Rackspace Technology (RXT) 12 Mar 242023 Q4 Earnings call transcript

Good afternoon, and thank you for standing by. [Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to hand the call over to Sagar Hebbar, Head of Investor Relations.

You may begin.

Good morning and Welcome to Rackspace Technology's Fourth Quarter 2023 Earnings Conference Call. Head Relations. Hebbar, Sagar am of Investor I

Joining Chief our Executive today's call Chief Maletira, our are Amar Officer; Officer. me on Financial and Mark Marino,

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

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

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

Thank you, Sagar.

collaborating shareholders. and like will is customers strategy I'd Mark's understanding joined witnessed to continue to our leadership to as financial to hybrid Rackspace, of what business have our Mark asset multi-cloud growing Mark position attractive deliver Marino. AI be new strengthen all, company. Having since worked I of and I First firsthand strong and and extensive a and an we to I to CFO, our with he Mark introduce the execute instrumental comprehensive experience forward with as we in value market. look our our our continue

contributions Directors. holidays. Molu, year. thank CFO, succeeds Bobby the this of Thomas also Gross who Board to to like our pleased Mark away also passed over for to would Mark welcome past Cole unexpectedly I our I'm former his

are We time on significant Board. short contributions for his the Tom's grateful in

deep with experience Mark. I business business insight with working transformations. and Rackspace and to executive look extensive comes forward in Mark with leadership to leading

me let made the and I them. the to Before presented we we have the strategic priorities cover X against results, to get Board our progress

the refreshed direction a leadership succeeds. happy we for company. and in levels operationalized unit have turnaround. strategy the and the strategy, a structural we the at ensure major set vision, our talent our clear turnaround. for In structure and operational First, We turnaround and team X drive various company, in I'm the confident with place made changes operating right progress and XXXX, model business needed to

catch forward is are makes infancy. we leaning AI cloud in innovative resources Foundry multi-cloud in to why reposition AI the FAIR success. seeing wave, AI. new company hybrid still Rackspace as launch a solutions early the Second, or June that in big We This believe by next its trends set to positioned and Rackspace informed well is wave which bets now called aside technology and we of XXXX, for are we we

ensure And our strategy. liquidity support rightsize structure growth profitable capital and our third, ample to

strengthen our this through detail walk significantly sheet more business Rackspace's some have enhancing continued strategic will announced balance for later operational high-level will we our while growth, a call. outcomes plan. of may and into position in transaction position you As and the we I'll accelerate that go Mark of and seen, our competitive transaction the

start the debt The over of I over after million reduction purchases with combined subscribed, exchange market shortly is private from the open CEO. of net $XXX debt year, the XXXX will result when public in fully exchange debt reduction total $XXX transaction as took the company's past assuming million and debt of over and over the

on of cash the of to books of have transaction Following to expenses million approximately compared million we infusion, of cash the $XXX million new $XXX transaction, which $XXX year-end expect all as included XXXX. net

$XXX This the million over the access liquidity available $XXX key business appreciative. is XXXX, to I'm revolver demonstrates over future in extremely to for strong transaction extended which financial confidence of partners current million. the With of our

performance, posting get sequentially Now finish tracking turnaround cloud in the XXXX with private of were half me the X year-over-year, is into full fourth year-over-year. starting bookings let our XX% cloud. private XX% Bookings were cloud XXXX. XXXX, up with year business of quarters. the in a up strongest Today, In quarter fourth for quarter second towards XX% private and

In new of last the addition, is start compared our the of start the at to backlog year. year up XXX%

defend to offerings strategy business. vertical expanding market. cloud both is go-to-market with We're and motion horizontal the to We're private compelling Our our new private and solutions expand our strategies. our cloud bringing and accelerating

potential We insurance, services and high is creating care, in markets financial attractive are health banking, sovereign such opportunities The as off. AI. paying private and strategy

this care hosting. our have care a with new logos in over and vertical, continue our to broaden We'll a deep approximately press with potential our and contract TCV care including of talent For system. another XXXX, funnel. To brought health capitalize in There's million large big million example, expertise in we in vertical $XXX nearly XXXX. success, we million TCV health won in on $XXX hospital TCV new $XXX long-term several on strategy and in health business

the across past we center offerings data in XX including and business XX private cloud, enterprise software-defined Flex. months, also In new launched over

