Stem, Inc.

Thank you for standing by. This is the conference operator. Welcome to the STEM second quarter 2023 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 Mr. Ted Durbin, head of investor relations for STEM. Please go ahead.

Thank you, operator. This is Ted Durbin, head of investor relations at STEM. Welcome to our second 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 section 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, COO, Prakash Patel, Chief Strategy Officer, and Lars Johnson, CTO, will also be available for the question and answer portion of the call. And now I'll turn the call over to John.

Thank you, Ted. Good afternoon, and thank you all for joining us today. Beginning with slide three, we will cover six items today to include our second quarter results, commercial traction, business updates highlighting our continued execution, and technology advancements that I'm excited to share with everyone. Bill Bush, our Chief Financial Officer, will discuss our financial results as we close the first half of 2023 and more details on our full-year guidance, which we are reaffirming. Now let's turn to slide four on our second quarter 2023 results and highlights. The STEM team delivered another strong quarter with revenue of $93 million, up 39% versus the second quarter 2022, which was above the midpoint of our guidance range. Our higher margin services revenue grew 31% year-over-year and 11% sequentially. Contracted annual recurring revenue, or CAR, was up 5% versus the first quarter of 2023. And lastly, our GAAP gross margin was 13% and our non-GAAP gross margin was 18%, in line with our full year guidance. We are reaffirming full year 2023 guidance, including our continued expectation of achieving EBITDA positive in the second half of this year. Bookings increased by 5% year over year to $236 million. We are seeing much larger deal sizes as we expand our presence in the front of the meter market segment. In fact, our average project size has roughly doubled over the last year. A great example of our execution in FTM was the Amoresco Award we announced today and we'll cover later in the discussion. One knock-on effect of our success in growing larger scale projects is a more lumpy cadence of bookings from quarter to quarter. As a result, some deals slipped past the quarter close and our bookings in Q2 fell short of our target. But the momentum in recent contract executions and the pipeline for second half gives us confidence to reaffirm our full year bookings target of $1.4 to $1.6 billion. The overall demand environment is very strong, and we continue to see opportunities to close significant deals in the second half of this year. Finally, our AI-driven technology, Athena, continues to receive third-party recognition of its differentiation in value. In fact, we've received seven accolades in the past year from respected third parties on our technology and innovation leadership. Please turn to slide five. We continue to see solid growth in our high margin services revenue, which was up 11% sequentially. Our software revenue grew 10% sequentially, driven primarily by continued storage software revenue growth, as well as improving solar growth. Storage software also benefited from stronger market participation revenue this quarter. Consolidated gross margins improved by nearly 100 basis points year over year, driven by an accelerating rate of systems commissioning, strong solar revenue growth, and increased market participation revenue. Demand remains very strong for our solutions as customers and partners have better visibility into their project economics now that the IRS has clarified some key provisions in the Inflation Reduction Act. Moving to slide six, we're proud to announce today that we were recently awarded a significant standalone energy storage project with Amoresco, one of the fastest growing electric cooperatives in the U.S. The 313 megawatt hour installation will help their customer balance power needs while integrating renewable resources to create a more resilient and responsive power system. Our scope of work includes energy storage hardware, professional services, and a 20-year Athena contract. I'll also note that this project follows on the heels of a separate deployment with Amoresco and Holy Cross in Colorado. That one recently won a top project award with environment and energy leader. This is another example of our history of execution and a significant contribution from repeat business to our bookings momentum. We believe the Amoresco project demonstrates two key trends. First, we are increasingly competitive in large-scale front-of-the-meter storage deployments. And secondly, our competitive strength in the cooperative and municipal utility market will continue to drive additional sales momentum. In particular, the direct pay provisions in the IRA and the recent IRS guidelines are accelerating engagement and interest by several co-ops and munis in deploying energy storage. We expect upside to our initial software offering as the customer expands its wholesale market trading activities. This is a dynamic we've seen in other markets where we've added services and value for customers over time. On the solar side of the business, we're seeing continued strength with a 39% year-over-year increase in backlog in addition to solid growth in services revenue and AUMs. While the utility scale portion of the business continue to combat supply chain and labor challenges in the first half of 2023, we remain focused on this high growth segment of the market and providing more innovative products and services. A solid proof point is the recently announced 304 megawatt win in Hungary, a direct output of our focus on this key segment. Now turning to slide seven regarding our AI technology leadership. The technology team continues to make exciting progress and receive global recognition. In June, our Athena platform was recognized as the winner of Best Predictive Analytics Platform in the sixth annual AI Breakthrough Awards, a program that honors excellence and innovation in multiple AI and machine learning categories. We were incredibly proud to have Athena recognized as a leading innovative software solution driving the clean energy transition. In July, STEM received the top product of the year award in the Environment and Energy Leaders Awards Program, an organization that commends excellence in products delivering significant energy and environmental benefits. These awards recognize what our customers experience as differentiated economics and sustainability benefits based on industry-leading predictive analytics trained on years of experience operating solar, storage, BTM, and FTM assets in multiple markets and utility jurisdictions. Moreover, these awards clearly highlight the fact that we have built one of the leading clean energy intelligence platforms in the industry as recognized by subject matter experts in the artificial intelligence and software space. Please turn to slide eight on our utilization of new AI tools into our processes. There's been a lot of buzz around new and exciting developments in AI. And the fact is, many AI technologies are not new and certainly not new to STEM. These technologies and capabilities have been a foundation of our software and our approach since the company's inception. That said, our software engineering team is leveraging the latest advancements in generative AI tools. Our integrated, our integrating advances in AI to enhance our asset management capabilities and enable significant efficiencies in software code development. This is yet another example of our leadership in bringing artificial intelligence tools to the energy sector. Earlier this year, our software developers started integrating generative AI tools into their workflow. And as a result, our developers have seen up to a 50% improvement in their coding productivity. Today, we're rolling out this approach across our dev teams and evaluating additional applications for these powerful tools to accelerate our product roadmap. Looking forward, STEM engineers are building a pilot Athena chat bot that leverages our extensive knowledge base to offer asset operators powerful and flexible prompt-based tools that enable improved asset performance, as well as an early efficient identification of operational incidents. These tools will enable operators to accelerate root cause analysis, initiate corrective actions, and optimize performance. Athena's asset performance and optimization is anchored in best-in-class availability, paired with unmatched economic outcomes. Generative AI promises to unlock new trading insights for business analysts and energy traders, creating further distance between us and other competitive offerings in the market. With our coding productivity gains from leveraging AI tools, we anticipate generative and predictive AI to help customers access STEM subject matter expertise at scale. Growing our professional services offerings is a key area of our focus, and our teams are engaging with several customers to execute on this strategy. And now I'll turn the call over to Bill.