Good afternoon, everyone. And welcome to Rackspace Technology’s First Quarter Earnings Conference Call. All participants will be in a listen-only mode. After today’s presentation there will be an opportunity to ask questions. Please also note, today’s event is being recorded. At this time, I would like to turn the conference call over to Joe Crivelli, Vice President of Investor Relations. Sir, you may begin.

Good afternoon. And welcome to Rackspace Technology’s first quarter 2021 earnings conference call. Kevin Jones, our Chief Executive Officer; and Amar Maletira, our President and Chief Financial Officer are joining us today. The slide deck we will refer to today can be found on our Investor Relations website. On slide two, 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. These reconciliations are in the tables included in our earnings release and 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 our first quarter financial results. 2021 is off to a great start and we are excited to share the results with you. Today, I’ll discuss quarterly highlights and provide additional perspective on some recent product launches that we believe positioned Rackspace Technology exactly where the market is moving. As I’ve done in past quarters, I will also touch on some case studies of customers who are doing truly innovative things with cloud technology. And our President and Chief Financial Officer Amar Maletira will go into detail on the financial results before I make some concluding remarks. Slide five shows the main messages we would like to deliver today. First quarter was very strong for Rackspace Technology and we exceeded the guidance targets we set in late February with record revenue and very strong earnings growth. The tectonic shift to multicloud, as well as the success we had onboarding new logos in 2019 and 2020, are expected to fuel double-digit revenue growth throughout 2021 and beyond. You’ve heard me say that 2021 is going to be the most exciting year for new product launches in the history of the company and in the first quarter we launched Rackspace Elastic Engineering and Rackspace Services for VMware Cloud, which had been extremely well received by industry analysts and customers. I’ll talk more about this in a moment. The work that our finance team has done to improve cash flow drove a significant turnaround in the first quarter with strong growth in operating cash flow. Amar will discuss this in his section. It also bears repeating that our first quarter debt refinancing put us in a position of strength from a balance sheet perspective for years to come. As we have noted previously, we now have no significant debt maturities for the next seven years. And in addition, our debt was booked at historically low interest rates. In fact, the $550 million financing that we completed in February was the best pricing ever for a non-investment grade senior secured notes offering. Turning to slide six. We posted another record quarter with revenue up 11%, compared to the first quarter of 2020, to $726 million. Core revenue growth was even stronger, up 15% year-over-year to $677 million. This strong growth was driven by continued momentum in our multicloud business. We are winning new customer engagements and expanding share of wallet with the customers we onboarded in late 2019 and throughout 2020. As a result, we believe we are expanding market share in cloud IT services. Earnings leverage continues to be excellent. Non-GAAP operating profit was $119 million and non-GAAP earnings per share was $0.23, up 10% and 44%, respectively, compared to last year’s first quarter and we see opportunity for additional earnings leverage. Amar, now in a six month has taken a fresh look at everything we do. As a result, we have driven a number of changes in our decision-making process and management system. To give you a few examples, we revamped the way we analyze deal profitability and decide which deals to pursue. This, in turn, has informed how we structure our sales force and which product lines we lean into for growth. We have re-examined our expense structure and uncovered additional efficiencies that we can drive in 2021 and beyond, and identified areas where we can invest these savings to accelerate the trajectory of our topline. Additional discipline in working capital management has led to a significant turnaround in cash flow. Amar will provide more details in a moment. And we continue to improve our investor reporting and give the investment community more insight into our growth drivers and value creation strategies. New sales bookings in the first quarter were $244 million, up 6% compared to the first quarter of 2020. This was a solid bookings quarter. The year-over-year bookings growth was lower than in past quarters for a number of reasons. Firstly, we are lapping our own efforts and we’re up against tough compares from a bookings growth standpoint. This will continue throughout the year as we landed a number of marquee multicloud deals, including the State of Texas deal in the second quarter of last year. So while we expect continued strong bookings in 2021, the year-over-year compares will be more modest. We remain confident in our revenue guidance for fiscal 2021 and expect double-digit revenue growth for the year. Secondly, we are focused on driving the right mix of business and increasing initial margin we’re willing to accept on new deals. This is a benefit of the booking success we’ve had as we now have a significant installed base of enterprise accounts that will serve as a foundation for our growth. Thirdly, we adjusted sales