RXT filing — read by section

Item 8. Financial Statements and Supplementary Data

ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 
 
 RACKSPACE TECHNOLOGY, INC. 
 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS 
 
 Report of Independent Registered Public Accounting Firm (PCAOB ID: 238 ) 
 85 
 
 Consolidated Balance Sheets 
 88 
 
 Consolidated Statements of Comprehensive Loss 
 89 
 
 Consolidated Statements of Cash Flows 
 90 
 
 Consolidated Statements of Stockholders' Equity 
 92 
 
 Notes to the Consolidated Financial Statements 
 93 
 
 - 84 - 

 Table of Contents 

 Report of Independent Registered Public Accounting Firm 
 
 To the Board of Directors and Stockholders of Rackspace Technology, Inc. 
 
 Opinions on the Financial Statements and Internal Control over Financial Reporting 
 
 We have audited the accompanying consolidated balance sheets of Rackspace Technology, Inc. and its subsidiaries (the “Company”) as of December 31, 2021 and 2020, and the related consolidated statements of comprehensive loss, of stockholders’ equity and of cash flows for each of the three years in the period ended December 31, 2021, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). 
 
 In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO. 
 
 Change in Accounting Principle 
 
 As discussed in Note 1 to the consolidated financial statements, the Company changed the manner in which it accounts for leases in 2019. 
 
 Basis for Opinions 
 
 The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. 
 
 We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects. 
 
 Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. 
 
 - 85 - 

 Table of Contents 

 Definition and Limitations of Internal Control over Financial Reporting 
 
 A company’s internal control over financial reporting is a process designed 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. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. 
 
 Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. 
 
 Critical Audit Matters 
 
 The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. 
 
 Goodwill Impairment Assessment - Multicloud Services Reporting Unit 
 
 As described in Notes 1 and 5 to the consolidated financial statements, the Company’s consolidated net goodwill balance was $2,706.8 million as of December 31, 2021, and the goodwill associated with the Multicloud Services reporting unit was $2,384.0 million. Goodwill represents the excess of the purchase price over the fair value of identifiable net assets of businesses acquired. Goodwill is tested for impairment at the reporting unit level. Management conducts impairment testing on an annual basis as of October 1st or more frequently if events or circumstances indicate a potential impairment. For the goodwill impairment test completed during the year ended December 31, 2021, management compared the fair values of each of the Company’s reporting units to their respective carrying amounts. Impairment is measured as the excess of a reporting unit’s carrying amount over its fair value, not to exceed the carrying amount of goodwill for that reporting unit. Management estimates the fair value of the reporting units using the income approach, specifically the discounted cash flow method. This requires the use of significant estimates and assumptions, including estimation of future revenues and projected margins, estimation of the terminal growth rates and capital spending, and determination of discount rates. 
 
 The principal considerations for our determination that performing procedures relating to the goodwill impairment assessment of the Multicloud Services reporting unit is a critical audit matter are (i) the significant judgment by management when developing the fair value of the reporting unit; (ii) a high degree of auditor judgment, subjectivity, and effort in performing audit procedures and evaluating management’s significant assumptions related to the estimation of future revenues and projected margins; and (iii) the audit effort involved the use of professionals with specialized skill and knowledge. 
 
 - 86 - 

 Table of Contents 

 Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s goodwill impairment assessment, including controls over the valuation of the Multicloud Services reporting unit. These procedures also included, among others, (i) testing management’s process for developing the fair value estimate of the Multicloud Services reporting unit, (ii) evaluating the appropriateness of the discounted cash flow method, (iii) testing the completeness and accuracy of underlying data used in the method, and (iv) evaluating the significant assumptions used by management related to the estimation of future revenues and projected margins. Evaluating management’s assumptions related to the estimation of future revenues and projected margins involved evaluating whether the assumptions used by management were reasonable considering (i) the current and past performance of the reporting unit; (ii) the consistency with external market and industry data; and (iii) whether these assumptions were consistent with evidence obtained in other areas of the audit. Professionals with specialized skill and knowledge were used to assist in the evaluation of the Company’s discounted cash flow method and the estimation of future revenues and projected margins assumptions. 
 
 /s/ PricewaterhouseCoopers LLP 
 Austin, Texas 
 March 1, 2022 
 
 We have served as the Company’s auditor since 2017. 
 - 87 - 

 Table of Contents 

 RACKSPACE TECHNOLOGY, INC. 
 CONSOLIDATED BALANCE SHEETS 
 
 (In millions, except per share data) December 31,
2020 December 31,
2021 
 ASSETS 
 Current assets: 
 Cash and cash equivalents $ 104.7 $ 272.8 
 Accounts receivable, net of allowance for doubtful accounts and accrued customer credits of $ 28.3 and $ 18.4 , respectively 
 483.0 554.3 
 Prepaid expenses 123.8 110.0 
 Other current assets 47.0 52.4 
 Total current assets 758.5 989.5 
 
 Property, equipment and software, net 884.6 826.7 
 Goodwill, net 2,761.1 2,706.8 
 Intangible assets, net 1,646.3 1,466.5 
 Operating right-of-use assets 171.1 161.8 
 Other non-current assets 156.2 177.4 
 Total assets $ 6,377.8 $ 6,328.7 
 
 LIABILITIES AND STOCKHOLDERS' EQUITY 
 Current liabilities: 
 Accounts payable and accrued expenses $ 285.4 $ 369.5 
 Accrued compensation and benefits 110.6 104.5 
 Deferred revenue 76.7 98.6 
 Debt 43.4 23.0 
 Accrued interest 26.5 27.6 
 Operating lease liabilities 62.2 60.4 
 Finance lease liabilities 40.7 64.6 
 Financing obligations 48.8 48.0 
 Other current liabilities 47.9 41.2 
 Total current liabilities 742.2 837.4 
 
 Non-current liabilities: 
 Debt 3,319.3 3,310.9 
 Operating lease liabilities 118.2 114.8 
 Finance lease liabilities 358.1 345.1 
 Financing obligations 74.1 62.9 
 Deferred income taxes 236.7 205.8 
 Other non-current liabilities 145.5 124.4 
 Total liabilities 4,994.1 5,001.3 
 
 Commitments and Contingencies (Note 10) 
 
 Stockholders' equity: 
 Preferred stock, $ 0.01 par value per share: 5.0 shares authorized; no shares issued or outstanding 
 — — 
 Common stock, $ 0.01 par value per share: 1,495.0 shares authorized; 201.8 and 211.2 shares issued and outstanding, respectively 
 2.0 2.1 
 Additional paid-in capital 2,363.6 2,500.0 
 Accumulated other comprehensive income (loss) ( 18.6 ) 6.9 
 Accumulated deficit ( 963.3 ) ( 1,181.6 ) 
 Total stockholders' equity 1,383.7 1,327.4 
 Total liabilities and stockholders' equity $ 6,377.8 $ 6,328.7 

 See accompanying notes to the consolidated financial statements. 
 - 88 - 

 Table of Contents 

 RACKSPACE TECHNOLOGY, INC. 
 CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS 
 
 Year Ended December 31, 
 (In millions, except per share data) 2019 2020 2021 
 Revenue $ 2,438.1 $ 2,707.1 $ 3,009.5 
 Cost of revenue ( 1,426.9 ) ( 1,722.7 ) ( 2,072.7 ) 
 Gross profit 1,011.2 984.4 936.8 
 Selling, general and administrative expenses ( 911.7 ) ( 959.7 ) ( 906.8 ) 
 Impairment of goodwill — — ( 52.4 ) 
 Gain on divestiture 2.1 — — 
 Gain on sale of land — — 19.9 
 Income (loss) from operations 101.6 24.7 ( 2.5 ) 
 Other income (expense): 
 Interest expense ( 329.9 ) ( 268.4 ) ( 205.1 ) 
 Gain (loss) on investments, net 99.5 0.7 ( 3.0 ) 
 Debt modification costs and extinguishment gain (loss) 9.8 ( 71.5 ) ( 37.5 ) 
 Other income (expense), net ( 3.3 ) 2.5 ( 1.0 ) 
 Total other income (expense) ( 223.9 ) ( 336.7 ) ( 246.6 ) 
 Loss before income taxes ( 122.3 ) ( 312.0 ) ( 249.1 ) 
 Benefit for income taxes 20.0 66.2 30.8 
 Net loss $ ( 102.3 ) $ ( 245.8 ) $ ( 218.3 ) 
 
 Other comprehensive income (loss), net of tax 
 Foreign currency translation adjustments $ 12.0 $ 8.8 $ ( 3.6 ) 
 Unrealized gain (loss) on derivative contracts — ( 47.6 ) 11.5 
 Amount reclassified from accumulated other comprehensive income (loss) to earnings — 8.2 17.6 
 Other comprehensive income (loss) 12.0 ( 30.6 ) 25.5 
 Comprehensive loss $ ( 90.3 ) $ ( 276.4 ) $ ( 192.8 ) 
 
 Net loss per share: 
 Basic and diluted $ ( 0.62 ) $ ( 1.37 ) $ ( 1.05 ) 
 
 Weighted average number of shares outstanding: 
 Basic and diluted 165.3 179.6 208.0 
 
 See accompanying notes to the consolidated financial statements. 
 - 89 - 

 Table of Contents 

 RACKSPACE TECHNOLOGY, INC. 
 CONSOLIDATED STATEMENTS OF CASH FLOWS 
 
 Year Ended December 31, 
 (In millions) 2019 2020 2021 
 Cash Flows From Operating Activities 
 Net loss $ ( 102.3 ) $ ( 245.8 ) $ ( 218.3 ) 
 Adjustments to reconcile net loss to net cash provided by operating activities: 
 Depreciation and amortization 496.0 466.2 424.8 
 Amortization of operating right-of-use assets 70.5 70.7 65.9 
 Deferred income taxes ( 40.7 ) ( 73.6 ) ( 41.5 ) 
 Share-based compensation expense 30.2 74.5 75.4 
 Impairment of goodwill — — 52.4 
 Gain on divestiture ( 2.1 ) — — 
 Gain on sale of land — — ( 19.9 ) 
 Debt modification costs and extinguishment (gain) loss ( 9.8 ) 71.5 37.5 
 Unrealized (gain) loss on derivative contracts 54.0 ( 2.3 ) 16.8 
 (Gain) loss on investments, net ( 99.5 ) ( 0.7 ) 3.0 
 Provision for bad debts and accrued customer credits 17.8 24.7 ( 2.0 ) 
 Amortization of debt issuance costs and debt discount 18.3 18.0 8.8 
 Other operating activities ( 0.4 ) ( 1.4 ) ( 2.1 ) 
 Changes in operating assets and liabilities, net of effects of acquisitions: 
 Accounts receivable ( 42.2 ) ( 156.0 ) ( 69.5 ) 
 Prepaid expenses and other current assets ( 10.2 ) ( 58.0 ) 9.5 
 Accounts payable, accrued expenses, and other current liabilities ( 32.7 ) ( 7.4 ) 88.1 
 Deferred revenue 11.6 9.9 21.6 
 Operating lease liabilities ( 78.1 ) ( 58.0 ) ( 61.4 ) 
 Other non-current assets and liabilities 12.5 ( 15.6 ) ( 18.3 ) 
 Net cash provided by operating activities 292.9 116.7 370.8 
 Cash Flows From Investing Activities 
 Purchases of property, equipment and software ( 198.0 ) ( 116.5 ) ( 108.4 ) 
 Acquisitions, net of cash acquired ( 316.1 ) ( 9.5 ) — 
 Proceeds from sale of land — — 31.3 
 Proceeds from divestiture 16.8 — — 
 Proceeds from sales of investments 109.5 0.9 — 
 Other investing activities 1.3 ( 3.3 ) 8.1 
 Net cash used in investing activities ( 386.5 ) ( 128.4 ) ( 69.0 ) 
 Cash Flows From Financing Activities 
 Proceeds from issuance of common stock, net — 657.8 — 
 Proceeds from employee stock plans — 31.1 61.1 
 Shares of common stock withheld for employee taxes ( 1.1 ) ( 2.1 ) — 
 Repurchase of common stock ( 2.2 ) — — 
 Cash settlement of share-based awards ( 1.5 ) — — 
 Proceeds from borrowings under long-term debt arrangements 225.0 860.0 2,838.5 
 Payments on long-term debt ( 320.0 ) ( 1,450.6 ) ( 2,877.9 ) 
 Payments for debt issuance costs — ( 8.8 ) ( 34.5 ) 
 Payments on financing component of interest rate swap — — ( 12.9 ) 
 
 Principal payments of finance lease liabilities ( 19.9 ) ( 24.0 ) ( 50.6 ) 
 Proceeds from financing obligations 62.6 20.9 — 
 Principal payments of financing obligations ( 22.1 ) ( 54.4 ) ( 55.9 ) 
 Net cash provided by (used in) financing activities ( 79.2 ) 29.9 ( 132.2 ) 
 Effect of exchange rate changes on cash, cash equivalents, and restricted cash 1.7 2.8 ( 2.3 ) 
 Increase (decrease) in cash, cash equivalents, and restricted cash ( 171.1 ) 21.0 167.3 
 Cash, cash equivalents, and restricted cash at beginning of period 258.2 87.1 108.1 
 Cash, cash equivalents, and restricted cash at end of period $ 87.1 $ 108.1 $ 275.4 
 
 - 90 - 

 Table of Contents 

 Supplemental Cash Flow Information 
 Cash payments for interest, net of amount capitalized $ 265.3 $ 262.8 $ 178.5 
 Cash payments for income taxes, net of refunds $ 7.2 $ 15.6 $ 5.5 
 
 Non-cash Investing and Financing Activities 
 
 Acquisition of property, equipment and software by finance leases $ 12.6 $ 93.7 $ 60.4 
 Acquisition of property, equipment and software by financing obligations 3.1 27.8 44.7 
 Decrease in property, equipment and software accrued in liabilities ( 4.0 ) ( 13.4 ) ( 10.6 ) 
 Non-cash purchases of property, equipment and software $ 11.7 $ 108.1 $ 94.5 
 
 Non-cash increase in buildings within property, equipment and software, net due to lease modification $ — $ 220.3 $ — 
 Debt issuance costs included in accrued liabilities $ — $ 0.6 $ — 
 Other non-cash investing and financing activities $ 1.2 $ 2.3 $ — 

 The following table provides a reconciliation of cash, cash equivalents, and restricted cash to the total of such amounts shown on the Consolidated Statements of Cash Flows. 
 
 Year Ended December 31, 
 (In millions) 2019 2020 2021 
 Cash and cash equivalents $ 83.8 $ 104.7 $ 272.8 
 Restricted cash included in other non-current assets 3.3 3.4 2.6 
 Total cash, cash equivalents, and restricted cash shown in the statement of cash flows $ 87.1 $ 108.1 $ 275.4 

 See accompanying notes to the consolidated financial statements. 
 - 91 - 

 Table of Contents 

 RACKSPACE TECHNOLOGY, INC. 
 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY 
 
 (In millions) Common Stock Additional Paid-In Capital Accumulated Other Comprehensive Income (Loss) Accumulated Deficit Total Stockholders' Equity 
 Shares Amount 
 Balance at December 31, 2018 165.2 $ 1.6 $ 1,577.3 $ — $ ( 671.1 ) $ 907.8 
 Cumulative effect of adopting ASC 842 — — — — 55.9 55.9 
 Exercise of stock options and release of stock awards, net of shares withheld 0.4 — ( 1.1 ) — — ( 1.1 ) 
 Repurchase of common stock ( 0.2 ) — ( 2.2 ) — — ( 2.2 ) 
 Cash settlement of share-based awards — — ( 1.5 ) — — ( 1.5 ) 
 Share-based compensation expense — — 30.2 — — 30.2 
 Net loss — — — — ( 102.3 ) ( 102.3 ) 
 Other comprehensive income — — — 12.0 — 12.0 
 Balance at December 31, 2019 165.4 $ 1.6 $ 1,602.7 $ 12.0 $ ( 717.5 ) $ 898.8 
 Issuance of common stock 33.5 0.4 657.4 — — 657.8 
 Exercise of stock options and release of stock awards, net of shares withheld 2.5 — 23.4 — — 23.4 
 Issuance of shares from Employee Stock Purchase Plan 0.4 — 5.6 — — 5.6 
 Share-based compensation expense — — 74.5 — — 74.5 
 Net loss — — — — ( 245.8 ) ( 245.8 ) 
 Other comprehensive loss — — — ( 30.6 ) — ( 30.6 ) 
 Balance at December 31, 2020 201.8 $ 2.0 $ 2,363.6 $ ( 18.6 ) $ ( 963.3 ) $ 1,383.7 
 Issuance of common stock 2.7 — — — — — 
 Exercise of stock options and release of stock awards 6.0 0.1 50.7 — — 50.8 
 Issuance of shares from Employee Stock Purchase Plan 0.7 — 10.3 — — 10.3 
 Share-based compensation expense — — 75.4 — — 75.4 
 Net loss — — — — ( 218.3 ) ( 218.3 ) 
 Other comprehensive income — — — 25.5 — 25.5 
 Balance at December 31, 2021 211.2 $ 2.1 $ 2,500.0 $ 6.9 $ ( 1,181.6 ) $ 1,327.4 

 See accompanying notes to the consolidated financial statements. 
 - 92 - 

 Table of Contents 

 RACKSPACE TECHNOLOGY, INC. 
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 
 
 1. Company Overview, Basis of Presentation, and Summary of Significant Accounting Policies 
 
 Nature of Operations and Basis of Presentation 
 
 Rackspace Technology is a Delaware corporation controlled by investment funds affiliated with Apollo. Rackspace Technology was formed on July 21, 2016 but had no assets, liabilities or operating results until November 3, 2016 when Rackspace Hosting (now named Rackspace Technology Global), a global provider of modern information technology-as-a-service, was acquired by Inception Parent, a wholly-owned entity indirectly owned by Rackspace Technology. 
 
