Attached files
| file | filename |
|---|---|
| 8-K - RESULTS OF OPERATIONS AND FINANCIAL CONDITION - RACKSPACE HOSTING, INC. | rax8k_q42014.htm |
Rackspace Reports Strong Fourth Quarter 2014 Results
•Revenue grew 16 percent compared to the fourth quarter of 2013
•Adjusted EBITDA grew 25 percent compared to the fourth quarter of 2013
•Net income grew 77 percent compared to the fourth quarter of 2013
SAN ANTONIO, TX - February 17, 2015 - Rackspace® (NYSE: RAX), the #1 managed cloud company, today announced financial results for the quarter that ended December 31, 2014.
On a GAAP basis, net revenue for the fourth quarter of 2014 was $472 million, up 15.8 percent from the fourth quarter of 2013. On a constant currency basis, net revenue grew 16.4 percent from the fourth quarter of 2013.
Adjusted EBITDA for the quarter was $165 million, up 25.3 percent from the fourth quarter of 2013. Net income for the fourth quarter was $36.9 million, for a margin of 7.8 percent, up from 5.1 percent in the fourth quarter of 2013.
For the fourth quarter of 2014, cash flow from operating activities was $151 million, capital expenditures were $105 million, and Adjusted Free Cash Flow was a record $55 million. At the end of the fourth quarter of 2014, cash and cash equivalents were $214 million, and interest-bearing debt including capital lease obligations totaled $49 million. Return on Capital was 15.5 percent in the fourth quarter of 2014 compared to 9.6 percent in the fourth quarter of 2013.
On a worldwide basis, Rackspace employed 5,936 Rackers as of December 31, 2014.
"The strong growth and improving margins that we posted demonstrate the traction that we're gaining as the leader of the managed cloud segment,” said Taylor Rhodes, president and CEO of Rackspace. "We will build on this momentum in 2015 by expanding the specialized expertise that we offer in areas such as ecommerce, big data and security. We're helping more and more businesses leverage the power of the cloud without the pain of managing complex new technologies by themselves."
For the first quarter of 2015, Rackspace expects revenue to grow between 2 percent and 3.5 percent on a constant currency basis. Based on foreign currency movements to date, Rackspace anticipates a 100 basis point headwind to revenue growth in the first quarter, resulting in GAAP revenue in the range of $477 million to $484 million. The company expects adjusted EBITDA margins to be between 32 percent and 34 percent for the first quarter.
For the full year 2015, Rackspace expects revenue to grow between 14 percent and 18 percent on a constant currency basis. Based on foreign currency movements to date, Rackspace anticipates a 200 basis point headwind to revenue growth for the full year of 2015, resulting in GAAP revenue in the range of $2.0 billion to $2.1 billion. The company expects adjusted EBITDA margins to be between 33 percent and 36 percent for the year.
- 1 -
Recent Highlights
• | Rackspace Strengthens Data Tier Leadership With OnMetal™ Cloud Big Data. Rackspace announced the release of its OnMetal Cloud Big Data Platform, which allows customers to deploy bare metal instances of Apache™ Hadoop® with Spark™ in just three clicks. The new solution provides an efficient and elastic platform that delivers breakthrough speed for Hadoop and Spark, allowing data scientists to gather insights in minutes rather than hours or days. |
• | Rackspace Announced the Newest Release of its Rackspace Hybrid Cloud offering, RackConnect® v3. RackConnect v3 includes new security capabilities, increased scalability and an improved customer experience. |
• | Rackspace Announced Cloud Office Suite for Improved Business Collaboration Backed by Fanatical Support®. Rackspace announced it has created a new business unit -- Cloud Office at Rackspace -- to unify its portfolio of industry-leading Rackspace and Microsoft® business productivity and collaboration tools. The suite of solutions available includes hosted Microsoft Exchange and Rackspace Email, Microsoft Lync® and SharePoint® collaboration tools, and Jungle Disk® backup services, all backed by Fanatical Support. |
• | Rackspace Appointed Todd Cione as Chief Revenue Officer. In this new role, Cione oversees the operations of the Americas sales and global marketing organizations, while uniting the functions to work seamlessly and strengthen the company's go-to-market strategy. |
• | Rackspace Appointed Kevin Costello to Board of Directors. Kevin Costello is a veteran in the Software-as-a-Service (SaaS) industry, bringing more than 25 years of consulting and advisory experience. |
• | Rackspace Opened First Office for Latin America in Mexico City. The office will bring the managed cloud and Fanatical Support to its existing customer base of more than a thousand local customers and will support growth in its business in this region. |
Non-GAAP Financial Information
Adjusted EBITDA, Adjusted Free Cash Flow, and Return on Capital are non-GAAP financial measures. Rackspace believes these measures provide helpful information with respect to evaluating the company's performance. Other companies may calculate non-GAAP measures differently, limiting their usefulness as a comparative measure. The financial statement tables that accompany this press release include reconciliations of non-GAAP financial measures to the most comparable GAAP financial measures.
Conference Call and Webcast
Rackspace's executive management will host a conference call to discuss the results for the fourth quarter of 2014 starting today at 4:30 p.m. ET.
To access the conference call from the United States and Canada, please dial 800-772-0358; from the United Kingdom, please dial 0800-692-2011; and from Hong Kong, please dial 800-900-872.
