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Rackspace® Hosting, Inc. (NYSE: RAX), the open cloud company,
announced financial results for the quarter ended December 31, 2012.
Net revenue for the fourth quarter of 2012 was $353 million, up 5.0%
from the previous quarter and 25% from the fourth quarter of 2011. Net
revenue for the fourth quarter of 2012 was positively impacted by
currency exchange rates when compared to the fourth quarter of 2011 by
$1.8 million and positively impacted when compared to the previous
quarter by $1.4 million.
Total server count increased to 90,524, up from 89,051 servers at the
end of the previous quarter, and total customers increased to 205,538,
up from 197,635 at the end of the previous quarter.
“We are very pleased with the financial results we have delivered in
2012. Even more importantly, we are excited about the growth
opportunities that our new set of open cloud products will provide us in
the future,” said Karl Pichler, chief financial officer.
Adjusted EBITDA for the quarter was $130 million, a 6.6% increase
compared to the third quarter of 2012 and a 27% increase compared to the
fourth quarter of 2011. The adjusted EBITDA margin for the quarter was
36.8% compared to 36.2% in the previous quarter and 36.1% for the fourth
quarter of 2011.
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 2012, the non-cash
data center lease charge was $2.9 million.
Net income was $30 million for the quarter, up 10.0% from the previous
quarter and up 19% from the fourth quarter of 2011. Net income margin
for the quarter was 8.5% compared to 8.1% for the previous quarter and
8.8% in the fourth quarter of 2011.
Cash flow from operating activities was $121 million for the fourth
quarter of 2012. Capital expenditures were $88 million, including $60
million for purchases of customer gear, $8 million for data center build
outs, $2 million for office build outs and $18 million for capitalized
software and other projects.
Adjusted free cash flow(1) for the quarter was $39 million.
Return on capital(1) improved to 16.9% in the fourth quarter,
compared to 16.0% in the prior quarter and 17.2% in the fourth quarter
of 2011. Average monthly revenue per server grew for the fourteenth
consecutive quarter to $1,310 from $1,287 in the prior quarter and
$1,191 in the fourth quarter of 2011.
At the end of the fourth quarter of 2012, cash and cash equivalents were
$292 million, and debt including capital lease obligations totaled $125
million.
On a worldwide basis, Rackspace employed 4,852 Rackers as of
December 31, 2012, up from 4,596 in the previous quarter.
“During 2012 we made significant investments across the business to
bolster our systems, products, and service delivery capabilities. One of
the most important projects we completed in 2012 was the launch of our
Open Cloud platform,” said Lanham Napier, chief executive officer.
Rackspace Developments and Business Highlights
Rackspace was featured at #34 on FORTUNE Magazine’s “100 Best
Companies to Work For” List. This is Rackspace’s fifth time in six
years making the list. We were chosen for enhanced pay and leave
practices, all while preserving and improving the company’s unique
culture, even during growth.
Rackspace also enhanced its service offerings for its open cloud
platform through Managed and Critical Application Services. Critical
Application Services allows companies to focus on their core business
while Rackspace keeps their vital applications running smoothly.
Rackspace’s Managed Cloud Services became available for seven new
products launched during the year as part of the open cloud platform.
It offers customers access to a team that can help them plan, deploy,
and run websites or applications on the Rackspace open cloud.
Rackspace also improved its SharePoint Services, offering a complete
end-to-end SharePoint solution that provides design, development,
support and training services.
Rackspace announced a strategic agreement with Hortonworks, a leader
in Apache Hadoop development, implementation, support, operations and
training, to empower customers with an enterprise-ready Hadoop
platform that is easy to use in the Cloud. Together, Rackspace and
Hortonworks will focus on eliminating the complexities that are
required for implementing a Big Data solution. The joint effort will
pursue an OpenStack-based Hadoop solution for the public and private
cloud, which can easily be deployed in minutes.
Rackspace expanded its OpenStack® training offering by
launching the industry’s first certification program for the open
source cloud computing software. Since launching the program for
OpenStack in 2011, Rackspace has trained hundreds of students across
North America, Europe, Asia, Africa and Australia. Rackspace currently
offers a variety of public and private classes in which students learn
how to use and operate OpenStack technology both in a public and
private cloud environment.
