Rackspace Reports Third Quarter Results
/EINPresswire.com/ -- SAN ANTONIO, TX--(Marketwired - November 09, 2015) -
- Revenue Grew 10.7 Percent Compared to the Third Quarter of 2014
- Adjusted EBITDA Grew 11.9 Percent Compared to the Third Quarter of 2014
- Net Income Grew 42.0 Percent Compared to the Third Quarter of 2014
- EPS on a fully diluted basis was 26 cents in the Third Quarter of 2015
Rackspace
On a GAAP basis, net revenue for the third quarter of 2015 was $509 million, up 10.7 percent from the third quarter of 2014. These results were adversely affected by shifts in currency exchange rates. On a constant currency basis, net revenue grew 12.9 percent from the third quarter of 2014.
Adjusted EBITDA for the third quarter of 2015 was $177 million, for a margin of 34.9 percent, up 11.9 percent from the third quarter of 2014. Net income for the third quarter of 2015 was $37 million, for a margin of 7.2 percent, up from 5.6 percent in the third quarter of 2014.
For the third quarter of 2015, cash flow from operating activities was $111 million, capital expenditures were $128 million, and Adjusted Free Cash Flow was $45 million. At the end of the third quarter of 2015, cash and cash equivalents were $189 million, and interest-bearing debt including capital lease obligations totaled $144 million. Return on Capital was 15.0 percent in the third quarter of 2015 compared to 11.8 percent in the third quarter of 2014.
On a worldwide basis, Rackspace employed 6,177 Rackers as of September 30, 2015.
"We're proud of the financial results that we delivered in the third quarter," said Taylor Rhodes, president and CEO of Rackspace. "And we're excited about the new products and partnerships that we've launched in recent months, with Amazon Web Services, Intel and Microsoft. These initiatives will make us more competitive and will drive our growth for the future."
For the fourth quarter of 2015, Rackspace expects revenue to grow between 2.0 percent and 3.0 percent quarter-over-quarter, on a constant currency basis, and expects Adjusted EBITDA margins to be between 33 percent and 34 percent. For the full year, Rackspace continues to expect revenue to grow between 12 percent and 14 percent year-over-year, on a constant-currency basis, and expects Adjusted EBITDA margins to be between 33 percent and 34 percent.
Capital Allocation
In the third quarter, pursuant to the buyback authorized by the Rackspace board of directors, the company purchased $250 million worth of shares.
Recent Highlights
-
Rackspace announced AWS Managed Service Offerings
Rackspace expanded its managed cloud portfolio with its new Fanatical Support® for AWS offering, which provides tools, expertise, application management, and operational support to customers on the AWS Cloud. Fanatical Support for AWS blends automation, technology, and human expertise to deliver ongoing architecture, management, and security services with 24x7x365 support.
-
Rackspace announced Managed Security and Compliance Assistance Offering
The Managed Security and Compliance Assistance service offerings allow Rackspace to work with its customers to develop holistic security solutions and address compliance requirements that cover complex, multi-cloud environments. Customers can leverage Rackspace security experts to help with strategic planning for best practice multi-cloud security, tactical day-to-day security monitoring and threat analysis to deter, detect and respond to potential threats around the clock.
-
Rackspace invested in SaaS-based security company, CrowdStrike
Rackspace made a significant investment in CrowdStrike's $100 million Series C financing round. CrowdStrike provides the first true Software-as-a Service (SaaS) based next-generation endpoint protection platform and is an innovator in the security space. The company provides Rackspace's 24x7x365 Security Operations Center with the expertise, technology and threat intelligence needed to help protect customers from advanced cyber-attacks, even malware-free intrusions. The financing round, led by Google Capital, brought CrowdStrike's total funding raised to $156 million.
-
Rackspace announced Managed Cloud for Adobe Experience Manager
Rackspace expanded its portfolio of digital solutions with its new Managed Cloud for AEM offering, which enables companies to deploy and manage AEM environments with speed and ease, while also gaining access to specialized 24x7 support, maintenance, and monitoring of AEM environments. As a leading, comprehensive content management solution for building websites, mobile apps and forms, AEM makes it easier to manage marketing content and assets.
