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Rapid7 (RPD) Q2 FY26 earnings call: guidance and Q&A

Earnings call· Jun 2026 (Q2 FY26)· Information Technology· Aug 10, 2026

Source: earnings call transcript

Executive summary

Rapid7 Q2 FY26 — Strategic Restructuring and Margin Expansion

Rapid7 is undergoing a significant strategic transformation, refocusing investments on its core platform solutions and AI capabilities while streamlining operations. The company exceeded Q2 expectations and is committed to expanding operating margins, targeting 20% non-GAAP operating margin by Q4 FY26, despite a sequential decline in total ARR driven by noncore products. This multi-quarter effort aims for durable growth and improved execution in its core exposure management and detection and response offerings.

Highlights

4

  • Exceeded expectations across all guided metrics, including non-GAAP operating income of $28.9 million and non-GAAP EPS of $0.44.

  • Free cash flow came in strong at $31.9 million, with collections healthily exceeding internal expectations.

  • Core platform solutions (Detection & Response + Exposure Management) represent over 80% of overall ARR and grew approximately 1% on a year-over-year basis.

  • Detection and Response business, approximately 55% of total ARR, grew approximately 5% on a year-over-year basis.

Concerns

5

  • Total ARR declined sequentially to $824 million, driven by noncore products.

  • Noncore products, representing less than 20% of total ARR, declined in the quarter, pressuring overall results.

  • Non-GAAP gross margins of 71.7% were down approximately 215 basis points year-over-year due to staffing and increased cloud usage.

  • Total revenue of $210.9 million declined approximately 1.5% year-over-year.

  • Q3 FY26 ARR guidance of $812 million implies a sequential decline, primarily from noncore offerings.

Guidance & targets

CategoryTargetConfidence
Ending ARR
approximately $812 million
high materiality
High
Ending ARR for combined core platform solutions (D&R and Exposure Management)
approximately flat quarter-on-quarter
medium materiality
High
Total Revenue
$208 million to $210 million
high materiality
High
Non-GAAP Operating Income
$34 million to $36 million
high materiality
High
Non-GAAP Earnings Per Diluted Share
$0.44 to $0.47
high materiality
High
Non-GAAP Operating Margin
20%
high materiality
High
Total Revenue
$837 million to $841 million
high materiality
High
Non-GAAP Operating Income
$129 million to $133 million
high materiality
High
Non-GAAP Earnings Per Share
$1.78 to $1.83
high materiality
High
Free Cash Flow
approximately $130 million
high materiality
High
Free Cash Flow
improve over our 2026 guide
high materiality
Medium

Segment performance

SegmentRevenueYoYQoQMargin
Core Platform Solutions (Detection & Response + Exposure Management)
Comprises Detection and Response and Exposure Management businesses. Led by Detection and Response, but growth offset by Exposure Management.
% of overall ARR: >80%
—approximately 1%——
Detection and Response
Strong performance, leading growth within core platform solutions.
% of total ARR: approximately 55%
—approximately 5%——
Noncore Products
Drove the sequential decline in total ARR. Focus is on optimizing margins and migrating customers to core platform offerings.
% of total ARR: <20%
—declineddeclined sequentially—

Deals & partnerships

Kenzo Acquired to build an AI foundation that connects data, agents, and human decisions across existing customer tools.

AI needs a foundation, not another feature. That foundation connects data, agents and human decisions across the tools customers already use while keeping customers in control of their data.

Risks & headwinds

Decline in noncore products Q2 FY26

less than 20% of total ARR declined in the quarter, driving sequential decline in total ARR

Mitigation:Focusing resources toward growing core products; optimizing margins for stand-alone noncore solutions; migrating customers to core platform offerings.

Non-GAAP gross margin decline Q2 FY26

down approximately 215 basis points year-over-year to 71.7%

Mitigation:Investments in product improvements and operational efficiency are expected to improve margins over time, with AI-first work aiming to sustain margins.

Multi-quarter transformation multiple quarters

This is a multi-quarter transformation. We are changing the path of the company toward durable growth, not managing for one quarter. At times, we may need to simplify before we can accelerate.

Mitigation:Focusing on cash generation, clearing noncore, stabilizing core, and reinvesting in platform, people, and AI.

