Rubrik, Inc. (RBRK) Q2 2026 Earnings Call Transcript

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Overview

The earnings call reveals strong financial performance, with significant revenue and ARR growth, improved cash flow, and enhanced margins. The strategic focus on cyber resilience and AI initiatives is promising. Despite some concerns about contract duration and unclear guidance in specific areas, the overall sentiment is bolstered by optimistic guidance and a strong competitive position. The Q&A session supports this with positive analyst sentiment and strategic insights. The stock is likely to see a positive reaction over the next two weeks.

Key Financial Performance

Subscription ARR Surpassed $1.25 billion, growing 36% year-over-year. Growth attributed to strong adoption of Rubrik Security Cloud and multiple avenues for customer expansion.

Net New Subscription ARR Reached $71 million in the second quarter. Growth driven by increased adoption of Rubrik's offerings.

Subscription Revenue $297 million, growing 55% year-over-year. Growth supported by strong ARR growth and cloud transformation tailwinds.

Subscription NRR Remained strong, above 120%. Growth driven by adoption of additional security functionality, contributing approximately 35% to the rate.

Customers with $100,000+ in Subscription ARR Crossed 2,500, growing 27% year-over-year. Larger customers now contribute 85% of subscription ARR, up from 82%.

Subscription ARR Contribution Margin Improved by approximately 1,800 basis points year-over-year, reaching positive 9%. Improvement driven by higher sales, scale benefits, and cost management.

Free Cash Flow Generated over $57 million, compared to negative $32 million in the prior year. Increase driven by higher sales, improved operating leverage, and optimized capital structure.

Total Revenue $310 million, up 51% year-over-year. Growth benefited from ARR growth and nonrecurring revenue from cloud transformation.

Non-GAAP Gross Margin 82%, compared to 77% in the prior year. Improvement due to revenue outperformance, reduced hosting costs, and efficient customer support.

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Operating Highlights

Rubrik Security Cloud (RSC): Expanded cyber protection for AWS RDS database and added comprehensive protection for Amazon DynamoDB. Enhanced cloud data protection solutions for applications, services, and databases.

Identity Resilience: Launched Rubrik Identity Resilience solution, integrating data security and identity intelligence. Enables rapid recovery of Active Directory and Entra ID in hybrid cloud environments.

Generative AI (GenAI): Acquired Predibase to enhance AI capabilities. Launched Agent Rewind to undo AI agent mistakes without full system rollbacks. Focused on optimizing product-market fit for AI solutions.

Cyber Resilience Market: Continued leadership with solutions for rapid recovery and risk mitigation. Expanded customer base with notable wins in oil and gas, pharma, and financial sectors.

Enterprise AI Acceleration: Positioned to capitalize on enterprise AI transformation. Leveraging secure data access and AI model optimization for broader adoption.

Subscription ARR: Surpassed $1.25 billion, growing 36% YoY. Net new subscription ARR reached $71 million in Q2.

Profitability: Improved subscription ARR contribution margin by 1,800 basis points YoY. Generated $57 million in free cash flow in Q2.

Customer Growth: Customers with $100,000+ in subscription ARR grew 27% YoY to 2,505.

Cloud Transformation: Revenue from cloud ARR reached $1.1 billion, up 57%. Material rights from cloud transformation contributed to revenue growth.

R&D Investments: Focused on innovation in data, security, and AI. Investments in go-to-market strategies and scaling new innovations.

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Risk or Challenges

Cybersecurity Threats: The company acknowledges that cyberattacks are inevitable despite significant investments in prevention and detection. This poses a risk to operations and customer trust if recovery mechanisms fail.

Legacy System Limitations: Legacy backup providers have been unable to support fast recovery following cyberattacks, which could lead to operational disruptions for customers.

Cloud Transformation Challenges: The company is undergoing a cloud transformation, which includes nonrecurring revenue from material rights. This transformation could pose risks related to execution and customer adoption.

Economic and Market Conditions: The company operates in a competitive and evolving market, which could impact its ability to maintain growth and profitability.

Regulatory and Compliance Risks: The company must ensure compliance with data security and privacy regulations, which could become more stringent and impact operations.

AI Adoption Barriers: The adoption of generative AI faces challenges such as accuracy, cost, and security, which could hinder its integration and scalability.

Identity Recovery Risks: The company highlights vulnerabilities in identity recovery processes, which could lead to significant business disruptions if not addressed effectively.

Customer Concentration Risk: A significant portion of revenue comes from larger customers, making the company vulnerable to changes in spending patterns of these customers.

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Guidance & Outlook

Financial Outlook for Q3 FY 2026: Revenue is expected to be between $319 million and $321 million, reflecting a year-over-year growth of 35% to 36%. Non-GAAP subscription ARR contribution margins are projected at approximately 6.5%. Non-GAAP earnings per share are expected to range from negative $0.18 to negative $0.16, based on approximately 200 million weighted average shares outstanding.

