|Some rambling notes from the conference call, sorry about any typos or errors.|
Very vanilla conference call
- see no slowdown in corporate investment in storage infrastructure
- sales pipeline at near record levels
- 2-1/2 new accounts per business day in 4th quarter
- new accounts generated 30% of overall business
- new accounts - Bell South, New York Systems, CHC holdings, Federal Reserve, several others
- new accounts a result of Y2000 expansion, still 80% repeat on existing customers
- product mix, strong tape
- 23.8% primary storage
- 37.6% tape
- 14.6% services
- 12% management infrastructure
- 6% SAN
Key infrastructure enhancements in Datalink business
- November acquisition
- Expanded presence in New York, Raleigh, Boston
- Divided country into 6 regions
- Formal engineer training program launched in October (4 week boot camp)
- Launched 5 business improvement teams, starting to see benefits from suggestions
- Launched employee satisfaction survey to retain quality employees
Summary - many new opportunities, SAN/WAN, SCSI over IP, ….
- Flip/flop between storage and tape? Percentages about the same, slip up at end of year, could not book large disk purchases, no real trend seen, profit is more a function of customer relationship and time spent in the field.
- Change into region structure? Prior was 3 regions, growth dictated new structure.
- Characterize 4th Q order pattern, into 1st Q, cash flow positive - inventory levels on balance sheet? Open order higher than we have seen, could not get everything done during the holidays, healthy backlog. Positive book to bill? Don't usually think in these terms, very comfortable. Some hesitation in front of 1st Q, order backlog helped. Working capital - increased inventory turns, pass hot potato of inventory back to vendors, expect to see nice improvement, AR 22M down to 16M due to timing of deal closes and installs, invoice upon shipment, delay between install and payment. No concerns on AR, should be in high 40 to low 50 range, 3-5% free cash flow, should deliver these kind of cash numbers. Margin estimate for 1Q 6.5% (4.5% after intangibles).
- Define primary storage in mix? Where is NAS? NAS is in primary storage but does not represent a large amount. Customer interest in NAS? If a NAS solution is a better fit Datalink will sell, no debate between NAS and SAN, NAS is growing up moving into Oracle space (EMC/NTAP).
- Revenue product mix, any impact on gross margins? We don't really see a difference, we don't sell a disk drive or tape drive, we sell a solution. NAS probably has a somewhat weaker margin. We are investing in tech services heavily, this is the resource that allows us to do higher margin work, consulting, value added.