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Operator
Good afternoon, ladies and gentlemen. Thank you for joining OneStream's second quarter 2024 earnings conference call. As a reminder, this call is being recorded and will be available for replay from the investor relations section of our website following the call. After the speaker's remarks, there will be a question and answer session. If you'd like to participate, you'll need to press star one one on your phone. If your question has been answered and you'd like to remove yourself from the queue, simply press star one one again. We ask that you please limit yourselves to one question each. I will now pass the call over to Annie Lest's Vice President. Please go ahead.
Annie Lest 's
Thank you, Operator. Good afternoon, everyone. Welcome to OneStream's second quarter 2024 earnings conference call. Joining me on the call today are our co-founder and CEO, Tom Shea, and our CFO, Bill Kofed. The press release announcing our second quarter results issued earlier today is posted on our investor relations website at investor.onestream.com, along with an earnings highlights presentation. Before we get started, I'd like to let everyone know that we plan to participate in two conferences in the upcoming weeks. The first is Citi's 2024 Global TMT Conference in New York on September 5th, and the second is the Goldman Sachs Communicopia and Technology Conference in San Francisco on September 11th. Just a reminder that we previously disclosed preliminary estimates for certain Q2 operating results, including revenue, gap and non-gap operating loss, and free cash flow, under the recent operating results section of our IPO registration statement, filed with the SEC on July 15, 2024. As a result, please note that historical and projected financials have already contemplated these results and their impact on future quarters. Today, we are providing the complete and actual Q2 financial results. Now let me remind everyone that some of the statements on today's call are forward-looking, including statements related to the guidance for the third quarter ending September 30th, 2024, and the year ending December 31, 2024. Forward-looking statements are subject to known and unknown risks and uncertainties, assumptions, and other factors. Some of these risks are described in greater detail in our perspective stated July 23rd, 2024, filed with the SEC on July 24th, 2024. And in other documents, we file with the SEC from time to time, including our quarterly report on Form 10-Q for the quarter ended June 30, 2024. We undertake no obligation to update any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law. During our call today, we will also reference certain non-GAAP financial measures. There are limitations to our non-GAAP financial measures, and they may not be comparable to similarly titled measures of other companies. The non-GAAP measures referenced on today's call should not be considered in isolation from or substitute for their most directly comparable GAAP measures. Our management believes that our non-GAAP measures provide meaningful supplemental information regarding our performance and liquidity by excluding certain expenses that may not be indicative of our ongoing core operating performance. Reconciliations of our non-GAAP measures to the most directly comparable GAAP measures can be found in this afternoon's press release. and the earnings highlights presentation posted on our investor website. Now I'll turn the call over to Tom. Tom?
Tom
Thank you, Annie. Welcome, everyone, and thank you for joining us this afternoon for our first earnings call as a public company. We are excited to review our strong second quarter performance with you. And for those of you new to our story, I thought I'd spend some time sharing a bit about OneStream, how we got here, how we are modernizing the office of the CFO, and the opportunity ahead. So let's start with a few key highlights from the quarter. Q2 total revenue increased 36% year over year and subscription revenue grew 44% year over year. We were cashflow positive for our third consecutive quarter. And we hosted our largest ever splash user conference in May, where we introduced a record number of platform innovations and saw a 20% increase in attendance. We accomplished all this against an improving, if still challenging macro environment. With this backdrop, CFOs understand they must invest to modernize their financial architecture and go beyond just reporting on past performance to become a strategic driver of the business. The OneStream platform's ability to rationalize multiple point solutions and provide an exceptional level of insight is ideally positioned to meet this need. We're fortunate to say that even in uncertain times and possibly because of them, our customers are acknowledging the importance of investing in modernizing their finance departments, improving visibility and positioning themselves for the future. We remain convinced that our market opportunity is stronger than ever based on three important trends. First, while digital transformation and finance is underway, it's still in the early innings. Finance departments have been slow to fully embrace and trust the cloud, leaving them to play catch-up with their own digital transformation. While other operational areas, including sales, IT, and HR, have been digitizing their environments for the last two decades, we believe that only a small percent of cloud transformations from legacy finance applications have occurred thus far. Now that finance departments have begun to accept the cloud, and we believe it is just a matter of time before more CFOs ultimately recognize the need for a unified cloud-based platform to provide a single view into financial and operational data across the enterprise. Second, CFOs are being tasked with becoming more strategic, and integrating finance with operations is imperative in this effort. Historically, closing the books and reporting quarterly financials were the sole focus of the CFO. Today's CFOs are increasingly being asked to work more closely with the CEO and board to provide strategic insights and operational planning to help steer the business and drive execution. This requires CFOs to have tools like dynamic reporting to meet the requirements of changing business and complement the static nature of a traditional ERP system. Our platform provides operational agility and a unified view into financial and operational data across the enterprise, which is enabling CFOs and their organizations to excel. Third, AI ML is an opportunity to increase the value of knowledge workers and business performance. As customers become efficient at managing their core financial duties, and are reliably able to provide accurate reporting to their boards and management teams, CEOs are wanting even more analysis, both financial and operational, to help run their companies more efficiently. It's just the natural evolution. Together with ML, AI is increasing the value of knowledge workers who require accurate real-time data that OneStream's platform can provide. To respond to these trends, OneStream developed the operating system for modern finance, unifying a multitude of financial functions on our cloud-based platform and providing an exceptional level of insight to our customers. Our platform addresses three primary growth areas. Core finance solutions, or core CPM, financial and operational planning and performance applications, applied AI-driven forecasting and performance management. We began by addressing core finance solutions, leveraging our unique legacy and strength in financial closing consolidation and extending to planning and reporting. Ingesting data from almost any ERP system, OneStream unifies core finance