Rackspace Technology (RXT) 8 Aug 242024 Q2 Earnings call transcript

Thank you for standing by. My name is Prilla, and I will be your conference operator today. At this time, I would like to welcome everyone to the Rackspace Technology's Second Quarter 2024 Earnings Conference Call.[Operator Instructions]

I would now like to turn the conference over to Sagar Hebbar, Head of Investor Relations. Please go ahead.

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

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

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

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

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

and guidance. revenue, second for quarter in have or Thank you, high consecutive the Results This the guidance the our our eighth either welcome, call. earnings Sagar, we marks of exceeded quarter end and exceeded in EPS. profit which our to met everyone,

We our focus execute our on continue to X plan and to advancing strategic priorities.

making remarks. operational are turnaround. detail prepared my I steady our we progress on in First, in will cover later this

structure company. We're of placed to capital and sustainable Rackspace repositioning waves are we And cloud are well as a AI forward-leading growth. now and we long-term AI. rightsizing solutions cloud catch Second, big hybrid profitable hybrid the innovative to support both secular next our third, and

opportunistic operational quarter to further flexibility and structure our of debt. We liquidity priorities. through our in improved the ample focus on capital have our second repurchases We

cloud approach the a anticipate in an a the both Over more hybrid transition use more hybrid strategic Public We and taking we to transformation shift years, driven with by market to Private X a environment. digital the towards well see acceleration customers as as a Cloud spending, to X perspective, from AI. ongoing next of notable

we leading development helping and AI, prepare of AI In GenAI are for business applications. and winning companies

to by solutions, step are in we and and driven partially data demand first AI with services AI. seeing The starts data, strong

our range. me let the with of GAAP starting into million get X% in and Private business was Private performance, within Now revenue Cloud. down guided our quarter $XXX sequentially Cloud

working pace of our are new and accelerate We sequentially, slightly runoff. revenue were traction. gaining Private by see strategy lumpiness. driven to the rate the Cloud slow Bookings wins We deal both of down new

XX% Our year-over-year pipeline with up all over across strength regions. was

are versus of seeing our Cloud enterprises develop Within in pipeline, we a large Public Private fit workloads Cloud understanding on-prem. opportunities versus as which better

from they While book deals cycle, revenue. commits business those typically our a with have long-term sales align a of recurring building solid of objective larger high-quality of key longer

marquee our engagements their of platform with solution, Private Records cloud. Cloud One Seattle private Hospital. onto we migrated is Epic fully managed Children's Cloud Rackspace's Healthcare Leveraging our Health

the cutting-edge Dell and made power this Children's system of pediatric strides with with high-performance of Seattle leverages collaborated VIDIA computing. the design launch Additionally, that to research GPUs. implement AXXX blazing-fast Rackspace in

compute and hospital. managing environment high-performance Rackspace is hosting this for the

growth U.S. enables large that expect provider contract collaboration. us care managed operate similar see services to Another Epic migrate payer and health continued I health awarded in care.

Rackspace. more a footprint of with Epic their are service building data but center with to foundation a We customers for leading as hosting consolidate

other similar verticals. see opportunities industry We regulated in

bank large also solutions response significant is times applications. in ATM yet good differentiated U.K. of our vertical. services transaction last retail is and experiencing are Private our improvement seeing customer We're we chose in year, a validation This the data insurance another banking, Cloud. and In banking our example, center the solution midst For applications. software-defined their of Rackspace's their December in this for for implementation, quarter financial already point-of-sale in mission-critical traction and

products XX but a offerings enhanced our From being in Cloud, increasingly new validated strategy recent and is XX Overall, is pipeline transition in perspective, through launched customer and we Private an the growing and solutions wins, navigating challenging Cloud positive quarter. still other a Private feedback.

positioning for are in and market. durable profitable to believe We growth Private be addressable $XX billion what an underserved Cloud we total

bookings of services resale. guided year-over-year Cloud Public and bookings Now moving up low range Cloud. grew Overall performance of attribute which that double our and our Cloud for digits high due particularly total a to XX% success both the better with represented bookings, sequentially, X% high of was execution. with to Public end leading I'm digits with and go-to-market revenue GAAP growing shift of infrastructure services, to $XXX strategy the exceeding our better-than-expected quarter, digits Public single year-over-year combined single pleased services sequentially. million I sequentially. in in

demand strong specifically bookings data than year-over-year. We engineering, market for services, in are more seeing particularly doubled in the quarter data where

driven paying services data transformation clearly in and positioning is AI off. both digital strategic by Our

we better our services attaching to of this also services infrastructure infrastructure deals resale had XX% Additionally, deals. much have our quarter attached. become resale in largest

started Elastic through offering services Rackspace also engineering We AWS Marketplace.

