Welcome to the Stem, Inc. Fourth Quarter 2022 Earnings Conference Call. As a reminder, all participants are in a listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. [Operator Instructions] I would now like to turn the call over to your host, Ted Durbin, Head of Investor Relations. Please go ahead.

Thank you, Operator. This is Ted Durbin, Head of Investor Relations at Stem, and we welcome you to our fourth quarter and full year 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 10-K and our other 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. Michael Carlson, Chief Operating Officer 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.

Thank you, Ted. Ladies and gentlemen, thank you for joining us on the call today. Starting with Slide 3 and the agenda for the discussion today, I will review our fourth quarter 2022 results and highlights. Followed by an overview of our commercial execution and provide an update on the supply chain. I will then review our strong operating results, and new offerings that demonstrate our technology leadership. Following my remarks, I'll turn the call over to Bill Bush, our Chief Financial Officer, who will discuss our financial results in more detail and provide 2023 guidance. Turning to Slide 4. Today, we reported solid fourth quarter results, including record revenue of $156 million, which was 3x higher than the same quarter last year. We also reported record bookings of $458 million which was 2x higher than the same quarter last year. Our revenue and bookings in the fourth quarter alone were higher than in the entire year of 2021, which is a remarkable achievement over a short period of time. We achieved these results despite a turbulent environment throughout 2022, including supply chain volatility, interconnection and permitting delays cost inflation, and solar import declines from the AD/CVD and UFLPA restrictions. Our diversified business model across multiple products and geographies help the Company navigate these headwinds. As we previewed in our interim update in early January, revenue came in within the guidance range and our bookings were well ahead of guidance that we had already raised in the middle of 2022. In fact, if you go back to our 4Q '21 earnings call, our bookings ended 50% higher than our original full year guidance. The bookings momentum is a testament to our software and services solutions that are differentiated in the marketplace. We are also capitalizing on the tremendous macro tailwinds…

Thank you, John. Starting on Page 11 with our results for the fourth quarter and full year 2022. Please recall that, we closed the AlsoEnergy transaction on February 01, 2022, which will impact the comparability to last year's results. As John mentioned, we reported record revenue of $156 million, which was 194% increase versus the $53 million in the fourth quarter of 2021 and more than we recorded in all of 2021. Most of the growth came from the storage hardware sales on FTM partner projects and about $18 million from the PowerTrack platform. We also recognized approximately $16 million of high margin software and services revenue, representing 10% of total revenue for the quarter. Full year 2022 revenue was $363 million, an increase of 186% over 2021. For the quarter, our GAAP gross margin was $13 million or positive 8% up from a negative 3% in the same quarter last year. For the full year, GAAP gross margin increased from $1 million to $33 million. Turning to Slide 12. Fourth quarter non-GAAP gross margin was $17 million up from $3 million in the fourth quarter from last year, due to higher revenues. On a percentage basis, non-GAAP gross margin was 11% in the quarter, up from 5% last year. Our margins benefited from a greater share of high margin software and services revenue. For the full year 2022, non-GAAP gross margin came in at 13%, up from 9% last year. We came up short of our 15% to 20% non-GAAP gross margin guidance, driven by a higher mix of hardware than we expected. Our storage and software revenues also increased more slowly than we expected, due to the continued permitting and interconnection delays that our partners experienced. While the solar side of our business underperformed from a revenue standpoint…

Thanks, Bill. On page 16, to wrap up, we are committed to achieving EBITDA positive in the second half 2023. Our financial progress is supported by the very strong demand we are seeing from customers as they face rising energy cost and as the full impact of the inflation reduction act fuels market growth. We closed 2022 with 1.1 billion in bookings, representing 153% increase from the prior year. Our technology team is best-in-class driving new market expansion and enhancing gross margins. We launched our offerings into PJM, the largest competitive global power market, and are enhancing the economics of sites in CAISO with Athena's unmatched co-optimization and wholesale energy trading capabilities. In addition, we continue to make inroads into the fast-growing electric vehicle market with the partnership we announced with ChargePoint. All these activities set us up to drive double-digit annual software services growth and enable the Company to achieve significant growth in adjusted EBITDA. Finally, I want to recognize our diverse global team for the outstanding performance and looking forward to meeting the commitments we have outlined today. We have world class employees, products and customers. With that, let's open the line for questions, please.