solutions on a single modern platform, providing a single source of truth across the enterprise. And unlike existing legacy systems, our unique extensible dimensionality capability delivers finance the reporting standards and controls it needs with the flexibility for business units, functions, and locations to report and plan at additional levels of detail without impacting corporate standards. We estimate that this legacy replacement alone represents a roughly $10 billion market opportunity with only a small percentage converted to the cloud thus far. OneStream is a true software platform that enables partners and customers to write software on our software to build industry or functional specific applications atop our platform and leverage our common data model and security. This opens the door to a continued expansion of new solutions available through our solutions exchange, leading to higher innovation velocity, expanding revenue streams, greater utility, and faster time to value for customers. Second, as customers become more reliant on OneStream, they began asking us to solve new, more diverse problems outside our core. As a result, we moved beyond solely helping customers improve their core financial flows, reporting, and planning to streamlining additional financial processes like account reconciliation and transaction matching and actually steering operations. By extending past traditional CPM with expanded operational solutions like sales performance management, workforce planning, and ESG, We are now providing value far exceeding our original mandate and playing an important role in speeding and optimizing day-to-day business operations and planning across the enterprise. Importantly, moving into operations firmly solidified our position as a single source of truth for our customers. Third, this extensibility also encompasses our approach to AI. We saw the transformational potential of AI held for the Office of the CFO since our inception. We began coding to bring AI and machine learning into our platform nearly a decade ago, with the intent of building packaged AI solutions to enhance key financial processes and decisions. Our first purpose-built finance AI product was Sensible Machine Learning, which was created so companies could leverage real-time data and analysis to improve their demand forecasting without requiring significant data science resources. The repeatable, transparent, and measurable value of Sensible ML is generating, in many cases, a significant improvement in demand forecasting for customers, which is a significant ROI for their investment. While still early days, our ML product has been proven in the market at multiple customers and become an important differentiator of our platform. We are leveraging the same customer trust and transparency generated by SensibleML and developing our AI roadmap, which you will hear more about as we continue to develop it. We currently serve over 1,400 customers in approximately 45 countries with over 30% of total revenue coming from outside the U.S. Our Bluechip customer base represents virtually every major vertical. Now let me turn to how our progress in our three growth areas, core finance solutions or core CPM, financial and operational planning and performance solutions and applied AI driven forecasting and performance management is translating into tangible results with some of our latest customer wins in Q2. One of the largest manufacturers of medical devices signed a seven figure deal for our core CPM financial close, consolidation, reporting, and analysis, as well as our sensible ML. More and more, we are hearing from customers that the platform vision, including sensible ML and eventually sensible Gen AI, is an increasingly important differentiator. It's the extensibility of our platform as we present customers with a full journey from core to advanced analytics that both attracts and retains customers, reflected in our historically strong retention. The depth of our platform also aligns with the ongoing trend to streamline the number of disparate systems utilized. In this case, we replaced six point solutions with our platform. On average, we replaced two to six point solutions with every new customer. This win is also an example of the power of our strategic relationship with Microsoft. Another new SensibleML and AI customer this quarter was a supplier of products and services to military and defense contractors worldwide. This customer also signed a seven-figure deal encompassing our core CPM offerings, including financial consolidation, management reporting, and our SensibleML. Looking ahead, they plan to add financial planning and analysis in their second phase, This is a great example of how we begin discussions with our customers, first through the core and then do more. Finally, I want to highlight a win we had this quarter with the second largest banking group in France, Group BPCE. One of the key reasons that OneStream's core CPM was chosen came from the bank's stated objective to replace four consolidation systems with one modern and unified solution. This foundational win is a beachhead and a pivotal region for us. This seven-figure deal is enabling over 1,000 users with our technology to service 35 million customers around the globe. In our continuing effort to engage with and further enable our customers, our Splash User Conference in May once again attracted a record number of customers and prospects. As you know, everything about our conference is focused on customers. Our goal from the very beginning was 100% customer satisfaction, and today is no different. Every customer serves as a reference for OneStream. At Splash, where more than 80 customers shared how they are utilizing the OneStream platform to deliver not only performance, but also to start leveraging the platform to strategically steer their business to the future. We were particularly excited about the 12 product innovations that we shared at this year's event, the most we have ever delivered at one time. Let me give you a couple of notes. First, our certified Microsoft Power BI connector provides a no-code seamless integration that allows finance leaders to quickly connect and consume trusted financial and operational data from one stream within Microsoft's Power BI. Second, Our advanced narrative reporting is an intelligent capability that unifies and streamlines financial report creation, all linked to validated OneStream data. Capabilities including centralizing narrative report assembly and automating the gathering of key data, charts, and spreadsheets into narrative books are helping customers save hours of time and reduce risk and reporting errors. Third, our CPM Express product creates a simplified and prepackaged version of our core CPM capabilities, including financial flows, consolidation, budgeting, reporting, and forecasting. With pre-built functionality, predefined reports, and guided configuration, CPM Express targets our commercial customers, simplifying core activities and speeding up processes across the finance function. Finally, Demonstrating the extensibility of the OneStream platform, we announced a new partner solution built on OneStream. The new partner-placed solution, Infinity Sales Performance Management, empowers FP&A and revenue teams to plan, manage, and analyze sales performance across the enterprise. This unified approach eliminates data silos and misaligned objectives and helps finance leaders steer the business towards growth. We look forward to continuing momentum at our EMEA Splash User Conference in mid-September in Copenhagen and at our Wave Developer Conference in November. Now let me turn the call over to Bill for a more detailed discussion about Q2 and our outlook for the balance of the year.