Cash expenditures from restructuring offsetting headcount savings Q3 and Q4 2026

Restructuring charges of approximately $10 million to $11 million, majority paid in Q3 and Q4 2026. Cash benefit of reduced headcount will largely be offset by severance-related costs and targeted reinvestments.

Mitigation:Maintaining full year FY26 free cash flow guidance of $130 million; expecting improved FCF in FY27 despite lower ARR base and reduced interest income.

Lower ARR base entering FY27 entering FY27

lower ARR base as we enter 2027

Mitigation:Restructuring expected to improve free cash flow in FY27 over FY26 guide despite this, due to efficiency gains and product modernization.

Reduction of interest income after March 2027

reduction of our interest income that will occur once we use our invested cash to repay our March 2027 convertible bonds

Mitigation:Restructuring expected to improve free cash flow in FY27 over FY26 guide despite this.

What to watch in Q3 FY26

Core Platform Solutions ARR growth

next quarter (Q3 FY26)
Current approximately 1% YoY (Q2 FY26)
Target sequential growth

Why it matters

Management expects core platform solutions ARR to be approximately flat sequentially in Q3, but the long-term strategy relies on reaccelerating this segment. Monitoring for signs of stabilization and initial growth will indicate the effectiveness of refocusing efforts.

And on a sequential basis, we expect ending ARR for our combined core platform solutions of D&R and Exposure Management will be approximately flat quarter-on-quarter with the expected sequential ARR decline coming from our noncore offerings.

Find out whether RPD delivers this. Inve re-checks your case every morning.

Q&A highlights

Is the exposure management platform lacking coverage or functionality? What are customers doing in the current threat environment regarding comprehensive security?

Wael Mohamed stated that while the core platform has a good position, there's work to do on focus for exposure management. Investments are being made to increase win rates and integrate an AI-first methodology. Customers are actively buying solutions that not only find but also fix problems, and they are looking for vendors moving in the right direction with AI.

“customers are actually buying every single day. They are not waiting and wait and see. That's what I thought when I came in. It will be a wait and see. They're waiting for the AI. They're actually -- they just want to make sure that the right vendors are moving in the right direction, and they are looking for solution that not only help them to identify what's going on, but also fix it and take them through that journey.”

asked by Robbie Owens · answered by Wael Mohamed

2 min read 5 chapters

Detailed narrative

Strategic Transformation and Focus

Rapid7 is undergoing a significant strategic transformation to sharpen its focus on core offerings, improve execution, and fully leverage AI opportunities. The company aims to concentrate growth investments behind detection and response, exposure management, and an AI foundation that connects them. This involves simplifying the company and aligning its cost structure, described as a "focused reset" to reinvest savings into the core platform and AI capabilities.

Leadership and Operating Discipline

A new leadership team, including a CFO, CCO, and Chief Product and Technology Officer, has been put in place to strengthen operating discipline and align capital allocation. CEO Wael Mohamed emphasizes clear choices, strong execution, and an operating system for repeatable success. The goal is to build a healthier company with increased capacity to invest, innovate, and generate durable returns over time.

AI-First Platform Development

The company acquired Kenzo to build an AI foundation that connects data, agents, and human decisions across existing customer tools, allowing AI to fit into customer environments. The new Chief Product and Technology Officer, Dan Deklich, is making investments to strengthen core platform solutions, accelerate innovation, and deliver meaningful product capabilities throughout 2027. An "AI-first methodology" is being implemented across the product line to enhance security operations.

Noncore Product Rationalization

While core platform solutions grew, noncore products (less than 20% of total ARR) declined, driving the overall sequential ARR decrease. Management plans to optimize margins for these stand-alone noncore solutions and migrate customers to core platform offerings. This strategic choice involves deemphasizing subcategories where the company does not have a strong "right to win" against pure-play competitors, allowing for greater focus on core strengths.

Customer Outcomes and Market Position

Rapid7 aims to deliver outcomes—less risk, less complexity, and faster action—rather than just products, by connecting exposure management with detection and response. The company sees a clear "right to win" in the heart of the enterprise market, serving customers who need enterprise-grade security with fewer tools and faster outcomes. Customers are actively seeking solutions that not only identify problems but also help fix them, and Rapid7 is frequently invited to participate in these discussions.

Summary of the company's earnings call; see how call summaries are prepared. Not investment advice.