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Datalink Corp. Reports Operating Results (10-K)

March 01, 2011 | About:
guruat

10qk

18 followers
Datalink Corp. (DTLK) filed Annual Report for the period ended 2010-12-31.

Datalink Corp. has a market cap of $90.1 million; its shares were traded at around $6.75 with a P/E ratio of 25 and P/S ratio of 0.3. Hedge Fund Gurus that owns DTLK: Jim Simons of Renaissance Technologies LLC.

Highlight of Business Operations:

We configure products to customer specifications and generally ship them shortly after we receive our customer's purchase order. Customers may change their orders with little or no penalty. We do not recognize revenue on hardware or software products until we have completed our required or contracted installation or configuration services in connection with the sale. Customer constraints, including customer readiness, and the availability of engineering resources significantly impacts when we can complete our installation and configuration services. Recent economic conditions have also led customers to curtail or delay capital spending projects, including server, storage and networking solutions. These factors, often beyond our control, prevent us from relying on backlog as a strong predictor of our future sales levels in any particular period. In this light, our backlog, which represents firm orders we expect to recognize as revenue within the next 90 days, was $47.0 million and $46.0 million at December 31, 2010 and 2009, respectively. Effective January 1, 2011, we are required to adopt new revenue recognition standards which change our revenue recognition policy to recognize product revenues upon shipment versus upon installation under our old revenue recognition method. This change in revenue recognition will significantly impact the value and content of our backlog going forward.

Reseller Business of Incentra, LLC. In December 2009, we acquired the reseller business of Incentra, LLC ("Incentra"). Under the Asset Purchase Agreement, we paid Incentra $13.8 million. We paid $8.8 million at closing in cash, of which we held back $440,000 as security for certain indemnification obligations of Incentra. In addition, we paid Incentra $5.0 million for the working capital associated with Incentra's reseller business through the delivery of $2.0 million in cash and a $3.0 million secured promissory note paid on March 31, 2010. The promissory note is secured by the assets we purchased under the Asset Purchase Agreement. During 2010 the final working capital adjustment was agreed to and the amount held back for indemnification was released, the net effect was a decrease in the purchase price of $32,000. This acquisition doubles our presence in Chicago and the Northeast and provides us with a significant presence in the West. Our combined team now has expanded experience to design and implement complex data center solutions, which will deliver

Networking Solutions Division of Cross Telecom. In October 2009, we acquired the networking solutions division of Minneapolis-based Cross Telecom ("Cross"), which qualified as a business combination. We completed an asset purchase of $2.0 million paid in cash. Simultaneously, we entered into a reverse earn-out agreement with Cross where they agreed to purchase at least $1.8 million of Cisco networking products and services from us over the next three years. We believe the acquisition of this team of certified Cisco networking experts will be additive to our expertise in designing, implementing and managing sophisticated virtualized data center, storage and backup recovery solutions. In addition, we obtained Cross' Cisco Silver certification, a first step in the build out of our unified data center and networking practices.

Merger with Midrange Computer Systems Inc. In January 2007, we entered into an agreement and plan of merger with Midrange Computer Systems Inc. ("MCSI"), a storage consulting, solutions and service provider based in Chicago, Illinois. We believe the acquisition strengthened our presence in our then existing regional markets and expanded our reach into a number of then key new regional markets. We paid a purchase price of approximately $14.3 million for MCSI, consisting of $5.0 million cash and 1,163,384 shares of our common stock. Our results of operations for 2007 reflect the addition of MCSI for eleven months.

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