What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2024-03-15 compared with 2023-03-16 · 395 added, 300 removed, 1210 unchanged (36% of the section changed)

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Consolidated Statements of Cash Flows

Consolidated Statements of Stockholders' Equity

Consolidated Statements of Stockholders' Equity (Deficit)

Notes to the Consolidated Financial Statements

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We have audited the accompanying consolidated balance sheets of Rackspace Technology, Inc.

and its subsidiaries (the “Company”) as of December 31, 2022 and 2021, and the related consolidated statements of comprehensive loss, of stockholders’ equity and of cash flows for each of the three years in the period ended December 31, 2022, including the related notes (collectively referred to as the “consolidated financial statements”).

and its subsidiaries (the “Company”) as of December 31, 2023 and 2022, and the related consolidated statements of comprehensive loss, of stockholders’ equity (deficit) and of cash flows for each of the three years in the period ended December 31, 2023, including the related notes (collectively referred to as the “consolidated financial statements”).

We also have audited the Company's internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

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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.

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.

Interim Goodwill Impairment Assessments - Private Cloud and Public Cloud Reporting Units

As described in Notes 1 and 6 to the consolidated financial statements, the Company’s consolidated net goodwill balance was $1,452.4 million as of December 31, 2023, and the goodwill associated with the Private Cloud and Public Cloud reporting units was $854.7 million and $597.7 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.

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.

On January 1, 2023, as a result of a reorganization of the Company’s business around a two-business unit operating model, the Company changed its reportable segments to Private Cloud and Public Cloud.

As a result of this change, goodwill was allocated from the former reporting units to the Public Cloud and Private Cloud reporting units based on their relative fair value and a quantitative goodwill impairment analysis was performed both prior and subsequent to the change.

The results of the quantitative impairment analysis performed as of January 1, subsequent to the change, indicated an impairment within the Private Cloud reporting unit resulting in a non-cash impairment charge of $270.8 million.

During the first and third quarters of 2023, 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 interim quantitative assessments of the reporting units as of March 31, 2023 and September 30, 2023.

As a result of the quantitative assessments performed as of March 31, 2023 and September 30, 2023, management recorded non-cash impairment charges of $272.3 million and $165.7 million, respectively, for the Private Cloud 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;

The discounted cash flow models reflect management’s assumptions and considerations regarding revenue growth rates, projected gross profit margins, projected operating costs, projected capital expenditures, risk-adjusted discount rates, terminal period growth rates, and economic market trends.

The principal considerations for our determination that performing procedures relating to the interim goodwill impairment assessments of the Private Cloud and Public Cloud reporting units is a critical audit matter are (i) the significant judgment by management when developing the fair value estimates of the Private Cloud and Public Cloud 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, projected operating costs, projected capital expenditures, risk-adjusted discount rate and terminal period growth rate for the Private Cloud reporting unit and revenue growth rates, projected gross profit margins, projected operating costs, risk-adjusted discount rate, and terminal period growth rate, for the Public Cloud reporting unit;

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 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;

These procedures included testing the effectiveness of controls relating to management’s goodwill impairment assessments, including controls over the valuation of the Private Cloud and Public Cloud reporting units.

These procedures also included, among others, (i) testing management’s process for developing the fair value estimates of the Private Cloud and Public Cloud reporting units, (ii) evaluating the appropriateness of the discounted cash flow models used by management, (iii) testing the completeness and accuracy of underlying data used in the discounted cash flow models, and (iv) evaluating the reasonableness of the significant assumptions used by management related to revenue growth rates, projected gross profit margins, projected operating costs, projected capital expenditures and risk-adjusted discount rates for the Private Cloud reporting unit and revenue growth rates, projected gross profit margins, projected operating costs and risk-adjusted discount rates for the Public Cloud reporting unit.

Evaluating management’s significant assumptions related to revenue growth rates, projected gross profit margins, projected operating costs and projected capital expenditures for the Private Cloud reporting unit and revenue growth rates, projected gross profit margins and projected operating costs for the Public Cloud reporting unit 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 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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Total assets $ 5,456.7 $ 4,096.2

LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

Current liabilities:

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Commitments and Contingencies (Note 10)

Stockholders' equity:

Stockholders' equity (deficit):

Preferred stock, $ 0.01 par value per share:

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Treasury stock, at cost;

zero and 3.1 shares held, respectively

Total stockholders' equity 1,327.4 629.5

Total liabilities and stockholders' equity $ 6,328.7 $ 5,456.7

3.1 shares held

( 31.0 ) ( 31.0 )

Total stockholders' equity (deficit) 629.5 ( 154.5 )

Total liabilities and stockholders' equity (deficit) $ 5,456.7 $ 4,096.2

See accompanying notes to the consolidated financial statements.

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Impairment of goodwill ( 52.4 ) ( 534.5 ) ( 708.8 )

Impairment of assets — — ( 146.1 )

Impairment of assets, net — ( 146.1 ) ( 52.2 )

Gain on sale of land 19.9 — —

Income (loss) from operations 24.7 ( 2.5 ) ( 679.0 )

Loss from operations ( 2.5 ) ( 679.0 ) ( 899.4 )

Other income (expense):

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Gain (loss) on investments, net ( 3.0 ) ( 0.2 ) 0.3

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

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

Debt modification costs and gain (loss) on debt extinguishment ( 37.5 ) — 271.3

Other expense, net

( 1.0 ) ( 10.0 ) ( 5.0 )

Total other income (expense) ( 246.6 ) ( 218.7 ) 45.0

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Foreign currency translation adjustments $ ( 3.6 ) $ ( 27.2 ) $ 8.0

Unrealized gain (loss) on derivative contracts ( 47.6 ) 11.5 86.9

Unrealized gain on derivative contracts 11.5 86.9 10.8

Amount reclassified from accumulated other comprehensive income (loss) to earnings 17.6 4.8 ( 29.9 )

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Impairment of goodwill 52.4 534.5 708.8

Impairment of assets — — 146.1

Impairment of assets, net — 146.1 52.2

Gain on sale of land ( 19.9 ) — —

Debt modification and extinguishment costs 71.5 37.5 —

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

Debt modification costs and (gain) loss on debt extinguishment 37.5 — ( 271.3 )

Unrealized loss on derivative contracts 16.8 18.5 15.5

(Gain) loss on investments, net 3.0 0.2 ( 0.3 )

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Proceeds from sale of land 31.3 — —

Proceeds from sales of investments 0.9 — —

Purchase of convertible promissory note — ( 15.0 ) —

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Cash Flows From Financing Activities

Proceeds from issuance of common stock, net 657.8 — —

Proceeds from employee stock plans 61.1 3.7 1.3

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Principal payments of finance lease liabilities ( 50.6 ) ( 67.2 ) ( 79.7 )

Proceeds from financing obligations 20.9 — —

Principal payments of financing obligations ( 55.9 ) ( 49.0 ) ( 22.7 )

Other financing activities — ( 3.3 ) —

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

Net cash used in financing activities ( 132.2 ) ( 187.0 ) ( 312.8 )

Effect of exchange rate changes on cash, cash equivalents, and restricted cash ( 2.3 ) ( 5.8 ) 2.2

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Acquisition of property, equipment and software by financing obligations 44.7 7.1 25.0

Other non-cash additions — — 5.3

Increase (decrease) in property, equipment and software accrued in liabilities ( 10.6 ) 17.6 ( 13.6 )

Non-cash purchases of property, equipment and software $ 94.5 $ 61.4 $ 84.4

Non-cash increase in buildings within property, equipment and software, net due to lease modification $ 220.3 $ — $ —

Debt issuance costs included in accrued liabilities $ 0.6 $ — $ —

Other non-cash investing and financing activities $ 2.3 $ — $ —

The following table provides a reconciliation of cash, cash equivalents, and restricted cash to the total of such amounts shown on the Consolidated Statements of Cash Flows.

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RACKSPACE TECHNOLOGY, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

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

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

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

Shares Amount Shares Amount

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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

Issuance of shares from Employee Stock Purchase Plan 0.4 — 5.6 — — — — 5.6

Share-based compensation expense — — 74.5 — — — — 74.5

Net loss — — — — ( 245.8 ) — — ( 245.8 )

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

Balance at December 31, 2020 201.8 $ 2.0 $ 2,363.6 $ ( 18.6 ) $ ( 963.3 ) — $ — $ 1,383.7

Issuance of common stock 2.7 — — — — — — —

Exercise of stock options and release of stock awards 6.0 0.1 50.7 — — — — 50.8

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

Exercise of stock options and release of stock awards, net of shares withheld 4.1 — ( 1.0 ) — — — — ( 1.0 )

Issuance of shares from Employee Stock Purchase Plan 0.7 — 1.3 — — — — 1.3

Share-based compensation expense for equity classified awards — — 64.6 — — — — 64.6

Net loss — — — — ( 837.8 ) — — ( 837.8 )

Other comprehensive loss — — — ( 11.1 ) — — — ( 11.1 )

Balance at December 31, 2023 220.5 $ 2.2 $ 2,638.2 $ 60.3 $ ( 2,824.2 ) 3.1 $ ( 31.0 ) $ ( 154.5 )

See accompanying notes to the consolidated financial statements.

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For ease of reference, the terms "we," "our company," "the company," "us," or "our" as used in this report refer to Rackspace Technology and its consolidated subsidiaries.

