Stem, Inc.

Thank you for standing by. This is the conference operator. Welcome to the STEM Incorporated second quarter 2022 earnings conference call. As a reminder, all participants are in 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 second 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 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, 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'll turn the call over to John.

Thanks, Ted. Starting with slide three in the agenda for our call today, I will review the second quarter 2022 results and highlights, including our increased guidance. Then I'll review our solid commercial execution and discuss how we are expanding the markets we serve. I'll share our initial views on the Inflation Reduction Act and provide an update on how we're managing our supply chain. Finally, I'll talk about how we are accelerating market enablement through technology innovation. Following my remarks, I'll turn the call over to Bill, who will discuss our financial results in more detail and provide further color on revised 2022 guidance. Turning to slide four, today we reported strong second quarter 2022 results, including record revenue of $67 million, which was nearly two and a half times higher than our second quarter 2021. Revenue came in 5% above the high end of our guidance range for the quarter, while margins and EBITDA were in line with our expectations. The team executed across the board on key metrics and demand continues to be very strong on a year-over-year and sequential basis. Based on the strong start of the year and visibility into the second half, we are raising our 2022 guidance on two of our key metrics, bookings and contracted annual recurring revenue, or CAR. For bookings, another record performance, and we are raising our guidance from a range of $650 to $750 million to $775 to $950 million, which is more than a 20% increase at the midpoint. Regarding CAR, we are raising the range of our exit rate guidance from $60 to $80 million to $65 to $85 million. As Bill will discuss, We are reaffirming our full year 2022 guidance on our three other key metrics, including revenue, non-GAAP gross margin and adjusted EBITDA. This guidance does not incorporate any potential impact from the Inflation Reduction Act, which I will review later in the presentation. Moving to some specific Q2 highlights on the right side of the slide. In addition to our strong quarter and increased guidance, we are pleased with our technology and commercial execution. First, with the addition of two new value streams, we are now offering all 13 storage services on the Rocky Mountain Institute wheel. And our AI-driven optimization software, Athena, has achieved over 100% greenhouse gas emissions reductions relative to targets. On the solar monitoring aspect of our business, we are proud to report, once again, we were ranked number one by GuideHouse for solar and storage monitoring and controls. In conjunction with our continued leadership at Also Energy, we collectively have significant momentum on the integration between Also Energy's PowerTrack and STEM's Athena software platforms. We remain focused on improving our operating leverage, which includes increased utilization of our India platform. and we have made incremental progress in securing battery storage supply for 2023 and starting into 2024. We had a strong quarter of execution for 2022, including records for revenue, gap gross margin, contracted backlog, and pipeline. Our software leadership and execution on key metrics continues to differentiate the company, and we will continue to drive our focus on high-margin services and operational leverage. Moving to slide five and our solid commercial momentum. Our commercial and operations teams continue to execute well despite a volatile macro environment. Fundamentally, higher energy prices are increasing project returns for our customers, which is more than offsetting some of the headwinds from higher labor, component prices, and interest rates. We're also seeing customers increase focus on ESG initiatives, which is further driving demand. Our car increased 12% versus the first quarter to $58 million, an indication of our software leadership and differentiation. Our pipeline of software-only deals is up 10x year over year. We closed a multi-million dollar EV charging deal with a Fortune 50 customer this quarter. This is our newest behind-the-meter offering. With strong margins, it is highly differentiated as we can provide our customer a single solution for solar monitoring, energy storage, and our Athena platform to monetize all available value streams in their specific market. We are seeing solid momentum in this area and have multiple EV deals in the works. On the solar monitoring side, we implemented a double-digit price increase in the first quarter and have seen no material impact to churn. This speaks to the strength and value on the PowerTrax platform. We recently launched our professional services offering for energy storage solutions. We plan to leverage the strong internal expertise we've developed over the years to further support our customers and drive incremental margins in our financials. Moving to slide six. Our diversified revenues provide some protection from regulatory and supply chain uncertainty. We estimate more than 90% of our remaining 2022 revenue will come from recurring revenues and standalone storage projects, which insulate us from solar procurement challenges in the market today. We continue to monitor our repeat customers. This is a validation of our team, technology, and meeting commitments. More than 50% of our bookings on the storage side came from repeat customers. As it pertains to solar asset performance, we are pleased to see the two-year moratorium announcement implemented in early June on ADCVD duties. However, as we stated last quarter, the uncertainty from the Department of Commerce investigation announced in the spring has caused some slowdown in our business, particularly on the utility scale projects. The commercial and industrial, our BTM business, has been less impacted. Our commercial team has managed these headwinds and continues to execute. We do not anticipate an impact to our financial guidance as a result. We are continuing to monitor the potential impacts of the Uyghur Forced Labor Protection Act, UFLPA. So far, that has resulted in limited impacts, though we are carefully watching the ongoing developments. Lastly, we are excited to introduce Powertrack into our distribution channel in June. and reported sales in the quarter, demonstrating the strength of STEM's channel presence. Also, energy historically followed a direct sales model, and we think selling into the channel can expand their reach and growth. Please turn to slide seven. As you