Rackspace won the prestigious UK Customer Experience Award for IT &
Telecoms. Rackspace was recognized as an outstanding leader among
organizations that place customer service at the forefront of their
commercial operation, which Rackspace delivers through a service
approach we refer to as Fanatical Support®.
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 888-857-6932 from the United
States and Canada or dial 719-325-2352 from abroad and reference pass
code 9729354. 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 Hosting
Rackspace® Hosting (NYSE: RAX) is the open cloud company,
delivering open technologies and powering more than 200,000 customers
worldwide. Rackspace provides its renowned Fanatical Support®
across a portfolio of IT products, including Public Cloud, Private
Cloud, Hybrid Hosting and Dedicated Hosting. The company offers choice,
flexibility and freedom from vendor lock-in. Rackspace has been
recognized by Bloomberg BusinessWeek as a Top 100 Performing Technology
Company and was featured on Fortune's list of 100 Best Companies to Work
For. Rackspace was positioned in the Leaders Quadrant by Gartner Inc. in
the “2011 Magic Quadrant for Managed Hosting.” Rackspace is
headquartered in San Antonio with offices and data centers around the
world. 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 Hosting 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 expected operational and financial results, long-term
investment strategies, growth plans, expected results from the
integration of technologies and acquired businesses, the performance or
market share relating to products and services; any statements of
expectation or belief; and any statements or assumptions underlying any
of the foregoing. Risks, uncertainties and assumptions include
infrastructure failures, the deterioration of economic conditions or
fluctuations, disruptions, instability or downturns in the economy, the
effectiveness of managing company growth, technological and competitive
factors, regulatory factors, and other risks that are described in
Rackspace Hosting's Form 10-Q for the quarter ended September 30, 2012,
filed with the SEC on November 7, 2012, and in Rackspace Hosting's Form
10-K for the year ended December 31, 2012, expected to be filed by March
1, 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
Three Months Ended
Year Ended
(Unaudited)
(Unaudited)
(In thousands, except per share data)
December 31, 2011
September 30, 2012
December 31, 2012
December 31, 2011
December 31, 2012
Net revenue
$
283,261
$
335,985
$
352,909
$
1,025,064
$
1,309,239
Costs and expenses:
Cost of revenue
82,851
94,731
95,456
309,095
367,479
Sales and marketing
33,452
38,924
41,069
126,505
158,108
General and administrative
72,349
93,028
97,847
270,581
361,066
Depreciation and amortization
54,844
63,972
68,914
195,412
249,845
Total costs and expenses
243,496
290,655
303,286
901,593
1,136,498
Income from operations
39,765
45,330
49,623
123,471
172,741
Other income (expense):
Interest expense
(1,304
)
(1,253
)
(991
)
(5,848
)
(4,749
)
Interest and other income (expense)
(226
)
38
245
(1,194
)
15
Total other income (expense)
(1,530
)
(1,215
)
(746
)
(7,042
)
(4,734
)
Income before income taxes
38,235
44,115
48,877
116,429
168,007
Income taxes
13,188
16,918
18,970
40,018
62,589
Net income
$
25,047
$
27,197
$
29,907
$
76,411
$
105,418
Net income per share
Basic
$
0.19
$
0.20
$
0.22
$
0.59
$
0.78
Diluted
$
0.18
$
0.19
$
0.21
$
0.55
$
0.75
Weighted average number of shares outstanding
Basic
131,423
135,946
137,055
129,922
135,279
Diluted
138,912
141,474
142,549
138,064
141,265
Consolidated Balance Sheets
(In thousands)
December 31, 2011
December 31, 2012
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents
$
159,856
$
292,061
