Rackspace Technology (RXT) 8 Aug 232023 Q2 Earnings call transcript

Good day and thank you for standing by. Welcome to Rackspace Second Fiscal Quarter 2023 Earnings Call. [Operator Instructions] My name is Robert Watson, vice president of corporate finance.

As a reminder, today's call is being recorded.

I would now like to hand the conference over to your speaker today, Sagar Hebbar, Head of Investor Relations. ahead. go Please

welcome conference And Investor Technology's quarter second Thank I to am earnings call. of Sagar XXXX you. Rackspace Hebbar, Relations. Head

Chief Molu on Amar me call Executive our Officer; Joining and Chief our today’s Bobby Financial Officer. Maletira, are

Technology make differ. comments forward-looking. involve these no is presented and A assumes uncertainties, discussion reminder, and call cause could included statements this SEC uncertainties we law. of a except update will on in filings. to As actual the risks the which on certain be as These results Rackspace by our obligation required to risks information call,

to their are of SEC Our both directly certain a prepared remarks, take most reconciliation we and includes provide further we have measures we website. and our certain believe adjustments comparable with to which useful release information presentation earnings investors. rules, in financial After these measures, will our of questions. which non-GAAP measures the presentation, provided available our these on to GAAP measures accordance your In

unless note are except non-GAAP as all otherwise, Please presented revenues. results stated that

now call over to the business. Amar I'll turn an update for the on

and Sagar. fourth exceeded guidance Fiscal exceeded Rackspace. Thank for welcome is expectations. consecutive our This second XXXX both quarter And you, quarter to in we revenue EPS. the our which

profitable success. business last our Rackspace for right we mix, building two and to are operating position unit and structure a business our updated cost quarter, on model more As shifting we offerings have company reorganized long-term sizing focusing the product and strategy our to

separate two organizing seeing are the already We of units. into benefits business

time growth. to public pipeline work cloud bookings through transition. early private signs see cloud although in take expansion business this we in and focus in increased some starting will Our solid it has mix, positive to improved some are the In bookings resulted

The progress improvements to reorganization profitable operating achieved a growth. right is as sustained I'm turnaround. our been has and achieve structure, we capabilities people, drive date also helped expenses. optimize meaningful The have this has focus and long-term productivity confident the on to

making the first half overall cost are conditions to we with are prioritize progress market optimization. While internally, of year continuing companies the consistent with

AI Generative and as emerged by this deep trends. thrive, how made storage easily cloud into accessible marketplace has fueled top for variety and Abundant for has understand data driving same to of looking unleashed through have leverage the all to technology. companies priority cutting they're a from explosion learning and to At new volume for and techniques benefit time, The recently unprecedented convergence However, a an has exciting across and innovation. AI learning machine computing the as foundation computing opportunities propelled unparalleled provided the of edge industries. businesses era

building multi-cloud a commitment the and Racker with and our open our open of in commercial aware adoption right solutions unique and As and time the company, accelerate are to enterprise AI the source the innovation, right to at we mid-market is company experience customers. to proposition operating global infrastructure DNA of AI expertise AI aware infrastructure an pure Rackspace’s play multi-cloud and solutions. Combined

innovation In for With industries. dedicated across global we called by we accelerating tapped June, to Fair, a Rackspace have adoption solutions all responsible launched partner AI into Fair, foundry AI our of spin the open vast ecosystem. up with

our customers Google’s are potential. realize help partnership Cloud Excellence instance, full with AI Center For AI’s forces of our AWS with combining expanding we to and

and a cloud. gives the Rackspace of recently Technologies. customers Rackspace This hosted announced public also simplified and reference AI build, powered We a solutions our deploy, private and partnership across enterprise to path Nvidia by operate architecture AI Dell launch clouds

pipeline leads launch, the and or new executing have from seeing prospects. in three We early customers and existing than months are XXX currently generative the AI significant two projects. already since on less nearly In we XX global interest opportunities

We also internal Rackspace are using AI. transform Fair its to operations capabilities and using

enterprise to for we Co-pilot example, and engine Intelligent knowledge designed workers. Rackspace streamline an workflow and launched As the of enhance our the

