Good afternoon. And welcome to the Stem, Inc. Q1 2022 Earnings Call. My name is Tamia, and I'll be your moderator for today. All lines will be muted during the presentation portion of the call, but there is an opportunity for questions-and-answers at the end. [Operator Instructions]. It is now my pleasure to pass the conference over to Ted Durbin. Please proceed.

Thank you, operator. This is Ted Durbin, Head of Investor Relations at Stem, and we welcome you to our first quarter 2022 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 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 portion of our website at www.stem.com. John Carrington, our CEO; and Bill Bush, CFO, will start the call today with prepared remarks. Larsh Johnson, Chief Technology Officer; Bob Schaefer, President of AlsoEnergy; and Prakesh Patel, Chief Strategy Officer will also be available for the question-and-answer portion of the call. And now, I will turn the call over to John.

Thanks, Ted. Starting with Slide 3 in the agenda for our call today. I will briefly review our first quarter 2022 results and highlight some of our key accomplishments during the quarter. Then I will review our solid commercial execution. I will also provide an update on how we're managing the regulatory uncertainty in the current market and our progress in managing the supply chain. Finally, I will discuss how we are accelerating market enablement through technology innovation. I will then hand the call to Bill who will discuss our financial results in more detail and provide color on our 2022 guidance and operating leverage. Turning to Slide 4. Today we reported first quarter 2022 revenue of $41 million, which was 166% versus first quarter 2021, revenue came in 29% above the high end of our guidance range for the quarter. And finally, we are reaffirming our full-year 2022 guidance across all of our key metrics. We generated a 9% GAAP gross margin and a 16% non-GAAP gross margin during the quarter driven by additional high margin software and services revenue. First quarter bookings were $151 million, nearly triple the bookings in the same quarter last year. The strong bookings drove our backlog to another new record at $565 million, which gives us excellent visibility into our revenue for the remainder of this year. Should be noted that while this is a seasonal business, the bookings performance is the second largest in company history after Q4 2021, which is typically are largest. Moving on some specific Q1 highlights on the right side of this page. First, recurring revenue and contracted standalone storage projects represent more than 85% of remaining 2022 total revenue at the midpoint of guidance. We believe our customer and market diversification strategy, including growing momentum and standalone…

Thanks, John. Starting on Page 10 with our results for the first quarter 2022. But before I begin, remember that we closed the AlsoEnergy acquisition on February 1, saw results only include February and March financial results from AlsoEnergy for Q1, we reported revenue of $41 million, which was 166% increase versus the $15 million in the first quarter of 2021. Most of the growth came from the storage hardware sales on FTM and BTM partner projects and about $10 million from the addition of AlsoEnergy. We also recognized approximately $10 million of high margin software and services revenue, representing 24% of total revenue for the quarter. The revenue we recognized in the first quarter exceeds our revenue for the entire year of 2020, which underscores the tremendous momentum in the business. Our GAAP gross margin was $3.6 million, or 9% versus a slight loss in the same quarter last year. Non-GAAP gross margin was $6.4 million, up from $2 million or 45% increase in the first quarter of last year due to higher revenues and the increased mix of software and services revenue. On a percentage basis, non-GAAP gross margin was 16% in the quarter versus 13% last year or 23% increase. Our margin has benefited from a greater share of the high margin software and services revenue. That 16% margin is squarely in line with the 15% to 20% guidance we provided in February. One important note, I would like to make here is for investors to refer to the reconciliation of GAAP and non-GAAP financial measures included in the appendix of the supplemental slides. In particular, we have implemented certain adjustments including additional allocations of operating expenses into cost of goods sold for the calculation of non-GAAP gross margin that impacts comparability of these figures. Adjusting for…