Thank you. [Operator Instructions] First question comes from Brian Lee of Goldman Sachs. Please go ahead.

Hey, guys. Good afternoon. Thanks for taking the questions. First one on the guidance for revenue, I mean, given the backlog position here, I'm just kind of curious what's your assumption around backlog conversion? I would have thought you would be in position to do higher than kind of the revenue guidance here of $600 million at the midpoint. So are you seeing backlog converting more slowly? Or is there something with respect to mix that's maybe not turning over as quickly as we would have thought, just given the overall headline number seemed to be bigger and gave you more coverage than sort of the revenue guidance you are providing here? And then I had a follow-up on the margins.

Perfect. Hey, Brian, thanks for the question. So, yes, and I think, in terms of the back plug, it is converting slower. I think we have talked about this in the past, as we are taking on larger and larger projects. Those tend to be -- they tend to be FTM, first. Then second, they tend to be multiyear installations. And so we saw much quick -- when the products were smaller, we saw a much quicker conversion, much like say, at the end of 2021, we had $400 million plus $450 million in backlog. We have $363 million in revenue this year. So pretty quick conversion in general. But this year and I think going into future years, we're just going to need to build more pipeline because the projects are longer. And so from that standpoint, I would say, extension, but still pretty significant growth on a year-over-year basis for revenue.

I think the other thing I'd add Brian and thanks for the question is, we do still have some opportunity to convert bookings into this year, so here in the first quarter. So keep that in mind.

Okay. Yes, just on the margins, I know '22, it sounded like you obviously had some issue that impact to do on the gross margins. You are effectively starting '23 here with the same adjusted gross margin guidance what you had going into '22, but it seems like some of the headwinds from last year have started to dissipate. So is there some conservatism baked into here? Or is there some level of margin leverage that you are not seeing that you would have expected? Because my understanding is, you've got maybe a little bit more BTM coming back into the mix, supply chain is better. And I know -- kudos on the operating leverage side of things. But just wondering what are some of the levers around gross margin leverage that we could look to here in '23 because based on the headline guidance, it doesn't seem like you are baking in a ton?

I think -- so in terms of the margins, I think one is, I think we need to be somewhat conservative, because the solar part of our business has a lot of margin leverage into it. And though we are seeing some green shoots come out. I mean, you can see that in terms of the year. We had 8% service growth in the fourth quarter sequentially. We have got really nice increase in backlog, 42% year-over-year. We want to make sure that those numbers are actually there. And because of the -- that's a 60% gross margin business in general, if that doesn't materialize though, we expect that much like in '22, that'll have a negative impact on us for 2023. So probably is some conservatism. So I think there's, to some extent, you can always increase the numbers hard to take them down. And so I think what we'll be doing as we roll into 2023 is continue to monitor the solar part of our business very carefully. But I think the other thing to consider as well is that the hardware side of the storage part of the business continues to be under pressure. I mean, that is definitely going to -- as we move up in terms of project size, the margins on those hardware sales, which unfortunately comes before the software is going to impact the overall gross margin. So, we kind of went through and tried to appropriately act forecast what the mix of those two things would be. And I think the ultimate answer is going to depend a lot on what the mix turns out to actually be.

The next question comes from Maheep Mandloi of Credit Suisse. Please go ahead.

Thanks for the questions and just following over the previous question from Brian on margins. It feels like there's probably like a shift of the EBITDA profitability from after Q2 to now the second half of '23. Just wanted to understand is there anything in the seasonality which could be causing that and any, any other levels on the EBITDA profitability here? We appreciate it. Thanks.

Maheep, no, we're not coming off the second half EBITDA positive in any way. So I'm not sure where you got that indication. So that's not the case.

Now I'll follow-up later on that. And just looking at the guidance and assuming for the backlog and bookings, assuming 60% of where the hardware here that kind of implies revenues in 24 could be around 900 million or probably more than that. Does that math make sense or is that also kind of impacted by all the delays or the extended revenue recognition you kind of talked about in the previous question?