-
ObjectRocket by Rackspace added Managed Elasticsearch
The new offering includes fully-managed instances of Elasticsearch, the open source, distributed, real-time, full-text search engine based on Apache Lucene. With the addition of Elasticsearch, Rackspace expanded the breadth and capability of its portfolio of managed databases, which now includes Elasticsearch, Hadoop, Spark, MongoDB, Redis, Oracle, Microsoft SQL Server, MySQL, Percona, and MariaDB.
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 third quarter of 2015 starting today at 4:30 p.m. ET.
To access the conference call from the United States and Canada, please dial 800-954-0626; from the United Kingdom, please dial 0800-496-1091; and from Hong Kong, please dial 800-968-283.
A live webcast and a replay of the conference call will be available on Rackspace's website, located at ir.rackspace.com.
About Rackspace
Rackspace (NYSE: RAX), the #1 managed cloud company, helps businesses tap the power of cloud computing without the challenge and expense of managing complex IT infrastructure and application platforms on their own. Rackspace engineers deliver specialized expertise on top of leading technologies developed by AWS, Microsoft, OpenStack, VMware and others, through a results-obsessed service known as Fanatical Support
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-K for the year ended December 31, 2014, filed with the SEC on March 2, 2015, and subsequent filings. Except as required by law, Rackspace Hosting assumes no obligation to update these forward-looking statements publicly or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future.
Consolidated Statements of Income
(Unaudited)
Three Months Ended Nine Months Ended
------------------------------- -----------------------
September June September September September
(In millions, except 30, 30, 30, 30, 30,
per share data) 2014 2015 2015 2014 2015
----------- ------- ----------- ----------- -----------
Net revenue $ 459.7 $489.4 $ 508.9 $ 1,321.9 $ 1,478.5
Costs and expenses:
Cost of revenue 142.9 163.9 171.2 428.4 496.4
Research and
development 30.7 33.2 29.9 85.6 95.1
Sales and marketing 60.6 64.4 61.8 178.4 185.2
General and
administrative 86.7 86.5 88.2 239.3 261.3
Depreciation and
amortization 98.3 97.7 101.3 276.7 295.9
----------- ------- ----------- ----------- -----------
Total costs and
expenses 419.2 445.7 452.4 1,208.4 1,333.9
----------- ------- ----------- ----------- -----------
Income from
operations 40.5 43.7 56.5 113.5 144.6
----------- ------- ----------- ----------- -----------
Other income
(expense):
Interest expense (0.5) (1.9) (2.8) (1.5) (5.1)
Interest and other
income (expense) (2.1) 1.4 (1.1) (1.7) (1.7)
----------- ------- ----------- ----------- -----------
Total other income
(expense) (2.6) (0.5) (3.9) (3.2) (6.8)
----------- ------- ----------- ----------- -----------
Income before
income taxes 37.9 43.2 52.6 110.3 137.8
Income taxes 12.2 14.0 16.1 36.7 43.7
----------- ------- ----------- ----------- -----------
Net income $ 25.7 $ 29.2 $ 36.5 $ 73.6 $ 94.1
=========== ======= =========== =========== ===========
Net income per share
