Rackspace Technology, Inc. (Nasdaq: RXT), a leading end-to-end
multicloud technology solutions company, today announced results
for its first quarter ended March 31, 2021.
Kevin Jones, Chief Executive Officer, commented, “Our first
quarter results represent a strong start to the year. We continued
to grow both total and Core revenue by double digits. The earnings
leverage inherent in our business model and our cost transformation
programs are driving significant improvements in year-over-year
profitability. And our working capital discipline resulted in a
dramatic increase in both operating and free cash flow.”
Mr. Jones continued, “Most importantly we are continuing to
position the company for consistent ongoing growth and earnings
leverage. The new customers we landed in 2019 and 2020 provide a
strong growth foundation, and the continued tectonic shift of
workloads to the cloud will provide secular tailwinds for years to
come. Our new market positioning as the un-GSI, as well as the new
service offerings we’ve introduced in 2021, position Rackspace
Technology as the clear partner of choice for companies that want
to migrate their business to the cloud. We are already seeing
significant traction in the market for these initiatives.”
First Quarter 2021 Results
Revenue was $726 million in the first quarter of 2021, an
increase of 11% as compared to revenue of $653 million in the first
quarter of 2020. Revenue for the first quarter of 2021 was
positively impacted by new customer acquisitions and growing
customer spend in our Multicloud Services and Apps & Cross
Platform segments. On a constant currency basis, revenue increased
by 10% in the first quarter of 2021 as compared to the first
quarter of 2020.
Revenue from our Core Segments (“Core Revenue”), comprised of
Multicloud Services and Apps & Cross Platform, increased 15% in
the first quarter of 2021 as compared to the first quarter of 2020.
On a constant currency basis, Core Revenue increased 14% in the
first quarter of 2021 as compared to the first quarter of 2020.
Bookings were $244 million in the first quarter of 2021, an
increase of 6% as compared to Bookings of $231 million in the first
quarter of 2020.
Net loss was $(64) million in the first quarter of 2021,
compared to net loss of $(48) million in the first quarter of
2020.
Net loss per diluted share was $(0.31) in the first quarter of
2021, compared to net loss per diluted share of $(0.29) in the
first quarter of 2020.
Non-GAAP Operating Profit was $119 million in the first quarter
of 2021, an increase of 10% compared to $109 million in the first
quarter of 2020.
Non-GAAP Earnings Per Share was $0.23 in the first quarter of
2021, an increase of 44% as compared to Non-GAAP Earnings Per Share
of $0.16 in the first quarter of 2020.
Capital expenditures were $59 million in the first quarter of
2021, compared to $75 million in the first quarter of 2020.
As of March 31, 2021, we had cash and cash equivalents of
$198 million with no balance outstanding on our Revolving Credit
Facility.
Financial Outlook
Rackspace Technology is providing guidance as follows:
|
Q2 2021 Guidance |
FY 2021 Guidance |
Revenue |
$735-$745 million |
$2.9-$3.1 billion |
Core Revenue |
$690-$698 million |
$2.7-$2.9 billion |
Non-GAAP Operating Profit |
$113-$117 million |
$500-$530 million |
Non-GAAP Earnings Per Share |
$0.21-$0.23 |
$0.95-$1.05 |
Non-GAAP Other Income
(Expense)1 |
($52)-($53) million |
($212)-($222) million |
Non-GAAP Tax Expense Rate |
26% |
26% |
Non-GAAP Weighted Average Shares |
214-215 million |
215-217 million |
1 Non-GAAP Other Income (Expense) is only expected to include
interest expense.
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 Non-GAAP Operating Profit, Non-GAAP
Earnings Per Share, Non-GAAP Other Income (Expense) or Non-GAAP Tax
Expense Rate guidance to the most directly comparable GAAP measure
because it does not provide guidance on GAAP net income (loss) or
the reconciling items between these Non-GAAP measures 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 Non-GAAP Operating Profit, Non-GAAP Earnings Per Share, Non-GAAP
Other Income (Expense) and Non-GAAP Tax Expense Rate guidance,
adjustments in future periods are generally expected to be similar
to the kinds of charges and costs excluded from these Non-GAAP
measures in prior periods, but the impact of such adjustments could
be significant.
