Welcome!

@DevOpsSummit Authors: Liz McMillan, Yeshim Deniz, Pat Romanski, Gopala Krishna Behara, Sridhar Chalasani

News Feed Item

Rackspace Hosting Reports Fourth Quarter 2013 Results

Rackspace® Hosting, Inc. (NYSE: RAX), the open cloud company, announced financial results for the quarter ended December 31, 2013.

Net revenue for the fourth quarter of 2013 was $408 million, up 5.0% from the previous quarter and up 16% from the fourth quarter of 2012. Net revenue for the fourth quarter of 2013 was positively impacted by currency exchange rates when compared to the previous quarter by $4.2 million and positively impacted when compared to the fourth quarter of 2012 by $0.8 million.

Total server count increased to 103,886, up from 101,967 servers at the end of the previous quarter.

Adjusted EBITDA(1) for the quarter was $132 million, a 5.2% increase compared to the third quarter of 2013 and a 2% increase compared to the fourth quarter of 2012. The Adjusted EBITDA margin for the quarter was 32.4% compared to 32.3% in the previous quarter and 36.8% in the fourth quarter of 2012.

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 fourth quarter of 2013, the non-cash data center lease charge was $2.3 million, compared to $3.8 million in the previous quarter and $2.9 million in the fourth quarter of 2012.

Net income was $21 million for the quarter, up 27.5% from the previous quarter and down 30% from the fourth quarter of 2012. Net income margin for the quarter was 5.1% compared to 4.2% for the previous quarter and 8.5% in the fourth quarter of 2012.

Cash flow from operating activities was $110 million for the fourth quarter of 2013. Capital expenditures were $116 million, including $65 million for purchases of customer gear, $23 million for data center build outs, $8 million for office build outs and $20 million for capitalized software and other projects.

Adjusted Free Cash Flow(1) for the quarter was $15 million. Return on Capital(1) was 9.6%, compared to 8.0% in the prior quarter and 16.9% in the fourth quarter of 2012. Average monthly revenue per server was $1,322, compared to $1,290 in the prior quarter and $1,310 in the fourth quarter of 2012.

At the end of the fourth quarter of 2013, cash and cash equivalents were $260 million, and debt including capital lease obligations totaled $58 million.

On a worldwide basis, Rackspace employed 5,651 Rackers as of December 31, 2013, up from 5,450 in the previous quarter.

"With the leadership team and strategy we have in place, and the powerful position that we’ve established in the marketplace, I’m confident that we can make 2014 one of the best years in Rackspace history. In 2014, we will take the next step to carve out our differentiated position and help the next adoption wave of customers reach a hybrid cloud world. We will continue to invest in our portfolio of services and reinforce our differentiation in the market. We will win as we always have — one delighted customer at a time," said Graham Weston, Chairman and CEO.

Rackspace Developments and Business Highlights

  • Rackspace announced that Taylor Rhodes, the company’s Chief Customer Officer (CCO), has been appointed President, effective immediately. Mr. Rhodes joined Rackspace in 2007 and has served in a variety of leadership positions within the company. Prior to his role as CCO, Mr. Rhodes served as Senior Vice President and Managing Director of Rackspace International. In his various roles, Mr. Rhodes has guided the company towards its mission of bringing the power of Rackspace’s hybrid cloud portfolio, backed by Fanatical Support®, to global markets. Additionally, he has played an integral role in evolving Fanatical Support for the benefit of customers worldwide, which has enabled Rackspace to advance its position as the service leader in the industry.
  • Rackspace announced it has been ranked 29 on the 2014 FORTUNE 100 Best Companies to Work For® list. FORTUNE has named Rackspace as one of America’s top workplaces in six of the past seven years. Rackspace was selected among hundreds of companies vying for a place on the list this year. Great Place to Work® chose Rackspace using its unique methodology based on five dimensions: credibility, respect, fairness, pride and camaraderie.
  • Rackspace announced it is extending its Fanatical Support® to help customers automate their cloud infrastructure with a new managed support service for DevOps tools. The new DevOps Automation Service will help developers automate the process of deploying and scaling hybrid cloud infrastructure for fast-growing applications, while advancing the adoption of the DevOps methodology among software and IT teams.
  • Rackspace announced it has given nearly £250,000 worth of cloud hosting services and support for free to 300 members of the Rackspace Startup Programme since it started in the UK six months ago. This is in addition to many other benefits members have received, such as mentoring, expert technical advice and access to networking events. All of these benefits are helping power new UK businesses to succeed and are provided by Rackspace through over 50 partners, including premier incubators, accelerators, associations and investors. The high profile partners involved in the Rackspace Startup Programme include Techstars, Dreamstake, Wayra, Seedcamp, Oxygen Accelerator and Accelerator Academy. Partners located outside of London – ensuring program access for startups throughout the UK – include ignite100 in Newcastle, dotForge in Sheffield and four organizations in Ireland: Wayra, NDRC, Propeller Venture Accelerator and Ustart.

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 800-946-0712 from the United States and Canada or dial 719-325-2328 from abroad and reference pass code 2801570. A live webcast and a replay of the conference call will be available on Rackspace's website, located at http://ir.rackspace.com.