Bill
Thanks, Tom. Let me just echo Tom's comments about how excited we are to have completed our successful IPO and to welcome you to our Q2 earnings call. As this is our first call, I'd like to begin with a quick review of our model. After that, I'll walk through our Q2 financials and then end with our guidance for Q3 and the full year. We have a highly predictable subscription revenue model, which continues to show impressive growth at scale. Currently, a large percent of our revenue comes from our subscription business, which includes SAS contracts, post-contract customer support, and cloud computing fees. The remainder of our revenue comes from term-based software license renewals, which we expect to continue to decline as we convert customers to SaaS, as well as professional services and other revenue associated with implementation, consulting services, and training. Our best-in-class growth retention rate offers consistent predictability and visibility, The leverage in our model can also drive significant free cash flow even as we continue to invest in the expansion of our platform and maintain our industry-leading position. So let's turn to the core. As Annie mentioned earlier, as part of our recent development section of the S-1 filed with the SEC on July 15, 2024, and our IPO prospectus filed on July 24, 2024, we disclosed preliminary estimated Q2 results in ranges, as we had not quite finished all of our closed procedures and review. We are pleased that our actual revenue results came in at the high end of the range. Total gap revenue in Q2 increased 36% year-over-year to $118 million. Subscription revenue grew 44% year-over-year to $103 million. And professional services and other revenue for the quarter was $7 million, down 7% from the second quarter last year. This was driven primarily by the continued leverage of our expanding partner ecosystem for implementation work. International revenue represented roughly 31% of total revenue. Consistent with prior quarters, more than 60% of our business came from new customers this quarter, as our new logo engine continues to be a key differentiator. That growth, coupled with our strong growth retention, is also enabling ongoing expansions by existing customers, both of which we expect to drive revenue growth for many years to come. Our buildings increased 23% year-over-year to $126 million. We ended the quarter with 1,482 total customers, up 19% year-over-year. Of those, over 80 customers had greater than $1 million in ARR. Remaining performance obligations, or RPO, increased 37% year-over-year to $972 million, demonstrating the value of customers making long-term commitments to OneStream. 12 months CRPO was up 41% year-over-year. Our non-GAAP gross margin was 69% for the second quarter, up about 200 basis points from last year, reflecting the growth of recurring revenues and programs put in place to improve efficiency and execution. Non-GAAP operating expenses for Q2 increased 25% year-over-year. We continue to manage the business for efficient growth and operating leverage and have prioritized our spending accordingly. Our non-GAAP operating loss for the quarter was $9 million compared to a loss of $13 million in Q2 last year. This translated to a non-GAAP operating margin for the quarter of negative 7% and 800 basis point improvement from last year. For the third consecutive quarter, we were free cash flow positive, having generated $8 million in Q2. We ended the quarter with $141 million in cash and equivalents. Subsequent to the quarter end, we completed our IPO. We sold 28.2 million shares of Class A common stock, including shares sold by the company and selling shareholders, and the full exercise of the underwriters over allotment option. We increased our cash balance by roughly $350 million after deducting underwriting discounts and commissions, which will be used for general corporate purposes. Before I give guidance, just a reminder of Amy's earlier comments on our Q2 results. As part of the recent development section of our S-1 dated July 15, 2024, and our IPO prospectus filed with the SEC on July 24, 2024, we disclosed preliminary estimated Q2 results for revenue. operating income, and cash flow. As such, future expectations have already contemplated these results in our outlook. Let me review some of the factors you should keep in mind when considering our outlook for the third quarter. First, just a reminder that our third quarter revenue is impacted by term license renewals, predominantly with the U.S. government agencies whose fiscal years end in September. These large multi-year deals are generally recognized annually per their contractor requirements. Additionally, in 2023, we had a large three-year term license renewal that resulted in significant license revenue in Q3 2023. Next, for Q3, we expect sales and marketing to increase as a percentage of revenue while we invest in key areas, including our branding strategy. Additionally, R&D remains an important investment area for us, especially as we expand our ML and AI efforts and build out the solutions exchange. We currently anticipate stock-based compensation charges of approximately $275 to $280 million in Q3, $260 million of which is non-referring related to the IPO. Finally, we expect to drive efficient growth and to be free cash flow positive for the full fiscal year. Our guidance for Q3 2024 is as follows. We expect subscription revenue growth to continue at more than 35% in Q3. But due to the term license revenue headwinds I noted earlier, total revenue for Q3 is expected to be $123 million to $125 million. Non-GAAP operating margin is expected to be minus 2% to 0%. Non-GAAP net loss per share is expected to be minus 1 cent to plus 1 cent. Our full year 2024 guidance is as follows. Total revenue for 2024 is expected to be $476 million to $480 million. Non-GAAP operating margin is expected to be minus 5% to minus 1%. Non-GAAP net loss per share is expected to be minus 5 cents to 1 cent. Before I turn the call back to Tom for his closing, I just wanted to share my excitement about OneStream. I am all too aware of the need for CFOs to become more strategic and operationally focused. I believe OneStream is incredibly well positioned to meet the accelerating demand of the market. Matching our platform capabilities with the increased visibility we enjoy as a public company leaves us very optimistic about the opportunity ahead. Now let me turn the call back to Tom.