incentives and realigned our sales force to prioritize high-value deals in line with our land and expand strategy. As these changes have taken root, we are encouraged that bookings accelerated and grew sequentially each successive month of the year. Slide seven shows how we’re evolving the strategy of the company. We have gotten encouraging signals from customers that they see us as the opposite of the global systems integrators or GSIs. This is because we bring the benefits of the GSI including size and scale, but unlike the GSIs we are also cloud-focused, disruptive, flexible, fast, agile, and we have our fanatical customer experience. So, we are staking our claim as the un-GSI. We believe this makes a clear statement with customers and prospects about who we are and the competitive advantages we bring to the table. On slide eight, our positioning as the un-GSI, as well as market trends have influenced our product development efforts. As a result, we recently introduced two new offerings that we believe hit the sweet spot in the market. Many of you participated in our webinar on Rackspace Elastic Engineering in April and that service offering has garnered significant early interest from customers around the world. Last week we introduced Rackspace Services for VMware Cloud as VMware is in many cases the platform of choice for private cloud workloads. Looking forward, we believe VMware is an important fourth cloud platform alongside AWS, Azure, and Google Cloud. On slide nine, Rackspace Elastic Engineering is the next iteration of our service blocks. We are very excited about this new offering and believe it is exactly what the market needs to move cloud adoption to the next level. Rackspace Elastic Engineering is on-demand access to a pod of multidisciplinary cloud specialists who will know the customer’s application, team, and desired business objectives, and will be laser-focused on driving their cloud outcomes. The pod works seamlessly with the customer’s internal DevOps teams, essentially becoming a trusted part of their permanent cloud team. The pod is capable of delivering a broad spectrum of outcomes without the constraints of a fixed scope of management. This is a complete opposite of how GSIs structure and price their services. Rackspace Elastic Engineering is already available and fully supported across AWS, Azure, Google Cloud, and VMware. This really cracks the code for customers who are trapped between running their traditional operations and evolving to be more cloud-native and modern. After just a few weeks, Elastic Engineering has been one of the most successful new product launches in Rackspace history. We’ve already closed significant deals in all three regions of the world and the pipeline for this offering is growing very fast. On slide 10, last week we announced our rebranded private cloud offering Rackspace Services for VMware Cloud. In conversations with customers, it became clear that they needed a solution that provided a public cloud experience with private cloud security, data sovereignty, low latency, and pricing flexibility. We are excited about this offering and view it as a way to significantly increase growth in private cloud and further extend our lead in multicloud. In addition, this offering aligns with our CapEx-light business model, and in the early going, it is clear that customers were hungry for this kind of architecture as we are off to a great early start with this offering as well. As I’ve done in past quarters, I’d like to highlight some customers who are doing truly innovative things in the cloud. On slide 11, let’s talk about Porsche, which is a signature enterprise cloud customer for Rackspace Technology. As you can imagine, automobile manufacturing is a complex undertaking in a complex industry and it requires best-of-breed systems and tools across a variety of IT environments to execute at the very highest level like Porsche does. So Porsche is, in many ways, a textbook case study for multicloud as the company leverages all three hyperscalers, AWS, Microsoft Azure, and Google Cloud for its cloud environment. Accordingly, we are very proud to have been selected as Porsche’s cloud partner of choice to help this world-renowned automaker harmonize and govern its multicloud platform. On slide 12, Autodesk subsidiary Innovyze is one of the preeminent software companies for the water industry. The company knew that it needed to be on the technological forefront to continue to lead its industry. They had to modernize their solution, which was a desktop app with on-premise client servers. While the company had highly skilled SaaS engineers and machine learning and DevOps teams, they did not have the resources to meet an aggressive timeline. Pivoting from a desktop-centric product suite to a SaaS solution would require all hands on deck. They needed to bolster their teams with equally skilled engineers. With Rackspace Technology's help, they built and introduced Info360, a SaaS offering based on AWS, which also included advanced IoT analytics using real-time data. The new platform was built with server-less technology and microservices, enabling their customers to transfer their asset network information to the cloud. It also leveraged geospatial mapping functionalities which were previously available only with additional third-party software. I am so proud of the Rackers who helped improve meet its aggressive timeline so that it could maintain its lead in the industry. Now Amar will take you through our financial results in more detail, then I’ll make some concluding remarks before we open for Q&A. Amar?

