The Offer

Company Overview

Rubrik Inc aims to protect global data with its Zero Trust Data Security approach, recognizing the inevitability of cyberattacks targeting data. The Rubrik Security Cloud (RSC) is developed with Zero Trust principles to secure data across enterprise, cloud, and SaaS applications, facilitating the detection, analysis, and remediation of data security risks and unauthorized user activities. The company's transition from Converged Data Management to Cloud Data Management (CDM) and finally to RSC reflects its dedication to innovation and customer-focused solutions. By shifting to subscription-based offerings, Rubrik prioritizes recurring revenue streams, with RSC becoming the primary revenue contributor. Revenue recognition is aligned with subscription terms, with the majority of sales structured as three-year terms with upfront payment. Rubrik continues to innovate its security product portfolio, introducing solutions like Threat Hunting, Threat Containment, and Cyber Recovery, to address evolving cybersecurity challenges and meet customer needs.

Key Highlights

Primary Offering:

RBRK anticipates issuing 23,000,000 shares (or 26,450,000 shares, assuming the underwriters’ option to purchase additional shares of Class A common stock is exercised in full), with expected net proceeds totaling approximately USD632.6 million (or approximately USD729.3 million if the underwriters’ option to purchase additional shares is exercised in full), assuming an initial public offering price of USD29.50 per share, representing the midpoint of the estimated price range.

Use of proceeds:

The anticipated proceeds from the offering by the company, estimated at around USD632.6 million (or approximately USD729.3 million if the underwriters’ option to purchase additional shares is fully exercised), are predicated on an assumed initial public offering price of USD29.50 per share, the midpoint of the price range specified in the prospectus. These proceeds, after deducting underwriting discounts, commissions, and estimated offering expenses, will primarily serve to bolster the company's capitalization, enhance financial flexibility, and establish a public market for its Class A common stock. USD 379.8 million of these proceeds is earmarked for the full repayment of the Bridge Notes, including accrued interest and estimated debt issuance costs, with the remaining funds intended to satisfy anticipated tax withholding and remittance obligations related to the RSU Net Settlement.

Following the termination of the Bridge Notes upon full repayment, the company will have broad discretion over the utilization of the remaining net proceeds, which are intended for general corporate purposes, including working capital, operating expenses, and capital expenditures. While specific allocations for these funds have yet to be determined, potential avenues include acquisitions or strategic investments in complementary businesses, products, services, or technologies. Notably, the company retains the flexibility to invest the unallocated funds in investment-grade, interest-bearing instruments until they are utilized for the purposes. The precise utilization of these net proceeds remains subject to the company's discretion, with no definitive agreements or commitments in place for specific uses currently.

Dividend policy:

Rubrik Inc has never issued cash dividends on its capital stock and currently plans to retain all available funds and future earnings for the development and expansion of its business. Consequently, the company does not foresee paying any cash dividends in the foreseeable future. Any decisions regarding the declaration and payment of dividends will be made by its board of directors based on various factors, including financial condition, operational results, contractual obligations, capital needs, and business outlook. Furthermore, the company's ability to distribute dividends may be constrained by restrictions on its Amended Credit Facility and any future agreements it may enter into.

Industry Opportunity & Fortification of Data Resilience in the Digital Frontier:

• Navigating the Data Deluge: The Imperative of Comprehensive Cybersecurity: In today's digital paradigm, data emerges as the linchpin of organizational vitality, underscoring the criticality of robust cybersecurity strategies amidst accelerated digitization. The proliferation of data across enterprise, cloud, and Software-as-a-Service (SaaS) platforms amplifies the risk landscape, presenting a formidable challenge to data security and privacy. Projections by IDC paint a vivid picture of this data explosion, forecasting an exponential growth trajectory from 129 zettabytes in 2023 to a staggering 291 zettabytes by 2027, propelled by a robust compound annual growth rate of 22.5%. Furthermore, the advent of generative AI technologies promises to compound this data proliferation, further complicating the cybersecurity landscape. Despite the global enactment of data protection and privacy legislation, as evidenced by the initiatives of 137 out of 194 countries reported by the United Nations Conference on Trade and Development, the escalating frequency of cyberattacks, highlighted by Cybersecurity Ventures, underscores the urgent need for organizations to adopt a comprehensive cybersecurity posture to safeguard their invaluable data assets. As the relentless pace and sophistication of cyber threats persist, organizations must embrace proactive measures to fortify their data defenses, ensuring resilience in the face of an ever-evolving threat landscape.
• Evolving Data Security Challenges in the Digital Landscape: The exponential growth of data, fueled by accelerated digitization and cloud adoption, has transformed the cybersecurity landscape, exposing organizations to a myriad of threats. Despite advancements in Zero Trust security models, organizations struggle to safeguard their most valuable asset—data. The proliferation of generative AI technologies introduces additional complexities, posing new data security, privacy, and compliance risks. As cyberattacks become more frequent and sophisticated, organizations face an urgent need to revamp their cybersecurity strategies to ensure business resilience in the face of evolving threats.
• The Imperative for Data-Centric Cybersecurity Solutions: To address the escalating data security challenges, organizations must adopt a data-centric cybersecurity approach that prioritizes the protection of data assets across the enterprise. As the value and volume of data continue to soar, traditional infrastructure-centric security measures fall short in mitigating risks effectively. With the emergence of generative AI technologies, organizations face heightened vulnerabilities, necessitating robust data security solutions that proactively identify and remediate risks while upholding data integrity. Furthermore, the evolving regulatory landscape adds complexity, requiring organizations to navigate stringent compliance mandates to avoid costly penalties and reputational damage.
• Charting a Path Towards Enhanced Data Resilience: In response to the evolving threat landscape, organizations must prioritize the implementation of comprehensive data security strategies that transcend traditional infrastructure-focused approaches. By leveraging innovative data-centric cybersecurity solutions, organizations can fortify their defenses against cyber threats while ensuring continuous compliance with evolving regulatory requirements. The convergence of accelerated digitization, cloud adoption, and AI progress underscores the critical imperative for organizations to embrace a holistic approach to data security, thereby safeguarding their most asset and ensuring uninterrupted business operations in an increasingly volatile digital environment. 

