Rackspace Hosting: The Service Leader in Cloud ComputingFirst, thank you for taking time to learn more about Rackspace.Rackspace Hosting is headquartered in San Antonio, Texas with offices in London, San Francisco, and Hong Kong. We have a unique culture that we are very proud of and a group of talented employees who love to serve customers.We have built Rackspace into the service leader in cloud computing. The service we include in every engagement, no matter how big or how small, is critical to the successful business outcomes that we deliver to customers.BEFORE WE GO FURTHER, HERE’S A MESSAGE FROM RACKSPACE LEGAL..
Rackspace HostingOur clients include more than 40% of the Fortune® 100. Today we have more than 150,000 customers in 120 countries.One of the achievements that we are most proud of is that Rackspace Hosting has been recognized by Fortune as one of the 100 best places to work not only in the United States, but in EMEA as well. People really like working here. What that means to customers is that we have a growing, stable workforce that is carefully selected not only for technical skills but also forhow much each employee enjoys delivering exceptional service, and how well they match our culture and core values.OURCULTURE AND THE EXCEPTIONAL SERVICE THATWE BRAND AS FANATICAL SUPPORT MAKE THE DIFFERENCE BETWEEN GROWING AT, SAY, 5% A YEAR AND GROWING AT THE MUCH FASTER RATE THAT OUR COMPANY HAS EXPERIENCED IN THE LAST FEW YEARSFor the quarter ended June 30, 2011: Net revenue of $247.2 million grew 32% year-over-year and 7.5% from Q1 2011Adjusted EBITDA (1) of $81.6 million grew 31% year-over-year and 7.5% from Q1 2011Net income of $17.6 million grew 57% year-over-year and 27% from Q1 2011Total server count increased to 74,028, up from 70,473 servers at the end of the previous quarter, and total customers increased to 152,578, up from 142,441 at the end of the previous quarter.Adjusted EBITDA for the quarter was $81.6 million, a 7.5% increase compared to the first quarter of 2011 and a 31% increase compared to the second quarter of 2010. The adjusted EBITDA margin for the quarter was 33.0% compared to 33.0% for the previous quarter and 33.2% for the second quarter of 2010. Adjusted EBITDA and adjusted EBITDA margin were negatively impacted by a non-cash charge of $2.8 million for the quarter relating to data center operating leases.Net income was $17.6 million for the quarter, up 27.1% from the previous quarter and 56.8% from the second quarter of 2010. Net income margin for the quarter was 7.1% compared to 6.0% for the previous quarter and 6.0% in the second quarter of 2010.Cash flow from operating activities was $79 million for the second quarter of 2011. Capital expenditures were $95 million, including $49 million for purchases of customer gear, $17 million for data center build outs, $14 million for office build outs and $15 million for capitalized software and other projects. Adjusted free cash flow (1) for the quarter was $(18) million. At the end of the second quarter of 2011, cash and cash equivalents were $132 million. Debt obligations totaled $139 million, consisting of $137 million related to capital leases and $2 million related to current and non-current debt. On a worldwide basis, Rackspace employed 3,712 Rackers as of June 30, 2011, up from 3,492 Rackers as of March 31, 2011 and 3,002 Rackers as of June 30, 2010. Rackspace Developments and Business HighlightsGrowing Momentum for OpenStack: With over 90 participating companies, the project continues to see major traction including its most recent code release, Cactus Code, accompanied by the Cactus Design Summit/OpenStack Conference in Santa Clara, CA, with over 500 attendees, 133 participating organizations and 217 developers. This event was followed by the announcement of Citrix’s Project Olympus, a new cloud infrastructure product based on OpenStack, which is designed to allow enterprises to quickly build and deploy OpenStack based clouds. Last month, we also began to see major traction of OpenStack in Europe. We held an OpenStack Day in London — the first for our community in Europe and had over 350 people in attendance. Domino’s Pizza Group chooses Rackspace: To help drive revenue and future growth, pizza delivery expert Domino’s Pizza Group has selected Rackspace to provide them with RackConnect, an integrated cloud hosting