Storage VAR Datalink Reports Big Revenue, Earnings Jump

The storage industry may be concerned about possible negative impacts from the economy, but don't tell that to Datalink, the Minneapolis-based storage solution provider which on Wednesday reported one of its best quarters ever, with things looking good for the next quarter as well.

Charlie Westling, president and CEO of Datalink, said his company had its highest-ever revenue during the first quarter, and had its best operating earnings since 2001.

Datalink, one of the country's few publicly listed solution providers, reported earnings for the first fiscal quarter of 2008, which ended March 31, of $47.7 million, up from the $40.9 million reported during the first quarter of 2007.

The company also reported earnings of $505,000, or 4 cents per share, up from last year's loss of $719,000, or 6 cents per share.

A big part of the company's success came from its $14 million acquisition of fellow solution provider MCSI in February of last year, Westling said.

MCSI brought Datalink a bigger services focus than it had in the past, and that focus showed in the first quarter's financial report, which included two months of MCSI revenue and earnings in the comparison with last year.

Overall gross margins for the quarter were 27.3 percent, the highest since late 2004, said CFO Greg Barnum. Services revenue for 2008 was $19.2 million, up significantly from the $13.3 million reported last hear, while product sales were $28.5 million, up just a bit from last year's $27.6 million, Barnum said.

The acquisition of MCSI was also reflected in a big jump in employee productivity, Westling said. The per-employee revenue in the first quarter of 2008 was $260,000, up about 20 percent over last year's $217,000.

About 40 percent of Datalink's first quarter 2008 revenue came from disk-based products, 9 percent from tape products, 7 percent from software, 3 percent from storage networking, and 41 percent from services. The tape portion is falling fast as customers move towards disk-based solution for backing up and protecting their data, Barnum said.

Datalink's business was also more diversified than in the past, Westling said. During the quarter, it had 19 customers which generated at least $500,000 in revenue, compared to 13 customers during the same period last year. This quarter also saw Datalink's largest customer account for only 4 percent of the company's revenue, compared to 12 percent last year. "We've continued to diversify our customer base," he said.

2008 could also see Datalink making other solution provider acquisitions, Westling said. Potential acquisition targets will have a strong storage focus with integration experience and high-value services, and will offer the opportunity to expand into new geographies, he said.

"We continually have dialog with companies throughout the industry," he said. "It's part of the normal course of business."

Going forward, Westling said to expect more good news. Datalink ended the quarter with a backlog of $30 million, up from $23 million last year. It expects revenue to be between $48 million and $52 million, compared to $40.2 million last year, with earnings of between 5 cents and 9 cents per share compared to last year's loss of 3 cents per share.