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Rackspace Hosting Reports First Quarter 2014 Results

Rackspace® Hosting, Inc. (NYSE: RAX) announced financial results for the quarter ended March 31, 2014.

Net revenue for the first quarter of 2014 was $421 million, up 3.2% from the previous quarter and 16% from the first quarter of 2013. Net revenue for the first quarter of 2014 was positively impacted by currency exchange rates when compared to the previous quarter by $2.4 million and positively impacted when compared to the first quarter of 2013 by $6.6 million.

For the second quarter of 2014, the company is forecasting quarter-over-quarter sequential net revenue growth of 3% to 4.5%, resulting in net revenue in the range of $434 million to $440 million.

“Our first quarter revenue growth came in as expected and we expect growth to improve in the second quarter,” said Graham Weston, Chairman and CEO. “We are encouraged by qualitative factors, including the thousands of new customers we added in the quarter, including one of the largest we’ve ever landed. We also added significant new workloads for existing customers including Alex and Ani, Appboy, Clarks shoes, Under Armour and SunPower. Each of these customers values our managed cloud approach and chose us over providers of less expensive unmanaged infrastructure.”

Total server count increased to 106,229, up from 103,886 servers at the end of the previous quarter.

Adjusted EBITDA(1) for the quarter was $140 million, a 5.8% increase compared to the fourth quarter of 2013. Adjusted EBITDA margin for the quarter was 33.2% compared to 32.4% in the previous quarter.

The company expects Adjusted EBITDA margin to be in the range of 32% to 34% in the second quarter of 2014.

Net income was $25 million for the quarter, up 22.3% from the previous quarter. Net income margin for the quarter was 6.0% compared to 5.1% for the previous quarter.

Cash flow from operating activities was $142 million for the first quarter of 2014. Capital expenditures were $101 million, including $61 million for purchases of customer gear, $11 million for data center build outs, $9 million for office build outs and $20 million for capitalized software and other projects.

Adjusted Free Cash Flow(1) for the quarter was $40 million. Return on Capital(1) was 11.4% in the first quarter, compared to 9.6% in the prior quarter. Average monthly revenue per server was $1,336, compared to $1,322 in the prior quarter.

At the end of the first quarter of 2014, cash and cash equivalents were $314 million, and interest-bearing debt including capital lease obligations totaled $53 million.

On a worldwide basis, Rackspace employed 5,743 Rackers as of March 31, 2014, up from 5,651 in the previous quarter.

Rackspace Business Highlights

  • Rackspace appointed Ryan Neading chief information officer. Neading will be responsible for the Rackspace billing systems, internal IT systems and tools, technology operations, operational metrics and interfacing with external suppliers and resource providers. Neading brings with him over a decade of leadership experience and specialization in the high tech industry. Prior to joining Rackspace, Neading served as the co-leader of eBay’s development site in Austin.
  • Rackspace launched its Digital Services Practice to provide digital marketing expertise. Rackspace Digital delivers expertise to help companies more effectively engage with customers via a website, portal/extranet, mobile app or online store. By working hand-in-hand with software platforms and system integrators, Rackspace Digital provides reliable, fully managed service to help ensure the customer’s brand is never compromised.
  • Rackspace ranked No. 26 on the Sunday Times "Top 100 Best Companies to Work for in London" list. This is the ninth consecutive year Rackspace has received this award. The Sunday Times recognized Rackspace for its attitude towards Racker training and personal development and reports that Rackspace employees love their jobs, have competitive salaries, and have opportunities for personal career development.
  • Rackspace, along with Digital Realty Trust, Inc., broke ground on a new 130,000 square foot data center facility located in Crawley, West Sussex. The 15 acre campus will eventually consist of four data suites with 10 MW of total capacity. The initial outlay, which provides 6 MW across two data suites, is due to be delivered in the first half of 2015.
  • Rackspace launched ObjectRocket, its NoSQL MongoDB Database-as-a-Service (DBaaS), in its UK data center. With the open source-based MongoDB solution, Rackspace will broaden its portfolio to offer European customers a NoSQL DBaaS for big data applications. This offering will be built upon hardware optimized specifically for MongoDB and will be easily accessed and integrated into existing systems. ObjectRocket is a sharded and fully managed MongoDB service built with a set of tools and APIs designed to maximize uptime and reduce administration time - all supported by Rackspace 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 from the United States and Canada please dial 877-246-4118, from the United Kingdom please dial 0800-496-0445, and from Hong Kong please dial 800-900-872.