On July 20, 2020, the board of directors of the company approved and effected a twelve -for-one stock split of the company’s common stock.

All common stock share and per-share data, excluding par value per share, included in the accompanying consolidated financial statements give effect to this split.

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.

On January 18, 2022, we acquired 100 % of Just Analytics, a leading provider of cloud-based data, analytics, and AI 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.

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 changed our segment reporting to reflect this reorganization under two reportable segments:

Public Cloud and Private Cloud.

See Note 18, "Segment Reporting" for more information.

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

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Actual results could differ from our estimates.

Impact of COVID-19

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, 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.

Liquidity Overview

We are a highly leveraged company.

As of December 31, 2023, we had $ 2,892.5 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, 2023, the Revolving Credit Facility provided for up to $ 375.0 million of borrowings, none of which was drawn and outstanding as of December 31, 2023.

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 $ 196.8 million as of December 31, 2023, 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.

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.

Private Exchange

On March 12, 2024, we (together with certain of our subsidiaries) closed a private debt exchange (the “Private Exchange”) with (i) certain holders of the 3.50 % Senior Secured Notes (the “Existing Secured Notes”) issued by Rackspace Technology Global (the “Existing Borrower”), representing more than 64 % of the aggregate principal amount of the outstanding Existing Secured Notes, and (ii) lenders representing more than 72 % of the aggregate principal amount of the outstanding term loans (the “Existing Term Loans”) under the First Lien Credit Agreement.

Pursuant to the Private Exchange, (i) $ 331.4 million aggregate principal amount of Existing Secured Notes and $ 1,588.8 million aggregate principal amount of Existing Term Loans were exchanged or purchased for cancellation and (ii) $ 267.3 million aggregate principal amount of new 3.50 % FLSO Notes and $ 1,312.0 million aggregate principal amount of new first lien second out term loans (the “New FLSO Term Loans”) were issued by Rackspace Finance, LLC, a new subsidiary of the company (the “New Borrower”).

As a result of the Private Exchange, the company eliminated more than $ 375.0 million of its debt and extended the maturity of $ 1,579.4 million of its debt until May 2028.

In addition, the New Borrower issued $ 275.0 million in aggregate principal amount of first lien first out senior secured term loans and the company repurchased and cancelled $ 69.3 million aggregate principal amount of its 5.375 % Senior Notes.

Public Exchanges

On March 13, 2024, the company launched an offer to all of the holders of the Existing Borrower’s remaining Existing Term Loans (the “Public Term Loan Exchange”).

Assuming full participation in the Public Term Loan Exchange, the company expects that (i) $ 592.3 million aggregate principal amount of Existing Term Loans will be exchanged or purchased for cancellation and (ii) $ 418.8 million aggregate principal amount of New FLSO Term Loans will be issued by the New Borrower.

On March 14, 2024, the company launched an offer to all of the holders of the Existing Borrower’s remaining Existing Secured Notes (the “Public Note Exchange” and, together with the Public Term Loan Exchange, the “Public Exchanges”).

Assuming full participation in the Public Note Exchange, the company expects that (i) $ 182.3 million aggregate principal amount of Existing Secured Notes will be exchanged or purchased for cancellation and (ii) $ 127.6 million aggregate principal amount of New Secured Notes will be issued by the New Borrower.

The Public Exchanges are subject to certain customary closing conditions and termination provisions and may not be consummated.

These disclosures are for informational purposes only and shall not constitute or form part of any offer or invitation to purchase or sell, or any solicitation of any offer to sell or purchase, notes or any other securities or debt instruments, and neither this report nor any part of it, nor the fact of its release, shall form the basis of, or be relied on or in connection with, any contract therefor.

The Public Note Exchange is made only by and pursuant to the terms and conditions of a confidential offering memorandum that will only be made available to eligible holders of the Existing Secured Notes.

The complete terms and conditions of the Public Note Exchange for the Existing Secured Notes are set forth in such confidential offering memorandum.

The Public Term Loan Exchange is made only by and pursuant to the terms and conditions of an exchange agreement that will only be made available to holders of the Existing Term Loans.

The complete terms and conditions of the Public Term Loan Exchange for the Existing Term Loans are set forth in such exchange agreement.

None of the company, the Existing Borrower, the New Borrower or any of their affiliates takes any position or makes any recommendation as to whether or not eligible holders should participate in the Public Note Exchange or the Public Term Loan Exchange.

New Revolving Credit Facility

On March 12, 2024, the New Borrower also established the New Revolving Credit Facility consisting of new first out first lien revolving credit commitments in an aggregate principal amount of $ 375.0 million.

All revolving lenders under the company’s prior Revolving Credit Facility agreed to exchange their revolving loan commitments for commitments in respect of the New Revolving Credit Facility, which replaces in full the company’s prior Revolving Credit Facility.

The New Revolving Credit Facility has a maturity date of May 15, 2028.

Accounting and Tax Impacts

We are evaluating the accounting impacts of the Private Exchange, Public Exchanges and New Revolving Credit Facility which are currently not estimable.

In addition, the tax consequences of debt exchanges are reasonably complex and could result in both the recognition of taxable income and/or the reduction of the tax basis of our assets.

We are in the process of evaluating these matters and expect that a portion of any income resulting from the Private Exchange and Public Exchanges could be taxable.

Any additional taxable income arising from these transactions could be substantially offset by tax attributes currently reported on our Consolidated Balance Sheets, which may also include attributes that have a valuation allowance against resulting in reversals of such valuation allowances.

Cash, Cash Equivalents, and Restricted Cash

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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 5, "Property, Equipment and Software, net" and Note 6, "Goodwill and Intangible Assets" for more information.

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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.

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, net" 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 performed subsequent to September 1, 2022 which did not result in any impairment charges.

See Note 5, "Property, Equipment and Software, net," and Note 6, "Goodwill and Intangible Assets," for more information.

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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.

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, (iv) a reorganization resulting in a change to our operating segments, and (v) 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.

On January 1, 2023, as a result of the reorganization of our business around a two -business unit operating model, we changed our operating and reportable segments to Private Cloud and Public Cloud.

Our prior Multicloud Services segment has been separated into its public and private cloud components and the offerings previously reported in our Apps & Cross Platform segment have been reassigned to either the Public Cloud or Private Cloud segment based on the nature of the offering.

Our prior OpenStack Public Cloud segment is included in Private Cloud.

As a result of the segment change, we allocated the goodwill of our former Multicloud Services and Apps & Cross Platform reporting units to the Public Cloud and Private Cloud reporting units based on their relative fair value.

OpenStack Public Cloud remains a separate reporting unit for goodwill purposes.

Due to the change in our segment reporting and the allocation of goodwill, we completed a quantitative goodwill impairment analysis both prior and subsequent to the aforementioned change.

The results of the quantitative goodwill impairment analysis performed as of December 31, 2022, prior to the change, indicated an impairment within our former Apps & Cross Platform reporting unit, and we recorded a non-cash impairment charge of $ 129.3 million in the fourth quarter of 2022, as further discussed below.

We reassigned goodwill to the updated reporting units using a relative fair value approach.

The results of the quantitative goodwill impairment analysis performed as of January 1, 2023, subsequent to the reorganization, indicated an impairment within our Private Cloud reporting unit, and we recorded a non-cash impairment charge of $ 270.8 million in the first quarter of 2023.

During the first quarter of 2023, 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 March 31, 2023, 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, if any, of excess carrying value over fair value, consistency of operating margins and cash flows, budgeted-to-actual performance for the first three months of the year, overall change in economic climate, changes in the industry and competitive environment, and earnings quality and sustainability.

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 March 31, 2023.

During the third quarter of 2023, 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.

As of September 30, 2023, 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, if any, of excess carrying value over fair value, consistency of operating margins and cash flows, budgeted-to-actual performance for the first nine months of the year, overall change in economic climate, changes in the industry and competitive environment, and earnings quality and sustainability.

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.

Prior to October 1, 2023, we had two reporting units with goodwill:

Public Cloud and Private Cloud.

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

As of October 1, 2023, we reassessed our reporting unit structure and aggregated the OpenStack Public Cloud reporting unit into our Private Cloud reporting unit.

We currently have two reporting units:

Public Cloud and Private Cloud.

Due to the change in our reporting units as of October 1, 2023, we completed a quantitative goodwill impairment analysis.

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 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, 2021, 2022 and 2023, 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.

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 .

The discounted cash flow models reflect our assumptions and considerations regarding revenue growth rates, projected gross profit margins, projected operating costs, projected capital expenditures, risk-adjusted discount rates, terminal period growth rates, and economic market trends .

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 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 quantitative goodwill impairment analyses as of January 1, 2023 and March 31, 2023 indicated an impairment of goodwill within our Private Cloud reporting unit, and we recorded non-cash impairment charges of $ 270.8 million and $ 272.3 million, respectively, within "Impairment of goodwill" in our Consolidated Statements of Comprehensive Loss in the first quarter of 2023.

The results of our quantitative goodwill impairment analysis as of September 30, 2023 indicated an impairment of goodwill within our Private Cloud reporting unit, and we recorded non-cash impairment charges of $ 165.7 million, within "Impairment of goodwill" in our Consolidated Statements of Comprehensive Loss in the third quarter of 2023.

The results of our quantitative goodwill impairment analysis as of October 1, 2023 indicated no impairment of goodwill

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.