Thanks, Bill. Wrapping up on Slide 14, with our key takeaways for this quarter's performance, we closed the first quarter of 2022 with strong performance and exceptional momentum, positioning us to achieve the full-year financial metrics driven by customer and market diversity. Revenue beat the high end of our financial guidance by 29%. We executed on bookings of $151 million, representing 196% year-over-year growth. The strength of our business is rooted in our differentiated software offerings, we grew contracted annual recurring revenue to $51.5 million. Additionally, our unique capabilities and technology leadership is highlighted in our pricing power. We're reiterating our full-year guidance and believe the value of our customer and market diversification strategy, including growing momentum in standalone storage provides greater certainty into our financial execution. We will continue to closely monitor and manage any potential impacts arising from the solar, AD/CVD inquiry and have secured 100% of the full-year 2022 requirements for energy storage hardware at fixed prices for the benefit of our customers. The integration of AlsoEnergy is on track and we expect to see traction in generating joint booking wins this year. In addition, we are excited by the operating leverage and expanding software development, customer and engineering support, and finance headcount via the recently acquired infrastructure at AlsoEnergy India. We were excited about the momentum specific to ESG initiatives, which we've implemented throughout our organization and would encourage you to reference the Stem website and public disclosures for additional details. In closing, I want to thank our colleagues across Stem and AlsoEnergy. In addition to our customers and channel partners, we continue to be bullish on the growth of this industry and our competitive positioning. The continued focus on execution has resulted another exceptional quarter. We met or exceeded all of our key metrics, which should position as well to deliver on our commitments for the balance of this year and beyond. With that, let's open the line for questions please.

Absolutely, we will now begin the question-and-answer session. [Operator Instructions]. The first question comes from Brian Lee with Goldman Sachs. Your line is open.

Hey guys, thanks for taking the questions. And kudos on the strong start to the year. I guess with that as context. Just a couple of questions around the cadence kind of the trajectory here implied by the guidance on some of the key metrics. First on the gross margins, you did the 16% non-GAAP, nice pickup year-on-year as well as Q-on-Q. You're keeping the 15% to 20%. Can you kind of walk us through the thought process, why no real margin expansion implied here for the rest of the year here, even though you started off the year pretty solidly even on a low volume quarter here?

Hey, thanks, Brian. I appreciate the question. I think with respect to the gross margins, I mean, I think one thing for sure it's true is we are guiding to the full-year in the 15% to 20%. And the first quarter is typically the smallest from a revenue standpoint, quarter of the year. So I think it's a little too early for us to take another look at the guidance from that standpoint. But we're very happy with where the quarter ended up. We think it's a great reflection of a lot of the work that we've been doing on both sides of the business.

Okay, well, maybe just a follow-up, is it -- if I think about the puts and takes on the margin trajectory? Is it makes, is it cause, like what would keep you prudent? I know, it's early in the year. And you don't have to jump to conclusions, per se on moving these metrics around. But a good start to the year, here you got a lot of volume growth embedded for the next several quarters. I guess, what are some of the puts and takes around, cost expectations, as well as maybe mix that are the key drivers here on the margin view?

Well, I mean, certainly, the software services are going to be the thing that drives margin higher. I think we've been pretty consistent in talking about that. Yes, I think there's obviously the highest revenue item is on the hardware. And so there's been a lot of movement in terms of pricing, there a lot of supply chain choppiness, which we've -- I think, worked through pretty successfully in terms of getting our supply in place for the full-year. So I think from that standpoint, we're feeling confident about where we are for the year. And we feel very comfortable with, what's going on the solar side, a lot of, I think there's -- what, as we look at that side of the business, we think that and we'll probably, I'm sure there'll be questions about this later on. But we think that that's going to have a relatively minimal impact on us for the year. And so, I think for us, as we look at the full-year, the most important thing is going to be our ability to drive more services into the business, which will impact the margin the highest.

Okay, fair enough. Last one for me, and I'll pass it on. The nice uptick in CARR again, one of the key metrics here that you're starting the year off pretty, pretty well on. How much of the $51.5 million in CARR came from AlsoEnergy, it sounds like in the release, that was a decent part of it. So just trying to get the mix there. And then you're already at the low end of guidance almost for 2022 year end to 60% to 80%. Maybe similar question, why not as much of a ramp here implied over the next few quarters, given where you're starting off already at the close to $52 million of CARR in Q1? Thank you.

Yes, so I mean, I think we talked about this in the year-end call, run $24 million was attributable to the AlsoEnergy business. And I think in terms of updating the guidance, I think kind of the same kind of comments a little early, let's get a couple more inning into the game before we start doing that. But I think for us, we feel very confident about where we are from the business, I think the bookings number, as you highlighted is something that, we carefully look towards, and that's reflected, of course, in the backlog, which is a great metric for us in terms of short and medium term performance of the business. So stay tuned for that, and we'll certainly keep you up-to-date as we feel confident about changing numbers.

