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Press release from Business Wire

Rackspace Hosting Reports First Quarter 2011 Results

<p> For the quarter ended March 31, 2011: </p> <ul> <li class='bwlistitemmargb'> Net revenue of $230.0 million grew 28.6% year-over-year and 7.1% from Q4 2010 </li> <li class='bwlistitemmargb'> Adjusted EBITDA <sup>(1)</sup> of $75.9 million grew 27.8% year-over-year and 5.4% from Q4 2010 </li> <li class='bwlistitemmargb'> Net income of $13.8 million grew 40.9% year-over-year and 2.1% from Q4 2010 </li> </ul>

Monday, May 09, 2011

Rackspace Hosting Reports First Quarter 2011 Results16:05 EDT Monday, May 09, 2011 SAN ANTONIO (Business Wire) -- Rackspace® Hosting, Inc. (NYSE: RAX), the world's leading specialist in the hosting and cloud computing industry, announced financial results for the quarter ended March 31, 2011. Net revenue for the first quarter of 2011 was $230.0 million, up 7.1% from the previous quarter and 28.6% from the first quarter of 2010. Net revenue for the first quarter of 2011 was positively impacted by currency exchange rates when compared to the fourth quarter of 2010 by $0.7 million and the first quarter of 2010 by $1.4 million. Total server count increased to 70,473, up from 66,015 servers at the end of the fourth quarter of 2010, and total customers increased to 142,441, up from 130,291 at the end of the previous quarter. “During the quarter we invested across the organization to drive higher growth as well as increase our service level capability and enhance our product portfolio,” said Karl Pichler, chief financial officer. Adjusted EBITDA for the quarter was $75.9 million, a 5.4% increase compared to the fourth quarter of 2010 and a 27.8% increase compared to the first quarter of 2010. The adjusted EBITDA margin for the quarter was 33.0%, down from 33.5% in the previous quarter and 33.2% in the first quarter of 2010. Adjusted EBITDA and adjusted EBITDA margin were negatively impacted by a non-cash charge of $3.0 million for the quarter relating to data center operating leases. Net income was $13.8 million for the quarter, up 2.1% from the previous quarter and 40.9% from the first quarter of 2010. Net income margin for the quarter was 6.0% compared to 6.3% for the previous quarter and 5.5% in the first quarter of 2010. Cash flow from operating activities was $88.3 million for the first quarter of 2011. Capital expenditures were $76.7 million, including $46.3 million for purchases of customer gear, $9.2 million for data center build outs, $3.0 million for office build outs and $18.2 million for capitalized software and other projects. Adjusted free cash flow (1) for the quarter was $(3.4) million. At the end of the first quarter of 2011, cash and cash equivalents were $133.9 million. Debt obligations totaled $134.9 million, consisting of $132.7 million related to capital leases and $2.2 million related to current and non-current debt. On a worldwide basis, Rackspace employed 3,492 Rackers as of March 31, 2011, up from 3,262 Rackers as of December 31, 2010 and 2,905 Rackers as of March 31, 2010. “Our plan for 2011 is to become more competitive and seize the massive market opportunity ahead of us, while improving the economics of our model by becoming more capital efficient. The progress we made in Q1 shows that we are off to a great start executing on our plan,” said Lanham Napier, president and chief executive officer. Rackspace Developments and Business Highlights European Cloud Traction: Since the launch of the European cloud infrastructure service in January, over 3,000 customers have adopted the offering, including system tracking experts Phantom and content management specialists Juicy Media. Launch of Cloud Builders Service: In March, Rackspace announced Rackspace Cloud Builders, a new business that will offer training and certification, deployment services, and ongoing support to enterprises and service providers through its team of OpenStack experts and its network of technology industry leaders. For the first time, Rackspace will extend its commitment to customer service, known as Fanatical Support®, beyond the company's data centers to stand behind any OpenStack cloud deployment. Launch of Load Balancing as a Service: In April, Rackspace announced the availability of Rackspace Cloud Load Balancers. With this