Rackspace Hosting Reports Second Quarter 2012 Results
Rackspace Hosting Reports Second Quarter 2012 Results
For the quarter ended June 30, 2012:
* Net revenue of $319 million grew 29% year-over-year
* Adjusted EBITDA ^(1) of $112 million grew 37% year-over-year
* Achieved adjusted EBITDA margin of 35.1%, up from 33.0% year-over-year
* Net income of $25 million grew 43% year-over-year
Business Wire
SAN ANTONIO -- August 07, 2012
Rackspace® Hosting, Inc. (NYSE: RAX), the open cloud company, announced
financial results for the quarter ended June 30, 2012.
Net revenue for the second quarter of 2012 was $319 million, up 5.9% from the
previous quarter and 29% from the second quarter of 2011. Net revenue for the
second quarter of 2012 was negatively impacted by currency exchange rates when
compared to the second quarter of 2011 by $2.3 million and positively impacted
compared to the previous quarter by $0.6 million.
Total server count increased to 84,978 up from 82,438 servers at the end of
the previous quarter, and total customers increased to 190,958, up from
180,866 at the end of the previous quarter.
“At the halfway point in the year, we have made a lot of progress on our plans
to broaden our product and services portfolio while simultaneously managing a
rapidly growing business. Keep your eyes open for more product announcements
in the coming weeks and we look forward to updating you on our progress in
November,” said Karl Pichler, chief financial officer.
Adjusted EBITDA for the quarter was $112 million, an 11.1% increase compared
to the first quarter of 2012 and a 37% increase compared to the second quarter
of 2011. The adjusted EBITDA margin for the quarter was 35.1% compared to
33.4% in the previous quarter and 33.0% for the second quarter of 2011.
Consistent with prior periods, adjusted EBITDA and adjusted EBITDA margin were
negatively impacted by a non-cash charge relating to data center operating
leases. During the second quarter of 2012, the non-cash data center lease
charge was $2.1 million.
Net income was $25 million for the quarter, up 8.4% from the previous quarter
and up 43% from the second quarter of 2011. Net income margin for the quarter
was 7.9% compared to 7.7% for the previous quarter and 7.1% in the second
quarter of 2011.
Cash flow from operating activities was $101 million for the second quarter of
2012. Capital expenditures were $82 million, including $54 million for
purchases of customer gear, $3 million for data center build outs, $4 million
for office build outs and $21 million for capitalized software and other
projects.
Adjusted free cash flow ^ (1) for the quarter was $28.7 million.
At the end of the second quarter of 2012, cash and cash equivalents were $215
million, and debt including capital lease obligations totaled $149 million.
On a worldwide basis, Rackspace employed 4,528 Rackers as of June 30, 2012, up
from 4,335 in the previous quarter.
“Last week we achieved a significant milestone in our 2012 plan by launching
Cloud Servers powered by OpenStack. This new offering embeds the latest
version of the OpenStack software to combine the on-demand scalability of
modern cloud infrastructure with the flexibility benefits of open source
technology. This product launch represents the culmination of nearly two years
of hard work by Rackers throughout the organization, and it will serve as the
core of our new Open Cloud platform,” said Lanham Napier, chief executive
officer.
Rackspace Developments and Business Highlights
* Announced availability of production-ready open cloud powered by
OpenStack®. The latest software release leverages power of
community-driven development to extend on-demand compute, storage and
networking capabilities; development process matures to help ensure
platform quality and reliability.
* 2012 Microsoft Hosting Partner of the Year. Rackspace was chosen from more
than 3,000 global Microsoft partners recognized in the managed, cloud and
hybrid hosting industry. This marks the fourth time Rackspace has captured
this honor.
* 2012 Computerworld 100 Best Places to Work in IT. The criteria was based
on salaries, turnover, training and development, recognizing and rewarding
outstanding performances, benefits, and the cost of pursuing technology
certifications. Computerworld actually surveyed IT employees currently
employed at the 100 organizations that made the list to get an accurate
survey result.
