Rackspace Technology, Inc 8-K, filed Aug 8, 2024

Rackspace Technology, Inc. (RXT)

8-K 2024-08-08 For: 2024-08-08

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Added on April 07, 2026

About this 8-K

Rackspace Technology, Inc filed this 8-K on August 8, 2024.

Items reported

Item 2.02: Financial results
Item 9.01: Financial statements and exhibits

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	Q3 2024 Guidance
Total Revenue	$668 - $680 million
Private Cloud Revenue	$255 - $262 million
Public Cloud Revenue	$414 - $419 million
Non-GAAP Operating Profit	$29 - $31 million
Non-GAAP Loss Per Share	$(0.06) - $(0.08)
Non-GAAP Other Income (Expense)	$(51) – $(55) million
Non-GAAP Tax Expense Rate	26	%
Non-GAAP Weighted Average Shares	231-233 million


	Three Months Ended June 30,								Year-Over-Year Comparison
	2023				2024
(In millions, except % and per share data)	Amount		% Revenue		Amount		% Revenue		Amount		% Change
Revenue	$	746.3	100.0	%	$	684.9	100.0	%	$	(61.4)	(8.2)	%
Cost of revenue	(593.2)		(79.5)	%	(553.5)		(80.8)	%	39.7		(6.7)	%
Gross profit	153.1		20.5	%	131.4		19.2	%	(21.7)		(14.2)	%
Selling, general and administrative expenses	(216.9)		(29.1)	%	(185.2)		(27.0)	%	31.7		(14.6)	%




Loss from operations	(63.8)		(8.5)	%	(53.8)		(7.9)	%	10.0		(15.7)	%
Other income (expense):
Interest expense	(57.3)		(7.7)	%	(18.4)		(2.7)	%	38.9		(67.9)	%
Gain on investments, net	0.1		0.0	%	—		—	%	(0.1)		(100.0)	%
Debt modification costs and gain on debt extinguishment	94.9		12.7	%	72.5		10.6	%	(22.4)		(23.6)	%
Other income (expense), net	0.2		0.0	%	(5.2)		(0.8)	%	(5.4)		NM
Total other income (expense)	37.9		5.1	%	48.9		7.2	%	11.0		29.0	%
Loss before income taxes	(25.9)		(3.5)	%	(4.9)		(0.7)	%	21.0		(81.1)	%
Benefit (provision) for income taxes	(1.3)		(0.2)	%	29.9		4.4	%	31.2		NM
Net income (loss)	$	(27.2)	(3.6)	%	$	25.0	3.7	%	$	52.2	NM

Net earnings (loss) per share:
Basic	$	(0.13)			$	0.11
Diluted	$	(0.13)			$	0.11
Weighted average number of shares outstanding:
Basic	215.1				224.5
Diluted	215.1				229.6


	Six Months Ended June 30,								Year-Over-Year Comparison
	2023				2024
(In millions, except % and per share data)	Amount		% Revenue		Amount		% Revenue		Amount		% Change
Revenue	$	1,505.0	100.0	%	$	1,375.7	100.0	%	$	(129.3)	(8.6)	%
Cost of revenue	(1,182.3)		(78.6)	%	(1,111.5)		(80.8)	%	70.8		(6.0)	%
Gross profit	322.7		21.4	%	264.2		19.2	%	(58.5)		(18.1)	%
Selling, general and administrative expenses	(424.4)		(28.2)	%	(377.6)		(27.5)	%	46.8		(11.0)	%

Impairment of goodwill	(543.1)		(36.1)	%	(573.2)		(41.7)	%	(30.1)		5.5	%
Impairment of assets, net	—		—	%	(20.0)		(1.5)	%	(20.0)		100.0	%

Loss from operations	(644.8)		(42.8)	%	(706.6)		(51.4)	%	(61.8)		9.6	%
Other income (expense):
Interest expense	(114.2)		(7.6)	%	(62.1)		(4.5)	%	52.1		(45.6)	%
Gain on investments, net	0.2		0.0	%	0.1		0.0	%	(0.1)		(50.0)	%
Debt modification costs and gain on debt extinguishment	107.7		7.2	%	129.2		9.4	%	21.5		20.0	%
Other income (expense), net	2.3		0.2	%	(10.8)		(0.8)	%	(13.1)		NM
Total other income (expense)	(4.0)		(0.3)	%	56.4		4.1	%	60.4		NM
Loss before income taxes	(648.8)		(43.1)	%	(650.2)		(47.3)	%	(1.4)		0.2	%
Benefit for income taxes	9.6		0.6	%	34.6		2.5	%	25.0		NM
Net loss	$	(639.2)	(42.5)	%	$	(615.6)	(44.7)	%	$	23.6	(3.7)	%

Net loss per share:
Basic and diluted	$	(2.98)			$	(2.77)

Weighted average number of shares outstanding:
Basic and diluted	214.2				222.2


(In millions, except per share data)	December 31, 2023		June 30, 2024
ASSETS
Current assets:
Cash and cash equivalents	$	196.8	$	190.2
Accounts receivable, net allowance for credit losses and accrued customer credits of $20.1 and $25.8, respectively	339.7		322.8
Prepaid expenses	87.4		86.6
Other current assets	114.2		96.7
Total current assets	738.1		696.3

