Greetings and welcome to Stem Second Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-mode only. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would now like to turn this conference over to your host Mr. Ted Durbin, Head of Investor Relations. Thank you, sir. You may begin your presentation.

Thank you, operator. Before we begin, please note that some of the statements we will be making today are forward-looking. These matters involve risks and uncertainties that could cause our results to differ materially from those projected in the statement. We therefore refer you to our latest SEC filings. Our comments today also include non-GAAP financial measures. Additional details and reconciliation to the most directly comparable GAAP financial measures can be found in our second quarter earnings release, which is available on our Investor Relations portion of our website. John Carrington, Stem's CEO; and Bill Bush, Stem's CFO will start the call today with prepared remarks. Larsh Johnson, Chief Technology Officer; and Prakesh Patel, Chief Strategy Officer will also be available for the question-and-answer portion of the call. Now we'll turn the call over to John.

Thanks, Ted. Today we're pleased to host our first earnings call as a public company listed on the New York Stock Exchange. It's been a long journey to get to this point, and we couldn't be more excited about the future of the renewable energy industry and Stem's critical role in that ecosystem. Today, we reported solid second quarter results at the high end of our guidance range for revenue, and we're reiterating our guidance for full year 2021 revenue and adjusted EBITDA. This represents top line year-over-year growth of 4x in 2021. Bill will give you more details on the quarter and outlook, but I wanted to share with you how Stem is focused on extending our leadership position in the high growth smart energy storage market. Today, there's an inflection point in our market, driven by increasing demand for renewables and the significant decreases in costs for both renewable generation and battery hardware. Combined, we see these factors resulting in an energy storage market that is expected to grow by 25 times over the next 10 years, leading to a $1.2 trillion market opportunity. The electric power grid is becoming increasingly decentralized, where every customer site has a combination of renewable generation and smart energy storage. Our solution drives customer value by lowering energy costs, reducing dependency on conventional fossil fuel generation, and solving the intermittency challenges posed by solar and wind. Based on our experience scale, domain expertise, and operational excellence, we believe Stem's integrated hardware and software solution is the best clean energy storage software platform in the marketplace. One of our key metrics is assets under management, and we're seeing continued momentum on AUM and pipeline acceleration. From a market position perspective, Stem is one of the leaders in worldwide deployments. We have systems operating or contracted across the U.S., Canada, and South America representing over 1.2 gigawatt hours of capacity. Our pipeline, which stood at $1.7 billion at the end of June, is significant and growing. We have also grown our backlog, which consists of executed contracts from $184 million at the end of last year to $250 million at the end of Q2, reflecting an increase of 36% year-to-date. This growing backlog gives us increased visibility and confidence that we will achieve our revenue target for 2021 and provides momentum into 2022. Now I'd like to discuss our proprietary artificial intelligence enabled platform called Athena, our market leading software solution. We continue to invest in expanding the capabilities of Athena, enabling it to even better optimize energy storage dispatch. Our scale and ability to co-optimize multiple value streams is highly differentiated. Athena benefits from years of experience operating a large install base with over 20 million runtime hours across a diverse set of markets, battery technologies, and multiple use cases, culminating in a significant competitive moat for the company. Additionally, Athena continues to get smarter as it processes more data in more markets through powerful machine learning cycles. Another differentiated aspect of our model is the 100% software attach rates on our hardware sales, providing exceptional visibility to our software revenue. We generate software margin north of 80%, which accrue over 10 to 20 year contracts. A great example of our differentiation delivering sustainable energy optimization is the electrodes project, where we successfully replaced a competitor's software with our Athena platform last year. All of the 85 sites