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    RXT
    Earnings call· Jun 2026(Q2 FY26)

    Rackspace Technology Q2 FY26 earnings call RXT

    Aug 11, 2026 Source

    Executive summary

    Rackspace Q2 FY26 — Strategic AI Infrastructure Build-Out and Strong Private Cloud Performance

    Rackspace is strategically pivoting to become a leading provider of enterprise AI infrastructure, leveraging new partnerships with AMD and Palantir to build out managed compute and inference platforms. While navigating a decline in public cloud revenue due to strategic exits, the company delivered strong private cloud performance and reiterated its full-year positive free cash flow guidance, focusing on high-yielding services and a disciplined capital approach.

    Highlights

    5

    • Private Cloud revenue of $263 million, exceeding guidance of $242 million to $246 million.

    • New AMD partnership to deploy 30 megawatts of AI compute capacity, targeting $450 million to $600 million in annual revenue.

    • Anticipated EBITDA margins of 50%+ for the new enterprise AI growth vector.

    • Full-year free cash flow guidance of $50 million to $70 million positive, accelerating in H2.

    • Non-GAAP operating profit expected to be up 3% at midpoint for the full year, reaching $125 million to $135 million.

    Concerns

    4

    • Non-GAAP gross margin declined by 120 basis points year-over-year to 18.6%.

    • Free cash flow was negative $48 million in Q2 FY26, reflecting seasonal cash uses.

    • Full-year GAAP revenue guidance of $2.45 billion to $2.55 billion represents a 7% decline year-over-year at the midpoint, primarily due to exiting low-margin public cloud revenue.

    • Non-GAAP loss per share was $0.08, compared to $0.06 in the prior year quarter.

    Guidance & targets

    15
    CategoryTargetConfidence
    Full-year GAAP Revenue
    $2.45 billion to $2.55 billion
    high materiality
    High
    Full-year Private Cloud Revenue
    $1.0 billion to $1.05 billion
    medium materiality
    High
    Full-year Public Cloud Revenue
    $1.45 billion to $1.5 billion
    medium materiality
    High
    Full-year Total Non-GAAP Operating Profit
    $125 million to $135 million
    high materiality
    High
    Full-year Adjusted EBITDA
    $285 million to $295 million
    high materiality
    High
    Full-year Non-GAAP Loss Per Share
    $0.25 to $0.30
    high materiality
    High
    Full-year Non-GAAP Tax Rate
    26%
    medium materiality
    High
    Full-year Non-GAAP Other Expenses
    $220 million to $230 million
    medium materiality
    High
    Full-year Non-GAAP Share Count
    250 million to 260 million shares
    medium materiality
    High
    Full-year Positive Free Cash Flow
    $50 million to $70 million
    high materiality
    High
    AI Compute Capacity
    15 megawatts
    high materiality
    High
    AI Compute Capacity
    30 megawatts
    high materiality
    High
    Annual Revenue per AI Megawatt
    $15 million to $20 million
    high materiality
    High
    Annual Revenue for 30 MW AI Deployment
    $450 million to $600 million
    high materiality
    High
    EBITDA Margins for Enterprise AI
    50% plus range
    high materiality
    High

    Segment performance

    2
    SegmentRevenueYoYQoQMargin
    Private Cloud
    Revenue upside driven by timing of revenue recognition for a long-term customer contract, pulling forward revenue from future periods. Gross margin impacted by this revenue item and slightly higher customer licenses and data center costs. Non-GAAP segment operating margin was 21.8%.
    Revenue ahead of $242M-$246M outlookGAAP gross margin down 460 bps YoYNon-GAAP segment operating margin down 280 bps YoY
    		$263 million5%—32.3% GAAP gross margin
    Public Cloud
    Revenue decline reflects lower infrastructure and services revenue, but was ahead of outlook due to higher reported consumption from hyperscaler partners. Non-GAAP gross margin improved due to workforce reductions, and GAAP segment operating margin was 4.7% due to improved operating expense efficiency.
    Revenue modestly ahead of $399M-$403M outlookNon-GAAP gross margin up 10 bps YoYGAAP segment operating margin up 80 bps YoY
    		$407 million-2%—9.7% Non-GAAP gross margin

    Operational metrics

    10
    Non-GAAP gross margin
    18.6%down 120 bps YoY
    Q2 FY26

    Total company non-GAAP gross margin.

    Non-GAAP operating profit
    $27 millionflat YoY
    Q2 FY26

    Total company non-GAAP operating profit, partially offset by higher professional fees and marketing expenses.

