Greetings, and welcome to the Stem, Inc. First Quarter 2025 Results Conference Call. At this time, all participants are in listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference call is being recorded. It's now my pleasure to introduce Ted Durbin, Head of Investor Relations. Please go ahead.

Thank you, Operator. This is Ted Durbin, Head of Investor Relations at Stem. Welcome to our first quarter 2025 earnings call. 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 these statements. We therefore refer you to our latest 10-Q, 10-K filing and other SEC filings and the supplemental materials which can be found on our website. Our comments today also include non-GAAP financial measures. Additional details and reconciliations to the most directly comparable GAAP financial measures can be found in our earnings release, which is on our website. Arun Narayanan, CEO; and Doran Hole, CFO and EVP, will start the call today with prepared remarks and then we will take your questions. And now I will turn the call over to Arun.

Thanks, Ted. Hello everyone, and thank you all for joining us today. We made significant progress advancing our strategic priorities in the first quarter with early success evident in our results. But before diving into these results and our outlook, I want to highlight important changes we have recently implemented in how we structure our business internally. Since becoming CEO, a key priority has been implementing organizational adjustments to realize our strategic shift. We have transformed our operating model by establishing four distinct business units that clearly define how we organize and run our business. Our four business units are Software, Professional Services, Managed Services, and OEM Hardware. Each unit will have full P&L responsibility and accountability for their financial performance, including EBITDA and cash flow metrics. This new structure represents an intentional shift in how we manage our business, and we believe it will deliver multiple strategic benefits. It empowers our leaders to make efficient, market-responsive decisions about resource allocation and investment priorities. The new structure also enables more precise tracking of return on investment across our portfolio, allowing us to optimize capital deployment towards our highest growth opportunities. Additional details about these business units are available in our supplemental materials on the IR website. I'd like to once again emphasize that while these business units guide our internal operations, they may differ from external reporting segments. We look forward to sharing more about these changes and their impact in the coming quarters. Directly related to these changes in how we organize and run our business, on April 9, we announced a targeted 27% reduction in force that we expect to result in $30 million of annual cash cost savings, including an expected $24 million cash benefit in 2025. These reductions were thoughtful and consistent with our software-focused strategy and will preserve our ability to grow software revenue. To that end, we maintain the full strength of our PowerTrack team which is central to our near-term growth strategy. Our changes also preserve our ability to honor commitments to customers across all business areas. This restructuring was a critical step for us to execute on our three key priorities which I laid out on our fourth-quarter earnings call in early March: first, to grow our software revenue with a renewed focus on PowerTrack; second, to reduce our cost structure and drive profitability; and third, to revamp our software development. I'm pleased to say that we have made definitive progress on all three priorities. Let's begin with an update on our refined strategy that is focused on growing software revenue. As I mentioned earlier this year, one of the key factors that drew me to Stem was PowerTrack's distinctive position and strong reputation in the market. PowerTrack is a market leader in the commercial and industrial or C&I segment of solar asset monitoring software. During the first quarter, solar Annual Recurring Revenue, or ARR, was up 10% sequentially and up 24% year-over-year. These results clearly demonstrate the tangible success we are having in growing our business to provide more scalable, recurring, and profitable revenue streams. We are continuing to invest in PowerTrack to be able to serve smaller utility scale customers, which to us generally means in the range of 20 to 100 megawatts. Utility scale deployments are much larger than C&I and our market share in this segment is modest, presenting significant growth opportunities. We are seeing momentum in utility scale with nearly triple the bookings in the first quarter compared to the same period last year. We are also investing to grow our software deployment presence in international markets. Managed services, including our storage software Athena, also performed well in the first quarter. We drove storage ARR higher by 4% sequentially and 31% over the same period last year. Our software continues to deliver substantial value and ROI to our customers who continue to face challenges in maximizing the value of their energy storage assets. Our strategic focus for storage is centered on software and services, particularly for brownfield opportunities that enable faster revenue conversion. Additionally, we are experiencing growing momentum in our professional services offering. Our team of industry experts has established themselves as trusted advisors and thought leaders in the clean energy sector. We are excited about this offering because these professional service engagements can in turn drive downstream business development opportunity for our software solutions. Now a discussion of our second focus area, cost savings and profitability. During the first quarter of 2025 we reached several significant profitability milestones. We delivered strong gross margins driven by robust growth across our high margin software, services, and edge device offerings. Additionally, we generated positive quarterly cash flow from operations for the first time in our history. We believe this validates both our refined business model and strategic execution. Importantly, our first-quarter results do not reflect the financial benefit we expect to realize from the organizational changes and cost savings we recently implemented. We expect to see improving profitability as we move through the year. Lastly, let's discuss our third priority, our software development revamp. We are focused on protecting and expanding PowerTrack success in the C&I market through continuous product refinement, investment in differentiating product capabilities, and responding to customer feedback. We continue to develop our PowerTrack EMS software with the goal of entering new markets such as when projects deploy standalone storage or co-located solar and storage installations. We are excited to soon bring to market software that brings the asset monitoring capabilities we have mastered in solar to both storage and hybrid assets. As part of our portfolio review, we have made the difficult decision to pause on further development of two products, PowerBidder Pro and Asset Performance Management or APM. Looking forward, our refined software roadmap emphasizes AI integration across our development process and product suite, positioning us to accelerate the delivery of innovative solutions to our customers. As mentioned in the previous call, we are aiming to bring a step change to developer productivity by using generative AI methods in our life cycle, and we will have updates in future earnings calls. I would also like to address the current macroenvironment. While the clean energy sector faces uncertainty due to evolving economic and regulatory policies, we are maintaining our upward momentum. Today, our booking space and pipeline development remain robust across our core offerings. Our software and service offerings are largely exempt from the current types of tariffs being considered. Some of our offerings, such as PowerTrack compatible edge computing devices, will face limited tariff exposure. These generally pass through to our customers. On the OEM storage resales business, which forms a smaller portion of revenue, we will work with our suppliers and customers to negotiate tariff absorption or diversify to domestic suppliers. With all this in mind, we are pleased to reiterate our full year 2025 financial guidance across all metrics. Lastly, I want to welcome both Vasudevan Guruswamy and Krishna Shivram, who have joined our Board recently. They both bring significant energy industry, financial, and technology expertise to the Board, and I am glad to have them with us. With that, let me turn the call over to Doran.

