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Rackspace Technology, Inc. (RXT 6.36%)
Q1 2022 Earnings Call
May 10, 2022, 5:00 p.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Joseph Crivelli
Good afternoon, and welcome to Rackspace Technology’s first quarter 2022 earnings conference call. As a reminder, today’s call is being recorded. Kevin Jones, our CEO; and Amar Maletira, our president and CFO, joining us today. The slide deck we will reference during the call can be found on our IR website.
On Slide 2, certain comments we make on this call will be forward-looking. These statements are subject to risks and uncertainties, which could 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 most directly comparable GAAP measures in the earnings release and presentation, both of which are available on our website. After our prepared remarks, we’ll take your questions. To queue up for a question, please use the Q&A function in Zoom.
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 the strategic direction of our business, then Amar will go into detail on the financial results. Turning to Slide 5. Rackspace Technology benefits from secular tailwinds in a cloud market that continues to grow with no signs of slowing.
In the first quarter, our cloud hyperscaler partners all grew year-over-year revenue by 35% to 50% that represents $10 billion of new cloud revenue in the first quarter alone. So cloud revenue continues to accelerate, and the cloud revolution is in the very early stages with winners still to be determined and plenty of white space to attack. And Rackspace Technology remains well positioned as the leading pure-play, multi-cloud services company. In the first quarter, our financial results were in line with our guidance and expectations.
And we, once again, delivered solid growth profitability and cash flow. On the new business front, it was a very productive quarter. We renewed and strengthened our relationship with AWS and closed a major new deal with VMware to support their global edge offerings. We also just launched a new partnership with NVIDIA, which I’ll touch on in a moment.
We closed the acquisition of Just Analytics and began introducing their products and services to our customers globally. Rackspace Technology was recognized as an industry leader in two major analyst reports that were published in the first quarter, including the ISG Provider Lens AWS Ecosystem Partners report, where we were named a leader in three quadrants; and the ISG Index, where we were named a Top 15 Sourcing Standout in the breakthrough 15 category for the global, Americas and EMEA regions. Turning to Slide 6. Revenue growth was solid, with total revenue up 7% and core revenue up 9% compared to last year’s first quarter.
Non-GAAP operating profit was $112 million and non-GAAP EPS was $0.22, both at the high end of our guidance range for the first quarter. As noted on the slide, our first quarter bookings put us on track to achieve our targeted $1 billion of new sales bookings in 2022. As we discussed with investors last quarter, Rackspace Technology and our board of directors have been carefully examining every area of our business, weighing the company’s strategic options to increase shareholder value. I’d like to share with you how we’re thinking about this.
As Slide 7 notes, we operate in two very different multi-cloud markets with different operating models, growth trajectories and investment prospects. On one hand, public cloud is writing a long-term secular growth wave and is a services-centric, capital-light product line where we can make smart investments to capture additional white space and growth opportunities. And on the other hand, private cloud and managed hosting is in a low-growth market where we’re focused on optimizing profit and free cash flow. Our strategy to maximize shareholder value is now coming into focus.
And we are, therefore, considering reorganizing Rackspace Technology across these two markets. We are also exploring other strategic alternatives as noted in our press release. Amar will discuss this more in a moment. We will provide shareholders with details, as well as the growth drivers, profit dynamics and long-term financial model at an Analyst Day in September.
On Slide 8, you can see how development of our partner network is essential and different in each of these two markets. We have painstakingly build our partner network to add value across the two operations, and we work to strengthen these partnerships every quarter. On the left side of the slide, in public cloud, long-term success starts with a strong relationship with the hyperscalers. We must act as a bridge between the needs of our customers and the hyperscalers as we onboard an ever-growing volume of new clients to the public cloud.
In this pane, in the first quarter, we extended our strategic collaboration agreement with market leader AWS for an additional multiyear period, which serves as a strong validation of the value we’ve delivered to AWS’ ecosystem to date. It is also essential in public cloud to provide customers with up-the-stack functionality once they’ve migrated to the cloud. Again, as an example, on the first quarter, we achieved premier partnership level with Snowflake, making us one of their top 30 partners in the U.S. On the right side of the chart, you see our key partners for private cloud and managed hosting.
Here, strategic partnerships have served to provide upside through access to exciting, strategic service adjacencies. As an example of the former, in the first quarter, we launched our new private cloud relationship with BT and started onboarding their customers to Rackspace Technology. As a reminder, the BT deal was the largest in Rackspace Technology’s history with the potential for hundreds of millions of dollars of revenue. We are encouraged that even in the early going, we’re seeing plenty of opportunity for further expansion of our relationship with BT.
