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DATE

Monday, Aug. 10, 2026 at 4:30 p.m. ET

CALL PARTICIPANTS

• Vice President of Investor Relations - Matthew Ryan Wells
• Executive Chairman - Corey E. Thomas
• CEO - Wael Mohamed
• CFO - Rafeal Edgar Brown

TAKEAWAYS

• Total ARR -- $824 million, down 2.0% year over year, driven by declines in standalone noncore products.
• Total Revenue -- $210.9 million, a decrease of 1.5% year over year, reflecting the attrition of noncore product annualized recurring revenue.
• Core Platform Solutions ARR -- grew 1% year over year, representing over 80% of total recurring revenue and led by the detection and response business.
• Detection and Response (D&R) ARR -- grew 5% year over year, accounting for approximately 55% of total company ARR.
• Non-GAAP Operating Income -- $28.9 million, exceeding guidance due to disciplined cost management during the second quarter.
• Non-GAAP Gross Margin -- 71.7%, down 215 basis points year over year because of increased staffing for global security operation centers and higher cloud usage.
• Free Cash Flow -- $31.9 million for the second quarter, supported by collections that exceeded internal expectations.
• Workforce Restructuring -- a 12% reduction in headcount was announced to align resources with core platform solutions and AI initiatives.
• Restructuring Charges -- $10 million to $11 million, consisting primarily of severance and related costs to be paid in the third and fourth quarters.
• Customer Count -- over 11,500 entities, representing a stable base for the company's core platform migration strategy.
• Average ARR per Customer -- approximately $70,000, as the company focuses on the heart of the enterprise market.
• Cash and Equivalents -- $702.6 million as of June 30, 2026, which the company intends to use to repay debt.
• Convertible Senior Notes -- $600 million due in March 2027, with management planning to use existing cash to retire the debt.
• FY 2026 Revenue Guidance -- $837 million to $841 million, representing a 2% decline at the midpoint compared to the prior year.
• FY 2026 Non-GAAP Operating Income Guidance -- $129 million to $133 million, representing a full-year margin of 15.6% at the midpoint.
• FY 2026 Free Cash Flow Guidance -- approximately $130 million, maintaining prior expectations despite restructuring expenditures.
• Q3 Revenue Guidance -- $208 million to $210 million, reflecting a year-over-year decrease of 4% to 5%.
• Q3 ARR Guidance -- approximately $812 million, representing an anticipated sequential decline in noncore offerings.
• Target Q4 Operating Margin -- 20% on a non-GAAP basis, as the company realizes the full benefits of restructuring and efficiency gains.
• Non-GAAP EPS -- $0.44 for the second quarter, based on 78.3 million fully diluted shares.
• Agentic SOC Efficiency -- integrations with models such as GPT-5.5 reduced false-positive queue times by 25% within managed workflows.
• Noncore ARR Exposure -- represents less than 20% of total ARR and continued to pressure overall growth results during the period.

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RISKS

• CEO Mohamed stated, "exposure management is not yet where it needs to be," and noted that this core segment continues to face execution pressure.
• CFO Brown warned that "other parts of the portfolio continued to pressure our results," specifically identifying the sequential decline in noncore product ARR as a primary headwind.

SUMMARY

Rapid7, Inc. (RPD -4.85%) announced a significant strategic shift through a restructuring plan designed to prioritize its core platform offerings and AI-driven security operations. Management reported that the company is realigning its cost structure and workforce to accelerate innovation in detection and response and exposure management. The company stated it is transitioning toward an AI-first platform model while managing a decline in noncore products that negatively impacted total annualized recurring revenue. Management indicated it intends to utilize its cash reserves to address upcoming debt obligations and maintain its commitment to durable free cash flow generation.

• CEO Mohamed stated, "Operating discipline creates choices," framing the shift toward 20% non-GAAP operating margins as evidence of building a healthier company.
• CFO Brown confirmed the company is "well positioned to repay" its $600 million in convertible notes due in March 2027 using its existing cash and equivalents.
• Management identified the "heart of the enterprise market" as the primary growth opportunity, targeting customers who seek enterprise-grade security and reduced tool complexity.
• CEO Mohamed noted, "At times, we may need to simplify before we can accelerate," characterizing the restructuring as a necessary step for a multi-quarter transformation.
• The company achieved GovRAMP Authorization in June, expanding its ability to provide AI-powered cybersecurity operations to state and local government organizations.
• The "Agentic SOC" initiative is a key priority for new Chief Product and Technology Officer Dejan Deklich, focusing on autonomous agents that perform security tasks at machine speed.
• Management reported that core platform solutions now represent over 80% of total ARR, despite overall recurring revenue being pressured by noncore product attrition.

