Q2 2020 Rackspace Technology Inc Earnings Call

[music].

Greetings and welcome to the rack space technology to Q 2020 earnings call.

All participants are in listen only mode. A question and answer session will follow the presentation Green once you require operators during the conference. Please press star there on your telephone keypad.

Please note this conference is being recorded.

I'll now turn the conference over to you.

The next generation maybe.

Good afternoon, everyone welcome to Rackspace technologies second quarter, but 2020 earnings conference call. We will refer to slide deck. During today's prepared remarks, which can be found on the investor Relations section of our website on the call today or Kevin Jones, Our Chief Executive Officer, and doesn't see not our chief financial Officer before I turn the call to them on.

Slide two you'll see that certain comments, we make on this call will be for booking. These statements are subject to known and unknown risks and uncertainties, which would cause actual results could differ materially from those expressed on the call. A discussion of these risks and uncertainties is included in our S. One registration statement and other FCC filings I would like to remind our listeners that rackspace.

Technology assumes no obligation to update the information presented on the call except as required by law.

But you also informs our participants that our presentation includes certain non-GAAP financial measures certain further adjustments to these measures, which we believe provide useful information to our investors in accordance with FCC rules. We approach provided a reconciliation of these measures to their respective in most directly comparable GAAP measures. These reconciliations can.

I'm in tables included in today's earnings release enter a slide presentation, both of which are available on our website. We will also provide revenue metrics in constant currency when available as a framework for assessing how our underlying business performed.

During the effect of foreign currency rate fluctuations.

All growth comparisons we make on the call today relate to the corresponding period of last year unless otherwise noted after March. This afternoon, we all would be happy to take your questions I'll now turn the call over to Kevin.

Well, thank you Sloan and good afternoon, everyone welcome to our initial earnings call. Following our recent IPO.

Now before we discuss our business and the second quarter I'd like to take a minute to acknowledge how proud I am to be part of such a talented and innovated organization.

When I say, thank you to all of our customers and our nearly 7000 rackers around the world for all that we've achieved thus far and we're looking forward to an incredible future.

Speaking of our future I'll also talk today about how rackspace technology, it's attacking the incredible market opportunity in front of us.

Now on slide four you can see our agenda for today.

I will summarize our second quarter results and key takeaways and Dustin will cover our financial results.

Starting on slide five.

We were very pleased with our results in the second quarter 2020.

Bookings continue to accelerate and increased 107% year over year, driven by both our core multi cloud services as well as our apps and cross platform offerings.

We also had an outstanding quarter with our existing customers as our core net revenue retention for the quarter was 99%, which is up from 98% last quarter.

This was driven by excellent execution in our land and expand transformation program.

Our bookings were strong across the board so geographically across the Americas, EMEA, and a P.J. regions, and especially with larger enterprise customers, where we achieved 121% year over year bookings growth.

In fact, I'd like to highlight two of these customer wins.

Rackspace technology was awarded the largest contract in our history, it's important to Texas Department of information resources overall, I T modernization effort.

Under this contract Backspace technology will provide operational technical and security solutions across the customers multi cloud environment.

Rackspace technology also won a large opportunity with Reds met a multibillion dollar digital health company to be their preferred multi cloud partner.

Under this agreement Rackspace technology will provide migration assistance to our highly automated Ida cloud technology stack and operational support at a broader multi cloud footprint, including Microsoft Azure and other technology stacks.

I should mention that our second quarter sales wins were very broad based.

We had over 7000, new signings across all three regions and all service offerings.

Texas Department of information resources deal was only 13% of our Q2 signings and no other single deal represented more than 4%.

And not only did we beat our overall sales target in the quarter driving growth of 107% or we've also exceeded our sales targets every month for the last 12 months in a row.

We'll talk more later in the presentation about why our sales performance has strengthened so dramatically over the last four quarters and why we had so much confidence and momentum for the future.

Moving now to our financial results.

Our Q2 core revenue growth was also quite strong up 40% over last year on a constant currency basis.

Pro forma for acquisition of Onyx Holdings late last year, our core growth of 7% was also strong.

Consolidated revenue for the quarter grew 10% on a constant currency basis and totaled $657 million.

Lastly on the topline it's important to point out that over 95% of these revenues our recurring.

Turning to profitability.

Our adjusted EBITDA for the second quarter totaled $188 million, which represents a strong margin of approximately 29%.

Which is up year over year and year to date.

This increase profitability was driven by revenue growth and the continued benefit of our transformation programs.

We also continue to decrease our capital intensity.

Which was down 80 basis points to 9% for the last 12 months.

The continued shift to our capital light offerings brought capital expenditures as a percentage of revenues down which positions us well to drive significant free cash flow growth.

Rackspace technology as you know also completed its IPO earlier this month.

As a result, the company and our balance sheet are well positioned to drive long term growth.

Since it is our first to public earnings conference call I'd like to take a minute to re introduce Rackspace technology on slide six.

As you can see Rackspace technology is a transform company since going private in 2016.

Both in terms of our compelling market position in multi cloud services as well as how we strategically shifted the company to capitalize on that opportunity.

Prior to the take private Rackspace technology is viewed as a competitor to the public cloud.

Today, we partner with eight of U.S., Google and Microsoft.

You might wonder why the change.

Well, we're right in the middle of a tectonic shift in the industry to multi cloud with over 81% of customers considering a multi cloud strategy today.

Multi cloud is extremely powerful, but incredibly complex and approximately 75% of businesses need help with their multi cloud environment.

As the leading pure play multi cloud solutions company, we enable cloud adoption and the cloud ecosystem as a whole in partnership with public cloud Hyperscalers like eight Ws, Google, Microsoft and other partners such as being somewhere.

In the past Rackspace technology sole managed hosting and Openstack products.

Since the IPO, we had done for acquisitions that have revolutionized our offerings.

Today, we're a leader in end to end multi cloud solutions.

And this shows up in the numbers.

Revenue from businesses with attractive growth has increased from less than 10% to approximately 90%.

Bookings growth has exploded, which I'll detail in a second.

Core pro forma revenue growth has increased significantly and capital intensity has had to 9% and expected to decrease over time.

Slide seven gives a little bit more detail on our growth trajectory.

It's a new management team join Rackspace technology, and mid second quarter last year. There has been a remarkable shift in performance driven by our transformation initiatives.

We've taken bookings growth from flat to 107% year over year growth in just four quarters.

We've also improved core revenue growth to 7% year over year on a pro forma basis.

And the best part of this is we're just getting started.

Slide eight gives you some insight into just how we did it.

Now first of all I have to say that we are any huge and growing market with secular tailwinds.

That's obviously a big help.

But we've also implemented over 120 transformation initiatives at the company. The vast majority of which are targeted at building sustainable revenue growth.

Just to mention a few of the transformation initiatives.

