What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2023-03-16 compared with 2022-03-01 · 314 added, 281 removed, 1196 unchanged (33% of the section changed)

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Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, 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

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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.

Interim Goodwill Impairment Assessments - Multicloud Services and Apps & Cross Platform Reporting Units

As described in Notes 1 and 5 to the consolidated financial statements, the Company’s consolidated net goodwill balance was $2,155.1 million as of December 31, 2022, and the goodwill associated with the Multicloud Services and Apps & Cross Platform reporting units was $1,956.4 million and $198.7 million, respectively.

Goodwill represents the excess of the purchase price over the fair value of identifiable net assets of businesses acquired.

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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;

During the third quarter of 2022, the Company experienced a sustained decline in its stock price resulting in the market capitalization being less than the carrying value of the combined reporting units.

After considering all available evidence in the evaluation of goodwill impairment indicators, management determined it appropriate to perform an interim quantitative assessment of the reporting units as of September 1, 2022.

As a result of this assessment, management recorded a non-cash impairment charge of $405.2 million for Multicloud Services reporting unit.

During the fourth quarter of 2022, subsequent to the annual goodwill impairment analysis, the Company experienced a decline in its market capitalization following a ransomware incident.

As a result of this assessment, management recorded a non-cash impairment charge of $129.3 million for Apps & Cross Platform reporting unit.

Management estimated the fair values of each of the reporting units using the income approach, specifically the discounted cash flow method.

The discounted cash flow models reflect management’s assumptions regarding revenue growth rates, projected gross profit margins, risk-adjusted discount rates, terminal period growth rates, economic and market trends and other expectations about the anticipated operating results of the Company’s reporting units.

The principal considerations for our determination that performing procedures relating to the interim goodwill impairment assessments of the Multicloud Services and Apps & Cross Platform reporting units is a critical audit matter are (i) the significant judgment by management when developing the fair value estimates of the Multicloud Services and Apps & Cross Platform reporting units;

(ii) a high degree of auditor judgment, subjectivity, and effort in performing audit procedures and evaluating management’s significant assumptions related to revenue growth rates, projected gross profit margins and risk-adjusted discount rates;

and (iii) the audit effort involved the use of professionals with specialized skill and knowledge.

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;

These procedures included testing the effectiveness of controls relating to management’s interim goodwill impairment assessments, including controls over the valuation of the Multicloud Services and Apps & Cross Platform reporting units.

These procedures also included, among others, (i) testing management’s process for developing the fair value estimates of the Multicloud Services and Apps & Cross Platform reporting units, (ii) evaluating the appropriateness of the discounted cash flow models, (iii) testing the completeness and accuracy of underlying data used in the models, and (iv) evaluating the significant assumptions used by management related to revenue growth rates, projected gross profit margins and risk-adjusted discount rates.

Evaluating management’s significant assumptions related to revenue growth rates and projected gross profit margins involved evaluating whether the assumptions used by management were reasonable considering (i) the current and past performance of the reporting units;

(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.

Professionals with specialized skill and knowledge were used to assist in evaluating (i) the appropriateness of the Company’s discounted cash flow models and (ii) the reasonableness of the risk-adjusted discount rate assumptions.

/s/ PricewaterhouseCoopers LLP

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Cash and cash equivalents $ 272.8 $ 228.4

Accounts receivable, net of allowance for doubtful accounts and accrued customer credits of $ 28.3 and $ 18.4 , respectively

Accounts receivable, net of allowance for credit losses and accrued customer credits of $ 18.4 and $ 24.6 , respectively

Prepaid expenses 110.0 97.3

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1,495.0 shares authorized;

201.8 and 211.2 shares issued and outstanding, respectively

211.2 and 215.7 shares issued;

211.2 and 212.6 shares outstanding, respectively

Additional paid-in capital 2,500.0 2,573.3

Accumulated other comprehensive income (loss) ( 18.6 ) 6.9

Accumulated other comprehensive income 6.9 71.4

Accumulated deficit ( 1,181.6 ) ( 1,986.4 )

Treasury stock, at cost;

zero and 3.1 shares held, respectively

Total stockholders' equity 1,327.4 629.5

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Impairment of goodwill — ( 52.4 ) ( 534.5 )

Gain on divestiture 2.1 — —

Impairment of assets — — ( 146.1 )

Gain on sale of land — 19.9 —

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Gain (loss) on investments, net 0.7 ( 3.0 ) ( 0.2 )

Debt modification costs and extinguishment gain (loss) 9.8 ( 71.5 ) ( 37.5 )

Debt modification and extinguishment costs ( 71.5 ) ( 37.5 ) —

Other income (expense), net 2.5 ( 1.0 ) ( 10.0 )

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Impairment of goodwill — 52.4 534.5

Gain on divestiture ( 2.1 ) — —

Impairment of assets — — 146.1

Gain on sale of land — ( 19.9 ) —

Debt modification costs and extinguishment (gain) loss ( 9.8 ) 71.5 37.5

Debt modification and extinguishment costs 71.5 37.5 —

Unrealized (gain) loss on derivative contracts ( 2.3 ) 16.8 18.5

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Amortization of debt issuance costs and debt discount 18.0 8.8 8.0

Non-cash fair value adjustments — — 3.2

Other operating activities ( 1.4 ) ( 2.1 ) ( 0.2 )

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Proceeds from sale of land — 31.3 —

Proceeds from divestiture 16.8 — —

Proceeds from sales of investments 0.9 — —

Purchase of convertible promissory note — — ( 15.0 )

Other investing activities ( 3.3 ) 8.1 5.2

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Shares of common stock withheld for employee taxes ( 2.1 ) — —

Repurchase of common stock ( 2.2 ) — —

Cash settlement of share-based awards ( 1.5 ) — —

Shares of common stock repurchased — — ( 31.0 )

Proceeds from borrowings under long-term debt arrangements 860.0 2,838.5 —

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Principal payments of financing obligations ( 54.4 ) ( 55.9 ) ( 49.0 )

Other financing activities — — ( 3.3 )

Net cash provided by (used in) financing activities 29.9 ( 132.2 ) ( 187.0 )