offering, businesses of all sizes can now have access to a new cloud-based load balancing solution that gives them the ability to scale mission critical applications or quickly build high availability configurations. The automated component distributes workloads across multiple Rackspace Cloud Servers to minimize response time and avoid server overload. Rackspace customers benefit from being able to intuitively set up a load balancer in minutes while providing application fault-tolerance cost-effectively. Conference Call and Webcast Management will host a conference call to discuss the results starting today at 4:30 p.m. To access the conference call, please dial 888-339-3513 from the United States or dial 719-325-2378 from abroad and reference pass code 7358508. 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 Hosting is the world leader in hosting. The San Antonio-based company provides its customers Fanatical Support® in their portfolio of hosted IT services, including Managed Hosting, Cloud Computing and Email and Apps. 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, 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 continuation or further deterioration of the current difficult economic conditions or further 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, 2010, filed with the SEC on February 22, 2011 and in Rackspace Hosting's Form 10-Q for the quarter ended March 31, 2011, expected to be filed this week. 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 EndedMarch 31,December 31,March 31, (In thousands, except per share data) 201020102011 Net revenue $ 178,805 $ 214,726 $ 230,002   Costs and expenses: Cost of revenue 57,007 66,747 69,742 Sales and marketing 21,977 26,294 29,738 General and administrative 46,395 56,748 62,441 Depreciation and amortization   36,698     41,529     44,098   Total costs and expenses   162,077     191,318     206,019   Income from operations   16,728     23,408     23,983     Other income (expense): Interest expense (2,144 ) (1,897 ) (1,491 ) Interest and other income (expense)   185     57     (78 ) Total other income (expense)   (1,959 )   (1,840 )   (1,569 ) Income before income taxes 14,769 21,568 22,414 Income taxes   4,957     8,029     8,593   Net income $ 9,812   $ 13,539   $ 13,821     Net income per share Basic $ 0.08   $ 0.11   $ 0.11   Diluted $ 0.07   $ 0.10   $ 0.10     Weighted average number of shares outstanding Basic   123,981     126,473     127,845   Diluted   132,439     134,786     136,224         Consolidated Balance Sheets   December 31,March 31, (In thousands) 20102011(Unaudited)ASSETS Current assets: Cash and cash equivalents $ 104,941 $ 133,868 Accounts receivable, net of allowance for doubtful accountsand customer credits of $2,846 as of December 31, 2010 and$3,411 as of March 31, 2011 47,734 52,598 Income taxes receivable 4,397 4,397 Deferred income taxes 6,416 4,010 Prepaid expenses and other current assets   21,957     20,935   Total current assets 185,445 215,808   Property and equipment, net 495,228 531,946 Goodwill 57,147 59,993 Intangible assets, net 9,675 10,346 Other non-current assets   14,082     13,321   Total assets $ 761,577   $ 831,414     LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued expenses $ 111,645 $ 132,308 Current portion of deferred revenue 15,822 15,604 Current portion of obligations under capital leases 59,763 62,255 Current portion of debt   1,912     1,743   Total current liabilities 189,142 211,910   Non-current deferred revenue 2,927 3,545 Non-current obligations under capital leases 69,173 70,467 Non-current debt 879 440 Non-current deferred income taxes 35,238 36,300 Other non-current liabilities   25,355     30,445   Total liabilities 322,714 353,107   Commitments and Contingencies   Stockholders' equity: Common stock 127 129 Additional paid-in capital 296,571 319,218 Accumulated other comprehensive loss (12,416 ) (9,442 ) Retained earnings   154,581     168,402   Total stockholders' equity   438,863     478,307   Total liabilities and stockholders' equity $ 761,577   $ 831,414           Consolidated Statements of Cash Flows(Unaudited)   Three Months EndedMarch 31,December 31,March 31, (In thousands) 201020102011Cash Flows From Operating Activities Net income $ 9,812 $ 13,539 $ 13,821 Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization 36,698 41,529 44,098 