Rackspace Hosting Reports Second Quarter 2013 Results

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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 EndedSix Months Ended
(In thousands, except per share data)

June 30,
2012

  

March 31,
2013

  

June 30,
2013

June 30,
2012

  

June 30,
2013

Net revenue$318,990$362,200$375,847$620,345$738,047
Costs and expenses:
Cost of revenue (1)102,572113,610117,658202,653231,268
Research and development (1)16,74222,77326,77630,18949,549
Sales and marketing (1)41,31049,81452,26981,596102,083
General and administrative (1)55,85463,07969,280111,160132,359
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 taxes39,06642,07234,26875,01576,340
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, 2012June 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, 201392,834102,591
Deferred income taxes10,32020,770
Prepaid expenses25,19521,897
Other current assets 4,835  8,464 
Total current assets425,245416,774
 
Property and equipment, net724,985802,666
Goodwill68,74276,831
Intangible assets, net23,80226,100
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 benefits48,40449,673
Income and other taxes payable21,55015,458
Current portion of deferred revenue17,26517,803
Current portion of obligations under capital leases61,30250,245
Current portion of debt 1,744  1,808 
Total current liabilities255,439248,408
 
Non-current liabilities:
Deferred revenue3,6954,833
Obligations under capital leases60,33535,237
Debt1,9911,144
Deferred income taxes71,08183,423
Deferred rent32,29336,887
Other liabilities 27,070  34,099 
Total liabilities451,904444,031
 
COMMITMENTS AND CONTINGENCIES
 
Stockholders' equity:
Common stock138139
Additional paid-in capital515,188567,738
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 EndedSix Months Ended
(in thousands)

June 30,
2012

  

March 31,
2013

  

June 30,
2013

June 30,
2012

  

June 30,
2013

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 amortization61,80870,11174,460116,959144,571
Loss (gain) on disposal of equipment, net86240 Read Full Story

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