Rackspace Technology (NASDAQ: RXT) returns to profit as debt buybacks lift Q1 2026
Filing Impact
Filing Sentiment
Form Type
10-Q
Rhea-AI Filing Summary
Rackspace Technology reported a Q1 2026 profit driven by debt actions. Revenue was $678.1 million, up 1.9% year over year, as Public Cloud grew while Private Cloud declined. Gross margin narrowed to 17.6% as infrastructure and depreciation costs rose.
The company swung from a net loss of $71.5 million to net income of $8.3 million, mainly due to a $55.8 million gain on debt extinguishment from repurchasing 3.50% and 5.375% notes at discounts. Adjusted EBITDA increased to $71.2 million from $61.3 million.
Rackspace remains highly leveraged, with $2,477.6 million of total debt principal and cash and cash equivalents of $93.6 million at March 31, 2026. It had $150.0 million drawn on a $375.0 million revolving credit facility and believes current resources will cover liquidity needs for at least the next 12 months.
Positive
- None.
Negative
- None.
Insights
Leverage remains high despite a one-time debt gain.
Rackspace Technology posted Q1 2026 net income of $8.3 million, helped by a $55.8 million gain on debt extinguishment. Core operations improved modestly, with Non-GAAP Operating Profit rising to $30.7 million and Adjusted EBITDA to $71.2 million.
Total debt principal was $2,477.6 million at March 31, 2026, versus cash of $93.6 million. The company used discounted repurchases of its 3.50% and 5.375% notes, reducing future interest but also consuming cash and revolver capacity.
Revenue growth was low single-digit, with Public Cloud up and Private Cloud down. With a highly leveraged balance sheet and a revolver draw of $150.0 million, future performance will depend on sustaining segment profitability and managing refinancing and covenant requirements disclosed for facilities maturing in 2028.
Key Figures
Revenue: $678.1 million
Net income: $8.3 million
Gain on debt extinguishment: $55.8 million
+5 more
8 metrics
Revenue
$678.1 million
Three months ended March 31, 2026
Net income
$8.3 million
Three months ended March 31, 2026
Gain on debt extinguishment
$55.8 million
Q1 2026 repurchases of 3.50% and 5.375% notes
Adjusted EBITDA
$71.2 million
Three months ended March 31, 2026
Total debt principal
$2,477.6 million
Outstanding as of March 31, 2026
Cash and cash equivalents
$93.6 million
Balance as of March 31, 2026
Public Cloud revenue
$443.4 million
Three months ended March 31, 2026
Private Cloud revenue
$234.7 million
Three months ended March 31, 2026
Key Terms
Gain on debt extinguishment, Adjusted EBITDA, FLSO Term Loan Facility, Revolving Credit Facility, +2 more
6 terms
Gain on debt extinguishment financial
"Gain on debt extinguishment | — | 55.8 Other expense, net"
Adjusted EBITDA financial
"Adjusted EBITDA | $ | 61.3 | $ | 71.2"
Adjusted EBITDA is a way companies measure how much money they make from their core operations, like running a business, by removing certain costs or income that aren’t part of regular business activities. It helps investors see how well a company is doing without distractions from unusual expenses or gains, making it easier to compare companies or track performance over time.
FLSO Term Loan Facility financial
"Debt Instrument | FLSO Term Loan Facility | May 15, 2028"
Revolving Credit Facility financial
"Revolving Credit Facility provided for up to $375.0 million of borrowings"
A revolving credit facility is a type of loan that a business can borrow from whenever it needs money, up to a set limit. It’s like having a credit card for companies—allowing them to borrow, pay back, and borrow again as needed, providing flexibility for managing cash flow or funding short-term expenses.
Non-GAAP Operating Profit financial
"Non-GAAP Operating Profit was $31 million in the three months ended March 31, 2026"
Non-GAAP operating profit is a company’s operating earnings after removing or adjusting items that management considers unusual, one-time, or not part of regular operations (for example, restructuring costs or stock-based pay). Investors use it like a cleaned-up scorecard to see the company’s core business performance without temporary noise, but because the adjustments aren’t standardized, it’s best compared across peers with caution.
Remaining performance obligations financial
"aggregate amount of transaction price allocated to remaining performance obligations was $575.5 million"
Remaining performance obligations are the work a company still needs to complete for its customers, like finishing a service or delivering a product. It’s important because it shows how much future income the company has coming in from current agreements, giving a clearer picture of its ongoing business.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the quarterly period ended March 31, 2026 .
OR
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the transition period from ______ to ______.
Commission File Number: 001-39420
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||
(Address of principal executive offices, including zip code)
1-800 -961-4454
(Registrant's telephone number, including area code)
None
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | ☑ | ||||||||||||
Non-accelerated filer | ☐ | Smaller reporting company | ||||||||||||
Emerging growth company | ||||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑
On May 1, 2026, 249,222,499 shares of the registrant's common stock, par value $0.01 per share, were outstanding.
RACKSPACE TECHNOLOGY, INC.
TABLE OF CONTENTS
| Part I - Financial Information | ||||||||
| Item 1. | Financial Statements: | |||||||
Unaudited Condensed Consolidated Balance Sheets as of December 31, 2025 and March 31, 2026 | 3 | |||||||
Unaudited Condensed Consolidated Statements of Comprehensive Loss for the Three Months Ended March 31, 2025 and March 31, 2026 | 4 | |||||||
Unaudited Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2025 and March 31, 2026 | 5 | |||||||
Unaudited Condensed Consolidated Statements of Stockholders' Deficit for the Three Months Ended March 31, 2025 and March 31, 2026 | 7 | |||||||
Notes to the Unaudited Condensed Consolidated Financial Statements | 8 | |||||||
| Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations | 26 | ||||||
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 43 | ||||||
| Item 4. | Controls and Procedures | 44 | ||||||
| Part II - Other Information | ||||||||
| Item 1. | Legal Proceedings | 45 | ||||||
| Item 1A. | Risk Factors | 45 | ||||||
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 45 | ||||||
| Item 3. | Defaults Upon Senior Securities | 45 | ||||||
| Item 4. | Mine Safety Disclosures | 45 | ||||||
| Item 5. | Other Information | 46 | ||||||
| Item 6. | Exhibits | 47 | ||||||
Signatures | 48 | |||||||
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2026 (this "Quarterly Report") contains certain information that may constitute "forward-looking statements" within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. While we have specifically identified certain information as being forward-looking in the context of its presentation, we caution you that all statements contained in this report that are not clearly historical in nature, including statements regarding anticipated financial performance, management's plans and objectives for future operations, business prospects, market conditions, and other matters are forward-looking. Forward-looking statements are contained principally in the sections of this report entitled "Risk Factors," and "Management's Discussion and Analysis of Financial Condition and Results of Operations." Without limiting the generality of the preceding sentence, any time we use the words "expects," "intends," "will," "anticipates," "believes," "confident," "continue," "propose," "seeks," "could," "may," "should," "estimates," "forecasts," "might," "goals," "objectives," "targets," "planned," "projects," and similar expressions, we intend to clearly express that the information deals with possible future events and is forward-looking in nature. However, the absence of these words or similar expressions does not mean that a statement is not forward-looking.
Forward-looking information involves risks, uncertainties, and other factors that could cause actual results to differ materially from those expressed or implied in, or reasonably inferred from, such statements, and the risks and uncertainties disclosed or referenced under the heading "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2025. Therefore, caution should be taken not to place undue reliance on any such forward-looking statements. Much of the information in this report that looks toward future performance of the company is based on various factors and important assumptions about future events that may or may not actually occur. As a result, our operations and financial results in the future could differ materially and substantially from those we have discussed in the forward-looking statements included in this Quarterly Report. We assume no obligation (and specifically disclaim any such obligation) to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law.
TRADEMARKS, TRADE NAMES AND SERVICE MARKS
"Rackspace," "Rackspace Technology," "Fanatical," "Fanatical Experience," "Rackspace Fabric," "Rackspace Data Freedom," "Rackspace Services for VMware CloudTM" and "My Rackspace" are registered or unregistered trademarks of Rackspace US, Inc. in the United States and/or other countries. OpenStack® is a registered trademark of OpenStack, LLC and OpenStack Foundation in the United States. Solely for convenience, trademarks, trade names and service marks referred to in this Quarterly Report may appear without the ® or ™ symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensor to these trademarks, trade names and service marks. Other trademarks, trade names and service marks appearing in this Quarterly Report are the property of their respective holders. We do not intend our use or display of other companies' trade names, trademarks or service marks to imply a relationship with, or endorsement or sponsorship of us by, any other companies.
Table of Contents
PART I – FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
RACKSPACE TECHNOLOGY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
| (In millions, except per share data) | December 31, 2025 | March 31, 2026 | |||||||||
| ASSETS | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
Accounts receivable, net of allowance for credit losses and accrued customer credits of $ | |||||||||||
| Prepaid expenses | |||||||||||
| Other current assets | |||||||||||
| Total current assets | |||||||||||
| Property, equipment and software, net | |||||||||||
| Goodwill, net | |||||||||||
| Intangible assets, net | |||||||||||
| Operating right-of-use assets | |||||||||||
| Other non-current assets | |||||||||||
| Total assets | $ | $ | |||||||||
| LIABILITIES AND STOCKHOLDERS' DEFICIT | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable and accrued expenses | $ | $ | |||||||||
| Accrued compensation and benefits | |||||||||||
| Deferred revenue | |||||||||||
| Debt | |||||||||||
| Accrued interest | |||||||||||
| Operating lease liabilities | |||||||||||
| Finance lease liabilities | |||||||||||
| Financing obligations | |||||||||||
| Other current liabilities | |||||||||||
| Total current liabilities | |||||||||||
| Non-current liabilities: | |||||||||||
| Debt | |||||||||||
| Operating lease liabilities | |||||||||||
| Finance lease liabilities | |||||||||||
| Financing obligations | |||||||||||
| Deferred income taxes | |||||||||||
| Other non-current liabilities | |||||||||||
| Total liabilities | |||||||||||
| Commitments and Contingencies (Note 8) | |||||||||||
| Stockholders' deficit: | |||||||||||
Preferred stock, $ | |||||||||||
Common stock, $ | |||||||||||
| Additional paid-in capital | |||||||||||
| Accumulated other comprehensive income (loss) | ( | ||||||||||
| Accumulated deficit | ( | ( | |||||||||
Treasury stock, at cost; | ( | ( | |||||||||
| Total stockholders' deficit | ( | ( | |||||||||
| Total liabilities and stockholders' deficit | $ | $ | |||||||||
See accompanying notes to the unaudited condensed consolidated financial statements.
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Table of Contents
RACKSPACE TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Unaudited)
| Three Months Ended March 31, | |||||||||||
| (In millions, except per share data) | 2025 | 2026 | |||||||||
| Revenue | $ | $ | |||||||||
| Cost of revenue | ( | ( | |||||||||
| Gross profit | |||||||||||
| Selling, general and administrative expenses | ( | ( | |||||||||
| Loss from operations | ( | ( | |||||||||
| Other income (expense): | |||||||||||
| Interest expense | ( | ( | |||||||||
| Loss on investments, net | ( | ( | |||||||||
| Gain on debt extinguishment | |||||||||||
Other expense, net | ( | ( | |||||||||
| Total other income (expense) | ( | ||||||||||
| Income (loss) before income taxes | ( | ||||||||||
| Benefit (provision) for income taxes | ( | ||||||||||
| Net income (loss) | $ | ( | $ | ||||||||
| Other comprehensive income (loss), net of tax | |||||||||||
| Foreign currency translation adjustments | $ | $ | ( | ||||||||
| Unrealized loss on derivative contracts | ( | ||||||||||
| Amount reclassified from accumulated other comprehensive income (loss) to earnings | ( | ( | |||||||||
| Other comprehensive loss | ( | ( | |||||||||
| Comprehensive loss | $ | ( | $ | ( | |||||||
Net earnings (loss) per share: | |||||||||||
Basic | $ | ( | $ | ||||||||
Diluted | $ | ( | $ | ||||||||
| Weighted average number of shares outstanding: | |||||||||||
Basic | |||||||||||
Diluted | |||||||||||
See accompanying notes to the unaudited condensed consolidated financial statements.
- 4 -
Table of Contents
RACKSPACE TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| Three Months Ended March 31, | |||||||||||
| (In millions) | 2025 | 2026 | |||||||||
| Cash Flows From Operating Activities | |||||||||||
| Net income (loss) | $ | ( | $ | ||||||||
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | |||||||||||
| Depreciation and amortization | |||||||||||
| Reduction in carrying amount of operating right-of-use assets | |||||||||||
| Deferred income taxes | ( | ( | |||||||||
| Share-based compensation expense | |||||||||||
| Gain on debt extinguishment | ( | ||||||||||
| Loss on investments, net | |||||||||||
| Provision for bad debts and accrued customer credits | |||||||||||
| Amortization of debt issuance costs and debt discount and premium | |||||||||||
| Other operating activities | ( | ||||||||||
| Changes in operating assets and liabilities: | |||||||||||
| Accounts receivable | ( | ||||||||||
| Prepaid expenses and other current assets | ( | ( | |||||||||
| Accounts payable, accrued expenses, and other current liabilities | ( | ( | |||||||||
| Deferred revenue | ( | ||||||||||
| Operating lease liabilities | ( | ( | |||||||||
| Other non-current assets and liabilities | ( | ||||||||||
| Net cash provided by operating activities | |||||||||||
| Cash Flows From Investing Activities | |||||||||||
| Purchases of property, equipment and software | ( | ( | |||||||||
| Other investing activities | ( | ||||||||||
| Net cash used in investing activities | ( | ( | |||||||||
| Cash Flows From Financing Activities | |||||||||||
| Proceeds from borrowings under long-term debt arrangements | |||||||||||
| Payments on long-term debt | ( | ( | |||||||||
| Payments on financing component of interest rate swap | ( | ( | |||||||||
| Principal payments of finance lease liabilities | ( | ( | |||||||||
| Principal payments of financing obligations | ( | ( | |||||||||
| Net cash used in financing activities | ( | ( | |||||||||
| Effect of exchange rate changes on cash, cash equivalents, and restricted cash | ( | ||||||||||
| Decrease in cash, cash equivalents, and restricted cash | ( | ( | |||||||||
| Cash, cash equivalents, and restricted cash at beginning of period | |||||||||||
| Cash, cash equivalents, and restricted cash at end of period | $ | $ | |||||||||
- 5 -
Table of Contents
| Supplemental Cash Flow Information | |||||||||||
| Cash payments for interest, net of amount capitalized | $ | $ | |||||||||
| Cash payments for income taxes, net of refunds | $ | $ | |||||||||
| Non-cash Investing and Financing Activities | |||||||||||
| Acquisition of property, equipment and software by finance leases | $ | $ | |||||||||
| Acquisition of property, equipment and software by financing obligations | |||||||||||
| Increase (decrease) in property, equipment and software accrued in liabilities | ( | ||||||||||
| Non-cash purchases of property, equipment and software | $ | $ | |||||||||
The following table provides a reconciliation of cash, cash equivalents, and restricted cash to the total of such amounts shown on the Condensed Consolidated Statements of Cash Flows.
| Three Months Ended March 31, | |||||||||||
| (In millions) | 2025 | 2026 | |||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Restricted cash included in other non-current assets | |||||||||||
| Total cash, cash equivalents, and restricted cash shown in the statement of cash flows | $ | $ | |||||||||
See accompanying notes to the unaudited condensed consolidated financial statements.
