Rackspace Hosting Earnings Call Insights: CapEx Guidance and Critical Load Costs

Rackspace Hosting, Inc. (NYSE:RAX) recently reported its fourth quarter earnings and discussed the following topics in its earnings conference call.

CapEx Guidance

James Breen – William Blair: I was just wondering if you could talk a little bit about the CapEx guidance relative to this year. Your CapEx is actually down sequentially – year-over-year – sorry – in 2012 versus 2013. It shows up a little bit, but you seem to be continuing to get better efficiencies on the CapEx. Can you talk a little bit about that? Then Lanham on the big picture side, you definitely saw cloud revenue accelerate this quarter. The absolute amount of cloud revenue went up I think $1 million more in the fourth quarter than in the third. Can you talk about how much of that trends is tied into some of the new products you launched and how you expect that to move going forward?

Karl Pichler – SVP, CFO and Treasurer: I’ll take the first on the CapEx side. So, we’ve talked a little bit in the past about the nature of those capital deployments, especially with customer gear. It’s fair to say that whenever you have either geographic launches or new product launches or a combination of both that we will stand up growth capacity or launch capacity, so to speak, to basically support that launch and that means that you have a little bit of variability or lumpiness as we would say in terms of how we deploy that CapEx and capital over time. On the other hand, you also have the move or the further proportion of cloud’s revenue that comes into our company which basically means from a capital deployment standpoint that the cloud’s resources are deployed in advance of revenue whereas the dedicated resources are deployed more concurrently with the revenue generation. So, while we work on minimizing those incremental steps there is an upfront deployment of capital more so in the cloud world than in a dedicated world. So, over time, we see to smoothen that out, but there is some lumpiness especially with respect to new geographies, new datacenters and product launches. And last but not least – I just lost my breath.