Welcome!

OpenStack Journal Authors: Flint Brenton, Miska Kaipiainen, Elizabeth White, Pat Romanski, Liz McMillan

News Feed Item

Rackspace Announces Record Growth in Second Quarter 2014

Rackspace® Hosting, Inc. (NYSE: RAX), the #1 managed cloud company, announced financial results for the quarter ended June 30, 2014.

Net revenue for the second quarter of 2014 was $441 million, up 4.8 percent from the previous quarter and 17 percent from the second quarter of 2013. Net revenue for the second quarter of 2014 was positively impacted by currency exchange rates when compared to the previous quarter by $1.9 million and positively impacted when compared to the second quarter of 2013 by $9.9 million.

For the third quarter of 2014, the company is forecasting quarter-over-quarter sequential net revenue growth of 3 to 4.5 percent, resulting in net revenue in the range of $454 million to $461 million.

"This was a record quarter for Rackspace,” said Graham Weston, Chairman and CEO of Rackspace. “We added thousands of new customers, including one of our largest ever, and we saw solid growth from existing customers like Under Armour, SunPower and Alex and Ani. We generated a company record $20 million in incremental revenue in the quarter and revenue per server was an all time high. Total revenue grew 4.3 percent on a constant currency basis, which was the highest rate of growth that we’ve generated since the fourth quarter of 2012.”

Total server count in the second quarter of 2014 increased to 107,657, up from 106,229 servers at the end of the previous quarter.

Adjusted EBITDA(1) for the quarter was $142 million, a 1.5 percent increase compared to the first quarter of 2014. Adjusted EBITDA margin for the quarter was 32.1 percent compared to 33.2 percent in the previous quarter.

The company expects Adjusted EBITDA margin to be in the range of 31 to 33 percent in the third quarter of 2014.

Net income was $22 million for the quarter, down 11.8 percent from the previous quarter. Net income margin for the quarter was 5.1 percent compared to 6.0 percent for the previous quarter.

Cash flow from operating activities was $125 million for the second quarter of 2014. Capital expenditures were $112 million, including $65 million for purchases of customer gear, $14 million for data center build outs, $7 million for office build outs and $27 million for capitalized software and other projects.

Adjusted Free Cash Flow(1) for the quarter was $26 million. Return on Capital(1) was 10.0 percent in the second quarter, compared to 11.4 percent in the previous quarter. Average monthly revenue per server was $1,375, compared to $1,336 in the previous quarter.

At the end of the second quarter of 2014, cash and cash equivalents were $340 million, and interest-bearing debt including capital lease obligations totaled $42 million.

On a worldwide basis, Rackspace employed 5,798 Rackers as of June 30, 2014, up from 5,743 in the previous quarter.

Rackspace Business Highlights

  • Rackspace announced its managed cloud strategy for delivering public cloud services to market, including enhanced service levels and a more transparent service-based pricing model. Rackspace also created developer+, a new program for developers that offers essential services needed to build scalable applications. This strategy focuses on Rackspace's historical strength working with businesses and developers who want a strong partner to help design, manage and scale their cloud operations.
  • Gartner, Inc. placed Rackspace in the Leaders quadrant of the “Magic Quadrant for Cloud-Enabled Managed Hosting” in both North America and Europe. The Gartner assessment evaluates providers based on the completeness of their vision and their ability to execute. Rackspace was among the 17 providers assessed by Gartner, and one of only two in the Leaders quadrant in North America. In Europe, the firm analyzed 17 providers and Rackspace was one of seven in the Leaders quadrant.
  • Rackspace launched OnMetal Cloud Servers to reduce cloud complexity and help cloud applications scale. These API-driven bare metal servers can be spun up as quickly as virtual machines. OnMetal Cloud Servers are designed for customers with rapidly growing infrastructure footprints who value the agility and elasticity of cloud along with the simplicity and cost-efficiency of colocation.
  • ObjectRocket demonstrated Automated Online Compaction and its rapid-deployment API at MongoDB World and extended its free backup service to MongoDB databases hosted with any provider. ObjectRocket offers MongoDB users a one-click, automated compaction solution, effectively eliminating the need for what can be a difficult and time consuming manual database maintenance process. Automated Online Compaction allows MongoDB instances to be compacted online and in the background on the ObjectRocket platform.
  • Rackspace was named the sixth “best place to work” in the U.K. in the large company category of the U.K.'s 2014 Great Place to Work Awards. This is the 10th consecutive year that Rackspace has been recognized by the Great Place to Work Awards. The awards seek to identify companies with highly committed individuals who help their organization achieve its business objectives and consistently go the extra mile. In addition, the award looks for companies whose leadership team ensures that each employee feels trusted and supported. The award's objective is to recognize a sense of camaraderie and a desire to work for growth, attributes that Rackspace openly demonstrates.

