Stem, Inc.

Thank you for standing by. This is the conference operator. Welcome to the STEM Inc fourth quarter and full year 2021 earnings conference call. As a reminder, all participants are in a listen only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. To join the question queue, you may press star then one on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star and zero. I would now like to turn the conference over to Ted Durbin, Head of Investor Relations. Please go ahead.

Thank you, operator. This is Ted Durbin, Head of Investor Relations at STEM, and we welcome you to our fourth quarter and full year 2021 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 SEC filings. 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. We will be using a slide presentation today. Our earnings release and presentation are on the investor relations portion of our website at www.stem.com. John Carrington, our CEO, Lars Johnson, CTO, and Bill Bush, CFO, will start the call today with prepared remarks. Rakesh Patel, Chief Strategy Officer, will also be available for the question and answer portion of the call. Now I will turn the call over to John.

Thanks, Ted. Starting with slide three in the agenda for our call, I will briefly review our fourth quarter and full year 2021 results and highlight some of our key accomplishments last year. Then I'll discuss the available power announcement that we made this morning. and update you on the also energy closing and integration strategy. As we have done each quarter, I'll provide an update on supply chain. I will then pass it to Larsh, who will discuss new initiatives on the Athena platform and the integration of the Powertrack platform. And then finally, Bill will discuss our financial results in more detail and review our 2022 guidance and a new metric we will track this year called contracted annual recurring revenue, to help you understand the value of our software contracts. Turning to slide four, today we reported fourth quarter 2021 revenue of $53 million, which was up 184% versus fourth quarter 2020. We more than tripled our revenues year over year, and at the midpoint of guidance, we expect to more than triple revenues again in 2022. Fourth quarter bookings were 217 million, two times higher than our previous record and we more than doubled the full year 2021 bookings plan as we've seen across the renewable industry we experienced permitting and interconnection constraints due to the omnicron surge which in our case resulted in three projects moving to a 2022 delivery that impacted our 4q revenue expectations but we expect to deliver these projects and have included the revenue associated with these projects in our 2022 guidance. We completed the acquisition of Also Energy earlier this month, which is immediately accretive and combines the leading solar monitoring software company with the leading storage optimization company. This is a transformative acquisition for both companies, and we'll share more details later in the call. We've continued to make excellent progress on securing our hardware needs for most of 2022. More importantly, We continue to extend our software lead and have added several new geographies and new verticals to our Athena platform. We have booked over $300 million in contracts during the second half of 2021. And based on our guidance, at the end of 2022, we expect to book over $1 billion in contracts in the course of 18 months. Based on our current mix of 60-40 hardware to software split, that represents over $400 million of long-dated, high-margin software contracts that will generate strong recurring revenues for years to come. We believe this high-margin, multi-year SaaS revenue provides significant operating leverage to our business and positions the company for highly visible, profitable growth. In November, we issued a $460 million contract green convertible bond, which was three times oversubscribed at a coupon of 50 basis points and was instrumental in the execution of our acquisition of also energy. Moving to slide five, today we announced an exciting series of projects in Texas with Available Power, a renewable developer where we will have exclusive rights to provide storage hardware and software for a portfolio of up to 100 sites. In total, This could become a one gigawatt, two gigawatt hour portfolio, which more than doubles our assets under management from current levels on the storage side. We expect the value of this award to exceed $500 million. We expect the first 20 systems or 180 megawatts of energy storage to be commissioned in early 2023. Texas. was a big driver of our bookings in the fourth quarter, and that momentum will continue with the available power deal. ERCOT now represents the largest market in our pipeline. We are proving how Athena Bidder maximizes the value of our customers' storage assets in this compelling wholesale market. ERCOT's market structure with no capacity market leads to big price swings by design. Storage is well suited to capture these price signals, and Athena enables our customers to participate both in energy and ancillary services markets. Additionally, ERCOT is the leading wind energy market in the U.S. and one of the fastest growing solar markets. Smart storage and Athena can help firm these resources to match generation with consumption. Net-net It is really about market volatility and storage's ability to manage and mitigate this volatility while providing a return to the asset owner. The available announcement is another example of our continued momentum in large-scale front-of-meter or FTM market and the success of our channel partner strategy. Developers value our ability to procure fit-for-purpose hardware at competitive prices. to integrate into their portfolio across multiple sites, and to deliver optimized wholesale market bidding and dispatch with our Athena Bidder application. Our sales in ERCOT follow the same formula we've used in other markets for storage. We deliver hardware up front and then sell a long-dated software contract that helps our customers optimize their assets for the life of the battery. We are not taking any merchant commodity exposures. just earning recurring software revenue over the contract period, which is typically 20 years for FTM. The available power wind further demonstrates our commercial diversity as our customers span multiple geographies, customer types, and use cases, continuing to underscore the reach of our Athena platform. Let's go to slide six. Turning to also energy, we are pleased to close the transaction at the