Q4 2024 Rackspace Technology Inc Earnings Call
Yeah.
Good day, and thank you for standing by welcome to the Rackspace fourth quarter 2024 earnings webcast.
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Speaker Change: I'd like to hand, the conference over to your first speaker today, So our high bar head of Investor Relations. Please go ahead.
Speaker Change: Thank you and welcome to rack based technologies fourth quarter 2024 earnings Conference call.
Speaker Change: I am sorry go ahead bar.
Speaker Change: Relations.
Speaker Change: Joining me on today's call normality.
Mark Marino: If I could get them officer, and Mark Marino, our Chief Financial Officer.
Mark Marino: As a reminder, certain comments, we make on this call will be forward looking.
Mark Marino: These statements involve risks and uncertainties, which could cause actual results to differ.
Mark Marino: A discussion of these risks and uncertainties is included in our SEC filings tax based technology assumes no obligation to update the information presented on the call except as required by law.
Mark Marino: Our presentation includes certain non-GAAP financial measures and adjustments to these measures, which we believe provide useful information to our investors.
Mark Marino: In accordance with SEC rules, we have provided a reconciliation of these measures to their most directly comparable GAAP measures in the earnings press release and presentation, both of which are available on our Investor Relations website.
Mark Marino: I'll now turn the call over to Mark for an update on the business.
Mark Marino: Thank you saga, our fourth quarter results exceeded guidance for revenue profit and EPS, marking the 10th consecutive quarter of meeting or beating expectations.
Mark Marino: We also achieved a record breaking quarterly sales bookings, reaching the highest level since early 2023, and the formation of our two business units booked.
Mark Marino: Bookings as measured by annual contract value for the fourth quarter grew high double digits, both sequentially as well as year over year, reflecting excellent go to market execution in a strengthening demand environment.
Mark Marino: I'm also pleased with our sales execution in fiscal 2024.
Mark Marino: Full year sales bookings grew by 14% fueled by strong performance in the Americas, and the increasing adoption of hybrid cloud solutions across multiple industries.
Mark Marino: Notably second half bookings grew 32% over the first half underscoring the accelerating momentum across both business units.
Mark Marino: This reaffirms that our strategy and go to market execution are driving tangible results.
Mark Marino: We initiated this approach two years ago, and made significant market uncertainty and today, what market conditions and customer demand validates our direction.
Mark Marino: As we move into 2025.
Mark Marino: Leveraging this momentum and with our strategic focus optimized operating model and a strong team I'm confident we will accelerate our progress.
Mark Marino: With that let's dive into the performance of our business units starting with private cloud.
Mark Marino: Fourth quarter of 'twenty 'twenty four was a record sales bookings quarter for private cloud.
Mark Marino: Bookings in the fourth quarter more than doubled sequentially and grew high double digits year over year, driven by the strong performance across most of our go to market segments.
Mark Marino: For full year of 2020 full private cloud sales bookings were up 4% year over year.
Mark Marino: Bookings in the second half of 'twenty 'twenty four grew 42% compared to the first half.
Mark Marino: Highlighting significant acceleration towards the end of the year.
Mark Marino: In the fourth quarter, we also signed a transformative multiyear managed cloud agreement with Seattle Children's Hospital.
Under this 10 year multimillion dollar deal Rackspace will deliver an end to end managed solutions designed to revitalize the hospitals data center operations and modernize its infrastructure for both clinical and non clinical workloads.
This strategic partnership will enable Seattle children's to seamlessly transition to rack space a state of the art healthcare cloud, ensuring enhanced performance efficiency and security.
Mark Marino: Overall on the sales front, we are consistently gaining market traction by leveraging a strong installed base and attracting new customers.
Mark Marino: Private cloud GAAP revenue was 269 million for the quarter exceeding our guided range and rising 4% sequentially. This.
Mark Marino: This growth was driven by the successful onboarding of a major health care customers secured in 2023.
