Rackspace Technology (RXT) 12 Nov 242024 Q3 Earnings call transcript

Good day, and thank you for standing by. Welcome to the Rackspace Third Quarter 2024 Earnings Webcast. [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, Investor Relations. Please go ahead.

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

which the met in attributed consecutive and on This to profit Sagar, Results and earnings strong and our call. execution for the a third This is our quarter to focus or advancing exceeded EPS. exceeded marks our our you, strategic welcome, midpoint in revenue, either everyone, quarter, of Thank we achievement the have guidance ninth priorities. guidance. our consistent three

turnaround. our progress while steady operational First, third on making and the grew we pipeline quarter, are In improving efficiency. we bookings

that new AI. position hybrid growth secular solutions and products, to in big and both and a cloud offerings waves AI the next we innovative We're Rackspace forward-leaning as target of continue launching hybrid cloud solutions company. Second,

structure improving profitable remain our and long-term. the to we sustain Third, on support focused over growth capital

on focus We operational to priorities. ample liquidity and flexibility our will

the to our demand may market decisions are key took developed through in I'm to pleased new decisions those role, recall, meeting several changing response when on and dynamics. the in strategic emerging made target you pivot capabilities I see we CEO markets. we the to investments company As now

of had anticipated delivering cloud increasingly our cloud cloud future feedback received achievements progress embracing IT media team were which and that the twice hybrid recently thrilled at private event analysts' both and making The we our Day senior public stage cloud highlighted Industry capabilities maturing Analyst we hybrid As innovation-driven discussions outset, are posts were Boston, the for model enthusiastic the the strategy and leaders nearly year. from and shared. markets we at that with private are environments. We vision the and many an our as event last set five panel in leverages customers and public a as we drew capture industry public for unique Annual exceptionally analysts major by and commentary positive and the AI-powered with and CIOs well private sessions social cloud customers. These on

down GAAP sequentially. strategic million our deals from Now and business priorities major our onboarding quarter quarter of closed The guided in making fourth slightly excellent pleased was steady an quarter, are XXXX this of the starting get range Private in XXXX. our done we job, Cloud. of progress has team customers towards fiscal delivery Private first within revenue I'm Cloud into Cloud. Private let me $XXX though with particularly with performance,

deal mainly now these for revenue. to sequential due year's and into current a efforts discussed, to delays. timing nine months, translate It have see our in bookings onboarding takes in often deals signed is then revenue slight in saw last rewarding to we numbers. Bookings reflected As winning, it six decline, to QX

set steady end we of long-term, agreements revenue this us of closed up close ensuring deals healthcare in This an largest to new since have expect deals these one the Rackspace's strong Most will are QX. sequential history the bookings in recurring of growth some for quarter. by base. these However, Furthermore, this expected of month.

strides Looking Healthcare the to with Cloud pipeline Cloud ahead, XXXX Sector our by for revenue increase our is fiscal Private in promising XX% significant is XX% healthcare increase a in year-over-year. business with year-over-year. Private projected nearly making

concurrent improvements involved ranging These users post-migration The healthcare XX,XXX differentiated seamless essential reputation we including healthcare the across Epic most Xth. We cloud, healthcare Cloud achieved successfully access to providers, a significant our live. These Hosting more representing October families I'm growth to on from enable excited one recently feedback providers deployments Our to in milestone vertical. Healthcare enhancements migrated, a of powering records efficiently. resulting of and in healthcare nation's outstanding. system Offerings, in over medical one go hospitals, states, pipeline that patients quickly XX% share the received XX% Epic and the XX industry has accomplishments nine been transition and to-date. growing is performance an our continued we of of single largest since to significant

are customer, this further transition the could Healthcare enabling our other initiatives. Technology position partner our solidifying project have as to on gone This smoothly, this We more commitment the told not operational highlights delivering to Solutions, by industry. a focus in that trusted in provider excellence

grow sovereign we signed to Private strategic the this to a compared We for earlier first project, XX% also in with seeing in operate; vertical ExaCloud of of MOUs version build Arabia a the XXXX, cloud Sovereign are ago Cloud successful momentum resulted the this of months our over and to in design, kingdom year. The Saudi where XX launch XXXX. vertical revenue

build We the continue to on in that success Kingdom.