Conference Call and Webcast

Rackspace's executive management will host a conference call to discuss the results for the second quarter of 2014 starting today at 4:30 p.m. ET.

To access the conference call from the United States and Canada, please dial 800-786-0540, 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 ir.rackspace.com.

About Rackspace Hosting

Rackspace (NYSE: RAX) is the #1 managed cloud company. Its technical expertise and Fanatical Support® allow companies to tap the power of the cloud without the pain of hiring experts in dozens of complex technologies. Rackspace is also the leader in hybrid cloud, giving each customer the best fit for its unique needs -- whether on single- or multi-tenant servers, or a combination of those platforms. Rackspace is the founder of OpenStack®, the open-source operating system for the cloud. Headquartered in San Antonio, Rackspace serves more than 200,000 business customers from data centers on four continents. It ranks 29th 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 June 30, 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   Six Months Ended
June 30,   March 31,   June 30, June 30,   June 30,
(In thousands, except per share data) 2013 2014 2014 2013 2014
Net revenue $ 375,847 $ 421,047 $ 441,112 $ 738,047 $ 862,159
Costs and expenses:
Cost of revenue 117,658 140,417 145,051 231,268 285,468
Research and development (1) 23,216 25,192 29,711 41,591 54,903
Sales and marketing 52,269 57,359 60,480 102,083 117,839
General and administrative (1) 72,840 71,150 81,424 140,317 152,574
Depreciation and amortization 74,460   87,805   90,559   144,571   178,364  
Total costs and expenses 340,443   381,923   407,225   659,830   789,148  
Income from operations 35,404   39,124   33,887   78,217   73,011  
Other income (expense):
Interest expense (833 ) (495 ) (529 ) (1,773 ) (1,024 )
Interest and other income (expense) (303 ) 265   171   (104 ) 436  
Total other income (expense) (1,136 ) (230 ) (358 ) (1,877 ) (588 )
Income before income taxes 34,268 38,894 33,529 76,340 72,423
Income taxes 11,901   13,448   11,078   26,712   24,526  
Net income $ 22,367   $ 25,446   $ 22,451   $ 49,628   $ 47,897  
 
Net income per share
Basic $ 0.16   $ 0.18   $ 0.16   $ 0.36   $ 0.34  
Diluted $ 0.16   $ 0.18   $ 0.16   $ 0.34   $ 0.33  
 
Weighted average number of shares outstanding
Basic 138,011   141,048   142,079   139,463   141,558  
Diluted 142,178   143,815   144,093   144,180   143,910  
 

(1) Certain reclassifications have been made to amounts previously reported for the three and six months ended June 30, 2013 in order to conform to the current period's presentation. For more information, refer to our Form 10-Q for the quarter ended June 30, 2014.