 Rackspace Technology Global commenced operations in 1998 as a limited partnership, and was incorporated in Delaware in March 2000. Rackspace Technology serves as the holding company for Rackspace Technology Global and does not engage in any material business or operations other than those related to its indirect ownership of the capital stock of Rackspace Technology Global and its subsidiaries or business or operations otherwise customarily undertaken by a holding company. 
 
 For ease of reference, the terms "we," "our company," "the company," "us," or "our" as used in this report refer to Rackspace Technology and its consolidated subsidiaries. 
 
 On July 20, 2020, the board of directors of the company approved and effected a twelve -for-one stock split of the company’s common stock. All common stock share and per-share data, excluding par value per share, included in the accompanying consolidated financial statements give effect to this split and have been adjusted retroactively for all periods presented. 
 
 On August 7, 2020, we completed the IPO, in which we issued and sold 33,500,000 shares of our common stock at a public offering price of $ 21.00 per share. 
 
 The accompanying consolidated financial statements include the accounts of Rackspace Technology and our wholly-owned subsidiaries. Intercompany transactions and balances have been eliminated in consolidation. 
 
 Use of Estimates 
 
 The preparation of consolidated financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenue and expenses, and related disclosures of contingent assets and liabilities in the consolidated financial statements and accompanying notes. On an ongoing basis, we evaluate our estimates, including those related to the allowance for doubtful accounts, useful lives of property, equipment and software, software capitalization, incremental borrowing rates for lease liability measurement, fair values of intangible assets and reporting units, useful lives of intangible assets, share-based compensation, contingencies, and income taxes, among others. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results could differ from our estimates. 
 
 Impact of COVID-19 
 
 In March 2020, the World Health Organization declared COVID-19 a global pandemic. The effects of COVID-19 (and any variations thereof) continue to evolve, and the full impact and duration of the virus are unknown. Currently, COVID-19 has not had a significant impact on our operations or financial performance; however, the ultimate extent of the impact of COVID-19 on our operational and financial performance will depend on certain developments, including the duration and spread of the outbreak, the pace of economic recovery, the possible resurgence in the spread of the virus and any variant strain(s) of the virus, advances in testing, treatment, and prevention, including the efficacy and availability of vaccines, its impact on our customers, vendors and employees and its impact on our sales cycles as well as industry events, all of which are uncertain and cannot be predicted. We continue to face a greater degree of uncertainty in making estimates and assumptions needed to prepare our consolidated financial statements and footnotes as a result of COVID-19. 
 - 93 - 

 Table of Contents 

 Cash, Cash Equivalents, and Restricted Cash 
 
 Our cash is comprised of bank deposits, overnight sweep accounts and money market funds and is held with high-credit quality U.S. and foreign financial institutions. We consider all highly liquid investments, such as money market funds, with original maturities of three months or less when acquired to be cash equivalents. 
 
 Restricted cash, included in "Other non-current assets" in our Consolidated Balance Sheets, represents collateral for letters of credit. Restricted cash was $ 3.4 million and $ 2.6 million as of December 31, 2020 and 2021, respectively. 
 
 Property, Equipment and Software and Definite-Lived Intangible Assets 
 
 Property, equipment and software is stated at cost, net of accumulated depreciation and amortization. Included in property, equipment and software are capitalized costs related to computer software developed or acquired for internal use. Capitalized computer software costs consist of purchased software licenses, implementation costs, and salaries and related compensation costs of employees and consultants for certain projects that qualify for capitalization. For cloud computing arrangements that include a software license, the software license element of the arrangement is accounted for in a manner consistent with the acquisition of other software licenses. For cloud computing arrangements that do not include a software license, the arrangement is accounted for as a service contract and is expensed as the services are provided. 
 
 Replacements and major improvements to property, equipment and software are capitalized, while maintenance and repairs are charged to expense as incurred. We also capitalize interest costs incurred during the acquisition, development and construction of certain assets until the asset is ready for its intended use. We capitalized interest of $ 1.2 million, $ 0.8 million and $ 0.6 million for the years ended December 31, 2019, 2020 and 2021, respectively. 
 
 Property, equipment and software is depreciated on a straight-line basis over the estimated useful life of the asset. Leasehold improvements are depreciated over the shorter of their estimated useful lives or the remaining lease term. Depreciation expense is recorded within "Cost of revenue" and "Selling, general and administrative expenses" on our Consolidated Statements of Comprehensive Loss. 
 
 The following table shows the estimated useful lives used for property, equipment and software: 
 
 Classification Estimated Useful Lives 
 Computers and equipment 3 to 5 years 
 
 Software 3 years 
 
 Furniture and fixtures 7 years 
 
 Buildings and leasehold improvements 2 to 39 years 
 
 In March 2021, we completed an assessment of the useful lives of certain assets within the Computers and equipment asset class. The timing of this review was based on a combination of factors accumulating over time that provided the company with updated information to make a better estimate on the economic lives of certain property and equipment. These factors included changes in customer purchasing patterns, technological advancements and the availability of extended equipment warranties. The assessment resulted in a revision within our policy ranges for certain useful lives in this asset class. This change in accounting estimate was effective in the first quarter of 2021. The effect of this change was a reduction in depreciation expense of $ 23.3 million for the year ended December 31, 2021. 
 
 The cost of assets and related accumulated depreciation and amortization are written off upon retirement or disposal and any resulting gain or loss is credited or charged to income or expense. 
 
 Definite-lived intangible assets are primarily comprised of customer relationships and are stated at their acquisition date fair value less accumulated amortization. Definite-lived intangible assets are amortized using the straight-line method over their estimated useful lives as this method best approximates the economic benefit derived from such assets. Amortization expense is recorded within "Selling, general and administrative expenses" on our Consolidated Statements of Comprehensive Loss. See Note 16, "Acquisitions" for information on the useful lives of recently acquired definite-lived intangible assets. 
 
 - 94 - 

 Table of Contents 

 Long-lived assets, including operating and finance lease assets (see "Leases" below for more information) are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets is measured at the asset group level. If the carrying amount of an asset group exceeds its estimated undiscounted future cash flows, then an impairment charge is recognized in the amount that an asset group’s carrying amount exceeds its fair value. 
 
 Goodwill and Indefinite-Lived Intangible Assets 
 
 Goodwill represents the excess of the purchase price over the fair value of identifiable net assets of businesses acquired. Our indefinite-lived intangible asset consists of our Rackspace trade name, which was recorded at fair value on our balance sheet at the date of the Rackspace Acquisition. Goodwill and indefinite-lived intangible assets are not amortized but are subject to impairment testing on an annual basis as of October 1st or more frequently if events or circumstances indicate a potential impairment. These events or circumstances could include a significant change in the business climate, regulatory environment, established business plans, operating performance indicators or competition. 
 
 Goodwill is tested for impairment at the reporting unit level. A reporting unit is an operating segment or one level below an operating segment (referred to as a component). We allocate goodwill to reporting units based on the reporting unit expected to benefit from the business combination. Assets and liabilities are assigned to each of our reporting units if they are employed by a reporting unit and are considered in the determination of the reporting unit fair value. Certain assets and liabilities are shared by multiple reporting units, and thus, are allocated to each reporting unit based on the relative size of a reporting unit, primarily based on revenue. We have three reporting units: Multicloud Services, Apps & Cross Platform, and OpenStack Public Cloud. 
 
 For the goodwill impairment tests completed during the years ended December 31, 2019, 2020 and 2021, we compared the fair values of each of our reporting units to their respective carrying amounts. The fair values of each of our reporting units were derived using the income approach, specifically the discounted cash flow method. As part of the goodwill impairment test, we also consider our market capitalization in assessing the reasonableness of the combined fair values estimated for our reporting units. Goodwill impairment is measured as the excess of a reporting unit’s carrying amount over its fair value, not to exceed the carrying amount of goodwill for that reporting unit. 
 
 The results of our goodwill impairment test for the year ended December 31, 2021 indicated an impairment of goodwill within our OpenStack Public Cloud reporting unit, and we recorded a charge of $ 52.4 million within "Impairment of goodwill" in our Consolidated Statements of Comprehensive Loss. See Note 5, "Goodwill and Intangible Assets" for more information. The results of our goodwill impairment tests for the years ended December 31, 2019 and 2020 did no t indicate any impairments of goodwill. 
 
 In evaluating the recoverability of the Rackspace trade name, we compare the fair value of the asset to its carrying amount to determine potential impairment. Our estimate of the fair value of the Rackspace trade name is derived using the income approach, specifically the relief-from-royalty method. The results of our indefinite-lived asset impairment tests for the years ended December 31, 2019, 2020 and 2021 did not indicate any impairments of the Rackspace trade name. 
 
 The evaluation of goodwill and other indefinite-lived intangible assets for impairment is judgmental in nature and requires the use of significant estimates and assumptions, including estimation of the royalty rate, estimation of future revenue and projected margins, which are dependent on internal cash flow forecasts, estimation of the terminal growth rates and capital spending, and determination of discount rates. The discount rates used are based on our weighted average cost of capital and are adjusted for risks and uncertainties inherent in our business and in our estimation of future cash flows. The estimates and assumptions used to calculate the fair value of our reporting units and the Rackspace trade name from year to year are based on operating results, market conditions, and other factors. Changes in these estimates and assumptions could produce materially different results. 
 
 - 95 - 

 Table of Contents 

 Business Combinations 
 
 Mergers and acquisitions are accounted for using the acquisition method, in accordance with accounting guidance for business combinations. Under the acquisition method, we allocate the fair value of purchase consideration to the tangible and intangible assets ("identifiable assets") acquired and liabilities assumed based on their estimated fair values. The excess of the fair value of purchase consideration over the fair values of the identifiable assets and liabilities is recorded as goodwill. When determining the fair values of identifiable assets acquired and liabilities assumed, including contingent consideration when applicable, we make significant estimates and assumptions based on historical data, estimated discounted future cash flows, expected royalty rates for trade names, as well as certain other information. During the measurement period, which may be up to one year from the acquisition date, we may record adjustments to the fair value of identifiable assets acquired and liabilities assumed, with the corresponding offset to goodwill. 
 
 Investments 
 
 We have equity investments in entities in which we do not exercise significant influence. Investments in equity securities with readily determinable fair values are measured at fair value with changes in fair value recognized in net loss. Investments in equity securities that do not have readily determinable fair values are measured at cost less any impairments, adjusted for observable pricing changes in orderly transactions for identical or similar investments of the same issuer. We perform a qualitative assessment on these investments at each reporting period to determine whether any indicators of impairment exist. If an impairment exists, we recognize an impairment charge equal to the amount by which the carrying value exceeds the fair value of the investment. 
 
 Leases 
 
 On January 1, 2019, we adopted ASC 842 using the modified retrospective method, with the cumulative-effect adjustment recorded to the opening balance of retained earnings as of the January 1, 2019 adoption date. We also elected the transition option under ASC 842 whereby prior periods have not been retrospectively adjusted in the consolidated financial statements. 
 
 We determine if an arrangement is or contains a lease at inception. This determination depends on whether the arrangement conveys to us the right to control the use of an explicitly or implicitly identified asset for a period of time in exchange for consideration. Control of an underlying asset is conveyed to us if we obtain the rights to direct the use of and to obtain substantially all of the economic benefits from using the underlying asset. 
 
 We classify leases with contractual terms greater than 12 months as either operating or finance. Finance leases are generally those leases that allow us to substantially utilize an asset over its estimated life. Our finance leases primarily consist of equipment and certain data center facilities. All other leases are categorized as operating leases, which primarily consist of certain data centers and office space. Our leases generally have terms ranging from 1 to 20 years for data centers, 3 to 5 years for equipment and 1 to 8 years for office space. 
 
 Lease liabilities are recognized based on the present value of lease payments, reduced by lease incentives, at the lease commencement date. We use an incremental borrowing rate to determine the present value of lease payments as the interest rate implicit in most of our leases is not readily determinable. Our incremental borrowing rate is the rate of interest that we would have to pay to borrow an amount equal to the lease payments, on a collateralized basis and in a similar economic environment over a similar term. The rate is dependent on several factors, including the lease term, currency of the lease payments and the company’s credit rating. Operating and finance lease liabilities are recorded in our Consolidated Balance Sheets as current and non-current liabilities. 
 
 Lease assets are recognized based on the related lease liabilities, plus any prepaid lease payments and initial direct costs from executing the leasing arrangement. Operating and finance lease assets are included in "Operating right-of-use assets" and "Property, equipment and software, net," respectively, in our Consolidated Balance Sheets. 
 
 Our lease terms include the base, non-cancelable lease term, and any options to extend or terminate the lease when it is reasonably certain at commencement that we will exercise such options. Some of our data center and office space leases contain such extension and termination options. We will remeasure our lease liability and adjust the related right-of-use asset upon the occurrence of the following: lease modifications not accounted for as a separate contract; a triggering event that changes the certainty of the lessee exercising an option to renew or terminate the lease, or purchase the underlying asset; or the resolution of a contingency upon which any variable lease payments are based such that those payments become fixed. 
 - 96 - 

 Table of Contents 

 Operating lease expense is recognized on a straight-line basis over the lease term. Finance lease assets are amortized on a straight-line basis over the shorter of the estimated useful lives of the assets or the lease term. The interest component of a finance lease is included in "Interest expense" and recognized using the effective interest method over the lease term. Leases with terms of less than 12 months at commencement are expensed on a straight-line basis over the lease term in accordance with the short-term lease practical expedient under ASC 842. We have also elected the practical expedient under ASC 842 to not separate lease and non-lease components within a leasing arrangement. Non-lease components primarily include payments for maintenance and utilities. We have elected to apply both of these practical expedients to all classes of underlying assets. 
 
 Variable payments related to a lease are expensed as incurred. These costs often relate to payments for a proportionate share of real estate taxes, insurance, common area maintenance, and other operating costs in addition to base rent. 
 
 We lease certain data center facilities that are build-to-suit arrangements, for which construction had been completed prior to or was in process upon the adoption of ASC 842, effective January 1, 2019. For purposes of applying ASC 842’s transition provisions, we elected to first assess lease classification for each applicable build-to-suit lease arrangement at lease inception under previous lease accounting guidance ("ASC 840"), and then apply ASC 842’s transition provisions based on those assessments. We derecognized the assets and liabilities associated with these arrangements for transitional purposes and recognized lease assets and lease liabilities for either operating or finance leases corresponding to the operating or capital lease classification designations determined in our ASC 840 reassessments. In addition, we lease certain properties that were deemed failed sale-leasebacks under ASC 840. We continue to account for these arrangements as failed sale-leasebacks under ASC 842. Refer to the "Financing Obligations" section below for further discussion. 
 
 We are the intermediate lessor in certain sublease arrangements and account for both the head lease and the associated sublease as separate operating leases. We offset rental income against head lease operating costs within "Cost of revenue" or "Selling, general and administrative expenses," depending on whether the head lease is a data center or office space lease. 
 
 We are deemed a lessor in certain hosting arrangements where our equipment is located in a customer’s data center. We account for these arrangements as either sales-type or direct finance leases. 
 
 Debt Issuance Costs 
 
 Debt issuance costs such as underwriting, financial advisory, professional fees and other similar fees are deferred and recognized in interest expense over the estimated life of the related debt instrument using the effective interest method or the straight-line method, as applicable. Debt issuance costs related to our debt instruments are classified as a direct deduction from the carrying value of the long-term debt liability or as an asset within "Other non-current assets" on the Consolidated Balance Sheets. 
 
 Financing Obligations 
 
 From time to time, we enter into installment payment arrangements with certain equipment and software vendors. These arrangements are generally non-interest bearing, and require the calculation of an imputed interest rate. 
 
 We also may enter into sale-leaseback arrangements for certain equipment in which we sell the assets to a third party and concurrently lease the assets back for a specified term. These arrangements generally do not qualify as asset sales because they include a purchase option that we are reasonably certain to exercise and therefore they are accounted for as failed sale-leasebacks. In addition, we lease properties that were deemed failed sale-leasebacks upon the adoption of ASC 842 due to options to purchase the underlying assets at an exercise price that is not at fair value or due to the present value of the future minimum lease payments exceeding the fair value of the underlying assets. 
 
 See Note 9, "Financing Obligations" for disclosure of future minimum payments under vendor financing and failed sale-leaseback arrangements. 
 
 - 97 - 

 Table of Contents 

 Restructuring Activities 
 
 We record restructuring activities including costs for one-time termination benefits in accordance with ASC 420 . The timing of recognition for severance costs accounted for under ASC 420 depends on whether employees are required to render service until they are terminated in order to receive the termination benefits. If employees are required to render service until they are terminated in order to receive the termination benefits, a liability is recognized ratably over the future service period. Otherwise, a liability is recognized when management has committed to a restructuring plan and has communicated those actions to employees. 
 
 Under ASC 420-10, we establish a liability for a cost associated with an exit or disposal activity, including severance and non-lease contract termination obligations, and other related costs, when the liability is incurred, rather than at the date that we commit to an exit plan. We reassess the expected cost to complete the exit or disposal activities at the end of each reporting period and adjust our remaining estimated liabilities, if necessary. 
 
 See Note 11, "July 2021 Restructuring Plan," for additional information. 
 
 Revenue Recognition 
 
 All of our revenue is from contracts with customers. We account for a contract when it has approval and commitment from all parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable. We provide cloud computing to customers, which is broadly defined as the delivery of computing, storage and applications over the Internet. Cloud computing is a service transaction under which the services we provide vary on a daily basis. The totality of services provided represent a single integrated solution tailored to the customer’s specific needs. As such, our performance obligations to our customers consist of a single integrated solution delivered as a series of distinct daily services. We recognize revenue on a daily basis as services are provided in an amount that reflects the consideration to which we expect to be entitled in exchange for the services. Our usage-based arrangements generally include variable consideration components consisting of monthly utility fees with a defined price and undefined quantity. Additionally, our contracts contain service level guarantees that provide discounts when we fail to meet specific obligations and certain services may include volume discounts based on usage. As these variable consideration components consist of a single distinct daily service provided on a single performance obligation, we account for this consideration as services are provided and earned. In accordance with the series guidance within ASC 606, regarding modification to a single performance obligation, when contracts are modified to add, remove or change existing services, the modification will only affect the accounting for the remaining distinct goods and services provided. As such, our contract modifications are accounted for prospectively. 
 
