Q3 2021 Rackspace Technology Inc Earnings Call
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[music] Black Hornet.
John Cusack.
[music].
Good afternoon, and welcome to rack space Technologies third quarter 2021 earnings Conference call.
As a reminder, today's call is being recorded.
Kevin Jones, our CEO and more military for president and CFO to join us today.
Dec, we will refer to today can be found on our IR website.
On slide two certain comments, we make on this call forward looking 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 Rackspace 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 for 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.
Resin patients both of which are available on our website.
After our prepared remarks, we will take your questions queue up for questions. Please use the ask a question function and Jim I'll now turn the call over to Kevin.
Afternoon, and thanks for joining us I'll discuss quarterly highlights and touch on some customer case studies, then Omar will go into detail on the financial results.
Turning to slide five.
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 Hyperscale. Our partners was $22 billion that total is expected to grow to $34 billion in 2021.
And next year analyst estimate that new cloud spending will grow again to approximately $44 billion.
They know that 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.
<unk> 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.
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 is now in excess of $300 million.
We continued to introduce timely new product and service offerings that help our customers get the most out of their cloud investments our.
Our new elastic engineering model has seen fast adoption and we have expanded it to several new areas.
And we are very excited about the launch of Rackspace data freedom.
New storage solution based on robust rackspace develop technology that gives customers a cloud adjacent storage option to manage cost and increased 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 ear, so close to such a diverse customer base, especially midsized and smaller businesses is a key rackspace advantaged.
On the ESG front earlier this month, we launched our first comprehensive ESG report since returning to the public markets.
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 workplaces in the country for Latinos 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 were $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 data dog cloud player and platform nine.
Partner in Q3.
We are investing in staffing up our team of Snowflake certified engineers over the next few quarters.
With data dark 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 cloud player.
To help our customers customized optimize and manage their security platforms.
As I noted on their most recent earnings call channel partner development is a priority for cloud player in 2022.
As you May remember earlier this year, we invested in platform nine a SaaS manage kubernetes platform that builds and operates clusters across edge private and public clouds.
With platform nine we're bringing these solutions to market to help make kubernetes simple to own operate and scale.
Partnerships like these and creative joint go to market solutions are exciting growth opportunities for <unk> space 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.
On slide eight BST group is a major Fintech company based in Bahrain.
<unk> global money transfer is foreign exchange and currency and payment solutions PFC.
PFC needed to modernize its core applications to better support a physical business model, while accelerating a digital transformation and preparing for international expansion.
That recommendation of AWS DSP groups selected Rackspace technology as support partner for migrating its core applications to the cloud and providing ongoing management and consultancy services.
A comprehensive solution, including AWS and a long term contract for rack space 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.
DSP group saw an immediate uplift in critical measures of performance such as transactions processed per second and improved customer experience.
On slide nine our <unk> is a privately held medical device company based in Florida.
<unk> is a pioneer in the field of arthroscopic surgery and has developed over 13000 innovative products addressing a range of orthopedic procedures.
<unk> wanted to re imagine and modernize the post surgery experience by creating a digital communications portal that we give surgeons customizable templates that 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 meta data from <unk> medical imaging technology with.
This solution, both increased patient satisfaction and reduce the administrative burden on surgeons.
Turning to slide 10.
Last week Rackspace technology published its first comprehensive ESG report since going public in 2020.
Pfizer 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.
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 can we work every day.
<unk> report demonstrates that <unk> 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, and highlights our focus on being a force for good in the communities, we serve and 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.
Thank you Kevin and thank you everyone for joining our call today slide.
Slide 12, recaps, our financial results for the parking revenue was $763 million of 12% year over year increase.
Core revenue grew 15% year over year, two so an $18 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.
Up 32% from last year.
Let me now touch upon the third quarter bookings.
As Kevin noted bookings in the third quarter were $200 million and.
And we still expect to hit our $1 billion dollar bookings target for fiscal 2021.
We won a large competitive deals, 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 <unk> market two years ago, we had followed a land and expand strategy.
In 2020, we focus on the land part of this equation as we had a massive opportunity to establish beachheads with new customers.
So do you see on boarded in 2020, we're 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 expense out of the accretion to deepen and grow revenue and profitability with a new customers, while also selectively adding new logos.
This is tilted materials equation towards contracts related to abuse, Mato gross bookings, but higher profitability.
So to put a final point on this slide 13 provides additional details on how we have grown our business with a new managed public cloud customers that we on boarded in 2020.
As the slide demand rates all of that and expense strategy is working.
Tumors for <unk>, 'twenty 'twenty cohorts have broadband business, the blacks FIS technology, well into the double digits for the past four quarters and the increase in solid gross margins on these bookings ranges from 200 to 400 basis points.
In addition, you've seen cumulative bookings and solid gross margins increasing every quarter. Since these customers were on boarded.
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 installed base in 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 evolve at a rapid pace.
This is a once in a lifetime opportunity and a wide open market space.
We plan to take maximum advantage now when it's too early.