Tom
Thanks, Bill. I want to take a moment to thank the Global OneStream team for their incredible commitment, hard work, and loyalty. From our founding to our most recent achievements, including our successful IPO and a solid start to 2024, None of this would be possible without you, as well as our amazing partners and customers around the world. I want to be clear that we recognize the IPO as the start of the next chapter in OneStream's story. When we met with many of you over the past weeks and months, we shared a very exciting and ambitious plan for OneStream. As CEO, my job is to ensure we never lose sight of those commitments and that we make the right investments to continue building out our platform with industry-leading products and solutions. I want to be sure the foresight and long-term focus we have shown in making important investments such as ML and AI continue to drive our future decisions. As proud as I am of OneStream's achievements to date, I have never been more optimistic about our future, and I believe we are just getting started. Thank you.
Annie Lest 's
Thanks, Tom. And now we'll turn things over to the operator.
Operator
Certainly. And as a reminder, if you do have a question at this time, please press star 11 on your telephone. Our first question comes from the line of Chris Quintero from Morgan Stanley. Your question, please.
Chris Quintero
Awesome. Hey, guys. Thanks for taking the questions and congrats on a solid first quarter here. Really great to hear about that beachhead deal in France. It also looks like you have a lot of open job positions in Europe. So curious to hear how much of an unlock this deal and the hiring there can be for you to accelerate growth in Europe.
Tom
This is an exciting deal for us, again, because it establishes, as you know, France is a large market and a large opportunity for OneStream. And we're very excited about that establishing, especially in the banking industry, our position as a consolidator of multiple solutions. So you can see us, I've mentioned this in other calls, that we are at a point of scale in Europe. So with 30% of our business coming outside of the US, we're definitely investing heavily there. And so again, it just adds to the momentum and the opportunity for us to continue to invest and grow that segment of the business for that region.
Operator
Excellent. Thank you. Thanks. Thank you. And our next question. It comes from the line of John DeFucci from Guggenheim Securities. Your question, please.
John DeFucci
Thank you. So my question is for Tom. Tom, trying to think about the opportunity in front of OneStream, you said digitization of the finance organization is still in early innings. Now, competition is something we can all try to triangulate in on. And we know we look at IDC and Gartner and we've talked to people in the field. But how much of the opportunity that you're referring to is what I'll call greenfield, where companies are simply using things like Excel for planning and financial consolidation and close? Like how much of that opportunity? Because that's really hard for us to figure out.
Tom
uh thanks john that that's actually still a really big opportunity you'd actually be surprised that the the number of companies that still rely on excel to overlay on top of some of their more static resources like their erps to get information put together in the way that uh can make sense in the way that they can manage the company so you know that rep that along with the existing replacement opportunity and the realization that so many of these large organizations are having that they have to get rid of point solutions as well. Meaning if you have five, six, seven different solutions required to pull together your information, you're really challenged. So if you add all those up, not only the sort of the green field of no system in place, plus the realization that buying onesies, twosies, you end up with a really large opportunity, something that we estimate to be in that $50 billion plus TAM range.
John DeFucci
That all makes sense, and we've done a lot of work on it, and it all adds up. Hey, listen, nice job, guys. Thank you.
Operator
Thank you, John. Thanks, John. Thank you. And our next question comes from the line of Steve Enders from Citi. Your question, please.
Steve Enders
Okay, great. Thanks for taking the questions here. I guess maybe asking about the sensible ML opportunity, and I know there was a lot of excitement at Splash from that, but can you maybe help us think about how you're thinking about the kind of near-term opportunity
Tom
uh related to that and maybe the the pipeline opportunity that that's come off of the uh off of the splash conference a few months ago sure so as we said it's early days but we're really excited that we've proven the product market fit and we have the customer validation now coming from these live live customers that are sharing their success stories As you saw at Splash that are really helping us to build momentum and build pipeline. So when we think about it from a near term, there's two ways that it's benefiting the company right now. First, as we've alluded to in our opening remarks, we are seeing it be a significant competitive advantage in our net new sales opportunities in the sense that we're really able to convey a a journey to our customers, help them do the core, help them do the things that they have to do, but also show them that we have an integrated approach to helping them deliver advanced analytics through our sensible machine learning product suite in that area. And so that's really an important you know, lever of growth. At the same time, it represents an upsell opportunity for us, for our existing companies that are on the platform and that are ready to take that next step to advance their own analytic capabilities. And so we're seeing that motion as well. So near term, you know, we're really excited, again, to get leverage on this building momentum that we're seeing around this product. And I just wanted to highlight, there's really three core characteristics in our applied AI strategy that we're leaning into, not only from our sensible machine learning, but our entire sensible AI portfolio. And that is, we have to build products that are trusted, that are auditable, and that are repeatable, that can give our customers a defined value proposition.
