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| 8-K - RESULTS OF OPERATIONS AND FINANCIAL CONDITION - RACKSPACE HOSTING, INC. | rax8k_q42011.htm |
Rackspace Hosting Reports Fourth Quarter 2011 Results
For the quarter ended December 31, 2011:
• | Net revenue of $283 million grew 32% year-over-year and 7.1% from Q3 2011 |
• | Adjusted EBITDA(1) of $102 million grew 42% year-over-year and 16.2% from Q3 2011 |
• | Achieved adjusted EBITDA margin of 36.1%, up from 33.5% year-over-year and 33.3% in Q3 2011 |
• | Net income of $25 million grew 85% year-over-year and 25.3% from Q3 2011 |
SAN ANTONIO - February 13, 2012 - Rackspace® Hosting, Inc. (NYSE: RAX), the service leader in cloud computing, announced financial results for the quarter ended December 31, 2011.
Net revenue for the fourth quarter of 2011 was $283 million, up 7.1% from the previous quarter and 32% from the fourth quarter of 2010. Net revenue for the fourth quarter of 2011 was negatively impacted by currency exchange rates when compared to the third quarter of 2011 by $1.6 million and negatively impacted compared to the fourth quarter of 2010 by $0.4 million.
Total server count increased to 79,805, up from 78,717 servers at the end of the previous quarter, and total customers increased to 172,510, up from 161,422 at the end of the previous quarter.
“We are very pleased with the financial results we have generated for the fourth quarter and the full year. We accomplished our financial objectives for the 2011 and ended the year really strong.” said Karl Pichler, chief financial officer.
Adjusted EBITDA for the quarter was $102 million, a 16.2% increase compared to the third quarter of 2011 and a 42% increase compared to the fourth quarter of 2010. The adjusted EBITDA margin for the quarter was 36.1% compared to 33.3% in the previous quarter and 33.5% for the fourth quarter of 2010. Adjusted EBITDA and adjusted EBITDA margin were negatively impacted by a non-cash charge of $1.2 million for the quarter relating to data center operating leases.
Net income was $25 million for the quarter, up 25.3% from the previous quarter and 85% from the fourth quarter of 2010. Net income margin for the quarter was 8.8% compared to 7.6% for the previous quarter and 6.3% in the fourth quarter of 2010.
Cash flow from operating activities was $105 million for the fourth quarter of 2011. Capital expenditures were $79 million, including $47 million for purchases of customer gear, $7 million for data center build outs, $10 million for office build outs and $15 million for capitalized software and other projects.
Adjusted free cash flow (1) for the quarter was $19 million.
At the end of the fourth quarter of 2011, cash and cash equivalents were $160 million, and debt including capital lease obligations totaled $139 million.
On a worldwide basis, Rackspace employed 4,040 Rackers as of December 31, 2011, up from 3,799 Rackers as of September 30, 2011 and 3,262 Rackers as of December 31, 2010.
“During the year we accelerated our revenue growth rate for the second year in a row and crossed one billion dollars in annual revenue, while simultaneously improving margins and returns. In short, we made tremendous progress towards our long-term goal of becoming the service leader in Cloud computing.” said Lanham Napier, chief executive officer.
- 1 -
Rackspace Developments and Business Highlights
• | FORTUNE Magazine Names Rackspace Among “100 Best Companies to Work For” and 3rd on the list for highest job growth. |
• | Rackspace Hosting Earns a Spot on 2011 InformationWeek 500 List of Top Technology Innovators Across America |
• | Rackspace Promotes Lew Moorman to President |
• | Rackspace Appoints Karl Pichler, 39, as Chief Financial Officer |
• | Recognized as the 'Employer of the Year' at the 2011 National Business Awards UK |
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 877-718-5099 from the United States and Canada or dial 719-325-4825 from abroad and reference pass code 8946052. 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 is the service leader in cloud computing and a founder of OpenStack, an open source cloud platform. The San Antonio-based company provides Fanatical Support® to its customers, across a portfolio of IT services, including Dedicated and Public Cloud. Rackspace has been recognized by Bloomberg BusinessWeek as a Top 100 Performing Technology Company and was featured on Fortune's list of 100 Best Companies to Work For. The company was also positioned in the Leaders Quadrant by Gartner Inc. in the “2010 Magic Quadrant for Cloud Infrastructure as a Service and Web Hosting.” For more information, visit 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, 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, 2010, filed with the SEC on February 22, 2011 and in Rackspace Hosting's Form 10-K for the year ended December 31, 2011, expected to be filed later this month. 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.
