Rackspace Hosting Reports First Quarter 2009 Results

For the quarter ended March 31, 2009:

* Net revenues were $145.1 million
* Adjusted EBITDA(1) was $45.1 million with a 31.1% Adjusted EBITDA margin
* Net income of $6.6 million with a 4.5% Net income margin

SAN ANTONIO--(Business Wire)--
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.

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.

Rackspace Cloud Developments

* Cloud Leadership: In March 2009, the company integrated product offerings
related to the Slicehost and Jungle Disk acquisitions. We announced the formal
availability of a complete cloud suite: Cloud Sites + Cloud Files + Cloud
Servers. We believe that Rackspace is the only cloud provider with a
comprehensive offering combining a server and storage on-demand service as well
as a .NET and LAMP platform-as-a-service offer. In the first quarter, Rackspace
grew its Cloud business by adding over 8,000 new customers from the fourth
quarter of 2008 and by growing Revenue at 145% year-over-year and greater than
20% sequentially. The company has continued to rapidly evolve its Cloud Suite
platform to offer even more features and make the technology more usable along
side its traditional managed hosting offering. Rackspace is capitalizing on its
reputation for customer service to build a Hybrid Hosting leadership position.

"With greater operational discipline and proven ability to adjust our model
quickly to meet demand, we`ve continued to scale the cost side of our business
and believe there are further opportunities for margin improvements," said Bruce
Knooihuizen, chief financial officer, Rackspace Hosting. "In addition, excluding
working capital timing issues, we were free cash flow positive for the first
quarter on a fully-taxed and levered basis; we grew our business close to 50% in
2008 so it did not take long to go from high growth to free cash flow positive.
This highlights the economic advantage we have with a monthly recurring revenue
business and the significant number of cost levers that we can adjust rapidly."

Conference Call and Webcast

Management will host a conference call to discuss its first quarter 2009
financial results today at 4:30 p.m. ET. To access the conference call, please
dial 877-718-5106 from the United States or dial 719-325-4758 from abroad and
reference pass code 7496016. A live webcast and a replay of the conference call
will be available on Rackspace`s website, located at ir.rackspace.com.

About Rackspace Hosting

As the leader and specialist in hosting services, Rackspace Hosting is changing
the way businesses worldwide buy IT. Rackspace delivers computing-as-a-service,
integrating the industry`s best technologies into a flexible service offering,
making computing more reliable and affordable. A trusted partner to companies of
all sizes, Rackspace enables IT departments to be more effective. Rackspace is
distinguished by its award-winning Fanatical Support, furthering the company`s
mission to be one of the world`s greatest service companies. Rackspace is
recognized as one of FORTUNE`S "100 Best Companies to Work For", ranking number
43 on the 2009 list. Rackspace's portfolio of hosted IT services includes
managed hosting (www.rackspace.com), email hosting (www.mailtrust.com) and cloud
hosting (www.mosso.com). For more information on Rackspace Hosting please visit
www.rackspace.com or call 800-961-2888.

Forward-Looking Statements

This press release contains forward-looking statements that involve risks,
uncertainties and assumptions. If such risks or uncertainties materialize or
such assumptions prove incorrect, the results of Rackspace Hosting could differ
materially from those expressed or implied by such forward-looking statements
and assumptions. All statements other than statements of historical fact are
statements that could be deemed forward-looking statements, including any
statements concerning expected operational and financial results, long term
investment strategies, growth plans including international expansion plans,
expected results from the integration of technologies and acquired businesses,
the performance or market share relating to products and services; any
statements of expectation or belief; and any statements of assumptions
underlying any of the foregoing. Risks, uncertainties and assumptions include
the continuation or further deterioration of the current difficult economic
conditions or further fluctuations, disruptions, instability or downturns in the
economy, the effectiveness of managing company growth, infrastructure failures,
technological and competitive factors, regulatory factors, and other risks that
are described in Rackspace Hosting`s Form 10-K for the year ended December 31,
2008, filed with the SEC on March 2, 2009. Except as required by law, Rackspace
Hosting assumes no obligation to update these forward-looking statements
publicly, or to update the reasons actual results could differ materially from
those anticipated in these forward-looking statements, even if new information
becomes available in the future.

