Rackspace Technology, Inc. (RXT) Q3 2021 Earnings Call Transcript

Rackspace Technology, Inc. (RXT 1.91%)
Q3 2021 Earnings Call
Nov 15, 2021, 5:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Joe Crivelli

Good afternoon, and welcome to Rackspace Technologies' third quarter 2021 earnings conference call. As a reminder, today's call is being recorded. Kevin Jones, our CEO; and Amar Maletira, our president and CFO are joining us today. The slide deck we will refer to today can be found on our IR website.

On Slide 2, certain comments we make on this call will be forward-looking. Those statements are subject to risks and uncertainties, which could cause actual results to differ. The discussion of these risks and uncertainties is included in our SEC filings. 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 and presentation, both of which are available on our website. After our prepared remarks, we will take your questions.

[Operator instructions] I'll now turn the call over to Kevin.

Kevin Jones -- Chief Executive Officer

Good afternoon, and thanks for joining us. I'll discuss quarterly highlights and touch on some customer case studies then Amar will go into detail on the financial results. Turning to Slide 5. 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 percent, Azure grew 48 percent, and Google Cloud grew 45 percent. To put things in context, in 2020, incremental new cloud spending with our hyperscaler partners was $22 billion. That total is expected to grow to $34 billion in 2021.

And next year, analysts estimate that new cloud spending will grow again to approximately $44 billion. As they move their business to the cloud, customers are grappling with the pace of change, especially mid-sized and commercial businesses and state and local governments. They need help and Rackspace Technology is poised to be their partner of choice wherever they are in their cloud journey. In the third quarter, we took several steps to solidify our market-leading position.

The financial results reflect this. Revenue, core revenue, non-GAAP operating profit, and non-GAAP EPS all grew at a healthy year-over-year clip. We delivered strong operating cash flow of over $100 million for the third quarter in a row. For the first three quarters of 2021, operating cash flow is now in excess of $300 million.

We continue to introduce timely new product and service offerings that help our customers get the most out of their cloud investment. Our new elastic engineering model is seeing fast adoption, and we have expanded it to several new areas. And we are very excited about the launch of Rackspace Data Freedom, a new storage solution based on robust Rackspace-developed technology that gives customers a cloud-adjacent storage option to manage cost and increase data fluidity across multiple cloud platforms. Our broad customer base puts our finger on the pulse of the cloud market.

Our service development strategy is driven by those insights. Because of this, Rackspace Data Freedom is targeted at a massive white space in the cloud market and addresses a pain point we see and hear about every day from our customers. Having our ears so close to such a diverse customer base, especially mid-sized and smaller businesses is a key Rackspace advantage. On the ESG front, earlier this month, we launched our first comprehensive ESG report since returning to the public markets.

I'll talk more about this later in the presentation. We are investing in our employees and culture to differentiate Rackspace Technology as an employer of choice in the current war for talent. This helps us attract prospective employees and retain our most valuable assets, our dedicated Rackers. These investments are delivering results.

In the third quarter alone, we are 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 6, we continue to deliver revenue growth well into the double digits. Total revenue was up 12 percent and core revenue was up 15 percent compared to last year's third quarter. Non-GAAP operating profit was up six percent and non-GAAP EPS was up 32 percent.

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 7, a key growth strategy for Rackspace Technology is to forge partnerships that bring best-in-class cloud solutions to our customers. Accordingly, in the third quarter, we strengthened our relationships with leading cloud solutions companies such as Snowflake, Datadog, Cloudflare, and Platform9 [audio gap] partner in Q3.

We are investing and staffing up our team of Snowflake-certified engineers over the next few quarters. With Data-dog, we were recently named a gold-tier partner, and we're working closely with them to develop mutual go-to-market sales motions. We are developing a tailored elastic engineering service for Cloudflare to help our customers customize, optimize, and manage their security platforms. As we noted on our most recent earnings call, channel partner development is a priority for Cloudflare in 2022.

As you may remember, earlier this year, we invested in Platform9, a SaaS-managed Kubernetes platform that builds and operates clusters across edge, private, and public clouds. With Platform9, we are bringing these solutions to market to help make Kubernetes simple to own, operate, and scale. Strong partnerships like these in creative joint go-to-market solutions are exciting growth opportunities for Rackspace Technology, alongside managed public cloud and our private cloud offerings. Now, I'd like to share some case studies demonstrating the value that Rackspace Technology delivers for its customers.

