UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark one)


☑			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~June 30, 2020.~~March 31, 2021.


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______ to ______.

Commission File Number: 001-39420

RACKSPACE TECHNOLOGY, INC.

(Exact name of registrant as specified in its charter)


Delaware						81-3369925
(State or other jurisdiction of incorporation or organization)						(IRS Employer Identification No.)

1 Fanatical Place

City of Windcrest

San Antonio, Texas 78218

(Address of principal executive offices, including zip code)

(210) 312-4000

(Registrant's telephone number, including area code)

None

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common stock, par value $0.01 per share

RXT

The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☐☑ No ☑☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer," "accelerated filer," "smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

Accelerated filer

☐

Non-accelerated filer

☑

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

On ~~August 26, 2020, 199,131,909 shares~~May 5, 2021, 207,708,291 shares of the registrant’s common stock, par value $0.01 per share, were outstanding.

RACKSPACE TECHNOLOGY, INC.

TABLE OF CONTENTS


Part I - Financial Information
Item 1.	Financial Statements:
	Unaudited Consolidated Balance Sheets as of December 31, ~~2019~~2020 and ~~June 30, 2020~~March 31, 2021	3
	Unaudited Consolidated Statements of Comprehensive ~~Income (Loss)~~Loss for the Three ~~and Six~~ Months Ended ~~June 30, 2019~~March 31, 2020 and ~~June 30, 2020~~March 31, 2021	4
	Unaudited Consolidated Statements of Cash Flows for the ~~Six~~Three Months Ended ~~June 30, 2019~~March 31, 2020 and ~~June 30, 2020~~March 31, 2021	5
	Unaudited Consolidated Statements of ~~Stockholder~~s 'Stockholders' Equity for the Three ~~and Six~~ Months Ended ~~June 30, 2019~~March 31, 2020 and ~~June 30, 2020~~March 31, 2021	7
	Notes to the Unaudited Consolidated Financial Statements	98
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	2824
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	5243
Item 4.	Controls and Procedures	5344
	��
Part II - Other Information
Item 1.	Legal Proceedings	5445
Item 1A.	Risk Factors	5445
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	5445
Item 3.	Defaults Upon Senior Securities	5545
Item 4.	Mine Safety Disclosures	5545
Item 5.	Other Information	5545
Item 6.	Exhibits	5646

Signatures			5747

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q for the quarterly period ended ~~June 30, 2020~~March 31, 2021 (this "Quarterly Report") contains certain information that may constitute “forward-looking statements” within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. While we have specifically identified certain information as being forward-looking in the context of its presentation, we caution you that all statements contained in this report that are not clearly historical in nature, including statements regarding anticipated financial performance, management’s plans and objectives for future operations, business prospects, market conditions, and other matters are forward-looking. Forward-looking statements are contained principally in the sections of this report entitled “Risk Factors,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Without limiting the generality of the preceding sentence, any time we use the words “expects,” “intends,” “will,” “anticipates,” “believes,” “confident,” “continue,” “propose,” “seeks,” “could,” “may,” “should,” “estimates,” “forecasts,” “might,” “goals,” “objectives,” “targets,” “planned,” “projects,” and similar expressions, we intend to clearly express that the information deals with possible future events and is forward-looking in nature. However, the absence of these words or similar expressions does not mean that a statement is not forward-looking.

Forward-looking information involves risks, uncertainties, and other factors that could cause actual results to differ materially from those expressed or implied in, or reasonably inferred from, such statements, including without limitation, the effects of the COVID-19 pandemic on our results of operations and business, and the risks and uncertainties disclosed or referenced in Part II Item 1A. of this report under the heading “Risk Factors.” Therefore, caution should be taken not to place undue reliance on any such forward-looking statements. Much of the information in this report that looks toward future performance of the company is based on various factors and important assumptions about future events that may or may not actually occur. As a result, our operations and financial results in the future could differ materially and substantially from those we have discussed in the forward-looking statements included in this Quarterly Report. We assume no obligation (and specifically disclaim any such obligation) to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law.

TRADEMARKS, TRADE NAMES AND SERVICE MARKS

“Rackspace,” “Rackspace Technology,” “Fanatical Experience,” ~~“RackConnect,”~~and “Rackspace ~~Service Blocks,” “Rackspace~~ Fabric” ~~and “MyRackspace”~~ are registered or unregistered trademarks of Rackspace US, Inc. in the United States and/or other countries. OpenStack^® is a registered trademark of OpenStack, LLC and OpenStack Foundation in the United States. Solely for convenience, trademarks, trade names and service marks referred to in this Quarterly Report may appear without the ® or ™ symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensor to these trademarks, trade names and service marks. Other trademarks, trade names and service marks appearing in this Quarterly Report are the property of their respective holders. We do not intend our use or display of other companies’ trade names, trademarks or service marks to imply a relationship with, or endorsement or sponsorship of us by, any other companies.

Table of Contents

PART I – FINANCIAL INFORMATION

ITEM 1 - FINANCIAL STATEMENTS

RACKSPACE TECHNOLOGY, INC.

~~(formerly known as Rackspace Corp.)~~

CONSOLIDATED BALANCE SHEETS

(Unaudited)


(In millions, except per share data)	(In millions, except per share data)	December 31, 2019		June 30, 2020		(In millions, except per share data)	December 31, 2020		March 31, 2021
ASSETS	ASSETS					ASSETS
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	83.8	$	161.4	Cash and cash equivalents	$	104.7	$	198.4
Accounts receivable, net of allowance for doubtful accounts and accrued customer credits of $17.0 and $18.7, respectively		350.3		385.5
Accounts receivable, net of allowance for doubtful accounts and accrued customer credits of $28.3 and $24.0, respectively						Accounts receivable, net of allowance for doubtful accounts and accrued customer credits of $28.3 and $24.0, respectively	483.0		488.8
Prepaid expenses	Prepaid expenses	76.2		64.0		Prepaid expenses	123.8		94.2
Other current assets	Other current assets	33.4		40.2		Other current assets	47.0		65.5
Total current assets	Total current assets	543.7		651.1		Total current assets	758.5		846.9

Property, equipment and software, net	Property, equipment and software, net	727.8		914.1		Property, equipment and software, net	884.6		870.7
Goodwill, net	Goodwill, net	2,745.8		2,733.1		Goodwill, net	2,761.1		2,763.5
Intangible assets, net	Intangible assets, net	1,817.4		1,726.2		Intangible assets, net	1,646.3		1,600.4
Operating right-of-use assets	Operating right-of-use assets	308.3		167.6		Operating right-of-use assets	171.1		164.9
Other non-current assets	Other non-current assets	129.4		121.5		Other non-current assets	156.2		171.5
Total assets	Total assets	$	6,272.4	$	6,313.6	Total assets	$	6,377.8	$	6,417.9

LIABILITIES AND STOCKHOLDERS' EQUITY	LIABILITIES AND STOCKHOLDERS' EQUITY					LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:	Current liabilities:					Current liabilities:
Accounts payable and accrued expenses	Accounts payable and accrued expenses	$	260.4	$	262.5	Accounts payable and accrued expenses	$	285.4	$	323.1
Accrued compensation and benefits	Accrued compensation and benefits	128.5		94.6		Accrued compensation and benefits	110.6		75.8
Deferred revenue	Deferred revenue	66.6		60.0		Deferred revenue	76.7		89.0
Debt	Debt	29.0		29.0		Debt	43.4		27.0
Accrued interest	Accrued interest	36.0		35.7		Accrued interest	26.5		28.2
Operating lease liabilities	Operating lease liabilities	58.3		58.9		Operating lease liabilities	62.2		62.3
Finance lease liabilities						Finance lease liabilities	40.7		47.6
Financing obligations	Financing obligations	42.9		59.3		Financing obligations	48.8		47.3
Other current liabilities	Other current liabilities	50.2		74.0		Other current liabilities	47.9		57.5
Total current liabilities	Total current liabilities	671.9		674.0		Total current liabilities	742.2		757.8

Non-current liabilities:	Non-current liabilities:					Non-current liabilities:
Debt	Debt	3,844.3		3,903.2		Debt	3,319.3		3,368.7
Operating lease liabilities	Operating lease liabilities	256.5		109.9		Operating lease liabilities	118.2		111.6
Finance lease liabilities	Finance lease liabilities	88.4		332.4		Finance lease liabilities	358.1		357.5
Financing obligations	Financing obligations	86.4		90.6		Financing obligations	74.1		64.2
Deferred income taxes	Deferred income taxes	326.9		284.7		Deferred income taxes	236.7		231.5
Other non-current liabilities	Other non-current liabilities	99.2		150.0		Other non-current liabilities	145.5		151.4
Total liabilities	Total liabilities	5,373.6		5,544.8		Total liabilities	4,994.1		5,042.7

Commitments and Contingencies (Note 8)
Commitments and Contingencies (Note 7)						Commitments and Contingencies (Note 7)	0		0

Stockholders' equity:	Stockholders' equity:					Stockholders' equity:
Preferred stock, $0.01 par value per share: 5.0 shares authorized; 0 shares issued or outstanding	Preferred stock, $0.01 par value per share: 5.0 shares authorized; 0 shares issued or outstanding	0		0		Preferred stock, $0.01 par value per share: 5.0 shares authorized; 0 shares issued or outstanding	0		0
Common stock, $0.01 par value per share: 1,495.0 shares authorized; 165.4 and 165.6 shares issued and outstanding, respectively		1.6		1.6
Common stock, $0.01 par value per share: 1,495.0 shares authorized; 201.8 and 207.0 shares issued and outstanding, respectively						Common stock, $0.01 par value per share: 1,495.0 shares authorized; 201.8 and 207.0 shares issued and outstanding, respectively	2.0		2.1
Additional paid-in capital	Additional paid-in capital	1,602.7		1,619.2		Additional paid-in capital	2,363.6		2,402.6
Accumulated other comprehensive income (loss)		12.0		(53.7)
Accumulated other comprehensive loss						Accumulated other comprehensive loss	(18.6)		(2.2)
Accumulated deficit	Accumulated deficit	(717.5)		(798.3)		Accumulated deficit	(963.3)		(1,027.3)
Total stockholders' equity	Total stockholders' equity	898.8		768.8		Total stockholders' equity	1,383.7		1,375.2
Total liabilities and stockholders' equity	Total liabilities and stockholders' equity	$	6,272.4	$	6,313.6	Total liabilities and stockholders' equity	$	6,377.8	$	6,417.9

See accompanying notes to the unaudited consolidated financial statements.

- 3 -

Table of Contents

RACKSPACE TECHNOLOGY, INC.

~~(formerly known as Rackspace Corp.)~~

CONSOLIDATED STATEMENTS OF COMPREHENSIVE ~~INCOME (LOSS)~~LOSS

(Unaudited)

Three Months Ended June 30, Six Months Ended June 30,
(In millions, except per share data) 2019 2020 2019 2020
Revenue $ 602.4 $ 656.5 $ 1,209.3 $ 1,309.2
Cost of revenue (350.3) (414.6) (706.3) (818.0)
Gross profit 252.1 241.9 503.0 491.2
Selling, general and administrative expenses (226.5) (219.2) (458.2) (447.0)
Gain on sale 0 0 2.1 0
Income from operations 25.6 22.7 46.9 44.2
Other income (expense):
Interest expense (100.8) (68.9) (189.8) (140.9)
Gain on investments, net 143.3 1.0 143.4 0.9
Gain on extinguishment of debt 5.0 0 9.5 0
Other income (expense), net 1.7 0.3 (2.3) (0.3)
Total other income (expense) 49.2 (67.6) (39.2) (140.3)
Income (loss) before income taxes 74.8 (44.9) 7.7 (96.1)
Benefit (provision) for income taxes (12.3) 12.3 (2.7) 15.3
Net income (loss) $ 62.5 $ (32.6) $ 5.0 $ (80.8)
Other comprehensive income (loss), net of tax
Foreign currency translation adjustments $ (8.1) $ 0.9 $ 2.5 $ (19.5)
Unrealized losses on derivative contracts 0 (6.8) 0 (47.5)
Amount reclassified from accumulated other comprehensive income (loss) to earnings 0 1.7 0 1.3
Other comprehensive income (loss) (8.1) (4.2) 2.5 (65.7)
Comprehensive income (loss) $ 54.4 $ (36.8) $ 7.5 $ (146.5)
Net income (loss) per share:
Basic $ 0.38 $ (0.20) $ 0.03 $ (0.49)
Diluted $ 0.38 $ (0.20) $ 0.03 $ (0.49)
Weighted average number of shares:
Basic 165.2 165.5 165.2 165.4
Diluted 166.1 165.5 165.9 165.4


	Three Months Ended March 31,
(In millions, except per share data)	2020		2021
Revenue	$	652.7	$	725.9
Cost of revenue	(403.4)		(490.6)
Gross profit	249.3		235.3
Selling, general and administrative expenses	(227.8)		(231.0)

Gain on sale of land	0		19.9

Income from operations	21.5		24.2
Other income (expense):
Interest expense	(72.0)		(52.6)
Loss on investments, net	(0.1)		(3.7)
Debt modification and extinguishment costs	0		(37.0)
Other expense, net	(0.6)		(1.8)
Total other income (expense)	(72.7)		(95.1)
Loss before income taxes	(51.2)		(70.9)
Benefit for income taxes	3.0		6.9
Net loss	$	(48.2)	$	(64.0)

Other comprehensive income (loss), net of tax
Foreign currency translation adjustments	$	(20.4)	$	3.0
Unrealized gain (loss) on derivative contracts	(40.7)		9.4
Amount reclassified from accumulated other comprehensive income (loss) to earnings	(0.4)		4.0
Other comprehensive income (loss)	(61.5)		16.4
Comprehensive loss	$	(109.7)	$	(47.6)

Net loss per share:
Basic and diluted	$	(0.29)	$	(0.31)

Weighted average number of shares outstanding:
Basic and diluted	165.4		204.6

See accompanying notes to the unaudited consolidated financial statements.

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Table of Contents

RACKSPACE TECHNOLOGY, INC.

~~(formerly known as Rackspace Corp.)~~

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


		Six Months Ended June 30,							Three Months Ended March 31,
(In millions)	(In millions)	2019		2020		(In millions)	2020		2021
Cash Flows From Operating Activities	Cash Flows From Operating Activities					Cash Flows From Operating Activities
Net income (loss)		$	5.0	$	(80.8)
Net loss						Net loss	$	(48.2)	$	(64.0)
Adjustments to reconcile net loss to net cash provided by operating activities:	Adjustments to reconcile net loss to net cash provided by operating activities:					Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization	Depreciation and amortization	257.9		237.6		Depreciation and amortization	121.3		108.5
Amortization of operating right-of-use assets	Amortization of operating right-of-use assets	36.2		36.3		Amortization of operating right-of-use assets	17.1		15.9
Deferred income taxes	Deferred income taxes	(0.5)		(19.2)		Deferred income taxes	(5.8)		(11.1)
Share-based compensation expense	Share-based compensation expense	12.3		16.6		Share-based compensation expense	7.5		17.2

Gain on sale		(2.1)		0
Gain on extinguishment of debt		(9.5)		0
Unrealized (gain) loss on derivative contracts		48.3		(2.7)
Gain on investments, net		(143.4)		(0.9)
Gain on sale of land						Gain on sale of land	0		(19.9)
Debt modification and extinguishment costs						Debt modification and extinguishment costs	0		37.0
Unrealized loss on derivative contracts						Unrealized loss on derivative contracts	0.7		5.2
Loss on investments, net						Loss on investments, net	0.1		3.7
Provision for bad debts and accrued customer credits	Provision for bad debts and accrued customer credits	13.0		10.1		Provision for bad debts and accrued customer credits	2.6		(2.7)
Amortization of debt issuance costs and debt discount	Amortization of debt issuance costs and debt discount	9.1		9.4		Amortization of debt issuance costs and debt discount	4.6		2.7
Other operating activities	Other operating activities	0.6		(1.8)		Other operating activities	(0.8)		(0.4)
Changes in operating assets and liabilities:	Changes in operating assets and liabilities:					Changes in operating assets and liabilities:
Accounts receivable	Accounts receivable	(27.2)		(47.1)		Accounts receivable	(34.1)		(2.6)
Prepaid expenses and other current assets	Prepaid expenses and other current assets	1.7		2.9		Prepaid expenses and other current assets	(1.7)		24.7
Accounts payable, accrued expenses, and other current liabilities	Accounts payable, accrued expenses, and other current liabilities	(37.4)		(31.8)		Accounts payable, accrued expenses, and other current liabilities	(32.3)		(7.8)
Deferred revenue	Deferred revenue	(8.0)		(9.0)		Deferred revenue	3.0		11.5
Operating lease liabilities	Operating lease liabilities	(36.9)		(33.7)		Operating lease liabilities	(15.3)		(16.1)
Other non-current assets and liabilities	Other non-current assets and liabilities	(6.7)		12.9		Other non-current assets and liabilities	6.1		1.4
Net cash provided by operating activities	Net cash provided by operating activities	112.4		98.8		Net cash provided by operating activities	24.8		103.2
Cash Flows From Investing Activities	Cash Flows From Investing Activities					Cash Flows From Investing Activities
Purchases of property, equipment and software	Purchases of property, equipment and software	(113.9)		(66.4)		Purchases of property, equipment and software	(34.4)		(36.9)
Proceeds from sale		16.8		0
Proceeds from sale of land						Proceeds from sale of land	0		31.3

Other investing activities	Other investing activities	3.8		3.6		Other investing activities	2.0		1.3
Net cash used in investing activities	Net cash used in investing activities	(93.3)		(62.8)		Net cash used in investing activities	(32.4)		(4.3)
Cash Flows From Financing Activities	Cash Flows From Financing Activities					Cash Flows From Financing Activities
Proceeds from issuance of common stock		0		0.5
Shares of common stock withheld for employee taxes		0		(0.6)
Repurchase of common stock		(1.9)		0
Cash settlement of share-based awards		(1.5)		0

Proceeds from employee stock plans						Proceeds from employee stock plans	0		21.7

Proceeds from borrowings under long-term debt arrangements	Proceeds from borrowings under long-term debt arrangements	0		310.0		Proceeds from borrowings under long-term debt arrangements	295.0		2,838.5
Repayments of debt		(77.5)		(259.5)
Payments on long-term debt						Payments on long-term debt	(252.2)		(2,810.6)
Payments for debt issuance costs	Payments for debt issuance costs	0		(1.0)		Payments for debt issuance costs	(0.7)		(32.3)
Principal payments of finance lease liabilities	Principal payments of finance lease liabilities	(15.5)		(7.1)		Principal payments of finance lease liabilities	(2.4)		(10.5)
Proceeds from financing obligations	Proceeds from financing obligations	0		20.9		Proceeds from financing obligations	20.9		0
Principal payments of financing obligations	Principal payments of financing obligations	(3.6)		(19.9)		Principal payments of financing obligations	(10.0)		(11.3)
Net cash provided by (used in) financing activities	Net cash provided by (used in) financing activities	(100.0)		43.3		Net cash provided by (used in) financing activities	50.6		(4.5)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash	Effect of exchange rate changes on cash, cash equivalents, and restricted cash	1.4		(1.7)		Effect of exchange rate changes on cash, cash equivalents, and restricted cash	(1.6)		(0.7)
Increase (decrease) in cash, cash equivalents, and restricted cash		(79.5)		77.6
Increase in cash, cash equivalents, and restricted cash						Increase in cash, cash equivalents, and restricted cash	41.4		93.7
Cash, cash equivalents, and restricted cash at beginning of period	Cash, cash equivalents, and restricted cash at beginning of period	258.2		87.1		Cash, cash equivalents, and restricted cash at beginning of period	87.1		108.1
Cash, cash equivalents, and restricted cash at end of period	Cash, cash equivalents, and restricted cash at end of period	$	178.7	$	164.7	Cash, cash equivalents, and restricted cash at end of period	$	128.5	$	201.8

Supplemental Cash Flow Information
Cash payments for interest, net of amount capitalized		$	133.0	$	131.4
Cash payments for income taxes, net of refunds		$	7.0	$	8.1

Non-cash Investing and Financing Activities
Acquisition of property, equipment and software by finance leases		$	0	$	42.5

- 5 -

Table of Contents


Supplemental Cash Flow Information						Supplemental Cash Flow Information
Cash payments for interest, net of amount capitalized						Cash payments for interest, net of amount capitalized	$	39.3	$	45.1
Cash payments for income taxes, net of refunds						Cash payments for income taxes, net of refunds	$	6.8	$	3.9

Non-cash Investing and Financing Activities						Non-cash Investing and Financing Activities
Acquisition of property, equipment and software by finance leases						Acquisition of property, equipment and software by finance leases	$	0.4	$	13.9
Acquisition of property, equipment and software by financing obligations	Acquisition of property, equipment and software by financing obligations	1.9		19.9		Acquisition of property, equipment and software by financing obligations	18.0		0
Decrease in property, equipment and software accrued in liabilities		(19.1)		(2.6)
Increase in property, equipment and software accrued in liabilities						Increase in property, equipment and software accrued in liabilities	22.6		8.1
Non-cash purchases of property, equipment and software	Non-cash purchases of property, equipment and software	$	(17.2)	$	59.8	Non-cash purchases of property, equipment and software	$	41.0	$	22.0

Non-cash increase in buildings within property, equipment, net, and software due to lease modification		$	0	$	220.3

Debt issuance costs included in accrued liabilities						Debt issuance costs included in accrued liabilities	$	0	$	2.1

Other non-cash investing and financing activities	Other non-cash investing and financing activities	$	1.2	$	2.3	Other non-cash investing and financing activities	$	0.1	$	0.2

The following table provides a reconciliation of cash, cash equivalents, and restricted cash to the total of such amounts shown on the Consolidated Statements of Cash Flows.


		Six Months Ended June 30,							Three Months Ended March 31,
(In millions)	(In millions)	2019		2020		(In millions)	2020		2021
Cash and cash equivalents	Cash and cash equivalents	$	174.7	$	161.4	Cash and cash equivalents	$	125.2	$	198.4
Restricted cash included in other non-current assets	Restricted cash included in other non-current assets	4.0		3.3		Restricted cash included in other non-current assets	3.3		3.4
Total cash, cash equivalents, and restricted cash shown in the statement of cash flows	Total cash, cash equivalents, and restricted cash shown in the statement of cash flows	$	178.7	$	164.7	Total cash, cash equivalents, and restricted cash shown in the statement of cash flows	$	128.5	$	201.8

See accompanying notes to the unaudited consolidated financial statements.

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Table of Contents

RACKSPACE TECHNOLOGY, INC.

~~(formerly known as Rackspace Corp.)~~

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(Unaudited)

(In millions) Common Stock Additional Paid-In Capital Accumulated Other Comprehensive Income Accumulated Deficit Total Stockholders' Equity
Shares Amount
Balance at March 31, 2019 165.2 $ 1.6 $ 1,583.2 $ 10.6 $ (672.7) $ 922.7
Exercise of stock options and release of stock awards, net of shares withheld for employee taxes 0.1 — — — — —
Repurchase of common stock (0.1) — (1.9) — — (1.9)
Cash settlement of share-based awards — — (1.5) — — (1.5)
Share-based compensation expense — — 6.4 — — 6.4
Net income — — — — 62.5 62.5
Other comprehensive loss — — — (8.1) — (8.1)
Balance at June 30, 2019 165.2 $ 1.6 $ 1,586.2 $ 2.5 $ (610.2) $ 980.1


(In millions)	Common Stock			Additional Paid-In Capital		Accumulated Other Comprehensive Income (Loss)		Accumulated Deficit		Total Stockholders' Equity
	Shares	Amount
Balance at December 31, 2019	165.4	$	1.6	$	1,602.7	$	12.0	$	(717.5)	$	898.8



Share-based compensation expense	—	—		7.5		—		—		7.5
Net loss	—	—		—		—		(48.2)		(48.2)
Other comprehensive loss	—	—		—		(61.5)		—		(61.5)
Balance at March 31, 2020	165.4	$	1.6	$	1,610.2	$	(49.5)	$	(765.7)	$	796.6

(In millions) Common Stock Additional Paid-In Capital Accumulated Other Comprehensive Income Accumulated Deficit Total Stockholders' Equity
Shares Amount
Balance at December 31, 2018 165.2 $ 1.6 $ 1,577.3 $ 0 $ (671.1) $ 907.8
Cumulative effect of adopting ASC 842 — — — — 55.9 55.9
Exercise of stock options and release of stock awards, net of shares withheld for employee taxes 0.1 — — — — —
Repurchase of common stock (0.1) — (1.9) — — (1.9)
Cash settlement of share-based awards — — (1.5) — — (1.5)
Share-based compensation expense — — 12.3 — — 12.3
Net income — — — — 5.0 5.0
Other comprehensive income — — — 2.5 — 2.5
Balance at June 30, 2019 165.2 $ 1.6 $ 1,586.2 $ 2.5 $ (610.2) $ 980.1


(In millions)	Common Stock			Additional Paid-In Capital		Accumulated Other Comprehensive Loss		Accumulated Deficit		Total Stockholders' Equity
	Shares	Amount
Balance at December 31, 2020	201.8	$	2.0	$	2,363.6	$	(18.6)	$	(963.3)	$	1,383.7
Issuance of common stock	2.7	0		0		—		—		—
Exercise of stock options and release of stock awards	2.5	0.1		21.8		—		—		21.9

Share-based compensation expense	—	—		17.2		—		—		17.2
Net loss	—	—		—		—		(64.0)		(64.0)
Other comprehensive income	—	—		—		16.4		—		16.4
Balance at March 31, 2021	207.0	$	2.1	$	2,402.6	$	(2.2)	$	(1,027.3)	$	1,375.2

(In millions) Common Stock Additional Paid-In Capital Accumulated Other Comprehensive Loss Accumulated Deficit Total Stockholders' Equity
Shares Amount
Balance at March 31, 2020 165.4 $ 1.6 $ 1,610.2 $ (49.5) $ (765.7) $ 796.6
Exercise of stock options and release of stock awards, net of shares withheld for employee taxes 0.2 — (0.1) — — (0.1)
Share-based compensation expense — — 9.1 — — 9.1
Net loss — — — — (32.6) (32.6)
Other comprehensive loss — — — (4.2) — (4.2)
Balance at June 30, 2020 165.6 $ 1.6 $ 1,619.2 $ (53.7) $ (798.3) $ 768.8

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(In millions) Common Stock Additional Paid-In Capital Accumulated Other Comprehensive Income (Loss) Accumulated Deficit Total Stockholders' Equity
Shares Amount
Balance at December 31, 2019 165.4 $ 1.6 $ 1,602.7 $ 12.0 $ (717.5) $ 898.8
Exercise of stock options and release of stock awards, net of shares withheld for employee taxes 0.2 — (0.1) — — (0.1)
Share-based compensation expense — — 16.6 — — 16.6
Net loss — — — — (80.8) (80.8)
Other comprehensive loss — — — (65.7) — (65.7)
Balance at June 30, 2020 165.6 $ 1.6 $ 1,619.2 $ (53.7) $ (798.3) $ 768.8

See accompanying notes to the unaudited consolidated financial statements.

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RACKSPACE TECHNOLOGY, INC.

~~(formerly known as Rackspace Corp.)~~

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. Company Overview, Basis of Presentation, and Summary of Significant Accounting Policies

Nature of Operations and Basis of Presentation

Rackspace Technology, Inc. ("Rackspace Technology") ~~(formerly known as Rackspace Corp. until its legal name change on June 11, 2020 and formerly known as Inception Topco Inc. until its legal name change on March 31, 2020),~~ is a Delaware corporation controlled by investment funds affiliated with Apollo Global Management, Inc. and its subsidiaries (“Apollo”) ~~and certain co-investors, including Searchlight Capital Partners L.P (“Searchlight”), ABRY Partners, LLC and ABRY Partners II, LLC (collectively, “ABRY”), and current and former employees.~~. Rackspace Technology was formed on July 21, 2016 but had no assets, liabilities or operating results until November 3, 2016 (the “Closing Date”) when Rackspace Hosting, Inc. (now named Rackspace Technology Global, Inc., or “Rackspace Technology Global”), a global provider of modern information technology-as-a-service, was acquired by Inception Parent, Inc., a wholly-owned entity indirectly owned by Rackspace Technology (the “Rackspace Acquisition”).