 Our largest source of revenue relates to fees associated with certain arrangements within our Multicloud Services offerings that generally have a fixed term usually not exceeding 36 months with a monthly recurring fee based on the computing resources utilized and provided to the customer, the complexity of the underlying infrastructure, and the level of support we provide. Customers generally have the right to cancel their contracts by providing prior written notice to us of their intent to cancel the remainder of the contract term. Many of our contracts require our customers to pay early termination fees in the event they cancel a contract prior to the end of its term, typically amounting to the outstanding value of the contract. These fees are recognized as revenue in the period of contract termination as we have no further obligation to perform. 
 
 Our other primary sources of revenue are for public cloud services within our Multicloud Services offering, and our OpenStack Public Cloud and Apps & Cross Platform offerings. Customers are generally invoiced monthly based on usage. Contracts for these arrangements typically operate on a consumption model and can be canceled at any time without penalty. We also provide customers with professional services for the design and implementation of application, security and data services. Professional service contracts are either fixed-fee or time-and-materials based. We typically consider these services to be a separate performance obligation from other integrated solutions being provided to the same customer. Our performance obligations under these arrangements are typically to provide the services on a daily basis over a period of time and therefore we recognize revenue as the services are performed. 
 
 We also offer customers the flexibility to select the best combination of offerings in order to meet the requirements of their unique applications and provide the technology to seamlessly operate and manage multiple cloud computing environments. Judgment is required in assessing whether a service is distinct, including determination of whether the customer could benefit from the service on its own or in conjunction with other readily available resources and whether certain services are highly integrated into a bundle of services that represent the combined output specified by the customer. 
 - 98 - 

 Table of Contents 

 Arrangements can contain multiple performance obligations that are distinct, which are accounted for separately. Each performance obligation is recognized as services are provided based on their SSP. Judgment is required to determine the SSP for each of our distinct performance obligations. We utilize a range of prices when developing our estimates of SSP. 
 
 Revenue recognition for revenue generated from arrangements in which we resell third party infrastructure bundled with our managed services, requires judgment to determine whether revenue can be recorded at the gross sales price or net of third party fees. Typically, revenue is recognized on a gross basis when it is determined that we are the principal in the relationship. We are considered the principal in the relationship when we are primarily responsible for fulfilling the contract and obtain control of the third party infrastructure before transferring it as an integral part of our performance obligation to provide services to the customer. Revenue is recognized net of third party fees when we determine that our obligation is only to facilitate the customers’ purchase of third party infrastructure. 
 
 Revenue is reported net of customer credits and sales and use tax. 
 
 Contract Balances 
 
 Timing of revenue recognition may differ from the timing of invoicing to customers. Invoiced amounts and accrued unbilled usage are recorded in accounts receivable and either deferred revenue or revenue. 
 
 Trade accounts receivable are recorded at the invoiced amount and generally do not bear interest. Our accounts receivable balance also includes unbilled amounts representing revenue recorded for usage-based services provided in the period but which are invoiced in arrears. We record an allowance for doubtful accounts for estimated losses resulting from uncollectible receivables. When evaluating the adequacy of the allowance, we consider historical bad debt write-offs and all known facts and circumstances such as current economic conditions and trends, customer creditworthiness, and specifically identified customer risks. 
 
 Our arrangements contain service level commitments with our customers. To the extent that such service levels are not achieved or are otherwise disputed, we are required to issue service credits for a portion of the service fees paid by our customers. At each reporting period, we accrue for credits which are due to customers, but not yet issued. 
 
 We recognize revenue for certain fixed term contracts in which services are provided in advance of the first invoice. This revenue is recognized as a contract asset, separate from accounts receivable. A contract liability, presented as deferred revenue on our Consolidated Balance Sheets, is recognized when services are invoiced prior to being provided. 
 
 Cost Incurred to Obtain and Fulfill a Contract 
 
 We recognize assets for the incremental costs to obtain and fulfill a contract with a customer. Costs to obtain a contract include sales commissions on the initial contract while costs to fulfill a contract include implementation and set-up related expenses. These costs are capitalized within the Consolidated Balance Sheets and are recognized as expense over the period the related services are expected to be delivered to the customer, which is approximately 30 months including expected renewals. If such period is less than 12 months, we have elected to apply the practical expedient under ASC 606 and expense costs as incurred. We include expected renewals in the period over which related services are expected to be delivered because sales commissions paid on renewals are not material and not commensurate with sales commissions paid on the initial contract. Sales commissions expense is recorded within "Selling, general and administrative expenses" and implementation and set-up costs are recorded within "Cost of revenue" in the Consolidated Statements of Comprehensive Loss. These capitalized costs are included in "Other non-current assets" in the Consolidated Balance Sheets. 
 
 - 99 - 

 Table of Contents 

 Cost of Revenue 
 
 Cost of revenue primarily consists of expenses related to personnel, software licenses, the costs to operate our data center facilities, including depreciation expense, and infrastructure expense related to our service offerings bundled with third party clouds. Personnel expenses include the salaries, non-equity incentive compensation and related expenses of our support teams and data center employees. Data center facility costs include rent, utility costs, maintenance fees, and bandwidth. 
 
 Selling, General and Administrative Expenses 
 
 SG&A expenses primarily consist of: (i) employee-related costs for functions such as executive management, sales and marketing, R&D, finance and accounting, human resources, information technology, and legal; (ii) costs for advertising and promoting our services and to generate customer demand; (iii) general costs such as professional fees, office facilities, software, and equipment expenses, including the related depreciation, and other overhead costs; and (iv) definite-lived intangibles amortization expense. 
 
 Advertising costs are expensed in the period incurred. Advertising expense was $ 39.9 million, $ 42.5 million and $ 33.6 million for the years ended December 31, 2019, 2020 and 2021, respectively. 
 
 R&D expense was $ 56.0 million, $ 36.7 million and $ 28.3 million, for the years ended December 31, 2019, 2020 and 2021, respectively. 
 
 Share-Based Compensation 
 
 We grant equity awards, including stock options and restricted stock, to eligible participants. The fair value of stock options with either solely a service requirement or with the combination of service and performance requirements is determined using the Black-Scholes valuation model, which requires us to make assumptions and judgments about variables related to our common stock and the related awards. The fair value of restricted stock with either solely a service requirement or with the combination of service and performance requirements is based on the closing fair market value of our common stock on the date of grant. The fair value of awards with vesting conditions dependent upon market performance is determined using a Monte Carlo simulation. Share-based compensation expense is recognized on a straight-line basis over the service period or over our best estimate of the period over which the performance condition will be met, as applicable. 
 
 Income Taxes 
 
 Income taxes are accounted for using the asset and liability method. Deferred income taxes are provided for temporary differences in recognizing certain income, expense, and credit items for financial reporting purposes and tax reporting purposes. Such deferred income taxes primarily relate to the difference between the tax bases of assets and liabilities and their financial reporting amounts. Deferred tax assets and liabilities are measured by applying enacted statutory tax rates applicable to the future years in which deferred tax assets or liabilities are expected to be settled or realized. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversals of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. 
 
 We are under certain domestic and foreign tax audits. Due to the complexity involved with certain tax matters, there is the possibility that the various taxing authorities may disagree with certain tax positions filed on our income tax returns. We have considered all relevant facts and circumstances and believe that we have made adequate provision for all uncertain tax positions. 
 
 Fair Value Measurements 
 
 Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value hierarchy below prioritizes the inputs used in measuring fair value into three categories: 
 
 Level 1 – Observable inputs such as quoted prices in active markets for identical assets or liabilities; 
 
 - 100 - 

 Table of Contents 

 Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and 
 
 Level 3 – Unobservable inputs that are supported by little or no market activity, which require management judgment or estimation. The fair values are therefore determined using model-based techniques, including discounted cash flow models. 
 
 Financial instruments measured at fair value on a recurring basis primarily consist of money market funds, an equity investment we disposed of in 2019, and derivative instruments. The fair values of money market funds and the aforementioned equity investment are measured using Level 1 inputs, which are based on a market approach using prices and other relevant information generated by market transactions involving identical or comparable assets. See Note 6, "Investments" for more information on the inputs used to fair value a certain equity investment. The fair values of derivative instruments are measured using Level 2 inputs. See "Derivative Instruments" below for more information on the inputs used to fair value our derivative instruments. 
 
 The fair values of our long-term debt instruments are measured using Level 2 inputs. See Note 7, "Debt" for more information on the inputs used to fair value our long-term debt instruments. 
 
 The fair values of acquired identifiable assets and liabilities assumed in acquisitions accounted for as business combinations are measured using Level 3 inputs. Refer to "Business Combinations" above for more information on the inputs used to fair value our identifiable assets and liabilities assumed in acquisitions. 
 
 The fair values of our reporting units and indefinite-lived intangible assets are measured using Level 3 inputs. See "Goodwill and Indefinite-lived Intangible Assets" above for more information on the inputs used to fair value our reporting units and indefinite-lived intangible assets. 
 
 Foreign Currency 
 
 We have assessed the functional currency of each of our international subsidiaries and have generally designated the local currency to be their respective functional currencies. The assets and liabilities of our international subsidiaries are translated to the U.S. dollar at the end-of-period exchange rates. Capital accounts are determined to be of a permanent nature and are therefore translated using historical exchange rates. Revenue and expenses are translated using average exchange rates. 
 
 Foreign currency translation adjustments arising from differences in exchange rates from period to period are recorded within "Accumulated other comprehensive income" in the Consolidated Balance Sheets. 
 
 Transaction gains or losses in currencies other than the functional currency are included as a component of "Other income (expense), net" in the Consolidated Statements of Comprehensive Loss. We recorded transaction losses of $ 1.8 million, gains of $ 5.8 million, and losses of $ 3.3 million for the years ended December 31, 2019, 2020 and 2021, respectively. 
 
 - 101 - 

 Table of Contents 

 Derivative Instruments 
 
 We utilize derivative instruments, including interest rate swap agreements, foreign currency hedging contracts and fixed price power contracts, to manage our exposure to interest rate risk, foreign currency fluctuations and commodity price risk. We only hold such instruments for economic hedging purposes, not for speculative or trading purposes. Our derivative instruments are transacted only with highly-rated institutions, which reduces our exposure to credit risk in the event of nonperformance. 
 
 Interest Rate Swaps 
 
 We are exposed to interest rate risk associated with fluctuations in interest rates on the floating-rate Term Loan Facility. The objective in using interest rate derivatives is to manage our exposure to interest rate movements. To accomplish this objective, we have entered into interest rate swap agreements as part of our interest rate risk management strategy. Interest rate swaps involve the receipt of variable amounts from a counterparty in exchange for the company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. 
 
 On a quarterly basis, we net settle with the counterparty for the difference between the fixed rate specified in each swap agreement and the variable rate based upon the three-month LIBOR as applied to the notional amount of the swap. 
 
 Our interest rate swaps, excluding the portion treated as debt, are recognized at fair value in the Consolidated Balance Sheets and are valued using pricing models that rely on market observable inputs such as yield curve data, which are classified as Level 2 inputs within the fair value hierarchy. 
 
 Foreign Currency Hedging Contracts 
 
 The majority of our customers are invoiced, and the majority of our expenses are paid, by us or our subsidiaries in the functional currency of our company or our subsidiaries, respectively. We also have exposure to foreign currency transaction gains and losses as the result of certain receivables due from our foreign subsidiaries. As such, the results of operations and cash flows of our foreign subsidiaries are subject to fluctuations in foreign currency exchange rates. The objective of our foreign currency hedging contracts is to manage our exposure to foreign currency movements. To accomplish this objective, we may enter into foreign currency forward contracts and collars. A forward contract is an agreement to buy or sell a quantity of a currency at a predetermined future date and at a predetermined exchange rate. A collar is a strategy that uses a combination of a purchased put option and a sold call option with equal premiums to hedge a portion of anticipated cash flows, or to limit possible gains or losses on an underlying asset or liability to a specific range. The put and call options have identical notional amounts and settlement dates. 
 
 These contracts are recognized at fair value in the Consolidated Balance Sheets and are valued using pricing models that rely on market observable inputs such as current exchange rates, which are classified as Level 2 inputs within the fair value hierarchy. We have not designated these contracts as cash flow hedges for accounting purposes, therefore, all changes in the fair value are recorded in "Other income (expense), net." 
 
 Fixed Price Power Contracts 
 
 We consume a large quantity of power to operate our data centers and as such are exposed to risk associated with fluctuations in the price of power. The objective of our fixed price power contracts is to manage our exposure to the price of power. The fixed price power contracts, which we enter into from time to time to manage the risk related to the uncertainty of future power prices, allow for the purchase of a set volume of power at a fixed rate. 
 
 We evaluate every fixed price power contract to determine if the contract meets the definition of a derivative, which requires recognizing the contract at fair value on the Consolidated Balance Sheets with changes in the fair value recorded in the Consolidated Statements of Comprehensive Loss. If a contract is deemed to be a derivative, we also determine if it qualifies for the normal purchases and normal sales scope exception to derivative accounting, which would result in expensing electricity usage as incurred. Power contracts accounted for as derivatives are valued using pricing models that rely on market observable inputs such as current power prices, which are classified as Level 2 inputs within the fair value hierarchy. 
 
 - 102 - 

 Table of Contents 

 As of December 31, 2020 and 2021, we do not have any power contracts recorded at fair value on the Consolidated Balance Sheets, as we have applied the normal purchases and normal sales scope exception to derivative accounting for all fixed priced power contracts. 
 
 Reclassifications 
 
 Certain reclassifications have been made to the prior period consolidated financial statements to conform to the current period presentation. Specifically, the current portion of "Finance lease liabilities" is now presented separately from "Other current liabilities" in the Consolidated Balance Sheets. 
 
 Recent Accounting Pronouncements 
 
 Recently Adopted 
 
 Simplifying the Accounting for Income Taxes 
 
 In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (ASC 740) - Simplifying the Accounting for Income Taxes , which removes certain exceptions to the general principles in ASC 740 and improves consistent application of and simplifies GAAP for other areas of ASC 740 by clarifying and amending existing guidance. We adopted this guidance on January 1, 2021. The adoption of the guidance did not have a material impact on our consolidated financial statements. 
 
 Not Yet Adopted 
 
 Reference Rate Reform 
 
 The United Kingdom's Financial Conduct Authority, which regulates LIBOR, announced that it will not compel panel banks to contribute to the overnight 1, 3, 6 and 12 months U.S. dollar LIBOR tenors after June 30, 2023 and all other tenors after December 31, 2021. U.S. dollar LIBOR may be replaced by the Secured Overnight Financing Rate or other benchmark rates over the next several years. In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (ASC 848) - Facilitation of the Effects of Reference Rate Reform on Financial Reporting containing practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts. The guidance in ASU 2020-04 is optional and may be applied from March 12, 2020 through December 31, 2022 as reference rate reform activities occur. In January 2021, the FASB issued an update that provides supplemental guidance and clarification of the reference rate reform. We have elected to apply certain practical expedients in the past. We continue to evaluate the impact of the guidance and may apply other elections prior to December 31, 2022, as applicable, as additional changes in the market occur. Currently, borrowings under our Senior Facilities use LIBOR as a benchmark for establishing the applicable interest rate, but the First Lien Credit Agreement includes provisions relating to the future discontinuance of LIBOR and sets forth mechanics for establishing the replacement of LIBOR with an alternative benchmark rate. 
 
 Business Combinations 
 
 In October 2021, the FASB issued ASU No. 2021-08, Business Combinations (ASC 805) - Accounting for Contract Assets and Contract Liabilities from Contracts with Customers . ASU 2021-08 requires that an entity (acquirer) recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with ASC 606. At the acquisition date, an acquirer should account for the related revenue contracts in accordance with ASC 606 as if it had originated the contracts. To achieve this, an acquirer may assess how the acquiree applied ASC 606 to determine what to record for the acquired revenue contracts. This standard allows the company a practical expedient to remove the requirements to measure and recognize such contracts in accordance with ASC 606. The guidance is applied prospectively upon adoption and is effective for us on January 1, 2023; however, early adoption is permitted. 
 
 - 103 - 

 Table of Contents 

 2. Customer Contracts 
 
 The following table presents the balances related to customer contracts: 
 
 (In millions) Consolidated Balance Sheets Account December 31, 2020 December 31, 2021 
 Accounts receivable, net Accounts receivable, net (1) 
 $ 483.0 $ 554.3 
 Current portion of contract assets Other current assets 12.2 15.2 
 Non-current portion of contract assets Other non-current assets 13.9 13.1 
 Current portion of deferred revenue Deferred revenue 76.7 98.6 
 Non-current portion of deferred revenue Other non-current liabilities 14.2 13.6 

 (1) Allowance for doubtful accounts and accrued customer credits was $ 28.3 million and $ 18.4 million as of December 31, 2020 and 2021, respectively. 
 
 The following table sets forth the changes in the allowance for doubtful accounts during the years ended December 31, 2019, 2020 and 2021: 
 
 (In millions) Beginning Balance Additions (1) 
 Write-offs of Accounts Receivables, Net of Recoveries Ending Balance 
 For the years ending December 31, 
 2019 $ 7.5 $ 13.3 $ ( 11.3 ) $ 9.5 
 2020 9.5 20.1 ( 13.4 ) 16.2 
 2021 16.2 5.4 ( 7.9 ) 13.7 

 (1) Additions to the allowance for doubtful accounts are charged to bad debt within "Selling, general and administrative expenses." 
 
