Quarterly Report (10-q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark one)



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

For the quarterly period ended March 31, 2015.



o	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 001-34143

RACKSPACE HOSTING, INC.

(Exact name of registrant as specified in its charter)



Delaware		74-3016523
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

1 Fanatical Place

City of Windcrest

San Antonio, Texas 78218

(Address of principal executive offices, including zip code)

(210) 312-4000

(Registrant’s telephone number, including area code)

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 R No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted 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 R No o

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



Large accelerated filer R	Accelerated filer o	Non-accelerated filer o	Smaller reporting company o

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

On May 7, 2015, 142,818,367 shares of the registrant’s Common Stock, $0.001 par value, were outstanding.

RACKSPACE HOSTING, INC.

TABLE OF CONTENTS



Part I - Financial Information
Item 1.	Financial Statements:
	Consolidated Balance Sheets as of December 31, 2014 and March 31, 2015 (unaudited)	3
	Unaudited Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2014 and 2015	4
	Unaudited Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2014 and 2015	5
	Notes to the Unaudited Consolidated Financial Statements	6
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	11
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	25
Item 4.	Controls and Procedures	25

Part II - Other Information
Item 1.	Legal Proceedings	26
Item 1A.	Risk Factors	26
Item 6.	Exhibits	27

Signatures		28

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

References to “we,” “our,” “our company,” “us,” “the company,” “Rackspace Hosting,” or “Rackspace” refer to Rackspace Hosting, Inc. and its consolidated subsidiaries. We have made forward-looking statements in this Quarterly Report on Form 10-Q that are subject to risks and uncertainties. Forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, are subject to the “safe harbor” created by those sections. The forward-looking statements in this report are based on our management’s beliefs and assumptions and on information currently available to our management. In some cases, you can identify forward-looking statements by terms such as “anticipates,” “aspires,” “believes,” “can,” “continue,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “projects,” “seeks,” “should,” “will” or “would” or the negative of these terms and similar expressions intended to identify forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors, which may cause our actual results, performance, time frames or achievements to be materially different from any future results, performance, time frames or achievements expressed or implied by the forward-looking statements. We discuss in greater detail many of these risks, uncertainties and other factors in Part I, Item 1A "Risk Factors," contained in our Annual Report on Form 10-K for the year ended December 31, 2014. We believe it is important to communicate our expectations to our investors. However, there may be events in the future that we are not able to predict accurately or over which we have no control. The risks described in “Risk Factors,” within our Annual Report, as well as any other cautionary language in this report, provide examples of risks, uncertainties and events that may cause our actual results to differ materially from the expectations we describe in our forward-looking statements. You should be aware that the occurrence of the events described in “Risk Factors” within our Annual Report and elsewhere in this report could harm our business.

Given these risks, uncertainties and other factors, you should not place undue reliance on these forward-looking statements. Also, these forward-looking statements represent our estimates and assumptions only as of the date of this filing. You should read this document completely and with the understanding that our actual future results may be materially different from what we expect. We hereby qualify our forward-looking statements by these cautionary statements. Except as required by law, we assume 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.

TRADEMARKS AND SERVICE MARKS

Rackspace^®and Fanatical Support^® are service marks of Rackspace US, Inc. registered in the United States and other countries. Other trademarks and tradenames appearing in this report are the property of their respective holders. We do not intend our use or display of other companies’ tradenames, trademarks, or service marks to imply a relationship with, or endorsement or sponsorship of us by, these other companies.

Table of Contents

PART I – FINANCIAL INFORMATION

ITEM 1 - FINANCIAL STATEMENTS

RACKSPACE HOSTING, INC. AND SUBSIDIARIES—

CONSOLIDATED BALANCE SHEETS



(In millions, except share and per share data)	December 31, 2014			March 31, 2015
				(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	213.5		$	275.7
Accounts receivable, net of allowance for doubtful accounts and customer credits of $5.3 as of December 31, 2014 and $6.5 as of March 31, 2015	156.5			154.0
Deferred income taxes	9.3			8.0
Prepaid expenses	33.6			32.3
Other current assets	8.8			9.1
Total current assets	421.7			479.1

Property and equipment, net	1,057.7			1,068.8
Goodwill	81.1			81.1
Intangible assets, net	16.6			14.6
Other non-current assets	47.2			48.7
Total assets	$	1,624.3		$	1,692.3

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses	$	137.3		$	135.1
Accrued compensation and benefits	66.7			68.8
Income and other taxes payable	11.8			10.9
Deferred revenue	20.9			24.6
Capital lease obligations	15.0			9.9
Debt	25.1			0.1
Total current liabilities	276.8			249.4

Non-current liabilities:
Deferred revenue	1.4			1.5
Capital lease obligations	1.5			0.8
Finance lease obligations for build-to-suit leases	117.4			146.6
Deferred income taxes	71.2			60.8
Deferred rent	49.9			50.0
Other liabilities	32.3			30.3
Total liabilities	550.5			539.4

Commitments and Contingencies

Stockholders' equity:
Common stock, $0.001 par value per share: 300,000,000 shares authorized; 140,945,171 shares issued and outstanding as of December 31, 2014; 142,694,732 shares issued and outstanding as of March 31, 2015	0.1			0.1
Additional paid-in capital	696.0			757.9
Accumulated other comprehensive loss	(20.7		)	(31.9		)
Retained earnings	398.4			426.8
Total stockholders’ equity	1,073.8			1,152.9
Total liabilities and stockholders’ equity	$	1,624.3		$	1,692.3

See accompanying notes to the unaudited consolidated financial statements.

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RACKSPACE HOSTING, INC. AND SUBSIDIARIES—

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)



	Three Months Ended March 31,
(In millions, except per share data)	2014			2015

Net revenue	$	421.0		$	480.2
Costs and expenses:
Cost of revenue	140.4			161.3
Research and development	25.2			32.0
Sales and marketing	57.4			59.0
General and administrative	71.1			86.6
Depreciation and amortization	87.8			96.9
Total costs and expenses	381.9			435.8
Income from operations	39.1			44.4
Other income (expense):
Interest expense	(0.5		)	(0.4		)
Interest and other income (expense)	0.3			(2.0		)
Total other income (expense)	(0.2		)	(2.4		)
Income before income taxes	38.9			42.0
Income taxes	13.5			13.6
Net income	$	25.4		$	28.4

Other comprehensive income, net of tax
Foreign currency translation adjustments	$	2.9		$	(11.2	)
Other comprehensive income (loss)	2.9			(11.2		)
Comprehensive income	$	28.3		$	17.2

Net income per share
Basic	$	0.18		$	0.20
Diluted	$	0.18		$	0.20

Weighted average number of shares outstanding
Basic	141.0			141.4
Diluted	143.8			144.2

See accompanying notes to the unaudited consolidated financial statements.

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RACKSPACE HOSTING, INC. AND SUBSIDIARIES—

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)



	Three Months Ended March 31,
(In millions)	2014			2015
Cash Flows From Operating Activities
Net income	$	25.4		$	28.4
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	87.8			96.9
Deferred income taxes	(10.1		)	(14.7		)
Share-based compensation expense	12.7			20.0
Excess tax benefits from share-based compensation arrangements	(15.1		)	(20.2		)
Other operating activities	2.0			2.8
Changes in operating assets and liabilities:
Accounts receivable	3.9			(1.8		)
Prepaid expenses and other current assets	3.3			0.8
Accounts payable, accrued expenses, and other current liabilities	30.3			26.9
Deferred revenue	(2.1		)	4.3
Deferred rent	2.3			0.4
Other non-current assets and liabilities	1.3			1.5
Net cash provided by operating activities	141.7			145.3

Cash Flows From Investing Activities
Purchases of property and equipment	(85.0		)	(92.5		)
All other investing activities	0.5			0.7
Net cash used in investing activities	(84.5		)	(91.8		)

Cash Flows From Financing Activities
Principal payments of capital and build-to-suit leases	(12.5		)	(5.6		)
Repayments of debt	(0.1		)	(25.1		)
Payments for deferred acquisition obligations	(0.1		)	(0.1		)
Receipt of Texas Enterprise Fund grant	5.5			—
Shares of common stock withheld for employee taxes	(13.6		)	—
Proceeds from employee stock plans	2.1			21.8
Excess tax benefits from share-based compensation arrangements	15.1			20.2
Net cash provided by (used in) financing activities	(3.6		)	11.2

Effect of exchange rate changes on cash and cash equivalents	0.5			(2.5		)

Increase in cash and cash equivalents	54.1			62.2

Cash and cash equivalents, beginning of period	259.7			213.5

Cash and cash equivalents, end of period	$	313.8		$	275.7

Supplemental Cash Flow Information
Cash payments for interest, net of amount capitalized	$	0.5		$	0.3
Cash payments for income taxes, net of refunds	$	0.9		$	3.8

Non-cash Investing and Financing Activities
Acquisition of property and equipment by capital leases	$	0.9		$	—
Increase (decrease) in property and equipment in accounts payable and accrued expenses	14.8			(2.3		)
Non-cash purchases of property and equipment	$	15.7		$	(2.3	)

Additional finance lease obligations for build-to-suit leases and other	$	17.6		$	35.1

See accompanying notes to the unaudited consolidated financial statements.

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RACKSPACE HOSTING, INC. AND SUBSIDIARIES—

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

Nature of Operations

As used in this report, the terms “Rackspace,” “Rackspace Hosting,” “we,” “our company,” “the company,” “us,” or “our” refer to Rackspace^® Hosting, Inc. and its subsidiaries. Rackspace Hosting, Inc., through its operating subsidiaries, is a provider of cloud computing services, managing web-based IT systems for small and medium-sized businesses as well as large enterprises. We focus on providing a service experience for our customers, which we call Fanatical Support^®.

Our operations began in 1998 as a limited partnership, and Rackspace Hosting, Inc. was incorporated in Delaware in March 2000.

Basis of Consolidation

The accompanying consolidated financial statements include the accounts of Rackspace Hosting, Inc. and our wholly-owned subsidiaries, which include, among others, Rackspace US, Inc., our domestic operating entity, and Rackspace Limited, our United Kingdom operating entity. Intercompany transactions and balances have been eliminated in consolidation.

Foreign currency translation adjustments arising from differences in exchange rates from period to period are included in the foreign currency translation adjustment account in accumulated other comprehensive income (loss). There were no income taxes allocated to foreign currency translation adjustments during the three months ended March 31, 2014 or 2015.

Unaudited Interim Financial Information

The accompanying consolidated financial statements as of March 31, 2015, and for the three months ended March 31, 2014 and 2015, are unaudited and have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and Rule 10-01 of Regulation S-X. Accordingly, they do not include all financial information and disclosures required by GAAP for complete financial statements, and certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted. These unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto as of December 31, 2014 included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 2, 2015 (the "2014 Annual Consolidated Financial Statements"). The unaudited interim consolidated financial statements have been prepared on the same basis as the 2014 Annual Consolidated Financial Statements 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 March 31, 2015, our results of operations for the three months ended March 31, 2014 and 2015, and our cash flows for the three months ended March 31, 2014 and 2015.

The results of operations for the three months ended March 31, 2015 are not necessarily indicative of the results of operations to be expected for the year ending December 31, 2015, or for any other interim period, or for any other future year.

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 and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and reported amounts of revenue and expenses during the reporting period. On an ongoing basis, we evaluate our estimates, including those related to accounts receivable and customer credits, property and equipment, fair values of intangible assets and goodwill, useful lives of intangible assets, fair value of 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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Significant Accounting Policies and Estimates

Our 2014 Annual Consolidated Financial Statements include 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 three months ended March 31, 2015.

Recent Accounting Pronouncements Not Yet Adopted

In May 2014, the Financial Accounting Standards Board ("FASB") issued guidance to clarify principles for recognizing revenue and to develop a common revenue standard for GAAP and International Financial Reporting Standards. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In addition, the standard requires capitalization of incremental costs to obtain a contract and significantly expanded quantitative and qualitative disclosures. The standard is effective for annual reporting periods beginning after December 15, 2016, however, the FASB has proposed a one year deferral of the effective date. If this proposal is approved, early adoption would be permitted as of the original effective date. Upon adoption, the new guidance will be applied retrospectively using one of two methods. One method is to apply the guidance retrospectively to each prior period presented with practical expedients available. The second method is to apply the guidance retrospectively with the cumulative effect of initially applying the standard recognized at the date of initial application. We are evaluating the impact on our consolidated financial statements of adopting this new accounting standard.

2. Net Income Per Share

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



	Three Months Ended March 31,
(In millions, except per share data)	2014		2015
Basic net income per share:
Net income	$	25.4	$	28.4
Weighted average shares outstanding:
Common stock	141.0		141.4
Number of shares used in per share computations	141.0		141.4
Net income per share	$	0.18	$	0.20

Diluted net income per share:
Net income	$	25.4	$	28.4
Weighted average shares outstanding:
Common stock	141.0		141.4
Stock options, awards and employee share purchase plans	2.8		2.8
Number of shares used in per share computations	143.8		144.2
Net income per share	$	0.18	$	0.20

We excluded 6.9 million and 2.5 million potential common shares from the computation of dilutive net income per share for the three months ended March 31, 2014 and 2015, respectively, because the effect would have been anti-dilutive.

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3. Property and Equipment, net

Property and equipment consisted of:



(Dollar amounts in millions)	Estimated Useful Lives				December 31, 2014			March 31, 2015
Computers and equipment	3	-	5	years	$	1,495.2		$	1,538.4
Computer software	1	-	5	years	318.9			338.2
Furniture and fixtures	7	years			56.7			58.3
Buildings and leasehold improvements	2	-	30	years	253.6			301.7
Land					27.9			27.4
Property and equipment, at cost					2,152.3			2,264.0
Less accumulated depreciation and amortization					(1,249.5		)	(1,317.1		)
Work in process					154.9			121.9
Property and equipment, net					$	1,057.7		$	1,068.8

At December 31, 2014, the work in process balance consisted of build outs of $51.3 million for office facilities, $80.5 million for data centers, and $23.1 million for capitalized software and other projects. At March 31, 2015, the work in process balance consisted of build outs of $59.7 million for office facilities, $46.2 million for data centers, and $16.0 million for capitalized software and other projects. During the first quarter of 2015, we placed into service and began depreciating $51.4 million of construction costs related to the completed portion of a data center in the U.K., for which we are deemed the owner for accounting purposes. See Note 4. "Build-to-Suit Leases" for more information.

