Rubrik S-1 and IPO - A Growth and Profitability Metrics Review

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And I'm CAC, better known as Dave Kellogg, founder and CEO of Benchmarkit. No, that's you. Better known as Dave Kellogg, independent consultant, EIR at Balderson Capital, and the author of Kellogg.

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Yeah, there we go.

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Look, you wanted to be growth, Mr. Former Sales VP. And speaking of growth, we're covering the Rubrik S-1 today, are we not?

That is correct. But before we dig into that, let's hear a word from our presenting sponsor.

The Metrics Brothers is proudly sponsored by Benchmarkit, the B2B AI and software industry's largest, broadest, and most contextualized benchmarking index. Dave Kellogg and Ray Groth Wright have put the Metrics Brothers podcast on hiatus for remainder of 2026. All episodes we have ever recorded are still available on your favorite podcasting app. You can reach Dave at Kellogg and Ray on LinkedIn at Ray Reich. Thank you so much for listening to the Metrics Brothers podcast.

Okay, so before we dive in, since we are talking about an S-1, which is an IPO registration statement, and now a publicly traded company in Rubrik, I need to do a disclaimer. First, listen to our post-episode track both for our disclaimers and for a few good embedded jokes. And second reminder, explicitly, we do not give investment advice. If we did it, it'd probably be wrong, and this is provided for informational and educational purposes only.

Okay, so let's double-click right into Rubrik because honestly I knew of them but I didn't know the details of their company until they filed their S-1. So for those out there, it is— Rubrik is a cybersecurity vendor. They call their solution the Rubrik Security Cloud. Their founder, who's Bipal Sinha, was a former VC at Lightspeed Ventures. So I love to see it Here's someone that was a database developer at Oracle, became a VC for several years, and then founded his own company in 2014, which just went public. And if you want to know a little bit about Paul and his view, he wrote a great article on ransomware attacks on Forbes that I'd highly recommend people to read. So you want to go into the IPO a little bit and talk about what we saw during the S-1, Dave?

Sure. So a couple things. So, so one, before the company went public, it was looking to price in a range, uh, of $28 to $31 a share, about 6.5x next 12 months revenue, which is about average in our opinion for a company growing about 40%. Uh, in its first day of trading, it opened to $32, it closed at $37, so it was up 15.6%. A nice little pop. I think it's continued to rise after that. Uh, we're trading on the second day of trading here, or we're talking on the second day of trading here, so it's at $38 as we now speak. Personally, I'd call it a successful IPO, and that's actually a difficult concept to evaluate. But to me, a successful IPO is when it goes up, but not so much that you feel like the company left money on the table, right? And too much got made by people who bought at the IPO price and then flipped. So, but it goes up. So I think personally a 15 to 16% pop is a good successful IPO.

I agree. And by the way, their market cap as of right now is about $6.7 billion. So that's a nice IPO and it generated a lot of cash. But Dave, we both read this S-1 in detail. So why don't you just kind of provide the high-level takeaways that you got out of the S-1?

Okay, so we're gonna walk through these in order, but I'm just gonna do the preview right now. First, did somebody say scale? Did somebody say growth? Did somebody say NRR? Did somebody say net losses? VCs know how to spend money and for sure these guys did. But let's jump into scale. We'll alternate here, Ray. So this thing is big. It's the first IPO in a while. I guess the last one we talked about was, oh my gosh, who was it, Ray? Klaviyo.

Klaviyo, yes.

So it's been a bit since that one. And this thing is $784 million in ARR, which is pretty massive. Ray, do you want to talk about growth?

Yeah, I do. But I do want to highlight something because, and we're going to talk more about this, but this is a company that went through a transformation from an on-prem hardware plus software to cloud. So when you look at their ARR number, one of the things I think it's important to know is about 2/3 of that is true cloud where they're hosting it in the cloud for their clients. But a third of their ARR is subscription revenue, but for their on-prem model. So I think it's pretty important to know.

Yeah, it always makes it tricky to analyze the financials of these companies in transition. I haven't seen one in a while, right? Because this is pretty common In the public markets a few years ago, I can't remember who was it, Progress? It wasn't Progress. I can't remember. There's one company I was tracking that was in the middle of a kind of long multi-year transition and it makes the metrics hard to understand, but I'll do growth. So this thing is at scale, $784 million in ARR, is growing at 47%. So growth really at scale. And then did somebody say NRR? 133%.

Yeah, 133%, but it is down from 150% in October kind of in '22. But what we don't know is why. Was that because they were including maintenance renewals as NRR back in the day? We just don't know that. So it's one of those issues. NRR is not a GAAP metric, so we don't know exactly how they're calculating that, Dave.

So it's down though, just to be clear, it's down from legend to epic. I don't know which one of those is better, but, you know, the last median I think we saw for public company NRR was what, Ray? I think it was down to about 111 if my memory serves.

