Datalink Corporation Reports First Quarter Operating Results Strong Growth Continues
MINNEAPOLIS--(BUSINESS WIRE)--April 13, 2000--Datalink Corporation (NASDAQ: DTLK - news), a premier independent provider of networked data storage solutions, reported that revenues for the quarter ended March 31, 2000 increased 9% to $28.0 million from $25.7 million in the same period a year ago. As previously announced and discussed below, Datalink recently changed its 2000 revenue recognition policies in response to a recent SEC accounting bulletin. As a result, Datalink's 2000 operating results are not directly comparable with its 1999 results. Absent the change in revenue recognition policies, first quarter 2000 revenues would have been $34.8 million, a 35% increase over the first quarter of 1999.
Greg Meland, Datalink's President and CEO commented: ``We continue to experience strong demand in the marketplace for our networked data storage solutions. Over the past year, we have added sales and technical staff to meet the growing marketplace demand for data storage technology and data storage capacity. Datalink continues to lead its industry in the implementation of open networked data storage solutions, such as storage area networks.'
``Across all industries, we see dramatic increases in the volume of business-critical data. We are well positioned to help businesses with the challenge of managing this data. We partner with fibre channel switch leader Brocade Communications Systems, Inc., and others with industry leading products, to blend the best new technologies into open networked solutions for our customers. As we look to seize the growing opportunity in the marketplace, we plan to continue to expand our sales and technical staff.'
As previously announced, Datalink modified its revenue recognition policies beginning January 1, 2000 in response to the Securities and Exchange Commission's recently issued Staff Accounting Bulletin No. 101 - ``Revenue Recognition.' With these operating results, Datalink has applied its new policies. The changes relate to sales of hardware and software solutions, and service contracts. Historically, Datalink recognized hardware and software product revenues upon shipment to customers and service contract revenues upon signing of the contract. Datalink now recognizes hardware and software product revenues upon completion of installation services, and service contract revenues over the life of the contract, which is typically one year.
Dan Kinsella, Datalink's Chief Financial Officer, stated: ``Our new accounting policies merely defer the recognition of our revenues and do not impact the cash flows, revenues or profits we ultimately recognize. However, as a result of our accounting policy changes, we regularly ship hardware and software products at the end of a quarter that will not be included in our reported revenues because we did not complete our installation and configuration services. Our 2000 operating results therefore cannot be directly compared to our prior period operating results, as we recognized revenues in prior periods upon shipment.'
Datalink reported first quarter 2000 income before the cumulative effect of the changes in accounting policies of $936,000, or $.10 per diluted share. By comparison, Datalink's first quarter 1999 net income, adjusted to include income taxes and exclude public offering costs, was $910,000 or $.14 per diluted share.
Kinsella further commented: ``We generated outstanding growth and profitability in the first quarter. However, because we could not practically complete installation and configuration for a significant number of hardware and software solutions we shipped during March, we have deferred a significant amount of revenue and profits from our first quarter. We expect to recognize revenues for these transactions in our second quarter as we complete the installation and configuration services for our customers.'
Kinsella also noted that in the first quarter of 2000, Datalink has recognized a $1.3 million one-time non-cash charge, net of income taxes, for the cumulative effect of the accounting policy changes, or $.14 per diluted share.
Datalink Corporation, based in Minneapolis, Minnesota, is a premier independent provider of networked data storage solutions for open systems computing environments. Datalink develops solutions that are designed to store, access and protect business critical information using best of breed technologies and professional services. Datalink's multi-tiered professional services organization delivers a comprehensive suite of services, including analysis, design, integration, implementation, training, technical support and maintenance.
The Private Securities Litigation Reform Act of 1995 provides a ``safe harbor' for certain forward-looking statements. This press release contains forward-looking statements, 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' 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, including, but not limited to: our ability to hire and retain key technical and other personnel; competition and pricing pressures that may adversely affect our revenues and profits; the level of continuing demand for data storage; our dependence on key suppliers; the strain placed on our resources by growth and expansion; our ability to adapt to rapid technological change; risks associated with possible future acquisitions; fluctuations in our quarterly operating results; future changes in applicable accounting rules; any remaining impact of Year 2000 issues; and volatility in our stock price.
