Q3 2025 Rackspace Technology Inc Earnings Call

Speaker #3: Good day . And welcome to the Rackspace Q3 2025 Earnings Call and Webcast . Today , all participants will be in a listen only mode .

Speaker #3: Should you need assistance during today's event , please signal a conference specialist by pressing the star key , followed by zero after today's presentation , there will be an opportunity to ask questions , to ask a question , you may press star then one on your telephone keypad .

Speaker #3: To withdraw your question , please press star . Then two . Please note that today's event is being recorded . I would now like to turn the conference over to Sauger Head of Investor Relations .

Speaker #3: Please go ahead .

Speaker #4: Thank you and welcome to Rackspace Technology, Inc. third quarter 2020 Earnings Conference Call . I'm Sagar Hebbar head of investor relations . Joining me today are Gajan Kandiah , our chief Executive officer .

Speaker #4: And Mark Marino , our chief financial officer . As a reminder , certain comments we make on call will be forward looking . These statements involve risks and uncertainties which could cause actual results to differ .

Speaker #4: A discussion of these risks and uncertainties is included in our SEC filings . Rackspace Technology, Inc. assumes no obligation to update the information presented on the call , except as required by law .

Speaker #4: Our presentation includes certain non-GAAP financial measures and adjustments to these measures , which we believe provide useful information to our investors in accordance with SEC rules .

Speaker #4: We have provided a reconciliation of these measures to their most directly comparable GAAP measures in the earnings press release and presentation , both of which are available on our Investor Relations website .

Speaker #4: I will now turn the call over to Gajan for an update on the business .

Speaker #5: Thank you . Sagar , and good morning . I spent the first couple of months figuring out what we have a terrific company centered on trust , both with each other as Rackers as well as with our customers and partners .

Speaker #5: And I will be devoting the next few months to accelerating growth , including how to best leverage advances in AI to capture external opportunities and to improve internal efficiencies .

Speaker #5: Reflecting on my initial weeks at the company , three strengths stand out . First , a rapid culture that blends deep engineering with an obsession for customer outcomes .

Speaker #5: Second , a portfolio built for regulated environments where reliability , security and compliance are non-negotiable . And third , significant growth potential in at least three markets two verticals in healthcare and sovereign .

Speaker #5: The other horizontal in AI , where our capabilities match real demand in sum , we do not try to be everything to everyone .

Speaker #5: We aim to be the partner of record when it matters . The enterprise market is shifting from pilots to production in AI , and it is growing more complex as data sovereignty and security requirements tightened in this dynamic , complex space , our role is clear to help our clients orchestrate critical workloads across private , cloud , public cloud , edge and sovereign environments .

Speaker #5: We turn data into outcomes through our advisory , security and managed services . We will build on our strengths . We will focus where we win , and we will execute with precision to deliver stronger reliability , greater predictability and enhanced security for our customers .

Speaker #5: This is how we earn and keep trust . Now getting back to commentary on our quarter results for the third quarter met or beat our expectations across all key metrics , revenue , operating profit , and EPs met or exceeded the midpoint of our guided range sales momentum remains strong , with bookings as measured by annual contract value growing 5% year over year .

Speaker #5: The growth was primarily driven by private Cloud , which secured several key wins . Now let's get into our segment performance , starting with Private Cloud .

Speaker #5: Private cloud continued to win several large long term enterprise deals . Revenue came in at $250 million . Meeting our guidance midpoint and down 3% year over year .

Speaker #5: Revenue continues to stabilize as prior period bookings ramp , reflecting business strength and consistent execution . Our focus on retention and bookings momentum is driving a solid path to long term growth .

Speaker #5: We are expanding relationships with enterprise and sovereign customers , positioning Rackspace to capture new opportunities and drive future scale in Q3 , we signed a leading global telecommunications provider to enhance the experience for more than 30 enterprise clients worldwide .

Speaker #5: This engagement centered on Rackspace Private Cloud and Professional Services , created a software defined data center environment built for agility , scalability , and consistency on a global scale .

Speaker #5: Beyond measurable value , it deepened our partnership and reinforced Rackspace as a trusted extension of our customers service delivery model . Another major win this quarter comes from a sovereign government customer focused on data and AI .

Speaker #5: Rackspace will manage a secure cloud environment , enabling multiple departments to host mission critical applications safely and accelerate digital services for millions of citizens .

Speaker #5: These wins demonstrate the strength of our cloud capabilities and the trust customers place in Rackspace to deliver a secure , reliable solution at scale .

Speaker #5: Private cloud also continued to deliver innovative solutions with eight new releases in the third quarter . A key highlight was the launch of Rackspace Electronic Health Record Cloud Enterprise , a fully dedicated platform for mission critical healthcare systems like epic .

Speaker #5: It delivers leading availability , compliance and performance aligned with Epic Honor Roll standards and healthcare regulations such as HIPAA and Hitrust . It provides a strong foundation for healthcare organizations that need secure and compliant infrastructure for patient care .

Speaker #5: We also introduced AI launchpad , a fully managed service that helps customers move from AI experimentation to production with GPU powered environments . Pre-configured AI tooling , and expert support .

Speaker #5: AI launchpad helps enterprises scale AI with speed , security , and cost transparency . Together , these launches show how private cloud continues to innovate across cloud , AI , and security .

Speaker #5: We help customers modernize their most critical workloads with trust and speed . Now turning to public cloud . In the third quarter , bookings grew 2% sequentially , led by the Americas revenues for the segment totaled $422 million , exceeding our guided range revenue increased 1% year over year , and sequentially , driven by a 3% rise in services revenue , reflecting our disciplined focus on higher value engagements .