Rackspace Technology Global commenced operations in 1998 as a limited partnership, and was incorporated in Delaware in March 2000. Rackspace Technology serves as the holding company for Rackspace Technology Global and does not engage in any material business or operations other than those related to its indirect ownership of the capital stock of Rackspace Technology Global and its subsidiaries or business or operations otherwise customarily undertaken by a holding company.

For ease of reference, the terms “we,” “our company,” “the company,” “us,” or “our” as used in this report refer to Rackspace Technology and its consolidated subsidiaries.

On November 15, 2019, we acquired 100% of Onica Holdings LLC ("Onica") as described in more detail in Note 13, "Acquisitions." The preliminary estimate of fair values of Onica’s assets acquired and liabilities assumed, together with Onica’s results of operations subsequent to the November 15, 2019 acquisition date, are included in the unaudited consolidated financial statements.

The unaudited consolidated financial statements include the accounts of Rackspace Technology, Inc. and our wholly-owned subsidiaries. Intercompany transactions and balances have been eliminated in consolidation.

Unaudited Interim Financial Information

The unaudited consolidated financial statements as of ~~June 30, 2020,~~March 31, 2021, and for the three ~~and six~~ months ended ~~June 30, 2019~~March 31, 2020 and ~~2020, are unaudited and~~2021, have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information. Accordingly, ~~they do not include all~~certain financial information and disclosures required byfor financial statements prepared under GAAP have been omitted in accordance with the SEC disclosure rules and regulations that permit reduced disclosure for ~~complete financial statements.~~interim periods. These unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the related notes thereto ~~as of December 31, 2019,~~ included in our ~~Registration Statement~~Annual Report on Form ~~S-1 (File No. 333-239794), as amended, including~~10-K for the ~~final prospectus, dated August 4,~~year ended December 31, 2020 ~~included therein (the "Prospectus"~~("Annual Report on Form 10-K"). The unaudited interim consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements included in ~~the Prospectus~~our Annual Report on Form 10-K and, in the opinion of management, reflect all adjustments, which include normal recurring adjustments, necessary for a fair statement of our financial position as of ~~June 30, 2020,~~March 31, 2021, and our results of operations, ~~for the three and six months ended June 30, 2019 and 2020, our~~ cash flows ~~for the six months ended June 30, 2019~~ and ~~2020, and our~~ stockholders' equity for the three ~~and six~~ months ended ~~June 30, 2019~~March 31, 2020 and ~~2020.~~2021.

The results of operations for the three ~~and six~~ months ended ~~June 30, 2020~~March 31, 2021 are not necessarily indicative of the results of operations to be expected for the year ending December 31, ~~2020,~~2021, or for any other interim period, or for any other future year.

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Use of Estimates

The preparation of consolidated financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenue and expenses, and related disclosures of contingent assets and liabilities in the consolidated financial statements and accompanying notes. On an ongoing basis, we evaluate our estimates, including those related to the allowance for doubtful accounts, useful lives of property, equipment and software, software capitalization, incremental borrowing rates for lease liability measurement, fair values of intangible assets and reporting units, useful lives of intangible assets, share-based compensation, contingencies, and income taxes, among others. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results could differ from our estimates.

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Impact of COVID-19

In March 2020, the World Health Organization declared COVID-19 a global pandemic. The effects of COVID-19 ~~are rapidly evolving,~~continue to evolve, and the full impact and duration of the virus are unknown. Currently, COVID-19 has not had a significant impact on our operations or financial performance; however, the ultimate extent of the impact of COVID-19 on our operational and financial performance will depend on certain developments, including the duration and severity of the outbreak, the pace of economic recovery, the possible resurgence in the spread of the ~~outbreak~~virus, advances in testing, treatment, and prevention, including the efficacy and availability of vaccines, its impact on our customers, vendors and employees, and its impact on our sales cycles as well as industry events, all of which are uncertain and cannot be predicted. ~~In addition, we~~We continue to face a greater degree of uncertainty in making estimates and assumptions needed to prepare our consolidated financial statements and ~~footnotes.~~

~~Subsequent Events~~

~~On July 20, 2020, the board~~footnotes as a result of directors of the company approved and effected a 12-for-one stock split of the company’s common stock (the "Stock Split"). All common stock share and per-share data, excluding par value per share, included in these consolidated financial statements give effect to the Stock Split and have been adjusted retroactively for all periods presented.

On July 20, 2020, we entered into an amendment to the First Lien Credit Agreement that modified the terms of our revolving credit facility (the “Revolving Credit Facility”) effective upon the closing of our initial public offering (the “IPO”) on August 7, 2020. The amendment (i) increased the amount of the commitments available under the Revolving Credit Facility from $225.0 million to $375.0 million, (ii) reduced the applicable margin with respect to the Revolving Credit Facility to 3.00% for LIBOR loans and 2.00% for base rate loans, but includes a 1.00% LIBOR “floor” applicable to LIBOR loans, and (iii) extended the maturity date with respect to the Revolving Credit Facility from November 3, 2021 to August 7, 2025; however, if 91 days prior to the scheduled maturity date of (A) the Term Loan Facility, more than $50.0 million aggregate principal amount of loans remains outstanding under the Term Loan Facility, or (B) the 8.625% Senior Notes due 2024 (the "8.625% Senior Notes"), more than $50.0 million aggregate principal amount of the 8.625% Senior Notes remains outstanding, in either such case, the Revolving Credit Facility will mature on such earlier date.

The amendment to the Revolving Credit Facility also modified the financial maintenance covenant applicable to the Revolving Credit Facility that limits the borrower’s net first lien leverage ratio to be a maximum of 5.00 to 1.00 (as compared to 3.50 to 1.00 prior to giving effect to the amendment). This financial maintenance covenant is only applicable and tested if the aggregate amount of outstanding borrowings under the Revolving Credit Facility and letters of credit issued thereunder (excluding $25.0 million of undrawn letters of credit and cash collateralized letters of credit) as of the last day of a fiscal quarter is equal to or greater than 35% of the Revolving Credit Facility commitments as of the last day of such fiscal quarter. Other than described in this and the previous paragraph, the terms and conditions of the Revolving Credit Facility remained the same, and the amendment did not amend or otherwise modify the terms of the Term Loan Facility (as defined below).

On July 24, 2020, the board of directors of Rackspace Technology approved amendments to the Rackspace Technology, Inc. Equity Incentive Plan (the “2017 Incentive Plan”), which amendments were effective upon completion of the IPO on August 7, 2020. Among other things, as of the consummation of the IPO, the 2017 Incentive Plan terminated, except as it relates to outstanding awards, and any remaining shares reserved for future grants under the 2017 Incentive Plan were released.

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In connection with the Rackspace Acquisition, we entered into a management consulting agreement with affiliates of Apollo and Searchlight (the “Apollo/Searchlight Management Consulting Agreement”) and a transaction fee agreement with an affiliate of Apollo (the “Transaction Fee Agreement”). In addition, on November 15, 2017, we entered into a management consulting agreement with ABRY (the “ABRY Management Consulting Agreement”). On July 24, 2020, we executed termination letters with each of the parties to the Apollo/Searchlight Management Consulting Agreement, the Transaction Fee Agreement, and the ABRY Management Consulting Agreement, whereby all agreements terminated effective as of the pricing of the IPO on August 4, 2020, and therefore 0 management or transaction fees will accrue or be payable under any of these agreements for periods subsequent to that date.

On August 7, 2020, we completed the IPO, in which we issued and sold 33,500,000 shares of our common stock at a public offering price of $21.00 per share. We received proceeds of $666.6 million from sales of shares in the IPO, after deducting underwriters' discounts and commissions of $36.9 million, but before deducting offering expenses of approximately $8.4 million. The underwriters may exercise their option to purchase up to an additional 5,025,000 shares at $21.00 per share for 30 days after the final Prospectus date of August 4, 2020.

On August 12, 2020, Rackspace Technology Global commenced a tender offer to purchase for cash up to$600.0 million aggregate principal amount of its approximately $1,120.2 million outstanding 8.625% Senior Notes. As of the end of the day, 12:00 midnight, New York City time, on August 25, 2020, the early tender time, holders of the 8.625% Senior Notes had validly tendered $507.6 million aggregate principal amount of the 8.625% Senior Notes. On August 27, 2020, Rackspace Technology Global purchased $507.6 million aggregate principal amount of the 8.625% Senior Notes for aggregate cash of approximately $549.2 million, which reflected a price of 105.75% of the principal amount thereof, plus accrued and unpaid interest to, but not including, August 27, 2020, and canceled $507.6 million of the 8.625% Senior Notes following the purchase. The tender offer is scheduled to expire at the end of the day, 12:00 midnight, New York City time, on Wednesday, September 9, 2020, unless extended or earlier terminated by Rackspace Technology Global.COVID-19.

Significant Accounting Policies and Estimates

Our ~~Prospectus~~Annual Report on Form 10-K includes an additional discussion of the significant accounting policies and estimates used in the preparation of our consolidated financial ~~statements, which we are incorporating by reference herein.~~statements. There were no material changes to our significant accounting policies and estimates during the ~~six~~three months ended ~~June 30, 2020, except~~March 31, 2021.

Change in Accounting Estimate

In March 2021, we completed an assessment of the useful lives of certain assets within the Computers and equipment asset class. The timing of this review was based on a combination of factors accumulating over time that provided the company with updated information to make a better estimate on the economic lives of certain property and equipment. These factors included changes in customer purchasing patterns, technological advancements and the availability of extended equipment warranties. The assessment resulted in a revision within our policy ranges for certain useful lives in this asset class. This change in accounting estimate was effective in the first quarter of 2021. The effect of this change was a reduction in depreciation expense of $6.6 million for the ~~adoptions of the Accounting Standards Updates ("ASU") discussed in "Recently Adopted Accounting Pronouncements" below.~~three months ended March 31, 2021.

Reclassifications

Certain reclassifications have been made to the prior period consolidated financial statements to conform to the current period presentation. Specifically, the ~~non-current~~current portion of "Finance lease liabilities" is now presented separately from "Other ~~non-current~~current liabilities" in the Consolidated Balance Sheets. This presentation change is due to the modification of certain leases in June 2020 which resulted in a change of classification from operating leases to finance leases, increasing the balance of the non-current portion of "Finance lease liabilities".

Recently Adopted Accounting Pronouncements

~~Financial Instruments-Credit Losses~~Simplifying the Accounting for Income Taxes

In ~~June 2016,~~December 2019, the ~~Financial Accounting Standards Board ("FASB")~~FASB issued ASU No. ~~2016-13,~~2019-12, ~~Financial Instruments~~Income Taxes (Topic 740) - ~~Credit Losses (Topic 326) - Measurement of Credit Losses on Financial Instruments~~Simplifying the Accounting for Income Taxes, which ~~requires financial assets measured at amortized cost~~removes certain exceptions to ~~be presented at~~ the ~~net amount expected to be collected using an allowance~~general principles in Topic 740 and improves consistent application of and simplifies GAAP for ~~expected credit losses, to be estimated~~other areas of Topic 740 by ~~management based on historical experience, current conditions,~~clarifying and ~~reasonable and supportable forecasts.~~amending existing guidance. We adopted this guidance on January 1, ~~2020, using the modified retrospective approach.~~2021. The adoption of this guidance did not have a ~~material~~material impact on our consolidated financial statements.

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~~Derivatives and Hedging-Targeted Improvements to Accounting for Hedging Activities~~

~~In August 2017, the FASB issued ASU No. 2017-12,~~ ~~Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities,~~ which improves the financial reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in its financial statements and to simplify the application of the hedge accounting guidance. The guidance expands and refines hedge accounting for both nonfinancial and financial risk components and aligns the recognition and presentation of the effects of hedging instruments and hedged items in the financial statements. The guidance also amends the presentation and disclosure requirements and changes how entities assess hedge effectiveness.

We adopted this ASU on January 1, 2020. The guidance applies to any existing hedges or new derivative instruments that are designated as hedges for derivative accounting purposes in future periods. We have historically not designated our interest rate swaps or foreign currency hedging contracts as hedges for derivative accounting purposes, However, on January 9 ~~2020, we designated certain of our interest rate swap agreements as cash flow hedges. Refer to Note 11, "Derivatives," for the cash flow hedge disclosures required by the provisions of this guidance.~~

~~Fair Value Measurement Disclosures~~

~~In August 2018, the FASB issued ASU 2018-13,~~ ~~Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement~~ (“ASU 2018-13”), which removes, modifies or adds certain disclosure requirements for fair value measurement disclosures. We adopted this guidance on January 1, 2020 on a prospective basis. The adoption did not have a material impact on our consolidated financial statements.

~~Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement~~

~~In August 2018, the FASB issued ASU No. 2018-15,~~ ~~Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract,~~ which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. We adopted this guidance on January 1, 2020 on a prospective basis. The adoption of this guidance primarily resulted in changes to the presentation of certain implementation costs within our consolidated financial statements. Historically, these costs were capitalized as part of "Property, equipment, and software, net" and amortized over the useful life of the related software or hosting arrangement. Upon adoption, eligible costs incurred are now recorded within "Prepaid expenses" and "Other non-current assets" and amortized to either "Cost of revenue" or "Selling, general and administrative expenses" over the useful life of the related software or hosting arrangement. In addition, the cash flow presentation of these costs changed from investing cash flows under previous guidance to operating cash flows under the new guidance. The adoption of this guidance did not have a material impact on our consolidated financial statements.

~~Reference Rate Reform~~

~~In March 2020, the FASB issued ASU No. 2020-04,~~ ~~Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting~~. ASU 2020-04 contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts. The guidance in ASU 2020-04 is optional and may be elected over time as reference rate reform activities occur. In July 2020, we elected to apply the hedge accounting expedients related to probability and the assessments of effectiveness for future LIBOR-indexed cash flows to assume that the index upon which future hedged transactions will be based matches the index on the corresponding derivatives. Application of these expedients preserves the presentation of derivatives consistent with past presentation. We continue to evaluate the impact of the guidance and may apply other elections as applicable as additional changes in the market occur.

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2. Customer Contracts

The following table presents the balances related to customer ~~contracts as of December 31, 2019 and June 30, 2020:~~contracts:


(In millions)	(In millions)	Consolidated Balance Sheets Account	December 31, 2019		June 30, 2020		(In millions)	Consolidated Balance Sheets Account	December 31, 2020		March 31, 2021
Accounts receivable, net	Accounts receivable, net	Accounts receivable, net ⁽¹⁾	$	350.3	$	385.5	Accounts receivable, net	Accounts receivable, net (1)	$	483.0	$	488.8
Current portion of contract assets	Current portion of contract assets	Other current assets	7.8		12.4		Current portion of contract assets	Other current assets	12.2		13.6
Non-current portion of contract assets	Non-current portion of contract assets	Other non-current assets	7.2		6.2		Non-current portion of contract assets	Other non-current assets	13.9		12.1
Current portion of deferred revenue	Current portion of deferred revenue	Deferred revenue	66.6		60.0		Current portion of deferred revenue	Deferred revenue	76.7		89.0
Non-current portion of deferred revenue	Non-current portion of deferred revenue	Other non-current liabilities	14.2		11.5		Non-current portion of deferred revenue	Other non-current liabilities	14.2		13.4

(1) Allowance for doubtful accounts and accrued customer credits was ~~$17.0~~$28.3 million and ~~$18.7~~$24.0 million as of December 31, ~~2019~~2020 and ~~June 30, 2020,~~March 31, 2021, respectively.

Amounts recognized in revenue for the three months ended ~~June 30, 2019~~March 31, 2020 and ~~June 30, 2020,~~March 31, 2021, which were included in deferred revenue as of the beginning of each period, totaled ~~$29.3~~$35.2 million and $29.1 million, respectively. Amounts recognized in revenue for the six months ended June 30, 2019 and June 30, 2020, which were included in deferred revenue as of the beginning of each period totaled $38.2 million and $46.9$34.6 million, respectively.

Cost Incurred to Obtain and Fulfill a Contract

As of December 31, ~~2019~~2020 and ~~June 30, 2020,~~March 31, 2021, the balances of capitalized costs to obtain a contract were ~~$55.1~~$59.3 million and ~~$56.6~~$57.8 million, respectively, and the balances of capitalized costs to fulfill a contract were ~~$21.7~~$25.0 million and ~~$23.0~~$25.2 million, respectively. These capitalized costs are included in “Other non-current assets” on the Consolidated Balance Sheets.

Amortization of capitalized sales commissions and implementation costs ~~for the three and six months ended June 30, 2019 and June 30, 2020~~ was as follows:


		Three Months Ended June 30,						Six Months Ended June 30,							Three Months Ended March 31,
(In millions)	(In millions)	2019		2020		2019		2020		(In millions)	2020		2021
Amortization of capitalized sales commissions	Amortization of capitalized sales commissions	$	10.2	$	11.4	$	19.6	$	22.3	Amortization of capitalized sales commissions	$	10.9	$	10.8
Amortization of capitalized implementation costs	Amortization of capitalized implementation costs	3.6		4.4		7.0		8.6		Amortization of capitalized implementation costs	4.2		4.4

Remaining Performance Obligations

As of ~~June 30, 2020,~~March 31, 2021, the aggregate amount of transaction price allocated to remaining performance obligations was ~~$920.0~~$872.3 million, of which ~~35%~~63% is expected to be recognized as revenue during ~~2020~~2021 and the remainder thereafter. These remaining performance obligations primarily relate to our fixed-term arrangements. Our other revenue arrangements are usage-based, and as such, we recognize ~~revenues~~revenue based on the right to invoice for the services performed.

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3. Net ~~Income (Loss)~~Loss Per Share

Basic ~~net income (loss)~~loss per share ~~is based on the weighted average effect of all common shares issued and outstanding and~~ is calculated by dividing net ~~income (loss)~~loss attributable to common stockholders by the weighted average shares outstanding during the period. ~~In periods where we are in a net income position,~~

The following table sets forth the computation of basic and diluted net ~~income~~loss per share is calculated by dividing net income attributable to common stockholders by the weighted average number of common shares and dilutive potential common share equivalents outstanding during the period. share:


	Three Months Ended March 31,
(In millions, except per share data)	2020		2021
Basic and diluted net loss per share:
Net loss attributable to common stockholders	$	(48.2)	$	(64.0)
Weighted average shares outstanding:
Common stock	165.4		204.6
Number of shares used in per share computations	165.4		204.6
Net loss per share	$	(0.29)	$	(0.31)

Potential common share equivalents consist of shares issuable upon the exercise of stock options, ~~and~~ vesting of restricted ~~stock.~~

stock or purchase under the Employee Stock Purchase Plan (the "ESPP"), as well as contingent shares associated with our acquisition of Datapipe Parent, Inc. Since we were in a net loss position for ~~the three and six months ended June 30, 2020,~~both periods presented, basic net loss per share is the same as diluted net loss per share for ~~those~~both periods as the inclusion of all potential common shares outstanding would have been anti-dilutive.

~~The following table sets forth the computation of basic and diluted net income (loss) per share:~~

Three Months Ended Six Months Ended
(In millions, except per share data) June 30, 2019 June 30, 2020 June 30, 2019 June 30, 2020
Basic net income (loss) per share:
Net income (loss) attributable to common stockholders $ 62.5 $ (32.6) $ 5.0 $ (80.8)
Weighted average shares outstanding:
Common stock 165.2 165.5 165.2 165.4
Number of shares used in per share computations 165.2 165.5 165.2 165.4
Net income (loss) per share $ 0.38 $ (0.20) $ 0.03 $ (0.49)
Diluted net income (loss) per share:
Net income (loss) attributable to common stockholders $ 62.5 $ (32.6) $ 5.0 $ (80.8)
Weighted average shares outstanding:
Common stock 165.2 165.5 165.2 165.4
Effect of dilutive securities 0.9 0 0.7 0
Number of shares used in per share computations 166.1 165.5 165.9 165.4
Net income (loss) per share $ 0.38 $ (0.20) $ 0.03 $ (0.49)

We excluded ~~16.8~~25.0 million and ~~25.4~~21.7 million potential common shares from the computation of dilutive ~~net income (loss)~~loss per share for the three months ended ~~June 30, 2019~~March 31, 2020 and ~~2020, respectively, and 16.8 million and 25.4 million potential shares for the six months ended June 30, 2019 and 2020,~~2021, respectively, because the effect would have been anti-dilutive.

4. Property, Equipment and Software, net

Property, equipment and software, net, ~~at December 31, 2019 and June 30, 2020~~ consisted of the following:


(In millions)	(In millions)	December 31, 2019		June 30, 2020		(In millions)	December 31, 2020		March 31, 2021
Computers and equipment	Computers and equipment	$	1,155.9	$	1,187.4	Computers and equipment	$	1,191.8	$	1,199.1
Software	Software	441.6		464.1		Software	472.4		481.7
Furniture and fixtures	Furniture and fixtures	31.3		27.7		Furniture and fixtures	22.4		21.5
Buildings and leasehold improvements ⁽¹⁾	Buildings and leasehold improvements ⁽¹⁾	303.7		508.9		Buildings and leasehold improvements ⁽¹⁾	513.1		512.9
Land	Land	32.2		31.6		Land	32.6		21.2
Property, equipment and software, at cost	Property, equipment and software, at cost	1,964.7		2,219.7		Property, equipment and software, at cost	2,232.3		2,236.4
Less: Accumulated depreciation and amortization		(1,255.2)		(1,323.4)
Less: Accumulated depreciation						Less: Accumulated depreciation	(1,366.8)		(1,389.4)
Work in process	Work in process	18.3		17.8		Work in process	19.1		23.7
Property, equipment and software, net	Property, equipment and software, net	$	727.8	$	914.1	Property, equipment and software, net	$	884.6	$	870.7

~~(1) During~~On January 15, 2021, we completed the sale of a parcel of undeveloped land in the United Kingdom adjacent to one of our existing data centers. The net book value of the land prior to the sale was $11.4 million and we received cash proceeds of $32.2 million, less brokerage and professional fees of $0.9 million, resulting in net cash proceeds of $31.3 million. Therefore, we recorded a gain on sale of land of $19.9 million to "Gain on sale of land" in the Consolidated Statements of Comprehensive Loss for the three ~~and six~~ months ended June 30, 2020, we recorded $220.3 million to buildings and leasehold improvements related to lease modifications in June 2020 which resulted in a change of classification from operating leases to finance leases.March 31, 2021.

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5. Goodwill and Intangible Assets

The following table sets forth the changes in the carrying amounts of goodwill by reportable ~~segment during the six months ended June 30, 2020:~~segment:

(In millions) Multicloud Services Apps & Cross Platform OpenStack Public Cloud Total Consolidated
Balance as of December 31, 2019 $ 2,371.6 $ 322.2 $ 52.0 $ 2,745.8
Measurement period adjustments (0.2) 0 — (0.2)
Foreign currency translation (10.9) (0.8) (0.8) (12.5)
Balance as of June 30, 2020 $ 2,360.5 $ 321.4 $ 51.2 $ 2,733.1
Gross goodwill $ 2,655.5 $ 321.4 $ 51.2 $ 3,028.1
Less: Accumulated impairment charges (295.0) 0 0 (295.0)
Goodwill, net as of June 30, 2020 $ 2,360.5 $ 321.4 $ 51.2 $ 2,733.1


(In millions)	Multicloud Services		Apps & Cross Platform		OpenStack Public Cloud		Total Consolidated
Balance as of December 31, 2020 (1)	$	2,386.0	$	322.6	$	52.5	$	2,761.1

Foreign currency translation	2.1		0.2		0.1		2.4
Balance as of March 31, 2021	$	2,388.1	$	322.8	$	52.6	$	2,763.5

(1) Multicloud Services had accumulated impairment charges of $295.0 million as of December 31, 2020.

The following ~~tables provide~~table provides information regarding our intangible assets other than goodwill:


		December 31, 2019											December 31, 2020						March 31, 2021
(In millions)	(In millions)	Gross carrying amount		Accumulated amortization		Net carrying amount		(In millions)	Gross carrying amount		Accumulated amortization		Net carrying amount		Gross carrying amount		Accumulated amortization		Net carrying amount
Customer relationships	Customer relationships	$	1,983.7	$	(459.9)	$	1,523.8	Customer relationships	$	1,986.2	$	(624.0)	$	1,362.2	$	1,987.1	$	(665.4)	$	1,321.7
Property tax abatement	Property tax abatement	16.0		(5.6)		10.4		Property tax abatement	16.0		(7.4)		8.6		16.0		(7.9)		8.1
Other	Other	43.8		(10.6)		33.2		Other	47.7		(22.2)		25.5		47.6		(27.0)		20.6
Total definite-lived intangible assets	Total definite-lived intangible assets	2,043.5		(476.1)		1,567.4		Total definite-lived intangible assets	2,049.9		(653.6)		1,396.3		2,050.7		(700.3)		1,350.4
Trade name (indefinite-lived)	Trade name (indefinite-lived)	250.0		—		250.0		Trade name (indefinite-lived)	250.0		—		250.0		250.0		—		250.0
Total intangible assets other than goodwill	Total intangible assets other than goodwill	$	2,293.5	$	(476.1)	$	1,817.4	Total intangible assets other than goodwill	$	2,299.9	$	(653.6)	$	1,646.3	$	2,300.7	$	(700.3)	$	1,600.4

June 30, 2020
(In millions) Gross carrying amount Accumulated amortization Net carrying amount
Customer relationships $ 1,979.5 $ (540.1) $ 1,439.4
Property tax abatement 16.0 (6.5) 9.5
Other 43.8 (16.5) 27.3
Total definite-lived intangible assets 2,039.3 (563.1) 1,476.2
Trade name (indefinite-lived) 250.0 — 250.0
Total intangible assets other than goodwill $ 2,289.3 $ (563.1) $ 1,726.2

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6. ~~Investments~~

In June 2019, CrowdStrike Holdings, Inc. ("CrowdStrike"), an entity in which Rackspace US, Inc. held an equity investment, completed an initial public offering and became a publicly-traded company. Prior to the date of CrowdStrike's initial public offering, our investment in CrowdStrike had a carrying value of $10.0 million and was accounted for as an equity investment without a readily determinable fair value. With the availability of observable price changes following the completion of CrowdStrike's initial public offering, our investment in CrowdStrike was measured at fair value on a prospective basis using the end of period quoted stock price, which is classified as a Level 1 input within the fair value hierarchy. In December 2019, Rackspace US, Inc. sold the investment in CrowdStrike for $106.9 million in cash proceeds.

~~We hold other equity investments that do not have readily determinable fair values. The aggregate carrying value of these other equity investments is immaterial.~~

For the three and six months ended June 30, 2019, we recognized a net gain on investment activity of $143.3 million and $143.4 million, respectively, which was primarily comprised of a $140.8 million unrealized gain related to the increase in the fair value of the CrowdStrike investment and a $2.6 million realized gain recognized upon the receipt of proceeds related to the 2017 sale of an equity investment. For the three and six months ended June 30, 2020, we recognized a net gain on investment activity of $1.0 million and $0.9 million, respectively, which was primarily comprised of a $0.9 million realized gain upon the receipt of proceeds related to the 2017 sale of an equity investment.

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7. Debt

Debt consisted of the following:

December 31, 2019
(In millions) Term Loan Facility 8.625% Senior Notes due 2024 Total
Principal balance $ 2,824.6 $ 1,120.2 $ 3,944.8
Unamortized debt issuance costs (48.6) (18.0) (66.6)
Unamortized debt discount (4.9) 0 (4.9)
Total debt 2,771.1 1,102.2 3,873.3
Less: current portion of debt (29.0) 0 (29.0)
Debt, excluding current portion $ 2,742.1 $ 1,102.2 $ 3,844.3

June 30, 2020
(In millions) Term Loan Facility 8.625% Senior Notes due 2024 Accounts Receivable Financing Agreement Total
Principal balance $ 2,810.1 $ 1,120.2 $ 65.0 $ 3,995.3
Unamortized debt issuance costs (42.7) (16.1) 0 (58.8)
Unamortized debt discount (4.3) 0 0 (4.3)
Total debt 2,763.1 1,104.1 65.0 3,932.2
Less: current portion of debt (29.0) 0 0 (29.0)
Debt, excluding current portion $ 2,734.1 $ 1,104.1 $ 65.0 $ 3,903.2


(In millions, except %)		December 31, 2020			March 31, 2021
Debt Instrument	Maturity Date	Interest Rate(1)	Amount		Interest Rate(1)	Amount
Prior Term Loan Facility	November 3, 2023	4.00%	$	2,795.6	0%	$	0
Term Loan Facility	February 15, 2028	0%	0		3.50%	2,300.0
Revolving Credit Facility	August 7, 2025	0%	0		0%	0
3.50% Senior Secured Notes	February 15, 2028	0%	0		3.50%	550.0
5.375% Senior Notes	December 1, 2028	5.375%	550.0		5.375%	550.0
Receivables Financing Facility	July 19, 2022	2.37%	65.0		2.60%	50.0
Less: unamortized debt issuance costs			(44.2)			(40.3)
Less: unamortized debt discount			(3.7)			(14.0)
Total debt			3,362.7			3,395.7
Less: current portion of debt			(43.4)			(27.0)
Debt, excluding current portion			$	3,319.3		$	3,368.7

(1) Interest rates are as of each respective balance sheet date.

