Slides
Page 1
Rackspace Technology Q4 2024 Earnings Presentation February 20, 2025
Page 2
Disclaimer 2 Forward-Looking Statements Rackspace Technology has made statements in this presentation 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 presentation 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, including our financial outlook and expected future resu lts, management’s plans and objectives for future operations, business prospects, outcome of regulatory proceedings, market conditions, 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,” “guidance,” “objectives,” “outlook,” “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 presentation, 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 Measures To provide investors with additional information in connection with our results as determined in accordance with generally accepted accounting principles in the United States (“GAAP”), we disclose Non-GAAP Gross Profit, Non-GAAP Operating Profit, Non-GAAP Net Income (Loss), and Non-GAAP Earnings (Loss) Per Share as non-GAAP financial measures. These non-GAAP financial measures are not measures of financial performance in accordance with GAAP and may exclude items that are significant in understanding and assessing our financial results. Therefore, these measures should not be considered in isolation or as an alternative or superior to GAAP measures. You should be aware that our presentation of these measures may not be comparable to similarly-titled measures used by other companies. Reconciliations of each non-GAAP financial measure to the applicable most comparable GAAP measure can be found in the Appendix. We present these non-GAAP financial measures to provide investors with meaningful supplemental financial information, in addition to the financial information presented on a GAAP basis. Rackspace Technology management believes that excluding items such as the impacts from foreign currency rate fluctuations on our international business operations or certain costs, losses and gains 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. Rackspace Technology management believes the non-GAAP measures provided are also considered important measures by financial analysts covering Rackspace Technology as equity research analysts continue to publish estimates and research notes based on our non-GAAP commentary. Beginning in the fourth quarter of 2024, we have updated the presentation of our non-GAAP financial measures and Segment Operating Profit to no longer exclude certain cash compensation paid to employees who remain employed with Rackspace. All prior period Non-GAAP Gross Profit, Non-GAAP Net Income (Loss), Non-GAAP Operating Profit, Segment Operating Profit, Adjusted EBITDA and Non-GAAP Earnings (Loss) Per Share financial measures have been recasted to reflect current period presentation in the accompanying slides. Amounts on subsequent pages may not add due to rounding.
Page 3
Q4 2024 Financial Results 3 $'s in millions Q4 2024 Q/Q Y/Y Total Revenue $686 1% (5%) Non-GAAP Gross Profit $141 (1%) (10%) Non-GAAP Gross Margin 20.6% (0 pts) (1 pt) Non-GAAP Operating Profit $39 21% (13%) Non-GAAP Operating Margin 5.7% 1 pt (1 pt) Non-GAAP Loss per Share ($0.02) $0.03 $ 0.02 Note: Refer to Appendix for reconciliation of Non-GAAP measures to most relevant GAAP measures, as well as detailed definitions of Non-GAAP metrics
Page 4
Q4 2024 Segment Financials 4 $'s in millions Q/Q % Y/Y % Total Rackspace Private Cloud Public Cloud Total Rackspace Private Cloud Public Cloud Total Rackspace Private Cloud Public Cloud Total Revenue $686 $269 $417 1% 4% (0%) (5%) (6%) (4%) Non-GAAP Gross Profit $141 $107 $34 (1)% 8% (21%) (10%) (0%) (32%) Non-GAAP Gross Margin 20.6% 39.8% 8.2% (0 pts) 1 pt (2 pts) (1 pt) 2 pts (3 pts) Segment Operating Profit $91 $81 $10 1% 9% (36%) (11%) 5% (61%) Segment Operating Margin 13.2% 30.0% 2.4% (0 pts) 1 pt (1 pt) (1 pt) 3 pts (3 pts) Corporate Functions ($51) (10%) (10%) Non-GAAP Operating Profit $39 21% (13%) Non-GAAP Operating Margin 5.7% 1 pt (1 pt) Notes: 1.) Refer to Appendix for reconciliation of Non-GAAP measures to most relevant GAAP measures, as well as definitions for Segment Operating Profit and Corporate Functions 2.) Pass-through infrastructure resale costs were $310M
