(EDGAR on-line by means of COMTEX) -- merchandise 2. administration's dialogue and analysis of financial condition and consequences of Operations
observe regarding ahead-searching STATEMENTS
The inner most Securities Litigation Reform Act of 1995 provides a "secure harbor" for certain ahead-looking statements. This Quarterly document on kind 10-Q contains ahead-looking statements. These ahead-looking statements are subject to certain dangers and uncertainties, including those recognized beneath, which could trigger exact outcomes to vary materially from historical results or those expected. The phrases "intention," "consider," "predict," "count on," "intend," "estimate" and different expressions which indicate future routine and tendencies identify ahead-searching statements. actual future consequences and tendencies may vary materially from old effects or these anticipated based upon quite a lot of components, together with, but no longer restrained to: the degree of carrying on with demand for statistics center solutions and capabilities including the consequences of present economic and credit score situations and the capacity of organizations to outsource information core infrastructure-connected services to service suppliers reminiscent of us; the migration of organizations to virtualized server environments, together with using a private cloud computing infrastructure; the extent to which shoppers installation disk-based mostly backup restoration options; the consciousness of the expected traits identified for advanced network infrastructures; reliance by means of manufacturers on their facts carrier companions to integrate their really expert products; endured favourite status with definite fundamental suppliers; competition and pricing pressures and timing of their installations that can also adversely have an effect on their revenues and gains; fixed employment charges that may additionally affect profitability if they endure earnings shortfalls; their capacity to appoint and retain key technical and revenue personnel; continued productiveness of their revenue personnel; their dependence on key suppliers; their capacity to adapt to fast technological exchange; success of their business useful resource planning gadget; dangers linked to integrating completed and future acquisitions; the skill to execute their acquisition method; fluctuations in their quarterly working outcomes; market acceptance of their managed functions choices, including first name guide services; future changes in applicable accounting suggestions; and volatility in their stock fee. further, their revenues for any specific quarter aren't always reflected by using their backlog of contracted orders, which also may additionally fluctuate unpredictably.
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These statements reflect their current views with admire to future hobbies and are in keeping with assumptions area to risks and uncertainties. They don't intend to replace or revise any ahead-looking statements whether because of new tips, future pursuits or otherwise. additional hazards, uncertainties and other elements are included within the "possibility factors" section on their Annual file on form 10-k for the year ended December 31, 2013. All forward-searching statements are quantified with the aid of, and will be regarded in conjunction with, such cautionary statements. Readers are urged to cautiously review and consider the a number of disclosures made by using us in this file and in their different reports filed with the Securities and exchange fee that advises fascinated events of the risks and components that may additionally affect their company.
We deliver impartial, finished solutions and functions that make data facilities more effective, manageable and responsive to altering enterprise needs. focused on mid- and massive-size corporations, they talk to, investigate, design, set up, put into effect, assist, and control vital facts center infrastructures reminiscent of servers, storage, networks and cloud. Their solutions make certain that their clients' assistance know-how techniques align with business wants and maximize effectivity. each and every answer is constructed the usage of a customised platform of hardware and application from dissimilar expertise companies. They leverage hardware and application from trade-leading common machine producers as part of their statistics center offerings and provide ongoing assist for the entire solutions and functions they present. Their portfolio of options and functions spans five practices:
Our solutions can encompass hardware products, equivalent to servers, disk arrays, tape programs, networking and interconnection components and application products. Their statistics center strategy is supported via distinctive traits available in the market and contains aiding the market and their customers with a single vendor to give their data middle infrastructure needs. As of June 30, 2014, they now have 36 areas, together with both leased amenities and home workplaces, right through the united states. They historically have derived their premier percent of net earnings from valued clientele found in the vital part of the us.
We promote support carrier contracts to most of their customers. In about half of the assist provider contracts that they promote, their valued clientele purchase guide functions via us, leading to purchasers receiving the improvement of integrated gadget-large aid. we've a certified, independent assist desk that takes calls from clients, diagnoses the issues they are dealing with and both solves the problem or coordinates with their and/or seller technical personnel to satisfy the consumer's wants. Their aid provider agreements with their consumers consist of an underlying settlement with the product company. The manufacturer gives on-website assist assistance if quintessential. The different half of the support provider contracts that they promote to their shoppers are direct with the product manufacturers. For all guide carrier contracts they promote, they defer revenues and direct fees as a consequence of these contracts, and amortize these revenues and costs into operations, over the time period of the contracts, frequently one to 3 years.
