Q2 2026 Rapid7 Inc Earnings Call

August 10, 2026

Speaker #1: Your conference operator today. At this time, I would like to welcome you to the Q2 2026 Rapid7 earnings call. All lines have been placed on mute to prevent any background noise.

Operator: Your conference operator today. At this time, I would like to welcome you to the Q2 2026 Rapid7 earnings call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, and if you have joined via the webinar, please use the raise hand icon, which can be found at the bottom of your webinar application. At this time, I would like to turn the call over to Matt Wells, Vice President of Investor Relations.

Operator: Your conference operator today. At this time, I would like to welcome you to the Q2 2026 Rapid7 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, and if you have joined via the webinar, please use the raise hand icon, which can be found at the bottom of your webinar application. At this time, I would like to turn the call over to Matt Wells, Vice President of Investor Relations.

Speaker #1: After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question during this time and you have joined via the webinar, please use the raise-hand icon, which can be found at the bottom of your webinar application.

Speaker #1: At this time, I would like to turn the call over to Matt Wells, Vice President of Investor Relations.

Speaker #2: Thank you, operator. Good afternoon, everyone. Today we will be discussing Rapid7's second quarter fiscal 2026 financial results. We've distributed our earnings press release over the wire, and it can be accessed on our investor relations website.

Matt Wells: Thank you, operator, and good afternoon, everyone. Today, we will be discussing Rapid7's Q2 fiscal 2026 financial results. We have distributed our earnings press release over the wire, and it can be accessed on our investor relations website. With me on the call are Corey Thomas, Executive Chairman, Wael Mohamed, CEO, and Rafe Brown, CFO. As a reminder, all participants are in a listen-only mode, and a question and answer session will follow our opening remarks. Before I hand the call over to Corey, I want to remind everyone that certain statements made during this conference call may be considered forward-looking statements under Federal Securities laws.

Speaker #2: With me on the call are Corey Thomas, Executive Chairman; Lyle Muhammad, CEO; and Rafe Brown, CFO. As a reminder, all participants are in listen-only mode, and a question-and-answer session will follow our opening remarks.

Speaker #2: Before I hand the call over to Corey, I want to remind everyone that certain statements made during this conference call may be considered forward-looking statements under federal securities laws.

Matt Wells: Before I hand the call over to Corey, I want to remind everyone that certain statements made during this conference call may be considered forward-looking statements under Federal Securities laws.

Speaker #2: These statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and include, among other things, our outlook for the third quarter and full year 2026, our expectations regarding fiscal periods beyond 2026, our transformation and restructuring initiatives, our strategic priorities and capital allocation, anticipated operational improvements, investments in our core platform and AI capabilities, and our expected growth drivers and financial performance.

Matt Wells: These statements are made pursuant to the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995 and include, among other things, our outlook for the Q3 and full year 2026, our expectations regarding fiscal periods beyond 2026, our transformation and restructuring initiatives, our strategy, priorities, and capital allocation, anticipated operational improvements, investments in our core platform and AI capabilities, and our expected growth drivers and financial performance. These forward-looking statements are based on our current expectations and beliefs and information currently available to us. While we believe any forward-looking statements we make are reasonable, actual results could differ materially due to a number of risks and uncertainties, including those contained in our filings with the SEC. Reported results should not be considered indicative of future performance.

Speaker #2: These forward-looking statements are based on our current expectations and beliefs, and information currently available to us. While we believe any forward-looking statements we make are reasonable, actual results could differ materially due to a number of risks and uncertainties, including those contained in our filings with the SEC.

Matt Wells: These forward-looking statements are based on our current expectations and beliefs and information currently available to us. While we believe any forward-looking statements we make are reasonable, actual results could differ materially due to a number of risks and uncertainties, including those contained in our filings with the SEC. Reported results should not be considered indicative of future performance.

Speaker #2: Reported results should not be considered indicative of future performance. We do not undertake, and expressly disclaim, any obligation to update or alter our forward-looking statements, whether as a result of new information, future events, or otherwise, except to the extent required by applicable law.

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

Speaker #2: Further information on these forward-looking statements and risk factors is included in the filings we make with the SEC, including the section titled "Cautionary Language Concerning Forward-Looking Statements" in our earnings press release.

Speaker #2: Additionally, over the course of this call, we'll reference non-GAAP measures to describe our performance. Please review our earnings press release and filings with the SEC for our rationale behind the use of non-GAAP measures and for a full reconciliation of these GAAP-to-non-GAAP metrics.

Matt Wells: Additionally, over the course of this call, we will reference non-GAAP measures to describe our performance. Please review our earnings press release and filings with the SEC for our rationale behind the use of non-GAAP measures and for a full reconciliation of these GAAP to non-GAAP metrics. These documents, in addition to a replay of this call, will be available on the Rapid7 investor relations website. With that, I would like to turn the call over to Corey.

Speaker #2: These documents, in addition to a replay of this call, will be available on the Rapid7 Investor Relations website. And with that, I'd like to turn the call over to Corey.

Speaker #3: Welcome to Rapid7’s Q2 2026 earnings call. I join you today in a new role, but with the same passion and purpose: to ensure that organizations of all sizes can get the best results from their security operations.

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

Speaker #3: I have worked with the board, and especially with Lyle, over the last year to revitalize our team, improve our execution, and fully leverage the opportunity that AI is providing.

Speaker #3: As part of that work, it was clear that we have significant opportunities, but only if we tighten our focus on our core offerings, sharpen our alignment and execution around those offerings, and deliver a more efficient model.

Corey Thomas: As part of that work, it was clear that we have significant opportunities, but only if we tighten our focus on our core offerings, sharpen our alignment and execution around those offerings, and deliver a more efficient model. The board and I recruited Wael, whom I have known and respected for many years, to do exactly that. Deliver on Rapid7's full potential in the midst of one of the most exciting moments in technology.

Speaker #3: The board and I recruited Lyle, whom I have known and respected for many years, to do exactly that: deliver on Rapid7's full potential in the midst of one of the most exciting moments in technology.

Speaker #3: In many ways, Lyle is accelerating a plan he helped develop. In other areas, he's providing sharper focus and leadership, as you will hear in his upcoming comments.

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

Speaker #3: Before I hand it over to Lyle, I want to take a moment to acknowledge the incredible work of our colleagues at Rapid7, whose passion and care for our customers—and their deep and energetic embrace of innovation—continue to inspire me.

Speaker #3: With that, I turn the call over to Lyle. Lyle?

Speaker #4: Thank you, Corey, and good afternoon. Since this is my first earnings call as CEO of Rapid7, I want to use my time a little differently.

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

Speaker #4: Rafe will take you through the quarter, the actions we announced, and our guidance. I want to focus on our strategy, the operating discipline behind it, and how I ask you to measure our progress.

Speaker #4: I have known Rapid7 for years, long before I joined the board. I saw this company at its best—moving fast, earning customer trust, and winning in the heart of the market.

Wael Mohamed: Long before I joined the board, I saw this company at its best: moving fast, earning customer trust, and winning in the heart of the market. Joining the board gave me a much closer view of the company, its people, and its potential. The closer I got, the more I liked what I found. Rapid7 is a good company ready to be great. It is not broken. It has reached a ceiling. The issue is not our assets.

Speaker #4: Joining the board gave me a much closer view of the company, its people, and its potential. The closer I got, the more I liked what I found.

Speaker #4: Rapid7 is a good company that is ready to be great. It is not broken—it has reached a ceiling. The issue is not our assets; it is how we focus our resources and energy. Breaking through requires clear choices, strong execution, and an operating system that can repeat success at scale.

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

Speaker #4: That is the work I signed up for. Transformation is not about changing everything. It is about having the discipline to change the few things that matter most, and doing so consistently over time.

Speaker #4: Over the past year, we put the leadership team in place for this next chapter. We added a proven Chief Financial Officer to strengthen operating discipline, a Chief Commercial Officer to help us scale and win with customers, and a Chief Product and Technology Officer to build an AI-first platform.

Wael Mohamed: We added a proven Chief Financial Officer to strengthen operating discipline, a Chief Commercial Officer to help us scale and win with customers, and a Chief Product and Technology Officer to build an AI-first platform. We now have our leadership team, operating model, and capital allocation aligned behind one direction. Since stepping into this role, I have spent my time listening to customers, our people, partners, and many of you. Three things are clear.

Speaker #4: We now have our leadership team, operating model, and capital allocation aligned behind one direction. Since stepping into this role, I have spent my time listening—to customers, our people, partners, and many of you.

Speaker #4: Three things are clear: First, focus matters. We do not need to win everywhere; we need to be exceptional where we can win. Our clearest right to win is in the heart of the enterprise market.

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

Speaker #4: Customers that need enterprise-grade security. But also need fewer tools, less complexity, and faster outcomes. Our leadership in the mid-market is proof of our strength.

Speaker #4: It is not a limit on our technology or our market. We will continue to compete for larger enterprises, where our platform is the right fit.

Wael Mohamed: We will continue to compete for larger enterprises where our platform is the right fit. These customers want fewer, better partners, not more tools. That is where Rapid7 has earned the right to win. Second, outcomes matter more than products. For years, cybersecurity answered complexity with more complexity, more tools, more alerts, more consoles, more people. Customers do not need another dashboard. They need less risk, less complexity, and faster action.

Speaker #4: These customers want fewer, better partners. Not more tools. That is where Rapid7 has earned the right to win. Second, outcomes matter more than products.

Speaker #4: For years, cybersecurity answered complexity with more complexity—more tools, more alerts, more consoles, more people. Customers do not need another dashboard. They need less risk, less complexity, and faster action.

Speaker #4: Our opportunity is to connect exposure management with detection and response, moving from finding problems to resolving them. For many customers, that outcome will be delivered as a service.

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

Speaker #4: Skilled security people are hard to find. They need a trusted partner that can bring the platform, the expertise, and the work together. Third, the way security work gets done is changing.

Speaker #4: AI should not become another label. It should change the work. Automation helps us move faster today. Agents let us do more. Across more data, more steps, and at much greater scale.

Wael Mohamed: Automation helps us move faster today. Agents let us do more across more data, more steps, and at much greater scale. Attackers are moving at machine speed. Attackers only need to find the seam between an exposure and the fix, an alert, and the work needed to investigate it, or a decision and an action. Defenders need the same reach and speed, with people remaining in control. People decide. Agents do.

Speaker #4: Attackers are moving at machine speed. Attackers only need to find the seam between an exposure and the fix, an alert, and the work needed to investigate it.

Speaker #4: Or a decision and an action. Defenders need the same reach and speed, with people remaining in control. People decide. Agents do. In this model, agents are not just features inside a product.

Wael Mohamed: In this model, agents are not just features inside a product. They become part of the service layer, extending the reach of our security experts and helping us deliver outcomes faster and at scale. We acquired Kenzo Security because AI needs a foundation, not another feature. That foundation connects data, agents, and human decisions across the tools customers already use while keeping customers in control of their data. We want AI to fit into our customers' environments, not force them into ours. Building that future requires focus now. The changes we announced affect colleagues who have contributed to Rapid7. I want to thank them for what they have given to this company and to our customers. These actions are a focused reset. We are not shrinking our way to the future. We are reshaping the company so we can invest more behind the parts of the business that will define it.

Speaker #4: They become part of the service layer, extending the reach of our security experts and helping us deliver outcomes faster, and at scale. We acquired Kenzo because AI needs a foundation.