* Business Insider and Glassdoor.com collaborate to name Rackspace one of
The 25 Best Tech Companies To Work For In 2012. All the reviews and
ratings were taken within the last year to be as up to date as possible.
Just a few of the principles they accounted for were culture, lifestyle
and what you can learn while working at these companies.
Conference Call and Webcast
Management will host a conference call to discuss the results starting today
at 4:30 p.m. ET.
To access the conference call, please dial 888-504-7960 from the United States
and Canada or dial 719-785-1766 from abroad and reference pass code 3500741. A
live webcast and a replay of the conference call will be available on
Rackspace’s website, located at ir.rackspace.com.
About Rackspace Hosting
Rackspace® Hosting (NYSE: RAX) is the open cloud company, delivering open
technologies and powering more than 180,000 customers worldwide. Rackspace
provides its renowned Fanatical Support® to customers across a broad portfolio
of IT products, including Public and Private Cloud and Hybrid and Dedicated
Hosting. The company offers customers choice and flexibility, and helps them
avoid vendor lock-in. Rackspace has been recognized by Bloomberg BusinessWeek
as a Top 100 Performing Technology Company and is featured on Fortune’s list
of 100 Best Companies to Work For. Rackspace was positioned in the Leaders
Quadrant by Gartner Inc. in the “2011 Magic Quadrant for Managed Hosting.”
Rackspace is headquartered in San Antonio with offices around the world. The
company website can be found at www.rackspace.com.
Forward-Looking Statements
This press release contains forward-looking statements that involve risks,
uncertainties and assumptions. If such risks or uncertainties materialize or
such assumptions prove incorrect, the results of Rackspace Hosting could
differ materially from those expressed or implied by such forward-looking
statements and assumptions. All statements other than statements of historical
fact are statements that could be deemed forward-looking statements, including
any statements concerning expected operational and financial results, long
term investment strategies, growth plans, expected results from the
integration of technologies and acquired businesses, and the performance or
market share relating to products and services; any statements of expectation
or belief; and any statements or assumptions underlying any of the foregoing.
Risks, uncertainties and assumptions include infrastructure failures, the
deterioration of economic conditions or fluctuations, disruptions, instability
or downturns in the economy, the effectiveness of managing company growth,
technological and competitive factors, regulatory factors, and other risks
that are described in Rackspace Hosting’s Form 10-K for the year ended
December 31, 2011, filed with the SEC on February 17, 2012 and in Rackspace
Hosting’s Form 10-Q for the quarter ended June 30, 2012, expected to be filed
later this week. Except as required by law, Rackspace Hosting assumes no
obligation to update these forward-looking statements publicly, or to update
the reasons actual results could differ materially from those anticipated in
these forward-looking statements, even if new information becomes available in
the future.