Contact:
Investor Relations Corporate Communications
Bryan McGrath Rachel Ferry
210-312-5230 210-312-3732
ir@rackspace.com rachel.ferry@rackspace.com
- 2 -
Consolidated Statements of Income
Three Months Ended | Year Ended | |||||||||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||||||
(In thousands, except per share data) | December 31, 2010 | September 30, 2011 | December 31, 2011 | December 31, 2010 | December 31, 2011 | |||||||||||||||
Net revenue | $ | 214,726 | $ | 264,572 | $ | 283,261 | $ | 780,555 | $ | 1,025,064 | ||||||||||
Costs and expenses: | ||||||||||||||||||||
Cost of revenue | 66,747 | 82,445 | 82,851 | 249,840 | 309,095 | |||||||||||||||
Sales and marketing | 26,294 | 31,838 | 33,452 | 96,207 | 126,505 | |||||||||||||||
General and administrative | 56,748 | 69,701 | 72,349 | 199,011 | 270,581 | |||||||||||||||
Depreciation and amortization | 41,529 | 49,518 | 54,844 | 155,895 | 195,412 | |||||||||||||||
Total costs and expenses | 191,318 | 233,502 | 243,496 | 700,953 | 901,593 | |||||||||||||||
Income from operations | 23,408 | 31,070 | 39,765 | 79,602 | 123,471 | |||||||||||||||
Other income (expense): | ||||||||||||||||||||
Interest expense | (1,897 | ) | (1,531 | ) | (1,304 | ) | (7,984 | ) | (5,848 | ) | ||||||||||
Interest and other income (expense) | 57 | (276 | ) | (226 | ) | (207 | ) | (1,194 | ) | |||||||||||
Total other income (expense) | (1,840 | ) | (1,807 | ) | (1,530 | ) | (8,191 | ) | (7,042 | ) | ||||||||||
Income before income taxes | 21,568 | 29,263 | 38,235 | 71,411 | 116,429 | |||||||||||||||
Income taxes | 8,029 | 9,281 | 13,188 | 25,053 | 40,018 | |||||||||||||||
Net income | $ | 13,539 | $ | 19,982 | $ | 25,047 | $ | 46,358 | $ | 76,411 | ||||||||||
Net income per share | ||||||||||||||||||||
Basic | $ | 0.11 | $ | 0.15 | $ | 0.19 | $ | 0.37 | $ | 0.59 | ||||||||||
Diluted | $ | 0.10 | $ | 0.14 | $ | 0.18 | $ | 0.35 | $ | 0.55 | ||||||||||
Weighted average number of shares outstanding | ||||||||||||||||||||
Basic | 126,473 | 130,662 | 131,423 | 125,097 | 129,922 | |||||||||||||||
Diluted | 134,786 | 138,453 | 138,912 | 133,429 | 138,064 | |||||||||||||||
- 3 -
Consolidated Balance Sheets
(In thousands) | December 31, 2010 | December 31, 2011 | |||||
(Unaudited) | |||||||
ASSETS | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 104,941 | $ | 159,856 | |||
Accounts receivable, net of allowance for doubtful accounts and customer credits of $2,846 as of December 31, 2010 and $3,420 as of December 31, 2011 | 47,734 | 68,709 | |||||
Income taxes receivable | 4,397 | — | |||||
Deferred income taxes | 6,416 | 9,841 | |||||
Prepaid expenses | 16,738 | 22,006 | |||||
Other current assets | 5,219 | 2,953 | |||||
Total current assets | 185,445 | 263,365 | |||||
Property and equipment, net | 495,228 | 627,490 | |||||
Goodwill | 57,147 | 59,993 | |||||
Intangible assets, net | 9,675 | 26,034 | |||||
Other non-current assets | 14,082 | 49,600 | |||||
Total assets | $ | 761,577 | $ | 1,026,482 | |||
LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||
Current liabilities: | |||||||
Accounts payable and accrued expenses | $ | 111,645 | $ | 156,004 | |||
Current portion of deferred revenue | 15,822 | 14,835 | |||||
Current portion of obligations under capital leases | 59,763 | 66,031 | |||||
Current portion of debt | 1,912 | 879 | |||||
Total current liabilities | 189,142 | 237,749 | |||||
Non-current deferred revenue | 2,927 | 3,446 | |||||
Non-current obligations under capital leases | 69,173 | 72,216 | |||||
Non-current debt | 879 | — | |||||
Non-current deferred income taxes | 35,238 | 68,781 | |||||
Non-current deferred rent | 14,595 | 23,343 | |||||
Other non-current liabilities | 10,760 | 21,524 | |||||
Total liabilities | 322,714 | 427,059 | |||||
COMMITMENTS AND CONTINGENCIES | |||||||
Stockholders' equity: | |||||||
Common stock | 127 | 132 | |||||
Additional paid-in capital | 296,571 | 383,031 | |||||
Accumulated other comprehensive loss | (12,416 | ) | (14,732 | ) | |||
Retained earnings | 154,581 | 230,992 | |||||
Total stockholders’ equity | 438,863 | 599,423 | |||||
Total liabilities and stockholders’ equity | $ | 761,577 | $ | 1,026,482 | |||
- 4 -
Consolidated Statements of Cash Flows