INDUSTRY GLOSSARY

• Annualized Recurring Revenue (ARR): The annual value of all recurring revenue from active contracts as of a specific date.
• Managed Detection and Response (MDR): A cybersecurity service that provides organizations with threat hunting and response capabilities.
• Governance, Risk, and Compliance (GRC): A strategy for managing an organization's overall governance, enterprise risk management, and compliance with regulations.
• Agentic SOC: A security operations center framework that utilizes autonomous AI agents to automate threat detection and response workflows.
• GovRAMP: A security assessment and authorization program designed to certify cloud products for use by state and local government entities.
• Software Development Life Cycle (SDLC): The process used by software companies to design, develop, and test high-quality software.
• D&R: Detection and Response, a core cybersecurity segment focused on identifying and mitigating active threats.

Full Conference Call Transcript

Operator: Good day, everyone. My name is Kehaylani, and I will be your conference operator today. At this time, I would like to welcome you to the Q2 26 Rapid7 earnings call. All lines have been placed on mute to prevent any background noise. After the speakers' 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 app application. At this time, I would like to turn the call over to Matthew Ryan Wells, Vice President of Investor Relations.

Matthew Ryan Wells: Thank you, operator. And good afternoon, everyone. Today, we will be discussing Rapid7's second quarter fiscal 26 financial results. We have distributed our earnings press release over the wire it can be accessed on our investor relations website. With me on the call are Corey E. Thomas, Executive Chairman; Wael Mohamed, CEO; and Rafeal Edgar Brown, CFO. As a reminder, all participants are in a listen-only mode and a question-and-answer session will follow our opening remarks. Before I hand the call over to Corey, I want to remind everyone that certain statements made during this conference call may be considered forward looking statements under federal securities laws.

These statements are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 2000 and include, among other things, our outlook for the third quarter and full-year 2026 our expectations regarding fiscal periods beyond 2026, our transformation and restructuring initiatives, our strategy, priorities, and capital allocation, anticipated operational improvements, investments in our core platform and AI capabilities, and our expected growth drivers and financial performance. These forward looking statements are based on our current expectations and information currently available to us. We believe any forward looking statements we make are reasonable, actual results could differ materially due to a number of risks and uncertainties including those contained in our filings with the SEC.

Reported results should not be considered indicative of future performance. We do not undertake and expressly disclaim any obligation to update or alter our forward looking statements whether as a result of new information, future events or otherwise. Except to the extent required by applicable law. Further information on these forward looking statements and risk factors are included in the filings we make with the SEC including the section titled cautionary language concerning forward looking statements in our earnings press release. Additionally, over the course of this call, we will reference non GAAP measures to describe our performance.

Please review our earnings press release and filings with the SEC for our rationale behind these 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. And with that, I would like to turn the call over to Corey.

Corey E. Thomas: Welcome to Rapid7's Q2 26 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 work 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 1 of the most exciting moments in technology. Many ways, Wael is accelerating a plan he helped develop. In other areas, he is providing sharper focus in leadership, as you will hear in his upcoming comments. Before I hand it over to Wael, I wanna 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 Mohamed: Wael, thank you, Corey, and good afternoon. Since this is my first earnings call as CEO of Rapid7, I want to use my time a little differently. Rafeal will take you through the quarter, the actions we announced, and our guidance. I want to focus on our strategy, the operating discipline behind it, and how I ask you to measure our progress. I have known Rapid7 for years. Long before I joined the board, I saw this company at its best, moving fast, earning customer trust, and winning in the heart of the market. Joining the board gave me a much closer view of the company its people, and its potential.

The closer I got, the more I liked what I found. Rapid7 is a good company ready to be great. It is not broken. It has reached a ceiling. The issue is not our assets. It is how we focus our resources and energy. Breaking through requires clear choices, strong execution, and an operating system that can repeat success at scale. That is the work I signed up for. Transformation is not about changing everything. It is about having the discipline to change the few things that matter most. And doing so consistently over time. Over the past year, we put the leadership team in place for this next chapter.

