Rackspace Technology, Inc. (Nasdaq: RXT), a leading end-to-end
multicloud technology solutions company, today announced results
for its third quarter ended September 30, 2020.
Rackspace Technology Chief Executive Officer Kevin Jones
commented, “The third quarter represented continued strong
execution and performance for Rackspace Technology as we continue
to capitalize on the $400 billion multicloud market opportunity. We
achieved another quarter of record results and improved against
each of our key performance metrics. As a result, we are raising
our full year 2020 guidance for revenue growth, Core Revenue
growth, Adjusted EBITDA and Adjusted Earnings Per Share. As
multicloud adoption continues to accelerate all over the world,
Rackspace Technology will be there to capitalize on the
opportunity.”
Third Quarter 2020 Results
Revenue was $682 million in the third quarter of 2020, an
increase of 13% as compared to revenue of $602 million in the third
quarter of 2019. Revenue for the third quarter of 2020 was
positively impacted by the acquisition of Onica Holdings LLC
(“Onica”) in November 2019 as well as new customer acquisitions and
growing customer spend in our Multicloud Services and Apps &
Cross Platform segments. On a constant currency basis, after giving
effect to the acquisition of Onica as if it had occurred on January
1, 2019, revenue increased by 7% in the third quarter of 2020 as
compared to the third quarter of 2019.
Revenue from our Core Segments (“Core Revenue”), comprised of
Multicloud Services and Apps & Cross Platform, increased 18% in
the third quarter of 2020 as compared to the third quarter of 2019.
On a constant currency basis, after giving effect to the
acquisition of Onica as if it had occurred on January 1, 2019, Core
Revenue increased 10% in the third quarter of 2020 as compared to
the third quarter of 2019.
Bookings were $315 million in the third quarter of 2020, an
increase of 64% as compared to Bookings of $192 million in the
third quarter of 2019. After giving effect to the acquisition of
Onica as if it had occurred on January 1, 2019, Bookings increased
39% in the third quarter of 2020 as compared to the third quarter
of 2019.
Net loss was $101 million in the third quarter of 2020, compared
to net loss of $61 million in the third quarter of 2019.
Adjusted EBITDA was $191 million in the third quarter of 2020,
an increase of 2% as compared to Adjusted EBITDA of $187 million in
the third quarter of 2019.
Net loss per diluted share was $(0.54) in the third quarter of
2020, compared to net loss per diluted share of $(0.37) in the
third quarter of 2019.
Adjusted Earnings Per Share was $0.19 in the third quarter of
2020, an increase of 36% as compared to Adjusted Earnings Per Share
of $0.14 in the third quarter of 2019.
Capital expenditures were $48 million in the third quarter of
2020, compared to $55 million in the third quarter of 2019.
As of September 30, 2020, we had cash and cash equivalents
of $253 million with no balance outstanding on our Revolving Credit
Facility.
Full-year 2020 Financial Outlook
Rackspace Technology is increasing guidance for full year 2020,
as follows:
|
Previous Guidance |
Updated Guidance |
Consolidated revenue growth, Year-over-Year in constant
currency |
9.0% - 10.0% |
10.0% - 11.0% |
Core Revenue growth, Year-over-Year in constant currency |
12.5% - 13.5% |
14.0% - 15.0% |
Adjusted EBITDA |
$756 million - $760 million |
$758 million - $762 million |
Adjusted Earnings Per Share |
$0.75 - $0.81 |
$0.79 - $0.81 |
Definitions of non-GAAP financial measures and the
reconciliations to the most directly comparable measures in
accordance with generally accepted accounting principles in the
United States (“GAAP”) are provided in subsequent sections of this
press release narrative and supplemental schedules. Rackspace
Technology has not reconciled Consolidated revenue growth,
Year-over-Year in constant currency or Core Revenue growth,
Year-over-Year in constant currency guidance to the most directly
comparable GAAP measures because it does not provide guidance on
forward-looking foreign exchange rates given their potential
variability, which could be significant. Further, Rackspace
Technology has not reconciled Adjusted EBITDA or Adjusted Earnings
Per Share guidance to the most directly comparable GAAP measure
because it does not provide guidance on GAAP net income (loss) or
the reconciling items between Adjusted EBITDA and GAAP net income
(loss) as a result of the uncertainty regarding, and the potential
variability of, certain of these items, such as share-based
compensation expense. Accordingly, a reconciliation of the non-GAAP
financial measure guidance to the corresponding GAAP measure is not
available without unreasonable effort. With respect to Adjusted
EBITDA and Adjusted Earnings Per Share guidance, adjustments in
future periods are generally expected to be similar to the kinds of
charges and costs excluded from Adjusted EBITDA in prior periods,
but the impact of such adjustments could be significant.
Conference Call and Webcast
Rackspace Technology will hold a conference call today, November
10, 2020, at 4:00pm CT / 5:00pm ET to discuss its third quarter
2020 results. Interested parties may access the conference call
live over the phone by dialing 1-877-308-2053 (domestic) or
1-212-231-2930 (international) and requesting the Rackspace
Technology Third Quarter 2020 Earnings Conference Call. A live
webcast of the call will be available on Rackspace Technology’s
website at
https://ir.rackspace.com/news-and-events/events-and-presentations.
An audio replay of the conference call will be available
approximately three hours after the conference call until 11:59 pm
ET on November 17, 2020, and can be accessed by dialing
1-844-512-2921 (domestic) or 1-412-317-6671 (international) and
providing the passcode 21970890.
About Rackspace Technology
Rackspace Technology is a leading end-to-end multicloud
technology services company. We design, build and operate our
customers’ cloud environments across all major technology
platforms, irrespective of technology stack or deployment
model. We partner with our customers at every stage of their
cloud journey, enabling them to modernize applications, build new
products and adopt innovative technologies.
