Osprey Flyer: Rackspace

Showing posts with label Rackspace. Show all posts

Wednesday, February 27, 2013

Rackspace Acquires ObjectRocket

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Rackspace reported QE December 2012 financial results on February 12

Rackspace Acquires ObjectRocket to Help Customers Scale MongoDB in the Cloud

Acquisition to Provide Open Cloud Customers with NoSQL Database as a Service Offering That’s Significantly Faster Than Leading Competitors

SAN ANTONIO -- (BUSINESS WIRE) -- Feb. 27, 2013 -- Today, Rackspace® Hosting (NYSE: RAX), the open cloud company, announced it has entered into a definitive agreement to acquire ObjectRocket, a MongoDB database as a service (DBaaS) provider. With ObjectRocket’s open source-based MongoDB solution, Rackspace will broaden its OpenStack-based open cloud platform to offer customers a NoSQL DBaaS. The ObjectRocket offering also immediately expands Rackspace’s capability to help customers shoulder big data in the cloud for today’s most demanding applications. The acquisition will close today.

According to a report from The 451 Group, “NoSQL software revenue is expected to grow at a CAGR of 82 percent to reach $215 million by 2015.” With the acquisition of ObjectRocket, Rackspace will establish a strong presence within the high growth, NoSQL database market. The ObjectRocket offering will be available in early March for Rackspace customers in its Chicago facility and will soon be deeply integrated across Rackspace's Open Cloud portfolio. ObjectRocket also leverages AWS Direct Connect to provide low latency and free bandwidth to AWS customers and will continue to be sold as a standalone service.

“Databases are the core of any application and expertise in the most popular database technologies will be critical to us delivering Fanatical Support® in the open cloud,” said Pat Matthews, senior vice president of corporate development at Rackspace. “As we look to expand our open cloud database offering into the MongoDB world, we are really excited to work with the entrepreneurs and engineers at ObjectRocket.”

Read more at Rackspace.

About Rackspace Hosting

Rackspace Hosting (NYSE: RAX) is the open cloud company, delivering open technologies and powering more than 205,000 customers worldwide. Rackspace provides its renowned Fanatical Support® across a broad portfolio of IT products, including Public Cloud, Private Cloud, Hybrid Hosting and Dedicated Hosting. 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 “2011 Magic Quadrant for Managed Hosting.” Rackspace is headquartered in San Antonio with offices and data centers around the world. For more information, visit www.rackspace.com.

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Friday, February 22, 2013

Rackspace Lowers Open Cloud Pricing

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Rackspace reported QE December 2012 financial results on February 12

Rackspace Lowers Pricing on its Open Cloud

Open Cloud Leader Introduces Tiered Pricing and Reduces Bandwidth Charges by 33%

SAN ANTONIO -- (BUSINESS WIRE) -- Feb. 22, 2013-- Rackspace Hosting (NYSE: RAX), the open cloud company, today announced that it is lowering the price for cloud bandwidth and content delivery network (CDN) services by 33 percent. The company also announced that it is implementing tiered pricing for its open cloud product portfolio, starting with Cloud Files, its object storage service. The new pricing changes will take place over the next several weeks, beginning on February 22nd with tiered pricing for Cloud Files.

Rackspace’s customers deploying bandwidth-intensive workloads serving large amounts of content (which include video streaming, mobile and applications that require fast content delivery to end users) will benefit from the lower price of bandwidth, including CDN bandwidth. The price will change from $0.18 to $0.12 per GB.

In addition to the price reduction for bandwidth and CDN bandwidth, Rackspace is introducing a tiered pricing structure. The first product to feature tiered pricing is Cloud Files object storage. The volume discounts range from $0.10 per GB per month for the first 1TB, decreasing to $0.075 per GB per month and even lower for storage amounts over 1024 TB. Rackspace will roll out tiered pricing for additional products throughout 2013. For more details on the bandwidth price reduction and the tiered pricing structure, please visit: http://www.rackspace.com/blog/lower-open-cloud-pricing/.