A live webcast and a replay of the conference call will be available on Rackspace's website, located at ir.rackspace.com.
- 2 -
About Rackspace
Rackspace (NYSE: RAX) is the #1 managed cloud company. Its technical expertise and Fanatical Support® allow companies to tap the power of the cloud without the pain of hiring experts in dozens of complex technologies. Rackspace is also the leader in hybrid cloud, giving each customer the best fit for its unique needs -- whether on single- or multi-tenant servers, or a combination of those platforms. Rackspace is the founder of OpenStack®, the open-source operating system for the cloud. Headquartered in San Antonio, Rackspace serves more than 300,000 business customers from data centers on four continents. It ranks 29th on Fortune's list of 100 Best Companies to Work For. 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, or 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-Q for the quarter ended September 30, 2014, filed with the SEC on November 10, 2014. 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.
Contacts:
Investor Relations: | Media Relations: |
Jessica Drought | Brandon Brunson |
210-312-4191 | 210-312-1357 |
ir@rackspace.com | brandon.brunson@rackspace.com |
- 3 -
Consolidated Statements of Income
Three Months Ended | Year Ended | |||||||||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||||||
(In thousands, except per share data) | December 31, 2013 | September 30, 2014 | December 31, 2014 | December 31, 2013 | December 31, 2014 | |||||||||||||||
Net revenue | $ | 408,103 | $ | 459,776 | $ | 472,422 | $ | 1,534,786 | $ | 1,794,357 | ||||||||||
Costs and expenses: | ||||||||||||||||||||
Cost of revenue | 133,821 | 142,954 | 153,912 | 492,493 | 582,334 | |||||||||||||||
Research and development | 24,849 | 30,718 | 31,385 | 90,213 | 117,006 | |||||||||||||||
Sales and marketing | 55,465 | 60,582 | 59,127 | 208,417 | 237,548 | |||||||||||||||
General and administrative | 79,128 | 86,702 | 82,780 | 297,520 | 322,056 | |||||||||||||||
Depreciation and amortization | 87,683 | 98,307 | 95,213 | 313,007 | 371,884 | |||||||||||||||
Total costs and expenses | 380,946 | 419,263 | 422,417 | 1,401,650 | 1,630,828 | |||||||||||||||
Income from operations | 27,157 | 40,513 | 50,005 | 133,136 | 163,529 | |||||||||||||||
Other income (expense): | ||||||||||||||||||||
Interest expense | (656 | ) | (445 | ) | (444 | ) | (3,118 | ) | (1,913 | ) | ||||||||||
Interest and other income (expense) | 405 | (2,191 | ) | (257 | ) | 741 | (2,012 | ) | ||||||||||||
Total other income (expense) | (251 | ) | (2,636 | ) | (701 | ) | (2,377 | ) | (3,925 | ) | ||||||||||
Income before income taxes | 26,906 | 37,877 | 49,304 | 130,759 | 159,604 | |||||||||||||||
Income taxes | 6,108 | 12,137 | 12,388 | 44,022 | 49,051 | |||||||||||||||
Net income | $ | 20,798 | $ | 25,740 | $ | 36,916 | $ | 86,737 | $ | 110,553 | ||||||||||
Net income per share | ||||||||||||||||||||
Basic | $ | 0.15 | $ | 0.18 | $ | 0.26 | $ | 0.63 | $ | 0.78 | ||||||||||
Diluted | $ | 0.14 | $ | 0.18 | $ | 0.26 | $ | 0.61 | $ | 0.77 | ||||||||||
Weighted average number of shares outstanding | ||||||||||||||||||||
Basic | 139,875 | 142,978 | 141,776 | 138,577 | 141,971 | |||||||||||||||
Diluted | 144,024 | 144,895 | 144,526 | 143,011 | 144,498 | |||||||||||||||
- 4 -
Consolidated Balance Sheets
(In thousands) | December 31, 2013 | December 31, 2014 | |||||
(Unaudited) | |||||||
ASSETS | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 259,733 | $ | 213,505 | |||
Accounts receivable, net of allowance for doubtful accounts and customer credits of $3,891 as of December 31, 2013 and $5,334 as of December 31, 2014 | 123,898 | 156,455 | |||||
Deferred income taxes | 12,637 | 9,260 | |||||
Prepaid expenses | 30,782 | 33,628 | |||||
Other current assets | 11,918 | 8,895 | |||||
Total current assets | 438,968 | 421,743 | |||||
Property and equipment, net | 890,776 | 1,057,684 | |||||
Goodwill | 81,084 | 81,084 | |||||
Intangible assets, net | 23,880 | 16,592 | |||||
Other non-current assets | 57,089 | 47,181 | |||||
Total assets | $ | 1,491,797 | $ | 1,624,284 | |||
LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||
Current liabilities: | |||||||