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 (NYSE: RAX) is a leader in managed 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 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, or 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-K for the year ended December 31, 2013, filed with the SEC on March 3, 2014, and in Rackspace Hosting’s Form 10-Q for the quarter ended March 31, 2014. 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
(In thousands, except per share data)

March 31,
2013

   

December 31,
2013

   

March 31,
2014

Net revenue $ 362,200 $ 408,103 $ 421,047
Costs and expenses:
Cost of revenue (1) 113,610 133,821 140,417
Research and development (1) 18,375 24,849 25,192
Sales and marketing (1) 49,814 55,465 57,359
General and administrative (1) 67,477 79,128 71,150
Depreciation and amortization   70,111     87,683     87,805  
Total costs and expenses   319,387     380,946     381,923  
Income from operations   42,813     27,157     39,124  
Other income (expense):
Interest expense (940 ) (656 ) (495 )
Interest and other income (expense)   199     405     265  
Total other income (expense)   (741 )   (251 )   (230 )
Income before income taxes 42,072 26,906 38,894
Income taxes   14,811     6,108     13,448  
Net income $ 27,261   $ 20,798   $ 25,446  
 
Net income per share
Basic $ 0.20   $ 0.15   $ 0.18  
Diluted $ 0.19   $ 0.14   $ 0.18  
 
Weighted average number of shares outstanding
Basic   137,742     139,875     141,048  
Diluted   143,177     144,024     143,815  
 

(1) As previously reported in the 10-Q filing for the three months ended March 31, 2013, certain reclassifications have been made to prior period amounts in order to conform to the current period's presentation. For more information, refer to our Form 10-Q for the quarter ended March 31, 2014.

       

Consolidated Balance Sheets

 
(In thousands)

December 31,
2013

March 31,
2014

(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 259,733 $ 313,835
Accounts receivable, net of allowance for doubtful accounts and customer credits of $3,891 as of December 31, 2013 and $4,548 as of March 31, 2014 123,898 118,507
Deferred income taxes 12,637 11,592
Prepaid expenses 30,782 27,175
Other current assets   11,918     12,277  
Total current assets 438,968 483,386
 
Property and equipment, net 890,776 925,136
Goodwill 81,084 81,084
Intangible assets, net 23,880 21,863
Other non-current assets   57,089     55,480  
Total assets $ 1,491,797   $ 1,566,949  
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 122,047 $ 148,180
Accrued compensation and benefits 62,459 57,316
Income and other taxes payable 11,388 18,927
Current portion of deferred revenue 22,868 21,550
Current portion of capital lease obligations 37,885 31,462
Current portion of debt   1,861     1,888  
Total current liabilities 258,508 279,323
 
Non-current liabilities:
Deferred revenue 3,662 2,935
Capital lease obligations 25,048 19,905
Finance lease obligations for assets under construction 17,604
Debt 124 71
Deferred income taxes 69,729 61,282
Deferred rent 43,046 45,377
Other liabilities   36,268     40,440  
Total liabilities 436,385 466,937
 
COMMITMENTS AND CONTINGENCIES
 
Stockholders' equity:
Common stock 141 142
Additional paid-in capital 636,660 652,994
Accumulated other comprehensive loss (4,536 ) (1,717 )
Retained earnings   423,147     448,593  
Total stockholders’ equity   1,055,412     1,100,012  
Total liabilities and stockholders’ equity $ 1,491,797   $ 1,566,949  
 
