Company Overview
OneStream, a leader in cloud-based financial operations software based in Birmingham, MI, filed for an IPO. It is the second high-growth software company to file this year behind Rubrik. OneStream plans to trade on the Nasdaq under the ticker “OS.” Morgan Stanley is the lead banker on the offering, and OneStream should trade within the next few weeks. OneStream was founded in 2010 and focuses on the “Office of the CFO” with a multi-product platform for the finance team. As of their most recent quarter (ending March 31st, 2024), the company was at $480M of ARR (annual recurring revenue) growing 34% year-over-year with 1,423 customers. The company is definitely on the “smaller side” of software IPOs in terms of top line and their performance in the public markets will be closely watched by other private software companies. OneStream’s mission is to be the operating system for modern finance by ”unifying core financial functions and empowering the CFO to become a critical driver of business strategy and execution.” With increased pressure on CFOs and finance teams and evolving regulatory and financial reporting requirements, CFOs and their teams are being asked to do more and at a faster rate to guide business decisions and outcomes. Additionally, with the increase in the amount of data finance teams utilize across a business, there is a need for a single platform that reduces the complexity of financial operations and helps unify data (i.e. many integrations) across the corporate performance management processes, including planning, financial close, consolidation, reporting, compliance, and analytics. OneStream’s product is also now “AI-enabled” with the purchase of a small start-up called DataSense this year. The OneStream platform has many modules and a robust developer and partner ecosystem (more in the product section).
CEO & co-founder Tom Shea has significant experience in the market as he co-founded UpStream Software, which Hyperion acquired (then Oracle) in 2006 and was very much a “first-gen” financial planning platform. OneStream focuses on mid-market and enterprise customers; their implied average ACV (annual contract value) was $337,000 as of last quarter, and they already have more than 75 of the Fortune 500 as customers. OneStream had a 118% net dollar retention rate and a 98% gross retention rate as of last quarter. The company is also transitioning away from perpetual licenses, and in 2023, 90%+ of new customer contracts were SaaS (they only first started offering SaaS contracts in 2020). The business generated $46M of free cash flow in the past 4 quarters (11% margin) and is growing ARR by over 30% year-over-year in a difficult selling environment, which is impressive. OneStream’s last reported round in 2021 was a $200M round at a $6B valuation, according to Pitchbook. The company is majority-owned by KKR. It will be interesting to see if OneStream trades above that valuation today (more in the valuation section). We also recently wrote about how smaller companies can go public; OneStream is a great example of a company <$500M in ARR likely to have a successful offering due to strong top and bottom line financial performance. The company has 4 classes of stock (Class A, B, C and D). Class A and B have one vote per share, and Class C and D have 10 votes per share. OneStream has 1,300 full-time employees and offices in the United States, Australia, Europe and Singapore.
Company Milestones
Below is a list of milestones the company released:
2012: launched our platform with our first customer, a multi-billion dollar global enterprise
2014: we launched our first OneStream-built applications that extend the value of our platform and its core solutions beyond the finance organization
2015: we launched our first planning application
2016: we introduced our account reconciliation application
2017: we released our financial close and consolidation core solution and began developing our first machine learning-powered application
2018: we introduced our updated reporting and analytics core solution and acquired our 250th customer
2019: we launched our predictive financial signaling core solution and KKR acquired a majority stake in our company
2020: we surpassed $100 million in ARR, introduced our tax provisioning and transaction matching applications and acquired our 500th customer
2021: we surpassed $200 million in ARR and received a $200 million investment from new investors
2022: we surpassed $300 million in ARR, commercially released our first AI-enabled application, Sensible ML, and acquired our 1,000th customer
2023: we surpassed $450 million in ARR and launched the OneStream Solution Exchange as a hub for OneStream-built, partner-built and community-shared applications and blueprints