- 6 -
Table of Contents
RACKSPACE TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
(Unaudited)
| (In millions) | Common Stock | Additional Paid-In Capital | Accumulated Other Comprehensive Income | Accumulated Deficit | Treasury Stock, at Cost | Total Stockholders' Deficit | |||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2024 | $ | $ | $ | $ | ( | $ | ( | $ | ( | ||||||||||||||||||||||||||||||||||||||
| Exercise of stock options and release of stock awards | ( | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Share-based compensation expense for equity classified awards | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | ( | — | — | ( | |||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | ( | — | — | — | ( | |||||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2025 | $ | $ | $ | $ | ( | $ | ( | $ | ( | ||||||||||||||||||||||||||||||||||||||
| (In millions) | Common Stock | Additional Paid-In Capital | Accumulated Other Comprehensive Income (Loss) | Accumulated Deficit | Treasury Stock, at Cost | Total Stockholders’ Deficit | |||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2025 | $ | $ | $ | $ | ( | $ | ( | $ | ( | ||||||||||||||||||||||||||||||||||||||
Exercise of stock options and release of stock awards | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Share-based compensation expense for equity classified awards | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
Net income | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
Other comprehensive loss | — | — | — | ( | — | — | — | ( | |||||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2026 | $ | $ | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||||||||||||||||||||||||
See accompanying notes to the unaudited condensed consolidated financial statements.
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Table of Contents
RACKSPACE TECHNOLOGY, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Company Overview, Basis of Presentation, and Summary of Significant Accounting Policies
Nature of Operations and Basis of Presentation
Rackspace Technology, Inc. ("Rackspace Technology") is a Delaware corporation controlled by investment funds affiliated with Apollo Global Management, Inc. and its subsidiaries ("Apollo"). Rackspace Technology was formed on July 21, 2016 but had no assets, liabilities or operating results until November 3, 2016 when Rackspace Hosting, Inc. (now named Rackspace Technology Global, Inc., or "Rackspace Technology Global"), a global provider of modern information technology-as-a-service, was acquired by Inception Parent, Inc., a wholly-owned entity indirectly owned by Rackspace Technology (the "Rackspace Acquisition").
Rackspace Technology Global commenced operations in 1998 as a limited partnership and was incorporated in Delaware in March 2000. Rackspace Technology serves as the holding company for Rackspace Technology Global and does not engage in any material business or operations other than those related to its indirect ownership of the capital stock of Rackspace Technology Global and its subsidiaries or business or operations otherwise customarily undertaken by a holding company.
For ease of reference, the terms "we," "our company," "the company," "us," or "our" as used in this report refer to Rackspace Technology and its consolidated subsidiaries.
Unaudited Interim Financial Information
The unaudited condensed consolidated financial statements as of March 31, 2026, and for the three months ended March 31, 2025 and 2026, have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information. Accordingly, certain financial information and disclosures required for financial statements prepared under GAAP have been omitted in accordance with the Securities and Exchange Commission ("SEC") disclosure rules and regulations that permit reduced disclosure for interim periods. These unaudited interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the related notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2025 as filed with the SEC on March 6, 2026 ("Annual Report"). The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements included in our Annual Report and, in the opinion of management, reflect all adjustments, which include normal recurring adjustments, necessary for a fair statement of our financial position as of March 31, 2026, our results of operations, cash flows, and stockholders' deficit for the three months ended March 31, 2025 and 2026.
The results of operations for the three months ended March 31, 2026 are not necessarily indicative of the results of operations to be expected for the year ending December 31, 2026, or for any other interim period, or for any other future year.
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenue and expenses, and related disclosures of contingent assets and liabilities in the condensed consolidated financial statements and accompanying notes. On an ongoing basis, we evaluate our estimates, including those related to the allowance for credit losses, useful lives of property, equipment and software, software capitalization, incremental borrowing rates for lease liability measurement, fair values of intangible assets and reporting units, useful lives of intangible assets, share-based compensation, contingencies, and income taxes, among others. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results could differ from our estimates.
- 8 -
Table of Contents
Liquidity Overview
We are a highly leveraged company. As of March 31, 2026, we had $2,327.6 million aggregate principal amount outstanding under our debt instruments, which are comprised of the first lien first out senior secured term loan facility (the “FLFO Term Loan Facility”), the first lien second out senior secured term loan facility (the “FLSO Term Loan Facility”), the senior secured first lien term loan facility (the "Term Loan Facility"), 3.50 % FLSO Senior Secured Notes due 2028 (the “3.50 % FLSO Senior Secured Notes”), 5.375 % Senior Notes due 2028 (the "5.375 % Senior Notes"), and 3.50 % Senior Secured Notes due 2028 (the "3.50 % Senior Secured Notes"). We primarily finance our operations and capital expenditures with internally-generated cash from operations and hardware leases, and if necessary, borrowings under the senior secured first lien first out revolving credit facility (the "Revolving Credit Facility"). As of March 31, 2026, the Revolving Credit Facility provided for up to $375.0 150.0 million of which was drawn and outstanding as of March 31, 2026. Our primary uses of cash are working capital requirements, debt service requirements and capital expenditures. Based on our current level of operations and available cash and cash equivalents of $93.6 million as of March 31, 2026, we believe our sources will provide sufficient liquidity over at least the next twelve months. We cannot provide assurance, however, that our business will generate sufficient cash flows from operations or that future borrowings will be available to us under the Revolving Credit Facility or from other sources in an amount sufficient to enable us to pay our indebtedness or to fund our other liquidity needs. Our ability to do so depends on our ability to deliver on our strategic objectives and prevailing economic conditions and other factors, many of which are beyond our control.
Significant Accounting Policies and Estimates
Our Annual Report includes an additional discussion of the significant accounting policies and estimates used in the preparation of our consolidated financial statements. There were no material changes to our significant accounting policies and estimates during the three months ended March 31, 2026.
Recent Accounting Pronouncements
Measurement of Credit Losses
In July 2025, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) No. 2025-05, Financial Instruments - Credit Losses (Topic 326) - Measurement of Credit Losses for Accounts Receivable and Contract Assets. ASU 2025-05 allows entities to apply a practical expedient when estimating expected credit losses for current accounts receivable and current contract assets arising from transactions under Accounting Standards Codification (“ASC”) No. 606, Revenue from Contracts with Customers. We adopted this guidance on January 1, 2026 on a prospective basis. The adoption did not have a material impact on our consolidated financial statements.
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Table of Contents
2. Customer Contracts
The following table presents the balances related to customer contracts:
| (In millions) | Condensed Consolidated Balance Sheets Account | December 31, 2025 | March 31, 2026 | ||||||||||||||
| Accounts receivable, net | Accounts receivable, net (1) | $ | $ | ||||||||||||||
| Current portion of contract assets | Other current assets | $ | $ | ||||||||||||||
| Non-current portion of contract assets | Other non-current assets | $ | $ | ||||||||||||||
| Current portion of deferred revenue | Deferred revenue | $ | $ | ||||||||||||||
| Non-current portion of deferred revenue | Other non-current liabilities | $ | $ | ||||||||||||||
Amounts recognized in revenue for the three months ended March 31, 2025 and 2026, which were included in deferred revenue as of the beginning of each period totaled $49.6 million and $60.1 million, respectively.
Cost Incurred to Obtain and Fulfill a Contract
As of December 31, 2025 and March 31, 2026, the balances of capitalized costs to obtain a contract were $30.8 million and $30.2 million, respectively, and the balances of capitalized costs to fulfill a contract were $16.3 million and $16.7 million, respectively. These capitalized costs are included in "Other non-current assets" on the Condensed Consolidated Balance Sheets.
Amortization of capitalized sales commissions and implementation costs was as follows:
| Three Months Ended March 31, | |||||||||||
| (In millions) | 2025 | 2026 | |||||||||
| Amortization of capitalized sales commissions | $ | $ | |||||||||
| Amortization of capitalized implementation costs | $ | $ | |||||||||
Remaining Performance Obligations
As of March 31, 2026, the aggregate amount of transaction price allocated to remaining performance obligations was $575.5 million, of which approximately 39 % is expected to be recognized as revenue during the remainder of 2026 and the remainder thereafter. These remaining performance obligations primarily relate to our fixed-term arrangements. The aggregate amount of transaction price excludes variable consideration related to our usage-based arrangements for which we recognize revenue based on the right to invoice for the services performed.
The E.U. Data Act became effective in September 2025 and establishes new requirements related to cloud service switching rights and limits on early termination fees. These provisions will require modifications to our existing E.U. contract terms. We are currently assessing which of our contracts are subject to these requirements. As of March 31, 2026, our existing contractual terms were in place and provide the basis for the remaining performance obligations disclosed above. We expect to revise our contractual terms to comply with the E.U. Data Act in 2026 which could reduce the amount of remaining performance obligations disclosed in future periods.
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3. Sale of Receivables
On September 29, 2023, Rackspace US, Inc. and Rackspace Receivables II, LLC, a bankruptcy-remote special purpose vehicle (“SPV”), each an indirect subsidiary of the company, entered into an accounts receivable purchase agreement with PNC Bank, National Association (“PNC”) and other parties thereto. On February 12, 2024, the accounts receivable purchase agreement was amended to include certain international subsidiaries of the company as parties to the agreement and Rackspace Receivables Canada Limited, a Canadian indirect subsidiary of the company, was established as a SPV.
In connection with accounts receivable sold during the three months ended March 31, 2025 and 2026, we recorded $5.0 million and $4.6 million of yield charges and fees, respectively, within “Other expense, net” in the Condensed Consolidated Statements of Comprehensive Loss.
The outstanding portfolio of sold accounts receivable derecognized from our Condensed Consolidated Balance Sheet as of December 31, 2025 and March 31, 2026 was $253.8 million and $251.4 million, respectively. The SPVs hold unsold accounts receivable of $65.3 million as of March 31, 2026 that are pledged as collateral to PNC.
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4. Net Earnings (Loss) Per Share
Basic net earnings (loss) per share is calculated by dividing net income (loss) attributable to common stockholders by the weighted average number of shares of common stock outstanding during the period. Diluted net earnings (loss) per share is calculated based on the weighted average number of shares of common stock plus the dilutive effect of potential common share equivalents outstanding during the period as determined under the treasury stock method.
The following table sets forth the computation of basic and diluted net earnings (loss) per share:
| Three Months Ended March 31, | |||||||||||
| (In millions, except per share data) | 2025 | 2026 | |||||||||
Basic net earnings (loss) per share: | |||||||||||
Net income (loss) attributable to common stockholders | $ | ( | $ | ||||||||
| Weighted average shares outstanding: | |||||||||||
| Common stock | |||||||||||
| Number of shares used in per share computations | |||||||||||
| Net earnings (loss) per share | $ | ( | $ | ||||||||
| Diluted net earnings (loss) per share: | |||||||||||
Net income (loss) attributable to common stockholders | $ | ( | $ | ||||||||
| Weighted average shares outstanding: | |||||||||||
| Common stock | |||||||||||
| Effect of dilutive securities | |||||||||||
| Number of shares used in per share computations | |||||||||||
| Net earnings (loss) per share | $ | ( | $ | ||||||||
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5. Property, Equipment and Software, net
Property, equipment and software, net, consisted of the following:
| (In millions) | December 31, 2025 | March 31, 2026 | |||||||||
| Computers and equipment | $ | $ | |||||||||
| Software | |||||||||||
| Furniture and fixtures | |||||||||||
| Buildings and leasehold improvements | |||||||||||
| Property, equipment and software, at cost | |||||||||||
| Less: Accumulated depreciation | ( | ( | |||||||||
| Work in process | |||||||||||
| Property, equipment and software, net | $ | $ | |||||||||
6. Goodwill and Intangible Assets
The following table sets forth the changes in the carrying amounts of goodwill by reportable segment.
| (In millions) | Public Cloud | Private Cloud | Total | |||||||||||||||||
Gross goodwill as of December 31, 2025 | $ | $ | $ | |||||||||||||||||
Less: impairment charges | ( | ( | ( | |||||||||||||||||
Goodwill, net as of December 31, 2025 | ||||||||||||||||||||
| Foreign currency translation | ( | ( | ( | |||||||||||||||||
Goodwill, net as of March 31, 2026 | $ | $ | $ | |||||||||||||||||
Gross goodwill as of March 31, 2026 | $ | $ | $ | |||||||||||||||||
Less: accumulated impairment charges (1) | ( | ( | ( | |||||||||||||||||
Goodwill, net as of March 31, 2026 | $ | $ | $ | |||||||||||||||||
(1) On a consolidated basis, gross and net goodwill as of March 31, 2026 was $3,044.4 million and $738.8 million, respectively. Accumulated impairment charges on a consolidated basis was $2,305.6 million as of March 31, 2026.
