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Share Name | Share Symbol | Market | Type |
---|---|---|---|
Rackspace Hosting, (delisted) | NYSE:RAX | NYSE | Common Stock |
Price Change | % Change | Share Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|
0.00 | 0.00% | 31.99 | 0 | 01:00:00 |
R
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
o
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
Delaware
|
|
74-3016523
|
(State or other jurisdiction of
incorporation or organization)
|
|
(IRS Employer
Identification No.)
|
Large accelerated filer
R
|
|
Accelerated filer
o
|
|
Non-accelerated filer
o
|
|
Smaller reporting company
o
|
Part I - Financial Information
|
|
|
Item 1.
|
Financial Statements:
|
|
|
||
|
||
|
||
|
||
Item 2.
|
||
Item 3.
|
||
Item 4.
|
||
|
|
|
Part II - Other Information
|
|
|
Item 1.
|
||
Item 1A.
|
||
Item 2.
|
||
Item 6.
|
||
|
|
|
|
(In millions, except per share data)
|
|
December 31,
2015 |
|
September 30,
2016 |
||||
|
|
|
|
(Unaudited)
|
||||
ASSETS
|
|
|
|
|
||||
Current assets:
|
|
|
|
|
||||
Cash and cash equivalents
|
|
$
|
484.7
|
|
|
$
|
632.1
|
|
Accounts receivable, net of allowance for doubtful accounts and customer credits of $7.3 as of December 31, 2015 and $6.2 as of September 30, 2016
|
|
174.4
|
|
|
166.0
|
|
||
Prepaid expenses
|
|
46.6
|
|
|
49.0
|
|
||
Other current assets
|
|
12.7
|
|
|
17.2
|
|
||
Total current assets
|
|
718.4
|
|
|
864.3
|
|
||
|
|
|
|
|
||||
Property and equipment, net
|
|
1,148.0
|
|
|
1,031.7
|
|
||
Goodwill
|
|
81.1
|
|
|
80.2
|
|
||
Intangible assets, net
|
|
9.1
|
|
|
3.6
|
|
||
Other non-current assets
|
|
57.6
|
|
|
68.3
|
|
||
Total assets
|
|
$
|
2,014.2
|
|
|
$
|
2,048.1
|
|
|
|
|
|
|
||||
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
|
|
|
||||
Current liabilities:
|
|
|
|
|
||||
Accounts payable and accrued expenses
|
|
$
|
136.3
|
|
|
$
|
139.7
|
|
Accrued compensation and benefits
|
|
57.3
|
|
|
34.4
|
|
||
Income and other taxes payable
|
|
12.0
|
|
|
7.1
|
|
||
Deferred revenue
|
|
29.6
|
|
|
43.2
|
|
||
Capital lease obligations
|
|
1.7
|
|
|
0.3
|
|
||
Total current liabilities
|
|
236.9
|
|
|
224.7
|
|
||
|
|
|
|
|
||||
Non-current liabilities:
|
|
|
|
|
||||
Debt
|
|
492.4
|
|
|
493.1
|
|
||
Finance lease obligations for build-to-suit leases
|
|
164.3
|
|
|
150.9
|
|
||
Deferred income taxes
|
|
54.8
|
|
|
64.9
|
|
||
Deferred rent
|
|
49.5
|
|
|
49.4
|
|
||
Deferred revenue
|
|
1.6
|
|
|
8.3
|
|
||
Capital lease obligations
|
|
0.2
|
|
|
0.3
|
|
||
Other liabilities
|
|
46.4
|
|
|
49.1
|
|
||
Total liabilities
|
|
1,046.1
|
|
|
1,040.7
|
|
||
|
|
|
|
|
||||
Commitments and Contingencies
|
|
|
|
|
|
|
||
|
|
|
|
|
||||
Stockholders' equity:
|
|
|
|
|
||||
Common stock, $0.001 par value per share: 300.0 shares authorized; 130.9 shares issued and outstanding as of December 31, 2015; 126.4 shares issued and outstanding as of September 30, 2016
|
|
0.1
|
|
|
0.1
|
|
||
Additional paid-in capital
|
|
834.5
|
|
|
877.8
|
|
||
Accumulated other comprehensive loss
|
|
(36.2
|
)
|
|
(68.9
|
)
|
||
Retained earnings
|
|
169.7
|
|
|
198.4
|
|
||
Total stockholders’ equity
|
|
968.1
|
|
|
1,007.4
|
|
||
Total liabilities and stockholders’ equity
|
|
$
|
2,014.2
|
|
|
$
|
2,048.1
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
||||||||||||
(In millions, except per share data)
|
|
2015
|
|
2016
|
|
2015
|
|
2016
|
||||||||
Net revenue
|
|
$
|
508.9
|
|
|
$
|
516.2
|
|
|
$
|
1,478.5
|
|
|
$
|
1,557.9
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
||||||||
Cost of revenue
|
|
172.7
|
|
|
183.9
|
|
|
500.9
|
|
|
535.8
|
|
||||
Research and development
|
|
29.9
|
|
|
24.5
|
|
|
95.1
|
|
|
79.0
|
|
||||
Sales and marketing
|
|
61.8
|
|
|
63.3
|
|
|
185.2
|
|
|
190.8
|
|
||||
General and administrative
|
|
88.2
|
|
|
85.9
|
|
|
261.3
|
|
|
264.1
|
|
||||
Depreciation and amortization
|
|
101.3
|
|
|
100.9
|
|
|
295.9
|
|
|
309.5
|
|
||||
Total costs and expenses
|
|
453.9
|
|
|
458.5
|
|
|
1,338.4
|
|
|
1,379.2
|
|
||||
Gain on sale
|
|
—
|
|
|
12.5
|
|
|
—
|
|
|
37.0
|
|
||||
Income from operations
|
|
55.0
|
|
|
70.2
|
|
|
140.1
|
|
|
215.7
|
|
||||
Other income (expense):
|
|
|
|
|
|
|
|
|
||||||||
Interest expense
|
|
(2.8
|
)
|
|
(10.0
|
)
|
|
(5.1
|
)
|
|
(30.8
|
)
|
||||
Interest and other income (expense)
|
|
(1.1
|
)
|
|
(0.2
|
)
|
|
(1.7
|
)
|
|
1.3
|
|
||||
Total other income (expense)
|
|
(3.9
|
)
|
|
(10.2
|
)
|
|
(6.8
|
)
|
|
(29.5
|
)
|
||||
Income before income taxes
|
|
51.1
|
|
|
60.0
|
|
|
133.3
|
|
|
186.2
|
|
||||
Income taxes
|
|
15.6
|
|
|
21.4
|
|
|
42.0
|
|
|
63.0
|
|
||||
Net income
|
|
$
|
35.5
|
|
|
$
|
38.6
|
|
|
$
|
91.3
|
|
|
$
|
123.2
|
|
|
|
|
|
|
|
|
|
|
||||||||
Other comprehensive income, net of tax
|
|
|
|
|
|
|
|
|
||||||||
Foreign currency translation adjustments
|
|
$
|
(10.2
|
)
|
|
$
|
(6.1
|
)
|
|
$
|
(9.0
|
)
|
|
$
|
(32.7
|
)
|
Other comprehensive loss
|
|
(10.2
|
)
|
|
(6.1
|
)
|
|
(9.0
|
)
|
|
(32.7
|
)
|
||||
Comprehensive income
|
|
$
|
25.3
|
|
|
$
|
32.5
|
|
|
$
|
82.3
|
|
|
$
|
90.5
|
|
|
|
|
|
|
|
|
|
|
||||||||
Net income per share
|
|
|
|
|
|
|
|
|
||||||||
Basic
|
|
$
|
0.26
|
|
|
$
|
0.31
|
|
|
$
|
0.65
|
|
|
$
|
0.97
|
|
Diluted
|
|
$
|
0.25
|
|
|
$
|
0.30
|
|
|
$
|
0.64
|
|
|
$
|
0.96
|
|
|
|
|
|
|
|
|
|
|
||||||||
Weighted average number of shares outstanding
|
|
|
|
|
|
|
|
|
||||||||
Basic
|
|
139.0
|
|
|
126.1
|
|
|
140.9
|
|
|
127.5
|
|
||||
Diluted
|
|
140.6
|
|
|
127.8
|
|
|
143.3
|
|
|
128.6
|
|
|
|
Nine Months Ended September 30,
|
||||||
(In millions)
|
|
2015
|
|
2016
|
||||
Cash Flows From Operating Activities
|
|
|
|
|
||||
Net income
|
|
$
|
91.3
|
|
|
$
|
123.2
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
||||
Depreciation and amortization
|
|
295.9
|
|
|
309.5
|
|
||
Deferred income taxes
|
|
(35.8
|
)
|
|
9.2
|
|
||
Share-based compensation expense
|
|
60.0
|
|
|
53.9
|
|
||
Excess tax benefits from share-based compensation arrangements
|
|
(51.5
|
)
|
|
(34.2
|
)
|
||
Gain on sale
|
|
—
|
|
|
(37.0
|
)
|
||
Other operating activities
|
|
7.1
|
|
|
8.1
|
|
||
Changes in operating assets and liabilities:
|
|
|
|
|
||||
Accounts receivable
