Rackspace Technology, Inc.

Q3 2021 Earnings Conference Call

11/15/2021

spk05: Good afternoon and welcome to Rackspace Technologies' third quarter 2021 earnings conference call. As a reminder, today's call is being recorded. Kevin Jones, our CEO, and Amar Malatira, our president and CFO, join us today. The slide deck we will refer to today can be found on our IR website. On slide two, certain comments we make on this call will be forward-looking. Those statements are subject to risks and uncertainties, which could cause actual results to differ. The discussion of these risks and uncertainties is included in our SEC filings. RAC space technology assumes no obligation to update the information presented on the call, except that it is 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've provided a reconciliation of these measures to their respective and most directly comparable GAAP measures These reconciliations are in the tables included in our earnings release and presentation, both of which are available on our website. After our prepared remarks, we will take your questions. To queue up for questions, please use the Ask a Question function in Zoom. I'll now turn the call over to Kevin.
spk03: Good afternoon, and thanks for joining us. I'll discuss quarterly highlights and touch on some customer case studies, then Amar will go into detail on the financial results. Turning to slide five. As a best-in-class, pure-play cloud solutions company, Rackspace Technology is well-positioned in a market that is booming. Over the past five years, our cloud partners, AWS, Google Cloud, and Microsoft Azure, have grown their revenues tenfold. In the third quarter alone, AWS grew 39%, Azure grew 48%, and Google Cloud grew 45%. To put things in context, in 2020, incremental new cloud spending with our hyperscaler partners was $22 billion. That total is expected to grow to $34 billion in 2021. And next year, analysts estimate that new cloud spending will grow again to approximately $44 billion. As they move their business to the cloud, customers are grappling with the pace of change, especially mid-sized and commercial businesses and state and local governments. They need help, and Rackspace Technology is poised to be their partner of choice wherever they are in their cloud journey. In the third quarter, we took several steps to solidify our market-leading position. The financial results reflect this. Revenue, core revenue, non-GAAP operating profit, and non-GAAP EPS all grew at a healthy year-over-year clip. We delivered strong operating cash flow of over $100 million for the third quarter in a row. For the first three quarters of 2021, operating cash flow was now in excess of $300 million. We continue to introduce timely new product and service offerings that help our customers get the most out of their cloud investment. Our new Elastic Engineering model is seeing fast adoption, and we expanded it to several new areas. And we are very excited. about the launch of Rackspace Data Freedom, a new storage solution based on robust Rackspace-developed technology that gives customers a cloud-adjacent storage option to manage cost and increase data fluidity across multiple cloud platforms. Our broad customer base puts our finger on the pulse of the cloud market. Our service development strategy is driven by those insights. Because of this, Rackspace data freedom is targeted at a massive white space in the cloud market and addresses a pain point we see and hear about every day from our customers. Having our ears so close to such a diverse customer base, especially mid-sized and smaller businesses, is a key Rackspace advantage. On the ESG front, earlier this month, we launched our first comprehensive ESG report since returning to the public markets. I'll talk more about this later in the presentation. We are investing in our employees and culture to differentiate Rackspace technology as an employer of choice in the current war for talent. This helps us attract prospective employees and retain our most valuable assets, our dedicated Rackers. These investments are delivering results. In the third quarter alone, we were recognized as one of the 50 most engaged workplaces by achievers, a top 50 workplace in the country for Latinas by Latina style, and a top place to work for mothers, fathers, and parents working remotely by parents at work. Turning to slide six, we continued to deliver revenue growth well into the double digits. Total revenue was up 12%, and core revenue was up 15% compared to last year's third quarter. Non-GAAP operating profit was up 6%, and non-GAAP EPS was up 32%. We expect a strong fourth quarter for bookings and believe we will hit our full-year new business bookings target of $1 billion. In the third quarter, new sales bookings worth $200 million. On slide seven, a key growth strategy for Rackspace technology is to forge partnerships that bring best-in-class cloud solutions to our customers. Accordingly, in the third quarter, we strengthened our relationships with leading cloud solutions companies such as Snowflake, Datadog, CloudFlare, and Platform9.