Forward-looking Statements
Rackspace Technology has made statements in this press release
and other reports, filings, and other public written and verbal
announcements that are forward-looking and therefore subject to
risks and uncertainties. All statements, other than statements of
historical fact, included in this document are, or could be,
“forward-looking statements” within the meaning of the Private
Securities Litigation Reform Act of 1995 and are made in reliance
on the safe harbor protections provided thereunder. These
forward-looking statements relate to anticipated financial
performance, management’s plans and objectives for future
operations, business prospects, outcome of regulatory proceedings,
market conditions, our ability to successfully respond to the
challenges posed by the COVID-19 pandemic, and other matters. Any
forward-looking statement made in this presentation speaks only as
of the date on which it is made. We undertake no obligation to
publicly update or revise any forward- looking statement, whether
as a result of new information, future developments or otherwise.
Forward-looking statements can be identified by various words such
as “expects,” “intends,” “will,” “anticipates,” “believes,”
“confident,” “continue,” “propose,” “seeks,” “could,” “may,”
“should,” “estimates,” “forecasts,” “might,” “goals,” “objectives,”
“targets,” “planned,” “projects,” and similar expressions. These
forward-looking statements are based on management’s current
beliefs and assumptions and on information currently available to
management. Rackspace Technology cautions that these statements are
subject to risks and uncertainties, many of which are outside of
our control, and could cause future events or results to be
materially different from those stated or implied in this document,
including among others, risk factors that are described in
Rackspace Technology, Inc.’s Registration Statement on Form S-1
(File No. 333-239794), Quarterly Reports on Form 10-Q, Current
Reports on Form 8-K, and other filings with the Securities and
Exchange Commission, including the sections entitled “Risk Factors”
and “Management’s Discussion and Analysis of Financial Condition
and Results of Operations” contained therein.
Non-GAAP Financial Measures
This press release includes several non-GAAP financial measures
such as constant currency revenue, Adjusted Consolidated Gross
Profit, Adjusted Net Income (Loss), Adjusted EBIT, Adjusted EBITDA
and Adjusted Earnings Per Share (“EPS”). These non-GAAP financial
measures exclude the impact of certain costs, losses and gains that
are required to be included in our profit and loss measures under
GAAP. Although we believe these measures are useful to investors
and analysts for the same reasons they are useful to management, as
described in the accompanying pages, these measures are not a
substitute for, or superior to, GAAP financial measures or
disclosures. Other companies may calculate similarly-titled
non-GAAP measures differently, limiting their usefulness as
comparative measures. We have reconciled each of these non-GAAP
measures to the applicable most comparable GAAP measure in the
accompanying pages.
IR ContactJoe CrivelliRackspace Technology
Investor Relationsir@rackspace.com
PR ContactNatalie SilvaRackspace Technology
Corporate Communicationspublicrelations@rackspace.com
RACKSPACE TECHNOLOGY,
INC.CONSOLIDATED RESULTS OF
OPERATIONS(Unaudited)
|
Three Months Ended September 30, |
|
Year-Over-Year Comparison |
|
2019 |
|
2020 |
|
(In millions, except % and per
share data) |
Amount |
|
% Revenue |
|
Amount |
|
% Revenue |
|
Amount |
|
% Change |
Revenue |
$ |
601.7 |
|
|
|
100.0 |
|
% |
|
$ |
681.7 |
|
|
|
100.0 |
|
% |
|
$ |
80.0 |
|
|
|
13.3 |
|
% |
Cost of revenue |
(347.9 |
) |
|
|
(57.8 |
) |
% |
|
(435.9 |
) |
|
|
(63.9 |
) |
% |
|
(88.0 |
) |
|
|
25.3 |
|
% |
Gross profit |
253.8 |
|
|
|
42.2 |
|
% |
|
245.8 |
|
|
|
36.1 |
|
% |
|
(8.0 |
) |
|
|
(3.2 |
) |
% |
Selling, general and
administrative expenses |
(221.7 |
) |
|
|
(36.9 |
) |
% |
|
(260.5 |
) |
|
|
(38.2 |
) |
% |
|
(38.8 |
) |
|
|
17.5 |
|
% |
Income (loss) from operations |
32.1 |
|
|
|
5.3 |
|
% |
|
(14.7 |
) |
|
|
(2.2 |
) |
% |
|
(46.8 |
) |
|
|
NM |
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
(80.9 |
) |
|
|
(13.4 |
) |
% |
|
(68.3 |
) |
|
|
(10.0 |
) |
% |
|
12.6 |
|
|
|
(15.6 |
) |
% |
Loss on investments, net |
(22.0 |
) |
|
|
(3.7 |
) |
% |
|
— |
|
|
|
— |
|
% |
|
22.0 |
|
|
|
(100.0 |
) |
% |
Loss on extinguishment of debt |
— |
|
|
|
— |
|
% |
|
(37.0 |
) |
|
|
(5.4 |
) |
% |
|
(37.0 |
) |
|
|
100.0 |
|
% |
Other income, net |
1.1 |
|
|
|
0.2 |
|
% |
|
0.7 |
|
|
|
0.1 |
|
% |
|
(0.4 |
) |
|
|
(36.4 |
) |
% |
Total other income (expense) |
(101.8 |
) |
|
|
(16.9 |
) |
% |
|
(104.6 |
) |
|
|
(15.3 |
) |
% |
|
(2.8 |
) |
|
|
2.8 |
|
% |
Loss before income taxes |
(69.7 |
) |
|
|
(11.6 |
) |
% |
|
(119.3 |
) |
|
|
(17.5 |
) |
% |
|
(49.6 |
) |
|
|
71.2 |
|
% |
Benefit for income taxes |
9.2 |
|
|
|
1.5 |
|
% |
|
18.1 |
|
|
|
2.7 |
|
% |
|
8.9 |
|
|
|
96.7 |
|
% |
Net loss |
$ |
(60.5 |
) |
|
|
(10.1 |
) |
% |
|
$ |
(101.2 |
) |
|
|
(14.8 |
) |
% |
|
$ |
(40.7 |
) |
|
|
67.3 |
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share: |
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted |
$ |
(0.37 |
) |
|
|
|
|
$ |
(0.54 |
) |
|
|
|
|
|
|
|
Weighted average number of
shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted |
165.2 |
|
|
|
186.7 |
|
|
|
|
|
|
NM = not meaningful.