|
|
(26.3
|
)
|
|
(2.7
|
)
|
||
Prepaid expenses and other current assets
|
|
(25.1
|
)
|
|
(4.1
|
)
|
||
Accounts payable, accrued expenses, and other current liabilities
|
|
45.7
|
|
|
15.6
|
|
||
Deferred revenue
|
|
9.5
|
|
|
21.1
|
|
||
Deferred rent
|
|
—
|
|
|
(0.7
|
)
|
||
Other non-current assets and liabilities
|
|
8.8
|
|
|
8.0
|
|
||
Net cash provided by operating activities
|
|
379.6
|
|
|
469.9
|
|
||
Cash Flows From Investing Activities
|
|
|
|
|
||||
Purchases of property and equipment
|
|
(331.9
|
)
|
|
(235.3
|
)
|
||
Proceeds from sale
|
|
—
|
|
|
35.3
|
|
||
Other investing activities
|
|
(4.6
|
)
|
|
(13.7
|
)
|
||
Net cash used in investing activities
|
|
(336.5
|
)
|
|
(213.7
|
)
|
||
Cash Flows From Financing Activities
|
|
|
|
|
||||
Proceeds from debt
|
|
140.0
|
|
|
—
|
|
||
Repayments of debt
|
|
(25.1
|
)
|
|
—
|
|
||
Payments for debt issuance costs
|
|
—
|
|
|
(0.4
|
)
|
||
Proceeds from finance lease obligations for build-to-suit leases
|
|
2.5
|
|
|
—
|
|
||
Principal payments of capital and build-to-suit leases
|
|
(13.3
|
)
|
|
(1.6
|
)
|
||
Payments for deferred acquisition obligations
|
|
(0.2
|
)
|
|
—
|
|
||
Repurchase of common stock
|
|
(250.1
|
)
|
|
(133.2
|
)
|
||
Shares of common stock withheld for employee taxes
|
|
—
|
|
|
(1.3
|
)
|
||
Proceeds from employee stock plans
|
|
29.2
|
|
|
3.9
|
|
||
Excess tax benefits from share-based compensation arrangements
|
|
51.5
|
|
|
34.2
|
|
||
Net cash used in financing activities
|
|
(65.5
|
)
|
|
(98.4
|
)
|
||
Effect of exchange rate changes on cash and cash equivalents
|
|
(2.1
|
)
|
|
(10.4
|
)
|
||
Increase (decrease) in cash and cash equivalents
|
|
(24.5
|
)
|
|
147.4
|
|
||
Cash and cash equivalents, beginning of period
|
|
213.5
|
|
|
484.7
|
|
||
Cash and cash equivalents, end of period
|
|
$
|
189.0
|
|
|
$
|
632.1
|
|
|
|
|
|
|
||||
Supplemental Cash Flow Information
|
|
|
|
|
||||
Cash payments for interest, net of amount capitalized
|
|
$
|
2.2
|
|
|
$
|
27.1
|
|
Cash payments for income taxes, net of refunds
|
|
$
|
17.0
|
|
|
$
|
15.8
|
|
|
|
|
|
|
||||
Non-cash Investing and Financing Activities
|
|
|
|
|
||||
Acquisition of property and equipment by capital leases
|
|
$
|
0.4
|
|
|
$
|
0.2
|
|
Increase (decrease) in property and equipment in accounts payable and accrued expenses
|
|
37.2
|
|
|
(8.4
|
)
|
||
Non-cash purchases of property and equipment
|
|
$
|
37.6
|
|
|
$
|
(8.2
|
)
|
|
|
|
|
|
||||
Additional finance lease obligations for build-to-suit leases and other
|
|
$
|
48.6
|
|
|
$
|
6.3
|
|
•
|
Funds affiliated with or controlled by Apollo and certain co-investors, including certain funds managed by Searchlight Capital Partners, L.P., directly or indirectly contributed an aggregate amount of approximately
$1.2 billion
in cash, which amount was contributed to Merger Sub and used to fund a portion of the Merger Consideration and to pay fees and expenses related to the Transactions;
|
•
|
Merger Sub entered into the following debt arrangements:
|
◦
|
A
five
-year
$225.0 million
senior secured first lien revolving credit facility, which was undrawn on the Closing Date;
|
◦
|
A
seven
-year
$2,000.0 million
senior secured first lien term loan credit facility, which was fully drawn on the Closing Date; and
|
◦
|
$1,200.0 million
aggregate principal amount of
8.625%
Senior Notes due
2024
.
|
•
|
On the Closing Date, at the direction of Rackspace, the trustee for Rackspace's existing
6.5%
Senior Notes due
2024
(the "6.5% Notes") delivered a notice of redemption (the "Redemption Notice") to holders of the 6.5% Notes. The Redemption Notice provided for Rackspace's redemption of the 6.5% Notes on December 5, 2016 (the "Redemption Date") at the redemption price set forth in the Indenture governing the 6.5% Notes (the "6.5% Notes Indenture"). Rackspace satisfied and discharged its obligations under the 6.5% Notes Indenture on the Closing Date by depositing with the trustee funds sufficient to pay the redemption price on the Redemption Date.
|
•
|
Rackspace terminated its existing
$200.0 million
unsecured revolving facility, under which
no
borrowings were outstanding as of the Closing Date.
|
|
|
Three Months Ended September 30, 2015
|
||||||||||
(In millions, except per share data)
|
|
As Previously Reported
|
|
Adjustments
|
|
As Revised
|
||||||
Consolidated Statement of Comprehensive Income:
|
|
|
|
|
|
|
||||||
Cost of revenue
|
|
$
|
171.2
|
|
|
$
|
1.5
|
|
|
$
|
172.7
|
|
Income from operations
|
|
56.5
|
|
|
(1.5
|
)
|
|
55.0
|
|
|||
Income before income taxes
|
|
52.6
|
|
|
(1.5
|
)
|
|
51.1
|
|
|||
Income taxes
|
|
16.1
|
|
|
(0.5
|
)
|
|
15.6
|
|
|||
Net income
|
|
36.5
|
|
|
(1.0
|
)
|
|
35.5
|
|
|||
Comprehensive income
|
|
$
|
26.3
|
|
|
$
|
(1.0
|
)
|
|
$
|
25.3
|
|
Net income per share
|
|
|
|
|
|
|
||||||
Basic
|
|
$
|
0.26
|
|
|
$
|
—
|
|
|
$
|
0.26
|
|
Diluted
|
|
$
|
0.26
|
|
|
$
|
(0.01
|
)
|
|
$
|
0.25
|
|
|
|
Nine Months Ended September 30, 2015
|
||||||||||
(In millions, except per share data)
|
|
As Previously Reported
|
|
Adjustments
|
|
As Revised
|
||||||
Consolidated Statement of Comprehensive Income:
|
|
|
|
|
|
|
||||||
Cost of revenue
|
|
$
|
496.4
|
|
|
$
|
4.5
|
|
|
$
|
500.9
|
|
Income from operations
|
|
144.6
|
|
|
(4.5
|
)
|
|
140.1
|
|
|||
Income before income taxes
|
|
137.8
|
|
|
(4.5
|
)
|
|
133.3
|
|
|||
Income taxes
|
|
43.7
|
|
|
(1.7
|
)
|
|
42.0
|
|
|||
Net income
|
|
94.1
|
|
|
(2.8
|
)
|
|
91.3
|
|
|||
Comprehensive income
|
|
$
|
85.1
|
|
|
$
|
(2.8
|
)
|
|
$
|
82.3
|
|
Net income per share
|
|
|
|
|
|
|
||||||
Basic
|
|
$
|
0.67
|
|
|
$
|
(0.02
|
)
|
|
$
|
0.65
|
|
Diluted
|
|
$
|
0.66
|
|
|
$
|
(0.02
|
)
|
|
$
|
0.64
|
|
|
|
Nine Months Ended September 30, 2015
|
||||||||||
(In millions)
|
|
As Previously Reported
|
|
Adjustments
|
|
As Revised
|
||||||
Consolidated Statement of Cash Flows:
|
|
|
|
|
|
|
||||||
Net income
|
|
$
|
94.1
|
|
|
$
|
(2.8
|
)
|
|
$
|
91.3
|
|
Deferred income taxes
|
|
(34.1
|
)
|
|
(1.7
|
)
|
|
(35.8
|
)
|
|||
Other non-current assets and liabilities
|
|
$
|
4.3
|
|
|
$
|
4.5
|
|
|
$
|
8.8
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