Loss on disposal of equipment, net 148 189 182 Provision for bad debts and customer credits 536 1,354 1,603 Deferred income taxes (1,721 ) 3,806 3,680 Deferred rent 1,804 2,893 3,031 Share-based compensation expense 5,978 7,087 7,810 Excess tax benefits from share-based compensation arrangements (7,015 ) (2,370 ) (898 ) Changes in certain assets and liabilities Accounts receivables (1,366 ) (3,790 ) (5,716 ) Income taxes receivable 3,770 (1,746 ) - Prepaid expenses and other current assets (904 ) 4,479 1,210 Accounts payable and accrued expenses 3,511 3,783 16,690 Deferred revenue (1,074 ) 2,201 153 All other operating activities   716     1,316     2,589   Net cash provided by operating activities 50,893 74,270 88,253   Cash Flows From Investing Activities Purchases of property and equipment, net (39,622 ) (46,884 ) (57,651 ) Acquisitions, net of cash acquired   -     (29,854 )   (952 ) Net cash used in investing activities (39,622 ) (76,738 ) (58,603 )   Cash Flows From Financing Activities Principal payments of capital leases (12,796 ) (14,182 ) (15,222 ) Principal payments of notes payable (840 ) (864 ) (608 ) Payments on line of credit - (50,000 ) - Proceeds from employee stock plans 2,262 3,877 13,751 Excess tax benefits from share-based compensation arrangements   7,015     2,370     898   Net cash used in financing activities (4,359 ) (58,799 ) (1,181 )   Effect of exchange rate changes on cash and cash equivalents (1,040 ) (349 ) 458       Increase (decrease) in cash and cash equivalents 5,872 (61,616 ) 28,927   Cash and cash equivalents, beginning of period 125,425 166,557 104,941       Cash and cash equivalents, end of period $ 131,297   $ 104,941   $ 133,868     Supplemental cash flow information: Acquisition of property and equipment by capital leases $ 15,766 $ 16,596 $ 19,009 Cash payments for interest, net of amount capitalized $ 2,144 $ 1,892 $ 1,463 Cash payments for income taxes $ 3,414 $ 4,351 $ 4,570             Key Metrics – Quarter to Date(Unaudited)   Three Months Ended (Dollar amounts in thousands, except annualized net revenue per average technical square foot) March 31,2010June 30,2010September 30,2010December 31,2010March 31,2011Growth Managed hosting, net revenue $ 159,536 $ 164,094 $ 172,947 $ 183,311 $ 192,895 Cloud, net revenue $ 19,269   $ 23,220   $ 26,763   $ 31,415   $ 37,107   Net revenue $ 178,805 $ 187,314 $ 199,710 $ 214,726 $ 230,002 Revenue growth (year over year) 23.2 % 23.2 % 23.0 % 26.7 % 28.6 %   Net upgrades (monthly average) 1.1 % 1.6 % 1.6 % 1.6 % 1.8 % Churn (monthly average)   -0.9 %   -1.0 %   -1.1 %   -1.0 %   -0.9 % Growth in installed base (monthly average) (2) 0.2 % 0.6 % 0.5 % 0.6 % 0.9 %   Number of customers at period end (3) 99,446 108,023 118,732 130,291 142,441 Number of employees (Rackers) at period end 2,905 3,002 3,130 3,262 3,492 Number of servers deployed at period end 59,876 61,874 63,996 66,015 70,473   Profitability Income from operations $ 16,728 $ 17,831 $ 21,635 $ 23,408 $ 23,983 Depreciation and amortization $ 36,698 $ 37,991 $ 39,677 $ 41,529 $ 44,098 Share-based compensation expense Cost of revenue $ 969 $ 1,163 $ 1,305 $ 1,223 $ 1,412 Sales and marketing (4) $ 880 $ 1,100 $ 1,209 $ 1,052 $ 1 General and administrative $ 4,129   $ 4,113   $ 4,669   $ 4,812   $ 6,397   Total share-based compensation expense $ 5,978   $ 6,376   $ 7,183   $ 7,087   $ 7,810   Adjusted EBITDA (1) $ 59,404 $ 62,198 $ 68,495 $ 72,024 $ 75,891   Adjusted EBITDA margin 33.2 % 33.2 % 34.3 % 33.5 % 33.0 %   Operating income margin 9.4 % 9.5 % 10.8 % 10.9 % 10.4 %   Income from operations $ 16,728 $ 17,831 $ 21,635 $ 23,408 $ 23,983 Effective tax rate 33.6 % 33.2 % 35.5 % 37.2 % 38.3 % Net operating profit after tax (NOPAT) (1) $ 11,107 $ 11,911 $ 13,955 $ 14,700 $ 14,798 NOPAT margin 6.2 % 6.4 % 7.0 % 6.8 % 6.4 %   Capital efficiency and returns Interest bearing debt $ 169,517 $ 169,847 $ 180,177 $ 131,727 $ 134,905 Stockholders' equity $ 370,425 $ 397,994 $ 413,237 $ 438,863 $ 478,307 Less: Excess cash $ (109,840 ) $ (126,018 ) $ (142,592 ) $ (79,174 ) $ (106,268 ) Capital base $ 430,102 $ 441,823 $ 450,822 $ 491,416 $ 506,944 Average capital base $ 420,916 $ 435,963 $ 446,323 $ 471,119 $ 499,180 Capital turnover (annualized) 1.70 1.72 1.79 1.82 1.84   Return on capital (annualized) (1) 10.6 % 10.9 % 12.5 % 12.5 % 11.9 %   Capital expenditures