RACKSPACE TECHNOLOGY,
INC.CONSOLIDATED RESULTS OF
OPERATIONS(Unaudited)
|
Nine Months Ended September 30, |
|
Year-Over-Year Comparison |
|
2019 |
|
2020 |
|
(In millions, except % and per
share data) |
Amount |
|
% Revenue |
|
Amount |
|
% Revenue |
|
Amount |
|
% Change |
Revenue |
$ |
1,811.0 |
|
|
|
100.0 |
|
% |
|
$ |
1,990.9 |
|
|
|
100.0 |
|
% |
|
$ |
179.9 |
|
|
|
9.9 |
|
% |
Cost of revenue |
(1,054.2 |
) |
|
|
(58.2 |
) |
% |
|
(1,253.9 |
) |
|
|
(63.0 |
) |
% |
|
(199.7 |
) |
|
|
18.9 |
|
% |
Gross profit |
756.8 |
|
|
|
41.8 |
|
% |
|
737.0 |
|
|
|
37.0 |
|
% |
|
(19.8 |
) |
|
|
(2.6 |
) |
% |
Selling, general and
administrative expenses |
(679.9 |
) |
|
|
(37.5 |
) |
% |
|
(707.5 |
) |
|
|
(35.5 |
) |
% |
|
(27.6 |
) |
|
|
4.1 |
|
% |
Gain on sale |
2.1 |
|
|
|
0.1 |
|
% |
|
— |
|
|
|
— |
|
% |
|
(2.1 |
) |
|
|
(100.0 |
) |
% |
Income from operations |
79.0 |
|
|
|
4.4 |
|
% |
|
29.5 |
|
|
|
1.5 |
|
% |
|
(49.5 |
) |
|
|
(62.7 |
) |
% |
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
(270.7 |
) |
|
|
(14.9 |
) |
% |
|
(209.2 |
) |
|
|
(10.5 |
) |
% |
|
61.5 |
|
|
|
(22.7 |
) |
% |
Gain on investments, net |
121.4 |
|
|
|
6.7 |
|
% |
|
0.9 |
|
|
|
0.0 |
|
% |
|
(120.5 |
) |
|
|
(99.3 |
) |
% |
Gain (loss) on extinguishment of debt |
9.5 |
|
|
|
0.5 |
|
% |
|
(37.0 |
) |
|
|
(1.9 |
) |
% |
|
(46.5 |
) |
|
|
NM |
Other income (expense), net |
(1.2 |
) |
|
|
(0.1 |
) |
% |
|
0.4 |
|
|
|
0.0 |
|
% |
|
1.6 |
|
|
|
NM |
Total other income (expense) |
(141.0 |
) |
|
|
(7.8 |
) |
% |
|
(244.9 |
) |
|
|
(12.3 |
) |
% |
|
(103.9 |
) |
|
|
73.7 |
|
% |
Loss before income taxes |
(62.0 |
) |
|
|
(3.4 |
) |
% |
|
(215.4 |
) |
|
|
(10.8 |
) |
% |
|
(153.4 |
) |
|
|
NM |
Benefit for income taxes |
6.5 |
|
|
|
0.4 |
|
% |
|
33.4 |
|
|
|
1.7 |
|
% |
|
26.9 |
|
|
|
NM |
Net loss |
$ |
(55.5 |
) |
|
|
(3.1 |
) |
% |
|
$ |
(182.0 |
) |
|
|
(9.1 |
) |
% |
|
$ |
(126.5 |
) |
|
|
NM |
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share: |
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted |
$ |
(0.34 |
) |
|
|
|
|
$ |
(1.05 |
) |
|
|
|
|
|
|
|
Weighted average number of
shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted |
165.2 |
|
|
|
172.6 |
|
|
|
|
|
|
NM = not meaningful.
RACKSPACE TECHNOLOGY,
INC.CONSOLIDATED BALANCE
SHEETS(Unaudited)
(In millions, except per share
data) |
|
December 31, 2019 |
|
September 30, 2020 |
ASSETS |
|
|
|
|
Current assets: |
|
|
|
|
Cash and cash equivalents |
|
$ |
83.8 |
|
|
|
$ |
253.2 |
|
|
Accounts receivable, net of allowance for doubtful accounts and
accrued customer credits of $17.0 and $16.5, respectively |
|
350.3 |
|
|
|
430.4 |
|
|
Prepaid expenses |
|
76.2 |
|
|
|
80.4 |
|
|
Other current assets |
|
33.4 |
|
|
|
41.9 |
|
|
Total current assets |
|
543.7 |
|
|
|
805.9 |
|
|
|
|
|
|
|
Property, equipment and software, net |
|
727.8 |
|
|
|
892.8 |
|
|
Goodwill, net |
|
2,745.8 |
|
|
|
2,741.0 |
|
|
Intangible assets, net |
|
1,817.4 |
|
|
|
1,684.0 |
|
|
Operating right-of-use assets |
|
308.3 |
|
|
|
162.5 |
|
|
Other non-current assets |
|
129.4 |
|
|
|
136.9 |
|
|
Total assets |
|
$ |
6,272.4 |
|
|
|
$ |
6,423.1 |
|
|
|
|
|
|
|
LIABILITIES AND
STOCKHOLDERS' EQUITY |
|
|
|
|
Current liabilities: |
|
|
|
|
Accounts payable and accrued expenses |
|
$ |
260.4 |
|
|
|
$ |
264.3 |
|
|
Accrued compensation and benefits |
|
128.5 |
|
|
|
95.7 |
|
|
Deferred revenue |
|
66.6 |
|
|
|
59.6 |
|
|
Debt |
|
29.0 |
|
|
|
29.0 |
|
|
Accrued interest |
|
36.0 |
|
|
|
43.1 |
|
|
Operating lease liabilities |
|
58.3 |
|
|
|
57.7 |
|
|
Financing obligations |
|
42.9 |
|
|
|
46.3 |
|
|
Other current liabilities |
|
50.2 |
|
|
|
84.4 |
|
|
Total current liabilities |
|
671.9 |
|
|
|
680.1 |
|
|
|
|
|
|
|
Non-current liabilities: |
|
|
|
|
Debt |
|
3,844.3 |
|
|
|
3,392.2 |
|
|
Operating lease liabilities |
|
256.5 |
|
|
|
108.4 |
|
|
Finance lease liabilities |
|
88.4 |
|
|
|
351.9 |
|
|
Financing obligations |
|
86.4 |
|
|
|
80.0 |
|
|
Deferred income taxes |
|
326.9 |
|
|
|
266.9 |
|
|
Other non-current liabilities |
|
99.2 |
|
|
|
152.0 |
|
|
Total liabilities |
|
5,373.6 |
|
|
|
5,031.5 |
|
|
|
|
|
|
|
Commitments and Contingencies |
|
|
|
|
|
|
|
|
|
Stockholders' equity: |
|
|
|
|
Preferred stock, $0.01 par value per share: 5.0 shares authorized;
no shares issued or outstanding |
