OneStream's Q3 2025: Contradictions Emerge on Federal AI Strategy, Subscription Growth, and Legacy Replacements

Date of Call: None provided

Financials Results

• Revenue: $154M total revenue, up 19% YOY; subscription revenue $141M, up 27% YOY
• EPS: $0.08 per share (non-GAAP), flat YOY (non-GAAP net income $15.2M, +$3.9M YOY)
• Gross Margin: 69% non-GAAP gross margin vs 71% prior year; non-GAAP software gross margin 75% vs 78% prior year
• Operating Margin: 6% non-GAAP operating margin (Q3), non-GAAP operating income $9.3M, up 69% YOY

Guidance:

• Q4 revenue expected $156M–$158M; billings growth ~20% (includes ~$4M accelerated Q3 billings)
• Q4 non-GAAP operating margin 4%–6%; Q4 non-GAAP net income per share $0.04–$0.07
• Q4 stock-based compensation ≈ $25M
• FY2025 revenue expected $594M–$596M
• FY2025 non-GAAP operating margin 2%–3%; FY non-GAAP EPS $0.15–$0.19
• FY2025 stock-based compensation $115M–$120M
• Comfortable with Street consensus for FY2026 revenue and non-GAAP operating income; formal 2026 guide in February

Business Commentary:

• Revenue Growth and AI Integration:
• OneStream reported subscription revenue grew 27% year-over-year in Q3, with billings increasing 20%.

• This was driven by the adoption of purpose-built finance AI solutions and strong demand in international markets, particularly due to legacy replacement momentum in Europe.

• International Expansion:

• The company's international revenue grew 37% year-over-year in Q3, representing 34% of total revenue.
• This growth was attributed to strong legacy replacement momentum in Europe and significant wins in the Asia, Middle East, and Africa (AMEA) region.

• Legacy System Replacements:

• OneStream saw notable success in replacing legacy CPM systems, with a significant deal win involving a Swiss multinational healthcare leader.

• This was due to the extensibility and flexibility of OneStream's unified platform, which addresses the limitations of older systems and offers improved unifying financial operations.

• Product Innovation and AI Adoption:

• The company introduced and expanded its AI portfolio through Sensible AI Studio and agents, which are now in limited availability.

• This innovation has been driven by the strategic focus on AI and its potential to enhance financial processes, and customer interest in AI-driven solutions has accelerated adoption.

• Government Business Dynamics:

• The federal business faced challenges due to contract rationalization and SaaS conversions, but renewed most agency customers and added a new federal customer.
• The adjustments were attributed to the federal government's procurement and transition to SaaS implementations, with optimism for future growth as these challenges are addressed.

Sentiment Analysis:

Overall Tone: Positive

• Management described Q3 as "stronger than expected," raised 2025 growth and profitability outlook, highlighted 27% subscription revenue growth and 20% billings growth, noted AI bookings up 60% YOY, and emphasized product momentum (Sensible AI, Studio, agents) and large international legacy replacements as drivers of confidence.

Q&A:

• Question from John DeFucci (Guggenheim Securities): On the federal dynamics this quarter — you lost one federal contract due to an agency being discontinued, added a new federal customer, and had license rationalization and SaaS conversions; can you add color on renewals in the September quarter and implications for the federal opportunity going forward?
  Response: Only one federal agency lost (it was discontinued); SaaS conversions reduced license revenue but will convert into subscription revenue in future quarters; management is optimistic about federal rebound into 2026.

• Question from Chris Quintero (Morgan Stanley): Is finance/Accounting being prioritized for AI spend among customers and what initial use cases are you seeing them deploy your technology into?
  Response: Yes — primary use cases are Sensible AI Forecast (quantitative forecasting), Studio-driven algorithms (outlier/benchmarking), and agentic automation for analytics/reporting; forecasting and agent automation show highest customer interest.

• Question from Adam Hotchkiss (Goldman Sachs): You said you’re comfortable with Street estimates for 2026 — qualitatively rank the drivers that underpin that confidence.
  Response: Drivers are strong AMEA momentum, CPM Express (including IFRS Express) expansion, continued US enterprise pipeline and recent large competitive win, and growing AI product adoption.

