Rackspace Reports First Quarter Results
SAN ANTONIO, TX--(Marketwired - May 09, 2016) -
- Revenue grew 9.9 percent on a normalized basis compared to Q1 2015
- Revenue grew 7.9 percent on a GAAP basis compared to Q1 2015
- Adjusted EBITDA grew 11.7 percent compared to Q1 2015
- Net income grew 77.5 percent compared to Q1 2015
- Adjusted Free Cash Flow reached a new record of $94 million in Q1 2016
- On a fully diluted basis, GAAP EPS was 37 cents and Non-GAAP EPS was 34 cents in Q1 2016
/EINPresswire.com/ -- Rackspace
On a GAAP basis, net revenue for the first quarter of 2016 was $518 million, up 7.9 percent from the first quarter of 2015. These results were adversely affected by shifts in currency exchange rates and the sale of its Jungle Disk business. Adjusted for those factors, on a constant currency basis, net revenue grew 9.9 percent from the first quarter of 2015.
Adjusted EBITDA for the first quarter of 2016 was $179 million, for a margin of 34.5 percent, up 11.7 percent from the first quarter of 2015. Adjusted Free Cash Flow reached a new record of $94 million. Net income for the first quarter of 2016 was $49 million, for a margin of 9.4 percent, up from 5.7 percent in the first quarter of 2015.
For the first quarter of 2016, cash flow from operating activities was $156 million and capital expenditures were $79 million. At the end of the first quarter of 2016, cash and cash equivalents were $534 million, and interest-bearing debt including capital lease obligations totaled $501 million. Return on Capital was 14.4 percent in the first quarter of 2016 compared to 12.3 percent in the first quarter of 2015. The company repurchased $68 million in shares in the first quarter of 2016.
"We've continued to build market power behind our managed cloud strategy," said Taylor Rhodes, president and CEO of Rackspace. "Demand for Rackspace's managed services for AWS, the Microsoft cloud, and our OpenStack private cloud is scaling rapidly. Collectively, we now deliver expertise and support for more than 400 customers on these cloud platforms, including some of the world's largest companies and leading brands such as Digitas. While we are experiencing hyper-growth in these new offers, we also continued to reduce our capital intensity and boost our free cash flow."
For the second quarter of 2016, Rackspace expects revenue to be between $519 million and $524 million. Excluding the expected negative impact of currency movements and a small divestiture, we expect our normalized year-over-year growth rate for the quarter to range between 8 percent and 9 percent. For the full year of 2016, Rackspace expects revenue to be between $2.08 billion and $2.16 billion. Excluding the expected negative impact of currency movements and a small divestiture, we expect our normalized growth rate for the year to range between 6 percent and 10 percent. Adjusted EBITDA margins are expected to range between 33 percent and 35 percent for the second quarter and the full year. Capital expenditures as a percent of revenue are expected to range between 20 percent and 22 percent for the full year.
Recent Highlights
Rackspace and Cloud Technology Partners Align Efforts
The new strategic relationship between Rackspace and CTP delivers professional and managed services for enterprises using leading cloud platforms. The combination of Fanatical Support
Rackspace Became an AWS DevOps Competency Partner
The DevOps Competency within the AWS Partner Competency Program recognizes members of the AWS Partner Network who have completed a rigorous third-party audit demonstrating their expertise in DevOps practices, tools, and proven customer success. Rackspace customers can access this expertise and 24x7 operational support through Fanatical Support for AWS architects and engineers, who collectively hold more than 260 AWS professional and associate certifications across the globe.
Rackspace Delivers Managed Private Cloud Everywhere
The new OpenStack
Rackspace Expanded OpenStack Leadership with Next Generation Bare Metal Servers
The next generation of OnMetal
Rackspace Launched Private Cloud Powered by Red Hat
Rackspace Private Cloud powered by Red Hat
Revision of Prior Period Financial Statements
During the first quarter of 2016, we discovered an error in the reporting of the expense associated with certain software licenses for the period from July 2013 through December 2015, which resulted in a reduction to net income (net of the related income tax impact), of $1.4 million, $3.2 million, and $3.8 million in the years ended December 31, 2013, 2014, and 2015, respectively. Since the amount of the error in any prior period was not material, we have retrospectively revised our financial statements to reflect this immaterial correction for these prior periods.
