As a provider of software-defined and mega-scale data center solutions, QTS has announced a restructuring plan that allows the company to re-focus 100% of its resources on the two strongest growth drivers in their business and “accelerate value creation for shareholders.”
“We are launching a restructuring plan to position QTS for accelerated future growth by re-focusing our organization around the two primary drivers of demand in our business, Hyperscale and Hybrid Colocation,” said Chad Williams, Chairman, and CEO of QTS. “In addition, by simplifying our business and cost structure we anticipate achieving a meaningful increase in our profitability and long-term value for shareholders.”
QTS’ momentum within Hyperscale continues to build and has accelerated since announcing new footprint expansion opportunities in Ashburn, VA; Phoenix, AZ; and Hillsboro, OR in late 2017. According to the company, QTS’ current Hyperscale opportunity pipeline is four times larger than its pipeline at the beginning of 2017 and QTS is in active discussions with Hyperscale companies on needs ranging from 4 to 40MW.
In order to support accelerating momentum in the Hyperscale vertical, QTS has realigned its salesforce so that its former C1-Wholesale sales team will now focus exclusively on the top 30 Hyperscale accounts. QTS expects a more focused Hyperscale sales team will build on existing execution within the Hyperscale vertical and lead to accelerated leasing and revenue growth.
Leadership Team, Hybrid Colocation
Dan Bennewitz, QTS’ COO of Sales and Marketing, plans to retire in 2018. QTS has commenced a search for a Chief Revenue Officer as a replacement who will lead both Hybrid Colocation Sales and Marketing. Tag Greason, current EVP of Sales will continue to lead QTS’ Hyperscale sales team.
QTS also continues to see ramping demand for colocation solutions, seamlessly integrated with a path to the cloud. Through its software-defined data center platform and strategic partnerships with SDN-enabled connectivity platforms like Megaport and Packetfabric, QTS is able to deliver differentiated Hybrid Colocation solutions, complete with dynamic infrastructure visibility and control.
In order to take full advantage of this opportunity, QTS has removed the artificial cap of 500kW for its Hybrid Colocation (formerly C2-Colocation) sales team, which enables the bulk of QTS sales resources to now pursue all non-Hyperscale enterprise deals. QTS is already seeing success from this realignment, with multiple deals signed and in the pipeline in the 500kW to 2MW range.
Exit ‘Non-Core’ Products
QTS has expanded the previously announced initiative of reducing the scope of products within C3 to focus exclusively on solutions that serve as a direct complement to colocation. As part of this initiative, QTS will seek to exit certain C3 custom products the company has identified as “Non-Core,” which includes dedicated cloud, specific managed services, and colocation revenue attached to specific dedicated cloud customers.
QTS will seek to transition the affected “Non-Core” customer contracts to a strategic partner to maintain consistent customer support. This expanded initiative will reduce the number of cloud and managed services products at QTS from more than 100 to approximately 15 and thereby significantly reduce complexity within the business. In addition, by exiting Non-Core products, QTS expects to realize meaningful operating cost savings and enhanced predictability in the business. QTS expects to complete the exit of Non-Core products by the end of 2018.
Reducing Costs
In light of a narrowed product focus, QTS plans to implement a company-wide initiative to reduce costs within the business across several areas including:
- Rent expense associated with certain leased data centers
- Software licenses
- Communications expense
- Hardware depreciation
- Personnel
QTS expects these cost reduction initiatives will enable the company’s go-forward “Core” business to achieve a significant adjusted EBITDA margin improvement over the course of 2018 with additional margin expansion potential over time.
