcast Today
Datalink will hold a conference call today at 4:00 p.m. Central Time during which time Datalink president and chief executive officer, Paul Lidsky, and chief financial officer, Greg Barnum, will discuss company results and provide a business overview. Participants can access the conference call by dialing (800) 901-5213. Participants will be asked to identify the Datalink conference call and provide the designated identification number (88934806). A live webcast of the conference call can be accessed here or via Datalink’s investor relations website at www.datalink.com.

About Datalink
A complete data center solutions and services provider for Fortune 500 and mid-tier enterprises, Datalink transforms data centers so they become more efficient, manageable and responsive to changing business needs. Datalink helps leverage and protect storage, server, and network investments with a focus on long-term value, offering a full lifecycle of services, from consulting and design to implementation, management and support. Datalink solutions span virtualization and consolidation, data storage and protection, advanced network infrastructures, business continuity, and cloud enablement. Each delivers measurable performance gains and maximizes the business value of IT. For more information, call 800.448.6314 or visit www.datalink.com.

The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for certain forward-looking statements. This press release contains forward-looking statements, including (i) the anticipated timing of the acquisition, (ii) the expected impact of the acquisition on Datalink, (iii) Datalink’s plans with respect to the acquired business and (iv) our internal projections of certain anticipated 2014 results, which reflect our views regarding future events and financial performance. These forward-looking statements are subject to certain risks and uncertainties, including those identified below, which could cause actual results to differ materially from historical results or those anticipated. The words "aim,” "believe," "expect," "anticipate," "intend," "estimate," "should" and other expressions which indicate future events and trends identify forward-looking statements. Actual future results and trends may differ materially from historical results or those anticipated depending upon a variety of factors, many of which are included under “Risk Factors” in our annual report on Form 10-K for our year ended December 31, 2013, including, but not limited to: the level of continuing demand for data center solutions and services including the effects of current economic and credit conditions and the ability of organizations to outsource data center infrastructure-related services to service providers such as us; the migration of organizations to virtualized server environments, including using a private cloud computing infrastructure; the extent to which customers deploy disk-based backup recovery solutions; the realization of the expected trends identified for advanced network infrastructures; reliance by manufacturers on their data service partners to integrate their specialized products; continued preferred status with certain principal suppliers; competition and pricing pressures and timing of our installations that may adversely affect our revenues and profits; fixed employment costs that may impact profitability if we suffer revenue shortfalls; our ability to hire and retain key technical and sales personnel; continued productivity of our sales personnel; our dependence on key suppliers; our ability to adapt to rapid technological change; success of the implementation of our enterprise resource planning system; risks associated with integrating completed and future acquisitions (including a failure of anticipated synergies to materialize); the ability to execute our acquisition strategy; fluctuations in our quarterly operating results; future changes in applicable accounting rules; and volatility in our stock price. Furthermore, our revenues for any particular quarter are not necessarily reflected by our backlog of contracted orders, which also may fluctuate unpredictably. We cannot assure you that we can grow or maintain our revenue and backlog from current levels. Additional factors that may cause actual results to differ from our assumptions and expectations include those set forth in our most recent filing on Form 10-K filed with the Securities and Exchange Commission. Any forward-looking statement made by us in this press release is based only on information currently available to us and speaks only as of the date on which it is made. We undertake no obligation to publicly update any forward-looking statement, whether written or oral, that may be made from time to time, whether as a result of new information, future developments or otherwise.

Non-GAAP Details
Non-GAAP financial measures exclude the impact from acquisition accounting adjustments to deferred revenue and costs, stock-based compensation expense, amortization of acquisition intangible assets, integration and transaction costs related to acquisitions, severance costs and the related effects on income taxes. These non-GAAP measures are not in accordance with, or an alternative for measures prepared in accordance with, GAAP and may be different from non-GAAP measures used by other companies. In addition, these non-GAAP measures are not based on any comprehensive set of accounting rules or principles. We believe that non-GAAP measures have limitations in that they do not reflect all of the amounts associated with our results of operations as determined in accordance with GAAP and that these measures should only be used to evaluate our results of operations in conjunction with the corresponding GAAP measures.

These non-GAAP financial measures facilitate management's internal comparisons to our historical operating results and comparisons to competitors' operating results. We include these non-GAAP financial measures in our earnings announcement because we believe they are useful to investors in allowing for greater transparency with respect to supplemental information used by management in its financial and operational decision making, such as employee compensation planning. We believe that the presentation of these non-GAAP measures when shown in conjunction with the corresponding GAAP measures provides useful information to investors and management regarding financial and business trends relating to our financial condition and results of operations.