Rackspace Technology, Inc. Q4 FY2020 Earnings Call

Greetings and welcome to Rackspace Technology Fourth Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Joe Crivelli, Vice President of Investor Relations.

Good afternoon, everyone. Welcome to Rackspace Technology's fourth quarter 2020 earnings conference call. With me today are Kevin Jones, our Chief Executive Officer; and Amar Maletira, our President and Chief Financial Officer. The slide deck we will refer to today can be found on our Investor Relations website. On Slide 2, you'll see that certain comments we make on this call will be forward-looking. These statements are subject to risks and uncertainties, which would cause actual results to differ. A discussion of these risks and uncertainties is included in our SEC 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 to our investors. In accordance with SEC rules, we have provided a reconciliation of these measures to their respective and most directly comparable GAAP measures. Reconciliations are found in the tables included in today's earnings release and our slide presentation, both of which are available on our website. After our prepared remarks, we will take your questions. I'll now turn the call over to Kevin.

Good afternoon and thanks for joining us to discuss the fourth quarter financial results. It was another excellent quarter for Rackspace Technology and we are excited to share the results with you. I'll start by giving an overview of the quarter as well as additional perspective on the massive multicloud market opportunity that we are addressing and the competitive advantages that are enabling our success. Amar Maletira, our President and Chief Financial Officer, will walk you through the financial results in more detail. On that topic, please join me in welcoming Amar to his first official earnings call. He has made a huge impact on how we operate and view the Company and he will share his perspective with us. I will make some concluding remarks before we open the call for questions. As you can see on Slide 5, it was another strong quarter for Rackspace Technology. The sales booking success we've discussed in recent quarters is positively impacting the topline. Additionally, we are seeing very strong earnings leverage and resulting growth and profitability. Revenue was $716 million in the quarter. This was up 14% compared to last year's fourth quarter and 5% compared to the third quarter of 2020. Excluding our legacy OpenStack business, core revenue growth was even stronger at 18% year-over-year and 6% compared to the third quarter. Revenue growth was driven by the strong bookings growth we've delivered over the past year as well as continued improvement in net revenue retention. As noted on the slide, our land and expand strategy is working, bookings were $293 million in the quarter and core net revenue retention increased to 101% from 100% in the third quarter. The Rackspace Technology sales engine is firing on all cylinders and I continue to be pleased with our sales execution as well as our customer success organization which is finding new ways to increase business with our installed base. Adjusted EBITDA is $199 million, up 6% year-over-year and 4% sequential. Amar will talk more about the puts and takes there in a moment. The key takeaway for investors is that earnings growth is materially outpacing revenue growth. Non-GAAP operating profit was up 23% year-over-year and 12% sequentially, and non-GAAP earnings per share was $0.26, up 24% year-over-year and 37% compared to the third quarter. This earnings leverage was driven by our scalable business model, best-in-class automation as well as the transformation programs executed to date. I'm also pleased that we refinanced our senior notes in the fourth quarter and reduced the rate on this debt by nearly 40%, which will deliver significant cash interest savings to the Company and our investment. We followed this up by refinancing our term loan earlier this month extending the maturity of this debt for an additional seven years. We now have no significant debt maturities until 2028. Amar will provide more details about this in a moment. Turning to Slide 6, I want to spend a few moments discussing why we believe Rackspace Technology is a compelling investment for shareholders with a long runway for continued growth. Multicloud has exploded in the past few years because it helps customers save money, quickly scale up, scale down and change their business model. Customers no longer pick just one cloud platform and build their whole business on it. Customers want to diversify, picking some compute resources on one platform while operating on another platform or some hybrid solutions. Some applications may run better on one platform versus another, so other data may belong only on private cloud for privacy or security reasons while legacy applications may be too cumbersome or expensive to move to the cloud. Validating this on the left side of the slide, 81% of cloud users are working with two or more cloud providers, according to Gartner. But multicloud is complex. The landscape is constantly changing with new rules, new pricing and new services offered. As a result, even the most sophisticated IT organizations at the world's largest companies need help managing their multicloud environment. So in the middle of the slide, you see that 75% of customers are using multicloud managed services. Gartner is forecasting that multicloud will continue to grow into a $520 billion market opportunity by 