July evolving we Rackspace. of entire We world have skills digital knowledge program AI, open ensure want this we workforce and As as to desire late Racker mocks our certified demonstrates the AI Learn, two continuous learning ready or to the key AI in six the Learn best at company our ensure Rackers relentless This that the AI-ready to the power we an workforce into launched have AI. FAIR outcomes and innovative deliver a culture, global to courses XX% entire weeks element an that combines of in first online the months. capitalize customers. our for we AI credentialing of the have move to ready. across We massive In the commitment our on launched rapidly literacy since workforce get FAIR launch, of and to

units. of infrastructure capabilities. to Public strategy we services. In our Now added continue we from new QX, towards updates value several quarter business our launched low transitioning turning Cloud, implement higher to In second value resale on

partner For a AWS delivered by migration streamlined Trend offering. with example, cloud Elastic Rackspace’s tri and and a collaboration AWS secure we initiated Engineering ensure Micro to

migrations offerings also expanded our landing We Azure in our jumpstart their to zones. help zero Google expanded Cloud, advisory trust customers investment streamlined to strategy, and

customer multi-cloud several that offerings for released reviews from supporting features options. new addition, to modern architectural In cloud self-service we range our

continue market in evolve We offerings. our Americas product sharper to go-to-market segmentation focus our and with particularly on a strategy,

and Officer hired recently with Revenue driving cloud We a strong of and Chief a go-to as Public experienced services. in track record leader market Cloud indiscernible] also growth digital

cloud implementation We we a a stabilization. leading market company services cloud of a and cloud with are program project insurance seeing Beverage Retail public international well transformation as the multinational as strategy won Company. with recently early signs challenging, the remains While and

five financial We government also extended agency. relationship years with large another a for services our Canadian

applications with requiring Cloud. pipeline both such driving We workloads and data and growth Cloud cloud new center remains protection storage an that rolling our sovereignty, and management, scaled solution and vertical block, private data based it out releases Private product healthcare, platform include to strong significantly may especially ransomware file storage, We this quarter. especially six to in Europe. turning data defined Private bookings. most and efficiently cloud enriched data to in We enhanced our VMware object Now operate in Demand in public recently expanded U.S. freedom robust, private our additional cloud not offerings prevention. data security, the software for centers as: around and

and for to record two as architecture reference leading and a genomic medical healthcare Technologies. application electronic want high businesses partnership NVIDIA published our in research. for strong operate their other also and core build Demand the compute and Cloud part of been with AI healthcare we with has one host to performance providers, their Dell We environment

solid execution cloud vertical to the and in growth half into in private the healthcare both year We innovation second I'm a pleased XXXX. and on of focus expect the business. renewed go-to-market with show the

As I Officer. Weaver seasoned also Technology Private as mentioned Sweeny last ground a have Officer; running Product hired and quarter, Cloud Cloud who technology Maureen & Lance two leaders Chief as we Chief Revenue Private hit the the

let around on we wrap priorities, performance. which top company's turn our four Now reiterating our up financial to are focused me by

rate. public business our or grow market cloud above services First, at

on an decline the capitalize in growth was market. in and to opportunities attractive this there private position business Second, cloud

profit a and free in highly and flow. cost ultimately Third, cash build drive structure efficient sustained operating growth

it With turn over Bobby. that, to I'll

Amar. you, Thank

share details our company our followed performance total quarter. QX the cover results for the guidance. second some on segment Then I'll by

X In addition benefits to the in described shift our the Amar to BU model.

to on been in granular mentioned able driving further businesses. focus for in the last efficiencies have call both We've collections. we As working manage earnings more more also capital, specifically uncovered opportunities tightly a

continue other We cost reduction to us. in with of opportunity opportunities while investment market balancing ahead the pursue that

and above of end million, $XXX our X% GAAP down cloud. year-over-year. in profit of Total down revenue remainder and improvements improvement XX% On company XX% was our sequential profit private reduction declines both guidance, Total XX% cost public will some the second of net net quarter last million year primarily this Gross the revenue with revenue $XXX operating of call, $XXX for quarterly indicated with million anticipated GAAP by we year-over-year mix. was and that driven in XXXX, the of of in high profit trough was revenue.

