Rackspace Technology (NASDAQ: RXT) has announced an expected $65-$70 million of new investments designed to closely align the company’s resources with fast-growing product and service offerings.
The investments will enable acceleration of growth initiatives while also providing the company with a more flexible and scalable expense structure.
These new investments will be targeted toward cloud services that are expected to continue to accelerate in the coming years, including cloud migration, Elastic Engineering, cloud native application development, Data/Artificial Intelligence/Machine Learning, and security services. The investments will include new service development efforts, additional delivery capabilities, go-to-market enhancements, and expansion of best-shoring centres of excellence.
In addition, Rackspace Technology will expand its internal training programs to develop expertise in Cloud Engineering, Data Engineering, and Cloud Native Software Engineering. This will prepare existing employees to meet high-demand roles on the company’s fast-growing professional services and Elastic Engineering teams.
The investments will be funded with an estimated $95-$100 million of gross cost savings as a result of enhanced automation as well as restructuring programs to realign resources from mature and declining areas of the market, accelerate best shoring initiatives, and reduce general and administrative expenses. The 2021 impact of these actions is fully embedded in the company’s quarterly and annual financial guidance. Restructuring program implementation is expected to result in total pre-tax charges of approximately $70 million to $80 million in the next 12-24 months.
Kevin Jones, Chief Executive Officer, stated,:“The initiatives announced today will enable Rackspace Technology to take full advantage of current market trends, drive significant earnings leverage as revenue continues to grow, and compete even more effectively with other cloud service providers. In addition, we are more closely aligning our Rackers with next-generation service offerings that offer more compelling growth potential both for them and the company.”
Separately, Rackspace Technology has increased its financial guidance for the second quarter of 2021:
· Revenue for the second quarter is now expected to be in the range of $741 - $744 million, at the high end of the previously forecasted range of $735 - $745 million.
· GAAP net loss is expected to be in the range of $(50) to $(30) million, and GAAP net loss per diluted share is expected to be in the range of $(0.24) to $(0.14).
· Non-GAAP Operating Profit is now expected to be $117 - $119 million, exceeding the high end of the previously forecasted range of $113-$117 million.
· Non-GAAP Earnings Per Share is now expected to be $0.22 to $0.24, compared to the previously forecasted range of $0.21-$0.23 per share.
In addition, the company expects second quarter bookings to be approximately $258 million, an increase of 6% compared to the first quarter of 2021.