Greetings and welcome to Stem Second Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-mode only. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn this conference over to your host Mr. Ted Durbin, Head of Investor Relation. Thank you, sir. You may begin your presentation.

Thank you, operator. 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 the statement. We therefore refer you to our latest SEC filings. Our comments today also include non-GAAP financial measures. Additional details and reconciliation to the most directly comparable GAAP financial measures can be found in our second quarter earnings release, which is on our Investor Relations portion of our website. John Carrington, Stem's CEO; and Bill Bush, Stem's CFO will start the call today with prepared remarks. Larsh Johnson, Chief Technology Officer; and Prakesh Patel, Chief Strategy Officer will also be available for the question-and-answer portion of the call. Now we'll turn the call over to John.

Thanks, Ted. Today we're pleased to host our first earnings call as a public company listed on the New York Stock Exchange. It's been a long journey to get to this point, and we couldn't be more excited about the future of the renewable energy industry and Stem's critical role in that ecosystem. Today, we reported solid second quarter results at the high end of our guidance range for revenue, and we're reiterating our guidance for full year 2021 revenue and adjusted EBITDA. This represents top line year-over-year growth of 4x in 2021. Bill will give you more details on the quarter and outlook, but I wanted to share with you how Stem is focused on extending our leadership position in the high growth smart energy storage market. Today, there's an inflection point in our market, driven by increasing demand for renewables, and the significant decreases in costs for both renewable generation and battery hardware. Combined, we see these factors resulting in an energy storage market that is expected to grow by 25 times over the next 10 years, leading to a $1.2 trillion market opportunity. The electric power grid is becoming increasingly decentralized, where every customer site has a combination of renewable, generation, and smart energy storage. Our solution drives customer value by lowering energy costs, reducing dependency on conventional fossil fuel generation, and solving the intermittency challenges posed by solar and wind. Based on our experience scale, domain expertise and operational excellence, we believe Stem's integrated hardware and software solution is the best clean energy storage software platform in the marketplace. One of our key metrics is assets under management, and we're seeing continued momentum on AUM and pipeline acceleration. From a market position perspective, Stem is one of the leaders in worldwide deployments. We have systems operating…

Thanks, John. Starting with our financial results, we recorded $19.3 million of revenue in the second quarter, which was at the high end of the guidance range we provided in January and about 4.5 times versus same quarter in 2020. The vast majority of the growth came from hardware sales on FTM partner projects, with some additional revenue from host customer arrangements. Our GAAP gross margin was negative $100,000 versus negative $1.7 million in the same quarter last year. Non-GAAP gross margin came in at $2 million, or 11% for the quarter, up from 5% in the second quarter last year, which benefited from a higher mix of software service revenue and higher volume. Net loss was $100 million versus a $19 million net loss in the same quarter last year. That swing is almost completely the result of a large non-cash charge for warrants issued as part of the Star Peak IPO in August 2020. And lastly, adjusted EBITDA was a negative $8.6 million versus a negative $7.5 million in the same quarter last year. That's result of the additional headcount as we continue to invest in our software and operations workforce to go after this rapidly growing market. Turning to our operating metrics, our 12-month pipeline grew to $1.7 billion as of the end of June that's up 21% from the end of the first quarter 2021. We are seeing a lot of new opportunities in the FTM space, which contributed to two-thirds of the growth in the pipeline as our salesforce focuses on that market. We booked $45 million in projects in the quarter and have booked $96 million in the first half 2021 versus $58 million in the first half of 2020. That represents a 66% increase reflecting the strength of our commercial offerings. Our backlog…

[Operator Instructions] Our first question comes from the line of Maheep Mandloi with Credit Suisse. You may proceed with your question.

Good evening, and thanks for taking my questions. The first one, just on the margin side, could you just probably talk about how should we think about margins in the near-term, as you can have - secured all the required batteries for the year. Just wondering if there's any impact from shipping costs, which has been plaguing some of the companies in the supply chain. So just wondering margins for the second half and 2022? Thanks.

