Today Rackspace Technology® (NASDAQ: RXT) announced an expected
$65-$70 million of new investments designed to closely align the
company’s resources with fast-growing product and service
offerings. The investments will enable acceleration of growth
initiatives while also providing the company with a more flexible
and scalable expense structure.
These new investments will be targeted toward cloud
services that are expected to continue to accelerate in the coming
years, including cloud migration, Elastic Engineering, cloud native
application development, Data/Artificial Intelligence/Machine
Learning, and security services. The investments will include new
service development efforts, additional delivery capabilities,
go-to-market enhancements, and expansion of best-shoring centers of
excellence.
In addition, Rackspace Technology will expand its
internal training programs to develop expertise in Cloud
Engineering, Data Engineering, and Cloud Native Software
Engineering. This will prepare existing employees to meet
high-demand roles on the company’s fast-growing professional
services and Elastic Engineering teams.
The investments will be funded with an estimated
$95-$100 million of gross cost savings as a result of enhanced
automation as well as restructuring programs to realign resources
from mature and declining areas of the market, accelerate best
shoring initiatives, and reduce general and administrative
expenses.
The 2021 impact of these actions is fully embedded
in the company’s quarterly and annual financial guidance.
Restructuring program implementation is expected to result in total
pre-tax charges of approximately $70 million to $80 million in the
next 12-24 months.
Kevin Jones, Chief Executive Officer, stated, “The
initiatives announced today will enable Rackspace Technology to
take full advantage of current market trends, drive significant
earnings leverage as revenue continues to grow, and compete even
more effectively with other cloud service providers. In addition,
we are more closely aligning our Rackers with next-generation
service offerings that offer more compelling growth potential both
for them and the company.”
Separately, Rackspace Technology has increased its
financial guidance for the second quarter of 2021:
- Revenue for the second quarter is
now expected to be in the range of $741 - $744 million, at the high
end of the previously forecasted range of $735 - $745 million.
- GAAP net loss is expected to be in
the range of $(50) to $(30) million, and GAAP net loss per diluted
share is expected to be in the range of $(0.24) to $(0.14).
- Non-GAAP Operating Profit is now
expected to be $117 - $119 million, exceeding the high end of the
previously forecasted range of $113-$117 million.
- Non-GAAP Earnings Per Share is now
expected to be $0.22 to $0.24, compared to the previously
forecasted range of $0.21-$0.23 per share.
In addition, the company expects second quarter
bookings to be approximately $258 million, an increase of 6%
compared to the first quarter of 2021.
About Rackspace Technology
Rackspace Technology is a leading end-to-end
multicloud technology services company. We design, build and
operate our customers’ cloud environments across all major
technology platforms, irrespective of technology stack or
deployment model. We partner with our customers at every stage of
their cloud journey, enabling them to modernize applications, build
new products and adopt innovative technologies.
Forward-looking Statements
Rackspace Technology has made statements in this
press release and other reports, filings, and other public written
and verbal announcements that are forward-looking and therefore
subject to risks and uncertainties. All statements, other than
statements of historical fact, included in this document are, or
could be, “forward-looking statements” within the meaning of the
Private Securities Litigation Reform Act of 1995 and are made in
reliance on the safe harbor protections provided thereunder. These
forward-looking statements relate to anticipated financial
performance, management’s plans and objectives for future
operations, business prospects, outcome of regulatory proceedings,
market conditions, our ability to successfully respond to the
challenges posed by the COVID-19 pandemic, and other matters. Any
forward-looking statement made in this presentation speaks only as
of the date on which it is made. We undertake no obligation to
publicly update or revise any forward- looking statement, whether
as a result of new information, future developments or otherwise.
Forward-looking statements can be identified by various words such
as “expects,” “intends,” “will,” “anticipates,” “believes,”
“confident,” “continue,” “propose,” “seeks,” “could,” “may,”
“should,” “estimates,” “forecasts,” “might,” “goals,” “objectives,”
“targets,” “planned,” “projects,” and similar expressions. These
forward-looking statements are based on management’s current
beliefs and assumptions and on information currently available to
management. Rackspace Technology cautions that these statements are
subject to risks and uncertainties, many of which are outside of
our control, and could cause future events or results to be
materially different from those stated or implied in this document,
including among others, risk factors that are described in
Rackspace Technology, Inc.’s Annual Reports on Form 10-K, Quarterly
Reports on Form 10-Q, Current Reports on Form 8-K, and other
filings with the Securities and Exchange Commission, including the
sections entitled “Risk Factors” and “Management’s Discussion and
Analysis of Financial Condition and Results of Operations”
contained therein.