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Acquisition of property, equipment and software by financing obligations 27.8 44.7 7.1

Decrease in property, equipment and software accrued in liabilities ( 4.0 ) ( 13.4 ) ( 10.6 )

Increase (decrease) in property, equipment and software accrued in liabilities ( 13.4 ) ( 10.6 ) 17.6

Non-cash purchases of property, equipment and software $ 108.1 $ 94.5 $ 61.4

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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

(In millions) Common Stock Additional Paid-In Capital Accumulated Other Comprehensive Income (Loss) Accumulated Deficit Treasury Stock, at Cost Total Stockholders' Equity

Shares Amount Shares Amount

Balance at December 31, 2019 165.4 $ 1.6 $ 1,602.7 $ 12.0 $ ( 717.5 ) — $ — $ 898.8

Cumulative effect of adopting ASC 842 — — — — 55.9 55.9

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

Repurchase of common stock ( 0.2 ) — ( 2.2 ) — — ( 2.2 )

Cash settlement of share-based awards — — ( 1.5 ) — — ( 1.5 )

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 income — — — 12.0 — 12.0

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, net of shares withheld 2.5 — 23.4 — — 23.4

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

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Net loss — — — — ( 218.3 ) — — ( 218.3 )

Other comprehensive loss — — — ( 30.6 ) — ( 30.6 )

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

Issuance of common stock 2.7 — — — — —

Exercise of stock options and release of stock awards 3.7 0.1 0.7 — — — — 0.8

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Other comprehensive income — — — 64.5 — — — 64.5

Repurchase of common stock — — — — — 3.1 ( 31.0 ) ( 31.0 )

Balance at December 31, 2022 215.7 $ 2.2 $ 2,573.3 $ 71.4 $ ( 1,986.4 ) 3.1 $ ( 31.0 ) $ 629.5

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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.

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.

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.

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.

On January 18, 2022, we acquired 100 % of Just Analytics, a leading provider of cloud-based data, analytics, and artificial intelligence services based in the APJ region.

The acquisition was completed for $ 7.7 million in cash consideration, net of cash acquired, together with future deferred payments that are considered post-combination compensation costs and will be recognized over the next three years .

The acquisition of Just Analytics was not material to the consolidated financial statements.

The accompanying consolidated financial statements include the accounts of Rackspace Technology and our wholly-owned subsidiaries.

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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.

On an ongoing basis, we evaluate our estimates, including those related to the allowance for credit losses, 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.

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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.

however, there are remaining uncertainties as a result of COVID-19, particularly the possibility of new variant strain(s) of the virus, the potential resurgence in the spread of the virus and the pace of economic recovery, which continue to impact the estimates and assumptions needed to prepare our consolidated financial statements and footnotes.

Russia and Ukraine Conflict

Political and economic uncertainty surrounding the Conflict between Russia and Ukraine could have a material adverse effect on our business.

Currently, the conflict has not had a significant impact on our operations or financial performance.

However, our overall performance depends in part on worldwide economic and geopolitical conditions.

We are monitoring the situation and the potential for the conflict to spread to other countries which could adversely impact our customers and operations, and we may take actions that modify our business operations as may be required by federal, state or local authorities, or that we determine are in the best interests of our employees, customers, partners, suppliers and stockholders.

Subsequent Events

Effective on January 1, 2023, we reorganized around a two -business unit operating model, Public Cloud and Private Cloud.

This two -business unit operating model ensures increased focus, delivery, and service quality for our customers.

Beginning in 2023, we will change our segment reporting to reflect this reorganization under three reporting segments:

Public Cloud, Private Cloud and OpenStack Public Cloud.

Cash, Cash Equivalents, and Restricted Cash

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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.

Assets classified as held for sale are recorded at the lower of carrying value or its estimated fair value, less costs to sell, and no depreciation and amortization is recorded after the held for sale classification is met.

As of December 31, 2022, our corporate headquarters property was classified as held for sale.

The property's previous carrying amount was written down to its estimated fair value, less estimated cost to sell, resulting in an impairment charge of $ 70.6 million for the year ended December 31, 2022.

We also wrote-off the remaining $ 4.8 million net book value of the related property tax abatement asset.

See Note 4, "Property, Equipment and Software, net" and Note 5, "Goodwill and Intangible Assets" for more information.

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.

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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.

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.

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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.

As of September 1, 2022, prior to performing the goodwill impairment analysis discussed below, we performed a recoverability test of our long-lived assets by asset group, including finite-lived intangible assets, in which we estimated the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset or asset group .

Based on the results of the recoverability test, we determined that, as of September 1, 2022, the carrying amount of the OpenStack Public Cloud asset group’s underlying assets exceeded the sum of the undiscounted cash flows, and therefore is subject to the fair value test .

Fair values of the OpenStack Public Cloud long-lived assets were determined using a combination of the income approach and the cost approach.

The income approach utilized assumptions including management’s best estimates of the expected future cash flows, risk-adjusted discount rate, and the estimated useful life of the asset group.

The cost approach utilized assumptions for the current replacement costs of similar assets adjusted for estimated depreciation and deterioration of the existing equipment and economic obsolescence.

Estimates of floor values for the property, equipment and software, net, were considered relative to potential economic support for the assets such that the concluded value did not fall below the estimated floor value of these assets.

As a result of the fair value test, we recorded non-cash impairment charges totaling $ 37.7 million related to property, equipment and software, net and intangible assets, which are included in "Impairment of assets" on our Consolidated Statements of Comprehensive Loss for the year ended December 31, 2022.

We also performed recoverability tests of our long-lived assets in conjunction with the goodwill impairment analyses as of October 1, 2022 and December 31, 2022 which did not result in any impairment charges.

See Note 4, "Property, Equipment and Software, net," and Note 5, "Goodwill and Intangible Assets," for more information.

Goodwill and Indefinite-Lived Intangible Assets

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These events or circumstances could include a significant change in the business climate, regulatory environment, established business plans, operating performance indicators or competition.