|
— |
|
|
|
— |
|
|
Common stock, $0.01 par value per share: 1,495.0 shares authorized;
165.4 and 200.2 shares issued and outstanding, respectively |
|
1.6 |
|
|
|
2.0 |
|
|
Additional paid-in capital |
|
1,602.7 |
|
|
|
2,326.6 |
|
|
Accumulated other comprehensive income (loss) |
|
12.0 |
|
|
|
(37.5 |
) |
|
Accumulated deficit |
|
(717.5 |
) |
|
|
(899.5 |
) |
|
Total stockholders' equity |
|
898.8 |
|
|
|
1,391.6 |
|
|
Total liabilities and stockholders' equity |
|
$ |
6,272.4 |
|
|
|
$ |
6,423.1 |
|
|
RACKSPACE TECHNOLOGY,
INC.CONSOLIDATED STATEMENTS OF CASH
FLOWS(Unaudited)
|
Nine Months Ended September 30, |
(In millions) |
2019 |
|
2020 |
Cash Flows From
Operating Activities |
|
|
|
Net loss |
$ |
(55.5 |
) |
|
|
$ |
(182.0 |
) |
|
Adjustments to reconcile net loss to net cash provided by operating
activities: |
|
|
|
Depreciation and amortization |
372.3 |
|
|
|
355.1 |
|
|
Amortization of operating right-of-use assets |
52.4 |
|
|
|
50.7 |
|
|
Deferred income taxes |
(10.3 |
) |
|
|
(40.2 |
) |
|
Share-based compensation expense |
22.8 |
|
|
|
56.8 |
|
|
Gain on sale |
(2.1 |
) |
|
|
— |
|
|
(Gain) loss on extinguishment of debt |
(9.5 |
) |
|
|
37.0 |
|
|
Unrealized (gain) loss on derivative contracts |
56.7 |
|
|
|
(2.6 |
) |
|
Gain on investments, net |
(121.4 |
) |
|
|
(0.9 |
) |
|
Provision for bad debts and accrued customer credits |
14.7 |
|
|
|
11.0 |
|
|
Amortization of debt issuance costs and debt discount |
13.7 |
|
|
|
13.9 |
|
|
Other operating activities |
0.9 |
|
|
|
(2.5 |
) |
|
Changes in operating assets and liabilities: |
|
|
|
Accounts receivable |
(61.9 |
) |
|
|
(92.7 |
) |
|
Prepaid expenses and other current assets |
(17.0 |
) |
|
|
(13.7 |
) |
|
Accounts payable, accrued expenses, and other current
liabilities |
(4.5 |
) |
|
|
(10.4 |
) |
|
Deferred revenue |
(5.8 |
) |
|
|
(7.2 |
) |
|
Operating lease liabilities |
(54.3 |
) |
|
|
(43.4 |
) |
|
Other non-current assets and liabilities |
0.5 |
|
|
|
3.8 |
|
|
Net cash provided by operating activities |
191.7 |
|
|
|
132.7 |
|
|
Cash Flows From
Investing Activities |
|
|
|
Purchases of property, equipment and software |
(153.7 |
) |
|
|
(97.6 |
) |
|
Proceeds from sale |
16.8 |
|
|
|
— |
|
|
Other investing activities |
4.6 |
|
|
|
5.4 |
|
|
Net cash used in investing activities |
(132.3 |
) |
|
|
(92.2 |
) |
|
Cash Flows From
Financing Activities |
|
|
|
Proceeds from issuance of common stock upon initial public
offering, net of offering costs |
— |
|
|
|
659.1 |
|
|
Proceeds from employee stock plans |
— |
|
|
|
11.3 |
|
|
Shares of common stock withheld for employee taxes |
(1.0 |
) |
|
|
(2.0 |
) |
|
Repurchase of common stock |
(2.2 |
) |
|
|
— |
|
|
Cash settlement of share-based awards |
(1.5 |
) |
|
|
— |
|
|
Proceeds from borrowings under long-term debt arrangements |
— |
|
|
|
310.0 |
|
|
Payments on long-term debt |
(84.7 |
) |
|
|
(811.3 |
) |
|
Payments for debt issuance costs |
— |
|
|
|
(1.4 |
) |
|
Principal payments of finance lease liabilities |
(17.6 |
) |
|
|
(14.3 |
) |
|
Proceeds from financing obligations |
— |
|
|
|
20.9 |
|
|
Principal payments of financing obligations |
(16.6 |
) |
|
|
(43.8 |
) |
|
Net cash provided by (used in) financing activities |
(123.6 |
) |
|
|
128.5 |
|
|
Effect of exchange rate changes on cash, cash equivalents, and
restricted cash |
(0.3 |
) |
|
|
0.4 |
|
|
Increase (decrease) in cash, cash equivalents, and
restricted cash |
(64.5 |
) |
|
|
169.4 |
|
|
Cash, cash equivalents, and restricted cash at beginning of
period |
258.2 |
|
|
|
87.1 |
|
|
Cash, cash equivalents, and restricted cash at end of
period |
$ |
193.7 |
|
|
|
$ |
256.5 |
|
|
Supplemental Cash Flow
Information |
|
|
|
Cash payments for interest, net of amount capitalized |
$ |
176.7 |
|
|
|
$ |
188.1 |
|
|
Cash payments for income taxes, net of refunds |
$ |
8.7 |
|
|
|
$ |
13.3 |
|
|
|
|
|
|
Non-cash Investing and
Financing Activities |
|
|
|
Acquisition of property, equipment and software by finance
leases |
$ |
0.2 |
|
|
|
$ |
77.1 |
|
|
Acquisition of property, equipment and software by financing
obligations |
3.7 |
|
|
|
20.5 |
|
|
Decrease in property, equipment and software accrued in
liabilities |
(5.6 |
) |
|
|
(21.1 |
) |
|
Non-cash purchases of property, equipment and software |
$ |
(1.7 |
) |
|
|
