Stem, Inc.

Thank you for standing by. This is the conference operator. Welcome to the STEM, Inc. First Quarter 2023 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 zero. I would now like to turn the conference over to Ted Durbin, Vice President, Investor Relations. Please go ahead.

Thank you, operator. This is Ted Durbin, Head of Investor Relations at STEM. Welcome to our first quarter 2023 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 10Q 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. Now I'll turn the call over to John.

Thank you, Ted, and thank you all for joining us on the call today. Beginning with slide three in the agenda for the discussion today, I'll review our first quarter 2023 results and highlights, followed by an overview of our commercial execution and recent business updates. I'll then review our continued technology leadership and Athena execution. And following my remarks, I'll turn the call over to Bill Bush, who will discuss our financial results in more detail and speak to our recent convertible note offering. Now let's turn to slide four. Today we reported strong first quarter results, including revenue of $67 million, up 63% versus first quarter 2022, which was above the high end of our guidance range. We reported another all-time record and contracted backlog now over $1.2 billion. Bookings were up 141% year over year at $364 million. Our core services revenue grew 14% sequentially and contracted annual recurring revenue, or CAR, is up 10% since the fourth quarter of 2022. And lastly, our non-GAAP gross margin was 19% in line with our full year guidance. We see these strong metrics as indicators of demand for our differentiated solutions and services. Looking to the right side of the page, I'm excited to announce that Wood Mackenzie recognized STEM as the largest storage virtual power plant operator in North America. We're also continuing to see momentum in the EV charging space, including a recent project with Cisco. Bottom line, we are reaffirming our full year guidance, which includes revenue growth of 65% at the midpoint and reaching EBITDA positive in the second half of this year. Accelerating services growth will be the key factor that helps us achieve our goals this year and for years to come. Moving to slide five and our continued commercial execution. I'm happy to report that we're seeing growth in services revenue in both the solar and storage aspects of the business. Storage services revenue increased 22% sequentially, and solar services revenue was up 7% sequentially. Both figures exclude project services. This is a new disclosure, which helps isolate the software in our revenue stack. Project services revenue tends to be more variable and tied to project timing. We reported another new record for contracted backlog, which was up 120% year over year, driven by strong first quarter 2023 bookings. We expect bookings growth to continue through the year as customers are increasingly standardizing on the Athena platform. We are currently pursuing several significant software-only and professional services deals that we expect may close later this year. If executed, These deals will have several benefits for the company. First, they will generate higher margin software and services revenue. Second, they will provide revenue sooner rather than waiting for system commissioning. And third, because there will be very little hardware involved, our growth in software and services will not tie up cash on our balance sheet. CAR grew 10% sequentially and is up 39% year over year. This is another demonstration of the differentiation and strength of our software offering. Turning to page six, on the solar side of the business, we've seen some evidence of improvement in supply chain issues, labor shortages, and related regulatory actions. We are seeing improvements in 2023 and expect an upturn in 2024 as these issues work towards a resolution. Our solar services revenue increased 4% since the fourth quarter of 2022, and our backlog is up 58% year over year, showing that we have turned a corner after many setbacks the industry faced in 2022. Solar AUM returned to growth this quarter, another sign of recovery in the sector. We are beginning to capture the cross-sell opportunities we have previously discussed from our legacy solar customers, and we are extending the solar offerings into STEM's distributed channel relationships. On the storage side, we continue to progress our high margin e-mobility offering. We recently announced an exciting project with food distributor Cisco, where we will integrate our Athena software into their Riverside EV hub. As Cisco noted, Athena is one of the key technologies integrating the charging infrastructure to optimize onsite energy assets. including solar and energy storage. This is also our first joint deployment with InCharge, a partnership we announced 3Q 2022. We continue to see strong growth in our core FTM markets. Developers are standardizing their projects on the Athena platform because of the differentiated economics we offer our customers. We will discuss the impact of our software on the success of these projects in subsequent slides. Now turning to slide seven, Supply chain is steadily improving. On the storage front, we have contracted hardware into 2024. We have begun to slow the growth of our purchasing activity as we position the business in line with long-term storage hardware revenue growth of 25 to 35%. We continue to target 65 to 85% growth of our services in 2023 and future years. This is consistent with what we presented at our investor and analyst day in September 2022. Our modular ESS solution, which is targeted for our largest partner projects, will lead to the company being less reliant on contracting significant hardware supply. These customers are asking for sourcing flexibility, reduced working capital usage, and it enables us to drive additional software and services. Bill and I were in China meeting with the largest OEMs for nearly two weeks in March and plan on adding multiple Tier 1 hardware vendors. As I mentioned on the previous slide, solar supply chain is improving. There has been solid installation growth amongst our solar BTM customers. Our FTM customers are still facing some supply chain constraints, which has caused revenue conversion in that segment to lag. but we are seeing strong bookings here as conditions are expected to improve. Turning to slide eight in our technology leadership, continued strong performance across markets. In ISO New England, we cleared 72% more megawatts in the most recent auction for forward capacity versus the prior auction. The auction cleared at $2.59 per kilowatt month across the region and expect to clear even more capacity in the next auction. Athena continues to control leading market share of grid energy storage in that region, and this capacity will support the transition to clean energy for decades to come. In California, site events were up 110% year over year, and demand response calls were up 250% year over year. We are providing more support for the grid every year. Importantly, we saw no degradation in performance despite this increased call activity. Internally, we continue to innovate and adapt Athena with the mission of being at the leading edge of development. We are leveraging AI-assisted coding to increase productivity and look forward to discussing the impact of these initiatives in subsequent quarters. We are also investing in improving our day-ahead power forecasting capabilities to generate more value for our customers. Our AI-driven software benefits from a growing data advantage as well. We run approximately 8,000 simulations per month, which means Athena gets smarter and more accurate with real-world assets that drives better results for our customers. Lastly, Athena continues to be independently validated as the industry leader, most recently by Wood Mackenzie, which recognized STEM as the largest virtual power plant operator in North America. Wood Mackenzie's VPP market report highlights STEM's 2.5 gigawatt hours of contracted storage assets under management across 14 different grid territories and the most among VPP operators. Athena is at the heart of STEM's VPPs and provides granular, actionable energy asset insights coupled with automated intelligent dispatch capabilities that help maximize the value of renewable energy assets. Our record-setting and expanding storage software offerings are a testament to the value that STEM's premier technology and services deliver to our customers. And now I'll turn the call over to Bill Bush, our Chief Financial Officer on our financial and operating results.

