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Rackspace Technology, Inc. (RXT)·Q2 2025 Earnings Summary

Executive Summary

  • Revenue of $666.3M declined 2.7% YoY, but exceeded guidance midpoint; non-GAAP operating profit rose 34% YoY to $27.3M; non-GAAP loss per share was $(0.06) within guidance .
  • Versus Wall Street, revenue beat consensus ($658.9M*) while EPS was roughly in line (consensus −$0.054* vs actual −$0.06); EBITDA missed on S&P’s basis (consensus $64.4M* vs actual $54.7M*) though company-reported Adjusted EBITDA was $64.4M .
  • Guidance for Q3 2025: revenue $660–$674M, non-GAAP operating profit $30–$32M, non-GAAP EPS loss $(0.04)–$(0.06), OI&E $(47)–$(51)M, tax rate 26%, share count 239–241M; public cloud services expected to grow into 2H25, with stronger attach rates .
  • Call tone was confident: bookings +16% YoY, private cloud stabilizing, public cloud services attach ~70% per infra dollar; AI pipeline >235 opportunities and >80 wins; mgmt reiterated path to positive FY25 FCF of $70–$80M .

What Went Well and What Went Wrong

  • What Went Well

    • Bookings strength and execution: “Bookings grew 16% while operating profit increased 34% year‑over‑year, and we delivered positive operating cash flow.” — CEO Amar Maletira .
    • Private Cloud stabilization with improving mix: bookings +24% sequential and +42% YoY; larger/longer-duration deals; healthcare revenue up 60%+ YoY in 1H25 (vertical) .
    • Public Cloud services momentum: services attach to infra ~70%; managed services/product launches (CloudOps) and AI agent solutions broaden offerings .

  • What Went Wrong

    • GAAP profitability remains negative: net loss $(54.5)M, diluted EPS $(0.23), with operating loss $(25.1)M; GAAP gross margin flat-to-low 19.4% .
    • Segment pressure: Private Cloud revenue down 4% YoY and segment margin down 190 bps YoY to 24.6%; Public Cloud revenue down 2% YoY despite services growth .
    • S&P-defined EBITDA missed consensus (actual $54.7M* vs $64.4M*), reflecting differences versus company Adjusted EBITDA methodology; OI&E accruals tied to data center leases weighed on non-GAAP EPS .

Financial Results

MetricQ2 2024Q4 2024Q1 2025Q2 2025
Revenue ($MM)$684.9 $685.6 $665.4 $666.3
GAAP Net Income (Loss) ($MM)$25.0 $(60.4) $(71.5) $(54.5)
GAAP Diluted EPS ($)$0.11 $(0.26) $(0.31) $(0.23)
Non-GAAP Loss Per Share ($)$(0.09) $(0.02) $(0.06) $(0.06)
Loss from Operations ($MM)$(53.8) $(28.8) $(38.4) $(25.1)
Non-GAAP Operating Profit ($MM)$20.3 $39.1 $25.6 $27.3
Gross Profit Margin % (GAAP)19.2% 19.2% 19.1% 19.4%
Adjusted EBITDA ($MM)$57.6 $73.7 $61.3 $64.4

Segment Breakdown

SegmentQ2 2024 Revenue ($MM)Q2 2025 Revenue ($MM)YoY %Segment Operating Profit Q2 2024 ($MM / %)Segment Operating Profit Q2 2025 ($MM / %)
Public Cloud$424.9 $416.6 −2.0% $10.7 / 2.5% $16.2 / 3.9%
Private Cloud$260.0 $249.7 −4.0% $68.8 / 26.5% $61.5 / 24.6%
Corporate functions———$(59.2) $(50.4)
Non-GAAP Operating Profit———$20.3 $27.3

KPIs

KPIQ2 2025Source
Bookings growth YoY+16%
Cash Flow from Operations$8M
Capital Expenditures$31M
Cash & Equivalents$103.9M
Total Liquidity$414M

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Total Revenue ($MM)Q3 2025—$660–$674 New
Private Cloud Revenue ($MM)Q3 2025—$246–$254 New
Public Cloud Revenue ($MM)Q3 2025—$414–$420 New
Non-GAAP Operating Profit ($MM)Q3 2025—$30–$32 New
Non-GAAP Loss Per Share ($)Q3 2025—$(0.04)–$(0.06) New
Non-GAAP Other Income (Expense) ($MM)Q3 2025—$(47)–$(51) New
Non-GAAP Tax RateQ3 2025—26% Maintained
Non-GAAP Weighted Avg Shares (MM)Q3 2025244–248 (Q2 guidance as of May 8) 239–241 Lowered
Free Cash Flow ($MM)FY 2025—+$70–$80 (positive) New