Slide 14 shows the confidence of our revenue as well as the transition of our multi cloud revenue good businesses.
The cloud continues to represent the vast majority of our revenue at 82% of the mix and it grew 15% year over year.
Absent 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 businesses.
Open stack, 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 club segment and continue to grow.
30, and 40% year over year.
As shown on slide 15, we had another strong quarter for cash flow.
GAAP cash from operations was $102 million.
As the third quarter in a row in which operating cash flow exceeded $100 million.
Year to date cash flow from operations was $311 million.
Free cash flow defined as GAAP 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 in 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 a go.
<unk> for the fourth quarter, we expect revenue in the range of $766 million to $76 million.
Core revenue of 720, <unk> to $742 million.
Non-GAAP operating profit of $1 <unk> to $1 $22 million.
And non-GAAP earnings per share in the range of 23 to 25.
We also expect non-GAAP other expenses of $51 million to $52 million.
And non-GAAP tax expense rate of 26%.
And non-GAAP weighted average shares up to 12 to 14 million shifts.
On the right side of the slide you see what this compares to the full year.
With that we will take your questions. Joe. Please go ahead and fill key audience for Q&A.
Thanks, Omar as a reminder to ask a question. Please use the Q&A function and the zoom portal. Our tech team will promote you to a speaker on the webcast when youre up into the queue.
Our first question comes from Kevin Mcveigh at Credit Suisse, and Tien Tsin Huang from JP Morgan your on deck.
Great. Thanks, so much and congratulations on the results.
I Wonder if you could help dimensionalize large booking deal yield was awarded at the quarter end gives us so.
That settles into 2022, as well and again congratulations on the results.
Hey, Thank you very much Kevin Kevin Jones here. So so look on the big deal we said.
We'd be very selective in terms of which new deals, we would pursue and as 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 because of 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 want it and we will provide more details when we can formally announce a deal but I can tell you. We believe will be the largest deal in the history of the company.
It sounds great and then obviously it seems like you've made some progress too with some of these partnerships with snowflake data dark cloud player.
So how that can ultimately impact.
Essentially translate to revenue as we think about the model going forward.
Yeah. Thanks, Thanks for that Kevin, Yes, we're pretty excited about this.
We wanted to forge partnerships that really bring best in cloud you know best in class cloud solutions to our customers. So what we did is we strengthened our relationships with snowflake data dog South player and platform nine has talked about this for a minute with snowflake, whereas select partner and on our way to becoming a.
A premier partner.
Actively hiring more snowflake certified engineers over the next few quarters. So that's exciting with with data dog were recently named a gold tier partner and what we're doing there is we're jointly developing go to market.
<unk> motions.
Cloud player noted on their most recent earnings call that channel partner development as a priority for them. So really excited to be early on that front, we're developing elastic engineering for cloud player to help our customers customize optimize and manage their security platforms and then earlier this year, we made the equity investment in <unk>.
That form nine type from Knight as a SaaS manage kubernetes platform and.
Are we doing with platform nine as were bringing edge private and public cloud solutions to market to help make kubernetes simple.
Operating scale. So it's a really exciting partnerships setting growth opportunities Frac space technology of course, alongside our managed public cloud and private cloud solutions.
Solution. So Kevin we've had encouraging progress I think it's a little early to forecast revenue contributions from from the offerings, but we're on it.
And just to just to add this Kevin if I may.
Again in line with our strategy of wing of the stack.
We know right now what's going on in the market, there's a lot of.
Business is coming at the infrastructure layer. The next opportunity is on the on the cloud native application and data. So you can see it all this partnership.
Early stage and this is in line with us moving up the stack from a strategy perspective.
Congratulations again.
Yes, thanks, Kevin.
<unk> <unk> from JP Morgan.
Ramsey El <unk> from Barclays is on deck.
Finjan.
I think I'm on mute can you hear me.
Hey, Tien tsin.
Thanks, Joe for moderating.
Good to talk to you guys. So you have the second half bookings I'm, just focusing in on that the 500 million or so implied guidance can we annualize that as a good baseline to consider for two.
2020 twos as this captures you're more selective client prospecting criteria as you just talked about it was that dangerous to do given the large deal do you expect to close in the fourth quarter.
So just wanted to just give you a little color Tien tsin. Thanks for the question on auto gets momentum and a little bit about the pipeline and then I'll have mark 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 have.
Seeing good results and the solid gross margins in the third quarter were the highest level that we.
We have seen in.
Years, and we think $1 billion of new business bookings the right number to go after and we see plenty of business in the pipeline too.
To accomplish this goal.
And then in terms of our pipeline is healthy we continue to refine our sales focus.
And what we're seeing with customers as they are really grappling with the pace of change right, particularly in mid sized commercial businesses and state and local governments and.
We're seeing them come to track space to help them on their cloud journey.
Thing is lots of interest Tien tsin, our new product offerings. So elastic engineering delivery model is redefine how managed services are delivered in the cloud you got data freedom, which is extremely exciting. This is the offering we launched in September and.