overhead on track. with reduced year-over-year down X% We X% and SG&A sequentially. We are

guided profit to unit. revenue. Operating business $XX range share. our also due guidance. million, was the X% primarily above private end $X.XX was better XX% Loss our per which was of down high than GAAP this was cloud year-over-year of in margin share of This revenue net operating to our X% loss Given $X.XX $X.XX, of was revenue declines and per

million our working of in and were capital opportunistically $XXX of deployed July Cash in senior unsecured second of $XX of in was notes These due marketplace. million to million we $XX quarter, from the cash $XXX from management. second our notes with expectations line total million senior operations In free another our $XX a facility $XX credit strong sourced results we using to year-to-date, quarter. revolving Through cash. million million unsecured of flow the have flow repurchased repurchase cash was

X%. deploy in a second intensity accretive to We million further downside the opportunities ways CapEx shareholders. with capital $XX of for was continue monitor quarter assess CapEx and to protected Total for

We range expect typical and our quarters be for couple intensity to full-year. continue up the X% the next to end to CapEx CapEx in for X% lower

segment our to Turning results.

services. infrastructure million, given million driven was discretionary customer X% partially was spending For year-over-year resale down our our year-over-year by offset profit, $XXX revenue revenue, was Services year-over-year. of resale in cloud $XXX and of revenue Public infrastructure cloud Public and revenue net tightening Cloud services GAAP up includes which public optimizations. the X% X% down declines business, by

to dividends We pivot macro led as expect our improves to we environment go-to-market. services our and mature the pay a focus stronger

includes $XXX cloud decrease December percentage lower expected QX Gross XX% operating the segment our cloud GAAP million. Segment in revenue. impact off exchange legacy driven private GAAP and from total in ransomware decline of which offerings, down across $XX Margin OpenStack total and revenue old year-over-year from of was cloud customers generation cloud private $XX net revenue, hosted resulted private which was infrastructure was XX% volumes X In XX% million, rolling compression of segment as resale. down was net was margin by the of segment Year-over-year revenue and OpenStack X% cloud XX%. was profit private revenue. revenue public The as both of for revenue for well services cloud million, offerings points incident. revenue public legacy

points operating profit Private percentage fixed associated revenue margin an of at margin with compression XX%, down cloud segment runoff offset to structure cost our margin with to and quarter and points. transform with was consistent this and million improve $XX the XX operating in business XX%, Overall, the plan down XX costs gross margin higher reflects percentage was efficiencies. year-over-year was expectations by over business, our our in mix line partially time. cost revenues our The

this drive verticals on we continue in transformation, continue technologies invest will key efficiencies. and innovative cash as management to focus During well to market as and

guidance. Now QX onto our

$XXX third of to to $X.XX revenue $XXX million $X.XX. be GAAP a to expect million of $XX million. revenue Total $XXX to public and cloud million share to loss We the $XXX is be we million per expected quarter operating perspective, million of approximately and to $XX private expect From revenue million. segment profit to million $XXX $XXX cloud

is tax Our XXX and count XX% in share to be shares. million million to income of to $XX and rate million approximately around expense be is expenses. to expected XXX million expected The $XX other

be quarter, from positive. As to QX cash we we operations expect noted flow flow free and last cash

Sagar, over to you.

Thank you, Bobby.

question-and-answer the and limit ahead. ask to session. go one one Let begin everyone us up. question Please follow We discussion to

first [Operator open. McVey Kevin of comes your Suisse. with Instructions] line is line question the Kevin, from now Our Credit

could the on I a Amar, I and best-to-start. where to there Is much opportunity. don't to did the enterprise and mean, if AI impacted of was beat think frame a the really overall congratulations that that the so it there the about what a know Thanks and Generative beat you takes to know any Generative what Hey, like maybe series that frame that the that's there's really the and enterprise if way results transformation. I Great. seems introductions help beat? to talked in contribute puts help – to massive given the way product again, just and AI if, really, strong and a can longer term? the mean about quarter, but or on mean

the Generative at massive can take details for Kevin. AI you When Kevin. general, it is opportunity go question. there say the and did will through I'll quarter. and the for us, Generative Bobby cover and will beat Kevin a thanks you, workload. thanks in AI a AI not the in look Okay, to the Generative contribute beat AI for all Bobby And be