Three Months Ended | Year Ended | ||||||||||||||||||
(Unaudited) | (Unaudited) | ||||||||||||||||||
(in thousands) | December 31, 2010 | September 30, 2011 | December 31, 2011 | December 31, 2010 | December 31, 2011 | ||||||||||||||
Cash Flows From Operating Activities | |||||||||||||||||||
Net income | $ | 13,539 | $ | 19,982 | $ | 25,047 | $ | 46,358 | $ | 76,411 | |||||||||
Adjustments to reconcile net income to net cash provided by operating activities | |||||||||||||||||||
Depreciation and amortization | 41,529 | 49,518 | 54,844 | 155,895 | 195,412 | ||||||||||||||
Loss on disposal of equipment, net | 189 | 85 | (110 | ) | 758 | 247 | |||||||||||||
Provision for bad debts and customer credits | 1,354 | 1,224 | 1,451 | 4,330 | 5,913 | ||||||||||||||
Deferred income taxes | 3,806 | 3,330 | 4,802 | 6,788 | 13,991 | ||||||||||||||
Deferred rent | 2,893 | 2,457 | 1,200 | 7,064 | 9,471 | ||||||||||||||
Share-based compensation expense | 7,087 | 7,395 | 7,585 | 26,624 | 28,773 | ||||||||||||||
Excess tax benefits from share-based compensation arrangements | (2,370 | ) | (10,326 | ) | (8,711 | ) | (2,370 | ) | (20,627 | ) | |||||||||
Changes in certain assets and liabilities | |||||||||||||||||||
Accounts receivable | (3,790 | ) | 507 | (9,442 | ) | (12,864 | ) | (26,805 | ) | ||||||||||
Income taxes receivable | (1,746 | ) | 2,469 | — | 2,606 | 4,397 | |||||||||||||
Prepaid expenses and other current assets | 4,479 | (12,569 | ) | 7,494 | (10,125 | ) | (2,597 | ) | |||||||||||
Accounts payable and accrued expenses | 3,783 | 7,477 | 19,261 | 16,765 | 57,476 | ||||||||||||||
Deferred revenue | 2,201 | (773 | ) | 614 | (488 | ) | (482 | ) | |||||||||||
All other operating activities | 1,316 | (461 | ) | 888 | 2,894 | 1,405 | |||||||||||||
Net cash provided by operating activities | 74,270 | 70,315 | 104,923 | 244,235 | 342,985 | ||||||||||||||
Cash Flows From Investing Activities | |||||||||||||||||||
Purchases of property and equipment, net | (46,884 | ) | (70,379 | ) | (67,020 | ) | (144,778 | ) | (269,804 | ) | |||||||||
Acquisitions, net of cash acquired | (29,854 | ) | — | — | (29,854 | ) | (952 | ) | |||||||||||
Earn-out payments for acquisitions | — | — | — | (490 | ) | — | |||||||||||||
All other investing activities | — | 105 | 63 | (75 | ) | 168 | |||||||||||||
Net cash used in investing activities | (76,738 | ) | (70,274 | ) | (66,957 | ) | (175,197 | ) | (270,588 | ) | |||||||||
Cash Flows From Financing Activities | |||||||||||||||||||
Principal payments of capital leases | (14,182 | ) | (17,434 | ) | (16,924 | ) | (52,129 | ) | (65,778 | ) | |||||||||
Principal payments of notes payable | (864 | ) | (435 | ) | (437 | ) | (4,893 | ) | (1,913 | ) | |||||||||
Payments on line of credit | (50,000 | ) | — | — | (50,000 | ) | — | ||||||||||||
Payments for debt issuance costs | — | (1,114 | ) | — | — | (1,114 | ) | ||||||||||||
Payments of earn-out provisions for acquisitions | — | (2,900 | ) | (2,399 | ) | — | (5,299 | ) | |||||||||||
Proceeds from employee stock plans | 3,877 | 4,815 | 8,505 | 15,250 | 36,287 | ||||||||||||||
Excess tax benefits from share-based compensation arrangements | 2,370 | 10,326 | 8,711 | 2,370 | 20,627 | ||||||||||||||
Net cash used in financing activities | (58,799 | ) | (6,742 | ) | (2,544 | ) | (89,402 | ) | (17,190 | ) | |||||||||
Effect of exchange rate changes on cash and cash equivalents | (349 | ) | (644 | ) | (246 | ) | (120 | ) | (292 | ) | |||||||||
Increase (decrease) in cash and cash equivalents | (61,616 | ) | (7,345 | ) | 35,176 | (20,484 | ) | 54,915 | |||||||||||
Cash and cash equivalents, beginning of period | 166,557 | 132,025 | 124,680 | 125,425 | 104,941 | ||||||||||||||
Cash and cash equivalents, end of period | $ | 104,941 | $ | 124,680 | $ | 159,856 | $ | 104,941 | $ | 159,856 | |||||||||
Supplemental cash flow information: | |||||||||||||||||||
Acquisition of property and equipment by capital leases | $ | 16,596 | $ | 23,179 | $ | 12,335 | $ | 71,363 | $ | 75,090 | |||||||||
Shares issued in business combinations | $ | — | $ | — | $ | — | $ | 510 | $ | — | |||||||||
Cash payments for interest, net of amount capitalized | $ | 1,892 | $ | 1,580 | $ | 1,221 | $ | 7,743 | $ | 5,577 | |||||||||
