Onestream Q3 2024 Earnings Call Transcript

Quartr
Provided by Quartr
November 7, 2024

There are 13 speakers on the call.

Operator

Good day and thank you for standing by. Welcome to OneStream's Third Quarter 20 24 Financial Results Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. Please be advised that today's conference is being recorded.

Operator

I would now like to hand the conference over to your speaker today, Annie Leshin, VP, Investor Relations and Strategic Finance. Please go ahead.

Speaker 1

Thank you, operator. Good afternoon, everyone. Welcome to OneStream's Q3 2024 earnings conference call. Joining me on the call today are our Co Founder and CEO, Tom Hsieh and our CFO, Bill Cofo. The press release announcing our Q3 results, issued earlier today, is posted on our Investor Relations website at investor.

Speaker 1

Onestream.com, along with an earnings highlight presentation. Now let me remind everyone that some of the statements on today's call are forward looking, including statements related to guidance for the Q4 year ending December 31, 2024. Forward looking statements are subject to known and unknown risks, uncertainties, assumptions and other factors. Some of these risks are described in greater detail in the documents we file with the SEC from time to time, including our quarterly report on Form 10Q for the quarter ended September 30, 2024, and we undertake no obligation to update any forward looking statements, whether as a result of new information, future events or otherwise, except as required by law. During our call today, we will also reference certain non GAAP financial measures.

Speaker 1

There are limitations to our non GAAP measures, and they may not be comparable to similarly tiered measures with any other company. The non GAAP measures referenced on today's call should not be considered in isolation from or a substitute for the most directly comparable GAAP measures. Our management believes that our non GAAP measures provide meaningful supplemental information regarding our performance and liquidity by excluding certain expenses that may not be indicative of our ongoing core operating performance. Reconciliations of our non GAAP measures to the most directly comparable GAAP measures can be found in this afternoon's press release and the earnings highlights presentation posted on our Investor Relations website. Now I'll turn it over to Tom.

Speaker 1

Tom?

Speaker 2

Thank you, Annie, and thank you all for joining us this afternoon to review our Q3 financial results. We're pleased to report another solid performance. The team once again showed strong execution against the vision we outlined for you during our IPO. With one consolidated platform, OneStream is eliminating complexity for the office of the CFO by combining a unified view of financial and operational data with analytical and performance management capabilities to take finance further. We grew subscription revenue 39% year over year in the Q3 and were once again free cash flow positive.

Speaker 2

We also hosted our 2nd successful user conference of the year, Splash EMEA in Copenhagen, where we expanded on the slate of new innovations we've introduced thus far this year. Among other achievements, all of this progress reflects our continued investment to drive durable growth. While the macroeconomic and geopolitical state of affairs continues to grab headlines, at OneStream, we saw a consistent market environment relative to last quarter. We believe the need to invest in modernizing the finance function to improve visibility and allow the CFO to become a strategic driver of the business has become a core requirement to effectively compete regardless of industry or economic environment. This trend was echoed in the findings of our Finance 2,035 initiative launched this quarter, which I will touch upon shortly.

Speaker 2

The three factors that drove us to create a cloud native CPM solution are still the core trends driving the market today. To quickly review, first, finance has begun to digitally transform, but because it started the process so far behind many other operational areas, it is still very early in this transformation. More and more CFOs recognize the need for a cloud based platform to provide a single view into financial and operational data across the enterprise. Finance departments have begun to accept and even demand an operating system that unifies a multitude of financial functions providing an exceptional level of insight and analysis. 2nd, CFOs are being asked to do more, transitioning from just reporting on past performance to steering the business toward the future.

Speaker 2

With all of the uncertainty businesses faced today from geopolitical to macroeconomic, financial and regulatory, OneStream's platform enables CFOs to manage these factors and start driving real strategic value for the business. Finally, AI and ML are increasing the value of knowledge workers and business performance. The OneStream platform unifies financial and operational data and processes on one common data model. Using embedded AI to make more informed decisions and plan better and faster. Our success in addressing these three trends has always centered on our extensible platform and our ability to consistently expand its functionality both through rapid and innovative product development and successfully bringing these new technologies to market.

Speaker 2

At our Splash EMEA user conference in September, we introduced 3 new innovations, bringing our total this year to 15, capping what I believe has been one of the most innovative periods in the company's history. These include: 1, we introduced Navigation Center, which builds upon our advanced narrative reporting capabilities to streamline access to reports, bookmarks and critical audit and narrative documents in one place. 2, we expanded our applied finance AI offerings to include AI powered anomaly detection, a prepackaged AI method that helps finance leaders detect anomalies for data cleansing, consolidation and reporting. This is part of Onestream's Sensible AI portfolio, which includes Sensible Machine Learning, Sensible Gen AI and Sensible AI Library, which includes a growing collection of prepackaged AI routines, including ones for forecasting and scenario planning. 3, as further evidence of continued innovation on the OneStream platform, we showcased expanded solutions exchange offerings to support tax Pillar 2 regulatory reporting.