Thanks, John. Starting on page 10 with our results for the first quarter of 2023. As John mentioned, we reported revenue of $67 million, which was a 63% increase versus the $41 million in first quarter 2022. First quarter revenue was above the top end of our guidance. Most of the revenue growth this quarter came from storage sales with growth of $5 million from solar sales. We recognized approximately $15 million of high margin services revenue representing 22% of total revenue for the quarter. Software services revenue increased 14% sequentially. Our GAAP gross margin was $1 million or 1% down from the 9% in the same quarter last year. Non-GAAP gross margin was $15 million, up from $6.5 million in the first quarter of last year due to higher revenues and the increased mix of software and services revenue. On a percentage basis, non-GAAP gross margin was 19% in the quarter, up from 16% last year. The difference between our GAAP and non-GAAP gross margin this quarter includes approximately $10 million classified as constrained revenue. Our GAAP results reflect 100% of the cost of the battery and the cost of goods sold, but only a portion of the revenue for those certain contracts. The constrained revenue represents the additional revenue we could realize based on the price of a third-party commodity index forecast for lithium carbonate. We have capped our downside within the next floor, and we may ultimately adjust revenue up or down depending on the index. See our statements on non-GAAP measures in our earnings press release for discussions of adjustments to non-GAAP gross margins. Net loss was $45 million versus a net loss of $22 million in the same quarter last year. Lastly, adjusted EBITDA was a negative $14 million versus a negative $13 million in the same quarter last year. We are executing on our initiatives to drive operating leverage, including the expansion of the team in India, and we continue to drive down our cash OpEx as a percentage of revenue. We remain on track for full-year adjusted EBITDA guidance. Turning now to slide 11 for a look at our operating metrics. Backlog more than doubled year over year and increased 28% on a sequential basis to $1.2 billion. The largest driver of the backlog increase was $364 million of bookings in the quarter. End market customer demand remained strong with significant increase year over year in bookings with increasing gross margins in both pipeline and backlog. We believe the backlog gives us good revenue and margin visibility in the short and medium term, that is for the back half of 2023 and into 2024. Our AUM on the storage side of our business grew from 3.1 gigawatt hours in the fourth quarter of 2022 to 3.5 gigawatt hours in the first quarter of 2023. That's a 13% sequential increase driven by our strong commercial momentum. Our operating AUM on the solar asset performance monitoring side of our business ended the quarter at 25.6 gigawatts, up about 600 megawatts. The industry is beginning to recover, and the increase in AUM is evidence of this momentum. We've been successful at migrating customers from our legacy applications onto the core Powertrack platform. Turning to slide 12, I want to walk through our recent green convertible senior note offering. On April 3rd, we issued $240 million of green convertible senior notes. The net proceeds from the offering were $234 million. $106 million of the proceeds went straight to the balance sheet as cash. $100 million was used to repurchase and retire $163 million of principal of the 2028 convertible notes, which we're trading in a deep discount. And $28 million were used to purchase cap calls to reduce potential equity dilution with a conversion price of $11.18 per share. This convert put us in a stronger cash positions and extends our debt maturity schedule. And importantly, it also puts us in a stronger position with the supply chain to improve hardware pricing and payment terms. The transaction also resulted in an overall decrease in net debt. Turning to slide 13 in our 2023 guidance. As John mentioned earlier, we are reaffirming our guidance for the full year 2023 and we are off to a great start. We are well positioned across all of our metrics for a successful year. We've had strong growth in software services for the quarter and expect a 75% service revenue growth this year as previously discussed. We are also focused on converting backlog to revenue. and continuing to improve our operating leverage while reducing working capital usage. And with that, let me turn the call back to John for some closing remarks. Thanks, Bill. Wrapping up on slide 14 with our key takeaways.