Basic $ 0.18 $ 0.20 $ 0.26 $ 0.52 $ 0.67
=========== ======= =========== =========== ===========
Diluted $ 0.18 $ 0.20 $ 0.26 $ 0.51 $ 0.66
=========== ======= =========== =========== ===========
Weighted average
number of shares
outstanding
Basic 143.0 142.4 139.0 142.0 140.9
=========== ======= =========== =========== ===========
Diluted 144.9 144.5 140.6 144.3 143.3
=========== ======= =========== =========== ===========
Consolidated Balance Sheets
December 31, September 30,
(In millions) 2014 2015
------------- -------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 213.5 $ 189.0
Accounts receivable, net of allowance for
doubtful accounts and customer credits of
$5.3 as of December 31, 2014 and $6.8 as of
September 30, 2015 156.5 174.9
Deferred income taxes 9.3 5.8
Prepaid expenses 33.6 55.5
Other current assets 8.8 15.5
------------- -------------
Total current assets 421.7 440.7
Property and equipment, net 1,057.7 1,161.3
Goodwill 81.1 81.1
Intangible assets, net 16.6 10.3
Other non-current assets 47.2 60.4
------------- -------------
Total assets $ 1,624.3 $ 1,753.8
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 137.3 $ 173.6
Accrued compensation and benefits 66.7 56.2
Income and other taxes payable 11.8 7.1
Deferred revenue 20.9 29.9
Capital lease obligations 15.0 3.1
Debt 25.1 140.0
------------- -------------
Total current liabilities 276.8 409.9
Non-current liabilities:
Deferred revenue 1.4 1.9
Capital lease obligations (1) 1.5 0.5
Finance lease obligations for build-to-suit
leases (1) 117.4 165.4
Deferred income taxes 71.2 46.6
Deferred rent 49.9 49.4
Other liabilities 32.3 30.7
------------- -------------
Total liabilities 550.5 704.4
Commitments and Contingencies
Stockholders' equity:
Common stock 0.1 0.1
Additional paid-in capital 696.0 841.8
Accumulated other comprehensive loss (20.7) (29.7)
Retained earnings 398.4 237.2
------------- -------------
Total stockholders' equity 1,073.8 1,049.4
------------- -------------
Total liabilities and stockholders' equity $ 1,624.3 $ 1,753.8
============= =============
(1) December 31, 2014 amounts have been revised to reflect the impact of a
reclassification of certain finance obligations associated with build-
to-suit leases to conform to the current period presentation.
Consolidated Statements of Cash Flows
(Unaudited)
Three Months Ended Nine Months Ended
-------------------------------- -----------------------
September September September September
30, June 30, 30, 30, 30,
(in millions) 2014 2015 2015 2014 2015
----------- -------- ----------- ----------- -----------
Cash Flows From
Operating
Activities
Net income $ 25.7 $ 29.2 $ 36.5 $ 73.6 $ 94.1
Adjustments to
reconcile net
income to net
cash provided by
operating
activities:
Depreciation and
amortization 98.3 97.7 101.3 276.7 295.9
Deferred income
taxes (11.0) (14.4) (5.0) (30.1) (34.1)
Share-based
compensation
expense 19.8 20.4 19.6 49.8 60.0
Excess tax
benefits from
share-based
compensation
arrangements (17.0) (18.6) (12.7) (45.3) (51.5)
Other operating
activities 2.5 2.2 2.1 5.8 7.1
Changes in
operating assets
and liabilities:
Accounts
receivable (6.6) (6.5) (18.0) (15.7) (26.3)
