Datalink Corporation Reports 2003 Third Quarter and Nine-Month Operating Results; Cost Reduction Steps to Result in Fourth Quarter Charge; Senior Management Changes Announced.Business Editors MINNEAPOLIS--(BUSINESS WIRE)--Oct. 20, 2003 Live Webcast of Conference Call at 9:30 AM Central Time today, October October: see month. 20, 2003 Datalink Corporation Datalink Corporation (NASDAQ: DTLK) is an American data storage corporation with operations throughout the United States. The company engages in the design, installation, and support of data storage infrastructures that store, protect, and provide continuous access to (Nasdaq:DTLK), a leading independent information storage architect, reported that revenues for the quarter ended September September: see month. 30, 2003, were $20.0 million compared to $21.9 million in the prior year. The Company reported a net loss of $2 million, or $.20 per diluted di·lute tr.v. di·lut·ed, di·lut·ing, di·lutes 1. To make thinner or less concentrated by adding a liquid such as water. 2. To lessen the force, strength, purity, or brilliance of, especially by admixture. share, compared to a loss of $962,000 or $.09 per diluted share, for the year-ago third quarter. Revenues and earnings are consistent with revised guidance the company issued on September 29, 2003. For the nine-months ended September 30, 2003, revenues increased 8 percent totaling $70.1 million, versus $64.7 million generated in the comparable 2002 period. Datalink's net loss was $3.1 million, or $.30 per diluted share, compared to a net loss of $3.5 million, or $.37 per diluted share, in the year-earlier period. Net losses in 2003 do not include any tax benefit of the operating loss operating loss The excess of operating expenses over revenue. As with operating income, operating losses exclude revenues and expenses from operations that are not considered a regular part of the business. Also called deficit. Compare operating income. . Beginning in 2003, Datalink ceased recording tax benefit on operating losses. The tax benefit of the company's operating losses may be realized in the future when Datalink has taxable income Under the federal tax law, gross income reduced by adjustments and allowable deductions. It is the income against which tax rates are applied to compute an individual or entity's tax liability. The essence of taxable income is the accrual of some gain, profit, or benefit to a taxpayer. . Greg GREG Great Egg Harbor National Scenic and Recreational River (US National Park Service) Meland Meland is a municipality in the county of Hordaland, Norway. Meland was separated from Alversund October 15, 1923. The northern part of Holsnøyni was transferred from Herdla to Meland January 1, 1964. , Datalink's CEO (1) (Chief Executive Officer) The highest individual in command of an organization. Typically the president of the company, the CEO reports to the Chairman of the Board. , commented, "During the third quarter Datalink experienced a softening softening /sof·ten·ing/ (sof´en-ing) malacia. softening a change of consistency, with loss of firmness or hardness. in customer demand as well as several large orders which could not be fully implemented before quarter end. The results were particularly disappointing since the Company's performance in the first two quarters of 2003 showed improvement over last year. Despite the slow quarter, the company's year-to-date Year-to-date (YTD) The period beginning at the start of the calendar year up to the current date. revenues are up 8 percent over the prior year. Additionally, our gross profit margins Gross profit margin Gross profit divided by sales, which is equal to each sales dollar left over after paying for the cost of goods sold. gross profit margin A measure calculated by dividing gross profit by net sales. remain at comparable levels and our service revenues have grown 10 percent over the prior year. The growth in service revenues reflects the expanded capabilities of Datalink's customer support area, offering enhanced services Enhanced service is service offered over commercial carrier transmission facilities used in interstate communications, that employs computer processing applications that act on the format, content, code, protocol, or similar aspects of the subscriber's transmitted information; that deliver greater value to our customers and help information system staffs better meet their organizational needs." "Datalink is financially strong, with $13 million in cash, and no debt. Nevertheless, in light of Datalink's recent results and in an effort to return the Company to profitability more quickly, we are taking steps to more aggressively reduce operating costs operating costs npl → gastos mpl operacionales " said Meland. Cost Reduction Actions and Management Changes Datalink's cost reduction actions include: -- A reduction of staff by approximately ap·prox·i·mate adj. 1. Almost exact or correct: the approximate time of the accident. 2. 16% and -- The closing of 4 underperforming offices We have reduced Datalink's headcount head count or head·count n. 1. The act of counting people in a particular group. 2. The number of people counted in this way. Noun 1. from 157 employees to 132 and the number of offices has been reduced from 18 to 14. As a result of these changes and other cost reduction steps, we expect Datalink's fixed costs fixed costs, n.pl the costs that do not change to meet fluctuations in enrollment or in use of services (e.g., salaries, rent, business license fees, and depreciation). to decline by approximately $3 million per year from current levels. Datalink also announced that Charlie Westling West´ling n. 1. A westerner. has been promoted to President and Chief Operating Officer Chief Operating Officer (COO) The officer of a firm responsible for day-to-day management, usually the president or an executive vice-president. (see separate release Datalink issued today). Previously, Westling was the Company's Vice President of Market Development. Additionally, after a transition period, Steve Howe Steve Howe may refer to:
