Stem, Inc.

Greetings and welcome to STEM Inc. First Quarter 2024 Results Conference Call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Ted Durbin, Head of Investor Relations. Thank you, Mr. Durbin. You may begin.

Thank you, Operator. This is Ted Durbin, Head of Investor Relations at STEM. Welcome to our first quarter 2024 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 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. Rakesh 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. Good afternoon and thank you all for joining us today. Beginning with slide three in our agenda, we will cover our first quarter results, product announcements, and business updates. Then Bill will discuss our financial results in greater detail. Now let's turn to slide four on our first quarter 2024 results and highlights. We continue to execute on our three guiding principles in the first quarter. We delivered record non-GAAP gross margin and near break-even performance on operating cash flow. We also accelerated our pace of annual recurring revenue activations. And finally, we launched another software-only product offering. We're on a solid foundation to continue delivering against our financial targets for the full year 2024. In the first quarter, we recorded $25 million in revenue, down 62% versus first quarter 2023. Revenue this quarter was negatively impacted by a $33 million adjustment as a result of some legacy contract guarantees from 2022 and the first half of 2023, which were further impacted by accelerating market conditions, including extended project timelines and declining battery prices. It's important to note this change had no impact on our cash flows in the quarter and as a result of a legacy contract structure, which as previously committed, we have not offered such guarantees to customers since the first half of 2023. We achieved our record non-GAAP gross margin of 24% this quarter due to a higher mix of software and services revenue. In particular, our high margin solar revenue was up 16% year over year and storage software wins drove AUM of 66% year over year. GAAP gross profit was negative $24 million, primarily driven by the net revenue reduction. Bookings in the first quarter were $24 million. As a result of our expansion to large-scale front-of-the-meter storage projects, the timing of our bookings has become increasingly variable on a near-term basis. Our average project size has tripled over the past two years, and we have had a substantial number of projects in advanced stages of negotiations or that are expected to close in the near term. Given this strong commercial momentum, we remain confident in achieving our $1.5 to $2 billion bookings target for the full year 2024. Contracted annual recurring revenue, or CAR, was up 25% versus the first quarter of 2023. In the quarter, we implemented a proactive effort to upgrade the backlog to focus on the most profitable opportunities which caused a slight reduction to CAR. This underscores our unwavering focus on driving cash flow generation against our full-year target of more than $50 million for 2024. Adjusted EBITDA came in at a negative $12.2 million versus negative $13.7 million in the same quarter last year, excluding the impact of the revenue adjustments. Adjusted EBITDA improved despite a lower revenue base compared to the prior year. reflecting our focus on operating efficiency and gross margin improvement. And lastly, operating cash flow is roughly breakeven this quarter, a $35 million improvement over the same quarter last year. We are updating our revenue guidance solely to reflect the non-cash adjustment and otherwise reaffirming our guidance across our key metrics, including $5 to $20 million of adjusted EBITDA and more than $50 million of operating cash flow for the full year of 2024. Importantly, we are confident that we can achieve these goals and continue to grow our business without the need for additional equity issuance. Bill will provide more details on our financial results later in the call. We're also announcing today our next generation PowerTrack Asset Performance Management Suite for clean energy portfolios. Let's go to slide five for a deeper dive into this new and exciting product. The PowerTrack APM Suite is a software solution for centralizing and streamlining the management of storage, solar, and hybrid energy asset portfolios. It will help customers understand the commercial impact of technical decisions and the technical impact of commercial strategies. so they can more effectively manage risks and drive enhanced returns. Powertrack APM was built by experts in the storage and solar industry on a dual foundation of STEM's industry-leading solar asset monitoring software, Powertrack, and the company's award-winning Athena AI for energy storage forecasting and optimization. This solution was built for purpose in collaboration with many of our closest customers providing feedback on gaps in currently available alternatives. Some highlights on Powertrack APM. This product will continuously monitor the health of individual assets, holistically track commercial performance of a portfolio and individual sites, automatically manage energy storage warranty obligations, streamline operations center processes, and finally, measure commercial impacts of technical events to minimize risk and drive returns. PowerTrack APM will be released to select beta customers starting this summer, and we will generally be available at the end of the year. We have already received strong interest from existing and new customers for a comprehensive tool like this, which we believe does not currently exist in the market. For STEM, this offering will drive additional high-margin solar revenue, expand our addressable market, and allow for deployments on existing operating assets. The last point is important. Because by targeting existing assets, we can avoid the protracted permitting and interconnection cycles impacting the broader renewable sector. This is fully aligned with our objective of accelerating our CAR to ARR conversion. As we outlined in our last call, there's approximately $65 million of annual gross profit embedded in the full year 2024 CAR. Now, moving to slide six for an update on our progress against our guiding principles. As a reminder, in 2024, we're focused on three key items, cash flow generation, building software and services revenue, and extending our technology leadership position. First, our operating cash flow continues to improve, up $1.5 million versus the fourth quarter of last year, and by $35 million versus the first quarter of 2023. We made excellent progress on reducing our working capital intensity this quarter as well. Second, our software revenue grew meaningfully this quarter, up 4% for solar and up 6% for storage versus the fourth quarter of last year. Our outlook for software and services revenue growth remains positive, due in part to customer logos you see in the middle of the page. We're also making good progress in converting our car to annual recurring revenue, or ARR. As the chart in the middle of the page illustrates, Our expectation of storage ARR activation has improved materially since the beginning of the year. That improvement is partially driven by new software-only contracts. The improvement in ARR activation is also driven by better processes, as our team leverages our experience to help customers accelerate product timelines in the front of the meter market. We have also streamlined our interaction with our OEM partners, resulting in faster resolution of field commissioning issues. While our interconnection and permitting approval timelines remain protracted, our customer cancellation rate are in the low single digits, which translates into a high confidence in continued expected software revenue growth. Our focus on the municipal and cooperative market is also paying dividends. For example, the first sites of our 313 megawatt Our storage project with Amoresco will go live in May and will generate a significant uptick in recurring software revenue. The offtaker for this project is a cooperative in Colorado, and the timeframe from booking to first software revenue will be inside 12 months for this deal, much faster than our typical FTM cycle. This validates our focus on public power market and should accelerate ARR conversion going forward. Finally, we continue to extend our technology leadership position with software-only offerings, as evidenced by our recent product launches over the last several months, as I detailed in the prior slide. With that, I'll turn the call over to Bill.