Thank you, Kevin, and thank you everyone for joining our call today. Slide 14 recaps our financial results for the quarter. Demand trends across our customer segments and geographical markets continue to remain robust, which coupled with strong execution grow another quarter of double-digit topline and bottomline growth. In the first quarter of fiscal 2021, we reported revenue of $726 million, an increase of 11% year-over-year. This was ahead of our expectations driven by strong performance in our core business. Our core business revenue at $677 million grew 15% year-over-year. Non-GAAP gross margin at 34.4% in the first quarter came in within our expected range and was down compared to prior year, reflecting the mix shift from strong growth in our multicloud business, a decline in our legacy OpenStack, and ongoing investments. While the mix primarily impacted our gross margins, our operating margin at 16.4% was relatively unchanged year-over-year. Compared to prior years, non-GAAP gross profit at $250 million was down 2% due to a decline in our legacy OpenStack revenue, partially offset by growth in gross profits in our core business. Our non-GAAP operating profit was above our expectations at $119 million, up 105 year-over-year. This was a result of operating leverage from strong revenue growth in our multicloud business and OpEx efficiencies primarily in G&A. Non-GAAP earnings per share at $0.23 likewise beat our expectations and was up 44% from last year. This reflects strong growth in operating profit and also lower interest expense from debt repayment and our recent debt refinancing. Slide 15 shows the company’s revenue mix in the first quarter by segment and by geography. Multicloud continues to represent the vast majority of revenue at 80% of the mix and it grew 14% year-over-year. Apps and Cross Platform at 13% of total revenue grew 19% year-over-year, driven by strong performance in application services coupled with strength in our data and security services businesses. OpenStack, which is our legacy business, declined 23% in line with our expectations. This segment now represents only 7% of total revenue. From a regional perspective, Americas continues to represent 75% of our revenue and had a solid 11% year-over-year growth. APJ grew at 28%, while EMEA grew 8% year-over-year. Now moving to slide 16. Let me give you more color on a multicloud segment, which represents 80% of our total revenue. The trending bar chart on this slide shows our successful strategy of driving the significant mix shift to the higher growth markets within this segment. The purple ball represents estimated revenue from our solutions in high growth markets which include all four cloud platforms, AWS, Azure, Google, and VMware. The gray bar represents revenue from our solutions in low growth and mature markets primarily non-VMware private cloud and managed hosting. This chart really shows the business transformation that’s taken place since mid-2019. We leaned into high growth areas of the market such as managed public cloud by winning new logos, while also proactively transitioning some of our existing customers to newer cloud platforms. This was a purposeful strategy to extend our customer relationship and position as well in an attractive and growing cloud services market. On a trailing 12-month basis in our fiscal first quarter 2021, our revenue in high growth markets made up approximately 65% to 70% of our multicloud segment revenue and grew roughly between 30% and 40% year-over-year. Within this segment, our managed public cloud revenue grew even faster, outpacing the overall public cloud market growth. We are targeting the high growth revenue mix within this segment to exceed 80% of total multicloud revenue in the next 12 months to 18 months. We believe our gross margins will stabilize within the 12-month to 18-month period for two reasons. First, this mix shift within the multicloud segment will be largely complete and the majority of our revenue in multicloud will come from high growth areas. Second, we are confident that our land and expand strategy with the new customers we have onboarded since early 2020 will work and drive higher margins in the installed base. I’ll explain why we have this confidence in the next slide. All this bodes well for Rackspace to deliver long-term growth and profit through both revenue growth and operating margin expansion. On slide 17, you will see some proof points of a land and expand strategy with two very different real customer examples, delivering a solution which includes cloud services and infrastructure is a key value proposition to help customers optimize their costs. It creates stickiness in the relationship and provides an opportunity for Rackspace to upsell and cross-sell more higher value solutions. In the first case on the left, we show a long-term customer in the financial services industry. In this case, we led with services and as infrastructure mix grew, you can see a modest decrease in sold gross margin. But as we have cross-sold additional services to this customer, you can see that the margin rebounds and exceeds the starting point. On the right is a relatively new customer in the manufacturing industry. This was one of the new logos we onboarded in the first quarter of 2020. Again, you can see that initial services led margin is high and as the customer deploys a multicloud solution, which includes cloud infrastructure, the margin dips. But then, as we expand our relationship with higher value services, the margin recovers. These are the types of customer use cases that we are focused on replicating across our entire customer base and we are having some good success in this regard. On slide 18, we analyzed the managed public cloud customer cohort from the first quarter of 2020. As you can see, our cumulative bookings have increased 21% in the first year and sold gross margins have expanded over 200 basis points. This is an area that has intense focus in the weekly management system meetings ensuring that we continue to execute our expand strategy. It is also one of the areas for which we elevated the focus of our sales force and account teams and aligned our incentive plans. Slide 19 provides a snapshot of our cash flow and balance sheet. Cash flow was strong in the first quarter due to improved working capital management. We had operating cash flow at $103 million and free cash flow was $66 million. Total capital expenditures in the first quarter was $59 million and total CapEx intensity was 8% in line with our expectations. Please note that in the second quarter we are renewing several large multi-year enterprise license agreements or ELAs. The accounting treatment for these renewals requires us to recognize the full amount of these ELAs as CapEx in the period the deal is signed even though the cash payments are spread out over time. Accordingly, we expect second quarter CapEx intensity in the low-teens, which is in line with our plans but for the full fiscal year of 2021, we expect CapEx intensity to be in the range of 7% to 9%. Our cash CapEx was $37 million and cash CapEx intensity was 5% in the first quarter. For fiscal year 2021, we expect cash CapEx intensity in the 4% to 6% range. Total cash at quarter end was $198 million and we had $375 million of unused revolving credit facility. On slide 20, we have our guidance for the second quarter and fiscal 2021. For the second quarter, we expect revenue in the range of $735 million to $745 million, which at the midpoint is 13% year-over-year growth, core revenue of $690 million to $698 million, which at the midpoint is 16% year-over-year growth, and non-cash operating profit in the range of $113 million to $117 million. This guidance reflects continued investments and mix shift to high growth areas in multicloud. We also expect non-GAAP earnings per share in the second quarter in the range of $0.21 to $0.23. Non-GAAP other expenses of $52 million to $53 million. Non-GAAP tax expense rate of 26% and we expect non-GAAP weighted average shares of $214 million to $250 million. We have made no changes to our guidance for the full year except for a minor change to the full year non-GAAP other expenses and 2021 weighted average share count. After six months at Rackspace, I am more convinced than ever that we have a lot of opportunity and runway for continued growth and shareholder value creation. I will now turn the call back to Kevin for closing comments. Kevin?