Meland further noted, "We value the contributions of all of our employees and reducing our staff is difficult. While all areas of Datalink are affected, we kept our significant investment in customer support and other customer facing field operations staff largely intact. Datalink's history of fostering long-term Long-term Three or more years. In the context of accounting, more than 1 year. long-term 1. Of or relating to a gain or loss in the value of a security that has been held over a specific length of time. Compare short-term. customer relationships is key to our future success. We have worked diligently dil·i·gent adj. Marked by persevering, painstaking effort. See Synonyms at busy. [Middle English, from Old French, from Latin d to balance these new cost reduction initiatives with customer needs and the market opportunities we will pursue. We believe that Datalink will be a more focused company with a stronger platform for growth. "Datalink remains a national leader in delivering data storage solutions. We are focused on emerging technologies that generate high value returns for our customers while differentiating Datalink from its competition", concluded Meland. Outlook: Datalink estimates that it will record a fourth quarter charge for the revaluation Revaluation A calculated adjustment to a country's official exchange rate relative to a chosen baseline. The baseline can be anything from wage rates to the price of gold to a foreign currency. In a fixed exchange rate regime, only a decision by a country's government (i.e. of intangible assets Intangible Asset An asset that is not physical in nature. Notes: Examples are things like copyrights, patents, intellectual property, and goodwill. These are the opposite of tangible assets. , employee severance The act of dividing, or the state of being divided. The term severance has unique meanings in different branches of the law. Courts use the term in both civil and criminal litigation in two ways: first, when dividing a lawsuit into two or more parts, and second, when , and office closing costs Closing Costs The numerous expenses (over and above the price of the property) that buyers and sellers normally incur to complete a real estate transaction. Costs incurred include loan origination fee, discount points, appraisal fee, title search, title insurance, survey, taxes, of approximately $1.8 million or $.18 per diluted share. Approximately $950,000 of the estimated fourth quarter charge consists of non-cash items. The Company declined to give earnings guidance at this time. Webcast A live Webcast of the Datalink conference call to discuss operating results is scheduled for today, October 20, 2003 at 9:30 a.m. Central Time and can be heard via Datalink's Website, www.datalink.com. Datalink Corporation is an information storage architect. The Company analyzes, designs, implements, and supports information storage infrastructures that store, protect, and provide continuous access to information. Datalink's specialized spe·cial·ize v. spe·cial·ized, spe·cial·iz·ing, spe·cial·iz·es v.intr. 1. To pursue a special activity, occupation, or field of study. 2. capabilities and solutions span storage area networks, network-attached storage See NAS. , direct-attached storage Direct-attached storage (DAS) refers to a digital storage system directly attached to a server or workstation, without a storage network in between. It is a retronym, mainly used to differentiate non-networked storage from SAN and NAS. , and IP-based storage, using industry-leading hardware, software, and technical services. The Private Securities Litigation Reform Act The Private Securities Litigation Reform Act of 1995 (PSLRA) implemented several significant substantive changes affecting certain cases brought under the federal securities laws, including changes related to pleading, discovery, liability, class representation and awards fees and of 1995 provides a "safe harbor Safe Harbor 1. A legal provision to reduce or eliminate liability as long as good faith is demonstrated. 2. A form of shark repellent implemented by a target company acquiring a business that is so poorly regulated that the target itself is less attractive. " for certain forward-looking statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. . This press release contains forward-looking statements, including our internal projections of anticipated fourth quarter 2003 operating 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" 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: the level of continuing demand for storage, including the effects of current economic conditions; 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; revenue recognition policies that may unpredictably defer de·fer 1 v. de·ferred, de·fer·ring, de·fers v.tr. 1. To put off; postpone. 2. To postpone the induction of (one eligible for the military draft). v.intr. reporting of our revenues; our ability to hire and retain key technical and sales personnel; our dependence on key suppliers; 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; and volatility Volatility 1. A statistical measure of the tendency of a market or security to rise or fall sharply within a period of time. 2. A variable in option pricing formulas that denotes the extent to which the return of the underlying asset will fluctuate between now and the in our stock price. The Company also cannot assure that its new cost reduction initiatives and management changes announced in this press release will lead to profitability.
