Stem, Inc. Q4 FY2024 earnings call

Key Points

• Arun joined Stem as CEO and highlighted the software-centric strategy as the right path for future success.
• Key priorities: grow software revenue (focus on PowerTrack), reduce cost structure (expect >20% cost savings in 2025), revamp software development (use AI, refine roadmaps).
• PowerTrack success: 13 of top 16 commercial and industrial solar asset owners in US use PowerTrack; Neovolt in Hungary standardized on PowerTrack for 484 MW solar portfolio.
• Doran discussed Q4 results (largely in line with expectations), 2025 guidance, and new metrics including redefined backlog, CARR, ARR, and storage operating AUM.

Total revenue was down year-over-year due to reduced hardware sales. Software revenue was up 6% year-over-year driven by strong performance from PowerTrack and increased storage software activations. PowerTrack software earns 70%-80% gross margins, professional services tied to PowerTrack installation and commissioning have 50% gross margins, and PowerTrack edge devices have 30%-40% gross margins. PowerTrack contributes significantly to revenue with high-margin software, edge devices, and associated services.

2025 Guidance

• Revenue expected $125M-$175M, with ~$120M-$140M from high-margin software, edge device, and services revenue; up to $35M from battery hardware resale.
• Non-GAAP gross margins 30%-40%.
• Adjusted EBITDA -$10M to +$5M; operating cash flow $0M to $15M.
• Expect 15% ARR growth midpoint from year-end 2024 to year-end 2025, range $55M-$65M.
• Changes to metrics starting Q1 2025 including redefined backlog, CARR, ARR, and storage operating AUM.

Risks

• Battery hardware resale revenue is subject to market policy and funding uncertainties.
• Delays in projects due to interconnection, permitting, and increased development costs could impact backlog and revenue.

Q: Comment on Power Better offering and how it fits into the strategy.

A: Power Better is part of the software strategy pivot. Currently, one customer is actively using it, and they are evaluating additional use cases and seeking new customers.

Q: Reasons for elimination of delayed projects in backlog.

A: Delays due to interconnection, permitting challenges, and increased development costs; taking conservative step to clean up stale bookings.

Q: Battery hardware resale for 2025 and future.

A: Battery hardware resale is opportunistic, not the focus, and may continue but not at previous run rate.

Q: Difference between new and old backlog metrics.

A: New backlog focuses on fully executed purchase orders for hardware and professional services; excludes software and software-related managed services, which are captured in CARR and ARR.

Q: Why storage operating AUM growth not reflected in software revenue.

A: One-time reduction in fourth quarter software revenue associated with SPE deals caused the disparity.

Q: Cash and cash equivalents and minimum cash needed.

A: Cash balance is sufficient with expected operating cash flow improvement; costs are being managed to keep cash margin healthy.

Q: Backlog scrubbing and operating conditions.

A: Post-strategic review, backlog was scrubbed by removing stale deals and using fully executed POs as new definition; funnel of business isn't going away but is redefined.

Q: 2025 outlook and seasonality.

A: Software and services revenue is ratable with back half seasonality; battery hardware resale expected toward back half of year.

Q: PowerTrack's competition with tracker companies.

A: Tracker companies focus on front of the meter; PowerTrack is in behind the meter sector, and front of the meter is a growth engine with unique holistic solution.

Q: OpEx and scaling for growth.

A: Operational efficiencies will reduce run rate cash OpEx; growth in software comes with different scaling, using differentiated IP and deploying into markets with standard models, relying on edge boxes for supply chain.