Stem, Inc.

Thank you for standing by. This is the conference operator. Welcome to the STEM, Inc. Fourth 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 1 on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star and 0. 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 fourth full year 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 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 Carrington, our CEO, and Bill Bush, CFO, will start the call today with prepared remarks. Mike Carlson, Chief Operating Officer, and Prakash Patel, Chief Strategy Officer, will also be available for the question and answer portion of the call. And now we'll turn the call over to John.

Thank you, Ted. Ladies and gentlemen, thank you for joining us on the call today. Starting with slide three and the agenda for the discussion today, I will review our fourth quarter 2022 results and highlights, followed by an overview of our commercial execution and provide an update on the supply chain. I will then review our strong operating results and new offerings that demonstrate our technology leadership. 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 and provide 2023 guidance. Turning to slide four, today we reported solid fourth quarter results, including record revenue of $156 million, which was three times higher than the same quarter last year. We also reported record bookings of $458 million, which was two times higher than the same quarter last year. Our revenue and bookings in the fourth quarter alone were higher than in the entire year of 2021, which is a remarkable achievement over a short period of time. We achieved these results despite a turbulent environment throughout 2022. including supply chain volatility, interconnection and permitting delays, cost inflation, and solar import declines from the ADCVD and UFLPA restrictions. Our diversified business model across multiple products and geographies helped the company navigate these headwinds. As we previewed in our interim update in early January, Revenue came in within the guidance range and our bookings were well ahead of guidance that we had already raised in the middle of 2022. In fact, if you go back to our 4Q21 earnings call, our bookings ended 50% higher than our original full year guidance. The bookings momentum is a testament to our software and services solutions that are differentiated in the marketplace. We are also capitalizing on the tremendous macro tailwinds in this industry. We grew our contracted annual recurring revenue, or CAR, another 7% quarter over quarter to $65 million in the range of our guidance that was also raised by $5 million during our 2Q earnings call. Focusing on the right side of the page, we continued our momentum in e-mobility with an exciting strategic partnership with ChargePoint. I'll discuss more on this opportunity later in the call. We continue to drive operating leverage as we ramp headcount at a slower rate than our revenue growth. We are implementing technology and processes to control cost and leveraging our infrastructure in India to grow headcount in lower cost regions. We're also staying ahead of the supply chain with capacity contracted through Q1 2024. Before we move on from this slide, I would like to make a couple comments about our full year results. We faced several headwinds during the quarter and throughout the year. We were negatively impacted by COVID-related shutdowns in the fourth quarter in China. To address this risk, we are undertaking a strategy to diversify and deepen our relationships with battery OEMs. In addition, we are leveraging our technology leadership to introduce an offering that provides flexibility for our customers in system design and can help mitigate disruptions at any one supplier. On the solar front, as previously discussed, we were negatively impacted by the lack of panel shipments that resulted from the anti-dumpity and weaker forced labor restrictions. Software services revenue was negatively impacted by interconnection and permitting delays. Bill will discuss the multiple pathways we have to continue growing gross margin. Finally, we effectively manage expenses throughout 2022, coming in on plan to our guidance for adjusted EBITDA, in large part because we were prudent in our hiring and are seeing the benefit of our strategy to expand headcount and lower cost geographies. I've charged our management team and our global organization with reaching positive adjusted EBITDA in the second half of this year, and we will not waver on that key objective. Moving to slide five and our continued commercial execution. As you can see in the chart in the upper right, we had strong services revenue growth in the fourth quarter, up 17% versus the third quarter, which itself was up 9% versus the second quarter. As you know, this is the highest margin portion of our business, and we are focused on driving these revenues higher in 2023 and beyond. I mentioned our strong bookings quarter, which exceeded full-year 2021 bookings. Additionally, over two-thirds of our full-year bookings came from new customers. We expect bookings momentum to continue with the tailwinds we are seeing in the industry. As you can see in the lower right chart, Wood Mackenzie is now calling for a 46% increase in solar and storage build-out in the U.S., primarily as a result of the Inflation Reduction Act. We think that the long-term visibility provided by IRA will drive strong growth for years to come. We are pleased to start our first only software project in ISO New England this quarter and expect to do more software-only deals going forward. We continue to generate strong recurring revenues from our existing customers as they are willing to pay for the incremental additional value we're creating for them. Finally, We have revamped our sales compensation plan to favor margin over revenue. We expect continued strong growth, but we'll focus on the highest margin portion of the value chain where our differentiated solutions most resonate. Turning to slide six and an update on the supply chain. On the storage side, we have now fully contracted supply through the first quarter of 2024, and we are opportunistically adding supply on the spot markets. The choppiness in the electric vehicle market, along with some project