Yes, thanks for the question Maheep, this is Bill Bush. Yes - so breaking that down into two pieces, I mean, we think the second quarter, the margins there really reflected some of the - early entry FTM projects, which had a little bit lower margins then what we are seeing currently. Longer term, we think that the software does of course, drive the mix, and that's going to drive higher gross margins as we've talked about over a number of calls. With respect to the shipping costs, that's a relatively small amount of cost relative to the system itself. So while they are increasing and we have seen that, although I would also mention, we think that that's a short-term dislocation issue. We haven't been negatively impacted by that so far. But it is, but you're right, they have been increasing over time.

And with regards to the Behind of the Meter and Front of the Meter project I think, could you maybe talk about the mix of those hardware sales or revenues in Q2 and what you have in the backlog? And as part of that just wanted to probably understand, if you can talk about your go-to-market strategy for the Front of the Meter mark, something which you've already seen New England and Massachusetts, and how - to think about market share growth and other markets what could drive that. Thanks.

Sure, so I'll start with the first part, and then probably John and Prakesh will jump in on the go-to-market strategy component. But as far as the BTM versus FTM, hardware deliveries most of the hardware deliveries that you see rolling through the income statement these days and this last quarter are on the FTM segment. Historically, the BTM sales would run through SPVs and we didn't technically sell hardware through those particular structures. Over time, we do expect to deliver more BTM and we haven't given the mixed percentages between the two historically BTM versus FTM hardware sales. And I'll let John weigh on the go-to-market.

Thank you, John Carrington, I had a couple things. I'd say that, one of the really exciting parts of what we're doing on the front of the meter side is if you look at Massachusetts, particularly it's a market we weren't even in 18 months ago. And as mentioned in the prepared remarks, we have 52% of the energy storage assets, active in the wholesale markets that Athena's managing. So we feel very good about our advanced, our efforts in the Front of the Meter side. And again, when you think about the whole ISO New England market, it's 20% and that's a six states ecosystem, as you well know. I would also add that, we're continuing to look at a variety of things to accelerate that roadmap. And that could come in the form of, looking at opportunities from Athena roadmap standpoint and inorganic type of plays, but we will certainly continue to invest in data science system in that software development team. But we do feel like it's a great spot for us. We are really feeling confident in our trajectory on that space. And we expect to see more and we'll continue to update everyone as the momentum continues.

Our next question comes from the line of Biju Perincheril with Susquehanna. You may proceed with your question.

Can you talk about its very nice increase in your pipeline, can you just talk about maybe the - your outlook for bookings rest of the year and how we should think about the backlog? Would there be any seasonality to how the bookings come in - I doubt there will be, but any thought you can add there would be helpful?

Sure, you know we've - and again, thanks Biju for the question. We have put out as part of our guidance, a range on the booking side. And from a seasonality standpoint, it's certainly back-end loaded, which again matches the previous year's history, but third quarter is 20% to 30% from a revenue standpoint, and fourth quarter is 50% to 60% of our plan. As mentioned by Bill, we reaffirmed the full year revenue target from a contract of backlog, it's really exciting, because as mentioned, again in the prepared side is that we were at $184 million of contracted backlog at the end of 2020. And through the end of the second quarter, where $250 million, which is a 36% year-to-date increase. So we're continuing to see contracted backlog grow and we're obviously seeing nice growth around our pipeline, the 12-month pipeline is $1.7 billion, which was up from $1.4 billion, the 21% increase. So feel good about those key metrics. And I think that momentum continues throughout this year from where we think we can tell.

And with the success you had with the electrodes projects, are you seeing additional opportunities for conversions fossil fuel facilities, and also, is there an opportunity for converting some of the storage projects that maybe didn't have software attached with it, getting new software services.

I mean, I would say the aggregate we're definitely seeing more incoming around [indiscernible] type of opportunities, I think part of it's been driven by our balance sheet, and the fact that, as a venture backed company, previous outcome, we really at times maybe had a couple years of runway, when you're talking about 20-year deals with developers, it was a bit challenging, that has gone away, so we're seeing significant amount of incoming, and look, our viewers will continue to sell hardware as long as it's economical. Our customers typically want the fully wrapped solution hardware and software, but in our model contemplates hardware throughout. So Larsh, do you want to jump in with any thoughts?