Speaker #4: Not another feature. That foundation connects data, agents, and human decisions across the tools customers already use, while keeping customers in control of their data.

Speaker #4: We want AI to fit into our customers' environments, not force them into ours. Building that future requires focus now. The changes we announced affect colleagues who have contributed to Rapid7.

Wael Mohamed: Building that future requires focus now. The changes we announced affect colleagues who have contributed to Rapid7. I want to thank them for what they have given to this company and to our customers. These actions are a focused reset. We are not shrinking our way to the future. We are reshaping the company so we can invest more behind the parts of the business that will define it.

Speaker #4: I want to thank them for what they have given to this company and to our customers. These actions are a focused reset. We are not shrinking our way to the future.

Speaker #4: We are reshaping the company so we can invest more behind the parts of the business that will define it. We are simplifying the company.

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

Speaker #4: Aligning our cost structure with the core and creating room to invest. We are concentrating our growth investment behind detection and response, exposure management, and the AI foundation that connects them.

Speaker #4: We will continue to support customers using our other products. This is not simply a cost action; we will reinvest a meaningful portion of the savings in our core platform, the people building it, and the AI foundation behind the next generation of our products.

Wael Mohamed: This is not simply a cost action. We will reinvest a meaningful portion of the savings in our core platform, the people building it, and the AI foundation behind the next generation of our products. 70 days is not enough to complete a transformation. It is enough to set direction and show how we will operate with speed, clarity, and accountability.

Speaker #4: Seventy days is not enough to complete a transformation. It is enough to set direction and show how we will operate, with speed, clarity, and accountability.

Speaker #4: Operating discipline creates choices. As Rafe will explain, the actions we announce put us on a path to exit the year at approximately 20% non-GAAP operating margin.

Wael Mohamed: Operating discipline creates choices. As Rafe will explain, the actions we announce put us on a path to exit the year at approximately 20% non-GAAP operating margin. That is not the destination.

Speaker #4: That is not the destination. It is evidence that we are building a healthier company—one with more capacity to invest, innovate, and generate durable returns over time.

Wael Mohamed: It is evidence that we are building a healthier company, one with more capacity to invest, innovate, and generate durable returns over time. In Q2, we came in slightly above the guidance we provided. Detection and response continued to perform well. At the same time, total ARR declined. Exposure management is not yet where it needs to be, and other parts of the portfolio continued to pressure our results. The current direction of ARR is not good enough. We are acting on it. This is a multi-quarter transformation. We are changing the path of the company toward durable growth, not managing for one quarter. As we sharpen our focus, some parts of the business may face pressure before the benefits become visible. At times, we may need to simplify before we can accelerate.

Speaker #4: In the second quarter, we came in slightly above the guidance we provided. Detection and response continued to perform well. At the same time, total ARR declined.

Speaker #4: Exposure management is not yet where it needs to be, and other parts of the portfolio continue to pressure our results. The current direction of ARR is not good enough.

Wael Mohamed: The current direction of ARR is not good enough. We are acting on it. This is a multi-quarter transformation. We are changing the path of the company toward durable growth, not managing for one quarter. As we sharpen our focus, some parts of the business may face pressure before the benefits become visible. At times, we may need to simplify before we can accelerate.

Speaker #4: We are acting on it. This is a multi-quarter transformation. We are changing the path of the company toward durable growth, not managing for one quarter.

Speaker #4: As we sharpen our focus, some parts of the business may face pressure before the benefits become visible. At times, we may need to simplify before we can accelerate.

Speaker #4: Let me leave you with the framework I ask you to use when measuring quarters. First, look at the cash generated. Cash is not the finish line.

Wael Mohamed: Let me leave you with the framework I ask you to use when measuring Rapid7 over the coming quarters. First, look at the cash generated. Cash is not the finish line. Durable growth is. But cash tells you whether the operating model is becoming healthier and whether we have the capacity to keep investing. Second, measure this transformation over several quarters, not one. Look for stronger execution in the core, better outcomes for customers, and meaningful improvement in exposure management. Third, watch how we reinvest. We are putting resources behind the platform, the people, and the AI foundation required to return Rapid7 to durable growth. We have hard work ahead, but we also have what matters most: strong customer trust, deep security expertise, a clear place to win, and a team that cares deeply about our mission. I have believed in Rapid7 for years.

Speaker #4: Durable growth is. But cash tells you whether the operating model is becoming healthier and whether we have the capacity to keep investing. Second, measure this transformation over several quarters.

Speaker #4: Not one. Look for stronger execution in the core, better outcomes for customers, and meaningful improvement in exposure management. Third, watch how we reinvest. We are putting resources behind the platform, the people, and the AI foundation required to return Rapid7 to durable growth.

Wael Mohamed: Third, watch how we reinvest. We are putting resources behind the platform, the people, and the AI foundation required to return Rapid7 to durable growth. We have hard work ahead, but we also have what matters most: strong customer trust, deep security expertise, a clear place to win, and a team that cares deeply about our mission. I have believed in Rapid7 for years.

Speaker #4: We have hard work ahead, but we also have what matters most: strong customer trust, deep security expertise, a clear place to win, and a team that cares deeply about our mission.

Speaker #4: I have believed in Rapid7 for years. The more time I have spent with its people, its customers, and its technology, the stronger that belief has become.

Wael Mohamed: The more time I have spent with its people, its customers, and its technology, the stronger that belief has become. We know this transformation will take time. We will not ask you to judge us by promises. Judge us by execution. Judge us by whether, quarter after quarter, this company becomes more focused, more disciplined, and more capable of delivering durable growth. That is how we intend to earn your confidence. Rafe, over to you.

Speaker #4: We know this transformation will take time. We will not ask you to judge us by promises. Judge us by execution. Judge us by whether quarter after quarter this company becomes more focused, more disciplined, and more capable of delivering durable growth.

Speaker #4: That is how we intend to earn your confidence. Rafe, over to you.

Speaker #1: Thank you, Wyell, and good afternoon, everyone. As a quick reminder, unless otherwise noted, all numbers except revenue and balance sheet items mentioned during my remarks today are non-GAAP.

Rafe Brown: Thank you, Wael, and good afternoon, everyone. As a quick reminder, unless otherwise noted, all numbers except revenue and balance sheet items mentioned during my remarks today are non-GAAP. Please refer to our earnings release and SEC filings for additional details regarding the presentation of our results and guidance metrics. In Q2 2026, I am pleased to report that we exceeded expectations across all guided metrics. We ended Q2 with total ARR of $824 million. We reported non-GAAP operating income of $28.9 million. Free cash flow came in strong at $31.9 million, with collections healthily exceeding our internal expectations. As of the end of the quarter, we had total cash equivalents, and short-term investments of $702.6 million. I want to begin by taking a closer look at our ARR as of the end of the quarter.

Speaker #1: Please refer to our earnings release and SEC filings for additional details regarding the presentation of our results and guidance metrics. In the second quarter of 2026, I'm pleased to report that we exceeded expectations across all guided metrics.

Speaker #1: We ended the second quarter with total ARR of $824 million. We reported non-GAAP operating income of $28.9 million, free cash flow came in strong at $31.9 million with collections healthily exceeding our internal expectations.

Rafe Brown: We ended Q2 with total ARR of $824 million. We reported non-GAAP operating income of $28.9 million. Free cash flow came in strong at $31.9 million, with collections healthily exceeding our internal expectations. As of the end of the quarter, we had total cash equivalents, and short-term investments of $702.6 million. I want to begin by taking a closer look at our ARR as of the end of the quarter.

Speaker #1: As of the end of the quarter, we had total cash, cash equivalents, and short-term investments of $702.6 million. I want to begin by taking a closer look at our ARR as of the end of the quarter.

Speaker #1: As a quick reminder, our long-term strategy is focused on our core platform solutions, comprised of our Detection and Response business, which includes MDR, and our Exposure Management business.

Rafe Brown: As a quick reminder, our long-term strategy is focused on our core platform solutions, comprised of our detection and response business, which includes MDR and our exposure management business. Our core platform solutions represent over 80% of overall ARR and grew approximately 1% on a year-over-year basis, led by our detection and response business, which at approximately 55% of total ARR, grew approximately 5% on a year-over-year basis. While our overall exposure management business offsets some of the growth of our D&R business, within the exposure management segment of our core offerings, we continue to see healthy adoption of our Exposure Command solution, driven by both new customers and customers upgrading from our older vulnerability management solutions.

Speaker #1: Our core platform solutions, represent over 80% of overall ARR, and grew approximately 1% on a year-over-year basis. Led by our detection response business, which at approximately 55% of total ARR, grew approximately 5% on a year-over-year basis.

Speaker #1: While our overall exposure management business offsets some of the growth of our DNR business within the exposure management segment of our core offerings, we continue to see healthy adoption of our exposure command solution driven by both new customers and customers upgrading from our older vulnerability management solutions.

Rafe Brown: While our overall exposure management business offsets some of the growth of our D&R business, within the exposure management segment of our core offerings, we continue to see healthy adoption of our Exposure Command solution, driven by both new customers and customers upgrading from our older vulnerability management solutions.

Speaker #1: In contrast, our non-core products—which, as a reminder, are less than 20% of total ARR—declined in the quarter, driving the sequential decline we saw in total ARR as we focus our resources toward growing our core products.

Rafe Brown: In contrast, our non-core products, which, as a reminder, are less than 20% of total ARR, declined in the quarter, driving the sequential decline we saw in total ARR as we focus our resources toward growing our core products. As we plan for the remainder of 2026 and beyond, we see opportunities to optimize margins for these standalone non-core solutions, as well as opportunities to migrate customers to core platform offerings. As Wael mentioned, our organization is undergoing a significant transformation. Our new Chief Product and Technology Officer, Dan Deklich, just two months into his role, is making changes and investments across the product and engineering organization. We expect these investments to strengthen our core platform solutions, accelerate innovation, and deliver meaningful product capabilities throughout 2027. We expect, however, that these efforts will take time to translate into ARR growth. Returning now to our financial statements.

Speaker #1: As we plan for the remainder of 2026 and beyond, we see opportunities to optimize margins for these standalone non-core solutions, as well as opportunities to migrate customers to core platform offerings.

Speaker #1: As Wyell mentioned, our organization is undergoing a significant transformation. Our new Chief Product and Technology Officer, Dan, just two months into his role, is making changes and investments across the product and engineering organization.

Rafe Brown: As Wael mentioned, our organization is undergoing a significant transformation. Our new Chief Product and Technology Officer, Dan Deklich, just two months into his role, is making changes and investments across the product and engineering organization. We expect these investments to strengthen our core platform solutions, accelerate innovation, and deliver meaningful product capabilities throughout 2027. We expect, however, that these efforts will take time to translate into ARR growth. Returning now to our financial statements.

Speaker #1: We expect these investments to strengthen our core platform solutions, accelerate innovation, and deliver meaningful product capabilities through 2027. We expect, however, that these efforts will take time to translate into ARR growth.

Speaker #1: Returning now to our financial statements. Total revenue of $210.9 million declined approximately 1.5% year over year, reflecting the declines in non-core product ARR we saw earlier this year.

