Rackspace Technology, Inc. — FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021; filed March 1, 2022. This is an annual report, not a standalone fourth-quarter earnings report. Rackspace provides multicloud technology services through Multicloud Services, Apps & Cross Platform, and legacy OpenStack Public Cloud.
Financial performance
| Metric | FY2021 | FY2020 |
|---|---|---|
| Revenue | $3,009.5 million | $2,707.1 million |
| Gross profit / margin | $936.8 million / 31.1% | $984.4 million / 36.4% |
| Operating income (loss) | $(2.5) million | $24.7 million |
| Net loss | $(218.3) million | $(245.8) million |
| Operating cash flow | $370.8 million | $116.7 million |
| Capital expenditures | $202.9 million | $224.6 million |
| Adjusted EBITDA (non-GAAP) | $725.8 million | $762.8 million |
| Non-GAAP net income | $206.5 million | $151.3 million |
- Revenue rose 11.2% (10.1% constant currency). Multicloud Services grew 14.4% to $2,449.1 million; Apps & Cross Platform rose 12.2% to $377.6 million. OpenStack Public Cloud declined 20.2% to $182.8 million.
- Core revenue, combining the first two segments, increased 14.1%. Growth offerings—primarily managed public cloud and VMware cloud services—were about 75% of Multicloud Services and grew 30%.
- Gross margin fell 5.3 percentage points as third-party infrastructure costs and lower-margin public-cloud mix grew faster than revenue. SG&A decreased 5.5% to $906.8 million.
- Net loss narrowed by $27.5 million, helped by lower interest expense, but GAAP operating results included a $52.4 million goodwill impairment and a $19.9 million land-sale gain. FY2021 also included $37.5 million of debt modification and extinguishment costs.
- ARR increased to $2,984.9 million from $2,711.1 million. Bookings declined to $1,030.5 million from $1,126.1 million; management attributed the decline partly to prioritizing growth and profitability from customers acquired in 2019–2020. ARR and Bookings are company-defined measures and have stated limitations.
Cash, debt and liquidity
- Cash and cash equivalents were $272.8 million at year-end, versus $104.7 million. Operating cash flow increased to $370.8 million, driven by higher collections, customer prepayments, lower interest payments and lower employee-related payments; increased operating expense payments, particularly third-party infrastructure, partly offset the improvement.
- Capital expenditures were $202.9 million, or about 7% of revenue. The company expects to maintain or reduce capital intensity over the longer term as revenue shifts toward less capital-intensive offerings.
- Year-end face-value debt was $3,382.8 million: $2,282.8 million under the Term Loan Facility and $550 million each of 3.50% secured and 5.375% unsecured notes. The revolving facility had $375 million of undrawn capacity; no revolving borrowings or letters of credit were outstanding. The balance sheet reported debt of $3,333.9 million before current/non-current presentation and netting of issuance costs and discount.
- The February 2021 refinancing replaced the prior term loan with a $2.3 billion term loan due 2028 and issued $550 million of 3.50% secured notes due 2028. The company also repaid and terminated its receivables financing facility. Interest expense declined to $205.1 million from $268.4 million.
- Management said available cash and liquidity sources were expected to cover needs for at least 12 months, while cautioning that future cash generation and access to financing are not assured. The company reported compliance with debt covenants at year-end. Substantial leverage, variable-rate exposure, restrictive covenants and debt-service requirements remain key risks.
Outlook, material developments and risks
- The July 2021 restructuring plan is expected to eliminate approximately 10% of the workforce. The company recorded $50.5 million of related costs in FY2021, expected about $15 million of additional expense over the following 12 months, and projected $95–$100 million of gross annual savings versus pre-plan expense levels. Realization and timing are uncertain.
- Management’s strategy emphasizes growth in multicloud and private-cloud solutions, professional services, security and data offerings, customer retention, expanded automation, and operating-cost efficiency. The filing does not provide formal FY2022 revenue or earnings guidance.
- The OpenStack Public Cloud reporting unit was written down by $52.4 million after forecast margins and cash flows deteriorated; its goodwill was fully impaired. The independent auditor identified the Multicloud Services goodwill valuation as a critical audit matter because it required significant estimates, although the filing reports no impairment for that unit.
- Management said COVID-19 had not materially affected results to date, but noted uncertainty around customer spending, collections, sales cycles and operations. Other significant risks include customer churn and pricing/margin pressure, dependence on hyperscaler and other third-party partners, cyberattacks and service outages, employee retention, international and foreign-exchange exposure, power costs, and tax and regulatory matters.
- No litigation was identified as reasonably expected to have a material adverse effect. The auditor gave unqualified opinions on the financial statements and internal control over financial reporting; management also concluded disclosure controls and internal controls were effective at year-end.
Important facts for investors to verify
- Whether revenue and ARR growth convert into improved gross margin and GAAP profitability, given the continued shift toward lower-gross-margin public-cloud services.
- Whether the restructuring delivers the projected $95–$100 million in annual savings, and how much further implementation cost or operational disruption arises.
- Debt repayment capacity and sensitivity to interest rates, refinancing conditions, covenant limits and the LIBOR transition; compare reported face-value debt with balance-sheet carrying amounts.
- Cash-flow sustainability: FY2021 operating cash flow benefited from collections and prepayments, while infrastructure costs rose.
- Customer retention, Bookings trends and the performance of growth offerings; interpret ARR and Bookings in light of the company’s disclosed metric limitations.