 Amounts recognized in revenue for the years ended December 31, 2019, 2020 and 2021, which were included in deferred revenue as of the beginning of each period totaled $ 47.6 million, $ 59.5 million and $ 61.5 million, respectively. 
 
 Cost Incurred to Obtain and Fulfill a Contract 
 
 As of December 31, 2020 and 2021, the balances of capitalized costs to obtain a contract were $ 59.3 million and $ 58.0 million, respectively, and the balances of capitalized costs to fulfill a contract were $ 25.0 million and $ 23.5 million, respectively. These capitalized costs are included in "Other non-current assets" on the Consolidated Balance Sheets. 
 
 Amortization of capitalized sales commissions and implementation costs was as follows: 
 
 Year Ended December 31, 
 (In millions) 2019 2020 2021 
 Amortization of capitalized sales commissions $ 40.9 $ 44.2 $ 43.7 
 Amortization of capitalized implementation costs 14.8 17.4 18.1 

 Remaining Performance Obligations 
 
 As of December 31, 2021, the aggregate amount of transaction price allocated to remaining performance obligations was $ 691.2 million, of which 67 % is expected to be recognized as revenue during 2022 and the remainder thereafter. These remaining performance obligations primarily relate to our fixed-term arrangements. Our other revenue arrangements are usage-based, and as such, we recognize revenue based on the right to invoice for the services performed. 
 - 104 - 

 Table of Contents 

 3. Net Loss Per Share 
 
 Basic loss per share is calculated by dividing net loss attributable to common stockholders by the weighted average shares outstanding during the period. 
 
 The following table sets forth the computation of basic and diluted net loss per share: 
 
 Year Ended December 31, 
 (In millions, except per share data) 2019 2020 2021 
 Basic and diluted net loss per share: 
 Net loss attributable to common stockholders $ ( 102.3 ) $ ( 245.8 ) $ ( 218.3 ) 
 Weighted average shares outstanding: 
 Common stock 165.3 179.6 208.0 
 Number of shares used in per share computations 165.3 179.6 208.0 
 Net loss per share $ ( 0.62 ) $ ( 1.37 ) $ ( 1.05 ) 
 
 Potential common share equivalents consist of shares issuable upon the exercise of stock options, vesting of restricted stock or purchase under the ESPP, as well as contingent shares associated with our acquisition of Datapipe. Since we were in a net loss position for all periods presented, basic net loss per share is the same as diluted net loss per share for all periods as the inclusion of all potential common shares outstanding would have been anti-dilutive. We excluded 20.1 million, 24.3 million and 19.2 million potential common shares from the computation of dilutive loss per share for the years ended December 31, 2019, 2020 and 2021, respectively, because the effect would have been anti-dilutive. 
 
 4. Property, Equipment and Software, net 
 
 Property, equipment and software, net, consisted of the following: 
 
 (In millions) December 31,
2020 December 31,
2021 
 Computers and equipment $ 1,191.8 $ 1,206.5 
 Software 472.4 465.6 
 Furniture and fixtures 22.4 21.9 
 Buildings and leasehold improvements 513.1 512.9 
 Land 32.6 21.2 
 Property, equipment and software, at cost 2,232.3 2,228.1 
 Less: Accumulated depreciation ( 1,366.8 ) ( 1,413.4 ) 
 Work in process 19.1 12.0 
 Property, equipment and software, net $ 884.6 $ 826.7 

 On January 15, 2021, we completed the sale of a parcel of undeveloped land in the United Kingdom adjacent to one of our existing data centers. The net book value of the land prior to the sale was $ 11.4 million and we received cash proceeds of $ 32.2 million, less brokerage and professional fees of $ 0.9 million, resulting in net cash proceeds of $ 31.3 million. Therefore, we recorded a gain on sale of land of $ 19.9 million to "Gain on sale of land" in the Consolidated Statements of Comprehensive Loss for the year ended December 31, 2021. 
 
 Depreciation expense related to property, equipment and software was $ 328.5 million, $ 289.8 million and $ 245.1 million for the years ended December 31, 2019, 2020 and 2021, respectively. 
 
 Included in the balance of property, equipment and software as of December 31, 2020 and 2021 are assets recorded under finance leases. See Note 8, "Leases" for a discussion of the lease arrangements and the amounts within property, equipment and software as of December 31, 2020 and 2021. 
 
 - 105 - 

 Table of Contents 

 5. Goodwill and Intangible Assets 
 
 The following table sets forth the changes in the carrying amounts of goodwill by reportable segment during the years ended December 31, 2020 and 2021: 
 
 (In millions) Multicloud Services Apps & Cross Platform OpenStack Public Cloud Total Consolidated 
 Balance as of December 31, 2019 
 $ 2,371.6 $ 322.2 $ 52.0 $ 2,745.8 
 Bright Skies acquisition 8.4 — — 8.4 
 Onica measurement period adjustments ( 0.5 ) — — ( 0.5 ) 
 Foreign currency translation 6.5 0.4 0.5 7.4 
 Balance as of December 31, 2020 
 2,386.0 322.6 52.5 2,761.1 
 Impairment of goodwill — — ( 52.4 ) ( 52.4 ) 
 
 Foreign currency translation ( 1.7 ) ( 0.1 ) ( 0.1 ) ( 1.9 ) 
 Balance as of December 31, 2021 
 $ 2,384.3 $ 322.5 $ — $ 2,706.8 
 
 Gross goodwill $ 2,679.3 $ 322.5 $ 52.4 $ 3,054.2 
 Less: Accumulated impairment charges ( 295.0 ) — ( 52.4 ) ( 347.4 ) 
 Goodwill, net as of December 31, 2021 
 $ 2,384.3 $ 322.5 $ — $ 2,706.8 

 Management exercised significant judgment related to the determination of the fair value of each reporting unit. The fair value of each reporting unit was estimated using the discounted cash flow method. The discounted cash flow methodology requires significant judgment, including estimation of future revenue and projected margins, which are dependent on internal forecasts, estimation of the terminal growth rates and capital spending, and determination of discount rates. Changes in these estimates and assumptions could materially affect the fair value of the reporting unit, potentially resulting in an impairment charge. 
 
 During the fourth quarter of 2021, we performed our annual goodwill impairment test. We determined that the carrying amount of our OpenStack Public Cloud reporting unit exceeded its fair value and recorded a goodwill impairment charge of $ 52.4 million. The impairment was driven by deteriorating forecasted margins and cash flows within the reporting unit primarily due to operating costs declining at a slower rate than previously anticipated even after factoring in the long term impacts of the July 2021 Restructuring Plan. Prior to calculating the goodwill impairment loss, based on review of the annual forecast and management's expectation of slower than previously anticipated growth in the OpenStack Public Cloud product line, we assessed the recoverability of long-lived assets other than goodwill and concluded such assets were not impaired. 
 
 The results of our goodwill impairment test for the year ended December 31, 2020 did not indicate any impairments of goodwill. 
 
 The following table provides information regarding our intangible assets other than goodwill: 
 
 December 31, 2020 December 31, 2021 
 (In millions) Gross carrying amount Accumulated amortization Net carrying amount Gross carrying amount Accumulated amortization Net carrying amount 
 Customer relationships $ 1,986.2 $ ( 624.0 ) $ 1,362.2 $ 1,983.0 $ ( 784.1 ) $ 1,198.9 
 Property tax abatement 16.0 ( 7.4 ) 8.6 16.0 ( 9.2 ) 6.8 
 Other (1) 
 47.7 ( 22.2 ) 25.5 28.2 ( 17.4 ) 10.8 
 Total definite-lived intangible assets 2,049.9 ( 653.6 ) 1,396.3 2,027.2 ( 810.7 ) 1,216.5 
 Trade name (indefinite-lived) 250.0 — 250.0 250.0 — 250.0 
 Total intangible assets other than goodwill $ 2,299.9 $ ( 653.6 ) $ 1,646.3 $ 2,277.2 $ ( 810.7 ) $ 1,466.5 

 (1) Includes $ 17.2 million gross carrying amount for AWS relationship recorded in connection with the Onica acquisition as described in Note 16, "Acquisitions." 
 
 - 106 - 

 Table of Contents 

 Amortization expense related to intangibles was $ 167.5 million, $ 176.3 million and $ 179.7 million for the years ended December 31, 2019, 2020 and 2021, respectively. 
 
 As of December 31, 2021, amortization of intangible assets for the next five years and thereafter is expected to be as follows: 
 
 (In millions) Intangible Assets 
 Year ending: 
 2022 $ 169.4 
 2023 167.8 
 2024 160.6 
 2025 152.9 
 2026 128.5 
 Thereafter 437.3 
 Total $ 1,216.5 

 6. Investments 
 
 In June 2019, CrowdStrike, an entity in which Rackspace US held an equity investment, completed an initial public offering and became a publicly-traded company. Prior to the date of CrowdStrike's initial public offering, our investment in CrowdStrike had a carrying value of $ 10.0 million and was accounted for as an equity investment without a readily determinable fair value. With the availability of observable price changes following the completion of CrowdStrike's initial public offering, our investment in CrowdStrike was measured at fair value on a prospective basis using the end of period quoted stock price, which is classified as a Level 1 input within the fair value hierarchy. In December 2019, Rackspace US sold the investment in CrowdStrike for $ 106.9 million in cash proceeds. 
 
 We hold other equity investments that do not have readily determinable fair values. The aggregate carrying value of these other equity investments was $ 5.1 million as of December 31, 2020 and 2021. 
 
 For the year ended December 31, 2019, we recognized a net gain on investment activity of $ 99.5 million which was primarily comprised of a $ 96.9 million realized gain related to the sale of the CrowdStrike investment. We recognized a net gain on investment activity of $ 0.7 million for the year ended December 31, 2020 and a net loss on investment activity of $ 3.0 million for the year ended December 31, 2021. 
 
 - 107 - 

 Table of Contents 

 7. Debt 
 
 Debt consisted of the following: 
 
 (In millions, except %) December 31, 2020 December 31, 2021 
 Debt Instrument Maturity Date Interest Rate (1) 
 Amount Interest Rate (1) 
 Amount 
 Prior Term Loan Facility November 3, 2023 4.00 % $ 2,795.6 —% $ — 
 Term Loan Facility February 15, 2028 —% — 3.50 % 2,282.8 
 Revolving Credit Facility August 7, 2025 —% — —% — 
 3.50 % Senior Secured Notes 
 February 15, 2028 —% — 3.50 % 550.0 
 5.375 % Senior Notes 
 December 1, 2028 5.375 % 550.0 5.375 % 550.0 
 Receivables Financing Facility July 19, 2022 2.37 % 65.0 —% — 
 Less: unamortized debt issuance costs ( 44.2 ) ( 36.3 ) 
 Less: unamortized debt discount ( 3.7 ) ( 12.6 ) 
 Total debt 3,362.7 3,333.9 
 Less: current portion of debt ( 43.4 ) ( 23.0 ) 
 Debt, excluding current portion $ 3,319.3 $ 3,310.9 

 (1) Interest rates are as of each respective balance sheet date. 
 
 Senior Facilities 
 
 On November 3, 2016, in conjunction with the Rackspace Acquisition, Rackspace Technology Global entered into the First Lien Credit Agreement with Citi as the administrative agent. The First Lien Credit Agreement included the Prior Term Loan Facility and the Revolving Credit Facility. As of December 31, 2020, the Prior Term Loan Facility had an outstanding principal balance of $ 2,795.6 million and was set to mature on November 3, 2023. The Revolving Credit Facility had total commitments of $ 375.0 million, with no outstanding borrowings as of December 31, 2020, and was set to mature on August 7, 2025. 
 
 On February 9, 2021, we amended and restated the First Lien Credit Agreement, which included a new seven-year $ 2,300.0 million senior secured first lien term loan facility due on February 15, 2028 (the Term Loan Facility) and our existing $ 375.0 million Revolving Credit Facility, which we refer to together as the Senior Facilities. We used the borrowings under the Term Loan Facility, together with the proceeds from the issuance of the 3.50 % Senior Secured Notes described below (together, the February 2021 Refinancing Transaction), to repay all borrowings under the Prior Term Loan Facility, to pay related fees and expenses and for general corporate purposes. 
 
 Borrowings under the Senior Facilities bear interest at an annual rate equal to an applicable margin plus, at our option, either (a) a LIBOR rate determined by reference to the costs of funds for Eurodollar deposits for the interest period relevant to such borrowing, adjusted for certain additional costs, subject to a 0.75 % floor in the case of the Term Loan Facility and a 1.00 % floor, in the case of the Revolving Credit Facility, or (b) a base rate determined by reference to the highest of (i) the federal funds rate plus 0.50 %, (ii) the prime rate of Citi and (iii) the one-month adjusted LIBOR plus 1.00 %. The applicable margin for the Term Loan Facility is 2.75 % for LIBOR loans and 1.75 % for base rate loans and the applicable margin for the Revolving Credit Facility is 3.00 % for LIBOR loans and 2.00 % for base rate loans. Interest is due at the end of each interest period elected, not exceeding 90 days, for LIBOR loans and at the end of every calendar quarter for base rate loans. 
 
 The Revolving Credit Facility also includes a commitment fee equal to 0.50 % per annum in respect of the unused commitments that is due quarterly. This commitment fee is subject to one step-down based on the net first lien leverage ratio. 
 
 As of December 31, 2021, the interest rate on the Term Loan Facility was 3.50 %. We are required to make quarterly principal payments of $ 5.8 million, which began on June 30, 2021. See Note 17, "Derivatives" for information on interest rate swap agreements we utilize to manage the interest rate risk on the Term Loan Facility. 
 
 - 108 - 

 Table of Contents 

 In addition to the quarterly amortization payments discussed above, the Senior Facilities require us to make certain mandatory prepayments, including using (i) a portion of annual excess cash flow, as defined in the First Lien Credit Agreement, to prepay the Term Loan Facility, (ii) net cash proceeds of certain non-ordinary assets sales or dispositions of property to prepay the Term Loan Facility, and (iii) net cash proceeds of any issuance or incurrence of debt not permitted under the Senior Facilities to prepay the Term Loan Facility. We may make voluntary prepayments at any time without penalty, except in connection with a repricing event, as defined in the First Lien Credit Agreement. 
 
 The fair value of the Term Loan Facility as of December 31, 2021 was $ 2,262.8 million, based on quoted market prices for identical assets that are traded in over-the-counter secondary markets that are not considered active. The fair value of the Term Loan Facility is classified as Level 2 within the fair value hierarchy. 
 
 Rackspace Technology Global is the borrower under the Senior Facilities, and all obligations under the Senior Facilities are (i) guaranteed by Inception Parent, Rackspace Technology Global’s immediate parent company, on a limited recourse basis and secured by the equity interests of Rackspace Technology Global held by Inception Parent, and (ii) guaranteed by Rackspace Technology Global’s wholly-owned domestic restricted subsidiaries and secured by substantially all material owned assets of Rackspace Technology Global and the subsidiary guarantors, including the equity interests held by each, in each case subject to certain exceptions. The only financial covenant is with respect to the Revolving Credit Facility which limits the net first lien leverage ratio to a maximum of 5.00 to 1.00; however, this covenant is only applicable and tested if the aggregate amount of outstanding borrowings under the Revolving Credit Facility and letters of credit issued thereunder (excluding $ 25.0 million of undrawn letters of credit and cash collateralized letters of credit) is equal to or greater than 35 % of the Revolving Credit Facility commitments at the end of a fiscal quarter. Other covenants include limitations on restricted payments, indebtedness, investments, liens, asset sales and transactions with affiliates. 
 
 As of December 31, 2021, we were in compliance with all covenants under the Senior Facilities. 
 
 The Revolving Credit Facility matures of August 7, 2025. As of December 31, 2021, we had total commitments of $ 375.0 million and no outstanding borrowings under the Revolving Credit Facility or letters of credit issued thereunder. 
 
 3.50 % Senior Secured Notes due 2028 
 
 On February 9, 2021, Rackspace Technology Global issued $ 550.0 million aggregate principal amount of 3.50 % Senior Secured Notes due 2028. The 3.50 % Senior Secured Notes will mature on February 15, 2028 and bear interest at an annual fixed rate of 3.50 %. Interest is payable semiannually on each February 15 and August 15, commencing on August 15, 2021. The 3.50 % Senior Secured Notes are not subject to registration rights. As noted above, we used the net proceeds from the issuance of the 3.50 % Senior Secured Notes, together with borrowings under the Term Loan Facility described above, to repay all borrowings outstanding under the Prior Term Loan Facility, to pay related fees and expenses and for general corporate purposes. 
 
 Rackspace Technology Global is the issuer of the 3.50 % Senior Secured Notes, and obligations under the 3.50 % Senior Secured Notes are fully and unconditionally guaranteed, jointly and severally, by all of Rackspace Technology Global’s wholly-owned domestic restricted subsidiaries (as subsidiary guarantors) that guarantee the Senior Facilities. The 3.50 % Senior Secured Notes and the related guarantees are secured by first-priority security interests in substantially all material owned assets of Rackspace Technology Global and the subsidiary guarantors, including the equity interest held by each, subject to certain exceptions, which assets also secure the Senior Facilities. 
 