2024: we acquired the remaining equity interests of DataSense to continue our development of AI-enabled solutions
GTM (Go-to-Market) and Summary Metrics
OneStream primarily sells through a direct sales motion and through a network of 250+ GTM implementation and development partners. They include consulting firms like Accenture, IBM, KPMG, and PwC (which implement OneStream as a part of larger digital transformation initiatives), and Microsoft, a go-to-market partner. Implementing a financial planning solution, particularly for larger enterprises where OneStream focuses, is complex, so having consulting firms build businesses around implementation and support makes sense. Moreover, OneStream has a professional services organization; professional services revenue was 8% of revenue last year. While time-consuming to implement, financial planning solutions like OneStream are very sticky products. Related, OneStream releases an impressive gross dollar retention figure, which has been stable at 98%, showing how sticky the product is. In 2023, OneStream also retained 99% of subscription and license ARR that was up for renewal that year. With net dollar retention (including upsell) at 118% last quarter, OneStream’s strategy of spending more money to acquire new logos makes sense as they don’t leave and tend to expand. In terms of contract terms, OneStream’s initial subscriptions are typically 3 years but can range from 1 year to 10 years. The average sales cycle, from initial evaluation to payment, is 4-8 months but can vary significantly up to multiple years for some customers. The GTM team for OneStream is large, and the company discloses they have ~600 full-time employees in the sales and marketing org, representing ~46% of total employees as of the last quarter. OneStream reports the average annual contract value (ACV) for customers acquired in 2022 and 2023, which was $257,000 and $300,000, respectively. A higher number of users/seats per customer drove this increase. The list price on a per-user basis for SaaS customers ranges from $200-600/month (this implies ~40-125 users per company, assuming their reported ACVs). For larger customers, it’s likely much lower on a per-seat basis. Unfortunately, OneStream does not disclose the total number of users on their platform; hence, we don’t know the average per-seat price. Regarding sales efficiency, OneStream discloses their own sales efficiency and reports that the average number of months to recoup customer acquisition costs was 21.3 months in 2022 and slightly higher at 23.4 months in 2023. However, they don’t disclose how this number is calculated (more on our standard CAC methodology later in the post).
Below are a few high-level metrics on OneStream’s financial performance, metrics, and other relevant disclosures:
$480M of reported ARR in Q1, growing 34% YoY. The company added $19.6M of net new ARR in Q1. ARR includes recurring maintenance fees from perpetual license deals
Of the growth in ARR in 2023, 72% was attributable to new customers and the remaining 28% was attributable to existing customers
Subscription revenue was $95.7M in Q1, up 49% year-over-year and represented 87% of total revenue. License revenue was $6.2M, down 9% year-over-year and 6% of total revenue. Professional services revenue was $8.4M and growing 6% year-over-year, and 8% of total revenue (all in Q1)
Non-GAAP gross margin was 70% on an LTM (last-twelve-months) basis, below the Meritech SaaS index median of 78%. This is unsurprising given the heavier implementation in the space and the mix of professional services in total COGS. Software gross margin was 78% in the LTM period
OneStream is an efficient business. In Q1, they had a $4.3M non-GAAP operating loss. On an LTM basis, they only had a $7.8M non-GAAP operating loss, or (2)% margin. LTM GAAP operating loss was $14.4M, a (4)% margin
On a free cash flow basis, OneStream generated $45.9M of cash in the LTM period, representing an 11% FCF margin. In Q1, they were at a 23% FCF margin
They had a 45% Rule of 40 Score in Q1. This is above the median of the Meritech SaaS Index of 34%
Dollar-based net retention was 116% in 2022 and 2023 and was 118% in Q1. This is above the Meritech SaaS Index median of 110%
The company ended Q1 with 1,423 total customers, up 20% year-over-year. This included 77 $1M+ ACV customers, which is up 57% year-over-year
The reported average ACV (annual contract values) was $300,000 for customers acquired in 2023. No customer represented more than 5% of total revenue in Q1. This implies OneStream has at least one customer that pays ~$20M a year
As of Q1, 5% of total customers were Fortune 500 constituents and collectively accounted for 15% of software revenue. 75 of the Fortune 500 companies are OneStream customers