in this 345 megawatt hour portfolio in Southern California were integrated and converted to the Athena platform within 60 days. This spring, we announced that we improved the electrodes project value to customers and asset owners by 30% on average, and in fact, our software has enhanced select customer economics by over 100%. We believe this clearly demonstrates our industry-leading position as it relates to AI optimizing energy storage for customer savings while delivering grid services. With all the heat waves and other extreme weather events in June and July, Athena supported the grid by dispatching over 500 megawatt hours of energy on multiple days in North American markets in response to thousands of calls on our sites; Athena is automatically fulfilling virtually 100% of those calls across 18 utilities. Today, Athena is actively monetizing 11 of the 13 energy storage value streams described by the Rocky Mountain Institute wheel of storage for customers, utilities, and market operators while providing functionality that includes peak demand management, real-time energy arbitrage, capacity payments, and ancillary services like frequency regulation and backup power. Athena optimizes these different value streams within customer-specific and market-specific constraints such as solar ITC compliance, battery life, and regulatory targets like meeting greenhouse gas requirements for the SGR program in California. Athena is also executing in Massachusetts with its fully automated energy dispatch platform called Athena Bitter, where this past quarter Stem began AI automated bidding into the ISO New England energy and frequency regulation markets using real-time price forecasting algorithms. At the same time, Athena is optimizing for capacity obligations, long-term battery life, solar ITC compliance, and Massachusetts smart program compliance. Energy markets are only getting more complex, and Athena thrives on that complexity. Now, I'd like to discuss our view on market demand. Our bullish outlook is driven by the strong demand pull for our services from multiple end markets particularly corporate, Independent Power Producer or IPP, electric co-op utility, and community choice markets. On the corporate side, we are partners with multiple Fortune 500 companies like Home Depot and UPS, and we've delivered significant value above and beyond our original contracts to this key group of customers. We expect additional sales to corporates as they expand to new markets and become even more environmentally focused, driving a higher mix of renewable energy. They understand the value of storage and the differentiation that Stem brings, and we expect further growth as we expand this customer base. With regards to the IPP, Cooperative, and Community Choice markets, we see a great opportunity to leverage our buying power, hardware expertise, and software optimization to generate compelling value for these customers. We are currently pursuing co-op projects in 26 states, and we recently installed a 14 megawatt hour project for a co-op in Arkansas, which is our fastest Front of the Meter deployment in company history. We will continue to demonstrate the value of Stem's solutions to the co-op and CCA markets in the second half of 2021 and expect additional momentum in 2022. It's worth noting that the vast majority of our sales come through our partner channels, which is a powerful way to extend our reach while minimizing our customer acquisition cost. We also continue to see momentum with the Stem University online platform, where over the past six months, we have onboarded over 450 affiliates across over 180 companies, for a total of 1,100 professionals who are credentialed to execute customer contracts and serve as deployment specialists. As we look to increase our sales in the fast growing Front of the Meter or FTM market, it is our partnered channel that will allow us to access those larger projects in markets. We have grown quickly in markets like Massachusetts. In fact, as of the end of June, Athena managed 52% of the energy storage assets active in the wholesale energy ancillary services and forward capacity settlement markets in Massachusetts. This capacity represents almost 20% of the continuous storage facilities in the six states comprising the ISO New England market as reported by that system operator. These strong results demonstrate our speed to market and effectiveness of our Athena platform, underscoring our confidence and continued momentum in growing share of the FTM market. Shifting to the policy and regulatory front, we've been encouraged with the support from the White House and Congress, recognizing the importance of enacting a standalone storage Incentive Tax Credit or ITC. The President specifically