Accounts receivable, net of allowance for doubtful accounts and
customer credits of $3,420 as of December 31, 2011 and $4,236 as of
December 31, 2012
68,709
92,834
Deferred income taxes
9,841
10,320
Prepaid expenses
22,006
25,195
Other current assets
2,953
4,835
Total current assets
263,365
425,245
Property and equipment, net
627,490
724,985
Goodwill
59,993
68,742
Intangible assets, net
26,034
23,802
Other non-current assets
49,600
52,777
Total assets
$
1,026,482
$
1,295,551
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses
$
156,004
$
175,128
Current portion of deferred revenue
14,835
17,265
Current portion of obligations under capital leases
66,031
61,302
Current portion of debt
879
1,744
Total current liabilities
237,749
255,439
Non-current deferred revenue
3,446
3,695
Non-current obligations under capital leases
72,216
60,335
Non-current debt
—
1,991
Non-current deferred income taxes
68,781
71,081
Non-current deferred rent
23,343
32,293
Other non-current liabilities
21,524
27,070
Total liabilities
427,059
451,904
COMMITMENTS AND CONTINGENCIES
Stockholders' equity:
Common stock
132
138
Additional paid-in capital
383,031
515,188
Accumulated other comprehensive loss
(14,732
)
(8,089
)
Retained earnings
230,992
336,410
Total stockholders’ equity
599,423
843,647
Total liabilities and stockholders’ equity
$
1,026,482
$
1,295,551
Consolidated Statements of Cash Flows
Three Months Ended
Year Ended
(Unaudited)
(Unaudited)
(in thousands)
December 31, 2011
September 30, 2012
December 31, 2012
December 31, 2011
December 31, 2012
Cash Flows From Operating Activities
Net income
$
25,047
$
27,197
$
29,907
$
76,411
$
105,418
Adjustments to reconcile net income to net cash provided by
operating activities
Depreciation and amortization
54,844
63,972
68,914
195,412
249,845
Loss on disposal of equipment, net
(110
)
597
624
247
1,586
Provision for bad debts and customer credits
1,451
1,426
1,741
5,913
6,300
Deferred income taxes
4,802
1,120
(4,568
)
13,991
(775
)
Deferred rent
1,200
2,279
2,930
9,471
9,259
Share-based compensation expense
7,585
12,418
11,244
28,773
41,546
Excess tax benefits from share-based compensation arrangements
(8,711
)
(5,145
)
(11,065
)
(20,627
)
(46,046
)
Changes in certain assets and liabilities
Accounts receivable
(9,442
)
(9,789
)
(162
)
(26,805
)
(29,265
)
Income taxes receivable
—
—
—
4,397
—
Prepaid expenses and other current assets
7,494
(18,910
)
6,127
(2,597
)
(4,903
)
Accounts payable and accrued expenses
15,626
25,027
15,062
38,886
66,268
Deferred revenue
614
(997
)
2,477
(482
)
2,185
All other operating activities
888
(190
)
(2,443
)
1,405
(1,919
)
Net cash provided by operating activities
101,288
99,005
120,788
324,395
399,499
Cash Flows From Investing Activities
Purchases of property and equipment
(63,385
)
(53,449
)
(82,919
)
(251,214
)
(270,374
)
Acquisitions, net of cash acquired
—
(5,233
)
—
(952
)
(5,945
)
All other investing activities
63
3
56
168
98
Net cash used in investing activities
(63,322
)
(58,679
)
(82,863
)
(251,998
)
(276,221
)
Cash Flows From Financing Activities
Principal payments of capital leases
(16,924
)
(17,928
)
(22,958
)
(65,778
)
(75,928
)
Principal payments of notes payable
(437
)
(1,032
)
(51
)
(1,913
)
(1,962
)
Payments for debt issuance costs
—
—
—
(1,114
)
—
Payments for deferred acquisition obligations
(2,399
)
—
(1,450
)
(5,299
)
(6,176
)
Proceeds from notes payable
—
691
—
—
691
Receipt of Texas Enterprise Fund Grant
—
—
—
—
3,500
Proceeds from employee stock plans
8,505
13,671
9,770
36,287
41,284
Excess tax benefits from share-based compensation arrangements
8,711
5,145
11,065
20,627
46,046
Net cash provided by (used in) financing activities
(2,544
)
547
(3,624
)
(17,190
)
7,455
Effect of exchange rate changes on cash and cash equivalents
(246
)
1,330
109
(292
)
1,472
Increase in cash and cash equivalents