• Question from Koji Ikeda (Bank of America): How are you thinking about pipeline and conversion assumptions heading into Q4 and 2026 — more conservative or the same?
  Response: Outlook is based on current pipeline and historical conversion rates; the expanding AI product suite (Sensible AI forecasts up 60% YOY, Studio, agents) strengthens pipeline and conversion confidence heading into 2026.

• Question from Alex Zukin (Wolf Research): You pulled some billings into Q3 via early renewals yet guide for Q4 billings remains strong — what’s the demand environment and how should we think about NRR trends?
  Response: Q3 add-ons and early renewals drove upside, illustrating effective multi-product expansion and strong NRR; management sees continued strong billings demand into Q4.

• Question from Terry Tilman (Truist Securities): AMEA is performing well — what’s driving the accelerated legacy replacement cycle there (sales coverage, partners, technical debt, etc.)?
  Response: Acceleration due to increased field coverage, foundational lighthouse wins enabling trust, strong product fit (e.g., IFRS Express), and effective regional execution.

• Question from Steve Enders (Citi): On AI bookings up 60% — what are you seeing in the AI pipeline and how does that shape your 2026 opportunity?
  Response: Pipeline validates momentum; Sensible AI Forecast leads adoption, while Studio and limited-availability agents expand use cases and are expected to broaden the 2026 pipeline.

• Question from Scott Berg (Needham): Early indications on revenue opportunity and pricing/seat impact for agents — will agents displace seat-based revenue or be incremental?
  Response: Agents will be usage-priced and treated as incremental revenue intended to drive analyst productivity and efficiency rather than replace seat-based licensing.

• Question from Mark Murphy (JP Morgan): Traction in emerging applications outside core (e.g., account reconciliations, supplier analytics) and does the big pharma deal signal deeper vertical penetration?
  Response: Operational analytics (agile financial analytics, AI-powered reconciliations, supplier analytics) are growing priorities; the big pharma legacy replacement validates vertical expansion and platform extensibility.

• Question from Jake Roberts (William Blair): Feedback from customers on agent set and which agents show outsized interest?
  Response: Highest interest in the finance analyst agent plus search and deep-analysis agents; customers value workflow-oriented, task-automation capabilities that integrate contextual data and contracts.

• Question from Siti Panigrahi (Mizuho): What are you seeing on legacy displacements (Hyperion/SAP) and how important are these for achieving preliminary FY2026 growth targets?
  Response: Legacy CPM replacements remain a large, consistent growth opportunity and central to the selling motion while CPM Express expands the addressable market to earlier-stage commercial customers.

• Question from Brian Peterson (Raymond James): How are CPM Express (commercial) and legacy replacements tracking in 2025, and which creates most upside for 2026?
  Response: Excitement surrounds AMEA expansion, CPM Express (including IFRS Express) commercial traction, and AI-led sales; all are meaningful drivers and management expects multi-pronged upside rather than a single dominant source.

• Question from Bret Hoff (Stephens Inc.): Do you view a future with multi-agent orchestration (agent-to-agent protocol) and how will OneStream’s agents interact with others' agents?
  Response: OneStream aims to be the premier finance-specific agent given its contextual data; management anticipates multi-agent orchestration and will support agent-to-agent protocols while prioritizing CFO-focused value delivery.

• Question from Derek Wood (TD Cowen): How did you factor government shutdown risk into Q4 guidance and how does FedRAMP High position affect federal momentum post-DOGE?
  Response: FedRAMP High positioning and recent SaaS conversions strengthen federal opportunity; management is pursuing AI FedRAMP High and is optimistic about rebuilding US federal momentum once shutdown resolves.

• Question from Andrew DeGasperri (BNP Paribas): With the big shift to SaaS this year, should we expect license revenue to continue declining and how will services trend?
  Response: Expect continued migration from license to SaaS over the next couple years (license revenue shrinking); professional services/support should show modest growth.

• Question from Mark Chappault (Loop Capital Markets): Any changes or fine-tuning to sales and marketing strategy and where will you prioritize additional sales investments?
  Response: Plan to scale sales/marketing coverage across new product lines (AI, CPM Express) while maintaining core enterprise focus, emphasizing productized, use-case-oriented selling.

