- Total Revenue: GAAP revenue was $670 million, up 1% year-over-year.
- Private Cloud Revenue: $263 million, up 5% year-over-year, ahead of guidance due to a timing item from a long-term customer contract.
- Public Cloud Revenue: $407 million, down 2% year-over-year, modestly ahead of guidance due to higher reported consumption from hyperscaler partners.
- Non-GAAP Gross Margin: 18.6% of GAAP revenue, down 120 basis points year-over-year.
- Non-GAAP Operating Profit: $27 million, flat year-over-year.
- Non-GAAP Loss Per Share: $0.08, compared to $0.06 in the prior year quarter.
- Cash Flow from Operations: Negative $32 million.
- Free Cash Flow: Negative $48 million.
- Cash and Liquidity: Ended the quarter with $111 million in cash and $202 million in total liquidity.
- Private Cloud Gross Margin: GAAP gross margin was 32.3%, down 460 basis points year-over-year.
- Private Cloud Segment Operating Margin: Non-GAAP segment operating margin was 21.8%, down approximately 280 basis points year-over-year.
- Public Cloud Gross Margin: Non-GAAP gross margin was 9.7%, up approximately 10 basis points year-over-year.
- Public Cloud Segment Operating Margin: GAAP segment operating margin was 4.7%, up 80 basis points year-over-year.
- Full-Year Revenue Guidance: Expected to be $2.45 billion to $2.55 billion, a decline of 7% year-over-year at the midpoint.
- Full-Year Private Cloud Revenue Guidance: Expected to be $1.0 billion to $1.05 billion, up 4% year-over-year at the midpoint.
- Full-Year Public Cloud Revenue Guidance: Expected to be $1.45 billion to $1.5 billion, down 13% year-over-year at the midpoint.
- Full-Year Non-GAAP Operating Profit Guidance: Expected to be $125 million to $135 million, up 3% at the midpoint.
- Full-Year Adjusted EBITDA Guidance: Expected to be $285 million to $295 million, up 5% at the midpoint.
- Full-Year Non-GAAP Loss Per Share Guidance: Expected to be $0.25 to $0.30.
- Full-Year Free Cash Flow Guidance: Expected to be $50 million to $70 million in positive free cash flow.
Release Date: August 11, 2026
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Rackspace Technology Inc RXT is strategically positioned in the growing enterprise AI inference market, with McKinsey projecting inferencing workloads to surpass training by end of 2026 and represent two-thirds of all AI workloads by 2030.
- The company has formed key partnerships with AMD, Palantir, and Unifor to build a managed compute and inference platform, enhancing its full-stack enterprise AI offerings.
- Rackspace Technology Inc (RXT) plans to deploy 30 megawatts of AMD-based compute by 2028, with expected revenue of $450-600 million annually and EBITDA margins exceeding 50%.
- The company secured significant customer wins in regulated industries, including a five-year agreement with AdventHealth and a multi-year cyber recovery cloud deal with a top UK banking firm.
- Rackspace Technology Inc (RXT) is expanding its public cloud portfolio with partner-funded entry point offerings, such as AWS-funded optimization assessments, which drive revenue and open doors to larger managed services relationships.
- The company is actively managing its capital structure, repurchasing $11.2 million in senior notes to reduce interest expense and strengthen its balance sheet.
Negative Points
- Rackspace Technology Inc (RXT) reported a non-GAAP loss per share of $0.08 in Q2 2026, worse than the $0.06 loss in the prior year quarter.
- The company's cash flow from operations was negative $32 million and free cash flow was negative $48 million in the quarter, reflecting seasonal cash uses and strategic investments.
- Public cloud revenue declined 2% year-over-year to $407 million, reflecting lower infrastructure and services revenue as the company pivots away from low-margin business.
- Non-GAAP gross margin decreased 120 basis points year-over-year to 18.6%, driven by higher costs and the timing impact in private cloud.
- The company's full-year revenue guidance implies a 7% decline at the midpoint, largely due to the strategic exit of low-margin public cloud revenue.
- Rackspace Technology Inc (RXT) faces execution risks in its AI infrastructure buildout, with the first deployment not expected until late 2026 and significant capital expenditures required.
Q & A Highlights
Q: Can you comment on your vision of how the Palantir partnership will evolve over time and where it will specifically add to Rackspace's growth profile over the next several years?
A: Gajen Kandiah (CEO): The Palantir partnership has gained significant traction over the last four to five months, driven by enterprise customers' focus on "institutional sovereignty"—where models run and where data must remain sovereign. We follow a process from boot camp to agent camp to the first production use case, allowing us to "land small and scale fast." The opportunities span industries like renewable energy, packaging, special chemicals, and healthcare. The success of this motion has led both companies to structure it as a strict, fast go-to-market strategy, which is already yielding early revenue and a strong pipeline.
Q: Could you flush out some of the demand you're seeing from existing and new customers in 2027, and describe the current demand and competitive environment for regulated AI production environments?
A: Gajen Kandiah (CEO): The strategy is expanding beyond our core regulated enterprise base, with partners like AMD, Palantir, and Unifor adding to our opportunities. A key emerging trend is "sovereign AI," which now extends beyond country boundaries to enterprise boundaries, requiring modularity in models, compute, and orchestration. We are seeing demand for context-aware inference that moves between models without losing context. This needs to land in a safe, secure, and governed environment. While we started in regulated industries, we believe almost all enterprises will seek a "regulated approach" for data residency and processing confidence, positioning Rackspace strongly.
Q: How do you see the balance between growth investing and debt repayment evolving over the next 12 to 18 months?
A: Mark Marino (CFO): This is a top priority. The GPU investment with AMD is expected to be largely financed via hardware-backed or asset-backed facilities, preserving our cash for operations. We are being judicious by optimizing and restructuring other parts of the business to free up funds for high-ROI investments, including the GPU deployment and the Palantir initiative. We will continue to drive liquidity to fund these strategic growth areas over the next few quarters.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
This stock alert was generated using automated technology and GuruFocus financial data to provide readers with timely and accurate market reporting. This content was reviewed by GuruFocus editorial team prior to publication. Please send any questions or comments about this story to [email protected].
