Q2 2026 Rubrik Inc Earnings Call
Speaker #1: Good afternoon, ladies and gentlemen, and welcome to the Rubrik's second quarter fiscal year 2026 results conference call. At this time, all lines are in listen-only mode.
Speaker: Good afternoon, ladies and gentlemen, and welcome to the Rubrik Second Quarter Fiscal Year 2026 Results Conference Call. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question-and-answer session. If at any time during this call you require immediate assistance, please press *0 for the operator. This call is being recorded on Tuesday, September 9, 2025. I would now like to turn the conference over to Melissa Franchi, Vice President, Head of Investor Relations. Please go ahead.
Speaker #1: Following the presentation, we will conduct a question-and-answer session. If at any time during this call you require immediate assistance, please press *0 for the operator.
Speaker #1: This call is being recorded on Tuesday, September 9, 2025. I would now like to turn the conference over to Melissa Franchi, Vice President, Head of Investor Relations, please go ahead.
Speaker #2: Hello, everyone. Welcome to Rubrik's second quarter fiscal year 2026 financial results conference call. On the call with me today are Bipul Sinha, CEO, Chairman and Co-Founder of Rubrik, and Kiran Choudary, Chief Financial Officer.
Melissa Franchi: Hello, everyone. Welcome to Rubrik's Second Quarter Fiscal Year 2026 Financial Results Conference Call. On the call with me today are Bipul Sinha, CEO, Chairman and Co-Founder of Rubrik, and Kiran Choudary, Chief Financial Officer. Our earnings press release was issued today after the market closed and may be downloaded from the Investor Relations page at www.ir.rubrik.com. Also on this page, you'll be able to find a slide deck with financial highlights that, along with our press release, includes a reconciliation of GAAP to non-GAAP financial results. These measures should not be considered in isolation from or as a substitute for financial information prepared in accordance with GAAP.
Speaker #2: Our earnings press release was issued today after the market closed, and may be downloaded from the Investor Relations page at www.irrubrik.com. Also on this page, you'll be able to find a slide deck with financial highlights that, along with our press release, includes a reconciliation of GAAP to non-GAAP financial results.
Speaker #2: These measures should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. During this call, we will make forward-looking statements, including statements regarding our financial outlook for the third quarter and full fiscal year 2026.
Melissa Franchi: During this call, we will make forward-looking statements, including statements regarding our financial outlook for the third quarter and full fiscal year 2026, our expectations regarding market trends, our market position, opportunities, including with respect to generative AI, growth strategy, product initiatives, and expectations regarding those initiatives, and our go-to-market motion. These statements are only predictions that are based on what we believe today, and actual results may differ materially. These forward-looking statements are subject to risks and other factors that could affect our performance and financial results, which we discuss in detail in our filings with the SEC. Rubrik assumes no obligation to update any forward-looking statements we may make on today's call. With that, I'll hand the call over to Bipul.
Speaker #2: Our expectations regarding market trends, our market position, and opportunities—including those related to generative AI—growth strategy, product initiatives, and expectations regarding those initiatives, as well as our go-to-market motion.
Speaker #2: These statements are only predictions that are based on what we believe today and actual results may differ materially. These forward-looking statements are subject to risks and other factors, that could affect our performance and financial results, which we discuss in detail in our filings with SEC.
Speaker #2: Rubrik assumes no obligation to update any forward-looking statements. We may make on today's call. With that, I'll hand the call over to Bipul.
Speaker #1: Thank you, Melissa. I want to start by thanking everyone for joining us today. We are pleased with our second quarter results that once again exceeded all guided metrics across top line and profitability.
Bipul Sinha: Thank you, Melissa. I want to start by thanking everyone for joining us today. We are pleased with our second quarter result that once again exceeded all guided metrics across top line and profitability. Here are five key numbers. First, subscription ARR surpassed $1.25 billion, growing 36% year over year. Net new subscription ARR reached $71 million in the second quarter. Second, our subscription revenue was $297 million, growing 55% year over year. Third, our subscription NRR remained strong, once again above 120%. Fourth, customers with $100K or more in subscription ARR crossed 2,500, growing 27% year over year. Finally, on profitability, we once again made material improvement in subscription ARR contribution margin, up about 1,800 basis points year over year. On cash generation, we are very happy to report we generated over $57 million in free cash flow this quarter.
Speaker #1: Here are five key numbers. First, subscription ARR surpassed $1.25 billion, growing 36% year-over-year. Net new subscription ARR reached $71 million in the second quarter.
Speaker #1: Second, our subscription revenue was $297 million, growing 55% year-over-year. Third, our subscription NRR remained strong, once again above $120%. Fourth, customers with 100K or more in subscription ARR crossed $2,500, growing 27% year-over-year.
Speaker #1: Finally, on profitability, we once again made material improvements in subscription ARR contribution margin, up about 1,800 basis points year-over-year. On cash generation, we are very happy to report we generated over $57 million in free cash flow this quarter.
Speaker #1: This combination of top-line growth and cash flow margin at our scale is rare. We remain confident about the opportunity ahead, and thus we are raising our outlook for the year.
Bipul Sinha: This combination of top line growth and cash flow margin at our scale is rare. We remain confident about the opportunity ahead, and thus, we are raising our outlook for the year. Let me first give you some context on where we are focused. Rubrik is evolving into the security and AI company. In the last several quarters, it is clear to us that as we continue to focus on and win the vast cyber resilience market, we also have a tremendous opportunity in the enterprise AI acceleration. Let's start with cyber resilience and the broader context of the market opportunity. From our inception, Rubrik was designed to help customers achieve the fastest cyber recovery time. To deliver this, we uniquely combined data security posture management, identity resilience, and cyber recovery natively on our Rubrik Security Cloud, or RSC, platform to achieve complete cyber resilience.
Speaker #1: Let me first give you some context on where we are focused. Rubrik is evolving into a security and AI company. In the last several quarters, it is clear to us that as we continue to focus on and win the vast cyber resilience market, we also have a tremendous opportunity in enterprise AI acceleration.
Speaker #1: Let's start with cyber resilience and the broader context of the market opportunity. From our inception, Rubrik was designed to help customers achieve the fastest cyber recovery time.
Speaker #1: To deliver this, we uniquely combined data security posture management, identity resilience, and cyber recovery natively on our Rubrik security cloud, or RSC platform, to achieve complete cyber resilience.
Speaker #1: And at the center of our differentiated architecture is the Rubrik Preemptive Recovery Engine. In Q2 alone, I had over 125 meetings with customers and prospects worldwide.
Bipul Sinha: At the center of our differentiated architecture is the Rubrik Preemptive Recovery Engine. In Q2 alone, I had over 125 meetings with customers and prospects worldwide. What was abundantly clear is that IT and security leaders now have an "assume breach" mindset, simply meaning they are certain that cyber attacks are inevitable despite significant investments they have made in cyber prevention and detection. At the same time, these enterprises are also looking to replatform and modernize their infrastructure in preparation for the imminent enterprise AI transformation. As companies shift deeper into cloud and Gen AI, customers continue to turn to us, Rubrik, for complete cyber resilience, delivering uniform and consistent data security policy control, as well as rapid, accurate recoveries from cyber attacks. Concurrently, our Prettibase acquisition, which I'll discuss later in my remarks, also allows us to deliver enterprise AI acceleration.
Speaker #1: What was abundantly clear is that IT and security leaders now have an assumed breach mindset. This means they are certain that cyber attacks are inevitable, despite the significant investments they have made in cyber prevention and detection.
Speaker #1: At the same time, these enterprises are also looking to re-platform and modernize their infrastructure in preparation for the imminent enterprise AI transformation. As companies shift deeper into cloud and GenAI, customers continue to turn to us.
Speaker #1: Rubrik, for complete cyber resilience, delivering uniform and consistent data security policy control as well as rapid, accurate recovery from cyber attacks. Concurrently, our Predabase acquisition, which I'll discuss later in my remarks, also allows us to deliver enterprise AI acceleration.
Speaker #1: The bottom line is this: we have tremendous opportunities ahead of us. First, we continue to lead the vast cyber resilience market, and second, at the same time we continue to build a new future for enterprise AI.
Bipul Sinha: The bottom line is this: we have tremendous opportunities ahead of us. First, we continue to lead the vast cyber resilience market, and second, at the same time, we continue to build a new future for enterprise AI. Now, I'll detail some of the wins across our initiatives at varying scales. For our cyber resilient data protection business, we continue to add solutions across new applications and workloads, leveraging the same underlying Rubrik Preemptive Recovery Engine to deliver risk and remediation capabilities. This unique architecture consistently enables us to outperform both legacy and new Gen backup vendors. Let me highlight this with two illustrative customer wins from the quarter. A major North American oil and gas company selected Rubrik after its legacy backup provider was unable to support a fast recovery following a disruptive cyber attack.