We added a proven chief financial officer to strengthen operating discipline, a chief commercial officer to help us scale and win with customers, and the chief product and technology officer to build an AI first platform. We now have our leadership team, operating model, and capital allocation aligned behind 1 direction. Since stepping into this role, I have spent my time listening to customers, our people, partners, and many of you. 3 things are clear. First, focus matters. We do not need to win everywhere. We need to be exceptional where we can win. Our clearest right to win is in the heart of the enterprise market. Customers that need enterprise grade security.

But also need fewer tools, less complexity, and faster outcomes. Our leadership in the mid market is proof of our strength It is not a limit on our technology or our market. We will continue to compete for larger enterprises. Where our platform is the right fit. These customers want fewer, better partners. Not more tools. That is where Rapid7 has earned the right to win. Second, outcomes matter more than products. For years, cybersecurity answered complexity with more complexity. More tools, more alerts, more consoles, more people. Customers do not need another dashboard. They need less risk, less complexity, and faster action. Our opportunity is to connect exposure 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. In this model, agents are not just features inside a product. They become part of the service layer, extending the reach of our security experts and helping us deliver outcomes faster, and at scale. We acquired Kenzo because AI needs a foundation not another feature. That foundation connects data, agents, and human decisions, the tools customers already use, while keeping customers in control of their data. We want AI to fit into our customers' environments not force them into ours. Building that future requires focus now. The changes we announced affect colleagues, who have contributed to Rapid7.

I want to thank them for what they have given to this company. And to our customers. These actions are a focused reset We are not shrinking our way to the future. We are reshaping the company so we can invest more behind the parts of the business that will define it. We are simplifying the company, aligning our cost structure with the core, and creating room to invest. We are concentrating our growth investment behind detection and response, exposure 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 Rafeal will explain, the actions we announced put us on a path to exit the year at approximately 20% non GAAP operating margin. That is not the destination. It is evidence that we are building a healthier company. 1 with more capacity to invest, innovate, and generate durable returns over time.

In the second quarter, we came in slightly above the guidance we provided. Detection and response continued to perform well. At the same time, total ARR declined. Exposure 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 1 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.

Let me leave you with the framework I ask you to use when measuring rapid 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 1. 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. 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 promise. 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. Rafeal, over to you.

Rafeal Edgar Brown: Thank you, Wael. 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 the second quarter of 26, I am pleased to report that we exceeded expectation across all guided metrics. 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.

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. 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, continue to see healthy adoption of our Exposure Command solution driven by both new customers and customers upgrading from our older vulnerability management solutions. In contrast, our noncore products 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, noncore 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, Dejan Deklich, just 2 months into his role, is making changes and investments across the 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. 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 11.5 thousand customers and an average ARR per customer of approximately $70 thousand.

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 operation 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 the second quarter driven by strong collections. And from a balance sheet perspective, we ended the second quarter with $703 million in cash, 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 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.

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 26, compared to 13.7% in the second quarter. Fulfilling our commitment to improve our cost run rate as we exit 2020 We expect to incur restructuring charges of a approximately $10 million to $11 million, the majority of which will be paid throughout the third and fourth quarters of 26. These restructuring charges will be excluded from our non GAAP p and 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. 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 cash to repay our March 2027 convertible bonds.

This brings us to third quarter 26 guidance. We expect to end the third quarter with ARR of approximately $812 million And 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 noncore offerings. 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. 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. Updating our full year fiscal 26 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. 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.

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. And with that, I would like to turn the call over to the operator for Q&A.

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 1 question and 1 follow-up. Our first question comes from Rob Owens with Piper Sandler. Please unmute. Till ask your question.

Rob Owens: Grant. 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 you know, things will get better from here, and you are looking at adding to the portfolio. Or adding to the capability. When you when you focus on that, is this a function of coverage or is it lacking functionality that your customers were 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.

Wael Mohamed: Thanks, Rob. Very good question. First of all, it is it is nice to actually be here. And I look forward to work with all of you. it is been 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, was Corey on the board. And I looked at the overall business It was very clear that there was part core and noncore. And 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 needed to do on the core side.

So the restructure that actually we have 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 good position. We have a lot of customers that use on us. We have the right to win. And most importantly, you are invited every single day. I set a lot of customer calls in the last 2 months, and I can see that we actually in a better position. But to answer your question on the exposure management, there is definitely some work to do on focus. We will spread very thin, try 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 1 of the leaders. Nonetheless, we can increase our win rate by having more focus and, obviously, having the right investment. And I am very excited about the addition of Dan since Dan is actually is working very hard to making sure that not only new features, but the AI first methodologies implemented in all our product line. The second question was The migration path. What are customers doing in this environment? Yeah.

