Rackspace Technology, Inc.RXT
Rackspace Technology, Inc. Goodwill & Intangibles Disclosure
Goodwill and Intangible Assets
(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.
The following table sets forth the changes in the carrying amounts of goodwill by reportable segment during the years ended December 31, 2023 and 2024. 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 | ||||||||||||||||||||||||||||||||
Gross goodwill as of December 31, 2022 | $ | — | $ | — | $ | 2,656.6 | $ | 328.0 | $ | 52.4 | $ | 3,037.0 | ||||||||||||||||||||||||||
| Less: Accumulated impairment charges | — | — | (700.2) | (129.3) | (52.4) | (881.9) | ||||||||||||||||||||||||||||||||
Goodwill, net as of December 31, 2022 | — | — | 1,956.4 | 198.7 | — | 2,155.1 | ||||||||||||||||||||||||||||||||
Reallocation adjustment (1) | 594.7 | 1,560.4 | (1,956.4) | (198.7) | — | — | ||||||||||||||||||||||||||||||||
| Impairment of goodwill | — | (708.8) | — | — | — | (708.8) | ||||||||||||||||||||||||||||||||
| Foreign currency translation | 3.0 | 3.1 | — | — | — | 6.1 | ||||||||||||||||||||||||||||||||
Goodwill, net as of December 31, 2023 | $ | 597.7 | $ | 854.7 | $ | — | $ | — | $ | — | $ | 1,452.4 | ||||||||||||||||||||||||||
Gross goodwill as of December 31, 2023 | $ | 597.7 | $ | 1,563.5 | $ | — | $ | — | $ | — | $ | 2,161.2 | ||||||||||||||||||||||||||
| Less: Accumulated impairment charges | — | (708.8) | — | — | — | (708.8) | ||||||||||||||||||||||||||||||||
Goodwill, net as of December 31, 2023 | 597.7 | 854.7 | — | — | — | 1,452.4 | ||||||||||||||||||||||||||||||||
| Impairment of goodwill | (454.6) | (260.3) | — | — | — | (714.9) | ||||||||||||||||||||||||||||||||
| Foreign currency translation | (1.5) | (0.3) | — | — | — | (1.8) | ||||||||||||||||||||||||||||||||
Goodwill, net as of December 31, 2024 | $ | 141.6 | $ | 594.1 | $ | — | $ | — | $ | — | $ | 735.7 | ||||||||||||||||||||||||||
Gross goodwill as of December 31, 2024 | $ | 596.2 | $ | 1,563.2 | $ | — | $ | — | $ | — | $ | 2,159.4 | ||||||||||||||||||||||||||
Less: impairment charges (2) | (454.6) | (969.1) | — | — | — | (1,423.7) | ||||||||||||||||||||||||||||||||
Goodwill, net as of December 31, 2024 | $ | 141.6 | $ | 594.1 | $ | — | $ | — | $ | — | $ | 735.7 | ||||||||||||||||||||||||||
(2) On a consolidated basis, gross and net goodwill as of December 31, 2024 was $3,041.3 million and $735.7, respectively. Accumulated impairment charges on a consolidated basis was $2,305.6 million as of December 31, 2024.
Management exercised significant judgment related to the determination of the fair value of each reporting unit. The fair value of each reporting unit was estimated using the discounted cash flow method. The discounted cash flow methodology requires significant judgment, including estimation of our assumptions and considerations regarding (i) the estimation of future revenue growth rates, projected gross profit margins, projected operating costs, projected EBITDA margins, and projected capital expenditures, which are dependent on internal cash flow forecasts; (ii) estimation of the terminal growth rates; and (iii) determination of the risk-adjusted discount rates. Changes in these estimates and assumptions could materially affect the fair value of the reporting unit, potentially resulting in an impairment charge.
During the first quarter of 2024, we performed an interim quantitative assessment of our reporting units as of February 29, 2024. The results of this goodwill impairment analysis indicated an impairment of goodwill within our Public Cloud and Private Cloud reporting units of $385.4 million and $187.8 million, respectively, and we recorded a non-cash impairment charge in the first quarter of 2024.
During the third quarter of 2024, we performed an interim quantitative assessment of our reporting units as of September 30, 2024. The results of this goodwill impairment analysis indicated an impairment of goodwill within our Public Cloud and Private Cloud reporting units of $69.2 million and $72.5 million, respectively, and we recorded a non-cash impairment charge in the third quarter of 2024.
During the fourth quarter of 2024, we performed our annual goodwill impairment test as of October 1, 2024 and the results of our test did not indicate any further impairment of goodwill.
Due to the change in our segment reporting as a result of the business reorganization as of January 1, 2023, we completed a quantitative goodwill impairment analysis as of January 1, 2023, subsequent to the aforementioned change. The results of the quantitative goodwill impairment analysis indicated an impairment within our Private Cloud reporting unit, and we recorded a non-cash impairment charge of $270.8 million in the first quarter of 2023.
During the first quarter of 2023, we performed an interim quantitative assessment of our reporting units as of March 31, 2023. The results of our interim quantitative goodwill impairment analysis performed as of March 31, 2023 indicated an impairment of goodwill within our Private Cloud reporting unit, and we recorded an additional non-cash impairment charge of $272.3 million in the first quarter of 2023. The impairment was driven by the company's most recent cash flow projections as revised in the first quarter of 2023 which reflected current market conditions and current trends in business performance, including slower than anticipated actualization of bookings.
