Rackspace Technology (RXT) 9 May 242024 Q1 Earnings call transcript

Good day, 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 conference over to your first speaker today, Sagar Hebbar, Head of Investor Relations. Please go ahead.

Thank you, and welcome to Rackspace Technology's First Quarter 2024 Earnings Conference Call. I'm Sagar Hebbar, Head of Investor Relations.

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

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

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

call. will which As more detail previously refinancing debt announced, transactions, today's we of successfully discuss in series a we closed during

size the the As release XXXX. of complexity data call. before to filing, during the in which earnings upcoming QX be XX, our extended transactions, selected May or with presenting we included Full a of financial today's will the file we and data press are SEC XX-Q for on in result and financial the expect of deadline

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

our to everyone, XXXX quarter welcome, and first conference Sagar, you, Thank call.

Results quarter in We and continue XXXX first profit turnaround. guidance the steady the of EPS. our make our high revenue, for to on progress exceeded of end

with that and record guidance now X either a last commitment the speaks track community. our have or to exceeded execution investment the We met to transparency quarters,

profitable driving an priorities: second, of AI structure solutions our our X ample strategic encouraged to capital operational a objective and to sustainable Rackspace ensure company; innovative financial progress as and these first, results, growth. I'm third, long-term key and our multi-cloud and leaning forward by rightsizing liquidity turnaround; hybrid Underneath repositioning on support implementing

recent structure, will injection to significantly improved comments. Our capital turnaround. liquidity Mark more debt provide in our runway his us our giving details and refinancing execute

Our operational turnaround continues to gain momentum.

in a opportunities pipeline the building to across growing are board. bookings We finding our both increase additional and efficiency businesses,

While remains by the positioned near public market leaning cloud, trends into well being are and we market opportunities term, are the the cautious secular AI. and private in overall created in cloud

in We Now let an strong due cloud. double-digit me exceptional Sequentially, the down get quarter starting and growth bookings strength care. health of seasonality were in private had continued in year-over-year our quarter performance, quarter private cloud with bookings into first business performance bookings with in first in normal to very XXXX. fourth

is Private care in success health implementing strategy. Cloud vertical a seeing continued

names, several heels marquee a large Among health bookings care first in them on system solutions in deals provider were of of in health we payers, the country's care vertical, X new a Following XX largest and services fourth related this provider. quarter. regional the hospital quarter strong the won care health including and a

operate of holds is for and perfect partner of the industry. manage differentiated workloads Epic most all these engagements the our and host, new medical certifications health care unique one and Rackspace to Epic-as-a-Services Many workloads the electronic in record are critical offerings.

Health of April, in medical Rackspace's implementation system end had a Hospital solution. Epic Seattle with successful cloud electronic we record that Healthcare Children's Towards leveraging

a and of care. products the a Children's patient or and new impacting system Rackspace workload seamless steady Hospital team proud without migration Seattle our cloud of continues environment between Rackspace to solutions. of innovative partnership stream and the provide to I'm this Private to launch availability

I'm offering centers the a suit performance the care. is compute In dedicated for serving cloud configurations private and All encouraged by the strategy business. storage varying U.K., to of sizes. cloud in our and ARC branded of sovereign the launched the defend club Sovereign U.K. success number quarter, budgets, digital first expand and the is we This flexible workload UK to and health with to a data private Solutions. platform government

We new and with and pipeline, products executing growth bookings in solutions. well are continued

unit customer also private the solutions. on impact business the working made through legacy cloud decisions prior results today's exit on negative is However, years in from

eventually over expect from continued quarters we by point dynamic revenue the conversion bookings revenue Fortunately, that and next runoff the that which forward. to a year, new normalize the coming and at eclipsed should point be

private Rackspace fanatical behind, sequential we brings operating As workloads delivered steady support. performance to and the in our of underserved X variety lead towards brand through market, in capabilities, great decades we start where experience unique see decisively hybrid of and dip cloud expect effects and the a legacy to growth stability an managing cloud

of regions, moving which is seasonally Now the also by first and sequentially. bookings solid year started a double-digit the execution, of total showed year-over-year go-to-market cloud in largest encouraging. very a In quarter, in quarter, The and in Americas services was public market. I'm half growth up teams with has execution pleased did growth public in last to solid go-to-market our major cloud. quarter the of results. result especially business tough Sequential were U.K. first we This second is our X in weakest the yielding refresh this the go-to-market the

to this early to We momentum. more continue innings, do on and there's the are building in

and company. our yielded international We lead new Our platform public data as ability wins, is cloud engagement a services. a focus of security solution a such applications, multi-cloud has with platform, to meet offer imperative a needs with unparalleled and security. stack customers' This services insurance an number large spanning to strategic full with

services We media by to migrate on-prem warehouse another also data engaged and modernize an with in been data have agreement large insurance services, company. And we a to company cloud. a large platform won

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

including but being may This revenue, overall improve recompeting We infrastructure near-term are also selective our low-profit not margins. some increasingly resale, impact with will renewals.

