Rackspace Technology (RXT) 11 May 222022 Q1 Earnings call transcript

Good afternoon, and welcome to Rackspace Technology's First Quarter 2022 Earnings Conference Call.

As a reminder, today's call is being recorded. Kevin Jones, our CEO; and Amar Maletira, our President and CFO, join us today. The slide deck we will reference during the call can be found on our IR website. On Slide 2, certain comments we make on this call will be forward-looking. to differ. uncertainties, subject actual could are to results statements risks which and cause These of risks discussion filings. A these our included SEC in and uncertainties is Technology information update except Rackspace required obligation the as on call the law. by no assumes presented to

earnings the our non-GAAP provide release reconciliation their presentation, most presentation believe rules, take certain directly over further which information in comparable we with on of SEC to to our have measures I'll After adjustments measures Our which to of website. your And available call financial and prepared and are a turn these Instructions]. GAAP both we'll these to the now measures certain measures, Kevin. accordance questions. provided includes useful our [Operator we investors. In remarks,

thanks results. I'll go Amar Then highlights afternoon, discuss our direction financial for will strategic Good us. the quarterly of on joining the and business. into detail and

five. market first tailwinds Rackspace In secular the Technology quarter. from to Turning signs slowing. no continues to with that Slide of benefits cloud a and grow

Our grew quarter by that XX% alone. to the of year-over-year revenue $XX all billion cloud XX% represents new first revenue cloud hyperscaler partners in

and guidance and the expectations company. profitability the our quarter, our once first solid continues stages, and to as and is cloud And results accelerate. services financial in pure the very Rackspace In Technology play be flow. in And attack. early So with the plenty leading were line again positioned revenue with cash cloud multi-cloud to to still growth, whitespace winners we revolution determined of well remains delivered

relationship new their Edge with We it productive front, VMware to closed a business major very new deal quarter. the and renewed offerings. our and strengthened AWS a with support Global On was

and moment. leader an a launched products major acquisition partners were were closed in we the and XX began to analysts a reports named the And Rackspace named recognized the the Just We also we which XX as our industry that We was leader breakthrough in technology introducing for including and globally. new Analytics partnership a their ecosystem and services customers touch where of report, Nvidia, on I'll the with first just AWS quadrants, lens EMEA Americas published were in in regions. three index, category quarter, a top Global, the ISD standout sourcing where two ISD provider in

year's six, growth revenue revenue Turning $XXX profit up up solid, the revenue was operating both at Non-GAAP EPS Slide total high-end $X.XX and guidance core million to of last our quarter. range X% was with first was X% the compared for and quarter. to non-GAAP first

our quarter new noted on the $X As sales track us of first to on slide, bookings in achieve targeted put our XXXX. bookings billion

with examining of investors Directors business, strategic share like our the area with to you last company's to options Rackspace Board weighing quarter, been every discussed we're we of Technology this. As carefully thinking shareholder about have and increase our I'd how value.

a profit product and can hand, long-term we're capture a capital managed As cash On other in growth Slide private and cloud very we the growth investments with where whitespace growth is And hosting public opportunities. optimizing investment on in a smart line focused different to prospects. models, where additional on in markets and growth make free and low light operate services different operating flow. market wave is hand, cloud secular is two notes, trajectories multi-cloud centric one seven we and right

Technology therefore maximize into is two strategy shareholder reorganizing we and markets. Rackspace these coming across considering value focus Our to now are

alternatives exploring in also other are We more noted in discuss moment. press our as release, strategic this will Amar a

is the and the September. growth how can different partner On development Day long-term as in you Slide drivers, profit two of at markets. details network with model shareholders in these an eight, provide and each will financial as dynamics essential of see We our well Analyst

have to quarter. these operations work and painstakingly value we add the to two every partner our partnerships network strengthen across built We