Rafe Brown: Total revenue of $210.9 million declined approximately 1.5% year over year, reflecting the declines in non-core product ARR we saw earlier this year. We finished the quarter with over 11,500 customers and an average ARR per customer of approximately $70,000. Turning to Q2 profitability. Total non-GAAP gross margins of 71.7% were down approximately 215 basis points year over year, consistent with our expectations, driven by year over year increases in staffing of our global security operations centers and increased cloud usage for product improvements. We reported non-GAAP operating income of $28.9 million, or a margin of 13.7%, favorable to our guidance. This upside to profitability drove non-GAAP earnings per share of $0.44 per diluted share. Free cash flow totaled $31.9 million in Q2, driven by strong collections.

Speaker #1: We finished the quarter with over $11,500 customers and an average ARR per customer of approximately $70,000. Turning to second quarter profitability. Total non-GAAP gross margins of $71.7% were down approximately 215 basis points year over year, consistent with our expectations, driven by year-over-year increases in staffing of our global security operations centers and increased cloud usage for product improvements.

Rafe Brown: Total non-GAAP gross margins of 71.7% were down approximately 215 basis points year over year, consistent with our expectations, driven by year over year increases in staffing of our global security operations centers and increased cloud usage for product improvements.

Speaker #1: We reported non-GAAP operating income of $28.9 million, or a margin of 13.7%, which was favorable to our guidance. This upside to profitability drove non-GAAP earnings per share of $0.44 per diluted share.

Rafe Brown: We reported non-GAAP operating income of $28.9 million, or a margin of 13.7%, favorable to our guidance. This upside to profitability drove non-GAAP earnings per share of $0.44 per diluted share. Free cash flow totaled $31.9 million in Q2, driven by strong collections.

Speaker #1: Free cash flow totaled $31.9 million, in the second quarter, driven by strong collections. And from a balance sheet perspective, we ended the second quarter with $702.6 million in cash, cash equivalents, and short-term investments.

Rafe Brown: From a balance sheet perspective, we ended Q2 with $702.6 million in cash equivalents, and short-term investments. Combined with our continued free cash flow generation and a $200 million undrawn credit facility, we are well-positioned to repay our $600 million convertible notes due in March of 2027. Turning to the restructuring announced earlier today. This restructuring marks a strategic shift in our business operations to drive efficiency and focus across the organization, aligning resources and investments to our core platform solutions. We are also creating capacity to increase our investments in cutting-edge AI-driven solutions that will improve customer experience and increase competitiveness in the marketplace. In terms of approach, we first eliminated non-headcount spend wherever possible. Unfortunately, approximately 12% of our workforce has been notified that their roles are impacted by the restructuring.

Speaker #1: Combined with our continued free cash flow generation and a $200 million undrawn credit facility, we are well-positioned to repay our $600 million convertible notes due in March of 2027.

Speaker #1: Turning to the restructuring announced earlier today. This restructuring marks a strategic shift in our business operations to drive efficiency and focus across the organization, aligning resources and investments to our core platform solutions.

Rafe Brown: Turning to the restructuring announced earlier today. This restructuring marks a strategic shift in our business operations to drive efficiency and focus across the organization, aligning resources and investments to our core platform solutions. We are also creating capacity to increase our investments in cutting-edge AI-driven solutions that will improve customer experience and increase competitiveness in the marketplace.

Speaker #1: We are also creating capacity to increase our investments in cutting-edge, AI-driven solutions that will improve customer experience and increase competitiveness in the marketplace. In terms of approach, we first eliminated non-hitcount spend wherever possible.

Rafe Brown: In terms of approach, we first eliminated non-headcount spend wherever possible. Unfortunately, approximately 12% of our workforce has been notified that their roles are impacted by the restructuring.

Speaker #1: Unfortunately, approximately 12% of our workforce has been notified that their roles are impacted by the restructuring. From a financial perspective, as a result of the efficiency gains already underway—as well as the impact of the restructuring announced today—we expect to deliver 20% non-GAAP operating margins in Q4 2026, compared to 13.7% in the second quarter, fulfilling our commitment to improve our cost run rate as we exit 2026.

Rafe Brown: From a financial perspective, as a result of the efficiency gains already underway, as well as the impact of the restructuring announced today, we expect to deliver 20% non-GAAP operating margins in Q4 of 2026, compared to 13.7% in the second quarter, fulfilling our commitment to improve our cost run rate as we exit 2026. We expect to incur restructuring charges of approximately $10 to $11 million, the majority of which will be paid throughout the third and fourth quarters of 2026. These restructuring charges will be excluded from our non-GAAP P&L results. The cash expenditures will, however, be reflected in our operating and free cash flow results. As such, for the remainder of the year, the cash benefit of reduced headcount will largely be offset by the associated severance-related costs, as well as targeted reinvestments into our product and engineering organization.

Speaker #1: We expect to incur restructuring charges of approximately $10 to $11 million, the majority of which will be paid throughout the third and fourth quarters of 2026.

Rafe Brown: We expect to incur restructuring charges of approximately $10 to $11 million, the majority of which will be paid throughout the third and fourth quarters of 2026. These restructuring charges will be excluded from our non-GAAP P&L results. The cash expenditures will, however, be reflected in our operating and free cash flow results.

Speaker #1: These restructuring charges will be excluded from our non-GAAP P&L results. The cash expenditures will, however, be reflected in our operating and free cash flow results.

Speaker #1: As such, for the remainder of the year, the cash benefit of reduced headcount will largely be offset by the associated severance-related costs, as well as targeted reinvestments into our product and engineering organization.

Rafe Brown: As such, for the remainder of the year, the cash benefit of reduced headcount will largely be offset by the associated severance-related costs, as well as targeted reinvestments into our product and engineering organization.

Speaker #1: Therefore, while weighted toward the fourth quarter, we are maintaining our expectation of approximately $130 million in free cash flow for the full year 2026.

Rafe Brown: Therefore, while weighted toward the fourth quarter, we are maintaining our expectation of approximately $130 million in free cash flow for the full year 2026. We believe this restructuring will allow us to improve free cash flow in 2027 over our 2026 guide, despite a lower ARR base as we enter 2027, investments we are making to modernize our products and SDLC process, and the reduction of our interest income that will occur once we use our invested cash to repay our March 2027 convertible bonds. This brings us to Q3 2026 guidance. We expect to end the third quarter with ARR of approximately $812 million. On a sequential basis, we expect ending ARR for our combined core platform solutions of D&R and exposure management will be approximately flat quarter on quarter, with the expected sequential ARR decline coming from our non-core offerings.

Speaker #1: We believe this restructuring will allow us to improve free cash flow in 2027 over our 2026 guide, despite a lower ARR base as we enter 2027.

Speaker #1: Investments we are making to modernize our products and SDLC process, and the reduction of our interest income that will incur once we use our invested cash to repay our March 2027 convertible bonds.

Speaker #1: This brings us to third-quarter 2026 guidance. We expect to end the third quarter with ARR of approximately $812 million. On a sequential basis, we expect ending ARR for our combined core platform solutions of DNR and Exposure Management will be approximately flat quarter-on-quarter, with the expected sequential ARR decline coming from our non-core offerings.

Rafe Brown: This brings us to Q3 2026 guidance. We expect to end the third quarter with ARR of approximately $812 million. On a sequential basis, we expect ending ARR for our combined core platform solutions of D&R and exposure management will be approximately flat quarter on quarter, with the expected sequential ARR decline coming from our non-core offerings.

Speaker #1: For the third quarter, we expect total revenue in the range of $208 million to $210 million, or down approximately 4% at the midpoint on a year-over-year basis.

Rafe Brown: For the third quarter, we expect total revenue in the range of $208 to $210 million, or down approximately 4% at the midpoint on a year-over-year basis. Non-GAAP operating income is expected to be in the range of $34 to $36 million, or a margin of 16.7% at the midpoint. Non-GAAP earnings per diluted share are expected to be in the range of $0.44 to $0.47 on approximately 80 million fully diluted shares. Updating our full-year fiscal 2026 guidance, we expect total revenue in the range of $837 to $841 million, a year-on-year decline of approximately 2% at the midpoint. We are raising non-GAAP operating income guidance for 2026 to a range of $129 million to $133 million, or a full-year non-GAAP operating margin of 15.6% at the midpoint. As I mentioned earlier, this implies a 20% non-GAAP operating margin in the fourth quarter.

Speaker #1: Non-GAAP operating income is expected to be in the range of $34 million to $36 million, or a margin of 16.7% at the midpoint. Non-GAAP earnings per diluted share are expected to be in the range of $0.44 to $0.47 on approximately 80 million fully diluted shares.

Speaker #1: Updating our full-year fiscal 2026 guidance, we expect total revenue in the range of $837 million to $841 million, a year-on-year decline of approximately 2% at the midpoint.

Rafe Brown: Updating our full-year fiscal 2026 guidance, we expect total revenue in the range of $837 to $841 million, a year-on-year decline of approximately 2% at the midpoint. We are raising non-GAAP operating income guidance for 2026 to a range of $129 million to $133 million, or a full-year non-GAAP operating margin of 15.6% at the midpoint. As I mentioned earlier, this implies a 20% non-GAAP operating margin in the fourth quarter.

Speaker #1: We are raising non-GAAP operating income guidance for 2026 to a range of $129 million to $133 million, or a full-year non-GAAP operating margin of 15.6% at the midpoint.

Speaker #1: As I mentioned earlier, this implies a 20% non-GAAP operating margin in the fourth quarter. Non-GAAP earnings per share are expected to be in the range of $1.78 to $1.83 per share on diluted shares.

Rafe Brown: Non-GAAP earnings per share are expected to be in the range of $1.78 to $1.83 per share on approximately 79 million fully diluted shares. We expect free cash flow of approximately $130 million for the full year, in line with prior year performance, and a free cash flow margin of approximately 15.5%. In conclusion, our solid execution in the second quarter, combined with our focus and prioritization efforts to improve our core product offerings, as well as our commitment to manage costs and expand operating margins, positions Rapid7 well for the transformation ahead. With that, I'd like to turn the call over to the operator for Q&A.

Speaker #1: We expect free cash flow of approximately $130 million for the full year, in line with prior year performance, and a free cash flow margin of approximately 15.5%.

Speaker #1: In conclusion, our solid execution in the second quarter, combined with our focus and prioritization efforts to improve our core product offerings, as well as our commitment to managing costs and expanding operating margins, positions Rapid7 well for the transformation ahead.

Rafe Brown: In conclusion, our solid execution in the second quarter, combined with our focus and prioritization efforts to improve our core product offerings, as well as our commitment to manage costs and expand operating margins, positions Rapid7 well for the transformation ahead. With that, I'd like to turn the call over to the operator for Q&A.

Speaker #1: And with that, I'd like to turn the call over to the operator for Q&A.

Speaker #2: We will now move to our question-and-answer session. If you have joined via the webinar, please use the 'Raise Hand' icon, which can be found at the bottom of your webinar application.

Operator: We will now move to our question and answer session. If you have joined via the webinar, please use the raise hand icon, which can be found at the bottom of your webinar application. When you are called on, please unmute your line and ask your question. We kindly ask that you limit yourself to one question and one follow-up. Our first question comes from Rob Owens with Piper Sandler. Please unmute to ask your question.

Speaker #2: When you are called on, please unmute your line and ask your question. We kindly ask that you limit yourself to one question and one follow-up.

Speaker #2: Our first question comes from Rob Owens with Piper Sandler. Please unmute to ask your question.