||||||||||||
(In millions, except per share data)
|
|
2015
|
|
2016
|
|
2015
|
|
2016
|
||||||||
Basic net income per share:
|
|
|
|
|
|
|
|
|
||||||||
Net income
|
|
$
|
35.5
|
|
|
$
|
38.6
|
|
|
$
|
91.3
|
|
|
$
|
123.2
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
||||||||
Common stock
|
|
139.0
|
|
|
126.1
|
|
|
140.9
|
|
|
127.5
|
|
||||
Number of shares used in per share computations
|
|
139.0
|
|
|
126.1
|
|
|
140.9
|
|
|
127.5
|
|
||||
Net income per share
|
|
$
|
0.26
|
|
|
$
|
0.31
|
|
|
$
|
0.65
|
|
|
$
|
0.97
|
|
|
|
|
|
|
|
|
|
|
||||||||
Diluted net income per share:
|
|
|
|
|
|
|
|
|
||||||||
Net income
|
|
$
|
35.5
|
|
|
$
|
38.6
|
|
|
$
|
91.3
|
|
|
$
|
123.2
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
||||||||
Common stock
|
|
139.0
|
|
|
126.1
|
|
|
140.9
|
|
|
127.5
|
|
||||
Stock options, awards and employee share purchase plans
|
|
1.6
|
|
|
1.7
|
|
|
2.4
|
|
|
1.1
|
|
||||
Number of shares used in per share computations
|
|
140.6
|
|
|
127.8
|
|
|
143.3
|
|
|
128.6
|
|
||||
Net income per share
|
|
$
|
0.25
|
|
|
$
|
0.30
|
|
|
$
|
0.64
|
|
|
$
|
0.96
|
|
(In millions)
|
|
December 31,
2015 |
|
September 30,
2016 |
||||
Computers and equipment
|
|
$
|
1,787.2
|
|
|
$
|
1,839.7
|
|
Computer software
|
|
370.6
|
|
|
401.2
|
|
||
Furniture and fixtures
|
|
63.5
|
|
|
62.8
|
|
||
Buildings and leasehold improvements
|
|
355.7
|
|
|
332.2
|
|
||
Land
|
|
28.1
|
|
|
26.8
|
|
||
Property and equipment, at cost
|
|
2,605.1
|
|
|
2,662.7
|
|
||
Less: Accumulated depreciation and amortization
|
|
(1,539.7
|
)
|
|
(1,733.2
|
)
|
||
Work in process
|
|
82.6
|
|
|
102.2
|
|
||
Property and equipment, net
|
|
$
|
1,148.0
|
|
|
$
|
1,031.7
|
|
(In millions)
|
|
December 31,
2015 |
|
September 30,
2016 |
||||
Office facility build outs
|
|
$
|
11.5
|
|
|
$
|
12.5
|
|
Data center build outs
|
|
49.0
|
|
|
50.1
|
|
||
Capitalized software
|
|
22.1
|
|
|
39.6
|
|
||
Work in process
|
|
$
|
82.6
|
|
|
$
|
102.2
|
|
(In millions)
|
|
September 30,
2016 |
||
Americas
|
|
$
|
57.9
|
|
International
|
|
22.3
|
|
|
Total goodwill
|
|
$
|
80.2
|
|
|
December 31, 2015
|
||||||||||
(In millions)
|
Revolving Credit Facility
|
|
Senior Notes due 2024
|
|
Total
|
||||||
Principal balance
|
$
|
—
|
|
|
$
|
500.0
|
|
|
$
|
500.0
|
|
Unamortized debt issuance costs
|
—
|
|
|
(7.6
|
)
|
|
(7.6
|
)
|
|||
Total debt
|
—
|
|
|
492.4
|
|
|
492.4
|
|
|||
Less: Current portion of debt
|
—
|
|
|
—
|
|
|
—
|
|
|||
Debt, excluding current portion
|
$
|
—
|
|
|
$
|
492.4
|
|
|
$
|
492.4
|
|
|
September 30, 2016
|
||||||||||
(In millions)
|
Revolving Credit Facility
|
|
Senior Notes due 2024
|
|
Total
|
||||||
Principal balance
|
$
|
—
|
|
|
$
|
500.0
|
|
|
$
|
500.0
|
|
Unamortized debt issuance costs
|
—
|
|
|
(6.9
|
)
|
|
(6.9
|
)
|
|||
Total debt
|
—
|
|
|
493.1
|
|
|
493.1
|
|
|||
Less: Current portion of debt
|
—
|
|
|
—
|
|
|
—
|
|
|||
Debt, excluding current portion
|
$
|
—
|
|
|
$
|
493.1
|
|
|
$
|
493.1
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
||||||||||||
(In millions)
|
|
2015
|
|
2016
|
|
2015
|
|
2016
|
||||||||
Cost of revenue
|
|
$
|
4.2
|
|
|
$
|
4.5
|
|
|
$
|
12.3
|
|
|
$
|
13.0
|
|
Research and development
|
|
2.4
|
|
|
2.3
|
|
|
11.3
|
|
|
6.9
|
|
||||
Sales and marketing
|
|
2.7
|
|
|
2.9
|
|
|
8.2
|
|
|
8.3
|
|
||||
General and administrative
|
|
10.3
|
|
|
8.0
|
|
|
28.2
|
|
|
25.7
|
|
||||
Pre-tax share-based compensation
|
|
19.6
|
|
|
17.7
|
|
|
60.0
|
|
|
53.9
|
|
||||
Less: Income tax benefit
|
|
(5.9
|
)
|
|
(6.3
|
)
|
|
(19.0
|
)
|
|
(18.2
|
)
|
||||
Total share-based compensation expense, net of tax
|
|
$
|
13.7
|
|
|
$
|
11.4
|
|
|
$
|
41.0
|
|
|
$
|
35.7
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
||||||||||||
(In millions)
|
|
2015
|
|
2016
|
|
2015
|
|
2016
|
||||||||
Net revenue:
|
|
|
|
|
|
|
|
|
||||||||
Americas
|
|
$
|
371.5
|
|
|
$
|
389.0
|
|
|
$
|
1,077.8
|
|
|
$
|
1,158.7
|
|
International
|
|
137.4
|
|
|
127.2
|
|
|
400.7
|
|
|
399.2
|
|
||||
Total net revenue
|
|
$
|
508.9
|
|
|
$
|
516.2
|
|
|
$
|
1,478.5
|
|
|
$
|
1,557.9
|
|
|
|
|
|
|
|
|
|
|
||||||||
Income before income taxes:
|
|
|
|
|
|
|
|
|
||||||||
Americas
|
|
$
|
18.3
|
|
|
$
|
31.9
|
|
|
$
|
33.1
|
|
|
$
|
95.4
|
|
International
|
|
32.8
|
|
|
28.1
|
|
|
100.2
|
|
|
90.8
|
|
||||
Total income before income taxes
|
|
$
|
51.1
|
|
|
$
|
60.0
|
|
|
$
|
133.3
|
|
|
$
|
186.2
|
|
|
|
|
|
|
|
|
|
|
||||||||
Depreciation and amortization:
|
|
|
|
|
|
|
|
|
||||||||
Americas
|
|
$
|
77.1
|
|
|
$
|
79.2
|
|
|
$
|
229.5
|
|
|
$
|
238.7
|
|
International
|
|
24.2
|
|
|
21.7
|
|
|
66.4
|
|
|
70.8
|
|
||||
Total depreciation and amortization
|
|
$
|
101.3
|
|
|
$
|
100.9
|
|
|
$
|
295.9
|
|
|
$
|
309.5
|
|
•
|
Single Tenant provides servers and storage space dedicated to a single customer. The latter can deploy either a traditional managed hosting or private cloud environment. For customers who either run legacy applications, have high security or compliance needs, or run applications with consistently high usage patterns, Single Tenant hosting solutions are preferable and more cost effective than do-it-yourself or public cloud alternatives.
|
•
|
Public Cloud provides computing resources on an as-needed basis. Rackspace's Public Cloud is based on OpenStack technology and customers' workloads run on a shared pool of servers, storage, and networking resources. Customers who have workloads with variable needs find this a cost-effective solution as they are charged on a pay-as-you-go basis.
|
•
|
Cloud Office provides outsourced management of applications for email, Microsoft Office 365, and collaboration tools such as Microsoft SharePoint. Email hosting represents the predominant source of revenue and these products are offered on a monthly subscription model with tiered pricing levels based upon number of users and support levels.
|
•
|
Managed Cloud Services resells Amazon Web Services or Microsoft Azure infrastructure and provides managed services on top of it. Managed Cloud Services demand is driven by the adoption of public clouds and the customers' lack of in-house resources to manage these complex cloud platforms.