For the three months ended March 31, 2015, we capitalized non-cash interest of $1.8 million related to finance lease obligations for build-to-suit leases. There was no interest capitalized during the three months ended March 31, 2014.

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4. Build-to-Suit Leases

We have entered into multiple complex real estate development and build-to-suit lease arrangements with independent real estate developers to design, construct and lease certain real estate projects. While the independent developers legally own the real estate projects and must finance the overall construction, we agreed to fund certain structural improvements and/or retain obligations related to certain potential construction cost overruns. As a result of our involvement during the construction period, we are considered the owner of the construction project, for accounting purposes only. We have recorded construction costs for these projects as an asset and a corresponding long-term liability within "Property and equipment, net" and "Finance lease obligations for build-to-suit leases," respectively, on our consolidated balance sheets.

When construction of a project is complete, we evaluate whether the build-to-suit lease arrangement qualifies for sales recognition under sale-leaseback accounting guidance. If the lease meets the criteria to qualify as a sale-leaseback, the asset and liability can be derecognized and the lease is accounted for as an operating lease with rent expense recognized over the lease term. If the sale-leaseback criteria are not met, the asset and liability remain on our consolidated balance sheets. The asset is then depreciated over the term of the lease and rental payments under the lease are recorded as a reduction of the liability and interest expense.

During the first quarter of 2015, we changed our non-current liability account title for finance lease obligations for assets under construction to finance lease obligations for build-to-suit leases. This non-current liability account now includes all build-to-suit finance lease obligations, including those for assets under construction as well as projects that did not qualify as a sale-leaseback at the completion of construction. As a result, finance obligations of $7.4 million as of December 31, 2014 and March 31, 2015, respectively, associated with build-to-suit construction projects that have failed sale leaseback, have been reclassified from capital lease obligations to finance lease obligations for build-to-suit leases in the consolidated balance sheets. Such amount as of December 31, 2014 was reclassified to conform to the current period presentation.

During the first quarter of 2015, construction of one of these real estate projects, a data center in the U.K., was partially completed. However, since the project is considered one unit of accounting, we will not perform a sale-leaseback analysis until the entire project is complete. As a result, we placed into service and began depreciating $51.4 million of construction costs related to the completed portion of the project as building and leasehold improvements within "Property and equipment, net" on our consolidated balance sheets. The lease on a portion of the project commenced during the first quarter of 2015 and rental payments are recorded as a reduction of the corresponding liability and as interest expense. At the end of the lease term, we will derecognize the remaining asset and liability balances.

As of December 31, 2014 and March 31, 2015 we had $117.4 million and $146.6 million, respectively, of finance lease obligations for build-to-suit leases related to real estate projects either completed or under construction for which we are deemed the accounting owner.

5. Contingencies

We have contingent liabilities 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.

We are a party to various claims that certain of our products, 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 and otherwise harm our business. We have disputed the allegations of wrongdoing in these proceedings and intend to vigorously defend ourselves in all such matters.

We cannot predict the impact, if any, that any of the matters described above may have on our business, results of operations, financial position, or cash flows. Because of the inherent uncertainties of such matters, including the early stage and lack of specific damage claims in many of them, we cannot estimate the range of possible losses from them.

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6. Share-Based Compensation

We have granted equity awards to our employees and directors in the form of stock options and restricted stock. The exercise price of all stock options granted is not less than 100% of the fair market value of a share of common stock as of the date of grant. The stock options granted vest ratably over a four-year period. All stock options expire seven to ten years following the grant date. The restricted stock generally vests ratably over a four-year period. Certain key executives have received restricted stock grants that cliff-vest over various terms from one to three years. Vesting of these grants are generally based on predetermined market and/or performance conditions.

The composition of the equity awards outstanding as of December 31, 2014 and March 31, 2015 was as follows:



(in millions)	December 31, 2014	March 31, 2015
Restricted stock	4.3	4.1
Stock options	6.8	5.2
Total outstanding awards	11.1	9.3

We also have an Employee Stock Purchase Plan (the "ESPP"). Under the ESPP, eligible employees may purchase a limited number of shares of our common stock at the lesser of 85% of the market value on the enrollment date or 85% of the market value on the purchase date. The ESPP is made up of a series of offering periods. Each offering period has a maximum term of 24 months and is divided into semi-annual purchase intervals. Eligible employees may enroll at the beginning of any semi-annual purchase interval.

Share-Based Compensation Expense

Share-based compensation expense was recognized as follows:



	Three Months Ended March 31,
(in millions)	2014			2015
Cost of revenue	$	3.8		$	4.0
Research and development	2.8			3.2
Sales and marketing	2.1			2.7
General and administrative	4.0			10.1
Pre-tax share-based compensation	12.7			20.0
Less: Income tax benefit	(4.4		)	(6.5		)
Total share-based compensation expense, net of tax	$	8.3		$	13.5

As of March 31, 2015, there was $163.1 million of total unrecognized compensation cost related to restricted stock, stock options and the ESPP, which will be recognized using the straight-line method over a weighted average period of 2.4 years.

7. Taxes

We are subject to U.S. federal income tax and various state, local, and international income taxes in numerous jurisdictions. Our domestic and international tax liabilities are subject to the allocation of revenue and expenses in different jurisdictions and the timing of recognizing revenue and expenses. As such, our effective tax rate is impacted by the geographical distribution of income and mix of profits in the various jurisdictions. Additionally, the amount of income taxes paid is subject to our interpretation of applicable tax laws in the jurisdictions in which we file.

We expect a taxable profit in the U.S. and U.K. for the full year 2015 before consideration of excess tax benefits, and therefore we anticipate utilizing benefits of tax deductions related to stock compensation in 2015. As a result, we have recognized an excess tax benefit in the U.S. and U.K. during the current period.

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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 (“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 document and with the audited consolidated financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2014.

The MD&A is organized as follows:


•	Overview - Discussion of the nature and key trends of our business and overall analysis of financial highlights and key metrics in order to provide context for the remainder of the MD&A.


•	Results of Operations - An analysis of our financial results comparing the three months ended March 31, 2015 and March 31, 2014.


•	Liquidity and Capital Resources - Discussion of our financial condition, sources of liquidity, changes in cash flows and capital expenditure requirements.


•	Supplemental Information - Description and reconciliation of Non-GAAP Financial Measures used throughout this MD&A and financial information and key metrics for the most recent five quarters.

This 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 document.

Overview

Description of our Business

Rackspace is the world leader in the managed cloud segment of the business IT market. We serve more than 300,000 business customers from our data centers on four continents. We help them tap the power of cloud computing without the pain of having to become experts in dozens of complex technologies and without the expense of hiring or contracting with engineers who do not differentiate their businesses. We deliver our services with our unique approach to the customer experience, called Fanatical Support.

We sell our services to small and medium-sized businesses, as well as large enterprises. The majority of our revenue is generated by our operations in the U.S. and U.K. Additionally, we have operations in Switzerland, Hong Kong, Australia, and Mexico. Our growth strategy includes targeting additional international customers as we continue our expansion in continental Europe, the Asia-Pacific region and Latin America. For the first three months of 2015, 31% of our net revenue was from non-U.S. customers, and no individual customer accounted for more than 2% of our net revenue.

Trends in our Business

The fast-growing and crowded cloud computing industry is bifurcating into two segments: unmanaged cloud and managed cloud. As a reflection of this trend, in 2014, Gartner Inc. distinguished for the first time between unmanaged, or “infrastructure as a service,” cloud providers, and those who deliver managed cloud. Its new report on the latter market segment, the Gartner Magic Quadrant for Cloud-Enabled Managed Hosting, ranked Rackspace as a leader, in both North America and Europe. In a March 2015 industry report, 451 Research named Rackspace the segment leader in the "managed hosting" market segment, where managed services are wrapped around cloud infrastructure.

We believe that the managed cloud segment of the cloud computing market is a large market that represents a significant opportunity. We see a high level of interest building from companies who want to focus their scarce engineering assets on their core business and want a trusted partner to manage their cloud. They want Fanatical Support every step of the way and they want specialized expertise in running the ever-expanding set of technologies that are at the heart of cloud scale applications.

We believe demand for managed cloud will continue to grow for four reasons:


1.	Lack of In-House IT Expertise. As business IT applications grow in number and complexity, most companies do not have the IT staff needed to deliver a robust, reliable online presence and to leverage their data for insights about customer behavior and internal operations.

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2.	Strategic Resource Utilization. Larger companies that do have specialized, dedicated IT engineers would rather focus these expensive resources on strategic areas that differentiate their business rather than managing servers or databases or running a website.

Market Acceptance. As companies have experienced the benefits of using managed cloud providers to handle some of their IT workloads, they have become more comfortable having those providers manage additional IT services. This trend will accelerate as various barriers to adoption are broken down, through developments such as the expansion of open and standard technologies and advances in the security of cloud computing.

Accelerated Business Creation. Cloud computing has removed many of the traditional barriers to new business formation through the low cost nimbleness and capital efficiency that it brings to IT infrastructure. Managed cloud does the same thing for the costs associated with infrastructure management and application expertise. Managed cloud is driving innovation and new business formation at a rapid rate. The rising supply of powerful, easy-to-use cloud computing is creating new demand.

Our focus on the managed cloud separates us from the big providers of unmanaged, commodity cloud computing, who provide access to raw cloud infrastructure and then expect customers to do everything required to operate that infrastructure, as well as the many complex tools and applications that run on top of it. These unmanaged cloud providers have reduced the prices that they charge business customers for access to raw cloud infrastructure. This decline in cloud infrastructure prices has encouraged a proliferation of complex cloud tools and applications, requiring specialized expertise to adopt and manage. Many companies have difficulty finding and hiring the specialized engineers that they need, and as a result, more businesses are turning to managed cloud providers such as Rackspace.

Financial Highlights and Key Metrics

We carefully track several financial and operational metrics to monitor and manage our growth, financial performance, and capacity. Our key metrics are structured around growth, profitability, capital efficiency and infrastructure capacity and utilization.

The following discussion includes the presentation of Adjusted EBITDA and Return on Capital which are non-GAAP financial measures. Generally, a non-GAAP financial measure is a numerical measure of a company’s performance, financial position, or cash flows that either excludes or includes amounts that are not normally included or excluded in the most directly comparable measure calculated and presented in accordance with GAAP. Other companies may calculate non-GAAP measures differently, limiting their usefulness as a comparative measure. We believe Adjusted EBITDA and Return on Capital provide helpful information with respect to evaluating our performance. We have reconciled each of these non-GAAP measures to the applicable most comparable GAAP measure in the “Supplemental Information” section of this MD&A.

Growth



	Three Months Ended
(Dollar amounts in millions, except average monthly revenue per server)	March 31, 2014			December 31, 2014			March 31, 2015
	March 31, 2014			December 31, 2014			March 31, 2015

Net revenue	$	421.0		$	472.5		$	480.2
Revenue growth (year over year)	16.2		%	15.8		%	14.1		%

Number of servers deployed at period end	106,229			112,628			114,105
Average monthly revenue per server	$	1,336		$	1,412		$	1,412

Number of employees (Rackers) at period end	5,743			5,936			5,964

Total net revenue for the three months ended March 31, 2015 increased $8 million, or 1.6%, from the three months ended December 31, 2014. Our net revenue was negatively impacted by a stronger U.S. dollar relative to other foreign currencies on a sequential quarter basis. Net revenue for the three months ended March 31, 2015 would have been approximately $5 million higher had foreign exchange rates remained constant from the three months ended December 31, 2014.

On a year-over-year basis, net revenue grew $59 million, or 14.1%, during the three months ended March 31, 2015, which includes the negative impact of approximately $11 million due to changes in foreign exchange rates.

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Profitability



	Three Months Ended
(Dollar amounts in millions, except per share amounts)	March 31, 2014			December 31, 2014			March 31, 2015
(Dollar amounts in millions, except per share amounts)	March 31, 2014			December 31, 2014			March 31, 2015

Adjusted EBITDA	$	139.6		$	165.4		$	161.3
Adjusted EBITDA margin	33.2		%	35.0		%	33.6		%

Income from operations	$	39.1		$	50.0		$	44.4
Operating income margin	9.3		%	10.6		%	9.3		%

Net income	$	25.4		$	37.0		$	28.4
Net income margin	6.0		%	7.8		%	5.9		%
Diluted net income per share	$	0.18		$	0.26		$	0.20

On a sequential quarter basis, Adjusted EBITDA, income from operations and net income declined 2%, 11%, and 23%, respectively, for the three months ended March 31, 2015 compared to the three months ended December 31, 2014. Our profitability was impacted by higher employee-related expenses and license expense. The increase in employee-related expenses was driven by seasonally higher payroll tax expense in the first three months of 2015 and increased non-equity incentive compensation expense due to a higher bonus payout percentage. Higher license expense was due to price increases from some of our largest vendors coupled with higher volume to support the growth of our business. In addition to these factors, net income was negatively impacted on a sequential quarter basis by an increase in our effective tax rate from 25.1% for the three months ended December 31, 2014 to 32.4% for the three months ended March 31, 2015.

On a year-over-year basis, Adjusted EBITDA, income from operations, and net income grew 16%, 14%, and 12%, respectively. Adjusted EBITDA margin increased to 33.6% in the first three months of 2015 from 33.2% in the same period of 2014, as revenue growth of 14.1% outpaced growth in expenses. Operating income margin was flat at 9.3% for both periods, while net income margin declined slightly, from 6.0% to 5.9%.