Thanks, Arun. I'll start with a quick review of our first quarter 2025 financial performance. Overall, our quarterly results were in line with the expected cadence of our 2025 guidance that we announced on our last quarterly call. Total revenue was up 27% year-over-year, driven by strong growth across the business. Importantly, software revenue was up 17% versus Q1 2024 reflecting continued strong performance from PowerTrack and increased storage software activations. We generated a record GAAP gross margin of 32% and our non-GAAP gross margin of 46% was close to an all-time high. The significant margin expansion versus prior year evidences the value of our refined strategy focused on higher margin software and services revenue while reducing our reliance on battery hardware resale. Adjusted EBITDA for the quarter improved versus Q1 2024 not only driven by margin expansion but also by continued operating cost discipline. We generated $9 million of operating cash flow, which, as Arun mentioned, is the first quarter of positive operating cash flow. We think this milestone proves that the company is on the right strategic path. Additionally, we generated just over $2 million in net cash during the quarter, growing our cash balance to $59 million at quarter-end. We plan to remain disciplined with our dedication to cash conservation, margin improvement, and working capital usage. Turning to our operating metrics. As we announced during our fourth-quarter earnings call, we've introduced enhanced operating metrics that should provide stakeholders with better visibility into the key drivers of our financial results. During the first quarter of 2025, Contracted Backlog and CARR both increased sequentially, largely due to solar bookings. Total bookings were lower sequentially due to slight seasonality in this metric. We generally see heavier bookings in the second half of the year. We saw solid growth in solar ARR and AUM and in storage ARR versus the fourth quarter of last year. Storage AUM sequentially declined slightly because we removed the AUM associated with PowerBidder Pro, which we are deemphasizing as Arun discussed previously. Now on to guidance. Today, we're pleased to reaffirm across all metrics the 2025 guidance we announced last quarter. As Arun said, our revenue performance and expectations for 2025 remain solid despite recent economic policy changes and uncertainty. At this point, we see no discernible slowdown in deployments by our customers. Our backlog is solid, and we have good visibility on ARR and revenue growth, thanks in part to our enhanced focus on driving the newly announced business units. From a margin perspective, we expect to pass through any tariff-related impacts to customers while preserving our target margins. Regarding our adjusted EBITDA and operating cash flow outlook, we are on track to meet our targets. Our recent cost optimization efforts, including the targeted workforce reduction, are expected to yield immediate and lasting financial benefits. These efforts are expected to generate $30 million in annual cash cost savings, with $24 million of that benefit realized this year. While our headcount reduction was 27%, we expect to achieve dollar savings in the high 30% range, substantially exceeding our initial target of 20% that we talked about last quarter. And lastly, on liquidity, we believe our solid cash position provides us with sufficient runway to execute our business plans. As Arun discussed, in April we implemented a new business unit structure. As part of these changes, we plan to enhance our financial transparency through segment reporting. We think that this increased visibility will provide our investors with deeper insights into the value propositions and performance drivers across our different business lines. The organizational changes mark a significant milestone in Stem's evolution in support of the strategy shift announced last fall, positioning us to drive stronger financial discipline, accelerate smart decision making, and ultimately deliver enhanced shareholder value through more focused execution. While we expect to provide insight to investors on the financial performance of these business units, the formal segmentation in our financial reports may differ slightly. Finally, we issued our definitive proxy statement last week and set our shareholder vote for June 4. As we mentioned last quarter, we have asked shareholders to approve a reverse stock split of our common stock. This reverse split is intended to allow us to regain compliance with New York Stock Exchange listing standards.