Consolidated Statements of Income

(Unaudited)
Three Months Ended
March 31, December 31, March 31,
(In thousands, except per share data) 2008 2008 2009

Net revenues $ 119,613 $ 143,137 $ 145,077
Costs and expenses:
Cost of revenues 39,223 45,019 46,210
Sales and marketing 17,568 21,447 20,502
General and administrative 33,633 38,236 37,540
Depreciation and amortization 19,051 26,310 27,804
Total costs and expenses 109,475 131,012 132,056
Income from operations 10,138 12,125 13,021
Other income (expense):
Interest expense (1,330 ) (3,153 ) (2,535 )
Interest and other income (expense) 247 492 (91 )
Total other income (expense) (1,083 ) (2,661 ) (2,626 )
Income before income taxes 9,055 9,464 10,395
Income taxes 3,613 2,620 3,807
Net income $ 5,442 $ 6,844 $ 6,588

Net income per share
Basic $ 0.05 $ 0.06 $ 0.06
Diluted $ 0.05 $ 0.06 $ 0.05

Weighted average number of shares outstanding
Basic 102,574 116,957 117,608
Diluted 109,085 121,900 121,889

Consolidated
Balance
Sheets
(In December 31, March 31,
thousands)
2008 2009
(Unaudited)
ASSETS
Current
assets:
Cash and cash $ 238,407 $ 135,020
equivalents
Accounts 30,932 34,775
receivable,
net of
allowance for
doubtful
accounts and
customer
credits of
$3,295 as of
December 31,
2008 and
$4,533 as of
March 31,
2009
Prepaid 23,156 23,029
expenses and
other current
assets
Total current 292,495 192,824
assets

Property and 362,042 371,125
equipment,
net
Goodwill 6,942 14,329
Intangible 15,101 14,287
assets, net
Other non 8,681 8,869
-current
assets
Total assets $ 685,261 $ 601,434

LIABILITIES
AND
STOCKHOLDERS'
EQUITY
Current
liabilities:
Accounts $ 71,387 $ 71,211
payable and
accrued
expenses
Current 16,284 16,871
portion of
deferred
revenue
Current 38,909 39,876
portion of
obligations
under capital
and finance
method leases
Current 5,944 5,723
portion of
debt
Total current 132,524 133,681
liabilities

Non-current 3,883 3,503
deferred
revenue
Non-current 50,781 51,660
obligations
under capital
and finance
method leases
Non-current 204,779 104,248
debt
Other non 23,610 25,462
-current
liabilities
Total 415,577 318,554
liabilities

COMMITMENTS
AND
CONTINGENCIES

Stockholders'
equity:
Common stock 117 119
Additional 207,589 214,909
paid-in
capital
Accumulated (16,027 ) (16,741 )
other
comprehensive
income (loss)
Retained 78,005 84,593
earnings
Total 269,684 282,880
stockholders`
equity
Total $ 685,261 $ 601,434
liabilities
and
stockholders`
equity

Consolidated Statements of Cash Flows

(Unaudited)
(In thousands) Three Months Ended
March 31, December 31, March 31,
2008 2008 2009

Cash Flows From Operating Activities

Net income $ 5,442 $ 6,844 $ 6,588
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization 19,051 26,310 27,804
Loss on disposal, net 1,327 611 176
Provision for bad debts and customer credits 398 1,809 2,309
Deferred income taxes 1,157 12,450 2,507
Share-based compensation expense 2,752 4,144 4,237
Other non-cash compensation expense 31 77 85
Excess tax benefits from share-based compensation arrangements (708 ) - -
Changes in certain assets and liabilities
Accounts receivables 380 (6,756 ) (6,336 )
Prepaid expenses and other current assets (1,208 ) (11,250 ) (118 )
Accounts payable and accrued expenses 6,268 (4,160 ) (6,601 )
Deferred revenues 1,484 (183 ) 304
Other non-current assets 9 (535 ) 270
Other non-current liabilities (225 ) 5,008 (426 )
Net cash provided by operating activities 36,158 34,369 30,799