That's a pretty good memory. It's 111% at median for public cloud companies. But Dave, I know this was an area that you spent a lot of time on, and that is, did someone say net losses and cash burn? What's the details behind that?

Yeah, probably the figure that struck me the most in this whole, how long is it, 248-page S-1 was negative $354 million in net income, i.e., $354 million in net losses in fiscal '24. But an accumulated deficit, so that's the sum of either all earnings or all losses from inception, of $1.68 billion. So is this thing a blast from the GAC growth at all costs past, right? Um, that those numbers are really kind of caught me like, wow.

But you actually said something here that it's, um, it's not just cash burn. There seems to be a lot of non-cash expenses you identified also. Which resulted in a free cash flow of only negative $25 million. So even though they spent a hell of a lot of money, their free cash flow doesn't look as bad as their losses.

Yeah, it's burning something. Uh, it does not appear to be cash or free cash flow. We're going to do a reconciliation at the end of the post. But that was the second thing that grabbed me, was how do you lose $354 million in a fiscal year and have free cash flow of only $25 million? That, that's a $300-something million gap, a $320-something million gap. So we're going to talk about that at the end of the episode. But before we do that, let's do the easier metric, which is cash conversion score. This is kind of a second-tier SaaS metric. I still like it. Bessemer invented it. And, and what it says is basically what's the ratio between how much ARR you have and how much cash you've consumed from inception. So to do a back of the envelope on this, I'm not sure it's 100% correct. They've raised $1.2 billion. They've got $280 million in cash on the books. They have debt of $280 million. So that implies they've burned from inception $1.2 billion to generate $784 million in ARR, which means their cash conversion score is 0.65. Meaning they kind of, I think of these Bessemer, I call 'em upside down metrics as extraction ratios. So they extract 65 cents of ARR from every dollar consumed. I prefer to flip these things over and say, what's 1 divided by 0.65? And say, hey, they've burned $1.50 to get $1 of ARR from inception. It's the exact same ratio, just upside down. And this is squarely in the path. That CCS of 0.65 is squarely in the middle bucket of Bessemer's better bucket. They have with the metric kind of good, better, best. And good is 0.25 to 0.5, better is 0.5 to 1.0, and best is greater than 1.0. So they're not a best on cash conversion score. They're kind of dead center of better, in fact.

So did you draw a conclusion from this, Dave?

Yeah, I mean, I think if you look at the Bessemer analysis, and provided I did the calculation correctly, it says they're pretty cash efficient, which for someone who's raised $1.2 billion and spent it, um, they're pretty cash efficient, believe it or not. They're just playing at the high-stakes table. Like, this is not the main casino floor in Vegas. This is that back room behind the back room with all the high-stakes players. So they're playing the same game of poker They're just playing it with a lot more money.

Now, for those listeners out there who haven't read the S-1 because they actually have a life, Dave, unlike me and maybe you, but let's kind of revisit their last 12 months of financials. And I think it's important to know that in their S-1, their year ended on January 31st, 2024. So this was through January 31st, 2024. GAAP revenue. GAAP revenue was $628 million, which only grew 5% for that fiscal year. Now, that's in contrast, Dave, to $784 million of ARR at the end of 2023. But ARR grew at 47% year over year. So it really highlights that this is a company that's in transformation. From large upfront perpetual license recognized upfront, generating cash from that versus ARR, which is recognized proratably over the term of the agreement. So I think that's an important fine point to highlight here.

Yeah, I'm so SaaS metrics oriented that I immediately just leapt in at the ARR number and hadn't noticed the only 5% revenue growth. So good point for you to explain what's going on there. The ARR growth is impressive. The revenue growth is not. But that's because we've got really 2 businesses here in a transition. from this on-prem and even I think they sell appliances at one point model into a pure SaaS model.

You're right. They sold a lot of hardware upfront. So, but what is impressive, Dave, to me is the growth of their ARR once they started this conversion. So back 2 years ago, April 30th, 2022, only 59% of their total revenue was from subscriptions. Now, at the end of January 31st, 2024, 91% of their revenue came from subscriptions and only 4% from maintenance. So they've done a hell of a job of transforming this business to a subscription business.

They have indeed. What else have you seen there, Ray? Did you study the P&L structure at all?

I did. And even though we, you know, we want to celebrate the amazing success they've had in transforming, It's come at a cost. So if you look at their last 12 months sales and marketing expenses, Dave, it's almost 77% of revenue. And that grew from 70% last year. So they're spending a heck of a lot of money on sales and marketing to make this growth and transformation to subscriptions happen.