Speaker #1: Now I'll detail some of the wins across our initiatives, at varying scales. For our cyber-resilient data protection business, we continue to add solutions across new applications and workloads.
Speaker #1: Leveraging the same underlying preemptive recovery engine to deliver risk and remediation capabilities, this unique architecture consistently enables us to outperform both legacy and new-gen backup vendors.
Speaker #1: Let me highlight this with two illustrative customer wins from the quarter. A major North American oil and gas company, selected Rubrik after its legacy backup provider was unable to support a fast recovery following a disruptive cyber attack.
Speaker #1: Rubrik was selected because of our superior recovery time relative to both legacy as well as new Gen alternatives. Our comprehensive, yet radically simple platform for cyber recovery across all workloads, including the cloud, was another key reason for the legacy backup replacement.
Bipul Sinha: Rubrik was selected because of our superior recovery time relative to both legacy as well as new Gen alternatives. Our comprehensive, yet radically simple platform for cyber recovery across all workloads, including the cloud, was another key reason for the legacy backup replacement. In another example, a Fortune 50 pharma leader turned to Rubrik to protect its critical applications, displacing its 20-year-old legacy backup vendor as well as native cloud backup solutions. We also outcompeted new Gen backup vendors for this opportunity. Rubrik was selected due to not only our ability to deliver greater cyber resiliency in the face of escalating cyber risk, but also more efficient cloud storage costs. Let me now talk about innovations in cloud protection that are delivered from Rubrik Security Cloud, which is a single unique platform across data center, cloud, SaaS, and identity workloads.
Speaker #1: In another example, a Fortune 50 pharma leader, turned to Rubrik to protect its critical applications, displacing its 20-year-old legacy backup vendor as well as native cloud backup solutions.
Speaker #1: We also outcompeted new Gen backup vendors for this opportunity. Rubrik was selected due to not only our ability to deliver greater cyber resiliency in the face of escalating cyber risk, but also more efficient cloud storage costs.
Speaker #1: Let me now talk about innovations in cloud protection, data delivered from RSC, which is a single unique platform across data centers, cloud, SaaS, and identity workloads.
Speaker #1: We continue to expand our purpose-built cloud data protection solution to more applications, services, and databases, in the public cloud. This quarter, we expanded our cyber protection of AWS RDS database, and added comprehensive protection for Amazon DynamoDB, strengthening Rubrik's leadership in cyber resilience for cloud databases.
Bipul Sinha: We continue to expand our purpose-built cloud data protection solution to more applications, services, and databases in the public cloud. This quarter, we expanded our cyber protection of AWS RDS database and added comprehensive protection for Amazon DynamoDB, strengthening Rubrik's leadership in cyber resilience for cloud databases. We'll continue to build upon our code-to-cloud cyber resilience platform, which offers protection from the first line of code to full stack of applications in production across the major hyperscalers. Now, let me highlight a few customer wins with cloud and SaaS protection. First, a global Fortune 500 transportation organization increased their investment in Rubrik this quarter, adding M365 protection, protection for Azure workloads, code-based recovery for GitHub and Azure DevOps, as well as Jira protection. This expansion bolsters the company's cyber resilience and reduces recovery times across its critical cloud applications.
Speaker #1: We'll continue to build upon our Code to Cloud cyber resilience platform. Which offers protection from the first line of code to full stack of applications in production across the major hyperscalers.
Speaker #1: Now let me highlight a few customer wins with cloud and SaaS protection. First, a global Fortune 500 transportation organization, increased their investment in Rubrik this quarter, adding M365 protection, protection for Azure workloads, code-based recovery for GitHub, and Azure DevOps as well as Jira protection.
Speaker #1: This expansion bolsters the company's cyber resilience and reduces recovery times across its critical cloud applications. Another example is with the Fortune 500 logistics and supply chain company, that also expanded its partnership with Rubrik by fortifying its mission-critical data estates in Azure and M365 applications.
Bipul Sinha: Another example is with a Fortune 500 logistics and supply chain company that also expanded its partnership with Rubrik by fortifying its mission-critical data estate in Azure and M365 applications after adding Rubrik to safeguard its data center applications in the past. Furthermore, the customer added identity recovery, reducing recovery time of Active Directory and Entra ID from several weeks to mere hours. Rubrik's cyber resilience platform now avoids an estimated $65 million losses per day for this customer in case of downtime due to cyber attacks. Now, let's turn to our opportunity in identity resilience. In just a couple of quarters of general availability, we have seen notable momentum for Rubrik identity recovery solutions, with now over 200 customers.
Speaker #1: After adding Rubrik to safeguard its data center applications in the past, furthermore, the customer added identity recovery, reducing recovery time of Active Directory and Entra ID from several weeks to mere hours.
Speaker #1: Rubrik's cyber resilience platform now avoids an estimated $65 million losses per day for this customer in case of downtime due to cyber attacks.
Speaker #1: Now let's turn to our opportunity in identity resilience. In just a couple of quarters of general availability, we have seen notable momentum for Rubrik identity recovery solutions.
Speaker #1: With now over 200 customers, Rubrik is addressing a critical need for enterprises by enabling the rapid recovery of their identity services following cyber attacks, or operational failures, so that they can return to business as usual.
Bipul Sinha: Rubrik is addressing a critical need for enterprises by enabling the rapid recovery of their identity services following cyber attacks or operational failure so that they can return to business as usual. We are the only vendor in the market that delivers rapid recovery of both Active Directory and Entra ID in a hybrid cloud manner, the backbone of identity solutions worldwide. Let me give you two specific customer wins in identity. This quarter, a leading UK financial services company strengthened its partnership with Rubrik by adopting Rubrik Identity Recovery. Prompted by a recent cyber attack on a major UK retailer, the company evaluated vulnerabilities within its own Active Directory environment. They recognized that these weaknesses could lead to significant post-attack disruptions, resulting in substantial market cap declines and potentially affecting millions of pensioners.
Speaker #1: We are the only vendor in the market that delivers rapid recovery of both Active Directory and Entra ID in a hybrid cloud manner, the backbone of identity solutions worldwide.
Speaker #1: Let me give you two specific customer wins in identity. This quarter, a leading UK financial services company strengthened its partnership with Rubrik by adopting Rubrik identity recovery, prompted by a recent cyber attack on a major UK retailer, the company evaluated vulnerabilities within its own Active Directory environments.
Speaker #1: They recognized that these weaknesses could lead to significant post-attack disruption, resulting in substantial market cap declines and potentially affecting millions of pensioners. By consolidating data and identity protection with Rubrik, this company now considers Rubrik one of its top three strategic IT vendors.
Bipul Sinha: By consolidating data and identity protection with Rubrik, this company now considers Rubrik one of its top three strategic IT vendors. In another example, a Fortune 500 financial institution in the U.S. turned to Rubrik after an audit uncovered that its Active Directory recovery would take upwards of seven days, with millions of dollars at risk each day. By adding Rubrik Identity Recovery, they reduced recovery times to under two hours, preventing potentially significant business disruption and satisfying board mandate. We continue to invest in our identity solutions. We deepened our innovation with the general availability of Rubrik Identity Resilience. Like I mentioned in the last quarter's earnings call, we are bringing together Rubrik's identity and DSPM solutions. Our latest Rubrik Identity Resilience solution brings together data security context and identity intelligence for the first time.
Speaker #1: In another example, a Fortune 500 financial institution in the US turned to Rubrik after an audit uncovered that its Active Directory recovery could take upwards of seven days with millions of dollars at risk each day.
Speaker #1: By adding Rubrik Identity Recovery, they reduced recovery times to under two hours, preventing potentially significant business disruption and satisfying board mandates. We continue to invest in our identity solutions.
Speaker #1: We deepened our innovation with the general availability of Rubrik Identity Resilience. As I mentioned in last quarter's earnings call, we are bringing together Rubrik's identity and DSPM solutions.
Speaker #1: Our latest Rubrik Identity Resilience solution brings together data security context and identity intelligence for the first time. Similar to how we monitor and sustain data, Rubrik Identity Resilience continuously monitors and protects human and non-human identities, tracking misconfigurations as well as high-risk and malicious changes in Active Directory and Entra ID.
Bipul Sinha: Similar to how we monitor and sustain data, Rubrik Identity Resilience continuously monitors and protects human and non-human identities, tracking misconfigurations as well as high-risk and malicious changes in the Active Directory and Entra ID. It also ties identity-based information like privilege access to Rubrik's DSPM sensitive data context and activity to strengthen risk posture and accelerate cyber recovery. Next, let's talk about our innovations in the Gen AI space. As I noted during our IPO, Rubrik by design perpetually lives on the frontier of innovation, and our long-term success depends upon our ability to continuously create and commercialize pioneering products. As part of this, we continue to build a portfolio of innovation at different stages and at different levels of risk. This approach allows us to stack multiple S-curves to maintain maximal momentum while preparing for what's next.