Steve Enders
Good, that's great to hear. Thanks for taking the question, and Bill, looking forward to seeing you in a couple days. Yeah, I look forward to it, too.
Operator
Thank you. And our next question comes from the line of Mark Murphy from JP Morgan. Your question, please.
Mark Murphy
Thank you so much, Tom. In our networking, we're noticing the mandate to consolidate onto true platforms feels stronger. today than we can ever recall it among CIOs and CFOs. And you've got this stat that you're typically replacing two to six legacy systems at deployment. Can you speak to which of those point products are creating the most incremental opportunity? And then how are you determining whether it's best for OneStream to build them in natively into those new adjacencies versus maybe having partners build it on the OneStream marketplace? Then I have a quick follow-up.
Tom
Great. So when I think about the replacement, we're really looking at this opportunity. There isn't one particular solution. It really comes down to because when you think of the types of businesses that we serve, they're usually fairly sophisticated business with complex financial operations. they might have a mixture. It could be multiple analytic cubes, an existing legacy system, and a new point solution or any mix thereof. It really comes down and you look at what are the closest related systems that make sense to consider sort of an incremental phase one or one stream. The enemy isn't any given brand that you see out there, whether point or legacy, it's the complexity caused by the multiple solutions. So for us, it's It's being the rationalizing force that is the opportunity. So when we think about that, it really is, you know, that really is the underpinning of this.
Mark Murphy
Thank you. And then I had a quick follow-up on the customer ads at 59. It looks stronger than for the prior five quarters. Can you speak to what drove that particular number? Was it incremental? traction either mid-market or over overseas and then just um within the 59 any change in mix of who you're replacing whether hyperion sap or other competitors
Tom
So if you're talking about the 59 customer ads, if we think about that, I'd rather kind of redirect your focus a little bit away from that in the future, because that mix is going to become an unreliable number for you. You know, I look at it as we, you know, we're excited about the number of customers that we're adding, you know, in excess or at that million dollar level. But we also expect to see an increase in the number of customers. more on that kind of mid-market or lower market segment as we turn our focus and get leverage on our CFM Express products. So for me, it's really about success in our main areas, both the large enterprise where we really built the company and then this increasing success where we're taking the knowledge that we learned at the large enterprise and packaging that in a way that we can give value to these emerging companies more in the middle segment. So I'm less focused on the actual count of customers rather than, because I think over time you're going to see that change, you know, as we project out what we might look like in five years to get to 4,000 customers. You're going to see those customer counts kind of go up, and it still needs to be a healthy mix of both areas. Operator, let's go to the next question, please.
Operator
Certainly. And our next question comes from the line of Koji Akita from Bank of America. Your question, please.
Koji Akita
Yeah. Hey, Tom. Hey, Bill. Thanks so much for taking the question and congrats on becoming a public company here. I wanted to ask a question about the differentiation of the platform. When I look at the office of the CFO, one could argue this might be one of the oldest software categories out there, especially with ERPs. And so Would love to hear from your voice, Tom, about some of the nuts and bolts of the platform that you think made the platform, the OneStream platform, really defensible here over the long term. Thank you.
Tom
Sure. Let me provide just a real quick foundation around ERPs just so we're all level set there. Really think of ERPs as sort of a more static physical representation of a business. And so when you think of OneStream and you think of a platform that's involved in really turning that data that's being recorded by the ERP into a logical model or view of a business that helps a management team align and run the data and turn it into information in a way that they can actually execute against. So that's really what the goal is. Now, so what gives us a defensible position in being that system that can turn that data into information? It really started off with our full commitment to creating this uniquely unified platform, having the intellectual capital in our modeling engine that we call extensible dimensionality that allows us to create this single unified view that we can not only model external statutory data, but also planning data. but then taking that a step further that unified integrated data model we built on top of that all the other surrounding capabilities that are required uh that that really what i call the hard work that we do for customers it's the workflow engine the presentation engine the data integration engines the ability to deploy it you know in different form factors excel browser and the integrated AI platform, fully integrated owned intellectual property tied into that so that the customer doesn't have to experience another technology. Then on top of it, you layer on the development environment, which is truly the distinguishing characteristic. And that is where that allows us to take that uniquely set, that unique set of integrated engines that I just described or technologies and get leverage on it by building these more industry horizontal like vertical solutions either ourselves or letting our partners build and or both or even customers are able to build. So those pieces give us really a long-term durable growth model or a sustainable competitive advantage as long as we continue to see those opportunities and create on top of this platform.
Operator
Thank you. And our next question comes from the line of Brian Peterson from Raymond James. Your question, please.
Brian Peterson
Awesome. Thanks, and congrats on a strong quarter. So I just wanted to follow up on Sensible ML. You know, after sitting in some of the presentations out at Splash, it's good to see that impacting new logos. Think about the adoption curve of that product. Is that something where you expect a high level of attach rates on new deals, or is that something that comes from existing customers that are really embracing the extensibility? Thanks, Chris.
