OneStream, Inc. (OS) Earnings Call Transcript & Summary

Okay. Good afternoon, everyone. I am Mark Murphy, Head of Software Research with JPMorgan. And it is a great pleasure to be here with Bill Koefoed, who is CFO of OneStream, and I just want to acknowledge that Annie is out here and made the trip as well. So first off, Bill, I just want to say thank you to you for carving out the time and flying across the country to be here with us.

Yes, no, thanks for including us. This is, of course, an awesome conference, and we're delighted to be here.

And I should acknowledge that I think you were in Nashville yesterday and flew overnight coming from your own Splash conference, so we appreciated that much more. Could you maybe take a moment and, for the benefit of anyone in the audience who isn't familiar, just give the quick version of what OneStream does and introduction of yourself?

Yes. By way of my background, I started my career in public accounting in San Francisco, kind of grew up in technology. I had the opportunity to work at Microsoft for 10 years, including 4.5 running Investor Relations, when Steve Ballmer was the CEO, and it was an incredible experience. And then I was the CFO for a couple of software companies and then was really fortunate to get a phone call to come join OneStream 6 years ago. So it's been -- just to put it a little bit in perspective, call out to my friend, James, in the audience, when I joined, we were about $35 million in ARR. We got our first line of credit from JPMorgan. And today, we're over $600 million -- kind of right around $600 million. And we've grown from employees in the 300s, and now we have 1,600. It's been an incredible journey. And candidly, we're just getting started, and we've got a great vision ahead.

It's been quite a ride, Bill. And we have always admired OneStream. At least for as long as I've been tracking the business, we have felt that it has a really rare combination of several attributes that we're very drawn to and impressed by. You have stickiness. You have organically built. You have a platform consolidator. You have the aspect of the business where you're disrupting legacy products that are kind of calcifying and aging out. But I think more than that, for us, this has been a very difficult problem to solve, right? So we think of it as having a moat around the business. Can you explain why so few companies have tried to build a single platform that is going to span across budgeting, planning, forecasting and then financial close and consolidation. What is it that's so difficult about that?

So let me -- I gave you a little bit of my background, but let me give you a little bit of a background to the company. So there was a predecessor company that Tom and one of his OneStream cofounders founded back in the '90s. It was a company called UpStream. And the reason why it was called UpStream is it took data from an ERP system and moved it up to Hyperion at the time, which, of course, was the leading CPM vendor. In the early 2000s, that company was acquired by Hyperion. And just because it was so pervasive, it's actually now called FDM, which is part of the Oracle suite. While they were at Hyperion and they met Bob Powers, and Bob had built HFM, which is kind of the heartbeat of Hyperion, Hyperion Financial Management. Of course, Oracle acquired Hyperion back a year or so later, 2006 or so. And then Tom, Bob and Craig, at the time, left. A couple of years later, they founded -- after their non-compete, they founded OneStream. And the vision -- because they didn't see Oracle doing it, their vision was, to your point, to really create a single platform. There's 3 real capabilities that we have. One is we're a single platform. We have a single data model. We have a single security. You do planning. You do reporting, you do close, you do consolidation, and you do that all on that single platform. I think one of the things that investors don't really understand is that consolidation is actually technically hard, the math associated with consolidation is technically difficult. In one of the sessions yesterday that Tom was talking, you can aggregate information or entities. You can do that fairly easily. It's 1 plus 1, plus 1, plus 1, et cetera. But when you end up doing consolidation, you have to do all the eliminations between all the different entities that are selling, cross-selling to each other. And so the math becomes exponentially difficult. And so you see a lot of planning applications. There's Anaplan, there's a Planful, there's Adaptive and the like, and many other kind of start-ups. But you see very few in the consolidation area because the math is actually technically difficult. You have to know the difference between an asset and a liability. You have to know a plus or a minus. You have to know whether or not they have partial joint ventures. And so that's really a lot of the foundation of our business. The second pillar is really around infinite extensibility. And so you can write software on our software. And many companies do. We have over 100 applications in our Solution Exchange, and that can go on forever as people find new areas that they want to build capabilities onto OneStream. And then the final pillar is really around AI. And I'm sure -- I know you have other questions, and we made a number of exciting announcements yesterday at Splash around AI, but we've really built a really incredible AI capability that's all integrated into OneStream that no one else has.