Property, equipment and software, net	608.8		612.2
Goodwill, net	1,452.4		877.7
Intangible assets, net	1,019.0		921.5
Operating right-of-use assets	126.3		144.4
Other non-current assets	151.6		141.6
Total assets	$	4,096.2	$	3,393.7

LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued expenses	$	432.7	$	401.9
Accrued compensation and benefits	72.2		72.3
Deferred revenue	78.8		72.5
Debt	23.0		54.0
Accrued interest	20.5		8.3
Operating lease liabilities	66.0		58.7
Finance lease liabilities	55.8		50.8
Financing obligations	14.0		16.9
Other current liabilities	36.5		36.0
Total current liabilities	799.5		771.4

Non-current liabilities:
Debt	2,839.6		2,816.0
Operating lease liabilities	74.6		90.3
Finance lease liabilities	308.0		295.0
Financing obligations	52.4		41.3
Deferred income taxes	79.2		35.6
Other non-current liabilities	97.4		100.3
Total liabilities	4,250.7		4,149.9

Commitments and Contingencies

Stockholders' deficit:
Preferred stock, $0.01 par value per share: 5.0 shares authorized; no shares issued or outstanding	—		—
Common stock, $0.01 par value per share: 1,495.0 shares authorized; 220.5 and 228.7 shares issued; 217.4 and 225.6 shares outstanding, respectively	2.2		2.3
Additional paid-in capital	2,638.2		2,661.1
Accumulated other comprehensive income	60.3		51.2
Accumulated deficit	(2,824.2)		(3,439.8)
Treasury stock, at cost; 3.1 shares held	(31.0)		(31.0)
Total stockholders' deficit	(154.5)		(756.2)
Total liabilities and stockholders' deficit	$	4,096.2	$	3,393.7


	Six Months Ended June 30,
(In millions)	2023		2024
Cash Flows From Operating Activities
Net loss	$	(639.2)	$	(615.6)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization	192.4		149.0
Amortization of operating right-of-use assets	42.5		34.2
Deferred income taxes	(17.0)		(51.2)
Share-based compensation expense	34.7		32.3
Impairment of goodwill	543.1		573.2
Impairment of assets, net	—		20.0

Debt modification costs and gain on debt extinguishment	(107.7)		(129.2)
Unrealized loss on derivative contracts	7.7		—
Gain on investments, net	(0.2)		(0.1)
Provision for bad debts and accrued customer credits	5.0		10.8
Amortization of debt issuance costs and debt discount and premium	4.0		(3.5)
Third party fees paid in connection with the Refinancing Transactions	—		(31.7)
Other operating activities	—		(2.9)
Changes in operating assets and liabilities:
Accounts receivable	74.7		10.4
Prepaid expenses and other current assets	23.5		4.2
Accounts payable, accrued expenses, and other current liabilities	(101.2)		(35.5)
Deferred revenue	(9.2)		(7.7)
Operating lease liabilities	(30.8)		(43.8)
Other non-current assets and liabilities	13.6		20.9
Net cash provided by (used in) operating activities	35.9		(66.2)
Cash Flows From Investing Activities
Purchases of property, equipment and software	(35.5)		(66.7)

Proceeds from sale of headquarters	—		16.9

Other investing activities	0.6		0.3
Net cash used in investing activities	(34.9)		(49.5)
Cash Flows From Financing Activities

Proceeds from employee stock plans	0.8		0.4
Shares of common stock withheld for employee taxes	—		(3.4)


Proceeds from borrowings under long-term debt arrangements	50.0		275.0
Payments on long-term debt	(67.0)		(91.9)

Debt extinguishment costs	—		(22.1)
Payments on financing component of interest rate swap	(8.6)		(8.6)
Principal payments of finance lease liabilities	(39.1)		(30.8)

Principal payments of financing obligations	(6.9)		(8.2)

Net cash provided by (used in) financing activities	(70.8)		110.4
Effect of exchange rate changes on cash, cash equivalents, and restricted cash	1.4		(1.3)
Decrease in cash, cash equivalents, and restricted cash	(68.4)		(6.6)
Cash, cash equivalents, and restricted cash at beginning of period	231.4		199.7
Cash, cash equivalents, and restricted cash at end of period	$	163.0	$	193.1



Supplemental Cash Flow Information
Cash payments for interest, net of amount capitalized	$	113.6	$	70.1
Cash payments for income taxes, net of refunds	$	5.6	$	6.8

Non-cash Investing and Financing Activities
Acquisition of property, equipment and software by finance leases	$	63.2	$	13.7
Acquisition of property, equipment and software by financing obligations	8.5		—
Increase (decrease) in property, equipment and software accrued in liabilities	9.0		(1.3)
Other non-cash additions	—		(0.5)
Non-cash purchases of property, equipment and software	$	80.7	$	11.9

Non-cash gain on sale of property and equipment	$	—	$	(5.1)


(In millions, except %)	Three Months Ended June 30,				% Change
Revenue by segment:	2023		2024		Actual		Constant Currency (a)
Public Cloud	$	433.7	$	424.9	(2.0)	%	(2.0)	%
Private Cloud	312.6		260.0		(16.8)	%	(17.0)	%


Total consolidated revenue	$	746.3	$	684.9	(8.2)	%	(8.3)	%


(a)			Refer to "Non-GAAP Financial Measures" in this section for further explanation and reconciliation.


