What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2024-05-15 compared with 2023-11-09 · 284 added, 314 removed, 474 unchanged (56% of the section changed)

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(In millions, except per share data) December 31,

2022 September 30,

2023 March 31,

Current assets:

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Total assets $ 4,096.2 $ 3,516.0

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

LIABILITIES AND STOCKHOLDERS' DEFICIT

Current liabilities:

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Commitments and Contingencies (Note 8)

Stockholders' equity (deficit):

Stockholders' deficit:

Preferred stock, $ 0.01 par value per share:

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( 31.0 ) ( 31.0 )

Total stockholders' equity (deficit) 629.5 ( 182.8 )

Total liabilities and stockholders' equity (deficit) $ 5,456.7 $ 4,280.3

Total stockholders' deficit ( 154.5 ) ( 787.2 )

Total liabilities and stockholders' deficit $ 4,096.2 $ 3,516.0

See accompanying notes to the unaudited condensed consolidated financial statements.

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CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

Three Months Ended September 30, Nine Months Ended September 30,

Three Months Ended March 31,

(In millions, except per share data) 2023 2024

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Interest expense ( 56.9 ) ( 43.7 )

Gain (loss) on investments, net ( 0.1 ) — ( 0.4 ) 0.2

Gain on debt extinguishment — 55.4 — 163.1

Other expense, net

( 6.0 ) ( 2.6 ) ( 15.5 ) ( 0.3 )

Gain on investments, net 0.1 0.1

Debt modification costs and gain on debt extinguishment 12.8 56.7

Other income (expense), net

Total other income (expense) ( 41.9 ) 7.5

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Foreign currency translation adjustments $ 3.4 $ ( 3.7 )

Unrealized gain on derivative contracts 31.4 9.1 84.7 22.8

Unrealized gain (loss) on derivative contracts ( 5.6 ) 13.1

Amount reclassified from accumulated other comprehensive income (loss) to earnings ( 5.6 ) ( 11.1 )

Other comprehensive income (loss) 9.5 ( 4.1 ) 47.7 3.4

Other comprehensive loss ( 7.8 ) ( 1.7 )

Comprehensive loss $ ( 619.8 ) $ ( 642.3 )

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine Months Ended September 30,

Three Months Ended March 31,

(In millions) 2023 2024

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Impairment of assets, net — 20.0

Gain on debt extinguishment — ( 163.1 )

Debt modification costs and gain on debt extinguishment ( 12.8 ) ( 56.7 )

Unrealized loss on derivative contracts 4.5 —

(Gain) loss on investments, net 0.4 ( 0.2 )

Gain on investments, net ( 0.1 ) ( 0.1 )

Provision for bad debts and accrued customer credits 0.7 4.3

Amortization of debt issuance costs and debt discount 6.0 6.0

Non-cash fair value adjustments 3.0 ( 1.0 )

Amortization of debt issuance costs and debt discount and premium 2.0 ( 2.0 )

Third party fees paid in connection with the Refinancing Transactions — ( 28.4 )

Other operating activities ( 0.1 ) ( 0.2 )

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Other non-current assets and liabilities 17.2 14.1

Net cash provided by operating activities 219.2 302.7

Net cash used in operating activities ( 1.9 ) ( 90.3 )

Cash Flows From Investing Activities

Purchases of property, equipment and software ( 12.1 ) ( 28.1 )

Acquisitions, net of cash acquired ( 7.7 ) —

Purchase of convertible promissory note ( 15.0 ) —

Proceeds from sale of headquarters — 16.9

Other investing activities 0.4 0.1

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Cash Flows From Financing Activities

Proceeds from employee stock plans 2.7 0.8

Shares of common stock withheld for employee taxes — ( 3.4 )

Shares of common stock repurchased ( 31.0 ) —

Proceeds from borrowings under long-term debt arrangements — 275.0

Payments on long-term debt ( 15.4 ) ( 35.6 )

Debt extinguishment costs — ( 22.1 )

Payments on financing component of interest rate swap ( 4.4 ) ( 4.3 )

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Principal payments of financing obligations ( 2.9 ) ( 3.5 )

Other financing activities ( 3.3 ) —

Net cash used in financing activities ( 148.8 ) ( 191.4 )

Net cash provided by (used in) financing activities ( 41.3 ) 188.2

Effect of exchange rate changes on cash, cash equivalents, and restricted cash 0.9 ( 1.0 )

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Acquisition of property, equipment and software by finance leases $ 50.7 $ —

Acquisition of property, equipment and software by financing obligations 7.1 8.5

Other non-cash additions — ( 0.6 )

Increase in property, equipment and software accrued in liabilities 8.7 18.1

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

Nine Months Ended September 30,

Three Months Ended March 31,

(In millions) 2023 2024

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Shares Amount Shares Amount

Balance at June 30, 2022 213.5 $ 2.1 $ 2,542.9 $ 45.1 $ ( 1,260.7 ) 3.1 $ ( 31.0 ) $ 1,298.4

Exercise of stock options and release of stock awards 0.7 — — — — — — —

Share-based compensation expense — — 19.4 — — — — 19.4

Net loss — — — — ( 511.7 ) — — ( 511.7 )

Other comprehensive income — — — 9.5 — — — 9.5

Balance at September 30, 2022 214.2 $ 2.1 $ 2,562.3 $ 54.6 $ ( 1,772.4 ) 3.1 $ ( 31.0 ) $ 815.6

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

Shares Amount Shares Amount

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 2.4 — — — — — — —

Issuance of shares from Employee Stock Purchase Plan 0.3 — 2.1 — — — — 2.1

Share-based compensation expense — — 59.5 — — — — 59.5

Net loss — — — — ( 590.8 ) — — ( 590.8 )

Other comprehensive income — — — 47.7 — — — 47.7

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

Balance at September 30, 2022 214.2 $ 2.1 $ 2,562.3 $ 54.6 $ ( 1,772.4 ) 3.1 $ ( 31.0 ) $ 815.6

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

Shares Amount Shares Amount

Balance at June 30, 2023 218.8 $ 2.2 $ 2,607.4 $ 78.9 $ ( 2,625.6 ) 3.1 $ ( 31.0 ) $ 31.9

Exercise of stock options and release of stock awards, net of shares withheld

0.7 — ( 1.0 ) — — — — ( 1.0 )

Share-based compensation expense for equity classified awards — — 14.7 — — — — 14.7

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Other comprehensive loss — — — ( 7.8 ) — — — ( 7.8 )

— — — ( 4.1 ) — — — ( 4.1 )

Balance at September 30, 2023 219.5 $ 2.2 $ 2,623.4 $ 74.8 $ ( 2,852.2 ) 3.1 $ ( 31.0 ) $ ( 182.8 )

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

Balance at March 31, 2023 218.1 $ 2.2 $ 2,588.0 $ 63.6 $ ( 2,598.4 ) 3.1 $ ( 31.0 ) $ 24.4

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

Shares Amount Shares Amount

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6.1 0.1 ( 3.5 ) — — — — ( 3.4 )

Issuance of shares from Employee Stock Purchase Plan 0.4 — 0.8 — — — — 0.8

Share-based compensation expense for equity classified awards — — 13.0 — — — — 13.0

Net loss — — — — ( 640.6 ) — — ( 640.6 )

Other comprehensive income — — — 3.4 — — — 3.4

Balance at September 30, 2023 219.5 $ 2.2 $ 2,623.4 $ 74.8 $ ( 2,852.2 ) 3.1 $ ( 31.0 ) $ ( 182.8 )

Other comprehensive loss

— — — ( 1.7 ) — — — ( 1.7 )

Balance at March 31, 2024 226.6 $ 2.3 $ 2,647.7 $ 58.6 $ ( 3,464.8 ) 3.1 $ ( 31.0 ) $ ( 787.2 )

See accompanying notes to the unaudited condensed 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.

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 14, "Segment Reporting" for more information.

The unaudited condensed consolidated financial statements include the accounts of Rackspace Technology, Inc.

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Unaudited Interim Financial Information

The unaudited condensed consolidated financial statements as of September 30, 2023, and for the three and nine months ended September 30, 2022 and 2023, have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information.

The unaudited condensed consolidated financial statements as of March 31, 2024, and for the three months ended March 31, 2023 and 2024, have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information.

Accordingly, certain financial information and disclosures required for financial statements prepared under GAAP have been omitted in accordance with the Securities and Exchange Commission ("SEC") disclosure rules and regulations that permit reduced disclosure for interim periods.

These unaudited interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the related notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2023 as filed with the SEC on March 15, 2024 ("Annual Report").

The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements included in our Annual Report and, in the opinion of management, reflect all adjustments, which include normal recurring adjustments, necessary for a fair statement of our financial position as of September 30, 2023, our results of operations and stockholders' equity for the three and nine months ended September 30, 2022 and 2023, and our cash flows for the nine months ended September 30, 2022 and 2023.

