Q2 2024 Rackspace Technology Inc Earnings Call

Operator: Thank you for standing by. My name is Prilla, and I will be your conference operator today. At this time, I would like to welcome everyone to Rackspace Technology's second quarter 2024 earnings conference call. All lines have been placed on mute to prevent any background noise.

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Thank you for standing by my name is spread out and that will be a country. Operator today at this time I would like to welcome everyone to the rack speech technologies second quarter 2024 earnings Conference call.

Operator: My name is Prila, and I will be your conference operator today.

Operator: At this time, I would like to welcome everyone to the Rackspace Technology's second quarter 2020 for earnings conference call. Online seven days unmuted to prevent any background noise.

Speaker Change: Ladies had been placed on mute to prevent any background night.

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Operator: After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question at this time, simply press the star followed by the number 1 on your telephone keypad. If you would like to withdraw your question, please press the star followed by the number 1 again. Thank you. I would now like to turn the conference over to Sagar Hebbar, Head of Investor Relations. Please go ahead.

Speaker Change: After the Speakers' remarks, there will be a question and answer session.

Speaker Change: You would like to ask a question. This time seems refreshed star followed by the number one on your telephone keypad. If you would like to draw. Your question. Please press. The star followed by did everyone again. Thank you I would now like to turn to countries over it is a very high bar.

Sagar Hebbar: I would now like to turn the conference over to Sagar Hebbar, head of investor relations. Please go ahead.

Investor Relations: Investor Relations. Please go ahead.

Sagar Hebbar: Thank you and welcome to Rackspace Technologies' second quarter 2024 earnings conference call. I am Sagar Hebbar, Head of Investor Relations. Joining me on today's call are Amar Malakira, our Chief Executive Officer, and Mark Marino, our Chief Financial Officer.

Sagar Hebbar: Thank you and welcome to Rackspace Technology's second quarter 2024 earnings conference call. I'm Sagar Hebbar, Head of Investor Relations. Joining me on today's call are Amar Maletira, our Chief Executive Officer, and Mark Marino, our Chief Financial Officer.

Speaker Change: Thank you and welcome to reactivate technologies second quarter 2024 earnings Conference call.

Bar: I'm sorry go ahead bar I head up Investor Relations.

Speaker Change: Joining me on today's call are or Makita, our chief Executive Officer, and Mark Marino, Our Chief Financial Officer.

Sagar Hebbar: As a reminder, certain comments we make on this call will be forward-looking. These statements involve risks and uncertainties, which could cause actual results to differ. A discussion of these risks and uncertainties is included in RSCC filings. Rackspace Technology assumes no obligation to update the information presented on the call, except as required by law.

Sagar Hebbar: As a reminder, certain comments we make on this call will be forward-looking. These statements involve risks and uncertainties that could cause actual results to differ. A discussion of these risks and uncertainties is included in our SAC filing. Rackspace Technology assumes no obligation to update the information presented on the call, except as required by law. Our presentation includes certain non-GAAP financial measures and adjustments to these measures, which we believe provide useful information to our investors.

Speaker Change: As a reminder, certain comments, we make on this call will be forward looking.

Speaker Change: These statements involve risks and uncertainties, which could cause actual results to differ.

Speaker Change: A discussion of these risks and uncertainties is included in our SEC filings.

Speaker Change: <unk> based technology assumes no obligation to update the information presented on the call except as required by law.

Sagar Hebbar: Our presentation includes certain non-GAAP financial measures and adjustments to these measures, which we believe provide useful information to our investors. In accordance with SAC rules, we have provided a reconciliation of these measures to their most directly comparable gap measures in the earnings specialist and presentation, both of which are available on our Investor Relations website.

Speaker Change: Our presentation includes certain non-GAAP financial measures.

Speaker Change: Adjustments to these measures, which we believe provide useful information to our investors.

Sagar Hebbar: In accordance with SEC rules, we have provided a reconciliation of these measures to the most directly comparable gap measures in the earnings press release and presentation, both of which are available on our investor relations website. I will now turn the call over to Amar for an update on the business.

Speaker Change: In accordance with SEC rules, we have provided a reconciliation.

Speaker Change: One of these measures, but then most directly comparable GAAP measures in the earnings press release.

Speaker Change: <unk>, both of which are available on our Investor Relations website.

Sagar Hebbar: I will now turn the call over to Amar for an update on the business.

Speaker Change: I'll now turn the call over to Omar for an update on the business.

Amar Maletira: Thank you, Sagar, and welcome everyone to our earnings call. Results in the second quarter exceeded the high end of our guidance for revenue, profit, and EPS. This marks the eighth consecutive quarter in which we have either met or exceeded our guidance. We continue to execute to our plan and focus on advancing our three strategic priorities. First, we are making steady progress on our operational turnaround.

Amar Maletira: Thank you, Sagar, and welcome everyone to our earnings call. Results in the second quarter exceeded the high end of our guidance for revenue, profit, and EPS. This marks the eighth consecutive quarter in which we have either met or exceeded our guidance.

Omar: Thank you Satya and welcome everyone to our earnings call.

Omar: In the second quarter exceeded the high end of our guidance for revenue profit and EPS.

Omar: This marks the eighth consecutive quarter in which we have either met or exceeded our guidance.

Amar Maletira: We continue to execute on our plan and focus on advancing our three strategic priorities. First, we are making steady progress on our operational turnaround. I will cover this in detail later in my prepared remarks.

Omar: We continue to execute to our plan and focus on advancing our three strategic priorities.

Omar: First we're making steady progress on our operational turnaround.

Amar Maletira: I will cover this in detail later in my prepared remarks. Second, we are repositioning Rackspace as a forward leading innovative hybrid cloud and AI solutions company. We are now well placed to catch the next big secular waves of both hybrid cloud and AI. And third, we are right-sizing our capital structure to support long-term and sustainable profitable growth. We are ample liquidity and flexibility to focus on our operational priorities. We further improve our capital structure in the second quarter through opportunistic repurchases of a debt. For the next two to three years, from a market perspective, we anticipate an acceleration in digital transformation spending driven by the ongoing transition to hybrid cloud as well as AI.

Omar: Cover this in detail later in my prepared remarks.

Amar Maletira: Second, we are repositioning Rackspace as a forward-leading, innovative hybrid cloud and AI solutions company. We're now well placed to catch the next big secular waves of both hybrid cloud and AI. And third, we are right-sizing our capital structure to support long-term and sustainable profitable growth. We have ample liquidity and flexibility to focus on our operational priorities. We further improved our capital structure in the second quarter through opportunistic repurchases of debt.

Omar: Second we are repositioning rackspace is a photo of bleeding in overdue hybrid cloud and AI solutions company.

Omar: We are now well placed to catch the next big secular waves of both hybrid cloud and AI.

Omar: And third we are right sizing our capital structure to support long term and sustainable profitable growth.

Omar: We have ample liquidity and flexibility to focus on our operational priorities.

Omar: We further improved our capital structure in the second quarter, two opportunistic repurchases of our debt.

Amar Maletira: Over the next two to three years, from a market perspective, we anticipate an acceleration in digital transformation spending, driven by the ongoing transition to hybrid cloud, as well as AI. We see customers taking a more strategic approach to the use of both public and private clouds with a notable shift toward a more hybrid environment. In the realm of AI, we are winning business and helping leading companies prepare for AI and Gen AI applications. The first step to AI starts with data.

Omar: For the next two to three years from a market perspective, we anticipate an acceleration in digital transformation spending.

Omar: And by the ongoing transition to hybrid cloud as well as AI.

Amar Maletira: We see customers taking the most strategic approach to the use of both public and private, with a notable shift towards a more hybrid environment. In the realm of AI, we are winning business and helping leading companies prepare for AI and Gen AI applications. The first step to AI starts with data, and we are seeing strong demand in data services and solutions, partially driven by AI.

Omar: We see customers, taking a more strategic approach to the use of both public and private cloud with a notable shift towards a more hybrid environment.

Jenny: In the realm of AI, we are winning business and helping leading companies prepare for AI and Jenny I applications.

Omar: The first step to AI starts with data and we are seeing strong demand in data services and solutions, partially driven by AI.

Amar Maletira: And we are seeing strong demand for data services and solutions, partially driven by AI. Now, let me get into our business performance, starting with private cloud. Private cloud gap revenue of $260 million was down 3% sequentially in the quarter and within our guided range.

Amar Maletira: Now let me get into our business performance, starting with Private Cloud. Private Cloud gap revenue of $260 million was down 3% sequentially in the quarter and within our guided range. We are working both to accelerate the pace of new winds and slow the rate of revenue runoff. Hookings were slightly down sequentially, driven by deal lumpiness. We see our new Private Cloud strategy gaining traction. Our pipeline was up over 35% year over year, with strength across all regions. Within our pipeline, we are seeing large opportunities as enterprises develop a better understanding of which workloads fit in Private Cloud versus Public Cloud versus on-prem.

Jenny: Now, let me get into our business performance, starting with private cloud.

Jenny: Private cloud GAAP revenue of $260 million was down 3% sequentially in the quarter and within our guided range.

Amar Maletira: We are working both to accelerate the pace of new wins and slow the rate of revenue runoff. Although bookings were slightly down sequentially driven by deal lumpiness, we see our new private cloud strategy gaining traction. Our pipeline was up over 35% year-over-year with strength across all regions. Within our pipeline, we are seeing large opportunities as enterprises develop a better understanding of which workloads fit in private cloud versus public cloud versus on-premises. While those larger deals typically have longer sales cycles, they align with our key objective of building a solid book of business from long-term commitments of high quality recurring revenue.

Jenny: We are working to accelerate the pace of new wins and slow the rate of revenue runoff.

Jenny: Bookings were slightly down sequentially driven by deal Lumpiness.

Jenny: We see our new private cloud strategy gaining traction.

Jenny: Our pipeline was up over 35% year over year with strength across all regions.

Jenny: Within our pipeline, we are seeing larger opportunities as enterprises.

Jenny: Our better understanding of which workloads fit in private cloud versus public cloud versus on Prem.

Amar Maletira: While those larger deals typically have longer sales cycles, they align with our key objective of building a solid book of business from long-term commits of high-quality recurring revenue. One of our marquee private cloud engagements is with Seattle Children's Hospital. Leveraging a health care cloud solution, we migrated their Epic Health Records platform onto Rackspace's fully managed Private Cloud. Additionally, Seattle Children's mid-strikes in pediatric research with a launch of cutting-edge high-performance computing. Rackspace collaborated with Dell to design and implement this system that leverages the power of blazing fast Nvidia A100 GPUs. Rackspace is hosting and managing this high-performance compute environment for the hospital.

Jenny: Well those larger deals typically have longer sales cycle. They align with our key objective of building a solid book of business from long term commitment of high quality recurring revenue.

Amar Maletira: One of our marquee private cloud engagements is with Seattle Children's Hospital. Leveraging a healthcare cloud solution, we migrated the EPIC Health Records platform onto Rackspace's fully managed private cloud. Additionally, Seattle Children's made strides in pediatric research with the launch of cutting-edge high-performance computing.

Jenny: One of our marquee private cloud engagements is with Seattle Children's Hospital.

Jenny: Leveraging our healthcare cloud solution, we migrated the epic records platform onto rack spaces fully managed private cloud.

Jenny: Additionally, Seattle children's made strides in pediatric research with the launch of cutting edge high performance computing.

Amar Maletira: Rackspace collaborated with Dell to design and implement this system that leverages the power of blazing fast NVIDIA A100 GPUs. Rackspace is hosting and managing this high-performance compute environment for the hospital. Another large US healthcare payer awarded us a similar EPIC Migrate and Operate Managed Services contract that enables payer-provider collaboration. I expect to see continued growth in healthcare.

Jenny: Rack space collaborated with Dell to design and implement this system that leverages the power of blazing fast Nvidia E 100 Gpus.

Speaker Change: <unk> is hosting and managing this high performance compute environment for the hospital.

Amar Maletira: Another large US health care pair awarded us similar Epic Migrate and Operate Managed Services contract that enables pair provider collaboration. I expect to see continued growth in health care. We are leading with Epic hosting as a service but building a foundation for customers to consolidate more of the data center footprint with Rackspace. We see similar opportunities in other regulated industry verticals. For example, we are also seeing traction in our banking, financial services, and insurance vertical. In our December quarter last year, a large UK retail bank shows Rackspace's software-defined data center solution for their mission-critical banking applications.