Cash Flows From Investing Activities
Purchases of property and equipment, net (47,248 ) (32,547 ) (25,589 )
Acquisition of businesses, net of cash acquired - (9,739 ) -
Net cash used in investing activities (47,248 ) (42,286 ) (25,589 )

Cash Flows From Financing Activities
Principal payments of capital and finance method leases (7,549 ) (9,495 ) (9,838 )
Principal payments of notes payable (1,152 ) (1,330 ) (751 )
Borrowings on line of credit 20,000 - -
Payments on line of credit - - (100,000 )
Payments for debt issuance costs (158 ) - -
Proceeds from sale leaseback transactions 761 - -
Proceeds from issuance of common stock at IPO net of offering expenses - (641 ) -
Proceeds from issuance of common stock, net 548 - -
Proceeds from exercise of stock options 503 - 2,235
Excess tax benefits from share-based compensation arrangements 708 - -
Net cash provided by (used in) financing activities 13,661 (11,466 ) (108,354 )

Effect of exchange rate changes on cash (11 ) (2,528 ) (243 )

Increase (decrease) in cash and cash equivalents 2,560 (21,911 ) (103,387 )

Cash and cash equivalents, beginning of period 24,937 260,318 238,407

Cash and cash equivalents, end of period $ 27,497 $ 238,407 $ 135,020

Supplemental cash flow information:
Acquisition of property and equipment by capital and finance method leases $ 18,512 $ 14,848 $ 11,683
Acquisition of property and equipment by notes payable 3,107 - -
Vendor financed equipment purchases $ 21,619 $ 14,848 $ 11,683

Key Metrics

(Unaudited)
Three Months Ended
March 31, June 30, September 30, December 31, March 31,
(Dollar amounts in thousands, except annualized net revenue per average technical square foot) 2008 2008 2008 2008 2009
Growth
Managed hosting customers at period end 16,352 17,220 18,012 18,480 19,048
Cloud customers at period end* 15,310 16,387 18,173 34,820 43,030
Number of customers at period end 31,662 33,607 36,185 53,300 62,078

Managed hosting, net revenues $ 115,175 $ 125,498 $ 131,908 $ 134,275 $ 134,204
Cloud, net revenues $ 4,438 $ 5,331 $ 6,446 $ 8,862 $ 10,873
Net revenues $ 119,613 $ 130,829 $ 138,354 $ 143,137 $ 145,077
Revenue growth (year over year) 59.0 % 55.7 % 44.0 % 34.2 % 21.3 %
Net upgrades (monthly average) 2.1 % 2.1 % 1.8 % 1.4 % 0.9 %
Churn (monthly average) -1.2 % -1.1 % -1.2 % -1.3 % -1.1 %
Growth in installed base (monthly average) 0.9 % 1.0 % 0.6 % 0.1 % -0.2 %

Number of employees (Rackers) at period end 2,254 2,422 2,536 2,611 2,661
Number of servers deployed at period end 39,755 42,424 45,231 47,518 50,038

Profitability
Income from operations $ 10,138 $ 8,396 $ 9,490 $ 12,125 $ 13,021
Depreciation and amortization $ 19,051 $ 21,637 $ 23,174 $ 26,310 $ 27,804
Share-based compensation expense
Cost of revenues $ 365 $ 603 $ 819 $ 678 $ 629
Sales & marketing $ 401 $ 533 $ 612 $ 595 $ 698
General & administrative $ 1,986 $ 2,668 $ 2,886 $ 2,871 $ 2,910
Total share-based compensation expense $ 2,752 $ 3,804 $ 4,317 $ 4,144 $ 4,237
Adjusted EBITDA (1) $ 31,941 $ 33,837 $ 36,981 $ 42,579 $ 45,062

Adjusted EBITDA margin 26.7 % 25.9 % 26.7 % 29.7 % 31.1 %

Operating income margin 8.5 % 6.4 % 6.9 % 8.5 % 9.0 %

Income from operations $ 10,138 $ 8,396 $ 9,490 $ 12,125 $ 13,021
Effective tax rate 39.9 % 37.9 % 29.6 % 27.7 % 36.6 %
Net operating profit after tax (NOPAT) (1) $ 6,093 $ 5,214 $ 6,681 $ 8,766 $ 8,255
NOPAT margin 5.1 % 4.0 % 4.8 % 6.1 % 5.7 %