spk09: Partner in Q3.
spk03: We are investing in staffing up our team of Snowflake-certified engineers over the next few quarters. With Datadog, we were recently named a gold-tier partner, and we're working closely with them to develop mutual go-to-market sales motions. we are developing a tailored elastic engineering service for Cloudflare to help our customers customize, optimize, and manage their security platforms. As they noted on their most recent earnings call, channel partner development is a priority for Cloudflare in 2022. As you may remember, earlier this year, we invested in Platform 9, a SaaS-managed Kubernetes platform that builds and operates clusters across edge, private, and public clouds. With Platform 9, we are bringing these solutions to market to help make Kubernetes simple to own, operate, and scale. Strong partnerships like these and creative joint go-to-market solutions are exciting growth opportunities for Rackspace technology alongside managed public cloud and our private cloud offerings. Now, I'd like to share some case studies demonstrating the value that Rackspace technology delivers for its customers. First, one from the Middle East. On slide eight, BFC Group is a major fintech company based in Bahrain, providing global money transfers, foreign exchange, and currency and payment solutions. BFC needed to modernize its core applications to better support a physical business model while accelerating a digital transformation and preparing for international expansion. At recommendation of AWS, BSC Group selected Rackspace Technology as support partner for migrating its core application to the cloud and providing ongoing management and consultancy services. Using a comprehensive solution, including AWS and a long-term contract for Rackspace Security Essentials, we helped the company create a flexible and stable platform, allowing it to focus on what it does best, helping customers move their money around the world. BFC Group saw an immediate uplift in critical measures of performance, such as transactions processed per second and improved customer experience. On slide 9, Arthrex is a privately held medical device company based in Florida. Arthrex is a pioneer in the field of arthroscopic surgery and has developed over 13,000 innovative products addressing a range of orthopedic procedures. Arthrex wanted to reimagine and modernize the post-surgery experience by creating a digital communications portal that would give surgeons customizable templates they could quickly populate and make available for patients to access on demand. In just 12 months, Rackspace Technology built this communications portal on AWS alongside a mobile app to download media and metadata from Arthrex's medical imaging technology. The solution both increased patient satisfaction and reduced the administrative burden on surgeons. Turning to slide 10. Last week, Rackspace Technology published its first comprehensive ESG report since going public in 2020. Suffice it to say, investing in ESG has always been part of the company's DNA and is an extremely high priority for me, our executive leadership team, and our board of directors. ESG is not something we do because it's fashionable. It is part and parcel of our existence as a company and is rooted in how we work every day. The ESG report demonstrates that Rackspace Technology is 100% committed to being a thoughtful steward of our planet's natural resources and an employer of choice for the most talented professionals in the technology industry. Additionally, it highlights our focus on being a force for good in the communities we serve in a transparent, shareholder, and customer-focused publicly traded company. This report is simply the first step in providing our constituents with improved transparency into our ESG initiatives. We are devoted to continuous improvement in this area, and those efforts will be fully visible to shareholders as we move forward. I encourage you to download and read the ESG report, which can be found on our website. Now, Amar will take you through the financials. Amar?