The following table provides information regarding our intangible assets other than goodwill:
| December 31, 2025 | March 31, 2026 | ||||||||||||||||||||||||||||||||||
| (In millions) | Gross carrying amount | Accumulated amortization | Net carrying amount | Gross carrying amount | Accumulated amortization | Net carrying amount | |||||||||||||||||||||||||||||
| Customer relationships | $ | $ | ( | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||
| Other | ( | ( | |||||||||||||||||||||||||||||||||
| Total definite-lived intangible assets | ( | ( | |||||||||||||||||||||||||||||||||
| Trade name (indefinite-lived) | — | — | |||||||||||||||||||||||||||||||||
| Total intangible assets other than goodwill | $ | $ | ( | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||
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7. Debt
Debt consisted of the following:
| (In millions, except %) | December 31, 2025 | March 31, 2026 | ||||||||||||||||||||||||||||||
| Debt Instrument | Maturity Date | Interest Rate(1) | Amount | Interest Rate(1) | Amount | |||||||||||||||||||||||||||
| FLSO Term Loan Facility | May 15, 2028 | $ | $ | |||||||||||||||||||||||||||||
| FLFO Term Loan Facility | May 15, 2028 | |||||||||||||||||||||||||||||||
| Term Loan Facility | February 15, 2028 | |||||||||||||||||||||||||||||||
| Revolving Credit Facility | May 15, 2028 | |||||||||||||||||||||||||||||||
| May 15, 2028 | ||||||||||||||||||||||||||||||||
| February 15, 2028 | ||||||||||||||||||||||||||||||||
| December 1, 2028 | ||||||||||||||||||||||||||||||||
| Total principal amount outstanding | ||||||||||||||||||||||||||||||||
| Unamortized debt issuance costs, debt premium, and debt discount | ||||||||||||||||||||||||||||||||
| Total debt | ||||||||||||||||||||||||||||||||
| Less: current portion of debt | ( | ( | ||||||||||||||||||||||||||||||
| Debt, excluding current portion | $ | $ | ||||||||||||||||||||||||||||||
Senior Facilities
On March 12, 2024, Rackspace Finance Holdings, LLC (“Rackspace Finance Holdings”), Rackspace Finance, LLC ( “Rackspace Finance”), the lenders and issuing banks party thereto and Citibank, N.A., as the administrative agent and collateral agent, entered into the credit agreement governing the FLSO Term Loan Facility, FLFO Term Loan Facility and Revolving Credit Facility (together, the “Senior Facilities”) (the “First Lien Credit Agreement”).
FLSO Term Loan Facility
Rackspace Finance issued the FLSO Term Loan Facility in an aggregate principal amount of $1,687.2 million. The FLSO Term Loan Facility matures on May 15, 2028. Borrowings under the FLSO Term Loan Facility bear interest at an annual rate equal to Term Secured Overnight Financing Rate ( “SOFR”) equal to the forward-looking term rate, based on the secured overnight financing rate as administered by the Federal Reserve Bank of New York, for the interest period relevant to such borrowing, plus a credit spread adjustment of 0.11 % for an interest period of one-month’s duration, 0.26 % for an interest period of three-month duration, and 0.43 % for an interest period of six-month duration, subject to a 0.75 % floor, plus an applicable margin of 2.75 %.
As of March 31, 2026, the contractual interest rate on the FLSO Term Loan Facility was 6.54 %. We are required to make quarterly principal payments of $4.2 million.
Affiliates of Apollo are FLSO Term Loan Facility lenders under the First Lien Credit Agreement. As of March 31, 2026, the outstanding principal amount of the FLSO Term Loan Facility was $1,605.8 million, of which $79.4 million, or 4.9 %, is due to Apollo affiliates.
Rackspace Finance may prepay some or all of the FLSO Term Loan Facility, together with accrued and unpaid interest, without prepayment premium or penalty.
The fair value of the FLSO Term Loan Facility as of March 31, 2026 was $722.6 million, based on quoted market prices for identical assets that are traded in over-the-counter secondary markets that are not considered active. The fair value of the FLSO Term Loan Facility is classified as Level 2 within the fair value hierarchy.
The FLSO Term Loan Facility contains certain customary affirmative covenants, negative covenants, and events of default.
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FLFO Term Loan Facility
Rackspace Finance issued the FLFO Term Loan Facility in an initial aggregate principal amount of $275.0 million. The FLFO Term Loan Facility matures on May 15, 2028. Borrowings under the FLFO Term Loan Facility bear interest at an annual rate equal to Term SOFR equal to the forward-looking term rate, based on the secured overnight financing rate as administered by the Federal Reserve Bank of New York, for the interest period relevant to such borrowing, plus a credit spread adjustment of 0.11 % for an interest period of one-month’s duration, 0.26 % for an interest period of three-month duration, and 0.43 % for an interest period of six-month duration, subject to a 0.75 % floor, plus an applicable margin of 6.25 % and were issued with 1.00 % of original issue discount.
As of March 31, 2026, the contractual interest rate on the FLFO Term Loan Facility was 10.04 %. We are required to make quarterly principal payments of $0.7 million.
On or after September 12, 2025 but prior to September 12, 2027, Rackspace Finance may prepay some or all of the FLFO Term Loan Facility, together with accrued and unpaid interest, subject to a prepayment fee equal to (x) 3.00 % of the principal amount of the FLFO Term Loan Facility so prepaid prior to September 12, 2026 and (y) 1.00 % of the principal amount of the FLFO Term Loan Facility so prepaid on or after September 12, 2026 but prior to September 12, 2027. On or after September 12, 2027, Rackspace Finance may prepay some or all of the FLFO Term Loan Facility, together with accrued and unpaid interest, without prepayment premium or penalty.
The fair value of the FLFO Term Loan Facility as of March 31, 2026 was $268.2 million, based on quoted market prices for identical assets that are traded in over-the-counter secondary markets that are not considered active. The fair value of the FLFO Term Loan Facility is classified as Level 2 within the fair value hierarchy.
The FLFO Term Loan Facility contains certain customary affirmative covenants, negative covenants, and events of default.
Revolving Credit Facility
Rackspace Finance established the Revolving Credit Facility in an aggregate principal amount of $375.0 million of commitments. The Revolving Credit Facility matures on May 15, 2028 and bears interest at an annual rate equal to Term equal to the forward-looking term rate, based on the secured overnight financing rate as administered by the Federal Reserve Bank of New York, for the interest period relevant to such borrowing, subject to a 1.00 % floor, plus an applicable margin of initially 3.00 %. The applicable margin is subject to a net first lien leverage-based pricing grid as set forth in the First Lien Credit Agreement. In addition to paying interest on the outstanding principal under the Revolving Credit Facility, Rackspace Finance is required to pay a commitment fee equal to initially 0.50 % per annum to the lenders under the Revolving Credit Facility in respect of the unutilized commitments thereunder. The commitment fee is subject to a net first lien leverage-based pricing grid as set forth in the First Lien Credit Agreement. Rackspace Finance may prepay loans incurred under the Revolving Credit Facility, together with accrued and unpaid interest, without prepayment premium or penalty.
The Revolving Credit Facility contains certain customary affirmative covenants, negative covenants, and events of default. In addition, the Revolving Credit Facility contains a financial covenant which limits the super-priority net senior secured leverage ratio to a maximum of 5.00 to 1.00; however, this covenant is only applicable and tested if the aggregate amount of outstanding borrowings under the Revolving Credit Facility and letters of credit issued thereunder (excluding $25.0 million of undrawn letters of credit and cash collateralized letters of credit) as of the last day of a fiscal quarter is greater than 35 % of the Revolving Credit Facility commitments as of the last day of such fiscal quarter.
During the three months ended March 31, 2026, we borrowed $125.0 million and repaid $35.0 million on the Revolving Credit Facility. As of March 31, 2026, we had total commitments of $375.0 million, $150.0 million of outstanding borrowings under the Revolving Credit Facility, and $23.5 million of letters of credit issued thereunder. As such, as of March 31, 2026, we had $201.5 million of available commitments remaining.
As of March 31, 2026, we were in compliance with all covenants under the Senior Facilities.
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On March 12, 2024, Rackspace Finance issued $267.3 million initial aggregate principal amount of the 3.50 % FLSO Senior Secured Notes. On April 2, 2024 and April 16, 2024, Rackspace Finance issued additional 3.50 % FLSO Senior Secured Notes in an aggregate principal amount of $93.3 million and $3.6 million, respectively. The 3.50 % FLSO Senior Secured Notes will mature on May 15, 2028 and bear interest at an annual fixed rate of 3.50 %. Interest is payable semiannually on February 15 and August 15. The 3.50 % FLSO Senior Secured Notes are not subject to registration rights.
Rackspace Finance may redeem the 3.50 % FLSO Senior Secured Notes at its option, in whole at any time or in part from time to time, at a redemption price equal to 100 % of the principal amount of the 3.50 % FLSO Senior Secured Notes redeemed, plus accrued and unpaid interest, if any, to but excluding the redemption date.
During the three months ended March 31, 2026, Rackspace Finance repurchased and surrendered for cancellation $68.3 million principal amount of the 3.50 34.5 million, including accrued interest and fees of $0.4 million. In connection with these repurchases, we recorded a gain, included in "Gain on debt extinguishment", of $39.1 million, in our Condensed Consolidated Statements of Comprehensive Loss for the three months ended March 31, 2026, which includes $5.1 million of unamortized debt premium write-offs.
The indenture governing the 3.50 % FLSO Senior Secured Notes (the “3.50 % FLSO Senior Secured Notes Indenture”) contains covenants that, among other things, limit our ability to incur certain additional debt, incur certain liens securing debt, pay certain dividends or make other restricted payments, make certain investments, make certain asset sales and enter into certain transactions with affiliates. These covenants are subject to a number of exceptions, limitations, and qualifications as set forth in the 3.50 % FLSO Senior Secured Notes Indenture. Additionally, upon the occurrence of a change of control (as defined in the 3.50 % FLSO Senior Secured Notes Indenture), we will be required to make an offer to repurchase all of the outstanding 3.50 % FLSO Senior Secured Notes at a price in cash equal to 101.000 % of the aggregate principal amount, plus accrued and unpaid interest, if any, to, but not including the purchase date. The 3.50 % FLSO Senior Secured Notes Indenture also contains customary events of default.
As of March 31, 2026, we were in compliance with all covenants under the 3.50 % FLSO Senior Secured Notes Indenture.
The fair value of the 3.50 % FLSO Senior Secured Notes as of March 31, 2026 was $120.1 million based on quoted market prices for identical assets that are traded in over-the-counter secondary markets that are not considered active. The fair value of the 3.50 % FLSO Senior Secured Notes are classified as Level 2 within the fair value hierarchy.
Term Loan Facility
On February 9, 2021, Rackspace Technology Global amended and restated the credit agreement governing the $2,300.0 million Term Loan Facility. The Term Loan Facility matures on February 15, 2028.
Borrowings under the Term Loan Facility bear interest at an annual rate equal to an applicable margin plus, at our option, either (a) Term SOFR equal to the forward-looking term rate, based on the secured overnight financing rate as administered by the Federal Reserve Bank of New York, for the interest period relevant to such borrowing, plus a credit spread adjustment of 0.11 % for an interest period of one-month's duration, 0.26 % for an interest period of three-month duration, and 0.43 % for an interest period of six-month duration, subject to a 0.75 % floor or (b) a base rate determined by reference to the highest of (i) the federal funds rate plus 0.50 %, (ii) the prime rate last quoted by The Wall Street Journal and (iii) adjusted Term SOFR for a one-month tenor plus 1.00 %.
The applicable margin for the Term Loan Facility is 2.75 % for SOFR loans and 1.75 % for base rate loans. Interest is due at the end of each interest period elected, not exceeding 90 days, for SOFR loans and at the end of every calendar quarter for base rate loans.
As of March 31, 2026, the contractual interest rate on the Term Loan Facility was 6.54 %. We are required to make quarterly principal payments of $0.2 million.
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In addition to the quarterly amortization payments discussed above, the Term Loan Facility requires us to make certain mandatory prepayments, including using (i) a portion of annual excess cash flow, as defined in the credit agreement governing the Term Loan Facility, to prepay the Term Loan Facility, (ii) net cash proceeds of certain non-ordinary assets sales or dispositions of property to prepay the Term Loan Facility and (iii) net cash proceeds of any issuance or incurrence of debt not permitted under the Term Loan Facility to prepay the Term Loan Facility. We may make voluntary prepayments at any time without penalty.
As of March 31, 2026, we were in compliance with all covenants under the credit agreement governing the Term Loan Facility.
The fair value of the Term Loan Facility as of March 31, 2026 was $20.4 million, based on quoted market prices for identical assets that are traded in over-the-counter secondary markets that are not considered active. The fair value of the Term Loan Facility is classified as Level 2 within the fair value hierarchy.
On February 9, 2021, Rackspace Technology Global issued $550.0 million aggregate principal amount of the 3.50 % Senior Secured Notes. The 3.50 % Senior Secured Notes will mature on February 15, 2028 and bear interest at an annual fixed rate of 3.50 %. Interest is payable semiannually on February 15 and August 15. The 3.50 % Senior Secured Notes are not subject to registration rights.
Rackspace Technology Global may redeem the 3.50 % Senior Secured Notes at its option, in whole at any time or in part from time to time, at a redemption price equal to 100.000 % of the principal amount, plus accrued and unpaid interest, if any, to but excluding the redemption date. Notwithstanding the foregoing, Rackspace Technology Global may redeem during each twelve-month period, commencing with February 9, 2021, up to 10.0 % of the original aggregate principal amount of the 3.50 % Senior Secured Notes at a redemption price of 103.000 %, plus accrued and unpaid interest, if any, to, but excluding, the applicable redemption date.
During the three months ended March 31, 2026, Rackspace Technology Global repurchased and surrendered for cancellation $1.3 million principal amount of the 3.50 0.6 million. In connection with this repurchase, we recorded a gain, included in "Gain on debt extinguishment", of $0.7 million, in our Condensed Consolidated Statements of Comprehensive Loss for the three months ended March 31, 2026.
The indenture governing the 3.50 % Senior Secured Notes (the “3.50 % Notes Indenture”) contains covenants that, among other things, limit our ability to incur certain additional debt, incur certain liens securing debt, pay certain dividends or make other restricted payments, make certain investments, make certain asset sales and enter into certain transactions with affiliates. These covenants are subject to a number of exceptions, limitations, and qualifications as set forth in the 3.50 % Notes Indenture. Additionally, upon the occurrence of a change of control (as defined in the 3.50 % Notes Indenture), we will be required to make an offer to repurchase all of the outstanding 3.50 % Senior Secured Notes at a price in cash equal to 101.000 % of the aggregate principal amount, plus accrued and unpaid interest, if any, to, but not including the purchase date.