of market solutions. We're gaining industries. the other and regulated in with for traction offerings also sovereign our centers expanded also introduction the data we our branded Additionally, U.K.

a Fracspace quarter. Cloud energy selected and currently was large a example, European company. custom complete to and to for down is Private this For operate proof capability The of slated build underway

innovative launch to XX launching XXXX. new out expect In and others. rolling we quarter, third XX continued We enhancing in products the solutions,

the the of range customers wide world, of approximately virtualization Our cloud managing cores. a choices. XXX,XXX market-leading Bcf in is solutions private Rackspace one OpenStack CSPs VMware VMware and give largest

also are renewed interest OpenStack offerings. customer in our seeing We

I'm As open-source joined with innovation. OpenInfra to work a in cloud the taken for standards. In I we workloads. the foundation section AI influence a OpenStack, to market direction officially our conclusion, members the traditional will become AI fellow NASA, also along that later the the commitment and cover not pioneers private the drive private Board we of our AI prepared Foundation, thriving in of We will but strategic confident with industry remarks. solutions significant in forward have Board step in only for workloads, my will

the big deals, will growing, these with we significant done between While will with the the contracts highlight and also steadily revenue.However, lag believe bookings stabilize and that well and new growth. private large we both pipeline results drive variability have of eventually cloud

bookings Cloud. a achieving highest continued growth. From three level to up consecutive and Public beginning the quarter perspective, a revenue outperformed regional down where Americas strong and sequential sequentially GAAP exceeded digits record continue quarters million high region, third demand double Now spot and Public of year-over-year. Data board. bookings units. quarter, double let's the performance by Bookings part driven services. year-over-year Cloud marking strong largest of to bookings bookings bookings remain data across QX, since now services year-over-year sequentially sequentially and performance X% expectations. Platform consecutive AI-related of data Public and a bright of with target it show internal digits the came in services in the with were XXXX formation bookings of above and Cloud move Public by was modernization. the in in delivered performance has robust two sales business driven on grew $XXX our the midpoint, had our and solid to our guidance Cloud

tailored We digital strengthened transformation agreement with collaboration we October, enhances achieving for several late business outcomes to existing allowing to notable driving and quarter. for cloud AI innovation accelerate and to significantly a our In multiyear deliver this our hyperscalers. customers. Cloud wins have strategic AWS customers our partnership, partnership with comprehensive had us agreement globally. Public announced This solutions

U.K. and stores applications and We firm, data to their expansions. cost delivery parcel transition a growing are market savings cloud services modernize for helping

with agreement energy for also renewable a migration. data company We transformation, professional engineering cloud a signed and services

Cloud new we and In data, Our our for others. services-led capabilities new platform. applications, Public advanced four enhanced QX, and strategy and support to by launched solutions continuing offerings security

to its segments. of building driven in strong our Q go-to-market by: structural quarter performance refreshing partner services-led pivoting XXXX, to company example, help conclusion, built easy desks, teams support AI-powered call using Public internal Amazon incentive sales providing the force, Use data. In access structure made an motion, we and changes data, late leverage to Q the assistant Incubate, and empowering in by changing another reorganizing model, a Cloud including across IT announced centers For include Amazon data. organizational performance client had our first, market key to cases indicators

And XX margins attach Second, in master will enterprise expanding overall focus on growth strategy. where opportunities segment, with disciplined higher approach selectively continuing mid-market generate a with while that for which over ones our service improve to and our that to the agreements a focus our to rates. land-and-expand resulted in focus we deals new resale, continue penetrating on additional hurdles infrastructure return third, and on services meet signing

deals. to services top XX the of attached we XX QX, in example, For

strategy improving has higher infrastructure driving cloud to customer also of and our services-led customers, for profitability. cloud value resale Our infrastructure us helped thereby immense consumption drive

moving AI. Now to

three-point Rackspace wave operating recent AI. AI-driven of Industry Day, Rackspace customers mentioned, with next shared building I our and designing, includes: their second, As Analyst our into and services workloads; fine-tuning an infrastructure AI strategy journey solutions; with inferencing transforming hybrid that third, AI the for secular AI I and is enabling first, in riding market At growth and company.