included the standalone ITC in his American Jobs Plan, and it is included in the House GREEN Act and the Senate Finance Committee's Clean Energy for America Act among other bills in Congress. While the situation is fluid, we believe a standalone ITC will be included in the pending reconciliation package. According to Wood Mackenzie, a passage of a standalone storage ITC would increase Stem’s total addressable market by up to 25% against their previous baselines. Policy actions like FERC Order 2222 demonstrate the macro tailwind of distributed generation resources, which will only increase the value of storage as ISOs across the country rollout their implementation plan. Fortunately, many states are not waiting on Washington DC, specifically Connecticut, Massachusetts, New York, Virginia, and others are seeking to accelerate adoption of smart energy storage. The same holds true in international markets such as South America and Europe, where the EU Green Act will drive the continent to become carbon neutral by 2050. While we are optimistic about incremental policy support, our plan is not dependent on passage of the storage ITC. Rather, it represents upside to our forecast. Now, I'd like to address some of the supply chain and inflation questions that have been top of mind in the market lately. Looking at Stem, we continue to monitor the global supply chain issues that emerged during the COVID pandemic last year and have cascaded through multiple industries including ours. We saw some of these constraints coming at the end of last year, and in January we took proactive steps in securing our supply needs to meet our revenue commitments for 2021. We also continue to monitor COVID impacts on utility interconnection approval processes and timing that could impact our ability to deliver product and drive AUM. We run a robust sourcing process each year, and as part of this, we evaluate multiple suppliers across a variety of metrics. Our operation team leads an extensive process to ensure our suppliers are meeting commitments. In addition, the product teams confirm the supplier roadmap aligns with our specifications and market needs. From an internal process standpoint, we have weekly meetings with senior management to review hardware supply, including granular alignment by hardware system and supplier to contract projects. I am confident this level of rigor has served the company well, and more importantly, our customers. Looking forward, we've started to contract for supply as our current bookings begin to provide more visibility to 2022. Given our scale, multiyear relationships with suppliers, and proven execution in the market, we have generally been able to secure supply when and where we need products. Through our concerted efforts, we've made good progress on diversifying our supply chain over the last few years. Whether that is around the specific number of OEMs, the geographies we source from, or the battery chemistries we deploy. This diversity enables us to be nimble and responsive in the event of an issue with a single supplier, trade tariffs, or other events such as COVID-induced shortages. Our customers value our multi-vendor fit-for-purpose approach to sourcing hardware. Going forward, our balance sheet allows us to negotiate better pricing and terms from our suppliers. Additionally, we can opportunistically procure extra capacity when it becomes available, and we are actively engaged in those conversations. Bottom line, while we do see some risks around supply chain issues, we are confident we have implemented sufficient monitoring, controls, and optionality to mitigate those risks. Moving to our people strategy, we've assembled a terrific team to date. I want to highlight some of the things we're doing to enhance our leadership position and meet the market demand for our products. We are aggressively recruiting exceptional talent in our software, operations, and commercial functions. As the first pure-play smart energy storage company to go public, we're attracting top talent including software developers, data scientists, operations experts, and sales leaders. In addition to competitive compensation and a culture of diversity and inclusion, we offer our team members the unique opportunity to make an impact with sustainable innovation that will define the energy markets of the future. Lastly, before I turn it over to Bill, I want to personally thank everyone who helped us get to this point, specifically our employees, customers, channel partners, suppliers, advisors, board members, and investors. Again, I am very excited about the future of this industry and the value that Stem brings to our customers and our part in de-carbonizing the economy. With that, let me turn the call over to Bill.