Mark Marino: Our private clubs segment is making significant progress.
Mark Marino: Particularly in the health care and southern markets in fiscal 2020 full health care revenue grew 34% year over year, while sovereign revenue surged by 15, 9%.
Mark Marino: Within the service segment, we are expanding our footprint in the U K and the Kingdom of Saudi Arabia, and we are seeing interest from other nation states driven by rising data sovereignty security and compliance requirements.
Mark Marino: The past two years, our value proposition in private cloud has evolved from an infrastructure as a service provider into a specialized high value solutions partner.
Mark Marino: In 2024, we launched several innovative solutions and platforms.
Mark Marino: Notably, we expanded our rack space anywhere offerings to capture new and incremental walk goods in customer data centers deliver.
Mark Marino: Delivering unparalleled flexibility and enabling true hybrid cloud environments.
Mark Marino: Also excited to announce the upcoming release of open cloud.
Mark Marino: Our next generation cloud platform targeting customers across large enterprises sovereign organizations and other cloud service providers.
Mark Marino: Leveraging our deep open source expertise open cloud unifies existing silos into a single operational platform simplifying Intel cloud operations, while delivering hyperscale capabilities to end users.
Mark Marino: In fiscal 2025, we expect a modest year over year decline in private cloud revenues with a leveling effect by year end as we onboard large deals signed in 2024.
Mark Marino: We are seeing strong momentum in our bookings driven by an increasing mix of large deals that will underpin a sustainable recurring revenue base. Moreover, in fiscal 2025, our annualized sales bookings for new offerings are expected to be in line or outpaced the run off from legacy private cloud products, highlighting a ship from <unk>.
Mark Marino: Turnaround to a more resilient quote focused business model beyond 2025.
Mark Marino: Given the rapid expansion of the private cloud market.
Mark Marino: Exceptionally well positioned to emerge as one of the world's largest private cloud providers.
Mark Marino: Now turning to public cloud and.
Mark Marino: In the fourth quarter of 2020 for a public cloud GAAP revenue was $417 million, surpassing our guided range due to an uptick in higher power consumption.
Mark Marino: Building on record third quarter bookings, we sustained strong sales momentum into the fourth quarter with the fourth quarter bookings growing in the high double digits year over year, driven by robust performance in both our services and infrastructure resale.
Mark Marino: For the full fiscal year public toward bookings grew 22% year over year with both services and infrastructure retail posting double digit growth.
Mark Marino: Notably data services bookings more than doubled driven in part by ear related projects. So other factors also contributed to this growth.
Mark Marino: This results underscore our significant progress in 'twenty 'twenty four as we strategically shifted our focus to a services led sales motion rather than low margin infrastructure resale.
Mark Marino: This transformation has been prepared by refreshing or 70% of our sales team revamping our go to market strategy and building a strong services value proposition.
Mark Marino: In the fourth quarter Rackspace was recognized by ISG as a leader in the AWS ecosystem partners category in the U S.
Mark Marino: We also earned the AWS small and medium business competency differentiating us as a partner with expertise and commitment to enable small and medium businesses leverage AWS cloud.
Mark Marino: Throughout 2024, we strengthen our partnership with key Hyperscale is by focusing on high demand areas with significant revenue potential.
Mark Marino: We signed 16, new Master service agreements, creating fresh growth opportunities to our land and expand strategy. These initiatives have fostered deeper collaboration bolstered partner support and increase sales leads demonstrating our ability to deliver tailored solutions that meet customer needs.
Mark Marino: Public cloud segment continue to innovate with the introduction of new services.
Mark Marino: This quarter, we launched a security cloud native managed security services designed to protect online applications remote workers and networks from cyber threats. We also unveiled our AWS accelerated migration analysis offerings, which helps organization build data driven business cases for cloud migration by emphasizing.
Mark Marino: Cost optimization licensing flexibility and enhanced performance in.