Prepaid expenses
and other
current assets (24.5) (8.1) (17.8) (17.2) (25.1)
Accounts
payable,
accrued
expenses, and
other current
liabilities 41.9 16.0 2.8 93.9 45.7
Deferred revenue (1.5) 2.7 2.5 (5.0) 9.5
Deferred rent 1.9 (0.4) - 6.3 -
Other non-
current assets
and liabilities (4.1) 2.7 0.1 (1.2) 4.3
----------- -------- ----------- ----------- -----------
Net cash
provided by
operating
activities 125.4 122.9 111.4 391.6 379.6
Cash Flows From
Investing
Activities
Purchases of
property and
equipment (124.1) (104.7) (134.7) (323.1) (331.9)
All other
investing
activities 0.3 0.7 (6.0) 1.9 (4.6)
----------- -------- ----------- ----------- -----------
Net cash used
in investing
activities (123.8) (104.0) (140.7) (321.2) (336.5)
Cash Flows From
Financing
Activities
Proceeds from debt - - 140.0 - 140.0
Repayments of debt (0.9) - - (1.8) (25.1)
Proceeds from
finance lease
obligations for
build-to-suit
leases - - 2.5 - 2.5
Principal payments
of capital and
build-to-suit
leases (9.0) (4.4) (3.3) (32.5) (13.3)
Payments for
deferred
acquisition
obligations (0.1) - (0.1) (0.2) (0.2)
Receipt of Texas
Enterprise Fund
grant - - - 5.5 -
Repurchase of
common stock - - (250.1) - (250.1)
Shares of common
stock withheld
for employee
taxes - - - (13.6) -
Proceeds from
employee stock
plans 3.3 6.7 0.7 18.0 29.2
Excess tax
benefits from
share-based
compensation
arrangements 17.0 18.6 12.7 45.3 51.5
----------- -------- ----------- ----------- -----------
Net cash provided
by (used in)
financing
activities 10.3 20.9 (97.6) 20.7 (65.5)
Effect of
exchange rate
changes on cash
and cash
equivalents (2.7) 1.6 (1.2) (1.3) (2.1)
----------- -------- ----------- ----------- -----------
Increase
(decrease) in
cash and cash
equivalents 9.2 41.4 (128.1) 89.8 (24.5)
Cash and cash
equivalents,
beginning of
period 340.3 275.7 317.1 259.7 213.5
----------- -------- ----------- ----------- -----------
Cash and cash
equivalents,
end of period $ 349.5 $ 317.1 $ 189.0 $ 349.5 $ 189.0
=========== ======== =========== =========== ===========
Supplemental Cash
Flow Information
Non-cash purchases
of property and
equipment (1) $ (6.7) $ 46.9 $ (7.0) $ 7.4 $ 37.6
(1) Non-cash purchases of property and equipment represents changes in
amounts accrued for purchases under vendor financing and other deferred
payment arrangements.
Key Metrics - Quarter to Date
(Unaudited)
Three Months Ended
------------------------------------------------------
(Dollar amounts in
millions, except September December September
average monthly 30, 31, March 31, June 30, 30,
revenue per server) 2014 2014 2015 2015 2015
----------- ---------- --------- --------- -----------
Growth
Net revenue $ 459.7 $ 472.5 $ 480.2 $ 489.4 $ 508.9
Revenue growth
(year over year) 18.3% 15.8% 14.1% 11.0% 10.7%
Number of employees
(Rackers) at period
end 5,939 5,936 5,964 6,115 6,177
Number of servers
deployed at period
end 110,453 112,628 114,105 116,329 118,654
Average monthly
revenue per server $ 1,405 $ 1,412 $ 1,412 $ 1,416 $ 1,444
Profitability
Income from
operations $ 40.5 $ 50.0 $ 44.4 $ 43.7 $ 56.5
Depreciation and
amortization $ 98.3 $ 95.2 $ 96.9 $ 97.7 $ 101.3
Share-based