In 2022 and 2023, OneStream retained 99% of our customers with ARR greater than $250,000 and 100% of customers with ARR greater than $1M
As of last quarter, OneStream’s ARR per FTE (full-time employee) was $369K. This is above the median of the Meritech SaaS Index
International revenue accounted for 27% and 30% of total revenue in 2022 and 2023. Customers are located in more than 45 countries
OneStream only started offering SaaS contracts in Q3 2020, and now more than 90% of new contracts are on their SaaS offering
SaaS contracts will continue to represent the vast majority and OneStream will offer perpetual licenses to customers only in limited circumstances, such as in their Federal business or regulated industries. Seasonality exists and is apparent mostly in Q3 and Q4
OneStream has $141.3M in cash and cash equivalents and an undrawn credit facility of $150M
Product
OneStream’s platform, which they call the Digital Finance Cloud, is the operating system for the Office of the CFO. OneStream enables the CFO and his/her team to automate and streamline workflows, accelerate analysis, and improve forecast accuracy, equipping the Office of the CFO to report on, predict, and guide business performance. The product includes many modules, but the 3 main areas of the platform include:
Financial Close and Consolidation: Streamlines financial processes with advanced capabilities designed to automate tasks and manage the immense complexity and strict standards of financial reporting and consolidation
Financial and Operational Planning and Analysis: Enables financial and operational planning, budgeting, forecasting and results analysis for individual business functions and the synchronization of those plans across the entire organization
Financial and Operational Reporting: Provides end-to-end visibility of analytics and key metrics to all stakeholders, including executives, finance professionals, line-of-business leaders and other business partners
The image below shows many of the other products / modules which include use cases such as transaction matching, tax provisioning, account reconciliations, cash flow forecasting, and lease accounting, among others. OneStream’s operational applications include capital planning, sales planning, workforce planning, and profitability analysis, as well as machine learning-enabled demand forecasting, labor planning and merchandise financial planning.
Source: S-1
The company launched the OneStream Solutions Exchange in 2023, which provides 90 first- and third-party applications at no additional cost. OneStream also integrates with hundreds of data sources, including enterprise resource planning (ERP), customer relationship management (CRM), supply chain management (SCM), human capital management (HCM), and other management systems and enterprise data warehouses. Limitations of existing solutions include siloed tools, complexity, data transparency issues, not being extensible, and a high cost of ownership. Lastly, OneStream’s product does reference AI capabilities that accelerate accuracy and anticipate trends. The company recently launched their first AI-enabled application, Sensible ML, which does automated planning. OneStream also acquired a company called DataSense “to continue [its] development of AI-enabled solutions” in May 2024 for a total consideration of ~$30M, made up of $7.7M in cash and $22M of equity subject to performance and service-based conditions of the four company founders over a period of four years. OneStream does not provide details on DataSense’s product but does disclose that prior to the acquisition, it paid DataSense $6.8M in cumulative fees over 3.5 years for app development and consulting services. The co-founder and former CEO of DataSense is Andrew Shea, the son of the OneStream CEO, Thomas Shea. The daughter of OneStream Board member and KKR Partner David Welsh, Olivia Welsh, was also an employee of DataSense prior to the acquisition. Both are now employees of OneStream.
Market Opportunity
OneStream believes their market opportunity is $50B in 2023, larger than the reported figure for their market, which is the Corporate Performance Management (CPM) space. The company calculates this TAM by taking all the companies in their target geographies and applying their average ARR against the employee headcount numbers. OneStream mentions that the Office of the CFO is one of the last areas yet to be modernized and digitized, i.e., many companies operate in Excel and use other manual processes. OneStream is also displacing legacy vendors that still offer products on premise; according to IDC, the aggregate revenue generated by IBM, Infor, Oracle, and SAP from financial applications and enterprise performance management applications in 2022 was ~$9.8B. Regardless of which TAM figure is used, the market for OneStream is objectively very large.
