Q1 2025 Rackspace Technology Inc Earnings Call
Operator: Good day and welcome to the Rackspace first quarter 2025 earnings webcast. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session.
Good day and welcome to the rack space first quarter 2025 earnings webcast. At this time all participants are in a listen only mode.
After the Speakers' presentation, there'll be a question and answer session and instructions will be given at that time.
Operator: Instructions will be given at that time. As a reminder, this call may be recorded.
A reminder, this call maybe recorded.
Sagar Hebbar: I would like to turn the call over to Sagar Hebbar, head of investor relations. Please go ahead. Thank you and welcome to Rackspace Technology's first quarter 2025 earnings conference call. I'm Sagar Hebbar, Head of Investor Relations. Joining me on today's call are Amar Maletira, our Chief Executive Officer, and Mark Marino, our Chief Financial Officer. As a reminder, certain comments we make on this call will be forward-looking. These statements involve risks and uncertainties which could cause actual results to differ. A discussion of these risks and uncertainties is included in our SEC filing. Rackspace Technology assumes no obligation to update the information presented on the call, except as required by law.
Saga High: I'd like to turn the call over to Saga High bar head of Investor Relations. Please go ahead.
Speaker Change: Thank you and welcome to rack based technologies.
Speaker Change: 2025 earnings conference call.
Speaker Change: I'm talking about head of Investor Relations.
Speaker Change: Joining me on today's call are Amorality, Ross, our Chief Executive Officer, and Mark Marino, Our Chief Financial Officer.
Speaker Change: Other than Minder certain comments, we make on this call will be forward looking.
Speaker Change: These statements involve risks and uncertainties, which could cause actual results to differ I.
Speaker Change: A discussion of these risks and uncertainties is included in RSA SEC filings.
Speaker Change: Based technology assumes no obligation to update the information presented on the call except as required by law.
Sagar Hebbar: Our presentation includes certain non-GAAP financial measures and adjustments to these measures, which we believe provide useful information to our investors.
Speaker Change: Our presentation includes certain non-GAAP financial measures and adjustments to these measures, which we believe provide useful information to our investors.
Sagar Hebbar: In accordance with SEC rules, we have provided a reconciliation of these measures to their most directly comparable gap measures in the earnings press release and presentation, both of which are available on our investor relations website.
Speaker Change: In accordance with Etsy theaters, we have provided a reconciliation of these measures with that most directly comparable GAAP measures in the earnings press release and presentation, both of which are available on our Investor Relations website.
Amar Maletira: I will now turn the call over to Amar for an update on the business. Thank you, Sagar, and welcome, everyone, to our first quarter 2025 earnings conference call. Results in the first quarter of 2025 exceeded our expectations across all key metrics. Revenue was at the high end of our guidance while profit and EPS exceeded our guidance range. This marks the 11th consecutive quarter in which we have either met or exceeded our guidance. Our operational turnaround is gaining steady momentum with growth in pipeline across both business units, increased bookings, and improved efficiency. Bookings measured by annual contract value grew 9% year-over-year in the first quarter.
Omar: I will now turn the call over to Omar for an update on the business.
Speaker Change: Thank you saga and welcome everyone to our first quarter 2025 earnings conference call.
Omar: Results in the first quarter of 2025 exceeded our expectations across all key metrics.
Omar: Revenue was at the high end of our guidance, while profit and EPS exceeded our guidance range.
Omar: This marks the 11th consecutive quarter in which we have either met or exceeded our guidance.
Omar: is getting steady momentum with growth in pipeline across both business units, increased bookings and improved efficiency.
Omar: Bookings measured by annual contract value grew 9% euro here in the first quarter.
Amar Maletira: driven primarily by strong performance in the Americas, which saw a 13% increase. Our non-GAAP operating profit grew 83% year-over-year, and we also saw significant growth year-over-year in both cash flow from operations and free cash. As we drive a digital transformation agenda for our customers enabled by cloud and AI, we are also helping them with cyber resilience.
Omar: Riven primarily by strong performance in the Americas, which saw a 13% increase.
Omar: Our non-GAAP operating profit grew 83% year-over-year, and we also saw significant growth year-over-year in both cash flow from operations and free cash flow.
Sagar Hebbar, Amar Maletira, Mark Marino
Omar: As we drive our digital transformation agenda for our customers enabled by cloud and AI, we are also helping them with cyber resiliency.
Amar Maletira: Last week we announced a strategic partnership with Rubrik. Together, we launched the world's first fully managed end-to-end isolated recovery environment called Cyber Recovery Cloud, powered by Rubrik's leading technology and Rackspace's managed private cloud platform. This solution allows customers to recover clean data and restore critical business systems within hours, not weeks or months, following a cybersecurity breach, significantly improving their cyber resilience.
Last week, we announced a strategic partnership with Rubek.
Omar: Together, we launched the world's first fully managed end-to-end isolated recovery environment called Cyber Recovery Cloud powered by rubric's leading technology and Rackspace's managed private cloud platform.
Omar: This solution allows customers to recover clean data and restore critical business systems within hours, not weeks or months, following a cybersecurity breach significantly improving their cyber resiliency.
Amar Maletira: Both Rubrik and Rackspace anticipate solid demand for this offering, and we expect it to drive revenue for Rackspace starting in 2025. Although DOTE's cost-cutting measures have impacted federal agencies. I would like to highlight that Rackspace's exposure is minimal with federal contracts comprising only 1% of 2024 revenue.