Non-GAAP Financial Information
Adjusted EBITDA, constant currency revenue growth, Return on Capital, Adjusted Free Cash Flow, and Non-GAAP EPS 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 first quarter of 2016 starting today at 4:30 p.m. ET.
To access the conference call from the United States and Canada, please dial 877-242-2264; from the United Kingdom, dial 0800-496-1094; and from Hong Kong, dial 800-964-224.
A live webcast and a replay of the conference call, along with an earnings slide presentation, 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 complexity and cost of managing it on their own. Rackspace engineers deliver specialized expertise, easy-to-use tools, and 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, 2015, filed with the SEC on February 26, 2016, and subsequent filings and in the 10-Q for the quarter ended March 31, 2016, expected to be filed no later than May 10, 2016. 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 (1)
(Unaudited)
Three Months Ended
--------------------------------
March 31, December 31, March 31,
(In millions, except per share data) 2015 2015 2016
--------- ------------ ---------
Net revenue $ 480.2 $ 522.8 $ 518.1
Costs and expenses:
Cost of revenue 162.8 180.7 180.4
Research and development 32.0 29.8 27.6
Sales and marketing 59.0 58.3 63.7
General and administrative 86.6 90.1 85.7
Depreciation and amortization 96.9 104.0 104.0
--------- ------------ ---------
Total costs and expenses 437.3 462.9 461.4
--------- ------------ ---------
Gain on sale - - 24.5
--------- ------------ ---------
Income from operations 42.9 59.9 81.2
--------- ------------ ---------
Other income (expense):
Interest expense (0.4) (6.2) (10.5)
Interest and other income (expense) (2.0) 0.5 1.1
--------- ------------ ---------
Total other income (expense) (2.4) (5.7) (9.4)
--------- ------------ ---------
Income before income taxes 40.5 54.2 71.8
Income taxes 13.0 23.1 23.0
--------- ------------ ---------
Net income $ 27.5 $ 31.1 $ 48.8
========= ============ =========
Net income per share
Basic $ 0.19 $ 0.23 $ 0.37
========= ============ =========
Diluted $ 0.19 $ 0.23 $ 0.37
========= ============ =========
Weighted average number of shares
outstanding
Basic 141.4 133.3 130.3
========= ============ =========
Diluted 144.2 134.2 131.0
========= ============ =========
(1) Prior periods have been revised. Refer to "Revision of Prior Period
Financial Statements" contained elsewhere in this document for more
information.
Consolidated Balance Sheets (1)
(In millions) December 31, March 31,
2015 2016
------------ -----------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 484.7 $ 534.2
Accounts receivable, net of allowance for
doubtful accounts and customer credits of $7.3
as of December 31, 2015 and $8.1 as of March
31, 2016 174.4 170.9
Prepaid expenses 46.6 49.3
Other current assets 12.7 10.9
------------ -----------
Total current assets 718.4 765.3
Property and equipment, net 1,148.0 1,115.2
Goodwill 81.1 80.4
Intangible assets, net 9.1 6.8
Other non-current assets 57.6 57.7
------------ -----------
Total assets $ 2,014.2 $ 2,025.4
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 136.3 $ 145.1
Accrued compensation and benefits 57.3 58.2
Income and other taxes payable 12.0 9.7
Deferred revenue 29.6 27.5
Capital lease obligations 1.7 0.9
------------ -----------
Total current liabilities 236.9 241.4
Non-current liabilities:
Debt 492.4 492.6
Finance lease obligations for build-to-suit
leases 164.3 161.5
Deferred income taxes 54.8 57.5
Deferred rent 49.5 49.5
Deferred revenue 1.6 1.5
Capital lease obligations 0.2 0.4
Other liabilities 46.4 45.1
------------ -----------
Total liabilities 1,046.1 1,049.5
Commitments and Contingencies
Stockholders' equity:
Common stock 0.1 0.1
Additional paid-in capital 834.5 846.8
Accumulated other comprehensive loss (36.2) (43.2)
Retained earnings 169.7 172.2
------------ -----------
Total stockholders' equity 968.1 975.9
------------ -----------
Total liabilities and stockholders' equity $ 2,014.2 $ 2,025.4
============ ===========
(1) Prior periods have been revised. Refer to "Revision of Prior Period
Financial Statements" contained elsewhere in this document for more
information.