We are are very solutions a multi-cloud company and workload we centric.

go AI does AI Generative It's this what that and an absolutely will of going massive. pervasive. So the us workloads all to workloads. businesses, going be functions to all massive very be gives is will created impact to is amount Generative after opportunity it get

AI about data, Now, about and it One we in the layer, is the infrastructure think three is right? second Generative application. way is third think is layers, the

we believe training inferences combination you when look and infrastructure the has compute, monetization but about where well GPUs as GPUs, the that it as of of at will run both the models you to has it'll CPUs it happen, all it So think will has be when it And as storage, it layer, has CPUs, for example, compute, networking. the on most as well comes both when a GPUs.

and has important to improve and the experience as also we optimizing for network. of important because the of have we, any also And ultra networking then, performance there'll about is have Storage because component low be and workload. to latency be in critically stored, decades is two you very – data infrastructure

So side public also and cloud we build partner AI side. with infrastructure partners positioned an very aware to on cloud public private both are hyper-scaler the the on cloud the well

for Data the for is big as us another opportunity well as industry.

Now, you infrastructure, this with if have you through water but plumbing, not flowing the useless. plumbing case you can all it's – in data do do the the

opportunity data architecture. data also So so to in good can data, can have customers right the create basically help we migrate there. sizable reclassification; them a we practice help data We

those in course is of Kevin experience foundation building picking also applications. have application. since train, It's have models we good can those – experience infrastructures, (X:XX:XX) workload infrastructure and – all models right aware to AI in – third, we And building, AI an aware we

helps really from is us perspective. that it So

in and is will private it's have multi-cloud or where experience in multi-cloud capture we that net and that's we to in new and it run not a this a a run most infrastructure We of where on-prem, that of believe workload lot will going are public it.

strengths, have in at we commercial XX,XXX tap you that look our enterprise can and customers When we into. mid-market

plus X,XXX are with We employees, technologists them of X,XXX our certification. have XX,XXX

add about As launched learn, ready last XX% remark, in the prepared so. I've AI I've our have or I that in my in AI mentioned two partner we and next the have think months. we have also six partner to more the in And we an that ready of is weeks getting announcements ecosystem made. And AI we importantly, workforce ecosystem goal everyone ambitious continue with to

off will, So if very, positive takes feel we be definitely which we very Rackspace. that believe it'll this confident a and for

not to on the to around be turn clear. we Now, are I business. very this counting want

cloud, market private are have turnaround we the opportunity plans excluding based public AI. Our on and in

with on, We that we very executing and have a plan I'm pleased where we very in good where landed QX. are –

he can let beat the Bobby about where so outperformed. we to talking it So go me turn over over,

Thanks Amar. Yes.

essentially – also offerings. cloud primarily of runoffs model customers on that then as a business. old cloud into We're from the we public generation our as private had And to push in bit estimates, out QX. was private constant the pretty we much the were Kevin environment our beat So came even built was The well. in business line from cloud macro conservatism though able with

execution the we and with So beat that our we say overall, were I'd in had. the quarter pleased

somewhere opportunistic look – your capital to around to million first million you've the second, $XXX quarter Bobby, after use cadence, $XX to quarter. million just the in I million you think just – nice just of debt right, because my in average more committed been what is the the take of where the you of again, quick the potential $X.XX given one really, did and there $XX it capital, is then taking first if or some then is retired guess committed in down that senior you've And million particularly those looks looks really, $XX like debt. about quarter, second it of That's way done and really job where $X.XX you like $X.XX down? to to about if match's great. unsecured of even follow a $XX But at is any really up that retiring I capacity

opportunistic our Kevin, capital right? Correct. that, were – Correct. unchanged. allocation we So with our Look priorities remain

the As very is the quarter. Amar right, investing we and just about. that's we're so talked attractive we around party saw opportunistic our what what rates, were debt mentioned, you at We in on. organically, – business what the this We on exactly and executed focused trading did

the at focused our in maintain it's the tough want that we to the if we'll but debt Possibly, it, It's more right? future? on but levels attractive trade again continues doing a macro. Could we operations, at and be look to those also liquidity, we're

conscious to be and of sure business. turn that. we want dollars back make have we Want in So to business invest to around the the

our So the focus for kind and we're looking rest – we're the of that's looking really out year. of what that's

Congrats again.