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.

As such, as of September 1, 2022, we determined it appropriate to perform an interim quantitative assessment of our reporting units, which indicated an impairment of goodwill within the former 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.

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 was included in the former 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, which indicated an impairment of goodwill within our former 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 annual 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.

See Note 6, "Goodwill and Intangible Assets" for more information.

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.

In evaluating the recoverability of the Rackspace trade name, we compare the fair value of the asset to its carrying amount to determine potential impairment.

Our estimate of the fair value of the Rackspace trade name is derived using the income approach, specifically the relief-from-royalty method.

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.

We performed a quantitative assessment of our indefinite-lived intangible asset prior to testing our goodwill for impairment as of January 1, 2023, March 31, 2023, and December 31, 2023 which did not indicate any impairment of the Rackspace trade name.

Due to the factors discussed in the goodwill analyses above and prior to testing our goodwill for impairment, we performed a quantitative assessment of our indefinite-lived intangible asset as of September 1, 2022, December 31, 2022 and September 30, 2023.

The quantitative assessment performed as of those dates indicated the estimated fair value of the Rackspace trade name was less than its carrying value.

As a result, we recorded a $ 21.0 million, $ 12.0 million, and $ 57.0 million non-cash impairment charge as of September 1, 2022, December 31, 2022 and September 30, 2023, respectively.

These charges are included in "Impairment of assets, net" in our Consolidated Statements of Comprehensive Loss in the third quarter of 2022, fourth quarter of 2022, and third quarter of 2023, respectively.

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 results of our indefinite-lived asset impairment test for the year ended December 31, 2021 did not indicate any impairments of the Rackspace trade name.

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.

Assumptions include estimation of the royalty rate for the trade name, 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.

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Lease liabilities are recognized based on the present value of lease payments, reduced by lease incentives, at the lease commencement date.

We use an incremental borrowing rate to determine the present value of lease payments as the interest rate implicit in most of our leases is not readily determinable.

For finance leases, we use the rate implicit in the lease to determine the present value of lease payments where available.

For operating leases, we use an incremental borrowing rate to determine the present value of lease payments as the interest rate implicit in most of our operating leases is not readily determinable.

Our incremental borrowing rate is the rate of interest that we would have to pay to borrow an amount equal to the lease payments, on a collateralized basis and in a similar economic environment over a similar term.

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As such, our contract modifications are accounted for prospectively.

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.

A substantial amount of revenue, particularly within our Private Cloud segment, relates to fees associated with 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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These fees are recognized as revenue in the period of contract termination as we have no further obligation to perform.

Our other primary sources of revenue are for public cloud services within our Multicloud Services offering, and our OpenStack Public Cloud and Apps & Cross Platform offerings.

Our other primary sources of revenue are for services within our Public Cloud segment and legacy OpenStack business.

Customers are generally invoiced monthly based on usage.

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Cost of revenue primarily consists of expenses related to personnel, software licenses, the costs to operate our data center facilities, including depreciation expense, and infrastructure expense related to our service offerings bundled with third party clouds.

Personnel expenses include the salaries, non-equity incentive compensation and related expenses of our support teams and data center employees.

Personnel expenses include the salaries, share-based compensation, non-equity incentive compensation and related expenses of our support teams and data center employees.

Data center facility costs include rent, utility costs, maintenance fees, and bandwidth.

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Foreign currency translation adjustments arising from differences in exchange rates from period to period are recorded within "Accumulated other comprehensive income" in the Consolidated Balance Sheets.

Transaction gains or losses in currencies other than the functional currency are included as a component of "Other income (expense), net" in the Consolidated Statements of Comprehensive Loss.

We recorded transaction 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.

Transaction gains or losses in currencies other than the functional currency are included as a component of "Other expense, net" in the Consolidated Statements of Comprehensive Loss.

We recorded transaction losses of $ 3.3 million, losses of $ 10.1 million, and gains of $ 3.9 million for the years ended December 31, 2021, 2022 and 2023, respectively.

Derivative Instruments

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Interest rate swaps involve the receipt of variable amounts from a counterparty in exchange for the company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.

On a quarterly basis, we net settle with the counterparty for the difference between the fixed rate specified in each swap agreement and the variable rate based upon the three-month LIBOR as applied to the notional amount of the swap.

Our interest rate swaps, excluding the portion treated as debt, are recognized at fair value in the Consolidated Balance Sheets and are valued using pricing models that rely on market observable inputs such as yield curve data, which are classified as Level 2 inputs within the fair value hierarchy.

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These contracts are recognized at fair value in the Consolidated Balance Sheets and are valued using pricing models that rely on market observable inputs such as current exchange rates, which are classified as Level 2 inputs within the fair value hierarchy.

We have not designated these contracts as cash flow hedges for accounting purposes, therefore, all changes in the fair value are recorded in "Other income (expense), net."

We have not designated these contracts as cash flow hedges for accounting purposes, therefore, all changes in the fair value are recorded in "Other expense, net."

As of December 31, 2022 and 2023, we do not have any outstanding foreign currency hedging contracts.

Fixed Price Power Contracts

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Recently Adopted

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.

Not Yet Adopted

Reference Rate Reform

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dollar LIBOR tenors after June 30, 2023 and all other tenors after December 31, 2021.

dollar LIBOR may be replaced by the Secured Overnight Financing Rate or other benchmark rates over the next several years.

dollar LIBOR may be replaced by SOFR or other benchmark rates over the next several years.

In March 2020, the FASB issued ASU No.

2020-04, Reference Rate Reform (ASC 848) - Facilitation of the Effects of Reference Rate Reform on Financial Reporting containing practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts.

The guidance in ASU 2020-04 is optional and may be applied from March 12, 2020 through December 31, 2022 as reference rate reform activities occur.

In December 2022, the FASB issued ASU No.

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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.

We have elected to apply certain practical expedients in the past.

The guidance in these ASUs is optional and may be applied from March 12, 2020 through December 31, 2024 as reference rate reform activities occur.

During the second quarter of 2023, we elected to apply certain practical expedients in connection with the execution of amendments to our affected contracts that referenced LIBOR.

On April 26, 2023, we executed an amendment to our First Lien Credit Agreement, which governs our Senior Facilities borrowings, to establish Term SOFR as the benchmark rate for determining the applicable interest rate, replacing LIBOR.

In addition, effective May 9, 2023, we amended our interest rate swap agreement to change the index from three-month LIBOR to one-month Term SOFR.

See Note 7, Debt" and Note 15, "Derivatives" for more information.

We continue to evaluate the impact of the guidance and may apply other elections prior to December 31, 2024, as applicable, as additional changes in the market occur.

Currently, borrowings under our Senior Facilities use LIBOR as a benchmark for establishing the applicable interest rate, but the First Lien Credit Agreement includes provisions relating to the future discontinuance of LIBOR and sets forth mechanics for establishing the replacement of LIBOR with an alternative benchmark rate.

Not Yet Adopted

Segment Disclosures

In November 2023, the FASB issued ASU No.

2023-07, Segment Reporting (Topic 280) - Improvements to Reportable Segment Disclosures .

ASU 2023-07 requires disclosure of incremental segment information on an annual and interim basis, including significant segment expenses that are regularly provided to the Chief Operating Decision Maker (“CODM”) and included within each reported measure of segment profit or loss.

Additionally, the ASU requires disclosure of the title and position of our CODM and an explanation of how the CODM uses the reported measures of segment profit or loss in assessing segment performance and deciding how to allocate resources.

The ASU does not change how a public entity identifies its operating segments, aggregates them, or applies the quantitative thresholds to determine its reportable segments.

This guidance is effective for Rackspace beginning with our 2024 Form 10-K for annual disclosures and the Q1 2025 Form 10-Q for interim disclosures, with early adoption permitted.

The guidance should be applied retrospectively to all periods presented in the financial statements.

The guidance, once adopted, will result in increased reportable segment disclosures.

Income Tax Disclosures

In December 2023, the FASB issued ASU No.

2023-09, Income Taxes (Topic 740) - Improvements to Income Tax Disclosures .

ASU 2023-09 expands the existing disclosure requirements for the annual rate reconciliation between the effective tax rate and the statutory federal tax rate by requiring reconciliation items to be disaggregated by defined categories and disclosed as both percentages and amounts.

The ASU also requires the disaggregation of income taxes paid by jurisdiction for each annual period presented.

This guidance is effective for Rackspace beginning with our 2025 Form 10-K annual disclosures, with early adoption permitted.

The guidance should be applied on a prospective basis, but retrospective application is permitted.

The guidance, once adopted, will result in increased income tax disclosures.

SEC Rule Changes

In March 2024, the SEC adopted new rules that will require registrants to provide certain climate-related information in their registration statements and annual reports.

The rules require information about a registrant's climate-related risks that are reasonably likely to have a material impact on its business, results of operations, or financial condition.

The required information about climate-related risks will also include disclosure of a registrant's greenhouse gas emissions.

In addition, the rules will require registrants to present certain climate-related financial metrics in their audited financial statements.

We are currently evaluating the potential impact of these rules on our consolidated financial statements and related disclosures.

Customer Contracts

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(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.

Amounts recognized in revenue for the years ended December 31, 2021, 2022 and 2023, which were included in deferred revenue as of the beginning of the period totaled $ 76.7 million, $ 98.6 million and $ 80.9 million, respectively.