Potential impairment indicators may also include, but are not limited to, (i) significant changes to estimates and assumptions used in the most recent annual or interim impairment testing, (ii) downward revisions to internal forecasts, and the magnitude thereof, (iii) declines in our market capitalization below our book value, and the magnitude and duration of those declines, and (iv) other macroeconomic factors, such as increases in interest rates that may affect the weighted average cost of capital, volatility in the equity and debt markets, or fluctuations in foreign currency exchange rates that may negatively impact our reported results of operations.

During the third quarter of 2022, we experienced a sustained decline in our stock price resulting in our market capitalization being less than the carrying value of our combined reporting units.

As of September 1, 2022, we assessed several events and circumstances that could affect the significant inputs used to determine the fair value of our reporting units, including the significance of the amount of excess carrying value over fair value, consistency of operating margins and cash flows, budgeted-to-actual performance from prior year, overall change in economic climate, changes in the industry and competitive environment, and earnings quality and sustainability.

In addition, as of September 1, 2022, we lowered our projected operating results primarily due to product mix shifts and market concerns related to inflation and other macroeconomic factors.

After considering all available evidence in our evaluation of goodwill impairment indicators, we determined it appropriate to perform an interim quantitative assessment of our reporting units as of September 1, 2022.

During the fourth quarter of 2022, subsequent to our annual goodwill impairment analysis, we experienced a decline in our market capitalization following a ransomware incident in early December which caused service disruptions on our Hosted Exchange email business which is included in our Apps & Cross Platform reporting unit.

After considering all available evidence in our evaluation of goodwill impairment indicators, including our lowered projected operating results within this reporting unit, we determined it appropriate to perform an interim quantitative assessment of our reporting units as of December 31, 2022.

Goodwill is tested for impairment at the reporting unit level.

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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.

We have two reporting units with goodwill:

Multicloud Services and Apps & Cross Platform.

Goodwill allocated to our third reporting unit, OpenStack Public Cloud, was fully impaired during the fourth quarter of 2021.

For the goodwill impairment tests completed during the years ended December 31, 2020, 2021 and 2022, including the interim quantitative analyses, 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.

The discounted cash flow models reflect our assumptions regarding revenue growth rates, projected gross profit margins, risk-adjusted discount rates, terminal period growth rates, economic and market trends and other expectations about the anticipated operating results of our reporting units .

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, including OpenStack Public Cloud.

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.

The results of our interim quantitative goodwill impairment analysis performed as of September 1, 2022 indicated an impairment of goodwill within our Multicloud Services reporting unit, and we recorded a non-cash impairment charge of $ 405.2 million within "Impairment of goodwill" in our Consolidated Statements of Comprehensive Loss in the third quarter of 2022.

The results of our annual goodwill impairment test as of October 1, 2022 did not indicate any impairments of goodwill.

The results of our interim quantitative goodwill impairment analysis performed as of December 31, 2022 indicated an impairment of goodwill within our Apps & Cross Platform reporting unit, and we recorded a non-cash impairment charge of $ 129.3 million within "Impairment of goodwill" in our Consolidated Statements of Comprehensive Loss in the fourth quarter of 2022.

The results of our goodwill impairment test for the year ended December 31, 2021 indicated a full impairment of goodwill within our OpenStack Public Cloud reporting unit, and we recorded a non-cash impairment charge of $ 52.4 million within "Impairment of goodwill" in our Consolidated Statements of Comprehensive Loss.

The results of our goodwill impairment test for the year ended December 31, 2020 did no t indicate any impairments of goodwill.

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 indefinite-lived intangible asset is tested for impairment at the consolidated level.

In evaluating the Rackspace trade name for impairment, 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.

As of September 1, 2022, due to the factors discussed in the goodwill analysis above and prior to testing our goodwill for impairment, we performed a quantitative assessment of our indefinite-lived intangible asset utilizing a relief from royalty method and determined the estimated fair value of the Rackspace trade name was less than its carrying value.

As a result, we recorded a $ 21.0 million non-cash impairment charge which is included in "Impairment of assets" in our Consolidated Statements of Comprehensive Loss in the third quarter of 2022.

The results of our annual indefinite-lived asset impairment test as of October 1, 2022 did not indicate any impairment of the Rackspace trade name.

As of December 31, 2022, due to the factors discussed in the goodwill analysis above, we performed a quantitative assessment of our indefinite-lived intangible asset utilizing a relief from royalty method and determined the estimated fair value of the Rackspace trade name was less than its carrying value.

As a result, we recorded a $ 12.0 million non-cash impairment charge which is included in "Impairment of assets" in our Consolidated Statements of Comprehensive Loss in the fourth quarter of 2022.

The results of our indefinite-lived asset impairment tests for the years ended December 31, 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.

The fair value determination of our reporting units and our indefinite-lived intangible asset is judgmental in nature and requires the use of significant estimates and assumptions that are sensitive to changes.

Assumptions include 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.

As a result, there can be no assurance that the estimates and assumptions made for purposes of the quantitative goodwill and indefinite-lived intangible impairment tests will prove to be an accurate prediction of future results.

Examples of events or circumstances that could reasonably be expected to negatively affect the underlying key assumptions and ultimately impact the estimated fair value of our reporting units may include such items as:

(i) volatility in the equity and debt markets or other macroeconomic factors, (ii) an increase in the weighted-average cost of capital due to further increases in interest rates, (iii) decrease in future cash flows due to lower than expected sales, or (iv) fluctuations in foreign currency exchange rates that may negatively impact our reported results of operations.

Accordingly, if our current cash flow assumptions are not realized, we experience further sustained declines in our stock price or market capitalization, or increases in costs of capital, it is possible that an additional impairment charge may be recorded in the future, which could be material.

Business Combinations

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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.

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.

The aggregate carrying value of equity investments that do not have a readily determinable fair value was $ 5.1 million as of December 31, 2021 and 2022.

We determine if an arrangement is or contains a lease at inception.

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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.

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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.

A substantial amount of revenue relates to fees associated with our private cloud arrangements within our Multicloud Services offerings that generally have a fixed term, typically from 12 to 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.

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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.

We record an allowance for credit losses 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.

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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.

Incremental 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.

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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.

Sales commissions expense is recorded within "Selling, general and administrative expenses" and implementation and amortization of 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.