(a)			Segment revenue less expenses directly attributable to running the respective segments’ business. These expenses exclude centralized corporate function costs.
(b)			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.
(c)			Refer to "Non-GAAP Financial Measures" in this section for further explanation and reconciliation.


	Three Months Ended June 30, 2023		Three Months Ended June 30, 2024						% Change
(In millions, except %)	Revenue		Revenue		Foreign Currency Translation (a)		Revenue in Constant Currency		Actual		Constant Currency
Public Cloud	$	433.7	$	424.9	$	—	$	424.9	(2.0)	%	(2.0)	%
Private Cloud	312.6		260.0		(0.5)		259.5		(16.8)	%	(17.0)	%

Total	$	746.3	$	684.9	$	(0.5)	$	684.4	(8.2)	%	(8.3)	%


	Six Months Ended June 30, 2023		Six Months Ended June 30, 2024						% Change
(In millions, except %)	Revenue		Revenue		Foreign Currency Translation (a)		Revenue in Constant Currency		Actual		Constant Currency
Public Cloud	$	877.2	$	847.3	$	(0.7)	$	846.6	(3.4)	%	(3.5)	%
Private Cloud	627.8		528.4		(2.6)		525.8		(15.8)	%	(16.3)	%

Total	$	1,505.0	$	1,375.7	$	(3.3)	$	1,372.4	(8.6)	%	(8.8)	%


(a)			Adjustments for retention bonuses, mainly in connection with restructuring and transformation projects, and the related payroll tax, and payroll taxes associated with the exercise of stock options and vesting of restricted stock. Beginning in the second quarter of 2023, includes expense related to the one-time grant of long-term incentive bonuses as a component of our annual compensation award process.
(b)			Adjustment for the impact of purchase accounting from the November 2016 merger on expenses.
(c)			Adjustment for the impact of business transformation and optimization activities, as well as associated severance, certain facility closure costs and lease termination expenses.


(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. Beginning in the second quarter of 2023, includes expense related to the one-time grant of long-term incentive bonuses as a component of our annual compensation award process.
(b)			Includes legal, professional, accounting and other advisory fees related to acquisitions, certain one-time compliance costs related to being a public company, integration costs of acquired businesses, purchase accounting adjustments, 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, certain facility closure costs, and lease termination expenses. The six months ended June 30, 2024 also includes a $9.0 million MEIA early termination fee associated with the sale of our corporate headquarters in March 2024.


(d)			Expense recognized related to the closure of a UK office that we exited in the second quarter of 2023 prior to the lease end date.
(e)			Includes gains and losses on investment and from dispositions.

(f)			Interest expense impact due to the accounting for contractual interest payments on debt instruments entered into as part of the March 2024 Refinancing Transactions, which reduced interest expense relative to contractual interest cost.
(g)			Primarily consists of foreign currency gains and losses.
(h)			All of our intangible assets are attributable to acquisitions, including the November 2016 merger.
(i)			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 2023 and 2024 interim periods, we based it on an average of the 2022 and estimated 2023 tax rates and 2023 and estimated 2024 tax rates, respectively, 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% for all periods. 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.
(j)			Primarily consists of foreign currency gains and losses and expense related to our accounts receivable purchase agreement.
(k)			Excludes accelerated depreciation expense related to facility closures.


	Three Months Ended June 30,				Six Months Ended June 30,
(In millions, except per share amounts)	2023		2024		2023		2024

Net income (loss) attributable to common stockholders	$	(27.2)	$	25.0	$	(639.2)	$	(615.6)
Non-GAAP Net Loss	$	(13.5)	$	(19.4)	$	(18.2)	$	(43.7)

Weighted average number of shares - Diluted	215.1		229.6		214.2		222.2
Effect of dilutive securities (a)	1.2		—		1.4		7.3
Non-GAAP weighted average number of shares - Diluted	216.3		229.6		215.6		229.5

Net earnings (loss) per share - Diluted	$	(0.13)	$	0.11	$	(2.98)	$	(2.77)
Per share impacts of adjustments to net income (loss) (b)	0.06		(0.19)		2.90		2.57
Per share impacts of shares dilutive after adjustments to net income (loss) (a)	0.01		0.00		0.00		0.01
Non-GAAP Earnings (Loss) Per Share	$	(0.06)	$	(0.08)	$	(0.08)	$	(0.19)


(a)			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 Earnings (Loss) Per Share 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.
(b)			Reflects the aggregate adjustments made to reconcile Non-GAAP Net Income (Loss) to our net income (loss), as noted in the above table, divided by the GAAP diluted number of shares outstanding for the relevant period.