Rackspace Technology (RXT) 10 Nov 222022 Q3 Earnings call transcript

Good afternoon and thank you for standing by. Welcome to Rackspace Technologies Third Quarter 2022 Earnings Conference Call. [Operator Instructions] Please be advised that today’s call is being recorded. I would now like to hand the call over to Robert Watson, Vice President of Corporate Finance. Please go ahead.

afternoon. good and you Thank I am Officer. our Executive Amar today by Maletira, Chief joined Please changes and made earnings have note we that some sheet. provide, a fact materials including to revised Excel presentation an we supplemental the These materials of can found be website. a our Relations today’s Investor call on well as as replay call we this forward-looking. will comments Certain on be make These subject to cause differ. to results statements risks could are actual and uncertainties, which is included A in SEC and discussion of these filings. uncertainties risks our on obligation to except update Rackspace the Technology presented call, required information assumes law. by no as the

to September over of the presentation measures a update earnings Our revenue our and exceeded our provided we end presentation, high available and financial Total these further call which adjustments with are I third release on website. the to and we core includes was the results provided useful of measures both our the their our in accordance year-over-year In CEO million, Amar have the provide QX in reiterated revenue and we guidance on X% quarter, reconciliation turn and X% reported XX, growth directly which to both third constant measures, of certain SEC which announcement. certain non-GAAP on rules, In investors. most represents now comparable basis a will currency. share August $XXX on business. financial to and GAAP revenue the on an in call quarter for believe information with then the growth these measures

high a basis also earnings revenue operating an by basis. as-reported grew continued third constant $XX XX% to in legacy EMEA million the which Non-GAAP decline down from cloud of currency. Core private our businesses. business. grew was XX% impacts. profit the currency $X.XX. Americas hosting of million guidance. ongoing and primarily grew due in as-reported X% driven on quarter but in by and end the in managed X% was million, on constant to margin was Operating This exceeded of APJ an $XXX experience X% experienced Non-GAAP reported in contract, $XX non-GAAP material our revenue and continued operating Europe and minimal of reduced continue our the working quarter We driven in basis per from of grew and X% and OpenStack currency gross part profit year-over-year on year-over-year, consecutive X% Revenues cash BT declined our were XX% flow FX the share flow positive ramp managing $XX was focus cash free million capital. on seventh for part headwinds

the with As of CapEx a quarter cash X% X%, seasonally reminder, CapEx respectively. CapEx and in flow $XX of line third quarter total company. a in low and cash QX with is expectations for CapEx million $XX million. was the was intensity

in total the cash full multi-cloud company charges these million $XXX end. was to be quarter remained $XXX undrawn our million quarter $XXX impairment primary liquidity the quarter. and third in For of of segment. X%. our of ended our available million range resulting $XXX with the note intensity to driver within a X% target million the CapEx that year, in impairment at of We revolver goodwill expect we Also of charges non-cash The third recorded

release an related macroeconomic non-cash I fourth reflects filings. to quarter. lastly, in our press expenses will headwinds. continued and SEC for be caution these and of details This some foreign uncertain provide the our guidance And can environment guidance currency Additional found exchange

to of earnings revenue of $XXX million operating $XXX $X.XX. the the to non-GAAP call $XX of million now Amar. $XXX range to I We to in core expect will revenues $XX profit million $X.XX million, range over and the $XXX in to total million turn of million, per non-GAAP share

want a company. lead implementing appointed need Robert. as customers, partner the to we firmly base market I’m ready its in win Rackspace our right on to partners execute clear front on next employee cloud-first our model customer-first, It a you, remain chapter the of serve help, with us. who honest and ecosystem is us that talented and is excited and CEO, into strategy being have employees. our having and I’ve customers our and an we Since they to Technology dialogue in Thank been I them. to operating believe world-class opportunity confident are focused

critical organization. it our quickly my accountability during focus is shared September investor I improve and XX execution we As that the update, across

share me actions progress. let some and early So

I we that in need First, delivered the guidance. and I’m a our pleased credibility profitability we as quarter, above team. know third our to revenue rebuild

ahead, normal but to We outlook. intend followed the beating guidance Looking we track are to we some of record caution process, and meeting our macro uncertain expectations. adding reflect a build

to evaluate few a team to with our changes model and alignment priorities. adjustments position made ensure continue will additional and to for go-forward operating success and organization executive leadership I’ve my our Second,