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We grant equity awards, including stock options and restricted stock, to eligible participants.

Share-based compensation expense for equity awards is measured at fair value on the grant date.

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.

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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.

Share-based compensation expense is recognized over the awards requisite service period.

For awards with graded vesting that are subject only to a service condition, the expense is recognized on a straight-line basis over the service period for the entire award.

Expense for awards with a performance condition is recognized over our best estimate of the period over which the performance condition will be met.

Forfeitures are recognized as incurred, rather than estimated.

Income taxes are accounted for using the asset and liability method.

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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.

Financial instruments measured at fair value on a recurring basis primarily consist of money market funds and derivative instruments.

The fair values of money market funds 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.

The fair values of derivative instruments are measured using Level 2 inputs.

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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.

The fair value of the convertible promissory note described in Note 2, "Customer Contracts" is classified as Level 3 in the fair value hierarchy due to the use of unobservable inputs such as the issuer's credit risk and probabilities of various settlement scenarios.

Foreign Currency

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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.

We recorded transaction gains of $ 5.8 million, losses of $ 3.3 million, and losses of $ 10.1 million for the years ended December 31, 2020, 2021 and 2022, respectively.

Derivative Instruments

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As of December 31, 2021 and 2022, 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.

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.

The guidance is applied prospectively upon adoption.

We early adopted this guidance on January 1, 2022 and applied it to our accounting for the acquisition of Just Analytics.

The adoption of the guidance did not have a material impact on our consolidated financial statements.

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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 December 2022, the FASB issued ASU No.

2022-06, Reference Rate Reform (ASC 848) - Deferral of the Sunset Date of Topic 848 , which extended the date to apply the practical expedients outlined in ASU No.

2020-04 from December 31, 2022 to December 31, 2024.

In January 2021, the FASB issued an update that provides supplemental guidance and clarification of the reference rate reform.

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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.

Customer Contracts

The following table presents the balances related to customer contracts:

(In millions) Consolidated Balance Sheets Account December 31, 2020 December 31, 2021

(In millions) Consolidated Balance Sheets Account December 31, 2020 December 31, 2021 December 31, 2022

Accounts receivable, net Accounts receivable, net (1)

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Non-current portion of deferred revenue Other non-current liabilities $ 14.2 $ 13.6 $ 8.6

(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:

(1) Allowance for credit losses and accrued customer credits was $ 28.3 million, $ 18.4 million and $ 24.6 million as of December 31, 2020, 2021 and 2022, respectively.

The following table sets forth the changes in the allowance for credit losses during the years ended December 31, 2020, 2021 and 2022:

(In millions) Beginning Balance Additions (1)

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2022 $ 13.7 $ 11.0 $ ( 6.3 ) $ 18.4

(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.

(1) Additions to the allowance for credit losses are charged to bad debt within "Selling, general and administrative expenses."

We identified an immaterial correction in the disclosure of amounts previously reported as recognized in revenue for the years ended December 31, 2020 and 2021, which were included in deferred revenue as of the beginning of each period and have updated these amounts to $ 66.6 million and $ 76.7 million, respectively.

Amounts recognized in revenue for the year ended December 31, 2022, which were included in deferred revenue as of the beginning of the period totaled $ 98.6 million.

Cost Incurred to Obtain and Fulfill a Contract

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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.

As of December 31, 2022, the aggregate amount of transaction price allocated to remaining performance obligations was $ 630.6 million, of which approximately 67 % is expected to be recognized as revenue during 2023 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.

The aggregate amount of transaction price excludes variable consideration related to our usage-based arrangements for which we recognize revenue based on the right to invoice for the services performed.

Convertible Promissory Note

On September 27, 2022, we entered into a convertible note purchase agreement with a private company that is also a customer and a vendor.

Pursuant to the purchase agreement, we purchased an unsecured convertible promissory note (the "Note") in an aggregate principal amount of $ 15.0 million.

The Note will accrue simple interest at a rate of 6 % per annum and matures on September 27, 2027, unless earlier converted per the terms of the agreement.

We have elected to apply the fair value option under ASC No.

825, Financial Instruments , to account for the Note.

As of December 31, 2022, the fair value of the Note was $ 11.8 million and is included in "Other non-current assets" on our Consolidated Balance Sheets.

Net Loss Per Share

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Buildings and leasehold improvements 512.9 402.2

Land 32.6 21.2

Property, equipment and software, at cost 2,228.1 2,013.4

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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.

In October 2022, we announced our intention to sell our current corporate headquarters facility located in Windcrest, Texas and relocate our corporate headquarters to leased office space in San Antonio, Texas.

As of December 31, 2022, this property met the criteria to be classified as held for sale under GAAP.

The property's previous carrying amount of $ 82.7 million was written down to its estimated fair value, less estimated cost to sell, of $ 12.1 million, resulting in a $ 70.6 million impairment charge which is included in "Impairment of assets" in our Consolidated Statements of Comprehensive Loss for the year ended December 31, 2022.

The property's estimated fair value, less estimated cost to sell, of $ 12.1 million was recorded in "Other current assets" in the Consolidated Balance Sheets as of December 31, 2022.

We recorded this impairment charge prior to performing the December 31, 2022 goodwill impairment test.

See Note 5, "Goodwill and Intangible Assets" for more information.

For the year ended December 31, 2022, we recognized property, equipment and software impairment charges of $ 15.3 million related to the OpenStack Public Cloud long-lived assets.

See Note 1, "Company Overview, Basis of Presentation, and Summary of Significant Accounting Policies," for discussion of the long-lived asset impairment charges.

Depreciation expense related to property, equipment and software was $ 289.8 million, $ 245.1 million and $ 220.9 million for the years ended December 31, 2020, 2021 and 2022, respectively.