wins Some with progress of of the go-to-market our services. strategy leading demonstrate notable customer

the supporting a For of onto with instance, customer-facing multiyear transformation a selected team. the we multidisciplinary a Rackspace were skilled and large strategic media X effort major We're digital it application is company. to writing hyperscalers. for program implement a migrating

have various expertise. by performance going I'm the stronger forward. lead progress driven company, will professional we major strength in across in we services in even have to a full-stack very Public platform our are believe and and success cloud security, deep and encouraged web delivering services, deeply consumer initiatives engaged Cloud across we several by the seen offerings a that support made From service

target positioning continue ourselves to opportunities for a mindset, attractive winning success. with ongoing We

we an approach. Now when continue to long-term it AI, comes realistic but short-term optimistic take to

AI is initiative over with innovative XX their fare new on our help to customers Our developing engagements. ways journey

partners. are AR we AWS hyperscalers the and We closely with global X select of partnering are few

strong are AI. data take towards driving we previously, growth customers leveraging first helping noted services, step in As their

general called a AI offering of We cloud private for Anywhere. are availability planning AI also

our While without on and partner market. strategy they our as benefits organizations choice short-term not developing operational their of capabilities far too are of the for is thoughtfully embark continue wave We'll we to do we approach AI front the become so turnaround the secular so on maintaining in dependent can from getting journey. AI AI, of in

In steady summary, flat progress a the with have I'm pleased made despite we market.

both booking growing drive operational Our and and and cost our focused in on stabilizing to turnaround and Cloud, is Public pipeline while strengthening profit continuing revenue efficiencies. sales Private

is the consistent Although to work profits come. growth for in are momentum sustainable building to still and there and revenue, done, be flows in years we cash

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

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

Amar. was Total in the by total non-GAAP In Thank exceeded revenue Public company second revenue of $XXX GAAP net million strength of the high Cloud. you, $XXX quarter, guidance, driven our end million, down revenue, Private a revenue and flat X% prior sequentially XX.X% sequentially profit also of non-GAAP decline flat due XX.X% gross Cloud. versus net GAAP in Non-GAAP of quarter. to margin was

non-GAAP in X% share. Non-GAAP Non-GAAP exceeding and $X.XX net X.X% to primarily This For operating of was X.X% up was guidance. better X% continued our better-than-expected high operating Cloud our of loss of and in by sequentially end per cost revenue, of focus our segment a share the quarter, the management. range sequentially. driven per GAAP on than $XX was revenue, $X.XX Public performance margin million, loss which was non-GAAP up guided came $X.XX, profit

as of refinancing. operations reclassification quarter. was was portion loan the a flow These debt the cash payments result cash a negative accounting from our term free in the the Cash the into and amounts as of $XX to interest treatment we reflect cash entered second of million, flows part flow $XX financing million QX for of

to a X.X% on continue financing. this reclassify forward, cash instrument to portion will on debt the payments secured payments the semiannual senior we our cash of Moving plus interest interest notes

expect For operations of flow from XXXX, free cash slightly the be fiscal balance CapEx. negative, we success-based by positive and year flow remain driven to to cash

Turning results. to segment our

older operating lower million. Cloud, sequentially, due was margin the by GAAP better off Total flat quarter legacy rolling Private driven second million, X% OpenStack guided our revenue $XX Cloud Private and range. sequentially, for to This Private down customers offerings. primarily due was was XX.X%, revenue private Segment efficiencies XX.X%, revenue to gross utilization. asset includes was generation cloud $XXX cost sequentially For cloud revenue. of margin improved down X.X% within

quarter. XX.X% of our net and of points Public efficiency higher versus driven X.X revenue, net X.X% Non-GAAP In up the was was $XXX revenue was Public million sequentially X% growth for high on exceeding Cloud, profit non-GAAP consumption-driven percentage by guidance our volumes. sequentially, operating GAAP non-GAAP segment percentage improved Cloud prior margin points end was Gross and to infrastructure utilization. resale operational due segment X.X of revenue, up up