and dedicated managed hosting service. The service will give Domino’s a scalable and cost-effective platform that will support the execution of the company’s ambitious growth strategy and meet the evolving demands of its online business. Domino’s sought a hosting service that would meet the evolving demands of its online business, and allow its internal IT team to focus less on the maintenance of its online properties and business applications, and more on innovation.Launch of Hosted Virtual Desktop: In May, Rackspace announced the availability of Rackspace Hosted Virtual Desktop. The hosted virtual desktop platform utilizes Rackspace’s comprehensive hosting services and may be paired with industry leading desktop virtualization solutions from Citrix and other joint channel partners. The offering enables customers to host their virtual desktops on their choice of dedicated and/or cloud solutions.Continued European Cloud Growth: Since its launch in January, Rackspace’s UK cloud has been steadily growing and now has over 5,000 customers. To help meet this demand, the UK added new cloud services including Cloud Servers with managed service level and Cloud Load Balancers. The new UK offerings build upon Rackspace’s existing portfolio and are already Some other interesting facts:85% Increase in Cloud Revenue46% Increase in Fortune 100 Customers20% Increase in Number of Servers400% Increase in Number of Hybrid Customer Solutions24% Increase in Number of Rackers28.6% Increase in Y/Y Revenue.0008% Average Customer Churn3X Server Utilization of Average Enterprise IT OrganizationLargest Customer Equals Less Than 1% Revenue
Fanatical SupportWe firmly believe that our core values and the dedication of our team makes a major difference between us and the other companies in the marketplace. It helped has fuel our sustained, profitable growth.We believe that that technology is not a real differentiator, it is the service that we provide that allows us to successful meet our SLAs. The core values of results first, transparency, and how we treat one another has allow us to be among the fastest growing technology companies in the world.We are constantly polling our customers how they feel about the service we provide. Net Promoter® scores we get every day is both a loyalty metric and a discipline for using customer feedback for Rackspace. If you have gone on the web, you might has seen some video shot in our office. The office is open, modeled as a help desk. It allow 90% of customer issues to be solved by just turning their chair to ask a fellow “racker” to help solve a problem or get a question answered. WE DEFINE OUR COMPANY BY BOTH A VISION AND A PURPOSE…
VisionEveryone at Rackspace can tell you our vision, a vision that we all support to become the world’s greatest service company. Our senior leadership is passionate about this. We refuse to accept mediocre. Once you accept less than great, you become “a phone company.” And, when was the last time you got great service from your mobile carrier or home phone company?PAUSEBUT, YOU CANNOT JUST HAVE A VISION TOO…
PurposeIf you are going to be a great service company, you need to take on the responsibility of reducing complexity for the customer and deliver the business outcome expected.That is why our purpose is to make cloud computing simple for business. This is by no means a “simple” thing. We take on all this complexity and deliver both simple and complex business outcomes to our customers.We are technology agnostic within the product options we offer. Our data centers around the world use mainstream, branded hardware from vendors like Dell, EMC, NetApp and Oracle on a massive scale.We offer transparency that very few of our competitor's offer. Our phone number is listed not like others.AND WE UNDERSTAND THE ISSUES THAT FACE LARGE ENTERPRISES TODAY.
RACKSPACE SOLUTIONS:Rackspace offers a seamless portfolio of services that help customers get the business outcome they want from public cloud services to the most sophisticated on-premise to off-premise solutions in the industry. Over the last year we have seen quick adaption of the hybrid cloud computing model enabled by RackConnect, a Rackspace intellectual property. We will talk more about this in a minute along with OpenStack cloud software.But, right now I would like to focus on one of recent wins in the UK, Dominos.