That directly as a result of the factory hearing from our customers and massive pain point there.
Experienced in on the cloud journey, so feeling good about bookings momentum and solid pipeline.
Thanks for that Kevin just maybe for you or Mark 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.
Good call.
Well I think it came in language that expectation.
The engine and so.
They had indicated.
The previous earning call. We are focused on making sure that we also make investments on both opex as well as cost of revenue as we see huge.
Huge opportunity in the marketplace. So to answer your question SG&A human language that expectation.
Very good well done thank you.
Thanks, Tien tsin.
So.
Ramsey El <unk> from Barclays Europe and.
Amit <unk> from Evercore you are on deck.
Can you hear me gentlemen.
Yes.
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.
So.
<unk> gave some details.
Plus last quarter earnings call.
The non strategic piece of the business. So quarterly run rate was about three and half to $4 million, So which is about three to four points of growth.
That's it.
Since we had an end of life on that I think it was.
It will start with Henry.
In 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 the portfolio, making sure that we.
We retained a strategic piece of the portfolio that aligns to our cloud play.
And I think we have continuously looked and look to rationalize the portfolio. So far there's nothing else in that portfolio that we will deemphasize, we already did that with the restructuring exercise we did in July.
Yes, I would agree I would just add Ramsey.
<unk>.
Data services pretty hot areas of the.
Business right now, particularly given.
The challenges that our customers are facing with high profile hacks ransomware and every company really needs to be hyper vigilant with regard to security.
And then data of course as companies move to the cloud eager to mine this data for valuable insights.
Got you.
Our strong data services practice and then.
But more broadly within the App development World, We're focused on cloud native application developed a lot of companies have lifted and shifted applications to the cloud without optimizing those applications. So this is another hot area for us.
Okay.
Thanks for that and one quick follow up for 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 the new.
Run rate or any type of lumpiness, there that we should be aware of.
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.
Moving towards more capital light model, so it's going as per plan.
Got it okay. Thank you very much.
Thanks Ramsey.
<unk> <unk> from Evercore your broad comments on how Raymond James are on deck.
Perfect.
Please listen Jeremy.
I have two questions as well.
Kevin and I have to look at these investments you've talked about on the cloud solutions.
Thanks for reading them.
You've talked about cloud players snowflake et cetera there.
Is the demand for these solutions really coming from your existing customers existing logos, who use rackspace with infrastructure and then want to scale this into helping them build and manage their cloud data solution.
Or are these relationships and we hope you go out and get new logos that you will eventually bring on with on the infrastructure side.
Yes, very good so maybe I'll start and then Amar can talk about some of the investments.
So yes, absolutely we do see.
Momentum.
With both.
The installed base of customers that we have on it and the the new logos. If you just look at.
Q3 bookings thousands of individual deals very diversified diversified across geos and segments, 30% of bookings from international markets and year to date.
Now to your point, we've actually seen a good growth in new logos signed as we talked about as sold margin highest spend.
And couple of years. So we're pleased with our new logo progress and we've made I think a really good progress on our <unk>.
Installed base account planning as we've gone forward and.
Looked at re retraining upscaling, our account executives, we've got much more sophisticated account planning and this is all three regions of the world and so we're seeing pipeline develop from that as well. So it's really it's it's a combination.
Of new logos and installed base.
Got it and then.
Paul.
<unk> 'twenty wanted mutual Fireeye, we've seen gross margins are not some downside pressure I think has been a big focus of our folks out but your free cash flow.
<unk> grew markedly consistent.
Johnson.
Free cash flow margins that Eva dollars toward production.
I'm wondering.
Think about calendar 'twenty two.
<unk>.
We're likely to see gross margins and free cash flow improved at a much more consistent manner or do you think you have continued to expand free cash flow. Even if you don't see gross margins move higher next year.
So I will give you more color on the 2022.
Our Q4 results, but just to give you a little bit more color on gross margins up gross margins as you know in Q3 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 two and by all the internal mix shift that is going on in the external market dynamics and as we.
The 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.
The mix shift to the higher value cloud services.
Kevin was talking about right. So we are already seeing very good traction in our prepared remarks, we talked about our land and expand motion household gross margins have improved significantly and this has become a leading indicators and gives us confidence that margins will expand with higher margin products as the opportunity for us to expand into this installed base.
Just yes.
It is just ahead of us and Thats, where we are making investments as Kevin mentioned that we're making investments in cloud native application development, we are making investments in data services. These are the up the stack opportunities as customers migrate more and more workloads with application and data from the on Prem environment to a cloud environment multi club.
So that's regarding cash flow.
Very good.
Progress as you see.
Cash flow from operations and free cash flow has significantly improved we drill a lot of working capital improvement.
Im a big believer of earnings quality and I do believe that cash flow from operation should track roughly about 70% or so to the operating profit on a non-GAAP basis and Thats basically defines the quality of earnings and Thats, what we are focused on.
