Core Insights - The report highlights a significant gap between organizations that have adopted AI strategies and those that have not, with "AI Leaders" achieving better productivity and innovation outcomes [1][2][10] - AI investments are surging, with an average increase of nearly 250% from 2024 to 2025, indicating a strong commitment to AI across various sectors [4][5] AI Leadership and Adoption - Only 13% of surveyed organizations are classified as "AI Leaders," who have integrated AI into their business strategies, leading to substantial benefits [1][2] - AI Leaders report a 64% realization of benefits from AI, compared to 32% of other organizations, and are three times more likely to scale AI deployments [1][2] Investment Trends - The average business investment in AI rose from $2.5 million to $8.7 million, with 83% of respondents expecting further increases in AI investments over the next five years [4] - Organizations anticipate a 33% increase in the average number of AI projects in production by the end of 2025 [4] Strategic Value of AI - AI is increasingly viewed as a strategic asset rather than just a tool for optimization, with 90% of respondents identifying customer experience and productivity as primary use cases [6] - Customer experience is the most commonly tracked KPI for AI initiatives, surpassing revenue and profitability [6] Cybersecurity and AI - Cybersecurity is recognized as a top risk factor for AI adoption, but organizations are beginning to see AI as a means to enhance cybersecurity measures [7] - AI Leaders are more likely to embed security protocols into their AI applications to address cybersecurity challenges [7] Challenges in Scaling AI - Despite increased AI deployments, 68% of respondents find it challenging to scale AI technology effectively [8] - 71% agree that investing in infrastructure is essential for enabling the scalability and flexibility needed for AI initiatives [9] Competitive Advantage through AI - AI Leaders view AI as a fundamental competitive driver, with 87% recognizing its importance beyond automation [10] - Two-thirds of AI Leaders reported substantial benefits from AI in the past year, compared to one-third of other companies, indicating a widening competitive gap [10]

Core Insights - Rackspace Technology has been awarded two Global Alliances Partner of the Year Awards by Dell Technologies, recognizing its innovation leadership in EMEA and marketing excellence in the Americas [1][2] - The awards highlight the strong collaboration between Rackspace and Dell Technologies, focusing on solutions for private cloud, data modernization, and AI adoption [2][3] Company Overview - Rackspace Technology is a leading provider of end-to-end hybrid and AI solutions, capable of designing, building, and operating cloud environments across various technology platforms [4] - The company emphasizes a customer-first approach, partnering with clients throughout their cloud journey to modernize applications and adopt innovative technologies [4]

Core Insights - Rubrik and Rackspace Technology have launched the Rackspace Cyber Recovery Service, a managed service aimed at enhancing cyber resilience for enterprises operating in public cloud environments [1][2][3] - The service combines Rubrik's data protection and cyber recovery solutions with Rackspace's DevOps principles, enabling faster recovery from ransomware attacks through automated workflows and secure data restoration [1][4] Company Overview - Rubrik is a leading cyber resilience company focused on securing data across enterprise, cloud, and SaaS applications, utilizing Zero Trust Data Security to help organizations maintain business resilience against cyber threats [7] - Rackspace Technology specializes in end-to-end hybrid cloud and AI solutions, assisting customers in modernizing applications and managing cloud environments effectively [6] Service Features - The Rackspace Cyber Recovery Service employs Infrastructure as Code and platform engineering principles to facilitate the restoration of critical workloads across multi-cloud environments [4] - Key features include proactive protection through continuous anomaly detection, expert management of backup configurations, cloud management services, improved compliance with data retention policies, and advisory services for strategic implementation [5] Industry Context - The increasing complexity of cloud environments and the rise in cyber attacks necessitate a shift from traditional recovery methods to modern approaches that leverage cloud-native tools and automation [2][3] - A report from Rubrik Zero Labs indicates that 90% of global IT and security executives experienced cyber attacks in the past year, highlighting the urgent need for effective cyber resilience strategies [2]