Senior Facilities

~~The First Lien Credit Agreement includes~~Our senior secured credit facilities include a first lien term loan facility ~~("Term~~(the "Term Loan Facility") and a revolving credit facility (the "Revolving Credit Facility" and, together with the ~~Revolving Credit~~Term Loan Facility, ~~(together,~~ the "Senior Facilities").

AsOn February 9, 2021, we amended and restated the credit agreement governing our Senior Facilities (the "First Lien Credit Agreement"), which included a new seven-year $2,300.0 million senior secured first lien term loan facility due on February 15, 2028 and our existing $375.0 million Revolving Credit Facility. We used the borrowings under the Term Loan Facility, together with the proceeds from the issuance of ~~June 30, 2020,~~the 3.50% Senior Secured Notes described below (together, the "February 2021 Refinancing Transaction"), to repay all borrowings under our prior term loan facility (the "Prior Term Loan Facility"), to pay related fees and expenses and for general corporate purposes.

Borrowings under the Senior Facilities bear interest at an annual rate equal to an applicable margin plus, at our option, either (a) a LIBOR rate determined by reference to the costs of funds for Eurodollar deposits for the interest period relevant to such borrowing, adjusted for certain additional costs, subject to a 0.75% floor, in the case of the Term Loan Facility, and a 1.00% floor, in the case of the Revolving Credit Facility, ~~had total commitments~~or (b) a base rate determined by reference to the highest of ~~$225.0 million~~(i) the federal funds rate plus 0.50%, (ii) the prime rate of Citibank, N.A. and ~~matures on November 3, 2021. Over~~(iii) the ~~course of~~one-month adjusted LIBOR plus 1.00%. The applicable margin for the ~~six months ended June 30, 2020, Rackspace Technology Global borrowed~~Term Loan Facility is 2.75% for LIBOR loans and ~~repaid an aggregate $245.0 million. As of June 30, 2020, we had 0 outstanding borrowings under~~1.75% for base rate loans and the applicable margin for the Revolving Credit ~~Facility.~~Facility is 3.00% for LIBOR loans and 2.00% for base rate loans. Interest is due at the end of each interest period elected, not exceeding 90 days, for LIBOR loans and at the end of every calendar quarter for base rate loans.

~~The Term Loan~~In addition to paying interest on the outstanding principal under the Senior Facilities, the Revolving Credit Facility ~~matures~~also includes a commitment fee equal to 0.50% per annum in respect of the unused commitments that is due quarterly. This commitment fee is subject to one step-down based on ~~November 3, 2023 and, as~~the net first lien leverage ratio.

As of ~~June 30, 2020,~~March 31, 2021, the interest rate on the Term Loan Facility was ~~4.00%~~3.50%. ~~Rackspace Technology Global makes~~Beginning June 30, 2021, we will be required to make quarterly principal payments of ~~$7.2~~$5.8 million. See Note ~~11,~~10, "Derivatives" for information on interest rate swap agreements we utilize to manage the interest rate risk on the Term Loan Facility.

In addition to the quarterly amortization payments discussed above, the Senior Facilities require us to make certain mandatory prepayments, including using (i) a portion of annual excess cash flow, as defined in the First Lien Credit Agreement, to prepay the Term Loan Facility, (ii) net cash proceeds of certain non-ordinary assets sales or dispositions of property to prepay the Term Loan Facility and (iii) net cash proceeds of any issuance or incurrence of debt not permitted under the Senior Facilities to prepay the Term Loan Facility. We may make voluntary prepayments at any time without penalty, except in connection with a repricing event, as defined in the First Lien Credit Agreement.

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The fair value of the Term Loan Facility as of ~~June 30, 2020~~March 31, 2021 was ~~$2,711.7~~$2,277.0 million, based on quoted market prices for identical assets that are traded in over-the-counter secondary markets that are not considered active. The fair value of the Term Loan Facility is classified as Level 2 within the fair value hierarchy.

~~As of June 30, 2020,~~ Rackspace Technology Global ~~was~~is the borrower under the Senior Facilities, and all obligations under the Senior Facilities are (i) guaranteed by Inception Parent, Inc., Rackspace Technology Global’s immediate parent company, on a limited recourse basis and secured by the equity interests of Rackspace Technology Global held by Inception Parent, Inc. and (ii) guaranteed by Rackspace Technology Global’s wholly-owned domestic restricted subsidiaries and secured by substantially all material owned assets of Rackspace Technology Global and the subsidiary guarantors, including the equity interests held by each, in each case subject to certain exceptions. The only financial covenant is with respect to the Revolving Credit Facility which limits the net first lien leverage ratio to a maximum of 5.00 to 1.00; however, this covenant is only applicable and tested if the aggregate amount of outstanding borrowings under the Revolving Credit Facility and letters of credit issued thereunder (excluding $25.0 million of undrawn letters of credit and cash collateralized letters of credit) is equal to or greater than 35% of the Revolving Credit Facility commitments at the end of a fiscal quarter. Other covenants include limitations on restricted payments, indebtedness, investments, liens, asset sales and transactions with affiliates. As of March 31, 2021, we were in compliance with all covenants under the Senior Facilities.

~~8.625%~~The Revolving Credit Facility matures on August 7, 2025. As of March 31, 2021 we had total commitments of $375.0 million and 0 outstanding borrowings under the Revolving Credit Facility.

3.50% Senior Secured Notes due 2028

On February 9, 2021, Rackspace Technology Global issued $550.0 million aggregate principal amount of 3.50% Senior Secured Notes due 2028 (the “3.50% Senior Secured Notes”). The 3.50% Senior Secured Notes will mature on February 15, 2028 and bear interest at an annual fixed rate of 3.50%. Interest is payable semiannually on each February 15 and August 15, commencing on August 15, 2021. The 3.50% Senior Secured Notes are not subject to registration rights. As noted above, we used the net proceeds from the issuance of the 3.50% Senior Secured Notes, together with borrowings under the Term Loan Facility described above, to repay all borrowings outstanding under the Prior Term Loan Facility, to pay related fees and expenses and for general corporate purposes.

Rackspace Technology Global is the issuer of the 3.50% Senior Secured Notes, and obligations under the 3.50% Senior Secured Notes are fully and unconditionally guaranteed, jointly and severally, by all of Rackspace Technology Global’s wholly-owned domestic restricted subsidiaries (as subsidiary guarantors) that guarantee the Senior Facilities. The 3.50% Senior Secured Notes and the related guarantees are secured by first-priority security interests in substantially all material owned assets of Rackspace Technology Global and the subsidiary guarantors, including the equity interest held by each, subject to certain exceptions, which assets also secure the Senior Facilities.

We may redeem some or all of the 3.50% Senior Secured Notes at our option prior to February 15, 2024 subject to certain limitations and conditions outlined in the indenture governing the 3.50% Senior Secured Notes (the "3.50% Notes Indenture").

The ~~8.625%~~3.50% Notes Indenture contains covenants that, among other things, limit our ability to incur certain additional debt, incur certain liens securing debt, pay certain dividends or make other restricted payments, make certain investments, make certain asset sales and enter into certain transactions with affiliates. These covenants are subject to a number of exceptions, limitations, and qualifications as set forth in the 3.50% Notes Indenture. Additionally, upon the occurrence of a change of control (as defined in the 3.50% Notes Indenture), we will be required to make an offer to repurchase all of the outstanding 3.50% Senior Secured Notes ~~mature on November 15, 2024~~at a price in cash equal to 101% of the aggregate principal amount, plus accrued and asunpaid interest, if any, to, but not including the purchase date.

As of ~~June 30, 2020,~~March 31, 2021, Rackspace Technology Global was in compliance with all covenants under the ~~indenture governing the 8.625% Senior~~3.50% Notes ~~(the "Indenture").~~Indenture.

During the three and six months ended June 30, 2019, Rackspace Technology Global repurchased and surrendered for cancellation $45.6 million and $73.9 million, respectively, of principal amount of 8.625% Senior Notes for $40.0 million and $63.7 million, respectively, including accrued interest of $0.2 million and $0.7 million, respectively. In connection with these repurchases, we recorded a gain on debt extinguishment of $5.0 million and $9.5 million in our Consolidated Statements of Comprehensive Income (Loss) for the three and six months ended June 30, 2019, respectively.

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The fair value of the ~~8.625%~~3.50% Senior Secured Notes as of ~~June 30, 2020~~March 31, 2021 was ~~$1,125.8~~$530.0 million, based on quoted market prices for identical assets that are traded in over-the-counter secondary markets that are not considered active. The fair value of the ~~8.625%~~3.50% Senior Secured Notes are classified as Level 2 within the fair value hierarchy.

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5.375% Senior Notes isdue 2028

The 5.375% Senior Notes due 2028 (“5.375% Senior Notes”) mature on December 1, 2028 and, as of March 31, 2021, Rackspace Technology Global was in compliance with all covenants under the indenture governing the 5.375% Senior Notes (the "5.375% Notes Indenture").

The fair value of the 5.375% Senior Notes as of March 31, 2021 was $555.5 million, based on quoted market prices for identical assets that are traded in over-the-counter secondary markets that are not considered active. The fair value of the 5.375% Senior Notes are classified as Level 2 within the fair value hierarchy.

Accounts Receivable Financing Agreement

~~On March 19, 2020, a wholly owned subsidiary of the company entered into an~~Under our accounts receivable financing agreement (the "Receivables Financing Facility")~~. Pursuant to the agreements evidencing the Receivables Financing Facility, Rackspace Receivables, LLC,~~, a bankruptcy-remote special purpose vehicle ("SPV") indirectly wholly owned by Rackspace Technology Global ~~has~~ granted a security interest in all of its current and future receivables and related assets in exchange for a credit facility permitting borrowings of up to a maximum aggregate amount of $100.0 million from time to time. ~~Such borrowings are used by~~Rackspace Technology Global is the ~~SPV to finance purchases~~primary beneficiary of ~~accounts receivable. We recorded $1.0~~the SPV.

As of March 31, 2021, $50.0 million ~~of fees~~was borrowed and ~~expenses related to~~outstanding under the Receivables Financing Facility ~~as debt issuance costs, which are included in "Other non-current assets" in~~and the ~~Consolidated Balance Sheets.~~

~~The amount of advances available are determined based on advance rates relating~~interest rate was 2.60%. Subsequent to ~~the eligibility of the receivables held by~~March 31, 2021, the SPV ~~at that time. Advances bear interest based on LIBOR plus~~repaid a ~~margin. The last date on which advances may be made is March 21, 2022, unless the maturity~~portion of the Receivables Financing Facility ~~is otherwise accelerated. In addition to other customary fees associated with financings of this type,~~in the ~~SPV is required to pay a monthly commitment fee based on the unused~~ amount of ~~the facility.~~

$5.0 million to cover a borrowing base deficit. As of June 30, 2020, our total borrowing capacity under the Receivables Financing Facility was $92.7 million and $65.0 million was borrowed and outstanding. The interest rate on the Receivables Financing Facility was 3.01% as of June 30, 2020.

The agreements evidencing the Receivables Financing Facility contain customary representations and warranties, affirmative and negative covenants, and events of default. As of June 30, 2020, the company wasMarch 31, 2021, we were in compliance with all covenants under the ~~Receivables Financing Facility.~~facility.

February 2021 Refinancing Transaction

The February 2021 Refinancing Transaction represented an extinguishment and modification of debt. We derecognized $2,795.6 million of the Prior Term Loan Facility and wrote off $9.4 million in unamortized debt issuance costs and debt discount associated with the portion of the Prior Term Loan Facility that was deemed extinguished. We recognized $2,300.0 million borrowed under the Term Loan Facility and $41.0 million of associated debt issuance costs and debt discount, including amounts allocated from the Prior Term Loan Facility, both classified as a direct deduction from the carrying value of non-current debt on our Consolidated Balance Sheets. We recognized $550.0 million aggregate principal amount of the 3.50% Senior Secured Notes due 2028 and $6.8 million of associated debt issuance costs, including amounts allocated from the Prior Term Loan Facility. The February 2021 Refinancing Transaction resulted in expense of $37.0 million recorded within "Debt modification and extinguishment costs" in our Consolidated Statements of Comprehensive Loss for the three months ended March 31, 2021. The expense was comprised of the write-off of unamortized debt issuance costs and debt discount associated with the portion of the Prior Term Loan Facility that was deemed extinguished, as well as $27.6 million in third party fees associated with the modification.

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7. Commitments and Contingencies

We have contingencies that arise from various litigation, claims and commitments, none of which we consider to be material.

From time to time, we are a party to various claims asserting that certain of our services and technologies infringe the intellectual property rights of others. Adverse results in these lawsuits may include awards of substantial monetary damages, costly royalty or licensing agreements, or orders preventing us from offering certain features, products, or services, and may also cause us to change our business practices and require development of non-infringing products or technologies, which could result in a loss of revenue for us or otherwise harm our business.

We record an accrual for a loss contingency when a loss is considered probable and reasonably estimable. As additional facts concerning a loss contingency become known, we reassess our position and make appropriate adjustments to a recorded accrual. The amount that will ultimately be paid related to a matter may differ from the recorded accrual, and the timing of such payments, if any, may be uncertain.

We ~~cannot predict~~are not a party to any litigation, the ~~impact,~~outcome of which, if ~~any, that any current matter will~~determined adversely to us, would individually or in the aggregate be reasonably expected to have a material and adverse effect on our business, ~~results of operations,~~ financial position or ~~cash flows. Because~~results of ~~the inherent uncertainties of these matters, including the early stage and lack of specific damage claims in many of them, we cannot estimate a range of possible losses from them at this time.~~operations.

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9.8. Share-Based Compensation ~~and Settlement of Share-Based Awards~~

~~Repurchase of Common Stock~~

During the three ~~and six~~ months ended ~~June 30, 2019,~~March 31, 2021, we ~~repurchased $1.9~~granted 3.8 million ~~or 0.1 million shares, of our common stock. These shares were subsequently retired.~~

~~Settlement of Share-Based Awards~~

~~As a result of the Rackspace Acquisition, Rackspace Technology Global had obligations related to the settlement of~~ restricted stock units that were outstanding at the Closing Date. These obligations required installment payments that began in November 2016 and ended in the first quarter of 2019. We made cash payments of $19.2 million during the six months ended June 30, 2019 and recognized compensation expense of $2.7 million within "Selling, general and administrative expenses" in the Consolidated Statements of Comprehensive Income (Loss) for the six months ended June 30, 2019.

~~In addition, in connection with an employee's departure, we settled options and restricted stock for a one-time cash payment of $1.5 million during the three and six months ended June 30, 2019.~~

~~Share-Based Compensation Expense~~

~~During the six months ended June 30, 2020, we granted 8.2 million stock options~~("RSUs") under the Rackspace Technology, Inc. 2020 Equity Incentive Plan ~~(the "Incentive Plan")~~ with a weighted-average grant date fair value of ~~$8.36.~~$22.67. The majority of the ~~options~~RSUs were granted as part of our annual compensation award process and vest ratably over a three-year period, subject to continued service. Also included in the 8.2 million stock options granted were 1.7 million stock options granted to certain executives that vest in part subject to continued service ratably over a five-year period and in part based upon the attainment of performance and market conditions.

Share-based compensation expense ~~recognized under the Incentive Plan for the three and six months ended June 30, 2019 and 2020~~ recognized was as follows:


		Three Months Ended June 30,						Six Months Ended June 30,							Three Months Ended March 31,
(In millions)	(In millions)	2019		2020		2019		2020		(In millions)	2020		2021
Cost of revenue	Cost of revenue	$	1.3	$	2.3	$	2.3	$	4.1	Cost of revenue	$	1.8	$	4.9
Selling, general and administrative expenses	Selling, general and administrative expenses	5.1		6.8		10.0		12.5		Selling, general and administrative expenses	5.7		12.3
Pre-tax share-based compensation expense	Pre-tax share-based compensation expense	6.4		9.1		12.3		16.6		Pre-tax share-based compensation expense	7.5		17.2
Less: Income tax benefit	Less: Income tax benefit	(1.4)		(1.9)		(2.6)		(3.5)		Less: Income tax benefit	(1.6)		(3.6)
Total share-based compensation expense, net of tax	Total share-based compensation expense, net of tax	$	5.0	$	7.2	$	9.7	$	13.1	Total share-based compensation expense, net of tax	$	5.9	$	13.6

As of ~~June 30, 2020,~~March 31, 2021, there was ~~$81.5 million and $4.6~~$157.0 million of total unrecognized compensation cost related to stock options, RSUs and ~~restricted stock, respectively,~~the ESPP, which will be recognized using the straight-line method over a weighted average period of 2.8 and 2.1 years, respectively. This does not include $54.7 million and $1.2 million fair value related to unvested options and restricted stock, respectively, that will vest based on performance, market, and service conditions all tied to a change in control. In accordance with accounting guidance for share-based compensation, the associated expense will not be recorded until a change in control event is consummated.2.2 years.

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~~10.~~9. Taxes

We are subject to U.S. federal income tax and various state, local, and international income taxes in numerous jurisdictions. The differences between our effective tax rate and the U.S. federal statutory rate of 21% generally result from various factors, including the geographical distribution of taxable income, tax credits, contingency reserves for uncertain tax positions, and permanent differences between the book and tax treatment of certain items. Additionally, the amount of income taxes paid is subject to our interpretation of applicable tax laws in the jurisdictions in which we file. For the three ~~and six~~ months ended ~~June 30, 2020,~~March 31, 2021, our effective tax rate ~~has been impacted by~~is lower than the U.S. federal statutory rate of 21% due to the net impact of the geographical distribution of our earnings, the application of the global intangible low-taxed income (“GILTI”) provisions that were implemented with the Tax Cuts and Jobs Act (the “Act”) that was passed on December 22, ~~2017. The Act also introduced a new Base Erosion Anti-Abuse Tax (the “BEAT”)~~2017, as well as executive compensation that ~~targeted payments made to related foreign parties. The BEAT~~ is ~~not expected to apply to Rackspace Technology, Inc. in 2020.~~

On July 27, 2015, the U.S. Tax Court ("Tax Court") issued an opinion in Altera Corp. ("Altera") v. Commissioner ("Tax Court Opinion"), which concluded that related parties in a cost sharing arrangement are not required to share expenses related to share-based compensation. The Tax Court Opinion was appealed by the Commissioner to the Ninth Circuit Court of Appeals ("Ninth Circuit"). On June 7, 2019, a three-judge panel from the Ninth Circuit issued an opinion that reversed the Tax Court Opinion. On July 22, 2019, the taxpayer requested a rehearing before the full Ninth Circuit, which the Ninth Circuit subsequently denied. On February 10, 2020, Altera submitted a petition for writ of certiorari to the U.S. Supreme Court. On June 22, 2020, the U.S. Supreme Court denied Altera’s petition for writ of certiorari and will not review the Ninth Circuit’s June 7, 2019 decision that upheld the inclusion of share-based compensation in a cost sharing arrangement. Given the U.S. Supreme Court’s denial of the petition for writ of certiorari, we believe it is appropriate to record the financial statement impact of including share-based compensation in historical cost sharing payments discretely in the three and ~~six month~~ periods ending June 30, 2020 for years prior to 2020. The aggregate income tax impact related to the Altera decision is less than $1.0 million. If, at a future date, Altera secured a favorable ruling from the U.S. Supreme Court, we would re-evaluate the decision to record an income tax benefit at that time.

On March 27, 2020, the Coronavirus Aid, Relief and Economic Security (“CARES”) Act was enacted and signed into law in response to the COVID-19 pandemic. The CARES Act contains modifications on the limitation of business interest for tax years beginning in 2019 and 2020. The modifications to Section 163(j) of thenondeductible under Internal Revenue Code increase the allowable business interest deduction from 30% of adjusted taxable income to 50% of adjusted taxable income. This modification significantly increases our allowable interest expense deduction resulting in less utilization of prior year net operating losses in that year. The change in the interest expense limitation pursuant to the CARES Act did not have an impact on the three ~~or six months~~ ~~ended June 30, 2020 as it is~~ not expected to impact our net deferred tax liability for 2020. As a result of the CARES Act, it is anticipated that we will fully deduct interest expense incurred in 2020 and may be able to deduct previously disallowed interest expense carrying forward from 2018.("IRC") Section 162(m).

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~~11.~~10. Derivatives

We utilize derivative instruments, including interest rate swap agreements and foreign currency hedging contracts, to manage our exposure to interest rate risk and foreign currency fluctuations. We only hold such instruments for economic hedging purposes, not for speculative or trading purposes. Our derivative instruments are transacted only with highly-rated institutions, which reduces our exposure to credit risk in the event of nonperformance.

Interest Rate Swaps

We are exposed to interest rate risk associated with fluctuations in interest rates on the floating-rate Term Loan Facility. The objective in using interest rate derivatives is to manage our exposure to interest rate movements. To accomplish this objective, we have entered into interest rate swap agreements as part of our interest rate risk management strategy. Interest rate swaps involve the receipt of variable amounts from a counterparty in exchange for the company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.

In December 2016, we entered into 7 floating-to-fixed interest rate swap agreements to manage our risk from interest rate fluctuations associated with the floating-rate Term Loan Facility. The swap agreements became effective on February 3, 2017 with an aggregate notional amount of $1.5 billion. NaN swap agreements matured in 2018, 1 agreement matured during the six months ended June 30, 2019, and 1 agreement matured during the six months ended June 30, 2020. The remaining 3 swap agreements in effect as of June 30, 2020 have an aggregate notional amount of $1.05 billion and mature over the next two years. On a quarterly basis, we net settle with the counterparty for the difference between the fixed rate specified in each swap agreement ~~ranging from 1.7625% to 1.9040%,~~ and the variable rate based upon the three-month LIBOR as applied to the notional amount of the swap.

In December 2018, we entered into 4 additional floating-to-fixed interest rate swap agreements with an aggregate notional amount of $1.35 billion and a maturity date of November 3, 2023. These swap agreements are forward-starting, and as of June 30, 2020, 2 swap agreements, with an aggregate notional amount of $300 million, were effective. The remaining swap agreements become effective each year thereafter to coincide with the maturity dates of the outstanding December 2016 swap agreements. On a quarterly basis, we net settle with the counterparty for the difference between the fixed rate specified in each swap agreement, ranging from 2.7350% to 2.7490%, and the variable rate based upon the three-month LIBOR as applied to the notional amount of the swap.

As of December 31, 2019, NaN of our interest rate swap agreements were designated as cash flow hedges of interest rate risk for accounting purposes, therefore, all changes in the fair value of the interest rate swap agreements were recorded to "Interest expense" in the Consolidated Statements of Comprehensive Income (Loss). On January 9, 2020, we designated certain of our swaps as cash flow hedges. On the designation date, the cash flow hedges were in a $39.9 million liability ~~position ("off-market swap value").~~position. The cash flow hedges were expected to be highly effective on the designation date and, on a quarterly basis, we ~~perform~~performed retrospective and prospective regression assessments to determine whether the cash flow hedges continue to be highly ~~effective, which we have deemed to be a dollar-offset ratio between 80% to 125%.~~effective. As long as the cash flow hedges are highly effective, changes in fair value are recorded to "Accumulated other comprehensive income (loss)" in the Consolidated Balance Sheets and reclassified to "Interest expense" in the period when the underlying transaction affects earnings. ~~The off-market swap value will be amortized as a reduction to "Interest expense" on a straight-line basis over the remaining term of each cash flow hedge.~~ The income tax effects of cash flow hedges are released from "Accumulated other comprehensive income (loss)" in the period when the underlying transaction affects earnings. Any stranded income tax effects are released from “Accumulated other comprehensive income (loss)” into “Benefit (provision) for income taxes” under the portfolio ~~approach.~~approach. As of ~~June 30,~~December 31, 2020, all of our cash flow hedges were highly effective.

During the three months ended March 31, 2021, we completed a series of transactions to modify our interest rate swap positions as follows: (i) All the interest rate swaps outstanding as of December 31, 2020, as shown in the table below, with the exception of the agreement that matured on February 3, 2021, were de-designated as cash flow hedges on January 31, 2021, (ii) on February 12, 2021, we entered into a $900.0 million receive-fixed interest rate swap which was designed to offset the terms of the remaining 2 December 2016 swaps, and (iii) on February 12, 2021, we terminated all December 2018 swaps and entered into a $1.35 billion pay-fixed interest rate swap, effectively blending the liability position of our existing interest rate swap agreements into the new swap and extending the term of our hedged position to February 2026.

The amount remaining in “Accumulated other comprehensive income (loss)" for the de-designated December 2016 and December 2018 swaps at the de-designation date was approximately $51.6 million, and will be amortized as an increase to "Interest expense" over the effective period of the original swap agreements.

The new receive-fixed interest rate swap qualifies as a hybrid instrument in accordance with ASC 815, Derivatives and Hedging, consisting of a loan and an embedded derivative for which the fair value option has been elected. This $900.0 million swap will remain undesignated to economically offset the now undesignated December 2016 swaps. This new swap and the December 2016 swaps mature on February 3, 2022. Cash settlements related to this receive-fixed interest rate swap will offset and are classified as operating activities in the Consolidated Statements of Cash Flows.

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The new pay-fixed interest rate swap also qualifies as a hybrid instrument in accordance with ASC 815, Derivatives and Hedging, consisting of a loan and an embedded at-market derivative that was designated as a cash flow hedge. The loan is accounted for at amortized cost over the life of the swap while the embedded at-market derivative is accounted for at fair value. This new $1.35 billion swap is indexed to three-month LIBOR and will be net settled on a quarterly basis with the counterparty for the difference between the fixed rate of 2.3820% and the variable rate based upon three-month LIBOR (subject to a floor of 0.75%) as applied to the notional amount of the swap. In connection with the transactions discussed above, no cash was exchanged between us and the counterparty. The liability of the terminated interest rate swaps as well as the inception value of the receive-fixed interest rate swap was blended into the new pay-fixed interest rate swap. The cash flows related to the portion treated as debt will be classified as financing activities in the Consolidated Statements of Cash Flows while the portion treated as an at-market derivative will be classified as operating activities.

As of March 31, 2021, the cash flow hedge was highly effective.

The key terms of interest rate swaps outstanding are presented below:


Effective Date	Fixed Rate Paid (Received)	December 31, 2020			March 31, 2021
		Notional Amount (in millions)		Status	Notional Amount (in millions)		Status	Maturity Date

Entered into December 2016:
February 3, 2017	1.7625%	$	150.0	Active	$	—	Matured	February 3, 2021
February 3, 2017	1.9040%	450.0		Active	450.0		Active	February 3, 2022
February 3, 2017	1.9040%	450.0		Active	450.0		Active	February 3, 2022

Entered into December 2018:
February 3, 2019	2.7490%	150.0		Active	—		Terminated	November 3, 2023
February 3, 2020	2.7350%	150.0		Active	—		Terminated	November 3, 2023
February 3, 2021	2.7360%	150.0		Active	—		Terminated	November 3, 2023
February 3, 2022	2.7800%	900.0		Active	—		Terminated	November 3, 2023

Entered into February 2021:
February 3, 2021	(1.9040)%	—		N/A	(900.0)		Active	February 3, 2022
February 9, 2021	2.3820%	—		N/A	1,350.0		Active	February 9, 2026
Total		$	2,400.0		$	1,350.0

Our interest rate swap agreements, excluding the portion treated as debt, are recognized at fair value in the Consolidated Balance Sheets and are valued using pricing models that rely on market observable inputs such as yield curve data, which are classified as Level 2 inputs within the fair value hierarchy.

