Datalink Reports 2007 Second-Quarter Operating Results.

Results In-Line with Previously Issued Guidance Update

MINNEAPOLIS -- Datalink Corporation (Nasdaq:DTLK), a leading independent information storage architect, reported results for its second quarter and six months ended June 30, 2007. Revenues for the quarter ended June 30, 2007, were $40.3 million compared to $39.8 million for the prior-year period and $40.9 million in the first quarter of 2007. This performance is consistent with the revised second-quarter guidance that the company issued on July 2, 2007. In the second quarter of 2007, no one customer accounted for more than 10% of total revenues. One customer accounted for 20% of total revenues in the second quarter of 2006. Revenues for the six months ended June 30, 2007, were $81.2 million compared to $74.1 million for the prior-year period. Datalink's results for the second quarter and the first six months of 2007 include three and five months of Midrange Computer Solutions, Inc. (MCSI) revenues and expenses, respectively, following the acquisition which closed on January 31, 2007.

GAAP Results

On a GAAP basis, the company reported a net loss of $346,000, or $0.03 per basic and diluted share for the second quarter ended June 30, 2007. This compares to net earnings of $2 million, or $0.18 per diluted share, in the second quarter of 2006. For the six months ended June 30, 2007, the company reported a net loss of $1.1 million, or $0.09 per basic and diluted share, compared to net earnings of $2.9 million, or $0.26 per diluted share, in the first six months of 2006.

Non-GAAP Results

Non-GAAP net loss for the second quarter of 2007 was $23,000, or $0.00 per basic and diluted share, compared to non-GAAP net income of $1.3 million, or $0.11 per diluted share, in the second quarter of 2006. For the six months ended June 30, 2007, the company reported a non-GAAP net loss of $175,000, or $0.01 per basic and diluted share, compared to net earnings of $1.8 million, or $0.16 per diluted share, in the first six months of 2006.

"As we mentioned in our July 2nd update, during the second quarter we saw a slow down in IT and storage spending with some of our larger customers, as they have become more cautious about the economy and their individual growth prospects. This environment created longer sales cycles, with a number of large projects delayed from the second quarter. The result was that second quarter revenue and earnings came in below the guidance we had provided earlier in the quarter," commented Charlie Westling, Datalink's president and chief executive officer.

"While this quarter's shortfall was disappointing to us, we are still confident in the long-term trends for the storage industry and we are taking steps to position Datalink for future growth and profitability. These actions include:

* combining the company's field engineering and customer support organizations in order to better utilize Datalink's technical resources;

* merging the Western and South Central regions to take advantage of economies of scale;

* refocusing our efforts on acquiring new enterprise accounts; and

* holding the workforce at current levels while focusing on opportunities to increase employee productivity."

Highlights for the second quarter of 2007 included:

* An increase in overall gross profit margin to 25.2% in the second quarter of 2007 versus 24.1% in the first quarter of 2007 and 24.7% in the second quarter of 2006; this increase was driven primarily by higher product gross profit margins, which reflected a more favorable mix of product and solution sales;

* Total services revenue of approximately $16 million during the quarter, which represented the highest quarterly amount in the company's history; this record level of services revenue was attributable to our growing success in selling and delivering customer support services to both new and existing enterprise customers; and

* Cash and cash equivalents remained strong, totaling $23.5 million at June 30, 2007.

Outlook

"We did see some improvement in bookings activity late in the second quarter and as a result we entered the third quarter with a backlog of over $30 million. Over the past two weeks we have been meeting with our customers, vendor partners, and sales and engineering teams to evaluate our current backlog and pipeline for the third quarter of 2007," continued Westling. "Based on our analysis, we expect revenues to be between $45 million and $50 million, with a return to profitability in the third quarter." Management anticipates GAAP net earnings ranging from $0.02 to $0.08 per diluted share in the third quarter of 2007. On a non-GAAP basis, the company expects third quarter earnings per share to be in the range of $0.05 to $0.11 per diluted share.

Conference Call and Webcast Today

Datalink will hold a conference call today at 4:00 p.m. Central Time to discuss the second-quarter results. Those wishing to participate can access the call by dialing 877-879-6203 (no later than 3:55 p.m. Central Time). Participants will be asked to identify the Datalink conference call and provide the designated identification number (1724870). A live webcast of the conference call can be heard via Datalink's website at www.datalink.com.

Datalink Corporation is an information storage architect. The company analyses, designs, implements and supports information storage infrastructures that store, protect and provide continuous access to information. Datalink's specialized capabilities and solutions span storage area networks, network-attached storage, direct-attached storage and IP-based storage, using industry-leading hardware, software and technical services.

Forward Looking Statements

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 our internal projections of anticipated 2007 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 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 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 integrating our MCSI acquisition and possible future acquisitions; fluctuations in our quarterly operating results; future changes in applicable accounting rules; and volatility in our stock price. We may not achieve significant future revenues from one of our customers that accounted for approximately 12 percent of our first quarter 2007 revenues. Further, our revenues for any particular quarter are not necessarily reflected by our backlog of contracted orders, which also may fluctuate unpredictably. In addition, we cannot assure that we will successfully and profitably integrate MCSI's customers and personnel into our business or increase our gross margins with MCSI's historical customers and prospects.

Non-GAAP Details

Non-GAAP financial measures exclude the impact from purchase accounting adjustments to deferred revenue, stock-based compensation expense, amortization of intangible assets, integration costs related to acquisitions, the reversal of the income tax valuation allowance and the related effects on income taxes. The 2006 results also reflect the impact of each quarter being fully taxed at an effective rate of 40%. 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. Datalink believes that non-GAAP measures have limitations in that they do not reflect all of the amounts associated with Datalink's results of operations as determined in accordance with GAAP and that these measures should only be used to evaluate Datalink's results of operations in conjunction with the corresponding GAAP measures.

These non-GAAP financial measures facilitate management's internal comparisons to the Datalink's 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. Datalink believes 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 its financial condition and results of operations.

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