Rackspace Posts Q4, Loses CFO

SAN ANTONIO -- Rackspace Hosting, Inc. (NYSE: RAX), the world's leader in the hosting and cloud computing industry, announced financial results for the quarter ended December 31, 2010.

Net revenue for the fourth quarter of 2010 was $214.7 million, up 7.5% from the previous quarter and 26.7% from the fourth quarter of 2009. Net revenue for the fourth quarter of 2010 was positively impacted by currency exchange rates when compared to the third quarter of 2010, but was negatively impacted when compared to the fourth quarter of 2009.

Changes in currency exchange rates had a positive impact on net revenue of $1.1 million quarter-over-quarter, and a negative impact on net revenue of $1.7 million on a year-over-year basis. Managed hosting revenue for the quarter increased to $183.3 million, up from $172.9 million in the prior quarter. Cloud revenue increased to $31.4 million in the quarter, up from $26.8 million in the previous quarter.

Total server count increased to 66,015, up from 63,996 servers at the end of the third quarter of 2010, and total customers increased to 130,291, up from 118,732 at the end of the previous quarter.

"At the beginning of the year we outlined our objectives for 2010, to grow faster than 2009, while maintaining margins and investing in our business. We also said that we expected adjusted free cash flow to be positive at growth rates below 35%. With the year completed, I am very pleased to report that we delivered on all three objectives," said Bruce Knooihuizen, chief financial officer.

Adjusted EBITDA for the quarter was $72.0 million, a 5.2% increase compared to the third quarter of 2010 and a 28.7% increase compared to the fourth quarter of 2009. The adjusted EBITDA margin for the quarter was 33.5%, down from 34.3% in the previous quarter and up from 33.0% in the fourth quarter of 2009. Adjusted EBITDA and adjusted EBITDA margin were negatively impacted by a non-cash charge of $2.9 million for the quarter relating to operating leases. Net income was $13.5 million for the quarter, up 14.6% from the previous quarter and 49.9% from the fourth quarter of 2009. Net income margin for the quarter was 6.3% compared to 5.9% for the previous quarter and 5.3% in the fourth quarter of 2009.

In a separate release:

SAN ANTONIO -- Bruce Knooihuizen, chief financial officer of Rackspace Hosting (NYSE: RAX) today announced his intention to retire from the company.

Knooihuizen, 55, joined Rackspace as CFO in 2008. He helped take the company public on the New York Stock Exchange, built a strong finance team, and helped put Rackspace on a solid financial footing. "I feel that I've done what I came here to do," Knooihuizen said. "I'm proud to have contributed to the growth and success of this company." Lanham Napier, Rackspace CEO, said, "I want to thank Bruce for his financial leadership of our company. The earnings we announced today are a testament to his success."

Rackspace will conduct an extensive internal and external search for Knooihuizen's replacement. Knooihuizen will remain with the company to facilitate the transition for an undetermined period. Knooihuizen will fully retire once the transition is complete.

Rackspace