So thanks for the question Maheep. I think first of course, we're not given '24 guidance just quite yet. But I would refer you to the data that we gave in the LRP. So from that we do expect to see '24 revenue grow at those rates and the midpoint on hardware was of course 30% and services would be 75%. So I think from that standpoint, we do expect to see growth. And then I think one of the places that you saw that in this last fourth quarter is a 17% sequential growth in services. So, I mean, ultimately, the path to EBITDA is going to be paved through services, and we're seeing a lot of very positive momentum from that standpoint. Two quarters in a row, 9% in the third quarter, 17% in this quarter of service growth. So we're really excited about that. That's going to be where the gross margin dollars come from. And so I think that'll be something to, to keep in mind as we go on, not just the big print of what the revenue is, but also what the gross margin dollars shake out to be.

And is the split of hardware versus software and bookings and backlog 60:40, is that changing for 24? Sorry, '23?

No, we don't expect that to change. I mean, what will change though to be clear is we'll have more software only deals in 2023 in the backlog. So you'll see more deals that are that's particularly true on the largest deals. So, one of the things that we tried to adjust for -- in the bookings number in total was the fact that we expected to have software only deals this year. So -- and that of course, only represents, you call it 40% of the total economic value of the system. So the bookings growth is going to be slower on a nominal basis as a result of that, but the KWH or the megawatt hours is going to continue to grow at a very quick rate.

The next question comes from Julien Dumoulin-Smith of Bank of America. Please go ahead.

It's nice to chat with you guys here. So with respect to the services, the pro serve and the dev serve, can you guys talk a little bit about the growth of the services business and specifically how you're tracking and maybe some of the data points we're going to see materialize here as signs or road posts to know that you're scaling here. I know that there've been some other discreet issues here as we're alluding to on the gross margin mix. But I just want to specifically get back at some of these -- the services side.

Hey, thanks Julien for the question. So, I mean, I think the most obvious is going to be what's going on at the top there, so that's that 17% sequential growth, and I think that's the kind those are kind of be the high-level sign post that you and the other folks should be looking for is -- what are we able to do in terms of total service revenue, just in general. And so, I think, that's where we've made a lot of progress. Mike Carlson, who's here with us, of course today is leading the pro serve side of the business. And so, I think, we expect to see quite a bit of progress from that standpoint we picked off that initiative on the storage side of the business. This last August, this solar part of the business has been doing that for some period of time. And to the extent that we're able to experience the growth that a lot of the analysts are expecting, i.e. a 100% year-over-year growth in solar, we're going to do a much better. We did see a little bit of that in the fourth quarter with the solar part of the business. It did grow 8%, which was a nice accomplishment, particularly given1% decline in the third quarter. So, I think those are going to be the obvious points that you should be looking for as we go on. You want to add anything Prakesh?

Yes. Hey Julien, this is Prakesh. Two points I would make. When Bill was discussing the gross margin accretion strategy, the long-term plan and John references as well. Next month we'll be installing our first modular ESS that comes with services attached to it. That we expect a lot more of that unit controller type business to launch services and project modeling, project design and asset management. And then separately, we expanded our team that advises customers on forecasting for wholesale energy markets. And so both of those you should start to see either just as Bill mentioned, growth and services line item or press releases around these customer wins and engagements.

Got it. And then with respect to PLM, just quickly, if I can obviously, they have disproportionate interconnection issues. How are you thinking about the confidence in the backlog translating, given some of the timeline issues as it pertains to kind of leading into the PJM. I appreciate the margin comments about PJM, which is some of the interconnect and delay issues that we've seen there. How does that fit with a, your backlog and mix there and b, how you risk adjust, if you will?

Yes. Right now, this is Prakesh again. Right now, I'd say the primary focus in the PJM market is behind the meter, where there's a templatized approach for interconnection approvals. We're not chasing very large highly engineered front of the meter deal. So, that's one strategy. And we're leveraging developers and EPC firms that corporate Fortune 500 accounts we're targeting have worked with for quite some time in deploying their solar projects. So it's a different segment of the market and we have seen a faster pace. But -- and then just context around your question on the backlog, it's still early days. So we just launched it during the year. So we don't have a significant component in the backlog, just yet to risk weight it.

The next question comes from Thomas Boyes of Cowen. Please go ahead. Please go ahead.

Thanks for taking my questions. Maybe the first one, I'm just wondering if your sourcing strategy has changed at all post IRA. Have you held back on sourcing anything maybe beyond 1Q 2024 in your social security domestic production as it comes online? And then maybe as a follow-up there, what do you think it's reasonable assume for U.S. batteries, quite frankly, be available to late 2024 or 2025?