DATALINK CORPORATION
STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
2003 2002 2003 2002
--------- -------- -------- --------
Net sales:
Products $12,597 $15,272 $47,549 $44,153
Services 7,354 6,586 22,515 20,508
-------------------------------------
Total net sales 19,951 21,858 70,064 64,661
-------------------------------------
Cost of sales:
Cost of product sales 9,909 11,728 36,600 33,940
Cost of service sales 5,032 4,733 15,307 14,778
-------------------------------------
Total cost of sales 14,941 16,461 51,907 48,718
-------------------------------------
Gross profit 5,010 5,397 18,157 15,943
-------------------------------------
Operating expenses:
Sales and marketing 2,815 2,746 8,873 8,788
General and administrative 2,736 2,705 8,486 7,945
Engineering 1,293 1,275 3,291 4,149
Amortization of intangibles 186 231 616 693
-------------------------------------
7,030 6,957 21,266 21,575
-------------------------------------
Loss from operations (2,020) (1,560) (3,109) (5,632)
Interest income, net 14 33 57 90
-------------------------------------
Loss before income taxes (2,006) (1,527) (3,052) (5,542)
Income tax benefit - (565) - (2,051)
-------------------------------------
Net loss $(2,006) $(962) $(3,052) $(3,491)
=====================================
Net loss per share:
Basic $(0.20) $(0.09) $(0.30) $(0.37)
Diluted $(0.20) $(0.09) $(0.30) $(0.37)
Weighted average shares
outstanding:
Basic 10,222 10,186 10,230 9,512
Diluted 10,222 10,186 10,230 9,512
DATALINK CORPORATION
BALANCE SHEETS
(In thousands)
Sept. 30, Dec.31,
2003 2002
----------- --------
(Unaudited)
Assets
Current assets
Cash and cash equivalents $12,868 $10,334
Accounts receivable, net 10,554 12,419
Inventories 2,320 2,410
Inventories shipped but not installed 2,719 4,059
Income tax receivable - 1,952
Other current assets 502 401
----------- --------
Total current assets 28,963 31,575
----------- --------
Property and equipment, net 4,742 5,506
Goodwill 5,500 5,500
Intangibles, net 1,520 2,135
Other assets 60 69
----------- --------
Total assets $40,785 $44,785
=========== ========
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable $11,814 $13,667
Accrued commissions 490 818
Accrued income tax 284 -
Accrued sales and use tax 739 496
Accrued expenses, other 750 683
Deferred profit 2,632 2,434
----------- --------
Total current liabilities 16,709 18,098
Deferred rent 544 341
----------- --------
Total liabilities 17,253 18,439
----------- --------
Commitments and contingencies
Stockholders' equity
Common stock, $.001 par value,
50,000,000 shares authorized, 10,234,178
and 10,206,699 shares issued and
outstanding as of September 30, 2003 and
December 31, 2002, respectively 10 10
Additional paid-in capital 26,091 25,854
Retained earnings (accumulated deficit) (2,569) 482
----------- --------
Total stockholders' equity 23,532 26,346
----------- --------
Total liabilities and stockholders'
equity $40,785 $44,785
=========== ========
DATALINK CORPORATION
STATEMENT OF CASH FLOWS
(In thousands)
(Unaudited)
Nine Months Ended
September 30,
2003 2002
------------ -----------
Cash flows from operating activities:
Net loss $(3,051) $(3,491)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Provision for bad debts 30 77
Depreciation and amortization 1,499 1,532
Amortization of intangibles 615 693
Deferred income taxes - (4)
Deferred rent 203 81
Loss on sale of assets 9 -
Changes in operating assets and
liabilities:
Accounts receivable 1,803 3,462
Inventories 1,430 929
Other current assets 1,851 (206)
Other assets 117 233
Accounts payable (1,853) (2,617)
Accrued expenses 23 (427)
Income taxes 243 (742)
Deferred profit 198 (104)
-------------------------
Net cash provided by (used in) operating
activities 3,117 (584)
-------------------------
Cash flows from investing activities:
Purchase of property and equipment (744) (828)
-------------------------
Net cash used in investing activities (744) (828)
-------------------------
Cash flows from financing activities:
Proceeds from issuance of common stock 129 5,406
Payments on note payable to former
stockholder - (704)
-------------------------
Net cash provided by financing
activities 129 4,702
-------------------------
Increase in cash and cash equivalents 2,502 3,290
Cash and cash equivalents, beginning of
period 10,334 5,846
-------------------------
Cash and cash equivalents, end of period $12,836 $9,136
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