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Capital Efficiency, Infrastructure Capacity and Utilization



	Three Months Ended
(Dollar amounts in millions)	March 31, 2014			December 31, 2014			March 31, 2015
(Dollar amounts in millions)	March 31, 2014			December 31, 2014			March 31, 2015

Capital expenditures
Customer gear	$	60.7		$	72.5		$	58.7
Data center build outs	$	11.0		$	11.1		$	13.4
Office build outs	$	9.2		$	1.6		$	2.3
Capitalized software and other projects	$	19.8		$	19.4		$	15.8
Total capital expenditures	$	100.7		$	104.6		$	90.2

Capital efficiency and returns
Average capital base (1)	$	892.6		$	956.0		$	952.1
Capital turnover (annualized) (1)	1.89			1.98			2.02
Return on capital (annualized) (1)	11.5		%	15.7		%	12.6		%

Infrastructure capacity and utilization
Megawatts under contract at period end (2)	58.1			58.1			63.2
Megawatts available for customer use at period end (3)	45.3			49.7			52.0
Megawatts utilized at period end	28.1			30.5			31.0
Annualized net revenue per average Megawatt of power utilized	$	60.7		$	62.6		$	62.5


(1)	Prior period amounts have been revised to reflect the impact of a reclassification of certain finance obligations associated with build-to-suit leases in the consolidated balance sheets. See “Notes to the Unaudited Consolidated Financial Statements - Note 4. Build-to-Suit Leases” for further discussion.


(2)	Megawatts under contract at period end represents data center capacity for which we have a contract enabling us to take control of the space. For our newest data center in London, as of March 31, 2015, we have included four megawatts.


(3)	Megawatts available for customer use at period end represents data center capacity that is built-out and is being used to provide service to customers.

On a sequential quarter basis, Return on Capital ("ROC") decreased from 15.7% for the three months ended December 31, 2014 to 12.6% for the three months ended March 31, 2015. The decrease is primarily due to the 11% decrease in sequential quarter income from operations, coupled with the negative impact of a higher effective tax rate of 32.4% for the first three months of 2015 compared to 25.1% for the last three months of 2014. Our average capital base decreased slightly and capital turnover increased to 2.02 from 1.98, partially driven by the decrease in capital expenditures from $104.6 million for the three months ended December 31, 2014 to $90.2 million for the three months ended March 31, 2015.

On a year-over-year basis, ROC increased from 11.5% to 12.6%, primarily due to the 14% increase in income from operations between periods and the positive impact of a lower effective tax rate of 32.4% compared to 34.6% in the prior year period. While our average capital base increased 6.7% between periods, our capital turnover also increased to 2.02 for the three months ended March 31, 2015, compared to 1.89 for the same period of 2014.

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Results of Operations

The following tables set forth our results of operations for the specified periods and as a percentage of our revenue for those same periods. The period-to-period comparison of financial results is not necessarily indicative of future results.

Consolidated Statements of Income:



	Three Months Ended
(In millions)	March 31, 2014			June 30, 2014			September 30, 2014			December 31, 2014			March 31, 2015
Net revenue	$	421.0		$	441.2		$	459.7		$	472.5		$	480.2
Costs and expenses:
Cost of revenue	140.4			145.1			142.9			153.9			161.3
Research and development	25.2			29.7			30.7			31.4			32.0
Sales and marketing	57.4			60.4			60.6			59.2			59.0
General and administrative	71.1			81.5			86.7			82.8			86.6
Depreciation and amortization	87.8			90.6			98.3			95.2			96.9
Total costs and expenses	381.9			407.3			419.2			422.5			435.8
Income from operations	39.1			33.9			40.5			50.0			44.4
Other income (expense):
Interest expense	(0.5		)	(0.5		)	(0.5		)	(0.4		)	(0.4		)
Interest and other income (expense)	0.3			0.1			(2.1		)	(0.3		)	(2.0		)
Total other income (expense)	(0.2		)	(0.4		)	(2.6		)	(0.7		)	(2.4		)
Income before income taxes	38.9			33.5			37.9			49.3			42.0
Income taxes	13.5			11.0			12.2			12.3			13.6
Net income	$	25.4		$	22.5		$	25.7		$	37.0		$	28.4

Consolidated Statements of Income, as a Percentage of Net Revenue:



	Three Months Ended
(Percent of net revenue)	March 31, 2014		June 30, 2014		September 30, 2014		December 31, 2014		March 31, 2015
Net revenue	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%
Costs and expenses:
Cost of revenue	33.3	%	32.9	%	31.1	%	32.6	%	33.6	%
Research and development	6.0	%	6.7	%	6.7	%	6.6	%	6.7	%
Sales and marketing	13.6	%	13.7	%	13.2	%	12.5	%	12.3	%
General and administrative	16.9	%	18.5	%	18.9	%	17.5	%	18.0	%
Depreciation and amortization	20.9	%	20.5	%	21.4	%	20.2	%	20.2	%
Total costs and expenses	90.7	%	92.3	%	91.2	%	89.4	%	90.7	%
Income from operations	9.3	%	7.7	%	8.8	%	10.6	%	9.3	%
Other income (expense):
Interest expense	(0.1	)%	(0.1	)%	(0.1	)%	(0.1	)%	(0.1	)%
Interest and other income (expense)	0.1	%	0.0	%	(0.5	)%	(0.1	)%	(0.4	)%
Total other income (expense)	(0.1	)%	(0.1	)%	(0.6	)%	(0.1	)%	(0.5	)%
Income before income taxes	9.2	%	7.6	%	8.2	%	10.4	%	8.8	%
Income taxes	3.2	%	2.5	%	2.6	%	2.6	%	2.8	%
Net income	6.0	%	5.1	%	5.6	%	7.8	%	5.9	%

Due to rounding, totals may not equal the sum of the line items in the table above.

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Three Months Ended March 31, 2015 Compared to Three Months Ended March 31, 2014

Net Revenue

Net revenue increased $59 million, or 14%, primarily due to both the acquisition of new customers and incremental services rendered to existing customers.

Net revenue was negatively impacted by a stronger U.S. dollar relative to other foreign currencies in the three months ended March 31, 2015 compared to the three months ended March 31, 2014. Net revenue for the three months ended March 31, 2015 would have been approximately $11 million higher had foreign exchange rates remained constant from the prior year.

Cost of Revenue

Cost of revenue primarily consists of employee-related costs of our customer support teams and data center employees, as well as the costs to lease and operate our data centers. Many of our data center costs vary with the volume of services sold, including power, bandwidth, software licenses and costs related to maintenance and the replacement of IT equipment components.

Cost of revenue increased $21 million, or 15%. Of this increase, $10 million was attributable to employee-related expenses, such as salaries, benefits and incentive compensation, driven by a 6% increase in average headcount to support business growth and higher non-equity incentive compensation due to a higher payout percentage. License costs increased $10 million, reflecting price increases from some of our largest vendors in addition to higher volume to support our growth. Data center costs increased $2 million due to higher rent, maintenance, and bandwidth expenses. Partially offsetting these increases is the impact from a $3 million expense recorded during the three months ended March 31, 2014 related to an unresolved contractual issue with a vendor that did not repeat in the current year. As a percentage of net revenue, cost of revenue increased 30 basis points, from 33.3% in the three months ended March 31, 2014 to 33.6% in the three months ended March 31, 2015.

Research and Development Expenses

Research and development expenses are mainly costs for employees and consultants who are focused on the deployment of new technologies to address emerging trends and the development and enhancement of proprietary tools.

Research and development expenses increased $7 million, or 27%, due to increased employee-related expenses, such as salaries, benefits and incentive compensation, driven by higher non-equity incentive compensation due to a higher payout percentage. We continue to invest in research and development activities to enhance our existing offerings and develop new products and services to complement and leverage Fanatical Support.

Sales and Marketing Expenses

Sales and marketing expenses consist of employee-related costs of our sales and marketing employees, including sales commissions, compensation paid to certain channel partners, and costs for advertising and promoting our services and to generate customer demand.

Sales and marketing expenses increased $2 million, or 3%, primarily due to higher non-equity incentive compensation due to a higher payout percentage.

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General and Administrative Expenses

General and administrative expenses include employee-related and facility costs for functions such as finance and accounting, human resources, information technology, and legal, as well as professional fees, general corporate costs and overhead.

General and administrative expenses increased $16 million, or 22%. Employee-related expenses increased $11 million, mainly due to an 8% increase in average headcount and higher non-equity incentive compensation due to a higher payout percentage. In addition, share-based compensation expense increased, reflecting the impact of the forfeiture of certain executive stock grants during the three months ended March 31, 2014 that did not repeat in the current period. Internal software support and maintenance expenses increased $3 million to support the growth of our business. As a percentage of net revenue, general and administrative expenses increased 110 basis points, from 16.9% in the three months ended March 31, 2014 to 18.0% in the three months ended March 31, 2015 primarily due to the impact of the executive stock grant forfeitures in the prior year.

Depreciation and Amortization Expense

Depreciation and amortization includes amortization of leasehold improvements associated with our data centers and corporate facilities, as well as depreciation of our data center infrastructure and equipment. Amortization expense is also comprised of the amortization of our customer-based intangible assets related to acquisitions, internally developed technology, and software licenses purchased from third-party vendors.

Depreciation and amortization expense increased $9 million, or 10%. The increase was due to purchases of property and equipment to support the growth of our business, with depreciable customer gear assets representing the majority of additions. Depreciation and amortization expense decreased as a percentage of net revenue, from 20.9% in the three months ended March 31, 2014 to 20.2% in the three months ended March 31, 2015.

Other Income (Expense)

Other expense was $2.4 million and $0.2 million for the three months ended March 31, 2015 and 2014, respectively. The increase in other expense of $2.2 million between periods was driven by the unfavorable impact of foreign exchange rate movements.

Income Taxes

Our effective tax rate decreased from 34.6% for the three months ended March 31, 2014 to 32.4% for the three months ended March 31, 2015. The differences between our effective tax rate and the U.S. federal statutory rate of 35% principally result from our geographical distribution of taxable income, tax credits, contingency reserves for uncertain tax positions and permanent differences between the book and tax treatment of certain items. The effective tax rate decreased for the three months ended March 31, 2015 primarily as a result of a decrease in the effective tax rate on our profits earned outside of the U.S. compared to the three months ended March 31, 2014. Our foreign earnings are generally taxed at lower rates than in the United States.

Net Income

Net income increased $3 million, or 12%, driven by higher net revenue and the positive impact of a lower effective tax rate, partially offset by higher expenses as we continue to make investments to support future growth. Net income per diluted share was $0.20 in the three months ended March 31, 2015, an increase of $0.02 from the same period of 2014.

Liquidity and Capital Resources

We finance our operations and capital expenditures through a combination of internally-generated cash from operations and borrowings under vendor-financed arrangements and our existing revolving credit facility. We believe that our current sources of funds will be sufficient to meet our operating and capital needs in the foreseeable future.

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Our long-term future capital requirements will depend on many factors, most importantly our revenue growth and our investments in new technologies and services. Our ability to generate cash depends on our financial performance, general economic conditions, technology trends and developments, and other factors. As our business continues to grow, our need for data center capacity will also grow. Most recently we have financed data center growth through leasing activities, and we will continue to evaluate all opportunities to secure further data center capacity in the future. We could be required, or could elect, to seek additional funding in the form of debt or equity. We maintain debt levels that we establish through consideration of a number of factors, including cash flow expectations, cash requirements for operations, investment plans (including acquisitions), and our overall cost of capital.

At March 31, 2015, we held $276 million in cash and cash equivalents, of which $131 million is associated with indefinitely reinvested foreign earnings. We consider the undistributed earnings of our foreign subsidiaries as of March 31, 2015 to be permanently reinvested and, accordingly, no U.S. income taxes have been provided thereon. We have not, nor do we anticipate the need to, repatriate earnings to the U.S. to satisfy domestic liquidity needs arising in the ordinary course of business.

Our available cash and cash equivalents are held in bank deposits, money market funds, and overnight sweep accounts. Our money market mutual funds comply with Rule 2a-7 and invest exclusively in high-quality, short-term obligations that include securities issued or guaranteed by the U.S. government or by U.S. government agencies and floating rate and variable rate demand notes of U.S. and foreign corporations. We actively monitor the third-party depository institutions that hold our cash and cash equivalents. Our emphasis is primarily on safety of principal, secondly on the liquidity of our investments, and finally on maximizing yield on those funds. The balances may exceed the Federal Deposit Insurance Corporation, or “FDIC,” insurance limits or may not be insured by the FDIC. While we monitor the balances in our accounts and adjust the balances as appropriate, these balances could be impacted if the underlying depository institutions fail or could be subject to other adverse conditions in the financial markets. To date, we have experienced no loss or lack of access to our invested cash and cash equivalents; however, we can provide no assurances that access to our funds will not be impacted by adverse conditions in the financial markets.

Historically, we financed a portion of our purchases of data center equipment through vendor-financed arrangements in the form of leases with our major vendors. Additionally, we have entered into certain real estate development and lease arrangements with independent real estate developers to design, construct and lease certain real estate projects that result in finance lease obligations. As of December 31, 2014 and March 31, 2015, we had $134 million and $157 million outstanding with respect to these arrangements, respectively.

As of March 31, 2015, there were no outstanding borrowings under the revolving credit facility. The $25 million outstanding balance as of December 31, 2014 was fully repaid on January 12, 2015. The revolving credit facility has a total commitment in the amount of $200 million and matures in September 2016. The facility further includes an accordion feature, which allows for an increase in the commitment to a total of $400 million under the same terms and conditions, subject to credit approval of the banking syndicate. The facility is unsecured and governed by customary financial and non-financial covenants, including a leverage ratio of not greater than 3.00 to 1.00, an interest coverage ratio of not less than 3.00 to 1.00 and a requirement to maintain a certain level of tangible assets in our U.S. entities. As of March 31, 2015, we were in compliance with all of the covenants under our facility.

