Stem, Inc.

Greetings. Welcome to STEM's fourth quarter 2025 results conference call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star and the number zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to Erin Reid, head of investor relations. Thank you. You may begin.

Thank you, Operator. This is Erin Reed, Head of Investor Relations at STEM. We welcome you to our fourth quarter and full year 2025 earnings call. Before we begin, please note that some of the statements we will be making today are forward-looking. These statements 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 other SEC filings and supplemental materials, which can be found on our IR website. 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 fourth quarter and full year 2025 earnings release, which is on our website. Arun Narayanan, CEO, and Brian Musfelt, CFO, will start the call today with prepared remarks, and then we will take your questions. With that, I'll turn the call over to Arun.

Thank you, Erin. Good afternoon, everyone, and thank you all for joining us today. I am pleased to be speaking with you one year after assuming the role of CEO, and I could not be more proud of what the STEM team has accomplished over the past 12 months. Best in class execution, unwavering commitment to our customers and each other, and disciplined financial performance. 2025 was a transformative year that methodically, yet decisively, reshaped STEM into a software-centric, operationally disciplined organization. Every commitment we made and the proof of our strategic transformation is in the results. Today, I will take you through a look back on our fourth quarter and full year accomplishments. After that, I will walk you through our 2026 priorities and show you how we are determined to become the operating system for clean energy projects. And finally, I will give you a preview of guidance for the year ahead. Brian will follow with the detailed financial results and our complete 2026 outlook. In 2025, we delivered on guidance across every metric. Full year 2025 revenue grew 8% year over year to $156 million with over 55% of that revenue coming from software and services, evidencing our successful and ongoing transformation. Software, services, and edge hardware revenue grew by 25% year over year to $141 million. Year-end ARR grew 16% year over year to $61 million. In 2025, we substantially expanded gross margins and considerably reduced our operating expenses. We achieved three consecutive quarters of positive adjusted EBITDA, resulting in our first ever full year positive adjusted EBITDA of $7 million. We also achieved positive operating cash flow for full year 2025, another first and major accomplishment in the company's history. Throughout the year, we continue to deepen and expand our PowerTrack platform, delivering meaningful improvements in platform stability, performance, and customer experience. We added 6 gigawatts of solar assets to a total of 36 gigawatts under management and added $7 million in PowerTrack ARR to reach $41 million. In 2025, we accelerated our R&D efforts, leveraged AI tools, and rebuilt our product roadmaps. We successfully launched two new products last year. Both products, Powertrack EMS and Powertrack Sage, have resonated well with our customers, and we are encouraged by the early traction. We launched Powertrack EMS in September 2025 and it is a premier solution for utility-scale projects. This morning, we announced a new engagement with EveryRay, a German clean energy developer and EPC. This 100 megawatt-hour deal further expands STEM's presence in Germany and reinforces Powertrack EMS's role as the control backbone for sophisticated utility-scale storage deployments across Europe and other international markets. Commercial operations for those deployments are expected to commence in the summer of 2026. Our expansion into the utility scale market, both domestically and internationally, gained meaningful traction in the fourth quarter, with utility scale bookings increasing 10% sequentially. Notably, nearly all fourth quarter utility scale bookings were driven by international solar projects, underscoring growing demand in global markets. I talked with you about Powertrack Sage, our AI-powered assistant, in previous calls, and I continue to be excited about it. We deployed Powertrack Sage in the fourth quarter to more than 80 customers for a beta trial, and the feedback has been overwhelmingly positive. Powertrack Sage will be generally available at the end of this month. At launch, we will deploy a Lite version across the entire Powertrack customer base embedding AI-assisted capabilities into the core platform from day one and accelerating adoption at scale. This universal rollout ensures immediate value realization while positioning AI as a foundational component of the Powertrack experience. For customers seeking deeper automation, advanced analytics, and expanded workflow functionality, we will soon offer premium tiers at incremental cost creating a clear pathway for upselling, monetization, and long-term platform expansion. Finally, our managed services business delivered solid fourth quarter performance, highlighted by a new brownfield agreement. Under this deal, we will operate and optimize a four-site energy storage portfolio for a Southern California utility. Our services include real-time asset monitoring, enrollment and dispatch into California demand response programs, performance reporting to optimize site dispatches, and energy cost savings, and more. This is a solid proof point for our differentiated managed services capabilities and validation of our brownfield strategy. Overall, the result of 2025 is this. STEM has established a stable Increasingly profitable software centric business model 2025. Ability 2026 is about operational leverage