Mark Marino: In summary, 2024 marked a significant inflection point for our public cloud business driven by improving ITD budgets growing interest in our solutions and outstanding sales execution in the latter half of the year.
Mark Marino: As we look to 2025, our focus is on solidifying our sustainable business model centered on managed cloud services migration modernization and data services setting the stage for consistent revenue and profit growth.
Mark Marino: Recent booking trends and stronger customer engagement positions us well to accelerate that momentum in 2025.
Mark Marino: Turning to AI, we continue to be optimistic with the progress made with more than 50 customers and close to 200 opportunities in our pipeline at various stages.
Mark Marino: In the fourth quarter, we successfully deployed multiple customer solutions, leveraging multi modal journey, II and <unk> II, enabling them to process and analyze text images videos and structured data simultaneously.
Mark Marino: This deliberate richer more contextual insight that enhanced operational efficiency decision, making compliance and automation.
Mark Marino: In private cloud, we launched a solution, which accelerates the deployment and management of AI tools frameworks and applications as well as a high performance platform optimized for AI workloads, enabling organizations to leverage hybrid AI capabilities.
Mark Marino: Before wrapping up I want to highlight our consistent execution and a focus on three key strategic priorities first.
Mark Marino: Making steady progress on our operational turnaround this was reflected in our bookings growth and efficiency improvements in 2024 second we continued to position rack space as a forward leaning in over to hybrid cloud and AI solutions company, we are launching new products solutions and offerings that target. The next big secular waves of growth in both hybrid.
Mark Marino: <unk> and AI.
Mark Marino: And third we remain focused on improving our capital structure to support and sustain profitable growth over the long term with ample liquidity and flexibility to focus on our operational priorities.
Mark Marino: Finally, I'd like to thank our customers breakfast partners and suppliers.
Mark Marino: I am proud of all we have achieved together during this year of change I will now turn the call over to Mark Marino for an <unk>.
Mark Marino: Overview of our financial results and guidance.
Mark Marino: Thank you Mark in the fourth quarter total company GAAP revenue was $686 million above our guided range driven by solid performance across the board for the quarter non-GAAP gross profit margin was 26% of GAAP revenue down 50 basis points sequentially for the full year 2024.
non-GAAP gross profit margin was 26% down 172 basis points year over year.
Mark Marino: non-GAAP operating profit was $39 million in the fourth quarter exceeding the high end of our guidance range non-GAAP operating margin for the quarter was five 7% of GAAP revenue, an increase of 94 basis points sequentially.
Mark Marino: For the full year 2024, non-GAAP operating margin was three 9% down 146 basis points versus prior year.
Mark Marino: non-GAAP loss per share was <unk> <unk> higher than our guided range driven by better than expected operating profit.
Mark Marino: Cash flow from operations was $54 million and free cash flow was $34 million in the fourth quarter.
For the full year cash flow from operations was $40 million and free cash flow usage was $71 million.
Mark Marino: We ended the year with $144 million in cash on hand, and $519 million of total liquidity, including $375 million of Undrawn commitments.
Mark Marino: Turning to our segment results for private cloud GAAP revenue for the fourth quarter was $269 million above our guided range. This includes legacy opens back revenue of $27 million.
Mark Marino: Total private cloud revenue was up 4% sequentially due to strength in our healthcare segment.
Mark Marino: Private cloud non-GAAP gross margin was 39, 8% up 120 basis points sequentially due to higher revenue and cost efficiencies non-GAAP segment operating margin at 30% was up 130 basis points sequentially, driven by gross margin expansion and improved cost management.
Mark Marino: And our public cloud segment GAAP revenue was $417 million above our guided range driven by higher cloud infrastructure volumes, partially offset by a slight decline in services.
Mark Marino: non-GAAP gross margin was eight 2% down 210 basis points sequentially, driven by an increase in infrastructure revenue mix.
Mark Marino: non-GAAP segment operating margin was two 4%.
