Rapid7, Inc. Common Stock 2026 Q2 Earnings Call

Thank you, operator, and good afternoon, everyone. Today, we will be discussing Rapid7's second quarter fiscal 2026 financial results. We've distributed our earnings press release over the wire, and it can be accessed on our investor relations website. With me on the call are Corey Thomas, Executive Chairman, Wael Mohamed, CEO, and Rafe Brown, CFO. As a reminder, all participants are in a listen-only mode, and a question and answer session will follow our opening remarks. Before I hand the call over to Corey, I want to remind everyone that certain statements made during this conference call may be considered forward-looking statements under federal securities laws.

These statements are made pursuant to the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995 and include, among other things, our outlook for the third quarter and full year 2026, our expectations regarding fiscal periods beyond 2026, our transformation and restructuring initiatives, our strategy, priorities, and capital allocation, anticipated operational improvements, investments in our core platform and AI capabilities, and our expected growth drivers and financial performance. These forward-looking statements are based on our current expectations and beliefs and information currently available to us. While we believe any forward-looking statements we make are reasonable, actual results could differ materially due to a number of risks and uncertainties, including those contained in our filings with the SEC. Reported results should not be considered indicative of future performance.

We do not undertake and expressly disclaim any obligation to update or alter our forward-looking statements, whether as a result of new information, future events, or otherwise, except to the extent required by applicable law. Further information on these forward-looking statements and risk factors are included in the filings we make with the SEC, including the section titled Cautionary Language concerning forward-looking statements in our earnings press release. Additionally, over the course of this call, we'll reference non-GAAP measures to describe our performance. Please review our earnings press release and filings with the SEC for our rationale behind the use of non-GAAP measures and for a full reconciliation of these GAAP to non-GAAP metrics. These documents, in addition to a replay of this call, will be available on the Rapid7 investor relations website. With that, I'd like to turn the call over to Corey.

Welcome to Rapid7's Q2 2026 earnings call. I join you today in a new role but with the same passion and purpose: to ensure that organizations of all sizes can get the best results from their security operations. I have worked with the board, and especially with Wael, over the last year to revitalize our team, improve our execution, and fully leverage the opportunity that AI is providing. As part of that work, it was clear that we have significant opportunities, but only if we tighten our focus on our core offerings, sharpen our alignment and execution around those offerings, and deliver a more efficient model. The board and I recruited Wael, whom I have known and respected for many years, to do exactly that, deliver on Rapid7's full potential in the midst of one of the most exciting moments in technology.

In many ways, Wael is accelerating a plan he helped develop. In other areas, he's providing sharper focus and leadership, as you will hear in his upcoming comments. Before I hand it over to Wael, I want to take a moment to acknowledge the incredible work of our colleagues at Rapid7, whose passion and care for our customers and their deep and energetic embrace of innovation continue to inspire me. With that, I turn the call over to Wael.

Wael? Thank you, Corey, and good afternoon.

Since this is my first earnings call as CEO of Rapid7, I want to use my time a little differently. Rafe will take you through the quarter, the actions we announced, and our guidance. I want to focus on our strategy, the operating discipline behind it, and how I ask you to measure our progress. I have known Rapid7 for years. Long before I joined the board, I saw this company at its best, moving fast, earning customer trust, and winning in the heart of the market. Joining the board gave me a much closer view of the company, its people, and its potential. The closer I got, the more I liked what I found. Rapid7 is a good company ready to be great. It is not broken. It has reached a ceiling. The issue is not our assets.

It is how we focus our resources and energy. Breaking through requires clear choices, strong execution, and an operating system that can repeat success at scale. That is the work I signed up for. Transformation is not about changing everything. It is about having the discipline to change the few things that matter most and doing so consistently over time. Over the past year, we put the leadership team in place for this next chapter. We added a proven Chief Financial Officer to strengthen operating discipline, a Chief Commercial Officer to help us scale and win with customers, and a Chief Product and Technology Officer to build an AI-first platform. We now have our leadership team, operating model, and capital allocation aligned behind one direction. Since stepping into this role, I have spent my time listening to customers, our people, partners, and many of you. Three things are clear. First, focus matters.

We do not need to win everywhere. We need to be exceptional where we can win. Our clearest right to win is in the heart of the enterprise market, customers that need enterprise-grade security, but also need fewer tools, less complexity, and faster outcomes. Our leadership in the mid-market is proof of our strength. It is not a limit on our technology or our market. We will continue to compete for larger enterprises where our platform is the right fit. These customers want fewer, better partners, not more tools. That is where Rapid7 has earned the right to win. Second, outcomes matter more than products. For years, cybersecurity answered complexity with more complexity: more tools, more alerts, more consoles, more people. Customers do not need another dashboard. They need less risk, less complexity, and faster action.

Our opportunity is to connect Exposure Command with Detection and Response to move from finding problems to resolving them. For many customers, that outcome will be delivered as a service. Skilled security people are hard to find. They need a trusted partner that can bring the platform, the expertise, and the work together. Third, the way security work gets done is changing. AI should not become another label. It should change the work. Automation helps us move faster today. Agents let us do more across more data, more steps, and at much greater scale. Attackers are moving at machine speed. Attackers only need to find the seam between an exposure and the fix, an alert and the work needed to investigate it, or a decision and an action. Defenders need the same reach and speed, with people remaining in control. People decide. Agents do. In this model, agents are not just features inside a product.

They become part of the service layer, extending the reach of our security experts and helping us deliver outcomes faster and at scale. We acquired Kenzo because 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. We want AI to fit into our customers' environments, not force them into ours. Building that future requires focus now. The changes we announced affect colleagues who have contributed to Rapid7. I want to thank them for what they have given to this company and to our customers. These actions are a focused reset. We are not shrinking our way to the future. We are reshaping the company so we can invest more behind the parts of the business that will define it.

We are simplifying the company, aligning our cost structure with the core, and creating room to invest. We are concentrating our growth investment behind Detection and Response, Exposure Command, and the AI foundation that connects them. We will continue to support customers using our other products. This is not simply a cost action. We will reinvest a meaningful portion of the savings in our core platform, the people building it, and the AI foundation behind the next generation of our products. 70 days is not enough to complete a transformation. It is enough to set direction and show how we will operate with speed, clarity, and accountability. Operating discipline creates choices. As Rafe Brown will explain, the actions we announce put us on a path to exit the year at approximately 20% non-GAAP operating margin. That is not the destination.

It is evidence that we are building a healthier company, one with more capacity to invest, innovate, and generate durable returns over time. In the second quarter, we came in slightly above the guidance we provided. Detection and Response continued to perform well. At the same time, total ARR declined. Exposure Command is not yet where it needs to be, and other parts of the portfolio continued to pressure our results. The current direction of ARR is not good enough. We are acting on it. This is a multi-quarter transformation. We are changing the path of the company toward durable growth, not managing for one quarter. As we sharpen our focus, some parts of the business may face pressure before the benefits become visible. At times, we may need to simplify before we can accelerate.