   
Consolidated Statements of Cash Flows
(Unaudited)
 
Three Months Ended
(in thousands)

March 31,
2013

   

December 31,
2013

   

March 31,
2014

Cash Flows From Operating Activities
Net income $ 27,261 $ 20,798 $ 25,446
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 70,111 87,683 87,805
Loss on disposal of equipment, net 240 100 228
Provision for bad debts and customer credits 1,060 655 1,813
Deferred income taxes 6,553 (12,407 ) (10,119 )
Deferred rent 3,965 2,279 2,256
Share-based compensation expense 12,183 17,188 12,732
Excess tax benefits from share-based compensation arrangements (4,299 ) (16,156 ) (15,100 )
Changes in certain assets and liabilities:
Accounts receivable (6,268 ) (10,344 ) 3,870
Prepaid expenses and other current assets (5,637 ) 6,290 3,337
Accounts payable and accrued expenses 3,062 8,355 30,251
Deferred revenue 1,242 4,176 (2,110 )
All other operating activities   4,320     901     1,250  
Net cash provided by operating activities 113,793 109,518 141,659
 
Cash Flows From Investing Activities
Purchases of property and equipment (105,541 ) (126,723 ) (84,953 )
Acquisitions, net of cash acquired (6,203 ) (3,727 )
All other investing activities   8     110     455  
Net cash used in investing activities (111,736 ) (130,340 ) (84,498 )
 
Cash Flows From Financing Activities
Principal payments of capital leases (18,938 ) (14,652 ) (12,586 )
Principal payments of notes payable (51 ) (52 ) (52 )
Payments for deferred acquisition obligations (1,179 ) (57 ) (57 )
Receipt of Texas Enterprise Fund grant 5,500
Common shares withheld for employee withholding taxes (13,620 )
Proceeds from employee stock plans 1,714 8,971 2,122
Excess tax benefits from share-based compensation arrangements   4,299     16,156     15,100  
Net cash provided by (used in) financing activities (14,155 ) 10,366 (3,593 )
 
Effect of exchange rate changes on cash and cash equivalents (1,336 ) 194 534
     
Increase (decrease) in cash and cash equivalents (13,434 ) (10,262 ) 54,102
 
Cash and cash equivalents, beginning of period 292,061 269,995 259,733
     
Cash and cash equivalents, end of period $ 278,627   $ 259,733   $ 313,835  
 
Supplemental Cash Flow Information:
Non-cash purchases of property and equipment $ 19,858 $ (4,116 ) $ 15,741
 
   
Key Metrics - Quarter to Date
(Unaudited)
 
Three Months Ended
(Dollar amounts in thousands, except average monthly revenue per server)

March 31,
2013

   

June 30,
2013

   

September 30,
2013

   

December 31,
2013

   

March 31,
2014

Growth
Dedicated cloud, net revenue $ 271,311 $ 276,845 $ 280,215 $ 291,265 $ 299,689
Public cloud, net revenue $ 90,889   $ 99,002   $ 108,421   $ 116,838   $ 121,358  
Net revenue $ 362,200 $ 375,847 $ 388,636 $ 408,103 $ 421,047
Revenue growth (year over year) 20.2 % 17.8 % 15.7 % 15.6 % 16.2 %
 
Net upgrades (monthly average) 0.9 % 1.5 % 1.5 % 1.1 % 0.9 %
Churn (monthly average)   -0.8 %   -0.8 %   -0.8 %   -0.7 %   -0.6 %
Growth in installed base (monthly average) (2) 0.1 % 0.7 % 0.7 % 0.4 % 0.3 %
 
Number of employees (Rackers) at period end 5,043 5,272 5,450 5,651 5,743
Number of servers deployed at period end 94,122 98,884 101,967 103,886 106,229
Average monthly revenue per server $ 1,308 $ 1,298 $ 1,290 $ 1,322 $ 1,336
 
