Datalink Reports 2014 Fourth Quarter and Year-End Operating Results

Datalink (Nasdaq: DTLK), a leading provider of data center infrastructure and services, today reported results for its fourth quarter and the year ended December 31, 2014. Revenues for the quarter ended December 31, 2014, increased 7.5% to a record $186.4 million compared to $173.4 million for the quarter ended December 31, 2013. On a GAAP basis, the company reported net earnings of $3.7 million or $0.16 per diluted share for the fourth quarter ended December 31, 2014. This compares to net earnings of $5.2 million or $0.24 per diluted share in the fourth quarter of 2013. The company’s results for the quarter and year ended December 31, 2014, include the results of operations from the acquisition of Bear Data Solutions, Inc. (“Bear”) on October 19, 2014. Bear contributed approximately $16.0 million in revenues in the fourth quarter of 2014 and lost $0.07 per diluted share on a GAAP basis.

Revenues for the year ended December 31, 2014, increased 6.1% to a record $630.2 million compared to $594.2 million for the year ended December 31, 2013, and 3.4% without the revenues from the acquisition of Bear. On a GAAP basis, the company reported net earnings of $11.1 million or $0.50 per diluted share for the year ended December 31, 2014, $0.57 per diluted share excluding the acquisition of Bear. This compares to net earnings of $10.0 million or $0.52 per diluted share in 2013.

Non-GAAP Results
Non-GAAP net earnings for the fourth quarter of 2014 were $6.4 million, or $0.28 per diluted share, and $7.3 million or $0.33 per diluted share excluding the acquisition of Bear, compared to $7.4 million, or $0.33 per diluted share, in the fourth quarter of 2013. A detailed reconciliation between GAAP and non-GAAP information is contained in the tables included herein.

Fourth-quarter and year-end highlights include:

• Record Q4 revenues of $170.4 million (excluding Bear revenues), in line with the $165 million to $175 million guidance issued last October.
• A 13% year-over-year increase in total services revenues to a record $249.8 million in 2014.
• A 16% increase in professional services revenues to a record $52.4 million or 8.3% of revenues, compared to $45.2 million or 7.6% of revenues in 2013, driven in part by steady expansion of advanced services designed to support complex data center needs ranging from cloud-related projects to data center relocation.
• Continued growth in converged data center infrastructure sales, average customer spend and customers who did over $1 million of business with the company.
• A #47 ranking on CRN’s list of top 500 technology integrators as well as recognition as one of only 26 companies to earn CRN’s new Triple Crown award for placing on the publication’s 2014 Solution Provider 500, Fast Growth 150 and Tech Elite 250 lists.
• Top NetApp ranking in FlexPod and Clustered Data ONTAP sales in the Americas, based on revenues during NetApp’s 2014 fiscal year, reflecting Datalink’s success in selling Cisco/NetApp converged infrastructure to assist customers in IT modernization.
• The acquisition of San Francisco-based Bear Data Solutions, Inc. in October 2014, quadrupling Datalink’s West Coast revenue base, as well as adding more than 1,000 new midmarket and enterprise customers and expanding Datalink’s Cisco expertise into strategic new areas.

Fourth-quarter revenues from the Bear acquisition were less than expected, primarily because of delayed shipments of several large orders. As a result, Datalink entered 2015 with over $16.5 million of Bear-related backlog that is expected to be booked in the first quarter.

“Our fourth-quarter and year-end 2014 performance demonstrates our strong progress in transitioning from our roots as a storage VAR to becoming a full-service data center provider,” said Paul Lidsky, Datalink president and CEO. “Our continued growth, as well as the steady increase in higher-margin service revenues and customer wallet share, are directly related to the diversification of our product and services portfolio to address the full spectrum of data center challenges faced by businesses today.”

Outlook
Datalink projects revenues of $175.0 million to $185.0 million for the first quarter of 2015, approximately $30.0 million of which will come from the Bear acquisition, compared to $139.6 million for the first quarter of 2014. This represents an increase in expected revenues of between 25% and 33%, based on the company’s current backlog, sales pipeline, and historical trends. The company expects first quarter 2014 net earnings to be between $0.05 and $0.10 per diluted share on a GAAP basis, and net earnings of between $0.14 and $0.19 per diluted share on a non-GAAP basis. This compares to net earnings of $0.01 per diluted share and $0.06 per diluted share on a GAAP and non-GAAP basis, respectively, for the same period in 2014.

Non-GAAP earnings per share exclude the effect of acquisition accounting adjustments to deferred revenue and costs, integration and transaction costs related to acquisitions, stock-based compensation expense, amortization of intangible assets, and the related effects on income taxes. The company estimates this total effect will be approximately $0.09 per diluted share for the first quarter of 2015.

Conference Call and Webcast Today
Datalink will hold a conference call shortly afterward 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 (866) 953-6860. Participants will be asked to identify the Datalink conference call and provide the designated identification number (75380487). 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 2015 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.