improve believe year. opportunity of over is the rest We there utilization further to the

debt our quarter. repurchase on for update activity the an Now

I quick recap. Before a begin,

public closed our principal As announced April annual creditors costs We $XX cash exchange on the transaction. by with over reduced debt more the interest secured by we XX% $XXX of than our over supporting million. our and outstanding lowered exchange QX earnings million call, in

the the to now participating other maturities on also debt XXXX. senior maturities We prior we corporate no extended and have facilities revolver that so

million debt. of continued in During to We third repurchased million aggregate quarter, $XX amount we million of in $X.XX the repurchase of repurchase additional XXXX, dollar. of aggregate debt. In also $XX deployed we our deployed Early an to amount a $XX QX, $XX at to the debt. our total of first loan term cash principal an on principal million we $XXX FLSO opportunistically the half price of the million in repurchase of average

to We will opportunities structure. improve monitor assess capital continue further our and to

on guidance. Now to

$XX per $XX to Total to profit million, the and We to $XXX midpoint up sequentially down midpoint. non-GAAP loss expect expected share. to million, be is to revenue XX% at million third non-GAAP expected X% million is quarter be $X.XX operating $X.XX to at GAAP approximately from $XXX sequentially be the

million. and Cloud perspective, $XXX million million we $XXX $XXX Public $XXX revenue segment a Cloud From of to to expect million revenue Private of

to $XX rate is non-GAAP XXX non-GAAP expected million Our XXX tax non-GAAP to million be approximately XX%, be count million. expense The expected share and other $XX around million to to is to shares. is expected be

turn to Sagar. I call will over now the

Thank Mark. you,

Let session. the us begin ahead. Please Instructions]. go question-and-answer [Operator

Instructions] [Operator

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

Great.

done outlook of will we can expect the top initiatives us give getting If idea an start of you bookings of in AI to an of the percentage when can are your there. kind some you've then currently idea to of back And you and growth related? kick line then what can of give positive us

I you. Yes. both Frank, and question. the the Thank -- I'll we get thank for will please as Mark, much So take you and very in, okay? jump started, questions

start will we stabilization seeing in started seeing already We As half. QX. revenue quarter, second we last see the indicated that -- in

was One in up; In fact, resale in the beat, services. our QX, from volumes when you beat were infrastructure, was at sources. second revenue from look the came revenue and X

Now because the this hard own to and services quarter very this higher Where and that going have saw bookings consumption, volume leading in good we indicators predict, quarters, news was some that we previous we increase services have something is visibility Frank, good in infrastructure with in is not to. too. beat and the that if seeing our than I'm internal you expectation complete this which with is, exclude started because

if exclude QX is. -- roughly flat from our So That's revenue you what QX. our to that, is guidance going from

Frank. So revenue the we feel started pipeline I building. seeing about good stabilization, the

private as cloud, the in both saw You grown significantly. pipeline well has public as cloud

top dig private up into cloud, it very go the you in funnel of year-on-year. over is And the was fact, In that growing pipeline, XX% rapidly. when

was our to $XXX-plus of In months care just roughly in the the as about $X.X about funnel billion top business, million X at to close compared ago. our fact, health funnel

So good development pipeline. of

private longer, into in book Typically convert a know. are bit that to sales you have cloud, We bookings. cycles the as

us. you We quite also in large you the aware. that's Private when lumpiness Cloud there's the developing funnel, into our see for always funnel. we deal are as And look -- deals business, And some into encouraging

with the indicators products that leading off. older good. runoff, because running also We're generation have we of one That's faced So challenges all are the right? are seeing revenue

which less revenue, revenue, their customers, than commercial not We customers $XXX the some million our also see their our in revenue, with is of revenue. but

also We are that also running seeing long off. tail

enterprise we and building our business As customers. book and start pipeline towards mid-market of more

I about leading feel good very indicators. those So

Cloud will work We to Private runoff the continue the on revenue on side.