Profitability
Income from operations $ 42,813 $ 35,404 $ 27,762 $ 27,157 $ 39,124
Depreciation and amortization $ 70,111 $ 74,460 $ 80,753 $ 87,683 $ 87,805
Share-based compensation expense
Cost of revenue $ 2,519 $ 2,735 $ 3,453 $ 3,877 $ 3,791
Research and development $ 1,528 $ 1,813 $ 2,306 $ 2,521 $ 2,780
Sales and marketing $ 1,658 $ 1,744 $ 2,149 $ 1,766 $ 2,091
General and administrative $ 6,478   $ 7,023   $ 9,051   $ 9,024   $ 4,070  
Total share-based compensation expense $ 12,183   $ 13,315   $ 16,959   $ 17,188   $ 12,732  
Adjusted EBITDA (1) $ 125,107 $ 123,179 $ 125,474 $ 132,028 $ 139,661
 
Adjusted EBITDA margin 34.5 % 32.8 % 32.3 % 32.4 % 33.2 %
 
Operating income margin 11.8 % 9.4 % 7.1 % 6.7 % 9.3 %
 
Income from operations $ 42,813 $ 35,404 $ 27,762 $ 27,157 $ 39,124
Effective tax rate   35.2 %   34.7 %   40.7 %   22.7 %   34.6 %
Net operating profit after tax (NOPAT) (1) $ 27,743 $ 23,119 $ 16,463 $ 20,992 $ 25,587
NOPAT margin 7.7 % 6.2 % 4.2 % 5.1 % 6.1 %
 
Capital efficiency and returns
Interest bearing debt $ 105,807 $ 88,434 $ 72,579 $ 64,918 $ 53,326
Stockholders' equity $ 879,035 $ 933,897 $ 988,708 $ 1,055,412 $ 1,100,012
Less: Excess cash $ (235,163 ) $ (217,950 ) $ (223,359 ) $ (210,761 ) $ (263,309 )
Capital base $ 749,679 $ 804,381 $ 837,928 $ 909,569 $ 890,029
Average capital base $ 734,493 $ 777,030 $ 821,155 $ 873,749 $ 899,799
Capital turnover (annualized) 1.97 1.93 1.89 1.87 1.87
 
Return on capital (annualized) (1) 15.1 % 11.9 % 8.0 % 9.6 % 11.4 %
 
Capital expenditures
Cash purchases of property and equipment $ 105,541 $ 119,836 $ 100,496 $ 126,723 $ 84,953
Non-cash purchases of property and equipment (3) $ 19,858   $ (13,311 ) $ 17,062   $ (4,116 ) $ 15,741  
Total capital expenditures $ 125,399 $ 106,525 $ 117,558 $ 122,607 $ 100,694
 
Customer gear $ 85,690 $ 73,022 $ 73,784 $ 65,291 $ 60,688
Data center build outs $ 13,228 $ 10,085 $ 12,441 $ 22,524 $ 10,963
Office build outs $ 7,860 $ 1,683 $ 6,700 $ 14,860 $ 9,212
Capitalized software and other projects $ 18,621   $ 21,735   $ 24,633   $ 19,932   $ 19,831  
Total capital expenditures $ 125,399 $ 106,525 $ 117,558 $ 122,607 $ 100,694
 
Infrastructure capacity and utilization
Megawatts under contract at period end 59.4 59.6 60.0 60.0 58.1
Megawatts available for use at period end 38.8 44.4 46.9 46.9 45.3
Megawatts utilized at period end 24.7 26.0 27.0 27.4 28.1
Annualized net revenue per average Megawatt of power utilized $ 59,499 $ 59,305 $ 58,662 $ 60,015 $ 60,691
 

(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)

March 31,
2013

   

June 30,
2013

   

September 30,
2013

   

December 31,
2013

   