Omar: Both rubric and Rackspace anticipate solid demand for this offering, and we expect it to drive revenue for Rackspace starting in 2025.
Although doats, costeting measures have impacted federal agencies.
Amar Maletira: That said, we remain cautious of the broader macroeconomic environment, which may impact onboarding timelines for recently closed deals and customer decision cycles in the short term. However, we remain well positioned to capitalize on long-term secular trends in public cloud, private cloud, and AI.
Omar: That said, we remain cautious of the broader macroeconomic environment which may impact onboarding timelines for recently closed deals and customer decision cycles in the short term.
Omar: However, we remain well positioned to capitalize on long-term secular trends in public cloud, private cloud and AI.
Amar Maletira: Now let me get into our business performance, starting with private cloud. On the heels of a record-setting fourth quarter of 2024, sales bookings in private cloud, we delivered good results in the first quarter of 2025, with bookings remaining flat year-over-year, despite slippage of a couple of large deals into the second quarter, which we closed in the first two weeks in April. Factoring in these deals that subsequently closed, our private cloud bookings for the first quarter would have grown 20% year over year. Private cloud revenue for the first quarter came in at $250 million right in line with guidance and down single digits year over year.
Omar: Now, let me get into our business performance starting with Private Cloud.
Omar: On the heels of a record-setting fourth quarter of 2024, sales bookings in private cloud we delivered good results in the first quarter of 2025 with bookings remaining flat year over year despite slippage of a couple of large deals into the second quarter which we close in the first two weeks in April .
Omar: Factoring in these deals that subsequently closed, our private cloud bookings for the first quarter would have grown 20% year-o'-year.
Omar: Private Cloud Revenue for the first quarter came in at $2.50 million, right in line with guidance and down single digits your ORIOT.
Amar Maletira: After many periods of double digits decline in private cloud, we saw moderation in revenue decline for two consecutive quarters.
Omar: After many periods of double-digit decline in private cloud, we saw moderation in revenue to decline for two consecutive quarters.
Amar Maletira: We have made meaningful progress stabilizing private cloud and believe it's on a path back to growth as this trend continues. This progress is a result of consistent bookings performance and steady improvement in revenue retention. We are winning higher value long-term business, underscoring the strength of our platform and our strategic expansion into the mid and large enterprise customer segment. In the first quarter, we continue to expand in the healthcare market by securing a new win with a healthcare provider in the Northwest that chose Rackspace Healthcare Cloud for their Epic and other clinical and non-clinical workloads. This move is designed to lower their IT costs while modernizing their IT infrastructure and improving service levels for their end users.
Omar: We have made meaningful progress stabilizing private cloud and believe it's on a path back to growth as this friend continues.
Omar: This progress is a result of consistent bookings performance and steady improvement in revenue retention.
Omar: We are winning high-value long-term business, underscoring the strength of a platform and our strategic expansion into the mid and large enterprise customer segments.
Omar: In the first quarter, we continue to expand in the healthcare market by securing a new win with a healthcare provider in the North West that shows Rackspace Healthcare Cloud for their epic and other clinical and non-clinical workloads.
Omar: This move is designed to lower their IT costs while modernizing their IT infrastructure and improving service levels for their end users.
Amar Maletira: We are also expanding across other regulated industries. Rackspace was selected to design, build and operate a customized private cloud solution for a leading European energy company. This is a long term agreement to migrate two of the six data centers onto a private cloud platform. By partnering with Rackspace, the company is moving away from managing complex infrastructure internally and embracing a flexible platform driven operating model. This win not only reflects the growing demand for private cloud solutions, but also marks a significant entry into the energy vertical.
Omar: We are also expanding across other regulated industries. Rackspace was selected to design, build and operate a customized private cloud solution for a leading European energy company. This
Omar: By partnering with Rackspace, the company is moving away from managing complex infrastructure internally and embracing a flexible platform-driven operating model.
Omar: This win not only reflects the growing demands for private cloud solutions but also marks a significant entry into the energy vertical.
Amar Maletira: Private cloud is also pushing forward with new products and solutions. I shared details about our strategic partnership with Rubrik, which was largely driven by our ability to deliver the broad range of assets and operational expertise required to support cyber recovery and maintain critical business continuity in the event of a cyber attack. We also launched OpenStack Flex, an enterprise-grade, on-demand infrastructure-as-a-service offering that provides secure, fully supported, and monitored infrastructure. It simplifies hybrid cloud management by bridging the gap between dedicated and multi-tenant environment. Additionally, we introduce UK Sovereign Secure, a next generation platform built to address the stringent compliance and security requirements of UK's healthcare, Government and Public Sector.
Omar: Private Cloud is also pushing forward with new products and solutions.
Omar: I shared details about a strategic partnership with Thrubrick, which was largely driven by a ability to deliver the broad range of assets and operational expertise required to support cyber recovery and maintain critical business continuity in the event of a cyber attack.
Omar: We also launched OpenStack Flex, an enterprise-grade on-demand infrastructure such as a service offering that provides secure, fully supported and monitored infrastructure.
Omar: It simplifies hybrid cloud management by bridging the gap between dedicated and multi-tenant environments.
Omar: Additionally, we introduce UK's Sovereign Secure, a next-generation platform built to address the stringent compliance and security requirements of UK's health care, development and public sector.
Amar Maletira: This solution offers secure, reliable hosting tiers and advanced security operations and monitoring, purpose built to meet UK public sector standards.