Speaker Change: Another large U S healthcare beer awarded US similar epic migrate and operate managed services contract that enables payer provider collaboration.

Speaker Change: I expect to see continued growth in health care.

Amar Maletira: We are leading with Epic Hosting as a service but building a foundation for customers to consolidate more of their data center footprint with Rackspace. We see similar opportunities in other regulated industry verticals. For example, we are also seeing traction in our banking, financial services, and insurance verticals. In our December quarter last year, a large UK retail bank chose Rackspace's software-defined data center solution for their mission-critical banking application. We're in the midst of this implementation, and a customer is already experiencing significant improvement in transaction response times for the ATM and point of sale applications.

Speaker Change: We are leading with epic hosting as a service, but building a foundation for customers to consolidate more of their data center footprint with rack space.

Jenny: We see similar opportunities in other regulated industry verticals or.

Jenny: For example.

Jenny: So seeing traction in our banking financial services and insurance vertical.

Jenny: In the December quarter last year, a large UK retail bank chose Rackspace is software defined data center solution for their mission critical banking applications.

Amar Maletira: We are in the midst of this implementation, and a customer is already experiencing significant improvement in transaction response times for the ATM and point of sale applications. This is yet another good validation of our differentiated solutions in Private Cloud. From an offerings perspective in Private Cloud, we launched 16 new and enhanced 17 other products and solutions in the quarter. Overall, private cloud is still navigating a challenging transition, but our strategy is being increasingly validated through recent wins, a growing pipeline, and positive customer feedback.

Speaker Change: We are in the midst of this implementation and our customers already experiencing significant improvement in transaction response times for their ATM and point of sale applications.

Amar Maletira: This is yet another good validation of our differentiated solutions in private cloud. From an offerings perspective, we launched 16 new and enhanced 17 other products and solutions in the quarter. Overall, private cloud is still navigating a challenging transition.

Jenny: This is yet another good validation of our differentiated solutions and private cloud.

Jenny: From an offering perspective in private cloud, we launched 16, new and enhanced 17 other products and solutions in the quarter.

Jenny: Overall private cloud is still navigating a challenging transition, but our strategy is being increasingly validated two recent wins, a growing pipeline and positive customer feedback.

Amar Maletira: But our strategy is being increasingly validated through recent wins, a growing pipeline, and positive customer feedback. We are positioning private cloud for durable and profitable growth in what we believe to be an underserved $50 billion total addressable market. Now moving to public cloud. Public cloud gap revenue of $425 million was up 1% sequentially, exceeding the high end of a guided range due to better than expected performance in both services and infrastructure resale. Overall bookings grew double digits year-over-year and low single-digit sequentially.

Amar Maletira: We are positioning Private Cloud for durable and profitable growth in what we believe to be an underserved $50 billion total addressable market.

Jenny: We are positioning private cloud for durable and profitable growth in what we believe to be an undersold $50 billion total addressable market.

Amar Maletira: Now, moving to public cloud. Public Cloud gap revenue of $4.25 million was up 1% sequentially, exceeding the high end of a guided range due to better-than-expected performance in both services and infrastructure resale. Overall, bookings grew double digits year over year and low single digits sequentially. I'm particularly pleased with our services bookings, which represented 70% of total public cloud bookings for the quarter, growing high single digits year over year and sequentially. I attribute that success to a shift in our go-to-market strategy of leading with services combined with better execution. We are seeing particularly strong market demand for data services, specifically in data engineering, where our bookings in the quarter more than doubled year over year.

Jenny: Now moving to public cloud.

Jenny: Public cloud GAAP revenue of $425 million was up 1% sequentially exceeding the high end of our guided range due to better than expected performance in both services and infrastructure retail.

Jenny: Overall bookings grew double digits year over year and low single digit sequentially.

Amar Maletira: I'm particularly pleased with our services bookings, which represented 70% of total public cloud bookings for the quarter, growing high single digits year over year and sequentially. I attribute that success to a shift in our go-to-market strategy of leading with services combined with better execution. We're seeing particularly strong market demand for data services, specifically in data engineering, where bookings in the quarter more than doubled year-over-year.

Jenny: I am, particularly pleased with our services bookings, which represented 70% of total public cloud bookings for the quarter.

Jenny: Growing high single digits year over year and sequentially.

Jenny: I attribute that success to a shift in our go to market strategy of leading with services combined with better execution.

Jenny: We are seeing particularly strong market demand for data services, specifically in data engineering.

Jenny: Where our bookings in the quarter more than doubled year over year.

Amar Maletira: Our strategic positioning in data services driven by both digital transformation and AI is clearly paying off. Additionally, we have become much better in attaching services to our infrastructure resale deals. 85% of our largest infrastructure resale deals this quarter also had services attached. We also started offering rack space elastic engineering services through AWS Marketplace. Some notable customer wins demonstrate the progress of our go-to-market strategy of leading with services. For instance, we were selected to implement a digital transformation program for a large media company. We are writing a major customer-facing application and migrating it onto one of the hyper-scalers.

Amar Maletira: Our strategic positioning in data services, driven by both digital transformation and AI, is clearly paying off. Additionally, we have become much better at attaching services to our infrastructure resale deals. 85% of our largest infrastructure resale deals this quarter also had services attached.

Jenny: Our strategic positioning and data services.

Jenny: And by both digital transformation and AI is clearly paying off.

Jenny: Additionally, we have become much better in attaching services towards infrastructure resale deals.

Jenny: 85% of our largest infrastructure resale deals this quarter also had services attached.

Amar Maletira: We have also started offering Rackspace Elastic Engineering services through AWS Marketplace. Some notable customer wins demonstrate the progress of our go-to-market strategy of leading with services. For instance, we were selected to implement a digital transformation program for a large media company, rewriting a major customer-facing application and migrating it onto one of the hyperscalers. Rackspace is supporting the strategic multi-year effort with a skilled multidisciplinary team.

Jenny: We also started offering rackspace plastic engineering services through AWS marketplace.

Jenny: Some notable customer wins demonstrate the progress of our go to market strategy of leading with services. For instance, we were selected to implement a digital transformation program for a large media company.

Speaker Change: <unk>, a major customer facing application and migrating it onto one of the Hyperscale us.

Amar Maletira: Rack Space is supporting this strategic multi-year effort with a skilled multi-disciplinary team. From major consumer web company, we are deeply engaged across service offerings in professional services, platform support, and security driven by a strength in delivering full-stack services and our deep cloud expertise. I'm very encouraged by the success we have seen in public cloud and believe that the progress we have made across various initiatives will lead to even stronger performance going forward. We continue to target attractive opportunities with a winning mindset, positioning ourselves for ongoing success.

Jenny: Rackspace is supporting the strategic multiyear effort with a scaled multi disciplinary team.

Amar Maletira: For a major consumer web company, we are deeply engaged across several service offerings in professional services, platform support, and security, driven by a strength in delivering full-stack services and our deep cloud expertise. I'm very encouraged by the success we have seen in public cloud and believe that the progress we have made across various initiatives will lead to even stronger performance going forward. We continue to target attractive opportunities with a winning mindset, positioning ourselves for ongoing success.

Jenny: For a major consumer web company, we are deeply engaged across several service offerings and professional services platform support and security.

Jenny: Driven by our strength in delivering full stack services.

Jenny: And our deep cloud expertise.

Speaker Change: I'm very encouraged by the success, we have seen in public cloud and believe that the progress we have made across various initiatives will lead to even stronger performance going forward.

Jenny: We continue to target attractive opportunities.

Jenny: Winning mindset.

Jenny: Positioning ourselves for ongoing success.

Amar Maletira: Now, when it comes to AI, we continue to take an optimistic long-term but realistic short-term approach. Our fair initiative is developing innovative new ways to help our customers on their AI journey with over 40 engagements. We are closely partnering with hyper-scalers, and we are one of the select few global AWS AI partners. As noted previously, we are driving strong growth in data services, helping customers take their first step towards leveraging AI. We are also planning for general availability of a private cloud AI offering called AI Anywhere. While our operational turnaround is not dependent on short-term benefits from the secular wave in AI, we are maintaining our strategy and approach of thoughtfully developing AI capabilities so we can become the partner of choice for organizations as they embark on their AI journey.

Amar Maletira: Now when it comes to AI, we continue to take an optimistic long-term but realistic short-term approach. Our FAIR initiative is developing innovative new ways to help our customers on their AI journey with over 40 engaged customers. We are closely partnering with hyperscalers, and we are one of the select few global AWS AI partners. As noted previously, we are driving strong growth in data services, helping customers take their first step towards leveraging AI. We're also planning for the general availability of a private cloud AI offering called AI Anywhere.

Jenny: Now when it comes to AI, we continue take an optimistic long term, but realistic short term approach.

Jenny: Our third initiative is developing innovative new ways to help our customers on their journey with over 40 engagements.

Jenny: We are closely partnering with Hyperscale is and we are one of the select few global AWS EA partners.

Jenny: As noted previously we are driving strong growth in data services, helping customers take the first step towards leveraging AI.

Jenny: We're also planning for general availability of our private cloud offering called <unk> anywhere.

Amar Maletira: While our operational turnaround is not dependent on short-term benefits from the secular wave in AI, we are maintaining our strategy and approach of thoughtfully developing AI capabilities so we can become the partner of choice for organizations as they embark on their AI journey, and will continue to do so without getting too far in front of the market. In summary, I'm pleased with the steady progress we have made despite a flat market.

Jenny: While our operational turnaround is not dependent on short term benefit from the secular wave in AI we are.

Jenny: Maintaining our strategy and approach have thoughtfully developing capabilities. So we can become the partner of choice for organizations as they embark on their journey.

Amar Maletira: We will continue to do so without getting too far in front of the market.

Jenny: We will continue to do so without getting too far in front of the market.

Amar Maletira: In summary, I am pleased with the study progress we have made despite a flat market. Our operational turnaround is focused on strengthening our pipeline and sales booking in both private and public cloud, stabilizing and growing revenue and profit while continuing to drive cost efficiencies. Although there are still work to be done, we are building momentum for consistent and sustainable growth in revenue, profits, and cash flows in the years to come.

Jenny: In summary, I'm pleased with the steady progress we have made despite a flat market.

Amar Maletira: Our operational turnaround is focused on strengthening our pipeline and sales booking in both private and public clouds, stabilizing and growing revenue and profit while continuing to drive cost efficiency. Although there is still work to be done, we are building momentum for consistent and sustainable growth in revenue, profits, and cash flows in the years to come. Before I wrap up, I'd like to thank our customers, partners, and all our actors. I'm proud of all we have achieved together already. I will now turn it over to Mark for an overview of our financial results and guidance.

Jenny: Our operational turnaround is focused on strengthening our pipeline and sales bookings in both private and public cloud stabilizing and growing revenue and profit while continuing to drive cost efficiencies.

Jenny: Although there is still work to be done we are building momentum for consistent and sustainable growth in revenue profit and cash flows in the years to come.

Amar Maletira: Before I wrap up, I would like to thank our customers, partners, and all our actors and proud of all we have achieved together already.

Speaker Change: Before I wrap up I'd like to thank our customers partners and all our actors and.

Jenny: I am proud of all we have achieved together already.

Mark Marino: I will now turn it over to Mark for an overview of financial results and guidance.

Jenny: I will now turn it over to Mark for an overview of our financial results and guidance.

Mark Marino: Thank you, Amar. In the second quarter, total company GAAP revenue of $685 million exceeded the high end of our guidance, driven by strength in the public cloud. Total non-GAAP net revenue was $380 million, down 1% sequentially due to a decline in private cloud. Non-GAAP gross profit margin was 20.3% of GAAP revenue, flat sequentially, and 36.7% of non-GAAP net revenue, also flat versus the prior quarter. For the quarter, non-GAF operating profit was $23 million, exceeding the high end of our guidance.

Mark Marino: Thank you, Mark. In the second quarter, total company GAAP revenue of $685 million exceeded the high end of our guidance, driven by strength in public cloud. Total non-GAAP net revenue was $380 million, down 1% sequentially due to a decline in private cloud. Non-gap gross profit margin was 20.3% of gap revenue, flat sequentially and 36.7% of non-gap net revenue also flat versus prior quarter. For the quarter, non-GAAP operating profit was $23 million, exceeding the high end of our guidance. This was primarily driven by better than expected performance in our public cloud segment and continued focus on cost management.