First, one from the Middle East. On Slide 8, BFC Group is a major fintech company based in Bahrain, providing global money transfers, foreign exchange, and currency and payment solutions. BFC needed to modernize its core applications to better support a physical business model while accelerating a digital transformation and preparing for international expansion. At recommendation of AWS, BFC Group selected Rackspace Technology as a support partner for migrating its core application to the cloud and providing ongoing management and consultancy services.

Using a comprehensive solution, including AWS and a long-term contract for Rackspace Security Essentials, we help the company create a flexible and stable platform, allowing it to focus on what it does best: helping customers move their money around the world. BFC Group saw an immediate uplift in critical measures of performance such as transactions processed per second and improved customer experience. On Slide 9, Arthrex is a privately held medical device company based in Florida. Arthrex is a pioneer in the field of arthroscopic surgery and has developed over 13,000 innovative products addressing a range of orthopedic procedures.

Arthrex wanted to reimagine and modernize the postsurgery experience by creating a digital communications portal that would 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, alongside a mobile app to download media and metadata from Arthrex's medical imaging technology. This solution both increased patient satisfaction and reduced the administrative burden on surgeons. Turning to Slide 10.

Last week, Rackspace Technology published its first comprehensive ESG report since going public in 2020. Suffice it to say, invest in ESG has always been part of the company's DNA, and it's an extremely high priority for me, our executive leadership team, and our board of directors. ESG is not something we do because it's fashionable, it is part and parcel of our existence as a company and is rooted in how we work every day. The ESG report demonstrates that Rackspace Technology is 100 percent committed to being a thoughtful steward of our planet's natural resources and an employer of choice for the most talented professionals in the technology industry.

Additionally, it highlights our focus on being a force for good in the communities we serve 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?

Amar Maletira -- President and Chief Financial Officer

Thank you, Kevin, and thank you, everyone, for joining our call today. Slide 12 recaps our financial results for the quarter. Revenue was $763 million, a 12 percent year-over-year increase. Core revenue grew 15 percent year over year to $718 million.

Non-GAAP operating profit was $124 million, up six percent year over year. Non-GAAP operating margin was 16.2 percent, within our mid- to high-teens expected range. And non-GAAP earnings per share was $0.25, up 32 percent from last year. Let me now touch on the third quarter bookings.

As Kevin noted, bookings in the third quarter were $200 million, and we still expect to hit our $1 billion bookings target for fiscal 2021. We've won a large competitive deal, which we had been working for sometime 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 focused on the land part of this equation as we had a massive opportunity to establish beachheads with new customers. The deals with onboarded in 2020 were heavily weighted toward infrastructure in the early stages of this customer relationships, which drives higher-dollar bookings. At the start of 2021, we aligned our sales and incentive plans more toward the expense side of the equation to deepen and grow revenue and profitability with our new customers while also selectively adding new logos.

This has tilted the sales equation toward contracts but relatively with smaller-gross bookings but higher profitability. To put a finer point on this, Slide 13 provides additional details on how we are growing our business with the new managed public cloud customers that we onboarded in 2020. As this slide demonstrates, our land-and-expand strategy is working. Customers for all pre-2020 cohorts have grown their business with Rackspace Technology well into the double digits for the past four quarters and the increase in sold gross margins on these bookings ranges from 200 to 400 basis points.

In addition, we have seen cumulative bookings and saw gross margin increase in every quarter since these customers were onboarded. This validates our go-to-market strategy. Last year, we pressed the accelerator on growth to onboard new logos. Now, we are benefiting from the installed base, and each quarter, our customers buy additional high-value services from us.

Looking ahead, we will be investing to broaden and deepen our portfolio of service offerings as the cloud market evolves at a rapid pace. This is a once-in-a-lifetime opportunity in a wide, open market space. We plan to take maximum advantage now while it's still early. Slide 14 shows the components of our revenue, as well as the transition of our multicloud revenue to growth businesses.

Multicloud continues to represent the vast majority of our revenue at 82 percent of the mix, and it grew 15 percent year over year. Apps and Cross Platform at 12 percent of total revenue grew 11 percent year over year, driven by growth in applications services, coupled with strength in our data and security services business. OpenStack, which is our legacy business, declined 20 percent, and this segment represents only six percent of total revenue. Growth market offerings are now in the mid-70 percent range of the multicloud segment and continue to grow between 30 percent and 40 percent year over year.

