Rackspace Technology, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; financial comparisons are with Q1 2020 unless noted. Rackspace provides multicloud technology services through Multicloud Services, Apps & Cross Platform, and OpenStack Public Cloud.
Financial performance and position
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Revenue | $725.9 million | $652.7 million |
| Gross profit / margin | $235.3 million / 32.4% | $249.3 million / 38.2% |
| Operating income | $24.2 million | $21.5 million |
| Net loss / diluted loss per share | $64.0 million / $0.31 | $48.2 million / $0.29 |
| Operating cash flow | $103.2 million | $24.8 million |
| Adjusted EBITDA (non-GAAP) | $180.2 million | $185.6 million |
Revenue increased 11.2% (10.0% constant currency). Core revenue—Multicloud Services and Apps & Cross Platform—rose 14.8% reported. Bookings were $243.5 million versus $230.5 million; ARR was $2,742.6 million versus $2,482.1 million. These are company-defined operating metrics, not GAAP measures.
At March 31, cash and cash equivalents were $198.4 million; current assets were $846.9 million and current liabilities $757.8 million. Total debt carrying value was $3,395.7 million, including $27.0 million current debt; principal outstanding was approximately $3.4 billion under the term loan and notes, plus $50 million under the receivables facility. The $375 million revolver was undrawn. Operating and finance lease liabilities totaled approximately $531 million; financing obligations were approximately $112 million. The company reported covenant compliance.
Changes versus prior period
- Revenue growth was led by Multicloud Services (+14.1%) and Apps & Cross Platform (+19.4%); OpenStack Public Cloud declined 22.6% amid customer churn.
- Gross margin fell 580 basis points as cost of revenue grew 21.6%, primarily from higher third-party infrastructure costs and larger contracts with lower margins. Adjusted EBITDA declined despite revenue growth.
- Operating cash flow increased by $78.4 million, with management citing higher customer collections and payment timing, partly offset by higher operating expense payments.
- Interest expense decreased to $52.6 million from $72.0 million, while the quarter included $37.0 million of debt modification and extinguishment costs from refinancing.
Outlook, commentary, risks, and unusual items
- Management said available cash and current operations should provide sufficient liquidity for at least the next 12 months, while cautioning that cash generation and future borrowing availability are not assured. No specific revenue or earnings guidance is provided in the supplied filing text.
- 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 term loan rate was 3.50% at quarter-end; quarterly principal amortization begins June 30, 2021. Interest-rate swaps hedge a portion of floating-rate exposure.
- A UK land sale generated $31.3 million net proceeds and a $19.9 million gain. The sale boosted reported operating income and investing cash flow.
- A useful-life reassessment reduced Q1 depreciation expense by $6.6 million. Share-based compensation rose to $17.2 million from $7.5 million; restructuring and transformation expenses were $38.6 million in the non-GAAP reconciliation.
- COVID-19 had not materially affected results to date, but its future effects remain uncertain. Other exposures include customer cancellations and churn, competition, high leverage and debt service, interest-rate and foreign-currency movements, and data-center power costs. Management reported no material change in previously disclosed risk factors and no litigation expected to have a material adverse effect.
Important facts for investors to verify
- Whether Core segment growth and bookings convert into durable revenue, given churn and the decline in OpenStack Public Cloud.
- Drivers and sustainability of gross-margin pressure, particularly third-party infrastructure costs and contract mix.
- Cash-flow quality and working-capital timing; Q1 investing cash flow benefited from the land sale, while reported capital expenditures were $58.9 million.
- Debt service, refinancing terms, floating-rate exposure, covenant headroom, and the receivables-facility borrowing-base repayment after quarter-end.
- Effects of the $6.6 million depreciation estimate change, land gain, and refinancing charges when assessing underlying operating performance.