Cost Incurred to Obtain and Fulfill a Contract

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These capitalized costs are included in "Other non-current assets" on the Consolidated Balance Sheets.

Amortization of capitalized sales commissions and implementation costs was as follows:

Amortization of capitalized sales commissions and implementation costs were as follows:

Year Ended December 31,

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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.

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

Principal and accrued interest are due and payable on the maturity date.

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.

As of December 31, 2022 and 2023, the fair value of the Note was $ 11.8 million and $ 12.8 million, respectively, and is included in "Other non-current assets" on our Consolidated Balance Sheets.

Sale of Receivables

On September 29, 2023 (the “Closing Date”), Rackspace US and Rackspace Receivables II, LLC, a bankruptcy-remote SPV, each an indirect subsidiary of the company, entered into the Receivables Purchase Facility with PNC and other parties thereto.

On February 12, 2024, the Receivables Purchase Facility was amended to include certain international subsidiaries of the company as parties to the agreement.

Under the Receivables Purchase Facility, certain indirect wholly-owned subsidiaries of the company have sold and/or contributed, and may continue to sell and/or contribute on a revolving basis, their current and future accounts receivable to the SPV, which, in turn, will sell and transfer, and may continue to sell and transfer, certain of the accounts receivable to PNC in exchange for cash.

The Receivables Purchase Facility will terminate on September 29, 2026 unless earlier terminated in accordance with its terms and the SPV can sell accounts receivable based upon the face amount of eligible receivables in the collateral pool up to an aggregate maximum limit of $ 300.0 million.

The purpose of this arrangement is to enhance the company's financial flexibility by providing additional liquidity.

The Receivables Purchase Facility is subject to yield charges based upon a rate as specified in the agreement.

The SPV is also required to pay certain customary fees on a monthly basis in addition to an upfront fee and a commitment fee.

The Receivables Purchase Facility contains certain customary termination events, as well as customary representations and warranties, affirmative and negative covenants, indemnification provisions, and events of default, including those providing for the acceleration of amounts owed by the SPV to PNC upon the occurrence of certain events.

The transfers of accounts receivable to PNC are accounted for as sales in accordance with ASC 860 because effective control and risk associated with the transferred accounts receivable is passed to PNC.

As these transfers represent true sales, we derecognize the sold accounts receivable from our Consolidated Balance Sheets.

Cash proceeds related to the accounts receivable sold are included in cash from operating activities in the Consolidated Statements of Cash Flows.

Yield charges and fees recorded in connection with the sales are recorded within “Other expense, net” in the Consolidated Statements of Comprehensive Loss.

The company maintains continuing involvement with the sold accounts receivable by providing collection services in exchange for a servicing fee.

Servicing fees are immaterial and no servicing asset or liability has been recognized.

The company may incur a recourse obligation on the sold accounts receivable in limited circumstances.

Separate accruals have been established for recourse obligations and are immaterial as of December 31, 2023.

Cash collected on pledged accounts receivable, which have not been sold, are included in cash from operating activities in the Consolidated Statements of Cash Flows.

In connection with accounts receivable sold during 2023, we recorded $ 10.6 million of expense, consisting of $ 6.0 million of yield charges and fees and $ 4.6 million of upfront transaction costs associated with the execution of the agreement, within “Other expense, net” in the Consolidated Statements of Comprehensive Loss for the year ended December 31, 2023.

The outstanding portfolio of sold accounts receivable derecognized from our Consolidated Balance Sheet as of December 31, 2023 was $ 223.8 million.

The SPV holds unsold accounts receivable of $ 125.6 million as of December 31, 2023 that are pledged as collateral to PNC.

Net Loss Per Share

Basic loss per share is calculated by dividing net loss attributable to common stockholders by the weighted average shares outstanding during the period.

Basic net loss per share is calculated by dividing net loss attributable to common stockholders by the weighted average shares outstanding during the period.

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

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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.

For the year ended December 31, 2022, we recognized property, equipment and software impairment charges of $ 15.3 million, included in "Impairment of assets, net", 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.

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 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, net" 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.

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See Note 6, "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.

In July 2023, we entered into a purchase and sale agreement with a potential buyer of the property for $ 21.5 million.

Under held for sale accounting, the carrying amount of the property held for sale should be remeasured each reporting period for changes in fair value less cost to sell.

As such, we increased the property’s estimated fair value, less estimated cost to sell, to $ 20.7 million as of September 30, 2023, resulting in an $ 8.6 million gain, which is included in "Impairment of assets, net" in our Consolidated Statements of Comprehensive Loss for the year ended December 31, 2023.

In December 2023, we entered into an amendment to the purchase and sale agreement originally executed in July 2023.

This amendment lowered the original purchase price of $ 21.5 million to $ 17.5 million.

As such, we reduced the property’s estimated fair value, less estimated cost to sell, to $ 16.9 million as of December 31, 2023, resulting in a $ 3.8 million loss, which is included in "Impairment of assets, net" in our Consolidated Statements of Comprehensive Loss for the year ended December 31, 2023.

We are currently in negotiations with certain local governments and other parties to terminate the Master Economic Incentives Agreement associated with the property which could require us to pay a termination fee upon completion of the sale.

Depreciation expense related to property, equipment and software was $ 245.1 million, $ 220.9 million and $ 208.7 million for the years ended December 31, 2021, 2022 and 2023, respectively.

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The following table sets forth the changes in the carrying amounts of goodwill by reportable segment during the years ended December 31, 2022 and 2023.

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

As a result of the January 1, 2023 reorganization, we changed our segment reporting to reflect this reorganization under two reportable segments:

Public Cloud and Private Cloud.

Accordingly, we reallocated the total consolidated net balance of goodwill as of January 1, 2023 under the new segments, shown below:

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

Gross goodwill as of December 31, 2021

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— — 2,384.3 322.5 — 2,706.8

Just Analytics acquisition — — — 5.9 — 5.9

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

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— — 1,956.4 198.7 — 2,155.1

Just Analytics acquisition — 5.9 — 5.9

Reallocation adjustment (1)

594.7 1,560.4 ( 1,956.4 ) ( 198.7 ) — —

Impairment of goodwill — ( 708.8 ) — — — ( 708.8 )

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$ 597.7 $ 1,563.5 $ — $ — $ — $ 2,161.2

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

impairment charges (2)

— ( 708.8 ) — — — ( 708.8 )

Goodwill, net as of December 31, 2023

$ 597.7 $ 854.7 $ — $ — $ — $ 1,452.4

(1) Represents the adjustment to reallocate goodwill of the former Multicloud Services and Apps & Cross Platform reportable segments to Public Cloud and Private Cloud reportable segments, using the relative fair value basis, as a result of the January 1, 2023 reorganization.

(2) On a consolidated basis, gross and net goodwill as of December 31, 2023 was $ 3,043.1 million and $ 1,452.4 million, respectively.

This includes $ 1,590.7 million of accumulated impairment charges as of December 31, 2023.

Management exercised significant judgment related to the determination of the fair value of each reporting unit.

The fair value of each reporting unit was estimated using the discounted cash flow method.

The discounted cash flow methodology requires significant judgment, including estimation of future revenue and projected profit 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 our assumptions and considerations regarding future revenue growth rates, projected gross profit margins, projected operating costs, projected capital expenditures which are dependent on internal forecasts, estimation of the risk-adjusted discount rates, and economic and market trends.

Changes in these estimates and assumptions could materially affect the fair value of the reporting unit, potentially resulting in an impairment charge.

Due to the change in our segment reporting as a result of the business reorganization as of January 1, 2023, we completed a quantitative goodwill impairment analysis as of January 1, 2023, subsequent to the aforementioned change.

The results of the quantitative goodwill impairment analysis indicated an impairment within our Private Cloud reporting unit, and we recorded a non-cash impairment charge of $ 270.8 million in the first quarter of 2023.

During the first quarter of 2023, we performed an interim quantitative assessment of our reporting units as of March 31, 2023.

The results of our interim quantitative goodwill impairment analysis performed as of March 31, 2023 indicated an impairment of goodwill within our Private Cloud reporting unit, and we recorded an additional non-cash impairment charge of $ 272.3 million in the first quarter of 2023.

The impairment was driven by the company's most recent cash flow projections as revised in the first quarter of 2023 which reflected current market conditions and current trends in business performance, including slower than anticipated actualization of bookings.

During the third quarter of 2023, we performed an interim quantitative assessment of our reporting units as of September 30, 2023.

The results of our interim quantitative goodwill impairment analysis performed as of September 30, 2023 indicated an impairment of goodwill within our Private Cloud reporting unit, and we recorded a non-cash impairment charge of $ 165.7 million in the third quarter of 2023.

The impairment was driven by the company's cash flow projections as revised in the third quarter of 2023 to reflect current market conditions and business mix shifts.

As of October 1, 2023, we reassessed our reporting units and combined our Private Cloud and OpenStack Public Cloud reporting units into a new Private Cloud reporting unit.

We completed a quantitative goodwill impairment analysis as of October 1, 2023, subsequent to the aforementioned change.

The results of the quantitative goodwill impairment analysis indicated no impairment to goodwill.

During the third quarter of 2022, we performed an interim quantitative assessment of our reporting units as of September 1, 2022.

The results of our interim quantitative goodwill impairment analysis performed as of September 1, 2022 indicated an impairment of goodwill within our former Multicloud Services reporting unit, and we recorded a non-cash impairment charge of $ 405.2 million.