Accounts payable and accrued expenses | $ | 122,047 | $ | 137,295 | |||
Accrued compensation and benefits | 62,459 | 66,696 | |||||
Income and other taxes payable | 11,388 | 11,783 | |||||
Deferred revenue | 22,868 | 20,851 | |||||
Capital lease obligations | 37,885 | 14,969 | |||||
Debt | 1,861 | 25,124 | |||||
Total current liabilities | 258,508 | 276,718 | |||||
Non-current liabilities: | |||||||
Deferred revenue | 3,662 | 1,425 | |||||
Capital lease obligations | 25,048 | 8,946 | |||||
Finance lease obligations for assets under construction | — | 109,991 | |||||
Debt | 124 | — | |||||
Deferred income taxes | 69,729 | 71,228 | |||||
Deferred rent | 43,046 | 49,899 | |||||
Other liabilities | 36,268 | 32,283 | |||||
Total liabilities | 436,385 | 550,490 | |||||
Commitments and Contingencies | |||||||
Stockholders' equity: | |||||||
Common stock | 141 | 141 | |||||
Additional paid-in capital | 636,660 | 696,029 | |||||
Accumulated other comprehensive loss | (4,536 | ) | (20,685 | ) | |||
Retained earnings | 423,147 | 398,309 | |||||
Total stockholders’ equity | 1,055,412 | 1,073,794 | |||||
Total liabilities and stockholders’ equity | $ | 1,491,797 | $ | 1,624,284 | |||
- 5 -
Consolidated Statements of Cash Flows
Three Months Ended | Year Ended | ||||||||||||||||||
(Unaudited) | (Unaudited) | ||||||||||||||||||
(in thousands) | December 31, 2013 | September 30, 2014 | December 31, 2014 | December 31, 2013 | December 31, 2014 | ||||||||||||||
Cash Flows From Operating Activities | |||||||||||||||||||
Net income | $ | 20,798 | $ | 25,740 | $ | 36,916 | $ | 86,737 | $ | 110,553 | |||||||||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||||||||||
Depreciation and amortization | 87,683 | 98,307 | 95,213 | 313,007 | 371,884 | ||||||||||||||
Deferred income taxes | (12,407 | ) | (11,046 | ) | 30,553 | (2,102 | ) | 413 | |||||||||||
Share-based compensation expense | 17,188 | 19,842 | 20,166 | 59,645 | 70,005 | ||||||||||||||
Excess tax benefits from share-based compensation arrangements | (16,156 | ) | (16,990 | ) | 10,838 | (33,539 | ) | (34,473 | ) | ||||||||||
Other operating activities | 755 | 2,381 | 2,435 | 5,490 | 8,242 | ||||||||||||||
Changes in operating assets and liabilities: | |||||||||||||||||||
Accounts receivable | (10,344 | ) | (6,609 | ) | (25,952 | ) | (34,473 | ) | (41,681 | ) | |||||||||
Prepaid expenses and other current assets | 6,290 | (24,454 | ) | 16,083 | (12,270 | ) | (1,116 | ) | |||||||||||
Accounts payable, accrued expenses, and other current liabilities | 8,355 | 41,886 | (38,458 | ) | 35,303 | 55,424 | |||||||||||||
Deferred revenue | 4,176 | (1,431 | ) | 1,210 | 5,367 | (3,742 | ) | ||||||||||||
Deferred rent | 2,279 | 1,928 | 1,120 | 11,564 | 7,417 | ||||||||||||||
Other non-current assets and liabilities | 901 | (4,126 | ) | 762 | 9,331 | (416 | ) | ||||||||||||
Net cash provided by operating activities | 109,518 | 125,428 | 150,886 | 444,060 | 542,510 | ||||||||||||||
Cash Flows From Investing Activities | |||||||||||||||||||
Purchases of property and equipment | (126,723 | ) | (124,129 | ) | (107,209 | ) | (452,596 | ) | (430,335 | ) | |||||||||
Acquisitions, net of cash acquired | (3,727 | ) | — | — | (9,930 | ) | — | ||||||||||||
All other investing activities | 110 | 317 | 285 | (1,698 | ) | 2,230 | |||||||||||||
Net cash used in investing activities | (130,340 | ) | (123,812 | ) | (106,924 | ) | (464,224 | ) | (428,105 | ) | |||||||||
Cash Flows From Financing Activities | |||||||||||||||||||
Principal payments of capital leases | (14,652 | ) | (8,957 | ) | (7,133 | ) | (65,860 | ) | (39,635 | ) | |||||||||
Proceeds from debt | — | — | 25,000 | — | 25,000 | ||||||||||||||
Repayments of debt | (52 | ) | (967 | ) | (35 | ) | (1,915 | ) | (1,901 | ) | |||||||||
Payments for deferred acquisition obligations | (57 | ) | (55 | ) | (55 | ) | (1,353 | ) | (223 | ) | |||||||||
Receipt of Texas Enterprise Fund grant | — | — | — | — | 5,500 | ||||||||||||||
Repurchase of common stock | — | — | (200,000 | ) | — | (200,000 | ) | ||||||||||||
Shares of common stock withheld for employee taxes | — | — | — | — | (13,620 | ) | |||||||||||||
Proceeds from employee stock plans | 8,971 | 3,268 | 15,099 | 23,817 | 33,120 | ||||||||||||||