Thanks, John. Starting with our financial results, we recorded $19.3 million of revenue in the second quarter, which was at the high end of the guidance range we provided in January and about 4.5 times versus the same quarter in 2020. The vast majority of the growth came from hardware sales on FTM partner projects, with some additional revenue from host customer arrangements. Our GAAP gross margin was negative $100,000 versus negative $1.7 million in the same quarter last year. Non-GAAP gross margin came in at $2 million, or 11% for the quarter, up from 5% in the second quarter last year, which benefited from a higher mix of software service revenue and higher volume. Net loss was $100 million versus a $19 million net loss in the same quarter last year. That swing is almost completely the result of a large non-cash charge for warrants issued as part of the Star Peak IPO in August 2020. Lastly, adjusted EBITDA was a negative $8.6 million versus a negative $7.5 million in the same quarter last year. That's the result of the additional headcount as we continue to invest in our software and operations workforce to go after this rapidly growing market. Turning to our operating metrics, our 12-month pipeline grew to $1.7 billion as of the end of June, that's up 21% from the end of the first quarter 2021. We are seeing a lot of new opportunities in the FTM space, which contributed to two-thirds of the growth in the pipeline as our sales force focuses on that market. We booked $45 million in projects in the quarter and have booked $96 million in the first half of 2021 versus $58 million in the first half of 2020. That represents a 66% increase reflecting the strength of our commercial offerings. Our backlog increased 13% sequentially to $250 million at the end of June and is up 36% from the year-end 2020. As John mentioned, that $250 million backlog gives us increased visibility and confidence that we will be able to achieve our revenue target for 2021 and provides momentum for continued growth in 2022. Our backlog represents signed contracts that we expect to convert to hardware revenue for the near and medium term and software revenue for the next 10 to 20 years. In contrast, our pipeline metric represents potential revenue from specific opportunities which have a reasonable likelihood of contract execution within 12 months. The last major metric, our contracted assets under management, grew 9% between the first and second quarters to 1.2 gigawatt hours, equivalent to energy for approximately 240,000 homes. This broad scale indicates the long-term strength of the business, and we think that contracted AUM is the best metric to track for software and market participation revenue potential. Every quarter and every year we are stacking 10 to 20 year recurring revenue software contracts into the model with north of 80% gross margin. These contracts, recorded as deferred revenue, give us tremendous momentum and confidence in the long-term earnings power of the business, which will increasingly be driven by software. That installed base also presents upside optionality in the form of market participation or grid services revenue. So when markets or regulations change, we're there with our installed base software to capitalize on new high-margin value streams for our customers with shared upside for Stem. Turning to guidance, as John mentioned, we are reaffirming our guidance of $147 million of revenue for the full year 2021 and negative $25 million of adjusted EBITDA. As we discussed in our January Analyst Day, we expect to recognize 20% to 30% of our full year revenue target in the third quarter and 50% to 60% in the fourth quarter driven by normal seasonality of the sales and customer installation cycle. It's important to note that over time, the seasonality will flatten as software becomes a larger part of our revenues and gross margins. We expect operating expenses to continue to grow primarily driven by headcount in order to invest in growth initiatives. With respect to our capital structure, we closed our merger transaction on April 28, which put close to $500 million in cash on the balance sheet with no debt and jumpstarted our plans to grow the business, manage our supply chain, and consider inorganic opportunities. We will continue to take steps to simplify our capital structure following the merger transaction. Three examples of which include number one, in mid-June, the PIPE shares from the merger transaction were registered and became freely tradable and have been sold in the marketplace in an orderly way. Two, in late June, we exchanged all of the 7.2 million private warrants outstanding for 4.7 million common shares on favorable terms to the company. And third, there are 12.8 million warrants outstanding, which are redeemable by the company beginning August 20. Pursuant to the terms of the warrant agreement, the company intends to redeem those warrants. We think that these steps will increase our trading liquidity, reduce dilution for existing shareholders, and in the case of the warrants, will reduce variability on our income statement by eliminating the non-cash charges associated with them. We will continue to evaluate opportunities to simplify our capital structure while maintaining financial flexibility to support our growth. Lastly, I want to echo John's comments and thank all of the people who helped us get to this point. We appreciate their partnership, and we are enthusiastic about the trajectory of the business. And with that, let's open the line up for questions.