“The Rackspace Open Cloud is built upon a simple pricing model with no hidden costs or extra charges,” said John Engates, Chief Technology Officer at Rackspace. “This simple and straightforward pricing approach is a key part of how we help customers take advantage of the real value of the Rackspace Open Cloud, particularly for the next generation of bandwidth and content-centric web applications, which must deliver quality user experiences on a mobile and global basis.”

Rackspace aims to make budgeting easier for mid-market and enterprise customers through simple pricing, avoiding charging customers for “extras” that are difficult to predict or estimate. For example, Rackspace does not charge for I/O requests on its Cloud Block Storage product or for API requests on its Cloud Files object storage product.

Rackspace aims to make budgeting easier for mid-market and enterprise customers through simple pricing, avoiding charging customers for “extras” that are difficult to predict or estimate. For example, Rackspace does not charge for I/O requests on its Cloud Block Storage product or for API requests on its Cloud Files object storage product.

About Rackspace Hosting

Rackspace Hosting (NYSE: RAX) is the open cloud company, delivering open technologies and powering more than 205,000 customers worldwide. Rackspace provides its renowned Fanatical Support® across a broad portfolio of IT products, including Public Cloud, Private Cloud, Hybrid Hosting and Dedicated Hosting. 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 “2011 Magic Quadrant for Managed Hosting.” Rackspace is headquartered in San Antonio with offices and data centers around the world. For more information, visit www.rackspace.com.

Rackspace Lowers Pricing on its Open Cloud

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Tuesday, February 19, 2013

Rackspace Expands Open Cloud Computing in UK

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Rackspace reported QE December 2012 financial results on February 12

Progressive Approach to Open Cloud Computing Drives Rackspace UK Expansion

Major UK datacenter growth extends Rackspace open cloud computing platform

LONDON -- (BUSINESS WIRE) -- Feb. 19, 2013 -- Rackspace® Hosting (NYSE: RAX) is cementing its position as the open cloud company by working with Digital Realty Trust to bring a bigger UK datacentre facility online to serve an expanding European customer base.

“We have hired an additional 300 UK ‘Rackers’ in 2012 and increased our total server count by more than 10,000 over that same past year period,” said Taylor Rhodes, Managing Director, International at Rackspace. “Our customers are aligning their IT functions to take advantage of the open cloud and I am resolutely pleased to be able to move forward with an expanded datacentre. The age of the open cloud has arrived and our market success and subsequent expansion is testimony to that fact.”

This energy-efficient datacentre expansion facilitates Rackspace Hosting’s leadership position as an open cloud company, delivering open technologies worldwide. January 2013 saw an agreement signed to build up to 10-megawatts of UK datacenter space with a strategic construction plan designed to bring a total of five “data halls” online in stages.

The UK expansion of Rackspace’s open cloud footprint is based upon leasing “wholesale” datacentre space, as opposed to taking on the task of constructing its own facility premises. Rackspace has followed a similar approach to drive the wider development of its premises in Virginia, Chicago and Dallas in the USA as well as in Sydney, Australia.

Rackspace provides its renowned Fanatical Support® across a broad portfolio of open standards based IT products, including Public Cloud, Private Cloud, Hybrid Hosting and Dedicated Hosting. The company’s open cloud ethos and methodology centres around customer choice, flexibility and freedom from vendor lock in.

About Rackspace Hosting

Rackspace Hosting (NYSE: 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 and was featured on Fortune's list of 100 Best Companies to Work For. Rackspace was positioned in the Leaders Quadrant by Gartner Inc. in the “2011 Magic Quadrant for Managed Hosting.” Rackspace is headquartered in San Antonio with offices and data centers around the world. For more information, visit www.rackspace.com.