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.

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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.

We determined that the carrying amount of our former 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.

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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.

As of December 31, 2023, our accumulated goodwill impairment charges totaled $ 708.8 million.

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Customer relationships $ 1,928.5 $ ( 914.9 ) $ 1,013.6 $ 1,932.0 $ ( 1,073.9 ) $ 858.1

Property tax abatement 16.0 ( 9.2 ) 6.8 — — —

Other 27.7 ( 22.3 ) 5.4 27.8 ( 26.9 ) 0.9

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Total intangible assets other than goodwill $ 2,173.2 $ ( 937.2 ) $ 1,236.0 $ 2,119.8 $ ( 1,100.8 ) $ 1,019.0

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.

During the year ended December 31, 2023 we recognized impairment charges of $ 57.0 million related to our trade name indefinite-lived intangible asset.

Additionally, 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.

These impairment charges are recorded in “Impairment of assets, net” in our Consolidated Statements of Comprehensive Loss for the years ended December 31, 2022 and 2023.

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, net " in our Consolidated Statements of Comprehensive Loss for the year ended December 31, 2022.

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

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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.

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

Senior Facilities

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We used the borrowings under the Term Loan Facility, together with the proceeds from the issuance of the 3.50 % Senior Secured Notes described below (together, the February 2021 Refinancing Transaction), to repay all borrowings under the Prior Term Loan Facility, to pay related fees and expenses and for general corporate purposes.

Borrowings under the Senior Facilities bear interest at an annual rate equal to an applicable margin plus, at our option, either (a) a LIBOR rate determined by reference to the costs of funds for Eurodollar deposits for the interest period relevant to such borrowing, adjusted for certain additional costs, subject to a 0.75 % floor, in the case of the Term Loan Facility, and a 1.00 % floor, in the case of the Revolving Credit Facility, or (b) a base rate determined by reference to the highest of (i) the federal funds rate plus 0.50 %, (ii) the prime rate of Citi and (iii) the one-month adjusted LIBOR plus 1.00 %.

The applicable margin for the Term Loan Facility is 2.75 % for LIBOR loans and 1.75 % for base rate loans and the applicable margin for the Revolving Credit Facility is 3.00 % for LIBOR loans and 2.00 % for base rate loans.

Interest is due at the end of each interest period elected, not exceeding 90 days, for LIBOR loans and at the end of every calendar quarter for base rate loans.

On April 26, 2023, we executed an amendment to our First Lien Credit Agreement to establish Term SOFR as the benchmark rate for determining the applicable interest rate, replacing LIBOR.

As a result of the amendment, borrowings under the Senior Facilities bear interest at an annual rate equal to an applicable margin plus, at our option, either (a) Term SOFR equal to the forward-looking term rate, based on the secured overnight financing rate as administered by the Federal Reserve Bank of New York, for the interest period relevant to such borrowing, plus a credit spread adjustment of 0.11 % for an interest period of one-month's duration, 0.26 % for an interest period of three-months' duration, and 0.43 % for an interest period of six-months' duration, subject to a 0.75 % floor, in the case of the Term Loan Facility, and a 1.00 % floor, in the case of the Revolving Credit Facility, or (b) a base rate determined by reference to the highest of (i) the federal funds rate plus 0.50 %, (ii) the prime rate of Citi and (iii) adjusted Term SOFR for a one-month tenor plus 1.00 %.

The applicable margin for the Term Loan Facility is 2.75 % for SOFR loans and 1.75 % for base rate loans and the applicable margin for the Revolving Credit Facility is 3.00 % for SOFR loans and 2.00 % for base rate loans.

Interest is due at the end of each interest period elected, not exceeding 90 days, for SOFR loans and at the end of every calendar quarter for base rate loans.

All other material terms and conditions of the First Lien Credit Agreement were unchanged.

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.

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See Note 15, "Derivatives" for information on interest rate swap agreements we utilize to manage the interest rate risk on the Term Loan Facility.

Affiliates of ABRY are Term Loan Facility lenders under the First Lien Credit Agreement.

As of December 31, 2023, the outstanding principal amount of the Term Loan Facility was $ 2,181.2 million, of which $ 58.4 million, or 2.7 %, is due to ABRY affiliates.

Investment funds affiliated with ABRY are also co-investors in Rackspace Technology.

As of December 31, 2023, Apollo also held $ 24.2 million, or 1.1 %, of the outstanding principal amount of the Term Loan Facility.

In addition to the quarterly amortization payments discussed above, the Senior Facilities require us to make certain mandatory prepayments, including using (i) a portion of annual excess cash flow, as defined in the First Lien Credit Agreement, to prepay the Term Loan Facility, (ii) net cash proceeds of certain non-ordinary assets sales or dispositions of property to prepay the Term Loan Facility, and (iii) net cash proceeds of any issuance or incurrence of debt not permitted under the Senior Facilities to prepay the Term Loan Facility.

We may make voluntary prepayments at any time without penalty, except in connection with a repricing event, as defined in the First Lien Credit Agreement.

During the year ended December 31, 2023, Rackspace Technology Global repurchased and surrendered for cancellation $ 55.6 million principal amount of the Term Loan Facility for $ 29.5 million.

In connection with this repurchase, we recorded a gain on debt extinguishment of $ 25.5 million included in “Debt modification costs and gain (loss) on debt extinguishment” in our Consolidated Statements of Comprehensive Loss for the year ended December 31, 2023, which includes $ 0.6 million of unamortized debt issuance costs and debt discount write-offs.

The fair value of the Term Loan Facility as of December 31, 2023 was $ 935.3 million, based on quoted market prices for identical assets that are traded in over-the-counter secondary markets that are not considered active.

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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.

During the year ended December 31, 2023, we borrowed and fully repaid $ 50.0 million.

As of December 31, 2023, we had total commitments of $ 375.0 million, no outstanding borrowings under the Revolving Credit Facility, and $ 3.5 million of letters of credit issued thereunder.

As such, as of December 31, 2023, we had $ 375.0 million of available commitments remaining.

3.50 % Senior Secured Notes due 2028

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Rackspace Technology Global may redeem the 3.50 % Senior Secured Notes at its option, in whole at any time or in part from time to time, at the following redemption prices:

prior to February 15, 2024, at a redemption price equal to 100.000 % of the principal amount, plus the applicable premium described in the 3.50 % Notes Indenture and accrued and unpaid interest, if any, to but excluding the redemption date;

from February 15, 2024 to February 14, 2025, at a redemption price equal to 101.750 % of the principal amount, plus accrued and unpaid interest, if any, to but excluding the redemption date;

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and from February 15, 2026 and thereafter, at a redemption price equal to 100.000 % of the principal amount, plus accrued and unpaid interest, if any, to but excluding the redemption date.

Rackspace Technology Global may also redeem prior to February 15, 2024 up to 40.0 % of the aggregate principal amount of the 3.50 % Senior Secured Notes with funds in an aggregate amount not to exceed the net cash proceeds from certain equity offerings at a redemption price equal to 103.500 % of the principal amount of the 3.50 % Senior Secured Notes to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date.

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

During the year ended December 31, 2023, Rackspace Technology Global repurchased and surrendered for cancellation $ 36.3 million principal amount of 3.50 % Senior Secured Notes for $ 18.4 million, including accrued interest of $ 0.3 million.

In connection with this repurchase, we recorded a gain on debt extinguishment of $ 17.9 million included in “Debt modification costs and gain (loss) on debt extinguishment” in our Consolidated Statements of Comprehensive Loss for the year ended December 31, 2023, which includes $ 0.3 million of unamortized debt issuance costs write-offs.

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 may redeem the 5.375 % Senior Notes at its option, in whole at any time or in part from time to time, at the following redemption prices:

prior to December 1, 2023, at a redemption price equal to 100.000 % of the principal amount, plus the applicable premium described in the 5.375 % Notes Indenture and accrued and unpaid interest, if any, to but excluding the redemption date;

from December 1, 2023 to November 30, 2024, at a redemption price equal to 102.688 % of the principal amount, plus accrued and unpaid interest, if any, to but excluding the redemption date;

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and from December 1, 2025 and thereafter, at a redemption price equal to 100.000 % of the principal amount, plus accrued and unpaid interest, if any, to but excluding the redemption date.

Rackspace Technology Global may also redeem prior to December 1, 2023 up to 40.0 % of the aggregate principal amount of the 5.375 % Senior Notes with funds in an aggregate amount not to exceed the net cash proceeds from certain equity offerings at a redemption price equal to 105.375 % of the principal amount of the 5.375 % Senior Notes to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date.

During the year ended December 31, 2023, Rackspace Technology Global repurchased and surrendered for cancellation $ 352.4 million principal amount of 5.375 % Senior Notes for $ 124.1 million, including accrued interest of $ 2.8 million.

In connection with these repurchases, we recorded a gain on debt extinguishment of $ 227.9 million included in “Debt modification costs and gain (loss) on debt extinguishment” in our Consolidated Statements of Comprehensive Loss for the year ended December 31, 2023, which includes $ 3.2 million of unamortized debt issuance costs write-offs.

The 5.375 % Notes Indenture contains covenants that, among other things, limit our ability to incur certain additional debt, incur certain liens securing debt, pay certain dividends or make other restricted payments, make certain investments, make certain asset sales and enter into certain transactions with affiliates.