Jenny: Thank you Mark in the second quarter total company GAAP revenue of $685 million exceeded the high end of our guidance driven by strength in public cloud total non-GAAP net revenue was $380 million down 1% sequentially due to a decline in private cloud non.

Mark Marino: non-GAAP gross profit margin was 23% of GAAP revenue flat sequentially and 36, 7% of non-GAAP net revenue also flat versus prior quarter.

Jenny: For the quarter non-GAAP operating profit was $23 million exceeding the high end of our guidance. This was primarily driven by better than expected performance in our public cloud segment and continued focus on cost management.

Mark Marino: This was primarily driven by better than expected performance in our public cloud segment and continued focus on cost management. Non-GAAP operating margin was 3.3% of GAAP revenue, up 1% sequentially, and 6% of non-GAAP net revenue, up 1.8% sequentially. Non-GAAP loss per share was $0.08, which came in better than our guided range of a $0.09 to $0.11 loss per share.

Mark Marino: Non-gap operating margin was 3.3% of gap revenue up 1% sequentially and 6% of non-gap net revenue up 1.8% sequentially. Non-GAAP loss per share was 8 cents, which came in better than our guided range of a 9 to 11 cent loss per share. Cash flow from operations was $24 million and free cash flow was negative $15 million in the second quarter. These amounts reflect the reclassification of a portion of our cash interest payments to financing cash flows. As a result of the accounting treatment for the term loan, we entered into as part of the key one debt refinancing.

Mark Marino: non-GAAP operating margin was three 3% of GAAP revenue up 1% sequentially and 6% of non-GAAP net revenue up one 8% sequentially.

Jenny: non-GAAP loss per share was <unk> <unk>.

Jenny: Which came in better than our guided range of a 9% to 11 loss per share.

Mark Marino: Cash flow from operations was $24 million, and free cash flow was negative $15 million in the second quarter. These amounts reflect the reclassification of a portion of our cash interest payments to financing cash flows as a result of the accounting treatment for the term loan we entered into as part of the Q1 debt refinancing. Moving forward, we will continue to reclassify a portion of the cash interest payments on this debt instrument plus the semi-annual cash interest payments on our 3.5% senior secured notes to finance. For the balance of fiscal year 2024, we expect cash flow from operations to remain positive, and free cash flow to be slightly negative, driven by success-based capex. Turning to our segment results,

Jenny: Cash flow from operations was $24 million and free cash flow was negative $15 million in the second quarter. These.

Jenny: These amounts reflect the reclassification of a portion of our cash interest payments to financing cash flows as a result of the accounting treatment for the term loan we entered into as part of the Q1 debt refinancing.

Mark Marino: Moving forward, we will continue to reclassify a portion of the cash interest payments on this debt instrument, plus the semi-annual cash interest payments on our 3.5% senior secured notes to financing. For the balance of fiscal year 2024, we expect cash flow from operations to remain positive and free cash flow to be slightly negative, given by success-based capex.

Jenny: Moving forward, we will continue to reclassify a portion of the cash interest payments on this debt instrument plus the semiannual cash interest payments on our three 5% senior secured notes to financing.

Mark Marino: For the balance of fiscal year 2024, we expect cash flow from operations to remain positive and free cash flow to be slightly negative driven by success based capex.

Mark Marino: Turning to our segment results. For private cloud, gap revenue for the second quarter was $260 million within our guided range. This includes legacy OpenStack revenue of $25 million.

Mark Marino: For private cloud, gap revenue for the second quarter was $260 million, within our guided range. This includes legacy OpenStack revenue of $25 million. Total private cloud revenue was down 3% sequentially due to customers rolling off older generation private cloud offerings. Private cloud gross margin was 37.4%, down 1.6% sequentially, primarily due to lower revenue; segment operating margin was 26.8%, flat sequentially driven by improved cost efficiencies and better asset utilization. In public cloud, GAAP revenue was $425 million, exceeding the high end of our guidance and was up 1% sequentially due to consumption-driven growth on infrastructure resale volume.

Mark Marino: Turning to our segment results.

Mark Marino: For private cloud GAAP revenue for the second quarter was $260 million within our guided range.

Mark Marino: This includes legacy open stack revenue of $25 million.

Mark Marino: Awards. Total private cloud revenue was down 3% sequentially due to customers rolling off older generation private cloud offerings. Private cloud gross margin was 37.4%, down 1.6% sequentially, primarily due to lower revenue. Segment operating margin was 26.8%, flat sequentially, driven by improved cost efficiencies and better asset utilization. In public cloud, gap revenue was 425 million dollars, exceeding the high end of our guidance and was up 1% sequentially due to consumption-driven growth on infrastructure resale volumes. Gross margin for our public cloud segment was 35.1% of non-GAAP net revenue, up 3.6% sequentially, driven by improved operational efficiency and utilization.

Mark Marino: Total private cloud revenue was down 3% sequentially due to customers rolling off older generation private cloud offerings.

Mark Marino: Private cloud gross margin was 37, 4% down one 6% sequentially, primarily due to lower revenue.

Mark Marino: Segment operating margin was 26, 8% flat sequentially, driven by improved cost efficiencies and better asset utilization.

Mark Marino: In public cloud GAAP revenue was $425 million exceeding the high end of our guidance and was up 1% sequentially due to consumption driven growth on infrastructure resale volumes.

Mark Marino: Gross margin for our public cloud segment was 35.1% of non-GAAP net revenue, up 3.6 percentage points sequentially, driven by improved operational efficiency and higher utilization. Non-GAAP segment operating profit was 9.8% of non-GAAP net revenue, up 1.8 percentage points versus the prior quarter. We believe there is opportunity to further improve utilization over the rest of the year. Now an update on our debt repurchase activity for the quarter. Before I begin, a quick recap.

Mark Marino: Gross margin for our public cloud segment was 35, 1% non-GAAP net revenue up three six percentage points sequentially, driven by improved operational efficiency and higher utilization.

Mark Marino: Non-GAAP segment operating profit was 9.8% of non-GAAP net revenue, up 1.8% points versus prior quarter. We believe there is an opportunity to further improve utilization over the rest of the year.

Mark Marino: non-GAAP segment operating profit was nine 8% of non-GAAP net revenue up one eight percentage points versus prior quarter.

Mark Marino: We believe there is opportunity to further improve utilization over the rest of the year.

Mark Marino: Now an update on our debt repurchase activity for the quarter. Before I begin, a quick recap. As announced on our Q1 earnings call, we closed the public debt exchange in April with over 96% of our secured creditors supporting the exchange transaction. We reduced our outstanding principal by over $300 million and lowered annual cash interest costs by more than $11 million. We also extended the maturities on the revolver and other participating senior debt facilities so that we now have no corporate maturities prior to 2028. During Q2, we continued to repurchase our debt. We deployed $29 million of cash to repurchase $68 million in aggregate principal amount of debt.

Mark Marino: Now an update on our debt repurchase activity for the quarter.

Mark Marino: Before I begin a quick recap.

Mark Marino: As announced on our Q1 earnings call, we closed the public debt exchange in April with over 96% of our secured creditors supporting the exchange transaction. We reduced our outstanding principal by over $300 million and lowered annual cash interest costs by more than $11 million. We also extended the maturities on the revolver and other participating senior debt facilities so that we now have no corporate maturities prior to 2028.

Mark Marino: As announced on our Q1 earnings call. We closed the public debt exchange in April with over 96% of our secured creditors supporting the exchange transaction.

Mark Marino: We reduced our outstanding principal by over $300 million and lowered annual cash interest cost by more than $11 million we.

Mark Marino: We also extended the maturities on the revolver and other participating senior debt facilities. So that we now have no corporate maturities prior to 2028.

Mark Marino: During Q2, we continued to repurchase our debt. We deployed $29 million of cash to repurchase $68 million in aggregate principal amount of debt. Early in the third quarter, we also repurchased an additional $24 million of the FLSO term loan at an average price of $0.46 on the dollar. In the first half of 2024, we deployed a total of $62 million to opportunistically repurchase $137 million in aggregate principal amount of our debt. We will continue to monitor and assess further opportunities to improve our capital structure. Now on to guidance.

Mark Marino: During Q2, we continued to repurchase our debt, we deployed $29 million of cash to repurchase $68 million in aggregate principal amount of debt.

Mark Marino: Early in the third quarter, we also repurchased an additional 24 million of the FLSO term loan at an average price of 46 cents on the dollar. In the first half of 2024, we deployed a total of $62 million to opportunistically repurchase $137 million in aggregate principal amount of our debt. We will continue to monitor and assess further opportunities to improve our capital structure.

Mark Marino: Early in the third quarter, we also repurchased an additional $24 million of the <unk> term loan at an average price of 46 cents on the dollar.

Mark Marino: In the first half of 2024, we deployed a total of $62 million to opportunistically repurchase $137 million in aggregate principal amount of our debt.

Mark Marino: We will continue to monitor and assess further opportunities to improve our capital structure.

Mark Marino: Now on to guidance. We expect third quarter GAAP revenue to be approximately $668 to $680 million, down 1% sequentially at the midpoint. Total non-GAAP operating profit is expected to be $29 to $31 million, up 31% sequentially at the midpoint, and non-GAAP loss is expected to be from 6 to 8 cents per share. From a segment perspective, we expect private cloud revenue of $255 to $262 million in public cloud revenue of $414 to $419 million. Our non-gap tax rate is expected to be 26% and non-gap other expenses is expected to be approximately $51 to $55 million.

Mark Marino: We expect third-quarter GAAP revenue to be approximately $668 to $680 million, down 1% sequentially at the midpoint. Total non-GAAP operating profit is expected to be $29 to $31 million, up 31% sequentially at the midpoint, and non-GAAP loss is expected to be from $0.06 to $0.08 per share. From a segment perspective, we expect private cloud revenue of $255 to $262 million and public cloud revenue of $414 to $419 million. Our non-GAAP tax rate is expected to be 26%, and non-GAAP other expense is expected to be approximately $51 to $55 million. The non-GAF share count is expected to be around 231 to 233 million shares.

Mark Marino: Now onto guidance.

Mark Marino: We expect third quarter GAAP revenue to be approximately $668 million to $680 million down 1% sequentially at the midpoint.

Mark Marino: Total non-GAAP operating profit is expected to be 29% to $31 million up 31% sequentially at the midpoint and non-GAAP loss is expected to be from six to eight per share.

Mark Marino: From a segment perspective, we expect private cloud revenue of $255 million to $262 million in public cloud revenue of $414 million to $419 million.

Mark Marino: Our non-GAAP tax rate is expected to be 26% and non-GAAP. Other expense is expected to be approximately $51 million to $55 million.

Mark Marino: The non-GAAP share count is expected to be around $231 to $233 million shares.

Mark Marino: non-GAAP share count is expected to be around 231 to 233 million shares.

Sagar Hebbar: I will now turn the call over to Sagar.

Sagar Hebbar: I will now turn the call over to Sagar. Thank you, Mark.

Sagar: I'll now turn the call over to saga.

Sagar Hebbar: Thank you, Mark. Let us begin the question and answer session. We ask everyone to limit their discussion to one question and one follow-up. Please go ahead.

Sagar Hebbar: Thank you, Mark.

Saga: Thank you Mark.

Operator: Let us begin the question and answer session. We ask everyone to limit discussion to one question and one follow-up. Please go ahead.

Speaker Change: Let's begin the question and answer session, we ask everyone to limit discussion to one question and one follow up. Please go ahead.

Operator: Thank you, and we will now begin the question-and-answer session. If you have dialed in and would like to ask a question, simply press a star, followed by the number one on your telephone. Keep at the raise your hand and join the queue. If you would like to withdraw your question, simply press a star one again. If you are called upon to ask your question and are listening by a loud speaker on your device, please speak up your handset and ensure that your phone is not on mute when asking your question. Again, please press a star 1 to join the queue.

Operator: Thank you. We will now begin the question and answer session. If you have dialed in and would like to ask a question, simply press a star followed by the number one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press a star once again. If you are called upon to ask your question and are listening through a loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. Again, please press a star one to join the queue. And your first question comes from the line of Frank Louthan with Ringman James. Please go ahead.

Saga: Thank you and we will now begin the question and answer session. If you have dialed in and would like to ask a question. Thank you press. The star followed by the number one on your telephone keypad to raise your hand and joined the queue. If you would like to withdraw your question. Thank you press the star one again.