Our first question comes from the line of Maheep Mandloi with Credit Suisse. You may proceed with your question.

Good evening, and thanks for taking my questions. The first one, just on the margin side. Could you just probably talk about how we should think about margins in the near term, as you can have secured all the required batteries for the year? Just wondering if there's any impact from shipping costs, which has been plaguing some of the companies in the supply chain. So just wondering margins for the second half and 2022? Thanks.

Yes, thanks for the question, Maheep, this is Bill Bush. So breaking that down into two pieces, we think the second quarter margins really reflected some of the early entry FTM projects, which had a little bit lower margins than what we are seeing currently. Longer term, we think that the software will drive the mix, and that's going to drive higher gross margins as we've discussed over a number of calls. With respect to the shipping costs, that's a relatively small amount of cost relative to the system itself. While they are increasing and we have seen that, although I would also mention that we think that it's a short-term dislocation issue. We haven't been negatively impacted by that so far. But it is, you're right, they have been increasing over time.

And with regards to the Behind of the Meter and Front of the Meter project I think, could you maybe talk about the mix of those hardware sales or revenues in Q2 and what you have in the backlog? And as part of that, just wanted to probably understand if you can talk about your go-to-market strategy for the Front of the Meter market, something which you've already seen in New England and Massachusetts, and how to think about market share growth and other markets what could drive that. Thanks.

Sure, I'll start with the first part, and then probably John and Prakesh will jump in on the go-to-market strategy component. But as far as the BTM versus FTM, hardware deliveries, most of the hardware deliveries that you see rolling through the income statement these days and this last quarter are on the FTM segment. Historically, the BTM sales would run through SPVs, and we didn't technically sell hardware through those particular structures. Over time, we do expect to deliver more BTM, and we haven't given the mixed percentages between the two historically BTM versus FTM hardware sales. I'll let John weigh in on the go-to-market.

Thank you, John Carrington. I had a couple of things. I'd say that one of the really exciting parts of what we're doing on the Front of the Meter side is if you look at Massachusetts, particularly it's a market we weren't even in 18 months ago. As mentioned in the prepared remarks, we have 52% of the energy storage assets active in the wholesale markets that Athena is managing. We feel very good about our advanced efforts in the Front of the Meter side. When you think about the whole ISO New England market, it's 20%, and that's a six states ecosystem, as you well know. I would also add that we're continuing to look at a variety of things to accelerate that roadmap. That could come in the form of looking at opportunities from Athena's roadmap standpoint and inorganic type of plays, but we will certainly continue to invest in data science systems and that software development team. We feel like it's a great spot for us. We are really feeling confident in our trajectory in that space, and we expect to see more and will continue to update everyone as the momentum continues.

Our next question comes from the line of Biju Perincheril with Susquehanna. You may proceed with your question.

Can you talk about the very nice increase in your pipeline? Can you just talk about maybe your outlook for bookings for the rest of the year and how we should think about the backlog? Would there be any seasonality to how the bookings come in, I doubt there will be, but any thought you can add there would be helpful?

Sure, you know we have put out, as part of our guidance, a range on the booking side. From a seasonality standpoint, it's certainly back-end loaded, which again matches the previous year's history. The third quarter is 20% to 30% from a revenue standpoint, and the fourth quarter is 50% to 60% of our plan. As mentioned by Bill, we reaffirmed the full year revenue target from a contract backlog. It's really exciting because as mentioned in the prepared side, we were at $184 million of contracted backlog at the end of 2020, and through the end of the second quarter, we are at $250 million, which is a 36% year-to-date increase. We're continuing to see contracted backlog grow, and we're obviously seeing nice growth around our pipeline, the 12-month pipeline is $1.7 billion, which was up from $1.4 billion, a 21% increase. So feel good about those key metrics. And I think that momentum continues throughout this year from where we think we can tell.

And with the success you had with the electrodes projects, are you seeing additional opportunities for conversions of fossil fuel facilities, and also, is there an opportunity for converting some of the storage projects that maybe didn't have software attached with it, getting new software services?

I would say that the aggregate we're definitely seeing more incoming around opportunities like that. I think part of it's been driven by our balance sheet, and the fact that as a venture-backed company, previous outcomes, we really at times may have had a couple of years of runway. When you're talking about 20-year deals with developers, it was a bit challenging, but that has gone away so we're seeing a significant amount of incoming. Our view is that we will continue to sell hardware as long as it's economical. Our customers typically want the fully wrapped solution of hardware and software, but in our model contemplates hardware throughout. So Larsh, do you want to jump in with any thoughts?