months. anywhere couple seeing improve started in next in of to it in we improvements X revenue next to and initiatives convert outpace our Having bookings have place. Cloud will we few runoff, or We about And revenue. X so, expect in bookings quarters. believe to takes the We from said the revenue that, Private quarters in the to some

the short expect growing. in had that and was should business the -- towards we first private cloud, then the important most to term start the So we working decline stabilizing. what That's in priority start

already when comes improvements there. Now seeing it it's different I think Public We a Cloud, started story. to

as QX as Our grew is bookings are fiscal second sequentially QX, quarter in bookings in reporting in well -- row. in our QX QX, we well as both QX. as we

people tell and I just quarter quarters, point, X as internally, Now X is points line. make a a X

go a do start to I when seeing quite the do and X doing we But the funnel, quarters really have to at We look we more it well. if are conversion, trend. we at look think we than

earlier. expect I also to revenue we stabilizing in of as services the start couple quarters, indicated So next

that deals. we should impact walk On have away the infrastructure low-margin from impact will our side, And but as revenue, as resale to or earlier, our you that some profit not infrastructure much. we infrastructure might nonprofitable indicated

summarize, us walking the both revenue, the -- from of of next do deals just couple low-margin to in stabilization barring some infrastructure So overall businesses expect quarters. away the we revenue in in

question, second go The ahead.

Yes, going stabilization, just to How think stabilization it's of you should where to kind that. relative year, to do a start defining you relative this grow follow-up from? we -- to QX? what how on are about How

Yes. Yes.

this talk significantly I our look anywhere the were When When that next quarters, basis, a to and think we take in at it X% X%, reduced Now last few -- seeing still Private revenue, right? that's decline you a Cloud quarter. quarter good a right? start on do you from question. stabilization, we about we declining you're sequential

So X% minus X%. it's to gone to minus

Is sequential So a for on and helpful? . thereon, then growth. basis, us, that which growing from sequential basis, stabilization, is we land should on Frank, the start a in year-on-year

Yes.

to AI. coming Now

believe Now as and a AI our I in are impact industries, optimistic long think, the that, We listen, going to very the all that term, way. near all and remarks, my it's GenAI. in we term short term, it's in are about said I promising mentioned circular realistic functions, prepared in Having really very approach. we

it's big about you bookings, portion when not talk our So a bookings. of

-- more and this bit at we you give will color on think I how opportunity. little look I there a

fair but of bookings, we a not AI. engagements and initiative, are good portion it's seeing So we XX-plus big our very traction a in have a through

business. And our some of is this also on a follow-on data

both rearchitecting X modernization, data customers data that migration engineering, work our and row of services business we lakes quarters substantially, sequentially. mentioned, And getting are data data -- a doing. year-on-year which in et architecture, the as the I kind As has X, data cetera, as data all and services and with that's the well bookings grew ready for data that's

partially cloud driven by to by partially move AI itself. the So and driven

we more let me AI. let little opportunity, this I how you Now me just -- of bit since give a color on look have at

that's and happening OpenAI hyperscalers, So training. is by an spend big AI. And is Meta we extent, that's very today. the build-outs on the to well where sovereign and many so they're going GPUs, spend high-value center this forth. building some work. some doing of into And as countries model there, believe X and that in AI And infrastructure, of training a as of One there maybe the spend driven Frank, for is example, as research mainly in startups and types into the are happening out so model spend and a into systems, data enterprises

that because of infrastructure training the spend, A really usually happening so on are lot hyperscalers. is participating model enterprises speak, not the in to

the is long we and good very hybrid plus some workload inferencing it the into a mainly training service hybrid production inferencing workload the AI as that that X on or as AI, almost and the sticky. term, AI So inferencing workload, building and It's that's it where is is will side training. private of day that's a launching model are around and private solution our the done as model participate cloud we where around around on moves an is a provider on we private believe infrastructure mainly architecture

right? The going, is in which currently. the but AI participating and is spend is very tactical Enterprise to data, on smaller a is approach compared to infra application second that area relatively this, spend the

then to mainly participate an a experimentation mode. So it's initiative. And we fair

in help that them develop, come industrialize also cases, their you're bookings now seeing is the them the all customers help identify and private is through helping them right models, either on So use fair public. train or

us So and both that's fair more public build play. through these seeing traction, workloads our that year tip with move private we into come that help we solution will will kind hybrid inferencing are portfolio and also a of into fine-tuning. AI solution and provide where it's of our That's this to and where and as

question McVeigh. next of your Kevin comes from the And line

point Congratulations about range for or X the on revenue Great. like kind the of kind X%. of results. quarters. end of Amar, It coming looks beaten high the your the was at beat

X% You've about been little so, that. think, or than pacing maybe at, I a less

acceleration incremental was So been would step-up there? there saw? that anything kind -- Or of out else call revenue of the you kind infrastructure beat, that to

Yes.