On November 6, 2014, our board of directors authorized a program to repurchase up to $500 million of our common stock over the next two years. Under this program, shares may be repurchased from time to time through both open market and privately negotiated transactions. On November 12, 2014, we entered into an accelerated share repurchase ("ASR") agreement with a financial institution to repurchase an aggregate $200 million of our common stock. Under the ASR agreement, we paid $200 million to the financial institution and received an initial delivery of approximately 3.3 million shares of common stock which were subsequently retired. The final number of shares repurchased under the ASR agreement will be based generally upon the average daily volume weighted-average price of our common stock during the repurchase period, less a discount and subject to adjustments pursuant to the terms and conditions of the ASR agreement. If the actual number of shares to be repurchased under the agreement exceeds the number of shares initially delivered, we will receive the excess shares at the end of the repurchase period. If the number of shares initially delivered exceeds the actual number of shares to be repurchased, we will either deliver shares of common stock or make a cash payment to the financial institution at our election. Final settlement is expected to occur in the second quarter of 2015.

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Cash Flows

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



	Three Months Ended March 31,
(In millions)	2014			2015
Cash provided by operating activities	$	141.7		$	145.3
Cash used in investing activities	$	(84.5	)	$	(91.8	)
Cash provided by (used in) financing activities	$	(3.6	)	$	11.2

Cash Provided by Operating Activities

Net cash provided by operating activities is primarily generated from cash received from customers for our cloud computing service offerings, 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, marketing programs, taxes, and other general corporate expenditures.

Net cash provided by operating activities increased $4 million, or 3%, from the first three months of 2014 compared to the first three months of 2015. Net income adjusted for non-cash items such as depreciation and amortization expense, share-based compensation expense and excess tax benefits from share-based compensation arrangements increased $10 million in the three months ended March 31, 2015 from the same period of 2014. This increase was partially offset by a reduction of $7 million in cash contributed by net changes in assets and liabilities between periods.

Cash Used in Investing Activities

Net cash used in investing activities primarily consists of capital expenditures to meet the demands of our growing customer base. 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 increased $7 million from the first three months of 2014 compared to the first three months of 2015 due to an increase in cash purchases for property and equipment.

Cash Provided by or Used in Financing Activities

Cash provided by financing activities typically consists of proceeds from debt, proceeds from employee stock plans, and realized excess tax benefits from share-based compensation arrangements. Cash used in financing activities typically consists of principal payments of capital leases and repayments of debt.

Net cash used in financing activities was $4 million during the first three months of 2014 compared to net cash provided by financing activities of $11 million during the first three months of 2015, an increase of $15 million. Net repayments of debt and capital leases increased by $18 million between periods, driven by the January 2015 repayment of $25 million borrowed under our revolving credit facility partially offset by a $7 million decrease in principal payments of capital leases in the first three months of 2015 compared to the same period of the prior year. This was offset by an increase in proceeds from employee stock plans of $20 million and an increase in excess tax benefits from share-based compensation arrangements of $5 million. Further, the prior year period included a $14 million cash outflow for the withholding of shares related to the vesting of certain restricted stock in satisfaction of employee tax obligations and a $6 million cash receipt from the Texas Enterprise Fund grant.

Off-Balance Sheet Arrangements

During the periods presented, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities. These entities are typically established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

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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 filed with the SEC on March 2, 2015 under “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Estimates.”

Recent Accounting Pronouncements Not Yet Adopted

For a description of accounting pronouncements recently issued but not yet adopted, see "Notes to the Unaudited Consolidated Financial Statements - Note 1. Company Overview, Basis of Presentation, and Summary of Significant Accounting Policies."

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Supplemental Information

Non-GAAP Financial Measures

Throughout this MD&A, we have utilized certain non-GAAP financial measures in discussions and analysis of our financial performance. For each of these non-GAAP financial measures, we have described the reasons for their use and have provided reconciliations to the most directly comparable GAAP measure below.

Return on Capital ("ROC")

We believe that ROC is an important metric for investors in evaluating our company’s performance. ROC measures how effectively a company generates profits from the capital that is deployed. We calculate ROC by dividing net operating profit after tax by our average capital base. The following table presents a reconciliation of ROC to return on assets, which we calculate directly from amounts on the Consolidated Statements of Comprehensive Income and the Consolidated Balance Sheets.



	Three Months Ended
(In millions)	March 31, 2014			June 30, 2014			September 30, 2014			December 31, 2014			March 31, 2015
Income from operations	$	39.1		$	33.9		$	40.5		$	50.0		$	44.4
Effective tax rate	34.6		%	33.0		%	32.0		%	25.1		%	32.4		%
Net operating profit after tax (NOPAT)	$	25.6		$	22.7		$	27.5		$	37.5		$	30.0

Net income	$	25.4		$	22.5		$	25.7		$	37.0		$	28.4

Total assets at period end	$	1,566.9		$	1,648.0		$	1,724.5		$	1,624.3		$	1,692.3
Less: Excess cash (1)	(263.3		)	(287.4		)	(294.3		)	(156.8		)	(218.1		)
Less: Accounts payable and accrued expenses, accrued compensation and benefits, and income and other taxes payable	(224.4		)	(231.6		)	(244.4		)	(215.8		)	(214.8		)
Less: Deferred revenue (current and non-current)	(24.5		)	(23.2		)	(21.5		)	(22.3		)	(26.1		)
Less: Other non-current liabilities, deferred income taxes, deferred rent, and finance lease obligations for build-to-suit leases (2)	(172.1		)	(187.8		)	(210.9		)	(270.8		)	(287.7		)
Capital base (2)	$	882.6		$	918.0		$	953.4		$	958.6		$	945.6

Average total assets	$	1,529.4		$	1,607.5		$	1,686.3		$	1,674.4		$	1,658.3
Average capital base (2)	$	892.6		$	900.3		$	935.8		$	956.0		$	952.1

Return on assets (annualized)	6.7		%	5.6		%	6.1		%	8.8		%	6.9		%
Return on capital (annualized) (2)	11.5		%	10.1		%	11.8		%	15.7		%	12.6		%


(1)	Defined as the amount of cash and cash equivalents that exceeds our operating cash requirements, which is calculated as three percent of our annualized net revenue for the three months prior to the period end.


(2)	Prior period amounts have been revised to reflect the impact of a reclassification of certain finance obligations associated with build-to-suit leases in the consolidated balance sheets. See “Notes to the Unaudited Consolidated Financial Statements - Note 4. Build-to-Suit Leases” for further discussion.

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Adjusted EBITDA

We use Adjusted EBITDA as a supplemental measure to review and assess our performance. Adjusted EBITDA is a metric that is used by analysts and investors for comparative and valuation purposes. We disclose this metric in order to support and facilitate the dialogue with research analysts and investors.

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. The following table presents a reconciliation of Adjusted EBITDA to net income.



	Three Months Ended
(Dollars in millions)	March 31, 2014			June 30, 2014			September 30, 2014			December 31, 2014			March 31, 2015

Net revenue	$	421.0		$	441.2		$	459.7		$	472.5		$	480.2

Income from operations	$	39.1		$	33.9		$	40.5		$	50.0		$	44.4

Net income	$	25.4		$	22.5		$	25.7		$	37.0		$	28.4
Plus: Income taxes	13.5			11.0			12.2			12.3			13.6
Plus: Total other (income) expense	0.2			0.4			2.6			0.7			2.4
Plus: Depreciation and amortization	87.8			90.6			98.3			95.2			96.9
Plus: Share-based compensation expense	12.7			17.3			19.8			20.2			20.0
Adjusted EBITDA	$	139.6		$	141.8		$	158.6		$	165.4		$	161.3

Operating income margin	9.3		%	7.7		%	8.8		%	10.6		%	9.3		%

Adjusted EBITDA margin	33.2		%	32.1		%	34.5		%	35.0		%	33.6		%

Adjusted Free Cash Flow

We believe that Adjusted Free Cash Flow is a performance metric used by investors to evaluate the strength and performance of a company's ongoing business. We define Adjusted Free Cash Flow as Adjusted EBITDA plus non-cash deferred rent, less total capital expenditures (including non-cash purchases of property and equipment), cash payments for interest and cash payments for income taxes. The following table presents a reconciliation of Adjusted Free Cash Flow to Adjusted EBITDA as a supplement to our reconciliation of Adjusted EBITDA to net income provided above.



	Three Months Ended
(In millions)	March 31, 2014			March 31, 2015
Adjusted EBITDA	$	139.6		$	161.3
Non-cash deferred rent	2.3			0.4
Total capital expenditures	(100.7		)	(90.2		)
Cash payments for interest, net of interest received	(0.4		)	(0.3		)
Cash payments for income taxes, net of refunds	(0.9		)	(3.8		)
Adjusted free cash flow	$	39.9		$	67.4

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Quarterly Key Metrics

The following table sets forth our quarterly key metrics for each of our most recent five quarters as of the period ended March 31, 2015. The quarterly data presented below has been prepared on a basis consistent with the audited consolidated financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2014 and, in the opinion of management, reflects all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of this information. You should read this information in conjunction with the consolidated financial statements and the related notes included elsewhere in this document and with the audited consolidated financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2014. Our results for these quarterly periods are not necessarily indicative of the results of operations for a full year or any period.



	Three Months Ended
(Dollar amounts in millions, except average monthly revenue per server)	March 31, 2014			June 30, 2014			September 30, 2014			December 31, 2014			March 31, 2015
	March 31, 2014			June 30, 2014			September 30, 2014			December 31, 2014			March 31, 2015
Growth
Net revenue	$	421.0		$	441.2		$	459.7		$	472.5		$	480.2
Revenue growth (year over year)	16.2		%	17.4		%	18.3		%	15.8		%	14.1		%
Number of employees (Rackers) at period end	5,743			5,798			5,939			5,936			5,964
Number of servers deployed at period end	106,229			107,657			110,453			112,628			114,105
Average monthly revenue per server	$	1,336		$	1,375		$	1,405		$	1,412		$	1,412
Profitability
Income from operations	$	39.1		$	33.9		$	40.5		$	50.0		$	44.4
Depreciation and amortization	$	87.8		$	90.6		$	98.3		$	95.2		$	96.9
Share-based compensation expense	$	12.7		$	17.3		$	19.8		$	20.2		$	20.0
Adjusted EBITDA (1)	$	139.6		$	141.8		$	158.6		$	165.4		$	161.3
Adjusted EBITDA margin	33.2		%	32.1		%	34.5		%	35.0		%	33.6		%
Operating income margin	9.3		%	7.7		%	8.8		%	10.6		%	9.3		%
Income from operations	$	39.1		$	33.9		$	40.5		$	50.0		$	44.4
Effective tax rate	34.6		%	33.0		%	32.0		%	25.1		%	32.4		%
Net operating profit after tax (NOPAT) (1)	$	25.6		$	22.7		$	27.5		$	37.5		$	30.0
NOPAT margin	6.1		%	5.1		%	6.0		%	7.9		%	6.3		%
Capital efficiency and returns
Interest bearing debt (2)	$	45.9		$	34.2		$	24.0		$	41.6		$	10.8
Stockholders' equity	$	1,100.0		$	1,171.2		$	1,223.7		$	1,073.8		$	1,152.9
Less: Excess cash	$	(263.3	)	$	(287.4	)	$	(294.3	)	$	(156.8	)	$	(218.1	)
Capital base (2)	$	882.6		$	918.0		$	953.4		$	958.6		$	945.6
Average capital base (2)	$	892.6		$	900.3		$	935.8		$	956.0		$	952.1
Capital turnover (annualized) (2)	1.89			1.96			1.97			1.98			2.02
Return on capital (annualized) (1) (2)	11.5		%	10.1		%	11.8		%	15.7		%	12.6		%
Capital expenditures
Cash purchases of property and equipment	$	85.0		$	114.0		$	124.1		$	107.2		$	92.5
Non-cash purchases of property and equipment (3)	$	15.7		$	(1.6	)	$	(6.7	)	$	(2.6	)	$	(2.3	)
Total capital expenditures	$	100.7		$	112.4		$	117.4		$	104.6		$	90.2
Customer gear	$	60.7		$	64.8		$	78.7		$	72.5		$	58.7
Data center build outs	$	11.0		$	13.8		$	14.8		$	11.1		$	13.4
Office build outs	$	9.2		$	6.8		$	3.5		$	1.6		$	2.3
Capitalized software and other projects	$	19.8		$	27.0		$	20.4		$	19.4		$	15.8
Total capital expenditures	$	100.7		$	112.4		$	117.4		$	104.6		$	90.2
Infrastructure capacity and utilization
Megawatts under contract at period end (4)	58.1			58.1			58.1			58.1			63.2
Megawatts available for customer use at period end (5)	45.3			45.4			45.4			49.7			52.0
Megawatts utilized at period end	28.1			29.0			29.9			30.5			31.0
Annualized net revenue per average Megawatt of power utilized	$	60.7		$	61.8		$	62.4		$	62.6		$	62.5

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(1)	See discussion and reconciliation of our Non-GAAP financial measures to the most comparable GAAP measures.


(2)	Prior period amounts have been revised to reflect the impact of a reclassification of certain finance obligations associated with build-to-suit leases in the consolidated balance sheets. See “Notes to the Unaudited Consolidated Financial Statements - Note 4. Build-to-Suit Leases” for further discussion.


(3)	Non-cash purchases of property and equipment represents changes in amounts accrued for purchases under vendor financing and other deferred payment arrangements.


(4)	Megawatts under contract at period end represents data center capacity for which we have a contract enabling us to take control of the space. For our newest data center in London, as of March 31, 2015, we have included four megawatts.


(5)	Megawatts available for customer use at period end represents data center capacity that is built-out and is being used to provide service to customers.

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ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no significant changes to our market risks since December 31, 2014. For a discussion of our exposure to market risk, refer to Part II, Item 7A "Quantitative and Qualitative Disclosures about Market Risk," contained in our Annual Report on Form 10-K for the year-ended December 31, 2014.

ITEM 4 – CONTROLS AND PROCEDURES

Evaluation of disclosure controls and procedures

Under the supervision and with the participation of our senior management, including our chief executive officer 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 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 executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in internal control over financial reporting

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.

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PART II – OTHER INFORMATION

ITEM 1 – LEGAL PROCEEDINGS

For a discussion of legal proceedings, see "Notes to the Unaudited Consolidated Financial Statements - Note 5. Contingencies."