Progressive Approach to Open Cloud Computing Drives Rackspace UK Expansion

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Wednesday, February 13, 2013

Rackspace Earnings Disappoint

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Rackspace reported QE December 2012 financial results on February 12

Rackspace Earnings Disappoint On Record Results

Open cloud provider and innovator Rackspace (RAX) reported a record quarter for total revenues ($352.9 million), operating income ($49.6 million), net income ($29.9 million), GAAP earnings per share ($0.21), and cash flow from operations per share ($0.85) for the quarter ending December 2012. Though the best financial results ever reported by CEO Lanham Napier, this was considered a miss of $2.5 million on revenues ($355.4 million expected) and a miss of $0.01 on GAAP earnings per share ($0.22 expected). After reviewing the quarterly report, I consider this a mild disappointment at most. Read more and see the charts at Seeking Alpha.

About Rackspace Hosting

Rackspace Hosting (NYSE: 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 and was featured on Fortune's list of 100 Best Companies to Work For. Rackspace was positioned in the Leaders Quadrant by Gartner Inc. in the “2011 Magic Quadrant for Managed Hosting.” Rackspace is headquartered in San Antonio with offices and data centers around the world. For more information, visit www.rackspace.com.

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Monday, February 11, 2013

Rackspace Earnings Preview: Higher EPS Expected

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Rackspace reports QE December 2012 financial results on Tuesday, February 12, after market close

Rackspace Preview: Higher Earnings Expected

Open cloud provider Rackspace (RAX) reports quarter ending December 2012 earnings on Tuesday, February 12, after market close. CEO Lanham Napier is expected to deliver investors another record quarter of revenues and earnings per share. However, the year over year growth rates for both are slowing. Read more and see charts at Seeking Alpha.

Addendum: I estimate Rackspace GAAP earnings per share with my own model, which is very conservative and for “ballpark” purposes only. For the quarter ending December 2012, I estimate EPS at $0.20. Rackspace consistently beats my projections which I consider a worst case scenario. I also estimate, and want to see, at least a net margin of 8% this next earnings announcement to maintain the profitability investors expect. Read more and see charts at Seeking Alpha

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Tuesday, August 14, 2012

Rackspace Earnings Review: Solid Quarter!

Rackspace reported QE June 2012 financial results on August 7

This was a solid quarter for Rackspace, reporting record quarterly revenues, operating income, net income, and gross margin. Earnings per share of $0.18 matched the QE 12-31-11 all-time high. Cash flow per share, operating margin, and net margin were second only to the record QE 12-31-11.

Both net revenues and earnings per share met the analysts' estimates. The next 2 quarters, the QE 9-30-12 and the QE 12-31-12, are expected to push the bar even higher to record revenues, net income, and earnings per share. Long-term growth, the YoY increase, is slowing but continues very strong, for both revenues and earnings per share. See chart further below.

Financial Result, QoQ Change, YoY Change
Total Assets: $1.14 billion, +5%, +28%
Net Revenues: $318.99 million, +6%, +29%
Net Income: $25.13 million, +8%, +43%
Earnings per Share: $0.18, +6%, +38%

“At the halfway point in the year, we have made a lot of progress on our plans to broaden our product and services portfolio while simultaneously managing a rapidly growing business. Keep your eyes open for more product announcements in the coming weeks and we look forward to updating you on our progress in November,” said Karl Pichler, chief financial officer.

“Last week we achieved a significant milestone in our 2012 plan by launching Cloud Servers powered by OpenStack. This new offering embeds the latest version of the OpenStack software to combine the on-demand scalability of modern cloud infrastructure with the flexibility benefits of open source technology. This product launch represents the culmination of nearly two years of hard work by Rackers throughout the organization, and it will serve as the core of our new Open Cloud platform,” said Lanham Napier, chief executive officer.

$RAX $XLK

Thursday, May 17, 2012

Rackspace Earnings Disappoint, Growth Slows

Rackspace ($RAX) reported Q1 2012 financial results on May 7.