Non-GAAP Financial Measures
This press release includes several non-GAAP
financial measures such as Non-GAAP Net Income, Non-GAAP Operating
Profit, Adjusted EBITDA and Non-GAAP Earnings Per Share (“EPS”).
These non-GAAP financial measures exclude the impact of certain
costs, losses and gains that are required to be included in our
profit and loss measures under GAAP. Although we believe these
measures are useful to investors and analysts for the same reasons
they are useful to management, as described in the accompanying
pages, these measures are not a substitute for, or superior to,
GAAP financial measures or disclosures. Other companies may
calculate similarly-titled non-GAAP measures differently, limiting
their usefulness as comparative measures. We have reconciled each
of these non-GAAP measures to the applicable most comparable GAAP
measure in the accompanying pages.
IR ContactJoe CrivelliRackspace
Technology Investor Relationsir@rackspace.com
PR ContactNatalie SilvaRackspace
Technology Corporate
Communicationspublicrelations@rackspace.com
Non-GAAP Net Income, Non-GAAP Operating
Profit and Adjusted EBITDA
We present Non-GAAP Net Income, Non-GAAP Operating
Profit and Adjusted EBITDA because they are a basis upon which
management assesses our performance and we believe they are useful
to evaluating our financial performance. We believe that excluding
items from net loss that may not be indicative of, or are unrelated
to, our core operating results, and that may vary in frequency or
magnitude, enhances the comparability of our results and provides a
better baseline for analyzing trends in our business.
We define Non-GAAP Net Income as net loss adjusted
to exclude the impact of non-cash charges for share-based
compensation, special bonuses and other compensation expense,
transaction-related costs and adjustments, restructuring and
transformation charges, the amortization of acquired intangible
assets and certain other non-operating, non-recurring or non-core
gains and losses, as well as the tax effects of these non-GAAP
adjustments.
We define Non-GAAP Operating Profit as net loss,
plus interest expense and income taxes, further adjusted to exclude
the impact of non-cash charges for share-based compensation,
special bonuses and other compensation expense, transaction-related
costs and adjustments, restructuring and transformation charges,
the amortization of acquired intangible assets and certain other
non-operating, non-recurring or non-core gains and losses.
We define Adjusted EBITDA as Non-GAAP Operating
Profit plus depreciation and amortization.
Non-GAAP Operating Profit and Adjusted EBITDA are
management’s principal metrics for measuring our underlying
financial performance. Adjusted EBITDA, along with other
quantitative and qualitative information, is also the principal
financial measure used by management and our board of directors in
determining performance-based compensation for our management and
key employees.
These non-GAAP measures are not intended to imply
that we would have generated higher income or avoided net losses if
the November 2016 merger and the subsequent transactions and
initiatives had not occurred. In the future we may incur expenses
or charges such as those added back to calculate Non-GAAP Net
Income, Non-GAAP Operating Profit or Adjusted EBITDA. Our
presentation of Non-GAAP Net Income, Non-GAAP Operating Profit
and Adjusted EBITDA should not be construed as an inference that
our future results will be unaffected by these items. Other
companies, including our peer companies, may calculate
similarly-titled measures in a different manner from us, and
therefore, our non-GAAP measures may not be comparable to
similarly-tiled measures of other companies. Investors are
cautioned against using these measures to the exclusion of our
results in accordance with GAAP.