DELIVERING TO DOMINOSColin Rees, Domino's IT Director, said: "In 2010, over a third of our UK delivered orders were taken online, so having a reliable hosting solution is essential to our continued success. I knew that we needed to outsource our hosting infrastructure if we were to remain on our current growth trajectory and keep improving our customer experience. We wanted the best of both worlds, though: the high level of security and configurability that dedicated managed hosting affords a business, and the scalability of cloud hosting. Rackspace's RackConnect solution ticks all these boxes, and more."The Dominos solution looks like this….
RackConnect will enable Domino's to select which applications are placed where in the managed hosting infrastructure. For example, applications that require a high level of security, such as an internal email system, can be hosted on dedicated physical hardware. Domino's will also be able to take advantage of the on-demand scalability of The Rackspace Cloud for developing new smartphone or tablet applications, or handling the demands of a digital marketing campaign.RACKCONNECT ALSO ALLOW US TO SECURELY CONNECT TO YOUR DATA CENTER AND CREATE A FULLY MANAGED FIREWALL, LOAD BALANCED SOLUTION TO EXTEND YOUR COMPUTE AND STORAGE CAPABILITIES AS YOU NEED THEM WHEN YOU WANT THEM. IT LOOKS SOMETHING LIKE THIS….
One Control Panel Future:Next generation tools to make our customers’ lives easier. Next generation tools for Rackers to deliver Fanatical Support Unification and integrated products where it makes sense Design driven, looks and works great for all users Cornerstone for all customer interaction Compelling technology
THERE ARE THREE THINGS I WOULD LIKE YOU TO REMEMBER FROM THIS PRESENTATION:WE OFFER THE RIGHT ON PREMISE OR OFF PREMISE SOLUTION BASED UPON THE APPLICATIONFANATICAL SUPPORT IS REALWE ARE BUILDING THE FUTURE BASED UPON OPEN STANDARD, BEST OF BREED TECHNOLOGY AND MAINSTREAM BRANDED HARDWARESO WHAT ARE THE NEXT STEPS WE SUGGEST YOU SHOULD TAKE…
THANK YOU FOR YOUR INTEREST. DO YOU HAVE AN QUESTIONS…
08 17 Enterprise Customer Presentation Q2
RACKSPACE® HOSTINGTHE SERVICE LEADER IN CLOUDCOMPUTINGAugust, 2011
2SAFE HARBOR STATEMENTThis presentation contains "forward-looking" statements that involve risks, uncertainties and assumptions. If the risks or uncertaintiesever materialize or the assumptions prove incorrect, our results may differ materially from those expressed or implied by suchforward-looking statements. All statements other than statements of historical fact could be deemed forward-looking, including, butnot limited to, any projections of financial information; any statements about historical results that may suggest trends for ourbusiness; any statements of the plans, strategies, and objectives of management for future operations; any statements of expectationor belief regarding future events, potential markets or market size; technology developments; and any statements of assumptionsunderlying any of the items mentioned.These statements are based on estimates and information available to us at the time of this presentation and are not guarantees offuture performance. Actual results could differ materially from our current expectations as a result of many factors, including but notlimited to: the unpredictable nature of our rapidly evolving market and quarterly fluctuations in our business; the effects ofcompetition; and any adverse changes in our indirect channel relationships. These and other risks and uncertainties associated withour business are described in our quarterly and annual reports filed with the Securities and Exchange Commission atwww.edgar.gov. We assume no obligation and do not intend to update these forward-looking statements.This presentation outlines general information regarding our services and is for informational purposes only; all statements andinformation are provided “AS IS” and are presented