Core Insights - The analyst emphasizes a tech-focused approach to investment research, leveraging 25 years of experience in IT and investment to provide unique insights [1] - The research methodology includes analytics and charts to support investment positions, with a focus on capital preservation strategies [1] - The analyst has a diverse background, including roles in virtualization, cloud, and telecommunications, which informs their investment themes [1] Industry Focus - Key themes of interest include automated supply chains, Generative AI, telecommunications capital expenditures (Capex), the deflationary nature of software, and semiconductors [1] - The analyst also covers biotech with a "techbio" perspective, indicating a blend of technology and biotechnology insights [1] Investment Philosophy - The investment journey began with mutual and indexed funds, transitioning to individual stocks, highlighting a learning curve from past investment losses during the 2008/2009 financial crisis [1] - The analyst values unique perspectives from platforms like Seeking Alpha, which provide access to top analysts and diverse investment opinions [1]

Core Insights - Rackspace Technology successfully migrated the Housing Authority of the City of Austin's (HACA) technology infrastructure to Microsoft Azure and Microsoft 365, enhancing operational resilience and security [1][4] - HACA, a public-sector entity, provides essential housing services to low-income families and prioritizes operational continuity and security [2][3] - The transition to a cloud-based environment was prompted by critical downtime during a severe winter storm, which exposed vulnerabilities in HACA's on-premises infrastructure [3][4] HACA's Operational Needs - HACA requires technology to be available 99.9% of the time to support its mission of providing housing to vulnerable citizens [4] - The organization has approximately 240 staff members and manages various housing assistance programs through digital platforms [2] Migration and Improvements - The migration involved the seamless transition of 373 users and over 3.7 TB of data to Microsoft 365, significantly improving HACA's operational agility [4] - The new cloud infrastructure has enhanced business continuity, disaster recovery capabilities, and cybersecurity posture [4][5] Future Readiness - HACA's modernized technology stack provides a flexible and secure foundation for adopting emerging technologies and complying with evolving government standards [5] - The new environment allows HACA to respond proactively to future technological demands and community needs [5]