Speaker Change: Called upon to ask your question and our listing by Allot speaker and yet on your device.

Mark Marino: You kept your handset that ensure that your phone is on mute when asking your question again, Please press star one to join the queue.

Frank Louthan: And your first question comes from the line of Frank Louthan with Raymond James; please go ahead.

Frank Louthan: Great, thank you. Can you give us an idea of the outlook of kind of when we can expect getting back to positive top-line growth and when some of the initiatives you've done will start to kick in there? And then can you give us an idea of what percentage of your bookings currently are AI-related? Thanks.

Mark Marino: And your first question comes from the line of Frank Louthan with Raymond James. Please go ahead.

Amar Maletira: Great, thank you. If you can give us an idea of the outlook of when we can expect getting back to positive top line growth and when some of the issues, you can start to kick in there. And then can you give us an idea of what percentage of your bookings currently are AI related?

Frank Louthan: Great. Thank you can you can give us on that.

Frank Louthan: The outlook of kind of when we can expect getting back to positive top line growth and.

Frank Louthan: When some of the initiatives you've done will start to kick in there and then can you give us an idea of what percentage of your bookings currently our AI related.

Amar Maletira: Thanks. Yes, thank you. I will get started, and I'll take both the questions and marketplace jumping. Okay. So we, Frank, thank you very much for the question. As we indicated last quarter, we will see, start seeing revenue stabilization in the second half. You already started seeing that in Q3. In fact, in Q2, when you look at our revenue beat, the revenue beat came from two sources. One was an infrastructure, a retail volume swept up, and the second was from services. Now, the services beat and higher than our own internal expectation was good news because we had started seeing some leading indicator with good bookings and services in the previous quarter.

Amar Maletira: Yeah, thank you. I will get started. I'll take both the questions, and Mark, please jump in.

Frank Louthan: Yes. Thank you.

Speaker Change: I'll get started I'll take both the questions and market is jumping again.

Amar Maletira: Okay. So, as we indicated last quarter, we will start seeing revenue stabilization in the second half. You already started seeing that in Q3. In fact, in Q2, when you look at our revenue beat, the revenue beat came from two sources. One was in infrastructure.

Speaker Change: So as we fine. Thank you very much for the question as we indicated last quarter.

Frank Louthan: We will see start seeing revenue stabilization.

Frank Louthan: And in the second half.

Frank Louthan: <unk> already started seeing that in Q3 in fact in Q2 when you look at our revenue beat the revenue beat came from two sources, one was an infrastructure REIT.

Amar Maletira: Resale volumes were up, and the second was from services. Now, the services beat, and was higher than our own internal expectation, which was good news because we had started seeing some leading indicators with good bookings and services in the previous quarters, and we saw that in this quarter, too. Where I'm going with this is if you exclude that increase in infrastructure volume consumption, which is very hard to predict, Frank, because this is not something that we have complete visibility on. So, if you exclude that, our revenue is roughly flat from going from Q2 to Q3. That's what our guidance is. So, we have started seeing revenue stabilization, Frank. I feel good about the pipeline building.

Frank Louthan: <unk> volumes step up.

Frank Louthan: And the second was from services now the services meet and higher than our own internal expectation was good news because we have started seeing some leading indicators with good bookings and services in the previous quarters and we saw that in this quarter too.

Amar Maletira: And we see it saw that in this quarter too. Where I'm going with this is if you exclude that increase in infrastructure volume consumption, which is very hard to predict, Frank, because, you know, this is not something that, you know, we have complete visibility to. So if you exclude that, our revenue is roughly flat from going from Q2 to Q3; that's what our guidance is. So we started seeing the revenue stabilization, Frank. I feel good about the pipeline building. You know, you saw both in private cloud as well as public cloud. The pipeline has grown significantly.

Frank Louthan: Where I'm going with this is if you exclude that increase in infrastructure volume consumption, which is very hard to predict Frank because this is not something that they don't have complete visibility to see if you exclude that.

Frank Louthan: Our revenue is roughly flat from what from going from Q2 to Q3, that's what our guidance is so we have started seeing the revenue stabilization Frank.

Frank Louthan: Feel good about the pipeline building you saw both in private cloud as well as public cloud the pipeline has grown significantly in fact in private cloud it was up over 35% year on year.

Amar Maletira: You know, we saw both in the private cloud as well as in the public cloud, the pipeline has grown significantly. In fact, in the private cloud, it was up over 35% year-on-year, and when you go dig into that pipeline, the top of the funnel is growing very rapidly. In fact, in our healthcare business, our funnel was close to about $1.2 billion, the top of the funnel, as compared to roughly $750-plus million just about three months ago.

Amar Maletira: In fact, in private cloud, it was up over 35% year-on-year. And when you go dig into that pipeline, the top of the funnel is growing very rapidly. In fact, in our healthcare business, our funnel was close to about $1.2 billion dollars. The top of the funnel has compared to roughly $750 plus million just about three months ago. So good development of pipeline. We have to go convert that into bookings typically in private cloud. The sales cycles are a bit longer, as you know. We also, when you look into our funnel, we see some large deals developing in the funnel.

Speaker Change: And when you go dig into that pipeline the top of the funnel is growing very rapidly in fact in our health care business. Our funnel was close to about $1 2 billion.

Frank Louthan: At the top of the funnel as.

Frank Louthan: As compared to roughly 750 plus million dollars just about three months ago. So good development of pipeline, we have to go convert that into bookings typically in private cloud the sale cycles are a bit longer as you know we also when you look into our funnel, we see some large deals developing in the funnel and that's quite an.

Amar Maletira: So, good development of the pipeline; we have to go convert that into bookings. Typically, in the private cloud, the sales cycles are a bit longer, as you know. We also, when you look into our funnel, we see some large deals developing in the funnel, and that's quite encouraging for us. And there's always deal lumpiness in the private cloud business, as you are aware. So, all the leading indicators are good. We're also seeing revenue runoff, right? That's one of the challenges that we are faced with because the older generation products are running out.

Amar Maletira: And that's quite encouraging for us. And there's always deal lumpiness in the private cloud business, as you are aware. So all leading indicators are good. We are also seeing revenue runoff. That's one of the challenges that we have faced with because of the older generation products are running off. We also see some of our commercial customers, which is the customers with less than $300 million in revenue. They're not our revenue, but they're revenue. We also seeing that long tail also running off as we start building our pipeline and book of business mode towards mid market enterprise customers.

Speaker Change: <unk> for us and and and.

Frank Louthan: There's always the lumpiness in the private cloud business as you are aware so all leading indicators are good. We're also seeing revenue runoff right. That's one of the challenges that we're faced with.

Frank Louthan: Because the older generation products are running off you'll also see some of our commercial customers which is.

Operator: Thank you for standing by.

Prila: My name is Prila, and I will be your conference operator today. At this time, I would like to welcome everyone to the Rackspace Technology's second quarter 2020 for earnings conference call. Online seven days unmuted to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask the question, this time, simply press the store, followed by the number one on your telephone keypad. If you would like to avoid your question, these presses store followed by the number one again. Thank you.

Amar Maletira: We also see some of our commercial customers, which is, you know, the customers with less than $300 million in revenue, their revenue, not our revenue, but their revenue. We are also seeing that long tail of customers, as we start building our pipeline and book of business more towards mid-market and enterprise customers. So, I feel very good about those leading indicators. We will continue to work on the revenue runoff on the private cloud side.

Frank Louthan: <unk>.

Frank Louthan: Customers with less than $300 million in revenue.

Frank Louthan: The revenue not our revenue, but the revenue. We are also seeing that long tail also running off as we start building a pipeline and book of business more towards mid market and enterprise customers. So feel very good about those leading indicators. We will continue to work on the revenue runoff on the private cloud side, we are in.

Amar Maletira: So, feel very good about those leading indicators. We will continue to work on the revenue runoff on the private cloud side. We have initiatives in place; we started seeing some improvements in revenue runoff, and we expect it to improve in the next few quarters. And we believe in the next couple of quarters or so, our bookings will outpace revenue. Having said that, the bookings to convert to revenue in private cloud take about anywhere from six to nine months. So, we should expect the business to start stabilizing. That's what, you know, the first most important priority we had in the short term was to tend to the decline in private cloud.

Amar Maletira: We have initiatives in place. We started seeing some improvements in revenue runoff, and we expect it to improve in the next few quarters. And we believe in the next couple of quarters or so, our bookings will outpace revenue. Having said that, you know, the bookings to convert to revenue in the private cloud take about anywhere from six to nine months.

Frank Louthan: <unk> been pleased we saw started seeing some improvements in revenue run off and we expect it to improve in the next few quarters and we believe the next couple of quarters of solid bookings will outpace revenue, having said that the bookings to convert to revenue in private cloud peaks about anywhere from six.

Sagar Hebbar: I would now like to turn the conference over to Sagar Hebbar, head of investor relations, please go ahead. Thank you and welcome to Rackspace Technologies second quarter 2024 earnings conference call. I am Sagar Hebbar, head of investor relations. Joining me on today's call are Amar Malakira, our chief executive officer and Mark Marino, our chief financial officer. As a reminder, certain comments we make on this call will be forward looking. These statements involve risks and uncertainties, which could cause actual results to differ.

Frank Louthan: Six to nine months, so we should expect the business to start stabilizing that's what.

Amar Maletira: So, we should expect the business to start stabilizing. That's what, you know, the first most important priority we had in the short term was to stem the decline in private cloud, working towards that, and then start growing. Now, when it comes to public cloud, I think it's a different story.

Frank Louthan: The first most important priority we had in the short term was tend to decline in private cloud we are working towards that.

Amar Maletira: We're working towards that and then start growing.

Frank Louthan: And then start growing now when it comes to public cloud I think.

Amar Maletira: Now, when it comes to public cloud, I think it's a different story. We already started seeing improvements there. Our bookings, second quarter in a row, you know, Q1 as well as Q2. We are putting a Q2. We grew sequentially in bookings in both Q1 as well as Q2. Now, as I tell people internally, you know, one quarter is just a point. Two quarters are two points and make a line. We have to, we have to go and do it, you know, more than two quarters to really start seeing a trend. But we do, when we look at the funnel, we look at the conversion.

Frank Louthan: Different story, we already started seeing.

Amar Maletira: We already started seeing improvements there. Our bookings, second quarter in a row, you know, Q1 as well as Q2, we are reporting a fiscal Q2. We grew sequentially in bookings in both Q1 as well as Q2. Now, as I tell people internally, you know, one quarter is just a point. Two quarters are two points and make a line.

Sagar Hebbar: A discussion of these risks and uncertainties is included in RSCC filings. Rackspace Technology assumes no obligation to update the information presented on the call, except as required by law. Our presentation includes certain non-gap financial measures and adjustments to these measures, which we believe provide useful information to our investors.

Frank Louthan: Improvements there are bookings.

Frank Louthan: Bookings second quarter enroll.

Frank Louthan: Q1, as well as Q2 this reporting our fiscal Q2, we grew sequentially in bookings and board.

Frank Louthan: In Q1, as well as Q2 now as I tell people internally.

Speaker Change: One one quarter is disappoint two quarters of two points and make aligned we have because we have to go into it.

Sagar Hebbar: In accordance with SAC rules, we have provided a reconciliation of these measures to their most directly comparable gap measures in the earnings specialist and presentation, both of which are available on our investor relations website.

Amar Maletira: We have to go out and do it, you know, more than two quarters to really start seeing a trend. But we do, when we look at the funnel, we look at the conversion, I think we are doing quite well. So, I expect services revenue also to start stabilizing in the next couple of quarters, as we indicated earlier. On the infrastructure side, you know, as we have indicated to you earlier that, you know, we will walk away from some low-margin infrastructure or non-profitable infrastructure resale deals.

Frank Louthan: More than two quarters to really start seeing a trend, but we do when we look at the funnel. We look at the conversion I think we're doing quite well. So I expect services revenue also to start stabilizing in the next couple of quarters as we indicated earlier on the infrastructure side.

Amar Maletira: I think we are doing quite well. So, I expect services revenue also to start stabilizing the next couple of quarters as we indicated earlier on the infrastructure sign. You know, as we have indicated to you earlier that, you know, we will walk away from some low margin infrastructure or non-profitable infrastructure resale deals. And that might impact our revenue, but should not impact our profit as much. So, just to summarize, you know, we do expect stabilization in revenue or all revenue, borrowing us walking away from some of the low-margin infrastructure deals in both the businesses and the next couple of quarters.