Consolidated Statements of Income
(Unaudited)
Three Months Ended Six Months Ended
(In thousands, June 30, March 31, June 30, June 30, June 30,
except per 2011 2012 2012 2011 2012
share data)
Net revenue $ 247,229 $ 301,355 $ 318,990 $ 477,231 $ 620,345
Costs and
expenses:
Cost of 74,057 87,240 90,052 143,799 177,292
revenue
Sales and 31,477 38,502 39,613 61,215 78,115
marketing
General and 66,090 83,378 86,813 128,531 170,191
administrative
Depreciation
and 46,952 55,151 61,808 91,050 116,959
amortization
Total costs 218,576 264,271 278,286 424,595 542,557
and expenses
Income from 28,653 37,084 40,704 52,636 77,788
operations
Other income
(expense):
Interest (1,522 ) (1,272 ) (1,233 ) (3,013 ) (2,505 )
expense
Interest and
other income (614 ) 137 (405 ) (692 ) (268 )
(expense)
Total other
income (2,136 ) (1,135 ) (1,638 ) (3,705 ) (2,773 )
(expense)
Income before 26,517 35,949 39,066 48,931 75,015
income taxes
Income taxes 8,956 12,769 13,932 17,549 26,701
Net income $ 17,561 $ 23,180 $ 25,134 $ 31,382 $ 48,314
Net income per
share
Basic $ 0.14 $ 0.17 $ 0.19 $ 0.24 $ 0.36
Diluted $ 0.13 $ 0.17 $ 0.18 $ 0.23 $ 0.34
Weighted
average number
of shares
outstanding
Basic 129,706 133,062 135,033 128,780 134,045
Diluted 137,880 139,964 140,786 137,369 140,396
Consolidated Balance Sheets
(In thousands) December 31, 2011 June 30, 2012
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 159,856 $ 215,448
Accounts receivable, net of allowance
for doubtful accounts and customer
credits of 68,709 85,161
$3,420 as of December 31, 2011 and
$3,725 as of June 30, 2012
Deferred income taxes 9,841 9,774
Prepaid expenses 22,006 13,120
Other current assets 2,953 3,996
Total current assets 263,365 327,499
Property and equipment, net 627,490 677,960
Goodwill 59,993 62,177
Intangible assets, net 26,034 23,760
Other non-current assets 49,600 47,332
Total assets $ 1,026,482 $ 1,138,728
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 156,004 $ 148,091
Current portion of deferred revenue 14,835 16,065
Current portion of obligations under 66,031 69,210
capital leases
Current portion of debt 879 650
Total current liabilities 237,749 234,016
Non-current deferred revenue 3,446 3,162
Non-current obligations under capital 72,216 77,939
leases
Non-current debt — 1,427
Non-current deferred income taxes 68,781 55,164
Non-current deferred rent 23,343 27,754
Other non-current liabilities 21,524 24,447
Total liabilities 427,059 423,909
COMMITMENTS AND CONTINGENCIES
Stockholders' equity:
Common stock 132 135
Additional paid-in capital 383,031 449,133
Accumulated other comprehensive loss (14,732 ) (13,755 )
Retained earnings 230,992 279,306
Total stockholders’ equity 599,423 714,819
Total liabilities and stockholders’ $ 1,026,482 $ 1,138,728
equity
Consolidated Statements of Cash Flows
(Unaudited)
Three Months Ended Six Months Ended
(in June 30, March 31, June 30, June 30, June 30,
thousands) 2011 2012 2012 2011 2012
Cash Flows
From
Operating
Activities
Net income $ 17,561 $ 23,180 $ 25,134 $ 31,382 $ 48,314
Adjustments
to reconcile
net income to
net cash
provided by
operating
activities
Depreciation
and 46,952 55,151 61,808 91,050 116,959
amortization
Loss on
disposal of 90 279 86 272 365
equipment,
net
Provision for
