- Revenue of $746 million in the Second Quarter, down 3% Year-over-Year
- Public Cloud Revenue grew 3% Year-over-Year to $435 million
- Private Cloud Revenue was $311 million, down 11% Year-over-Year
- Second Quarter 2023 Cash Flow from Operating Activities was $38 million; Cash Flow From Operating Activities was $134 million on a Trailing-Twelve-Month Basis
SAN ANTONIO, Aug. 08, 2023 (GLOBE NEWSWIRE) -- Rackspace Technology, Inc. ( RXT), a leading end-to-end multicloud technology solutions company, today announced results for its second quarter ended June 30, 2023.
Amar Maletira, Chief Executive Officer, stated, “I am pleased that we exceeded guidance in the second quarter for both revenue and EPS. We are already seeing the benefits of organizing into two separate business units with early signs of progress achieved to date.”
Mr. Maletira added, “In June, we launched Foundry for AI by Rackspace (FAIR™), a global spin up dedicated to accelerating the adoption of generative AI solutions across all industries. This is an exciting opportunity where we are leveraging our existing offerings and capabilities to help customers benefit from this revolutionary technology.”
Second Quarter 2023 Results
Revenue was $746 million in the second quarter of 2023, a decrease of 3% on both a reported and constant currency basis as compared to revenue of $772 million in the second quarter of 2022.
Public Cloud revenue was $435 million in the second quarter of 2023, an increase of 3% on both a reported and constant currency basis as compared to revenue of $422 million in the second quarter of 2022.
Private Cloud revenue was $311 million in the second quarter of 2023, a decrease of 11% on both a reported and constant currency basis as compared to revenue of $350 million in the second quarter of 2022.
Loss from operations was $(64) million in the second quarter of 2023, compared to income from operations of $4 million in the second quarter of 2022.
Net loss was $(27) million in the second quarter of 2023, compared to net loss of $(41) million in the second quarter of 2022.
Net loss per diluted share was $(0.13) in the second quarter of 2023, compared to net loss per diluted share of $(0.19) in the second quarter of 2022.
Non-GAAP Operating Profit was $39 million in the second quarter of 2023, a decrease of 60% compared to $99 million in the second quarter of 2022.
Non-GAAP Loss Per Share was $(0.06) in the second quarter of 2023, a decrease of 135% as compared to Non-GAAP Earnings Per Share of $0.17 in the second quarter of 2022.
Capital expenditures were $45 million in the second quarter of 2023, compared to $37 million in the second quarter of 2022.
As of June 30, 2023, we had cash and cash equivalents of $160 million with $50 million outstanding on our Revolving Credit Facility ($325 million of undrawn commitments).
Financial Outlook
Rackspace Technology is providing guidance as follows:
Q3 2023 Guidance | ||
Total Revenue | $722 - $732 million | |
Public Cloud Revenue | $428 - $433 million | |
Private Cloud Revenue | $294 - $299 million | |
Non-GAAP Operating Profit | $43 - $47 million | |
Non-GAAP Loss Per Share | $(0.06) - $(0.04) | |
Non-GAAP Other Income (Expense)1 | $(58) – $(60) million | |
Non-GAAP Tax Expense Rate | 26 % | |
Non-GAAP Weighted Average Shares | 215 – 217 million |
1 Non-GAAP Other Income (Expense) is only expected to include interest expense.
Definitions of non-GAAP financial measures and the reconciliations to the most directly comparable measures in accordance with generally accepted accounting principles in the United States (“GAAP”) are provided in subsequent sections of this press release narrative and supplemental schedules. Rackspace Technology has not reconciled Non-GAAP Operating Profit, Non-GAAP Loss Per Share, Non-GAAP Other Income (Expense) or Non-GAAP Tax Expense Rate guidance to the most directly comparable GAAP measure because it does not provide guidance on GAAP net income (loss) or the reconciling items between these Non-GAAP measures and GAAP net income (loss) as a result of the uncertainty regarding, and the potential variability of, certain of these items, such as share-based compensation expense. Accordingly, a reconciliation of the non-GAAP financial measure guidance to the corresponding GAAP measure is not available without unreasonable effort. With respect to Non-GAAP Operating Profit, Non-GAAP Loss Per Share, Non-GAAP Other Income (Expense) and Non-GAAP Tax Expense Rate guidance, adjustments in future periods are generally expected to be similar to the kinds of charges and costs excluded from these Non-GAAP measures in prior periods, but the impact of such adjustments could be significant.
