Stem, Inc.

Good afternoon and welcome to the STEM Inc. Q1 2022 earnings call. My name is Tamiya and I will be your moderator for today. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. If you would like to ask a question, please press star one on the telephone keypad. It is now my pleasure to pass the conference over to Ted Durbin. Please proceed.

Thank you, operator. This is Ted Durbin, head of investor relations at STEM. and we welcome you to our first quarter 2022 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 reconciliation 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, and Bill Bush, CFO, will start the call today with prepared remarks. Lars Johnson, Chief Technology Officer, Bob Schaefer, President of Also Energy, and Prakash Patel, Chief Strategy Officer, will also be available for the question and answer portion of the call. And now I will turn the call over to John.

Thanks, Ted. starting with slide three in the agenda for our call today i will briefly review our first quarter 2022 results and highlight some of our key accomplishments during the quarter then i will review our solid commercial execution i will also provide an update on how we're managing the regulatory uncertainty in the current market and our progress in managing the supply chain finally i will discuss how we are accelerating market enablement through technology innovation. I will then hand the call to Bill, who will discuss our financial results in more detail and provide color on our 2022 guidance and operating leverage. Turning to slide four, today we reported first quarter 2022 revenue of $41 million, which was 166% versus first quarter 2021. Revenue came in 29% above the high end of our guidance range for the quarter. And finally, we are reaffirming our full year 2022 guidance across all of our key metrics. We generated a 9% gap gross margin and a 16% non-gap gross margin during the quarter, driven by additional high margin software and services revenue. First quarter bookings were $151 million, nearly triple the bookings in the same quarter last year. the strong bookings drove our backlog to another new record at $565 million, which gives us excellent visibility into our revenue for the remainder of this year. Should be noted that while this is a seasonal business, the bookings performance is the second largest in company history after Q4 2021, which is typically our largest. Moving to some specific Q1 highlights on the right side of this page. First, Recurring revenue and contracted standalone storage projects represent more than 85% of remaining 2022 total revenue at the midpoint of guidance. We believe our customer and market diversification strategy, including growing momentum and standalone storage, provides greater certainty into our financial execution. This enables our business to be resilient even in the face of actions such as the anti-dumping and countervailing duty inquiry recently announced by the Department of Commerce. The integration of also energy remains on track. Multiple plager teams across all functions are working to consolidate our software product roadmap, identify key cross-selling opportunities, and leverage hardware synergies. We expect to book our first cross-sell projects in the second half of 2022 with revenue impact in 2023. Lastly, we have secured our full hardware requirements for 2022 and have also started to opportunistically contract into 2023. This represents a strong first quarter of execution and a continued focus on driving operational leverage. Moving to slide five, our commercial team has executed well despite a challenging macro environment. We have had great success on standalone storage projects. which reduces some of the volatility you see currently in the solar industry. We continue to grow our contracted annual recurring revenue, or CAR, which grew to $52 million at the end of the quarter and underscores our softer differentiation in customer success. We remain on track to exit this year between $60 and $80 million of CAR as more customers adopt our technology. I've charted our teams to realize commercial benefits of a combined also energy and STEM offering. Recall that we only had 30% customer overlap between the two organizations and low penetration of storage into the solar asset base. This provides excellent cross-selling opportunities. And lastly, we successfully implemented price increases in the quarter for our power track software. And we are introducing professional services offerings to complement our energy storage solutions to further monetize the domain expertise within our operations and program management teams. Both actions will enhance our margins and allow us to capture a greater share of wallet from our customers. Moving to slide six, as you're aware, the renewable energy industry in the US has been impacted over the last several weeks after the Department of Commerce opened an investigation into the imports of solar cells and modules from four key Southeastern Asian countries. The inquiry focuses on whether those imports are circumventing the anti-dumping duty and countervailing duty orders on certain solar components from China. We are working with our customers to manage any potential impact to project timelines and engaging with the Solar Energy Industries Association and other forums to communicate our position to stakeholders. To be clear, we do not support additional tariffs on an industry that is integral to meeting climate mitigation and resilient goals and that supports jobs for hundreds of thousands of people. As a team, our focus is to manage through risks and uncertainties like the inquiry, and this slide outlines some of the potential impacts. The data was developed by our operations teams who evaluated each