Tom
So as I mentioned a little bit earlier, I definitely see it. Originally, we were very, very focused on the attach and the upsell. I'm sorry, just customers that were looking for those advanced analytics that were helping us co-develop and partnering with us. But we are seeing it be an increasingly important message in the net new sales cycle largely because customers that are on this digitization, they're getting this journey, they're getting pressure from management teams, from boards of directors as to how are you going to become more efficient, become more advanced. And so we're seeing it be an important part of our overall net new sales process as well. So I'm equally optimistic on both. And we are seeing in the quarter We did see some purchases on the upfront of deals without these proof of value or without having to go through the proof-based projects that we were doing because of the success that you saw at Splash and the foundation that we're establishing with our current customers.
Operator
Thank you. Our next question comes from the line of Nick Goldman from Scotiabank. Your question, please.
Bill
Awesome. Thanks, guys. Tom, I kind of wanted to circle back to John DeFucci's question, but maybe asking it in a different way. But I wanted to get a sense as to how the commercial opportunity is playing out. I mean, you guys started a commercial-focused go-to-market motion not too long ago. You've had some exciting product and feature announcements that help commercial customers get up and running quicker. So can you maybe just talk about how the commercial motion has trended relative to expectations? And when you look out over the medium term, how big of a factor is commercial to the overall growth algorithm? Thanks.
Tom
Sure. So, you know, as we think about it right now, we look at the split in the business, you know, we're really looking at it as, you know, thinking about the future of the company. You know, we look at our customer base, that we have right now, where we're at around, let's call it 1,500 customers. And you see us kind of thinking along the lines of some of the other large platform companies ending up in that sort of, let's call it 7,500 to 10,000 customer range. We really are thinking, it's early days, but we're thinking about, we do have a dedicated sales team, which we've created over a year ago. And we really are starting to focus on You know, how do we best serve? What are the differences between the large enterprise customer and this emerging customer? And so I think it's a really great opportunity for us to take that and move forward with the CPM Express product. So it's really... really an important opportunity for us to show up take the expertise and the best the best in class implementations that we've seen because we've done so many large prestigious brands that we're proud of our team has the right now to share that information and be prescriptive to some of these emerging companies and what i'm most excited about there is the fact that we can onboard these customers that are the future uh and growing large companies and they don't have to get off the they don't have to get off the sort of one stream platform train because you know if they aspire to go all the way to be fortune one our software is used at that level and we can communicate with that so we can bring them on deliver value more quickly and then move them all the way along the journey that they're on without changing the software, really just giving them a great experience and a lot of value, and adding and meeting them where they are through our store-based approach or the exchange that we talk about.
Operator
Thank you. And our next question comes from the line of Terry Tillman from Tourist Securities. Your question, please.
Terry Tillman
Yeah, thanks. Congrats from me as well on the IPO and the strong 2Q results. Actually, I want to go back to the replacement opportunity if we can. And I don't know if this is for Tom or Bill, but maybe you could talk a little bit more on that enterprise side, not the commercial side, but the enterprise side. You know a lot of these Fortune 500 accounts. How do you think about the actual duration of this replacement cycle? Is it pretty linear every year where you know the contract renewals for the legacy vendor? Or potentially, could you see this get tilted to kind of the front end of this replacement cycle because of things like AI? Because of things like cloud, maybe there's an ERP migration cycle. I just would love to know more about how you think about this curve for the replacements. Thank you.
Tom
Sure, I'll take that, Terry.
Tom
The way that I look at it, again, just to reiterate, we feel that we're only 5% penetrated, so it's a really big opportunity. In terms of timing or what mechanisms are calling these deals to the table or the rollover, there's lots of different influences. It can be anything from an acquisition can trigger it, a disposition, a You know, a technology shift that is tangent, like you said, it could be an ERP change or so there's lots of different things that trigger it. A lot of times we get questions around, is it an end of life that's going to accelerate? All in all, it really is just these companies. There's different cycles that are happening within a company and different priorities. And so it's more about they get a long value. When we look at these deals as we're establishing a 10 plus year relationship and these customers that are on financial transformation journeys have been part of these. sort of 10-year relationships with these other vendors. And as they come up, you know, and they start to look at what's new, they start to open themselves up to feeling comfortable with the cloud. As we mentioned, the cloud for the types of customers that we've been serving, especially at the large enterprise, a lot of these companies had data centers that were still at scale, that were still economically viable and are now, you know, looking at moving these types of workloads to the cloud. That's another opportunity. driver and again transformation digitization AI they all contribute it's not I know I'm not answering there's not a specific thing that's driving it it's more that we're ready to meet that customer wherever they're at on the journey and whatever that reason is thank you and our next question comes from the line of Alex Zookin from Wolf Research your question please
Terry Tillman
Hey, thanks for taking the question. Congrats on your first successful quarter out of the gate. Maybe just maybe Tom or Bill for you, you know, if you think about the general demand environment that you saw in 2Q, the linearity in the quarter, you know, kind of maybe just go one layer deeper. Were there any really interesting cohorts or customer or geos or verticals that you kind of saw that maybe surprised you? And given how much the IPO and obviously Splash were kind of big generating events from a funnel perspective. Anything that you're seeing in your pipeline or top of funnel that gives you incremental enthusiasm?