Conference Call and Webcast
Rackspace Technology will hold a conference call today, August 8, 2023, at 4:00pm CT / 5:00pm ET to discuss its second quarter 2023 results. Interested parties may access the conference call as follows:
To listen to the live webcast or access the replay following the webcast, please visit our IR website at the following link: https://ir.rackspace.com/news-and-events/events-and-presentations.
To obtain a dial-in number, please pre-register at the following link: https://register.vevent.com/register/BI52886700557a4b27b0e2699ea93a18b0. All registrants will receive dial-in information and a PIN allowing them to access the live call.
About Rackspace Technology
Rackspace Technology is a leading end-to-end multicloud technology services company. We can design, build and operate our customers’ cloud environments across all major technology platforms, irrespective of technology stack or deployment model. We partner with our customers at every stage of their cloud journey, enabling them to modernize applications, build new products and adopt innovative technologies.
Forward-looking Statements
Rackspace Technology has made statements in this press release and other reports, filings, and other public written and verbal announcements that are forward-looking and therefore subject to risks and uncertainties. All statements, other than statements of historical fact, included in this document are, or could be, “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 and are made in reliance on the safe harbor protections provided thereunder. These forward-looking statements relate to anticipated financial performance, management’s plans and objectives for future operations, business prospects, outcome of regulatory proceedings, market conditions, and other matters. Any forward-looking statement made in this presentation speaks only as of the date on which it is made. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future developments or otherwise. Forward-looking statements can be identified by various words such as “expects,” “intends,” “will,” “anticipates,” “believes,” “confident,” “continue,” “propose,” “seeks,” “could,” “may,” “should,” “estimates,” “forecasts,” “might,” “goals,” “objectives,” “targets,” “planned,” “projects,” and similar expressions. These forward-looking statements are based on management’s current beliefs and assumptions and on information currently available to management. Rackspace Technology cautions that these statements are subject to risks and uncertainties, many of which are outside of our control, and could cause future events or results to be materially different from those stated or implied in this document, including among others, risk factors that are described in Rackspace Technology, Inc.’s Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and other filings with the Securities and Exchange Commission, including the sections entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained therein.
Non-GAAP Financial Measures
This press release includes several non-GAAP financial measures such as constant currency revenue, Non-GAAP Gross Profit, Non-GAAP Net Income (Loss), Non-GAAP Operating Profit, Adjusted EBITDA and Non-GAAP Earnings (Loss) Per Share. These non-GAAP financial measures exclude the impact of certain costs, losses and gains that are required to be included in our profit and loss measures under GAAP. Although we believe these measures are useful to investors and analysts for the same reasons they are useful to management, as described in the accompanying pages, these measures are not a substitute for, or superior to, GAAP financial measures or disclosures. Other companies may calculate similarly-titled non-GAAP measures differently, limiting their usefulness as comparative measures. We have reconciled each of these non-GAAP measures to the applicable most comparable GAAP measure in the accompanying pages.
IR Contact
Sagar Hebbar
Rackspace Technology Investor Relations
[email protected]
PR Contact
Natalie Silva
Rackspace Technology Corporate Communications
[email protected]
RACKSPACE TECHNOLOGY, INC.
CONSOLIDATED RESULTS OF OPERATIONS
(Unaudited)
NM = not meaningful.
RACKSPACE TECHNOLOGY, INC.
CONSOLIDATED RESULTS OF OPERATIONS
(Unaudited)
NM = not meaningful.