Rob Owens: Great. Good afternoon, and thank you guys for taking my question. As you look across the product set and in particular your exposure management platform, and I know you said that things will get better from here, and you are looking at adding to the portfolio or adding to the capability. When you focus on that, is this a function of coverage, or is it lacking functionality that your customers are looking for? Just trying to understand directionally where you hope to take this technology, and I will just ask the follow-up right away. In terms of customers that have not moved to your more comprehensive capability, especially given the threat environment that we are in right now, what is your sense as to what customers are doing here? Thanks.

Speaker #3: Great. Good afternoon, and thank you, guys, for taking my question. As you look across the product set, and in particular your Exposure Management platform—and I know you said that things will get better from here and you’re looking at adding to the portfolio or adding to the capability—

Speaker #3: When you focus on that, is this a function of coverage, or is it lacking functionality that your customers are looking for? Just trying to understand, directionally, where you hope to take this technology. And I'll just ask the follow-up right away.

Rob Owens: Just trying to understand directionally where you hope to take this technology, and I will just ask the follow-up right away. In terms of customers that have not moved to your more comprehensive capability, especially given the threat environment that we are in right now, what is your sense as to what customers are doing here? Thanks.

Speaker #3: In terms of customers that haven't moved to your more comprehensive capability, especially given the threat environment that we're in right now, what is your sense as to what customers are doing here?

Speaker #3: Thanks.

Speaker #4: Thanks, Rob. Very good question. First of all, it's nice to actually be here, and I look forward to working with all of you. It's been a little bit over two months since I joined the board, and as you know, I actually started a year ago—or over a year ago—with Corey on the board, and I looked at the overall business.

Wael Mohamed: Thanks, Rob. Very good question. First of all, it is nice to actually be here, and I look forward to work with all of you. It has been a little bit over 2 months. When I was on the board, and as you know, I actually started a year ago, over a year ago, with Corey on the board, and I looked at the overall business. It was very clear that there was part core and non-core. As I actually got on the seat, it was very clear to me that most of the decline happened in the non-core. Nonetheless, there is a lot of work we need to do on the core side. The restructure that Rick talked about was to shift some of our focus

Speaker #4: It was very clear that there was part core and non-core. And as I actually got in the seat, it was very clear to me that most of the decline happened in the non-core.

Wael Mohamed: As I actually got on the seat, it was very clear to me that most of the decline happened in the non-core. Nonetheless, there is a lot of work we need to do on the core side. The restructure that Rick talked about was to shift some of our focus to the core and making sure that we have our weight on it because we have really a good position.

Speaker #4: Nonetheless, there's a lot of work we need to do on the core side. So the restructure that Rafe actually talked about was to shift some of our focus to the core and make sure that we have our weight on it, because we really have a good position.

Wael Mohamed: To the core and making sure that we have our weight on it because we have really a good position. We have a lot of customers that is using us. We have the right to win. Most importantly, we are invited every single day. I sat in a lot of customer calls in the last 2 months, and I can see that we actually in a better position. To answer your question on the exposure management, there is definitely some work to do on focus. We were spread very thin, trying to be able to address all our portfolio, and now we are basically shifting our focus on the core side and making sure that we are actually also making some investments so we can get our fair share in that market. We are invited, which is good. We are shortlisted because we are one of the leaders.

Speaker #4: We have a lot of customers that use us. We have the right to win, and most importantly, we are invited every single day. I sat on a lot of customer calls in the last two months, and I can see that we are actually in a better position.

Wael Mohamed: We have a lot of customers that is using us. We have the right to win. Most importantly, we are invited every single day. I sat in a lot of customer calls in the last 2 months, and I can see that we actually in a better position. To answer your question on the exposure management, there is definitely some work to do on focus.

Speaker #4: But the answer to your question on the exposure management—there is definitely some work to do on focus. We were spread very thin, trying to be able to address all of our portfolio.

Wael Mohamed: We were spread very thin, trying to be able to address all our portfolio, and now we are basically shifting our focus on the core side and making sure that we are actually also making some investments so we can get our fair share in that market. We are invited, which is good. We are shortlisted because we are one of the leaders.

Speaker #4: And now, we are basically shifting our focus to the core side and making sure that we are actually also making some investments so we can get our fair share in that market.

Speaker #4: We are invited, which is good. We're shortlisted because we are one of the leaders. Nonetheless, we can increase our win rate by having more focus and, obviously, having the right investment. I'm very excited about the addition of Dan, since Dan is actually working very hard to make sure that not only new features but also AI-first methodologies are implemented in all our product line.

Wael Mohamed: Nonetheless, we can increase our win rate by having more focus and obviously having the right investment. I am very excited about the addition of Dan, since Dan is actually working very hard to making sure that not only new features, but the AI first methodology is implemented in all our product lines. The second question was

Speaker #4: The second question was.

Speaker #5: Wait, the migration path.

Wael Mohamed: Wait. The migration path.

Rob Owens: What are customers doing in this environment? Yeah.

Speaker #3: What are customers doing in this environment? Yeah.

Speaker #4: When I talk to customers, they actually talk about how you can not only find things, but actually fix them. And I'm very excited that we play in these two subcategories.

Wael Mohamed: When I talk to customers, they talk about how can you not only find things but actually fix it. I am very excited that we play in these two subcategories, the exposure management as well as the detection and response. I do believe the AI first, basically a structure will allow us to be able to provide that for customers. But customers are actually buying every single day. They are not waiting and wait and see. That is what I thought when I came in. It would be a wait and see. They are waiting for the AI. They just want to make sure that the right vendors are moving in the right direction, and they are looking for solution that not only help them to identify what is going on, but also fix it and take them through that journey.

Speaker #4: The exposure management as well as the detection and response. And I do believe the AI-first structure will allow us to be able to provide that for customers.

Speaker #4: But customers are actually buying every single day. They are not waiting for a 'wait and see.' That's what I thought when I came in—that it would be a 'wait and see.'

Wael Mohamed: They are not waiting and wait and see. That is what I thought when I came in. It would be a wait and see. They are waiting for the AI. They just want to make sure that the right vendors are moving in the right direction, and they are looking for solution that not only help them to identify what is going on, but also fix it and take them through that journey.

Speaker #4: They're waiting for the AI, and actually, they just want to make sure that the right vendors are moving in the right direction. They are looking for a solution that not only helps them to identify what's going on, but also fix it.

Speaker #4: And take them through that journey.

Speaker #3: Great. Well, it's good to connect again, and thank you for taking my questions.

Rob Owens: Great. Wael, good to connect again, and thank you for taking my questions.

Speaker #4: Thank you, Rob.

Rafe Brown: Thank you.

Rafe Brown: Thank you all.

Speaker #2: Thank you. Your next question comes from the line of Jonathan Ho with William Blair. Please unmute to ask your question.

Operator: Thank you. Your next question comes from the line of Jonathan Ho with William Blair. Please unmute to ask your question.

Speaker #5: Hi, I just wanted to understand—first of all, while I really appreciate the detail that you're providing—can you help us understand the opportunities to re-accelerate growth?

Jonathan Ho: Hi. Just wanted to understand, first of all, Wael, I really appreciate the detail that you are providing. Can you help us understand the opportunities to re-accelerate growth? Where do you specifically see these ability to focus paying off? It has always been challenging to show operating leverage while trying to re-accelerate growth at the same time. Can you help us understand sort of the balance between these two?

Speaker #5: Where do you specifically see these abilities to focus paying off? It's always been challenging to show operating leverage while trying to re-accelerate growth at the same time.

Speaker #5: Can you help us understand the balance between these two?

Speaker #4: Thank you, Jonathan. And it's a very good question. And I always ask myself when I basically before I started, the most question I asked myself, are we in a category that it's big enough and it's growing fast enough to be able to get us the growth we're looking for?

Wael Mohamed: Thank you, Jonathan. It is a very good question, and I always ask myself, before I started, the most question I asked myself, are we in a category that it is big enough and is growing fast enough to be able to get us the growth we are looking for? You cannot buy that. We are very fortunate that we are in two big categories. Even in the vulnerability management and basically the migration into exposure, it almost feel like it has a refuel of interest again. So there is two categories that we have very strong position. We are definitely a leader. We have the right to win, and we are invited to participate, and that is itself extremely important. How can we basically find growth? The way I look at it is a sequence. This is not going to be a one quarter turnaround. It is going to be a multiple quarters.

Speaker #4: And you cannot buy that. And we are very fortunate that we are in two big categories. And even in the vulnerability management and basically the migration into exposure, it almost feels like it has a refuel of interest again.

Wael Mohamed: Even in the vulnerability management and basically the migration into exposure, it almost feel like it has a refuel of interest again. So there is two categories that we have very strong position.

Speaker #4: So, there are two categories where we have a very strong position. We are definitely a leader. We have the right to win, and we're invited to participate.

Wael Mohamed: We are definitely a leader. We have the right to win, and we are invited to participate, and that is itself extremely important. How can we basically find growth? The way I look at it is a sequence. This is not going to be a one quarter turnaround. It is going to be a multiple quarters.

Speaker #4: And that's, itself, extremely important. How can we basically find growth? The way I look at it is a sequence. This is not going to be a one-quarter turnaround.

Speaker #4: It's going to be multiple quarters. And the way I think about it, first, the cash generated will be able to demonstrate how well and how precisely we're running the business.

Wael Mohamed: The way I think about it, first, the cash generated, it will be able to demonstrate how well and how precise we are running the business. Number two, we need the non-core be clear, and we already basically understand what that is, and we making all the right structure to allow us to do that. Number three, we need to stabilize the core itself. Within the core, there is a lot of great assets, a good position, but there is some more work we needed to do, and that is why we are refunneling part of the investment and put it behind that. Four, we will get back again to growth. So, I believe the category we are in will allow us to do so. The work we are doing will allow us to get there faster.

Speaker #4: Number two, we need the non-core to clear and we already basically understand what that is and we making all the right structure to allow us to do that.

Speaker #4: And number three, we need to stabilize the core itself. Within the core, there's a lot of great assets, a good position, but there's some more work we needed to do.

Wael Mohamed: Within the core, there is a lot of great assets, a good position, but there is some more work we needed to do, and that is why we are refunneling part of the investment and put it behind that. Four, we will get back again to growth. So, I believe the category we are in will allow us to do so. The work we are doing will allow us to get there faster.

Speaker #4: And that's why we are refunneling part of the investment and putting it behind that. And fourth, we will get back again to growth. So, I believe the category we're in will allow us to do so.

Speaker #4: The work we're doing will allow us to get there faster.

Speaker #5: Excellent. And just in terms of the strong margins that you guided to in the fourth quarter, I just want to better understand. I mean, is this a starting point then for 2027 or can you maybe help shape what the endpoint looks like in terms of what you want to ultimately achieve?

Jonathan Ho: Excellent. Just in terms of the strong margins that you guided to in Q4, I just want to better understand. Is this a starting point then for 2027? Or can you maybe help shape what the endpoint looks like in terms of what you want to ultimately achieve? Thank you.

Speaker #5: Thank you.

Speaker #4: You know, when I was at the board, I was actually part of the work on Kenzo. And I was very, very excited because it can be able to allow us to do two things.

