Rackspace Technology (NASDAQ:RXT) executives used the company’s fourth quarter 2025 earnings call to outline a sharpened strategic focus on operationalizing enterprise AI in regulated environments, while also reviewing quarterly results that management said exceeded guidance across most metrics.
Management highlights a shift toward “platform engineering” for enterprise AI
Chief Executive Officer Gajen Kandiah, who said he joined five months ago, framed the company’s direction around a market transition from “isolated AI experiments” to “operating AI at scale inside core enterprise systems.” As AI becomes embedded in sensitive data and regulated workflows, Kandiah said “where it runs starts to matter,” citing performance, cost, and compliance considerations across edge, core, private cloud, public cloud, and sovereign environments.
Rather than building what he characterized as a traditional services organization, Kandiah said Rackspace is building a “platform engineering” capability built around “forward-deployed engineers” embedded in customer environments, helping define AI use cases, deploy them into production, and then operate them day to day on governed infrastructure.
Partnership ecosystem: Palantir, VMware, and Rubrik called “anchor partners”
Kandiah pointed to partnerships as central to Rackspace’s delivery model, highlighting work alongside Palantir platforms Foundry and AIP. He said Rackspace currently has 30 Palantir-trained platform engineers and plans to scale that figure to more than 250 over the next 12 months. Kandiah added that early activity includes a “strong and rapidly growing joint pipeline” of Palantir-related opportunities, AIP boot camps, and data migration opportunities.
In addition to Palantir, Kandiah identified VMware and Rubrik as anchor partners in an ecosystem intended to support a modern AI stack:
- VMware: described as powering the control plane across compute, storage, networking, and security, with “native AI workload support” and sovereign data residency controls.
- Rubrik: described as anchoring cyber resilience through Rackspace Cyber Recovery Cloud for threat detection, data protection, and workload recovery.
- Palantir: positioned as the data and AI platform layer, where use cases are defined and deployed with forward-deployed engineers.
Kandiah said the company’s approach is modular, allowing customers to leverage existing investments without “ripping and replacing” what already works.
Fourth quarter results: revenue beat guidance, private cloud ramp timing impacted mix
Chief Financial Officer Mark Marino said three items stood out in the quarter: revenue beat guidance driven by public cloud outperformance; non-GAAP operating profit of $41 million above the high end of the company’s range; and year-end liquidity of $397 million, along with $60 million of cash flow from operations in the quarter.
For the fourth quarter, Marino reported:
- Total GAAP revenue: $683 million
- Non-GAAP gross profit margin: 18.1% of GAAP revenue, down 180 basis points sequentially, which Marino attributed to lower private cloud revenue and a higher mix of public cloud infrastructure
- Non-GAAP operating profit: $41 million; non-GAAP operating margin 6% of GAAP revenue, up 120 basis points sequentially
- Non-GAAP loss per share: $0.01, which Marino said beat the guided range of a $0.03 to $0.05 loss per share
- Cash flow from operations: $60 million; free cash flow: $56 million
- Cash on hand: $106 million; total liquidity: $397 million
For the full year 2025, Marino reported cash flow from operations of $151 million and free cash flow of $91 million. He said non-GAAP gross profit margin for the year was 19.4%, down 120 basis points year-over-year, attributing the change to lower private cloud revenue. Non-GAAP operating profit margin for the year was 4.7%, up 80 basis points, which he tied to lower operating expenses as the company continued cost optimization.
Segment detail: private cloud pressured by healthcare ramp; public cloud driven by services growth
In private cloud, Marino reported fourth quarter GAAP revenue of $241 million, below the company’s guided range due to a recently signed healthcare contract ramping more slowly than expected. Kandiah said the deal is fully executed and is expected to begin ramping in the second quarter of 2026, reflecting additional client governance and oversight given the deal’s size and complexity.
Marino said private cloud non-GAAP gross margin was 35.7%, down 240 basis points sequentially due to lower revenue and reduced fixed cost absorption. Non-GAAP segment operating margin was 26.1%, down 80 basis points sequentially. Kandiah reported full-year private cloud revenue of $990 million, down 6% year-over-year, which he compared to prior years of double-digit declines.
Kandiah also discussed several private cloud wins during the quarter, including a multi-year agreement with a “top European retail and commercial bank,” modernization of hundreds of bare metal servers for a global online trading and financial services platform, and a new agreement with an AI-enabled digital platform to host and manage a “human-in-the-loop architecture.” He added that private cloud expanded platform capabilities, including support for the latest release of Oracle PeopleTools and the launch of RackConnect Global Internet on Partner Fabric.
In public cloud, Marino reported fourth quarter GAAP revenue of $442 million, above the guided range, driven by both infrastructure volumes and services revenue. Kandiah said services revenue grew 28% year-over-year in the quarter, while full-year public cloud revenue totaled $1.7 billion and full-year services revenue grew 6%.
Marino said public cloud non-GAAP gross margin was 8.5%, down 70 basis points sequentially due to a higher mix of infrastructure revenue, while non-GAAP segment operating margin was 4.5%, up 120 basis points sequentially due to operational efficiencies.
2026 outlook: annual guidance, private cloud growth expected, government contract transition to weigh on public cloud totals
Management said Rackspace will move to an annual guidance framework beginning in 2026, citing increased quarter-to-quarter variability driven by the timing of large deals and migrations. Marino said the company expects full-year 2026 GAAP revenue of $2.6 billion to $2.7 billion, down 1% year-over-year at the midpoint.
By segment, Marino provided the following expectations:
- Private cloud revenue: $1.025 billion to $1.075 billion, up 6% year-over-year at the midpoint, with growth “balanced across the year” as healthcare and other regulated deployments move into production
- Public cloud revenue: $1.575 billion to $1.625 billion, down 6% year-over-year at the midpoint, primarily due to a planned transition of a large, low-margin government contract
Marino added that excluding the planned government contract transition, the company expects public cloud services revenue to grow in the mid-to-high teens year-over-year, reflecting momentum in higher-margin managed offerings.
For profitability and cash flow, Marino guided to total non-GAAP operating profit of $160 million to $170 million (31% growth at the midpoint), adjusted EBITDA of $305 million to $315 million (up 12% at the midpoint), non-GAAP loss per share of $0.15 to $0.20, and free cash flow of $90 million to $110 million. He also provided expectations for a 26% non-GAAP tax rate, non-GAAP other expenses of $220 million to $230 million, and a non-GAAP share count of 250 million to 260 million shares.
In closing remarks, Kandiah said Rackspace’s strengths include a portfolio designed for regulated environments and growth potential in healthcare, sovereign, and AI, and reiterated the company’s goal of helping clients orchestrate systems across private, public, edge, and sovereign clouds with reliability, security, and governance.
About Rackspace Technology (NASDAQ:RXT)
Rackspace Technology (NASDAQ: RXT) is a leading provider of managed multi-cloud solutions and services, specializing in the deployment, management and optimization of public and private cloud environments. The company helps organizations design and operate applications across platforms such as Amazon Web Services (AWS), Microsoft Azure, Google Cloud and its own private cloud infrastructure. Rackspace’s core offerings include cloud migration, application modernization, data protection, security services and 24x7x365 operational support.
Beyond cloud hosting, Rackspace offers a range of professional services designed to accelerate digital transformation initiatives.