Page 5
Cash Flow & Capital Expenditures 5 Note: Free cash flow is a Non-GAAP metric and is presented as cash flow from operations less cash paid for purchases of property, equi pment and software. Refer to Appendix for a reconciliation of Free Cash Flow to the most comparable GAAP measure. LTM free cash flow yield calculated as LTM Free Cash Flow divided by Market Capitalization as of December 31 , 2024. Refer to Appendix for how we define capital intensity $'s in millions Q4'24 2024 Cash Provided by Operating Activities $54 $40 Free Cash Flow $34 ($71) LTM Free Cash Flow Yield (14%) Total Capital Expenditures $27 $136 Total CAPEX Intensity 4% 5% Cash Capital Expenditures $20 $111 Cash CAPEX Intensity 3% 4% As of December 31, 2024 Cash & Cash Equivalents $144 Undrawn Revolving Credit Facility $375 Total Liquidity $519
Page 6
Facility Balance Maturity Rate Hedge FLFO New Money Term Loan $273 May-2028 1-mth SOFR + 625 bps + 0.114% Spread N/A FLSO/Legacy Term Loan $1,689 May-2028 (FLSO)/ Feb-2028 (L) 1-mth SOFR + 275 bps + 0.114% Spread $1,350M at 2.342% w/ 75 bps floor FLSO/Legacy Secured Notes $362 May-2028 (FLSO)/ Feb-2028 (L) 3.500% Fixed Rate N/A Senior Notes $125 Dec-2028 5.375% Fixed Rate N/A Total Principal Balance $2,449 125 M 318 M 1,627 M 273 M 62 M 44 M $2,449 M As of December 31st, Debt Maturity Overview 1 6 Note: Quarterly principal payments of approximately $5.1 million on the Term Loans are not reflected in the maturity chart. $'s in millions (1) Debt values are shown at principal value. (2) Under the terms of the security documents and intercreditor agreements dated March 12, 2024, any amounts received by the collateral agent or any other secured party in respect of the proceeds of collateral will be applied first to repay the holders of the FLFO New Money Term Loan and the Revolving Credit Facility (the “Super Priority Indebtedness”). The Super Priority Indebtedness will be repaid in full prior to any payment in respect of collateral to the holders of the FLSO Term Loan, the FLSO Secured Noted and any other indebtedness of the New Borrower and the Guarantors. (3) Following the debt refinancing transactions completed in March 2024, the Company subsidiaries that previously guaranteed the Legacy Term Loan and the Legacy Secured Notes no longer guarantee or pledge collateral to secure the Legacy Term Loan or the Legacy Secured Notes. FLSO Term Loan (2) FLSO Secured Notes (2) Senior Notes FLFO New Money Term Loan (2) Legacy Term Loan (3) Legacy Secured Notes (3) The Company has no corporate maturities prior to 2028.
Page 7
Outlook 7 NOTE: Refer to Appendix for more information on how we define Non -GAAP Tax Expense Rate and Non-GAAP Weighted Average Shares. Q1 2025 Guidance Total Revenue $653 - $665 million Private Cloud Revenue $247 - $253 million Public Cloud Revenue $406 - $412 million Non-GAAP Operating Profit $19 - $21 million Non-GAAP Loss Per Share ($0.07) - ($0.09) Non-GAAP Other Income (Expense) ($46) - ($50) million Non-GAAP Tax Expense Rate 26% Non-GAAP Weighted Average Shares 245 million
Page 8
Appendix
Page 9
FY 2024 Financial Results 9 $'s in millions FY 2024 Y/Y Total Revenue $2,737 (7%) Non-GAAP Gross Profit $563 (15%) Non-GAAP Gross Margin 20.6% (2 pts) Non-GAAP Operating Profit $106 (33%) Non-GAAP Operating Margin 3.9% (1 pt) Non-GAAP Loss per Share ($0.27) ($0.03) Adj. EBITDA $245 (32%) Adj. EBITDA Margin 8.9% (3 pts) Note: Refer to Appendix for reconciliation of Non-GAAP measures to most relevant GAAP measures, as well as detailed definitions of Non-GAAP metrics