2023. Great news for our investors is that this is almost entirely white space at Rackspace Technology and gives years of runway for continued growth. As shown on Slide 7, Rackspace Technology has safely built a product portfolio that helps companies, from small businesses to enterprise, navigate the entire lifecycle of their multicloud journey including the infrastructure, applications, data, and security. We provide an end-to-end stack of services across all these lines of business, including advisory services, design and implementation services as well as managed services where we operate and continually optimize the environment. We have these capabilities at scale across private cloud and all the major public cloud hyperscale providers. We believe there is no other services provider in the industry who can deliver this breadth or depth of capabilities in multicloud. Turning to Slide 8, it's worth noting that one of the biggest challenges that customers face in a digital transformation is staffing. Key professionals with field expertise and certification are some of the most sought-after talent in the world today. And by and large, they prefer to work at a technology company. At Rackspace Technology, we are able to attract and hire the best IT talent across the globe. So as shown on the slide, a key Rackspace Technology asset is the collective value that is represented by our 7,200 Rackers and the depth of talent and expertise in multicloud that they bring to the table for our customers. On the right side of the slide, you'll note that we have certifications and recognition from all of the public cloud hyperscalers and many leading cloud software companies. On Slide 9, Rackspace Fabric is the proprietary software that underpins our industry-leading automation. It includes over 200 unique pools and components to deliver our services. Rackspace Fabric represents an investment of more than $1 billion and 12 million hours of highly skilled professional time. We believe it gives us a sustainable competitive advantage that would be difficult, if not impossible, for competitors to replicate. Here's why: Over the course of over two decades in the cloud business, we've seen a lot of workflow. Anytime Rackers use the same path multiple times for different customers, they write code to automate that. We also use advanced machine learning tools to identify work that can be automated. We have a critical mass of automation based upon solution knowledge and know-how that we continue to implement every year. Approximately 75% of our workloads are automated today, an industry-leading figure that increased dramatically in 2020. We continue to optimize our automation and drive further efficiency gains in our business. On Slide 10, one of Rackspace Technology's significant accomplishments in 2020 was being recognized as a leader in the Forrester Wave for Hosted Private Cloud Services in North America and the Forrester Wave for Multicloud Managed Service Providers. You can see that Rackspace Technology was the only company identified as a leader in both Forrester studies. In addition, we were also named a leader in the Gartner 2020 Magic Quadrant for Public Cloud Infrastructure Professional and Managed Services, Worldwide. I want to share some examples of how we are helping customers to navigate their journey to the cloud. On Slide 11, let's talk about Mrs. T's, the leading manufacturer of frozen pierogies in the United States. To give you a sense of scale, Mrs. T's makes over 600 million pierogies a year. Mrs. T's needed help moving to Google Cloud as part of an ERP system migration. With Rackspace Technology's help, they completed the very complex process in just seven months, which is shorter than all timelines and estimates. In addition, the migration helped to modernize their sales forecasting capabilities and accelerate transaction processing by up to 60% with minimal downtime and no disruption. This is a great case study of a complex, functional solution from Rackspace Technology, including Business and IT Transformation, Managed Public Cloud, Migration Services, Application Services, and Managed Storage. The customer's IT director commented on the migration, saying, "Rackspace Technology was a one-stop shop, a single pane of glass, one partner that could do everything." Finally, last week, we were awarded SAP on Google Cloud expertise certification for our work with Mrs. T's. This is a major step in our differentiation with Google and potential joint clients. On Slide 12, the AutoPets little robot is an Internet of Things solution enabled by Rackspace Technology. In AutoPets space, the Company needed to modernize its infrastructure, enhance the customer onboarding experience, and improve application speed and reliability. One of the reasons multicloud is growing today is because it helps companies quickly scale up. With help from our Onica team within Rackspace Technology, AutoPets migrated to the cloud and was able to quickly scale its business from just 500 users at the onset of the relationship to over 100,000 users today. As you can imagine, their revenue during this period grew exponentially. I'm proud of the work we did for AutoPets because it utilized a wide spectrum of AWS solutions as well as Cloud Native Application Development, our own Internet of Things solutions, and ultimately increased product reliability while lowering costs. Now Amar will take you through our financial results in more detail, and I will make some concluding remarks before we open for Q&A. Amar?