without warranty of any kind, express or implied. Our product/servicesofferings are subject to change without notice.Trademarks and Service MarksRackspace® and Fanatical Support® are service marks of Rackspace US, Inc. registered in the United States and other countries.OpenStack and OpenStack design are trademarks of OpenStack, LLC. Other trademarks and trade names appearing in thispresentation are the property of their respective holders. We do not intend our use or display of other companies’ trade names,trademarks, or service marks to imply a relationship with, or endorsement or sponsorship of us by, these other companies. RACKSPACE® HOSTING | WWW.RACKSPACE.COM
3RACKSPACE® HOSTINGThe Service Leader in Cloud Computing 3,700+ RACKERS WE SERVE 152,000+ CUSTOMERS 40% OF THE FORTUNE® 100 120 + COUNTRIES 9 GLOBAL DATA LEADER IN CENTERS GARTNERS MAGIC QUADRANT FOR CLOUD INFRASTRUCTURE AS A SERVICE AND 2008, 2009 & WEB HOSTING 2010 RACKSPACE® HOSTING | WWW.RACKSPACE.COM
FANATICAL SUPPORT – ®THE RACKSPACE DIFFERENCE Technologyis not a differentiator – it is service RACKSPACE® HOSTING | WWW.RACKSPACE.COM 4
WHAT WE HEAR FROM CUSTOMERS “The first thing that attracted us to Rackspace was the Fanatical Support. We were impressed with their approach, their people are available and they can address problems right away.” Vashdev Vangani Technical Director, Mazda USA “Because of Fanatical Support, we knew we were partnering with a best-in-class company that shared our vision of getting it done.” Brian McManus Director of Infrastructure, Under Armour RACKSPACE® HOSTING | WWW.RACKSPACE.COM 5
OUR VISIONTo be recognized as one of theWorld’s greatest service companies. RACKSPACE® HOSTING | WWW.RACKSPACE.COM 6
OUR PURPOSETo make cloud computing simple for business. RACKSPACE® HOSTING | WWW.RACKSPACE.COM 7
8 WHAT WE “HEAR” FROM THE MARKET• Reduce my time to market and optimize my costs• Help me how to transition to the Cloud• Give me the day-to-day support, access to technical expertise and the tools that give them control (when they want it)• Flexibility so we can design and deploy Cloud “our” way• What are the hosting options for web apps not yet ready for the Cloud transition• I need utility pricing and short commitments• How can I get a handle on all the “IT” in my shop RACKSPACE® HOSTING | WWW.RACKSPACE.COM
9 TRANSITION OF APPLICATIONS Public Cloud Private Cloud Dedicated HIGH Mail and eCommerce Mission Critical Collaboration Applications Document •Security Management •Availability Business Critical •Performance Applications Analytics Mobile and • SecuritySecurity and Web Reporting • Availability Disaster Content Recovery Development/ Test LOW ELASTIC Workload CONSISTENT STANDARD Environment CUSTOM RACKSPACE® HOSTING | WWW.RACKSPACE.COM *ILLUSTRATIVE*
RACKSPACE SOLUTIONS:Meeting Enterprise Needs Public Cloud and Private Cloud Hosting Industry Standard Application Hosting Email and Application Hosting Hybrid Hosting Solutions Cloud Assessment Services OpenStack™ Implementations RACKSPACE® HOSTING | WWW.RACKSPACE.COM 10
14THE FUTURE: FANATICAL SUPPORTANYWHERERackspace ProvidesThe Fanatical Support DEDICATED PUBLIC CLOUD PRIVATE CLOUD PRIVATE CLOUD PUBLIC CLOUD RACKSPACE LOCATIONS CUSTOMER SITE PROVIDER DC • One Control Panel across OpenStack connected clouds • One Fanatical Support Team • Our Cloud, Your Cloud, Partner Hosted OpenStack Cloud • Global Reach RACKSPACE® HOSTING | WWW.RACKSPACE.COM
THE RACKSPACE DIFFERENCESimplify Your Journey to the Cloud A broad portfolio that offers right hosting options for your application (dedicated, cloud, hybrid) Exceptional service supported with real accountability Build on open standards RACKSPACE® HOSTING | WWW.RACKSPACE.COM 15
ENGAGE RACKSPACENext Steps INVITE: Rackspace to conduct a workshop SPEAK: To Rackspace about public and private cloud hosting CONSIDER: A hybrid cloud solution or a OpenStack™ proof of concept RACKSPACE® HOSTING | WWW.RACKSPACE.COM 16