The information center infrastructure options and functions market is swiftly evolving and totally competitive. Their competitors includes other unbiased storage, server and networking equipment integrators, excessive end price-introduced resellers, distributors, consultants and the internal income drive of their suppliers. Their potential to rent and continue certified outdoor revenue representatives and engineers with enterprise-class advice storage, server and networking adventure is vital to effortlessly compete in the market and achieve their growth recommendations.
during the past, we've experienced fluctuations within the timing of orders from their clients, and they are expecting to continue to adventure these fluctuations sooner or later. These fluctuations have resulted from, among different things, the time required to design, look at various and consider their records core infrastructure solutions earlier than purchasers installation them, the measurement of customer orders, the complexity of their valued clientele' community environments, necessary system configuration to deploy their solutions and new product introductions through suppliers. latest economic circumstances and competition also affect their consumers' selections and timing to vicinity orders with us and the dimension of these orders. in consequence, their net earnings might also fluctuate from quarter to quarter.effects OF OPERATIONS right here table suggests, for the durations indicated, definite selected financial information expressed as a percent of internet earnings. Three Months Ended Six Months Ended June 30, June 30, 2014 2013 2014 2013 net income 100.0 % a hundred.0 % 100.0 % a hundred.0 % cost of revenue 77.7 77.3 seventy eight.three seventy seven.5 Gross profit 22.three 22.7 21.7 22.5 operating expenses: earnings and advertising 10.0 10.5 10.5 10.2 commonplace and administrative three.0 3.four 3.4 three.8 Engineering four.7 four.2 5.0 four.6 Integration and transaction charges - - - - Amortization of intangibles 0.9 1.2 0.9 1.four complete working charges 18.6 19.three 19.eight 20.0 salary from operations three.7 % three.four % 1.9 % 2.5 %
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the following table suggests, for the intervals indicated, profits and gross profit counsel for their product and service income.Three Months Ended Six Months Ended June 30, June 30, 2014 2013 2014 2013 (in hundreds) Product revenue $ 98,252 $ 93,295 $ 181,447 $ 177,699 service income sixty one,128 fifty four,484 117,468 103,598 Product gross earnings $ 21,841 $ 20,548 $ 38,266 $ 38,886 provider gross profit 13,642 13,013 26,699 24,508 Product gross earnings as a percent of product income 22.2 % 22.0 % 21.1 % 21.9 % provider gross income as a percent of provider earnings 22.three % 23.9 % 22.7 % 23.7 %
Our product earnings continue to mirror a diversification within the mixture of their offerings. For the three and 6 months ended June 30, 2014, product sales represented sixty one.6% and 60.7%, respectively, of their total earnings compared to 63.1% and sixty three.2%, respectively, for the comparable periods in 2013. The dollar extent raise in their product earnings for the three and 6 months ended June 30, 2014 as compared to the identical periods in 2013 displays endured growth in their customer base including boom in customers with multi-million greenback bills with us and market acceptance of their ongoing method to provider the complete facts core, as evidenced through raises in their storage and networking product sales. They can not guarantee that alterations in consumer spending or economic circumstances will positively affect their future product revenue.
For the three and six months ended June 30, 2014, provider income represented 38.4% and 39.three%, respectively, of their total income compared to 36.9% and 36.eight%, respectively, for the related periods in 2013. The raise in their carrier earnings for the three and six months ended June 30, 2014 as in comparison to the identical length in 2013 displays the influence of accelerating momentum for their virtualized data middle options and improved market acceptance of their greater fresh features choices, including unified monitoring and managed infrastructure services for the total multi-seller virtualized records center choices. additionally, their more moderen managed capabilities choices for backup, monitoring, archiving, cloud backup and cloud enablement capabilities help companies analyze the affect of cloud deployments on their enterprise. With the boom in their product sales, they continue to efficiently promote their installing and configuration features and customer aid contracts. without persevered sustainable boom in their product sales going ahead, they might expect their client assist contract revenue to endure and they can't assure that their future consumer guide contract income will not decline.
We had no single client account for 10% or enhanced of their revenues for the three and six months ended June 30, 2014 or 2013. despite the fact, their correct five customers mutually accounted for eleven.eight% and 14.0% of their revenues for the three months ended June 30, 2014 and 2013, respectively, and 9.5% and 10.7% of their revenues for the six months ended June 30, 2014 and 2013, respectively.