Well, I just think we're definitely seeing the interest in the software performance, and applying that to assets that people may have either already owned or want to upgrade. But I think the proof will be in the ability to secure software contracts for customers who have assets, where they're procuring the equipment directly, and building new projects and incorporating the Athena software capabilities in their performance.

Our next question comes from the line of Brian Lee with Goldman Sachs. You may proceed with your question.

Thanks for taking the questions. I had to hop on a little bit late. So apologize if you've already covered this. But on the contracted AUM it seems like you're tracking ahead of targets you had laid out for the year prior. Just wondering if you had an update on guidance there. And also you cited in the press release 345-megawatt hour addition this quarter. I think that's bigger than the overall quarter-on-quarter increase. So wondering also if something maybe fell out of your contracted AUM basis this quarter, and then what might drove that?

Yes, I think - so thanks for the question, Brian. I think the 345 you're referencing is the electrodes portfolio, as opposed to an increase. I mean the total AUM grew by about 100-megawatt hours over the quarter from Q1 to Q2, went from 1.1 gigawatts to 1.2. So I think we're just kind of getting a little bit of mixed metaphor in there in terms of which projects you're referencing. Long-term though we do see continued growth in the AUM, I think in terms of providing guidance on that particular number, we haven't really done that. So we'll probably stay away from that right now. But expect to see continued growth there. I mean, that's really, as we have said multiple times, that's really where we see the business growing, and it lays out on a long-term basis, where we think the software only product is going to go in software deliveries over time. As John references, we think that the marketplace is getting more complicated. That's where Athena really shows its strength. And when those markets get more complicated, we'll be there with our customers to be able to take advantage of those and drive additional revenues, both to the customers, but also to ourselves.

Okay, fair enough. And then on the - I guess, the question on the contracted backlog and the new bookings this quarter. You've had a pretty consistent run rate of new bookings to start the year here. But there is, I think, a fairly significant ramp in the top line expectation that you had in the original model up to 2022. So wondering if we should be anticipating a fairly large acceleration at some point, kind of second half, either through seasonality or based on some of the contract timing constructs you're seeing in the pipeline or what sort of gives you comfort that there is sort of a step up as we head into maybe the back half and into 2022, around some of the revenue expectations here? Thanks, guys.

Sure. Yes. So I think, as John mentioned, I mean, this is definitely a seasonal business. We do expect quite a bit of growth on the backside of the year. So we're right now, I mean, if you compared bookings first half this year versus first half last year, we're substantially ahead of last year, almost 66% higher than last year. And in fact, if you look at again, year-over-year, we booked about 70% first half this year, as compared to last year in total. So we're feeling like we're on the right trajectory in terms of setting ourselves up for 2022. Now, obviously, you'll recall when we went to the Analyst Day, in fact we talked about the growth in the backlog and how that gave us visibility towards the back end. And then the Analyst Day in the January, I think was January 16th or 17th timeframe, we had 100% of the 2021 revenues in backlog at that time. I'm not saying that we'll have that same number this year. But that's the kind of business that we're trying to put together, one with high visibility over long periods of time, and again, rolled back into these 10 to 20 year software contracts, long-term visibility of earnings growth and gross margins.

Ladies and gentlemen, we have reached the end of today's question-and-answer session. I would like to turn this call back over to Mr. John Carrington for closing remarks.

Thank you, Lauren. And thank you, everyone, for joining us on our first earnings call. We're very focused on meeting our commitments to investors, and pleased with our strong execution in the first half of this year, and the momentum we're carrying into next year. All of this is underpinned by our strong bookings performance, operational excellence and the Athena platform, which drives compelling margins and long-term recurring software revenue. My team and I are here to help with any follow-up questions and look forward to speaking with you next quarter.

Thank you for joining us today. This concludes today's conference. You may disconnect your lines at this time.