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Thursday, August 4, 2011

Rackspace Reports Record Q2 Earnings! (Financial Charts) *Total Revenues, Net Income, EPS Up* RAX

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Rackspace Hosting (RAX) reported Q2 2011 financial results on Thursday, August 4, 2011
*Charts and commentary have been updated for Rackspace Q2 June 2011 financial results*


Rackspace Reports Record Q2 Earnings!: Total Revenues, Net Income, EPS Up

Rackspace Summary Q1 2011 Revenues continue increasing and operating income and net income kept pace this quarter to all reach record highs. Financial performance is outstanding. Cash flow per share from operations continues strong. Overall financial position is good, but working capital is negative again. This is a liquidity issue not a profitability issue.

Rackspace Income Statement Q2 2011 Rackspace reported record total revenues of $247.23M, record net income of $17.56M, and record earnings per share of $0.13. From the prior quarter Q1 2011, total revenues were up +7%, net income up +27%, and earnings per share yo +30%. From the prior year quarter Q2 2010, these were up an impressive +32%, +57%, and +63%, respectively. Gross, operating, and net margins increased to 70.05%, 11.59%, and 7.10%, respectively. Cash flow from operations dipped to $0.60 per share mostly due to a large increase in Account Receivable. The Operating Expense Ratio (operating expenses divided by total revenues) of 58.46% is within the historical range.

Rackspace Balance Sheet Q2 2011 Rackspace's total assets increased +6.75% QoQ to a record $887.58M from the prior quarter of $831.41M. The capital to assets ratio (total stockholders' equity divided by total assets) is a respectable 57.67% and about the same for the past 3 quarters. The current ratio (current assets divided by total assets) is an illiquid 25.16% and lack of working capital has been a problem for Rackspace the past 3 quarters. Current working capital (current assets less current liabilities) is a negative -3.53M and was negative in the prior quarter Q4 2010 (-3.70M). Rackspace continues with low working capital. This is a liquidity issue, not a profitability issue. The return on assets is low for a technology company, but has consistently grown to the current peak of +7.16%


Rackspace Financial Performance by the Quarters (Charts)

Rackspace Earnings Per Share Below is a chart of quarterly earnings per share. Current Earnings per Share of $0.13 is a very strong +30% QoQ and amazing +63% YoY. EPS has been flat twice, but never decreased since Q3 2009 on the chart below.



Rackspace Cash Flow per Share Below is a chart of cash flow from operations per share. Current Cash Flow per Share of $0.60 is strong and almost double the Q3 2009 of $0.33, the beginning of the chart. Cash Flow did drop from the prior Q2 2011, but this was mostly the result of a large increase in Accounts Receivable.


Rackspace Total Revenues, Operating Income, and Net Income Below is a chart of quarterly total revenues, operating income, and net income. Current Total Revenues of $247.23M are a new all-time high, up +7% QoQ and +32% YoY, and have consistently grown. This is the 3rd consecutive quarter above $200M. Current Operating Income of $28.65M kept pace this quarter with total revenues and is an all-time high. Current Net Income of $17.56M also kept pace this quarter with total revenues and is an all-time high.


Rackspace Gross Margin, Operating Margin, and Net Margin Below is a chart of quarterly gross margin, operating margin, and net margin. Current Gross Margin of 70.05% continues very strong and stable plus is a multi-year, if not all-time, high. Current Operating Margin of 11.59% is historically very strong and is a multi-year, if not all-time, high. This is the 4th consecutive quarter above 10%. Current Net Margin of 7.10% is historically very strong and is a multi-year, if not all-time, high.


Rackspace Return on Assets Below is a chart of annual return on average assets per quarter. The total net income for the most recent 4 quarters is divided into average assets for the most recent 4 quarters to obtain a rolling annualized ROA, an annualized return on average assets for the 12 months (4 quarters) ended. Rackspace has a historically low ROA for a technology company, but the ROA is consistently increasing QoQ. Current Return on Assets of +7.16% continues the uptrend QoQ, which indicates assets are being more effectively deployed.


Rackspace Growth Rates Below is a chart of the quarterly (QoQ, Q/Q, quarterly change) growth rates for revenues and earnings per share. Total Revenues Growth QoQ of +7.49% continue the consistency of being above 7% growth for 3 consecutive quarters and have increased in every quarter on the chart, for 7 quarters, ranging from +4.38% to +7.52%. Earnings per Share Growth QoQ of +30% is a multi-quarter high and have not declined in the past 7 quarters, but have been flat twice (0.00% in Q1 2010 and Q1 2011). For the other 4 quarters, EPS growth has exceeded +10% and ranged from +11.11% to +30.00%.


