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 September 30, ~~2021.~~2022.


☐			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)						(I.R.S. 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, a smaller reporting company, or an emerging growth company. See the 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 November 4 ~~10, 2021, 210,032,072~~, 2022, 211,109,876 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, ~~2020~~2021 and September 30, ~~2021~~2022	3
	Unaudited Consolidated Statements of Comprehensive Loss for the Three and Nine Months Ended S ~~eptember~~September 30, ~~2020~~2021 and September 30, ~~2021~~2022	4
	Unaudited Consolidated Statements of Cash Flows for the Nine Months Ended September 30, ~~2020~~2021 and September 30, ~~2021~~2022	5
	Unaudited Consolidated Statements of Stockholders' Equity for the Three and Nine Months Ended September 30, ~~2020~~2021 and September 30, ~~2021~~2022	7
	Notes to the Unaudited Consolidated Financial Statements	89
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	2629
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	4954
Item 4.	Controls and Procedures	5055

Part II - Other Information
Item 1.	Legal Proceedings	5156
Item 1A.	Risk Factors	5156
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	5156
Item 3.	Defaults Upon Senior Securities	5156
Item 4.	Mine Safety Disclosures	5156
Item 5.	Other Information	5156
Item 6.	Exhibits	5257

Signatures		5358

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q for the quarterly period ended September 30, ~~2021~~2022 (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.”~~Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021. 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,~~” “Rackspace Fabric,” "Rackspace Data Freedom," "Rackspace Services for VMware CloudTM" and ~~“Rackspace Fabric”~~"My Rackspace" 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 of Contents

PART I – FINANCIAL INFORMATION

ITEM 1 - FINANCIAL STATEMENTS

RACKSPACE TECHNOLOGY, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)


(In millions, except per share data)	(In millions, except per share data)	December 31, 2020		September 30, 2021		(In millions, except per share data)	December 31, 2021		September 30, 2022
ASSETS	ASSETS					ASSETS
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	104.7	$	260.0	Cash and cash equivalents	$	272.8	$	249.1
Accounts receivable, net of allowance for doubtful accounts and accrued customer credits of $28.3 and $15.5, respectively		483.0		533.6
Accounts receivable, net of allowance for credit losses and accrued customer credits of $18.4 and $19.3, respectively						Accounts receivable, net of allowance for credit losses and accrued customer credits of $18.4 and $19.3, respectively	554.3		593.4
Prepaid expenses	Prepaid expenses	123.8		92.7		Prepaid expenses	110.0		95.1
Other current assets	Other current assets	47.0		63.9		Other current assets	52.4		96.3
Total current assets	Total current assets	758.5		950.2		Total current assets	989.5		1,033.9

Property, equipment and software, net	Property, equipment and software, net	884.6		861.2		Property, equipment and software, net	826.7		707.5
Goodwill, net	Goodwill, net	2,761.1		2,759.5		Goodwill, net	2,706.8		2,270.6
Intangible assets, net	Intangible assets, net	1,646.3		1,508.8		Intangible assets, net	1,466.5		1,291.1
Operating right-of-use assets	Operating right-of-use assets	171.1		143.7		Operating right-of-use assets	161.8		138.3
Other non-current assets	Other non-current assets	156.2		168.1		Other non-current assets	177.4		246.3
Total assets	Total assets	$	6,377.8	$	6,391.5	Total assets	$	6,328.7	$	5,687.7

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	$	285.4	$	372.0	Accounts payable and accrued expenses	$	369.5	$	409.1
Accrued compensation and benefits	Accrued compensation and benefits	110.6		101.6		Accrued compensation and benefits	104.5		92.7
Deferred revenue	Deferred revenue	76.7		91.5		Deferred revenue	98.6		88.3
Debt	Debt	43.4		23.0		Debt	23.0		23.0
Accrued interest	Accrued interest	26.5		30.1		Accrued interest	27.6		33.3
Operating lease liabilities	Operating lease liabilities	62.2		64.1		Operating lease liabilities	60.4		55.8
Finance lease liabilities	Finance lease liabilities	40.7		61.9		Finance lease liabilities	64.6		62.2
Financing obligations	Financing obligations	48.8		54.5		Financing obligations	48.0		25.1
Other current liabilities	Other current liabilities	47.9		47.7		Other current liabilities	41.2		36.8
Total current liabilities	Total current liabilities	742.2		846.4		Total current liabilities	837.4		826.3

Non-current liabilities:	Non-current liabilities:					Non-current liabilities:
Debt	Debt	3,319.3		3,314.8		Debt	3,310.9		3,299.3
Operating lease liabilities	Operating lease liabilities	118.2		90.6		Operating lease liabilities	114.8		88.4
Finance lease liabilities	Finance lease liabilities	358.1		354.9		Finance lease liabilities	345.1		303.4
Financing obligations	Financing obligations	74.1		69.9		Financing obligations	62.9		50.9
Deferred income taxes	Deferred income taxes	236.7		208.5		Deferred income taxes	205.8		187.2
Other non-current liabilities	Other non-current liabilities	145.5		135.4		Other non-current liabilities	124.4		116.6
Total liabilities	Total liabilities	4,994.1		5,020.5		Total liabilities	5,001.3		4,872.1

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

Stockholders' equity:	Stockholders' equity:					Stockholders' equity:
Preferred stock, $0.01 par value per share: 5.0 shares authorized; no shares issued or outstanding	Preferred stock, $0.01 par value per share: 5.0 shares authorized; no shares issued or outstanding	—		—		Preferred stock, $0.01 par value per share: 5.0 shares authorized; no shares issued or outstanding	—		—
Common stock, $0.01 par value per share: 1,495.0 shares authorized; 201.8 and 209.9 shares issued and outstanding, respectively		2.0		2.1
Common stock, $0.01 par value per share: 1,495.0 shares authorized; 211.2 and 214.2 shares issued; 211.2 and 211.1 shares outstanding, respectively						Common stock, $0.01 par value per share: 1,495.0 shares authorized; 211.2 and 214.2 shares issued; 211.2 and 211.1 shares outstanding, respectively	2.1		2.1
Additional paid-in capital	Additional paid-in capital	2,363.6		2,472.3		Additional paid-in capital	2,500.0		2,562.3
Accumulated other comprehensive loss		(18.6)		(4.7)
Accumulated other comprehensive income						Accumulated other comprehensive income	6.9		54.6
Accumulated deficit	Accumulated deficit	(963.3)		(1,098.7)		Accumulated deficit	(1,181.6)		(1,772.4)
Treasury stock, at cost; zero and 3.1 shares held, respectively						Treasury stock, at cost; zero and 3.1 shares held, respectively	—		(31.0)
Total stockholders' equity	Total stockholders' equity	1,383.7		1,371.0		Total stockholders' equity	1,327.4		815.6
Total liabilities and stockholders' equity	Total liabilities and stockholders' equity	$	6,377.8	$	6,391.5	Total liabilities and stockholders' equity	$	6,328.7	$	5,687.7

See accompanying notes to the unaudited consolidated financial statements.

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Table of of Contents

RACKSPACE TECHNOLOGY, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(Unaudited)


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended September 30,				Nine Months Ended September 30,
(In millions, except per share data)	(In millions, except per share data)	2020		2021		2020		2021		(In millions, except per share data)	2021		2022		2021		2022
Revenue	Revenue	$	681.7	$	762.5	$	1,990.9	$	2,232.2	Revenue	$	762.5	$	787.6	$	2,232.2	$	2,335.3
Cost of revenue	Cost of revenue	(435.9)		(530.8)		(1,253.9)		(1,529.7)		Cost of revenue	(530.8)		(580.5)		(1,529.7)		(1,678.2)
Gross profit	Gross profit	245.8		231.7		737.0		702.5		Gross profit	231.7		207.1		702.5		657.1
Selling, general and administrative expenses	Selling, general and administrative expenses	(260.5)		(234.6)		(707.5)		(698.2)		Selling, general and administrative expenses	(234.6)		(219.9)		(698.2)		(645.0)

Impairment of goodwill										Impairment of goodwill	—		(405.2)		—		(405.2)
Impairment of assets										Impairment of assets	—		(58.7)		—		(58.7)
Gain on sale of land	Gain on sale of land	—		—		—		19.9		Gain on sale of land	—		—		19.9		—

Income (loss) from operations	Income (loss) from operations	(14.7)		(2.9)		29.5		24.2		Income (loss) from operations	(2.9)		(476.7)		24.2		(451.8)
Other income (expense):	Other income (expense):									Other income (expense):
Interest expense	Interest expense	(68.3)		(51.5)		(209.2)		(154.6)		Interest expense	(51.5)		(52.3)		(154.6)		(152.9)
Gain (loss) on investments, net		—		—		0.9		(3.6)
Loss on investments, net										Loss on investments, net	—		(0.1)		(3.6)		(0.4)
Debt modification and extinguishment costs	Debt modification and extinguishment costs	(37.0)		—		(37.0)		(37.5)		Debt modification and extinguishment costs	—		—		(37.5)		—
Other income (expense), net	Other income (expense), net	0.7		0.1		0.4		(1.1)		Other income (expense), net	0.1		(6.0)		(1.1)		(15.5)
Total other income (expense)	Total other income (expense)	(104.6)		(51.4)		(244.9)		(196.8)		Total other income (expense)	(51.4)		(58.4)		(196.8)		(168.8)
Loss before income taxes	Loss before income taxes	(119.3)		(54.3)		(215.4)		(172.6)		Loss before income taxes	(54.3)		(535.1)		(172.6)		(620.6)
Benefit for income taxes	Benefit for income taxes	18.1		19.5		33.4		37.2		Benefit for income taxes	19.5		23.4		37.2		29.8
Net loss	Net loss	$	(101.2)	$	(34.8)	$	(182.0)	$	(135.4)	Net loss	$	(34.8)	$	(511.7)	$	(135.4)	$	(590.8)

Other comprehensive income (loss), net of tax	Other comprehensive income (loss), net of tax									Other comprehensive income (loss), net of tax
Foreign currency translation adjustments	Foreign currency translation adjustments	$	11.7	$	(8.8)	$	(7.8)	$	(3.1)	Foreign currency translation adjustments	$	(8.8)	$	(22.5)	$	(3.1)	$	(45.3)
Unrealized gain (loss) on derivative contracts		1.3		0.6		(46.2)		4.0
Unrealized gain on derivative contracts										Unrealized gain on derivative contracts	0.6		31.4		4.0		84.7
Amount reclassified from accumulated other comprehensive income (loss) to earnings	Amount reclassified from accumulated other comprehensive income (loss) to earnings	3.2		4.5		4.5		13.0		Amount reclassified from accumulated other comprehensive income (loss) to earnings	4.5		0.6		13.0		8.3
Other comprehensive income (loss)	Other comprehensive income (loss)	16.2		(3.7)		(49.5)		13.9		Other comprehensive income (loss)	(3.7)		9.5		13.9		47.7
Comprehensive loss	Comprehensive loss	$	(85.0)	$	(38.5)	$	(231.5)	$	(121.5)	Comprehensive loss	$	(38.5)	$	(502.2)	$	(121.5)	$	(543.1)

Net loss per share:	Net loss per share:									Net loss per share:
Basic and diluted	Basic and diluted	$	(0.54)	$	(0.17)	$	(1.05)	$	(0.65)	Basic and diluted	$	(0.17)	$	(2.43)	$	(0.65)	$	(2.80)

Weighted average number of shares outstanding:	Weighted average number of shares outstanding:									Weighted average number of shares outstanding:
Basic and diluted	Basic and diluted	186.7		209.3		172.6		207.3		Basic and diluted	209.3		210.8		207.3		210.7

See accompanying notes to the unaudited consolidated financial statements.

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Table of of Contents

RACKSPACE TECHNOLOGY, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


		Nine Months Ended September 30,					Nine Months Ended September 30,
(In millions)	(In millions)	2020		2021		(In millions)	2021		2022
Cash Flows From Operating Activities	Cash Flows From Operating Activities					Cash Flows From Operating Activities
Net loss	Net loss	$	(182.0)	$	(135.4)	Net loss	$	(135.4)	$	(590.8)
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	355.1		321.2		Depreciation and amortization	321.2		296.4
Amortization of operating right-of-use assets	Amortization of operating right-of-use assets	50.7		51.4		Amortization of operating right-of-use assets	51.4		44.0
Deferred income taxes	Deferred income taxes	(40.2)		(35.2)		Deferred income taxes	(35.2)		(46.7)
Share-based compensation expense	Share-based compensation expense	56.8		56.7		Share-based compensation expense	56.7		59.5

Impairment of goodwill						Impairment of goodwill	—		405.2
Impairment of assets						Impairment of assets	—		58.7
Gain on sale of land	Gain on sale of land	—		(19.9)		Gain on sale of land	(19.9)		—
Debt modification and extinguishment costs	Debt modification and extinguishment costs	37.0		37.5		Debt modification and extinguishment costs	37.5		—
Unrealized (gain) loss on derivative contracts		(2.6)		12.7
(Gain) loss on investments, net		(0.9)		3.6
Unrealized loss on derivative contracts						Unrealized loss on derivative contracts	12.7		13.9
Loss on investments, net						Loss on investments, net	3.6		0.4
Provision for bad debts and accrued customer credits	Provision for bad debts and accrued customer credits	11.0		(6.1)		Provision for bad debts and accrued customer credits	(6.1)		6.7
Amortization of debt issuance costs and debt discount	Amortization of debt issuance costs and debt discount	13.9		6.8		Amortization of debt issuance costs and debt discount	6.8		6.0
Non-cash fair value adjustments						Non-cash fair value adjustments	—		3.0
Other operating activities	Other operating activities	(2.5)		(1.3)		Other operating activities	(1.3)		(0.3)

Changes in operating assets and liabilities:	Changes in operating assets and liabilities:					Changes in operating assets and liabilities:
Accounts receivable	Accounts receivable	(92.7)		(44.6)		Accounts receivable	(44.6)		(50.8)
Prepaid expenses and other current assets	Prepaid expenses and other current assets	(13.7)		20.1		Prepaid expenses and other current assets	20.1		2.4
Accounts payable, accrued expenses, and other current liabilities	Accounts payable, accrued expenses, and other current liabilities	(10.4)		87.1		Accounts payable, accrued expenses, and other current liabilities	87.1		46.6
Deferred revenue	Deferred revenue	(7.2)		14.4		Deferred revenue	14.4		(15.3)
Operating lease liabilities	Operating lease liabilities	(43.4)		(49.1)		Operating lease liabilities	(49.1)		(50.3)
Other non-current assets and liabilities	Other non-current assets and liabilities	3.8		(8.7)		Other non-current assets and liabilities	(8.7)		30.6
Net cash provided by operating activities	Net cash provided by operating activities	132.7		311.2		Net cash provided by operating activities	311.2		219.2
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	(97.6)		(87.2)		Purchases of property, equipment and software	(87.2)		(65.4)
Acquisitions, net of cash acquired						Acquisitions, net of cash acquired	—		(7.7)
Proceeds from sale of land	Proceeds from sale of land	—		31.3		Proceeds from sale of land	31.3		—
Purchase of convertible promissory note						Purchase of convertible promissory note	—		(15.0)

Other investing activities	Other investing activities	5.4		3.7		Other investing activities	3.7		4.6
Net cash used in investing activities	Net cash used in investing activities	(92.2)		(52.2)		Net cash used in investing activities	(52.2)		(83.5)
Cash Flows From Financing Activities	Cash Flows From Financing Activities					Cash Flows From Financing Activities
Proceeds from issuance of common stock, net		659.1		—

Proceeds from employee stock plans	Proceeds from employee stock plans	11.3		51.4		Proceeds from employee stock plans	51.4		2.7
Shares of common stock withheld for employee taxes		(2.0)		—

Shares of common stock repurchased						Shares of common stock repurchased	—		(31.0)

Proceeds from borrowings under long-term debt arrangements	Proceeds from borrowings under long-term debt arrangements	310.0		2,838.5		Proceeds from borrowings under long-term debt arrangements	2,838.5		—
Payments on long-term debt	Payments on long-term debt	(811.3)		(2,872.1)		Payments on long-term debt	(2,872.1)		(17.3)
Payments for debt issuance costs	Payments for debt issuance costs	(1.4)		(34.5)		Payments for debt issuance costs	(34.5)		—
Payments on financing component of interest rate swap	Payments on financing component of interest rate swap	—		(8.6)		Payments on financing component of interest rate swap	(8.6)		(12.9)
Principal payments of finance lease liabilities	Principal payments of finance lease liabilities	(14.3)		(35.7)		Principal payments of finance lease liabilities	(35.7)		(49.6)
Proceeds from financing obligations		20.9		—

Principal payments of financing obligations	Principal payments of financing obligations	(43.8)		(40.6)		Principal payments of financing obligations	(40.6)		(37.4)
Net cash provided by (used in) financing activities		128.5		(101.6)
Other financing activities						Other financing activities	—		(3.3)
Net cash used in financing activities						Net cash used in financing activities	(101.6)		(148.8)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash	Effect of exchange rate changes on cash, cash equivalents, and restricted cash	0.4		(2.1)		Effect of exchange rate changes on cash, cash equivalents, and restricted cash	(2.1)		(10.2)
Increase in cash, cash equivalents, and restricted cash		169.4		155.3
Increase (decrease) in cash, cash equivalents, and restricted cash						Increase (decrease) in cash, cash equivalents, and restricted cash	155.3		(23.3)
Cash, cash equivalents, and restricted cash at beginning of period	Cash, cash equivalents, and restricted cash at beginning of period	87.1		108.1		Cash, cash equivalents, and restricted cash at beginning of period	108.1		275.4
Cash, cash equivalents, and restricted cash at end of period	Cash, cash equivalents, and restricted cash at end of period	$	256.5	$	263.4	Cash, cash equivalents, and restricted cash at end of period	$	263.4	$	252.1

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Table of of Contents


Supplemental Cash Flow Information	Supplemental Cash Flow Information					Supplemental Cash Flow Information
Cash payments for interest, net of amount capitalized	Cash payments for interest, net of amount capitalized	$	188.1	$	132.3	Cash payments for interest, net of amount capitalized	$	132.3	$	127.1
Cash payments for income taxes, net of refunds	Cash payments for income taxes, net of refunds	$	13.3	$	7.5	Cash payments for income taxes, net of refunds	$	7.5	$	9.0

Non-cash Investing and Financing Activities	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	$	77.1	$	52.6	Acquisition of property, equipment and software by finance leases	$	52.6	$	19.6
Acquisition of property, equipment and software by financing obligations	Acquisition of property, equipment and software by financing obligations	20.5		42.7		Acquisition of property, equipment and software by financing obligations	42.7		7.1
Decrease in property, equipment and software accrued in liabilities		(21.1)		(6.8)
Increase (decrease) in property, equipment and software accrued in liabilities						Increase (decrease) in property, equipment and software accrued in liabilities	(6.8)		6.9
Non-cash purchases of property, equipment and software	Non-cash purchases of property, equipment and software	$	76.5	$	88.5	Non-cash purchases of property, equipment and software	$	88.5	$	33.6

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

Offering costs included in accrued liabilities		$	1.3	$	—

Other non-cash investing and financing activities	Other non-cash investing and financing activities	$	2.8	$	0.7	Other non-cash investing and financing activities	$	0.7	$	—

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.


		Nine Months Ended September 30,					Nine Months Ended September 30,
(In millions)	(In millions)	2020		2021		(In millions)	2021		2022
Cash and cash equivalents	Cash and cash equivalents	$	253.2	$	260.0	Cash and cash equivalents	$	260.0	$	249.1
Restricted cash included in other non-current assets	Restricted cash included in other non-current assets	3.3		3.4		Restricted cash included in other non-current assets	3.4		3.0
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	$	256.5	$	263.4	Total cash, cash equivalents, and restricted cash shown in the statement of cash flows	$	263.4	$	252.1

See accompanying notes to the unaudited consolidated financial statements.