Consolidated Balance Sheets

(In thousands)   December 31, 2013   June 30, 2014
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 259,733 $ 340,344
Accounts receivable, net of allowance for doubtful accounts and customer credits of $3,891 as of December 31, 2013 and $4,672 as of June 30, 2014 123,898 130,911
Deferred income taxes 12,637 11,769
Prepaid expenses 30,782 27,239
Other current assets 11,918   7,470
Total current assets 438,968 517,733
 
Property and equipment, net 890,776 972,830
Goodwill 81,084 81,084
Intangible assets, net 23,880 20,043
Other non-current assets 57,089   56,285
Total assets $ 1,491,797   $ 1,647,975
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 122,047 $ 147,285
Accrued compensation and benefits 62,459 65,700
Income and other taxes payable 11,388 18,578
Current portion of deferred revenue 22,868 20,742
Current portion of capital lease obligations 37,885 25,639
Current portion of debt 1,861   1,108
Total current liabilities 258,508 279,052
 
Non-current liabilities:
Deferred revenue 3,662 2,506
Capital lease obligations 25,048 14,982
Finance lease obligations for assets under construction 36,262
Debt 124 18
Deferred income taxes 69,729 54,645
Deferred rent 43,046 47,693
Other liabilities 36,268   41,620
Total liabilities 436,385 476,778
 
COMMITMENTS AND CONTINGENCIES
 
Stockholders' equity:
Common stock 141 143
Additional paid-in capital 636,660 696,109
Accumulated other comprehensive income (loss) (4,536 ) 3,901
Retained earnings 423,147   471,044
Total stockholders’ equity 1,055,412   1,171,197
Total liabilities and stockholders’ equity $ 1,491,797   $ 1,647,975
 

Consolidated Statements of Cash Flows

(Unaudited)

  Three Months Ended   Six Months Ended
June 30,   March 31,   June 30, June 30,   June 30,
(in thousands) 2013 2014 2014 2013 2014
Cash Flows From Operating Activities
Net income $ 22,367 $ 25,446 $ 22,451 $ 49,628 $ 47,897
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 74,460 87,805 90,559 144,571 178,364
Loss (gain) on disposal of equipment, net (15 ) 228 (69 ) 225 159
Provision for bad debts and customer credits 1,301 1,813 1,454 2,361 3,267
Deferred income taxes (8,444 ) (10,119 ) (8,975 ) (1,891 ) (19,094 )
Deferred rent 1,519 2,256 2,113 5,484 4,369
Share-based compensation expense 13,315 12,732 17,265 25,498 29,997
Excess tax benefits from share-based compensation arrangements (11,898 ) (15,100 ) (13,221 ) (16,197 ) (28,321 )
Changes in certain assets and liabilities:
Accounts receivable (7,220 ) 3,870 (12,990 ) (13,488 ) (9,120 )
Prepaid expenses and other current assets 5,081 3,337 3,918 (556 ) 7,255
Accounts payable and accrued expenses 12,473 30,251 21,745 15,535 51,996
Deferred revenue 823 (2,110 ) (1,411 ) 2,065 (3,521 )
All other operating activities 2,437   1,250   1,698   6,757   2,948  
Net cash provided by operating activities 106,199 141,659 124,537 219,992 266,196
 
Cash Flows From Investing Activities
Purchases of property and equipment (119,836 ) (84,953 ) (114,044 ) (225,377 ) (198,997 )
Acquisitions, net of cash acquired (6,203 )
All other investing activities (380 ) 455   1,173   (372 ) 1,628  
Net cash used in investing activities (120,216 ) (84,498 ) (112,871 ) (231,952 ) (197,369 )
 
Cash Flows From Financing Activities
Principal payments of capital leases (16,612 ) (12,586 ) (10,959 ) (35,550 ) (23,545 )
Principal payments of notes payable (846 ) (52 ) (847 ) (897 ) (899 )
Payments for deferred acquisition obligations (59 ) (57 ) (56 ) (1,238 ) (113 )
Receipt of Texas Enterprise Fund grant 5,500 5,500
Common shares withheld for employee withholding taxes (13,620 ) (13,620 )
Proceeds from employee stock plans 4,686 2,122 12,631 6,400 14,753
Excess tax benefits from share-based compensation arrangements 11,898   15,100   13,221   16,197   28,321  
Net cash provided by (used in) financing activities (933 ) (3,593 ) 13,990 (15,088 ) 10,397
 
Effect of exchange rate changes on cash and cash equivalents (625 ) 534 853 (1,961 ) 1,387
                   