Cash payments for income taxes | $ | 4,351 | $ | 3,782 | $ | 3,671 | $ | 20,112 | $ | 19,088 | |||||||||
- 5 -
Key Metrics - Quarter to Date
(Unaudited)
Three Months Ended | |||||||||||||||||||
(Dollar amounts in thousands, except average monthly revenue per server and annualized net revenue per average technical square foot) | December 31, 2010 | March 31, 2011 | June 30, 2011 | September 30, 2011 | December 31, 2011 | ||||||||||||||
Growth | |||||||||||||||||||
Dedicated Cloud, net revenue | $ | 183,311 | $ | 192,895 | $ | 204,275 | $ | 213,899 | $ | 224,808 | |||||||||
Public Cloud, net revenue | $ | 31,415 | $ | 37,107 | $ | 42,954 | $ | 50,673 | $ | 58,453 | |||||||||
Net revenue | $ | 214,726 | $ | 230,002 | $ | 247,229 | $ | 264,572 | $ | 283,261 | |||||||||
Revenue growth (year over year) | 26.7 | % | 28.6 | % | 32.0 | % | 32.5 | % | 31.9 | % | |||||||||
Net upgrades (monthly average) | 1.6 | % | 1.8 | % | 1.8 | % | 1.8 | % | 2.0 | % | |||||||||
Churn (monthly average) | -1.0 | % | -0.9 | % | -0.9 | % | -0.9 | % | -0.8 | % | |||||||||
Growth in installed base (monthly average) (2) | 0.6 | % | 0.9 | % | 0.9 | % | 0.9 | % | 1.2 | % | |||||||||
Number of customers at period end (3) | 130,291 | 142,441 | 152,578 | 161,422 | 172,510 | ||||||||||||||
Number of employees (Rackers) at period end | 3,262 | 3,492 | 3,712 | 3,799 | 4,040 | ||||||||||||||
Number of servers deployed at period end | 66,015 | 70,473 | 74,028 | 78,717 | 79,805 | ||||||||||||||
Average monthly revenue per server | $ | 1,101 | $ | 1,123 | $ | 1,141 | $ | 1,155 | $ | 1,191 | |||||||||
Profitability | |||||||||||||||||||
Income from operations | $ | 23,408 | $ | 23,983 | $ | 28,653 | $ | 31,070 | $ | 39,765 | |||||||||
Depreciation and amortization | $ | 41,529 | $ | 44,098 | $ | 46,952 | $ | 49,518 | $ | 54,844 | |||||||||
Share-based compensation expense | |||||||||||||||||||
Cost of revenue | $ | 1,223 | $ | 1,412 | $ | 756 | $ | 1,005 | $ | 1,047 | |||||||||
Sales and marketing (4) | $ | 1,052 | $ | 1 | $ | 609 | $ | 864 | $ | 839 | |||||||||
General and administrative | $ | 4,812 | $ | 6,397 | $ | 4,618 | $ | 5,526 | $ | 5,699 | |||||||||
Total share-based compensation expense | $ | 7,087 | $ | 7,810 | $ | 5,983 | $ | 7,395 | $ | 7,585 | |||||||||
Adjusted EBITDA (1) | $ | 72,024 | $ | 75,891 | $ | 81,588 | $ | 87,983 | $ | 102,194 | |||||||||
Adjusted EBITDA margin | 33.5 | % | 33.0 | % | 33.0 | % | 33.3 | % | 36.1 | % | |||||||||
Operating income margin | 10.9 | % | 10.4 | % | 11.6 | % | 11.7 | % | 14.0 | % | |||||||||
Income from operations | $ | 23,408 | $ | 23,983 | $ | 28,653 | $ | 31,070 | $ | 39,765 | |||||||||
Effective tax rate | 37.2 | % | 38.3 | % | 33.8 | % | 31.7 | % | 34.5 | % | |||||||||
Net operating profit after tax (NOPAT) (1) | $ | 14,700 | $ | 14,798 | $ | 18,968 | $ | 21,221 | $ | 26,046 | |||||||||
NOPAT margin | 6.8 | % | 6.4 | % | 7.7 | % | 8.0 | % | 9.2 | % | |||||||||
Capital efficiency and returns | |||||||||||||||||||
Interest bearing debt | $ | 131,727 | $ | 134,905 | $ | 138,841 | $ | 144,152 | $ | 139,126 | |||||||||
Stockholders' equity | $ | 438,863 | $ | 478,307 | $ | 511,843 | $ | 551,049 | $ | 599,423 | |||||||||
Less: Excess cash | $ | (79,174 | ) | $ | (106,268 | ) | $ | (102,358 | ) | $ | (92,931 | ) | $ | (125,865 | ) | ||||
Capital base | $ | 491,416 | $ | 506,944 | $ | 548,326 | $ | 602,270 | $ | 612,684 | |||||||||
Average capital base | $ | 471,119 | $ | 499,180 | $ | 527,635 | $ | 575,298 | $ | 607,477 | |||||||||
Capital turnover (annualized) | 1.82 | 1.84 | 1.87 | 1.84 | 1.87 | ||||||||||||||
Return on capital (annualized) (1) | 12.5 | % | 11.9 | % | 14.4 | % | 14.8 | % | 17.2 | % | |||||||||
- 6 -
Three Months Ended | |||||||||||||||||||
(Dollar amounts in thousands, except average monthly revenue per server and annualized net revenue per average technical square foot) | December 31, 2010 | March 31, 2011 | June 30, 2011 | September 30, 2011 | December 31, 2011 | ||||||||||||||
Capital expenditures | |||||||||||||||||||
Purchases of property and equipment, net | $ | 46,884 | $ | 57,651 | $ | 74,754 | $ | 70,379 | $ | 67,020 | |||||||||
Vendor-financed equipment purchases | $ | 16,596 | $ | 19,009 | $ | 20,567 | $ | 23,179 | $ | 12,335 | |||||||||