Excess tax benefits from share-based compensation arrangements | 16,156 | 16,990 | (10,838 | ) | 33,539 | 34,473 | |||||||||||||
Net cash provided by (used in) financing activities | 10,366 | 10,279 | (177,962 | ) | (11,772 | ) | (157,286 | ) | |||||||||||
Effect of exchange rate changes on cash and cash equivalents | 194 | (2,759 | ) | (1,975 | ) | (392 | ) | (3,347 | ) | ||||||||||
Increase (decrease) in cash and cash equivalents | (10,262 | ) | 9,136 | (135,975 | ) | (32,328 | ) | (46,228 | ) | ||||||||||
Cash and cash equivalents, beginning of period | 269,995 | 340,344 | 349,480 | 292,061 | 259,733 | ||||||||||||||
Cash and cash equivalents, end of period | $ | 259,733 | $ | 349,480 | $ | 213,505 | $ | 259,733 | $ | 213,505 | |||||||||
Supplemental Cash Flow Information | |||||||||||||||||||
Non-cash purchases of property and equipment (1) | $ | (4,116 | ) | $ | (6,706 | ) | $ | (2,580 | ) | $ | 19,493 | $ | 4,804 | ||||||
(1) | Non-cash purchases of property and equipment represents changes in amounts accrued for purchases under vendor financing and other deferred payment arrangements. |
- 6 -
Key Metrics - Quarter to Date (Unaudited) | |||||||||||||||||||
Three Months Ended | |||||||||||||||||||
(Dollar amounts in thousands, except average monthly revenue per server) | December 31, 2013 | March 31, 2014 | June 30, 2014 | September 30, 2014 | December 31, 2014 | ||||||||||||||
Growth | |||||||||||||||||||
Dedicated cloud, net revenue | $ | 291,265 | $ | 299,689 | $ | 310,647 | $ | 319,601 | $ | 324,729 | |||||||||
Public cloud, net revenue | $ | 116,838 | $ | 121,358 | $ | 130,465 | $ | 140,175 | $ | 147,693 | |||||||||
Net revenue | $ | 408,103 | $ | 421,047 | $ | 441,112 | $ | 459,776 | $ | 472,422 | |||||||||
Revenue growth (year over year) | 15.6 | % | 16.2 | % | 17.4 | % | 18.3 | % | 15.8 | % | |||||||||
Net upgrades (monthly average) | 1.1 | % | 0.9 | % | 1.5 | % | 1.4 | % | 1.2 | % | |||||||||
Churn (monthly average) | -0.7 | % | -0.6 | % | -0.7 | % | -0.6 | % | -0.5 | % | |||||||||
Growth in installed base (monthly average) (1) | 0.4 | % | 0.3 | % | 0.8 | % | 0.8 | % | 0.7 | % | |||||||||
Number of employees (Rackers) at period end | 5,651 | 5,743 | 5,798 | 5,939 | 5,936 | ||||||||||||||
Number of servers deployed at period end | 103,886 | 106,229 | 107,657 | 110,453 | 112,628 | ||||||||||||||
Average monthly revenue per server | $ | 1,322 | $ | 1,336 | $ | 1,375 | $ | 1,405 | $ | 1,412 | |||||||||
Profitability | |||||||||||||||||||
Income from operations | $ | 27,157 | $ | 39,124 | $ | 33,887 | $ | 40,513 | $ | 50,005 | |||||||||
Depreciation and amortization | $ | 87,683 | $ | 87,805 | $ | 90,559 | $ | 98,307 | $ | 95,213 | |||||||||
Share-based compensation expense: | |||||||||||||||||||
Cost of revenue | $ | 3,877 | $ | 3,791 | $ | 4,127 | $ | 4,175 | $ | 4,353 | |||||||||
Research and development | $ | 2,521 | $ | 2,780 | $ | 3,293 | $ | 3,399 | $ | 3,109 | |||||||||
Sales and marketing | $ | 1,766 | $ | 2,091 | $ | 2,062 | $ | 2,637 | $ | 2,783 | |||||||||
General and administrative | $ | 9,024 | $ | 4,070 | $ | 7,783 | $ | 9,631 | $ | 9,921 | |||||||||
Total share-based compensation expense | $ | 17,188 | $ | 12,732 | $ | 17,265 | $ | 19,842 | $ | 20,166 | |||||||||
Adjusted EBITDA (2) | $ | 132,028 | $ | 139,661 | $ | 141,711 | $ | 158,662 | $ | 165,384 | |||||||||
Adjusted EBITDA margin | 32.4 | % | 33.2 | % | 32.1 | % | 34.5 | % | 35.0 | % | |||||||||
Operating income margin | 6.7 | % | 9.3 | % | 7.7 | % | 8.8 | % | 10.6 | % | |||||||||
Income from operations | $ | 27,157 | $ | 39,124 | $ | 33,887 | $ | 40,513 | $ | 50,005 | |||||||||
Effective tax rate | 22.7 | % | 34.6 | % | 33.0 | % | 32.0 | % | 25.1 | % | |||||||||
Net operating profit after tax (NOPAT) (2) | $ | 20,992 | $ | 25,587 | $ | 22,704 | $ | 27,549 | $ | 37,454 | |||||||||
NOPAT margin | 5.1 | % | 6.1 | % | 5.1 | % | 6.0 | % | 7.9 | % | |||||||||
Capital efficiency and returns | |||||||||||||||||||
Interest bearing debt | $ | 64,918 | $ | 53,326 | $ | 41,747 | $ | 31,472 | $ | 49,039 | |||||||||
Stockholders' equity | $ | 1,055,412 | $ | 1,100,012 | $ | 1,171,197 | $ | 1,223,772 | $ | 1,073,794 | |||||||||