During the third quarter of 2023, we performed an interim quantitative assessment of our reporting units as of September 30, 2023. The results of our interim quantitative goodwill impairment analysis performed as of September 30, 2023 indicated an impairment of goodwill within our Private Cloud reporting unit, and we recorded a non-cash impairment charge of $165.7 million in the third quarter of 2023. The impairment was driven by the company's cash flow projections as revised in the third quarter of 2023 to reflect current market conditions and business mix shifts.
As of October 1, 2023, we reassessed our reporting units and combined our Private Cloud and OpenStack Public Cloud reporting units into a new Private Cloud reporting unit. We completed a quantitative goodwill impairment analysis as of October 1, 2023, subsequent to the aforementioned change. The results of the quantitative goodwill impairment analysis indicated no impairment to goodwill.
During the third quarter of 2022, we performed an interim quantitative assessment of our reporting units as of September 1, 2022. The results of our interim quantitative goodwill impairment analysis performed as of September 1, 2022 indicated an impairment of goodwill within our former Multicloud Services reporting unit, and we recorded a non-cash impairment charge of $405.2 million. The impairment was driven by lowered projected operating results primarily due to product mix shifts and market concerns related to inflation and other macroeconomic factors.
During the fourth quarter of 2022, we performed our annual goodwill impairment test as of October 1, 2022 and the results of our test did not indicate any further impairment of goodwill.
In the fourth quarter of 2022, we performed an additional interim quantitative assessment of our reporting units as of December 31, 2022. We determined that the carrying amount of our former Apps & Cross Platform reporting unit exceeded its fair value and recorded a goodwill impairment charge of $129.3 million. The impairment was driven by a decrease in forecasted revenues, margins, and cash flows within the reporting unit, primarily due to the Hosted Exchange incident and other macroeconomic factors.
See Note 1, "Company Overview, Basis of Presentation, and Summary of Significant Accounting Policies," for additional discussion of the goodwill impairment charges recorded during the years ended December 31, 2022, 2023 and 2024.
The following table provides information regarding our intangible assets other than goodwill:
| December 31, 2023 | December 31, 2024 | ||||||||||||||||||||||||||||||||||
| (In millions) | Gross carrying amount | Accumulated amortization | Net carrying amount | Gross carrying amount | Accumulated amortization | Net carrying amount | |||||||||||||||||||||||||||||
| Customer relationships | $ | 1,932.0 | $ | (1,073.9) | $ | 858.1 | $ | 1,930.6 | $ | (1,226.2) | $ | 704.4 | |||||||||||||||||||||||
| Other | 27.8 | (26.9) | 0.9 | 27.1 | (26.8) | 0.3 | |||||||||||||||||||||||||||||
| Total definite-lived intangible assets | 1,959.8 | (1,100.8) | 859.0 | 1,957.7 | (1,253.0) | 704.7 | |||||||||||||||||||||||||||||
| Trade name (indefinite-lived) | 160.0 | — | 160.0 | 140.0 | — | 140.0 | |||||||||||||||||||||||||||||
| Total intangible assets other than goodwill | $ | 2,119.8 | $ | (1,100.8) | $ | 1,019.0 | $ | 2,097.7 | $ | (1,253.0) | $ | 844.7 | |||||||||||||||||||||||
During the years ended December 31, 2023 and 2024 we recognized impairment charges of $57.0 million and $20.0 million, respectively, related to our trade name indefinite-lived intangible asset.
Additionally, during the year ended December 31, 2022 we recognized of $33.0 million and $22.4 million related to our trade name indefinite-lived intangible asset and the OpenStack Public Cloud definite-lived intangible assets, respectively.
These impairment charges are recorded in “Impairment of assets, net” in our Consolidated Statements of Comprehensive Loss.
In connection with the classification of our corporate headquarters facility as held for sale as of December 31, 2022, we wrote-off the remaining $4.8 million net book value of the related property tax abatement asset to "" in our Consolidated Statements of Comprehensive Loss for the year ended December 31, 2022.
For additional information, see the discussion of our impairment charges in Note 1, "Company Overview, Basis of Presentation, and Summary of Significant Accounting Policies."
Amortization expense related to intangibles was $166.8 million, $161.0 million and $154.1 million for the years ended December 31, 2022, 2023 and 2024, respectively.
As of December 31, 2024, amortization of intangible assets for the next five years and thereafter is expected to be as follows:
| (In millions) | Intangible Assets | ||||
| Year ending: | |||||
| 2025 | $ | 146.9 | |||
| 2026 | 123.8 | ||||
| 2027 | 117.3 | ||||
| 2028 | 117.3 | ||||
| 2029 | 111.2 | ||||
| Thereafter | 88.2 | ||||
| Total | $ | 704.7 | |||
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About Goodwill & Intangibles Disclosures
Goodwill and intangible asset disclosures reveal the premium paid in acquisitions and how management assesses whether that premium retains its value. Since goodwill is no longer amortized under US GAAP, the annual impairment test is the only mechanism that adjusts carrying values downward — making the assumptions behind that test critically important for investors.
Key signals: a history of goodwill impairments suggests management consistently overpays for acquisitions. Watch the gap between reporting unit fair value and carrying amount — when fair value exceeds carrying amount by less than 10-20%, a small decline in business performance could trigger a write-down. For finite-lived intangibles, examine useful life assumptions across customer relationships, technology, and trade names; aggressive estimates inflate near-term earnings. Compare total intangibles-to-total-assets ratios against peers to assess acquisition dependency. Rising goodwill as a percentage of equity can signal balance sheet fragility.