Rubrik's Q2 2026 Earnings Call: Contradictions Emerge on Sales Comp Impact on ARR, Identity/DSPM Growth, ARR vs. Revenue Correlation, Free Cash Flow Improvements, and Cloud Transformation Effects

The above is the analysis of the conflicting points in this earnings call

Date of Call: September 9, 2025

Financials Results

• Revenue: $310M total revenue, up 51% YOY (approx. 44% excluding material rights); subscription revenue $297M, up 55% YOY
• Gross Margin: 82% non-GAAP, compared to 77% in the prior year; company expects 75–80% for FY26

Guidance:

• Q3 revenue: $319–$321M (+35–36% YOY), with a few extra points from material rights.
• Q3 subscription ARR contribution margin: ~6.5%.
• Q3 non-GAAP EPS: -$0.18 to -$0.16 (~200M shares).
• FY26 subscription ARR: $1,408–$1,416M (+29–30% YOY).
• FY26 revenue: $1,227–$1,237M (+38–40% YOY; +32–34% ex material rights).
• FY26 subscription ARR contribution margin: ~7%.
• FY26 non-GAAP EPS: -$0.50 to -$0.44 (~197M shares).
• FY26 free cash flow: $145–$155M.
• Material rights add ~6 pts to FY26 revenue growth; minimal in FY27.
• Seasonality: Q3 ~21–22% of full-year net new ARR; margins trough in Q3, higher in Q4.

Business Commentary:

• Revenue and Subscription ARR Growth:
• Rubrik reported subscription ARR surpassed $1.25 billion, growing 36% year-over-year.

• This growth was driven by strong demand for cyber resilience solutions, the expansion of cloud data protection, and the addition of new security functionality.

• Free Cash Flow and Profitability:

• Rubrik generated over $57 million in free cash flow for the quarter, with a margin of 19%.

• This improvement was due to higher ARR performance, margin improvement, capital structure optimization, and favorable contract durations.

• Cyber Resilience and AI Initiatives:

• Rubrik is expanding its cyber resilience market leadership and building a new future for enterprise AI acceleration.

• The Prettibase acquisition and innovations like Agent Rewind are aimed at addressing barriers in AI adoption and offering AI-powered solutions for enterprise customers.

• Customer Growth and Expansion:

• Customers with $100,000 or more in subscription ARR crossed 2,500, growing 27% year-over-year.
• This growth is attributed to the company's land and expand model, with customers expanding data in existing applications, securing more applications or identities, and adopting additional security functionality.

Sentiment Analysis:

• Management exceeded all guided metrics and raised the outlook. Subscription ARR >$1.25B (+36% YOY); total revenue $310M (+51% YOY); subscription revenue $297M (+55% YOY). NRR >120%. Non-GAAP gross margin 82% vs 77% prior year. Subscription ARR contribution margin improved ~1,800 bps YOY to +9%. Free cash flow $57.5M (19% margin) vs -$32M prior year. FY26 guide: revenue +38–40% and FCF $145–$155M.

Q&A:

• Question from Saket Kalia (Barclays): What’s driving the 19% free cash flow margin and how should we model FCF in the second half?
  Response: Scale and demand in cyber resilience, higher ARR contribution margin, capital structure optimization, favorable renewals/duration boosted FCF; FY26 FCF margin guide raised to ~12%, with H2 assuming some duration compression and higher OpEx investments.

• Question from Andrew Nowinski (Wells Fargo): Impact from switching to annual sales comp plans and seasonality implications?
  Response: Shift to annual comp has caused minimal disruption; Q2 and Q3 should be similar without prior Q2 accelerators, and Q4 remains seasonally strongest.

• Question from Howard Ma (Guggenheim): How are you levered to data growth and what’s the pricing/consumption mix?
  Response: Pricing blends data volume with security features across editions; growth comes from organic data growth, adding workloads, and attaching security; user-based licensing for M365 aligns to SaaS usage.

• Question from Eric Heath (KeyBank): Drivers of early renewals, non-cloud ARR decline, and higher material rights?
  Response: Early renewals co-termed with expansions (some multi-year); non-cloud ARR declines reflect ongoing migrations and should stabilize; higher material rights due to timing/expiration of transformation credits.

• Question from Matt Martino (Goldman Sachs): How does GTM evolve to sell a broader platform across identity, AI, and data security?
  Response: Multi-stage motion (RubrikX incubation → PLS → core sales) scales new products; a single RSC platform enables cross-workload value for C-suite buyers.

• Question from Gregg Moskowitz (Mizuho): Outlook for DSPM adoption and Rubrik’s differentiation?
  Response: Rubrik fuses DSPM with identity intelligence to deliver holistic risk context and faster recovery; expects integrated data+identity posture to drive adoption.

• Question from Todd Coupland (CIBC): Competitive environment and win rates?
  Response: Environment unchanged; Rubrik wins the vast majority vs legacy and new-gen vendors due to its Preemptive Recovery Engine delivering faster, reliable recovery.

• Question from Junaid Siddiqui (Thruvist): Does MCP’s rise expand Rubrik into broader security orchestration?
  Response: Focus remains cyber resilience and AI operations; leveraging secure data lake, vectorized search, Prettibase, and Agent Rewind to undo AI agent mistakes—positioning as a security and AI company.

• Question from James Fish (Piper Sandler): DSPM penetration/competition and U.S. Federal outlook?
  Response: Strategy integrates data, identity, and recovery; Fed is investment phase with FedRAMP Moderate obtained and recent wins replacing new-gen vendors; sees meaningful opportunity.

• Question from Zach Schneider (Baird): How do expansions differ across Enterprise vs. Foundation tiers over multi-year deals?
  Response: About half of lands are in Enterprise; customers expand by upgrading tiers or adding workloads (e.g., M365, cloud, databases) regardless of starting tier; renewals commonly pair with expansions.