bad debts and 1,635 1,455 1,678 3,238 3,133
customer
credits
Deferred 2,179 4,275 (1,602 ) 5,859 2,673
income taxes
Deferred rent 2,783 1,930 2,120 5,814 4,050
Share-based
compensation 5,983 8,509 9,375 13,793 17,884
expense
Excess tax
benefits from
share-based (692 ) (20,235 ) (9,601 ) (1,590 ) (29,836 )
compensation
arrangements
Changes in
certain
assets and
liabilities
Accounts (12,154 ) (9,008 ) (10,306 ) (17,870 ) (19,314 )
receivable
Income taxes 1,928 — — 1,928 —
receivable
Prepaid
expenses and 1,268 1,708 6,172 2,478 7,880
other current
assets
Accounts
payable and 12,589 9,841 15,722 20,315 25,563
accrued
expenses (1)
Deferred (476 ) 1,496 (791 ) (323 ) 705
revenue
All other
operating (1,611 ) (820 ) 1,534 978 714
activities
Net cash
provided by 78,035 77,761 101,329 157,324 179,090
operating
activities
Cash Flows
From
Investing
Activities
Purchases of
property and (73,295 ) (67,604 ) (65,786 ) (121,982 ) (133,390 )
equipment (1)
Acquisitions,
net of cash — (712 ) — (952 ) (712 )
acquired
All other
investing — 7 32 — 39
activities
Net cash used
in investing (73,295 ) (68,309 ) (65,754 ) (122,934 ) (134,063 )
activities
Cash Flows
From
Financing
Activities
Principal
payments of (16,198 ) (17,273 ) (17,769 ) (31,420 ) (35,042 )
capital
leases
Principal
payments of (433 ) (439 ) (440 ) (1,041 ) (879 )
notes payable
Payments for
deferred — (1,826 ) (2,900 ) — (4,726 )
acquisition
obligations
Receipt of
Texas — 3,500 — — 3,500
Enterprise
Fund Grant
Proceeds from
employee 9,216 12,381 5,462 22,967 17,843
stock plans
Excess tax
benefits from
share-based 692 20,235 9,601 1,590 29,836
compensation
arrangements
Net cash
provided by
(used in) (6,723 ) 16,578 (6,046 ) (7,904 ) 10,532
financing
activities
Effect of
exchange rate
changes on 140 645 (612 ) 598 33
cash and cash
equivalents
Increase
(decrease) in (1,843 ) 26,675 28,917 27,084 55,592
cash and cash
equivalents
Cash and cash
equivalents, 133,868 159,856 186,531 104,941 159,856
beginning of
period
Cash and cash
equivalents, $ 132,025 $ 186,531 $ 215,448 $ 132,025 $ 215,448
end of period
Supplemental
cash flow
information:
Acquisition
of property
and equipment
by vendor $ 20,567 $ 22,564 $ 21,380 $ 39,576 $ 43,944
financed
capital
leases
Acquisition
of property
and equipment — — 2,045 — 2,045
by vendor
financed
notes payable
Increase
(decrease) in
property and
equipment in 1,459 (7,852 ) (7,243 ) 10,423 (15,095 )
accounts
payable and
accrued
expenses
Non-cash
purchases of $ 22,026 $ 14,712 $ 16,182 $ 49,999 $ 30,894
property and
equipment
Cash payments
for interest, $ 1,313 $ 1,258 $ 1,208 $ 2,776 $ 2,466
net of amount
capitalized
Cash payments
for income $ 7,065 $ 1,955 $ 2,117 $ 11,635 $ 4,072
taxes
The amounts for the three and six months ended June 30, 2011 and the
three months ended March 31, 2012 were corrected for immaterial
errors. The change was a reclassification between purchases of property
(1) and equipment in investing activities and the change in accounts payable
and accrued expenses in operating activities. The impact of the change
is reflected in the supplemental line "Increase (decrease) in property
and equipment in accounts payable and accrued expenses." There were no
changes to the other financial statements.