Wael Mohamed: When I was at the board, I was actually part of the work on Kenzo Security. I was very, very excited because it can be able to allow us to do two things. Not only we can be able to provide services at scale with software-like margins, but it will allow us to connect our solutions together with a common data structure. I believe that basically the AI first work that Dan is doing, it will allow us to not only maintain the margins that we are providing today, but actually sustain it and even better. I will pass it to Rais. He can share with you how we are thinking about it. We want to run a business that is profitable, high margin, and at scale.

Speaker #4: Not only can we provide services at scale with software-like margins, but it will also allow us to connect our solutions together with a common data structure.

Speaker #4: So I believe that basically the AI first work that Dan is doing, it will allow us to not only maintain that the margins that we're providing today, but actually sustain it and even better.

Wael Mohamed: I believe that basically the AI first work that Dan is doing, it will allow us to not only maintain the margins that we are providing today, but actually sustain it and even better. I will pass it to Rais. He can share with you how we are thinking about it. We want to run a business that is profitable, high margin, and at scale.

Speaker #4: And I will pass it to Race. He can share with you how we're thinking about it. We want to run a business that's profitable, high margin, and at scale.

Speaker #4: And the only way we can be able to do that in the category we are in is to make sure that our gross margin is best in class.

Wael Mohamed: The only way we can be able to do that in the category we are in is to be able to make sure that our gross margin is best in class.

Speaker #5: Yeah. Jonathan, I would add just to add to that, one of the things that I think we're pleased to be able to talk about today is we talked about improving margins as we went through 2026.

Rafe Brown: Jonathan, I would add, just to add to that, one of the things that I think we are pleased to be able to talk about today is we talked about improving margins as we went through 2026. We are delivering on that, and I think that was an important goal for us. That balanced growth that Wael is talking about is how we really look out across the next few years, frankly, about how we are focusing. We want to invest in the product so we can drive growth. That is incredibly important, and we think that will be a big driver of valuation over the longer term. We also realize that the margins on the bottom line are incredibly important. So we have taken a big step today.

Speaker #5: We're delivering on that. And I think that was an important goal for us. That balanced growth that Wyle's talking about is how we really look out across the next few years, frankly, about how we're focusing.

Speaker #5: We want to invest in the products so we can drive growth. That is incredibly important and we think that will be a big driver of valuation over the longer term.

Rafe Brown: We want to invest in the product so we can drive growth. That is incredibly important, and we think that will be a big driver of valuation over the longer term. We also realize that the margins on the bottom line are incredibly important, so we have taken a big step today.

Speaker #5: We also realize that the margins on the bottom line are incredibly important. So we've taken a big step today. We're obviously not giving 2027 guidance yet, but it speaks to our commitment and our focus.

Rafe Brown: We are obviously not giving 2027 guidance yet, but it speaks to our commitment and our focus. I think we will continue to maintain that focus on being very smart about how we invest and also keeping an eye constantly on the bottom line.

Speaker #5: And I think we'll continue to maintain that focus on being very smart about how we invest, and also keeping an eye constantly on the bottom line.

Speaker #3: Thank you.

Jonathan Ho: Thank you.

Speaker #2: Thank you. Our next question comes from the line of Fatima Bulani with City. Please unmute to ask your question.

Operator: Thank you. Our next question comes from the line of Fatima Boolani with Citi. Please unmute to ask your question.

Speaker #6: Good afternoon. Thank you so much for taking my questions. While you counted a number of ways in which you're setting the foundation for running a more streamlined business and a streamlined execution, I specifically wanted to ask you about the non-core product portfolio.

Fatima Boolani: Good afternoon. Thank you so much for taking my questions. Wael, you counted a number of ways in which you are setting the foundation for running a more streamlined business and a streamlined execution. Specifically, I wanted to ask you on the non-core product portfolio, is the eventual conclusion or end game there to deprecate most of that portfolio on a standalone basis? I think you earlier did talk about transitioning some customers out of the non-core and providing them a bridge into the core. I was wondering if you could help us a little bit around, is the entire non-core portfolio eligible to move into the core? Or perhaps there is an opportunity to deprecate and/or rationalize some of what is in that portfolio under the auspices of just becoming more efficient as an organization. Then I have a follow-up as well, please.

Speaker #6: Is the eventual conclusion or end game there to deprecate most of that portfolio on a standalone basis? I think you earlier did talk about transitioning some customers out of the non-core and providing them a bridge into the core.

Fatima Boolani: I think you earlier did talk about transitioning some customers out of the non-core and providing them a bridge into the core. I was wondering if you could help us a little bit around, is the entire non-core portfolio eligible to move into the core?

Speaker #6: I was wondering if you could help us a little bit around this: Is the entire non-core portfolio eligible to move into the core, or perhaps is there an opportunity to deprecate and/or rationalize some of what's in that portfolio under the auspices of just becoming more efficient as an organization?

Fatima Boolani: Or perhaps there is an opportunity to deprecate and/or rationalize some of what is in that portfolio under the auspices of just becoming more efficient as an organization. Then I have a follow-up as well, please.

Speaker #6: And then I have a follow-up as well, please.

Speaker #5: Sounds good. Thank you, Fatima.

Wael Mohamed: Sounds good. Thank you, Fatima. Those are very good questions. The way I look at it, at the non-core, certain categories that require a different type of investment if you are going to be competing with the pure players, and those races are not the ones that we are actually going after. We are focusing all our energy and our investment behind the ones that we are already a leader, and we can participate and basically grow with those categories. Nonetheless, we have an incredible amount of technologies, and our customer base is intertwined. Some of those technologies will basically be servicing our customers from the vignettes of our platform.

Speaker #4: And those are very good questions. The way I look at it at the non-core certain categories that require different type of investment if you're going to be competing with a non with the pure players.

Speaker #4: And those races are not the one that we're actually going after. We're focusing all our energy and our investment behind the ones that we're already a leader and we can participate and basically grow with those categories.

Wael Mohamed: We are focusing all our energy and our investment behind the ones that we are already a leader, and we can participate and basically grow with those categories. Nonetheless, we have an incredible amount of technologies, and our customer base is intertwined. Some of those technologies will basically be servicing our customers from the vignettes of our platform.

Speaker #4: Nonetheless, we have an incredible amount of technologies and our customer base is intertwined. So some of those technologies will basically be serviced servicing our customers from the vignettes of our platform.

Speaker #4: So we're basically looking at every opportunities to make sure that we can provide outcomes to our customers, but also not to chase certain races that the market already decided and the pure play game is not going to be ours to win.

Wael Mohamed: We are basically looking at every opportunity to make sure that we can provide outcomes to our customers, but also not to chase certain races that the market already decided, and the pure play game is not going to be ours to win. There is enough for us to win. There is a big market that is pulling us, and we need to put the appropriate investments so we can make sure that we can have our lion's share of those subcategories as well. As a matter of fact, I believe there is a category envy. The neighboring industry players, they are already coming from EDR, and we see there is a lot of action in MDR. We see some competition coming sideways. They don't have the right to win because they are not vendor neutral like we are.

Speaker #4: There is enough for us to win. There is a big market that is pulling us and we need to put the appropriate investments so we can make sure that we can have our line share of those subcategories as well.

Speaker #4: As a matter of fact, I believe there is a category entry like the neighboring industry players. They are already coming from EDR and they see there's a lot of action in MDR.

Wael Mohamed: As a matter of fact, I believe there is a category envy. The neighboring industry players, they are already coming from EDR, and we see there is a lot of action in MDR. We see some competition coming sideways. They don't have the right to win because they are not vendor neutral like we are.

Speaker #4: So, we'll see some competition coming sideways. They don't have the right to win because they are not vendor neutral like we are. They don't really have the strength and the depth that we have.

Wael Mohamed: They don't really have the strength and the depth that we have. We have thousands of customers relying on us every single day. We really need to focus to make sure we defend our turf that we have earned, and that may make us actually de-emphasize in some subcategories that we would not be able to actually chase. We have to make some choices.

Speaker #4: We have thousands of customers relying on us every single day. So we really need to focus to make sure we defend our turf that we have earned and that may make us actually de-emphasize in some subcategory that we will not be able to actually chase.

Speaker #4: We have to make some choices.

Speaker #6: Understood. Thank you. Very clear. And then you mentioned earlier that the core of the portfolio is around finding things, but then being able to also fix them, right?

Fatima Boolani: Understood. Thank you. Very clear. You mentioned earlier that the core of the portfolio was around finding things, but then being able to also fix them, right? This whole patch management, and remediation window that has effectively vanished against the innovation that we've seen out of the large language model providers. I am curious, just from an asset management, patch management perspective, what intellectual property you have there, and why do you feel that a detection and response angle to solving that approach is the right way versus a traditional asset management or patch management intellectual property? Thank you very much.

Speaker #6: So this whole patch management and remediation window that has effectively vanished against the innovation that we've seen out of the large language model providers.

Speaker #6: So I'm curious just from an asset management patch management perspective, what intellectual property you have there and why do you feel that a detection and response angle to solving that approach is the right asset management or patch management intellectual property?

Fatima Boolani: I am curious, just from an asset management, patch management perspective, what intellectual property you have there, and why do you feel that a detection and response angle to solving that approach is the right way versus a traditional asset management or patch management intellectual property? Thank you very much.

Speaker #6: Thank you very much.

Speaker #4: Thank you. We are in a very fortunate position over the years. We have assembled some deep technology, deep expertise, and we understand our customer environment extremely well.

Wael Mohamed: Thank you. We are in a very fortunate position. Over the years, we have assembled some deep technology, deep expertise, and we understand our customer environment extremely well. Sometimes we see the alerts before they even enter, and sometimes we are actually integrated within the customer, where we can actually work with them to be able to tackle some attacks and making sure that we respond swiftly. What we saw, in order for us to do this the way the market is going, we needed to have a common data backbone. When we have a common data backbone, that it allow us to leverage customers' assets instead of ask them to replace it. From an architecture perspective, we basically had to focus on that. That is also going to be the basis for the agentic work that we are actually working towards.

Speaker #4: Sometimes we see the alerts before the events enter, and sometimes we are actually integrated within the customer, where we can actually work with them to be able to tackle some attacks and make sure that we respond swiftly.

Speaker #4: But what we saw in order for us to do this the way the market is going, we needed to have a common data backbone.

Wael Mohamed: What we saw, in order for us to do this the way the market is going, we needed to have a common data backbone. When we have a common data backbone, that it allow us to leverage customers' assets instead of ask them to replace it. From an architecture perspective, we basically had to focus on that. That is also going to be the basis for the agentic work that we are actually working towards.

Speaker #4: When we have a common data backbone that it allow us to leverage customers' assets instead of asking them to replace it. So from an architecture perspective, we basically had to focus on that.

Speaker #4: That is also going to be the basis for the agentic work that we're actually working towards. And with that, we'll be able to do way more than what we're doing today.

Wael Mohamed: And with that, we can be able to do way more than what we are doing today. It is the combination between our expertise and our people and the future agents. We should be able to actually close those gaps. And there is going to be many gaps actually in the future, more than today. And customers are asking us, "How can you be able to help us at scale?" And that is really the work that we are doing right now in the platform. And we see that customers will be coming to us asking not only to find the vulnerabilities, not only to make sure that it is exploitable, but help them to close all the gaps, all the seams, and help them to fix. The ultimate answer is patching, but there is a lot of things you can be able to do if you cannot patch on time.

Wael Mohamed: With that, we can be able to do way more than what we are doing today. It is the combination between our expertise and our people and the future agents. We should be able to actually close those gaps. And there is going to be many gaps actually in the future, more than today. And customers are asking us, "How can you be able to help us at scale?"