The results of operations for the three and nine months ended September 30, 2023 are not necessarily indicative of the results of operations to be expected for the year ending December 31, 2023, or for any other interim period, or for any other future year.

The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements included in our Annual Report and, in the opinion of management, reflect all adjustments, which include normal recurring adjustments, necessary for a fair statement of our financial position as of March 31, 2024, our results of operations, cash flows, and stockholders' equity (deficit) for the three months ended March 31, 2023 and 2024.

The results of operations for the three months ended March 31, 2024 are not necessarily indicative of the results of operations to be expected for the year ending December 31, 2024, or for any other interim period, or for any other future year.

Use of Estimates

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We are a highly leveraged company.

As of September 30, 2023, we had $ 3,092.5 million aggregate principal amount outstanding under the first lien term loan facility (the "Term Loan Facility"), 5.375 % Senior Notes due 2028 (the " 5.375 % Senior Notes"), and 3.50 % Senior Secured Notes due 2028 (the " 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 a revolving credit facility (the "Revolving Credit Facility").

As of September 30, 2023, the Revolving Credit Facility provided for up to $ 375.0 million of borrowings, none of which was drawn and outstanding as of September 30, 2023.

As of March 31, 2024, we had $ 2,598.2 million aggregate principal amount outstanding under our debt instruments, which are comprised of the first lien first out senior secured term loan facility (the “FLFO Term Loan Facility”), the first lien second out senior secured term loan facility (the “FLSO Term Loan Facility”), the first lien term loan facility (the "Term Loan Facility"), 3.50 % FLSO Senior Secured Notes due 2028 (the “ 3.50 % FLSO Senior Secured Notes”), 5.375 % Senior Notes due 2028 (the " 5.375 % Senior Notes"), and 3.50 % Senior Secured Notes due 2028 (the " 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 the senior secured first lien first out revolving credit facility (the " New Revolving Credit Facility").

As of March 31, 2024, the New Revolving Credit Facility provided for up to $ 375.0 million of borrowings, none of which was drawn and outstanding as of March 31, 2024.

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 $ 277.8 million as of September 30, 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.

Based on our current level of operations and available cash and cash equivalents of $ 282.6 million as of March 31, 2024, 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 New 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.

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Our Annual Report includes an additional discussion of the significant accounting policies and estimates used in the preparation of our consolidated financial statements.

There were no material changes to our significant accounting policies and estimates during the nine months ended September 30, 2023.

There were no material changes to our significant accounting policies and estimates during the three months ended March 31, 2024.

Change in Accounting Estimate

In the first quarter of 2024, we completed an assessment of the useful lives of certain assets within the “Computers and equipment” asset class.

The timing of this review was based on a combination of factors accumulating over time that provided the company with updated information to make a better estimate on the economic lives of certain property and equipment.

These factors included changes in our business model and recent technological advances that have increased efficiencies in how we operate and manage customer gear.

The assessment resulted in an increase in the estimated useful life range of the “Computers and equipment” asset class from three -to- five years to five -to- seven years .

This change in accounting estimate took effect at the start of the first quarter of 2024.

The impact of this change was a reduction in depreciation expense of $ 12.2 million compared to previous estimates for the three months ended March 31, 2024.

Goodwill, Indefinite-Lived Intangible Assets and Long-Lived Assets

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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.

In connection with the debt refinancing transactions that were completed in March and April 2024, as further described in Note 7, “Debt”, we updated our internal forecasts.

Our updated internal forecasts considered our year-to-date operating performance, current customer bookings and revised expectations based on current performance, revisions to our expected growth and timing of such growth based on current and expected performance, current customer retention rates, revisions to the timing of the expected effects of our strategic initiatives and overall related risks, including macroeconomic factors, to achieving our forecasts.

Our Board of Directors reviewed and approved our internal budget for fiscal year 2024 on February 28, 2024.

As of February 29, 2024, we assessed our Board approved 2024 internal budget along with 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 our current and forecasted operating margins and cash flows, budgeted-to-actual performance, timing of the expected effects of our strategic initiatives, overall change in economic climate, changes in the industry and competitive environment, changes to our risk-adjusted discount rates 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 February 29, 2024.

On January 1, 2023, as a result of the reorganization of our business around a two -business unit operating model, we changed our 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 described in our Annual Report.

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

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

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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 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.

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:

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.

For the interim quantitative goodwill impairment analyses performed, we compare 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.

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.

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.

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 quantitative goodwill impairment analysis as of February 29, 2024 indicated an impairment of goodwill within our Public Cloud and Private Cloud reporting units of $ 385.4 million and $ 187.8 million, respectively.

We recorded these non-cash impairment charges within "Impairment of goodwill" in our Condensed Consolidated Statements of Comprehensive Loss in the first quarter of 2024.

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 Condensed 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 Condensed Consolidated Statements of Comprehensive Loss in the third quarter of 2023.

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

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

In addition, as of September 1, 2022, we lowered our projected operating results primarily due to product mix shifts and market concerns related to inflation, supply chain disruption issues 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 Condensed Consolidated Statements of Comprehensive Loss for the three and nine months ended September 30, 2022.

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

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

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 as of February 29, 2024.

The quantitative assessment performed as of February 29, 2024 indicated the estimated fair value of the Rackspace trade name was less than its carrying value.

As a result, we recorded a $ 20.0 million non-cash impairment charge which is included in "Impairment of assets, net" in our Condensed Consolidated Statements of Comprehensive Loss in the first quarter of 2024.

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

As of September 30, 2023, prior to performing the goodwill impairment analysis, 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.

The quantitative assessment performed as of September 30, 2023 indicated the estimated fair value of the Rackspace trade name was less than its carrying value.

As a result, we recorded a $ 57.0 million non-cash impairment charge which is included in "Impairment of assets, net" in our Condensed Consolidated Statements of Comprehensive Loss for the three and nine months ended September 30, 2023.

As of September 1, 2022, prior to performing the goodwill impairment analysis, 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, net" in our Condensed Consolidated Statements of Comprehensive Loss for the three and nine months ended September 30, 2022.

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 growth rates, projected gross profit margins, projected operating costs, projected capital expenditures, which are dependent on internal cash flow forecasts, estimation of the terminal growth rates and determination of risk-adjusted 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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(i) volatility in the equity and debt markets or other macroeconomic factors, (ii) an increase in the weighted-average cost of capital due to further increases in interest rates, (iii) decrease in future cash flows due to lower than expected sales, or (iv) fluctuations in foreign currency exchange rates that may negatively impact our reported results of operations.

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

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

Long-lived assets, including operating and finance lease assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

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If the carrying amount of an asset group exceeds its estimated undiscounted future cash flows, then an impairment charge is recognized in the amount that an asset group's carrying amount exceeds its fair value.

In conjunction with the goodwill impairment analyses as of January 1, 2023, March 31, 2023, and September 30, 2023, we performed recoverability tests of our long-lived assets, including finite-lived intangible assets, by comparing the net book value of our long-lived assets or asset groups, to the future undiscounted net cash flows attributable to such assets, which did not result in any impairment charges.

As of September 1, 2022, prior to performing the goodwill impairment analysis, we performed a recoverability test of our long-lived assets, including finite-lived intangible assets.

Based on the results of the recoverability test, we determined that, as of September 1, 2022, the fair value of the OpenStack Public Cloud asset group’s underlying assets was less than the carrying value.

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

As a result, 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 Condensed Consolidated Statements of Comprehensive Loss for the three and nine months ended September 30, 2022.

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

In conjunction with the goodwill impairment analyses as of January 1, 2023, March 31, 2023, and February 29, 2024, we performed recoverability tests of our long-lived assets, including finite-lived intangible assets, by comparing the net book value of our long-lived assets or asset groups, to the future undiscounted net cash flows attributable to such assets, which did not result in any impairment charges.

The fair value of our non-financial assets and liabilities, which include goodwill, intangible assets and property, plant and equipment, are measured on a non-recurring basis.

The fair value of our reporting units, indefinite-lived intangible assets and long-lived assets are classified as Level 3 within the fair value hierarchy due to the significant unobservable inputs developed using company-specific information.

Recent Accounting Pronouncements

Reference Rate Reform

The United Kingdom's Financial Conduct Authority, which regulates the London Interbank Offered Rate ("LIBOR"), announced that it will not compel panel banks to contribute to the overnight 1, 3, 6 and 12 months U.S.

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

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

In March 2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("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.

In December 2022, the FASB issued ASU No.

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

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

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 12, "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.

Customer Contracts

The following table presents the balances related to customer contracts:

(In millions) Condensed Consolidated Balance Sheets Account December 31, 2022 September 30, 2023

(In millions) Condensed Consolidated Balance Sheets Account December 31, 2023 March 31, 2024

Accounts receivable, net Accounts receivable, net (1)

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Non-current portion of deferred revenue Other non-current liabilities $ 5.3 $ 6.2

(1) Allowance for credit losses and accrued customer credits was $ 24.6 million and $ 19.8 million as of December 31, 2022 and September 30, 2023, respectively.