Page 10
FY 2024 Segment Financials 10 $'s in millions Y/Y % FY’24 Total Rackspace Private Cloud Public Cloud Total Rackspace Private Cloud Public Cloud Total Revenue $2,737 $1,055 $1,683 (7%) (13%) (3%) Non-GAAP Gross Profit $563 $408 $155 (15%) (12%) (20%) Non-GAAP Gross Margin 20.6% 38.7% 9.2% (2 pts) 0 pts (2 pts) Segment Operating Profit $339 $294 $44 (20%) (14%) (46%) Segment Operating Margin 12.4% 27.9% 2.6% (2 pts) (0 pts) (2 pts) Corporate Functions ($233) (13%) Non-GAAP Operating Profit $106 (33%) Non-GAAP Operating Margin 3.9% (1 pt) Notes: 1.) Refer to Appendix for reconciliation of Non-GAAP measures to most relevant GAAP measures, as well as definitions for Segment Operating Profit and Corporate Functions
Page 11
Non-GAAP Gross Profit Reconciliation 11 (In millions) Q4 2023 Q1 2024 Q2 2024 Q3 2024 Q4 2024 2023 2024 GAAP Gross Profit $154.1 $132.8 $131.4 $137.5 $131.7 $628.8 $533.4 Share-based compensation expense 1.7 1.9 2.0 2.0 1.7 9.1 7.6 Purchase accounting impact on expense 0.7 0.6 0.6 0.3 0.3 2.6 1.8 Restructuring and transformation expenses 1.0 5.0 4.6 2.7 7.5 17.9 19.8 Hosted Exchange incident expenses, net of insurance proceeds - - - - - 0.3 - Total Adjustments $3.4 $7.5 $7.2 $5.0 $9.5 $29.9 $29.2 Non-GAAP Gross Profit $157.5 $140.3 $138.6 $142.5 $141.2 $658.7 $562.6
Page 12
Non-GAAP Net Loss Reconciliation 12 (In millions) Q4 2023 Q1 2024 Q2 2024 Q3 2024 Q4 2024 2023 2024 Net income (loss) $28.0 $(640.6) $25.0 $(186.6) $(60.4) $(837.8) $(862.6) Share-based compensation expense 13.5 12.8 19.5 15.5 15.6 65.4 63.4 Transaction-related adjustments, net 1.1 1.0 1.6 1.8 0.8 5.2 5.2 Restructuring and transformation expenses 6.7 20.9 14.5 9.4 13.7 56.7 58.5 Hosted Exchange incident expenses, net of insurance proceeds (4.4) 0.2 (0.1) (1.2) (0.3) (4.8) (1.4) Impairment of goodwill - 573.2 - 141.7 - 708.8 714.9 UK office closure - - - - - 12.1 - Impairment of assets, net 3.8 20.0 - - - 52.2 20.0 Net (gain) loss on divestiture and investments (0.1) (0.1) - (0.1) 0.1 (0.3) (0.1) Gain on debt extinguishment, net of debt modification costs (108.2) (56.7) (72.5) (18.0) - (271.3) (147.2) Interest expense impact from the March 2024 Refinancing Transactions - - (25.6) (25.0) (22.3) - (72.9) Other adjustments (1.3) 0.4 0.1 (4.3) 5.0 (1.0) 1.2 Amortization of intangible assets 39.4 38.7 38.6 38.7 38.1 161.0 154.1 Tax effect of non-GAAP adjustments 12.6 4.4 (22.4) 16.1 5.3 1.7 3.4 Non-GAAP Net Loss $(8.9) $(25.8) $(21.3) $(12.0) $(4.4) $(52.1) $(63.5)
Page 13
Non-GAAP Operating Profit Reconciliation 13 (In millions) Q4 2023 Q1 2024 Q2 2024 Q3 2024 Q4 2024 2023 2024 Loss from operations $(15.2) $(652.8) $(53.8) $(173.7) $(28.8) $(899.4) $(909.1) Share-based compensation expense 13.5 12.8 19.5 15.5 15.6 65.4 63.4 Transaction-related adjustments, net 1.1 1.0 1.6 1.8 0.8 5.2 5.2 Restructuring and transformation expenses 6.7 20.9 14.5 9.4 13.7 56.7 58.5 Hosted Exchange incident expenses, net of insurance proceeds (4.4) 0.2 (0.1) (1.2) (0.3) (4.8) (1.4) Impairment of goodwill - 573.2 - 141.7 - 708.8 714.9 UK office closure - - - - - 12.1 - Impairment of assets, net 3.8 20.0 - - - 52.2 20.0 Amortization of intangible assets 39.4 38.7 38.6 38.7 38.1 161.0 154.1 Total Adjustments $60.1 $666.8 $74.1 $205.9 $67.9 $1,056.6 $1,014.7 Non-GAAP Operating Profit $44.9 $14.0 $20.3 $32.2 $39.1 $157.2 $105.6
Page 14