RACKSPACE TECHNOLOGY, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
2022 June 30,
2023ASSETS Current assets: Cash and cash equivalents $228.4 $159.9 Accounts receivable, net allowance for credit losses and accrued customer credits of $24.6 and $22.9, respectively 622.2 543.8 Prepaid expenses 97.3 90.0 Other current assets 125.3 119.8 Total current assets 1,073.2 913.5 Property, equipment and software, net 628.3 641.4 Goodwill, net 2,155.1 1,617.5 Intangible assets, net 1,236.0 1,155.0 Operating right-of-use assets 138.0 137.8 Other non-current assets 226.1 199.3 Total assets $5,456.7 $4,664.5 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued expenses $447.3 $397.0 Accrued compensation and benefits 95.3 72.4 Deferred revenue 80.9 73.5 Debt 23.0 23.0 Accrued interest 36.3 22.0 Operating lease liabilities 60.0 67.5 Finance lease liabilities 61.7 67.1 Financing obligations 16.7 17.8 Other current liabilities 35.3 36.0 Total current liabilities 856.5 776.3 Non-current liabilities: Debt 3,295.4 3,174.4 Operating lease liabilities 84.8 88.6 Finance lease liabilities 310.5 332.7 Financing obligations 47.6 47.9 Deferred income taxes 126.7 113.0 Other non-current liabilities 105.7 99.7 Total liabilities 4,827.2 4,632.6 Commitments and Contingencies Stockholders' equity: Preferred stock, $0.01 par value per share: 5.0 shares authorized; no shares issued or outstanding — — Common stock, $0.01 par value per share: 1,495.0 shares authorized; 215.7 and 218.8 shares issued; 212.6 and 215.7 shares outstanding, respectively 2.2 2.2 Additional paid-in capital 2,573.3 2,607.4 Accumulated other comprehensive income 71.4 78.9 Accumulated deficit (1,986.4) (2,625.6)Treasury stock, at cost; 3.1 shares held (31.0) (31.0)Total stockholders' equity 629.5 31.9 Total liabilities and stockholders' equity $5,456.7 $4,664.5
RACKSPACE TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
SEGMENT DATA
(In millions, except %) Three Months Ended June 30, % ChangeRevenue by segment: 2022 2023 Actual ConstantCurrency (a)Public Cloud $422.1 $434.9 3.0% 3.1%Private Cloud 350.1 311.4 (11.1)% (10.8)%Total consolidated revenue $772.2 $746.3 (3.4)% (3.2)%
2022
2023 Actual Constant
Currency(a)Public Cloud $839.1 $879.5 4.8% 5.2%Private Cloud 708.6 625.5 (11.7)% (10.8)%Total consolidated revenue $1,547.7 $1,505.0 (2.8)% (2.1)%
Segment
Revenue Amount % of
Segment
Revenue Amount % ChangePublic Cloud$29.9 7.1% $17.0 3.9% $(12.9) (43.1)%Private Cloud 132.7 37.9% 86.8 27.9% (45.9) (34.6)%Total consolidated segment operating profit 162.6 103.8 (58.8) (36.2)%Corporate functions (b) (64.1) (64.8) (0.7) 1.1%Non-GAAP Operating Profit (c)$98.5 $39.0 $(59.5) (60.4)%
Segment
Revenue Amount % of
Segment
Revenue Amount % ChangePublic Cloud$64.4 7.7% $41.5 4.7% $(22.9) (35.6)%Private Cloud 269.5 38.0% 179.7 28.7% (89.8) (33.3)%Total consolidated segment operating profit 333.9 221.2 (112.7) (33.8)%Corporate functions (b) (123.3) (131.7) (8.4) 6.8%Non-GAAP Operating Profit (c)$210.6 $89.5 $(121.1) (57.5)%
NON-GAAP FINANCIAL MEASURES
Constant Currency Revenue
We use constant currency revenue as an additional metric for understanding and assessing our growth excluding the effect of foreign currency rate fluctuations on our international business operations. Constant currency information compares results between periods as if exchange rates had remained constant period over period and is calculated by translating the non-U.S. dollar income statement balances for the most current period to U.S. dollars using the average exchange rate from the comparative period rather than the actual exchange rates in effect during the respective period. We also believe this is an important metric to help investors evaluate our performance in comparison to prior periods.
Three Months Ended June 30, 2022 Three Months Ended June 30, 2023 % Change(In millions, except %) Revenue Revenue ForeignCurrency
Translation (a) Revenue in
Constant
Currency Actual Constant
CurrencyPublic Cloud $422.1 $434.9 $0.5 $435.4 3.0% 3.1%Private Cloud 350.1 311.4 0.7 312.1 (11.1)% (10.8)%Total $772.2 $746.3 $1.2 $747.5 (3.4)% (3.2)%
Currency
Translation(a) Revenue in
Constant
Currency Actual Constant
CurrencyPublic Cloud $839.1 $879.5 $3.2 $882.7 4.8% 5.2%Private Cloud 708.6 625.5 6.5 632.0 (11.7)% (10.8)%Total $1,547.7 $1,505.0 $9.7 $1,514.7 (2.8)% (2.1)%
Non-GAAP Gross Profit
We present Non-GAAP Gross Profit because we believe the measure is useful in analyzing trends in our underlying, recurring gross margins. We define Non-GAAP Gross Profit as gross profit, adjusted to exclude the impact of share-based compensation expense and other non-recurring or unusual compensation items, purchase accounting-related effects, certain business transformation-related costs, and costs related to the Hosted Exchange incident.