We identified an immaterial correction in the disclosure of the amount previously reported as recognized in revenue for the three and nine months ended September 30, 2022, which were included in deferred revenue as of the beginning of the period and have updated these amounts to $ 17.1 million and $ 83.7 million, respectively.

Amounts recognized in revenue for the three and nine months ended September 30, 2023, which were included in deferred revenue as of the beginning of the period totaled $ 30.0 million and $ 68.0 million, respectively.

(1) Allowance for credit losses and accrued customer credits was $ 20.1 million and $ 20.3 million as of December 31, 2023 and March 31, 2024, respectively.

Amounts recognized in revenue for the three months ended March 31, 2023, and 2024, which were included in deferred revenue as of the beginning of each period totaled $ 39.1 million and $ 45.6 million, respectively.

Cost Incurred to Obtain and Fulfill a Contract

As of December 31, 2022 and September 30, 2023, the balances of capitalized costs to obtain a contract were $ 55.8 million and $ 43.9 million, respectively, and the balances of capitalized costs to fulfill a contract were $ 17.7 million and $ 14.4 million, respectively.

As of December 31, 2023 and March 31, 2024, the balances of capitalized costs to obtain a contract were $ 42.0 million and $ 39.7 million, respectively, and the balances of capitalized costs to fulfill a contract were $ 13.4 million and $ 12.9 million, respectively.

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

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

Three Months Ended September 30, Nine Months Ended September 30,

Three Months Ended March 31,

(In millions) 2023 2024

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Remaining Performance Obligations

As of September 30, 2023, the aggregate amount of transaction price allocated to remaining performance obligations was $ 465.4 million, of which approximately 22 % is expected to be recognized as revenue during the remainder of 2023 and the remainder thereafter.

As of March 31, 2024, the aggregate amount of transaction price allocated to remaining performance obligations was $ 458.1 million, of which approximately 56 % is expected to be recognized as revenue during the remainder of 2024 and the remainder thereafter.

These remaining performance obligations primarily relate to our fixed-term arrangements.

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

Convertible Promissory Note

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

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

The Note 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 elected to apply the fair value option under ASC No.

825, Financial Instruments , to account for the Note.

As of December 31, 2022 and September 30, 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 Condensed Consolidated Balance Sheets.

Sale of Receivables

On September 29, 2023 (the “Closing Date”), Rackspace US, Inc.

and Rackspace Receivables II, LLC, a bankruptcy-remote special purpose vehicle (“SPV”), each an indirect subsidiary of the company, entered into an accounts receivable purchase agreement (the “Receivables Facility”) with PNC Bank, National Association (“PNC”) and other parties thereto.

Under the Receivables 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, the accounts receivable to PNC in exchange for cash.

The Receivables 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 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 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 transfer of receivables to PNC are accounted for as sales because effective control and risk associated with the receivables is passed to PNC.

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

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

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

The company maintains continuing involvement with the sold receivables 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 in limited circumstances.

Separate accruals have been established for recourse obligations and are immaterial as of September 30, 2023.

As of September 30, 2023, we had sold accounts receivable having an aggregate face value of $ 209.0 million in exchange for cash proceeds of $ 209.0 million.

In connection with this sale, we recorded $ 4.9 million of expense, consisting of $ 1.6 million of estimated yield charges representing a loss on sale and $ 3.3 million of transaction costs, within “Other expense, net” in the Condensed Consolidated Statements of Comprehensive Loss for the three and nine months ended September 30, 2023.

We used $ 50.0 million of the cash proceeds to fully repay the outstanding borrowings under the Revolving Credit Facility and the remainder will be used for general corporate purposes.

The SPV holds unsold receivables of $ 130.6 million as of September 30, 2023 that are pledged as collateral to PNC.

On September 29, 2023, Rackspace US, Inc.

and Rackspace Receivables II, LLC, a bankruptcy-remote special purpose vehicle (“SPV”), each an indirect subsidiary of the company, entered into an accounts receivable purchase agreement with PNC Bank, National Association (“PNC”) and other parties thereto.

On February 12, 2024, the accounts receivable purchase agreement was amended to include certain international subsidiaries of the company as parties to the agreement and Rackspace Receivables Canada Limited, a Canadian indirect subsidiary of the company, was established as a SPV.

In connection with accounts receivable sold during the three months ended March 31, 2024, we recorded $ 5.8 million of expense, consisting of $ 5.3 million of yield charges and fees and $ 0.5 million of upfront transaction costs associated with the execution of the agreement, within “Other income (expense), net” in the Condensed Consolidated Statements of Comprehensive Loss for the three months ended March 31, 2024.

The outstanding portfolio of sold accounts receivable derecognized from our Condensed Consolidated Balance Sheet as of December 31, 2023 and March 31, 2024 was $ 223.8 million and $ 218.3 million, respectively.

The SPVs hold unsold accounts receivable of $ 100.6 million as of March 31, 2024 that are pledged as collateral to PNC.

Net Loss Per Share

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

Three Months Ended September 30, Nine Months Ended September 30,

Three Months Ended March 31,

(In millions, except per share data) 2023 2024

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Potential common share equivalents consist of shares issuable upon the exercise of stock options, vesting of restricted stock or purchase under the Employee Stock Purchase Plan (the "ESPP"), as well as contingent shares associated with our acquisition of Datapipe Parent, Inc.

Since we were in a net loss position for all periods presented, basic net loss per share is the same as diluted net loss per share for all periods as the inclusion of all potential common shares outstanding would have been anti-dilutive.

We excluded 24.2 million and 41.1 million potential common shares from the computation of dilutive loss per share for the three months ended September 30, 2022 and 2023, respectively, and 24.2 million and 41.1 million potential shares for the nine months ended September 30, 2022 and 2023, respectively, because the effect would have been anti-dilutive.

Since we were in a net loss position for both periods presented, basic net loss per share is the same as diluted net loss per share for both periods as the inclusion of all potential common shares outstanding would have been anti-dilutive.

We excluded 41.1 million and 30.3 million potential common shares from the computation of dilutive loss per share for the three months ended March 31, 2023 and 2024, respectively, because the effect would have been anti-dilutive.

Property, Equipment and Software, net

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(In millions) December 31,

2022 September 30,

2023 March 31,

Computers and equipment $ 1,154.9 $ 1,164.0

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Property, equipment and software, net $ 608.8 $ 617.0

For the three and nine months ended September 30, 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 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 included in "Impairment of assets, net" in the fourth quarter of 2022.

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

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 Condensed Consolidated Statements of Comprehensive Loss for the three and nine months ended September 30, 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.

As such, as of December 31, 2022, this property met the criteria to be classified as held for sale under GAAP and the carrying amount of the property was remeasured each reporting period for changes in the estimated fair value, less cost to sell.

In March 2024, we completed the sale of the property.

The property’s estimated fair value, less estimated cost to sell prior to the sale was $ 16.9 million and we received cash proceeds of $ 17.5 million, less brokerage and professional fees of $ 0.6 million, resulting in net cash proceeds of $ 16.9 million.

In connection with the completion of the sale, we paid a $ 9.0 million early termination fee to certain local governments related to our termination of the Master Economic Incentives Agreement (the “MEIA”) associated with the property.

This amount is included in “Selling, general and administrative expenses” in our Condensed Consolidated Statements of Comprehensive Loss for the three months ended March 31, 2024.

Goodwill and Intangible Assets

The following table sets forth the changes in the carrying amounts of goodwill by reportable segment .

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

(In millions) Public Cloud Private Cloud Total

Gross goodwill as of December 31, 2023

$ 597.7 $ 1,563.5 $ 2,161.2

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

Goodwill, net as of December 31, 2022

impairment charges

— ( 708.8 ) ( 708.8 )

Reallocation adjustment (1)

Goodwill, net as of December 31, 2023

597.7 854.7 1,452.4

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Foreign currency translation ( 1.0 ) ( 0.5 ) ( 1.5 )

Goodwill, net as of September 30, 2023

Goodwill, net as of March 31, 2024

$ 211.3 $ 666.4 $ 877.7

Gross goodwill as of September 30, 2023

Gross goodwill as of March 31, 2024

$ 596.7 $ 1,563.0 $ 2,159.7

accumulated impairment charges (1)

Goodwill, net as of September 30, 2023

( 385.4 ) ( 896.6 ) ( 1,282.0 )

(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.

See Note 1, "Company Overview, Basis of Presentation, and Summary of Significant Accounting Policies," for discussion of the goodwill impairment charges recorded during the nine months ended September 30, 2022 and 2023.

Goodwill, net as of March 31, 2024

$ 211.3 $ 666.4 $ 877.7

(1) On a consolidated basis, gross and net goodwill as of March 31, 2024 was $ 3,041.6 million and $ 877.7 million, respectively.

Accumulated impairment charges on a consolidated basis was $ 2,163.9 million as of March 31, 2024.

See Note 1, "Company Overview, Basis of Presentation, and Summary of Significant Accounting Policies," for discussion of the goodwill impairment charges recorded during the three months ended March 31, 2023 and 2024.