Increase (decrease) in cash and cash equivalents (15,575 ) 54,102 26,509 (29,009 ) 80,611
 
Cash and cash equivalents, beginning of period 278,627 259,733 313,835 292,061 259,733
                   

Cash and cash equivalents, end of period

$ 263,052   $ 313,835   $ 340,344   $ 263,052   $ 340,344  
 
Supplemental Cash Flow Information:
Non-cash purchases of property and equipment (1) $ (13,311 ) $ 15,741 $ (1,651 ) $ 6,547 $ 14,090
 

(1) Non-cash purchases of property and equipment represents changes in amounts accrued for purchases under vendor financing and other deferred payment arrangements.

Key Metrics - Quarter to Date

(Unaudited)

  Three Months Ended

(Dollar amounts in thousands,

June 30,   September 30,   December 31,   March 31,   June 30,

except average monthly revenue per server)

2013 2013 2013 2014 2014
Growth
Dedicated cloud, net revenue $ 276,845 $ 280,215 $ 291,265 $ 299,689 $ 310,647
Public cloud, net revenue $ 99,002   $ 108,421   $ 116,838   $ 121,358   $ 130,465  
Net revenue $ 375,847 $ 388,636 $ 408,103 $ 421,047 $ 441,112
Revenue growth (year over year) 17.8 % 15.7 % 15.6 % 16.2 % 17.4 %
 
Net upgrades (monthly average) 1.5 % 1.5 % 1.1 % 0.9 % 1.5 %
Churn (monthly average) -0.8 % -0.8 % -0.7 % -0.6 % -0.7 %
Growth in installed base (monthly average) (2) 0.7 % 0.7 % 0.4 % 0.3 % 0.8 %
 
Number of employees (Rackers) at period end 5,272 5,450 5,651 5,743 5,798
Number of servers deployed at period end 98,884 101,967 103,886 106,229 107,657
Average monthly revenue per server $ 1,298 $ 1,290 $ 1,322 $ 1,336 $ 1,375
 
Profitability
Income from operations $ 35,404 $ 27,762 $ 27,157 $ 39,124 $ 33,887
Depreciation and amortization $ 74,460 $ 80,753 $ 87,683 $ 87,805 $ 90,559
Share-based compensation expense
Cost of revenue $ 2,735 $ 3,453 $ 3,877 $ 3,791 $ 4,127
Research and development $ 1,813 $ 2,306 $ 2,521 $ 2,780 $ 3,293
Sales and marketing $ 1,744 $ 2,149 $ 1,766 $ 2,091 $ 2,062
General and administrative $ 7,023   $ 9,051   $ 9,024   $ 4,070   $ 7,783  
Total share-based compensation expense $ 13,315   $ 16,959   $ 17,188   $ 12,732   $ 17,265  
Adjusted EBITDA (1) $ 123,179 $ 125,474 $ 132,028 $ 139,661 $ 141,711
 
Adjusted EBITDA margin 32.8 % 32.3 % 32.4 % 33.2 % 32.1 %
 
Operating income margin 9.4 % 7.1 % 6.7 % 9.3 % 7.7 %
 
Income from operations $ 35,404 $ 27,762 $ 27,157 $ 39,124 $ 33,887
Effective tax rate 34.7 % 40.7 % 22.7 % 34.6 % 33.0 %
Net operating profit after tax (NOPAT) (1) $ 23,119 $ 16,463 $ 20,992 $ 25,587 $ 22,704
NOPAT margin 6.2 % 4.2 % 5.1 % 6.1 % 5.1 %
 
Capital efficiency and returns
Interest bearing debt $ 88,434 $ 72,579 $ 64,918 $ 53,326 $ 41,747
Stockholders' equity $ 933,897 $ 988,708 $ 1,055,412 $ 1,100,012 $ 1,171,197
Less: Excess cash $ (217,950 ) $ (223,359 ) $ (210,761 ) $ (263,309 ) $ (287,411 )
Capital base $ 804,381 $ 837,928 $ 909,569 $ 890,029 $ 925,533
Average capital base $ 777,030 $ 821,155 $ 873,749 $ 899,799 $ 907,781
Capital turnover (annualized) 1.93 1.89 1.87 1.87 1.94
 