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Foreign Currency Hedging Contracts

The majority of our customers are invoiced, and the majority of our expenses are paid, by us or our subsidiaries in the functional currency of our company or our subsidiaries, respectively. We also have exposure to foreign currency transaction gains and losses as the result of certain receivables due from our foreign subsidiaries. As such, the results of operations and cash flows of our foreign subsidiaries are subject to fluctuations in foreign currency exchange rates. The objective of our foreign currency hedging contracts is to manage our exposure to foreign currency movements. To accomplish this objective, we may enter into foreign currency forward contracts and collars. A forward contract is an agreement to buy or sell a quantity of a currency at a predetermined future date and at a predetermined exchange rate. A collar is a strategy that uses a combination of a purchased put option and a sold call option with equal premiums to hedge a portion of anticipated cash flows, or to limit possible gains or losses on an underlying asset or liability to a specific range. The put and call options have identical notional amounts and settlement dates.

~~In November 2018, we entered into 1 foreign currency forward contract. Under the terms~~

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Table of the contract, we sold £75 million at a rate of 1.3002 British pound sterling to U.S. dollar and received $97.5 million. This contract settled on November 29, 2019 and we received a final net payment of $0.8 million.Contents

In November 2019, we entered into 2 foreign currency net-zero cost collar contracts with an aggregate notional amount of £100 million and a maturity date of November 30, 2020. Under the terms of the contracts, the British pound sterling to U.S. dollar exchange rate floats between 1.2375 and 1.3475. On March 26, 2020, we settled 1 of these contracts, with an aggregate notional amount of £50 million, and we received a final net payment of $1.9 million and on November 19, 2020, we settled the remaining contract, with an aggregate notional amount of £50 million, and we made a final net payment of $0.2 million.

~~In March~~During 2020, we entered into 3a series of foreign currency ~~forward~~ contracts to manage our exposure to movements in the British pound sterling, Euro, and Mexican peso. ~~All 3~~These contracts had three-month terms and settlement dates throughout the year. None of these contracts settled ~~on June 30,~~during the three months ended March 31, 2020. As of December 31, 2020, ~~and we made a final net payment of $1.7 million resulting from the following:~~there was 0 notional amount outstanding related to these contracts.

•~~We sold £32 million at a rate~~During the fourth quarter of ~~1.1902 British pound to U.S. dollar and received $38.1 million.~~

•~~We sold €6 million at a rate of 1.0921 Euro to U.S. dollar and received $6.6 million.~~

•~~We sold $2.1 million at a rate of 24.2040 U.S. dollar to Mexican peso and received Mex$50 million.~~

~~In June~~ 2020, we entered into 32 foreign currency forward contracts. Under the terms of these contracts, ~~to manage our exposure to movements in the~~on November 30, 2021, we will sell a total of £80 million at an average rate of 1.3388 British pound sterling ~~Euro, and Mexican peso. All 3 contracts have a maturity date of September 30, 2020. On the maturity date, the following will occur:~~

•~~We will sell £32 million at a rate of 1.24095 British pound~~ to U.S. dollar and receive ~~$39.7~~$107.1 million.

•~~We will sell €6 million at a rate of 1.1241 Euro to U.S. dollar and receive $6.7 million.~~

•~~We will sell $2.2 million at a rate of 23.0330 U.S. dollar to Mexican peso and receive Mex$50 million.~~

These contracts are recognized at fair value in the Consolidated Balance Sheets and are valued using pricing models that rely on market observable inputs such as current exchange rates, which are classified as Level 2 inputs within the fair value hierarchy. We have not designated these contracts as cash flow hedges for accounting purposes, therefore, all changes in fair value are recorded in "Other income (expense), net."

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Fair Values of Derivatives on the Consolidated Balance Sheets

The fair values of our derivatives and their location on the Consolidated Balance Sheets as of December 31, ~~2019~~2020 and ~~June 30, 2020~~March 31, 2021 were as follows:


			December 31, 2019						June 30, 2020								December 31, 2020				March 31, 2021
(In millions)	(In millions)		Assets		Liabilities		Assets		Liabilities		(In millions)		Assets		Liabilities		Assets		Liabilities
Derivatives not designated as hedging instruments	Derivatives not designated as hedging instruments	Location									Derivatives not designated as hedging instruments	Location
Interest rate swaps											Interest rate swaps	Other current assets (1)	$	0	$	0	$	13.1	$	0

Interest rate swaps		Other current liabilities	$	0	$	3.5	$	0	$	0
Interest rate swaps	Interest rate swaps	Other non-current liabilities	0		33.1		0		0		Interest rate swaps	Other current liabilities	0		0		0		13.0

Foreign currency contracts		Other current assets	1.4		0		2.0		0

Foreign currency contracts	Foreign currency contracts	Other current liabilities	0		2.9		0		0.2		Foreign currency contracts	Other current liabilities	0		1.7		0		3.0

Total	Total		$	1.4	$	39.5	$	2.0	$	0.2	Total		$	0	$	1.7	$	13.1	$	16.0

Derivatives designated as hedging instruments	Derivatives designated as hedging instruments	Location									Derivatives designated as hedging instruments	Location

Interest rate swaps											Interest rate swaps	Other non-current assets	$	0	$	0	$	17.9	$	0
Interest rate swaps	Interest rate swaps	Other current liabilities	$	0	$	0	$	0	$	20.7	Interest rate swaps	Other current liabilities (2)	0		22.6		0		21.5
Interest rate swaps	Interest rate swaps	Other non-current liabilities	0		0		0		78.6		Interest rate swaps	Other non-current liabilities (3)	0		64.4		0		69.3
Total	Total		$	0	$	0	$	0	$	99.3	Total		$	0	$	87.0	$	17.9	$	90.8

(1) The entire balance as of March 31, 2021 is comprised of the receive-fixed interest rate swap for which the fair value option has been elected.

(2) The balance as of March 31, 2021 includes $17.3 million related to the financing component of the pay-fixed interest rate swap.

(3) The entire balance as of March 31, 2021 is comprised of the financing component of the pay-fixed interest rate swap.

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For financial statement presentation purposes, we do not offset assets and liabilities under master netting arrangements and all amounts above are presented on a gross basis. The following table, however, is presented on a net asset and net liability basis:


		December 31, 2019										June 30, 2020											December 31, 2020				March 31, 2021
(In millions)	(In millions)	Gross Amounts on Balance Sheet		Effect of Counter-Party Netting		Net Amounts		Gross Amounts on Balance Sheet		Effect of Counter-Party Netting		Net Amounts		(In millions)	Gross Amounts on Balance Sheet		Effect of Counter-Party Netting		Net Amounts		Gross Amounts on Balance Sheet		Effect of Counter-Party Netting		Net Amounts
Assets	Assets													Assets
Interest rate swaps														Interest rate swaps	$	0	$	0	$	0	$	31.0	$	(31.0)	$	0

Foreign currency contracts		$	1.4	$	(1.4)	$	0	$	2.0	$	(2.0)	$	0
Total	Total	$	1.4	$	(1.4)	$	0	$	2.0	$	(2.0)	$	0	Total	$	0	$	0	$	0	$	31.0	$	(31.0)	$	0

Liabilities	Liabilities													Liabilities
Interest rate swaps	Interest rate swaps	$	36.6	$	0	$	36.6	$	99.3	$	(1.8)	$	97.5	Interest rate swaps	$	87.0	$	0	$	87.0	$	103.8	$	(31.0)	$	72.8
Foreign currency contracts	Foreign currency contracts	2.9		(1.4)		1.5		0.2		(0.2)		0		Foreign currency contracts	1.7		0		1.7		3.0		0		3.0
Total	Total	$	39.5	$	(1.4)	$	38.1	$	99.5	$	(2.0)	$	97.5	Total	$	88.7	$	0	$	88.7	$	106.8	$	(31.0)	$	75.8

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Effect of Derivatives on the Consolidated Statements of Comprehensive ~~Income (Loss)~~Loss

The effect of our derivatives and their location on the Consolidated Statements of Comprehensive ~~Income (Loss)~~Loss for the three ~~and six~~ months ended ~~June 30, 2019~~March 31, 2020 and ~~2020~~2021 was as follows:


			Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended March 31,
(In millions)	(In millions)		2019		2020		2019		2020		(In millions)		2020		2021
Derivatives not designated as hedging instruments	Derivatives not designated as hedging instruments	Location									Derivatives not designated as hedging instruments	Location
Interest rate swaps	Interest rate swaps	Interest expense	$	(30.4)	$	0	$	(49.2)	$	(3.2)	Interest rate swaps	Interest expense	$	(3.2)	$	(4.6)

Foreign currency contracts	Foreign currency contracts	Other income (expense), net	3.0		0.3		0.9		3.6		Foreign currency contracts	Other expense, net	3.3		(1.3)

Derivatives designated as hedging instruments	Derivatives designated as hedging instruments	Location									Derivatives designated as hedging instruments	Location
Interest rate swaps	Interest rate swaps	Interest expense	$	0	$	(2.2)	$	0	$	(1.7)	Interest rate swaps	Interest expense	$	0.5	$	(2.3)

Interest expense was ~~$100.8~~$72.0 million and ~~$68.9~~$52.6 million for the three months ended ~~June 30, 2019~~March 31, 2020 and ~~2020, respectively, and $189.8 million and $140.9 million for the six months ended June 30, 2019 and 2020,~~2021, respectively. As of ~~June 30, 2020,~~March 31, 2021, the amount of cash flow hedge losses included within "Accumulated other comprehensive income (loss)" that is expected to be reclassified as an increase to "Interest expense" over the next 12 months is approximately ~~$18.4~~$24.0 million. See Note ~~14,~~11, "Accumulated Other Comprehensive Income (Loss)," for information regarding changes in fair value of our derivatives designated as hedging instruments.

Credit-risk-related Contingent Features

We have agreements with interest rate swap counterparties that contain a provision whereby if we default on any of our material indebtedness, then we could also be declared in default of our interest rate swap agreements. As of ~~June 30, 2020,~~March 31, 2021, our interest rate swap agreements with an aggregate fair value of ~~$99.3~~$103.8 million were in a net liability position. However, if we were in default, our master netting arrangements with certain of our interest rate swap counterparties contain provisions which ~~would~~could result in net settlement of all outstanding ~~agreements with an aggregate fair value of $97.5 million in a net liability position.~~

~~12. Divestitures~~

On February 1, 2017, we completed the sale of assets of our Mailgun business for total consideration of $40.2 million, which was comprised of an initial cash payment of $20.5 million, a promissory note with a fair value of $14.8 million, and an equity interest in the new entity, Mailgun Technologies, Inc. ("Mailgun Technologies") with a fair value of $4.9 million.

In March 2019, we received $18.0 million in cash from Mailgun Technologies as repayment for the promissory note balance of $15.9 million, which included accrued interest of $1.2 million. As such, we recorded a gain of $2.1 million, which is reflected within "Gain on sale" in the Consolidated Statements of Comprehensive Income (Loss) for the six months ended June 30, 2019.agreements.

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~~13. Acquisitions~~

~~Onica~~

On November 15, 2019, Rackspace Technology acquired 100% of Onica, an Amazon Web Services ("AWS") Partner Network ("APN") Premier Consulting Partner and AWS Managed Service Provider providing cloud-native consulting and managed services, including strategic advisory, architecture and engineering and application development services. Total consideration to acquire Onica was $323.4 million, net of cash acquired of $7.5 million, for a net purchase price of $315.9 million. Total consideration includes the purchase price adjustment resulting from the difference between net working capital on the date of acquisition compared to the estimated net working capital used to determine the closing consideration (the "Purchase Price Adjustment").

The Onica acquisition was accounted for using the acquisition method of accounting, in accordance with the accounting guidance for business combinations. Accordingly, the purchase price has been preliminarily allocated (pending the final valuation of certain tangible and intangible assets acquired and liabilities assumed, including deferred taxes) to the acquired assets and liabilities based upon their estimated fair values at the date of acquisition.

~~The preliminary allocation of the purchase price as of the November 15, 2019 closing date (as adjusted through June 30, 2020, as described below) is as follows:~~

~~(In millions)~~

~~November 15, 2019~~

~~Onica Acquisition Consideration~~

~~323.4~~

~~Allocated to:~~

~~Cash and cash equivalents~~

~~7.5~~

~~Intangible assets~~

~~61.8~~

~~Liabilities assumed, net of other assets acquired~~

~~(11.0)~~

~~Net assets acquired~~

~~58.3~~

~~Goodwill~~

~~265.1~~

During the three and six months ended June 30, 2020, we recorded a measurement period adjustment to the preliminary amounts recorded as of November 15, 2019. We recorded a measurement period adjustment of $0.2 million to Onica Acquisition Consideration associated with the Purchase Price Adjustment, for a total net decrease to goodwill of $0.2 million. The Purchase Price Adjustment is included in "Other investing activities" in the Consolidated Statements of Cash Flows. The adjustment to the preliminary allocation is as follows:

(In millions) As Previously Determined Measurement Period Adjustments Revised
Onica Acquisition Consideration $ 323.6 $ (0.2) $ 323.4

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~~14.~~11. Accumulated Other Comprehensive Income (Loss)

Accumulated other comprehensive income (loss) consisted of the following:

(In millions) Accumulated Foreign Currency Translation Adjustments Accumulated Gains (Losses) on Derivative Contracts Accumulated Other Comprehensive Income
Balance at March 31, 2019 $ 10.6 $ 0 $ 10.6
Foreign currency translation adjustments, net of tax benefit of $0.9 (8.1) 0 (8.1)
Balance at June 30, 2019 $ 2.5 $ 0 $ 2.5

(In millions) Accumulated Foreign Currency Translation Adjustments Accumulated Gains (Losses) on Derivative Contracts Accumulated Other Comprehensive Income
Balance at December 31, 2018 $ 0 $ 0 $ 0
Foreign currency translation adjustments, net of tax benefit of $0.2 2.5 — 2.5
Balance at June 30, 2019 $ 2.5 $ 0 $ 2.5

(In millions) Accumulated Foreign Currency Translation Adjustments Accumulated Losses on Derivative Contracts Accumulated Other Comprehensive Loss
Balance at March 31, 2020 $ (8.4) $ (41.1) $ (49.5)
Foreign currency translation adjustments, net of tax benefit of $0.2 0.9 0 0.9
Unrealized losses on derivative contracts, net of tax benefit of $2.3 0 (6.8) (6.8)
Amount reclassified from Accumulated comprehensive income (loss) into earnings, net of tax benefit of $0.5 ⁽¹⁾
0 1.7 1.7
Balance at June 30, 2020 $ (7.5) $ (46.2) $ (53.7)


(In millions)	Accumulated Foreign Currency Translation Adjustments		Accumulated Loss on Derivative Contracts		Accumulated Other Comprehensive Income (Loss)
Balance at December 31, 2019	$	12.0	$	0	$	12.0
Foreign currency translation adjustments, net of tax benefit of $1.2	(20.4)		0		(20.4)
Unrealized loss on derivative contracts, net of tax benefit of $14.0	0		(40.7)		(40.7)
Amount reclassified from Accumulated comprehensive income (loss) into earnings, net of tax expense of $0.1(1)	0		(0.4)		(0.4)
Balance at March 31, 2020	$	(8.4)	$	(41.1)	$	(49.5)

(1) Includes ~~Interest expense recognized of $3.7 million, partially offset by~~ amortization of off-market swap value of ~~$1.5~~$1.2 million, partially offset by interest expense recognized of $0.7 million for the three months ended ~~June 30,~~March 31, 2020.


(In millions)	Accumulated Foreign Currency Translation Adjustments		Accumulated Loss on Derivative Contracts		Accumulated Other Comprehensive Loss
Balance at December 31, 2020	$	20.8	$	(39.4)	$	(18.6)
Foreign currency translation adjustments, net of tax expense of $0.1	3.0		0		3.0
Unrealized gain on derivative contracts, net of tax expense of $3.2	0		9.4		9.4
Amount reclassified from Accumulated comprehensive income (loss) into earnings, net of tax benefit of $1.4 (1)	0		4.0		4.0
Balance at March 31, 2021	$	23.8	$	(26.0)	$	(2.2)

(In millions) Accumulated Foreign Currency Translation Adjustments Accumulated Losses on Derivative Contracts Accumulated Other Comprehensive Income (Loss)
Balance at December 31, 2019 $ 12.0 $ 0 $ 12.0
Foreign currency translation adjustments, net of tax benefit of $1.4 (19.5) 0 (19.5)
Unrealized losses on derivative contracts, net of tax benefit of $16.3 0 (47.5) (47.5)
Amount reclassified from Accumulated comprehensive income (loss) into earnings, net of tax benefit of $0.4 ⁽¹⁾
0 1.3 1.3
Balance at June 30, 2020 $ (7.5) $ (46.2) $ (53.7)

(1) Includes ~~Interest~~interest expense recognized of ~~$4.4~~$2.8 million ~~partially offset by~~and amortization of off-market swap value and accumulated loss at hedge de-designation of ~~$2.7~~$2.6 million for the ~~six~~three months ended ~~June 30, 2020.~~March 31, 2021.

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~~15.~~12. Related Party Transactions

~~On November 3, 2016, we entered into management consulting agreements with affiliates of Apollo and Searchlight and on November 15, 2017, in~~In connection with the ~~Datapipe acquisition,~~Rackspace Acquisition, we entered into a management consulting agreement with ~~ABRY.~~affiliates of Apollo and Searchlight Capital Partners L.P (“Searchlight”), (the “Apollo/Searchlight Management Consulting Agreement”) and a transaction fee agreement with an affiliate of Apollo (the “Transaction Fee Agreement”). In addition, on November 15, 2017, we entered into a management consulting agreement with ABRY Partners, LLC and ABRY Partners II, LLC (collectively, “ABRY”) (the “ABRY Management Consulting Agreement”). For the three ~~and six~~ months ended ~~June 30, 2019, we recorded $3.0 million and $5.9 million, respectively, and for the three and six months ended June 30,~~March 31, 2020, we recorded ~~$3.5~~$3.6 million ~~and $7.1 million, respectively,~~ of management consulting fees within "Selling, general and administrative expenses" in the Consolidated Statements of Comprehensive ~~Income (Loss).~~Loss.

On July 24, 2020, we executed termination letters with each of the parties to the Apollo/Searchlight Management Consulting Agreement, the Transaction Fee Agreement and the ABRY Management Consulting Agreement, whereby all such agreements terminated effective as of the pricing of our initial public offering on August 4, 2020. Therefore no management consulting or transaction fees were accrued or were payable under any of these agreements for periods subsequent to August 4, 2020.

Affiliates of ABRY are also Term Loan Facility lenders under the First Lien Credit Agreement. As of ~~June 30, 2020,~~March 31, 2021, the outstanding principal amount of the Term Loan Facility was ~~$2,810.1~~$2,300.0 million, of which ~~$38.1~~$48.0 million, or ~~1.4%~~2.1%, is due to ABRY affiliates.

On February 2, 2021, we issued 2,665,935 shares of common stock to DPH 123, LLC, an ABRY affiliate, for no additional consideration pursuant to the Agreement and Plan of Merger, dated as of September 6, 2017, in connection with our November 15, 2017 acquisition of Datapipe Parent, Inc.

~~16.~~

Apollo Global Securities, LLC ("Apollo Global Securities"), an affiliate of Apollo, received approximately $0.6 million in connection with their role as an initial purchaser of the 3.50% Senior Secured Notes issued on February 9, 2021.

Apollo Global Securities also received $2.3 million in arranger fees in connection with the entry into the Term Loan Facility on February 9, 2021.

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13. Segment Reporting

We have organized our operations into the following 3 operating segments, which correspond directly to our reportable segments: Multicloud Services, Apps & Cross Platform, and OpenStack Public Cloud. Our segments are based upon a number of factors, including, the basis for our budgets and forecasts, organizational and management structure and the financial information regularly used by our Chief Operating Decision Maker to make key decisions and to assess performance. We assess financial performance of our segments on the basis of revenue and ~~adjusted~~non-GAAP gross profit, which is a non-GAAP measure of profitability. For the calculation of ~~adjusted~~non-GAAP gross profit, we allocate certain costs, such as data center operating costs, customer support costs, license expense, and depreciation, to our segments generally based on segment revenue.

The table below presents a reconciliation of revenue by reportable segment to consolidated revenue and a reconciliation of segment ~~adjusted~~non-GAAP gross profit to total consolidated gross profit for the three ~~and six~~ months ended ~~June 30, 2019~~March 31, 2020 and ~~2020.~~2021.


		Three Months Ended						Six Months Ended							Three Months Ended March 31,
(In millions)	(In millions)	June 30, 2019		June 30, 2020		June 30, 2019		June 30, 2020		(In millions)	2020		2021
Revenue by segment:	Revenue by segment:									Revenue by segment:
Multi-Cloud Services		$	449.6	$	519.0	$	902.4	$	1,026.9
Multicloud Services										Multicloud Services	$	507.9	$	579.6
Apps & Cross Platform	Apps & Cross Platform	79.0		79.9		157.1		161.4		Apps & Cross Platform	81.5		97.3
OpenStack Public Cloud	OpenStack Public Cloud	73.8		57.6		149.8		120.9		OpenStack Public Cloud	63.3		49.0

Total consolidated revenue	Total consolidated revenue	$	602.4	$	656.5	$	1,209.3	$	1,309.2	Total consolidated revenue	$	652.7	$	725.9

Adjusted gross profit by segment:
Multi-Cloud Services		$	189.5	$	200.7	$	378.9	$	397.5
Non-GAAP gross profit by segment:										Non-GAAP gross profit by segment:
Multicloud Services										Multicloud Services	$	196.8	$	196.4
Apps & Cross Platform	Apps & Cross Platform	28.2		27.0		57.1		57.1		Apps & Cross Platform	30.1		34.9
OpenStack Public Cloud	OpenStack Public Cloud	38.5		23.7		78.3		53.0		OpenStack Public Cloud	29.3		18.6

Less:	Less:									Less:
Share-based compensation expense	Share-based compensation expense	(1.3)		(2.3)		(2.3)		(4.1)		Share-based compensation expense	(1.8)		(4.9)
Other compensation expense ⁽¹⁾	Other compensation expense ⁽¹⁾	(0.4)		(1.5)		(0.9)		(3.4)		Other compensation expense (1)	(1.9)		(1.3)
Purchase accounting impact on revenue ⁽²⁾		0.1		0		0.2		0

Purchase accounting impact on expense ⁽²⁾	Purchase accounting impact on expense ⁽²⁾	(2.4)		(1.6)		(4.8)		(3.5)		Purchase accounting impact on expense (2)	(1.9)		(1.2)
Restructuring and transformation expenses ⁽³⁾	Restructuring and transformation expenses ⁽³⁾	(0.1)		(4.1)		(3.5)		(5.4)		Restructuring and transformation expenses (3)	(1.3)		(7.2)
Total consolidated gross profit	Total consolidated gross profit	$	252.1	$	241.9	$	503.0	$	491.2	Total consolidated gross profit	$	249.3	$	235.3

(1) Adjustments for retention bonuses, mainly in connection with restructuring and transformation projects, and the related payroll ~~tax.~~tax, and payroll taxes associated with the exercise of stock options and vesting of restricted stock.

(2) Adjustment for the impact of purchase accounting from the Rackspace Acquisition on ~~revenue and~~ expenses.

(3) Adjustment for the impact of business transformation and optimization activities, as well as associated severance, facility closure costs and lease termination expenses.

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ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help readers understand our results of operations, financial condition and cash flows and should be read in conjunction with the consolidated financial statements and the related notes included elsewhere in this Quarterly Report on Form 10-Q (this "Quarterly Report") and with the audited consolidated financial statements and the related notes ~~as of December 31, 2019,~~ included in our ~~Registration Statement~~Annual Report on Form ~~S-1 (File No. 333-239794), as amended, including the final prospectus, dated August 4, 2020, included therein (the "Prospectus").~~10-K. References to “Rackspace Technology,” “we,” “our company,” “the company,” “us,” or “our” refer to Rackspace Technology, Inc. and its consolidated subsidiaries.

The following discussion contains forward-looking statements that are subject to risks and uncertainties. Actual results may differ materially from those contained in any forward-looking statements. See “Special Note Regarding Forward-Looking Statements” contained elsewhere in this Quarterly Report.

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Overview

We are a leading end-to-end multicloud technology services company. We design, build and operate our customers’ cloud environments across all major technology platforms, irrespective of technology stack or deployment model. We partner with our customers at every stage of their cloud journey, enabling them to modernize applications, build new products and adopt innovative technologies.

We operate our business and report our results through three reportable segments: (1) Multicloud Services, (2) Apps & Cross Platform and (3) OpenStack Public Cloud. Our Multicloud Services segment includes our multicloud services offerings, as well as professional services related to designing and building multicloud solutions and cloud-native applications. Our Apps & Cross Platform segment includes managed applications, managed security and data services, as well as professional services related to designing and implementing application, security and data services. In early 2017, we determined that our OpenStack Public Cloud offering was not core to our go-forward operations and we ceased to incentivize our sales team to promote and sell the product by the end of that year. We continue to serve our existing OpenStack Public Cloud customer base while we focus our growth strategy and investments on our Multicloud Services and Apps & Cross Platform offerings. See Item 1 of Part I, Financial Statements - Note ~~16,~~13, "Segment Reporting" for additional information about our segments. We refer to certain supplementary “Core” financial measures, which reflect the results or otherwise pertain to the performance of our Multicloud Services and Apps & Cross Platform segments, in the aggregate. Our Core financial measures exclude the results and performance of our OpenStack Public Cloud segment.

We generate revenue primarily through the sale of consumption-based contracts for our services offerings, which are recurring in nature. We also generate revenue from the sale of professional services related to designing and building customer solutions, which are non-recurring in nature. Arrangements within our Multicloud Services offerings generally have a fixed term, typically from 12 to 36 months, with a monthly recurring fee based on the computing resources provided to and utilized by the customer, the complexity of the underlying infrastructure and the level of support we provide. Our other primary sources of revenue are for public cloud services within our Multicloud Services, our Apps & Cross Platform and our OpenStack Public Cloud offerings. Contracts for these arrangements typically operate on a month-to-month basis and can be canceled at any time without penalty.

On November 15, 2019, we acquired 100% of Onica Holdings LLC ("Onica") as described in more detail in Item 1 of Part I, Financial Statements - Note 13, "Acquisitions." The preliminary estimate of fair values of Onica’s assets acquired and liabilities assumed, together with Onica’s results of operations subsequent to the November 15, 2019 acquisition date, are included in the unaudited consolidated financial statements.

~~Subsequent Events~~

On August 7, 2020, we completed anour initial public offering (the ~~"IPO"~~“IPO”)~~. For~~, in which we issued and sold 33,500,000 shares of our common stock at a ~~complete description~~public offering price of ~~this transaction and other subsequent events, see Item 1 of Part I, Financial Statements - Note 1, "Company Overview, Basis of Presentation, and Summary of Significant Accounting Policies."~~$21.00 per share.

Impact of COVID-19

The ~~recent~~ outbreak of a novel strain of coronavirus, ~~now~~ referred to as COVID-19, has spread globally, including within the United States, and resulted in ~~The~~the World Health Organization declaring the outbreak a "pandemic" in March 2020. The effects of COVID-19 ~~are rapidly evolving,~~continue to evolve, and the full impact and duration of the virus are unknown. Managing COVID-19 has severely ~~impact~~impacted healthcare systems and businesses worldwide. The effects of COVID-19 and the response to the virus have negatively impacted overall economic conditions. To date, COVID-19 has not adversely affected our results of operations or financial condition in any material respect; ~~however,~~however, the ultimate extent of the impact of COVID-19 on our operational and financial performance will depend on certain developments, including the duration and severity of the outbreak, the pace of economic recovery, the possible resurgence in the spread of the ~~outbreak~~virus, advances in testing, treatment, and prevention, including the efficacy and availability of vaccines, its impact on our customers, vendors and employees and its impact on our sales cycles as well as industry events, all of which are uncertain and cannot be predicted. If the ~~pandemic~~pandemic worsens or the ~~resulting~~global economic ~~downturn continues to worsen,~~recovery slows, we could experience service disruption, loss of customers or higher levels of doubtful trade accounts receivable, which could have an adverse effect on our results of operations and cash flows. ~~At this point, we are focused~~We continue to focus on the health and safety of our employees, customers and partners and, among other things, have implemented a work-from-home policy and are limiting contact between our employees and customers while continuing to deliver a Fanatical Experience. To date, the impact on our business has been limited as most of our services are already delivered remotely or capable of being delivered remotely and we have a diverse customer base. In addition, our mitigation efforts, including offering our customers contract extensions in exchange for better payment terms and obtaining improved payment terms from our vendors, have generally

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been successful since the start of the pandemic. The full extent to which COVID-19 may impact our financial condition or results of operations over the medium to long term, however, remains uncertain. Due to our recurring revenue business model, the effect of COVID-19 may not be fully reflected in our results of operations until future periods, if at all. We will continue to actively monitor the situation and may take further actions that alter our business operations as may be required by federal, state or local authorities, or that we determine are in the best interests of our employees, customers, partners, suppliers and ~~stockholders.~~stockholders, including developing a plan to return our workforce back to the office when it is safe to do so.