Financial Performance - Revenue for the three months ended March 31, 2025, was $665.4 million, a decrease of 3.9% compared to $690.8 million for the same period in 2024[14] - Gross profit for the same period was $126.9 million, down from $132.8 million, reflecting a gross margin of approximately 19.1%[14] - Net loss for the three months ended March 31, 2025, was $71.5 million, significantly improved from a net loss of $640.6 million in the prior year[14] - The company reported a basic and diluted net loss per share of $0.31 for the three months ended March 31, 2025, compared to a loss of $2.91 per share in the prior year[14] - Rackspace Technology's comprehensive income for the three months ended March 31, 2025, included a loss of $5.0 million[21] - The company reported a net loss attributable to common stockholders of $71.5 million for the three months ended March 31, 2025, compared to a net loss of $640.6 million for the same period in 2024[53] Assets and Liabilities - Total assets decreased to $2,966.1 million as of March 31, 2025, down from $3,054.1 million at the end of 2024[13] - Total liabilities slightly decreased to $4,039.2 million from $4,058.3 million[13] - Cash and cash equivalents at the end of the period were $128.0 million, down from $144.0 million at the end of 2024[13] - As of March 31, 2025, Rackspace Technology had an accumulated deficit of $3,753.9 million, reflecting a net loss of $71.5 million for the quarter[29] - The company reported a total stockholders' deficit of $1,073.1 million as of March 31, 2025, with total paid-in capital of $2,690.3 million[21] - Rackspace Technology's total debt outstanding was $2,444.4 million as of March 31, 2025, including various senior secured notes and term loan facilities[29] Cash Flow and Expenses - Operating cash flow for the three months ended March 31, 2025, was $12.6 million, a significant recovery from a cash outflow of $90.3 million in the same period of 2024[17] - The company incurred $19.4 million in interest expense for the three months ended March 31, 2025, down from $43.7 million in the same period of 2024[14] - The company recognized $49.6 million in revenue from amounts included in deferred revenue as of the beginning of the period for the three months ended March 31, 2025[44] - The company incurred third-party fees of $28.4 million related to the refinancing transactions[71] - The company expensed approximately $9 million for utility companies to power its data centers in the three months ended March 31, 2025, representing about 1% of total revenue[295] Debt and Financing - The New Revolving Credit Facility allowed for up to $375.0 million in borrowings, with $30.0 million drawn as of March 31, 2025[29] - The company completed a private debt exchange on March 12, 2024, involving $331.4 million of Existing Secured Notes and $1,588.8 million of Existing Term Loans[64] - The new FLSO Term Loan Facility issued amounted to $1,687.2 million, with a contractual interest rate of 7.19% as of March 31, 2025[74][75] - The FLFO Term Loan Facility was issued for $275.0 million, with a contractual interest rate of 10.69% as of March 31, 2025[81][82] - The company was in compliance with all covenants under the New Senior Facilities as of March 31, 2025[91] - The company was in compliance with all covenants under the 5.375% Notes Indenture as of March 31, 2025[116] Segment Performance - Public Cloud segment revenue for the three months ended March 31, 2024, was $422.4 million, which slightly decreased to $415.6 million in 2025, a decline of about 1.9%[154] - Private Cloud segment revenue decreased from $268.4 million in Q1 2024 to $249.8 million in Q1 2025, representing a decline of approximately 6.9%[154] - Segment operating profit for the Public Cloud increased from $8.2 million in Q1 2024 to $17.3 million in Q1 2025, showing a significant improvement of 110.4%[154] - Segment operating profit for the Private Cloud decreased from $71.1 million in Q1 2024 to $61.0 million in Q1 2025, a decline of about 14.5%[154] - Total consolidated segment operating profit slightly decreased from $79.3 million in Q1 2024 to $78.3 million in Q1 2025, a decline of approximately 1.3%[154] Share-Based Compensation - The company reported share-based compensation expense of $7.6 million for equity classified awards during the same period[21] - Total share-based compensation expense for the three months ended March 31, 2025, was $12.0 million, down from $12.8 million in the same period of 2024, with equity classified awards decreasing from $13.0 million to $7.6 million[123] - As of March 31, 2025, there was $24.9 million of total unrecognized compensation cost related to RSUs, performance stock units, and the ESPP[123] - The total share-based compensation expense recognized in selling, general and administrative expenses for the three months ended March 31, 2025, was $10.2 million[123] Impairment and Valuation - Goodwill impairment charges of $385.4 million and $187.8 million were recorded for the Public Cloud and Private Cloud reporting units, respectively, in the first quarter of 2024[35] - The fair value of the company's goodwill as of March 31, 2025, was $3,042.9 million, with net goodwill of $737.3 million after accumulated impairment charges of $2,305.6 million[58] - The company recorded a non-cash impairment charge of $20.0 million related to its indefinite-lived intangible asset, the Rackspace trade name, as of February 29, 2024[37] Tax and Compliance - The effective tax rate for the three months ended March 31, 2025, was lower than the U.S. federal statutory rate of 21% primarily due to the tax impact associated with changes in valuation allowance and nondeductible share-based compensation[124] - The company is not a party to any litigation that would materially affect its business or financial position[121]

Core Viewpoint - Rackspace Technology, Inc. reported strong performance in Q1 2025, exceeding expectations across all key metrics [5]. Financial Performance - Revenue for Q1 2025 was reported, indicating positive growth compared to previous periods [5]. - The company provided non-GAAP financial measures and adjustments, which are believed to offer useful insights for investors [4]. Management Commentary - Amar Maletira, the CEO, expressed optimism about the company's performance and highlighted the exceeded expectations [5]. - Sagar Hebbar, Head of Investor Relations, introduced the call and emphasized the presence of key executives [2].