Speaker 2

OneStream announced the availability of Pillar 2 tax criteria solutions from both BDO and in Lumi and AMCO, all built atop the OneStream platform and all leveraging the unified data inherent within it. With these new offerings, we now have 100 solutions on Solution Exchange, demonstrating our ongoing support for the evolving needs of global organizations and our commitment to continually adding value and utility to our customers' OneStream investments. In the coming years, you can expect us to focus primarily on driving these many innovations into our installed base, even as we continue investing to further our technology leadership. Now let me turn to our customers. One of the great and unique things about our Slash user conference is that we let our customers do the talking.

Speaker 2

From asking questions to sharing experiences with peers on how they are leveraging OneStream to drive productivity and analytics to working with our team to inspire the next innovation. For those of you who weren't able to join us in Copenhagen, let me share a couple of the quick examples of what we heard. Let me begin with the 10 year partnership that we have developed with a large shipping logistics company. Their presentation during the splash keynote demonstrated their enthusiasm for OneStream and how they have continued to expand their use of our platform. Building upon their use of OneStream's unified financial consolidation and reporting and forecasting applications, they recently added our Pillar 2 tax solution along with our ESG and intercompany transaction matching solutions.

Speaker 2

Today, they are using OneStream to support over 1,000 legal entities globally and there is plenty of room to grow. Continuing to expand use and value with long standing customers is at the core of our durable growth strategy. Another customer on stage was one of the largest retailers in Europe with over 1300 locations and 8,500 employees. Their success turns on the accuracy of their forecasting, ensuring the right product in the right quantity in the right location. Today, they are using OneStream's financial planning and consolidation and following a successful proof of value, they have begun deploying sensible ML to advance their forecasting journey and we're excited to see what they do next.

Speaker 2

These are just a few examples of customers that joined us in Copenhagen to share their excitement, satisfaction and successful journeys thus far with OneStream. We had 52 new customers join OneStream this quarter, bringing our total customer count to over 1500. Let me highlight a couple of wins that demonstrate just how important our platform is becoming to companies and governments worldwide. I'll start with a few wins among government agencies, which are always important in Q3. This quarter, we added a large government agency in Washington D.

Speaker 2

C, which was looking to replace multiple legacy siloed applications. The organization picked OneStream as a single source of truth for reporting, planning and monitoring. We will be replacing 2 legacy point solutions used for their budget formulation and execution. These manual error prone older solutions implemented more than a decade ago did not provide the enterprise wide level of detail needed to effectively manage this agency. OneStream will consolidate their budget and financial processes and significantly upgrade their reporting as well.

Speaker 2

Users will now utilize OneStream for all their budget requests, staff planning, execution plans and execution results. The Defense Logistics Agency was another government agency that selected OneStream this quarter in a multimillion dollar deal. With over 25,000 employees, the Defense Logistics Agency is the largest combat support agency, providing logistics to the DoD, civilian agencies and foreign countries. This is a very important agency that among other things has provided meals, fuel and supplies to FEMA after hurricanes. For more than a decade, the DLA has been using an expensive combination of contractor support with a SaaS license for financial statement preparation and budget formulation.

Speaker 2

Utilizing Windstream's core CPM, the DOA will now be able to automate everything from the DoD planning programming to providing a complete and accurate budget, creating and performing automated reconciliations, preparing federal financial statements and producing consolidated annual financial report, all while simultaneously lowering its costs. We also enjoyed a solid quarter in EMEA, continuing to build on our position in France as a natural successor to legacy finance solutions, we added J. C. Decot, the world leader in outdoor advertising. Facing the obsolescence of its current legacy consolidation reporting tool, the company took the opportunity to rethink the scope of its current data model and processes in light of the changing market standards, regulatory and financial statement requirements.

Speaker 2

The implementation of OneStream's performance management tool will not only improve consolidation reporting and disclosure, but also provide them with a flexible solution to adapt and support future needs such as ESG and changing regulatory requirements. Similar to the group BPCE deal discussed last quarter, the J. C. D. C.

Speaker 2

D. C. Win is a foundational win replacing a significant legacy system and solidifying our credibility in the region. One last customer I want to highlight is a 4th June 500 equipment manufacturer, which is utilizing our sensible ML in a meaningful way. Having implemented SML to forecast both revenue and inventory, they improved their accuracy by more than 10%.

Speaker 2

Not unlike other companies, their forecasting process required inputs from roughly 80 different finance stakeholders over a 10 day period. With SML, the company now has a process that generates more accurate forecasts in less than half an hour, all while providing explanations of leading indicators and their impact on the forecast. This kind of transparency is building confidence and driving adoption from across their teams. Encouraged by these results, the company is now deploying SML across multiple business segments to enhance decision making speed and drive business performance. A bigger message here from my vantage point is the growing recognition by the market that OneStream's applied finance AI solution creates more value than many of what I call custom science experiments currently in the market.

