Rubrik IPO: S1 Breakdown

When Backup & Recovery meets Cybersecurity

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“We are on a mission to secure the world’s data.” - Rubrik S1 Filing

Key Figures

• Annual Recurring Revenue: $784M as of Jan 31, 2024, +47% y/y

• Customers: +6,100

  • Customers Over $100K in Subscription ARR: +1,700

  • Customers Over $1M in Subscription ARR: 99 (lol, couldn’t get 1 more???)

• Subscription Net Dollar Retention Rate: 133%

• Subscription Gross Margin: 82%, (-2%) y/y

• Net Loss: ($327M) in FY24, an increase from ($278M) in FY23

• Current Cash on Balance Sheet: $280M

5 Key Themes:

Rubrik was not born in the cloud. Rubrik merely adopted the cloud.

• The Shift to Cloud Subscription is Nearly Complete: Rubrik wasn’t born in the cloud. They originally got their start selling hardware that companies could use to back up their data. Rubrik then had to migrate to the cloud, where it now gets most of its revenue from software that “detects, analyzes, and remediates data security risks and unauthorized user activities,” according to its IPO prospectus. And the shift is nearly complete. The company still has roughly $100M in maintenance contracts (renewals on perpetual license contracts) and “Other” revenue (professional services) on it’s P&L. These two categories roughly halved year on year, but still show up. And not to go all Inception on you, but within what they classify as “Subscription ARR”, $524M of the $784M (67%) is “Cloud”, with the remainder of the Subscription revenue on prem.

• Show Me What dem Losses Do: Net Losses increased from $278M to $354M y/y. They did come a lot closer to green on the Free Cash Flow front, losing only $15M in 2023 and $25M in 2024. But, like, still…

“In fiscal 2023 and fiscal 2024, we incurred net losses of $(277.7) million and $(354.2) million, respectively. In fiscal 2023 and fiscal 2024, operating cash flow was $19.3 million and $(4.5) million, respectively, and free cash flow was $(15.0) million and $(24.5) million, respectively.” - Rubrik S1 Filing

Steve smell losses

• Got that Phat Pref: They’ve raised $1.2B to date. They had to go public.

• Plus, They Kinda Need the Cash: A bit of an apples to oranges comparison due to their business models and the sectors they play in, but it gets the point across - Reddit had over $800M in cash on it’s balance sheet at IPO. Rubrik is close to a quarter billion. While they’re hovering around cash flow positive (sort of), this is a lower cash balance than many of the IPOs we saw in the COVID era, who’s coffers were flush with cheap VC money.

• Riding the AI wave: Only mentioned the term “Artificial Intelligence” 10 times in their S1 filing! Didn’t have that on my bingo card.

Valuation, Investors, and Ownership

Valuation:

• Last Valuation: $4B

• Raised to Date: $1.2B

• Estimated Valuation at IPO: $7B to $9B

• Est. Raise: $500M to $700M

Notable Investors:

• Microsoft led their most recent round in 2021 at a $4B valuation

• Lightspeed Venture Partners (24%), Greylock Partners (12%) and Khosla Ventures are also shareholders

• CEO Bipul Sinha holds 7.6%; his other two cofounders also hold around ~7% each

  • Bipul started the company after stepping down as partner at investor Lightspeed

• Kevin Durant, also known by the moniker Easy Money Sniper, is an early angel investor

Durant to Bipul upon securing the bag at IPO

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Ticker

They’ve applied to be listed under the ticker RBRK on the NYSE.

Lockup

180 days…very classic. So expect employees to, in the words of rapper Benny the Butcher, “Flood the Block” in six months

Bankers

Goldman Sachs secured the coveted lead left position, entitling them to the highest economics, followed by Barclays, Citigroup and Wells Fargo & Co. Interesting that JP Morgan and Morgan Stanley got left out of the mix.

Source: Rubrik S1 Filing

Origin Story

“Cyberattacks are inevitable. Realizing that cyberattacks ultimately target data, we created Zero Trust Data Security to deliver cyber resilience so that organizations can secure their data across the cloud and recover from cyberattacks. We believe that the future of cybersecurity is data security—if your data is secure, your business is resilient.” -Rubrik S1 Filing

OK, a ~10 year history in less than 5 bullets…ready, go!