Three Months Ended June 30, Six Months Ended June 30,(In millions) 2022 2023 2022 2023Gross profit$224.0 $153.1 $450.0 $322.7Share-based compensation expense 3.4 2.6 6.2 5.4Other compensation expense (a) 0.4 1.4 1.2 2.1Purchase accounting impact on expense (b) 0.8 0.7 1.5 1.3Restructuring and transformation expenses (c) 3.1 5.1 8.4 9.8Hosted Exchange incident expenses — — — 0.3Non-GAAP Gross Profit$231.7 $162.9 $467.3 $341.6Non-GAAP Net Income (Loss), Non-GAAP Operating Profit and Adjusted EBITDA
We present Non-GAAP Net Income (Loss), Non-GAAP Operating Profit and Adjusted EBITDA because they are a basis upon which management assesses our performance and we believe they are useful to evaluating our financial performance. We believe that excluding items from net income that may not be indicative of, or are unrelated to, our core operating results, and that may vary in frequency or magnitude, enhances the comparability of our results and provides a better baseline for analyzing trends in our business.
We define Non-GAAP Net Income (Loss) as net income (loss) adjusted to exclude the impact of non-cash charges for share-based compensation, special bonuses and other compensation expense, transaction-related costs and adjustments, restructuring and transformation charges, costs related to the Hosted Exchange incident, the amortization of acquired intangible assets, goodwill and asset impairment charges, costs related to the closure of a UK office, and certain other non-operating, non-recurring or non-core gains and losses, as well as the tax effects of these non-GAAP adjustments.
We define Non-GAAP Operating Profit as income (loss) from operations adjusted to exclude the impact of non-cash charges for share-based compensation, special bonuses and other compensation expense, transaction-related costs and adjustments, restructuring and transformation charges, costs related to the Hosted Exchange incident, the amortization of acquired intangible assets, goodwill and asset impairment charges, costs related to the closure of a UK office, and certain other non-operating, non-recurring or non-core gains and losses.
We define Adjusted EBITDA as net income (loss) adjusted to exclude the impact of non-cash charges for share-based compensation, special bonuses and other compensation expense, transaction-related costs and adjustments, restructuring and transformation charges, costs related to the Hosted Exchange incident, costs related to the closure of a UK office, certain other non-operating, non-recurring or non-core gains and losses, interest expense, income taxes, depreciation and amortization, and goodwill and asset impairment charges.
Non-GAAP Operating Profit and Adjusted EBITDA are management's principal metrics for measuring our underlying financial performance. Non-GAAP Operating Profit and Adjusted EBITDA, along with other quantitative and qualitative information, are also the principal financial measures used by management and our board of directors in determining performance-based compensation for our management and key employees.
These non-GAAP measures are not intended to imply that we would have generated higher income or avoided net losses if the November 2016 merger and the subsequent transactions and initiatives had not occurred. In the future we may incur expenses or charges such as those added back to calculate Non-GAAP Net Income (Loss), Non-GAAP Operating Profit or Adjusted EBITDA. Our presentation of Non-GAAP Net Income (Loss), Non-GAAP Operating Profit and Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by these items. Other companies, including our peer companies, may calculate similarly-titled measures in a different manner from us, and therefore, our non-GAAP measures may not be comparable to similarly-titled measures of other companies. Investors are cautioned against using these measures to the exclusion of our results in accordance with GAAP.
