Rackspace CEO Breaks Down Company's Earnings

Noah Berger | Bloomberg | Getty Images

Rackspace Hosting Inc. signage is displayed at the front entrance of the company's office in San Francisco, California.

Rackspace's first quarter was a bit of a disappointment, but there are some encouraging signs in their second quarter numbers, which the companyreleased Tuesday.

In a conversation Tuesday with CEO Lanham Napier, I got a breakdown of the quarter.

Last quarter analysts were concerned about the tepid growth in the cloud service provider's installed base; it was up just .7 percent.

In the second quarter it returned to the one percent level where it had been trending. Why?

Net upgrades grew 1.7 percent, which means people were upgrading to higher value service packages at a higher rate than they were downgrading. Rackspace said it took a hit last quarter because after the busy holiday season, some retail customers didn't need the extra data center services to handle traffic.

All of that led to 29 percent growth year-over-year, which was better than Wall Street's consensus expectation of 28.5 percent growth.

Margins were up too, from a 33.4 percent adjusted EBITDA margin to 35.1 percent.

Napier also told me that Rackspace's business in Europe continues to be solid, despite the macro concerns over there. He recently got back from a trip over there, and said that possibly because Rackspace's base and most of its business is in the U.K., it's a bit insulated from the Euro uncertainty.

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