ITEM 1A – RISK FACTORS

For a discussion of our risk factors, refer to Part I, Item 1A "Risk Factors," contained in our Annual Report on Form 10-K for the year-ended December 31, 2014. As of March 31, 2015, there had been no material change in this information.

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ITEM 6 – EXHIBITS



Exhibit Number		Description
10.1*		Employment Agreement between Rackspace Managed Hosting Limited and Tiffany Lathe, dated September 11, 2007
10.2*		Employment Agreement between Rackspace US, Inc. and Scott Crenshaw, dated April 1, 2015
10.3*		Employment Agreement between Rackspace US, Inc. and Joe Saporito, dated March 11, 2015
10.4*		Non-Employee Director Compensation Schedule
31.1*		Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2*		Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1**		Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2**		Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS*		XBRL Instance Document
101.SCH*		XBRL Taxonomy Extension Schema
101.CAL*		XBRL Taxonomy Extension Calculation Linkbase
101.DEF*		XBRL Taxonomy Extension Definition Linkbase
101.LAB*		XBRL Taxonomy Extension Label Linkbase
101.PRE*		XBRL Taxonomy Extension Presentation Linkbase


*	Filed herewith.


**	Furnished herewith.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Quarterly Report on Form 10-Q to be signed on its behalf by the undersigned, thereunto duly authorized, on May 11, 2015.

Rackspace Hosting, Inc.



Date:	May 11, 2015	By:	/s/ Karl Pichler
			Karl Pichler
			Chief Financial Officer and Treasurer
			(Principal Financial Officer)



Date:	May 11, 2015	By:	/s/ Joseph Saporito
			Joseph Saporito
			Chief Accounting Officer
			(Principal Accounting Officer)

- 28 -

Personal Contract of Employment issued to

Tiffany Lathe

(“The Employee”)

by:

Rackspace Managed Hosting Limited

2 Longwalk Road

Stockley Park

Uxbridge

UB11 1BA

(“The Company”)

September 2007

Page 1

The Company hereby provides you with this Personal Contract of Employment governing your employment with this Company. This contract complies with the Company’s duty under Section 1 of the Employment Rights Act 1996 to provide written particulars of terms of employment. Save where otherwise indicated, this contract forms the basis of your Contract of Employment with the Company.

On joining you will be given access to our Employee Policy and Procedure Handbook. This Personal Contract of Employment together with section 1 of the Employee Policy and Procedure Handbook will form your contract of employment.

1 Commencement of Employment and Continuous Employment

Your employment with this Company began on [ ]

No employment with any previous employer will count towards your continuous period of employment with this Company.

2 Job Title and Job Description

You are employed as the Corporate Counsel, EMEA and your duties and tasks are allocated to you at the discretion of the Company. You will report to the Managing Director EMEA of the company, Douglas Loewe to whom you are responsible.

Please find attached a copy of your job description. The Company may, from time to time, require you to undertake additional or other duties as necessary to meet the needs of the business.

3 Job Location

Your place of work will be your home however, you may be required to travel to the UK offices, customer sites around the UK, or to any of our US offices.

4 Hours of work

Your contractual hours are 40 hours per week. Normal office hours are between 8.30 am to 5.30 pm, Monday to Friday with one hour for lunch. A reasonable amount of overtime may be expected to be worked as dictated by internal or customer requirements or as directed by the Company, for which there will be no additional payment.

The hours of work listed above comply with the Working Time Regulations 1998.

5 Remuneration

Your basic salary will be £80,000 per annum (pro rata) paid directly into a UK Bank or Building Society account of your choice.

(b) Commission/Bonus Structure

A bonus, driven by personal, company and team performance will be available on a quarterly basis. The basis of calculation of any bonus, the decision on whether to make a payment, and the timing and the amount of any payment, is subject to management’s discretion.

The value of this bonus is anticipated to be circa £40,000 per annum.

No bonus will be due or paid following the termination date.

Page 2

6 Holidays

Our holiday year runs from 1 January to 31 December. You are entitled to 20 days annual holiday.

Following two full years of service you will accrue one extra “health” day per year up to a maximum of 5 days. In addition you will receive the normal statutory holidays. Your holiday entitlement in your first year will be pro rata.

The full holiday policy is set out with the Employee Policy and Procedure Handbook.

7 Pension

The Rackspace Group Personal Pension is available to all Rackspace employees and details can be found in the Rack Pack documentation you will have received. Rackspace will contribute up to 5% of basic salary for all employees if selected under Rack Pack. Further details of this scheme are available from the HR Manager. Your membership is subject to the rules of the scheme (as may be amended from time to time under its rules).

The Company is contracted out of the state pension scheme.

8 Health and Welfare

Private medical insurance is provided to you as a core benefit within. This cover is automatically extended to include your partner and/or any dependants if applicable.

Life Cover at four times Base Pay is currently provided as a core benefit. In addition Health Insurance is also provided as a core benefit.

9 Overtime

There is no entitlement to paid overtime. Other than that, any hours worked over and above your contractual hours will therefore not accrue overtime payment. Individual discretionary payments may be made on the basis of additional duties performed above and beyond a reasonable expectation.

10 Notice periods

Your contract is for an indefinite period but subject to notice. Full details of your notice periods are outlined in the Employee Policy and Procedure Handbook; however as a Director you will be required to give 3 months notice.

11 Sickness absence and absence notification

Full details of the sickness, absence and notification policy is outlined in the Employee Policy and Procedure Handbook.

12 Disciplinary and Grievance Procedures

Full details of these procedures are contained within the Employee Policy and Procedure Handbook.

13 Restrictive Covenants

As you will be working on matters that are confidential to Rackspace and our customers, you will be required to enter into certain restrictive covenants. These are set out in the Employee Policy and Procedure Handbook that you will be given access to on joining. In summary they will restrict you for 3 months after your employment has terminated, from directly or indirectly soliciting Rackspace customers with whom you had personal dealings or soliciting or employing Rackspace employees with whom you have personally been in the habit of dealing with in the course of your duties in the preceding 12 months, for a period of 6 months following the termination date.

Page 3

14 Confidential information

During the period of employment with the Company or at any time thereafter, the Employee will not make any improper use of nor disclose any confidential information.

“Confidential information” means information relating to the Company that is not generally known to the trade, and includes information relating to products, trade methods or secrets, research and development, inventions, marketing, customers, employees, orders and shipments, business plans and financial data.

The full Information Sensitivity Policy is set out within the Employee Policy and Procedure Handbook

15 References and Qualifications

Our offer is dependent upon satisfactory background checks.

We may also ask to see original evidence of your academic and/or professional qualifications including grades and reserve the right to terminate our offer of employment if you cannot produce verification of these in a reasonable period of time.

16 Other Contractual Terms

This offer of employment is made on the understanding that any contractual obligations in relation to previous employment, such as a requirement to work notice periods or restrictive covenants, will have ceased prior to the date on which your contract of employment with Rackspace commences. Please advise us if your previous contractual obligations do not permit you to commence employment with the Company on the proposed date.

Rackspace holds personal data relating to you and will process the data in order to comply with our statutory obligations, to process your application and for HR administration. Some of this data may be passed on to a 3^rd party managing an outsourced function e.g. payroll, benefits (such as pension and insurance bodies), but such information will be limited to what is absolutely necessary. By signing this contract of employment you agree that we may process and transfer personal data relating to you.

From time to time, Rackspace will need to alter your terms and conditions of employment in order, for example, to take account of latest "best practice" or new employment legislation. If there are any subsequent contractual changes after commencing employment with the Company, you will be notified in writing.

Any service related benefit set out in this Contract or in section 1 of the Employee Policy and Procedure Handbook, i.e. which increases according to your service with the Company (such as holiday entitlement, private medical insurance, occupation sick pay, notice period etc), is provided on the basis that it is meant to encourage loyalty and motivation or reward experience.

Signed for and on behalf of Rackspace Managed Hosting Ltd:

/s/ Douglas Loewe September 11, 2007

Douglas Loewe Date

Managing Director EMEA

Page 4

Acceptance Routine

The Employee is required to confirm his/her acceptance of the Contract of Employment Offer by completing the information below and signing both of the original copies of the Personal Contract of Employment provided and returning one copy to the HR Manager. You should retain the other copy for your own records.

Employee Name: Tiffany Lathe

Address: ________________________________

________________________________

Post Code: ________________________________

Home Telephone No. ________________________________

I hereby acknowledge receipt of the Personal Contract of Employment and have been given access to the Employee Policy and Procedure Handbook and have read, understood and agreed to abide by the Terms and Conditions and Policies and Procedures set out in the above.

/s/ Tiffany Lathe Date: September 11, 2007

Tiffany Lathe

Page 5

EMPLOYMENT AGREEMENT

This Employment Agreement (“Agreement”) is between Rackspace US, Inc. ("Company") and Scott Crenshaw (“Employee”).


1.	TERM OF EMPLOYMENT

Subject to final approval from the Compensation Committee of the Board of Directors, this Agreement commences April 1, 2015 (“Effective Date”), and ends on March 31, 2018 (the "Employment Period"), and shall thereafter be automatically extended for one year periods unless either Company or Employee gives written notice of non-renewal on or before January 31, 2018 (but not before January 1, 2018), or annually on or before January 31 thereafter (but no earlier than January 1). Notice of non-renewal may only be given between January 1 and January 31. The term “Employment Period” shall refer to the Employment Period if and as so extended.


2.	TITLE AND EXCLUSIVE SERVICES

(a)

Title and Duties. Employee’s title is Senior Vice President, Strategy & Product, and he will perform job duties that are usual and customary for this position. This position will be based in San Antonio, Texas for the first year of employment. Thereafter, Employee may exercise his discretion to determine whether the position will be based in San Antonio or in Austin, subject to reasonable requirements to be in San Antonio or other offices as may be required to fulfill his duties. The Company reserves the right to assign to the Employee duties of a different nature commensurate with his position and title, either additional to, or instead of, those referred to above, it being understood that Employee will not be assigned duties which Employee cannot reasonably perform or that are not consistent with his position and title.


(b)	Exclusive Services. Employee shall not be employed or render services elsewhere during the Employment Period. Provided, however, that nothing in this paragraph shall be construed to place any limitations on Employee’s paid or unpaid board memberships or charitable endeavors, subject to Company’s pre-approval process and Code of Conduct.


3.	COMPENSATION AND BENEFITS


(a)	Base Salary. Employee shall be paid a starting base salary of Four Hundred Thousand Dollars ($400,000) and shall be eligible for increases in base salary consistent with Company’s ordinary compensation cycles and process.


(b)	Bonus. Employee is eligible for an annualized bonus target of 80% of his salary based on the Rackspace Cash Bonus Plan as specified in the plan and as approved by the board of directors or compensation committee.

(c)

Signing Bonus. Employee will be paid a Signing Bonus of Five Hundred Thousand Dollars ($500,000) payable on the first paycheck and subject to the following claw-back provisions. The bonus is an advance payment that is actually earned throughout the initial Employment Period. Therefore, entitlement to the bonus is contingent upon Employee’s continued employment with the Company, as follows: (i) if, prior to March 31, 2016, employment is terminated by the Company for Cause, as outlined in Section 8(c), Employee agrees that he is legally obligated to and will reimburse Rackspace for the unearned pro rata portion of the Signing Bonus based on the length of completed employment under this Agreement; and (ii) if, after March 31, 2016 but prior to March 31, 2018, Employee’s employment is terminated by the Company for Cause, as outlined in Section 8(c), Employee agrees that he is legally obligated to and will reimburse Rackspace for the unearned pro rata portion of one-half of the Signing Bonus based on the length of employment under this Agreement. For purposes of clarity: if, prior to March 31, 2018, Employee terminates his employment for Good Reason, as outlined in Section 8(d), or in the event his employment is terminated by the Company without Cause, Employee is not legally obligated to reimburse the Company for the Signing Bonus, nor will the Company demand such reimbursement.

(d)

Relocation. Employee will receive a relocation package which includes a full pack and move and a lump sum relocation advance of $67,000 (less taxes). These benefits will be administered by Company’s relocation partner, Relocation Synergy. In the event employment ends within the first year for any reason other than termination by the Company without Cause or by the Employee for Good Reason, Employee agrees to reimburse a pro-rata portion of the relocation advance based on the length of completed employment. Furthermore, Company agrees to provide Employee with certain additional benefits pertaining to his relocation as outlined in the Relocation Letter, attached hereto as Exhibit A.

(e)

Equity. Pending final compensation committee approval, Employee will be granted an equity award that will have an aggregate accounting value of approximately $3,000,000. Two-thirds (2/3) of the equity award, or approximately $2,000,000 in accounting value, will be granted in the form of Restricted Stock Units, or RSUs, and would vest over a period of two years in the following installments: 50% of the shares underlying the grant vest on the first anniversary of the grant date and the remaining 50% on the second anniversary. The remaining one-third of the equity award will be granted in the form of Performance Stock Units, or PSUs. The performance criteria in the PSU agreement will be substantially the same as those provided to other members of the Rackspace Senior Leadership Team, with vesting conditional on achieving a pre-determined revenue threshold on one of three possible Determination Dates (as defined in the award agreement). The number of RSUs and target number of PSUs granted will be based upon the aforementioned accounting values and the closing market value of the stock on the date of grant. The equity award is expected to be granted within 90 days of the Effective Date. The awards will be issued pursuant to a Company approved equity plan and standard forms of agreement, which outline the vesting schedule and other terms.


(f)	PTO. Employee is eligible for PTO (paid time off) subject to the Employee Handbook.


(g)	Employment Benefit Plans. Employee may participate in employee benefit plans in which other similarly situated employees may participate, according to the terms of applicable policies and as stated in the Employee Handbook. Employee acknowledges receipt of the Employee Handbook available on the intercompany website and will review and abide by its terms.


(h)	Expenses. Company will reimburse Employee for business expenses pursuant to Company policy.