--FINANCIAL TABLES TO FOLLOW--
Datalink Corporation
Condensed Consolidated Statements of Operations
(in thousands, except per share data)
Three Months Ended
March 31,
(unaudited)
2000 1999
Revenues $27,998 $25,682
Cost of revenues 20,312 19,071
-------------------
Gross profit 7,686 6,611
-------------------
Sales and marketing 3,475 2,529
General and
administrative 2,135 1,690
Engineering 595 776
Offering costs (1) - 173
-------------------
Total operating expenses 6,205 5,168
-------------------
Income from operations 1,481 1,443
Interest income
(expense), net 76 (74)
-------------------
Income before income
taxes 1,557 1,369
Income taxes (2) 638 (556)
-------------------
Income before cumulative
effect of a change
in accounting principle 919 1,925
Cumulative impact of a
change in accounting
policy, net of
income taxes (3) (1,327) -
-------------------
Net income (loss) $ (408) $1,925
===================
Net income per share:
Basic:
Income per share before
cumulative effect of a
change in accounting $ 0.10 $ 0.29
principle
Loss per share from the
cumulative effect of a
change in accounting
principle (0.15) -
-------------------
Net income
(loss) per share $ (0.05) $ 0.29
===================
Fully diluted:
Income per share before
cumulative effect of
a change in
accounting principle $ 0.10 $ 0.29
Loss per share from the
cumulative effect of
a change in
accounting principle (0.14) -
-------------------
Net income (loss) per
share $(0.04) $ 0.29
===================
Weighted average shares
outstanding:
Basic 8,773 6,710
Fully
diluted 9,261 6,710
(1) Reflects legal, accounting, and other costs associated with the
Company's initial public offering, which was postponed due to
market conditions.
(2) Income tax benefit in 1999 reflects a one time tax benefit from
the conversion of the Company's wholly-owned subsidiary from
C-Corporation status to the Company's S-Corporation status.
(3) Effective January 1, 2000 the Company changed its revenue
recognition policies related to hardware and software products
and for service contracts. The amount represents the cumulative
impact of the new policies, net of income taxes, on periods prior
to January 1, 2000.
Pro forma income (loss)
and income (loss) per
share calculations:
Pro forma income before
cumulative effect of
a change in account
principle (1) $ 919 $ 808
Cumulative effect of a
change in accounting
principle, net of
income taxes (1,327) -
-----------------
Net income (loss) $ (408) $ 808
===================
Pro forma income per
share before
cumulative effect of
a change in
accounting
prinicple (2) $ 0.10 $ 0.10
Cumulative effect per
share, of a change in
accounting principle,
net of income taxes (0.14) -
-------------------
Net income
(loss) per share $ (0.04) $ 0.10
===================
Weighted average shares
used in calculating pro
forma income per share:
Fully diluted weighted
average shares 9,261 6,710
Additional shares
required to fund
distribution to
shareholders - 1,309
-------------------
9,261 8,019
===================
(1) Pro forma net income is calculated as if the Company was subject
to income taxes for all periods presented.
(2) Pro forma income per share is computed by dividing pro forma net
income by the fully dilluted weighted average number of shares
for the period, after giving effect to the number of shares that
would be required to be sold at the initial offering price to
fund a distribution to the shareholders of all previously taxed,
but undistributed, S Corporation earnings.
Net income per share assuming income taxes and excluding offering cost
expenses before the cumulative effect of a change in accounting
principle:
Net income(1) $ 919 $ 910
Net income per share:
Basic $ 0.10 $ 0.14
Fully
diluted $ 0.10 $ 0.14
Weighted average shares
outstanding:
Basic
8,773 6,710
Fully
diluted 9,261 6,710
(1) Reflects net income excluding offering expenses and assuming the
Company was subject to income taxes for all periods presented. |