compensation
expense $ 19.8 $ 20.2 $ 20.0 $ 20.4 $ 19.6
----------- ---------- --------- --------- -----------
Adjusted EBITDA
(1) $ 158.6 $ 165.4 $ 161.3 $ 161.8 $ 177.4
Adjusted EBITDA
margin 34.5% 35.0% 33.6% 33.1% 34.9%
Operating income
margin 8.8% 10.6% 9.3% 8.9% 11.1%
Income from
operations $ 40.5 $ 50.0 $ 44.4 $ 43.7 $ 56.5
Adjustment for
build-to-suit lease
impact (2) $ - $ - $ - $ (0.4) $ (1.1)
----------- ---------- --------- --------- -----------
Income from
operations,
adjusted $ 40.5 $ 50.0 $ 44.4 $ 43.3 $ 55.4
Effective tax rate 32.0% 25.1% 32.4% 32.4% 30.6%
----------- ---------- --------- --------- -----------
Net operating
profit after tax
(NOPAT) (1) $ 27.5 $ 37.5 $ 30.0 $ 29.3 $ 38.4
NOPAT margin 6.0% 7.9% 6.3% 6.0% 7.6%
Capital efficiency
and returns
Interest bearing
debt (3) $ 24.0 $ 41.6 $ 10.8 $ 6.9 $ 143.6
Stockholders' equity $ 1,223.7 $ 1,073.8 $1,152.9 $1,240.3 $ 1,049.4
Less: Excess cash $ (294.3) $ (156.8) $ (218.1) $ (258.4) $ (128.0)
----------- ---------- --------- --------- -----------
Capital base (3) $ 953.4 $ 958.6 $ 945.6 $ 988.8 $ 1,065.0
Average capital
base (3) $ 935.8 $ 956.0 $ 952.1 $ 967.2 $ 1,027.0
Capital turnover
(annualized) (3) 1.97 1.98 2.02 2.02 1.98
Return on capital
(annualized) (1)
(3) 11.8% 15.7% 12.6% 12.1% 15.0%
Capital expenditures
Cash purchases of
property and
equipment $ 124.1 $ 107.2 $ 92.5 $ 104.7 $ 134.7
Non-cash purchases
of property and
equipment (4) $ (6.7) $ (2.6) $ (2.3) $ 46.9 $ (7.0)
----------- ---------- --------- --------- -----------
Total capital
expenditures $ 117.4 $ 104.6 $ 90.2 $ 151.6 $ 127.7
Customer gear $ 78.7 $ 72.5 $ 58.7 $ 117.3 $ 87.1
Data center build
outs $ 14.8 $ 11.1 $ 13.4 $ 15.8 $ 18.8
Office build outs $ 3.5 $ 1.6 $ 2.3 $ 3.3 $ 6.1
Capitalized software
and other projects $ 20.4 $ 19.4 $ 15.8 $ 15.2 $ 15.7
----------- ---------- --------- --------- -----------
Total capital
expenditures $ 117.4 $ 104.6 $ 90.2 $ 151.6 $ 127.7
Infrastructure
capacity and
utilization
Megawatts under
contract at period
end (5) 58.1 58.1 63.2 63.6 63.6
Megawatts available
for customer use at
period end (6) 45.4 49.7 52.0 54.1 55.3
Megawatts utilized
at period end 29.9 30.5 31.0 31.6 32.7
Annualized net
revenue per average
Megawatt of power
utilized $ 62.4 $ 62.6 $ 62.5 $ 62.5 $ 63.3
(1) See discussion and reconciliation of our Non-GAAP financial measures to
the most comparable GAAP measures.
(2) 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.
(3) In the first quarter of 2015, we reclassified certain finance
obligations associated with build-to-suit leases in the consolidated
balance sheets. Prior period amounts have been revised to reflect the
impact of this reclassification.
(4) Non-cash purchases of property and equipment represents changes in
amounts accrued for purchases under vendor financing and other deferred
payment arrangements.
(5) Megawatts under contract at period end represents data center capacity
for which we have a contract enabling us to take control of the space.
For our newest data center in London, as of March 31, 2015, we have
included four megawatts.
(6) 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.