Perfect. Thank you very much.
Rob Palmisano from Raymond James Europe, and we have.
London, Keith Bachman from BMO Youre on deck.
Robert are you there.
All right, we'll come back to your parents cutoff.
However.
Alright, guys. So.
Hey, guys. This is rob on 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 with your offshoring process.
Yes, Thanks, Rob <unk>. If you recall, we said will will drive savings of $95 million to $100 million.
Gross run rate savings.
And we have taken most of those most opex will come from labor actions and through Q3. The majority of those actions have been completed.
And the rest of there'll be non labor stuff that will continue.
And it will be largely done by the end of Q4 or not.
In our fiscal Q1 2022, so we will see the realize the full annualized benefit in 2022, and you'll start seeing those savings you will know and we are reinvesting it back into the business. So that's why we are so we are tracking to.
Our planned offshoring is going quite well we are building.
Very good global footprint.
We have accelerated that to in line with what we had planned for and so really pleased with the progress.
Great. Thank you.
Thanks, Robert Keith Bachman from BMO Europe, and then our final question will come from Bryan Keane at Deutsche Bank.
Hi, Thank you I had a few if you can hear me, Okay. Marr I wanted to come to you and follow up on the gross margin question two things on gross margins.
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.
On the last quarter call, we indicated that.
Gross margins would bottom and perhaps you can give them move upward, but you needed four to five quarters. So we should be thinking about the September quarter December quarter of <unk> 22, I'd like to see if you could just revisit that because I thought slide 15 in particular was interesting in.
And that <unk> gotten pretty good gross margin performance.
On that on a cumulative process from your cohort trends in 2020, if you could just.
Revisit on those gross margin trends and then I have a follow up yes.
Yes.
I would say.
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 expect that trend and have no changes from that position at this time.
Okay, Okay, but any specific gross margins do you want us to think about for Q4.
So I think I gave that color last quarter. So I think I'll go with that.
What I had mentioned last quarter.
Okay, Alright, and then turning to cash flow if I could to also you've taken some restructuring charges and whatnot this year.
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 and <unk> 22 is that a potential tailwind to reported free cash free cash flow metrics in 'twenty two.
Yes, I think Thats a great question, yes.
That will be a tailwind in fiscal 'twenty, two because some of those restructuring charges with accrued and some of those cash but 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 from that.
Any quantification on the amount that's impacting 'twenty one versus early 'twenty two on a cash basis.
I don't have the numbers slightly resisting I'll give you that color when we announce Q4 earnings that you would have more tied to it.
Okay, Okay, I will jump back in queue. Thank you. Thanks Keith.
Our next question comes from Bryan Keane at Deutsche Bank Go ahead, Brian.
Hi, guys.
Just wanted to ask about how youre measuring market share looking at those high growth markets. Although you guys are growing fast I guess, it's 30% to 40%, which is 70% to 75% of multi cloud.
Is there are you gaining enough of the share there or is there still room to grow because as you outlined that areas still grows significantly fast upwards of sometimes 50% and then secondarily just thinking about the non growth markets, which I think has been non Vmware private cloud and managed hosting as that.
Is that an area, that's going to be relatively flattish growth well the cloud side of the business should grow the fastest.
So I will start I do.
Some additional color.
Based on what we what we have said before so the growth market, which is roughly about 70% 75% of our multi cloud mix is growing within 30% to 40% and if you take a look at.
Our competitors in this space are you going to be Hyperscale is actually growing faster than that so you can say based on that we are taking market share, but again. This is such a broad market is so fragmented it's hard to figure out whether we are taking market share or not but clearly from a growth.
From a growth rates, it's a good indicator that we are winning in the marketplace.
As it relates to the mature side of the product.
I will not give any specific guidance. If you do the math that business is declining and rightfully so because.
Some of them some of the business, we are focused fully moving to be the growth side of the business. We are helping to transform customers' transitions, because that's where the future is.
The earlier the transition to the new site. The good side of the business are good therapy portfolio, you haven't upsell opportunities for these clients. Maybe you can go and sell as I've said in a cloud native applications data services more migration services as more and more work towards get transferred as they develop new work towards fuel has been to build modern application.
And Thats the plan and so that's the dynamics between those two sub portfolios within multi club.
Yes, 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.
Some of the mature market shrinks and multi cloud plus open stack shrinks as a percentage I think down to 6% of mix in there.
Doesn't naturally the revenue growth accelerated a little bit just based on mix alone.
But 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 to what happens in fiscal 'twenty, two when we announced our Q4 results but.
I think youre thinking correctly, yes, I think thats the intention of our strategy of the company exactly thank you.
<unk> summarized it well is to move to the.
The hyper growth areas of the market and Thats for our investment and our focus as Brian.
Okay. Thanks, guys. Thanks, Brian.
Well, thanks, everybody for joining us today, if you have follow up questions or if you want to schedule additional time with the team. Please reach out to me at IR at <unk> Dot Com have a great rest of your day and we'll talk to you soon.
