0001810019-25-000153
SEC filingRevenue declined 0.7% YoY to $671M, with gross margin contracting 100 bps to 19.4%, driven by Private Cloud revenue erosion.
For the three months ended September 30, 2025, Rackspace Technology reported total revenue of $671.2 million, a decrease of $4.6 million or 0.7% year-over-year. The decline was primarily driven by a 3.1% drop in Private Cloud revenue, partially offset by a 0.8% increase in Public Cloud revenue. On a constant currency basis, total revenue decreased 1.2%.
Gross profit fell 5.5% to $129.9 million, with gross margin contracting 100 basis points to 19.4%. The margin compression was driven by a 0.6% increase in cost of revenue, which rose to $541.3 million, outpacing the revenue decline. Key cost drivers included higher third-party infrastructure usage charges, hardware expenses related to sales-type lease arrangements, and depreciation, partially offset by lower data center and license costs.
Selling, general and administrative expenses decreased 3.4% to $163.8 million, primarily due to lower personnel costs from headcount reductions and decreased non-equity incentive compensation, partially offset by severance and share-based compensation related to the CEO departure.
Loss from operations improved significantly to $33.9 million from $173.7 million in the prior year, largely due to the absence of a $141.7 million goodwill impairment recorded in Q3 2024. Net loss improved to $67.1 million from $186.6 million, with diluted EPS improving to -$0.28 from -$0.82.
Public Cloud revenue increased 0.8% to $421.6 million, driven by higher services revenue and increased infrastructure volumes. Segment operating profit decreased 9.1% to $14.0 million, with operating margin contracting 40 basis points to 3.3%, as a 1% increase in operating expenses offset the revenue growth.
Private Cloud revenue declined 3.1% to $249.6 million, reflecting customer transitions off legacy platforms, partially offset by new bookings including sales-type lease arrangements. Segment operating profit decreased 9.1% to $67.2 million, with operating margin contracting 180 basis points to 26.9%, as a 3% revenue decline outpaced a 1% reduction in operating expenses.
Corporate function expenses decreased 13.8% to $49.2 million, reflecting continued cost management.
The MD&A does not provide explicit forward guidance. Management's strategic priorities include defending and expanding Private Cloud revenue with new solutions, while focusing on expanding Public Cloud segment operating margins through cost efficiencies and higher-margin services revenue. The company continues to navigate a competitive market environment with evolving technologies (including AI and GenAI) and uncertain macroeconomic and geopolitical factors, including international trade policies and tariffs.
For the nine months ended September 30, 2025, Rackspace Technology reported a net loss of $193.1 million, yet generated positive operating cash flow of $91.7 million. This divergence is primarily due to non-cash charges: depreciation and amortization of $224.0 million, share-based compensation of $40.2 million, and a $48.5 million reduction in operating right-of-use assets. The prior-year period included a $714.9 million goodwill impairment and a $147.2 million gain on debt extinguishment, which distorted comparability.
Capital expenditures (capex) were $57.1 million, down from $91.2 million in the prior period, representing a capex intensity (capex/CFO) of 62.3%. Free cash flow is not explicitly stated but can be approximated as CFO minus capex, yielding roughly $34.6 million. No share repurchases or dividends were paid; the company used $84.6 million in financing activities, primarily for debt repayments ($143.4 million) and finance lease payments ($43.3 million), partially offset by $130.0 million in new borrowings.
Working capital changes provided a net positive contribution of $7.5 million from accounts payable and accrued liabilities, while deferred revenue declined by $10.9 million. Cash payments for interest fell to $62.7 million from $83.9 million, reflecting lower debt levels. Overall, cash flow quality improved significantly year-over-year, driven by reduced losses and disciplined capex, though the company remains highly leveraged with ongoing debt service obligations.