When I talk to customers, they actually they talk about how can you not only find things but actually fix it. And I am very excited that we play in these 2 subcategories. The exposure management as well as the detection and response. And I do believe that AI first basically, structure will allow us to be able to provide that for customers But customers 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 are they are actually they just wanna 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. Grant. Well, good to connect again, and thank you for taking my questions. Thank you, Rob.

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

Jonathan Ho: Hi. Just wanted to understand, first of all, you know, while I really appreciate the detail that you are providing, can you help us all, appreciate that providing, can understand the opportunities to reaccelerate growth, like you know, where do you specifically see, you know, sort of these know, ability to focus know, paying off. And, you know, it is it is always been challenging to show operating leverage while trying to reaccelerate growth at the same time. Can you can you help us understand sort of the balance, you know, between these 2?

Wael Mohamed: Thank you, Jonathan. And it is a very good question, and I always ask myself when I when I basically before I started, the most question I ask myself are we in a categories that it is big enough and is growing fast enough? To be able to get us the growth we are looking for. And you cannot buy that. And we are very fortunate that we are in 2 big categories. And, even in the vulnerability management and basically the migration into exposure, it is it is almost like feel like it has a refuel of interest again. So there is 2 categories that we have very strong position. We are 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 gonna be a 1 quarter turnaround. it is gonna be a multiple quarters. And 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 2, we need the non core to clear, and we already basically understand what that is, and we make it all the right structure to allow us to do that. And number 3, we need to stabilize the cord 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 refunding part of the investment and put it behind that. And fourth, 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. 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, you know, can you can you maybe help shape what the endpoint looks like in terms of what you want to ultimately achieve? Thank you. You know, when we when I was at the board, I was actually part of the of the work on Kenzo. And I was very, very excited because it can be able allow us to do 2 things. Not only we can be able to provide services at scale, with a software like margins, but it will allow us to connect our solutions together with a common data structure.

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

Rafeal Edgar Brown: Yeah. Jonathan, I would add just to add to that. Know, 1 of the things that I think we are we are pleased to be able to talk about today is we talked about margins as we went through 2026. You know, we are delivering on that, and I think that you know, that was an important goal for us. That balanced growth that Wael's talking about is how we really look out across the next few years, frankly, about how we are focused We wanna 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.

We also realize that the margins on the bottom line, incredibly important. So we have taken a big step today. We are obviously not giving 2027 guidance yet, but you know, it speaks to our commitment and our focus, and I think we will you know, continue to maintain that focus on being very smart about how we invest and also keeping an eye constantly on the bottom line. Thank you.

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

Fatima Boolani: Good afternoon. Thank you so much for taking my questions. While you counted a number of ways in which you are setting the foundation for running a more streamlined business and a streamlined execution. But, specifically, I wanted to ask you on the noncore product portfolio. Is the eventual conclusion or endgame there to deprecate most of that portfolio on a stand alone basis? I think you earlier did talk about transitioning, some customers out of the noncore and providing them a bridge into the core. 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? And then I have a follow-up as well, please.

Wael Mohamed: Sounds good. Thank you, Fatima. And those are very good questions. The way I look at it as at the noncore certain categories that require different type of investment if you are gonna be competing with a non with the pure players. And those races are not the 1 that we are going after. We are focusing all our energy and our investment behind the 1 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 So some of those technologies will basically be serviced to servicing our customers from the vignettes of our platform.

So we are basically looking at every opportunities to make sure that we can provide outcomes to our customers but also not to chase certain races that market already decided. And the pure play game is not gonna be our to win. There is enough for us to win. There is a big market that is pulling us. 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. Like the neighboring industry players they are already coming from EDR and DC. there is a lot of action in MDR.

So we will see some competition coming sideways They do not have the right to win because they are not vendor neutral. Like we are. They do not really have the strength and the depth that we have 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 deemphasize in some subcategories that we would not be able to actually chase. We have to make some choices.

Fatima Boolani: Understood. Thank you. Very clear. And then you mentioned earlier that you know, the core of the portfolio was around finding things. But then being able to also fix them. Right? So this whole patch management and remediation window that has effectively vanished, against the innovation that we have seen out of the large language model providers. So 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, you know, asset management or patch management intellectual property. Thank you very much.