Thank you, Kevin. And thank you everyone for joining today. Before getting into the financials, let me share some initial observations as the incoming CFO. I've been in the technology industry for more than 25 years and I have seen multiple technology and business cycles. However, what we are experiencing today in the IT marketplace with digital transformation and the shift of workloads to multicloud is truly unprecedented. I believe we are just at the beginning of a massive multi-year cycle. Rackspace Technology is well-positioned to benefit from this secular trend. We are addressing an attractive and growing market. We have the right strategy, a good execution machine, and an overall momentum in the business. The results we announced today are evidence of that fact. With that said, let me get into the details of our financial results. Slide 14 shows key financial metrics for the three months ended December 31, 2020. Bookings were up 27% to $293 million from $231 million last year. This is the second best quarter in the Company's history and was driven by continued strong execution by our sales and customer success organization. Total revenue in the fourth quarter was $716 million, an increase of 14% compared to last year's fourth quarter and core revenue increased 18% while pro forma core revenue grew 14%. This was driven by the success we have had over the past year as new bookings have converted into revenue. Multicloud revenue grew 19%, and Apps and Cross Platform grew 13% year-over-year. Fourth quarter earnings growth outpaced revenue growth. Non-GAAP operating profit was up 23% compared to last year, and non-GAAP EPS was up 24%. This was driven by our top line growth, cost transformation, and ongoing efficiency programs. Non-GAAP EPS also benefited from lower interest expense due to repayment and refinancing of our debt. We continued to actively manage both the operating and financial levers in the Company to optimize profitability and cash. On Slide 15, for the full year, bookings at $1.126 billion were up 61%, driven by broad-based growth in multicloud as well as Apps and Cross Platform. This was largely due to sales execution and overall growth in the multicloud market. This led to an 11% growth in total revenue at $2.7 billion. Our core revenue grew 15% year-over-year and pro forma core revenue grew 9%. Non-GAAP operating profit for the full year at $473 million was up 14%, and non-GAAP EPS at $0.83 was up 118%. These were driven by revenue growth, cost transformation programs, and reduced interest expense. Slide 16 provides the breakdown of revenue by business segment and by geography for fiscal year 2020. The Multicloud segment represented 79% of revenue in 2020 and grew 17% year-over-year. Apps and Cross Platform represented 13% of revenue and grew 5% year-over-year. We have multiple opportunities in this business segment as the market continues to evolve. We will selectively and strategically invest in new offerings and expect the segment to accelerate in the next few years. Our OpenStack Public Cloud business, which we are not actively marketing, was 8% of total revenue for the full year and declined by 20%. Geographically, the Americas at $2 billion in revenue represented 75% of 2020 revenue and grew 13% year-over-year. EMEA represented 22% of revenue and grew 4% while APJ, at 3% of revenue, grew 9% year-over-year. We believe we are under-penetrated in EMEA and APJ and have a solid runway for growth in these two regions. Over the past year, in these two regions, we have enhanced our leadership, refined our go-to-market strategy, and broadened our sales coverage, and we expect these efforts to drive results in the coming years. We expanded our global presence in 2020. We entered additional countries such as New Zealand, Japan, the UAE, Egypt, Ireland, South Africa, Malaysia, Bahrain, and other places in Southeast Asia. Slide 17 is a snapshot of our cash flow metrics for the fourth quarter and full year. For the fourth quarter, adjusted EBITDA was $199 million, up 6% year-over-year and 4% sequentially. Capital expenditures were $51 million. When you do the math, our free cash flow, defined as adjusted EBITDA less CapEx, was $148 million. For the full year, adjusted EBITDA was $763 million, up 3% compared to 2019, and capital expenditures were $225 million. Adjusted free cash flow was $538 million. Capital intensity was 7% in the fourth quarter and 8% for the full year. We expect our capital intensity to be slightly higher in the first half of 2021 due to investments we are making in the business, and it should be in the range of 7% to 9% for the full year. We ended the year with cash and equivalents at $105 million, and we have $375 million of undrawn revolving credit facility. Turning to Slide 18. Over the past two years, non-GAAP operating margins have trended up for the fourth time and consistently been in the mid to high teens. This was a result of our ongoing operational efficiency programs to drive higher productivity across SG&A functions while making targeted investments in our go-to-market to increase market coverage. At the same time, we delivered higher net income margins which further reflect lower interest expense as we optimize our capital structure. While we are on this topic, I would like to address the adjusted EBITDA and gross margin trend. Adjusted EBITDA margins reflect a shift to a capital-light model as depreciation and amortization expenses continue to decline with lower capital intensity, and gross margins reflect where we are in the growth rate. First, we are a solution provider, and as most of our new customers are in the initial phase of their cloud journey, the spending is more weighted to infrastructure compared to services. Second, we are making investments to build our install base as part of a land and expand strategy. While public cloud infrastructure carries gross margins below our corporate average, it is gross profit dollar accretive and delivers a consistently high return on investment. Third, during this growth phase of land and expand, we expect gross margins to be approximately mid-30% plus or minus a couple of points, and operating margins in the mid to high teens, which is in line with or better than most U.S.-based best-in-class solutions providers. And fourth, as we sell higher margin services over the life of our installed base, we should see both our gross margin and operating margin profiles improve over time from a favorable revenue mix and operating leverage. We believe that non-GAAP operating margin is the best metric to gauge our performance as we make this business model shift to capture the secular growth trend in multicloud. Now turning to Slide 19 and our capital structure. Since the last earnings call, we have completely refinanced all outstanding debt. This generated significant interest savings, and we now have no meaningful debt maturities for the next seven years. In total, our debt repayments and refinancing after our IPO will reduce our total interest expense by $75 million to $80 million annually. Before I talk about our expectations for fiscal year 2021, on Slide 20, I want to recap how we performed against the guidance provided immediately after our IPO. We guided to four primary metrics for 2020: total revenue growth, core revenue growth, adjusted EBITDA, and non-GAAP EPS. As you can see here, we exceeded the forecast for the year for each of these metrics. Our outperformance was driven by the continued significant growth of the multicloud market, the sales transformation programs that we implemented to capitalize on this growth, cost transformation programs which are ongoing and optimize earnings leverage for the Company, and lower interest expense from our debt repayment and refinancing. So with that as a backdrop, let me share our outlook for 2021. On Slide 21, you will see our outlook for the coming year. For the full year, we expect revenue in the range of $2.9 billion to $3.1 billion. This implies a growth of 11% year-over-year at the midpoint, which is an acceleration from 6% pro forma revenue growth in fiscal 2020. Additionally, investors can assume 48% of the guided revenue in the first half and 52% in the second half of fiscal 2021. Core revenue is expected in the range of $2.7 billion to $2.9 billion, which implies a growth of 13% year-over-year at the midpoint, also an acceleration from 9% pro forma revenue growth in fiscal 2020. Non-GAAP operating profit is forecast in the range of $500 million to $530 million, representing 9% growth at the midpoint. We expect about 46% of our operating profit in the first half and 54% in the second half of fiscal 2021, which is roughly in line with our historical seasonality. Non-GAAP earnings per share is anticipated in the range of $0.95 to $1.05 per share, or 20% growth at the midpoint. Non-GAAP other income or expenses are expected to be an expense of $226 million to $233 million. The non-GAAP tax rate is expected to be at 26%. We expect non-GAAP weighted average shares of 210 million to 214 million. With that, I will turn the call back to Kevin for closing remarks.