Rackspace could not match the prior record-breaking Q4 2011, despite an adequate increase in revenues and surprising increase in gross margin. Both are all-time highs. Even though Q1 2012 is arguably the second-best quarter ever, the small decrease in net income (-$1.87M) and earnings per share (-$0.01) QoQ is the first since before Q3 2009. The streak has been broken. The year over year increase in earnings per share was strong (+70%).

CEO A. Lanham Napier delivered the revenues and gross margin, but performance weakened at the operating margin level. Operating expenses hit a 4-quarter high of 59.25% of total revenues. The income statement performance slowed at that point and earnings per share took the small hit of -5.56% QoQ. Napier said, "While we’ve made a lot of progress so far in 2012, we have much more to do. We are executing through a very important platform shift to our next generation cloud, and we need to make this experience incredible for our customers. Massive technology disruptions like this create once in a lifetime opportunities for companies to seize the moment, take the initiative, and lead the revolution. Our goal is to lead the revolution".

Historically this operating expense ratio does peak annually in Q1 and 2012 was lower than the prior 2 years. So there is a positive aspect. Performance then improves through the remainder of the year. Therefore, expectations are for better, and record-setting, quarters ahead.

Rackspace Income Statement Q1 2012 Rackspace reported record total revenues of $301.36M, net income of $23.18M, and earnings per share of $0.17. From the prior quarter Q4 2011, these were +6%, -7%, and -6%, respectively. From the prior year quarter Q1 2011, these were +31%, +68%, and +70%, respectively. Gross margin increased QoQ and YoY to 71.05%, a multi-year high. Both the operating margin and net margin dipped QoQ but increased YoY to 12.31% and 7.695, respectively. Cash flow from operations dropped to a 7-quarter low of $0.499. The operating expense ratio of 58.75% is a 4-quarter high.

Rackspace Balance Sheet Q1 2012 Rackspace's total assets reached a record $1.09 billion. The capital to assets ratio rose to 61%, which is a multi-year, if not all-time, high. The current ratio is a low 27% but improving. Working capital has been an issue in the past. Current working capital rebounded to a 6-quarter high of $55M. The debt ratio of 13% is reasonable and trending downwards. The return on assets is low for a technology company, but has consistently grown to the current multi-year peak of +8.92%.

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

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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Tuesday, February 7, 2012

Rackspace Earnings Preview: Record Quarter Expected

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Update 1 on 2-5-12

Rackspace (RAX) Quarterly Earnings Announcement

Rackspace will report Q4 2011 financial results on Monday, February 13, after market close. The conference call will be at 1:30 p.m. PT.

Rackspace Future and Past Financial Performance
Estimated Q4 2011 Earnings per Share (GAAP) Yahoo Finance Analysts Estimates: $0.15 avg, $0.13 low, $0.17 high, 17 analysts
Prior Quarter: $0.14
Prior Year: $0.10
Rackspace Outlook: none

Prior Q3 2011 Financial Results (GAAP) When Rackspace reports Q4 2011, the 3 months ended December, financial results on February 13, Rackspace is expected to meet, beat, or miss various prior quarterly results. These prior quarterly GAAP financial results were:
Total Revenues $264.57M
Operating Income $31.07M
Net Income $19.98M
Earnings per Share $0.14
Rackspace Outlook: Total Revenues minimum $258.20M
Gross Margin 68.84%
Operating Margin 11.74%
Net Margin 7.55%

Summary (GAAP) Overall, Rackspace is expected to beat QoQ and YoY for Earnings per Share. Therefore, Rackspace is also expected to beat QoQ and YoY for Total Revenues, Operating Income, and Net Income. Cash Flow per share should increase QoQ but may decrease YoY. Rackspace should at least meet QoQ and beat YoY for gross, operating, and net margins. In short, this is expected to be a record quarter. The prior quarterly review is below.