Return on capital (annualized) (1) 11.9 % 8.0 % 9.6 % 11.4 % 10.0 %
 

Capital expenditures

Cash purchases of property and equipment $ 119,836 $ 100,496 $ 126,723 $ 84,953 $ 114,044
Non-cash purchases of property and equipment (3) $ (13,311 ) $ 17,062   $ (4,116 ) $ 15,741   $ (1,651 )
Total capital expenditures $ 106,525 $ 117,558 $ 122,607 $ 100,694 $ 112,393
 
Customer gear $ 73,022 $ 73,784 $ 65,291 $ 60,688 $ 64,767
Data center build outs $ 10,085 $ 12,441 $ 22,524 $ 10,963 $ 13,767
Office build outs $ 1,683 $ 6,700 $ 14,860 $ 9,212 $ 6,857
Capitalized software and other projects $ 21,735   $ 24,633   $ 19,932   $ 19,831   $ 27,002  
Total capital expenditures $ 106,525 $ 117,558 $ 122,607 $ 100,694 $ 112,393
 
Infrastructure capacity and utilization
Megawatts under contract at period end 59.6 60.0 60.0 58.1 58.1
Megawatts available for use at period end 44.4 46.9 46.9 45.3 45.4
Megawatts utilized at period end 26.0 27.0 27.4 28.1 29.0
Annualized net revenue per average Megawatt of power utilized $ 59,305 $ 58,662 $ 60,015 $ 60,691 $ 61,802
 

(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
June 30,   September 30,   December 31,   March 31,   June 30,
(In thousands) 2013 2013 2013 2014 2014
Net revenue $ 375,847 $ 388,636 $ 408,103 $ 421,047 $ 441,112
Costs and expenses:
Cost of revenue 117,658 127,404 133,821 140,417 145,051
Research and development 23,216 23,773 24,849 25,192 29,711
Sales and marketing 52,269 50,869 55,465 57,359 60,480
General and administrative 72,840 78,075 79,128 71,150 81,424
Depreciation and amortization 74,460   80,753   87,683   87,805   90,559  
Total costs and expenses 340,443   360,874   380,946   381,923   407,225  
Income from operations 35,404   27,762   27,157   39,124   33,887  
Other income (expense):
Interest expense (833 ) (689 ) (656 ) (495 ) (529 )
Interest and other income (expense) (303 ) 440   405   265   171  
Total other income (expense) (1,136 ) (249 ) (251 ) (230 ) (358 )
Income before income taxes 34,268 27,513 26,906 38,894 33,529
Income taxes 11,901   11,202   6,108   13,448   11,078  
Net income $ 22,367   $ 16,311   $ 20,798   $ 25,446   $ 22,451  
 
Three Months Ended
June 30, September 30, December 31, March 31, June 30,
(Percent of net revenue) 2013 2013 2013 2014 2014
Net revenue 100.0 % 100.0 % 100.0 % 100.0 % 100.0 %
Costs and expenses:
Cost of revenue 31.3 % 32.8 % 32.8 % 33.3 % 32.9 %
Research and development 6.2 % 6.1 % 6.1 % 6.0 % 6.7 %
Sales and marketing 13.9 % 13.1 % 13.6 % 13.6 % 13.7 %
General and administrative 19.4 % 20.1 % 19.4 % 16.9 % 18.5 %
Depreciation and amortization 19.8 % 20.8 % 21.5 % 20.9 % 20.5 %
Total costs and expenses 90.6 % 92.9 % 93.3 % 90.7 % 92.3 %
Income from operations 9.4 % 7.1 % 6.7 % 9.3 % 7.7 %
Other income (expense):
Interest expense (0.2 )% (0.2 )% (0.2 )% (0.1 )% (0.1 )%
Interest and other income (expense) (0.1 )% 0.1 % 0.1 % 0.1 % 0.0 %
Total other income (expense) (0.3 )% (0.1 )% (0.1 )% (0.1 )% (0.1 )%
Income before income taxes 9.1 % 7.1 % 6.6 % 9.2 % 7.6 %
Income taxes 3.2 % 2.9 % 1.5 % 3.2 % 2.5 %
Net income 6.0 % 4.2 % 5.1 % 6.0 % 5.1 %
 