Capital efficiency and returns
Interest bearing debt $ 145,130 $ 183,553 $ 297,933 $ 300,413 $ 201,507
Stockholders' equity $ 105,770 $ 117,417 $ 269,008 $ 269,684 $ 282,880
Less: Excess cash $ - $ - $ (235,421 ) $ (200,620 ) $ (117,611 )
Capital base $ 250,900 $ 300,970 $ 331,520 $ 369,477 $ 366,776
Average capital base $ 229,612 $ 275,935 $ 316,245 $ 350,497 $ 368,127
Capital turnover (annualized) 2.08 1.90 1.75 1.63 1.58

Return on capital (annualized) (1) 10.6 % 7.6 % 8.5 % 10.0 % 9.0 %

Capital expenditures
Purchases of property and equipment, net $ 47,248 $ 40,273 $ 45,328 $ 32,547 $ 25,589
Vendor financed equipment purchases $ 21,619 $ 26,014 $ 23,009 $ 14,848 $ 11,683
Total capital expenditures $ 68,867 $ 66,287 $ 68,337 $ 47,395 $ 37,272

Customer gear $ 27,558 $ 27,347 $ 27,627 $ 23,073 $ 19,255
Data center build outs $ 25,392 $ 18,509 $ 21,679 $ 14,240 $ 11,386
Office build outs $ 8,832 $ 12,815 $ 11,227 $ 8,340 $ 2,239
Capitalized software and other projects $ 7,085 $ 7,616 $ 7,804 $ 1,742 $ 4,392
Total capital expenditures $ 68,867 $ 66,287 $ 68,337 $ 47,395 $ 37,272

Infrastructure capacity and utilization
Technical square feet of data center space at period end 114,749 133,462 136,962 134,923 157,523
Annualized net revenue per average technical square foot $ 4,170 $ 4,217 $ 4,093 $ 4,212 $ 3,969
Utilization rate at period end 67.3 % 59.1 % 63.4 % 70.4 % 64.6 %

* December 31, 2008 and March 31, 2009 amounts include customers resulting from the Slicehost acquisition, and March 31, 2009 includes SaaS customers for Jungle Disk
(1) See discussion and reconciliation of our Non-GAAP financial measures to the most comparable GAAP measures

Consolidated Quarterly Statements of Income

(Unaudited)
Three Months Ended
(In thousands) March 31, June 30, September 30, December 31, March 31,
2008 2008 2008 2008 2009

Net revenues $ 119,613 $ 130,829 $ 138,354 $ 143,137 $ 145,077
Costs and expenses:
Cost of revenues 39,223 42,842 45,499 45,019 46,210
Sales and marketing 17,568 19,846 21,462 21,447 20,502
General and administrative 33,633 38,108 38,729 38,236 37,540
Depreciation and amortization 19,051 21,637 23,174 26,310 27,804
Total costs and expenses 109,475 122,433 128,864 131,012 132,056
Income from operations 10,138 8,396 9,490 12,125 13,021
Other income (expense):
Interest expense (1,330 ) (1,834 ) (1,912 ) (3,153 ) (2,535 )
Interest and other income (expense) 247 173 (144 ) 492 (91 )
Total other income (expense) (1,083 ) (1,661 ) (2,056 ) (2,661 ) (2,626 )
Income before income taxes 9,055 6,735 7,434 9,464 10,395
Income taxes 3,613 2,553 2,199 2,620 3,807
Net income $ 5,442 $ 4,182 $ 5,235 $ 6,844 $ 6,588

Three Months Ended
(Percent of net revenues) March 31, June 30, September 30, December 31, March 31,
2008 2008 2008 2008 2009