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Key Factors Affecting Our Performance

We believe our combination of proprietary technology, automation capabilities and technical expertise creates a value proposition for our customers that is hard to replicate for both competitors and in-house IT departments. Our continued success depends to a significant extent on our ability to meet the challenges presented by our highly competitive and dynamic market, including the following key factors:

Differentiating Our Service Offerings in a Competitive Market Environment

Our success depends to a significant extent on our ability to differentiate, expand and upgrade our service offerings in line with developing customer needs, while deepening our relationships with leading public cloud service providers and establishing new relationships, including with sales partners. We are a certified premier consulting and managed services partner to some of the largest cloud computing platforms, including AWS, Azure, Google Cloud, Oracle, ~~Salesforce,~~ SAP and VMWare. We believe we are unique in our ability to serve customers across major technology stacks and deployment options, all while delivering a Fanatical Experience. Our existing and prospective customers are also under increasing pressure to move from on-premise or self-managed IT to the cloud to compete effectively in a digital economy and maximize the value of their cloud investments, which we believe presents an opportunity for professional services projects as well as new recurring business. Annualized Recurring Revenue (“ARR”), which we believe is an important indicator of our market differentiation and future revenue opportunity from recurring customer contracts, was ~~$2,355.8~~$2,482.1 million and ~~$2,492.9~~$2,742.6 million for the three months ended ~~June 30, 2019~~March 31, 2020 and ~~2020,~~2021, respectively. See “Key Operating Metrics.”

Customer Relationships and Retention

Our success greatly depends on our ability to retain and develop opportunities with our existing customers and to attract new customers. We operate in a growing but competitive and evolving market environment, requiring innovation to differentiate us from our competitors. We believe that our integrated cloud service portfolio and our differentiated customer experience and technology are keys to retaining and growing revenue from existing customers as well as acquiring new customers. For example, we believe that the Rackspace Fabric provides customers a unified experience across their entire cloud and security footprint, and that our recently announced Rackspace ~~Service Blocks~~Elastic Engineering model ~~provides for customizable services consumption, enabling us~~helps customers embrace a cloud native approach with on-demand access to ~~deliver IT services in~~ a ~~recurring~~dedicated team of highly skilled cloud architects and ~~scalable way.~~engineers. These offerings differentiate us from legacy IT service providers that operate under long-term fixed and project-based fee structures often tethered to their existing technologies with less automation.

Shift in Capital Intensity

In recent years, the mix of our revenues has shifted from high capital intensity service offerings to low capital intensity service offerings and we expect this mix shift to continue. Historically, we primarily offered dedicated hosting and OpenStack Public Cloud services to our customers, which required us to deploy servers and equipment to ensure adequate capacity for new customers and, in certain cases, on behalf of customers at the start or during the performance of a contract, resulting in a high level of anticipatory and success-based capital expenditures. Today, the vast majority of our revenue is derived from service offerings, such as multicloud services, application services and professional services, which have significantly lower success-based capital requirements because they allow us to leverage our partners’ infrastructure or technology because we are able to use technology to make our capital expenditures more efficient. As a result, we have recently experienced and expect to continue to experience changes in our capital expenditures requirements.

Our capital expenditures equaled 7%12% and 8% of our revenue for the three months ended ~~June 30, 2019~~March 31, 2020 and ~~2020, respectively, and 8% and 10% of our revenue for the six months ended June 30, 2019 and 2020,~~2021, respectively. Our capital expenditures were slightly higher in the three and six months ended June 30, 2020 in part due to higher success-based spend to deploy customer environments and the refresh of certain data center equipment within our normal maintenance cycle. While there is some variability in capital expenditures from quarter to quarter due to timing of purchases, we ~~continue~~expect to ~~see a reduction in capital~~maintain or lower current capex intensity levels over the longer ~~term, with capital expenditures equal to 9% of our revenue for the twelve-month period ended June 30, 2020 compared to 10% for the twelve-month period ended June 30, 2019.~~term.

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Key Operating Metrics

The following table and discussion present and summarize our key operating performance indicators, which management uses as measures of our current and future business and financial performance:


		Three Months Ended June 30,									Three Months Ended March 31,
(In millions, except %)	(In millions, except %)	2019			2020			(In millions, except %)	2020		2021
Bookings	Bookings	$	138.8		$	288.5		Bookings	$	230.5	$	243.5
Annualized Recurring Revenue (ARR)	Annualized Recurring Revenue (ARR)	$	2,355.8		$	2,492.9		Annualized Recurring Revenue (ARR)	$	2,482.1	$	2,742.6
Core Quarterly Net Revenue Retention Rate		98		%	99		%
Quarterly Net Revenue Retention Rate		98		%	98		%

Bookings

We calculate Bookings for a given period as the annualized monthly value of our recurring customer contracts entered into during the period from (i) new customers and (ii) net upgrades by existing customers within the same workload, plus the actual (not annualized) estimated value of professional services consulting, advisory or project-based orders received during the period. “Recurring customer contracts” are any contracts entered into on a multi-year or month-to-month basis, but excluding any professional services contracts for consulting, advisory or project-based work.

Bookings for any period may reflect orders that we perform in the same period, orders that remain outstanding as of the end of the period and the annualized value of recurring month-to-month contracts entered into during the period, even if the terms of such contracts do not require the contract to be renewed. Bookings include net upgrades by existing customers within the same workload, but exclude net downgrades by such customers within that workload. Any customer that contracts for a new workload is considered a new customer and the entire value of the contract or upgrade is recorded in Bookings, irrespective of whether the same customer canceled or downgraded other workloads. Bookings also do not include the impact of any known contract non-renewals or service cancellations by our customers, except for positive net upgrades by existing customers. In cases where a new or upgrading customer enters into a multi-year contract, Bookings include only the annualized contract value. Bookings do not include usage-based fees in excess of contracted minimum commitments until actually incurred.

We use Bookings to measure the amount of new business generated in a period, which we believe is an important indicator of new customer acquisition and our ability to cross-sell new services to existing customers. Bookings are also used by management as a factor in determining performance-based compensation for our sales force. While we believe Bookings, in combination with other metrics, is an indicator of our near-term future revenue opportunity, it is not intended to be used as a projection of future revenue. Our calculation of Bookings may differ from similarly titled metrics presented by other companies.

Our Bookings increased ~~$149.7~~$13.0 million to ~~$288.5~~$243.5 million for the three months ended ~~June 30, 2020~~March 31, 2021 from ~~$138.8~~$230.5 million for the three months ended ~~June 30, 2019.~~March 31, 2020. The increase in Bookings was attributable to the execution of several initiatives focused on enhancing growth, including an investment in sales, an improvement in sales productivity, an increase in the number of enterprise customers and an increase in the number of new deals with large contract values.

Annualized Recurring Revenue

We calculate Annualized Recurring Revenue, or ARR, by annualizing our actual revenue from existing recurring customer contracts (as defined under “Bookings” above) for the most recently completed fiscal quarter. ARR is not adjusted for the impact of any known or projected future customer cancellations, service upgrades or downgrades or price increases or decreases.

We use ARR as a measure of our revenue trend and an indicator of our future revenue opportunity from existing recurring customer contracts, assuming zero cancellations. The amount of actual revenue that we recognize over any 12-month period is likely to differ from ARR at the beginning of that period, sometimes significantly. This may occur due to new Bookings, higher or lower professional services revenue, subsequent changes in our pricing, service cancellations, upgrades or downgrades and acquisitions or divestitures. Our calculation of ARR may differ from similarly titled metrics presented by other companies.

Our ARR was $2,482.1 million and $2,742.6 million for the three months ended March 31, 2020 and 2021, respectively.

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~~Our ARR was $2,355.8 million and $2,492.9 million for the three months ended June 30, 2019 and 2020, respectively.~~

~~Quarterly Net Revenue Retention Rate~~

Our Quarterly Net Revenue Retention Rate, which we use to measure our success in retaining and growing revenue from our existing customers, compares sequential quarterly revenue from the same cohort of customers. We calculate our Quarterly Net Revenue Retention Rate for a given quarterly period as the revenue from the cohort of customers for the latest reported fiscal quarter (the numerator), divided by revenue from such customers for the immediately preceding fiscal quarter (denominator). Existing customer revenue for the earlier of the two fiscal quarters is calculated on a constant currency basis, applying the average exchange rate for the latest reported fiscal quarter to the immediately preceding fiscal quarter, to eliminate the effects of foreign currency fluctuations. The numerator and denominator only include revenue from customers that we served and from which we recognized revenue in the first month of the earliest of the two quarters being compared. Our calculation of Quarterly Net Revenue Retention Rate for any fiscal quarter includes the positive revenue impacts of selling new services to existing customers and the negative revenue impacts of attrition among this cohort of customers. Our calculation of Quarterly Net Revenue Retention Rate may differ from similarly titled metrics presented by other companies.

Throughout the MD&A, we present our Quarterly Net Revenue Retention Rate on a consolidated basis and also on a Core basis, referred to as “Core Quarterly Net Revenue Retention Rate,” as well as by segment.

Our Quarterly Net Revenue Retention Rate was 98% for each of the three-month periods ended June 30, 2019 and 2020 despite our continued shift away from OpenStack Public Cloud to our other service offerings. Accordingly, our Core Quarterly Net Revenue Retention Rate was 98% and 99% for the three-month periods ended June 30, 2019 and 2020, respectively, reflecting the stickiness of our subscription-based revenue model.

Key Components of Statement of Operations

Revenue

A substantial amount of our revenue, particularly within our Multicloud Services segment, is generated pursuant to contracts that typically have a fixed term (typically from 12 to 36 months). Our customers generally have the right to cancel their contracts by providing us with written notice prior to the end of the fixed term, though most of our contracts provide for termination fees in the event of cancellation prior to the end of their term, typically amounting to the outstanding value of the contract. These contracts include a monthly recurring fee, which is determined based on the computing resources utilized and provided to the customer, the complexity of the underlying infrastructure and the level of support we provide. Our public cloud services within the Multicloud Services segment and most of our Apps & Cross Platform and OpenStack Public Cloud services generate usage-based revenue invoiced on a month-to-month basis and can be canceled at any time without penalty. We also generate revenue from usage-based fees and fees from professional services earned from customers using our hosting and other services. We typically recognize revenue on a daily basis, as services are provided, in an amount that reflects the consideration to which we expect to be entitled in exchange for our services. Our usage-based arrangements generally include a variable consideration component, consisting of monthly utility fees, with a defined price and undefined quantity. Our customer contracts also typically contain service level guarantees, including with respect to network uptime requirements, that provide discounts when we fail to meet specific obligations and, with respect to certain products, we may offer volume discounts based on usage. As these variable consideration components consist of a single distinct daily service provided on a single performance obligation, we account for all of them as services are provided and earned.

Cost of revenue

Cost of revenue consists primarily of ~~depreciation of servers, software and other systems~~usage charges for third-party infrastructure and personnel costs (including salaries, bonuses, benefits and share-based compensation) for engineers, developers and other employees involved in the delivery of services to our customers. Cost of revenue also includes depreciation of servers, software and other systems infrastructure, data center rent and other infrastructure maintenance and support costs, including ~~usage charges for third-party infrastructure,~~ software license costs and utilities. Cost of revenue is driven mainly by demand for our services, our service mix and the cost of labor in a given geography.

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Selling, general and administrative expenses (SG&A)

Selling, general and administrative expenses consist primarily of personnel costs (including salaries, bonuses, commissions, benefits and share-based compensation) for our sales force, executive team and corporate administrative and support employees, including our human resources, finance, accounting and legal functions. SG&A also includes research and development costs, repair and maintenance of corporate infrastructure, facilities rent, third-party advisory fees (including audit, legal and management consulting costs), marketing and advertising costs and insurance, as well as the amortization of related intangible assets and certain depreciation of fixed assets. Research and development costs were $14 million and $10 million for the three months ended June 30, 2019 and 2020, respectively, and $32 million and $21 million for the six months ended June 30, 2019 and 2020, respectively. Advertising costs were $10 million and $8 million for the three months ended June 30, 2019 and 2020, respectively, and $20 million and $20 million for the six months ended June 30, 2019 and 2020.

SG&A also includes transaction costs related to acquisitions and financings along with costs related to integration and business transformation initiatives which may impact the comparability of SG&A between periods.

Additionally, SG&A has historically included management fees. The management consulting agreements were terminated on August 4, 2020, and therefore no management fees will accrue or be payable for periods subsequent to that date, thereby reducing our SG&A expenses; however, we also expect certain of our other ~~our~~ recurring SG&A costs to increase on account of the expansion of accounting, legal, investor relations and other functions, incremental insurance coverage and other services needed to operate as a public company.

Income taxes

Our income tax benefit (provision) and deferred tax assets and liabilities reflect management’s best assessment of estimated current and future taxes to be paid. To date, we have recorded consolidated tax benefits, reflecting our net losses, though certain of our non-U.S. subsidiaries have incurred corporate tax expense according to the relevant taxing jurisdictions. We are under certain domestic and foreign tax audits. Due to the complexity involved with certain tax matters, there is the possibility that the various taxing authorities may disagree with certain tax positions filed on our income tax returns. We believe we have made adequate provision for all uncertain tax positions. See Item 1 of Part I, Financial Statements - Note ~~10, "Taxes.~~9, "Taxes."

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Results of Operations

We discuss our historical results of operations, and the key components of those results, below. Past financial results are not necessarily indicative of future results.

Three Months Ended ~~June 30, 2019~~March 31, 2020 Compared to Three Months Ended ~~June 30, 2020~~March 31, 2021

The following table sets forth our results of operations for the specified periods, as well as changes between periods and as a percentage of revenue for those same periods (totals in table may not foot due to rounding):


		Three Months Ended June 30,																Year-Over-Year Comparison										Three Months Ended March 31,								Year-Over-Year Comparison
		2019						2020																2020							2021				Year-Over-Year Comparison
(In millions, except %)	(In millions, except %)	Amount		% Revenue		Amount		% Revenue		Amount		% Change		(In millions, except %)	Amount		% Revenue					Amount			% Revenue				Amount			% Change
Revenue	Revenue	$	602.4	100.0	%	$	656.5	100.0	%	$	54.1	9.0	%	Revenue	$	652.7	100.0			%		$	725.9		100.0		%		$	73.2		11.2		%
Cost of revenue	Cost of revenue	(350.3)		(58.2)	%	(414.6)		(63.2)	%	(64.3)		18.4	%	Cost of revenue	(403.4)		(61.8)		%		(490.6)			(67.6)		%		(87.2)			21.6		%
Gross profit	Gross profit	252.1		41.8	%	241.9		36.8	%	(10.2)		(4.0)	%	Gross profit	249.3		38.2		%		235.3			32.4		%		(14.0)			(5.6)		%
Selling, general and administrative expenses	Selling, general and administrative expenses	(226.5)		(37.6)	%	(219.2)		(33.4)	%	7.3		(3.2)	%	Selling, general and administrative expenses	(227.8)		(34.9)		%		(231.0)			(31.8)		%		(3.2)			1.4		%

Gain on sale of land														Gain on sale of land	—		—		%		19.9			2.7		%		19.9			100.0		%

Income from operations	Income from operations	25.6		4.3	%	22.7		3.5	%	(2.9)		(11.3)	%	Income from operations	21.5		3.3		%		24.2			3.3		%		2.7			12.6		%
Other income (expense):	Other income (expense):													Other income (expense):
Interest expense	Interest expense	(100.8)		(16.7)	%	(68.9)		(10.5)	%	31.9		(31.6)	%	Interest expense	(72.0)		(11.0)		%		(52.6)			(7.2)		%		19.4			(26.9)		%
Gain on investments, net		143.3		23.8	%	1.0		0.1	%	(142.3)		(99.3)	%
Gain on extinguishment of debt		5.0		0.8	%	—		—	%	(5.0)		(100.0)	%
Other income, net		1.7		0.3	%	0.3		0.0	%	(1.4)		(82.4)	%
Loss on investments, net														Loss on investments, net	(0.1)		(0.0)		%		(3.7)			(0.5)		%		(3.6)			NM
Debt modification and extinguishment costs														Debt modification and extinguishment costs	—		—		%		(37.0)			(5.1)		%		(37.0)			100.0		%
Other expense, net														Other expense, net	(0.6)		(0.1)		%		(1.8)			(0.3)		%		(1.2)			200.0		%
Total other income (expense)	Total other income (expense)	49.2		8.2	%	(67.6)		(10.3)	%	(116.8)		NM		Total other income (expense)	(72.7)		(11.1)		%		(95.1)			(13.1)		%		(22.4)			30.8		%
Income (loss) before income taxes		74.8		12.4	%	(44.9)		(6.8)	%	(119.7)		NM
Benefit (provision) for income taxes		(12.3)		(2.0)	%	12.3		1.9	%	24.6		NM
Net income (loss)		$	62.5	10.4	%	$	(32.6)	(5.0)	%	$	(95.1)	NM
Loss before income taxes														Loss before income taxes	(51.2)		(7.8)		%		(70.9)			(9.8)		%		(19.7)			38.5		%
Benefit for income taxes														Benefit for income taxes	3.0		0.5		%		6.9			0.9		%		3.9			130.0		%
Net loss														Net loss	$	(48.2)	(7.4)		%		$	(64.0)		(8.8)		%		$	(15.8)		32.8		%

NM = not meaningful.

Revenue

Revenue increased ~~$54~~$73 million, or ~~9.0%~~11.2%, to ~~$657~~$726 million in the three months ended ~~June 30, 2020~~March 31, 2021 from ~~$602~~$653 million in the three months ended ~~June 30, 2019.~~March 31, 2020. Revenue was positively impacted by ~~the acquisition of Onica in November 2019 as well as~~ new customer acquisition and growing customer spend in our Multicloud Services and Apps & Cross Platform segments, as discussed below. ~~Our Quarterly Net Revenue Retention Rate was 98% in the three months ended June 30, 2020.~~

After removing the impact of foreign currency fluctuations, on a constant currency basis, revenue increased 9.7% period-on-period. On a constant currency basis, assuming the Onica acquisition was consummated on January 1, 2019, we estimate that our constant currency revenue would have increased by 3.8% period-on-period. Although such estimate of constant currency revenue is based on assumptions that management believes are reasonable, it is not necessarily indicative of the constant currency revenue that would have been achieved had such acquisition occurred on January 1, 2019.10.0% year-over-year. The following table presents revenue growth by segment:


		Three Months Ended June 30,						% Change							Three Months Ended March 31,				% Change
(In millions, except %)	(In millions, except %)	2019		2020		Actual		Constant Currency ⁽¹⁾		(In millions, except %)	2020		2021		Actual		Constant Currency (1)
Multicloud Services	Multicloud Services	$	449.6	$	519.0	15.4	%	16.2	%	Multicloud Services	$	507.9	$	579.6	14.1	%	12.8	%
Apps & Cross Platform	Apps & Cross Platform	79.0		79.9		1.1	%	1.5	%	Apps & Cross Platform	81.5		97.3		19.4	%	18.8	%
Core Revenue	Core Revenue	528.6		598.9		13.3	%	14.0	%	Core Revenue	589.4		676.9		14.8	%	13.6	%
OpenStack Public Cloud	OpenStack Public Cloud	73.8		57.6		(22.0)	%	(21.3)	%	OpenStack Public Cloud	63.3		49.0		(22.6)	%	(23.6)	%
Total	Total	$	602.4	$	656.5	9.0	%	9.7	%	Total	$	652.7	$	725.9	11.2	%	10.0	%

(1) Refer to "Non-GAAP Financial Measures" in this section for further explanation and reconciliation.

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Multicloud Services revenue in the three months ended ~~June 30, 2020~~March 31, 2021 increased ~~15%~~14%, ~~or 16%~~on an actual basis, and 13% on a constant currency basis, from the three months ended ~~June 30, 2019, reflecting the positive impact of the November 2019 acquisition of Onica.~~March 31, 2020. Underlying growth was driven by both the acquisition of new customers and increased spend by existing customers, partially offset by cancellations by existing customers. ~~The Quarterly Net Revenue Retention Rate for our Multicloud Services segment was 100% in the three months ended June 30, 2020~~.

Apps & Cross Platform revenue in the three months ended ~~June 30, 2020~~March 31, 2021 increased 1%19%, ~~or 2%~~ on aan actual and constant currency basis, from the three months ended ~~June 30, 2019,~~March 31, 2020, due to growth in our offerings for managed security and management of productivity and collaboration applications, partially offset by ~~timing of~~a decrease in professional ~~services. The Quarterly Net Revenue Retention Rate for our Apps & Cross Platform segment was 98% in the three months ended June 30, 2020.~~services revenue.

OpenStack Public Cloud revenue in the three months ended ~~June 30, 2020~~March 31, 2021 decreased ~~22%~~23%, ~~or 21%~~on an actual basis, and 24% on a constant currency basis, from the three months ended ~~June 30, 2019~~March 31, 2020 due to customer churn.

Cost of Revenue

Cost of revenue increased ~~$64~~$87 million, or ~~18%~~22%, to ~~$415~~$491 million in the three months ended ~~June 30, 2020~~March 31, 2021 from ~~$350~~$403 million in the three months ended ~~June 30, 2019,~~March 31, 2020, primarily due to ~~a $66 million~~an increase in usage charges for third-party infrastructure associated with growth in these ~~offerings~~offerings and the impact of an increased volume of larger, multi-year customer contracts which typically have a larger infrastructure component and lower margins. Personnel costs also increased ~~$12 million, primarily~~ due to ~~the addition of former Onica employees. These increases were~~higher severance expense related to business optimization initiatives to shift roles to lower-cost locations and an increase in share-based compensation expense, partially offset by a ~~$9 million~~reduction in non-equity incentive bonus expense. The increase in third-party infrastructure and personnel costs was partially offset by a decrease in depreciation expense primarily related to certain property, equipment and software reaching the end of its useful life for depreciation purposes as we shift towards faster-growing, value-added service offerings which have significantly lower capital requirements than our legacy capital-intensive revenue streams. Additionally, in March 2021, we completed an assessment of the useful lives of certain customer gear equipment which resulted in a revision of certain useful lives within our policy ranges, further contributing to the reduction in depreciation expense. We also had year-over-year expense reductions in data center and license expenses as a result of initiatives to lower our cost structure, ~~including~~which included the consolidation of data center facilities and ~~reviewing and~~ optimizing our vendor license spending.

As a percentage of revenue, cost of revenue increased ~~500~~580 basis points in the three months ended ~~June 30, 2020~~March 31, 2021 to ~~63.2%~~67.6% from ~~58.2%~~61.8% in the three months ended ~~June 30, 2019,~~March 31, 2020, driven by a ~~930~~1,340 basis point increase in usage charges for third-party infrastructure, ~~expenses and a 60 basis point increase in personnel costs,~~ partially offset by a ~~220 basis point reduction in depreciation expense and a 230 basis point~~ decrease related to depreciation, data center, and license ~~expenses.~~expense.

Gross Profit and ~~Adjusted Consolidated and Segment Adjusted~~Non-GAAP Gross Profit

Our consolidated gross profit was ~~$242~~$235 million in the three months ended ~~June 30, 2020,~~March 31, 2021, a decrease of ~~$10~~$14 million from ~~$252~~$249 million in the three months ended ~~June 30, 2019.~~March 31, 2020. Our ~~Adjusted Consolidated~~Non-GAAP Gross Profit was ~~$251~~$250 million in the three months ended ~~June 30, 2020,~~March 31, 2021, a decrease ~~of $5~~of $6 million from $256 million in the three months ended ~~June 30, 2019. Adjusted Consolidated~~March 31, 2020. Non-GAAP Gross Profit is a non-GAAP financial measure. See “Non-GAAP Financial Measures” below for more information. Our consolidated gross margin was ~~36.8%~~32.4% in the three months ended ~~June 30, 2020,~~March 31, 2021, a decrease of ~~500~~580 basis points from ~~41.8%~~38.2% in the three months ended ~~June 30, 2019.~~March 31, 2020.

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The table below presents our segment ~~adjusted~~non-GAAP gross profit and gross margin for the periods indicated, and the change in gross profit between periods:


		Three Months Ended June 30,																Year-Over-Year Comparison											Three Months Ended March 31,								Year-Over-Year Comparison
(In millions, except %)	(In millions, except %)	2019						2020																(In millions, except %)	2020							2021				Year-Over-Year Comparison
Adjusted gross profit by segment:		Amount		% of Segment Revenue		Amount		% of Segment Revenue		Amount		% Change
Non-GAAP gross profit by segment:														Non-GAAP gross profit by segment:	Amount		% of Segment Revenue					Amount				% of Segment Revenue				Amount			% Change
Multicloud Services	Multicloud Services	$	189.5	42.1	%	$	200.7	38.7	%	$	11.2	5.9	%	Multicloud Services	$	196.8	38.7			%		$	196.4			33.9		%		$	(0.4)		(0.2)		%
Apps & Cross Platform	Apps & Cross Platform	28.2		35.7	%	27.0		33.8	%	(1.2)		(4.3)	%	Apps & Cross Platform	30.1		36.9		%		34.9				35.9		%		4.8			15.9		%
OpenStack Public Cloud	OpenStack Public Cloud	38.5		52.2	%	23.7		41.1	%	(14.8)		(38.4)	%	OpenStack Public Cloud	29.3		46.3		%		18.6				38.0		%		(10.7)			(36.5)		%
Adjusted Consolidated Gross Profit		256.2				251.4				(4.8)		(1.9)	%
Non-GAAP Gross Profit														Non-GAAP Gross Profit	256.2						249.9								(6.3)			(2.5)		%
Less:	Less:													Less:
Share-based compensation expense	Share-based compensation expense	(1.3)				(2.3)								Share-based compensation expense	(1.8)						(4.9)
Other compensation expense ⁽¹⁾	Other compensation expense ⁽¹⁾	(0.4)				(1.5)								Other compensation expense (1)	(1.9)						(1.3)
Purchase accounting impact on revenue ⁽²⁾		0.1				—

Purchase accounting impact on expense ⁽²⁾	Purchase accounting impact on expense ⁽²⁾	(2.4)				(1.6)								Purchase accounting impact on expense (2)	(1.9)						(1.2)
Restructuring and transformation expenses ⁽³⁾	Restructuring and transformation expenses ⁽³⁾	(0.1)				(4.1)								Restructuring and transformation expenses (3)	(1.3)						(7.2)
Total consolidated gross profit	Total consolidated gross profit	$	252.1			$	241.9							Total consolidated gross profit	$	249.3					$	235.3


(1)			Adjustments for retention bonuses, mainly in connection with restructuring and transformation projects, and the related payroll ~~tax.~~tax, and payroll taxes associated with the exercise of stock options and vesting of restricted stock.
(2)			Adjustment for the impact of purchase accounting from the Rackspace Acquisition on ~~revenue and~~ expenses.
(3)			Adjustment for the impact of business transformation and optimization activities, as well as associated severance, facility closure costs and lease termination expenses.

Multicloud Services ~~adjusted~~non-GAAP gross profit ~~increased by 6% in the three months ended June 30, 2020 from the three months ended June 30, 2019.~~was relatively flat year-over-year. Segment ~~adjusted~~non-GAAP gross profit as a percentage of segment revenue decreased by ~~340~~480 basis points, reflecting a 22% increase in segment cost of revenue and a 15% increase in segment revenue. The increase in costs was mainly driven by higher third-party infrastructure costs and the addition of former Onica employees’ personnel costs. Partially offsetting the increase was lower depreciation and data center costs.

Apps & Cross Platform adjusted gross profit decreased 4% in the three months ended June 30, 2020 from the three months ended June 30, 2019. Segment adjusted gross profit as a percentage of segment revenue decreased by 190 basis points, reflecting a 4% increase in segment cost of revenue and a 1% increase in segment revenue. The increase in cost of revenue was driven by the segment’s higher business volume as well as investments to support more service-oriented offerings and higher third-party infrastructure costs.