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
June 30,   September 30,   December 31,   March 31,   June 30,
(Dollars in thousands) 2013 2013 2013 2014 2014
Net revenue $ 375,847 $ 388,636 $ 408,103 $ 421,047 $ 441,112
 
Income from operations $ 35,404 $ 27,762 $ 27,157 $ 39,124 $ 33,887
 
Net income $ 22,367 $ 16,311 $ 20,798 $ 25,446 $ 22,451
Plus: Income taxes 11,901 11,202 6,108 13,448 11,078
Plus: Total other (income) expense 1,136 249 251 230 358
Plus: Depreciation and amortization 74,460 80,753 87,683 87,805 90,559
Plus: Share-based compensation expense 13,315   16,959   17,188   12,732   17,265  
Adjusted EBITDA $ 123,179 $ 125,474 $ 132,028 $ 139,661 $ 141,711
 
Operating income margin 9.4 % 7.1 % 6.7 % 9.3 % 7.7 %
 
Adjusted EBITDA margin 32.8 % 32.3 % 32.4 % 33.2 % 32.1 %
 

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 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 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
June 30,   September 30,   December 31,   March 31,   June 30,
(Dollars in thousands) 2013 2013 2013 2014 2014
Income from operations $ 35,404 $ 27,762 $ 27,157 $ 39,124 $ 33,887
Effective tax rate 34.7 % 40.7 % 22.7 % 34.6 % 33.0 %
Net operating profit after tax (NOPAT) $ 23,119 $ 16,463 $ 20,992 $ 25,587 $ 22,704
 
Net income $ 22,367 $ 16,311 $ 20,798 $ 25,446 $ 22,451
 
Total assets at period end $ 1,377,928 $ 1,451,769 $ 1,491,797 $ 1,566,949 $ 1,647,975
Less: Excess cash (217,950 ) (223,359 ) (210,761 ) (263,309 ) (287,411 )
Less: Accounts payable and accrued expenses, accrued compensation and benefits, and income and other taxes payable (178,552 ) (213,268 ) (195,894 ) (224,423 ) (231,563 )
Less: Deferred revenue (current and non-current) (22,636 ) (22,211 ) (26,530 ) (24,485 ) (23,248 )
Less: Other non-current liabilities, deferred income taxes, deferred rent, and finance lease obligations for assets under construction (154,409 ) (155,003 ) (149,043 ) (164,703 ) (180,220 )
Capital base $ 804,381 $ 837,928 $ 909,569 $ 890,029 $ 925,533
 
Average total assets $ 1,363,139 $ 1,414,849 $ 1,471,783 $ 1,529,373 $ 1,607,462
Average capital base $ 777,030 $ 821,155 $ 873,749 $ 899,799 $ 907,781
 
Return on assets (annualized) 6.6 % 4.6 % 5.7 % 6.7 % 5.6 %
Return on capital (annualized) 11.9 % 8.0 % 9.6 % 11.4 % 10.0 %
 

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   Six Months Ended
(In thousands) June 30, 2013   June 30, 2014 June 30, 2013   June 30, 2014
Adjusted EBITDA $ 123,179 $ 141,711 $ 248,286 $ 281,372
Non-cash deferred rent 1,519 2,113 5,484 4,369
Total capital expenditures (106,525 ) (112,393 ) (231,924 ) (213,087 )
Cash payments for interest, net (775 ) (520 ) (1,826 ) (952 )
Cash payments for income taxes, net (5,911 ) (4,576 ) (9,750 ) (5,462 )
Adjusted free cash flow $ 11,487   $ 26,335   $ 10,270   $ 66,240  
 

More Stories By Business Wire

Copyright © 2009 Business Wire. All rights reserved. Republication or redistribution of Business Wire content is expressly prohibited without the prior written consent of Business Wire. Business Wire shall not be liable for any errors or delays in the content, or for any actions taken in reliance thereon.