Speaker #1: It also ties identity-based information, like privileged access, to Rubrik's DSPM sensitive data context and activities, strengthening the risk posture and accelerating cyber recovery.
Speaker #1: Next, let's talk about our innovations in the GenAI space. As I noted during our IPO, Rubrik by design perpetually lives on the frontier of innovation.
Speaker #1: And our long-term success depends upon our ability to continuously create and commercialize pioneering products. As part of this, we continue to build a portfolio of innovations at different stages and at different levels of risk.
Speaker #1: This approach allows us to stack multiple S-curves to maintain maximal momentum. While preparing for what's next, along these lines, I will talk about our longer-term initiatives for GenAI.
Bipul Sinha: Along these lines, I will talk about our longer-term initiatives for Gen AI. While Gen AI can unlock significant new efficiencies for every organization, there are significant barriers like accuracy, cost, and security, which hinder its adoption beyond proof of concept. We are addressing these challenges by leveraging our unique ability to extract, manage, and secure business data. Rubrik's data platform not only delivers robust cyber recoveries but also provides clean, secure data with the necessary permission and policy enforcement to power generative AI applications. This ensures only the right person has access to the sensitive data. Our recent acquisition of Prettibase furthers this vision. Just as Rubrik is working to simplify secure data access for Gen AI, Prettibase works to solve performance and cost issues around deploying Gen AI models for proprietary AI applications.
Speaker #1: While GenAI can unlock significant new efficiencies for every organization, there are significant barriers like accuracy, cost, and security which hinders its adoption beyond proof of concept.
Speaker #1: We are addressing these challenges by leveraging our unique ability to extract, manage, and secure business data. Rubrik's data platform not only delivers robust cyber recoveries, but also provides clean, secure data with the necessary permission and policy enforcement to power generative AI applications.
Speaker #1: This ensures only the right person has access to the sensitive data. Our recent acquisition of Predabase furthers this vision. Just as Rubrik is working to simplify secure data access for GenAI, Predabase works to solve performance and cost issues around deploying GenAI models for proprietary AI applications.
Speaker #1: The Predabase platform allows enterprises to fine-tune GenAI models and run an optimized inference stack for faster, accurate results at a lower cost. We believe the combination of Rubrik and Predabase is incredibly powerful in accelerating GenAI from proof of concept to full production and value realization.
Bipul Sinha: The Prettibase platform allows enterprises to fine-tune Gen AI models and run an optimized inference stack for faster, accurate results at a lower cost. We believe the combination of Rubrik and Prettibase is incredibly powerful in accelerating Gen AI from proof of concept to full production and value realization. We welcome the Prettibase team to Rubrik, where they have hit the ground running and continue to innovate and define new frontiers in enterprise agentic AI. We recently announced Agent Rewind, built on our Rubrik secure data platform underpinned by Prettibase's AI technology. We have spent years helping our customers recover from cyber attacks and operational errors. With Agent Rewind, we can now help customers undo the mistakes of AI agents without full system rollbacks, which is crucial for a scalable and secure AI adoption.
Speaker #1: We welcome the Predabase team to Rubrik, where they have hit the ground running and continue to innovate, defining new frontiers in enterprise agentic AI.
Speaker #1: We recently announced Agent Rewind, built on our Rubrik's secure data platform, underpinned by Predabase's AI technology. We have spent years helping our customers recover from cyber attacks and operational errors.
Speaker #1: With Agent Rewind, we can now help customers undo the mistakes of AI agents without full system rollbacks, which is crucial for scalable and secure AI adoption.
Speaker #1: We are still in the early stages of optimizing product-market fit for our AI solutions, including Agent Rewind. We plan to add more capabilities and investments to enable confident enterprise AI transformation and agentic work adoption.
Bipul Sinha: We are still in the early stages of optimizing product-market fit for our AI solutions, including Agent Rewind. We plan to add more capabilities and investments to enable confident enterprise AI transformation and agentic work adoption. This is our multi-year initiative to scale Rubrik's AI solution. In closing, I would like to share my gratitude. First, thank you to all my fellow Rubrikans. Rubrik continues to win the cyber resilience market because of Rubrikans' collective focus and disciplined execution. We continue to break new grounds for enterprise AI acceleration. It's still early days for all the opportunities ahead of us. Also, a big thank you to all our customers and partners. Your trust inspires us to continue to lead and define the future of cybersecurity and enterprise AI. Lastly, of course, thank you to you, our shareholders, for your continued support and trust.
Speaker #1: This is our multi-year initiative to scale Rubrik's AI solutions. In closing, I would like to share my gratitude. First, thank you to all my fellow Rubrikans.
Speaker #1: Rubrik continues to win the cyber resilience market because of Rubrikan's collective focus and disciplined execution. We continue to break new grounds for enterprise AI acceleration.
Speaker #1: And you know what? It's still early days for all the opportunities ahead of us. Also, a big thank you to all our customers and partners.
Speaker #1: Your trust inspires us to continue to lead and define the future of cybersecurity and enterprise AI. And lastly, of course, thank you to you, our shareholders, for your continued support and trust.
Speaker #1: With that, I'm pleased to pass it over to our Chief Financial Officer, Kiran Choudary. Thank you, Bipul. Good afternoon, everyone, and thank you for joining us today.
Bipul Sinha: With that, I'm pleased to pass it over to our Chief Financial Officer, Kiran Choudary.
Kiran Choudary: Thank you, Bipul. Good afternoon, everyone, and thank you for joining us today. We had a strong Q2, which was highlighted by solid growth at scale and continued improvement in profitability. We continue to benefit from our leadership in the growing market for cyber resilience, and we are pleased to raise our outlook for the year. Let me start by briefly recapping our second quarter Fiscal 2026 financial results and key operating metrics, and then I'll provide guidance for the third quarter and full year Fiscal 2026. All comparisons, unless otherwise noted, are on a year-over-year basis. We are very pleased to have ended Q2 with subscription ARR of over $1.25 billion, growing 36%. We added $71 million in net new subscription ARR. We continue to drive adoption of our Rubrik Security Cloud, which resulted in $1.1 billion of cloud ARR, up 57%.
Speaker #1: We had a strong Q2, which was highlighted by solid growth at scale and continued improvement in profitability. We continue to benefit from a leadership in the growing market for cyber resilience, and we are pleased to raise our outlook for the year.
Speaker #1: Let me start by briefly recapping our second quarter fiscal 2026 financial results and key operating metrics, and then I'll provide guidance for the third quarter and full year fiscal 2026.
Speaker #1: All comparisons unless otherwise noted are on a year-over-year basis. We are very pleased to have ended Q2 with subscription ARR of over $1.25 billion, growing 36%.
Speaker #1: We added $71 million in net new subscription ARR. We continue to drive adoption of our Rubrik Security Cloud, which resulted in $1.1 billion of cloud ARR, up 57%.
Speaker #1: Our differentiated LAN and expand model benefits from multiple avenues to gain new customers and grow our footprint after the initial contract. Expansion occurs through increased data in existing applications, securing more applications or identities, or adding more security functionality.
Kiran Choudary: Our differentiated land and expand model benefits from multiple avenues to gain new customers and grow our footprint after the initial contract. Expansion occurs through increased data in existing applications, securing more applications or identities, or adding more security functionality. As a result, we continue to see a strong subscription net retention rate, which remained over 120% in the second quarter. All vectors of expansion are healthy contributors to our NRR, highlighting the meaningful runway we have to more deeply penetrate our customer base. Adoption of additional security functionality contributed approximately 35% of our subscription net retention rate in the quarter. We ended the second quarter with 2,505 customers with subscription ARR of $100,000 or more, up 27%. These larger customers now contribute 85% of our subscription ARR, up from 82% in the year-ago period as we become an increasingly strategic partner to our enterprise customers.
Speaker #1: As a result, we continue to see a strong subscription net retention rate, which remained over 120% in the second quarter. All vectors of expansion are healthy contributors to our NRR.
Speaker #1: Highlighting the meaningful runway, we have to more deeply penetrate our customer base. Adoption of additional security functionality contributed approximately 35% of our subscription net retention rate in the quarter.
Speaker #1: We ended the second quarter with 2,505 customers, with subscription ARR of $100,000 or more up 27%. These larger customers now contribute 85% of our subscription ARR, up from 82% in the year-ago period, as we become an increasingly strategic partner to our enterprise customers.
Speaker #1: For our second quarter, subscription revenue was $297 million, up 55%. Total revenue was $310 million, up 51%. Revenue in Q2 benefited from our strong ARR growth, and tailwinds from our cloud transformation journey.