spk02: Thank you, Kevin, and thank you, everyone, for joining our call today. Slide 12 recaps our financial results for the quarter. Revenue was $763 million, a 12% year-over-year increase. Poor revenue grew 15% year-over-year to $718 million. Non-GAAP operating profit was $124 million, up 6% year-over-year. Non-GAAP operating margin was 16.2% within our mid to high teens expected range. And non-GAAP earnings per share was 25 cents, up 32% from last year. Let me now touch on the third quarter bookings. As Kevin noted, bookings in the third quarter were $200 million, and we still expect to hit our $1 billion bookings target for fiscal 2021. We won a large competitive deal, which we had been working for some time early in the fourth quarter, and we expect to have it signed before year end. For 2021, bookings have run lower than 2020. This is because we changed our go-to-market strategy at the start of this year. Since pivoting to the fast-growing cloud market two years ago, we have followed a land and expand strategy. In 2020, we focused on the land part of this equation as we had a massive opportunity to establish beachheads with new customers. The deals we onboarded in 2020 were heavily weighted towards infrastructure in the early stages of these customer relationships, which drives higher dollar bookings. At the start of 2021, we aligned our sales and incentive plans more towards the expand side of this equation to deepen and grow revenue and profitability with our new customers while also selectively adding new logos. This has tilted the sales equation towards contracts with relatively smaller gross bookings but higher profitability. So to put a finer point on this, slide 13 provides additional details on how we have grown our business with the new managed public cloud customers that we onboarded in 2020. As the slide demonstrates, our land and expense strategy is working. Customers for all three 2020 cohorts have grown their business with Rackspace technology well into the double digits for the past four quarters, and the increase in sold gross margins on these bookings ranges from 200 to 400 basis points. In addition, we have seen cumulative bookings and sold gross margins increase in every quarter since these customers were onboarded. This validates our go-to-market strategy. Last year, we pressed the accelerator on growth to onboard new logos. Now we are benefiting from the install base, and each quarter, our customers buy additional high-value services from us. Looking ahead, we will be investing to broaden and deepen our portfolio of service offerings as the cloud market evolves at a rapid pace. This is a once-in-a-lifetime opportunity in a wide open market space. We plan to take maximum advantage now while it's still early. Slide 14 shows the components of our revenue, as well as the transition of our multi-cloud revenue to growth businesses. Multi-cloud continues to represent the vast majority of our revenue at 82% of the mix, and it grew 15% year-over-year. Apps and cross-platform at 12% of total revenue grew 11% year-over-year, driven by growth in application services, coupled with strength in our data and security services business. OpenStack, which is a legacy business, declined 20%, and this segment represents only 6% of total revenue. Growth market offerings are now in the mid-70% range of the multi-cloud segment and continue to grow between 30% and 40% year-over-year. As shown on slide 15, we had another strong quarter for cash flow. Capped cash from operations was 102 million, which is the third quarter in a row in which operating cash flow exceeded $100 million. Year-to-date, cash flow from operations was $311 million. Pre-cash flow, defined as capped cash from operations minus cash capex, was $81 million, up from $77 million in the second quarter. This brings the year-to-date total free cash flow to $224 million. Total capex was $35 million, and total capex intensity was 5%. Cash capex was $21 million, and cash capex intensity was 3% in the third quarter. For fiscal year 2021, we expect cash capex intensity in the 4% to 6% range. Total cash increased to $260 million at the quarter end. We had $375 million of unused revolving credit facility, bringing total liquidity towards $600 million. On slide 16, we have our guidance for the fourth quarter. We expect revenue in the range of $766 to $776 million. Poor revenue of $724 to $732 million. Non-GAAP operating profit of $118 to $122 million. and non-GAAP earnings per share in the range of 23 to 25 cents. We also expect non-GAAP other expenses of 51 to 52 million dollars, and non-GAAP tax expense rate of 26 percent, and non-GAAP weighted average shares of 212 to 214 million shares. On the right side of the slide, you see what this compares to for the full year. For that, we'll take your questions. Joe, please go ahead and queue up the audience for Q&A.
spk05: Thanks, Amar. As a reminder, to ask a question, please use the Q&A function in the Zoom portal. Our tech team will promote you to a speaker on the webcast when you're up in the queue. Our first question comes from Kevin McVey at Credit Suisse, and Tianjin Huang from JPMorgan. You're on deck.
spk09: Great.
spk00: Thanks so much, and congratulations on the results. I wonder if you could Kevin Jones- help to mentalize large booking deal you was awarded after quarter and give us a sense of you know how that settles into 2022 as well, and again congratulations on results.
spk03: Kevin Jones- hey Thank you very much, Kevin Kevin Jones here so so look on the big deal, you know we said. Kevin Jones- You know we'd be very selective in terms of which new deals, we would pursue. And as a cloud solutions provider, this deal is in our wheelhouse from a products standpoint and a services standpoint and fits into our strategy. So we ran hard after it. We were awarded the business in October and beat some of our largest competitors. And we were selected for the differentiated cloud solutions that we provide. So what we're doing now, Kevin, we're working diligently with this customer to hammer out all the documentation and formally sign it by the end of the year. And we're very excited we won it, and we'll provide more details when we can formally announce the deal. But I can tell you, we believe it will be the largest deal in the history of the company.