Total capital expenditures | $ | 63,480 | $ | 76,660 | $ | 95,321 | $ | 93,558 | $ | 79,355 | |||||||||
Customer gear | $ | 38,052 | $ | 46,300 | $ | 48,777 | $ | 53,643 | $ | 47,376 | |||||||||
Data center build outs | $ | 9,754 | $ | 9,173 | $ | 17,491 | $ | 16,715 | $ | 6,568 | |||||||||
Office build outs | $ | 5,145 | $ | 2,957 | $ | 14,074 | $ | 8,806 | $ | 9,915 | |||||||||
Capitalized software and other projects | $ | 10,529 | $ | 18,230 | $ | 14,979 | $ | 14,394 | $ | 15,496 | |||||||||
Total capital expenditures | $ | 63,480 | $ | 76,660 | $ | 95,321 | $ | 93,558 | $ | 79,355 | |||||||||
Infrastructure capacity and utilization | |||||||||||||||||||
Technical square feet of data center space at period end (5) | 180,173 | 181,848 | 198,868 | 227,988 | 233,960 | ||||||||||||||
Annualized net revenue per average technical square foot | $ | 4,807 | $ | 5,083 | $ | 5,195 | $ | 4,959 | $ | 4,906 | |||||||||
Utilization rate at period end | 72.0 | % | 76.7 | % | 72.9 | % | 69.0 | % | 68.1 | % | |||||||||
(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. |
(3) | Customers are counted on an account basis, and therefore a customer with more than one account with us is included as more than one 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. |
(4) | During the three months ended March 31, 2011, share-based compensation expense within Sales and Marketing was positively impacted by the reversal of previously recorded expense related to terminated employees. The offset of the reversal was a true-up of the forfeiture rate across Cost of Revenue and General and Administrative expenses for options that fully vested within the quarter, negatively impacting these categories. |
(5) | Technical square footage as of December 31, 2011 excludes 28,460 square feet for unused portions of our data center facilities. |
We have historically defined technical square feet of data center space as space that can be utilized to support IT equipment. With respect to square footage and utilization, for data centers that are not yet fully utilized, we include square footage and power capacity based on the agreed upon schedule in the lease agreement. For example, if the agreement has ten phases and we are in phase five, we include 50% of the total square footage and power capacity called for in the lease agreement.
As a result of our strategy to continue leasing data centers, beginning in the first quarter of 2012, we will begin disclosing our total Megawatts under contract, Megawatts available for use and Megawatts utilized as of period-end. We will no longer provide technical square footage as we believe that power is a better metric for evaluating our capacity. The table below shows how the new disclosure would have appeared in the Key Metrics table.
Three Months Ended | ||||||||||||||||||||
(Dollar amounts in thousands) | December 31, 2010 | March 31, 2011 | June 30, 2011 | September 30, 2011 | December 31, 2011 | |||||||||||||||
Megawatts under contract | 32.7 | 35.7 | 38.0 | 41.9 | 48.1 | |||||||||||||||
Megawatts available for use | 23.2 | 24.7 | 27.0 | 29.7 | 30.7 | |||||||||||||||
Megawatts utilized | 16.7 | 18.0 | 19.0 | 20.2 | 20.9 | |||||||||||||||
Annualized net revenue per average Megawatt of power utilized | $ | 53,019 | $ | 53,026 | $ | 53,455 | $ | 53,994 | $ | 55,136 | ||||||||||
- 7 -
Key Metrics - Year to Date
(Unaudited)
Year Ended December 31, | |||||||
(Dollar amounts in thousands, except average monthly revenue per server and annualized net revenue per average technical square foot) | 2010 | 2011 | |||||
Growth | |||||||
Dedicated Cloud, net revenue | $ | 679,888 | $ | 835,877 | |||
Public Cloud, net revenue | $ | 100,667 | $ | 189,187 | |||
Net revenue | $ | 780,555 | $ | 1,025,064 | |||
Revenue growth (year over year) | 24.1 | % | 31.3 | % | |||
Net upgrades (monthly average) | 1.5 | % | 1.9 | % | |||
Churn (monthly average) | -1.0 | % | -0.9 | % | |||
Growth in installed base (monthly average) (2) | 0.5 | % | 1.0 | % | |||
Number of customers at period end (3) | 130,291 | 172,510 | |||||
Number of employees (Rackers) at period end | 3,262 | 4,040 | |||||
Number of servers deployed at period end | 66,015 | 79,805 | |||||
Average monthly revenue per server | $ | 1,054 | $ | 1,157 | |||