benefit lastly, entire engagement and new value Hitachi HP. make and into XXXX. unit by realignment Prior are operating continue Samant company positions Board. two transformation dynamic a in up who executive as $X.X specializes Under seasoned And Shashank is a GlobalLogic, leadership Director was track the as in to leading the Chief will acquired to Shashank served company. leadership, in on and as GlobalLogic, IBM and an experience a our cloud market. Hitachi In in cloud at Shashank, that good increased XXXX, business broad most billion President structure of begin will we scaled business his structure in Nest, Lead be the sales $X.X Group Executive brand technology GlobalLogic his a space. digital and pleased held stepping I’m early and digital he digital billion. enterprise X, recently, progress the GlobalLogic January Third, businesses. for from to of to on The on this Officer services our at

know Looking XXXX be ahead, heavy with year will a a of transition lot that lifting. we

continue We can, growth. with over the cost from provide. markets repositioning mandate is streamline have years. demand where To two significant but This and my profitable X to now expenses We’ll Rackspace’s we last for for Rackspace Board. unmet strong are we addressed services advantage, distinct innovative already we realized efficiencies we the the solutions

and we we in demand strong, have we Public white our As the times so a step seize to with it. offerings focus up stated have cloud we space. significant expect our remain many before, operates across execution market but can hyper-growth multi-cloud to

solutions scalable services. in we value-added launching operationally development to achieve Rackspace market, this and by our For goals focus sharpen must our

progress. making are We

investment We faster. organic will to move we make even continue can so

with Going deeper forward, We’ll in customer higher value lead we solutions engagement. will not lead with services cloud infrastructure and and public resale. a with

market opportunity or is hosted model healthcare, open We to in metal data the XX% may still that new in In emerge centers be expensive for market with workloads. cloud. positioned over and Rackspace applications such are more as private today. cost space. public constraints data from this XXXX cloud regulated We other to either these better on advantages, that managed and include among few cloud, are and many the operating workloads of factors. too that will public in significant years refactored many hosted is customer cloud Examples appreciate including to find estimate cloud due many legacy reduced Our And of high-value many workloads suited we hosted than opportunities organization bare wide over workloads a complexity private will hosting move cloud fewer and public in next private government and operational ensure resource cloud the that uniquely private market. focused win to industries performance-intensive are for the

of the in a data the while footprint, strong business, our to and with cloud, partnerships players we managed early we cutting-edge technology a progress. brand seeing push still and are in signs VMware. key such and revitalize global And well-known as in a of cloud with arrest center and declines and experience have early private We hosting Dell ecosystem private deep are IP innings

deals promising cloud. the signed largest of commitment provides opportunity For instance, company. into private the private market multiyear is history the This cloud that in glimpse a of recently the a in we hosted one

which on-prem offerings, solutions. private in accelerated are driving we we have to customers in or pipeline launching and example, already trend, Rackspace move we the good working from are generation. finally, cloud. their It’s industry-specific and with years We cloud workloads colo migration facilities into It been new September, since hard program. activity which on to for Rackspace has help industry-leading is innovative This also are capitalize in seen encouraging private an launched cloud. healthcare, much several And designed private traction this program

will turn company want what just Before gives the on me confidence we remind to I everyone that I around. conclude, this

growing. Private we are two and and in public cloud, First, operate cloud markets: multibillion-dollar both

I say, a great are we often As in neighborhood.

includes revenue diverse to us large with Fortune and We core need help base base want truly XX% our have customers our Second, the companies. is base recurring. more XXX phenomenal a a of than succeed. of half It who over customer

continue XX,XXX relationships have work, roughly we is Rackers both public unique place Fourth, private certifications up we in have in with world-class truly Third, who strong, to X,XXX great we will dedicated and technical to deep make our than Racker and a more Rackspace people. partners our with invest collectively culture. cloud.

the taking brand cloud a be not success look technologies. while relationships will tech profitability easy, the the will is on certainly your we work years And strengthen in innovation. business market in take questions. are on And and long new of for in Question-and-Answer aspirations we the us, to a strategies also long-standing the of future. Session and but finally, our in our history to lot have with our there continue truly closing, I growth, follow. well-respected In to more We of ahead our sharing financial will partnerships path we I position cutting-edge based developing forward believe actions that, sustained and

with Thank comes Suisse. Credit you. Instructions] go first Our question from ahead. Please McVeigh Kevin [Operator

still you reposition the impairment, two base is you in I Amar. you terms XXXX think going much business Great. it the as congratulations a on are on give And goodwill a same can at the Or us transition. so there of if and the revenue? results new you of the across at look sense, segments, there lot you Thanks then from just about and bit. it’s way some the of should shrinkage? and bit Obviously, be some that wonder, starting the the frame sheet. it’s maybe about just balance of revenue to on revenue? couple Or for a is little like there XX% we think early, adjustment a on the Is the to so on that I little know try a but base goodwill a just of your looks goalposts. proxy about any sequencing margins, can get

the for you Yes. Thank question. hear Kevin, good to your voice.