We doubled down on our professional services and consulting capabilities. This is our tip of the spear for customer engagements in how we began advising customers on their cloud journey.

This was huge in terms of moving us up the stack and influencing customers technical direction and customer spend.

Also we put a much stronger focus on the enterprise part of our market with great success, we are winning big enterprise customers all over the world.

We put in place a management system with detailed key performance indicators and intense cadence culture of accountability and we enforce relentless execution.

We have increased the number salespeople, we're doing bigger deals and have massively improved our salesforce productivity.

Finally, we have a land and expand strategy that emphasizes installed base customer growth.

Remember, we had 120000 customers and we have a huge opportunity to grow rapidly within our existing installed customer base.

So we implemented detailed account planning a new cells education program called rates to when.

Executive sponsor program. It gets all executives into our sales motions and we have improved our sales incentives.

Together these and other initiatives have helped us dramatically improve our sales performance.

By the way we have now recorded four consecutive record breaking quarters for sales bookings and we expect our momentum to continue.

Now, let's talk about how we're setting the company up for the future.

It starts with our mission statement, which you can see on slide nine.

Embrace technology empower customers deliver the future.

Embrace technology means we are always gonna be developing and exploring new technologies and mastering the most important ones for our customers.

Empower customers means we help our customers achieved their business outcomes working with them every step of the way.

Deliver the future is really self explanatory that's exactly what we do for so many customers and we do it faster than they can do it themselves.

It's a short mission, but it's something that people can remember and get behind.

As you can see on slide 10, we're an investment in a pure play into it and multi cloud solutions company.

We unite the cloud ecosystem across all technology stacks and deployment model in a way to seamless and practical for our customers.

By the way, we don't expect multi cloud to remain static.

It's more clouds and cloud use cases emerging years in decades to come we've built the ideal software platform to expand our solutions and be our customer sold cloud services partner for the long haul.

Now if we look at slide 11, you'll see that each decade had one or two technology trends that transform the way we live and work.

When all the way back to the seventies, we had mainframes than Pcs and the Internet and more recently, the public cloud and mobile.

Fast forward to today at the start of the multi cloud era.

On a lot of ways. The multi cloud is the culmination of the revolutions it came before it.

We see it as the driving force for technology innovation for the next decade.

And this isn't just a prediction we're seeing it every day with our customers.

For this reason, we have architected, our strategy and our solutions around multi cloud and where the next wave of technology is headed.

Now there's a question of how do we get here today.

On slide 12, if you look back to the start of the 2010, the public cloud with a new opportunity for group of early Tech leaders and cloud native businesses that were focused on building entire operations and revenue streams in the cloud.

Fast forward to the middle of the decade public cloud adoption increased although a lot of bigger businesses use the cloud largely for development in test environment, not fully taking advantage of all the cloud had to offer.

The things have changed dramatically even in the last few years.

Today businesses are under pressure to use cloud technologies to sell strategic problems build new revenue streams and decrease costs.

Customers need multi cloud solutions to help unlock this value.

Turning to slide 13, so what does this mean for us.

Multi cloud adoption presents us with a huge and growing opportunity.

Customers are well underway to embracing multi cloud technology with over 80% of enterprises, using some sort of multi cloud strategy today.

Customers Love multi cloud, but it is complex and very difficult to navigate.

And customers are being pushed a multi cloud and not just to save money. It's also to grow revenue.

As a result, 75% of enterprises want a services partner to help them get to multi cloud by the end of 2021.

That's up from 30% and 2018.

This is one of the big reasons, we're seeing such an explosion in demand for our services.

Being all together, we're addressing a huge market worth over $400 billion and the trends are in our favor to also take share overtime.

Now the value proposition, we're offering customers as clear.

As you can see on slide 14 businesses are navigating a maze of cloud technologies.

Multi cloud is very powerful but incredibly complex.

In order to be world class at multi cloud customers need to be adept at all these different technologies.

Even if customers could understand all these technologies, which is doubtful that's only half the battle.

Customers also need to understand how all these technologies integrate and work together.

Yes, absolutely impossible for customers to do at scale in a world class way.

That's why customers need us now more than ever customers under extreme pressure to get to the cloud, but the complexity and challenges overwhelming and customers need our help.

So on slide 15, let's talk about how we actually help customers and our differentiated approach to customer engagement, which you can see here on the border of the wheel.

We start with an initial advisory and assessment, then we design and build the technical environments.

Once the customers in a multi cloud environment, we continue to manage and optimize the workloads over the long term.

This end to end comprehensive nature of our customer engagement is a big differentiator for Rackspace technology.

Now, let's talk about our solution model, what you see in the middle.

I love it I, absolutely a door it it is elegant and its simplicity, we have only four offerings multi cloud, which includes public and private cloud application data and security.

We are deep in these four solutions much different than other companies and try to deliver 30 to 100 offerings.

Cloud is all we do we have these four offerings and we are the specialist and what customers want the best they choose to specialist.

Now let me provide some additional color on these four offerings on slide 16.

Our multi cloud capabilities bring a unified approach to the cloud.

With hundreds of products provided by each hyperscaler there are many ways to build and operate in the cloud and that has the customers take or the difference between success and failure.

This is where the expertise we bring makes a real difference.

Our application solutions lead customers through the design deployment and management of off the shelf applications, such as Sep and Oracle and SaaS products, such as Salesforce, all optimized for cloud environments.

We also help customers build new cloud native products, including end to end solutions for the Internet of things.

Our data solutions focused on bringing data closer to business decision makers, we deliver these services using both traditional and next generation approaches including machine learning.

Lastly in cloud security, we offer fully integrated security solutions that provide customers with threat detection analysis and remediation capabilities.

And of course, we've integrated security into our software platform Rackspace fabric to give our customers a centralized view of their organizations vulnerability and threats.

Now in today's environment every conversation starts with the workload the application the data and matching that with the best technology stack and deployment model.

On Slide 17, let me speak to how we built our services ecosystem around this exact thought process.

We are actually giving customers the ability to make those fluid decisions and choose the right technologies for their workloads, whether thats Azure stack HW S, Google cloud or anything in between.

And through our software platform Rackspace fabric, which I'll speak about the minute. We are you 19 cloud ecosystem across all technology stacks and deployment models in a way to seamless and practical for our customers.

Now, let's talk about the proprietary software that enables all of this on slide 18.

We have spent more than $8 billion and 12 million hours of highly skilled professionals time, when our proprietary software rackspace fabric over nearly a decade.

Our IP includes over 200, you need tools and components to deliver our services.

And automation runs deeply here, we had the best automation in the industry by landslide in our competitors have no shot at replicating that.

Just a time and investment alone has no small feat and we plan on staying ahead through leveraging the next wave of technology.

And now let's talk more deeply about why we are winning on slide 19.

We are significantly differentiated.

So let me be very clear about how rackspace technology is different from our competitors.