As of March 31, 2026, Rackspace Technology Global was in compliance with all covenants under the 3.50 % Notes Indenture.
The fair value of the 3.50 % Senior Secured Notes as of March 31, 2026 was $16.6 million, based on quoted market prices for identical assets that are traded in over-the-counter secondary markets that are not considered active. The fair value of the 3.50 % Senior Secured Notes are classified as Level 2 within the fair value hierarchy.
On December 1, 2020, Rackspace Technology Global issued $550.0 million aggregate principal amount of the 5.375 % Senior Notes. The 5.375 % Senior Notes will mature on December 1, 2028 and bear interest at an annual fixed rate of 5.375 %. Interest is payable semiannually on June 1 and December 1. The 5.375 % Senior Notes are not subject to registration rights.
Rackspace Technology Global may redeem the 5.375 % Senior Notes at its option, in whole at any time or in part from time to time, at a redemption price equal to 100.000 % of the principal amount, plus accrued and unpaid interest, if any, to but excluding the redemption date.
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During the three months ended March 31, 2026, Rackspace Technology Global repurchased and surrendered for cancellation $26.9 million principal amount of the 5.375 % Senior Secured Notes for $11.3 million, including accrued interest and fees of $0.5 million. In connection with this repurchase, we recorded a gain, included in "Gain on debt extinguishment", of $15.9 million, in our Condensed Consolidated Statements of Comprehensive Loss for the three months ended March 31, 2026, which includes $0.1 million of unamortized debt issuance costs write-offs.
The indenture governing the 5.375 % Senior Notes (the “5.375 % Notes Indenture”) contains covenants that, among other things, limit our ability to incur certain additional debt, incur certain liens securing debt, pay certain dividends or make other restricted payments, make certain investments, make certain asset sales and enter into certain transactions with affiliates. These covenants are subject to a number of exceptions, limitations, and qualifications as set forth in the 5.375 % Notes Indenture. Additionally, upon the occurrence of a change of control (as defined in the 5.375 % Notes Indenture), we will be required to make an offer to repurchase all of the outstanding 5.375 % Senior Notes at a price in cash equal to 101.000 % of the aggregate principal amount, plus accrued and unpaid interest, if any, to, but not including the purchase date.
As of March 31, 2026, Rackspace Technology Global was in compliance with all covenants under the 5.375 % Notes Indenture.
The fair value of the 5.375 % Senior Notes as of March 31, 2026 was $38.4 million, based on quoted market prices for identical assets that are traded in over-the-counter secondary markets that are not considered active. The fair value of the 5.375 % Senior Notes are classified as Level 2 within the fair value hierarchy.
Subsequent Debt Repurchases
Subsequent to March 31, 2026 and through May 8, 2026, we repurchased and surrendered for cancellation an additional $11.2 million aggregate principal amount of 3.50 5.375 % Senior Notes for $4.8 million, including accrued interest and fees of $0.2 million.
8. Commitments and Contingencies
We have contingencies that arise from various litigation, claims and commitments, none of which we consider to be material.
From time to time, we may be party to various legal proceedings arising in the ordinary course of business. In addition, third parties may bring intellectual property claims against us asserting that certain of our offerings, services and technologies infringe, misappropriate or otherwise violate the intellectual property or proprietary rights of others. Adverse results in these lawsuits may include awards of substantial monetary damages, costly royalty or licensing agreements, or orders preventing us from offering certain features, products, or services, and may also cause us to change our business practices and require development of non-infringing products or technologies, which could result in a loss of revenue for us or otherwise harm our business.
We record an accrual for a loss contingency when a loss is considered probable and reasonably estimable. As additional facts concerning a loss contingency become known, we reassess our position and make appropriate adjustments to a recorded accrual. The amount that will ultimately be paid related to a matter may differ from the recorded accrual, and the timing of such payments, if any, may be uncertain.
We are not a party to any litigation, the outcome of which, if determined adversely to us, would individually or in the aggregate be reasonably expected to have a material and adverse effect on our business, financial position or results of operations.
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9. Share-Based Compensation
2020 Incentive Plan
During the three months ended March 31, 2026, we granted 1.3 million restricted stock units (“RSUs”) under the Rackspace Technology, Inc. 2020 Equity Incentive Plan (the “2020 Incentive Plan”) with a weighted-average grant date fair value of $2.19 . The majority of the RSUs were granted as part of our promotion and recruitment process and vest ratably over a three-year period, subject to continued service.
Share-Based Compensation Expense
Total share-based compensation expense is comprised of the following equity and liability classified award amounts:
| Three Months Ended March 31, | |||||||||||
| (In millions) | 2025 | 2026 | |||||||||
| Equity classified awards | $ | $ | |||||||||
| Liability classified awards | |||||||||||
| Total share-based compensation expense | $ | $ | |||||||||
Total share-based compensation expense recognized was as follows:
| Three Months Ended March 31, | |||||||||||
| (In millions) | 2025 | 2026 | |||||||||
| Cost of revenue | $ | $ | |||||||||
| Selling, general and administrative expenses | |||||||||||
| Pre-tax share-based compensation expense | |||||||||||
| Less: Income tax benefit | ( | ( | |||||||||
| Total share-based compensation expense, net of tax | $ | $ | |||||||||
10. Taxes
We are subject to U.S. federal income tax and various state, local, and international income taxes in numerous jurisdictions. The differences between our effective tax rate and the U.S. federal statutory rate of 21% generally result from various factors, including the geographical distribution of taxable income, contingency reserves for uncertain tax positions, and permanent differences between the book and tax treatment of certain items. Additionally, the amount of income taxes paid is subject to our interpretation of applicable tax laws in the jurisdictions in which we file. For the three months ended March 31, 2026, our effective tax rate is lower than the U.S. federal statutory rate of 21% primarily due to the tax impact associated with changes in valuation allowance, executive compensation that is nondeductible under Internal Revenue Code (“IRC”) Section 162(m), and the net impact of the geographic distribution of our earnings.
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11. Derivatives
We utilize derivative instruments, including interest rate swap agreements, to manage our exposure to interest rate risk. We only hold such instruments for economic hedging purposes, not for speculative or trading purposes. Our derivative instruments are transacted only with highly-rated institutions, which reduces our exposure to credit risk in the event of nonperformance.
Interest Rate Swaps
On February 9, 2021, we entered into a $1.35 billion pay-fixed interest rate swap that matured in February 2026. The pay-fixed interest rate swap qualified as a hybrid instrument in accordance with ASC No. 815, Derivatives and Hedging, consisting of a loan and an embedded at-market derivative that was designated as a cash flow hedge. The loan was accounted for at amortized cost over the life of the swap while the embedded at-market derivative was accounted for at fair value. The $1.35 billion swap was indexed to one-month Term SOFR and net settled on a monthly basis with the counterparty for the difference between the fixed rate of 2.34150 % and the variable rate based upon (subject to a floor of 0.75 %) as applied to the notional amount of the swap. The cash flows related to the portion treated as debt was classified as financing activities in the Condensed Consolidated Statements of Cash Flows while the portion treated as an at-market derivative was classified as operating activities.
Our interest rate swap agreement, excluding the portion treated as debt, was recognized at fair value in the Condensed Consolidated Balance Sheets and was valued using pricing models that rely on market observable inputs such as yield curve data, which are classified as Level 2 inputs within the fair value hierarchy.
As of December 31, 2025 the cash flow hedge was highly effective. Our interest rate swap matured on February 9, 2026. Therefore, as of March 31, 2026, we do not have any interest rate swaps outstanding.
Fair Values of Derivatives on the Condensed Consolidated Balance Sheets
The fair value of our derivative and its location on the Condensed Consolidated Balance Sheets as of December 31, 2025 was as follows:
| December 31, 2025 | ||||||||||||||
| (In millions) | Assets | Liabilities | ||||||||||||
| Derivatives designated as hedging instruments | Location | |||||||||||||
| Interest rate swaps | Other current assets | $ | $ | |||||||||||
| Interest rate swaps | Other current liabilities (1) | |||||||||||||
| Total | $ | $ | ||||||||||||
(1) The entire balance is comprised of the financing component of the pay-fixed interest rate swap.
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For financial statement presentation purposes, we do not offset assets and liabilities under master netting arrangements and all amounts above are presented on a gross basis. The following table, however, is presented on a net asset and net liability basis:
| December 31, 2025 | |||||||||||||||||
| (In millions) | Gross Amounts on Balance Sheet | Effects of Counterparty Netting | Net Amounts | ||||||||||||||
| Assets | |||||||||||||||||
| Interest rate swaps | $ | $ | ( | $ | |||||||||||||
| Liabilities | |||||||||||||||||
| Interest rate swaps | $ | $ | ( | $ | |||||||||||||
Effect of Derivatives on the Condensed Consolidated Statements of Comprehensive Loss
The effect of our derivative and its location on the Condensed Consolidated Statements of Comprehensive Loss for the three months ended March 31, 2025 and 2026 was as follows:
| Three Months Ended March 31, | ||||||||||||||
| (In millions) | 2025 | 2026 | ||||||||||||
| Derivatives designated as hedging instruments | Location | |||||||||||||
| Interest rate swaps | Interest income (expense) | $ | $ | |||||||||||
See Note 12, "Accumulated Other Comprehensive Income (Loss)," for information regarding changes in fair value of our derivatives designated as hedging instruments.
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12. Accumulated Other Comprehensive Income (Loss)
Accumulated other comprehensive income (loss) consisted of the following:
| (In millions) | Accumulated Foreign Currency Translation Adjustments | Accumulated Gain on Derivative Contracts | Accumulated Other Comprehensive Income | ||||||||||||||
| Balance at December 31, 2024 | $ | ( | $ | $ | |||||||||||||
Foreign currency translation adjustments, net of tax expense of $ | |||||||||||||||||
Unrealized loss on derivative contracts, net of tax benefit of $ | ( | ( | |||||||||||||||
Amount reclassified from Accumulated comprehensive income (loss) into earnings, net of tax expense of $ | ( | ( | |||||||||||||||
| Balance at March 31, 2025 | $ | ( | $ | $ | |||||||||||||
(1) Includes a reduction to interest expense recognized of $11.4 million related to the cash flow hedge gain for the three months ended March 31, 2025.
| (In millions) | Accumulated Foreign Currency Translation Adjustments | Accumulated Gain on Derivative Contracts | Accumulated Other Comprehensive Income (Loss) | ||||||||||||||
| Balance at December 31, 2025 | $ | $ | $ | ||||||||||||||
Foreign currency translation adjustments, net of tax expense of $ | ( | ( | |||||||||||||||
Amount reclassified from Accumulated comprehensive income (loss) into earnings, net of tax expense of $ | ( | ( | |||||||||||||||
| Balance at March 31, 2026 | $ | ( | $ | $ | ( | ||||||||||||
(1) Includes a reduction to interest expense recognized of $4.0 million related to the cash flow hedge gain for the three months ended March 31, 2026.
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13. Segment Reporting
We have organized our operations into two
This two -business unit operating model allows for each segment to be managed separately based on the different service offerings and respective operational and marketing strategies, ensuring increased focus, delivery, and service quality for our customers.
Our segments are based upon a number of factors, including, the basis for our budgets and forecasts, organizational and management structure and the financial information regularly provided to our Chief Operating Decision Maker (“CODM”), who we have determined to be our Chief Executive Officer. The CODM is responsible for making key operating and strategic decisions to assess performance for each segment. We assess financial performance of our segments on the basis of revenue and segment operating profit. The CODM utilizes both revenue and segment operating profit or loss before interest and income taxes to allocate resources and assesses performance of each segment by comparing actual revenue and operating profit or loss results, respectively, to historical results and previously forecasted financial information. Segment operating profit includes expenses directly attributable to running the respective segments' business. This excludes any corporate overhead expenses. We have centralized corporate functions that provide services to the segments in areas such as accounting, information technology, marketing, legal and human resources. Corporate function costs that are not allocated to the segments are included in the row labeled "Corporate functions" in the table below.
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The table below presents revenue and segment operating profit by reportable segment and a reconciliation of consolidated segment operating profit to consolidated income (loss) before income taxes for the three months ended March 31, 2025 and 2026.
| Three Months Ended March 31, | |||||||||||
| (In millions) | 2025 | 2026 | |||||||||
Public Cloud | |||||||||||
Revenue | $ | $ | |||||||||
Third party infrastructure (1) | ( | ( | |||||||||
Other cost of revenue (2) | ( | ( | |||||||||
Other segment items (3) | ( | ( | |||||||||
| Segment operating profit | $ | $ | |||||||||
Private Cloud | |||||||||||
Revenue | $ | $ | |||||||||
Cost of revenue | ( | ( | |||||||||
Other segment items (3) | ( | ( | |||||||||
| Segment operating profit | $ | $ | |||||||||
Total Consolidated | |||||||||||
Revenue | $ | $ | |||||||||
| Segment operating profit | $ | $ | |||||||||
| Corporate functions | ( | ( | |||||||||
| Share-based compensation expense | ( | ( | |||||||||
Transaction-related adjustments, net (4) | ( | ( | |||||||||
Restructuring and transformation expenses (5) | ( | ( | |||||||||
Amortization of intangible assets (6) | ( | ( | |||||||||
| Interest expense | ( | ( | |||||||||
| Loss on investments, net | ( | ( | |||||||||
| Gain on debt extinguishment | |||||||||||
| Other expense, net | ( | ( | |||||||||
| Total consolidated income (loss) before income taxes | $ | ( | $ | ||||||||
| (1) | Represents usage charges from public cloud infrastructure providers. | ||||
| (2) | Other cost of revenue excludes third party infrastructure expenses and is comprised of certain license costs, labor, and other designated expenses. | ||||
(3) | Other segment items for each segment include directly allocable research and development expenses, sales and marketing expenses, and certain other general and administrative expenses. | ||||
(4) | Includes purchase accounting adjustments, exploratory acquisition and divestiture costs, and expenses related to financing activities. | ||||
(5) | Includes consulting and advisory fees related to business transformation and optimization activities, as well as associated severance, certain facility closure costs, and lease termination expenses. Also includes payroll taxes associated with the exercise of stock options and vesting of restricted stock. | ||||
(6) | All of our intangible assets are attributable to acquisitions, including the Rackspace Acquisition in 2016. | ||||
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The table below presents depreciation expense included in segment operating profit above for the three months ended March 31, 2025 and 2026.
| Three Months Ended March 31, | |||||||||||
| (In millions) | 2025 | 2026 | |||||||||
| Public Cloud | $ | $ | |||||||||
| Private Cloud | |||||||||||
| Corporate functions | |||||||||||
| Total depreciation expense | $ | $ | |||||||||
Management does not use total assets by segment to evaluate segment performance or allocate resources. As such, total assets by segment are not disclosed.