Kevin. right, let is you absolutely can of some provide full year micro for color. give that changes guidance right, me as you the You’re to right? the and It given we’re difficult, number imagine, But macro experiencing,

in there cycles is, in which prepared to in decision-making as there as may macro mentioned First, my is sort I remarks, as a XXXX. slowdown uncertainty, well of longer sales lead a

improve sustained profitable growth. our choices Second, of over that tough to implementing are operational making the also quarters here and next couple execution, for will changes position we the some company

our Now will in reflected numbers. this be

So these our include deemphasizing solutions. to shifting of resale choices, bookings the and and and pipeline Kevin higher-value mix services infrastructure

importantly, certain can time. go-to-market in to investments such thing It refocusing organization for So involve industry also areas. will some And verticals. it as our imagine, right and development, very do you as the in business. solutions in this also more have takes very, the targeted But rebuild we cases, is

know, get about some And our see business and of focus. it benefits we and will that end to in also reorganization is into execution as early seeing still bookings, of take really the as months Kevin, can close, X materialize X you start we revenue. the So encouraging or to to development pipeline the we we are XXXX, our but can

sales for is said, – I we So the tough. outlook But even mentioned quarters longer near-term that four resale mentioned what last infrastructure based example, may cycle, seeing, with some some deemphasis earlier, on tough, as for next that the although FX the macro-uncertainty, model on are really lead changes which that is disruption, continued headwinds. the might as well operating potentially result in to as earlier I

cloud seasonally expect managed you in which volumes public QX, down. because We goes is our quarter usage-based some have seasonally down

help, Kevin? to expect result all that mentioned. X.X% between of those revenue X% sequentially be I as We that down factors a Does to

there Is buy It helps I’ll only again, for a maybe context the I $X.X stock, sounds just a is and, but lot. within two-part, to revenue for And very way is million see then QX? to bookings, really this it. mean, really but ask just elevated on signal. the helpful of Shashank. Board the just just which nice like any Amar, a to sequencing nice the It of the think about QX not

Sure.

give of a higher-margin So favorable business Kevin. on actually to bookings mix here, for infrastructure the in QX, very shift some to let more pleased me see I’m higher from color away bookings and resale. value a

shift as come and know, bookings higher-margin you this margins, to so in was bookings So services infrastructure solution at resale by low focus design.

pleased we so shift. that And making I’m are that

In fact, the cloud company media with up large were cloud expansion a in services services year-on-year XX Europe. also deal about public a included customers bookings public and and and major new communications

pleased very with that. So,

to our cloud of infrastructure base resale. the course, Of the public business smaller is services compared

largely talk but driven large continue prepared the gain private focus cloud there, private my side, will more improve remarks, bit I’ll is we had as and we focus the private our strong there. I a color by I was traction – pipeline some on in very to more deal, services strong a our and on So which booking give and bookings mentioned in cloud we cloud about as little space quickly this and growing quarter, it, build

a – and with large the color give environment. millions the there here. X the question in of stable asked and the a analytics-heavy me you some that understand bookings of dynamics the to cloud TCV let the of very compelling sector. which private over company the one dollars years, you were history hundreds and the the operate of referenced deal, in since better suited technology about deal the on cloud fact, customer. in storage-intensive of offered Now couple private customer so This value proposition is We These a over largest were deal is cloud I you workloads, of to private

that a fact, lowered Rackspace In and solution while cost to delivering storage offer compute. significantly performance both was improved able their in

hosting Kevin, opportunity, is result a multiple particularly of see this managed representative begin a will private business So cloud and the to deals a of is types of large but as our it things. we in

very market, market a strong great this in brand have We presence.

and two-business focus unit scale, an our see the also we have increased with structure. will We

helpful. Very Thank you, Amar.