About Rackspace

Rackspace (NYSE: RAX) is the global leader in hybrid cloud and founder of OpenStack®, the open-source operating system for the cloud. Hundreds of thousands of customers look to Rackspace to deliver the best-fit infrastructure for their IT needs, leveraging a product portfolio that allows workloads to run where they perform best—whether on the public cloud, private cloud, dedicated servers, or a combination of platforms. The company’s award-winning Fanatical Support helps customers successfully architect, deploy and run their most critical applications. Headquartered in San Antonio, TX, Rackspace operates data centers on four continents. Rackspace is featured on Fortune’s list of 100 Best Companies to Work For. For more information, visit 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 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 anticipated operational and financial benefits from Rackspace strategies related to additions or changes in leadership, the success of leadership transition, company growth or success of new operational initiatives, any statements of expectation or belief; and any statements of assumptions underlying any of the foregoing. Risks, uncertainties and assumptions include the integration and effectiveness of new leadership into the Rackspace culture and business operations, instability or downturns in the economy, the effectiveness of managing company growth, infrastructure failures and other risks that are described in Rackspace Hosting's Form 10-Q for the quarter ended September 30, 2013, filed with the SEC on November 12, 2013. 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.

   

Consolidated Statements of Income

(Unaudited)

Three Months Ended Year Ended
(In thousands, except per share data)

December 31,
2012

 

September 30,
2013

 

December 31,
2013

December 31,
2012

 

December 31,
2013

Net revenue $ 352,909 $ 388,636 $ 408,103 $ 1,309,239 $ 1,534,786
Costs and expenses:
Cost of revenue (1) 109,012 127,404 133,821 419,013 492,493
Research and development (1) 16,942 23,773 24,849 56,736 90,213
Sales and marketing (1) 43,467 50,869 55,465 166,172 208,417
General and administrative (1) 64,951 78,075 79,128 244,732 297,520
Depreciation and amortization   68,914     80,753     87,683     249,845     313,007  
Total costs and expenses   303,286     360,874     380,946     1,136,498     1,401,650  
Income from operations   49,623     27,762     27,157     172,741     133,136  
Other income (expense):
Interest expense (991 ) (689 ) (656 ) (4,749 ) (3,118 )
Interest and other income (expense)   245     440     405     15     741  
Total other income (expense)   (746 )   (249 )   (251 )   (4,734 )   (2,377 )
Income before income taxes 48,877 27,513 26,906 168,007 130,759
Income taxes   18,970     11,202     6,108     62,589     44,022  
Net income $ 29,907   $ 16,311   $ 20,798   $ 105,418   $ 86,737  
 
Net income per share
Basic $ 0.22   $ 0.12   $ 0.15   $ 0.78   $ 0.63  
Diluted $ 0.21   $ 0.11   $ 0.14   $ 0.75   $ 0.61  
 
Weighted average number of shares outstanding
Basic   137,055     138,714     139,875     135,279     138,577  
Diluted   142,549     143,543     144,024     141,265     143,011  

(1) As previously reported in the Company's 10-Q filing for the three months ended September 30, 2013, certain reclassifications have been made to amounts reported for the periods ended December 31, 2012 in order to conform to the current period's presentation.

   

Consolidated Balance Sheets

 
(In thousands) December 31, 2012 December 31, 2013
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 292,061 $ 259,733
Accounts receivable, net of allowance for doubtful accounts and customer credits of $4,236 as of December 31, 2012 and $3,891 as of December 31, 2013 92,834 123,898
Deferred income taxes 10,320 12,637
Prepaid expenses 25,195 30,782
Other current assets   4,835     11,918  
Total current assets 425,245 438,968
 
Property and equipment, net 724,985 884,001
Goodwill 68,742 81,084
Intangible assets, net 23,802 23,880
Other non-current assets   52,777     57,089  
Total assets $ 1,295,551   $ 1,485,022  
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 105,174 $ 122,047
Accrued compensation and benefits 48,404 62,459
Income and other taxes payable 21,550 11,388
Current portion of deferred revenue 17,265 22,868
Current portion of obligations under capital leases 61,302 37,885
Current portion of debt   1,744     1,861  

Total current liabilities

255,439 258,508
 
Non-current liabilities:
Deferred revenue 3,695 3,662
Obligations under capital leases 60,335 18,273
Debt 1,991 124
Deferred income taxes 71,081 69,729
Deferred rent 32,293 43,046
Other liabilities   27,070     36,268  
Total liabilities 451,904 429,610
 
COMMITMENTS AND CONTINGENCIES
 
Stockholders' equity:
Common stock 138 141
Additional paid-in capital 515,188 636,660
Accumulated other comprehensive loss (8,089 ) (4,536 )
Retained earnings   336,410     423,147  
Total stockholders’ equity   843,647     1,055,412  
Total liabilities and stockholders’ equity $ 1,295,551   $ 1,485,022  
   

Consolidated Statements of Cash Flows

 
Three Months Ended Year Ended
(Unaudited)     (Unaudited)
(in thousands)

December 31,
2012

 

September 30,
2013

 

December 31,
2013

December 31,
2012

December 31,
2013

Cash Flows From Operating Activities
Net income $ 29,907 $ 16,311 $ 20,798 $ 105,418 $ 86,737
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 68,914 80,753 87,683 249,845 313,007
Loss on disposal of equipment, net 624 667 100 1,586 992
Provision for bad debts and customer credits 1,741 1,482 655 6,300 4,498
Deferred income taxes (4,568 ) 12,196 (12,407 ) (775 ) (2,102 )
Deferred rent 2,930 3,801 2,279 9,259 11,564
Share-based compensation expense 11,244 16,959 17,188 41,546 59,645
Excess tax benefits from share-based compensation arrangements (11,065 ) (1,186 ) (16,156 ) (46,046 ) (33,539 )
Changes in certain assets and liabilities:
Accounts receivable (162 ) (10,641 ) (10,344 ) (29,265 ) (34,473 )
Prepaid expenses and other current assets 6,127 (18,004 ) 6,290 (4,903 ) (12,270 )
Accounts payable and accrued expenses 15,062 11,413 8,355 66,268 35,303
Deferred revenue 2,477 (874 ) 4,176 2,185 5,367
All other operating activities   (2,443 )   1,673     901     (1,919 )   9,331  
Net cash provided by operating activities 120,788 114,550 109,518 399,499 444,060
 
