Rackspace Technology, Inc. ((RXT)) has held its Q4 earnings call. Read on for the main highlights of the call.
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The latest earnings call for Rackspace Technology, Inc. reflected a generally positive sentiment, highlighting the company’s strong performance in revenue, profit, and bookings. Notable achievements were seen in the private and public cloud sectors, along with significant growth in healthcare and AI engagements. However, there were some challenges noted in profit margins and cash flow management, with a modest decline anticipated in private cloud revenues for the year 2025.
Exceeding Revenue, Profit, and EPS Guidance
Rackspace’s fourth-quarter financial results exceeded their guidance for revenue, profit, and earnings per share (EPS), marking the tenth consecutive quarter of meeting or surpassing expectations. This consistency underscores Rackspace’s robust operational execution and strategic direction.
Record-Breaking Sales Bookings
The company achieved record-breaking quarterly sales bookings, reaching the highest level since early 2023. This was characterized by high double-digit growth both sequentially and year-over-year, reflecting strong market demand and effective sales strategies.
Strong Performance in Private Cloud
Rackspace’s private cloud segment showed exceptional performance, with fourth-quarter bookings more than doubling sequentially and growing by high double digits compared to the previous year. For the full year, private cloud sales bookings rose by 4% year-over-year, with a remarkable 42% growth in the second half of the year compared to the first half.
Significant Growth in Healthcare and Sovereign Segments
The healthcare and sovereign segments demonstrated robust expansion, with healthcare revenue growing by 34% year-over-year and sovereign revenue surging by 59%. These sectors have become critical growth drivers for Rackspace.
Public Cloud Growth and Innovation
Rackspace’s public cloud GAAP revenue surpassed guidance, reaching $417 million. The full-year public cloud bookings grew by 22% year-over-year, driven significantly by AI-related projects, showcasing the company’s innovative edge and adaptability to technological advancements.
Positive AI Engagement
The company reported more than 50 customers and close to 200 AI opportunities in its pipeline. Successful AI deployments have enhanced operational efficiency and decision-making, positioning Rackspace as a leader in AI integration.
Decline in Non-GAAP Gross Profit Margin
The non-GAAP gross profit margin was 20.6% of GAAP revenue, experiencing a decline of 50 basis points sequentially and 172 basis points year-over-year. This indicates some challenges in maintaining margin levels amidst growth.
Non-GAAP Operating Margin Decline
For the full year of 2024, Rackspace’s non-GAAP operating margin declined to 3.9%, down 146 basis points from the previous year, highlighting areas for potential operational improvements.
Free Cash Flow Usage
Rackspace faced challenges in cash flow management, with a full-year free cash flow usage of $71 million. This reflects the need for strategic adjustments to enhance cash flow efficiency.
Expected Modest Decline in Private Cloud Revenues for 2025
Looking ahead to 2025, Rackspace anticipates a modest decline in private cloud revenues. However, strong momentum in bookings is expected to support a transition towards a more resilient and growth-focused business model.
Forward-Looking Guidance
Rackspace’s robust performance metrics have set a positive tone for the future, surpassing expectations for revenue, profit, and EPS. Bookings have grown significantly, driven by strong sales execution and favorable market conditions. Although a slight decline in private cloud revenues is expected for 2025, the company plans to maintain positive operating and free cash flow, focusing on a resilient growth strategy.
In summary, Rackspace Technology’s latest earnings call conveyed a strong performance narrative with continued growth in key segments such as private and public clouds, healthcare, and AI engagements. While there are challenges in profit margins and cash flow, Rackspace is poised to leverage its strong sales bookings and innovative projects to sustain its growth trajectory.