Thanks Amar. Before we open for questions, let me reiterate why we believe Rackspace Technology is extremely well positioned to capitalize on what is estimated to be a $520 billion multicloud market opportunity by 2023. Turning to Slide 23, multicloud is arguably the hottest sector in technology today. Every company on the planet, from small businesses to mid-market and enterprise, is evaluating a multicloud strategy to improve their business and drive efficiency and agility. Secondly, multicloud is incredibly complex. It is not simply moving data to a new provider. There are a myriad of factors that IT departments need to consider, deciding which app works best on which platform, effectively migrating data, ensuring bulletproof security, managing legacy storage infrastructure in a multi-cloud environment, and staying on top of a landscape that is literally changing daily. IT departments need help with all of them. Therefore, we believe Rackspace Technology is extremely well positioned to be the partner of choice. We have the automation, the expertise, and the partners to help customers of all sizes optimize their multicloud journey, all wrapped in the fanatical customer experience we are known for, and we are the leading pure play multicloud services and solutions company. 2020 was an important proof point of our value proposition. We grew core revenue 15%, bookings 61%, non-GAAP operating profit 14%, and non-GAAP earnings per share by 118%. We restructured our balance sheet to ensure financial flexibility, and we set the stage for years of incremental revenue growth, earnings growth, and enhancement of shareholder value. I am very pleased with where Rackspace Technology stands at the beginning of 2021. We expect to deliver great results for our shareholders in the years to come. With that, we will take your questions. Operator, please go ahead.