and building for scale. So let's dive in. As we enter the new year with strong fourth quarter momentum, we are focused on three new priorities. Priority number one, driving operational leverage. Priority number two, continuing to strengthen our core business. And priority number three, building the foundation for accelerated growth in 2027 and beyond. Now let's dive deeper into each of these in turn. First, driving operational leverage. We have built a sustainable business model, and in 2026, we intend to demonstrate the leverage it creates. Our software centric model delivers predictable, high margin revenue and cost discipline is now embedded in the culture of this company. In 2026, we will continue integrating AI across the organization to drive productivity improvements and we will maintain our relentless focus on cost reductions, cash conservation and working capital management. Second, strengthening our core business. We remain focused on driving core platform excellence for Powertrack in 2026. The platform maintains its market-leading position in commercial and industrial solar monitoring in the US. This year, we will deliver further platform stability, scalability, and simplified intelligent UI updates that drive customer value and retention. The domestic CNI solar market, where we already hold significant share, offers moderate growth in 2026. But this is a stable high retention base that continues to generate recurring revenue. Additionally, we are targeting a brownfield strategy to further increase our market share, as well as a range of other adjacent offerings. Our other core business, managed services for energy storage, continues to be a differentiated offering that sets STEM apart from competitors. Our brownfield strategy remains a key focus, as does actively pursuing greenfield opportunities. We are scaling in existing domestic markets, leading with our proof of performance and winning with our differentiated offerings. And finally, to priority number three, building for growth in 2027 and beyond. Outside of our core CNI solar and storage businesses, we are focused on expanding our utility scale footprint domestically and internationally. We are targeting key markets across Europe, leveraging local support infrastructure that we have built and continue to invest in. Both the domestic and international utility scale storage and solar markets are growing, and we are well positioned to capture rising demand and take share. Powertrack EMS helps us differentiate in the utility-scale space by providing a solution for hybrid solar plus storage sites and also standalone best sites, which are increasingly common in the utility-scale market. We expect meaningful revenue conversion of Powertrack EMS bookings to begin at the end of 2026 and the beginning of 2027. While we are bringing Powertrack EMS to market this year, we are also exploring other ways in which our team's expertise and our technology can deliver value. First, as part of our suite of professional services offerings, we are developing AI services that leverage our domain expertise and operational knowledge to help customers identify, prioritize, and deploy the current iteration of generative AI solutions in a way that generates real economic outcomes. These offerings are distinct from Powertrack Sage, and they are focused on helping customers unlock value across their broader operations. And our second area of opportunity is with data centers. More and more, we are seeing data centers adopting renewables as a power source. We believe STEM has the foundational technology and deep expertise in both solar and storage to be a meaningful player in this market. I am encouraged by these options. We see a natural extension of our existing capabilities driving our entrance into the space, and I look forward to updating you all on our progress in the coming quarters. 2026 is an optimization year focused on margin expansion and operating leverage while we continue to invest selectively in the capabilities that will drive scale in 2027 and beyond. I want to be deliberate about that framing because it shapes how you should think about our trajectory. Powertrack EMS was launched in late 2025. It accelerates through the end of 2026 and meaningfully scales in 2027 and beyond. Our utility scale team is building meaningfully in 2026, and this foundation will drive us towards taking share in 2027 and beyond. We believe that the market positions we are strengthening on technology are AI integration, improving stability and scalability. On markets, International expansion and utility scale expansion here and abroad. On products and offerings, a comprehensive suite from solar monitoring to storage optimization. On operations, building operating leverage and driving operational excellence. Expanding the value chain of our offerings today sets up the foundation for future growth. This is important to note because it ties into our core software centric vision for STEM. We are determined to become the operating system for new energy projects across solar storage and hybrid assets and in different market segments and geographies. Before turning it over to Brian, let me introduce the key themes of our 2026 guidance. We are entering the year with a strong foundation from our 2025 execution and believe we are well positioned to execute on our commitments. We expect our software centric strategy to drive moderate top line revenue growth, strong growth margins, and significant adjusted EBITDA expansion supported by continued software momentum, expanding product suite, and the operational leverage we have built into the business. Brian will provide a more detailed look at our 2026 guidance and also dive deeper into our fourth quarter and full year 2025 financial results. With that, let me pass over the call to him.