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RACKSPACE TECHNOLOGY, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(Unaudited)

(In millions) Common Stock Additional Paid-In Capital Accumulated Other Comprehensive Loss Accumulated Deficit Total Stockholders' Equity
Shares Amount
Balance at June 30, 2020 165.6 $ 1.6 $ 1,619.2 $ (53.7) $ (798.3) $ 768.8
Issuance of common stock 33.5 0.4 657.4 — — 657.8
Exercise of stock options and release of stock awards, net of shares withheld 1.1 — 9.8 — — 9.8
Share-based compensation expense — — 40.2 — — 40.2
Net loss — — — — (101.2) (101.2)
Other comprehensive income — — — 16.2 — 16.2
Balance at September 30, 2020 200.2 $ 2.0 $ 2,326.6 $ (37.5) $ (899.5) $ 1,391.6


(In millions)	Common Stock			Additional Paid-In Capital		Accumulated Other Comprehensive Loss		Accumulated Deficit		Treasury Stock, at Cost			Total Stockholders' Equity
	Shares	Amount								Shares	Amount
Balance at June 30, 2021	209.0	$	2.1	$	2,445.3	$	(1.0)	$	(1,063.9)	—	$	—	$	1,382.5

Exercise of stock options and release of stock awards	0.9	—		7.9		—		—		—	—		7.9

Share-based compensation expense	—	—		19.1		—		—		—	—		19.1
Net loss	—	—		—		—		(34.8)		—	—		(34.8)
Other comprehensive loss	—	—		—		(3.7)		—		—	—		(3.7)
Balance at September 30, 2021	209.9	$	2.1	$	2,472.3	$	(4.7)	$	(1,098.7)	—	$	—	$	1,371.0


(In millions)	(In millions)	Common Stock			Additional Paid-In Capital				Accumulated Other Comprehensive Income (Loss)			Accumulated Deficit				Total Stockholders' Equity			(In millions)	Common Stock					Additional Paid-In Capital				Accumulated Other Comprehensive Loss			Accumulated Deficit				Treasury Stock, at Cost					Total Stockholders' Equity
		Shares	Amount								Shares								Amount									Shares							Amount
Balance at December 31, 2019		165.4	$	1.6			$	1,602.7						$	12.0			$	(717.5)		$	898.8
Balance at December 31, 2020																			Balance at December 31, 2020	201.8			$	2.0		$	2,363.6			$	(18.6)		$	(963.3)			—		$	—		$	1,383.7
Issuance of common stock	Issuance of common stock	33.5	0.4		657.4				—			—				657.8			Issuance of common stock	2.7			—		—				—			—				—		—			—
Exercise of stock options and release of stock awards, net of shares withheld		1.3	—		9.7				—			—				9.7

Exercise of stock options and release of stock awards																			Exercise of stock options and release of stock awards	5.0			0.1		45.7				—			—				—		—			45.8
Issuance of shares from Employee Stock Purchase Plan																			Issuance of shares from Employee Stock Purchase Plan	0.4			—		6.3				—			—				—		—			6.3
Share-based compensation expense	Share-based compensation expense	—	—		56.8				—			—				56.8			Share-based compensation expense	—			—		56.7				—			—				—		—			56.7
Net loss	Net loss	—	—		—				—			(182.0)				(182.0)			Net loss	—			—		—				—			(135.4)				—		—			(135.4)
Other comprehensive loss		—	—		—				(49.5)			—				(49.5)
Balance at September 30, 2020		200.2	$	2.0	$	2,326.6			$	(37.5)		$	(899.5)			$	1,391.6
Other comprehensive income																			Other comprehensive income	—			—		—				13.9			—				—		—			13.9
Balance at September 30, 2021																			Balance at September 30, 2021	209.9			$	2.1	$	2,472.3			$	(4.7)		$	(1,098.7)			—		$	—		$	1,371.0

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(In millions)	(In millions)	Common Stock			Additional Paid-In Capital				Accumulated Other Comprehensive Loss			Accumulated Deficit				Total Stockholders' Equity			(In millions)	Common Stock					Additional Paid-In Capital				Accumulated Other Comprehensive Income			Accumulated Deficit				Treasury Stock, at Cost					Total Stockholders' Equity
		Shares	Amount								Shares								Amount									Shares							Amount
Balance at June 30, 2021		209.0	$	2.1			$	2,445.3						$	(1.0)			$	(1,063.9)		$	1,382.5
Balance at June 30, 2022																			Balance at June 30, 2022	213.5			$	2.1		$	2,542.9			$	45.1		$	(1,260.7)			3.1		$	(31.0)		$	1,298.4

Exercise of stock options and release of stock awards	Exercise of stock options and release of stock awards	0.9	—		7.9				—			—				7.9			Exercise of stock options and release of stock awards	0.7			—		—				—			—				—		—			—

Share-based compensation expense	Share-based compensation expense	—	—		19.1				—			—				19.1			Share-based compensation expense	—			—		19.4				—			—				—		—			19.4
Net loss	Net loss	—	—		—				—			(34.8)				(34.8)			Net loss	—			—		—				—			(511.7)				—		—			(511.7)
Other comprehensive loss		—	—		—				(3.7)			—				(3.7)
Balance at September 30, 2021		209.9	$	2.1	$	2,472.3			$	(4.7)		$	(1,098.7)			$	1,371.0
Other comprehensive income																			Other comprehensive income	—			—		—				9.5			—				—		—			9.5

Balance at September 30, 2022																			Balance at September 30, 2022	214.2			$	2.1	$	2,562.3			$	54.6		$	(1,772.4)			3.1		$	(31.0)		$	815.6


(In millions)	(In millions)	Common Stock			Additional Paid-In Capital				Accumulated Other Comprehensive Loss			Accumulated Deficit				Total Stockholders' Equity			(In millions)	Common Stock					Additional Paid-In Capital				Accumulated Other Comprehensive Income			Accumulated Deficit				Treasury Stock, at Cost					Total Stockholders' Equity
		Shares	Amount								Shares								Amount									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	—		—				—			—				—
Balance at December 31, 2021																			Balance at December 31, 2021	211.2			$	2.1		$	2,500.0			$	6.9		$	(1,181.6)			—		$	—		$	1,327.4

Exercise of stock options and release of stock awards	Exercise of stock options and release of stock awards	5.0	0.1		45.7				—			—				45.8			Exercise of stock options and release of stock awards	2.7			—		0.7				—			—				—		—			0.7
Issuance of shares from Employee Stock Purchase Plan		0.4	—		6.3				—			—				6.3
Issuance of shares from Employee Stock Purchase Plans																			Issuance of shares from Employee Stock Purchase Plans	0.3			—		2.1				—			—				—		—			2.1
Share-based compensation expense	Share-based compensation expense	—	—		56.7				—			—				56.7			Share-based compensation expense	—			—		59.5				—			—				—		—			59.5
Net loss	Net loss	—	—		—				—			(135.4)				(135.4)			Net loss	—			—		—				—			(590.8)				—		—			(590.8)
Other comprehensive income	Other comprehensive income	—	—		—				13.9			—				13.9			Other comprehensive income	—			—		—				47.7			—				—		—			47.7
Balance at September 30, 2021		209.9	$	2.1	$	2,472.3			$	(4.7)		$	(1,098.7)			$	1,371.0
Repurchase of common stock																			Repurchase of common stock	—			—		—				—			—				3.1		(31.0)			(31.0)
Balance at September 30, 2022																			Balance at September 30, 2022	214.2			$	2.1	$	2,562.3			$	54.6		$	(1,772.4)			3.1		$	(31.0)		$	815.6

See accompanying notes to the unaudited consolidated financial statements.

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RACKSPACE TECHNOLOGY, INC.

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") is a Delaware corporation controlled by investment funds affiliated with Apollo Global Management, Inc. and its subsidiaries (“Apollo”). Rackspace Technology was formed on July 21, 2016 but had no assets, liabilities or operating results until November 3, 2016 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 January 18, 2022, we acquired 100% of Just Analytics Pte. Ltd. ("Just Analytics"), a leading provider of cloud-based data, analytics, and artificial intelligence services based in the Asia, Pacific and Japan region. The acquisition was completed for $7.7 million in cash consideration, net of cash acquired, together with future deferred payments that are considered post-combination compensation costs and will be recognized over the next three years. The acquisition of Just Analytics was not material to 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 September 30, ~~2021,~~2022, and for the three and nine months ended September 30, ~~2020~~2021 and ~~2021,~~2022, have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information. Accordingly, certain financial information and disclosures required for financial statements prepared under GAAP have been omitted in accordance with the ~~SEC~~Securities and Exchange Commission ("SEC") disclosure rules and regulations that permit reduced disclosure for interim periods. These unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the related notes thereto included in our Annual Report on Form 10-K for the year ended December 31, ~~2020~~2021 ("Annual ~~Report on Form 10-K"~~Report"). The unaudited interim consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements included in 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 September 30, ~~2021,~~2022, our results of operations and stockholders' equity for the three and nine months ended September 30, ~~2020~~2021 and ~~2021,~~2022, and our cash flows for the nine months ended September 30, ~~2020~~2021 and ~~2021.~~2022.

The results of operations for the three and nine months ended September 30, ~~2021~~2022 are not necessarily indicative of the results of operations to be expected for the year ending December 31, ~~2021,~~2022, 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,~~credit losses, 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 (and any variations thereof) 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, there are remaining uncertainties as a result of COVID-19, particularly the ~~ultimate extent~~possibility of new variant strain(s) of the ~~impact of COVID-19 on our operational and financial performance will depend on certain developments, including~~virus, the ~~duration and severity of the outbreak, the pace of economic recovery, the possible~~potential resurgence in the spread of the virus ~~or any variant strain(s)~~and the pace of the 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 ofeconomic recovery, which ~~are uncertain and cannot be predicted. We~~ continue to ~~face a greater degree of uncertainty in making~~impact the estimates and assumptions needed to prepare our consolidated financial statements and ~~footnotes~~footnotes.

Russia and Ukraine Conflict

Political and economic uncertainty surrounding the Russian conflict in Ukraine could have a material adverse effect on our business. Currently, the conflict has not had a significant impact on our operations or financial performance. However, our overall performance depends in part on worldwide economic and geopolitical conditions. We are monitoring the situation and the potential for the conflict to spread to other countries which could adversely impact our customers and operations, and we may take actions that modify 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.

Subsequent Events

In October 2022, we announced our intention to sell our current corporate headquarters facility located in Windcrest, Texas and relocate our corporate headquarters to leased office space in San Antonio, Texas. Due to current real estate market conditions and the unique nature of the facility, the ultimate sale price of the property will likely be below its current net book value resulting in the recognition of an impairment charge or a ~~result~~loss on the sale, the amount of ~~COVID-19.~~which could be material.

Significant Accounting Policies and Estimates

Our 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. There were no material changes to our significant accounting policies and estimates during the nine months ended September 30, ~~2021, other than the addition of our policy regarding restructuring activities, discussed below.~~

~~Restructuring Activities~~2022.

~~We record restructuring activities including costs for one-time termination benefits in accordance with Accounting Standards Codification ("ASC") No. 420,~~

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~~Exit or Disposal Cost Obligations~~ ~~(“ASC 420”)~~. ~~The timing~~Table of recognition for severance costs accounted for under ASC 420 depends on whether employees are required to render service until they are terminated in order to receive the termination benefits. If employees are required to render service until they are terminated in order to receive the termination benefits, a liability is recognized ratably over the future service period. Otherwise, a liability is recognized when management has committed to a restructuring plan Contents

Goodwill, Indefinite-Lived Intangible Assets and ~~has communicated those actions to employees.~~Long-Lived Assets

~~Under ASC 420-10, we establish a liability for a cost associated with an exit or disposal activity, including severance and non-lease contract termination obligations, and other related costs, when~~Goodwill represents the ~~liability is incurred, rather than~~excess of the purchase price over the fair value of identifiable net assets of businesses acquired. Our indefinite-lived intangible asset consists of our Rackspace trade name, which was recorded at fair value on our balance sheet at the date of the Rackspace Acquisition. Goodwill and indefinite-lived intangible assets are not amortized but are subject to impairment testing on an annual basis as of October 1st or more frequently if events or circumstances indicate a potential impairment. These events or circumstances could include a significant change in the business climate, regulatory environment, established business plans, operating performance indicators or competition. Potential impairment indicators may also include, but are not limited to, (i) significant changes to estimates and assumptions used in the most recent annual or interim impairment testing, (ii) downward revisions to internal forecasts, and the magnitude thereof, (iii) declines in our market capitalization below our book value, and the magnitude and duration of those declines, and (iv) other macroeconomic factors, such as increases in interest rates that ~~we commit to an exit plan. We reassess~~may affect the ~~expected~~weighted average cost ~~to complete~~of capital, volatility in the ~~exit~~equity and debt markets, or ~~disposal activities at the end~~fluctuations in foreign currency exchange rates that may negatively impact our reported results of ~~each reporting period and adjust our remaining estimated liabilities, if necessary.~~operations.

~~See Note 8, "July 2021 Restructuring Plan," for additional information.~~During the third quarter of 2022, we experienced a sustained decline in our stock price resulting in our market capitalization being less than the carrying value of our combined reporting units. As of September 1, 2022, we assessed several events and circumstances that could affect the significant inputs used to determine the fair value of our reporting units, including the significance of the amount of excess carrying value over fair value, consistency of operating margins and cash flows, budgeted-to-actual performance from prior year, overall change in economic climate, changes in the industry and competitive environment, and earnings quality and sustainability. In addition, as of September 1, 2022, we lowered our projected operating results primarily due to product mix shifts and market concerns related to inflation, supply chain disruption issues and other macroeconomic factors. After considering all available evidence in our evaluation of goodwill impairment indicators, we determined it appropriate to perform an interim quantitative assessment of our reporting units as of September 1, 2022. We engaged a third-party valuation specialist to assist in the performance of the impairment analysis of our reporting units.

~~Change~~Goodwill is tested for impairment at the reporting unit level. A reporting unit is an operating segment or one level below an operating segment (referred to as a component). We allocate goodwill to reporting units based on the reporting unit expected to benefit from the business combination. Assets and liabilities are assigned to each of our reporting units if they are employed by a reporting unit and are considered in ~~Accounting Estimate~~the determination of the reporting unit fair value. Certain assets and liabilities are shared by multiple reporting units, and thus, are allocated to each reporting unit based on the relative size of a reporting unit, primarily based on revenue. We have two reporting units with goodwill: Multicloud Services and Apps & Cross Platform. Goodwill allocated to our third reporting unit, OpenStack Public Cloud, was fully impaired during the fourth quarter of 2021.

~~In March 2021,~~For the interim quantitative goodwill impairment analysis performed as of September 1, 2022, we ~~completed an assessment~~compared the fair values of each of our reporting units to their respective carrying amounts. The fair values of each of our reporting units were derived using the income approach, specifically the discounted cash flow method. The discounted cash flow models reflect our assumptions regarding revenue growth rates, risk-adjusted discount rates, terminal period growth rates, economic and market trends and other expectations about the anticipated operating results of our reporting units. As part of the ~~useful lives~~goodwill impairment test, we also consider our market capitalization in assessing the reasonableness of ~~certain assets within~~ the ~~Computers and equipment asset class.~~ combined fair values estimated for our reporting units, including OpenStack Public Cloud. Goodwill impairment is measured as the excess of a reporting unit’s carrying amount over its fair value, not to exceed the carrying amount of goodwill for that reporting unit.

The ~~timing~~results of ~~this review was based on a combination~~our interim quantitative goodwill impairment analysis performed as of ~~factors accumulating over time that provided the company with updated information to make a better estimate on the economic lives~~September 1, 2022 indicated an impairment 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 revisiongoodwill within our ~~policy ranges for certain useful lives~~Multicloud Services reporting unit, and we recorded a non-cash impairment charge of $405.2 million within "Impairment of goodwill" in ~~this asset class. This change in accounting estimate was effective in the first quarter~~our Consolidated Statements of ~~2021. The effect of this change was a reduction in depreciation expense of $5.3 million and $19.4 million~~Comprehensive Loss for the three and nine months ended September 30, ~~2021, respectively.~~2022. See Note 5, "Goodwill and Intangible Assets" for more information.

~~Reclassifications~~

~~Certain reclassifications have been made~~Our indefinite-lived intangible asset is tested for impairment at the consolidated level. In evaluating the recoverability of the Rackspace trade name, we compared the fair value of the asset to its carrying amount to determine potential impairment. As of September 1, 2022, due to the prior period consolidated financial statements to conform to the current period presentation. The current portion of "Finance lease liabilities" is now presented separately from "Other current liabilities"factors discussed in the goodwill analysis above, we performed a quantitative assessment of our indefinite-lived intangible asset utilizing a relief from royalty method and determined the estimated fair value of the Rackspace trade name was less than its carrying value. As a result, we recorded a $21.0 million non-cash impairment charge which is included in "Impairment of assets" in our Consolidated ~~Balance Sheets.~~

Statements of Comprehensive Loss for the three and nine months ended September 30, 2022.

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~~Recently Adopted~~The fair value determination of our reporting units and our indefinite-lived intangible asset is judgmental in nature and requires the use of significant estimates and assumptions that are sensitive to changes. Assumptions include estimation of the royalty rate, estimation of future revenue and projected margins, which are dependent on internal cash flow forecasts, estimation of the terminal growth rates and capital spending, and determination of discount rates. As a result, there can be no assurance that the estimates and assumptions made for purposes of the quantitative goodwill and indefinite-lived intangible impairment tests will prove to be an accurate prediction of future results. Examples of events or circumstances that could reasonably be expected to negatively affect the underlying key assumptions and ultimately impact the estimated fair value of our reporting units may include such items as: (i) volatility in the equity and debt markets or other macroeconomic factors, (ii) an increase in the weighted-average cost of capital due to further increases in interest rates, (iii) decrease in future cash flows due to lower than expected sales, or (iv) fluctuations in foreign currency exchange rates that may negatively impact our reported results of operations. Accordingly, if our current cash flow assumptions are not realized, we experience further sustained declines in our stock price or market capitalization, or increases in costs of capital, it is possible that an additional impairment charge may be recorded in the future, which could be material.

Long-lived assets, including operating and finance lease assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. As of September 1, 2022, prior to performing the goodwill impairment analysis, we performed a recoverability test of our long-lived assets, including finite-lived intangible assets, by comparing the net book value of our long-lived assets or asset groups, to the future undiscounted net cash flows attributable to such assets. Based on the results of the recoverability test, we determined that, as of September 1, 2022, the fair value of the OpenStack Public Cloud asset group’s underlying assets was less than the carrying value. Fair values of the OpenStack Public Cloud long-lived assets were determined using the cost approach. The cost approach utilized assumptions for the current replacement costs of similar assets adjusted for estimated depreciation and deterioration of the existing equipment and economic obsolescence. Estimates of floor values for the property, equipment and software, net, were considered relative to potential economic support for the assets such that the concluded value did not fall below the estimated floor value of these assets.

As a result, we recorded non-cash impairment charges totaling $37.7 million related to property, equipment and software, net and intangible assets, which are included in "Impairment of assets" on our Consolidated Statements of Comprehensive Loss for the three and nine months ended September 30, 2022. See Note 4, "Property, Equipment and Software, Net," and Note 5, "Goodwill and Intangible Assets," for more information.

The fair value of our non-financial assets and liabilities, which include goodwill, intangible assets and property, plant and equipment, are measured on a non-recurring basis. The fair value of our reporting units, indefinite-lived intangible assets and long-lived assets are classified as Level 3 within the fair value hierarchy due to the significant unobservable inputs developed using company-specific information.

Recent Accounting Pronouncements

~~Simplifying the Accounting for Income Taxes~~Recently Adopted

Business Combinations

In ~~December 2019,~~October 2021, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. ~~2019-12,~~2021-08, ~~Income Taxes (Topic 740)~~Business Combinations (ASC 805) - ~~Simplifying the~~ Accounting for ~~Income Taxes~~Contract Assets and Contract Liabilities from Contracts with Customers~~, which removes certain exceptions~~. ASU 2021-08 requires that an entity (acquirer) recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Accounting Standards Codification No. 606, Revenue from Contracts with Customers ("ASC 606"). At the acquisition date, an acquirer should account for the related revenue contracts in accordance with ASC 606 as if it had originated the contracts. To achieve this, an acquirer may assess how the acquiree applied ASC 606 to determine what to record for the ~~general principles~~acquired revenue contracts. This standard allows the company a practical expedient to remove the requirement to measure and recognize such contracts in ~~Topic 740 and improves consistent application of and simplifies GAAP for other areas of Topic 740 by clarifying and amending existing guidance.~~accordance with ASC 606. The guidance is applied prospectively upon adoption. We early adopted this guidance on January 1, ~~2021.~~2022 and applied the practical expedient to our accounting for the acquisition of Just Analytics. The adoption of ~~this~~the guidance did not have a ~~material~~material impact on our consolidated financial statements.

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Not Yet Adopted

Reference Rate Reform

The United Kingdom's Financial Conduct Authority, which regulates the London Interbank Offered Rate ("LIBOR"), announced that it will not compel panel banks to contribute to the overnight 1, 3, 6 and 12 months U.S. dollar LIBOR tenors after June 30, 2023 and all other tenors after December 31, 2021. U.S. dollar LIBOR may be replaced by the Secured Overnight Financing Rate or other benchmark rates over the next several years. In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (ASC 848) - Facilitation of the Effects of Reference Rate Reform on Financial Reporting containing 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 applied from March 12, 2020 through December 31, 2022 as reference rate reform activities occur. In January 2021, the FASB issued an update that provides supplemental guidance and clarification of the reference rate reform. We have elected to apply certain practical expedients in the past. We continue to evaluate the impact of the guidance and may apply other elections prior to December 31, 2022, as applicable, as additional changes in the market occur. Currently, borrowings under our Senior Facilities use LIBOR as a benchmark for establishing the applicable interest rate, but the First Lien Credit Agreement includes provisions relating to the future discontinuance of LIBOR and sets forth mechanics for establishing the replacement of LIBOR with an alternative benchmark rate.

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2. Customer Contracts

The following table presents the balances related to customer contracts:


(In millions)	(In millions)	Consolidated Balance Sheets Account	December 31, 2020		September 30, 2021		(In millions)	Consolidated Balance Sheets Account	December 31, 2021		September 30, 2022
Accounts receivable, net	Accounts receivable, net	Accounts receivable, net (1)	$	483.0	$	533.6	Accounts receivable, net	Accounts receivable, net (1)	$	554.3	$	593.4
Current portion of contract assets	Current portion of contract assets	Other current assets	12.2		14.9		Current portion of contract assets	Other current assets	$	15.2	$	14.7
Non-current portion of contract assets	Non-current portion of contract assets	Other non-current assets	13.9		12.9		Non-current portion of contract assets	Other non-current assets	$	13.1	$	12.6
Current portion of deferred revenue	Current portion of deferred revenue	Deferred revenue	76.7		91.5		Current portion of deferred revenue	Deferred revenue	$	98.6	$	88.3
Non-current portion of deferred revenue	Non-current portion of deferred revenue	Other non-current liabilities	14.2		13.5		Non-current portion of deferred revenue	Other non-current liabilities	$	13.6	$	6.6

(1) Allowance for ~~doubtful accounts~~credit losses and accrued customer credits was ~~$28.3~~$18.4 million and ~~$15.5~~$19.3 million as of December 31, ~~2020~~2021 and September 30, ~~2021,~~2022, respectively.