Talking about these eight advantages that we have.

We had the highest automation the industry as we discussed earlier and customers love that because it provides them with speed agility and high quality.

And we are focused on widening the gap between rack spaces automation and the rest of the field.

We have standardized operational processes, we have by far and away. The most standardization of any company in our industry.

After decades of cumbersome customization in error prone processes provided by our competitors our customers demand standardization and Rackspace delivers.

We leave with our software Rackspace fabric, which is supported by nearly a decade of investment.

We are famous for our fanatical customer experience.

Is built into the DNA of the company 20 years ago and customers continue to site, our outstanding service as why they buy from us.

It is evidenced in our net promoter scores and our renewal rates.

We serve our customers across the entire multi cloud lifecycle, providing end to end solutions customers crave, a single provider for their entire cloud lifecycle that is rack space technology.

We continuously improve our solutions with our customers always proposing ways for our customers to save more money and innovate faster.

This is much different than our legacy competitors, whose protection. This mindset has driven customers away from them.

We are actually helpful. We transform customers to the cloud that is how we engage.

We deliver at scale, serving more than 120000 customers in over 120 countries and growing fast.

And finally, we maintained strong and longstanding relationships with our technology partners.

You asked Google, Microsoft Vmware and others. This is a huge strategic ship Rackspace technology and is much different from our competitors.

Our partners are deeply integrated into our sales operations and solution organizations.

This is differentiated from our competitors, whose partners are typically relegated to organizations more like an appendage to the company and not core to its operations.

I personally spend 15% of my time with partners and we are lined up with our partner sales leaders and our partners go to market teams all over the world.

So to summarize here, it's great to have such a materially differentiated company and it is showing up in our sales and revenue numbers.

Slide 20 is my last slide before I turn it over to Dustin.

Just taken a step back and looking at where we are sitting today covert 19 has had a massive impact on our lives as it relates to our business. The pandemic has actually accelerated years, a digital transformation and made it clear to our target customers and having the right multi cloud strategy is no longer a nice.

Just to have.

We are slammed with demand from customers motivated to move to multi cloud environment to save money.

Scale up and scaled down and pivot to new business models.

And while Q2 was clearly strong we're already off to a great start in Q3.

We again smashed our monthly sales target in July making at 13 months in a row, beating our sales bookings plan.

We are excited about the sales momentum thus far in Q3.

Related to our business performance during the pandemic I should note that we have a diverse customer base with zero customer concentration risk and importantly, we're able to deliver our services remotely.

99.5% of a rackers have been working from home since March night.

We have a robust financial profile with strong profitability and liquidity available now more than ever we are confident of the resiliency and sustainability of our business.

With that I will turn it over to our Chief Financial Officer Duston Seamap take you through our second quarter results in more detail.

Thanks, Kevin Good afternoon, everyone as Kevin just mentioned, we're very pleased with our Q2 results I'd like to Echo our appreciation to all the investors and analysts for your support during our IPO.

We look forward to working with you all the quarters nears the club.

We turn to slide 22, let's start with a snapshot of Rackspace technology today, we generate revenue of over 2.5 billion annually over 95% of which is recurring as Kevin mentioned before the recurring nature of our revenues a metric that we find to be highly differentiated amongst services companies.

Yes, Kevin and I joined the rack space technology in mid 2019, we've seen our topline growth accelerate to 7% versus zero percent or flat at the time of the take private in 2016.

And finally, we have a robust margin and cash flow profile with annual adjusted EBITDA of close to 750 million in a profitability profile that same capital intensity has been cut in half to 9% nearly 20% just a few years ago.

Our continued shift a capital white offerings, where we leverage our partners for new product innovation is driving this trend and ultimately will continue to expand our free cash flow generation as well.

On Slide 23, let me summarize our Q2 results across our four key metrics.

First on the upper left you can see 107% growth in our year over year bookings. Additionally, we would note for your models that we typically see a one to three quarter lag from bookings to revenue recognition.

Second on up rightly against your revenue growth, which would trend similarly to our bookings growth overtime.

As we move to adjusted EBITDA I'd like to point out their EBITDA growth will be somewhat slower than revenue growth in the near term given the mix shifts in our revenues that said that impact could be more than offset by the rationalization dock were expensive leveraging of partner R&D and lower capital intensity.

In sum, we expect EBITDA margins for our business to be in the 20% to 29% range in the near term.

Lastly on the bottom right you can see the year over year progression of our capital intensity, which is our capital expenditures as a percentage of our revenues.

As you can see our capital intensity declined 9.4% in the second quarter.

For the same mix reasons that compressed our EBITDA margins.

This is a good problem than we'd like to emphasize that the end result of shifting to a more capital light revenue mix in multi cloud services will drive and compound or cash flow in the years to call.

On slide 24 like to take a second the detailed kevins point about the strength of our bookings momentum in the past year.

In addition to 170% year over year growth. We're also showing the dollar volume we are generating by quarter and you can see a meaningful the ramp is really in creating value for rackspace technology.

As Kevin noted the groundwork we have late with some of the items mentioned on the left hand side. The chart will pay increasingly large dividends over time as we continue to capitalize on the multi cloud opportunity and drive significant top line growth.

If we turn to slide 25, let me detail our segment revenues.

Our three main segments are multi cloud services applications and cross platform and Openstack public cloud.

The combination of multi cloud services and applications across platform represents our core segment due to the strong growth in our core segment coordinate our presence over 90% of our business, making openstack, a smaller and smaller piece of our overall portfolio.

I will detail each segment and start on slide 26, with our multi cloud services, which accounts for the line shares of our revenues at 79% of Q2 revenue.

In Q2, we grew these revenues by 16.2% on a constant currency basis.

As Kevin noted the growth was driven by strong performance and broad base impact of bookings growth.

Lastly, Kevin is also noted our net revenue retention continues to be very strong at 9% for the quarter.

Also for Fourq, you're in the ROE Rackspace technology was named a leader in the Gartner Magic quadrant public cloud infrastructure professional and managed services worldwide.

Let's now turn to slide 27, and speak to our absent cross platform revenues.

Which accounted for 12% of overall Q2 revenue.

In general these complimentary services tend to grow in tandem with our multi cloud services, but for the Q2 segment grew just wanted to have points on a constant currency basis through the completion of larger projects in the prior quarter.

Well, the Texas Department of information resources deal coming online in Q3, we expect this growth to reaccelerate throughout the rest of the year.

Lastly on slide 28, you can see the our legacy Openstack revenues, which now represent just 9% the base will continue to shrink overtime as we grow multi cloud in fact revenues in the segment declined 21% on a constant currency basis compared to Q2 of last year.

Now, let me turn to slide 29, you can see that Rackspace technology is very well positioned to augment our growth and add value based on our balance sheet post IPO.

