Rackspace Hosting, Inc (RAX)

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Rackspace Hosting (RAX)

Q3 2012 Earnings Call

November 06, 2012 4:30 pm ET

Executives

Jason Luce

A. Lanham Napier - Chief Executive and Executive Director

Karl Pichler - Chief Financial Officer, Senior Vice President and Treasurer

Analysts

James D. Breen - William Blair & Company L.L.C., Research Division

Christopher M. Larsen - Piper Jaffray Companies, Research Division

Gray Powell - Wells Fargo Securities, LLC, Research Division

Rob Sanderson - ABR Investment Strategy LLC

Thomas O. Seitz - Jefferies & Company, Inc., Research Division

Simon Flannery - Morgan Stanley, Research Division

Jonathan A. Schildkraut - Evercore Partners Inc., Research Division

Jonathan Atkin - RBC Capital Markets, LLC, Research Division

Colby Synesael - Cowen and Company, LLC, Research Division

Presentation

Operator

Good afternoon, ladies and gentlemen, and welcome to Rackspace Hosting's Q3 earnings release. As a reminder, this call is being recorded. [Operator Instructions] After the prepared remarks, there will be a question-and-answer session. [Operator Instructions] It is now my pleasure to introduce Jason Luce, Vice President of Finance for Rackspace. Mr. Luce, you may begin.

Jason Luce

Hello, everyone, and welcome to Rackspace's quarterly conference call. Today, we will cover Rackspace's third quarter ending September 30, 2012. We hope that you have had a chance to read our press release, which we issued earlier today. If you do not have a copy, please visit the Investor Relations page of our website at ir.rackspace.com. This call is also being webcast online and can be accessed through our Investor Relations site.

For Rackspace on the call today will be Lanham Napier, Chief Executive Officer; and Karl Pichler, Chief Financial Officer.

I need to remind you that some of the comments we will make today are forward-looking statements that involve risks, uncertainties and assumptions. If such risks or uncertainties materialize or such assumptions prove incorrect, our results will 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 operations and financial results; growth plans; the impact of new platforms, products or services; any statements of expectation or belief; and any statements or assumptions underlining any of the foregoing. These risks, uncertainties and assumptions include: one, the market acceptance of our new public cloud platform and product set; two, the successful and time and launch of new platforms or products; three, increasing competition in our industry; four, the adoption of OpenStack as the open-source cloud computing platform standard; five, unfavorable economic conditions; and, six, other risks that are described in our Form 10-Q for the quarter ended June 30, 2012, which was filed with the SEC on August 9, 2012, and our Form 10-Q for the quarter ended September 30, 2012, which will be filed with the SEC later this week.

These forward-looking statements speak as of today. Except as required by law, we assume no obligation to update these forward-looking statements publicly or to update the reason actual results differ materially from those anticipated to be forward-looking statements even if new information becomes available in the future. Please also note that certain financial measures we will use during this call, such as adjusted EBITDA, are expressed on a non-GAAP basis. Our GAAP results and GAAP to non-GAAP reconciliation can be found in our earnings release for the second quarter of 2012, which is currently posted on the Investors page of our website at www.rackspace.com. After our prepared remarks this afternoon, we will be happy to take your questions.

I will now turn the call over to Lanham. Lanham?

A. Lanham Napier

Good afternoon, everyone, and thank you for joining us today. In our previous calls this year, we told you that our #1 priority for the year would be our platform shift to OpenStack and open sourcing the cloud. We explained that the open cloud would become the largest, most strategic technology investment that Rackspace has ever made, and we also explained that there could be some short-term product cycle fluctuations as we introduce the new platform. We're excited to report that the rollout of our new Open Cloud platform is finally complete, and that the cloud is now open.

The open age started with Linux, next came Android, then Rackspace and NASA created OpenStack and open sourced the biggest platform of them all. It's called the Open Cloud. Now you're not locked in to the pricing, the strategy or pace of innovation of any one vendor. You're free to run your own cloud anywhere you want; in your data center, in our data centers or with any other provider. Only open source platforms allow you to keep up in the open age. Now we all have a choice. Welcome to the open cloud.

Beginning in August, and culminating last week with the launch of cloud networks, we released the following 7 new products that comprise the Rackspace Open Cloud platform: number one, Cloud Servers, powered by OpenStack; number two, Cloud Database, powered by OpenStack; number three, Cloud Monitoring; number four, Cloud Backup; number five, Cloud Block Storage, powered by OpenStack; number six, Cloud Networks, powered by OpenStack; and finally, number seven, a completely new control panel for managing the elements of the new Open Cloud platform.

With these products and offerings now in production, Rackspace offers a better, faster and more valuable cloud experience built on an open platform that gives our customers true choice and control without the fear of being locked-in to one vendor's technology. Rackspace customers can choose how, where and with whom they deploy applications, as well as the deployment option that best fits their needs, whether that's public, private or a hybrid cloud infrastructure, all backed by our unmatched culture of customer service known throughout the industry as Fanatical Support.

We have gone all in on the OpenStack technology because we believe it, number one, enhances our differentiation and competitive position in the market; number two, advances the technical capabilities of our public cloud platform; number three, greatly expands our addressable market by allowing us to extend Fanatical Support to on-premise workloads; number four, improves the capital efficiency of our model; and number five, enables us to deliver our solutions the way businesses want to consume technology, i.e. in an open format.

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