Rackspace Hosting Reports Second Quarter 2013 Results
Rackspace Hosting Reports Second Quarter 2013 Results
For the quarter ended June 30, 2013:
Net revenue of $376 million grew 18% year-over-year and 3.8% from Q1 2013
Adjusted EBITDA(1) of $123 million grew 10% year-over-year and declined 1.5% from Q1 2013
Achieved Adjusted EBITDA margin of 32.8%, compared to 35.1% in Q2 2012 and 34.5% in Q1 2013
Net income of $22 million declined 11% year-over-year and 18.0% from Q1 2013
SAN ANTONIO--(BUSINESS WIRE)-- Rackspace® Hosting, Inc. (NYS: RAX) , the open cloud company, announced financial results for the quarter ended June 30, 2013.
Net revenue for the second quarter of 2013 was $376 million, up 3.8% from the previous quarter and up 18% from the second quarter of 2012. Net revenue for the second quarter of 2013 was negatively impacted by currency exchange rates when compared to the previous quarter by $1.0 million and negatively impacted when compared to the second quarter of 2012 by $2.7 million.
Total server count increased to 98,884, up from 94,122 servers at the end of the previous quarter.
Adjusted EBITDA for the quarter was $123 million, a 1.5% decrease compared to the first quarter of 2013 and a 10% increase compared to the second quarter of 2012. The Adjusted EBITDA margin for the quarter was 32.8% compared to 34.5% in the previous quarter and 35.1% in the second quarter of 2012.
Consistent with prior periods, Adjusted EBITDA and Adjusted EBITDA margin were negatively impacted by a non-cash charge relating to data center operating leases. During the second quarter of 2013, the non-cash data center lease charge was $1.5 million.
Net income was $22 million for the quarter, down 18.0% from the previous quarter and down 11% from the second quarter of 2012. Net income margin for the quarter was 6.0% compared to 7.5% for the previous quarter and 7.9% in the second quarter of 2012.
Cash flow from operating activities was $106 million for the second quarter of 2013. Capital expenditures were $107 million, including $73 million for purchases of customer gear, $10 million for data center build outs, $2 million for office build outs and $22 million for capitalized software and other projects.
Adjusted Free Cash Flow(1) for the quarter was $11 million. Return on Capital(1) was 11.9% in the second quarter, compared to 15.1% in the prior quarter and 15.5% in the second quarter of 2012. Average monthly revenue per server was $1,298, compared to $1,308 in the prior quarter and $1,270 in the second quarter of 2012.
At the end of the second quarter of 2013, cash and cash equivalents were $263 million, and debt including capital lease obligations totaled $88 million.
On a worldwide basis, Rackspace employed 5,272 Rackers as of June 30, 2013, up from 5,043 in the previous quarter.
Rackspace Developments and Business Highlights
Rackspace ranks No. 56 on Computerworld's "100 Best Places To Work in IT" list. For the sixth consecutive year, the Company's unique culture, training opportunities and dynamic work environments have earned Rackspace a spot on this prestigious list. Computerworld's annual "Best Places to Work in IT" feature has ranked the top 100 work environments for technology professionals since 1994. The list is based on a comprehensive questionnaire regarding company offerings in categories like benefits, diversity, career development, training and retention. Computerworld also conducts extensive surveys of IT workers, and their responses are a factor in determining the rankings.
Rackspace launched the latest version of the OpenStack-powered Rackspace Private Cloud Software built on the most recent stable release of OpenStack, Grizzly. Grizzly is the seventh and latest version of OpenStack based on the alphabetical naming of releases. This latest version of Private Cloud Software adds more than 230 new features that empower users to support production operations at scale, integrate into enterprise environments, manage virtual networks, use single sign-on and leverage external storage arrays all in their private cloud environments.
Rackspace was recognized in Gartner's first Magic Quadrant for European Managed Hosting, which reinforces our international ambitions. In the first ever European publication for Managed Hosting, Rackspace is featured as the market leader. Gartner assessed 15 providers of Managed Hosting for their "completeness of vision" and their "ability to execute." Our position in the Leaders Quadrant shows that our focus on Fanatical Support® and hybrid cloud is giving customers what they need from a partner.
Todd Cione was hired to lead our Americas Acquisition Sales division, and he brings more than two decades of experience developing successful sales and support teams across broad geographies. He spent his last 15 years at Microsoft, most recently based in Singapore and responsible for $4 billion in annual revenue for software, cloud services and enterprise services. At Rackspace, Cione's mission is to accelerate market-share gains and acquisition of new customers in the Americas, via both direct and channel sales.
