The OneStream IPO and S-1 Breakdown

Live from Schenectady, New York, it's SAS Talk with the Metrics Brothers, Growth and CAC.

And I'm Growth, better known as Ray Reich, founder and CEO of Benchmarkit.

And I'm CAC, better known as Dave Kellogg, EIR at Balderton Capital, independent consultant, and the author of Kellogg.

And together we are the Metrics Brothers.

And we go together like investment bankers and IPOs.

Ah, we're finally off the food analogies and, and on cash, and I love that one.

Well, you asked, Ray, and I always try to accommodate, and, and this one seemed particularly timely.

Well, very timely because IPOs have been a rare thing over the last couple years. But we have one not only that was upcoming, but as of this morning happened, and that's OneStream. So I thought we should take a close look at the S-1 and break it down a little bit.

Yes, we should, Ray. But before we do that, let's hear a word from our sponsor.

The Metrics Brothers is proudly sponsored by Benchmarkit, the B2B AI and software industry's largest, broadest, and most contextualized benchmarking index. Dave Kellogg and Ray Grothright, have put the Metrics Brothers podcast on hiatus for the remainder of 2026. All episodes we have ever recorded are still available on your favorite podcasting app. You can reach Dave at Kellogg and Ray on LinkedIn at Ray Reich. Thank you so much for listening to the Metrics Brothers podcast.

Okay, Dave, let's dive into this one because I don't know if 20 minutes is going to be enough time. Let's go.

All right, let's go. So, um, for the audience, we're going to be relying on 3 source documents in today's episode about the OneStream S-1. The first will be an article on Clouded Judgment by Jamin Ball. The second will be Meritech Capital's excellent IPO breakdown. And the third will be the OneStream S-1 itself, which I always recommend that people read. A few quick disclaimers: I personally am an investor in some of the companies we talk about today, including Planful, Flowcast, Pigment. Uh, see my FAQ on Kellogg for disclaimers. And on behalf of the Metrics Brothers, a reminder that we We don't give financial advice. This is for information and education purposes only. And listen to our trailer both for a few new jokes, or hopefully new jokes, and to learn about our disclaimer policy.

Ray.

Okay, well, it's big news. We're recording this on July 24th, Dave. And F1 is now in the past because they went public today. OneStream went public. You want a few of the details? Yes, sir. Okay, so you know the range they talked about pricing was that $17 to $19. They actually priced at $20, so above proposed pricing. That's a good thing. Right now it's 1:30 on the East Coast, and they're trading at $26 per share, so about 31% up from the IPO pricing. The company offered 18 million shares today, and the shareholders were able to sell another 6.5, so. In total, it was about $490 million was raised today, Dave.

Awesome. Good. Okay, so let's jump into the content. Um, we wrote this before the IPO because it just happened this morning, but, uh, most of it was analyzing the, the documents that were presented in the, uh, in the IPO process. So first, this is a company, OneStream, that I've known from inception, really. Um, it was founded in 2010, so it's now 14 years old, which is around average these days for the path to IPO. Um, at— when I ran Host Analytics, they competed with us, albeit indirectly. So we had a low-end financial consolidation product, they had a high-end one. For those who don't know what financial consolidation is, it's basically rolling together all the financials from your different subsidiaries, sometimes at multiple levels. So it can get quite complicated that you, you know, you take France and Germany, roll them together to make Europe, then roll Europe with Asia-Pac and Latin America and North America to get whole company. You have to correct for currencies. You have to do a lot of— I can't remember what they're called, but kind of offsetting and cancellations between the accounts. So it's a technical and complicated financial field. OneStream kind of leads the next generation high end of it, of that field. Its predecessor was Hyperion Financial Management, known in finance circles as HFM, which is a very expensive de facto standard. Now, the guys who founded this company knew a lot. They're second-time founders. Um, or maybe at least second-time founders because they had founded and sold Upstream to Oracle in 2006. And this company interestingly was bootstrapped for like its first 9 years. But before we do that, Ray, we're going to do an SAT analogy time, like A is to B as C is to D. And I'm going to see if you can get the answer to this one. I'm going to say OneStream is to Hyperion Financial Management as Anaplan is to blank.

I'm going to say maybe some type of old database structure. Like Essbase?