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(In millions) Multicloud Services Apps & Cross Platform OpenStack Public Cloud Total Consolidated

Balance as of December 31, 2019

Gross goodwill as of December 31, 2020

$ 2,681.0 $ 322.6 $ 52.5 $ 3,056.1

Bright Skies acquisition 8.4 — — 8.4

Onica measurement period adjustments ( 0.5 ) — — ( 0.5 )

Accumulated impairment charges ( 295.0 ) — — ( 295.0 )

Goodwill, net 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, 2020

Goodwill, net as of December 31, 2021

$ 2,384.3 $ 322.5 $ — $ 2,706.8

Gross goodwill as of December 31, 2021

$ 2,679.3 $ 322.5 $ 52.4 $ 3,054.2

Accumulated impairment charges ( 295.0 ) — ( 52.4 ) ( 347.4 )

Goodwill, net as of December 31, 2021

2,384.3 322.5 — 2,706.8

Just Analytics acquisition — 5.9 — 5.9

Impairment of goodwill ( 405.2 ) ( 129.3 ) — ( 534.5 )

Foreign currency translation ( 22.7 ) ( 0.4 ) — ( 23.1 )

Balance as of December 31, 2021

Goodwill, net as of December 31, 2022

$ 1,956.4 $ 198.7 $ — $ 2,155.1

Gross goodwill $ 2,679.3 $ 322.5 $ 52.4 $ 3,054.2

Gross goodwill as of December 31, 2022

$ 2,656.6 $ 328.0 $ 52.4 $ 3,037.0

Accumulated impairment charges ( 700.2 ) ( 129.3 ) ( 52.4 ) ( 881.9 )

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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.

The discounted cash flow methodology requires significant judgment, including estimation of future revenue and projected profit 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 third quarter of 2022, we performed an interim quantitative assessment of our reporting units as of September 1, 2022.

The impairment was driven by lowered projected operating results primarily due to product mix shifts and market concerns related to inflation and other macroeconomic factors.

During the fourth quarter of 2022, we performed our annual goodwill impairment test as of October 1, 2022 and the results of our test did not indicate any further impairment of goodwill.

In the fourth quarter of 2022, we performed an additional interim quantitative assessment of our reporting units as of December 31, 2022.

We determined that the carrying amount of our Apps & Cross Platform reporting unit exceeded its fair value and recorded a goodwill impairment charge of $ 129.3 million.

The impairment was driven by a decrease in forecasted revenues, margins, and cash flows within the reporting unit, primarily due to the Hosted Exchange incident and other macroeconomic factors.

See Note 1, "Company Overview, Basis of Presentation, and Summary of Significant Accounting Policies," for additional discussion of the goodwill impairment charges recorded during the year ended December 31, 2022.

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.

We determined that the carrying amount of our OpenStack Public Cloud reporting unit exceeded its fair value and fully impaired its goodwill by recording 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.

As of December 31, 2022, our accumulated goodwill impairment charges totaled $ 881.9 million.

The following table provides information regarding our intangible assets other than goodwill:

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Property tax abatement 16.0 ( 9.2 ) 6.8 — — —

47.7 ( 22.2 ) 25.5 28.2 ( 17.4 ) 10.8

Other 28.2 ( 17.4 ) 10.8 27.7 ( 22.3 ) 5.4

Total definite-lived intangible assets 2,027.2 ( 810.7 ) 1,216.5 1,956.2 ( 937.2 ) 1,019.0

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Total intangible assets other than goodwill $ 2,277.2 $ ( 810.7 ) $ 1,466.5 $ 2,173.2 $ ( 937.2 ) $ 1,236.0

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

In connection with the classification of our corporate headquarters facility as held for sale as of December 31, 2022, we wrote-off the remaining $ 4.8 million net book value of the related property tax abatement asset to " Impairment of assets " in our Consolidated Statements of Comprehensive Loss for the year ended December 31, 2022.

During the year ended December 31, 2022 we recognized impairment charges of $ 33.0 million and $ 22.4 million related to our trade name indefinite-lived intangible asset and the OpenStack Public Cloud definite-lived intangible assets, respectively.

For additional information, see the discussion of our impairment charges in Note 1, "Company Overview, Basis of Presentation, and Summary of Significant Accounting Policies."

Amortization expense related to intangibles was $ 176.3 million, $ 179.7 million and $ 166.8 million for the years ended December 31, 2020, 2021 and 2022, respectively.

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Total $ 1,019.0

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.

Debt consisted of the following:

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Amount Interest Rate (1)

Prior Term Loan Facility November 3, 2023 4.00 % $ 2,795.6 —% $ —

Term Loan Facility February 15, 2028 3.50 % $ 2,282.8 7.38 % $ 2,259.8

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December 1, 2028 5.375 % 550.0 5.375 % 550.0

Receivables Financing Facility July 19, 2022 2.37 % 65.0 —% —

unamortized debt issuance costs ( 36.3 ) ( 30.7 )

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(1) Interest rates are as of each respective balance sheet date.

We are a highly leveraged company.

As of December 31, 2022, we had $ 3,359.8 million aggregate principal amount outstanding under our Term Loan Facility, 5.375 % Senior Notes, and 3.50 % Senior Secured Notes.

We primarily finance our operations and capital expenditures with internally-generated cash from operations and hardware leases, and if necessary, borrowings under our Revolving Credit Facility.

As of December 31, 2022, the Revolving Credit Facility provided for up to $ 375.0 million of borrowings, none of which was drawn as of December 31, 2022.

Our primary uses of cash are working capital requirements, debt service requirements and capital expenditures.

Based on our current level of operations and available cash and cash equivalents of $ 228.4 million as of December 31, 2022, we believe our sources will provide sufficient liquidity over at least the next twelve months.

We cannot provide assurance, however, that our business will generate sufficient cash flows from operations or that future borrowings will be available to us under the Revolving Credit Facility or from other sources in an amount sufficient to enable us to pay our indebtedness or to fund our other liquidity needs.

Our ability to do so depends on prevailing economic conditions and other factors, many of which are beyond our control.

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.

The Senior Facilities include the Term Loan Facility and Revolving Credit Facility, and is governed by the First Lien Credit Agreement with Citi as the administrative agent.

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.

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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.

In addition to paying interest on the outstanding principal under the Senior Facilities, 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.

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As of December 31, 2022, we were in compliance with all covenants under the Senior Facilities.

The Revolving Credit Facility matures of August 7, 2025.

The Revolving Credit Facility matures on August 7, 2025.