@ThingsExpo Stories
As ridesharing competitors and enhanced services increase, notable changes are occurring in the transportation model. Despite the cost-effective means and flexibility of ridesharing, both drivers and users will need to be aware of the connected environment and how it will impact the ridesharing experience. In his session at @ThingsExpo, Timothy Evavold, Executive Director Automotive at Covisint, will discuss key challenges and solutions to powering a ride sharing and/or multimodal model in the a...
Is your aging software platform suffering from technical debt while the market changes and demands new solutions at a faster clip? It’s a bold move, but you might consider walking away from your core platform and starting fresh. ReadyTalk did exactly that. In his General Session at 19th Cloud Expo, Michael Chambliss, Head of Engineering at ReadyTalk, will discuss why and how ReadyTalk diverted from healthy revenue and over a decade of audio conferencing product development to start an innovati...
WebRTC adoption has generated a wave of creative uses of communications and collaboration through websites, sales apps, customer care and business applications. As WebRTC has become more mainstream it has evolved to use cases beyond the original peer-to-peer case, which has led to a repeating requirement for interoperability with existing infrastructures. In his session at @ThingsExpo, Graham Holt, Executive Vice President of Daitan Group, will cover implementation examples that have enabled ea...
SYS-CON Events announced today that Numerex Corp, a leading provider of managed enterprise solutions enabling the Internet of Things (IoT), will exhibit at the 19th International Cloud Expo | @ThingsExpo, which will take place on November 1–3, 2016, at the Santa Clara Convention Center in Santa Clara, CA. Numerex Corp. (NASDAQ:NMRX) is a leading provider of managed enterprise solutions enabling the Internet of Things (IoT). The Company's solutions produce new revenue streams or create operating...
Fifty billion connected devices and still no winning protocols standards. HTTP, WebSockets, MQTT, and CoAP seem to be leading in the IoT protocol race at the moment but many more protocols are getting introduced on a regular basis. Each protocol has its pros and cons depending on the nature of the communications. Does there really need to be only one protocol to rule them all? Of course not. In his session at @ThingsExpo, Chris Matthieu, co-founder and CTO of Octoblu, walk you through how Oct...
"My role is working with customers, helping them go through this digital transformation. I spend a lot of time talking to banks, big industries, manufacturers working through how they are integrating and transforming their IT platforms and moving them forward," explained William Morrish, General Manager Product Sales at Interoute, in this SYS-CON.tv interview at 18th Cloud Expo, held June 7-9, 2016, at the Javits Center in New York City, NY.
According to Forrester Research, every business will become either a digital predator or digital prey by 2020. To avoid demise, organizations must rapidly create new sources of value in their end-to-end customer experiences. True digital predators also must break down information and process silos and extend digital transformation initiatives to empower employees with the digital resources needed to win, serve, and retain customers.
If you’re responsible for an application that depends on the data or functionality of various IoT endpoints – either sensors or devices – your brand reputation depends on the security, reliability, and compliance of its many integrated parts. If your application fails to deliver the expected business results, your customers and partners won't care if that failure stems from the code you developed or from a component that you integrated. What can you do to ensure that the endpoints work as expect...
In this strange new world where more and more power is drawn from business technology, companies are effectively straddling two paths on the road to innovation and transformation into digital enterprises. The first path is the heritage trail – with “legacy” technology forming the background. Here, extant technologies are transformed by core IT teams to provide more API-driven approaches. Legacy systems can restrict companies that are transitioning into digital enterprises. To truly become a lea...
IoT is fundamentally transforming the auto industry, turning the vehicle into a hub for connected services, including safety, infotainment and usage-based insurance. Auto manufacturers – and businesses across all verticals – have built an entire ecosystem around the Connected Car, creating new customer touch points and revenue streams. In his session at @ThingsExpo, Macario Namie, Head of IoT Strategy at Cisco Jasper, will share real-world examples of how IoT transforms the car from a static p...