Yes, yes. That basically the new generation consolidation OneStream is to HFM, Oracle-owned old generation financial consolidation, as Anaplan, modern financial planning and multi-dimensional database, is to Essbase, the granddaddy of the multi-dimensional databases. So this is very much the exact same play that Anaplan ran. Take a market dominated by a product that was acquired by Oracle in the office of the CFO that is probably a multibillion-dollar business at Oracle today and go disrupt it. So it's got a huge market going into the belly of the beast of Oracle. And finally, I would say that, you know, this company did— one of the things I like about OneStream is that they value talent and experience. Many of my best team members at Host Analytics, after we sold the company, went and were hired by OneStream. So I've always liked their respect for talent.

Well, it sounds like you have probably a lot of people that you know there who are celebrating today. But Dave, I, you know, you mentioned they were self-funded, but then like in 2019, didn't they have a strategic kind of private equity firm come in?

Yeah, so Ray, 2019, KKR took a majority position in the company. The press release was pretty murky on detail, so rumors were that it would— they raised more than $500 million in cash at more than a $1 billion valuation. But this was not a traditional PE sale because management stayed on. Um, and sometimes you'll find cases where founders want capital and/or advice to help build a really big business. And I think that's what happened here. I think the founders of OneStream said, we've been at this for quite a while, we'd like some liquidity. So I'm sure that $500 million plus included some secondary for the founders. And so we'd like some liquidity, but we'd also like some help and some capital. So we need 3 things, right? And I think KKR came in and provided all 3. Now the rumor was they were about $100 million in ARR at the time of that round. So basically, I think they got 3 things from this deal. This deal reminds me of another finance company, BlackLine, that did a similar thing— also bootstrapped, also heavily founder-owned. And it was Silver Lake at that time who came in, and rather than just buy the whole company, same play: hey, we're going to give you capital to grow, and we're going to give you advice, and we're going to partner with you to build this thing into a public company. So that model can work. Net-net, Ray, not every PE transaction is a simple buyout. This was, this was not.

I like it. Well, interesting history. And it's so great we're doing this with you because you have, you know, inside baseball insights. Should we talk a little bit about the IPO details, which we now know, and a little bit about where that puts them from a multiple perspective?

Yeah, Ray, why don't you take the lead on that?

Okay. So we're going to use the real-time data since we now have it. So at $20 a share there, and this goes back to an episode we did a couple weeks ago, their market cap was $5, right around $5 billion. Their enterprise value right around $4.5 billion because they do have some debt. But Dave, that puts them at an 11.1x enterprise value to the last 12 months multiple. An 11.1x, that's better than the 75th percentile of all public cloud companies today, because 75th percentile is at 9.6. That magic 90th percentile, that top decile, is at 13.4x, and they're sniffing that with their current stock trading at $26 right now.

Yeah, I mean, one hopes that when, you know, you kind of bring out a company at their debut, that they're going to be better than average, right? Certainly if we thought we were going to come public at a 25th percentile, maybe we would not do the IPO. So I wouldn't say it's shocking. I think they've got a healthy valuation. But when you look at this prospectus, with the exception of the hair, I'm just going to call it the hair, and there's plenty of it. With the exception of the hair, this appears to be a pretty high-quality business. Well, the other thing I was going to say was, even with that healthy market cap of circa $5 billion, this is rumored to be a down-round IPO because in 2021 they did another round after the KKR round. G1 and Tiger bought in. And again, this is a rumor at a $6 billion valuation. So this might be the case and this is going to happen when you have all this kind of growth venture capital and growth private equity rounds happening at very high valuations, the IPO can actually be a down round. And I think this is that case.

Yeah, I think it's really good insights, but there was that— the hair on the deal. And I really want to ask you to dig into that because I look at their capital structure and it seems really convoluted and using a structure I've never heard of before. So can you share a little bit about that?

Yeah, so, so to be tongue-in-cheek, this thing to me has more hair on it than an angora rabbit. Um, so Look, I'm not an expert in financial structure, neither is Ray. A lot of what we're about to say is new to me. Like, I hadn't heard of some of these things before. They're not new to the private equity world, but they're new to me. So let's jump in. The things I noted on reading the S-1 in terms of what I'd call hair on the deal were first, and this is sadly, in my opinion, from a governance perspective, common now. They have 2 classes of stock with different voting rights. So the Class A and the Class B stock each has 1 vote per share. The Class C and the Class D stock have 10 votes per share. And you saw this— the first time I ever saw this was at MicroStrategy back 20-something years ago. Uh, Facebook had it. Oh gosh, uh, Samsara has it. Any company typically founded by a very powerful CEO or a second-time CEO will have this because it's kind of an ugly term. But, but, but if you've got the track record, you can kind of get it. You can say, this is gonna be my company, I'm gonna control it, I'll let you ride along on the bus, but, but you effectively have no votes. Not no votes, but you have 1/10 the votes. So somebody who owns 20% of the company can have a vast majority from a voting position. So more than 2/3 in that case. So the first thing they have is, it's actually 4 classes, but I'm going to call it a dual share class structure with some shares having 1 vote, some shares having 10 votes. Not great for governance, but doesn't seem to matter to investors. You see the 11x valuation on IPO. Do you want me to talk about the next one too, Ray? Because there's 2 more.