Gross income. Their total gross income as a percentage of web sales lowered to 22.3% for the quarter ended June 30, 2014, as in comparison to 22.7% for the similar quarter in 2013. Their total gross earnings as a percent of net income lowered to 21.7% for the six months ended June 30, 2014, as in comparison to 22.5% for the similar length in 2013. Product gross income as a percentage of product revenue accelerated to 22.2% within the 2d quarter of 2014 from 22.0% for the related quarter in 2013. Product gross profit as a percent of product income lowered to 21.1% for the six months ended June 30, 2014 from 21.9% for the same length in 2013. carrier gross income as a percent of provider earnings reduced to 22.three% for the 2nd quarter of 2014 from 23.9% for the related quarter in 2013. carrier gross profit as a percent of provider sales lowered to 22.7% for the six months ended June 30, 2014 from 23.7% for the same length in 2013.
Our product gross earnings as a percentage of product sales is impacted by way of the combine and type of tasks they complete for their purchasers. Their product gross profit as a percentage of product earnings for the three and 6 months ended June 30, 2014 remained rather consistent and diminished 0.8%, respectively, as in comparison to the identical periods in 2013. Their product margins will fluctuate from quarter to quarter as a result of product combine and pricing pressure on new orders; youngsters, they are expecting that their product margins in the present year should be beneath 2013 degrees due essentially to a shift in storage product revenue from bigger-margin products to lessen-margin items, a couple of colossal transactions with new clients all the way through the first six months of 2014 during which competition for the brand new accounts resulted in
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reducing their expenditures to win the business, and to the boost in their networking and server salary movement, which traditionally has carried lessen gross margins than their storage revenue movement. Their product gross profit is also impacted via a considerable number of vendor incentive courses that give economic incentives for reaching quite a lot of earnings efficiency targets and early price of invoices. vendor incentives have been $2.four million and $2.0 million, respectively, for the three month periods ended June 30, 2014 and 2013. dealer incentives had been $3.7 million and $3.eight million, respectively, for the six month intervals ended June 30, 2014 and 2013. As a percent of product can charge of items offered, seller incentives have been 3.0% and a pair of.7%, respectively, for the three months ended June 30, 2014 and 2013 and a couple of.5% and 2.6%, respectively, for the six months ended June 30, 2014 and 2013, respectively. These vendor classes normally alternate and they negotiate them one by one with each and every dealer. whereas they are expecting the motivation and early pay classes to continue, the companies might adjust or discontinue them, specially in easy of current economic situations, which might unfavorably influence their product gross profit margins. They predict that as they proceed implementing their approach to promote complete facts core options with servers and networking products that their product gross margins for the the rest of 2014 could be approximately 20%.
service gross earnings as a percent of provider income for the three and six months ended June 30, 2014 lowered 1.6% and 1.0%, respectively, as in comparison to the identical periods in 2013. This reduce is basically driven with the aid of a discount within the gross margin percentage on professional functions supplied through Datalink as a result of adding new items and capabilities to handle rising market acceptance of unified information facilities and a discount within the gross margin percent for their client assist contracts on which they have been now not in a position to sell first call assist, which elevate reduce gross margins. They expect that their managed services choices and first name unified consumer aid service revenues will proceed to gain market acceptance for the remainder of 2014, and service gross margins will be inside the 22% to 24% latitude for that duration.
earnings and advertising. income and advertising fees include wages and commissions paid to sales and advertising and marketing personnel, shuttle costs and advertising, promotion and hiring prices. They rate promoting prices as incurred. earnings and advertising costs totaled $15.9 million, or 10.0% of web earnings for the quarter ended June 30, 2014, compared to $15.6 million, or 10.5% of web revenue for the second quarter in 2013. earnings and advertising and marketing charges totaled $31.5 million, or 10.5% of internet revenue for the six months ended June 30, 2014, compared to $28.8 million, or 10.2% of web sales for the same period in 2013.
revenue and advertising and marketing costs increased $295,000 and $2.8 million for the three and 6 month intervals ended June 30, 2014, respectively, as compared to the identical intervals in 2013. These increases are basically due to a rise in salaries and merits commensurate with the increase in revenue and advertising and marketing headcount for the 2014 duration. They expect that their income and marketing costs will be in the range of eight% to 10% of net income for the the rest of 2014.