Less: Excess cash | $ | (210,761 | ) | $ | (263,309 | ) | $ | (287,411 | ) | $ | (294,307 | ) | $ | (156,814 | ) | ||||
Capital base | $ | 909,569 | $ | 890,029 | $ | 925,533 | $ | 960,937 | $ | 966,019 | |||||||||
Average capital base | $ | 873,749 | $ | 899,799 | $ | 907,781 | $ | 943,235 | $ | 963,478 | |||||||||
Capital turnover (annualized) | 1.87 | 1.87 | 1.94 | 1.95 | 1.96 | ||||||||||||||
Return on capital (annualized) (2) | 9.6 | % | 11.4 | % | 10.0 | % | 11.7 | % | 15.5 | % | |||||||||
- 7 -
Key Metrics - Quarter to Date (Unaudited) | |||||||||||||||||||
Three Months Ended | |||||||||||||||||||
(Dollar amounts in thousands, except average monthly revenue per server) | December 31, 2013 | March 31, 2014 | June 30, 2014 | September 30, 2014 | December 31, 2014 | ||||||||||||||
Capital expenditures | |||||||||||||||||||
Cash purchases of property and equipment | $ | 126,723 | $ | 84,953 | $ | 114,044 | $ | 124,129 | $ | 107,209 | |||||||||
Non-cash purchases of property and equipment (3) | $ | (4,116 | ) | $ | 15,741 | $ | (1,651 | ) | $ | (6,706 | ) | $ | (2,580 | ) | |||||
Total capital expenditures | $ | 122,607 | $ | 100,694 | $ | 112,393 | $ | 117,423 | $ | 104,629 | |||||||||
Customer gear | $ | 65,291 | $ | 60,688 | $ | 64,767 | $ | 78,677 | $ | 72,488 | |||||||||
Data center build outs | $ | 22,524 | $ | 10,963 | $ | 13,767 | $ | 14,825 | $ | 11,079 | |||||||||
Office build outs | $ | 14,860 | $ | 9,212 | $ | 6,857 | $ | 3,464 | $ | 1,633 | |||||||||
Capitalized software and other projects | $ | 19,932 | $ | 19,831 | $ | 27,002 | $ | 20,457 | $ | 19,429 | |||||||||
Total capital expenditures | $ | 122,607 | $ | 100,694 | $ | 112,393 | $ | 117,423 | $ | 104,629 | |||||||||
Infrastructure capacity and utilization | |||||||||||||||||||
Megawatts under contract at period end | 60.0 | 58.1 | 58.1 | 58.1 | 58.1 | ||||||||||||||
Megawatts available for use at period end | 46.9 | 45.3 | 45.4 | 45.4 | 49.7 | ||||||||||||||
Megawatts utilized at period end | 27.4 | 28.1 | 29.0 | 29.9 | 30.5 | ||||||||||||||
Annualized net revenue per average Megawatt of power utilized | $ | 60,015 | $ | 60,691 | $ | 61,802 | $ | 62,448 | $ | 62,572 | |||||||||
(1) | Due to rounding, totals may not equal the sum of the line items in the table above. |
(2) | See discussion and reconciliation of our Non-GAAP financial measures to the most comparable GAAP measures. |
(3) | Non-cash purchases of property and equipment represents changes in amounts accrued for purchases under vendor financing and other deferred payment arrangements. |
- 8 -
Key Metrics - Year to Date (Unaudited) | |||||||
Year Ended December 31, | |||||||
(Dollar amounts in thousands, except average monthly revenue per server) | 2013 | 2014 | |||||
Growth | |||||||
Dedicated cloud, net revenue | $ | 1,119,636 | $ | 1,254,666 | |||
Public cloud, net revenue | $ | 415,150 | $ | 539,691 | |||
Net revenue | $ | 1,534,786 | $ | 1,794,357 | |||
Revenue growth (year over year) | 17.2 | % | 16.9 | % | |||
Net upgrades (monthly average) | 1.3 | % | 1.3 | % | |||
Churn (monthly average) | -0.8 | % | -0.6 | % | |||
Growth in installed base (monthly average) (1) | 0.5 | % | 0.7 | % | |||
Number of employees (Rackers) at period end | 5,651 | 5,936 | |||||
Number of servers deployed at period end | 103,886 | 112,628 | |||||
Average monthly revenue per server | $ | 1,307 | $ | 1,382 | |||
Profitability | |||||||
Income from operations | $ | 133,136 | $ | 163,529 | |||
Depreciation and amortization | $ | 313,007 | $ | 371,884 | |||
Share-based compensation expense: | |||||||
Cost of revenue | $ | 12,584 | $ | 16,446 | |||
Research and development | $ | 8,168 | $ | 12,581 | |||
Sales and marketing | $ | 7,317 | $ | 9,573 | |||
General and administrative | $ | 31,576 | $ | 31,405 | |||
Total share-based compensation expense | $ | 59,645 | $ | 70,005 | |||
Adjusted EBITDA (2) | $ | 505,788 | $ | 605,418 | |||
Adjusted EBITDA margin | 33.0 | % | 33.7 | % | |||
Operating income margin | 8.7 | % | 9.1 | % | |||
Income from operations | $ | 133,136 | $ | 163,529 | |||
Effective tax rate | 33.7 | % | 30.7 | % | |||
Net operating profit after tax (NOPAT) (2) | $ | 88,269 | $ | 113,326 | |||
NOPAT margin | 5.8 | % | 6.3 | % | |||
Capital efficiency and returns | |||||||
