Datalink Corp has a market cap of $175.4 million; its shares were traded at around $10.27 with a P/E ratio of 13.8 and P/S ratio of 0.5. Datalink Corp had an annual average earning growth of 7.5% over the past 5 years.
Highlight of Business Operations:Gross Profit. Our total gross profit as a percentage of net sales decreased to 22.9% for the quarter ended March 31, 2012, as compared to 24.2% for the comparable quarter in 2011. Product gross profit as a percentage of product sales decreased to 22.0% in the first quarter of 2012 from 24.1% for the comparable quarter in 2011. Service gross profit as a percentage of service sales increased to 24.9% for the first quarter of 2012 from 24.5% for the comparable quarter in 2011.
Our product gross profit as a percentage of product sales is impacted by the mix and type of projects we complete for our customers. The first quarter 2012 product gross profit decreased 2.1% as compared to the same period in 2011. We have experienced a decrease in our product gross profit percentage as we saw an increase in our networking and server business, which historically has carried lower gross margins. The product gross margin percentages we achieved in the first quarters of 2012 and 2011 fall within the range of product gross margin percentages we expect as our strategy continues to mature. Our product gross profit is also impacted by various vendor incentive programs that provide economic incentives for achieving various sales performance targets and early payment of invoices. Vendor incentives were $1.9 million and $1.3 million, respectively, for the three-month periods ended March 31, 2012 and 2011. As a percentage of product cost of goods sold, vendor incentives were 3.0% and 3.1%, respectively, for the periods ending March 31, 2012 and 2011. Several of our vendors have tightened eligibility for their programs in the current economic climate and may further change or terminate their programs at any time. Accordingly, we cannot assure that we will achieve and receive similar vendor incentives in the future. We expect that as we continue implementing our strategy to sell comprehensive data center solutions with servers and networking products that our product gross margins for the remainder of 2012 will be between 21% and 23%.
Sales and Marketing. Sales and marketing expenses include wages and commissions paid to sales and marketing personnel, travel costs and advertising, promotion and hiring expenses. Sales and marketing expenses totaled $12.6 million, or 10.5% of net sales for the quarter ended March 31, 2012, compared to $9.2 million, or 10.7% of net sales for the first quarter in 2011.
Engineering expenses increased $1.4 million for the three months ended March 31, 2012, as compared to the same period in 2011. The increase in engineering expenses is primarily due to an increase in salaries and benefits of $2.0 million and travel expenses of $192,000 associated with the increase in engineering headcount from our Midwave acquisition. We also had $204,000 of placement fees to support hiring efforts in our regions. This was partially offset by $1.6 million as an increased amount of our engineering costs were allocated to our cost of service sales commensurate with the increase in our professional services sales.
Net cash provided by operating activities was $5.7 million for the three months ended March 31, 2012 as compared to net cash provided by operating activities of $2.6 million for the three months ended March 31, 2011. The increase in cash provided by operations was due primarily to our net earnings for the quarter of $2.2 million and non-cash add backs including depreciation of $339,000 and amortization of finite lived intangibles of $619,000. Net cash provided by operating activities for the three months ended March 31, 2011 was primarily due to net earnings for the quarter of $1.7 million.
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