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Rubrik is transforming into a SaaS company
Rubric, Inc. (RBRK) has filed to raise $100 million in an initial public offering of its Class A common stock, according to an SEC S-1 registration statement.
Rubrik helps companies protect their data the company's cloud platform and software.
While RBRK is making significant progress toward becoming a SaaS subscription company, such transitions can take time, and the company's revenue growth has been muted and has experienced large operating losses.
I will provide an update as soon as we learn more details about the IPO.
What does Rubrik do?
Rubrik, Inc., based in Palo Alto, California, was founded to provide a range of data security technologies to companies worldwide.
Management is led by Co-Founder, Chairman and CEO Mr. Bipul Sinha, who has been with the company since January 2014 and was previously a partner at Lightspeed Venture Partners and a board member Member of Nutanix.
The Company's core offerings include:
-
data protection
-
Data threat analysis
-
Data security situation
-
Cyber recovery
As of January 31, 2024, Rubrik has booked $980 million in market-rate investment from investors including Lightspeed, Greylock Partners and various individuals.
The Company generally markets its Cloud Platform capabilities to medium and large enterprises through a direct sales and marketing team in the United States and follows a “land and expand” strategy to grow its business with each customer.
As of January 31, 2024, the company had over 6,100 customers from around the world.
The share of sales and marketing costs in total sales has increased as revenues have increased, as the following figures show:
|
Sales and Marketing |
Expenses vs. Income |
|
Period |
percentage |
|
FYE January 31, 2024 |
76.8% |
|
FYE January 31, 2023 |
69.6% |
click to enlarge
(Source – SEC)
The sales and marketing efficiency multiple, defined as the amount of additional new revenue generated by each dollar of sales and marketing spend, was just 0.1x in the most recent reporting period. (Source – SEC)
The Rule of 40 is a software industry rule of thumb that states that as long as the combined revenue growth rate and EBITDA percentage are at least 40%, the company is on an acceptable growth/EBITDA trajectory.
RBRK's last calculation was negative (44%) as of January 31, 2024, so the company performed poorly in this regard, according to the table below:
|
Rule of 40 |
calculation |
|
Recent Sales Growth % |
5% |
|
Operating margin |
-49% |
|
In total |
-44% |
click to enlarge
(Source – SEC)
The company's dollar-based net revenue retention rate for its subscription customers was 133%, a strong result, but that is based only on the subscription customer base and does not include the legacy base of perpetual licenses that the company plans to transition to a subscription.
What is Rubrik's market?
According to a 2023 market research report from Grand View Research, the global data-centric security market was estimated to be $4.3 billion in 2022 and is expected to reach $24 billion by 2030.
This represents a forecast CAGR (Compound Annual Growth Rate) of 24.2% from 2023 to 2030, a very strong expected growth rate.
The main drivers of this expected growth are the continued migration of local computing technologies to the cloud and increasing cyber threats to cloud systems.
Additionally, the following chart shows the historical and expected future growth trajectory of the US data-centric security market from 2020 to 2030:
Grand View Research
Key competitors or other industry participants include:
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Commvault
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Dell EMC
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IBM
-
Veeam
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cohesion
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Other
Current financial results of Rubrik
The company's recent financial results can be summarized as follows:
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Slowly growing sales
-
Increase in gross profit and gross margin
-
High operating losses
-
A shift to cash used in operations
Below are relevant financial results derived from the Company's registration statement:
|
Total sales |
||
|
Period |
Total sales |
% Variance vs. Previous |
|
FYE January 31, 2024 |
$627,892,000 |
4.7% |
|
FYE January 31, 2023 |
$599,819,000 |
|
|
Gross profit (loss) |
||
|
Period |
Gross profit (loss) |
% Variance vs. Previous |
|
FYE January 31, 2024 |
$482,930,000 |
15.6% |
|
FYE January 31, 2023 |
$417,805,000 |
|
|
Gross margin |
||
|
Period |
Gross margin |
% Variance vs. Before |
|
FYE January 31, 2024 |
76.91% |
10.4% |
|
FYE January 31, 2023 |
69.66% |
|
|
Operating profit (loss) |
||
|
Period |
Operating profit (loss) |
Operating margin |
|
FYE January 31, 2024 |
$(306,506,000) |
-48.8% |
|
FYE January 31, 2023 |
$(261,548,000) |
-43.6% |
|
Total income (loss) |
||
|
Period |
Total income (loss) |
Net margin |
|
FYE January 31, 2024 |
$(355,096,000) |
-56.6% |
|
FYE January 31, 2023 |
$(278,959,000) |
-46.5% |
|
Cash flow from operating business |
||
|
Period |
Cash flow from operating business |
|
|
FYE January 31, 2024 |
$(4,518,000) |
|
|
FYE January 31, 2023 |
$19,287,000 |
|
|
(Glossary of terms) |
click to enlarge
(Source – SEC)
As of January 31, 2024, Rubrik had $279 million in cash and $1.6 billion in total liabilities.