OpenStack Public Cloud adjusted gross profit decreased 38% in the three months ended June 30, 2020 from the three months ended June 30, 2019 due to customer churn. Segment adjusted gross profit as a percentage of segment revenue decreased by 1,110 basis points, reflecting a 22% decrease in segment revenue, partially offset by a 4% decrease in segment cost of revenue.

The aggregate amount of costs reflected in consolidated gross profit but excluded from segment adjusted gross profit was $9.5 million in the three months ended June 30, 2020, an increase of $5.4 million from $4.1 million in the three months ended June 30, 2019, reflecting higher restructuring and transformation expenses and share-based compensation, partially offset by lower purchase accounting adjustments. For more information about our segment adjusted gross profit, see Item 1 of Part I, Financial Statements - Note 16, "Segment Reporting."

~~Selling, General and Administrative Expenses~~

Selling, general and administrative expenses decreased $7 million, or 3%, to $219 million in the three months ended June 30, 2020 from $227 million in the three months ended June 30, 2019, primarily due to a $7 million decrease in personnel costs, including higher severance expense during the prior year period related to business optimization initiatives, partially offset by an increase in commissions expense driven by bookings growth, including the impact of the Onica acquisition. Also contributing to the decrease in SG&A expenses was a $4 million reduction in travel costs resulting from COVID-19 travel restrictions. These decreases were partially offset by an increase in expenses related to business transformation initiatives and integrating Onica.

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As a percentage of revenue, selling, general and administrative expenses decreased 420 basis points, to 33.4% in the three months ended June 30, 2020 from 37.6% in the three months ended June 30, 2019, for the reasons discussed above, and further impacted by our revenue growth compared to aggregate decreases in other SG&A expenses.

~~Interest Expense~~

Interest expense decreased $32 million to $69 million in the three months ended June 30, 2020 from $101 million in the three months ended June 30, 2019, primarily due to the January 2020 designation of certain of our interest rate swap agreements as cash flow hedges, as further discussed in Item 1 of Part I, Financial Statements - Note 11, "Derivatives." In the three months ended June 30, 2019, we recorded $30 million of interest expense related to the change in the fair value of interest rate swaps compared to $2 million recorded to interest expense in the three months ended June 30, 2020.

~~Gain on Investments, Net~~

Gain on investments was $1 million in the three months ended June 30, 2020 compared to $143 million in the three months ended June 30, 2019, driven by the unrealized gain on our CrowdStrike investment of $141 million, as further discussed in Item 1 of Part I, Financial Statements - Note 6, "Investments."

~~Gain on Extinguishment of Debt~~

~~We recorded a $5 million gain on debt extinguishment in the three months ended June 30, 2019 related to the repurchase of $46 million principal amount of our 8.625% Senior Notes.~~

~~Other Income, Net~~

Other income decreased $1 million primarily related to changes in the fair value of foreign currency derivatives, as further discussed in Item 1 of Part I, Financial Statements - Note 11, "Derivatives," partially offset by a decrease in foreign currency transaction losses.

~~Benefit (Provision) for Income Taxes~~

We had an income tax benefit of $12 million in the three months ended June 30, 2020 compared to a provision for income taxes of $12 million in the three months ended June 30, 2019, primarily driven by the tax impact of the unrealized gain on our CrowdStrike investment, as further discussed in Item 1 of Part I, Financial Statements - Note 6, "Investments." Our effective tax rate increased from 16.4% in the three months ended June 30, 2019 to 27.4% in the three months ended June 30, 2020. The increase in the effective tax rate year-over-year and the difference between the effective tax rate for the three months ended June 30, 2020 and the statutory rate are primarily due to the geographic distribution of profits.

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~~Six Months Ended June 30, 2019 Compared to Six Months Ended June 30, 2020~~

Six Months Ended June 30, Year-Over-Year Comparison
2019 2020
(In millions, except %) Amount % Revenue Amount % Revenue Amount % Change
Revenue $ 1,209.3 100.0 % $ 1,309.2 100.0 % $ 99.9 8.3 %
Cost of revenue (706.3) (58.4) % (818.0) (62.5) % (111.7) 15.8 %
Gross profit 503.0 41.6 % 491.2 37.5 % (11.8) (2.3) %
Selling, general and administrative expenses (458.2) (37.9) % (447.0) (34.1) % 11.2 (2.4) %
Gain on sale 2.1 0.2 % — — % (2.1) (100.0) %
Income from operations 46.9 3.9 % 44.2 3.4 % (2.7) (5.8) %
Other income (expense):
Interest expense (189.8) (15.7) % (140.9) (10.8) % 48.9 (25.8) %
Gain on investments, net 143.4 11.9 % 0.9 0.1 % (142.5) (99.4) %
Gain on extinguishment of debt 9.5 0.8 % — — % (9.5) (100.0) %
Other expense, net (2.3) (0.2) % (0.3) (0.0 )% 2.0 (87.0) %
Total other income (expense) (39.2) (3.2) % (140.3) (10.7) % (101.1) NM
Income (loss) before income taxes 7.7 0.6 % (96.1) (7.3) % (103.8) NM
Benefit (provision) for income taxes (2.7) (0.2) % 15.3 1.2 % 18.0 NM
Net income (loss) $ 5.0 0.4 % $ (80.8) (6.2) % $ (85.8) NM

~~NM = not meaningful.~~

~~Revenue~~

Revenue increased $100 million, or 8.3%, to $1,309 million in the six months ended June 30, 2020 from $1,209 million in the six months ended June 30, 2019. Revenue was positively impacted by the acquisition of Onica in November 2019 as well as new customer acquisition and growing customer spend in our Multicloud Services and Apps & Cross Platform segments, as discussed below.

~~After re~~moving the impact from foreign currency fluctuations, on a constant currency basis, revenue increased 8.7% period-on-period. On a constant currency basis, assuming the Onica acquisition was consummated on January 1, 2019, we estimate that our constant currency revenue would have increased by 3.4% period-on-period. Although such estimate of constant currency revenue is based on assumptions that management believes are reasonable, it is not necessarily indicative of the constant currency revenue that would have been achieved had such acquisition occurred on January 1, 2019. The following table presents revenue growth by segment:

Six Months Ended June 30, % Change
(In millions, except %) 2019 2020 Actual
Constant Currency⁽¹⁾
Multicloud Services $ 902.4 $ 1,026.9 13.8 % 14.3 %
Apps & Cross Platform 157.1 161.4 2.8 % 3.0 %
Core Revenue 1,059.5 1,188.3 12.2 % 12.6 %
OpenStack Public Cloud 149.8 120.9 (19.3) % (19.0) %
Total $ 1,209.3 $ 1,309.2 8.3 % 8.7 %

~~(1) Refer to "Non-GAAP Financial Measures" in this section for further explanation and reconciliation.~~

Multicloud Services revenue in the six months ended June 30, 2020 increased 14%, on an actual and constant currency basis, from the six months ended June 30, 2019, reflecting the positive impact of the November 2019 acquisition of Onica. Underlying growth was driven by both the acquisition of new customers and increased spend by existing customers, partially offset by cancellations by existing customers.

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Apps & Cross Platform revenue in the six months ended June 30, 2020 increased 3%, on an actual and constant currency basis, from the six months ended June 30, 2019, due to growth in our offerings for managed security, professional services, and management of productivity and collaboration applications.

~~OpenStack Public Cloud revenue in the six months ended June 30, 2020 decreased 19%, on an actual and constant currency basis, from the six months ended June 30, 2019 due to customer churn.~~

~~Cost of Revenue~~

Cost of revenue increased $112 million, or 16%, to $818 million in the six months ended June 30, 2020 from $706 million in the six months ended June 30, 2019, primarily due to a $122 million increase in usage charges for third-party infrastructure associated with growth in these offerings and the impact of an increased volume of larger, multi-year customer contracts which typically have a larger infrastructure component and lower margins. Personnel costs increased $22 million, primarily due to the addition of former Onica employees. These increases were partially offset by a $21 million decrease in depreciation expense primarily related to certain property, equipment and software reaching the end of its useful life for depreciation purposes as we shift towards faster-growing, value-added service offerings which have significantly lower capital requirements than our legacy capital-intensive revenue streams. We also had year-over-year expense reductions as a result of initiatives to lower our cost structure, including the consolidation of data center facilities and reviewing and optimizing our vendor license spending.

As a percentage of revenue, cost of revenue increased 410 basis points in the six months ended June 30, 2020 to 62.5% from 58.4% in the six months ended June 30, 2019, driven by an 860 basis point increase in infrastructure expenses, partially offset by a 250 basis point reduction in depreciation expense and a 220 basis point decrease related to data center and license expenses.

~~Gross Profit and Adjusted Consolidated and Segment Adjusted Gross Profit~~

Our consolidated gross profit was $491 million in the six months ended June 30, 2020, a decrease of $12 million from $503 million in the six months ended June 30, 2019. Our Adjusted Consolidated Gross Profit was $508 million in the six months ended June 30, 2020, a decrease of $7 million from $514 million in the six months ended June 30, 2019. Adjusted Consolidated Gross Profit is a non-GAAP financial measure. See “~~Non-GAAP Financial Measures” below for more information. Our consolidated gross margin was 37.5% in the six months ended June 30, 2020, a decrease of 410 basis points from 41.6% in the six months ended June 30, 2019.~~

~~The table below presents our segment adjusted gross profit and gross margin for the periods indicated, and the change in gross profit between periods:~~

Six Months Ended June 30, Year-Over-Year Comparison
(In millions, except %) 2019 2020
Adjusted gross profit by segment: Amount % of Segment Revenue Amount % of Segment Revenue Amount % Change
Multicloud Services $ 378.9 42.0 % $ 397.5 38.7 % $ 18.6 4.9 %
Apps & Cross Platform 57.1 36.3 % 57.1 35.4 % — — %
OpenStack Public Cloud 78.3 52.3 % 53.0 43.8 % (25.3) (32.3) %
Adjusted Consolidated Gross Profit 514.3 507.6 (6.7) (1.3) %
Less:
Share-based compensation expense (2.3) (4.1)
Other compensation expense ⁽¹⁾
(0.9) (3.4)
Purchase accounting impact on revenue ⁽²⁾
0.2 —
Purchase accounting impact on expense ⁽²⁾
(4.8) (3.5)
Restructuring and transformation expenses ⁽³⁾
(3.5) (5.4)
Total consolidated gross profit $ 503.0 $ 491.2


~~(1)~~			~~Adjustments for retention bonuses, mainly in connection with restructuring and transformation projects, and the related payroll tax.~~
~~(2)~~			~~Adjustment for the impact of purchase accounting from the Rackspace Acquisition on revenue and expenses.~~
~~(3)~~			~~Adjustment for the impact of business transformation and optimization activities, as well as associated severance, facility closure costs and lease termination expenses.~~

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Multicloud Services adjusted gross profit increased by 5% in the six months ended June 30, 2020 from the six months ended June 30, 2019. Segment adjusted gross profit as a percentage of segment revenue decreased by 330 basis points, reflecting a 20%23% increase in segment cost of revenue and a 14% increase in segment revenue. The increase in costs was mainly driven by higher third-party infrastructure costs, ~~and the addition of former Onica employees’ personnel costs. Partially offsetting the increase was~~partially offset by lower depreciation and data center costs.

Apps & Cross Platform ~~adjusted~~non-GAAP gross profit ~~was consistent with~~increased 16% in the ~~prior year period.~~three months ended March 31, 2021 from the three months ended March 31, 2020. Segment ~~adjusted~~non-GAAP gross profit as a percentage of segment revenue decreased by 90100 basis points, reflecting a 4%21% increase in segment cost of revenue and a 3%19% increase in segment revenue. The increase in cost of revenue was driven by the segment’s higher business ~~volume.~~volume as well as higher third-party infrastructure costs.

OpenStack Public Cloud ~~adjusted~~non-GAAP gross profit decreased ~~32%~~37% in the ~~six~~three months ended ~~June 30, 2020~~March 31, 2021 from the ~~six~~three months ended ~~June 30, 2019~~March 31, 2020 due to customer churn. Segment ~~adjusted~~non-GAAP gross profit as a percentage of segment revenue decreased by ~~850~~830 basis points, reflecting a ~~19%~~23% decrease in segment revenue, partially offset by ~~a 5%~~an 11% decrease in segment cost of revenue.

The aggregate amount of costs reflected in consolidated gross profit but excluded from segment ~~adjusted~~non-GAAP gross profit was ~~$16.4~~$14.6 million in the ~~six~~three months ended ~~June 30, 2020,~~March 31, 2021, an increase of ~~$5.1~~$7.7 million from ~~$11.3~~$6.9 million in the ~~six~~three months ended ~~June 30, 2019,~~March 31, 2020, reflecting higher restructuring and transformation expenses ~~retention bonuses,~~ and share-based compensation, partially offset by lower purchase accounting ~~adjustments.~~adjustments and other compensation expense. For more information about our segment ~~adjusted~~non-GAAP gross profit, see Item 1 of Part I, Financial Statements - Note ~~16,~~13, "Segment Reporting."

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Selling, General and Administrative Expenses

Selling, general and administrative expenses ~~decreased $11~~increased $3 million, or 2%1%, to ~~$447~~$231 million in the ~~six~~three months ended ~~June 30, 2020~~March 31, 2021 from ~~$458~~$228 million in the ~~six~~three months ended ~~June 30, 2019,~~March 31, 2020, primarily due to ~~a $16 million decrease in personnel~~ costs ~~including higher severance expense during the prior year period~~ related to our business ~~optimization initiatives,~~transformation initiatives. This increase was partially offset by a reduction in ~~employee count, driven, in part, by outsourcing initiatives, and lower expense related to our obligations to settle share-based awards~~management consulting fees as the agreements were terminated in connection with the ~~Rackspace Acquisition, partially offset by~~IPO and lower travel costs due to COVID-19 travel restrictions. Personnel costs were relatively flat as an increase in ~~commissions~~share-based compensation and severance expense ~~driven~~was offset by ~~bookings growth, including the impact of the Onica acquisition. Also contributing to the decrease in SG&A expenses was~~ a ~~$4 million~~ reduction in ~~travel costs resulting from COVID-19 travel restrictions. These decreases were partially offset by an increase in expenses related to business transformation initiatives and integrating Onica.~~non-equity incentive bonus expense.

As a percentage of revenue, selling, general and administrative expenses decreased ~~380~~310 basis points, to ~~34.1%~~31.8% in the ~~six~~three months ended ~~June 30, 2020~~March 31, 2021 from ~~37.9%~~34.9% in the ~~six~~three months ended ~~June 30, 2019,~~March 31, 2020, for the reasons discussed above, including a 150 basis points reduction in personnel costs, and further impacted by our revenue growth while other SG&A expenses ~~remained flat.~~decreased.

Gain on Sale of Land

In ~~March 2019,~~January 2021, we recorded a $2$20 million gain related to the ~~payment~~sale of a ~~promissory note receivable that was issued~~parcel of undeveloped land in ~~conjunction with~~ the ~~sale~~United Kingdom adjacent to one of our ~~Mailgun business in February 2017.~~

~~Interest Expense~~

Interest expense decreased $49 million to $141 in the six months ended June 30, 2020 from $190 million in the six months ended June 30, 2019, primarily due to the January 2020 designation of certain of our interest rate swap agreements as cash flow hedges,existing data centers, as further discussed in Item 1 of Part I, Financial Statements - Note ~~11, "Derivatives.~~4, "Property, Equipment and Software, net." In

Interest Expense

Interest expense decreased $19 million to $53 million in the ~~six~~three months ended ~~June 30, 2019, we~~March 31, 2021 from $72 million in the three months ended March 31, 2020, driven by a reduction in total debt outstanding and lower interest rates as a result of significant debt refinancing transactions between periods.

Debt Modification and Extinguishment Costs

We recorded ~~$49~~$37 million of ~~interest expense~~debt modification and extinguishment costs in the three months ended March 31, 2021 related to the ~~change in the fair value of interest rate swaps compared to $5 million recorded to interest expense in the six months ended June 30, 2020.~~

~~Gain on Investments, Net~~

Gain on investments was $1 million in the six months ended June 30, 2020 compared to $143 million in the six months ended June 30, 2019, driven by the unrealized gain on our CrowdStrike investment of $141 million,February 2021 Refinancing Transaction, as further discussed in Item 1 of Part I, Financial Statements - Note 6, ~~"Investments.~~"Debt."

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~~Gain on Extinguishment of Debt~~

~~We recorded a $10 million gain on debt extinguishment in the six months ended June 30, 2019 related to repurchases of $74 million principal amount of 8.625% Senior Notes.~~

~~Other Expense, Net~~

Other expense decreased $2 million primarily related to changes in the fair value of foreign currency derivatives, as further discussed in Item 1 of Part I, Financial Statements - Note 11, "Derivatives," partially offset by an increase in foreign currency transaction losses.

Benefit ~~(Provision)~~ for Income Taxes

~~We had an~~Our income tax benefit ~~of $15~~increased by $4 million to $7 million in the ~~six~~three months ended ~~June 30, 2020 compared to a provision for income taxes of~~March 31, 2021 from $3 million in the ~~six~~three months ended ~~June 30, 2019, primarily driven by the tax impact of the unrealized gain on our CrowdStrike investment, as further discussed in Item 1 of Part I, Financial Statements - Note 6, "Investments."~~March 31, 2020. Our effective tax rate ~~decreased~~increased from ~~34.8%~~5.9% in the ~~six~~three months ended ~~June 30, 2019~~March 31, 2020 to ~~15.9%~~9.7% in the ~~six~~three months ended ~~June 30, 2020.~~March 31, 2021. The ~~decrease~~increase in the effective tax rate year-over-year is primarily due to the geographic distribution of profits and ~~the~~excess tax benefits from stock-based compensation awards. The difference between the effective tax rate for the ~~six~~three months ended ~~June 30, 2020~~March 31, 2021 and the statutory rate ~~are~~is primarily due to the geographic distribution of ~~profits.~~profits, application of GILTI provisions that were implemented with the Act that was passed on December 22, 2017, as well as executive compensation that is nondeductible under IRC Section 162(m).

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Non-GAAP Financial Measures

We track several non-GAAP financial measures to monitor and manage our underlying financial performance. The following discussion includes the presentation of constant currency revenue, ~~Adjusted Consolidated~~Non-GAAP Gross Profit, ~~Adjusted~~Non-GAAP Net Income (Loss), ~~Adjusted EBIT,~~Non-GAAP Operating Profit, Adjusted EBITDA and ~~Adjusted~~Non-GAAP Earnings Per Share (“EPS”), which are non-GAAP financial measures that exclude the impact of certain costs, losses and gains that are required to be included in our profit and loss measures under GAAP. Although we believe these measures are useful to investors and analysts for the same reasons they are useful to management, as discussed below, these measures are not a substitute for, or superior to, U.S. GAAP financial measures or disclosures. Other companies may calculate similarly-titled non-GAAP measures differently, limiting their usefulness as comparative measures. We have reconciled each of these non-GAAP measures to the applicable most comparable GAAP measure throughout this MD&A.

Constant Currency Revenue

We use constant currency revenue as an additional metric for understanding and assessing our growth excluding the effect of foreign currency rate fluctuations on our international business operations. Constant currency information compares results between periods as if exchange rates had remained constant period over period and is calculated by translating the non-U.S. dollar income statement balances for the most current period to U.S. dollars using the average exchange rate from the comparative period rather than the actual exchange rates in effect during the respective period. We also believe this is an important metric to help investors evaluate our performance in comparison to prior periods.

The following ~~tables present,~~table presents, by segment, actual and constant currency revenue and constant currency revenue growth rates, for and between the periods indicated:


		Three Months Ended June 30, 2019		Three Months Ended June 30, 2020												% Change					Three Months Ended March 31, 2020		Three Months Ended March 31, 2021				% Change
(In millions, except %)	(In millions, except %)	Revenue		Revenue		Foreign Currency Translation ^(a)		Revenue in Constant Currency		Actual		Constant Currency		(In millions, except %)	Revenue		Revenue		Foreign Currency Translation (a)		Revenue in Constant Currency		Actual		Constant Currency
Multicloud Services	Multicloud Services	$	449.6	$	519.0	$	3.4	$	522.4	15.4	%	16.2	%	Multicloud Services	$	507.9	$	579.6	$	(6.7)	$	572.9	14.1	%	12.8	%
Apps & Cross Platform	Apps & Cross Platform	79.0		79.9		0.2		80.1		1.1	%	1.5	%	Apps & Cross Platform	81.5		97.3		(0.5)		96.8		19.4	%	18.8	%
OpenStack Public Cloud	OpenStack Public Cloud	73.8		57.6		0.5		58.1		(22.0)	%	(21.3)	%	OpenStack Public Cloud	63.3		49.0		(0.6)		48.4		(22.6)	%	(23.6)	%
Total	Total	$	602.4	$	656.5	$	4.1	$	660.6	9.0	%	9.7	%	Total	$	652.7	$	725.9	$	(7.8)	$	718.1	11.2	%	10.0	%

Six Months Ended June 30, 2019 Six Months Ended June 30, 2020 % Change
(In millions, except %) Revenue Revenue
Foreign Currency Translation ^(a)
Revenue in Constant Currency Actual Constant Currency
Multicloud Services $ 902.4 $ 1,026.9 $ 4.9 $ 1,031.8 13.8 % 14.3 %
Apps & Cross Platform 157.1 161.4 0.3 161.7 2.8 % 3.0 %
OpenStack Public Cloud 149.8 120.9 0.5 121.4 (19.3) % (19.0) %
Total $ 1,209.3 $ 1,309.2 $ 5.7 $ 1,314.9 8.3 % 8.7 %

(a)

The effect of foreign currency is calculated by translating current period results using the average exchange rate from the prior comparative period.

~~Adjusted Consolidated~~Non-GAAP Gross Profit

Our principal measure of segment profitability is segment ~~adjusted~~non-GAAP gross profit. We also present ~~Adjusted Consolidated~~Non-GAAP Gross Profit in this MD&A, which is the aggregate of segment ~~adjusted~~non-GAAP gross profit, because we believe the measure is useful in analyzing trends in our underlying, recurring gross margins. We define ~~Adjusted Consolidated~~Non-GAAP Gross Profit as our consolidated gross profit, adjusted to exclude the impact of share-based compensation expense and other non-recurring or unusual compensation items, purchase accounting-related effects, and certain business transformation-related costs. For a reconciliation of our ~~Adjusted Consolidated~~Non-GAAP Gross Profit to our total consolidated gross profit, see “Gross Profit and ~~Adjusted Consolidated and Segment Adjusted~~Non-GAAP Gross Profit” above.

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~~Table of Contents~~

~~Adjusted~~Non-GAAP Net Income (Loss), ~~Adjusted EBIT~~Non-GAAP Operating Profit and Adjusted EBITDA

We present ~~Adjusted~~Non-GAAP Net Income (Loss), ~~Adjusted EBIT~~Non-GAAP Operating Profit and Adjusted EBITDA because they are a basis upon which management assesses our performance and we believe they are useful to evaluating our financial performance. We believe that excluding items from net income that may not be indicative of, or are unrelated to, our core operating results, and that may vary in frequency or magnitude, enhances the comparability of our results and provides a better baseline for analyzing trends in our business.

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The Rackspace Acquisition was structured as a leveraged buyout of Rackspace Technology Global, our Predecessor, and resulted in several accounting and capital structure impacts. For example, the revaluation of our assets and liabilities resulted in a significant increase in our amortizable intangible assets and goodwill, the incurrence of a significant amount of debt to partially finance the Rackspace Acquisition resulted in interest payments that reflect our high leverage and cost of debt capital, and the conversion of Rackspace Technology Global’s unvested equity compensation into a cash-settled bonus plan and obligation to pay management fees to our equityholders resulted in new cash commitments. In addition, the change in ownership and management resulting from the Rackspace Acquisition led to a strategic realignment in our operations that had a significant impact on our financial results. Following the Rackspace Acquisition, we acquired several businesses, sold businesses and investments that we deemed to be non-core and launched multiple integration and business transformation initiatives intended to improve the efficiency of people and operations and identify recurring cost savings and new revenue growth opportunities. We believe that these transactions and activities resulted in costs, which have historically been substantial, and that may not be indicative of, or are not related to, our core operating results, including interest related to the incurrence of additional debt to finance acquisitions and third party legal, advisory and consulting fees and severance, retention bonus and other internal costs that we believe would not have been incurred in the absence of these transactions and activities and ~~are~~ also may not be indicative of, or related to, our core operating results.

We define ~~Adjusted~~Non-GAAP Net Income (Loss) as net income (loss) adjusted to exclude the impact of non-cash charges for share-based compensation, special bonuses and ~~cash charges related to the settlement of our Predecessor’s equity plan,~~other compensation expense, transaction-related costs and adjustments, restructuring and transformation charges, management fees, the amortization of acquired intangible assets and certain other non-operating, non-recurring or non-core gains and losses, as well as the tax effects of these non-GAAP adjustments.

We define ~~Adjusted EBIT~~Non-GAAP Operating Profit as net income (loss), plus interest expense and income taxes, further adjusted to exclude the impact of non-cash charges for share-based compensation, special bonuses and ~~cash charges related to the settlement of our Predecessor’s equity plan,~~other compensation expense, transaction-related costs and adjustments, restructuring and transformation charges, management fees, the amortization of acquired intangible assets and certain other non-operating, non-recurring or non-core gains and losses.

We define Adjusted EBITDA as ~~Adjusted EBIT~~Non-GAAP Operating Profit plus depreciation and amortization.

~~Adjusted EBIT~~Non-GAAP Operating Profit and Adjusted EBITDA are management’s principal metrics for measuring our underlying financial performance. Adjusted EBITDA, along with other quantitative and qualitative information, is also the principal financial measure used by management and our board of directors in determining performance-based compensation for our management and key employees.

These non-GAAP measures are not intended to imply that we would have generated higher income or avoided net losses if the Rackspace Acquisition and the subsequent transactions and initiatives had not occurred. In the future we may incur expenses or charges such as those added back to calculate ~~Adjusted~~Non-GAAP Net Income (Loss), ~~Adjusted EBIT~~Non-GAAP Operating Profit or Adjusted EBITDA. Our presentation of ~~Adjusted~~Non-GAAP Net Income (Loss), ~~Adjusted EBIT~~Non-GAAP Operating Profit and Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by these items. Other companies, including our peer companies, may calculate similarly-titled measures in a different manner from us, and therefore, our non-GAAP measures may not be comparable to similarly-tiled measures of other companies. Investors are cautioned against using these measures to the exclusion of our results in accordance with GAAP.