Goodbye Goodbye.
[music].
[music].
Good afternoon, and welcome to rack space Technologies third quarter 2021 earnings Conference call.
As a reminder, today's call is being recorded.
Kevin Jones, our CEO and more military our president and CFO, who joined us today.
Dec, 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 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 Rackspace 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 for 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.
<unk>, 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 and Bill I'll now turn the call over to Kevin.
Good afternoon, and thanks for joining us I'll discuss quarterly highlights and touch on some customer case studies, then Omar 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 Hyperscale. Our partners was $22 billion that total is expected to grow to $34 billion in 2021.
Next year analysts estimate that new cloud spending will grow again to approximately $44 billion.
As I noted their business to the cloud customers are grappling with the pace of change, especially mid size and commercial businesses and state and local governments.
I need help.
<unk> 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.
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.
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 is now in excess of $300 million.
We continued to introduce timely new product and service offerings that help our customers get the most out of their cloud and Thats our.
Our new elastic engineering model has seen fast adoption and we expanded it to several new areas.
And we are very excited about the launch of Rackspace data freedom.
New storage solution based on robust rackspace develop technology that gives customers a cloud adjacent storage option to manage cost and increased data fluidity across multiple cloud platforms.
Our broad customer base puts our finger on the pulse of the cloud market are.
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 ear, 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.
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.
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 Latinos 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 continue 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 were $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 data dog cloud player and platform nine.
Partner in Q3.
We are investing in staffing up our team of Snowflake certified engineers over the next few quarters.
With data dark 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 cloud player to help our customers customized optimize and manage their security platforms.
As I noted on their most recent earnings call channel partner development as a priority for cloud player in 2022.
As you May remember earlier this year, we invested in platform nine a SaaS manage kubernetes platform that builds and operates clusters across edge private and public clouds.
But platform nine we're bringing these solutions to market to help make carbonetti simple to own operate and scale.
Partnerships like these and creative joint go to market solutions are exciting growth opportunities for <unk> space 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 delivering for its customers.
First one from the middle East on.
On slide eight BST group is a major Fintech company based in Bahrain.
Riding global money transfer is foreign exchange and currency and payment solutions Dfc 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 PFT group selected Rackspace technology as support partner for migrating its core applications to the cloud and providing ongoing management and consultancy services.
Using a comprehensive solution, including AWS and a long term contract for rack space 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.
DSP group saw an immediate uplift in critical measures of performance such as transactions processed per second and improved customer experience.
On slide nine our <unk> is a privately held medical device company based in Florida.
<unk> is a pioneer in the field of arthroscopic surgery and has developed over 13000 innovative products addressing a range of orthopedic procedures are.
<unk> wanted to re imagine and modernize the post surgery experience by creating a digital communications portal that we give surgeons customizable templates that could quickly populate and make available for patients to access on demand.
And just 12 months Rackspace technology built this communications portal on AWS, alongside a mobile app to download media and meta data from our <unk> medical imaging technology.
This solution, both increased patient satisfaction and reduce the administrative burden on surgeons.
Turning to slide 10.
Last week Rackspace technology published its first comprehensive ESG report since going public in 2020.
<unk> 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 can we work every day.
<unk> report demonstrates that <unk> technology is 100% committed to being a thoughtful stewards of our planet's natural resources and an employer of choice for the most talented professionals in the technology industry.
Additionally, and highlights our focus on being a force for good in the communities, we serve and 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.
Thank you Kevin and thank you everyone for joining our call today slide.
Slide 12, recaps, our financial results for the barcode revenue was $763 million or 12% year over year increase.
Core revenue grew 15% year over year, two so an $18 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.
Up 32% from last year.
Let me now touch upon the third quarter bookings.
As Kevin noted bookings in the third quarter were $200 million and.
And we still expect to hit our 1 billion dollar 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.
Throughout 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 focus on the land part of this equation as we had a massive opportunity to establish beachheads with new customers.
The deals we on boarded in 2020, we're heavily weighted towards infrastructure in the early stages of these customer relationships, which drives higher dollar bookings.
At the start of 2021, we align those sales and incentive plans work towards the expense out of the accretion to deepen and grew revenue and profitability with a new customers, while also selectively adding new logos.
This is tilted materials equation towards contracts related to abuse Lawler gross bookings, but higher profitability.
So to put a finer point on this slide 13 provides additional details on how we will grow our business with the new managed public cloud customers that we on boarded in 2020.
As the slide demand rates all of that and expense strategy is working.
<unk> for <unk>, 'twenty, 'twenty cohorts have broadband business with breakfast technology, well into the double digits for the past four quarters and the increase in store gross margins on these bookings ranges from 200 to 400 basis points.
In addition, we have seen cumulative bookings and solid gross margin increased every quarter. Since these customers were on boarded.
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 installed base in each quarter of customers buy additional high value services from us.
Looking ahead, we will be investing to broaden and deepen our portfolio of service offerings.
Cloud market evolve at a rapid pace.
