SAN ANTONIO — The new CEO at Rackspace Technology Inc. sees heavy lifting ahead as the company rolls out its new operating structure and works to regain credibility with investors.
But he’s optimistic the efforts will succeed — and start moving the company back to profitability.
The San Antonio cloud computing company made progress toward those goals in the third quarter as it increased revenue for a 12th-straight quarter, even as its net loss widened. Both measures topped the company’s guidance and Wall Street’s expectations.
CEO Amar Maletira said such performance is important as the company moves into a new era.
“I know we need to rebuild our credibility as a team,” he said Wednesday. “We intend to build a track record of meeting and beating expectations.”
Maletira was named to the top spot in September to push ahead a plan to reorganize the company’s operations into separate business units providing private and public clouds, and he said Rackspace was making “good progress” on the realignment set to roll out Jan. 1.
READ MORE: Rackspace names new CEO, effective immediately. The move comes amid a reorganization of the company
“I remain confident in our strategy and firmly believe we are implementing the right operating model to execute on the market opportunity in front of us,” Maletira said. “We are now repositioning Rackspace for profitable growth.”
But, he said: “We know that 2023 will be a transition year with a lot of heavy lifting.”
Leadership, HQ changes
This week’s earnings report was the first under the new CEO.
In September, Rackspace announced that Maletira, the company’s president and chief financial officer, was immediately replacing Kevin Jones as CEO. The company said Jones, who led it since April 2019, would move into a position with New York-based Apollo Global Management, the company’s largest shareholder.
The internal shakeups drew speculation from local tech leaders about what the future holds for the company and the 7,000 employees known as Rackers. Then last month, it announced it was leaving its longtime headquarters in a former mall in Windcrest that’s come to be known in San Antonio tech circles as The Castle.
The company said it was putting the 1.2 million-square-foot main office up for sale and downsizing to 75,000 to 90,000 square feet of office space on the far North Side.
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The relocation reflects a pandemic-era shift to hybrid and remote work that’s cutting down its need for office space. Rackspace said it had analyzed where its employees live to determine the new location, which will result in short commutes for many staffers and “better accommodate the number of Rackers who work onsite.”
The main event for the coming year, Rackspace said Wednesday, is repositioning itself for profitable growth.
Founded in 1998 as a website-hosting company, Rackspace has struggled to find its place in the growing cloud-computing market.
It first went public in 2008 and eventually lost about 60 percent of its market value amid fierce competition from heavyweights Amazon, Microsoft and Google. By mid-2016, Apollo took the company private in a $4.3 billion deal. Rackspace shifted its business model to begin working with the tech giants to help its customers move their data to private and public clouds.
A Rackspace Technology Inc. employee walks past the company’s logo.
Marvin Pfeiffer, Staff photographer
Between 2017 and 2019, it spent $1.7 billion acquiring four businesses, including Onica, a cloud services and management company; and Datapipe, a managed services provider for private and public cloud customers. It also strengthened cloud partnerships with midsize customers including Snowflake, Datadog, Cloudfare and Platform9.
Apollo took it back to the stock market with a second initial public offering in 2020. Its performance as a public company has floundered.
Third quarter, future
The loss it reported Wednesday was the latest in a long string; its last profitable quarter was early in 2019.
For the three months ended Sept. 30, Rackspace reported a loss of $512 million, or a loss of $2.43 per diluted share, down from a loss of $35 million, or a loss of 17 cents per diluted share, a year ago. Revenue was $788 million, up 3 percent from $763 million a year ago.
It credited new customer acquisition and increasing spending by customers in its multicloud services and apps and cross platform segments for the increasing revenue.
It also forecasted fourth-quarter revenue would reach $772 million to $782 million, roughly in line with analysts’ expectations.
It’s basing its future on the cloud, especially the high-growth public cloud.
“We operate in two multibillion-dollar markets — private cloud and public cloud — and both are growing,” Maletira said. “As I often say, we are in a great neighborhood.”
Public clouds are subscription services shared with customers over the internet. A private cloud is a service controlled by one business or organization.
Rackspace said it must launch scalable services to compete in the public cloud market.
“Going forward, we will not lead with infrastructure resale,” Rackspace said in email Wednesday. “We will lead with higher-value solutions and services in public cloud and with a deeper customer engagement.”
It also said most businesses will continue to move digital information from data centers to either public cloud or hosted private cloud over the next few years. It expects workloads in industries such as government and health care to use the less expensive option of private clouds.
Maletira said the company is positioned to do well in the private cloud market because it has global experience and partnerships with Dell, the Round Rock-based tech giant, and VMware, a cloud-computing firm in California.
“I’m excited to lead Rackspace Technology to its new chapter,” he said. “It is clear that our customers need our help and they want us to win.”
Maletira also announced the hiring of Shashank Samant as lead director of its board of directors. Samant, who has been on the company’s board since October 2021, will also be an advisor to Apollo.
Maletira touted Samant’s experience as ex-CEO of GlobalLogic, a California software development company. Samant, he said, scaled the firm to $1.5 billion in sales before selling it to Hitachi Group Co., a Japan conglomerate company, in early 2021.
“There’s a lot of work ahead of us, and the path will certainly not be easily,” Maletira said. “But I truly believe the actions we are taking will position our business for sustained growth, profitability and success in the years to follow.”
eric.killelea@express-news.net