$ |
76.5 |
|
|
|
|
|
|
Non-cash increase in buildings within property, equipment and
software, net due to lease modification |
$ |
— |
|
|
|
$ |
220.3 |
|
|
Offering costs included in accrued liabilities |
$ |
— |
|
|
|
$ |
1.3 |
|
|
Other non-cash investing and financing activities |
$ |
1.2 |
|
|
|
$ |
2.8 |
|
|
REVENUE BY SEGMENT
|
|
Three Months Ended September 30, |
|
% Change |
(In millions, except %) |
|
2019 |
|
2020 |
|
Actual |
|
Constant Currency (1) |
Multicloud Services |
|
$ |
450.2 |
|
|
$ |
542.1 |
|
|
20.4 |
|
% |
|
19.6 |
|
% |
Apps & Cross Platform |
|
81.1 |
|
|
83.9 |
|
|
3.4 |
|
% |
|
3.2 |
|
% |
Core Revenue |
|
531.3 |
|
|
626.0 |
|
|
17.8 |
|
% |
|
17.1 |
|
% |
OpenStack Public Cloud |
|
70.4 |
|
|
55.7 |
|
|
(20.8 |
) |
% |
|
(21.4 |
) |
% |
Total |
|
$ |
601.7 |
|
|
$ |
681.7 |
|
|
13.3 |
|
% |
|
12.6 |
|
% |
(1) Refer to "Non-GAAP Financial
Measures" in this section for further explanation and
reconciliation.
|
|
Nine Months Ended September 30, |
|
% Change |
(In millions, except %) |
|
2019 |
|
2020 |
|
Actual |
|
Constant Currency (1) |
Multicloud Services |
|
$ |
1,352.6 |
|
|
$ |
1,569.0 |
|
|
16.0 |
|
% |
|
16.1 |
|
% |
Apps & Cross Platform |
|
238.2 |
|
|
245.3 |
|
|
3.0 |
|
% |
|
3.0 |
|
% |
Core Revenue |
|
1,590.8 |
|
|
1,814.3 |
|
|
14.1 |
|
% |
|
14.1 |
|
% |
OpenStack Public Cloud |
|
220.2 |
|
|
176.6 |
|
|
(19.8 |
) |
% |
|
(19.7 |
) |
% |
Total |
|
$ |
1,811.0 |
|
|
$ |
1,990.9 |
|
|
9.9 |
|
% |
|
10.0 |
|
% |
(1) Refer to "Non-GAAP Financial
Measures" in this section for further explanation and
reconciliation.
ADJUSTED GROSS PROFIT BY
SEGMENT
|
Three Months Ended September 30, |
|
Year-Over-Year Comparison |
(In millions, except %) |
2019 |
|
2020 |
|
Adjusted gross profit
by segment: |
Amount |
|
% of Segment Revenue |
|
Amount |
|
% of Segment Revenue |
|
Amount |
|
% Change |
Multicloud Services |
$ |
194.0 |
|
|
|
43.1 |
% |
|
$ |
202.5 |
|
|
|
37.4 |
% |
|
$ |
8.5 |
|
|
|
4.4 |
|
% |
Apps & Cross Platform |
31.1 |
|
|
|
38.3 |
% |
|
27.7 |
|
|
|
33.0 |
% |
|
(3.4 |
) |
|
|
(10.9 |
) |
% |
OpenStack Public Cloud |
35.9 |
|
|
|
51.0 |
% |
|
25.3 |
|
|
|
45.4 |
% |
|
(10.6 |
) |
|
|
(29.5 |
) |
% |
Adjusted Consolidated Gross Profit (1) |
261.0 |
|
|
|
|
|
255.5 |
|
|
|
|
|
(5.5 |
) |
|
|
(2.1 |
) |
% |
Less: |
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation expense |
(1.8 |
) |
|
|
|
|
(4.5 |
) |
|
|
|
|
|
|
|
Other compensation expense (2) |
(0.6 |
) |
|
|
|
|
(1.5 |
) |
|
|
|
|
|
|
|
Purchase accounting impact on expense (3) |
(2.5 |
) |
|
|
|
|
(1.2 |
) |
|
|
|
|
|
|
|
Restructuring and transformation expenses (4) |
(2.3 |
) |
|
|
|
|
(2.5 |
) |
|
|
|
|
|
|
|
Total consolidated gross profit |
$ |
253.8 |
|
|
|
|
|
$ |
245.8 |
|
|
|
|
|
|
|
|
(1 |
) |
Refer to "Non-GAAP Financial
Measures" in this section for further explanation. |
(2 |
) |
Adjustments for retention
bonuses, mainly in connection with restructuring and transformation
projects, and the related payroll tax. |
(3 |
) |
Adjustment for the impact of
purchase accounting from the November 2016 merger on expenses. |
(4 |
) |
Adjustment for the impact of
business transformation and optimization activities, as well as
associated severance, facility closure costs and lease termination
expenses. |
|
Nine Months Ended September 30, |
|
Year-Over-Year Comparison |
(In millions, except %) |
2019 |
|
2020 |
|
Adjusted gross profit
by segment: |
Amount |
|
% of Segment Revenue |
|
Amount |
|
% of Segment Revenue |
|
Amount |
|
% Change |
Multicloud Services |
$ |
572.9 |
|
|
|
42.4 |
% |
|
$ |
600.0 |
|
|
|
38.2 |
% |
|
$ |
27.1 |
|
|
|
4.7 |
|
% |
Apps & Cross Platform |
88.2 |
|
|
|
37.0 |
% |
|
84.8 |
|
|
|
34.6 |
% |
|
(3.4 |
) |
|
|
(3.9 |
) |
% |
OpenStack Public Cloud |
114.2 |
|
|
|
51.9 |
% |
|
78.3 |
|
|
|
44.3 |
% |
|
(35.9 |
) |
|
|
(31.4 |
) |
% |
Adjusted Consolidated Gross Profit (1) |
775.3 |
|
|
|
|
|
763.1 |
|
|
|
|
|
(12.2 |
) |
|
|
(1.6 |
) |
% |
Less: |
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation expense |
(4.1 |
) |
|
|
|
|
(8.6 |
) |
|
|
|
|
|
|
|
Other compensation expense (2) |
(1.5 |
) |
|
|
|
|
(4.9 |
) |
|
|
|
|
|
|
|
Purchase accounting impact on revenue (3) |
0.2 |
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
Purchase accounting impact on expense (3) |