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ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is intended to help readers understand our results of operations, financial condition and cash flows and should be read in conjunction with the condensed consolidated financial statements and the related notes included elsewhere in this Quarterly Report on Form 10-Q (this "Quarterly Report") and with the audited consolidated financial statements and the related notes included in our Annual Report. References to "Rackspace Technology," "we," "our company," "the company," "us," or "our" refer to Rackspace Technology, Inc. and its consolidated subsidiaries.
The following discussion contains forward-looking statements that are subject to risks and uncertainties. Actual results may differ materially from those contained in any forward-looking statements. See "Special Note Regarding Forward-Looking Statements" contained elsewhere in this Quarterly Report.
Overview
We are a leading end-to-end hybrid cloud and AI solutions company. We design, build and operate our customers' cloud environments across all major technology platforms, irrespective of technology stack or deployment model. We partner with our customers at every stage of their cloud journey, enabling them to modernize applications, build new products, and adopt innovative technologies.
We operate our business and report our results through two reportable segments: Public Cloud and Private Cloud. Our Public Cloud segment is a services-centric, capital-light model providing value-added cloud solutions through managed services, Elastic Engineering and professional services offerings for customer environments hosted on the AWS, Microsoft Azure and Google Cloud public cloud platforms. Our Private Cloud segment is a technology-forward, capital-intensive model providing managed service offerings for customer environments hosted in one of our data centers as well as in those owned by customers or by third parties such as colocation providers. See Item 1 of Part I, Financial Statements - Note 13, "Segment Reporting," for additional information about our segments.
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Key Factors Affecting Our Performance
We believe our combination of proprietary technology, automation capabilities and technical expertise creates a value proposition for our customers that is hard to replicate for both competitors and in-house IT departments. We and our customers face a variety of challenges, including evolving technologies (including AI and GenAI) and an uncertain regulatory landscape, including international trade policies and tariffs, as well as other macroeconomic and geopolitical factors. These factors have and will continue to affect demand for our products and services. Our continued success depends to a significant extent on our ability to respond to these and other challenges presented by our highly competitive and dynamic market, including the following key factors:
Differentiating Our Service Offerings in a Competitive Market Environment
Our success depends to a significant extent on our ability to continue to differentiate, expand and upgrade our service offerings in line with developing customer needs, while deepening our relationships with leading public cloud service providers and establishing new relationships, including with sales partners. We are a certified premier consulting and managed services partner to some of the largest cloud computing platforms, including AWS, Microsoft Azure, Google Cloud, Oracle, SAP and VMware by Broadcom. We believe we are unique in our ability to serve customers across major technology stacks and deployment options, all while delivering Fanatical Experience. Our existing and prospective customers are also under increasing pressure to move from on-premise or self-managed IT to the cloud to compete effectively in a digital economy and maximize the value of their cloud investments, which we believe presents an opportunity for professional services projects as well as new recurring business.
Customer Relationships and Retention
Our success greatly depends on our ability to retain and develop opportunities with our existing customers and to attract new customers. We operate in a growing but competitive and evolving market environment, requiring innovation to differentiate us from our competitors. We believe that our integrated cloud service portfolio and our differentiated customer experience and technology are keys to retaining and growing revenue from existing customers as well as acquiring new customers. For example, we believe that Rackspace Fabric provides customers a unified experience across their entire cloud and security footprint, and that our Rackspace Elastic Engineering model helps customers embrace a cloud native approach with on-demand access to a dedicated team of highly skilled cloud architects and engineers. These offerings differentiate us from legacy IT service providers that operate under long-term fixed and project-based fee structures often tethered to their existing technologies with less automation.
Business Mix Shift
The mix of revenue has shifted in recent years, from our Private Cloud offerings to infrastructure resale and services within Public Cloud. Private Cloud offerings are generally hosted on our own infrastructure and deliver higher segment operating margins, but also require a higher level of capital expenditures. Conversely, Public Cloud segment operating margins are lower, driven by high volumes of infrastructure resale revenue which come at significantly lower margins. However, Public Cloud requires significantly less capital expenditures. Going forward, we will continue to take a workload-centric approach and both Public and Private Cloud will be the net recipients of the workloads. The focus in Private Cloud will be to defend and expand our revenue with new solutions. The focus in Public Cloud is on expanding segment operating margins by driving cost efficiencies and growing higher-margin services revenue.
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Key Components of Statement of Operations
Revenue
A substantial amount of our revenue, particularly within our Private Cloud segment, is generated pursuant to contracts that typically have a fixed term (typically from 12 to 36 months). Our customers generally have the right to cancel their contracts by providing us with written notice prior to the end of the fixed term, though most of our contracts provide for termination fees in the event of cancellation prior to the end of their term, typically amounting to the outstanding value of the contract. These contracts include a monthly recurring fee, which is determined based on the computing resources utilized and provided to the customer, the complexity of the underlying infrastructure and the level of support we provide. Most of our services within our Public Cloud segment generate usage-based revenue invoiced on a monthly basis and can be canceled at any time without penalty. We also generate revenue from usage-based fees and fees from professional services earned from customers using our hosting and other services. We typically recognize revenue on a daily basis, as services are provided, in an amount that reflects the consideration to which we expect to be entitled in exchange for our services. Our usage-based arrangements generally include a variable consideration component, consisting of monthly utility fees, with a defined price and undefined quantity. Our customer contracts also typically contain service level guarantees, including with respect to network uptime requirements, that provide discounts when we fail to meet specific obligations and, with respect to certain products, we may offer volume discounts based on usage. As these variable consideration components consist of a single distinct daily service provided on a single performance obligation, we account for all of them as services are provided and earned.
Cost of revenue
Cost of revenue consists primarily of usage charges for third-party infrastructure and personnel costs (including salaries, bonuses, benefits and share-based compensation) for engineers, developers and other employees involved in the delivery of services to our customers. Cost of revenue also includes depreciation of servers, software and other systems infrastructure, data center rent and other infrastructure maintenance and support costs, including software license costs and utilities. Cost of revenue is driven mainly by demand for our services, our service mix and the cost of labor in a given geography.
Selling, general and administrative expenses (SG&A)
Selling, general and administrative expenses consist primarily of personnel costs (including salaries, bonuses, commissions, benefits and share-based compensation) for our sales force, executive team and corporate administrative and support employees, including our human resources, finance, accounting and legal functions. SG&A also includes research and development costs, repair and maintenance of corporate infrastructure, facilities rent, third-party advisory fees (including audit, legal and management consulting costs), marketing and advertising costs and insurance, as well as the amortization of related intangible assets and certain depreciation of fixed assets.
SG&A also includes transaction costs related to acquisitions and financings along with costs related to integration and business transformation initiatives which may impact the comparability of SG&A between periods.
Income taxes
Our income tax benefit (provision) and deferred tax assets and liabilities reflect management's best assessment of estimated current and future taxes to be paid. To date, we recorded consolidated tax expense, despite our net losses, due to the recording of valuation allowances against our deferred tax assets. Certain of our non-U.S. subsidiaries continue to incur corporate tax expense or benefit according to the relevant taxing jurisdictions. We are under certain domestic and foreign tax audits. Due to the complexity involved with certain tax matters, there is the possibility that the various taxing authorities may disagree with certain tax positions filed on our income tax returns. We believe we have made adequate provision for all uncertain tax positions. See Item 1 of Part I, Financial Statements - Note 10, "Taxes."
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Results of Operations
We discuss our historical results of operations, and the key components of those results, below. Past financial results are not necessarily indicative of future results.
Three Months Ended March 31, 2025 Compared to Three Months Ended March 31, 2026
The following table sets forth our results of operations for the specified periods, as well as changes between periods and as a percentage of revenue for those same periods (totals in table may not foot due to rounding):
| Three Months Ended March 31, | Year-Over-Year Comparison | ||||||||||||||||||||||||||||||||||
| 2025 | 2026 | ||||||||||||||||||||||||||||||||||
| (In millions, except %) | Amount | % Revenue | Amount | % Revenue | Amount | % Change | |||||||||||||||||||||||||||||
| Revenue | $ | 665.4 | 100.0 | % | $ | 678.1 | 100.0 | % | $ | 12.7 | 1.9 | % | |||||||||||||||||||||||
| Cost of revenue | (538.5) | (80.9) | % | (559.0) | (82.4) | % | (20.5) | 3.8 | % | ||||||||||||||||||||||||||
| Gross profit | 126.9 | 19.1 | % | 119.1 | 17.6 | % | (7.8) | (6.1) | % | ||||||||||||||||||||||||||
| Selling, general and administrative expenses | (165.3) | (24.8) | % | (136.9) | (20.2) | % | 28.4 | (17.2) | % | ||||||||||||||||||||||||||
Loss from operations | (38.4) | (5.8) | % | (17.8) | (2.6) | % | 20.6 | (53.6) | % | ||||||||||||||||||||||||||
| Other income (expense): | |||||||||||||||||||||||||||||||||||
| Interest expense | (19.4) | (2.9) | % | (26.2) | (3.9) | % | (6.8) | 35.1 | % | ||||||||||||||||||||||||||
Loss on investments, net | (0.1) | (0.0) | % | (0.1) | (0.0) | % | — | — | % | ||||||||||||||||||||||||||
Gain on debt extinguishment | — | — | % | 55.8 | 8.2 | % | 55.8 | 100.0 | % | ||||||||||||||||||||||||||
Other expense, net | (5.4) | (0.8) | % | (3.5) | (0.5) | % | 1.9 | (35.2) | % | ||||||||||||||||||||||||||
| Total other income (expense) | (24.9) | (3.7) | % | 26.0 | 3.8 | % | 50.9 | NM | |||||||||||||||||||||||||||
| Income (loss) before income taxes | (63.3) | (9.5) | % | 8.2 | 1.2 | % | 71.5 | NM | |||||||||||||||||||||||||||
| Benefit (provision) for income taxes | (8.2) | (1.2) | % | 0.1 | 0.0 | % | 8.3 | NM | |||||||||||||||||||||||||||
| Net income (loss) | $ | (71.5) | (10.8) | % | $ | 8.3 | 1.2 | % | $ | 79.8 | NM | ||||||||||||||||||||||||
NM = not meaningful.
Revenue
Revenue increased $13 million, or 1.9%, to $678 million in the three months ended March 31, 2026 from $665 million in the three months ended March 31, 2025. Revenue growth was driven by Public Cloud, as discussed below.
After removing the impact of foreign currency fluctuations, on a constant currency basis, revenue increased 1.0% year-over-year. The following table presents revenue by segment:
| Three Months Ended March 31, | % Change | ||||||||||||||||||||||
| (In millions, except %) | 2025 | 2026 | Actual | Constant Currency (a) | |||||||||||||||||||
| Public Cloud | $ | 415.6 | $ | 443.4 | 6.7 | % | 6.1 | % | |||||||||||||||
| Private Cloud | 249.8 | 234.7 | (6.0) | % | (7.5) | % | |||||||||||||||||
| Total | $ | 665.4 | $ | 678.1 | 1.9 | % | 1.0 | % | |||||||||||||||
(a) Refer to "Non-GAAP Financial Measures" in this section for further explanation and reconciliation.
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Public Cloud revenue in the three months ended March 31, 2026 increased 6.7% on an actual basis and 6.1% on a constant currency basis, from the three months ended March 31, 2025. The increase was driven by both higher services revenue and increased infrastructure volumes.
Private Cloud revenue in the three months ended March 31, 2026 decreased 6.0% on an actual basis and 7.5% on a constant currency basis, from the three months ended March 31, 2025, reflecting customer transitions off legacy platforms, partially offset by revenue from new bookings.
Cost of Revenue
Cost of revenue increased $21 million, or 4%, to $559 million in the three months ended March 31, 2026 from $539 million in the three months ended March 31, 2025. The primary drivers of the increase include higher usage charges for third-party infrastructure, consistent with revenue growth, and higher depreciation expense. These increases were partially offset by lower license expense, due to a reduction in usage between periods, and a decrease in personnel costs driven by a reduction in non-equity incentive compensation and share-based compensation.
As a percentage of revenue, cost of revenue increased 150 basis points in the three months ended March 31, 2026 to 82.4% from 80.9% in the three months ended March 31, 2025 for the reasons discussed above.
Gross Profit
Our gross profit was $119 million in the three months ended March 31, 2026, a decrease of $8 million from $127 million in the three months ended March 31, 2025. Our gross margin was 17.6% in the three months ended March 31, 2026, a decrease of 150 basis points from 19.1% in the three months ended March 31, 2025.
Selling, General and Administrative Expenses
Selling, general and administrative expenses decreased $28 million, or 17%, to $137 million in the three months ended March 31, 2026 from $165 million in the three months ended March 31, 2025. Declining personnel costs had the largest impact due to a reduction in headcount between periods and a decrease in severance and share-based compensation expense. Also driving the overall reduction in selling, general and administrative expenses was a gain on disposal of non-core assets in the current period and a decrease in amortization expense as certain customer relationship intangible assets reached the end of their useful lives between periods.
As a percentage of revenue, selling, general and administrative expenses decreased 460 basis points, to 20.2% in the three months ended March 31, 2026 from 24.8% in the three months ended March 31, 2025 primarily due to personnel costs, as discussed above.
Loss from Operations, Segment Operating Profit, and Non-GAAP Operating Profit
Our loss from operations was $18 million in the three months ended March 31, 2026 compared to $38 million in the three months ended March 31, 2025. Our Non-GAAP Operating Profit was $31 million in the three months ended March 31, 2026, an increase of $5 million from $26 million in the three months ended March 31, 2025. Non-GAAP Operating Profit is a non-GAAP financial measure. See "Non-GAAP Financial Measures" below for more information.