As you can see on here. We are currently have no meaningful debt maturities before 2023, after raising 658 million and proceeds from IPO, our lever stands at 4.3 turns.

I guess, our trailing adjusted EBITDA.

Our attention longer term is to reduce our leverage to a target range of three to three have times, but also offered the highly recurring nature of our revenues allows for leverage to be applied this model.

Additionally, we have available liquidity of over 161 million as of quarter rent.

Last point I'll make here as we believe there's ample opportunity to lower funding costs over time, given the highly recurring nature of our cash flows and our improved leverage profile.

As you can see here through our de leveraging with the recent bond tender you have already save nearly 44 million an annual interest expense.

Well be sure to update you as we announced progress further on this front.

With that let me conclude on slide 30 by reviewing three concepts I just spoke to them putting them in the context of our near term outlook.

First as kept an eye. Both mentioned there is a long runway for topline growth it's business as we're the best position company to capitalize on a multi club.

As we look out of the near term. We currently expect full year 2020 consolidated revenue growth in the nine to 10 point range, which implies ramping growth over the second half due to strong performance of our bookings in the first half.

Additionally, as you can see on the second wrote the growth is predominantly driven from our core segment, which includes our multi cloud Napster Cross platform segment, where we expect 30% growth at the midpoint for full year 2020. This implies that the core revenue growth will grow 10% or double digits on a pro forma organic basis in the second half of 2020.

As we noted this mix shift should drive slightly lower EBITDA growth as our multi cloud services business has lower EBITDA margin, but as more capital efficient it will drive improving cash flow.

To that point in the middle the page our expected adjusted EBITDA for the full year 2020 in the range of 756 to 760 million, which represents a growth of 2% at the midpoint compared to 20 I think.

And lastly at the bottom of the page we expect our results will generate adjusted EPS in the range of 75 to 81 cents imply 11% growth in the second half of fiscal year 20 over the first half.

With that let's turn to questions operator over to you.

At this time will be conducting a question answer session if you'd like to ask a question. Please press star wondering your telephone keypad contribution Tony will indicate your line is in the question Q.

You May proceed starting to she would like to remove your question from the Q.

For participants using speaker equipment and may be necessary to pick up your hands. It before pressing the star keys, we do actually an all participants asking your question. Please limit themselves to one question as well the one follow up question.

One moment, please when we pull for questions.

And our first question is from.

Other verine with Goldman Sachs. Please proceed with your question.

Great. Thank you guys for taking the question and congratulations on the IPO.

Just wanted to follow up on one housekeeping question and then I had another question first they didnt seem to be a cash flow statement that came out with today's results. So just wondering.

When we're going to get Bob and then the other question just has to do with if you could give us a sense of obviously you guys are very well positioned.

In the market and courage accelerating the movement to the cloud, but can you talk to us a little bit about the deal closing environment I'm just pipeline generation environment in light of Colgate and kind of how you've seen that evolve over the course of the last three months and how you're feeling about it exiting the quarter. Thank you so much.

Sure and other just this is doesn't seem like speaking I'll answer. The first question is around the housekeeping item and then Kevin if you want to turn over and talk a little bit about how you see the cells performance.

And in light of all that's going on in the marketplace. So the first question is our 10-Q was also filed is about honest about 30 minutes ago kinda right out to kick off the call and there's a cash flow statement within the 10-Q, but address your questions and then and then or whatever else you have left over from that I can also handle with uniform.

Oh relates to the catalyst.

Perfect. Thank you, yeah, and Heather had there. Thanks for your question related to the pandemic and how we see on business and pipeline progressing.

First of all say you know as as we've discussed the.

The pandemic really you know had no negative impact on our business to the contrary we saw.

Fantastic performance we saw.

After we pivoted to work from home environment, which we did flawlessly in March we saw productivity increase we saw customer satisfaction continue to improve and we saw sales momentum accelerate quite a bit and even you know in the last month, a month or two we've seen continued acceleration.

And our sales results and pipeline you know we've seen pipeline continue.

To be very very strong.

And the reason is because you know now more than ever customers want to save money.

They want to be able to.

Scale up and scale down and pivot to new business models and multi cloud is perfect for that so we're excited we're pretty slammed with demand right now we don't see that stopping anytime soon were so we're super optimistic Heather.

Great. Thank you so much.

Thank you.

And our next question.

His from 10 seeing Wong with JP Morgan. Please proceed with your question.

Thanks I appreciate the presentation is helpful and of course, congrats on the IPO as well just a follow up on Heather's question I just wanted to ask a little bit more on the quality of the pipeline I get that your slammed then it continued into July but anything to add in terms of the trends in the pipeline to be larger deal sizes new logos.

Just trying to give a little bit more on bookings sustainability visibility of course.

Forget I'll kick off in the dust and you can jump in as well first of all thanks. The question 10 cents good to.

Good to hear of waste look we you know, we see really strength being very broad based so we see it across all three regions Americas, EMEA and our Asia Pacific in Japan region, whereas you May know, we've expanded geographically quite a bit in the last year.

Once and that's really because multi cloud is now catching fire all over the world and were or were there to to make sure we can capture that demand.

So we're seeing it we're seeing a broad based from a geographical perspective, we're seeing a broad based also from a.

Service offering perspective across multi cloud and application security and data and then finally, we're seeing it pretty broad based.

Across our customer segmentation, so across small business medium sized business and enterprises I will say you know we have to differentiate at all I would say we're seeing.

More growth in the enterprise.

Customer market, we're winning big deals all over the World, which is great news for you know for for Rackspace technology, because that can drive even more incremental growth so very broad based.

Really really excited about it and I'm looking forward to capitalize on dust anything else dad, Yeah, just as a follow up on the two two points. One is you know from that mix that you are talking about from installed base as well as new logo very healthy mix. There I think state of Texas is demonstration of an example of that and then if you look at our actual core net.

And your attention how that stepped up a point or to quarter. As another example by the strength of how it's affecting our installed base what should we expect that trend to continue as we get throughout the rest of disappeared.

Got it not as great. So just my quick follow up with with Texas, I know its little bit larger than than usual and you don't have a lot of other sort of concentration beyond that but anything to comment on in terms of.

Contract execution risk given that the larger size on that one or just in general your ability to implement deals virtually here are you in a good rhythm.

With that and if you don't have actually quick follow them getting this question from emails just can you give us doesn't the organic.

Bookings growth in the second quarter. It if the sorry, if I missed that thanks.

Yeah sure I'd say, it's two things one as zero concern about contract execution right zero issues delivering in a remote environment right. So just get those two off the bat I mean, if anything what we've seen is actually our customer satisfaction scores actually increase throughout fiscal year, 20 really to kind of it and as a ways a proof point for that and then the last was you have come back to what was the last question on.

Just the organic decking, yeah, yeah, so although organics booking piece of it think of it is roughly 107% for the quarter, and then 66% or on a pro forma organic basis.

