Rackspace Technology, Inc.

Greetings and welcome to Rackspace Technology fourth quarter 2020 earnings conference call. At this time, all participants are in a listen-only mode. The question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Joe Crivelli, Vice President of Investor Relations.

Good afternoon, everyone. Welcome to Rackspace Technologies' fourth quarter 2020 earnings conference call. With me today are Kevin Jones, our chief executive officer, and Ammar Malatira, our president and chief financial officer. The slide deck we will refer to today can be found on our investor relations website. On slide two, you'll see that certain comments we make on this call will be forward-looking. These statements are subject to risks and uncertainties, which would cause actual results to differ. A discussion of these risks and uncertainties is included in our SEC filing. Facts-based technology assumes no obligation to update the information presented on the call except as required by law. Our presentation includes certain non-GAAP financial measures and certain further adjustments to these measures, which we believe provide useful information to our investors. In accordance with SEC rules, we have provided a reconciliation of these measures to their respective and most directly comparable GAAP measures. Reconciliations are found in the tables included in today's earnings release and our slide presentation, both of which are available on our website. After our prepared remarks, we will take your questions. I'll now turn the call over to Kevin.

Good afternoon, and thanks for joining us to discuss the fourth quarter financial results. It was another excellent quarter for RAC-based technology, and we are excited to share the results with you. I'll start by giving an overview of the quarter, as well as additional perspective on the massive multi-file market opportunity that we are addressing and the competitive advantages that are enabling our success. Then Amar Malatira, our President and Chief Financial Officer, will walk through the financial results in more detail. On that topic, please join me in welcoming Amar to his first official earnings call. He has made a huge impact on how we operate and view the company, and he will share his perspective with you. And I will make some concluding remarks before we open the call for questions. As you can see on slide five, it was another strong quarter for RAC-based technology. The sales booking success we've discussed in recent quarters is positively impacting the top line. And in addition, we are seeing very strong earnings leverage and resulting growth and profitability. Revenue was $716 million in the quarter. This is up 14% compared to last year's fourth quarter and 5% compared to the third quarter of 2020. Excluding our legacy OpenStack business, core revenue growth was even stronger at 18% year-over-year and 6% compared to the third quarter. Revenue growth was driven by the strong bookings growth we've delivered over the past year, as well as continued improvement in net revenue retention. As noted on the slide, our land and expand strategy is working. Bookings were $293 million in the quarter, and core net revenue retention increased to 101% from 100% in the third quarter. The Rackspace technology sales engine is firing on all cylinders, and I continue to be pleased with our sales execution, as well as our customer success organization, which is finding new ways to increase business with our installments. Adjusted EBITDA to $199 million, up 6% year-over-year, and 4% sequentially. Amar will talk more about the puts and takes there in a moment. But the key takeaway for investors is that earnings growth is materially outpacing revenue growth. Non-GAAP operating profit was up 23% year-over-year and 12% sequentially, and non-GAAP earnings per share was 26 cents, up 24% year-over-year and 37% compared to the third quarter. This earnings leverage was driven by our scalable business model, best-in-class automation, as well as the transformation programs we've executed to date. I'm also pleased that we refinanced our senior notes in the fourth quarter and reduced the rate on this debt by nearly 40%, which will deliver significant cash interest savings for the company and our investors. And we followed this up by refinancing our term loan fee earlier this month extending the maturity of this debt for an additional seven years. We now have no significant debt maturity until 2028. Amar will provide more details about this in a moment. Turning to slide six, I want to spend a few moments discussing why we believe that RAC-based technology is a compelling investment for shareholders with a long runway for continued growth. Multi-cloud has exploded in the past few years because it helps customers save money quickly scale up, scale down, and change their business model. The customers no longer pick just one cloud platform and build their whole business on it. Customers want to diversify, taking some of their compute resources on one platform while operating on other platforms for competitive reasons. Some applications may run better on one platform versus another. Still other data may belong only on private clouds for privacy or security reasons. while legacy applications may be too cumbersome or expensive to move to the cloud. Validating this, on the left side of the slide, 81% of cloud users are working with two or more cloud providers, according to Gartner. But multi-cloud is complex. The landscape is constantly changing with new rules, new pricing, and new service offers. As a result, even the most sophisticated IT organizations at the world's largest companies need help managing their multi-cloud environment. So in the middle of the slide, you see that 75% of customers are using multi-cloud managed services. Gartner