(7.3 |
) |
|
|
|
|
(4.7 |
) |
|
|
|
|
|
|
|
Restructuring and transformation expenses (4) |
(5.8 |
) |
|
|
|
|
(7.9 |
) |
|
|
|
|
|
|
|
Total consolidated gross profit |
$ |
756.8 |
|
|
|
|
|
$ |
737.0 |
|
|
|
|
|
|
|
|
(1 |
) |
Refer to "Non-GAAP Financial
Measures" in this section for further explanation. |
(2 |
) |
Adjustments for retention
bonuses, mainly in connection with restructuring and transformation
projects, and the related payroll tax. |
(3 |
) |
Adjustment for the impact of
purchase accounting from the November 2016 merger on revenue and
expenses. |
(4 |
) |
Adjustment for the impact of
business transformation and optimization activities, as well as
associated severance, facility closure costs and lease termination
expenses. |
KEY OPERATING METRICS
|
Three Months Ended September 30, |
(In millions, except %) |
2019 |
|
2020 |
Bookings |
$ |
192.1 |
|
|
$ |
314.6 |
|
Core Quarterly Net Revenue
Retention Rate |
99 |
% |
|
100 |
% |
Quarterly Net Revenue
Retention Rate |
99 |
% |
|
100 |
% |
Annualized Recurring Revenue
(ARR) |
$ |
2,346.2 |
|
|
$ |
2,576.4 |
|
NON-GAAP FINANCIAL MEASURES
Constant Currency Revenue
We use constant currency revenue as an additional metric for
understanding and assessing our growth excluding the effect of
foreign currency rate fluctuations on our international business
operations. Constant currency information compares results between
periods as if exchange rates had remained constant period over
period and is calculated by translating the non-U.S. dollar income
statement balances for the most current period to U.S. dollars
using the average exchange rate from the comparative period rather
than the actual exchange rates in effect during the respective
period. We also believe this is an important metric to help
investors evaluate our performance in comparison to prior
periods.
|
|
Three Months Ended September 30, 2019 |
|
Three Months Ended September 30, 2020 |
|
% Change |
(In millions, except %) |
|
Revenue |
|
Revenue |
|
Foreign Currency Translation (a) |
|
Revenue in Constant Currency |
|
Actual |
|
Constant Currency |
Multicloud Services |
|
$ |
450.2 |
|
|
$ |
542.1 |
|
|
$ |
(3.6 |
) |
|
|
$ |
538.5 |
|
|
20.4 |
|
% |
|
19.6 |
|
% |
Apps & Cross Platform |
|
81.1 |
|
|
83.9 |
|
|
(0.2 |
) |
|
|
83.7 |
|
|
3.4 |
|
% |
|
3.2 |
|
% |
OpenStack Public Cloud |
|
70.4 |
|
|
55.7 |
|
|
(0.3 |
) |
|
|
55.4 |
|
|
(20.8 |
) |
% |
|
(21.4 |
) |
% |
Total |
|
$ |
601.7 |
|
|
$ |
681.7 |
|
|
$ |
(4.1 |
) |
|
|
$ |
677.6 |
|
|
13.3 |
|
% |
|
12.6 |
|
% |
(a) |
The effect of foreign currency is
calculated by translating current period results using the average
exchange rate from the prior comparative period. |
|
|
Nine Months Ended September 30, 2019 |
|
Nine Months Ended September 30, 2020 |
|
% Change |
(In millions, except %) |
|
Revenue |
|
Revenue |
|
Foreign Currency Translation (a) |
|
Revenue in Constant Currency |
|
Actual |
|
Constant Currency |
Multicloud Services |
|
$ |
1,352.6 |
|
|
$ |
1,569.0 |
|
|
$ |
1.3 |
|
|
$ |
1,570.3 |
|
|
16.0 |
|
% |
|
16.1 |
|
% |
Apps & Cross Platform |
|
238.2 |
|
|
245.3 |
|
|
0.1 |
|
|
245.4 |
|
|
3.0 |
|
% |
|
3.0 |
|
% |
OpenStack Public Cloud |
|
220.2 |
|
|
176.6 |
|
|
0.2 |
|
|
176.8 |
|
|
(19.8 |
) |
% |
|
(19.7 |
) |
% |
Total |
|
$ |
1,811.0 |
|
|
$ |
1,990.9 |
|
|
$ |
1.6 |
|
|
$ |
1,992.5 |
|
|
9.9 |
|
% |
|
10.0 |
|
% |
(a) |
The effect of foreign currency is
calculated by translating current period results using the average
exchange rate from the prior comparative period. |
Adjusted Consolidated Gross Profit
Our principal measure of segment profitability is segment
adjusted gross profit. We also present Adjusted Consolidated Gross
Profit, which is the aggregate of segment adjusted gross profit,
because we believe the measure is useful in analyzing trends in our
underlying, recurring gross margins. We define Adjusted
Consolidated Gross Profit as our consolidated gross profit,
adjusted to exclude the impact of share-based compensation expense
and other non-recurring or unusual compensation items, purchase
accounting-related effects, and certain business
transformation-related costs. For a reconciliation of our Adjusted
Consolidated Gross Profit to our total consolidated gross profit,
see “Adjusted Gross Profit by Segment” above.