Amounts recognized in revenue for the three months ended September 30, ~~2020~~2021 and ~~2021,~~2022, which were included in deferred revenue as of the beginning of each period, totaled ~~$28.0~~$26.4 million and ~~$26.4~~$23.6 million, respectively. Amounts recognized in revenue for the nine months ended September 30, ~~2020~~2021 and ~~2021,~~2022, which were included in deferred revenue as of the beginning of each period, totaled ~~$55.6~~$54.7 million and ~~$54.7~~$59.1 million, respectively.

Cost Incurred to Obtain and Fulfill a Contract

As of December 31, ~~2020~~2021 and September 30, ~~2021,~~2022, the balances of capitalized costs to obtain a contract were ~~$59.3~~$58.0 million and ~~$55.8~~$55.7 million, respectively, and the balances of capitalized costs to fulfill a contract were ~~$25.0~~$23.5 million and ~~$24.9~~$18.7 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 was as follows:


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended September 30,				Nine Months Ended September 30,
(In millions)	(In millions)	2020		2021		2020		2021		(In millions)	2021		2022		2021		2022
Amortization of capitalized sales commissions	Amortization of capitalized sales commissions	$	11.0	$	11.1	$	33.2	$	32.6	Amortization of capitalized sales commissions	$	11.1	$	10.6	$	32.6	$	32.9
Amortization of capitalized implementation costs	Amortization of capitalized implementation costs	4.4		4.6		13.0		13.5		Amortization of capitalized implementation costs	$	4.6	$	3.9	$	13.5	$	12.5

Remaining Performance Obligations

As of September 30, ~~2021,~~2022, the aggregate amount of transaction price allocated to remaining performance obligations was ~~$754.0~~$645.4 million, of which ~~22%~~23% is expected to be recognized as revenue during ~~2021~~the remainder of 2022 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 revenue based on the right to invoice for the services performed.

Convertible Promissory Note

On September 27, 2022, we entered into a convertible note purchase agreement with a private company that is also a customer and a vendor. Pursuant to the purchase agreement, we purchased an unsecured convertible promissory note (the "Note") in an aggregate principal amount of $15.0 million. The Note will accrue simple interest at a rate of 6% per annum and matures on September 27, 2027, unless earlier converted per the terms of the agreement. We have elected to apply the fair value option under Accounting Standards Codification ("ASC") No. 825, Financial Instruments, to account for the Note. As of September 30, 2022, the fair value of the Note was $12.0 million and is included in "Other non-current assets" on our Consolidated Balance Sheets.

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3. Net Loss Per Share

Basic net loss per share is calculated by dividing net loss attributable to common stockholders by the weighted average shares outstanding during the period.

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


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended September 30,				Nine Months Ended September 30,
(In millions, except per share data)	(In millions, except per share data)	2020		2021		2020		2021		(In millions, except per share data)	2021		2022		2021		2022
Basic and diluted net loss per share:	Basic and diluted net loss per share:									Basic and diluted net loss per share:
Net loss attributable to common stockholders	Net loss attributable to common stockholders	$	(101.2)	$	(34.8)	$	(182.0)	$	(135.4)	Net loss attributable to common stockholders	$	(34.8)	$	(511.7)	$	(135.4)	$	(590.8)
Weighted average shares outstanding:	Weighted average shares outstanding:									Weighted average shares outstanding:
Common stock	Common stock	186.7		209.3		172.6		207.3		Common stock	209.3		210.8		207.3		210.7
Number of shares used in per share computations	Number of shares used in per share computations	186.7		209.3		172.6		207.3		Number of shares used in per share computations	209.3		210.8		207.3		210.7
Net loss per share	Net loss per share	$	(0.54)	$	(0.17)	$	(1.05)	$	(0.65)	Net loss per share	$	(0.17)	$	(2.43)	$	(0.65)	$	(2.80)

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. Since we were in a net loss position for all periods presented, basic net loss per share is the same as diluted net loss per share for all periods as the inclusion of all potential common shares outstanding would have been anti-dilutive. We excluded ~~26.5~~20.7 million and ~~20.7~~24.2 million potential common shares from the computation of dilutive loss per share for the three months ended September 30, ~~2020~~2021 and ~~2021,~~2022, respectively, and ~~26.5~~20.7 million and ~~20.7~~24.2 million potential shares for the nine months ended September 30, ~~2020~~2021 and ~~2021,~~2022, respectively, because the effect would have been anti-dilutive.

4. Property, Equipment and Software, net

Property, equipment and software, net, consisted of the following:


(In millions)	(In millions)	December 31, 2020		September 30, 2021		(In millions)	December 31, 2021		September 30, 2022
Computers and equipment	Computers and equipment	$	1,191.8	$	1,213.3	Computers and equipment	$	1,206.5	$	1,108.3
Software	Software	472.4		463.6		Software	465.6		464.4
Furniture and fixtures	Furniture and fixtures	22.4		21.9		Furniture and fixtures	21.9		16.7
Buildings and leasehold improvements	Buildings and leasehold improvements	513.1		513.2		Buildings and leasehold improvements	512.9		477.8
Land	Land	32.6		21.2		Land	21.2		20.4
Property, equipment and software, at cost	Property, equipment and software, at cost	2,232.3		2,233.2		Property, equipment and software, at cost	2,228.1		2,087.6
Less: Accumulated depreciation	Less: Accumulated depreciation	(1,366.8)		(1,384.8)		Less: Accumulated depreciation	(1,413.4)		(1,392.1)
Work in process	Work in process	19.1		12.8		Work in process	12.0		12.0
Property, equipment and software, net	Property, equipment and software, net	$	884.6	$	861.2	Property, equipment and software, net	$	826.7	$	707.5

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 nine months ended September 30, 2021.

For the three and nine months ended September 30, 2022, we recognized property, equipment and software impairment charges of $15.3 million related to the OpenStack Public Cloud long-lived assets. See Note 1, "Company Overview, Basis of Presentation, and Summary of Significant Accounting Policies," for discussion of the long-lived asset impairment charges.

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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:


(In millions)	(In millions)	Multicloud Services		Apps & Cross Platform		OpenStack Public Cloud		Total Consolidated		(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
Balance as of December 31, 2021										Balance as of December 31, 2021	$	2,384.3	$	322.5	$	—	$	2,706.8
Just Analytics acquisition										Just Analytics acquisition	—		5.9		—		5.9

Impairment of goodwill										Impairment of goodwill	(405.2)		—		—		(405.2)
Foreign currency translation	Foreign currency translation	(1.4)		(0.1)		(0.1)		(1.6)		Foreign currency translation	(36.3)		(0.6)		—		(36.9)
Balance as of September 30, 2021		$	2,384.6	$	322.5	$	52.4	$	2,759.5
Balance as of September 30, 2022										Balance as of September 30, 2022	$	1,942.8	$	327.8	$	—	$	2,270.6

Gross goodwill										Gross goodwill	$	2,643.0	$	327.8	$	52.4	$	3,023.2
Less: Accumulated impairment charges										Less: Accumulated impairment charges	(700.2)		—		(52.4)		(752.6)
Goodwill, net as of September 30, 2022										Goodwill, net as of September 30, 2022	$	1,942.8	$	327.8	$	—	$	2,270.6

~~(1) Multicloud Services had~~

As of September 30, 2022, our accumulated goodwill impairment charges totaled $752.6 million. See Note 1, "Company Overview, Basis of ~~$295.0 million as~~Presentation, and Summary of ~~December 31, 2020.~~Significant Accounting Policies," for discussion of the goodwill impairment charge recorded during the three and nine months ended September 30, 2022.

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


		December 31, 2020						September 30, 2021							December 31, 2021						September 30, 2022
(In millions)	(In millions)	Gross carrying amount		Accumulated amortization		Net carrying amount		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	$	1,986.2	$	(624.0)	$	1,362.2	$	1,983.0	$	(743.6)	$	1,239.4	Customer relationships	$	1,983.0	$	(784.1)	$	1,198.9	$	1,948.2	$	(897.8)	$	1,050.4
Property tax abatement	Property tax abatement	16.0		(7.4)		8.6		16.0		(8.7)		7.3		Property tax abatement	16.0		(9.2)		6.8		15.7		(10.5)		5.2
Other	Other	47.7		(22.2)		25.5		28.2		(16.1)		12.1		Other	28.2		(17.4)		10.8		27.4		(20.9)		6.5
Total definite-lived intangible assets	Total definite-lived intangible assets	2,049.9		(653.6)		1,396.3		2,027.2		(768.4)		1,258.8		Total definite-lived intangible assets	2,027.2		(810.7)		1,216.5		1,991.3		(929.2)		1,062.1
Trade name (indefinite-lived)	Trade name (indefinite-lived)	250.0		—		250.0		250.0		—		250.0		Trade name (indefinite-lived)	250.0		—		250.0		229.0		—		229.0
Total intangible assets other than goodwill	Total intangible assets other than goodwill	$	2,299.9	$	(653.6)	$	1,646.3	$	2,277.2	$	(768.4)	$	1,508.8	Total intangible assets other than goodwill	$	2,277.2	$	(810.7)	$	1,466.5	$	2,220.3	$	(929.2)	$	1,291.1

During the three and nine months ended September 30, 2022 we recognized impairment charges of $21.0 million and $22.4 million related to our trade name indefinite-lived intangible asset and the OpenStack Public Cloud definite-lived intangible assets, respectively. For additional information, see the discussion of our impairment charges in Note 1, "Company Overview, Basis of Presentation, and Summary of Significant Accounting Policies."

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6. Debt

Debt consisted of the following:


(In millions, except %)	(In millions, except %)		December 31, 2020			September 30, 2021			(In millions, except %)		December 31, 2021			September 30, 2022
Debt Instrument	Debt Instrument	Maturity Date	Interest Rate(1)	Amount		Interest Rate(1)	Amount		Debt Instrument	Maturity Date	Interest Rate(1)	Amount		Interest Rate(1)	Amount
Prior Term Loan Facility		November 3, 2023	4.00%	$	2,795.6	—%	$	—

Term Loan Facility	Term Loan Facility	February 15, 2028	—%	—		3.50%	2,288.5		Term Loan Facility	February 15, 2028	3.50%	$	2,282.8	5.62%	$	2,265.5
Revolving Credit Facility	Revolving Credit Facility	August 7, 2025	—%	—		—%	—		Revolving Credit Facility	August 7, 2025	—%	—		—%	—
3.50% Senior Secured Notes	3.50% Senior Secured Notes	February 15, 2028	—%	—		3.50%	550.0		3.50% Senior Secured Notes	February 15, 2028	3.50%	550.0		3.50%	550.0
5.375% Senior Notes	5.375% Senior Notes	December 1, 2028	5.375%	550.0		5.375%	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		—%	—

Less: unamortized debt issuance costs	Less: unamortized debt issuance costs			(44.2)			(37.7)		Less: unamortized debt issuance costs			(36.3)			(32.1)
Less: unamortized debt discount	Less: unamortized debt discount			(3.7)			(13.0)		Less: unamortized debt discount			(12.6)			(11.1)
Total debt	Total debt			3,362.7			3,337.8		Total debt			3,333.9			3,322.3
Less: current portion of debt	Less: current portion of debt			(43.4)			(23.0)		Less: current portion of debt			(23.0)			(23.0)
Debt, excluding current portion	Debt, excluding current portion			$	3,319.3		$	3,314.8	Debt, excluding current portion			$	3,310.9		$	3,299.3

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

Senior Facilities

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

On 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 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, or (b) a base rate determined by reference to the highest of (i) the federal funds rate plus 0.50%, (ii) the prime rate of Citibank, N.A. and (iii) the one-month adjusted LIBOR plus 1.00%. The applicable margin for the Term Loan Facility is 2.75% for LIBOR loans and 1.75% for base rate loans and the applicable margin for the Revolving Credit 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.

In addition to paying interest on the outstanding principal under the Senior Facilities, 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 commitment fee is subject to one step-down based on the net first lien leverage ratio.

As of September 30, ~~2021,~~2022, the interest rate on the Term Loan Facility was ~~3.50%~~5.62%. We are required to make quarterly principal payments of $5.8 million, which began on June 30, 2021. See Note ~~11,~~12, "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 September 30, ~~2021~~2022 was ~~$2,265.6~~$1,611.3 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.

Rackspace Technology Global 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 September 30, ~~2021,~~2022, we were in compliance with all covenants under the Senior Facilities.

The Revolving Credit Facility matures on August 7, 2025. As of September 30, ~~2021,~~2022, we had total commitments of $375.0 million and no outstanding borrowings under the Revolving Credit Facility or letters orof credit issued thereunder.

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. The indenture governing the 3.50% Senior Secured Notes (the "3.50% Notes Indenture") describes certain terms and conditions under which other current and future domestic subsidiaries are required to become guarantors of the 3.50% Senior Secured Notes.

Rackspace Technology Global may redeem the 3.50% Senior Secured Notes at its option, in whole at any time or in part from time to time, at the following redemption prices: prior to February 15, 2024, at a redemption price equal to 100.000% of the principal amount, plus the applicable premium described in the ~~indenture governing the~~ 3.50% ~~Senior Secured~~ Notes ~~(the "3.50% Notes Indenture")~~Indenture and accrued and unpaid interest, if any, to but excluding the redemption date; from February 15, 2024 to February 14, 2025, at a redemption price equal to 101.750% of the principal amount, plus accrued and unpaid interest, if any, to but excluding the redemption date; from February 15, 2025 to February 14, 2026, at a redemption price equal to 100.875% of the principal amount, plus accrued and unpaid interest, if any, to but excluding the redemption date; and from February 15, 2026 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. Rackspace Technology Global may also redeem prior to February 15, 2024 up to 40.0% of the aggregate principal amount of the 3.50% Senior Secured Notes with funds in an aggregate amount not to exceed the net cash proceeds from certain equity offerings at a redemption price equal to 103.500% of the principal amount of the 3.50% Senior Secured Notes to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date. Notwithstanding the foregoing, Rackspace Technology Global may redeem during each twelve-month period, commencing with February 9, 2021, up to 10.0% of the original aggregate principal amount of the 3.50% Senior Secured Notes at a redemption price of ~~103.00%~~103.000%, plus accrued and unpaid interest, if any, to, but excluding, the applicable redemption date.

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The 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 at a price in cash equal to ~~101%~~101.000% of the aggregate principal amount, plus accrued and unpaid interest, if any, to, but not including the purchase date.

As of September 30, ~~2021,~~2022, Rackspace Technology Global was in compliance with all covenants under the 3.50% Notes Indenture.

The fair value of the 3.50% Senior Secured Notes as of September 30, ~~2021~~2022 was ~~$529.4~~$360.3 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 3.50% Senior Secured Notes are classified as Level 2 within the fair value hierarchy.

5.375% Senior Notes due 2028

On December 1, 2020, Rackspace Technology Global issued $550.0 million aggregate principal amount of 5.375% Senior Notes due 2028 (the "5.375% Senior Notes"). The 5.375% Senior Notes will mature on December 1, 2028 and bear interest at an annual fixed rate of 5.375%. Interest is payable semiannually on each June 1 and December 1, commencing on June 1, 2021. The 5.375% Senior Notes are not subject to registration rights.

Rackspace Technology Global is the issuer of the 5.375% Senior Notes, and obligations under the 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 5.375% Senior Notes are effectively junior to the indebtedness under the Senior Facilities and the 3.50% Senior Secured Notes, to the extent of the collateral securing the Senior Facilities and the 3.50% Senior Secured Notes. The indenture governing the 5.375% Senior Notes (the "5.375% Notes Indenture") describes certain terms and conditions under which other current and future domestic subsidiaries are required to become guarantors of the 5.375% Senior Notes.

Rackspace Technology Global may redeem the 5.375% Senior Notes at its option, in whole at any time or in part from time to time, at the following redemption prices: prior to December 1, 2023, at a redemption price equal to 100.000% of the principal amount, plus the applicable premium described in the ~~indenture governing the~~ 5.375% ~~Senior~~ Notes ~~(the "5.375% Notes Indenture")~~Indenture and accrued and unpaid interest, if any, to but excluding the redemption date; from December 1, 2023 to ~~December 1,~~November 30, 2024, at a redemption price equal to 102.688% of the principal amount, plus accrued and unpaid interest, if any, to but excluding the redemption date; from December 1, 2024 to ~~December 1,~~November 30, 2025, at a redemption price equal to 101.344% of the principal amount, plus accrued and unpaid interest, if any, to but excluding the redemption date; and from December 1, 2025 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. Rackspace Technology Global may also redeem prior to December 1, 2023 up to 40.0% of the aggregate principal amount of the 5.375% Senior Notes with funds in an aggregate amount not to exceed the net cash proceeds from certain equity offerings at a redemption price equal to 105.375% of the principal amount of the 5.375% Senior Notes to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date.

The 5.375% 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 5.375% Notes Indenture. Additionally, upon the occurrence of a change of control (as defined in the 5.375% Notes Indenture), we will be required to make an offer to repurchase all of the outstanding 5.375% Senior Notes at a price in cash equal to ~~101.0%~~101.000% of the aggregate principal amount, plus accrued and unpaid interest, if any, to, but not including the purchase date.

As of September 30, ~~2021,~~2022, Rackspace Technology Global was in compliance with all covenants under the 5.375% Notes Indenture.

The fair value of the 5.375% Senior Notes as of September 30, ~~2021~~2022 was ~~$539.0~~$250.3 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.

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Accounts Receivable Financing Agreement

Under the accounts receivable financing agreement (the "Receivables Financing Facility") entered into in 2020, a bankruptcy-remote special purpose vehicle ("SPV") indirectly wholly owned by Rackspace Technology Global 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. Rackspace Technology Global was the primary beneficiary of the SPV.

During the nine months ended September 30, 2021, the SPV repaid the outstanding balance of $50.0 million and terminated the Receivables Financing Facility. The termination resulted in expense of $0.5 million recorded within "Debt modification and extinguishment costs" in our Consolidated Statements of Comprehensive Loss for the nine months ended September 30, 2021. The expense was comprised of the write-off of the unamortized debt issuance costs, as well as third party fees associated with the termination.

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 nine months ended September 30, 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.

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 are not a party to any litigation, the outcome of which, if determined adversely to us, would individually or in the aggregate be reasonably expected to have a material and adverse effect on our business, financial position or results of operations.

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8. July 2021 Restructuring Plan

On July 21, 2021, we committed to an internal restructuring plan (the "July 2021 Restructuring Plan") ~~which will~~to drive a change in the type and location of certain positions ~~and is~~that was expected to result in the termination of approximately 10% of our workforce. Substantially all of the employees impacted by the reduction in workforce were notified of the reduction on July 22, 2021 and ~~will exit~~have since exited the ~~company over the next 12 months.~~company.

During the three and nine months ended September 30, 2021, we incurred employee related costs, ~~primarily consisting~~which consisted of one-time termination benefits and certain contractual termination benefits with executives, and other costs, which ~~are~~were accounted for as exit and disposal costs under ASC ~~420.~~No. 420, Exit or Disposal Cost Obligations (“ASC 420”). Other costs consisted of professional fees ~~asset write-offs,~~ and ~~the impact of~~non-cash charges related to a contract termination with a third-party. These costs are recorded within "Selling, general and administrative expenses" in the Consolidated Statements of Comprehensive Loss, the components of which were as follows:


(In millions)	Three Months Ended September 30, 2021		Nine Months Ended September 30, 2021
Employee related costs	$	8.6	$	11.1
Other	7.5		11.4
Total restructuring charges	$	16.1	$	22.5

A portion of the other costs are non-cash charges, representing $4.4 million and $5.4 million in the three and nine months ended September 30, 2021, respectively. These amounts are related to ~~asset write-offs~~a contract termination with a third-party.

During the three and ~~the contract termination.~~nine months ended September 30, 2022, we did not incur any material exit and disposal costs under ASC 420.

Liability activity for previously accrued restructuring costs that are expected to be settled in cash are presented in the table below.


(In millions)	(In millions)	Employee Related		Other		Total		(In millions)	Employee Related		Other		Total
Liability as of March 31, 2021		$	—	$	—	$	—
Liability as of December 31, 2021								Liability as of December 31, 2021	$	7.1	$	0.6	$	7.7
Charges	Charges	2.5		2.9		5.4		Charges	—		—		—
Cash payments	Cash payments	—		—		—		Cash payments	(7.1)		(0.6)		(7.7)
Liability as of June 30, 2021		$	2.5	$	2.9	$	5.4
Charges		8.6		3.1		11.7
Cash payments		(1.4)		(0.1)		(1.5)
Liability as of September 30, 2021		$	9.7	$	5.9	$	15.6
Total cumulative costs incurred as of September 30, 2021		$	11.1	$	6.0	$	17.1
Total expected costs to be incurred		$	15.3	$	10.0	$	25.3

Liability as of September 30, 2022								Liability as of September 30, 2022	$	—	$	—	$	—
Total cumulative costs incurred as of September 30, 2022								Total cumulative costs incurred as of September 30, 2022	$	13.8	$	6.0	$	19.8

We do not expect to incur any additional future ASC 420 exit and disposal costs related to the July 2021 Restructuring Plan.