Kevin. you, Thank

comes question Bradley the from next of with line BMO. Our Clark

customer related Thank for Yes, side terms scale to of that to that discussed what talk have or didn't taking beat the I in obstacles to know you before thinking particularly go the AI? thanks through, specifically related large about contribute they you to can are revenue Hi. there there really is GenAI Generative anything Generative data timing can organizations you. start you in or And projects? on – implementing my conversations AI bookings quarter. But the question. is

Bradley. Sure. Thank very you much,

listen, are the as AI. ahead Kevin optimistic mentioned Generative with think I opportunity very us of for – about to I said, we I

we and infancy, revenue it's Now rapidly. is bookings have right? that we modest very size but the both evolving perspective, in are AI its what that's Generative from deals expect, closing that been

the discovery use ideation the probably, we basically phase which workshop early We – customers, consulting our are have and at very is we discovery and a the incubation with phase where it call phase, cases. identifying is services

– so Once current phase data we as foundational help look help XX are around multiple used the last Roughly two phase. work all we we months for the have incubation the across whether industries. functions the the multiple look where XXX domains, customers about in identified processes. have at at use them XXX, across also with phase We the right second out the early their, with and about different the customers their call and architecture we the they integration that's in identify cases cases models

So that's the phase. incubation

are the those phases of So most of incubation. discovery, projects that we in are seeing ideation early or and

I see that's when into why to there as what moves so – we this it is the that’s it’s the will excited That's massive it's into on ultimately call at workloads good et are be have industrialization, requirement cetera. infrastructure start of deal seeing in and and run phase, are these about very terms networking. of we And doing. where a we where there think production the scaling is lot a monetization. sizes, what the which area because of infrastructure, moving that's compute, across And workloads all workloads and will storage we

two and the three by So, have XXX multiple the pipeline, closing give qualified have in are remarks, to in deals we opportunities think, of and about we XX, my this listen, are we more bit leads deals week. of we color industries, we you two have less just I than a across end more here, roughly mentioned have little as I months, in prepared over that fact, closed

So traction. very good

is, single Generative hurdle use to has is as customer every foundation cases it going it impact key identifying AI the function. any think is those I for

there number So be massive use cases. will of

where the cloud. we infrastructure, third cases, cloud data then models it's multi-cloud run going use as do is And to those And going as training believe on both well they the as the challenge public identifying biggest are to have inferences? challenge is as where and private ready. their the well So they both that's be

the Appreciate insight. Thank you. all

next Our line the [Operator comes Raymond from question Louthan with of James. Instructions] Frank

the days? days? the just separately, what much. where an as very quarter of part from sequential you, of Thank number the wanted anything check, logos? sort new curious – AI-centric I one bookings are you can us of in your thank you to there of that or of far are bookings bookings then And give about these more you that guide? coming revenue? helped idea to time material Just Is And that relative sort that of was bookings in as a the these Great, percentage

Frank.

one-timers. said question. I me the that And are conservatism runoff be just push essentially out around Let really the business did we take generation customers cloud were some where have No, private material able our what mentioned. one-time from This to bit private of then no there little were offerings. built cloud on around I in of we that was old a

So beat. in that's material of essentially is that There a a, nothing what one-timer. terms drove

Yes.