Thanks, Doran. In closing, I want to directly address our team, our customers, and our investors. First to our team. We have recently undergone significant organizational changes, including a difficult but necessary 27% reduction in our workforce. To those individuals who have departed Stem, we are grateful for your contributions. To our current team members, I recognize this period of change creates uncertainty and challenges. Your resilience, professionalism, and unwavering focus on customer success during these changes has been remarkable and is part of what attracted me to Stem in the first place. Second to our customers. We remain committed to providing you with superior software and services that maximize the value of your storage and solar assets. We are doubling down on our commitment to enhance the features and functionality of our software products to deliver the insights and performance you need. Our financial position is getting stronger, and we are all well-positioned to grow with you throughout the market cycles. Lastly, to our investors, we are appreciative of your support and trust in the company and that you are standing with us. We are now better positioned for sustainable growth. We believe that our refined product focus on our core software and services along with our streamlined organization strengthen our path to profitability. With our industry-leading solutions and dedicated team, I remain confident in Stem's future. With that, operator, let's open the line for questions, please.

Thank you. Our first question is from Justin Clare with ROTH Capital Partners.

Hi guys, thanks for taking the questions.

Hi, Justin.

Hi, wanted to start off here, just on the bookings environment and how that's evolving. So, given the tariffs, just wondering, how is your ability to secure new storage bookings for U.S. projects potentially being affected? And then I'm just thinking through, for customers that might not have batteries in the U.S. right now, are your customers looking to contract, whether it's for batteries that would be sourced domestically from Southeast Asia, or even potentially from China? Just wondering if it's. Are people in kind of a wait-and-see mode, or are you still seeing contracting in the current environment?