Cash Flows From Investing Activities
Purchases of property and equipment (82,919 ) (100,496 ) (126,723 ) (270,374 ) (452,596 )
Acquisitions, net of cash acquired (3,727 ) (5,945 ) (9,930 )
All other investing activities   56     (1,436 )   110     98     (1,698 )
Net cash used in investing activities (82,863 ) (101,932 ) (130,340 ) (276,221 ) (464,224 )
 
Cash Flows From Financing Activities
Principal payments of capital leases (22,958 ) (15,658 ) (14,652 ) (75,928 ) (65,860 )
Principal payments of notes payable (51 ) (966 ) (52 ) (1,962 ) (1,915 )
Payments for deferred acquisition obligations (1,450 ) (58 ) (57 ) (6,176 ) (1,353 )
Proceeds from notes payable 691
Receipt of Texas Enterprise Fund Grant 3,500
Proceeds from employee stock plans 9,770 8,446 8,971 41,284 23,817
Excess tax benefits from share-based compensation arrangements   11,065     1,186     16,156     46,046     33,539  
Net cash provided by (used in) financing activities (3,624 ) (7,050 ) 10,366 7,455 (11,772 )
 
Effect of exchange rate changes on cash and cash equivalents 109 1,375 194 1,472 (392 )
         
Increase (decrease) in cash and cash equivalents 34,410 6,943 (10,262 ) 132,205 (32,328 )
 
Cash and cash equivalents, beginning of period 257,651 263,052 269,995 159,856 292,061
         
Cash and cash equivalents, end of period $ 292,061   $ 269,995   $ 259,733   $ 292,061   $ 259,733  
 
Supplemental cash flow information:
Non-cash purchases of property and equipment $ 5,096 $ 17,062 $ (10,891 ) $ 67,308 $ 12,718
 
Key Metrics - Quarter to Date
(Unaudited)
  Three Months Ended
(Dollar amounts in thousands, except average monthly revenue per server)

December 31,
2012

 

March 31,
2013

 

June 30,
2013

 

September 30,
2013

 

December 31,
2013

Growth
Dedicated cloud, net revenue $ 265,585 $ 271,311 $ 276,845 $ 280,215 $ 291,265
Public cloud, net revenue $ 87,324   $ 90,889   $ 99,002   $ 108,421   $ 116,838  
Net revenue $ 352,909 $ 362,200 $ 375,847 $ 388,636 $ 408,103
Revenue growth (year over year) 24.6 % 20.2 % 17.8 % 15.7 % 15.6 %
 
Net upgrades (monthly average) 1.2 % 0.9 % 1.5 % 1.5 % 1.1 %
Churn (monthly average)   -0.7 %   -0.8 %   -0.8 %   -0.8 %   -0.7 %
Growth in installed base (monthly average) (2) 0.5 % 0.1 % 0.7 % 0.7 % 0.4 %
 
Number of employees (Rackers) at period end 4,852 5,043 5,272 5,450 5,651
Number of servers deployed at period end 90,524 94,122 98,884 101,967 103,886
Average monthly revenue per server $ 1,310 $ 1,308 $ 1,298 $ 1,290 $ 1,322
 
Profitability
Income from operations $ 49,623 $ 42,813 $ 35,404 $ 27,762 $ 27,157
Depreciation and amortization $ 68,914 $ 70,111 $ 74,460 $ 80,753 $ 87,683
Share-based compensation expense:
Cost of revenue $ 2,759 $ 2,519 $ 2,735 $ 3,453 $ 3,877
Research and development $ 1,237 $ 1,528 $ 1,813 $ 2,306 $ 2,521
Sales and marketing $ 1,764 $ 1,658 $ 1,744 $ 2,149 $ 1,766
General and administrative $ 5,484   $ 6,478   $ 7,023   $ 9,051   $ 9,024  
Total share-based compensation expense $ 11,244   $ 12,183   $ 13,315   $ 16,959   $ 17,188  
Adjusted EBITDA (1) $ 129,781 $ 125,107 $ 123,179 $ 125,474 $ 132,028
 
Adjusted EBITDA margin 36.8 % 34.5 % 32.8 % 32.3 % 32.4 %
Operating income margin 14.1 % 11.8 % 9.4 % 7.1 % 6.7 %
 
Income from operations $ 49,623 $ 42,813 $ 35,404 $ 27,762 $ 27,157
Effective tax rate   38.8 %   35.2 %   34.7 %   40.7 %   22.7 %
Net operating profit after tax (NOPAT) (1) $ 30,369 $ 27,743 $ 23,119 $ 16,463 $ 20,992
NOPAT margin 8.6 % 7.7 % 6.2 % 4.2 % 5.1 %
 
Capital efficiency and returns
Interest bearing debt $ 125,372 $ 105,807 $ 88,434 $ 72,579 $ 58,143
Stockholders' equity $ 843,647 $ 879,035 $ 933,897 $ 988,708 $ 1,055,412
Less: Excess cash $ (249,712 ) $ (235,163 ) $ (217,950 ) $ (223,359 ) $ (210,761 )
Capital base $ 719,307 $ 749,679 $ 804,381 $ 837,928 $ 902,794
Average capital base $ 717,010 $ 734,493 $ 777,030 $ 821,155 $ 870,361
Capital turnover (annualized) 1.97 1.97 1.93 1.89 1.88
 
Return on capital (annualized) (1) 16.9 % 15.1 % 11.9 % 8.0 % 9.6 %
 
Capital expenditures
Cash purchases of property and equipment $ 82,919 $ 105,541 $ 119,836 $ 100,496 $ 126,723
Non-cash purchases of property and equipment (3) $ 5,096   $ 19,858   $ (13,311 ) $ 17,062   $ (10,891 )
Total capital expenditures $ 88,015 $ 125,399 $ 106,525 $ 117,558 $ 115,832
 