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

December 31, 2022 September 30, 2023

December 31, 2023 March 31, 2024

(In millions) Gross carrying amount Accumulated amortization Net carrying amount Gross carrying amount Accumulated amortization Net carrying amount

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Total intangible assets other than goodwill $ 2,119.8 $ ( 1,100.8 ) $ 1,019.0 $ 2,099.0 $ ( 1,138.8 ) $ 960.2

During the three and nine months ended September 30, 2023 we recognized impairment charges of $ 57.0 million related to our trade name indefinite-lived intangible asset.

Additionally, during the three and nine months ended September 30, 2022 we recognized impairment charges of $ 21.0 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 three months ended March 31, 2024 we recognized impairment charges of $ 20.0 million related to our trade name indefinite-lived intangible asset.

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

Debt consisted of the following:

(In millions, except %) December 31, 2022 September 30, 2023

(In millions, except %) December 31, 2023 March 31, 2024

Debt Instrument Maturity Date Interest Rate (1)

Amount Interest Rate (1)

FLSO Term Loan Facility May 15, 2028 — % $ — 8.18 % $ 1,683.0

FLFO Term Loan Facility May 15, 2028 — % — 11.68 % 275.0

Term Loan Facility February 15, 2028 8.23 % 2,181.2 8.18 % 62.3

New Revolving Credit Facility May 15, 2028 —% — —% —

Revolving Credit Facility August 7, 2025 —% — —% —

3.50 % FLSO Senior Secured Notes

May 15, 2028 —% — 3.50 % 267.3

3.50 % Senior Secured Notes

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December 1, 2028 5.375 % 197.6 5.375 % 128.3

unamortized debt issuance costs ( 30.7 ) ( 24.2 )

unamortized debt discount ( 10.7 ) ( 9.3 )

Total principal amount outstanding 2,892.5 2,598.2

Unamortized debt issuance costs, debt premium, and debt discount ( 29.9 ) 396.5

Total debt 2,862.6 2,994.7

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Debt, excluding current portion $ 2,839.6 $ 2,974.4

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

(1) Contractual interest rate as of each respective balance sheet date.

March 2024 Refinancing Transactions

Private Exchange

On March 12, 2024, we (together with certain of our subsidiaries) closed a private debt exchange (the “Private Exchange”) with (i) 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 outstanding of the Existing Secured Notes as of December 31, 2023, and (ii) lenders representing more than 72 % of the aggregate principal amount of the outstanding term loan facility under the First Lien Credit Agreement (the “Existing Term Loans”) as of December 31, 2023.

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 the Existing Term Loans were exchanged or purchased for cancellation and (ii) $ 267.3 million aggregate principal amount of new first lien second out senior secured notes (the “ 3.50 % FLSO Senior Secured Notes”) and $ 1,312.0 million aggregate principal amount of new first lien second out senior secured term loans (the “FLSO Term Loan Facility” and the loans thereunder, the “FLSO Term Loans”) were issued by Rackspace Finance, LLC, a new subsidiary of the company (the “New Borrower”).

In addition, the New Borrower, issued $ 275.0 million aggregate principal amount of new first lien first out senior secured term loans (the “FLFO Term Loan Facility” and the loans thereunder, the “FLFO Term Loans”) and we repurchased and cancelled $ 69.3 million aggregate principal amount of the 5.375 % Senior Notes.

See “ New Debt Instruments ” below for additional discussion of the new 3.50 % FLSO Senior Secured Notes, FLSO Term Loan Facility, and FLFO Term Loan Facility.

Public Exchanges

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

On March 26, 2024, we closed the Public Term Loan Exchange, pursuant to which (i) $ 529.9 million aggregate principal amount of the Existing Term Loans were exchanged or purchased for cancellation and (ii) $ 375.1 million aggregate principal amount of FLSO Term Loans was issued by the New Borrower.

On March 14, 2024, we launched an offer to all of the holders of the Existing Borrower’s remaining Existing Secured Notes (the “Public Note Exchange”).

On April 16, 2024, we completed the Public Note Exchange, pursuant to which (i) $ 138.4 million aggregate principal amount of Existing Secured Notes were exchanged or purchased for cancellation and (ii) $ 96.9 million aggregate principal amount of 3.50 % FLSO Senior Secured Notes were issued by the New Borrower.

New Revolving Credit Facility

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

All revolving lenders under the prior Revolving Credit Facility exchanged their revolving loan commitments for commitments in respect of the New Revolving Credit Facility, which replaces in full the prior Revolving Credit Facility.

The New Revolving Credit Facility matures on May 15, 2028.

See “ New Debt Instruments ” below for additional discussion of the New Revolving Credit Facility.

Accounting Impacts

The company performed an assessment of the March 2024 Refinancing Transactions and determined it met the criteria to be accounted for as a troubled debt restructuring under Accounting Standards Codification No.

470-60, Troubled Debt Restructurings by Debtors .

For each series of the Existing Debt Instruments exchanged, the undiscounted cash flows associated with the New Debt Instruments issued were compared to the carrying value of the Existing Debt Instruments exchanged for such New Debt Instruments and the applicable exchange was accounted for as follows:

(i) to the extent the undiscounted cash flows of the New Debt Instruments in question were lower than the carrying value of the applicable Existing Debt Instruments exchanged, the carrying value of the applicable New Debt Instruments was established at the total of these undiscounted cash flows, with a gain recorded for the remaining difference between this value and the carrying value of the applicable Existing Debt Instruments (as such, no interest expense will be recorded for the applicable 3.50 % FLSO Senior Secured Notes prospectively) and (ii) to the extent the undiscounted cash flows of the New Debt Instruments in question exceeded the carrying value of the applicable Existing Debt Instruments exchanged, the carrying value of the applicable New Debt Instruments was established at the carrying value of the applicable Existing Debt Instruments and the company established new effective interest rates based on the carrying value of the applicable Existing Term Loans prior to the March 2024 Refinancing Transaction.

The difference between the principal amount of the 3.50 % FLSO Senior Secured Notes and the carrying value was recorded as a premium and is included in long-term debt on the company’s Condensed Consolidated Balance Sheets.

The premium recorded on the 3.50 % FLSO Senior Secured Notes was $ 39.1 million, which will be reduced as contractual interest payments are made on the 3.50 % FLSO Senior Secured Notes.

In connection with the March 2024 Refinancing Transactions, the company r ecorded a gain of $ 56.7 million after deducting third-party costs and lender fees incurred.

The gain is included in "Debt modification costs and gain on debt extinguishment" in our Condensed Consolidated Statements of Comprehensive Loss for the three months ended March 31, 2024.

The company incurred third party fees of $ 28.4 million.

New Debt Instruments

New Senior Facilities

On March 12, 2024, Rackspace Finance Holdings, LLC ( “Rackspace Finance Holdings”), the New Borrower, the lenders and issuing banks party thereto and Citibank, N.A., as the administrative agent and collateral agent, entered into the credit agreement governing the FLSO Term Loan Facility, FLFO Term Loan Facility and New Revolving Credit Facility (together, the “New Senior Facilities”) (the “New First Lien Credit Agreement”).

FLSO Term Loan Facility

The New Borrower issued the FLSO Term Loan Facility in an aggregate principal amount of $ 1,687.2 million.

The FLSO Term Loan Facility matures on May 15, 2028.

Borrowings under the FLSO Term Loan Facility bear interest at an annual rate equal to 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, plus an applicable margin of 2.75 %.

As of March 31, 2024, the contractual interest rate on the FLSO Term Loan Facility was 8.18 %.

We are required to make quarterly principal payments of $ 4.2 million, which began on March 31, 20 24.

See Note 11, “Derivatives,” for information on interest rate swap agreements we utilize to manage the interest rate risk on the FLSO Term Loan Facility.

Affiliates of ABRY Partners, LLC and ABRY Partners II, LLC (collectively, “ABRY”) are FLSO Term Loan Facility lenders under the New First Lien Credit Agreement.

As of March 31, 2024, the outstanding principal amount of the FLSO Term Loan Facility was $ 1,683.0 million, of which $ 50.0 million, or 3.0 %, is due to ABRY affiliates.

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

As of March 31, 2024, Apollo Global Management, Inc.

also held $ 81.1 million, or 4.8 %, of the outstanding principal amount of the FLSO Term Loan Facility.

Prior to September 12, 2025, the New Borrower may prepay some or all of the FLSO Term Loan Facility, together with accrued and unpaid interest, subject to the applicable “make-whole” premium.

On or after September 12, 2025, the New Borrower may prepay some or all of the FLSO Term Loan Facility, together with accrued and unpaid interest, without prepayment premium or penalty.

The fair value of the FLSO Term Loan Facility as of March 31, 2024 was $ 822.5 million, based on quoted market prices for identical assets that are traded in over-the-counter secondary markets that are not considered active.

The fair value of the FLSO Term Loan Facility is classified as Level 2 within the fair value hierarchy.