Speaker 2

This also reinforces our view that the productization of our applied approach is the best and most scalable way to derive value from AI. Part of our strategy has and will continue to be educating the market as we build our product acceptance one customer at a time as we've always done. Finally, we continue to benefit from our investment and emphasis on building out our marketing function. Earlier this month, we announced the launch of our Finance 2,035 initiative. This is a partnership with academia, economists and finance and business leaders to foster a fact based dialogue on the rapidly evolving role and strategic importance of the Office of the CFO.

Speaker 2

Our initial research examines what the next 10 years hold for businesses at large and how external forces are both elevating and impacting the critical role played by CFOs in shaping that future. Based on a survey of 2,000 CFOs, CEOs, line of business executives and investors, the study found that the next decade will likely be defined by more regulatory convergence and technology powered gains, where CFOs will be expected to take on a broader role in driving business strategy and growth. The research also reaffirmed what you all know too well that the investment community puts a premium on the strategic confidence of a CFO of a company CFO in making their investments decisions. The study also validated our view on what will likely take for the office of the CFO to become a strategic driver of business strategy and growth. CFOs and CEOs surveyed, prioritized modernizing their legacy finance stack, harnessing new technologies, especially AI and making these investments with a sense of urgency to remain competitive.

Speaker 2

We are using this research as a foundation for a global series of roundtable discussions with CFOs, CAOs and other finance leaders. We look forward to Finance 2,035 fostering dialogue among senior executives, raising OneStream's visibility in the business community as we take additional steps to put our platform at the forefront of the conversation. Before I turn the call over to Bill, let me just thank our employees for their innovative ideas, hard work and dedication to customer success, our partners for sharing that commitment and helping our customers achieve incredible results and our investors for their confidence in OneStream. Now, let me turn

Speaker 3

the call over to Bill. Thanks, Tom. Good afternoon, everyone, and thank you for joining today's call. As Tom mentioned, we had a solid Q3 with both strong subscription growth and positive free cash flow. We turned free cash flow positive in 2023 and over the past 4 quarters we have generated over $60,000,000 in free cash flow.

Speaker 3

We're pleased with our ability to drive both revenue growth and free cash flow in this environment. Overall, total revenue grew 21% year over year to $129,000,000 in Q3. Our subscription business model continued to show impressive growth at scale as subscription revenue increased 39% year over year to $111,000,000 and ARR increased more than 30% year over year. License revenue came in at $12,000,000 in Q3 compared with $19,000,000 last year. We also continue to see a number of conversions from term licenses to SaaS this quarter including 3 significant ones with ARR greater than $500,000 We expect that trend to continue in Q4 and 2025 as we progress toward 100 percent SaaS business model.

Speaker 3

Professional services and other revenue came in at $6,700,000 compared with $8,100,000 last year. Professional services revenue was lower than expected due to the continued success of our partners as we strategically transition more implementations of Onestream Software to them. As such, you should expect a similar professional services revenue run rate going forward. International revenue continues to represent roughly 30% of total revenue reflecting our continued focus on growing our global business. More than 60% of our business came from new customers in Q3.

Speaker 3

We ended the quarter with 1534 total customers up 18% year over year. Billings increased 25% year over year to a record $149,000,000 As a reminder, due to a variety of factors including timing, we encourage you to look at billings on a trailing 12 month basis where billings grew 27%. Our 12 month CRPO was up 41% year over year. Total remaining performance obligations grew 35% year over year to $997,000,000 Our Q3 non GAAP gross margin was 71% compared to 72% due to the strong license revenue last year, offset by efficiency improvements. We continue to work to optimize our infrastructure and expect margin improvement over the long term.

Speaker 3

3rd quarter non GAAP operating expenses increased 25% year over year due in part to IPO related expenses. R and D spending increased 48% year over year as we continue to strategically invest in new products to drive the durable growth of our business. Total equity based compensation expense for the Q3 was $260,000,000 of which $204,000,000 was a one time charge that we recognized in connection with our IPO. This charge was lower than expected due to the effective timing of modifications we made to outstanding options as part of the IPO. Non GAAP operating income was $5,000,000 or 4% operating margin in the quarter.

Speaker 3

Non GAAP net income was $11,300,000 For the Q3, we generated $1,000,000 of free cash flow bringing our trailing 12 months free cash flow to over $60,000,000 We ended the quarter with $495,000,000 in cash and cash equivalents. Now turning to guidance. Our 4th quarter is an important one for us as it's traditionally our largest seasonal bookings quarter. Our guidance for Q4 2024 is as follows: total revenue for Q4 is expected to be $127,000,000

Speaker 1

to $129,000,000

Speaker 3

Non GAAP operating margin is expected to be breakeven to positive 2%. Non GAAP net income per share is expected to be between $0.01 to 0 point 0 $3 Stock based compensation will be approximately $50,000,000 to $55,000,000 We are also raising our full year guidance for both revenue and profitability. Total revenue for 2024 is expected to be $484,000,000 to $486,000,000 Non GAAP operating margin is expected to be negative 2% to negative 1%. Non GAAP net income per share is expected to be between $0.06 to $0.08 Stock based compensation will be approximately $315,000,000 to $320,000,000 And finally, while we aren't providing 2025 guidance this quarter, the combination of our strategy to transition the majority of implementations to partners together with our accelerated SaaS conversion rates leaves us comfortable with current Wall Street consensus for full year 2025. Now let's turn it back to Tom.

