Rackspace Hosting (RAX)

Rackspace Hosting Reports First Quarter 2009 Results

For the quarter ended March 31, 2009:

SAN ANTONIO – May 11, 2009 – Rackspace^® Hosting, Inc. (NYSE: RAX), the world’s leader and specialist in hosting services, today reported financial results for the quarter ended March 31, 2009.

Net revenues for the first quarter ended March 31, 2009 were $145.1 million, up 1.4% from the fourth quarter of 2008 and up 21.3% from the quarter ended March 31, 2008. This growth in net revenues also had a negative impact from a further depreciation of the Pound Sterling, relative to the U.S. Dollar of $3.2 million.

Total customer count increased to 62,078, up from 53,300 customers in the fourth quarter of 2008. The 62,078 customer count included 19,048 managed hosting customers and 43,030 cloud computing customers. Also, 568 Managed hosting customers were added in the first quarter of 2009 representing the first quarter-over-quarter sequential increase in net Managed hosting customer additions since the first quarter of 2008.

“I believe things feel better today and we are on track for expanding our leadership position in the industry. We grew our business in the first quarter and we see some real opportunities on the enterprise side that should help us continue to grow during this tough environment. Our cloud business continues to gain significant momentum, our net managed hosting customer additions trended up for the first time in several quarters, and we continued to show how much control we have over scaling our cost structure and improving margins,” said Lanham Napier, chief executive officer and president. “Additionally, we’ve continued to keep churn rates in check and believe that our historically high-growth installed base will once again become a meaningful accelerator to our growth once the economy stabilizes back to normalized levels. We are proud of what Rackers have accomplished this quarter.”

Adjusted EBITDA for the first quarter of 2009 was $45.1 million, a 5.8% increase compared to the fourth quarter of 2008 and a 41.1% increase compared to the same quarter last year. Adjusted EBITDA margins for the first quarter were 31.1% compared to 29.7% for the fourth quarter of 2008, and 26.7% for the first quarter of 2008.

Net income was $6.6 million for the first quarter, a 3.7% decrease compared to the fourth quarter and a 21.1% increase compared to the same quarter last year. Net income margins for the first quarter were 4.5% compared to 4.8% for the fourth quarter of 2008, and 4.5% for the first quarter of 2008. Net income in the fourth quarter 2008 benefited from a tax adjustment of approximately $750,000.

Cash flow from operating activities was $30.8 million for the first quarter of 2009. Capital expenditures were $37.3 million, including $19.3 million for purchases of customer gear, $11.4 million for data center build outs, $2.2 million for office build outs, and $4.4 million for capitalized software and other expenditures.

For the full year of 2009, the company expects to have total capital expenditures of $120 million to $160 million, including $75 million to $100 million dollars for customer gear, approximately $25 million for data centers, $10 million to $15 million for office space, and $10 million to $20 million for capitalized software and other.

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At the end of the first quarter, cash and cash equivalents were $135.0 million. Included in that amount are investments in money market funds in the amount of $100.7 million. Debt obligations totaled $201.5 million. Of those, $110.0 million were related to current and non-current debt, and $91.5 million were related to obligations under capital and finance method leases.

On a worldwide basis, Rackspace employed 2,661 Rackers as of March 31, 2009, up from 2,611 Rackers as of December 31, 2008, and 2,254 Rackers as of March 31, 2008.