Yeah, that's a good point. Look, it didn't surprise me given that they're at the high stakes table. The other thing that's going on is if you looked at that sales and marketing expense as a percent of ARR, that number's gonna go way down. And I know most SaaS metrics are calculated on a percent of revenue, but that is kind of silently assuming that the business is 100% recurring revenue. In this case, it's not. So, uh, this might be a case where I know you'd feel better if we did that as a percent of ARR because the number should drop. I don't know, I think it'll drop close to, uh, a little more than 50%.

Yeah, and what I did— I must admit, I didn't actually do that. I did want to highlight though that if you add up their R&D and G&A, percent of revenue together, it only comes up to about 48%. So they're spending like 80% more on S&M, sales and marketing, than they are in R&D plus G&A. But our mutual friend David Spitz, right, he came out about 5 months ago with this new metric, which was looking at sales and marketing percent of net new ARR. And net new ARR, right?

It's a dressed-up CAC, Ray. I got to be honest with you. This is, this is old wine in a new bottle. He's basically called It's very similar to a CAC ratio based on— it is a CAC ratio based on net new ARR, but expressed as a percent instead of a multiple. But I won't tell anyone that because I like David and he's getting some good traction with this. But if anyone's getting confused, it's a great metric. He's just presenting it as a percent, not a multiple, and he's doing it off net new, not new ARR.

Yeah, and that's key. It's net new, so it does include downsales and churn, right?

Yeah, so it's going to mean the numbers are higher, right? Because you're kind of squishing the denominator.

But if you take sales and marketing investment, divide it by net new ARR growth, they're at 169%, right? And if I want to do that as, you know, net new CAC ratio, it'd be $1.69 of S&Ms sales and marketing costs to get $1 of ARR growth.

Yeah.

However, if you look at the benchmarks for public SaaS companies in 2023, for the cohort of companies between $500 million and $1 billion of ARR, that number was 246% at median. So at 169% of the sales and marketing investment to net new ARR growth, they're much more efficient than the median in industry, which blew me away, Dave.

Yeah, this is what I'm trying to say. The, the losses and the numbers are staggering, but it's just because, in my opinion, because they're playing at the high stakes table. They're doing everything big, so the dollar values are high. Even the percent of sales analysis side because we're looking at sales on revenue, not ARR. But, but when you look at the efficiency metrics like this one, um, the 169 is, is quite a bit better than the average, uh, for their size range. So, so it strikes me as a pretty efficient company, um, if you believe David's math, which I do.

Well, you may view this as an efficient company, but if you look at it from a net loss and free cash flow, I think you were like, that really I don't know if it surprised you, but you did a lot of research and modeling of that. You wanna talk a little bit more about that in detail?

Sure, Ray. As I mentioned, this negative, this $354 million net loss in FY24 is kind of hard to ignore. And then as we mentioned, you have this free cash flow of only negative $25 million. So the question is, what's in this $329 million gap between net loss and free cash flow? So I did a little reconciliation. I'm gonna walk you through it so people understand how you get from negative $354 million in net loss to negative $25 million in free cash flow. And here's how you do it. First, you add back the amortization of deferred commissions, right? Because in GAAP you need to defer commissions. So, um, to do cash flow, you're going to add them back. So the amortization of deferred commissions, because basically that was a cash expense in some prior period. So you add it back because it was not a cash expense in this period. Depreciation and amortization gets added back when you're moving from GAAP to cash flow. Non-cash interest gets back. It's a non-cash expense. Stock-based compensation gets added back. By the way, theirs is only $5.7 million. Not sure what's going on there, but not a ton of stock-based comp expense. And then you have this massive line called net cash inflow from operating assets and liabilities, $234 million about positive. That we're going to add back. That comes from $299.8, so almost $300 million in deferred revenues, i.e., things you got paid cash now for that you have to deliver later. So I'm guessing that most of this is multi-year prepaid deals. I think it could be 1-year prepays because they would go into short-term versus long-term deferred revenue. So I'm not sure which flavor it is. Let's consider deferred revenue since it's not labeled to be both. So this is basically unearned revenue or revenue you've been paid for that you haven't— you Still need to deliver, but you got the cash up front. $22 million in accrued expenses, $17 and change in accounts receivable, pretty standard item. And then $107 million in deferred commissions, i.e., you spent that money now, but they got capitalized and will be amortized in the future. So it's kind of the opposite of the first entry. Then you take all of that and add net cash used in operating activities, $4.5 million. You then take out PP&E purchase, $12 million, and you Take out capitalized internally used software, $7.7 million. And if you add that whole stack of numbers up, it says that free cash flow, which is a non-GAAP financial measure as defined by them, kind of via this reconciliation, is only $24 million. And, and the big, big items in there in my mind were the deferred revenues. Most of it is deferred revenue. The, the commissions amortization and deferral Almost offset each other. There's a $20 million gap in there, but, but, but wow. Um, so that's how you do it. That's how you move from this massive loss to this reasonably small free cash flow margin, negative free cash flow margin.