Speaker #4: It's the combination between our expertise and our people and the future agents. We should be able to actually close those gaps and there's going to be many gaps in actually in the future more than today.

Speaker #4: And customers is asking us, how can we be able to help us at scale? And that's really the work that we're doing right now in the platform.

Wael Mohamed: And that is really the work that we are doing right now in the platform. And we see that customers will be coming to us asking not only to find the vulnerabilities, not only to make sure that it is exploitable, but help them to close all the gaps, all the seams, and help them to fix. The ultimate answer is patching, but there is a lot of things you can be able to do if you cannot patch on time.

Speaker #4: And we see that customers will be coming to us, asking not only to find the vulnerabilities, not only to make sure that it's exploitable, but to help them close all the gaps, all the seams, and help them fix—the ultimate answer is patching.

Speaker #4: But there is a lot of things you can be able to do if you cannot patch on time.

Speaker #6: I appreciate the detail. Thank you.

Fatima Boolani: I appreciate the detail. Thank you.

Speaker #7: Your next question comes from the line of Brian Essex with JP Morgan. Please unmute to ask your question.

Operator: Your next question comes from the line of Brian Essex with J.P. Morgan. Please unmute to ask your question.

Operator: Your next question comes from the line of Brian Essex with J.P. Morgan.

Speaker #5: Great, thank you for taking the question, and good afternoon. First of all, Rafe, thank you again for another quarter of transparency. We really appreciate the level of detail.

Brian Essex: Great. Thank you for taking the question, and good afternoon. Maybe first of all, Rafe, thank you again for another good quarter of transparency. We really appreciate the level of detail. And then maybe for Wael, we would love to understand what you are seeing in the pipeline. It seems as though we are in an unprecedented time here for some of the business that your core segments are exposed to. We would love to know, are you seeing the acceleration pipeline? If you are, it seems as though the assumptions around the core business are relatively conservative. If you could maybe contextualize your outlook for that business, how conversion win rates are transpiring and what your expectations might be for potential upside, downside to those expectations, given what you are seeing in the environment on the customer side. Then I have got a follow-up for Corey.

Speaker #5: And then maybe for a while, would love to understand what you're seeing in the pipeline seems as though we're in kind of an unprecedented time here for some of the business that your core segments are exposed to.

Speaker #5: So would love to know are you seeing the acceleration pipeline and if you are, it seems as though the assumptions around the core business are relatively conservative.

Brian Essex: We would love to know, are you seeing the acceleration pipeline? If you are, it seems as though the assumptions around the core business are relatively conservative. If you could maybe contextualize your outlook for that business, how conversion win rates are transpiring and what your expectations might be for potential upside, downside to those expectations, given what you are seeing in the environment on the customer side. Then I have got a follow-up for Corey.

Speaker #5: If you could maybe kind of contextualize your outlook for that business, how conversion win rates are kind of transpiring and what your expectations might be for potential upside, downside to those expectations given what you're seeing in the environment on the customer side.

Speaker #5: And then, I've got a follow-up for Corey.

Speaker #4: Sounds great. And thank you, Brian. So the way I look at it, like I just talked to some of my team members who came back from Black Hat.

Wael Mohamed: Sounds great. Thank you, Brian. The way I look at it, I just talked to some of my team members who came back from Black Hat, and the excitement and the talk around basically our solution, it was very much notable. Nonetheless, I see customers actually now exploring more than buying as they are basically trying to figure out who are the players that they are going to need to be putting bets behind. They are actually asking a lot of questions about exposure management and detection and response. A lot of questions. Some of the questions is related to what type of investment they need to make, what type of basically integration need to happen, and what is our vision and philosophy when it come to agentic. What they need to basically be prepared to do.

Speaker #4: And the excitement and the talk around basically our solution, it was very much notable. Nonetheless, I see customers actually now exploring more than buying as they basically trying to figure out who are the players that they're going to need to be putting bets behind.

Speaker #4: And they're actually asking a lot of questions about exposure management and detection and response. A lot of questions. And some of the questions is related to what type of investment do you need to make?

Wael Mohamed: They are actually asking a lot of questions about exposure management and detection and response. A lot of questions. Some of the questions is related to what type of investment they need to make, what type of basically integration need to happen, and what is our vision and philosophy when it come to agentic. What they need to basically be prepared to do.

Speaker #4: What type of basically integration need to happen? And what is our vision and philosophy when it comes to agenda? And what do you need to basically be prepared to do?

Speaker #4: And also, what is the connections between exposure management and detection and response? And how we see that. I cannot really wait for this week to pass us by.

Wael Mohamed: Also what is the connections between exposure management and detection response and how we see that. I cannot really wait for this week to pass by. It has been a very difficult week for us as a company, where we actually had to make some major restructuring. I am very positive that we should be able to participate. I actually participated in a lot of customers' calls in the last few weeks, and the last couple of months. To my surprise, the customers actually asking us for answers. We have 10,000 plus customers who have been doing business for years. That level of confidence that we can be able to give them answers is definitely there. Nonetheless, there is some more work we need to do to sharpen our story and connect it together, and that is going to be my job in the next couple of months.

Speaker #4: It's been a very difficult week for us as a company where we actually had to make some major restructuring. But I am very positive that we should be able to participate.

Speaker #4: I actually last few weeks and the last couple of months. And to my surprise, the customers actually asking us for answers. We have 10,000 plus customers.

Wael Mohamed: To my surprise, the customers actually asking us for answers. We have 10,000 plus customers who have been doing business for years. That level of confidence that we can be able to give them answers is definitely there. Nonetheless, there is some more work we need to do to sharpen our story and connect it together, and that is going to be my job in the next couple of months.

Speaker #4: We've been doing business for years. The level of confidence that we can be able to give them answers is definitely there. Nonetheless, there is some more work we need to do to sharpen our story.

Speaker #4: And connect it together. And that's going to be my job in the next couple of months.

Speaker #5: And Brian, I would just add on a couple of the points you called out there. Where I think we've been very pleased as the year has been developing—remember, the sales leadership team was really brand new at the beginning of the year.

Rafe Brown: Brian, I would just add on a couple of the points you called out there. I think we have been very pleased as the year has been developing. Remember, the sales leadership team was really brand new at the beginning of the year. We continue to see productivity per rep go up. The team has really done a lot of work focusing on their pipeline generation efforts. Also frankly, as precursor to the things we are talking about now on a regular basis, really directing the team's efforts so they make sure we are selling our core platform solutions. We could see strong evidence of all three of those elements coming into play, in Q2. I think Allan and the team have done a great job there. It is part of the longer journey. It has got to be paired with the product releases.

Speaker #5: We continue to see productivity per rep go up. The team's really done a lot of work focusing on their pipeline generation efforts. And also, frankly, as a precursor to the things we're talking about now on a regular basis, really directing the teams' efforts so they make sure we're selling our core platform solutions.

Rafe Brown: Also frankly, as precursor to the things we are talking about now on a regular basis, really directing the team's efforts so they make sure we are selling our core platform solutions. We could see strong evidence of all three of those elements coming into play, in Q2. I think Allan and the team have done a great job there. It is part of the longer journey. It has got to be paired with the product releases.

Speaker #5: And we could see strong evidence of all three of those elements coming into play in Q2. So, I think Alan and the team have done a great job there.

Speaker #5: It's part of the longer journey. It's got to be paired with the product releases. But when we look at the competitive deals that we went head to head against our well-known competitors, like we win because of great sales execution, combined with the product that's there today.

Rafe Brown: When we look at the competitive deals that we went head-to-head against our well-known competitors, we win because of great sales execution combined with the product that is there today. We have room to get out there and win, and I think that is always super encouraging to us. As we gain momentum under new leadership on the product side, we really hope that that is going to play out in a very positive way. It may take some quarters for it to become large enough and evident enough for everybody on this call, but we are really encouraged by those elements. That just good execution in the trenches, if you will.

Speaker #5: So we have room to get out there and win. And I think that's always super encouraging to us as we gain momentum under new leadership on the product side.

Speaker #5: We really hope that that's going to play out in a very positive way. It may take some quarters for it to become large enough and evident enough for everybody on this call, but we're really encouraged by those elements that just good execution in the trenches, if you will.

Rafe Brown: It may take some quarters for it to become large enough and evident enough for everybody on this call, but we are really encouraged by those elements. That just good execution in the trenches, if you will.

Speaker #5: Got it. I really appreciate the color. Maybe a quick one for Corey, just because, Corey, you have context here from a restructuring perspective.

Brian Essex: Got it. I really appreciate the color. Maybe a quick one for Corey, just because Corey, you have the context here. From a restructuring perspective, I mean, you guys have gone through a number of changes over the years. Back in 2023, I think 18% of the workforce, and as Rafe just mentioned, you have new sales leadership in place. I would just love to, if you could just wrap some context around the changes that you are going through now, how they are different than ones that you have gone through before, and what the environment is for attracting and retaining talent. Wael, feel free to interject as well, but Corey, just because you have that context, historical context, would love your insight.

Speaker #5: I mean, you guys have gone through a number of changes over the years, back in 2023, I think 18% of the workforce. And as Rafe just mentioned, you have new sales leadership in place.

Speaker #5: I would just love to, if you could just wrap some context around the changes that you're going through now, how they're different than ones that you've gone through before, and what the environment is for attracting and retaining talent whale feel free to interject as well.

Brian Essex: I would just love to, if you could just wrap some context around the changes that you are going through now, how they are different than ones that you have gone through before, and what the environment is for attracting and retaining talent. Wael, feel free to interject as well, but Corey, just because you have that context, historical context, would love your insight.

Speaker #5: But Corey, just because you have that context, historical context, would love your insight.

Speaker #4: Absolutely. Context is important. So I think the biggest change, especially from the last time that we did this, we have a lot more clarity today.

Corey Thomas: No, absolutely. Context is important. I think the biggest change, especially from the last time that we did this, we have a lot more clarity today. Keep in mind, today we enter with doing this with a completely revised leadership team that has operated at this scale, that has actually done turnarounds, that has done growth. We iterate with a strong team. We iterate with clarity of knowing where we need to focus and frankly, where we need to defocus. We do this work with more purpose in mind and more clarity about where we are going and what we want to become, and frankly, a very inspired view of the work that we could do for our customers in the future.

Speaker #4: Keep in mind, today we enter into this with a completely revised leadership team—one that's operated at this scale, that's actually done turnarounds, and that's driven growth.

Speaker #4: So we enter it with a strong team. We enter it with clarity of knowing where we need to focus. And frankly, where we need to defocus.

Corey Thomas: We iterate with clarity of knowing where we need to focus and frankly, where we need to defocus. We do this work with more purpose in mind and more clarity about where we are going and what we want to become, and frankly, a very inspired view of the work that we could do for our customers in the future.

Speaker #4: And so we do this work with more purpose in mind, and more clarity about where we're going and what we want to become. And, frankly, a very inspired view of the work that we could do for our customers in the future.

Speaker #4: When Corey talks about sort of the reallocation of focus and investment, it's something that's quite serious about—it's that we are investing in building something that's not just relevant but leverages lots of the great technologies and lots of the great work that we've done, and builds on it for our customers.