Consolidated Statements of Cash Flows (1)
(Unaudited)
Three Months Ended
----------------------------------
(In millions) March 31, December 31, March 31,
2015 2015 2016
--------- ------------ ---------
Cash Flows From Operating Activities
Net income $ 27.5 $ 31.1 $ 48.8
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization 96.9 104.0 104.0
Deferred income taxes (15.3) 29.5 2.4
Share-based compensation expense 20.0 18.1 17.8
Excess tax benefits from share-based
compensation arrangements (20.2) 2.9 (15.8)
Gain on sale - - (24.5)
Other operating activities 2.8 2.7 4.0
Changes in operating assets and
liabilities:
Accounts receivable (1.8) (2.0) (0.5)
Prepaid expenses and other current
assets 0.8 7.9 (1.0)
Accounts payable, accrued
expenses, and other current
liabilities 26.9 3.5 20.8
Deferred revenue 4.3 (0.4) (2.0)
Deferred rent 0.4 0.1 (0.3)
Other non-current assets and
liabilities 3.0 6.6 2.5
--------- ------------ ---------
Net cash provided by operating
activities 145.3 204.0 156.2
Cash Flows From Investing Activities
Purchases of property and equipment (92.5) (143.0) (82.9)
Proceeds from sale - - 27.0
All other investing activities 0.7 0.1 (3.0)
--------- ------------ ---------
Net cash used in investing
activities (91.8) (142.9) (58.9)
Cash Flows From Financing Activities
Proceeds from debt - 500.0 -
Repayments of debt (25.1) (140.0) -
Payments for debt issuance costs - (8.3) (0.4)
Proceeds from finance lease
obligations for build-to-suit leases - 3.7 -
Principal payments of capital and
build-to-suit leases (5.6) (1.7) (0.8)
Payments for deferred acquisition
obligations (0.1) - -
Repurchase of common stock - (116.9) (60.8)
Shares of common stock withheld for
employee taxes - - (0.3)
Proceeds from employee stock plans 21.8 3.1 0.2
Excess tax benefits from share-based
compensation arrangements 20.2 (2.9) 15.8
--------- ------------ ---------
Net cash provided by (used in)
financing activities 11.2 237.0 (46.3)
Effect of exchange rate changes
on cash and cash equivalents (2.5) (2.4) (1.5)
--------- ------------ ---------
Increase in cash and cash
equivalents 62.2 295.7 49.5
Cash and cash equivalents,
beginning of period 213.5 189.0 484.7
--------- ------------ ---------
Cash and cash equivalents, end
of period $ 275.7 $ 484.7 $ 534.2
========= ============ =========
Supplemental Cash Flow Information
Non-cash purchases of property and
equipment (2) $ (2.3) $ (46.5) $ (4.1)
Accrual for repurchases of common
stock not yet settled $ - $ - $ 6.8
(1) Prior periods have been revised. Refer to "Revision of Prior Period
Financial Statements" contained elsewhere in this document for more
information.
(2) Non-cash purchases of property and equipment primarily represents
changes in amounts accrued but not yet paid.