Well, I just think we're definitely seeing the interest in the software performance and applying that to assets that people may have either already owned or want to upgrade. But I think the proof will be in the ability to secure software contracts for customers who have assets, where they're procuring the equipment directly, and building new projects and incorporating the Athena software capabilities in their performance.

Our next question comes from the line of Brian Lee with Goldman Sachs. You may proceed with your question.

Thanks for taking the questions. I had to hop on a little bit late. So I apologize if you've already covered this. But on the contracted AUM, it seems like you're tracking ahead of targets you had laid out for the year prior. Just wondering if you had an update on guidance there. And also, you cited in the press release a 345-megawatt hour addition this quarter. I think that's bigger than the overall quarter-on-quarter increase. So wondering also if something maybe fell out of your contracted AUM basis this quarter, and then what might have driven that?

Yes, I think. Thanks for the question, Brian. I think the 345 you're referencing is the electrodes portfolio, as opposed to an increase. The total AUM grew by about 100 megawatt hours over the quarter from Q1 to Q2, going from 1.1 gigawatts to 1.2. So I think we're just kind of getting a little bit of mixed metaphor in there in terms of which projects you're referencing. Long term though we do see continued growth in the AUM, I think in terms of providing guidance on that particular number, we haven't really done that. So we'll probably stay away from that right now, but expect to see continued growth there. That's really, as we have said multiple times, that's really where we see the business growing, and it lays out on a long-term basis, where we think the software-only product is going to go in software deliveries over time. As John references, we think that the marketplace is getting more complicated. That's where Athena really shows its strength, and when those markets get more complicated, we'll be there with our customers to be able to take advantage of those and drive additional revenues, both to the customers and to ourselves.

Okay, fair enough. And then on the, I guess, the question on the contracted backlog and the new bookings this quarter. You've had a pretty consistent run rate of new bookings to start the year here. But there is, I think, a fairly significant ramp in the top line expectation that you had in the original model up to 2022. So I'm wondering if we should be anticipating a fairly large acceleration at some point, kind of second half, either through seasonality or based on some of the contract timing constructs you're seeing in the pipeline or what sort of gives you comfort that there is sort of a step-up as we head into maybe the back half and into 2022 around some of the revenue expectations here? Thanks, guys.

Sure. Yes. So I think, as John mentioned, I mean, this is definitely a seasonal business. We do expect quite a bit of growth on the back side of the year. Right now, if you compared bookings for the first half this year versus the first half last year, we're substantially ahead of last year, almost 66% higher than last year. In fact, if you look at again, year-over-year, we booked about 70% of the first half this year, as compared to last year in total. So we're feeling like we're on the right trajectory in terms of setting ourselves up for 2022. Now, obviously, you'll recall when we went to the Analyst Day, in fact, we talked about the growth in the backlog and how that gave us visibility towards the back end. At the Analyst Day in January, I think it was January 16th or 17th timeframe, we had 100% of the 2021 revenues in backlog at that time. I'm not saying that we'll have that same number this year, but that's the kind of business that we're trying to put together, one with high visibility over long periods of time, and again, rolled back into these 10 to 20 year software contracts, long-term visibility of earnings growth and gross margins.

Ladies and gentlemen, we have reached the end of today's question-and-answer session. I would like to turn this call back over to Mr. John Carrington for closing remarks.

Thank you, Lauren. And thank you, everyone, for joining us on our first earnings call. We're very focused on meeting our commitments to investors and pleased with our strong execution in the first half of this year and the momentum we're carrying into next year. All of this is underpinned by our strong bookings performance, operational excellence, and the Athena platform, which drives compelling margins and long-term recurring software revenue. My team and I are here to help with any follow-up questions and look forward to speaking with you next quarter.

Thank you for joining us today. This concludes today's conference. You may disconnect your lines at this time.