35,176
42,203
34,410
54,915
132,205
Cash and cash equivalents, beginning of period
124,680
215,448
257,651
104,941
159,856
Cash and cash equivalents, end of period
$
159,856
$
257,651
$
292,061
$
159,856
$
292,061
Supplemental cash flow information:
Non-cash purchases of property and equipment
$
15,970
$
31,934
$
5,096
$
93,680
$
67,308
Key Metrics - Quarter to Date
(Unaudited)
Three Months Ended
(Dollar amounts in thousands, except average monthly revenue per
server)
December 31, 2011
March 31, 2012
June 30, 2012
September 30, 2012
December 31, 2012
Growth
Dedicated Cloud, net revenue
$
224,808
$
236,604
$
246,417
$
256,559
$
265,585
Public Cloud, net revenue
$
58,453
$
64,751
$
72,573
$
79,426
$
87,324
Net revenue
$
283,261
$
301,355
$
318,990
$
335,985
$
352,909
Revenue growth (year over year)
31.9
%
31.0
%
29.0
%
27.0
%
24.6
%
Net upgrades (monthly average)
2.0
%
1.5
%
1.7
%
1.6
%
1.2
%
Churn (monthly average)
-0.8
%
-0.8
%
-0.8
%
-0.8
%
-0.7
%
Growth in installed base (monthly average) (2)
1.2
%
0.7
%
1.0
%
0.8
%
0.5
%
Number of customers at period end (3)
172,510
180,866
190,958
197,635
205,538
Number of employees (Rackers) at period end
4,040
4,335
4,528
4,596
4,852
Number of servers deployed at period end
79,805
82,438
84,978
89,051
90,524
Average monthly revenue per server
$
1,191
$
1,238
$
1,270
$
1,287
$
1,310
Profitability
Income from operations
$
39,765
$
37,084
$
40,704
$
45,330
$
49,623
Depreciation and amortization
$
54,844
$
55,151
$
61,808
$
63,972
$
68,914
Share-based compensation expense
Cost of revenue
$
1,047
$
1,236
$
1,113
$
1,282
$
1,499
Sales and marketing
$
839
$
1,114
$
1,393
$
1,943
$
1,647
General and administrative
$
5,699
$
6,159
$
6,869
$
9,193
$
8,098
Total share-based compensation expense
$
7,585
$
8,509
$
9,375
$
12,418
$
11,244
Adjusted EBITDA (1)
$
102,194
$
100,744
$
111,887
$
121,720
$
129,781
Adjusted EBITDA margin
36.1
%
33.4
%
35.1
%
36.2
%
36.8
%
Operating income margin
14.0
%
12.3
%
12.8
%
13.5
%
14.1
%
Income from operations
$
39,765
$
37,084
$
40,704
$
45,330
$
49,623
Effective tax rate
34.5
%
35.5
%
35.7
%
38.3
%
38.8
%
Net operating profit after tax (NOPAT) (1)
$
26,046
$
23,919
$
26,173
$
27,969
$
30,369
NOPAT margin
9.2
%
7.9
%
8.2
%
8.3
%
8.6
%
Capital efficiency and returns
Interest bearing debt
$
139,126
$
143,978
$
149,226
$
150,112
$
125,372
Stockholders' equity
$
599,423
$
668,436
$
714,819
$
781,934
$
843,647
Less: Excess cash
$
(125,865
)
$
(150,368
)
$
(177,169
)
$
(217,333
)
$
(249,712
)
Capital base
$
612,684
$
662,046
$
686,876
$
714,713
$
719,307
Average capital base
$
607,477
$
637,365
$
674,461
$
700,795
$
717,010
Capital turnover (annualized)
1.87
1.89
1.89
1.92
1.97
Return on capital (annualized) (1)
17.2
%
15.0
%
15.5
%
16.0
%
16.9
%
Capital expenditures
Purchases of property and equipment
$
63,385
$
64,621
$
69,385
$
53,449
$
82,919
Non-cash purchases of property and equipment
$
15,970
$
17,695
$
12,583
$
31,934
$
5,096
Total capital expenditures
$
79,355
$
82,316
$
81,968
$
85,383
$
88,015
Customer gear
$
47,376
$
52,999
$
53,746
$
51,026
$
60,099
Data center build outs
$
6,568
$
9,473
$
3,285
$
5,767
$
7,768
Office build outs
$
9,915
$
4,666
$
4,015
$
3,413
$
2,288
Capitalized software and other projects
$
15,496
$
15,178
$
20,922
$
25,177
$
17,860
Total capital expenditures
$
79,355
$
82,316
$
81,968
$
85,383
$
88,015
Infrastructure capacity and utilization
Megawatts under contract at period end
48.1
47.8
58.0
58.0
61.1
Megawatts available for use at period end
30.7
32.2
32.7
33.7
36.9
Megawatts utilized at period end
20.9
21.4
22.7
23.5
24.0
Annualized net revenue per average Megawatt of power utilized
$
55,136
$
56,994
$
57,867
$
58,179
$
59,437
(1)
See discussion and reconciliation of our Non-GAAP financial
measures to the most comparable GAAP measures.