Omar: This solution offers secure, reliable hosting tiers and advanced security operations and monitoring purpose-built to meet UK public sector standards.
Amar Maletira: We are encouraged by the success of the private cloud strategy in both defending and expanding our cloud business. as we focus on execution. We are seeing strong momentum across our pipeline, bookings, and new product offerings, reflecting growing customer demand for hybrid cloud environment.
Omar: We are encouraged by the success of the private cloud strategy in both defending and expanding our cloud business.
Omar: As we focus on execution, we are seeing strong momentum across our pipeline, tokens, and new product offerings, reflecting growing customer demand for hybrid cloud environments.
Amar Maletira: Now turning to public cloud. In the first quarter, public cloud bookings grew 16% year-over-year, driven by strong execution in the Americas, which delivered 26% year-over-year growth. This performance reflects continued progress on a land and expand strategy, enabling deeper customer relationships and higher value engagement. Public cloud revenue for the first quarter reached $416 million, exceeding our guidance range and was down low single digits year over year due to declines in lower margin in for resale and services. Public Cloud delivered several notable wins this quarter. As a key highlight, we secured a significant follow-on engagement with a top-tier aircraft leasing company.
I am your friend. I am your friend. I am your friend. I am your friend.
Omar: Now turning to public cloud. In the first quarter, public cloud bookings grew 16% year-over-year, driven by strong execution in the Americas, which delivered 26% year-over-year growth.
Omar: This performance reflects continued progress on a land-and-expand strategy, enabling deeper customer relationships and higher value engagements.
Omar: Public Cloud Delivered Survelled Notable Wins this quarter. As a key highlight, we secured a significant fall-on engagement with the top-tier aircraft-leasing company.
Amar Maletira: We are designing and implementing a modern, flexible data infrastructure to support the business growth that is projected to save them multimillion dollars over five years. Additionally, we expanded our work with one of the largest U.S. airlines, securing new data, DevOps, and security services.
Omar: Additionally, we expanded our work with one of the largest US airlines, securing new data, DevOps and security services.
Amar Maletira: On the product side, we launched an enhanced version of Rackspace Managed Cloud, a full-stack hybrid cloud managed service built to meet the complex needs of mid-market and enterprise customers. The platform now supports two flexible delivery models. A shared services option powered by a Rackspace cloud management platform and a dedicated delivery team model that integrates with customers existing tools. We also expanded our modern operations portfolio with the launch of Modern Operations for Databases, a managed service that complements in-house teams by managing and optimizing cloud database environments.
Omar: On the product side, we launch an enhanced version of Rackspace Managed Cloud, a full-stack hybrid cloud-managed service built to meet the complex needs of mid-market and enterprise
The platform now supports two flexible delivery models.
Omar: A shared services option powered by a Rackspace Cloud Management platform and a dedicated delivery team model that integrates with customers' existing toolsets.
Omar: We also expanded our modern operations portfolio with the launch of modern operations for databases, a managed service that complements in-house teams by managing and optimizing cloud database environments.
Amar Maletira: In summary, in public cloud we remain focused on disciplined infrastructure resale, a pivot to services, and a lean operating model. While macroeconomic uncertainty adds complexity to forecasting, we anticipate services revenue to perform well in 2025, assuming no significant external disruption.
Sagar Hebbar, Amar Maletira, Mark Marino
Omar: In summary, in public cloud, we remain focused on disciplined infrastructure resale, a pivot to services and a lean operating model.
Omar: While macroeconomic uncertainty adds complexity to forecasting, we anticipate services revenue to perform well in 2025, assuming no significant external disruptions.
Amar Maletira: Turning to AI, we continue to make strong progress with FAIR with approximately 60 wins and over 200 opportunities in a pipeline. Nearly 20% of which are already in advanced stages, along with several active leads we are pursuing.
Omar: Turning to AI, we continue to make strong progress with fair, with approximately 60 minutes and over 200 opportunities in a pipeline. Nearly 20% of which are already in advanced stages, along with several active leads we are pursuing.
Amar Maletira: This quarter, Private Cloud Business Unit launched Rackspace AI Business, a comprehensive AI-ready platform designed to optimize enterprise AI workload. Built on a private cloud infrastructure, the solution is engineered to support a wide range of AI use cases.
Omar: This quarter, Private Cloud Business Unit launched Rackspace AI Business, a comprehensive AI-ready platform designed to optimize enterprise AI workloads. Built on a private cloud infrastructure, the solution is engineered to support a wide range of AI use cases.
Amar Maletira: Additionally, in public cloud, we introduce modern operations for data and AI, a managed service that streamlines organization wide data pipeline management. This offering automates data preparation, analysis, and integration tasks.
Sagar Hebbar, Amar Maletira, Mark Marino
Omar: Additionally, in public cloud, we introduce modern operations for data and AI, a managed service that streamlines organization-wide data pipeline management.
This offering automates data preparation, analysis and integration tasks.
Amar Maletira: Before I wrap up, I want to sincerely thank our customers, partners, and all our Rackers. I'm proud of what we achieved this quarter. and encourage to see continued momentum with new customers and expansion with existing customers.
Omar: Before I wrap up, I want to sincerely thank our customers, partners, and all our rackers. I'm proud of what we have achieved this quarter, and encouraged to see continued momentum with new customers and expansion with existing customers.