an colocation This centers It with in its architecture. We also data for name interest. market cloud caters deployment deployed implies, AI private It for platform enterprise And natural to Spot and a fit Kubernetes third-party spot robust flexible on-premise in allows anywhere. AI as a or early the is infrastructure. developer start-ups, reliable facilities. enterprise-grade compute optimized for is and we market see environments quick, good on container enterprise-grade Based this growing a capacity. platform,

offerings allows For incremental attractive to margins. product Spot monetize existing leverage and capacity our Rackspace, us reserve at

continues near revenue decisions to the through go-forward XX customer over business. consequences renew In customer addition the runoff months their focused help a XX months than new program made to when on to to was cloud next quarters, see the decisions decisions place work from more XX X architectural ago. to and of Hence, solid the In to have offerings, the private not however, made with we in customers quarter, ago business. including some we this current Rackspace X term, expect

the However, private we this half for start our we and half backlog entering year. to expect the to XXXX. in quarterly stabilize expect converting recent second strong Thus, of XXXX bookings revenue revenue to in second cloud of

public Now moving to cloud.

market. to Our is write strategy the growth here wave cloud in the secular

customers and security. stack applications, they spanning data platform, are wherever solution on in journey, their meeting are cloud a full We focused multi-cloud offering

nearly of with last through strategic them with experience a our instead services-centric and worked of go-to-market transition as sales workforce, resale. made XX% resources, added go-to-market of similarly meant year XX% services lead qualified tough over We with we including This infrastructure client We deliberate a pivot refreshing including overall our professionals to sales replaced low-margin team. partners.

that XXXX working, bookings the We fourth seeing a services sequentially after XX% year. the quarter pivot is some have growing started signs tough with early start to

also solutions. Public cloud to develop new services innovative and continues

hybrid remediation service offering, an industry-leading vulnerabilities managed misconfigurations to and VMDR of cloud software visibility complete turnkey a of services environments. is instance, enable and and vulnerability For

analysis that enhancements, of version checks, We X services operations Cloud tier and managed services. regular increased also we health adds provides new services an such cloud managed with improved many level modern with part per SLAs. And the that Rackspace monitoring along other developed as DBOps, updated and of advanced

services. the in macro the environment has It both pace turnaround than originally our XXXX, cyclical longer slowed In headwinds disruptions arising of changes expected. I the structural and from of the taken

we growth have organization half place to see However, XXXX in improves. as and of the the second confident we and I right the sequential report as am direction. services to right our I headed in services cloud go-to-market enter demand overall for in are market start matures XXXX, foundation expect

next the As cloud that I noted, We it now growth. did market and with Rackspace wave AI. of is with doing catching

course past into Rackspace we the transformed of AI-ready For the year, organization. an have

in projects June we have in of AI Since active XXXX, introducing several progress. FAIR

at including across stages XX see AI nearly our varying to continue phases. and implementation customers, of IDH in We XX than new incubate growth more logos with

have move hyperscalers. who as customers for AI public Copilot growing with also into to In integrating production. and launched AI cloud, zone Anywhere with we a announced guide to application landing through Recently, are customers private we all X journey. robust AI We we offerings. a their Microsoft cloud, want their In a partnership

achieved also and Amazon the AI of in application, AI the categories We Web competency generative Services consulting data. generative infrastructure services,

advancement partner helps technologies. that technology specialization the pivotal drive infrastructure services, customers generative recognizes AI for This tools of implementing and an as AWS Rackspace's

have tremendous to a developed use We build this plan and I'm are journey. customers happy approach a opportunity our our taking ethical useful, to services. steps help with the first measured we AI economically on viable ahead. and and realistic There's

XXXX. X-month fix, decision in a summary, half get the organization revenue of In given we in the private we progress in bookings cloud we with on But long solid backlog new invest turnaround, to to realization, focus of the Instead and slow continued strong leadership. in for our X- and and XXXX opting significant between typical revenues I the off for term, to made margins restructure lag a start. anticipate XXXX the expect second to bring difficult and execution. made the quick improving

financial on me to track. growth revenue model us debt Our bookings the on a throughout XXXX. customer and momentum build stay a to profit XXXX will growth the sustainable flexibility refinancing the us for XXXX want business engagement course. improved is we over long tell And put goal consistent trajectory lock to today's are We Recent the trends in that right term. gives entering generates that and

up, have actors. thank I of I'm our change. to of customers, our proud all all during together partners Before wrap we I like year and achieved this would