This is a once in a lifetime opportunity and a wide open market space.
We plan to take maximum advantage now when it's still early.
Slide 14 shows the confidence of our revenue as well as the transition of our multi cloud revenue good businesses.
The cloud continues to represent the vast majority of our revenue at 82% of the mix and it grew 15% year over year.
Absent 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.
Open stack, 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 club segment and continue to grow.
30, and 40% year over year.
As shown on slide 15, we had another strong quarter for cash flow.
GAAP 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.
Free cash flow defined as GAAP 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 in total capex intensity was 5%.
Cash Capex was three 1 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 a go.
<unk> for the fourth quarter, we expect revenue in the range of $766 million to $76 million.
Core revenue of 720, <unk> to $742 million.
Non-GAAP operating profit of $1 $18 million to $122 million.
And non-GAAP earnings per share in the range of 23 to 25.
We also expect non-GAAP other expenses of $51 million to $52 million and non-GAAP tax expense rate of 36%.
And non-GAAP weighted average shares up to 12 to $2 40.
14 million shifts.
On the right side of the slide you see what this can be stood for the full year.
With that we will take your questions. Joe. Please go ahead and <unk> audience for Q&A.
Thanks, Omar as a reminder to ask a question. Please use the Q&A function and 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 Mcveigh at Credit Suisse, and Tien Tsin Huang from JP Morgan your on deck.
Great. Thanks, so much and congratulations on the results.
I Wonder if you could help dimensionalize large booking deal yield was awarded after quarter end gives us.
How that settles into 2022, as well and again congratulations on the results.
Hey, Thank you very much Kevin Kevin Jones here, So look on the big deal we said.
We'd be very selective in terms of which new deals we would pursue and it's cloud solutions provider.
This deal is in our wheelhouse from <unk>.
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 as a 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 want it and we will provide more details when we can formally announce deal but I can tell you. We believe will be the largest deal in the history of the company.
It sounds great and then obviously it seems like you've made some progress too with some of these partnerships with snowflake data dark cloud player.
So how that can ultimately impact.
Essentially translate to revenues, we think about the model going forward.
Yeah. Thanks, Thanks for that Kevin, Yes, we're pretty excited about this.
We wanted to forge partnerships that really bringing best in cloud best in class cloud solutions to our customers. So what we did is we strengthened our relationships with snowflake data Doc cloud player and platform nine.
Let's talk about this for a minute with snowflake, where select partner and on our way to becoming a premier partner <unk>.
<unk> actively hiring more snowflake certified engineers over the next few quarters. So thats exciting with with data dog were recently named a gold tier partner and what we're doing there is we're jointly developing go to market.
Oceans.
Cloud player noted on their most recent earnings call that channel partner development as a priority for them. So really excited to be early on that front and we're developing elastic engineering for cloud player to help our customers customize optimize and manage their security platforms and then earlier this year, we made the equity investment in <unk>.
That form nine type from Knight as a SaaS manage kubernetes platform and <unk>.
Our newest platform nine is we're bringing edge private and public cloud solutions to market to help make kubernetes simple.
Operating scale. So it's a really exciting partnerships setting growth opportunities track space technology of course, alongside our managed public cloud and private cloud solutions.
Solutions, So Kevin we've had encouraging progress I think it's a little early to forecast revenue contributions from from the offerings, but we're on it.
And just to just to add Kevin if I may.
Again in line with our strategy of wing of the stack.
We know right now what's going on in the market.
A lot of.
Business is coming at the infrastructure layer the next opportunities under on the cloud native application and data. So you can see your oldest partnership is early stage and this is in line with us moving up the stack from a strategy perspective.
Congratulations again.
Thanks, Kevin.
<unk> from Jpmorgan.
Ramsey El <unk> from Barclays is on deck.
Finjan.
I think I'm on mute can you hear me.
Hey, Tien tsin.
Perfect. Thanks, Joe for moderating.
Good to talk to you guys. So yes, the second half bookings I'm, just focusing in on that the $500 million or so implied guidance can we annualize that as a good baseline to consider for 2020 twos that this captures you're more selective.
<unk> prospecting criteria as you just talked about it was that dangerous to do given the large deal do you expect to close in the fourth quarter.
So just wanted to just give you a little color Tien tsin. Thanks for the question on auto gets momentum and a little bit about the pipeline and then I'll have mark 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.
<unk> seen in years.
Years, and we think $1 billion of new business bookings the right number to go after and we see plenty of business in the pipeline too.
To accomplish this goal.
And then in terms of our pipeline is healthy.
Continue to refine our sales focus.
And what we're seeing with customers as they are really grappling with the pace of change, particularly in mid sized commercial businesses and state and local governments and we're seeing them come to rack space to help them on their cloud journey.
Thing is lots of interest Tianjin, our new product offerings. So elastic engineering delivery model is redefined how managed services are delivered in the cloud you got data freedom, which is extremely exciting misses the offering we launched in September and we launched that directly as a result of feedback very hearing from our customers.