Purchases of property and equipment, net $ 39,622 $ 29,050 $ 29,222 $ 46,884 $ 57,651 Vendor financed equipment purchases $ 15,766   $ 15,793   $ 23,208   $ 16,596   $ 19,009   Total capital expenditures $ 55,388 $ 44,843 $ 52,430 $ 63,480 $ 76,660   Customer gear $ 32,488 $ 29,589 $ 36,219 $ 38,052 $ 46,300 Data center build outs $ 16,644 $ 5,955 $ 6,162 $ 9,754 $ 9,173 Office build outs $ 1,220 $ 1,306 $ 1,271 $ 5,145 $ 2,957 Capitalized software and other projects $ 5,036   $ 7,993   $ 8,778   $ 10,529   $ 18,230   Total capital expenditures $ 55,388 $ 44,843 $ 52,430 $ 63,480 $ 76,660   Infrastructure capacity and utilization Technical square feet of data center space at period end (5) 169,998 169,998 177,148 180,173 181,848 Annualized net revenue per average technical square foot $ 4,298 $ 4,407 $ 4,602 $ 4,807 $ 5,083 Utilization rate at period end 66.5 % 69.1 % 68.9 % 72.0 % 76.7 %   (1) See discussion and reconciliation of our Non-GAAP financial measures to the most comparable GAAP measures. (2) Due to rounding, totals may not equal the sum of the line items in the table above. (3) Customers continue to be counted on an account basis and therefore a customer with more than one account with us would be included as more than one customer. Furthermore, amounts include SaaS customers for Jungle Disk using a Rackspace storage solution. Jungle Disk customers using a third-party storage solution are excluded. (4) During the three months ended March 31, 2011, share-based compensation expense within Sales and Marketing was positively impacted by the reversal of previously recorded expense related to terminated employees. The offset of the reversal was a true-up of the forfeiture rate across Cost of Revenue and General and Administrative expenses for options that fully vested within the quarter negatively impacting these categories. (5) Technical square footage as of March 31, 2011 excludes 42,100 square feet and 3,300 square feet for unused portions of the Chicago and Northern Virginia facilities, respectively.             Consolidated Quarterly Statements of Income(Unaudited)   Three Months Ended (In thousands) March 31,2010June 30,2010September 30,2010December 31,2010March 31,2011   Net revenue $ 178,805 $ 187,314 $ 199,710 $ 214,726 $ 230,002 Costs and expenses: Cost of revenue 57,007 61,470 64,616 66,747 69,742 Sales and marketing 21,977 23,285 24,651 26,294 29,738 General and administrative 46,395 46,737 49,131 56,748 62,441 Depreciation and amortization   36,698     37,991     39,677     41,529     44,098   Total costs and expenses   162,077     169,483     178,075     191,318     206,019   Income from operations   16,728     17,831     21,635     23,408     23,983   Other income (expense): Interest expense (2,144 ) (1,875 ) (2,068 ) (1,897 ) (1,491 ) Interest and other income (expense)   185     814     (1,263 )   57     (78 ) Total other income (expense)   (1,959 )   (1,061 )   (3,331 )   (1,840 )   (1,569 ) Income before income taxes 14,769 16,770 18,304 21,568 22,414 Income taxes   4,957     5,572     6,495     8,029     8,593   Net income $ 9,812   $ 11,198   $ 11,809   $ 13,539   $ 13,821     Three Months Ended (Percent of net revenue) March 31,2010June 30,2010September 30,2010December 31,2010March 31,2011   Net revenue 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % Costs and expenses Cost of revenue 31.9 % 32.8 % 32.4 % 31.1 % 30.3 % Sales and marketing 12.3 % 12.4 % 12.3 % 12.2 % 12.9 % General and administrative 25.9 % 25.0 % 24.6 % 26.4 % 27.1 % Depreciation and amortization   20.5 %   20.3 %   19.9 %   19.3 %   19.2 % Total costs and expenses   90.6 %   90.5 %   89.2 %   89.1 %   89.6 % Income from operations   9.4 %   9.5 %   10.8 %   10.9 %   10.4 % Other income (expense): Interest expense -1.2 % -1.0 % -1.0 % 0.9 % -0.6 % Interest and other income (expense)   0.1 %   0.4 %   -0.6 %   0.0 %   -0.0 % Total other income (expense)   -1.1 %   -0.6 %   -1.7 %   -0.9 %   -0.7 % Income before income taxes 8.3 % 9.0 % 9.2 % 10.0 % 9.7 % Income taxes   2.8 %   3.0 %   3.3 %   3.7 %   3.7 % Net income   5.5 %   6.0 %   5.9 %   6.3 %   6.0 %   Due to rounding, totals may not equal the sum of the line items in the table above.     (1) Non-GAAP Financial MeasuresAdjusted EBITDA (Non-GAAP financial measure) 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 Adjusted EBITDA to net income reconciliations in the table below.   