Thanks, Justin. It's Doran. I'll try to take a stab at this one first, but I'll open by saying, I guess it's just kind of a reminder. As far as looking at the overall guidance for the year, the OEM hardware sales, like the battery transactions you're talking about, are not a significant component of the business going forward. So while we're continuing to have really active dialogues with the customers that we've got in our backlog and those who are close to PO, we're looking at all of the, well, volatility and what the tariffs may end up looking like, et cetera. And we've been in direct contact with probably the three major OEM providers that we've been integrating with and spending quite a bit of time on what the tariffs will look like. However, when I look at our overall plan for the year, the cadence of those types of POs at this point in time is really impacting our outcomes, at least not at this stage. I don't think I can get into the nuances of particular countries or particular directions at this point. But, of course, as you know, we deal with both domestic and Chinese players there.

Right, right. Okay. I guess, what I'm trying to get at, is you may not be selling the hardware yourself, but if there's a limited supply of hardware, it might be a tougher environment for you to contract the software for storage projects. And so I guess, I'm wondering if that's being affected. And then I guess it could be affected on the solar side as well, but maybe could you talk about that in regards to solar and storage?

I'll tackle both of those. So the plan for 2025 is largely driven by activations of things that we've already got in the contracted backlog or in CARR, where our managed service offerings are just really dependent upon activations. These are projects that batteries are, and we're, you know, they're going through the process of finalizing construction, commissioning, et cetera. And that's really kind of what we're looking at for 2025 on the storage side for managed services, when you move into solar. We, as you intimate, have not noticed a real slowdown there in terms of our bookings. Bookings have continued to be strong. We are constantly out there talking to customers, as you know, and we're not really seeing a significant impact there. And as the systems, first of all, software and services doesn't really hit tariffs. But really what we're talking about here is the pace of deployment, and the pace of deployment we haven't seen slowdown at this point in time. Our customers are still developing new projects; they're still mapping out the construction of new projects. And our edge device and software solution is something that comes kind of at construction time. It's a very small line item in the overall construction cost. And we feel very comfortable that, if we do end up with some tariff impact, we'll be able to pass along those costs to our customers without much resistance.

Justin, this is Arun answering the question. Can I just add one piece to it? I mean, I would like you all to just maybe think about our software as something that adds value to our customers' operations. And there's always an opportunity for us to continue to sell additional value-added components into that customer account as well. So activations and deployments in new deployments is one dimension, but continued engagement with the same customer is perhaps another dimension to think about as well.

Got it. Okay. One more just on the comments that you made in the prepared remarks. It sounds like you expect improving profitability quarter-by-quarter this year. Just wondering if you could share a little bit about more what the drivers are. So are you anticipating primarily the improvement to come from the OpEx reductions that you've announced, or do you see revenue growth or potential gross margin expansion as we move through the year?

Okay. Just to take a stab at it, before I hand over to Doran as well. There are dimensions to it as well. One is the nature of revenue and the fact that the cyclicality pushes the revenue towards the second half of the year, is one piece that affects operational profitability quarter-by-quarter. But then the other piece obviously is the way we are looking at managing our operating expenses, as well as opportunities that we continue to look at in that space, beyond the reduction in force and trying to bring efficiency to everything that we do.

Justin, it's Doran. I would only add that that ability to really hone in on margins and operating expenses on a business unit-by-business unit basis, is now much clearer for us going forward with the four business units.

Got it. Okay. All right, thanks guys.

Thanks, Justin.

Our next question is from Thomas Boyes with TD Cowen.

Appreciate you taking the questions. Maybe the first one just on the Brownfield opportunity that you highlighted in the prepared remarks. It's kind of a way to sidestep interconnection congestion and things that have been plaguing the energy sector at large. Are there specific geographies that you're targeting for first, or maybe I'm trying to get a better understanding of maybe the size of that opportunity?