March 31,
2014

Net revenue $ 362,200 $ 375,847 $ 388,636 $ 408,103 $ 421,047
Costs and expenses:
Cost of revenue 113,610 117,658 127,404 133,821 140,417
Research and development 18,375 23,216 23,773 24,849 25,192
Sales and marketing 49,814 52,269 50,869 55,465 57,359
General and administrative 67,477 72,840 78,075 79,128 71,150
Depreciation and amortization   70,111     74,460     80,753     87,683     87,805  
Total costs and expenses   319,387     340,443     360,874     380,946     381,923  
Income from operations   42,813     35,404     27,762     27,157     39,124  
Other income (expense):
Interest expense (940 ) (833 ) (689 ) (656 ) (495 )
Interest and other income (expense)   199     (303 )   440     405     265  
Total other income (expense)   (741 )   (1,136 )   (249 )   (251 )   (230 )
Income before income taxes 42,072 34,268 27,513 26,906 38,894
Income taxes   14,811     11,901     11,202     6,108     13,448  
Net income $ 27,261   $ 22,367   $ 16,311   $ 20,798   $ 25,446  
 
 
Three Months Ended
(Percent of net revenue)

March 31,
2013

June 30,
2013

September 30,
2013

December 31,
2013

March 31,
2014

Net revenue 100.0 % 100.0 % 100.0 % 100.0 % 100.0 %
Costs and expenses:
Cost of revenue 31.4 % 31.3 % 32.8 % 32.8 % 33.3 %
Research and development 5.1 % 6.2 % 6.1 % 6.1 % 6.0 %
Sales and marketing 13.8 % 13.9 % 13.1 % 13.6 % 13.6 %
General and administrative 18.6 % 19.4 % 20.1 % 19.4 % 16.9 %
Depreciation and amortization   19.4 %   19.8 %   20.8 %   21.5 %   20.9 %
Total costs and expenses   88.2 %   90.6 %   92.9 %   93.3 %   90.7 %
Income from operations   11.8 %   9.4 %   7.1 %   6.7 %   9.3 %
Other income (expense):
Interest expense (0.3 )% (0.2 )% (0.2 )% (0.2 )% (0.1 )%
Interest and other income (expense)   0.1 %   (0.1 )%   0.1 %   0.1 %   0.1 %
Total other income (expense)   (0.2 )%   (0.3 )%   (0.1 )%   (0.1 )%   (0.1 )%
Income before income taxes 11.6 % 9.1 % 7.1 % 6.6 % 9.2 %
Income taxes   4.1 %   3.2 %   2.9 %   1.5 %   3.2 %
Net income   7.5 %   6.0 %   4.2 %   5.1 %   6.0 %
 
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 table below:

    Three Months Ended
(Dollars in thousands)

March 31,
2013

   

June 30,
2013

   

September 30,
2013

   

December 31,
2013

   

March 31,
2014

Net revenue $ 362,200 $ 375,847 $ 388,636 $ 408,103 $ 421,047
 
Income from operations $ 42,813 $ 35,404 $ 27,762 $ 27,157 $ 39,124
 
Net income $ 27,261 $ 22,367 $ 16,311 $ 20,798 $ 25,446
Plus: Income taxes 14,811 11,901 11,202 6,108 13,448
Plus: Total other (income) expense 741 1,136 249 251 230
Plus: Depreciation and amortization 70,111 74,460 80,753 87,683 87,805
Plus: Share-based compensation expense   12,183     13,315     16,959     17,188     12,732  
Adjusted EBITDA $ 125,107 $ 123,179 $ 125,474 $ 132,028 $ 139,661
 
Operating income margin 11.8 % 9.4 % 7.1 % 6.7 % 9.3 %
 
Adjusted EBITDA margin 34.5 % 32.8 % 32.3 % 32.4 % 33.2 %
 

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 payable and accrued expenses, accrued compensation and benefits, and income and other taxes payable – deferred revenue – other non-current liabilities, deferred income taxes, deferred rent and finance lease obligations for assets under construction); calculated on a quarterly basis.