(2)
Due to rounding, totals may not equal the sum of the line items in
the table above.
(3)
Customers are counted on an account basis, and therefore a
customer with more than one account with us is included as more
than one customer. Furthermore, amounts include SaaS customers for
Jungle Disk using a Rackspace storage solution. Jungle Disk
customers using a third-party storage solution are excluded.
Key Metrics - Year to Date
(Unaudited)
Year Ended December 31,
(Dollar amounts in thousands, except average monthly revenue per
server)
2011
2012
Growth
Dedicated Cloud, net revenue
$
835,877
$
1,005,165
Public Cloud, net revenue
$
189,187
$
304,074
Net revenue
$
1,025,064
$
1,309,239
Revenue growth (year over year)
31.3
%
27.7
%
Net upgrades (monthly average)
1.9
%
1.5
%
Churn (monthly average)
-0.9
%
-0.8
%
Growth in installed base (monthly average) (2)
1.0
%
0.8
%
Number of customers at period end (3)
172,510
205,538
Number of employees (Rackers) at period end
4,040
4,852
Number of servers deployed at period end
79,805
90,524
Average monthly revenue per server
$
1,157
$
1,278
Profitability
Income from operations
$
123,471
$
172,741
Depreciation and amortization
$
195,412
$
249,845
Share-based compensation expense
Cost of revenue
$
4,220
$
5,130
Sales and marketing
$
2,313
$
6,097
General and administrative
$
22,240
$
30,319
Total share-based compensation expense
$
28,773
$
41,546
Adjusted EBITDA (1)
$
347,656
$
464,132
Adjusted EBITDA margin
33.9
%
35.5
%
Operating income margin
12.0
%
13.2
%
Income from operations
$
123,471
$
172,741
Effective tax rate
34.4
%
37.3
%
Net operating profit after tax (NOPAT) (1)
$
80,997
$
108,309
NOPAT margin
7.9
%
8.3
%
Capital efficiency and returns
Interest bearing debt
$
139,126
$
125,372
Stockholders' equity
$
599,423
$
843,647
Less: Excess cash
$
(125,865
)
$
(249,712
)
Capital base
$
612,684
$
719,307
Average capital base
$
552,328
$
679,125
Capital turnover
1.86
1.93
Return on capital (1)
14.7
%
15.9
%
Capital expenditures
Purchases of property and equipment
$
251,214
$
270,374
Non-cash purchases of property and equipment
$
93,680
$
67,308
Total capital expenditures
$
344,894
$
337,682
Customer gear
$
196,096
$
217,870
Data center build outs
$
49,947
$
26,293
Office build outs
$
35,752
$
14,382
Capitalized software and other projects
$
63,099
$
79,137
Total capital expenditures
$
344,894
$
337,682
Infrastructure capacity and utilization
Megawatts under contract at period end
48.1
61.1
Megawatts available for use at period end
30.7
36.9
Megawatts utilized at period end
20.9
24.0
Annual net revenue per average Megawatt of power utilized
$
54,065
$
58,188
(1)
See discussion and reconciliation of our Non-GAAP financial
measures to the most comparable GAAP measures.
(2)
Due to rounding, totals may not equal the sum of the line items in
the table above.
(3)
Customers are counted on an account basis, and therefore a
customer with more than one account with us is included as more
than one customer. Furthermore, amounts include SaaS customers for
Jungle Disk using a Rackspace storage solution. Jungle Disk
customers using a third-party storage solution are excluded.