Thanks, Amar. Before we open the call for your questions, let me say that I am proud of the first quarter results, which we believe were a strong validation of the Rackspace Technology investment thesis. We continue to grow both total and core revenue by double digits. The earnings leverage inherent in our business model and our cost transformation programs are driving significant improvements in year-over-year profitability. Finally, in the first quarter, our discipline with working capital assets resulted in a dramatic increase in both operating and free cash flow. Most importantly, we’re continuing to position the company for consistent ongoing growth and earnings leverage. The new customers we landed in 2019 and 2020 provide a strong growth foundation and the continued tectonic shift of workloads to the cloud will provide secular tailwinds for years to come. Our new market positioning as the un-GSI, as well as the new service offerings we’ve introduced in 2021, position Rackspace Technology as the clear partner of choice for companies that want to migrate their business to the cloud. We are already seeing significant traction in the market for these initiatives. Also, we are committed to driving cost efficiencies and making ongoing growth investments to continue our financial momentum. So, I remain excited about our opportunities in 2021 as we continue to see double-digit growth in both revenue and earnings per share for the full year. And with that, we will take your questions. Operator?

Our first question today comes from Ramsey El-Assal from Barclays. Please proceed with your question.

Hey, guys. This is Ben on for Ramsey. Thanks so much for taking my question. I wanted to ask about the first, the pace of bookings growth. I know like some time ago we had talked about kind of like a low double digits, low-teens kind of growth rate over the next several years. I understand that you lapped into comps. Is that sort of what we should expect as we kind of lap those comps and get into 2022? Is that sort of a reasonable expectation?

Hey, Ramsey. It’s Kevin here. Thanks for the question. So, I’ll kick off here on bookings and I'm sure Amar will have a few things to add. So as a reminder, Ramsey, the figure for bookings that we report is only new business bookings and the $244 million of bookings in the first quarter is very healthy. New business bookings is just one of the factors in our revenue growth alongside recurring revenue, renewals, contract extensions, churn, implementation, and revenue realization. That one component of revenue, new business bookings grew a healthy 6% year-on-year. We’re also more selective in the first quarter about the deals we pursued because we onboarded a significant install base of new customers in 2020, and now can increase our initial margin on new deals. This, in addition to our land and expand strategy, drove a significant increase in sold gross margins in the first quarter. So, overall, new bookings were solid. We’re committed to our revenue guidance for the year and double-digit revenue growth in 2021 and beyond. Amar, do you want to add something?

Yeah. Let me add here Ben. So, just stepping back, when you take a look at bookings and revenue growth correlation here. We’ve been executing very well on the sales front. We have had strong year-on-year bookings growth for the past seven quarters, and what this has done is this has significantly increased the baseline of our bookings, which captures incremental new business as Kevin mentioned earlier. So at an annualized bookings baseline of roughly $1 billion plus, we will be able to deliver double-digit revenue growth in 2021 and beyond. And having said that, we are focused on continuing to drive bookings performance going forward. Hopefully, that answers your question.

Okay. That’s great. Yeah. Very helpful. Thanks so much. And if I could ask one more, I mean, just in the quarter apps and cross platform, the revenues came in a bit higher than we were expecting which is so great to see. Is that related to maybe like the timing of the State of Texas deal or is that just kind of a broader outperformance? And is that level of revenue growth kind of indicative of what we should see in that line for the rest of the year or should perhaps moderate a little bit? Thanks so much.

So that’s a great question. So it was very broad-based. It was not just application services. So within the applications and cross platform we have three service offerings at a high level. There’s an application services offering, there is data services and security services. And we saw broad-based growth across all those three service offerings. And of course, application services also benefited from the Texas DIR deal. So you should expect that kind of level going forward. Now it will moderate here and there because some of it is transactional business, but we are confident on this particular portfolio.

Yeah. I would also say, Ben, we’re pretty excited about this area. We’ve got lots of investment that we’re making in cloud-native application development, artificial intelligence, machine learning, and a lot of our IoT and edge computing services here. So, yeah, broad-based and when you kind of look at the short-term and medium-term future we’re pretty excited.

To summarize, we generated approximately $97 million in the first quarter. We anticipate remaining within the range of $98 million to $97 million in the coming periods. There may be fluctuations in certain quarters due to the seasonal nature of our business.

Okay. That’s super helpful. Thank you guys so much.

Thanks, Ben.

Our next question comes from Amit Daryanani from Evercore. Please go ahead with your question.

