Cloud services provider Rackspace Technology Inc. delivered to expectations as it posted its first-quarter financial results today, but lower guidance sent its stock down 2% in after-hours trading.

The results were notable because it was the first time Rackspace has reported since undergoing a business unit realignment, prompted by a pedestrian level of growth that has plagued the company in recent years.

The company reported a net loss of $612 million for the quarter, up from a loss of just $39 million one year earlier. Loss before certain costs such as stock compensation came to two cents per share, while revenue fell 2%, to $758.7 million. The results were better than expected, with Wall Street looking for a slightly bigger loss of three cents per share on sales of $757.7 million.

Rackspace was once a provider of public cloud infrastructure services, competing against the likes of Amazon Web Services Inc., Microsoft Corp. and Google Cloud. Because of a lack of funding, the company later pivoted from renting servers and other computing hardware, and instead focused on managing them for customers. It emerged as a leading provider of cloud managed services, helping enterprises to design, build and operate cloud environments on its former rivals’ platforms.

For a while it was a successful model and the company enjoyed a period of strong growth in the late 2010s, but more recently it has struggled to gain traction. Last year, Rackspace executives responded by announcing a strategic review and a search for prospective buyers to take it private. A buyer was not found, but former Chief Executive Kevin Jones was replaced in September with Amar Maletira (pictured), the company’s president and chief financial officer since late 2020.

Following the strategic review, Rackspace ultimately opted to undergo a business realignment, and for the first time it’s reporting its revenue under two new operating segments — public cloud and private cloud. It explained that its previous Multicloud segment has now been split into public and private cloud components. Moreover, its prior OpenStack public cloud business is now included in the private cloud segment. The offerings previously bundled in the Apps & Cross Platform business unit have been reassigned to either public or private cloud.

Rackspace reported public cloud revenue of $445 million in the first quarter, up 7% from a year ago. Private cloud revenue came to $314 million, down 12% from the previous year. Rackspace also reported a $543 million noncash goodwill impairment charge that stemmed from the business unit realignment and subsequent decrease in market capitalization.

Maletira said Rackspace is already seeing the benefits of the business realignment in terms of greater focus and opportunities for further cost efficiencies. However, he warned that the company faces a rough road ahead in the near term. “2023 is a transformation year for the business, and we believe our second quarter will be the trough in profitability for the company,” Maletira said. “However, the secular growth trends in multicloud remain, and we are using this market slowdown to better position our company to capitalize when the market growth rebounds.”

For the second quarter, Rackspace is looking at a loss of between seven and nine cents per share, with revenue of between $725 million and $735 million. Both forecasts were shy of Wall Street’s consensus estimate, with analysts forecasting a loss of just a penny per share on sales of $749.5 million.

Photo: Rackspace