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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
SYS-CON Events announced today that IDenticard will exhibit at SYS-CON's 16th International Cloud Expo®, which will take place on June 9-11, 2015, at the Javits Center in New York City, NY. IDenticard™ is the security division of Brady Corp (NYSE: BRC), a $1.5 billion manufacturer of identification products. We have small-company values with the strength and stability of a major corporation. IDenticard offers local sales, support and service to our customers across the United States and Canada. Our partner network encompasses some 300 of the world's leading systems integrators and security s...
SYS-CON Events announced today that Windstream, a leading provider of advanced network and cloud communications, 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. Windstream (Nasdaq: WIN), a FORTUNE 500 and S&P 500 company, is a leading provider of advanced network communications, including cloud computing and managed services, to businesses nationwide. The company also offers broadband, phone and digital TV services to consumers primarily in rural areas.

ARMONK, N.Y., Nov. 20, 2014 /PRNewswire/ --  IBM (NYSE: IBM) today announced that it is bringing a greater level of control, security and flexibility to cloud-based application development and delivery with a single-tenant version of Bluemix, IBM's platform-as-a-service. The new platform enables developers to build ap...

The BPM world is going through some evolution or changes where traditional business process management solutions really have nowhere to go in terms of development of the road map. In this demo at 15th Cloud Expo, Kyle Hansen, Director of Professional Services at AgilePoint, shows AgilePoint’s unique approach to dealing with this market circumstance by developing a rapid application composition or development framework.
"BSQUARE is in the business of selling software solutions for smart connected devices. It's obvious that IoT has moved from being a technology to being a fundamental part of business, and in the last 18 months people have said let's figure out how to do it and let's put some focus on it, " explained Dave Wagstaff, VP & Chief Architect, at BSQUARE Corporation, in this SYS-CON.tv interview at @ThingsExpo, held Nov 4-6, 2014, at the Santa Clara Convention Center in Santa Clara, CA.
The major cloud platforms defy a simple, side-by-side analysis. Each of the major IaaS public-cloud platforms offers their own unique strengths and functionality. Options for on-site private cloud are diverse as well, and must be designed and deployed while taking existing legacy architecture and infrastructure into account. Then the reality is that most enterprises are embarking on a hybrid cloud strategy and programs. In this Power Panel at 15th Cloud Expo (http://www.CloudComputingExpo.com), moderated by Ashar Baig, Research Director, Cloud, at Gigaom Research, Nate Gordon, Director of T...
The Internet of Things is not new. Historically, smart businesses have used its basic concept of leveraging data to drive better decision making and have capitalized on those insights to realize additional revenue opportunities. So, what has changed to make the Internet of Things one of the hottest topics in tech? In his session at @ThingsExpo, Chris Gray, Director, Embedded and Internet of Things, discussed the underlying factors that are driving the economics of intelligent systems. Discover how hardware commoditization, the ubiquitous nature of connectivity, and the emergence of Big Data a...
“In the past year we've seen a lot of stabilization of WebRTC. You can now use it in production with a far greater degree of certainty. A lot of the real developments in the past year have been in things like the data channel, which will enable a whole new type of application," explained Peter Dunkley, Technical Director at Acision, in this SYS-CON.tv interview at @ThingsExpo, held Nov 4–6, 2014, at the Santa Clara Convention Center in Santa Clara, CA.
DevOps Summit 2015 New York, co-located with the 16th International Cloud Expo - to be held June 9-11, 2015, at the Javits Center in New York City, NY - announces that it is now accepting Keynote Proposals. 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 software that is obsolete at launch. DevOps may be disruptive, but it is essential.
"People are a lot more knowledgeable about APIs now. There are two types of people who work with APIs - IT people who want to use APIs for something internal and the product managers who want to do something outside APIs for people to connect to them," explained Roberto Medrano, Executive Vice President at SOA Software, in this SYS-CON.tv interview at Cloud Expo, held Nov 4–6, 2014, at the Santa Clara Convention Center in Santa Clara, CA.
Nigeria has the largest economy in Africa, at more than US$500 billion, and ranks 23rd in the world. A recent re-evaluation of Nigeria's true economic size doubled the previous estimate, and brought it well ahead of South Africa, which is a member (unlike Nigeria) of the G20 club for political as well as economic reasons. Nigeria's economy can be said to be quite diverse from one point of view, but heavily dependent on oil and gas at the same time. Oil and natural gas account for about 15% of Nigera's overall economy, but traditionally represent more than 90% of the country's exports and as...
The Internet of Things is a misnomer. That implies that everything is on the Internet, and that simply should not be - especially for things that are blurring the line between medical devices that stimulate like a pacemaker and quantified self-sensors like a pedometer or pulse tracker. The mesh of things that we manage must be segmented into zones of trust for sensing data, transmitting data, receiving command and control administrative changes, and peer-to-peer mesh messaging. In his session at @ThingsExpo, Ryan Bagnulo, Solution Architect / Software Engineer at SOA Software, focused on desi...
"At our booth we are showing how to provide trust in the Internet of Things. Trust is where everything starts to become secure and trustworthy. Now with the scaling of the Internet of Things it becomes an interesting question – I've heard numbers from 200 billion devices next year up to a trillion in the next 10 to 15 years," explained Johannes Lintzen, Vice President of Sales at Utimaco, in this SYS-CON.tv interview at @ThingsExpo, held Nov 4–6, 2014, at the Santa Clara Convention Center in Santa Clara, CA.