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
||||||||||||
(In millions)
|
|
2015
|
|
2016
|
|
2015
|
|
2016
|
||||||||
Single Tenant
|
|
$
|
364.7
|
|
|
$
|
365.3
|
|
|
$
|
1,062.4
|
|
|
$
|
1,108.0
|
|
Public Cloud
|
|
117.1
|
|
|
114.4
|
|
|
337.1
|
|
|
350.8
|
|
||||
Cloud Office
|
|
27.1
|
|
|
29.9
|
|
|
79.0
|
|
|
88.0
|
|
||||
Managed Cloud Services
|
|
—
|
|
|
6.6
|
|
|
—
|
|
|
11.1
|
|
||||
Total net revenue
|
|
$
|
508.9
|
|
|
$
|
516.2
|
|
|
$
|
1,478.5
|
|
|
$
|
1,557.9
|
|
•
|
Overview
- Discussion of the nature of our business and overall analysis of financial highlights and key metrics in order to provide context for the remainder of the MD&A.
|
•
|
Results of Operations
- An analysis of our financial results comparing the
three
and
nine
months ended
September 30, 2015
and
2016
.
|
•
|
Liquidity and Capital Resources
- Discussion of our financial condition, sources of liquidity, changes in cash flows and capital expenditure requirements.
|
•
|
Supplemental Information
- Description and reconciliation of Non-GAAP Financial Measures used throughout this MD&A and financial information and key metrics for the most recent five quarters.
|
•
|
Funds affiliated with or controlled by Apollo and certain co-investors, including certain funds managed by Searchlight Capital Partners, L.P., directly or indirectly contributed an aggregate amount of approximately $1.2 billion in cash, which amount was contributed to Merger Sub and used to fund a portion of the Merger Consideration and to pay fees and expenses related to the Transactions;
|
•
|
Merger Sub entered into the following debt arrangements:
|
◦
|
A five-year $225.0 million senior secured first lien revolving credit facility, which was undrawn on the Closing Date;
|
◦
|
A seven-year $2,000.0 million senior secured first lien term loan credit facility, which was fully drawn on the Closing Date; and
|
◦
|
$1,200.0 million aggregate principal amount of 8.625% Senior Notes due 2024.
|
•
|
On the Closing Date, at the direction of Rackspace, the trustee for Rackspace's existing 6.5% Senior Notes due 2024 (the "6.5% Notes") delivered a notice of redemption (the "Redemption Notice") to holders of the 6.5% Notes. The Redemption Notice provided for Rackspace's redemption of the 6.5% Notes on December 5, 2016 (the "Redemption Date") at the redemption price set forth in the Indenture governing the 6.5% Notes (the "6.5% Notes Indenture"). Rackspace satisfied and discharged its obligations under the 6.5% Notes Indenture on the Closing Date by depositing with the trustee funds sufficient to pay the redemption price on the Redemption Date.
|
•
|
Rackspace terminated its existing $200.0 million unsecured revolving facility, under which no borrowings were outstanding as of the Closing Date.
|
|
|
Three Months Ended
|
|||||||||||
(Dollar amounts in millions, except average monthly revenue per server)
|
|
September 30, 2015
|
|
June 30, 2016
|
|
September 30, 2016
|
|||||||
Net revenue
|
|
$
|
508.9
|
|
|
$
|
523.6
|
|
|
$
|
516.2
|
|
|
Revenue growth (year over year)
|
|
10.7
|
%
|
|
7.0
|
%
|
|
1.4
|
%
|
||||
Constant currency revenue growth (year over year)
|
|
12.9
|
%
|
|
8.2
|
%
|
|
4.4
|
%
|
||||
|
|
|
|
|
|
|
|||||||
Number of servers deployed at period end
|
|
118,654
|
|
|
114,231
|
|
|
113,131
|
|
||||
Average monthly revenue per server
|
|
$
|
1,444
|
|
|
$
|
1,513
|
|
|
$
|
1,513
|
|
|
|
|
|
|
|
|
|
|||||||
Number of employees (Rackers) at period end
|
|
6,177
|
|
|
6,199
|
|
|
6,115
|
|
|
|
Three Months Ended
|
|||||||||||
(Dollar amounts in millions, except per share amounts)
|
|
September 30, 2015
|
|
June 30, 2016
|
|
September 30, 2016
|
|||||||
Income from operations
|
|
$
|
55.0
|
|
|
$
|
64.3
|
|
|
$
|
70.2
|
|
|
Operating income margin
|
|
10.8
|
%
|
|
12.3
|
%
|
|
13.6
|
%
|
||||
|
|
|
|
|
|
|
|||||||
Net income
|
|
$
|
35.5
|
|
|
$
|
35.8
|
|
|
$
|
38.6
|
|
|
Net income margin
|
|
7.0
|
%
|
|
6.8
|
%
|
|
7.5
|
%
|
||||
Diluted net income per share
|
|
$
|
0.25
|
|
|
$
|
0.28
|
|
|
$
|
0.30
|
|
|
|
|
|
|
|
|
|
|||||||
Adjusted EBITDA
|
|
$
|
175.9
|
|
|
$
|
187.3
|
|
|
$
|
176.3
|
|
|
Adjusted EBITDA margin
|
|
34.6
|
%
|
|
35.8
|
%
|
|
34.2
|
%
|
|
|
Three Months Ended
|
|||||||||||
(Dollar amounts in millions)
|
|
September 30, 2015
|
|
June 30, 2016
|
|
September 30, 2016
|
|||||||
Capital expenditures
|
|
|
|
|
|
|
|||||||
Customer gear
|
|
$
|
87.1
|
|
|
$
|
47.4
|
|
|
$
|
31.6
|
|
|
Data center build outs
|
|
18.8
|
|
|
9.7
|
|
|
6.9
|
|
||||
Office build outs
|
|
6.1
|
|
|
1.1
|
|
|
1.3
|
|
||||
Capitalized software and other projects
|
|
15.7
|
|
|
23.9
|
|
|
26.4
|
|
||||
Total capital expenditures
|
|
$
|
127.7
|
|
|
$
|
82.1
|
|
|
$
|
66.2
|
|
|
|
|
|
|
|
|
|
|||||||
Capital efficiency and returns
|
|
|
|
|
|
|
|||||||
Average total assets
|
|
$
|
1,787.9
|
|
|
$
|
2,011.1
|
|
|
$
|
2,022.4
|
|
|
Return on assets (annualized)
|
|
8.0
|
%
|
|
7.1
|
%
|
|
7.6
|
%
|
||||
|
|
|
|
|
|
|
|||||||
Average capital base
|
|
$
|
1,020.0
|
|
|
$
|
991.0
|
|
|
$
|
957.4
|
|
|
Return on capital (annualized)
|
|
14.7
|
%
|
|
16.4
|
%
|
|
14.8
|
%
|
||||
Capital turnover (annualized)
|
|
2.00
|
|
|
2.11
|
|
|
2.16
|
|
||||
|
|
|
|
|
|
|
|||||||
Infrastructure capacity and utilization
|
|
|
|
|
|
|
|||||||
Megawatts under contract at period end (1)
|
|
63.6
|
|
|
62.2
|
|
|
62.2
|
|
||||
Megawatts available for customer use at period end (2)
|
|
55.3
|
|
|
56.4
|
|
|
56.4
|
|
||||
Megawatts utilized at period end
|
|
32.7
|
|
|
32.0
|
|
|
31.4
|
|
||||
Annualized net revenue per average Megawatt of power utilized
|
|
$
|
63.3
|
|
|
$
|
65.3
|
|
|
$
|
65.1
|
|
(1)
|
Megawatts under contract at period end represents data center capacity for which we have a contract enabling us to take control of the space.