Cloud computing is being adopted in one form or another by 94% of enterprises today. Tens of billions of new devices are being connected to The Internet of Things. And Big Data is driving this bus. An exponential increase is expected in the amount of information being processed, managed, analyzed, and acted upon by enterprise IT. This amazing is not part of some distant future - it is happening today. One report shows a 650% increase in enterprise data by 2020. Other estimates are even higher....
From wearable activity trackers to fantasy e-sports, data and technology are transforming the way athletes train for the game and fans engage with their teams. In his session at @ThingsExpo, will present key data findings from leading sports organizations San Francisco 49ers, Orlando Magic NBA team. By utilizing data analytics these sports orgs have recognized new revenue streams, doubled its fan base and streamlined costs at its stadiums. John Paul is the CEO and Founder of VenueNext. Prior ...
One of biggest questions about Big Data is “How do we harness all that information for business use quickly and effectively?” Geographic Information Systems (GIS) or spatial technology is about more than making maps, but adding critical context and meaning to data of all types, coming from all different channels – even sensors. In his session at @ThingsExpo, William (Bill) Meehan, director of utility solutions for Esri, will take a closer look at the current state of spatial technology and ar...
The Internet of Things can drive efficiency for airlines and airports. In their session at @ThingsExpo, Shyam Varan Nath, Principal Architect with GE, and Sudip Majumder, senior director of development at Oracle, will discuss the technical details of the connected airline baggage and related social media solutions. These IoT applications will enhance travelers' journey experience and drive efficiency for the airlines and the airports. The session will include a working demo and a technical d...
What happens when the different parts of a vehicle become smarter than the vehicle itself? As we move toward the era of smart everything, hundreds of entities in a vehicle that communicate with each other, the vehicle and external systems create a need for identity orchestration so that all entities work as a conglomerate. Much like an orchestra without a conductor, without the ability to secure, control, and connect the link between a vehicle’s head unit, devices, and systems and to manage the ...
Businesses are struggling to manage the information flow and interactions between all of these new devices and things jumping on their network, and the apps and IT systems they control. The data businesses gather is only helpful if they can do something with it. In his session at @ThingsExpo, Chris Witeck, Principal Technology Strategist at Citrix, will discuss how different the impact of IoT will be for large businesses, expanding how IoT will allow large organizations to make their legacy ap...
The many IoT deployments around the world are busy integrating smart devices and sensors into their enterprise IT infrastructures. Yet all of this technology – and there are an amazing number of choices – is of no use without the software to gather, communicate, and analyze the new data flows. Without software, there is no IT. In this power panel at @ThingsExpo, moderated by Conference Chair Roger Strukhoff, panelists will look at the protocols that communicate data and the emerging data analy...
SYS-CON Events announced today that Commvault, a global leader in enterprise data protection and information management, has been named “Bronze Sponsor” of SYS-CON's 19th International Cloud Expo, which will take place on November 1–3, 2016, at the Santa Clara Convention Center in Santa Clara, CA. Commvault is a leading provider of data protection and information management solutions, helping companies worldwide activate their data to drive more value and business insight and to transform moder...
What are the new priorities for the connected business? First: businesses need to think differently about the types of connections they will need to make – these span well beyond the traditional app to app into more modern forms of integration including SaaS integrations, mobile integrations, APIs, device integration and Big Data integration. It’s important these are unified together vs. doing them all piecemeal. Second, these types of connections need to be simple to design, adapt and configure...
Digital innovation is the next big wave of business transformation based on digital technologies of which IoT and Big Data are key components, For example: Business boundary innovation is a challenge to excavate third-party business value using IoT and BigData, like Nest Business structure innovation may propose re-building business structure from scratch, as Uber does in the taxicab industry The social model innovation is also a big challenge to the new social architecture with the design fr...