Competition
OneStream’s market is large and going through a massive transformation; hence, the prize for a winner is big and it’s highly competitive. OneStream primarily competes with companies that offer products across their modules, including financial consolidation, reporting, planning or analytics software. OneStream calls out legacy players and other larger cloud-based players, including Oracle (Hyperion), SAP, Infor, Anaplan* (acquired by Thoma Bravo), Blackline, Wolters Kluwer, and Workday (Adaptive Planning). OneStream also mentions, “we also expect competitive challenges from new entrants into our industry”. This could include companies like Pigment*, a modern business planning platform that offers a more intuitive modeling language and better architecture. On the financial close side, OneStream could compete with FloQast*, a modern closing platform that is easy to use and collaborative. Pigment and FloQast are Meritech portfolio companies and are not specifically mentioned in the S-1.
Investors and Ownership [UPDATED]
KKR acquired a majority stake in OneStream for a $1B+ valuation in March 2019 (reported $500M investment, according to Pitchbook). Other investors include D1 Capital Partners, Partners Fund Capital and Tiger Global Management. KKR is the only 5%+ institutional investor shareholder, owning ~53% of common stock. CEO and co-founder Thomas Shea holds an ~8% pre-offering stake. The company’s last round was a $200M growth round led by D1 Capital Partners, Tiger Global Management and Investment Group of Santa Barbara in April of 2021 at a $6.0B valuation, according to Pitchbook.
Major Shareholder Summary Cap Table Ownership % (Pre-offering)
Source: S-1
The below looks at the current value of select disclosed shareholders at the midpoint ($18.00) of the initial public offering price range of $17-19 per share, as published by the S-1/A released on July 15, 2024.
Source: S-1
30%+ ARR Growth Public Software Growers Comparison
Before diving deeper into the individual financials, KPIs, and metrics, the following table looks at every SaaS company in our index that is growing implied ARR by greater than 30% year-over-year to compare against OneStream. OneStream compares favorably across these medians but is significantly smaller (less than half of the median ARR). As discussed below, where OneStream trades on a multiple basis will ultimately depend on investors’ view of its growth durability. Even among this limited set of fast-growing companies in the table below, there is a wide range of multiples, from CrowdStrike and Cloudflare at 25x and 20x ARR, to Klaviyo and Braze at 8x and 7x ARR, respectively. Note that OneStream’s forward-looking financials are not included, as projections are not released in S-1’s.
Source: Company filings and CIQ as of 05-Jul-2024. Note: Implied ARR defined as quarterly total revenue multiplied by four. Free cash flow defined as cash flow from operations minus capital expenditures and capitalized software costs. Rule of 40 defined as Implied ARR Growth + LTM free cash flow margin. Payback period shown in months. Payback period calculated as prior quarter non-GAAP sales and marketing expense divided by current quarter net new implied ARR multiplied by current quarter non-GAAP gross margin multiplied by 12. LTM (last-twelve-months) defined as the last four reported quarters. ACV defined as quarterly implied ARR divided by quarterly customer count. All financial figures are non-GAAP which adjust for items such as stock-based compensation, amortization of intangibles, and other one time and/or extraordinary expenses
Annual Non-GAAP P&L ($000's)
Below are OneStream’s annual non-GAAP P&L and key metrics.
Source: S-1. Metrics shown in the table above are GAAP unless otherwise noted. Non-GAAP metrics are calculated as GAAP less SBC
Annual Key Metrics ($000’s)
Source: S-1. Metrics shown in the table above are GAAP unless otherwise noted. Non-GAAP metrics are calculated as GAAP less SBC
Reported ARR, Year-over-Year % Growth and Net New Reported ARR ($M)
OneStream’s reported ARR grew 34% year-over-year in the most recent quarter but is slowing. Moreover, the business is lumpier on a net new ARR basis. Q1’24 net new ARR of $19.6M was down from one year ago in Q1’23 of $22.5M and was the lowest net new ARR added in the last 8 reported quarters. Given that OneStream is going public, they likely have a strong pipeline, but the net new ARR figure will be watched closely as it’s a leader indicator of growth.
Source: S-1
Total Revenue by Quarter and Growth ($M)
Source: S-1
Revenue Contribution by Line Item
As the company moves towards SaaS contracts, subscription revenue is growing as a percentage of the total. 90%+ of new contracts in 2023 were SaaS contracts.