Corey Thomas: When Wael talks about sort of the reallocation of focus and investment, it is something he is quite serious about, is that we are investing and building something that is not just relevant

Corey Thomas: But leverages lots of the great technologies and lots of the great work we have done and builds on it for our customers. I think today we are doing it from a place of clarity and focus. Not that it was not important before. We knew the right things that we needed to do before, but we were still evolving the direction. We have a lot more clarity about where we need to actually go, and we have a team that actually has the experience doing it.

Speaker #4: So, I think today we're doing it from a place of clarity and focus. Not that it wasn't important before—we knew the right things that we needed to do before—but we were still evolving the direction.

Speaker #4: We have a lot more clarity about where we need to actually go, and we have a team that actually has the experience doing it.

Speaker #5: And I appreciate that. Thank you. Yeah, I'm sorry. Go ahead.

Brian Essex: I appreciate that. Thank you.

Corey Thomas: Absolutely.

Brian Essex: Yeah, sorry. Go ahead.

Speaker #4: Yeah, no problem. It's okay. Just to follow on what Corey said is from day one and my partnership with Corey on the board and as a CEO was understanding the culture of the company, making sure that everybody understands why we're doing this, understanding exactly the compositions and the options.

Wael Mohamed: Yeah, no problem. That's okay. Just to follow on what Corey said is, from day one, and my partnership with Corey on the board and as a CEO, was understanding the culture of the company, making sure that everybody understands why we are doing this, understand exactly the compositions and the options. In the last couple of months, regularly, we have been communicating with the team basically the findings, the structure, and the whys. As basically Corey said, to my surprise, actually, the leadership, the new and the existing, and even the second level and the third level, the embracing of the change was there. This has all been fueled by conviction that we are actually in a place where we can service customers in a way that the customer want us to serve them. That is really what is driving all these changes.

Speaker #4: And in the last couple of months, regularly we've been communicating with the team the basically the findings, the structure, and the whys. So as basically Corey said, everybody's to my surprise, actually, the leadership, the new and the existing, and even the second level and the third level, the embracing of the change was there.

Wael Mohamed: As basically Corey said, to my surprise, actually, the leadership, the new and the existing, and even the second level and the third level, the embracing of the change was there. This has all been fueled by conviction that we are actually in a place where we can service customers in a way that the customer want us to serve them. That is really what is driving all these changes.

Speaker #4: And this is all been fueled by conviction that we actually in a place where we can service customers in a way that the customer wants us to serve them.

Speaker #4: And that's really what driving all these changes.

Speaker #5: Great. Thank you, Wale.

Brian Essex: Great. Thank you, Wael.

Speaker #1: Thanks, your next question comes from Joseph Gallo with Jeffries. Please unmute to ask your question.

Operator: Thanks. Your next question comes from Joseph Gallo with Jefferies. Please unmute to ask your question.

Operator: Thanks. Your next question comes from Joseph Gallo with Jefferies.

Speaker #6: Hey guys, thanks for the question. While there's a lot of changes and you've talked about product a lot on the call, but can you just talk a little bit more about go-to-market refinement?

Joseph Gallo: Hey, guys. Thanks for the question. Wael, there is a lot of changes, and you have talked about product a lot on the call, but can you just talk a little bit more about go-to-market refinement? Any more changes expected there? With the 12% of jobs impact, is that also impacting the go-to-market organization? Then just as part of my follow-up, Rafe, how are you embedding all of that uncertainty and job impact into guidance? When we look at your guide, is it more prudent than the previous guides that you have given, or is the right read that ARR decline should worsen versus the past two quarters? Thanks.

Speaker #6: Any more changes expected there with the 12% of jobs impacted? Is that also impacting the go-to-market organization? And then just as part of my follow-up, Rafe, how are you embedding all of that uncertainty and job impact into guidance?

Joseph Gallo: Then just as part of my follow-up, Rafe, how are you embedding all of that uncertainty and job impact into guidance? When we look at your guide, is it more prudent than the previous guides that you have given, or is the right read that ARR decline should worsen versus the past two quarters? Thanks.

Speaker #6: When we look at your guide, is it more prudent than the previous guides that you've given, or is the right read that ARR decline should worsen versus the past two quarters?

Speaker #6: Thanks.

Speaker #4: Thank you. When we actually have been looking at this, we've been looking at this before I started. On the board, Corey and the team have been actually looking at how we can be able to reshape our company into the future for growth.

Wael Mohamed: Thank you. When we actually been looking at this, we have been looking at this before I started. On the board, Corey and the team been actually looking at how we can be able to reshape our company into the future for growth. So, the addition of Rafe for precision and Allan, as a CCO for scale, and Dan for the AI first, that was actually always from day one in the structure. On the go-to-market, I had a partnership with Allan when I was actually on the board and today as a CEO, and made sure that any of the restructuring we are making, it will not impact the scale we need to be able to actually continue with our transformation. It is a multiple basically sequence, and I believe that the way we actually did the restructuring, we try to be very careful in a couple of areas.

Speaker #4: So the addition of Rafe for precision and Alan as a CCO for scale and Dan for the AI first, that was actually always from day one in the structure.

Speaker #4: On the go-to-market, I had a partnership with Alan when I was actually on the board and today as a CEO. And made sure that any restructuring we're making, it will not impact the scale we need to be able to actually continue with our transformation.

Wael Mohamed: On the go-to-market, I had a partnership with Allan when I was actually on the board and today as a CEO, and made sure that any of the restructuring we are making, it will not impact the scale we need to be able to actually continue with our transformation. It is a multiple basically sequence, and I believe that the way we actually did the restructuring, we try to be very careful in a couple of areas.

Speaker #4: It's a multiple-based sequence. And I believe that the way we actually did the restructuring, we tried to be very, very careful in a couple of areas.

Speaker #4: Number one is the anything to do with customer journey. Three or post, we made sure that we have all the right resources to allow us to get there safely.

Wael Mohamed: Number one is anything to do with customer journey. In pre or post, we make sure that we have all the right resources that allow us to get there safely. We need to protect our customer base, we need to protect our turf, we need to show up when customer invite us, and we need to be able to have our fair share win rate. When Rafe basically mentioned, many times actually we get invited and we get shortlisted and we get selected, but even when I examine the time when we do not get selected, I feel we can improve that and we can actually increase that win rate. Allan is laser-focused on it.

Speaker #4: We need to protect our customer base. We need to protect our turf. We need to show up when customers invite us. And we need to be able to have our fair share win rate. When Rafe basically mentioned many times, actually, we get invited and we get shortlisted and we get selected.

Wael Mohamed: When Rafe basically mentioned, many times actually we get invited and we get shortlisted and we get selected, but even when I examine the time when we do not get selected, I feel we can improve that and we can actually increase that win rate. Allan is laser-focused on it.

Speaker #4: But even when I examined the time when we do not get selected, I feel we can improve that and we can actually increase that win rate.

Speaker #4: And Alan is laser-focused on it. He has done a very good job taking our existing, great go-to-market team, and augmented it with basically 'done it before' team members. I think the combination will allow us to be able to navigate.

Wael Mohamed: He has done a very good job, taken our existing great go-to-market team, augmented it with basically done it before team members, and I think the combination will allow us to be able to navigate. Rafe?

Speaker #4: Rafe?

Speaker #3: Yeah, so on the guidance side, obviously this is something you look at when you're looking across the team. As mentioned, the reorganization—every group participated in the reorganization to one extent or another.

Rafe Brown: Yeah, so on the guidance side, obviously, this is something you look at when you're looking across the team. As Wael mentioned, the reorganization, every group participated in the reorganization to one extent or the other. There was and will always be a very big focus on those individuals who frankly touch customers or are on the front lines, whether it's on the customer success side or on the new sales side. So we tried to be very prudent, as we looked at where savings opportunities had to be taken. But it is something we considered as we were forming our guidance.

Speaker #3: There was and will always be a very big focus on those individuals who, frankly, touch customers or are on the front lines, whether it's on the customer success side or on the new sales side.

Rafe Brown: There was and will always be a very big focus on those individuals who frankly touch customers or are on the front lines, whether it's on the customer success side or on the new sales side. So we tried to be very prudent, as we looked at where savings opportunities had to be taken. But it is something we considered as we were forming our guidance.

Speaker #3: So we tried to be very, very prudent as we looked at where savings opportunities had to be taken. But it is something we considered as we are forming our guidance.

Speaker #6: Thank you.

Joseph Gallo: Thank you.

Speaker #1: Your next question comes from Mita Marshall with Morgan Stanley. Please unmute to ask your question.

Operator: Your next question comes from Nita Marshall with Morgan Stanley. Please unmute to ask your question.

Operator: Your next question comes from Nita Marshall with Morgan Stanley.

Speaker #2: Great. Thanks. Maybe a question you noted, Dan, has been doing some significant work for a couple of months. And I know that there has been a lot of work being done over the last year to kind of add a lot of features into the MDR product.

Nita Marshall: Great. Thanks. Maybe a question. You noted Dan has been doing some significant work for a couple of months, and I know that there's been a lot of work being done over the last year to add a lot of features into the MDR product. Just how do you think about, obviously the product will be continuously evolving, but when should we think of judging milestones in terms of the products for both exposure management and MDR being closer to where you would like to see them? Then the second question, just on MDR, any pricing commentary of what you're seeing in the market would be helpful. Thanks.

Speaker #2: So just how do you think about obviously the product will be continuously evolving, but when should we kind of think of judging milestones in terms of kind of the products for both exposure management, MDR kind of being where you would like closer to where you would like to see them?

Nita Marshall: Just how do you think about, obviously the product will be continuously evolving, but when should we think of judging milestones in terms of the products for both exposure management and MDR being closer to where you would like to see them? Then the second question, just on MDR, any pricing commentary of what you're seeing in the market would be helpful. Thanks.

Speaker #2: And then the second question, just on MDR, just any pricing commentary of what you're seeing in the market would be helpful. Thanks.

Speaker #4: Great. Yes, we've been actually doing a lot of work on the product. Not only in the last couple of months before then, for the last year.

Wael Mohamed: Great. Yes, we've been actually doing a lot of work on the product, not only in the last couple of months for Dan, for the last year. I see that with the win rate and how we can basically win some of the RFPs coming our way. We will continue to basically make the right investment. On the D&R, I sat with customers, and I can see who are the competition. Most times, actually, price was never the differentiator. They're looking for a partner that can be able to help them and can be able to be there, and they're looking for a lot of references. We have plenty of references that we can be able to furnish to those customers to give them the comfort.

Speaker #4: And I see that with the win rate and how we can basically win some of the RFPs coming our way. And we will continue to basically make the right investment.

Speaker #4: On the DNR, I sat with customers and I can see who are the competition. And most times, actually price was never the differentiator. They're looking for a partner that can be able to help them and can be able to be there.

Wael Mohamed: Most times, actually, price was never the differentiator. They're looking for a partner that can be able to help them and can be able to be there, and they're looking for a lot of references. We have plenty of references that we can be able to furnish to those customers to give them the comfort.

Speaker #4: And they're looking for a lot of references, and we have plenty of references that we can furnish to those customers to give them the comfort.

Speaker #4: I've talked to some customers, and when we basically talk about the sensitivity, I did not see that price sensitivity, because the customers that we're talking to, it was mostly about the service level—the ability to evolve into the agentic and the AI world—that was the number one priority for them.