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The table below presents a reconciliation of loss from operations to Non-GAAP Operating Profit.
| Three Months Ended March 31, | |||||||||||
| (In millions) | 2025 | 2026 | |||||||||
| Loss from operations | $ | (38.4) | $ | (17.8) | |||||||
| Share-based compensation expense | 12.0 | 6.6 | |||||||||
Transaction-related adjustments, net (a) | 1.5 | 1.6 | |||||||||
Restructuring and transformation expenses (b) | 13.1 | 9.0 | |||||||||
Amortization of intangible assets (c) | 37.4 | 31.3 | |||||||||
| Non-GAAP Operating Profit | $ | 25.6 | $ | 30.7 | |||||||
(a) | Includes purchase accounting adjustments, exploratory acquisition and divestiture costs, and expenses related to financing activities. | ||||
(b) | Includes consulting and advisory fees related to business transformation and optimization activities, as well as associated severance, certain facility closure costs, and lease termination expenses. Also includes payroll taxes associated with the exercise of stock options and vesting of restricted stock. | ||||
(c) | All of our intangible assets are attributable to acquisitions, including the Rackspace Acquisition in 2016. | ||||
Our segment operating profit and segment operating margin for the periods indicated, and the change between periods is shown in the table below:
| Three Months Ended March 31, | Year-Over-Year Comparison | ||||||||||||||||||||||||||||||||||
| (In millions, except %) | 2025 | 2026 | |||||||||||||||||||||||||||||||||
| Segment operating profit: | Amount | % of Segment Revenue | Amount | % of Segment Revenue | Amount | % Change | |||||||||||||||||||||||||||||
| Public Cloud | $ | 17.3 | 4.2 | % | $ | 20.7 | 4.7 | % | $ | 3.4 | 19.7 | % | |||||||||||||||||||||||
| Private Cloud | 61.0 | 24.4 | % | 57.9 | 24.7 | % | (3.1) | (5.1) | % | ||||||||||||||||||||||||||
| Corporate functions | (52.7) | (47.9) | 4.8 | (9.1) | % | ||||||||||||||||||||||||||||||
| Non-GAAP Operating Profit | $ | 25.6 | $ | 30.7 | $ | 5.1 | 19.9 | % | |||||||||||||||||||||||||||
Public Cloud operating profit increased 20% in the three months ended March 31, 2026 from the three months ended March 31, 2025. Segment operating profit as a percentage of segment revenue increased by 50 basis points, reflecting a 7% increase in segment revenue, partially offset by a 6% increase in segment operating expenses. The increase in expenses was mainly driven by higher cost of revenue, which increased inline with revenue growth between periods.
Private Cloud operating profit decreased 5% in the three months ended March 31, 2026 from the three months ended March 31, 2025. Segment operating profit as a percentage of segment revenue increased by 30 basis points due to a 6% decrease in segment operating expenses, offset by a 6% decrease in segment revenue. The decrease in expenses was mainly driven by lower cost of revenue, inline with revenue decline, and gains on disposal of non-core assets in the current period.
Centralized corporate functions that provide services to the segments in areas such as accounting, information technology, marketing, legal and human resources are not allocated to the segments and are included in "corporate functions" in the table above. This expense decreased 9% in the three months ended March 31, 2026 from the three months ended March 31, 2025 due to our continued focus on cost management.
For more information about our segment operating profit, see Item 1 of Part I, Financial Statements - Note 13, "Segment Reporting."
Interest Expense
Interest expense increased $7 million, or 35%, to $26 million in the three months ended March 31, 2026 from $19 million in the three months ended March 31, 2025 driven by the impact of our interest rate swap maturing in February 2026. Borrowings on the Revolving Credit Facility also contributed to the increase in interest expense between periods.
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Gain on Debt Extinguishment
We recorded 56 million total gain on debt extinguishment in the three months ended March 31, 2026 related to repurchases of an aggregate $96 million principal amount of the 3.50% FLSO Senior Secured Notes, 3.50% Senior Secured Notes, and 5.375% Senior Notes.
For more information, see Item 1 of Part I, Financial Statements - Note 7, "Debt."
Other Expense, Net
The decrease in other expense, net to $4 million in the three months ended March 31, 2026 from $5 million in the three months ended March 31, 2025 is primarily due to foreign currency transaction gains.
Benefit (Provision) for Income Taxes
Our income tax benefit was $0.1 million in the three months ended March 31, 2026 compared to $8 million income tax expense in the three months ended March 31, 2025. Our effective tax rate increased to (1.5)% in the three months ended March 31, 2026 from (12.9)% in the three months ended March 31, 2025. The increase in the effective tax rate year-over-year is primarily due to the tax impact associated with changes in valuation allowance, the net impact of the geographic distribution of our earnings, the tax effects from non-deductible share-based compensation, and executive compensation that is non-deductible under Internal Revenue Code (“IRC”) Section 162(m). The difference between the effective tax rate and the statutory rate for the three months ended March 31, 2026 is primarily due to the tax impact associated with changes in valuation allowance, executive compensation that is non-deductible under IRC Section 162(m), and the net impact of the geographic distribution of our earnings.
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Non-GAAP Financial Measures
We track several non-GAAP financial measures to monitor and manage our underlying financial performance. The following discussion includes the presentation of constant currency revenue, Non-GAAP Gross Profit, Non-GAAP Net Income (Loss), Non-GAAP Operating Profit, Adjusted EBITDA and Non-GAAP Earnings (Loss) Per Share, which are non-GAAP financial measures that exclude the impact of certain costs, losses and gains that are required to be included in our profit and loss measures under GAAP. Although we believe these measures are useful to investors and analysts for the same reasons they are useful to management, as discussed below, these measures are not a substitute for, or superior to, U.S. GAAP financial measures or disclosures. Other companies may calculate similarly-titled non-GAAP measures differently, limiting their usefulness as comparative measures. We have reconciled each of these non-GAAP measures to the applicable most comparable GAAP measure throughout this MD&A.
Constant Currency Revenue
We use constant currency revenue as an additional metric for understanding and assessing our growth excluding the effect of foreign currency rate fluctuations on our international business operations. Constant currency information compares results between periods as if exchange rates had remained constant period over period and is calculated by translating the non-U.S. dollar income statement balances for the most current period to U.S. dollars using the average exchange rate from the comparative period rather than the actual exchange rates in effect during the respective period. We also believe this is an important metric to help investors evaluate our performance in comparison to prior periods.
The following table presents, by segment, actual and constant currency revenue and constant currency revenue growth rates, for and between the periods indicated:
| Three Months Ended March 31, 2025 | Three Months Ended March 31, 2026 | % Change | |||||||||||||||||||||||||||||||||
| (In millions, except %) | Revenue | Revenue | Foreign Currency Translation (a) | Revenue in Constant Currency | Actual | Constant Currency | |||||||||||||||||||||||||||||
| Public Cloud | $ | 415.6 | $ | 443.4 | $ | (2.3) | $ | 441.1 | 6.7 | % | 6.1 | % | |||||||||||||||||||||||
| Private Cloud | 249.8 | 234.7 | (3.7) | 231.0 | (6.0) | % | (7.5) | % | |||||||||||||||||||||||||||
| Total | $ | 665.4 | $ | 678.1 | $ | (6.0) | $ | 672.1 | 1.9 | % | 1.0 | % | |||||||||||||||||||||||
| (a) | The effect of foreign currency is calculated by translating current period results using the average exchange rate from the prior comparative period. | ||||||||||||||||||||||
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Non-GAAP Gross Profit
We present Non-GAAP Gross Profit in this MD&A because we believe the measure is useful in analyzing trends in our underlying, recurring gross margins. We define Non-GAAP Gross Profit as gross profit, adjusted to exclude the impact of share-based compensation expense, purchase accounting-related effects, and certain business transformation-related costs.
The table below presents a reconciliation of gross profit to Non-GAAP Gross Profit:
| Three Months Ended March 31, | |||||||||||
| (In millions) | 2025 | 2026 | |||||||||
| Gross profit | $ | 126.9 | $ | 119.1 | |||||||
| Share-based compensation expense | 1.8 | 0.9 | |||||||||
Purchase accounting impact on expense (a) | 0.2 | 0.2 | |||||||||
Restructuring and transformation expenses (b) | 3.2 | 3.6 | |||||||||
| Non-GAAP Gross Profit | $ | 132.1 | $ | 123.8 | |||||||
(a) | Adjustment for the impact of purchase accounting from the Rackspace Acquisition on expenses. | ||||
(b) | Adjustment for the impact of business transformation and optimization activities, as well as associated severance, certain facility closure costs and lease termination expenses. Also includes payroll taxes associated with the exercise of stock options and vesting of restricted stock. | ||||
Non-GAAP Net Income (Loss), Non-GAAP Operating Profit and Adjusted EBITDA
We present Non-GAAP Net Income (Loss), Non-GAAP Operating Profit and Adjusted EBITDA because they are a basis upon which management assesses our performance and we believe they are useful to evaluating our financial performance. We believe that excluding items from net income that may not be indicative of, or are unrelated to, our core operating results, and that may vary in frequency or magnitude, enhances the comparability of our results and provides a better baseline for analyzing trends in our business.
The Rackspace Acquisition was structured as a leveraged buyout of Rackspace Technology Global, our predecessor, and resulted in several accounting and capital structure impacts. For example, the revaluation of our assets and liabilities resulted in a significant increase in our amortizable intangible assets and goodwill, the incurrence of a significant amount of debt to partially finance the Rackspace Acquisition resulted in interest payments that reflect our high leverage and cost of debt capital, and the conversion of Rackspace Technology Global’s unvested equity compensation into a cash-settled bonus plan and obligation to pay management fees to our equity holders resulted in new cash commitments. In addition, the change in ownership and management resulting from the Rackspace Acquisition led to a strategic realignment in our operations that had a significant impact on our financial results. Following the Rackspace Acquisition, we acquired several businesses, sold businesses and investments that we deemed to be non-core and launched multiple integration and business transformation initiatives intended to improve the efficiency of people and operations and identify recurring cost savings and new revenue growth opportunities. We believe that these transactions and activities resulted in costs, which have historically been substantial, and that may not be indicative of, or are not related to, our core operating results, including interest related to the incurrence of additional debt to finance acquisitions and third party legal, advisory and consulting fees and severance, retention bonus and other internal costs that we believe would not have been incurred in the absence of these transactions and activities and also may not be indicative of, or related to, our core operating results.
We define Non-GAAP Net Income (Loss) as net income (loss) adjusted to exclude the impact of non-cash charges for share-based compensation, transaction-related costs and adjustments, restructuring and transformation charges, the amortization of acquired intangible assets, goodwill and asset impairment charges, the interest expense impact from the refinancing transactions announced in March 2024 (the “March 2024 Refinancing Transactions”), and certain other non-operating, non-recurring or non-core gains and losses, as well as the tax effects of these non-GAAP adjustments.
We define Non-GAAP Operating Profit as income (loss) from operations adjusted to exclude the impact of non-cash charges for share-based compensation, transaction-related costs and adjustments, restructuring and transformation charges, the amortization of acquired intangible assets, goodwill and asset impairment charges, and certain other non-operating, non-recurring or non-core gains and losses.
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We define Adjusted EBITDA as net income (loss) adjusted to exclude the impact of non-cash charges for share-based compensation, transaction-related costs and adjustments, restructuring and transformation charges, certain other non-operating, non-recurring or non-core gains and losses, interest expense, expenses for our accounts receivable purchase agreement, income taxes, depreciation and amortization, and goodwill and asset impairment charges.
Non-GAAP Operating Profit and Adjusted EBITDA are management's principal metrics for measuring our underlying financial performance. Non-GAAP Operating Profit and Adjusted EBITDA, along with other quantitative and qualitative information, are also the principal financial measures used by management and our Board of Directors in determining performance-based compensation for our management and key employees.
These non-GAAP measures are not intended to imply that we would have generated higher income or avoided net losses if the Rackspace Acquisition and the subsequent transactions and initiatives had not occurred. In the future we may incur expenses or charges such as those added back to calculate Non-GAAP Net Income (Loss), Non-GAAP Operating Profit or Adjusted EBITDA. Our presentation of Non-GAAP Net Income (Loss), Non-GAAP Operating Profit and Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by these items. Other companies, including our peer companies, may calculate similarly-titled measures in a different manner from us, and therefore, our non-GAAP measures may not be comparable to similarly-titled measures of other companies. Investors are cautioned against using these measures to the exclusion of our results in accordance with GAAP.
The following tables present a reconciliation of Non-GAAP Net Loss and Adjusted EBITDA to the most directly comparable GAAP financial measures. For a reconciliation of loss from operations to Non-GAAP Operating Profit, see "Loss from Operations, Segment Operating Profit, and Non-GAAP Operating Profit" in the year-over-year comparison under "Results of Operations" above.
