Rackspace Technology Inc. today submitted the paperwork for an initial public offering, disclosing in its S-1 filing that it generated revenue of $2.4 billion last year and has nearly $4 billion worth of outstanding debt as of March.

Rackspace is a managed services provider that helps enterprises build and run multicloud environments. It also operates in adjacent areas such as cybersecurity consulting.

Rackspace traded on the New York Stock Exchange until 2016, when it was taken private by investment firm Apollo Global Management Inc. in a $4.3 billion leveraged buyout. The company took on significant debt as part of the buyout, debt that now accounts for more than three-quarters of the $3.89 billion it owes creditors.

Rackspace has also undergone a significant transformation in the four years since the acquisition. Whereas less than 10% of its revenue came from cloud-related deals in 2019, the company said in the IPO filing that its cloud business now account for more than 85% of sales. Moreover, since Rackspace provides services via subscription contracts, most of its revenue is recurring.

Rackspace generated about $2.43 billion in revenue during 2019, which represents a constant-currency increase of just 0.3% over 2018. But its growth accelerated significantly earlier this year when organizations started fast-tracking their cloud projects to address a changed business landscape. Rackspace’s sales rose 7.6% year-over-year in the first quarter ended March 31, to $652.7 million.

To win over public investors, the company used its filing to highlight the similarities between its business model and that of software-as-a-service companies, which have performed strongly relative to other stocks in recent months. Rackspace said more than 95% of its revenue was recurring in 2019. Sales that year broke down to $375,000 per employee, which the company’s filing states is “in line with leading software-as-a-service companies.”

Rackspace is currently unprofitable. The company logged a $102.3 million net loss on the $2.4 billion in revenue it generated during 2019, after also ending the two prior years in the red. But Rackspace is moving closer to profitability, reporting in the filing that its capital expenditures as a percentage of sales dropped from 16% in the 12 months ended Sept. 30, 2016, to 9% in the year leading up to March 31, 2020.

Funds managed by Apollo are set to retain more than 50% of the voting power after the IPO. Rackspace didn’t disclose how much it’s looking to raise or at what valuation, but a Reuters report in April claimed the company was eyeing a market capitalization north of $10 billion. 

Photo: Rackspace