Speaker 2

Thanks, Bill. The message you will hear from me every quarter is the importance of the long term view we are taking in building the Onestream business and brand. Be it advancing our product roadmap to expand our platform or increasing our marketing efforts to grow our brand and pipeline, the investments we are making today are laying the foundation for our durable growth in the years

Operator

to come. Our first question comes from Chris Quintero with Morgan Stanley. Your line is open.

Speaker 4

Hey, Tom. Hey, Bill. Congrats on the solid quarter here.

Speaker 1

I wanted to ask

Speaker 4

about the replacement opportunity as we go through this upcoming ERP super cycle. You've done a lot of work on this topic and it seems like there's going to be an acceleration in migrations over the coming years. So curious to hear your thoughts as it relates to what kind of ERP role you think it will play out. Will the companies still having multiple ERPs or will they standardize on one? And then a potentially single ERP world, do you think OneStream's value proposition can still resonate in that type of scenario?

Speaker 2

Thanks, Chris. So we think about this a lot and we are really, really comfortable in the value proposition that we're offering to customers, no matter if they have 1 ERP or 2 or what that kind of super cycle looks like because we're the flexible layer that they use to manage their business. So if you think about what's going on in the ERP world, you're really talking about, the recording of what's happening in a business that is oriented around the physical view of the business. And so for us, we're that critical layer that allows you to model how you manage and run your business. So that applies if you're a single ERP, you need that flexibility or if you're multiple ERPs, you need not only the standardization, but the flexibility.

Speaker 2

So we're really comfortable that we help customers amplify the value they get from their ERP investment.

Operator

Thank you. Our next question comes from Mark Murphy with JPMorgan. Your line is open.

Speaker 5

Thank you and I'll add my congrats. So Tom, not everyone is performing quite so adeptly in the Office of Finance at the moment. And we do hear from some of your peers that they are finding some of the SAP and Oracle businesses is tough to dislodge as they get into these cloud migration ways. It feels like OneStream is having a very different experience. I'm wondering if you're sensing a tipping point where it's just common knowledge that they should be talking to OneStream or are they viewing you as a little more future proof because of the platform capabilities or the architecture you have with Sensible ML and maybe that's making a difference?

Speaker 5

Just why do you think that you're kind of having better success?

Speaker 2

Thanks, Mark. That's a great question. Really thinking about this as we are offering an opportunity for companies to be as transformative possible. So when you think about having a platform like OneStream, if you're a company that's got a lot of different financial solutions in play, which happens to

Speaker 6

be the case with a lot of the

Speaker 2

larger legacy based solutions that maybe they've surrounded with additional point solutions over the years. The message that OneStream is able to bring to that customer is that we can help you become very efficient at delivering your core financial requirements so that you can participate in this AI revolution. You can participate in having finance become more and more optimal. And I think that's really resonating with customers and with the market in general.

Operator

Thank you. And our next question comes from Koji Ikeda with Bank of America. Your line is open.

Speaker 7

Hey, Tom. Hey, Bill. Thanks for taking the question. I wanted to ask one here on the competitive environment and maybe how it feels like today versus a year ago, specifically against Hyperion and maybe digging a little bit deeper specifically on Hyperion's cloud offering. I totally get the competitive advantage versus on prem, but what about cloud?

Speaker 7

And I ask this question because we've been hearing from more than one partner that Hyperion cloud has gotten better over the past year. So it just makes me begin to wonder what that Hyperion replacement cycle could look like over the next 12 to 24 months. So is there anything you could share about kind of this one stream versus Hyperion cloud EPM differentiation that's giving you the confidence your strong pace of takeaways will continue?

Speaker 2

Sure. So as we look at this, we're seeing a lot of consistency in those win rates. And certainly, competition is always there. And we're one of those companies that feel like that makes us better, and we keep trying to react to make sure we keep our competitive advantage. But we really are leaning on the fact that we're a single platform and that's really hard.

Speaker 2

That's something that happens from the very first line of code and it's something that is not easy to replicate. And you see that even with the sort of the siloed cloud approaches. So even as other companies are starting to adapt their methodology or improve particular functionality and product, we still have this high ground that's fortified by our platform based approach. And so and we're continuously endeavoring to make sure that we're innovating and being that functional lead as well. So we so all in all, we take again, not at all broad brushing.

Speaker 2

We're always very, very focused on what our competitors are doing and making sure that we're innovating at a pace that keeps us ahead.

Operator

Thank you. Our next question comes from Steve Enders with Citi. Your line is open.