Mark Marino: 130 basis points sequentially due to lower gross margins, partially offset by operational efficiencies.
Mark Marino: Now on to guidance, we expect first.
Mark Marino: First quarter, GAAP revenue to be $653 million to $665 million consistent with normal seasonality.
Mark Marino: From a segment perspective, we expect private cloud revenue of $247 million to $253 million and public cloud revenue of $406 million to $412 million.
Mark Marino: Total non-GAAP operating profit is expected to be 19% to $21 million and non-GAAP loss is expected to be from seven to nine cents per share.
Mark Marino: Our non-GAAP tax rate is expected to be 26%, while non-GAAP other expense will be in the 46% to $50 million range.
Mark Marino: non-GAAP share count is expected to be approximately 245 million shares.
Mark Marino: I will now turn the call back over to saga.
Speaker Change: Thank you Mark 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: Thank you at this time, we will conduct a question and answer session.
Speaker Change: A reminder to ask a question you will need to press star one on your telephone and wait for your name to be announced towards dry a question. Please press star one again, please standby, while we compile the Q&A roster.
Speaker Change: And our first question comes from the line of Kevin Mcveigh of UBS. Your line is now open.
Speaker Change: Great. Thank you so much.
Speaker Change: Tim Congratulations on the strong results continue to really execute well.
Speaker Change: Yes.
So we appreciate that.
Speaker Change: Thank you.
Speaker Change: Can you maybe talk to.
Speaker Change: I think you talked about some of the trends within.
Speaker Change: The private business.
Speaker Change: You said you expected that to be.
Speaker Change: For the year and 'twenty five.
Speaker Change: If that is the case it sounds like there were a lot of momentum in the second half of 'twenty four as opposed to the first half of 'twenty four.
Speaker Change: Maybe help us understand that a lot because it seems like that business is really starting to inflect.
Speaker Change: Hey, Kevin. Thank you very much I really appreciate your question here, we will be doing well. So Kevin you heard it right I think we saw some and I'll give you some color on the outlook for 2020 type of private cloud the way we look at look at it right now, but I'm really really pleased with the overall sales bookings performance Kevin.
Speaker Change: And it was a combination of.
Speaker Change: With improving demand environment as well as very good sales execution and you're spot on in the second half of 2024, we did see.
Speaker Change: Not only an improving demand environment for our hybrid cloud solutions, but we also started seeing some.
Speaker Change: Some faster decision cycles, coupled with great execution from our go to market teams so in private cloud.
Speaker Change: We're seeing an increased interest for our custom cloud solutions, specifically around data center transformation.
Speaker Change: Belting and higher mix of larger deals.
Speaker Change: So private cloud bookings did grow 4% the Americas sales bookings and within private cloud grew more than 20% healthcare grew more than 60% commercial segment.
Speaker Change: Which is the.
Speaker Change: The SMB SMB also grew up roughly 8%. So overall I think it was a very good bookings quarter. So you heard it right we expect.
Speaker Change: Private cloud revenues after couple of years of double digit declines to show a modest decline in fiscal 2025, which is definitely a good indicator of a turnaround in this business now it's too early to say, but in the second half of credit qualified I expect revenues in private cloud to be flattish year over year.
Speaker Change: Given the deal that we signed in 2024, so I think youre spot on question.
Speaker Change: That's very helpful.
Speaker Change: There's a lot of static nice.
Speaker Change: On the line operator.
Speaker Change: Got it and then.
Speaker Change: Any thoughts does free cash flow in 'twenty, five we think we'll be able to hold that breakeven.
Speaker Change: In 'twenty five.
Mark Marino: Yes, so I'll, let mark talk about Hey, Kevin.
Mark Marino: Yes look I anticipate both positive operating cash flow and free cash flow in 'twenty five.
Mark Marino: Okay.
Mark Marino: That's helpful.
Mark Marino: Kevin did you hear that so positive operating cash flow and free cash flow in 2025.