As shown on Slide 15, we had another strong order 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 take for the year-to-date total free cash flow to $224 million. Total capex was $35 million and total capex intensity was five percent. Cash capex was $21 million and cash capex intensity was three percent in the third quarter. For fiscal year 2021, we expect cash capex intensity in the four percent to six percent range.

Total cash increased to $260 million at the quarter-end. We had $375 million of unused revolving credit facility, bringing total liquidity toward $600 million. On Slide 16, we have our guidance for the fourth quarter. We expect revenue in the range of $766 million to $776 million, core revenue of $724 million to $732 million, non-GAAP operating profit of $118 million to $122 million, and non-GAAP earnings per share in the range of $0.23 to $0.25.

We also expect non-GAAP other expenses of $51 million to $52 million, and non-GAAP tax expense rate of 26 percent, and non-GAAP weighted average shares of 212 million to 214 million shares. On the right side of the slide, you'll see what this computes to for the full year. With that, we'll take your questions. Joe, please go ahead and queue up the audience for Q and A.

Joe Crivelli

Thanks, Amar. [Operator instructions] Our first question comes from Kevin McVeigh at Credit Suisse and Tien-Tsin Huang from JPMorgan. You're on deck.

Kevin McVeigh -- Credit Suisse -- Analyst

Great. Thanks so much, and congratulations on the results. I wonder if you could help dimensionalize the large booking deal you were awarded after quarter-end. Give us a sense of, you know, how that settles into 2022 as well.

And again, congratulations on the results.

Kevin Jones -- Chief Executive Officer

Hey, thank you very much, Kevin. Kevin Jones here. So, look, on the big deal, you know, we said, you know, we'd be very selective in terms of which new deals we would pursue. And as a cloud solutions provider, you know, this deal is in our wheelhouse from a, you know, products standpoint and services standpoint and fits into our strategy.

So, we ran hard after it. We were, you know, awarded the business in October and beat, you know, some of our largest competitors. And, you know, we were selected for the differentiated cloud solutions that we provide. So, what we're doing now, Kevin, we're working diligently with this customer to, you know, 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'll provide more, you know, more details when we can formally announce the deal. But I can tell you we believe it will be the largest deal in the history of the company.

Kevin McVeigh -- Credit Suisse -- Analyst

It sounds great. And then, obviously, it seems like you've made some progress, too, with some of these partnerships with Snowflake, Datadog, Cloudflare. Any sense of, you know, how that could ultimately impact and potentially translate to revenues as we think about the model going forward?

Kevin Jones -- Chief Executive Officer

Yeah. Thanks for that, Kevin. Yeah, we're pretty excited about this. You know, we want 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, Datadog, Cloudflare, and Platform9. Let's talk about these for a minute. You know, with Snowflake, we're a select partner and on our way to becoming a premier partner. We're actively hiring more Snowflake-certified engineers over the next few quarters so that's exciting.

With Datadog, we're recently named a gold-tier partner and, you know, what we're doing there is we're jointly developing go-to-market sales motions. You know, Cloudflare, noted on our most recent earnings call that channel partner development is a priority for them. So, you know, really excited to be early on that front, and we're developing elastic engineering for Cloudflare to help our customers, you know, customize, optimize, and manage their security platforms. And earlier this year, we made the equity investment in Platform9.

Platform9 is a, you know, a SaaS-managed Kubernetes platform, and what we're doing in Platform9 is we're bringing edge, private, and public cloud solutions to market to help make Kubernetes simple to operate and scale. So, these are really exciting partnerships, exciting growth opportunities for Rackspace Technology, of course, alongside our managed public cloud and private cloud solutions. So, you know, Kevin, we've had encouraging progress. You know, I think it's a little early to, you know, forecast revenue contributions from the offerings, but we're on it.

Amar Maletira -- President and Chief Financial Officer

And just to add there, Kevin, if I may. This is, again, in line with our strategy of moving up the stack. We know right now what's going in the market. There's a lot of businesses coming at the infrastructure layer.

The next opportunity is on the cloud-native application and then data. So, you can see that all this partnership is at an early stage and this is in line with us moving up the stack from a strategy perspective.

