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    RPD
    Earnings call· Jun 2026(Q2 FY26)

    Rapid7 Q2 FY26 earnings call RPD

    Aug 10, 2026 Source

    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

    11
    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

    3
    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—

    Operational metrics

    13
    Total ARR
    $824 milliondeclined sequentially
    Q2 FY26

    Declined sequentially due to noncore products.

    Non-GAAP Operating Income
    $28.9 millionfavorable to guidance
    Q2 FY26
    Cash and investments balance
    $702.6 million
    Q2 FY26

    Includes cash, cash equivalents, and short-term investments.

    Total Revenue
    $210.9 milliondeclined approximately 1.5% year-over-year
    Q2 FY26

    Reflecting declines in noncore product ARR.

    Customer count
    over 11,500
    Q2 FY26
    Average ARR per customer
    approximately $70,000
    Q2 FY26
    Non-GAAP gross margin
    71.7%down approximately 215 basis points year-over-year
    Q2 FY26

    Consistent with expectations, driven by staffing increases in global security operations centers and increased cloud usage for product improvements.

    Non-GAAP operating margin
    13.7%
    Q2 FY26
    Workforce reduction
    approximately 12%
    Q2 FY26

    Roles impacted by restructuring.

    Restructuring charges
    $10 million to $11 million
    Q3-Q4 FY26

    Majority to be paid throughout Q3 and Q4 2026; excluded from non-GAAP P&L but reflected in operating and free cash flow.

    Fully diluted shares
    approximately 80 million
    Q3 FY26

    Used for Q3 non-GAAP EPS guidance.

    Fully diluted shares
    approximately 79 million
    FY26

    Used for FY26 non-GAAP EPS guidance.

    Free cash flow margin
    approximately 15.5%
    FY26

    Based on full year free cash flow guidance of $130 million.

    Industry KPIs

    4
    MetricValueDetails
    Revenue growth$210.9 millionUSD
    Arr net new arr$824 millionUSD
    Customer account countover 11,500customers
    Operating FCF margin rule of 4013.7%%

    Deals & partnerships

    1
    KenzoAcquired 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

    6
    Decline in noncore productsQ2 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 declineQ2 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 transformationmultiple 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 savingsQ3 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 FY27entering 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 incomeafter 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

    5

    Core Platform Solutions ARR growth

    next quarter (Q3 FY26)
    Currentapproximately 1% YoY (Q2 FY26)
    Targetsequential 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.

    Q&A highlights

    7

    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 read5 chapters

    Detailed Narrative

    01

    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.

    02

    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⏳.

    03

    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.

    04

    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.

    05

    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.

    AI-generated summary of the company’s earnings call. Not investment advice.