Rackspace Technology (RXT) 7 Nov 232023 Q3 Earnings call transcript

Good day, and thank you for standing by. Welcome to the Rackspace Technology Third Quarter 2023 Earnings Webcast. [Operator Instructions]. Please be advised today's conference is being recorded. I would like to hand the conference over to your speaker today, Sagar Hebbar. ahead. go Please

welcome Conference and Investor Technologies quarter Third 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,

results Please on we Our certain of these provided except the Relations to to includes and information unless stated to release provide a the our on for call and adjustments measures useful GAAP press Investor comparable most all earnings these presented both rules, measures, available to the business. presentation, note our presentation update accordance measures have now an financial turn we In in that believe are Amar I will non-GAAP which are reconciliation as which website. the investors. directly over of otherwise, measures revenues. SEC non-GAAP with

Thank our you, the third and results EPS midpoint XXXX revenue, exceeded Sagar. Fiscal quarter of guidance. profit operating

their unit is X our now to model are operating executing plans. Our leadership business fully implemented teams and

These measures improve committed aligning with to to current our continue remain we needs. operating structure Additionally, execution. efficiency cost our and our

continue focus IT customers' In overall spanning we to our current industries of cycles more we uncertain. new of and effective Organizations aiming for noted, fine-tuning Hence, various extended in execution As continue our remains response, delays sales has on all cautious been economic to organization initiatives. and see operations. the environment on demand and widely remain sizes spending,

in an and We technology occurs. capitalize demand and uptick are preparing Rackspace on to it as strengthening when

FAIR. foundry Rackspace and Since have we Azure. we X AI announced the launching As all for offerings GCP call, or June, mentioned last AWS, earnings with by launched in in partners, hyperscaler

is assists our customers services. Secure native offerings Zone, this the in a platform's AWS Landing AI Among FAIR, across industries harnessing securely diverse solution that

We response also to customers. at event Cloud the Google capabilities Next positive from showcased a our AI

continue Dell performant and NVIDIA architecture we for work cloud our requiring private [ to AI addition, private In cloud implementing with customers zones. landing in secure, ] reference

facet progress we the security, a the with deployments. implementation operations. long-term is made. are AI Its their AI productivity, enhancing and reliability business pleased the is agility improving to customer Gen promises phase I'm and every enriching navigating experiences. secular adoption, performance AI of of have set and business to of Companies prioritizing trend. companies revolutionize elevate initial their safety presently

FAIR requirements a AI, is secure responsible initiative for it deployment. distinctive caters and infrastructure allowing and Our for service to in both that safe,

confident within are strong market. position in We this our fast-evolving

X/X regions. Now healthcare turning building market to we across continue new clients. it sharp services see prospective pipeline Private all traction financial as to such and approximately a vertical consisting updates on our our our of in Cloud, industries business strategy We on units. with focus in maintained In of

experience [indiscernible]. customer won we differentiated hospital and our of high electronic support host to a client for a and Cloud in due multiyear a solution, mission-critical healthcare, In managing hosting workloads. years the in record prominent health contract manage application the and in industry-leading Private U.S., availability new won fanatical to children's this We

cloud. managed X medical managed Rackspace in center. multiyear into leading into entered workloads also This consolidating consolidation of provider data a and other the centers a private hosted data virtualized involves ASXXX equipment We U.S. with Rackspace's a contract and home migrated

complex transformation agenda. the and multiyear contract initiative growth and solution advance enabling financial a to their for agility private providing support cloud bank a Services, Financial bank. by with signed this Asian flexibility comprehensive business their In we transformation that a Rackspace cloud leading delivers is

leading deal payment in breach. and a the an their enabling critical of with Americas rapid the signed service, also data technology recovery We systems recovery for company of full in replication a as outage event custom a of disaster

addition, In and including center software-defined product enhancements recovery ] environments. Private across [ X enterprise had and solutions we the Cloud in certifications third launches for portfolio the HANA quarter, and data disaster SAP business

next road X We're that also in Private release over our innovative for offerings multiple slated map quarters. Cloud excited about are the

