Stem, Inc. Q3 FY2024 earnings call

Strategy Review: Completed a comprehensive strategy review, announced senior leadership changes, and implemented cost-cutting measures. The new strategy focuses on four key initiatives: 1. Refining product and go-to-market around software and services. 2. Expanding consultative energy services as the entry point to project-based customer relationships for predictable revenue. 3. Enhancing innovation using AI to improve software products and edge device capabilities. 4. Changing battery hardware approach to offering hardware procurement as a service. ### Third Quarter Results: Revenues were $29 million; GAAP gross margin 21%, non-GAAP gross margin 46%; reduced receivables associated with hardware contracts; increased ARR by over $3 million; delivered record edge devices from Colorado facility; software revenues up 10% QoQ and 19% YoY; services revenue $22 million, up 33% YoY; backlog fell slightly; CARR grew by $2 million; storage AUM up ~200 megawatt hours, solar AUM up ~1.6 gigawatts.

Revenues for Stem Inc. in the third quarter were $29 million, a sharp decline year-over-year driven by lower hardware resale revenue. However, software revenues saw strong growth, up 10% quarter-over-quarter and 19% year-over-year. Services revenue reached $22 million this quarter, up 33% year-over-year. Solar revenue growth remained strong at 19% year-over-year. GAAP gross margin was 21% and non-GAAP gross margin was a record 46%, reflecting a larger contribution from high margin software and services revenue. Solar revenue growth and a higher mix of services revenue led to strong gross margin growth.

Revenue: Lowered full-year revenue guidance to $135 million to $155 million, reflecting push-out of storage hardware resale revenue. ### Bookings: Lowered bookings forecast to $100 million to $500 million, with wide range due to large deals potentially transacting in Q4. ### Financial Profile: Anticipate lower overall revenue base but more predictable growth; higher gross margins; lower contribution from hardware resale over long-term; expect to reduce run-rate cash OpEx by ~15% by year-end; evaluating financial and operating metrics for 2025.

Q: James West from Evercore ISI asked about customer feedback on the strategic shift and management changes.

A: David Buzby stated customer response has been positive, with solar customers receptive as it reassures focus on software improvements.

Q: James West followed up on software enhancements customers are asking for.

A: Mike Carlson mentioned three areas: improved user information flow, predictive capabilities using AI, and automated warnings/resolution processes.

Q: Thomas Boyes from TD Cowen asked about the modular ESS solution and bookings under the new strategy.

A: Mike Carlson and Doran Hole responded that the modular edge device is a critical component of the strategy, and bookings between now and year-end will be a mix of software and hardware satisfying profitability/cash flow criteria.

Q: Thomas Boyes asked about shorter duration contracts and revenue opportunity.

A: David Buzby said annual revenue numbers likely not materially changing, with a mix of one-time and longer-term service contracts.

Q: Justin Clare from ROTH Capital Partners asked about storage software activations and ARR outlook.

A: David Buzby stated they are looking at the cadence between CARR and ARR but couldn't disclose specifics today.