typical and Administrative. ordinary and administrative charges consist of wages for administrative personnel, expert costs, depreciation, verbal exchange expenses and hire and related facility charges. usual and administrative fees have been $four.eight million, or three.0% of net income for the quarter ended June 30, 2014, compared to $5.1 million, or three.4% of web income for the second quarter in 2013. common and administrative expenses have been $10.1 million, or three.4% of net income for the six months ended June 30, 2014, in comparison to $10.7 million, or 3.8% of internet sales for the same length in 2013. Their conventional and administrative costs have diminished as a percent of internet earnings for each the three and six month periods ended June 30, 2014 as compared to the same periods in 2013.
frequent and administrative prices diminished $214,000 and $556,000 for the three and 6 months ended June 30, 2014, respectively, as compared to the identical intervals in 2013. The lower in conventional and administrative expenses for the three months ended June 30, 2014 as in comparison to the identical length in 2013 was basically because of a reduce of $278,000 in backyard functions and a lessen of $202,000 in bonus cost, partially offset by a rise of $145,000 in depreciation cost. The lessen in universal and administrative expenses for the six months ended June 30, 2014 as compared to the same length in 2013 changed into primarily due to a decrease of $469,000 in bonus fee and a decrease of $352,000 in outside services, partly offset via an increase of $232,000 in depreciation rate.
Engineering. Engineering expenses consist of employee wages, bonuses and go back and forth, hiring and practicing charges for their box and client support engineers and technicians. Engineering fees had been $7.four million, or 4.7% of internet income for the quarter ended June 30, 2014, compared to $6.1 million, or four.2% of internet earnings for the 2nd quarter in 2013. Engineering costs had been $15.0 million, or 5.0% of internet revenue for the six months ended June 30, 2014, compared to $13.1 million, or four.6% of internet revenue for a similar period in 2013.
Engineering fees increased $1.3 million and $1.eight million for the three and six months ended June 30, 2014, respectively, as in comparison to the equal periods in 2013. The enhance in engineering costs for the three months ended June 30, 2014 is primarily due to a rise in salaries, advantages and bonus prices of $1.2 million commensurate with the boost in engineering headcount throughout the 2014 duration as a result of adding new items and features to address rising market acceptance of unified records centers. The increase in engineering costs for the six months ended June 30, 2014 is basically because of an increase in salaries, merits and bonus fees of $2.four million commensurate with the boost in engineering headcount all over the 2014 duration as a result of including new products and features to tackle rising market acceptance of unified facts centers, partially offset by using a lower of $730,000 in consulting fees.
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Integration and Transaction charges. They recorded no integration and transaction fees for the three and 6 months ended June 30, 2014. They had $25,000 and $seventy three,000 of integration and transaction fees for the three and 6 months ended June 30, 2013, respectively. Integration and transaction fees in 2013 for the StraTech acquisition protected audit, prison, and other outside consulting costs.
Amortization of Intangibles. They had $1.four million and $1.8 million of intangible asset amortization prices for the three months ended June 30, 2014 and 2013, respectively. They had $2.eight million and $three.8 million of intangible asset amortization expenses for the six months ended June 30, 2014 and 2013, respectively. The finite-lived intangible asset they received in their acquisition of StraTech consisted of consumer relationships having an estimated life of five years that we're amortizing the usage of an accelerated amortization method, to suit the sample wherein the economic advantages of that asset are expected to be consumed. The finite-lived intangibles they got in their acquisition of Midwave consisted of covenants now not to compete, order backlog and customer relationships having estimated lives of three years, three months and 5 years, respectively. they are amortizing the finite-lived intangible assets they received in their Midwave acquisition basically the use of the straight line components. The reduce in amortization of intangibles prices in 2014 as compared to 2013 is primarily due to their use of an accelerated amortization method in amortizing the consumer relationships bought within the StraTech acquisition.
revenue from Operations. They had revenue from operations of $6.0 million and $4.9 million for the three months ended June 30, 2014 and 2013, respectively. They had earnings from operations of $5.6 million and $6.9 million for the six months ended June 30, 2014 and 2013, respectively. The boost in profits from operations for the three months ended June 30, 2014 is primarily the outcome of multiplied revenues because of endured increase in their customer base including growth in valued clientele with multi-million dollar bills with us, market acceptance of their ongoing method to carrier the comprehensive data center, the influence of accelerating momentum for their virtualized information middle options and improved market acceptance of their extra contemporary functions offerings, including unified monitoring and managed infrastructure capabilities for the whole multi-vendor virtualized statistics middle choices. The reduce in revenue from operations for the six months ended June 30, 2014 is basically as a result decrease gross margins on account of product combine changes and charges associated with the ramp-up of their advanced capabilities observe.