Amar Maletira: As we look ahead, our goal for 2025 is clear, stay focused on our key strategic priorities and build a sustainable business model that consistently delivers revenue, profit, and cash flow growth.
Omar: As we look ahead, our goal for 2025 is clear. Stay focused on a key strategic priorities and build a sustainable business model that consistently delivers revenue, profit and cash
Mark Marino: With that, I will turn it over to Mark to walk us through the financial results and guidance. Thanks, Amar. In the first quarter, total company gap revenue of $665 million was down 4% year over year, but met the high end of our guidance driven by solid performance across both business Non-GAAP gross profit margin was approximately 20% of GAAP revenue, down half a percentage point year over year, due to declines in private cloud, partially offset by margin improvements in public cloud. For the quarter, non-GAAP operating profit was $26 million exceeding the high end of our guidance and up 83% year over year, largely due to OPEC's efficiency.
Omar: With that, I will turn it over to Mark to walk us through the financial results and guidance.
Mark Marino: Thanks Amar. In the first quarter, total company gap revenue of $665 million was down 4% year over year, but met the high end of our guidance driven by solid performance across both business
Mark Marino: Non-GAAP gross profit margin was approximately 20% of GAAP revenue down half a percentage point year-over-year due to declines in private cloud partially offset by margin improvements in public cloud.
Mark Marino: For the quarter, non-GAAP operating profit was $26 million, exceeding the high end of our guidance and up 83% year over year largely due to our tax efficiencies.
Mark Marino: Non-gap loss per share was $0.06 compared to our guided range of $0.07 to $0.09 loss per share, an improvement of $0.05 year-over-year.
Mark Marino: Don gap loss per share was six cents compared to our guided range of seven to nine cents loss per share An improvement to five cents year over year
Mark Marino: First quarter cash flow from operations was $13 million and free cash flow was $4 million. which was a significant improvement from last year. We ended the quarter with $128 million in cash on hand and $473 million of total liquidity.
Mark Marino: First quarter cash flow from operations was $13 million and free cash flow was $4 million, which was the significant improvement from last year. We ended the quarter with $128 million in cash on hand and $473 million of total liquidity.
Mark Marino: Turning to our segment results. For private cloud, gap revenue for the first quarter was $250 million, which was in line with our guidance. Total revenue decreased 7% year over year due to customers rolling off older generation offerings partially offset by revenue from new bookings. Private cloud non gap gross margin was 37.1% down 1.8 points year over year, primarily due to lower revenue, resulting in lower fixed costs absorbed. Non-GAP segment operating margin was 24.4%, a year-over-year decline of 2.1%.
Mark Marino: Turning to our segment results. For Private Cloud, Gap revenue for the first quarter was $250 million which was in line with our guidance.
Mark Marino: Total revenue decreased 7% year-over-year due to customers rolling off older generation offerings partially offset by revenue from new bookings.
Mark Marino: Private Cloud non-GAAP Gross Margin was 37.1% down 1.8% year-over-year, primarily due to lower revenue, resulting in lower fixed-cost absorption.
Mark Marino: non-GAAP Segment Operating Margin was 24.4%, a year-over-year decline of 2.1 points, driven by lower gross margins partially offset by op-x efficiencies.
Mark Marino: driven by lower gross margins, partially offset by OPEX efficiency.
Mark Marino: In our public cloud segment, gap revenue was $416 million, surpassing the high end of our guide. Total revenue was down 2% year-over-year as a result of a decline in infrastructure volumes and services. Non-GAAP gross margin was 9.5%, up one point year-over-year, driven by improved revenue management. Non-GAP segment operating margin was 4.2%, up 2.3 points year over year, due to improved gross margins and OPEX efficiency.
Mark Marino: In our public cloud segment, gap revenue was $416 million, surpassing the high end of our guidance.
Mark Marino: Total revenue was down 2% year over year as a result of a decline in infrastructure volumes and services.
Mark Marino: non-GAAP Gross Margin was 9.5% up 1. year over year driven by improved revenue mix.
Mark Marino: non-GAAP Segment Operating Margin was 4.2% up 2.3 points year over year due to improved gross margins, endophex efficiency.
Mark Marino: Now on to guidance. We expect second quarter gap revenue of $653 to $665 million, down 4% year over year at the midpoint, driven by our reduced forecast for low margin infrastructure resale volume. In private cloud, we expect revenue of $247 to $253 million, flat sequentially and down 4% year-over-year at the mid-price. We expect public cloud revenue of $406 to $412 million.
Rack, Kevin McVeigh, Mark Marino, Rackspace Tech
Mark Marino: Now on to guidance. We expect second quarter gap revenue of $653 to $665 million. Down 4% E over here at the midpoint. Driven by our reduced forecast for low margin infrastructure
Mark Marino: In Private Cloud, we expect revenue of $247 to $253 million, last sequentially and down 4% year over year at the midpoint.
Mark Marino: We expect public cloud revenue of $406 to $412 million, down 2% sequentially, and down 4% year-over-year at the midpoint.
Mark Marino: down 2% sequentially and down 4% year over year at the mid Total non-GAAP operating profit is expected to be $25 to $27 million, and non-GAAP loss per share is expected to be $4 to $6 million. Our non-GAAP tax rate is expected to be 26% while non-GAAP other expenses will be in the $42 to $46 million range. Non-GAAP share count is expected to be 244 to 248 million shares.
Mark Marino: Total non-GAAP operating profit is expected to be $25 to $27 million, and non-GAAP loss per share is expected to be $4 to $6 cents.