Yes. So thanks, Thomas. I'd say a couple of things. We have contracted supply for 2023 and making progress on 2024. As we have talked in previous calls, we continue to make opportunistic spot market purchases. And I think that served us well. We will continue to do that. I think our suppliers know, there is a change in one of their customers, I believe we are one of the first calls. And on the U.S. content piece, look, we are still a significant customer of Tesla's. And we will continue to work closely with them. They have been a long-term partner for us really since by 2013 or so, 2012. And as far as new capacity coming online, I think specifically related to IRA, I'd say, 24 months maybe a little longer till we see some of that. And we are not really engaging just yet on that focus because we just -- we don't have that kind of visibility today on our bookings. So we will probably start that in the summer, I would guess, as we get more clarity on who's coming in. You want to add anything, Bill?

Yes. So I would just to put a finer point on John's comments. So we are fully booked in terms of contracted supply through the first quarter of 2024. You shouldn't read that to me that we haven't contracted anything beyond that into 2024. I mean, we've talked about that on prior calls where we're getting -- we're going further out. And I would make the distinction between being contracted and actually having the product on the ground. We think from a working capital standpoint, it's probably better for us to do some contracting. So I think that. But for sure, we're talking with the folks that have made announcements around the domestic supply side of things. But of course, it's early days for them, right? I mean there is no that we're aware of at least nobody is broken ground on a plant yet from a battery perspective. Lot of conversations around panels, inverters, batteries, et cetera, and we're monitoring that. Our supply chain team is monitoring that very closely. And to the extent that one of those groups is able to produce product here in the U.S. I mean, it's a really interesting attribute from the standpoint, domestic content and how it works within the IRA. So it's something we are very closely monitoring. But for '23, the primary U.S. supplier for us is going to be Tesla. And then we are going to be buying stuff from Korea and of course Japan and China as well. So no real changes in the strategy, other than the fact that obviously the IRA makes us kind of start to talk to some of the folks that we would not necessarily have been speaking with before, because they didn't have plans and spots that were interesting to us.

Great. And appreciate the color there. Maybe just as my follow-up. Just wanted to check-in on the cross selling opportunities with AlsoEnergy. Could you just give us an update there and then maybe talk about your approach and kind of parsing through those 40,000 plus C&I sites? And $6 billion is still a good number to think about or is that change all after the kind of the pruning efforts?

This is Prakesh. Yes, that 6 billion is a good estimate. We have made some progress. We've analyzed upwards of 600 sites in a granular detail and have started the customer conversations. One statistic I would point out about a third of our bookings in the BTM segment last year came from that cross sell. So we're seeing early momentum there already.

The next question comes from David Peters of Wolf Research. Please go ahead.

So just as it relates to the margin profile, can you maybe provide kind of a rough split of what guidance assumes for AlsoEnergy revenue versus legacy battery hardware and software, just to the extent UFLPA issues linger beyond maybe expectations.

So as you can see from the various pieces, from the standpoint of AlsoEnergy for 2022 for us on a consolidated basis, they did about 58 million or so in revenue. They did more than that. Of course, in 2022, we just didn't consolidate January. We expect to see strong growth there. You look at any of the Wood Mac data they're presenting a hundred percent growth. I don't, and I would say I don't think we're going to see a hundred percent revenue growth in the Company, but we do expect to see significant growth from that part of the business. I mean, if you look at most of the publicly available data around solar, we should see anywhere from 20% to 40% growth in that business. And so a lot of it is going to be how quickly does UFLPA, how quickly does the anti-dumping rules of those come back? I mean, there's been some chatter amongst various congressmen that you've probably seen that they're going to roll back the work that Biden had done, and that obviously if that happens, that'll obviously have a negative impact. So the stuff that we're going to be monitoring very carefully, were like, as I mentioned before, I mean our backlog is up 42% on a year over year basis. And so, as we look at -- and this is -- and so I'll make a fairly large distinction between backlog on the solar part of the business and backlog on the storage part of the business, the solar backlog turns into revenue pretty quickly six months or less and many of it is like three to four months. And so it's able to churn pretty quickly. So we feel like if those projects are able to move forward in the way that we've the way that we're seeing from our partners and what we're hearing we're pretty optimistic that we're going to have a really nice year on the solar side of the business. We really is -- it's positioned to snap back. I mean, I think we've talked about that even as early as last summer when we were seeing some of the early slowdowns as a result of the anti-dumping. And kind of really harken back to the 2016, 2017 time period when solar really kind of took it kind of a head, a tough period as well, and then snap back really strong in the next period. So we'll have to see, which is why in part why I think we're a little bit conservative in terms of the gross margins and some of the revenue growth is that we want to actually have that turn into, revenue and gross margin as opposed to just having good feelings about what's going happen.

