0001810019-25-000110
SEC filingRevenue declined 2.7% YoY to $666M, with gross margin improving 20 bps to 19.4%, while operating loss narrowed to $25M.
For the three months ended June 30, 2025, Rackspace Technology reported total revenue of $666.3 million, a decrease of 2.7% year-over-year from $684.9 million. The decline was driven by lower revenue in both segments: Public Cloud fell 2.0% to $416.6 million due to lower infrastructure volumes, while Private Cloud dropped 4.0% to $249.7 million as customers rolled off legacy offerings. On a constant currency basis, total revenue declined 3.2%.
Gross profit decreased 1.7% to $129.2 million, but gross margin improved 20 basis points to 19.4%, as cost of revenue fell 3.0% (to $537.1 million) faster than revenue. The cost reduction was driven by lower third-party infrastructure usage charges, reduced personnel costs, and data center optimization.
Selling, general and administrative expenses decreased 16.7% to $154.3 million, primarily due to lower personnel costs from headcount reductions, decreased share-based compensation, and lower severance. As a percentage of revenue, SG&A improved 380 basis points to 23.2%.
Loss from operations narrowed significantly to $25.1 million from $53.8 million in the prior year, a 53.3% improvement. Non-GAAP Operating Profit rose 34.5% to $27.3 million. Net income swung to a loss of $54.5 million from a $25.0 million profit in Q2 2024, primarily due to the absence of a $72.5 million gain on debt extinguishment recorded in the prior year.
Public Cloud segment operating profit increased 51.4% to $16.2 million, with margin expanding 140 basis points to 3.9%. This improvement came despite a 2% revenue decline, as segment operating expenses fell 3% due to operational improvements and cost optimization initiatives executed during 2024.
Private Cloud segment operating profit decreased 10.6% to $61.5 million, with margin contracting 190 basis points to 24.6%. Revenue declined 4%, partially offset by a 2% reduction in operating expenses from cost optimization activities. The segment continues to face headwinds from customers transitioning away from legacy private cloud offerings.
Corporate function expenses decreased 15% to $50.4 million, reflecting continued cost management discipline.
Management did not provide specific forward guidance in the MD&A. However, the discussion highlights ongoing strategic priorities: defending and expanding Private Cloud revenue with new solutions, and expanding Public Cloud segment operating margins through cost efficiencies and higher-margin services revenue growth. The company continues to focus on cost optimization, headcount management, and operational improvements to drive profitability. Key risks include evolving technologies (AI/GenAI), uncertain regulatory landscape, and macroeconomic factors affecting demand.
For the six months ended June 30, 2025, Rackspace Technology reported net cash provided by operating activities of $21.0 million, a significant improvement from a net cash used of $66.2 million in the same period of 2024. This turnaround was driven by a reduction in net loss (from $615.6 million to $126.0 million), the absence of a $573.2 million goodwill impairment, and a $33.1 million favorable swing in accounts receivable. Depreciation and amortization remained stable at $148.9 million, while share-based compensation decreased to $22.0 million.
Capital expenditures (capex) declined sharply to $29.1 million from $66.7 million, reflecting disciplined spending. Free cash flow (CFO minus capex) was negative $8.1 million, an improvement from negative $132.9 million in the prior year. No share repurchases or dividends were paid, indicating a focus on deleveraging and liquidity preservation.
Working capital changes were mixed: accounts receivable provided $43.5 million, while prepaid expenses and other current assets consumed $27.1 million. Accounts payable and accrued expenses decreased by $39.4 million, and deferred revenue fell by $15.8 million. Operating lease liabilities declined by $34.8 million. Cash interest payments dropped to $41.0 million from $70.1 million, reflecting lower debt levels. Overall, cash flow quality improved markedly, though negative free cash flow and reliance on working capital adjustments warrant monitoring.