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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 termination resulted in expense of $ 0.5 million recorded within “Debt modification costs and gain (loss) on debt extinguishment” 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 and extinguishment costs" 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 costs and gain (loss) on debt extinguishment” 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, 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 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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(In millions) Amount

Thereafter 3,244.8

Total $ 2,892.5

March 2024 Refinancing Transactions

See Note 1, "Company Overview, Basis of Presentation, and Summary of Significant Accounting Policies-Subsequent Events," for a discussion of the public and private debt exchange and related transactions that impacted or are expected to impact the Senior Facilities, the 3.50 % Senior Secured Notes and the 5.375 % Senior Notes.

Assets recorded as property and equipment under finance leases, and the related accumulated depreciation balances as of December 31, 2022 and 2023 were as follows:

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Total lease assets obtained in exchange for lease liabilities $ 57.1 $ 40.5 $ 58.6

(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, 2022 and 2023, 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 $ 140.6 $ 363.8

(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 .

(1) We excluded a $ 38.3 million finance lease, on an undiscounted basis, that has not yet commenced.

The lease, which is for our new corporate headquarter building, will commence in 2024 and has a lease term of approximately eleven years .

Financing Obligations

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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 were named in several lawsuits in connection with a previously disclosed ransomware incident which caused service disruptions on our Hosted Exchange email business.

The lawsuits sought, among other things, equitable and compensatory relief.

We vigorously defended these matters and 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.

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

During the years ended December 31, 2022 and 2023, we recorded $ 5.9 million and $ 5.2 million, respectively, of expenses related to the Hosted Exchange incident, including costs to investigate and remediate, legal and other professional services, and supplemental staff resources that were deployed to provide support to customers.

We recorded $ 10.0 million of loss recovery insu rance proceeds received or expected to be received during the year ended December 31, 2023.

As of December 31, 2023, $ 3.3 million of proceeds were recorded as a receivable and the payment was subsequently received on January 8, 2024.

Indemnifications

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We had no material liabilities recorded for these agreements as of December 31, 2022 or 2023.

In connection with the Rackspace Acquisition, an affiliate of Apollo and Searchlight each entered into a management consulting agreement with Rackspace Technology Global relating to the provision of certain management consulting and advisory services following the consummation of the Rackspace Acquisition.

In addition, on November 3, 2016, an affiliate of Apollo entered into a transaction fee agreement with Rackspace Technology Global relating to the provision of certain preparation services in support of the Rackspace Acquisition.

On November 15, 2017, in connection with the Datapipe acquisition, ABRY entered into a management consulting agreement with Rackspace Technology Global relating to the provision of certain management consulting and advisory services.

Under the terms of the Transaction Fee Agreement, the Apollo/Searchlight Management Consulting Agreement and the ABRY Management Consulting Agreement, the company has obligations to indemnify affiliates and representatives of Apollo, Searchlight and ABRY, as applicable, for any losses or liabilities that they may incur as a result of their provision of services under those agreements (unless the losses or liabilities have resulted from the willful misconduct of the person seeking indemnification).

We had no liabilities recorded for these agreements as of December 31, 2021 or 2022.

On July 24, 2020, we executed termination letters with each of the parties to the Apollo/Searchlight Management Consulting Agreement, the Transaction Fee Agreement and the ABRY Management Consulting Agreement, whereby all such agreements terminated effective as of the pricing of the IPO on August 4, 2020.

Additionally, in the normal course of business, we indemnify certain parties, including customers, vendors and lessors, with respect to certain matters.

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$ 13.8 $ 6.0 $ 19.8

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.

We did no t incur any additional ASC 420 exit and disposal costs related to the July 2021 Restructuring Plan during the years ended December 31, 2022 or 2023.

Stockholders' Equity

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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.

No shares were repurchased during the year ended December 31, 2023.

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.

The program expired on September 30, 2023.

Datapipe Contingent Shares

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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.

No shares were issued under the Datapipe Merger Agreement during the years ended December 31, 2022 or 2023.

Share-Based Compensation and Employee Benefit Plans

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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, 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.

For the years ended December 31, 2021, 2022 and 2023, the company granted 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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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.

In 2022, our board of directors and our stockholders voted to approve the maximum number of shares from 25.0 million shares to 50.0 million shares.

On April 21, 2023 the board approved a proposed amendment to increase the maximum number of shares to 57.9 million shares, which was subsequently approved by our stockholders as part of the 2023 Annual Meeting of Stockholders held on June 16, 2023.

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.

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Outstanding at December 31, 2022

9.3 $ 12.65 3.85 $ —

Granted — $ —

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Outstanding at December 31, 2023

3.8 $ 13.04 5.21 $ —

Vested and exercisable at December 31, 2023

3.6 $ 13.07 5.18 $ —

Vested and exercisable at December 31, 2023 and expected to vest thereafter (1)

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(1) Forfeitures are recognized as they occur, rather than estimated .

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

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.

The fair value of stock options with vesting conditions dependent upon market performance is determined using a Monte Carlo simulation.

The fair value of stock options with either solely a service requirement or with the combination of service and performance requirements is determined using the Black-Scholes valuation model, which requires us to make assumptions and judgments about variables related to our common stock and the related awards.

The fair value of stock options is based on the fair value of the underlying common stock on the date of grant.

Prior to the IPO, the fair value of the underlying common stock included estimates and judgments related to the discount rates and future discounted cash flows of the company based on management’s internal forecasts.

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

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)

Expected dividend yield (2)

Risk-free interest rate (3)

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.

(2) We have not issued dividends to date and do not anticipate issuing dividends.

(3) Based on the implied yield currently available on U.S.

Treasury zero-coupon issues with an equivalent expected term.

(4) Represents the period that our share-based awards are expected to be outstanding.

Management uses the simplified method for our estimation of the expected life as we do not have adequate historical data.

The weighted-average grant-date fair value of options granted during the 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.

As of December 31, 2023, there was $ 0.2 million of total unrecognized compensation cost related to stock options, which will be recognized over a weighted average period of 1.0 year.

Restricted Stock

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Share-based compensation expense is recognized on a straight-line basis over the service period or over our best estimate of the period over which the performance condition will be met, as applicable.

In 2020, we granted restricted stock to all eligible employees on the date of our IPO.

The fair value of these awards was based on the fair value of the underlying common stock on the date of the grant, and share-based compensation expense is recognized on a straight-line basis over the service period of six months .

Certain non-executive board members elected to receive a portion of their annual compensation in the form of restricted stock.

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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 .

During 2022 and 2023, we granted 11.1 million and 28.5 million RSUs, respectively, under the 2020 Incentive Plan with a weighted average grant date fair value of $ 8.68 and $ 2.17 , respectively.

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.

In addition, during 2022 and 2023, 2.6 million and 2.8 million PSUs were granted, respectively, and in 2023, 5.5 million long-term incentive cash units (“LTIC units”) were granted under the 2020 Incentive Plan with a weighted-average fair value as of December 31, 2023 of $ 0.61 .

Both the PSUs and LTIC units represent the target amount of grants, and the actual number of shares or units 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:

As the company intends to settle the LTIC units in cash, they are classified as a liability within "Other current liabilities" and "Other non-current liabilities" in the Consolidated Balance Sheets.

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

Year Ended December 31,

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2.32 % - 4.34 %

3.76 % - 3.78 %

(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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The total pre-tax intrinsic value of the restricted stock released during the years ended December 31, 2021, 2022 and 2023 was $ 35.2 million, $ 30.7 million and $ 9.5 million, respectively.

As of December 31, 2022, there was $ 100.4 million of total unrecognized compensation cost related to restricted stock, which will be recognized using the straight-line method over a weighted average period of 2.1 years.

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.

As of December 31, 2023, there was $ 74.8 million of total unrecognized compensation cost related to restricted stock, which will be recognized over a weighted average period of 1.9 years.

Employee Stock Purchase Plan

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In connection with the departure of certain executives during the years ended December 31, 2021, 2022, and 2023, 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.

As a result of this change in estimate, the company recognized $ 20.2 million of share-based compensation expense, related to service received since the grant date of the respective awards, during the year ended December 31, 2020.

Share-based compensation expense recogniz ed for th e years ended December 31, 2020, 2021 and 2022 was as follows:

These modifications resulted in incremental expense of $ 0.8 million during the year ended December 31, 2021 and a reduction in expense of $ 2.0 million and $ 0.6 million during the years ended December 31, 2022 and 2023, respectively .

Total share-based compensation expense is comprised of the following equity and liability classified award amounts:

Year Ended December 31,

(In millions) 2021 2022 2023

Equity classified awards

$ 75.4 $ 69.5 $ 64.6

Liability classified awards

Total share-based compensation expense

$ 75.4 $ 69.5 $ 65.4

Share-based compensation expense recogniz ed was as follows:

Year Ended December 31,

(In millions) 2021 2022 2023

Cost of revenue $ 16.7 $ 11.6 $ 9.1

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Total benefit for income taxes

$ ( 30.8 ) $ ( 92.9 ) $ ( 16.6 )

Loss before income taxes from U.S.

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Net deferred tax liabilities $ 120.7 $ 72.5

As of December 31, 2022, we have $ 157.1 million of federal net operating loss carryforwards, $ 4.4 million of which expire at various dates through 2036, and $ 152.7 million of which have an indefinite carryforward period.