Key Metrics - Quarter to Date (1)
(Unaudited)
Three Months Ended
---------------------------------------------------
(Dollar amounts in
millions, except March September December March
average monthly 31, June 30, 30, 31, 31,
revenue per server) 2015 2015 2015 2015 2016
-------- -------- --------- ---------- --------
Growth
Net revenue $ 480.2 $ 489.4 $ 508.9 $ 522.8 $ 518.1
Revenue growth (year
over year) 14.1% 11.0% 10.7% 10.7% 7.9%
Constant currency
revenue growth (year
over year) 16.6% 13.7% 12.9% 12.0% 9.2%
Number of employees
(Rackers) at period
end 5,964 6,115 6,177 6,189 6,203
Number of servers
deployed at period
end (2) 114,105 116,329 118,654 118,177 116,507
Average monthly
revenue per server $ 1,412 $ 1,416 $ 1,444 $ 1,472 $ 1,472
Profitability
Income from operations $ 42.9 $ 42.2 $ 55.0 $ 59.9 $ 81.2
Depreciation and
amortization $ 96.9 $ 97.7 $ 101.3 $ 104.0 $ 104.0
Share-based
compensation expense $ 20.0 $ 20.4 $ 19.6 $ 18.1 $ 17.8
Gain on sale $ - $ - $ - $ - $ (24.5)
-------- -------- --------- ---------- --------
Adjusted EBITDA (3) $ 159.8 $ 160.3 $ 175.9 $ 182.0 $ 178.5
Adjusted EBITDA
margin 33.3% 32.8% 34.6% 34.8% 34.5%
Operating income
margin 8.9% 8.6% 10.8% 11.5% 15.7%
Income from operations $ 42.9 $ 42.2 $ 55.0 $ 59.9 $ 81.2
Adjustment for gain on
sale $ - $ - $ - $ - $ (24.5)
Adjustment for build-
to-suit lease impact
(4) $ - $ (0.4) $ (1.1) $ (2.3) $ (2.2)
-------- -------- --------- ---------- --------
Income from
operations, adjusted $ 42.9 $ 41.8 $ 53.9 $ 57.6 $ 54.5
Effective tax rate 32.2% 32.2% 30.4% 42.6% 32.1%
-------- -------- --------- ---------- --------
Net operating profit
after tax (NOPAT)
(3) $ 29.1 $ 28.4 $ 37.5 $ 33.1 $ 37.0
NOPAT margin 6.1% 5.8% 7.4% 6.3% 7.1%
Capital efficiency and
returns
Interest bearing debt
(5) $ 10.8 $ 6.9 $ 143.6 $ 501.9 $ 501.3
Stockholders' equity $1,147.4 $1,233.9 $ 1,042.0 $ 968.1 $ 975.9
Less: Excess cash $ (218.1) $ (258.4) $ (128.0) $ (422.0) $ (472.0)
-------- -------- --------- ---------- --------
Capital base $ 940.1 $ 982.4 $ 1,057.6 $ 1,048.0 $1,005.2
Average capital base $ 947.0 $ 961.2 $ 1,020.0 $ 1,052.8 $1,026.6
Capital turnover
(annualized) 2.03 2.04 2.00 1.99 2.02
Return on capital
(annualized) (3) 12.3% 11.8% 14.7% 12.6% 14.4%
Capital expenditures
Cash purchases of
property and
equipment $ 92.5 $ 104.7 $ 134.7 $ 143.0 $ 82.9
Non-cash purchases of
property and
equipment (6) $ (2.3) $ 46.9 $ (7.0) $ (46.5) $ (4.1)
-------- -------- --------- ---------- --------
Total capital
expenditures $ 90.2 $ 151.6 $ 127.7 $ 96.5 $ 78.8
Customer gear $ 58.7 $ 117.3 $ 87.1 $ 61.8 $ 46.2
Data center build outs $ 13.4 $ 15.8 $ 18.8 $ 10.6 $ 13.1
Office build outs $ 2.3 $ 3.3 $ 6.1 $ 7.8 $ 0.3
Capitalized software
and other projects $ 15.8 $ 15.2 $ 15.7 $ 16.3 $ 19.2
-------- -------- --------- ---------- --------
Total capital
expenditures $ 90.2 $ 151.6 $ 127.7 $ 96.5 $ 78.8
Infrastructure capacity
and utilization
Megawatts under
contract at period
end (7) 63.2 63.6 63.6 62.2 62.2
Megawatts available
for customer use at
period end (8) 52.0 54.1 55.3 54.4 56.0
Megawatts utilized at
period end 31.0 31.6 32.7 32.2 32.1
Annualized net revenue
per average Megawatt
of power utilized $ 62.5 $ 62.5 $ 63.3 $ 64.5 $ 64.5
(1) Prior periods have been revised. Refer to "Revision of Prior Period
Financial Statements" contained elsewhere in this document for more
information.
(2) During the fourth quarter of 2015, we decommissioned approximately
2,400 servers in order to replace older, less efficient gear and also
as part of the migration of customers from existing data centers to our
new London data center. The process of replacing older, less efficient
gear continued in Q1 2016 as approximately 1,600 additional servers
were decommissioned.
(3) See discussion and reconciliation of our Non-GAAP financial measures to
the most comparable GAAP measures.
(4) 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.
(5) Includes the outstanding principal amount of debt and capital lease
obligations.
(6) Non-cash purchases of property and equipment primarily represents
changes in amounts accrued but not yet paid.
