One Stream - a profitable unicorn

OneStream is a leader in cloud-based financial operations software which has filed for an IPO. OneStream plans to trade on the Nasdaq under the ticker “OS.” They are looking to raise $465.5 million to get to a valuation of $4.38 billion. 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. 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 Fortune 500 customers. OneStream had a 118% net dollar retention rate and a 98% gross retention rate as of last quarter. OneStream’s last reported round in 2021 was a $200M round at a $6B valuation, according to Pitchbook.

OneStream Overview

From the S1 - “OneStream delivers a unified, AI-enabled and extensible software platform—the Digital Finance Cloud—that modernizes and increases the strategic impact of the Office of the CFO. Our platform unifies core financial and broader operational data and processes within a single platform, with solutions that maintain the integrity of corporate reporting standards for Finance while providing operationally significant insights for business users. With embedded applied AI and machine learning technologies built specifically for Finance, our platform automates and streamlines workflows, accelerates analysis and improves forecast accuracy, equipping the Office of the CFO to report on, predict and guide business performance. Our platform’s extensible architecture also enables customers to rapidly adopt and develop new solutions that meet the unique and continually evolving needs of their business. The Digital Finance Cloud empowers the Office of the CFO to form a comprehensive, dynamic and predictive view of the entire enterprise, providing corporate leaders the control, visibility and agility required to proactively adjust business strategy and day-to-day execution.”

OneStream history

OneStream was started in 2010 by Tom Shea and Craig Colby. Before starting OneStream, they both worked at a company called Hyperion Solutions, which was later bought by Oracle.

From the beginning, OneStream grew quickly because it focused on making customers happy and creating new, useful products.

By 2023, OneStream had over 850 enterprise customers. The company has invested wisely to improve its products. They also started the OneStream MarketPlace, which offers more than 50 additional solutions to enhance their main platform.

Market Opportunity

From the S-1: “We believe that transforming the Office of the CFO into a key driver of strategy and execution is critical for many organizations operating in today’s highly complex and constantly changing business environment. We estimate our total addressable market opportunity across all enterprises and mid-market organizations to be approximately $50 billion as of December 31, 2023. Our cloud-based platform enables a modern and expanded approach to finance and EPM, which is sometimes also referred to as corporate performance management or CPM. As such, we believe we are well-positioned relative to our competitors to take advantage of this opportunity.”

Product Overview

From the S-1: “Our unified platform’s highly differentiated capabilities enable us to deliver a comprehensive set of solutions for the Office of the CFO that eliminates the need for our customers to use multiple disparate legacy products, applications and modules. Our solutions include the following:

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.

In addition to our financial and operational capabilities, the Digital Finance Cloud embeds powerful applied AI and machine learning technologies to further enhance our offering to customers. Our Finance-specific AI and machine learning engines are built directly on our unified data model, ensuring seamless integration with our Finance solutions. With end-to-end data management and intuitive pre-built machine learning processes, our applied AI and machine learning engines empower Finance and operations teams to make informed business decisions and forecast with great speed and accuracy in today’s highly complex modern business environment.”

Business Model

OneStream’s business model is about providing a corporate performance management (CPM) platform.

Core Platform

OneStream offers a unified CPM platform that helps large organizations manage their financial and operational performance. This platform includes features like financial planning, budgeting, forecasting, reporting, and analysis.

Software-as-a-Service (SaaS)

OneStream operates primarily on a Software-as-a-Service (SaaS) model. This means that instead of selling software as a one-time purchase, they offer it as a subscription service. Companies pay a regular fee (monthly or annually) to use OneStream’s software, which includes updates, support, and maintenance.

OneStream MarketPlace

OneStream has created the OneStream MarketPlace, an online store where customers can find and install additional solutions to enhance their CPM platform. This marketplace offers over 50 solutions, such as specialized financial tools, analytics, and industry-specific applications. By offering these add-ons, OneStream can address a wide range of customer needs and create additional revenue streams.

Management team

OneStream’s management team is composed of experienced leaders with deep expertise in corporate performance management (CPM), finance, and technology.