|
(2)
|
Megawatts available for customer use at period end represents data center capacity that is built-out and is being used to provide service to customers.
|
|
|
Three Months Ended
|
||||||||||||||||||
(In millions)
|
|
September 30,
2015 |
|
December 31,
2015 |
|
March 31,
2016 |
|
June 30,
2016 |
|
September 30,
2016 |
||||||||||
Net revenue
|
|
$
|
508.9
|
|
|
$
|
522.8
|
|
|
$
|
518.1
|
|
|
$
|
523.6
|
|
|
$
|
516.2
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Cost of revenue
|
|
172.7
|
|
|
180.7
|
|
|
180.4
|
|
|
171.5
|
|
|
183.9
|
|
|||||
Research and development
|
|
29.9
|
|
|
29.8
|
|
|
27.6
|
|
|
26.9
|
|
|
24.5
|
|
|||||
Sales and marketing
|
|
61.8
|
|
|
58.3
|
|
|
63.7
|
|
|
63.8
|
|
|
63.3
|
|
|||||
General and administrative
|
|
88.2
|
|
|
90.1
|
|
|
85.7
|
|
|
92.5
|
|
|
85.9
|
|
|||||
Depreciation and amortization
|
|
101.3
|
|
|
104.0
|
|
|
104.0
|
|
|
104.6
|
|
|
100.9
|
|
|||||
Total costs and expenses
|
|
453.9
|
|
|
462.9
|
|
|
461.4
|
|
|
459.3
|
|
|
458.5
|
|
|||||
Gain on sale
|
|
—
|
|
|
—
|
|
|
24.5
|
|
|
—
|
|
|
12.5
|
|
|||||
Income from operations
|
|
55.0
|
|
|
59.9
|
|
|
81.2
|
|
|
64.3
|
|
|
70.2
|
|
|||||
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Interest expense
|
|
(2.8
|
)
|
|
(6.2
|
)
|
|
(10.5
|
)
|
|
(10.3
|
)
|
|
(10.0
|
)
|
|||||
Interest and other income (expense)
|
|
(1.1
|
)
|
|
0.5
|
|
|
1.1
|
|
|
0.4
|
|
|
(0.2
|
)
|
|||||
Total other income (expense)
|
|
(3.9
|
)
|
|
(5.7
|
)
|
|
(9.4
|
)
|
|
(9.9
|
)
|
|
(10.2
|
)
|
|||||
Income before income taxes
|
|
51.1
|
|
|
54.2
|
|
|
71.8
|
|
|
54.4
|
|
|
60.0
|
|
|||||
Income taxes
|
|
15.6
|
|
|
23.1
|
|
|
23.0
|
|
|
18.6
|
|
|
21.4
|
|
|||||
Net income
|
|
$
|
35.5
|
|
|
$
|
31.1
|
|
|
$
|
48.8
|
|
|
$
|
35.8
|
|
|
$
|
38.6
|
|
|
|
Three Months Ended
|
|||||||||||||
(Percent of net revenue)
|
|
September 30,
2015 |
|
December 31,
2015 |
|
March 31,
2016 |
|
June 30,
2016 |
|
September 30,
2016 |
|||||
Net revenue
|
|
100.0
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|||||
Cost of revenue
|
|
34.0
|
%
|
|
34.6
|
%
|
|
34.8
|
%
|
|
32.8
|
%
|
|
35.6
|
%
|
Research and development
|
|
5.9
|
%
|
|
5.7
|
%
|
|
5.3
|
%
|
|
5.1
|
%
|
|
4.7
|
%
|
Sales and marketing
|
|
12.1
|
%
|
|
11.2
|
%
|
|
12.3
|
%
|
|
12.2
|
%
|
|
12.3
|
%
|
General and administrative
|
|
17.3
|
%
|
|
17.2
|
%
|
|
16.6
|
%
|
|
17.7
|
%
|
|
16.6
|
%
|
Depreciation and amortization
|
|
19.9
|
%
|
|
19.9
|
%
|
|
20.1
|
%
|
|
20.0
|
%
|
|
19.6
|
%
|
Total costs and expenses
|
|
89.2
|
%
|
|
88.5
|
%
|
|
89.1
|
%
|
|
87.7
|
%
|
|
88.8
|
%
|
Gain on sale
|
|
—
|
%
|
|
—
|
%
|
|
4.7
|
%
|
|
—
|
%
|
|
2.4
|
%
|
Income from operations
|
|
10.8
|
%
|
|
11.5
|
%
|
|
15.7
|
%
|
|
12.3
|
%
|
|
13.6
|
%
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|||||
Interest expense
|
|
(0.5
|
)%
|
|
(1.2
|
)%
|
|
(2.0
|
)%
|
|
(2.0
|
)%
|
|
(1.9
|
)%
|
Interest and other income (expense)
|
|
(0.2
|
)%
|
|
0.1
|
%
|
|
0.2
|
%
|
|
0.1
|
%
|
|
0.0
|
%
|
Total other income (expense)
|
|
(0.8
|
)%
|
|
(1.1
|
)%
|
|
(1.8
|
)%
|
|
(1.9
|
)%
|
|
(2.0
|
)%
|
Income before income taxes
|
|
10.0
|
%
|
|
10.4
|
%
|
|
13.9
|
%
|
|
10.4
|
%
|
|
11.6
|
%
|
Income taxes
|
|
3.1
|
%
|
|
4.4
|
%
|
|
4.4
|
%
|
|
3.5
|
%
|
|
4.2
|
%
|
Net income
|
|
7.0
|
%
|
|
6.0
|
%
|
|
9.4
|
%
|
|
6.8
|
%
|
|
7.5
|
%
|
|
|
Nine Months Ended
|
||||||
(In millions)
|
|
September 30,
2015 |
|
September 30,
2016 |
||||
Net revenue
|
|
$
|
1,478.5
|
|
|
$
|
1,557.9
|
|
Costs and expenses:
|
|
|
|
|
||||
Cost of revenue
|
|
500.9
|
|
|
535.8
|
|
||
Research and development
|
|
95.1
|
|
|
79.0
|
|
||
Sales and marketing
|
|
185.2
|
|
|
190.8
|
|
||
General and administrative
|
|
261.3
|
|
|
264.1
|
|
||
Depreciation and amortization
|
|
295.9
|
|
|
309.5
|
|
||
Total costs and expenses
|
|
1,338.4
|
|
|
1,379.2
|
|
||
Gain on sale
|
|
—
|
|
|
37.0
|
|
||
Income from operations
|
|
140.1
|
|
|
215.7
|
|
||
Other income (expense):
|
|
|
|
|
||||
Interest expense
|
|
(5.1
|
)
|
|
(30.8
|
)
|
||
Interest and other income (expense)
|
|
(1.7
|
)
|
|
1.3
|
|
||
Total other income (expense)
|
|
(6.8
|
)
|
|
(29.5
|
)
|
||
Income before income taxes
|
|
133.3
|
|
|
186.2
|
|
||
Income taxes
|
|
42.0
|
|
|
63.0
|
|
||
Net income
|
|
$
|
91.3
|
|
|
$
|
123.2
|
|
|
|
Nine Months Ended
|
||||
(Percent of net revenue)
|
|
September 30,
2015 |
|
September 30,
2016 |
||
Net revenue
|
|
100.0
|
%
|
|
100.0
|
%
|
Costs and expenses:
|
|
|
|
|
||
Cost of revenue
|
|
33.9
|
%
|
|
34.4
|
%
|
Research and development
|
|
6.4
|
%
|
|
5.1
|
%
|
Sales and marketing
|
|
12.5
|
%
|
|
12.2
|
%
|
General and administrative
|
|
17.7
|
%
|
|
17.0
|
%
|
Depreciation and amortization
|
|
20.0
|
%
|
|
19.9
|
%
|
Total costs and expenses
|
|
90.5
|
%
|
|
88.5
|
%
|
Gain on sale
|
|
—
|
%
|
|
2.4
|
%
|
Income from operations
|
|
9.5
|
%
|
|
13.8
|
%
|
Other income (expense):
|
|
|
|
|
||
Interest expense
|
|
(0.3
|
)%
|
|
(2.0
|
)%
|
Interest and other income (expense)
|
|
(0.1
|
)%
|
|
0.1
|
%
|
Total other income (expense)
|
|
(0.5
|
)%
|
|
(1.9
|
)%
|
Income before income taxes
|
|
9.0
|
%
|
|
12.0
|
%
|
Income taxes
|
|
2.8
|
%
|
|
4.0
|
%
|
Net income
|
|
6.2
|
%
|
|
7.9
|
%
|
•
|
a first lien term loan facility (the "Term Loan Facility"), in an aggregate principal amount of $2,000.0 million with a maturity of seven years; and
|
•
|
a first lien revolving credit facility (the "New Revolving Credit Facility" and, together with the Term Loan Facility, the "Senior Facilities"), in an aggregate principal amount of up to $225.0 million with a maturity of five years, including both a letter of credit sub-facility and a swingline loan sub-facility.