(7) Megawatts under contract at period end represents data center capacity
for which we have a contract enabling us to take control of the space.
(8) 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 (1)
(Unaudited)
Three Months Ended
--------------------------------------------------
March September December March
31, June 30, 30, 31, 31,
(In millions) 2015 2015 2015 2015 2016
-------- -------- --------- --------- --------
Net revenue $ 480.2 $ 489.4 $ 508.9 $ 522.8 $ 518.1
Costs and expenses:
Cost of revenue 162.8 165.4 172.7 180.7 180.4
Research and
development 32.0 33.2 29.9 29.8 27.6
Sales and marketing 59.0 64.4 61.8 58.3 63.7
General and
administrative 86.6 86.5 88.2 90.1 85.7
Depreciation and
amortization 96.9 97.7 101.3 104.0 104.0
-------- -------- --------- --------- --------
Total costs and
expenses 437.3 447.2 453.9 462.9 461.4
-------- -------- --------- --------- --------
Gain on sale — — — — 24.5
-------- -------- --------- --------- --------
Income from
operations 42.9 42.2 55.0 59.9 81.2
-------- -------- --------- --------- --------
Other income (expense):
Interest expense (0.4) (1.9) (2.8) (6.2) (10.5)
Interest and other
income (expense) (2.0) 1.4 (1.1) 0.5 1.1
-------- -------- --------- --------- --------
Total other income
(expense) (2.4) (0.5) (3.9) (5.7) (9.4)
-------- -------- --------- --------- --------
Income before income
taxes 40.5 41.7 51.1 54.2 71.8
Income taxes 13.0 13.4 15.6 23.1 23.0
-------- -------- --------- --------- --------
Net income $ 27.5 $ 28.3 $ 35.5 $ 31.1 $ 48.8
======== ======== ========= ========= ========
Three Months Ended
--------------------------------------------------
March September December March
(Percent of net 31, June 30, 30, 31, 31,
revenue) 2015 2015 2015 2015 2016
-------- -------- --------- --------- --------
Net revenue 100.0% 100.0% 100.0% 100.0% 100.0%
Costs and expenses:
Cost of revenue 33.9% 33.8% 34.0% 34.6% 34.8%
Research and
development 6.7% 6.8% 5.9% 5.7% 5.3%
Sales and marketing 12.3% 13.2% 12.1% 11.2% 12.3%
General and
administrative 18.0% 17.7% 17.3% 17.2% 16.6%
Depreciation and
amortization 20.2% 20.0% 19.9% 19.9% 20.1%
-------- -------- --------- --------- --------
Total costs and
expenses 91.1% 91.4% 89.2% 88.5% 89.1%
-------- -------- --------- --------- --------
Gain on sale —% —% —% —% 4.7%
-------- -------- --------- --------- --------
Income from
operations 8.9% 8.6% 10.8% 11.5% 15.7%
-------- -------- --------- --------- --------
Other income (expense):
Interest expense (0.1)% (0.4)% (0.5)% (1.2)% (2.0)%
Interest and other
income (expense) (0.4)% 0.3% (0.2)% 0.1% 0.2%
-------- -------- --------- --------- --------
Total other income
(expense) (0.5)% (0.1)% (0.8)% (1.1)% (1.8)%
-------- -------- --------- --------- --------
Income before income
taxes 8.5% 8.5% 10.0% 10.4% 13.9%
Income taxes 2.7% 2.7% 3.1% 4.4% 4.4%
-------- -------- --------- --------- --------
Net income 5.7% 5.8% 7.0% 6.0% 9.4%
======== ======== ========= ========= ========
Due to rounding, totals may not equal the sum of the line items in the
table above.
(1) Prior periods have been revised. Refer to "Revision of Prior Period
Financial Statements" contained elsewhere in this document for more
information.
Non-GAAP Financial Measures
Adjusted EBITDA (1)
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, non-cash charges for share-based compensation, and gain on sale. The following table presents a reconciliation of Adjusted EBITDA to net income.