Operator instructions. And our first question comes from Dan Perlin with RBC.

I just wanted to circle back to the non-GAAP operating profit guidance of $500 million to $530 million. It was a little bit light of what we were expecting. It has kind of implicit margins that are actually declining a little bit year-on-year. And Amar, I know you've talked about it a little bit in your prepared remarks in terms of the shift? But maybe you could walk us through what is explicitly embedded in those assumptions, both from a gross margin perspective, but also just as we think about the cadence of this shift as well as the investments that are going to take place throughout the year.

So thanks, Dan. Absolutely, let me start by saying that when you look at our guidance, we are way ahead of our plan on the revenue side. We are guiding to a very healthy 11% growth, which is an acceleration from the 6% pro forma growth that we saw in fiscal 2020. On the profit side, we are growing operating profit at 9% and EPS at 20%. Within that guide, we are making investments for growth. Just to be clear here, we have a huge opportunity in front of us. There is a tectonic shift happening in multicloud and we are running this business for the long haul. We are making certain growth investments. Now I will give you some configurations shortly, but let me just touch on this topic of growth investments because this is an important point. When you think about our growth investments in the business, it's quite broad-based, including our go-to-market team, operations, professional services, which is at the tip of the spear. We are also launching new service offerings, and I will touch on that shortly. We expect some of these investments to be more weighted towards the first half of 2021. Let me give you some additional color on two areas of investments that will touch on your topic about gross margins and gross profit, as well as the operating profit. The first area is in our new services and solutions offering and the second is in our land and expand strategy. At the core, we are a technology company, making investments in innovative services that will clearly redefine how these services are offered, consumed, and delivered in a multicloud environment. We will be launching these new market-leading products and services starting in the first half of 2021. It will be our most exciting year in the history of the company with new offerings on tap in Managed Public Cloud with Service Block 2.0, where we are redefining managed services in the public cloud using elastic engineering. We have tested this with the customers and they love it. We are totally reimagining how private cloud gets delivered with our next generation offering, which is more capital-light, again in line with our strategy to move towards more capital-light offerings. This will immensely benefit the customers as we offer a hybrid of multi-tenancy and single-tenancy. We are also moving up the stack with cloud-native applications to help our customers develop serverless applications and refactor their applications to work effectively on the cloud. Additionally, we will also have new offerings in IoT, security, and data services so we're very excited about the services and solutions roadmap in fiscal 2021. I've been here only for three months, but when I look at what the team has accomplished and the investments we're making, we will be, in fact, skating to where the puck is going—not only in terms of chasing the revenue growth, but also the profit pools. This is one part of the investments and it is broad-based. I will not get into the nitty-gritty of it, but that's what's baked into our plan. The second investment we are making is in our land and expand strategy. These investments are in go-to-market; they also lower start-up gross margins that we land when we bring on new customers. I explained this in my prepared remarks that most of our new customers are in the initial phase of the cloud journey where their spend is more weighted to infrastructure compared to services. We are also making investments to land new accounts, so we can expand these relationships over multiple years by up-selling and cross-selling higher margin services. This should improve both gross margins and operating margins and should drive it upwards due to favorable revenue mix as well as operating leverage in the model. I will give you three data points that are very important. Most of the industry analysts estimate that cloud customers will spend nearly $10 on services for every $1 spent on infrastructure over the life of the engagement. Our new customers signed in 2020 demonstrated this dynamic, purchasing an average of $2 worth of additional higher margin offerings for every incremental dollar of public cloud infrastructure within the first year in follow-on sales. We have several data points suggesting we can expand after landing these new customers, and you're clearly seeing this in our bookings trajectory.