Source: S-1
Perpetual to SaaS Transition
OneStream has been quite successful in moving to a SaaS model. The chart below shows the percentage of ARR by contract type. The company has grown from 0% of total reported ARR representing SaaS contracts in 2020 to 73% as of Q1'24.
Source: S-1
Non-GAAP Gross Margins and Operating Expenses as a % of Revenue
Gross margins have increased slightly over the last 8 quarters from 64% to 69%. Software gross margins are in the high 70’s. Sales & marketing as a percentage of revenue declined substantially from 60% to 43% in the latest quarter, as the business is seeing leverage on the GTM side. Research & development and general & administrative as a percentage of revenue have remained generally steady.
Source: S-1. All metrics are Non-GAAP. Non-GAAP metrics are calculated as GAAP less SBC
Non-GAAP Operating Margins and Free Cash Flow Margins
Both non-GAAP operating margins and free cash flow margins are increasing.
Source: S-1
Rule of 40, % LTM FCF Margin and Year-over-Year % Reported ARR Growth
The following chart overlays the components of the Rule of 40: year-over-year ARR growth and LTM free cash flow margin. While revenue growth is slightly declining, free cash flow margins have improved significantly over the past few quarters, pushing OneStream above the rule of 40.
Source: S-1. Rule of 40 defined as % LTM FCF Margin + % YoY Growth of Reported ARR
Total Customer Segmentation and Growth
Source: S-1
Customer Segment Growth
OneStream is moving further up market and it shows in the growth rates of their larger customer segments. Customers >$1M in ARR are growing 57% year-over-year and customers >$250K are growing 37% year-over-year, both much faster than the total at 20% and faster than total ARR growth. The continued growth of these larger customer segments will be an area of focus in the coming quarters.
Source: S-1
Implied Average ACV by Quarter and Growth ($000’s)
With the growth in larger customers, the implied average ACV (reported ARR over total customers) is growing moderately.
Source: S-1
Implied Percentage of Total ARR by ACV Tier
While OneStream does not disclose the implied ACVs of customers in each segment, if you assume the numbers they share i.e., $250K and $1M, the following imputes the hypothetical total ARR composition based on those figures. While most of the ARR is still coming from smaller companies, the mix of ARR is likely moving toward the larger customer segments as they’re growing the fastest. In reality, this mix is probably even more skewed since this analysis uses the lowest cut-off points of $250K and $1M as that’s all that is disclosed.
Source: S-1
Sales Efficiency and Payback Periods by Quarter
OneStream discloses their own payback methodology but not the definition. The chart below plots their sales efficiency using our standard methodology. Given their focus on larger deals, it bounces around, but the median over the past 8 quarters has been 28.8 months, which is around the median of the Meritech SaaS Index. As you can see in the chart, the numbers bounce around given that OneStream is a lumpy business. When looking at the metrics on an LTM basis, the median is more stable at ~25 months which is closer to the figure OneStream discloses of 23.4 months.
Source: S-1. Payback period shown in months. Payback period calculated as prior quarter non-GAAP sales and marketing expense divided by current quarter net new implied ARR multiplied by current quarter non-GAAP gross margin multiplied by 12. Non-GAAP calculated as GAAP less SBC
Free Cash Flow by Quarter & % Free Cash Flow Margin ($000’s)
As seen in other analyses, their absolute free cash flow dollars and margin are increasing. OneStream was over a 20% free cash flow margin for the past two quarters.
Source: S-1
RPOs, Growth and % cRPOs by Quarter ($M)
OneStream has good disclosure around RPOs, which is short for Remaining Performance Obligations. RPOs are similar to a Total Contract Value (TCV) metric. They are growing 42% year-over-year, and 36% are current RPOs, which are expected to be recognized in the next 12 months.