Conference Call and Webcast
Rackspace Technology will hold a conference call today, May 10,
2021, at 4:00pm CT / 5:00pm ET to discuss its first quarter 2021
results. Interested parties may access the conference call live
over the phone by dialing 1-877-300-8521 (domestic) or
1-412-317-6026 (international) and requesting the Rackspace
Technology First Quarter 2021 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 May 24, 2021, and can be accessed by dialing 1-844-512-2921
(domestic) or 1-412-317-6671 (international) and providing the
passcode 10155750.
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 Annual Reports on Form 10-K, 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, Non-GAAP Gross Profit, Non-GAAP
Net Income (Loss), Non-GAAP Operating Profit, Adjusted EBITDA and
Non-GAAP 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 March 31, |
|
Year-Over-YearComparison |
|
2020 |
|
2021 |
|
(In millions, except % and per
share data) |
Amount |
|
% Revenue |
|
Amount |
|
% Revenue |
|
Amount |
|
% Change |
Revenue |
$ |
652.7 |
|
|
100.0 |
% |
|
$ |
725.9 |
|
|
100.0 |
% |
|
$ |
73.2 |
|
|
11.2 |
% |
Cost of revenue |
(403.4) |
|
|
(61.8) |
% |
|
(490.6) |
|
|
(67.6) |
% |
|
(87.2) |
|
|
21.6 |
% |
Gross profit |
249.3 |
|
|
38.2 |
% |
|
235.3 |
|
|
32.4 |
% |
|
(14.0) |
|
|
(5.6) |
% |
Selling, general and
administrative expenses |
(227.8) |
|
|
(34.9) |
% |
|
(231.0) |
|
|
(31.8) |
% |
|
(3.2) |
|
|
1.4 |
% |
Gain on sale of land |
— |
|
|
— |
% |
|
19.9 |
|
|
2.7 |
% |
|
19.9 |
|
|
100.0 |
% |
Income from operations |
21.5 |
|
|
3.3 |
% |
|
24.2 |
|
|
3.3 |
% |
|
2.7 |
|
|
12.6 |
% |
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
(72.0) |
|
|
(11.0) |
% |
|
(52.6) |
|
|
(7.2) |
% |
|
19.4 |
|
|
(26.9) |
% |
Loss on investments, net |
(0.1) |
|
|
(0.0) |
% |
|
(3.7) |
|
|
(0.5) |
% |
|
(3.6) |
|
|
NM |
Debt modification and extinguishment costs |
— |
|
|
— |
% |
|
(37.0) |
|
|
(5.1) |
% |
|
(37.0) |
|
|
100.0 |
% |
Other expense, net |
(0.6) |
|
|
(0.1) |
% |
|
(1.8) |
|
|
(0.3) |
% |
|
(1.2) |
|
|
200.0 |
% |
Total other income (expense) |
(72.7) |
|
|
(11.1) |
% |
|
(95.1) |
|
|
(13.1) |
% |
|
(22.4) |
|
|
30.8 |
% |
Loss before income taxes |
(51.2) |
|
|
(7.8) |
% |
|
(70.9) |
|
|
(9.8) |
% |
|
(19.7) |
|
|
38.5 |
% |
Benefit for income taxes |
3.0 |
|
|
0.5 |
% |
|
6.9 |
|
|
0.9 |
% |
|
3.9 |
|
|
130.0 |
% |
Net loss |
$ |
(48.2) |
|
|
(7.4) |
% |
|
$ |
(64.0) |
|
|
(8.8) |
% |
|
$ |
(15.8) |
|
|
32.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share: |
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted |
$ |
(0.29) |
|
|
|
|
$ |
(0.31) |
|
|
|
|
|
|
|
Weighted average number of
shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted |
165.4 |
|
|
|
|
204.6 |
|
|
|
|
|
|
|
NM = not meaningful.