Yes, just some more color some more color Tencent on on Texas I.

I just met with the state of Texas last week. They are very happy with our performance we're off to a great start.

Really really excited about that relationship and continuing.

To execute extremely well and like doesn't said we're in a group.

Complete group with how we deliver a remotely been doing it now for.

Five months and we don't see any problems at all.

The other thing just to kind of think about a is that our you know our services are very standardized. So this is not.

One of those organizations delivers a lot of custom type services, there just standardize their.

Pretty straight forward and we've got you know the best I think the best operational and delivery teams in the world.

Good stuff thanks.

Thank you.

Our next question is from Dan Perlin RBC. Please proceed with your question.

Thanks, guys and again, congratulations on jumping off with a good quarter right out of that rather gate.

A question I had.

Was around the quarterly revenue retention ratio you talk about it stepping up about 100 basis points here. So that that's good to see.

Well, we get the question a lot about how how you guys are thinking about driving that above 100% and kind of whats the target range that you're shooting for there and then maybe just making sure we understand the key components that are going to drive that is it is it mix from smaller Smbs enterprise.

Is it the type of client work that you're doing so anything there would be helpful. Thanks.

Hey, good so dust I'll kick off and then you can you can jump in as well look first of all thanks, Dan We're really excited about.

This opportunity to.

To continue do.

Improve our customer retention it was great to see it move up full point and one quarter and we're excited about momentum in the future as well and really how we plan on continuing to drive that are through our systematic transformation programs. So we've got many transformation programs really dedicated to.

Continuing to retain renew and and actually add additional sales to our existing customers.

No just think Dan we've got 120000 customers today. So we put major major focus on kind of growing our business with those existing customers new initiatives that we kicked off over the last few quarters include account growth planning so doing account growth plans for our customers. We kicked off a sales education program called rates to win.

And so a thousand of our rackers, which are in customer facing sales and.

Customer success Rolls are taking that training. We just finished the first phase we're planning actually to finish it today I'm actually teaching you know a rackers in detail about how to up sell how to cross sell and that's a very very early innings. So we're excited about that all the work that we've done around a rewards and rare.

Ignition the the incentives and the metrics, we put in place and with a roughly thousand kind of customer facing records is going to help at all we think customer segmentation work. There's a whole list of things that the team and I are managing personally to make sure. We continue to drive that customer retention rate and the right direction.

And then just a follow on to that point, I guess, specifically about kind of where we see it heading in the short term, but they were going to get it above 100% and very quick fashion.

But as long as particularly in the core and know what I've got 100% above and talking about in the core segment and then longer term, we're still trying to figure out what the right mixes and you know in terms of how that's going to flow through from to between new logos install base, but we see there's significant momentum an opportunity for this to could tied to continue to move up into the right.

Great.

And then as a follow up I'm.

Getting back to bookings and translation into revenues any talk about one to three quarters, but embedded in that can you maybe give us an update on what you're seeing in terms of no kind of customer churn and then the roll off that's expected on some of the maybe more nonrecurring professional services that are in embedded in the business and just how that might be playing out.

I know you've got this kind of rate of change with well Openstack and I'm. Just wondering are you able to be finding that you're able to maybe retain some of the slides but are you might have thought originally thank you.

Dan Yes, great question to get out I'll take this one first and jump in if you know when you want and so a couple of things I'll tell you. The first off when we think about a more broadly the metric that we're really focused on is net revenue retention. The metric. We just talked about right, which is that combination as you mentioned of different variations of charm, but keep in mind, we offer a number of different or Brent.

Offerings and turn characteristics are different across the boards is difficult and very consistent way to manner manage measure that across a across the board on other side of it we have installed base bookings.

Which is kind of the net effect of that it was leading to that overall, 9% retention number that we talked about on a core basis.

And again, we're continually focused on managing that and then other pieces. As you mentioned is the non recurring revenue. These associated professional services now while there could be some lumpiness when projects come off and on more broadly that's an area. We talk about 5% of our business. So what I, 95% revenue recurring model. Another five points is an auto you know not recur.

Ladies and while there can be somewhat peanuts in general that business is more broadly is growing and we'll continue to grow and over the next over the next year in that years ago.

I think that's really good I would just add here Dan you know were.

You know when we think about our growth drivers. There there are many in their material right. You think about multi cloud adoption. So as our existing customers continue to rotate more and more workloads into the cloud right, which is happening.

And then we upselling data and performance analytics as well as some of our application services, there's massive opportunity within our existing.

Footprint to to expand our technology footprint, and just grow workloads and general.

The other ways to think about growth drivers, just leveraging and expanding our partners you know the hyperscalers as well as you know 3000 other partner. So we've have continued sales execution.

Very early innings here around sales execution.

And then geographic expansion is kind of the other way to think about a particularly for enterprise and global customers, which.

We're seeing a very rapid acceleration.

Excellent. Thank you.

Thanks Stan.

Our next question is from Matt Cargill with Credit Suisse. Please proceed with your question.

Thank you.

I wanted to dig a little bit another big wins, you guys haven't like or do you guys in Texas a couple of times. Just wondering if you talk later about what the ramp of those deals into revenue looks like from here and then maybe just more broadly whenever you touch on how important larger deals RG your growth trajectory going forward and just how we should think about the margin performance there versus more.

The run rate business.

In the other part of your mix.

Hey, Kevin I want to jump in here any will jump into that one and then I'll yeah, yeah, absolutely. So a couple of things.

Good good to hear your voice again, so the first thing I'll tell Ya as we talk about that one of the three quarter lag. When you think about the state of Texas that deal was a larger deals going up so somebody on the far right that spectrum, where it takes a couple of orders for that you'll overall to blend into revenues, but keep in mind as it ramps. So it's not that it takes three quarters than we implement day, one and then it starts it actually take.

Thanks, you know that time the contract ramps over time, you recognize revenue as you go do you think about a full year contract. What it means is it takes one three quarters free to be billing on a monthly basis that whole effectively that the full annualized version of that contract divided by 12.

So the next point around is our growth dependent on larger deals, it's actually not depended on larger deals and that's one of the what we're trying to express when you see overall bookings performance as we mentioned before under 7% growth, 66% organic all stay of Texas is a portion of the organic this is not an overwhelming large portion.

Most of the growth came from broad based impact on overall bookings from all different types of offerings and different types of deal sizes. So we'd like to think of you know as larger deals as an accelerant that really amplifies our growth, but it's not necessary for growth in itself, yes, I would agree.

Sorry go ahead does and then last point, then I'll make it just hit into the third piece of your question around the margin profile is that a you know and these larger deals we actually don't see the compression.

From a margin perspective, we get this question you know oftentimes in across the board I think is due to the standardized way, we sell and the standardization of our offerings and Thats protection from the customer and even buying in the very standard way does a lot to protect their overall margin profile the deals in upper pretty consistent across segmentation as well size.