Kevin McVeigh -- Credit Suisse -- Analyst

Congratulation again.

Joe Crivelli

Thanks, Kevin. Tien-Tsin Huang from JPMorgan, you're up. And Ramsey El-Assal from Barclays is on deck. Tien-Tsin, do we have you?

Tien-Tsin Huang -- JPMorgan Chase and Company -- Analyst

I think I'm on mute. Can you hear me?

Joe Crivelli

There you go.

Kevin Jones -- Chief Executive Officer

Hey, Tien-Tsin.

Tien-Tsin Huang -- JPMorgan Chase and Company -- Analyst

Perfect. Thanks, Joe, for moderating. It's good to talk to you, guys. So, yeah, the second half bookings, I'm just focusing in on that, the $500 million or so implied in your guidance.

Can we annualize that as a good baseline to consider for 2022 since this captures your more selective client prospecting criteria as you just talked about, or was that dangerous to do given the large deal you expect to close in the fourth quarter?

Kevin Jones -- Chief Executive Officer

So, I want to just give you a little color, Tien-Tsin. Thanks for the question on bookings' momentum and a little bit about the pipeline then I'll have Amar, you know, jump in as well. You know, so, we feel good about the bookings' momentum. You know, we're focused this year on optimizing, you know, our bookings mix for bookings dollars and profitability.

You know, we've seen good results in the sold gross margins in the third quarter were the highest level that we've seen in years. And, you know, we think a billion dollars of new business bookings is the right number to go after, and we see plenty of business in the pipeline to, you know, to accomplish this goal. And then in our -- in terms of our pipeline, you know, it's healthy. You know, we continue to refine our sales focus.

And what we're seeing with customers is they're really grappling with the pace of change, right, particularly mid-sized commercial businesses and state and local governments. And, you know, we're seeing them come to Rackspace to help them on their cloud journey. The other thing is lots of interests, Tien-Tsin, in our new product offerings. So, you know, elastic engineering, delivery model has redefined how managed services are delivered in the cloud.

We've got Data Freedom, which is extremely exciting. This is the offering we launched in September and, you know, we would launched that directly as a result of feedback that we're hearing from our customers, and that's a pain point that they're experiencing on their cloud journey. So, you know, feeling good about bookings' momentum and solid pipeline.

Tien-Tsin Huang -- JPMorgan Chase and Company -- Analyst

Great. Thanks for that, Kevin. Just maybe for you, Amar, if you don't mind on the SG and A leverage showing some strength there to help offset some of the gross margin pressure, as you said you would do. Is there more to go there? Anything unusual in the third quarter to call out?

Amar Maletira -- President and Chief Financial Officer

No, I think it came in line with our expectation, Tien-Tsin. And so, as I've indicated in the previous earnings call, we are focused on making sure that we also make investments on both opex, as well as cost of revenue as we see a huge opportunity in the marketplace. So, to answer your question, the SG and A came in line with our expectations.

Tien-Tsin Huang -- JPMorgan Chase and Company -- Analyst

Very good. Well done. Thank you.

Amar Maletira -- President and Chief Financial Officer

Thanks.

Kevin Jones -- Chief Executive Officer

Thanks, Tien-Tsin.

Joe Crivelli

So, Ramsey El-Assal from Barclays, you're up. And Amit Daryanani from Evercore, you're on deck.

Ramsey El-Assal -- Barclays -- Analyst

Can you hear me, gentlemen?

Joe Crivelli

Yeah.

Kevin Jones -- Chief Executive Officer

Hey.

Ramsey El-Assal -- Barclays -- Analyst

Hey, how are you tonight? I wanted to ask about the Apps and Cross Platform growth, excluding the nonstrategic exit. What was the impact from that in the quarter? And do you see any other pockets of the business that are similarly nonstrategic?

Amar Maletira -- President and Chief Financial Officer

So, you know, we gave some details in last quarter earnings call, Ramsey, that the nonstrategic piece of the business, the quarterly run rate was about $3.5 million to $4 million. So, which is about three to four points of growth that we, you know, since we did an end of life on that. I think that was in -- that result in a headwind. But within that portfolio, we have data that is growing very, very rapidly.