Okay, so roughly $7 million organic CARR growth and $24 million inorganic, if I have the numbers, correct?

Yes, actually a little bit more than that on the Stem legacy side.

Okay. I'll take the math offline. Thank you, guys.

Thank, Brian.

Thank you. The next question comes from David Peters with Wolf Research. Please proceed.

Yes, hey. Good afternoon, everybody. First one for me is just on back to the strong start on sales in Q1, you originally got it. So I think $7.5 million of total revenues hitting in Q1. But obviously you came in well above that. Should we extrapolate that to me in a year at least trending towards the top end? Again, understanding it's still early? Or was there some sort of timing impacted pulled revenue in the Q1?

I would say that, and first, thanks for the question. Appreciate that, David. I think it's too early for us to say that, we're going to into the high or the mid-range. All of our numbers are based on the mid-range. And so, I think from that standpoint, we feel pretty comfortable. I mean, I think, in terms of the business itself, we talked about the 85% in the press release. 85% of the revenue on the recurring and in standalone side is pretty well locked in. So we feel pretty comfortable with where we were going to be. But I think in terms of saying, we're going to be at the high end or at the mid-range. We're still very much targeting the mid-range for business from a metric standpoint. I think also you can kind of see that throughout.

Great. The other question I had was just related to that. Last I heard from you guys, the bookings target for '22 sounded like it could be on the conservative side, and Q1 bookings certainly look strong, as well ahead of your 20% target. But this was, obviously, before the DOCs investigation. So maybe you could just talk to any updated thoughts there. And has there been a shift at all in FTM versus BTM as a result of all this?

Yes, David, John Carrington here. On the bookings front, we did $151 million. And again, that's nearly tripled the same quarter of 2021. The mix is 90% FTM, and 10% BTM. As you might recall, the fourth quarter was 95% and 5%. From a pipeline standpoint, we're running about a little over 80% front of the meter, with the 12-month pipeline of around $5.2 billion. And that's a record. So we feel very strong about that. And it's really indicative of a couple of markets like Texas and California that have continued to see acceleration. As it relates to some of the AD/CVD issues. I think the most important point in my prepared remarks around this is what Bill just highlighted, which is the fact that 85% of our revenue, that's contracted in hardware and recurring fast revenues, gets us to the midpoint of guidance. So we do feel good about the year. And again, I think it really highlights just the diversity of the focus we've had around diversity of both customers and markets. And we believe it really will help us to continue to provide certainty into the financial execution that we've committed to our shareholders in the street.

Great and then last one, if I could just for AlsoEnergy, the PowerTrack, you mentioned you guys were implementing price increases. I mean, we expect that to be incremental to the gross margins, you highlighted initially for that business. I guess in other words, are you able to or something offsetting that at all, are you just able to flex pricing power, given the market position? Thanks.

Sure, David. And I'll turn it over to Bob. It's great to have you on board for the call, Bob. So go ahead and take that one.

Sure. I appreciate that question. So it's Bob Schaefer. So what we see is, we really see this as a, we have pricing power. We don't expect that it's going to impact churn. And further, we've received no negative feedback. So we're excited about that. We really think that, the technology leadership that we have has allowed us to do this, and continue to act as a trusted advisors to our customers.

Great, I'll pass it on. Thanks.

Thank you. The next question comes from Joseph Osha with Guggenheim. Your line is open.

Hello, everybody. And let me add my congratulations to the group here. Great, great performance. A couple of questions. First, a slightly more prosaic one. It seems like some of the working capital accounts, inventories, payables all this stuff went up quite a lot. I know some of this is just because you fold it in also, but I'm just wondering how you feel about working capital management as you work through the year is this kind of as high as we're going to see them? Or is there may be some more money that gets pulled into those working capital accounts? And then I have a follow-up?

Yes, thanks, Joe for the question there. In terms of working capital, I think as we look at what happened throughout the quarter and perhaps Russia is that hardware side of the business is growing. So it really reflect those changes that you mentioned, you really reflect the growth and LGIA and EV opportunities. So I mean, I think it's really situated with the amount of investment that we're going to make in hardware throughout the quarter. So I think though, I mean, one of the things I want that we talked about in the release was that, we expect to see lower utilization long-term with respect to these hardware opportunities. So I think that's really where we look at is that, there's there could be some short-term increases but long-term less utilization of working capital for hardware purchases.