Consolidated Quarterly Statements of Income
(Unaudited)
Three Months Ended
(In thousands)
December 31, 2011
March 31, 2012
June 30, 2012
September 30, 2012
December 31, 2012
Net revenue
$
283,261
$
301,355
$
318,990
$
335,985
$
352,909
Costs and expenses:
Cost of revenue
82,851
87,240
90,052
94,731
95,456
Sales and marketing
33,452
38,502
39,613
38,924
41,069
General and administrative
72,349
83,378
86,813
93,028
97,847
Depreciation and amortization
54,844
55,151
61,808
63,972
68,914
Total costs and expenses
243,496
264,271
278,286
290,655
303,286
Income from operations
39,765
37,084
40,704
45,330
49,623
Other income (expense):
Interest expense
(1,304
)
(1,272
)
(1,233
)
(1,253
)
(991
)
Interest and other income (expense)
(226
)
137
(405
)
38
245
Total other income (expense)
(1,530
)
(1,135
)
(1,638
)
(1,215
)
(746
)
Income before income taxes
38,235
35,949
39,066
44,115
48,877
Income taxes
13,188
12,769
13,932
16,918
18,970
Net income
$
25,047
$
23,180
$
25,134
$
27,197
$
29,907
Three Months Ended
(Percent of net revenue)
December 31, 2011
March 31, 2012
June 30, 2012
September 30, 2012
December 31, 2012
Net revenue
100.0
%
100.0
%
100.0
%
100.0
%
100.0
%
Costs and expenses:
Cost of revenue
29.2
%
28.9
%
28.2
%
28.2
%
27.0
%
Sales and marketing
11.8
%
12.8
%
12.4
%
11.6
%
11.6
%
General and administrative
25.5
%
27.7
%
27.2
%
27.7
%
27.7
%
Depreciation and amortization
19.4
%
18.3
%
19.4
%
19.0
%
19.5
%
Total costs and expenses
86.0
%
87.7
%
87.2
%
86.5
%
85.9
%
Income from operations
14.0
%
12.3
%
12.8
%
13.5
%
14.1
%
Other income (expense):
Interest expense
(0.5
)%
(0.4
)%
(0.4
)%
(0.4
)%
(0.3
)%
Interest and other income (expense)
(0.1
)%
0.0
%
(0.1
)%
0.0
%
0.1
%
Total other income (expense)
(0.5
)%
(0.4
)%
(0.5
)%
(0.4
)%
(0.2
)%
Income before income taxes
13.5
%
11.9
%
12.2
%
13.1
%
13.8
%
Income taxes
4.7
%
4.2
%
4.4
%
5.0
%
5.4
%
Net income
8.8
%
7.7
%
7.9
%
8.1
%
8.5
%
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 Adjusted
EBITDA to net income reconciliations in the table below.
Three Months Ended
(Dollars in thousands)
December 31, 2011
March 31, 2012
June 30, 2012
September 30, 2012
December 31, 2012
Net revenue
$
283,261
$
301,355
$
318,990
$
335,985
$
352,909
Income from operations
$
39,765
$
37,084
$
40,704
$
45,330
$
49,623
Net income
$
25,047
$
23,180
$
25,134
$
27,197
$
29,907
Plus: Income taxes
13,188
12,769
13,932
16,918
18,970
Plus: Total other (income) expense
1,530
1,135
1,638
1,215
746
Plus: Depreciation and amortization
54,844
55,151
61,808
63,972
68,914
Plus: Share-based compensation expense
7,585
8,509
9,375
12,418
11,244
Adjusted EBITDA
$
102,194
$
100,744
$
111,887
$
121,720
$
129,781
Operating income margin
14.0
%
12.3
%
12.8
%
13.5
%
14.1
%
Adjusted EBITDA margin
36.1
%
33.4
%
35.1
%
36.2
%
36.8
%
Year Ended December 31,
(Dollars in thousands)
2011
2012
Net revenue
$
1,025,064
$
1,309,239
Income from operations
$
123,471
$
172,741
Net income
$
76,411
$
105,418
Plus: Income taxes
40,018
62,589
Plus: Total other (income) expense
7,042
4,734
Plus: Depreciation and amortization
195,412
249,845
Plus: Share-based compensation expense
28,773
41,546
Adjusted EBITDA
$
347,656
$
464,132
Operating income margin
12.0
%
13.2
%
Adjusted EBITDA margin
33.9
%
35.5
%
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 – 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 ROC
reconciliation to return on assets below.
