• Total GAAP Revenue: $676 million, within guided range.
• Private Cloud GAAP Revenue: $258 million, within guided range, slightly down sequentially.
• Public Cloud GAAP Revenue: $418 million, down 2% sequentially, above guidance midpoint.
• Non-GAAP Gross Profit Margin: 21.2% of GAAP revenue, up 90 basis points sequentially.
• Non-GAAP Operating Profit: $34 million, exceeding high end of guidance.
• Non-GAAP Operating Margin: 5.1% of GAAP revenue, up 180 basis points sequentially.
• Non-GAAP Loss Per Share: $0.04, better than guided range of $0.06 to $0.08 loss per share.
• Cash Flow from Operations: $52 million.
• Free Cash Flow: $27 million.
• Cash and Total Liquidity: $157 million in cash and $532 million total liquidity.
• Private Cloud Non-GAAP Gross Margin: 38.6%, up 120 basis points sequentially.
• Private Cloud Non-GAAP Operating Margin: 28.9%, up 210 basis points sequentially.
• Public Cloud Non-GAAP Gross Margin: 10.4%, up 50 basis points sequentially.
• Public Cloud Non-GAAP Operating Margin: 3.9%, up 110 basis points sequentially.
• Q4 GAAP Revenue Guidance: $668 million to $680 million.
• Q4 Non-GAAP Operating Profit Guidance: $34 million to $36 million.
• Q4 Non-GAAP Loss Per Share Guidance: $0.03 to $0.05 loss per share.

• Warning! GuruFocus has detected 8 Warning Signs with RXT.

Release Date: November 12, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Rackspace Technology Inc (NASDAQ:RXT) exceeded the midpoint of its guidance for revenue, profit, and EPS for the ninth consecutive quarter.
• The company is making significant progress in its operational turnaround, with increased bookings and pipeline efficiency.
• Rackspace Technology Inc (NASDAQ:RXT) is positioning itself as a leader in hybrid cloud and AI solutions, launching new products and solutions.
• The healthcare sector is a strong growth area, with private cloud revenue projected to increase by nearly 30% year-over-year.
• Public Cloud achieved record bookings, marking three consecutive quarters of sequential and year-over-year growth.

Negative Points

• Private Cloud GAAP revenue was slightly down sequentially, indicating some challenges in maintaining consistent growth.
• There was a slight sequential decline in bookings due to deal timing delays, although some deals have since closed.
• Public Cloud GAAP revenue decreased by 2% sequentially, primarily due to lower cloud infrastructure volumes.
• The company faces variability in big contracts and a lag between bookings and revenue, which can impact financial stability.
• Guidance for the fourth quarter indicates a slight sequential decline in GAAP revenue, suggesting potential challenges ahead.

Q & A Highlights

Q: Can you help us dimensionalize the size of the healthcare win? A: Amar Maletira, CEO, explained that the healthcare win in Q4 of last year was in the hundreds of millions of dollars in total contract value. It involved transitioning 38,000 concurrent users to Rackspace Healthcare Cloud, marking one of the largest Epic system installations globally. This achievement significantly enhanced Rackspace's reputation in the industry.

Q: Have you seen a network effect from the healthcare win, and can you discuss the vertical distribution in private cloud? A: Amar Maletira, CEO, noted that Rackspace focuses on verticals like healthcare, BFSI, and sovereign/public sectors. These verticals made up about 25% of total revenue in fiscal 2023 and are expected to grow to one-third by the end of fiscal 2024. Healthcare and sovereign sectors are projected to reach nearly 15% of overall revenue by fiscal 2024's end, with continued growth expected in fiscal 2025.

Q: What specific solutions are driving the high attach rate of services on large infrastructure deals? A: Amar Maletira, CEO, highlighted the shift from an infrastructure-led to a services-led go-to-market strategy. This pivot allows Rackspace to engage with C-level executives, enhancing value and protecting margins on infrastructure resale. The services-led approach has transformed Rackspace's public cloud business by focusing on high-margin services and holistic customer value.

Q: How should we think about the progression of the services attach rate over the next six to 12 months? A: Amar Maletira, CEO, indicated that the services-led motion will continue to drive high-margin services into accounts and benefit infrastructure resale margins. The focus on C-level discussions rather than procurement-driven negotiations is expected to sustain and potentially increase the attach rate.

Q: Can you provide more details on the strategic collaboration with AWS? A: Amar Maletira, CEO, mentioned a multiyear strategic collaboration agreement with AWS to accelerate digital transformation for customers. This partnership aims to deliver comprehensive cloud and AI solutions, enhancing Rackspace's ability to drive innovation and achieve business outcomes globally.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.