Rick Jackson has joined Rackspace as our Chief Marketing Officer (CMO). Jackson will lead Rackspace's global marketing strategy and execution as the Company works to strengthen its leadership position around hybrid cloud. Jackson brings with him over 25 years of IT industry experience. Most recently, Jackson served as CMO at VMware, where he was responsible for leading the company's global marketing strategy. As an early advocate of hybrid cloud computing, Jackson shares Rackspace's enthusiasm for open source-based cloud technologies and customer choice.
Conference Call and Webcast
Management will host a conference call to discuss the results starting today at 4:30 p.m. ET.
To access the conference call, please dial 888-452-4005 from the United States and Canada or dial 719-457-2089 from abroad and reference pass code 1389877. A live webcast and a replay of the conference call will be available on Rackspace's website, located at http://ir.rackspace.com.
About Rackspace Hosting
Rackspace Hosting (NYS: RAX) is the open cloud company, delivering open technologies and powering more than 200,000 customers worldwide. Rackspace provides its renowned Fanatical Support across a portfolio of IT products, including Public Cloud, Private Cloud, Hybrid Hosting and Dedicated Hosting. The company offers choice, flexibility and freedom from vendor lock-in. Rackspace has been recognized by Bloomberg BusinessWeek as a Top 100 Performing Technology Company, is featured on Fortune's list of 100 Best Companies to Work For and is included on the Dow Jones Sustainability Index. Rackspace was positioned in the Leaders quadrant by Gartner Inc. in the 2013 "Magic Quadrant for Managed Hosting in North America" and "Magic Quadrant for European Managed Hosting." Rackspace is headquartered in San Antonio with offices and data centers around the world. For more information, visit www.rackspace.com.
Forward-Looking Statements
This press release contains forward-looking statements that involve risks, uncertainties and assumptions. If such risks or uncertainties materialize or such assumptions prove incorrect, the results of Rackspace Hosting could differ materially from those expressed or implied by such forward-looking statements and assumptions. All statements other than statements of historical fact are statements that could be deemed forward-looking statements, including any statements concerning expected operational and financial results, long-term investment strategies, growth plans, expected results from the integration of technologies and acquired businesses, the performance or market share relating to products and services; any statements of expectation or belief; and any statements or assumptions underlying any of the foregoing. Risks, uncertainties and assumptions include infrastructure failures; the deterioration of economic conditions or fluctuations, disruptions, instability or downturns in the economy; the effectiveness of managing company growth; technological and competitive factors; regulatory factors; and other risks that are described in Rackspace Hosting's Form 10-K for the year ended March 31, 2013, filed with the SEC on March 1, 2013, and in Rackspace Hosting's Form 10-Q for the quarter ended June 30, 2013, expected to be filed later this week. 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 | Six Months Ended | ||||||||||||||||||||||||
(In thousands, except per share data) | June 30, | March 31, | June 30, | June 30, | June 30, | ||||||||||||||||||||
Net revenue | $ | 318,990 | $ | 362,200 | $ | 375,847 | $ | 620,345 | $ | 738,047 | |||||||||||||||
Costs and expenses: | |||||||||||||||||||||||||
Cost of revenue (1) | 102,572 | 113,610 | 117,658 | 202,653 | 231,268 | ||||||||||||||||||||
Research and development (1) | 16,742 | 22,773 | 26,776 | 30,189 | 49,549 | ||||||||||||||||||||
Sales and marketing (1) | 41,310 | 49,814 | 52,269 | 81,596 | 102,083 | ||||||||||||||||||||
General and administrative (1) | 55,854 | 63,079 | 69,280 | 111,160 | 132,359 | ||||||||||||||||||||
Depreciation and amortization | 61,808 | 70,111 | 74,460 | 116,959 | 144,571 | ||||||||||||||||||||
Total costs and expenses | 278,286 | 319,387 | 340,443 | 542,557 | 659,830 | ||||||||||||||||||||
Income from operations | 40,704 | 42,813 | 35,404 | 77,788 | 78,217 | ||||||||||||||||||||
Other income (expense): | |||||||||||||||||||||||||
Interest expense | (1,233 | ) | (940 | ) | (833 | ) | (2,505 | ) | (1,773 | ) | |||||||||||||||
Interest and other income (expense) | (405 | ) | 199 | (303 | ) | (268 | ) | (104 | ) | ||||||||||||||||
Total other income (expense) | (1,638 | ) | (741 | ) | (1,136 | ) | (2,773 | ) | (1,877 | ) | |||||||||||||||
Income before income taxes | 39,066 | 42,072 | 34,268 | 75,015 | 76,340 | ||||||||||||||||||||
Income taxes | 13,932 | 14,811 | 11,901 | 26,701 | 26,712 | ||||||||||||||||||||
Net income | $ | 25,134 | $ | 27,261 | $ | 22,367 | $ | 48,314 | $ | 49,628 | |||||||||||||||
Net income per share | |||||||||||||||||||||||||
Basic | $ | 0.19 | $ | 0.20 | $ | 0.16 | $ | 0.36 | $ | 0.36 | |||||||||||||||
Diluted | $ | 0.18 | $ | 0.19 | $ | 0.16 | $ | 0.34 | $ | 0.34 | |||||||||||||||
Weighted average number of shares outstanding | |||||||||||||||||||||||||
Basic | 135,033 | 137,742 | 138,011 | 134,045 | 139,463 | ||||||||||||||||||||
Diluted | 140,786 | 143,177 | 142,178 | 140,396 | 144,180 | ||||||||||||||||||||
(1) Certain reclassifications have been made to prior period amounts for the three and six months ended June 30, 2012 in order to conform to the current year's presentation. For more information, refer to our Form 10-Q for the quarter ended June 30, 2013.