We closed the first quarter of 2023 with strong performance and momentum. Revenue was at the high end of guidance, and we set another record for backlog and car growth. We begin the year in a strong position with double digit quarterly growth in software and services, with large software-only deals in the pipeline, advancing our capital light modular ESS offering, recent e-mobility bookings validate differentiated STEM software value and our partnering strategy, and finally, technology leadership with continued third-party validation. We're in a great position to achieve our full-year 2023 guidance and reaffirm full-year estimates. With that, I want to thank all of our stakeholders, our customers, channel partners, suppliers, shareholders, and employees.

And now, let's open the line for questions, please.

We will now begin the question and answer session. To join the question queue, you may press star then 1 on your telephone keypad. You'll hear a tone acknowledging your request. If you're using a speakerphone, please pick up your handset before pressing any keys. To which are your questions, please press star, then two. We'll pause for a moment as callers join the queue. The first question comes from Andrew Percoco from Morgan Stanley. Please go ahead.

Great.

Sorry.

This line dropped, so the next question comes from Brian Lee from Goldman Sachs. Please go ahead.

Hey, guys. Good afternoon. Thanks for taking the questions. You know, first one, maybe for you, John, you mentioned a couple times during the prepared remarks and software-only opportunities that you have pretty good visibility into. Can you kind of level set us as to where your software-only mixes today, you know, whether you define it on a revenue basis or on a backlog basis, and then the ones that you have visibility into in the back half of the year, maybe just the sense of kind of scale of those opportunities, if they're FTM, BTM, and then also to the extent that, you know, clearly they're going to be higher margin given in their software. Is there any potential to pull forward some of your profitability targets if those do hit as you're hoping to execute on. Thanks.