Thank you.

comes from from question Daryanani Evercore. next go Our Amit Please ahead.

talk if are about debt stack of structure in taking covenants seeing, Thanks fix how Hello. about as the would those? aware should was I is you metrics more floating guess, maybe could folks have rely about at well. and when then we just my be versus leverage given now, you and for I about you question. look importantly, much could two debt hoping right compression I been the talk first your of just one, just what margins to that the talk some that we’ve in

versus you with I start and debt variable the Good to across Amit. your your covenant way, first. So fixed of me voice. – Hey, gist coming you’re looks the By on it, how question, let clear, Okay. very right? but hear not covenant our wanted structure is the got basically to the

debt covenants after did in refinancing XXXX. We the minimal we have debt early

arrived XXXX, we favorable debt here very I debt market XXXX. our and of advantage when in refinanced So took November in the

these All not due are years. or another of X X for debts

have X.XX%, there fixed. is We a two at secured – note, senior is which

variety non-secured of which X.XXX%, – have to the have We we of a variable B, loan component so has structure. note, it. sort then And a at is a non a term debt which wide

based on as very so this rates right the – pricing speak, right And I’m side. now, debt an you think expense it’s from the sleeping a not servicing I attractive now any losing not I’m interest sleep on know, perspective. to

on covenants, given manageable variety overall, actually this, wide it very think expense, I most help? fixed – are of interest that Does is interest notes but expenses debt minimal is that this those So of rates. two a debt of interest

headwind seeing is on on maybe you of I about Yes. just guide, helpful. having the the basis, when macro numbers wondering just a for right, you about year-over-year look can No, quarter revenues on Maybe quarter, how just something deals near-term basis? really talk you December And in FX Thank talking impacting in total If I am year-over-year flattish that at side, December right, much think, that. more started a on follow-up, the the I seeing deal I the delayed. if then are how numbers. push-outs, quarter December you

Just any clarity and on would impacting and be December kind FX of the helpful? how macro that’s quarter

Amit. covered key think I there, you’ve points just

macro, me So, let right. start the with

speaking, in this a the done long multiple cycles cycles not for mission-critical projects current as cost of their lower as well it’s the but deals, of in and be verticals. demand public down critical and primarily a mainly sales size maintain this, also optimization longer the at Amit, on of I cloud look as growth have due although revenue tough some macro cautious when outlook, and a are outlook, And And IT have okay. less a they decision-making. took ecosystem cautioned still will what’s to environment, on expect slowing, services hyperscalers etcetera, double And we broadly course, usage-based a managed believe gone by projects, changes going that also given projects. to that from about unusual on are I rates a our and all companies slowdown in so, the on we bit customers and in But fact, focused in business, And slow have that demand period. macro do to the spending you times, volumes macro in And scope come digits. take these being customers rightfully customer a know, cloud the the are time through So, spend haircut outlook, growing varies will priority payback the you faster the the and environment. on are that

factored in we So, have when we guided. those

we typically, to in guided sequential So, It be the revenue or points think decline revenue sequentially, a continues you to because of X percentage either see flattish up as remain a was, QX. would FX that. in I go have headwind of headwind.

in that taking we a we factored have in look right at QX that we of It’s don’t some numbers very headwinds. too. We predict, also are now. now. October to headwind. are I but that any in factor color have But our did And in difficult coming FX did these FX

changing are to the So, not it we we comes when FX. way guide

Prefect. you. Thank

comes JPMorgan. Please Our Tien-Tsin ahead. Thank next go question Huang you. with [Operator from Instructions]

to itself so activity? been record that, from in the gross Thanks Are your selectivity through Hey. am are more little much award this seeing ask you win or careful are in don’t I intensity already the clients new capital to – may winning and way a good wanted curious to contracts, track you and that’s bookings shift a have as have of just How new a you side. some lot on manifest factor hearing vendors on around the dollars to profit be and season, and well work? your that terms bit more seeing being margins also we as – need if because these business? business results here with on with – if seeing a bookings around I on results. are mind you in spend how a

the – I question. thanks, Tien-Tsin for So, think

business, are parts right. our of there So, two

multi-cloud a Tien-Tsin. We provider, are

you, when to we other and down capture honest, with in normal to will in pause, And good organization. we me have extent comes also in to let I that offerings it seen public will us market We be realigned moving is return have businesses. continues a it believe this complete start go then multi-cloud multi-cloud to And the an taking operationally can that prepared reorganization spending I the right. that but process, to customers – ready remain, to happen exercise, with may have we at the we cloud through And not remain private but go get cloud levels strong. newer in time the cycles, demand etcetera, tell demand and for a do the public business be demand to and as cloud. the

public us, for looking So, are for on the side, optimization. cloud customers cost