I think Thats, well said I'd also add Matt.

As we is that kind of talked about my opening remarks, we had 7000 deals that we signed in the quarter. So it was a.

Pretty a pretty broad based sales effort for sure.

Texas DIY, our you know 13% one three so not you know not not significant.

This customer concentration and say it now they're getting an enterprise market is it's definitely not something that we're concerned about because we do just have such such incredible diversification and that's that's much much different than other companies in our industry. Because we are so diversified it really allows us to play offense and go after some of.

Some of these bigger deals so we're not at all concern a customer concentration getting into the enterprise market is incredibly exciting for the team and one of the reasons is because of the operational leverage we have by getting to this market right. That's one of the key things about our financial thesis that we've talked about quite a bit.

As we get into these larger deals we planning they are profitable and there.

Because we deliver them not with a labor base model, but with a software enabled multi cloud model. So basically the same standardization the same automation that we've got.

In the broader book of business that we manage is what we are now applying to the enterprise Mark So just fantastic opportunity for us going forward.

Got it and then for a follow up Kevin you mentioned your prepared remarks, they cover the accelerated a a few years worth of cloud adoption I guess it sounds like momentum carried well into Q3, so far but I guess running that forward a little bit. It's as we get into 2021 2022, just curious your perspective on how that dynamic played out.

Then if you think we stepped up to a new base in terms the adoption curve or if there's risk that we've brought forward some of that adoption, which means you know there's kind of becoming digestion period that we need to be thinking about at some point in the future.

Yeah, Yeah. Thanks, Great question and look here's how I hear so I kind of think about this we've definitely seen an acceleration in.

The move to multi cloud, but when you just think about multi cloud multi cloud is still in its very very early innings.

And you know you don't hear a rackspace technology, we're very focused on kind of staying ahead of that part of the market now my prediction kind of long long term is that the ecosystem will continue to get more complex and that just benefits us even more you know the specialization.

Occurring the preferences that customers are developing are becoming kind of more and more detail more and more specialized which just breeds more and more complexity and.

That's another reason that we are so so busy right now so slammed with demands because that complexity is already increasing and there's no way that complexity is going to decrease over time rice is going to continue to increase so when I kind of think about alright, where where's innovation heading where's the PUC going ahead and future multi cloud many years to run but then.

Also as the ecosystem gets more complex, we see opportunities with some of our fastest growing offerings such as artificial intelligence machine learning cloud native application development Internet of things edge computing, that's really.

Where we see a lot of the future growth and we're very well prepared to capitalize on that.

Okay Matt.

Our next question is from Bryan Keane with Deutsche Bank. Please proceed with your question.

Hi, guys and congrats on the on the solid start here I wanted to ask about the margins you know the question I get the most is thinking about the mix shift you know how are you guys able to keep EBITDA margins pretty stable yet you know the gross margins moving more towards multi cloud.

More towards public cloud are gonna be pressured there just trying to reconcile those two.

Hey, Brian you got doesn't here again, thank you.

For the question in a couple of things I'll tell you first off you know what you pointed out is is that any you look our guidance, which reflects as well as a point you to EBITDA, the what you'll see and moving from here is the kidding, you step up sequentially as well as year over year similar to what the result, we hadn't Q2, that's number one number two you're correct. We are going through a mix shift and then.

Does have some structural pressure on another overall margin mix, but just to keep in mind. One thing is is that the free cash flow dynamics between those offerings you know within whether its multi caught up cases et cetera are comparable right and this is really that that structural mix you're talking about is really reflective of just this mix shift from capital intensive.

Capital light offerings right, the second pacing, Kevin alluded to it a little earlier, particularly on the go to market side is is that we set up a number of transformation programs really designed to extract value out of the business as we go through this this mix shift we've been able to do a very successor, the past year and similar to our adoption in the demand we're seeing a multi cloud. We're also in the very early innings etcetera.

Special programs, where you see there's significant opportunity they continue to take value out of the business as we work through that mix shifting into a structural long term margin profile of going from here and so where we expect that through the God. This pressure to exist, but we'll continue to offset it with these programs across a wide 20 and indefinitely 21, yeah I would agree.

Brian and I would I would add look you know we recognize that.

Yes, there's some pressure in that gross profit line were delighted that you know adjusted EBITDA was up quarter on quarter in year over year right. In this quarter as Justin mentioned, we've got lots of lots of transformation programs in place and we're confident we'll be able to grow profit and grow free cash flow.

Over the long term so very high degree of confidence there and you know we'll continue to.

To deliver.

Got it and just as a follow up I know on it because it's been it really successful deal for you guys just thinking about the M&A pipeline.

And thinking about are there other deals out there potentially you guys could add to supplement the portfolio as well. Thanks. So much yeah, Yeah, Let me, let me kick off on that and dust and you can jump then well thanks for that we've been delighted with the on it can deal look.

Brian when I kind of think about growth at the company I really think about it in three different buckets first of all the industry.

We're in a 400 billion dollar industry with a tectonic shift to multi cloud in our industry. So we just benefit from tremendous secular tailwinds. That's that's part one part two is organic growth. We're obviously crushing it from an organic growth perspective excited to continue the momentum with our sales.

Execution or 120000 customers and all the new logos that that we're winning and then you're absolutely right. The third part is M&A and if you look at the M&A component to overall strategy. The company, it's been pretty profound right you think about over the last few years, we've acquired four companies they completely.

Revolutionize the solutions in the offerings to our customers.

The latest being honest and on ACA has been spectacularly successful it helped us move up the stack with our customers helped us provide more professional services more.

Non native application development more application modernization capabilities internet of things and those types of capabilities. So going forward and M&A will continue to be an important part of our strategy and the great News is and we haven't integration playbook, we haven't integration center of excellence really optimistic we have a pipeline of deals.

And we'll be well obviously be very.

Thoughtful and judicious about the deals given the work that were duston team are doing on the capital structure, but.

But they're great companies out there that can expand our capabilities and also we'll look at areas of hyper growth that's kind of how we think about M&A.

Great. Thanks for taking the questions.

Thank you yeah. Thanks, Brian.

Our next question is from Ashwin Shirvaikar with Citi. Please proceed with your question.

Thank you Hi, Ken I Duston, congratulations on on this first call.

I want to kick off it to asking you about about sales head count and productivity. Obviously, when you think he got David hugley load a year ago.

That was followed by that could happen.

Look like a 13% year over year increase in sales head count are you still hiring rapidly or have you shifted more to a focus on.

Sales productivity and what are the metrics, we can externally track.

<unk> percent of course that he had Irish and could you talk to that.

The the quick add on to do that is you guys had just literally one line on July strength can you can you build on that please.

[laughter].