as On they've relationship a hyperscalers additional the the the for between leader our ever-growing new quarter, the cloud agreement the the clients our an left value once onboard a essential functionality of must deliver extended side is as we It AWS the strong we up Again, with with level also U.S. slide we to the with customers of one this multi-year first example, the XX ecosystem of as public in bridge act validation with In We the with partners hyperscalers. vein, volume Snowflake, needs market starts cloud. strong us period, in to-date. making partnership as to collaboration public to as migrated customers in of provide top we AWS, which an long-term serves the stack on quarter, public success in the first to cloud. and a strategic of cloud achieved premier an their

chart, and of side key cloud the partners hosting. right private for managed see our the you On

provide have Here strategic adjacencies. partnerships upside to access to strategic exciting through service served

an customers As with private the Rackspace quarter, BT example to relationship our we new launched technology. and in the of started first cloud former, onboarding their

the the reminder, largest hundreds in Rackspace a for potential deal Technology’s millions dollars of with of the BT of was As history revenue.

opportunity partner we we've early announced NVIDIA’s of AI technology deploy now we're this Earlier NVIDIA that network. the in advanced expansion platform, relationship named even are that in encouraged been BT. further the to certified seeing our of partner an going, for are with computing we week, We plenty and

services customers. a highly are we with for We development leading new cloud us which partnership will about technology company, believe help excited of private grow our facilitate this compelling and

Now XX their Slide this security, their Carrier sped its services world-leader the enhanced across the running helped in connected quickly technical time provides to XX create our refrigeration minutes, technology spinning FinTech identity, Provenir After to from software a to Carrier air intelligence heating, in all didn't with into On costs On solutions. nine, risk scalable, effort, ways microservices fraud. infrastructure in let's use that parent entire customers. for professional AWS along and debt, by integrate off but Datadog, platform their applications. support monitors capacity conditioning XX%. days We provisioning infrastructure, services XX, clusters IoT is the industry Global increased credit portfolio. can reduced the and was thermostats, have connected and Carrier existing from their dashboards. artificial help infrastructure multiple multiple manage build had increased and up infrastructure with to accuracy we looking deployed to talk basis and powered across Provenir a native After software and worked with Slide Carrier resulting robust Kubernetes environments. company, different Rackspace their powers and reduced they and consistency the transform about device in visibility cloud that micro as modernize modernization Provenir

without More monitoring importantly, and code. additional and its we infrastructure to built launch for automation into process, to a enabling alerts of single applications the line write having Provenir

Now, Amar will take you through the financials. Amar.

by for recaps Non-GAAP XXXX. the increase. at everyone primarily the was million was call in a the segment quarter. and by XX% XXX a first operating the represent Non-GAAP impact geography. to XX% of the guidance revenue the manage was high-end year-over-year. mature quarter revenue and you, gross of mix, Slide both operating for it our company's which and our due grew earnings at year-over-year, year-over-year. of of Multi-cloud the from total results of first X% was for XXX cross OpenStack Apps And Core XX revenue to quarter. quarter our at up was majority to and the joining XX% financial vast share to legacy down profit our Kevin. first first million, the X% shows per at quarter and decline of margin for in revenue mix down profit X% the Thank the continues you was platform compared non-GAAP first million revenue today. year-over-year XX was hosting. and high-end X% thank Revenue was our XX% XXX $X.XX, guidance Slide

Americas compares year-over-year grew lapped second and XX% our discontinuance our line non-core year-over-year. have expectations. in X% represents segment regional declined quarter. revenue. APJ were of the EMEA line of now of at segment strategic XXXX. by to change the in impacted previously, year-over-year we in As OpenStack XX%, that X% We a this while with product X% XX% in revenue From perspective, continues a grew This had growth. only total represent discussed

XX would been the flow million was million increase EMEA fourth have XX On in mid-single the free in an growth was currency XX operating from impact, quarter, the quarter. in digits. cash and flow Slide XX Excluding cash first million