Amar Maletira: I will now turn the call over to Amar for an update on the business. Thank you Sagar and welcome everyone to our earnings call. Results in the second quarter exceeded the high end of our guidance for revenue, profit and EPS. This marks the eighth consecutive quarter in which we have either met or exceeded our guidance. We continue to execute to our plan and focus on advancing our three strategic priorities. First, we are making steady progress on our operational turnaround.

Frank Louthan: As we have indicated to you earlier that we will walk away from some low margin infrastructure nonprofit double infrastructure resale deals and that might impact our revenue, but should not impact our profit as much so just to summarize.

Amar Maletira: And that might impact our revenue but should not impact our profit as much. So, just to summarize, you know, we do expect stabilization in revenue, overall revenue, barring us walking away from some of the low-margin infrastructure deals in both businesses in the next couple of quarters.

Speaker Change: We do expect stabilization.

Frank Louthan: In revenue overall revenue barring us walking away from some of the low low margin infrastructure deals.

Amar Maletira: I will cover this in detail later in my prepared remarks. Second, we are repositioning Rackspace as a forward leading innovative hybrid cloud and AI solutions company. We are now well placed to catch the next big secular waves of both hybrid cloud and AI. And third, we are right sizing our capital structure to support long term and sustainable profitable growth. We are ample liquidity and flexibility to focus on our operational priorities. We further improve our capital structure in the second quarter through opportunistic repurchases of a debt.

Frank Louthan: And both of the businesses in the next couple of quarters.

Amar Maletira: The second question, you go ahead. Yeah, it's a follow up on that. How do you define stabilization? Stabilization relative to what, relative to your Q2? How should we think about where it's going to start to grow from? Yes, yes, I think that's a good question. When we talk about stabilization, we do it on a sequential basis, right? When you take a look at a private cloud revenue, the last few quarters, we were declining anywhere from 4% to 6%, right? Now, you're seeing that the client significantly reduce in this quarter and in quarter. So, it's gone to minus 3 to minus 1.

Speaker Change: The second question Yeah go ahead.

Frank Louthan: But yeah, just to follow up on that, how are you defining stabilization? Stability relative to what? Relative to this year, Q2, how should we think about...

Speaker Change: Yeah, just a follow up on that how do you. How are you defining stabilization stable stabilization relative to what relative to <unk>. Yes. That's a good next year Q2, how should we think about where it's going to kind of start to grow from yes, yes, I think thats a good question when we talk about stabilization, we do it on a sequential basis right.

Amar Maletira: start to grow from? Yes. Yes. I think that's a good question.

Amar Maletira: When we talk about stabilization, we do it on a sequential basis, right? When you take a look at private cloud revenue, the last few quarters, we were declining anywhere from 4% to 6%, right? Now you're seeing that decline significantly reduce in this quarter and next quarter. So it's gone from minus 3 to minus 1.

Speaker Change: When you take a look at our private cloud revenue. The last few quarters, we were declining anywhere from 4% to 6% right now youll start seeing that declined significantly reduce.

Amar Maletira: For the next two to three years from a market perspective, we anticipate an acceleration in digital transformation spending driven by the ongoing transition to hybrid cloud as well as AI. We see customers taking the most strategic approach to the use of both public and private with a notable shift towards a more hybrid environment. In the realm of AI, we are winning business and helping leading companies prepare for AI and Gen AI applications. The first step to AI starts with data and we are seeing strong demand in data services and solutions partially driven by AI.

Frank Louthan: In this quarter next quarter, so onto minus three to minus one so for us stabilization Frank is.

Amar Maletira: So, for us, stabilization in Frank is on a sequential basis and then we start growing from there on a sequential basis, which should land in the year-on-year growth. Is that helpful? Yes, thank you. Now, coming to AI, now listen, I think, as I mentioned in my prepared remark, we are long-term, very optimistic about AI and Gen AI. We believe that it's going to impact all functions, all industries, and it's really a promising secular way of having said that. In the near term, in the short term, we are very realistic in our approach. So, when you talk about bookings, it's not a big portion of bookings.

Amar Maletira: So for us, stabilization, Frank, is on a sequential basis. And then we start growing from there on, on a sequential basis, which should land us in year-on-year growth. Is that helpful? Yes, thank you.

Speaker Change: On a sequential basis and then we start growing from there on on a sequential basis, we should land in the year on year growth is that helpful.

Frank Louthan: Yes. Thank you.

Frank Louthan: Now, coming to AI. Listen, I think, as I mentioned in my prepared remark, we are, long-term, very optimistic about AI and Gen AI. We believe that it's going to impact all functions, all industries, and it's a really promising secular wave. Having said that, in the near term, in the short term, we are very realistic in our approach. So, when you talk about bookings, it's not a big portion of our bookings. You know, I think, and I will give you a little bit more color on how we look at this opportunity.

Speaker Change: Now coming to AI now listen I think as I mentioned in my prepared remarks.

Speaker Change: We are long term very optimistic about AI and <unk>, we believe that is going to impact all functions all industries.

Speaker Change: And it's a really a promising secular wave having said that in the near term and the short term we are.

Amar Maletira: Now let me get into our business performance starting with Private Cloud. Private Cloud gap revenue of $260 million was down 3% sequentially in the quarter and within our guided range. We are working both to accelerate the pace of new winds and slow the rate of revenue runoff.

Speaker Change: A very realistic in our approach.

Speaker Change: So when you talk about bookings, it's not a big portion of our bookings I think.

Amar Maletira: And I will give you a little bit more color there on how we look at this opportunity. So, it's not a big portion of a bookings, but we have 40 plus engagements through a fair initiative, and we are seeing a very good traction in AI. And some of this is also a follow-on on our data business. As I mentioned, our data services business, which has data engineering, data migration, and data modernization, all three. That data services with the bookings two quarters in a row grew substantially, both year on year as well as sequentially. And that's getting customers ready for the data lakes, and we are architecting the data architecture, et cetera.

Speaker Change: And I will give you a little bit more color there on how we look at this opportunity. So it's not a big portion of our bookings, but we have 40 plus engagements to a fair opportunity for initiative and we are seeing very good traction in AI and some of this is also a follow on on our data business as I mentioned our data.

Amar Maletira: So, it's not a big portion of our bookings, but we have 40-plus engagements through our FAIR initiative, and we are seeing very good traction in AI. And some of this is also a follow-on from our data business. As I mentioned, our data services business, which includes data engineering, data migration, and data modernization, all three, that data services bookings, two quarters in a row, grow substantially, both year-on-year as well as sequentially.

Amar Maletira: Hookings were slightly down sequentially driven by deal lumpiness. We see our new Private Cloud strategy gaining traction. Our pipeline was up over 35% year over year with strength across all regions. Within our pipeline we are seeing large opportunities as enterprises develop a better understanding of which workloads fit in Private Cloud versus Public Cloud versus on-prem. While those larger deals typically have longer sales cycle, they align with our key objective of building a solid book of business from long-term commits of high-quality recurring revenue.

Speaker Change: Services business, which has data engineering data migration and data modernization all three type data services bookings two quarters in a row grew substantially both year on year as well as sequentially and thats getting customers ready for with the data lakes and re architect in the.

Amar Maletira: And that's, you know, getting customers ready for the data lakes and re-architecting the data architecture, et cetera. And that's the kind of work we are doing. Partially driven by AI and partially driven by the move to the cloud itself. Now, let me, since I have this opportunity, let me just give you a little bit of more color on how we look at AI.

Speaker Change: The data architecture et cetera, and Thats the kind of work we are doing so partially driven by AI and partially driven by the move to cloud itself now let me since I have this opportunity. Let me just give you a little bit of more color on how we look at EI.

Amar Maletira: And that's the kind of work we are doing. So partially driven by AI, and partially driven by the move to cloud itself.

Amar Maletira: Now, let me, since I have this opportunity, let me just give you a little bit more color on how we look at AI. So, we believe that there are two types of spend happening out there, Frank, in AI. What is the spend in AI infrastructure? And that's a big spend happening today. And that's mainly for model training. And the model training is driven by hyperscalers, Meta as an example, OpenAI, and many of the startups. And to some extent, sovereign countries as well as maybe some of the enterprises where they are doing a very high-value research.

Amar Maletira: One of our marquee Private Cloud engagements is with Seattle Children's Hospital. Leveraging a health care cloud solution, we migrated their Epic Health Records platform onto Rackspace's fully-managed Private Cloud. Additionally, Seattle Children's mid-strikes in pediatric research with a launch of cutting-edge high-performance computing. Rackspace collaborated with Dell to design and implement this system that leverages the power of blazing fast Nvidia A100 GPUs. Rackspace is hosting and managing this high-performance compute environment for the hospital.

Amar Maletira: So, we believe that there are two types of spend happening out there, Frank, in AI. One is the spend on AI infrastructure, and that's a big spend happening today. And that's mainly for model training. And the model training is driven by hyperscalers, Meta, as an example, OpenAI, and many startups. And to some extent, sovereign countries, as well as maybe some of the enterprises where they're doing very high-value research work.

Speaker Change: So we believe that there are two types of spend happening of there Frank.

Amar Maletira: And this spend is going into GPUs, into building systems, into data center build outs, and so on and so forth. But a lot of enterprises are not really participating in that infrastructure spend, so to speak, because the model training is usually happening on hyperscalers. So we believe that where we will participate as an infrastructure service provider on the private cloud or hybrid side is mainly in the inferencing of the workload. Once model training is done, as it moves into inferencing, that is the day two plus workload is a production workload that's very sticky, it's long term, and that's where we are building our private AI and hybrid AI architecture around it and launching a good solution around private AI, The second area where the spend is going, which is relatively smaller compared to the interest spend, is on applications and data, right?

Frank Louthan: One is the spend in AI infrastructure.

Speaker Change: And Thats, a big spend happening today, and Thats, mainly for module training and its and the water training is driven by Hyperscale meta as an example open AI in many of the startups and to some extent southern countries as well as maybe some of the enterprises.

Speaker Change: We're doing a really high value research work.

Amar Maletira: Work. And this is; this spend is going into GPUs, into building systems, into data center buildouts, and so on and so forth. A lot of enterprises are not really participating in that infrastructure spend, so to speak, because the model training is usually happening on the hyperscalers. So we believe that where we will participate as an infrastructure service provider on the private cloud or hybrid side is mainly on the inferencing of the workload. This Amar's model training is done as it moves into inferencing. That is, the day two plus workload is a production workload. That's very sticky.

Speaker Change: And this is this.

Speaker Change: Spend is going into gpus into billing systems into data center build out and so on and so forth.

Amar Maletira: Another large US health care pair awarded us similar Epic Migrate and Operate Managed Services contract that enables pair provider collaboration. I expect to see continued growth in health care. We are leading with Epic hosting as a service but building a foundation for customers to consolidate more of the data center footprint with Rackspace. We see similar opportunities in other regulated industry verticals. For example, we are also seeing traction in our banking, financial services and insurance vertical.

Speaker Change: A lot of enterprises are not really participating in that infrastructure spend so to speak because the model training is usually happening on the Hyperscale is so we believe that we will participate as an infrastructure service provider in the private cloud or hybrid side is mainly on the <unk> of the world.

Claude: Claude amongst.

Claude: Amongst module training is done as it moves into infringing that as the date <unk> plus <unk> is a production workload that's very sticky.

Amar Maletira: It's long term, and that's where we are building a private AI and hybrid AI architecture around it and launching a good solution around private AI, mainly around inferencing and some on model training. The second area where the spend is going, which is relatively smaller compared to the infrastructure spend, is on application and data. Right? Enterprises are participating in this, but with a very tactical approach to AI currently. So it's mainly in experimentation mode, and there we participate in our fair initiative. So all the bookings that you're seeing come in right now is through Fair. It is helping customers develop, help them identify the use cases, help them train the models, LLMs, and also industrialize them either on private or public.

Claude: It is it's long term and Thats, where we are building a private AI and hybrid AI architecture around it and launching.

Amar Maletira: In our December quarter last year, a large UK retail bank shows Rackspace's software-defined data center solution for their mission-critical banking applications. We are in the midst of this implementation and a customer is already experiencing significant improvement in transaction response times for the ATM and point of sale applications. This is yet another good validation of our differentiated solutions in Private Cloud. From an offerings perspective in Private Cloud, we launched 16 new and enhanced 17 other products and solutions in the quarter.