[laughter] dust newest start with some of the sales and productivity and metrics, yes, sure and so the first one ashwin on this has had sales headcount. So we think about this particular you know this this this particular year, we have made an investment in sales head count, particularly towards the end of 20 2019, as we head into 2020 keep in mind that was like.

Your point is roughly 10 points. The overall increase in bookings the rest of it actually came from the portion that we talked about in terms that we use the more productivity, but I would think about a more broadly as self performance and sales execution and some of its the strategic decision is that Kevin alluded to earlier around things like targeting enterprise area, which naturally just something bigger deal sizes.

Not necessarily working people more but putting our dollars to better work through some of these other different another strategic decisions that we made.

And says we think about going into next year, we're absolutely going to continue to invest in growth and that's part of the reason why probably transformation program and using that on our ability to button investment in targeted areas and that's exactly well, we'll do what I mean by investment in terms of fee on the street.

Second to that we still expect continued performance as we go into next year and that the bulk of the performance will come from you know from the strategic decisions. We made an overall go to market strategy, rather than just having to deploy additional SG $9 they get to get incremental bookings.

He gets well said and you know all add.

I'm asking were really.

You know excited that we're you know, although we have made a lot of progress and we've got momentum you know the best is really yet to come in terms of the the sales transformation in the sales execution items adjusted alluded to I went over several of those programs earlier, there's there's many more programs all over the world related to year geographic.

Expansion all the work that we're doing with eight of U.S., Microsoft Google Vmware and others on co developing new products and new solutions that we kind of co launch together.

We've got new go to market partnerships with our partners as well, we've got a whole load of demand creation activities that are just kind of catching up catching on or the very early early days and by the way all the salespeople that we've recently hired they are going to get more and more productive and more and more energized every month that goes on so kind of all those things.

Yes together.

You know make me very very very.

Excited and optimistic.

And in terms of July you know really not a you know not a ton more to add about what we're seeing on the sales side you know we smashed our monthly sales target again in July you know, that's 13 months now a beating our sales bookings plan month over month over month right in the process of closing August as well.

So so we're excited about that we havent seen.

Any slowdown at all to the contrary, we just continue to see acceleration due to this tectonic shift in multi cloud and the transformation of our company.

Got it and then the second question was with regards to.

You guys, obviously tough because a lot about capital intensity coming down into business.

Can you speak with a couple of other factors that that help but free cash flow say for example, working capital efficiency and changes that you're making.

With regards to collections and.

As bad as you mentioned briefly.

Book and ship for debt key file and my sentiment Misty.

Implication data the timing that you might have mentioned.

Yeah, absolutely. So overall, we're always trying to figure out ways to continue to drive free cash flow up and to your point working capital is another one of those examples in there's a couple of different things first off even if you go back to 2019, we do have any our securitization facility that we put in place.

Step number one step number two is.

As part of Cobot 19, while Kevin really focused on into the cells aspect in delivery aspect and then aspects that affected overall workforce, while the other areas that as many companies were concerned about was liquidity at the time and ensuring that we're in the best way possible, we really strengthen our working capital management across the entire company. Our collections are the highest they've ever.

Ben and they continue to be for quite some time, even beyond the whenever we never struggled again, whether they actually went the other direction, where we really strengthen that reduced our dsos as a result of that and as we've seen a significant uptick there I would also does just say just take a more but is it in general the way we structure, our invoicing ashwin et cetera is that it already has structurally very low deal.

Those relative to a lot of other many of our their peers that what have you can see all patients into the 80 90 days where for over two thirds of our business or is it roughly 30 day range and then on the debt refi side as well as taxes were always looking for ways optimize around cash taxes as number one. So we're so we're looking for ways to do that as for the remain.

Under of 2020, then getting ahead of 20.1, and then for debt refine that is an area, we're going to cost. They look at our balance sheet costs, you look at our our capital structure make sure that we have the that most often we structure in place and from an overall cost of debt well continue to do that as soon as they get passed this tender offer. That's the ended that is in process right now as we as we speak.

Understood.

Thank you guys.

Thanks Ashwin.

Our next question is from Ramsey dealer, so with Barclays Investment Bank. Please proceed with your question.

Hi, guys and thanks for taking my questions night.

I was wondering if you could comment on some of the media reports about a potential Amazon investment.

And I guess, even just sort of hypothetically.

Uh huh.

In terms of gaining an investment from one of your Hyperscaler partners, how do you sort of balance that with a with the neutrality and objectivity that I guess your customers probably value.

Hi, Ramsey Kevin here. Thanks for the question. So look in terms of the the media reports.

From a couple of weeks ago look is a policy, we do not comment on media speculation.

What I will say is eight WSA fantastic partner of ours, along with Google, Microsoft Vmware and over 3000 other technology providers. Our sales teams R&D teams are lined up all over the world. We we grow together we go to market together, we sell together with our partners and that's integrated.

Deeply.

Into our sales teams and our research and development teams and look at a cornerstone of our strategy is collaborating with our partners. It's been a really really big factor in driving our success. So we're going to.

And we plan on continuing that strategy.

In the future and offering our customers the best.

Technology solutions for their particular needs.

Got it okay and I wanted to follow up I think it was on tendons that really question about the Texas I keep modernization a win.

Can you talk about your broader exposure to government.

The government sort of channel and whether or not to what degree you're already there and to it and to what degree a win like this sort of opens the aperture a little bit too to maybe a winning other government deals.

Yeah, I'd love to talk about that's a great question Ramsey, It's one of my most most favorite topics so looking at it right.

Yeah, I you know I look I've got almost 30 years of public sector customer experience. So I I really do like the public sector market quite a bit. It's it's an area of the market that you know for Rackspace technology, we are very new so there's massive opportunity and what this when did for US is it absolutely put us on.

The math for the biggest solution biggest cloud and solutions deals in the industry and so.

We are we got a fantastic leader for our government business, Rick Rosenberg, he's extremely experienced in season and he.

In his sales leaders are.

All over a all over the country with a really nice pipeline of future deals so more to come there. It's a it's a huge area of upside for us by the way. We've also got the same situation in EMEA and Asia Pacific in Japan.

We've got extraordinarily kind of a experienced executives and both of those regions as well that are.

I have got decades of experience land being really really significant size.

Public sector deals and as you know and the public sector. Once you win a deal it can be extraordinarily.

Not just.

Great for.

Capability and profitability in the company, but it can be very sticky business as well that sticks around long term, so that business for us grow significantly and it'll be a good growth engine for us going forward.

Got it alright, thanks a lot.

Thank you.

Our next question is from Keith Bachman with BMO. Please proceed with your question.

And keep your line is their open.

Yes, sorry about that I wanted to ask about multi cloud and the capital light strategy.

And I wanted to ask about the means and what I mean by that is when you think about the amount of business.

Currently being process are generated by your data centers versus partners, where does that stand today in terms of how much you're leaning on partners and how do you think that changes over the next say 12 to 18 months and then I've a follow up thank you.