Interest bearing debt | $ | 64,918 | $ | 49,039 | |||
Stockholders' equity | $ | 1,055,412 | $ | 1,073,794 | |||
Less: Excess cash | $ | (210,761 | ) | $ | (156,814 | ) | |
Capital base | $ | 909,569 | $ | 966,019 | |||
Average capital base | $ | 804,173 | $ | 930,417 | |||
Capital turnover | 1.91 | 1.93 | |||||
Return on capital (2) | 11.0 | % | 12.2 | % | |||
- 9 -
Key Metrics - Year to Date (Unaudited) | |||||||
Year Ended December 31, | |||||||
(Dollar amounts in thousands, except average monthly revenue per server) | 2013 | 2014 | |||||
Capital expenditures | |||||||
Cash purchases of property and equipment | $ | 452,596 | $ | 430,335 | |||
Non-cash purchases of property and equipment (3) | $ | 19,493 | $ | 4,804 | |||
Total capital expenditures | $ | 472,089 | $ | 435,139 | |||
Customer gear | $ | 297,787 | $ | 276,620 | |||
Data center build outs | $ | 58,278 | $ | 50,634 | |||
Office build outs | $ | 31,103 | $ | 21,166 | |||
Capitalized software and other projects | $ | 84,921 | $ | 86,719 | |||
Total capital expenditures | $ | 472,089 | $ | 435,139 | |||
Infrastructure capacity and utilization | |||||||
Megawatts under contract at period end | 60.0 | 58.1 | |||||
Megawatts available for use at period end | 46.9 | 49.7 | |||||
Megawatts utilized at period end | 27.4 | 30.5 | |||||
Net revenue per average Megawatt of power utilized | $ | 59,442 | $ | 61,917 | |||
(1) | Due to rounding, totals may not equal the sum of the line items in the table above. |
(2) | See discussion and reconciliation of our Non-GAAP financial measures to the most comparable GAAP measures. |
(3) | Non-cash purchases of property and equipment represents changes in amounts accrued for purchases under vendor financing and other deferred payment arrangements. |
- 10 -
Consolidated Quarterly Statements of Income
(Unaudited)
Three Months Ended | |||||||||||||||||||
(In thousands) | December 31, 2013 | March 31, 2014 | June 30, 2014 | September 30, 2014 | December 31, 2014 | ||||||||||||||
Net revenue | $ | 408,103 | $ | 421,047 | $ | 441,112 | $ | 459,776 | $ | 472,422 | |||||||||
Costs and expenses: | |||||||||||||||||||
Cost of revenue | 133,821 | 140,417 | 145,051 | 142,954 | 153,912 | ||||||||||||||
Research and development | 24,849 | 25,192 | 29,711 | 30,718 | 31,385 | ||||||||||||||
Sales and marketing | 55,465 | 57,359 | 60,480 | 60,582 | 59,127 | ||||||||||||||
General and administrative | 79,128 | 71,150 | 81,424 | 86,702 | 82,780 | ||||||||||||||
Depreciation and amortization | 87,683 | 87,805 | 90,559 | 98,307 | 95,213 | ||||||||||||||
Total costs and expenses | 380,946 | 381,923 | 407,225 | 419,263 | 422,417 | ||||||||||||||
Income from operations | 27,157 | 39,124 | 33,887 | 40,513 | 50,005 | ||||||||||||||
Other income (expense): | |||||||||||||||||||
Interest expense | (656 | ) | (495 | ) | (529 | ) | (445 | ) | (444 | ) | |||||||||
Interest and other income (expense) | 405 | 265 | 171 | (2,191 | ) | (257 | ) | ||||||||||||
Total other income (expense) | (251 | ) | (230 | ) | (358 | ) | (2,636 | ) | (701 | ) | |||||||||
Income before income taxes | 26,906 | 38,894 | 33,529 | 37,877 | 49,304 | ||||||||||||||
Income taxes | 6,108 | 13,448 | 11,078 | 12,137 | 12,388 | ||||||||||||||
Net income | $ | 20,798 | $ | 25,446 | $ | 22,451 | $ | 25,740 | $ | 36,916 | |||||||||
Three Months Ended | |||||||||||||||||||
(Percent of net revenue) | December 31, 2013 | March 31, 2014 | June 30, 2014 | September 30, 2014 | December 31, 2014 | ||||||||||||||
Net revenue | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | |||||||||
Costs and expenses: | |||||||||||||||||||
Cost of revenue | 32.8 | % | 33.3 | % | 32.9 | % | 31.1 | % | 32.6 | % | |||||||||
Research and development | 6.1 | % | 6.0 | % | 6.7 | % | 6.7 | % | 6.6 | % | |||||||||
Sales and marketing | 13.6 | % | 13.6 | % | 13.7 | % | 13.2 | % | 12.5 | % | |||||||||
General and administrative | 19.4 | % | 16.9 | % | 18.5 | % | 18.9 | % | 17.5 | % | |||||||||
Depreciation and amortization | 21.5 | % | 20.9 | % | 20.5 | % | 21.4 | % | 20.2 | % | |||||||||
Total costs and expenses | 93.3 | % | 90.7 | % | 92.3 | % | 91.2 | % | 89.4 | % | |||||||||
Income from operations | 6.7 | % | 9.3 | % | 7.7 | % | 8.8 | % | 10.6 | % | |||||||||