CapEx First quarter million CapEx was Total annual X% XXXX respectively. million XX XXXX CapEx the included company intensity cash bonus operating of X% and was XX payout. with and flow cash

full the XX, guidance. want remind quarter CapEx to XX that XXX have material X% expect our We million balance a of cash X% with intensity year-over-year. of until was I in with total X% Cash investors intensity to for Slide X% we debt the On CapEx XXXX. no strong million previous line sheet at end maturities up to and year

refinanced with X.X In billion financial early XXXX low XXXX historically debt X.X late billion. net our was and minimal debt end, debt quarter in and of addition, was At all rates at covenants. total was

adjusted Slide ratio have Our for trailing guidance quarter. with growth for On the is our a a X.Xx very second company leverage the XX-month we of net EBITDA XX, manageable profile.

non-GAAP range revenue to We of profit $X.XX. operating of expect the EPS XX to XXX million total million, million revenue in of XX million Core the and XXX to XXX $X.XX range of XXX non-GAAP to million. million in

color you provide on our me additional let some Now, outlook.

mentioned is the last As quarter, to reasons. accelerate revenue main This year. growth we expect through due three to I

revenue bolster cloud multi-cloud fourth BT-related hosting and of and in managed segment. the third will within quarter, ramping the First, the which private

range more cloud second large sales Second, in year. the opportunities as of in of continued growth of we the who we that half and in first year. close in ramping pipeline a the are we public professionals because half go-to-market, in the And have second expect multimillion many half will the that we of growing dollar become managed new third, investments the productive have the made to

regard and profit non-GAAP EPS. Now to operating with the

we're the services of represent support of impacted They BT to and inoperating divergence the and quarter These will are startup and partnership. in second expenses. XX investments million between most to estimates. of investments of making the some acceleration The guidance growth, cloud in be revenue by constraint our a cost XX million primarily that

cloud and summarize said profitable I will Kevin long-term market, both closing, the public to earlier. recap secular On we in the prudently would growth across We growth. in like cloud. in offered invest Slide private opportunity XX, what Given and

play XX the evolved last are scale. to that XX the rapidly addressing said pure the in only We multi-cloud at markets both months. That is of these company market services has

of have actions. To that number opportunity. all this advantage evaluating proactively we strategic been have of our end, of a to take We options taken

we First, company. depth in of completed strategic review an the

and cloud public cloud across company the for managed strategy defined hosting. private clearly a have we Second,

working are align models we model focus and our Third, operating working plan accordingly. financial company markets. these reorganizing to fourth, we the our are And sharpen in and to on aligning two also our

strategic we we strategic review, part be could and As evaluating our to valuation go With are operating queue an September. questions. one Analyst and value. audience also driven greater and of this ahead be concluded for share Q&A. model We in growth attractive the please in we our alternatives enterprise inbound based businesses, Joe, strategy, Technology completed profile the of Accordingly, that financial your we'll This some than details the our take long-term current on Day of is that, our interest organization, plan on to cloud at Rackspace parts up options. held of by for public and offerings.

comes [Operator Bank. Amar. first And Our up El-Assal, from Instructions] Thanks, next. Deutsche at Bryan you're Keane question Ramsey

XX% for the margins I about XX% about Hi, ask guys, profile. talked to the EBIT margin to know want I year. just we

gross outlook Just well. and then any the there? update that on Amar What's on margins as

Thanks, Brian.

quarter noted last time. continue as to we're one the at street going call, Brian, quarter's So to guide a in

points, margins But by we our in growth investments look you have the XX our as remarks, these that QX the be my of guidance prepared XXX our implies keep I at QX if to basis within operating impacts million of about which margin investments XX operating about excluding midpoint guidance, about mentioned margins in quarter, also that implies operating Now, about that XX%. mind, our second approximately of million will do XX%. in

models Brian I see do teens. long-term, the low mid So operating to in

is. a what outlook that's so And long-term

you some the on that gross since asked question. Let me give you margin just color

in engineering. are look primarily you investments XX Most of both second of Now revenue, services when capability are growth these investments of Bryan. our million to elastic in half. million XX cost and services, the our And incremental deliver primarily this at in QX out delivery professional in building investments to

And if this investments in the in QX. again, margins exclude the including be But we will range XX% so for XX% investments XX% I our be will still this in to gross QX, range.