 Rackspace Technology Global may redeem the 3.50 % Senior Secured Notes at its option, in whole at any time or in part from time to time, at the following redemption prices: prior to February 15, 2024, at a redemption price equal to 100.000 % of the principal amount, plus the applicable premium described in the 3.50 % Notes Indenture and accrued and unpaid interest, if any, to but excluding the redemption date; from February 15, 2024 to February 14, 2025, at a redemption price equal to 101.750 % of the principal amount, plus accrued and unpaid interest, if any, to but excluding the redemption date; from February 15, 2025 to February 14, 2026, at a redemption price equal to 100.875 % of the principal amount, plus accrued and unpaid interest, if any, to but excluding the redemption date; and from February 15, 2026 and thereafter, at a redemption price equal to 100.000 % of the principal amount, plus accrued and unpaid interest, if any, to but excluding the redemption date. Rackspace Technology Global may also redeem prior to February 15, 2024 up to 40.0 % of the aggregate principal amount of the 3.50 % Senior Secured Notes with funds in an aggregate amount not to exceed the net cash proceeds from certain equity offerings at a redemption price equal to 103.500 % of the principal amount of the 3.50 % Senior Secured Notes to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date. Notwithstanding the foregoing, Rackspace Technology Global may redeem during each twelve-month period, commencing with February 9, 2021, 
 - 109 - 

 Table of Contents 

 up to 10.0 % of the original aggregate principal amount of the 3.50 % Senior Secured Notes at a redemption price of 103.000 %, plus accrued and unpaid interest, if any, to, but excluding, the applicable redemption date. 
 
 The 3.50 % Notes Indenture contains covenants that, among other things, limit our ability to incur certain additional debt, incur certain liens securing debt, pay certain dividends or make other restricted payments, make certain investments, make certain asset sales and enter into certain transactions with affiliates. These covenants are subject to a number of exceptions, limitations, and qualifications as set forth in the 3.50 % Notes Indenture. Additionally, upon the occurrence of a change of control (as defined in the 3.50 % Notes Indenture), we will be required to make an offer to repurchase all of the outstanding 3.50 % Senior Secured Notes at a price in cash equal to 101.000 % of the aggregate principal amount, plus accrued and unpaid interest, if any, to, but not including the purchase date. 
 
 As of December 31, 2021, Rackspace Technology Global was in compliance with all covenants under the 3.50 % Notes Indenture. 
 
 The fair value of the 3.50 % Senior Secured Notes as of December 31, 2021 was $ 519.8 million, based on quoted market prices for identical assets that are traded in over-the-counter secondary markets that are not considered active. The fair value of the 3.50 % Senior Secured Notes are classified as Level 2 within the fair value hierarchy. 
 
 5.375 % Senior Notes due 2028 
 
 Rackspace Technology Global issued $ 550.0 million aggregate principal amount of the 5.375 % Senior Notes on December 1, 2020. The 5.375 % Senior Notes will mature on December 1, 2028 and bear interest at an annual fixed rate of 5.375 % per year. Interest is payable semi-annually on each June 1 and December 1, commencing on June 1, 2021. The 5.375 % Senior Notes are not subject to registration rights. 
 
 Rackspace Technology Global is the issuer of the 5.375 % Senior Notes, and obligations under the 5.375 % Senior Notes are guaranteed on a senior unsecured basis by all of Rackspace Technology Global’s wholly-owned domestic restricted subsidiaries (as subsidiary guarantors) that guarantee the Senior Facilities. The 5.375 % Senior Notes are effectively junior to the indebtedness under the Senior Facilities and the 3.50 % Senior Secured Notes, to the extent of the collateral securing the Senior Facilities and the 3.50 % Senior Secured Notes. The 5.375 % Notes Indenture describes certain terms and conditions under which other current and future domestic subsidiaries are required to become guarantors of the 5.375 % Senior Notes. 
 
 Rackspace Technology Global may redeem the 5.375 % Senior Notes at its option, in whole at any time or in part from time to time, at the following redemption prices: prior to December 1, 2023, at a redemption price equal to 100.000 % of the principal amount, plus the applicable premium described in the 5.375 % Notes Indenture and accrued and unpaid interest, if any, to but excluding the redemption date; from December 1, 2023 to November 30, 2024, at a redemption price equal to 102.688 % of the principal amount, plus accrued and unpaid interest, if any, to but excluding the redemption date; from December 1, 2024 to November 30, 2025, at a redemption price equal to 101.344 % of the principal amount, plus accrued and unpaid interest, if any, to but excluding the redemption date; and from December 1, 2025 and thereafter, at a redemption price equal to 100.000 % of the principal amount, plus accrued and unpaid interest, if any, to but excluding the redemption date. Rackspace Technology Global may also redeem prior to December 1, 2023 up to 40 % of the aggregate principal amount of the 5.375 % Senior Notes with funds in an aggregate amount not to exceed the net cash proceeds from certain equity offerings at a redemption price equal to 105.375 % of the principal amount of the 5.375 % Senior Notes to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date. 
 
 The 5.375 % Notes Indenture contains covenants that, among other things, limit our ability to incur certain additional debt, incur certain liens securing debt, pay certain dividends or make other restricted payments, make certain investments, make certain asset sales and enter into certain transactions with affiliates. These covenants are subject to a number of exceptions, limitations, and qualifications as set forth in the 5.375 % Notes Indenture. Additionally, upon the occurrence of a change of control (as defined in the 5.375 % Notes Indenture), we will be required to make an offer to repurchase all of the outstanding 5.375 % Senior Notes at a price in cash equal to 101.000 % of the aggregate principal amount, plus accrued and unpaid interest, if any, to, but not including the purchase date. 
 
 As of December 31, 2021, Rackspace Technology Global was in compliance with all covenants under the 5.375 % Notes Indenture. 
 
 - 110 - 

 Table of Contents 

 The fair value of the 5.375 % Senior Notes as of December 31, 2021 was $ 534.9 million, based on quoted market prices for identical assets that are traded in over-the-counter secondary markets that are not considered active. The fair value of the 5.375 % Senior Notes are classified as Level 2 within the fair value hierarchy. 
 
 Accounts Receivable Financing Agreement 
 
 On March 19, 2020, a wholly owned subsidiary of the company entered into the Receivables Financing Facility. Pursuant to the agreements evidencing the Receivables Financing Facility, Rackspace Receivables, LLC, a bankruptcy-remote SPV indirectly wholly owned by Rackspace Technology Global, granted a security interest in all of its current and future receivables and related assets in exchange for a credit facility permitting borrowings of up to a maximum aggregate amount of $ 100.0 million from time to time. Such borrowings were used by the SPV to finance purchases of accounts receivable. Rackspace Technology Global was the primary beneficiary of the SPV. We recorded $ 1.0 million of fees and expenses related to the Receivables Financing Facility as debt issuance costs for the year ended December 31, 2020, which were included in "Other non-current assets" in the Consolidated Balance Sheets. 
 
 The amount of advances available were determined based on advance rates relating to the eligibility of the receivables held by the SPV at that time. Advances bore interest based on LIBOR plus a margin. The last date on which advances could be made was March 21, 2022, unless the maturity of the Receivables Financing Facility was otherwise accelerated. In addition to other customary fees associated with financings of this type, the SPV was required to pay a monthly commitment fee based on the unused amount of the facility. 
 
 During the year ended December 31, 2021, the SPV repaid $ 15.0 million to cover a borrowing base deficit, repaid the remaining outstanding balance of $ 50.0 million and terminated the Receivables Financing Facility. The termination resulted in expense of $ 0.5 million recorded within "Debt modification costs and extinguishment gain (loss)" in our Consolidated Statements of Comprehensive Loss for the year ended December 31, 2021. The expense was comprised of the write-off of the unamortized debt issuance costs, as well as third party fees associated with the termination. 
 
 February 2021 Refinancing Transaction 
 
 The February 2021 Refinancing Transaction represented an extinguishment and modification of debt. We derecognized $ 2,795.6 million of the Prior Term Loan Facility and wrote off $ 9.4 million in unamortized debt issuance costs and debt discount associated with the portion of the Prior Term Loan Facility that was deemed extinguished. We recognized $ 2,300.0 million borrowed under the Term Loan Facility and $ 41.0 million of associated debt issuance costs and debt discount, including amounts allocated from the Prior Term Loan Facility, both classified as a direct deduction from the carrying value of non-current debt on our Consolidated Balance Sheets. We recognized $ 550.0 million aggregate principal amount of the 3.50 % Senior Secured Notes due 2028 and $ 6.8 million of associated debt issuance costs, including amounts allocated from the Prior Term Loan Facility. The February 2021 Refinancing Transaction resulted in expense of $ 37.0 million recorded within "Debt modification costs and extinguishment gain (loss)" in our Consolidated Statements of Comprehensive Loss for the year ended December 31, 2021. The expense was comprised of the write-off of unamortized debt issuance costs and debt discount associated with the portion of the Prior Term Loan Facility that was deemed extinguished, as well as $ 27.6 million in third party fees associated with the modification. 
 
 8.625 % Senior Notes Repurchases 
 
 During the year ended December 31, 2019, Rackspace Technology Global repurchased and surrendered for cancellation $ 77.3 million of principal amount of 8.625 % Senior Notes for $ 66.9 million including accrued interest of $ 0.8 million. In connection with these repurchases, we recorded a gain on debt extinguishment of $ 9.8 million within "Debt modification costs and extinguishment gain (loss)" in our Consolidated Statements of Comprehensive Loss for the year ended December 31, 2019. 
 
 During the year ended December 31, 2020, Rackspace Technology Global repurchased and cancelled the remaining aggregate principal amount of the $ 1,120.2 million outstanding 8.625 % Senior Notes and paid related premiums, fees and accrued and unpaid interest for aggregate cash of $ 1,191.9 million. In connection with these repurchases, we recorded $ 71.5 million of expense within "Debt modification costs and extinguishment gain (loss)" in our Consolidated Statements of Comprehensive Loss for the year ended December 31, 2020, comprised of a $ 56.2 million aggregate premium on repurchase, $ 14.9 million write-off of unamortized debt issuance costs, and transaction fees of $ 0.4 million. 
 
 - 111 - 

 Table of Contents 

 Following the cancellations, we had no remaining outstanding principal balance under the 8.625 % Senior Notes as of December 31, 2020. 
 
 Debt Maturities 
 
 The maturities of debt obligations for the next five years at December 31, 2021 are as follows: 
 
 (In millions) Amount 
 Year ending: 
 2022 $ 23.0 
 2023 23.0 
 2024 23.0 
 2025 23.0 
 2026 23.0 
 Thereafter 3,267.8 
 Total $ 3,382.8 

 8. Leases 
 
 Assets recorded as property and equipment under finance leases, and the related accumulated depreciation balances as of December 31, 2020 and 2021 were as follows: 
 
 December 31, 2020 December 31, 2021 
 (In millions) 
 Computers and equipment $ 108.7 $ 160.5 
 Buildings 305.7 297.0 
 Less: Accumulated depreciation ( 46.4 ) ( 88.8 ) 
 Net book value of property and equipment under finance leases $ 368.0 $ 368.7 

 The components of operating and finance lease expense for the years ended December 31, 2020 and 2021 were as follows: 
 
 Year Ended December 31, 
 (In millions) 2020 2021 
 Operating lease expense: 
 Fixed lease expense $ 80.2 $ 62.2 
 Variable lease expense 19.5 18.8 
 Short-term lease expense 10.3 0.4 
 Sublease income ( 3.1 ) ( 2.6 ) 
 Total operating lease expense $ 106.9 $ 78.8 
 Finance lease expense: 
 Depreciation of finance lease assets $ 30.2 $ 46.3 
 Interest expense on finance lease liabilities 19.4 28.2 
 Total finance lease expense $ 49.6 $ 74.5 

 - 112 - 

 Table of Contents 

 Supplemental operating cash flow information related to operating and finance leases for the years ended December 31, 2020 and 2021 were as follows: 
 
 Year Ended December 31, 
 (In millions) 2020 2021 
 Cash payments for lease liabilities included within operating activities: 
 Operating leases $ ( 85.3 ) $ ( 78.4 ) 
 Finance leases ( 20.2 ) ( 26.9 ) 
 
 New lease assets obtained in exchange for lease liabilities: 
 Operating leases $ 42.7 $ 18.6 

 As of December 31, 2020 and 2021, the weighted average remaining lease term and weighted average discount rate of our operating and finance leases, respectively, were as follows: 
 
 December 31, 2020 December 31, 2021 
 
 Weighted average remaining lease term (in years) 
 Operating leases 4 4 
 Finance leases 14 12 
 Weighted average discount rate 
 Operating leases 9.0 % 6.9 % 
 Finance leases 7.2 % 7.0 % 

 Future lease payments under operating and finance leases as of December 31, 2021 are as follows: 
 
 (In millions) Operating leases Finance leases 
 Year ending: 
 2022 $ 70.2 $ 88.7 
 2023 47.9 68.9 
 2024 39.3 39.7 
 2025 17.7 30.0 
 2026 11.0 30.7 
 Thereafter 10.8 375.1 
 Total future lease payments 196.9 633.1 
 Less amount representing interest ( 21.7 ) ( 223.4 ) 
 Total lease liability $ 175.2 $ 409.7 

 - 113 - 

 Table of Contents 

 9. Financing Obligations 
 
 We have entered into installment payment arrangements with certain equipment and software vendors. In addition, we have entered into certain sale-leaseback agreements that do not qualify as asset sales and are accounted for as failed sale-leasebacks. These arrangements include the sale and leaseback of equipment with third party financial institutions and certain property leases we assumed upon the acquisition of Datapipe. 
 
 The weighted average imputed interest rate for our financing obligations was 6.2 % as of December 31, 2021. 
 
 As of December 31, 2021, future payments under financing obligations were as follows: 
 
 (In millions) Amount 
 Year ending: 
 2022 $ 53.5 
 2023 16.4 
 2024 9.6 
 2025 9.7 
 2026 6.7 
 Thereafter 26.9 
 Total future payments 122.8 
 Plus amount representing residual asset balance 14.3 
 Less amount representing interest ( 26.2 ) 
 Total financing obligations $ 110.9 

 10. Commitments and Contingencies 
 
 Purchase Commitments 
 
 Non-cancelable purchase commitments primarily consist of commitments for certain software licenses, hardware purchases, third party infrastructure purchases, and costs associated with our data centers, such as bandwidth and electricity. The agreements provide for either penalties for early termination or may require minimum commitments for the remaining term. The minimum commitments for all of these agreements, as of December 31, 2021, are approximated as follows: 
 
 (In millions) Amount 
 Year ending: 
 2022 $ 358.3 
 2023 324.9 
 2024 195.8 
 2025 119.5 
 2026 129.9 
 Thereafter 82.4 
 Total $ 1,210.8 

 We also have purchase orders and construction contracts primarily related to data center equipment and facility build-outs. We generally have the right to cancel these open purchase orders prior to delivery or terminate the contracts without cause. 
 
 Contingencies 
 
 We have contingencies that arise from various litigation, claims and commitments, none of which we consider to be material. 
 - 114 - 

 Table of Contents 

 From time to time, we are a party to various claims asserting that certain of our services and technologies infringe the intellectual property rights of others. Adverse results in these lawsuits may include awards of substantial monetary damages, costly royalty or licensing agreements, or orders preventing us from offering certain features, products, or services, and may also cause us to change our business practices and require development of non-infringing products or technologies, which could result in a loss of revenue for us or otherwise harm our business. 
 
 We record an accrual for a loss contingency when a loss is considered probable and reasonably estimable. As additional facts concerning a loss contingency become known, we reassess our position and make appropriate adjustments to a recorded accrual. The amount that will ultimately be paid related to a matter may differ from the recorded accrual, and the timing of such payments, if any, may be uncertain. 
 
 We are not a party to any litigation, the outcome of which, if determined adversely to us, would individually or in the aggregate be reasonably expected to have a material and adverse effect on our business, financial position or results of operations. 
 
 Indemnifications 
 
 As permitted under Delaware law, we have agreements whereby we indemnify our officers and directors for certain events or occurrences while the officer or director is, or was, serving at our request in such capacity. In addition, from time to time we may enter into indemnification agreements with certain of our employees so that such employees will agree to serve as directors or officers of our foreign subsidiaries. The term of the indemnification period is for the officer’s or director’s lifetime. The maximum potential amount of future payments we could be required to make under these indemnification agreements is unlimited; however, we have a director and officer insurance policy that limits our exposure and enables us to recover a portion of any future amounts paid. As a result of the insurance policy coverage, we believe the estimated fair value of these indemnification agreements is minimal. We had no material liabilities recorded for these agreements as of December 31, 2020 or 2021. 
 
 In connection with the Rackspace Acquisition, an affiliate of Apollo and Searchlight each entered into a management consulting agreement with Rackspace Technology Global relating to the provision of certain management consulting and advisory services following the consummation of the Rackspace Acquisition. In addition, on November 3, 2016, an affiliate of Apollo entered into a transaction fee agreement with Rackspace Technology Global relating to the provision of certain preparation services in support of the Rackspace Acquisition. 
 
 On November 15, 2017, in connection with the Datapipe acquisition, ABRY entered into a management consulting agreement with Rackspace Technology Global relating to the provision of certain management consulting and advisory services. 
 
 Under the terms of the Transaction Fee Agreement, the Apollo/Searchlight Management Consulting Agreement and the ABRY Management Consulting Agreement, the company has obligations to indemnify affiliates and representatives of Apollo, Searchlight and ABRY, as applicable, for any losses or liabilities that they may incur as a result of their provision of services under those agreements (unless the losses or liabilities have resulted from the willful misconduct of the person seeking indemnification). We had no liabilities recorded for these agreements as of December 31, 2020 or 2021. 
 
 On July 24, 2020, we executed termination letters with each of the parties to the Apollo/Searchlight Management Consulting Agreement, the Transaction Fee Agreement and the ABRY Management Consulting Agreement, whereby all such agreements terminated effective as of the pricing of the IPO on August 4, 2020. 
 
 Additionally, in the normal course of business, we indemnify certain parties, including customers, vendors and lessors, with respect to certain matters. We have agreed to hold certain parties harmless against losses arising from a breach of representations or covenants or out of intellectual property infringement or other claims made against certain parties. These agreements may limit the time within which an indemnification claim can be made and the amount of the claim. We had no material liabilities recorded for these agreements as of December 31, 2020 or 2021. 
 