Thank you very much for taking my question. I have two as well. First, I'd like to revisit the discussion on free cash flow. Amar, there was excellent performance for sure. Could you walk me through how we should view free cash flow conversion moving forward, especially considering your comments on Q2? Do we anticipate Q2 being slightly negative before seeing improvement in the latter half of the year?

So, overall, there is a strong emphasis on free cash flow across the entire company, and my optimistic phrase about revenue, profit, and cash flow is frequently reiterated by the team. The company has embraced this fully since my arrival last November. We see a significant opportunity to enhance our cash flow moving forward. We are currently implementing a transformation program that we discussed last quarter, which looks at every aspect of cash flow, from forecasting to collections and trade terms. I anticipate that we will achieve a notable increase in cash flow from operations and free cash flow compared to fiscal 2020. Fiscal 2021 is expected to be significantly better than fiscal 2020, although some quarters may perform lower while others may exceed expectations. Our main goal is to improve the quality of earnings and I believe that our cash flow from operations could reach about 80% to 85% of our operating income in the long run. This is our focus.

Got it. And if I have just go back or kind of have you guys talk a little bit on the gross margin line for the March quarter. Year-over-year I think the performance was sort of notable in terms of drop. I mean, you guys have talked about this in the past. But I’d just love to understand when you look at the gross margin contraction on a year-over-year basis, how much of that do you think was investments Rackspace is making in their business versus mix implications that we’re not going to send those two buckets and then should we be comfortable that gross margins have troughed for calendar 2021 at this point? Thank you.

Let me start by clarifying that our gross margins are not decreasing due to competitive pricing or market pressures. The decline in gross margin is primarily a result of a shift in our business mix influenced by three clear factors. First, our OpenStack business, which is a legacy segment, is declining as anticipated and this is a higher-margin segment, leading to an unfavorable mix impact. Second, we are bringing on new business with initially low margins because of the higher proportion of cloud infrastructure in our solutions and the startup costs that come with it. Third, there is a migration of customers from older private cloud offerings and managed hosting to newer cloud platforms, which we are often managing proactively. All of this has a temporary dilutive effect on gross margins since the older offerings were capital expenditure intensive and had higher gross margins. In contrast, the newer offerings we are selling are capital expenditure light and have initially lower gross margins. However, as we upsell and provide higher value services, gross margins improve, as shown in our earnings presentation with the Q1 2020 customer cohort. We believe our gross margins will stabilize within the next 12 to 18 months for two reasons. First, the shift to high-growth areas within the multicloud segment will largely be complete, and second, we are confident that our land and expand strategy with the new customers we are onboarding will enhance margins in our installed base. I also expect our operating margins to remain in the mid-to-high teens during this period, consistent with other leading U.S.-based IT service providers. Does this help?

Yeah. No. That’s very helpful, Amar. Thank you.

Thanks, Amit.

Our next question comes from Ashwin Shirvaikar from Citi. Please go ahead with your question.

Yeah. Hi.

Hi.

Hello. Can you hear me?

Yeah. Hey, Ashwin. We can hear you.

Hey Amar, I want to ask about the pipeline you’re observing regarding the split between multicloud applications and platform applications. Are you noticing a shift towards more applications and cloud platforms? Additionally, as we introduce Elastic Engineering, how do you think that will impact things in the future, based on your comments?

Thank you, Ashwin. I'll start off and then Amar can add as well. I'll provide some insights on the pipeline as you requested, followed by a discussion on apps and cross-platform in relation to the pipeline, and then I'll touch on Elastic Engineering and my outlook for it. The pipeline remains strong and healthy, continuing to develop. As I mentioned in the earnings call, we are being more selective with the deals we pursue, resulting in a high-quality pipeline focused on higher-margin deals. I'm excited about its growth, which is broad-based. There's still a significant opportunity in multicloud, but we're also seeing a lot of potential in apps and cross-platform. I'm particularly optimistic about the initial signs of Rackspace Elastic Engineering. We believe we have reinvigorated managed services in the cloud with this offering. It has effectively shortened our sales cycles for these deals, which bodes well for future revenue conversion. Rackspace Elastic Engineering has been one of our most successful product launches, with several deals already closed, including one in Europe over the weekend. In just three weeks since its launch, we've signed deals across all regions with both new and existing customers, identifying nearly 100 new business opportunities for Rackspace Elastic Engineering. I'm also excited about the recent release of Rackspace Services for VMware Cloud, which should be very impactful. Our pipeline for professional migration services is also growing significantly.

Got it. And then question I guess for Amar. After 4Q you provided a very detailed split across quarters in terms of the cadence that we should expect. Would you say that anything has changed relative to what you have indicated back then in terms of EBIT revenues and profits?