We have security services that's also growing very rapidly. We will continue to look at that portfolio, making sure that, you know, we retain the strategic piece of the portfolio that aligns to our cloud play. And I think we continuously look and -- look to rationalize the portfolio. So far, there's nothing else in that portfolio that we will deemphasize.

We already did that with a restructuring exercise we did in July.

Kevin Jones -- Chief Executive Officer

I would agree. I would just add, Ramsey, you know, security data service is pretty hot areas of the, you know, the business right now, you know, particularly given, you know, the challenges that our customers are facing with high-profile hacks and ransomware and every company really needs to be hypervigilant with regard to security. And then data, of course, you know, as companies have moved to the cloud, they're eager to mine this data for valuable insights. And, you know, we've got, you know, strong data services practice.

And then, you know, broad, you know, more broadly within the app development word, again, we're focused on cloud-native application development. You know, a lot of companies have lifted and shifted applications to the cloud without optimizing those applications. So, you know, this is another hot area for us.

Ramsey El-Assal -- Barclays -- Analyst

Thanks for that, and one quick follow-up for me. Can you talk about the capex flows in the quarter? They came in a lot lower than our model. And anything to read into in terms of a new run rate or any type of lumpiness there that we should be aware of?

Amar Maletira -- President and Chief Financial Officer

Yes. So, Ramsey, 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 seven percent to nine percent range. In the -- in Q3, it came in certainly in line with what we were expecting.

I expect now for the full year to be at the low end of the seven percent to nine percent range, in line with our -- us moving toward a more capital-light model. So, it's going as planned.

Ramsey El-Assal -- Barclays -- Analyst

Got it. OK. Thank you very much.

Joe Crivelli

Thanks, Ramsey. Amit Daryanani from Evercore, you're up. Rob Palmisano, Raymond James, you're on deck.

Amit Daryanani -- Evercore ISI -- Analyst

Perfect. Hopefully, you all can hear me.

Joe Crivelli

Yes.

Amit Daryanani -- Evercore ISI -- Analyst

I have two questions as well. You know, I guess, first off, you know, Kevin, I have to look at these investments you've talked about on the cloud solution that you're, you know, you're maybe accelerating them and then you talked about Cloudflare, Snowflake, etc. I'm curious, is the demand for these solutions really coming from your existing customers, existing logos that use Rackspace for infrastructure, and they want to scale this into helping them build and manage the cloud data solutions? Or are these relationships that's been helping you go out and get new logos that you would eventually bring on the infrastructure side?

Kevin Jones -- Chief Executive Officer

Yeah. Very good. So, maybe I'll start and then Amar can talk about some of the investments. So, yeah, absolutely.

We do see a, you know, momentum, Amit. You know, with the installed base of customers that we have on it and the the the new logos. You know, if you just look at, you know, Q3 bookings, thousands of individual deals, you know, very diversified across geos and segments, 30 percent of bookings from international markets. And year to date, you know, to your point, we've actually seen a good growth on new logos signed.

As we talked about, you know, sold margin, highest spend in a couple of years. So, you know, we're pleased with our new logo progress. And we've made, you know, I think, a really good progress on our installed base account planning, you know, as we've gone forward and, you know, looked at retraining, upskilling our account executives. We've got much more sophisticated account planning.

This is all through regions of the world, and so we're seeing pipeline develop from that as well. So, really, it's a combination of new logos and installed base.

Amit Daryanani -- Evercore ISI -- Analyst

Got it. And then, Kevin, can I just follow up, you know, in '21 as in so far, right, we have seen gross margins to have some downside pressure. I think it's been a big focus among folks out, but your free cash flow, I think, on the other hand, has been remarkably consistent. You know, just in the expansion of free cash flow margins and even dollars -- total free cash dollars.

I'm wondering as we think about calendar '22, do you think we are likely to see gross margins and free cash flow both improve in a much more consistent manner? Or do you think you can continue to expand free cash flow even if you don't see gross margins move higher next year?

Amar Maletira -- President and Chief Financial Officer

So, Amit, I will give you more color on the 2022 when we announce the Q4 results. But just to give you a little bit more color on gross margins, you know, our gross margins, as you know, in Q3 '20, you know, third quarter came in line with our expectation. And also, my guidance that I provided to you, guys. As you know, this is a transition phase, driven by all the internal mix shift that is going on, not a mix on market dynamics.