|
•
|
50% (which percentage will be reduced to 25% and 0% if Rackspace satisfies certain net first lien senior secured leverage ratios) of Rackspace’s annual excess cash flow, as defined under the Senior Facilities;
|
•
|
100% (which percentage will be reduced to 50% and 0% if Rackspace satisfies certain net first lien senior secured leverage ratios) of the net cash proceeds of all non-ordinary course asset sales, other dispositions of property or certain casualty events, in each case subject to certain exceptions and reinvestment rights; and
|
•
|
100% of the net cash proceeds of any issuance or incurrence of debt, other than proceeds from debt permitted under the Senior Facilities.
|
•
|
incur additional debt or issue certain preferred shares;
|
•
|
create liens on certain assets;
|
•
|
make certain loans or investments (including acquisitions);
|
•
|
pay dividends on or make distributions in respect of its capital stock or make other restricted payments;
|
•
|
consolidate, merge, sell or otherwise dispose of all or substantially all of its assets;
|
•
|
sell assets;
|
•
|
enter into certain transactions with its affiliates;
|
•
|
enter into sale-leaseback transactions;
|
•
|
change its lines of business;
|
•
|
restrict dividends from its subsidiaries or restrict liens;
|
•
|
change its fiscal year; and
|
•
|
modify the terms of certain debt or organizational agreements.
|
|
|
Nine Months Ended September 30,
|
||||||
(In millions)
|
|
2015
|
|
2016
|
||||
Cash provided by operating activities
|
|
$
|
379.6
|
|
|
$
|
469.9
|
|
Cash used in investing activities
|
|
$
|
(336.5
|
)
|
|
$
|
(213.7
|
)
|
Cash used in financing activities
|
|
$
|
(65.5
|
)
|
|
$
|
(98.4
|
)
|
|
|
Three Months Ended
|
||||||||||||||||||
(In millions)
|
|
September 30,
2015 |
|
December 31,
2015 |
|
March 31,
2016 |
|
June 30,
2016 |
|
September 30,
2016 |
||||||||||
Net income
|
|
$
|
35.5
|
|
|
$
|
31.1
|
|
|
$
|
48.8
|
|
|
$
|
35.8
|
|
|
$
|
38.6
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Income from operations
|
|
$
|
55.0
|
|
|
$
|
59.9
|
|
|
$
|
81.2
|
|
|
$
|
64.3
|
|
|
$
|
70.2
|
|
Adjustment for gain on sale
|
|
—
|
|
|
—
|
|
|
(24.5
|
)
|
|
—
|
|
|
(12.5
|
)
|
|||||
Adjustment for build-to-suit lease impact (1)
|
|
(1.1
|
)
|
|
(2.3
|
)
|
|
(2.2
|
)
|
|
(2.6
|
)
|
|
(2.4
|
)
|
|||||
Income from operations, adjusted
|
|
$
|
53.9
|
|
|
$
|
57.6
|
|
|
$
|
54.5
|
|
|
$
|
61.7
|
|
|
$
|
55.3
|
|
Effective tax rate
|
|
30.4
|
%
|
|
42.6
|
%
|
|
32.1
|
%
|
|
34.0
|
%
|
|
35.7
|
%
|
|||||
Net operating profit after tax (NOPAT)
|
|
$
|
37.5
|
|
|
$
|
33.1
|
|
|
$
|
37.0
|
|
|
$
|
40.7
|
|
|
$
|
35.5
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Total assets at period end
|
|
$
|
1,749.2
|
|
|
$
|
2,014.2
|
|
|
$
|
2,025.4
|
|
|
$
|
1,996.8
|
|
|
$
|
2,048.1
|
|
Add: Unamortized debt issuance costs (2)
|
|
—
|
|
|
7.6
|
|
|
7.4
|
|
|
7.2
|
|
|
6.9
|
|
|||||
Less: Excess cash (3)
|
|
(128.0
|
)
|
|
(422.0
|
)
|
|
(472.0
|
)
|
|
(481.5
|
)
|
|
(570.2
|
)
|
|||||
Less: Accounts payable and accrued expenses, accrued compensation and benefits, and income and other taxes payable
|
|
(236.9
|
)
|
|
(205.6
|
)
|
|
(213.0
|
)
|
|
(219.1
|
)
|
|
(181.2
|
)
|
|||||
Less: Deferred revenue (current and non-current)
|
|
(31.8
|
)
|
|
(31.2
|
)
|
|
(29.0
|
)
|
|
(30.2
|
)
|
|
(51.5
|
)
|
|||||
Less: Other non-current liabilities, deferred income taxes, deferred rent, and finance lease obligations for build-to-suit leases
|
|
(294.9
|
)
|
|
(315.0
|
)
|
|
(313.6
|
)
|
|
(296.4
|
)
|
|
(314.3
|
)
|
|||||
Capital base
|
|
$
|
1,057.6
|
|
|
$
|
1,048.0
|
|
|
$
|
1,005.2
|
|
|
$
|
976.8
|
|
|
$
|
937.8
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Average total assets
|
|
$
|
1,787.9
|
|
|
$
|
1,881.7
|
|
|
$
|
2,019.8
|
|
|
$
|
2,011.1
|
|
|
$
|
2,022.4
|
|
Average capital base
|
|
$
|
1,020.0
|
|
|
$
|
1,052.8
|
|
|
$
|
1,026.6
|
|
|
$
|
991.0
|
|
|
$
|
957.4
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Return on assets (annualized)
|
|
8.0
|
%
|
|
6.6
|
%
|
|
9.7
|
%
|
|
7.1
|
%
|
|
7.6
|
%
|
|||||
Return on capital (annualized)
|
|
14.7
|
%
|
|
12.6
|
%
|
|
14.4
|
%
|
|
16.4
|
%
|
|
14.8
|
%
|
(1)
|
Reflects additional expense we would have expected to record if our build-to-suit lease arrangements had been deemed operating leases instead of finance lease obligations for build-to-suit leases. Calculated as the excess of estimated straight-line rent expense over actual depreciation expense for completed real estate projects under build-to-suit lease arrangements.
|
(2)
|
Amount recorded as a direct deduction from the carrying value of the long-term debt liability in the consolidated balance sheets
.
|
(3)
|
Defined 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.