9. Share Repurchase Program

On March 3, 2022, our board of directors authorized a program to repurchase up to $75.0 million of shares of our common stock from time to time through open-market transactions, privately negotiated transactions, accelerated share repurchases, and other transactions in accordance with applicable security laws. The ~~liability for employee related costs was~~program expires on September 30, 2023 and can be discontinued at any time. During the nine months ended September 30, 2022, we repurchased $31.0 million, or 3.1 million shares, of our common stock on the open market under this program. No shares were repurchased during the three months ended September 30, 2022. Shares purchased pursuant to the program are recorded ~~in "Accrued compensation and benefits"~~as treasury stock at cost in the Consolidated Balance Sheets as. As of September 30, ~~2021. The liabilities~~2022, approximately $44.0 million of the amount authorized by the board under the current program remained available for ~~other costs were recorded in "Accounts payable and accrued expenses" and "Other current liabilities" in the Consolidated Balance Sheets as of~~ ~~September 30, 2021~~.

additional purchases.

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9.10. Share-Based Compensation

On April 21, 2022, the Board of Directors approved a proposed amendment to the Rackspace Technology, Inc. 2020 Equity Incentive Plan (the “2020 Incentive Plan”) to increase the maximum number of shares of our common stock available for issuance under the 2020 Incentive Plan from 25.0 million shares to 50.0 million shares, subject to stockholder approval. The proposed amendment was subsequently approved by our stockholders as part of the 2022 Annual Meeting of Stockholders held on June 10, 2022.

During the nine months ended September 30, ~~2021,~~2022, we granted ~~7.3~~8.2 million restricted stock units ("RSUs") under the ~~Rackspace Technology, Inc.~~ 2020 ~~Equity~~ Incentive Plan with a weighted-average grant date fair value of ~~$18.40.~~$10.16. The majority of the RSUs were granted as part of our annual compensation award process and vest ratably over a three-year period, subject to continued service.

~~Additionally, we have~~In addition, during the nine months ended September 30, 2022, 1.2 million performance stock units ("PSUs") were granted ~~certain~~under the 2020 Incentive Plan with a weighted-average grant date fair value of $11.70. These PSUs represent the target amount of grants, and the actual number of shares awarded upon vesting may vary depending upon the achievement of the relevant market condition which is based on Rackspace’s Total Shareholder Return (“TSR”) relative to the TSR of a comparator group of IT and Cloud Services Companies. The awards ~~with vesting dependent upon~~are eligible to vest in equal annual installments over three years based on the attainment of ~~predetermined financial performance results over~~ the ~~next three years. The performance metric that will determine vesting~~market condition and the employee’s continued service through the end of ~~these awards is Non-GAAP Operating Profit (as defined in~~ the applicable ~~award agreement) measured over~~measurement period and were valued using a ~~trailing four-quarter period. Share-based compensation expense is recognized when it is probable that the performance condition will be achieved.~~Monte Carlo simulation.

Share-based compensation expense recognized was as follows:


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended September 30,				Nine Months Ended September 30,
(In millions)	(In millions)	2020		2021		2020		2021		(In millions)	2021		2022		2021		2022
Cost of revenue	Cost of revenue	$	4.5	$	4.0	$	8.6	$	13.2	Cost of revenue	$	4.0	$	2.8	$	13.2	$	9.0
Selling, general and administrative expenses	Selling, general and administrative expenses	35.7		15.1		48.2		43.5		Selling, general and administrative expenses	15.1		16.6		43.5		50.5
Pre-tax share-based compensation expense	Pre-tax share-based compensation expense	40.2		19.1		56.8		56.7		Pre-tax share-based compensation expense	19.1		19.4		56.7		59.5
Less: Income tax benefit	Less: Income tax benefit	(8.4)		(4.0)		(11.9)		(11.9)		Less: Income tax benefit	(4.0)		(4.1)		(11.9)		(12.5)
Total share-based compensation expense, net of tax	Total share-based compensation expense, net of tax	$	31.8	$	15.1	$	44.9	$	44.8	Total share-based compensation expense, net of tax	$	15.1	$	15.3	$	44.8	$	47.0

As of September 30, ~~2021,~~2022, there was ~~$137.0~~$126.7 million of total unrecognized compensation cost related to stock options, RSUs, PSUs, and the ESPP, which will be recognized using the ~~straight-line method~~service period or over ~~a weighted average~~our best estimate of the period ~~of 2.2 years.~~over which the performance condition will be met, as applicable.

~~10.~~11. 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 p~~ositions,~~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 ~~months ending September 30, 2021, we had a release of historic tax reserves that resulted in a tax benefit of $13.4 million, due to the lapse of statute of limitations. For the three~~and nine months ended September 30, ~~2021,~~2022, our effective tax rate is ~~higher~~lower than the U.S. federal statutory rate of 21% primarily due to the tax impact associated with the goodwill impairment recorded in the third quarter, the majority of which was nondeductible for income tax purposes, as well as the net impact of the geographic distribution of our earnings which included the release of the aforementioned historic tax reserves, and 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. For the nine months ended September 30, 2021, our effective tax rate is higher than the U.S. federal statutory rate due to the net impact of the geographical distribution of our earnings, which included the release of the aforementioned historic tax reserves, and tax effects from nondeductible share-based compensation.

On August 16, 2022, the Inflation Reduction Act of 2022 (“IRA”) was enacted into law. The IRA introduces a new corporate minimum tax of 15% on global adjusted financial statement income. Additionally, the IRA imposes a 1% excise tax on stock repurchases made after December 31, 2022. We are currently evaluating the impact of the IRA but do not expect there will be a material impact to our consolidated financial statements.

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~~11.~~12. 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.~~risk. 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.

On a quarterly basis, we net settle with the counterparty for the difference between the fixed rate specified in each swap agreement and the variable rate based upon the three-month LIBOR as applied to the notional amount of the swap.

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. The cash flow hedges were expected to be highly effective on the designation date and, on a quarterly basis, we performed retrospective and prospective regression assessments to determine whether the cash flow hedges continue to be highly 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 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. ~~As of December 31, 2020, all of our cash flow hedges were highly effective.~~

During the ~~nine months~~year ended ~~September 30,~~December 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 2two 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 No. 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~~matured 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 No. 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 December 31, 2021 and September 30, ~~2021,~~2022, the cash flow hedge was highly effective.

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

Effective Date

Fixed Rate Paid (Received)

December 31, 2020

September 30, 2021

Effective Date

Fixed Rate Paid (Received)

December 31, 2021

September 30, 2022

Notional Amount (in millions)

Status

Notional Amount (in millions)

Status

Maturity Date

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

—

Matured

February 3, 2022

February 3, 2017

1.9040%

450.0

Active

450.0

Active

February 3, 2022

February 3, 2017

1.9040%

450.0

Active

—

Matured

February 3, 2022

Entered into December 2018:

February 3, 2019

2.7490%

150.0

Active

—

Terminated

November 3, 2023

February 3, 2019

2.7490%

—

Terminated

—

Terminated

November 3, 2023

February 3, 2020

2.7350%

150.0

Active

—

Terminated

November 3, 2023

February 3, 2020

2.7350%

—

Terminated

—

Terminated

November 3, 2023

February 3, 2021

2.7360%

150.0

Active

—

Terminated

November 3, 2023

February 3, 2021

2.7360%

—

Terminated

—

Terminated

November 3, 2023

February 3, 2022

2.7800%

900.0

Active

—

Terminated

November 3, 2023

February 3, 2022

2.7800%

—

Terminated

—

Terminated

November 3, 2023

Entered into February 2021:

February 3, 2021

(1.9040)%

—

N/A

(900.0)

Active

February 3, 2022

February 3, 2021

(1.9040)%

(900.0)

Active

—

Matured

February 3, 2022

February 9, 2021

2.3820%

—

N/A

1,350.0

Active

February 9, 2026

February 9, 2021

2.3820%

1,350.0

Active

1,350.0

Active

February 9, 2026

Total

2,400.0

1,350.0

Total

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.

~~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.

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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.

During 2020, we entered into a series of foreign currency contracts to manage our exposure to movements in the British pound sterling, Euro, and Mexican peso. These contracts had three-month terms and settlement dates throughout the year. The June 30, 2020 and September 30, 2020 settlement dates resulted in us making final net payments of $1.7 million and $1.6 million, respectively. As of December 31, 2020, there was no notional amount outstanding related to these contracts.

During the fourth quarter of 2020, we entered into 2 foreign currency forward contracts. Under the terms of these contracts, on November 30, 2021, we will sell a total of £80 million at an average rate of 1.3388 British pound sterling to U.S. dollar and receive $107.1 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."

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, ~~2020~~2021 and September 30, ~~2021~~2022 were as follows:


			December 31, 2020				September 30, 2021						December 31, 2021				September 30, 2022
(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)	$	—	$	—	$	5.5	$	—	Interest rate swaps	Other current assets (1)	$	1.5	$	—	$	—	$	—

Interest rate swaps	Interest rate swaps	Other current liabilities	—		—		—		5.5		Interest rate swaps	Other current liabilities	—		1.5		—		—

Foreign currency contracts		Other current assets	—		—		0.1		—

Foreign currency contracts		Other current liabilities	—		1.7		—		0.9

Total	Total		$	—	$	1.7	$	5.6	$	6.4	Total		$	1.5	$	1.5	$	—	$	—

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

Interest rate swaps											Interest rate swaps	Other current assets	$	—	$	—	$	36.6	$	—
Interest rate swaps	Interest rate swaps	Other non-current assets	$	—	$	—	$	12.9	$	—	Interest rate swaps	Other non-current assets	23.6		—		94.6		—
Interest rate swaps	Interest rate swaps	Other current liabilities (2)	—		22.6		—		21.4		Interest rate swaps	Other current liabilities (2)	—		20.8		—		17.3
Interest rate swaps	Interest rate swaps	Other non-current liabilities (3)	—		64.4		—		60.8		Interest rate swaps	Other non-current liabilities (3)	—		56.4		—		43.5
Total	Total		$	—	$	87.0	$	12.9	$	82.2	Total		$	23.6	$	77.2	$	131.2	$	60.8

(1) The entire balance as of ~~September 30,~~December 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 December 31, 2021 and September 30, ~~2021~~2022 includes $17.2 million and $17.3 million, respectively, related to the financing component of the pay-fixed interest rate swap.

(3) The entire balance ~~as of September 30, 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, 2020						September 30, 2021							December 31, 2021						September 30, 2022
(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		Effects of Counterparty Netting		Net Amounts		Gross Amounts on Balance Sheet		Effects of Counterparty Netting		Net Amounts
Assets	Assets													Assets
Interest rate swaps	Interest rate swaps	$	—	$	—	$	—	$	18.4	$	(18.4)	$	—	Interest rate swaps	$	25.1	$	(25.1)	$	—	$	131.2	$	(60.8)	$	70.4
Foreign currency contracts		—		—		—		0.1		(0.1)		—
Total		$	—	$	—	$	—	$	18.5	$	(18.5)	$	—

Liabilities	Liabilities													Liabilities
Interest rate swaps	Interest rate swaps	$	87.0	$	—	$	87.0	$	87.7	$	(18.4)	$	69.3	Interest rate swaps	$	78.7	$	(25.1)	$	53.6	$	60.8	$	(60.8)	$	—
Foreign currency contracts		1.7		—		1.7		0.9		(0.1)		0.8
Total		$	88.7	$	—	$	88.7	$	88.6	$	(18.5)	$	70.1

Effect of Derivatives on the Consolidated Statements of Comprehensive Loss

The effect of our derivatives and their location on the Consolidated Statements of Comprehensive Loss for the three and nine months ended September 30, ~~2020~~2021 and ~~2021~~2022 was as follows:


			Three Months Ended September 30,				Nine Months Ended September 30,						Three Months Ended September 30,				Nine Months Ended September 30,
(In millions)	(In millions)		2020		2021		2020		2021		(In millions)		2021		2022		2021		2022
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	$	—	$	(4.9)	$	(3.2)	$	(14.3)	Interest rate swaps	Interest expense	$	(4.9)	$	(4.7)	$	(14.3)	$	(13.9)

Foreign currency contracts(1)	Foreign currency contracts(1)	Other income (expense), net	(3.3)		2.9		0.3		0.9		Foreign currency contracts(1)	Other income (expense), net	$	2.9	$	—	$	0.9	$	—

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	$	(4.4)	$	(1.3)	$	(6.1)	$	(4.9)	Interest rate swaps	Interest expense	$	(1.3)	$	3.8	$	(4.9)	$	2.5

(1) Relates to two foreign currency forward contracts settled on November 30, 2021. As of December 31, 2021 and September 30, 2022, we do not have any outstanding foreign currency hedging contracts.

Interest expense was ~~$68.3~~$51.5 million and ~~$51.5~~$52.3 million for the three months ended September 30, ~~2020~~2021 and ~~2021,~~2022, respectively, and ~~$209.2~~$154.6 million and ~~$154.6~~$152.9 million for the nine months ended September 30, ~~2020~~2021 and ~~2021,~~2022, respectively. As of September 30, ~~2021,~~2022, the amount of cash flow hedge ~~losses~~gain included within "Accumulated other comprehensive income (loss)" that is expected to be reclassified as ~~an increase~~a reduction to "Interest expense" over the next 12 months is approximately ~~$23.6~~$24.9 million. See Note ~~12,~~13, "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 September 30, ~~2021,~~2022, our outstanding interest rate swap ~~agreements with an aggregate fair value of $87.7 million were~~agreement was in a net ~~liability~~asset position. However, if we were in default, our master netting arrangements with certain of our interest rate swap counterparties contain provisions which could result in net settlement of all outstanding agreements.

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~~12.~~13. Accumulated Other Comprehensive Income (Loss)

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

(In millions) Accumulated Foreign Currency Translation Adjustments Accumulated Loss on Derivative Contracts Accumulated Other Comprehensive Loss
Balance at June 30, 2020 $ (7.5) $ (46.2) $ (53.7)
Foreign currency translation adjustments, net of tax expense of $1.0 11.7 — 11.7
Unrealized gain on derivative contracts, net of tax expense of $0.4 — 1.3 1.3
Amount reclassified from Accumulated comprehensive income (loss) into earnings, net of tax benefit of $1.2(1)
— 3.2 3.2
Balance at September 30, 2020 $ 4.2 $ (41.7) $ (37.5)

~~(1) Includes interest expense recognized of $5.9 million, partially offset by amortization of off-market swap value of $1.5 million for the three months ended September 30, 2020.~~

(In millions) Accumulated Foreign Currency Translation Adjustments Accumulated Loss on Derivative Contracts Accumulated Other Comprehensive Income (Loss)
Balance at December 31, 2019 $ 12.0 $ — $ 12.0
Foreign currency translation adjustments, net of tax benefit of $0.4 (7.8) — (7.8)
Unrealized loss on derivative contracts, net of tax benefit of $15.9 — (46.2) (46.2)
Amount reclassified from Accumulated comprehensive income (loss) into earnings, net of tax benefit of $1.6 (1)
— 4.5 4.5
Balance at September 30, 2020 $ 4.2 $ (41.7) $ (37.5)

~~(1) Includes interest expense recognized of $10.3 million, partially offset by amortization of off-market swap value of $4.2 million for the nine months ended September 30, 2020.~~


(In millions)	(In millions)	Accumulated Foreign Currency Translation Adjustments		Accumulated Loss on Derivative Contracts		Accumulated Other Comprehensive Loss		(In millions)	Accumulated Foreign Currency Translation Adjustments		Accumulated Loss on Derivative Contracts		Accumulated Other Comprehensive Loss
Balance at June 30, 2021	Balance at June 30, 2021	$	26.5	$	(27.5)	$	(1.0)	Balance at June 30, 2021	$	26.5	$	(27.5)	$	(1.0)
Foreign currency translation adjustments, net of tax benefit of $0.8	Foreign currency translation adjustments, net of tax benefit of $0.8	(8.8)		—		(8.8)		Foreign currency translation adjustments, net of tax benefit of $0.8	(8.8)		—		(8.8)
Unrealized gain on derivative contracts, net of tax expense of $0.2	Unrealized gain on derivative contracts, net of tax expense of $0.2	—		0.6		0.6		Unrealized gain on derivative contracts, net of tax expense of $0.2	—		0.6		0.6
Amount reclassified from Accumulated comprehensive income (loss) into earnings, net of tax benefit of $1.6 (1)	Amount reclassified from Accumulated comprehensive income (loss) into earnings, net of tax benefit of $1.6 (1)	—		4.5		4.5		Amount reclassified from Accumulated comprehensive income (loss) into earnings, net of tax benefit of $1.6(1)	—		4.5		4.5
Balance at September 30, 2021	Balance at September 30, 2021	$	17.7	$	(22.4)	$	(4.7)	Balance at September 30, 2021	$	17.7	$	(22.4)	$	(4.7)

(1) Includes interest expense recognized of $1.2 million and amortization of off-market swap value and accumulated loss at hedge de-designation of $4.9 million for the three months ended September 30, 2021.

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(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 benefit of $0.5	(3.1)		—		(3.1)
Unrealized gain on derivative contracts, net of tax expense of $1.4	—		4.0		4.0
Amount reclassified from Accumulated comprehensive income (loss) into earnings, net of tax benefit of $4.5 (1)	—		13.0		13.0
Balance at September 30, 2021	$	17.7	$	(22.4)	$	(4.7)

(1) Includes interest expense recognized of $5.2 million and amortization of off-market swap value and accumulated loss at hedge de-designation of $12.3 million for the nine months ended September 30, 2021.


(In millions)	Accumulated Foreign Currency Translation Adjustments		Accumulated Gain on Derivative Contracts		Accumulated Other Comprehensive Income
Balance at June 30, 2022	$	(5.6)	$	50.7	$	45.1
Foreign currency translation adjustments, net of tax benefit of $1.7	(22.5)		—		(22.5)
Unrealized gain on derivative contracts, net of tax expense of $10.8	—		31.4		31.4
Amount reclassified from Accumulated comprehensive income (loss) into earnings, net of tax benefit of $0.2 (1)	—		0.6		0.6
Balance at September 30, 2022	$	(28.1)	$	82.7	$	54.6

(1) Include amortization of off-market swap value and accumulated loss at hedge de-designation of $4.7 million for the three months ended September 30, 2022, partially offset by a reduction to interest expense recognized of $3.9 million.

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(In millions)	Accumulated Foreign Currency Translation Adjustments		Accumulated Gain (Loss) on Derivative Contracts		Accumulated Other Comprehensive Income
Balance at December 31, 2021	$	17.2	$	(10.3)	$	6.9
Foreign currency translation adjustments, net of tax benefit of $3.9	(45.3)		—		(45.3)
Unrealized gain on derivative contracts, net of tax expense of $29.2	—		84.7		84.7
Amount reclassified from Accumulated comprehensive income (loss) into earnings, net of tax benefit of $2.9 (1)	—		8.3		8.3
Balance at September 30, 2022	$	(28.1)	$	82.7	$	54.6

(1) Includes amortization of off-market swap value and accumulated loss at hedge de-designation of $13.9 million for the nine months ended September 30, 2022, partially offset by a reduction to interest expense recognized of $2.7 million.

~~13.~~14. Related Party Transactions

~~In connection with the Rackspace Acquisition, we entered into a management consulting agreement with affiliates~~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 nine months ended September 30, 2020, we recorded $1.3 million and $8.4 million, respectively, of management consulting fees within "Selling, general and administrative expenses" in the Consolidated Statements of Comprehensive 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 (the “IPO”) 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 September 30, ~~2021,~~2022, the outstanding principal amount of the Term Loan Facility was ~~$2,288.5~~$2,265.5 million, of which ~~$47.8~~$56.2 million, or ~~2.1%~~2.5%, is due to ABRY affiliates.

~~As part of the IPO, Apollo Global Securities, LLC ("Apollo Global Securities"), an affiliate of Apollo, received fees of $2.7 million~~ Investment funds affiliated with ABRY are also co-investors in ~~connection with their role as an underwriter in the IPO.~~Rackspace Technology.

Apollo Global Securities, ~~also~~LLC, an affiliate of Apollo, received $0.6 million in connection with their role as an initial purchaser of the 3.50% Senior Secured Notes issued on February 9, 2021 and $2.3 million in arranger fees in connection with the entry into the Term Loan Facility on February 9, 2021.

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~~14.~~15. Segment Reporting

We have organized our operations into the following 3three 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 ~~non-GAAP~~segment gross ~~profit, which is a non-GAAP measure of profitability.~~profit. For the calculation of ~~non-GAAP~~segment 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 consolidated segment ~~non-GAAP~~ gross profit to ~~total~~ consolidated ~~gross profit~~loss before income taxes for the three and nine months ended September 30, ~~2020~~2021 and ~~2021.~~2022.