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The following table presents a reconciliation of ~~Adjusted~~Non-GAAP Net Income (Loss), ~~Adjusted EBIT~~Non-GAAP Operating Profit and Adjusted EBITDA to our net ~~income (loss)~~loss for the periods indicated:


		Three Months Ended June 30,						Six Months Ended June 30,							Three Months Ended March 31,
(In millions)	(In millions)	2019		2020		2019		2020		(In millions)	2020		2021
Net income (loss)		$	62.5	$	(32.6)	$	5.0	$	(80.8)
Net loss										Net loss	$	(48.2)	$	(64.0)
Share-based compensation expense	Share-based compensation expense	6.4		9.1		12.3		16.6		Share-based compensation expense	7.5		17.2
Cash settled equity and special bonuses ^(a)		6.2		5.8		11.7		14.1
Special bonuses and other compensation expense (a)										Special bonuses and other compensation expense (a)	8.3		4.0
Transaction-related adjustments, net ^(b)	Transaction-related adjustments, net ^(b)	4.6		8.1		9.4		16.5		Transaction-related adjustments, net (b)	8.4		8.4
Restructuring and transformation expenses ^(c)	Restructuring and transformation expenses ^(c)	12.5		22.1		26.3		37.1		Restructuring and transformation expenses (c)	15.0		38.6
Management fees ^(d)	Management fees ^(d)	3.0		3.5		5.9		7.1		Management fees (d)	3.6		—

Net gain on divestiture and investments ^(e)		(143.4)		(1.0)		(145.5)		(0.9)
Gain on sale of land										Gain on sale of land	—		(19.9)
Net loss on divestiture and investments (e)										Net loss on divestiture and investments (e)	0.1		3.7

Net gain on extinguishment of debt ^(f)		(5.0)		—		(9.5)		—
Other (income) expense ^(g)		(1.5)		(0.3)		2.3		0.3
Debt modification and extinguishment costs (f)										Debt modification and extinguishment costs (f)	—		37.0
Other expense, net (g)										Other expense, net (g)	0.6		1.8
Amortization of intangible assets ^(h)	Amortization of intangible assets ^(h)	41.5		44.0		83.9		88.2		Amortization of intangible assets (h)	44.2		46.4
Tax effect of non-GAAP adjustments ⁽ⁱ⁾	Tax effect of non-GAAP adjustments ⁽ⁱ⁾	12.5		(24.4)		1.5		(36.9)		Tax effect of non-GAAP adjustments (i)	(12.5)		(24.1)
Adjusted Net Income (Loss)		(0.7)		34.3		3.3		61.3
Non-GAAP Net Income										Non-GAAP Net Income	27.0		49.1
Interest expense	Interest expense	100.8		68.9		189.8		140.9		Interest expense	72.0		52.6
Provision (benefit) for income taxes		12.3		(12.3)		2.7		(15.3)
Benefit for income taxes										Benefit for income taxes	(3.0)		(6.9)
Tax effect of non-GAAP adjustments ⁽ⁱ⁾	Tax effect of non-GAAP adjustments ⁽ⁱ⁾	(12.5)		24.4		(1.5)		36.9		Tax effect of non-GAAP adjustments (i)	12.5		24.1
Adjusted EBIT		99.9		115.3		194.3		223.8
Depreciation and amortization		124.3		116.3		257.9		237.6
Amortization of intangible assets ^(h)		(41.5)		(44.0)		(83.9)		(88.2)
Non-GAAP Operating Profit										Non-GAAP Operating Profit	108.5		118.9
Depreciation (j)										Depreciation (j)	77.1		61.3
Adjusted EBITDA	Adjusted EBITDA	$	182.7	$	187.6	$	368.3	$	373.2	Adjusted EBITDA	$	185.6	$	180.2


(a)			Includes expense related to the cash settlement of unvested equity awards that were outstanding at the consummation of the Rackspace Acquisition (amounting to $3 million for the six months ended June 30, 2019 and zero for all other periods presented), retention bonuses, mainly relating to restructuring and integration projects, and ~~beginning in~~ the ~~second quarter of 2019,~~related payroll tax, senior executive signing bonuses and relocation ~~costs.~~costs, and payroll taxes associated with the exercise of stock options and vesting of restricted stock.
(b)			Includes legal, professional, accounting and other advisory fees related to the acquisition of Onica in the fourth quarter of 2019 and the IPO in the third quarter of 2020, integration costs of acquired businesses, purchase accounting adjustments (including deferred revenue fair value discount), payroll costs for employees that dedicate significant time to supporting these projects and exploratory acquisition and divestiture costs and expenses related to financing activities.
(c)			Includes consulting and advisory fees related to business transformation and optimization activities, payroll costs for employees that dedicate significant time to these projects, as well as associated severance, facility closure costs and lease termination expenses. We assessed these activities and determined that they did not qualify under the scope of ASC 420 (Exit or Disposal costs).
(d)			Represents historical management fees pursuant to management consulting agreements. The management consulting agreements were terminated effective August 4, 2020, and therefore no management fees have accrued or will be payable for periods after August 4, 2020.

(e)			Includes gains and losses on investment and from ~~dispositions, including our investment in CrowdStrike.~~dispositions.

(f)			Includes ~~gains on our repurchases of 8.625% Senior Notes in 2019.~~expenses related to the February 2021 Refinancing Transaction.
(g)			Reflects mainly changes in the fair value of foreign currency derivatives.
(h)			All of our intangible assets are attributable to acquisitions, including the Rackspace Acquisition in 2016.
(i)			We utilize an estimated structural long-term non-GAAP tax rate in order to provide consistency across reporting periods, removing the effect of non-recurring tax adjustments, which include but are not limited to tax rate changes, U.S. tax reform, share-based compensation, audit conclusions and changes to valuation allowances. When computing this long-term rate for ~~2019 and~~ the 2020 and 2021 interim ~~period,~~periods, we based it on an average of the 2019 and estimated 2020 tax rates and 2020 and estimated 2021 tax rates, respectively, recomputed to remove the tax effect of non-GAAP pre-tax adjustments and non-recurring tax adjustments, resulting in a structural non-GAAP tax rate of 26%. for both periods. The non-GAAP tax rate could be subject to change for a variety of reasons, including the rapidly evolving global tax environment, significant changes in our geographic earnings mix including due to acquisition activity, or other changes to our strategy or business operations. We will re-evaluate our long-term non-GAAP tax rate as appropriate. We believe that making these adjustments facilitates a better evaluation of our current operating performance and comparisons to prior periods.
(j)			Excludes accelerated depreciation expense related to facility closures.

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~~Adjusted~~Non-GAAP Earnings Per Share (EPS)

We define ~~Adjusted~~Non-GAAP EPS as ~~Adjusted~~Non-GAAP Net Income ~~(Loss)~~ divided by our GAAP weighted average number of shares outstanding for the period on a diluted basis ~~after giving effect to the twelve-for-one stock split that was approved and effected on July 20, 2020 (the "Stock Split"),~~ and further adjusted for the weighted average number of shares associated with securities which are anti-dilutive to GAAP earnings per share but dilutive to ~~Adjusted~~Non-GAAP EPS. Management uses ~~Adjusted~~Non-GAAP EPS to evaluate the performance of our business on a comparable basis from period to period, including by adjusting for the impact of the issuance of shares that would be dilutive to ~~Adjusted~~Non-GAAP EPS. The following table reconciles ~~Adjusted~~Non-GAAP EPS to our GAAP net loss per share on a diluted basis:

(In whole dollars) Three Months Ended June 30, 2020 Six Months Ended June 30, 2020
GAAP net loss per share diluted $ (0.20) $ (0.49)
Per share impacts of adjustments to net loss ^(a)
0.41 0.86
Impact of shares dilutive after adjustments to net loss^(b)
(0.00) (0.00)
Adjusted EPS $ 0.21 $ 0.37


	Three Months Ended March 31,
(In millions, except per share amounts)	2020		2021
Net loss attributable to common stockholders	$	(48.2)	$	(64.0)
Non-GAAP Net Income	$	27.0	$	49.1

Weighted average number of shares - Diluted	165.4		204.6
Effect of dilutive securities (a)	0.9		6.5
Non-GAAP weighted average number of shares - Diluted	166.3		211.1

Net loss per share - Diluted	$	(0.29)	$	(0.31)
Per share impacts of adjustments to net loss (b)	0.45		0.55
Per share impacts of shares dilutive after adjustments to net loss (a)	(0.00)		(0.01)
Non-GAAP EPS	$	0.16	$	0.23


(a)			Reflects impact of awards that would have been anti-dilutive to Net loss per share, and therefore not included in the calculation, but would be dilutive to Non-GAAP EPS and are therefore included in the share count for purposes of this non-GAAP measure. Potential common share equivalents consist of shares issuable upon the exercise of stock options, vesting of restricted stock or purchase under the Employee Stock Purchase Plan (the "ESPP"), as well as contingent shares associated with our acquisition of Datapipe Parent, Inc. Certain of our potential common share equivalents are contingent on Apollo achieving pre-established performance targets based on a multiple of their invested capital ("MOIC"), which are included in the denominator for the entire period if such shares would be issuable as of the end of the reporting period assuming the end of the reporting period was the end of the contingency period.
(b)			Reflects the aggregate adjustments made to reconcile ~~Adjusted~~Non-GAAP Net Income ~~(Loss)~~ to our net loss, as noted in the above table, divided by the GAAP diluted number of shares outstanding for the relevant ~~period, as adjusted for the Stock Split.~~
~~(b)~~period.			Reflects the impact of 1,874,474 and 1,377,162 shares of common stock relating to equity awards for the three and six months ended June 30, 2020, respectively, which, due to rounding, did not have an impact on Adjusted EPS for the periods presented. These awards would have been anti-dilutive to GAAP net loss per share, and are therefore not included in the calculation of GAAP EPS, but would be dilutive to Adjusted EPS and are therefore included in the share count for purposes of presenting this non-GAAP measure.

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Liquidity and Capital Resources

Overview

We primarily finance our operations and capital expenditures with internally-generated cash from operations and hardware leases, and if necessary, borrowings under the Revolving Credit Facility ~~borrowings under our~~or Receivables Financing ~~Facility, and other sources of financing as described below.~~Facility. As of ~~June 30, 2020,~~March 31, 2021, the Revolving Credit Facility provided for up to ~~$225~~$375 million of borrowings, none of which was drawn as of ~~June 30, 2020. The available borrowing capacity under the Revolving Credit Facility increased to $375 million on August 7, 2020.~~March 31, 2021. As of ~~June 30, 2020. the Receivables Financing Facility had a total borrowing capacity of $93 million, and $65~~March 31, 2021, $50 million was borrowed and outstanding under the Receivables Financing Facility. Of this balance, approximately $4 million was classified as ~~of June 30, 2020.~~current debt due to a borrowing base deficit under the facility subsequent to March 31, 2021. Our primary uses of cash are working capital requirements, debt service requirements and capital expenditures. Based on our current level of operations and available cash, we believe our sources will provide sufficient liquidity over at least the next twelve months. We cannot provide assurance, however, that our business will generate sufficient cash flows from operations or that future borrowings will be available to us under the Revolving Credit Facility, the Receivables Financing Facility or from other sources in an amount sufficient to enable us to pay our indebtedness or to fund our other liquidity needs. Our ability to do so depends on prevailing economic conditions and other factors, many of which are beyond our control. In addition, upon the occurrence of certain events, such as a change of control, we could be required to repay or refinance our indebtedness. We cannot assure that we will be able to refinance any of our indebtedness, including the Senior Facilities, ~~and 8.625%~~the 5.375% Senior Notes, and the 3.50% Senior Secured Notes (see discussion below), on commercially reasonable terms or at all. Any future acquisitions, joint ventures or other similar transactions will likely require additional capital, and there can be no assurance that any such capital will be available to us on acceptable terms or at all.

From time to time, depending upon market and other conditions, as well as upon our cash balances and liquidity, we, our subsidiaries or our affiliates may acquire (and have acquired) our outstanding debt securities or our other indebtedness through open market purchases, privately negotiated transactions, tender offers, redemption or otherwise, upon such terms and at such prices as we, our subsidiaries or our affiliates may determine (or as may be provided for in the indenture governing the 5.375% Senior Notes (the "5.375% Notes Indenture") or the indenture governing the 3.50% Senior Secured Notes (the "3.50% Notes Indenture" and, together with the 5.375% Notes Indenture, the "Indentures"), if applicable), for cash or other consideration. In connection with our completed IPO on August 7, 2020, further discussed below, we expected to use a portion of the net proceeds from the offering to redeem, retire or repurchase $600 million aggregate principal amount of our outstanding 8.625% Senior Notes and to pay related premiums, fees and expenses. On August 12, 2020, Rackspace Technology Global commenced a tender offer to purchase for cash up to $600 million aggregate principal amount of the 8.625% Senior Notes. As of the end of the day, 12:00 midnight, New York City time, on August 25, 2020, the early tender time, holders of the 8.625% Senior Notes had validly tendered $508 million aggregate principal amount of the 8.625% Senior Notes. On August 27, 2020, Rackspace Technology Global purchased $508 million aggregate principal amount of the 8.625% Senior Notes for aggregate cash of approximately $549 million, which reflected a price of 105.75% of the principal amount thereof, plus accrued and unpaid interest to, but not including, August 27, 2020, and canceled $508 million of the 8.625% Senior Notes following the purchase. The tender offer is scheduled to expire at the end of the day, 12:00 midnight, New York City time, on Wednesday, September 9, 2020, unless extended or earlier terminated by Rackspace Technology Global.

~~See “8.625% Senior Notes” below for more information on repurchases of debt completed during the six months ended June 30, 2019.~~

At ~~June 30, 2020,~~March 31, 2021, we held ~~$161~~$198 million in cash and cash equivalents (not including $3 million in restricted cash, which is included in "Other non-current assets"), of which ~~$71~~$112 million was held by foreign entities.

We have entered into installment payment arrangements with certain equipment and software vendors, along with sale-leaseback arrangements for equipment and certain property leases that are considered financing obligations. We had ~~$150~~$112 million outstanding with respect to these arrangements as of ~~June 30, 2020.~~March 31, 2021. We may choose to utilize these various sources of funding in future periods.

We also lease certain equipment and real estate under operating and finance lease agreements. In June 2020, we entered into lease amendments for two of our data centers to, among other items, extend the lease term. Both lease amendments were deemed a lease modification, which resulted in a change of classification from operating leases to finance leases of $220 million. We had ~~$526~~$579 million outstanding with respect to operating and finance lease agreements as of ~~June 30, 2020.~~March 31, 2021. We may choose to utilize such leasing arrangements in future periods.

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~~Table of Contents~~

As of ~~June 30, 2020,~~March 31, 2021, we had ~~$3,930~~$3,400 million aggregate principal amount outstanding under our Term Loan Facility, ~~and 8.625%~~5.375% Senior Notes, and 3.50% Senior Secured Notes, with ~~$225~~$375 million of borrowing capacity available under the Revolving Credit Facility. Additionally, at ~~June 30, 2020,~~March 31, 2021, we had ~~$65~~$50 million principal outstanding ~~with $28 million in incremental borrowing capacity~~ under the Receivables Financing Facility. Our liquidity requirements are significant, primarily due to debt service requirements.

On ~~August 7, 2020, we completed the IPO, in which~~February 2, 2021, we issued 2,665,935 shares of common stock to DPH 123, LLC, an ABRY affiliate, for no additional consideration pursuant to the Agreement and ~~sold 33,500,000~~Plan of Merger, dated as of September 6, 2017, (the "Datapipe Merger Agreement") in connection with our November 15, 2017 acquisition of Datapipe Parent, Inc. We will be required to issue additional shares of our common stock ~~at a public offering price of $21.00 per share. We received proceeds of $667 million from sales of shares~~to DPH 123, LLC based on the MOIC exceeding certain thresholds as defined in the ~~IPO, after deducting underwriters' discounts and commissions of $37 million, but before deducting offering expenses of approximately $8 million. As noted above, we used~~Datapipe Merger Agreement. If the MOIC exceeds 3.0x, which is indicated by a ~~portion of the net proceeds from the IPO to repurchase $508 million aggregate principal amount~~volume weighted average trading price ("VWAP") of our ~~outstanding 8.625% Senior Notes. We may repurchase up~~common stock over 30 consecutive trading days of more than $25.00, we will be required to issue an additional ~~$92 million aggregate principal amount~~2,665,935 shares. As of ~~our outstanding 8.625% Senior Notes under~~May 7, 2021, the ~~tender offer expiring at~~VWAP for the ~~end~~most recent 30 consecutive trading days was $24.84.

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Table of the day, 12:00 midnight, New York City time, on Wednesday, September 9, 2020. The remainder of the net proceeds will be used for general corporate purposes. Our management team will retain broad discretion to allocate the net proceeds of this offering for general corporate purposes. Pending use as described above, we may invest the net proceeds from this offering in short-term, investment-grade, interest-bearing securities, such as money market accounts, certificates of deposit, commercial paper and guaranteed obligations of the U.S. government or repay any outstanding borrowings under the Revolving Credit Facility or the Receivables Financing Facility.Contents

Debt

Senior Facilities

~~Our First~~On February 9, 2021, we amended and restated the credit agreement (the "First Lien Credit ~~Agreement governed the Term~~Agreement") governing our senior secured credit facilities, which included a new seven-year $2,300 million senior secured first lien term loan facility (the "Term Loan ~~Facility~~Facility") and the Revolving Credit Facility (together, the "Senior Facilities"). We used the borrowings under the Term Loan Facility, together with the proceeds from the issuance of the 3.50% Senior ~~Facilities).~~Secured Notes described below (together, the "February 2021 Refinancing Transaction"), to repay all borrowings under the prior term loan facility (the "Prior Term Loan Facility"), to pay related fees and expenses and for general corporate purposes. The Term Loan Facility ~~matures~~will mature on ~~November 3, 2023~~February 15, 2028 and the Revolving Credit Facility ~~was originally set to~~will mature on ~~November 3, 2021. On~~ August 7, ~~2020, we increased~~2025. We may request one or more incremental term loan facilities, one or more incremental revolving credit facilities and/or increase the ~~size of~~commitments under the Revolving Credit Facility in an amount equal to ~~$375~~the greater of $860 million and ~~extended~~1.0x Pro Forma Adjusted EBITDA (as defined in the ~~maturity date of the Revolving~~amended First Lien Credit ~~Facility~~Agreement), plus additional amounts, subject to ~~August 7, 2025.~~compliance with applicable leverage ratios and certain terms and conditions.

Interest on the Term Loan Facility is due at the end of each interest period elected, not exceeding 90 days, for LIBOR loans and at the end of every calendar quarter for base rate loans. As of ~~June 30, 2020,~~March 31, 2021, the interest rate on the Term Loan Facility was ~~4.00%, and the outstanding principal balance was $2,810 million. We are~~3.50%. Beginning June 30, 2021, we will also be required to make quarterly amortization payments on the Term Loan Facility in an annual amount equal to 1.0% of ~~$7 million per quarter,~~the original principal amount of the Term Loan Facility, with the balance due at maturity. We have entered into interest rate swap agreements to manage the interest rate risk associated with interest payments on the Term Loan Facility that result from fluctuations in the LIBOR rate. See Item 1 of Part I, Financial Statements - Note 11, "Derivatives" for more information on the interest rate swap agreements.

The Revolving Credit Facility has historically had an applicable margin of 4.00% for LIBOR loans and 3.00% for base rate loans and is subject to step-downs based on the net first lien leverage ratio. In connection with the amendment to the First Lien Credit Agreement on August 7, 2020, we reduced the applicable margin for the Revolving Credit Facility to 3.00% for LIBOR loans and 2.00% for base rate loans, with a 1.00% LIBOR “floor” applicable to LIBOR loans. The Revolving Credit Facility also includes a commitment fee equal to 0.50% per annum in respect of the unused commitments that is due quarterly. This fee is subject to one step-down based on the net first lien leverage ratio.

~~In addition to the quarterly amortization payments discussed above, our~~ The Senior Facilities require us to make certain mandatory prepayments ~~including using (i) a portion of annual excess cash flow, as~~under certain conditions defined in the First Lien Credit Agreement, to prepay the Term Loan Facility, (ii) net cash proceeds of certain non-ordinary assets sales or dispositions of property to prepay the Term Loan Facility and (iii) net cash proceeds of any issuance or incurrence of debt not permitted under the Senior Facilities to prepay the Term Loan Facility. We can make voluntary prepayments at any time without penalty, subject to customary breakage costs.credit agreement.

Rackspace Technology Global, our wholly-owned subsidiary, is the borrower under the Senior Facilities, and all obligations under the Senior Facilities are (i) guaranteed by Inception Parent, Rackspace Technology Global’s immediate parent company, on a limited recourse basis and secured by the equity interests of Rackspace Technology Global held by Inception Parent and (ii) guaranteed by Rackspace Technology Global’s wholly-owned domestic restricted subsidiaries and secured by substantially all material owned assets of Rackspace Technology Global and the subsidiary guarantors, including the equity interests held by each, in each case subject to certain exceptions.

~~Over the course~~As of March 31, 2021, $2,300 million aggregate principal amount of the ~~six months ended June 30, 2020, we borrowed~~Term Loan Facility remained outstanding. See Item 1 of Part I, Financial Statements - Note 6, "Debt" for more information regarding our Senior Facilities and ~~repaid an aggregate $245 million under~~ the ~~Revolving Credit Facility. As of June 30, 2020, we had no outstanding borrowings under the Revolving Credit Facility.~~February 2021 Refinancing Transaction.

We have entered into interest rate swap agreements to manage the interest rate risk associated with interest payments on the Term Loan Facility that result from fluctuations in the LIBOR rate. See Item 1 of Part I, Financial Statements - ~~47 -~~

~~Table of Contents~~

~~8.625% Senior Notes~~Note 10, "Derivatives" for more information on the interest rate swap agreements.

5.375% Senior Notes due 2028

Rackspace Technology Global issued $550 million aggregate principal amount of the 5.375% Senior Notes on December 1, 2020. The ~~8.625%~~5.375% Senior Notes will mature on ~~November 15, 2024~~December 1, 2028 and bear interest at a fixed rate of ~~8.625%~~5.375% per year, payable semi-annually on each ~~May 15~~June 1 and ~~November 15~~December 1, commencing on June 1, 2021 through maturity. The ~~8.625% Senior Notes are not subject to registration rights.~~

~~Rackspace Technology Global is the issuer of the 8.625% Senior Notes, and obligations under the 8.625%~~5.375% Senior Notes are guaranteed on a senior unsecured basis by all of Rackspace Technology Global’s wholly-owned domestic restricted subsidiaries ~~(as subsidiary guarantors)~~ that guarantee the Senior Facilities. The 8.625% Senior Notes are effectively junior to the indebtedness under the Senior Facilities, to the extent of the collateral securing the Senior Facilities. The Indenture describes certain terms and conditions under which other current and future domestic subsidiaries are required to become guarantors of the 8.625% Senior Notes.

Rackspace Technology Global may redeem the 8.625% Senior Notes at its option, in whole at any time or in part from time to time, at the following redemption prices: prior to November 15, 2020, at a redemption price equal to 106.469% of the principal amount, plus accrued and unpaid interest, if any, to but excluding the redemption date; from November 15, 2020 to November 15, 2021, at a redemption price equal to 104.313% of the principal amount, plus accrued and unpaid interest, if any, to but excluding the redemption date; from November 15, 2021 to November 15, 2022, at a redemption price equal to 102.156% of the principal amount, plus accrued and unpaid interest, if any, to but excluding the redemption date; and from November 15, 2022 and thereafter, at a redemption price equal to 100.000% of the principal amount, plus accrued and unpaid interest, if any, to but excluding the redemption date.

~~During~~As of March 31, 2021, $550 million aggregate principal amount of the ~~six months ended June 30, 2019, we repurchased and surrendered for cancellation $74~~5.375% Senior Notes remained outstanding.

3.50% Senior Secured Notes due 2028

On February 9, 2021, Rackspace Technology Global issued $550 million aggregate principal amount of ~~8.625%~~3.50% Senior Secured Notes. The 3.50% Senior Secured Notes ~~for $64 million, including accrued~~will mature on February 15, 2028 and bear interest at an annual fixed rate of ~~$1 million~~3.50%. Interest is payable semiannually on each February 15 and ~~excluding related fees and expenses. The outstanding principal balance~~August 15, commencing on August 15, 2021. We may redeem some or all of the ~~8.625%~~3.50% Senior Secured Notes ~~was $1,120 million as of June 30, 2020.~~at our option prior to February 15, 2024 subject to certain limitations and conditions outlined in the 3.50% Notes Indenture.

~~On August 12, 2020,~~

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The 3.50% Senior Secured Notes are secured by first-priority security interests in substantially all material owned assets of Rackspace Technology Global ~~commenced a tender offer~~and the subsidiary guarantors, including the equity interest held by each, subject to ~~purchase for cash up to $600~~certain exceptions, which assets also secure the Senior Facilities.

As of March 31, 2021, $550 million aggregate principal amount of the ~~8.625%~~3.50% Senior ~~Notes. As of the end of the day, 12:00 midnight, New York City time, on August 25, 2020, the early tender time, holders of the 8.625% Senior~~Secured Notes had validly tendered $508 million aggregate principal amount of the 8.625% Senior Notes. On August 27, 2020, Rackspace Technology Global purchased $508 million aggregate principal amount of the 8.625% Senior Notes for aggregate cash of $549 million, which reflected a price of 105.75% of the principal amount thereof, plus accrued and unpaid interest to, but not including, August 27, 2020, and canceled $508 million of the 8.625% Senior Notes following the purchase. The tender offer is scheduled to expire at the end of the day, 12:00 midnight, New York City time, on Wednesday, September 9, 2020, unless extended or earlier terminated by Rackspace Technology Global.remained outstanding.

Debt covenants

Our Term Loan Facility is not subject to a financial maintenance covenant. As of ~~June 30, 2020,~~March 31, 2021, our Revolving Credit Facility included a financial maintenance covenant that limits the ~~borrower’s~~borrower's net first lien leverage ratio to a maximum of ~~3.50~~5.00 to 1.00. ~~This ratio was modified to 5.00 to 1.00 on August 7, 2020 in the amendment of the First Lien Credit Agreement.~~ The net first lien leverage ratio is calculated as the ratio of (x) the total amount of the borrower’s first lien debt for borrowed money (which is currently identical to the total amount outstanding under the Senior Facilities), less the borrower’s unrestricted cash and cash equivalents, to (y) consolidated EBITDA (as defined under the First Lien Credit Agreement governing the Senior Facilities). However, this financial maintenance covenant will only be applicable and tested if the aggregate amount of outstanding borrowings under the Revolving Credit Facility and letters of credit issued thereunder (excluding $25 million of undrawn letters of credit and cash collateralized letters of credit) as of the last day of a fiscal quarter is equal to or greater than 35% of the Revolving Credit Facility commitments as of the last day of such fiscal quarter. Additional covenants in the Senior Facilities limit our subsidiaries' ability to, among other things, incur certain additional debt and liens, pay certain dividends or make other restricted payments, make certain investments, make certain asset sales and enter into certain transactions with affiliates.

The ~~Indenture contains~~Indentures contain covenants that, among other things, limit our subsidiaries' ability to incur certain additional debt, incur certain liens securing debt, pay certain dividends or make other restricted payments, make certain investments, make certain asset sales and enter into certain transactions with affiliates. These covenants are subject to a number of exceptions, limitations, and qualifications as set forth in the Indentures. Additionally, upon the occurrence of a change of control (as defined in the Indentures), we will be required to make an offer to repurchase all of the outstanding 5.375% Senior Notes and 3.50% Senior Secured Notes, respectively, at a price in cash equal to 101% of the aggregate principal amount, plus accrued and unpaid interest, if any, to, but not including the purchase date.

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Our “consolidated EBITDA,” as defined under our debt instruments, is calculated in the same manner as our Adjusted EBITDA, presented elsewhere in this report, except that our debt instruments allow us to adjust for additional items, including certain start-up costs, and to give pro forma effect to acquisitions, including resulting synergies, and internal cost savings initiatives. In addition, under the ~~Indenture,~~Indentures, the calculation of consolidated EBITDA does not take into account substantially any changes in GAAP subsequent to the date of issuance, whereas under the Senior Facilities the calculation of consolidated EBITDA takes into account the impact of certain changes in GAAP subsequent to the original closing date other than with respect to capital leases.

As of ~~June 30, 2020,~~March 31, 2021, we were in compliance with all covenants under the Senior Facilities and the ~~Indenture.~~Indentures.

Receivables Financing Facility

~~On March 19, 2020, Rackspace US, Inc. (“Rackspace US”), a Delaware corporation and our wholly-owned indirect subsidiary, entered into the Receivables Financing Facility.~~ Under the Receivables Financing Facility, ~~(i) certain~~Rackspace Receivables, LLC, a bankruptcy-remote special purpose vehicle ("SPV") indirectly wholly owned by Rackspace Technology Global has granted a security interest in all of ~~our subsidiaries sell or otherwise convey certain trade~~its current and future receivables and related ~~rights (the “Conveyed Receivables”)~~assets in exchange for a credit facility permitting borrowings of up to ~~Rackspace US and (ii) Rackspace US then sells, contributes or otherwise conveys certain Conveyed Receivables~~a maximum aggregate amount of $100 million from time to ~~our wholly owned bankruptcy-remote subsidiary (the “SPV”).~~

~~The SPV may thereafter make~~time. Such borrowings ~~from the lenders under the Receivables Financing Facility, which borrowings will be secured~~are used by the ~~Conveyed Receivables. An affiliate~~SPV to finance purchases of accounts receivable. The last date on which advances may be made is March 21, 2022, unless the administrative agent under the Receivables Financing Facility, in its capacity as a lender, has committed an amount up to $100 million under the Receivables Financing Facility. Rackspace US services and administers the Conveyed Receivables on behalf of the SPV. Rackspace Technology Global provides a performance guaranty to the administrative agent on behalf of the secured parties in respect of the obligations of the subsidiaries originating the receivables and Rackspace US, as servicer, including, without limitation, obligations to pay the purchase price and indemnity obligations.