Claude: Good.

Claude: Solution around priority, mainly around in printing and some on module training. The second area that the spend is going which is relatively smaller compared to the interest spend is on application and data right enterprises are participating in this but but very tactical approach.

Frank Louthan: Enterprises are participating in this, but with a very tactical approach to AI currently, so it's mainly in experimentation mode. And there we participate through our FAIR initiative. So all the bookings that you're seeing come in right now are through FAIR, which is helping customers develop, you know, help them identify the use cases, help them train the models, LLMs, and also industrialize them either on private or public. So that's where, you know, we are seeing traction as the tip of the spear kind of solution that we provide through FAIR, and that will also help us to build a portfolio and solutions as That's where our hybrid AI, with both private and public, will come into play. Okay, great.

Speaker Change: Two AI currently so it's mainly an experimentation mode and that we participate to a fare initiatives. So all of the bookings that you're seeing right now is through fear is helping customers develop.

Amar Maletira: Overall, Private Cloud is still navigating a challenging transition, but our strategy is being increasingly validated through recent wins, a growing pipeline and positive customer feedback. We are positioning Private Cloud for durable and profitable growth in what we believe to be an underserved $50 billion total addressable market.

Claude: Hesitant identified the use cases help them train the models Llm's and also industries them either on private or public so thats.

Amar Maletira: So that's where we are seeing traction, and it's the tip of the sphere kind of solution that we provide through fair, and that will also help us to build a portfolio and solution as these workloads move more into inferencing and fine tuning. That's where our hybrid AI with both private and public will come into play.

Claude: We are seeing traction as the tip of the sphere kind of solution that we provide to fans and that will also help us to build our portfolio and solution as these workloads move more into inferencing and fine tuning, that's where our hybrid AI with both private and public.

Amar Maletira: Now, moving to Public Cloud. Public Cloud gap revenue of $4.25 million was up 1% sequentially, exceeding the high end of a guided range due to better unexpected performance in both services and infrastructure resale. Overall, bookings grew double digits year over year and low single digits sequentially.

Claude: <unk> will come into play.

Amar Maletira: Okay, great. That's very helpful. Thank you.

Frank Louthan: Okay, great. That's very helpful. Thank you.

Speaker Change: Okay, Great. That's very helpful. Thank you.

Kevin Mcveigh: And your next question comes from the line of Kevin McVeigh with UBS.

Kevin Mcveigh: And your next question comes from the line of Kevin McVeigh with UBS. Please go ahead.

Speaker Change: And your next question comes from the line of Kevin Mcveigh with UBS. Please go ahead.

Kevin Mcveigh: Please go ahead. Great. Thank you and congratulations on the results.

Kevin Mcveigh: Great, thank you, and congratulations on the results. Amar, to your point, you've kind of beaten or kind of come in at the high end of the range for eight quarters. It looks like the revenue beat was about two percent. You'd been pacing it, you know. I think about 1% or so, maybe a little less than that. So, was that incremental kind of revenue better than the infrastructure kind? step up that you saw, or would there have been anything else to call out there?

Speaker Change: Great.

Kevin Mcveigh: Thank you and congratulations on the results.

Amar Maletira: Marty, your point, you've kind of beaten or kind of coming to die into the range for eight quarters. It looks like the revenue fee was about 2%. You've been pacing it, you know. I think about 1% or so, maybe a little less than that. So acceleration, was that incremental kind of revenue beat the infrastructure kind of step up that you saw, or were there been anything else to call out here? Yeah, I think infrastructure consumption volume definitely is part of it, Kevin, and it's also services. Our services; we also did very well in services, and it came in higher than what we expected in the quarter.

Amar Maletira: I'm particularly pleased with our services bookings which represented 70% of total public cloud bookings for the quarter, growing high single digits year over year and sequentially. I attribute that success to a shift in our go-to-market strategy of leading with services combined with better execution. We are seeing particularly strong market demand for data services, specifically in data engineering, where our bookings in the quarter more than doubled year over year. Our strategic positioning in data services driven by both digital transformation and AI is clearly paying off.

Kevin Mcveigh: Marty your point, you've kind of beaten or kind of come in at the high end of the range for eight quarters. It looks like the revenue beat was about 2%.

Speaker Change: You had been pacing it.

Speaker Change: About 1% or so maybe a little less than that so.

Kevin Mcveigh: Acceleration.

Speaker Change: That incremental kind of revenue.

Kevin Mcveigh: The infrastructure and it.

Speaker Change: Step up that you saw or would there been anything else to call out there yes.

Amar Maletira: Yeah, I think infrastructure consumption volume definitely is part of it, Kevin, and it is also services. Our services business also did very well in services, and it came in higher than what we expected in the quarter. And our services bookings, just taking it a little bit forward, right, which is a main leading indicator services bookings grew, you know, a high single digit both sequentially as well as year on year across all three cloud-related services that we offer, platform, which is infrastructure services, application with migration and modernization, and data services that I talked about. In fact, our professional services bookings grew double digits across the board.

Speaker Change: Yes, I think infrastructure consumption volume definitely is part of it Kevin and it is also services our services. What we also did very well in services and it came in higher than what we expected in the quarter.

Amar Maletira: Additionally, we have become much better in attaching services to our infrastructure resale deals. 85% of our largest infrastructure resale deals this quarter also had services attached. We also started offering rack space elastic engineering services through AWS marketplace.

Amar Maletira: And our services bookings, this taking a little bit forward right, which is a mainly leading indicator services bookings group, you know, high single digit books sequentially as well as year on year across all three cloud-related services that we offer: platform, which is infrastructure services; application with migration and modernization; and data services that I talked about. In fact, our professional services Kevin in bookings group double digits across across the board.

Speaker Change: And our services bookings this taking a little bit forward, Greg, which is mainly leading indicators services bookings grew.

Greg: Our high single digit both sequentially as well as year on year across all three cloud related services that we offer platform, which is infrastructure services application with migration and modernization and data services that I talked about in fact, our professional services, Kevin bookings grew double digits across <unk>.

Amar Maletira: Some notable customer wins demonstrate the progress of our go-to-market strategy of leading with services. For instance, we were selected to implement a digital transformation program for a large media company. We writing a major customer facing application and migrating it onto one of the hyper-scalers. Rack space is supporting this strategic multi-year effort with a skilled multi-disciplinary team. From major consumer web company, we are deeply engaged across service offerings in professional services, platform support and security driven by a strength in delivering full-stack services and our deep cloud expertise.

Greg: The board.

Amar Maletira: And I guess the more, and that'll be my second question. Why are you seeing that now? Is that kind of just the monetization of the pivot in the sales force or the go-to market? Because obviously that's a really important part to the story, the incremental margins on professional services. So just, you know, why is it now, and again, it sounds like the attachment rates much higher than where it's been historically as well. So maybe you understand that a little bit. Yeah, I think Kevin, that's a good question. So I explained to you where it's happening.

Kevin Mcveigh: And I guess the more, and that'll be my second question. Why are you seeing this now? Is that kind of just a demonization of the pivot in the sales force or the go-to-market? Because obviously, that's a really important part to the story, the incremental margins on professional services. So, you know why it sounds like the attachment rate's much higher than where it's been historically as well, so maybe understand that a little bit. Yeah.

Speaker Change: And I guess more.

Speaker Change: And that'll be my second question.

Speaker Change: What are you seeing that now is that kind of just the monetization of the pivot in the sales for sure. They go to market because obviously, that's really important parts of the story the incremental margins on the professional services. So just.

Speaker Change: Why is it now and again it sounds like the attachment rates are much higher than where it's been historically as well so maybe understand that a little bit.

Amar Maletira: Yeah, I think, Kevin, that's a good question. So, I explained to you where it was happening. Now, let me explain why it was happening, okay?

Speaker Change: I think Kevin that's a good question so.

Kevin Mcveigh: I expect to where it's happening knowledge and explain why it is happening right.

Amar Maletira: It is mainly because of the foundation that we laid in the public cloud business in the second half of last year. If you recall, we churned out about 70% of our sales force. We hired and refreshed our sales organization in the second half, hired sales sellers with services skills, and we also hired client principals. That is number one.

Amar Maletira: We explained why it is happening. It is mainly because of the foundation that we laid in the public cloud business in the second half of last year. You know, if you recall, we choned out about 70% of a sales force. We hired and refreshed a sales organization in the second half, hired sales sellers with services skills. We also hired client principles. That is number one. Number two, we have been relentlessly driving sales enablement and training across all the nine sales places that we have. And today within our organizations are highly rated program. Number three, we also, you know, are supporting top of the funnel with specific demand generation activities.

Kevin Mcveigh: It is mainly because of the foundation that we lead.

Amar Maletira: I'm very encouraged by the success we have seen in public cloud and believe that the progress we have made across various initiatives will lead to even stronger performance going forward. We continue to target attractive opportunities with a winning mindset, positioning ourselves for ongoing success.

Kevin Mcveigh: In the public cloud business in the second half of last year, if you recall.

Kevin Mcveigh: We tune or about 70% of our sales force, we hired and refreshed our sales organization in the second half.

Speaker Change: Those sales are sellers with services skills were also higher planned principals.

Amar Maletira: Now, when it comes to AI, we continue to take an optimistic long-term but realistic short-term approach. Our fair initiative is developing innovative new ways to help our customers on their AI journey with over 40 engagements. We are closely partnering with hyper-scalers and we are one of the select few global AWS AI partners. As noted previously, we are driving strong growth in data services, helping customers take their first step towards leveraging AI.

Amar Maletira: Number two, we have been relentlessly driving sales enablement and training across all the nine sales plays that we have. And today, within our organization, it's a highly rated program. Number three, we also, you know, are supporting the top of the funnel with specific demand generation activities. Okay? We have sales and solutions campaigns that are working very well, and they are actually helping with the top of the funnel. And there's a major shift in how we are selling. Today, we are selling through relationships. We do power selling at the CXO level. So, for example, let me give you another data point that might be of interest.

Speaker Change: That is number one number two we are.

Kevin Mcveigh: Have been relentlessly driving sales enablement and training across all of the nine sales pace that we have and today within our organization to a highly rated program number three we also are supporting top of the funnel with specific demand generation activities. Okay. We have sales and solutions campaigns that are working.

Amar Maletira: Okay. We have sales and solutions campaigns that are working very well, and they're actually helping with the top of the funnel. And there's a major shift in how we are selling today. We are selling through relationship. We do a power selling at the CXO level. So, for example, let me give you another data point that might be of interest to you. More larger deal sizes are now showing up in the funnel as well as in bookings. 53% of bookings came from top 20 customers in this quarter. And we were able to go sign 10 out of the 20 Master Service Agreements with large enterprises.

Kevin Mcveigh: Very well and there they are actually helping with the top of the funnel.

Kevin Mcveigh: And there is a major shift in how we are selling today, we are selling two relationship we do a power selling at the <unk> level. So for example, let me give another data point that might be of interest to.

Amar Maletira: We are also planning for general availability of a private cloud AI offering called AI anywhere. While our operational turnaround is not dependent on short-term benefits from the secular wave in AI, we are maintaining our strategy and approach of thoughtfully developing AI capabilities so we can become the partner of choice for organizations as they embark on their AI journey. We will continue to do so without getting too far in front of the market.

Amar Maletira: Larger deal sizes are now showing up in the funnel as well as in bookings. 53% of our bookings came from the top 20 customers in this quarter. And we were able to sign 10 out of the 20 master service agreements with large enterprises. Now, that's a big achievement.

Kevin Mcveigh: More larger deal sizes, and now showing up in the funnel as well as in bookings, 53% of our bookings came from top 20 customers in this quarter and we were able to go sign 10 out of the 20 Master service agreements with large enterprises.

Amar Maletira: Now that's a big achievement. And now we are also hired client principles that are attached to these 10 large enterprises so that we can start selling our value proposition and a services and solution to these customers. You know, in fact, our largest go-to-market segment in the Americas exceeded target significantly for two quarters in a row, which is also a very good proof point that they know we're executing quite well on the field.

Kevin Mcveigh: Now that's a big achievement and now we are also higher client principles that are attached to these 10 large enterprises. So that we can start selling our value proposition and our services and solutions to these customers.

