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Rackspace CEO Breaks Down Company's Earnings

Wednesday, 8 Aug 2012 | 2:38 PM ET
Rackspace Hosting Inc. signage is displayed at the front entrance of the company's office in San Francisco, California.
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.

Rackspace Breaks Down Its Quarter
Rackspace CEO Lanham Napier talks to CNBC's Jon Fortt about what led to the company's revenue beat and improving margins.

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.


email: tech@cnbc.com

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  • Matt Hunter is the senior technology editor at CNBC.com.

  • Cadie Thompson is a tech reporter for the Enterprise Team for CNBC.com.

  • Working from Los Angeles, Boorstin is CNBC's media and entertainment reporter and editor of CNBC.com's Media Money section.

  • Jon Fortt is an on-air editor. He covers the companies, start-ups, and trends that are driving innovation in the industry.

  • Lipton is CNBC's technology correspondent, working from CNBC's Silicon Valley bureau.

  • Mark is CNBC's Silicon Valley/San Francisco Bureau Chief covering technology and digital media.