As of December 31, 2022, we had total commitments of $ 375.0 million and no outstanding borrowings under the Revolving Credit Facility or letters of credit issued thereunder.

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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.

The 3.50 % Notes Indenture describes certain terms and conditions under which other current and future domestic subsidiaries are required to become guarantors of the 3.50 % Senior Secured Notes.

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:

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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,

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.

Notwithstanding the foregoing, Rackspace Technology Global may redeem during each twelve-month period, commencing with February 9, 2021, 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.

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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 will mature on December 1, 2028 and bear interest at an annual fixed rate of 5.375 %.

Interest is payable semiannually on each June 1 and December 1, commencing on June 1, 2021.

The 5.375 % Senior Notes are not subject to registration rights.

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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.

Under the Receivables Financing Facility entered into in 2020, 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.

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.

During the year ended December 31, 2021, the SPV repaid $ 15.0 million to cover a borrowing base deficit, repaid the 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 and extinguishment costs" 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.

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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 February 2021 Refinancing Transaction resulted in expense of $ 37.0 million recorded within "Debt modification and extinguishment costs" 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.

Following the cancellations, we had no remaining outstanding principal balance under the 8.625 % Senior Notes as of December 31, 2020.

In connection with these repurchases, we recorded $ 71.5 million of expense within "Debt modification and extinguishment costs" 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.

Debt Maturities

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Finance leases ( 20.2 ) ( 26.9 ) ( 26.7 )

New lease assets obtained in exchange for lease liabilities:

Operating leases:

New lease assets obtained in exchange for lease liabilities $ 42.7 $ 18.6 $ 17.3

Modified/renewed lease assets obtained in exchange for lease liabilities (1)

9.8 38.5 23.2

Total lease assets obtained in exchange for lease liabilities $ 52.5 $ 57.1 $ 40.5

(1) We identified an immaterial error in the disclosure of lease assets obtained in exchange for lease liabilities for the years ended December 31, 2020 and 2021.

Amounts presented above reflect the corrected amounts.

As of December 31, 2021 and 2022, the weighted average remaining lease term and weighted average discount rate of our operating and finance leases, respectively, were as follows:

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Total lease liability $ 144.8 $ 372.2

(1) We excluded $ 4.2 million of finance leases, on an undiscounted basis, that have not yet commenced.

These leases will commence in 2023 and each has a lease term of approximately three years .

Financing Obligations

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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.

Hosted Exchange Incident

We are named in several lawsuits in connection with our previously disclosed ransomware incident.

The pending lawsuits seek, among other things, equitable and compensatory relief.

We are vigorously defending these matters.

We do not expect any of these claims, individually or in the aggregate, to have a material adverse effect on our consolidated financial position or results of operations.

However, at this early stage in the proceedings, we are not able to determine the probability of the outcome of these matters or a range of reasonably expected losses, if any.

We maintain insurance, including coverage for cyber-attacks, subject to certain deductibles and policy limitations, in an amount that we believe appropriate.

Indemnifications

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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.

On July 21, 2021, we committed to the July 2021 Restructuring Plan to drive a change in the type and location of certain positions that was 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 have since exited the company.

During the year ended December 31, 2021 , we incurred employee related costs, which consisted 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 and non-cash charges related to 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:

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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.

This amount is related to a contract termination with a third party.

Liability activity for restructuring costs that are expected to be settled in cash are presented in the table below.

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Liability as of December 31, 2021

$ 7.1 $ 0.6 $ 7.7

Charges — — —

Cash payments ( 7.1 ) ( 0.6 ) ( 7.7 )

Liability as of December 31, 2022

Total cumulative costs incurred as of December 31, 2022

$ 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 .

We do no t expect to incur any additional future ASC 420 exit and disposal costs related to the July 2021 Restructuring Plan.

Stockholders' Equity

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.

As of December 31, 2021 and 2022, we had 211.2 million and 215.7 million shares of our common stock legally issued and 211.2 million and 212.6 million common stock outstanding, respectively.

We have one class of authorized common stock.

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As of December 31, 2021 and 2022, 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.

Share Repurchase Program

On March 3, 2022, our board of directors authorized a program to repurchase up to $ 75.0 million of shares of our common stock from time to time through open-market transactions, privately negotiated transactions, accelerated share repurchases and other transactions in accordance with applicable security laws.

The program expires on September 30, 2023 and can be discontinued at any time.

During the year ended December 31, 2022, we repurchased $ 31.0 million, or 3.1 million shares, of our common stock on the open market under this program.

Shares purchased pursuant to the program are recorded as treasury stock at cost in the Consolidated Balance Sheets .

As of December 31, 2022, approximately $ 44.0 million of the amount authorized by the board under the current program remained available for additional purchases.

Datapipe Contingent Shares

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On February 2, 2021, we issued 2,665,935 shares of common stock for no additional consideration pursuant to the Datapipe Merger Agreement.

Share-Based Compensation, Settlement of Share-Based Awards, and Employee Benefit Plans

If the MOIC exceeds 3.0 x, which is indicated by a volume weighted average trading price of our common stock over 30 consecutive trading days of more than $ 25.00 , we will be required to issue an additional 2,665,935 shares.

Share-Based Compensation and Employee Benefit Plans

In April 2017, the Executive Committee of the board of directors authorized the company to adopt the 2017 Incentive Plan.

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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.

For the years ended December 31, 2020, 2021 and 2022, the company granted stock options, RSU's (including performance-based 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.

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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.

The maximum number of shares of our common stock available for issuance under the 2020 Incentive Plan was originally 25.0 million shares.

On April 21, 2022, the board of directors approved a proposed amendment to the 2020 Incentive Plan to increase the maximum number of shares from 25.0 million shares to 50.0 million shares, subject to stockholder approval.

The proposed amendment was subsequently approved by our stockholders as part of the 2022 Annual Meeting of Stockholders held on June 10, 2022.

To the exten t 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, 2022, the total number of shares outstanding and the total number of shares available for future grants under the Incentive Plans was 23.0 million and 31.2 million, respectively.

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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.

As such, there were no stock options granted during the years ended December 31, 2021 or 2022.