|
|
|
Three Months Ended
|
||||||||||||||||||
(In millions)
|
|
September 30,
2015 |
|
December 31,
2015 |
|
March 31,
2016 |
|
June 30,
2016 |
|
September 30,
2016 |
||||||||||
Net revenue
|
|
$
|
508.9
|
|
|
$
|
522.8
|
|
|
$
|
518.1
|
|
|
$
|
523.6
|
|
|
$
|
516.2
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Net income
|
|
$
|
35.5
|
|
|
$
|
31.1
|
|
|
$
|
48.8
|
|
|
$
|
35.8
|
|
|
$
|
38.6
|
|
Plus: Income taxes
|
|
15.6
|
|
|
23.1
|
|
|
23.0
|
|
|
18.6
|
|
|
21.4
|
|
|||||
Plus: Total other (income) expense
|
|
3.9
|
|
|
5.7
|
|
|
9.4
|
|
|
9.9
|
|
|
10.2
|
|
|||||
Plus: Depreciation and amortization
|
|
101.3
|
|
|
104.0
|
|
|
104.0
|
|
|
104.6
|
|
|
100.9
|
|
|||||
Plus: Share-based compensation expense
|
|
19.6
|
|
|
18.1
|
|
|
17.8
|
|
|
18.4
|
|
|
17.7
|
|
|||||
Less: Gain on sale
|
|
—
|
|
|
—
|
|
|
(24.5
|
)
|
|
—
|
|
|
(12.5
|
)
|
|||||
Adjusted EBITDA
|
|
$
|
175.9
|
|
|
$
|
182.0
|
|
|
$
|
178.5
|
|
|
$
|
187.3
|
|
|
$
|
176.3
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Net income margin
|
|
7.0
|
%
|
|
6.0
|
%
|
|
9.4
|
%
|
|
6.8
|
%
|
|
7.5
|
%
|
|||||
Adjusted EBITDA margin
|
|
34.6
|
%
|
|
34.8
|
%
|
|
34.5
|
%
|
|
35.8
|
%
|
|
34.2
|
%
|
|
|
Three Months Ended
|
||||||||||
(In millions)
|
|
Net Revenue
|
|
Foreign Currency Translation
|
|
Net Revenue in Constant Currency
|
||||||
September 30, 2016
|
|
$
|
516.2
|
|
|
$
|
8.2
|
|
|
$
|
524.4
|
|
June 30, 2016
|
|
523.6
|
|
|
—
|
|
|
523.6
|
|
|||
Dollar change
|
|
$
|
(7.4
|
)
|
|
|
|
$
|
0.8
|
|
||
Percent change
|
|
(1.4
|
)%
|
|
|
|
0.1
|
%
|
||||
|
|
|
|
|
|
|
||||||
September 30, 2016
|
|
$
|
516.2
|
|
|
$
|
15.1
|
|
|
$
|
531.3
|
|
September 30, 2015
|
|
508.9
|
|
|
—
|
|
|
508.9
|
|
|||
Dollar change
|
|
$
|
7.3
|
|
|
|
|
$
|
22.4
|
|
||
Percent change
|
|
1.4
|
%
|
|
|
|
4.4
|
%
|
||||
|
|
|
|
|
|
|
||||||
June 30, 2016
|
|
$
|
523.6
|
|
|
$
|
6.1
|
|
|
$
|
529.7
|
|
June 30, 2015
|
|
489.4
|
|
|
—
|
|
|
489.4
|
|
|||
Dollar change
|
|
$
|
34.2
|
|
|
|
|
$
|
40.3
|
|
||
Percent change
|
|
7.0
|
%
|
|
|
|
8.2
|
%
|
||||
|
|
|
|
|
|
|
||||||
September 30, 2015
|
|
$
|
508.9
|
|
|
$
|
10.2
|
|
|
$
|
519.1
|
|
September 30, 2014
|
|
459.7
|
|
|
—
|
|
|
459.7
|
|
|||
Dollar change
|
|
$
|
49.2
|
|
|
|
|
$
|
59.4
|
|
||
Percent change
|
|
10.7
|
%
|
|
|
|
12.9
|
%
|
|
Three Months Ended
|
|
Nine Months Ended
|
||||||||||||
(In millions)
|
September 30,
2015 |
|
September 30,
2016 |
|
September 30,
2015 |
|
September 30,
2016 |
||||||||
Net cash provided by operating activities
|
$
|
111.4
|
|
|
$
|
148.8
|
|
|
$
|
379.6
|
|
|
$
|
469.9
|
|
Less: Cash purchases of property and equipment
|
(134.7
|
)
|
|
(75.7
|
)
|
|
(331.9
|
)
|
|
(235.3
|
)
|
||||
Plus: Excess tax benefits from share-based compensation arrangements
|
12.7
|
|
|
8.2
|
|
|
51.5
|
|
|
34.2
|
|
||||
Free cash flow
|
$
|
(10.6
|
)
|
|
$
|
81.3
|
|
|
$
|
99.2
|
|
|
$
|
268.8
|
|
|
|
Three Months Ended
|
||||||||||||||||||
(Dollar amounts in millions, except average monthly revenue per server)
|
|
September 30,
2015 |
|
December 31,
2015 |
|
March 31,
2016 |
|
June 30,
2016 |
|
September 30,
2016 |
||||||||||
|
|
|
|
|
||||||||||||||||
Growth
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Net revenue
|
|
$
|
508.9
|
|
|
$
|
522.8
|
|
|
$
|
518.1
|
|
|
$
|
523.6
|
|
|
$
|
516.2
|
|
Revenue growth (year over year)
|
|
10.7
|
%
|
|
10.7
|
%
|
|
7.9
|
%
|
|
7.0
|
%
|
|
1.4
|
%
|
|||||
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Number of employees (Rackers) at period end
|
|
6,177
|
|
|
6,189
|
|
|
6,203
|
|
|
6,199
|
|
|
6,115
|
|
|||||
Number of servers deployed at period end (1)
|
|
118,654
|
|
|
118,177
|
|
|
116,507
|
|
|
114,231
|
|
|
113,131
|
|
|||||
Average monthly revenue per server
|
|
$
|
1,444
|
|
|
$
|
1,472
|
|
|
$
|
1,472
|
|
|
$
|
1,513
|
|
|
$
|
1,513
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Profitability
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Net income
|
|
$
|
35.5
|
|
|
$
|
31.1
|
|
|
$
|
48.8
|
|
|
$
|
35.8
|
|
|
$
|
38.6
|
|
Net income margin
|
|
7.0
|
%
|
|
6.0
|
%
|
|
9.4
|
%
|
|
6.8
|
%
|
|
7.5
|
%
|
|||||
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Income from operations
|
|
$
|
55.0
|
|
|
$
|
59.9
|
|
|
$
|
81.2
|
|
|
$
|
64.3
|
|
|
$
|
70.2
|
|
Depreciation and amortization
|
|
$
|
101.3
|
|
|
$
|
104.0
|
|
|
$
|
104.0
|
|
|
$
|
104.6
|
|
|
$
|
100.9
|
|
Share-based compensation expense:
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Cost of revenue
|
|
$
|
4.2
|
|
|
$
|
4.5
|
|
|
$
|
4.1
|
|
|
$
|
4.4
|
|
|
$
|
4.5
|
|
Research and development
|
|
$
|
2.4
|
|
|
$
|
2.4
|
|
|
$
|
2.2
|
|
|
$
|
2.4
|
|
|
$
|
2.3
|
|
Sales and marketing
|
|
$
|
2.7
|
|
|
$
|
1.5
|
|
|
$
|
2.6
|
|
|
$
|
2.8
|
|
|
$
|
2.9
|
|
General and administrative
|
|
$
|
10.3
|
|
|
$
|
9.7
|
|
|
$
|
8.9
|
|
|
$
|
8.8
|
|
|
$
|
8.0
|
|
Total share-based compensation expense
|
|
$
|
19.6
|
|
|
$
|
18.1
|
|
|
$
|
17.8
|
|
|
$
|
18.4
|
|
|
$
|
17.7
|
|
Gain on sale
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(24.5
|
)
|
|
$
|
—
|
|
|
$
|
(12.5
|
)
|
Adjusted EBITDA (2)
|
|
$
|
175.9
|
|
|
$
|
182.0
|
|
|
$
|
178.5
|
|
|
$
|
187.3
|
|
|
$
|
176.3
|
|
Adjusted EBITDA margin
|
|
34.6
|
%
|
|
34.8
|
%
|
|
34.5
|
%
|
|
35.8
|
%
|
|
34.2
|
%
|
|||||
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Operating income margin
|
|
10.8
|
%
|
|
11.5
|
%
|
|
15.7
|
%
|
|
12.3
|
%
|
|
13.6
|
%
|
|||||
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Income from operations
|
|
$
|
55.0
|
|
|
$
|
59.9
|
|
|
$
|
81.2
|
|
|
$
|
64.3
|
|
|
$
|
70.2
|
|
Adjustment for gain on sale
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(24.5
|
)
|
|
$
|
—
|
|
|
$
|
(12.5
|
)
|
Adjustment for build-to-suit lease impact (3)
|
|
$
|
(1.1
|
)
|
|
$
|
(2.3
|
)
|
|
$
|
(2.2
|
)
|
|
$
|
(2.6
|
)
|
|
$
|
(2.4
|
)
|
Income from operations, adjusted
|
|
$
|
53.9
|
|
|
$
|
57.6
|
|
|
$
|
54.5
|
|
|
$
|
61.7
|
|
|
$
|
55.3
|
|
Effective tax rate
|
|
30.4
|
%
|
|
42.6
|
%
|
|
32.1
|
%
|
|
34.0
|
%
|
|
35.7
|
%
|
|||||
Net operating profit after tax (NOPAT) (2)
|
|
$
|
37.5
|
|
|
$
|
33.1
|
|
|
$
|
37.0
|
|
|
$
|
40.7
|
|
|
$
|
35.5
|
|
NOPAT margin
|
|
7.4
|
%
|
|
6.3
|
%
|
|
7.1
|
%
|
|
7.8
|
%
|
|
6.9
|
%
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
||||||||||||||||||
(Dollar amounts in millions, except average monthly revenue per server)
|
|
September 30,
2015 |
|
December 31,
2015 |
|
March 31,
2016 |
|
June 30,
2016 |
|
September 30,
2016 |
||||||||||
|
|
|
|
|
||||||||||||||||
Capital efficiency and returns
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Average total assets
|
|
$
|
1,787.9
|
|
|
$
|
1,881.7
|
|
|
$
|
2,019.8
|
|
|
$
|
2,011.1
|
|
|
$
|
2,022.4
|
|
Return on assets (annualized)
|
|
8.0
|
%
|
|
6.6
|
%