spk00: It sounds great. And then, obviously, it seems like you've made some progress, too, with some of these partnerships with Snowflake, Datadog, CloudFlare. Any sense of how that can ultimately impact and potentially translate to revenue as we think about the model going forward? Sure.
spk03: Yeah, thanks for that, Kevin. Yeah, we're pretty excited about this. We wanted to forge partnerships that really bring best-in-class cloud solutions to our customers. So what we did is we strengthened our relationships with Snowflake, Datadog, CloudFlare, and Platform9. Let's talk about these for a minute. With Snowflake, we're a select partner and on our way to becoming a premier partner. We're actively hiring more Snowflake certified engineers over the next few quarters. So that's exciting. With Datadog, we were recently named a gold tier partner. And what we're doing there is we're jointly developing go-to-market sales motions. Cloudflare noted on their most recent earnings call that channel partner development is a priority for them. So really excited to be early on that front. We're developing elastic engineering for Cloudflare to help our customers customize, optimize, and manage their security platforms. And then earlier this year, we made the equity investment in Platform 9. Platform 9 is a SaaS managed Kubernetes platform. And what we're doing with Platform 9 is we're bringing edge, private, and public cloud solutions to market to help make Kubernetes simple to own, operate, and scale. So these are really exciting partnerships, exciting growth opportunities for X-based technology, of course, alongside our managed public cloud and private cloud solutions. So, you know, Kevin, we've had encouraging progress. You know, I think it's a little early to, you know, forecast revenue contributions from the offerings, but we're on it.
spk02: And just to add there, Kevin, if I may, this is again in line with our strategy of moving up the stack. You know, right now what's going on in the market is a lot of business is coming at the infrastructure layer. The next opportunity is on the cloud native application and then data. So you can see all this partnership is at an early stage, and this is in line with us mowing up the stack from a strategy perspective.
spk09: Congratulations again.
spk05: Thanks, Kevin. Xinjun Huang from JPMorgan, you're up, and Ramzi Elisal from Barclays is on deck.
spk09: Xinjun, do we have you?
spk07: I think I'm unmuted. Can you hear me?
spk09: There you go.
spk07: Terrific. Thanks, Joe, for moderating. Good to talk to you guys. So, yeah, the second half bookings, I'm just focusing in on that, the $500 million or so implied from your guidance. Can we annualize that as a good baseline to consider for 2022 since this captures your more selective client prospecting criteria as you just talked about, or is that dangerous to do given the large deal you expect to close in the fourth quarter?
spk03: So why don't I just give you a little color, Ken Jin, thanks for the question on bookings momentum and a little bit about the pipeline. Then I'll have Amar jump in as well. So we feel good about the bookings momentum. We're focused this year on optimizing our bookings mix for bookings dollars and profitability. We've seen good results in the sole gross margins in the third quarter were the highest level that we've seen in 2021. years. And, you know, we think a billion dollars of new business bookings, the right number to go after. And we see plenty of business in the pipeline to, you know, to accomplish this goal. And then, you know, in terms of our pipeline, you know, it's healthy. You know, we continue to refine our sales focus. And what we're seeing with customers is they're really grappling with the pace of change, right? Particularly midsize commercial businesses and state and local governments. And, you know, we're seeing them come to Rackspace to help them on their cloud journey. The other thing is lots of interest engine our new product offering. So, you know, Elastic Engineering delivery model is redefining how managed services are delivered in the cloud. We've got data freedom, which is extremely exciting. This is the offering we launched in September. And, you know, we launched that directly as a result of feedback that we're hearing from our customers, a massive pain point that they're experiencing on the cloud journey. So, you know, feeling good about the bookings momentum and solid pipeline.