Yeah, why don't you talk about this whole concept of an umbrella partnership corporation? Because it seems like it's really a way to go from a partnership with some tax advantages.

Yeah, so this is apparently fairly common in PE. I had never seen it before because most of the PE-backed companies I work with have either been sold to strategics, uh, or kind of PE roll-ups, uh, not gone IPO. So, so I've not seen a PE company I've worked with personally go public. But apparently this is fairly common and it's called an UPSC, which is an umbrella partnership corporation. And an UPSC allows investors in an LLC to be treated as a partnership for tax purposes, which means no double taxation, to access the public securities markets by taking a company public while preserving the tax efficiencies of a traditional partnership ownership model. And when investors want to eventually liquidate their partnership's units, they sell them to the public company in exchange for public shares on a 1-to-1 basis. Plus a TRA, a tax receivable agreement. So 85% in this case, and in general, 85% additional cash consideration, um, for the favorable tax treatment. I mangled that up a little bit, Ray, but, but if I'm an existing holder of OneStream, I now— if I had a share, I still have my share. It has 10 votes relative to the new shares, and I have the right, because my share is actually an LLC interest, to trade it For, for an actual share. And when I make that trade, I get cash from the company, and that cash is 85% of the cash tax savings realized by the public company attributable to my units. But net-net, if I have a share, I trade it for— if I have an equivalent of one share in the partnership, I trade it for one share of the company, and I get cash back as well, and, and not a small amount. Yeah.

So if, if I'm an investor looking at your cash flow statements, we talked about that last episode where there's at least 3 primary cash flow statements. This would be really concerning to me because even though KKR is not going to be motivated to do this, they could really drain cash reserves pretty quickly with a call, right?

Well, I wouldn't quite view it that way because I don't view it as a call. I view it as a— I have the right to trade my LLC shares, if you will, quote unquote, my LLC interests Partnership units for shares on, on some one-to-one basis. But when I get that right, the company has saved money as a result of that, and they're going to have to give me 85% of what they saved. So the argument is the company still wins by 15%, but, but the downside is the company has to write me a check. And in aggregate, if there's a lot of me, that gets to be a very big check. Um, and this, this arrangement is called a tax receivable agreement. And, and basically, look, I'm just going to read from the prospectus because this is a little bit unfamiliar territory for both of us. So rather than wing it, here's what it says. Our obligations under the TRA could have a substantial negative impact on our liquidity and could have the effect of delaying or preventing certain mergers. I.e., this right to get paid cash, A, can be a lot of money. Like, people have settled these or sold that right for hundreds of millions of dollars in other PE public companies or in other Upsea So these rights aren't worth like $2 million or $10 million. They could be worth tens or hundreds. They could also be worth zero over time, right? Because it's 16 years worth, if I remember the fine print. But more importantly to me, I mean, not only is there a cash obligation which reduces the value of the company, but it can also scare off a suitor. Somebody who wants to buy the company can just go, wow, this is gonna be really hard to buy. KKR controls the company with these 10x shares, and I'm gonna have to buy them out of their TRA rights. So, so I do think this is a good way. And look, maybe it's on purpose. People create poison pills sometimes for that reason. But, but this definitely— this company is not the same as another public company with just common stock when it comes to M&A.

Yeah, and that's really highlighted. And, you know, every S-1 has risk factors, but they've got some fun ones. Do you mind if I share those?

Go for it, Ray.

And, and by the way, they talk about this TRA like almost 49 times in the S-1. But some of the fun ones are KKR controls us and its interests may conflict with our Class A common stockholders' interest.

Really?

At 10 for 1? And then it says we will be required to pay the TRA members for certain tax benefits we might claim, and we expect that payments will be required to make sure— and it will be substantial. And then our organizational structure, including the TRA, confers certain benefits upon the former members and the continuing members, including KKR, which will not benefit Class A common stockholders to the same extent as it will benefit those former members and the continuing members who have that 10x voting rights.