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended September 30,				Nine Months Ended September 30,
(In millions)	(In millions)	2020		2021		2020		2021		(In millions)	2021		2022		2021		2022
Revenue by segment:	Revenue by segment:									Revenue by segment:
Multicloud Services	Multicloud Services	$	542.1	$	625.1	$	1,569.0	$	1,809.8	Multicloud Services	$	625.1	$	649.7	$	1,809.8	$	1,923.1
Apps & Cross Platform	Apps & Cross Platform	83.9		92.8		245.3		282.8		Apps & Cross Platform	92.8		101.5		282.8		296.4
OpenStack Public Cloud	OpenStack Public Cloud	55.7		44.6		176.6		139.6		OpenStack Public Cloud	44.6		36.4		139.6		115.8

Total consolidated revenue	Total consolidated revenue	$	681.7	$	762.5	$	1,990.9	$	2,232.2	Total consolidated revenue	$	762.5	$	787.6	$	2,232.2	$	2,335.3

Non-GAAP gross profit by segment:
Segment gross profit:										Segment gross profit:
Multicloud Services	Multicloud Services	$	202.5	$	200.4	$	600.0	$	598.8	Multicloud Services	$	200.4	$	167.2	$	598.8	$	538.7
Apps & Cross Platform	Apps & Cross Platform	27.7		33.8		84.8		100.7		Apps & Cross Platform	33.8		34.8		100.7		104.8
OpenStack Public Cloud	OpenStack Public Cloud	25.3		16.1		78.3		50.8		OpenStack Public Cloud	16.1		9.7		50.8		35.5

Total consolidated segment gross profit										Total consolidated segment gross profit	250.3		211.7		750.3		679.0
Less:	Less:									Less:
Share-based compensation expense	Share-based compensation expense	(4.5)		(4.0)		(8.6)		(13.2)		Share-based compensation expense	(4.0)		(2.8)		(13.2)		(9.0)
Other compensation expense (1)	Other compensation expense (1)	(1.5)		(0.4)		(4.9)		(2.1)		Other compensation expense (1)	(0.4)		(0.4)		(2.1)		(1.6)

Purchase accounting impact on expense (2)	Purchase accounting impact on expense (2)	(1.2)		(1.2)		(4.7)		(3.6)		Purchase accounting impact on expense (2)	(1.2)		(0.6)		(3.6)		(2.1)
Restructuring and transformation expenses (3)	Restructuring and transformation expenses (3)	(2.5)		(13.0)		(7.9)		(28.9)		Restructuring and transformation expenses (3)	(13.0)		(0.8)		(28.9)		(9.2)
Total consolidated gross profit		$	245.8	$	231.7	$	737.0	$	702.5
Selling, general and administrative expenses										Selling, general and administrative expenses	(234.6)		(219.9)		(698.2)		(645.0)
Impairment of goodwill										Impairment of goodwill	—		(405.2)		—		(405.2)
Impairment of assets										Impairment of assets	—		(58.7)		—		(58.7)
Gain on sale of land										Gain on sale of land	—		—		19.9		—
Interest expense										Interest expense	(51.5)		(52.3)		(154.6)		(152.9)
Loss on investments, net										Loss on investments, net	—		(0.1)		(3.6)		(0.4)
Debt modification and extinguishment costs										Debt modification and extinguishment costs	—		—		(37.5)		—
Other income (expense), net										Other income (expense), net	0.1		(6.0)		(1.1)		(15.5)
Total consolidated loss before income taxes										Total consolidated loss before income taxes	$	(54.3)	$	(535.1)	$	(172.6)	$	(620.6)

(1) Adjustments for retention bonuses, mainly in connection with restructuring and transformation projects, and the related payroll 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 expenses.

(3) Adjustment for the impact of business transformation and optimization activities, as well as associated severance, facility closure costs and lease termination expenses. This amount also includes certain costs associated with the July 2021 Restructuring Plan which are not accounted for as exit and disposal costs under ASC 420, including one-time offshore build out costs.

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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 included in our Annual ~~Report on Form 10-K.~~Report. 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 ~~14,~~15, "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.

~~On August 7, 2020, we completed our initial public offering (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.~~

On July 21, 2021, we committed to an internal restructuring plan (the "July 2021 Restructuring Plan"), ~~which~~to ~~will~~ drive a change in the type and location of certain positions ~~and is~~that was expected to result in the termination of approximately 10% of our workforce. We recorded total charges of $1.0 million and $5.2 million for the three and nine months ended September 30, 2022, respectively, related to this restructuring plan which are not accounted for as exit and disposal costs under ASC 420, consisting primarily of one-time offshore build out costs. We recorded total charges of $34.1 million and $40.5 million for the three and nine months ended September 30, 2021, respectively, related to this restructuring plan. This included ~~$16.1~~$16.1 million and ~~$22.5~~$22.5 million for the three and nine months ended September 30, 2021 for employee related costs and other costs accounted for as exit and disposal costs under ASC 420 as described in Item 1 of Part I, Financial Statements - Note 8, "July 2021 Restructuring Plan." We do not expect to incur any further expenses related to the July 2021 Restructuring Plan.~~" The remaining $18.0 million~~

Subsequent Events

For a description of ~~expenses during the three~~subsequent events, see "Subsequent Events" in Item 1 of Part I, Financial Statements - Note 1, "Company Overview, Basis of Presentation, and ~~nine months ended September 30, 2021, consisted primarily~~Summary of ~~one-time offshore build out costs. We expect to incur additional expenses~~Significant Accounting Policies."

Company Evaluating Strategic Alternatives

On May 10, 2022, we announced that following a recently completed in-depth strategic review and evaluation of ~~approximately $30 million over the next 12-18 months with the majority~~various strategic options for our businesses, and also based on inbound interest for one of our product lines, we had concluded that a sum of the ~~remaining amount incurred~~parts valuation of Rackspace Technology could be greater than our current enterprise value. This is in part driven by the attractive growth profile of Public Cloud. Accordingly, we evaluated strategic alternatives and other options and decided that continuing to execute our strategy in the ~~next 12 months. After the~~ ~~July 2021 Restructuring Plan~~hypergrowth multicloud market as a standalone company is ~~implemented, we expect to realize approximately $95 to $100 million in gross annual savings compared to expense levels prior to the commencement of the plan.~~our best path forward for value creation.

Impact of COVID-19

The outbreak of a novel strain of coronavirus, referred to as COVID-19, has spread globally, including within the United States, and resulted in the World Health Organization declaring the outbreak a "pandemic" in March 2020, with variant strains of the virus continuing to be identified globally. The effects of COVID-19 and its variants continue to evolve, and the full impact and duration of the virus are unknown. Managing COVID-19 ~~has~~continues to severely ~~impacted~~impact healthcare systems and businesses worldwide. The effects of COVID-19 and its variants and the response to the virus have negatively impacted overall economic conditions. To date, COVID-19 and its variants have not adversely affected our results of operations or financial condition in any material ~~respect; h~~respect. ~~owever,~~However, there are remaining uncertainties as a result of COVID-19, particularly the ~~ultimate extent~~possibility of new variant strain(s) of the ~~impact of COVID-19 and its variants on our operational and financial performance will depend on certain developments, including~~virus, the ~~duration and severity of the outbreak, the pace of economic recovery, the possible~~potential resurgence in the spread of the virus ~~or any variant strain(s)~~and the pace of the 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 peconomic recovery. andemic worsens or the global economic 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. 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. The full extent to which COVID-19 and its variants may impact our financial condition or results of operations over the medium to long term, ~~however,~~therefore, remains uncertain. Due to our recurring revenue business model, the effect of COVID-19 and its variants 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

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required by federal, state or local authorities, or that we determine are in the best interests of our employees, customers, partners, suppliers and ~~stockholders, including developing~~stockholders.

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Russia and Ukraine Conflict

Political and economic uncertainty surrounding the Russian conflict in Ukraine could have a ~~plan~~material adverse effect on our business. Currently, the conflict has not had a significant impact on our operations or financial performance. However, our overall performance depends in part on worldwide economic and geopolitical conditions. We are monitoring the situation and the potential for the conflict to ~~return~~spread to other countries which could adversely impact our ~~workforce back to~~customers and operations, and we may take actions that modify our business operations as may be required by federal, state or local authorities, or that we determine are in the ~~office when it is safe to do so.~~best interests of our employees, customers, partners, suppliers and stockholders.

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,~~Amazon Web Services ("AWS"), Microsoft Azure, Google Cloud, Oracle, 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 Customer 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 $2,576.4 million and $2,901.9 million for the three months ended September 30, 2020 and 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 Rackspace Elastic Engineering model ~~announced in April 2021,~~ helps customers embrace a cloud native approach with on-demand access to a dedicated team of highly skilled cloud architects and 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.

Business Mix Shift

The mix of revenue within our Multicloud Services segment has shifted in recent years, from mature offerings such as managed hosting and colocation to managed public cloud services. Since the mature offerings are hosted on our own infrastructure, these offerings carry a higher gross margin, but also a higher burden on the company for operating expenses and capital expenditures. Conversely, as managed public cloud services are hosted on third-party infrastructure, these services carry a lower gross margin, but also a correspondingly lower operating expense and capital expenditure burdens. As a result, despite the difference in gross margins between the mature offerings and the growth offerings, the operating margins for the different classes of offerings are relatively similar.

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Shift in Capital Intensity

In recent years, the mix of our consolidated 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~~managed 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~~managed public cloud 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%5% and 5%4% of our revenue for the three months ended September 30, ~~2020~~2021 and ~~2021,~~2022, respectively, and 9%8% and 8%4% of our revenue for the nine months ended September 30, ~~2020~~2021 and ~~2021,~~2022, respectively. While there is some variability in capital expenditures from quarter to quarter due to timing of purchases, we expect to maintain ~~or lower~~current capex intensity levels over the longer term.

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Human Capital

Our ability to be successful and to execute on our strategies depends on our ability to hire and retain qualified employees. Like others in our industry, we are realizing higher than historical levels of voluntary attrition. As a result, we are accelerating our best shoring efforts and expanding the geographic reach of our recruiting pool. The company continues to enhance and develop programs to attract, retain and develop top talent.

~~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 September 30,
(In millions, except %) 2020 2021
Bookings $ 314.6 $ 200.3
Annualized Recurring Revenue (ARR) $ 2,576.4 $ 2,901.9

~~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 were $200.3 million in the three months ended September 30, 2021 compared to $314.6 million in the three months ended September 30, 2020. This decrease is the result of the company’s focus in the current year on growing revenue and profitability with the new customers onboarded in 2019 and 2020. Sales activities were previously heavily weighted towards new customer acquisition, and in particular infrastructure sales, which drives higher dollar bookings. While we continue to acquire new customers, we also aim to deepen relationships with these customers through high-margin services bookings. In addition, we are investing in initiatives to drive sales productivity improvements.

~~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.

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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 $2,576.4 million and $2,901.9 million for the three months ended September 30, 2020 and 2021, respectively.~~

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~~monthly 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 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 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.

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. Employee related costs and other costs incurred, as discussed in Item 1 of Part I, Financial Statements - Note 8, "July 2021 Restructuring Plan," are also included within SG&A.

~~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 recurring SG&A costs to increase due to 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,~~11, "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 September 30, ~~2020~~2021 Compared to Three Months Ended September 30, ~~2021~~2022

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 September 30,								Year-Over-Year Comparison					Three Months Ended September 30,								Year-Over-Year Comparison
		2020				2021									2021				2022
(In millions, except %)	(In millions, except %)	Amount		% Revenue		Amount		% Revenue		Amount		% Change		(In millions, except %)	Amount		% Revenue		Amount		% Revenue		Amount		% Change
Revenue	Revenue	$	681.7	100.0	%	$	762.5	100.0	%	$	80.8	11.9	%	Revenue	$	762.5	100.0	%	$	787.6	100.0	%	$	25.1	3.3	%
Cost of revenue	Cost of revenue	(435.9)		(63.9)	%	(530.8)		(69.6)	%	(94.9)		21.8	%	Cost of revenue	(530.8)		(69.6)	%	(580.5)		(73.7)	%	(49.7)		9.4	%
Gross profit	Gross profit	245.8		36.1	%	231.7		30.4	%	(14.1)		(5.7)	%	Gross profit	231.7		30.4	%	207.1		26.3	%	(24.6)		(10.6)	%
Selling, general and administrative expenses	Selling, general and administrative expenses	(260.5)		(38.2)	%	(234.6)		(30.8)	%	25.9		(9.9)	%	Selling, general and administrative expenses	(234.6)		(30.8)	%	(219.9)		(27.9)	%	14.7		(6.3)	%

Impairment of goodwill														Impairment of goodwill	—		—	%	(405.2)		(51.4)	%	(405.2)		100.0	%
Impairment of assets														Impairment of assets	—		—	%	(58.7)		(7.5)	%	(58.7)		100.0	%

Loss from operations	Loss from operations	(14.7)		(2.2)	%	(2.9)		(0.4)	%	11.8		(80.3)	%	Loss from operations	(2.9)		(0.4)	%	(476.7)		(60.5)	%	(473.8)		NM
Other income (expense):	Other income (expense):													Other income (expense):
Interest expense	Interest expense	(68.3)		(10.0)	%	(51.5)		(6.8)	%	16.8		(24.6)	%	Interest expense	(51.5)		(6.8)	%	(52.3)		(6.6)	%	(0.8)		1.6	%
Loss on investments, net														Loss on investments, net	—		—	%	(0.1)		(0.0)	%	(0.1)		100.0	%

Debt modification and extinguishment costs		(37.0)		(5.4)	%	—		—	%	37.0		(100.0)	%
Other income, net		0.7		0.1	%	0.1		0.0	%	(0.6)		(85.7)	%
Other income (expense), net														Other income (expense), net	0.1		0.0	%	(6.0)		(0.8)	%	(6.1)		NM
Total other income (expense)	Total other income (expense)	(104.6)		(15.3)	%	(51.4)		(6.7)	%	53.2		(50.9)	%	Total other income (expense)	(51.4)		(6.7)	%	(58.4)		(7.4)	%	(7.0)		13.6	%
Loss before income taxes	Loss before income taxes	(119.3)		(17.5)	%	(54.3)		(7.1)	%	65.0		(54.5)	%	Loss before income taxes	(54.3)		(7.1)	%	(535.1)		(67.9)	%	(480.8)		NM
Benefit for income taxes	Benefit for income taxes	18.1		2.7	%	19.5		2.5	%	1.4		7.7	%	Benefit for income taxes	19.5		2.5	%	23.4		3.0	%	3.9		20.0	%
Net loss	Net loss	$	(101.2)	(14.8)	%	$	(34.8)	(4.6)	%	$	66.4	(65.6)	%	Net loss	$	(34.8)	(4.6)	%	$	(511.7)	(65.0)	%	$	(476.9)	NM

NM = not meaningful.

Revenue

Revenue increased ~~$81~~$25 million, or ~~11.9%~~3.3%, to $788 million in the three months ended September 30, 2022 from $763 million in the three months ended September 30, ~~2021 from $682 million in the three months ended September 30, 2020.~~2021. Revenue was positively impacted by new customer acquisition and growing customer spend in our Multicloud Services and Apps & Cross Platform segments, as discussed below.

After removing the impact of foreign currency fluctuations, on a constant currency basis, revenue increased ~~10.9%~~5.3% year-over-year. The following table presents revenue growth by segment:


		Three Months Ended September 30,				% Change					Three Months Ended September 30,				% Change
(In millions, except %)	(In millions, except %)	2020		2021		Actual		Constant Currency (1)		(In millions, except %)	2021		2022		Actual		Constant Currency (1)
Multicloud Services	Multicloud Services	$	542.1	$	625.1	15.3	%	14.4	%	Multicloud Services	$	625.1	$	649.7	3.9	%	6.0	%
Apps & Cross Platform	Apps & Cross Platform	83.9		92.8		10.5	%	9.9	%	Apps & Cross Platform	92.8		101.5		9.4	%	10.4	%
Core Revenue	Core Revenue	626.0		717.9		14.7	%	13.8	%	Core Revenue	717.9		751.2		4.6	%	6.6	%
OpenStack Public Cloud	OpenStack Public Cloud	55.7		44.6		(19.9)	%	(21.0)	%	OpenStack Public Cloud	44.6		36.4		(18.4)	%	(16.2)	%
Total	Total	$	681.7	$	762.5	11.9	%	10.9	%	Total	$	762.5	$	787.6	3.3	%	5.3	%

(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 September 30, ~~2021~~2022 increased ~~15%,~~4% on an actual basis, and ~~14%~~6% on a constant currency basis, from the three months ended September 30, ~~2020.~~2021. Underlying growth was driven by both the acquisition of new customers and increased spend by existing customers, partially offset by cancellations by existing customers. Offerings in this segment with the strongest growth include managed public cloud services on AWS, Microsoft Azure and Google Cloud, and Rackspace Services for VMware Cloud.

Apps & Cross Platform revenue in the three months ended September 30, ~~2021~~2022 increased ~~11%,~~9% on an actual basis, and 10% on a constant currency basis, from the three months ended September 30, ~~2020, primarily due to~~2021, driven by growth ~~in our offerings for managed security and management of productivity and collaboration applications, partially offset by a decrease~~ in professional services ~~revenue.~~across our SaaS applications and data services offerings.

OpenStack Public Cloud revenue in the three months ended September 30, ~~2021~~2022 decreased ~~20%,~~18% on an actual basis, and ~~21%~~16% on a constant currency basis, from the three months ended September 30, ~~2020~~2021 due to customer churn.

Cost of Revenue

Cost of revenue increased ~~$95~~$50 million, or ~~22%~~9%, to $581 million in the three months ended September 30, 2022 from $531 million in the three months ended September 30, 2021, ~~from $436 million in the three months ended September 30, 2020,~~ primarily due to an 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.~~offerings. The increase in ~~third-party infrastructure~~expense was partially offset by a decline in personnel costs primarily due to ~~lower headcount~~cost savings as a result of ~~restructuring activities,~~shifting roles to lower-cost locations as part of our continued focus on business optimization initiatives, including the July 2021 Restructuring Plan ~~and the continued shift of roles to lower-cost locations. Depreciation~~. In addition, there was a year-over-year decrease in depreciation expense ~~also decreased~~ 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, which included the consolidation of data center facilities and optimizing our vendor license spending.

As a percentage of revenue, cost of revenue increased ~~570~~410 basis points in the three months ended September 30, ~~2021~~2022 to ~~69.6%~~73.7% from ~~63.9%~~69.6% in the three months ended September 30, ~~2020,~~2021, primarily driven by a 580 ~~1,320~~ basis point increase in usage charges for third-party infrastructure, partially offset by a decrease related to ~~depreciation,~~ personnel ~~data center,~~costs and ~~license~~depreciation expense.

Gross Profit and Non-GAAP Gross Profit

Our consolidated gross profit was $207 million in the three months ended September 30, 2022, a decrease of $25 million from $232 million in the three months ended September 30, ~~2021, a~~ ~~decrease~~ ~~of $14 million from $246~~2021. Our Non-GAAP Gross Profit was $212 million in the three months ended September 30, ~~2020. Our Non-GAAP Gross Profit was~~2022, a decrease of $39 million from $250 million in the three months ended September 30, ~~2021, a~~ ~~decrease of $5 million from $256 million in the three months ended September 30, 2020.~~2021. Non-GAAP Gross Profit is a non-GAAP financial measure. See “Non-GAAP Financial Measures” below for more information. Our consolidated gross margin was 26.3% in the three months ended September 30, 2022, a decrease of 410 basis points from 30.4% in the three months ended September 30, ~~2021, a decrease of 570 basis points from 36.1% in the three months ended September 30, 2020.~~2021.

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The table below presents ~~our segment non-GAAP~~a reconciliation of total consolidated gross profit ~~and gross margin for~~to Non-GAAP Gross Profit, which represents the ~~periods indicated, and the change in~~total of our individual segment gross profit ~~between periods:~~measures.

Three Months Ended September 30, Year-Over-Year Comparison
(In millions, except %) 2020 2021
Non-GAAP gross profit by segment: Amount % of Segment Revenue Amount % of Segment Revenue Amount % Change
Multicloud Services $ 202.5 37.4 % $ 200.4 32.1 % $ (2.1) (1.0) %
Apps & Cross Platform 27.7 33.0 % 33.8 36.4 % 6.1 22.0 %
OpenStack Public Cloud 25.3 45.4 % 16.1 36.1 % (9.2) (36.4) %
Non-GAAP Gross Profit 255.5 250.3 (5.2) (2.0) %
Less:
Share-based compensation expense (4.5) (4.0)
Other compensation expense (1)
(1.5) (0.4)
Purchase accounting impact on expense (2)
(1.2) (1.2)
Restructuring and transformation expenses (3)
(2.5) (13.0)
Total consolidated gross profit $ 245.8 $ 231.7


	Three Months Ended September 30,
(In millions)	2021		2022
Total consolidated gross profit	$	231.7	$	207.1
Share-based compensation expense	4.0		2.8
Other compensation expense (1)	0.4		0.4

Purchase accounting impact on expense (2)	1.2		0.6
Restructuring and transformation expenses (3)	13.0		0.8
Non-GAAP Gross Profit	$	250.3	$	211.7


(1)			Adjustments for retention bonuses, mainly in connection with restructuring and transformation projects, and the related payroll 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 expenses.
(3)			Adjustment for the impact of business transformation and optimization activities, as well as associated severance, facility closure costs and lease termination expenses. This amount also includes certain costs associated with the July 2021 Restructuring Plan which are not accounted for as exit and disposal costs under ASC 420, including one-time offshore build out costs.

Our segment gross profit and gross margin for the periods indicated, and the change in gross profit between periods is shown in the table below:


	Three Months Ended September 30,								Year-Over-Year Comparison
(In millions, except %)	2021				2022
Segment gross profit:	Amount		% of Segment Revenue		Amount		% of Segment Revenue		Amount		% Change
Multicloud Services	$	200.4	32.1	%	$	167.2	25.7	%	$	(33.2)	(16.6)	%
Apps & Cross Platform	33.8		36.4	%	34.8		34.3	%	1.0		3.0	%
OpenStack Public Cloud	16.1		36.1	%	9.7		26.6	%	(6.4)		(39.8)	%
Non-GAAP Gross Profit	$	250.3			$	211.7			$	(38.6)	(15.4)	%

Multicloud Services ~~non-GAAP~~ gross profit decreased 1%17% in the three months ended September 30, ~~2021~~2022 from the three months ended September 30, ~~2020.~~2021. Segment ~~non-GAAP~~ gross profit as a percentage of segment revenue decreased by ~~530~~640 basis points, reflecting a ~~25%~~14% increase in segment cost of revenue and a ~~15%~~4% increase in segment revenue. The increase in costs was mainly driven by higher third-party infrastructure costs due to the increase in revenue in our growth offerings resulting in a larger proportion of these services within this segment, partially offset by lower personnel ~~costs,~~and depreciation ~~data center, and license~~ expense.

