• Total GAAP Revenue: $685 million, exceeding guidance.
• Non-GAAP Net Revenue: $380 million, down 1% sequentially.
• Non-GAAP Gross Profit Margin: 20.3% of GAAP revenue, flat sequentially.
• Non-GAAP Operating Profit: $23 million, exceeding guidance.
• Non-GAAP Operating Margin: 3.3% of GAAP revenue, up 1% sequentially.
• Non-GAAP Loss Per Share: $0.08, better than guided range.
• Cash Flow from Operations: $24 million.
• Free Cash Flow: Negative $15 million.
• Private Cloud GAAP Revenue: $260 million, down 3% sequentially.
• Private Cloud Gross Margin: 37.4%, down 1.6% sequentially.
• Public Cloud GAAP Revenue: $425 million, up 1% sequentially.
• Public Cloud Gross Margin: 35.1% of non-GAAP net revenue, up 3.6 percentage points sequentially.
• Debt Repurchase: $29 million deployed to repurchase $68 million in aggregate principal amount of debt.
• Guidance for Q3 GAAP Revenue: $668 million to $680 million.
• Guidance for Q3 Non-GAAP Operating Profit: $29 million to $31 million.

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

Release Date: August 08, 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 high end of its guidance for revenue, profit, and EPS for the eighth consecutive quarter.
• The company is making progress in repositioning itself as a leader in hybrid cloud and AI solutions, aligning with major market trends.
• Public cloud GAAP revenue increased by 1% sequentially, surpassing expectations due to strong performance in services and infrastructure resale.
• Rackspace Technology Inc (NASDAQ:RXT) has a growing pipeline, with private cloud opportunities up over 35% year over year.
• The company has successfully improved its capital structure by repurchasing debt, reducing outstanding principal, and lowering annual cash interest costs.

Negative Points

• Private cloud GAAP revenue decreased by 3% sequentially, indicating challenges in this segment.
• Non-GAAP net revenue declined by 1% sequentially, primarily due to a decrease in private cloud revenue.
• Free cash flow was negative $15 million in the second quarter, reflecting challenges in cash generation.
• The company is experiencing revenue runoff from older-generation private cloud offerings and commercial customers.
• Rackspace Technology Inc (NASDAQ:RXT) faces longer sales cycles for larger private cloud deals, impacting immediate revenue growth.

Q & A Highlights

Q: Can you give us an idea of the outlook for when Rackspace Technology can expect to return to positive top-line growth and the percentage of bookings currently related to AI? A: Amar Maletira, CEO, explained that revenue stabilization is expected in the second half of the year, with signs already visible in Q3. The company is seeing good pipeline growth, particularly in private cloud, with a 35% year-over-year increase. AI-related bookings are not a significant portion yet, but there are over 40 engagements through their FAIR initiative, indicating strong traction in AI.

Q: How are you defining revenue stabilization, and when should we expect growth? A: Amar Maletira, CEO, clarified that stabilization is assessed on a sequential basis. The decline in private cloud revenue has significantly reduced, and the company expects to start growing sequentially, leading to year-on-year growth.

Q: What contributed to the revenue beat this quarter, and is it sustainable? A: Amar Maletira, CEO, noted that the revenue beat was driven by higher-than-expected services performance and infrastructure consumption volumes. The services bookings grew high single digits both sequentially and year-over-year, indicating a positive trend.

Q: Why is Rackspace seeing an increase in services bookings now? A: Amar Maletira, CEO, attributed the increase to foundational changes made in the public cloud business, including refreshing the sales organization, enhancing sales enablement, and focusing on top-of-the-funnel demand generation activities. The company has also been recognized by industry analysts, which is driving growth.

Q: How is Rackspace Technology differentiating itself in the competitive landscape, especially with mid-market and enterprise clients? A: Amar Maletira, CEO, stated that the competitive landscape remains unchanged, but Rackspace's differentiation lies in its deep experience in data engineering and its labor-minus model. The company focuses on delivering differentiated solutions with IP wrapped around them, which resonates well with customers.

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