the out. terms the in had We all panned well given So am internally pleased a quarter as quite I perspective. the Frank, as re-org how with changes bookings, of we with from making backdrop macro are good quarter a

but look that bookings, coming structure you as resulted in international, private our from trend it's we in bookings, businesses, as cloud. in focus our sequentially well mainly If both public in up sequential QX. and even In in we expect second increased do a growth [indiscernible] cloud private at to were also strong, has cloud quarter the continue

pipeline. also private saw strong cloud a in We growth

significant healthcare. in one In fact, growth. solid particular, In a, it we of in key such interest our are was as experiencing verticals

sequentially. Now cloud we public bookings improve did in

double did the uptick also a we see So growth in in with bookings. bookings in quarter digit an second services

are infrastructure. the we and higher margin from services moving towards business away know, shifting you As

the on we this optimization. also time, cloud takes – cost that but all focused of are customers focused our on our remain many are on public side shift. Now making customers And

quarter across think us help we quarter next sequentially the expect bookings for quarter Does in you growth company. be a another QX, about Frank? as So to that

it anything on services, money looking pull on going to or any your you way? that or the are the some to is And what’s are cost segments any optimization, and business optimize – are they other that back to where Yes. are – to seeing of – try you save more cost coming you direction seeing

Yes, placed a I to think cost strength. optimization also

offerings optimization cloud have We customers their are cost helping in that cost optimization. public

have plus cloud customers. public XXXX We

We we usage. have where usage, the We but are can't their using infrastructure. know their of good predict view they

that So also we helping. so help and do is in cost optimization,

me color you on overall an demand let give the environment. But

I we the infrastructure. private think with across, gotten continue know, cloud when look year in at cloud. public different in versus you environment consistent as typically first the infrastructure, it's dynamics of Frank, lag cloud services spend, worse, demand public not customers to half the optimize spend cloud it's we talked about, the

to and So same only the services in is not in services demand, we continue see softness company are that ecosystem seeing challenge. seeing the every we company the

However, go-to-market also we the tuned in to three we see capture it continuing does, increase engagement, we engagement recover that better to we demand We next believe our and customers. quarters, to will two fine an our have be from there in specifically started in seeing as will Americas. when it are

opportunities up created a momentum of in And bit that a Frank. public and that also out dynamics not Customers in data operating CapEx reduce of are centers, investments, at are and OpEx we the Now a and showing private never many in it's efficiently looking of had given are cloud, tailwind. before. a And little move bit us, their little focus, different the our to this moving workloads sort looking we cloud. for has

overall So, good cloud for private a this is business.

revenue with we also focused are some different business healthcare verticals, cost on the because grappling in the three two per verticals verticals as and reorganize going momentum Those the you as in I specifically, up. are as patient dynamics. we'll customers color solid on can healthcare mentioned, and So reduction three in give expand future. it we patient the per I

cloud to workloads, and private So, the are less. centers, data trying these it are moving they of are mainly which hosted environment. out do capturing And in we regulated more with are a

momentum traction We funds, portco also of have seeing we equity. driving and value serve private vertical equity where most XXX private firms are tool, companies, and private basically about the good about in We vertical the a equity in acceleration. XX are

a third we vertical that positive bookings for QX from year-on-year in bookings that the beat to surprise actually U.S. has QX. bookings a And expect vertical been their half, sector their they That's public to which us first target a and for grew sequentially is grow the

Great. Thank That's it. you. good color. I really appreciate

line of Hope. next with comes from Our Bank question the [indiscernible] of

have Hi. a of overall afternoon. quarter. One I Yes, to Congratulations questions. debt. two amount relates good good on the

Just wanted to those some was leases. tranches. finance that if color your still of million on your it as get is on and about same for both exposure QX, And the $XXX leases about of operating

That's right.

at And if all? that was reduced

the That materially that. right same, is about the to those QX with are respect estimates not reduced from

ever your other I planning? further a is as little like Thank you. in wondering Do ongoing factor far My from you question expect if though, but some equity you ever lead support as that hypothetic was of the owners say Apollo?

cannot I disclose at publicly traded day, of I the a the we but end think, listen, are that, listen, So, company.

us? that is question? your our any sponsors. will we hear Can whether So further get the from equity Is question support you

think we I in lost there.

Yes.

the Let's go question, next to

Liz, any questions, if take next we question the other there are can

questions further queue time. at no in this have We

if and Thank ir@rackspace.com. a If you Thank have your for evening. get did everyone email us you or have to you, please not we question Liz. a joining follow-up, us great

This Thank concludes for participating. today's you conference call.

disconnect. You now may