Mark Marino: Our non-GAAP tax rate is expected to be 26%, while non-GAAP other expenses will be in the 42 to 46 million dollar range.
Mark Marino: non-GAAP Share Count is expected to be 244 to 248 million shares. I'll now turn the call back over to Sagar.
Sagar Hebbar: I will now turn the call back over to Sagar. Thank you, Mark.
Operator: Let us begin the question and answer session.
Sagar Hebbar, Amar Maletira, Mark Marino
Thank you, Mark.
Operator: We ask everyone to limit discussion to one question and one follow-up. Please go ahead. Thank you.
Speaker Change: Let us begin the question and answer session. We ask everyone to limit discussion to one question and one follow-up. Please go ahead.
Operator: If you'd like to ask a question, please press star 1. If your question has been answered and you'd like to remove yourself from the queue, please press star 11 again.
Speaker Change: Thank you. If you'd like to ask a question, please press star 1-1. If your question has an answer and you'd like to remove yourself from the queue, please press star 1-1 again.
Irvin Liu: Our first question comes from Hansi Liu with Evercore, your line is open. Hi, thank you, this is Irvin Liu, actually, on for Amit. I had a question on, you know, on basically what you're seeing from a macro perspective, Amar, I think you mentioned the potential for delayed customer decision cycles and onboarding timelines related to just broader macro and search Uncertainty, sorry. And now that we're kind of one month into the current quarter, have there been any noticeable changes in customer behavior or have things been more business as usual? Yeah, so thank you very much for your question.
Speaker Change: Our first question comes from Hansi Lou with Evercore. Your line is open.
Sagar Hebbar, Amar Maletira, Mark Marino
Sagar Hebbar, Amar Maletira, Mark Marino
Sagar Hebbar, Amar Maletira, Mark Marino
Speaker Change: Hi, thank you. This is Erwin Liu, actually, on for omit.
Speaker Change: I had a question on basically what you're seeing from a macro perspective. Amar, I think you mentioned the potential for delayed customer decision cycles.
Speaker Change: on boarding timelines related to just broader macro uncertainty, and now that we're kind of one month into the current quarter, have there been any noticeable changes in customer behavior or have things been more business as usual?
Amar Maletira: So from a macro standpoint, you know, let me just give you what we are seeing, right? That will give you some color on the markets that we address. So starting with Q1, which is our March quarter, you know, our bookings came in line with our expectations. In fact, a public cloud business hit their targets, also posted double-digit growth. A private cloud business had a couple of deals that actually slipped from Q1 into Q2, and we were able to close those deals in the first 10 days of April. There were some services deals that also slipped in public cloud that we were able to close in the first 10 days of April.
Speaker Change: Yeah, so thank you very much for your question. So, when from a macro standpoint, let me just give you what we are seeing. That will give you some color on
Speaker Change: the markets that we address. So starting with Q1, which is our March quarter.
We are bookings came in line with our expectations.
In fact, a public-club business hit their car gates.
Speaker Change: also posted a double digit growth. A private cloud business had a couple of deals that actually slipped from Q1 into Q2 and we were able to close those deals in the first 10 days of April .
Speaker Change: There were some services deals that also slipped in public cloud that we were able to close in the first 10 days of April .
Amar Maletira: So which gives us some confidence that the decisions that the customers are making, they're not delaying the decisions in terms of, you know, in terms of business and from a bookings perspective for us. When I look at our funnel, the funnel looks good, both the top of the funnel as well as the bottom of the funnel. In fact, the funnel remains very strong. And so when I combine those two facts, it seems that the customers are not delaying their decisions in terms of, you know, their transformational projects. We are seeing bookings are coming in as expected just for Q1 and how we started the month of April.
Speaker Change: So, which gives us some confidence that the decisions that the customers are making, they are not delaying the decisions in terms of business and from a bookings perspective for us.
Speaker Change: I am going to look at the funnel, the top of the funnel, as well as the bottom of the funnel. In fact, the funnel remains very strong.
Speaker Change: and so when I combine those two facts, it seems that the customers are not delaying the decisions in terms of, you know, their transformational projects. We are seeing bookings are coming in as expected this for Q1 and how we started the month of April .
Amar Maletira: Now, where we are a bit cautious is from bookings to billing, means bookings conversion to revenue. We are a bit cautious that customers may make some delayed decisions on onboarding some of these contracts that we signed. And that's the place that we are particularly cautious on. We have not seen that immediately right now. You know, we feel good about Q2. I'm just being cautious because, you know, the macro environment continues to remain quite uncertain. So our caution is on bookings to billing, that site. Got it. Thank you.
Now, where we are a bit cautious is...
Speaker Change: from Bookings to Billing, means Bookings Conversion to Revenue. We are a bit cautious that customers may make some delayed decisions on onboarding some of these contracts that we signed and that's the place that we are particularly cautious on.
Speaker Change: We have not seen that immediately right now, we feel good about Q2. I am just being cautious because the macro environment continues to remain quite uncertain. So our caution is on poking to billing that cycle.
Amar Maletira: And then for my follow up, I think you highlighted sales execution as a driver behind recent booking strength. Can you just talk about how your pipeline has evolved over the past several quarters? And then within this, you know, how have your win rates trended? Yeah, so the pipelines have continued to remain strong. You know, the last three or four quarters, both the businesses have performed quite well. If you go back to the September quarter of 2024, public cloud had a record sales bookings quarter. They performed very well, even in the December quarter. In the December quarter, private cloud had a record bookings quarter.