AI permits While the organization that remarks note a I few I everything want into to integrated to about also and AI, make is we do. specifically want

cloud of internal private our and part is businesses public both as well as it functions. So a

Our excess varying These in hard starts the of XXXX for customers offerings general, launch continues stages In data. are our making to of our to are opportunities. opportunity at since AI in its ideate across implementation our to AI reality turn and of starting usually work XX based is phases. or fair grow incubate with and June opportunities that a

You can't near-term long full-scale to influencing ahead train inferencing model AI speaks and fine-tune and significant road business but represents data. run That for the to unified an data Rackspace, AI implementation. normalized opportunity without

developing will anywhere. We're and Earlier platform capabilities. map AI our and AI future cloud private on launched AI optimized introducing fine-tuning new AI And also workloads. business later road year, this inferencing for year, we be private this

in with their have AI quickly We journey. broad opportunities our move to and the deep help and AI ecosystem engagement on customers

In again a better summary, did once we this expected. little than quarter,

guidance Our an shows cautious appropriately improving but trajectory.

revenue the model Our goal generates growth sustainable momentum trajectory entering a consistent term, lock and for growth profit us over business that that profitable XXXX. XXXX building will put long remains in on a

wrap like our have customers, proud and Rackers. I I'd achieved together thank I'm our partners all already. of Before to up, all we

the in right heading are direction. We

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

net declines cloud. $XXX Note in seasonal end cloud. revenue of to shows In public non-GAAP in the and down million private QX was public the quarter, X% Total weakness by our $XXX both cloud driven GAAP company total of that high Amar. revenue due Thanks, million, to typically exceeded first relative strength guidance, sequentially QX.

profit Non-GAAP of net of GAAP XX.X% non-GAAP revenue margin XX.X% gross was revenue. and

X.X% and non-GAAP revenues guidance. largely This efficiencies. cost quarter, due better margin X.X% non-GAAP $XX of the high operating was For end operating revenue. profit to exceeding of was slightly revenue million, net the and was of GAAP our Non-GAAP

loss loss share share. our guided Non-GAAP which to $X.XX is per of per exceeded $X.XX, range $X.XX

prepayment and flow $XX first Cash first lowest negative quarter quarter. in quarter Historically, typically because was free flow of payout. cash large from million the was a cash our and $XXX operations bonus is million annual flow our negative free vendor the

we This onetime refinancing, including outflows, corporate certain headquarters. also fees the along had relating exiting debt related fees to our to with quarter,

be as we to be success-based we operations cash and balance free in For continue flow year cash invest expect fiscal of XXXX, to from negative the slightly flow to CapEx. positive

charges. in the $XXX we first intangible noncash million quarter, goodwill impairment and Additionally, recorded of

results. Turning to our segment

the was older of generation at million. our For revenue legacy revenue $XX was first which rolling offerings. includes million, private of OpenStack cloud, guidance. off down quarter private cloud This GAAP private revenue customers was for Total $XXX end low to X% the cloud due sequentially

Private cloud cost utilization. XX%, margin to primarily up was gross X point due percentage asset efficiencies better sequentially and

roughly Segment operating margin quarter-over-quarter. was XX.X%, flat

of quarter-over-quarter end In public services revenue was down X% both infrastructure declines. driven exceeding $XXX our high million, revenue guidance, cloud, and the GAAP by

in lower and seasonally first away not are meet walk the renewals do revenues from to continue we quarter, our objectives. profit that Infrastructure

the given in was down headwinds revenue also sequentially services IT cloud Public continued services. cyclical X%

from revenue utilization services. U.S. XX.X% of was sequentially our margin in down fringe seasonal public percentage the benefits by and net Gross segment headwinds points labor lower driven X cloud for non-GAAP revenue, declines, and