is forecasting that multi-cloud will continue to grow into a $520 billion market opportunity by 2023. The great news for our investors is that this is almost entirely white space for Rackspace technology and gives years of runway for continued growth. As shown on slide seven, Rackspace Technology has painstakingly built a product portfolio that helps companies from small business to mid-market to enterprise navigate the entire lifecycle of their multi-cloud journey, including the infrastructure, applications, data, and security. We provide an end-to-end stack of services across all these lines of business, including advisory services, design and implementation services, as well as managed services, where we operate and continually optimize these environments. We have these capabilities at scale across private cloud and all the major public cloud hyperscale. We believe there is no other services provider in the industry that can deliver this breadth or depth of capabilities in multi-cloud. Turning to slide eight, it's worth noting that one of the biggest challenges that customers face in a digital transformation is staffing. IT professionals with cloud expertise and certifications are some of the most sought after talent in the world today. And by and large, they prefer to work at a technology company. At Rackspace Technology, we are able to attract and train the best IT talent across the globe. So as shown on this slide, a key Rackspace Technology asset is the selective value that is represented by our 7,200 rackers and depth of talent and expertise in multi-cloud that they bring to the table for our customers. On the right side of the slide, you'll note that we have certifications and recognitions from all of the public cloud hyperscalers and many leading cloud software companies. On slide nine, Rackspace Fabric is the proprietary software that underpins our industry-leading automation. It includes over 200 unique tools and components to deliver our services. Rackspace Fabric represents an investment of more than $1 billion and 12 million hours in highly skilled professional time. We believe it gives us a sustainable competitive advantage that would be difficult, if not impossible, for a competitor to replicate. Here's why. Over the course of over two decades in the cloud business, we've seen a lot of workflows. And any time a racker sees the same task multiple times with different customers, they write code to automate the task. We also use advanced machine learning tools to identify work that can be automated. So we have a critical mass of automation based upon institutional knowledge and know-how that we continue to increment every year. Approximately 75% of our workloads are automated today, an industry-leading figure that increased dramatically in 2020. And we continue to optimize our automation to drive further efficiency gains in our business. On slide 10. One of Rackspace Technology's significant accomplishments in 2020 was being recognized as a leader in the Forrester Wave for hosted private cloud services in North America and the Forrester Wave for multi-cloud managed services providers. You can see that Rackspace Technology was the only company identified as a leader in both Forrester studies. In addition, the horizontal axis identifies Rackspace Technology as having the strongest strategy of any of the companies mentioned. We were also named a leader in the Gartner 2020 Magic Quadrant for public cloud infrastructure, professional, and managed services worldwide. I want to share some examples of how we are helping customers navigate their journey to the cloud. On slide 11, let's talk about Mrs. E, the leading manufacturer of frozen pierogies in the United States. To give you a sense of scale, Mrs. Keyes makes over 600 million pierogies a year. Mrs. Keyes needed help moving to Google Cloud as part of an ERP system migration. With Rackspace Technologies' help, they completed this very complex process in just seven months, which is shorter than all timelines and estimates. In addition, the migration helped them modernize their sales forecasting capabilities and accelerate transaction processing by up to 60%. with minimal downtime and no disruption. This is a great case study of a complex, cross-functional solution from Rackspace technology, including business and IT transformation, managed public cloud, migration services, application services, and managed storage. The customer's IT director, in commenting on the migration, said, Rackspace technology was a one-stop shop, a single pane of glass, one partner that could do everything. Finally, last week, we were awarded SAT on Google Cloud Expertise Certification for our work with Mrs. C. This is a major step in our differentiation with Google and potential joint clients. On slide 12, the AutoPets Litter Robot is an Internet of Things solution enabled by Rackspace technology. In AutoPets' case, the company needed to modernize its infrastructure, enhance the customer onboarding experience, and improve application speed and reliability. One of the reasons MultiCloud is growing today is because it helps companies quickly scale up. With help from our Onika team within Rackspace technology, Autopets migrated to the cloud and was able to quickly scale its business from just 500 users at the onset of the relationship to over 100,000 users today. As you can imagine, their revenue during this period grew exponentially. I'm proud of the work we did for Autopest because it utilized a wide cross-section of AWS solutions, as well as cloud-native application development, our own Internet of Things solutions, and ultimately increased product reliability while lowering costs. Now, Ammar will take you through our financial results in more detail, and I'll make some concluding remarks before we open for Q&A. Ammar?