Stem, Inc.

Welcome to the STEM Inc. third quarter conference call. At this time, all participants will be in a listen-only mode. Later, we will conduct a question and answer session. I would now like to turn the call over to your host, Ted Durbin, Head of Investor Relations. Mr. Durbin, you may begin, sir.

Thank you, Operator. This is Ted Durbin, Head of Investor Relations at STEM, and we welcome you to our third quarter 2022 earnings 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 10-K and our other 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 Farrington, our CEO, and Bill Bush, CFO, will start the call today with prepared remarks. 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.

Now I'll turn the call over to John. Thank you, Ted. Starting with slide three in the agenda for our call today, I will review the third quarter 2022 results and highlights followed by an overview of our strong commercial execution. Next, I will update everyone on our continued technology leadership. And finally, a new compelling offering we believe will enable more customer choice and enhance our margins. Following my remarks, I'll turn the call over to Bill Bush, our Chief Financial Officer, who will discuss our financial results in more detail. Turning to slide four. Today we reported strong third quarter results, including record revenue of $100 million, representing 148% year-over-year growth. I am very proud to note this is our first triple-digit revenue quarter in company history. Revenue came in 4% above the high end of our guidance range for the quarter, while full-year margins and EBITDA are tracking in line with our expectations. We achieved record results on revenue, contracted backlog, pipeline, and contracted annual recurring revenue or CAR. Some additional specifics. Regarding contracted backlog, we have exceeded our full-year plan and nearly double full-year 2021 actuals. Record pipeline continued to see very strong momentum, bookings up 115% year-over-year, Gross margin was flat quarter over quarter impacted by greater front of meter hardware mix and also energy underperformance to plan. Car momentum continues and seeing strong quarter over quarter growth. We're also reaffirming our full year 2022 guidance on all of our key metrics. Moving to some specific Q3 highlights on the right side of the slide. In addition to our strong order and guidance, we have made significant progress with our technology leadership, commercial execution, and supply chain management. On the technology front, we're pleased to be recognized as number one for innovation and optimization in trading by Frost & Sullivan, an independent research firm. Regarding bookings, $223 million, representing a 150% increase year-to-date versus full year 2021 and is at the top end of our range for the quarter. Year to date, we're roughly $600 million in bookings versus just over $400 million for the full year 2021. Importantly, the backlog gross margin continues to improve as our technology leadership drives pricing power. And on the supply chain, We are advancing a plan to offer improved flexibility for our customers, which we expect to enhance supply reliability and increase our software revenues. I'll talk about these achievements and initiatives in the next few slides. Bottom line, we are executing well in a challenging macro environment. We will continue to drive growth with a focus on high margin services and operational leverage. Moving to slide five and our continued strong commercial execution. Our car increased to $61 million, representing a 40% increase here to date, excluding the impact of the acquired car from the also energy transaction. Services revenue increased 9% sequentially, and we expect our services revenue to accelerate in 2023 and beyond as we install systems and ramp up offerings for fleet EVs and professional services. As we discussed in our analyst day, We have instilled additional discipline within our sales force to ensure higher hardware margins, focusing on profitability over volume. As mentioned in previous calls, we have taken advantage of our strong balance sheet to procure additional hardware pre-IRA announcement. Our strategic supply chain activities and technology offerings are helping drive improving gross margins in the backlog. We set another record with pipeline growth in the third quarter, increasing by 29% quarter over quarter to $7.2 billion. The Inflation Reduction Act has driven a sharp increase in demand as customers continue to recognize our unmatched capabilities, domain expertise, and combined solution with also energy, all of which enables our customers to capture improved project economics. And we continue to see strength in our EV fleet offering, where we booked additional marquee deals this quarter, including a partnership with InCharge, which is owned by ABB. We expect fleet EV will comprise 20 to 30% of our behind-the-meter revenue in coming years and an even greater portion of our gross margin. Please turn to slide six. Today we announced that we were ranked number one for innovation by Frost and Sullivan in its renewable energy and battery storage optimization and trading report. This is a key independent validation of our differentiation in trading in the wholesale energy market. The report highlighted our track record of delivering tangible high value return on investment, fully automated AI, to constantly improved optimization and forecasting, which we have highlighted as a significant competitive mode. And finally, the report