Yeah, thanks, Brian. A couple things. I'd say, number one, that the software service-only deals are definitely on the uptake. We see the pipeline growing significantly, but didn't announce any bookings this quarter. Obviously, when these deals are booked, we'll provide more details. I would say from a regional perspective, it's similar to our existing markets, ERCOT, KISOs. And I would say that we have baked into the backlog guidance, but not to revenue for 2023. So we'll just see how the balance of the year plays out. Obviously, it will be enhanced margins as it relates to the hardware side. And it's what we've talked about quite a bit. It's directionally where we want to take the business. And you heard in Bill's prepared remarks, the hardware piece, you're going to see us, you'll see some decline in that, particularly around this modular ESS. And we really like that product as well because we'll see additional software and services specifically around that as well. So, I don't know if I captured anything. Was there anything else in there I missed, Bill? I think we got it. Okay. Thanks, Brian.

Thank you. That's helpful. And then maybe just one follow-up for Bill. I appreciate the additional color and overview of the capital raise and kind of the motivation behind it. Can you speak to maybe just in the environment we're in with some of, you know, your customers, you know, maybe not being the largest investment-grade rate of counterparties out there, like what the, you know, general situation is as you've been talking to them over the past couple months in the midst of all this banking turmoil? you know, working capital, payment terms, things of that sort, anything that you see having to sort of shift a little bit and maybe how your new capital that you raised here maybe helps you along in that front, just trying to better understand the working capital ins and outs and how maybe some of the capital raised was also positioned to help you there. Thanks, guys.

Yeah, hey, thanks, Brian. Appreciate the question. So I think A couple of pieces there. Certainly there's been, you know, well-documented turmoil in the, you know, say in the regional banking market. I think that, you know, it certainly looks like that's going to continue for a little bit. And that is a source of working capital loans and short-term loans for some of our customers. I think we're fortunate in that our largest customers, which drive the biggest part of our businesses, tend to be backed by large institutional asset owners some of the names that you know that we've mentioned in the past and so I think that from that standpoint those guys tend to be much better capitalized so I think much like we talked about when we did the convert for us that capital is really to help out you know say some of some of the the partners that we work with that are smaller but most of the business actually runs through the large industrial asset owners so we we feel fairly insulated from that. I'd say $100 million to the balance sheet. Obviously, we like that, but we have to be careful with that capital because it's not limitless in any way. We're taking a close look at where we are from a project standpoint and staying really close with our partners to make sure that we're advancing things in the way that we would expect. So far, we haven't seen any significant issues. As of this date, we have not used any of that capital yet.

Awesome. That's good to hear. I'll pass it on. Thanks, guys. Thanks, Brian. Thanks, Brian.

The next question comes from Andrew from Morgan Stanley. Please go ahead.

Great. Thanks so much. Can you guys hear me okay this time?

Yeah. Thanks, Andrew. Welcome back.

Great. Great. Thanks so much. Sorry about that. Not sure what happened there. I just wanted to start maybe out on a comment that was made last quarter around operating AUM doubling this year out of the contract and into the operating bucket. I'd love to hear how that's trended this quarter and any context you can provide in terms of how that might trend in the second quarter and throughout the remainder of the year.

Yeah, so thanks, Andrew, for the question. I appreciate that. Yeah, so I think the numbers in some ways speak for themselves. I mean, you know, we had a fairly interesting sequential increase in services revenue over the last quarter. That's definitely indicative of us being able to turn systems on the way that we expect. We're on track for meeting that goal, and so we're happy with that. I think, you know, clearly something we have to be, you know, you know, monitor closely in terms of, you know, interconnection permitting. Those tend to be the two longest issue or let's say the long poles in the tent. So most of that is probably going to happen in the second half of the year, just because that's kind of the more standard timeframes associated with having projects come online. But I think that we expect to continue to see software and services revenue continue to increase, just like we have the last three quarters sequentially. And that's definitely reflective of us being able to bring systems online and increase the operating AUM.

Great. That's very helpful. And maybe just one quick follow-up on some commentary made earlier in the prepared remarks around supply chain management and talking through some of those Tier 1 battery suppliers that you may be adding. Can you just talk to maybe what you're thinking in terms of onshoring some of that supply chain, any discussions that you're having here in the U.S. in terms of maybe being an anchor tenant for some of those suppliers?