Very good, Amar, how about kicking off on the bookings and churn and revenue retention, and then you can jump in as well. Hey Dan, thanks very much for your questions. Yes, we're very pleased with our sales bookings again, with fourth quarter bookings of $293 million, our second-best quarter in the company's history and 27% year-over-year growth. Just to give you some color, we had over 7,000 deals closed in the quarter, so once again lots of diversity in our bookings across all regions. For example, in the Americas, our sales bookings were up 21% year-over-year. In EMEA, we were actually up 35% year-over-year in sales bookings. In Asia-Pacific and Japan, we're actually up 101% year-over-year. There is terrific acceleration of growth all over the world as multicloud continues to accelerate at different rates in different countries. We're pleased with the regional performance. When looking across customer segments, again it's very broad-based: good growth in small business, mid-market, and enterprise segments where we continue to make a lot of traction. We also saw a substantial year-over-year increase in larger deals. We're excited about that. In terms of our sales pipeline, despite continuing to put up great sales numbers, the pipeline is also growing. The sales pipeline for the fourth quarter was up 150% year-over-year and 20% sequentially, so really good growth in the pipeline. Lastly, I will mention churn and net revenue retention. Our net revenue retention as you probably remember stepped up each quarter in 2020. We started out 2020 at 98% net revenue retention and exited the year at 101% core net revenue retention. So we're delighted with that and expect continued improvement.

Yes, I think just one quick comment here, Dan. On the bookings growth for Q4, we had 27% bookings growth both on a pro forma basis and reported basis. In total for the year, we signed approximately 400 new logos, so we continue to feel good about our new logo sales motion. As I mentioned, this is the very beginning of a multi-year cycle and we have many data points suggesting that this opportunity is just ahead of us.

Thanks for taking my question. I have two as well. The first one, just to follow-up on what Dan was speaking about on bookings, Kevin, can you help us understand when you see this bookings momentum eventually helping drive or accelerating the sales growth run rate that we've had so far? Is there anything you call up on a duration of booking in 2021 versus 2020, let's say?

Amit, yes, great question. We are pleased with the bookings success we've had. As you see, that bookings success is translating into revenue growth, which we're very pleased with. So to answer your point, in terms of duration, we continue to see good success in lengthening the duration of our relationships with customers. The exciting thing as well is our increase in large deals. We had a 40% year-over-year increase in signing large deals, defined as having more than $1 million of annual recurring revenue. It just proves that the penetration of the enterprise market is accelerating. The duration of deals is strong, and the size of deals is also strong.

Let me just touch on the net bookings to revenue growth. Bookings are a leading indicator that only capture new business directed in a period through new customer acquisition and new services sales to existing customers. The bookings are annualized, and it typically takes three quarters for projects to run and materialize in revenue. If you look at our revenue guidance, you see that our bookings growth in fiscal 2020 is driving growth in fiscal 2021. Our core revenue growth is accelerating from 9% in fiscal 2020 to 13% at the midpoint in our guidance for fiscal 2021.