delays, appears to have released some excess capacity that is coming into the stationary storage market. We will continue to execute back-to-back contracts that lock in our customer demand as we add additional supply commitments. On the commodities front, we are cautiously optimistic that some of the recent price declines will hold. which could improve project economics for customers and increase our addressable market. For example, lithium carbonate prices are down around 20% from their peak in November, which is starting to flow into the overall energy storage system price. As you know, price increases or decreases are complete pass-through for STEM, but we are encouraged to see these lower prices. And in storage, we continue to progress our unit controller or modular energy storage system strategy that we discussed in our last earnings call. This offering will enable customers to mix and match various hardware combinations with an ability to swap batteries and inverters, ultimately decoupling our customers from some of the supply chain volatility that we have seen in recent years. Importantly, We will still maintain control of the edge hardware solution. Customers and partners are very excited about this offering, and we expect to install our first pilot modular ESS next month. Please turn to slide seven, where we will discuss our technology leadership. We performed well in 2022 on the technology and operations front. Overall, we experienced a 33% in grid calls across the fleet without impacting customer bill reduction expectations. Athena now has 31 million runtime hours across multiple markets, use cases, and hardware devices. Our machine learning algorithm continues to improve as it is exposed to more data in more markets, which extends our competitive mode. We continue to support our customers and the grid in several core markets. In California, we saw a 20X increase in grid calls during December and January tied to the atmospheric river weather patterns, along with the extreme high gas prices in Southern California. Southern California Edison called on the STEM network almost continuously as we provided over 60 megawatts per day for those months. Our virtual power plant delivered the equivalent of several gas-peaking power plants and became a vital capacity option for utilities and grid operators. Athena also continued to exceed our commitments, 8% above baseline for the key SGIP incentive program. In ISO New England, we continued our exceptional performance, with the fleet generating 76% more revenue than forecasted. We had a 94% accuracy in predicting Coincident Peaks, which will be an important differentiator in the PGM market that I will discuss in a moment. And we bid over 200 megawatt hours into the forward capacity market auction this spring that will take effect in 2026. Finally, in ERCOT, our first sites will begin trading in the wholesale market in 2023. We announced in December our first four projects with Rex Storage Holdings, a joint venture between Regus Energy Partners, an independent... developer, and Excelsior Energy Capital, a leading investment fund. Rex has made a substantial equity commitment to ERCOT Storage, which could fund dozens of new projects. Let's move to slide eight in our new partnership with ChargePoint. ChargePoint is a leading electric vehicle charging infrastructure company, which has followed a similar path of innovation and market leadership as STEM. Founded in 2007, ChargePoint has grown to over 200,000 ports under management, focused on charging both personal and fleet vehicles. Our partnership will focus on the confluence of fleet electrification and the grid. STEM will provide battery, hardware, and software to coordinate onsite demand with the grid. ChargePoint will provide the charging solutions. Together, we can help accelerate electric vehicle adoption, enhance customer economics, increase grid resiliency, and reduce greenhouse gas emissions. Collectively, we will leverage the $5 billion of funding incentives from the National Electric Vehicle Infrastructure Program, or NEVI, that went into effect in fourth quarter 2022. We estimate the NEVI program could offset up to 80% of project costs where available. And further, we estimate the IRA will provide another $9 billion of incentives and tax credits in the markets we're focused, driving additional benefits for our customers. In total, we expect e-mobility to comprise around half of our behind-the-meter or BTM sales in three years. We have already booked several EV charging deals, and the ChargePoint announcement will help jumpstart our progress in this exciting market, along with our previously announced partnerships with ONGIE and ABB. Next, please turn to Slide 9 and our entry into the PJM market for energy storage. PJM is the largest competitive power market in the world at around 150 gigawatts, which is three times larger than the California grid. It spans 12 states plus D.C., and the average industrial customer load is almost eight times larger than in California. We've started selling our storage solutions in PJM for several reasons. One, rising transmission charges. You can see over the last nine years, transmission charges have more than doubled for most of the major zones. This is raising electric bills for commercial and industrial customers, driving them to renewable energy sources like solar and increasingly storage. Secondly, new state incentive programs are increasing the returns on storage. And finally, the IRA, in particular, the storage ITC, which has opened many new markets to retrofit storage onto existing solar installations. Our install base from also energy gives us a significant advantage in this regard. We think PJM is an ideal market expansion opportunity as customers will benefit from Athena's ability to co-optimize multiple complex value streams. In addition, we have a strong track record of predicting coincident peaks in other markets. and that will be a key value driver in PJM as well. This is a differentiated offering that is accessible with our best-in-class AI capabilities. Because of the additional value we will add for customers, we expect to charge up to 50% higher fees for Athena. Thank you, and now I will turn the call over to Bill Bush, our Chief Financial Officer. Thank you, John.