Source: S-1. Note: % cRPOs represents the percentage of remaining performance obligations that are expected to be recognized as revenue in the next 12 months
Total Billings, Growth and % of Billings of RPOs ($M)
OneStream also disclosed billings, which are the invoice amounts billed to customers. This shows the company is moving through its backlog of bookings and charging customers. The chart shows that billings as a percentage of total RPOs have remained relatively stable. This implies the company is implementing customers efficiently (and charging them), even as the absolute bookings figures grow.
Source: S-1. OneStream defines billings as a non-GAAP measure that is calculated by taking the change in deferred revenue less the change in unbilled accounts receivable between the start and end of the period and adding that to total revenue recognized in the same period
U.S. vs. International Revenue Mix
OneStream is expanding its GTM efforts outside the U.S. While this change isn’t large, international revenue is growing faster than its U.S. segment. The company also has offices in Australia, Europe, and Singapore.
Source: S-1
Quarterly non-GAAP P&L Output ($000's)
Source: S-1. Metrics shown in the table above are GAAP unless otherwise noted. Non-GAAP metrics are calculated as GAAP less SBC
Quarterly Non-GAAP Metrics ($M)
Source: S-1. Metrics shown in the table above are GAAP unless otherwise noted. Non-GAAP metrics are calculated as GAAP less SBC.
Valuation
High-growth SaaS companies trade on multiples of revenue. As we’ve established in our bi-weekly Meritech Pulse newsletter, multiples are most highly correlated to what we call the “Meritech Rule of 40”, defined as 3x NTM revenue growth + NTM free cash flow margin. Said another way, in today’s environment, growth has roughly three times the impact on the valuation of a public SaaS company vs. profitability (defined as free cash flow margin), and this metric appropriately captures that weighting. Even today’s investors want high growth with “some free cash flow.” With this in mind, we believe the most accurate way to understand where a SaaS company might trade in the public markets is simply to plot it on the regression line comparing multiples and the Meritech Rule of 40. That’s what we’ve done below. The blue dots represent our index's current public application SaaS companies (~65). The orange dot represents OneStream based on illustrative assumptions for its NTM financial performance (companies do not give guidance in their S-1s):
We calculate the Meritech Rule of 40 for OneStream using an illustrative forward ARR growth, not revenue growth. OneStream reports ARR, which is a leading indicator vs. revenue, which is a lagging indicator for a SaaS company.
We also forecast an illustrative free cash margin of 17.5%. On an LTM-basis, OneStream has an 11% FCF margin, but in the last two quarters, it’s been higher at 26% and 23%, respectively. Again, this is an illustrative estimate since we don’t have forward projections.
We assumed 22.5% NTM ARR growth (down from 34% LTM) and a 17.5% FCF margin. Our assumptions result in an implied Meritech Rule of 40 of 85%. We then “plot” that figure on the regression line using the simple “y = mx + b” equation representing the line. This calculation implies that OneStream could trade at 9.6x ARR, representing a $4.6B enterprise value.
Additionally, given that OneStream is only the second SaaS IPO of 2024 and their post-IPO performance will impact the market’s potential of <$500M ARR businesses having successful IPOs, the lead banker (Morgan Stanley) is likely to price the IPO conservatively to create the notorious “IPO pop.” This analysis does not reflect pricing expectations but an illustrative trading valuation range after that potential IPO pop.
OneStream filed an updated S-1/A on July 15, 2024, indicating an IPO price range of $17-19 per share for an offering of 24.5 million shares (or 28.175 million shares if the underwriters exercise their option to purchase additional shares in full, i.e., the greenshoe). This equates to a market cap at the midpoint of ~$4.2B. Assuming our illustrative 22.5% NTM revenue growth rate, that is just over 8x NTM revenue and 8.5x ARR. Lastly, given this is the first range disclosed, it’s likely to increase as the bankers receive more information about the interest level in the stock. Based on this initial multiple, it seems that interest is high.
Source: S-1, company filings, and CIQ as of 05-Jul-2024
Note: Enterprise value ranges are illustrative
With all this said, it’s important to remember that multiples today are just proxies for long-term free cash flow generation. This means that OneStream’s multiple will ultimately be determined by more than just its next twelve months (NTM) forecast financials. Long-term forecasts depend on several qualitative factors, including trends, market structures, and competition. Said another way, when a company trades above or below the line, it gives us insight into what the market thinks about its long-term prospects.