RACKSPACE TECHNOLOGY,
INC.CONSOLIDATED BALANCE
SHEETS(Unaudited)
(In millions, except per share
data) |
December 31,2020 |
|
March 31,2021 |
ASSETS |
|
|
|
Current assets: |
|
|
|
Cash and cash equivalents |
$ |
104.7 |
|
|
$ |
198.4 |
|
Accounts receivable, net of allowance for doubtful accounts and
accrued customer credits of $28.3 and $24.0, respectively |
483.0 |
|
|
488.8 |
|
Prepaid expenses |
123.8 |
|
|
94.2 |
|
Other current assets |
47.0 |
|
|
65.5 |
|
Total current assets |
758.5 |
|
|
846.9 |
|
|
|
|
|
Property, equipment and software, net |
884.6 |
|
|
870.7 |
|
Goodwill, net |
2,761.1 |
|
|
2,763.5 |
|
Intangible assets, net |
1,646.3 |
|
|
1,600.4 |
|
Operating right-of-use assets |
171.1 |
|
|
164.9 |
|
Other non-current assets |
156.2 |
|
|
171.5 |
|
Total assets |
$ |
6,377.8 |
|
|
$ |
6,417.9 |
|
|
|
|
|
LIABILITIES AND
STOCKHOLDERS' EQUITY |
|
|
|
Current liabilities: |
|
|
|
Accounts payable and accrued expenses |
$ |
285.4 |
|
|
$ |
323.1 |
|
Accrued compensation and benefits |
110.6 |
|
|
75.8 |
|
Deferred revenue |
76.7 |
|
|
89.0 |
|
Debt |
43.4 |
|
|
27.0 |
|
Accrued interest |
26.5 |
|
|
28.2 |
|
Operating lease liabilities |
62.2 |
|
|
62.3 |
|
Finance lease liabilities |
40.7 |
|
|
47.6 |
|
Financing obligations |
48.8 |
|
|
47.3 |
|
Other current liabilities |
47.9 |
|
|
57.5 |
|
Total current liabilities |
742.2 |
|
|
757.8 |
|
|
|
|
|
Non-current liabilities: |
|
|
|
Debt |
3,319.3 |
|
|
3,368.7 |
|
Operating lease liabilities |
118.2 |
|
|
111.6 |
|
Finance lease liabilities |
358.1 |
|
|
357.5 |
|
Financing obligations |
74.1 |
|
|
64.2 |
|
Deferred income taxes |
236.7 |
|
|
231.5 |
|
Other non-current liabilities |
145.5 |
|
|
151.4 |
|
Total liabilities |
4,994.1 |
|
|
5,042.7 |
|
|
|
|
|
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;
201.8 and 207.0 shares issued and outstanding, respectively |
2.0 |
|
|
2.1 |
|
Additional paid-in capital |
2,363.6 |
|
|
2,402.6 |
|
Accumulated other comprehensive loss |
(18.6 |
) |
|
(2.2 |
) |
Accumulated deficit |
(963.3 |
) |
|
(1,027.3 |
) |
Total stockholders' equity |
1,383.7 |
|
|
1,375.2 |
|
Total liabilities and stockholders' equity |
$ |
6,377.8 |
|
|
$ |
6,417.9 |
|
RACKSPACE TECHNOLOGY,
INC.CONSOLIDATED STATEMENTS OF CASH
FLOWS(Unaudited)
|
Three Months Ended March 31, |
(In millions) |
2020 |
|
2021 |
Cash Flows From
Operating Activities |
|
|
|
Net loss |
$ |
(48.2 |
) |
|
$ |
(64.0 |
) |
Adjustments to reconcile net loss to net cash provided by operating
activities: |
|
|
|
Depreciation and amortization |
121.3 |
|
|
108.5 |
|
Amortization of operating right-of-use assets |
17.1 |
|
|
15.9 |
|
Deferred income taxes |
(5.8 |
) |
|
(11.1 |
) |
Share-based compensation expense |
7.5 |
|
|
17.2 |
|
Gain on sale of land |
— |
|
|
(19.9 |
) |
Debt modification and extinguishment costs |
— |
|
|
37.0 |
|
Unrealized loss on derivative contracts |
0.7 |
|
|
5.2 |
|
Loss on investments, net |
0.1 |
|
|
3.7 |
|
Provision for bad debts and accrued customer credits |
2.6 |
|
|
(2.7 |
) |
Amortization of debt issuance costs and debt discount |
4.6 |
|
|
2.7 |
|