Speaker 1

Okay, great. Thanks for taking the questions here. I want to ask on the defensible ML and the AI opportunity that you're seeing. Wondering if how widespread or how deep the conversations are going across the current customer base and maybe what some of the new uptake in pipeline is looking like today?

Speaker 2

Sure. I'm happy to share that. So we were really thrilled at sort of the momentum build that we're getting, not only from the current successes that we're having with SML, but also our ability to showcase those successes and have customers share those at our user conferences. So we're starting to see more and more interest. And as I alluded to in my statements, there's a very large education process that needs to take place and we see ourselves at the forefront of educating our customers and just how important these AI technologies are, but more importantly, how much of an advantage they can offer.

Speaker 2

So again, that sort of a build when you think about making a market, if you think about helping customers try to achieve something different, such as a touchless forecast, you really have to invest in that education process and help them move along that spectrum. And so we're really comfortable that it's an outsized opportunity. We're in the early innings, and we continue to prove ourselves and help educate our customers. Thank

Operator

you. Our next question comes from John DiFucci with Guggenheim Securities. Your line is open.

Speaker 8

Thank you. My question is for Tom and it's sort of a follow-up to Chris and Koji's questions. And then Tom, the one platform topic that you talked about. I think a lot of people and a lot of people that we speak to as far as investors associate the growth in momentum that you're seeing in the market with a legacy replacement for consolidation close, including I mean, we sort of looked at that first too and we're like, yes, they're seeing some benefit and you are. But the more conversations we have with people in the field, the more we've understood that traction independent of that, that the financial and operational planning is getting right now for you.

Speaker 8

That's like we're actually a little surprised at how much traction that independent of financial close is getting. And it looks like it's set up for the future too. But can you talk more about that sort of success you're seeing in planning today? And maybe how the core principles for financial consolidation and close have given you a leg up in the planning market. You even seen one of your major competitors actually just buy a close company that was traditionally a planning company.

Speaker 8

If if you can maybe talk about that, that would be great.

Speaker 2

Sure. Thanks, John. It's a great question. And I'm excited to talk about this one actually because it's something that's near and dear to my own time in corporate finance. And that is we really set out to make sure that we can help, as you alluded to, solve the core finance problems at every business that has evolving complexity or is already globally complicated.

Speaker 2

We need to help them do the things, what we call core, the financial consolidation planning, account reconciliation, things you have to do and you have to do correctly. But we all know when I go out on sales calls and I'm speaking with customers, they want to talk about how they can be more strategic. And when I say customers, the Office of the CFO, the Chief Accounting Officer, the Head of Financial Planning, how can they be more strategic and help drive the business? And that's why you're hearing that because once we help them become efficient at the core, which every business has to do, they start to be able to get leverage on the investment they've made in OneStream to drive more value and actually become a real partner to the company and lend that analytics capability, the information that's being created and supplement what's happening operationally and ultimately what you're getting and why there's so much interest and why I feel like this is the outsized opportunity and really is the new definition in the future of CPM is this idea that you can make sure that you're efficient at your core, but then you can take your operational plans and optimizations and link them to these financial objectives and metrics and manage them holistically and really drive the business forward.

Operator

Thank you. Our next question comes from Brent Bracelin with Piper Sandler. Your line is open.

Speaker 9

Thank you. Good afternoon. Great to see the momentum built here. Tom, I wanted to double click into the government opportunity. I think you've disclosed, I think, 15% logo penetration in the Fortune 500.

Speaker 9

You talked about a new large government agency kind of leaning in with you guys here. What is the penetration, your best guess penetration in government? And can you maybe size the scope of the opportunity as you think about a whole government agency replacing kind of legacy solutions? What does that opportunity mean for the firm? Thanks.

Speaker 2

Thank you. Yes, it's a very sizable opportunity and we're reaching the point as a business where we've proven ourselves across multiple agencies and multiple sectors within the public sector in terms of defense and making sure that we have the right product aligned with the right security posture and aligned with the right way of thinking that you actually you have differences in processes and planning when you're an agency versus a revenue generating business. So it's early innings, but we've been building momentum as a company by landing more and more of these significant marquee types of agencies. And so without trying to quantify it exactly, we feel very well positioned based on the success that we're having and our commitment to continuing to grow. And we feel that it's a continuing important segment of our business that we'll be focusing on.

Operator

Thank you. Our next question comes from Alex Zukin with Wolfe Research. Your line is open.

Speaker 10

Hey, guys. Thanks for taking the question. Maybe just comment on the demand environment in general, what you're seeing now as arguably we get past the election into the end of the year? Are you kind of seeing customers and companies start making plans that maybe are a little bit more transformational than in previous quarters and periods given kind of the changing velocity of the businesses, the power of AI. What kind of what are you seeing there in any verticals that stand out to you as being particularly interesting?

Speaker 10

And then any comments, Bill, just about net retention, how that trended and linearity in the quarter?