Apps & Cross Platform ~~non-GAAP~~ gross profit increased ~~22%~~3% in the three months ended September 30, ~~2021~~2022 from the three months ended September 30, ~~2020.~~2021. Segment ~~non-GAAP~~ gross profit as a percentage of segment revenue ~~increased~~decreased by ~~340~~210 basis points, reflecting a 5%13% increase in segment cost of revenue and ~~an 11%~~a 9% increase in segment revenue. The increase in cost of revenue was primarily driven by the segment’s higher business volume as well as higher third-party infrastructure costs.

OpenStack Public Cloud ~~non-GAAP~~ gross profit decreased ~~36%~~40% in the three months ended September 30, ~~2021~~2022 from the three months ended September 30, ~~2020~~2021 due to customer churn. Segment ~~non-GAAP~~ gross profit as a percentage of segment revenue decreased by ~~930~~950 basis points, reflecting ~~a 20%~~an 18% decrease in segment revenue, partially offset by a 6% decrease in segment cost of revenue.

The aggregate amount of costs reflected in consolidated gross profit but excluded from ~~segment non-GAAP gross profit~~Non-GAAP Gross Profit was $4.6 million in the three months ended September 30, 2022, a decrease of $14.0 million from $18.6 million in the three months ended September 30, 2021, ~~an increase of $8.9 million from $9.7 million in the three months ended September 30, 2020,~~ reflecting ~~higher~~lower restructuring and transformation expenses, ~~partially offset by lower~~ share-based compensation expense, and ~~other compensation expense.~~ purchase accounting adjustments.

For more information about our segment ~~non-GAAP~~ gross profit, see Item 1 of Part I, Financial Statements - Note ~~14,~~15, "Segment Reporting."

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Selling, General and Administrative Expenses

Selling, general and administrative expenses decreased ~~$26~~$15 million, or ~~10%~~6%, to $220 million in the three months ended September 30, 2022 from $235 million in the three months ended September 30, 2021, ~~from $261 million in the three months ended September 30, 2020, primarily~~ due to a ~~reduction~~decline in ~~Onica integration~~personnel costs ~~and costs incurred in the~~from cost savings as a result of shifting roles to lower-cost locations as part of our continued focus on business optimization initiatives. The prior period related to the IPO, including $20 million of share-based compensation expense for certain awards that became probable of vesting upon completion of the IPO. These cost reductions were partially offset by ~~costs incurred in the~~ ~~three months ended September 30, 2021 related to the~~ ~~July 2021 Restructuring Plan, including~~included $16 million of restructuring charges related to the July 2021 Restructuring Plan accounted for as exit and disposal costs under ASC ~~420. See Item 1~~420, of ~~Part I, Financial Statements - Note 8, "July 2021 Restructuring Plan," for additional information.~~which $9 million were personnel related costs. There were also reductions in costs related to other business optimization and integration initiatives compared to the prior period, as well as lower amortization expense related to certain intangible assets reaching the end of their useful life. These reductions in expense were partially offset by an increase in travel expense as a result of the easing of COVID-19 restrictions.

As a percentage of revenue, selling, general and administrative expenses decreased ~~740~~290 basis points, to 27.9% in the three months ended September 30, 2022 from 30.8% in the three months ended September 30, 2021, ~~from 38.2% in the three months ended September 30, 2020,~~ for the reasons discussed above.

~~Interest Expense~~Impairment of Goodwill

~~Interest expense decreased $17 million~~We performed an interim goodwill impairment analysis as of September 1, 2022 based on our assessment of several events and circumstances that affect the significant inputs used to ~~$52~~determine the fair value of our reporting units, including the significance of the amount of excess carrying value over fair value, consistency of operating margins and cash flows, budgeted-to-actual performance from prior year, overall change in economic climate, changes in the industry and competitive environment, and earnings quality and sustainability. In addition, as of September 1, 2022, we lowered our projected operating results primarily due to product mix shifts and market concerns related to inflation, supply chain disruption issues and other macroeconomic factors. As a result, we determined that the carrying value of our Multicloud Services reporting unit exceeded its fair value and recorded an impairment of goodwill of $405 million in the three months ended September 30, ~~2021 from $68~~2022. There was no such impairment in the three months ended September 30, 2021. See Item 1 of Part I, Financial Statements - Note 5, "Goodwill and Intangible Assets" for further discussion.

Impairment of Assets

We also evaluated our indefinite-lived intangible asset and long-lived assets for impairment as of September 1, 2022. As a result of these evaluations, we recorded total impairment charges of $59 million in the three months ended September 30, ~~2020, primarily driven by~~2022, consisting of a ~~reduction~~$21 million impairment of our indefinite-lived intangible asset and a $38 million impairment of OpenStack Public Cloud long-lived assets. There were no such impairments in ~~total debt outstanding~~the three months ended September 30, 2021. See Item 1 of Part I, Financial Statements - Note 4, "Property, Equipment and ~~lower interest rates as a result of significant debt refinancing transactions between periods.~~Software, net" and Note 5, "Goodwill and Intangible Assets" for further discussion.

~~Debt Modification and Extinguishment Costs~~Other Income (Expense), Net

We ~~recorded $37~~had $6 million of ~~debt modification and extinguishment costs~~other expense in the three months ended September 30, ~~2020~~2022 ~~related~~primarily due to ~~the repurchase of $515 million principal amount of our 8.625% Senior Notes through a tender offer. The 8.625% Senior Notes were fully repaid as of December 31, 2020.~~foreign currency transaction losses.

Benefit for Income Taxes

Our income tax benefit ~~increased to~~was $23 million in the three months ended September 30, 2022 and $20 million in the three months ended September 30, ~~2021 from $18 million~~2021. Our effective tax rate was 4.4% in the three months ended September 30, ~~2020. Our effective tax rate increased from 15.1% in the three months ended September 30, 2020 to~~2022 and 35.8% in the three months ended September 30, 2021. The ~~increase~~decrease in the effective tax rate year-over-year is primarily due to the tax impact associated with the goodwill impairment recorded in the third quarter of 2022, the geographic distribution of profits, which in the three months ended September 30, 2021, included the release of historic tax reserves, ~~due to statute expiration that resulted in a $13.4 million tax benefit,~~and application of the ~~GILTI~~global intangible low taxed income (“GILTI”) provisions that were implemented with the Tax Cuts and ~~executive compensation~~Jobs Act that ~~is nondeductible under IRC Section 162(m).~~was passed on December 22, 2017. The difference between the effective tax rate and the statutory rate for the three months ended September 30, ~~2021 and the statutory rate~~2022 is primarily due to the tax impact associated with the goodwill impairment, the geographic distribution of profits ~~which included the release~~and tax effects from nondeductible share-based compensation. The majority of the ~~aforementioned historic~~goodwill impairment recorded in the third quarter of 2022 was nondeductible for income tax ~~reserves due to statute expiration, and application of the GILTI provisions.~~purposes.

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Nine Months Ended September 30, ~~2020~~2021 Compared to Nine Months Ended September 30, ~~2021~~2022


		Nine Months Ended September 30,								Year-Over-Year Comparison					Nine Months Ended September 30,								Year-Over-Year Comparison
		2020				2021									2021				2022
(In millions, except %)	(In millions, except %)	Amount		% Revenue		Amount		% Revenue		Amount		% Change		(In millions, except %)	Amount		% Revenue		Amount		% Revenue		Amount		% Change
Revenue	Revenue	$	1,990.9	100.0	%	$	2,232.2	100.0	%	$	241.3	12.1	%	Revenue	$	2,232.2	100.0	%	$	2,335.3	100.0	%	$	103.1	4.6	%
Cost of revenue	Cost of revenue	(1,253.9)		(63.0)	%	(1,529.7)		(68.5)	%	(275.8)		22.0	%	Cost of revenue	(1,529.7)		(68.5)	%	(1,678.2)		(71.9)	%	(148.5)		9.7	%
Gross profit	Gross profit	737.0		37.0	%	702.5		31.5	%	(34.5)		(4.7)	%	Gross profit	702.5		31.5	%	657.1		28.1	%	(45.4)		(6.5)	%
Selling, general and administrative expenses	Selling, general and administrative expenses	(707.5)		(35.5)	%	(698.2)		(31.3)	%	9.3		(1.3)	%	Selling, general and administrative expenses	(698.2)		(31.3)	%	(645.0)		(27.6)	%	53.2		(7.6)	%

Impairment of goodwill														Impairment of goodwill	—		—	%	(405.2)		(17.3)	%	(405.2)		100.0	%
Impairment of assets														Impairment of assets	—		—	%	(58.7)		(2.5)	%	(58.7)		100.0	%
Gain on sale of land	Gain on sale of land	—		—	%	19.9		0.9	%	19.9		100.0	%	Gain on sale of land	19.9		0.9	%	—		—	%	(19.9)		(100.0)	%

Income from operations		29.5		1.5	%	24.2		1.1	%	(5.3)		(18.0)	%
Income (loss) from operations														Income (loss) from operations	24.2		1.1	%	(451.8)		(19.3)	%	(476.0)		NM
Other income (expense):	Other income (expense):													Other income (expense):
Interest expense	Interest expense	(209.2)		(10.5)	%	(154.6)		(6.9)	%	54.6		(26.1)	%	Interest expense	(154.6)		(6.9)	%	(152.9)		(6.5)	%	1.7		(1.1)	%
Gain (loss) on investments, net		0.9		0.0	%	(3.6)		(0.2)	%	(4.5)		NM
Loss on investments, net														Loss on investments, net	(3.6)		(0.2)	%	(0.4)		(0.0)	%	3.2		(88.9)	%
Debt modification and extinguishment costs	Debt modification and extinguishment costs	(37.0)		(1.9)	%	(37.5)		(1.7)	%	(0.5)		1.4	%	Debt modification and extinguishment costs	(37.5)		(1.7)	%	—		—	%	37.5		(100.0)	%
Other income (expense), net		0.4		0.0	%	(1.1)		(0.0)	%	(1.5)		NM
Other expense, net														Other expense, net	(1.1)		(0.0)	%	(15.5)		(0.7)	%	(14.4)		NM
Total other income (expense)	Total other income (expense)	(244.9)		(12.3)	%	(196.8)		(8.8)	%	48.1		(19.6)	%	Total other income (expense)	(196.8)		(8.8)	%	(168.8)		(7.2)	%	28.0		(14.2)	%
Loss before income taxes	Loss before income taxes	(215.4)		(10.8)	%	(172.6)		(7.7)	%	42.8		(19.9)	%	Loss before income taxes	(172.6)		(7.7)	%	(620.6)		(26.6)	%	(448.0)		NM
Benefit for income taxes	Benefit for income taxes	33.4		1.7	%	37.2		1.7	%	3.8		11.4	%	Benefit for income taxes	37.2		1.7	%	29.8		1.3	%	(7.4)		(19.9)	%
Net loss	Net loss	$	(182.0)	(9.1)	%	$	(135.4)	(6.1)	%	$	46.6	(25.6)	%	Net loss	$	(135.4)	(6.1)	%	$	(590.8)	(25.3)	%	$	(455.4)	NM

NM = not meaningful.

Revenue

Revenue increased ~~$241~~$103 million, or ~~12.1%~~4.6%, to $2,335 million in the nine months ended September 30, 2022 from $2,232 million in the nine months ended September 30, ~~2021 from $1,991 million in the nine months ended September 30, 2020.~~2021. Revenue was positively impacted by new customer acquisition and growing customer spend in our Multicloud Services and Apps & Cross Platform segments, as discussed below.

After removing the impact from foreign currency fluctuations, on a constant currency basis, revenue increased ~~10.8%~~5.9% year-over-year. The following table presents revenue growth by segment:


		Nine Months Ended September 30,				% Change					Nine Months Ended September 30,				% Change
(In millions, except %)	(In millions, except %)	2020		2021		Actual		Constant Currency (1)		(In millions, except %)	2021		2022		Actual		Constant Currency (1)
Multicloud Services	Multicloud Services	$	1,569.0	$	1,809.8	15.3	%	13.9	%	Multicloud Services	$	1,809.8	$	1,923.1	6.3	%	7.7	%
Apps & Cross Platform	Apps & Cross Platform	245.3		282.8		15.3	%	14.5	%	Apps & Cross Platform	282.8		296.4		4.8	%	5.5	%
Core Revenue	Core Revenue	1,814.3		2,092.6		15.3	%	14.0	%	Core Revenue	2,092.6		2,219.5		6.1	%	7.4	%
OpenStack Public Cloud	OpenStack Public Cloud	176.6		139.6		(20.9)	%	(22.2)	%	OpenStack Public Cloud	139.6		115.8		(17.1)	%	(15.7)	%
Total	Total	$	1,990.9	$	2,232.2	12.1	%	10.8	%	Total	$	2,232.2	$	2,335.3	4.6	%	5.9	%

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

Multicloud Services revenue in the nine months ended September 30, ~~2021~~2022 increased ~~15%~~6%, on an actual basis, and ~~14%~~8% on a constant currency basis, from the nine months ended September 30, ~~2020.~~2021. Underlying growth was ~~primarily~~ driven by both the acquisition of new customers and increased spend by existing customers, partially offset by cancellations by existing customers. Offerings in this segment with the strongest growth include managed public cloud services on AWS, Microsoft Azure and Google Cloud, and Rackspace Services for VMware Cloud.

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Apps & Cross Platform revenue in the nine months ended September 30, ~~2021~~2022 increased ~~15%,~~5% on an actual basis, and 6% on a constant currency basis, from the nine months ended September 30, ~~2020, primarily due to~~2021, driven by growth ~~in our offerings for managed security and management of productivity and collaboration applications, partially~~ ~~offset by a decrease~~ in professional services ~~revenue~~across our SaaS applications and data services offerings, partially offset by .the discontinuation of a non-core line of business in 2021.

OpenStack Public Cloud revenue in the nine months ended September 30, ~~2021~~2022 decreased ~~21%,~~17% on an actual basis, and ~~22%~~16% on a constant currency basis, from the nine months ended September 30, ~~2020~~2021 due to customer churn.

Cost of Revenue

Cost of revenue increased ~~$276~~$149 million, or ~~22%~~10%, to $1,678 million in the nine months ended September 30, 2022 from $1,530 million in the nine months ended September 30, 2021, ~~from $1,254 million in the nine months ended September 30, 2020,~~ primarily due to an 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.~~offerings. The increase in ~~third-party infrastructure~~expense was partially offset by a decline in personnel costs primarily due to cost savings as a result of shifting roles to lower-cost locations ~~partially offset by an increase~~as part of our continued focus on business optimization initiatives, including the July 2021 Restructuring Plan. We also had higher severance in ~~share-based compensation and severance expense.~~the prior period. In addition, there were year-over-year data center expense reductions as a result of initiatives to lower our cost structure, which included the consolidation of data center facilities. Depreciation expense also decreased between periods primarily ~~related~~due 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, which included the consolidation of data center facilities and optimizing our vendor license spending.

As a percentage of revenue, cost of revenue increased ~~550~~340 basis points in the nine months ended September 30, ~~2021~~2022 to ~~68.5%~~71.9% from ~~63.0%~~68.5% in the nine months ended September 30, ~~2020,~~2021, primarily driven by a ~~1,330~~710 basis point increase in usage charges for third-party infrastructure, partially offset by a decrease related to personnel costs, ~~depreciation,~~ data center, and ~~license~~depreciation expense.

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Gross Profit and Non-GAAP Gross Profit

Our consolidated gross profit was $657 million in the nine months ended September 30, 2022, a decrease of $45 million from $703 million in the nine months ended September 30, ~~2021, a decrease of $35 million from $737~~2021. Our Non-GAAP Gross Profit was $679 million in the nine months ended September 30, ~~2020. Our Non-GAAP Gross Profit was~~2022, a decrease of $71 million from $750 million in the nine months ended September 30, ~~2021, a decrease of $13 million from $763 million in the nine months ended September 30, 2020.~~2021. Non-GAAP Gross Profit is a non-GAAP financial measure. See “Non-GAAP Financial Measures” below for more information. Our consolidated gross margin was 28.1% in the nine months ended September 30, 2022, a decrease of 340 basis points from 31.5% in the nine months ended September 30, ~~2021, a decrease of 550 basis points from 37.0% in the nine months ended September 30, 2020.~~2021.

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measures.


		Nine Months Ended September 30,								Year-Over-Year Comparison					Nine Months Ended September 30,
(In millions, except %)		2020				2021
Non-GAAP gross profit by segment:		Amount		% of Segment Revenue		Amount		% of Segment Revenue		Amount		% Change
Multicloud Services		$	600.0	38.2	%	$	598.8	33.1	%	$	(1.2)	(0.2)	%
Apps & Cross Platform		84.8		34.6	%	100.7		35.6	%	15.9		18.8	%
OpenStack Public Cloud		78.3		44.3	%	50.8		36.4	%	(27.5)		(35.1)	%
Non-GAAP Gross Profit		763.1				750.3				(12.8)		(1.7)	%
Less:
(In millions)														(In millions)	2021		2022
Total consolidated gross profit														Total consolidated gross profit	$	702.5	$	657.1
Share-based compensation expense	Share-based compensation expense	(8.6)				(13.2)								Share-based compensation expense	13.2		9.0
Other compensation expense (1)	Other compensation expense (1)	(4.9)				(2.1)								Other compensation expense (1)	2.1		1.6

Purchase accounting impact on expense (2)	Purchase accounting impact on expense (2)	(4.7)				(3.6)								Purchase accounting impact on expense (2)	3.6		2.1
Restructuring and transformation expenses (3)	Restructuring and transformation expenses (3)	(7.9)				(28.9)								Restructuring and transformation expenses (3)	28.9		9.2
Total consolidated gross profit		$	737.0			$	702.5
Non-GAAP Gross Profit														Non-GAAP Gross Profit	$	750.3	$	679.0


(1)			Adjustments for retention bonuses, mainly in connection with restructuring and transformation projects, and the related payroll 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 expenses.
(3)			Adjustment for the impact of business transformation and optimization activities, as well as associated severance, facility closure costs and lease termination expenses. This amount also includes certain costs associated with the July 2021 Restructuring Plan which are not accounted for as exit and disposal costs under ASC 420, including one-time offshore build out costs.

Our segment gross profit and gross margin for the periods indicated, and the change in gross profit between periods is shown in the table below:


	Nine Months Ended September 30,								Year-Over-Year Comparison
(In millions, except %)	2021				2022
Segment gross profit:	Amount		% of Segment Revenue		Amount		% of Segment Revenue		Amount		% Change
Multicloud Services	$	598.8	33.1	%	$	538.7	28.0	%	$	(60.1)	(10.0)	%
Apps & Cross Platform	100.7		35.6	%	104.8		35.4	%	4.1		4.1	%
OpenStack Public Cloud	50.8		36.4	%	35.5		30.7	%	(15.3)		(30.1)	%
Non-GAAP Gross Profit	$	750.3			$	679.0			$	(71.3)	(9.5)	%

Multicloud Services ~~non-GAAP~~ gross profit ~~was relatively flat year-over-year.~~decreased 10% in the nine months ended September 30, 2022 from the nine months ended September 30, 2021. Segment ~~non-GAAP~~ gross profit as a percentage of segment revenue decreased by 510 basis points, reflecting a ~~25%~~14% increase in segment cost of revenue and a ~~15%~~6% increase in segment revenue. The increase in costs was mainly driven by higher third-party infrastructure costs due to the increase in revenue in our growth offerings resulting in a larger proportion of these services within this segment, partially offset by lower personnel, ~~depreciation,~~ data center, and ~~license~~depreciation expense.

Apps & Cross Platform ~~non-GAAP~~ gross profit increased ~~19%~~4% in the nine months ended September 30, ~~2021~~2022 from the nine months ended September 30, ~~2020.~~2021. Segment non-GAAP gross profit as a percentage of segment revenue increased by 100 basis points, reflecting a 13% increase in segment cost of revenue and a 15% increase in segment revenue. The increase in cost of revenue was primarily driven by the segment’s higher business volume as well as higher third-party infrastructure costs.

~~OpenStack Public Cloud non-GAAP gross profit decreased 35% in the nine months ended September 30, 2021 from the nine months ended September 30, 2020, due to customer churn. Segment non-GAAP~~ gross profit as a percentage of segment revenue decreased by ~~790~~20 basis points, reflecting a ~~21%~~5% increase in segment cost of revenue and a 5% increase in segment revenue.

OpenStack Public Cloud gross profit decreased 30% in the nine months ended September 30, 2022 from the nine months ended September 30, 2021, due to customer churn. Segment gross profit as a percentage of segment revenue decreased by 570 basis points, reflecting a 17% decrease in segment revenue, partially offset by a 10% decrease in segment cost of revenue.

The aggregate amount of costs reflected in consolidated gross profit but excluded from ~~segment non-GAAP~~Non-GAAP gross profit was $21.9 million in the nine months ended September 30, 2022, a decrease of $25.9 million from $47.8 million in the nine months ended September 30, 2021, ~~an increase of $21.7 million from $26.1 million in the nine months ended September 30, 2020,~~ reflecting ~~higher~~lower restructuring and transformation expenses, ~~and~~ share-based ~~compensation, partially offset by lower purchase accounting adjustments~~ and other compensation ~~expense.~~ expense, and purchase accounting adjustments.