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 table below:

    Three Months Ended
(Dollars in thousands)

March 31,
2013

   

June 30,
2013

   

September 30,
2013

   

December 31,
2013

   

March 31,
2014

Income from operations $ 42,813 $ 35,404 $ 27,762 $ 27,157 $ 39,124
Effective tax rate   35.2 %   34.7 %   40.7 %   22.7 %   34.6 %
Net operating profit after tax (NOPAT) $ 27,743 $ 23,119 $ 16,463 $ 20,992 $ 25,587
 
Net income $ 27,261 $ 22,367 $ 16,311 $ 20,798 $ 25,446
 
Total assets at period end $ 1,348,350 $ 1,377,928 $ 1,451,769 $ 1,491,797 $ 1,566,949
Less: Excess cash (235,163 ) (217,950 ) (223,359 ) (210,761 ) (263,309 )
Less: Accounts payable and accrued expenses, accrued compensation and benefits, and income and other taxes payable (197,686 ) (178,552 ) (213,268 ) (195,894 ) (224,423 )
Less: Deferred revenue (current and non-current) (21,811 ) (22,636 ) (22,211 ) (26,530 ) (24,485 )
Less: Other non-current liabilities, deferred income taxes, deferred rent, and finance lease obligations for assets under construction   (144,011 )   (154,409 )   (155,003 )   (149,043 )   (164,703 )
Capital base $ 749,679 $ 804,381 $ 837,928 $ 909,569 $ 890,029
 
Average total assets $ 1,321,951 $ 1,363,139 $ 1,414,849 $ 1,471,783 $ 1,529,373
Average capital base $ 734,493 $ 777,030 $ 821,155 $ 873,749 $ 899,799
 
Return on assets (annualized) 8.2 % 6.6 % 4.6 % 5.7 % 6.7 %
Return on capital (annualized) 15.1 % 11.9 % 8.0 % 9.6 % 11.4 %
 

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     Three Months Ended
(In thousands) March 31, 2013 March 31, 2014
Adjusted EBITDA $ 125,107 $ 139,661
Non-cash deferred rent 3,965 2,256
Total capital expenditures (125,399 ) (100,694 )
Cash payments for interest, net (1,051 ) (432 )
Cash payments for income taxes, net   (3,839 )   (886 )
Adjusted free cash flow $ (1,217 ) $ 39,905  