 - 115 - 

 Table of Contents 

 11. July 2021 Restructuring Plan 
 
 On July 21, 2021, we committed to the July 2021 Restructuring Plan which will drive a change in the type and location of certain positions and is expected to result in the termination of approximately 10 % of our workforce. Substantially all of the employees impacted by the reduction in workforce were notified of the reduction on July 22, 2021 and will exit the company over the next 12 months. 
 
 During the year ended December 31, 2021 , we incurred employee related costs, primarily consisting of one-time termination benefits and certain contractual termination benefits with executives, and other costs, which are accounted for as exit and disposal costs under ASC 420. Other costs consisted of professional fees, asset write-offs, and the impact of a contract termination with a third-party. These costs are recorded within "Selling, general and administrative expenses" in the Consolidated Statements of Comprehensive Loss, the components of which were as follows: 
 
 (In millions) Year Ended December 31, 2021 
 Employee related costs $ 13.8 
 Other 11.6 
 Total restructuring charges $ 25.4 

 A portion of the other costs are non-cash charges, representing $ 5.6 million in the year ended December 31, 2021. This amount is related to asset write-offs and the contract termination. 
 
 Liability activity for restructuring costs that are expected to be settled in cash are presented in the table below. 
 
 (In millions) Employee Related Other Total 
 Liability as of December 31, 2020 
 $ — $ — $ — 
 Charges 13.8 6.0 19.8 
 Cash payments ( 6.7 ) ( 5.4 ) ( 12.1 ) 
 Liability as of December 31, 2021 
 $ 7.1 $ 0.6 $ 7.7 
 Total cumulative costs incurred as of December 31, 2021 
 $ 13.8 $ 6.0 $ 19.8 
 Total expected costs to be incurred 
 $ 15.9 $ 6.5 $ 22.4 

 The liability for employee related costs was recorded in "Accrued compensation and benefits" in the Consolidated Balance Sheets as of December 31, 2021 . The liabilities for other costs were recorded in "Other current liabilities" in the Consolidated Balance Sheets as of December 31, 2021 . 
 
 - 116 - 

 Table of Contents 

 12. Stockholders' Equity 
 
 Common Stock 
 
 As of December 31, 2020 and 2021, we had 201.8 million and 211.2 million shares of our common stock legally issued and outstanding, respectively. 
 
 We have one class of authorized common stock. The rights and privileges provided to our common stockholders are as follows: 
 
 • Voting Rights —The holders of our common stock are entitled to one vote per share on all matters submitted for action by the stockholders generally. 
 
 • Dividend Rights —Subject to any preferential rights of any then outstanding preferred stock, all shares of our common stock are entitled to share equally in any dividends our board of directors may declare from legally available sources. 
 
 • Liquidation Rights —Upon our liquidation, dissolution or winding up, whether voluntary or involuntary, after payment in full of the amounts required to be paid to holders of any then outstanding preferred stock, all shares of our common stock are entitled to share equally in the assets available for distribution to stockholders after payment of all of our prior obligations. 
 
 Preferred Stock 
 
 As of December 31, 2020 and 2021, there were 5.0 million authorized shares of preferred stock, of which none was issued or outstanding. 
 
 Repurchase of Common Stock 
 
 During the year ended December 31, 2019, we repurchased $ 2.2 million, or 0.2 million shares, of our common stock. These shares were subsequently retired. As a result, we recorded a $ 2.2 million decrease to "Additional paid-in-capital" for the year ended December 31, 2019. 
 
 Datapipe Contingent Shares 
 
 On September 6, 2017, we entered into an Agreement and Plan of Merger (the "Datapipe Merger Agreement") pursuant to which we acquired Datapipe. In addition, the Datapipe Merger Agreement provides that we will be required to issue additional shares of our common stock to an affiliate of ABRY based on a MOIC on any “Measurement Date,” as defined in the Datapipe Merger Agreement. The maximum number of shares of common stock issuable will not exceed 10,663,741 shares in the aggregate, subject to adjustment for stock splits, stock dividends, recombinations, reclassifications and similar equitable adjustments. 
 
 On February 2, 2021, we issued 2,665,935 shares of common stock for no additional consideration pursuant to the Datapipe Merger Agreement. 
 - 117 - 

 Table of Contents 

 13. Share-Based Compensation, Settlement of Share-Based Awards, and Employee Benefit Plans 
 
 Stock Plans 
 
 In April 2017, the Executive Committee of the board of directors authorized the company to adopt the 2017 Incentive Plan. On July 24, 2020, the board of directors approved, effective on August 7, 2020, the 2020 Incentive Plan and amendments to the 2017 Incentive Plan which, among other things, resulted in the termination of the 2017 Incentive Plan, except as it relates to outstanding awards, and any remaining shares reserved for future grants under the 2017 Incentive Plan were released. 
 
 The 2020 Incentive Plan provides for the grant of stock options, including incentive stock options, and nonqualified stock options, stock appreciation rights, restricted stock, RSUs, other stock-based incentive awards, dividend equivalents and cash-based awards (collectively, "awards"). Incentive stock options may be granted only to our employees or an employee of a parent or subsidiary. All other awards may be granted to employees and consultants of the company and its parents and subsidiaries, as well as all non-employee members of our board of directors. 
 
 For the years ended December 31, 2019, 2020 and 2021, the company granted stock options, RSUs and restricted stock (collectively "restricted stock") under the Incentive Plans. The company issues new shares of its common stock to satisfy vesting of restricted stock and exercise of stock options under the Incentive Plans. All awards deduct one share from the Incentive Plans shares available for issuance for each share granted. The 2017 Incentive Plan began with 12.2 million shares authorized for grant and contained an evergreen feature whereby shares available increased each grant date based on the quantity of certain types of awards granted. Upon the approval of the 2020 Incentive Plan, the 2017 Incentive Plan was terminated, except as it relates to outstanding awards. The maximum number of shares of our common stock available for issuance under the 2020 Incentive Plan is 25.0 million shares. To the extent awards granted under the 2020 Incentive Plan terminate, expire or lapse, shares subject to such awards generally will again be available for future grant. As of December 31, 2021, the total number of shares outstanding and the total number of shares available for future grants under the Incentive Plans was 18.9 million and 15.7 million, respectively. 
 
 The composition of the equity awards outstanding as of December 31, 2020 and 2021 was as follows: 
 
 December 31, 2020 December 31, 2021 
 (In millions) 
 Restricted stock 2.7 7.9 
 Stock options 18.6 11.0 
 Total outstanding awards 21.3 18.9 

 Stock Options 
 
 Stock options have been granted for a term of 10 years and generally vest ratably over a three-year period, subject to continued service. Certain executives have received stock options that vest in part subject to continued service ratably over a five-year period and in part based upon the attainment of performance and market conditions. 
 
 In 2021, we shifted away from granting stock options as we had in previous years, to granting restricted stock. As such, there were no stock options granted during the year ended December 31, 2021. 
 
 - 118 - 

 Table of Contents 

 The following table summarizes the stock option activity for the year ended December 31, 2021: 
 
 Number of Shares (in millions) Weighted Average Exercise Price Weighted Average-Remaining Contractual Life Aggregate Intrinsic Value (in millions) 
 Outstanding at December 31, 2020 18.6 $ 12.69 7.94 $ 118.4 
 Granted — $ — 
 Exercised ( 4.2 ) $ 12.17 
 Forfeited ( 3.2 ) $ 13.13 
 Expired ( 0.2 ) $ 14.70 
 Outstanding at December 31, 2021 11.0 $ 12.73 7.28 $ 10.2 
 Vested and exercisable at December 31, 2021 5.7 $ 12.61 6.88 $ 6.6 
 Vested and exercisable at December 31, 2021 and expected to vest thereafter (1) 
 11.0 $ 12.73 7.28 $ 10.2 

 (1) Forfeitures are recognized as they occur, rather than estimated . 
 
 The total pre-tax intrinsic value of the stock options exercised during the years ended December 31, 2019, 2020 and 2021 was $ 1.8 million, $ 22.3 million, and $ 35.0 million, respectively. 
 
 For the years ended December 31, 2019 and 2020 we have granted stock options that include vesting terms dependent upon a service, performance and/or market condition. The performance criteria for the performance and market based stock options is tied to a liquidity event and the achievement of targets based on a MOIC for Apollo. The fair value of stock options with vesting conditions dependent upon market performance is determined using a Monte Carlo simulation. The fair value of stock options with either solely a service requirement or with the combination of service and performance requirements is determined using the Black-Scholes valuation model, which requires us to make assumptions and judgments about variables related to our common stock and the related awards. The fair value of stock options is based on the fair value of the underlying common stock on the date of grant. Prior to the IPO, the fair value of the underlying common stock included estimates and judgments related to the discount rates and future discounted cash flows of the company based on management’s internal forecasts. Share-based compensation expense is recognized on a straight-line basis over the service period or over our best estimate of the period over which the performance condition will be met, as applicable. The following table presents the assumptions used to estimate the fair values of the stock options granted in the periods presented: 
 
 Year Ended December 31, 
 2019 2020 
 Expected stock volatility (1) 
 58 % 55 % - 61 % 
 
 Expected dividend yield (2) 
 — % — % 
 Risk-free interest rate (3) 
 1.54 % - 2.47 % 
 0.38 % - 1.73 % 
 
 Expected life (4) 
 5.7 - 6.5 years 
 5.5 - 6.5 years 
 
 (1) Management estimates volatility based on the historical trading volatility of a public company peer group and the implied volatility of our assets and current leverage. 
 (2) We have not issued dividends to date and do not anticipate issuing dividends. 
 (3) Based on the implied yield currently available on U.S. Treasury zero-coupon issues with an equivalent expected term. 
 (4) Represents the period that our share-based awards are expected to be outstanding. Management uses the simplified method for our estimation of the expected life as we do not have adequate historical data. 
 
 The weighted-average grant-date fair value of options granted during the years ended December 31, 2019, and 2020 was $ 6.81 , and $ 8.09 , respectively. 
 
 As of December 31, 2021, there was $ 18.0 million of total unrecognized compensation cost related to stock options, which will be recognized using the straight-line method over a weighted average period of 1.6 years. 
 
 - 119 - 

 Table of Contents 

 Restricted Stock 
 
 In 2021, we shifted away from granting stock options as we had in previous years, to granting restricted stock. The majority of our restricted stock grants were made as part of our annual compensation award process and vest ratably over a three-year period, subject to continued service. Restricted stock has also been granted to certain executives that vest in part subject to continued service ratably over a three or five-year period and in part based upon the attainment of performance and market conditions. The performance criteria is based upon various targets of the compound annual growth rate in EBITDA (as defined in the applicable award agreement) attained over specified trailing twelve month periods. The fair value of the service-vesting awards is measured based on the fair value of the underlying common stock on the date of the grant. The fair value of restricted stock with vesting conditions dependent upon market performance is determined using a Monte Carlo simulation. Share-based compensation expense is recognized on a straight-line basis over the service period or over our best estimate of the period over which the performance condition will be met, as applicable. 
 
 In 2020, we granted restricted stock to all eligible employees on the date of our IPO. The fair value of these awards was based on the fair value of the underlying common stock on the date of the grant, and share-based compensation expense is recognized on a straight-line basis over the service period of six months . 
 
 Certain non-executive board members elected to receive a portion of their annual compensation in the form of restricted stock. The fair value of these service-vesting awards is measured based on the fair value of the underlying common stock on the date of grant, and share-based compensation expense is recognized on a straight-line basis over the one-year service period. 
 
 In August 2021, we granted certain awards, 0.6 million shares in total, with vesting dependent upon the attainment of predetermined financial performance results over the next three years . The performance metric that will determine vesting of these awards is Non-GAAP Operating Profit (as defined in the applicable award agreement) measured over a trailing four-quarter period. The fair value of these performance-vesting awards is measured based on the fair value of the underlying common stock on the date of grant, and share-based compensation expense is recognized when it is probable that the performance condition will be achieved. Probability is based upon probable achievement of the various targets in management's internal forecasts. 
 
 The following table summarizes our restricted stock activity for the year ended December 31, 2021: 
 
 Number of Units or Shares (in millions) Weighted Average Grant-Date Fair Value 
 Outstanding at December 31, 2020 2.7 $ 16.86 
 Granted 8.3 $ 17.80 
 Released ( 1.8 ) $ 17.12 
 Cancelled ( 1.3 ) $ 21.32 
 Outstanding at December 31, 2021 7.9 $ 17.07 
 Expected to vest after at December 31, 2021 (1) 
 7.9 $ 17.07 

 (1) Forfeitures are recognized as they occur, rather than estimated. 
 
 The weighted-average grant-date fair value of restricted stock granted during the years ended December 31, 2019 and 2020 was $ 12.88 and $ 17.74 , respectively. 
 
 The total pre-tax intrinsic value of the restricted stock released during the years ended December 31, 2019, 2020 and 2021 was $ 3.3 million, $ 3.6 million and $ 35.2 million, respectively. 
 
 As of December 31, 2021, there was $ 103.2 million of total unrecognized compensation cost related to restricted stock, which will be recognized using the straight-line method over a weighted average period of 2.1 years. 
 
 - 120 - 

 Table of Contents 

 Employee Stock Purchase Plan 
 
 The ESPP was approved by the company's board of directors on July 24, 2020 and became effective on August 7, 2020. 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 fair value on each enrollment date is determined using the Black-Scholes option-pricing model. Share-based compensation expense is recognized on a straight-line basis over the offering period. We issued 0.4 million and 0.7 million shares through the ESPP during the years ended December 31, 2020 and 2021, respectively. The share-based compensation expense recognized for the ESPP was $ 1.5 million and $ 4.5 million for the years ended December 31, 2020 and 2021, respectively. As of December 31, 2021, there was no unrecognized compensation cost related to the ESPP. The shares available for issuance under the ESPP is 10.4 million shares as of December 31, 2021. 
 
 Share-Based Compensation Expense 
 
 In connection with the departure of certain executives during the year ended December 31, 2019, 2020, and 2021 we accelerated vesting of options and restricted stock for awards with service-only vesting conditions and extended the post termination option exercise period. These modifications resulted in incremental expense of $ 3.5 million, $ 3.5 million and $ 0.8 million during the years ended December 31, 2019, 2020 and 2021, respectively. In addition, during the year ended December 31, 2019, modifications were made to the performance and/or market condition of awards for certain employees. As these awards expired before a change in control event required for vesting, these modifications resulted in no incremental expense. 
 
 Upon the completion of the IPO, it was determined that certain awards with performance and market conditions, tied to a liquidity event and the achievement of targets based on a MOIC for Apollo, were probable of vesting. As a result of this change in estimate, the company recognized $ 20.2 million of share-based compensation expense, related to service received since the grant date of the respective awards, during the year ended December 31, 2020. 
 
 Share-based compensation expense recogniz ed for th e years ended December 31, 2019, 2020 and 2021 was as follows: 
 
 Year Ended December 31, 
 (In millions) 2019 2020 2021 
 Cost of revenue $ 5.7 $ 14.5 $ 16.7 
 Selling, general and administrative expenses 24.5 60.0 58.7 
 Pre-tax share-based compensation expense 30.2 74.5 75.4 
 Less: Income tax benefit ( 6.3 ) ( 15.6 ) ( 15.8 ) 
 Total share-based compensation expense, net of tax $ 23.9 $ 58.9 $ 59.6 

 Settlement of Share-Based Awards 
 
 As a result of the Rackspace Acquisition, Rackspace Technology Global had obligations related to the settlement of RSUs that were outstanding as of November 3, 2016. These obligations required installment payments that began in November 2016 and ended in the first quarter of 2019. We made cash payments of $ 19.2 million during the year ended December 31, 2019 and recognized compensation expense of $ 2.7 million within "Selling, general and administrative expenses" in the Consolidated Statements of Comprehensive Loss for the year ended December 31, 2019. 
 
 In addition, in connection with an employee's departure, we settled options and restricted stock for a one-time cash payment of $ 1.5 million during the year ended December 31, 2019. 
 
 Employee Benefit Plans 
 
 We sponsor defined contribution plans whereby employees may elect to contribute a portion of their annual compensation to the plans, after complying with certain limitations. The plans also include a discretionary employer contribution. Contribution expense recognized for these plans was $ 14.3 million, $ 16.0 million and $ 15.2 million for the years ended December 31, 2019, 2020 and 2021, respectively. 
 