Three Months Ended
(Dollars in thousands)
December 31, 2011
March 31, 2012
June 30, 2012
September 30, 2012
December 31, 2012
Income from operations
$
39,765
$
37,084
$
40,704
$
45,330
$
49,623
Effective tax rate
34.5
%
35.5
%
35.7
%
38.3
%
38.8
%
Net operating profit after tax (NOPAT)
$
26,046
$
23,919
$
26,173
$
27,969
$
30,369
Net income
$
25,047
$
23,180
$
25,134
$
27,197
$
29,907
Total assets at period end
$
1,026,482
$
1,089,393
$
1,138,728
$
1,241,765
$
1,295,551
Less: Excess cash
(125,865
)
(150,368
)
(177,169
)
(217,333
)
(249,712
)
Less: Accounts payable and accrued expenses
(156,004
)
(153,668
)
(148,091
)
(177,328
)
(175,128
)
Less: Deferred revenue (current and non-current)
(18,281
)
(20,195
)
(19,227
)
(18,483
)
(20,960
)
Less: Other non-current liabilities, deferred income taxes, and
deferred rent
(113,648
)
(103,116
)
(107,365
)
(113,908
)
(130,444
)
Capital base
$
612,684
$
662,046
$
686,876
$
714,713
$
719,307
Average total assets
$
998,580
$
1,057,938
$
1,114,061
$
1,190,247
$
1,268,658
Average capital base
$
607,477
$
637,365
$
674,461
$
700,795
$
717,010
Return on assets (annualized)
10.0
%
8.8
%
9.0
%
9.1
%
9.4
%
Return on capital (annualized)
17.2
%
15.0
%
15.5
%
16.0
%
16.9
%
Year Ended December 31,
(Dollars in thousands)
2011
2012
Income from operations
$
123,471
$
172,741
Effective tax rate
34.4
%
37.3
%
Net operating profit after tax (NOPAT)
$
80,997
$
108,309
Net income
$
76,411
$
105,418
Total assets at period end
$
1,026,482
$
1,295,551
Less: Excess cash
(125,865
)
(249,712
)
Less: Accounts payable and accrued expenses
(156,004
)
(175,128
)
Less: Deferred revenue (current and non-current)
(18,281
)
(20,960
)
Less: Other non-current liabilities, deferred income taxes, and
deferred rent
(113,648
)
(130,444
)
Capital base
$
612,684
$
719,307
Average total assets
$
895,545
$
1,158,384
Average capital base
$
552,328
$
679,125
Return on assets (Net income/Average total assets)
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 an important metric for
investors in evaluating how a company is currently using cash generated
and may indicate its ability to generate cash that can potentially be
used by the business for capital investments, acquisitions, reduction of
debt, payment of dividends, etc. 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 Adjusted Free Cash Flow reconciliation to Adjusted EBITDA below, as
well as our reconciliation of Net income to Adjusted EBITDA provided
above.
Three Months Ended
Year Ended
(In thousands)
December 31, 2012
December 31, 2012
Adjusted EBITDA
$
129,781
$
464,132
Non-cash deferred rent
2,930
9,259
Total capital expenditures
(88,015
)
(337,682
)
Cash payments for interest, net
(1,283
)
(4,809
)
Cash payments for income taxes, net
(4,706
)
(11,906
)
Adjusted free cash flow
$
38,707
$
118,994
Net Leverage (Non-GAAP financial measure)
We define Net Leverage as Net Debt divided by Adjusted EBITDA (trailing
twelve months).
We believe that Net Leverage is an important metric for investors in
evaluating a company’s liquidity. Note that Net Leverage is not a
measure of financial performance under GAAP and may not be comparable to
similarly titled measures reported by other companies. We believe that
Net Leverage provides an additional indicator when assessing our
liquidity, capital structure and leverage and provides insight into a
company's ability to assume more debt if and when required. A negative
Net Leverage indicates that our cash and cash equivalents is greater
than our total debt as of the balance sheet date. See our Net Leverage
calculation below.
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