If I could maybe follow-up with you, Amar, you talked a fair bit about operating leverage in the business. I was wondering if you could talk about the current free cash flow generation for Rackspace and the levers that you have to improve this going forward?

Yes, I think that's a great question. We look at our cash flow metrics regarding cash flow from operations and free cash flow. End of the day, I focus on both. Our reported cash flow from operations was down in fiscal Q4, and let me give you some color: there was a large one-time software license prepayment in the fourth quarter related to a major customer account. As we integrated Onica's billing system, we did additional quality checks on all invoices for Onica customers to ensure we maintain our fanatical customer experience. Therefore, we delayed some invoices that were pushed back to January, and we collected all those receivables as cash in general. You will note from our balance sheet that our accounts receivable are growing due to our sequential revenue growth. That is a good problem to have, Amit, but we have good opportunities and plans in place to improve our working capital metrics. Our seven-point program has already been launched, and I will vigilantly monitor cash generation. With that said, if you exclude some of these one-time items, our cash flow from operations would have been solid. I'm not really worried about cash generation by this Company. We have many opportunities to improve our cash flow. I am focused on improving it in 2021 and we have several levers in fiscal 2021. First, we are forecasting 40% net income growth on a non-GAAP basis, contributing to the improvement in cash flow. Second, we will tightly manage working capital with the seven-point plan. Third, the debt refinancing and repayment have reduced cash interest expenses. Lastly, we had some one-time cash expenses related to our IPO that won't repeat.

Hi, thanks so much for taking my question. I wanted to ask about the Apps & Cross Platform revenues and specifically regarding Amar's comment about acceleration over the next few years. It exited the year quite strong, accelerating quarter-over-quarter. Was that largely due to the State of Texas contract? I'm trying to get a better sense of the underlying organic growth rate in that segment once we anniversary that contract and comment on the timing of that acceleration.

That's a good question. When you look at our Apps & Cross Platform, it's a very critical part of our portfolio. We will see in fiscal 2021 a growth rate in the high single-digit to low double-digit range, some of which will accelerate in the first half. The market for this segment is still early; it is greenfield. Customers want us to refactor their applications as we move their applications from on-prem or private cloud to a multicloud environment. There is a lot of work here, a lot of opportunities. I don't think many service providers can claim to have it at scale, making this a significant opportunity for us.

I think that's well said. Ramsey, this is where we see the next generation of economic value being created for customers. We are innovating. We have a great product team and plan to discuss more about our Internet of Things solutions, cloud-native application development—all focused on customers' strategic IT initiatives, driving value. Great question and I'll take that one. M&A has been a very important part of our strategy since the LBO in 2016. We have done five acquisitions that have revolutionized our service offerings. The M&A strategy is focused on enhancing growth, reach, and our product capabilities. We've completed two significant acquisitions recently: Onica, enhancing our AWS advisory capabilities, and Bright Skies, expanding our Microsoft Azure capabilities in Europe. As we proceed with acquisitions, our integration center of excellence ensures we realize the expected synergies. M&A has a crucial role in our longer-term transformation strategy, enhancing multicloud capabilities, growth prospects, and services.

For capital allocation priorities: our primary focus is on value creation, so we will make organic investments in secular growth areas, drive efficiencies in operations, optimize working capital, and focus on debt repayment for financial strength. Strategic upward investments will continue, and we will consider share buybacks when attractive. Our plan is to improve profitability, cash, and yielding financial flexibility.

Well, thanks everybody for joining us today. Apologies to those we didn't get to in the queue; we'll be sure to circle back with you later this evening. If you have any other follow-up questions or would like to take the time to speak with us, give me a shout at ir@rackspace.com. Have a great evening, and we look forward to talking to you soon.

Thank you. This concludes tonight's conference. You may disconnect your lines at this time. Again, thank you for your participation and have a great evening.