project across the full contracted backlog with our customers to confirm project details and key milestone status. Starting with energy storage, for this year we estimate over 85% of the remaining 2022 total revenue at the midpoint of our guidance will come from recurring revenue and contracted standalone storage projects. We do not expect those projects to be impacted by the inquiry. Of the remaining projects that are solar plus storage, we believe virtually all of those customers have secured their solar panels and we will closely monitor project status. Finally, our business development team continues to assess additional international markets and has recently announced we are launching the first virtual power plant in South America with an expected completion in the second half of 2022. On the solar asset monitoring side, we expect a larger impact to our utility scale or front-of-meter business from the circumvention uncertainty. We are driving greater uptake in behind-the-meter deployments in addition to greater international market volumes. Importantly, related to our solar-attached business, we expect impacts from this action to result largely in project delays, not cancellations. Underlying demand for solar and storage is incredibly strong, And though project timelines might be hampered in the near term by regulatory uncertainty, we expect it to bounce back sharply once these issues are resolved. The executive teams at STEM and also energy have been active in the renewable energy industry for several decades and have successfully managed through various cycles of volatility. In addition, we believe our customer and market diversification strategy provides greater certainty into our financial execution. Please turn to slide seven for an update on our supply chain. Starting with energy storage. In early March, we locked in the remainder of our 2022 supply requirements to meet our revenue goal and made progress on our supply requirements for 2023. Note, all changes in commodity and freight costs are passed through to our customers. We anticipate the ADCVD inquiry could lead to additional battery supply availability in the second half of 2022, as it may cause developers to delay solar plus storage projects. We've received incoming offers from hardware suppliers in anticipation of project delays. We believe this may lead to battery price deflation as suppliers build inventory and bring additional capacity online. We continue to expect battery availability to improve in the coming years. As you see in the graph on the bottom of this page, a recent analysis from Wood Mackenzie Forecasts apply to outstrip demand in 2023, and that gap will widen in the following years. This bodes well for availability and pricing for our customers, which should stimulate additional demand and open new markets. On the solar asset performance side, we are seeing some project delays in the near term related to large utility scale projects because of the DOC inquiry. As mentioned earlier, we have placed additional focus on the BTM and international markets, and we will also evaluate near-term cost containment measures to protect our profitability. On the permitting and interconnection process timelines, our operations teams continue to focus and support our customers to advance their project timelines. We have not yet seen a normalization of these timelines to pre-COVID levels. Now moving to slide eight. We talked last quarter about driving operational leverage across the business, and this slide highlights that leverage in our technology platform. The investment we are making in our software development team enables growth and margin expansion through capabilities that are designed to quickly scale across all markets. As an example, the flexible market framework of the Athena Bidder allows us to rapidly configure customers' projects and execute trading strategies for participation in multiple wholesale energy markets. This framework will allow our customers higher velocity to enter new markets with minimal additional software development by STEM. For example, we opened the multi-gigawatt Texas ERCOT market through capabilities we built to serve our customers in Massachusetts and New York. Similarly, we activated our first systems in Chile and will provide support for South America's first virtual power plant with little new software code required. And lastly, we now have access to a powerful and low-cost development capability in India. Also Energy's team has built a significant presence in India with software development, customer and engineering support resources that are fully integrated into the global business. We expect this infrastructure to help accelerate the combined STEM and also energy product roadmaps with a significantly lower cost profile in the coming quarters. Next, I want to update you on the integration of Also Energy. Please turn to slide nine. Detailed integration planning is in process with Tiger teams focused on commercial, technology, and operations collaboration. Their key focus is driving synergies on the commercial side while not introducing bureaucracy or slowing momentum. The long-term vision is to have a single pane of glass for customers that integrates energy storage optimization with solar asset performance management. The two organizations are taking a measured approach with stage gates to ensure a seamless customer experience. The combined STEM also energy platform will create competitive differentiation as we leverage data on over 32 gigawatts of projects across over 50 countries. We expect this to drive substantial cross-sell opportunities with an unmatched set of capabilities and technology edge. Thank you, and now let's turn the call over to Bill Bush, our Chief Financial Officer.