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4 2024 & Q1 2025)Current Period (Q2 2025)Trend
Guidance credibilityRecord bookings; exceeded Q4 guidance; issued Q1 guidance 12th consecutive quarter meeting/exceeding guidance Improving
Private Cloud trajectoryQ4 private cloud down 6% YoY; Q1 down 7% YoY, bookings growth Revenue stabilizing; bookings +24% seq/+42% YoY; larger deal sizes, longer terms; healthcare strong Stabilizing/strengthening
Public Cloud servicesQ4 public cloud −4% YoY; Q1 −2% YoY Services attach ~70%; services up seq; Q4 2025 services expected +10–20% YoY Improving mix toward services
Gross margin/OpExNon-GAAP gross margin steady; OpEx efficiencies Non-GAAP gross margin 19.8%; OpEx efficiencies drive non-GAAP OP beat Slight margin pressure, better OpEx
AI initiatives (FAIR)FAIR practice highlighted in 2024 >80 wins, >235 opportunities; alliances (Semaphore.ai), AWS Marketplace MCP accelerator Scaling commercialization
Security/CloudOps launchesOngoing modernizations CloudOps managed service; RAISE engine in SOC; Cloud Management Platform upgrades Product velocity up

Management Commentary

  • “Revenue and operating profit exceeded the midpoint of guidance and EPS was within our guided range.” — CEO Amar Maletira, press release .
  • “Bookings grew 16% while operating profit increased 34% year‑over‑year, and we delivered positive operating cash flow.” — CEO .
  • “Non‑GAAP operating profit was $27M, exceeding the high end of our guidance… improvement largely due to OpEx efficiencies in public cloud and corporate overhead.” — CFO Mark Marino .
  • “We attach ~70% of services for every $1 of infrastructure resale in public cloud.” — CEO .
  • “We expect to exit the year with $70–$80M in positive free cash flow.” — CFO .

Q&A Highlights

  • Guidance and seasonality: Q3 revenue guided flat seq; public cloud services expected uptick while infra flat-to-down; FCF improvement driven by absence of H1 vendor prepayments, higher adjusted EBITDA, and working capital .
  • Private Cloud stabilization: third quarter in a row of flat seq revenue; bookings mix shifted to larger/longer deals vs FY22; contract lengths >24 months now ~50% of bookings .
  • Services strategy: Public cloud services attach ~70% to infra; strength across professional, elastic engineering, and managed services; data-related bookings up sequentially .
  • AI commercialization: Partnership with Semaphore.ai to deliver enterprise-grade agentic AI; AWS Marketplace MCP accelerator; examples (J.Crew AI agents; private AI inferencing in healthcare) .

Estimates Context

Metric (Q2 2025)ConsensusActualNotes
Revenue ($MM)$658.9*$666.3 Beat; exceeded midpoint of guidance
Primary EPS ($)−$0.054*−$0.06 In line with guided range
EBITDA ($MM)$64.4*$54.7*Miss vs S&P EBITDA; company Adjusted EBITDA $64.4

Values retrieved from S&P Global*.

Implications: Revenue beat and EPS in-line should support near-term sentiment; S&P-defined EBITDA shortfall versus consensus may reflect methodology differences (vs company Adjusted EBITDA) and OI&E accruals mentioned by CFO .

Key Takeaways for Investors

  • Execution is improving: bookings +16% YoY, non-GAAP OP +34% YoY, and steady quarterly stabilization in Private Cloud revenue underpin the turnaround narrative .
  • Mix shift matters: Public Cloud services attach at ~70% and expected YoY services growth in Q4 2025 (10–20%) could lift margins and reduce reliance on low-margin resale .
  • AI as a growth lever: FAIR pipeline (>235 opps, >80 wins) plus AWS Marketplace accelerator and agentic alliances are tangible commercialization vectors across verticals .
  • Watch EBITDA definitions: Company-reported Adjusted EBITDA aligns with internal KPIs; S&P EBITDA miss vs consensus warrants careful model alignment on non-GAAP vs standard EBITDA .
  • Cash discipline: H2 free cash flow guide of +$70–$80M and $414M liquidity reduce near-term balance sheet risk; monitor OI&E and lease accruals impacting EPS .
  • Q3 setup: Guidance implies flat seq revenue with higher non-GAAP OP; catalysts include services growth, large private cloud deals (healthcare, BFSI, telecom) and continued AI wins .
  • Risk checks: GAAP profitability remains negative; Private Cloud margin compression and infra volumes in Public Cloud are headwinds; track retention and cost absorption trends .