Very well said. So that consolidation problem is basically too heavy of a lift for most companies to take on. How does it make a difference in your life using OneStream? And the reason I ask, Bill, is because you were CFO of Blue Nile, Puppet Labs, Skype. So you've seen the inner workings of this from a lot of different angles. Like, does the forecast become more accurate? Does the consolidation become more accurate? Do you trust the data more? Are you eliminating risk? How does it manifest for you?

Yes. I mean I'd say a couple of things. One is you have a single source of truth. And that, in and of itself, is really powerful. My controller has the same platform that my head of FP&A does. We're all working off the same sheet of music. If you ask -- I know many of you are going to see CFOs for the rest of the day. If you see them and you ask them, "How many times do you go into a management meeting where people are arguing about numbers," you'll get a lot of hands raised. And so for us, we don't have that problem. We've got -- obviously, we're a public company now, so we've got a speed to report that needs to be quick. It needs to be accurate, obviously, as we report to the public markets. But then the thing that I would add in, Mark, is that we've been able to add a lot of other capabilities because of the extensibility of the platform. So I ingest all the Azure data into OneStream. We use Azure as our platform. I want to see gross margin by customer. Well, you have to take the Azure data, you have to match it up with my revenue data, and you have to be able to do that all in a way that you can trust the data. You can do that in OneStream. We actually ingest Salesforce data into OneStream, so we can see pipeline trends over time. And we use OneStream to be able to look at pipeline management and the changes associated with that. So it really helps with my core day-to-day responsibilities, but having additional insight to be able to run our business and work side by side with our CEO has been a really important part of my experience here.

Okay. Great to hear that in your words and what that actual experience is like. So it seems like it leads to stickiness. You've got the 98% gross retention metric. When we look at the customer base as well, it is a who's who, from Walmart to Costco to Amazon and Home Depot. So in that retention, even if you just take the 98% and you look at it, it feels like a ServiceNow or a Workday. The customers aren't going anywhere. To what do you attribute that kind of underlying stickiness? We have plenty of enterprise companies where that gross retention is closer to 90% or even high 80s.

I think part of the culture of the founding of this company and just who we are is we fight for customer satisfaction every day. One of the things that we've talked about is we want every customer to be a reference. It doesn't necessarily mean that they have to say something amazing about us, but you should be able to go talk to any one of our customers. And we hand anyone who's a prospect a book of every single one of our customers. At this point, it's 1,600. When I was joining, and I was, to your point...

It was a lot less.

Yes, it was less. But still, the power of it is calling one of them. They'll tell you about their experience. Again, we don't pick you and we don't say, "Oh, you can only choose these 3," because we want every one of our customers to be able to talk about their experience with OneStream, and we fight for that customer satisfaction every day. I think, as you know, we named our IPO project, Venus. As you probably know, Venus is a goddess of love, and we really want our customers to love our software. And I think some of our initial investors pre-IPO had said that they've never seen financial software that's appreciated so much by their customers as OneStream.

Yes, you have a lot of raving fans out there. How resilient has the retention been? If you look across some of the other economic downticks or slowdowns that we've had, there was the COVID period; there was the kind of late '22 into '23, what we call, the software recession. How does that retention perform?

It's been consistent across that whole period.

Yes, it's pretty remarkable. Any thought on how many data feeds -- you just were talking about taking Azure data, taking Salesforce data and putting it into the system. How many data feeds are commonly being ingested in? Because presumably, that's also part of the stickiness. It's the love of the customer, the Venus aspect. But how many -- when you're ingesting a lot of complex data flows, it's going to create stickiness as well, right?

Yes. I mean one of the things that really makes us valuable to our customers is -- I just gave you a couple of examples. In addition to the ERP systems, which we can ingest data from SAP, Oracle, Microsoft Dynamics, NetSuite, any of the ERP systems, you can also ingest operational data. And we're finding more and more customers are using us, as I mentioned in our example, to help them with operational complexity and help them steer the business in a way that, to your point, the customers really appreciate and really value.

Just for the benefit of people in the audience that haven't been hands-on on that, what do you mean by operational data?

Well, just to use my example, again, you're bringing in Salesforce sales data, being able to bring in operational data like COGS. Kind of the world is your oyster in terms of what matters. We have people using us for supply chain management. We have all kinds of capabilities.