Net income (loss) reconciliation to Non-GAAP Net Loss
| Three Months Ended March 31, | |||||||||||
| (In millions) | 2025 | 2026 | |||||||||
| Net income (loss) | $ | (71.5) | $ | 8.3 | |||||||
| Share-based compensation expense | 12.0 | 6.6 | |||||||||
Transaction-related adjustments, net (a) | 1.5 | 1.6 | |||||||||
Restructuring and transformation expenses (b) | 13.1 | 9.0 | |||||||||
Net loss on divestiture and investments (c) | 0.1 | 0.1 | |||||||||
| Gain on debt extinguishment | — | (55.8) | |||||||||
Interest expense impact from the March 2024 Refinancing Transactions (d) | (21.0) | (18.8) | |||||||||
Other adjustments (e) | 0.4 | (1.1) | |||||||||
Amortization of intangible assets (f) | 37.4 | 31.3 | |||||||||
Tax effect of non-GAAP adjustments (g) | 13.3 | 4.9 | |||||||||
| Non-GAAP Net Loss | $ | (14.7) | $ | (13.9) | |||||||
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Net income (loss) reconciliation to Adjusted EBITDA
| Three Months Ended March 31, | |||||||||||
| (In millions) | 2025 | 2026 | |||||||||
| Net income (loss) | $ | (71.5) | $ | 8.3 | |||||||
| Share-based compensation expense | 12.0 | 6.6 | |||||||||
Transaction-related adjustments, net (a) | 1.5 | 1.6 | |||||||||
Restructuring and transformation expenses (b) | 13.1 | 9.0 | |||||||||
Net loss on divestiture and investments (c) | 0.1 | 0.1 | |||||||||
| Gain on debt extinguishment | — | (55.8) | |||||||||
Other expense, net (h) | 5.4 | 3.5 | |||||||||
| Interest expense | 19.4 | 26.2 | |||||||||
| Provision (benefit) for income taxes | 8.2 | (0.1) | |||||||||
Depreciation and amortization (i) | 73.1 | 71.8 | |||||||||
| Adjusted EBITDA | $ | 61.3 | $ | 71.2 | |||||||
(a) | Includes purchase accounting adjustments, exploratory acquisition and divestiture costs, and expenses related to financing activities. | ||||
(b) | Includes consulting and advisory fees related to business transformation and optimization activities, as well as associated severance, certain facility closure costs, and lease termination expenses. Also includes payroll taxes associated with the exercise of stock options and vesting of restricted stock. | ||||
(c) | Includes gains and losses on investment and from dispositions. | ||||
(d) | Interest expense impact due to the accounting for contractual interest payments on debt instruments entered into as part of the March 2024 Refinancing Transactions, which reduced interest expense relative to contractual interest cost. | ||||
(e) | Primarily consists of foreign currency gains and losses. | ||||
(f) | All of our intangible assets are attributable to acquisitions, including the Rackspace Acquisition in 2016. | ||||
(g) | We utilize an estimated structural long-term non-GAAP tax rate in order to provide consistency across reporting periods, removing the effect of non-recurring tax adjustments, which include but are not limited to tax rate changes, U.S. tax reform, share-based compensation, audit conclusions and changes to valuation allowances. When computing this long-term rate for the 2025 and 2026 interim periods, we based it on an average of the 2024 and estimated 2025 tax rates and 2025 and estimated 2026 tax rates, respectively, recomputed to remove the tax effect of non-GAAP pre-tax adjustments and non-recurring tax adjustments, resulting in a structural non-GAAP tax rate of 26% for all periods. The non-GAAP tax rate could be subject to change for a variety of reasons, including the rapidly evolving global tax environment, significant changes in our geographic earnings mix including due to acquisition activity, or other changes to our strategy or business operations. We will re-evaluate our long-term non-GAAP tax rate as appropriate. We believe that making these adjustments facilitates a better evaluation of our current operating performance and comparisons to prior periods. | ||||
(h) | Primarily consists of foreign currency gains and losses and expense related to our accounts receivable purchase agreement. | ||||
(i) | Excludes accelerated depreciation expense related to facility closures. | ||||
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Non-GAAP Earnings (Loss) Per Share
We define Non-GAAP Earnings (Loss) Per Share as Non-GAAP Net Income (Loss) divided by our GAAP weighted average number of shares outstanding for the period on a diluted basis and further adjusted for the weighted average number of shares associated with securities which are anti-dilutive to GAAP loss per share. Management uses Non-GAAP Earnings (Loss) Per Share to evaluate the performance of our business on a comparable basis from period to period, including by adjusting for the impact of the issuance of shares. The following table reconciles Non-GAAP Loss Per Share to our GAAP net earnings (loss) per share on a diluted basis:
| Three Months Ended March 31, | |||||||||||
| (In millions, except per share amounts) | 2025 | 2026 | |||||||||
Net income (loss) attributable to common stockholders | $ | (71.5) | $ | 8.3 | |||||||
| Non-GAAP Net Loss | $ | (14.7) | $ | (13.9) | |||||||
| Weighted average number of shares - Diluted | 231.9 | 249.7 | |||||||||
Effect of dilutive securities (a) | 9.6 | — | |||||||||
| Non-GAAP weighted average number of shares - Diluted | 241.5 | 249.7 | |||||||||
Net earnings (loss) per share - Diluted | $ | (0.31) | $ | 0.03 | |||||||
Per share impacts of adjustments to net income (loss) (b) | 0.24 | (0.09) | |||||||||
Per share impacts of shares after adjustments to net income (loss) (a) | 0.01 | 0.00 | |||||||||
Non-GAAP Loss Per Share | $ | (0.06) | $ | (0.06) | |||||||
| (a) | Potential common share equivalents consist of shares issuable upon the exercise of stock options, vesting of restricted stock units (including performance-based restricted stock units) or purchases under the Employee Stock Purchase Plan (the "ESPP"), as well as contingent shares associated with our acquisition of Datapipe Parent, Inc. Certain of our potential common share equivalents are contingent on certain investment funds managed by affiliates of Apollo achieving pre-established performance targets based on a multiple of their invested capital ("MOIC"), which are included in the denominator for the entire period if such shares would be issuable as of the end of the reporting period assuming the end of the reporting period was the end of the contingency period. | ||||
| (b) | Reflects the aggregate adjustments made to reconcile Non-GAAP Net Loss to our net income (loss), as noted in the above table, divided by the GAAP diluted number of shares outstanding for the relevant period. | ||||
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Liquidity and Capital Resources
Overview
We primarily finance our operations and capital expenditures with internally-generated cash from operations and hardware leases, and if necessary, borrowings under the Revolving Credit Facility. As of March 31, 2026, the Revolving Credit Facility provided for up to $375 million of borrowings, $150 million of which was drawn and outstanding as of March 31, 2026. Our primary uses of cash are working capital requirements, debt service requirements and capital expenditures. Based on our current level of operations and available cash, we believe our sources will provide sufficient liquidity over at least the next twelve months. We cannot provide assurance, however, that our business will generate sufficient cash flows from operations or that future borrowings will be available to us under the Revolving Credit Facility or from other sources in an amount sufficient to enable us to pay our indebtedness or to fund our other liquidity needs. Our ability to do so depends on prevailing economic conditions and other factors, many of which are beyond our control. In addition, upon the occurrence of certain events, such as a change of control, we could be required to repay or refinance our indebtedness. We cannot assure that we will be able to refinance any of our indebtedness on commercially reasonable terms or at all. Any future acquisitions, joint ventures or other similar transactions will likely require additional capital, and there can be no assurance that any such capital will be available to us on acceptable terms or at all.
From time to time, depending upon market and other conditions, as well as upon our cash balances and liquidity, we, our subsidiaries or our affiliates may acquire (and have acquired) our outstanding debt securities or our other indebtedness through open market purchases, privately negotiated transactions, tender offers, redemption or otherwise, upon such terms and at such prices as we, our subsidiaries or our affiliates may determine (or as may be provided for in the indenture governing the 3.50% FLSO Senior Secured Notes (the “3.50% FLSO Senior Secured Notes Indenture”), the indenture governing the 5.375% Senior Notes (the "5.375% Notes Indenture") or the indenture governing the 3.50% Senior Secured Notes (the "3.50% Notes Indenture" and, together with the 3.50% FLSO Senior Secured Notes Indenture and 5.375% Notes Indenture, the "Indentures"), if applicable), for cash or other consideration.
At March 31, 2026, we held $94 million in cash and cash equivalents (not including $2 million in restricted cash, which is included in "Other non-current assets"), of which $77 million was held by foreign entities.
We have entered into installment payment arrangements with certain equipment and software vendors, along with sale-leaseback arrangements for equipment and certain property leases that are considered financing obligations. We had $49 million outstanding with respect to these arrangements as of March 31, 2026. We may choose to utilize these various sources of funding in future periods.
We also lease certain equipment and real estate under operating and finance lease agreements. We had $470 million outstanding with respect to operating and finance lease agreements as of March 31, 2026. We may choose to utilize such leasing arrangements in future periods.
As of March 31, 2026, we had $2,328 million aggregate principal amount outstanding under the FLSO Term Loan Facility, the FLFO Term Loan Facility, the Term Loan Facility, 3.50% FLSO Senior Secured Notes, 5.375% Senior Notes, and 3.50% Senior Secured Notes. The Revolving Credit Facility provides for up to $375 million of borrowings, $150 million of which was drawn and outstanding as of March 31, 2026. Our liquidity requirements are significant, primarily due to debt service requirements.
Debt
Senior Facilities
On March 12, 2024, Rackspace Finance Holdings, LLC (“Rackspace Finance Holdings”), Rackspace Finance, LLC (“Rackspace Finance”), the lenders and issuing banks party thereto and Citibank, N.A., as the administrative agent and collateral agent, entered into the credit agreement governing the FLSO Term Loan Facility, FLFO Term Loan Facility and Revolving Credit Facility (together, the “Senior Facilities”) (the “First Lien Credit Agreement”).
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FLSO Term Loan Facility
Rackspace Finance issued the FLSO Term Loan Facility in an aggregate principal amount of $1,687 million. The FLSO Term Loan Facility matures on May 15, 2028.
As of March 31, 2026, the contractual interest rate on the FLSO Term Loan Facility was 6.54%. We are required to make quarterly principal payments of $4 million.
As of March 31, 2026, $1,606 million in aggregate principal amount of the FLSO Term Loan Facility remained outstanding.
FLFO Term Loan Facility
Rackspace Finance issued the FLFO Term Loan Facility in an aggregate principal amount $275 million. The FLFO Term Loan Facility matures on May 15, 2028.
As of March 31, 2026, the contractual interest rate on the FLFO Term Loan Facility was 10.04%. We are required to make quarterly principal payments of $0.7 million.
As of March 31, 2026, $270 million aggregate principal amount of the FLFO Term Loan Facility remained outstanding.
Revolving Credit Facility
Rackspace Finance established the Revolving Credit Facility in an aggregate principal amount of $375 million of commitments. The Revolving Credit Facility matures on May 15, 2028.
The Revolving Credit Facility includes a commitment fee equal to 0.50% per annum in respect of the unused commitments that is due quarterly. This fee is subject to one step-down based on the net first lien leverage ratio.
As of March 31, 2026, we had total commitments of $375 million, $150 million of outstanding borrowings under the Revolving Credit Facility, and $24 million of letters of credit issued thereunder. As such, as of March 31, 2026, we had $202 million of available commitments remaining.
3.50% FLSO Senior Secured Notes due 2028
On March 12, 2024, Rackspace Finance issued $267 million initial aggregate principal amount of 3.50% FLSO Senior Secured Notes. On April 2, 2024 and April 16, 2024, Rackspace Finance issued additional 3.50% FLSO Senior Secured Notes in an aggregate principal amount of $93 million and $4 million, respectively The 3.50% FLSO Senior Secured Notes will mature on May 15, 2028 and bear interest at an annual fixed rate of 3.50%. Interest is payable semiannually on February 15 and August 15.
During the three months ended March 31, 2026, we repurchased and surrendered for cancellation $68 million aggregate principal amount of the 3.50% FLSO Senior Secured Notes for $35 million, including accrued interest and fees of $0.4 million.
As of March 31, 2026, $250 million aggregate principal amount of the 3.50% FLSO Senior Secured Notes were outstanding.
Term Loan Facility
On February 9, 2021, we amended and restated the credit agreement governing the $2,300 million senior secured first lien term loan facility (the "Term Loan Facility"). The Term Loan Facility matures on February 15, 2028.
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Interest on the Term Loan Facility is due at the end of each interest period elected, not exceeding 90 days, for SOFR loans and at the end of every calendar quarter for base rate loans. As of March 31, 2026, the contractual interest rate on the Term Loan Facility was 6.54%. We are required to make quarterly amortization payments of $0.2 million. We are required to make certain mandatory prepayments under certain conditions defined in the credit agreement governing the Term Loan Facility.
As of March 31, 2026, $61 million aggregate principal amount of the Term Loan Facility remained outstanding.
3.50% Senior Secured Notes due 2028
On February 9, 2021, Rackspace Technology Global issued $550 million aggregate principal amount of 3.50% Senior Secured Notes. The 3.50% Senior Secured Notes will mature on February 15, 2028 and bear interest at an annual fixed rate of 3.50%. Interest is payable semiannually on February 15 and August 15.
During the three months ended March 31, 2026, we repurchased and surrendered for cancellation $1.3 million aggregate principal amount of the 3.50% Senior Secured Notes for $0.6 million.
As of March 31, 2026, $43 million aggregate principal amount of the 3.50% Senior Secured Notes remained outstanding.
5.375% Senior Notes due 2028
Rackspace Technology Global issued $550 million aggregate principal amount of the 5.375% Senior Notes on December 1, 2020. The 5.375% Senior Notes will mature on December 1, 2028 and bear interest at a fixed rate of 5.375% per year, payable semi-annually on June 1 and December 1.
During the three months ended March 31, 2026, we repurchased and surrendered for cancellation $27 million aggregate principal amount of the 5.375% Senior Notes for $11 million, including accrued interest and fees of $0.5 million.
As of March 31, 2026, $99 million aggregate principal amount of the 5.375% Senior Notes remained outstanding.
Subsequent Debt Repurchases
Subsequent to March 31, 2026 and through May 8, 2026, we repurchased and surrendered for cancellation an additional $11 million aggregate principal amount of 3.50% FLSO Senior Secured Notes and 5.375% Senior Notes for $5 million, including accrued interest and fees of $0.2 million.
Debt covenants
The FLSO Term Loan Facility, FLFO Term Loan Facility, and Term Loan Facility are not subject to a financial maintenance covenant. The Revolving Credit Facility includes a financial maintenance covenant that limits the super-priority net senior secured leverage ratio to a maximum of 5.00 to 1.00. The super-priority net senior secured leverage ratio is calculated as the ratio of (x) the total amount of consolidated super-priority senior secured debt for borrowed money, less unrestricted cash and cash equivalents, to (y) consolidated EBITDA (as defined under the First Lien Credit Agreement governing the Senior Facilities). However, this financial maintenance covenant will only be applicable and tested if the aggregate amount of outstanding borrowings under the Revolving Credit Facility and letters of credit issued thereunder (excluding $25 million of undrawn letters of credit and cash collateralized letters of credit) as of the last day of a fiscal quarter is greater than 35% of the Revolving Credit Facility commitments as of the last day of such fiscal quarter. Additional covenants in the Senior Facilities and Term Loan Facility limit our subsidiaries' ability to, among other things, incur certain additional debt and liens, pay certain dividends or make other restricted payments, make certain investments, make certain asset sales and enter into certain transactions with affiliates.
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The Indentures contain covenants that, among other things, limit our subsidiaries' ability to incur certain additional debt, incur certain liens securing debt, pay certain dividends or make other restricted payments, make certain investments, make certain asset sales and enter into certain transactions with affiliates. These covenants are subject to a number of exceptions, limitations, and qualifications as set forth in the Indentures. Additionally, upon the occurrence of a change of control (as defined in the Indentures), we will be required to make an offer to repurchase all of the outstanding 3.50% FLSO Senior Secured Notes, 5.375% Senior Notes and 3.50% Senior Secured Notes, respectively, at a price in cash equal to 101.000% of the aggregate principal amount, plus accrued and unpaid interest, if any, to, but not including the purchase date.
