RPD

Strategic Transformation & Focus

• New CEO Wael Mohamed launched a multi-quarter transformation to break through the company's existing growth ceiling, centered on tighter strategic focus rather than broad, sweeping change. The company is reshaping (not shrinking) to align resources behind high-potential core offerings.
• The company has completed building out its new leadership team: a proven CFO to strengthen operating discipline, a CCO to scale customer acquisition, and a CPT to build an AI-first platform, all aligned on a single strategic direction.
• Core strategic priorities are: (1) Focus on winning in the enterprise market where the company has an existing right to win, continuing to serve the mid-market while pursuing larger opportunities; (2) Deliver end-to-end outcomes (resolving risk, not just identifying it) by connecting exposure management with detection and response, including outcome-focused managed services; (3) Implement agentic AI as a foundational change to how security work gets done, not just a product feature, to match the speed of modern attackers.

Restructuring & Cost Alignment

• The company announced a restructuring that eliminated non-headcount spend first, resulting in 12% of the total workforce being impacted. The restructuring is intended to align the company's cost structure with its core focus and free up capital for reinvestment.
• The company expects to reach ~20% non-GAAP operating margin by Q4 26, demonstrating improved operating health that will create capacity for future investment and innovation.
• Total restructuring charges are expected to be $10 million to $11 million, the majority of which will be paid in Q3 and Q4 26, and are excluded from non-GAAP results.

Financial Performance

• Q2 26 results exceeded all guided metrics: non-GAAP operating income was $28.9 million (13.7% margin), free cash flow was $31.9 million driven by strong collections, and total cash, cash equivalents, and short-term investments hit $702.6 million. Non-GAAP diluted EPS was $0.44.
• The company ended the quarter with over 11,500 customers, and an average ARR per customer of ~$70,000.
• Non-GAAP gross margins came in at 71.7%, down 215 basis points year-over-year as expected, driven by increased staffing for global security operations centers and higher cloud usage for product improvements.
• The company maintains a $200 million undrawn credit facility alongside its existing cash balance, and is well-positioned to repay its $600 million convertible notes due in March 2027.
• The Kenzo AI acquisition was completed to provide a foundational AI architecture that connects customer data, agents, and existing tools while keeping customers in control of their own data, rather than adding AI as a standalone feature.

• Q3 26 Guidance: Total ARR expected to be ~$812 million; core platform ARR expected to be flat sequentially, with all expected sequential decline coming from non-core offerings. Total revenue is expected in the range of $208 million to $210 million, a ~4% year-over-year decline at the midpoint. Non-GAAP operating income is expected between $34 million and $36 million (16.7% margin at the midpoint), with non-GAAP diluted EPS expected between $0.44 and $0.47.
• Full-Year 26 Guidance: Total revenue expected between $837 million and $841 million, a ~2% year-over-year decline at the midpoint. Non-GAAP operating income guidance was raised to a range of $129 million to $133 million (15.6% full-year non-GAAP operating margin at the midpoint), which implies a 20% non-GAAP operating margin in Q4 26. Non-GAAP diluted EPS is expected between $1.78 and $1.83. Full-year 26 free cash flow guidance is maintained at ~$130 million, as severance costs and targeted reinvestment offset the cash benefit of reduced headcount. 2027 guidance has not been issued, but the company expects higher free cash flow in 2027 compared to 2026, even with a lower opening ARR base.

Total company ARR at the end of Q2 26 was $824 million, down sequentially due to declines in non-core products. Total revenue was $210.9 million, a 1.5% year-over-year decline.

Core platform solutions (detection and response + exposure management): Represent over 80% of total ARR, and grew approximately 1% year-over-year.

• Detection and response (D&R): Accounts for ~55% of total ARR, grew approximately 5% year-over-year, and continued to perform well in the quarter.
• Exposure management: Overall exposure management performance offset D&R growth, though the newer Exposure Command solution saw healthy adoption from both new customers and customers upgrading from older vulnerability management products.

Non-core products: Represent less than 20% of total ARR, and declined in the quarter, driving the sequential decline in total company ARR as the company reallocates resources to core offerings.

• The transformation is a multi-quarter process, and non-core portions of the business may continue to face pressure, and overall ARR may see further declines before core growth improvements become visible.
• Product and organizational changes will take time to translate into ARR growth, with meaningful new product capabilities not expected to roll out until 2027.
• Competitor activity includes established endpoint security players expanding into the fast-growing managed detection and response (MDR) market, increasing competitive pressure on Rapid7's core segment.
• Forward-looking statements (including all guidance and transformation outcomes) are inherently uncertain, and actual results may differ materially from expectations due to unforeseen risks, as detailed in the company's SEC filings.

Q: What gaps exist in Rapid7's exposure management offering, and how are customers approaching migration from older vulnerability solutions to Exposure Command? / A: The main issue was that the company was spread too thin across its full product portfolio, so it lacked sufficient focus and investment on exposure management. After restructuring, resources are shifted to the core business to improve win rates, with new product leadership implementing AI-first development across the product line. Customers are not taking a wait-and-see approach to AI-powered solutions; they are actively purchasing, and prioritize solutions that can not only identify vulnerabilities but also help resolve them, which aligns with Rapid7's combined exposure management and detection and response offering.

Q: What is the endgame for the non-core product portfolio, and how much of it will be deprecated vs integrated into core offerings? / A: Non-core categories require significant standalone investment to compete with dedicated pure-play vendors, which Rapid7 will not prioritize, as it focuses on its core leadership categories where it has a strong existing position. The company will continue to serve customers with existing non-core products, and many non-core technologies will be integrated into the core platform to support customer outcomes, rather than being maintained as standalone offerings. The company will make intentional choices to deemphasize non-core categories that do not align with its strategic priorities.

Q: How is the current sales pipeline looking for core segments, and what is the outlook for core growth conversion and win rates? / A: Post-Black Hat, customer interest in Rapid7's core exposure management and detection and response solutions is notable, with many customers evaluating vendors for AI-aligned security investments and actively asking about the company's vision for agentic AI and integrated solution sets. Sales rep productivity has continued to improve under new go-to-market leadership, and the team is fully focused on selling core platform solutions, with strong win rates against competitors in competitive deals already visible in Q2. Improvements from product investments will take a few quarters to become fully evident in results, but early execution trends are encouraging.

Q: How does this restructuring differ from prior workforce reductions, and how is the company approaching reinvestment differently going forward? / A: This restructuring is guided by far clearer strategic clarity than prior changes: the leadership team is fully revised, has experience scaling and turning around enterprise software businesses, and has already aligned on exactly which areas to focus on and which to deemphasize, with a clear purpose to build on existing strong technology for future customer value. The entire organization has embraced the change, driven by a shared conviction that the focused strategy will better serve customer needs. All cost savings from the restructuring will be reinvested into core platform development, AI capabilities, and go-to-market for core offerings to return the company to durable growth.