Customer gear $ 60,099 $ 85,690 $ 73,022 $ 73,784 $ 65,291
Data center build outs $ 7,768 $ 13,228 $ 10,085 $ 12,441 $ 22,524
Office build outs $ 2,288 $ 7,860 $ 1,683 $ 6,700 $ 8,085
Capitalized software and other projects $ 17,860   $ 18,621   $ 21,735   $ 24,633   $ 19,932  
Total capital expenditures $ 88,015 $ 125,399 $ 106,525 $ 117,558 $ 115,832
 
Infrastructure capacity and utilization
Megawatts under contract at period end 61.1 59.4 59.6 60.0 60.0
Megawatts available for use at period end 36.9 38.8 44.4 46.9 46.9
Megawatts utilized at period end 24.0 24.7 26.0 27.0 27.4
Annualized net revenue per average Megawatt of power utilized $ 59,437 $ 59,499 $ 59,305 $ 58,662 $ 60,015

(1) See discussion and reconciliation of our Non-GAAP financial measures to the most comparable GAAP measures below.

(2) Due to rounding, totals may not equal the sum of the line items in the table above.

(3) Non-cash purchases of property and equipment represents changes in amounts accrued for purchases under vendor financing and other deferred payment arrangements.

 
Key Metrics - Year to Date
(Unaudited)
  Year Ended December 31,
(Dollar amounts in thousands, except average monthly revenue per server)   2012       2013  
Growth
Dedicated cloud, net revenue $ 1,005,165 $ 1,119,636
Public cloud, net revenue $ 304,074   $ 415,150  
Net revenue $ 1,309,239 $ 1,534,786
Revenue growth (year over year) 27.7 % 17.2 %
 
Net upgrades (monthly average) 1.5 % 1.3 %
Churn (monthly average)   -0.8 %   -0.8 %
Growth in installed base (monthly average) (2) 0.8 % 0.5 %
 
Number of employees (Rackers) at period end 4,852 5,651
Number of servers deployed at period end 90,524 103,886
Average monthly revenue per server $ 1,278 $ 1,307
 
Profitability
Income from operations $ 172,741 $ 133,136
Depreciation and amortization $ 249,845 $ 313,007
Share-based compensation expense:
Cost of revenue $ 9,592 $ 12,584
Research and development $ 4,856 $ 8,168
Sales and marketing $ 6,379 $ 7,317
General and administrative $ 20,719   $ 31,576  
Total share-based compensation expense $ 41,546   $ 59,645  
Adjusted EBITDA (1) $ 464,132 $ 505,788
 
Adjusted EBITDA margin 35.5 % 33.0 %
Operating income margin 13.2 % 8.7 %
 
Income from operations $ 172,741 $ 133,136
Effective tax rate   37.3 %   33.7 %
Net operating profit after tax (NOPAT) (1) $ 108,309 $ 88,269
NOPAT margin 8.3 % 5.8 %
 
Capital efficiency and returns
Interest bearing debt $ 125,372 $ 58,143
Stockholders' equity $ 843,647 $ 1,055,412
Less: Excess cash $ (249,712 ) $ (210,761 )
Capital base $ 719,307 $ 902,794
Average capital base $ 679,125 $ 802,818
Capital turnover 1.93 1.91
 
Return on capital (1) 15.9 % 11.0 %
 
Capital expenditures
Cash purchases of property and equipment $ 270,374 $ 452,596
Non-cash purchases of property and equipment (3) $ 67,308   $ 12,718  
Total capital expenditures $ 337,682 $ 465,314
 
Customer gear $ 217,870 $ 297,787
Data center build outs $ 26,293 $ 58,278
Office build outs $ 14,382 $ 24,328
Capitalized software and other projects $ 79,137   $ 84,921  
Total capital expenditures $ 337,682 $ 465,314
 
Infrastructure capacity and utilization
Megawatts under contract at period end 61.1 60.0
Megawatts available for use at period end 36.9 46.9
Megawatts utilized at period end 24.0 27.4
Net revenue per average Megawatt of power utilized $ 58,188 $ 59,442

(1) See discussion and reconciliation of our Non-GAAP financial measures to the most comparable GAAP measures below.

(2) Due to rounding, totals may not equal the sum of the line items in the table above.

(3) Non-cash purchases of property and equipment represents changes in amounts accrued for purchases under vendor financing and other deferred payment arrangements.

 
Consolidated Quarterly Statements of Income
(Unaudited)
 
Three Months Ended
(In thousands)

December 31,
2012

 

March 31,
2013

 

June 30,
2013

 

September 30,
2013

 

December 31,
2013

Net revenue $ 352,909 $ 362,200 $ 375,847 $ 388,636 $ 408,103
Costs and expenses:
Cost of revenue 109,012 113,610 117,658 127,404 133,821
Research and development 16,942 18,375 23,216 23,773 24,849
Sales and marketing 43,467 49,814 52,269 50,869 55,465
General and administrative 64,951 67,477 72,840 78,075 79,128
Depreciation and amortization   68,914     70,111     74,460     80,753     87,683  
Total costs and expenses   303,286     319,387     340,443     360,874     380,946  

Income from operations

  49,623     42,813     35,404     27,762     27,157  
Other income (expense):
Interest expense (991 ) (940 ) (833 ) (689 ) (656 )
Interest and other income (expense)   245     199     (303 )   440     405  
Total other income (expense)   (746 )   (741 )   (1,136 )   (249 )   (251 )
Income before income taxes 48,877 42,072 34,268 27,513 26,906
Income taxes   18,970     14,811     11,901     11,202     6,108  
Net income $ 29,907   $ 27,261   $ 22,367   $ 16,311   $ 20,798  
 