Rackspace Reports Record Q3 Earnings!: Revenues, Net Income, EPS Up

Rackspace Summary Q3 2011 Total revenues, operating income, net income, and earnings per share all reached another record high. Financial performance continues outstanding. Cash flow per share from operations dropped, but is not an immediate concern. Overall financial position is good, but working capital is negative again, mostly due to leasing of data centers and servers. This is a liquidity issue not a profitability issue.

Rackspace Income Statement Q3 2011 Rackspace reported record total revenues of $264.57M, record net income of $19.98M, and record earnings per share of $0.14. From the prior quarter Q2 2011, total revenues were up +7.01%, net income up +13.79%, and earnings per share up +7.69%. From the prior year quarter Q3 2010, these were up +32.48%, up +69.21%, and up +55.56%, respectively. Gross margin dipped QoQ to 68.84%, operating margin was a multi-year high of 11.74%, and net margin was a multi-year high of 7.55%. Cash flow from operations dipped to $0.51 per share mostly due to a large increase in prepaid expenses and other current assets. The Operating Expense Ratio of 57.09% is a 4-quarter low.

Rackspace Balance Sheet Q3 2011 Rackspace's total assets increased +9.36% QoQ to a record $970.68M from the prior quarter of $887.58M. The capital to assets ratio is a respectable 56.77% and about the same for the past 3 quarters. The current ratio is an illiquid 23.41% and lack of working capital has been a problem for Rackspace 3 of the past 4 quarters. Current working capital (current assets less current liabilities) is a negative -$2.73 and was negative in the prior quarter Q2 2011 (-$3.53M). Rackspace continues with low working capital, due to ongoing leasing of data centers and servers plus an increase in prepaid expenses and other current assets. 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 +7.71%.

Rackspace Outlook 2011 Total revenues $1 billion, maintain margin profile

Rackspace Financial Performance by the Quarters

Rackspace Earnings Per Share Current Earnings per Share of $0.14 is a very strong +7.69% QoQ and +55.56% YoY. EPS has been flat 2 times, but never decreased, since Q3 2009 on the chart below.

Rackspace Cash Flow per Share Current Cash Flow per Share of $0.51 is a 4-quarter low. CFS dropped -$0.09 and -15.25% QoQ, and was up +$0.01 YoY. The largest contributors to this drop were an increase in Prepaid Expenses and Other Current Assets plus Excess Tax Benefits from Share-Based Compensation Arrangements.

Rackspace Total Revenues, Operating Income, and Net Income Current Total Revenues of $264.57M are a new all-time high, up +7.01% QoQ and +32.48% YoY, and have consistently grown. This is the 4th consecutive quarter above $200M. Current Operating Income of $31.07M are a new all-time high, up +8.44% QoQ. Current Net Income of $19.98M is also an all-time high, up +13.79% QoQ and +69.21% YoY.

Rackspace Gross Margin, Operating Margin, and Net Margin Current Gross Margin of 68.84% is a 4-quarter low and just above the historical average. Current Operating Margin of 11.74% is historically very strong and is a multi-year, if not all-time, high. This is the 5th consecutive quarter above 10%. Current Net Margin of 7.55% is historically very strong and 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 +7.71% 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 6.60%.

Rackspace Growth Rates YoY Total Revenues Growth YoY of +32.48% continues the high rate of increase. Current Earnings per Share Growth YoY of +55.56% also continues a strong growth rate. The TRG and EPSG chart averages are a very strong +28.55% and incredible +50.75%, respectively.

Rackspace Revenue Sources The trend is a decrease in Managed Hosting (now 80.85%) offset by an increase in Cloud (now 19.15%). The Managed Hosting and Cloud chart averages are 86.29% and 13.71%, respectively.

Rackspace Working Capital Current Negative Working Capital of -$2.73 million is the 2nd consecutive quarter and the 3rd quarter in the past 4 quarters such a condition has existed. This appears 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, has created a large, ongoing current liability (now $65.78M). This is a liquidity issue not a profitability issue. The Current Assets, Current Liabilities, and Working Capital chart averages are $207.71M, $185.20M, and $22.51M, respectively.

