Rackspace Plans Return To Public Markets

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Services-focused web hosting company plans to return to Nasdaq after it went private in 2016 under £3.25bn takeover by Apollo Global Management

Rackspace has said it is planning a fresh public offering of stock, following an initial offering in 2008 and a $4.3 billion (£3.4bn) privatisation deal in 2016.

The company started off as a web hosting firm known for its customer-service focus before briefly competing with public cloud companies such as Amazon Web Services and Google Cloud, before going private with Apollo Global Management.

It has since refocused as a “multicloud technology services” vendor helping customers to “design, build and operate” cloud environments.

Rackspace said it is aiming to raise roughly $100m and plans to list on the Nasdaq exchange under the symbol RXT.

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Debt

Goldman, Citi, J.P. Morgan, RBC Capital Markets and other banks are underwriting the IPO.

Like other formerly public companies that have gone private, Rackspace has large amounts of debt, amounting to $3.99bn on cash and equivalents of $125.2m, according to a filing with the Securities and Exchange Commission.

The firm said it made an operating profit of $21.5m in the first quarter of this year on $652.7m in revenues, but interest expenses of $72m for the quarter resulted in a $48.2m quarterly net loss.

Rackspace said it intends to use funds from the stock offering to lower its debt load.

Services focus

The company’s services focus makes it unusual in the technology industry, where companies typically focus on automation in order to achieve maximum profit margins.

In Rackspace’s case, the company said it had gross margins of 38.2 percent in the first quarter, down year-on-year from 41.3 percent.

Rackspace also saw its revenues decline slightly to $2.44bn for 2019, down from $2.45bn the previous year, following revenue growth from $2.14bn in 2017 to $2.45bn in 2018.

However, like some other companies focused on cloud services, Rackspace saw revenues grow in the first quarter of 2020, with its $652.7m in revenues up from $606.9m in the same quarter the previous year.

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