Speaker 2

I'll start and then let Bill respond there. In terms of we're seeing a consistent demand environment, obviously, very new, the election just being 24 hours old. We've got our eye on that, like I think every other CEO and management team sort of wondering, everyone I think is hopeful for this being a net positive, but maybe this will be a relief valve at some point as people some of this uncertainty clears and we know what life looks like. Right now, so fresh and kind of going into the quarter and leading up to it, we were seeing a consistent demand environment. Definitely, from my personal interactions and involvement in sales cycles, I would say that I am seeing an appetite for transformational.

Speaker 2

Most CFOs are looking to be transformational. And you hear that word, it's a little bit more than aspirational than I've seen in the past. It's not just more of the same. So that's an exciting trend that we see, especially as I see more and more forward leaning CFOs very interested in machine learning. There is a it's still very early days there, but the early adopter types of CFOs see this as a significant opportunity to inflect the way that they get information from a planning perspective, especially and then also the inferencing that they can get with some of the generative AI on top of it.

Speaker 2

So we're excited about that. And yes, we are seeing that. But I would still say it's early days trending.

Speaker 3

And Alex, to answer the second half of your question, I mentioned in my comments that bookings were roughly 60% new and 40% upsell, which has been the trend for the past couple of years at least. And while we're not going to give NRR on a quarterly basis, it's kind of in the same zip code as we told you during the roadshow.

Operator

Thank you. Our next question comes from Brian Peterson with Raymond James. Your line is open.

Speaker 10

Congrats on the quarter and thanks for taking the question. So I wanted to hit on some of your marketing investments. I know that's stepped up this year. I'm curious what you could say on the top of the funnel or early stage pipeline, any successes from those investments? Would love to get some color there.

Speaker 10

Thanks guys.

Speaker 3

Yes, I'll take that one. It's still early days. We did just start I think you saw the brand campaign that we launched earlier this spring around take finance further. Obviously, you've seen us kind of revitalize our logo and you've seen us increasing some of our specific demand gen environment or our demand gen investments. I'd say we have a reasonably long sales cycle.

Speaker 3

So certainly, the pipeline is doing what we had hoped. But again, it's still early days. I would also say, and I think some people commented on it last quarter, that we're really focusing also on our pricing and packaging, which is also in its early days. But we see some significant opportunity there that again will kind of manifest itself over time.

Operator

Thank you. Our next question comes from Mark Schappel with Loop Capital. Your line is open.

Speaker 10

Hi, thank you for taking my question. I have a question on CPM Express. I was wondering if you could just help us out with how you're thinking about the near term opportunity around the pipeline for the relatively new product?

Speaker 2

Sure. So I'm really, really excited about CPM Express and really our ability to focus on that commercial segment of the business and sort of meet them where they're at on their journey. So we're still in the process of, I'll call it, market fit testing, if you will, where we've been working with several customers that fit within that segment. And I'm even more encouraged that, that product or configuration of our product is really what it is, is the right match for that segment. It's again very early days, but we're focused on ramping that over the coming year and really making sure that we're in a great position to address these more companies that are becoming or seeking to become more mature in their financial processes and capabilities by offering them the CPM Express sort of best practices configuration that we've been able to take away from the large enterprise and share with them.

Speaker 2

With the core of that offering being choice for that customer, it's an opportunity to use the same software as the biggest companies in the world, but do it in an efficient way that can get them onboarded and onto this better analytics platform that opens up a lot of capability. So I'm really excited about that. Again, early days in the journey, but I really feel that it's a unique offering because it's not a separate product. It's not it's the same code base. It's an on ramp that you don't have to get off of.

Operator

Thank you. Our next question comes from Nick Aldman with Scotiabank. Your line is open.

Speaker 11

Awesome. Thank you. Tom, you talked about Splash EMEA. I wanted to ask about the Wave Developer Conference next week. Can you just outline where developers fit into the platform and just the overall picture, what the focus will be for the conference?

Speaker 11

And then you guys alluded to the growth durability of OneStream and that's kind of a core focus over the medium term. Where do developers kind of fit into the picture and how do developers sort of help shape a more durable growth profile here? Thanks.

Speaker 2

Sure. This is one of my favorite things to ask. I never get to talk about technology. So we really look at again, we built the platform and what's unique to that foundation is the whole idea that there's a development environment in the product, meaning that it's infinitely extensible. So a customer is never going to run out of software with OneStream.

Speaker 2

We can adapt to their needs. So the developers come in really 3 flavors, sort of a citizen developer, the kind of person that has a lot of domain knowledge that's looking to make sure that they can flex OneStream to solve their company specific problems to the more sort of what we would consider our exchange that wants to make something more of an application and expanding use cases as a partner, for example, a partner company producing in our partner place. So not that full on computer scientist kind of individual, but more of a developer than just the average power user. And then finally, you have more of the integrated systems vendors, sort of somebody an ISV, somebody that's going to that maybe has created a software company looking to replatform on OneStream. So what we're seeking to do at our conference like Wave is address and define a journey for all of those different types of creators, as we call them, within OneStream and help them understand how they can get the most out of the OneStream development platform, get a head start on maybe a technical problem that they're trying to solve for a customer or for their company by leveraging the underlying technologies or the integrated set of engines that really make up our platform.