Okay. So maybe we can talk about what is fueling some of the opportunity set for you. When we look at the ERP migration cycle, we have SAP and Oracle pushing customers pretty hard to get off of the on-prem versions and move into their cloud versions. We think it's going to play out for a long time. I was sitting at a table, I think, with Tom at your conference, and there was a prospect there who I started talking to, and he said, "We don't want to replace the ERP system, but we can extract it into OneStream and modernize the office of the CFO that way." How tangible is the flow of leads that are coming to OneStream, if you were to just isolate and say it's coming because of that ERP migration cycle?

Well, first of all, I would say the example that you used is actually a really great one because you don't necessarily have to replace your ERP. It's obviously expensive. It's complicated. But if you want a modern platform that I mentioned to be able to do close consolidation, et cetera, I mean we're the book of record generally for our customers to be able to report their results, whether it's to Wall Street or private equity or whoever their investors are. And so you can create that modernization without having to do the ERP transformation. That being said, not just on the ERP side, but on the CPM side, there's an incredible amount of legacy software that's out there. I mean we estimate we're 5% penetrated in legacy CPM. And so the office of the CFO really hasn't had kind of "finance transformation" for 25 or 30 years, kind of pre-Y2K. And people are using software for companies that haven't existed in 20 years. And so we're quite enthusiastic about that. I had breakfast this morning with the CFO of one of the professional services firms here in Boston, and they see that pent-up demand as well. I know you do. So that will be a great time when it happens.

Pent-up demand for office of the CFO to basically finally move to the cloud?

For finance transformation, yes.

Right, for sure. Okay. What about now? So Bill, if we go and ask the ERP providers themselves, they, of course, are going to say it's better to have the general ledger and the consolidation, maybe even the budgeting, in one single platform, right? I mean that's going to be their whole pitch from Oracle and SAP. How do you respond to that?

Yes. I mean an ERP system is a hardwired transactional system in your business. If you want to look at the business by geography, you're going to -- and you don't have your business wired that way, you're going to have to download it in Excel and basically manage your business into Excel. The whole concept of a cube started 25, 30 years ago, and it was created to solve that problem, "I want to look at my business this way, that way, in a variety of different manners." And so you can't do that in an ERP system. You have to have a corporate performance management system like ours, and we're exceptionally well suited to be able to help businesses solve their problems so that they can look at the world through the view that they want to use to run and manage the business.

Okay. And so now just trying to size up the opportunity against Oracle Hyperion, there are -- we see different estimates of it. But I think what we've gravitated to is 15,000 or more customers that are running Hyperion. Again, it's hard to prove it. One of them said, and here's a bit of a long quote, "Hyperion said the existing solution was going out of service. We would have to migrate to a new version of the HFM tool, which was a complete rebuild. We were given an ultimatum, and so we used that as the starting point of, 'What else can we do?'" So what do you think, Bill, the fact that we're hearing feedback like that, what are the Achilles' heels of Oracle Hyperion that -- which because your team knows it from the inside out, right, what's causing customers to kind of want to make a switch?

I mean the example that you gave is an excellent one. About 2/3 of our new business is legacy replacement. I mentioned that we're just literally 5% penetrated, but those are all great opportunities for us. But in addition to the legacy replacements, there's a huge amount of opportunity for us to expand into companies that -- or to grow in areas where companies aren't using a legacy replacement. And one of the tools that we have kind of recently announced is CPM Express. And what CPM Express is, is it's a pre-configured best practices version of our software. It's the same software, but you're getting a pre-configured chart of accounts, you're getting pre-configured reports. And so the ease of implementation is dramatically simpler than if you're doing a legacy replacement because obviously, legacy replacement, you're having to replicate the environment that you have in that world. And so we're really excited about CPM Express, and we talked some about that, obviously, in Nashville over the last couple of days. But that's an expansion opportunity for us, for sure.

What do you do if you're positioning against an ERP platform, and it's not legacy? So you're positioned against it and it's modern cloud. The biggest examples would be Workday and NetSuite. And I think you mentioned NetSuite a few moments ago. But what if you're in a selling situation and the competitor is saying, "Well, we're modern and cohesive as well."

We're indifferent, whether you're on-prem or you're in the cloud. Again, for the same reason that I mentioned earlier, we build the cube that allows you the opportunity to see the world through the way that you'd like to see through it, in a compelling way and through those different lenses that allow you to help steer the business.

Okay. And how much runway do you see for these ERP cloud migration cycles. You have -- oversimplifying a bit, but if we called it S/4HANA and then Oracle Fusion.

I think it's going to take a long time. There's a lot of runway.

It's a single web of complex on-prem. There's a lot of gravity around it, right? So it's going to take -- I mean there's gravity, but it's changing and it's aging out.