And as we transition to a cloud-centric business model, we are undergoing some necessary shifts in the business model. So, we believe that the gross margins will stabilize at the end of this transition period, and we expect the profitability to inflect upwards with a favorable mix shift through the higher-value cloud services that 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. Our sold gross margins have improved significantly, and this has become the leading indicator and gives us confidence that margins will expand with higher-margin products as the opportunity for us to expand into this installed base, you know, just -- is just ahead of us.

And that's where we're making investments. As Kevin mentioned, we're making investments in cloud-native application development, we're making investments in data services. These are the up-the-stack opportunities as customers migrate more and more workloads with application and data from the on-prem environment to a cloud environment, a multicloud environment. So, that's -- now, regarding cash flow, very good, you know, progress as you see.

You rightly said, you know, our cash flow from operations and free cash flow have significantly improved. We draw 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 to roughly about 70 percent or so to the operating profits on a non-GAAP basis. And that basically defines the quality of earnings, and that's what we are focused on.

Amit Daryanani -- Evercore ISI -- Analyst

Perfect. Thank you very much.

Joe Crivelli

Thanks, Amit. Rob Palmisano from Raymond James you're up. And we have Keith Bachman from BMO, you're on deck. Rob, are you there? All right.

We'll come back to you. Keith -- oh, there you go.

Rob Palmisano -- Raymond James -- Analyst

Right. Got it. So, hey, guys, 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 offshoring process?

Amar Maletira -- President and Chief Financial Officer

Yes. Thanks, Rob. CLB, if you recall, we said will drive a savings of $95 million to $100 million of gross run-rate savings. And we have taken most of this -- most of it will come from labor actions, and through Q3, the majority of those actions have been completed.

And the rest of, you know, there will be nonlabor stuff that will continue and will be largely done by the end of Q4 or in fiscal Q1 2022. So, we will see the realized -- the full annualized benefit in 2022. We started seeing those savings even now, and we are reinvesting it back into the business. So, that's where we are, so we are tracking to our plans.

Offshoring is going quite well. We are building a very good global footprint. We have accelerated that, too, in line with what we had planned for. And so, very pleased with the progress there.

Rob Palmisano -- Raymond James -- Analyst

Great. Thank you.

Joe Crivelli

Thanks, Rob. Keith Bachman from BMO, you're up. And then our final question will come from Brian Keane at Deutsche Bank.

Keith Bachman -- BMO Capital Markets -- Analyst

Hi. Thank you. I had a few if you can hear me OK. Amar, I want to come to you and follow up on the gross margin question.

Two things on gross margins. A, could you -- last quarter you gave a specific number for the September quarter, and I was hoping you could do the same thing for Q4 just so we all keep our models within certain parameters. And then part B of the question is, again, on the last quarter call, you indicated that, you know, gross margins would bottom and perhaps get -- move upward but you needed four to five quarters. So, we should be thinking about the September quarter, December quarter of '22.

I'd like to see if you could just revisit that because I thought Slide 15, in particular, was interesting in that you've gotten pretty good gross margin performance on that -- on a cumulative process from your cohort trends in 2020. So, we could just revisit on those gross margin trends, and I have a follow-up.

Amar Maletira -- President and Chief Financial Officer

Yes, So, I would say, Keith, gross margins were in line with our expectations for Q3 as you indicated. In the last quarter earnings call, I provided some color on gross margins and expected trends and have no changes from that position at this time.

Keith Bachman -- BMO Capital Markets -- Analyst

OK. But any specific gross margin do you want us to think about for Q4?

Amar Maletira -- President and Chief Financial Officer

So, you know, I think I gave that color last quarter, so I think I'll go with that, whatever I had mentioned last quarter.

Keith Bachman -- BMO Capital Markets -- Analyst

OK. All right. Then turning to cash flow if I could. You also -- you're taking some restructuring charges and whatnot this year and so on.

The question is really geared toward how much of that is cash? And so, the reason I'm asking the question, could that be presumably lower restructuring charges in '22? Is that a potential tailwind to your reported free cash flow metrics in '22?

Amar Maletira -- President and Chief Financial Officer

Yes, I think that's a great question, Keith. Yes, that will be a tailwind in fiscal '22 because, you know, those restructuring charges that accrued and some of those cash that also go out the door in fiscal 2021. We will have some of it in the first half of 2022 but then it would serve as a tailwind from thereafter.