Consolidated Balance Sheets | ||||||||||
(In thousands) | December 31, 2012 | June 30, 2013 | ||||||||
(Unaudited) | ||||||||||
ASSETS | ||||||||||
Current assets: | ||||||||||
Cash and cash equivalents | $ | 292,061 | $ | 263,052 | ||||||
Accounts receivable, net of allowance for doubtful accounts and customer credits of $4,236 as of December 31, 2012 and $3,720 as of June 30, 2013 | 92,834 | 102,591 | ||||||||
Deferred income taxes | 10,320 | 20,770 | ||||||||
Prepaid expenses | 25,195 | 21,897 | ||||||||
Other current assets | 4,835 | 8,464 | ||||||||
Total current assets | 425,245 | 416,774 | ||||||||
Property and equipment, net | 724,985 | 802,666 | ||||||||
Goodwill | 68,742 | 76,831 | ||||||||
Intangible assets, net | 23,802 | 26,100 | ||||||||
Other non-current assets | 52,777 | 55,557 | ||||||||
Total assets | $ | 1,295,551 | $ | 1,377,928 | ||||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||||
Current liabilities: | ||||||||||
Accounts payable and accrued expenses | $ | 105,174 | $ | 113,421 | ||||||
Accrued compensation and benefits | 48,404 | 49,673 | ||||||||
Income and other taxes payable | 21,550 | 15,458 | ||||||||
Current portion of deferred revenue | 17,265 | 17,803 | ||||||||
Current portion of obligations under capital leases | 61,302 | 50,245 | ||||||||
Current portion of debt | 1,744 | 1,808 | ||||||||
Total current liabilities | 255,439 | 248,408 | ||||||||
Non-current liabilities: | ||||||||||
Deferred revenue | 3,695 | 4,833 | ||||||||
Obligations under capital leases | 60,335 | 35,237 | ||||||||
Debt | 1,991 | 1,144 | ||||||||
Deferred income taxes | 71,081 | 83,423 | ||||||||
Deferred rent | 32,293 | 36,887 | ||||||||
Other liabilities | 27,070 | 34,099 | ||||||||
Total liabilities | 451,904 | 444,031 | ||||||||
COMMITMENTS AND CONTINGENCIES | ||||||||||
Stockholders' equity: | ||||||||||
Common stock | 138 | 139 | ||||||||
Additional paid-in capital | 515,188 | 567,738 | ||||||||
Accumulated other comprehensive loss | (8,089 | ) | (20,018 | ) | ||||||
Retained earnings | 336,410 | 386,038 | ||||||||
Total stockholders' equity | 843,647 | 933,897 | ||||||||
Total liabilities and stockholders' equity | $ | 1,295,551 | $ | 1,377,928 | ||||||
Consolidated Statements of Cash Flows | |||||||||||||||||||||||||
(Unaudited) | |||||||||||||||||||||||||
Three Months Ended | Six Months Ended | ||||||||||||||||||||||||
(in thousands) | June 30, | March 31, | June 30, | June 30, | June 30, | ||||||||||||||||||||
Cash Flows From Operating Activities | |||||||||||||||||||||||||
Net income | $ | 25,134 | $ | 27,261 | $ | 22,367 | $ | 48,314 | $ | 49,628 | |||||||||||||||
Adjustments to reconcile net income to net cash provided by operating activities | |||||||||||||||||||||||||
Depreciation and amortization | 61,808 | 70,111 | 74,460 | 116,959 | 144,571 | ||||||||||||||||||||
Loss (gain) on disposal of equipment, net | 86 | 240 | |||||||||||||||||||||||