Rackspace Customers, Servers, Employees Current Customers of 161,422 have been steadily increasing and current Servers of 78,717 have also, but at a slower rate. Current Employees of 3.799 have increased at an even slower rate, which has consistently increased the Customers to Employees Ratio. This indicates increased efficiency.

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Monday, November 7, 2011

Rackspace Reports Record Q3 Earnings! (Financial Charts) Revenues, Net Income, EPS Up RAX

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Rackspace Hosting (RAX) reported Q3 2011 financial results on November 7, 2011

*Charts and commentary have been updated for Rackspace Q3 2011 financial results*

Rackspace Reports Record Q3 Earnings!: Revenues, Net Income, EPS Up

Rackspace Summary Q3 2011 Total revenues, operating income, net income, and earnings per share all reached another record high. Financial performance continues outstanding. Cash flow per share from operations dropped, but is not an immediate concern. Overall financial position is good, but working capital is negative again, mostly due to leasing of data centers and servers. This is a liquidity issue not a profitability issue.

Rackspace Income Statement Q3 2011 Rackspace reported record total revenues of $264.57M, record net income of $12.71M, and record earnings per share of $0.14. From the prior quarter Q2 2011, total revenues were up +7.01%, net income up +13.79%, and earnings per share up +7.69%. From the prior year quarter Q3 2010, these were up +32.48%, up +69.21%, and up +55.56%, respectively. Gross margin dipped QoQ to 68.84%, operating margin was a multi-year high of 11.74%, and net margin was a multi-year high of 7.55%. Cash flow from operations dipped to $0.51 per share mostly due to a large increase in prepaid expenses and other current assets. The Operating Expense Ratio (operating expenses divided by total revenues) of 57.09% is a 4-quarter low.

Rackspace Balance Sheet Q3 2011 Rackspace's total assets increased +9.36% QoQ to a record $970.68M from the prior quarter of $887.58M. The capital to assets ratio (total stockholders' equity divided by total assets) is a respectable 56.77% and about the same for the past 3 quarters. The current ratio (current assets divided by total assets) is an illiquid 23.41% and lack of working capital has been a problem for Rackspace 3 of the past 4 quarters. Current working capital (current assets less current liabilities) is a negative -$2.73 and was negative in the prior quarter Q2 2011 (-$3.53M). Rackspace continues with low working capital, due to ongoing leasing of data centers and servers plus an increase in prepaid expenses and other current assets. 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 +7.71%.

Rackspace Outlook Q4 2011 Rackspace did not provide quarterly guidance, but will provide annual guidance in February 2012.

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 $0.14 is a very strong +7.69% QoQ and +55.56% YoY. EPS has been flat 2 times, but never decreased, since Q3 2009 on the chart below. The EPS chart average is $0.09.

Rackspace Cash Flow per Share Below is a chart of cash flow from operations per share. Current Cash Flow per Share of $0.51 is a 4-quarter low. CFS dropped -$0.09 and -15.25% QoQ, and was up +$0.01 YoY. The largest contributors to this drop were an increase in Prepaid Expenses and Other Current Assets plus Excess Tax Benefits from Share-Based Compensation Arrangements. The CFS chart average is $0.49.

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 $264.57M are a new all-time high, up +7.01% QoQ and +32.48% YoY, and have consistently grown. This is the 4th consecutive quarter above $200M. Current Operating Income of $31.07M are a new all-time high, up +8.44% QoQ. Current Net Income of $19.98M is also an all-time high, up +13.79% QoQ and +69.21% YoY. The TR, OI, and NI chart averages are $206.03M, $21.35M, and $12.71M, respectively.

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 68.84% is a 4-quarter low and just above the historical average. Current Operating Margin of 11.74% is historically very strong and is a multi-year, if not all-time, high. This is the 5th consecutive quarter above 10%. Current Net Margin of 7.55% is historically very strong and is a multi-year, if not all-time, high. The GM, OM, and NM chart averages are 68.47%, 10.19%, and 6.04%, respectively.