Keith Bachman -- BMO Capital Markets -- Analyst

OK. Any quantification on the amount that's impacting '21 versus early '22 on a cash basis?

Amar Maletira -- President and Chief Financial Officer

I don't have the numbers right in front of me but, you know, I'll give you that color when we announce the Q4 earnings. We will have more model numbers tied to it.

Keith Bachman -- BMO Capital Markets -- Analyst

OK. OK. I will jump back in queue. Thank you.

Amar Maletira -- President and Chief Financial Officer

Thank you.

Joe Crivelli

Next question comes from Brian Keane at Deutsche Bank. Go ahead, Brian.

Brian Keane -- Deutsche Bank -- Analyst

Hi, guys. I just want to ask about how you're measuring market share, you know, looking at those high-growth markets. Although you guys are growing fast, I guess it's 30 percent to 40 percent, which is 70 percent to 75 percent multicloud. You know, is there -- are you gaining enough of the share there, or is there still room to grow because as you outlined, that area still grows significantly fast upwards of sometimes 50 percent? And then secondarily, just thinking about the nongrowth markets, which I think is the non-VMware private cloud and managed hosting.

Is that an area that's going to be relatively flattish growth while the cloud side of the business should grow the fastest?

Amar Maletira -- President and Chief Financial Officer

So, I would start -- I'll use some additional color based from what we have said before. So, the growth market, which is roughly about 70 percent to 75 percent of the multicloud mix is growing within 30 percent to 40 percent. And if you take a look at, you know, our competitors in this space or even the hyperscalers, we are actually growing faster than them. So, you know, you can say based on that that we are taking market share.

But again, this is such a broad market, it's so fragmented, it's hard to figure out whether we're taking market share or not. But clearly, from a growth -- you know, from a growth rate, it's a good indicator that we are winning in the marketplace. Now, as it relates to the mature side of the product, you know, I will not give any specific guidance. If you do the math, that business is declining and rightfully so because, you know, some of them -- some of the business, we are purposefully moving to the growth side of the business.

We are helping the transition -- customers' transition because that's where the future is. You know, the earlier the transition to the new side -- the new -- the growth side of the business, our good side of portfolio, we have an upsell opportunities for these clients where we can go and sell assets that, you know, cloud-native application, data services, more migration services as more and more workloads get transferred as developed new work tools will have them to build modern applications. And that's the plan. And so, you -- that's the dynamics within those two sub-portfolios within multicloud.

Kevin Jones -- Chief Executive Officer

Yeah. Because what I'm thinking about is thinking about the big picture here with the mix of business being pulled higher for those high-growth markets as they become a bigger percentage of revenue. And, you know, some of the mature market shrinks in multicloud plus OpenStack shrinks as a percentage, I think, down to six percent of mix. And it doesn't naturally.

The revenue growth accelerates a little bit just based on mix alone.

Amar Maletira -- President and Chief Financial Officer

That's -- I would say, if you think through that rationally, that's probably the case. Now, we will give you more color on that and what happens in fiscal '22 when we announce our Q4 results. But, you know, that -- I think you're thinking the right way.

Kevin Jones -- Chief Executive Officer

Yeah, I think that's the intention of our strategy of the company exactly. I think you've summarized it well as to move to the, you know, the hyper-growth areas of the market and that's where our investment and our focus is, Brian.

Brian Keane -- Deutsche Bank -- Analyst

OK. Thanks, guys.

Kevin Jones -- Chief Executive Officer

Thanks, Brian Keane.

Joe Crivelli

Well, thank you, 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 [email protected]. Have a great rest of your day, and we'll talk to you soon.

Duration: 39 minutes

Call participants:

Joe Crivelli

Kevin Jones -- Chief Executive Officer

Amar Maletira -- President and Chief Financial Officer

Kevin McVeigh -- Credit Suisse -- Analyst

Tien-Tsin Huang -- JPMorgan Chase and Company -- Analyst

Ramsey El-Assal -- Barclays -- Analyst

Amit Daryanani -- Evercore ISI -- Analyst

Rob Palmisano -- Raymond James -- Analyst

Keith Bachman -- BMO Capital Markets -- Analyst

Brian Keane -- Deutsche Bank -- Analyst

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