highlights our industry-leading team that supports the entire value chain, a theme we showcased during Analyst Day. The Frost and Sullivan report follows on the heels of the GuideHouse report last quarter, where Powertrack was also ranked number one for solar monitoring. This is clearly a powerful combination and one we believed in when we acquired Also Energy. As we continue to bring Athena and Powertrack together, we offer customers a powerful combination of number-run ranked solutions from a flexible platform that monetizes multiple value streams across customers and assets. Turning to page seven, here we highlight our results versus some of our key performance indicators, which show the strength and depth of Athena. In late August and early September, California experienced a powerful heat wave, nearly resulting in a power grid collapse. Energy storage played an important role in stabilizing the grid, and we executed flawlessly to dispatch our assets during these flex alert days. But beyond supporting the grid, we continue to support our customers to maximize their revenues, minimize their costs, and advance their sustainability goals. These accomplishments in key markets, including California and Ontario, highlight the strength and diversity of our technology platform for customers, and we expect continued outperformance in coming months and years. Please turn to slide eight. Next, we want to provide an update on the also energy business and trends we are seeing in the broader solar industry, where we serve as a market leader in solar asset performance management. We continue to observe pressures for solar developers in securing solar panels and advancing their project timelines, particularly within utility scale. At a high level, certain regulatory actions such as ADCVD and UFLPA impacted product availability. Bob Schaefer and his team at AE have been nimble despite these headwinds. And as you can see from the charts on the bottom left, We are outperforming the market both in CNI and utility scale. We have focused our efforts on the CNI business, which has proven more resilient, but our revenues are still down on a year-over-year basis through the third quarter in both segments. Looking at the chart on the bottom right, this caught everyone by surprise, including the market research firm Wood Mackenzie. At this time last year, Wood Mackenzie was calling for a 13% increase in CNI and utility scale installations in 2022. Based on the updated forecast from September of this year, they are calling for a 47% decrease in 2022. Looking forward to 2023, we're extremely optimistic. Market analysts expect installations to more than double and we expect our solar monitoring revenues will rebound sharply next year. This has shown up in the accelerating increases in our pipeline, and from 2024 to 2025, you can see that the Inflation Reduction Act has influenced a structurally higher projected level of installations. Moving to slide nine. Next, I want to give you an update on our supply chain activity. The procurement team continues to execute and have contracted well into the fourth quarter of 2023 against our backlog. Also in the quarter, we welcomed a seasoned leader, Renee Leong, as vice president of sourcing and supply chain. Renee joins from Anji, where she was responsible for a multi-billion dollar procurement and supply chain organization. We believe there is significant opportunity in optimizing both the supply reliability and cost curve. We are all excited with the leadership she is already bringing to achieve this goal. Moving to the slide, we are developing an Athena unit controller with the goal of enhancing resilience to our supply chain while providing greater value to our customers. Specifically, the unit controller decouples the procurement process for the battery, inverter, and balance of plants. We believe that this strategy will provide significant customer benefits, including improved flexibility of mixing and matching various hardware solutions that are all coordinated and operated by Athena AI and Control. In particular, we can enable customers to shift configurations based on use case or enable alternative configurations in the event of issues with OEM logistics or pricing. Ultimately, we expect to drive improved margins with additional software revenue at every site. Our Athena unit controller reinforces our SaaS strategy end-to-end from the edge to the core of the Athena Cloud. Lastly, I want to highlight that the unit controller will be domestically manufactured at our Longmont, Colorado facility. This is another example of the synergy and integration progress we discussed at the announcement of the acquisition. Moving to slide 10, and to share the great progress we've made integrating also energy, we introduced a unified customer experience at RE+. The RE-plus conference, which served as a launch for our product integration, included demos and multiple use cases for the combined platform. The event resulted in a significant increase to our pipeline, and we continue to see strong commercial demand as a result of new features and product vision we communicated to our customers and partners. Our unit controller and related hardware manufacturing processes have been consolidated into the Longmont, Colorado facility, resulting in over 30% savings in COGS, but also a meaningful reduction in facilities expenses as we exited a high-cost location in Burlingame, California. Thank you, and now I'll turn the call over to Bill Bush, our Chief Financial Officer.