Letter to Shareholders
Dear Fellow Rackspace Investor,Thankyou for believing in us and for investing in our companys for your supportof our company. Last year marked the
10-year10thanniversary of Rackspace®Hostingoperationsand our first year doing businessas a public company. From
the beginning, we have focused our efforts on buildingthe one of theworld’sgreatestservice companiesy.Our service strategy, which we call Fanatical
Support®, has made us the world’s leader in hosting. Today, The hostingservices we provide offer are at thehosting is at theheart of a long-termtrendshift to cloud computing technologies that areas companies purchase IT as aservice in lieu of d changing the way companies buy IT services oing itthemselves.. We are well positioned to capitalize on this trend. We provide aworld-class customer experience which we call Fanatical Support
®, which andFanatical Support has created a differentiated position for our company. Wecontinue to run the business from a long-term perspective with the singular aimof creating significant value.We’re proudof ththeeprogress we made in 2008,
and we’re thankful for the dedicated and hard working Rackers (employees) thatmade it happen.
2008 and the Recession
2008 was a historic year for our Company company and the markets we serve.Both were impacted by the economic slowdown. The recession impacts our company in several ways. Two key measures that reflected the impact therecession has had on our company were increased customer churn and slower revenue growth. We have seen these effects on a global basis across our business. Our customers, and businesses in general are scrutinizing their budgets, but we continue to compete for our share of their IT spend. We expecteconomic pressure to continue through 2009 making this year another difficultyear. But we also see great opportunity as well.We believe the recession is requiring IT managers to consider new cost
-effectivestrategies including IT hosting in general and our services in particular. Our broad suite of services generates cost savings for our loyal customers, delivers ahigh level of quality and simplifies their business. The broad spectrum of products and services allows us to scale offerings to the needs of the
business,expanding as their
business grows or rightsizing if in the unfortunate case theyare experiencing declines in their
business. Offering customers the best fit for their
business and providing
fanatical experiences to them will
lead us to in our
focus to increase customer loyalty as measured through our Net Promoter
®program, which we will talk more about later in this letter.Cloud computing is all the buzz today. We are deep in the development andproductization of this technology. In 2009, we are focused on creating rapidgrowth in our cloud computing offerings.And finally, with an expectation of slower growth this year compared to than whatwe have experienced over the past few years allows us the opportunity to scale
1
the profitability of our managed hosting offering. In the past we focused ongrowth, at times at the expense of cost management. Slower growth allows us tonow invest time and focus in projects and processes that we believe will drivehigher margins over time in our managed hosting business.Later in this letter we will share highlights of our 2008 accomplishments, but firstwe would like to speak to our most notable event during 2008--our initial publicoffering, which raised $144 million of capital. Our IPO prospectus included adiscussion of our operating principles entitled "2008 Racker Letter to Investors."In that letter we promised, "We will communicate honestly and openly and tellyou the truth about our business." So, we would like to share our thoughts aboutthe decisions and outcomes of the IPO.We believe we are positioned well to execute on these priorities. Perhaps our most notable event during 2008 was our initial public offering, which raised $144million of capital. During the IPO process, we not only discussed the reasons for raising capital, but we also felt it important to discuss our operating principles,which are included in our prospectus in the “2008 Racker Letter to Investors.”In that letter we promised, "We will communicate honestly and openly and tellyou the truth about our business." So, we would like to share our thoughts aboutthe decisions and outcomes of the IPO.Days before our IPO, the capital markets reeled at the failure of Freddie Mac andFannie Mae. Despite the turmoil in the marketplace, we proceeded with the IPObecause we believed it was the best long-term path to achieve our businessstrategy. None of us anticipated the further market collapse in the months thatfollowed. Regrettably, since the IPO, our stock has performed poorly as theworld's capital markets have continued to experience extraordinary turbulence. .This has hurt our investors and we want to take this moment to say that we aresorry for the losses you have incurred believing in us.We believe that our company has performed favorably in spite of these historic events, and weremain steadfast in our commitment to making Rackspace a successful long-term investment for our shareholders. For those investors who have supportedour company, we are grateful for your faith in our business philosophy, our cultureand our business model. We believe that our interests are aligned with our newinvestors to create shareholder value by building one of the world's greatestservice companies.While the economic downturn and current recession will affect our 2009 revenuegrowth, we believe it presents an excellent opportunity for us to help our customers. Our broad suite of scalable, hosted IT services will generate costsavings for our customers at a time when they need it most. These offerings,coupled with our award-winning Fanatical Support, present us with anopportunity to help our customers through the recession and increase customer loyalty.
Operational Highlights
Though the year presented many challenges, we continued to strengthen our position as the world’s leader in hosting by delivering our unique brand of customer service known as Fanatical Support. The value of our mission and
2
culture is reflected in our strong performance against our peers,and in our continued growth despite the weakening economy.Highlights of the year include:Net Revenues grew 46.9% to $531.9 million, outpacing the market and allour major competitors. Net income grew 21.7% to $21.7 million, andAdjusted EBITDA increased 59.1%, to $145.3 million. [add boilerplatefootnote re reconciliation of non-GAAP to GAAP if graphs are not used]We enjoyed significant traction and rapid revenue growth from our cloudcomputing services. We continue to invest heavily to develop our suite of cloud services. We made two key strategic acquisitions to enhance our capabilities, Slicehost and Jungle Disk.We expandedand upgradedour data center facilities,including extending
our hosting services to Asiaand ,opening a data center in Hong Kong.,
completing We also completedthe first phase of a new data center in theUnited Kingdom, and performedinga major upgrade and expansion at our flagship U.S. data center near Dallas, Texas. These investments, whilecreating a short-term surge in capital expenditures, provide significantcapacity for future growth.We raised $144.6 million in capital through our initial public offering inAugust, further strengthening our company and boosting our competitiveposition in the marketplace.We completed the first phase of our move to our new headquarters, aformerly abandoned shopping mall. This was a capital-efficient solution toconsolidate our offices and provide for low-cost future growth.----------------
Call Out: Our business strategy positions us to help our customers improve their businesses and capitalize on the shift to cloud technologies and on-demand IT services.
----------------
3
of 00
Rackspace
573 Reads
Info and Rating
| Category: | Uncategorized. |
| Rating: | |
| Upload Date: | 05/06/2009 |
| Copyright: | Attribution Non-commercial |
| Tags: |
Leave a Comment