Q2 2024 Earnings Summary
- Strong international growth, especially in Europe, with 30% of business coming from outside the U.S., and strategic deals like the one with Groupe BPCE in France, establishing a beachhead in a pivotal region, indicating potential for accelerated growth in Europe.
- Significant market opportunity with only 5% penetration in replacing legacy systems, suggesting a large runway for growth as companies look to modernize their finance departments.
- Stable demand environment with normal sales cycles, and continued growth in sectors like banking and Europe, demonstrating a solid base for continued expansion.
- The shift from term license renewals to SaaS contracts in the public sector could lead to near-term revenue headwinds due to changes in revenue recognition, as SaaS revenue is recognized ratably over the contract term instead of upfront, potentially impacting total revenue growth.
- The introduction of CPM Express targeting mid-market customers may result in a decrease in average deal size, which could affect overall revenue growth since mid-market deals are typically smaller compared to enterprise deals.
- Management's decision to de-emphasize customer count as a key metric suggests that increasing customer numbers, particularly from smaller mid-market clients, may not proportionally contribute to revenue growth as much as larger enterprise customers.
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Replacement Cycle Duration
Q: Is the enterprise replacement cycle accelerating due to AI/cloud?
A: Thomas Shea explained they're only 5% penetrated, indicating significant opportunity ahead. Deal timing isn't driven by a specific factor; events like acquisitions, dispositions, or technology shifts such as moving to the cloud can trigger replacements. While AI and cloud contribute, they meet customers wherever they are in their journey. -
Sensible ML Adoption
Q: What's the near-term opportunity for Sensible ML?
A: Thomas Shea stated that Sensible ML has proven product-market fit with customer validation. It's benefiting both new sales opportunities as a significant competitive advantage and as an upsell to existing customers. They're seeing purchases upfront without proof-based projects due to success shared at Splash. -
Demand Environment and Pipeline
Q: How is the demand environment and any pipeline surprises?
A: Thomas Shea noted that the demand environment feels normal, with standard sales cycles and expectations. They're excited about banking and growing presence in EMEA, with continued attraction of million-dollar deals. Overall, they're calibrating the business toward the current operating environment. -
Greenfield Opportunity and TAM
Q: How much opportunity is greenfield vs. replacements?
A: Thomas Shea said the greenfield opportunity is still really big, as many companies still rely on Excel and static ERPs. Combined with replacement needs and eliminating point solutions, they estimate a total addressable market over $50 billion. -
ARR Growth and CPM Express Impact
Q: What drives ARR per customer growth, and impact of CPM Express?
A: William Koefoed mentioned they have over 80 customers paying over $1 million, increasing average deal size. CPM Express is in early stages but aims to accelerate mid-market growth, which may affect average deal size. -
CFO Software Spending Resilience
Q: Why is there enthusiasm in the CFO software category?
A: Thomas Shea explained that CFOs face constant pressure and must adapt to turbulent times. Companies are investing to modernize, and CFOs need to be strategic partners rather than just financial overseers. The shift from point solutions to platforms presents investment opportunities. -
Cost Savings as a Driver
Q: Is cost savings driving customers to OneStream?
A: Thomas Shea stated reducing technical debt and offering the right economics is crucial. By eliminating multiple point solutions, customers can achieve licensing savings and efficiency gains. Their value team emphasizes cost reduction and value delivery. -
Customer Adds and Growth Drivers
Q: What drove the strong customer additions this quarter?
A: Thomas Shea suggested focusing less on customer count as they expect it to become unreliable due to varying customer sizes. They're achieving success in large enterprises and increasing success in mid-market with CPM Express. -
European Expansion
Q: How will the France deal and hiring boost European growth?
A: Thomas Shea said the deal in France establishes their position in a large market, especially in banking. With 30% of business coming from outside the U.S., they're heavily investing in Europe to grow that segment. -
Commercial Opportunity Progress
Q: How is the commercial motion progressing?
A: Thomas Shea stated they have a dedicated sales team for the commercial segment and are focusing on serving emerging companies. They aim to onboard customers who can grow with OneStream without changing software. -
Platform Differentiation and Defensibility
Q: What makes OneStream's platform defensible long-term?
A: Thomas Shea highlighted their uniquely unified platform with integrated engines and owned IP. Their development environment allows building vertical solutions, enabling partners and customers to create on the platform. -
Solution Exchange Impact
Q: What impact has the Solution Exchange had since launch?
A: Thomas Shea mentioned they have over 100 partner-related solutions. An ISV chose to build their next product on OneStream's platform, showing its leverage and potential. -
Public Sector Pipeline
Q: How does the public sector pipeline look?
A: William Koefoed said they have a significant and growing public sector business. Transition from on-premise to SaaS deals changes revenue recognition, with SaaS revenue recognized ratably.