Earlier this week, we announced that we are now certified to deploy NVIDIA’s AI computing platform, and we’ve been named an advanced technology partner in the NVIDIA partner network. We are excited about this new partnership with a leading technology company, which we believe will help us grow private cloud and facilitate development of highly compelling services for our customers. Now, let’s talk about the different ways we support our customers. On Slide 9, Carrier Global is a world leader in heating, air conditioning and refrigeration solutions.
After spinning off from its parent company, Carrier was looking to modernize their infrastructure and existing applications. We worked with Carrier to transform the IoT technology that powers all their connected thermostats and build a scalable, robust, cloud-native platform that they could use as the basis for their entire connected device portfolio. After this modernization effort, Carrier reduced technical debt, increased security, sped up infrastructure provisioning time from 35 days to 30 minutes and reduced infrastructure costs by 45%. On Slide 10, Provenir provides
artificial intelligence-powered software to help the fintech industry manage risk across identity, credit and fraud.
Provenir had multiple micro services deployed in Kubernetes clusters running in AWS but didn’t have the capacity to quickly create monitors and dashboards. Rackspace professional services helped Provenir integrate their software with Datadog, resulting in enhanced visibility into their micro services and infrastructure, along with increased accuracy and consistency across multiple environments. More importantly, we built automation into the process, enabling Provenir to launch additional monitoring and alerts for its applications and infrastructure without having to write a single line of code. 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 first quarter. Revenue was $776 million, a 7% year-over-year increase. Core revenue was $735 million, up 9% compared to the first quarter of 2021.
Non-GAAP operating profit was $112 million, which was at the high end of our guidance for the first quarter and was down 6% year over year, primarily due to the impact to gross profit from revenue decline in our legacy OpenStack and mature managed hosting. Non-GAAP operating margin was 14% and non-GAAP earnings per share was $0.22, both at the high end of our guidance for the first quarter. Slide 13 shows the company’s revenue mix in the first quarter by segment and by geography. Multi-cloud continues to represent the vast majority of our revenue at 83% of the mix, and it grew 10% year over year.
Apps and cross platform at 12% of total revenue was down 3% year over year. As we have discussed previously, year over year compares in this segment were impacted by the discontinuance of a noncore product line in 2021. We lapped that strategic change in the second quarter. OpenStack declined 17%, in line with our expectations.
This segment now represents only 5% of total revenue. From a regional perspective, Americas continues to represent 75% of our revenue and had 7% year-over-year growth. APJ grew at 32%, while EMEA grew 2% year over year. Excluding currency impact, EMEA growth would have been in the mid-single digits.
On Slide 14, in the first quarter, operating cash flow was $65 million and free cash flow was $45 million, an increase from $38 million in the fourth quarter. First quarter 2022 operating cash flow included the 2021 annual company bonus payout. Total capex was $31 million and cash capex was $19 million, with capex intensity of 4% and 2%, respectively. We expect total capex intensity of 5% to 7% and cash capex intensity of 3% to 5% for the full year, in line with our previous guidance.
Cash at quarter end was $269 million, up $71 million year over year. On Slide 15, I want to remind the investors that we have a strong balance sheet with no material debt maturities until 2028. In addition, all of our debt was refinanced in late 2020 and early 2021 at historically low rates with minimal financial covenants. At quarter end, total debt was $3.4 billion and net debt was $3.1 billion.
Our net leverage ratio of 4.3 times the adjusted trailing 12-month EBITDA is very manageable for a company with our growth profile. On Slide 16, we have a guidance for the second quarter. We expect total revenue in the range of $780 million to $790 million, core revenue in the range of $744 million to $752 million, non-GAAP operating profit of $93 million to $97 million and non-GAAP EPS of $0.15 to $0.17. Now, let me provide you some additional color on our outlook.
As I mentioned last quarter, we expect revenue growth to accelerate through the year. This is due to three main reasons: first, the ramping of BT related revenue in the third and fourth quarter, which will bolster private cloud and managed hosting within the multi-cloud segment; second, continued growth in managed public cloud as we have a growing pipeline of large opportunities in the multimillion-dollar range that we expect to close in the second half of the year; and third, because of the investments we made in go-to-market, we have many new sales professionals that are ramping in the first half and who will become more productive in the second half of the year. Now, with regard to the operating profit and non-GAAP EPS. The second quarter will be impacted by $15 million to $20 million of investments that we are making to support growth acceleration in cloud services and the start-up of our BT partnership.