Got was strategic to much. larger the unit it. inquiry so smaller inquiry, got there was that a business, get And that inbound that on in Thanks that a that like just sense an of to which what it review, follow-up was? a that piece the piece, business sounded came just business trying of is

Hey, Bryan, question. it's Kevin, I'll strategic take the

now, our to conversations, ongoing we specifics, due of can't provide right and So both the internally nature externally.

further we'll I mentioned, edge options, around can of markets. remarks, this on alternatives, in or current evaluating strategic for inbound terms my as -- including appropriate really of assure provide light we're practice, in we're As you and that going And of everything organizing in markets those very is all interest and two developments. prepared one the businesses we're But, information our addressing table. two are I

Barclays from you're up El-Assal and deck. Frank you Louthan, Ramsay on are

if was will be some could given helpful? backdrop. color there you more of you on seeing impacts the here environment, wondering out color I on client us challenging Are Any give decisioning? just the any kind demand macro

thing. sure Yes,

while this near-term in the transition me environment we're headwinds not economic just take I'll kind any of front, I are we chain as have Amar. in general, in up disruption, and the little economy, into pressure there do you such of see supply say Ukraine, talk a war business. recessionary let in would I'll So that the about, environment then bit seeing. the one, demand that sort

$XX think it, cloud our by just in amount grew first partners you quarter. over revenue a If about billion record the hyperscaler

only is accelerating, really economic Cloud the so we've So even challenging year. seen in far environment this

their quickly economy that multi-cloud. into think when for down does, for And in the digital even money, COVID slip we scale or of this and customers, scale we caused customers slowdown becomes save the helps and if acceleration up, model. have and resulted demand multi-cloud economic in business it change recession, because a more XXXX, by saw services of Now, early must

that's our picture the and So, macroeconomic it broader to relates business. how

demand bit I if environment, demand see the you let just a Now, look the environment. how color I give of on me at little

I'll Now we'll start we're then go with out from through, what the market. partners. and And customers hearing

the been to Now, to very the really XX% point We that, only cloud. XX% strong. Ramsey of workloads believe have market is at moved this

will and ahead. our integrations So there's And many years of lots in growth of runway services. and migrations opportunity that view managed for is result

a are that's know, continue overwhelming you piece, innovating really multi-cloud customers First, them firms pace, market the moving the one as right Rackspace really abundant cloud they're Technology help the continues be to to to their And decisions the the customers. to choice hyperscalers for is for choice for as innovate, customers that in at need cloud. that environment. such like And now make

infrastructure stack into we So the that's particular. another innovation beyond of and data layers then, IT And of piece. for the see in desire lots apps

Industry for is lot and services world, in from And a all multi-cloud industry. demand a areas. Pacific, up of in of and Europe, to geographic U.K., seeing we're in becoming pace and specialization pick the United America, over South thing is Latin perspective, course, other States. particularly trend continues The the Asia a

that's the So market.

we keep huge said data. takes his just competitive. continues. over-and-over a perspective, customers the and for from differentiator then of really is that a cloud multi-cloud becoming he Rackspace data, customer. the Now, to us, hyperscalers innovation, and other for in important are now, And innovation to they're CEO would customers' And interesting. And and And and demand complexity a handles and them, becoming more we other customers perspective. they're CEO both of, plate. this, thank pace. multi-cloud is apps. the just for customer and last Rackspace of mind I data is with a off finally, up healthcare increase big told native hear from from a I what And a customer cloud wrap large and the Data to a me, saying how And breathtaking boggling. a in of quite week, is pace want Technology a from right, now is that was say healthcare the the focus goodness Rackspace industries native and hearing It's I apps lot thing cloud this products all partnership

anything sales big cloud there's to Now last cloud well. as with hyperscalers, multi-cloud unlike Microsoft customers and quarter. from friends amazing, It's for continues seen I've adding AWS, And all for three at ever when week, I amounts the private every talk and Dell of to and in demand giant VMware, demand and my my career. be Google, are revenue

partners on help partner these make all tell our them need need have sure Technology, customers journey. the me, Rackspace we help services So cloud we their Rackspace and best very to

So demand by it's encouraged strong the very overall, Ramsey, a environment, extremely opportunity.