Sagar Hebbar, Amar Maletira, Mark Marino
Speaker Change: Thank you. And then for my follow up, I think you highlighted sales execution as a driver behind recent booking strength. Can you just talk about how your pipeline has evolved over the past several quarters and then within this, you know, how have your wind rates trended?
Speaker Change: So the pipelines have continued to remain strong in the last three or four quarters.
Both the businesses have performed quite well.
Speaker Change: If you go back to the September quarter of 2024, public cloud had a record sales booking quarter. They performed very well, even in the December quarter, in the December quarter, private cloud had a record booking quarter.
Amar Maletira: And falling on the heels of two strong quarters, we delivered Q1 also remained strong. So the sales execution is working very well. I think we have been laying the foundation for this for the last two years. We spent 2023, the first half of 2023, you know, refreshing our sales organization, particularly in public cloud. 70% of our go-to-market organization was refreshed. We improved sales enablement. We also changed the compensation. And it takes time, you know, from the time you refresh salespeople for them to get productive. So we started, second half was very strong for us from a bookings perspective in both the business units.
Speaker Change: and following on the heels of two strong quarters, we delivered Q and also remains strong.
Speaker Change: So the sales execution is working very well. I think we have been laying the foundation for this for the last two years
Speaker Change: We spent 2023, the first half of 2023 refreshing a sales organization, particularly in public cloud 70% of our water market.
Inorganization was refreshed.
or we in food sales enablement.
Speaker Change: We also changed the compensation, and it takes time, you know, from the time you refresh salespeople for them to get productive. So we started a second half was very strong for us from a bookings perspective in both the business units.
Amar Maletira: And, you know, Q1 was also, this year was also off to a good start.
Speaker Change: and Q1 this year was also after a good start.
Amar Maletira: So I feel very good that, you know, the strategy we have in place and the execution against it, at least from a go-to-market perspective, is playing out quite well. Additionally, I think if you also see, we have launched a number of new offerings in the last two years. More offerings than we probably would have launched in the last five or six years in this company. And that's also resonating very well with our customers. We are now doing value-based selling, which is mainly focused on business outcome. And so this, and the mix of the pipeline is also changing to higher value, long-term contracts.
Speaker Change: So I feel very good that the strategy we have in place.
Speaker Change: and the execution against it, at least from a photo market perspective, is playing out quite well. Additionally, I think if you also see, we have launched a number of new offerings in the last two years.
Speaker Change: More offerings than we probably have launched in the last five or six years in this company. And that's also resonating very well with our customers. We are now doing value-based sharing, which is mainly focused on business outcome. And so the mix of the pipeline is also changing to...
Operator: We are moving more into the enterprise segments, both mid as well as the high end of the enterprise. And we are winning large deals. And so that's the change that has happened in the last two years. And we are starting to see the benefit of that now. Got it, thank you. Thank you. As a reminder, to ask a question, please press star 1.
Speaker Change: Higher value, long-term contracts, we are moving more into the enterprise segments, both mid as well as the high end of the enterprise, and we are winning large deals.
Sagar Hebbar, Amar Maletira, Mark Marino
Got it. Thank you.
Speaker Change: Thank you. As a reminder to ask a question, please press star 1-1.
Ryan: And our next question comes from Ramsey El Asal with Barclays. Your line is open. Hi, this is Ryan on for Ramsey. Thanks for taking our questions today. I wanted to ask a bit about public cloud. It was nice to see infrastructure resale come down a bit. I was curious to know where you're really seeing win rates for the services side and how we should think about that for the remainder of the year. Should infrastructure stay at these levels? Right, thank you very much, Ryan. Thanks for the question.
Operator: And our next question comes from Ramsey, Ella Sal with Barclays. Your line is open.
Operator: Hi, this is Ryan on Ramsey. Thanks for taking our questions today. I wanted to ask a bit about a public cloud. It was nice to see the infrastructure resell come down a bit. I was curious to know.
Operator: Where you're really seeing win rates for the services side and how we should think about that for the remainder of the year. If you have any infrastructure today at these levels or could we see it tick up as we enter the back half of the year. Thanks.
Ryan: So two questions there. Where are we seeing the wins in services business? And the second is, you know, how should the infrastructure resale trend from here on? Right. So a couple of things on the services side, you know, we, we have, we have pivoted to a services led motion. And that's playing out very well. As I also mentioned earlier, we are also pivoting to, to the enterprise and mid market, and that's playing out well, too. As an example, you know, if you recall, we have been giving this data to you guys for the last 12 months or so, on the number of MSAs we have signed.
All right. Thank you very much, Ryan.
Speaker Change: Thanks for the question. So, two questions there. Where are we seeing the wins in services business? And the second is, you know, how should the infrastructure resale trend from here on, right?
Operator: So, a couple of things. On the services side, we are pivoted to a services led motion.
and that's playing out very well.
Operator: As I also mentioned earlier, we are also pivoting to the enterprise and mid-market, and that's playing out well, too. As an example,
Operator: You know, if you recall, we have been giving this data to you guys for the last 12 months or so on the number of MSAs we have signed.
Amar Maletira: This quarter, we were, you know, we have overall about 19 to 20 MSAs that we have already signed. And this is 2x than what we had signed by the end of Q1 of last year. We have 14 more in the funnel in progression right now. So which means that we are landing and expanding into these larger enterprises. In terms of services, you know, we, our platform services did well. This quarter data services also did well on the backs of AI. So we are starting to see good wins in the services business on the cloud, on public cloud side.