Thank you, Ashwin, for the question. I have not altered our guidance for the full year. Let’s start by looking at the larger picture and addressing your inquiry about seasonality and the rationale behind our guidance. When considering the overall operating profit for the first half, we are on track with our initial guidance, despite the lower anticipated operating profit for Q2. Moving forward, I want to highlight four main factors that will enhance our profitability in the second half. First, the seasonal expense challenges, like U.S. payroll taxes, which affect the first half, will diminish in the second half. Second, we are making strategic investments in the business that will moderate in the second half. Third, our operational efficiency programs will begin to yield additional savings in the second half compared to the first half. Lastly, we expect revenue growth in the second half to surpass that of the first half, contributing to higher profits. All these factors are reflected in our full year guidance. In summary, I am confident about our full year guidance, and we anticipate staying within the guidance range for revenue, operating profit, and EPS. In the first half, we are already exceeding the midpoint of our revenue guidance. Therefore, I believe there is a slight upward trend in our revenue projections compared to the midpoint of our full year revenue guidance.

Got it. Thank you.

Our next question comes from Frank Louthan from Raymond James. Please go ahead with your question.

Great. Thank you. Walk us through some of the cost savings initiatives that you’re putting into place and where should we see those show up? And then talk to us a little bit about churn, what has that been running and you expect anything different in churn for the remainder of the year? Thanks.

Sure. So let me, let me start with the question on the cost savings. One of the things that I keep reminding people is, first of all, the cost takeout and OpEx efficiencies are all embedded within our guidance. So we would encourage you to follow the guidance from that perspective. But we approach cost initiatives although the same way we approach sales. We build a funnel of efficiency programs, which we regularly fill in and that’s how we look at it. And so just specifically on say OpEx side, because I do believe there is immense opportunity on OpEx to continue to drive efficiency. There are four areas that we are focused on. First is more automation and streamlining processes. Now this is, I would say, Frank, this is technology-driven efficiency programs and productivity improvements that have come for automation. That is the first one. Second is leveraging the G&A as revenue grows and also increasing the leverage of partner R&D, the product development costs that they put in, as well as market development. So we can leverage that given the relationship we have with our partners. Third is driving a higher offshore mix across the company, I do believe that there’s a huge opportunity there while we need to continue driving that as we grow. And the fourth is on the non-labor expense side, there are various ways to optimize our non-labor expenses through supply chain management, we can optimize our real estate footprint, there are legal entities that we’re looking at on the world to see how we optimize those legal entities, better management on the vendor side. So these are all the cost savings initiatives that we have in the funnel that will continue thriving as the business model continues to transform. And we will reinvest some of it back into the business as we have done to continue driving the topline growth and also investing in continuous automation and productivity improvements.

Hey, Amar, do you want me to start on that…

Yeah. Please. Please go ahead.

Yeah. Hey, Frank. It’s Kevin. Yeah. It’s a great question on churn. I’ll just give you a little color here. I would say churn particularly for the newer offerings is coming up. Now it’s very favorably certainly compared to my expectations and compared to some of our older offerings. So that’s really encouraging that the new product offerings that are coming out are not just growing fast but customers are keeping them and keeping them longer and certainly this area of the business has performed better than I had expected. So that’s really I think very, very positive. This is obviously a revenue lever for us that we continue to spend a lot of time with our management system, with our leaders, with our customer success representatives in the field. We’ve got close feedback mechanisms into our new product development. So I feel like we’ve got a really good kind of system here to drive further benefits for the company.

All right. Great. Thank you very much.

Thanks, Frank.

Our next question comes from James Breen from William Blair. Please go ahead with your question.

Thanks. You talked about bookings early on in the Q&A. I was wondering just, can you just give some color around how the bookings growth sort of translates to revenue growth given some of the land-and-expand? As you think about the 6% year-over-year and then sort of the double-digit growth in the revenue side? Thanks.

Yeah. Thanks James.

Thank you.

How about I start on that one Amar and then…

Yeah. Absolutely. Go ahead, please.

Yes. So a little bit more color James on the bookings. First of all, 6,300 deals in the quarter, very diversified bookings, broad-based strengths across geographies, customer segments and industry. We’re pleased with the additional rigor sort of resulting in expansion and sold margins for deals during the quarter. So that’s good. We see momentum in large deals with more than $1 million recurring revenue those were up double-digits in the year. The other thing James, we signed 25% more new logos than we did in last year’s first quarter, excited to see continued momentum in mid-market and enterprise as well. Those two customer segments just to name a few wins we talked about Porsche in my prepared remarks. Apria Healthcare was a great win, TSB Bank in the U.K., Aramex in the Middle East. So, again, broad-based in mid-market and enterprise as well. So, pleased with the momentum. Yeah, Amar, do you want to cover kind of the translation question?

Sure. I think this might be the way I would like to answer this question. We’re very confident about double-digit core revenue growth whether it’s sustainable or not. And the way I think about this is, as I mentioned earlier, that we had a strong year-on-year bookings growth for the past seven quarters that is really elevated the baseline of our bookings, which captures incremental business as I mentioned earlier. And when we take a look at our baseline, if you are in the baseline, annual baseline of roughly about $1 billion, I think you should be able to keep this, this is all incremental business that comes from new logos, as well as new business from the existing customers. It should be able to drive double-digit growth in revenue. That is that’s how the model works. And second also we have a high mix of recurring type revenue, which drives good visibility into the future. So we really feel good about the revenue growth sustainability in 2021 and beyond. And for example, the midpoint of our 2021 revenue guidance indicates that 14% core revenue growth, up from a pro forma growth of about 9% last year. So that shows you that the baseline has gone up and elevated and we can continuously drive double-digit growth into 2021 and beyond.

