Item 7.01. Regulation FD Disclosure
The information in this Item 7.01, including the information set forth in the slides filed as Exhibit 99.1 to, and incorporated in, this Current Report is being “furnished” and shall not be deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that Section. The information in this Item 7.01, including the information set forth in the slides filed as Exhibit 99.1 to, and incorporated in, this Current Report shall not be incorporated by reference into any registration statement or other document pursuant to the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing.
On May 9, 2016, we conducted a conference call to discuss our results for the first quarter of 2016. The slides that were discussed during that call are attached hereto as Exhibit 99.1. The slides were also posted on our website, www.rackspace.com.
Non-GAAP Financial Measures
The financial data contained in the presentation materials attached hereto as Exhibit 99.1 includes certain non-GAAP financial measures, including Adjusted EBITDA, revenue growth adjusted for foreign currency and asset divestiture, Return on Capital, Adjusted Free Cash Flow, and Non-GAAP EPS. We believe that those metrics may be useful to investors as a measure of comparative operating performance between time periods and among companies, however these measures should be considered only as a supplement to, and not as a substitute for or as a superior measure to, financial measures prepared in accordance with GAAP, nor should they be considered in isolation or as an alternative to such GAAP measures. In addition, we note that other companies may calculate similar non-GAAP measures differently, limiting their usefulness as a comparative measure.
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, non-cash charges for share-based compensation, and gain on sale.
We use revenue growth adjusted for foreign currency and asset divestiture as an additional metric for understanding and assessing our growth excluding the effect of foreign currency rate fluctuations on our international business operations and the impact of the sale of certain assets of a non-strategic product line. We also believe this is an important metric to help investors evaluate our performance in comparison to prior periods. The effect of foreign currency is calculated by translating current period results using the average exchange rate from the comparative period rather than the actual exchange rates in effect during the respective period. The effect of the asset divestiture is derived by reducing our net revenue by the amount of net revenue contributed by this product line in the periods being compared.
We believe that Return on Capital is an important metric for investors in evaluating our company's performance. Return on Capital measures how effectively a company generates profits from the capital that is deployed. We calculate Return on Capital by dividing net operating profit after tax by our average capital base.
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.
Non-GAAP Net Income and Non-GAAP EPS are used as supplemental measures to facilitate comparisons to peer companies. Non-GAAP Net Income is defined as net income excluding non-cash charges for share-based compensation and other items that may arise from time to time, net of the related tax benefits. Non-GAAP EPS is calculated using Non-GAAP Net Income divided by the weighted-average number of shares on both an unadjusted basis and as adjusted to give effect to dilutive securities.