(i)

Indemnification. During the Employment Period and throughout any applicable statute of limitations, the Company will, to the maximum extent permitted by law (whether by contract, charter, by-laws or permissive or mandatory statute), indemnify and hold Employee harmless against expenses, including reasonable attorneys’ fees, judgments, fines, settlements, and other amounts actually or reasonably incurred in connection with any proceeding arising by reason of and during the course and scope of Employee’s employment with the Company, with the exception of any deliberate criminal or fraudulent acts. Employee will be named as an insured under a standard officers’ and directors’ liability insurance policy, which shall be purchased and maintained by the Company.


4.	NONDISCLOSURE OF CONFIDENTIAL INFORMATION

(a)

Company has provided and will continue to provide to Employee confidential information and trade secrets including but not limited to Company’s operational, sales, marketing, personally identifiable information about employees, employee contact information and/or materials used for training and or/employee development, and engineering information, customer lists, business contracts, partner agreements, pricing and strategy information, product and cost or pricing data, compensation information, strategic business plans, budgets, financial statements, and other information Company treats as confidential or proprietary (collectively the “Confidential Information”). This section is not intended to limit Employee’s rights to discuss Employee’s compensation or other terms and conditions of employment as allowed by law. Employee acknowledges that such Confidential Information is proprietary and agrees not to disclose it to anyone outside Company except to the extent that (i) it is necessary in connection with performing his duties; (ii) Employee is required by court order to disclose the Confidential Information, provided that Employee shall promptly inform Company, shall cooperate with Company to obtain a protective order or otherwise restrict disclosure, and shall only disclose Confidential Information to the minimum extent necessary to comply with the court order. Employee agrees to never use Confidential Information in competing, directly or indirectly, with Company. When employment ends, Employee will immediately return all Confidential Information to Company.


(b)	The terms of this Section 4 shall survive the expiration or termination of this Agreement for any reason.


5.	NON-HIRE OF COMPANY EMPLOYEES


(a)	To further preserve the Confidential Information, during employment and for twelve

(12) months after employment ends (“Non-Hire Period”), Employee will not, directly or indirectly, (i) hire or engage any current employee of Company, including anyone employed by or providing services to Company within the 6-month period preceding Employee’s last day of employment or engagement; (ii) solicit or encourage any employee to terminate employment or services with Company; or (iii) solicit or encourage any employee to accept employment with or provide services to Employee or any business associated with Employee.


(b)	The terms of this Section 5 shall survive the expiration or termination of this Agreement for any reason.


6.	NON-SOLICITATION OF CUSTOMERS

(a)

To further preserve the Confidential Information, Employee agrees not to solicit Company’s customers for six (6) months after employment ends (the “Non-Solicitation Period”) for or in connection with the provision of any services substantially similar to those services provided by the Company (as set forth in Section 7). This Agreement shall not prevent Employee from otherwise soliciting the Company’s customers.


(b)	The terms of this Section 6 shall survive the expiration or termination of this Agreement for any reason.


7.	NON-COMPETITION AGREEMENT

(a)

To further preserve the Confidential Information, Employee agrees that during employment and for six (6) months after employment ends (the “Restricted Period”), Employee will not work, as an employee, contractor, officer, owner, consultant, or director, in any business anywhere in the world that sells hosting and information technology services substantially similar to those services provided by the Company, namely (i) provisioning, hosting, management, monitoring, supporting, or maintenance of applications, computer servers (whether dedicated, shared or virtual) and network connectivity in a datacenter for remote use via the Internet, (ii) hosted email, storage, collaboration, compute, virtual networking and similar services, and (iii) all similar related services, all of the foregoing being defined for the purposes of this Agreement as "Hosting.” Provided, however, that this Agreement shall not prohibit Employee from owning not more than five percent (5%) of the outstanding stock of any class of a publicly-traded company providing Hosting services, nor shall it prohibit Employee from working for a company whose affiliate(s), division(s), subdivision(s), and/or business unit(s) provide(s) Hosting services substantially similar to those provided by the Company, so long as Employee does not work for (and provides no services to) the affiliate(s), division(s), subdivision(s) and/or business unit(s) providing Hosting services.


(b)	The terms of this Section 7 shall survive the expiration or termination of this Agreement for any reason.


8.	TERMINATION

This Agreement may be terminated by mutual written agreement or:


(a)	Death. The date of Employee’s death shall be the termination date.


(b)	Disability. Company may terminate this Agreement and/or Employee’s employment if Employee is unable to perform the essential functions of his full-time position for more than 180 days in any 12 month period, subject to applicable law.


(c)	Termination By Company. Company may terminate employment with or without Cause. “Cause” means:

(i)willful misconduct, including, without limitation, violation of sexual or other harassment policy, gross negligence, misappropriation of or material misrepresentation regarding property of Company, other than customary and de minimis use of Company property for personal purposes, as determined in the discretion of Company, which discretion shall be exercised in good faith, or failure to take reasonable and appropriate action to prevent material injury to the financial condition, business or reputation of the Company;

(ii) non-performance of duties (other than by reason of disability);

(iii)failure to follow lawful directives of the Company or consistent failure to meet reasonable performance objectives following a written warning and opportunity to cure for one quarter;

(iv)a felony conviction or indictment, a plea of nolo contendere by Employee, or other conduct by Employee that has or would result in material injury to Company’s reputation, including indictment or conviction of fraud, theft, embezzlement, or a crime involving moral turpitude;

(v)a material breach of this Agreement; or

(vi)a significant violation of Company’s employment and management policies.

(d)

Termination By Employee For Good Reason. Employee may terminate his employment at any time for “Good Reason,” which is: (i) Company’s repeated failure to comply with a material term of this Agreement (including but not limited to the position location agreement in section 2(a)) after written notice by Employee specifying the alleged failure; or (ii) a substantial and unusual reduction in responsibilities and authority; or (iii) the relocation, without good business reason, of Employee’s position to a facility or a location more than ninety (90) miles from the then-current location of the position as provided in section 2(a), without Employee’s express written consent, within twelve months following a change of control. If Employee elects to terminate his employment for “Good Reason,” Employee must first provide Company written notice within thirty (30) days, after which Company shall have sixty (60) days to cure. If Company has not cured and Employee elects to terminate his employment, he must do so within ten (10) days after the end of the cure period. "Change in Control” means the occurrence of any of the following events:

(i)

a change in the ownership of the Company which occurs on the date that any one person, or more than one person acting as a group, (“Person”) acquires ownership of the stock of the Company that, together with the stock held by such Person, constitutes more than fifty percent (50%) of the total voting power of the stock of the Company; provided, however, that for purposes of this subsection (i), the acquisition of additional stock by any one Person, who is considered to own more than fifty percent (50%) of the total voting power of the stock of the Company will not be considered a Change in Control; or

(ii)

a change in the effective control of the Company which occurs on the date that a majority of members of the Board is replaced during any twelve (12) month period by Directors whose appointment or election is not endorsed by a majority of the members of the Board prior to the date of the appointment or election. For purposes of this clause (ii), if any Person is considered to effectively control the Company, the acquisition of additional control of the Company by the same Person will not be considered a Change in Control; or

(iii)

a change in the ownership of a substantial portion of the Company’s assets which occurs on the date that any Person acquires (or has acquired during the twelve (12) month period ending on the date of the most recent acquisition by such person or persons) assets from the Company that have a total gross fair market value equal to or more than fifty percent (50%) of the total gross fair market value of all of the assets of the Company immediately prior to such acquisition or acquisitions; provided, however, that for purposes of this subsection (iii), the following will not constitute a change in the ownership of a substantial portion of the Company’s assets: (A) a transfer to an entity that is controlled by the Company’s stockholders immediately after the transfer, or (B) a transfer of assets by the Company to: (1) a stockholder of the Company (immediately before the asset transfer) in exchange for or with respect to the Company’s stock, (2) an entity, fifty percent (50%) or more of the total value or voting power of which is owned, directly or indirectly, by the Company, (3) a Person, that owns, directly or indirectly, fifty percent (50%) or more of the total value or voting power of all the outstanding stock of the Company, or (4) an entity, at least fifty percent (50%) of the total value or voting power of which is owned, directly or indirectly, by a Person described in this subsection (iii)(B)(3). For purposes of this subsection (iii), gross fair market value means the value of the assets of the Company, or the value of the assets being disposed of, determined without regard to any liabilities associated with such assets.

For purposes of this definition, persons will be considered to be acting as a group if they are owners of a corporation that enters into a merger, consolidation, purchase, or acquisition of stock, or similar business transaction with the Company.


9.	COMPENSATION UPON TERMINATION


(a)	Death. Company shall, within 30 days, pay to Employee’s designee or, if no person is designated, to Employee’s estate, Employee’s accrued and unpaid Base Salary and bonus, subject to the terms of any applicable bonus plan, through the date of termination, and any payments required under applicable employee benefit plans.


(b)	Disability. Company shall, within 30 days, pay all accrued and unpaid base Salary and bonus, subject to the terms of any applicable bonus plan, through the termination date and any payments required under applicable employee benefit plans.


(c)	Termination By Company For Cause: Company shall, within 30 days, pay to Employee his accrued and unpaid Base Salary through the termination date and any payments required under applicable employee benefit plans.

(d)

Non-Renewal By Employee. If Employee gives notice of non-renewal under Section 1, Company shall determine the termination date and will pay accrued and unpaid Base Salary through the termination date, and any payments required under applicable employee benefit plans. If the termination date is before the end of the then current Employment Period, and if Employee signs a Severance Agreement and General Release of claims in a form satisfactory to Company, then Company will, in periodic payments in accordance with ordinary payroll practices and deductions, pay Employee an amount equal to his pro-rata Base Salary through the end of the then current Employment Period (“Severance Pay Period”).


(e)	Termination With Severance.

(1)

Termination By Company Without Cause or Termination by Employee for Good Reason - Severance: If Company terminates employment without Cause and not by reason of death or disability or if Employee terminates for Good Reason, Company will pay the accrued and unpaid Base Salary through the termination date and any payments required under applicable employee benefit plans. In addition, if Employee signs a Severance Agreement and General Release of claims in a form satisfactory to Company, Company will pay Employee, in periodic payments in accordance with ordinary payroll practices and deductions, Employee’s current Base Salary for six (6) months (the “Severance Payments” or “Severance Pay Period”)

(2)

Non-Renewal By Company - Severance: If employment ends because Company gives notice of non-renewal under Section 1, Company shall determine the termination date, even if such date is prior to the end of the Employment Period and will pay the accrued and unpaid Base Salary through the termination date and any payments required under applicable employee benefit plans. In addition, if Employee signs a Severance Agreement and General Release of claims in a form satisfactory to Company, Company will pay Employee, in periodic payments in accordance with ordinary payroll practices and deductions, Employee’s current Base Salary for six (6) months (the “Severance Payments” or “Severance Pay Period”).


(3)	Employment by Competitor or Re-hire During Severance Pay Period:

(i)

If Employee competes with Company or is hired or engaged in any capacity by any competitor of Company during any Severance Pay Period, then the Severance Payments shall cease. The foregoing shall not affect Company’s right to enforce the Non- Compete pursuant to Section 7. For purposes of this sub-section, a “competitor” of Company means: any business anywhere in the world that sells Hosting as defined in Section 7.


(ii)	If Employee is rehired on a full-time basis by Company or employed on a full-time basis by or performing services in any non-competitive capacity or business during any Severance Pay Period, the Severance Payments shall cease.


10.	OWNERSHIP OF MATERIALS

Employee agrees that all inventions, improvements, discoveries, designs, technology, and works of authorship (including but not limited to computer software) made, created, conceived, or reduced to practice by Employee, whether alone or in cooperation with others, during employment, together with all patent, trademark, copyright, trade secret, and other intellectual property rights related to any of the foregoing throughout the world, are among other things works made for hire and belong exclusively to the Company, and Employee hereby assigns all such rights to the Company. Employee agrees to execute any documents, testify in any legal proceedings, and do all things necessary or desirable to secure Company’s rights to the foregoing, including without limitation executing inventors’ declarations and assignment forms. If there is a separate signed agreement between you and the Company including terms directly related to intellectual property rights, then the intellectual property terms of that agreement shall control.


11.	PARTIES BENEFITED; ASSIGNMENTS

This Agreement shall be binding upon Employee, his heirs and his personal representative or representatives, and upon Company and its respective successors and assigns. Neither this Agreement nor any rights or obligations hereunder may be assigned by Employee, other than by will or by the laws of descent and distribution.


12.	GOVERNING LAW

This Agreement shall be governed by the laws of the State of Texas and Employee expressly consents to the personal jurisdiction of the Texas state and federal courts for any lawsuit relating to this Agreement.


13.	DEFINITION OF COMPANY

“Company” shall include Rackspace US, Inc., and its past, present and future divisions, operating companies, subsidiaries and affiliates.


14.	LITIGATION AND REGULATORY COOPERATION

During and after employment, Employee shall reasonably cooperate in the defense or prosecution of claims, investigations, or other actions which relate to events or occurrences during employment. Employee’s cooperation shall include being available to prepare for discovery or trial and to act as a witness. Company will pay an hourly rate (based on Base Salary as of the last day of employment) for cooperation that occurs after employment, and reimburse Employee for reasonable expenses, including travel expenses, reasonable attorneys’ fees and costs.


15.	DISPUTE RESOLUTION

(a)

Injunctive Relief: Employee agrees that irreparable damages to Company will result from Employee's breach of this Agreement, including loss of revenue, loss of goodwill associated with Employee as a result of employment, and/or loss of the benefit to Company of any training, confidential, and/or trade secret information provided to Employee, and any other tangible and intangible investments made to and on behalf of Employee. A breach or threat of breach of this Agreement shall give the non-breaching party the right to seek a temporary restraining order and a preliminary or permanent injunction enjoining the breaching party from violating this Agreement in order to prevent immediate and irreparable harm. The breaching party shall pay to the non- breaching party reasonable attorneys’ fees and costs associated with enforcement of this Agreement, including any appeals. Pursuit of equitable relief under this Agreement shall have no effect regarding the continued enforceability of the Arbitration Section below. Remedies for breach under this Section are cumulative and not exclusive; the parties may elect to pursue any remedies available under this Agreement.