Here are examples. a few

and needs. data need edge customers for data compliance deploy or them, offering. anywhere This software-defined globally. mid-market centers [indiscernible] allows VMware-based have to Rackspace enterprise center solution compute data applications is the is on-premises, This in turnkey and solution First locality they that sensitive any and customers where

demand. called service Spot for for is is market a to capacity customers solution Second base. a cloud-native a suited on Spot. use market empowering true provides exchange and real-time developer compute suited cluster perfectly This preemptable compute is customer It offering pricing, workloads. Kubernetes

we Public challenging good traction pipeline Cloud, in the a environment in saw bookings quarter. to Cloud. turning third Despite Public Now and in

continue We introducing focus of attracting high-value new wide and strides notable range a offerings. making innovative in more towards to customers services,

global On expanded with technology preferred [indiscernible] encompass leading across in and advisory the propelling digital efficiently countries as strategy, Serving of application patient on patient services company utilizing expedite customer AWS, to to infrastructure the enhancing model. modernization a outcomes. address medical worldwide. we've innovation our front, XXX delivery we improved ultimately needs migration, cloud XXX biotech involvement committed their outcomes initiative to multi-cloud them have established our Fortune advanced more products and professional collaborative implementation and and their a to partnership partner services This leading customer focusing is and

the the business and new modern Rackspace differentiated a drove solution companies our competitive leading clients was for against customers. of of global operational of that integrators. were transportation business largest range warehousing system some a we are Technology a out win outcome-focused offering including What agility efficiency multinational broad These of and operating U.K., logistics modernization X and Asia cloud services the Pacific For operations.

offerings offerings security hybrid hybrid in with environments. native life comprehensive the cybersecurity Public for full stack A On combining also third XX/X response detection experts. including cloud quarter, solution workload services multi-cloud X their manage to allowing managed managed and customers front, the we and multi-cloud cycle Cloud launched entire in

partnered Google launch Google workloads for migrating and Google to rapid path accelerated also cost-effective virtual migration cloud to with Cloud. exclusive and We

it received positions suite solutions successful services was strategy and We a as our us and fronts. our good in company. Private Overall, public multiple Boston. businesses quarter our Analyst and a Public cloud private strongly for AI Cloud a products both Day showcased and cloud was well offerings. multi-cloud presented recently and full of hybrid This on had and Cloud We Industry

like another the as of Thomas our in has member strengthening I of Board we wrap are would to highly years professionals. and This welcome is I over XX our Before organization Cole with banking. how example experience Thomas up, accomplished of newest Directors. of skilled

start by priorities which at to we me financial performance. the our the reiterating of up are our Now let we on focused outlined top X wrap year, turn around company's

With this operating First, rate; efficient will grow in to turn ultimately attractive I Cloud in growth and market to drive opportunities the business in profit highly structure, on Cloud or build position reverse decline capitalize and above growth flow. business the that, at services it third, second, our a free Private an cash cost and over Bobby. Public sustained market;

implementation QX managed our for quarter, Thanks, total the as We of segment a collections detailed Amar. commitment disciplined then new on strategy. businesses and notably effectively focus I by financial through of on our our maintain followed will both more some to bolstered the the and of details efficiency part results performance, We've guidance. third receivable cover share company the working liquidity, program. enhancing accounts securitization capital a our

we with current opportunities areas that will identify cost additional Additionally, in to continue not strategy. do align our reduction

revenue sequential We down profit by at quarterly XX% the was of million Total year-over-year, with revenue at net X% trough. down was XXXX company quarter. of public and high XX% X% the and of for cloud. quarter looking of operating net second track our cloud the the of on and million for $XXX prior our improvement of of declines in GAAP sequentially was private guidance, sequentially X% Total $XXX results both Gross year-over-year. million, the revenue down Now and for guidance off XX% GAAP end driven down profit remain remainder $XXX revenue.

operating range net our was million our of to of $X.XX revenue due million, was guidance, $X.XX, at within third share. market our impairment $XX loss XX% guided X% of to high a year-over-year, business approximately decrease $XXX For private result and in quarter, we of $X.XX In per as charges primarily the recorded of the per revenue. noncash XX% GAAP XX% Loss in was up the capitalization. end share our primarily which the down declines cloud of profit sequentially. margin quarter, revenue This was operating was unit,

our Additional of found can details expenses be noncash in filings. these SEC

operations from million, $XXX quarter. was flow was and cash third $XXX Cash in free the flow million

cash includes in million, new flow securitization, been line our the cash have flow reported AR received $XX for free would Normalizing from with million been would cash $XX operations Our and have expectations. flow the AR through cash securitization.

substantial positive liquidity including combination we of dislocation increasing to the of $XX October solid on the our more believe insight our of to opportunistically our notes Let debt $XXX unsecured $X.XX allowing deployed unsecured our cash AR the to repurchase securitization is primary for In liquidity repurchased books. of securitization discount facility cash provide end a of dollar. million and take debt $XX we price third the notes to million, on quarter, this in executed million the million $XXX us at buybacks of of was an $XX senior year-to-date, of in on the million advantage this opportunistically using our cash these already pricing. marketplace. We capture of and The our me of $XXX Through a have another little senior bolster the average of total shareholders, objective available we position and allow September. million at on