Consolidated Quarterly Statements of Income
(Unaudited)
Three Months Ended
-------------------------------------------------------
September December March September
30, 31, 31, June 30, 30,
(In millions) 2014 2014 2015 2015 2015
------------ ----------- -------- -------- ------------
Net revenue $ 459.7 $ 472.5 $480.2 $489.4 $ 508.9
Costs and expenses:
Cost of revenue 142.9 153.9 161.3 163.9 171.2
Research and
development 30.7 31.4 32.0 33.2 29.9
Sales and marketing 60.6 59.2 59.0 64.4 61.8
General and
administrative 86.7 82.8 86.6 86.5 88.2
Depreciation and
amortization 98.3 95.2 96.9 97.7 101.3
------------ ----------- -------- -------- ------------
Total costs and
expenses 419.2 422.5 435.8 445.7 452.4
------------ ----------- -------- -------- ------------
Income from
operations 40.5 50.0 44.4 43.7 56.5
------------ ----------- -------- -------- ------------
Other income
(expense):
Interest expense (0.5) (0.4) (0.4) (1.9) (2.8)
Interest and other
income (expense) (2.1) (0.3) (2.0) 1.4 (1.1)
------------ ----------- -------- -------- ------------
Total other income
(expense) (2.6) (0.7) (2.4) (0.5) (3.9)
------------ ----------- -------- -------- ------------
Income before
income taxes 37.9 49.3 42.0 43.2 52.6
Income taxes 12.2 12.3 13.6 14.0 16.1
------------ ----------- -------- -------- ------------
Net income $ 25.7 $ 37.0 $ 28.4 $ 29.2 $ 36.5
============ =========== ======== ======== ============
Three Months Ended
-------------------------------------------------------
September December March September
(Percent of net 30, 31, 31, June 30, 30,
revenue) 2014 2014 2015 2015 2015
------------ ----------- -------- -------- ------------
Net revenue 100.0% 100.0% 100.0% 100.0% 100.0%
Costs and expenses:
Cost of revenue 31.1% 32.6% 33.6% 33.5% 33.7%
Research and
development 6.7% 6.6% 6.7% 6.8% 5.9%
Sales and marketing 13.2% 12.5% 12.3% 13.2% 12.1%
General and
administrative 18.9% 17.5% 18.0% 17.7% 17.3%
Depreciation and
amortization 21.4% 20.2% 20.2% 20.0% 19.9%
------------ ----------- -------- -------- ------------
Total costs and
expenses 91.2% 89.4% 90.7% 91.1% 88.9%
------------ ----------- -------- -------- ------------
Income from
operations 8.8% 10.6% 9.3% 8.9% 11.1%
------------ ----------- -------- -------- ------------
Other income
(expense):
Interest expense (0.1)% (0.1)% (0.1)% (0.4)% (0.5)%
Interest and other
income (expense) (0.5)% (0.1)% (0.4)% 0.3% (0.2)%
------------ ----------- -------- -------- ------------
Total other income
(expense) (0.6)% (0.1)% (0.5)% (0.1)% (0.8)%
------------ ----------- -------- -------- ------------
Income before
income taxes 8.2% 10.4% 8.8% 8.8% 10.3%
Income taxes 2.6% 2.6% 2.8% 2.9% 3.2%
------------ ----------- -------- -------- ------------
Net income 5.6% 7.8% 5.9% 6.0% 7.2%
============ =========== ======== ======== ============
Due to rounding, totals may not equal the sum of the line items in the
table above.
Non-GAAP Financial Measures
Adjusted EBITDA
We use Adjusted EBITDA as a supplemental measure to review and assess our performance. Adjusted EBITDA is a metric that is used by analysts and investors for comparative and valuation purposes. We disclose this metric in order to support and facilitate the dialogue with research analysts and investors.
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. The following table presents a reconciliation of Adjusted EBITDA to net income.
Three Months Ended
--------------------------------------------------
September December March June September
30, 31, 31, 30, 30,
(Dollars in millions) 2014 2014 2015 2015 2015
----------- ---------- ------- ------- -----------
Net revenue $ 459.7 $ 472.5 $480.2 $489.4 $ 508.9
Income from operations $ 40.5 $ 50.0 $ 44.4 $ 43.7 $ 56.5
Net income $ 25.7 $ 37.0 $ 28.4 $ 29.2 $ 36.5
Plus: Income taxes 12.2 12.3 13.6 14.0 16.1
Plus: Total other
(income) expense 2.6 0.7 2.4 0.5 3.9
Plus: Depreciation and
amortization 98.3 95.2 96.9 97.7 101.3
Plus: Share-based
compensation expense 19.8 20.2 20.0 20.4 19.6
----------- ---------- ------- ------- -----------
Adjusted EBITDA $ 158.6 $ 165.4 $161.3 $161.8 $ 177.4
Operating income margin 8.8% 10.6% 9.3% 8.9% 11.1%
Adjusted EBITDA margin 34.5% 35.0% 33.6% 33.1% 34.9%
Return on Capital ("ROC")
We believe that ROC is an important metric for investors in evaluating our company's performance. ROC measures how effectively a company generates profits from the capital that is deployed. We calculate ROC by dividing net operating profit after tax by our average capital base. The following table presents a reconciliation of ROC to return on assets, which we calculate directly from amounts on the Consolidated Statements of Income and the Consolidated Balance Sheets.