Financial Highlights (Results of Operations) (Expressed in USD):

• Driving Subscription Growth and Transitioning Legacy Revenue Streams: RBRK experienced a notable increase in subscription revenue of USD 152.6 million, marking a 40% surge in fiscal 2024 compared to fiscal 2023, with approximately 41% attributed to sales to new customers. Subscription ARR also saw a significant uptick, rising from USD 532.9 million to USD 784.0 million, reflecting a 47% increase, largely fueled by transitioning existing maintenance customers to subscription editions. However, maintenance revenue associated with perpetual licenses of RBRK's legacy CDM product declined by USD 37.5 million, while other revenue, including perpetual license sales and professional services, decreased by USD 87.0 million in fiscal 2024 compared to fiscal 2023, aligning with RBRK's strategic shift towards subscription-based models.
• Surging Subscription ARR Growth: RBRK's Subscription ARR witnessed remarkable growth, soaring from USD 532.93 million in January 2023 to USD 784.03 million in January 2024, reflecting a remarkable 47% increase. Notably, this surge excludes any maintenance revenue associated with perpetual licenses, aligning with RBRK's strategic shift away from perpetual licenses towards subscription editions. Approximately 17 percentage points and four percentage points of the growth for fiscal 2023 and fiscal 2024, respectively, were attributed to transitioning existing maintenance customers to subscription models, underscoring RBRK's successful customer retention strategy.
• Cloud ARR Expansion: RBRK's Cloud ARR experienced substantial expansion, skyrocketing from USD 239.19 million in January 2023 to USD 524.76 million in January 2024, representing an impressive 119% growth. This surge underscores RBRK's increasing focus on cloud-based solutions and its ability to capitalize on the growing demand for cloud services. The substantial growth in Cloud ARR highlights RBRK's traction in capturing market share and meeting evolving customer needs in the cloud computing landscape.
• Robust Customer Growth and Retention: RBRK's customer base exhibited robust growth and retention, with the number of customers generating USD 100,000 or more in Subscription ARR increasing from 1,204 in January 2023 to 1,742 in January 2024, marking a 45% rise. Moreover, RBRK's Average Subscription Dollar-Based Net Retention Rate remained strong at 133% in January 2024, reflecting its ability to expand revenue from existing customers. The consistent growth in customer numbers and retention rates underscores RBRK's effective customer acquisition and retention strategies, positioning it for continued success in the subscription-based model landscape.

Key Management Highlights

Risk Associated (High)

Investment in the IPO of “RBRK” is exposed to a variety of risks such as:

Market Volatility in Data Security Solutions: RBRK faces the risk of market instability within the data security solutions sector, which could impede its growth and financial performance. The unpredictability of this market, coupled with the evolving nature of cybersecurity threats, presents challenges in forecasting market growth, customer adoption rates, and demand for data security platforms. Factors such as customer acceptance, technological advancements, competitive pressures, and economic conditions significantly influence market dynamics and could lead to reduced customer retention, early terminations, or decreased revenue, thereby adversely affecting RBRK's business and financial results.

Limited Operating History and Revenue Forecasting Challenges: RBRK's limited operating history, particularly concerning its RSC offering, poses uncertainties in accurately forecasting future financial performance. With historical revenue growth not necessarily indicative of future trends, the transition from perpetual licenses to SaaS subscriptions further complicates revenue recognition and forecasting. Customer migration initiatives, though essential for transitioning to a SaaS model, could lead to dissatisfaction or delays, impacting revenue growth rates. Fluctuations in revenue growth, coupled with increased compliance costs and challenges in scaling operations, may hinder RBRK's ability to achieve profitability and sustain financial stability.

Customer Acquisition and Retention Challenges: The acquisition and retention of customers represent critical challenges for RBRK, particularly in persuading organizations to invest in its data security solutions amid evolving market conditions. Economic downturns, decreased cybersecurity spending, or declining cyberattack incidences could deter organizations from adopting RBRK's solutions, affecting revenue generation. Moreover, difficulties in convincing legacy product users to transition to RBRK's offerings or disruptions in customer relationships during migration initiatives could result in customer dissatisfaction or loss, impacting RBRK's financial performance and market competitiveness. Additionally, uncertainties surrounding customer renewals, subscription expansions, or shifts in purchasing behavior further compound the risk of revenue decline and hinder RBRK's growth prospects.

Conclusion

Rubrik aims to revolutionize data security through its Zero Trust Data Security approach, offering the Rubrik Security Cloud (RSC) designed to protect data across various platforms. With a transition towards subscription-based offerings, Rubrik emphasizes recurring revenue streams, showcasing growth potential. The IPO, expected to yield around USD 632.6 million in net proceeds, aims to enhance financial flexibility and establish a public market for its Class A common stock. While Rubrik demonstrates promising subscription growth and customer retention rates, investors should remain mindful of potential risks, including market volatility within the data security sector, forecasting challenges due to limited operating history, and customer acquisition and retention hurdles. Despite Rubrik's innovative solutions and strategic shifts, uncertainties surrounding revenue forecasting and market acceptance pose inherent risks that investors should carefully evaluate before considering subscription to the IPO.

Hence, given the financial performance of the company, market opportunity of RBRK, use of proceeds, and associated risks “Rubrik Inc (RBRK)” IPO seems “Neutral" at the IPO price.