Sure Kevin Let me jump in here, Yeah, you would take that one yeah, a couple of things Keith we think about it one is.

When we think about the business overall first off you know were we don't break it out in the sense between what we think about the business and our data centers and the business and Hyperscale data centers and keep in mind now that across our partners. We have offerings that really sit in both and so if you. If you focus on one of the charts that kind of went through we've talked about the four key text.

Tax what you'll see is whether it's a ws vmware GCB or even azure yet products really now there are being sold and a that since our data centers. You. Another bucket example, they give us outposts or Microsoft Azure stack and vice versa Hyperscalers as it was important for US is that what you see as hyper growth across.

Capital light and so we're not we're not focused so much on you know our we actually selling into our data centers are leveraging hyperscalers really come we really come from a customer centric perspective, where when we when we are the reason we organize around this multi cloud solution is that when we talk to our customers. We let the customers need really dictate the outcome and so that particular environment those protect.

Applications that particular workloads that will ultimately dictate the solution that we sell and then and then ultimately dictate the deployment model, whether it's in our cable our datacenters or Hyperscalers data centers.

You got well said I would just Oh, just add to that Keith I mean, this is one of the beautiful thinks about the strategic shifts that we made to partner with our hyperscalers into more deeply.

Integrate our development of solutions with our other 3000 partners right. So so really what this has allowed us to do is it's allowed us to leverage the billions and billions of dollars that our partner spend on R&D as well as her own R&D and that allows us not just to be more efficient.

Which we are but it also allows us to innovate much much faster so it's a great combination.

Great. Thank you and then my follow up deals with I want to come back M&A first second and just how do you think about it is.

Balancing your targets where you're.

A little over four now on your debt coverage ratios and want to take that down to call. It three to three and a half how does that change your behavior at all at least in the near to medium term as you're working those ratios down.

In terms of your strategy or your willingness to do M&A to the prioritize debt payment at least in the near term over M&A or just maybe a little bit of feedback on the intended aspirations there.

Sure Kevin you've got a jump in here in the back of court yeah. So so Keith a couple of things. So first off you know we are trying to de leveraged to bring a three to five times that is our target of one thing I'll say about the business more broadly that has a very strong cash flow generation generation profile, which gives us the ability to de leveraged pretty quickly into getting to that rate.

Agent ideally for us that would be towards the end of 2021 in terms of getting into the partnership with that said as we continue to de lever if there's opportunities to as Kevin mentioned earlier was asked that question about different types of capabilities and different types of asset if we see things along the way, we will still be opportunistic and identified.

This particular target to bring them end, but what it means more likely or not is that there will be relatively smaller acquisitions relativity to a larger acquisition that would keep us prevent us from getting to that target leverage profile and ER and quick order.

Okay understood fair enough many thanks.

Thanks Keith.

Next question is from amid the.

Turning to 90 with Evercore ISI. Please proceed with your question.

Oh thanks.

I just thought of as well.

Well I guess.

Go back to the booking discussion that you know the mid 60% organic bookings growth obviously for value across a number but I was wondering how do we like the inability of the growth. That's what we think about the back with you on that would love what their bodies or the sustainable growth numbers go forward.

Great I'll start and then dust and you can jump that look I mean, I think we're very excited.

Certainly about the Q2 performance that you mentioned, 107% sales growth you see now accelerating revenue growth.

We expect that acceleration continue and we also issued full year guidance, which is ahead of our own expectations from just a month ago and that guidance highlighted by achieving double digit pro forma core revenue growth at around 10% for the second half 2020 longer term there is massive opera.

Kennedy here given this tectonic shift in the industry to multi cloud we're area Braxton technology is a leading pure play multi cloud provider. So.

On it we're very kind of excited and optimistic about future growth is doesn't said, we've got a long runway of growth ahead of us.

And just to be clear there nobody can we get a lot of questions here around sustainability durability. As you think about other leading indicator, which whether its pipeline et cetera. They continue to be very very healthy and broad base in terms of opportunity Thats ahead of us. So again, we don't see anything stopping us anytime soon.

And then I guess, you're definitely when I look at the core gross margin X Openshift business. It looks a core gross margin was down about 320 basis points year over year, hopefully my math is right, but could you touch what were the gross margin headwinds that you had and how do you think about gross margins as you go forward Premier do you think the doing what it now.

But from a gross margin because our call.

Sure and so it's a good question and so we think about the progression of the business Amit I think even from a booking standpoint oftentimes, we see it sequentially and that's if you think about multi cloud overall that particular segment the margins relatively stable and you. During my prepared remarks, I talk about applications and there were a couple of projects that completed during the prior.

Quarter, which helped but much muted also some of the year over year growth. We saw the second quarter, but that also had impacted gross margins.

And in so that piece of it we do expect that to bounce back you know kind of going into Q3, but again as you know some other question as came in the there is some structural pressure in the area, but just keep in mind that no matter that structural pressure, we're going to continue to maintain adjusted EBITDA and you'll see that sequentially step up in a quarter to quarter as well.

Year over year as they go from here.

Yeah, I'll, just I think Thats right I'll just add you know we continue to be optimistic.

About continued bookings and revenue growth, we're very confident and optimistic about.

Our ability to continue to drive.

Profitability and profitability growth adjusted EBITDA being up quarter on quarter on year on year, Justin I think it I think addressed gross profit line.

Our ability to continue to generate sustainable free cash flow growth is also a very very strong and all those transformation programs and cost reduction initiatives in order to do that are underway. The other thing to think about as as we sell and we continue to get operating leverage through.

Having this fantastic automation, having really a software enabled business not.

A a heavy labor base business, all those things on that really play into our favour, which is why we are so optimistic about growing profitability and cash flow of our company.

Perfect Thats really helpful. I know it looks and my congrats to you as well. Thank you got.

Thank you thank summit.

Okay, I think Thats. Our last question. So so I'll go ahead, and ER and wrap up hopefully you can see this slide 31 here.

However, if you can turn to slide 31, I'll just go through a few closing remarks. So first of all thank you very much for joining our call today and for your interest in Rackspace technology.

We are sitting in a very unique position in the cloud ecosystem and we're offering customers a special combination of software enabled multi cloud solutions and the way that the market has not seen before our ecosystem is built on our proprietary software IP and automation Howard.

By the deep technology expertise of our highly skilled rackers that allows us to wind time and time again and all of those qualities are driving a double digit revenue growth profile and improving profitability, but the opportunity to generate strong free cash flow per share growth on a sustainable basis, we've done the work.

We have demonstrated the results the opportunities are massive and we are ready to take the hill. We greatly appreciate your continued support as Rackspace technology accelerates our momentum during this incredibly exciting time. Thank you and we look forward to speaking do you again in a few months. Thank you.

This concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation.

[noise].

Well they are we.