Three Months Ended
------------------------------------------------------
September December September
30, 31, March 31, June 30, 30,
(Dollars in millions) 2014 2014 2015 2015 2015
----------- ---------- --------- --------- -----------
Income from
operations $ 40.5 $ 50.0 $ 44.4 $ 43.7 $ 56.5
Adjustment for build-
to-suit lease impact
(1) - - - (0.4) (1.1)
----------- ---------- --------- --------- -----------
Income from
operations,
adjusted $ 40.5 $ 50.0 $ 44.4 $ 43.3 $ 55.4
Effective tax rate 32.0% 25.1% 32.4% 32.4% 30.6%
----------- ---------- --------- --------- -----------
Net operating profit
after tax (NOPAT) $ 27.5 $ 37.5 $ 30.0 $ 29.3 $ 38.4
Net income $ 25.7 $ 37.0 $ 28.4 $ 29.2 $ 36.5
Total assets at
period end $ 1,724.5 $ 1,624.3 $1,692.3 $1,832.6 $ 1,753.8
Less: Excess cash
(2) (294.3) (156.8) (218.1) (258.4) (128.0)
Less: Accounts
payable and accrued
expenses, accrued
compensation and
benefits, and
income and other
taxes payable (244.4) (215.8) (214.8) (256.4) (236.9)
Less: Deferred
revenue (current
and non-current) (21.5) (22.3) (26.1) (29.7) (31.8)
Less: Other non-
current
liabilities,
deferred income
taxes, deferred
rent, and finance
lease obligations
for build-to-suit
leases (3) (210.9) (270.8) (287.7) (299.3) (292.1)
----------- ---------- --------- --------- -----------
Capital base (3) $ 953.4 $ 958.6 $ 945.6 $ 988.8 $ 1,065.0
Average total
assets $ 1,686.3 $ 1,674.4 $1,658.3 $1,762.4 $ 1,793.2
Average capital
base (3) $ 935.8 $ 956.0 $ 952.1 $ 967.2 $ 1,027.0
Return on assets
(annualized) 6.1% 8.8% 6.9% 6.6% 8.1%
Return on capital
(annualized) (3) 11.8% 15.7% 12.6% 12.1% 15.0%
(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) 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.
(3) In the first quarter of 2015, we reclassified certain finance
obligations associated with build-to-suit leases in the consolidated
balance sheets. Prior period amounts have been revised to reflect the
impact of this reclassification.
Adjusted Free Cash Flow
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. 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 and cash payments for income taxes. The following table presents a reconciliation of Adjusted Free Cash Flow to Adjusted EBITDA as a supplement to our reconciliation of Adjusted EBITDA to net income provided above.
Three Months Ended Nine Months Ended
------------------------- -------------------------
September September September September
30, 30, 30, 30,
(In millions) 2014 2015 2014 2015
------------ ------------ ------------ ------------
Adjusted EBITDA $ 158.6 $ 177.4 $ 440.0 $ 500.5
Non-cash deferred rent 1.9 - 6.3 -
Total capital
expenditures (117.4) (127.7) (330.5) (369.5)
Cash payments for
interest, net of
interest received (0.3) (1.0) (1.3) (2.1)
Cash payments for
income taxes, net of
refunds (1.3) (3.5) (6.8) (17.0)
------------ ------------ ------------ ------------
Adjusted free cash
flow $ 41.5 $ 45.2 $ 107.7 $ 111.9
============ ============ ============ ============
Contacts:
Investor Relations:
Jessica Drought
210-312-4191
jessica.drought@rackspace.com
Media Relations:
Brandon Brunson
210-312-1357
brandon.brunson@rackspace.com
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