Speaker #5: We are executing our strategy to expand our AI offerings and enterprise footprint , positioning Rackspace for growth ahead in the third quarter , we signed a services engagement with a leading global e-commerce platform to provide site reliability engineering and AI services on their live streaming platform , improving performance and overall experience for the buyers and sellers .

Speaker #5: We are also supporting a leading financial services institution that continues to invest in AI , cloud modernization and data analytics to enhance customer insight , automate decision making and strengthen regulatory compliance .

Speaker #5: This customer partnered with Rackspace to develop an AI driven governance platform that automates risk and compliance workflows , reducing approval cycles from months to days .

Speaker #5: Additionally , we were selected to lead one of the most advanced AI led modernization programs in financial services using our AI solution to autonomously transform legacy code into AWS native platforms , creating a repeatable blueprint for enterprise modernization .

Speaker #5: In Q3 , our product launches reinforced our services first strategy and expanded our portfolio capabilities . We introduced solutions that industrialize AI agents , modernize , contact centers , and enable flexible cloud environments , helping businesses scale autonomous operations , transform legacy systems , and migrate workloads efficiently .

Speaker #5: These innovations expand our addressable market and position Rackspace as a trusted , strategic partner for enterprises navigating complex cloud , AI , and digital transformation .

Speaker #5: Rackspace has an exceptional foundation with clarity , focus , and discipline . We will unlock its full potential . We will build on our strengths , focus where we win and execute with precision to deliver stronger reliability , greater predictability and enhanced security for our customers .

Speaker #5: With that , I will turn it over to Mark for financial results and guidance .

Speaker #6: Thanks , John . In the third quarter , total company GAAP revenue of $671 million was up 1% sequentially , but down 1% year over year .

Speaker #6: Coming in above the midpoint of our guidance . non-GAAP gross profit margin was 19.9% of GAAP revenue , up slightly on a sequential basis , but down 120 basis points year over year , driven by lower cost absorption and private cloud and slightly higher infrastructure resale costs in public cloud .

Speaker #6: For the quarter , non-GAAP operating profit was $32 million , meeting the high end of our guidance range and up 17% sequentially due to cost efficiencies in private cloud and lower corporate expenses .

Speaker #6: non-GAAP loss per share was $0.05 at the midpoint of our guided range of 4 to 6 cent loss per share . Third quarter cash flow from operations was $71 million , and free cash flow was $43 million .

Speaker #6: We ended the quarter with $100 million in cash on hand , and $386 million of total liquidity . Turning to our segment results .

Speaker #6: Private cloud GAAP revenue for the third quarter was $250 million , meeting the midpoint of our guidance . Private cloud revenue decreased 3% year over year , reflecting customer transitions off legacy platforms , partially offset by new bookings coming online .

Speaker #6: Private cloud non-GAAP gross margin was 38.1% , down 50 basis points year over year and up 130 basis points sequentially . non-GAAP segment operating margin was 26.9% , down 180 basis points year over year , driven by lower volumes and modestly higher operating expenses .

Speaker #6: non-GAAP segment operating margin was up 230 basis points sequentially , driven by improved cost management for public cloud . GAAP revenue was $422 million , surpassing the high end of our guidance , up 1% year over year and 1% sequentially , driven by higher services , revenue and increased volumes across infrastructure resale .

Speaker #6: non-GAAP gross margin was 9.2% , down 110 basis points year over year due to unfavorable product mix . non-GAAP segment operating margin was 3.3% , down 40 basis points year over year due to unfavorable product mix , partially offset by lower operating expenses .

Speaker #6: Turning to guidance, we expect fourth quarter GAAP revenue of $664 to $678 million, flat sequentially and down 2% year over year at the midpoint.

Speaker #6: In private cloud , we expect revenue of 244 to $252 million , down 1% sequentially at the midpoint . We expect public cloud revenue of 420 to $426 million , flat sequentially at the midpoint .

Speaker #6: Total non-GAAP operating profit is expected to be 32 to $34 million , and non-GAAP loss per share is expected to be in the range of 3 to $0.05 .

Speaker #6: Our non-GAAP tax rate is expected to be 26% , and non-GAAP share count is expected to be between 242 and 244 million shares .

Speaker #6: I'll now turn it back over to Jen for final remarks . .

Speaker #5: Before I wrap up , I want to say thank you to our customers , partners and all Rackers two months in , I am proud of how the team delivered this quarter and focused on what is next .

Speaker #5: Our ambition is clear . We will be the leading hybrid multi-cloud partner for regulated , sovereign and mission critical workloads . We will be the partner of record when it matters .

Speaker #5: Sagar Hebbar back to you .

Speaker #4: Thank you . Gajan . Before we move to Q&A , I would note that we will be participating in the UBS Global Technology and AI conference in Arizona on December 3rd .

Speaker #4: Consistent with last year . With that , we will now open the line for questions . Please limit yourself to one question and one follow up .

Speaker #4: Please go ahead .

Speaker #3: Thank you . We will now begin the question and answer session . As a reminder to ask a question , you may press star then one on your telephone keypad .

Speaker #3: If you are using a speakerphone , please pick up your handset before pressing the keys . If at any time your question has been addressed and you would like to withdraw it , please press star .

Speaker #3: Then two . At this time we will pause momentarily to assemble our roster . And at this time we are showing no questioners in the queue .

Speaker #3: And I would like to turn the call at this time back over to Sagar Hebbar for any closing remarks .

Speaker #4: Thank you , everyone , for joining us . If we did not get to your question , or if you have a follow up , please email us at IR Rackspace Technology, Inc. .

Speaker #4: Have a great evening everyone . Thanks , Chris .

Speaker #3: Thank you . And thank you for attending today's conference call and webcast . You may now disconnect your lines and have a pleasant day .