    Non-GAAP loss per share
    $0.08vs $0.06 prior year
    Q2 FY26

    Total company non-GAAP loss per share.

    Cash and investments balance
    $111 million
    Q2 FY26

    Cash balance at the end of the quarter.

    Total liquidity
    $202 million
    Q2 FY26

    Includes the undrawn portion of the revolving credit facility.

    Debt repurchases
    $11.2 million
    Q2 FY26

    Aggregate principal of senior notes repurchased opportunistically pursuant to a previously established 10 plan, reducing go-forward interest expense.

    Private Cloud GAAP gross margin
    32.3%down 460 bps YoY
    Q2 FY26

    Driven by revenue recognition timing and slightly higher customer licenses and data center costs.

    Private Cloud Non-GAAP segment operating margin
    21.8%down 280 bps YoY
    Q2 FY26

    Segment operating margin for Private Cloud.

    Public Cloud Non-GAAP gross margin
    9.7%up 10 bps YoY
    Q2 FY26

    Improved due to savings from workforce reductions.

    Public Cloud GAAP segment operating margin
    4.7%up 80 bps YoY
    Q2 FY26

    Improved due to operating expense efficiency.

    Industry KPIs

    3
    MetricValueDetails
    Infra economics30 megawattsMW
    Genai ai book of business$450M-$600MUSD
    Consumption revenue growth-2%%

    Product announcements

    5
    ProductTypeDetails
    RAC AIlaunch
    Optimization and Modernization Assessmentlaunch
    Microsoft Co-Pilot Adoption Offeringlaunch
    Managed Network Security Offeringlaunch
    Data Readiness Offeringlaunch

    Deals & partnerships

    4
    AMDStrategic partnership to deploy AMD-based compute for AI infrastructure.late 2026 through 2028

    Definitive agreement to deploy an initial footprint of 30 megawatts of AMD-based compute, incorporating AMD Instinct GPUs and EPYC CPUs, across Rackspace data centers in phases.

    PalantirStrengthened partnership to connect AI with enterprise data and operational workflows.

    Palantir brings platforms that connect AI with enterprise data and operational workflows, embedding security, permissions, and governance. Rackspace provides the managed operational capabilities.

    AdventHealthFive-year agreement to host and manage infrastructure, reducing on-premises data center footprint.5-year

    Agreement to host and manage infrastructure, retire a separate disaster recovery co-location contract, and migrate a significant number of applications and servers onto Rackspace-hosted infrastructure with full DR failover. Also added a new non-production EPIC environment.

    Top UK banking firmMulti-year agreement to deploy and manage a cyber recovery cloud and managed services.multi-year

    Agreement to deploy and manage a first-of-its-kind cyber recovery cloud built on Rubrik, alongside managed backup and managed Kubernetes services supporting their next-generation development and test banking platform.

    Capital programs

    1
    AMD AI Compute Deploymentunderway
    Period spend: $75 million
    Funding: OEM financing, equipment financing, and other asset-backed credit facilities
    Start: late 2026

    Benefit: 30 megawatts

    Under a definitive agreement with AMD, Rackspace plans to deploy an initial footprint of 30 megawatts of AMD-based compute across its data centers. The first deployment of nearly 2 megawatts is targeted for completion by the end of 2026, with capital expenditures of approximately $75 million. The goal is to ramp to 15 megawatts by the end of 2027 and 30 megawatts by the end of 2028. Financing will be collateralized by the newly acquired hardware.

    Risks & headwinds

    5
    Private Cloud revenue recognition timingH2 FY26

    Pulls forward revenue from future periods, including the second half of 2026.

    Mitigation: Does not change full-year guidance; company expects private cloud to grow this year while absorbing impacts and pivoting to higher margin revenue.

    Strategic exit of low-margin Public Cloud revenueFY26

    Accounts for the vast majority of the 7% year-over-year decline in full-year GAAP revenue guidance.

    Mitigation: Part of a strategic decision to pivot the business towards higher value services-led work and higher margin revenue.

    Higher professional fees and marketing expensesQ2 FY26

    Partially offset continued operating expense discipline.

    Mitigation: Offset by payroll savings from workforce reductions.

    Higher customer licenses and data center costsQ2 FY26

    Impacted Private Cloud GAAP gross margin, which was down 460 basis points year-over-year.

    Mitigation: Company is strategically pivoting the business towards higher margin revenue.