with over of at good seeing progress customers are We various XX with and FAIR our implementation. opportunities stages nearly in initiatives XXX AI

public will AI across with build Private Innovation proof on large AWS' run a international to underway We program and Alliance, deploy AWS of joined company concept units. a infrastructure. solutions. In AI Cloud, both help we Partner product cloud, a generative our business private AI-related workload AI inferencing expanded have our that In also we new customers their Generative offerings successfully

harness Service NVIDIA's spot our an solutions. to helping achieve opportunities practical approach Customers leverage upfront cost platform on-demand AI AI and building powered in launched We to impactful, Tensor investment sustainable a GPUs GPU customers we efficiency are scalability. taking balanced on without also promising, HXXX our both a ethical GPUs. Core economically The are by as and but for can high-performance

our achieved like performance our results of to I'd guidance. year financial and Mark now together and proud thank an of overview our our pleased turn of all wrap we Before during this to quarter all customers, I'm and up, change. I partners over will actors. I this it with for have

range, the you, are lower-margin we found Note, as Thank no total those million of line our revenue the resale revenue number stand-alone ensure the GAAP for guided $XXX driven presenting impact public contracts within costs and transparency X longer by quarter infrastructure company was presentation. and net on cloud. Amar. full in earnings quarter, of our In third strength are a item. To Slide the disclosure, pass-through in non-GAAP

profit gross GAAP in Non-GAAP non-GAAP $XX million public better-than-expected third guidance. was with revenue, of our quarter, the XX margin in better-than-expected per free was basis a operations was cloud closed This high $X.XX than the operating driven of million Non-GAAP loss cloud. flow million, and the $XXX points cash loss including both million by was from up quarter primarily by and our of GAAP XX.X% quarter. sequentially. of profit. Cash For operating $XX profit commitments. performance was was the liquidity, sequentially. guided better flow total $XXX operating private We points per $XXX to driven margin in range million was $X.XX undrawn share revenue, $XX share, cash $X.XX of of million, end exceeding Non-GAAP basis XXX and up X.X%

to results. Turning our segment

cloud margin revenue operating gross public to by XX at guided segment expansion basis Non-GAAP Non-GAAP services basis quarter quarters non-GAAP OpenStack XX.X%, growth. efficiency. our sequentially, driven of up due revenue improved For down gross playing a was end management. In sequentially, I'm coming to foundation operational partially sequentially, XX.X% million, legacy for sequentially, an for flat driven cloud older X% offset revenue. X% XXX see operating million. our generation due volumes. lower segment revenue future gross private customers XXX in the infrastructure within private margin of due includes was up GAAP margin pleased range several cloud $XX and primarily lower basis after margin cloud, decline, sequentially, cloud, margins and sequentially GAAP private rolling by better revenue Total sequentially, was $XXX in up cloud high due offerings. Private off revenue XX.X%, public margin efficiencies, and margins. range. to cost X.X%, our XXX cloud improvement million This for resale third points down Non-GAAP was promising was was points points was of up by gross to cost basis at points the segment to guided $XXX

guidance. to on Now

a due we expect infrastructure resale. margin the cloud X% the up slightly We reduced non-GAAP non-GAAP of million quarter million, revenue from to and loss expect share. revenue million, be be at to to expected million, and operating midpoint, segment profit at $XX to down perspective, revenue sequentially GAAP is $X.XX per Total $XXX $XXX to expected million sequentially be fourth From million the to at cloud midpoint. million of is $XXX down private lower million, to public $XXX to midpoint consumption X% $X.XX sequentially $XXX $XX and to $XXX

XX% non-GAAP $XX non-GAAP million Our million. to expected Sagar. $XX million is call expense approximately non-GAAP is expected the expected and be share rate turn now The to XXX back other shares. I to to will tax to be over be count is

Thank you, Mark.