These investments are primarily in cost of revenue and some in operating expenses. They represent most of the divergence between our guidance and the current Street estimates. Given the secular growth opportunity in the cloud market, we will prudently invest in long-term profitable growth. On Slide 17, in closing, I would like to recap and summarize what Kevin said earlier.
We operate across both public and private cloud. We are the only pure-play, multi-cloud services company that is addressing both of these markets at scale. That said, the market has evolved rapidly in the last 18 to 24 months. We have been proactively evaluating all of our strategic options to take advantage of this opportunity.
To that end, we have taken a number of actions. First, we completed an in-depth strategic review of the company. Second, we have a clearly defined strategy for the company across public cloud and private cloud managed hosting. Third, we are working on aligning our operating model and reorganizing the company to sharpen our focus in these two markets.
And fourth, we are also working to align our financial models and plans accordingly. As we completed this strategic review and also based on inbound interest for one of our businesses, we concluded that some of the parts valuation of Rackspace Technology could be greater than our current enterprise value. This is in part driven by the attractive growth profile of our public cloud offerings. Accordingly, we are evaluating strategic alternatives and options.
We plan to share details on our strategy, operating organization and long-term financial model at an analyst day to be held in September. With that, we’ll take your questions. Joe, please go ahead and queue up the audience for Q&A.
Joseph Crivelli
Thanks, Amar. [Operator instructions] Our first question comes from Bryan Keane at Deutsche Bank. And Ramsey El-Assal, you’re up next.
Bryan Keane — Deutsche Bank — Analyst
Hi, guys. Just wanted to ask about the margin profile. I know we talked about 14% to 15% EBIT margins for the year. Just any update on that, Amar.
And then on gross margins as well, what’s the outlook there?
Amar Maletira — President and Chief Financial Officer
Thanks, Bryan. Can you hear me?
Bryan Keane — Deutsche Bank — Analyst
Yes, I got you.
Amar Maletira — President and Chief Financial Officer
So yes. Thanks. So Bryan, as noted in the last quarter’s call, we are going to continue to guide the Street one quarter at a time. Now if you look at our Q2 guidance, the midpoint of our guidance implies that the operating margins in Q2 are about 12%.
But also keep in mind, as I mentioned in my prepared remarks, within our second quarter, we do have growth investments of about $15 million to $20 million that impacts operating margins by about 200 basis points, which implies that our operating margin, excluding these investments will be approximately about 14%. So Bryan, long term, we do see operating margins in the low to mid-teens. And so, that’s what our long-term outlook is. Now, with regard to — let me just also — yes, let me also give you some color on the gross margin since you asked that question.
Now, when you look at our Q2 investments of $15 million to $20
million, Bryan, most of these investments are primarily in cost of revenue to deliver incremental services growth in the second half. And these investments are primarily in building out our delivery capability in both professional services and elastic engineering. And so including these investments, Q2 gross margins will be in the 28% to 29% range. But if I again exclude these investments, we would still be in the 30% range for Q2.
Bryan Keane — Deutsche Bank — Analyst
Got it. And just a follow-up. On the strategic review, it sounded like there was an inbound inquiry that came in. Which business was that that got that inquiry? Is that a smaller piece of the business, a larger piece? Just trying to get a sense of what that business unit was.
Kevin Jones — Chief Executive Officer
Bryan, it’s Kevin. I’ll take the strategic question. So right now, we can’t provide specifics due to the ongoing nature of our conversations, both internally and externally. As I mentioned in my prepared remarks, we’re addressing two markets that are very attractive, and we’re really organizing around those two markets.
But I can assure you in terms of strategic alternatives, everything is on the table and we’re evaluating all options, including this current and down interest for one of our businesses. And we’ll provide further information as appropriate in light of the developments.
Bryan Keane — Deutsche Bank — Analyst
Great. Thanks for taking the questions.
Joseph Crivelli
Thanks, Brian. Ramsey El-Assal from Barclays Capital, you’re up. And Frank Louthan, you’re on deck.
Ramsey El-Assal — Barclays Capital — Analyst
OK. Can you guys hear me, OK?
Amar Maletira — President and Chief Financial Officer
Yes. Hi, Ramsey.