Yeah, that's definitely an area that Mike Carlson, who's with us here today and I work quite closely on, it's definitely something that we are paying a lot of attention to. I think right now most of our supply comes either from Tesla here in the U.S. or a number of different Chinese manufacturers. And there's been a lot of announcements and we've had a lot of, I would say, substantive conversations with folks that are looking at bringing battery capacity into the States. We just haven't yet seen any ground breakings or really kind of, it hasn't proceeded, at least as we're aware of, proceeded much past conversations about doing things. But it's something that we're very interested in and certainly could be an important part of our total battery supply in the coming years. I think that the issue right now is that most of those plants are looking in kind of 2024, really late 2024 installations, which would probably mean batteries in kind of mid-2025. So it's definitely a conversation that we're having. But unfortunately, just yet, it's not a near-term issue.

Great. Thanks so much.

The next question comes from Biju Peranchero from Susquehanna. Please, go ahead.

Hey, thanks for taking my question. So, a couple of questions around the index price. Contracts, can you just get a little more color? When is that system coming on? And also, you know, how you're sort of mitigating your cost exposure there? And should we think of the possible outcome on, is the $34 million that you referenced, is that sort of a floor price looked into that contract?

Yeah, thanks, Biju, for the question. So a couple of points there. The contract will resolve itself in basically the measurement period in the middle of the first quarter of 2024 and would get reflected in the books of the company. as of the end of 2023, so that will all resolve this year. I think it's the way the contract is set up in terms of COGS from the standpoint of our books, we've recorded 100% of the cost of the material, so there's no variability when it comes to the cost. This is all a revenue adjustment depending on what happens with the index. The reason that we did it really was we wanted to make sure that we had certainty in terms of our ability to move the equipment off of our balance sheet, which is a primary focus of ours, and at the same time preserve some ability, assuming that the index moves in the way that is currently being forecast, that we wouldn't give up all of that upside. And so that's really the basics behind what we did.

Okay, that's helpful. And then maybe a follow-up. Can you talk about the Athena platform and the trading portion of that in ERCOT when that is going to be active? And how do you sort of expect your business to evolve in ERCOT once that is active?

Yeah, it's John Carrington. I expect that will be active this year. And as we've talked in the past, ERCOT is one of our largest front of the meter markets. It's been a great market for us, particularly in light of some of the solar module delays that we saw earlier, middle of last year and into the second half, because most of those are standalone, if not all of those are standalone storage, nine nines as we like to call them, because there's a faster permitting cycle when it's sub-10 megawatts. So we'll continue to grow in that market. It's an exciting market for us.

And again, the Athena platform will be up and running this year.

Thank you.

The next question comes from Julian Dumoulin-Smith from Bank of America. Please go ahead.

Hey, afternoon team. Thanks for the time, guys.

Thanks, Julian. Hey. Hey, howdy. Just to clarify here on ProServe, I see the disclosed quarterly dynamics I wanted to talk about sort of how lumpy that is and how you think about the seasonality of that. Again, I get that there's a certain level of just, hey, when a contract comes in or when it's due, you're going to recognize it. But can you talk a little bit about the seasonality? Obviously, the business overall has a pretty meaningful seasonality to it. And how should we expect it through the cadence of this year as you continue to ramp that business up?

Yeah, thanks, Julian, for the question. I think the seasonality is really going to track to the natural cycle of the construction projects themselves, which means that you're going to see a lot of projects, you know, looking for a summer start and then gearing back up again in the fall. And so I think we're going to see kind of, you know, whereas like our standard business is much more back end loaded, I think you're going to see, you know, particularly over time as the AUM continues to increase, You're going to see more pro serve in the first, you know, the first part of the year, or let's say call it the first trimester and the, and then the third trimester of the year. I think that's kind of, which really tracks the basic construction cycle, which is absolutely tied into what we're doing. And so, I mean, the good news is that we have, you know, we've continued to see increases in our software services revenue. Uh, we had a nice quarter, you know, sequential growth again, this quarter in the first quarter, and we expect to continue to see that. I think the lumpiest part of the business. as it relates to the services line item in total, is going to be on the project services. I think that's one where, say, in the fourth quarter, you can see that we had some interesting revenues there. We had no revenues this quarter. We expect to see much more revenue on that line in the coming quarters, and that, I think, is going to be the lumpiest part of where we are, though.

