Rackspace Technology, Inc. (RXT) Q1 2025 Earnings Conference Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call presents a mixed picture: while there are improvements in non-GAAP operating profit and cash flow, revenue declines and cautious macroeconomic outlook weigh negatively. The Q&A reveals strong sales bookings and improved execution, yet uncertainties in onboarding timelines and infrastructure resale persist. The absence of a share repurchase program further tempers positive sentiment. Overall, the balance of positive operational improvements and negative revenue trends leads to a neutral stock price outlook.
Key Financial Performance
Total Company GAAP Revenue $665 million, down 4% year-over-year, driven by solid performance across both business units.
Non-GAAP Gross Profit Margin Approximately 20% of GAAP revenue, down 0.5 percentage point year-over-year, due to declines in Private Cloud, partially offset by margin improvements in Public Cloud.
Non-GAAP Operating Profit $26 million, up 83% year-over-year, largely due to OpEx efficiencies.
Non-GAAP Loss Per Share $0.06, an improvement of $0.05 year-over-year.
Cash Flow from Operations $13 million, significant improvement from last year.
Free Cash Flow $4 million, significant improvement from last year.
Private Cloud GAAP Revenue $250 million, down 7% year-over-year due to customers rolling off older generation offerings, partially offset by revenue from new bookings.
Private Cloud Non-GAAP Gross Margin 37.1%, down 1.8 points year-over-year, primarily due to lower revenue.
Private Cloud Non-GAAP Operating Margin 24.4%, a year-over-year decline of 2.1 points, driven by lower gross margins, partially offset by OpEx efficiencies.
Public Cloud GAAP Revenue $416 million, down 2% year-over-year as a result of a decline in infrastructure volumes and services.
Public Cloud Non-GAAP Gross Margin 9.5%, up one point year-over-year, driven by improved revenue mix.
Public Cloud Non-GAAP Operating Margin 4.2%, up 2.3 points year-over-year due to improved gross margins and OpEx efficiency.
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Operating Highlights
New Product Launches: Launched Cyber Recovery Cloud in partnership with Rubrik, a fully-managed end-to-end isolated recovery environment for improved cyber resiliency. Introduced OpenStack Flex, an enterprise-grade on-demand infrastructure-as-a-service offering. Launched UK Sovereign Secure, a platform addressing compliance and security for the UK's public sector. Introduced enhanced version of Rackspace Managed Cloud, supporting complex needs of mid-market and enterprise customers. Launched modern operations for databases, a managed service for cloud database environments.
AI Product Launches: Launched Rackspace AI business, a platform for optimizing enterprise AI workloads. Introduced modern operations for data and AI, a managed service for data pipeline management.
Market Expansion: Secured a new win in the healthcare market with a provider in the Northwest for their Epic workloads. Selected to design and operate a Private Cloud solution for a leading European energy company.
Operational Efficiency: Non-GAAP operating profit grew 83% year-over-year, driven by operational efficiencies. Bookings measured by annual contract value grew 9% year-over-year. Cash flow from operations was $13 million and free cash flow was $4 million, showing significant improvement.
Strategic Shifts: Focus on digital transformation for customers through cloud and AI. Pivot towards services and lean operating model in Public Cloud.
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Risk or Challenges
Macroeconomic Environment: The company remains cautious of the broader macroeconomic environment, which may impact onboarding timelines for recently-closed deals and customer decision cycles in the short-term.
Federal Contracts Exposure: Although DOGE's cost-cutting measures have impacted federal agencies, Rackspace's exposure is minimal, with federal contracts comprising only 1% of 2024 revenue.
Private Cloud Revenue Decline: Private Cloud revenue for the first quarter came in at $250 million, down single-digits year-over-year, indicating ongoing challenges in stabilizing this segment.
Infrastructure Resale Decline: Public Cloud revenue was down low single-digits year-over-year due to declines in lower margin infrastructure resale and services.
Forecasting Complexity: Macroeconomic uncertainty adds complexity to forecasting, particularly regarding services revenue performance in 2025.
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Guidance & Outlook
Strategic Partnership with Rubrik: Announced a partnership to launch the Cyber Recovery Cloud, a fully-managed end-to-end isolated recovery environment, expected to drive revenue starting in 2025.
Private Cloud Strategy: Progress in stabilizing Private Cloud with a focus on higher value long-term business and expansion into mid and large enterprise segments.
New Product Launches: Introduced OpenStack Flex and UK Sovereign Secure to enhance service offerings and meet compliance requirements.
AI Initiatives: Launched Rackspace AI business and modern operations for data and AI to optimize enterprise AI workloads.
Q2 2025 Revenue Guidance: Expect GAAP revenue of $653 million to $665 million, down 4% year-over-year at midpoint.
Private Cloud Revenue Guidance: Forecast revenue of $247 million to $253 million, flat sequentially and down 4% year-over-year at midpoint.
Public Cloud Revenue Guidance: Expect revenue of $406 million to $412 million, down 2% sequentially and down 4% year-over-year at midpoint.
