Thursday, February 23, 2012

Rackspace Reports Record Quarter: Revenues, Income, EPS Growth Accelerate

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Rackspace Reports Record Quarter: Revenues, Income, EPS Growth Accelerate


Rackspace Summary Q4 2011 Total revenues, operating income, net income, earnings per share, and cash flow per share all reached a record high. Growth has accelerated. Financial performance continues outstanding. Overall financial position is good and total assets reached $1 billion. Working capital is positive, after being an issue earlier in 2011, mostly due to leasing of data centers and servers. This has been a liquidity issue not a profitability issue. “During the year we accelerated our revenue growth rate for the second year in a row and crossed one billion dollars in annual revenue, while simultaneously improving margins and returns. In short, we made tremendous progress towards our long-term goal of becoming the service leader in Cloud computing,” said Lanham Napier, CEO.

Rackspace Income Statement Q4 2011 Rackspace reported record total revenues of $283.26M, record net income of $25.05M, and record earnings per share of $0.18. From the prior quarter Q3 2011, total revenues were +7.06%, net income +25.35%, and earnings per share +28.57%. From the prior year quarter Q4 2011, these were +31.92%, +85.00%, and +80.00%, respectively. Gross margin increased QoQ and YoY to 70.75%, a multi-year high. Operating margin was a multi-year high of 14.04% and net margin was a multi-year high of 8.84%. Cash flow from operations was a record $0.76. The operating expense ratio of 56.71% is a multi-year low, reflecting an increase in revenues and cost containment.

Rackspace Balance Sheet Q4 2011 Rackspace's total assets increased +5.75% QoQ and +34.78% YoY to reach a record $1.03 billion. The capital to assets ratio is a respectable 58.40%, which is a multi-year high. The current ratio is a low 25.66% as working capital has been an issue in the past year. Current working capital rebounded to a positive +$25.62 million, after being negative 3 of the prior 4 quarters. The return on assets is low for a technology company, but has consistently grown to the current peak of +8.53%.

Rackspace Outlook 2012 None provided, may be provided in annual letter to stockholders this spring.

Rackspace Financial Performance by the Quarters Rackspace Earnings Per Share Current Earnings per Share of $0.18 is a record, +29% QoQ, and +80% YoY. EPS has been flat twice, but never decreased, since Q3 2009 on the chart below.

 

Rackspace Cash Flow per Share Current Cash Flow per Share of $0.76 is a record, +49% QoQ, and +37% YoY.

 

Rackspace Total Revenues, Operating Income, and Net Income Current Total Revenues of $283.26M are a new all-time high, +7% QoQ, +32% YoY, and have consistently grown. Current Operating Income of $39.66M is a new all-time high and +28% QoQ. Current Net Income of $25.05M is also an all-time high, +25% QoQ, and +85% YoY.

 

Rackspace Gross Margin, Operating Margin, and Net Margin Current Gross Margin of 70.75% is a multi-year, if not all-time, high. Current Operating Margin of 14.04% is a multi-year, if not all-time, high. This is the 6th consecutive quarter above 10%. Current Net Margin of 8.84% is a multi-year, if not all-time, high.

  

Rackspace Return on Assets Rackspace has a historically low ROA for a technology company, but the ROA is consistently increasing QoQ. Current Return on Assets of +8.53% continues the uptrend QoQ and is a multi-year, if not all-time high. This indicates assets are being more effectively deployed. The ROA chart average is 6.88%.

 

Rackspace Growth Rates YoY Total Revenues Growth YoY of +31.92% continues the high rate of increase. Current Earnings per Share Growth YoY of +80.00% also continues an exceptionally strong growth rate. The TRG and EPSG chart averages are a very strong +29.11% and incredible +55.63%, respectively.

 

Rackspace Revenue Sources The trend is a decrease in Dedicated Cloud (managed hosting, now 79.36%) offset by an increase in Private Cloud (now 20.64%). The Dedicated Cloud and Private Cloud chart averages are 85.60% and 14.40%, respectively.

 

Rackspace Working Capital Current Positive Working Capital of +$25.62 million is a reversal of negative working capital reported the prior 2 quarters and 3 of the prior 4 quarters. This appeared to be mostly the result of 1) an increase in accounts payable and other accrued expenses and 2) the ongoing leasing of data centers and servers (see next chart below). The leasing of data centers and servers, that is the current portion (due within 1 year) of obligations under capital leases, had created a large, ongoing current liability (now $66.03M). This has been a liquidity issue not a profitability issue.

 

Rackspace Customers, Servers, Employees Current Customers of 172,510 have been steadily increasing and current Servers of 79,805 have also, but at a slower rate. Current Employees of 4,040 have increased at an even slower rate, which has consistently increased the Customers to Employees Ratio. This indicates increased efficiency.

 

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