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@ThingsExpo Stories
The worldwide cellular network will be the backbone of the future IoT, and the telecom industry is clamoring to get on board as more than just a data pipe. In his session at @ThingsExpo, Evan McGee, CTO of Ring Plus, Inc., discussed what service operators can offer that would benefit IoT entrepreneurs, inventors, and consumers. Evan McGee is the CTO of RingPlus, a leading innovative U.S. MVNO and wireless enabler. His focus is on combining web technologies with traditional telecom to create a new breed of unified communication that is easily accessible to the general consumer. With over a de...
Disruptive macro trends in technology are impacting and dramatically changing the "art of the possible" relative to supply chain management practices through the innovative use of IoT, cloud, machine learning and Big Data to enable connected ecosystems of engagement. Enterprise informatics can now move beyond point solutions that merely monitor the past and implement integrated enterprise fabrics that enable end-to-end supply chain visibility to improve customer service delivery and optimize supplier management. Learn about enterprise architecture strategies for designing connected systems tha...
Cloud is not a commodity. And no matter what you call it, computing doesn’t come out of the sky. It comes from physical hardware inside brick and mortar facilities connected by hundreds of miles of networking cable. And no two clouds are built the same way. SoftLayer gives you the highest performing cloud infrastructure available. One platform that takes data centers around the world that are full of the widest range of cloud computing options, and then integrates and automates everything. Join SoftLayer on June 9 at 16th Cloud Expo to learn about IBM Cloud's SoftLayer platform, explore se...
SYS-CON Media announced today that 9 out of 10 " most read" DevOps articles are published by @DevOpsSummit Blog. Launched in October 2014, @DevOpsSummit Blog offers top articles, news stories, and blog posts from the world's well-known experts and guarantees better exposure for its authors than any other publication. 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 softw...
With major technology companies and startups seriously embracing IoT strategies, now is the perfect time to attend @ThingsExpo in Silicon Valley. Learn what is going on, contribute to the discussions, and ensure that your enterprise is as "IoT-Ready" as it can be! Internet of @ThingsExpo, taking place Nov 3-5, 2015, at the Santa Clara Convention Center in Santa Clara, CA, is co-located with 17th Cloud Expo and will feature technical sessions from a rock star conference faculty and the leading industry players in the world. The Internet of Things (IoT) is the most profound change in personal an...
15th Cloud Expo, which took place Nov. 4-6, 2014, at the Santa Clara Convention Center in Santa Clara, CA, expanded the conference content of @ThingsExpo, Big Data Expo, and DevOps Summit to include two developer events. IBM held a Bluemix Developer Playground on November 5 and ElasticBox held a Hackathon on November 6. Both events took place on the expo floor. The Bluemix Developer Playground, for developers of all levels, highlighted the ease of use of Bluemix, its services and functionality and provide short-term introductory projects that developers can complete between sessions.
From telemedicine to smart cars, digital homes and industrial monitoring, the explosive growth of IoT has created exciting new business opportunities for real time calls and messaging. In his session at @ThingsExpo, Ivelin Ivanov, CEO and Co-Founder of Telestax, shared some of the new revenue sources that IoT created for Restcomm – the open source telephony platform from Telestax. Ivelin Ivanov is a technology entrepreneur who founded Mobicents, an Open Source VoIP Platform, to help create, deploy, and manage applications integrating voice, video and data. He is the co-founder of TeleStax, a...
The Internet of Things (IoT) promises to evolve the way the world does business; however, understanding how to apply it to your company can be a mystery. Most people struggle with understanding the potential business uses or tend to get caught up in the technology, resulting in solutions that fail to meet even minimum business goals. In his session at @ThingsExpo, Jesse Shiah, CEO / President / Co-Founder of AgilePoint Inc., showed what is needed to leverage the IoT to transform your business. He discussed opportunities and challenges ahead for the IoT from a market and technical point of vie...
Grow your business with enterprise wearable apps using SAP Platforms and Google Glass. SAP and Google just launched the SAP and Google Glass Challenge, an opportunity for you to innovate and develop the best Enterprise Wearable App using SAP Platforms and Google Glass and gain valuable market exposure. In his session at @ThingsExpo, Brian McPhail, Senior Director of Business Development, ISVs & Digital Commerce at SAP, outlined the timeline of the SAP Google Glass Challenge and the opportunity for developers, start-ups, and companies of all sizes to engage with SAP today.
The 3rd International @ThingsExpo, co-located with the 16th International Cloud Expo – to be held June 9-11, 2015, at the Javits Center in New York City, NY – is now accepting Hackathon proposals. Hackathon sponsorship benefits include general brand exposure and increasing engagement with the developer ecosystem. At Cloud Expo 2014 Silicon Valley, IBM held the Bluemix Developer Playground on November 5 and ElasticBox held the DevOps Hackathon on November 6. Both events took place on the expo floor. The Bluemix Developer Playground, for developers of all levels, highlighted the ease of use of...