The New Borrower is the borrower and all obligations under the FLSO Term Loan Facility are guaranteed on a senior secured basis, jointly and severally, by Rackspace Finance Holdings on a limited-recourse basis and by certain of the New Borrower’s subsidiaries (the “Subsidiary Guarantors”).

The obligations under the FLSO Term Loan Facility are secured by a pledge of the New Borrower’s capital stock directly held by Rackspace Finance Holdings and substantially all of the New Borrower’s and the Subsidiary Guarantors’ assets, subject to exceptions.

The FLSO Term Loan Facility contains certain customary affirmative covenants, negative covenants, and events of default.

FLFO Term Loan Facility

The New Borrower issued the FLFO Term Loan Facility in an initial aggregate principal amount of $ 275.0 million.

The FLFO Term Loan Facility matures on May 15, 2028.

Borrowings under the FLFO Term Loan Facility bear interest at an annual rate equal to 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, plus an applicable margin of 6.25 % and were issued with 1.00 % of original issue discount.

As of March 31, 2024, the contractual interest rate on the FLFO Term Loan Facility was 11.68 %.

We are required to make quarterly principal payments of $ 0.7 million, beginning on June 30, 2024 .

See Note 11, “Derivatives,” for information on interest rate swap agreements we utilize to manage the interest rate risk on the FLFO Term Loan Facility.

Prior to September 12, 2025, the New Borrower may prepay some or all of the FLFO Term Loan Facility, together with accrued and unpaid interest, subject to the applicable “make-whole” premium.

On or after September 12, 2025 but prior to September 12, 2027, the New Borrower may prepay some or all of the FLFO Term Loan Facility, together with accrued and unpaid interest, subject to a prepayment fee equal to (x) 3.00 % of the principal amount of the FLFO Term Loan Facility so prepaid prior to September 12, 2026 and (y) 1.00 % of the principal amount of the FLFO Term Loan Facility so prepaid on or after September 12, 2026 but prior to September 12, 2027.

On or after September 12, 2027, the New Borrower may prepay some or all of the FLFO Term Loan Facility, together with accrued and unpaid interest, without prepayment premium or penalty.

The fair value of the FLFO Term Loan Facility as of March 31, 2024 was $ 276.0 million, based on quoted market prices for identical assets that are traded in over-the-counter secondary markets that are not considered active.

The fair value of the FLFO Term Loan Facility is classified as Level 2 within the fair value hierarchy.

The New Borrower is the borrower and all obligations under the FLFO Term Loan Facility are guaranteed on a senior secured basis, jointly and severally, by Rackspace Finance Holdings on a limited-recourse basis and by the Subsidiary Guarantors.

The obligations under the FLFO Term Loan Facility are secured by the same collateral that secures the FLSO Term Loan Facility, the New Revolving Credit Facility and the 3.50 % FLSO Senior Secured Notes.

The FLFO Term Loan Facility contains certain customary affirmative covenants, negative covenants, and events of default.

New Revolving Credit Facility

The New Borrower established the New Revolving Credit Facility in an aggregate principal amount of $ 375.0 million of commitments.

The New Revolving Credit Facility matures on May 15, 2028 and bears interest at an annual rate equal to 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, subject to a 1.00 % floor, plus an applicable margin of initially 3.00 %.

After June 30, 2024, the applicable margin will be subject to a net first lien leverage-based pricing grid as set forth in the New First Lien Credit Agreement.

In addition to paying interest on the outstanding principal under the New Revolving Credit Facility, the New Borrower is required to pay a commitment fee equal to initially 0.50 % per annum to the lenders under the New Revolving Credit Facility in respect of the unutilized commitments thereunder.

After June 30, 2024, the commitment fee will be subject to a net first lien leverage-based pricing grid as set forth in the New First Lien Credit Agreement.

The New Borrower may prepay loans incurred under the New Revolving Credit Facility, together with accrued and unpaid interest, without prepayment premium or penalty.

The New Borrower is the borrower and all obligations under the New Revolving Credit Facility are guaranteed on a senior secured basis, jointly and severally, by Rackspace Finance Holdings on a limited-recourse basis and by the Subsidiary Guarantors.

The obligations under the New Revolving Credit Facility are secured by the same collateral that secures the FLSO Term Loan Facility, the FLFO Term Loan Facility and the 3.50 % FLSO Senior Secured Notes.

The New Revolving Credit Facility contains certain customary affirmative covenants, negative covenants, and events of default.

In addition, the New Revolving Credit Facility contains a financial covenant which limits the super-priority net senior secured leverage ratio to a maximum of 5.00 to 1.00;

however, this covenant is only applicable and tested if the aggregate amount of outstanding borrowings under the New Revolving Credit Facility and letters of credit issued thereunder (excluding $ 25.0 million of undrawn letters of credit and cash collateralized letters of credit) as of the last day of a fiscal quarter is greater than 35 % of the New Revolving Credit Facility commitments as of the last day of such fiscal quarter.

As of March 31, 2024, we had total commitments of $ 375.0 million, no outstanding borrowings under the New Revolving Credit Facility, and $ 3.5 million of letters of credit issued thereunder.

As such, as of March 31, 2024, we had $ 375.0 million of available commitments remaining.

As of March 31, 2024, we were in compliance with all covenants under the New Senior Facilities.

3.50 % FLSO Senior Secured Notes due 2028

On March 12, 2024, the New Borrower issued $ 267.3 million initial aggregate principal amount of the 3.50 % FLSO Senior Secured Notes.

On April 2, 2024 and April 16, 2024, the New Borrower issued additional 3.50 % FLSO Senior Secured Notes in an aggregate principal amount of $ 93.3 million and $ 3.6 million, respectively.

The 3.50 % FLSO Senior Secured Notes will mature on May 15, 2028 and bear interest at an annual fixed rate of 3.50 %.

Interest is payable semiannually on each February 15 and August 15, commencing on August 15, 2024.

The 3.50 % FLSO Senior Secured Notes are not subject to registration rights.

The New Borrower is the borrower and all obligations under the 3.50 % FLSO Senior Secured Notes are fully and unconditionally guaranteed, jointly and severally, by Rackspace Finance Holdings on a limited-recourse basis and by the Subsidiary Guarantors.

The obligations under the 3.50 % FLSO Senior Secured Notes are secured by the same collateral that secures the FLSO Term Loan Facility, the FLFO Term Loan Facility and the New Revolving Credit Facility.

The New Borrower may redeem some or all of the 3.50 % FLSO Senior Secured Notes at its option prior to September 12, 2025 at a redemption price equal to 100 % of the principal amount of the 3.50 % FLSO Senior Secured Notes redeemed, plus a “make-whole” premium described in the indenture governing the 3.50 % FLSO Senior Secured Notes (the “ 3.50 % FLSO Senior Secured Notes Indenture”), plus accrued and unpaid interest, if any, to, but excluding, the redemption date.

Commencing September 12, 2025, the New Borrower may redeem the 3.50 % FLSO Senior Secured Notes at its option, in whole at any time or in part from time to time, at a redemption price equal to 100 % of the principal amount of the 3.50 % FLSO Senior Secured Notes redeemed, plus accrued and unpaid interest, if any, to but excluding the redemption date.

The 3.50 % FLSO Senior Secured Notes Indenture contains covenants that, among other things, limit our ability to incur certain additional debt, incur certain liens securing debt, pay certain dividends or make other restricted payments, make certain investments, make certain asset sales and enter into certain transactions with affiliates.

These covenants are subject to a number of exceptions, limitations, and qualifications as set forth in the 3.50 % FLSO Senior Secured Notes Indenture.

Additionally, upon the occurrence of a change of control (as defined in the 3.50 %FLSO Senior Secured Notes Indenture), we will be required to make an offer to repurchase all of the outstanding 3.50 % FLSO Senior Secured Notes at a price in cash equal to 101.000 % of the aggregate principal amount, plus accrued and unpaid interest, if any, to, but not including the purchase date.

The 3.50 % FLSO Senior Secured Notes Indenture also contains customary events of default.

As of March 31, 2024, we were in compliance with all covenants under the 3.50 % FLSO Senior Secured Notes Indenture.

The fair value of the 3.50 % FLSO Senior Secured Notes as of March 31, 2024 was $ 134.3 million based on quoted market prices for identical assets that are traded in over-the-counter secondary markets that are not considered active.

The fair value of the 3.50 % FLSO Senior Secured Notes are classified as Level 2 within the fair value hierarchy.

Existing Debt Instruments

Senior Facilities

Our senior secured credit facilities include the Term Loan Facility and the Revolving Credit Facility (together, the "Senior Facilities").

On February 9, 2021, we amended and restated the credit agreement governing our Senior Facilities (the "First Lien Credit Agreement"), which included a new seven-year $ 2,300.0 million senior secured first lien term loan facility due on February 15, 2028 and our existing $ 375.0 million Revolving Credit Facility.

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 our prior term loan facility (the "Prior Term Loan Facility"), to pay related fees and expenses and for general corporate purposes.

