Release Date: February 20, 2025

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

Positive Points

• Rackspace Technology Inc (NASDAQ:RXT) exceeded guidance for revenue, profit, and EPS for the 10th consecutive quarter.
• Record-breaking quarterly sales bookings, with high double-digit growth in annual contract value both sequentially and year over year.
• Strong performance in the Americas and increasing adoption of hybrid cloud solutions contributed to a 14% growth in sales bookings for fiscal 2024.
• Significant acceleration in private cloud bookings, with a 42% growth in the second half of 2024 compared to the first half.
• Public cloud bookings grew 22% year over year, driven by robust performance in services and infrastructure resale, with data services bookings more than doubling.

Negative Points

• Non-GAAP gross profit margin for the full year 2024 was down 172 basis points year over year.
• Non-GAAP operating margin for the full year 2024 was down 146 basis points versus the prior year.
• Free cash flow usage was $71 million for the full year, indicating cash flow challenges.
• Private cloud revenues are expected to show modest declines in fiscal 2025, despite recent momentum.
• Infrastructure resale volumes are difficult to predict and may face declines depending on contract renewals.

Q & A Highlights

• Warning! GuruFocus has detected 7 Warning Signs with RXT.

Q: Can you elaborate on the expected performance of the private cloud business in 2025, given the momentum in the second half of 2024? A: (CEO) Yes, we anticipate modest declines in private cloud revenues for 2025, which is a positive indicator of a turnaround after years of double-digit declines. The second half of 2024 showed significant momentum due to improved demand and strong sales execution. We expect private cloud revenues to be relatively flat year-over-year in the second half of 2025, driven by larger deals and increased interest in custom cloud solutions.

Q: What are your expectations for free cash flow in 2025? A: (CFO) We anticipate both positive operating cash flow and free cash flow in 2025. This will be supported by low double-digit growth in operating profit, driven by marginal improvements and ongoing efficiency enhancements.

Q: Have you noticed any changes in the demand environment recently, and how are bookings converting? A: (CEO) Visibility has improved, and we closed 2024 on a high note. We expect to maintain this momentum into 2025, driven by strong execution and a solid foundation laid in our public cloud business. Customers are resuming transformational projects, and we are seeing increased workloads in private cloud, indicating a shift towards hybrid solutions.

Q: Can you discuss the growth in new logos and the book-to-bill cycle? A: (CEO) We signed over 250 new logos in private cloud, focusing on verticals like healthcare and public sector. The book-to-bill cycle remains consistent, with longer cycles for private cloud due to larger deals, while public cloud cycles are shorter due to high-value services.

Q: How does AI contribute to your bookings, and what is its expected impact? A: (CEO) AI contributed to data services bookings, primarily in the design and implementation phases. Currently, AI accounts for less than 2% of revenue, but we expect it to grow to over 5% in the next few years as enterprise adoption increases. Our hybrid AI approach positions us well for future growth.

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