Rackspace will terminate roughly 10% of its workforce and rehire a majority of those positions in foreign countries, the cloud computing company disclosed in a stock filing Thursday.
Rackspace employs roughly 7,000 people across the globe, with a sizable portion in its Windcrest headquarters. A spokeswoman for the company said it could not break down that number by location.
Roughly 85% of the positions held by terminated employees will be rehired in the company’s offshore service centers, according to the company’s filing with the Securities and Exchange Commission.
Layoffs have become a regular occurrence at the company in recent years, as the company shifts more of its labor to offshore centers with lower labor costs, such as those in India and Mexico City.
According to the filing, Thursday’s planned terminations and offshoring initiatives are part of a restructuring plan to tilt the company toward “high-growth areas” such as cloud services.
Moving many of these positions to expanded centers abroad is expected to yield $95 million to $100 million in gross annual savings for the company. Those savings are expected to be enough to cover the $70 million to $80 million in estimated costs for severance payments, healthcare benefits, “and other exit costs.”
As part of that plan, the company is also expanding its internal training program for cloud services, as well as investing in automation and other cloud technology.
The company has made a wholesale shift away from its traditional server hosting and toward cloud services since 2016, when it was acquired by one of the nation’s largest equity firms, Apollo Global Management, in a $4.3 billion deal.
CEO Kevin Jones said in a prepared statement the changes would enable Rackspace 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.”
Jones arrived in 2019, the latest in a series of executives the company had shuffled through since Apollo acquired the company.
In his first year, thanks to stock and option awards, Jones made nearly $28 million in total compensation. In fiscal year 2020, he made $6.9 million.
The company expects to lose $30 million to $50 million in the second quarter, according to a press release. That loss, however, takes into account an estimated $744 million in revenue, which would make it the third consecutive quarter the company posted double-digit revenue growth. Rackspace is set to announce second-quarter earnings on Aug. 11.
The company is still seeking to overcome a nearly $3 billion debt accrued through several acquisitions it has made in recent years.
Employees set to be terminated were notified this morning, according to the filing, and will leave the company over the next 12 months.
Geekdom, San Antonio’s tech-oriented coworking space and startup hub, is offering terminated employees a free three-month community membership. “We have the space and resources today for people in transition looking to take their ideas to the next level and even build the next Rackspace,” Geekdom COO Phillip Hernandez said in a prepared statement.