The following table summarizes the stock option activity for the year ended December 31, 2022:

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The total pre-tax intrinsic value of the stock options exercised during the years ended December 31, 2020, 2021 and 2022 was $ 22.3 million, $ 35.0 million, and $ 0.1 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.

For the year ended December 31, 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.

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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.

The following table presents the assumptions used to estimate the fair values of the stock options granted in the periods presented:

Share-based compensation expense is recognized over the awards requisite 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 period presented:

Year Ended December 31, 2020

Expected stock volatility (1)

58 % 55 % - 61 %

Expected dividend yield (2)

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0.38 % - 1.73 %

Expected life (4)

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.

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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.

The weighted-average grant-date fair value of options granted during the year ended December 31, 2020 was $ 8.09 .

As of December 31, 2022, there was $ 2.1 million of total unrecognized compensation cost related to stock options, which will be recognized over a weighted average period of 2.2 years.

Restricted Stock

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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.

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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 .

In August 2021, we granted certain awards, 0.6 million shares in total, to a participant 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.

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Probability is based upon probable achievement of the various targets in management's internal forecasts.

These awards were forfeited upon the participant's separation from the company.

During 2022, we granted 11.1 million RSUs under the 2020 Incentive Plan with a weighted average grant date fair value of $ 8.68 .

The majority of the RSUs were granted as part of our annual compensation award process and vest ratable over a three-year period, subject to continued service.

In addition, during 2022, 2.6 million PSUs were granted.

These PSUs represent the target amount of grants, and the actual number of shares awarded upon vesting may vary depending upon the achievement of the relevant market condition which is based on Rackspace’s Total Shareholder Return (“TSR”) relative to the TSR of a comparator group of IT and Cloud Services Companies.

The awards are eligible to vest in equal annual installments over three years based on the attainment of the market condition and the employee’s continued service through the end of the applicable measurement period and were valued using a Monte Carlo simulation.

The following table presents the assumptions used to estimate the fair values of the PSUs granted in the period presented:

Year Ended December 31, 2022

Expected stock volatility (1)

Expected dividend yield (2)

Risk-free interest rate (3)

2.32 % - 4.34 %

(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.

The following table summarizes our restricted stock activity for the year ended December 31, 2022:

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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.

We issued 0.4 million, 0.7 million and 0.8 million shares through the ESPP during the years ended December 31, 2020, 2021 and 2022, respectively.

The share-based compensation expense recognized for the ESPP was $ 1.5 million, $ 4.5 million and $ 1.9 million for the years ended December 31, 2020, 2021 and 2022, respectively.

As of December 31, 2022, there was no unrecognized compensation cost related to the ESP P.

The shares available for issuance under the ESPP is 9.6 million shares as of December 31, 2022.

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.

In connection with the departure of certain executives during the years ended December 31, 2020, 2021, and 2022 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 and $ 0.8 million during the years ended December 31, 2020 and 2021, respectively, and a reduction of expense of $ 2.0 million during the year ended December 31, 2022 .

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.

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Total share-based compensation expense, net of tax $ 58.9 $ 59.6 $ 54.9

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

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Accruals not currently deductible 18.9 17.4

Interest rate swaps 22.2 —

Finance lease liabilities 66.8 64.7

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Depreciation and amortization 443.6 294.9

Prepaids 1.3 1.0

Finance lease liabilities 6.2 7.2

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Interest rate swaps 5.4 32.2

Debt related 7.4 0.4

Operating right-of-use assets 38.4 31.8

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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.

The effective tax rate for the year ended December 31, 2022 was primarily impacted by the tax impact associated with the goodwill impairments, the geographic distribution of profits, tax effects from share-based compensation and executive compensation that in nondeductible under IRC Section 162(m) of the IRC.

We do not permanently reinvest our foreign earnings due to the debt service requirements of our capital structure.

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Thus, as of December 31, 2022, there is no deferred tax liability for undistributed foreign earnings.

On August 16, 2022, the Inflation Reduction Act of 2022 (“IRA”) was enacted into law.

The IRA introduces a new corporate minimum tax of 15% on global adjusted financial statement income.

Additionally, the IRA imposes a 1% excise tax on stock repurchases made after December 31, 2022.

We are currently evaluating the impact of the IRA but do not expect there will be a material impact to our consolidated financial statements.

Uncertain Tax Positions

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federal and state income tax examinations for the tax years 2018 through 2022 and in the foreign jurisdictions in which we operate for varying periods from 2010 through 2022.

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.

We currently have income tax examinations open in Texas for tax years 2014 through 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.

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To the extent additional information becomes available prior to resolution, such accruals are adjusted to reflect probable outcomes.

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.

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 )

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

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.

Interest Rate Swaps

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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.

The cash flow hedges were expected to be highly effective on the designation date and, on a quarterly basis, we performed retrospective and prospective regression assessments to determine whether the cash flow hedges continue to be highly effective.

As long as the cash flow hedges are highly effective, changes in fair value are recorded to "Accumulated other comprehensive income" in the Consolidated Balance Sheets and reclassified to "Interest expense" in the period when the underlying transaction affects earnings.

The income tax effects of cash flow hedges are released from "Accumulated other comprehensive income" in the period when the underlying transaction affects earnings.

Any stranded income tax effects are released from "Accumulated other comprehensive income" into "Benefit for income taxes" under the portfolio approach.

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.

(i) All the interest rate swaps outstanding as of December 31, 2020, 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" 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.

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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.

This new swap and the December 2016 swaps matured 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.

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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.

The key terms of interest rate swaps outstanding are presented below:

The cash flows related to the portion treated as debt is classified as financing activities in the Consolidated Statements of Cash Flows while the portion treated as an at-market derivative is classified as operating activities.

As of December 31, 2021 and 2022 , the cash flow hedge was highly effective.