Tom
Yeah, we're really excited about banking. We're excited about the growing presence that we have in EMEA in terms of some of these foundational deals that I had already mentioned. Then again, foundationally, I'm really excited about the way we continue to garner larger investments from customers. When I say larger investments, you continue to see this trend of attracting million dollar deals. And that really means that people are seeing the value of the platform. And so when I think about these opportunities and I think about growing the business and moving forward, You know, overall, the demand environment to me feels what I like to call normal. And so when I say normal, I just mean that we're seeing sales cycles that are, you know, normal level of approvals, normal level of contracting expectations. So we're not seeing anything anomalous there. And then generally, I would say on a global basis, you know, I would say there's kind of a quality across all. There's pockets of strength and weakness maybe in EMEA a little more, but overall on balance, I'd say it's pretty aligned to the U.S., and we feel like we're just calibrating the business towards that operating environment.
Operator
Thank you. And our next question comes from the line of Scott Berg from Needham & Company. Your question, please.
Scott Berg
Hi, everyone. Nice quarter here. I'm not sure if Tom or Bill want to take this, but we've seen spending in the office of the CFO be more resilient and hold up better than other kind of sectors of our software coverage universe recently. I guess as you look at your deals in the last quarter, maybe as you look at the pipeline going forward, is there anything to draw from there in terms of what you're seeing that kind of, I guess, drives this enthusiasm for this category right now, because your results have been fantastic for a couple of quarters now.
Tom
Thank you. I will just provide my general context on this. And again, having spent 10 years in corporate finance and kind of doing this job and understanding the pressures that go on to the office of the CFO, there's really no reprieve ever. And so as we've lived in these more turbulent macro times, there's a constant pressure. And I think, you know, what we've seen over in recent history here with, you know, the rapidly changing macro and coming off of the pandemic, I think you're now seeing companies believe that it's truly time to make sure that they're modernizing and that they can adapt to the current environment. So I think, you know, there's an enthusiasm there. There's a couple of components that go into what we sell, which I think it's important for everyone to understand. There's What's good about our business is there's a statutory component to it. That statutory component means that we have a high burden of proof to deliver. Our numbers have to be right. But that also creates a moat and creates a continuous need. There's statutory fuel because you have to do your numbers. You have to report your numbers, and they have to be right. So there's always that perpetual need. But then there's also this feeling that CFOs have to become strategic partners to the business. And so it's no longer acceptable. When I was in corporate finance, there was a little bit more of a feeling of I was a corporate cop. Not that I wasn't a strategic partner, but I felt a little bit more like a corporate cop, as we used to say. That really, that motion has changed. And this idea that making sure that CFOs can be the curator of this really important information to steer the company forward is really, really important. And I think that's at the heart of it, that general context that I've just painted is that, you know, there's this opportunity. There's this also, you know, I know I'm kind of rambling on here, but the other element to this is people are finally the first generation of cloud digitization, digital transformation for the office of the CFO with point solutions. Right. Because there wasn't a platform like you had in some of the other areas. And then what you're finding is you wake up and just because it's in the cloud doesn't mean that it's more valuable. You have to rationalize how these pieces work together. And I think, again, you're starting to see this this idea that it's time to invest in the office of the CFO with a real platform, eliminating redundant work so that you can truly be a partner in the business.
Operator
Thank you. And our next question comes from the line of Brent Bracelet from Piper Sandler. Your question, please.
Piper Sandler
Thank you. Good afternoon. Bill, I know we're only five weeks from the IPO and the Q2 flash release, but could you just talk through the pipeline build over the summer, what you saw there? And then, Tom, as a follow-up on these triggers to drive replacement and modernization, How important is cost savings? You keep talking about the consolidation and two to six point solutions that you're replacing. I'm just wondering in this environment, is the cost savings driver by moving to OneStream going up the priority list? I ask because there's very few enterprise software firms growing CRPO over 40%. Thanks.
Bill
Yeah, I'll take the beginning. I just reiterate a little bit of Tom's commentary that we feel like we're in a normal environment. You know, our pipeline is building as you would expect, you know, given the guidance that we gave you for the second half of the year. We're really excited about the second half of the year and the team's, you know, the team's working hard on obviously building pipeline and closing pipeline. I think, you know, for those of you who were at the, you know, at our original org meeting, we hired a new CMO and about a year ago, and Tim's come in, and I think he's done a really good job, and you've seen some of that show up in our branding and positioning, and I think we feel we're well positioned to execute in the second half of the year.
Tom
Great, and I'll just kind of follow up with the cost savings. When you think about deals, and when I'm on a deal, we're always selling the value, meaning when you're reducing, when you're talking about eliminating multiple point solutions, you definitely would expect licensing savings, but you're also looking for potential in your organization, right? You're looking for the opportunity to actually not just get the job done, not burn your team out till two in the morning, but to actually be able to deliver more cycles at a higher quality and at a lower cost. So when we go in, our value team is very, very conscious of helping the customer understand you know, how we can actually reduce technical debt and deliver the value at a, you know, deliver to the customer the right economics. And we're really focused on making sure that that value is understood and the savings are understood.