Three Months Ended
(Percent of net revenue)

December 31,
2012

March 31,
2013

June 30,
2013

September 30,
2013

December 31,
2013

Net revenue 100.0 % 100.0 % 100.0 % 100.0 % 100.0 %
Costs and expenses:
Cost of revenue 30.9 % 31.4 % 31.3 % 32.8 % 32.8 %
Research and development 4.8 % 5.1 % 6.2 % 6.1 % 6.1 %
Sales and marketing 12.3 % 13.8 % 13.9 % 13.1 % 13.6 %
General and administrative 18.4 % 18.6 % 19.4 % 20.1 % 19.4 %
Depreciation and amortization   19.5 %   19.4 %   19.8 %   20.8 %   21.5 %
Total costs and expenses   85.9 %   88.2 %   90.6 %   92.9 %   93.3 %
Income from operations   14.1 %   11.8 %   9.4 %   7.1 %   6.7 %
Other income (expense):
Interest expense (0.3 )% (0.3 )% (0.2 )% (0.2 )% (0.2 )%
Interest and other income (expense)   0.1 %   0.1 %   (0.1 )%   0.1 %   0.1 %
Total other income (expense)   (0.2 )%   (0.2 )%   (0.3 )%   (0.1 )%   (0.1 )%
Income before income taxes 13.8 % 11.6 % 9.1 % 7.1 % 6.6 %
Income taxes   5.4 %   4.1 %   3.2 %   2.9 %   1.5 %
Net income   8.5 %   7.5 %   6.0 %   4.2 %   5.1 %
 
Due to rounding, totals may not equal the sum of the line items in the table above.
 

(1) Non-GAAP Financial Measures

Adjusted EBITDA (Non-GAAP financial measure)

We use Adjusted EBITDA as a supplemental measure to review and assess our performance. We define Adjusted EBITDA as net income, plus income taxes, total other (income) expense, depreciation and amortization, and non-cash charges for share-based compensation.

Adjusted EBITDA is a metric that is used in our industry by the investment community for comparative and valuation purposes. We disclose this metric in order to support and facilitate the dialogue with research analysts and investors.

Note that Adjusted EBITDA is not a measure of financial performance under accounting principles generally accepted in the United States (GAAP) and should not be considered a substitute for operating income, which we consider to be the most directly comparable GAAP measure. Adjusted EBITDA has limitations as an analytical tool, and when assessing our operating performance, you should not consider Adjusted EBITDA in isolation or as a substitute for net income or other consolidated income statement data prepared in accordance with GAAP. Other companies may calculate Adjusted EBITDA differently than we do, limiting its usefulness as a comparative measure.

See our reconciliation of Adjusted EBITDA to net income in the tables below:

  Three Months Ended
(Dollars in thousands)

December 31,
2012

 

March 31,
2013

 

June 30,
2013

 

September 30,
2013

 

December 31,
2013

Net revenue $ 352,909 $ 362,200 $ 375,847 $ 388,636 $ 408,103
 
Income from operations $ 49,623 $ 42,813 $ 35,404 $ 27,762 $ 27,157
 
Net income $ 29,907 $ 27,261 $ 22,367 $ 16,311 $ 20,798
Plus: Income taxes 18,970 14,811 11,901 11,202 6,108
Plus: Total other (income) expense 746 741 1,136 249 251
Plus: Depreciation and amortization 68,914 70,111 74,460 80,753 87,683
Plus: Share-based compensation expense   11,244     12,183     13,315     16,959     17,188  
Adjusted EBITDA $ 129,781 $ 125,107 $ 123,179 $ 125,474 $ 132,028
 
Operating income margin 14.1 % 11.8 % 9.4 % 7.1 % 6.7 %
 
Adjusted EBITDA margin 36.8 % 34.5 % 32.8 % 32.3 % 32.4 %
 
Year Ended December 31,
(Dollars in thousands)   2012       2013  
Net revenue $ 1,309,239 $ 1,534,786
 
Income from operations $ 172,741 $ 133,136
 
Net income $ 105,418 $ 86,737
Plus: Income taxes 62,589 44,022
Plus: Total other (income) expense 4,734 2,377
Plus: Depreciation and amortization 249,845 313,007
Plus: Share-based compensation expense   41,546     59,645  
Adjusted EBITDA $ 464,132 $ 505,788
 
Operating income margin 13.2 % 8.7 %
 
Adjusted EBITDA margin 35.5 % 33.0 %
 

Return on Capital (ROC) (Non-GAAP financial measure)

We define Return on Capital (ROC) as follows:

ROC = Net operating profit after tax (NOPAT)
Average capital base

NOPAT = Income from operations x (1 – effective tax rate)

Average capital base = Average of (interest bearing debt + stockholders’ equity – excess cash) = Average of (total assets – excess cash – accounts payables and accrued expenses, accrued compensation and benefits, and income and other taxes payable – deferred revenue – other non-current liabilities, deferred income taxes, and deferred rent).

Year-to-date average balances are based on an average calculated using the quarter-end balances at the beginning of the period and all other quarter ending balances included in the period.

We define excess cash as the amount of cash and cash equivalents that exceeds our operating cash requirements, which is calculated as three percent of our annualized net revenue for the three months prior to the period end. We will periodically review the calculation and adjust it to reflect our projected cash requirements for the upcoming year.

We believe that ROC is an important metric for investors in evaluating our company’s performance. ROC relates after-tax operating profits with the capital that is placed into service. It is therefore a performance metric that incorporates both the Statement of Comprehensive Income and the Balance Sheet. ROC measures how successfully capital is deployed within a company.