Operator: This quarter we have overall about 19 to 20 MSAs that we have already signed and this is 2x than what we had signed by the end of Q1 of last year.
Operator: We are 14 more in the funnel in progression right now, so which means that we are landing and expanding into this larger enterprises.
Operator: In terms of services, you know, we, our platform services did well, this quarter of data services also did well on the backs of AI. So we are starting to see good wins in the services business on the cloud, on public cloud site.
Amar Maletira: So win rates have gone up, the funnel is going up. And so I think we feel very good about, you know, how services are spanning out.
Operator: So Windrides have gone up. The funnel is going up and so I think we feel very good about, you know, how services are spanning out. What we will be focused on going forward and we already started laying the foundation for it is focusing more on managed services.
Amar Maletira: What we will be focused on going forward, and we already started laying the foundation for it, is focusing more on managed services, as well as on and doubling down on data services and security services when it comes to public cloud. Infrastructure resale. Listen, we had a stated objective. You know, we want to do business where we can drive profitable growth. We were very mindful on how we, what kind of business we win on infrastructure resale, as well as what kind of business we renew when it comes up for renewal. We are walking away from deals that do not make sense.
Operator: as well as on and doubling down on data services and security services when it comes to public cloud.
of Infrastructure Resale.
Operator: Listen, we had a stated objective, you know, we want to do business where we can drive profitable growth.
Operator: What kind of business we went on infrastructure resale, as well as what kind of business we renew when it comes up for renewal.
Amar Maletira: If it doesn't hit a certain profit threshold, we are just walking away from those deals when it comes to infrastructure resale. In some cases, we are going back to the customers and asking for more services attached. And we have started seeing those in a panel too. You know, our customers are giving us more services business. And in those cases, we actually go and renew the infrastructure resale business. So we should, you should expect infrastructure resale business to continue to decline about, say, low to mid-single digit for the year. And that's very purposeful. It should not impact our profits.
Operator: We are walking away from deals that do not make sense. If it doesn't take a certain profit thresholds, we are just walking away from those deals when it comes to infrastructure resale. In some cases, we are going back to the customers and asking for more services attached.
Operator: and we have started seeing those, you know, panel two, you know, customers are giving us more services business and in those cases we actually go and renew the infrastructure or resale business.
Operator: So we should expect infrastructure resale business to continue to decline about, say, load to the next single digits of the year and that's very popular soon.
Amar Maletira: In fact, profits, operating profit for, owned business year on year.
Operator: It should not impact our profits. In fact, operating profit for owned operating profit for public club business is going to grow double digits year on year.
Amar Maletira: So this purposeful shift from low margin infrastructure resale to high margin services, and also being so very focused on winning the right type of infrastructure resale is panning out. Thanks, Ryan.
Operator: So this purposeful shift from low margin, infrared resale to high margin services and also being so very focused on winning the right type of infrastructure asian is spanning out
Sagar Hebbar, Amar Maletira, Mark Marino
Very helpful, thank you. Congrats on that.
Rob Wynn: Thank you. Our next question comes from Frank Louthan with Raymond James and Associates. Your line is open. Great. Hey guys, this is Rob Wynn for Frank. Congrats on the quarter. Thanks for taking my question. So, you know, one of the things that you talked about, you know, last quarter that we discussed was, you know, these larger customers who are, you know, sort of more focused on a holistic cost and so are willing to pay for some of that CapEx upfront in exchange for lower OpEx over the life of the deal. Are you continuing to see that?
Thanks, Ren.
Speaker Change: Thank you. Our next question comes from Frank Louthan with Raymond James and Associates. Your line is open.
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Speaker Change: Great. Hey guys, this is Rob one for Frank. Congrats in the quarter. Thanks for taking my question. So...
Speaker Change: You know, one of the things that you talked about, you know, last quarter that we discussed was, you know, these...
Speaker Change: These larger customers who are, you know, sort of more focused on a whole list of costs and so are willing to pay for some of our catbacks upfront in exchange for lower op-backs over the life of the deal.
Rob Wynn: You know, is that still a trend that you're seeing with those larger customers and, you know, with those larger deal sizes?
Speaker Change: Are you continuing to see that? Is that still a trend that you're seeing with those larger customers and with those larger deal sizes? And then...
Amar Maletira: And then as a follow-up, you know, as it pertains to the more regulated industries, and if you address this in your prepared remarks and I missed it, I apologize. With respect to those more regulated industries, you know, are you still seeing those uplift your private cloud business the way you were last quarter? Thank you. Thank you very much. Thanks for the question, Rob. So, with regards to upfront CapEx payments from large customers, yes, we continue to see interest. We have a couple of large deals that we are continuing to talk to customers where customers are interested in paying upfront CapEx to get a lower OpEx, you know, toward the life of the deal.
Speaker Change: as a follow-up, you know, as it pertains to the more regulated industries. And if you address this in your prepare remarks and I have missed it, I apologize, with respect to those more regulated industries, you know, are you still seeing those uplift your private cloud business the way you were last quarter? Thank you.
Thank you very much. Thanks for the question, Rob.
Speaker Change: So, with regards to upfront cap experiments from a large customers, yes, we continue to see interest.