So yeah, as a common stockholder, you are very much in the back of the proverbial bus on this one. KKR and the founders are controlling the company They have set up an arrangement where they have this TRA that gives them cash when they swap their partnership units for common shares. And yes, your interest as a holder of 100 common shares may diverge from KKR's interest in controlling the company. And that's what makes this deal unusual. And the thing I find most unusual about it, Ray, is these companies don't seem to get discounted for this in the public markets. Right. If this thing had completely clean common-only stock, I'm not sure it'd be worth a whole lot more. Maybe it would be. Theory says it should be. But as you mentioned, they've got a, you know, a top 25% multiple even with this hair.

Yeah.

And when you've only got a handful of IPOs coming out every year, there's a lot of demand out there because there's still a lot of cash on the sidelines, Dave.

That's true. Ray, let me just hit some headline numbers from the S-1. So, uh, as of March 31st and/or trailing 12 months depending on the metric, $480 million in ARR growing at 34% year over year. Crazy times we live in because Meritech says, quote, this is on the smaller side of software IPOs. And I remember it used to be able to go public at $30 million and now $480 million— $30 million in revenue and now $480 million in ARR is on the smaller side. So that's just the world we live in. $406 million in revenue growing at 37% year over year. They are transitioning to a pure SaaS model. They're not entirely done with that. $46 million in free cash flow and 11% free cash flow margin. So if you take the revenue growth rate and the free cash flow margin, you get a Rule of 40 score of 48. 78% software gross margins, 1,423 customers, implying $340K average ARR per customer. Big deals, hard problems, complex stuff. What does that mean? Sticky. I've always said Office of Finance systems are sticky. Um, as Zach Nelson once said, they're like heart transplants, they're not knee transplants. So 98% GRR, boy, it is sticky. 118% NRR. And Ray, I'm going to go back to you to talk about our favorite new metric— well, relatively new metric— growth endurance.

Definitely.

I'm going to talk about growth endurance, and I just want to highlight a couple other things regarding all the metrics you just shared. So in Janelle Ting, one of our favorites at Bessemer, she came out with the updated growth endurance, which was, you know, four or five years ago, you know, growth would decrease by about 20% of the previous year growth. So at an 80% growth endurance. So if you look at OneStream, they grew ARR by 75% in 2021 versus 20. Then in 21 versus 22, 22 versus 21. They grew by 50%, so they had a growth endurance of 66%. But last year they reaccelerated growth because their ARR growth was up by— well, I'd say they reaccelerated growth endurance, Dave, because in '23 versus '22, they had a 37% ARR growth rate, which showed a growth endurance of 75%. And Janelle says, yeah, it's kind of around 65% today. So they're doing better than most companies from a growth endurance point also. And then the thing that really jumped out at me, Dave, we talked about the Rule of 40 score and you mentioned it's 48.

Yeah.

Per Meritech, at 75th percentile for all public cloud and SaaS companies, the Rule of 40 score is 45. So they're in the 80th percentile and above of all public companies. So that's pretty damn good. And then last, if you looked at their free cash flow margins a year ago, it was -7%. And as you mentioned, today it's 11%. Man, they've been cleaning up the expenses over the last year, getting ready for this IPO, Dave.

Yeah. So a couple of things, Ray. One, one slightly more technical. I think the growth endurance analysis you did actually argues that we should now make a 3-year growth endurance metric or a 2-year, right? So rather than have to do each step by step as you did, we could just say, hey, what's or growth endurance been? Kind of almost like a CAGR, if you will, on growth endurance over a 3-year period, because it'll make the math simpler. For the math nerds out there, the situation I think Ray described was the first derivative going down because growth is the first derivative of ARR and the second derivative is growth endurance, and that actually went up. So we passed through an inflection point in 2023. So that would be a good sign, i.e., the growth endurance, the second derivative was higher in 2023 than it was in 2022. So, uh, Ray, you want to hit some more numbers, or where do you want to go now?

Well, we've only got a couple minutes, so, um, you did a lot of work on this. Which ones do you want to cover for these last couple minutes here?

I'll just rifle through them, Ray. I don't mind going fast if the audience is okay with it. So look, we talked about the transition. Today they're 73% subscription, 20%— 27% term. So they are in transition to, uh, a subscription model. They are 70% USA, 30% international, which is on the high side. I know most SaaS companies run high relative to the old days, but it's, you know, you could argue it's a big opportunity in international. 70% last 12 months, uh, gross margin, so including license and service. Earlier we just talked about subscription gross margins. Uh, -4% operating margin, 11% free cash flow margins, as we talked about. CPP of 29 months. Um, they call that GM adjusted, not— they— I can't remember if this was Jamin or whose number this was, but they called it gross margin adjusted. But to me, CPP is always gross margin adjusted, so I found that confusing. Um, and 29 months strikes me as a little long, but I guess it's gone up in the last year or two. ARR per FTE of $370K. I think that's good, Ray. We did an episode on that, I think. You'll have to remind me if it's not.