Key Metrics - Quarter to Date
(Unaudited)
Three Months Ended
(Dollar
amounts in
thousands, June 30, September December 31, March 31, June 30,
except average 2011 30, 2011 2012 2012
monthly 2011
revenue per
server)
Growth
Dedicated
Cloud, net $ 204,275 $ 213,899 $ 224,808 $ 236,604 $ 246,417
revenue
Public Cloud, $ 42,954 $ 50,673 $ 58,453 $ 64,751 $ 72,573
net revenue
Net revenue $ 247,229 $ 264,572 $ 283,261 $ 301,355 $ 318,990
Revenue growth
(year over 32.0 % 32.5 % 31.9 % 31.0 % 29.0 %
year)
Net upgrades
(monthly 1.8 % 1.8 % 2.0 % 1.5 % 1.7 %
average)
Churn (monthly -0.9 % -0.9 % -0.8 % -0.8 % -0.8 %
average)
Growth in
installed base 0.9 % 0.9 % 1.2 % 0.7 % 1.0 %
(monthly
average) (2)
Number of
customers at 152,578 161,422 172,510 180,866 190,958
period end (3)
Number of
employees 3,712 3,799 4,040 4,335 4,528
(Rackers) at
period end
Number of
servers 74,028 78,717 79,805 82,438 84,978
deployed at
period end
Average
monthly $ 1,141 $ 1,155 $ 1,191 $ 1,238 $ 1,270
revenue per
server
Profitability
Income from $ 28,653 $ 31,070 $ 39,765 $ 37,084 $ 40,704
operations
Depreciation
and $ 46,952 $ 49,518 $ 54,844 $ 55,151 $ 61,808
amortization
Share-based
compensation
expense
Cost of $ 756 $ 1,005 $ 1,047 $ 1,236 $ 1,113
revenue
Sales and $ 609 $ 864 $ 839 $ 1,114 $ 1,393
marketing
General and $ 4,618 $ 5,526 $ 5,699 $ 6,159 $ 6,869
administrative
Total
share-based $ 5,983 $ 7,395 $ 7,585 $ 8,509 $ 9,375
compensation
expense
Adjusted $ 81,588 $ 87,983 $ 102,194 $ 100,744 $ 111,887
EBITDA (1)
Adjusted 33.0 % 33.3 % 36.1 % 33.4 % 35.1 %
EBITDA margin
Operating 11.6 % 11.7 % 14.0 % 12.3 % 12.8 %
income margin
Income from $ 28,653 $ 31,070 $ 39,765 $ 37,084 $ 40,704
operations
Effective tax 33.8 % 31.7 % 34.5 % 35.5 % 35.7 %
rate
Net operating
profit after $ 18,968 $ 21,221 $ 26,046 $ 23,919 $ 26,173
tax (NOPAT)
(1)
NOPAT margin 7.7 % 8.0 % 9.2 % 7.9 % 8.2 %
Capital
efficiency and
returns
Interest $ 138,841 $ 144,152 $ 139,126 $ 143,978 $ 149,226
bearing debt
Stockholders' $ 511,843 $ 551,049 $ 599,423 $ 668,436 $ 714,819
equity
Less: Excess $ (102,358 ) $ (92,931 ) $ (125,865 ) $ (150,368 ) $ (177,169 )
cash
Capital base $ 548,326 $ 602,270 $ 612,684 $ 662,046 $ 686,876
Average $ 527,635 $ 575,298 $ 607,477 $ 637,365 $ 674,461
capital base
Capital
turnover 1.87 1.84 1.87 1.89 1.89
(annualized)
Return on
capital 14.4 % 14.8 % 17.2 % 15.0 % 15.5 %
(annualized)
(1)
Capital
expenditures
Purchases of
property and $ 73,295 $ 67,916 $ 56,629 $ 67,604 $ 65,786
equipment^(4)
Non-cash
purchases of $ 22,026 $ 25,642 $ 22,726 $ 14,712 $ 16,182
property and
equipment^(4)
Total capital $ 95,321 $ 93,558 $ 79,355 $ 82,316 $ 81,968
expenditures
Customer gear $ 48,777 $ 53,643 $ 47,376 $ 52,999 $ 53,746
Data center $ 17,491 $ 16,715 $ 6,568 $ 9,473 $ 3,285
build outs
Office build $ 14,074 $ 8,806 $ 9,915 $ 4,666 $ 4,015
outs
Capitalized
software and $ 14,979 $ 14,394 $ 15,496 $ 15,178 $ 20,922
other projects
Total capital $ 95,321 $ 93,558 $ 79,355 $ 82,316 $ 81,968
expenditures
Infrastructure
capacity and
utilization
Megawatts
under contract 38.0 41.9 48.1 47.8 58.0
at period end
Megawatts
available for 27.0 29.7 30.7 32.2 32.7
use at period
end
Megawatts
utilized at 19.0 20.2 20.9 21.4 22.7
period end
Annualized net
revenue per
average $ 53,455 $ 53,994 $ 55,136 $ 56,994 $ 57,867
Megawatt of
power utilized
(1) See discussion and reconciliation of our Non-GAAP financial measures to
the most comparable GAAP measures.