Louthan Our Frank Bradley next Raymond deck. on with you're from James. question comes And Clark,

what's So little maybe here don't selling need the give adjusting you're like? reorg forward in color little will you sequential more And dip causing what things a areas on operating company, going forecasting for income the bit decline? some more whole help? the What kind going of if is up of in sort a QX, detail you us end Thanks. that that the you then, of think look be

first question. And Kevin the could the I'll next take one. take you

operating going in you midpoint making the professional for did So down to mentioned right? where we business. First Ramsey expand sequential three investments [sic] $XXX our And making making the platform. in it's some give the are in the that's [Frank] we're additional a we're about that we're look as delivery in to capacity elastic Frank investments is, guidance. investments. Investments all QX, services, profit, take areas, earlier, mainly and about I'll $XX dip, investments, engineering million in million And that's in dip across our terms our I QX, those cloud of of color in, three you at on if

includes AWS, which Google, GCP, that as Microsoft as the So is Azure. well

in making ramp, is rate investments, investments, full some go-to-market end making investments which Second, BT half. the of And run are we're organization. BT also to by expected reach And mainly second our some we third, we accounts. our Frank revenue are startup as

mentioned I in of as cost QX. investments are most so, of And these in revenue earlier,

going profit That's And in so QX. creating QX the this basically what's is reason. operating to decline the from mainly

Very we of reorganize how you had the good. company. manage kind and question and are going that And Frank to second around, the business the

little months I market operate, these a backdrop, market, Just multi-cloud talked of right? of as focus. Having both we our bit cloud And addressing and about, this scale. it and opportunity the clouds. the company spans to attractive pure XX play when and have it's at and business public ago. options at strategic the look markets been evaluating you of proactively And, say, said we're the cloud, pretty only would we take and very public that's in services XX both we multi-cloud significantly that to market that, sharpen private a across evolved advantage scaled from XX our a we've rapidly is evolved, last months of all public markets And

talked call. investment also very and require cloud of different we and cloud, very They public the different demand. as sets they've private So dynamics skill got about on business levels

Investor a findings hopefully, standpoint with standpoint to color. both September, what plan and basically a these we'll additional like, operational But this analyst resources financial some forward an the you we're that Frank, on Day go going looks align And do, best basis. on our from so and this gives in provide and for details at to what developing

after from that. up Clark Capital, next. And BMO you're Roswell Bradley Matt

one the want opportunities I BT that the in as focused investment And large expanding you Are June take? you so going then, dollar investing, two have investments in that with and you less XX large question, operating an pipeline in the know, time? are other But How every quarter, different delivery some more the deals you to ask this than may of that multi-million other but of and time, sort investment you about And and deals, ask placing about and more of wanted win customers there? model? the in ahead over higher to and of with think capability these incremental incremental potentially complications to so deals inflationary mention be broadly, I account, to more part the pricing potentially on environment, parts less two do the that half? you. around some million Thank are million to are higher the already I second offset here. the the wage becomes you XX the expenses, inflation, comments with idea make, to these so, can if company, in services strategy your environment incremental wages having any

Yes.