    Seasonal cash usesH1 FY26

    Resulted in negative $32 million cash flow from operations and negative $48 million free cash flow in Q2 FY26.

    Mitigation: Expects free cash flow generation to accelerate through the second half, strengthening liquidity as the year progresses.

    What to watch in Q3 FY26

    4

    Free Cash Flow Generation

    H2 FY26
    Current-$48 million
    Targetaccelerate through the second half

    Why it matters

    FCF acceleration is key to strengthening liquidity and funding strategic growth priorities, validating management's expectation for H2 improvement.

    First half free cash flow reflected known seasonal cash uses, including annual incentive compensation payouts, strategic vendor prepayments, and debt repurchases. We expect free cash flow generation to accelerate through the second half, strengthening liquidity as the year progresses.

    Q&A highlights

    3

    How do you envision the Palantir partnership evolving and contributing to Rackspace's growth profile over the next several years?

    The Palantir partnership has gained significant traction, driven by customer demand for institutional sovereignty in AI models and data. Rackspace and Palantir employ a 'land small, scale fast' approach, moving from bootcamps to production use cases across various industries. This structured go-to-market motion is expected to yield substantial revenue.

    “we land small and then scale fast, right? So the boot camps and the agent camps give us a sort of a good basis of understanding for what our customers want to do. And then once you get that first production use case in, you're able to scale from there.”

    asked by Bradley Clark of BMO · answered by Unknown Speaker

    2 min read7 chapters

    Detailed Narrative

    01

    Enterprise AI Strategy

    Rackspace is positioning itself as the accountable provider for the full enterprise AI stack, from core to cloud to edge. This involves focusing on governance, security, sovereignty, and resilience for AI workloads, particularly inferencing, which is expected to dominate by 2030. The company emphasizes trust as a critical currency in enterprise AI, offering a model-agnostic, vendor-neutral ecosystem for sovereign AI estates.

    02

    Strategic Partnerships and Talent

    The company is building out its AI infrastructure capabilities through key partnerships with AMD, Dell, Palantir, and Unifor. These collaborations aim to provide cost-efficient, controlled enterprise intelligence. The addition of Pranav Nambiar as SVP and GM for AI infrastructure, with his extensive experience from AWS, Google, and Microsoft, is expected to accelerate this strategic pivot and build out the new business.

    03

    AMD Compute Deployment

    Rackspace plans to deploy an initial 30 megawatts of AMD-based compute across its data centers in phases from late 2026 through 2028. The first 2-megawatt deployment, costing approximately $75 million in capital expenditures, is targeted for completion by the end of 2026. This initiative is expected to generate $15 million to $20 million in annual revenue per megawatt, with EBITDA margins exceeding 50%, leveraging existing infrastructure and talent.

    04

    Palantir Partnership Traction

    The partnership with Palantir is gaining significant traction, particularly in helping customers transform fragmented legacy data environments into unified, AI-ready platforms with measurable ROI. Engagements are characterized by a 'land small, scale fast' approach, moving from bootcamps to production use cases across diverse industries like renewable energy, packaging, chemicals, and healthcare, leading to a strong pipeline.

    05

    Private Cloud Performance and Strategic Wins

    The Private Cloud segment reported revenue of $263 million, surpassing guidance, driven by a timing-related📎 revenue recognition from a long-term customer contract. Key customer wins include a five-year agreement with AdventHealth for infrastructure hosting and migration of 366 applications, and a multi-year agreement with a top UK banking firm for a cyber recovery cloud and managed Kubernetes services, reinforcing Rackspace's strength in regulated industries.

    06

    Public Cloud Evolution and New Offerings

    Public Cloud revenue was $407 million, slightly ahead of expectations, as the segment continues its pivot towards higher-value, services-led work. New offerings, often partner-funded, are designed to open doors with customers and expand into larger managed services relationships. These include AWS-funded optimization/modernization assessments, Microsoft Co-Pilot adoption, Managed Network Security, and Data Readiness, focusing on converting AI ambition into production-ready deployments.

    07

    RAC AI Platform Launch

    Rackspace announced the production release of RAC AI, its inference and fine-tuning platform, enabling customers to integrate AI into their workloads via a simple API. This platform is a critical part of Rackspace's ability to stitch the full stack together. Future enhancements will include intelligent model routing and customized model harnesses, offering greater flexibility for scaling AI initiatives.

    AI-generated summary of the company’s earnings call. Not investment advice.