Rackspace Technology, Inc. ((RXT)) has held its Q3 earnings call. Read on for the main highlights of the call.
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Rackspace Technology, Inc. recently held its earnings call, which presented a balanced overview of the company’s performance. The call highlighted notable achievements in sales momentum, revenue growth, and innovative product launches. However, these positives were tempered by challenges such as revenue declines in the private cloud sector and decreased profit margins.
Strong Sales Momentum
Rackspace Technology reported a 5% year-over-year growth in bookings, as measured by annual contract value. This growth was primarily driven by the private cloud sector, which secured several key wins, demonstrating strong sales momentum.
Exceeding Revenue Expectations
The company exceeded revenue expectations with a total GAAP revenue of $671 million, marking a 1% sequential increase and surpassing the midpoint of their guidance. This achievement underscores Rackspace’s ability to deliver on its financial targets.
Innovative Product Launches
Rackspace introduced eight new releases in the private cloud sector, including the electronic health record Cloud Enterprise and AI LaunchPack. These innovations highlight the company’s focus on cloud, AI, and security advancements.
Successful Major Client Engagements
The company signed significant deals with a leading global telecommunications provider and a sovereign government customer. These engagements enhance Rackspace Technology’s market reputation and demonstrate its capability to attract major clients.
Public Cloud Revenue Growth
Public cloud revenues totaled $422 million, exceeding the guided range with a 1% increase both year over year and sequentially. This growth reflects the company’s strong performance in the public cloud sector.
Private Cloud Revenue Decline
Despite meeting guidance, private cloud revenue declined by 3% year over year, totaling $250 million. This decline was attributed to customer transitions off legacy platforms.
Decreased Gross Profit Margin
Rackspace reported a non-GAAP gross profit margin of 19.9%, down 120 basis points year over year. The decrease was driven by lower cost absorption in the private cloud and higher infrastructure resale costs in the public cloud.
Lower Non-GAAP Operating Margins
The company experienced a decrease in non-GAAP operating margins, with the private cloud segment down 180 basis points and the public cloud segment down 40 basis points year over year. This was due to an unfavorable product mix.
Forward-Looking Guidance
Looking ahead, Rackspace Technology provided a Q4 revenue guidance range of $664 to $678 million, which is flat sequentially and down 2% year over year at the midpoint. The company is focusing on expanding AI offerings, modernizing critical workloads, and strengthening strategic partnerships, particularly in regulated and sovereign markets.
In conclusion, Rackspace Technology’s earnings call reflected a mixed sentiment with significant achievements in sales and innovation, contrasted by challenges in profit margins and private cloud revenue. The company’s forward-looking guidance suggests a strategic focus on AI and partnerships, aiming to navigate the evolving market landscape.