me you So first asking bit investments. of take very thank the you let let one. little a for give Bradley, me question. on the much To specifics more

we you're So services. right, cloud that of demand seeing are absolutely ahead the making mainly investments we are in

services. As demand in cloud lot you of know, a there's

we $XX of the will this QX by incremental what forward to That's ahead are QX to carry QX it got but rate in and of So will but demand. making So build will investments $XX costs, doing. revenue, you it run be million we're supported right? be into million also

continue cloud. to recurring we be outlook we and services we very change base, sticky And know, investment a continue in investments capture We further of cost you growth. capability more And opportunities, there prudently So revenue, of Now, to we because about, will may a advance is very demand as prudent those too. it's if investing will se, is the is market. very growth see the investments very are it talked demand street, lot as of our for update we revenue And seeing a have see dynamic per and high to make as in any Kevin to to in capturing a right? business. us demand build additional primarily that these services

profitable business. of we'll driving make in the investments to kinds So continue growth are these

question pricing, around very So that's second a interesting question. regarding your

have Kevin in at will If you and look too. jump here I

to a customer's it We is data and markets are today. And kind or these difficult sometimes play services, modernizing ops, very migration pricing those so from it find areas hot the migration, cloud not is market whether very of or skills in, to even a of in are pressure, having those we of applications, in speak the application data that markets.

So pressure. lot not model, of not to see labor-intensive a we pricing do We a very so have do speak.

and with differentiator have We automation and on we have that automation, key our past, combining about the is, talked labor of we our it about at XX% in length driven workflows. have

the reason a a so not do need we And labor Kevin, want the side, and on side lot we the see that's not model. are add because very cost why here? to of you pressure anything labor-intensive on pricing

said you think it. I

really as Yes, in many we said employees, you firms it think the Bradley, have lot nearly of well. there's so I a don't market. out there

where broader So see we sense don't pricing makes pressure, inflation in for economy. makes happening more and And definitely se, the we value and that labor sense. it same exposure have that's the any to it per don't delivering

sense. our automated. in were For in we particularly a on of makes got a pricing, very multi-cloud value automation us it's reflect those conversations. much general, and of driven automation business, we Highest really automated, business, if factor then we're that not in industry, transactions to technology our certainly because that the as additional But having our XX% in

Roswell ahead, Capital Go Matt at Matt. from comes question Markets. RBC next Our

when would of and willing this, follow-up of And are bucket BT, see going to you I expect if for said and investment? them into was be kind three third the a the just revenue kind level on wondering of on investments I cloud go-to-market? to wondering quarter, the into how would think for the we investment just areas. kind use and apologize much you should same return you I fourth to the of expect

Yes.

start are last revenue months the six to typically question, The it's -- to first. the months. return me fast, let So XX investments with within three three on

build we a ahead services capability investments, can on the fast So to delivery to because we of our very services the deliver return the that customers. need

little of additional the bit on investments. terms Now, in giving a you color

investments I As revenue. the of in cost of most mentioned, are

to say take a of So resources to I of when elastic roughly in are cetera. into cost -- those would the sources for in the et investments, and balance investments And XX% you hiring XX% XX% OpEx our engineering, investments professional XX% revenue. look are is at of services,

that's going. our where investments So are

So our and in go-to-market we continue mainly environment. as are in starting some our OpEx to investments expand up go-to-market BT

Thank you. If I one. about think a in could should sneak conversion we cash quarter? quick second How the in

will just about general. So, I conversion cash in talk

you of very and we to all with operations long-term, in we we XXXX, between XX% a strong year know, cash improvements cash flow improvements flow XX% As had drove to track the from very our those operating expect are anywhere sustainable. And profit. to

But first also was a in in seasonal at our as flow, cash bonus. example, profit. typically mind, quarter the For quarter which keep low it QX, was pay which about employee million, for in XX% of flow our operating operating cash XX is quite the solid is we at

bonus a big cash there was employee So perspective. an payout from

is flow earnings. profit, tracking say So to of operations, XX% a cash would I would say, our from I high-quality of earnings very quality to I XX% the -- operating to conversion if you're consider

to cash and our of CapEx going down. X% Now, go cash also Cash continues down. should say, is to intensity CapEx and between, Matt, our X% revenue, And App that be CapEx anywhere

So cash our be is flow a which fiscal should This free good. means 'XX. comment for overall really margin

Matt. Thanks,

anyone queue haven't We else up. had

thank want everyone shut joining I to it we'll us. down for So there.

a give please follow a to up, you shout soon. talk we'll and have you ir@rackspace.com at If me