Net loss reconciliation to Non-GAAP Net Income (Loss)
Three Months Ended June 30, Six Months Ended June 30,(In millions) 2022 2023 2022 2023 Net loss$(40.6) $(27.2) $(79.1) $(639.2)Share-based compensation expense 23.1 19.5 40.1 34.7 Special bonuses and other compensation expense (a) 2.4 4.2 5.8 6.4 Transaction-related adjustments, net (b) 1.9 1.2 7.2 2.5 Restructuring and transformation expenses (c) 24.9 23.1 48.2 48.7 Hosted Exchange incident expenses — 1.7 — 4.9 Impairment of goodwill — — — 543.1 UK office closure (d) — 12.1 — 12.1 Net (gain) loss on divestiture and investments (e) 0.2 (0.1) 0.3 (0.2)Gain on debt extinguishment (f) — (94.9) — (107.7)Other (income) expense, net (g) 5.9 (0.2) 9.5 (2.3)Amortization of intangible assets (h) 42.2 41.0 84.4 81.9 Tax effect of non-GAAP adjustments (i) (24.5) 6.1 (35.0) (3.1)Non-GAAP Net Income (Loss)$35.5 $(13.5) $81.4 $(18.2)Income (loss) from operations reconciliation to Non-GAAP Operating Profit
Three Months Ended June 30, Six Months Ended June 30,(In millions) 2022 2023 2022 2023 Income (loss) from operations$4.0 $(63.8) $24.9 $(644.8)Share-based compensation expense 23.1 19.5 40.1 34.7 Special bonuses and other compensation expense (a) 2.4 4.2 5.8 6.4 Transaction-related adjustments, net (b) 1.9 1.2 7.2 2.5 Restructuring and transformation expenses (c) 24.9 23.1 48.2 48.7 Hosted Exchange incident expenses — 1.7 — 4.9 Impairment of goodwill — — — 543.1 Amortization of intangible assets (h) 42.2 41.0 84.4 81.9 UK office closure (d) — 12.1 — 12.1 Non-GAAP Operating Profit$98.5 $39.0 $210.6 $89.5Net loss reconciliation to Adjusted EBITDA
Three Months Ended June 30, Six Months Ended June 30,(In millions) 2022 2023 2022 2023 Net loss$(40.6) $(27.2) $(79.1) $(639.2)Share-based compensation expense 23.1 19.5 40.1 34.7 Special bonuses and other compensation expense (a) 2.4 4.2 5.8 6.4 Transaction-related adjustments, net (b) 1.9 1.2 7.2 2.5 Restructuring and transformation expenses (c) 24.9 23.1 48.2 48.7 Hosted Exchange incident expenses — 1.7 — 4.9 Impairment of goodwill — — — 543.1 UK office closure (d) — 12.1 — 12.1 Net (gain) loss on divestiture and investments (e) 0.2 (0.1) 0.3 (0.2)Gain on debt extinguishment (f) — (94.9) — (107.7)Other (income) expense, net (g) 5.9 (0.2) 9.5 (2.3)Interest expense 50.5 57.3 100.6 114.2 Provision (benefit) for income taxes (12.0) 1.3 (6.4) (9.6)Depreciation and amortization (j) 98.1 95.5 199.5 189.1 Adjusted EBITDA$154.4 $93.5 $325.7 $196.7Non-GAAP Earnings (Loss) Per Share
We define Non-GAAP Earnings (Loss) Per Share as Non-GAAP Net Income (Loss) divided by our GAAP weighted average number of shares outstanding for the period on a diluted basis and further adjusted for the weighted average number of shares associated with securities which are anti-dilutive to GAAP loss per share but dilutive to Non-GAAP Earnings (Loss) Per Share. Management uses Non-GAAP Earnings (Loss) Per Share to evaluate the performance of our business on a comparable basis from period to period, including by adjusting for the impact of the issuance of shares that would be dilutive to Non-GAAP Earnings (Loss) Per Share.
Three Months Ended June 30, Six Months Ended June 30,(In millions, except per share amounts) 2022 2023 2022 2023 Net loss attributable to common stockholders$(40.6) $(27.2) $(79.1) $(639.2)Non-GAAP Net Income (Loss)$35.5 $(13.5) $81.4 $(18.2) Weighted average number of shares - Diluted 209.5 215.1 210.5 214.2 Effect of dilutive securities (a) 0.4 1.2 0.7 1.4 Non-GAAP weighted average number of shares - Diluted 209.9 216.3 211.2 215.6 Net loss per share - Diluted$(0.19) $(0.13) $(0.38) $(2.98)Per share impacts of adjustments to net loss (b) 0.36 0.06 0.76 2.90 Per share impacts of shares dilutive after adjustments to net loss (a) 0.00 0.01 0.01 0.00 Non-GAAP Earnings (Loss) Per Share$0.17 $(0.06) $0.39 $(0.08)