Adjusted Net Income (Loss), Adjusted EBIT and Adjusted
EBITDA
We present Adjusted Net Income (Loss), Adjusted EBIT and
Adjusted EBITDA because they are a basis upon which management
assesses our performance and we believe they are useful to
evaluating our financial performance. We believe that excluding
items from net income that may not be indicative of, or are
unrelated to, our core operating results, and that may vary in
frequency or magnitude, enhances the comparability of our results
and provides a better baseline for analyzing trends in our
business.
We define Adjusted Net Income (Loss) as net income (loss)
adjusted to exclude the impact of non-cash charges for share-based
compensation and cash charges related to the settlement of
share-based awards in connection with the November 2016 merger,
transaction-related costs and adjustments, restructuring and
transformation charges, management fees, the amortization of
acquired intangible assets and certain other non-operating,
non-recurring or non-core gains and losses, as well as the tax
effects of these non-GAAP adjustments.
We define Adjusted EBIT as net income (loss), plus interest
expense and income taxes, further adjusted to exclude the impact of
non-cash charges for share-based compensation and cash charges
related to the settlement of share-based awards in connection with
the November 2016 merger, transaction-related costs and
adjustments, restructuring and transformation charges, management
fees, the amortization of acquired intangible assets and certain
other non-operating, non-recurring or non-core gains and
losses.
We define Adjusted EBITDA as Adjusted EBIT plus depreciation and
amortization.
Adjusted EBIT and Adjusted EBITDA are management’s principal
metrics for measuring our underlying financial performance.
Adjusted EBITDA, along with other quantitative and qualitative
information, is also the principal financial measure used by
management and our board of directors in determining
performance-based compensation for our management and key
employees.
These non-GAAP measures are not intended to imply that we would
have generated higher income or avoided net losses if the November
2016 merger and the subsequent transactions and initiatives had not
occurred. In the future we may incur expenses or charges such as
those added back to calculate Adjusted Net Income (Loss), Adjusted
EBIT or Adjusted EBITDA. Our presentation of Adjusted Net Income
(Loss), Adjusted EBIT and Adjusted EBITDA should not be construed
as an inference that our future results will be unaffected by these
items. Other companies, including our peer companies, may calculate
similarly-titled measures in a different manner from us, and
therefore, our non-GAAP measures may not be comparable to
similarly-tiled measures of other companies. Investors are
cautioned against using these measures to the exclusion of our
results in accordance with GAAP.
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
(In millions) |
|
2019 |
|
2020 |
|
2019 |
|
2020 |
Net loss |
|
$ |
(60.5 |
) |
|
|
$ |
(101.2 |
) |
|
|
$ |
(55.5 |
) |
|
|
$ |
(182.0 |
) |
|
Share-based compensation
expense |
|
10.5 |
|
|
|
40.2 |
|
|
|
22.8 |
|
|
|
56.8 |
|
|
Cash settled equity and
special bonuses (a) |
|
5.9 |
|
|
|
5.0 |
|
|
|
17.6 |
|
|
|
19.1 |
|
|
Transaction-related
adjustments, net (b) |
|
4.3 |
|
|
|
18.9 |
|
|
|
13.7 |
|
|
|
35.4 |
|
|
Restructuring and
transformation expenses (c) |
|
16.1 |
|
|
|
22.6 |
|
|
|
42.4 |
|
|
|
59.7 |
|
|
Management fees (d) |
|
3.7 |
|
|
|
1.3 |
|
|
|
9.6 |
|
|
|
8.4 |
|
|
Net (gain) loss on divestiture
and investments (e) |
|
22.1 |
|
|
|
— |
|
|
|
(123.4 |
) |
|
|
(0.9 |
) |
|
Net (gain) loss on
extinguishment of debt (f) |
|
— |
|
|
|
37.0 |
|
|
|
(9.5 |
) |
|
|
37.0 |
|
|
Other (income) expense
(g) |
|
(1.3 |
) |
|
|
(0.7 |
) |
|
|
1.0 |
|
|
|
(0.4 |
) |
|
Amortization of intangible
assets (h) |
|
40.6 |
|
|
|
44.1 |
|
|
|
124.5 |
|
|
|
132.3 |
|
|
Tax effect of non-GAAP
adjustments (i) |
|
(17.6 |
) |
|
|
(30.8 |
) |
|
|
(16.1 |
) |
|
|
(67.7 |
) |
|
Adjusted Net Income |
|
23.8 |
|
|
|
36.4 |
|
|
|
27.1 |
|
|
|
97.7 |
|
|
Interest expense |
|
80.9 |
|
|
|
68.3 |
|
|
|
270.7 |
|
|
|
209.2 |
|
|
Benefit for income taxes |
|
(9.2 |
) |
|
|
(18.1 |
) |
|
|
(6.5 |
) |
|
|
(33.4 |
) |
|
Tax effect of non-GAAP
adjustments (i) |
|
17.6 |
|
|
|
30.8 |
|
|
|
16.1 |
|
|
|
67.7 |
|
|
Adjusted EBIT |
|
113.1 |
|
|
|
117.4 |
|
|
|
307.4 |
|
|
|
341.2 |
|
|
Depreciation and
amortization |
|
114.4 |
|
|
|
117.5 |
|
|
|
372.3 |
|
|
|
355.1 |
|
|
Amortization of intangible
assets (h) |
|
(40.6 |
) |
|
|
(44.1 |
) |
|
|
(124.5 |
) |
|
|
(132.3 |
) |
|
Adjusted EBITDA |
|
$ |
186.9 |
|
|
|
$ |
190.8 |
|
|
|
$ |
555.2 |
|
|
|
$ |
564.0 |
|
|
(a) |
|
Includes expense related to the
cash settlement of unvested equity awards that were outstanding at
the consummation of the November 2016 merger (amounting to $3
million for the nine months ended September 30, 2019 and zero for
all other periods presented), retention bonuses, mainly relating to
restructuring and integration projects, and, beginning in the
second quarter of 2019, senior executive signing bonuses and
