Stem, Inc.

earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. 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 filing. 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 on our investor relations portion of our website. John Carrington, STEM CEO, and Bill Busch, STEM CFO, will start the call today with prepared remarks. Lars Johnson, Chief Technology Officer, and Prakash 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, Stim is one of the leaders in worldwide deployments. We have systems operating or contracted across the US, 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 note 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 rate 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 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 have improved the electrodes project value to customers and assets 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 that 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 IPC compliance, battery life, and regulatory targets like meeting greenhouse gas requirements for the S-CHIP program in California. Athena is also executing in Massachusetts with its fully automated energy dispatch platform called Athena Bidder, 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 of 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-meter deployment in company history. We will continue to demonstrate the value of STEM storage 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 partner channel that will allow us to access those larger projects and 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 percent 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. And according to Wood and McKenzie, 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 tailwinds of distributed generation resources, which will only increase the value of storage as ISOs across the country roll out their implementation plans. Fortunately, many states are not waiting on Washington, D.C. 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 does not depend on passage of the storage IPC. Rather, it represents upside to our forecast. Now I'd like to address some of the supply chain and inflation questions that are top of mind in the market of late. Looking upstream, 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 my senior management to review hardware supply, including granular alignment by hardware system and supplier to contracted 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 into 2022. Given our scale, multi-year relationships with suppliers, and proven execution in the market, we have generally been able to secure supply when and where we need product. Through our concerted efforts, we have 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 and 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-place 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 decarbonizing the economy. With that, let me turn the call over to Bill.