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spk00: 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.
spk07: 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.
spk02: 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.
spk06: 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 FCM 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 Starpeak IPO in August 2020. And lastly, adjusted EBITDA was a negative $8.6 million versus a negative $7.5 million in the same quarter last year. That's a 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 had 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 up from 36% from the year end, 2020. As Joan 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 to 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. And then our last major metric, our contracted assets under management, which grew 9% between the first and second quarters 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 margins. 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 are there with our installed base of software to capitalize on new high-margin value streams for our customers with shared upside for STEMM. 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 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 28th, which put close to $500 million in cash on the balance sheet with no debt, and jump-started 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 had been sold into 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 20th. 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 with reduced 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.
spk00: At this time, we'll be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation film will indicate your line is in the question queue. You may press star two to remove your question from the queue. For participants using speaker equipment, it may be necessary for you to pick up your handset before pressing the star keys. One moment while we poll for questions. Our first question comes to the line of Maheep Manmoy with Credit Suisse. You may proceed with your question.
spk03: Hey, good evening, and thanks for taking our questions. The first one, just on the margin side, could you just probably talk about how should we think about margins in the near term as you kind of 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.
spk06: Yeah, thanks for the question. This is Bill Bush. Yeah, so breaking that down into two pieces, I mean, we think the second quarter, the margins there 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 does, of course, drive the mix, and that's going to drive higher gross margins, you know, as we've talked about over a number of calls. With respect to the shipping cost, that's a relatively small amount of cost relative to the system itself. So while they are increasing and we have seen that, although I would also mention we think that that's a short-term dislocation issue, we haven't been negatively impacted by that so far. But you're right, they have been increasing over time.
spk03: Got it. That's helpful. With regards to the behind-the-meter and front-of-the-meter project, 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 these front-of-the-meter markets, something which you've already seen in New England and Massachusetts. how to think about your market share growth and other markets, what could drive that?
spk06: Thanks. Sure. So I'll start with the first part, and then probably John and Prakash 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 in the FTM segment. Historically, the BTM sales were 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.
spk02: And I'll let John lay in on that. Thanks, John. Kerry, can I add a couple 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 and as mentioned in the prepared remarks you know we have 52 of the energy storage assets active in the wholesale markets that athena is managing so we feel very good about our advanced uh you know our efforts in the front of the meter side and again when you think about the whole iso new england market it's 20 and that's a six state you know, ecosystem, as you well know. I would also add that, you know, we're continuing to look at a variety of things to accelerate that roadmap, and that could come in the form of, you know, looking at opportunities from an Athena roadmap standpoint and inorganic type of plays, but we will certainly continue to invest in data scientists and that software development team. But we do 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 we'll continue to update everyone as the momentum continues.
spk03: Thanks, and I'll jump back in the queue. Thanks.
spk00: Our next question comes from the line of Biju Peranchero with . You may proceed with your question.
spk04: Hey, thanks for taking my question. Jenny talked about the very nice increase in your pipeline. Can you just talk about maybe your outlook for Booking's 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 call you can add there would be helpful.
spk02: Sure. You know, we've – and, again, thanks, Vijay, for the question. We have put out, as part of our guidance, a range on the booking side. And, you know, from a seasonality standpoint, it's certainly, you know, back-end loaded, which, again, matches the previous year's history. But third quarter is 20% to 30% from a revenue standpoint. And fourth quarter is 50% to 60% of our plan. As mentioned by Bill, we reaffirmed the full-year revenue target. From a contracted backlog, it's really exciting because, as mentioned again in the prepared side, is that we were at $184 million of contracted backlog at the end of 2020. And through the end of the second quarter, we're at $250 million, which is a 36% year-to-date increase. So we're continuing to see contracted backlog grow, and we're obviously seeing nice growth around our pipeline. The 12-month pipeline, you know, is $1.7 billion, which was up from $1.4 billion, a 21% increase. feel good about both key metrics. Um, and, you know, I think, um, that momentum continues throughout this year from everything we can tell.
spk04: Got it. And with, um, you know, success you have had with the electors projects, um, are you seeing, um, additional opportunities for, uh, conversions of some existing facilities and, and also is there, um, Is it an opportunity for converting some of the storage projects that maybe didn't have software attached with it, getting new software services?
spk02: Yeah, I mean, I'd say the aggregate, we're definitely seeing more incoming around software-only type of opportunities. I think part of it's been driven by our balance sheet and the fact that, you know, as a venture-backed company pre this, outcome. We really, at times, maybe had a couple years of runway. When you're talking about 20-year deals with developers, it was a bit challenging. That has gone away, so we're seeing significant amount of incoming. And look, our view is we'll continue to sell hardware as long as it's economical. Our customers typically want the fully wrapped solution, hardware and software, but in our model, contemplates hardware throughout.
spk01: But Lars, 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.
spk04: Great. Thank you.
spk00: Our next question comes from the line of Brian Lee with Goldman Sachs. You may proceed with your question.
spk05: Hey, guys. Good afternoon. Thanks for 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 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 base this quarter and then what might have drove that.
spk06: Yeah, I think so. Thanks for the question, Brian. I think the three 45 you're referencing is the electrodes portfolio as opposed to an increase. I mean, the total total AUM grew by about a hundred megawatt hours over the quarter from, from Q1 to Q2 went from 1.1 gigawatts to 1.2. So I think you're, I think we're just kind of getting a little bit of mixed metaphor in there in terms of, you know, 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. I mean, that's really, as we have said multiple times, that's really where we see the business growing. 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 referenced, 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 but also to ourselves.
spk05: OK, fair enough. And then on the, I guess the question on the contracted backlog and the new bookings this quarter, you know, 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 you're wondering if... we should be anticipating a fairly large acceleration at some point, you know, 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, you know, there's 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.
spk06: Yeah, and, you know, so I think, as John mentioned, I mean, this is definitely a seasonable business. We do expect quite a bit of growth on the backside of the year. You know, so we're right now, I mean, if you, you know, so if you compared bookings first half this year versus first half last year, you know, we're substantially ahead of last year, almost 66% higher than last year. And in fact, if you look at, again, year over year, we've booked about 70% 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. Obviously, you'll recall when we went through the analyst days and such, we talked about the growth and the backlog and how that gave us visibility towards the back end. And in the analyst days, in the 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, rolls back into these, you know, 10- to 20-year software contracts, long-term visibility, earnings growth, and gross margins.
spk05: All right. All makes sense. Thanks, guys. I'll pass it on. Thanks, Robert.
spk00: 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.
spk02: Thank you, Laura, and thank you, everyone, for joining us on our first earnings call. You know, 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.
spk00: Thank you for joining us today. This concludes today's conference. You may disconnect your lines at this time.
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