Got it. And then within that 75% growth rate you guys just reaffirmed, How are you tracking within software versus kind of the broad services bucket, if you will, on this year, if you can break that out?

Yeah, we're definitely tracking to the 75%. I think we're, you know, I think we have said, you know, multiple times that we expect to see that growth, which would get us into a high 80s, kind of low 90s total services revenue number, and we're on track to be able to do that.

All right, fair enough. I'll leave it there. Thank you.

Thanks, Julian.

The next question comes from Thomas Boyes from TD Cowen. Please, go ahead.

Thanks for taking the questions. Maybe first, I just wanted to kind of get your feelings on the utility-scale solar market, you know, as it recovers this year. You know, I've seen some third-party data that suggests it's still recovering, but it's a bit more muted than when we had last spoken with the 4Q results. And so, I was wondering if you could let me know how that kind of impacts The also energy business, I think we were talking about maybe 20 to 40% growth in the solar part, and I was just wondering if that's still kind of the case.

Yeah, I'd say on the, this is John Carrington, thanks. I'd say on the AE side, as it relates to behind the meter, we're seeing solid momentum and strength there. On the front of the meter, there's very strong bookings, and we feel good about that aspect. Thomas, I'd say that there is a little bit of a revenue lag as projects have been delayed. We're not seeing cancellations, incidentally, but there's still the ongoing permitting slowness and interconnection. But beyond that, we do, as we said in the prepared remarks, we do feel good about solar in general. CNI, certainly from a recovery standpoint, is well underway. And again, from a utility standpoint, it's less than 20%. of also energy's overall business.

That's helpful. And then just to follow up on the kind of the constrained revenue portion, is this with a specific customer or more like a broader approach that we could see more of over time, or is it just something in isolation?

It's with a particular customer, and we don't expect to see this over time.

Got it. And then one last one in here, just on the software-only opportunities. Is all of this with kind of new projects, or is there anything in here where you're working on maybe some conquest ones where you're coming in and replacing an incumbent who has existing hardware in the field?

No, actually, it's Mike Carlson. Actually, both. We obviously have got the Greenfield new project development, but we're seeing a lot of opportunity on the retrofit side, either for underperforming assets or for increasingly new capabilities that we can put through the Athena platform.

Excellent.

I appreciate the insight there. I'll hop back in here. Thanks, Thomas.

The next question comes from Mahib Manloor from Credit Suisse. Please, go ahead.

Hey, good evening. Thanks for taking our questions here. Just from the guidance, you had a nice beat in Q1 on revenue. So just curious on the full year revenue guidance, how should we think about the range here? And as you kind of go in and benefit from batteries in Asia or other places, such attraction prices, could we see some upside to the revenue guidance here?

Maheep, thanks for the question. I appreciate that. I think when we look at, say, for the full year number, midpoint of $600 million, I think we had a nice quarter. We beat the top end of the guide, which is important to be able to do that. But I think it's a little early to raise guidance at this point.

On the 75% growth rate for services, the Is the growth similar in the solar and the storage businesses, or are you seeing any difference in those this year?

We haven't broken that out so far in terms of the growth rate. I think the big question, honestly, for solar, which continues, is there's a forecasted rebound in the second half of the year. which we're starting to see the opportunity to be able to do that. You probably, I don't know if you've got all the way through the deck and you can see some of the growth in the revenue numbers for the solar business. So we're certainly optimistic. But I think at this point in time, you know, in total dollars, most of the dollars are probably going to come from the storage side of the house.

And then just lastly on the EV charging opportunity here, is any of that right now in the backlog or just trying to understand the growth or when should we see that either in bookings or revenues for you guys?

Yeah, it's primarily in the backlog. The projects are, you know, to be installed and we expect that in subsequent periods. Thanks.

I'll take the rest of it.

The next question comes from Justin Clare from Roth MKM. Please go ahead.

Yeah, hi. Thanks for taking our questions.