Amar Maletira: And now we have also hired client principals that are attached to these 10 large enterprises so that we can start selling our value proposition and our services and solutions to these customers. You know, in fact, our largest go-to-market segment in the Americas exceeded targets significantly two quarters in a row, which is also a very good proof point that, you know, we are executing quite well in the field. We were also included in the Microsoft Managed Partner List.

Amar Maletira: In summary, I am pleased with the study progress we have made despite a flat market. Our operational turnaround is focused on strengthening our pipeline and sales booking in both private and public cloud, stabilizing and growing revenue and profit while continuing to drive cost efficiencies. Although they still work to be done, we are building momentum for consistent and sustainable growth in revenue, profits and cash flows in the years to come.

Kevin Mcveigh: In fact, our largest go to market segment in the Americas exceeded targets significantly two quarters in a row, which is also very good proof point that we're at.

Kevin Mcveigh: Executing quite well on the field.

Amar Maletira: We were also included in Microsoft Managed Partner list this quarter, which was a big achievement. And we are working with Microsoft on Azure as well as with AWS very closely. And Kevin, one of the things as we pivoted to being a services-led organization on public cloud, we also are recognized by industry analysts like IDC, Everest, ISG. They are ranked as either leaders or major players. So that's what's actually driving our services business as we see growth in funnel, good bookings, conversions, so on and so forth. Similar story even on private cloud. So I think what we lead as a foundation is started working well.

Kevin Mcveigh: Also included in Microsoft managed partner list this quarter, which was a big achievement and we are working with Microsoft on Azure as well as with AWS very closely.

Amar Maletira: This quarter, which was a big achievement, and we are working with Microsoft on Azure as well as with AWS very closely. And, Kevin, one of the things, as we pivoted to being a services-led organization on public cloud, we are also recognized by industry analysts like IDC, Everest, and ISG. They have ranked us as either leaders or major players. So that's what's actually driving our services business as we see growth in the funnel, good bookings, conversions, so on and so forth. Similar story, even on the private cloud. So I think what we laid as a foundation is started working with.

Amar Maletira: Before I wrap up, I would like to thank our customers, partners and all our actors and proud of all we have achieved together already.

Speaker Change: And Kevin one of the things as we pivoted to being a services led organization in public cloud. We also are recognized by industry analysts like IDC Everest ISG Theyre ranked us as either leaders are major players. So that's what's actually driving our services business as we see growth in funnel.

Mark Marino: I will now turn it over to Mark for an overview of financial results and guidance. Thank you, Mark. In the second quarter, total company gap revenue of $685 million exceeded the high end of our guidance driven by strength and public cloud. Total non-gap net revenue was $380 million down 1% sequentially due to a decline in private cloud. Non-gap gross profit margin was 20.3% of gap revenue, flat sequentially and 36.7% of non-gap net revenue also flat versus prior quarter.

Kevin Mcveigh: Good bookings conversion and so on and so forth similar story, even on private cloud. So I think what really as a foundation has started working well.

Kevin Mcveigh: We're out, folks. Thank you, Mark.

Amar Maletira: Thank you. Thanks.

Mark Marino: Thank you Mark.

Mark Marino: Thanks, Ken.

Mark Marino: For the quarter, non-gap operating profit was $23 million exceeding the high end of our guidance. This was primarily driven by better than expected performance in our public cloud segment and continued focus on cost management. Non-gap operating margin was 3.3% of gap revenue up 1% sequentially and 6% of non-gap net revenue up 1.8% sequentially. Non-gap loss per share was 8 cents, which came in better than our guided range of a 9 to 11 cent loss per share.

Ryan Campbell: And your next question comes from the line up from CL at all with Barclays, these two heads.

Ramsey El: And your next question comes from the line of Ramsey El Adal with Barclays. Please go ahead.

Speaker Change: And your next question comes from the line of from CLSA, All with Barclays. Please go ahead.

Ryan Campbell: Hi, this is Ryan on behalf of Ramsey. Thanks for taking my question today. I was hoping to get an update on the competitive landscape. This quarter, you even mentioned some success with mid-market and enterprise clients. I guess I was curious to see if you're coming up against any different competition than you did prior and really what solutions are responding the most with these clients in the market. No, I think so the competition remains the same.

Amar Maletira: Hi, this is Ryan on for Amsey. Thanks for taking my question today. I was hoping to get an update on the competitive landscape. This quarter, you even mentioned some success with mid-market and enterprise clients. I guess I was curious to see if you're coming up against any different competition than you did prior, and really what solutions are resonating the most with these clients at market. Thank you. No, I think so. The competition remains the same, Ryan. That's a very good question. The competitive landscape has not changed as much. I know one of the things to Kevin's question earlier, you know, we are playing in markets where the markets, you know, for example, IDC said in cloud services for the next 12 months, you know, it's the design, migration, modernization work on cloud.

Speaker Change: Hi, This is Ryan on for <unk>. Thanks for taking my question today.

Speaker Change: I was hoping to get an update on the competitive landscape.

Speaker Change: Are you even mentioned some success with Midmarket and enterprise clients.

Amar Maletira: So the competition remains the same, Ryan. That's a very good question.

Speaker Change: I was curious to see if you're coming up against any different competition than you did prior and really what solutions are resonating. The most with these clients that market. Thank you.

Amar Maletira: The competitive landscape has not changed as much. One of the things to Kevin's question earlier, we are playing in markets where the market, for example, IDC said in cloud services for the next 12 months, it's the design, migration, and modernization work on the cloud. The budgets are going to go up by mid-single digits.

Mark Marino: Cash flow from operations was $24 million and free cash flow was negative $15 million in the second quarter. These amounts reflect the reclassification of a portion of our cash interest payments to financing cash flows. As a result of the accounting treatment for the term loan, we entered into as part of the key one debt refinancing. Moving forward, we will continue to reclassify a portion of the cash interest payments on this debt instrument, plus the semi-annual cash interest payments on our 3.5% senior secured notes to financing.

Speaker Change: No I think so the competition remains the same Brian.

Speaker Change: Very good question the.

Speaker Change: The competitive landscape has not changed as much I don't one of the things to Kevin's question earlier.

Speaker Change: We are playing in markets, where the markets for example, IDC said in cloud services for the next 12 months.

Mark Marino: It's the.

Speaker Change: Design migration modernization work on cloud the budgets are going to go up by mid single digits. So we're playing in markets that are growing even in this kind of macro environment, especially on the cloud side and we see competition, there, but our relationship with the Hyperscale.

Amar Maletira: The budgets of going to go up by mid single digit. So we are playing in markets that are growing even in this kind of macro environment, especially on the cloud side. And we see competition there, but our relationship with the hyperscalers and our differentiation when we go to market, we go not as a big SI. We go in as with a labor minus model, example, if you think about data services, right? There are a lot of people, a lot of companies in data services. So where do we differentiate? It is our deep experience and talent in data engineering; as an example, we go in with differentiated solutions with an IP raptor on it.

Mark Marino: For the balance of fiscal year 2024, we expect cash flow from operations to remain positive and free cash flow to be slightly negative given by success-based capex.

Amar Maletira: So we are playing in markets that are growing even in this kind of macro environment, especially on the cloud side. And we see competition there. But our relationship with the hyperscalers and our differentiation, when we go to market, we go not as a big SI. We go in with a labor-minus model. For example, if you think about data services, there are a lot of companies in data services. So where do we differentiate?

Speaker Change: And our differentiation when we go to market. We go not as the biggest Si we go in as.

Mark Marino: Turning to our segment results. For private cloud, gap revenue for the second quarter was $260 million within our guided range. This includes legacy open stack revenue of $25 million.

Speaker Change: With the labor minus model.

Speaker Change: Sample if you think about data services there are a lot of people.

Speaker Change: Companies and data services, so where do we differentiate it is our deep experience and talent in data engineering as an example, we go in with differentiated solutions with an IP wrapped around it that's a labor minus model and we have been executing very well from a go to market perspective, so our value proposition is.

Mark Marino: Awards. Total private cloud revenue was down 3% sequentially due to customers rolling off older generation private cloud offerings. Private cloud gross margin was 37.4% down 1.6% sequentially primarily due to lower revenue. Segment operating margin was 26.8%, flat sequentially driven by improved cost efficiencies, and better asset utilization.

Amar Maletira: It is our deep experience and talent in data engineering, as an example. We go in with differentiated solutions with an IP wrapped around them. That's a labor-minus model.

Amar Maletira: That's a labor-minus model. And we have been, you know, executing very well from a go to market perspective. So our value proposition is resonating with the customers. We are showing up very well, and we are delivering to our commitments. Our NPS are pretty high, even in these, even in, you know, as we continue to grow our bookings and deliver.

Amar Maletira: And we have been executing very well from a go-to-market perspective. Our value proposition is resonating with customers. We are showing up very well. And we are delivering on our commitments. Our NPS is pretty high, even as we continue to grow our bookings and deliver.

Speaker Change: Resonating with the customers, we are showing up very well and we are delivering to our commitments our NPS at pretty high even in these even.

Mark Marino: In public cloud, gap revenue was 425 million dollars exceeding the high end of our guidance and was up 1% sequentially due to consumption driven growth on infrastructure resale volumes. Gross margin for our public cloud segment was 35.1% of non-gap net revenue, up 3.6% is sequentially driven by improved operational efficiency entire utilization. Non-gap segment operating profit was 9.8% of non-gap net revenue, up 1.8% points versus prior quarter. We believe there is opportunity to further improve utilization over the rest of the year.

Speaker Change: And as we continue to grow our bookings and deliver.

Amar Maletira: Great. Thank you.

Speaker Change: Great. Thank you.

Sagar Hebbar: There are no further questions at this time.

Operator: There are no further questions at this time. I would like to turn it back to Sagar Hebbar with a foreclosing remark.

Speaker Change: There are no further questions at this time I would now like to turn it back to Sal go ahead barley for closing remarks.

Sagar Hebbar: I would like to turn it back to Sagarha Bar with a foreclosing remarks. Thank you, Brother Love. Thanks everyone for joining us.

Sal: Thank you Brent up thanks, everyone for joining us if you did not get to your question, but if you have a follow up please E mail us at IR at <unk> Dot com.

Sagar Hebbar: Thank you everyone for joining us. If we did not get to your question or if you have a follow-up, please email us at ir at Rackspace.com.

Sagar Hebbar: If you did not get to your question, or if you have a follow-up, please email us at hion.com.

Operator: Have a wonderful evening, everyone. Thank you.

Operator: Have a wonderful evening, everyone. Thank you, and this concludes today's conference call. Thank you all for participating. You may now disconnect.

Speaker Change: Wonderful evening everyone.

Speaker Change: Thank you and this concludes today's conference call. Thank you all for participating you may now disconnect.

Operator: And this concludes today's conference call. Thank you all for participating. You may now disconnect.

Mark Marino: Now an update on our debt repurchase activity for the quarter.

Mark Marino: Before I begin, a quick recap. As announced on our Q1 earnings call, we closed the public debt exchange in April with over 96% of our secured creditors supporting the exchange transaction. We reduced our outstanding principal by over $300 million and lowered annual cash interest costs by more than $11 million. We also extended the maturities on the revolver and other participating senior debt facilities so that we now have no corporate maturities prior to 2028.

Operator: [music]

Speaker Change: [music].

Mark Marino: During Q2, we continued to repurchase our debt. We deployed $29 million of cash to repurchase $68 million in aggregate principal amount of debt. Early in the third quarter, we also repurchased an additional 24 million of the FLSO term loan at an average price of 46 cents on the dollar. In the first half of 2024, we deployed a total of $62 million to opportunistically repurchase $137 million in aggregate principal amount of our debt. We will continue to monitor and assess further opportunities to improve our capital structure.

Mark Marino: Now on to guidance. We expect third quarter gap revenue to be approximately $668 to $680 million down 1% sequentially at the midpoint. Total non-gap operating profit is expected to be $29 to $31 million up 31% sequentially at the midpoint and non-gap loss is expected to be from 6 to 8 cents per share.

Mark Marino: From a segment perspective, we expect private cloud revenue of $255 to $262 million in public cloud revenue of $414 to $419 million. Our non-gap tax rate is expected to be 26% and non-gap other expenses is expected to be approximately $51 to $55 million. The non-gap share count is expected to be around $231 to $233 million shares.

Sagar Hebbar: I will now turn the call over to Sagar. Thank you Mark.