|
|
|
|
|
Three Months Ended,June 30,
2021 |
|
|
Low(Estimated) |
|
High(Estimated) |
Unaudited, in millions |
|
|
|
|
|
|
Net loss |
|
$ |
(50 |
) |
|
$ |
(30 |
) |
Share-based compensation
expense |
|
21 |
|
|
20 |
|
Special bonuses and other
compensation expense (a) |
|
4 |
|
|
2 |
|
Transaction-related
adjustments, net (b) |
|
8 |
|
|
6 |
|
Restructuring and
transformation expenses (c) |
|
41 |
|
|
39 |
|
Net (gain) loss on divestiture
and investments (d) |
|
(1 |
) |
|
- |
|
Debt modification and
extinguishment costs (e) |
|
— |
|
|
1 |
|
Other (income) expense, net
(f) |
|
(2 |
) |
|
(1 |
) |
Amortization of intangible
assets (g) |
|
48 |
|
|
46 |
|
Tax effect of non-GAAP
adjustments (h) |
|
(20 |
) |
|
(32 |
) |
Non-GAAP Net Income |
|
49 |
|
|
51 |
|
Interest expense |
|
51 |
|
|
50 |
|
Benefit for income taxes |
|
(3 |
) |
|
(14 |
) |
Tax effect of non-GAAP
adjustments (h) |
|
20 |
|
|
32 |
|
Non-GAAP Operating Profit |
|
|
117 |
|
|
|
119 |
|
Depreciation (i) |
|
|
61 |
|
|
|
60 |
|
Adjusted EBITDA |
|
$ |
178 |
|
|
$ |
179 |
|
(a) |
Includes expense related to retention bonuses, mainly relating to
restructuring and integration projects, and the related payroll
tax, senior executive signing bonuses and relocation costs, and
payroll taxes associated with the exercise of stock options and
vesting of restricted stock. |
(b) |
Includes legal, professional,
accounting and other advisory fees related to the IPO in the third
quarter of 2020, integration costs of acquired businesses, purchase
accounting adjustments (including deferred revenue fair value
discount), payroll costs for employees that dedicate significant
time to supporting these projects and exploratory acquisition and
divestiture costs and expenses related to financing
activities. |
(c) |
Includes consulting and advisory
fees related to business transformation and optimization
activities, payroll costs for employees that dedicate significant
time to these projects, as well as associated severance, facility
closure costs and lease termination expenses. We assessed these
activities and determined that they did not qualify under the scope
of ASC 420 (Exit or Disposal costs). |
(d) |
Includes gains and losses on
investment and from dispositions. |
(e) |
Includes expenses related to the
termination of the Accounts Receivable Financing Agreement in June
2021. |
(f) |
Reflects mainly changes in the
fair value of foreign currency derivatives. |
(g) |
All of our intangible assets are
attributable to acquisitions, including the November 2016
merger. |
(h) |
We utilize an estimated
structural long-term non-GAAP tax rate in order to provide
consistency across reporting periods, removing the effect of
non-recurring tax adjustments, which include but are not limited to
tax rate changes, U.S. tax reform, share-based compensation, audit
conclusions and changes to valuation allowances. When computing
this long-term rate for the 2021 interim periods, we based it on an
average of the 2020 and estimated 2021 tax rates, recomputed to
remove the tax effect of non-GAAP pre-tax adjustments and
non-recurring tax adjustments, resulting in a structural non-GAAP
tax rate of 26%. The non-GAAP tax rate could be subject to change
for a variety of reasons, including the rapidly evolving global tax
environment, significant changes in our geographic earnings mix
including due to acquisition activity, or other changes to our
strategy or business operations. We will re-evaluate our long-term
non-GAAP tax rate as appropriate. We believe that making these
adjustments facilitates a better evaluation of our current
operating performance and comparisons to prior periods. |
(i) |
Excludes accelerated depreciation
expense related to facility closures. |
|
|
Non-GAAP Earnings Per Share
(EPS)
We define Non-GAAP EPS as Non-GAAP Net Income
divided by our GAAP weighted average number of shares outstanding
for the period on a diluted basis and further adjusted for the
weighted average number of shares associated with securities which
are anti-dilutive to GAAP earnings per share but dilutive to
Non-GAAP EPS. Management uses Non-GAAP EPS to evaluate the
performance of our business on a comparable basis from period to
period, including by adjusting for the impact of the issuance of
shares that would be dilutive to Non-GAAP EPS.
|
|
|
|
|
Three Months Ended,June 30,
2021 |
|
|
Low(Estimated) |
|
High(Estimated) |
Unaudited, in whole
dollars |
|
|
|
|
|
|
GAAP net loss per share diluted |
|
$ |
(0.24 |
) |
|
$ |
(0.14 |
) |
Per share impacts of
adjustments to net loss (a) |
|
0.48 |
|
|
0.39 |
|
Impact of shares diluted after
adjustments to net loss (b) |
|
(0.02 |
) |
|
(0.01 |
) |
Non-GAAP EPS |
|
$ |
0.22 |
|
|
$ |
0.24 |
|
(a) |
Reflects the aggregate adjustments made to reconcile Non-GAAP Net
Income to our net loss, as noted in the above table, divided by
GAAP diluted number of shares outstanding for the relevant
period. |
(b) |
Reflects the impact of equity
awards that would have been anti-dilutive for GAAP net loss per
share, and are therefore not included in the calculation of GAAP
EPS, but would be dilutive to Non-GAAP EPS and are therefore
included in the share count for purposes of presenting this
non-GAAP measure. |
|
|
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