Profitability | |||||||
Income from operations | $ | 79,602 | $ | 123,471 | |||
Depreciation and amortization | $ | 155,895 | $ | 195,412 | |||
Share-based compensation expense | |||||||
Cost of revenue | $ | 4,660 | $ | 4,220 | |||
Sales and marketing | $ | 4,241 | $ | 2,313 | |||
General and administrative | $ | 17,723 | $ | 22,240 | |||
Total share-based compensation expense | $ | 26,624 | $ | 28,773 | |||
Adjusted EBITDA (1) | $ | 262,121 | $ | 347,656 | |||
Adjusted EBITDA margin | 33.6 | % | 33.9 | % | |||
Operating income margin | 10.2 | % | 12.0 | % | |||
Income from operations | $ | 79,602 | $ | 123,471 | |||
Effective tax rate | 35.1 | % | 34.4 | % | |||
Net operating profit after tax (NOPAT) (1) | $ | 51,662 | $ | 80,997 | |||
NOPAT margin | 6.6 | % | 7.9 | % | |||
Capital efficiency and returns | |||||||
Interest bearing debt | $ | 131,727 | $ | 139,126 | |||
Stockholders' equity | $ | 438,863 | $ | 599,423 | |||
Less: Excess cash | $ | (79,174 | ) | $ | (125,865 | ) | |
Capital base | $ | 491,416 | $ | 612,684 | |||
Average capital base | $ | 445,179 | $ | 552,328 | |||
Capital turnover | 1.75 | 1.86 | |||||
Return on capital (1) | 11.6 | % | 14.7 | % | |||
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Year Ended December 31, | |||||||
(Dollar amounts in thousands, except average monthly revenue per server and annualized net revenue per average technical square foot) | 2010 | 2011 | |||||
Capital expenditures | |||||||
Purchases of property and equipment, net | $ | 144,778 | $ | 269,804 | |||
Vendor-financed equipment purchases | $ | 71,363 | $ | 75,090 | |||
Total capital expenditures | $ | 216,141 | $ | 344,894 | |||
Customer gear | $ | 136,348 | $ | 196,096 | |||
Data center build outs | $ | 38,515 | $ | 49,947 | |||
Office build outs | $ | 8,942 | $ | 35,752 | |||
Capitalized software and other projects | $ | 32,336 | $ | 63,099 | |||
Total capital expenditures | $ | 216,141 | $ | 344,894 | |||
Infrastructure capacity and utilization | |||||||
Technical square feet of data center space at period end (4) | 180,173 | 233,960 | |||||
Annualized net revenue per average technical square foot | $ | 4,477 | $ | 4,866 | |||
Utilization rate at period end | 72.0 | % | 68.1 | % | |||
(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. |
(3) | Customers are counted on an account basis, and therefore a customer with more than one account with us is included as more than one 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. |
(4) | Technical square footage as of December 31, 2011 excludes 28,460 square feet for unused portions of our data center facilities. |
As noted above in the Quarter-to-Date Key Metrics table, beginning in the first quarter of 2012, we will begin disclosing our total Megawatts under contract, Megawatts available for use and Megawatts utilized as of period-end. We will no longer provide technical square footage as we believe that power is a better metric for evaluating our capacity. The table below shows how the new disclosure would have appeared in the Year-to-Date Key Metrics table.
Year Ended December 31, | |||||||
(Dollar amounts in thousands) | 2010 | 2011 | |||||
Megawatts under contract | 32.7 | 48.1 | |||||
Megawatts available for use | 23.2 | 30.7 | |||||
Megawatts utilized | 16.7 | 20.9 | |||||
Net revenue per average Megawatt of power utilized | $ | 52,037 | $ | 54,065 | |||
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Consolidated Quarterly Statements of Income
(Unaudited)
Three Months Ended | |||||||||||||||||||
(In thousands) | December 31, 2010 | March 31, 2011 | June 30, 2011 | September 30, 2011 | December 31, 2011 | ||||||||||||||
Net revenue | $ | 214,726 | $ | 230,002 | $ | 247,229 | $ | 264,572 | $ | 283,261 | |||||||||
Costs and expenses: | |||||||||||||||||||
Cost of revenue | 66,747 | 69,742 | 74,057 | 82,445 | 82,851 | ||||||||||||||
Sales and marketing | 26,294 | 29,738 | 31,477 | 31,838 | 33,452 | ||||||||||||||
General and administrative | 56,748 | 62,441 | 66,090 | 69,701 | 72,349 | ||||||||||||||
Depreciation and amortization | 41,529 | 44,098 | 46,952 | 49,518 | 54,844 | ||||||||||||||
Total costs and expenses | 191,318 | 206,019 | 218,576 | 233,502 | 243,496 | ||||||||||||||