Final Thoughts
OneStream Positives
Strong growth + free cash flow: As discussed earlier in this post, growth outweighs free cash flow margin by a factor of almost 3. OneStream is growing ARR at 34% with 11% free cash flow margins, both on an LTM basis. Moreover, free cash flow margins have risen to 23% in the most recent quarter. OneStream’s Rule of 40 is 45%. The fact that OneStream is growing >30% in a tougher macro environment should give investors confidence it can have a durable growth profile.
Large market dominated by legacy incumbents: The CPM, or Corporate Performance Management space, is large and mostly dominated by legacy competitors such as Oracle, SAP, Wolters Kluwer, and Infor. IDC reports that the aggregate 2022 revenue from financial applications of IBM, Infor, Oracle, and SAP was ~$9.8B. Given that OneStream is a more modern, cloud-based solution, OneStream will be a viable option as companies modernize and move to the cloud. As the cloud transition continues, a significant amount of revenue will be up for grabs.
Full suite: OneStream is not a point solution and offers a full suite across financial close and consolidation, planning and analysis, and reporting. They also offer (and are building more) almost 100 applications in the OneStream ecosystem. The breadth of the platform is evidenced by their high net and gross dollar retention, 118% and 98%, respectively. Once customers adopt OneStream, they tend to stick. Moreover, they sell to larger enterprises. Spending money to acquire more customers is the right strategy. Their largest customer segment, customers paying >$1M per year, is growing 57% year-over-year and, in the past 2 years, has a 100% renewal rate for customers paying >$1M in ARR.
OneStream Further Questions / Potential Risk Factors
OneStream’s modernity: While OneStream operates in a market that has not yet moved to the cloud, OneStream also just recently transitioned to SaaS. To argue that OneStream is a bleeding-edge solution might be a harder sell. Investors must consider whether OneStream is “modern enough” in a market dominated by legacy products from the likes of Oracle. Moreover, almost half of OneStream’s total employees are in sales and marketing. Are they investing enough in R&D? And is the adoption curve so early that there is ample opportunity, or are they an intermediary solution for something more modern in the future? It’s likely a mix of both.
Growth durability: Related to the adoption curve of the enterprise financial planning and analysis platforms, how fast can OneStream grow when they’re at $1B of ARR? OneStream is $480M of ARR and growing quickly (34% year-over-year) with strong margins. To see a strong return, one must believe they can grow quickly for multiple years, i.e. having strong growth durability. How does this relate to both the adoption curve in OneStream’s market, where they fit, and what other companies are growing quickly, i.e. emerging financial platform businesses like a Pigment*, for example?
AI impacts: While the idea of a CFO and his/her team relying on AI to create models and make critical financial and operational decisions is a future that won’t exist for a long time (if ever), there will likely be small yet marginal improvements in workflows for users of platforms like OneStream. OneStream is very early here, and it does not appear they have made much progress yet, as there is little disclosure about AI. Are they ahead or behind the market here?
OneStream is a digital transformation story for finance teams in the large corporate performance management (CPM) market. The suite of the CFO has not been modernized by cloud software as quickly as other business units within an enterprise, and legacy incumbents dominate the market today. Moreover, the tailwinds in the market are strong: CFOs and their teams are forced to work and analyze more data than ever before and make mission-critical financial and operational decisions quickly. Financial regulations and compliance are only increasing the pressure. The stakes are high. Buying and implementing a strong financial planning platform like OneStream could be critical to business success. These tailwinds and OneStream’s execution are evidenced in their strong financial profile across many dimensions.
OneStream is only the 2nd software IPO in 2024 and will be watched closely. Given their impressive performance on both growth and margins, the company should have a successful offering. Their pricing multiple and post-IPO trading performance will be watched closely as OneStream will be a barometer of investor appetitive for other <$500M ARR application software companies that want to get public.
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No investment advice. Meritech is a current or former investor in Anaplan, FloQast, and Pigment.