Sunday, October 23, 2011

Rackspace to Announce Earnings on Monday, November 7 (Charts) *Financial Performance Review* RAX

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Rackspace (RAX) will report Q3 2011 financial results on Monday, November 7

Rackspace (RAX) to Announce Earnings

Rackspace will report calendar Q3 2011 financial results on Monday, November 7, after market close. The conference call will be at 4:30 p.m. ET.

Rackspace financial performance charts for prior quarters have been posted on the Rackspace Financial Performance page and will be updated for this next quarterly report. The charts are also lower in this post.

Rackspace Future and Past Financial Performance

Earnings per Share
Yahoo Finance Analysts Estimates: $0.14 avg, $0.11 low, $0.15 high, 19 analysts
Prior Quarter: $0.13
Prior Year: $0.09
Rackspace Outlook: not provided

Total Revenues
Yahoo Finance Analysts Estimates: $261.63M avg, $256.58M low, $265.00M high, 18 analysts
Prior Quarter: $247.23M
Prior Year: $199.71M
Rackspace Outlook: not provided

Prior Calendar Q2 2011 Financial Results
When Rackspace reports calendar Q3  2011, the 3 months ended September, financial results on November 7, Rackspace is expected to meet or beat various prior quarterly results. These financial results are charted on the Rackspace Financial Performance page and lower in this post. These prior quarterly financial results were:
Total Revenues $247.23 million
Operating Income $28.65 million
Net Income $17.56 million
Earnings per Share $0.13
Cash Flow per Share $0.60
Gross Profit Margin 70.05%
Operating Income Margin 11.59%
Net Income Margin 7.10%

Overall, Q3 2011 is expected to exceed both prior Q2 2011 and prior year Q3 2010 financial results. For Q3 2011, Rackspace should beat on Total Revenues, Operating Income, Net Income, Earnings per Share, and probably on Cash Flow per Share. Rackspace should meet or be close on Gross Margin, Operating Income Margin, and Net Income Margin. The detailed quarter by quarter charts are on the Rackspace Financial Performance page and below.

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

Rackspace Summary Q2 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 quarterly revenues 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.

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