Kiran Choudary: For our second quarter, subscription revenue was $297 million, up 55%. Total revenue was $310 million, up 51%. Revenue in Q2 benefited from our strong ARR growth and tailwinds from our cloud transformation journey. We also saw a higher non-recurring revenue, which was accounted for as material rights related to our cloud transformation. This contributed approximately 7% to the revenue growth this quarter, which was a few percentage points above our expectation. Adjusting for the benefit from material rights in Q2, total revenue grew approximately 44%. Turning to a geographic mix of revenue, revenue from the Americas grew 53% to $225 million. Revenue from outside the Americas grew 46% to $85 million. Before turning to gross margins, expenses, and profitability, I would like to note that I'll be discussing non-GAAP results going forward. Our non-GAAP gross margin was 82% in the second quarter compared to 77% in the year-ago period.
Speaker #1: We also saw a higher non-recurring revenue, which was accounted for as material rides related to our cloud transformation. This contributed approximately 7 percentage points to the revenue growth this quarter.
Speaker #1: Which was a few percentage points, above our expectation. Adjusting for the benefit from material rides in Q2, total revenue grew approximately 44%. Turning to the geographic mix of revenue, revenue from the Americas grew 53% to $225 million, revenue from outside the Americas grew 46% to $85 million.
Speaker #1: Before turning to gross margins, expenses, and profitability, I would like to note that I'll be discussing non-GAAP results going forward. Our non-GAAP gross margin was 82% in the second quarter, compared to 77% in the year-ago period.
Speaker #1: Our gross margin benefited from the revenue outperformance, including higher non-recurring revenue, reduced hosting costs from new cloud contracts, including a one-time hosting cost credit, and the improved efficiency of our customer support organization.
Kiran Choudary: Our gross margin benefited from the revenue outperformance, including higher non-recurring revenue, reduced hosting costs from new cloud contracts, including a one-time hosting cost credit, and the improved efficiency of our customer support organization. We anticipate total gross margin to remain within our long-term target of 75% to 80% in Fiscal 2026. As a reminder, we look at subscription ARR contribution margin as a key measure of operating leverage. We believe the improvement in our subscription ARR contribution margin demonstrates our ability to drive operating leverage and profitability at scale. Subscription ARR contribution margin was positive 9% in the last 12 months ended July 31 compared to negative 8% in the year-ago period, an improvement of approximately 1,800 basis points. When normalizing for the $23 million in employer payroll taxes associated with the IPO in the prior period, the improvement was approximately 1,500 basis points.
Speaker #1: We anticipate total gross margin to remain within our long-term target of 75% to 80% in fiscal 2026. As a reminder, we look at subscription ARR contribution margin as a key measure of operating leverage.
Speaker #1: We believe the improvement in our subscription ARR contribution margin demonstrates our ability to drive operating leverage and profitability at scale. Subscription ARR contribution margin was positive 9% in the last 12 months ended July 31st, compared to negative 8% in the year-ago period.
Speaker #1: An improvement of approximately 1,800 basis points. When normalizing for the $23 million in employer payroll taxes associated with the IPO in the prior period, the improvement was approximately 1,500 basis points.
Speaker #1: The improvement in subscription ARR contribution margin was driven by higher sales, the benefits of scale, and improving efficiencies and management of costs across the business.
Kiran Choudary: The improvement in subscription ARR contribution margin was driven by higher sales, the benefits of scale, and improving efficiencies and management of costs across the business. Free cash flow is positive $57.5 million compared to negative $32 million in the second quarter of Fiscal 2025. This increase was driven by higher sales, including timing of renewals, improved operating leverage, and optimizing our capital structure. Turning to our balance sheet, we ended the second quarter in a strong cash position with $1.5 billion in cash, cash equivalents, restricted cash, and marketable securities, and $1.1 billion in convertible debt. Let me now provide some context for our outlook for Fiscal 2026. We remain confident about our outlook given the strength of the cyber resilience market and demand for our differentiated offerings. We believe these drivers, alongside our strong and consistent execution, will deliver strong subscription ARR growth ahead.
Speaker #1: Recapsula's positive $57.5 million compared to negative $32 million in the second quarter of fiscal 2025. This increase was driven by higher sales, including the timing of renewals, improved operating leverage, and optimizing our capital structure.
Speaker #1: Turning to our balance sheet, we ended the second quarter in a strong cash position with $1.5 billion in cash, cash equivalents restricted cash, and marketable securities, and $1.1 billion in convertible debt.
Speaker #1: Let me now provide some context on our outlook for fiscal 2026. We remain confident about our outlook given the strength of the cyber resilience market and the demand for our differentiated offerings.
Speaker #1: We believe these drivers, alongside our strong and consistent execution, will deliver strong subscription ARR growth ahead. In terms of operating investments, we'll continue to invest in R&D to drive innovation in the large and growing markets we operate in across data, security, and AI.
Kiran Choudary: In terms of operating investments, we'll continue to invest in R&D to drive innovation in the large and growing markets we operate in across data, security, and AI. We'll also continue to make investments in go-to-market where we see the most compelling ROI across select regions and verticals, and to find product-market fit and scale our new innovations. Let me discuss our current outlook on quarterly seasonality. After a strong first and second quarter, we anticipate Q3 will contribute approximately 21% to 22% of full year net new subscription ARR. In addition, subscription ARR contribution margin has some seasonality due to the timing of net new subscription ARR and operating expenses each quarter. Based on our current net new ARR linearity and investment plans, we continue to anticipate that subscription contribution margins will be the seasonally lowest in Q3 before moving higher in Q4.
Speaker #1: We'll also continue to make investments in go-to-market, where we see the most compelling ROI across select regions and verticals, and to find product-market fit and scale our new innovations.
Speaker #1: Let me discuss our current outlook on quarterly seasonality. After a strong first and second quarter, we anticipate Q3 will contribute approximately 21% to 22% of full-year net new subscription ARR.
Speaker #1: In addition, subscription ARR contribution margin has some seasonality due to the timing of net new subscription ARR, and operating expenses each quarter. Based on our current net new ARR linearity and investment plans, we continue to anticipate that subscription contribution margins will be the seasonally lowest in Q3 before moving higher in Q4.
Speaker #1: In terms of revenue, we now expect material rides related to our cloud transformation to contribute approximately 6 percentage points to revenue growth for the full year.
Kiran Choudary: In terms of revenue, we now expect material rights related to our cloud transformation to contribute approximately 6 percentage points to revenue growth for the full year, up from our prior expectation of a few percentage points. As a reminder, the revenue related to material rights is non-recurring, and we expect minimal revenue contribution from material rights in Fiscal 2027. Please see additional modeling points for Fiscal 2026 in our investor presentation, which can be found on our Investor Relations website. Now, turning to our guidance for the third quarter and full year Fiscal 2026. In Q3, we expect revenue of $319 million to $321 million, up 35% to 36%, which includes a few percentage points higher benefit from material rights than previously expected. We expect non-GAAP subscription ARR contribution margins of approximately 6.5%.
Speaker #1: Up from our prior expectation of a few percentage points. As a reminder, the revenue related to material rides is non-recurring, and we expect minimal revenue contribution from material rides in fiscal 2027.
Speaker #1: Please see additional modeling points for fiscal 2026 in our investor presentation, which can be found on our Investor Relations website. Now turning to our guidance for the third quarter and full year fiscal 2026.
Speaker #1: In Q3, we expect revenue of $319 million to $321 million, up 35% to 36%, which includes a few percentage points higher benefit from material rides than previously expected.
Speaker #1: We expect non-GAAP subscription ARR contribution margins of approximately 6.5%. We expect non-GAAP earnings per share of negative $0.18 to negative $0.16, based on approximately 200 million weighted average shares outstanding.
Kiran Choudary: We expect non-GAAP earnings per share of negative $0.18 to negative $0.16, based on approximately 200 million weighted average shares outstanding. For the full year Fiscal 2026, we expect subscription ARR in the range of $1,408,000,000 to $1,416,000,000, reflecting a year-over-year growth rate of 29% to 30%. We expect total revenue for the full year Fiscal 2026 in the range of $1,227,000,000 to $1,237,000,000, reflecting a year-over-year growth rate of 38% to 40%, or 32% to 34% without the benefit from material rights in Fiscal Year 2026. We expect non-GAAP subscription ARR contribution margins of approximately 7%. We expect non-GAAP earnings per share of negative $0.50 to negative $0.44, based on approximately 197 million weighted average shares outstanding for the full year. We expect free cash flow of $145,000,000 to $155,000,000.
Speaker #1: For the full year fiscal 2026, we expect subscription ARR in the range of $1.408 billion to $1.416 billion, reflecting a year-over-year growth rate of 29% to 30%.
Speaker #1: We expect total revenue for the full fiscal year 2026 to be in the range of $1.227 billion to $1.237 billion, reflecting a year-over-year growth rate of 38% to 40%.
Speaker #1: Or 32% to 34%, without the benefit from material rides in fiscal year 2026. We expect non-GAAP subscription ARR contribution margins of approximately 7%. We expect non-GAAP earnings per share of negative $0.50 to negative $0.44, based on approximately 197 million weighted average shares outstanding for the full year.