 - 121 - 

 Table of Contents 

 14. Taxes 
 
 The benefit for income taxes consisted of the following: 
 
 Year Ended December 31, 
 (In millions) 2019 2020 2021 
 Federal $ 5.1 $ ( 4.1 ) $ ( 0.3 ) 
 Foreign 12.1 9.6 5.6 
 State 3.5 1.9 5.4 
 Total current 20.7 7.4 10.7 
 Deferred: 
 Federal ( 32.4 ) ( 58.6 ) ( 26.1 ) 
 Foreign 2.0 ( 6.0 ) ( 14.3 ) 
 State ( 10.3 ) ( 9.0 ) ( 1.1 ) 
 Total deferred ( 40.7 ) ( 73.6 ) ( 41.5 ) 
 Total benefit for income taxes $ ( 20.0 ) $ ( 66.2 ) $ ( 30.8 ) 

 Loss before income taxes from U.S. and foreign operations were as follows: 
 
 Year Ended December 31, 
 (In millions) 2019 2020 2021 
 U.S. $ ( 143.2 ) $ ( 311.1 ) $ ( 204.9 ) 
 Foreign 20.9 ( 0.9 ) ( 44.2 ) 
 Total loss before income taxes $ ( 122.3 ) $ ( 312.0 ) $ ( 249.1 ) 

 A reconciliation of the statutory federal tax rate to the effective tax rate is as follows: 
 
 Year Ended December 31, 
 2019 2020 2021 
 Statutory federal tax rate 21.0 % 21.0 % 21.0 % 
 State taxes, net of federal benefit 6.1 % 2.4 % ( 0.3 ) % 
 Tax rate differentials for international jurisdictions ( 2.7 ) % ( 2.5 ) % 0.4 % 
 Research and development credit 2.4 % 2.9 % ( 0.4 ) % 
 
 Effects of other enacted tax law and rate changes ( 3.9 ) % ( 0.4 ) % ( 0.3 ) % 
 Valuation allowance ( 2.0 ) % ( 0.5 ) % ( 0.7 ) % 
 Share-based compensation ( 2.1 ) % ( 0.3 ) % 0.1 % 
 Nondeductible compensation — % ( 2.2 ) % ( 2.5 ) % 
 Tax impact of goodwill impairment — % — % ( 4.4 ) % 
 Other, net ( 2.4 ) % 0.8 % ( 0.5 ) % 
 Effective tax rate 16.4 % 21.2 % 12.4 % 

 Deferred Taxes 
 
 Deferred income taxes reflect the net effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes using the enacted tax rates in effect for the year in which the differences are expected to be reversed. Significant components of our deferred tax assets and liabilities are as follows: 
 
 - 122 - 

 Table of Contents 

 (In millions) December 31,
2020 December 31,
2021 
 Deferred tax assets: 
 Share-based compensation $ 15.6 $ 13.9 
 Accruals not currently deductible 21.3 18.9 
 Interest rate swaps 22.2 — 
 Finance lease liabilities 67.7 66.8 
 Net operating loss carryforwards 113.3 122.6 
 Foreign tax credit 33.5 34.4 
 Research and development credits 30.6 29.2 
 Depreciation and amortization 7.8 6.9 
 Disallowed interest carryforward 5.4 19.2 
 Operating lease liabilities 37.9 40.0 
 Other 17.7 15.7 
 Total gross deferred tax assets 373.0 367.6 
 Valuation allowance ( 54.4 ) ( 58.3 ) 
 Total net deferred tax assets 318.6 309.3 
 Deferred tax liabilities: 
 Depreciation and amortization 484.5 443.6 
 Prepaids 1.3 1.0 
 Finance lease liabilities 4.4 6.2 
 
 Capitalized costs 13.9 12.4 
 Interest rate swaps — 5.4 
 Debt related 7.4 0.4 
 Operating right-of-use assets 36.2 38.4 
 Other 3.2 2.4 
 Total gross deferred tax liabilities 550.9 509.8 
 Net deferred tax liabilities $ 232.3 $ 200.5 

 As of December 31, 2021, we have $ 445.0 million of federal net operating loss carryforwards, $ 140.8 million of which expire at various dates through 2036, and $ 304.2 million of which have an indefinite carryforward period. Additionally, we have $ 68.2 million of federal tax credit carryforwards expiring at various dates through 2041. We have $ 127.3 million of foreign net operating losses, $ 7.2 million of which have carryforward periods ranging from 5 to 20 years, and $ 120.1 million of which have an indefinite carryforward period. Certain federal and foreign net operating loss carryforwards are subject to various limitations under Section 382 of the IRC and the applicable statutory foreign tax laws. We have disallowed interest expense carryforwards in the U.S. of $ 61.3 million that can be carried forward indefinitely. 
 
 We’ve recorded a valuation allowance with respect to certain of our deferred tax assets relating primarily to operating losses in certain U.S. state and foreign jurisdictions and federal foreign tax credits that we believe are not likely to be realized. For the rest of the deferred tax assets, valuation allowances were not deemed necessary based upon the determination that income created by reversing deferred tax liabilities will be sufficient to utilize deferred tax assets prior to the expiration of any applicable carryforward periods. 
 
 The effective tax rate for the year ended December 31, 2019 was primarily impacted by the current year global intangible low-taxed income inclusion, the impact of changes in income tax rates, changes in valuation allowances, R&D credits, changes to income tax reserves and other permanently nondeductible items. The effective tax rate for the year ended December 31, 2020 was primarily impacted by deductions disallowed by Section 162(m) of the IRC, the impact of changes in income tax rates, changes in valuation allowances, R&D credits, changes to income tax reserves and other permanently nondeductible items. The effective tax rate for the year ended December 31, 2021 was impacted by deductions disallowed by Section 162(m) of the IRC, changes in valuation allowances, the tax impact associated with a goodwill impairment, changes to income tax reserves and other permanently nondeductible items. 
 
 We do not permanently reinvest our foreign earnings due to the debt service requirements of our capital structure. Due to historic, internal tax restructurings, we have effectively recognized any tax impact of the repatriation of foreign earnings. Thus, as of December 31, 2021, there is no deferred tax liability for undistributed foreign earnings. 
 
 - 123 - 

 Table of Contents 

 Uncertain Tax Positions 
 
 We file income tax returns in each jurisdiction in which we operate, both domestically and internationally. Due to the complexity involved with certain tax matters, we have considered all relevant facts and circumstances for the financial statement recognition, measurement, presentation and disclosure of uncertain tax positions taken or expected to be taken in income tax returns. We believe that there are no other jurisdictions in which the outcome of uncertain tax matters is likely to be material to our results of operations, financial position or cash flows. We further believe that we have made adequate provision for all income tax uncertainties. 
 
 A rollforward of unrecognized tax benefits, excluding accrued penalties and interest, for the years ended December 31, 2019, 2020 and 2021 is as follows: 
 
 Year Ended December 31, 
 (In millions) 2019 2020 2021 
 Balance, beginning of period $ 47.0 $ 53.2 $ 51.0 
 Additions based on tax positions related to the current year 4.1 4.9 9.0 
 
 Additions for tax positions of prior years 11.7 11.1 15.9 
 Reduction for statute expiration ( 2.7 ) ( 2.4 ) ( 16.7 ) 
 Reductions for tax positions of prior years ( 6.2 ) ( 15.8 ) ( 6.2 ) 
 Settlements ( 0.7 ) — ( 0.6 ) 
 Balance, end of period (1) 
 $ 53.2 $ 51.0 $ 52.4 

 (1) Included within non-current liabilities in the Consolidated Balance Sheets 
 
 Of the total amount of unrecognized tax benefits as of December 31, 2019, 2020 and 2021, $ 47.4 million, $ 42.3 million and $ 37.8 million, respectively, if recognized, would favorably impact our effective tax rate. We do not expect the amount of unrecognized tax benefits disclosed above to change significantly over the next 12 months. 
 
 We recognize interest expense and penalties related to income tax matters within “Benefit for income taxes” on our Consolidated Statements of Comprehensive Loss. Accrued interest and penalties as of December 31, 2019, 2020 and 2021 were $ 2.1 million, $ 2.4 million and $ 3.5 million, respectively. 
 
 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 currently file income tax returns in the U.S. and all foreign jurisdictions in which we have entities, which are periodically under audit by federal, state, and foreign tax authorities. These audits can involve complex matters that may require an extended period of time for resolution. We remain subject to U.S. federal and state income tax examinations for the tax years 2018 through 2021 and in the foreign jurisdictions in which we operate for varying periods from 2010 through 2021. In the third quarter of 2021, we had a release of historic tax reserves that resulted in a tax benefit of $ 13.4 million, due to the lapse of statute of limitations. We currently have income tax examinations open in Texas for tax years 2014 through 2017, Pennsylvania for 2018 and New York City for 2017 through 2019. Additionally, we are currently under tax audit in India for the fiscal year ended March 31, 2020. 
 
 Although the outcome of open tax audits is uncertain, in management’s opinion, adequate provisions for income taxes have been made. If actual outcomes differ materially from these estimates, they could have a material impact on our financial condition and results of operations. Differences between actual results and assumptions or changes in assumptions in future periods are recorded in the period they become known. To the extent additional information becomes available prior to resolution, such accruals are adjusted to reflect probable outcomes. 
 
 - 124 - 

 Table of Contents 

 15. Divestitures 
 
 On February 1, 2017, we completed the sale of assets of our Mailgun business for total consideration $ 40.2 million, which was comprised of an initial cash payment of $ 20.5 million, a promissory note receivable with principal amount of $ 20.0 million to be paid in annual installments over four years with a fair value of $ 14.8 million, and an equity interest in the new entity, Mailgun Technologies with a fair value of $ 4.9 million. As of December 31, 2018, we no longer had an equity interest in Mailgun Technologies. 
 
 In March 2019, we received $ 18.0 million in cash from Mailgun Technologies as repayment for the promissory note balance of $ 15.9 million, which included accrued interest of $ 1.2 million. As such, we recorded a gain of $ 2.1 million, which is reflected within "Gain on divestiture" in the Consolidated Statements of Comprehensive Loss for the year ended December 31, 2019. We did no t have any divestitures for the years ended December 31, 2020 or 2021. 
 
 - 125 - 

 Table of Contents 

 16. Acquisitions 
 
 Onica 
 
 On November 15, 2019, we acquired 100 % of Onica, an AWS Partner Network Premier Consulting Partner and AWS Managed Service Provider providing cloud-native consulting and managed services, including strategic advisory, architecture and engineering and application development services. Total consideration to acquire Onica was $ 323.4 million, net of cash acquired of $ 7.5 million, for a net purchase price of $ 315.9 million. Total consideration includes the purchase price adjustment resulting from the difference between net working capital on the date of acquisition compared to the estimated net working capital used to determine the closing consideration (the "Purchase Price Adjustment"). The acquisition was funded through a combination of cash on hand and revolving credit facility borrowings, which were repaid by December 31, 2019. This acquisition allows us to expand our portfolio of managed public cloud and professional services solutions and further enhance our existing partnership with AWS. 
 
 The purchase price allocation was finalized in November 2020. Goodwill primarily consisted of assembled workforce. None of the goodwill recorded as part of the Onica acquisition is deductible for tax purposes except for approximately $ 18 million assumed as a result of historical acquisitions made by Onica. 
 
 The final allocation of the purchase price as of the November 15, 2019 closing date is as follows: 
 
 (In millions) November 15, 2019 
 Onica acquisition consideration $ 323.4 
 Allocated to: 
 Cash and cash equivalents $ 7.5 
 Intangible assets 61.8 
 Liabilities assumed, net of other assets acquired ( 10.7 ) 
 Net assets acquired $ 58.6 
 Goodwill $ 264.8 

 Included in the fair value of identifiable intangible assets acquired was $ 41.3 million of customer relationships and $ 17.2 million for the relationship with AWS, with an amortization period of seven and four years , respectively. The AWS relationship is recorded within “Other” in the intangible assets table disclosed in Note 5, “Goodwill and Intangible Assets.” 
 
 During the year ended December 31, 2019, we recorded $ 7.7 million of costs, including legal, professional, and other fees, related to the Onica acquisition, within "Selling, general and administrative expenses" in the Consolidated Statements of Comprehensive Loss. 
 
 Onica’s results of operations from the November 15, 2019 acquisition date through December 31, 2019 were not material to our consolidated financial statements. 
 
 Pro Forma Results 
 
 The following unaudited pro forma summary presents consolidated financial information for the year ended December 31, 2019 as if the Onica acquisition had been completed as of January 1, 2019. This pro forma presentation does not include any impact of transaction synergies. The pro forma results are not necessarily indicative of the results of operations that actually would have been achieved had the acquisition of Onica been consummated as of January 1, 2019: 
 
 (In millions) Year Ended December 31, 2019 
 Revenue $ 2,551.1 
 Net loss $ ( 106.3 ) 

 - 126 - 

 Table of Contents 

 Measurement Period Adjustments 
 
 During the year ended December 31, 2020, we recorded measurement period adjustments to the preliminary amounts recorded as of November 15, 2019. We recorded a measurement period adjustment of $ 0.2 million to "Onica acquisition consideration" associated with the Purchase Price Adjustment and a net adjustment of $ 0.3 million to deferred taxes, for a total net decrease to goodwill of $ 0.5 million. The Purchase Price Adjustment is included in "Other investing activities" in the Consolidated Statements of Cash Flows. The impact of the adjustments recorded is as follows: 
 
 (In millions) As Previously Determined Measurement Period Adjustments Revised 
 Onica acquisition consideration $ 323.6 $ ( 0.2 ) $ 323.4 
 Liabilities assumed, net of other assets acquired 11.0 ( 0.3 ) 10.7 

 Bright Skies 
 
 On November 5, 2020, we acquired 100 % of Bright Skies, a cloud-native consulting and managed services provider. The acquisition of Bright Skies was not material to the consolidated financial statements. 
 
 - 127 - 

 Table of Contents 

 17. Derivatives 
 
 Interest Rate Swaps 
 
 Prior to January 9, 2020, none of our floating-to-fixed interest rate swap agreements were designated as cash flow hedges of interest rate risk for accounting purposes, therefore, all changes in the fair value of the interest rate swap agreements were recorded to "Interest expense" in the Consolidated Statements of Comprehensive Loss. On January 9, 2020, we designated certain of our swaps as cash flow hedges. On the designation date, the cash flow hedges were in a $ 39.9 million liability position. The cash flow hedges were expected to be highly effective on the designation date and, on a quarterly basis, we performed retrospective and prospective assessments to determine whether the cash flow hedges continued to be highly effective. As long as the cash flow hedges were highly effective, changes in fair value were recorded to "Accumulated other comprehensive income (loss)" in the Consolidated Balance Sheets and reclassified to "Interest expense" in the period when the underlying transaction affected earnings. The income tax effects of cash flow hedges were released from "Accumulated other comprehensive income (loss)" in the period when the underlying transaction affected earnings. Any stranded income tax effects were released from "Accumulated other comprehensive income (loss)" into "Benefit (provision) for income taxes" under the portfolio approach. As of December 31, 2020 , all of our cash flow hedges were highly effective. 
 
 During the year ended December 31, 2021, we completed a series of transactions to modify our interest rate swap positions as follows: (i) All the interest rate swaps outstanding as of December 31, 2020, as shown in the table below, with the exception of the agreement that matured on February 3, 2021, were de-designated as cash flow hedges on January 31, 2021, (ii) on February 12, 2021, we entered into a $ 900.0 million receive-fixed interest rate swap which was designed to offset the terms of the remaining two December 2016 swaps, and (iii) on February 12, 2021, we terminated all December 2018 swaps and entered into a $ 1.35 billion pay-fixed interest rate swap, effectively blending the liability position of our existing interest rate swap agreements into the new swap and extending the term of our hedged position to February 2026. 
 
 The amount remaining in “Accumulated other comprehensive income (loss)" for the de-designated December 2016 and December 2018 swaps at the de-designation date was app roximately $ 51.6 million, and is being amortized as an increase to "Interest expense" over the effective period of the original swap agreements. 
 
 The new receive-fixed interest rate swap qualifies as a hybrid instrument in accordance with ASC No. 815, Derivatives and Hedging , consisting of a loan and an embedded derivative for which the fair value option has been elected. This $ 900.0 million swap will remain undesignated to economically offset the now undesignated December 2016 swaps. This new swap and the December 2016 swaps mature on February 3, 2022. Cash settlements related to this receive-fixed interest rate swap will offset and are classified as operating activities in the Consolidated Statements of Cash Flows. The new pay-fixed interest rate swap also qualifies as a hybrid instrument in accordance with ASC No. 815, Derivatives and Hedging , consisting of a loan and an embedded at-market derivative that was designated as a cash flow hedge. The loan is accounted for at amortized cost over the life of the swap while the embedded at-market derivative is accounted for at fair value. This new $ 1.35 billion swap is indexed to three-month LIBOR and is being net settled on a quarterly basis with the counterparty for the difference between the fixed rate of 2.3820 % and the variable rate based upon three-month LIBOR (subject to a floor of 0.75 %) as applied to the notional amount of the swap. In connection with the transactions discussed above, no cash was exchanged between us and the counterparty. The liability of the terminated interest rate swaps as well as the inception value of the receive-fixed interest rate swap was blended into the new pay-fixed interest rate swap. The cash flows related to the portion treated as debt is classified in financing activities in the Consolidated Statements of Cash Flows while the portion treated as an at-market derivative is classified in operating activities. 
 
 As of December 31, 2021 , the cash flow hedge was highly effective. 
 
 - 128 - 

 Table of Contents 

 The key terms of interest rate swaps outstanding are presented below: 
 
 Effective Date Fixed Rate Paid (Received) December 31, 2020 December 31, 2021 
 Notional Amount (in millions) Status Notional Amount (in millions) Status Maturity Date 
 
 Entered into December 2016: 
 February 3, 2017 1.7625 % $ 150.0 Active $ — Matured February 3, 2021 
 February 3, 2017 1.9040 % 450.0 Active 450.0 Active February 3, 2022 
 February 3, 2017 1.9040 % 450.0 Active 450.0 Active February 3, 2022 
 
 Entered into December 2018: 
 February 3, 2019 2.7490 % 150.0 Active — Terminated November 3, 2023 
 February 3, 2020 2.7350 % 150.0 Active — Terminated November 3, 2023 
 February 3, 2021 2.7360 % 150.0 Active — Terminated November 3, 2023 
 February 3, 2022 2.7800 % 900.0 Active — Terminated November 3, 2023 
 
 Entered into February 2021: 
 February 3, 2021 ( 1.9040 )% — N/A ( 900.0 ) Active February 3, 2022 
 February 9, 2021 2.3820 % — N/A 1,350.0 Active February 9, 2026 
 Total $ 2,400.0 $ 1,350.0 

 Foreign Currency Hedging Contracts 
 
 In November 2018, we entered into one foreign currency forward contract. Under the terms of the contract, we sold £ 75 million at a rate of 1.3002 British pound sterling to U.S. dollar and received $ 97.5 million. This contract settled on November 29, 2019 and we received a final net payment of $ 0.8 million. 
 
 In November 2019, we entered into two foreign currency net-zero cost collar contracts with an aggregate notional amount of £ 100 million and a maturity date of November 30, 2020. Under the terms of the contracts, the British pound sterling to U.S. dollar exchange rate floats between 1.2375 and 1.3475 . On March 26, 2020, we settled one of these contracts, with an aggregate notional amount of £ 50 million, and we received a final net payment of $ 1.9 million and on November 19, 2020, we settled the remaining contract, with an aggregate notional amount of £ 50 million, and we made a final net payment of $ 0.2 million. 
 