Thanks, Arun, and hello, everyone. Let's walk through the results. For the full year 2025, we were in line or above all of the financial expectations we outlined on our third quarter call. We exceeded our profitability guidance, demonstrating the dedication to operational discipline that runs through this organization. For the full year of 2025, total revenue was $156 million, up 8% year-over-year. Most importantly, revenue from software, services, and edge hardware, the core of our software-centric model, was up 25% year-over-year to $141 million. Battery hardware resale was $15 million for the year, consistent with our strategic de-emphasis of lower margin business. This shift in revenue mix is precisely what we committed to delivering, and it is reflected in our improved gross margin performance this year. Turning now to the fourth quarter, Powertrack software revenue continued its strong performance, growing 14% year over year, and edge hardware revenue grew an impressive 21% year over year. Managed service revenue was up 51% year over year, driven in part by one-time performance-based revenue where we exceeded asset operational targets. Battery resale revenue was down from $27 million to less than $1 million year-over-year, as expected. Project and professional services revenue increased significantly year-over-year, driven by approximately $11 million of one-time DevCo revenue recognized in the fourth quarter. Excluding DevCo, fourth quarter project and professional services revenue was up 27% year-over-year, I also want to note that as of the end of the year, we have sold or written off all of the project assets associated with Devco from our financial statements, and we do not intend to make any further investments in Devco assets moving forward. Now let's take a look at gross margins. For the full year 2025, we achieved record GAAP gross margins of 38% and record non-GAAP gross margins of 46%, driven by decreased battery hardware sales, a favorable software and service revenue mix, and improved edge hardware margins. Fourth quarter GAAP gross margins were 49% and non-GAAP gross margins were 45%, continuing our strong results. You can again find the detailed revenue and margin breakdowns we introduced last quarter in our supplemental materials on our IR website. Full year 2025 cash operating expenses were down 41% from 2024. And fourth quarter cash operating expenses were down an impressive 50% year over year. We are building sustainability into our cost structure, not temporary reductions, but permanent structural efficiency, while simultaneously developing new products and entering new markets. That combination is the foundation of our operating leverage thesis moving forward into 2026 and beyond. The improved margins and significantly reduced OpEx in 2025 drove positive adjusted EBITDA of approximately 7 million for the year, above the high end of our guidance range, and representing the first year of positive annual adjusted EBITDA in STEM's history. We achieved three consecutive quarters of positive adjusted EBITDA this year, with the fourth quarter coming in at 5 million, a 30% improvement from fourth quarter of 2024. The improvement was primarily driven by improved gross profits and reductions in operating expenses, with modest additional benefit related to the final sales of the DEVCO project assets. Full year operating cash flow was $7 million, slightly above the high end of our revised guidance. The fourth quarter benefited from the sale of our DEVCO project assets and other favorable working capital movements. We ended the fourth quarter and full year 2025 with $49 million in cash, up from $43 million at the end of the third quarter. This is a solid liquidity position that supports our 26 plans. And now turning to our operating metrics. Fourth quarter bookings were $33 million, up slightly from last quarter due to increased software and service bookings, offset by decreased battery hardware bookings. Contracted backlog was $21 million, down 4% from $22 million last quarter due to decreased battery hardware bookings. Our end-of-year 2025 backlog is 2% higher than it was at the end of 2024, and excluding battery hardware is 23% higher than prior year. CAR decreased $3 million sequentially to $67 million due to lower managed services bookings and the cancellation of a managed service customer agreement. This customer cancellation, driven by adjacent non-scalable product requests outside of our roadmap, impacted CAR by 3 million, ARR by 1 million, and AUM by 0.1 gigawatt hours. Despite this cancellation, total company ARR grew 1% sequentially and 16% year-over-year to 61 million, supported by increased PowerTrack software bookings. Turning now to our full year 2026 guidance. We are encouraged by the strong momentum we carried throughout 2025 and that we bring forward into 2026. We expect that performance to accelerate as we advance throughout the year. For revenue, we expect total revenue in the range of $140 to $190 million. Within that range, we expect $130 to $150 million to come from high margin software, services, and edge hardware revenue. our core business. We expect the remaining balance of up to $40 million to be driven by battery hardware resales, which remain opportunistic and are not a strategic priority. We expect non-GAAP gross margins of 40% to 50%, broadly in line with our 2025 performance. Higher battery hardware resales would cause gross margin percentage to trend toward the lower end of that range. We expect adjusted EBITDA of 10 to 15 million, representing approximately 85% growth at the midpoint versus full year 2025, driven by revenue growth, operating expense discipline, and increased operating leverage. We expect operating cash flow of 0 to 10 million, reflecting stable cash generation from operations for the year. And finally, we expect ARR of 65 to 70 million, representing approximately 10% growth at the midpoint, continuing the momentum from 2025. I'm extremely proud of what the team has accomplished in 2025, and we are continuing to build a strong foundation into 2026 that sets us up for accelerated growth in 2027 and beyond. And I will now pass the call back over to Arun for closing remarks.