That's good.

It is good.

Yep.

77 $1 million plus customers. The founders today own around 21% of the company and KKR owns 53% of it. That's just ownership percentage, not including these voting rights. Remember, if you were an existing owner pre-IPO, you basically have 10 times the votes per share as a new owner. But also do remember the founders presumably bootstrapped this with some of the proceeds from Upstream, right? So they didn't just put their time in, they probably put their money in as well. So there's kind of bootstrap, meaning doing everything at cash flow breakeven, and there's bootstrap saying, hey, we made a lot of money on our last deal. Let's drop $5 or $10 million in. I don't know which it was. You can't see from the documents I looked at. Um, in terms of OpEx margin profiles, or OpEx profile, sales and marketing, 46% of revenue. It's amazing to me, even with big deals, the stuff's expensive to sell. That's high. R&D, 15% of revenue. That's light by modern standards. G&A, 15%, light side of normal. And $117 million in cash in the bank. Ray, back to you for any Other thoughts there?

Yeah, the only thing I'd say about R&D, they have made, um, a couple acquisitions. In fact, they bought a small AI company, which there was a little bit of nepotism there because, if I'm not mistaken, the founder's either daughter or son-in-law owned that company. That's all in the S-1.

Pre-existing relationship, right? Not nepotism. Oh, what an ugly word.

And I won't ever say anything because this is not investment advice. This is George's Claim. Maybe it would never be off-balance sheet development because we don't do that anymore. But overall, a really strong company. Great to see another IPO. And I look forward to how this trends over the next 3 to 6 months.

Yeah.

Good luck to them on the IPO. It sounds like it's off to a great start. Hi to my friends who work there. And, you know, nothing but respect for founders who take 14 years. I mean, I've run startups for 6 years at a time, and I can tell you it's a lot of work. And to grind that for 14 years, I just think is very difficult and nothing but respect for the people who do it.

Totally agree. Now, to those loyal listeners out there, don't go away because I know you always wait for Dave's disclaimer, which in and of itself is quite entertaining. But Dave, this is our 50th episode and I think we need to celebrate.

We do, Ray. So thanks to everyone who's listened. Thanks to anyone. We should give a Purple Heart to anyone who's listened to all 50 episodes. But we would like to do some credits in the spirit of Car Talk, which was the naming inspiration for SAS Talk. We would like to offer up some 50th anniversary episode credits.

So Dave, why don't you start with our customer success analysts we want to recognize?

Oh no. Well, Ray, we're going to start with our actual people who help us out and then we're going to blur into the car talk style fun ones. So if you're ready to go, I'm just going to rifle through the list.

Perfect. Go for it.

Our early presenting sponsors are Randy Wooten from Maxio and Nick Mehta of Gainsight. Our podcast agency is Ben Shapiro from I Hear Everything. Our production team is Tag Heurdebeest and Vivian Nelson. Our customer success analyst is Ivana Renewal. Our startup liquidation expert is Renata Cash. Our Italian growth marketing specialist is Anita Mopipe. Our demand gen consultant is Seymour Leads. Our sales productivity expert is Carrie Aquota. Our federal sales advisor is Major Commit. Our PE roll-up strategist is Tucker In. Our growth profitability consultant is Darul Offerty. Our CFO is Cassius King. Our equity advisor is Li Nin. Our sales ROI specialist is CP Pilon. Our budgeting consultant is Otto Plan. Our classification analyst is K Nearest Neighbors. Our OpEx benchmarking expert is EB Italo. Our forecast manager is Noah Clue. Our hot takes advisor is Vin Dalu. Our Zoom productivity consultant is Diana Calls. Our GTM efficiency expert is CAC Daddy. And our PE financing strategist is Lee Verup.

And we want to thank everyone who's made SaaS Talk with the Metrics Brothers what it is. And I want to especially thank Dave CAC Kellogg for being the co-host here.

And we'll thank Ray Growth Reich. Take care, everyone.

Bye-bye now.

The Metrics Brothers AI, SaaS, and More is a production of the Metrics Brothers Growth and CAC and a member of the Benchmarkit Podcast Network. By accessing this podcast, you acknowledge that the Metrics Brothers make no warranty, guarantee, or representation as to the accuracy or sufficiency of the information provided. Or the humor content of the jokes told.

Ahem, Ray.

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