And by the way, having almost $300 million in deferred revenue is not a bad thing from a future, um, income statement perspective because that's going to get recognized.

Yeah, yeah. I mean, the only issue is it is a liability because you have to deliver it, But in my mind, I'll take deferred revenue any day because you get the cash now. And yes, you have guaranteed revenue later, and the only hook is you have to deliver it. And I can't remember what their gross margins are, but if they have typical SaaS gross margins, to get that deferred revenue, it's going to cost them $60 million. There'll be a 20% COGS on average. So, it's going to cost $60 million to get that, but they will get it.

In fact, if you look at their subscription revenue gross margin, it's actually a little bit north of 80%. So, you're exactly right.

Perfect.

Thanks for, uh, knowing that number.

Need to cover one last thing, and I know that it's something that jumped out at you, and I'm not sure if you're a fan or not. I think I know you well enough, but let's talk about their 2-tier stock structure because I think that's very interesting.

Yeah, so whenever founders and management teams have a lot of power for whatever reason, uh, they are able to and increasingly do, wouldn't say, yeah, I'd say increasingly, this 2-tier common stock structure. So as you know, in an IPO, all the preferred stock held by the VCs converts into common, and all the common stock held by employees stays common. But in this particular case, they've taken a small group of insiders and said they're gonna have 2 types of common, Class A and Class B. And in the euphemism department, the Class B is the one with all the power, which you think it'd be the other way around, right? So the second-tier citizens are actually the Class A common stock holders. stockholders. Um, but, but those stocks are— and I read from the IPO— identical except with respect to voting, conversion, and transfer rights. Each share of Class A common stock is entitled to 1 vote. Each share of Class B common stock is entitled to 20 votes and is convertible at any time into 1 share of Class A. So if you're holding Class B stock here, you have 20x the voting power of Class A, which basically means the Class B shareholders control the company Whenever it comes to matters requiring a vote. So I think there should be some kind of discount on a company's stock for this. It's not the same as having normal corporate governance. Some might argue there's a premium on it. Like, I guess we don't need to worry about activist shareholders or other such nuisances, but we don't have to worry about corporate governance either, because whoever controls the Class B stock can vote for who's on the board and vote for who's CEO, et cetera. So Whether you like it or not is one thing. I tend not to like it because it really throws out all of what we know as corporate governance and just says, you know what, corporate governance, schmovernance, the Class B shareholders control this. Now, if you have an amazing group of Class B shareholders driving this thing, maybe you feel better that way than having people from mutual funds and independent directors and not affiliated directors running the thing. But in any case, I just like to highlight this. A lot of companies have done it. Certainly Facebook did it, MicroStrategy did it, and that's a negative case study in my mind. But a lot of companies have this today, and it's always a pattern when the founders have a lot of power and a lot of savvy. And people don't talk about it enough because this is not the same as other companies where all the stock is, you know, all the equivalent of their Class A common.

Now, I still remember, I think the SEC actually was going to weigh in on this because of Facebook, but it sounds like they've kind of just dropped it for the last few years. I'm shocked at that.

I really am.

Yeah, I don't recall hearing that. And I guess, you know, hey, part of the beauty of the free market is you can buy this stock or not. I do think somehow people should understand that if you're buying Class A common stock, which sounds pretty good, that there's this thing called Class B that has 20 votes for every share you have. But, you know, it is what it is. It happens from time to time. I personally don't particularly like it because I believe in governance. I think the counterargument is it protects the company from activist investors. I think I'm not even sure about that. But, you know, I guess who was it? Jeff Lawson got bounced from Twilio by activists. I don't know if he had this 2-tier structure or if he wanted it. And in the lighter department, I don't know if you saw, but he bought The Onion yesterday. So Jeff Bezos 20 years ago or whatever buys The Washington Post and then Lawson buys The Onion, which is pretty funny.

And he's asking for $1 pledges to reinvent The Onion, if I'm not mistaken.

Yeah, I saw that too. That was pretty funny.

I thought I'd give $2 because I'm a big spender. Anyhow, Dave, I think we got to wrap up. We've hit our, our time limit. Anything you want to say as a summary to the, um, Rubrik IPO?

Uh, no, I just think it's a, it's a great example of kind of playing, I don't know, the new game with old numbers. So they raised enormous amounts of capital, but it actually appears to be a reasonably efficient company. Um, and, uh, you know, congratulations to them.

I'm really looking forward to tracking this over the next 12 months because I want to see if they can maintain that 47% year-over-year ARR growth, because if they can, I think the valuation multiples are going to change dramatically. Dave, thank you as always. I really had fun with this one.

Thank you, guys. This is not investment advice despite Ray's enthusiasm for the stock as expressed in the last comment.

Thank you. And stick around and listen to the next 1 minute of disclaimers because they are both valid but also entertaining. Bye-bye, everyone.

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