Core Insights - Rackspace (RXT) reported a quarterly loss of $0.06 per share, better than the Zacks Consensus Estimate of a loss of $0.08, and an improvement from a loss of $0.11 per share a year ago, indicating a 25% earnings surprise [1] - The company achieved revenues of $665.4 million for the quarter ended March 2025, surpassing the Zacks Consensus Estimate by 0.93%, although this represents a decline from $690.8 million in the same quarter last year [2] - Rackspace has consistently exceeded consensus EPS estimates over the last four quarters, indicating a positive trend in earnings performance [2] Financial Performance - The company has shown a significant earnings surprise of 50% in the previous quarter, where it reported a loss of $0.02 per share against an expected loss of $0.04 [1] - Rackspace shares have declined approximately 35.3% since the beginning of the year, contrasting with the S&P 500's decline of 4.3% [3] Future Outlook - The future performance of Rackspace's stock will largely depend on management's commentary during the earnings call and the subsequent revisions of earnings estimates [3][4] - Current consensus EPS estimate for the upcoming quarter is $0.01 on revenues of $672.9 million, and for the current fiscal year, it is also $0.01 on revenues of $2.72 billion [7] - The Zacks Industry Rank places Technology Services in the top 27% of over 250 Zacks industries, suggesting a favorable outlook for the sector [8] Industry Context - The performance of Rackspace's stock may be influenced by the overall outlook of the Technology Services industry, which has shown strong performance relative to lower-ranked industries [8] - Another company in the same industry, Blade Air Mobility, Inc. (BLDE), is expected to report a quarterly loss of $0.11 per share, reflecting a year-over-year change of -83.3% [9]

Financial Data and Key Metrics Changes - Revenue for the first quarter of 2025 was $665 million, down 4% year over year, but met the high end of guidance [19] - Non-GAAP operating profit grew 83% year over year to $26 million, exceeding guidance [19] - Non-GAAP loss per share improved to $0.06 compared to a guided range of $0.07 to $0.09 [19] - Cash flow from operations was $13 million, and free cash flow was $4 million, showing significant improvement from the previous year [19] Business Line Data and Key Metrics Changes Private Cloud - Private cloud revenue for Q1 was $250 million, in line with guidance, but down 7% year over year [20] - Bookings in private cloud remained flat year over year, but would have grown 20% if not for the slippage of large deals into Q2 [8][20] - Non-GAAP gross margin for private cloud was 37.1%, down 1.8 points year over year [21] Public Cloud - Public cloud revenue reached $416 million, exceeding guidance, but down 2% year over year [21] - Public cloud bookings grew 16% year over year, driven by a 26% increase in The Americas [13] - Non-GAAP gross margin for public cloud was 9.5%, up 1 point year over year [21] Market Data and Key Metrics Changes - Strong performance in The Americas contributed to overall growth, with bookings in this region increasing by 13% [6] - Federal contracts accounted for only 1% of 2024 revenue, indicating minimal exposure to federal cost-cutting measures [7] Company Strategy and Development Direction - The company is focused on digital transformation, cloud, and AI, with a strategic partnership with Rubrik to enhance cyber resiliency [6][7] - Emphasis on expanding into regulated industries such as healthcare and energy, with notable wins in these sectors [10][55] - The company aims to build a sustainable business model that consistently delivers revenue, profit, and cash flow growth [18] Management's Comments on Operating Environment and Future Outlook - Management expressed caution regarding the macroeconomic environment, which may impact onboarding timelines and customer decision cycles [7][30] - Despite macro uncertainties, the company remains confident in its strong sales pipeline and execution [29] - The focus is on transitioning from low-margin infrastructure resale to high-margin services, with expectations for operating profit growth in public cloud [44] Other Important Information - The company launched several new products, including Rackspace AI Business and modern operations for data and AI, to enhance service offerings [17] - The company is actively working on CapEx efficiency and inventory reutilization to optimize capital structure [52] Q&A Session Summary Question: What are the macro perspectives affecting customer behavior? - Management noted that while there are some delays in onboarding, overall bookings remain strong and customers are not delaying transformational projects [28][30] Question: How has the sales pipeline evolved? - The sales pipeline has remained strong, with improved win rates and a focus on higher value, long-term contracts [34][35] Question: What is the outlook for public cloud services? - The company is seeing good wins in the services business, with a focus on managed services and data services [42][44] Question: Are larger customers still interested in upfront CapEx payments? - Yes, there is continued interest from larger customers in paying upfront CapEx for lower OpEx over the life of the deal [51] Question: How is the company performing in regulated industries? - The company is seeing good traction in regulated industries, particularly in healthcare and energy, with significant deals being closed [55][57]

