Rackspace Technology Inc

We have initiated a small position in Rackspace Technology (RXT), a global managed service provider in both public and private cloud. RXT represents a classic high-leverage 'stub' stock turnaround situation: a ~$900 million equity market cap resting atop a ~$3.8 billion enterprise value. We think majority owner Apollo’s ~51% stake keeps management firmly aligned with minority equity holders. Our confidence that they can move back much closer to $800 million EBITDA over the next 18-24 months is based on three factors: growth in their Private Cloud business, new management's strategic focus on AI infrastructure, and a significant agreement with AMD that could generate substantial revenue and EBITDA. The stock has been hit recently, but we believe the turnaround is underway, as evidenced by a 40% sequential increase in total Remaining Performance Obligations.

We have initiated a small position in Rackspace Technology (RXT), a global managed service provider in both public and private cloud. RXT represents a classic high-leverage 'stub' stock turnaround situation: a ~$900 million equity market cap resting atop a ~$3.8 billion enterprise value. We think majority owner Apollo’s ~51% stake keeps management aligned with minority equity holders. Our confidence that they can move back much closer to $800 million EBITDA over the next 18-24 months is based on three factors: growth in their Private Cloud business, new management's strategic focus on AI infrastructure, and a significant agreement with AMD that could generate substantial revenue and EBITDA. The stock has been hit recently, but we believe the turnaround is underway, as evidenced by a 40% sequential increase in Remaining Performance Obligations.

We have initiated a small position in Rackspace Technology (RXT), a global managed service provider in both public and private cloud. RXT represents a classic high-leverage 'stub' stock turnaround situation. We think majority owner Apollo’s ~51% stake keeps management firmly aligned with minority equity holders. Our confidence that they can move back much closer to the $800 million EBITDA level over the next 18-24 months is based on three factors: growth in their Private Cloud business, new management's strategic focus on AI infrastructure, and a significant agreement with AMD that could produce substantial revenue and EBITDA. The stock has been hit recently, but we believe the equity has materially underreacted to the turnaround potential.