know, last week some very promising news broke that potential clean energy legislation could become law in the US. The climate provisions in the Inflation Reduction Act would drive continued investment in America's aging power grid support customer adoption of renewable energy, and improve energy security by incentivizing development of our domestic supply chain. We strongly support its passage. Importantly, a standalone storage investment tax credit for energy storage and the extension of solar ITC would improve the economic returns for our customers and enhance grid stability. For storage, independent estimates forecast a potentially large increase in total addressable market subject to final details in the legislation. As we have always emphasized, the impact of potential clean energy legislation is not included in our financial guidance. Passage of the legislation would provide an opportunity to retrofit storage into a significant portion of the 32 gigawatts of solar assets under management at Also Energy. Less than 10% of the solar AUM currently has storage attached. Over 90% of our revenue comes from the US, so our customers would be a key beneficiary upon the bill's passage. In addition, our solar monitoring platform is installed in over 50 countries, and we have seen global interest, particularly in the UK, Germany, and Italy. all of which are enacting similar legislation which could provide additional commercial opportunities globally. We believe we are well positioned to capitalize on the bill's passage. We are in dialogue with our corporate customers, partners, municipalities, co-ops, and renewable asset managers specifically regarding what this legislation could mean for projects and their pipelines. Additionally, we were in discussion with our storage OEM partners to secure supply for the potential increase in demand. We have proactively contracted for additional storage hardware to satisfy this expected demand. Please turn to slide eight for an update on our supply chain. We are fully contracted for our 2022 energy storage supply, and we have made incremental progress on contracting for supply in 2023 and 2024. Recent contracts have focused on supply targeting the BTM market in particular. Industry experts expect increases in lithium ion battery manufacturing capacity in 2023 and beyond, which should help alleviate some of the supply constraints the industry is currently facing. We continue to monitor inflationary pressure, logistics issues in the supply chain, and developing mitigation strategies, including revised pricing, as well as a more proactive sourcing plan. On the solar side, the ADCBD and UFLPA issues could impact near-term panel deliveries for customers. And as I stated before, we have seen an impact on utility-scale solar projects. The UFLPA process is presenting some uncertainty for developers. Specifically, more paperwork and compliance requirements are slowing logistics and delivery times. The software price increases I described earlier have mitigated part of this impact on our financials. Lastly, project timelines continue to be stretched relative to pre-COVID levels with our operations team supporting our customers in their interconnection and permitting processes. In addition to staffing issues at utilities and permitting offices, required utility upgrades to the grid that have been deferred are also affecting project timelines. Next, I'd like to highlight some of the examples of our technology leadership. Please turn to slide nine. As you saw from our press release earlier this week, we received the number one ranking from GuideHouse for solar and storage monitoring and control. GuideHouse is a leading industry research consultancy that covers the global energy transition. The report called out our integrated edge to cloud platform led by our flagship power track application. as a key differentiator over other vendors. Also Energy provides a vertically integrated platform that enables its utility scale, CNI, and aggregated residential customers to standardize their entire clean energy portfolio on one application. This is the second time in two years that GuideHouse has ranked Also Energy as number one in its category. And it speaks to the tremendous effort Bob and his team have put into lowering the total cost of ownership while increasing operational excellence for their customers. Also, Energy received high marks across multiple categories, including its strategy, suite of offerings, technology, and global partnerships. We couldn't be more proud of this external validation, and we look forward to delivering continued differentiation in the future. Moving over to Athena, please turn to slide 10. This quarter, we launched two additional software applications that enabled Athena to execute on all 13 value streams in the Rocky Mountain Institute wheel. As a result, Athena continues to provide the most comprehensive suite of applications to our storage customers, with no other software solution in the market matching our track record and runtime hours. Our software performance continues to lead the market. Across the fleet, we've executed on 100% of our applications year to date, despite a 72% increase in grid dispatches, which points to the scalability and robustness of our technology. We are continuing to perform well in the market segments we serve. In ISO New England, Athena achieved 96% of perfect foresight revenues. This means that Athena had exceptional forecasting ability due to our data advantage delivering near perfect estimates of customer load and market conditions ahead of implementing its algorithms. In California in June, we outperformed by 43% for a key grid incentive payment, and we have outperformed year-to-date across over 500 megawatt hours, representing hundreds of sites in this program. And for many of our customers who want to optimize for both economic results and greenhouse gas reductions, Athena's co-optimization technology resulted in exceeding the annual GHG reduction target within the first four months of operation. All of these accomplishments speak to the depth of our software expertise, breadth of differentiated offerings, and the strong moat we continue to build relative to our competitors. Building on our success, we aim to continuously outperform our commitments and exceed customer expectations. We are proud of the platform that we've built the last 12 years, which wouldn't be possible without our people. STEM and also energy have built the leading clean energy intelligence platform through innovation, collaboration, and rigor that come from our talented employees. We are attracting the best talent with deep domain expertise, critical as we facilitate the clean energy transition. Thank you, and now I'll turn the call over to Bill Bush, our Chief Financial Officer.