Speaker #1: We expect free cash flow of $145 million to $155 million. Finally, we are pleased with our execution in the first half of the year, as we continue to deliver cyber resilience to organizations around the world.
Kiran Choudary: Finally, we are pleased with our execution in the first half of the year as we continue to deliver cyber resilience to organizations around the world. With that, we'd like to open up the call for any questions.
Speaker #1: With that, we'd like to open up the call for any questions. Thank you. Ladies and gentlemen, we will now begin the question-and-answer session.
Operator: Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. Should you have a question, please press star followed by the number one on your touch-tone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by the number two. If you are using a speakerphone, please lift the handset before pressing any keys. In the interest of time, please limit yourselves to only one question. Your first question comes from the line of Saket Kalya from Barclays. Your line is now open.
Speaker #1: Should you have a question, please press star followed by the number one on your touch-tone phone. You will hear a prompt that your hand has been raised.
Speaker #1: Should you wish to decline from the polling process, please press Star followed by the number 2. If you are using a speakerphone, please lift the handset before pressing any keys.
Saket Kalia: Okay, great. Hey, guys, thanks for taking my question here and another nice job this quarter.
Okay, great. Hey guys, thanks for taking my question here, and another nice job this quarter.
Melissa Franchi: Thank you.
Saket Kalia: Absolutely. You know, the number that really jumped out to me the most, most of all, was the free cash flow margin at 19% in the quarter. I think that's now four consecutive quarters of positive free cash flow. Bipul, maybe the question is, what's changed strategically in driving that type of profitability? Kiran, is there anything that we should think about in the second half on free cash flow as we fine-tune our models?
um, you
Absolutely, you know uh guys the the number that really jumped out to me, the most most of all was was the free cash flow margin at 19% in the quarter. I think that's now 4 consecutive quarters of of positive free cash flow people. Maybe the question is, what's changed strategically in driving that type of profitability and Kieran, is there anything that we should think about in the second half on free cash flow as we fine-tune our models?
Bipul Sinha: Thanks, Saket. As I've said before, I'm a capitalist and I love profitability and cash flow. Look, we are in a very large and expanding market of cyber resilience. As customers are looking to transform their businesses into AI enterprises, they are doing multiple transformations around cloud, around infrastructure, and cyber resiliency is the number one topic for them because if your data doesn't have integrity or availability, none of the AI will be useful or helpful. We are helping do that cyber resilience transformation for our customers, giving them AI-based ransomware detection, fast recovery capabilities like that. That's what is helping us win in this large market. As we are scaling our business, the efficiencies are kicking in. I would love to have Kiran add some more from a finance perspective.
Thanks, Sakit. As I've said before, I'm a capitalist, and I love profitability and cash flow.
But look, we are in a very large. Uh, and uh, and expanding Market of cyber resilience and as customers are looking to transform the businesses into AI Enterprises, they are doing multiple Transformations around Cloud around infrastructure. And cyber resiliency is the number 1 topic for them, because if your data doesn't have integrity or availability, none of the AI will be used for or or helpful.
Them, uh, like AI-based, uh, ransomware detection, fast recovery, uh, capabilities like that. And that's what is helping us win in this large market. As we are scaling our business, the efficiencies are kicking in.
Kiran Choudary: Sure, Bipul, and hi, Saket. I'll just give you a little bit more context both for the cash flow in the quarter and assumptions on the guide. Super pleased with the $58 million we generate in free cash flow this quarter. As you said, 19%. It was 3,500 basis points improvement year over year, and then from 700 basis points from last quarter Q1. A few reasons for that. Starting off with stronger ARR performance than anticipated, and then the margin improvement as well, 9% sub-ARR margin. That was a key driver for the cash flow. In addition to that, you would have seen we made some capital structure optimization in the quarter. We settled our private company debt, which has a higher interest coupon with a 0% convertible. We had more cash on the balance sheet and less interest expense, which we sometimes pay out in cash.
I would love to add some more from a finance perspective. Sure, people and high socket. I'll just give you a little bit more context both for the cash flow and the quarter, along with assumptions on the guide. So, I'm super pleased with the $58 million we generated in free cash flow this quarter, as you said, 19%.
It was a 3,500 basis points improvement year over year, and then from 700 basis points last quarter, Q1.
Uh, a few reasons for that. Uh, starting off with, uh, stronger performance than I expected. And then the margin improvement as well, 9% sub-error margin. That was a key driver for the cash flow. In addition to that, uh, you would have seen we made some capital structure optimization in the quarter; we settled.
Kiran Choudary: That helped as well. On the duration front, we saw favorable duration this quarter. As you know, we increasingly sell cloud-native products, which tend to have a shorter contract length as well as shorter payment terms, and we didn't see that compression duration this quarter. The last thing I'll say is this is probably more timing related, but we saw more early renewals related to the usual trend, and some of which was multi-year as well. This was in the context mostly of customers co-terming renewals with active expansion. All of that really drove the cash flow outperformance to a 19% margin this quarter. When you look at the guide, we are happy to raise the guidance for the year. We previously had guided around 6% margin, and we're guiding to 12%. That's 1,000 basis points or 10 percentage points improvement year over year. Some of the trends continue.
Uh, our private company debt, which has a higher interest coupon with a 0% convertible. Uh, so we had more cash on the balance sheet and, uh, less interest expense, which we, uh, sometimes pay out in cash.
So that helped as well. And then on the duration front, uh, we were, we saw favorable duration of this quarter. As you know, we increasingly sell Cloud native products. Which tend to have a shorter contract length as well as shorter payment terms and we didn't see that, uh, compression deviation this quarter. And the last thing I'll say is this probably more timing related. But we saw more early renewals related to the usual Trend and some of which was multi year as well. This was in the context mostly of customers, cmming renewals with, with active expansion. So all of that really drove the cash flow outperformance, uh to 19% margin. This this quarter
When you look at the guide, we are happy to raise the guidance for the year. We previously had it around a 6% margin and are now looking at 12%, which is a thousand basis points, or 10 percentage points improvement year over year.
Kiran Choudary: Obviously, it's based on our ARR guide as well as the higher investments we are making in the second half from an OpEx perspective. The capital structure portion will continue. Specifically in the duration, we are not assuming the favorable compression continues. We are modeling in a little bit more compression. I would say low to mid-single digits through the rest of the year. That is all the assumptions we have made in the guidance.
Uh, some of the trends continue. Obviously, it's based on our, uh,
Saket Kalia: Super helpful, guys. Thank you.
Our ARR guide, as well as, uh, the higher Investments. We are making, uh, in the second half of an Opex perspective. Obviously, the capital structure portion will continue, but uh, specifically on the duration we are not assuming uh, um, the the the, the favorable compression continues. We are modeling in a little bit more compression. Uh I would say load mid single digits uh through the rest of the year and that is all the assumptions. Uh we have made in the guidance
Melissa Franchi: Thank you, Saket.
Super helpful, guys. Thank you.
Operator: Your next question comes from the line of Andrew Nowinski from Wells Fargo. Your line is now open.
Thank you, socket.
Andrew Nowinski: Okay, good afternoon. I just wanted to say I think the net new ARR in Q2 is really impressive considering you went through a sales comp change, you know, moving to annual sales comp plans this year. I know the change really didn't have an impact on your year-over-year growth in Q2, but I was wondering if you could just talk about whether you saw any impact from that and whether you're expecting higher seasonality in Q4 because of that change. Thank you.
Your next question comes from the line of Andrew Ninski from Wells Fargo. Your line is now open.
Okay, good afternoon. Um,
Bipul Sinha: Let me give you some qualitative perspective on it, and I'll let Kiran provide some more detail. Look, we have been running our business on a per-year net ARR basis. It jumps this quarter, that quarter, depending upon the deal timing and deal closure. We run our business on a full-year new ARR. We used to do quota compensation for our sales team on a half-yearly basis. Starting this fiscal year, fiscal year 2026, we decided to align how we run the business with how we compensate our sales team. That change in the first half so far has not brought out any material impact to how we see our business or their achievement. Obviously, we have the rest of the year in front of us, and we'll know more about the impact by the end of this year. So far, it has gone well.
I just wanted to say, I think the net newer R in Q2 is really impressive, considering you went through a sales comp change, you know, moving to annual sales comp plans this year. And so I, I know I the, the change really didn't have an impact on your year-over-year growth in Q2, but I was wondering if you could just talk about whether you saw any impact from that and and um, whether you're expecting higher seasonality in Q4 because of that change. Thank you.
Let me give you a qualitative perspective on it, and I'll let Ken provide some more details.
Look.
We have been running our business uh, on a per year, uh, net basis and it, it jumps through this quarter that quarter depending upon the deal timing and deal closer. But uh, but we run our business on a full year. New are
And uh and we used to do, uh, Kota compensation for our sales team on a half yearly basis. So, starting this fiscal year, fiscal year 26, we decided to align how we run the business, with how we compensate, our sales team and and that change in the first half. So far, has not brought her out any material.