Note that ROC is not a measure of financial performance under GAAP and should not be considered a substitute for return on assets, which we calculate directly from amounts on the Statement of Comprehensive Income and the Balance Sheet. ROC has limitations as an analytical tool, and when assessing our operating performance, you should not consider ROC in isolation or as a substitute for other financial data prepared in accordance with GAAP. Other companies may calculate ROC differently than we do, limiting its usefulness as a comparative measure.

See our reconciliation of the calculation of ROC to the calculation of return on assets in the tables below:

  Three Months Ended
(Dollars in thousands)

December 31,
2012

 

March 31,
2013

 

June 30,
2013

 

September 30,
2013

 

December 31,
2013

Income from operations $ 49,623 $ 42,813 $ 35,404 $ 27,762 $ 27,157
Effective tax rate   38.8 %   35.2 %   34.7 %   40.7 %   22.7 %
Net operating profit after tax (NOPAT) $ 30,369 $ 27,743 $ 23,119 $ 16,463 $ 20,992
 
Net income $ 29,907 $ 27,261 $ 22,367 $ 16,311 $ 20,798
 
Total assets at period end $ 1,295,551 $ 1,348,350 $ 1,377,928 $ 1,451,769 $ 1,485,022
Less: Excess cash (249,712 ) (235,163 ) (217,950 ) (223,359 ) (210,761 )
Less: Accounts payable and accrued expenses, accrued compensation and benefits, and income and other taxes payable (175,128 ) (197,686 ) (178,552 ) (213,268 ) (195,894 )
Less: Deferred revenue (current and non-current) (20,960 ) (21,811 ) (22,636 ) (22,211 ) (26,530 )
Less: Other non-current liabilities, deferred income taxes, and deferred rent   (130,444 )   (144,011 )   (154,409 )   (155,003 )   (149,043 )
Capital base $ 719,307 $ 749,679 $ 804,381 $ 837,928 $ 902,794
 
Average total assets $ 1,268,658 $ 1,321,951 $ 1,363,139 $ 1,414,849 $ 1,468,396
Average capital base $ 717,010 $ 734,493 $ 777,030 $ 821,155 $ 870,361
 
Return on assets (annualized) 9.4 % 8.2 % 6.6 % 4.6 % 5.7 %
Return on capital (annualized) 16.9 % 15.1 % 11.9 % 8.0 % 9.6 %
 
Year Ended December 31,
(Dollars in thousands)   2012       2013  
Income from operations $ 172,741 $ 133,136
Effective tax rate   37.3 %   33.7 %
Net operating profit after tax (NOPAT) $ 108,309 $ 88,269
 
Net income $ 105,418 $ 86,737
 
Total assets at period end $ 1,295,551 $ 1,485,022
Less: Excess cash (249,712 ) (210,761 )
Less: Accounts payable and accrued expenses, accrued compensation and benefits, and income and other taxes payable (175,128 ) (195,894 )
Less: Deferred revenue (current and non-current) (20,960 ) (26,530 )
Less: Other non-current liabilities, deferred income taxes, and deferred rent   (130,444 )   (149,043 )
Capital base $ 719,307 $ 902,794
 
Average total assets $ 1,158,384 $ 1,391,724
Average capital base $ 679,125 $ 802,818
 
Return on assets (Net income/Average total assets) 9.1 % 6.2 %
Return on capital (NOPAT/Average capital base) 15.9 % 11.0 %
 

Adjusted Free Cash Flow (Non-GAAP financial measure)

We define Adjusted Free Cash Flow as Adjusted EBITDA plus non-cash deferred rent, less total capital expenditures (including non-cash purchases of property and equipment), cash payments for interest, net, and cash payments for income taxes, net.

We believe that Adjusted Free Cash Flow is a performance metric used by investors to evaluate the strength and performance of a company's ongoing business. Note that Adjusted Free Cash Flow is not a measure of financial performance under GAAP and may not be comparable to similarly titled measures reported by other companies.

See our reconciliation of Adjusted Free Cash Flow to Adjusted EBITDA below, as well as our reconciliation of Adjusted EBITDA to net income provided above.

  Three Months Ended   Year Ended
(In thousands) December 31, 2013 December 31, 2013
Adjusted EBITDA $ 132,028 $ 505,788
Non-cash deferred rent 2,279 11,564
Total capital expenditures (115,832 ) (465,314 )
Cash payments for interest, net (609 ) (3,096 )
Cash payments for income taxes, net   (2,575 )   (14,930 )
Adjusted free cash flow $ 15,291   $ 34,012  

More Stories By Business Wire

Copyright © 2009 Business Wire. All rights reserved. Republication or redistribution of Business Wire content is expressly prohibited without the prior written consent of Business Wire. Business Wire shall not be liable for any errors or delays in the content, or for any actions taken in reliance thereon.