Speaker 2

So that really ultimately, you talked about durable growth, this gives us such an advantage because if we can bring our platform and development capability closer to those people that understand the real business problems and we can turn those into reproducible products that surface within our solution exchange, that ultimately produces better value for OneStream, better value for the customer and for the contributor of that intellectual property.

Operator

Thank you. Our next question comes from Scott Berg with Needham and Company. Your line is open.

Speaker 10

Hi, everyone. Really nice quarter. Thanks for taking my questions. Tom, your subscription revenues are growing nearly 40%, which is an outlier in our SaaS coverage universe for most of us that covered the space. You draw some really healthy profitability in the quarter.

Speaker 10

Can you spend more to grow faster? Do you think the demand environment could actually bear more investments? Or is this the right level to manage the business at in the short term?

Speaker 2

Great question. I'm going to tie that into the last two questions a little bit. So as we've been really looking at OneStream and shifting and responding to our customers' interest in helping them solve more operational problems or challenges and going deeper and helping them solve the integration of finance and operations, We've been thinking about this more diverse product set and then the pricing and packaging of it and then the marketing spend that we can put behind it. So I really have been looking at the 2023, 2024 as the starting evolution of this sort of greater expanded product journey, and you can expect us to invest more into that, trying to make sure that we are fueling that longer term growth. And also, at the same time, continuing to focus on R and D.

Speaker 2

You can expect us to continue to invest heavily in our AI journey as well as the innovations that we're delivering on the core platform. So altogether, we really feel that we're positioned well with this expanded vision of the way that I think I've mentioned this on the last call. I really view the company as core and financial analytics and AI and operational analytics. And I think you put those pieces together, there is an opportunity for us to invest more in that side of the business. We just wanted to make sure that we have the framework and it's an efficient investment.

Operator

Thank you. Our next question comes from Derrick Wood with TD Cowen. Your line is open.

Speaker 10

Thanks. Bill, you had an impressive billings growth considering it was a really tough comp and I think this was the strongest sequential billings growth we've seen for Q3. So anything to call out in terms of outsized bookings performance or timing of renewals that would have driven this strength in the quarter? And any directional factors you would flag for us around billings heading into Q4?

Speaker 3

Yes. We were super happy with our billings performance. We actually did a little bit better than we had expected. What I would say and I would just say there was no change in duration. There was no there was nothing that was extraneous there.

Speaker 3

What I would say is we did collect or bill and collect a little bit faster. You also probably saw some outperformance on free cash flow that we demonstrated. But sometimes at the end of a quarter, we'll have deals that will sign in the quarter, but they'll say, hey, we don't want it to become effective until the next quarter. And I think you've seen that in quarters past. This quarter, we had a really strong desire for our customers to start right away, and so that drove a bit of outperformance in Q3 for sure.

Speaker 3

So anyway, we're happy with it, and thanks for calling it out.

Operator

Thank you. Our next question comes from Terry Tillman with Truist Securities. Your line is open.

Speaker 10

Yes, I'll echo the congratulations. It's a single question, but it might actually be 2 parts. Sorry about that. First, on the partner side, I mean, with your growth in scale and growing faster than really all your competitors, you're now public, you've got this notoriety. I want to know how our partners are responding?

Speaker 10

What are the investments they're making? And what kind of new doors they're opening up? And then the second part is related to the prior question for you, Bill. In terms of the free cash flow, it sounded like collections were strong, but do you still see 4Q being seasonally the strongest quarter for free cash flow? Thank you.

Speaker 2

Thanks, Terry. So partners are really an important part of our long term success and investing. Once you're continuing to invest in that community is something that really enables scale for us. And also creates a very trusted referral mechanism because these partners tend to have long term relationships with the customers that the buyers. And so overall, we continue and are constantly investing and thinking about that community, how to grow it, different ways to grow it as well as to support them.

Speaker 2

In general, we're seeing across the board, not only interest in the projects, as evidenced by the increase in the delivery that's being taken on by the partners, but also many partners investing. We now have over 100 products in our partner place section in the exchange, which is a direct investment of our partner community in creating intellectual property on our platform. So when I take all those pieces, I feel good about it. I also feel like we have a lot more that we can continue to do in terms of continuing to work more closely with the GSIs and opening up more and more long term opportunity for us and for the community in general.

Speaker 3

And just in terms of free cash flow, generally Q1 will be our highest seasonal quarter. Obviously Q4 is our biggest bookings quarter. And so while I realized that last year in Q4 we had a nice free cash flow quarter I think going forward and we do expect to be free cash flow positive this quarter. Going forward, you should expect Q1 to generally be the highest seasonal cash flow quarter.

Operator

Thank you. Our next question comes from Rob Oliver with Baird. Your line is open.