For more information about our segment ~~non-GAAP~~ gross profit, see Item 1 of Part I, Financial Statements - Note ~~14,~~15, "Segment Reporting."

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Selling, General and Administrative Expenses

Selling, general and administrative expenses ~~were relatively flat year-over-year. Costs incurred~~decreased $53 million, or 8%, to $645 million in the nine months ended September 30, 2022 from $698 million in the nine months ended September 30, 2021, ~~related~~due to ~~the~~a ~~July 2021 Restructuring Plan~~decline in personnel costs from cost savings as a result of shifting roles to lower-cost locations as part of our continued focus on business optimization initiatives. We also had lower severance expense, partially offset by higher share-based compensation expense between periods. The prior period included $23 million of restructuring charges related to the July 2021 Restructuring Plan accounted for as exit and disposal costs under ASC ~~420. Other cost increases between periods include~~420, of which $11 million were personnel related costs. There were also reductions in costs related to other business ~~transformation~~optimization and integration initiatives ~~and incremental costs~~compared to ~~operate as a public company. These increased expenses were offset by a reduction in Onica integration costs, costs incurred in~~ the prior period, as well as lower amortization expense related to certain intangible assets reaching the ~~IPO, and management consulting fees~~end of their useful life. These reductions in expense were partially offset by an increase in travel expense as a result of the ~~agreements were terminated in connection with the IPO. See Item 1~~easing of ~~Part I, Financial Statements - Note 8, "July 2021 Restructuring Plan" for additional information regarding the current period restructuring charges.~~COVID-19 restrictions.

As a percentage of revenue, selling, general and administrative expenses decreased ~~420~~370 basis points, to 27.6% in the nine months ended September 30, 2022 from 31.3% in the nine months ended September 30, 2021, for the reasons discussed above.

Impairment of Goodwill

We performed an interim goodwill impairment analysis as of September 1, 2022 based on our assessment of several events and circumstances that affect the significant inputs used to determine the fair value of our reporting units, including the significance of the amount of excess carrying value over fair value, consistency of operating margins and cash flows, budgeted-to-actual performance from ~~35.5%~~prior year, overall change in economic climate, changes in the industry and competitive environment, and earnings quality and sustainability. In addition, as of September 1, 2022, we lowered our projected operating results primarily due to product mix shifts and market concerns related to inflation, supply chain disruption issues and other macroeconomic factors. As a result, we determined that the carrying value of our Multicloud Services reporting unit exceeded its fair value and recorded an impairment of goodwill of $405 million in the nine months ended September 30, ~~2020,~~2022. There was no such impairment in the nine months ended September 30, 2021. See Item 1 of Part I, Financial Statements - Note 5, "Goodwill and Intangible Assets" for further discussion.

Impairment of Assets

We also evaluated our indefinite-lived intangible asset and long-lived assets for impairment as of September 1, 2022. As a result of these evaluations, we recorded total impairment charges of $59 million in the ~~reasons discussed above.~~nine months ended September 30, 2022, consisting of a $21 million impairment of our indefinite-lived intangible asset and a $38 million impairment of OpenStack Public Cloud long-lived assets. There were no such impairments in the nine months ended September 30, 2021. See Item 1 of Part I, Financial Statements - Note 4, "Property, Equipment and Software, net" and Note 5, "Goodwill and Intangible Assets" for further discussion.

Gain on Sale of Land

In January 2021, we recorded a $20 million gain related to the sale of a parcel of undeveloped land in the United Kingdom adjacent to one of our existing data centers, as further discussed in Item 1 of Part I, Financial Statements - Note 4, "Property, Equipment and Software, net."

Interest Expense

Interest expense decreased ~~$55~~$2 million to $153 million in the nine months ended September 30, 2022 from $155 million in the nine months ended September 30, 2021, ~~from $209 million in the nine months ended September 30, 2020,~~ primarily driven by a reduction in total debt outstanding and lower interest rates as a result of ~~significant debt refinancing transactions between periods.~~the February 2021 Refinancing Transaction.

Debt Modification and Extinguishment Costs

In the nine months ended September 30, 2021 wewe recorded $37 million and $0.5 million of debt modification and extinguishment costs related to the February 2021 Refinancing Transaction and termination of the Receivables Financing Facility, respectively, as further discussed in Item 1 of Part I, Financial Statements - Note 6, "Debt."

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Other Expense, Net

The increase in other expense, net to $16 million in ~~We recorded $37~~the nine months ended September 30, 2022 from $1 million ~~of debt modification and extinguishment costs~~ in the nine months ended September 30, ~~2020~~2021 is primarily related to ~~the repurchase of $515 million principal amount of our 8.625% Senior Notes through a tender offer. The 8.625% Senior Notes were fully repaid as of December 31, 2020.~~foreign currency transaction losses.

Benefit for Income Taxes

Our income tax benefit ~~increased~~decreased to $30 million in the nine months ended September 30, 2022 from $37 million in the nine months ended September 30, ~~2021 from $33 million in the nine months ended September 30, 2020.~~2021. Our effective tax rate ~~increased~~decreased from ~~15.5% in the nine months ended September 30, 2020 to~~ 21.5% in the nine months ended September 30, ~~2021.~~2021 to 4.8% in the nine months ended September 30, 2022. The ~~increase~~decrease in the effective tax rate year-over-year ~~is primarily due to~~and the geographic distribution of profits, which included the release of historic tax reserves due to statute expiration that resulted in a $13.4 million tax benefit, and tax effects from share-based compensation. The difference between the effective tax rate for the nine months ended September 30, ~~2021~~2022 and the statutory rate isare primarily due to the tax impact associated with the goodwill impairment recorded in the third quarter of 2022, the majority of which was nondeductible for income tax purposes, geographic distribution of profits ~~which included the release of the aforementioned historic tax reserves due to statue expiration,~~ and tax effects from nondeductible share-based compensation.

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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, Non-GAAP Gross Profit, Non-GAAP Net Income (Loss), Non-GAAP Operating Profit, Adjusted EBITDA and 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 table presents, by segment, actual and constant currency revenue and constant currency revenue growth rates, for and between the periods indicated:


		Three Months Ended September 30, 2020		Three Months Ended September 30, 2021						% Change					Three Months Ended September 30, 2021		Three Months Ended September 30, 2022						% 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	$	542.1	$	625.1	$	(5.1)	$	620.0	15.3	%	14.4	%	Multicloud Services	$	625.1	$	649.7	$	13.1	$	662.8	3.9	%	6.0	%
Apps & Cross Platform	Apps & Cross Platform	83.9		92.8		(0.5)		92.3		10.5	%	9.9	%	Apps & Cross Platform	92.8		101.5		0.9		102.4		9.4	%	10.4	%
OpenStack Public Cloud	OpenStack Public Cloud	55.7		44.6		(0.7)		43.9		(19.9)	%	(21.0)	%	OpenStack Public Cloud	44.6		36.4		1.0		37.4		(18.4)	%	(16.2)	%
Total	Total	$	681.7	$	762.5	$	(6.3)	$	756.2	11.9	%	10.9	%	Total	$	762.5	$	787.6	$	15.0	$	802.6	3.3	%	5.3	%

(a)

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


		Nine Months Ended September 30, 2020		Nine Months Ended September 30, 2021						% Change					Nine Months Ended September 30, 2021		Nine Months Ended September 30, 2022						% 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	$	1,569.0	$	1,809.8	$	(22.3)	$	1,787.5	15.3	%	13.9	%	Multicloud Services	$	1,809.8	$	1,923.1	$	25.2	$	1,948.3	6.3	%	7.7	%
Apps & Cross Platform	Apps & Cross Platform	245.3		282.8		(1.9)		280.9		15.3	%	14.5	%	Apps & Cross Platform	282.8		296.4		1.9		298.3		4.8	%	5.5	%
OpenStack Public Cloud	OpenStack Public Cloud	176.6		139.6		(2.3)		137.3		(20.9)	%	(22.2)	%	OpenStack Public Cloud	139.6		115.8		1.9		117.7		(17.1)	%	(15.7)	%
Total	Total	$	1,990.9	$	2,232.2	$	(26.5)	$	2,205.7	12.1	%	10.8	%	Total	$	2,232.2	$	2,335.3	$	29.0	$	2,364.3	4.6	%	5.9	%

(a)

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

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Non-GAAP Gross Profit

~~Our principal measure of segment profitability is segment non-GAAP gross profit.~~ We ~~also~~ present Non-GAAP Gross Profit in this MD&A, which isrepresents the ~~aggregate~~total of our individual segment ~~non-GAAP~~ gross profit measures, because we believe the measure is useful in analyzing trends in our underlying, recurring gross margins. We define 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 Non-GAAP Gross Profit to our~~ total consolidated gross profit to Non-GAAP Gross Profit, see “Gross Profit and Non-GAAP Gross Profit” in the year-over-year comparison under "Results of Operations" above.

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

We present Non-GAAP Net Income (Loss), 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.

The Rackspace Acquisition was structured as a leveraged buyout of Rackspace Technology Global, our ~~Predecessor,~~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~~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 also may not be indicative of, or related to, our core operating results.

We define 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 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 Non-GAAP Operating Profit as ~~net~~ income (loss)~~, plus interest expense and income taxes, further~~ from operations adjusted to exclude the impact of non-cash charges for share-based compensation, special bonuses and 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 ~~Non-GAAP Operating Profit plus~~net income (loss) adjusted to exclude the impact of non-cash charges for share-based compensation, special bonuses and other compensation expense, transaction-related costs and adjustments, restructuring and transformation charges, certain other non-operating, non-recurring or non-core gains and losses, interest expense, income taxes, and depreciation and amortization.

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

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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 Non-GAAP Net Income (Loss), Non-GAAP Operating Profit or Adjusted EBITDA. Our presentation of Non-GAAP Net Income (Loss), 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-titled 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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~~Table~~ ~~of Contents~~

The following ~~table presents~~tables present a reconciliation of Non-GAAP Net Income, ~~(Loss),~~ Non-GAAP Operating Profit and Adjusted EBITDA to ~~our net loss for~~ the ~~periods indicated:~~most directly comparable GAAP financial measures:

Three Months Ended September 30, Nine Months Ended September 30,
(In millions) 2020 2021 2020 2021
Net loss $ (101.2) $ (34.8) $ (182.0) $ (135.4)
Share-based compensation expense 40.2 19.1 56.8 56.7
Special bonuses and other compensation expense (a)
5.0 2.1 19.1 9.1
Transaction-related adjustments, net (b)
18.9 6.5 35.4 21.8
Restructuring and transformation expenses (c)
22.6 55.2 59.7 132.9
Management fees (d)
1.3 — 8.4 —
Gain on sale of land — — — (19.9)
Net (gain) loss on divestiture and investments (e)
— — (0.9) 3.6
Debt modification and extinguishment costs (f)
37.0 — 37.0 37.5
Other (income) expense, net (g)
(0.7) (0.1) (0.4) 1.1
Amortization of intangible assets (h)
44.1 43.9 132.3 137.4
Tax effect of non-GAAP adjustments (i)
(30.8) (38.3) (67.7) (91.2)
Non-GAAP Net Income 36.4 53.6 97.7 153.6
Interest expense 68.3 51.5 209.2 154.6
Benefit for income taxes (18.1) (19.5) (33.4) (37.2)
Tax effect of non-GAAP adjustments (i)
30.8 38.3 67.7 91.2
Non-GAAP Operating Profit 117.4 123.9 341.2 362.2
Depreciation (j)
73.4 59.2 222.8 180.4
Adjusted EBITDA $ 190.8 $ 183.1 $ 564.0 $ 542.6
Net loss reconciliation to Non-GAAP Net Income


	Three Months Ended September 30,				Nine Months Ended September 30,
(In millions)	2021		2022		2021		2022
Net loss	$	(34.8)	$	(511.7)	$	(135.4)	$	(590.8)
Share-based compensation expense	19.1		19.4		56.7		59.5
Special bonuses and other compensation expense (a)	2.1		2.4		9.1		8.2
Transaction-related adjustments, net (b)	6.5		2.4		21.8		9.6
Restructuring and transformation expenses (c)	55.2		26.1		132.9		74.3


Impairment of goodwill	—		405.2		—		405.2
Impairment of assets	—		58.7		—		58.7
Gain on sale of land	—		—		(19.9)		—
Net loss on divestiture and investments (d)	—		0.1		3.6		0.4
Debt modification and extinguishment costs (e)	—		—		37.5		—
Other (income) expense, net (f)	(0.1)		6.0		1.1		15.5
Amortization of intangible assets (g)	43.9		42.0		137.4		126.4
Tax effect of non-GAAP adjustments (h)	(38.3)		(30.6)		(91.2)		(65.6)
Non-GAAP Net Income	$	53.6	$	20.0	$	153.6	$	101.4

Income (loss) from operations reconciliation to Non-GAAP Operating Profit


	Three Months Ended September 30,				Nine Months Ended September 30,
(In millions)	2021		2022		2021		2022
Income (loss) from operations	$	(2.9)	$	(476.7)	$	24.2	$	(451.8)
Share-based compensation expense	19.1		19.4		56.7		59.5
Special bonuses and other compensation expense (a)	2.1		2.4		9.1		8.2
Transaction-related adjustments, net (b)	6.5		2.4		21.8		9.6
Restructuring and transformation expenses (c)	55.2		26.1		132.9		74.3


Impairment of goodwill	—		405.2		—		405.2
Impairment of assets	—		58.7		—		58.7
Gain on sale of land	—		—		(19.9)		—
Amortization of intangible assets (g)	43.9		42.0		137.4		126.4
Non-GAAP Operating Profit	$	123.9	$	79.5	$	362.2	$	290.1

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Net loss reconciliation to Adjusted EBITDA


	Three Months Ended September 30,				Nine Months Ended September 30,
(In millions)	2021		2022		2021		2022
Net loss	$	(34.8)	$	(511.7)	$	(135.4)	$	(590.8)
Share-based compensation expense	19.1		19.4		56.7		59.5
Special bonuses and other compensation expense (a)	2.1		2.4		9.1		8.2
Transaction-related adjustments, net (b)	6.5		2.4		21.8		9.6
Restructuring and transformation expenses (c)	55.2		26.1		132.9		74.3


Impairment of goodwill	—		405.2		—		405.2
Impairment of assets	—		58.7		—		58.7
Gain on sale of land	—		—		(19.9)		—
Net loss on divestiture and investments (d)	—		0.1		3.6		0.4
Debt modification and extinguishment costs (e)	—		—		37.5		—
Other (income) expense, net (f)	(0.1)		6.0		1.1		15.5
Interest expense	51.5		52.3		154.6		152.9
Benefit for income taxes	(19.5)		(23.4)		(37.2)		(29.8)
Depreciation and amortization (i)	103.1		96.6		317.8		296.1
Adjusted EBITDA	$	183.1	$	134.1	$	542.6	$	459.8


(a)			Includes expense related to retention bonuses, mainly relating to restructuring and integration projects, and the related payroll tax, senior executive signing bonuses and relocation 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,~~acquisitions, certain one-time costs related to being a first year public company, 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. This amount also includes employee related costs and other costs related to the July 2021 Restructuring Plan of $16.1 million and $22.5 million ~~respectively,~~ for the three and nine months ended September 30, 2021, respectively, which are accounted for as exit and disposal costs under ASC 420. In addition, it includes certain costs associated with the July 2021 Restructuring Plan which are not accounted for as exit and disposal costs under ASC 420, including one-time offshore build out 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)~~(d)			Includes gains and losses on investment and from dispositions.

~~(f)~~(e)			Includes expenses related ~~to repurchases of 8.625% Senior Notes,~~ the February 2021 Refinancing Transaction and termination of the Receivables Financing Facility.
~~(g)~~(f)			~~Reflects mainly changes in the fair value~~Primarily consists of foreign currency ~~derivatives.~~gains and losses.
~~(h)~~(g)			All of our intangible assets are attributable to acquisitions, including the Rackspace Acquisition in 2016.
~~(i)~~(h)			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 the ~~2020~~2021 and ~~2021~~2022 interim periods, we based it on an average of the ~~2019~~2020 and estimated ~~2020~~2021 tax rates and ~~2020~~2021 and estimated ~~2021~~2022 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 all 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)~~(i)			Excludes accelerated depreciation expense related to facility closures.

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Non-GAAP Earnings Per Share (EPS)

We define Non-GAAP EPS as Non-GAAP Net Income divided by our GAAP weighted average number of shares outstanding for the period on a diluted basis 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 Non-GAAP EPS. Management uses 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 Non-GAAP EPS. The following table reconciles Non-GAAP EPS to our GAAP net loss per share on a diluted basis:


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended September 30,				Nine Months Ended September 30,
(In millions, except per share amounts)	(In millions, except per share amounts)	2020		2021		2020		2021		(In millions, except per share amounts)	2021		2022		2021		2022
Net loss attributable to common stockholders	Net loss attributable to common stockholders	$	(101.2)	$	(34.8)	$	(182.0)	$	(135.4)	Net loss attributable to common stockholders	$	(34.8)	$	(511.7)	$	(135.4)	$	(590.8)
Non-GAAP Net Income	Non-GAAP Net Income	$	36.4	$	53.6	$	97.7	$	153.6	Non-GAAP Net Income	$	53.6	$	20.0	$	153.6	$	101.4

Weighted average number of shares - Diluted	Weighted average number of shares - Diluted	186.7		209.3		172.6		207.3		Weighted average number of shares - Diluted	209.3		210.8		207.3		210.7
Effect of dilutive securities (a)	Effect of dilutive securities (a)	5.9		2.6		2.8		4.8		Effect of dilutive securities (a)	2.6		0.2		4.8		0.5
Non-GAAP weighted average number of shares - Diluted	Non-GAAP weighted average number of shares - Diluted	192.6		211.9		175.4		212.1		Non-GAAP weighted average number of shares - Diluted	211.9		211.0		212.1		211.2

Net loss per share - Diluted	Net loss per share - Diluted	$	(0.54)	$	(0.17)	$	(1.05)	$	(0.65)	Net loss per share - Diluted	$	(0.17)	$	(2.43)	$	(0.65)	$	(2.80)
Per share impacts of adjustments to net loss (b)	Per share impacts of adjustments to net loss (b)	0.74		0.42		1.62		1.39		Per share impacts of adjustments to net loss (b)	0.42		2.52		1.39		3.29
Per share impacts of shares dilutive after adjustments to net loss (a)	Per share impacts of shares dilutive after adjustments to net loss (a)	(0.01)		(0.00)		(0.01)		(0.02)		Per share impacts of shares dilutive after adjustments to net loss (a)	(0.00)		0.01		(0.02)		(0.01)
Non-GAAP EPS	Non-GAAP EPS	$	0.19	$	0.25	$	0.56	$	0.72	Non-GAAP EPS	$	0.25	$	0.10	$	0.72	$	0.48


(a)			Reflects impact of awards that would have been anti-dilutive to ~~Net~~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 units (including performance-based restricted stock units) or ~~purchase~~purchases 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 Non-GAAP Net Income to our net loss, as noted in the above table, divided by the GAAP diluted number of shares outstanding for the relevant period.

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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. As of September 30, ~~2021,~~2022, the Revolving Credit Facility provided for up to $375 million of borrowings, none of which was drawn as of September 30, 2021. On June 29, 2021, as part of our on-going efforts to reduce debt, we entered into an agreement to voluntarily prepay and terminate the Receivables Financing Facility. As of September 30, 2021, we had no remaining outstanding balance under the Receivables Financing Facility. We believe our Revolving Credit Facility will provide sufficient liquidity, if needed, to cover amounts that we may have previously drawn upon under the terminated facility.2022. 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 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, 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.

At September 30, 2021, we held $260 million in cash and cash equivalents (not including $3 million in restricted cash, which is included in "Other non-current assets"), of which $119 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 $124 million outstanding with respect to these arrangements as of September 30, 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. We had $572 million outstanding with respect to operating and finance lease agreements as of September 30, 2021. We may choose to utilize such leasing arrangements in future periods.

As of September 30, 2021, we had $3,389 million aggregate principal amount outstanding under our Term Loan Facility, 5.375% Senior Notes, and 3.50% Senior Secured Notes, with $375 million of borrowing capacity available under the Revolving Credit Facility. Our liquidity requirements are significant, primarily due to debt service requirements.

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, (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 to DPH 123, LLC based on the MOIC exceeding certain thresholds as defined in the Datapipe Merger Agreement. If the MOIC exceeds 3.0x, which is indicated by a volume weighted average trading price ("VWAP") of our common stock over 30 consecutive trading days of more than $25.00, we will be required to issue an additional 2,665,935 shares.

On March 3, 2022, our board of directors authorized a program to repurchase up to $75 million of shares of our common stock from time to time through open-market transactions, privately negotiated transactions, accelerated share repurchases, and other transactions in accordance with applicable security laws. During the nine months ended September 30, 2022, we repurchased $31 million, or 3.1 million shares, of our common stock on the open market under this program. As of September 30, 2022, approximately $44 million of the amount authorized by the board under the current program remained available for additional purchases.

At September 30, 2022, we held $249 million in cash and cash equivalents (not including $3 million in restricted cash, which is included in "Other non-current assets"), of which $150 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 $76 million outstanding with respect to these arrangements as of September 30, 2022. 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. We had $510 million outstanding with respect to operating and finance lease agreements as of September 30, 2022. We may choose to utilize such leasing arrangements in future periods.

As of September 30, 2022, we had $3,366 million aggregate principal amount outstanding under our Term Loan Facility, 5.375% Senior Notes, and 3.50% Senior Secured Notes, with $375 million of borrowing capacity available under the Revolving Credit Facility. Our liquidity requirements are significant, primarily due to debt service requirements.