The key terms of interest rate swaps are presented below:

Effective Date Fixed Rate Paid (Received) December 31, 2021 December 31, 2022

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February 3, 2017 1.9040 % $ 450.0 Active $ — Matured February 3, 2022

February 3, 2017 1.9040 % 450.0 Active 450.0 Active February 3, 2022

February 3, 2017 1.9040 % 450.0 Active — Matured 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

February 3, 2019 2.7490 % — Terminated — Terminated November 3, 2023

February 3, 2020 2.7350 % — Terminated — Terminated November 3, 2023

February 3, 2021 2.7360 % — Terminated — Terminated November 3, 2023

February 3, 2022 2.7800 % — Terminated — 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

February 3, 2021 ( 1.9040 )% ( 900.0 ) Active — Matured February 3, 2022

February 9, 2021 2.3820 % 1,350.0 Active 1,350.0 Active February 9, 2026

Total $ 1,350.0 $ 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.

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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.

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These contracts settled on November 30, 2021 and we received a final net payment of $ 0.4 million.

As of December 31, 2021 and 2022 , t here were no foreign currency hedging contracts outstanding.

Fair Values of Derivatives on the Consolidated Balance Sheets

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Interest rate swaps Other current liabilities — 1.5 — —

Foreign currency contracts Other current liabilities — 1.7 — —

Total $ 1.5 $ 1.5 $ — $ —

Derivatives designated as hedging instruments Location

Interest rate swaps Other current assets $ — $ — $ 44.3 $ —

Interest rate swaps Other non-current assets 23.6 — 80.5 —

5 unchanged sentences

(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.

(2) The balance as of December 31, 2021 and 2022 includes $ 17.2 million and $ 17.3 million, respectively, related to the financing component of the pay-fixed interest rate swap.

(3) The entire balance 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.

1 unchanged sentence

December 31, 2021 December 31, 2022

(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

(In millions) Gross Amounts on Balance Sheet Effect of Counterparty Netting Net Amounts Gross Amounts on Balance Sheet Effect of Counterparty Netting Net Amounts

Interest rate swaps $ 25.1 $ ( 25.1 ) $ — $ 124.8 $ ( 56.4 ) $ 68.4

Interest rate swaps $ 78.7 $ ( 25.1 ) $ 53.6 $ 56.4 $ ( 56.4 ) $ —

Foreign currency contracts 1.7 — 1.7 — — —

Total $ 88.7 $ — $ 88.7 $ 78.7 $ ( 25.1 ) $ 53.6

Effect of Derivatives on the Consolidated Statements of Comprehensive Loss

8 unchanged sentences

Interest expense was $ 268.4 million, $ 205.1 million and $ 208.5 million for the years ended December 31, 2020, 2021 and 2022, 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.

As of December 31, 2022, the amount of cash flow hedge gain included within "Accumulated other comprehensive income" that is expected to be reclassified as a reduction to "Interest expense" over the next 12 months is approximately $ 36.0 million.

See Note 15, "Accumulated Other Comprehensive Income (Loss)," for information regarding changes in fair value of our derivatives designated as hedging instruments.

1 unchanged sentence

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.

As of December 31, 2022, our outstanding interest rate swap agreement was in a net asset position.

Accumulated Other Comprehensive Income (Loss)

2 unchanged sentences

Balance at December 31, 2019 $ 12.0 $ — $ 12.0

Foreign currency translation adjustments, net of tax benefit of $ 0.2 million

Balance at December 31, 2019 $ 12.0 $ — $ 12.0

Foreign currency translation adjustments, net of tax expense of $ 1.1 million

8 unchanged sentences

Balance at December 31, 2021 $ 17.2 $ ( 10.3 ) $ 6.9

Foreign currency translation adjustments, net of tax benefit of $ 2.3 million

( 27.2 ) — ( 27.2 )

Unrealized gain on derivative contracts, net of tax expense of $ 30.0 million

Amount reclassified from Accumulated comprehensive income (loss) into earnings, net of tax benefit of $ 1.6 million (3)

Balance at December 31, 2022 $ ( 10.0 ) $ 81.4 $ 71.4

(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.

(3) Includes amortization of off-market swap value and accumulated loss at hedge de-designation of $ 18.5 million for year ended December 31, 2022, partially offset by a reduction to interest expense recognized of $ 12.1 million.

Related Party Transactions

3 unchanged sentences

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.

For the year ended December 31, 2020, we recorded $ 8.4 million of management consulting fees 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.

27 unchanged sentences

( 5.9 ) ( 2.7 ) ( 1.9 )

Purchase accounting impact on revenue (2)

Purchase accounting impact on expense (2)

2 unchanged sentences

( 15.3 ) ( 35.5 ) ( 10.9 )

Hosted Exchange incident expenses — — ( 0.2 )

Selling, general and administrative expenses ( 959.7 ) ( 906.8 ) ( 855.3 )

Impairment of goodwill — ( 52.4 ) ( 534.5 )

Gain on divestiture 2.1 — —

Impairment of assets — — ( 146.1 )

Gain on sale of land — 19.9 —

1 unchanged sentence

Gain (loss) on investments, net 0.7 ( 3.0 ) ( 0.2 )

Debt modification costs and extinguishment gain (loss) 9.8 ( 71.5 ) ( 37.5 )

Debt modification and extinguishment costs ( 71.5 ) ( 37.5 ) —

Other income (expense), net 2.5 ( 1.0 ) ( 10.0 )

Total consolidated loss before income tax $ ( 122.3 ) $ ( 312.0 ) $ ( 249.1 )

Total consolidated loss before income taxes $ ( 312.0 ) $ ( 249.1 ) $ ( 897.7 )

(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.

(2) Adjustment for the impact of purchase accounting from the Rackspace Acquisition on expenses.

(3) Adjustment for the impact of business transformation and optimization activities, as well as associated severance, facility closure costs and lease termination expenses.

42 unchanged sentences

1,495.0 shares authorized;

201.8 and 211.2 shares issued and outstanding, respectively

211.2 and 215.7 shares issued;

211.2 and 212.6 shares outstanding, respectively

Additional paid-in capital 2,500.0 2,573.3

Accumulated other comprehensive income (loss) ( 18.6 ) 6.9

Accumulated other comprehensive income 6.9 71.4

Accumulated deficit ( 1,181.6 ) ( 1,986.4 )

Treasury stock, at cost;

zero and 3.1 shares held, respectively

Total stockholders' equity 1,327.4 629.5

23 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data