Okay, but you're still comfortable with the way things are because of working capital and the cash levels and so forth. I mean, it certainly seems like [indiscernible].

Yes, no, we're very comfortable with that.

Okay. And then the next question is, if we look at the bookings and we did just touch on the FTM DTM mix there. Obviously, you've got supply security, which is great. But lots of other logistics considerations out there. Just wondering how you're feeling about this kind of bookings, to installation lag that you see in your business, how long is it taking you to actually get the stuff on the ground?

Yes, we really haven't seen a significant modification or change in that part of the business. I mean, we've and I think we've talked about this, where we've run into more problems is the interconnection the permitting side of the business, as opposed to the logistics, and getting it through port. Important to note that, to the extent there are any changes in costing, that is a pass through to customers. So to the extent that we had any of those issues that were affected in higher costs, those were not part of our P&L. But I think that's really where we see that is that the ability to get the hardware has not been the problem for us. It's been much more COVID related delays on the project side.

Okay, thanks. And then just a final one, if we look at that composition of bookings, you've talked some of the materials you put out in the past. You've talked about kind of a hardware service breakdown, can you maybe give us some color as to what this current quarter booking number looks like vis-à-vis that breakdown?

Yes, it's really holding even with what we've traditionally said, 60:40 hardware, software. And of course, that does not include the market participation component.

Great, okay. All right, thank you very much.

Thanks, Joe.

Thank you.

Thank you. The next question is from Brett Castelli with Morningstar. Your line is open.

Hi, thanks for the time. First question was on the FTM pipeline. I was curious if you can break that out maybe between solar plus storage opportunities and more standalone storage opportunities?

I'm sorry, I couldn't hear, do you say the backlog or the bookings?

The backlog of the pipeline for the FTM business, just curious, a mix between solar plus storage versus standalone storage?

Yes, we haven't. So first, thanks for the question. We haven't really broken that specifically out that way. I would say what I would offer is that in terms of the backlog, and the bookings still are in the 90:10, FTM to BTM standpoint. I think John and I mentioned in the prepared remarks side, there's a significant amount of standalone storage in our pipeline, which really is what is giving us a lot of comfort for the year given the potential uncertainty associated with the AD/CVD issue. And so I think that as you look at the pipe, excuse me, as you look at the backlog, that is going to be predominantly standalone storage.

Okay, that's helpful. And then curious on the storage hardware side in terms of chemistries or new technologies? Are you changing things at all or do you expect any changes there maybe not this year, but more than the medium term in terms of pursuing say new chemistries? Thanks.

Yes, Brett, I'll start and Larsh Johnson jump in, I would say that, what's compelling about both platforms is that we can operate on top of really any storage chemistry. So from the perspective of lithium ion, long duration or others, we could put a top right on top of that. We obviously talked to a variety of battery suppliers. One of the things that you've seen us get more into is LFP, lithium ion still because particularly when it's solar attach, you want that longer duration, longer-term warranty, so we're really focused on lithium ion but Larsh, why don't you jump in with the other thoughts I might have missed.

Yes, I think because of our position in the industry, we've been in contact and are continuously working with a number of different suppliers with different chemistries. And at this point, we're still evaluating how they fit into some of the commercial use cases that are driving a lot of the storage expansion right now, but we certainly see long duration storage, making progress on that front. And so I think we'll be looking to have long duration storage and other chemistries outside of lithium ion within the portfolio, certainly within the next year. But I think it still remains to be seen as a specific which ones are going to make that work. And that all evolves with the use case, that is then underwritten by the bankability of the solution. So we're watching all of that. And I think it's quite promising. So we'll stay tuned, I think.

We'll do, I'll pass on. Thank you.

Thanks.

Thank you. [Operator Instructions] This concludes the Q&A portion of the call. I will now pass the conference back to John Carrington for closing remarks.

Thank you. And I want to thank everyone for joining us on our first quarter 2022 earnings call. We're pleased with our strong execution of meeting or beating on all key metrics. And we will continue to focus on operational excellence, driving software differentiation, delighting our customers and growing revenues and margins. We look forward to speaking with you during our second quarter earnings call and thank you again.

This concludes the Stem, Inc. Q1 2022 earnings call. Thank you for your participation. You may now disconnect your lines.