So, this is Doran. I'll tell you, geographically speaking, I think that we've got some core geographies where we operated our managed service platform, and as you've seen our assets under management continue to grow. What we're seeing is a lot of opportunities for the market shifting and changing providers in those particular cases. There's not a single geography where that is jumping out as being attractive. I think it's a little bit more broad-based, but it is very much connected to the geographies where we are already operating. Managed services as a business line requires you to one like a company to step up and stand up a platform, a rock the services individuals who need to be actually working, the software tools in order to actually bring value to the customers. And the more volume we have running through in terms of megawatt hours, gigawatt hours, the more profitable that business line is going to become. And those Brownfield opportunities therefore, really do present a good opportunity for us. And we are, we don't have anything in particular to announce today, but we are pursuing a number of situations in that area.

Great. And I appreciate you.

Just one other dimension on it is, managed services and Brownfields is one thing. If you look at PowerTrack and the ability to deploy into PowerTrack, there are remarks that you've made maybe to think about it in three groups. One group is the C&I group or the C&I segment, which is growing and are dominating market share in that space. What we can do in the utility scale space as we bring PowerTrack EMS online, as well as the ability to grow internationally into other markets as well, sort of helps us look at an overall picture.

Understood. Appreciate that. Maybe my follow-up or my second question is just, could you speak to the nature of the PowerBidder Pro contract? The kind of removal from the assets under management. Was this from customers where since you would discontinue active development for the product that they elected not to continue? And then, was - I just wanted to better understand maybe the rationale for deemphasizing that product. Is it just that it's difficult to differentiate market participation software, it's competitive and maybe not worth the time and attention? Just really interested for your thoughts there?

Thomas, this is Arun. You've mentioned many of the contributing factors in your question itself. As we look at a software strategy, we want to make investments based on the overall growth potential and our ability to execute and actually deliver that growth on a period-by-period basis. So looking at all of those factors, we think it's best for us to focus on PowerTrack and associated offerings. And that's what we're doing.

And this is Doran and I'll just add from a financial metric perspective, as you're looking at the numbers, you'll probably notice a slight decrease in the assets under management. On the storage side, the PowerBidder Pro contracts are fairly low ASP. And therefore we actually continue to increase our ARR despite the fact that we actually pulled those systems out. So that also speaks to some of what Arun was talking about there.

Got it. I appreciate it. Thanks. I'll hop back in queue.

Our next question is from Dylan Nassano with Wolfe Research.

Yes, hi, good afternoon. I just want to start with the cost reductions that were announced during the quarter. Can you just clarify to what extent were those reductions already contemplated when you originally issued 2025 guidance?

Sure. This is Doran. I'll just start with the quick comparison. Is that what we talked about in the last call was a 20% reduction in run rate end of '24 OpEx that we were mapping out. What we actually did was quite a bit higher than that as a result of the ultimate decisions that we made to realign the business units and realign our staffing accordingly. So, while we talked about a 27% reduction by headcount, the dollar reduction there was closer to high 30s percentage. And when you kind of compare that to the 20% before, clearly we've kind of gone above and beyond. That's a purely financial look.

Got you. Okay, thanks. And then for my follow-up, just looking at gross margins for the quarter, I mean, obviously some outperformance relative to guidance. Can you just give a little more color around specifically what kind of drove that this quarter? Was it revenue mix between hardware and software or how should we think about gross margin kind of trending through the rest of the year?

So I think we've talked about guidance. This is Doran. And we talked about guidance in terms of what our gross margin will look like. Q1 we came in above the non-GAAP gross margin range that we've got for the year. I think we're, of course, making some conservatism in there to ensure that we respond to the nature of today's macro environment. But at the same time, the straight answer is product mix. So less OEM hardware in the mix, higher software and edge device with higher margins. And that's the change in strategy, that's the change in business model, and that's the way we expect to see things moving forward.

I would go back to what we focused on. We're focused on selling those higher margins offering, and that's what you're seeing there is the result in the earnings report.

Great. Thank you very much.

Thank you. There are no further questions at this time. This does conclude today's conference. You may disconnect your lines at this time. Thank you for your participation.