I think for a CFO, I mean, your job is to figure out the priorities that are going to help to drive the highest shareholder value for your business. And so again, is that the area? Is it modernizing your CPM platform? Is it investing in another area? But again, we think you can get a lot of the benefits of helping you to run and steer your business if you use a modern CPM platform like OneStream.

Yes. Is there any discernible change if you look at the competitors that you're displacing? I think the sense that we have had -- I'm sure in the U.S., you run into a lot more Oracle Hyperion than anything else, right, with larger customers. I would think in Europe, you're running into -- you would run into SAP a lot more heavily. But our sense is net-net, it leans pretty materially toward Hyperion. I mean can you -- and there are plenty of others that I'm skipping over. But can you comment on that, where the displacement is usually coming from? And is there any change in trend?

I mean, clearly, Hyperion has had the biggest installed base. And by the way, you can put Hyperion on top of SAP and there's plenty of Hyperion that sits on top of SAP ERP. They did -- of course, they were a separate company at the time. Just one other thing that I forgot to mention earlier, but one of the other catalysts for, call it, finance transformation or the like is really around AI. I think you know we have a product called Sensible Machine Learning. We just actually announced that we're renaming it to SensibleAI. But that's also a catalyst because CFOs are having to forecast, and obviously, today, it's an uncertain world, but they're having to go out there and forecast. And so having better forecast accuracy and being able to run different scenarios and help steer their business has been a catalyst for us. I think you mentioned some of the companies, but we've had some like really great wins. We had the Endeavor Energy, which is a big power company in Australia, talked yesterday at our user conference about how they're trying to manage electric capacity in New South Wales and Australia. But that's a -- I think AI -- people kind of ask, "Is AI taking dollars away from some of those migrations? Or are they adding dollars? Or are they a replacement?" I think AI, at least in the office of the CFO, can be a really great catalyst because CFOs are more important than ever in today's environment because they're having to manage all the uncertainty and help steer their business. And so we're really excited about that and obviously, quite excited about our products in that area.

What are you seeing on the topic of platform consolidation because we have seen, and I think it's been true for a lot of years now, that basically several systems are getting replaced commonly when OneStream goes in. And I think a lot of what we hear about, it tends to be that reconciliation tool. I think you were alluding to that a bit earlier as well. Some of the disclosure tools like Workiva. But I think there's a whole other world of products out there that you can replace. Can you walk us through that? And how strategically important is it to you to do the platform consolidation?

It's part of the ROI of OneStream. In most cases, we'll, call it, on average, replace 2 to 6 systems for our customers. I was talking to the CFO of one of the country's largest trading platforms, and they took 15 systems out to replace it with OneStream, which was a major -- a win for them. I mean now they're looking at what the next opportunity is. That doesn't even include planning, that was just in their kind of core closing consolidation. So there's a great opportunity. But to your point, Mark, we find that once people choose OneStream, they're looking -- just even in my own personal example as we're talking about gross margin, but they look for more ways. And so account reconciliations, as you mentioned, is an application that's in our Solution Exchange. That's available if you want to use that. If you use that, there's a public company that their software, you don't necessarily have to use them anymore and you can use OneStream. Again, obviously, continuing to expand out. Transaction matching is one of our capabilities. And then with AI, we've added a lot of the kind of anomaly detection capabilities that you get in AI that can even help you further along your journey to be able to modernize and focus on the capabilities of enhancing your value of OneStream.

What do you think is determining whether -- when you go in and speak with the finance team, some of them might lean more toward a single pane of glass from OneStream. Some of them might say, "Well, the path here is best-of-breed across all these little subcategories." What do you think determines it? Is it tipping more towards single payment glass?

Well, I think certainly, if you look at other areas of your software coverage, you're clearly seeing that. I mean I think in ServiceNow, they're becoming the platform for the office of the CIO. Clearly, Salesforce continues to add capabilities to be the platform for the office of the CRO, Workday for the CHRO. And our experience and our vision is to be the platform for the office of the CFO, and that's really what we're oriented toward. And candidly, most of the CFOs that I talk to, if not -- I'm sure it's not all of them, but the vast majority of them want a single platform to be able to serve their needs.

Okay. When you think about it architecturally, maybe this is less of a CFO question, but you've got a differentiated architecture and there's this underlying philosophy that you have of, "We can add new features," right? You can add new modules, new utilities, new tools, to the platform without adding technical debt. And the analogy that we heard is like it's the same thing that Apple is trying to do with the iPhone, right? Can you walk us through that? How do you go about that?