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

first with The the Instructions] is open. question your UBS. line line Kevin, of [Operator comes Kevin from

dimensionalize so execution. the size guess like the and we care just really what congratulations. more, right much, If quarter, that good dimensionalize sounds it's ever Is of win? start way I just maybe And signed. could you health it another you've to there? help one as you any and can there Mark, Thanks really, largest heard I us that to Amar

So thanks, your question. Thanks for Kevin.

TCV. talked So last about when QX we health in the that in care of was health in it hundreds of was win of care year, millions dollars

our what a the sizable that And did last to it we Cloud. customer Rackspace customer months in over the onboard Healthcare So transition was and is nine win. basically

of very XX,XXX delivery significant, Kevin. Think cloud pulling one very about and seamless a it And smooth users, for team doing that transition. largest the concurrent the here, world. Epic I'm magnitude installation So proud the was system the of in and off private very

the a gone industry in that's the real of that up tenflods so based And transition. also achievement. us our has on given lot reputation It's

government other network seen Amar, kind kind the particular the private other? open, it there versus health you vertical And, you effect? like business? today's versus just to of Is the have on kind Because that much of care any dimensionalize sounds was of the thing can cloud, about like in how way think

Yes.

think question, I a that's Kevin. great

put So recall, if you context let me just a here.

And If you and banking, recall, health picked verticals, or sector. public we which were is services BFSI, very our focused and on going specifically financial care, by sovereign we vertical. four three insurance,

verticals we one-third we of fiscal up, end will XX% And in these XXXX, will by health the continue in XX% XXXX, When total it to And ago. that about fiscal XX% we total about between and jointly, time our fiscal roughly fiscal started months of just about nearly and XXXX. to roughly our be Now be exit sovereign, revenue will X% because was time were comes our revenue, of by the growing got revenue XXXX. they remember, XX it we it base. care overall make at

high For example, double-digit growth growth care, that of XXXX. translate and deals. XXXX given that closing might have in with growth This believe to the another these the in XX% we fiscal XX% the we health fiscal confidence in deals early us funnel,

for time. That makes sense. again, you and the Congrats thank

Thank you.

question. Please comes stand question by The for at the Ramsey from next next Barclays.

that rate? for progressing wanted deals think rate we of on attach months? the XX are what to XX% for solutions question Thank Last how XX maybe this see attach X in deals. Thanks I you you. of over services today. should on Ryan And specific driving about just large to is This it next taking infrastructure quarter, Ramsey. mentioned quarter, XX

whole a read from we SOVSMB you that penetrating If enable with in made [ We the the we selectively led. motion we commercial services-led bold infrastructure also mid-market. good to ago. organization working We recall, sales organization. our the go-to-market expanding for pivoted ] services we have go-to-market a decision the all And a motion and hyperscaler where is cylinders. XX, into months There led the was XX very are hitting the as whole motion today, company the enterprises

I us, your answer specifically, will organization. services-led in to the talking resulted motion you us question now C-level think to So of the see has the

So this C-level are the trend motion is are a infrastructure-led today. with go a C-level to from we where here, Unlike from coming completely having different discussion we procurement our we procurement customers team. to the an

to a we are with having services margins two related, to too, C And resale pricing and infrastructure at going our a in infrastructure able value continue high-margin two, this procurement organization, So level, seeing are holistic to resulting to also value is of one, it's a those number adding discussion of to having drive where are are go we Number benefits lot our accounts. discount are only bringing things. on resale. we Instead protect we a it where into and to it's discussion the customers. we and our now

completely we public has the look way transformed business. at this So our cloud

[Operator no of back like to closing would I'm Sagar remarks. further Instructions] questions. turn this Investor it Relations At time, Hebbar I for to showing now

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

does your for in conference. you conclude today's program, the now may participation This and you Thank disconnect.