(2) Due to rounding, totals may not equal the sum of the line items in the
table above.
Customers are counted on an account basis, and therefore a customer with
more than one account with us would be included as more than one
(3) customer. Furthermore, amounts include SaaS customers for Jungle Disk
using a Rackspace storage solution. Jungle Disk customers using a
third-party storage solution are excluded.
Purchases of property and equipment in prior periods were corrected for
(4) immaterial errors. The change was a reclassification between purchases
of property and equipment and non-cash purchases of property and
equipment. There was no impact on total capital expenditures.
Consolidated Quarterly Statements of Income
(Unaudited)
Three Months Ended
June 30, September December 31, March 31, June 30,
(In thousands) 2011 30, 2011 2012 2012
2011
Net revenue $ 247,229 $ 264,572 $ 283,261 $ 301,355 $ 318,990
Costs and
expenses:
Cost of 74,057 82,445 82,851 87,240 90,052
revenue
Sales and 31,477 31,838 33,452 38,502 39,613
marketing
General and 66,090 69,701 72,349 83,378 86,813
administrative
Depreciation
and 46,952 49,518 54,844 55,151 61,808
amortization
Total costs 218,576 233,502 243,496 264,271 278,286
and expenses
Income from 28,653 31,070 39,765 37,084 40,704
operations
Other income
(expense):
Interest (1,522 ) (1,531 ) (1,304 ) (1,272 ) (1,233 )
expense
Interest and
other income (614 ) (276 ) (226 ) 137 (405 )
(expense)
Total other
income (2,136 ) (1,807 ) (1,530 ) (1,135 ) (1,638 )
(expense)
Income before 26,517 29,263 38,235 35,949 39,066
income taxes
Income taxes 8,956 9,281 13,188 12,769 13,932
Net income $ 17,561 $ 19,982 $ 25,047 $ 23,180 $ 25,134
Three Months Ended
(Percent of June 30, September December 31, March 31, June 30,
net revenue) 2011 30, 2011 2012 2012
2011
Net revenue 100.0 % 100.0 % 100.0 % 100.0 % 100.0 %
Costs and
expenses:
Cost of 30.0 % 31.2 % 29.2 % 28.9 % 28.2 %
revenue
Sales and 12.7 % 12.0 % 11.8 % 12.8 % 12.4 %
marketing
General and 26.7 % 26.3 % 25.5 % 27.7 % 27.2 %
administrative
Depreciation
and 19.0 % 18.7 % 19.4 % 18.3 % 19.4 %
amortization
Total costs 88.4 % 88.3 % 86.0 % 87.7 % 87.2 %
and expenses
Income from 11.6 % 11.7 % 14.0 % 12.3 % 12.8 %
operations
Other income
(expense):
Interest (0.6 )% (0.6 )% (0.5 )% (0.4 )% (0.4 )%
expense
Interest and
other income (0.2 )% (0.1 )% (0.1 )% 0.0 % (0.1 )%
(expense)
Total other
income (0.9 )% (0.7 )% (0.5 )% (0.4 )% (0.5 )%
(expense)
Income before 10.7 % 11.1 % 13.5 % 11.9 % 12.2 %
income taxes
Income taxes 3.6 % 3.5 % 4.7 % 4.2 % 4.4 %
Net income 7.1 % 7.6 % 8.8 % 7.7 % 7.9 %
Due to rounding, totals may not equal the sum of the line items in the table above.
(1) Non-GAAP Financial Measures
Adjusted EBITDA (Non-GAAP financial measure)
We use Adjusted EBITDA as a supplemental measure to review and assess our
performance. We define Adjusted EBITDA as Net income, plus income taxes, total
other (income) expense, depreciation and amortization, and non-cash charges
for share-based compensation.