On the backs of <unk>.
Speaker Change: <unk> operating profit growth.
Speaker Change: The low double digits, mainly driven by margin improvements because of mix of the business is changing and also ongoing efficiency improvements.
Speaker Change: Very clear thank you both.
Speaker Change: Thank you.
Speaker Change: Thank you for our next question.
Speaker Change: Our next question comes from the line of Ramsey El <unk> of Barclays. Your line is now open.
Speaker Change: Hi, This is Ryan on for <unk>, Thanks for taking my questions.
Speaker Change: Congrats on a strong quarter.
I wanted to ask on visibility a bit more have you seen any changes in the demand environment over the last 30 days it seems like bookings service coming in well, but our deals actually converting on time and are you seeing any additional green shoots as 2025 budgets are being finalized.
Speaker Change: Yes, so I think the.
Speaker Change: The visibility is definitely improved a bit Ryan.
Speaker Change: Brian.
Speaker Change: Very good question. So we can.
Speaker Change: <unk> closed the year on a very high note.
Speaker Change: Both Q3 and Q4, let me talk about the public cloud business, plus Q3, and Q4 Q3 was a record quarter for public cloud. We continued the momentum into Q4, which is our December quarter and we.
Speaker Change: We continue we are hoping that we can continue this momentum into fiscal 2025 now that's on the backs of multiple things I believe that we are.
Speaker Change: I would say outperforming the market when it comes to sales bookings, especially in the markets that we play in compared to our competitors.
Speaker Change: Several reasons for that number one of course, good execution number two we laid a solid foundation in our public cloud business in the last year and a half maybe we refreshed 70, 570% of our sales force enabled our sales organization came up with new offerings and our relationship with Hyperscale is have become very strong.
Speaker Change: And we have also led with services and that's also starting to pay dividend to you. So I think it's more of a value play as opposed to the infrastructure resale led motion.
Speaker Change: It still happens because we still sell a lot of infrastructure, but at the same time, our attach rate of services attach rate on the infrastructure is really has really gone up so in terms of visibility, yes, I think the visibility is a bit improved and we feel that in fiscal 2025 customers.
Speaker Change: Typically looking to go drive more of their transformational projects that we're keeping on hold for the last couple of years and we should benefit from that plus we should benefit from better execution in the public cloud business and you can see that that also show up on the growth.
Speaker Change: The numbers for the Hyperscale is two <unk>.
Speaker Change: <unk> cloud business and we are starting to see a lot of green shoots in private cloud in a private cloud business of two three years ago.
Speaker Change: People assumed that all the workloads will move to public cloud, while that's not happening clearly hybrid is the way to go and we are starting to see a lot of workloads now lending in private cloud. So we're doing a lot of data center transformation deals in private cloud deal sizes have gone up significantly so larger mix of.
Speaker Change: Large deals multiyear deals, which also helps us to build a good annuity base in this business and so that's what's happening so I think pretty pleased with some of these.
Speaker Change: Strategy and execution that we have in place.
Speaker Change: And if the market improves I think we should be doing better.
Speaker Change: Great. Thanks, and just a quick follow up for me.
Speaker Change: The infrastructure resale ticked up just a bit in the quarter.
Speaker Change: Is there anything specific that drove that or any seasonality and how should we think about it into 'twenty five.
Speaker Change: Yes, So let me just give some color and mark please jump in here with the additional color here so the infrastructure volumes.
Have limited visibility to be honest with you. So we always plan a bit conservative because of that and the infrastructure volumes because of us.
Speaker Change: She is not seasonality Q4 is typically pretty strong going into the month of December and so we saw an uptick in infrastructure volumes. So that was good good Guy of course it comes in at lower margins. So we'll take it any data as long as the margins are okay now going into fiscal 2025.