Full Year FY 2026 Financial Guidance: Subscription ARR is projected to be between $1.408 billion and $1.416 billion, reflecting a year-over-year growth rate of 29% to 30%. Total revenue is expected to range from $1.227 billion to $1.237 billion, reflecting a year-over-year growth rate of 38% to 40%, or 32% to 34% excluding the benefit from material rights. Non-GAAP subscription ARR contribution margins are expected to be approximately 7%. Non-GAAP earnings per share are projected to range from negative $0.50 to negative $0.44, based on approximately 197 million weighted-average shares outstanding. Free cash flow is expected to be between $145 million and $155 million.

Seasonality in Q3 FY 2026: Q3 is expected to contribute approximately 21% to 22% of full-year net new subscription ARR. Subscription ARR contribution margins are anticipated to be seasonally lowest in Q3 before improving in Q4.

Cyber Resilience Market and Demand: The company remains confident in the strength of the cyber resilience market and demand for its differentiated offerings, which are expected to drive strong subscription ARR growth.

Investments in R&D and Go-to-Market: Rubrik plans to continue investing in R&D to drive innovation in data, security, and AI markets. Additionally, investments will be made in go-to-market strategies across select regions and verticals to scale new innovations.

Material Rights Contribution to Revenue: Material rights related to the cloud transformation are expected to contribute approximately 6 percentage points to revenue growth for the full year FY 2026. Minimal revenue contribution from material rights is expected in FY 2027.

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Shareholder Return Plan

The selected topic was not discussed during the call.

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Key Q&A

Q:What has changed strategically in driving profitability and what should be considered for the second half on free cash flow?

A:Bipul Sinha emphasized the company's focus on cyber resilience and AI-based ransomware detection, which has driven profitability. Kiran Choudary highlighted a $58 million free cash flow in Q2, driven by stronger ARR performance, margin improvement, capital structure optimization, and favorable contract durations. For the second half, they raised guidance to a 12% margin, assuming some compression in contract durations.

Q:Did the sales comp change have any impact on year-over-year growth in Q2, and is higher seasonality expected in Q4?

A:Bipul Sinha stated that the sales comp change to annual plans has not materially impacted the business so far. Kiran Choudary added that Q2 and Q3 will look similar due to the lack of a Q2 accelerator, but Q4 is expected to be seasonally strong, reflected in subscription ARR guidance and margins.

Q:How is Rubrik levered to data growth, and what is the mix of pricing models?

A:Bipul Sinha explained that Rubrik's pricing combines data volume and security features. Growth comes from organic data growth, new workloads, and attaching data security products. For SaaS apps like M365, pricing aligns with user numbers.

Q:What drove early renewal activity, the decline in non-cloud ARR, and higher material rights activity?

A:Kiran Choudary explained that early renewals were tied to expansion deals and multiyear contracts, not related to comp structure changes. The decline in non-cloud ARR is due to migrations to cloud ARR, which is now 85% of the total. Higher material rights activity was driven by expiring credits from the cloud transformation, with variability depending on their use or expiration.

Q:How does Rubrik's go-to-market strategy evolve with its multiproduct platform?

A:Bipul Sinha described a three-stage pipeline: incubation (Rubrik x), scaling (product line sales team), and core sales team adoption. All products are integrated into the Rubrik Security Cloud platform, enhancing value and intelligence for customers.

Q:What is Rubrik's position in the DSPM market and its vision for cyber resilience?

A:Bipul Sinha emphasized combining DSPM with identity intelligence for holistic cyber resilience. Rubrik's platform integrates data and identity security, enabling runtime insights and recovery capabilities, differentiating it from competitors.

Q:What is the competitive environment and Rubrik's deal win rate?

A:Bipul Sinha stated that Rubrik wins the vast majority of deals due to its differentiated platform, Rubrik Security Cloud, which offers preemptive recovery capabilities. He provided an example of a European company replacing a legacy vendor with Rubrik for improved cyber resilience.

Q:How does Rubrik view the Fed market and its opportunities?

A:Bipul Sinha noted that the Fed market is still in the investment phase but presents significant opportunities due to the importance of cyber resilience. Rubrik recently received FedRAMP Moderate certification and continues to win deals in this market.

Q:How do deal sizes, renewal patterns, and expansions differ across product tiers?

A:Kiran Choudary explained that nearly half of new deals land in the enterprise tier, with foundation being a key entry point for budget-constrained customers. Expansion paths include upgrading to higher tiers or adding workloads, regardless of the starting tier.

Q:Review of Unclear Management Responses

A:Management avoided directly addressing the specific impact of the sales comp change on Q4 seasonality, providing only general guidance. Additionally, while discussing the Fed market, they did not provide detailed metrics or timelines for growth in this segment.

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Earnings Word Cloud

The most frequently occurring keywords in this quarter's earning call

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The earnings call summary shows strong financial performance, with a 48% revenue increase and improved gross margins. The Q&A section highlights positive sentiment from analysts, with Rubrik's strategic focus on AI, identity, and cyber resilience being well-received. Despite some vague responses, the raised guidance and strategic partnerships, especially in AI, suggest optimism. The stock is likely to react positively in the short term, given the strong growth projections and strategic advancements, despite the lack of specific market cap data.

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RBRK Slides

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