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

range expect X% We CapEx in CapEx year. typical X% intensity continue full to the our for to

segment Turning results. to our

percentage Cloud, Private million. the $XX includes revenue revenue profit Private Total reductions offerings. the million, an rolling OpenStack third margin Cloud at up GAAP of was of cloud which revenue of cost for Private driven to was XX%, of declines. revenue private at $XXX was For down Segment generation legacy customers $XX was end offsetting quarter-over-quarter. due Cloud the X was guidance. sequentially impact off gross sequentially operating our XX%, flat quarter X% This margin point old million essentially by operating high

revenue at to consumption-driven due flat primarily infrastructure was revenue by of down guidance our $XXX spending. tightening volumes quarter-over-quarter, of Cloud, Public essentially given high services declines sequentially growth the Public end offset discretionary also the X% In GAAP in million, services. on Cloud of was resale

point net percentage expect sequentially. point Cloud of up Gross a points strategy Cloud X percentage GAAP from operating points We our X% total up by pivot sequentially, of XX% Public our driven percentage public margin focus in as cost services-led X revenue, Gross was Cloud the margin matures. includes up improves our X of revenue, was and revenue, million, was up profit which was sequentially. Public $XXX to revenue, net revenue percentage stronger go-to-market infrastructure efficiencies Public was profit sequentially XX% Services and $XX sequentially. net pay million, X X% our XX% savings. and macro environment resell for cloud revenue, segment Segment which and segment down dividends of utilization to

guidance. on our to QX Now

per revenue fourth million $XXX million We $XX million of to profit to expect the $X.XX $XXX $XXX to to to million. $XX segment operating of approximately Private be to revenue million Cloud perspective, be loss $XXX $XXX $X.XX. Public quarter million Cloud and share Total revenue million expected is a From expect $XXX and GAAP to million. we of

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

on positive year We call free cash be over turn normalized the flow and expect and from operations Sagar. a now cash basis. reported both will I full flow to to

you, Thank Bobby.

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

[Operator Instructions].

Our El-Assal comes Barclays. Ramsey first with from question

can been could I infrastructure forward? approach? in the quarter? services the if value-added that value-added has was how strategy open growth you was how wondering clients increasingly What to are you versus Or on selling towards services support shift that Maybe going. comment going

question. Great Ramsey. Thanks, Yes.

we're So the the Cloud of services on right is and focus selling left, center business. doing what in Public

structural company. We have changes made a in lot the of

public both reorganized are value-added selling private higher Public and X are focus cloud, with very we and focused know, you services. As BUs across cloud on much and we on within.

across go-to-market have accordingly. Public aligned go-to-market also Private also Cloud. Cloud, we in have aligned Similar to our We verticals

we services close We very our go the also can aligned along more have it that hyperscalers. with drive so to hyperscalers, migration, modernization

changed also resource mix. have sales We our

have in sales. We forced underperformance secreted

launched We In services, hire execs. services launched new We offerings. XX business of months, last we a In offerings. new the close Ramsey. X continue last to the in focused number sales new to itself, and offerings quarter X outcome

for One that of environment. both managed was and services hybrid multi-cloud

a So a structural of changes, lot changes hold. taking are lot of that

them seeing projects, Services Now what are closely. Public most Cloud customers of is are companies services much is are very the services very working cost we we on with optimization Cloud a Public like And headwind in in there focused see which is -- in the cyclical we ecosystem, we what business.

We are optimization capturing projects. those cost

are our the bad stay times, to stay during times services But the close have delayed. uncertain. initiatives tell environment to always to during but you the as and close to macro New is in I customer good you getting have salespeople customer, when

to returns. with ready be we'll when customers helping we demand we so it for new work [indiscernible] initiatives go So them that that when our plan can continue

good intra feel structural the about pivot we to services. low-margin are higher-margin from that I So making resale

will year-on-year headwinds a and result sequentially, the declined generally our you as business. as see business services well that's of has cyclical that seeing the are we in Now services

see. I

there, in converting sales which commentary you which revenue with delays be Okay. work little Are many delays might maybe seeing out ask peers. new also you or a on to consistent to I seeing signing the your both bit And is wanted sides? you for more of or delays, bookings on

that's question. think a great So I

are has pipeline I it think look our perspective, Private both sequentially here growing, is Cloud I and the from seeing pipeline, pipeline. at we Public what If Cloud is grown. the

top cycle. and that's extended funnel looks of the think sales cycles decision-making great. I the at So the the But basically extended have .