Thank you, Brian. As I reflect on 2025, I am struck by the scope of what our team accomplished. We delivered a business transformation, executed a financial turnaround, completed two new product launches, and demonstrated a clear strategic path forward. We said we would do it, and we did it. As I look ahead through the remainder of 2026 and beyond, I am confident We have three clear strategic priorities to guide us in 2026. We have an ambitious but achievable adjusted EBITDA target and multiple growth drivers that de-risk execution. And last but certainly not least, we have a team with a proven track record of executing. Our long-term vision is to build a scalable, profitable software and services company that holds a market leadership position in clean energy intelligence. STEM is uniquely positioned to capitalize on the ongoing clean energy transformation with a market-leading platform, a growing product suite, and an expanding global footprint. To our customers, we are grateful for your continued partnership and trust. To our investors, We appreciate your support through this transformation and your confidence in our vision. To our team, your execution through a challenging transformational year reflects your talent, your resilience, and your dedication. Thank you. With that, I will ask the operator to open the line for questions.

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star and the number one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star and the number two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment while we poll for questions. Our first question comes from Justin Clare with Roth. You may proceed with your question.

Hi. Thanks for taking our questions here. Wanted to start off on the Powertrack EMS launch. So you mentioned that, you know, you could see an acceleration for Powertrack EMS in 2026, but more meaningful scale in 2027. So just wondering how we should think about the timing of bookings for the product. Could we see an increase as early as Q1 or Q2, or is that more of a second-half dynamic? And then just wondering if you could talk through the typical sales cycle and lead times for the EMS deployments.

Arun Narayanan Thank you for your question. This is Arun. It's good to hear from you again. Powertrack EMS was launched in September 2025. And the reason we are so excited about it is it is the first time we are able to address a solar and storage solution and address a customer's need completely. If you think about even the press release that we put out today, we are able to work with newer customers in international markets as well as customers domestically as well. The main sort of aspect of these solutions are geared towards utility-scale projects. Inherently, they are a longer lifecycle, and this means that we need to give time to build the business, build the pipeline, engage with the customer, and make sure that the solution is a good fit, and then work with the customer through the commissioning of the project all the way to revenue recognition. So it does take some time, and we are working on that today.

Okay. And then I guess I'm curious, would you anticipate the revenue of a recurring revenue stream? But maybe you could help us understand that.

Yeah, so this depends on the components, right? So think about a project that we deploy. It would have hardware, software, as well as service components. And the mix of these three components would be the totality of the contract that we are executing. Depending on the component we're talking about, the revenue recognition would follow specific timelines. So maybe hardware is recognized immediately upon delivery, but the service component would need to run through the commissioning lifecycle. So if you look at the every day press release that we announced today, we are encouraged by the feedback that we're getting from our customers. That's 100 megawatt hour project that we have deployed. And just connecting back to the remarks that we made earlier, we are looking at 2026 as a way to build a foundation and then see 2027 as the point at which we're able to scale the revenue.

I see. Got it. Got it. Okay. And then just on the 2026 guidance, it does look like the battery resale revenue up to 40 million, that's a fairly meaningful increase potentially from the 2025 storage resale revenue of 15 million. So just wondering if you could speak to, you know, what's driving the increase there, considering your shifting emphasis toward software and services, you know, are you still seeing demand from customers where they prefer you to do the procurement?

I would characterize STEM as a trusted advisor. We have really good relationships with our customer and the ability for our technical expertise in the organization to assist customers through that journey is very valuable to our customers. So we have de-emphasized the OEM hardware resale component of the business. But when we see opportunities to help customers meaningfully and it doesn't use up our balance sheet, we do pursue it. And this is how we see the year develop and that's how we are guiding to it.

Got it, okay. And then just one more on margins. I'm wondering if you could give us a sense for how you see the gross margins evolving for software services and edge hardware in 26 relative to 25. It looks like you could potentially have a higher mix of battery hardware retail, which is lower margin. But overall, for the year, it looks like margins could be flat year over year. So it implies there could be an expansion in the software margins. So just checking, is that the right interpretation and how we should think about it?

Yeah, Justin, this is Brian. Yeah, I mean, we've guided you to 40 to 50% for the year, you know, and that is obviously at a mix of kind of revenue software services and hardware. We do break out for you now on our slide deck, the kind of detailed by each revenue kind of line. You can look at that appendix for that. But yeah, I think you see that this year software was over 70% or just north of 70%. So I think you can look at that from a mixed perspective and based on our guidance and what we're looking at for improved software revenue, we'll drive that mix up a bit.

Gotcha. Okay. I appreciate it. Thank you.

As a reminder, if you'd like to ask a question, please press star and the number one on your telephone keypad. We'll take another moment to poll for any questions. There are no further questions at this time. This concludes our question and answer session. I'd like to turn the call back over to Arun for closing comments.

I want to thank everyone for joining our fourth quarter and full year earnings call. And we look forward to speaking with you next during our first quarter 2026 earnings call this spring. Thanks, everyone.

Ladies and gentlemen, thank you for your participation. This concludes today's conference. Please disconnect your lines and have a wonderful day.