Net revenues 100.0 % 100.0 % 100.0 % 100.0 % 100.0 %
Costs and expenses
Cost of revenues 32.8 % 32.7 % 32.9 % 31.5 % 31.9 %
Sales and marketing 14.7 % 15.2 % 15.5 % 15.0 % 14.1 %
General and administrative 28.1 % 29.1 % 28.0 % 26.7 % 25.9 %
Depreciation and amortization 15.9 % 16.5 % 16.7 % 18.4 % 19.2 %
Total costs and expenses 91.5 % 93.6 % 93.1 % 91.5 % 91.0 %
Income from operations 8.5 % 6.4 % 6.9 % 8.5 % 9.0 %
Other income (expense):
Interest expense -1.1 % -1.4 % -1.4 % -2.2 % -1.7 %
Interest and other income (expense) 0.2 % 0.1 % -0.1 % 0.3 % -0.1 %
Total other income (expense) -0.9 % -1.3 % -1.5 % -1.9 % -1.8 %
Income before income taxes 7.6 % 5.1 % 5.4 % 6.6 % 7.2 %
Income taxes 3.0 % 2.0 % 1.6 % 1.8 % 2.6 %
Net income 4.5 % 3.2 % 3.8 % 4.8 % 4.5 %
Due to rounding, totals may not equal the sum of the line items in the table above.

(1) Non-GAAP Financial Measures

Adjusted EBITDA (Non-GAAP financial measure)

We define Adjusted EBITDA as Net Income, plus Income Taxes, Total Other Income
(Expense), Depreciation and Amortization, and non-cash charges for share-based
compensation.

Adjusted EBITDA is a metric that is used in our industry by the investment
community for comparative and valuation purposes. We disclose this metric in
order to support and facilitate the dialogue with research analysts and
investors.

Note that Adjusted EBITDA is not a measure of financial performance under
accounting principles generally accepted in the United States (GAAP) and should
not be considered a substitute for operating income, which we consider to be the
most directly comparable GAAP measure. Adjusted EBITDA has limitations as an
analytical tool, and when assessing our operating performance, you should not
consider Adjusted EBITDA in isolation, or as a substitute for net income or
other consolidated income statement data prepared in accordance with GAAP. Other
companies may calculate Adjusted EBITDA differently than we do, limiting its
usefulness as a comparative measure. See our Adjusted EBITDA reconciliation in
our key metrics table below.

Three Months Ended
(Dollars in thousands) March 31, June 30, September 30, December 31, March 31,
2008 2008 2008 2008 2009
(Unaudited)
Net revenues $ 119,613 $ 130,829 $ 138,354 $ 143,137 $ 145,077

Income from operations $ 10,138 $ 8,396 $ 9,490 $ 12,125 $ 13,021

Net income $ 5,442 $ 4,182 $ 5,235 $ 6,844 $ 6,588
Plus: Income taxes $ 3,613 $ 2,553 $ 2,199 $ 2,620 $ 3,807
Plus: Total other (income) expense $ 1,083 $ 1,661 $ 2,056 $ 2,661 $ 2,626
Plus: Depreciation and amortization $ 19,051 $ 21,637 $ 23,174 $ 26,310 $ 27,804
Plus: Share-based compensation expense $ 2,752 $ 3,804 $ 4,317 $ 4,144 $ 4,237
Adjusted EBITDA $ 31,941 $ 33,837 $ 36,981 $ 42,579 $ 45,062

Operating income margin 8.5 % 6.4 % 6.9 % 8.5 % 9.0 %

Adjusted EBITDA margin 26.7 % 25.9 % 26.7 % 29.7 % 31.1 %

Return on Capital (ROC) (Non-GAAP financial measure)

We define Return on Capital (ROC) as follows:

ROC = Net Operating Profit After Tax (NOPAT)

Average Capital Base

NOPAT = Income from operations x (1 - Effective tax rate)

Average Capital Base = Average of (Interest bearing debt + stockholders` equity
- excess cash) = Average of (Total assets - excess cash - accounts payables and
accrued expenses - deferred revenues - other non-current liabilities);
calculated on a quarterly basis.

For the period ending March 31, 2009, we define excess cash as the amount of
cash and cash equivalents that exceeds our operating cash requirements, which
for this period is calculated as three percent of our annualized net revenues
for the three months ended March 31, 2009. For prior periods, we defined excess
cash as our investments in money market funds. As a result of slower growth and
a decrease in capital requirements due to the recent completion of the last
phase of our DFW data center build out and signing of a lease to occupy a new
data center later in 2009 that has minimal data center build out costs, our
operating cash needs have declined. We will review the calculation annually and
adjust it to reflect our projected cash requirements for the upcoming year.