Other operating activities |
(0.8 |
) |
|
(0.4 |
) |
Changes in operating assets and liabilities: |
|
|
|
Accounts receivable |
(34.1 |
) |
|
(2.6 |
) |
Prepaid expenses and other current assets |
(1.7 |
) |
|
24.7 |
|
Accounts payable, accrued expenses, and other current
liabilities |
(32.3 |
) |
|
(7.8 |
) |
Deferred revenue |
3.0 |
|
|
11.5 |
|
Operating lease liabilities |
(15.3 |
) |
|
(16.1 |
) |
Other non-current assets and liabilities |
6.1 |
|
|
1.4 |
|
Net cash provided by operating activities |
24.8 |
|
|
103.2 |
|
Cash Flows From
Investing Activities |
|
|
|
Purchases of property, equipment and software |
(34.4 |
) |
|
(36.9 |
) |
Proceeds from sale of land |
— |
|
|
31.3 |
|
Other investing activities |
2.0 |
|
|
1.3 |
|
Net cash used in investing activities |
(32.4 |
) |
|
(4.3 |
) |
Cash Flows From
Financing Activities |
|
|
|
Proceeds from employee stock plans |
— |
|
|
21.7 |
|
Proceeds from borrowings under long-term debt arrangements |
295.0 |
|
|
2,838.5 |
|
Payments on long-term debt |
(252.2 |
) |
|
(2,810.6 |
) |
Payments for debt issuance costs |
(0.7 |
) |
|
(32.3 |
) |
Principal payments of finance lease liabilities |
(2.4 |
) |
|
(10.5 |
) |
Proceeds from financing obligations |
20.9 |
|
|
— |
|
Principal payments of financing obligations |
(10.0 |
) |
|
(11.3 |
) |
Net cash provided by (used in) financing activities |
50.6 |
|
|
(4.5 |
) |
Effect of exchange rate changes on cash, cash equivalents, and
restricted cash |
(1.6 |
) |
|
(0.7 |
) |
Increase in cash, cash equivalents, and restricted cash |
41.4 |
|
|
93.7 |
|
Cash, cash equivalents, and restricted cash at beginning of
period |
87.1 |
|
|
108.1 |
|
Cash, cash equivalents, and restricted cash at end of period |
$ |
128.5 |
|
|
$ |
201.8 |
|
Supplemental Cash Flow
Information |
|
|
|
Cash payments for interest, net of amount capitalized |
$ |
39.3 |
|
|
$ |
45.1 |
|
Cash payments for income taxes, net of refunds |
$ |
6.8 |
|
|
$ |
3.9 |
|
|
|
|
|
Non-cash Investing and
Financing Activities |
|
|
|
Acquisition of property, equipment and software by finance
leases |
$ |
0.4 |
|
|
$ |
13.9 |
|
Acquisition of property, equipment and software by financing
obligations |
18.0 |
|
|
— |
|
Increase in property, equipment and software accrued in
liabilities |
22.6 |
|
|
8.1 |
|
Non-cash purchases of property, equipment and software |
$ |
41.0 |
|
|
$ |
22.0 |
|
|
|
|
|
Debt issuance costs included in accrued liabilities |
$ |
— |
|
|
$ |
2.1 |
|
Other non-cash investing and financing activities |
$ |
0.1 |
|
|
$ |
0.2 |
|
REVENUE BY SEGMENT
|
|
Three Months Ended March 31, |
|
% Change |
(In millions, except %) |
|
2020 |
|
2021 |
|
Actual |
|
ConstantCurrency (1) |
Multicloud Services |
|
$ |
507.9 |
|
|
$ |
579.6 |
|
|
14.1% |
|
12.8% |
Apps & Cross Platform |
|
81.5 |
|
|
97.3 |
|
|
19.4% |
|
18.8% |
Core Revenue |
|
589.4 |
|
|
676.9 |
|
|
14.8% |
|
13.6% |
OpenStack Public Cloud |
|
63.3 |
|
|
49.0 |
|
|
(22.6)% |
|
(23.6)% |
Total |
|
$ |
652.7 |
|
|
$ |
725.9 |
|
|
11.2% |
|
10.0% |
(1) Refer to "Non-GAAP Financial Measures" in this
section for further explanation and reconciliation.