to So is I cyclical. given typically we because from on and the environment, very see are services pipeline the their are conversion business cautious and spend, time think uncertain, remains more taking bookings macro IT always customers very which

what we are seeing. that's So

is funnel more is time, of So the extended. the cycles are the taking getting It's sales to okay. Decision-making taking bookings pipeline conversion but looks top just of time. more

Louthan with comes James. Raymond question next Frank Our from

first and a in many you And Cloud? new follow-up Private signed question. Can us you how walk through logos up Public Cloud my That's question.

comp in You various Public third How for recently your sales to Cloud tracking? better that a is drive little the And changed engagement services. in has gone how that quarter?

Yes.

give So will the question generally, let color me some on logos. our just around bookings also answer you new your and I

from Cloud. new macro XXX sequentially. So customers Cloud backdrop, bookings both fairly good across actually perspective a bookings had Cloud given we Private quarter and a with over Public Frank, Public the grew

out. how anticipate our this So we and into and Ramsey Public the did deal December this and these it's see deals X the also the services answers are seeing panning the that large [indiscernible] quarter, funnel some Cloud slip top Private we to . In of close questions quarter. in how of had about Cloud, we

for expect both strong be that sure So you do bookings. It's are years. in to know, reminder, customers as deals, very Rackspace. are just multiyear sticky. Hence, the December win-win guys are Cloud X or It we we a a Private very QX well large as between a we to making anywhere thoughtful Private X that deals quite lumpy, is quarter too. typically a deals Cloud as close And as quarter for

for bookings the QX about Cloud. out and pan might good it how feeling overall Private So in

both are first a see using Health the strategy. as And is sort From a that double you pipeline Public care in we and Private Cloud we vertical what know, on. Cloud. health our we are down vertical to focus. [indiscernible] is growth now perspective, pipeline, of and which is And we seeing aligned the vertical significant contributor to vertical strategy overall care a is

to right made funnel sales that's looks our time organization to Typically, to it to system. takes is low-margin as extended sales are margin sales decisions well, driving taking the sales through And is changes in comp getting business longated. working the are is of to But mentioned remarks pivot services It sure comp working good. earlier conversion, question, pivot services. of which and in business I right response cycles behavior we getting sort sales my well. mainly top higher-margin as from business, for some the The that especially is, higher the focus changes, I it the the we the and driving Regarding our But make -- time. Ramsey's the behavior. That's think, services. us in key

next with BMO. Clark Bradley question from comes Our

want margin to performance. ask I about the

time gross the you drivers you're first other of grew sequentially you a margins talk margin adjusted improvement number mix and in doing the between efficiencies the For Can both quarters, say, that margin. internally? about operating of cost than

And announced it time thinking or a modest bookings on AI my generative would question with you your about for are your have you've solution How that to second [indiscernible]. a just takes partnership services AI line revenue impact own and/or even the meaningful be, ? generative

Yes.

me gross the on Let margins the expansion first the do and margins. the question and

So that's right.

We've are exactly headwind. about we've taking result the talked this that that's we of cost fact reductions, a profit what lot that that improvement cost we'll year on So And of back operating on macro as talked seen of we've reduction see about a play fact out. the the executed. the we and

given experiencing headwinds also an in at had the our of wasn't a for and demand on the beginning organization up that little Cloud, given macro year. we underutilization. environment, color Public we give coming an the But were delivery cyclical to through the expected have you we staffed Just mentioned that

actions took utilization. there. of got So cost our as reduction, We've part some we

the flow in seeing through a result, margins. we're As gross that

Also there see in well. the you'll OpEx, as improvements

flowing quarter we've from actions through the This cost taken.

see the So QX. is in of of back that it as a cost and you'll well lot on reduction,

Gen me take question. the let AI So

all, very of is exciting First question. thanks This a for space for the Rackspace.