Other income (expense): | |||||||||||||||||||
Interest expense | (0.2 | )% | (0.1 | )% | (0.1 | )% | (0.1 | )% | (0.1 | )% | |||||||||
Interest and other income (expense) | 0.1 | % | 0.1 | % | 0.0 | % | (0.5 | )% | (0.1 | )% | |||||||||
Total other income (expense) | (0.1 | )% | (0.1 | )% | (0.1 | )% | (0.6 | )% | (0.1 | )% | |||||||||
Income before income taxes | 6.6 | % | 9.2 | % | 7.6 | % | 8.2 | % | 10.4 | % | |||||||||
Income taxes | 1.5 | % | 3.2 | % | 2.5 | % | 2.6 | % | 2.6 | % | |||||||||
Net income | 5.1 | % | 6.0 | % | 5.1 | % | 5.6 | % | 7.8 | % | |||||||||
Due to rounding, totals may not equal the sum of the line items in the table above. | |||||||||||||||||||
- 11 -
Non-GAAP Financial Measures
Adjusted EBITDA (Non-GAAP financial measure)
We use Adjusted EBITDA as a supplemental measure to review and assess our performance. We define Adjusted EBITDA as net income, plus income taxes, total other (income) expense, depreciation and amortization, and non-cash charges for share-based compensation.
Adjusted EBITDA is a metric that is used in our industry by the investment community for comparative and valuation purposes. We disclose this metric in order to support and facilitate the dialogue with research analysts and investors.
Note that Adjusted EBITDA is not a measure of financial performance under accounting principles generally accepted in the United States (GAAP) and should not be considered a substitute for operating income, which we consider to be the most directly comparable GAAP measure. Adjusted EBITDA has limitations as an analytical tool, and when assessing our operating performance, you should not consider Adjusted EBITDA in isolation or as a substitute for net income or other consolidated income statement data prepared in accordance with GAAP. Other companies may calculate Adjusted EBITDA differently than we do, limiting its usefulness as a comparative measure.
See our reconciliation of Adjusted EBITDA to net income in the tables below:
Three Months Ended | |||||||||||||||||||
(Dollars in thousands) | December 31, 2013 | March 31, 2014 | June 30, 2014 | September 30, 2014 | December 31, 2014 | ||||||||||||||
Net revenue | $ | 408,103 | $ | 421,047 | $ | 441,112 | $ | 459,776 | $ | 472,422 | |||||||||
Income from operations | $ | 27,157 | $ | 39,124 | $ | 33,887 | $ | 40,513 | $ | 50,005 | |||||||||
Net income | $ | 20,798 | $ | 25,446 | $ | 22,451 | $ | 25,740 | $ | 36,916 | |||||||||
Plus: Income taxes | 6,108 | 13,448 | 11,078 | 12,137 | 12,388 | ||||||||||||||
Plus: Total other (income) expense | 251 | 230 | 358 | 2,636 | 701 | ||||||||||||||
Plus: Depreciation and amortization | 87,683 | 87,805 | 90,559 | 98,307 | 95,213 | ||||||||||||||
Plus: Share-based compensation expense | 17,188 | 12,732 | 17,265 | 19,842 | 20,166 | ||||||||||||||
Adjusted EBITDA | $ | 132,028 | $ | 139,661 | $ | 141,711 | $ | 158,662 | $ | 165,384 | |||||||||
Operating income margin | 6.7 | % | 9.3 | % | 7.7 | % | 8.8 | % | 10.6 | % | |||||||||
Adjusted EBITDA margin | 32.4 | % | 33.2 | % | 32.1 | % | 34.5 | % | 35.0 | % | |||||||||
Year Ended December 31, | |||||||
(Dollars in thousands) | 2013 | 2014 | |||||
Net revenue | $ | 1,534,786 | $ | 1,794,357 | |||
Income from operations | $ | 133,136 | $ | 163,529 | |||
Net income | $ | 86,737 | $ | 110,553 | |||
Plus: Income taxes | 44,022 | 49,051 | |||||
Plus: Total other (income) expense | 2,377 | 3,925 | |||||
Plus: Depreciation and amortization | 313,007 | 371,884 | |||||
Plus: Share-based compensation expense | 59,645 | 70,005 | |||||
Adjusted EBITDA | $ | 505,788 | $ | 605,418 | |||
Operating income margin | 8.7 | % | 9.1 | % | |||
Adjusted EBITDA margin | 33.0 | % | 33.7 | % | |||
- 12 -
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 payable and accrued expenses, accrued compensation and benefits, and income and other taxes payable – deferred revenue – other non-current liabilities, deferred income taxes, deferred rent, and finance lease obligations for assets under construction).
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 calculate directly from amounts on the Statement of Income and the Balance Sheet. 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.