I think services. Kevin. it, is infrastructure part consumption volume also And of definitely it is

offer, services and modernization; year-on-year both bookings platform, Our taking leading very is as And single-digit well as services; in well forward, services mainly grew services which quarter. we services, in a right, about. services we which X expected Services sequentially talked I and both bit in than cloud-related across is and the did application, it also little what came a high that is bookings that infrastructure indicator. all data we our higher migration

fact, across our double board. bookings In the grew professional services digits in

force the of will of Amar important my question. seeing incremental of margins Because Is And now? sales you are just guess that a the the services. professional story, go-to-market? on really that obviously, kind pivot and part that's the in second monetization Why or I be the the that

now? it the much higher as are again, is historically where it's well. than sounds it And why just attachment like been So rates

So maybe that a understand little bit.

Yes.

good question. I think, that's Kevin, a

So explain it's mainly you half I why happening, in Cloud let it or last where second It me business we of Public the is because of the explained laid to happening, that foundation right? the in year. is

If you refreshed sellers second recall, and the out half, skills. sales our [indiscernible] our we sales services We force. in of sales organization about with XX% hired

have. our two, that hired driving also and is enablement one. all highly sales principals. rated today, have And That within We sales relentlessly program. X we Number been a number training across client the we organization is place

with are specific selling of are we demand the power the sales three, Number generation of the selling We selling. campaigns do actually funnel major also top okay? there's funnel. working that how are activities, to we solutions they top shift the well, with are And a supporting are helping a have CXO relationship, we and level. Today, we and in our at very

So deal up example, of the were data sign give point let as interest are for quarter. to this customers XX the larger well in as with to our you. sizes me XX of able might you in bookings XX go out And funnel top that not from large XX% bookings. came More be another we showing in service enterprises. of agreements master

selling and that big services have also we now proposition that's to achievement. solution our large XX start value our enterprises principals attached client that customers. Now we are these these and And to can a hired

public which on well also partner X big good in proof a quarters field. And list a was in Microsoft target which point executing fact, row, Americas the managed quite go-to-market were exceeded achievement. a quarter, very also We included In are that us is to significantly our Kevin, industry Everest, as the are we largest this in by segment pivoted things of organization closely. on or AWS Microsoft either And recognized major we very Azure are ISG, analysts working a well ranked with cloud, we IDC, they leaders the as being services-led players. like also in X we as as

growth story cloud. that's bookings actually on forth. even in So driving private as see and conversion, our good Similar on what's services we business so so funnel

laid well. what So we started has think a I as foundation working

from question comes with the of next line your El-Assal Barclays. Ramsey And

on on This competitive is was landscape. an the Ryan to update hoping I get for Ramsey.

enterprise clients. any I see these you're to quarter, some did most success up if are competition was the And I resonating mentioned This mid-market you solutions what guess you clients than with really at against curious market? with different coming and prior?

much. Ryan. think That's competitive landscape changed -- remains No, same, The competition a has so I question. very the the good not as

modernization markets to in earlier, the services, of One the playing next cloud, the IDC to months, for in markets, Kevin's said are budgets digits. up question go for cloud XX migration mid-single on by the work is are we going example, things, the where design

kind as So the playing go we when growing the that go macro with a but with see and minus to labor markets [indiscernible]. our differentiation environment, in SI. there, especially relationship side. this on are of our cloud hyperscalers in are in And even we market, go we big competition a We not we

lot in about example, services. data companies For services, there of right, think if a you data are

labor So with where executing and That's an perspective. well And a with going experience do we go-to-market We're we differentiate? talent It is IP example. as our a engineering been from very wrapped it. model. around data an have differentiated in minus deep solutions

with So proposition is value the customers. our resonating

are We delivering and well, to up our we commitments. showing are very

pretty grow and high, in even we Our as continue are to deliver. our the -- and bookings in even NPS

time. would back I Sagar to Hebbar no it are this at further to turn like closing questions remarks. There for

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

conference participating. all today's you call. Thank Thank you. concludes this And for

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