|
|
9.7
|
%
|
|
7.1
|
%
|
|
7.6
|
%
|
|||||
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Interest bearing debt (4)
|
|
$
|
143.6
|
|
|
$
|
501.9
|
|
|
$
|
501.3
|
|
|
$
|
500.8
|
|
|
$
|
500.6
|
|
Stockholders' equity
|
|
$
|
1,042.0
|
|
|
$
|
968.1
|
|
|
$
|
975.9
|
|
|
$
|
957.5
|
|
|
$
|
1,007.4
|
|
Less: Excess cash
|
|
$
|
(128.0
|
)
|
|
$
|
(422.0
|
)
|
|
$
|
(472.0
|
)
|
|
$
|
(481.5
|
)
|
|
$
|
(570.2
|
)
|
Capital base
|
|
$
|
1,057.6
|
|
|
$
|
1,048.0
|
|
|
$
|
1,005.2
|
|
|
$
|
976.8
|
|
|
$
|
937.8
|
|
Average capital base
|
|
$
|
1,020.0
|
|
|
$
|
1,052.8
|
|
|
$
|
1,026.6
|
|
|
$
|
991.0
|
|
|
$
|
957.4
|
|
Capital turnover (annualized)
|
|
2.00
|
|
|
1.99
|
|
|
2.02
|
|
|
2.11
|
|
|
2.16
|
|
|||||
Return on capital (annualized) (2)
|
|
14.7
|
%
|
|
12.6
|
%
|
|
14.4
|
%
|
|
16.4
|
%
|
|
14.8
|
%
|
|||||
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Capital expenditures
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Cash purchases of property and equipment
|
|
$
|
134.7
|
|
|
$
|
143.0
|
|
|
$
|
82.9
|
|
|
$
|
76.7
|
|
|
$
|
75.7
|
|
Non-cash purchases of property and equipment (5)
|
|
$
|
(7.0
|
)
|
|
$
|
(46.5
|
)
|
|
$
|
(4.1
|
)
|
|
$
|
5.4
|
|
|
$
|
(9.5
|
)
|
Total capital expenditures
|
|
$
|
127.7
|
|
|
$
|
96.5
|
|
|
$
|
78.8
|
|
|
$
|
82.1
|
|
|
$
|
66.2
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Customer gear
|
|
$
|
87.1
|
|
|
$
|
61.8
|
|
|
$
|
46.2
|
|
|
$
|
47.4
|
|
|
$
|
31.6
|
|
Data center build outs
|
|
$
|
18.8
|
|
|
$
|
10.6
|
|
|
$
|
13.1
|
|
|
$
|
9.7
|
|
|
$
|
6.9
|
|
Office build outs
|
|
$
|
6.1
|
|
|
$
|
7.8
|
|
|
$
|
0.3
|
|
|
$
|
1.1
|
|
|
$
|
1.3
|
|
Capitalized software and other projects
|
|
$
|
15.7
|
|
|
$
|
16.3
|
|
|
$
|
19.2
|
|
|
$
|
23.9
|
|
|
$
|
26.4
|
|
Total capital expenditures
|
|
$
|
127.7
|
|
|
$
|
96.5
|
|
|
$
|
78.8
|
|
|
$
|
82.1
|
|
|
$
|
66.2
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Infrastructure capacity and utilization
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Megawatts under contract at period end (6)
|
|
63.6
|
|
|
62.2
|
|
|
62.2
|
|
|
62.2
|
|
|
62.2
|
|
|||||
Megawatts available for customer use at period end (7)
|
|
55.3
|
|
|
54.4
|
|
|
56.0
|
|
|
56.4
|
|
|
56.4
|
|
|||||
Megawatts utilized at period end
|
|
32.7
|
|
|
32.2
|
|
|
32.1
|
|
|
32.0
|
|
|
31.4
|
|
|||||
Annualized net revenue per average Megawatt of power utilized
|
|
$
|
63.3
|
|
|
$
|
64.5
|
|
|
$
|
64.5
|
|
|
$
|
65.3
|
|
|
$
|
65.1
|
|
(1)
|
During the fourth quarter of 2015, we decommissioned approximately 2,400 servers due to the migration of customers from our legacy public cloud platform onto our OpenStack public cloud and also as part of the migration of customers from existing data centers to our new London data center. In the first quarter of 2016, second quarter of 2016, and third quarter of 2016, approximately 1,600, 3,400, and 2,800 additional servers were decommissioned, respectively, mainly due to the continued migration of customers from our legacy public cloud platform onto our OpenStack public cloud.
|
(2)
|
See discussion and reconciliation of our Non-GAAP financial measures to the most comparable GAAP measures.
|
(3)
|
Reflects additional expense we would have expected to record if our build-to-suit lease arrangements had been deemed operating leases instead of finance lease obligations for build-to-suit leases. Calculated as the excess of estimated straight-line rent expense over actual depreciation expense for completed real estate projects under build-to-suit lease arrangements.
|
(4)
|
Includes the outstanding principal amount of debt and capital lease obligations.
|
(5)
|
Non-cash purchases of property and equipment primarily represents changes in amounts accrued but not yet paid.
|
(6)
|
Megawatts under contract at period end represents data center capacity for which we have a contract enabling us to take control of the space.
|
(7)
|
Megawatts available for customer use at period end represents data center capacity that is built-out and is being used to provide service to customers.
|
Period
|
|
Total Number of Shares Purchased (1)
|
|
Average Price Paid per Share
|
|
Total Number of Shares Purchased as Part of Publicly Announced Programs (2)
|
|
Maximum Dollar Value of Shares that May Yet Be Purchased Under the Programs
|
||||||
August 1, 2016 - August 31, 2016
|
|
27,644
|
|
|
$
|
29.26
|
|
|
—
|
|
|
$
|
500,000,000
|
|
Total
|
|
27,644
|
|
|
|
|
—
|
|
|
|
(1)
|
Shares of common stock withheld for employee taxes.
|
(2)
|
On November 6, 2014, our board of directors authorized a program to repurchase up to $500 million of our common stock. On August 5, 2015, our board of directors increased the authorization under the existing program to a total of up to $1 billion, in addition to
$200 million
already purchased under the initial authorization. The updated program was announced on August 10, 2015 and was to remain in effect for a period not to exceed 24 months from authorization. Under this program, shares could be repurchased from time to time through both open market and privately negotiated transactions. We did not make any additional purchases prior to the closing of the Merger pursuant to the Agreement and Plan of Merger we entered into on August 26, 2016 as further described in Item 1 of Part 1, "Notes to the Unaudited Consolidated Financial Statements - Note
1
,
Company Overview, Subsequent Events, Basis of Presentation, and Summary of Significant Accounting Policies
." Upon closing of the Merger, this share repurchase program was terminated.
|
Exhibit Number
|
|
Description
|
31.1*
|
|
Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
31.2*
|
|
Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
32.1**
|
|
Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
32.2**
|
|
Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
101.INS*
|
|
XBRL Instance Document
|
101.SCH*
|
|
XBRL Taxonomy Extension Schema
|
101.CAL*
|
|
XBRL Taxonomy Extension Calculation Linkbase
|
101.DEF*
|
|
XBRL Taxonomy Extension Definition Linkbase
|
101.LAB*
|
|
XBRL Taxonomy Extension Label Linkbase
|
101.PRE*
|
|
XBRL Taxonomy Extension Presentation Linkbase
|
*
|
Filed herewith.
|
**
|
Furnished herewith; not deemed to be filed herewith.
|
|
|
|
|
|
Rackspace Hosting, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
Date:
|
November 9, 2016
|
|
By:
|
|
/s/ Karl Pichler
|
|
|
|
|
|
Karl Pichler
|
|
|
|
|
|
Chief Financial Officer and Treasurer
|
|
|
|
|
|
(Principal Financial Officer)
|
Date:
|
November 9, 2016
|
|
By:
|
|
/s/ Joseph Saporito
|
|
|
|
|
|
Joseph Saporito
|
|
|
|
|
|
Chief Accounting Officer
|
|
|
|
|
|
(Principal Accounting Officer)
|
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