Rackspace Technology Q3 Earnings Call Highlights

Key Points

• Rackspace raised its 2026 revenue forecast to $2.51 billion–$2.56 billion, while reaffirming its operating profit and adjusted EBITDA outlook. The revised midpoint implies a 6% year-over-year revenue decline, versus 7% previously expected.
• Third-quarter revenue fell 9% to $609 million as Public Cloud revenue dropped 17.2%, partly offset by 4.2% growth in Private Cloud. Rackspace cited stronger Public Cloud renewals and customer consumption, but lowered its Private Cloud growth forecast.
• AI infrastructure is a major growth initiative: Rackspace signed agreements with Together AI and Blacksmith totaling $610 million in anticipated contract value, with deployments expected in 2027. The company targets 20–22 megawatts of AI compute capacity by year-end 2027, though financing, equipment delivery and data center readiness could affect execution.

Rackspace Technology NASDAQ: RXT raised its full-year revenue forecast after reporting stronger Public Cloud consumption, while maintaining its profitability outlook and outlining plans to expand AI computing capacity through 2027.

The cloud services provider reported third-quarter revenue of $609 million, down 9% from a year earlier, as a decline in Public Cloud revenue outweighed growth in Private Cloud. Adjusted EBITDA rose 8.5% to $75 million, while non-GAAP operating profit increased 12% to $36 million.

Chief Financial Officer Mark Marino said savings from workforce reductions, lower marketing spending and reduced bad debt expense more than offset lower gross profit. The company posted a non-GAAP loss of $0.06 per share, compared with a loss of $0.05 a year earlier, as higher interest expense outweighed the increase in operating profit.

Revenue outlook rises as cloud segments diverge

Rackspace now expects 2026 revenue of $2.51 billion to $2.56 billion, up from its previous range of $2.45 billion to $2.55 billion. The new midpoint of $2.535 billion represents a 6% year-over-year decline, compared with the 7% decline previously anticipated.

The company reaffirmed its forecast for non-GAAP operating profit of $125 million to $135 million and adjusted EBITDA of $285 million to $295 million. It also expects a non-GAAP loss of $0.25 to $0.30 per share.

Public Cloud revenue fell 17.2% to $349 million in the quarter. Marino attributed the decline to the non-renewal of a large, low-margin state government contract, a shift by some large resale customers to direct contracts with hyperscalers, and the wind-down of certain legacy services. The segment’s non-GAAP operating margin rose to 7.8% from a year earlier, helped by lower payroll costs and favorable bad debt expense.

For the full year, Rackspace expects Public Cloud revenue of $1.515 billion to $1.545 billion. That implies a 10% decline at the midpoint, an improvement from the previously expected 13% decline, reflecting stronger renewals and higher customer consumption.

Private Cloud revenue rose 4.2% to $260 million, driven by upfront implementation revenue from an AdventHealth migration. Its non-GAAP gross margin fell to 31.5% from a year earlier, primarily because of the mix impact from implementation revenue and higher customer license and data center costs.

Rackspace reduced its Private Cloud forecast to $995 million to $1.015 billion, citing the shift of a large healthcare implementation into the first half of 2027 and the reservation of data center capacity for AI compute deployments. The revised midpoint implies 2% growth, compared with 4% previously.

AI agreements and deployment targets

Chief Executive Officer Gajen Kandiah said Rackspace signed a definitive agreement with Together AI for infrastructure using NVIDIA GB300 systems. The agreement has an anticipated total contract value of $380 million over several years, subject to conditions, and is expected to be in service by mid-2027.

The companies also signed a separate letter of intent covering potential future capacity expansion and a proposed joint enterprise AI offering. Kandiah described the expansion as a potential multibillion-dollar long-term opportunity but emphasized that the letter is not a definitive agreement and remains subject to future agreements and other conditions.

Rackspace also announced a definitive agreement with AI-powered developer platform Blacksmith, with an anticipated total contract value of $230 million. Rackspace will provide dedicated bare-metal compute using AMD EPYC CPUs and storage, with deployment expected to begin in early 2027.

Including the Together AI deployment, Rackspace expects to operate approximately 20 to 22 megawatts of cumulative high-performance compute for AI applications by the end of 2027. Once fully deployed, that capacity could generate $420 million to $460 million in annualized run-rate revenue at EBITDA margins above 60%, assuming deployment and utilization proceed as expected.

The company’s AMD deployment plan calls for approximately 17 megawatts by the end of 2027, excluding Together AI’s NVIDIA-based capacity. Kandiah cautioned that financing availability, vendor delivery and data center readiness could affect the schedule.

Rackspace has signed seven contracts under its Palantir partnership since its previous call, with five in active deployment and two in production, Kandiah said. Palantir also owns approximately 2% of Rackspace’s common stock, he said.

Cash, financing and execution

Rackspace ended the quarter with $108 million in cash and equivalents and $170 million in total liquidity, including the undrawn portion of its revolving credit facility. Operating cash flow was $36 million and free cash flow was $1 million. Capital expenditures were $104 million, including customer equipment and software, a Palantir license for internal use and preliminary purchases supporting AMD initiatives; cash capital expenditure was $35 million.

The company recently entered share purchase agreements for an aggregate $66 million investment from a group led by Voss Capital. Rackspace expects to use the proceeds for corporate purposes and growth initiatives, including GPU-related projects. Hardware for the Together AI deployment is expected to be financed separately, and Rackspace is in discussions with potential lenders, Kandiah said.

Asked whether potential tighter permitting controls could improve demand or pricing, Kandiah said it was too early to tell how they would affect either. He said Rackspace’s existing capacity could nevertheless provide a faster ramp-up for customers seeking inference workloads.

About Rackspace Technology (NASDAQ:RXT)

Rackspace Technology, Inc. is a technology services company that helps businesses design, build, operate and optimize information technology environments across public, private and hybrid clouds. Its offerings are intended to support organizations at various stages of cloud adoption, from migration and modernization to ongoing management and optimization. The company provides managed cloud services for major cloud platforms, including Amazon Web Services, Microsoft Azure and Google Cloud. Its services also include application development and modernization, data and artificial intelligence solutions, cybersecurity, professional services, managed hosting and infrastructure management.

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