- 13 -
See our reconciliation of the calculation of ROC to the calculation of return on assets in the tables below:
Three Months Ended | |||||||||||||||||||
(Dollars in thousands) | December 31, 2013 | March 31, 2014 | June 30, 2014 | September 30, 2014 | December 31, 2014 | ||||||||||||||
Income from operations | $ | 27,157 | $ | 39,124 | $ | 33,887 | $ | 40,513 | $ | 50,005 | |||||||||
Effective tax rate | 22.7 | % | 34.6 | % | 33.0 | % | 32.0 | % | 25.1 | % | |||||||||
Net operating profit after tax (NOPAT) | $ | 20,992 | $ | 25,587 | $ | 22,704 | $ | 27,549 | $ | 37,454 | |||||||||
Net income | $ | 20,798 | $ | 25,446 | $ | 22,451 | $ | 25,740 | $ | 36,916 | |||||||||
Total assets at period end | $ | 1,491,797 | $ | 1,566,949 | $ | 1,647,975 | $ | 1,724,542 | $ | 1,624,284 | |||||||||
Less: Excess cash | (210,761 | ) | (263,309 | ) | (287,411 | ) | (294,307 | ) | (156,814 | ) | |||||||||
Less: Accounts payable and accrued expenses, accrued compensation and benefits, and income and other taxes payable | (195,894 | ) | (224,423 | ) | (231,563 | ) | (244,397 | ) | (215,774 | ) | |||||||||
Less: Deferred revenue (current and non-current) | (26,530 | ) | (24,485 | ) | (23,248 | ) | (21,437 | ) | (22,276 | ) | |||||||||
Less: Other non-current liabilities, deferred income taxes, deferred rent, and finance lease obligations for assets under construction | (149,043 | ) | (164,703 | ) | (180,220 | ) | (203,464 | ) | (263,401 | ) | |||||||||
Capital base | $ | 909,569 | $ | 890,029 | $ | 925,533 | $ | 960,937 | $ | 966,019 | |||||||||
Average total assets | $ | 1,471,783 | $ | 1,529,373 | $ | 1,607,462 | $ | 1,686,259 | $ | 1,674,413 | |||||||||
Average capital base | $ | 873,749 | $ | 899,799 | $ | 907,781 | $ | 943,235 | $ | 963,478 | |||||||||
Return on assets (annualized) | 5.7 | % | 6.7 | % | 5.6 | % | 6.1 | % | 8.8 | % | |||||||||
Return on capital (annualized) | 9.6 | % | 11.4 | % | 10.0 | % | 11.7 | % | 15.5 | % | |||||||||
Year Ended December 31, | |||||||
(Dollars in thousands) | 2013 | 2014 | |||||
Income from operations | $ | 133,136 | $ | 163,529 | |||
Effective tax rate | 33.7 | % | 30.7 | % | |||
Net operating profit after tax (NOPAT) | $ | 88,269 | $ | 113,326 | |||
Net income | $ | 86,737 | $ | 110,553 | |||
Total assets at period end | $ | 1,491,797 | $ | 1,624,284 | |||
Less: Excess cash | (210,761 | ) | (156,814 | ) | |||
Less: Accounts payable and accrued expenses, accrued compensation and benefits, and income and other taxes payable | (195,894 | ) | (215,774 | ) | |||
Less: Deferred revenue (current and non-current) | (26,530 | ) | (22,276 | ) | |||
Less: Other non-current liabilities, deferred income taxes, deferred rent, and finance lease obligations for assets under construction | (149,043 | ) | (263,401 | ) | |||
Capital base | $ | 909,569 | $ | 966,019 | |||
Average total assets | $ | 1,393,079 | $ | 1,611,109 | |||
Average capital base | $ | 804,173 | $ | 930,417 | |||
Return on assets (Net income/Average total assets) | 6.2 | % | 6.9 | % | |||
Return on capital (NOPAT/Average capital base) | 11.0 | % | 12.2 | % | |||
- 14 -
Adjusted Free Cash Flow (Non-GAAP financial measure)
We define Adjusted Free Cash Flow as Adjusted EBITDA plus non-cash deferred rent, less total capital expenditures (including non-cash purchases of property and equipment), cash payments for interest, net, and cash payments for income taxes, net.
We believe that Adjusted Free Cash Flow is a performance metric used by investors to evaluate the strength and performance of a company's ongoing business. 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 reconciliation of Adjusted Free Cash Flow to Adjusted EBITDA below, as well as our reconciliation of Adjusted EBITDA to net income provided above.
Three Months Ended | Year Ended | ||||||||||||||
(In thousands) | December 31, 2013 | December 31, 2014 | December 31, 2013 | December 31, 2014 | |||||||||||
Adjusted EBITDA | $ | 132,028 | $ | 165,384 | $ | 505,788 | $ | 605,418 | |||||||
Non-cash deferred rent | 2,279 | 1,120 | 11,564 | 7,417 | |||||||||||
Total capital expenditures | (122,607 | ) | (104,629 | ) | (472,089 | ) | (435,139 | ) | |||||||
Cash payments for interest, net of interest received | (609 | ) | (331 | ) | (3,096 | ) | (1,643 | ) | |||||||
Cash payments for income taxes, net of refunds | (2,575 | ) | (6,700 | ) | (14,930 | ) | (13,518 | ) | |||||||
Adjusted free cash flow | $ | 8,516 | $ | 54,844 | $ | 27,237 | $ | 162,535 | |||||||
- 15 -