 During 2020, we entered into a series of foreign currency contracts to manage our exposure to movements in the British pound sterling, Euro, and Mexican peso. These contracts had three-month terms and settled at various dates throughout the year, which resulted in us making aggregate payments of $ 5.4 million. As of December 31, 2020, there was no notional amount outstanding related to these contracts. 
 
 During the fourth quarter of 2020, we entered into two foreign currency forward contracts. Under the terms of these contracts, we sold a total of £ 80 million at an average rate of 1.3388 British pound sterling to U.S. dollar and received $ 107.1 million. These contracts settled on November 30, 2021 and we received a final net payment of $ 0.4 million. 
 
 - 129 - 

 Table of Contents 

 Fair Values of Derivatives on the Consolidated Balance Sheets 
 
 The fair values of our derivatives and their location on the Consolidated Balance Sheets as of December 31, 2020 and 2021 were as follows: 
 
 December 31, 2020 December 31, 2021 
 (In millions) Assets Liabilities Assets Liabilities 
 Derivatives not designated as hedging instruments Location 
 Interest rate swaps Other current assets (1) 
 $ — $ — $ 1.5 $ — 
 
 Interest rate swaps Other current liabilities — — — 1.5 
 
 Foreign currency contracts Other current liabilities — 1.7 — — 
 Total $ — $ 1.7 $ 1.5 $ 1.5 
 
 Derivatives designated as hedging instruments Location 
 
 Interest rate swaps Other non-current assets — — 23.6 — 
 Interest rate swaps Other current liabilities (2) 
 — 22.6 — 20.8 
 Interest rate swaps Other non-current liabilities (3) 
 — 64.4 — 56.4 
 Total $ — $ 87.0 $ 23.6 $ 77.2 

 (1) The entire balance as of December 31, 2021 is comprised of the receive-fixed interest rate swap for which the fair value option has been elected. 
 (2) The balance as of December 31, 2021 includes $ 17.2 million related to the financing component of the pay-fixed interest rate swap. 
 (3) The entire balance as of December 31, 2021 is comprised of the financing component of the pay-fixed interest rate swap. 
 
 For financial statement presentation purposes, we do not offset assets and liabilities under master netting arrangements and all amounts above are presented on a gross basis. The following table, however, is presented on a net asset and net liability basis: 
 
 December 31, 2020 December 31, 2021 
 (In millions) Gross Amounts on Balance Sheet Effect of Counter-Party Netting Net Amounts Gross Amounts on Balance Sheet Effect of Counter-Party Netting Net Amounts 
 Assets 
 Interest rate swaps $ — $ — $ — $ 25.1 $ ( 25.1 ) $ — 
 
 Liabilities 
 Interest rate swaps $ 87.0 $ — $ 87.0 $ 78.7 $ ( 25.1 ) $ 53.6 
 Foreign currency contracts 1.7 — 1.7 — — — 
 Total $ 88.7 $ — $ 88.7 $ 78.7 $ ( 25.1 ) $ 53.6 

 - 130 - 

 Table of Contents 

 Effect of Derivatives on the Consolidated Statements of Comprehensive Loss 
 
 The effect of our derivatives and their location on the Consolidated Statements of Comprehensive Loss for the years ended December 31, 2019, 2020 and 2021 was as follows: 
 
 Year Ended December 31, 
 (In millions) 2019 2020 2021 
 Derivatives not designated as hedging instruments Location 
 Interest rate swaps Interest expense $ ( 51.6 ) $ ( 3.2 ) $ ( 19.1 ) 
 
 Foreign currency contracts Other income (expense), net ( 1.6 ) ( 3.8 ) 2.1 
 
 Derivatives designated as hedging instruments Location 
 Interest rate swaps Interest expense $ — $ ( 11.0 ) $ ( 6.2 ) 

 Interest expense was $ 329.9 million, $ 268.4 million and $ 205.1 million for the years ended December 31, 2019, 2020 and 2021, respectively. As of December 31, 2021, the amount of cash flow hedge losses included within "Accumulated other comprehensive income (loss)" that is expected to be reclassified as an increase to "Interest expense" over the next 12 months is approximately $ 23.0 million. See Note 18, "Accumulated Other Comprehensive Income (Loss)," for information regarding changes in fair value of our derivatives designated as hedging instruments. 
 
 Credit-risk-related Contingent Features 
 
 We have agreements with interest rate swap counterparties that contain a provision whereby if we default on any of our material indebtedness, then we could also be declared in default of our interest rate swap agreements. As of December 31, 2021, our interest rate swap agreements with an aggregate fair value of $ 78.7 million were in a net liability position. However, if we were in default, our master netting arrangements with certain of our interest rate swap counterparties contain provisions which could result in net settlement of all outstanding agreements. 
 - 131 - 

 Table of Contents 

 18. Accumulated Other Comprehensive Income (Loss) 
 
 Accumulated other comprehensive income (loss) consisted of the following: 
 
 (In millions) Accumulated Foreign Currency Translation Adjustments Accumulated Loss on Derivative Contracts Accumulated Other Comprehensive Income (Loss) 
 Balance at December 31, 2018 $ — $ — $ — 
 Foreign currency translation adjustments, net of tax benefit of $ 0.2 million 
 12.0 — 12.0 
 
 Balance at December 31, 2019 $ 12.0 $ — $ 12.0 
 Foreign currency translation adjustments, net of tax expense of $ 1.1 million 
 8.8 — 8.8 
 Unrealized loss on derivative contracts, net of tax benefit of $ 16.3 million 
 — ( 47.6 ) ( 47.6 ) 
 Amount reclassified from Accumulated comprehensive income (loss) into earnings, net of tax benefit of $ 2.8 million (1) 
 — 8.2 8.2 
 Balance at December 31, 2020 $ 20.8 $ ( 39.4 ) $ ( 18.6 ) 
 Foreign currency translation adjustments, net of tax benefit of $ 0.6 million 
 ( 3.6 ) — ( 3.6 ) 
 Unrealized gain on derivative contracts, net of tax expense of $ 3.9 million 
 — 11.5 11.5 
 Amount reclassified from Accumulated comprehensive income (loss) into earnings, net of tax benefit of $ 6.0 million (2) 
 — 17.6 17.6 
 Balance at December 31, 2021 $ 17.2 $ ( 10.3 ) $ 6.9 

 (1) Includes interest expense recognized of $ 16.8 million, partially offset by amortization of off-market swap value of $ 5.8 million for the year ended December 31, 2020. 
 (2) Includes interest expense recognized of $ 6.4 million and amortization of off-market swap value and accumulated loss at hedge de-designation of $ 17.1 million for the year ended December 31, 2021. 
 
 - 132 - 

 Table of Contents 

 19. Related Party Transactions 
 
 On November 3, 2016, Rackspace Technology Global entered into management consulting agreements with affiliates of Apollo and Searchlight and on November 15, 2017, in connection with the Datapipe acquisition, Rackspace Technology Global entered into a management consulting agreement with ABRY. Under these agreements, we were required to pay them a quarterly, nonrefundable fee for consulting services in areas such as finance, strategy, investment, and acquisitions based on EBITDA, as defined in the First Lien Credit Agreement. For Apollo and Searchlight, the consulting fee was equal to 1.5 % of EBITDA, or a minimum annual consulting fee of $ 10.0 million. Under the ABRY agreement, the consulting fee was equal to a specified percentage of 1.5 % of EBITDA. For the years ended December 31, 2019 and 2020, we recorded $ 12.9 million and $ 8.4 million, respectively, of management consulting fees within "Selling, general and administrative expenses" in the Consolidated Statements of Comprehensive Loss. 
 
 In addition, we were required to pay a fee related to acquisitions. In connection with the 2019 acquisition of Onica, we recorded $ 3.3 million in fees to affiliates of Apollo, Searchlight, and ABRY within "Selling, general and administrative expenses" in the Consolidated Statements of Comprehensive Loss. 
 
 On July 24, 2020, we executed termination letters with each of the parties to the above agreements, whereby all such agreements terminated effective as of the pricing of the IPO on August 4, 2020. Therefore no management consulting or acquisition-related fees were accrued or were payable under any of these agreements for periods subsequent to August 4, 2020. 
 
 As part of the IPO, Apollo Global Securities, an affiliate of Apollo, received fees of $ 2.7 million in connection with their role as an underwriter in the IPO. 
 
 Apollo Global Securities also received $ 0.6 million in connection with their role as an initial purchaser of the 5.375 % Senior Notes issued on December 1, 2020, $ 0.6 million in connection with their role as an initial purchaser of the 3.50 % Senior Secured Notes issued on February 9, 2021, and $ 2.3 million in arranger fees in connection with the entry into the Term Loan Facility on February 9, 2021. 
 
 Affiliates of ABRY are also Term Loan Facility lenders under the First Lien Credit Agreement. As of December 31, 2021, the outstanding principal amount of the Term Loan Facility was $ 2,282.8 million, of which $ 48.6 million, or 2.1 %, is due to ABRY affiliates. 
 
 On February 2, 2021, we issued 2,665,935 shares of common stock to DPH 123, LLC, an ABRY affiliate, for no additional consideration pursuant to the Agreement and Plan of Merger, dated as of September 6, 2017, in connection with our November 15, 2017 acquisition of Datapipe. 
 - 133 - 

 Table of Contents 

 20. Segment Reporting 
 
 We have organized our operations into the following three operating segments, which correspond directly to our reportable segments: Multicloud Services, Apps & Cross Platform, and OpenStack Public Cloud. Our segments are based upon a number of factors, including, the basis for our budgets and forecasts, organizational and management structure and the financial information regularly used by our Chief Operating Decision Maker to make key decisions and to assess performance. We assess financial performance of our segments on the basis of revenue and segment gross profit. For the calculation of segment gross profit, we allocate certain costs, such as data center operating costs, customer support costs, license expense, and depreciation, to our segments generally based on segment revenue. 
 
 The table below presents a reconciliation of revenue by reportable segment to consolidated revenue and a reconciliation of consolidated segment gross profit to consolidated loss before income taxes for the years ended December 31, 2019, 2020 and 2021. 
 
 Year Ended December 31, 
 (In millions) 2019 2020 2021 
 Revenue by segment: 
 Multicloud Services $ 1,832.6 $ 2,141.5 $ 2,449.1 
 Apps & Cross Platform 319.2 336.6 377.6 
 OpenStack Public Cloud 286.3 229.0 182.8 
 
 Total consolidated revenue $ 2,438.1 $ 2,707.1 $ 3,009.5 
 
 Segment gross profit: 
 Multicloud Services $ 774.7 $ 810.2 $ 793.4 
 Apps & Cross Platform 118.7 115.5 135.9 
 OpenStack Public Cloud 146.0 100.3 67.1 
 
 Total consolidated segment gross profit 1,039.4 1,026.0 996.4 
 Less: 
 Share-based compensation expense ( 5.7 ) ( 14.5 ) ( 16.7 ) 
 Other compensation expense (1) 
 ( 2.8 ) ( 5.9 ) ( 2.7 ) 
 Purchase accounting impact on revenue (2) 
 0.2 — — 
 Purchase accounting impact on expense (2) 
 ( 9.6 ) ( 5.9 ) ( 4.7 ) 
 Restructuring and transformation expenses (3) 
 ( 10.3 ) ( 15.3 ) ( 35.5 ) 
 Selling, general and administrative expenses ( 911.7 ) ( 959.7 ) ( 906.8 ) 
 Impairment of goodwill — — ( 52.4 ) 
 Gain on divestiture 2.1 — — 
 Gain on sale of land — — 19.9 
 Interest expense ( 329.9 ) ( 268.4 ) ( 205.1 ) 
 Gain (loss) on investments, net 99.5 0.7 ( 3.0 ) 
 Debt modification costs and extinguishment gain (loss) 9.8 ( 71.5 ) ( 37.5 ) 
 Other income (expense), net ( 3.3 ) 2.5 ( 1.0 ) 
 Total consolidated loss before income tax $ ( 122.3 ) $ ( 312.0 ) $ ( 249.1 ) 

 (1) Adjustments for retention bonuses, mainly in connection with restructuring and transformation projects, and the related payroll tax, and payroll taxes associated with the exercise of stock options and vesting of restricted stock. 
 (2) Adjustment for the impact of purchase accounting from the Rackspace Acquisition on revenue and expenses. 
 (3) Adjustment for the impact of business transformation and optimization activities, as well as associated severance, facility closure costs and lease termination expenses. This amount also includes certain costs associated with the July 2021 Restructuring Plan which are not accounted for as exit and disposal costs under ASC 420, including one-time offshore build out costs. 
 
 Management does not use total assets by segment to evaluate segment performance or allocate resources. As such, total assets by segment are not disclosed. 
 - 134 - 

 Table of Contents 

 Geographic Information 
 
 The tables below present revenue by geographic region and by country for the years ended December 31, 2019, 2020 and 2021. Revenue amounts are based upon the location of the support function servicing the cus tomer. 
 
 Year Ended December 31, 
 (In millions) 2019 2020 2021 
 Americas $ 1,787.5 $ 2,027.8 $ 2,253.4 
 EMEA 564.6 585.2 632.9 
 APJ 86.0 94.1 123.2 
 Total revenue $ 2,438.1 $ 2,707.1 $ 3,009.5 

 Year Ended December 31, 
 (In millions) 2019 2020 2021 
 United States $ 1,735.3 $ 1,948.0 $ 2,157.0 
 United Kingdom 564.6 583.6 542.3 
 Other foreign countries (1) 
 138.2 175.5 310.2 
 Total revenue $ 2,438.1 $ 2,707.1 $ 3,009.5 

 (1) No other foreign country had revenue that exceeded 10% of total consolidated revenue for the years ended December 31, 2019, 2020 and 2021. 
 
 The table below presents property, equipment and software, net by country, based on the physical location of the assets, as of December 31, 2020 and 2021: 
 
 (In millions) December 31,
2020 December 31,
2021 
 United States $ 684.3 $ 652.8 
 United Kingdom 170.9 146.1 
 Other foreign countries (1) 
 29.4 27.8 
 Total property, equipment and software, net $ 884.6 $ 826.7 

 (1) No other foreign country had property, equipment and software, net that exceeded 10% of total consolidated property, equipment and software, net as of December 31, 2020 and 2021 . 
 
 - 135 - 

 Table of Contents 

 21. Condensed Financial Information of Registrant (Parent Company Only) 
 
 RACKSPACE TECHNOLOGY, INC. (Parent Company Only) 
 CONDENSED BALANCE SHEETS 
 
 (In millions, except per share data) December 31,
2020 December 31,
2021 
 ASSETS 
 Investment in subsidiaries of Parent $ 1,383.7 $ 1,327.4 
 Total assets $ 1,383.7 $ 1,327.4 
 LIABILITIES AND STOCKHOLDERS' EQUITY 
 Stockholders' equity: 
 Preferred stock, $ 0.01 par value per share: 5.0 shares authorized; no shares issued or outstanding 
 — — 
 Common stock, $ 0.01 par value per share: 1,495.0 shares authorized; 201.8 and 211.2 shares issued and outstanding, respectively 
 2.0 2.1 
 Additional paid-in capital 2,363.6 2,500.0 
 Accumulated other comprehensive income (loss) ( 18.6 ) 6.9 
 Accumulated deficit ( 963.3 ) ( 1,181.6 ) 
 Total stockholders' equity 1,383.7 1,327.4 
 Total liabilities and stockholders' equity $ 1,383.7 $ 1,327.4 

 The accompanying note is an integral part of these condensed financial statements. 
 
 RACKSPACE TECHNOLOGY, INC. (Parent Company Only) 
 CONDENSED STATEMENTS OF COMPREHENSIVE LOSS 
 
 Year Ended December 31, 
 (In millions, except per share data) 2019 2020 2021 
 Equity in net losses in Parent's subsidiaries $ ( 102.3 ) $ ( 245.8 ) $ ( 218.3 ) 
 Net loss and total comprehensive loss $ ( 102.3 ) $ ( 245.8 ) $ ( 218.3 ) 
 Net loss per share 
 Basic and diluted $ ( 0.62 ) $ ( 1.37 ) $ ( 1.05 ) 
 Weighted average number of shares outstanding: 
 Basic and diluted 165.3 179.6 208.0 
 
 The accompanying note is an integral part of these condensed financial statements. 
 
 A condensed statement of cash flows has not been presented as Rackspace Technology did not have any cash as of, or at any point in time during, the years ended December 31, 2019, 2020 and 2021. 
 
 NOTE TO CONDENSED FINANCIAL STATEMENTS OF REGISTRANT (Parent Company Only) 
 
 Basis of Presentation 
 
 These condensed parent company-only financial statements have been prepared in accordance with Rule 12-04, Schedule I of Regulation S-X, as the restricted net assets of the subsidiaries of Rackspace Technology, Inc. (“Parent”) (as defined in Rule 4-08(e)(3) of Regulation S-X) exceed 25% of the consolidated net assets of the Parent. The ability of Parent’s operating subsidiaries to pay dividends may be restricted due to the terms of the subsidiaries’ First Lien Credit Agreement and the Indentures, as described in Note 7, “Debt” to the audited consolidated financial statements. 
 
 These condensed parent company financial statements have been prepared using the same accounting principles and policies described in the notes to the consolidated financial statements, with the only exception being that the parent company accounts for its subsidiaries using the equity method. These condensed financial statements should be read in conjunction with the audited consolidated financial statements and related notes thereto included elsewhere in this report. 
 
 - 136 - 

 Table of Contents 

 ITEM 9 – CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE 
 
 None.
Rackspace Technology, Inc. 10-K

Item 8. Financial Statements and Supplementary Data