Speaker Change: First of all Q1 is a seasonally low quarter. So you typically see in public cloud business as well as in our private cloud business the revenues and the volumes decline going from December quarter to the March quarter. So that's going to happen now.
Speaker Change: Now when it comes to infrastructure resale for rack space I think the market will continue to grow so forex space, it's little hard for us to predict because we are going to make some very informed decisions. When it comes when the some of these deals come up for renewal, whether we want to renew these contracts or walk away if it doesn't headset.
Speaker Change: And profitability thresholds and that's something that we've been doing all along even in fiscal 'twenty four is less than 23. So we will continue that in 2005. So it's a little hard for me to predict when it infrastructure business is going to grow.
Speaker Change: I expect it to be flattish to slight decline depending on what we do when these big contracts come up for renewal, but overall the market I think the market will continue to grow.
Speaker Change: Great. Thank you and congrats again.
Speaker Change: Thank you very much Brian.
Mahmud: Thank you Mahmud for next question.
Mahmud: And our next question comes from the line of Frank Louthan of Raymond James and Associates. Your line is now open.
Frank Louthan: Great. Thank you can you walk us through the new logo growth in Q4, what have you seen that in any particular segments that were better or worse, there and then with the booking success. How should we think about the type of book to Bill has that been is that a long gated at all how should we think about that.
Frank Louthan: Yeah. So Frank Thank you for the question so new logos, we continue to sign new logos across multiple industries.
Frank Louthan: In both public cloud as well as private cloud.
Frank Louthan: In private cloud.
Frank Louthan: We are focusing on.
Specific verticals healthcare BFS Si sovereign public sector energy and we also have horizontal place. Okay. So we saw about 450, new logos in our private cloud business. So some of these might be small some might be sizable but it is mainly important for us too.
Frank Louthan: Expanding in these accounts as an example, we announced Seattle children's which is a multiyear.
Frank Louthan: $9 million agreement that we signed with Seattle Children's Hospital, we had actually landed this logo in.
Frank Louthan: In early 2020 for a late 2023.
Frank Louthan: I recall and that was with an epic workload and eight nine months after that we actually expanded to go and do an entire data center transformation for this customer.
Frank Louthan: So we continue to.
Speaker Change: Hunt for new logos and landing new logos and then we will have specific plans and execution plans to go expand into additional new logos going forward. Now. Your second question is regarding deal cycles and whether the deal cycles are so the deal cycles and private cloud continued to remain the same Frank.
Speaker Change: We are now closing really large deals.
Speaker Change: The last couple of years the mix of business that we are winning.
Speaker Change: Are pretty large compared to what we have done in the history of this company.
Speaker Change: So.
Speaker Change: So by definition those.
Speaker Change: The deal cycles are longer.
Speaker Change: In the public cloud business. It is relatively shorter because we go after a very high value added services deals like migration services advisory services et cetera. So those cycles are shorter and they continue to remain shocked compared to see private cloud.
Speaker Change: So no change as such.
Speaker Change: Same as what we're seeing in the second half of 2024.
Speaker Change: Okay, Alright, great. Thank you.
Speaker Change: Thank you one moment for our next question.
Speaker Change: Yeah.
Speaker Change: Our next question comes from the line of Irvin Liu of Evercore ISI. Your line is now open.
Speaker Change: Alright. Thank you for letting me on I also have two related to your strong bookings performance I think it's good to see broader bookings strength, but can you just talk about your overall head count utilization and whether there's a need to increase head count to deliver on some of your recent bookings.
Speaker Change: Yes, I think Thats a great question. Thank you very much for joining the call. So first of all let me continue with this bookings because I gave you color on private cloud, let me give you some color on public cloud because you are head count related question is more related to public cloud then to private cloud because in private cloud we have managed services offerings.
Speaker Change: And we are an infrastructure service provider. So it is not as labor intensive as you could as you typically.
Speaker Change: Typically that you've seen.
So.
Speaker Change: Now public cloud business has a labor play, but we are.