First off, I did want to follow up on just the structure of your battery hardware contracts. It sounds like in Q1, that was kind of a unique customer agreement. But maybe more broadly, if you could just talk about how you're thinking about matching the cost structure for your hardware your battery hardware business with the pricing there and how you're thinking about that going forward sure Justin this is Bill I think you're correct in saying that the contract that we signed here in the first quarter was unique and not likely to be repeated as far as this you know say the standard part of the business which we continue to execute on I mean that's going to be very common, you know, basically, you know, matching, you know, cash matching payments to the particular vendors, meaning that, you know, typically the way it works is you make a deposit depending on the vendor anywhere from 10 to 30% of the purchase price when the purchase order is accepted. And then depending on that vendor, you're making payments, you know, throughout the construction cycle and then, you know, paying in full generally when you receive the equipment or it's released to the dock. And so I think that is going to be a pretty common way to do it. The contracts themselves largely, and this is really a result of the changes in the lithium index of last year, most contracts that we're entering into and I think are common in the industry have some sort of lithium index associated with them. Most of them have a rolling index, so you're not seeing quite so much variation in any particular quarter. And I expect that that'll continue. And I think kind of in this kind of reduced index environment that we're in today, we'll see price declines. I mean, those are starting to be talked about pretty openly in the marketplace. And we're certainly able to realize some of those and pass them on to our customers. Okay, great. And then maybe just one more, you know, on the storage hardware business, can you just talk about how the margins are evolving in the backlog? I think you've shifted your focus a bit to prioritize profitability, but then I think you're also moving potentially up in size in terms of the size of the projects and the FTM market. So how should we think about those factors and just how the margin profile is evolving here? Yeah, I think so again, this is Bill. The margin profile of the backlog in general is improving. So we think about total contract value of the backlog that has been sequentially increasing now for over five quarters. So, and that's really a focus. Part of it is certainly the modification of the way the commission plan works, where folks are getting compensated on gross margin rather than other factors. And so I think all of the things that we've done kind of operationally to focus on profitability are paying off from that standpoint. I think when you think about the backlog just per, you know, kind of from a contractual standpoint, you know, I think for the most part, those are all contracted deals, either through capacity agreements that we've signed with manufacturers or for equipment that we have ordered outside of those capacity agreements. So I think we're in pretty good shape from that standpoint. And I think you had another question there, and I've forgotten what it was. I apologize. Well, I was just mentioning, like, is there – are the larger FTM projects potentially lower margin than smaller ones? And if you're moving up to larger projects, is there some potential, you know, downward pressure on margins? Yeah, so, sorry. So, we are moving up in size. That absolutely is a true statement. I think what we are seeing, though, is through our move, two things. One, as you move up, you tend to work with folks that are fully integrated developers, meaning they have their own procurement engines. And so we're not necessarily going to be buying that equipment, which is really the, you know, so our response to that is the modular ESS. And so from that standpoint, on the largest projects, we're probably going to be buying, as a percentage of the project, less of what's going on there. And so I think for us, one of the things that we've tried to telegraph is through the bookings number. So you'll recall the midpoint of bookings for 2023 is $1.5 billion. That's an increase from $1.1 billion, relatively low growth as you compare it to 2022, where we went from $400 million to $1.1 billion. We don't expect to see that kind of growth. And in large part, that's because of the impact of the modular ESS. that we're going to be booking deals like that whereby we are not the purchaser of record, which has two benefits. One is I think we're able to do more services as a result because we're still providing those services in charge for them. And at the same time, we won't have the working capital flow that we would have had otherwise had we been buying that equipment. So I think that's, you know, when we think about the big projects, that's where we want to be. We want to be able to take those big shots of services across larger platforms, and I think that we're going to be able to do that through the modular ESS program.

Okay, great. Very helpful. I'll pass it on.

The next question comes from Brett Castelli from Morningstar. Please, go ahead.

Hey, guys. Just picking up on that same topic. Can you remind us just the timeline around the modular ESS, sort of when that will be ready?

So, this is Mike Carlson. We're putting proposals out in front of customers right now for the solutions. And we've got our first implementation underway. We're looking at it being complete and energized end of second quarter, beginning of third quarter. And then as we continue to bring on more to the Athena-certified platform, we'll just continue to increase that modular solution availability throughout the year.