So one of the cool new announcements that we made yesterday is a capability called Genesis, which is allowing -- it's using no code/low code development to allow you to bring AI or reports or new applications to your OneStream platform. So it's a really powerful tool. It's going to -- as I mentioned, we have 100 applications already in the Solution Exchange, but the Genesis blocks are going to allow better, faster, more robust reporting and applications for our customers to be able to run their business.

Okay. Interesting. That's an announcement we'll have to catch up on after the conference here.

Tom would be happy to spend an hour with you.

We'll take him up on that. So the platform has been almost entirely organically built, right, for a long time now.

We did make another announcement yesterday. I know you're catching up on announcements, but we bought 3 applications from one of our partners: allocations (sic) [ AllocateIt ], which, of course, is really important for many of our customers; another tool called DrillIt, which allows you to kind of drill down into your OneStream application in a richer way; and then another one called Toolkit, which is kind of an admin assistant. It was a subsequent event in our 10-Q. We bought those 3 applications for $3.7 million. But we're going to be able to add more value to our customers and be able to cross-sell that across our 1,600 customers, so it should be -- just one more example of how we can continue to expand our platform.

So how should we think of it? The core vast majority of the product is going to be organically built and then sporadically, you can tuck in something that's a little more out on the periphery.

Exactly.

And buying 3 apps, and not spending a lot for them, we like that part of it, is that something that is pretty easy to get, feeling kind of natively cohesively in your environment? They didn't -- did they build that using your tooling?

They did.

Oh, they did.

And part of the reason -- we actually talked about it yesterday at our user conference. And part of the reason why we did that is because we do have a big partner ecosystem. And the more that we can incent them, whether they decide to sell it within the Solution Exchange or whether they decide to build applications for us to acquire was something that we want to spur. Again, more value for them, more value for us, more value for our customers, those are really -- more value for shareholders -- is really our goal.

Okay. So we have about 3 minutes left. I do want to touch on the macro, Bill, because you might have experienced it a little out of phase versus some of the other companies we cover. You were on the earlier side. You had deal slippage in Q4 relating to macro. We think that was due to some of the exposures that you had. Can you talk about what surprised you then? And then how did that improve in Q1? Was it -- it could have been deals slipped and then you closed them. It could have been the sales team sometimes will buckle down and focus harder. It could have been -- maybe it was actually a different underlying tone of business. It's hard for us to unpack that.

Yes. As I think I mentioned it on the Q&A and the earnings call, we had a number of deals slip in Q4. They were unexpected. The sales team had the DocuSign signed. They had gone through legal. They had gone through pricing. And the expectation was that those deals would be signed. Obviously, they slipped into Q1, and we did close them in at the beginning. I think the last one that we had was the first week of February in 2025. I mean, look, we have a really excellent sales team. They didn't certainly like the fact that those deals slipped. And we got our -- I think I mentioned we had our Is dotted and Ts crossed as we exited Q1. And again, of course, we have deals slip. We have deals slip every quarter. But the sales team did quite a really nice job executing at the end of Q1.

So it's kind of a full recovery. And then part of what you said on the earnings call was that you have the strongest sales pipeline ever, right? Even though we're in -- there's caution in the backdrop due to uncertainty, but the pipeline is very strong. To what do you attribute the recovery in the pipeline during Q1?

Yes. I would -- I'm going to tell another quick story about Nashville. I was a bit worried about whether or not we're going to have strong attendance at our user conference. The first thing, I think, that a CFO of one of our customers could do is cut T&E, "Sorry, you're not going to that conference." We had the highest attendance ever at our user conference yesterday. It was higher than last year. It exceeded our expectations. We actually had a bit of a hockey stick here in the last couple of weeks. And I don't know if that's business momentum or it's just people making their last-minute plans, but we have...

In the attendance?

In the attendance. We have more pipeline at our Splash user conference than we've ever had. And so I think we feel really good about our outlook. The uncertainty, I think, for us and for everybody else, causes some caution in terms of like what your conversion rate is going to be and the like. But I'd say the leading indicators of our business are strong. And that, for us, whether we have them as customers in this quarter, this year or next year, we're focused on the long run. And those leading indicators to us are a good indicator of our future and we're really excited about it.

Great note to end. Bill, again, I can't thank you enough for taking the time to be with us here.

Thanks for including me.

Appreciate it.