Our "consolidated EBITDA," as defined under our debt instruments, is calculated in the same manner as our Adjusted EBITDA, presented elsewhere in this report, except that our debt instruments allow us to adjust for additional items, including certain start-up costs, and to give pro forma effect to acquisitions, including resulting synergies, and internal cost savings initiatives. In addition, under the Indentures, the calculation of consolidated EBITDA does not take into account any changes in GAAP subsequent to the date of issuance, whereas under the Senior Facilities and Term Loan Facility, the calculation of consolidated EBITDA takes into account the impact of certain changes in GAAP subsequent to December 1, 2020 other than with respect to capital leases.
As of March 31, 2026, we were in compliance with all covenants under the Senior Facilities, the credit agreement governing the Term Loan Facility, and the Indentures.
Supplemental Financial Information
In accordance with the 3.50% FLSO Senior Secured Notes Indenture, Rackspace Finance Holdings, Rackspace Finance and certain subsidiaries of Rackspace Finance (together with their restricted subsidiaries, the “New Credit Group”) are obligors under the 3.50% FLSO Senior Secured Notes. The following presents summarized financial information for the New Credit Group after eliminating intercompany transactions and balances among the New Credit Group.
As of March 31, 2026, the New Credit Group had total assets of $2,765 million and total liabilities of $3,781 million, which included total debt of $2,507 million. The financial information for the New Credit Group differs from the financial information for the company and its consolidated subsidiaries primarily because Rackspace Technology Global has debt that is not guaranteed by the New Credit Group, which debt was $201 million as of March 31, 2026.
Capital Expenditures
The following table sets forth a summary of our total capital expenditures for the periods indicated:
| Three Months Ended March 31, | |||||||||||
| (In millions) | 2025 | 2026 | |||||||||
| Customer gear | $ | 13.1 | $ | 17.0 | |||||||
| Data center build outs | 0.3 | 0.1 | |||||||||
| Capitalized software and other projects | 13.3 | 17.6 | |||||||||
| Total capital expenditures | $ | 26.7 | $ | 34.7 | |||||||
Capital expenditures were $35 million in the three months ended March 31, 2026, compared to $27 million in the three months ended March 31, 2025, an increase of $8 million. The increase in capital expenditures was driven by customer gear purchases related to new contract deployments and higher software license spend between periods.
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Cash Flows
The following table sets forth a summary of certain cash flow information for the periods indicated:
| Three Months Ended March 31, | |||||||||||
| (In millions) | 2025 | 2026 | |||||||||
| Cash provided by operating activities | $ | 12.6 | $ | 5.1 | |||||||
| Cash used in investing activities | $ | (8.8) | $ | (11.5) | |||||||
| Cash used in financing activities | $ | (20.6) | $ | (4.1) | |||||||
Cash Provided by Operating Activities
Net cash provided by operating activities results primarily from cash received from customers, offset by cash payments made for employee and consultant compensation (less amounts capitalized related to internal-use software that are reflected as cash used in investing activities), data center costs, license costs, third-party infrastructure costs, marketing programs, interest, taxes, and other general corporate expenditures.
Net cash provided by operating activities was $5 million in the three months ended March 31, 2026 compared to $13 million in the three months ended March 31, 2025. The decrease in operating cash between periods was primarily driven by an increase of $47 million of cash paid for operating expenses in the three months ended March 31, 2026 compared to the three months ended March 31, 2025. Additionally, there was a decrease in cash proceeds related to accounts receivable sold of $2 million in the three months ended March 31, 2026 compared to an increase of $7 million in the three months ended March 31, 2025. These decreases in cash from operating activities were partially offset by an increase in cash receipts from customers between periods.
Cash Used in Investing Activities
Net cash used in investing activities primarily consists of capital expenditures to meet the demands of our customer base and our strategic initiatives. The largest outlays of cash are for purchases of customer gear, data center and office build outs, and capitalized payroll costs related to internal-use software development.
Net cash used in investing activities increased $3 million, or 31%, in the three months ended March 31, 2026 compared to the three months ended March 31, 2025 primarily due to a $6 million increase in cash purchases of property, equipment, and software between periods, partially offset by cash proceeds from the disposal of non-core assets in the current period.
Cash Used in Financing Activities
Financing activities generally include cash activity related to debt and other long-term financing arrangements (for example, finance lease obligations and financing obligations), including proceeds from and repayments of borrowings, and cash activity related to the issuance and repurchase of equity.
Net cash used in financing activities decreased $17 million, or 80%, in the three months ended March 31, 2026 compared to the three months ended March 31, 2025. The change was primarily driven by a $95 million increase in borrowings on the Revolving Credit Facility, partially offset by an increase in debt repayments of $78 million between periods.
Critical Accounting Policies and Estimates
Our critical accounting policies and estimates have not changed from those described in our Annual Report under "Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies and Estimates." For a description of recent accounting pronouncements, see Item 1 of Part I, Financial Statements - Note 1, "Company Overview, Basis of Presentation, and Summary of Significant Accounting Policies."
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ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rates
We are exposed to interest rate risk associated with fluctuations in interest rates on our floating-rate Senior Facilities, which includes our $375 million Revolving Credit Facility and $1,875 million outstanding under the FLSO Term Loan Facility and FLFO Term Loan Facility, and $61 million outstanding under our floating-rate Term Loan Facility. As of March 31, 2026, there was $150 million of outstanding borrowings under the Revolving Credit Facility. As of March 31, 2026, assuming the Revolving Credit Facility was fully drawn, each 0.125% change in assumed blended interest rates would result in a $3 million change in annual interest expense on indebtedness under the Senior Facilities and Term Loan Facility.
Our Term Loan Facility, FLSO Term Loan Facility, and FLFO Term Loan Facility bear interest at an annual rate equal to an applicable margin plus one-month Term SOFR, subject to a 0.75% floor. We have in the past and may in the future enter into interest rate swap agreements to manage our risk from fluctuations in one-month Term SOFR above the 0.75% floor.
Foreign Currencies
We are subject to foreign currency translation risk due to the translation of the results of our subsidiaries from their respective functional currencies to the U.S. dollar, our functional currency. As a result, we discuss our revenue on a constant currency as well as actual basis, highlighting our sensitivity to changes in foreign exchange rates. See "Constant Currency Revenue." While the majority of our customers are invoiced, and the majority of our expenses are paid, by us or our subsidiaries in their respective functional currencies, we also have exposure to foreign currency transaction gains and losses as the result of certain receivables due from our foreign subsidiaries. As such, the results of operations and cash flows of our foreign subsidiaries are subject to fluctuations in foreign currency exchange rates. In the three months ended March 31, 2026, we recognized foreign currency transaction gains of $1 million within "Other expense, net" in our Condensed Consolidated Statements of Comprehensive Loss. As we grow our international operations, our exposure to foreign currency translation and transaction risk could become more significant.
We have in the past and may in the future enter into foreign currency hedging instruments to limit our exposure to foreign currency risk.
Power Prices
We are a large consumer of power. In the three months ended March 31, 2026, we expensed approximately $9 million for utility companies to power our data centers, representing approximately 1% of our revenue. Power costs vary by geography, the source of power generation and seasonal fluctuations and are subject to certain proposed legislation and geopolitical tensions that may increase our exposure to increased power costs. We have power contracts for data centers in the Dallas-Fort Worth, San Jose, Somerset, New Jersey and London areas that allow us to procure power either on a fixed price or on a variable price basis.
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ITEM 4 – CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our senior management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the "Exchange Act"), as amended, as of the end of the period covered by this Quarterly Report (the "Evaluation Date"). Based on this evaluation, our Chief Executive Officer and Chief Financial Officer, concluded as of the Evaluation Date that our disclosure controls and procedures were effective such that the information relating to the company, including our consolidated subsidiaries, required to be disclosed in our SEC reports (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and (ii) is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Control
There were no changes in our internal controls over financial reporting during our most recent fiscal quarter reporting period identified in connection with management's evaluation that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Inherent Limitations of Internal Controls
Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all error and fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
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PART II – OTHER INFORMATION
ITEM 1 – LEGAL PROCEEDINGS
From time to time, we are subject to various legal proceedings, claims, inquiries, investigations, demands or other disputes arising in the ordinary course of our business. These matters include, among other things, commercial disputes (including contract interpretation, service level performance, billing disputes, customer service issues and similar matters), employment and labor claims, intellectual property disputes (including third-party claims by both operating companies and non-practicing entities alleging that our offerings, services, or technologies infringe, misappropriate, or otherwise violate the intellectual property or proprietary rights of others or that our use of third-party software (including open source components) violates copyright, licensing obligations or trade secret rights), and regulatory inquiries. In addition, we may receive requests for information, subpoenas, or be subject to investigations by governmental authorities relating to areas such as privacy, data protection, cybersecurity, competition/antitrust, and export controls and sanctions, among others.
We record accruals for loss contingencies when losses are considered probable and can be reasonably estimated. Because litigation and regulatory matters are inherently unpredictable, the amount that may ultimately be paid could differ from our recorded accruals and the timing of such payments is uncertain. It is reasonably possible that losses in excess of recorded amounts could be material in a particular period. Additional information about our loss contingencies is included in Item 1 of Part I, Financial Statements - Note 8, "Commitments and Contingencies." We maintain insurance for certain claims and losses; however, coverage may not be available for all matters and is subject to deductibles, exclusions, and policy limits.
Based on current information, we are not party to any pending litigation that would, if determined adversely to us, individually or in the aggregate be reasonably expected to have a material adverse effect on our business, financial condition, results of operations, or cash flows. However, litigation is inherently uncertain, and adverse developments or outcomes could potentially result in significant monetary damages or injunctive relief. We expense legal fees as incurred.
For a discussion of risks related to intellectual property claims, data security, privacy and cybersecurity, regulatory compliance and other legal exposures, see "Risk Factors" in our Annual Report.
ITEM 1A – RISK FACTORS
We have disclosed under the heading "Risk Factors" in our Annual Report the risk factors which materially affect our business, financial condition or results of operations. There have been no material changes from the risk factors previously disclosed. You should carefully consider the risk factors set forth in our Annual Report and the other information set forth elsewhere in this Quarterly Report on Form 10-Q. You should be aware that these risk factors and other information may not describe every risk facing our company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.
ITEM 2 – UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Unregistered Sales of Equity Securities
Not applicable.
Use of Proceeds
None.
ITEM 3 – DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4 – MINE SAFETY DISCLOSURES
Not applicable.
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ITEM 5 – OTHER INFORMATION
Rule 10b5-1 Trading Arrangements
During the quarter ended March 31, 2026, the following director and officers (as defined in Rule 16a-1(f) of the Exchange Act) adopted a trading arrangement for the purchase or sale of securities of the company that is intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) of the Exchange Act (“Rule 10b5-1 Plan”):
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ITEM 6 – EXHIBITS
| Exhibit Number | Exhibit Description | ||||||||||
| 31.1 | * | Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |||||||||
| 31.2 | * | Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |||||||||
| 32.1 | ** | Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |||||||||
| 32.2 | ** | Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |||||||||
101.INS | * | Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document) | |||||||||
101.SCH | * | Inline XBRL Taxonomy Extension Schema Document | |||||||||
101.CAL | * | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |||||||||
101.DEF | * | Inline XBRL Taxonomy Extension Definition Linkbase Document | |||||||||
101.LAB | * | Inline XBRL Taxonomy Extension Label Linkbase Document | |||||||||
101.PRE | * | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |||||||||
| 104 | * | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | |||||||||
* Filed herewith.
** Furnished herewith.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| RACKSPACE TECHNOLOGY, INC. | ||||||||||||||
| Date: | May 8, 2026 | By: | /s/ Mark Marino | |||||||||||
Mark Marino | ||||||||||||||
Chief Financial Officer | ||||||||||||||
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FAQ
How did Rackspace Technology (RXT) perform financially in Q1 2026?
Rackspace Technology reported net income of $8.3 million in Q1 2026, compared with a $71.5 million loss a year earlier. Revenue reached $678.1 million, up 1.9%, while Adjusted EBITDA increased to $71.2 million, reflecting slightly stronger underlying profitability.
What drove the swing from loss to profit for Rackspace Technology (RXT)?
The move to a $8.3 million profit was mainly driven by a $55.8 million gain on debt extinguishment from repurchasing outstanding notes at discounts. Lower selling, general and administrative expenses also helped, partially offset by higher cost of revenue and increased interest expense.
How are Rackspace Technology’s (RXT) Public Cloud and Private Cloud segments performing?
In Q1 2026, Public Cloud revenue rose to $443.4 million, up 6.7%, with segment operating profit of $20.7 million. Private Cloud revenue declined to $234.7 million, down 6.0%, but still generated segment operating profit of $57.9 million, maintaining higher margins.
What is Rackspace Technology’s (RXT) current debt and liquidity position?
As of March 31, 2026, Rackspace had $2,477.6 million of total debt principal and cash and cash equivalents of $93.6 million. It had $150.0 million drawn on a $375.0 million revolving credit facility and believes existing resources provide sufficient liquidity for at least 12 months.
How did cost structure and margins change for Rackspace Technology (RXT) in Q1 2026?
Cost of revenue increased to $559.0 million, driven by higher third-party infrastructure usage and depreciation, reducing gross margin to 17.6% from 19.1%. Selling, general and administrative expenses fell to $136.9 million, helped by lower headcount, reduced share-based compensation, and lower amortization.
What non-GAAP metrics does Rackspace Technology (RXT) highlight for Q1 2026?
Rackspace emphasizes Non-GAAP Operating Profit of $30.7 million and Adjusted EBITDA of $71.2 million in Q1 2026. It also reports Non-GAAP Net Loss of $13.9 million, adjusting for share-based compensation, restructuring, transaction-related items, amortization, and the debt extinguishment gain.
How much revenue did Rackspace Technology (RXT) generate from each segment in Q1 2026?
In Q1 2026, Public Cloud generated $443.4 million of revenue, while Private Cloud generated $234.7 million. Overall revenue was $678.1 million, with growth driven by Public Cloud services and infrastructure volumes, partially offset by Private Cloud customer transitions off legacy platforms.