Our senior secured credit facilities include the Term Loan Facility and the prior Revolving Credit Facility (together, the "Senior Facilities").

On February 9, 2021, we amended and restated the credit agreement governing our Senior Facilities (the "First Lien Credit Agreement"), which included a seven-year $ 2,300.0 million senior secured first lien term loan facility due on February 15, 2028 and our existing $ 375.0 million Revolving Credit Facility.

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 the credit spread adjustment recommended by the Alternative Reference Rates Committee, 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 Citibank, N.A.

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 Citibank, N.A.

and (iii) adjusted Term SOFR for a one-month tenor plus 1.00 %.

The credit spread adjustment is 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.

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.

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

As a result of the Private Exchange and the Public Term Loan Exchange, discussed within “ March 2024 Refinancing Transactions ” above, over 97 % of the $ 2,181.2 million aggregate principal amount of the Term Loan Facility outstanding as of December 31, 2023 was exchanged or purchased for cancellation.

In addition to paying interest on the outstanding principal under the Senior Facilities, the Revolving Credit Facility also includes a commitment fee equal to 0.50 % per annum in respect of the unused commitments that is due quarterly.

This commitment fee is subject to one step-down based on the net first lien leverage ratio.

As of September 30, 2023, the interest rate on the Term Loan Facility was 8.19 %.

We are required to make quarterly principal payments of $ 5.8 million, which began on June 30, 2021.

As of March 31, 2024, the contractual interest rate on the Term Loan Facility was 8.18 %.

We are required to make quarterly principal payments of $ 0.2 million.

See Note 11, “Derivatives,” for information on interest rate swap agreements we utilize to manage the interest rate risk on the Term Loan Facility.

Affiliates of ABRY Partners, LLC and ABRY Partners II, LLC (collectively, "ABRY"), are Term Loan Facility lenders under the First Lien Credit Agreement.

As of September 30, 2023, the outstanding principal amount of the Term Loan Facility was $ 2,242.5 million, of which $ 58.5 million, or 2.6 %, is due to ABRY affiliates.

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

As of September 30, 2023, Apollo Global Management, Inc.

also held $ 24.3 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.

The fair value of the Term Loan Facility as of September 30, 2023 was $ 1,009.1 million, based on quoted market prices for identical assets that are traded in over-the-counter secondary markets that are not considered active.

We may make voluntary prepayments at any time without penalty.

The fair value of the Term Loan Facility as of March 31, 2024 was $ 22.4 million, based on quoted market prices for identical assets that are traded in over-the-counter secondary markets that are not considered active.

The fair value of the Term Loan Facility is classified as Level 2 within the fair value hierarchy.

Rackspace Technology Global is the borrower under the Senior Facilities, and all obligations under the Senior Facilities are (i) guaranteed by Inception Parent, Inc., Rackspace Technology Global's immediate parent company, on a limited recourse basis and secured by the equity interests of Rackspace Technology Global held by Inception Parent, Inc.

and (ii) guaranteed by Rackspace Technology Global's wholly-owned domestic restricted subsidiaries and secured by substantially all material owned assets of Rackspace Technology Global and the subsidiary guarantors, including the equity interests held by each, in each case subject to certain exceptions.

The only financial covenant is with respect to the Revolving Credit Facility which limits the net first lien leverage ratio to a maximum of 5.00 to 1.00;

however, this covenant is only applicable and tested if the aggregate amount of outstanding borrowings under the Revolving Credit Facility and letters of credit issued thereunder (excluding $ 25.0 million of undrawn letters of credit and cash collateralized letters of credit) is equal to or greater than 35 % of the Revolving Credit Facility commitments at the end of a fiscal quarter.

Other covenants include limitations on restricted payments, indebtedness, investments, liens, asset sales and transactions with affiliates.

As of September 30, 2023, we were in compliance with all covenants under the Senior Facilities.

The Revolving Credit Facility matures on August 7, 2025.

During the nine months ended September 30, 2023, we borrowed and fully repaid $ 50.0 million.

As of September 30, 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 September 30, 2023, we had $ 375.0 million of available commitments remaining.

The only financial covenant was with respect to the prior Revolving Credit Facility.

As discussed in “ March 2024 Refinancing Transactions ” above, on March 12, 2024, a ll revolving lenders under the prior Revolving Credit Facility exchanged their revolving loan commitments for commitments in respect of the New Revolving Credit Facility, which replaces in full the prior Revolving Credit Facility.

See “ New Revolving Credit Facility ” above for information regarding this new debt instrument.

As of March 31, 2024, we were in compliance with all covenants under the Senior Facilities.

3.50 % Senior Secured Notes due 2028

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The 3.50 % Senior Secured Notes are not subject to registration rights.

As noted above, we used the net proceeds from the issuance of the 3.50 % Senior Secured Notes, together with borrowings under the Term Loan Facility described above, to repay all borrowings outstanding under the Prior Term Loan Facility, to pay related fees and expenses and for general corporate purposes.

Rackspace Technology Global is the issuer of the 3.50 % Senior Secured Notes, and obligations under the 3.50 % Senior Secured Notes are fully and unconditionally guaranteed, jointly and severally, by all of Rackspace Technology Global’s wholly-owned domestic restricted subsidiaries (as subsidiary guarantors) that guarantee the Senior Facilities.

The 3.50 % Senior Secured Notes and the related guarantees are secured by first-priority security interests in substantially all material owned assets of Rackspace Technology Global and the subsidiary guarantors, including the equity interest held by each, subject to certain exceptions, which assets also secure the Senior Facilities.

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

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

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 m ay redeem during each twelve-month period, commencing with February 9, 2021, up to 10.0 % of the original aggregate principal amount of the 3.50 % Senior Secured Notes at a redemption price of 103.000 %, plus accrued and unpaid interest, if any, to, but excluding, the applicable redemption date.

The 3.50 % Notes Indenture contains covenants that, among other things, limit our ability to incur certain additional debt, incur certain liens securing debt, pay certain dividends or make other restricted payments, make certain investments, make certain asset sales and enter into certain transactions with affiliates.

The indenture governing the 3.50 % Senior Secured Notes (the “ 3.50 % Notes Indenture”) contains covenants that, among other things, limit our ability to incur certain additional debt, incur certain liens securing debt, pay certain dividends or make other restricted payments, make certain investments, make certain asset sales and enter into certain transactions with affiliates.

These covenants are subject to a number of exceptions, limitations, and qualifications as set forth in the 3.50 % Notes Indenture.

Additionally, upon the occurrence of a change of control (as defined in the 3.50 % Notes Indenture), we will be required to make an offer to repurchase all of the outstanding 3.50 % Senior Secured Notes at a price in cash equal to 101.000 % of the aggregate principal amount, plus accrued and unpaid interest, if any, to, but not including the purchase date.

As of September 30, 2023, Rackspace Technology Global was in compliance with all covenants under the 3.50 % Notes Indenture.

The fair value of the 3.50 % Senior Secured Notes as of September 30, 2023 was $ 247.5 million, based on quoted market prices for identical assets that are traded in over-the-counter secondary markets that are not considered active.

As of March 31, 2024, Rackspace Technology Global was in compliance with all covenants under the 3.50 % Notes Indenture.

As a result of the Private Exchange and the Public Note Exchange, discussed above, over 91 % of the $ 513.7 million aggregate principal amount of the 3.50 % Senior Secured Notes outstanding as of December 31, 2023 was exchanged or purchased for cancellation.

The fair value of the 3.50 % Senior Secured Notes as of March 31, 2024 was $ 65.6 million, based on quoted market prices for identical assets that are traded in over-the-counter secondary markets that are not considered active.

The fair value of the 3.50 % Senior Secured Notes are classified as Level 2 within the fair value hierarchy.

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

Rackspace Technology Global is the issuer of the 5.375 % Senior Notes, and obligations under the 5.375 % Senior Notes are guaranteed on a senior unsecured basis by all of Rackspace Technology Global's wholly-owned domestic restricted subsidiaries (as subsidiary guarantors) that guarantee the Senior Facilities.

The 5.375 % Senior Notes are effectively junior to the indebtedness under the Senior Facilities and the 3.50 % Senior Secured Notes, to the extent of the collateral securing the Senior Facilities and the 3.50 % Senior Secured Notes.

The indenture governing the 5.375 % Senior Notes (the " 5.375 % Notes Indenture") describes certain terms and conditions under which other current and future domestic subsidiaries are required to become guarantors of the 5.375 % Senior Notes.

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

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

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

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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 three and nine months ended September 30, 2023, Rackspace Technology Global repurchased and surrendered for cancellation $ 85.2 million and $ 250.0 million principal amount of 5.375 % Senior Notes for $ 29.8 million and $ 86.6 million, including accrued interest of $ 0.8 million and $ 2.1 million, respectively.

In connection with these repurchases, we recorded a "Gain on debt extinguishment" of $ 55.4 million and $ 163.1 million, respectively, in our Condensed Consolidated Statements of Comprehensive Loss for the three and nine months ended September 30, 2023, which includes $ 0.8 million and $ 2.4 million of unamortized debt issuance costs write-offs, respectively.

