Rubrik, Inc. (NYSE:RBRK) reported strong second-quarter growth, but cash generation did not keep pace with revenue. Revenue increased 38% year over year to $427.3 million, while subscription revenue grew 37% to $407.2 million. Subscription annual recurring revenue, or ARR, reached $1.66 billion, up 33%.
Free cash flow increased 14% to $65.7 million, causing free cash flow margin to fall to 15% from 19%. Operating cash flow margin also declined to 18% from 21%. Rubrik, Inc. (NYSE:RBRK) defines free cash flow as operating cash flow minus purchases of property and equipment and capitalized internal-use software. The quarter generated more cash, but less for each dollar of revenue.
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BULL CASE
The headline revenue growth understates the underlying comparison. Revenue normalized for material rights grew 43% as those rights contributed $4.7 million in the latest quarter, down from $14.2 million a year earlier. Net new subscription ARR increased 35%, cloud ARR grew 39%, and adjusted net new cloud ARR rose 20% after excluding migration effects.
Rubrik, Inc. (NYSE:RBRK) reported a Subscription ARR Contribution Margin of 14.0% for the 12 months ended July 31, 2026, up from 9.4% a year earlier. The measure equals ending subscription ARR less the prior 12 months of company-defined non-GAAP subscription cost of revenue and operating expenses, divided by ending subscription ARR. It is not a GAAP operating margin, but the improvement shows that subscription ARR is growing faster than the cost base used in the calculation.
Customer expansion remained healthy. The number of customers producing at least $100,000 of subscription ARR rose 23% to 3,084, while average subscription dollar-based net retention remained above 119%.
Management raised all full-year guidance. Revenue is expected to reach $1.685 billion to $1.693 billion, subscription ARR is expected to reach $1.880 billion to $1.885 billion, and free cash flow is projected at $323 million to $333 million. At the respective midpoints, the outlook implies a free cash flow margin of approximately 19.4%.
BEAR CASE
The quarterly margin compression was broad. GAAP gross margin declined to 78.4% from 79.5%, while company-defined non-GAAP gross margin, which primarily excludes stock-based compensation and acquired-intangible amortization, fell to 81.0% from 81.6%. Management attributed the non-GAAP decline to lower material-rights revenue and revenue mix, which offset greater scale in customer support.
Capital investment increased. Purchases of property and equipment and capitalized internal-use software totaled approximately $11.2 million, compared with $7.2 million a year earlier. Combined with the lower operating cash flow margin, this limited free cash flow growth to well below the revenue growth rate.