As of December 31, 2023, we have $ 3.8 million of federal net operating loss carryforwards, all of which have an indefinite carryforward period.

Additionally, we have $ 58.0 million of federal tax credit carryforwards expiring at various dates through 2041.

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state and foreign jurisdictions and federal foreign tax credits that we believe are not likely to be realized.

Additionally, we’ve recorded a valuation allowance with respect to disallowed interest that we do not expect to be realizable in the future.

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, 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.

Changes to valuation allowances consisted of the following:

(In millions) 2021 2022 2023

Balance at January 1, $ 54.4 $ 58.3 $ 58.5

Additions charged to income tax expense 3.9 1.6 39.2

Reductions credited to income tax expense — ( 1.4 ) ( 31.6 )

Balance at December 31, $ 58.3 $ 58.5 $ 66.1

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.

The effective tax rate for the year ended December 31, 2023 was impacted by the tax impact associated with the goodwill impairments recorded in the first and third quarters of 2023, the majority of which were nondeductible for income tax purposes, executive compensation that is nondeductible under IRC Section 162(m), the net impact of the geographic distribution of our earnings, tax effects from nondeductible share-based compensation as well as changes in our valuation allowance.

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, 2023, 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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To the extent additional information becomes available prior to resolution, such accruals are adjusted to reflect probable outcomes.

Interest Rate Swaps

Prior to January 9, 2020, none of our floating-to-fixed interest rate swap agreements were designated as cash flow hedges of interest rate risk for accounting purposes, therefore, all changes in the fair value of the interest rate swap agreements were recorded to "Interest expense" in the Consolidated Statements of Comprehensive Loss.

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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, 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.

(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 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.

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815, Derivatives and Hedging , consisting of a loan and an embedded derivative for which the fair value option has been elected.

This $ 900.0 million swap will remain undesignated to economically offset the now undesignated December 2016 swaps.

This $ 900.0 million swap remained undesignated to economically offset the undesignated December 2016 swaps.

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.

Cash settlements related to this receive-fixed interest rate swap offset and are classified as operating activities in the Consolidated Statements of Cash Flows.

The new pay-fixed interest rate swap also qualifies as a hybrid instrument in accordance with ASC No.

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The loan is accounted for at amortized cost over the life of the swap while the embedded at-market derivative is accounted for at fair value.

This new $ 1.35 billion swap is indexed to three-month LIBOR and is being net settled on a quarterly basis with the counterparty for the difference between the fixed rate of 2.3820 % and the variable rate based upon three-month LIBOR (subject to a floor of 0.75 %) as applied to the notional amount of the swap.

The $ 1.35 billion swap was originally indexed to three-month LIBOR and net settled on a quarterly basis with the counterparty for the difference between the fixed rate of 2.3820 % and the variable rate based upon three-month LIBOR (subject to a floor of 0.75 %) as applied to the notional amount of the swap.

In connection with the transactions discussed above, no cash was exchanged between us and the counterparty.

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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 discussed in Note 7, “Debt”, on April 26, 2023 we executed an amendment to our First Lien Credit Agreement, which governs borrowings under our Term Loan Facility.

This amendment established Term SOFR as the benchmark rate for determining the applicable interest rate, replacing LIBOR.

To continue to manage our exposure to interest rate risk associated with our Term Loan Facility, effective May 9, 2023, we amended our remaining swap agreement to change the index from three-month LIBOR (subject to a floor of 0.75 %) to one-month Term SOFR (subject to a floor of 0.75 %).

The fixed rate also changed from 2.3820 % to 2.34150 % as a result of the swap agreement amendment.

As described in Note 1, “Company Overview, Basis of Presentation, and Summary of Significant Accounting Policies” we elected to apply certain practical expedients under GAAP to allow for this transition without any interruptions to hedge accounting treatment.

On a monthly basis, we net settle with the counterparty for the difference between the fixed rate of 2.34150 % and the variable rate based upon the one-month Term SOFR (subject to a floor of 0.75 %) as applied to the notional amount of the swap.

As of December 31, 2022 and 2023 , the cash flow hedge was highly effective.

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Entered into December 2016:

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

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

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

February 3, 2017 1.9040 % — Matured — Matured February 3, 2022

Entered into December 2018:

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

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

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

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

February 3, 2022 2.7800 % — Terminated — Matured November 3, 2023

Entered into February 2021:

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

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

February 9, 2021 2.34150 % (1)

1,350.0 Active 1,350.0 Active February 9, 2026

Total $ 1,350.0 $ 1,350.0

Foreign Currency Hedging Contracts

In November 2019, we entered into two foreign currency net-zero cost collar contracts with an aggregate notional amount of £ 100 million and a maturity date of November 30, 2020.

Under the terms of the contracts, the British pound sterling to U.S.

dollar exchange rate floats between 1.2375 and 1.3475 .

On March 26, 2020, we settled one of these contracts, with an aggregate notional amount of £ 50 million, and we received a final net payment of $ 1.9 million and on November 19, 2020, we settled the remaining contract, with an aggregate notional amount of £ 50 million, and we made a final net payment of $ 0.2 million.

During 2020, we entered into a series of foreign currency contracts to manage our exposure to movements in the British pound sterling, Euro, and Mexican peso.

These contracts had three-month terms and settled at various dates throughout the year, which resulted in us making aggregate payments of $ 5.4 million.

During the fourth quarter of 2020, we entered into two foreign currency forward contracts.

Under the terms of these contracts, we sold a total of £ 80 million at an average rate of 1.3388 British pound sterling to U.S.

dollar and received $ 107.1 million.

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

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

(1) Fixed rate paid prior to the May 9, 2023 amendment was 2.3820 %.

Fair Values of Derivatives on the Consolidated Balance Sheets

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(In millions) Assets Liabilities Assets Liabilities

Derivatives not designated as hedging instruments Location

Interest rate swaps Other current assets (1)

$ 1.5 $ — $ — $ —

Interest rate swaps Other current liabilities — 1.5 — —

Total $ 1.5 $ 1.5 $ — $ —

Derivatives designated as hedging instruments Location

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Total $ 124.8 $ 56.4 $ 83.8 $ 37.6

(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 and 2022 includes $ 17.2 million and $ 17.3 million, respectively, related to the financing component of the pay-fixed interest rate swap.

(1) The entire balance is comprised of the financing component of the pay-fixed interest rate swap.

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December 31, 2022 December 31, 2023

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

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

Net Amounts Gross Amounts on Balance Sheet Effects of Counterparty Netting

Interest rate swaps $ 124.8 $ ( 56.4 ) $ 68.4 $ 83.8 $ ( 37.6 ) $ 46.2

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Derivatives not designated as hedging instruments Location

Interest rate swaps Interest expense $ ( 3.2 ) $ ( 19.1 ) $ ( 18.5 )

Foreign currency contracts Other income (expense), net $ ( 3.8 ) $ 2.1 $ —

Interest rate swaps Interest income (expense)

$ ( 19.1 ) $ ( 18.5 ) $ ( 15.5 )

Foreign currency contracts (1)

Other income (expense), net

$ 2.1 $ — $ —

Derivatives designated as hedging instruments Location

Interest rate swaps Interest expense $ ( 11.0 ) $ ( 6.2 ) $ 11.9

Interest rate swaps Interest income (expense)

$ ( 6.2 ) $ 11.9 $ 55.5

(1) Relates to two foreign currency forward contracts settled on November 30, 2021.

As of December 31, 2022 and 2023, we do not have any outstanding foreign currency hedging contracts.

Interest expense was $ 205.1 million, $ 208.5 million and $ 221.6 million for the years ended December 31, 2021, 2022 and 2023, respectively.

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Accumulated other comprehensive income (loss) consisted of the following:

(In millions) Accumulated Foreign Currency Translation Adjustments Accumulated Loss on Derivative Contracts Accumulated Other Comprehensive Income (Loss)

(In millions) Accumulated Foreign Currency Translation Adjustments Accumulated Gain (Loss) on Derivative Contracts

Accumulated Other Comprehensive Income (Loss)

Balance at December 31, 2020 $ 20.8 $ ( 39.4 ) $ ( 18.6 )

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

Unrealized loss on derivative contracts, net of tax benefit of $ 16.3 million

Foreign currency translation adjustments, net of tax benefit of $ 0.6 million

( 3.6 ) — ( 3.6 )

Unrealized gain on derivative contracts, net of expense of $ 3.9 million

Amount reclassified from Accumulated comprehensive income (loss) into earnings, net of tax benefit of $ 6.0 million (1)

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

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

( 27.2 ) — ( 27.2 )

Foreign currency translation adjustments, net of tax expense of $ 1.0 million

Unrealized gain on derivative contracts, net of tax expense of $ 3.8 million

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

Amount reclassified from Accumulated comprehensive income (loss) into earnings, net of tax expense of $ 10.3 million (3)

— ( 29.9 ) ( 29.9 )

Balance at December 31, 2023 $ ( 2.0 ) $ 62.3 $ 60.3

(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.

(1) 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.

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

(3) Includes a reduction to interest expense recognized of $ 55.6 million related to the cash flow hedge gain for the year ended December 31, 2023, partially offset by an increase to interest expense for the amortization of off-market swap value and accumulated loss at hedge de-designation of $ 15.5 million.