(b)

Arbitration: The parties agree that any dispute or claim, that could be brought in court including discrimination or retaliation claims, relating to this Agreement or arising out of Employee's employment or termination of employment, shall, upon timely written request of either party, be submitted to binding arbitration, except claims regarding: (i) workers’ compensation benefits; (ii) unemployment benefits; (iii) Company’s employee welfare benefit plans, if the plan contains a final and binding appeal procedure for the resolution of disputes under the plan; (iv) wage and hour disputes within the jurisdiction of any state Labor Commissioner; and (v) issues that could be brought before the National Labor Relations Board or covered by the National Labor Relations Act. This Agreement is not intended to prohibit the Employee from filing a claim or communicating with any governmental agency including the Equal Employment Opportunity Commission, the National Labor Relations Board or the Department of Labor. The arbitration shall be conducted in San Antonio, Texas. The arbitration shall proceed in accordance with the National Rules for Resolution of Employment Disputes of the American Arbitration Association (“AAA”) in effect at the time the claim or dispute arose, unless other rules are agreed upon by the parties. Unless agreed to in writing, the arbitration shall be conducted by one arbitrator from AAA or a comparable arbitration service, and who is selected pursuant to the National Rules for Resolution of Employment Disputes of the AAA, or other rules as the parties may agree to in writing. Any claims received after the applicable statute of limitations period shall be deemed null and void; nothing in this Agreement, however, shall operate to shorten any statutory or common law statutes of limitations. The parties further agree that by entering into this Agreement, the right to participate in a class or collective action is waived. CLAIMS MAY BE ASSERTED AGAINST THE OTHER PARTY ONLY IN AN INDIVIDUAL CAPACITY AND NOT AS A PLAINTIFF OR CLASS MEMBER IN ANY PURPORTED CLASS OR REPRESENTATIVE PROCEEDING. Further, unless the parties agree otherwise, the arbitrator may not consolidate more than one person's claims, and may not otherwise preside over any form of a representative, collective or class proceeding. If this specific provision is found to be unenforceable, then the entirety of this arbitration provision shall be null and void. The arbitrator shall issue a reasoned award with findings of fact and conclusions of law. Either party may bring an action in any court of competent jurisdiction to compel arbitration under this Agreement, or to enforce or vacate an arbitration award. However, in actions seeking to vacate an award, the standard of review to be applied by said court to the arbitrator’s findings of fact and conclusions of law will be the same as that applied by an appellate court reviewing a decision of a trial court sitting without a jury, unless state law requires otherwise. Company will pay the actual fee for the arbitrator and the claimant’s filing

fee. Each party will pay their own attorneys’ fees and other expenses. Unless otherwise provided by law and awarded by the arbitrator, each party will pay its own attorneys’ fees and other costs.


16.	REPRESENTATIONS AND WARRANTIES OF EMPLOYEE

Employee shall keep all terms of this Agreement confidential, except as may be disclosed to Employee’s spouse, accountants or attorneys. Employee represents that he is under no contractual or other restriction inconsistent with the execution of this Agreement, the performance of his duties hereunder, or the rights of Company. Employee authorizes the Company to inform any prospective employer of the existence and terms of this Agreement without liability for interference with Employee’s prospective employment. Employee represents that he is under no disability that prevents him from performing the essential functions of his position, with or without reasonable accommodation.


17.	SECTION 409A COMPLIANCE

Payments under this Agreement (the “Payments”) shall be designed and operated in such a manner that they are either exempt from the application of, or comply with, the requirements of Section 409A, the Regulations, applicable case law and administrative guidance. All Payments shall be deemed to come from an unfunded plan. Notwithstanding any provision in this Agreement, all Payments subject to Section 409A will not be accelerated in time or schedule. Employee and Company will not be able to change the designated time or form of any Payments subject to Section 409A. In addition, all Severance Payments that are deferred compensation and subject to Section 409A will only be payable upon a "separation from service" (as that term is defined at Section 1.409A-1(h) of the Treasury Regulations) from the Company and from all other corporations and trades or businesses, if any, that would be treated as a single "service recipient" with the Company under Section 1.409A-1(h)(3). All references in this Agreement to a termination of employment and correlative terms shall be construed to require a "separation from service.”


18.	MISCELLANEOUS

This Agreement is not effective unless fully executed by all parties, including the President of the Company, and approved by the board of directors or compensation committee as required by Company. This Agreement contains the entire agreement of the parties on the subject matters in this agreement and supersedes any prior written or oral agreements or understandings between the parties except as noted in Section 10 above. No modification shall be valid unless in writing and signed by the parties. This Agreement may be executed in counterparts, a counterpart transmitted via electronic means, and all executed counterparts, when taken together, shall constitute sufficient proof of the parties’ entry into this Agreement. The parties agree to execute any further or future documents which may be necessary to allow the full performance of this Agreement. The failure of a party to require performance of any provision of this Agreement shall not affect the right of such party to later enforce any provision. A waiver of the breach of any term or condition of this Agreement shall not be deemed a waiver of any subsequent breach of the same or any other term or condition.

If any provision of this Agreement shall, for any reason, be held unenforceable, such unenforceability shall not affect the remaining provisions hereof, except as specifically noted in this Agreement, or the application of such provisions to other persons or circumstances, all of which shall be enforced to the greatest extent permitted by law. Company and Employee agree that the restrictions contained in Section 4, 5, 6, and 7, are reasonable in scope and duration and are necessary to protect Confidential Information. If any restrictive covenant is held to be unenforceable because of the scope, duration or geographic area, the parties agree that the court or arbitrator may reduce the scope, duration, or geographic area, and in its reduced form, such provision shall be enforceable. Should Employee violate the provisions of Sections 5, 6, or 7, then in addition to all other remedies available to Company, the duration of these covenants shall be extended for the period of time when Employee began such violation until he permanently ceases such violation. The headings in this Agreement are inserted for convenience of reference only and shall not control the meaning of any provision hereof.

[REMAINDER OF THE PAGE LEFT INTENTIONALLY BLANK]

Upon full execution by all parties, this Agreement shall be effective on the later date of the two signatures below:

EMPLOYEE:

/s/ Scott Crenshaw Date: February 24, 2015

Scott Crenshaw

COMPANY:

/s/ William Taylor Rhodes Date: February 25, 2015

Rackspace US, Inc.

By: William Taylor Rhodes, President

and CEO

EXHIBIT A

Dear Scott,

The relocation details outlined below apply to your offer as a Senior Vice President, Product & Strategy. The logistics of your move will be managed by Relocation Synergy on behalf of Rackspace.

Thank you,

Rackspace



Benefit	Summary Description
Lump Sum Allowance:	You will be provided a $67,000 (less taxes) lump sum to use for all out of Pocket expense not provided in your relocation benefit package. Relocation Synergy will process this payment upon signing your relocation payback agreement.
Return Trips Home:	Up to thirteen (13) trips home while in temporary housing. Economy flights or mileage reimbursement at IRS current rate. These trips are being furnished in recognition of the fact that your job duties are based in San Antonio, and that it is necessary for you to commute home periodically while your family prepares to relocate to San Antonio. As such, these trips are considered business travel and should be exempt from tax.
Temporary Living:	We are offering you up to 90 days of temporary housing and you will work directly with Relocation Synergy to coordinate those arrangements. Temporary housing is considered business expense and therefore tax-free, due to the fact that you are required to live and work in San Antonio while you wait for your family to relocate.
Shipment of Household Goods:	Rackspace will cover a full pack, load, ship and unload of your household goods, as well as the relocation of up to two (2) automobiles.

EMPLOYMENT AGREEMENT

This Employment Agreement (“Agreement”) is between Rackspace US, Inc. ("Company") and Joe Saporito (“Employee”).


1.	TERM OF EMPLOYMENT

This Agreement commences March 11, 2015 (“Effective Date”), and ends on March 31, 2017 (the "Employment Period, and shall thereafter be automatically extended for one year periods unless either Company or Employee gives written notice of non-renewal on or before January 31, 2017 (but not before January 1, 2017), or annually on or before January 31 thereafter (but no earlier than January 1). Notice of non-renewal may only be given between January 1 and January 31. The term “Employment Period” shall refer to the Employment Period if and as so extended.


2.	TITLE AND EXCLUSIVE SERVICES


(a)	Title and Duties. Employee’s title is Chief Accounting Officer, and he will perform job duties that are usual and customary for this position. The Company reserves the right to assign to the Employee duties of a different nature, either additional to, or instead of, those referred to above, it being understood that Employee will not be assigned duties which Employee cannot reasonably perform.


(b)	Exclusive Services. Employee shall not be employed or render services elsewhere during the Employment Period. Notwithstanding the foregoing, Company agrees to allow Employee to continue to serve in his position as Director with US Dataworks, Inc.


3.	COMPENSATION AND BENEFITS


(a)	Base Salary. Employee shall be paid a base salary of Three Hundred Thousand Dollars ($300,000) effective February 21, 2015 and shall be eligible for increases in base salary consistent with Company’s ordinary compensation cycles and process.


(b)	Bonus. Employee is eligible for a bonus target set as a percentage of annual salary, subject to the Rackspace Cash Bonus Plan and as approved by the board of directors or compensation committee.


(c)	Equity. Employee is eligible for equity grants consistent with Company’s ordinary compensation cycles, dates, and process.


(d)	PTO. Employee is eligible for PTO (paid time off) subject to the Employee Handbook.


(e)	Employment Benefit Plans. Employee may participate in employee benefit plans in which other similarly situated employees may participate, according to the terms of applicable policies and as stated in the Employee Handbook. Employee acknowledges receipt of the Employee Handbook available on the intercompany website and will review and abide by its terms.


(f)	Expenses. Company will reimburse Employee for business expenses pursuant to Company policy.


4.	NONDISCLOSURE OF CONFIDENTIAL INFORMATION

(a)


(b)	The terms of this Section 4 shall survive the expiration or termination of this Agreement for any reason.


5.	NON-HIRE OF COMPANY EMPLOYEES

(a)

To further preserve the Confidential Information, during employment and for twelve (12) months after employment ends (“Non-Hire Period”), Employee will not, directly or indirectly, (i) hire or engage any current employee of Company, including anyone employed by or providing services to Company within the 6-month period preceding Employee’s last day of employment or engagement; (ii) solicit or encourage any employee to terminate employment or services with Company; or (iii) solicit or encourage any employee to accept employment with or provide services to Employee or any business associated with Employee.


(b)	The terms of this Section 5 shall survive the expiration or termination of this Agreement for any reason.


6.	NON-SOLICITATION OF CUSTOMERS

(a)

To further preserve the Confidential Information, Employee agrees not to solicit Company’s customers for six (6) months after employment ends (the “Non-Solicitation Period”) for or in connection with the provision of any services substantially similar to those service provided by the Company (as set forth in Section7). This Agreement shall not prevent Employee from otherwise soliciting the Company’s customers.


(b)	The terms of this Section 6 shall survive the expiration or termination of this Agreement for any reason.


7.	NON-COMPETITION AGREEMENT

(a)

To further preserve the Confidential Information, Employee agrees that during employment and for six (6) months after employment ends (the “Restricted Period”), Employee will not work, as an employee, contractor, officer, owner, consultant, or director, in any business anywhere in the world that sells hosting and information technology services substantially similar to those services provided by the Company, namely (i) provisioning, hosting, management, monitoring, supporting, or maintenance of applications, computer servers (whether dedicated, shared or virtual) and network connectivity in a datacenter for remote use via the Internet, (ii) hosted email, storage, collaboration, compute, virtual networking and similar services, and (iii) all similar related services, all of the foregoing being defined for the purposes of this Agreement as "Hosting.” Provided, that the forgoing restriction shall not prevent Employee from becoming an employee of or contractor for a division of any Hosting company that does not provide Hosting services, as long as Employee does not, during the Restricted Period, perform services (including but not limited to providing information, advice, strategy, recruiting or any other interaction with regard to business matters) for a division of such company that provides Hosting Services.


(b)	The terms of this Section 7 shall survive the expiration or termination of this Agreement for any reason.


8.	TERMINATION

This Agreement may be terminated by mutual written agreement or:


(a)	Death. The date of Employee’s death shall be the termination date.


(b)	Disability. Company may terminate this Agreement and/or Employee’s employment if Employee is unable to perform the essential functions of his full-time position for more than 180 days in any 12 month period, subject to applicable law.


(c)	Termination By Company. Company may terminate employment with or without Cause. “Cause” means:

(i) willful misconduct, including, without limitation, violation of sexual or other harassment policy, gross negligence, misappropriation of or material misrepresentation regarding property of Company, other than customary and de minimis use of Company property for personal purposes, as determined in the discretion of Company, or failure to take reasonable and appropriate action to prevent material injury to the financial condition, business or reputation of the Company;

(ii) non-performance of duties (other than by reason of disability);

(iii) failure to follow lawful directives of the Company or consistent failure to meet reasonable performance objectives following a written warning and opportunity to cure for one quarter;

(iv) a felony conviction or indictment, a plea of nolo contendere by Employee, or other conduct by Employee that has or would result in material injury to Company’s reputation, including indictment or conviction of fraud, theft, embezzlement, or a crime involving moral turpitude;

(v) a material breach of this Agreement; or

(vi) a significant violation of Company’s employment and management policies.


9.	COMPENSATION UPON TERMINATION


(a)	Death. Company shall, within 30 days, pay to Employee’s designee or, if no person is designated, to Employee’s estate, Employee’s accrued and unpaid Base Salary and bonus, subject to the terms of any applicable bonus plan, through the date of termination, and any payments required under applicable employee benefit plans.


(b)	Disability. Company shall, within 30 days, pay all accrued and unpaid base Salary and bonus, subject to the terms of any applicable bonus plan, through the termination date and any payments required under applicable employee benefit plans.


(c)	Termination By Company For Cause: Company shall, within 30 days, pay to Employee his accrued and unpaid Base Salary through the termination date and any payments required under applicable employee benefit plans.

(d)


(e)	Termination With Severance.

