10-Q: OneStream Inc. Reports Q3 2024 Results Following IPO, Revenue Growth Continues

OneStream Inc. reports a net loss for Q3 2024, following its IPO, despite continued revenue growth driven by subscription services.

Summary

• OneStream Inc. reported a net loss of $249.3 million for the three months ended September 30, 2024, compared to a net income of $6.8 million for the same period in 2023.
• The company's total revenue increased to $129.1 million in Q3 2024, up from $107.0 million in Q3 2023, driven primarily by a 39% increase in subscription revenue.
• License revenue decreased by 40% year-over-year, reflecting the company's shift to a SaaS-based model.
• Operating expenses increased significantly to $319.9 million in Q3 2024, compared to $70.5 million in Q3 2023, primarily due to equity-based compensation expenses related to the IPO.
• For the nine months ended September 30, 2024, the company reported a net loss of $262.2 million, compared to a net loss of $31.7 million for the same period in 2023.
• Software revenue, which includes subscription and license revenue, grew by 24% year-over-year in Q3 2024 and 35% year-over-year for the nine months ended September 30, 2024.
• The company had 1,534 customers as of September 30, 2024, representing an 18% year-over-year growth.

Sentiment

Score: 4

Explanation: The document presents a mixed picture. While revenue growth is positive, the significant net loss and increased operating expenses, particularly due to equity-based compensation, raise concerns. The company's transition to SaaS and its competitive landscape also present challenges. The sentiment is therefore cautiously negative.

Positives

• Subscription revenue continues to grow strongly, increasing by 39% year-over-year in Q3 2024.
• The company's customer base grew by 18% year-over-year, indicating continued market adoption.
• Software revenue increased by 24% year-over-year in Q3 2024 and 35% year-over-year for the nine months ended September 30, 2024.
• Interest income increased due to higher average cash and cash equivalent balances.

Negatives

• The company reported a significant net loss of $249.3 million for Q3 2024, primarily due to increased operating expenses.
• License revenue decreased by 40% year-over-year, reflecting the company's shift to a SaaS-based model.
• Operating expenses increased substantially, driven by equity-based compensation expenses related to the IPO.
• Gross margin decreased from 72% in Q3 2023 to 50% in Q3 2024.

Risks

• The company's rapid growth may not be sustainable or indicative of future growth.
• The company faces intense competition and could lose market share to competitors.
• If the industry does not continue to develop as anticipated, or if potential customers do not adopt the platform, sales may not grow as expected.
• Security breaches or unauthorized access to customer data could harm the company's reputation and lead to significant liabilities.
• The company's reliance on third-party data centers exposes it to potential disruptions.
• The company's international expansion plans are subject to various risks, including currency fluctuations and regulatory challenges.
• The company is subject to the Tax Receivable Agreement, which could require substantial payments to the TRA Members.
• The company's dual-class stock structure concentrates voting control with KKR and the CEO, limiting other stockholders' influence.
• KKR's interests may conflict with the interests of the company or its Class A common stockholders.
• The company's certificate of incorporation contains provisions renouncing its interest in certain corporate opportunities identified by KKR or its affiliates.

Future Outlook

The company expects revenue from SaaS contracts to contribute an increasing portion of total revenue over time and plans to continue to invest in scaling across organizational functions to grow operations, both domestically and internationally.

Management Comments

• The company is focused on its long-term revenue potential and believes that its market opportunity is large.
• The company intends to continue to invest efficiently in growing its business to take advantage of its expansive market opportunity, while remaining focused on positive cash flow.
• The company is highly focused on supporting its customers with the deployment, adoption and use of its platform through dedicated customer success managers.

Industry Context

The company operates in the competitive market of financial consolidation, reporting, planning, and analytics software, facing competition from both legacy players and point product providers. The company's transition to a SaaS-based model aligns with broader industry trends, but it also faces challenges in managing the shift from license-based revenue.

Comparison to Industry Standards

• OneStream competes with established players like Oracle, SAP, and Infor, as well as point solution providers such as Anaplan, Blackline, Wolters Kluwer, and Workday.
• Unlike some competitors that offer point solutions, OneStream provides a unified platform, which is a key differentiator.
• The company's focus on SaaS aligns with industry trends, but its transition from a license-based model presents unique challenges.
• The company's growth rate in software revenue is strong, but its profitability is impacted by high operating expenses, particularly equity-based compensation.
• The company's customer retention rate is high, which is a positive indicator compared to industry averages, but the company needs to continue to expand its customer base and increase the number of users per customer.

Related Party Transactions

• The company entered into a membership interest purchase agreement with a related party, DataSense LLC, and its sole equity holder, DataSense Holdings LLC, to acquire the remaining issued and outstanding membership interests of DataSense not previously owned by the company.

Stakeholder Impact

• Shareholders may be concerned about the significant net loss and increased operating expenses.
• Employees may benefit from the company's growth and investment in research and development.
• Customers may benefit from the company's focus on customer success and the expansion of its platform.
• Partners may benefit from the company's growing partner ecosystem and increased training opportunities.

Next Steps

• The company plans to continue to invest in scaling across organizational functions to grow operations, both domestically and internationally.
• The company intends to continue to invest in research and development to expand and enhance its platform's features and capabilities.
• The company will continue to focus on customer success to drive retention and expansion within its existing customer base.

Key Dates

Keywords

SaaS, subscription revenue, software, financial reporting, enterprise performance management, IPO, equity-based compensation, cloud computing, AI, machine learning