Ramsey El-Assal — Barclays Capital — Analyst
Hi. Thanks for taking my question. I was wondering if you can give us some color on the demand environment. I guess just given the more kind of challenging macro backdrop, are you seeing any impacts out there on client decisioning? Any color here would be helpful.
Kevin Jones — Chief Executive Officer
Yes. Sure thing. So let me take that one, Amar. I’ll talk a little bit about the economic environment in general, and then I’ll sort of transition into the demand environment that we’re seeing.
And I would say just kind of upfront while there are near term headwinds in the economy such as supply chain disruption, the war in Ukraine, we do not see any recessionary pressure in this business. If you just think about it, our hyperscaler partner’s group cloud revenue by a record amount, over $10 billion in the first quarter. So cloud is really only accelerating even in the challenging economic environment we’ve seen so far this year. Now if the economy does slip into recession, we think that multi-cloud becomes even more of a must-have for customers because it helps customers save money, quickly scale up or scale down and change their business model.
And we saw this in early 2020 when the economic slowdown caused by COVID, resulted in acceleration of demand for digital services and multi-cloud. So — and that’s the economic — the broader macroeconomic picture and how it relates to our business. Now if I just look at the demand environment, let me give you a little bit of color on how I see the demand environment. And I’ll start out with the market, and then I’ll go through what we’re hearing from customers and partners.
Now the market, Ramsey, really is very strong. We believe that at this point, only 10% to 15% of workloads have been moved to the cloud. So there’s many years of growth runway ahead, and our view is that will result in lots of opportunity for migrations and integrations and managed services. That’s one piece.
Multi-cloud continues to be really the overwhelming choice for customers that are moving to the cloud. And as the hyperscalers continue to innovate, they’re innovating at such a pace that choice is now really abundant in the market for customers, and customers need firms like Rackspace Technology to help them make the right decisions for their cloud environment. So that’s another piece. And then, we see lots of desire for innovation beyond infrastructure, into the apps and data layers of the IT stack in particular.
The other thing we’re seeing is industry. Industry specialization is becoming a trend in a lot of areas. And from a geographic perspective, demand for multi-cloud services continues to pick up pace all over the world, particularly in Europe, in the U.K. and Asia and South Pacific Latin America and, of course, the United States.
So that’s the market. Now from a customer perspective, it’s quite interesting. I was just with a large healthcare CEO last week, and they’re a big customer for Rackspace Technology and a multi-cloud customer. And the CEO told me, “Thank goodness, Rackspace handles cloud for us.” The complexity of multi-cloud really is mind-boggling, and Rackspace takes all that off his plate.
And the other thing he said, and I keep hearing this over and over from other customers, is data. Data is becoming a huge differentiator in healthcare, and customers are saying we want to increase the pace of innovation, both in cloud-native data and cloud-native apps. And we hear this from customers and a lot of industries now that data and apps innovation is important to them and a focus of how they’re becoming more competitive. And then finally, just to wrap up from a partnership perspective, right? The demand for the hyperscalers products continues and what I would say at a breathtaking pace.
Now as with all three hyperscalers last week, and the demand for cloud continues to be amazing. AWS, Google, Microsoft, they’re adding giant, giant amount of sales and revenue every quarter. It’s unlike anything I’ve ever seen in my career. And when I talk to my friends at Dell and VMware, there’s big demand from customers for private cloud and multi-cloud as well.
So our partners all tell me, “We need Rackspace Technology. We need Rackspace to help make sure these customers have the very best services partner to help them on their cloud journey.” So overall, Ramsey, I’d say a very strong demand environment. We’re extremely encouraged by the opportunity.
Ramsey El-Assal — Barclays Capital — Analyst
Great. Thanks for the detailed answer. I’ll hop back in the queue. Thanks for taking my question.
Joseph Crivelli
Thanks, Ramsey. Our next question comes from Frank Louthan with Raymond James. And Bradley Clark, you’re on deck.
Frank Louthan — Raymond James — Analyst
Great. Thank you. So maybe go in a little more detail on the dip that you’re forecasting here for the operating income in Q2. What’s kind of causing that sequential decline? And then, if you don’t end up selling the whole company, give us a little more color on what does the reorg look like? What sort of things will you be adjusting going forward in areas you think you need some more help?
Amar Maletira — President and Chief Financial Officer
So I’ll take the first question. And Kevin, you can address the next one. So Ramsey Frank, in terms of the dip, sequential dip in our operating profit, we did about $112 million in Q1. It’s going down to about $95 million in Q2.
