View:
United States securities and exchange commission logo
June 2, 2020
Kevin Jones
Chief Executive Officer
Rackspace Corp.
1 Fanatical Place
City of Windcrest
San Antonio, TX 78218
Re: Rackspace Corp.
Draft Registration
Statement on Form S-1
Submitted May 6,
2020
CIK No. 0001810019
Dear Mr. Jones:
We have reviewed your draft registration statement and have the
following comments. In
some of our comments, we may ask you to provide us with information so
we may better
understand your disclosure.
Please respond to this letter by providing the requested
information and either submitting
an amended draft registration statement or publicly filing your
registration statement on
EDGAR. If you do not believe our comments apply to your facts and
circumstances or do not
believe an amendment is appropriate, please tell us why in your
response.
After reviewing the information you provide in response to these
comments and your
amended draft registration statement or filed registration statement, we
may have additional
comments.
Draft Registration Statement on Form S-1
Cover Page
1. Please disclose the
percentage of voting power to be held by affiliates of Apollo Global
Management, Inc. upon
completion of the offering.
Our Business, page 1
2. Please disclose the
amount of your outstanding debt, including the amount attributable to
the acquisition of the
company by Apollo in 2016.
Kevin Jones
FirstName LastNameKevin Jones
Rackspace Corp.
Comapany NameRackspace Corp.
June 2, 2020
June 2, 2020 Page 2
Page 2
FirstName LastName
Our Transformation, page 3
3. Please define your reference to enterprise customers.
4. Please disclose the amount of revenue per employee and number of
customers for the year
ended December 31, 2018 to add context to these measures for the year
ended December
31, 2019.
Our Sponsor, page 7
5. Please include a discussion of the right of the Apollo Funds to
nominate a percentage of
the board of directors in accordance with their beneficial ownership
of your common
stock.
Risk Factors
Risks Related to Our Business
Our substantial indebtedness could materially and adversely affect our ability
to raise additional
capital..., page 17
6. You disclose that your indebtedness could require you to dedicate a
substantial portion of
your cash flow from operations to the payment of interest and the
repayment of your
indebtedness. To provide context, please disclose the amount and
percentage of your cash
flow from operations used to service your debt in the last two years.
Our debt agreements contain restrictions that limit our flexibility in
operating our business, page
34
7. Please revise your disclosure that you have pledged a significant
portion of your assets as
collateral under the Senior Facilities to disclose that you have
pledged substantially all of
your assets as collateral as you state on page 82.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Adjusted EBITDA Minus Capital Expenditures, page 79
8. We note that Adjusted EBITDA Minus Capital Expenditures, a liquidity
measure, was
reconciled to Adjusted EBITDA which is a performance measure. Please
revise to
reconcile to the most directly comparable liquidity measure, cash
provided by operating
activities. Refer to 10(e)(i)(B) of Regulation S-K.
Critical Accounting Policies and Estimates
Share-Based Compensation, page 90
9. Please revise to expand your disclosures regarding the methods that
management used to
determine the fair value of the company's stock, the nature of the
material assumptions
involved and the extent to which the estimates are considered highly
complex and
subjective.
Kevin Jones
Rackspace Corp.
June 2, 2020
Page 3
Certain Relationships and Related Party Transactions, page 138
10. Please disclose whether the management consulting agreements and
transaction fee
agreements will continue following the offering. Also disclose whether
the offering will
trigger any Additional Datapipe Equity Consideration or dividends
under the Datapipe
merger agreement.
Management Consulting Agreements, page 140
11. Please quantify the consulting fees for each of the management
consulting agreements.
Refer to Item 404(a) of Regulation S-K.
Underwriting
Lock-Up Agreements, page 159
12. Please disclose the exceptions to the lock-up agreements.
Consolidated Financial Statements
Note 1. Company Overview, Basis of Presentation, and Summary of Significant
Accounting
Policies
Revenue Recognition, page F-13
13. Please tell us whether the professional services disclosed on page 99,
when included in
arrangements with other services, are considered distinct and explain
the basis for your
conclusion. Revise to describe the nature of the professional services
provided and to
clarify your revenue recognition policy for these services.
Cost Incurred to Obtain and Fulfill a Contract, page F-14
14. We note your disclosure that sales commissions are recognized as
expense over the period
the related services are expected to be delivered to the customer.
Please revise to quantify
the average expected service period. Also, disclose if additional
sales commissions are
paid upon contract renewal and, if so, whether such amounts are
commensurate with the
initial commissions. If applicable, disclose how commissions paid for
renewals are
considered in the expected service period and the period of time over
which you amortize
commission costs related to contract renewals. Refer to ASC
340-40-35-1 and 340-40-50-
2.
Subsequent Events, page F-18
FirstName LastNameKevin Jones
15. Please disclose any share-based compensation awards granted subsequent
to the most
Comapany NameRackspacedate and the expected financial statement impact, if
material. Refer
recent balance sheet Corp.
June 2,to ASC 855-10-50-2.
2020 Page 3
FirstName LastName
Kevin Jones
FirstName LastNameKevin Jones
Rackspace Corp.
Comapany NameRackspace Corp.
June 2, 2020
Page 4
June 2, 2020 Page 4
FirstName LastName
Note 12. Share-Based Compensation, Settlement of Share-based Awards, and
Employee Benefit
Plans
Stock Plan, page F-40
16. Please provide us with a breakdown of all share-based compensation
awards granted in
the last twelve month period and the fair value of the underlying
common stock used to
value such awards. To the extent there were any significant
fluctuations in the fair values
from period-to-period, please describe for us the factors that
contributed to these
fluctuations, including any intervening events within the company or
changes in your
valuation assumptions or methodology. Please continue to update this
analysis through
effectiveness of the registration statement.
General
17. Please supplementally provide us with copies of all written
communications, as defined in
Rule 405 under the Securities Act, that you, or anyone authorized to
do so on your behalf,
present to potential investors in reliance on Section 5(d) of the
Securities Act, whether or
not they retain copies of the communications.
18. Please disclose the source of the following assertions in your
prospectus:
You are a pioneer of cloud computing (pages 1, 3, 59, 94 and 96);
You are a pioneer of the "IT-as-a-Service" business model (pages 1,
59 and 95); and
You are the largest provider of managed services focused primarily
on cloud
infrastructure and applications in the world (pages 2, 59 and 95).
You may contact Eiko Yaoita Pyles, Staff Accountant, at (202) 551-3587
or Christine
Dietz, Senior Staff Accountant, at (202) 551-3408 if you have questions
regarding comments on
the financial statements and related matters. Please contact Jeff Kauten, Staff
Attorney, at (202)
551-3447 or Kathleen Krebs, Special Counsel, at (202) 551-3350 with any other
questions.
Sincerely,
Division of
Corporation Finance
Office of
Technology
cc: Brian M. Janson, Esq.