NON-GAAP GROSS PROFIT BY
SEGMENT
|
Three Months Ended March 31, |
|
Year-Over-YearComparison |
(In millions, except %) |
2020 |
|
2021 |
|
Non-GAAP gross profit
by segment: |
Amount |
|
% ofSegmentRevenue |
|
Amount |
|
% ofSegmentRevenue |
|
Amount |
|
% Change |
Multicloud Services |
$ |
196.8 |
|
|
38.7% |
|
$ |
196.4 |
|
|
33.9% |
|
$ |
(0.4) |
|
|
(0.2)% |
|
Apps & Cross Platform |
30.1 |
|
|
36.9% |
|
34.9 |
|
|
35.9% |
|
4.8 |
|
|
15.9% |
|
OpenStack Public Cloud |
29.3 |
|
|
46.3% |
|
18.6 |
|
|
38.0% |
|
(10.7) |
|
|
(36.5)% |
|
Non-GAAP Gross Profit (1) |
256.2 |
|
|
|
|
249.9 |
|
|
|
|
(6.3) |
|
|
(2.5)% |
|
Less: |
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation expense |
(1.8) |
|
|
|
|
(4.9) |
|
|
|
|
|
|
|
Other compensation expense (2) |
(1.9) |
|
|
|
|
(1.3) |
|
|
|
|
|
|
|
Purchase accounting impact on expense (3) |
(1.9) |
|
|
|
|
(1.2) |
|
|
|
|
|
|
|
Restructuring and transformation expenses (4) |
(1.3) |
|
|
|
|
(7.2) |
|
|
|
|
|
|
|
Total consolidated gross profit |
$ |
249.3 |
|
|
|
|
$ |
235.3 |
|
|
|
|
|
|
|
(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, and payroll taxes associated
with the exercise of stock options and vesting of restricted
stock. |
(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. |
KEY OPERATING METRICS
|
Three Months Ended March 31, |
(In millions, except %) |
2020 |
|
2021 |
Bookings |
$ |
230.5 |
|
|
$ |
243.5 |
|
Annualized Recurring Revenue
(ARR) |
$ |
2,482.1 |
|
|
$ |
2,742.6 |
|
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 March 31, 2020 |
|
Three Months Ended March 31, 2021 |
|
% Change |
(In millions, except %) |
|
Revenue |
|
Revenue |
|
ForeignCurrencyTranslation
(a) |
|
Revenue inConstantCurrency |
|
Actual |
|
ConstantCurrency |
Multicloud Services |
|
$ |
507.9 |
|
|
$ |
579.6 |
|
|
$ |
(6.7) |
|
|
$ |
572.9 |
|
|
14.1% |
|
12.8% |
Apps & Cross Platform |
|
81.5 |
|
|
97.3 |
|
|
(0.5) |
|
|
96.8 |
|
|
19.4% |
|
18.8% |
OpenStack Public Cloud |
|
63.3 |
|
|
49.0 |
|
|
(0.6) |
|
|
48.4 |
|
|
(22.6)% |
|
(23.6)% |
Total |
|
$ |
652.7 |
|
|
$ |
725.9 |
|
|
$ |
(7.8) |
|
|
$ |
718.1 |
|
|
11.2% |
|
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. |
Non-GAAP Gross Profit
Our principal measure of segment profitability is segment
non-GAAP gross profit. We also present Non-GAAP Gross Profit, which
is the aggregate of segment non-GAAP gross profit, because we
believe the measure is useful in analyzing trends in our
underlying, recurring gross margins. We define Non-GAAP 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 Non-GAAP Gross Profit to our total
consolidated gross profit, see “Non-GAAP Gross Profit by Segment”
above.
Non-GAAP Income (Loss), Non-GAAP Operating Profit and
Adjusted EBITDA
We present Non-GAAP Net Income (Loss), Non-GAAP Operating Profit
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 Non-GAAP Net Income (Loss) as net income (loss)
adjusted to exclude the impact of non-cash charges for share-based
compensation, special bonuses and other compensation expense,
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 Non-GAAP Operating Profit as net income (loss), plus
interest expense and income taxes, further adjusted to exclude the
impact of non-cash charges for share-based compensation, special
bonuses and other compensation expense, 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 Non-GAAP Operating Profit plus
depreciation and amortization.