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.

During the three months ended March 31, 2023, Rackspace Technology Global repurchased and surrendered for cancellation $ 22.7 million principal amount of 5.375 % Senior Notes for $ 10.0 million, including accrued interest of $ 0.3 million.

In connection with these repurchases, we recorded a gain, included in "Debt modification costs and gain on debt extinguishment", of $ 12.8 million in our Condensed Consolidated Statements of Comprehensive Loss for the three months ended March 31, 2023.

As previously described in “ March 2024 Refinancing Transactions ” above, as part of the Private Exchange, we repurchased and cancelled $ 69.3 million aggregate principal amount of the 5.375 % Senior Notes during the three months ended March 31, 2024.

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

These covenants are subject to a number of exceptions, limitations, and qualifications as set forth in the 5.375 % Notes Indenture.

Additionally, upon the occurrence of a change of control (as defined in the 5.375 % Notes Indenture), we will be required to make an offer to repurchase all of the outstanding 5.375 % Senior Notes at a price in cash equal to 101.000 % of the aggregate principal amount, plus accrued and unpaid interest, if any, to, but not including the purchase date.

As of September 30, 2023, Rackspace Technology Global was in compliance with all covenants under the 5.375 % Notes Indenture.

The fair value of the 5.375 % Senior Notes as of September 30, 2023 was $ 96.0 million, based on quoted market prices for identical assets that are traded in over-the-counter secondary markets that are not considered active.

As of March 31, 2024, Rackspace Technology Global was in compliance with all covenants under the 5.375 % Notes Indenture.

The fair value of the 5.375 % Senior Notes as of March 31, 2024 was $ 33.4 million, based on quoted market prices for identical assets that are traded in over-the-counter secondary markets that are not considered active.

The fair value of the 5.375 % Senior Notes are classified as Level 2 within the fair value hierarchy.

Subsequent to September 30, 2023 and through November 9, 2023, Rackspace Technology Global repurchased and surrendered for cancellation an additional $ 24.4 million aggregate principal amount of 5.375 % Senior Notes for $ 8.9 million, including accrued interest of $ 0.4 million and excluding related fees and expenses.

Commitments and Contingencies

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We are not a party to any litigation, the outcome of which, if determined adversely to us, would individually or in the aggregate be reasonably expected to have a material and adverse effect on our business, financial position or results of operations.

Hosted Exchange Incident

We are named in several lawsuits in connection with the December 2022 ransomware incident which caused service disruptions on our Hosted Exchange email business.

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

We are vigorously defending these matters.

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

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

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

During the three and nine months ended September 30, 2023, we recorded $ 0.1 million and $ 5.0 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 $ 5.4 million of loss recovery insu rance proceeds received or expected to be received during the three and nine months ended September 30, 2023.

Headquarters Lease

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In addition to monthly base rent, we will also pay a share of common area maintenance and operating expenses.

As of September 30, 2023, the lease had not yet commenced.

Share Repurchase Program

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

During the nine months ended September 30, 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 three months ended September 30, 2022 or the three and nine months ended September 30, 2023.

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

The program expired on September 30, 2023.

As of March 31, 2024, the lease had not yet commenced.

The lease subsequently commenced in the second quarter of 2024.

Share-Based Compensation

On April 21, 2023, the Board of Directors approved an amendment to the Rackspace Technology, Inc.

2020 Equity Incentive Plan (the "2020 Incentive Plan") to increase the maximum number of shares of our common stock available for issuance under the 2020 Incentive Plan from 50.0 million shares to 57.9 million shares, subject to stockholder approval.

The amendment was subsequently approved by our stockholders as part of the 2023 Annual Meeting of Stockholders held on June 16, 2023.

During the nine months ended September 30, 2023, we granted 27.0 million restricted stock units ("RSUs") under the 2020 Incentive Plan with a weighted-average grant date fair value of $ 2.21 .

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

In addition, during the nine months ended September 30, 2023, 2.8 million performance stock units ("PSUs") were granted under the 2020 Incentive Plan with a weighted-average grant date fair value of $ 1.90 , and 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 September 30, 2023 of $ 0.80 .

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.

During the three months ended March 31, 2024, we granted 3.2 million restricted stock units ("RSUs") under the 2020 Incentive Plan with a weighted-average grant date fair value of $ 1.92 .

The majority of the RSUs were granted as part of our promotion and recruitment process and vest ratably over a three-year period, subject to continued service.

In addition, during the three months ended March 31, 2024, 0.6 million performance stock units ("PSUs") were granted under the 2020 Incentive Plan with a weighted-average grant date fair value of $ 2.78 .

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

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

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 Condensed Consolidated Balance Sheets.

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

Three Months Ended September 30, Nine Months Ended September 30,

Three Months Ended March 31,

(In millions) 2023 2024

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Total share-based compensation expense recogniz ed was as follows:

Three Months Ended September 30, Nine Months Ended September 30,

Three Months Ended March 31,

(In millions) 2023 2024

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Total share-based compensation expense, net of tax $ 12.0 $ 10.1

As of September 30, 2023, there was $ 94.9 million of total unrecognized compensation cost related to stock options, RSUs, PSUs, and the ESPP, which will be recognized using the service period or over our best estimate of the period over which the performance condition will be met, as applicable.

As of March 31, 2024, there was $ 64.6 million of total unrecognized compensation cost related to stock options, RSUs, PSUs, and the ESPP, which will be recognized using the service period or over our best estimate of the period over which the performance condition will be met, as applicable.

We are subject to U.S.

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Additionally, the amount of income taxes paid is subject to our interpretation of applicable tax laws in the jurisdictions in which we file.

For the three months ended September 30, 2023 , our effective tax rate is lower than the U.S.

federal statutory rate of 21% primarily due to the tax impact associated with the goodwill impairment recorded in the third quarter of 2023, the majority of which was nondeductible for income tax purposes, executive compensation that is nondeductible under Internal Revenue Code ("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.

For the nine months ended September 30, 2023 , our effective tax rate is lower than the U.S.

federal statutory rate of 21% primarily due to 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.

During the first quarter of 2023, we determined that certain deferred tax assets no longer meet the more likely than not recognition criteria.

As such, we have provided a valuation allowance for these assets, which is incorporated into our annual effective tax rate.

For the three months ended March 31, 2024, our effective tax rate is lower than the U.S.

federal statutory rate of 21% primarily due to the tax impact associated with changes in the valuation allowance related to disallowed interest, the tax impact associated with the goodwill impairment recorded in the first quarter of 2024, the majority of which was nondeductible for income tax purposes, and the tax impact of the March 2024 Refinancing Transactions discussed below.

The tax impact of the March 2024 Refinancing Transactions include excluded cancellation of indebtedness income (“CODI”), federal and state attribution reduction and changes in valuation allowance.

In December 2021, the Organisation for Economic Co-operation and Development (the “OECD”) issued model rules for a new global minimum tax framework (Pillar Two).

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We are currently evaluating, but do not expect this rule to have a material impact on our consolidated financial statements.

As a result of the Private Exchange and Public Term Loan Exchange transactions discussed within “ March 2024 Refinancing Transactions ” within Note 7, “Debt”, the company realized CODI for US tax purposes of $ 531.5 million.

Pursuant to Internal Revenue Code (“IRC”) Section 108, an insolvent debtor may exclude CODI from taxable income to the extent of the debtor’s insolvency (liabilities greater than the fair value of its assets) but must reduce its tax attributes, subject to certain limitations and according to prescribed ordering rules, based on the amount of CODI excluded from taxable income.

The company currently estimates that the level of its insolvency (as defined for US Tax purposes) exceeds the amount of CODI resulting from the March 2024 Refinancing Transactions, such that all of the resulting CODI will be excluded from the company’s taxable income.

The process for determining the amount of tax attribute reduction is complex and the actual reduction to attributes does not occur until the first day of the company’s tax year subsequent to the date of the discharge event, or January 1, 2025.

Therefore, the estimated impact of the tax attribute reduction from the March 2024 Refinancing Transactions is subject to change until the finalization of the company’s tax returns for the year ending December 31, 2024.

For purposes of determining the interim tax provision for the three months ended March 31, 2024, the company estimates that all of its federal (and certain of its state) net operating loss and tax credit carryovers will be eliminated as a result of tax attribute reduction for excluded CODI.

For the three months ended March 31, 2024, the company recorded an income tax benefit of $ 51.1 million related to the net effects of the March 2024 Refinancing Transactions, including excluded CODI, federal and state tax attribute reduction, and resulting changes in valuation allowance.

The total income tax benefit recorded in the three months ended March 31, 2024 was a tax benefit of $ 4.7 million which includes the $ 51.1 million tax benefit from the March 2024 Refinancing Transactions.

We utilize derivative instruments, including interest rate swap agreements, to manage our exposure to interest rate risk.