We believe that ROC is an important metric for investors in evaluating a
company`s performance. ROC relates after-tax operating profits with the capital
that is placed into service. It is therefore a performance metric that
incorporates both the Statement of Income and the Balance Sheet. ROC measures
how successfully capital is deployed within a company.

Note that ROC is not a measure of financial performance under accounting
principles generally accepted in the United States (GAAP) and should not be
considered a substitute for return on assets, which we consider to be the most
directly comparable GAAP measure, and may not be comparable to similarly titled
measures reported by other companies. See our ROC reconciliation to return on
assets below.

Three Months Ended
(Dollars in thousands) March 31, June 30, September 30, December 31, March 31,

2008
2008
2008 2008 2009
(Unaudited)
Income from operations $ 10,138 $ 8,396 $ 9,490 $ 12,125 $ 13,021
Effective tax rate 39.9 % 37.9 % 29.6 % 27.7 % 36.6 %
Net operating profit after tax (NOPAT) $ 6,093 $ 5,214 $ 6,681 $ 8,766 $ 8,255

Net income $ 5,442 $ 4,182 $ 5,235 $ 6,844 $ 6,588

Average total assets $ 328,567 $ 381,815 $ 546,761 $ 685,236 $ 643,349
Less: Average excess cash $ - $ - $ (117,710 ) $ (218,021 ) $ (159,116 )
Less: Average accounts payable and accrued expenses $ (71,071 ) $ (76,494 ) $ (79,837 ) $ (76,564 ) $ (71,299 )
Less: Average deferred revenues (current and non-current) $ (18,684 ) $ (19,762 ) $ (20,077 ) $ (20,111 ) $ (20,271 )
Less: Average other non-current liabilities $ (9,200 ) $ (9,624 ) $ (12,892 ) $ (20,043 ) $ (24,536 )
Average capital base $ 229,612 $ 275,935 $ 316,245 $ 350,497 $ 368,127

Return on assets (Net income/Average total assets) 6.6 % 4.4 % 3.8 % 4.0 % 4.1 %
Return on capital (NOPAT/Average capital base) 10.6 % 7.6 % 8.5 % 10.0 % 9.0 %

Adjusted Free Cash Flow (Non-GAAP financial measure)

We define Adjusted Free Cash Flow as Adjusted EBITDA less total capital
expenditures (including vendor financed equipment purchases), cash payments for
interest, net, and cash payments for income taxes, net.

We believe that Adjusted Free Cash Flow is an important metric for investors in
evaluating a company`s operating financial performance and liquidity. Note that
Adjusted Free Cash Flow is not a measure of financial performance under
accounting principles generally accepted in the United States (GAAP) and may not
be comparable to similarly titled measures reported by other companies. See our
Adjusted Free Cash Flow reconciliation to Adjusted EBITDA below, as well as our
reconciliation of Net income to Adjusted EBITDA provided above.

(Three months ended March 31, 2009)
Adjusted EBITDA $ 45,062
Less: Total capital expenditures (37,272 )
Less: Cash payments for interest, net (2,472 )
Less: Cash payments for income taxes, net (573 )
Adjusted Free Cash Flow $ 4,745

Net Leverage (Non-GAAP financial measure)

We define Net Leverage as Net Debt divided by Adjusted EBITDA (trailing twelve
months).

We believe that Net Leverage is an important metric for investors in evaluating
a company`s liquidity. Note that Net Leverage is not a measure of financial
performance under accounting principles generally accepted in the United States
(GAAP) and may not be comparable to similarly titled measures reported by other
companies. See our Net Leverage calculation below.

As of March 31, 2009
Obligations under capital and finance method leases $ 91,536
Debt 109,971
Total Debt 201,507
Less: Cash and cash equivalents (135,020 )
Net Debt $ 66,487
Adjusted EBITDA (trailing twelve months) $ 158,459

Net Leverage 0.42

Rackspace Hosting, Inc.
Investor Relations:
Jason Luce, 210-312-7291
ir@rackspace.com
or
Media Relations:
Rachel Ferry, 210-312-3732
rachel.ferry@rackspace.com

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