Adjusted EBITDA is a metric that is used in our industry by the investment
community for comparative and valuation purposes. We disclose this metric in
order to support and facilitate the dialogue with research analysts and
investors.
Note that Adjusted EBITDA is not a measure of financial performance under
accounting principles generally accepted in the United States (GAAP) and
should not be considered a substitute for operating income, which we consider
to be the most directly comparable GAAP measure. Adjusted EBITDA has
limitations as an analytical tool, and when assessing our operating
performance, you should not consider Adjusted EBITDA in isolation or as a
substitute for net income or other consolidated income statement data prepared
in accordance with GAAP. Other companies may calculate Adjusted EBITDA
differently than we do, limiting its usefulness as a comparative measure. See
our Adjusted EBITDA to net income reconciliations in the table below.
Three Months Ended
(Dollars in June 30, September December March 31, June 30,
thousands) 2011 30, 31, 2012 2012
2011 2011
Net revenue $ 247,229 $ 264,572 $ 283,261 $ 301,355 $ 318,990
Income from $ 28,653 $ 31,070 $ 39,765 $ 37,084 $ 40,704
operations
Net income $ 17,561 $ 19,982 $ 25,047 $ 23,180 $ 25,134
Plus: Income 8,956 9,281 13,188 12,769 13,932
taxes
Plus: Total
other 2,136 1,807 1,530 1,135 1,638
(income)
expense
Plus:
Depreciation 46,952 49,518 54,844 55,151 61,808
and
amortization
Plus:
Share-based 5,983 7,395 7,585 8,509 9,375
compensation
expense
Adjusted $ 81,588 $ 87,983 $ 102,194 $ 100,744 $ 111,887
EBITDA
Operating
income 11.6 % 11.7 % 14.0 % 12.3 % 12.8 %
margin
Adjusted
EBITDA 33.0 % 33.3 % 36.1 % 33.4 % 35.1 %
margin
Return on Capital (ROC) (Non-GAAP financial measure)
We define Return on Capital (ROC) as follows:
ROC = Net Operating Profit After Tax (NOPAT)
Average Capital Base
NOPAT = Income from operations x (1 – Effective tax rate)
Average capital base = Average of (Interest bearing debt + stockholders’
equity – excess cash) = Average of (Total assets – excess cash – accounts
payables and accrued expenses – deferred revenue – other non-current
liabilities, deferred income taxes, and deferred rent); calculated on a
quarterly basis.
We define excess cash as the amount of cash and cash equivalents that exceeds
our operating cash requirements, which is calculated as three percent of our
annualized net revenue for the three months prior to the period end. We will
periodically review the calculation and adjust it to reflect our projected
cash requirements for the upcoming year.
We believe that ROC is an important metric for investors in evaluating our
company’s performance. ROC relates to after-tax operating profits with the
capital that is placed into service. It is therefore a performance metric that
incorporates both the Statement of Comprehensive Income and the Balance Sheet.
ROC measures how successfully capital is deployed within a company.
Note that ROC is not a measure of financial performance under GAAP and should
not be considered a substitute for return on assets, which we consider to be
the most directly comparable GAAP measure. ROC has limitations as an
analytical tool, and when assessing our operating performance, you should not
consider ROC in isolation or as a substitute for other financial data prepared
in accordance with GAAP. Other companies may calculate ROC differently than we
do, limiting its usefulness as a comparative measure. See our ROC
reconciliation to return on assets below.