@DevOpsSummit Stories
In his Opening Keynote at 21st Cloud Expo, John Considine, General Manager of IBM Cloud Infrastructure, led attendees through the exciting evolution of the cloud. He looked at this major disruption from the perspective of technology, business models, and what this means for enterprises of all sizes. John Considine is General Manager of Cloud Infrastructure Services at IBM. In that role he is responsible for leading IBM’s public cloud infrastructure including strategy, development, and offering management. To date, IBM has launched more than 50 cloud data centers that span the globe. He has been building advanced technology, delivering “as a service” solutions, and managing infrastructure services for the past 20 years.
Sanjeev Sharma Joins June 5-7, 2018 @DevOpsSummit at @Cloud Expo New York Faculty. Sanjeev Sharma is an internationally known DevOps and Cloud Transformation thought leader, technology executive, and author. Sanjeev's industry experience includes tenures as CTO, Technical Sales leader, and Cloud Architect leader. As an IBM Distinguished Engineer, Sanjeev is recognized at the highest levels of IBM's core of technical leaders.
The 22nd International Cloud Expo | 1st DXWorld Expo has announced that its Call for Papers is open. Cloud Expo | DXWorld Expo, to be held June 5-7, 2018, at the Javits Center in New York, NY, brings together Cloud Computing, Digital Transformation, Big Data, Internet of Things, DevOps, Machine Learning and WebRTC to one location. With cloud computing driving a higher percentage of enterprise IT budgets every year, it becomes increasingly important to plant your flag in this fast-expanding business opportunity. Submit your speaking proposal today!
Digital transformation is about embracing digital technologies into a company's culture to better connect with its customers, automate processes, create better tools, enter new markets, etc. Such a transformation requires continuous orchestration across teams and an environment based on open collaboration and daily experiments. In his session at 21st Cloud Expo, Alex Casalboni, Technical (Cloud) Evangelist at Cloud Academy, explored and discussed the most urgent unsolved challenges to achieve full cloud literacy in the enterprise world.
SYS-CON Events announced today that Synametrics Technologies will exhibit at SYS-CON's 22nd International Cloud Expo®, which will take place on June 5-7, 2018, at the Javits Center in New York, NY. Synametrics Technologies is a privately held company based in Plainsboro, New Jersey that has been providing solutions for the developer community since 1997. Based on the success of its initial product offerings such as WinSQL, Xeams, SynaMan and Syncrify, Synametrics continues to create and hone innovative products that help customers get more from their computer applications, databases and infrastructure. To date, over one million users around the world have chosen Synametrics solutions to help power their accelerated business and personal computing needs.
In a recent survey, Sumo Logic surveyed 1,500 customers who employ cloud services such as Amazon Web Services (AWS), Microsoft Azure, and Google Cloud Platform (GCP). According to the survey, a quarter of the respondents have already deployed Docker containers and nearly as many (23 percent) are employing the AWS Lambda serverless computing framework. It’s clear: serverless is here to stay. The adoption does come with some needed changes, within both application development and operations. That means serverless is also changing the way we leverage public clouds. Truth-be-told, many enterprise IT shops were so happy to get out of the management of physical servers within a data center that many limitations of the existing public IaaS clouds were forgiven. However, now that we’ve lived a few years with public IaaS clouds, developers and CloudOps pros are giving a huge thumbs down to the ...
Cloud Expo | DXWorld Expo have announced the conference tracks for Cloud Expo 2018. Cloud Expo will be held June 5-7, 2018, at the Javits Center in New York City, and November 6-8, 2018, at the Santa Clara Convention Center, Santa Clara, CA. Digital Transformation (DX) is a major focus with the introduction of DX Expo within the program. Successful transformation requires a laser focus on being data-driven and on using all the tools available that enable transformation if they plan to survive over the long term. A total of 88% of Fortune 500 companies from a generation ago are now out of business. Only 12% still survive. Similar percentages are found throughout enterprises of all sizes.
A strange thing is happening along the way to the Internet of Things, namely far too many devices to work with and manage. It has become clear that we'll need much higher efficiency user experiences that can allow us to more easily and scalably work with the thousands of devices that will soon be in each of our lives. Enter the conversational interface revolution, combining bots we can literally talk with, gesture to, and even direct with our thoughts, with embedded artificial intelligence, which can process our conversational commands and orchestrate the outcomes we request across our personal and professional realm of connected devices.
You know you need the cloud, but you're hesitant to simply dump everything at Amazon since you know that not all workloads are suitable for cloud. You know that you want the kind of ease of use and scalability that you get with public cloud, but your applications are architected in a way that makes the public cloud a non-starter. You're looking at private cloud solutions based on hyperconverged infrastructure, but you're concerned with the limits inherent in those technologies. What do you do?
Modern software design has fundamentally changed how we manage applications, causing many to turn to containers as the new virtual machine for resource management. As container adoption grows beyond stateless applications to stateful workloads, the need for persistent storage is foundational - something customers routinely cite as a top pain point. In his session at @DevOpsSummit at 21st Cloud Expo, Bill Borsari, Head of Systems Engineering at Datera, explored how organizations can reap the benefits of the cloud without losing performance as containers become the new paradigm.
Continuous Delivery makes it possible to exploit findings of cognitive psychology and neuroscience to increase the productivity and happiness of our teams. In his session at 22nd Cloud Expo | DXWorld Expo, Daniel Jones, CTO of EngineerBetter, will answer: How can we improve willpower and decrease technical debt? Is the present bias real? How can we turn it to our advantage? Can you increase a team’s effective IQ? How do DevOps & Product Teams increase empathy, and what impact does empathy have on productivity?
SYS-CON Events announced today that Evatronix will exhibit at SYS-CON's 21st International Cloud Expo®, which will take place on Oct 31 – Nov 2, 2017, at the Santa Clara Convention Center in Santa Clara, CA. Evatronix SA offers comprehensive solutions in the design and implementation of electronic systems, in CAD / CAM deployment, and also is a designer and manufacturer of advanced 3D scanners for professional applications.