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 +7.71% 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 6.60%.

Rackspace Growth Rates Below is a chart of the annual (YoY, Y/Y, annual change) growth rates for total revenues and earnings per share. Total Revenues Growth YoY of +32.48% continues the high rate of increase. Current Earnings per Share Growth YoY of +55.56% also continues a strong growth rate. The TRG and EPSG chart averages are a very strong +28.55% and incredible +50.75%, respectively.

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 80.85%) offset by an increase in Cloud (now 19.15%). The Managed Hosting and Cloud chart averages are 86.29% and 13.71%, respectively.

Rackspace Working Capital Below is a chart of working capital (current assets less current liabilities). Current Negative Working Capital of -$2.73 million is the 2nd consecutive quarter and the 3rd quarter in the past 4 quarters such a condition has existed. This appears 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, has created a large, ongoing current liability (now $65.78M). This is a liquidity issue not a profitability issue. The Current Assets, Current Liabilities, and Working Capital chart averages are $207.71M, $185.20M, and $22.51M, respectively.

Rackspace Customers, Servers, Employees Below is a chart of customers, servers, and employees by quarter. Current Customers of 161,422 have been steadily increasing and current Servers of 78,717 have also, but at a slower rate. Current Employees of 3.799 have increased at an even slower rate, which has consistently increased the Customers to Employees Ratio. This indicates increased efficiency. The chart averages are Customers (120,534), Servers (65,145), and Employees (3,201).

Rackspace Hosting Reports Third Quarter 2011 Results

SAN ANTONIO, November 7, 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 September 30, 2011.

Net revenue for the third quarter of 2011 was $265 million, up 7.0% from the previous quarter and 32.5% from the third quarter of 2010. Net revenue for the third quarter of 2011 was negatively impacted by currency exchange rates when compared to the second quarter of 2011 by $0.8 million and favorably impacted by currency exchange rates when compared to the third quarter of 2010 by $2.4 million.

Total server count increased to 78,717, up from 74,028 servers at the end of the previous quarter, and total customers increased to 161,422, up from 152,578 at the end of the previous quarter.

"In summary, we are very pleased with this quarter's results. We are focused on finishing the year on a strong note and will give you a more in depth look into our 2012 plans when we report our full year results in February," said Karl Pichler, chief financial officer.

Adjusted EBITDA for the quarter was $88 million, a 7.8% increase compared to the second quarter of 2011 and a 28.5% increase compared to the third quarter of 2010. The adjusted EBITDA margin for the quarter was 33.3% compared to 33.0% for the previous quarter and 34.3% for the third quarter of 2010. Adjusted EBITDA and adjusted EBITDA margin were negatively impacted by a non-cash charge of $2.5 million for the quarter relating to non-cash rent for data center operating leases.

Net income was $20 million for the quarter, up 13.8% from the previous quarter and 69.2% from the third quarter of 2010. Net income margin for the quarter was 7.6% compared to 7.1% for the previous quarter and 5.9% in the third quarter of 2010.

Cash flow from operating activities was $70 million for the third quarter of 2011. Capital expenditures were $94 million, including $54 million for purchases of customer gear, $17 million for data center build outs, $9 million for office build outs and $14 million for capitalized software and other projects. Adjusted free cash flow (1) for the quarter was $(5) million. At the end of the third quarter of 2011, cash and cash equivalents were $125 million. Debt obligations totaled $144 million, consisting of $143 million related to capital leases and $1 million related to current debt.

On a worldwide basis, Rackspace employed 3,799 Rackers as of September 30, 2011, up from 3,712 Rackers as of June 30, 2011 and 3,130 Rackers as of September 30, 2010.

"In the third quarter we improved upon the solid results that we delivered in the first and second quarters by continuing our strong pace of revenue growth while boosting margins and returns," 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 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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