The massive pain point there.
Experienced on the cloud journey, so feeling good about bookings momentum and solid pipeline.
Great. Thanks.
Thanks for that Kevin just maybe for you or Mark if you don't mind on the 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.
Good call.
Well I think it came in line with our expectation.
Contingent and so.
As Ed indicated.
Previous earning call we are focused on making sure that we also make investments on both opex as well as cost of revenue as we see.
Huge opportunity in the marketplace. So to answer your question SG&A human language that expectation.
Very good well done thank you.
Thanks, Tien tsin.
So.
Ramsey El <unk> from Barclays, Europe, and Amit <unk> from Evercore you are on deck.
Can you hear me gentlemen.
Yes.
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.
So.
<unk> gave some details.
Plus last quarter earnings call.
The non strategic piece of the business the quarterly run rate was about three and half to $4 million, So which is about three to four points of growth.
That's it.
Since we did an end of life on that I think it was.
In particular saw some headwinds.
In 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 the portfolio, making sure that we.
We retained a 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 is nothing else in that portfolio that we will deemphasize, we already did that with the restructuring exercise we did in July.
Yeah, I would agree I would just add Ramsey.
<unk>.
Data services pretty hot areas of.
The business right now, particularly given.
The challenges that our customers are facing with high profile hacks ransomware and every company really needs to be hyper vigilant with regard to security.
And then data of course as companies move to the cloud eager to mine this data for valuable insights and we've got.
Our strong data services practice and then.
But more broadly within the App development World, We're focused on cloud native application developed a lot of companies have lifted and shifted applications to the cloud without optimizing those applications. So this is another hot area for us.
Okay. Thanks.
Thanks for that and one quick follow up for 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.
Run rate or any type of lumpiness, there that we should be aware of.
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 the 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 language.
Moving towards more capital light model, so it's going as per plan.
Got it okay. Thank you very much.
Thanks Ramsey.
Amit <unk> from Evercore interrupt Rob Palmisano, Raymond James you are on deck.
Perfect hopefully you will see Jeremy.
Yeah.
Two questions as well.
Kevin and I have to look at these investments you've talked about on the cloud solutions.
Accelerating them.
Are you talking about cloud players snowflake et cetera, there I'm curious if there's a demand for these solutions really coming from your existing customers existing logos, we use rackspace with infrastructure and then want to scale this into helping them build and manage the cloud datacenter soon or are these relationships and we hope you go out and get new logos that you would eventually.
On with on the infrastructure side.
Yes, very good so maybe I'll start and then Amar can talk about some of the investments.
So yes, absolutely we do see.
Momentum.
With both.
The installed base of customers that we have on it and the new logos. If you just look at.
Q3 bookings thousands of individual deals very diversified diversified across geos and segments, 30% of bookings from international markets and year to date.
To your point, we've actually seen good growth in new logos side as we talked about have sold margin highest spend.
A couple of years. So we're pleased with our new logo progress and we've made I think.
Really good progress on our.
Installed base account planning as we've gone forward and.
We looked at REIT retraining upscaling, our account executives who've got much more sophisticated account planning and this is all three regions of the world and so we're seeing pipeline develop from that as well. So so really it's a combination.
Of new logos and installed base.
Got it and then.
Follow up.
'twenty wanted mutual Fireeye, we've seen gross margins are not some downside pressure I think has been a big focus of our folks out but your free cash flow.
<unk> grew markedly consistent to the expansion of free cash flow margins and EBIT dollars toward production.
Unfortunately, as we said.
Think about calendar 'twenty two.
We are likely to see gross margins and free cash flow both improved at a much more consistent manner or do you think you have continued to expand free cash flow. Even if you don't see gross margins move higher next year.
So I will give you more color on the 2022, when we announce our Q4 results, but just to give you a little bit more color on gross margins.
Gross margins as you know in Q3 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 two and by all the film mix shift that is going on any external market dynamics and as we transition to a cloud centric business model.
Undergoing some necessary shifts in the business model. So we believe that the gross margins were stable at the end of this transition period, and we expect the profitability to inflect upwards with favorable mix shift to the higher value services that Kevin was talking about so we already see very good traction in our prepared remarks, we talked about our land and expand motion.
Household gross margins have improved significantly and this has become a leading indicators and gives us confidence that margins will expand with higher margin products as the opportunity for us to expand into this installed base.
<unk> is just ahead of us and Thats, where we are making investments as Kevin mentioned that we're making investments in cloud native application development, we are making investments in data services. These are the up up this tax opportunities as customers migrate more and more workloads with application and data from the on Prem environment to a cloud.
A multi cloud environment.
Regarding cash flow.
Very good.
Progress is youll see a.
Cash flow from operations and free cash flow has significantly improved we drill a lot of working capital improvement and I'm, a big believer of earnings quality and I do believe that cash flow from operations should track roughly about 70% or so to be operating profits on a non-GAAP basis and Thats basically defines the quality.
I mean, that's what we are focused on.