Impact to how we, uh, see our business or their achievement. Obviously, we have the rest of the year in front of us, and we'll know more about the impact by the end of this year.
Kiran Choudary: I'll just add a few more thoughts here. There are, of course, some shifts in seasonality, but it's only the first half, so we can give you a full update on our first year with this sales comp plan change at the end of the year. So far, it's been smooth, and there's been minimal disruption. From a modeling perspective, since we don't have a Q2 accelerator as we had in the previous half-year plans, Q2 and Q3 will look somewhat similar, and that is reflecting our guidance. Q4 will be seasonally strong. This is reflected both in our subscription ARR guidance as well as the margins and free cash flow.
But so far, it has gone well.
Yeah, I'll just add a few more thoughts here. So, uh, there are, of course, some shifts in seasonality, but it's only the first half. So we can give you a full update on our first year with, uh, this sales compliance change at the end of the year. But so far, it's been smooth and there's been.
Andrew Nowinski: Thank you very much.
And, uh, this is reflected both in our subscription error guidance, as well as the, uh, margins and free cash flow.
Thank you very much.
Melissa Franchi: Thank you, Andy.
Operator: Your next question comes from the line of John Difucci from Guggenheim. Your line is now open.
Thank you, Andy.
Your next question comes from the line of John De Fuchi from Guggenheim. Your line is now open.
Howard Ma: Great, thank you. This is Howard Ma on for John. I guess either for Bipul or Kiran, can you help us better understand how you're levered to data growth? For instance, there's an aspect to your pricing model that's based on volume tiers, which you could argue is directly tied to data growth. There's a user-based element, especially with securing SaaS apps. What is the mix today, and is there opportunity for a purely consumption-driven component that gets bigger over time?
Rita, thank you. This is Howard. Ma on for John.
I guess either for people or Karen, can you help us better understand?
How do you leverage data growth? For instance, there's an aspect to your pricing model that is based on volume tiers, which you could argue is directly tied to data growth. Then, there's a user base element.
Uh, especially with security SaaS apps.
So, what is the mix today, and is there an opportunity for a purely consumption-driven component that gets bigger over time?
Bipul Sinha: Rubrik's products are a combination of data volume and data security features and capabilities that we attach to it. The combination of the two is the pricing for our different editions, like Enterprise Edition and Foundation Edition. We do not separate the two, and we help our customers identify all of the critical data and deliver all our security capabilities on those critical data. As their data grows, as their applications or number of users grows, as they adopt more workloads for Rubrik, we grow. We have multiple growth vectors in Rubrik. One vector is organic data growth within workload and applications that we are already securing. New workloads that are coming to Rubrik or existing applications which are moving to Rubrik are another vector. The third piece is attaching the data security products.
So, rubrics products.
A combination of data volume and data security features and capability that we attach to it. And the combination of the two is the pricing for our different editions, such as Enterprise Edition and Foundation Edition. So we don't separate the two, and we help our customers identify all of the critical data and deliver all our security capabilities on those critical data. And as the data grows, as their applications or number of users grow, as they adopt more workloads for Rubrik, we grow. So we have multiple growth vectors in Rubrik. One vector is organic data growth.
Bipul Sinha: For products such as M365, which is tied to the number of users, we have a licensing model that aligns to that SaaS program. We make it easy for our customers to adopt Rubrik and for them to understand the pricing model and expense based on how they pay for their core platform. Does that answer your question?
Within a workload and applications that we have already secured, the new workloads that are coming to Rubrik or existing applications that are moving to Rubrik. And then the third piece is attaching the data security products for products such as M365, which is tied to the number of users. We have a licensing model that aligns to that SaaS program, so we'll make it easy for our customers to adopt Rubrik and for them to understand the pricing model and expense based on how they pay for their core platform.
Does it answer your question?
Kiran Choudary: Yes, Bipul, it does. Thank you so much.
Melissa Franchi: Thank you, Howard.
Yes, people, it does. Thank you so much.
Thank you, Howard.
Operator: Your next question comes from the line of Eric Heath from KeyBank. Your line is now open.
Andrew Nowinski: Hey, guys, thanks for taking the question and congrats on the results again. Kiran, I wanted to ask a few different questions on the model if I could. Could you just help us understand maybe what drove some of the early renewal activity given some of the sales comp structure changes to make it more year-end? I would have thought the opposite would have happened given the comp structure change. If you could just speak to what's driving the decline in non-cloud ARR quarter over quarter, it's a little bit bigger than normal. Lastly, if I could push it on the material rights, just what's driving that higher material rights activity that you're not necessarily expecting or you weren't expecting? Thanks.
Your next question comes from the line of Eric Heath from KeyBank. Your line is now open.
Hey, hey guys. Thanks for taking the question and and congrats on the results again, Karen. I want to ask a few different questions on the model if I could. Um, could could you just help us understand? Maybe what drove some of that early renewal activity? Given some of the sales comp structure changes to make it more year end? I would have thought the opposite would have happened given that Tom structure change and. And if you could just speak to what, what's driving the decline in non-cloud our code over kordos a little bit bigger than normal and and lastly, if I if I could, if I could get a um if I could push it but uh,
Kiran Choudary: Sure. I'll take them in order. From a renewal perspective, we always see some early renewals in every quarter. Some of this is timing, right? We have some on-time renewals, which is the majority, and some early and some late. The renewals which occurred this time were more related to our expansion deals, which were in process with the same customers. Typically, customers quoted the renewal activity with the expansion itself. That was really the driver of the early renewals. I also pointed out that some of those renewals are multi-year in nature. That obviously impacted cash flow because of the higher billings. Just to add one more point, that is not related to the comp structure changes because that is tied to expansions, which are occurring along with renewals. I won't relate those two activities.
On the material rights. Just what's driving that higher material rights activity that you're not necessarily expecting or you weren't expecting thanks.
Yeah, so I'll take them in order.
so, from a
Yeah, from a renewal perspective, we always see some early renewals in every quarter. I mean, some of this is timing, right? We have some on-time renewals, which is the majority, and some early and some late. But the renewals which occurred this time were more related to our expansion deals, which were processed with the same customers and typically customers' core term.
The renewal activity, along with the expansion itself, was really the driver of the early renewals. I also pointed out that some of these renewals are multi-year in nature.
So, that obviously impacted cash flow because of the higher billings.
So, from, um, uh, and just to add one more point.
Kiran Choudary: The second question, the non-cloud ARR, most of our, since we're about 85% cloud right now, most of the cloud ARR is net new in the sense that it's either coming from new customers or expansion with current customers, but there's still a small element of migrations which are happening from the non-cloud part. You still see that declining a little bit. At some point, we're getting towards the, I would say, the point where it optimizes to a more steady rate. Maybe it's a few points more than the 85%, after which you'll see the non-cloud ARR grow as well. On the last point on the material rights, just to give some context, these are related to some qualified customers who had gotten some credits at the time we started our cloud transformation, and those credits are beginning to expire.
Is because that is tied to, uh, expansions, which is occurring around with renewals. So I won't, uh, relate those to 2 activities.
the second question, the non
Cloud is most of our business since we're about 85% Cloud. Right now, most of the cloud area is net new in the sense that they're coming from new customers or expansion with existing customers. However, there's still a small element of migrations happening from the non-cloud part, so you still see that declining a little bit. At some point, we're getting towards the, I would say, the end of that.
Point where it optimizes to a more steady rate, maybe it's a few points more than 84% of the, which you'll see the non-cloud a grow as well.
And then on the last point on the material, right? Just to give some context, and these are related to…
Kiran Choudary: In some cases, where the qualification is possible, the customers use the credits to purchase some new or expanded products. In other cases, they expire. The accountant treatment is slightly different when those credits are used to purchase something versus when it expires. That drives variability as well. There's some timing element to that, too, which we saw outperformance this quarter.
Andrew Nowinski: Thanks, Kiran. I threw a lot at you, but I appreciate that. Thank you.
The time we started our cloud transformation, those credits are beginning to expire. In some cases, with the qualification, it is possible for the customers to use the credits to purchase some newer expanded products; in other cases, they expire. So, the accounting treatment is slightly different when these credits are used to purchase something versus when they expire, which drives variability as well. There's also some timing element to that too, which we saw performance this quarter.
Kiran Choudary: Thank you.
Melissa Franchi: Thank you, Eric.
Thank you and a lot of that, but appreciate that. Thank you, thank you. Yeah, thank you Eric.
Operator: Your next question comes from the line of Kash Rangan from Goldman Sachs. Your line is now open.
Saket Kalia: Hey, guys, this is Matt Martino on for Kash. Thanks for taking my question. Bipul, Rubrik's brought to market a slew of new innovations across identity, AI, and data security. As you expand from a core product to a multi-product platform, how do you see your go-to-market and sales motion evolving to effectively sell this broader, more complex vision to the C-suite? Thanks.