Sagar Hebbar: Let us begin the question and answer session. We ask everyone to limit discussion to one question and one follow up. Please go ahead. Thank you, and we will now begin the question and answer session. If you have dialed in and would like to ask a question, simply press a star, followed by the number one on your telephone, keep at the raise your hand and join the queue. If you would like to withdraw your question, simply press a star one again.

Sagar Hebbar: If you are called upon to ask your question and are listening by a loud speaker on your device, please speak up your handset and ensure that your phone is not on mute when asking your question. Again, please press a star one to join the queue.

Amar Maletira: And your first question comes from the line of Frank Louthan with Raymond James, please go ahead. Great, thank you. If you can give us an idea of the outlook of when we can expect getting back to positive top line growth and when some of the issues, you can start to kick in there. And then can you give us an idea of what percentage of your bookings currently are AI related? Thanks. Yes, thank you.

Amar Maletira: I will get started and I'll take both the questions and marketplace jumping. Okay. So as we, Frank, thank you very much for the question. As we indicated last quarter, we will see, start seeing revenue stabilization in the second half. You already started seeing that in Q3. In fact, in Q2, when you look at our revenue beat, the revenue beat came from two sources. One was an infrastructure, a retail volume swept up, and the second was from services.

Amar Maletira: Now, the services beat and higher than our own internal expectation was good news because we had started seeing some leading indicator with good bookings and services in the previous quarter. And we see it saw that in this quarter too, where I'm going with this is if you exclude that increase in infrastructure volume consumption, which is very hard to predict Frank because, you know, this is not something that, you know, we have complete visibility too.

Amar Maletira: So if you exclude that our revenue is roughly flat from going from Q2 to Q3, that's what our guidance is. So we started seeing the revenue stabilization Frank. I feel good about the pipeline building. You know, you saw both in private cloud as well as public cloud. The pipeline has grown significantly. In fact, in private cloud, it was up over 35% year on year. And when you go dig into that pipeline, the top of the funnel is growing very rapidly.

Amar Maletira: In fact, in our healthcare business, our funnel was close to about $1.2 billion dollars. The top of the funnel has compared to roughly $750 plus million just about three months ago. So good development of pipeline. We have to go convert that into bookings typically in private cloud. The sales cycles are bit longer as you know. We also, when you look into our funnel, we see some large deals developing in the funnel.

Amar Maletira: And that's quite encouraging for us. And there's always deal lumpiness in the private cloud business as you are aware. So all leading indicators are good. We also seeing revenue runoff. That's one of the challenges that we have faced with because of the older generation products are running off. We also see some of our commercial customers, which is the customers with less than $300 million in revenue. They're not our revenue, but they're revenue.

Amar Maletira: We also seeing that long tail also running off as we start building our pipeline and book of business mode towards mid market enterprise customers. So I feel very good about those leading indicators. We will continue to work on the revenue runoff on the private cloud side. We have initiatives in place. We started seeing some improvements in revenue runoff and we expect it to improve in the next few quarters. And we believe in the next couple of quarters or so, our bookings will outpace revenue.

Amar Maletira: Having said that, you know, the bookings to convert to revenue in private cloud takes about anywhere from six to nine months. So we should expect the business to start stabilizing. That's what, you know, the first most important priority we had in the short term was tender decline in private cloud, working towards that. And then start growing. Now when it comes to public cloud, I think it's a different story. We already started seeing improvements there.

Amar Maletira: Our bookings, second quarter in row, you know, Q1 as well as Q2. This, we are putting a fiscal Q2. We grew sequentially in, in bookings in both, in Q1 as well as Q2. Now, as I tell people internally, you know, one quarter is just a point. Two quarters, two points and make a line. We have to, we have to go and do it, you know, more than two quarters to really start seeing a trend.

Amar Maletira: But we do, when we look at the follow, we look at the conversion, I think we are doing quite well. So I expect services revenue also to start stabilizing the next couple of quarters as we indicated earlier. On the infrastructure sign, you know, as we have indicated to you earlier, that, you know, we will walk away from some low margin infrastructure or non-profitable infrastructure easels deals. And that might impact a revenue, but should not impact a profit as much.

Amar Maletira: So just to summarize, you know, we do expect stabilization in revenue or all revenue, barring us walking away from some of the low margin infrastructure deals in both the businesses and the next couple of quarters. The second question, you go ahead. Well, yeah, it's a follow-up on that. How do you empower you defining stabilization, stabilization relative to what relative to you? Oh, yeah, that's a good question here. Yeah. How should we think about where it's going to kind of start to grow from?

Amar Maletira: Yes. I think that's a good question. When we talk about stabilization, we do it on a sequential basis, right? When you take a look at a private cloud revenue, the last few quarters, we were declining anywhere from 4% to 6%. Right? Now, you're seeing that the client significantly reduced in this order in this order. So it's gone to minus 3 to minus 1. So for us, stabilization, Frank, is on a sequential basis.

Amar Maletira: And then we start growing from there on on a sequential basis, which should learn in the year on year growth. Is that helpful? Yes, thank you. Now, coming to AI, now listen, I think as I mentioned in my prepare remark, we are long-term, very optimistic about AI and Gen AI. We believe that is going to impact all functions, all industries, and it's a really promising cycle of wave. Having said that in the near term, in the short term, we are very realistic in our approach.

Amar Maletira: So when you talk about bookings, it's not a big portion of a bookings. You know, I think, and I will give you a little bit more color there on how we look at this opportunity. So it's not a big portion of a bookings, but we have 40 plus engagements through a fair initiative, and we are seeing a very good traction in AI. And some of this is also a follow-on on our data business.

Amar Maletira: As I mentioned, our data services business, which has data engineering, data migration, and data modernization, all three, that data services with the bookings, two quarters in a row, grew substantially, both year on year as well as sequentially. And that's, you know, getting customers ready for the data lakes, and we are affecting the data architecture, et cetera. And that's the kind of work we are doing, so partially driven by AI and partially driven by the move to cloud itself.

Amar Maletira: Now, let me, since I have this opportunity, let me just give you a little bit of more color on how we look at AI. So we believe that there are two types of spin happening out there, Frank, in AI. One is the spin in AI infrastructure, and that's a big spin happening today, and that's mainly for model training. And the model training is driven by hyperscalers. Meta has an example, openly AI, and many of the startups.

Amar Maletira: And to some extent, sovereign countries, as well as maybe some of the enterprises, where they're doing a very high value research. Work. And this is, this spend is going into GPUs, into building systems, into data center buildouts and so on and so forth. A lot of enterprises are not really participating in that infrastructure spend, so to speak, because the model training is usually happening on the hyperscalers. So we believe that where we will participate as an infrastructure service provider on the private cloud or hybrid side is mainly on the inferencing of the workload.

Amar Maletira: This Amar's model training is done as it moves into inferencing, that is the day two plus workload is a production workload. That's very sticky. It's long term and that's where we are building a private AI and hybrid AI architecture around it and launching a good solution around private AI mainly around inferencing and some on model training. The second area where the spend is going which is relatively smaller compared to the infrastructure spend is on application and data.

Amar Maletira: Right? Enterprises are participating in this, but with very tactical approach to AI currently. So it's mainly in experimentation mode and there we participate to our fair initiative. So all the bookings that you're seeing come in right now is through fair is helping customers develop, help them identify the use cases, help them train the models, LLMs and also industrialize them either on private or public. So that's where we are seeing traction and it's the tip of the sphere kind of solution that we provide through fair and that will also help us to build a portfolio and solution as these workloads move more into inferencing and fine tuning. That's where our hybrid AI with both private and public will come into play. Okay, great. That's very helpful. Thank you.

Amar Maletira: And your next question comes from the line of Kevin McVeigh with UBS. Please go ahead. Great. Thank you and congratulations on the results. Marty, your point, you've kind of beaten or kind of coming to die into the range for eight quarters. It looks like the revenue fee was about 2%. You've been pacing it, you know, I think about 1% or so maybe a little less than that. So acceleration, was that incremental kind of revenue beat the infrastructure kind of step up that you saw or were there been anything else to call out here?

Amar Maletira: Yeah, I think infrastructure consumption volume definitely is part of it Kevin and it's also services. Our services, we also did very well in services and it came in higher than what we expected in the quarter. And our services bookings, this taking a little bit forward right which is a mainly leading indicator services bookings group, you know, high single digit books sequentially as well as year on year across all three cloud-related services that we offer platform which is infrastructure services application with migration and modernization and data services that I talked about. In fact, our professional services Kevin in bookings group double digits across across the board.

Amar Maletira: And I guess the more, and that'll be my second question. Why are you seeing that now? Is that kind of just the monetization of the pivot in the sales force or the go-to market? Because obviously that's really important part to the story, the incremental margins on professional services. So just, you know, why is it now, and again, it sounds like the attachment rates much higher than where it's been historically as well.

Amar Maletira: So maybe you understand that a little bit. Yeah, I think Kevin, that's a good question. So I explained to you where it's happening. We explained why it is happening. It is mainly because of the foundation that we laid in the public cloud business in the second half of last year. You know, if you recall, we, we choned out about 70% of a sales force. We hired and refreshed a sales organization in the second half, hired sales sellers with services skills.

Amar Maletira: We also hired client principles. That is number one. Number two, we have been relentlessly driving sales enablement and training across all the nine sales place that we have. And today within our organizations are highly rated program. Number three, we also, you know, are supporting top of the funnel with specific demand generation activities. Okay. We have sales and solutions campaigns that are working very well and they're actually helping with the top of the funnel.

Amar Maletira: And there's a major shift in how we are selling today. We are selling through relationship. We do a power selling at the CXO level. So for example, let me give you another data point that might be of interest to you. More larger deal sizes are now showing up in the funnel as well as in bookings. 53% of bookings came from top 20 customers in this quarter. And we were able to go sign 10 out of the 20 master service agreements with large enterprises.

Amar Maletira: Now that's a big achievement. And now we are also hired client principles that are attached to these 10 large enterprises so that we can start selling our value proposition and a services and solution to these customers. You know, in fact, our largest go-to-market segment in the Americas exceeded target significantly to quarters in a row, which is also a very good proof point that they know we're executing quite well on the field.

Amar Maletira: We were also included in Microsoft managed partner list this quarter, which was a big achievement. And we are working with Microsoft on Azure as well as with AWS very closely. And Kevin, one of the things as we pivoted to being a services led organization on public cloud, we also are recognized by industry analysts like IDC Everest, ISG. They are ranked as either leaders or major players. So that's what's actually driving our services business as we see growth in funnel, good bookings, conversions, so on and so forth. Similar story even on private cloud. So I think what we lead as a foundation is started working well.

Amar Maletira: Thank you. Thanks.

Ryan: And your next question comes from the line up from CL at all with Barclays these two heads. Hi, this is Ryan on for Amsey. Thanks for taking my question today.

Amar Maletira: I was hoping to get an update on the competitive landscape. This quarter you even mentioned some success with mid-market and enterprise clients. I guess I was curious to see if you're coming up against any different competition than you did prior and really what solutions are resonating the most with these clients at market. Thank you. No, I think so. The competition remains the same, Ryan. That's a very good question. The competitive landscape has not changed as much.

Amar Maletira: I know one of the things to Kevin's question earlier, you know, we are playing in markets where the markets, you know, for example, IDC said in cloud services for the next 12 months, you know, it's the design migration modernization work on cloud. The budgets of going to go up by mid single digit. So we are playing in markets that are growing even in this kind of macro environment, especially on the cloud side.

Amar Maletira: And we see competition there, but our relationship with the hyperscalers and our differentiation when we go to market, we go not as a big SI. We go in as with a labor minus model, example, if you think about data services, right? There are a lot of people, a lot of companies in data services. So where do we differentiate? It is our deep experience and talent in data engineering as an example, we go in with differentiated solutions with an IP raptor on it.

Amar Maletira: That's a labor minus model. And we have been, you know, executing very well from a go to market perspective. So our value proposition is resonating with the customers. We are showing up very well, and we are delivering to our commitments. Our NPS are pretty high, even in these, even in, you know, as we continue to grow our bookings and deliver. Great. Thank you.

Operator: There are no further questions at this time.

Sagar Hebbar: I would like to turn it back to Sagarha Bar with a foreclosing remarks. Thank you, Brother Love. Thanks everyone for joining us. If you did not get to your question, or if you have a follow-up, please email us at hion.com. Have a wonderful evening, everyone. Thank you.

Operator: And this concludes today's conference call. Thank you all for participating. You may now disconnect.