profits Taxes. They had profits tax price of $2.four million and $2.0 million for the three months ended June 30, 2014 and 2013, respectively. They had revenue tax cost of $2.6 million and $2.eight million for the six months ended June 30, 2014 and 2013, respectively. Their estimated advantageous tax expense for the three and six months ended June 30, 2014 was 40.three% and forty.1%, respectively. For the steadiness of 2014, they expect to record an income tax provision the use of an exceptional tax rate of about forty.2%.LIQUIDITY AND CAPITAL components Six Months Ended June 30, 2014 2013 (in hundreds) total cash supplied by (used in): operating activities $ 6,860 $ 20,196 Investing activities four,835 (1,679 ) Financing activities (three,167 ) (5,730 ) raise in cash $ 8,528 $ 12,787
internet money supplied by way of operating activities changed into $6.9 million and $20.2 million for the six months ended June 30, 2014 and 2013, respectively. internet cash provided by way of operating actions of $6.9 million for the six months ended June 30, 2014 was primarily because of a $26.7 million reduce in bills receivable, a $9.5 million lower in inventories, their net revenue of $3.9 million and non-cash objects together with amortization of finite-lived intangibles of $2.8 million, stock-based compensation of $1.7 million and depreciation of $1.2 million, partially offset by means of a $30.0 million decrease in money owed payable and gathered fees and an $eleven.6 million lower in profits taxes payable. web cash supplied by using operating actions for the six months ended June 30, 2013 of $20.2 million turned into essentially because of a $50.8 million decrease in money owed receivable, their web salary of $four.0 million and non-cash objects including amortization of finite-lived intangibles of $3.8 million, inventory-primarily based compensation of $1.8 million and depreciation of $989,000, in part offset with the aid of a $40.4 million lower in debts payable.
net cash provided through investing actions changed into $four.eight million for the six months ended June 30, 2014. For the six months ended June 30, 2014, the net sale of $6.1 million of investments turned into partly offset through the purchase of $1.3 million in property and device. net cash utilized in investing activities was $1.7 million for the six months ended June 30, 2013 and become used for the purchase of property and device. For the remainder of 2014, they are planning for capital fees of as much as $1.5 million primarily involving enhancements to their management information techniques and upgraded computing device equipment.
net money utilized in financing activities became $3.2 million for the six months ended June 30, 2014 and was primarily brought on by payments on their channel finance facility of $three.0 million. web cash used in financing actions became $5.7 million for the six months ended June 30, 2013 and was primarily because of net funds beneath their line of credit.
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On July 17, 2013, they entered right into a credit contract ("credit score agreement") with fort Pines Capital LLC ("CPC"), an affiliate of Wells Fargo bank, countrywide association ("Wells Fargo"). The credit contract provides for a channel finance facility ("Channel Finance Facility") and a revolving facility ("Revolving Facility" and, together with the Channel Finance Facility, "combined Facility") in a maximum mixed combination volume of $40 million. Borrowing below the Revolving Facility can not exceed the lesser of (i) $40 million minus the volume fantastic below the Channel Finance Facility or (ii) a borrowing base which include 85% of certain eligible money owed and 100% of channel financed stock, field to CPC's capacity to impose reserves sooner or later. The Channel Finance Facility will finance definite purchases of inventory by way of us from vendors authorised by using CPC and the Revolving Facility can be used for working capital purposes and authorised acquisitions.
The quantities stunning under the Revolving Facility will undergo pastime at a per annum cost of two.0% above Wells Fargo's one-month LIBOR expense (approximately 0.16% at June 30, 2014). Advances beneath the Channel Finance Facility will not undergo hobby so long as they're paid through the relevant fee due date and advances that stay astonishing after the relevant charge due date will endure interest at a once a year price of LIBOR plus 4%. we're obligated to pay quarterly to CPC an unused dedication price equal to 0.50% every year on the standard every day unused quantity of the combined Facility, with usage including the sum of any advances beneath both the Channel Finance Facility or the Revolving Facility. The combined Facility and likely bank product tasks owed to . . .
Aug 08, 2014
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