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 seize the alerts before they even enter, and sometimes we are 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.

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

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 gonna be many gaps in actually in the future more than today. And customers is 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 he can be able to do if you cannot patch on time. I appreciate the detail. Thank you.

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

Brian: Grant. Thank you for taking the question, and good afternoon. Maybe first of all, Rafeal, thank you again for another good quarter. Transparency. We really appreciate the level of detail. And then maybe for a while, we would love to understand what you are seeing in the pipeline. Seems as though we are in kind of an unprecedented time here for some of the business that your core segments are exposed to. So I 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.

If you could maybe kinda 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 are seeing in the environment on the customer side? And then I have got a follow-up for Corey.

Wael Mohamed: Sounds great. And thank you, Brian. So 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 gonna need to be putting bets behind. And they are actually asking a lot of questions about exposure management and detection of response. A lot of questions.

And some of the questions is related to what type of investment do you need to make, 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? And, also, what is the connections between exposure management and detection response and how we see that? I cannot really wait for this week. It passes by. it is 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. I actually participated in a lot of customers.

Calls in the last few weeks. And the last couple of months. And to my surprise, the customers actually asking us for answers. We have 10 thousand 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 gonna be my job in the next couple of months.

Rafeal Edgar Brown: And, Brian, I would just add on a couple of the points you called out there. You know, I well, I think we have been very pleased as the year has been developing, you know, remember, you know, the sales leadership team was really brand new at the beginning of the year. We continued 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 precursor to the things we are talking about now on a regular basis, you know, really directing the team's efforts so they make sure we are selling our core platform solutions.

And we and we could see strong evidence of all 3 of those elements coming into play in Q2. So think Alan and the team have done a great job there. You know, it is it is part of the longer journey. it is gotta be paired with the product releases, but we look at the competitive deals that we went head to head you know, against our well known competitors, Like, we win because of great sales execution, combined with the product that is there today. So 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 is gonna 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 we are really encouraged by those elements, that just good execution you know, in the trenches, if you will.

Brian: Got it. I really appreciate the color. Maybe a quick 1 for Corey. Just because, Corey, you are here. You know, from a 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 Rafeal 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 you know, Wael, feel free to you know, interject as well.

But, Corey, just because you have that context, historical context, would love your love your insight.

Corey E. Thomas: No. Absolutely. And context is important. So I think the biggest change, especially from the last time that we did this, we have a lot more clarity Keep in mind, today we enter with doing this with a completely revised leadership team that is operated at this scale, that is actually done turnarounds, that is done growth. So we iterate with a strong team. We enter it with clarity of knowing where we need to focus and, frankly, where we need to defocus. And so 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. When Weil 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 but leverages lots of the great technologies and lots of great work that we have done builds on it for our customers. So I think today we are doing it from a place of clarity and focus. And not that it was not important for. 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. I appreciate that. Thank you. Absolutely.

Wael Mohamed: I am sorry. Go ahead. Yeah. Yeah. No problem. it is okay. it is just to follow on what Corey said. Is, from day 1 and my partnership with Corey on the board and as a CEO, was understanding the culture of the company, making sure that everybody understand why we are doing this, understand exactly the compositions and the options. And in the last couple of months, regularly, we have been communicating with the team the basically, the finding, 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.

And this has all been fueled by conviction that we actually in a place where we can service customers, in a way that the customer wants to serve them, and that is really what driving all these changes. Alright. Thank you, Weil. Thanks.

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

Joseph Gallo: Hey, guys. Thanks for the question. You know, 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 the go to market organization? And then just as part of my follow-up, Rafeal, 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, you know, ARR decline should worsen versus the past 2 quarters? Thanks.

Wael Mohamed: Thank you. Know, when we actually been looking at this, we have been looking at this before I started. On the board, Corey and the team have 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 Allen as a CCO for scale and Dan for the AI first. That was actually always from day 1 in the structure.

On the go to market, I had a partnership with Alan when I was on the board and today as a CEO and made sure that any restructuring we are making, it will not impact the scale we need to be able to actually continue with our transformation. it is a it is a multiple, basically, sequence. And I believe that the way we actually did the restructuring, we tried to be very, very careful in couple of areas. Number 1 is the anything to do with customer journey. it is 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. And Alan is laser focused on it He has done a very good job, taking 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 Rafeal?