Yeah. I would add, Amar, would you agree our confidence in the sustainability of our revenue growth as we have seen just in the last time we reported.

Absolutely.

Great. Thanks.

Our next question comes from Matt Cabral from Credit Suisse. Please go ahead with your question.

Yeah. Thank you. Kevin, you called out some revamped deal profitability metrics in your prepared remarks. You kind of alluded to them a couple of times during the answers as well. Just why don’t you expand a little bit more on what the changes are that you’ve made and just if that had any impact more on how you think about forming sales quotas and the different metrics that you comp the sales force on?

Hey, Matt. Great question. So, yeah, absolutely, always looking to continue to raise the bar on sales performance and continue just capitalize on this. I think once in a generation opportunity here in multicloud. So, Matt, what we did in the first quarter particularly in the Americas region, we realigned the team to kind of ensure our sales professionals or solution architects in all of our customer success team members were aligned particularly on this land-and-expand strategy that we’ve been talking about a lot. We kind of enhanced our regional structure to increase accountability. We did and also improve our customer sales covers, so we did a lot of work on that. We also adjusted our compensation plans to support all the goals that we had for this year including selling higher margin deals. So we’re very pleased with kind of the early signs of how those changes have materialized here and the results and in the pipeline and we expect these changes to help us continue both winning new logos and accelerate the success of this land-and-expand strategy.

Got it. And then thanks for all the additional detail you guys gave on the multicloud business. I guess too it’s pretty clear from the charts that the margin on services is higher than infrastructure. But I am curious you can comment on just the magnitude of the spread between the two. And I guess what I am really trying to get is if I take a step back, this segment used to do profitability in the low 40s from a gross margin standpoint. And I am just wondering as the services mix on public cloud matures, do you think you’ll be able to get back to those levels, or should we start thinking about maybe rebasing to a different margin structure as the mix shifts more toward cloud going forward?

I’m not going to provide specific guidance on gross margins. However, I want to emphasize that we are currently in a transitional phase due to a significant shift in our business towards high growth areas as we onboard new customers and migrate existing ones. This creates initial headwinds for our margins. Nevertheless, we believe that gross margins will improve as we upsell and cross-sell more services. For example, during the first quarter, we managed to increase gross margins by over 200 basis points while achieving more than 20% growth in bookings. I encourage you to focus on our operating margins, which we expect to maintain in the mid-to-high teens due to our existing operating leverage and ongoing operational efficiency programs. To illustrate, if we consider our corporate average gross margins around 30%, any incremental business—even if its gross margin falls below this average—will incur approximately 5 to 7 percentage points in additional selling, general, and administrative expenses. However, this will translate to a significant increase in our operating profit by about 20 to 25 percentage points, reflecting the high operating leverage in our model. In the next 12 to 18 months, we will navigate this transitional phase, after which we aim for more stability. Our ultimate goal is to enhance operating margins as we continue to sell, upsell, and cross-sell services, thereby driving revenue growth at a pace that outstrips profit growth. The key to achieving this is through expanding our margins.

Thank you.

Our next question comes from Dan Perlin from RBC Capital Markets. Please go ahead with your question.

Yes. Good evening. It’s actually Matt on for Dan. Following up on the bookings question, is there any way to kind of frame these sort of amount of deals that you’ve walked away from because of the new focus on corporate profitability? And then I have a follow-up.

Yeah. I’ll start, Dan. In terms of the more selective kind of approach that we took in Q1, it was really a result of the success that we had onboarding all the new logos in 2019 and 2020. So, as a result of all that success that we had we really have a strong foundation for growth for the next decade. So we spent quite a bit of time in that land-and-expand strategy as we kind of talked about. And now really our focus is on up leveling the initial margin of the new deals that we run after to drive profitability. So I don’t have a specific figure other than to say, we booked good growth in bookings. We did it at higher margins, our margins grew. So we’re actually very pleased with that result. And as Amar kind of mentioned, our propensity for confidence in revenue growth just continue to increase. I think we did a really nice job balancing here and it was because of the success that we’ve had with all the new logos and the onboarding last year and the year before. So, we’re in a really good spot here.

Okay. And then as a follow up, what are you seeing in terms of employee cost availability, et cetera?

That's an interesting question, Dan. As Amar mentioned, employee costs, including payroll taxes, tend to be higher in the first half of the year compared to the second half. It's important to note that our business is more focused on technology and software rather than heavy labor. In terms of resource and personnel availability, we're in an excellent position. As you may recall, we accept fewer than 2% of our job applicants, which puts us in a strong position regarding labor availability while we continue to expand our workforce globally. Our workforce management system is exemplary, and this is supported by the strength of our core business driven by Rackspace fabric, the software and intellectual property that automates 75% of multicloud workloads, which we believe is the highest level of automation in the industry. So, we feel well-positioned in this area as well.