You about of the have – are talking heard it. that hyperscalers most multiple

also seen We that. have

have today. And do so that cost we we services deliver optimization

We are those offerings. to going expand

you lead on longer, relationship building who pipeline, help with fast. building as so demand We business, for cloud. services. are the their start But be the us you as infrastructure need still the are to from time we those But pivot spend customers but those and it’s help public go the on remains. the the to us say all build to focus It cycles going with offerings that And resale the start sales know, public doable. services pipelines optimizing services cloud takes making will to to will

on feel So, have we opportunity to public I the I a pursue. – good think cloud side,

was will many and the give just days, I biggest partners the job days, employees. out I On thought talking the And the for – of the me, that side, days have to private for XX XX cloud and XX I for cloud had have private road those customers, on you signals has we as in surprise demand would been much been Tien-Tsin, an example. those private and is is well ample underestimated better have be an listen signals the the issue of The listening is need the is cloud by in how opportunity out which as surprised space, We market. carefully. been there company not there. been to you to demand there

we side, of healthcare, well if a to for on feel think industries do cloud. in on quite industries so like I are focused like technology, are And that example, private verticals, going I commercial industry regulated we couple the

the the in slowdown to months cloud before X from cloud going growth So, offerings this are the we public despite separately or XX tuned, traction stay and strong months private But that. seeing lot even are a in launch remains in of aspect. next in area we hyperscale to

as well. Got it. Thanks Thanks. work for hard the that. appreciate I

Bank. from Our Please [Operator comes go ahead. Instructions] [indiscernible] Nate next with Deutsche question

I margin Bryan. think of on wanted ask to fourth the sort and right for sort way Nate in into about quarter is about just margins expectations year. gross of next modeling This guys. Hi to

end So, earnings and in last some I around ‘XX. fourth the think of margins comments had the at expected mid-XXs snuck quarter for you XX% gross in the and call, fiscal you

any in still hold? to numbers if see or there Just update wanted to check that those to is thinking if

Yes.

for asking question. So, the Nate, thanks

mix Now gross that Nate, expect the QX projecting we QX, for between business, and haircut, still XX% be of taking we are given the the in okay. margins to the after XX.X% etcetera, fiscal

So, that not is actually changing.

to comes Board XXXX, gross it see, to we align when for is and you strong margins markets fiscal it to Now, today. Nate, address turn the my the growth mandate from around business that this

not months to I So, a going I arbitrary manage driving since targets to am an transformation. near-term

decisions we XXXX, whole we tough aren’t are that remained well taking comes to strong. us this for And good reorganization the that as signals XXXX. Tien-Tsin, and us in some I a complete time extent today. to taking a mentioned going up the demand the set And market to So, for is to make it pause, at

our pressures gross And mix right, entirely so of as just a almost the the are business. margin reminder, of function a

how we And difficult that similar the exactly know the improvements we will out business our But next component cloud, so stabilize to gross in to margin we few business, the growing start play as cloud quarters. our turn of mix will the will is drive in it see as services private public revenue, mix around, accretion. the

plan standpoint, it. we to OpEx monitor roughly continue keep can we it from flat I an Now and year-on-year, will to tell you, also

will environment programs tight control micro our that have tough running a that this expenses, go on very good in we making lid we continue macro that – expenses have are as and we cost the we keep will and company. So, a we to run, are tight changes we on also the through the efficiency

That’s it. helpful. just on And BT. was then very Got follow-up my

So, comments updates high-level of can give or you the is were that in remarks. color sort beyond given there prepared any the

mentioned you turned it that’s of it maybe was sort hoped So, for, had you around. think I seems ramping last quarter, than slower had like but

broader sort impact color give that would quantify could of qualitative to way any BT you or be any on great. So,

let me color here give BT. So, on some qualitative

phases BT have deal, have and deal. distinct the you two we BT when we past, the So, in explained this look the at probably in

onboarding customer phase. the is First

phase in operating the currently are first marquee customers. We over onboarding XXX

We progress customers made last quarter. transitioning since last good have some our update on

that to well with The as this as transformation I for the environment BT, customers’ second value them companies the have we phase are create BT can call And partnership is a when solutions. significant together. talk transform us. Rackspace will great a Both by private BT. our where and them And well for as phase, Rackspace about we we with moving the partnership working cloud

solution We are roadmaps. aligning our product and

on We through we to bringing will collaborate value launching. that the developed joint are best solutions the market this newly

color. the Thank Appreciate you.

Thanks.

questions time. turn remarks. like Thank Watson would you. I I to at am showing now to it no further back Robert this Q&A for closing End of

or question for please a send everyone follow-up, ir@rackspace.com. joining your didn’t evening everyone. great a we Thanks to e-mail us thank If you get you. you at have Andrea an and Have us. Thank

for your in program. conference. This participation today’s concludes you Thank the

disconnect. You now may