spk07: Great. Thanks for that, Kevin. Just maybe for you, Ammar, if you don't mind, on the SG&A leverage showing some strength there to help offset some of the gross margin pressure, as you said you would do. Is there more to go there? Anything unusual in the third quarter to call out?
spk02: Well, I think it came in line with our expectation at InGen. And so, as I had indicated in the previous running call, we are focused on making sure that we also make investments on both optics as well as cost of revenue, as we see a huge opportunity in the marketplace. So to answer your question, the SDNA came in line with our expectations.
spk07: Very good. Well done. Thank you.
spk09: Thanks, Sinjin.
spk05: So Ramzi Elisal from Barclays, you're up, and Amit Daryanani from Evercore, you're on deck. Can you hear me, gentlemen?
spk04: Hey, how are you tonight? I wanted to ask about the apps and cross-platform growth, excluding the non-strategic exit. What was the impact from that in the quarter? And do you see any other pockets of the business that are similarly non-strategic?
spk02: So, you know, we gave some details last quarter on MC, that the non-strategic piece of the business, the quarterly run rate was about three and a half to four million dollars. which is about three to four points of growth that we, you know, since we did an end of life on that, I think that was sort of a headwind. But within that portfolio, we have data that is growing very, very rapidly. We have security services that's also growing very rapidly. We will continue to look at that portfolio, making sure that, you know, we retain the strategic piece of the portfolio that aligns to our cloud play. And I think we continuously look and look to rationalize the portfolio. So far, there's nothing else in that portfolio that we will de-emphasize. We already did that through the restructuring exercise we did in July.
spk03: Yeah, I would agree. I would just add, Ramzi, security, data services, pretty hot areas of the business right now, particularly given all the challenges that our customers are facing with high-profile hacks and ransomware and Every company really needs to be hypervigilant with regard to security. And then data, of course, you know, as companies have moved to the cloud, eager to mine this data for valuable insights. And, you know, we've got, you know, a strong data services practice. And then, you know, more broadly within the app development world, you know, we're focused on cloud native application development. You know, a lot of companies have lifted and shifted applications. applications to the cloud without optimizing those applications. So, you know, this is another hot area for us.
spk04: Thanks for that. And one quick follow-up from me. Can you talk about the CapEx levels in the quarter? They came in a lot lower than our model. Anything to read into there in terms of a new run rate or any type of lumpiness there that we should be aware of?
spk02: Yes. So from a CapEx perspective, again, it is in line with our expectations. If you recall, I said for the full year, we should be in the 7% to 9% range. In Q3, it came in exactly in line with what we were expecting. I expect now for the full year to be at the low end of the 7% to 9% range in line with us moving towards more capital-like models. So it's going as per plan.
spk04: Got it. Okay. Thank you very much. Thanks, Ramzi.
spk09: I'm in Therianani from Evercore. You're up. Rob Palmitano, Raymond James, you're on deck. Perfect. Hopefully you folks can hear me.
spk10: I have two questions as well. I guess first off, Kevin, a nice look at these investments you've talked about on the cloud solutions that you're making, accelerating them. And I think you talked about Cloudflare, Snowflake, et cetera there. I'm curious, is the demand for these solutions really coming from your existing customers, the existing logos who use Rackspace for infrastructure, and they want to scale this into helping them build and manage the cloud data solutions? Or are these relationships actually helping you go out and get new logos that you can eventually bring on the infrastructure side?
spk03: Yeah, very good. So maybe I'll start and then Amar can talk about some of the investments. So yeah, absolutely. We do see momentum with both the install basic customers that we have on it and the new logos. If you just look at you know, Q3 bookings, thousands of individual deals, you know, very diversified across geos and segments, 30% of bookings from international markets. And year to date, you know, to your point, we've actually seen a good growth in new logos signed, as we talked about, you know, sold margin highest spend in a couple of years. So, you know, we're pleased with our new logo progress. And we've made, you know, I think, really good progress on our install-based account planning. As we've gone forward and looked at retraining, upskilling our account executives, we've got much more sophisticated account planning. This is all through regions of the world. And so we're seeing pipeline develop from that as well. So really, it's a combination of new logos and install-based.