• Really smart guy (Bipul) leaves really powerful VC job (Lightspeed) to start Rubrik after investing in Nutanix, a data storage provider, and seeing the light

• They start doing this kinda hardware, kinda software backup thing, which is game changing when you consider the legacy players in the stodgy backup and recovery world

• They undergo a transition from the classic perpetual on prem license model to a cloud first, subscription based delivery mechanism (this was like a five or six year journey, BTW… not easy sledding)

• They start doing a bunch of cool cybersecurity stuff along the way, which expands their TAM, but also expands their competitor set

• MSFT writes a big fat check in 2021, as a strategic partner, bringing their valuation to $4B

Since then they’ve developed a product suite of the following:

• Data Protection

• Data Threat Analytics

• Data Security Posture

• Cyber Recovery

But it all started with just data protection.

And the company coined the phrase “Zero Trust Data Security.” Which makes me think of Call of Duty for some reason.

How they make money:

Source: Rubrik S1 Filing

They sell software through a traditionally expensive field + channel sales led, land & expand GTM motion.

“We utilize a land and expand approach, acquiring new customers and expanding with existing customers.

We sell our products through subscription editions and can land in four distinct ways by securing private cloud (which we refer to as enterprise), enterprise NAS⁽¹⁾ (which we refer to as unstructured data), cloud, and SaaS applications.

After the initial purchase, our customers often expand the adoption of our platform within their organization.” - Rubrik S1 Filing

Rubrik added more than 1,100 customer last fiscal year, taking them to more than 6,000.

For the year ended January 31, 2024, Rurik’s revenue can be disaggregated into three buckets:

• Subscription Revenue: $538M (86%)

  “Subscription ARR does not include any maintenance revenue associated with perpetual licenses, which we generally no longer offer. Of the 96% and 47% growth, approximately 17 percentage points and four percentage points of growth for fiscal 2023 and fiscal 2024, respectively, were a result of transitioning our existing maintenance customers to our subscription editions.” - Rubrik S1 Filing

• Maintenance Revenue: $39M (6%)

“Maintenance revenue associated with sales of perpetual licenses of our legacy CDM product decreased by $37.5 million, or 49%, in fiscal 2024 as compared to fiscal 2023” - Rubrik S1 Filing

This decrease is what you want to see as they port customers over to a cloud subscription model.

• Other Revenue: $51M (8%)

“Other revenue, which consists primarily of sales of perpetual licenses, Rubrik-branded Appliances, and professional services, decreased by $87.0 million, or 63%, in fiscal 2024 as compared to fiscal 2023.” - Rubrik S1 Filing

Appliance is a fancy word for hardware. And professional services revenue is one-time, and usually served at or below cost, which makes it not very attractive from a valuation standpoint.

Keep in mind - not all of their Subscription revenue is cloud. A small, but subtle distinction. Some of this is still on prem, as we previously mentioned, which means it lives with the customer, not up in the sky or whatever.

Where they make money:

For the year ended January 31, 2024, Rubrik’s revenue mix by geography, based on the billing address of the customer, was as follows:

• United States: $442M

• Europe: $162M

• Asia: $24M

69% of Rubrik’s revenue (nice) is generated from the United States, with the rest of the world contributing 31%. It’s kinda cool they broke it down into three buckets, as sometimes companies will just bucket everything outside of the US as “Rest of World”.

Expansion Opportunities

“Our business is indexed to business data growth. Our customers’ need for our solutions grows in lockstep with their business data growth and their need for additional data security capabilities.”

Expansion happens along three vectors:

1. The growth of data from applications already secured by Rubrik

2. New applications secured; and

3. Additional data security products.

“This expansion is driven by a natural flywheel effect in which the value of our platform increases as our customers’ data grows across various applications. As organizations manage more data with Rubrik, they gain deeper insights into their data, strengthen their overall security posture, and reduce compliance risk.”

And they’re right - their net dollar retention rate was above 130%, which is STELLAR for a software business.

DATA be BOOMIN!

Competitors

As Rubrik has grown their TAM, their competitor set has also expanded. Full disclosure - I used to work at Veeam, a backup and recovery vendor, many cups of coffee ago. And I remember undergoing the same perpetual & maintenance to cloud & subscription journey they’re almost done with.

After dominating Backup and Recovery, they’ve expanded into the Cybersecurity realm, competing against observability and threat detection vendors.