Mark financial turn will guidance. an Marino overview now to results of it I over and for our

Amar. Thanks,

this happening years, and Rackspace. Rackspace seen into transformational support few in with part look the over strategic Amar of throughout been excited to past continuing the integral changes and important forward this initiated. become has even many vision changes an to and participated future organization are Having have so of at have The have stepped to I'm the more point, I of inflection the role the I

As and closed partners. financial group lenders positive transaction of Amar mentioned, a our very we with a

loan balance of than connection first as holders launch closed facility well holders term an the outstanding change Rackspace XXX% credit ad lenders of net of liquidity million hoc and first of debt lenders. exchange, XX% and key as transaction, more the come our than debt In money our in lien new days noteholders our to rest note offer more our sheet debt we million that of lien the private the month. Through strategic received than with first group lien and this public next the as XX% plan that initiatives. exchange $XXX revolving of Specifically, will close we private to to coming and advance more a representing with additional our to in a eliminated $XXX

extremely partners' encouraged this are strategy money of We conviction our and it in continued execution. by financial reinforces momentum turnaround in our our injection as new

million when in result than we more end and assuming debt of market fiscal public opportunity total over over the than $XX expense in purchases debt, and past million the annual million. of more million reduction reduction by million. total in participation $XXX $XXX to open of full more year net debt expense combined debt annual by XXXX, with a Through year, reduction participation $XX in than exchange, interest exchange in have over company's interest the the debt full $XXX eliminate the public the would and reducing Since

on while Additionally, exchange prior to capitalization funded maturities transaction our have company. of XXXX. the to with no our May extended the the senior the flexibility, other impact deleverage corporate ample extends have Rackspace of financial Notably, facilities the none growth strategic any this runway sheet equity maturities participating of providing debt strengthens the on initiatives. XXXX, revolver company maturities and company's and Overall, to has effectively been accelerate the transactions balance

year-over-year end by of XX% in cloud. public company was the fourth down high XXXX quarter driven million exceeded both of to net at down the in due our our cloud EPS sequentially declines was fourth revenue midpoint results. revenue $XXX total private cloud. guidance profit the And Now $XXX of the strength GAAP million, operating quarter onto Fiscal public revenue, Total and X% and results guidance. the and

are as revenue it our growth represents business. true the We focused more net on of

revenue GAAP of net Gross profit of was margin revenue. XX% and X%

revenue. of million, For quarter, at margin range Loss flow operations free guided the in and was cash million $XX our was was up X% to Cash share within which X% $XX million quarter. $XX per $X.XX, was operating of from of guidance net share. $X.XX flow $X.XX our the end high profit XX% the fourth sequentially. loss and GAAP and of per revenue was Operating was

results. segment Turning to our

$XXX due Total private down For private X% at our end gross revenue fourth was revenue was rolling for down off guidance. the cloud revenue OpenStack due GAAP of legacy low $XX older primarily the X declines. to private million. Segment down XX%, X includes million, sequentially This cloud, cloud offerings. quarter operating cloud percentage customers quarter-over-quarter. was sequentially points to revenue was generation XX%, of margin margin was Private percentage which point

X% services. IT in up by we was structural Gross profit Public for segment X% Segment on GAAP Public cost given cloud, the exceeded revenue, public points changes infrastructure up was revenue X margin savings. of net our revenue sequentially, cyclical the organization. driven to volumes, percentage was by in and points million XX% percentage XX% services cloud sequentially. down primarily consumption-driven high implemented resale of offset In continued net of guidance revenue, declines growth up $XXX end Cloud and operating services go-to-market in headwinds the quarter-over-quarter, of sequentially due our X was

have net Now down cloud. and for total of and million while and the down net million. cash of GAAP million flow was revenue margin year both in from strong full year $XXX year-over-year XXXX company revenue revenue. results. cloud, cash was cloud XX% was GAAP public net XX% Demonstrating $XX free XX% was management, full $XXX our cash securitization, X% cash impact turning and the XXXX Normalizing of would $XXX cash would declines private was in AR from flow have operating was operations year-over-year, year. profit flow while and declines Total free XX% by revenue driven to to Gross flow GAAP due revenue flow the been operations for private been revenue, of of X%