spk10: Got it. And then just to follow up, you know, in 21, at least so far, right, we've seen gross margins have had some downside pressure. I think it's been a big focus among folks. But your free cash flow, I think, on the other hand, has been remarkably consistent. You've actually seen expansion of... free cash flow margins and even dollars, total free cash flow dollars. I'm wondering, as we think about calendar 22, do you think we are likely to see gross margins and free cash flow both improve in a much more consistent manner, or do you think you can continue to expand free cash flow even if you don't see gross margins move higher next year?
spk02: So, Amit, I will give you more color on the 2022 when we announce the Q4 results. But just to give you a little bit more color on gross margins, you know, gross margins, as you know, in Q3 2020, in the third quarter came in line with our expectation and also my guidance that I provided to you guys. As you know, this is a transient phase driven by all the internal mixture that is going on, not any external market dynamics. And as we transition to a cloud-centric business model, we are undergoing some necessary shifts in the business model. So we believe that the gross margins will stabilize at the end of this transition period. And we expect the profitability to inflect upwards with a favorable makeshift to the higher value cloud services that Kevin was talking about. So we're already seeing very good traction in our prepared remarks. We talked about our land and expand motion, how sole gross margins have improved significantly. And this becomes a leading indicator and gives us confidence that margins will expand with higher margin products as the opportunity for us to expand into this install base is just ahead of us. And that's where we are making investments, as Kevin mentioned. We're making investments in cloud native application development. We're making investments in data services. These are the up-to-stack opportunities as customers migrate more and more workloads with application and data from the on-prem environment to a cloud environment, a multi-cloud environment. So that's regarding cash flow, very good progress, as you see. You rightly said, you know, our cash flow from operations and free cash flow has significantly improved. We drew a lot of working capital improvement. You know, I'm a big believer of earnings quality, and I do believe that cash flow from operations should track to roughly about 70% or so to the operating profits on a non-GAAP basis. And that basically defines the quality of earnings, and that's what we are focused on.
spk09: Perfect. Thank you very much.
spk05: Thanks, Thomas. Thanks, Thomas. Rob Palmisano from Raymond James, you're up. And we have on deck.
spk09: Keith Blackman from BMO, you're on deck. Rob, are you there? All right, we'll come back to you. Oh, there we go. Hey, guys.
spk01: So hey, guys, this is Rob for Frank. So how are the cost savings initiatives tracking? And can you give us an update on where you guys are at with your offshoring process? Yes.
spk02: Thanks, Rob. See, if you recall, we said we'll drive a savings of $95 to $100 million of gross run rate savings. And we have taken most of those. Most of it will come from labor actions. And through Q3, the majority of those actions have been completed. And the rest, you know, there will be non-labor stuff that will continue and will be largely done by the end of Q4 or in a fiscal Q1 2022. So we will see the, realize the full annualized benefit in 2022. We have started seeing those savings even now, and we are reinvesting it back into the business. So that's where we are. So we are tracking to our plans. Offshooting is going quite well. We are building a very good global footprint. We have accelerated that, too, in line with what we had planned for, and so very pleased with the progress there.
spk09: Great. Thank you. Thanks, Rod.
spk05: Keith Bachman from BMO, you're up, and then our final question will come from Brian Keane at Deutsche Bank.
spk08: Hi, thank you. I had a few, if you can hear me okay. I want to come to you and follow up on the gross margin question. Two things on gross margins. A, could you, last quarter you gave a specific number for the September quarter, and I was hoping you could do the same thing for Q4, just so we all keep our models within certain parameters. And then part B of the question is, again, on the last quarter call, you indicated that you know, gross margins would bottom and perhaps you can move upward, but you needed four to five quarters. So we should be thinking about the September quarter, December quarter of 022. I'd like to see if you could just revisit that because I thought slide 15 in particular was interesting in that you've gotten pretty good gross margin performance on the cumulative process from your cohort trends in 2020. So if you could just revisit on those gross margin trends, then I have a follow-up.