Three Months Ended
(Dollars in June 30, September December 31, March 31, June 30,
thousands) 2011 30, 2011 2012 2012
2011
Income from $ 28,653 $ 31,070 $ 39,765 $ 37,084 $ 40,704
operations
Effective 33.8 % 31.7 % 34.5 % 35.5 % 35.7 %
tax rate
Net
operating $ 18,968 $ 21,221 $ 26,046 $ 23,919 $ 26,173
profit after
tax (NOPAT)
Net income $ 17,561 $ 19,982 $ 25,047 $ 23,180 $ 25,134
Total assets
at period $ 887,576 $ 970,677 $ 1,026,482 $ 1,089,393 $ 1,138,728
end
Less: Excess (102,358 ) (92,931 ) (125,865 ) (150,368 ) (177,169 )
cash
Less:
Accounts
payable and (145,609 ) (148,464 ) (156,004 ) (153,668 ) (148,091 )
accrued
expenses
Less:
Deferred
revenue (18,687 ) (17,772 ) (18,281 ) (20,195 ) (19,227 )
(current and
non-current)
Less: Other
non-current
liabilities,
deferred (72,596 ) (109,240 ) (113,648 ) (103,116 ) (107,365 )
income
taxes, and
deferred
rent
Capital base $ 548,326 $ 602,270 $ 612,684 $ 662,046 $ 686,876
Average $ 859,495 $ 929,127 $ 998,580 $ 1,057,938 $ 1,114,061
total assets
Average $ 527,635 $ 575,298 $ 607,477 $ 637,365 $ 674,461
capital base
Return on
assets 8.2 % 8.6 % 10.0 % 8.8 % 9.0 %
(annualized)
Return on
capital 14.4 % 14.8 % 17.2 % 15.0 % 15.5 %
(annualized)
Adjusted Free Cash Flow (Non-GAAP financial measure)
We define Adjusted Free Cash Flow as Adjusted EBITDA plus non-cash deferred
rent, less total capital expenditures (including non-cash purchases of
property and equipment), cash payments for interest, net, and cash payments
for income taxes, net.
We believe that Adjusted Free Cash Flow is an important metric for investors
in evaluating how a company is currently using cash generated and may indicate
its ability to generate cash that can potentially be used by the business for
capital investments, acquisitions, reduction of debt, payment of dividends,
etc. Note that Adjusted Free Cash Flow is not a measure of financial
performance under GAAP and may not be comparable to similarly titled measures
reported by other companies. See our Adjusted Free Cash Flow reconciliation to
Adjusted EBITDA below, as well as our reconciliation of Net income to Adjusted
EBITDA provided above.
Three Months Ended Six Months Ended
(In thousands) June 30, 2012 June 30, 2012
Adjusted EBITDA $ 111,887 $ 212,631
Non-cash deferred rent 2,120 4,050
Total capital expenditures (81,968 ) (164,284 )
Cash payments for interest, net (1,209 ) (2,435 )
Cash payments for income taxes, net (2,100 ) (3,775 )
Adjusted free cash flow $ 28,730 $ 46,187
Net Leverage (Non-GAAP financial measure)
We define Net Leverage as Net Debt divided by Adjusted EBITDA (trailing twelve
months).
We believe that Net Leverage is an important metric for investors in
evaluating a company’s liquidity. Note that Net Leverage is not a measure of
financial performance under GAAP and may not be comparable to similarly titled
measures reported by other companies. We believe that Net Leverage provides an
additional indicator when assessing our liquidity, capital structure and
leverage and provides insight into a company's ability to assume more debt if
and when required. A negative Net Leverage indicates that our cash and cash
equivalents is greater than our total debt as of the balance sheet date. See
our Net Leverage calculation below.
As of
(Dollars in thousands) June 30, 2012
Obligations under capital leases $ 147,149
Debt 2,077
Total debt $ 149,226
Less: Cash and cash equivalents (215,448 )
Net debt $ (66,222 )
Adjusted EBITDA (trailing twelve months) $ 402,808
Net leverage (0.16 ) x
Contact:
Rackspace Hosting
Investor Relations
Bryan McGrath, 210-312-5230
ir@rackspace.com
or
Corporate Communications
Rachel Ferry, 210-312-3732
rachel.ferry@rackspace.com
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