I can just add ...

Thanks so much. Go ahead.

Dan, I apologize for interrupting. I just wanted to build on Kevin's comments. We have an effective internal management system in place to closely monitor our labor and non-labor expenses. We regularly maintain this oversight and also have a robust hiring process, especially as we expand our professional services due to the significant growth opportunities we see in migration and cloud services. I'm confident in our ability to manage both labor and non-labor costs throughout the company.

Excellent. Thank you.

Thanks, Dan.

And our next question comes from Tien-tsin Huang from JPMorgan. Please go ahead with your question.

Thank you for the follow-up on your earlier comment. Are you being more cautious with some of the initial pricing deals, or are you focusing on finding clients that meet a specific threshold for growth? I'm trying to understand this as clearly as possible. Thank you.

Hey, Tien-tsin. Yeah. I’ll start and Amar if you want to jump in. It’s a little bit of both really, we do have land-and-expand strategy. And as you know we’ve got a very rigorous management system when we set off on a program we want to execute on it, right? At Rackspace we get work done and we focus. So that certainly is a big part. We landed all of these new logos. Amar mentioned you the strategy. If you can’t land then you can’t expand. So we landed and it’s time to expand. So what that does is that is really quite beneficial for us, because as you add new business to existing customers you don’t have to repeat the costs for new account managers and some of the infrastructure that we put in place and some of that more kind of recurring costs, a lot of that fixed cost is already there. So the beauty of expanding is that you can expand to higher margin. So that was certainly part of it. Part of it as well and now I’ll let Amar talk to it is kind of the rigor that he’s brought in and really looking at the margins that we’re willing to accept on new deals and really kind of raising, we talked about up leveling that margin for initial deals. So really a combination of both of them is where we saw the lift in the sold margins in the first quarter and we’re pretty proud of that. Having said that, as we mentioned I think we’re doing a nice job of balancing that against just a tremendous opportunity in the market and our confidence in double-digit revenue growth. Amar?

I believe you explained it very well, Kevin. To summarize, our primary focus is on the returns from our investments. There is significant demand in the market, and we can afford to be discerning. As you previously mentioned, if there are no opportunities for expansion, it wouldn’t make sense to invest in those accounts initially. Therefore, we evaluate potential expansion opportunities and where we can invest to generate returns by offering higher-value services in the future. Some of these relationships can last for a decade, and we want to ensure we are selecting accounts that provide long-term expansion opportunities.

Thank you for that. I appreciate your consideration. Regarding bookings, I wanted to follow up on the Texas contract from last year's second quarter, which was around mid-$30 million to near $40 million. For the second quarter, should we focus on growth sequentially from the first quarter? I believe Kevin mentioned that bookings were improving month by month throughout the quarter, which is why I think it makes sense to look at it this way despite the tough comparison.

Great question, Tien-tsin. I'll start and Amar can jump in as well. To give you some insight, we don't provide guidance on bookings, but we are very confident in our pipeline. We believe there is significant potential for revenue growth. There will be more challenging comparisons due to deals like the one in Texas from last quarter. However, we continue to see positive momentum, and we have observed sequential progress each month this year. We are also focused on making progress in May. Our internal bookings projections align with our revenue guidance, and we are committed to that. We feel strongly about achieving double-digit revenue growth in 2021 and beyond.

I want to add that, as Kevin mentioned, we are not providing guidance on bookings, but we are focusing on the quality of the pipeline and the quality of the bookings. It's not just about the dollar amount of bookings, but also how that revenue will be realized, the margin profile, and the length of the contracts. We use multiple metrics to ensure we have the right mix and quality of bookings, and we feel positive about it. If we are maintaining a very high baseline of around $1 billion in annual bookings, and since these are all net incremental bookings without including renewals or contract extensions, this really supports our goal of achieving double-digit revenue growth as we keep that $1 billion level. I feel confident in this. Even though I've been here for six months and am still learning the business, I've conducted a lot of analysis on how bookings should convert to revenue. We need to ensure we have the right mix of bookings to sustain double-digit revenue growth and the appropriate margin profile, while also focusing on how to expand our margins and generate increasing free cash flow for the company.

Yeah. No. I appreciate. This is one metric of many that’s important and that new sales but just figured I’d ask understanding that the Texas deal was quite special last year. Thank you.

Yeah. Very true.

Yeah. Very true. Thank you.

And ladies and gentlemen, with that, we will conclude today’s question-and-answer session. I’d like to turn the floor back over to Joe Crivelli for any closing remarks.

Thank you. That concludes our Q&A session. If you have any follow-up questions or would like to schedule time with management, please reach out to me at [email protected]. Thank you all for joining us today, and have a wonderful evening.

And ladies and gentlemen, with that, we will conclude today’s conference. We do thank you for attending. You may now disconnect your lines.