Free cash flow was negative ($16.9 million) for the twelve months ended January 31, 2024.
IPO information from Rubrik
Rubrik intends to raise gross proceeds of $100 million through an initial public offering of its Class A common stock, although the final figure may be higher.
There are no existing shareholders who have expressed interest in purchasing shares at the IPO price.
Class A shareholders (public investors) are entitled to one vote per share and Class B shareholders are entitled to 20 votes per share.
Management says it will use the net proceeds from the IPO as follows:
We intend to use the net proceeds we receive from this offering, together with existing cash, cash equivalents and short-term investments as necessary, to satisfy all of our anticipated tax withholding and remittance obligations in connection with the settlement of certain outstanding RSUs. Net billing and the additional RSU net billing.
We intend to use the remaining net proceeds received from this offering for general corporate purposes, including working capital, operating expenses and capital expenditures. We cannot indicate with certainty all of the specific uses for the remaining net proceeds from this offering. We may also use a portion of the remaining net proceeds to acquire or strategically invest in complementary businesses, products, services or technologies. However, there are currently no agreements or commitments to make significant acquisitions or investments.
(Source – SEC)
Management's presentation on the company's roadshow is not available at press time.
With respect to pending litigation, management stated that the Company is not involved in any litigation that it believes would have a material adverse effect on its operations or financial condition.
The IPO's listed bookrunners are Goldman Sachs, Barclays, Citigroup, Wells Fargo Securities, Guggenheim Securities, Mizuho, Truist Securities, BMO Capital Markets, Deutsche Bank Securities, KeyBanc Capital Markets, Cantor, CIBC Capital Markets, Capital One Securities and Wedbush Securities and SMBC Nikko.
Summary and comments on Rubrik's IPO
RBRK is seeking public capital market investments in the US to fund its growth plans and working capital needs.
The company's financials have resulted in slightly increasing total revenue, higher gross profit and margin, very high and increasing operating losses, and a shift to cash flow in operations.
Free cash flow for the twelve months ended January 31, 2024 was negative ($16.9 million).
The share of sales and marketing costs in total sales increased as revenue increased slightly; The sales and marketing efficiency multiplier was only 0.1 times in the last financial year.
The Company currently plans not to pay dividends and to retain future profits to reinvest into the Company's growth and working capital needs.
RBRK's recent investment results indicate that the company has continued to invest in capital expenditures despite negative operating cash flow.
The company's “Rule of 40” results were poor, as slow-growing revenue and large operating losses contributed to a negative reading of this metric.
The market opportunity for providing data security cloud services is large and is expected to grow significantly in the coming years.
Among the risks to Rubrik's prospects as a public company is the time it will take to substantially complete the migration of its legacy customers to its cloud platform. Management forecasts that this migration will be completed at least in fiscal year 2026.
Other companies of this type have attempted to make this transition and their growth trajectory has suffered as a result of the transition process.
The Company's subscription business contribution margin was most recently negative (12%) for the fiscal year ended January 31, 2024, compared to negative (117%) for fiscal 2022, a significant improvement that reflects significant progress in achieving operating leverage in the year Subscription segment in the coming years indicates years.
Valuation in the IPO will be critical, and management will likely try to promote the “narrative” that the company is successfully transitioning to a fully cloud-based SaaS company.
Once we learn Rubrik's pricing and valuation assumptions, I will provide a final opinion.
Expected IPO pricing date: To be announced.
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