Income from operations | 23,408 | 23,983 | 28,653 | 31,070 | 39,765 | ||||||||||||||
Other income (expense): | |||||||||||||||||||
Interest expense | (1,897 | ) | (1,491 | ) | (1,522 | ) | (1,531 | ) | (1,304 | ) | |||||||||
Interest and other income (expense) | 57 | (78 | ) | (614 | ) | (276 | ) | (226 | ) | ||||||||||
Total other income (expense) | (1,840 | ) | (1,569 | ) | (2,136 | ) | (1,807 | ) | (1,530 | ) | |||||||||
Income before income taxes | 21,568 | 22,414 | 26,517 | 29,263 | 38,235 | ||||||||||||||
Income taxes | 8,029 | 8,593 | 8,956 | 9,281 | 13,188 | ||||||||||||||
Net income | $ | 13,539 | $ | 13,821 | $ | 17,561 | $ | 19,982 | $ | 25,047 | |||||||||
Three Months Ended | |||||||||||||||||||
(Percent of net revenue) | December 31, 2010 | March 31, 2011 | June 30, 2011 | September 30, 2011 | December 31, 2011 | ||||||||||||||
Net revenue | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | |||||||||
Costs and expenses: | |||||||||||||||||||
Cost of revenue | 31.1 | % | 30.3 | % | 30.0 | % | 31.2 | % | 29.2 | % | |||||||||
Sales and marketing | 12.2 | % | 12.9 | % | 12.7 | % | 12.0 | % | 11.8 | % | |||||||||
General and administrative | 26.4 | % | 27.1 | % | 26.7 | % | 26.3 | % | 25.5 | % | |||||||||
Depreciation and amortization | 19.3 | % | 19.2 | % | 19.0 | % | 18.7 | % | 19.4 | % | |||||||||
Total costs and expenses | 89.1 | % | 89.6 | % | 88.4 | % | 88.3 | % | 86.0 | % | |||||||||
Income from operations | 10.9 | % | 10.4 | % | 11.6 | % | 11.7 | % | 14.0 | % | |||||||||
Other income (expense): | |||||||||||||||||||
Interest expense | -0.9 | % | -0.6 | % | -0.6 | % | -0.6 | % | -0.5 | % | |||||||||
Interest and other income (expense) | 0.0 | % | 0.0 | % | -0.2 | % | -0.1 | % | -0.1 | % | |||||||||
Total other income (expense) | -0.9 | % | -0.7 | % | -0.9 | % | -0.7 | % | -0.5 | % | |||||||||
Income before income taxes | 10.0 | % | 9.7 | % | 10.7 | % | 11.1 | % | 13.5 | % | |||||||||
Income taxes | 3.7 | % | 3.7 | % | 3.6 | % | 3.5 | % | 4.7 | % | |||||||||
Net income | 6.3 | % | 6.0 | % | 7.1 | % | 7.6 | % | 8.8 | % | |||||||||
Due to rounding, totals may not equal the sum of the line items in the table above. | |||||||||||||||||||
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(1) Non-GAAP Financial Measures
Adjusted EBITDA (Non-GAAP financial measure)
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 | |||||||||||||||||||
(Unaudited) | |||||||||||||||||||
(Dollars in thousands) | December 31, 2010 | March 31, 2011 | June 30, 2011 | September 30, 2011 | December 31, 2011 | ||||||||||||||
Net revenue | $ | 214,726 | $ | 230,002 | $ | 247,229 | $ | 264,572 | $ | 283,261 | |||||||||
Income from operations | $ | 23,408 | $ | 23,983 | $ | 28,653 | $ | 31,070 | $ | 39,765 | |||||||||
Net income | $ | 13,539 | $ | 13,821 | $ | 17,561 | $ | 19,982 | $ | 25,047 | |||||||||
Plus: Income taxes | 8,029 | 8,593 | 8,956 | 9,281 | 13,188 | ||||||||||||||
Plus: Total other (income) expense | 1,840 | 1,569 | 2,136 | 1,807 | 1,530 | ||||||||||||||
Plus: Depreciation and amortization | 41,529 | 44,098 | 46,952 | 49,518 | 54,844 | ||||||||||||||
Plus: Share-based compensation expense | 7,087 | 7,810 | 5,983 | 7,395 | 7,585 | ||||||||||||||
Adjusted EBITDA | $ | 72,024 | $ | 75,891 | $ | 81,588 | $ | 87,983 | $ | 102,194 | |||||||||
Operating income margin | 10.9 | % | 10.4 | % | 11.6 | % | 11.7 | % | 14.0 | % | |||||||||
Adjusted EBITDA margin | 33.5 | % | 33.0 | % | 33.0 | % | 33.3 | % | 36.1 | % | |||||||||
Year Ended December 31, | |||||||
(Unaudited) | |||||||
(Dollars in thousands) | 2010 | 2011 | |||||
Net revenue | $ | 780,555 | $ | 1,025,064 | |||
Income from operations | $ | 79,602 | $ | 123,471 | |||
Net income | $ | 46,358 | $ | 76,411 | |||
Plus: Income taxes | 25,053 | 40,018 | |||||
Plus: Total other (income) expense | 8,191 | 7,042 | |||||
Plus: Depreciation and amortization | 155,895 | 195,412 | |||||
Plus: Share-based compensation expense | 26,624 | 28,773 | |||||
Adjusted EBITDA | $ | 262,121 | $ | 347,656 | |||
Operating income margin | 10.2 | % | 12.0 | % | |||
Adjusted EBITDA margin | 33.6 | % | 33.9 | % | |||
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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.