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Debt

Senior Facilities

On February 9, 2021, we amended and restated the credit agreement ~~(the "First Lien Credit Agreement")~~ governing our senior secured credit facilities (the "First Lien Credit Agreement"), which included a new seven-year $2,300 million senior secured first lien term loan facility (the "Term Loan 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 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 will mature on February 15, 2028 and the Revolving Credit Facility will mature on August 7, 2025. We may request one or more incremental term loan facilities, one or more incremental revolving credit facilities and/or increase the commitments under the Revolving Credit Facility in an amount equal to the greater of $860 million and 1.0x Pro Forma Adjusted EBITDA (as defined in the amended First Lien Credit Agreement), plus additional amounts, subject to 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 September 30, ~~2021,~~2022, the interest rate on the Term Loan Facility was ~~3.50%~~5.62%. ~~Beginning June 30, 2021, we~~We are required to make quarterly amortization payments of $5.8 million, which began on ~~the Term Loan Facility in an annual amount equal to 1.0% of the original principal amount of the Term Loan Facility, with the balance due at maturity.~~June 30, 2021. The Revolving Credit Facility 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. The Senior Facilities require us to make certain mandatory prepayments under certain conditions defined in the 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.

As of September 30, ~~2021, $2,289~~2022, $2,266 million aggregate principal amount of the Term Loan Facility remained outstanding. See Item 1 of Part I, Financial Statements - Note 6, "Debt," for more information regarding our Senior Facilities and the 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 - Note ~~11,~~12, "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 5.375% Senior Notes will mature on December 1, 2028 and bear interest at a fixed rate of 5.375% per year, payable semi-annually on each June 1 and December 1, commencing on June 1, 2021 through maturity. The 5.375% Senior Notes are guaranteed on a senior unsecured basis by all of Rackspace Technology Global’s wholly-owned domestic restricted subsidiaries that guarantee the Senior Facilities.

~~As of September 30, 2021, $550 million~~ ~~aggregate~~ ~~principal amount of the 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 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. 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 3.50% Notes Indenture.

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~~Table~~ ~~of Contents~~

The 3.50% Senior Secured Notes 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.

As of September 30, ~~2021,~~2022, $550 million aggregate principal amount of the 3.50% Senior Secured Notes remained outstanding.

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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 5.375% Senior Notes will mature on December 1, 2028 and bear interest at a fixed rate of 5.375% per year, payable semi-annually on each June 1 and December 1, commencing on June 1, 2021. The 5.375% Senior Notes are guaranteed on a senior unsecured basis by all of Rackspace Technology Global’s wholly-owned domestic restricted subsidiaries that guarantee the Senior Facilities.

As of September 30, 2022, $550 million aggregate principal amount of the 5.375% Senior Notes remained outstanding.

Debt covenants

Our Term Loan Facility is not subject to a financial maintenance covenant. ~~As of September 30, 2021, our~~The Revolving Credit Facility ~~included~~includes a financial maintenance covenant that limits the borrower's net first lien leverage ratio to a maximum of 5.00 to 1.00. 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 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%~~101.000% of the aggregate principal amount, plus accrued and unpaid interest, if any, to, but not including the purchase date.

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 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 September 30, ~~2021,~~2022, we were in compliance with all covenants under the Senior Facilities and the Indentures.

Capital Expenditures

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


		Nine Months Ended September 30,					Nine Months Ended September 30,
(In millions)	(In millions)	2020		2021		(In millions)	2021		2022
Customer gear	Customer gear	$	105.0	$	104.9	Customer gear	$	104.9	$	53.7
Data center build outs	Data center build outs	13.2		10.6		Data center build outs	10.6		2.5
Office build outs	Office build outs	2.5		1.9		Office build outs	1.9		—
Capitalized software and other projects	Capitalized software and other projects	53.4		58.3		Capitalized software and other projects	58.3		42.8
Total capital expenditures	Total capital expenditures	$	174.1	$	175.7	Total capital expenditures	$	175.7	$	99.0

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Capital expenditures were ~~relatively flat year-over-year, at~~$99 million in the nine months ended September 30, 2022, compared to $176 million in the nine months ended September 30, 2021, ~~compared~~a decrease of $77 million. The decrease in capitalized customer gear is due to ~~$174 million~~the continued mix shift of our revenues from high capital intensity service offerings to low capital intensity service offerings. The decrease in capitalized software and other projects is driven by the shift of internal software development work to lower cost geographies. Capital expenditures were also particularly higher in the ~~nine months ended September 30, 2020.~~

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~~Table~~prior year period due to the renewal of ~~Contents~~multi-year, enterprise storage and software license agreements.

Cash Flows

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


		Nine Months Ended September 30,					Nine Months Ended September 30,
(In millions)	(In millions)	2020		2021		(In millions)	2021		2022
Cash provided by operating activities	Cash provided by operating activities	$	132.7	$	311.2	Cash provided by operating activities	$	311.2	$	219.2
Cash used in investing activities	Cash used in investing activities	$	(92.2)	$	(52.2)	Cash used in investing activities	$	(52.2)	$	(83.5)
Cash provided by (used in) financing activities		$	128.5	$	(101.6)
Cash used in financing activities						Cash used in financing activities	$	(101.6)	$	(148.8)

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 ~~increased $179~~decreased $92 million, or ~~135%~~30%, in the nine months ended September 30, ~~2021~~2022 compared to the nine months ended September 30, ~~2020.~~2021. This ~~increase~~decrease was primarily driven by a ~~$321~~$284 million increase in operating expense payments, largely for third-party infrastructure costs. Partially offsetting this reduction in cash provided by operating activities was a $62 million decrease in employee-related payments mainly due to a shift in headcount to our offshore service centers. In addition, there was a $122 million increase in cash collections, primarily reflecting higher revenue levels and an increased focus on collection efforts with customers, and to a lesser extent, timing of collections. In addition, there was a $61 million decrease in debt interest payments due to lower interest rates on our long-term debt following various debt repurchase and refinancing transactions during the second half of 2020 and early 2021, and a $39 million decrease in employee-related payments due to a shift in headcount to our offshore service centers. These operating cash flow increases were partially offset by a $230 million increase in operating expense payments, largely for third-party infrastructure 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 $40~~increased $31 million, or ~~43%~~60%, in the nine months ended September 30, ~~2021~~2022 compared to the nine months ended September 30, ~~2020.~~2021. This ~~decrease~~ was mainly due to the receipt of net proceeds of $31 million in the prior year from the January 2021 sale of a parcel of undeveloped land in the United Kingdom adjacent to one of our existing data centers. ~~There was also~~During the nine months ended September 30, 2022, we made an $8 million cash payment in connection with the acquisition of Just Analytics and a ~~$10~~$15 million ~~decrease~~payment for the purchase of a convertible promissory note that matures in 2027. These outflows in the current year period were offset by a $22 million reduction in cash purchases of property, equipment, and ~~software.~~software year-over-year.

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 $102~~increased $47 million, ~~for~~or 46%, in the nine months ended September 30, ~~2021 and net cash provided by financing activities was $129 million for~~2022 compared to the nine months ended September 30, ~~2020.~~2021. The change was primarily driven by ~~$667~~a $49 million reduction in proceeds from ~~the issuance of~~employee stock plans year-over-year. The remaining variance includes $31 million in common stock share repurchases as part of the program authorized in March 2022, a $14 million increase in finance lease principal payments, and a $4 million increase in payments on the ~~IPO, not including $8 million in fees paid, for the nine months ended September 30, 2020, partially offset by a $435 million decrease in net debt activity. Net payments for long-term debt activity~~financing component of ~~$503 million~~our interest rate swap during the nine months ended September 30, ~~2020, which included $545 million of repayments on our 8.625% Senior Notes, $22 million of repayments on our Prior Term Loan Facility, and $1 million in debt issuance costs paid,~~2022. These drivers were partially offset by ~~borrowings of $65~~a $51 million ~~under the Receivables Financing Facility that remained outstanding at quarter-end. Net~~reduction in net payments ~~for~~related to long-term debt activity ~~were $68 million during the~~between periods, including debt issuance costs. The nine months ended September 30, 2021 ~~reflecting~~included the ~~refinancing of our Prior Term Loan Facility,~~February 2021 Refinancing Transaction and a $65 million repayment ~~related to~~on the ~~termination of our~~now terminated Receivables Financing Facility, ~~and $34 million in debt issuance costs paid. In addition, there was a $40 million increase in proceeds from employee stock plans, a $21 million increase in~~while the current period only includes quarterly principal payments ~~for finance leases and the first two payments for the financing component of~~on our ~~interest rate swaps totaling $9 million during the nine months ended September 30, 2021, offset by proceeds from financing obligations of $21 million during the nine months ended September 30, 2020.~~Term Loan Facility.

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Critical Accounting Policies and Estimates

Our critical accounting policies and estimates have not changed from those described in our 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."

Goodwill and Indefinite-Lived Intangible Assets

Goodwill represents the excess of the purchase price over the fair value of identifiable net assets of businesses acquired. Our indefinite-lived intangible assets consists of our Rackspace trade name, which was recorded at fair value on our balance sheet at the date of the Rackspace Acquisition.

Application of the goodwill and other indefinite-lived intangible asset impairment test requires judgment, including the identification of reporting units, assignment of assets and liabilities to reporting units, assignment of goodwill to reporting units and determination of the fair value of each reporting unit. We test goodwill and our indefinite-lived intangible asset, the Rackspace trade name, for impairment on an annual basis as of October 1st or more frequently if events or circumstances indicate a potential impairment. These events or circumstances could include a significant change in the business climate, regulatory environment, established business plans, operating performance indicators or competition. Potential impairment indicators may also include, but are not limited to, (i) the results of our most recent annual or interim impairment testing, (ii) downward revisions to internal forecasts, and the magnitude thereof, if any, (iii) declines in our market capitalization below our book value, and the magnitude and duration of those declines, if any, and (iv) other macroeconomic factors, such as increases in interest rates that may affect the weighted average cost of capital, volatility in the equity and debt markets, or fluctuations in foreign currency exchange rates that may negatively impact our reported results of operations.

Goodwill is tested for impairment at the reporting unit level. A reporting unit is an operating segment or one level below an operating segment (referred to as a component). We allocate goodwill to reporting units based on the reporting unit expected to benefit from the business combination. Assets and liabilities are assigned to each of our reporting units if they are employed by a reporting unit and are considered in the determination of the reporting unit fair value. Certain assets and liabilities are shared by multiple reporting units, and thus, are allocated to each reporting unit based on the relative size of a reporting unit, primarily based on revenue. We have two reporting units with goodwill: Multicloud Services and Apps & Cross Platform. Goodwill allocated to our third reporting unit, OpenStack Public Cloud, was fully impaired during the fourth quarter of 2021.

We estimate the fair values of our reporting units and the Rackspace trade name using the discounted cash flow method and relief-from-royalty method, respectively. These calculations require the use of significant estimates and assumptions, such as: (i) the royalty rate; (ii) the estimation of future revenue and projected margins, which are dependent on internal cash flow forecasts; (iii) estimation of the terminal growth rates and capital spending; and (iv) determination of discount rates. The discount rates used are based on our weighted average cost of capital and are adjusted for risks and uncertainties inherent in our business and in our estimation of future cash flows. As part of the goodwill impairment test, we also consider our market capitalization in assessing the reasonableness of the combined fair values estimated for our reporting units, including OpenStack Public Cloud. The estimates and assumptions used to calculate the fair value of our reporting units and the Rackspace trade name from year to year are based on operating results, market conditions, and other factors. Changes in these estimates and assumptions could produce materially different results.

As of September 1, 2022, after considering all available evidence in our evaluation of goodwill impairment indicators, we determined it appropriate to perform an interim quantitative assessment of our reporting unit as of September 1, 2022, for which we engaged a third-party valuation specialist to assist.

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For the interim quantitative goodwill impairment analysis performed as of September 1, 2022, we utilized the income approach to determine the fair value of our reporting units. The income approach utilizes a discounted cash flow method which is based on the present value of projected cash flows. The discounted cash flow models reflect our assumptions regarding revenue growth rates, risk-adjusted discount rate, terminal period growth rate, economic and market trends and other expectations about the anticipated operating results of our reporting units. The terminal period growth rate is selected based on economic conditions and consideration of growth rates used in the forecast period and historical performance of the reporting unit. We utilized a range of our weighted-average cost of capital of 10.0% to 12.0% as our discount rate, which was risk-adjusted for each reporting unit. After determining the fair value of our reporting units, we reconciled the combined fair value of the reporting units to the company's market capitalization as of September 1, 2022. As a result of our interim goodwill impairment test performed as of September 1, 2022, we determined that the carrying amount of our Multicloud Services reporting unit exceeded its fair value and recorded a goodwill impairment charge of $405 million, which is included in "Impairment of goodwill" in our Consolidated Statements of Comprehensive Loss for the three and nine months ended September 30, 2022. The impairment was driven by deteriorating forecasted margins and cash flows within this reporting unit primarily due to slower than anticipated product mix shifts. The Apps & Cross Platform reporting unit was determined to have a fair value that exceeded its carrying value by approximately 15% and therefore no impairment was recognized.

We performed sensitivity analyses on the key inputs and assumptions used in determining the estimated fair value of our reporting unit by utilizing changes in assumptions that reflect reasonably likely future changes in the discount rate used in the weighted-average cost of capital calculation and the terminal growth rate. Assuming all other assumptions and inputs used in the discounted cash flow analysis are held constant, a 50 basis point increase in the discount rate assumption would result in decreases in fair value of our Multicloud Services and Apps & Cross Platform reporting units of approximately $235 million and $33 million, respectively.

As of September 1, 2022, due to the factors discussed above, we performed a quantitative assessment of our indefinite-lived intangible asset utilizing a relief from royalty method. Significant estimates and assumptions included in the relief from royalty method are expectations of revenue growth rates, and selection of royalty rate and discount rate. We utilized a royalty rate of 0.5% and a discount rate of 10.7%. We determined the estimated fair value of the Rackspace trade name was less than its carrying value. As a result, we recorded a $21 million non-cash impairment charge, which is included in "Impairment of assets" in our Consolidated Statements of Comprehensive Loss for the three and nine months ended September 30, 2022.

The fair value determination of our reporting units and our indefinite-lived intangible asset is judgmental in nature and requires the use of estimates and assumptions that are sensitive to changes. Assumptions include estimation of the royalty rate, estimation of future revenue and projected margins, which are dependent on internal cash flow forecasts, estimation of the terminal growth rates and capital spending, and determination of discount rates. As a result, there can be no assurance that the estimates and assumptions made for purposes of the quantitative goodwill and indefinite-lived intangible impairment tests will prove to be an accurate prediction of future results. Examples of events or circumstances that could reasonably be expected to negatively affect the underlying key assumptions and ultimately impact the estimated fair value of our reporting units may include such items as: (i) volatility in the equity and debt markets or other macroeconomic factors, (ii) an increase in the weighted-average cost of capital due to further increases in interest rates, (iii) decrease in future cash flows due to lower than expected sales, or (iv) fluctuations in foreign currency exchange rates that may negatively impact our reported results of operations. Accordingly, if our current cash flow assumptions are not realized, we experience further sustained declines in our stock price or market capitalization, or increases in costs of capital, it is possible that an additional impairment charge may be recorded in the future, which could be material.

Long-Lived Assets

As of September 1, 2022, due to the factors discussed above, we performed an interim impairment review of the recoverability of our long-lived assets by asset group. Based on the results of the recoverability test, we determined that, as of September 1, 2022, the fair value of the OpenStack Public Cloud asset group’s underlying assets was less than the carrying value. Fair values of the OpenStack Public Cloud long-lived assets were determined using the cost approach. The cost approach utilized assumptions for the current replacement costs of similar assets adjusted for estimated depreciation and deterioration of the existing equipment and economic obsolescence. Estimates of floor values for the property, equipment and software, net, were considered relative to potential economic support for the assets such that the concluded value did not fall below the estimated floor value of these assets. We concluded that the carrying value of the OpenStack Public Cloud long-lived assets, including customer relationship intangibles and property, equipment and software, net, were impaired and recorded non-cash impairment charges of $38 million, which is included in "Impairment of assets" in our Consolidated Statements of Comprehensive Loss for the three and nine months ended September 30, 2022.

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ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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 $375 million Revolving Credit Facility and ~~$2,289~~$2,266 million outstanding under the Term Loan Facility. As of September 30, ~~2021,~~2022, there were no outstanding borrowings under the Revolving Credit Facility and therefore our only variable-rate debt outstanding was the ~~$2,289~~$2,266 million outstanding under the Term Loan Facility. As of September 30, ~~2021,~~2022, assuming the Revolving Credit Facility was fully drawn, each 0.125% change in assumed blended interest rates would result in a $3 million change in annual interest expense on indebtedness under the Senior Facilities.

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 interest rate swap agreements indexed to three-month LIBOR in order to manage our risk from fluctuations in three-month LIBOR above the 0.75% floor. During the nine months ended September 30, 2022, three of these swap agreements matured. The fixed ~~rates~~rate for ~~each~~the remaining swap agreement ~~are~~is presented in the table below. As of September 30, ~~2021,~~2022, the interest rate on the Term Loan Facility was ~~3.50%~~5.62%, equal to an applicable margin of 2.75% plus ~~the 0.75%~~ three-month LIBOR ~~floor.~~for the interest period of 2.87%.

The key terms of the ~~swaps~~swap outstanding as of September 30, ~~2021~~2022 are presented below:

Transaction Date

Effective Date

Notional Amount (in millions)

Fixed Rate Paid (Received)

Maturity Date

Transaction Date

Effective Date

Notional Amount (in millions)

Fixed Rate Paid

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

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 ~~11,~~12, "Derivatives," for more information on interest rate 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 nine months ended September 30, ~~2021,~~2022, we recognized foreign currency transaction losses of $2$16 million within “Other income (expense), net” in our Consolidated Statements of Comprehensive 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 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.

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During the fourth quarter of 2020, we entered into two foreign currency forward contracts. Under the terms of these contracts, on November 30, 2021, we will sell a total of £80 million at an average rate of 1.3388 British pound sterling to U.S. dollar and receive $107.1 million.

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

Power Prices

We are a large consumer of power. In the nine months ended September 30, ~~2021,~~2022, we expensed approximately ~~$33~~$32 million for utility companies to power our data centers, representing approximately 1% 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.

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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~~Principal Executive ~~Officer~~ and ~~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~~Principal Executive ~~Officer~~ and ~~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~~Principal Executive ~~Officer~~ and ~~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~~Principal 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 are not party to any litigation, the outcome of which, if determined adversely to us, would individually or in the aggregate be reasonably expected to have a material and adverse effect on our business, financial position or results of operations.

ITEM 1A – RISK FACTORS

We have disclosed under the heading “Risk Factors” in our Annual Report ~~on Form 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 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~~Purchases of Equity Securities by the Issuer and Affiliated Purchasers

~~Not Applicable.~~During the three months ended September 30, 2022, we did not repurchase any of our common stock.

~~Use~~On March 3, 2022, our board of ~~Proceeds~~directors authorized a program to repurchase up to $75.0 million of shares of our common stock. The authorization was effective immediately, expires on September 30, 2023 and can be discontinued at any time. Under the program, shares may be repurchased from time to time through open-market transactions (including pre-set trading plans), privately negotiated transactions, accelerated share repurchases, and other transactions in accordance with applicable security laws. As of September 30, 2022, $44.0 million remains available to be purchased under this program.

~~None.~~

ITEM 3 – DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4 – MINE SAFETY DISCLOSURES

Not Applicable.

ITEM 5 – OTHER INFORMATION

~~None.~~In connection with his previously announced retirement, on November 8, 2022, the company entered into a separation agreement and release (the "Separation Agreement") with Mr. Subroto Mukerji, pursuant to which he will be eligible to receive separation benefits including eighteen months of salary, eighteen months of target bonus, a pro-rata portion of the 2022 Corporate Cash Bonus payment based on actual achievement, legal fees up to $7,500, and an aggregate lump-sum payment equal to eighteen months of COBRA benefits. Mr. Mukerji will also be eligible to receive the next vesting tranche of certain of his time-based restricted stock units granted in 2021 and 2022.

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ITEM 6 – EXHIBITS

Exhibit Number

Exhibit Description

10.1†

~~Form of Restricted Stock Unit Award Agreement~~Amended and restated employment agreement between Rackspace Technology, Inc. and ~~the Company's Chief Executive Officer (incorporated by reference from Exhibit 10.1 to Rackspace Technology, Inc.’s Current Report on Form 8-K filed on August 25, 2021)~~Amar Maletira, effective September 27, 2022

10.2†

~~Form~~Transition agreement and release of ~~Performance Stock UnitAgreeme~~nt claims, between Rackspace Technology, Inc. and ~~the Company's Chief Executive Officer (incorporated by reference from Exhibit 10.~~Kevin Jones, effective September 27, 2022

10.3†

2 toSettlement agreement between Rackspace ~~Technology, Inc.’s Current Report on Form 8-K filed on August 25, 2021)~~Limited and Martin Blackburn, dated as of November 2, 2022

10.4†

Separation agreement and release between Rackspace US, Inc. and Subroto Mukerji, dated as of November 8, 2022

31.1*

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

31.2*

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

32.1**

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

32.2**

~~Certification of the Chief~~and 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.

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Table of 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:

November ~~15, 2021~~9, 2022

By:

/s/ Amar Maletira

Amar Maletira

~~President and~~ Chief ~~Financial~~Executive Officer

(Principal Executive and Financial Officer)

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