Adjusted EBITDA Reconciliation 14 (In millions) Q4 2023 Q1 2024 Q2 2024 Q3 2024 Q4 2024 2023 2024 Net income (loss) $28.0 $(640.6) $25.0 $(186.6) $(60.4) $(837.8) $(862.6) Share-based compensation expense 13.5 12.8 19.5 15.5 15.6 65.4 63.4 Transaction-related adjustments, net 1.1 1.0 1.6 1.8 0.8 5.2 5.2 Restructuring and transformation expenses 6.7 20.9 14.5 9.4 13.7 56.7 58.5 Hosted Exchange incident expenses, net of insurance proceeds (4.4) 0.2 (0.1) (1.2) (0.3) (4.8) (1.4) Impairment of goodwill - 573.2 - 141.7 - 708.8 714.9 UK office closure - - - - - 12.1 - Impairment of assets, net 3.8 20.0 - - - 52.2 20.0 Net (gain) loss on divestiture and investments (0.1) (0.1) - (0.1) 0.1 (0.3) (0.1) Gain on debt extinguishment, net of debt modification costs (108.2) (56.7) (72.5) (18.0) - (271.3) (147.2) Other expense, net 4.7 5.6 5.2 1.0 9.9 5.0 21.7 Interest expense 50.9 43.7 18.4 18.0 17.9 221.6 98.0 Provision (benefit) for income taxes 9.5 (4.7) (29.9) 12.0 3.7 (16.6) (18.9) Depreciation and amortization 87.2 74.9 73.4 72.3 72.7 366.4 293.3 Adjusted EBITDA $92.7 $50.2 $55.1 $65.8 $73.7 $362.6 $244.8
Page 15
Non-GAAP Loss Per Share Reconciliation 15 (In millions) Q4 2023 Q1 2024 Q2 2024 Q3 2024 Q4 2024 2023 2024 Net income (loss) attributable to common stockholders $28.0 $(640.6) $25.0 $(186.6) $(60.4) $(837.8) $(862.6) Non-GAAP Net Loss $(8.9) $(25.8) $(21.3) $(12.0) $(4.4) $(52.1) $(63.5) Weighted average number of shares – Diluted 219.6 219.8 229.6 226.4 228.1 215.3 224.8 Effect of dilutive securities - 5.7 - 9.4 11.2 3.1 10.7 Non-GAAP weighted average number of shares – Diluted 219.6 225.5 229.6 235.8 239.3 218.4 235.5 Net income (loss) per share – Diluted $0.13 $(2.91) $0.11 $(0.82) $(0.26) $(3.89) $(3.84) Per share impacts of adjustments to net income (loss) (0.17) 2.80 (0.20) 0.77 0.25 3.65 3.55 Per share impacts of shares dilutive after adjustments to net income (loss) 0.00 0.00 0.00 0.00 (0.01) 0.00 0.02 Non-GAAP Loss per Share $(0.04) $(0.11) $(0.09) $(0.05) $(0.02) $(0.24) $(0.27)
Page 16
Free Cash Flow Reconciliation 16 (In millions) Q4 2023 Q1 2024 Q2 2024 Q3 2024 Q4 2024 2023 2024 Net cash provided by (used in) operating activities $72.2 $(90.3) $24.1 $51.8 $54.3 $374.9 $39.9 Cash purchases of property, equipment and software (33.9) (28.1) (38.6) (24.5) (19.9) (96.9) (111.1) Free Cash Flow $38.3 $(118.4) $(14.5) $27.3 $34.4 $278.0 $(71.2)
Page 17
Definitions 17 Segment Operating Profit Segment revenue less expenses directly attributable to running the respective segments’ business. These expenses exclude centralized corporate function costs. Corporate Functions Costs that are not allocated to segments. These costs are related to centralized corporate functions that provide services to the segments in areas such as accounting, information technology, marketing, legal and human resources. Capital Intensity Capital intensity reflects capital expenditures divided by revenue for the same period. Non-GAAP Tax Expense Rate 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. We used a structural non-GAAP tax rate of 26% for all periods which reflects the removal of the tax effect of non-GAAP pre-tax adjustments and non-recurring tax adjustments on a year-over-year basis. 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. Non-GAAP Weighted Average Shares Reflects impact of awards that would have been anti-dilutive to net loss per share, and therefore not included in the calculation, but would be dilutive to Non-GAAP EPS and are therefore included in the share count for purposes of this non-GAAP measure. Potential common share equivalents consist of shares issuable upon the exercise of stock options, vesting of restricted stock units (including performance-based restricted stock units) or purchases under the Employee Stock Purchase Plan (the "ESPP"), as well as contingent shares associated with our acquisition of Datapipe Parent, Inc. Certain of our potential common share equivalents are contingent on Apollo achieving pre-established performance targets based on a multiple of their invested capital ("MOIC"), which are included in the denominator for the entire period if such shares would be issuable as of the end of the reporting period assuming the end of the reporting period was the end of the contingency period.