Gen workload a for As and know, the that company. And is net us, new workload-centric exist we AI you are very AI before. didn't

a we rapidly. refenced launched we it's resources this We us. will secular believe Rackspace which we by AI back We within So what we FAIR, for on And massive since saw as for traction who June. with trend, we that accelerate and is of capitalize very foundry expansion a a months. did lot X had in the we the organization to trend organization, good And FAIR or well part of up resources with launched very a the last company. spun in versed the AI, TAM

quarter. is XXX were this what give won where roughly Pac. of in The Xx increased. from we about AI We landed. qualified saw perspective Europe to last a And Gen me little across opportunities deals. Let on We reported in have when X regions, all bit XX active We close what has pipeline. probably we XXX you we color Americas, bookings Asia a about interest our about leads and

AI which adoption. be call in sizes Now a are these pure to engagement as these of which of in deals, smaller it paid are ideation, phases. And we Gen incubation what AI are deal launched are expected And tend discovery after since Gen phases we the and the most early deals is we FAIR.

the we production models, we we industrialization this an moving which fine-tuning and call expect inferencing what scale. space, as to into when involve will So or both start

deals Cloud, have all So hyperscalers. mentioned on across as to Public joint work AI the we solutions hyperscalers we prepared all in I won launch X remarks, my and with

Dell also AI NVIDIA. both as the We working implementing reference on private with collaborating as cloud well are architecture

to monetization so will then lead customers get early thing mind time, most take are So Private journey. all certain infrastructure, either they applications. those Cloud, and Cloud to more all And which help them but happens. consulting on important landing about or zones for to which and building the real leadership, it will in phases, speak, to helping the the work lead to Public building can where that's us probably thought it's and is stages, It's volunteer. share, go AI early finally we about Ultimately, services. can has it wherever the Today, will be

we this driving now started leadership in have place. [indiscernible] really And

say would more early And I innings, just speak. to come. to So in still the so are we

Matthew from RBC comes question Roswell next Our with .

where and as over things you move preliminary finding clients last questions. Gen for pricing the ideation quarter these sort the deals workflow guess, need couple up example, Two first, seeing often the like then go Public that conversation, of quarters? in it you're even [indiscernible] to before to I how this And competition has Cloud, do take work, AI can you of of both on and and do they changed cloud, for that are and AI? advantage following

Yes.

question Let me around was ? -- pricing so what first the

Correct competition. and pricing

Yes, pricing competition.

Public listen, we in So I markets. in think Cloud, play

let find you a we are enterprise all where So on think bit of we right? against, you and understanding markets We very and give play enterprise, we have you global a a enterprise, enterprise. system in of an we X integrators. because get we XX And very color commercial. penetration market that little about focused. . In strategy accounts, So in, selective GSI, is segments: big are me compete focused the so we address who mid-market

on will the to customers GSI that's million on in This is complexity head a sweet mid-market, customers. challenges with comes that with have where for call So about and big $X This to same to go is billion have and CIO business. large between Rackspace. where have. have we you built These want GSI. that's spot customers don't we When a is it spot. don't we revenue, enterprise an $XXX Mid-market expand, sweet a these the

It's and also million for a $XXX us. sweet is spot And commercial lower.

competition, go now returns, services for see that this, us competition demand. So how and we are market. headwind That's when cyclical the is chasing okay? we to right depending we the important remain business see on demand at -- more look to that a think markets we'll the everybody Obviously, when approaching same capture in which and with we it's has you the customers But so business. the play, engaged

around and customers whether use for and AI that's great about of cases. I because question by customers way, a ideation a for looking the question, talking think and incubation right lot Now now, are your are ready

cases. very we surprised that some fact, of In customers use are the also have already

go help customer, incubation will call So to it data. what model where with actually pace a but the help we've the model we as on it models them the language data this trained or into sure we to models, them pick that an we large architect is is proprietary open the and then make these

are instead massive as So to create so happen with but data applications data lakes. to we the of monetization think when mentioned industrialization coming data phase, AI to will go that That's you I and AI, going can real earlier. the I have the production --

But the existing is, we call what using and seeing are running are data as we what customers currently, co-pilots.

are So lot many call we winning deals. this as of a is and enterprise. ICE, we where have intelligent it created We co-pilots for

we even we a we AI and And took internally be readiness ready enterprise should workforce in get decided fact, of AI have entire months is To about ready. since XX% it, X,XXX-plus implemented be created said of we last making in at our honest, the Five Rackspace. And we ago, months. or sure X our we months X program Rackspace. very [indiscernible] lot XX employees at ready. that In we AI a have co-pilot we intelligent of for big step bold a ran

are going things So and and helping we what our to a customers. also this here, is come lot of

So a do lot to here.

is but a this early question. an I it's think good phase,

like for not remarks. any the And questions showing back at this time. any to closing turn I'm to call I'd Sagar further over

you get everyone, your did follow-up, e-mail . us. we evening, great ir.rackspace.com. to at a you, joining everyone. or us if If Thank a please not for question Have have

Ladies and presentation. conclude gentlemen, this today's does

You day. a may wonderful now disconnect, and have