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Interest Rate Swaps

We are exposed to interest rate risk associated with fluctuations in interest rates on the floating-rate Term Loan Facility.

We are exposed to interest rate risk associated with fluctuations in interest rates on the floating-rate Term Loan Facility, FLSO Term Loan Facility, and FLFO Term Loan Facility.

The objective in using interest rate derivatives is to manage our exposure to interest rate movements.

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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 September 30, 2023, the cash flow hedge was highly effective.

In conjunction with the March 2024 Refinancing Transactions, as discussed in Note 7, “Debt”, we issued additional borrowings and used the proceeds to repay previously hedged borrowings under the Term Loan Facility.

Given that the specific intent of the new borrowings was a replacement of the previously hedged borrowings and the economic characteristics were the same, we continue to apply hedge accounting on the replacement borrowings.

As of December 31, 2023 and March 31, 2024, the cash flow hedge was highly effective.

The key terms of interest rate swaps are presented below:

Effective Date Fixed Rate Paid (Received) December 31, 2022 September 30, 2023

Effective Date Fixed Rate Paid (Received) December 31, 2023 March 31, 2024

Notional Amount (in millions) Status Notional Amount (in millions) Status Maturity Date

Entered into December 2018:

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 % — Matured

November 3, 2023

February 3, 2020 2.7350 % — Matured

November 3, 2023

February 3, 2021 2.7360 % — Matured

November 3, 2023

February 3, 2022 2.7800 % — Matured

November 3, 2023

Entered into February 2021:

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

February 9, 2021 2.34150 % (1)

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Fair Values of Derivatives on the Condensed Consolidated Balance Sheets

The fair values of our derivatives and their location on the Condensed Consolidated Balance Sheets as of December 31, 2022 and September 30, 2023 were as follows:

December 31, 2022 September 30, 2023

The fair values of our derivatives and their location on the Condensed Consolidated Balance Sheets as of December 31, 2023 and March 31, 2024 were as follows:

December 31, 2023 March 31, 2024

(In millions) Assets Liabilities Assets Liabilities

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The following table, however, is presented on a net asset and net liability basis:

December 31, 2022 September 30, 2023

December 31, 2023 March 31, 2024

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

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Effect of Derivatives on the Condensed Consolidated Statements of Comprehensive Loss

The effect of our derivatives and their location on the Condensed Consolidated Statements of Comprehensive Loss for the three and nine months ended September 30, 2022 and 2023 was as follows:

Three Months Ended September 30, Nine Months Ended September 30,

The effect of our derivatives and their location on the Condensed Consolidated Statements of Comprehensive Loss for the three months ended March 31, 2023 and 2024 was as follows:

Three Months Ended March 31,

(In millions) 2023 2024

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Interest rate swaps Interest income (expense) $ 12.2 $ 14.9

Interest expense was $ 52.3 million and $ 56.5 million for the three months ended September 30, 2022 and 2023, respectively, and $ 152.9 million and $ 170.7 million for the nine months ended September 30, 2022 and 2023, respectively.

As of September 30, 2023, the amount of cash flow hedge gain included within "Accumulated other comprehensive income" that is expected to be reclassified as a reduction to "Interest expense" over the next 12 months is approximately $ 56.1 million.

Interest expense was $ 56.9 million and $ 43.7 million for the three months ended March 31, 2023 and 2024, respectively.

As of March 31, 2024, the amount of cash flow hedge gain included within "Accumulated other comprehensive income" that is expected to be reclassified as a reduction to "Interest expense" over the next 12 months is approximately $ 52.7 million.

See Note 12, "Accumulated Other Comprehensive Income (Loss)," for information regarding changes in fair value of our derivatives designated as hedging instruments.

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We have agreements with interest rate swap counterparties that contain a provision whereby if we default on any of our material indebtedness, then we could also be declared in default of our interest rate swap agreements.

As of September 30, 2023, our outstanding interest rate swap agreement was in a net asset position.

As of March 31, 2024, our outstanding interest rate swap agreement was in a net asset position.

Accumulated Other Comprehensive Income (Loss)

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

Balance at June 30, 2022 $ ( 5.6 ) $ 50.7 $ 45.1

Foreign currency translation adjustments, net of tax benefit of $ 1.7

( 22.5 ) — ( 22.5 )

Unrealized gain on derivative contracts, net of tax expense of $ 10.8

Amount reclassified from Accumulated comprehensive income (loss) into earnings, net of tax benefit of $ 0.2 (1)

Balance at September 30, 2022 $ ( 28.1 ) $ 82.7 $ 54.6

(1) Includes amortization of off-market swap value and accumulated loss at hedge de-designation of $ 4.7 million for the three months ended September 30, 2022, partially offset by a reduction to interest expense recognized of $ 3.9 million.

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

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

Foreign currency translation adjustments, net of tax benefit of $ 3.9

( 45.3 ) — ( 45.3 )

Unrealized gain on derivative contracts, net of tax expense of $ 29.2

Amount reclassified from Accumulated comprehensive income (loss) into earnings, net of tax benefit of $ 2.9 (1)

Balance at September 30, 2022 $ ( 28.1 ) $ 82.7 $ 54.6

(1) Includes amortization of off-market swap value and accumulated loss at hedge de-designation of $ 13.9 million for the nine months ended September 30, 2022, partially offset by a reduction to interest expense recognized of $ 2.7 million.

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

Balance at June 30, 2023 $ ( 3.8 ) $ 82.7 $ 78.9

Foreign currency translation adjustments, net of tax benefit of $ 0.7

Foreign currency translation adjustments, net of tax expense of $ 0.4

Unrealized loss on derivative contracts, net of tax benefit of $ 1.9

— ( 5.6 ) ( 5.6 )

Unrealized gain on derivative contracts, net of tax expense of $ 3.1

Amount reclassified from Accumulated comprehensive income (loss) into earnings, net of tax expense of $ 2.0 (1)

— ( 5.6 ) ( 5.6 )

Balance at September 30, 2023 $ ( 9.5 ) $ 84.3 $ 74.8

(1) Includes a reduction to interest expense recognized of $ 14.8 million related to the cash flow hedge gain for the three months ended September 30, 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 $ 4.7 million.

Balance at March 31, 2023 $ ( 6.6 ) $ 70.2 $ 63.6

(1) Includes a reduction to interest expense recognized of $ 12.2 million related to the cash flow hedge gain for the three months ended March 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 $ 4.6 million.

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

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

Foreign currency translation adjustments, net of tax expense of $ 0.2

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

( 3.7 ) — ( 3.7 )

Unrealized gain on derivative contracts, net of tax expense of $ 4.5

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— ( 11.1 ) ( 11.1 )

Balance at September 30, 2023 $ ( 9.5 ) $ 84.3 $ 74.8

(1) Includes a reduction to interest expense recognized of $ 40.5 million related to the cash flow hedge gain for the nine months ended September 30, 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 $ 13.8 million.

Balance at March 31, 2024 $ ( 5.7 ) $ 64.3 $ 58.6

(1) Includes a reduction to interest expense recognized of $ 14.9 million related to the cash flow hedge gain for the three months ended March 31, 2024.

Segment Reporting

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;

We have organized our operations into 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 Amazon Web Services (“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.

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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 three and nine months ended September 30, 2022 and 2023.

Three Months Ended September 30, Nine Months Ended September 30,

During the first quarter of 2024, we identified that an immaterial amount of revenue for a certain Private Cloud product offering was incorrectly reported in the Public Cloud segment in historical periods.

Revenue by segment for the three months ended March 31, 2023 has been corrected in the table below by reducing Public Cloud revenue by $ 1.1 million and increasing Private Cloud revenue by $ 1.1 million.

Three Months Ended March 31,

(In millions) 2023 2024

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Impairment of goodwill ( 543.1 ) ( 573.2 )

UK office closure (5)

— — — ( 12.1 )

Impairment of assets, net — ( 20.0 )

Interest expense ( 56.9 ) ( 43.7 )

Gain (loss) on investments, net ( 0.1 ) — ( 0.4 ) 0.2

Gain on debt extinguishment — 55.4 — 163.1

Other expense, net ( 6.0 ) ( 2.6 ) ( 15.5 ) ( 0.3 )

Gain on investments, net 0.1 0.1

Debt modification costs and gain on debt extinguishment 12.8 56.7

Other income (expense), net 2.1 ( 5.6 )

Total consolidated loss before income taxes $ ( 622.9 ) $ ( 645.3 )

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(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 total charges of $ 1.0 million and $ 5.2 million for the three and nine months ended September 30, 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.

The first quarter of 2024 also includes a $ 9.0 million MEIA early termination fee associated with the sale of our corporate headquarters.

(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 three and nine months ended September 30, 2022 and 2023.

Three Months Ended September 30, Nine Months Ended September 30,

The table below presents depreciation expense included in segment operating profit above for the three months ended March 31, 2023 and 2024.

Three Months Ended March 31,

(In millions) 2023 2024

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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-Q

Item 1. Financial Statements