“We are raising non-GAAP operating income guidance to a range of $112 million to $118 million, or a full year non-GAAP operating margin of 13.7% at the midpoint.”

In context

“Rafe Brown (Chief Financial Officer): Thank you, Corey, 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 2026, I am pleased to report that we exceeded guidance across all guided metrics. We finished the first quarter with total ARR of $832 million. But let me add a bit more color. I have now been at Rapid7 for five months, making this a good opportunity to step back and share some of my observations, which I think will also help you better understand our underlying mix of businesses, as well as the rationale for the strategy we are pursuing. A key takeaway is that while many people think of Rapid7 as a VM and DNR provider, that categorization of our business is incomplete. I believe that the business should be thought of in two distinct groupings. First, our core platform solutions group, comprised of our detection and response solutions, which includes MDR, and our exposure management business, which includes VM and Exposure Command. These core platform solutions constitute more than 80% of our total ARR and have been the sustained growth driver in our business in recent years. As you know, we have different underlying trajectories within core platform solutions, led by our strong MDR business and work underway to return the exposure management business to growth. These core platform solutions are where our business is focused. As such, the performance of our core platform solutions is the clearest indicator of the ongoing transformation within Rapid7, and they are the solutions where we are concentrating product development and go-to-market resources. The remainder of our business mix, or second grouping, consists of standalone non-platform offerings. As customers have shifted towards platform-based offerings over the past few years, these standalone non-platform products have declined on a year-over-year basis. While they remain profitable and we continue to support our customers using these products, standalone non-platform offerings are not central to our strategy. As a result, their declines have been the driver of the sequential net ARR declines we have witnessed in recent periods. With the benefit of that context and framing, let me unpack our Q1 ARR performance. Our core platform solutions, now totaling over 80% of our overall ARR as I shared moments ago, grew approximately 2% on a year-over-year basis, led by our strongest offer in the group—our detection and response business—which, at approximately 55% of total ARR, grew approximately 7% on a year-over-year basis. While DNR growth was partially offset by our exposure management business within these core platform solutions, we remain pleased to see ongoing momentum in our more holistic Exposure Command offerings, driven by both new customers and customers migrating to this new platform. We are not where we want to be across all elements of our core platform solutions, but re-accelerating the growth of these core platform solutions is the focus of our strategy, and where we are placing our bets, as you heard Corey describe in detail earlier. In contrast, our non-platform products declined in the quarter, driving the sequential decline we saw in total ARR. As we plan for the remainder of 2026 and beyond, we see opportunities to optimize margins for these standalone, non-platform solutions as we take steps to improve the alignment of our investment resources toward growing core platform solutions. Returning now to other important metrics, total revenue of $209.7 million declined 0.3% year over year. Within this, product revenue of $204 million was flat year over year and services revenue declined slightly. We finished the quarter with over 11,500 customers and an average ARR per customer of approximately $72,000. Turning to first quarter profitability, total non-GAAP gross margins of 72% were down approximately 280 basis points year over year, consistent with our expectations, driven by improved staffing in our global security operation centers. We reported non-GAAP operating income of $24.4 million, or a margin of 11.7%, favorable to our guidance. This upside to profitability drove non-GAAP earnings of $0.36 per diluted share. Free cash flow totaled $33.4 million in the first quarter, driven by strong collections. From a balance sheet perspective, we ended the first quarter with $670 million in cash, cash equivalents, and short-term investments. In addition to these resources, we have a $200 million undrawn revolver in place. Our cash and investment balances, undrawn credit facility, and continued free cash flow generation give us confidence in our ability to settle our March 2027 convertible debt upon maturity as well as fund ongoing operations. This brings us to second quarter 2026 guidance. We expect to end the second quarter with ARR of approximately $820 million. On a sequential basis, we expect ending ARR for our core platform solutions—DNR and exposure management—will be approximately flat quarter on quarter, with an expected sequential ARR decline in our non-core standalone, non-platform offerings. For the second quarter, we expect total revenue in the range of $207 million to $209 million, or down approximately 2.9% at the midpoint on a year-over-year basis. Non-GAAP operating income is expected to be in the range of $24 million to $26 million, or a margin of 12% at the midpoint. Non-GAAP earnings per diluted share are expected in the range of $0.33 to $0.36 on approximately 78.3 million fully diluted shares. Updating our full year fiscal 2026 guidance, we expect total revenue in the range of $836 million to $842 million, a year-on-year decline of approximately 2.4% at the midpoint. We are raising non-GAAP operating income guidance to a range of $112 million to $118 million, or a full year non-GAAP operating margin of 13.7% at the midpoint. As previously highlighted, the business exited 2025 with a higher expense run rate, reflecting 2025 investments across people, technology, and our India global capability center. By closely managing ongoing investments, we expect non-GAAP operating margins to improve to the mid-teens as 2026 progresses, and we remain focused on continuing to improve operating margins in 2027. Non-GAAP earnings per share are expected to be in the range of $1.52 to $1.60 per share on approximately 79.4 million fully diluted shares. We expect 2026 free cash flow in the range of $125 million to $135 million for the full year, flat with prior year performance at the midpoint and a free cash flow margin of approximately 15.5%. In conclusion, there is a tremendous opportunity for cybersecurity companies who can help their customers respond at the incredible pace of new vulnerabilities and increasing attacks. Rapid7's core platform offerings of detection and response and exposure management are uniquely positioned to help companies navigate these threats, which we believe presents a long-term growth opportunity for our business. And with that, I would like to turn the call over to the operator for Q&A.”