Three Months Ended (Dollars in thousands) March 31, 2010   June 30, 2010   September 30, 2010   December 31, 2010   March 31, 2011 Net revenue $ 178,805 $ 187,314 $ 199,710 $ 214,726 $ 230,002   Income from operations $ 16,728 $ 17,831 $ 21,635 $ 23,408 $ 23,983   Net income $ 9,812 $ 11,198 $ 11,809 $ 13,539 $ 13,821 Plus: Income taxes 4,957 5,572 6,495 8,029 8,593 Plus: Total other (income) expense 1,959 1,061 3,331 1,840 1,569 Plus: Depreciation and amortization 36,698 37,991 39,677 41,529 44,098 Plus: Share-based compensation expense   5,978     6,376     7,183     7,087     7,810   Adjusted EBITDA $ 59,404 $ 62,198 $ 68,495 $ 72,024 $ 75,891   Operating income margin 9.4 % 9.5 % 10.8 % 10.9 % 10.4 %   Adjusted EBITDA margin 33.2 % 33.2 % 34.3 % 33.5 % 33.0 %     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 payables and accrued expenses – deferred revenues – other non-current liabilities and deferred income taxes); 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 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 a 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 consider to be the most directly comparable GAAP measure, and may not be comparable to similarly titled measures reported by other companies. See our ROC reconciliation to return on assets below.   Three Months Ended (Dollars in thousands) March 31, 2010   June 30, 2010   September 30, 2010   December 31, 2010   March 31, 2011 Income from operations $ 16,728 $ 17,831 $ 21,635 $ 23,408 $ 23,983 Effective tax rate   33.6 %   33.2 %   35.5 %   37.2 %   38.3 % Net operating profit after tax (NOPAT) $ 11,107 $ 11,911 $ 13,955 $ 14,700 $ 14,798   Net income $ 9,812 $ 11,198 $ 11,809 $ 13,539 $ 13,821   Total assets at period end $ 691,729 $ 720,457 $ 760,198 $ 761,577 $ 831,414 Less: Excess cash (109,840 ) (126,018 ) (142,592 ) (79,174 ) (106,268 ) Less: Accounts payable and accrued expenses (92,828 ) (97,711 ) (101,427 ) (111,645 ) (132,308 ) Less: Deferred revenue (current and non-current) (18,044 ) (16,640 ) (16,685 ) (18,749 ) (19,149 ) Less: Other non-current liabilities and deferred income taxes   (40,915 )   (38,265 )   (48,672 )   (60,593 )   (66,745 ) Capital base $ 430,102 $ 441,823 $ 450,822 $ 491,416 $ 506,944   Average total assets $ 680,187 $ 706,093 $ 740,328 $ 760,888 $ 796,496 Average capital base $ 420,916 $ 435,963 $ 446,323 $ 471,119 $ 499,180   Return on assets (annualized) 5.8 % 6.3 % 6.4 % 7.1 % 6.9 % Return on capital (annualized) 10.6 % 10.9 % 12.5 % 12.5 % 11.9 %     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 vendor financed equipment purchases), cash payments for interest, net, and cash payments for income taxes, net. We believe that Adjusted Free Cash Flow is an important metric for investors in evaluating how a company is currently using cash generated, and may indicate its ability to generate cash that can potentially be used by the business for capital investments, acquisitions, reduction of debt, payment of dividends, etc. 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 Adjusted Free Cash Flow reconciliation to Adjusted EBITDA below, as well as our reconciliation of Net income to Adjusted EBITDA provided above.   Three MonthsEnded (In thousands) March 31,2011 Adjusted EBITDA $ 75,891 Non-cash deferred rent 3,031 Total capital expenditures (76,660 ) Cash payments for interest, net (1,426 ) Cash payments for income taxes, net   (4,238 ) Adjusted free cash flow $ (3,402 )     Net Leverage (Non-GAAP financial measure) We define Net Leverage as Net Debt divided by Adjusted EBITDA (trailing twelve months). We believe that Net Leverage is an important metric for investors in evaluating a company's liquidity. Note that Net Leverage is not a measure of financial performance under GAAP and may not be comparable to similarly titled measures reported by other companies. See our Net Leverage calculation below.   As of March 31, (Dollars in thousands) 2011 Obligations under capital leases $ 132,722 Debt   2,183   Total debt $ 134,905 Less: Cash and cash equivalents   (133,868 ) Net debt $ 1,037   Adjusted EBITDA (trailing twelve months) $ 278,608   Net leverage 0.00 x Rackspace HostingInvestor RelationsBryan McGrath, 210-312-5230ir@rackspace.comorCorporate CommunicationsRachel Ferry, 210-312-3732rachel.ferry@rackspace.com