Competitors fall into the following categories:

• Classic Backup and Recovery Vendors, such as Dell-EMC, IBM, Commvault, Veeam, and Cohesity

• Cyber Security and Observability Vendors who provide cyber/ransomware detection and investigation, security posture management, insider threat detection, data classification, and other data security or data governance technologies (it’s like they didn’t want to say DataDog, lol)

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Key Metrics and Definitions:

As they’ve added more products, their net dollar retention rate has benefited. While it’s declined from a high of 150% in the last two years to 133%, it’s still world class.

And their land and expand motion within the midmarket and enterprise is paying off. Customers over $100K have more than doubled in the last two years. I even made a chart to show you.

Oh, and they have an 86 NPS!

Financials

Source: Rubrik S1 Filing

Gross Margin

They have an excellent gross margin, coming in at 82% 2024 for the subscription side of the biz.

Here are the costs associated with their revenue delivery:

• Hosting and web infrastructure

• Customer support

• Rubrik branded appliances (hardware for backup and recovery side of company)

OPEX

“Sales and marketing expenses increased by $65.0 million, or 16%, in fiscal 2024 as compared to fiscal 2023. Employee compensation and related expenses increased by $47.9 million due to increases in headcount. The remainder of the increase was primarily attributable to increased marketing and pipeline generation activities of $4.9 million, travel and entertainment related expenses of $2.5 million, and software and subscription services of $2.3 million.”

S&M makes up more than half their OPEX, and more than R&D and G&A combined. That’s what you get when you have a heavy field sales motion.

They are still very much investing in their R&D, though, which grew 2% faster than S&M in 2024.

“Research and development expenses increased by $31.5 million, or 18%, in fiscal 2024 as compared to fiscal 2023. Employee compensation and related expenses increased by $21.2 million due to increases in headcount as we continued to release new products and develop and enhance the functionalities of our existing products. The remainder of the increase was primarily attributable to an increase of $4.5 million in colocation and hosting fees in developing our new and existing products and an increase of $3.6 million of software and subscription services.”

Profitability

LOL

“We have experienced net losses in each period since inception. We generated net losses of $(277.7) million and $(354.2) million for fiscal 2023 and fiscal 2024, respectively. As of January 31, 2024, we had an accumulated deficit of $(1,682.5) million.”

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Miscellaneous Stuff of Note

• Stock based comp was actually pretty light, with only $6M in 2024. As a friendly refresher, this is a non cash expense (it shows up in the P&L, but doesn’t hit your bank account). I expected it to be higher for a company with over 3,000 employees.

• There will be a directed share program of some sort for friends of the company. It’s not sure who in particular this will target.

  • This is an opportunity for them to get some skin in the game and hold some coveted shares pre-pop

• There don’t look to be any crazy incentives for hitting a certain valuation mark etc. for the execs

What’s Next?

• Rubrik is expected to go public sometime in April of this year. Their execs are probably riding around in a jet as we speak, doing the two week roadshow where they hype up the company to prospective investors.

• Stock price yet to be announced, which will set the bar for their initial valuation

• I’m expecting some “fast followers”, especially a few with deeper operating losses who needed someone like Rubrik to break the ice

My Take

• While far from a beacon of profitability, Rubrik is legit AF. They have a product companies both need and want. That’s a killer combo. Plus, what they sell is relatively macro resilient. You don’t just stop backing up your data.

• They also benefit from data proliferation. Data is exploding, which makes the workloads they secure even larger, and their product more impactful.

• While this isn’t a “straight down the fairway” type of cybersecurity or subscription company, they have strong elements of both, and a loyal enterprise customer base.

• Factoring in all of the above, as long as you are long expensive field sales go to market motions and aren’t looking for FCF anytime soon, this is something to get excited about after a long winter.

Not investment advice. I write this while eating ice cream with my dog Walter in the Cullivers parking lot. Do your own homework.

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If you’re not sick of me yet

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I appeared on Maxio’s SaaS Expert Voice’s podcast with their CEO Randy Wooten. We discussed how Next-Gen CFOs are:

• Transcending the traditional “chief compliance officer” role to shape pricing, packaging, and monetization strategies in partnership with CROs and CEOs.

• Embracing the rapid technology advancements–especially AI and fintech–to help their finance teams make step-function improvements in their operational efficiency and ability to steer their companies towards sustainable growth.

• Integrating financial data with operational and product insights to inform the corporate strategy, resource allocation, and risk management.

Oh yea, and we talked METRICS. Ohhhh yea you know ya boy loves some metrics.

Quote I’ve Been Pondering

“In theory there is no difference between theory and practice; in practice there is.”

-Yogi Berra