Speaker Change: We differentiate ourselves.
Speaker Change: Against DSI is we had a labor minus model, where we're bringing more automation.
Speaker Change: Two.
Speaker Change: To deliver our services and it is exactly the opposite and what you'll find in some Indian sites ready.
Speaker Change: They will basically give you the head count growth numbers attrition numbers, so on and so forth, we actually exactly opposite.
Speaker Change: With that said, let me give some color on public cloud and public cloud.
Speaker Change: Just dovetailing on what I, just said on the private cloud side.
Speaker Change: Our interest in elastic engineering, a platform support application and data continues and data interest is mainly driven through AI.
Speaker Change: In public cloud we saw bookings also grew 22% I did mentioned that on my in my prepared remarks, but when.
Speaker Change: Look at it from a geography perspective, and medical is actually grew more than 30% EMEA grew.
Speaker Change: Mid single digit although in a very tough macro environment.
Speaker Change: We have three horizontal market segments that we go.
Speaker Change: And attacked enterprise mid market and commercial and sales bookings in all of those three segments grew high double digits and from an offering perspective, our professional services and data the real standout.
Speaker Change: And both of these businesses in fact data grew.
Speaker Change: High Triple digits. So in terms of labor and head count I think it's in professional services and in data is that you will see an increase in head count, but very very surgically and also increase in the current utilization of our resources.
Speaker Change: Got it thank you for that.
Speaker Change: I wanted to ask about public cloud, but specifically the topic of AI can you just help us or talk about whether this was a meaningful contributor or driver of your booking strength and if so can you help us quantify the overall AI contribution.
Speaker Change: Yes, so it is.
Speaker Change: Yes, it did contribute to some of the bookings in data as I said data.
Speaker Change: It was primarily driven by AI. Although there are other factors that contributed to the data services bookings, but let me give you how we look at the AI World and how we play in that lifecycle. So there are three phases <unk> lifecycle thats. The way we look at it one is the design build and re architect phase which is mainly.
Speaker Change: Services related where you do poc's and pilots, that's where most of our 50 plus engagements are in the POC in pilot phase. The second phase is mainly around creating landing zones.
Speaker Change: Online hybrid environment, whether it's public cloud or private cloud. That's recall is an implementation order production fees and the third phase is to manage and operate which is the managed services space, which is the long tail now we believe right now is in phase, one and a little bit in phase II.
The reason why we are there today is because we are very early days from an enterprise adoption perspective in AI. So I'm not surprised that we have in those two phases, but given the strength, we have with the hybrid AI approach bottom public as well as private I feel that we are very well positioned.
Speaker Change: When customers start moving from a training phase training the models into inferencing and fine tuning because thats, where we believe 90% of the workload should be in training in fencing is less fine tuning and thats, where our hybrid AI.
Speaker Change: And our solutions will play very strongly so today just to size it.
Speaker Change: It's less than 2% of our revenue today.
Speaker Change: Almost zero a year ago, it's less than 2%.
Speaker Change: And I expect in the next couple of years to be probably 5% plus <unk>.
Speaker Change: Consumer do estimates so to speak so there is still early cycles as long way to go.
Speaker Change: Especially in enterprise and that's where we play and I think I feel very strongly.
Speaker Change: Our offerings as well as approach to actually capture the AI market.
Speaker Change: Taking off in enterprise.
Speaker Change: Does it tell Brent Hello.
Speaker Change: Thank you. This concludes our question and answer session I would now like to turn it back to cigar bar for closing remarks.
Speaker Change: Thank you everyone for joining us.
If you did not get to your question, but if I would follow up please email us at IR at <unk> Dot.
Speaker Change: Dot com have a great evening everyone.
Mara: Thank you Mara.
Mara: Thank you for your participation in today's conference. This does conclude the program you may now disconnect.
Mara: Okay.
Mara: [music].
Mara: Okay.
Mara: Okay.
Mara: [music].