Your next question comes from the line of Kash Rangan from Goldman Sachs. Your line is now open.
Hey guys, this is Matt Martino on for Cash. Thanks for taking my question. Bipul Sinha, Rubrik has brought to market a slew of new innovations across identity, AI, and data security. As you expand from a core product to a multi-product platform, how do you see your go-to-market and sales motion evolving to effectively sell this broader, more complex vision to the C-suite? Thanks.
Bipul Sinha: We have been doing multi-product sales for some time now because we started with our core data protection business for data center as well as cloud. We added M365. We added Salesforce. We added identity recovery, identity resilience. We are now building solutions for AI. We have a pipeline of three stages. The stage number one is what we call RubrikX. That is the incubation phase of new products and go-to-market. The next phase is PLS, which is our product line sales team. That takes the early majority of product to scale it to be ready for the core sales team, and then we transfer it to the core sales team. That's how we scale our multi-product go-to-market strategy.
So, uh, we have been doing multi-product sales for some time now because we started with our core data protection business for data centers, as well as the Cloud. Then we added M365, then we added like Salesforce. Then we added, you know, identity recovery and identity resilience.
Uh, we are now building solutions for AI, so we have a kind of pipeline of three stages. The stage number one is what we call Rubrik X.
Bipul Sinha: Obviously, we are doing all our product in a single platform, Rubrik Security Cloud, so that when our customers adopt more of Rubrik's solution, our platforms get smarter and smarter and deliver more value. For example, if our customers have M365 as well as on-premises data center solutions, if there is a threat actor on both sides, we will be smart. We'll be giving our customers smarter information about the complete picture of their data security and cyber resilience as opposed to dumping logs and having them analyzed separately. That's the platform strategy that we have taken from day one, and that's how we are building multi-product portfolio, but driving the value from a single platform.
that actually is the incubation phase of new products and go to market. And then the next phase is PLS, which is our product line, line sales team that takes the early, uh, majority of product to scale it to be ready for the core sales team. And then, we've transferred it to the core sales team. That's how we kind of scale our multi-product go to market strategy. Uh, obviously we are doing all our products in a single platform, rubrik, security Cloud. So that when our customers adopt more of Rubik Solutions, our platforms, get a smarter and smarter and delivers more value. For example, if our customers have M365, as well as on premises data center, uh Solutions, then if there is a threat actor on both sides, we will be a smart will be giving our customers a smarter information about the complete picture of the data security and cyber resilience as opposed to dumping logs and having them analyze separately. So that's the platform strategy that
Saket Kalia: Very helpful. Thank you, Bipul.
That we have taken from day one, and that's how we are building a multi-product portfolio while driving value from a single platform.
Very helpful. Thank you, B.
Operator: Your next question comes from the line of Greg Moskowitz from Mizuho. Your line is now open.
Your next question comes from the line of Greg Moskowitz from Mizuho. Your line is now open.
Howard Ma: Great. Thank you for taking the question and very nice quarter, guys. I wanted to ask about DSPM, first of all, how it did in Q2, but more broadly, Bipul, because it remained a hot area within cybersecurity. These days, almost all the larger vendors have some sort of offering. Clearly, a significant majority of enterprises have yet to implement DSPM. When I think about Rubrik, you have a differentiated position here, but is there a point at which you think we'll see an inflection in DSPM market adoption? How do you think this will all evolve?
Uh, great, thank you for taking the question and very nice quarter. Guys, I wanted to ask about dspm, first of all, um, how it is in the, uh, Q2, but, um, more broadly before because it remained a hot area within cyber security. Uh, um, but you know, these days, almost all the larger vendors have some sort of offering, uh, clearly a significant majority of Enterprises have yet to implement dspm when I think about rubric. I, I, you know, you have a differentiated position here. But is there a point at, which you think we'll see an inflection in dspm market adoption? How do you think this will all evolved?
Bipul Sinha: We have a belief that cyber resilience requires both data resilience and identity resilience. Combining DSPM, which is the data security portion, with identity information is needed to provide complete cyber resilience because when a privilege gets escalated for a user inside your Active Directory, you may want to understand what new sensitive data is now being exposed to this customer and what is the blast radius should the customer credential get compromised. Bringing the identity intelligence and data security intelligence in a single platform is differentiated. We have this new unique vision in this market, and we believe that the future is going to be a holistic view for the customers from data, identity, and cyber recovery to be able to drive complete cyber resilience. That's what we are driving for.
We have a belief that cyber resilience requires both data resilience and identity resilience.
And combining dspm, which is the data security posture management with identity information is needed to provide complete cyber resilience. Because when a privilege gets escalated for a user, inside your active directory, you may want to understand what new sensitive data is now being exposed to this customer and what is the blast radius for the customer credentials? Get compromised, so bringing the identity intelligence and data
Security intelligence in a single platform is differentiated. We have this new unique vision in this market, and we believe that the future is going to be a holistic view for customers from data, identity, and cyber recovery to be able to drive complete cyber resilience. That's what we are driving for.
Howard Ma: Okay, that's helpful. Thank you.
Melissa Franchi: Thanks, Greg.
Okay, that's helpful. Thank you.
Thanks Craig.
Operator: Your next question comes from the line of Todd Coupland from CIBC. Your line is now open.
Howard Ma: Great. Good evening, everyone. Bipul, you gave a number of examples on competitive wins this quarter. Could you just talk about the environment and your major sources of share and update us on your deal win rate? Thanks a lot.
Your next question comes from the line of thought coupon from CIBC; your line is now open.
About the environment and, uh, your major sources of share and, uh,
Update us on your deal win rate. Thanks a lot.
Bipul Sinha: As far as we are concerned, there is no change in the competitive environment for us. We still win a vast, vast, vast majority of deals against all competition, legacy as well as new Gen vendors. It is due to our unique platform. Rubrik Security Cloud is underpinned by a preemptive recovery engine that pre-calculates a clean data state even before the cyber attack happens, so that our customers are ready to recover as soon as they have a successful cyber attack. As a result, many of our customers are not in the news even when they are confronted with a significant cyber attack and they are not disrupted. That is what is differentiated about Rubrik. We are an equal opportunity replacer of both legacy solutions as well as new Gen solutions because they lack cyber resilience capabilities in a way of a preemptive recovery engine.
As far as we are concerned, there is no change in the competitive environment for us. We still win fast, the vast majority of deals against all competition, legacy as well as new-gen vendors, and it is due to our unique.
Form.
Rubrik, security cloud.
Underpinned by a preemptive recovery engine that pre-calculates a clean data state even before a cyber attack happens, our customers are ready to recover as soon as they experience a successful cyber attack. As a result, many of our customers are not in the news even when they are confronted with significant cyber attacks, and they are not disrupted.
Bipul Sinha: Just to give you an example, a European multinational industrial company replaced their legacy backup vendor with Rubrik's cyber resilience platform because a third-party audit found that they were not ready to recover upon a cyber attack and they needed to upgrade their resilience posture. They chose Rubrik for fast recovery, for a simplified software platform for cyber resilience. That is what we see in the marketplace. Our win rate comes from a very differentiated platform that we envisioned and built in the last 10 years.
And that's what is differentiated about Rubrik. And again, we are an equal opportunity replacer of both legacy solutions as well as new-gen solutions because they lack cyber resilience capabilities in the way of the Empty Recovery Engine. Just to give you an example, a European multinational industrial company replaced the legacy backup vendor with Rubrik's cyber resilience platform because a third-party audit found that they were not ready.
To recover Upon A Cyber attack and they needed to upgrade their resilience, a posture, and they chose rubric for fast recovery for a simplified software platform for cyber resilience. So, that's what we see in the marketplace. Again, our win rate comes from a very differentiated platform that we envisioned and built in the last 10 years.
Howard Ma: Great. Thanks for the calls.
Melissa Franchi: Thank you.
Great, thanks for the call.
Operator: As a reminder, if you wish to ask a question, please press star one. Your next question comes from the line of Junaid Siddiqui from ThruWiz. Your line is now open.
Thank you.
Sorry, reminder, if you wish to ask a question, please press *1.
Andrew Nowinski: Great. Thanks for taking my question. Bipul, as the MCP protocol adoption gains traction across the cybersecurity ecosystem, do you view it as a strategic growth lever that could expand Rubrik's role from data protection into a broader security orchestration platform?
Your next question comes from the line of Janine Chat Siddiki from Thyst. Your line is now open.
No, great. Thanks for taking my question. Um, Google is the mCP protocol adoption gains traction across the cybersecurity ecosystem. Do you view it as a strategic growth lever that could expand Rubrik's role from, you know, data protection into a broader security orchestration platform?