Okay.

And then on software pricing, just any comments there, either on the storage side or the solar side? Are you kind of holding pricing flat or raising pricing on the software side?

Well, this is John.

We announced a double-digit price increase last year with the solar monitoring side of our business, and that was very successful, zero customer attrition. At this point, we're, I think, standing firm, and we'll update everybody if that changes.

Great. Thank you.

The next question comes from Abby Sinha from Nartland Capital.

Please, go ahead.

Yeah, hey, thanks, guys, for squeezing me in. Just a couple of questions here. Last time, you attributed, like, several reasons for the lag in revenue, whether it's, like, supply chain, interconnection, promoting delays, cost inflation, and import restrictions. I know you talked about supply chain issues being, seeing some kind of relief there. But I'm trying to understand how, what's your take on, you know, permitting delays, cost inflation, import restrictions, what are you seeing there?

Yeah, so thanks for the question. This is Bill. We're definitely, you know, so splitting the business into solar, I think, is still kind of working through some of the well-documented issues around, you know, the Uyghur situation and And now you probably saw that the CRA passed the other day, and so there's a little bit of a, you know, say, you know, and it looks like Biden will probably veto that, but don't want to get into political prognostication business. But that certainly, you know, is a little bit of, you know, kind of some sand in the gears on the solar side of the business. It is getting better, we think. We're seeing, you know, and we're, of course, not a primary purchaser of solar, you know, whether it be panels, inverters, or racks. but certainly the information that we're getting back from our customers that it seems to be kind of breaking free there. So we're, and you can, and I think you can see that by some of the, you know, the second sequential growth, um, on the solar side of the business. And so we're happy with that storage, I think, um, continues to be good from the supply chain standpoint. I think you're definitely seeing new capacity with lower prices come into the marketplace. That's definitely a positive. And I think one of the areas that we continue to see issues in the marketplaces is interconnection. I think, you know, and we've talked about that extensively over time. That's just not a problem. It's going to get solved overnight. You know, the cues are, you know, the good news is that the, you know, say the end demand or end market demand is increasing substantially for the business, which you can see reflected in the bookings number. I mean, that's almost Now, we booked almost in this quarter $364 million as much as we did in 2021. So we're really happy with that performance. But that also means that that's a lot of it, you know, because obviously others are growing rapidly as well. That means that there's a lot of interconnection applications being filed. And so that's a problem that has to be solved over time. It's a combination of simplifying the applications themselves and hiring at the local utility level. So we continue to monitor that closely. You know, we're definitely seeing some speeding up, particularly in our primary markets in ERCOT and in New England ISO, but it's definitely something that, you know, has not been solved just yet.

Got it. Thank you. And can you talk a little bit about the progress you have made so far with the partnership with ChargePoint? I mean, I know revenues, I mean, when we see revenues coming up and any operational or execution hiccups that you have seen so far?

Yeah, this is Prakash. I think across the board our EV partnerships are starting to bear fruit. We're seeing growth in our pipeline of opportunities. We announced this first deployment with the ABB in Charge partnership at Cisco. On the ChargePoint partnership specifically, the initial focus is deploying the NEVI funds for deployment of EV infrastructure. So we'll talk about customer wins as those roll through, but the pipeline continues to look strong and the economics are fairly compelling, so we're optimistic there.

Yeah, to unpack Cisco a little bit more, it's pretty exciting in the sense that they've announced that they're going to electrify over 2,800 trucks by 2030, and this whole fleet electrification trend is something that we've seen at other customers, but it's significant and growing, and again, we feel like the partnerships that we have are very compelling because when you think about the charging side of the meter, if you will, they don't understand behind the meter as well as we do. That's really where STEM began its target market. And so we have that domain expertise. So the combination is natural. And to Prakash's point, the NEVI funds really will open this up and we think accelerate growth significantly.

Thank you very much.

Thank you.

This concludes the question and answer session. I would like to turn the conference back over to John Carrington for closing remarks.

Great. I want to thank everyone for joining us on our first quarter 2023 earnings call.

We look forward to speaking with you again during the second quarter call.

This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.