Non-GAAP Operating Profit Guidance: Expected to be $25 million to $27 million.
Non-GAAP Loss Per Share Guidance: Expected to be $0.04 to $0.06.
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Shareholder Return Plan
Share Repurchase Program: None
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Key Q&A
Q:What are you seeing from a macro perspective regarding customer decision cycles and onboarding timelines?
A:Bookings came in line with expectations, with Public Cloud hitting targets and double-digit growth. Some deals slipped from Q1 to Q2, but were closed early in April. The funnel remains strong, and customers are not delaying decisions on transformational projects. Caution exists regarding the conversion of bookings to revenue due to potential delays in onboarding.
Q:How has your pipeline evolved over the past several quarters and how have win rates trended?
A:The pipeline has remained strong, with record sales bookings in Public Cloud and Private Cloud over the last few quarters. Sales execution has improved due to a refreshed sales organization and new offerings. The strategy of value-based selling is resonating well, leading to higher-value contracts.
Q:Where are you seeing win rates for the services side and how should we think about infrastructure resale trends?
A:Win rates in the services business have increased, with a pivot to a services-led motion. The infrastructure resale business is expected to decline low-to-mid single-digits for the year, as the focus is on profitable growth and walking away from low-margin deals.
Q:Are you still seeing larger customers willing to pay upfront CapEx for lower OpEx?
A:Yes, there is continued interest from large customers in paying upfront CapEx for lower OpEx, which is beneficial for both parties. Initiatives are in place to drive CapEx efficiency.
Q:Are you seeing traction in regulated industries for your Private Cloud business?
A:Yes, there is good traction in regulated industries like healthcare, BFSI, and energy. A large deal was closed with a European energy company, and the pipeline is developing in these sectors.
Q:Review of Unclear Management Responses
A:Management did not provide specific data on the exact changes in customer behavior or the impact of macroeconomic factors on bookings to billing conversion. Additionally, there was a lack of clarity on the future trajectory of infrastructure resale beyond a general expectation of low-to-mid single-digit declines.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
AI cyber
AI heel
AI use
Americas increase
Americas progress
Bookings contract
Cyber Recovery
DOGE cost
Healthcare
Managed
Non margin
UK
conference Hebbar
cyber resiliency
database
decline Private
delivery model
demand
digit decline
energy
engagement
expansion
improvement cash
infrastructure service
margin point
midpoint
non
platform delivery
point efficiency
recovery
sector
segment margin
service offering
tier
unit
week
win
RXT Transcript
Rackspace Technology, Inc. (RXT) Q3 2025 Earnings Call Prepared Remarks Transcript
Unknown11-7
The earnings call summary presents a mixed picture. Financial performance is stable but not growing, with flat revenue guidance and sequential improvements in operating profit. Challenges include declining margins, competitive pressures, and strategic execution risks. The focus on AI and product innovations are positive, but regulatory and economic uncertainties pose risks. The Q&A section did not provide additional insights. Overall, the neutral sentiment reflects balanced positives and negatives, suggesting minimal stock price movement.
Rackspace Technology, Inc. (RXT) Q2 2025 Earnings Call Transcript
Unknown8-8
The earnings call reveals mixed signals. While there are strong bookings and operational discipline, revenue guidance is down year-over-year, and higher expenses affect margins. The Q&A section provides positive insights into Public Cloud services and AI initiatives, yet economic uncertainties and flat revenue guidance temper enthusiasm. The absence of a new partnership announcement and the lack of guidance raise concerns. Given these factors, the market reaction is likely to be neutral over the next two weeks.
Rackspace Technology, Inc. (RXT) Q1 2025 Earnings Conference Call Transcript
Unknown5-8
The earnings call presents a mixed picture: while there are improvements in non-GAAP operating profit and cash flow, revenue declines and cautious macroeconomic outlook weigh negatively. The Q&A reveals strong sales bookings and improved execution, yet uncertainties in onboarding timelines and infrastructure resale persist. The absence of a share repurchase program further tempers positive sentiment. Overall, the balance of positive operational improvements and negative revenue trends leads to a neutral stock price outlook.
Rackspace Technology, Inc. (RXT) Q3 2024 Earnings Call Transcript
Unknown11-12
The earnings call summary presents a mixed picture. Financial performance is within guidance but shows sequential declines in key areas like public cloud revenue. Management's optimistic guidance is tempered by operational risks and competitive pressures. The Q&A section highlights potential growth in healthcare and sovereign markets but lacks specific revenue contributions. Absence of shareholder returns and deal timing delays are concerning. Overall, the lack of strong positive catalysts and existing risks lead to a neutral sentiment, anticipating limited stock price movement in the short term.
RXT Slides
RXT Report
Frequently Asked Questions
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They are generated by a specialized financial-language model trained exclusively on 15+ years of earnings transcripts. The model extracts financial figures, guidance, and tone with 97%+ accuracy and is regularly validated against human analysts. The full raw transcript always remains available for verification.