Rackspace Revenue Sources Below is a chart of revenue sources as a percentage of total revenues. The trend is a decrease in Managed Hosting (now 83%) offset by an increase in Cloud (now 17%).


Rackspace Working Capital Below is a chart of working capital (current assets less current liabilities). Current Negative Working Capital of -$3.53 million is a drop from the the Positive Working Capital of prior Q1 2011 of $3.898 million. Rackspace also had Negative Working Capital at Q4 2010 of -$3.697 millionThis is a result mostly of a larger increase in Accounts Payable and Accrued Expenses plus Current Portions of Obligations Under Capital Leases than the increase in Accounts Receivable and other current assets. This is a liquidity issue not a profitability issue.




Rackspace Hosting Reports Second Quarter 2011 Results
For the quarter ended June 30, 2011:
* Net revenue of $247.2 million grew 32% year-over-year and 7.5% from Q1 2011
* Adjusted EBITDA of $81.6 million grew 31% year-over-year and 7.5% from Q1 2011
* Net income of $17.6 million grew 57% year-over-year and 27% from Q1 2011

SAN ANTONIO, August 4, 2011 (BUSINESS WIRE) - Rackspace(R) Hosting, Inc. (NYSE: RAX), the world's leading specialist in the hosting and cloud computing industry, announced financial results for the quarter ended June 30, 2011.
* Net revenue for the second quarter of 2011 was $247.2 million, up 7.5% from the previous quarter and 32.0% from the second quarter of 2010. Net revenue for the second quarter of 2011 was positively impacted by currency exchange rates when compared to the first quarter of 2011 by $1.1 million and the second quarter of 2010 by $5.1 million.
* Total server count increased to 74,028, up from 70,473 servers at the end of the previous quarter, and total customers increased to 152,578, up from 142,441 at the end of the previous quarter.
* "This past quarter we made good progress toward our goal of accelerating revenue growth while strengthening the business. While we still have lots to accomplish throughout the year, we remain on the right track to achieve our goals for 2011," said Karl Pichler, chief financial officer.
* Adjusted EBITDA for the quarter was $81.6 million, a 7.5% increase compared to the first quarter of 2011 and a 31% increase compared to the second quarter of 2010. The adjusted EBITDA margin for the quarter was 33.0% compared to 33.0% for the previous quarter and 33.2% for the second quarter of 2010. Adjusted EBITDA and adjusted EBITDA margin were negatively impacted by a non-cash charge of $2.8 million for the quarter relating to data center operating leases.
* Net income was $17.6 million for the quarter, up 27.1% from the previous quarter and 56.8% from the second quarter of 2010. Net income margin for the quarter was 7.1% compared to 6.0% for the previous quarter and 6.0% in the second quarter of 2010.
* Cash flow from operating activities was $79 million for the second quarter of 2011. Capital expenditures were $95 million, including $49 million for purchases of customer gear, $17 million for data center build outs, $14 million for office build outs and $15 million for capitalized software and other projects.
* Adjusted free cash flow for the quarter was $(18) million.
* At the end of the second quarter of 2011, cash and cash equivalents were $132 million. Debt obligations totaled $139 million, consisting of $137 million related to capital leases and $2 million related to current and non-current debt.
* On a worldwide basis, Rackspace employed 3,712 Rackers as of June 30, 2011, up from 3,492 Rackers as of March 31, 2011 and 3,002 Rackers as of June 30, 2010.
* "During the second quarter we grew faster and generated higher returns, while investing to help us become bigger and more profitable in the future," said Lanham Napier, president and chief executive officer.


About Rackspace Hosting


Rackspace Hosting is the service leader in cloud computing, and a founder of OpenStack, an open source cloud platform. The San Antonio-based company provides Fanatical Support(R) to its customers, across a portfolio of IT services, including Managed Hosting and Cloud Computing. Rackspace has been recognized by Bloomberg BusinessWeek as a Top 100 Performing Technology Company and was featured on Fortune's list of 100 Best Companies to Work For. The company was also positioned in the Leaders Quadrant by Gartner Inc. in the "2010 Magic Quadrant for Cloud Infrastructure as a Service and Web Hosting." For more information, visit http://www.rackspace.com/.


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