~~The scheduled termination date~~maturity of the Receivables Financing Facility is ~~March 21, 2022, subject to earlier termination due to a termination event described in the agreement governing the Receivables Financing Facility.~~otherwise accelerated.

~~Advances bear interest based on an index rate plus a margin.~~ As of ~~June 30, 2020,~~March 31, 2021, the interest rate on ~~borrowings under~~ the Receivables Financing Facility was ~~3.01%~~2.60%. The SPV is also required to pay a monthly commitment fee ~~to each lender~~ based on the unused amount of ~~such lender’s~~the facility. Subsequent to March 31, 2021, we repaid a portion of the $50 million then outstanding ~~commitment. The~~ Receivables Financing Facility ~~contains~~balance in the amount of $5 million to cover a borrowing base deficit of approximately $4 million. The agreements evidencing the Receivables Financing Facility contain customary representations and warranties, affirmative and negative covenants, and events of ~~default that are customary for financings of this type.~~

As of June 30, 2020, our total borrowing capacity under the Receivables Financing Facility was $93 million and $65 million was borrowed and outstanding. The Receivables Financing Facility requires us to comply with a leverage ratio and an interest coverage ratio.default. We were in compliance with all applicable covenants under the Receivables Financing Facility as of ~~June 30, 2020.~~March 31, 2021.

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Capital Expenditures

The following table sets forth a summary of our capital expenditures for the periods indicated:


		Six Months Ended June 30,							Three Months Ended March 31,
(In millions)	(In millions)	2019		2020		(In millions)	2020		2021
Customer gear	Customer gear	$	54.5	$	80.0	Customer gear	$	53.5	$	35.3
Data center build outs	Data center build outs	3.8		8.1		Data center build outs	0.9		2.0
Office build outs	Office build outs	3.9		1.1		Office build outs	0.3		0.4
Capitalized software and other projects	Capitalized software and other projects	34.5		37.0		Capitalized software and other projects	20.7		21.2
Total capital expenditures	Total capital expenditures	$	96.7	$	126.2	Total capital expenditures	$	75.4	$	58.9

Capital expenditures were ~~$126~~$59 million in the ~~six~~three months ended ~~June 30, 2020,~~March 31, 2021, compared to ~~$97~~$75 million in the ~~six~~three months ended ~~June 30, 2019, an increase~~March 31, 2020, a decrease of ~~$30~~$17 million. ~~The majority of~~Capital expenditures were higher during the ~~increase is~~three months ended March 31, 2020, primarily due to ~~higher success-based spend to deploy customer environments and the refresh of certain data center equipment within our normal maintenance cycle.~~expenditures for storage gear upgrades.

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Cash Flows

The following table sets forth a summary of certain cash flow information for the periods indicated:


		Six Months Ended June 30,							Three Months Ended March 31,
(In millions)	(In millions)	2019		2020		(In millions)	2020		2021
Cash provided by operating activities	Cash provided by operating activities	$	112.4	$	98.8	Cash provided by operating activities	$	24.8	$	103.2
Cash (used in) investing activities		$	(93.3)	$	(62.8)
Cash used in investing activities						Cash used in investing activities	$	(32.4)	$	(4.3)
Cash provided by (used in) financing activities	Cash provided by (used in) financing activities	$	(100.0)	$	43.3	Cash provided by (used in) financing activities	$	50.6	$	(4.5)

Cash Provided by Operating Activities

Net cash provided by operating activities results primarily from cash received from customers, offset by cash payments made for employee and consultant compensation (less amounts capitalized related to internal-use software that are reflected as cash used in investing activities), data center costs, license costs, third-party infrastructure costs, marketing programs, interest, taxes, and other general corporate expenditures.

Net cash provided by operating activities ~~decreased $14~~increased $78 million, or ~~12%~~316%, ~~from~~in the ~~first six~~three months ~~of 2019~~ended March 31, 2021 compared to the ~~first six~~three months ofended March 31, 2020. This ~~decrease~~increase was ~~largely~~ driven by a $111 million increase in cash collections, primarily reflecting higher revenue levels, as well as the timing of collections. In addition, there was a $22 million decrease in employee-related payments due to the timing of payroll cycles in certain geographies. These operating cash flow increases were partially offset by a $48 million increase in operating expense payments, largely for third-party infrastructure costs, and employee-related payments of $128 million and $19 million, respectively, mainly due to the acquisition of Onica. These variances were partially offset by higher cash collections of $114 million, primarily reflecting higher revenue levels resulting from the acquisition of Onica, and a $19 million decrease in obligations to settle share-based awards in connection with the Rackspace Acquisition, as the final payment was made during the three months ended March 31, 2019.costs.

Cash Used in Investing Activities

Net cash used in investing activities primarily consists of capital expenditures to meet the demands of our customer base and our strategic initiatives. The largest outlays of cash are for purchases of customer gear, data center and office build-outs, and capitalized payroll costs related to internal-use software development.

Net cash used in investing activities decreased ~~$31~~$28 million, or ~~33%~~87%, ~~from~~in the ~~first six~~three months ~~of 2019~~ended March 31, 2021 compared to the ~~first six~~three months ofended March 31, 2020. This ~~change~~decrease was mainly due to net proceeds of $31 million from the January 2021 sale of a ~~$48~~parcel of undeveloped land in the United Kingdom adjacent to one of our existing data centers. These proceeds were partially offset by a $3 million ~~decrease~~increase in cash purchases of property, equipment and software, as we increased our usage of financing arrangements in place of upfront cash payments to procure capital assets. The impact of this decrease was partially offset by the receipt of $17 million in proceeds during the first six months of 2019 related to the repayment of a promissory note receivable in conjunction with the 2017 sale of our Mailgun business.software.

Cash Provided by or Used in Financing Activities

Financing activities generally include cash activity related to debt and other long-term financing arrangements (for example, finance lease obligations and financing obligations), including proceeds from and repayments of borrowings, and cash activity related to the issuance and repurchase of equity.

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Net cash used in financing activities was ~~$100~~$5 million for the ~~first six~~three months ~~of 2019~~ended March 31, 2021 and net cash provided by financing activities was ~~$43~~$51 million for ~~first six~~the three months ofended March 31, 2020. The change was primarily driven by net ~~borrowings~~long-term debt activity of ~~$65~~$43 million during the ~~six~~three months ended ~~June 30,~~March 31, 2020, which ~~remained outstanding~~included borrowings of $50 million under the Receivables Financing Facility that remained outstanding at ~~June 30, 2020. Debt~~quarter-end, offset by a $7 million Prior Term Loan Facility repayment and $1 million in debt issuance costs paid. Net payments for long-term debt activity ~~for~~were $4 million during the ~~six~~three months ended ~~June 30, 2019 included a $63 million cash outflow for~~March 31, 2021, reflecting the ~~repurchase and cancellation of a portion~~refinancing of our ~~8.625% Senior Notes.~~

~~Contractual Obligations~~

~~During the six months ended June 30, 2020, we entered into contractual obligations totaling $290~~Prior Term Loan Facility, a $15 million ~~of which $204 million is due to operating and finance lease obligations and financing obligations related to the purchase of equipment; and $65 million is due to borrowings under~~repayment on our Receivables Financing ~~Facility.~~

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~~Off-Balance Sheet Arrangements~~

~~During the periods presented, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured~~Facility, and $32 million in debt issuance costs paid. In addition, there was an $8 million increase in payments for finance ~~or special purpose entities. These entities are typically established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.~~

We have entered into various indemnification arrangements with third parties, including vendors, customers, landlords, our officers and directors, stockholders of acquired companies and third parties to whom and from whom we license technology. Generally, these indemnification agreements require us to reimburse losses suffered by third parties due to various events, such as lawsuits arising from patent or copyright infringement or our negligence. Certain of these agreements require us to indemnify the other party against certain claims relating to property damage, personal injury or the acts or omissions by us, our employees, agents or representatives. These indemnification obligations are considered off-balance sheet arrangements. To date, we have not incurred material costs as a result of such obligations and have not accrued any material liabilities related to such indemnification obligations in our consolidated financial statements.leases.

Critical Accounting Policies and Estimates

Our critical accounting policies and estimates have not changed from those described in our ~~Prospectus,~~Annual Report on Form 10-K under "Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies and Estimates." For a description of accounting pronouncements recently adopted and issued, see Item 1 of Part I, Financial Statements - Note 1, "Company Overview, Basis of Presentation, and Summary of Significant Accounting Policies."

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ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

~~Power Prices~~

We are a large consumer of power. In the six months ended June 30, 2020, we expensed approximately $20 million that was paid to utility companies to power our data centers, representing approximately 2% of our revenue. Power costs vary by geography, the source of power generation and seasonal fluctuations and are subject to certain proposed legislation that may increase our exposure to increased power costs. We have fixed price power contracts for data centers in the Dallas-Fort Worth, San Jose and London areas that allow us to procure power either on a fixed price or on a variable price basis.

Interest Rates

We are exposed to interest rate risk associated with fluctuations in interest rates on our floating-rate debt under our Senior Facilities, which includes our ~~$225~~$375 million Revolving Credit Facility ~~(which increased to $375 million on August 7, 2020)~~ and ~~$2,810~~$2,300 million outstanding under the Term Loan Facility, and ~~under~~ our ~~$93~~$50 million Receivables Financing Facility. As of ~~June 30, 2020,~~March 31, 2021, there were no ~~outstanding~~outstanding borrowings under the Revolving Credit Facility and therefore our only variable-rate debt outstanding was the ~~$2,810~~$2,300 million outstanding under the Term Loan Facility and ~~$65~~$50 million outstanding under the Receivables Financing Facility. As of ~~June 30, 2020,~~March 31, 2021, assuming the Revolving Credit Facility ~~and Receivables Financing Facility were~~was fully drawn, each 0.125% change in assumed blended interest rates would ~~result~~result in a $4$3 million ~~change~~change in annual interest expense on indebtedness under the Senior Facilities and the Receivables Financing Facility.

~~In December 2016, we~~Our Term Loan Facility bears interest at an annual rate equal to an applicable margin plus three-month LIBOR, subject to a 0.75% floor. We have entered into ~~seven floating-to-fixed~~ interest rate swap agreements indexed to three-month LIBOR in order to manage our risk from ~~interest rate~~ fluctuations ~~associated with our floating-rate Term Loan Facility.~~in three-month LIBOR above the 0.75% floor. The remaining three swap agreements in effect as of June 30, 2020 have an aggregate notional amount of $1.05 billion and mature over the next two years. On a quarterly basis, we net settle with the counterpartyfixed rates for ~~the difference between the fixed rate specified in~~ each swap agreement ~~ranging from 1.7625%~~are presented in the table below. As of March 31, 2021, the interest rate on the Term Loan Facility was 3.50%, equal to ~~1.9040%, and~~an applicable margin of 2.75% plus the ~~variable rate based upon the~~0.75% three-month LIBOR ~~as applied to the notional amount of the swap.~~floor.

~~In December 2018, we entered into four additional floating-to-fixed~~The key terms of the swaps outstanding as of March 31, 2021 are presented below:

Transaction Date

Effective Date

Notional Amount (in millions)

Fixed Rate Paid (Received)

Maturity Date

December 2016

February 3, 2017

450.0

1.9040%

February 3, 2022

December 2016

February 3, 2017

450.0

1.9040%

February 3, 2022

February 2021

February 3, 2021

(900.0)

(1.9040)%

February 3, 2022

February 2021

February 9, 2021

1,350.0

2.3820%

February 9, 2026

Total

1,350.0

See Item 1 of Part I, Financial Statements - Note 10, "Derivatives," for more information on interest rate swap agreements with an aggregate notional amount of $1.35 billion and a maturity date of November 3, 2023. These swap agreements are forward-starting, and as of June 30, 2020, two swaps agreements, with an aggregate notional amount of $300 million, were effective. The remaining swap agreements become effective each year thereafter to coincide with the maturity dates of the outstanding December 2016 swap agreements. On a quarterly basis, we net settle with the counterparty for the difference between the fixed rate specified in each swap agreement, ranging from 2.7350% to 2.7490%, and the variable rate based upon the three-month LIBOR as applied to the notional amount of the swap.swaps.

Foreign Currencies

We are subject to foreign currency translation risk due to the translation of the results of our subsidiaries from their respective functional currencies to the U.S. dollar, our functional currency. As a result, we discuss our revenue on a constant currency as well as actual basis, highlighting our sensitivity to changes in foreign exchange rates. See “Constant Currency Revenue.” While the majority of our customers are invoiced, and the majority of our expenses are paid, by us or our subsidiaries in their respective functional currencies, we also have exposure to foreign currency transaction gains and losses as the result of certain receivables due from our foreign subsidiaries. As such, the results of operations and cash flows of our foreign subsidiaries are subject to fluctuations in foreign currency exchange rates. In the ~~six~~three months ended ~~June 30, 2020,~~March 31, 2021, we recognized foreign currency transaction losses of ~~$4.3~~$1 million ~~within~~within “Other income (expense), net” in our Consolidated Statements of Comprehensive ~~Income (Loss).~~Loss. As we grow our international operations, our exposure to foreign currency translation and transaction risk could become more significant.

We have in the past and may in the future enter into foreign currency hedging instruments to limit our exposure to foreign currency risk.

In November 2018, we entered into one foreign currency forward contract. Under the terms of the contract, we sold £75 million at a rate of 1.3002 British pound sterling to U.S. dollar and received $97.5 million. This contract settled on November 29, 2019 and we received a final net payment of $0.8 million.

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In November 2019, we entered into two foreign currency net-zero cost collar contracts with an aggregate notional amount of £100 million and a maturity date of November 30, 2020. Under the terms of the contracts, the British pound sterling to U.S. dollar exchange rate floats between 1.2375 and 1.3475. On March 26, 2020, we settled one of these contracts, with an aggregate notional amount of £50 million, and we received a final net payment of $1.9 million and on November 19, 2020, we settled the remaining contract, with an aggregate notional amount of £50 million, and we made a final net payment of $0.2 million.

~~In March~~

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During 2020, we entered into ~~three~~a series of foreign currency ~~forward~~ contracts to manage our exposure to movements in the British pound sterling, Euro, and Mexican peso. ~~All three~~These contracts had three-month terms and settlement dates throughout the year. None of these contracts settled ~~on June 30,~~during the three months ended March 31, 2020. As of December 31, 2020, ~~and we made a final net payment of $1.7 million resulting from the following:~~there was no notional amount outstanding related to these contracts.

•~~We sold £32 million at a rate~~During the fourth quarter of ~~1.1902 British pound to U.S. dollar and received $38.1 million.~~

•~~We sold €6 million at a rate of 1.0921 Euro to U.S. dollar and received $6.6 million.~~

•~~We sold $2.1 million at a rate of 24.2040 U.S. dollar to Mexican peso and received Mex$50 million.~~

~~In June~~ 2020, we entered into ~~three~~two foreign currency forward contracts. Under the terms of these contracts, ~~to manage our exposure to movements in the~~on November 30, 2021, we will sell a total of £80 million at an average rate of 1.3388 British pound sterling ~~Euro, and Mexican peso. All three contracts have a maturity date of September 30, 2020. On the maturity date, the following will occur:~~

•~~We will sell £32 million at a rate of 1.24095 British pound~~ to U.S. dollar and receive ~~$39.7~~$107.1 million.

•~~We will sell €6 million at a rate of 1.1241 Euro to U.S. dollar and receive $6.7 million.~~

•~~We will sell $2.2 million at a rate of 23.0330 U.S. dollar to Mexican peso and receive Mex$50 million.~~

See Item 1 of Part I, Financial Statements - Note ~~11,~~10, "Derivatives," for more information on ~~interest rate swaps and~~ foreign currency hedging contracts.

Power Prices

We are a large consumer of power. In the three months ended March 31, 2021, we expensed approximately $13 million that was paid to utility companies to power our data centers, representing approximately 2% of our revenue. Power costs vary by geography, the source of power generation and seasonal fluctuations and are subject to certain proposed legislation that may increase our exposure to increased power costs. We have fixed price power contracts for data centers in the Dallas-Fort Worth, San Jose, Somerset, New Jersey and London areas that allow us to procure power either on a fixed price or on a variable price basis.

ITEM 4 – CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our senior management, including our ~~chief executive officer~~Chief Executive Officer and ~~chief financial officer,~~Chief Financial Officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”), as amended, as of the end of the period covered by this Quarterly Report (the “Evaluation Date”). Based on this evaluation, our ~~chief executive officer~~Chief Executive Officer and ~~chief financial officer~~Chief Financial Officer concluded as of the Evaluation Date that our disclosure controls and procedures were effective such that the information relating to the company, including our consolidated subsidiaries, required to be disclosed in our SEC reports (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and (ii) is accumulated and communicated to our management, including our ~~chief executive officer~~Chief Executive Officer and ~~chief financial officer,~~Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control

There were no changes in our internal controls over financial reporting during our most recent fiscal quarter reporting period identified in connection with management’s evaluation that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitations of Internal Controls

Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all error and fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

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PART II – OTHER INFORMATION

ITEM 1 – LEGAL PROCEEDINGS

We have contingencies resulting from various litigation, claims and commitments. We record accruals for loss contingencies when losses are considered probable and can be reasonably estimated. The amount that will ultimately be paid related to these matters may differ from the recorded accruals, and the timing of such payments is uncertain.

From time to time we may be subject to various legal proceedings arising in the ordinary course of business. In addition, from time to time, third parties may bring intellectual property claims against us asserting that certain of our offerings, services and technologies infringe, misappropriate or otherwise violate the intellectual property or proprietary rights of others.

We ~~cannot predict~~are not party to any litigation, the ~~impact,~~outcome of which, if ~~any, that any of~~determined adversely to us, would individually or in the ~~matters described above may~~aggregate be reasonably expected to have a material and adverse effect on our business, ~~results of operations,~~ financial position or ~~cash flows. Because~~results of ~~the inherent uncertainties of such matters, including the early stage and lack of specific damage claims in many of them, we cannot estimate the range of possible losses from them.~~operations.

ITEM 1A – RISK FACTORS

We have disclosed under the heading “Risk Factors” in our ~~Registration Statement~~Annual Report on Form ~~S-1 (File No. 333-239794 ), as amended,~~10-K the risk factors which materially affect our business, financial condition or results of operations. There have been no material changes from the risk factors previously disclosed. You should carefully consider the risk factors set forth in ~~the Registration Statement~~our Annual Report on Form 10-K and the other information set forth elsewhere in this Quarterly Report on Form 10-Q. You should be aware that these risk factors and other information may not describe every risk facing our company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

ITEM 2 – UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Unregistered Sales of Equity Securities

~~From January 1, 2020 through August 5, 2020 (the date of the filing of our Registration Statement on Form S-8, File No. 333-240498):~~

•We granted to our directors, officers, employees, consultants, and other service providers options to purchase 8,162,772, shares of our common stock with per share exercise prices ranging from $11.41 to $13.62 under the Rackspace Technology, Inc. Equity Incentive Plan (the “2017 Incentive Plan”).

•We issued to our directors, employees, consultants and other service providers an aggregate of 72,768 shares of our common stock at a per share purchase price ranging from $8.33 to $15.54 pursuant to exercises of options granted under the 2017 Incentive Plan.

•~~We granted to our directors and employees restricted stock units (“RSUs”) for an aggregate of 6,564 shares of our common stock under the 2017 Incentive Plan.~~

•~~Our directors and employees received an aggregate of 86,364 shares of our common stock upon the vesting of RSUs under the 2017 Incentive Plan.~~

•~~We granted to our directors restricted stock awards (“RSAs”) for an aggregate of 27,492 shares of our common stock under the 2017 Incentive Plan.~~

•~~Our directors received an aggregate of 17,460 shares of our common stock upon the vesting of RSAs under the 2017 Incentive Plan.~~

~~- 54 -~~

~~Table of Contents~~

The offers, sales and issuances of the securities described in the immediately preceding section were deemed to be exempt from registration either under Rule 701 promulgated under the Securities Act, in that the transactions were under compensatory benefit plans and contracts relating to compensation, or under Section 4(a)(2) in that the transactions were by an issuer and did not involve any public offering within the meaning of Section 4(a)(2). The recipients of such securities were our employees, directors, consultants or other service providers and received the securities under the 2017 Incentive Plan.

~~In connection with the Stock Split on July 20, 2020, we issued approximately 151,760,933 shares of common stock.~~

None of the foregoing transactions involved any underwriters, underwriting discounts or commissions or any public offering. All recipients had adequate access, through their relationships with us, to information about us. The offers, sales and issuances of these securities were made without any general solicitation or advertising.Not Applicable.

Use of Proceeds

On August 7, 2020, we completed the IPO, in which we issued and sold 33,500,000 shares of our common stock at a public offering price of $21.00 per share, for an aggregate offering price of $703.5 million. The underwriters may exercise their option to purchase up to an additional 5,025,000 shares at $21.00 per share for 30 days after the pricing of the IPO on August 4, 2020. All shares in the IPO were registered under the Securities Act pursuant to a Registration Statement on Form S-1 (File No. 333-239794), which was declared effective by the SEC on August 4, 2020. The managing underwriters of our IPO were Goldman Sachs & Co. LLC, Citigroup Global Markets Inc. and J.P. Morgan Securities LLC. We incurred underwriting discounts and commissions of approximately $36.9 million and estimate our offering expenses to be $8.4 million. Thus, our net offering proceeds, after deducting underwriting discounts and commissions and other offering costs, were approximately $658.1 million. No payments were made to our directors or officers or their associates, holders of 10% or more of any class of our equity securities or any affiliates.

The net proceeds from the IPO were contributed by us as capital contributions indirectly through our subsidiaries to Rackspace Technology Global. We used a portion of the net proceeds from the IPO to repurchase and cancel $507.6 million aggregate principal amount of our outstanding 8.625% Senior Notes. We may repurchase up to an additional $92.4 million aggregate principal amount of our outstanding 8.625% Senior Notes under the tender offer expiring at the end of the day, 12:00 midnight, New York City time, on Wednesday, September 9, 2020. The remainder of the net proceeds will be used for general corporate purposes. Our management team will retain broad discretion to allocate the net proceeds of this offering for general corporate purposes. Pending use as described above, we may invest the net proceeds from this offering in short-term, investment-grade, interest-bearing securities, such as money market accounts, certificates of deposit, commercial paper and guaranteed obligations of the U.S. government or repay any outstanding borrowings under the Revolving Credit Facility or the Receivables Financing Facility.None.

ITEM 3 – DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4 – MINE SAFETY DISCLOSURES

Not Applicable.

ITEM 5 – OTHER INFORMATION

None.

- 5545 -

Table of Contents

ITEM 6 – EXHIBITS

Exhibit Number

Exhibit Description

~~10.1†~~4.1

R ~~etention Agreement, between Rackspace US, Inc. and Dustin Semach,~~Indenture, dated as of ~~May 5, 2020~~February 9, 2021, among Rackspace Technology Global, Inc., the subsidiary guarantors party thereto from time to time and Wells Fargo Bank, National Association, as trustee (incorporated by reference tofrom Exhibit ~~10.33~~4.1 to A ~~mendment No.1 to the Registration Statement filed with the SEC~~ by Rackspace Technology, Inc.'s Form 8-K, filed on ~~July 20, 2020 (File~~ ~~No.~~ ~~333-239794))~~February 9, 2021)

10.1

Incremental Assumption Agreement No. 5, dated as of February 9, 2021, among Rackspace Technology Global, Inc., the subsidiary loan parties, the lenders party thereto and Citibank, N.A., as administrative agent (incorporated by reference from Exhibit 10.1 to Rackspace Technology, Inc.’s Form 8-K, filed on February 9, 2021)

10.2†

Rackspace Technology, Inc. Executive Change in Control Severance Plan (incorporated by reference from Exhibit 10.1 to Rackspace Technology, Inc.’s Form 8-K, filed on March 18, 2021)

10.3†

Employment Agreement, between Rackspace US, Inc. and Holly Windham, effective as of April 17, 2017

10.4†

First Amendment to Employment Agreement, between Rackspace US, Inc. and Holly Windham, effective as of October 1, 2017

10.5†

Employment Agreement, between Rackspace US, Inc. and Matthew Stoyka, effective as of May 14, 2018

10.6†

First Amendment to Employment Agreement, between Rackspace US, Inc. and Matthew Stoyka, effective as of August 1, 2019

10.7†

Second Amendment to Employment Agreement, between Rackspace US, Inc. and Matthew Stoyka, effective as of March 12, 2020

10.8†

Separation Agreement and Release, between Rackspace US, Inc. and Matthew Stoyka, effective as of November 13, 2020

10.9†

Employment Letter to Martin Blackburn, dated as of October 30, 2019

10.10†

Service Agreement, between Rackspace Limited and Martin Blackburn, effective as of December 1, 2019

10.11†

Employment Agreement, between Rackspace US, Inc. and Steve Mills, effective as of June 1, 2020

10.12†

First Amendment to Employment Agreement, between Rackspace US, Inc. and Steve Mills, effective as of July 2, 2020

10.13†

First Amendment to Employment Agreement, between Rackspace US, Inc. and Kevin Jones, effective April 1, 2021

10.14†

Second Amendment to Employment Agreement, between Rackspace US, Inc. and Holly Windham, effective April 1, 2021

10.15

First Amendment to Receivables Financing Agreement, between Rackspace Receivables LLC, Rackspace US, Inc., the financial institutions party thereto as Lenders and Group Agents, and BMO Capital Markets, as administrative agent and arranger, dated as of March 30, 2021

31.1*

Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2*

Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1**

Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2**

Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS*

Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document)

101.SCH*

Inline XBRL Taxonomy Extension Schema Document

101.CAL*

Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF*

Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB*

Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE*

Inline XBRL Taxonomy Extension Presentation Linkbase Document

104*

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

* Filed herewith.

** Furnished herewith.

†Indicates management contract or compensatory plan.

- 5646 -

Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

RACKSPACE TECHNOLOGY, INC.

Date:

~~August 31, 2020~~May 10, 2021

By:

/s/ ~~Dustin Semach~~Amar Maletira

~~Dustin Semach~~Amar Maletira

~~Executive Vice~~ President and Chief Financial Officer

(Principal Financial and Accounting Officer)

- 5747 -


(In millions)	As Previously Determined		Measurement Period Adjustments		Revised
Onica Acquisition Consideration	$	323.6	$	(0.2)	$	323.4


(In millions)	Accumulated Foreign Currency Translation Adjustments		Accumulated Gains (Losses) on Derivative Contracts		Accumulated Other Comprehensive Income
Balance at March 31, 2019	$	10.6	$	0	$	10.6
Foreign currency translation adjustments, net of tax benefit of $0.9	(8.1)		0		(8.1)
Balance at June 30, 2019	$	2.5	$	0	$	2.5


(In millions)	Accumulated Foreign Currency Translation Adjustments		Accumulated Losses on Derivative Contracts		Accumulated Other Comprehensive Loss
Balance at March 31, 2020	$	(8.4)	$	(41.1)	$	(49.5)
Foreign currency translation adjustments, net of tax benefit of $0.2	0.9		0		0.9
Unrealized losses on derivative contracts, net of tax benefit of $2.3	0		(6.8)		(6.8)
Amount reclassified from Accumulated comprehensive income (loss) into earnings, net of tax benefit of $0.5 ⁽¹⁾	0		1.7		1.7
Balance at June 30, 2020	$	(7.5)	$	(46.2)	$	(53.7)


	Six Months Ended June 30, 2019		Six Months Ended June 30, 2020										% Change
(In millions, except %)	Revenue		Revenue		Foreign Currency Translation ^(a)		Revenue in Constant Currency		Actual		Constant Currency
Multicloud Services	$	902.4	$	1,026.9	$	4.9	$	1,031.8	13.8	%	14.3	%
Apps & Cross Platform	157.1		161.4		0.3		161.7		2.8	%	3.0	%
OpenStack Public Cloud	149.8		120.9		0.5		121.4		(19.3)	%	(19.0)	%
Total	$	1,209.3	$	1,309.2	$	5.7	$	1,314.9	8.3	%	8.7	%


(In whole dollars)	Three Months Ended June 30, 2020		Six Months Ended June 30, 2020
GAAP net loss per share diluted	$	(0.20)	$	(0.49)
Per share impacts of adjustments to net loss ^(a)	0.41		0.86
Impact of shares dilutive after adjustments to net loss^(b)	(0.00)		(0.00)
Adjusted EPS	$	0.21	$	0.37