Perfect. Thank you very much.
Thanks, Thomas Robb common photo from Raymond James Europe, and we have.
London, Keith Bachman from BMO Youre on deck.
Robert are you there.
All right, we'll come back to you Scott.
Okay.
Alright, guys.
Hey, guys. This is rob on for Frank.
How about how are the cost savings initiatives tracking and can you give us an update on where you guys are at with your with your offshoring process.
Yes, Thanks, Rob <unk>. If you recall, we said, we will be able to drive with savings of $95 million to $100 million 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 of there'll be non labor stuff that will continue.
And it will be largely done by the end of Q4 or not.
In our fiscal Q1 2022, so we will see the realized the full annualized benefit in 2022, and we started seeing those savings you will know and we are reinvesting it back into the business. So that's that.
We are so we are tracking to.
Our plans offshoring is going quite well we are building.
Very good global footprint.
We have accelerated that to in line with what we had planned for and so really pleased with the progress there.
Great. Thank you.
Thanks, Robert Keith Bachman from BMO Europe, and then our final question will come from Bryan Keane at Deutsche Bank.
Hi, Thank you I had a few.
If you can hear me, Okay Marr I wanted to come to you and a follow up on the gross margin question two things on gross margins.
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 <unk>.
B of the question is.
Again on the last quarter call you indicated that.
Gross margins would bottom and perhaps you can give them move upward, but you needed four to five quarters. So we should be thinking about the September quarter December quarter of <unk> 22, I'd like to see if you could just revisit that because I thought slide 15 in particular was interesting.
<unk> gotten pretty good gross margin performance.
On that on a cumulative process from your cohort trends in 2020, if you could just.
Revisit on those gross margin trends and then I have a follow up.
Yes.
I would say.
Gross margins were in line with our expectations for Q3 and as you indicated.
And last quarter earnings call I provided some color on gross margins and expect that trend and have no changes from that position at this time.
Okay, Okay, but any specific gross margins do you want us to think about for Q4.
So I think I gave that color last quarter. So I think I'll go with that.
Part of what I had mentioned last quarter.
Okay, Alright, and then turning to cash flow if I could to also you've taken some restructuring charges and whatnot this year.
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 <unk> 'twenty two.
Is that a potential tailwind to reported free cash free cash flow metrics in 2022.
Yes, I think Thats a great question, Keith Yes that will be a tailwind in fiscal 'twenty two because some of those restructuring charges with accrued and some of those cash but 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.
Okay, and any quantification on the amount that's impacting 'twenty one versus early 'twenty two on a cash basis.
I don't have the numbers, Greg resistant I'll give you that color when we announced Q4 earnings that you would have more tied to it.
Okay, I will jump back in queue. Thank you. Thanks Keith.
Our next question comes from Bryan Keane at Deutsche Bank Go ahead, Brian.
Hi, guys just wanted to ask about how youre measuring market share looking at those high growth markets. Although you guys are growing fast I guess, it's 30% to 40%, which is 775% of multi cloud.
Is there are you gaining enough of the share there or is there still room to grow because as you outlined that areas still grows significantly fast upwards of sometimes 50% and then secondarily just thinking about the non growth markets, which I think has been non Vmware private cloud and managed hosting.
Is that an area, that's going to be relatively flattish growth well the cloud side of the business should grow the fastest.
So I will start.
Some additional color.
As to what we 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.
Our competitors in this space, while even the Hyperscale is actually growing faster than that so you can say based on that we are taking market share, but again. This is such a broad market is so fragmented it's hard to figure out whether we are taking market share or not but clearly from a growth.
From a growth rate.
Put indicators that we are winning in the marketplace.
As it relates to the mature set of the product.
I will not give any specific guidance. If you do the math that business is declining and rightfully so because.
Some of them some of the business, we are focused fully moving to be the flip side of the business. We are helping the transit customers transition because that's where the future race.
The earlier the transition to the new site. The good side of the business are good therapy portfolio, we have an upsell opportunity for these clients. Maybe you can go and sell as I've said in a cloud native applications data services more migration services as more and more work towards ship transferred as they develop new work towards fuel has been to build modern application.
And Thats the plan and so that's the dynamics between those two sub.
Portfolios within multi cloud.
Yes, 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.
Some of the mature market shrinks and multi cloud plus open stack shrinks as a percentage I think down to 6% of mix in there.
Doesn't naturally the revenue growth accelerate a little bit just based on mix alone.
But 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 from what happens in fiscal 'twenty two when we announce our Q4 as those but.
I think you're thinking the right way, yes, I think thats the intention of our strategy of the company exactly thank you.
<unk> summarized it well is to move to the.
The hyper growth areas of the market and Thats for our investment and our focus as Brian.
Okay. Thanks, guys.
Thanks, Brian.
Well, thanks, everybody for joining us today, if you have follow up questions or if you want to schedule additional time with the team. Please reach out to me at IR at <unk> Dot Com have a great rest of your day and we'll talk to you soon.
Goodbye.