flatten We will in to revenue, of continue from here. in go-to-market non-GAAP driven X% margins should gross as for profit down out of points utilization net XX Operating the as our the was services. well the modest year. percentage by Non-GAAP drive to decline expenses segment improve in rest sequentially a uptick operating future investments growth

we transaction. our ended We mentioned, over with the creditors exchange with public in closed supporting As of exchange results. the positive debt Amar XX% secured April

year $XX by open in annual the the have we XXXX, cost company's million. $XX principal $XXX reduced million more principal we by between the exchange our fiscal million reduced XXXX, than by debt In debt outstanding have over more by purchases. interest of annual over than and cost market $XXX million Since and our end interest

interest Aggregate about will million $X.X for roughly modeling me balance starting Let be of debt purposes. a quarter payments takeaways Cash 'XX. at XQ in some key will offer billion. run principal $XX

providing also participating in the debt XXXX. remains of has we facilities And revolver prior maturities XXXX. place and The company the an corporate and senior quarter, mentioned no available, extended million other $XXX liquidity. revolver last as May we to Our to additional incremental maturities fully of on

less reduction debt, the debt, the reported a principal amount that required company debt carrying is to amount $XXX significant over result net is difference of in on our the interest reduction issued life expense. debt. of are This the value accounting note the principal the newly of total GAAP discounts the subsequently of and the debt, the exchange. and carrying than the our amortized debt million The in required guidance reducing to our balance on of applying the restructuring new significantly debt You'll of the quarterly premiums sheet of of premiums value which recognize accounting

very We to are it our encouraged results as provides runway and implement strategy. both the liquidity by these

Now on to guidance.

we Total expect profit and million of $XX to perspective, to infrastructure strategic is revenue $XXX of and We declines to opportunities. $XXX higher-margin non-GAAP $XXX underscores million. to This revenue non-GAAP public attributable expect renewals per second million. million in emphasized million $XX $X.XX $XXX million focus pursue private expected be approximately million is From in to loss be public GAAP share as prepared revenue our quarter operating his service profit million to cloud cloud in of a $XXX resale. decline $X.XX. $XXX to decision by low-margin low not to cloud to revenue on Amar mainly remarks, sequential The segment

non-GAAP non-GAAP and to income tax XX% Our expenses. $XX rate million approximately expense million be and $XX of is to in expected other

share count XXX around XXX to is be million non-GAAP million The expected to shares.

to Sagar. the turn now call over I'll

Mark. you, Thank

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

from UBS. first line McVeigh will Our the come question Instructions] of [Operator with Kevin

because where give you results that on the how can on you way margin infrastructure expectations, wonder revenue us side? a there lower I the results. upside walked And any of is was obviously public your away sense particularly much relative dimensionalize to the of the on terrific Just to revenue. the from? Congratulations

also dimensionalize trying Just perspective? renewed a not how from much of just to was margin kind

Yes. question question. for the good Thanks there.

the a perspective, sort resale public driven from carrying due revenue just from would volumes color largely QX. was to think by the side cloud I higher into infrastructure of of the that house say I trend beat that

of business, of get as start renewals. bit part most our away lower, But guided revenue, within the little low-margin into business reseller we you'll be of get walking I timing question we saw more your of those think sort more of than of From that it slightly range. seeing to some although a will was we're into it just But given still second into a the cloud at from sort the the impact from pronounced there, second private quarter. QX QX,

Then just help... you Great. can

are Kevin, I very if those walking add, can away low-margin that business just from. we're

should we from resale I business business. improve So think margin the of it overall that walk low-margin very away as

a from positive net margin it's So perspective.

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

This is actually Rob Frank. on for

expect So going would And where you the had quarter? you traction to the quarters? the what of you forward traction couple that verticals do during over next most most say see the with

the just So make want question. I Rob, I get to sure

vertical saw about quarter? we talking the You're where traction perspective from a in

Yes.

Yes.

Okay.