Enthusiasm for the Internet of Things has reached an all-time high. In 2013 alone, venture capitalists spent more than $1 billion dollars investing in the IoT space. With "smart" appliances and devices, IoT covers wearable smart devices, cloud services to hardware companies. Nest, a Google company, detects temperatures inside homes and automatically adjusts it by tracking its user's habit. These technologies are quickly developing and with it come challenges such as bridging infrastructure gaps, abiding by privacy concerns and making the concept a reality. These challenges can't be addressed w...
The industrial software market has treated data with the mentality of “collect everything now, worry about how to use it later.” We now find ourselves buried in data, with the pervasive connectivity of the (Industrial) Internet of Things only piling on more numbers. There’s too much data and not enough information. In his session at @ThingsExpo, Bob Gates, Global Marketing Director, GE’s Intelligent Platforms business, to discuss how realizing the power of IoT, software developers are now focused on understanding how industrial data can create intelligence for industrial operations. Imagine ...
SYS-CON Events announced today that Liaison Technologies, a leading provider of data management and integration cloud services and solutions, has been named "Silver Sponsor" of SYS-CON's 16th International Cloud Expo®, which will take place on June 9-11, 2015, at the Javits Center in New York, NY. Liaison Technologies is a recognized market leader in providing cloud-enabled data integration and data management solutions to break down complex information barriers, enabling enterprises to make smarter decisions, faster.
The 17th International Cloud Expo has announced that its Call for Papers is open. 17th International Cloud Expo, to be held November 3-5, 2015, at the Santa Clara Convention Center in Santa Clara, CA, brings together Cloud Computing, APM, APIs, Microservices, Security, Big Data, Internet of Things, DevOps 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!
Hadoop as a Service (as offered by handful of niche vendors now) is a cloud computing solution that makes medium and large-scale data processing accessible, easy, fast and inexpensive. In his session at Big Data Expo, Kumar Ramamurthy, Vice President and Chief Technologist, EIM & Big Data, at Virtusa, will discuss how this is achieved by eliminating the operational challenges of running Hadoop, so one can focus on business growth. The fragmented Hadoop distribution world and various PaaS solutions that provide a Hadoop flavor either make choices for customers very flexible in the name of opti...
Cultural, regulatory, environmental, political and economic (CREPE) conditions over the past decade are creating cross-industry solution spaces that require processes and technologies from both the Internet of Things (IoT), and Data Management and Analytics (DMA). These solution spaces are evolving into Sensor Analytics Ecosystems (SAE) that represent significant new opportunities for organizations of all types. Public Utilities throughout the world, providing electricity, natural gas and water, are pursuing SmartGrid initiatives that represent one of the more mature examples of SAE. We have s...
The Internet of Things will put IT to its ultimate test by creating infinite new opportunities to digitize products and services, generate and analyze new data to improve customer satisfaction, and discover new ways to gain a competitive advantage across nearly every industry. In order to help corporate business units to capitalize on the rapidly evolving IoT opportunities, IT must stand up to a new set of challenges. In his session at @ThingsExpo, Jeff Kaplan, Managing Director of THINKstrategies, will examine why IT must finally fulfill its role in support of its SBUs or face a new round of...
Can call centers hang up the phones for good? Intuitive Solutions did. WebRTC enabled this contact center provider to eliminate antiquated telephony and desktop phone infrastructure with a pure web-based solution, allowing them to expand beyond brick-and-mortar confines to a home-based agent model. It also ensured scalability and better service for customers, including MUY! Companies, one of the country's largest franchise restaurant companies with 232 Pizza Hut locations. This is one example of WebRTC adoption today, but the potential is limitless when powered by IoT.
One of the biggest challenges when developing connected devices is identifying user value and delivering it through successful user experiences. In his session at Internet of @ThingsExpo, Mike Kuniavsky, Principal Scientist, Innovation Services at PARC, described an IoT-specific approach to user experience design that combines approaches from interaction design, industrial design and service design to create experiences that go beyond simple connected gadgets to create lasting, multi-device experiences grounded in people's real needs and desires.
The 4th International Internet of @ThingsExpo, co-located with the 17th International Cloud Expo - to be held November 3-5, 2015, at the Santa Clara Convention Center in Santa Clara, CA - announces that its Call for Papers is open. The Internet of Things (IoT) is the biggest idea since the creation of the Worldwide Web more than 20 years ago.