Rackspace Technology(RXT) - 2024 Q3 - Earnings Call Transcript

Financial Data and Key Metrics - Total company GAAP revenue for Q3 2024 was $676 million, within the guided range, driven by strength in public cloud [35] - Non-GAAP gross profit margin was 21.2$34 million, exceeding the high end of guidance, with a non-GAAP operating margin of 5.1% of GAAP revenue, up 180 basis points sequentially [35] - Non-GAAP loss per share was $0.04, better than the guided range of$0.06 to $0.08 loss per share [35] - Cash flow from operations was$52 million, and free cash flow was $27 million in Q3 2024 [36] - The company closed the quarter with$157 million in cash and $532 million of total liquidity, including$375 million of undrawn commitments [36] Business Line Performance Private Cloud - Private Cloud GAAP revenue was $258 million, within the guided range, but down 1$418 million, down 2% sequentially but above the guidance midpoint, driven by services [21] - Public Cloud achieved record bookings in Q3, with high double-digit growth sequentially and year-over-year [22] - Non-GAAP gross margin for public cloud was 10.4%, up 50 basis points sequentially, driven by improved resale margins [40] - Non-GAAP segment operating margin was 3.9%, up 110 basis points sequentially, due to improved gross margins and operational efficiency [40] - The company launched four new solutions and enhanced four others in Q3, including Amazon Q Incubate, an AI-powered assistant [27] AI - The company is making progress in AI with nearly 50 customers and over 250 opportunities at various stages of implementation [32] - In public cloud, the company joined AWS' Generative AI Partner Innovation Alliance to help customers build and deploy generative AI solutions [32] - In private cloud, a proof of concept is underway with a large international company to run inferencing workloads on private AI infrastructure [33] - The company launched on-demand GPU as a Service on its spot platform, powered by NVIDIA's H100 Tensor Core GPUs [33] Market Performance - The Americas region showed robust sales performance in Q3, marking the third consecutive quarter of exceeding internal bookings targets [23] - Platform and data services bookings grew double digits sequentially and year-over-year, driven by strong demand in AI-related data modernization [24] - The company signed a multiyear strategic collaboration agreement with AWS to accelerate digital transformation for customers [25] Strategic Direction and Industry Competition - The company is focused on three strategic priorities: operational turnaround, positioning as a hybrid cloud and AI solutions company, and improving capital structure [6] - The company is launching new products and solutions targeting hybrid cloud and AI growth, with a focus on long-term profitable growth [6] - The company is expanding its offerings in regulated industries, such as healthcare and sovereign markets, with significant wins in both verticals [12][16] - The company is strengthening partnerships with hyperscalers and focusing on a services-led strategy to drive higher consumption of cloud infrastructure [25][30] Management Commentary on Operating Environment and Future Outlook - The company expects Q4 2024 GAAP revenue to be $668 million to$680 million, slightly down sequentially at the midpoint [41] - Non-GAAP operating profit is expected to be $34 million to$36 million, with a non-GAAP loss of $0.03 to$0.05 per share [41] - Private Cloud revenue is expected to be $258 million to$264 million, up 1% sequentially at the midpoint, while Public Cloud revenue is expected to be $410 million to$416 million, down 1% sequentially at the midpoint [42] - The company is optimistic about the growth potential in AI and hybrid cloud markets, with a balanced approach to helping customers leverage AI for impactful and sustainable solutions [34] Other Important Information - The company successfully migrated one of the nation's largest healthcare providers to its healthcare cloud, involving 38,000 concurrent users across 54 hospitals in nine states [13] - The company joined the Board of the OpenInfra Foundation to influence the strategic direction of open-source innovation [19] - The company is seeing renewed customer interest in its OpenStack offerings, with approximately 300,000 Bcf cores managed [18] Q&A Session Question 1: Size of the healthcare win - The healthcare win in Q4 2023 was in the hundreds of millions of dollars in TCV, with a successful onboarding and transition to Rackspace Healthcare Cloud [45] - The deal involved 38,000 concurrent users and was one of the largest Epic system installations globally [46] Question 2: Vertical breakdown of private cloud revenue - Healthcare and sovereign verticals are expected to grow from 5%-10% of total revenue in fiscal 2023 to nearly 15% by the end of fiscal 2024, with further growth expected in fiscal 2025 [48] - Healthcare revenue is projected to grow by nearly 30% year-over-year in fiscal 2024, with high double-digit growth expected in fiscal 2025 [49] Question 3: Services attach rate on infrastructure deals - The company has shifted to a services-led go-to-market strategy, resulting in a 22 out of 28 attach rate for services on top deals in Q3 [52] - This strategy has transformed discussions with customers, focusing on C-level engagement and delivering holistic value, which has improved margins and customer profitability [54]