Tom Shea - Chief Executive Officer (CEO)

Tom Shea co-founded OneStream in 2010 and serves as the CEO. Before starting OneStream, he was a key executive at Hyperion Solutions, a leading provider of enterprise performance management software, which was later acquired by Oracle.

https://www.youtube.com/watch?v=q-BNLSsaJr0

Craig Colby - President

Craig Colby, also a co-founder of OneStream, is the company’s President. Like Tom, Craig has a background at Hyperion Solutions. He brings extensive experience in managing product development and business operations. His focus is on ensuring that OneStream's products meet the evolving needs of its customers and that the company operates efficiently and effectively.

Bill Koefoed - Chief Financial Officer (CFO)

Bill Koefoed is the CFO of OneStream. He is responsible for overseeing the company’s financial operations, including budgeting, forecasting, and financial planning. Bill has a strong background in finance, having held senior positions at several large corporations, where he developed a keen understanding of financial management and strategy.

John O’Rourke - Chief Marketing Officer (CMO)

John O’Rourke serves as the CMO of OneStream. He leads the company’s marketing efforts, including branding, communications, and demand generation. John has significant experience in the enterprise software industry and has been instrumental in building OneStream’s market presence and driving customer engagement.

Dave Kasabian - Chief Strategy Officer (CSO)

Dave Kasabian is OneStream’s CSO. In this role, he is responsible for guiding the company’s strategic direction and ensuring that it remains aligned with market trends and customer needs. Dave has a background in corporate strategy and has held leadership roles in several technology companies, giving him deep insights into the industry.

Craig Colby - President and Chief Revenue Officer (CRO)

Craig Colby is also the Chief Revenue Officer (CRO), in addition to being the President. In his CRO role, he focuses on all revenue-generating activities, including sales, marketing, and customer success, ensuring that OneStream’s growth strategies are effectively implemented.

Investors and Ownership

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.

GTM Metrics

OneStream primarily sells its financial planning software directly and through over 250 partners, including big consulting firms like Accenture and IBM, which help implement their software as part of broader projects. They also partner with Microsoft. Implementing OneStream’s solutions, especially for large companies, is complicated, so consulting firms play a key role in this process. OneStream also has its own professional services, contributing 8% of its revenue last year.

Despite the complexity, OneStream’s software is very reliable, with a high customer retention rate of 98%. In 2023, they retained 99% of subscription and license revenue due for renewal, and their net retention rate, including upsells, was 118%. Their strategy focuses on acquiring new customers who tend to stay and grow their usage.

Contracts typically last 3 years but can range from 1 to 10 years, with sales cycles lasting 4-8 months, though some can take years. OneStream has a large sales and marketing team of about 600 employees, making up 46% of their workforce. The average annual contract value for new customers was $257,000 in 2022 and $300,000 in 2023, driven by more users per customer. The cost per user ranges from $200-600 per month.

OneStream doesn't disclose the total number of users, so the average cost per seat is unknown. In terms of sales efficiency, it takes about 21-23 months to recover customer acquisition costs, but the exact calculation method is not shared.

Financial highlights

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)

• 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

• 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

OneStream’s reported ARR grew 34% year-over-year in the most recent quarter but is slowing. They have a strong pipeline of customers but their ARR figures will be watched closely

Free cash flow margins are increasing

OneStream is moving further up the market and it shows in the growth rates of their larger customer segments.

OneStream revenue outside of the US is increasing

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 modelling language and better architecture.

Final thoughts

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. OneStream is growing ARR at 34% with 11% free cash flow margins and growth of >30% in a tough environment should give investors some confidence.

The Corporate Performance Management space is dominated by legacy players but as the customers transition to the cloud, OneStream will benefit the most. Also, Onestream sells to enterprises and their largest customer segment, customers paying >$1M per year, is growing 57% year-over-year.

However, there are concerns over growth as would the growth decline when they reach $1 Billion in revenues and is the team investing enough in R&D and AI tools to create the models?

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.