Related Party Transactions

On November 3, 2016, Rackspace Technology Global entered into management consulting agreements with affiliates of Apollo and Searchlight and on November 15, 2017, in connection with the Datapipe acquisition, Rackspace Technology Global entered into a management consulting agreement with ABRY.

Under these agreements, we were required to pay them a quarterly, nonrefundable fee for consulting services in areas such as finance, strategy, investment, and acquisitions based on EBITDA, as defined in the First Lien Credit Agreement.

For Apollo and Searchlight, the consulting fee was equal to 1.5 % of EBITDA, or a minimum annual consulting fee of $ 10.0 million.

Under the ABRY agreement, the consulting fee was equal to a specified percentage of 1.5 % of EBITDA.

For the 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.

Therefore no management consulting or acquisition-related fees were accrued or were payable under any of these agreements for periods subsequent to August 4, 2020.

As part of the IPO, Apollo Global Securities, an affiliate of Apollo, received fees of $ 2.7 million in connection with their role as an underwriter in the IPO.

Apollo Global Securities also received $ 0.6 million in connection with their role as an initial purchaser of the 5.375 % Senior Notes issued on December 1, 2020, $ 0.6 million in connection with their role as an initial purchaser of the 3.50 % Senior Secured Notes issued on February 9, 2021, and $ 2.3 million in arranger fees in connection with the entry into the Term Loan Facility on February 9, 2021.

Affiliates of ABRY are also Term Loan Facility lenders under the First Lien Credit Agreement.

As of December 31, 2022, the outstanding principal amount of the Term Loan Facility was $ 2,259.8 million, of which $ 56.0 million, or 2.5 %, is due to ABRY affiliates.

Apollo Global Securities, an affiliate of Apollo, received $ 0.6 million in connection with their role as an initial purchaser of the 3.50 % Senior Secured Notes issued on February 9, 2021, and $ 2.3 million in arranger fees in connection with the entry into the Term Loan Facility on February 9, 2021.

On February 2, 2021, we issued 2,665,935 shares of common stock to DPH 123, LLC, an ABRY affiliate, for no additional consideration pursuant to the Agreement and Plan of Merger, dated as of September 6, 2017, in connection with our November 15, 2017 acquisition of Datapipe.

Segment Reporting

We have organized our operations into the following three operating segments, which correspond directly to our reportable segments:

Multicloud Services, Apps & Cross Platform, and OpenStack Public Cloud.

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.

We have changed our segment reporting to reflect this reorganization under two operating segments, which correspond directly to our reportable segments:

Public Cloud, a services-centric, capital-light model providing value-added cloud solutions through managed services, Elastic Engineering and professional services offerings for customer environments hosted on the AWS, Microsoft Azure and Google Cloud public cloud platforms;

and Private Cloud, a technology-forward, capital-intensive model providing managed service offerings for customer environments hosted in one of our data centers as well as in those owned by customers or by third parties such as colocation providers.

Private Cloud also includes our legacy OpenStack Public Cloud business that we ceased to actively market to customers in 2017.

Our segments are based upon a number of factors, including, the basis for our budgets and forecasts, organizational and management structure and the financial information regularly used by our Chief Operating Decision Maker to make key decisions and to assess performance.

We assess financial performance of our segments on the basis of revenue and segment gross profit.

For the calculation of segment gross profit, we allocate certain costs, such as data center operating costs, customer support costs, license expense, and depreciation, to our segments generally based on segment revenue.

The table below presents a reconciliation of revenue by reportable segment to consolidated revenue and a reconciliation of consolidated segment gross profit to consolidated loss before income taxes for the years ended December 31, 2020, 2021 and 2022.

We assess financial performance of our segments on the basis of revenue and segment operating profit.

Segment operating profit includes expenses directly attributable to running the respective segments' business.

This excludes any corporate overhead expenses.

We have centralized corporate functions that provide services to the segments in areas such as accounting, information technology, marketing, legal and human resources.

Corporate function costs that are not allocated to the segments are included in the row labeled "Corporate functions" in the table below.

The table below presents a reconciliation of revenue by reportable segment to consolidated revenue and a reconciliation of consolidated segment operating profit to consolidated loss before income taxes for the years ended December 31, 2021, 2022 and 2023.

Year Ended December 31,

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Revenue by segment:

Multicloud Services $ 2,141.5 $ 2,449.1 $ 2,574.9

Apps & Cross Platform 336.6 377.6 396.9

OpenStack Public Cloud 229.0 182.8 150.5

Public Cloud $ 1,471.3 $ 1,740.8 $ 1,747.4

Private Cloud 1,538.2 1,381.5 1,209.7

Total consolidated revenue $ 3,009.5 $ 3,122.3 $ 2,957.1

Segment gross profit:

Multicloud Services $ 810.2 $ 793.4 $ 701.7

Apps & Cross Platform 115.5 135.9 139.2

OpenStack Public Cloud 100.3 67.1 43.3

Total consolidated segment gross profit 1,026.0 996.4 884.2

Segment operating profit:

Public Cloud $ 120.1 $ 124.9 $ 90.4

Private Cloud 604.3 493.9 340.8

Total consolidated segment operating profit 724.4 618.8 431.2

Corporate functions ( 240.3 ) ( 255.0 ) ( 247.8 )

Share-based compensation expense ( 75.4 ) ( 69.5 ) ( 65.4 )

Other compensation expense (1)

Special bonuses and other compensation expense (1)

( 11.8 ) ( 10.0 ) ( 12.1 )

Purchase accounting impact on expense (2)

Transaction related adjustments, net (2)

( 25.7 ) ( 11.0 ) ( 5.2 )

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( 161.5 ) ( 99.0 ) ( 70.8 )

Hosted Exchange incident expenses — — ( 0.2 )

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

Hosted Exchange incident expenses, net of proceeds received or expected to be received under our insurance coverage — ( 5.9 ) 4.8

Amortization of intangible assets (4)

( 179.7 ) ( 166.8 ) ( 161.0 )

Impairment of goodwill ( 52.4 ) ( 534.5 ) ( 708.8 )

Impairment of assets — — ( 146.1 )

UK office closure (5)

Impairment of assets, net — ( 146.1 ) ( 52.2 )

Gain on sale of land 19.9 — —

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Gain (loss) on investments, net ( 3.0 ) ( 0.2 ) 0.3

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

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

Debt modification costs and gain (loss) on debt extinguishment ( 37.5 ) — 271.3

Other expense, net ( 1.0 ) ( 10.0 ) ( 5.0 )

Total consolidated loss before income taxes $ ( 249.1 ) $ ( 897.7 ) $ ( 854.4 )

(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 expenses.

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

This amount also includes certain costs associated with the July 2021 Restructuring Plan which are not accounted for as exit and disposal costs under ASC 420, including one-time offshore build out costs.

(1) Includes expense related to retention bonuses, mainly relating to restructuring and integration projects, and the related payroll tax, senior executive signing bonuses and relocation costs, and payroll taxes associated with the exercise of stock options and vesting of restricted stock.

Beginning in the second quarter of 2023, includes expense related to the one-time grant of long-term incentive bonuses as a component of our annual compensation award process.

(2) Includes legal, professional, accounting and other advisory fees related to acquisitions, certain one-time compliance costs related to being a public company, integration costs of acquired businesses, purchase accounting adjustments, payroll costs for employees that dedicate significant time to supporting these projects and exploratory acquisition and divestiture costs and expenses related to financing activities.

(3) Includes consulting and advisory fees related to business transformation and optimization activities, payroll costs for employees that dedicate significant time to these projects, as well as associated severance, certain facility closure costs, and lease termination expenses.

This amount also includes employee related costs and other costs related to the July 2021 Restructuring Plan of $ 25.4 million for the year ended December 31, 2021, which are accounted for as exit and disposal costs under ASC 420.

In addition, it includes total charges of $ 25.1 million and $ 5.2 million for the years ended December 31, 2021 and 2022, respectively, related to the July 2021 Restructuring Plan which are not accounted for as exit and disposal costs under ASC 420, including one-time offshore build out costs.

(4) All of our intangible assets are attributable to acquisitions, including the Rackspace Acquisition in 2016.

(5) Expense recognized related to the closure of a UK office that we exited in the second quarter of 2023 prior to the lease end date.

The table below presents depreciation expense included in segment operating profit above for the years ended December 31, 2021, 2022 and 2023.

Year Ended December 31,

(In millions) 2021 2022 2023

Public Cloud $ 8.4 $ 8.2 $ 9.2

Private Cloud 189.9 170.2 171.3

Corporate functions 46.8 42.5 28.2

Total depreciation expense $ 245.1 $ 220.9 $ 208.7

Management does not use total assets by segment to evaluate segment performance or allocate resources.

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Total assets $ 629.5 $ ( 154.5 )

LIABILITIES AND STOCKHOLDERS' EQUITY

Stockholders' equity:

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

Stockholders' equity (deficit):

Preferred stock, $ 0.01 par value per share:

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Treasury stock, at cost;

zero and 3.1 shares held, respectively

Total stockholders' equity 1,327.4 629.5

Total liabilities and stockholders' equity $ 1,327.4 $ 629.5

3.1 shares held

( 31.0 ) ( 31.0 )

Total stockholders' equity (deficit)

629.5 ( 154.5 )

Total liabilities and stockholders' equity (deficit)

$ 629.5 $ ( 154.5 )

The accompanying note is an integral part of these condensed financial statements.

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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