Operator
Thank you. And our next question comes from the line of Matt VanVleet from BTIG. Your question, please.
Matt VanVleet
Good afternoon. Thanks for taking the question. Actually, coming up on the third quarter, you mentioned that it's been from, of course, the first quarter at the level. I get curious on how the pipeline looks in the public sector for both this quarter and the several quarters ahead, and then maybe just help us understand what growth might otherwise look like in the third quarter if you sort of normalize, especially with the large contract last year. I know you mentioned strong subscription growth, but just any other details you can help us with sort of the underlying fundamentals of the business.
Bill
Yeah, Matt, you're kind of cutting in and out a little bit, so I'm going to answer your question as best I heard it. I think the first half was with respect to public sector. You know, we have a significant and growing public sector. We're very excited about that, as you mentioned. You know, Q3 is is an important one for that. What we're seeing, however, in the public sector is whereas a number of years ago, the public sector, you know, kind of finance teams were, you know, we're doing on-prem deals. We're now starting to see them do SaaS deals. And so obviously the red rack for that shows up, you know, over the term of the contract, whereas historically if you do a term-based deal, then obviously you had a lot of accelerated revenue in the Q3. So that's going to be, you know, something to consider. But we have a great team and very excited about it. I would just reiterate in terms of kind of normalization, I commented in my prepared remarks that we expect subscription revenue growth to continue at more than 35% in Q3, and that's a number that I'd have you think about. Great question. Great. Thank you.
Operator
Thank you. And our next question comes from the line of Derek Wood from TD Cowan. Your question, please.
spk16
Great. Thanks for taking my question. I guess for you, Bill, you've been seeing some nice double-digit growth in ARR per customer when looking back over the last year and a half. Are you able to couch how much of that is coming from larger deal sizes when landing new customer wins, and how much of that is execution and upselling or cross-selling the base? And do you see this algorithm changing much with the introduction of CPM Express, or will that kind of take some time to have more meaningful impact?
Bill
Yeah, great question. I would reiterate, I mean, we have over 80 customers now that are paying us over a then that obviously increases the average size per deal. I would reiterate a little bit what Tom was saying. I think CPM Express is still in its very early days. We obviously have a significant number of mid-market customers already, but we really want to accelerate that with the launch of CPM Express, and we want to see that number kind of accelerate quickly, which would obviously be a bit of a headwind on average size for deals. So look, we'll try to over time help to communicate with you guys, you know, how each of those different businesses performing. But I think at this point, we're really early days on the CPM Express and obviously quite excited about the enterprise business that we've built and are executing, I think, pretty well on.
Operator
Thank you. And our next question comes from the line of Rob Oliver from Baird. Your question, please. Great.
Terry Tillman
Good afternoon. Thanks for taking my question. Tom, just one for you on the solution exchange. I think we're about a year and a half. I think it was Splash 23 where you guys kind of officially rolled it out. And you talked about expanding revenue streams. And I'd be curious either, you know, for metrics you can share or for anecdotes around what you've seen since the launch of Solutions Exchange, you know, in terms of stickiness with customers, upside new revenue opportunities, things you guys have seen percolating within the developer base that you didn't expect and perhaps can productize. Any thoughts there would be great. Thanks so much.
Tom
Yeah, I'd love to expand on that. I think we're now, you know, as we introduced to kind of bring everybody on the call up, you know, we have our solution exchange, which we've had our marketplace since, you know, the beginning of the company. But solution exchange was meant to create, you know, a broader market. portfolio of solutions, the horizontal or internally developed one-stream solutions, partner solutions, as well as what we call open-place. We now have over 100 partner-related solutions. And, you know, very notable that we announced at Splash was this, you know, an ISV decided to create their next software product on our platform, meaning this was a company that had created a sales performance management solution, had actually sold their company, had an exit, and decided to create their next generation product on the OneStream platform because of the relationship to the CFO customer base. That's really, really encouraging. So as we see this, you know, that's providing a great prototype for us to learn from as we think about, you know, the act of a partner creating that software as well as the economics and the go-to-market motions that we see around it. know and then as you again as we talk about our ai portfolio all those products flow through the marketplace so everything that you hear us talking about around sensible ml around the other sensible ai portfolio products they surface through the horizontal mechanism or the one-stream marketplace so it's a critical element to our overall uh expansion strategy and we look to refine that though we're you know it's one of the areas where you want to make sure that you do it right and that you refine it and that you go at the right pace and the idea here is we have this platform that has a lot of potential leverage we want to make sure that we go after that in a very thoughtful way and expand uh you know it there's a uh there's an old term that you talk about uh in in race car driving go slow to go fast be thoughtful and then accelerate into it so we're really excited about where we're at and I think as you learn more about some of the first-class solutions that are in the marketplace, you can really see that, you know, that is what I mean when I say infinitely extensible about our platform.
Operator
Thank you. And this does conclude the question and answer session of today's program. I'd like to hand the program back to Annie Lisson for any further remarks.
Annie Lisson
Thanks so much, Operator. And thanks, everyone, for joining us today. We hope to see you at our upcoming conferences that we'll be attending in the next few weeks. Thanks again.
Operator
Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.
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