Three Months Ended
-----------------------------------------------
March September December
31, June 30, 30, 31, March 31,
(In millions) 2015 2015 2015 2015 2016
-------- -------- --------- --------- ---------
Net revenue $ 480.2 $ 489.4 $ 508.9 $ 522.8 $ 518.1
Income from operations $ 42.9 $ 42.2 $ 55.0 $ 59.9 $ 81.2
Net income $ 27.5 $ 28.3 $ 35.5 $ 31.1 $ 48.8
Plus: Income taxes 13.0 13.4 15.6 23.1 23.0
Plus: Total other
(income) expense 2.4 0.5 3.9 5.7 9.4
Plus: Depreciation and
amortization 96.9 97.7 101.3 104.0 104.0
Plus: Share-based
compensation expense 20.0 20.4 19.6 18.1 17.8
Less: Gain on sale — — — — (24.5)
-------- -------- --------- --------- ---------
Adjusted EBITDA $ 159.8 $ 160.3 $ 175.9 $ 182.0 $ 178.5
Operating income margin 8.9% 8.6% 10.8% 11.5% 15.7%
Adjusted EBITDA margin 33.3% 32.8% 34.6% 34.8% 34.5%
(1) Prior periods have been revised. Refer to "Revision of Prior Period
Financial Statements" contained elsewhere in this document for more
information.
Constant Currency Revenue Growth
We use constant currency revenue growth as an additional metric for understanding and assessing our growth excluding the effect of foreign currency rate fluctuations on our international business operations. We also believe this is an important metric to help investors evaluate our performance in comparison to prior periods. The information presented is calculated by translating current period results using the average exchange rate from the comparative period rather than the actual exchange rates in effect during the respective period. The following table presents a reconciliation of constant currency revenue growth.
Three Months Ended
------------------------------------------------------------
Net
Revenue in
Constant
Currency,
Foreign Net Revenue Jungle Adjusted
Currency in Constant Disk for Jungle
(In millions) Net Revenue Translation Currency Adjustment Disk
----------- ----------- ----------- ----------- ------------
March 31, 2016 $ 518.1 $ 6.4 $ 524.5 $ (0.2) $ 524.3
March 31, 2015 480.2 -- 480.2 (3.0) 477.2
------------ ------------
Dollar change $ 37.9 $ 44.3 47.1
Percent change 7.9% 9.2% 9.9%
December 31,
2015 $ 522.8 $ 6.3 $ 529.1
December 31,
2014 472.5 -- 472.5
------------ ------------
Dollar change $ 50.3 $ 56.6
Percent change 10.7% 12.0%
September 30,
2015 $ 508.9 $ 10.2 $ 519.1
September 30,
2014 459.7 -- 459.7
------------ ------------
Dollar change $ 49.2 $ 59.4
Percent change 10.7% 12.9%
June 30, 2015 $ 489.4 $ 12.1 $ 501.5
June 30, 2014 441.2 -- 441.2
------------ ------------
Dollar change $ 48.2 $ 60.3
Percent change 11.0% 13.7%
March 31, 2015 $ 480.2 $ 10.9 $ 491.1
March 31, 2014 421.0 -- 421.0
------------ ------------
Dollar change $ 59.2 $ 70.1
Percent change 14.1% 16.6%
Return on Capital ("ROC") (1)
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
----------------------------------------------
March September December March
31, June 30, 30, 31, 31,
(In millions) 2015 2015 2015 2015 2016
-------- -------- --------- --------- --------
Income from operations $ 42.9 $ 42.2 $ 55.0 $ 59.9 $ 81.2
Adjustment for gain on sale — — — — (24.5)
Adjustment for build-to-suit
lease impact (2) — (0.4) (1.1) (2.3) (2.2)
-------- -------- --------- --------- --------
Income from operations,
adjusted $ 42.9 $ 41.8 $ 53.9 $ 57.6 $ 54.5
Effective tax rate 32.2% 32.2% 30.4% 42.6% 32.1%
-------- -------- --------- --------- --------
Net operating profit after
tax (NOPAT) $ 29.1 $ 28.4 $ 37.5 $ 33.1 $ 37.0
Net income $ 27.5 $ 28.3 $ 35.5 $ 31.1 $ 48.8
Total assets at period end $1,685.4 $1,826.6 $ 1,749.2 $ 2,014.2 $2,025.4
Add: Unamortized debt
issuance costs (3) — — — 7.6 7.4
Less: Excess cash (4) (218.1) (258.4) (128.0) (422.0) (472.0)
Less: Accounts payable and
accrued expenses, accrued
compensation and
benefits, and income and
other taxes payable (214.8) (256.4) (236.9) (205.6) (213.0)
Less: Deferred revenue
(current and non-current) (26.1) (29.7) (31.8) (31.2) (29.0)
Less: Other non-current
liabilities, deferred
income taxes, deferred
rent, and finance lease
obligations for build-to-
suit leases (286.3) (299.7) (294.9) (315.0) (313.6)
-------- -------- --------- --------- --------
Capital base $ 940.1 $ 982.4 $ 1,057.6 $ 1,048.0 $1,005.2
Average total assets $1,650.7 $1,756.0 $ 1,787.9 $ 1,881.7 $2,019.8
Average capital base $ 947.0 $ 961.2 $ 1,020.0 $ 1,052.8 $1,026.6
Return on assets
(annualized) 6.7% 6.4% 8.0% 6.6% 9.7%
Return on capital
(annualized) 12.3% 11.8% 14.7% 12.6% 14.4%
(1) Prior periods have been revised. Refer to "Revision of Prior Period
Financial Statements" contained elsewhere in this document for more
information.