Contradiction Point 1

Federal Government Opportunities

It involves differing perspectives on the outlook and potential growth opportunities within the federal government sector, which could impact strategic planning and investor expectations.

What are the key insights on federal customer renewals this quarter and how should we view future opportunities? - John DeFucci (Guggenheim Securities)

2025Q3: The federal government faced many moving pieces, including SaaS conversions. We lost only one federal agency customer, but added a new one. We are optimistic about federal opportunities in 2026. - Bill Koefoed(CFO)

How do you view federal government opportunities this year given spending pressures and FedRAMP High authorization? - Ian Black (Needham & Company)

2024Q4: FedRAMP High authorization is a significant opportunity, and we've invested long-term for it. Despite headwinds, we remain committed to this market. Our efficiency play is strong, and we believe we offer value to the government. - Tom Shea(CEO)

Contradiction Point 2

AI Monetization Strategy

It highlights shifts in the company's approach to monetizing AI solutions, which could affect revenue growth and customer adoption.

Are finance and accounting the top areas for AI deployment? What use cases are you observing? - Chris Quintero (Morgan Stanley)

2025Q3: Sensible AI Forecast uses usage-based pricing, while Studio is tiered-based. The preview program for Agents is validating a usage-based approach. - Tom Shea(CEO)

Are there early insights on AI monetization post-Splash? - Ryan Scott Krieger (Wolfe Research)

2025Q2: SensibleAI Forecast uses usage-based pricing, while Studio is tiered-based. The goal is to make AI accessible with predictable pricing and low friction. - Thomas Shea(CEO)

Contradiction Point 3

Subscription Revenue and ARR Growth

It involves differing expectations and strategies related to subscription revenue growth, which is crucial for revenue projections and financial planning.

How should we assess pipeline and conversion assumptions for 2026? - Koji Ikeda (Bank of America)

2025Q3: We expect subscription revenue to continue to grow in line with total revenue, which should bring the percentage of our revenue to over 70% by year-end 2026. - Bill Koefoed(CFO)

Can you discuss the growth potential for 2025, particularly subscription revenue and ARR? - Koji Ikeda (Bank of America)

2024Q4: We expect subscription revenue to grow faster than total revenue. While we don't provide specific quantitative guidance, we're working hard to grow subscription revenue as quickly as possible. This includes growing net new ARR and driving SaaS conversions. - Bill Koefoed(CFO)

Contradiction Point 4

AI and Product Innovation

It highlights differing presentations of AI product adoption and innovation, which are vital for understanding the company's growth strategy and future prospects.

What are your expectations for AI pipeline and growth in 2026? - Steve Enders (Citi)

2025Q3: Our AI pipeline is strong, with Sensible AI Forecast driving adoption. AI Studio opens new use cases, and agents are highly sought. We're excited about continued rollouts and customer interest. - Tom Shea(CEO)

What is driving SensibleAI Forecast's growth and when will it become material? - Terry Tillman (Truist Securities)

2025Q1: We're seeing more interest in AI, with SensibleAI Forecast growth driven by demonstrated results. We're continuing to invest and expand our AI portfolio, anticipating significant upsides. - Tom Shea(CEO)

Contradiction Point 5

Legacy Replacements and Growth Opportunities

It addresses the role of legacy replacements in driving growth, which is crucial for understanding the company's strategic focus and revenue projections.

What role do competitive displacements play, particularly from legacy systems? - Siti Panigrahi (Mizuho)

2025Q3: Legacy replacements are a consistent opportunity. Our platform is designed for complex financial operations, making CPM Express a valuable tool. As we grow, we're focused on both legacy replacements and new companies. - Bill Koefoed(CFO)

What are the trends in end market bookings, particularly for legacy replacements and non-core solutions? - Ryan Krieger (Wolfe Research)

2025Q1: Over 60% of our business comes from new customers. We're seeing strength in legacy markets and our AI solutions. Customers are embracing our products faster due to the need to modernize financial systems. - Bill Koefoed(CFO)