Cannell Capital LLC released a letter on March 26 2026 that publicly accuses Rackspace Technology, Inc. of carrying a dangerously high debt load and of having weak interest coverage. The letter cites a $3.3 billion total debt balance, an interest‑coverage ratio of 1.87, and a projected $300 million in free‑cash‑flow over the next two years as evidence that the company is at risk of default.
The debt figure aligns with other reports that place Rackspace’s total debt around $3.3 billion, while the company’s negative shareholder equity and high debt‑to‑equity ratio underscore a highly leveraged balance sheet. The interest‑coverage ratio of 1.87 indicates that earnings before interest and taxes cover interest expenses only a little more than once, a level that is generally considered fragile. The projected free‑cash‑flow of $300 million is modest relative to the debt burden and suggests limited capacity to service interest or refinance maturing obligations.
Cannell Capital also points out that Rackspace has not pursued a credible recapitalization plan and questions the sustainability of the company’s leveraged turnaround strategy, which relies on high‑margin AI‑driven services and a capital‑light operating model. The letter argues that the debt load and the need for significant investment in AI and cloud infrastructure are inconsistent with a truly capital‑light approach and could erode the company’s ability to fund growth initiatives.
The letter’s publication follows a period of mixed financial performance for Rackspace. In its Q4 2025 earnings, the company beat revenue expectations by $8 million and posted an EPS of –$0.01 versus a consensus of –$0.04, a beat of $0.03. However, the company’s net loss for 2025 was $226 million and guidance for 2026 projects a slight revenue decline, reflecting ongoing profitability challenges. These results, combined with the debt concerns raised by Cannell Capital, paint a picture of a company that has achieved short‑term earnings improvement but remains under pressure from a high leverage profile and uncertain long‑term cash‑flow generation.
The short‑seller’s letter highlights a critical vulnerability in Rackspace’s financial structure: a large debt load, negative equity, and a high debt‑to‑equity ratio that leave the company exposed to refinancing risk and limit its ability to invest in growth. The letter also questions the viability of the company’s capital‑light model, suggesting that the debt burden may force Rackspace to shift resources away from strategic initiatives. Together, these factors underscore the importance of monitoring Rackspace’s debt management and recapitalization efforts as the company navigates its turnaround strategy.
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