That’s the midpoint of our guidance, and that’s mainly the investments that we are making, Frank, in the — in our business. And if you take a look at the investments, and I’ll give you some additional color on where we’re making those investments. Investments are in three areas, right? First is we are making investments, as I mentioned earlier, to expand delivery capacity for professional services and elastic engineering across all three c
loud platforms. So that includes AWS; GCP, which is Google; as well as Microsoft Azure.
Second, we’re also making some investments, Frank, in our go-to-market organization. And third, we are making some investments, which are mainly start-up investments as we ramp our BT accounts, and BT is expected to reach a full run rate revenue by the end of second half. And so as I mentioned earlier, most of these investments are in cost of revenue in Q2, and so this is more basically creating the decline in operating profit going from Q1 to Q2. That’s mainly the reason.
Kevin Jones — Chief Executive Officer
Very good. And the second question that you had, Frank, around how we’re going to kind of reorganize and manage the business and the company, just a little bit of a backdrop. We operate, I would say, a very attractive multi-cloud market, right? And it spans across both public and private cloud. And as we talked about, we’re the only pure-play, multi-cloud services company that’s addressing both of these markets at scale.
Having said that, when you look at the market, the market’s evolved, and it’s evolved pretty rapidly in the last 18 to 24 months. And we have a public cloud business that has significantly scaled from 18 months ago, and we’ve been proactively evaluating all of our strategic options to take advantage of those public cloud market opportunity and sharpened our focus. So public cloud and private cloud. We’ve got very different business dynamics as we talked about on the call.
They also require very different skill sets and levels of investment to manage. So — and we’re basically developing a plan to best align our resources with these findings. And what we’re going to do, Frank, at this analyst and investor day in September, we’ll provide additional details on what this looks like, both from an operational standpoint and a financial standpoint on a go-forward basis. But hopefully, that gives you some color.
Frank Louthan — Raymond James — Analyst
Great. Thank you.
Joseph Crivelli
Thanks, Frank. Bradley Clark from BMO Capital, you’re up next, and Matt Roswell after that.
Bradley Clark — BMO Capital Markets — Analyst
Hi. Thank you for taking my question. Got two parts here. First, I want to ask the incremental investments in the June quarter focused around expanding delivery capability and the BT account.
More broadly, you potentially win other large deals. You mentioned to multimillion dollar opportunities in the pipeline in the second half. How do you think about the incremental investment that these large deals are going to take? And the idea of that with every one of these large deals that’s more incremental investment that’s not already in the model? Or are you investing more so ahead of time so that this $10 million to $15 million becomes less and less over time? And then part two of the question, I wanted to ask about pricing. And in an inflationary environment with higher wage inflation, the operating environment may be different than some other services companies.
But are you having pricing conversations with your customers to potentially offset some higher wages and expenses? And if so, any comments you can make sort on the strategy there?
Amar Maletira — President and Chief Financial Officer
Yes. So let me take the first one, Bradley, thank you very much for asking the question. To give you a little bit of more specifics on investments, so you’re absolutely right. We are making investments ahead of the demand that we are seeing, mainly in cloud services.
As you know, there’s a lot of demand in cloud services. So this $15 million to $20 million of investments we are making in Q2 will also carry forward into Q3 and Q4, but it will be a run rate cost, but it will be supported by incremental revenue, right? So you’ve got to build ahead of the demand. That’s what we are doing. Now as we see more growth opportunities, we may prudently make additional investments to capture further growth, and these investments will be primarily in cost of revenue to build capability in advance of the services demand that we are seeing in cloud.
And we will continue to update the Street if there is any change to our investment outlook per se, right? So it’s a very dynamic market. We see a lot of demand, as Kevin talked about. And it is very prudent for us to continue investing and capturing those demand because, as you know, services is a very sticky business. And it has a — and we have a very high recurring revenue base, too.
So these are the kinds of investments we’ll make to continue driving profitable growth in the business. Now regarding your second question around pricing, that’s a very interesting question. We — if you look at — and I will have Kevin jump in here too. We are not having a kind of a pricing pressure, so to speak, from our customers.
The markets that we play in, in cloud services, whether it is application migration or modernizing of those applications or even data migration and data ops, these are very hot areas of the market today, and it is sometimes very difficult to find skills in those markets. So we do not see a lot of pricing pressure. We’re also not a very labor — we’d not have a very labor-intensive model, so to speak. We have — and our key differentiator is combining labor with automation, and we have talked about it at length in the past that we have driven about 75% of automation on our workflows.