So question, the for thank you Rob.

are seeing QX. in in win to our care in of have TCV continue in mention funnel we I we still about clearly, prepared closing of very So traction the business a -- the remains health Epic-as-a-Service. a In vertical. even million, my good a saw We We And funnel $XXX remarks, that. in strong. of lot lot business excess did after

that clearly, playing is very us. well out for So vertical

very In business it public but saw we broad-based. was across cloud, verticals, multiple

also business Our public well. cloud did quite

and fact, year-on-year in green in services fact, mid-single shoots grew in motion. quarter. lot digits, our our double decline in overall seasonally fact, high And In we're a digits bookings, services in to select starting of see

that including cloud overall I in So mean, services. bookings that -- public

recall, changes lot in second we skills that of of XXXX, so made we structural motion in go-to-market go-to-market we service refreshing bring we so hired that a in We to did specific of organization. you including client sales fiscal a a services if talent that half can partners. in our mention lot So the our

now hired well. all also leadership, new is We and that out playing quite

We have execution plan. our against a go-to-market better

well now one Americas and base of as both installed as which expanding regions. X new largest We in landing specifically are and our our in Europe, is net

important. all have and with also hyperscalers, increased We that's engagement our X very

hyperscalers, AI much all with X Azure. to fact, as very In embedded comes GenAI, AWS specifically the when as are the well we it and

sales of enable XXX-degree and management sort good very account private continue with it's to in started both mid-market customers. also planning plays cloud. our enterprise We specific go-to-market public both for very organization cloud coordinated and we And doing account and

all well. is this working So

the tough. market remains Again,

changed we, are think as environment not think that But construct, quite from I within go-to-market you a As know, well. has macro I perspective, doing much.

vertical On Hospital, prepared cloud in really And fact, strategy of Children's smooth health on our one solution cloud it feel working against side, private also the And one care our customer, side. our a on Seattle -- care as -- health public health my Rackspace really very, care mentioned health good cloud strategy. implemented the and we strategy. and the transition board the brought the about care was side remarks, and well. I on to that we're is very of good we a well executing in We over vertical

from [Operator next Instructions] Our line question will Barclays. come the of Ramsey El-Assal with

green the year. we now? mentioned shoots of in services for guess to and seeing I of What's You speak into bookings. inflection about the on you level get level confidence for some And resonating later as your market kind good also deeper

Ramsey. Thanks, It's question. Yes. good a

have services So I we side, we basically started half go-to-market customers. lot second we of And services at in on mid-market enterprise mentioned, in the last refreshed looking -- Ramsey, -- our as and year. organization a the of

services those in MSAs have XX go about have and a we we enterprises of motion gives agreement signed Ramsey, almost right mid-market large us customers, to that hunt. license example, XX% an with As already now, master

a into give want specifically come here. I services, picture type I'll to bigger the of but you

in We are certain the we auto large all the well dark good in Middle some larger with in specifically very X also also verticals East, relationship frame customers agreements the in regions, And the our by Europe in strategic signing have as in in way. region, as vertical. Americas,

are talking So I'm green the those about. shoots

it saw marketplace. comes reflects again, the what's services, also happening I in think to we it When Ramsey, what

services data well. really are business We seeing our perform

services our data to grew, so services in business very our quarter, data This speak. growth strong bookings,

in services, in public all security, lines data consulting in applications as professional X in service well saw services also sequentially. grew platform, as across cloud We

and are So better I we of more think execution. to starting a it's see, go-to-market

we Now to on still way, AI projects these market. focused side. opposed of a environment so lot the but are as the are And the of all are lot to bookings uncertain, challenging, optimization, emerge to cost number, starting macro more a projects speak. by on see remains The

strategy cloud, the well private vertical is on working side. And on our cloud very private

want about forward perspective? the Mark, So talk half, an seeing what second -- you we what are outlook into do to from looking the

Yes. Yes, Thanks, Yes. Amar. sure.

we Just from slight level an sequentially sequential revenue higher stabilizing And as half revenue terms see of well profit year, revenue in operating perspective, QX into business organization. uptick throughout in the see the second second do in operating units. high we a half higher revenue, first QX efficiencies see driving overall from a we of across on and the going the profit half than as significantly pull-through to both the as continue

organization, a actually in And of as efficiencies the actions we efficiencies, take on second as the as throughout XXXX earlier from both drive across to efficiencies the continue are we to actions lot on in these half well And of the well XXXX. took labor Ramsey we as continue nonlabor.

why are the believe that's be half. -- so we And why profit than should first we estimating higher significantly second the half are -- operating the second that's half we

Thank you.

session. to Q&A I remarks. today's concludes over Hebbar this turn call will closing now back Now the with Sagar

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

you Thank concludes participation. conference your today's This for call.

You may day. have wonderful now Everyone, a disconnect.