Speaker 6

Great. Thank you. Good evening. You guys called out a few large SaaS conversions in the quarter. And, Tom, I guess given the commentary in your prepared remarks at the beginning about the more strategic nature of the CFO and how there is a growing awareness there.

Speaker 6

I'd just be curious when you guys are in these discussions, these can obviously be painful moves sometimes for the companies to consider doing this. But when they do, talk about what sort of opportunity you're seeing to talk more broadly about the OneStream platform, whether it be what Solutions Exchange can offer a sensible ML or other opportunities to cross sell and up sell when those conversions happen? Thank you very much.

Speaker 2

Thank you. Yes, that's always a great opportunity once in a lot of ways, some of our newer innovations and offerings are even driving those customers. For example, the sensible machine learning AI platform is only available if you are in a SaaS based position with us. And so that actually drove a few of those significant conversions this quarter. And so that is definitely part of the conversation when someone is doing a is interested in a SaaS transition.

Speaker 2

On top of just sensible machine learning though, as another example, our first customer, very first customer of OneStream converted to SaaS this quarter. And they actually went ahead and added Power BI on a significant Power BI connector on top of it at the point of conversion. So you're seeing, as you would expect, we take this as an opportunity to offer more and more value to our customers. And it really does change the conversation that we can have when they're in our SaaS platform, because we're no longer having to as we look to seek as we seek to add new use case and new value, we're not having to get into conversations necessarily with the IT department or talking about compute resources because we control the entire equation. So it's overall an opportunity that we seek to maximize.

Operator

Thank you. Our next question comes from Daniel Chester with BMO Capital Markets. Your line is open.

Speaker 12

Great. Thanks for taking my question. I wanted to circle back to one earlier in the conversation about planning opportunity. If you think about your customer base today, maybe how prevalent is it that you're having customers have both capital planning, sales planning, people planning? There are different personas in the organization that might be using some of those tools.

Speaker 12

And so I'm wondering how often you're being able to sell multiple planning solutions inside to a customer? And, in areas I think going forward, how are you thinking about unlocking some of those silos to really harness the full planning opportunity? Thanks.

Speaker 2

Sure. So when we think about planning, we think about an opportunity within a customer, there usually is a sort of capability maturity model that a CFO or a company has within their thinking. And so we sell really you'll hear me use this word core. And so core being both the financial consolidation and financial planning, and then some of the other must haves. When a company becomes proficient at those, they don't jump just right to the operational side.

Speaker 2

They go to the next level, some of the things that you mentioned. So you'll start thinking about more granular planning around the line items such as salary or hourly wages. So that's when you'll engage people planning. That layers on another solution and more depth and more sophistication in your planning process. Then what will happen is they might go into capital or cash, as you mentioned.

Speaker 2

But that's an evolution that a customer goes through. So that's always and when we talk about replacing multiple solutions and the way that we've been able to really deliver a lot of value for our customers, it's having that journey defined for the customer and helping them achieve greater capability. And then what we were talking about when we get into operational is even beyond that. What you do when you start getting into operational is monitoring the trends that are underlying your salaries, your wages, your capital, your cash and then predicting those trends with AI. That's the ultimate journey.

Speaker 2

So when we look at it, the opportunity for us, even many of the customers that have started, we have a very detailed journey that we can take them on. And that's really the value proposition that we're ultimately sharing with our customers and why we feel, again, very why we feel so excited about and committed to the strong growth retention that we've been able to have. Because once we have that customer and we're demonstrating value, we know that we have a journey that can help them achieve a lot and we can help them rationalize how they can become a better finance organization and really strategic to their business. So all in all, I think that as you've described, the planning opportunity really is something that we can continue to develop for our customers through the journey that we're defining with the platform.

Operator

Thank you. I'm showing no further questions at this time. I would now like to turn it back to management for closing remarks.

Speaker 2

Thank you for joining us and we look forward to seeing you all soon. Thank you very much.

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Key Takeaways

  • OneStream delivered $129 million in Q3 revenue, up 21% year-over-year, with subscription revenue of $111 million (+39% YoY) and generated over $60 million in free cash flow on a trailing 12-month basis.
  • The company added 52 new customers (bringing the total to 1,534, +18% YoY), including major government agencies and EMEA wins, drove billings of $149 million (+25% YoY), and saw remaining performance obligations rise to $997 million (+35% YoY).
  • OneStream launched its 15th innovation of 2024—such as Navigation Center, AI-powered anomaly detection, and Pillar 2 tax reporting—and now offers 100 solutions via its Solution Exchange.
  • The expanded Sensible AI portfolio, including Sensible ML and Gen AI, is enabling customers to improve forecasting accuracy by over 10% and reduce planning cycles from days to under 30 minutes.
  • Management raised Q4 guidance to $127–129 million in revenue with non-GAAP operating margin breakeven to +2% and increased full-year 2024 revenue outlook to $484–486 million with a non-GAAP operating margin of –2% to –1%.
AI Generated. May Contain Errors.
Earnings Conference Call
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