Speaker Change: We have a couple of large deals that we are continuing to talk to customers we are customers interested in being upfront capex to get a lower apex you know toward the life of the deal.
Amar Maletira: That's the trend, and it's good for us because, you know, we get CapEx upfront to invest into the infrastructure that we stand up for the customer. So, it's a win-win for both customers as well as for Rackspace. With that said, we have a lot of focus on CAPEX. We have initiatives in place to drive CAPEX efficiency, making sure that we reutilize our inventory. So we have a new leader for global operations and delivery in a private cloud business, and he is very focused on that aspect. We are also our product and solutioning team and offerings team is also focused on creating solutions and technology where the CAPEX intensity goes down.
Speaker Change: That's the trend and it's good for us because you know we get capex upfront to invest into the infrastructure that we stand up for the customer.
Speaker Change: With that said, we have a lot of focus on Capix.
Speaker Change: You know, we are, we have initiatives in place to drive capex efficiency.
Speaker Change: Making sure that we reutilize our inventory so we have a new leader for global operations in delivery in a private club business and he is very focused on that aspect.
Speaker Change: We are also a product and solutioning team and offerings team is also focused on creating solutions and technology where the topic's intensity goes down.
Amar Maletira: So we are internally, we are launching a platform called UnderCloud, which will help us to reutilize inventory and deploy it to new engagements. Additionally, we also launched Flex environment, which is a multi-tenant environment for our customers. So we have Flex for open stack environment, as well as Flex for SDDC, which is Software Defined Data Center on VMware platform. And that Flex environment, multi-tenant environment also helps us to reduce our CAPEX intensity. So, you know, one of my stated objective for the company was to optimize the capital structure and also drive CAPEX efficiency. And we are working on all those front.
Speaker Change: So internally we are launching a platform called Undercloud which will help us to re-utilize inventory and deploy it to new engagements.
Speaker Change: Additionally, we also launched Flex Environment, which is a multi-tenant environment.
Speaker Change: for our customers. So, we have Flex for our open-stank environment as well as Flex for SDDC, which is software-defined data center on VMware, a platform. And that Flex environment, multi-tonent environment also helps us to reduce our capex intensity.
Speaker Change: So, you know, one of my straighter objective for the company was to, you know, optimize the capital structure and also drive capital efficiency and we are working on all those front. So, yes, seeing the trend from large customers where they want to pay off front capital and internally we are also very focused.
Amar Maletira: So, yes, seeing the trend from large customers where they want to pay upfront CAPEX. And internally, we are also very focused to technology as well as operational discipline to reduce our CAPEX intensity.
Speaker Change: through technology as well as operational discipline to reduce our capex intensity.
Amar Maletira: Now, talking about regulated industries, absolutely, this is the bet that we made, and it's panning out. We said we will operate in regulated industries which have more propensity to buy private cloud, whether it's healthcare, BFSI, sovereign, and energy. And we are seeing very good traction in all those four verticals. In energy, as I mentioned in my prepared remark, we closed a large deal with an European energy company, one of our first deals in the energy sector, where we are trying to help them create a custom private cloud and modernize their infrastructure. And that environment is very data-intensive, data sovereignty is a big challenge for them, and our offering on Flex as well as enterprise offering is very suitable for their needs.
Now, I'll talk to you about regulated industries.
Speaker Change: Absolutely, this is the bet that we made and it's spanning out. We said we will operate in regulated industries which have more propensity to buy private cloud with its health care, BFSI, Soren, and Energy.
Speaker Change: and we have seen very good traction in all those four verticals.
In energy, as I mentioned, it might prepare the mark.
We close a large deal with a European energy company.
One of our first deals in the energy sector.
Speaker Change: where we are trying to help them create a custom private cloud.
and modernize their infrastructure.
Speaker Change: And that environment is very data intensive, data sovereignty is a big challenge for them and our offering on flex as well as enterprise offering is very suitable for their needs.
Amar Maletira: Now, we'll go rinse and repeat it with other energy companies. And so, we are starting to see some of that pipeline also start developing. Healthcare continues to remain strong. We are working on the BFSI, especially with core banking applications. And sovereign, both UK sovereign as well as our business with the Kingdom of Saudi Arabia continues to remain strong. Thank you.
Speaker Change: Now we'll go rinse and repeat it with other energy companies and so we are starting to see some of that pipeline also start developing
Speaker Change: Healthcare continues to remain strong. We are working on the BFSI, especially with core banking applications. And both UK and Saudi as well as our business with the Kingdom of Saudi Arabia continues to remain strong.
Sagar Hebbar, Amar Maletira, Mark Marino
Sagar Hebbar: If there are no further questions, I'd like to turn the call back over to Sagar for any closing remarks. Thank you, Michelle. Thank you everyone for joining us.
Sagar Hebbar, Amar Maletira, Mark Marino
Sagar Hebbar, Amar Maletira, Mark Marino
Speaker Change: Thank you. There are no further questions. I'd like to turn the call back over to Sagar for any closing remarks.
Thank you, Michelle.
Operator: If we did not get to your question or if you have a follow-up, please email us at ir at Rackspace.com. Have a great evening everyone. Thank you for your participation.
Speaker Change: Thank you everyone for joining us. If you do not get to your question or if you have a follow-up, please email us at iradrackspace.com. Have a great evening everyone.
Operator: This does conclude the program. You may now disconnect. Thanks for watching!
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Speaker Change: Thank you for your participation. This does include the program. You may now disconnect.
Speaker Change: Okay.