Year-to-date average balances are based on an average calculated using the quarter end balances at the beginning of the period and all other quarter ending balances included in the period.
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 after-tax operating profits with the capital that is placed into service. It is therefore a performance metric that incorporates both the Statement of 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 | |||||||||||||||||||
(Unaudited) | |||||||||||||||||||
(Dollars in thousands) | December 31, 2010 | March 31, 2011 | June 30, 2011 | September 30, 2011 | December 31, 2011 | ||||||||||||||
Income from operations | $ | 23,408 | $ | 23,983 | $ | 28,653 | $ | 31,070 | $ | 39,765 | |||||||||
Effective tax rate | 37.2 | % | 38.3 | % | 33.8 | % | 31.7 | % | 34.5 | % | |||||||||
Net operating profit after tax (NOPAT) | $ | 14,700 | $ | 14,798 | $ | 18,968 | $ | 21,221 | $ | 26,046 | |||||||||
Net income | $ | 13,539 | $ | 13,821 | $ | 17,561 | $ | 19,982 | $ | 25,047 | |||||||||
Total assets at period end | $ | 761,577 | $ | 831,414 | $ | 887,576 | $ | 970,677 | $ | 1,026,482 | |||||||||
Less: Excess cash | (79,174 | ) | (106,268 | ) | (102,358 | ) | (92,931 | ) | (125,865 | ) | |||||||||
Less: Accounts payable and accrued expenses | (111,645 | ) | (132,308 | ) | (145,609 | ) | (148,464 | ) | (156,004 | ) | |||||||||
Less: Deferred revenue (current and non-current) | (18,749 | ) | (19,149 | ) | (18,687 | ) | (17,772 | ) | (18,281 | ) | |||||||||
Less: Other non-current liabilities, deferred income taxes, and deferred rent | (60,593 | ) | (66,745 | ) | (72,596 | ) | (109,240 | ) | (113,648 | ) | |||||||||
Capital base | $ | 491,416 | $ | 506,944 | $ | 548,326 | $ | 602,270 | $ | 612,684 | |||||||||
Average total assets | $ | 760,888 | $ | 796,496 | $ | 859,495 | $ | 929,127 | $ | 998,580 | |||||||||
Average capital base | $ | 471,119 | $ | 499,180 | $ | 527,635 | $ | 575,298 | $ | 607,477 | |||||||||
Return on assets (annualized) | 7.1 | % | 6.9 | % | 8.2 | % | 8.6 | % | 10.0 | % | |||||||||
Return on capital (annualized) | 12.5 | % | 11.9 | % | 14.4 | % | 14.8 | % | 17.2 | % | |||||||||
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Year Ended December 31, | |||||||
(Unaudited) | |||||||
(Dollars in thousands) | 2010 | 2011 | |||||
Income from operations | $ | 79,602 | $ | 123,471 | |||
Effective tax rate | 35.1 | % | 34.4 | % | |||
Net operating profit after tax (NOPAT) | $ | 51,662 | $ | 80,997 | |||
Net income | $ | 46,358 | $ | 76,411 | |||
Total assets at period end | $ | 761,577 | $ | 1,026,482 | |||
Less: Excess cash | (79,174 | ) | (125,865 | ) | |||
Less: Accounts payable and accrued expenses | (111,645 | ) | (156,004 | ) | |||
Less: Deferred revenue (current and non-current) | (18,749 | ) | (18,281 | ) | |||
Less: Other non-current liabilities, deferred income taxes, and deferred rent | (60,593 | ) | (113,648 | ) | |||
Capital base | $ | 491,416 | $ | 612,684 | |||
Average total assets | $ | 720,521 | $ | 895,545 | |||
Average capital base | $ | 445,179 | $ | 552,328 | |||
Return on assets (Net income/Average total assets) | 6.4 | % | 8.5 | % | |||
Return on capital (NOPAT/Average capital base) | 11.6 | % | 14.7 | % | |||
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 vendor-financed equipment purchases), 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 | Year Ended | ||||||
(In thousands) | December 31, 2011 | December 31, 2011 | |||||
(Unaudited) | |||||||
Adjusted EBITDA | $ | 102,194 | $ | 347,656 | |||
Non-cash deferred rent | 1,200 | 9,471 | |||||
Total capital expenditures | (79,355 | ) | (344,894 | ) | |||
Cash payments for interest, net | (1,208 | ) | (5,445 | ) | |||
Cash payments for income taxes, net | (3,667 | ) | (14,192 | ) | |||
Adjusted free cash flow | $ | 19,164 | $ | (7,404 | ) | ||
- 13 -
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. See our Net Leverage calculation below.
As of | ||||
(Dollars in thousands) | December 31, 2011 | |||
(Unaudited) | ||||
Obligations under capital leases | $ | 138,247 | ||
Debt | 879 | |||
Total debt | $ | 139,126 | ||
Less: Cash and cash equivalents | (159,856 | ) | ||
Net debt | $ | (20,730 | ) | |
Adjusted EBITDA (trailing twelve months) | $ | 347,656 | ||
Net leverage | (0.06) | x | ||
- 14 -