spk02: Yes, so I would say, Keith, gross margins were in line with our expectations for Q3, as you indicated. And last quarter earnings call, I provided some color on gross margins and the expected trend and have no changes from that position at this time.
spk08: Okay, but any specific gross margins you want us to think about for Q4?
spk02: So, you know, I think I gave that color last quarter, so I think I'll go with that, whatever I had mentioned last quarter.
spk08: Okay. Okay. All right, then turning to cash flow, if I could, too. Also, you're taking some restructuring charges and whatnot this year. And so the question is really geared towards how much of that is cash? And so the reason I'm asking the question, could that be presumably lower restructuring charges in 022? Is that a potential tailwind to your reported free cash flow metrics in 022?
spk02: Yes, I think that's a great question, Keith. Yes, that will be a tailwind in fiscal 22, because some of those restructuring charges will accrue, and some of those cash will also go out the door in fiscal 2021. We will have some of it in the first half of 2022, but then it should serve as a tailwind thereafter.
spk08: Okay. Any quantifications on the amount that's impacting 21 versus early 22 on a cash basis?
spk02: I don't have the numbers right in front of me, but, you know, I'll give you that color when we announce Q4 earnings so that you have more excitement.
spk08: Okay. Okay. I will jump back in queue. Thank you. Thank you.
spk09: Next question comes from Brian Keane at Deutsche Bank. Go ahead, Brian. Hi, guys.
spk06: Just wanted to ask about how you're measuring market share. You know, looking at those high growth markets, Although you guys are growing fast, I guess it's 30% to 40%, which is 70%, 75% of multi-cloud. Are you gaining enough of the share there, or is there still room to grow? Because as you outlined, that area still grows significantly fast, upwards of sometimes 50%. And then secondarily, just thinking about the non-growth markets, which I think is the non-VMware private cloud managed hosting. Is that an area that's gonna be relatively flattish growth while the cloud side of the business should grow the fastest?
spk02: So I will start, I'll give you some additional color based on what we have said before. So the growth market, which is roughly about 70 to 75% of our multi-cloud mix is growing within 30 to 40%. And if you take a look at, you know, our competitors in this space, or even the hyperscalers, we're actually going faster than them. So, you know, you can say based on that, we are taking market share. But again, this is such a broad market. It's so fragmented. It's hard to figure out whether we're taking market share or not. But clearly from a growth, you know, from a growth rate, it's a good indicator that we are winning the marketplace. Now, as it relates to the mature side of the product, you know, I will not give any specific guidance. If you do the math, that business is declining, and rightfully so, because, you know, some of the business, we are purposefully moving to the growth side of the business. We are helping the customers transition, because that's where the future is. You know, the earlier they transition to the new side, the growth side of the business, or growth side of the portfolio, we have an upsell opportunity for these clients, where we can go and sell, as I said, you know, cloud-native applications, data services, more migration services as more and more workloads get transferred. As they develop new workloads, we will help them to build modern applications. And that's the plan. And so that's the dynamics within those two sub-portfolios within Multicloud.
spk06: Yeah, because what I'm thinking about is thinking about the big picture here with the mix of business being pulled higher for those high growth markets as they become a bigger percentage of revenue and you know, some of the mature market shrinks in multi-cloud plus OpenStack shrinks as a percentage, I think, down to 6% of Mix, then it doesn't naturally, the revenue growth, accelerate a little bit just based on Mix alone.
spk02: That's, I would say, if you think through that rationally, that's probably the case. Now, we will give you more color on that and what happens in fiscal 22 when we announce Q4 results, but, you know,
spk03: I think you're thinking the right way. Yeah, I think that's the intention of our strategy, of the company exactly. I think you've summarized it well. It's to move to the hyper-growth area of the market, and that's where our investment and our focus is, Brian.
spk05: Okay, thanks, guys. Thanks, Brian.
spk08: Well, thanks, everybody, for joining us today.
spk05: If you have follow-up questions or if you want to schedule additional time with the team, please reach out to me at ir.rackspace.com. Have a great rest of your day, and we'll talk to you soon.
Disclaimer

This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.

-

-