(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) Amount recorded as a direct deduction from the carrying value of the
long-term debt liability in the consolidated balance sheets
(4) 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.
Adjusted Free Cash Flow (1)
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
-----------------------
March 31, March 31,
(In millions) 2015 2016
----------- -----------
Adjusted EBITDA $ 159.8 $ 178.5
Non-cash deferred rent 0.4 (0.3)
Total capital expenditures (90.2) (78.8)
Cash payments for interest, net of interest
received (0.3) (1.7)
Cash payments for income taxes, net of refunds (3.8) (3.6)
----------- -----------
Adjusted free cash flow $ 65.9 $ 94.1
=========== ===========
(1) Prior periods have been revised. Refer to "Revision of Prior Period
Financial Statements" contained elsewhere in this document for more
information.
Non-GAAP EPS (1)
Non-GAAP Net Income and Non-GAAP EPS are used as supplemental measures to facilitate comparisons to peer companies. Non-GAAP Net Income is defined as net income excluding non-cash charges for share-based compensation and other items that may arise from time to time, net of the related tax benefits. Non-GAAP EPS is calculated using Non-GAAP Net Income divided by the weighted-average number of shares on both an unadjusted basis and as adjusted to give effect to dilutive securities. The following table presents a reconciliation of these non-GAAP financial measures.
Three Months Ended
----------------------------------------------
March September December March
(In millions, except per 31, June 30, 30, 31, 31,
share data) 2015 2015 2015 2015 2016
-------- -------- --------- --------- --------
Net income $ 27.5 $ 28.3 $ 35.5 $ 31.1 $ 48.8
Adjustments:
Share-based compensation
expense 20.0 20.4 19.6 18.1 17.8
Gain on sale - - - - (24.5)
-------- -------- --------- --------- --------
Total adjustments 20.0 20.4 19.6 18.1 (6.7)
Income tax expense
(benefit) (2) (6.5) (6.6) (5.9) (8.2) 2.1
-------- -------- --------- --------- --------
Total adjustments, net of
tax 13.5 13.8 13.7 9.9 (4.6)
-------- -------- --------- --------- --------
Non-GAAP net income $ 41.0 $ 42.1 $ 49.2 $ 41.0 $ 44.2
======== ======== ========= ========= ========
Net income per share ("GAAP
EPS")
Basic $ 0.19 $ 0.20 $ 0.26 $ 0.23 $ 0.37
======== ======== ========= ========= ========
Diluted $ 0.19 $ 0.20 $ 0.25 $ 0.23 $ 0.37
======== ======== ========= ========= ========
Non-GAAP net income per
share ("Non-GAAP EPS")
Basic $ 0.29 $ 0.30 $ 0.35 $ 0.31 $ 0.34
======== ======== ========= ========= ========
Diluted $ 0.28 $ 0.29 $ 0.35 $ 0.31 $ 0.34
======== ======== ========= ========= ========
Weighted average number of
shares outstanding
Basic 141.4 142.4 139.0 133.3 130.3
======== ======== ========= ========= ========
Diluted 144.2 144.5 140.6 134.2 131.0
======== ======== ========= ========= ========
(1) Prior periods have been revised. Refer to "Revision of Prior Period
Financial Statements" contained elsewhere in this document for more
information.
(2) Based on the GAAP effective tax rate for the period.
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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