Rackspace Hosting Reports Second Quarter 2012 Results

For the quarter ended June 30, 2012:

  • Net revenue of $319 million grew 29% year-over-year
  • Adjusted EBITDA(1) of $112 million grew 37% year-over-year
  • Achieved adjusted EBITDA margin of 35.1%, up from 33.0% year-over-year
  • Net income of $25 million grew 43% year-over-year

SAN ANTONIO – August 7, 2012 – Rackspace® Hosting, Inc. (NYSE: RAX), the open cloud company, announced financial results for the quarter ended June 30, 2012.

Net revenue for the second quarter of 2012 was $319 million, up 5.9% from the previous quarter and 29% from the second quarter of 2011.  Net revenue for the second quarter of 2012 was negatively impacted by currency exchange rates when compared to the second quarter of 2011 by $2.3 million and positively impacted compared to the previous quarter by $0.6 million.

Total server count increased to 84,978 up from 82,438 servers at the end of the previous quarter, and total customers increased to 190,958, up from 180,866 at the end of the previous quarter.

“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.

Adjusted EBITDA for the quarter was $112 million, an 11.1% increase compared to the first quarter of 2012 and a 37% increase compared to the second quarter of 2011.  The adjusted EBITDA margin for the quarter was 35.1% compared to 33.4% in the previous quarter and 33.0% for the second quarter of 2011.

Consistent with prior periods, adjusted EBITDA and adjusted EBITDA margin were negatively impacted by a non-cash charge relating to data center operating leases.  During the second quarter of 2012, the non-cash data center lease charge was $2.1 million.

Net income was $25 million for the quarter, up 8.4% from the previous quarter and up 43% from the second quarter of 2011.  Net income margin for the quarter was 7.9% compared to 7.7% for the previous quarter and 7.1% in the second quarter of 2011.

Cash flow from operating activities was $101 million for the second quarter of 2012. Capital expenditures were $82 million, including $54 million for purchases of customer gear, $3 million for data center build outs, $4 million for office build outs and $21 million for capitalized software and other projects.

Adjusted free cash flow(1) for the quarter was $28.7 million.

At the end of the second quarter of 2012, cash and cash equivalents were $215 million, and debt including capital lease obligations totaled $149 million.

On a worldwide basis, Rackspace employed 4,528 Rackers as of June 30, 2012, up from 4,335 in the previous quarter.

“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.

Rackspace Developments and Business Highlights

  • Announced availability of production-ready open cloud powered by OpenStack®.  The latest software release leverages power of community-driven development to extend on-demand compute, storage and networking capabilities; development process matures to help ensure platform quality and reliability.
  • 2012 Microsoft Hosting Partner of the Year. Rackspace was chosen from more than 3,000 global Microsoft partners recognized in the managed, cloud and hybrid hosting industry. This marks the fourth time Rackspace has captured this honor.
  • 2012 Computerworld 100 Best Places to Work in IT. The criteria  was based on salaries, turnover, training and development, recognizing and rewarding outstanding performances,  benefits, and the cost of pursuing technology certifications. Computerworld actually surveyed IT employees currently employed at the 100 organizations that made the list to get an accurate survey result.
  • Business Insider and Glassdoor.com collaborate to name Rackspace one of The 25 Best Tech Companies To Work For In 2012. All the reviews and ratings were taken within the last year to be as up to date as possible. Just a few of the principles they accounted for were culture, lifestyle and what you can learn while working at these companies.

Conference Call and Webcast

Management will host a conference call to discuss the results starting today at 4:30 p.m. ET.

To access the conference call, please dial 888-504-7960 from the United States and Canada or dial 719-785-1766 from abroad and reference pass code 3500741. A live webcast and a replay of the conference call will be available on Rackspace’s website, located at ir.rackspace.com.

About Rackspace

Rackspace® Hosting (NYSE: RAX) is the open cloud company, delivering open technologies and powering more than 180,000 customers worldwide.  Rackspace provides its renowned Fanatical Support® to customers across a broad portfolio of IT products, including Public and Private Cloud and Hybrid and Dedicated Hosting.  The company offers customers choice and flexibility, and helps them avoid vendor lock-in. Rackspace has been recognized by Bloomberg BusinessWeek as a Top 100 Performing Technology Company and is 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 around the world. The company website can be found at www.rackspace.com.

Forward Looking Statements

This press release contains forward-looking statements that involve risks, uncertainties and assumptions. If such risks or uncertainties materialize or such assumptions prove incorrect, the results of Rackspace Hosting could differ materially from those expressed or implied by such forward-looking statements and assumptions. All statements other than statements of historical fact are statements that could be deemed forward-looking statements, including any statements concerning expected operational and financial results, long term investment strategies, growth plans, expected results from the integration of technologies and acquired businesses, and the performance or market share relating to products and services; any statements of expectation or belief; and any statements or assumptions underlying any of the foregoing. Risks, uncertainties and assumptions include infrastructure failures, the deterioration of economic conditions or fluctuations, disruptions, instability or downturns in the economy, the effectiveness of managing company growth, technological and competitive factors, regulatory factors, and other risks that are described in Rackspace Hosting’s Form 10-K for the year ended December 31, 2011, filed with the SEC on February 17, 2012 and in Rackspace Hosting’s Form 10-Q for the quarter ended June 30, 2012, expected to be filed later this week. Except as required by law, Rackspace Hosting assumes no obligation to update these forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future.


Investor Relations                             
Bryan McGrath                                     

Corporate Communications
Rachel Ferry

 See full release and tables on the Rackspace IR site.