As many know, the first generation of Cloud Management Platform (CMP) solutions were designed for managing virtual infrastructure (IaaS) and traditional applications. But that's no longer enough to satisfy evolving and complex business requirements. In his session at 21st Cloud Expo, Scott Davis, Embotics CTO, explored how next-generation CMPs ensure organizations can manage cloud-native and microservice-based application architectures, while also facilitating agile DevOps methodology. He explained how automation, orchestration and governance are fundamental to managing today's hybrid cloud environments and are critical for digital businesses to deliver services faster, with better user experience and higher quality, all while saving money.
DevOps promotes continuous improvement through a culture of collaboration. But in real terms, how do you: Integrate activities across diverse teams and services? Make objective decisions with system-wide visibility? Use feedback loops to enable learning and improvement? With technology insights and real-world examples, in his general session at @DevOpsSummit, at 21st Cloud Expo, Andi Mann, Chief Technology Advocate at Splunk, explored how leading organizations use data-driven DevOps to close their feedback loops to drive continuous improvement.
The past few years have brought a sea change in the way applications are architected, developed, and consumed—increasing both the complexity of testing and the business impact of software failures. How can software testing professionals keep pace with modern application delivery, given the trends that impact both architectures (cloud, microservices, and APIs) and processes (DevOps, agile, and continuous delivery)? This is where continuous testing comes in. D
There is a huge demand for responsive, real-time mobile and web experiences, but current architectural patterns do not easily accommodate applications that respond to events in real time. Common solutions using message queues or HTTP long-polling quickly lead to resiliency, scalability and development velocity challenges. In his session at 21st Cloud Expo, Ryland Degnan, a Senior Software Engineer on the Netflix Edge Platform team, will discuss how by leveraging a reactive stream-based protocol, we have been able to solve many of these problems at the communication layer. This makes it possible to create rich application experiences and support use-cases such as mobile-to-mobile communication and large file transfers that would be difficult or cost-prohibitive with traditional networking.
Kubernetes is an open source system for automating deployment, scaling, and management of containerized applications. Kubernetes was originally built by Google, leveraging years of experience with managing container workloads, and is now a Cloud Native Compute Foundation (CNCF) project. Kubernetes has been widely adopted by the community, supported on all major public and private cloud providers, and is gaining rapid adoption in enterprises. However, Kubernetes may seem intimidating and complex to learn. This is because Kubernetes is more of a toolset than a ready solution. Hence it’s essential to know when and how to apply the appropriate Kubernetes constructs.
22nd International Cloud Expo, taking place June 5-7, 2018, at the Javits Center in New York City, NY, and co-located with the 1st DXWorld Expo will feature technical sessions from a rock star conference faculty and the leading industry players in the world. Cloud computing is now being embraced by a majority of enterprises of all sizes. Yesterday's debate about public vs. private has transformed into the reality of hybrid cloud: a recent survey shows that 74% of enterprises have a hybrid cloud strategy. Meanwhile, 94% of enterprises are using some form of XaaS – software, platform, and infrastructure as a service.
22nd International Cloud Expo, taking place June 5-7, 2018, at the Javits Center in New York City, NY, and co-located with the 1st DXWorld Expo will feature technical sessions from a rock star conference faculty and the leading industry players in the world. Cloud computing is now being embraced by a majority of enterprises of all sizes. Yesterday's debate about public vs. private has transformed into the reality of hybrid cloud: a recent survey shows that 74% of enterprises have a hybrid cloud strategy. Meanwhile, 94% of enterprises are using some form of XaaS – software, platform, and infrastructure as a service.
DevOps at Cloud Expo – being held June 5-7, 2018, at the Javits Center in New York, NY – announces that its Call for Papers is open. Born out of proven success in agile development, cloud computing, and process automation, DevOps is a macro trend you cannot afford to miss. From showcase success stories from early adopters and web-scale businesses, DevOps is expanding to organizations of all sizes, including the world's largest enterprises – and delivering real results. Among the proven benefits, DevOps is correlated with 20% faster time-to-market, 22% improvement in quality, and 18% reduction in dev and ops costs, according to research firm Vanson-Bourne. It is changing the way IT works, how businesses interact with customers, and how organizations are buying, building, and delivering software.
All clouds are not equal. To succeed in a DevOps context, organizations should plan to develop/deploy apps across a choice of on-premise and public clouds simultaneously depending on the business needs. This is where the concept of the Lean Cloud comes in - resting on the idea that you often need to relocate your app modules over their life cycles for both innovation and operational efficiency in the cloud.
@DevOpsSummit at Cloud Expo, taking place June 5-7, 2018, at the Javits Center in New York City, NY, is co-located with 22nd Cloud Expo | 1st DXWorld Expo and will feature technical sessions from a rock star conference faculty and the leading industry players in the world. The widespread success of cloud computing is driving the DevOps revolution in enterprise IT. Now as never before, development teams must communicate and collaborate in a dynamic, 24/7/365 environment. There is no time to wait for long development cycles that produce software that is obsolete at launch. DevOps may be disruptive, but it is essential.
SYS-CON Events announced today that T-Mobile exhibited at SYS-CON's 20th International Cloud Expo®, which will take place on June 6-8, 2017, at the Javits Center in New York City, NY. As America's Un-carrier, T-Mobile US, Inc., is redefining the way consumers and businesses buy wireless services through leading product and service innovation. The Company's advanced nationwide 4G LTE network delivers outstanding wireless experiences to 67.4 million customers who are unwilling to compromise on quality and value. Based in Bellevue, Washington, T-Mobile US provides services through its subsidiaries and operates its flagship brands, T-Mobile and MetroPCS. For more information, visit https://www.t-mobile.com.
SYS-CON Events announced today that Cedexis will exhibit at SYS-CON's 21st International Cloud Expo®, which will take place on Oct 31 - Nov 2, 2017, at the Santa Clara Convention Center in Santa Clara, CA. Cedexis is the leader in data-driven enterprise global traffic management. Whether optimizing traffic through datacenters, clouds, CDNs, or any combination, Cedexis solutions drive quality and cost-effectiveness. For more information, please visit https://www.cedexis.com.
SYS-CON Events announced today that Google Cloud has been named “Keynote Sponsor” of SYS-CON's 21st International Cloud Expo®, which will take place on Oct 31 – Nov 2, 2017, at the Santa Clara Convention Center in Santa Clara, CA. Companies come to Google Cloud to transform their businesses. Google Cloud’s comprehensive portfolio – from infrastructure to apps to devices – helps enterprises innovate faster, scale smarter, stay secure, and do more with data than ever before.