Financial Data and Key Metrics Changes - Total company GAAP revenue for Q1 2025 was $665 million, down 4% year over year, but met the high end of guidance [18] - Non-GAAP operating profit was $26 million, exceeding guidance and up 83% year over year, largely due to operational efficiencies [18] - Non-GAAP loss per share improved to $0.06 compared to the guided range of $0.07 to $0.09 [18] - Cash flow from operations was $13 million, and free cash flow was $4 million, showing significant improvement from the previous year [18] Business Line Data and Key Metrics Changes - Private Cloud revenue for Q1 was $250 million, in line with guidance, but down 7% year over year due to customers transitioning from older offerings [19] - Public Cloud revenue reached $416 million, surpassing guidance, but was down 2% year over year due to declines in infrastructure volumes and services [20] - Private Cloud bookings remained flat year over year, but would have grown 20% if not for the slippage of large deals into Q2 [7] - Public Cloud bookings grew 16% year over year, driven by strong performance in The Americas, which saw a 26% increase [12] Market Data and Key Metrics Changes - Federal contracts comprised only 1% of 2024 revenue, indicating minimal exposure to federal agency cost-cutting measures [6] - The company is seeing strong demand in regulated industries, particularly healthcare and energy, with significant new contracts secured [9][56] Company Strategy and Development Direction - The company is focused on driving digital transformation for customers through cloud and AI solutions, while also enhancing cyber resiliency [5] - A strategic partnership with Rubrik was announced to launch the Cyber Recovery Cloud, aimed at improving customer recovery capabilities post-cybersecurity breaches [6] - The company is expanding its offerings in private cloud, including new products like OpenStack Flex and UK Sovereign Secure, to meet compliance and security needs [10][11] Management's Comments on Operating Environment and Future Outlook - Management expressed caution regarding the macroeconomic environment, which may impact onboarding timelines and customer decision cycles [6] - Despite macro uncertainties, the company remains well-positioned to capitalize on long-term trends in public cloud, private cloud, and AI [6] - The company aims to maintain a sustainable business model that consistently delivers revenue, profit, and cash flow growth in 2025 [17] Other Important Information - The company has made significant progress in stabilizing private cloud revenue, with a focus on higher value, long-term contracts [8] - The company is pivoting towards managed services and high-margin offerings, moving away from low-margin infrastructure resale [44] Q&A Session Summary Question: Changes in customer behavior due to macroeconomic factors - Management noted that while there are some delays in onboarding contracts, overall bookings remain strong and customers are not delaying decisions on transformational projects [25][28] Question: Evolution of the sales pipeline and win rates - The sales pipeline has remained strong, with improved win rates and a focus on higher value, long-term contracts in both public and private cloud segments [30][34] Question: Trends in public cloud services and infrastructure resale - The company is seeing good wins in services, particularly in data services driven by AI, while infrastructure resale is expected to decline purposefully to maintain profitability [42][44] Question: Upfront CapEx payments from larger customers and regulated industries - There is continued interest from large customers in upfront CapEx payments for lower OpEx, and traction in regulated industries is strong, particularly in healthcare and energy [52][56]