Rafeal Edgar Brown: It was on the guidance side, you know, obviously, this is something you look at when you looking across the team. As Weil mentioned, the reorganization every group participated in the reorganization to 1 extent or the other. There was and will always be a very big focus on those individuals who, frankly, touch customers or on the front lines, whether it is on the customer success side or on the new sales side. So we tried to be very, very prudent as we looked at where savings opportunities had to be taken. But, you know, it is something we considered as we are forming our guidance. Thank you.

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

Mina Marshall: Grant. Thanks. Maybe a question You noted Dan has been doing some significant work for a couple months, and I know that there has been, you know, a lot of work being done over the last year to kind of add a lot of features into the MDR product. So just you know, how do you think about you know, obviously, the product will be continuously evolving, but you know, 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.

And then the second question, just on MDR, just any pricing commentary of what you are seeing in the market would be helpful. Thanks.

Wael Mohamed: Grant. Yes. We have been actually doing a lot of work on the product. Not only in the last couple of months before then, for the for the last year. And I see that with the win rate and how we can basically win some of some of the RFPs coming our way. And we will continue to basically make the right investment 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 are looking for a partner that can be able to help them and can be able to be there, and they are looking for a lot of references.

And we have plenty of references that we can be able to furnish to those customers to give them the comfort. I have talked to some customers. And when we basically talk about the sensitivity, I did not see that the price sensitivity there is a customer that we are talking to. It was mostly about the service level, the ability to evolve into the agentic and the AI world. That was the number 1 priority for them. And then when you talk about basically the exposure management I think it is 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 is a 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. So overall, I think there is a lot of work done. But there is a lot of work need to be done as well. But a modernization perspective. So the way I always talk as a team AI first, gonna be always part of our design.

Vendor neutral is extremely important in what we do. Number 3, connecting basically our exposure management with our detect and response so our customer can get the highest value from our platform and a greater outcome into the future. So that is the way that Dan is actually managing his priorities and he is done a lot of progress in the last couple of months. And I see that the next quarters will see that manifest itself and then increasing our win rate as we participate in more RFPs and more customer requests. Grant. Thanks so much.

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

Adam Tindle: Okay. Thanks. Wael, you mentioned that you are asking investors to judge you on cash generated over time, you are addressing profitability now in generating cash, which is especially important with that debt instrument coming due in March, makes total sense. Then 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 kinda squint forward You have been on the board for, you know, other initiatives that involve accelerating, hiring, Today, we are making the decision to restructure So 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?

Wael Mohamed: When I was at the board, it was very clear that there is definitely a core and noncore component in our book. It was very clear. And 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 on the noncore. So I thought I was gonna come in. I am gonna try to do some basically shifting and showing the team why we needed to be able focus on the core more and deemphasize the noncore, but it was very, very clear. And it the work was done for me when the majority of the of the decline was happening in the noncore.

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. Like, I know the subcategory that we play in are attractive, And as I said, it is a 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.

And that made me feel stronger about accelerating the restructure that fast and redirecting our energy into these 2 important subcategories. They are growing the there are some of them are growing fast, The others will can 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. Grant. Thanks.

Adam Tindle: Maybe just a quick follow-up, and this might be for Rafeal. 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 can maybe just help us with the quantification of that, And secondly, Ray, sorry to throw 2 at you. But Sure. I would also be interested in the cash cost of the restructuring. I could not help but notice your strong cash flow guide for this fiscal 2026.

So just wondering how you considered that when you looked at the $130 million I think what you guided to for, cash? Thanks.

Rafeal Edgar Brown: Yeah. Thank you. I think the you know, in terms of the split of the benefit, you and you can frankly, you know, see this looking at the operating income guide between Q3 and the full year. You kinda give it to the full view. Q3 is obviously you know, it is hap the restructuring's happening partway into the quarter. You know? And, obviously, especially as we look around the world, you know, the discussions are ongoing that is you know, pursuant to local laws. So Q3 is, you know, we will not see that much of the benefit, really, you know, when all things being equal, Q4, you start to get a much cleaner view of it.

So you, you know, have a you can see that full impact because it will be, you know, a quarter where by and large, we will work through all of that. So that is what you 4. On the cash side, you know, you are spot on. Again, you know, we do have the severance cost, and as I mentioned in the in the scripted part of the call, You know, most of those severance costs will fall in Q3 and Q4. You know, and that offsets essentially a lot of the savings that we are getting from the restructuring.

So you kinda you know, we have been out a 130 million a 130 million of free cash flow all year long. So 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. Helpful details. Thank you.

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.