Wael Mohamed: I've talked to some customers, and when we basically talk about the sensitivity, I did not see that the price sensitivity. To the customers that we're talking to, it was mostly about the service level, the ability to evolve into the agentic and the AI world. That was the number one priority for them. Then when you talk about basically the exposure management, I think it's just focus. I think we just needed to put more focus and let the team know that this is definitely not only core, but it's very much a priority because it will help us to complete the journey of our customers. Not only we can find things, we can be able to fix it. The connection is extremely important. There is a huge opportunity with our platform to be able to do so.

Speaker #4: And then when you talk about basically the exposure management, I think it's just focus. I think we just needed to put more focus and let the team know that this is definitely not only core, but it's very much a priority because it will help us to complete the journey of our customers, not only we can find things, we can be able to fix it, the connection is extremely important.

Wael Mohamed: I think we just needed to put more focus and let the team know that this is definitely not only core, but it's very much a priority because it will help us to complete the journey of our customers. Not only we can find things, we can be able to fix it. The connection is extremely important. There is a huge opportunity with our platform to be able to do so.

Speaker #4: There is a huge. Opportunity with our platform to be able to do so. So overall, I think there's a lot of work done, but there's a lot of work need to be done as well.

Wael Mohamed: Overall, I think there's a lot of work done, but there's a lot of work needs to be done as well. From a modernization perspective, the way I always talk as a team, AI first is going to be always part of our design. Vendor neutral is extremely important in what we do. Number three, connecting basically our exposure management with our detection and response so our customer can get the highest value from our platform and a greater outcome into the future. That's the way that Dan is actually managing his priorities, and he's done a lot of progress in the last couple of months. I see that the next quarters will see that manifest itself. Then increasing our win rate, as we participate in more RFPs and more customer requests.

Speaker #4: But from a modernization perspective, so the way I always talk as a team, AI first is going to be always part of our design.

Speaker #4: Vendor neutrality is extremely important in what we do. Number three: connecting basically our exposure management with our detect and response, so our customers can get the highest value from our platform and a greater outcome in the future.

Wael Mohamed: Number three, connecting basically our exposure management with our detection and response so our customer can get the highest value from our platform and a greater outcome into the future.

Speaker #4: So that's the way that Dan is actually managing his priorities, and he's made a lot of progress in the last couple of months. And I see that the next quarters, we'll see that manifest itself in increasing our win rate as we participate in more RFPs and more customer requirements.

Wael Mohamed: That's the way that Dan is actually managing his priorities, and he's done a lot of progress in the last couple of months. I see that the next quarters will see that manifest itself. Then increasing our win rate, as we participate in more RFPs and more customer requests.

Speaker #2: Great. Thanks so much.

Nita Marshall: Great. Thanks so much.

Speaker #1: The next question comes from Adam Tyndall with Raymond James. Please unmute to ask your question.

Operator: The next question comes from Adam Tindle with Raymond James. Please unmute to ask your question.

Operator: The next question comes from Adam Tindle with Raymond James.

Speaker #5: Okay. Thanks. Well, you mentioned that you're asking investors to judge you on cash generated over time. And you're addressing profitability now and generating cash, which is especially important with that debt instrument coming due in March, makes total sense.

Adam Tindle: Okay, thanks. Wael, you mentioned that you are asking investors to judge you on cash generated over time, and you are addressing profitability now and generating cash, which is especially important with that debt instrument coming due in March. Makes total sense. Beyond this, I think you mentioned your other thing that you asked investors to judge you on was how you reinvest, and that is the part that I wanted to ask you about as we kind of squint forward. You have been on the board for other initiatives that involve accelerating hiring. Today, we are making the decision to restructure. What would be different about that period of time where you are investing, once we get to that point? What have you learned and what might be different as you enter into that phase?

Speaker #5: Then beyond this, I think you mentioned your other thing that you asked investors to judge you on was how you reinvest. And that's the part that I wanted to ask you about as we kind of squint forward.

Adam Tindle: Beyond this, I think you mentioned your other thing that you asked investors to judge you on was how you reinvest, and that is the part that I wanted to ask you about as we kind of squint forward. You have been on the board for other initiatives that involve accelerating hiring. Today, we are making the decision to restructure.

Speaker #5: You've been on the board for other initiatives that involved accelerating hiring, today we're making the decision to restructure. So what would be different about that period of time where you're investing once we get to that point?

Adam Tindle: What would be different about that period of time where you are investing, once we get to that point? What have you learned and what might be different as you enter into that phase?

Speaker #5: What have you learned and what might be different as you enter into that phase?

Speaker #4: When I was at the board, it was very clear that there is definitely a core and non-core component in our book. It was very clear.

Wael Mohamed: When I was at the board, it was very clear that there is definitely a core and non-core component in our book. It was very clear. Making sure that we have the right categorization was very important. As I sat on the seat, I was pleasantly surprised that most of the decline happened in the non-core. I thought I was going to come in, I am going to try to do some basically shifting and showing the team why we needed to be able to focus on the core more and de-emphasize the non-core. It was very clear, and the work was done for me when the majority of the decline was happening in the non-core. The other part that was very surprising to me is the appetite of our customers to talk to us and work with us and want us to give them more.

Speaker #4: And making sure that we have the right categorization was very important. As I said on the seat, I was pleasantly surprised that most of the declines happened on the non-core.

Speaker #4: So I thought I was going to come in, and I was going to try to do some basically shifting and show the team why we needed to be able to focus on the core more and de-emphasize the non-core.

Wael Mohamed: I thought I was going to come in, I am going to try to do some basically shifting and showing the team why we needed to be able to focus on the core more and de-emphasize the non-core. It was very clear, and the work was done for me when the majority of the decline was happening in the non-core.

Speaker #4: But it was very, very clear. And the work was done for me when the majority of the decline was happening in the non-core. But the other part that was very surprising to me is the appetite of our customers to talk to us and work with us and want us to give them more.

Wael Mohamed: The other part that was very surprising to me is the appetite of our customers to talk to us and work with us and want us to give them more.

Speaker #4: I knew the subcategories that we play in are attractive. And as I said, there's a category envy, where I saw myself on the outside—endpoint players are trying to become in the MDR because they know there are projects, there is budget, and there is action.

Wael Mohamed: I knew the subcategories that we play in are attractive, and as I said, there is a category envy where I saw myself in the outside endpoint players are trying to become in the MDR because they know there is projects, there is budget, and there is action. So they are trying to get in. Although they do not have the right to win, we have the right to win. We are actually invited. That made me feel stronger about accelerating the restructure that fast and redirecting our energy into these two important subcategories. Some of them are growing fast. The others will actually start growing faster, and we need to be ready. There is a lot of work we need to do to make sure we can really get our fair share from that upcoming growth, if you will.

Speaker #4: So they're trying to get in. Although they don't have the right to win, we have the right to win we are actually invited. And that made me feel stronger about accelerating the restructure that fast and redirecting our energy into these two important subcategories, they are growing some of them are growing fast, the others will actually start growing faster.

Wael Mohamed: That made me feel stronger about accelerating the restructure that fast and redirecting our energy into these two important subcategories. Some of them are growing fast. The others will actually start growing faster, and we need to be ready. There is a lot of work we need to do to make sure we can really get our fair share from that upcoming growth, if you will.

Speaker #4: And we need to be ready. There is a lot of work we need to do to make sure we can really get our fair share from that upcoming growth, if you will.

Speaker #5: Great, thanks. Maybe just a quick follow-up, and this might be for Rafe. I just wanted to ask for a little bit more quantification around the restructuring.

Adam Tindle: Great, thanks. Maybe just a quick follow-up, and this might be for Rafe. I just wanted to ask for a little bit more quantification around the restructuring, if possible. What maybe hits in Q3? What is incremental in Q4? Because it is quite a ramp on EBIT margin. I imagine there is dollars of savings to the extent that you could maybe just help us with the quantification of that. Secondly, Rafe, sorry to throw two at you, but

Speaker #5: If possible, what may be hits in Q3, what is incremental in Q4, because it's quite a ramp on EBIT margin. I imagine there are dollars of savings—to the extent that you could, maybe just help us with the quantification of that.

Speaker #5: And secondly, Rafe, sorry to throw two at you, but I would also be interested in the cash costs of the restructuring. I couldn't help but notice your strong cash flow guide for fiscal 26.

Rafe Brown: Sure

Adam Tindle: I would also be interested in the cash costs of the restructuring. I could not help but notice your strong cash flow guide for fiscal 2026. Just wondering how you considered that when you looked at the $130 million, I think what you guided to for cash. Thanks.

Speaker #5: So just wondering how you considered that when you looked at the $130 million. I think that's what you guided to for cash. Thanks.

Speaker #4: Yeah, thank you. I think in terms of the split of the benefit—and you can frankly see this looking at the operating income guide between Q3 and the full year—you kind of give it to the full view.

Rafe Brown: Yeah. Thank you. I think in terms of the split of the benefit, you can frankly see this looking at the operating income guide between Q3 and the full year, kind of gives you the full view. Q3 is obviously, the restructuring is happening partway into the quarter. Obviously, especially as we look around the world, the discussions are ongoing pursuant to local law. So Q3 will not see that much of the benefit really when all things being equal. Q4, you start to get a much cleaner view of it. So you can see that full impact because it will be a quarter where by and large we will work through all of that. So that is what is really driving that big increase we are projecting for Q4. On the cash side, you are spot on.

Speaker #4: Q3 is obviously, it's happened; the restructuring is happening partway into the quarter. And obviously, especially as we look around the world, the discussions are ongoing pursuant to local laws.

Speaker #4: So, Q3, we’ll not see that much of the benefit, really, all things being equal. Q4, you start to get a much cleaner view of that.

Rafe Brown: So Q3 will not see that much of the benefit really when all things being equal. Q4, you start to get a much cleaner view of it. So you can see that full impact because it will be a quarter where by and large we will work through all of that. So that is what is really driving that big increase we are projecting for Q4. On the cash side, you are spot on.

Speaker #4: So you have a you can see that full impact because it'll be a quarter where by and large we'll work through all of that.

Speaker #4: So that's what is really driving that big increase we're projecting for Q4. On the cash side, you're spot on. Again, we do have the severance costs, and as I mentioned in the scripted part of the call, most of those severance costs will fall in Q3 and Q4.

Rafe Brown: Again, we do have the severance costs. As I mentioned in the scripted part of the call, most of those severance costs will fall in Q3 and Q4. That offsets essentially a lot of the savings that we are getting from the restructuring. We have been calling out approximately $130 million of free cash flow all year long. We are really just staying with that and working towards that number. It will be more back-end loaded, just the way the timing of the collections goes, as well as the severance costs and whatnot from the restructuring.

Speaker #4: And that offsets essentially a lot of the savings that we are getting from the restructuring. So, you know, we've been calling out approximately $130 million of free cash flow all year long.

Speaker #4: So we're really just staying with that and working towards that number. It will be more back and loaded just the way the timing of the collections goes as well as the severance costs and whatnot from the restructuring.

Rafe Brown: We are really just staying with that and working towards that number. It will be more back-end loaded, just the way the timing of the collections goes, as well as the severance costs and whatnot from the restructuring.

Speaker #5: Helpful details. Thank you.

Adam Tindle: Helpful details. Thank you.

Speaker #1: At this time, we have reached the end of our question and answer session. We thank you all for your questions and you can now disconnect your lines.

Operator: At this time, we have reached the end of our question and answer session. We thank you all for your questions, and you can now disconnect your lines.

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