And so, that’s the reason why we do not see a lot of pressure neither on the pricing side and on the labor cost side because we are not a very labor-intensive model. Kevin, do you want to add anything here?
Kevin Jones — Chief Executive Officer
I think you said it really well. Yes, we — Bradley, we don’t have nearly as many employees, there’s a lot of firms out there in the market. So we don’t have that same exposure to the labor inflation that’s happening in the broader economy. And yes, we definitely don’t see any pricing pressure per se.
And where it makes sense if we’re delivering more value, it makes sense for us to reflect that additional value in our pricing, then we certainly are happy in those conversations. But in general, it’s not as much of a factor in our business, particularly because we’re very automated. We’ve got 75% of our multi-cloud transactions automated, highest automation in the industry and really a technology automation-driven business if that makes sense.
Bradley Clark — BMO Capital Markets — Analyst
Thank you very much.
Joseph Crivelli
Thanks, Brad. Our next question comes from Matt Roswell at RBC Capital Markets. Go ahead, Matt. Matt Roswell, are you there?
Matt Roswell — RBC Capital Markets — Analyst
Yes. Hello, can you hear me?
Joseph Crivelli
Yes, we can hear you now.
Matt Roswell — RBC Capital Markets — Analyst
Sorry about that. I was wondering to follow up on the investments, and I apologize for this. I was wondering if you would be willing to kind of bucket how much of them are going into the three areas, i.e., the cloud investment, the go-to market and for BT? And I think you just said we should kind of expect the same level into the third and fourth quarter. When would you expect to see kind of the revenue return on the investment?
Amar Maletira — President and Chief Financial Officer
Yes. So let me start with the last question first. The revenue return on the investments are typically fast. It’s within three to 12 months — three to six months.
It’s a very fast return on the investments because we need to build delivery capability ahead of the services where we can deliver the services to our customers. Now, in terms of giving you a little bit a
dditional color on the investments, as I mentioned, most of the investments are in cost of revenue, OK? So when you take a look at our investments, I would say 75% to 80% of those investments are roughly in cost of revenue, and the balance is in opex. And the 75% to 80% of that — the investments are into hiring professional services resources, elastic — resources for elastic engineering, etc. So that’s where our investments are going.
So opex investments are mainly in go-to-market as we continue to expand our go-to-market and some in starting up our BT environment.
Matt Roswell — RBC Capital Markets — Analyst
If I could sneak in a quick one. How should we think about cash conversion in the second quarter?
Amar Maletira — President and Chief Financial Officer
So I will just talk about cash conversion in general.
Matt Roswell — RBC Capital Markets — Analyst
OK.
Amar Maletira — President and Chief Financial Officer
As you know, we had a very strong cash flow year in 2021 with all the improvements we drove, and those improvements are very sustainable. And long term, we expect cash flow from operations to track to anywhere between 60% to 70% of our operating profit. For example, in Q1, our operating cash flow was quite solid at $65 million, which was at about 58% of our operating profit. But also keep in mind, the first quarter is typically the seasonal low for cash flow as it is a quarter in which we pay employee bonus.
So there was a big cash payout from an employee bonus perspective. So I would say if you’re tracking to 60% to 70% of our operating profit conversion to cash flow from operations, I would say the quality of earnings is — I consider a very high-quality earnings. Now, our cash capex is also going down. And our cash capex should be anywhere between, say, 3% to 5% of our revenue and that the capex intensity continues to go down, so which means our free cash flow margin should be really good.
This is a comment overall for fiscal ’22.
Matt Roswell — RBC Capital Markets — Analyst
OK. Thank you.
Joseph Crivelli
Thanks, Matt. We haven’t had anyone else queue up, so we’ll shut it down there. I want to thank everyone for joining us. If you have a follow-up, please give me a shout at [email protected], and we’ll talk to you soon.
Duration: 37 minutes
Call participants:
Joseph Crivelli
Kevin Jones — Chief Executive Officer
Amar Maletira — President and Chief Financial Officer
Bryan Keane — Deutsche Bank — Analyst
Ramsey El-Assal — Barclays Capital — Analyst
Frank Louthan — Raymond James — Analyst
Bradley Clark — BMO Capital Markets — Analyst
Matt Roswell — RBC Capital Markets — Analyst