beginning of February. Also, Energy has the industry-leading SaaS platform with their PowerTrack software that monitors and controls 33 gigawatts of solar assets in over 50 countries. They install high-value edge controllers and synthesize data across heterogeneous solar portfolios for a variety of stakeholders, including solar asset owners, O&M contractors, field service providers, and EPCs. We believe the combination of also energy's power track software and stems Athena platform presents a compelling offering as the storage and solar industries converge together, we will be able to drive better economic outcomes for our customers projects and accelerate the energy transition. Bob Schaefer, the co-founder and CEO of also energy has joined my executive staff and will continue to lead the also team commercially. We're excited about Also Energy's assets under management, customer base, and technology. Most of Also Energy's customers are commercial and industrial or small to medium-sized front-of-meter customers, both of which are core markets for STEM smart energy storage solutions. Also Energy's AUM has extremely low storage penetration, and the two companies only have a 30% overlap in customer relationships. So we see excellent cross-selling opportunities, and our sales teams are working together on targeting these opportunities. Finally, from a financial standpoint, you'll recall that the also energy business generates approximately 60% gross margins overall and 80% plus gross margins on software with very low churn. In addition to the strong margin profile, they generate a significant amount of recurring revenue from their SaaS contracts. Please turn to slide seven. From an integration standpoint, we started to lay out the groundwork for the combination in January and have now rolled out what we call Tiger Teams across the companies to drive integration, cross-selling opportunities, and alignment. You can see on the right side of this page the guiding principles we've established to ensure we are retaining our people, driving operational excellence, while focusing on advancing the significant commercial synergies we've identified across the global install base and pipeline. I spent most of last week at the Also Energy headquarters in Boulder, Colorado, where we hosted our first product summit. I am really excited about the collective talent, opportunities, and roadmap we are building together, and the team's commitment to further extend our software leadership platforms. I believe it's critical to have a single point of leadership on any integration effort. Thus, we have hired a dedicated vice president of integration to ensure alignment, goal execution, and a seamless integration process. We expect to see incremental bookings and backlog growth as we bring the organizations together and execute on our growth initiatives. We will leverage the strength of our combined software offerings to add value for our customers, and customer centricity is a shared core value for both companies. L'Arche will spend some time on the software strategy shortly. Ultimately, our goal is to have every solar system Athena ready and every storage system power track ready. Please turn to slide eight. Before I turn it over to L'Arche, let me update you all on our supply chain status. We're pleased to announce we have contracted storage supply well into the fourth quarter of 2022, and expect to finalize our supply agreements by the end of the first quarter. We're confident that our hardware supply will be fully contracted for 2022 and in the process of matching the best solutions for our contracted backlog at this time. Our supply chain focus continues to be lowest cost, highest quality, and guaranteed supply. We believe this is differentiated, and our customers repeat business as a strong indicator of STEM being a trusted supplier that maximizes value for our customers. Outside of the supply chain, we have seen other constraints to system delivery and deployment as we discussed in prior quarters. In particular, permitting and interconnection issues have slowed the deployment of systems. In fact, three projects contributed to the variance from our expected revenue in the fourth quarter of 2021. These projects are now expected to be delivered in the early part of this year. I want to emphasize that these are delays and not cancellations and remain in a contracted backlog. We have observed project delays across our peers in the renewable industry, although we continue to see accelerating demand for our solutions as reflected in our forward expectations of bookings momentum. We have also seen commodity price inflation pressure in our battery supply agreements. And in many cases, we are seeing indexed pricing from OEMs, We are working closely with our suppliers and customers to ensure the project economics still work in this new pricing environment. We will stay disciplined in our margin requirements, and we will not be writing negative gross margin contracts as we have seen from some of our competitors. Lithium carbonate has been a focus for this new indexed pricing. You can see from the graph on the right that BNEF, expects prices for lithium carbonate to decrease in the coming quarters and longer term analysts similarly forecast declines in key metal inputs such as nickel and cobalt which gives us confidence in the long-term downward trajectory for battery prices we believe this should continue to improve the economics for storage in new geographies and support our commercial momentum Finally, I want to thank our team, customers, and channel partners for another strong quarter and a strong year, with revenue up 3x year over year. In addition to the Also Energy employees, we have hired over 100 people in the last year. This is exceptional talent across the organization with deep domain expertise and relevant functions. We remain focused on diversity, equity, and inclusion for our candidates and our employees, which is enhanced as we now have a worldwide footprint with employees on three continents as a result of the Also Energy acquisition. I'm energized by the purpose-driven organization we have built and the substantial competitive position with over 34 gigawatts of global assets and an unrivaled data advantage in our best-in-class AI software platform. We have numerous accomplishments to be proud of in 2021 and confidently Our talented employees will bring us even more success in 2022. With that, let me turn the call over to Lars Johnson, our chief technology officer, and I will come back with some closing comments.