relocation costs. |
(b) |
|
Includes legal, professional,
accounting and other advisory fees related to the acquisition of
Onica in the fourth quarter of 2019 and the IPO in the third
quarter of 2020, integration costs of acquired businesses, purchase
accounting adjustments (including deferred revenue fair value
discount), payroll costs for employees that dedicate significant
time to supporting these projects and exploratory acquisition and
divestiture costs and expenses related to financing
activities. |
(c) |
|
Includes consulting and advisory
fees related to business transformation and optimization
activities, payroll costs for employees that dedicate significant
time to these projects, as well as associated severance, facility
closure costs and lease termination expenses. We assessed these
activities and determined that they did not qualify under the scope
of ASC 420 (Exit or Disposal costs). |
(d) |
|
Represents historical management
fees pursuant to management consulting agreements. The management
consulting agreements were terminated effective August 4, 2020, and
therefore no management fees have accrued or will be payable for
periods after August 4, 2020. |
(e) |
|
Includes gains and losses on
investment and from dispositions, including our investment in
CrowdStrike. |
(f) |
|
Includes gains and losses on our
repurchases of 8.625% Senior Notes. |
(g) |
|
Reflects mainly changes in the
fair value of foreign currency derivatives. |
(h) |
|
All of our intangible assets are
attributable to acquisitions, including the November 2016
merger. |
(i) |
|
We utilize an estimated
structural long-term non-GAAP tax rate in order to provide
consistency across reporting periods, removing the effect of
non-recurring tax adjustments, which include but are not limited to
tax rate changes, U.S. tax reform, share-based compensation, audit
conclusions and changes to valuation allowances. When computing
this long-term rate for 2019 and the 2020 interim period, we based
it on an average of the 2019 and estimated 2020 tax rates,
recomputed to remove the tax effect of non-GAAP pre-tax adjustments
and non-recurring tax adjustments, resulting in a structural
non-GAAP tax rate of 26%. The non-GAAP tax rate could be subject to
change for a variety of reasons, including the rapidly evolving
global tax environment, significant changes in our geographic
earnings mix including due to acquisition activity, or other
changes to our strategy or business operations. We will re-evaluate
our long-term non-GAAP tax rate as appropriate. We believe that
making these adjustments facilitates a better evaluation of our
current operating performance and comparisons to prior
periods. |
Adjusted Earnings Per Share (EPS)
We define Adjusted EPS as Adjusted Net Income divided by our
GAAP average number of shares outstanding for the period on a
diluted basis, after giving effect to the twelve-for-one stock
split that was approved and effected on July 20, 2020 (the “Stock
Split”), and further adjusted for the average number of shares
associated with securities which are anti-dilutive to GAAP earnings
per share but dilutive to Adjusted EPS. Management uses Adjusted
EPS to evaluate the performance of our business on a comparable
basis from period to period, including by adjusting for the impact
of the issuance of shares that would be dilutive to Adjusted
EPS.
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
(In millions, except per share
amounts) |
2019 |
|
2020 |
|
2019 |
|
2020 |
Net loss attributable to common stockholders |
$ |
(60.5 |
) |
|
|
$ |
(101.2 |
) |
|
|
$ |
(55.5 |
) |
|
|
$ |
(182.0 |
) |
|
Adjusted Net Income |
$ |
23.8 |
|
|
|
$ |
36.4 |
|
|
|
$ |
27.1 |
|
|
|
$ |
97.7 |
|
|
|
|
|
|
|
|
|
|
Weighted average number of
shares - Diluted |
165.2 |
|
|
|
186.7 |
|
|
|
165.2 |
|
|
|
172.6 |
|
|
Effect of dilutive securities
(a) |
0.9 |
|
|
|
5.9 |
|
|
|
0.8 |
|
|
|
2.8 |
|
|
Non-GAAP weighted average number of shares - Diluted |
166.1 |
|
|
|
192.6 |
|
|
|
166.0 |
|
|
|
175.4 |
|
|
|
|
|
|
|
|
|
|
Net loss per share -
Diluted |
$ |
(0.37 |
) |
|
|
$ |
(0.54 |
) |
|
|
$ |
(0.34 |
) |
|
|
$ |
(1.05 |
) |
|
Adjusted EPS |
$ |
0.14 |
|
|
|
$ |
0.19 |
|
|
|
$ |
0.16 |
|
|
|
$ |
0.56 |
|
|
|
|
|
|
|
|
|
|
(a) |
|
Reflects impact of awards that
would have been anti-dilutive to Net loss per share, and therefore
not included in the calculation, but would be dilutive to Adjusted
EPS and are therefore included in the share count for purposes of
this non-GAAP measure. Potential common share equivalents consist
of shares issuable upon the exercise of stock options or vesting of
restricted stock, as well as contingent shares associated with our
acquisition of Datapipe Parent, Inc. Certain of our potential
common share equivalents are contingent on Apollo achieving
pre-established performance targets based on a multiple of their
invested capital ("MOIC"), which are included in the denominator
for the entire period if such shares would be issuable as of the
end of the reporting period assuming the end of the reporting
period was the end of the contingency period. |
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