Non-GAAP Operating Profit 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 Non-GAAP Net Income (Loss), Non-GAAP
Operating Profit or Adjusted EBITDA. Our presentation of Non-GAAP
Net Income (Loss), Non-GAAP Operating Profit 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 March 31, |
(In millions) |
2020 |
|
2021 |
Net loss |
$ |
(48.2 |
) |
|
$ |
(64.0 |
) |
Share-based compensation
expense |
7.5 |
|
|
17.2 |
|
Special bonuses and other
compensation expense (a) |
8.3 |
|
|
4.0 |
|
Transaction-related
adjustments, net (b) |
8.4 |
|
|
8.4 |
|
Restructuring and
transformation expenses (c) |
15.0 |
|
|
38.6 |
|
Management fees (d) |
3.6 |
|
|
— |
|
Gain on sale of land |
— |
|
|
(19.9 |
) |
Net loss on divestiture and
investments (e) |
0.1 |
|
|
3.7 |
|
Debt modification and
extinguishment costs (f) |
— |
|
|
37.0 |
|
Other expense, net (g) |
0.6 |
|
|
1.8 |
|
Amortization of intangible
assets (h) |
44.2 |
|
|
46.4 |
|
Tax effect of non-GAAP
adjustments (i) |
(12.5 |
) |
|
(24.1 |
) |
Non-GAAP Net Income |
27.0 |
|
|
49.1 |
|
Interest expense |
72.0 |
|
|
52.6 |
|
Benefit for income taxes |
(3.0 |
) |
|
(6.9 |
) |
Tax effect of non-GAAP
adjustments (i) |
12.5 |
|
|
24.1 |
|
Non-GAAP Operating Profit |
108.5 |
|
|
118.9 |
|
Depreciation (j) |
77.1 |
|
|
61.3 |
|
Adjusted EBITDA |
$ |
185.6 |
|
|
$ |
180.2 |
|
(a) |
Includes expense related to retention bonuses, mainly relating to
restructuring and integration projects, and the related payroll
tax, senior executive signing bonuses and relocation costs, and
payroll taxes associated with the exercise of stock options and
vesting of restricted stock. |
(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. |
(f) |
Includes expenses related to the
February 2021 Refinancing Transaction. |
(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 the 2020 and 2021 interim periods, we based
it on an average of the 2019 and estimated 2020 tax rates and 2020
and estimated 2021 tax rates, respectively, 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%
for both periods. 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. |
(j) |
Excludes accelerated depreciation
expense related to facility closures. |
Non-GAAP Earnings Per Share (EPS)
We define Non-GAAP EPS as Non-GAAP Net Income divided by our
GAAP weighted average number of shares outstanding for the period
on a diluted basis and further adjusted for the weighted average
number of shares associated with securities which are anti-dilutive
to GAAP earnings per share but dilutive to Non-GAAP EPS. Management
uses Non-GAAP 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
Non-GAAP EPS.
|
Three Months Ended March 31, |
(In millions, except per share
amounts) |
2020 |
|
2021 |
Net loss attributable to common stockholders |
$ |
(48.2 |
) |
|
$ |
(64.0 |
) |
Non-GAAP Net Income |
$ |
27.0 |
|
|
$ |
49.1 |
|
|
|
|
|
Weighted average number of
shares - Diluted |
165.4 |
|
|
204.6 |
|
Effect of dilutive securities
(a) |
0.9 |
|
|
6.5 |
|
Non-GAAP weighted average number of shares - Diluted |
166.3 |
|
|
211.1 |
|
|
|
|
|
Net loss per share -
Diluted |
$ |
(0.29 |
) |
|
$ |
(0.31 |
) |
Per share impacts of
adjustments to net loss (b) |
0.45 |
|
|
0.55 |
|
Per share impacts of shares
dilutive after adjustments to net loss (a) |
(0.00 |
) |
|
(0.01 |
) |
Non-GAAP EPS |
$ |
0.16 |
|
|
$ |
0.23 |
|
(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 Non-GAAP 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, vesting of restricted stock or purchase under the
Employee Stock Purchase Plan (the "ESPP"), 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. |
(b) |
Reflects the aggregate
adjustments made to reconcile Non-GAAP Net Income to our net loss,
as noted in the above table, divided by the GAAP diluted number of
shares outstanding for the relevant period. |
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