Bipul Sinha: The way we see Rubrik is we are not in the prevention and detection business. We are in the cyber resilience business because we have a fundamental belief that you can't prevent the unpreventable, and the world requires cyber resiliency and cyber recovery capabilities, and that's what we are focused on. Having said that, if you take a step back, Rubrik is really a secure data lake, and we use that data lake data to recover applications and recover your system. This data is governed and secured and classified. With the Rubrik Annapurna platform, we built a vectorized search to deliver embeddings directly into generative AI applications. Now Prettibase, which is the fine-tuning and serving platform, and now we are building Agent Rewind that combines our core cyber resilience plus the AI platform technology to really deliver capabilities around undoing the action, bad actions of agents.
The way we see Rubrik is that we are not in the prevention and detection business. We are in the cyber resilience business because we have a fundamental belief that you can't prevent the unpreventable, and the world requires cyber resiliency and cyber recovery capabilities. And that's what we are focused on. Having said that, if you take a step back, Rubrik is really a secure data link, and we use that data to recover applications and recover.
Over your system.
And this data is governed, secured, and classified.
Bipul Sinha: We are looking at AI in a holistic way, but we are not just focused on securing the AI. What we are focused on is security, which is the cyber resilience business, as well as the AI operations business, which is about agent fine-tuning, serving, Agent Rewind plus plus. That's why we are defining ourselves. Rubrik is the security and AI company.
And with the Annapoorna platform, we built a vectorized search to deliver embeddings directly into GenAI applications. And now Pretty Base, which is the fine-tuning and serving platform, and now we are building Agentic Rewind that combines our Corp's cyber resilience plus the AI platform technology to really deliver capabilities around undoing the actions of agents.
So we are looking at AI in a holistic way.
But we are not just focused on securing the AI.
What we are focused on is security, specifically in the areas of cyber resilience and AI operations. This includes aspects such as agent fine-tuning, serving, agent rewind, and more.
So that's why we are defining ourselves; Rubrik is the security and AI company.
Andrew Nowinski: Thank you.
Thank you.
Melissa Franchi: Thank you.
Operator: Your next question comes from the line of James Fish from Piper Sandler. Your line is now open.
Andrew Nowinski: Hey, guys, sorry for any background noise here. Just want to go back to the DSPM side. Any way to think about the updated penetration here and what you're seeing competitively just within this part of the market? Additionally, what are you guys assuming or thinking about for federal here heading into the big federal and understanding it's been a small part historically? You know, what opportunities do you actually see for maybe some disruption there?
Thank you. Your next question comes from the line of James Fish from Piper Sandler. Your line is now open.
Bipul Sinha: Sorry, did you say federal sector?
Hey guys, sorry for any background noise here. Um, just want to go back to the DSPM side anyway. I think about the updated penetration here and what you're seeing competitively just within this part of the market. And then, additionally, what are you guys assuming you're thinking about for Fed here heading into, you know, the big Fed? And, uh, understanding it's been a small part historically, you know, what opportunities do you actually see for maybe some disruption there? Thanks, guys.
Melissa Franchi: Fed.
Bipul Sinha: Okay. As I said, we see the opportunity in the data security market around combining data and identity together because I don't believe just the data classification itself is a long-term sustainable business or a platform. Our vision is that how do we combine identity and data together to give a full picture of not just the posture of the data and identity access to the data, but at runtime, understanding what is really happening to the data and should anything bad happen, how do we do data recovery or identity remediation? It's all data is the underpinning technology or the platform across all three. That's the vision that we are driving. In terms of the federal sector, this is still in the investment phase for us. We are continuing to build the cyber resilience transformation for our federal sector customers.
Buddy, did you say fed fed? Okay.
as I said, uh,
Just the data classification. Itself is a long-term sustainable business or a platform. So our our vision is that, how do we combine identity and data together to give a full picture of? Not just the posture of the data and identity access to the data, but at runtime understanding, what is really happening to the data and should anything bad happen. How do we give do do data recovery or identity remediation and it's all data is the underpinning technology or the platform across all 3. And that's the vision that we are driving.
in terms of the
Uh, again, these are this is still in the investment phase for us and uh, and we are uh, continuing to kind of build, uh, the Cyber resilience. Uh,
Bipul Sinha: It is a high priority for the federal sector organization given the nation-state actor and the threat that they face. We continue to invest in the growth and develop the federal sector market for ourselves. We recently received FedRAMP Moderate. For example, this quarter, a federal sector agency had a challenge of deployment of a new Gen vendor that they had bought a couple of years ago. They are replacing that new Gen vendor with Rubrik to protect their mission-critical databases, which is required for their cyber resilience. They picked Rubrik for our ability to deliver faster recovery times on the database. The federal sector, again, we continue to win in the federal sector. It's still a developing market for us.
Transformation for our fed customers. Uh, it is high priority for fed organization, given the nation state actor and the threat that they face. Um, it is we continue to uh, to kind of invest in the growth on develop, the the FED market for ourselves. We recently received fed fed ramp moderate
For example, this quarter, a federal agency had a challenge with the deployment of a new gen vendor that they had bought a couple of years ago. So, they are replacing that new gen vendor with Rubrik to protect their mission-critical databases, which is required for their cyber resilience. They picked Rubrik for our ability to deliver faster recovery times on the database.
Bipul Sinha: We continue to invest, and we believe that the federal sector will continue to be a significant opportunity for us given how important cyber resilience and cyber recovery is for this market.
We're fed again. We continue to win in the Fed; it is still a developing market for us. We continue to invest, and we believe that the Fed will continue to be a significant opportunity for us, given how important cyber resilience and cyber recovery are for this market.
Melissa Franchi: Thank you, James.
Thank you, James.
Operator: Your last question comes from the line of Shrenik Patil from Baird. Your line is now open.
Howard Ma: Great. Hey, guys, this is Zach Schneider on for Shranik. Thanks for taking our question. I believe nearly half of new deals are landing in enterprise tier with foundations still a key entry point for budget-constrained customers. Please correct me if that number is wrong, but could you just walk us through how deal sizes, renewal patterns, or subsequent expansions differ across the tiers, especially over multi-year contracts? Thanks.
Your last question comes from the line of phrenic Qatari from Beard. Your line is now open.
Great. Hey guys. This is Zach Schneider on for shanik. Thanks for taking our question. So I believe nearly half of new deals are landing in Enterprise, tier with Foundation still a key entry point for Budget, constraint, and customers. And please correct me if that number is wrong, but could you just walk us through how deal sizes is? Renewal, patterns are subsequent expansions differ across the tiers. Especially over multi-year contracts. Thanks.
Kiran Choudary: Hi, Shranik. This is Kiran. I'll take your question. On the first part, it's generally the trend has been similar. Close to half of our lands are coming from the enterprise edition, and then a mix of both the business and foundation, with foundation being the larger of those two. The expansion path can vary. As you know, we are a multi-product company, so customers start with one of these editions and maybe a couple of one or two of these workloads, and then they can expand by either expanding to a higher-tier edition if they start with foundation or business, or if they already started with enterprise, they could expand to other workloads as well. You can start with Microsoft 365, go to a native cloud workload, or an Oracle workload, database workload.
Hi renick. So this is given, I'll take your question. So on the, uh, first part. It's generally the trend has been similar, uh, close to half of our lands are coming from the Enterprise Edition. And then a mix of uh,
Both the business and foundation with Foundation, being the larger of those 2.
Kiran Choudary: The expansion paths are not limited just because you started in a higher edition because you can always add more workloads as well.
And the enterprise expansion path can vary. As you know, we are a multi-product company. So, customers start with one of these additions and maybe a couple of one or two of these workloads. Then, they're going to expand by either moving to a higher tier edition if they start with Foundation or Business, or, if they already started with Enterprise, they could expand to other workloads as well. You can start with Microsoft 365, then go to a native cloud workload or an Oracle workflow or database workload. So, the expansion paths are not limited just because you started in a higher edition; you can always add more workloads as well.
Howard Ma: Great, thanks a lot.
Great. Thanks a lot.
Melissa Franchi: Thank you.
Operator: This concludes our Q&A session. I would now like to turn the call over to Bipul Sinha for closing remarks.
Thank you.
Bipul Sinha: Thank you. Thank you, everyone, for joining us today. We remain very excited about the cyber resilience opportunity as we build the future of AI transformation in terms of the enterprise AI acceleration. Much appreciate your support and trust. Again, very early days for Rubrik. We are in the first decade of our multi-decade story. Thank you so much for your time. Talk to you in three months from today.
This concludes our Q&A session. I would now like to turn the call over to Bipul Sinha for closing remarks.
Thank you. Thank you, everyone, for joining us today.
We remain very excited about the Cyber resilience opportunity as we build the future of AI transformation. In terms of the Enterprise AI acceleration, much appreciated your support, and Trust again very early days for rubric. We are in the first decade of our multi multi- decade story.
Thank you so much for your time.
Melissa Franchi: Thanks, all.
Kiran Choudary: Thank you.
Talk to you. 3 months from today.
Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.
No, thank you.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.