CapEx million for of X%. X% XXXX our range with X% full a was within Total guided $XXX intensity CapEx year to of

margin points percentage year-over-year. Segment For full generation XX% cloud compared off was by customers due year cloud year-over-year down decline revenue rolling margin Private in revenue to relatively driven XXXX gross X cost segment was offerings. operating with private cloud XX% a XXXX results, of XX%, was of X down points Private structure. older a to fixed down percentage

flat revenue percentage given XX% public percentage the In revenue, public XX% cloud, year-over-year Operating was of net discretionary spending. was points year-over-year, of driven down revenue. net XXXX Gross GAAP X down down X% revenue for net was tightening while by declines essentially margin of our in points was cloud year-over-year. X revenue profit segment

Now our to guidance. on

in new first expect as investments XXXX managing the we financial runoff in not quarter headwind mentioned, revenue impact the that cloud that realization. later will from and do our still to bookings the strategy As first Also, Amar align to well are residual until through months between will seasonal half from of the revenue and a backlog as due costs private major the our in areas contribution year the lag fringe typical benefits to X X and U.S. reflect bookings

we these to quarter be $XXX million expect For first revenue reasons, to approximately $XXX GAAP million.

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

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

We up half, throughout higher the the in profits growth year. be the We in us expect than private XXXX solid cloud first to second stabilization momentum by services public half cloud to first quarter led and profits anticipate improve XXXX. exiting trough revenue for and setting

turn to I over call will now the Sagar.

Mark. you, Thank

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

[Operator Instructions].

from question first Raymond with James. comes Frank of the Louthan Our line

Rob on Frank. is for This

should you at already any And as, as is, So restrict follow-up such covenants when about there it new so, and baskets? And know debt we is other to rate? what payments us then the my are significant debt callable? shared beyond what pertains say, with deal, if

So very clear. not think the was I didn't not It you first room. sorry, clear one. in question? very the repeat follow we it's Can I'm the

Yes, yes.

then such rate? And other So the shared what And significant as payments so, there baskets? about debt was my we any being you've than when follow-up callable with or know so restricted not. us and about, deal, at about far should what the if debt are other covenants any

the your to to of company transaction. impair a there in some covenants forward. tightened first no get in operate relative this, restrictions about just ability the our baskets, like will and our that the up Obviously, there question baskets way any restricted transaction But So is right? throughout moving

So I and think those latitude from And your second covenants. got and a we've that flexibility perspective, with question? then baskets

Is debt the new callable?

No.

is your no. answer question? that answer Did The

Yes.

from El-Assal next is with Our line Ramsey Barclays. question of the

Campbell your that realization. lag remarks, bookings This to to compared seeing a confidence any how demand prepared won't And between this that you I and today what that is Ryan Ramsey. on mentioned X- gives the And was elongate are curious for more you further? to X-month environment? lag revenue In you normalized see

Yes.

the that to commentary converting our question. -- I of think was The you much lag so the X bookings on thank mainly months X revenue. very for to --

backlog. So bookings the builds is what the

with business saw XXX% was sequentially fiscal QX grew to QX, actually in XX% And huge a quarter did perspective -- we we the X in It from year-on-year grew grew very the where year what cloud last year-on-year. 'XX. compared quarters, in the highest well private entered we entered fiscal the XX%, backlog when bookings Our a the we backlog. and

takes the revenue data it next to the we environment, to X then to manage to convert that our X for years. we application have with because migrates typically at workload migrate have that center, stand stays to to up the application XX once and backlog, So the months X us application we and operated, and to

is X-month mainly lag to X- for that to So converting backlog revenue.

think mainly terms similar to we environment -- Listen, we in believe is. XXXX. We what continue I remain by demand Now in on Entering AI. cloud I digital uncertain. spend think of transformation, continues your where see saw XXXX, that's to XXXX to enabled sales cycles, the will customers question and

we getting cycles cycles and slower continue are extended. decision see the However, sales to

business, cloud In in a you Many as companies cyclical it's that know, it's and are our facing we. business, that are services their cloud reduce are Customers -- and centers, when private services our so are CapEx investments. you move different. really a their looking public of to reporting they OpEx But data very business. the headwinds ecosystem and talk cyclical about dynamics out some the are both

cloud. private 'XX And see helpful? the that proof in better in strong. so is demand is we fact relatively XX% at cloud very grew we pretty And Was our private point demand year-on-year bookings overall a that that the basically

you. Yes. Thank

Thank call the turn back closing for over remarks. to Sagar to you. now I like would

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

for concludes your Thank and today's conference Ladies that you gentlemen, participation. call.

You disconnect. may now