Alta, Wyoming--(Newsfile Corp. - March 26, 2026) - Cannell Capital LLC - Cannell Capital LLC ("CC") sends this letter to Rackspace and its shareholders.
"That quirky investment company which has managed private investment partnerships continually since the good summer of 1992 - brings forth to the public the letter by Mr. Gajen Kandiah, CEO of Rackspace Technology, Inc. in response to our "icebergs ahead" warning.
"The dance is over. The punchbowl has been removed.
"Between credit and equity, our money is with credit. Accordingly, we have sold the equity after a 321% run.
"Caveat emptor," said J. Carlo Cannell, Managing Member.
March 6, 2026
Board of Directors
Rackspace Technology, Inc. ("RXT")
1718 Dry Creek Way
San Antonio, TX 78259-1837
Accounts under the purview of Cannell Capital LLC ("CC") have acquired sundry debt securities of Rackspace Technology, Inc. We are delighted with 1) The general progress that RXT has made; 2) The specific and recent Palantir win; and 3) RXT's enviable position in the hybrid cloud managed services space.
We are not delighted with 1) The long slog we have endured to talk to management;1 2) The looming tsunami of debt; and 3) As far as we can see, apathy and / or ignorance toward said tsunami. Where is the plan to recapitalize the company? Is there a plan?
Accordingly, I or a colleague hereby register our interest in serving on the inevitable creditor committee. In March 2024, Abry Partners and Apollo Global Management LLC helped negotiate the $375 million debt reduction and $275 million new money. Today's situation is more dire, however. Most of RXT's debt of $3.3 billion goes current in 14 months. At best RXT can generate $300 million of free cash flow in the next two years. The market pegs your junior debt with a yield to maturity of 78% - a sobering but realistic mark in the event of a refinancing.
On February 18, 2026, 542,491,528 shares of RXT traded. The stock was up 468% in the 13 trading days that followed. The prudent thing would be to sell equity into this to ameliorate some of the debt. We believe that RXT has neither an at-the-market offering in place nor a plan to issue equity. (We do not know such definitively because while the company apparently speaks regularly to the few security analysts who follow it, it apparently does not speak to owners - or at least not to us.)
Best regards,
/x/
J. Carlo Cannell
Managing Member
Credit versus Equity: Credit Always Prevails
To quote Warren Buffett "References to EBITDA make us shudder - does management think the tooth fairy pays for capital expenditures?"2 In other words, EBITDA represents earnings "before all the bad stuff". Buffett seemed to warn us that any management that talks about EBITDA is either trying to deceive you or is deceiving themselves. Charlie Munger was less diplomatic. Of EBITDA he said "[N]ow they use it in the business schools. ...that is horror squared. [I]t's bad enough that a bunch of thieves start using a term. But when it gets so common that the business schools copy it, that's not a good result."
To wit, Rackspace Technology (RXT) for which Alpha Spread predicts a "meaningful chance of default" and the Altman Z-Score is (2.4). RXT's interest coverage ratio is (1.87), meaning it is not currently generating enough operating profit to cover its interest payments on its $3.2 billion in debt. Here are the facts ($ million, FY Dec):
| Market Cap | $409 |
| Debt | $3,198 |
| EV | $3,463 |
| LTM Interest Expense | $80 |
| LTM FCF | $69 |
Rackspace Technology is a managed service provider which helps businesses design, build, and operate their infrastructure across hybrid cloud environments. A former highflyer which led the charge for alternatives to legacy solutions for on-premises hosting, it has devolved to a baby Accenture with no growth and a GPM of 19.7% (LTM).
LTM FCF was $69 million. Let's say that it expands to $100 million in 2026. RXT has two years to address $3.2 billion of debt. The crunch is about to happen. The stock is technically devoid of value as I write.
In the last 30 days, the common was up 338% based upon a suspect announcement of an expansion of business with pre-existing customer Palantir. A month ago, the junior debt yielded 89%. You know what that means. A credit committee is probably in the bullpen.
In his 2000 letter to shareholders, Warren Buffett noted that many dot-com and telecom companies had massive EBITDA but even more massive interest expenses. When the interest expense exceeds the actual cash coming in, the "EBITDA" becomes a meaningless number on a path to bankruptcy.
Cannell Capital LLC
Alta, WY
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CONTACT INFORMATION
Stephen C. Wagstaff
1-307-733-2284
scw@cannellcap.com
1 We have contacted RXT's Head of Investor Relations, Sagar Hebbar, 23 times since October 2025. On October 24, I offered to come to San Antonio. We have enjoyed only two calls with Sagar however - one on November 11, 2025 and another on March 2, 2026. We have repeatedly been promised a call with RXT's officers, a call that has never happened.
2 https://www.berkshirehathaway.com/2000ar/2000letter.html
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Source: Cannell Capital LLC