(1)

Termination By Company Without Cause - Severance: If Company terminates employment without Cause and not by reason of death or disability, Company will pay the accrued and unpaid Base Salary through the termination date and any payments required under applicable employee benefit plans. In addition, if Employee signs a Severance Agreement and General Release of claims in a form satisfactory to Company, Company will pay Employee, in periodic payments in accordance with ordinary payroll practices and deductions, Employee’s current Base Salary for six (6) months (the “Severance Payments” or “Severance Pay Period”).

(2)


(3)	Employment by Competitor or Re-hire During Severance Pay Period:

(i) If Employee competes with Company, or is hired or engaged in any capacity by any competitor of Company (to be determined in Company’s discretion), during any Severance Pay Period, then the Severance Payments shall cease. The foregoing shall not affect Company’s right to enforce the Non-Compete pursuant to Section 7. For purposes of this sub-section, a “competitor” of Company means: any business anywhere in the world that sells Hosting as defined in Section 7.

(ii) If Employee is rehired by Company or employed by or performing services in any non-competitive capacity or business during any Severance Pay Period, the Severance Payments shall cease.


10.	OWNERSHIP OF MATERIALS

Employee agrees that all inventions, improvements, discoveries, designs, technology, and works of authorship (including but not limited to computer software) made, created, conceived, or reduced to practice by Employee, whether alone or in cooperation with others, during employment, together with all patent, trademark, copyright, trade secret, and other intellectual property rights related to any of the foregoing throughout the world, are among other things works made for hire and belong exclusively to the Company, and Employee hereby assigns all such rights to the Company. Employee agrees to execute any documents, testify in any legal proceedings, and do all things necessary or desirable to secure Company’s rights to the foregoing, including without limitation executing inventors’ declarations and assignment forms. If there is a separate signed agreement between Employee and the Company including terms directly related to intellectual property rights, then the intellectual property terms of that agreement shall control.


11.	PARTIES BENEFITED; ASSIGNMENTS


12.	GOVERNING LAW


13.	DEFINITION OF COMPANY

“Company” shall include Rackspace US, Inc., and its past, present and future divisions, operating companies, subsidiaries and affiliates.


14.	LITIGATION AND REGULATORY COOPERATION

During and after employment, Employee shall reasonably cooperate in the defense or prosecution of claims, investigations, or other actions which relate to events or occurrences during employment. Employee’s cooperation shall include being available to prepare for discovery or trial and to act as a witness. Company will pay an hourly rate (based on Base Salary as of the last day of employment) for cooperation that occurs after employment, and reimburse for reasonable expenses, including travel expenses, reasonable attorneys’ fees and costs.


15.	DISPUTE RESOLUTION

(a)

Injunctive Relief: Employee agrees that irreparable damages to Company will result from Employee's breach of this Agreement, including loss of revenue, loss of goodwill associated with Employee as a result of employment, and/or loss of the benefit to Company of any training, confidential, and/or trade secret information provided to Employee, and any other tangible and intangible investments made to and on behalf of Employee. A breach or threat of breach of this Agreement shall give the non-breaching party the right to seek a temporary restraining order and a preliminary or permanent injunction enjoining the breaching party from violating this Agreement in order to prevent immediate and irreparable harm. The breaching party shall pay to the non-breaching party reasonable attorneys’ fees and costs associated with enforcement of this Agreement, including any appeals. Pursuit of equitable relief under this Agreement shall have no effect regarding the continued enforceability of the Arbitration Section below. Remedies for breach under this Section are cumulative and not exclusive; the parties may elect to pursue any remedies available under this Agreement.

(b)

Arbitration: The parties agree that any dispute or claim, that could be brought in court including discrimination or retaliation claims, relating to this Agreement or arising out of Employee's employment or termination of employment, shall, upon timely written request of either party, be submitted to binding arbitration, except claims regarding: (i) workers’ compensation benefits; (ii) unemployment benefits; (iii) Company’s employee welfare benefit plans, if the plan contains a final and binding appeal procedure for the resolution of disputes under the plan; (iv) wage and hour disputes within the jurisdiction of any state Labor Commissioner; and (v) issues that could be brought before the National Labor Relations Board or covered by the National Labor Relations Act. This Agreement is not intended to prohibit the Employee from filing a claim or communicating with any governmental agency including the Equal Employment Opportunity Commission, the National Labor Relations Board or the Department of Labor. The arbitration shall be conducted in San Antonio, Texas. The arbitration shall proceed in accordance with the National Rules for Resolution of Employment Disputes of the American Arbitration Association (“AAA”) in effect at the time the claim or dispute arose, unless other rules are agreed upon by the parties. Unless agreed to in writing, the arbitration shall be conducted by one arbitrator from AAA or a comparable arbitration service, and who is selected pursuant to the National Rules for Resolution of Employment Disputes of the AAA, or other rules as the parties may agree to in writing. Any claims received after the applicable statute of limitations period shall be deemed null and void. The parties further agree that by entering into this Agreement, the right to participate in a class or collective action is waived. CLAIMS MAY BE ASSERTED AGAINST THE OTHER PARTY ONLY IN AN INDIVIDUAL CAPACITY AND NOT AS A PLAINTIFF OR CLASS MEMBER IN ANY PURPORTED CLASS OR REPRESENTATIVE PROCEEDING. Further, unless the parties agree otherwise, the arbitrator may not consolidate more than one person's claims, and may not otherwise preside over any form of a representative, collective

or class proceeding. If this specific provision is found to be unenforceable, then the entirety of this arbitration provision shall be null and void. The arbitrator shall issue a reasoned award with findings of fact and conclusions of law. Either party may bring an action in any court of competent jurisdiction to compel arbitration under this Agreement, or to enforce or vacate an arbitration award. However, in actions seeking to vacate an award, the standard of review to be applied by said court to the arbitrator’s findings of fact and conclusions of law will be the same as that applied by an appellate court reviewing a decision of a trial court sitting without a jury, unless state law requires otherwise. Company will pay the actual fee for the arbitrator and the claimant’s filing fee; each party will pay their own attorneys’ fees and other expenses. Unless otherwise provided by law and awarded by the arbitrator, each party will pay its own attorneys’ fees and other costs.


16.	REPRESENTATIONS AND WARRANTIES OF EMPLOYEE


17.	SECTION 409A COMPLIANCE


18.	MISCELLANEOUS

This Agreement is not effective unless fully executed by all parties, including the President or CEO of the Company, and approved by the board of directors or compensation committee as required by Company. This Agreement contains the entire agreement of the parties on the subject matters in this agreement and supersedes any prior written or oral agreements or understandings between the parties except as noted in Section 10 above. No modification shall be valid unless in writing and signed by the parties. This Agreement may be executed in counterparts, a counterpart transmitted via electronic means, and all executed counterparts, when taken together, shall constitute sufficient proof of the parties’ entry into this Agreement. The parties agree to execute any further or future documents which may be necessary to allow the full performance of this Agreement. The failure of a party to require performance of any provision of this Agreement shall not affect the right of such party to later enforce any provision. A waiver of the breach of any term or condition of this Agreement shall not be deemed a waiver of any subsequent breach of the same or any other term or condition.

Upon full execution by all parties, this Agreement shall be effective on the later date of the two signature dates below.

EMPLOYEE:

/s/ Joe Saporito Date: March 11, 2015

Joe Saporito

COMPANY:

/s/ William Taylor Rhodes Date: March 11, 2015

Rackspace US, Inc.

By: William Taylor Rhodes,

Its: President and CEO

RACKSPACE HOSTING, INC.

NON-EMPLOYEE DIRECTOR COMPENSATION SCHEDULE


1.	Compensation for Non-Employee Directors. Each Rackspace Hosting, Inc. Non-Employee Director shall be entitled to receive the following compensation for service on the Rackspace Board of Directors:

Annual Equity Compensation to all Non-Employee Directors:


(a)	$240,000 to be paid annually for standing Non-Employee Directors, pursuant to Section 5 below; plus

Annual Cash Compensation to all Non-Employee Directors:


(b)	$50,000 annually; plus

Annual Cash Compensation to non-Executive Chairman:


(c)	$50,000 annually to the non-Executive Chairman; plus

Annual Cash Compensation to Lead Director:


(d)	$50,000 annually to the lead director; plus

Annual Cash Compensation to Committee Chairpersons:


(e)	$35,000 annually if such Company Non-Employee Director serves as chairperson of the audit committee; plus


(f)	$25,000 annually if such Company Non-Employee Director serves as chairperson of the compensation committee; plus


(g)	$15,000 annually if such Company Non-Employee Director serves as chairperson of the real estate and finance committee; plus


(h)	$12,500 annually for each standing Board committee, other than the audit committee, compensation committee, or real estate and finance committee for which such Company Non-Employee Director serves as chairperson; plus

Annual Cash Compensation to Committee Members (Non-Chairpersons):


(i)	$15,000 annually if such Company Non-Employee Director serves as a member of the audit committee (other than the chairperson of such committee); plus

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(j)	$12,500 annually if such Company Non-Employee Director serves as a member of the compensation committee (other than the chairperson of such committee); plus


(k)	$7,500 annually for each standing Board committee for which such Company Non-Employee Director serves other than the audit committee or compensation committee (other than the chairperson of such committee).

In addition, the Board may issue additional discretionary equity compensation to Company Non-Employee Directors in an amount not to exceed $200,000 per Non-Employee Director per year.


2.	Subsidiary Directors. If the Board designates by resolution that Directors of any Subsidiary are to participate in this compensation plan, then each such subsidiary Non-Employee Director shall receive such amount of shares of Common Stock and/or cash as shall be specified by resolution of the Compensation Committee.

Chairman’s Right to Reduce or Withhold Compensation. Notwithstanding anything contained herein to the contrary, the amount of cash or equity payable to any Non-Employee Director may be reduced or withheld by the Chairperson of the Board for failure to attend meetings of the Board, or the Boards of Directors of any Subsidiary upon which such Non-Employee Director serves, or for failure to otherwise perform the duties of such Non-Employee Director’s office.


4.	Compensation Committee’s Right to Revise Compensation Terms. Notwithstanding anything contained herein to the contrary, the Compensation Committee may, in its discretion, cause the equity amount and/or amount of cash determined pursuant to Section 1 above, to be issued and paid at such time or times as it shall determine in its discretion.

-2-


5.	Annual Equity Compensation.

(a)

Annual Equity Compensation Pursuant to Section 1(a). Equity shall be issued for the ensuing year following the annual stockholder meeting, and (i) shall be issued pursuant to one of the Company’s long term equity incentive plans then in effect for the Company, (ii) shall be paid in the form of restricted stock units (RSUs) unless otherwise determined by the plan administrator or set forth in the award agreement, and (iii) shall vest approximately one (1) year following the date of grant; provided, however, that the vest date shall occur prior to the next annual stockholder meeting following the date of grant, unless otherwise determined by the plan administrator or set forth in the award agreement (the “Annual Director Vesting Date”). The RSUs shall be valued at the fair market value of the Common Stock as of the date of issuance. For example, if the annual grant value is $240,000, and the fair market value of the Common Stock on the date of grant is $30.00 per share, then RSUs underlying 8,000 shares of Common Stock would be issued to each Non-Employee Director.


(b)	Fractional Shares. To the extent that the payments made pursuant to Section 1 to a Non-Employee Director result in fractional shares of Common Stock being issuable to such Non-Employee Director, the number of shares will be rounded to the nearest whole share.

(c)

Pro-ration. Non-Employee Directors whose initial appointment to the Board occurs other than through election at an annual stockholder meeting will receive a pro-rated equity award which shall be granted following the appointment at a date determined by the plan administrator in its sole discretion. The vesting date for the pro-rated award shall be the Annual Director Vesting Date, unless otherwise determined by the plan administrator in its sole discretion. For example, a Non-Employee Director who is appointed to the Board four (4) months prior to the Annual Director Vesting Date would receive four-twelfths (4/12) of the annual equity award amount and the award would vest on the Annual Director Vesting Date.


6.	Cash Compensation. Non-Employee Directors shall receive the cash compensation under Sections 1(b) - (k) on a monthly basis, paid promptly following the applicable calendar month in which such compensation was earned.

-3-

Exhibit 31.1

CERTIFICATION PURSUANT TO RULE 13a-14(a) OR 15d-14(a)

OF THE SECURITIES EXCHANGE ACT OF 1934,

AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, William Taylor Rhodes, certify that:


1.	I have reviewed this quarterly report on Form 10-Q of Rackspace Hosting, Inc.;


2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


4.	The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:


a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


c)	Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


d)	Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected or is reasonably likely to materially affect the registrant's internal control over financial reporting; and


5.	The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):


a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and


b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.



Date:	May 11, 2015	By:	/s/ William Taylor Rhodes
			William Taylor Rhodes
			President and Chief Executive Officer
			(Principal Executive Officer)

Exhibit 31.2

CERTIFICATION PURSUANT TO RULE 13a-14(a) OR 15d-14(a)

OF THE SECURITIES EXCHANGE ACT OF 1934,

AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Karl Pichler, certify that:


1.	I have reviewed this quarterly report on Form 10-Q of Rackspace Hosting, Inc.;


2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


4.	The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:


a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


c)	Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


d)	Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected or is reasonably likely to materially affect the registrant's internal control over financial reporting; and


5.	The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):


a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and


b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.



Date:	May 11, 2015	By:	/s/ Karl Pichler
			Karl Pichler
			Chief Financial Officer and Treasurer
			(Principal Financial Officer)

Exhibit 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of Rackspace Hosting, Inc. for the quarterly period ended March 31, 2015 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), William Taylor Rhodes, as Principal Executive Officer of Rackspace Hosting, Inc., hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Rackspace Hosting, Inc.



Date:	May 11, 2015	By:	/s/ William Taylor Rhodes
			William Taylor Rhodes
			President and Chief Executive Officer
			(Principal Executive Officer)

Exhibit 32.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of Rackspace Hosting, Inc. for the quarterly period ended March 31, 2015 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Karl Pichler, as Principal Financial Officer of Rackspace Hosting, Inc., hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Rackspace Hosting, Inc.



Date:	May 11, 2015	By:	/s/ Karl Pichler
			Karl Pichler
			Chief Financial Officer and Treasurer
			(Principal Financial Officer)

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