Yes. I'd add a couple quick points to as well, David, number one, the RFQ that we've seen year to date are up to X versus 2022, so it feels strong coming out of the gate. And I'd also highlight that as we talked in the last earnings call their solar asset performance management business exceeded market growth last year. And we expect more the same this year.

Thanks. That's helpful. I appreciate all that color. Just my follow up then is just wondering if you can provide a sense of where things stand today with interconnection requests, timing broadly, just trying to see if it'd be possible to kind of parse out where the CARR metric could be for 2023, if that bottleneck were to ease some and kind of just what you assume, I guess, for ’23?

Prakesh, you want to start, maybe Mike to jump in?

Yes. I'd say, so far we're seeing status core around interconnect conversion of delivered hardware. We have undertaken, and I'll hand it to Mike Carlson, our COO to talk about some of the initiatives, but we are taking a very rigorous approach to driving that faster and that was kind of what prompted Bill to mention, we're looking to double our operating AUM this year. Mike?

Yes. Dave, this is Mike Carlson. What we're doing, it's kind of a two-pronged approach one very thing related to getting these assets into the field and obviously interconnects a big piece of it, but internally we've put a lot more, I guess you'd call it rigor around project management as these assets are secured by us and then getting into the field for our developer owners and then turning that same focus of project management to our partners. So, they are aware of and leveraging every opportunity they can move that forward with the interconnect progress if that's what's holding them up. And what we want to make sure is as we get through that backlog or that bottleneck of interconnect that we fundamentally don't have any direct control over, but we've got the expertise and knowledge of how to move through it as rapidly as possible. We don't lose any other time to moving these assets into the field and getting them commissioned and online. So that really the focus we expect, we won't definitely solve the problem, but we'll improve on the performance of it as we go forward.

The next question comes from Joseph Osha of Guggenheim Partners. Please go ahead.

Kind of following on the previous question, you all have talked a lot about projects that are out there on the steward side that show up in your contracted AUM that, that aren't interconnected and they're not generating revenue and we've kind of gotten the sense that there would be at some point a nice sort of step up as those things came online and started to generate service revenue for you. So my question is as follows, could you quantify how maybe in gigawatt hours, how many projects are in this contracted storage AUM you have, that aren't interconnected, and give me some sense as to how much of that might manage to make it into operation in 2023? And then I have a follow up.

Yes. So, Joe, thanks for the question. Appreciate that. At this point, we don't break out the specifics of that, so it's difficult for me to give you exact numbers, but I think one point you can definitely take into account is that we do expect operating AUM to double this year. And so, on the storage side of the business, and I think that is a great indicator that as you said, I think there is a bit of a backlog of projects which we're able. We believe that we're going to be able to turn on. And I think that, as we look at the future, and I think Mike talked a lot about this already, is how we're going to do that? How are we going to speed up the conversion from a deal when it gets from a booking to equipment delivered to the system actually being operational, and I think that, because that's really, as we all know, that's when the software kicks in, that's where -- and that's the highest gross margin part of the business. And so for us, it's a huge focus, making sure that process is happening as quickly as possible.

Okay. And have you shared what the actual operating AUM number is?

We have not.

Okay. But just to follow on that then, if you're up rating AUM is doubling and you are bringing additional projects, you are executing on additional projects and it's I think reasonable, if you look at your CARR and what the annualized run rate of your service revenue is right now. I guess I'll ask the question the way a lot of other people have asked it, why is this service revenue number not going up a lot more? Why is it not doubling?

It is growing at 75% rate. So I think that's pretty significant growth, then when you look at...

Not to belabor it, but you put a CARR end of your 2023 CARR metric of whatever it is, say, 80 to 90 and you are at 65 currently. So I guess I'm trying to understand why that CARR number, which is a reasonable bogey for the annualized software services run rate. Why that's not going up more given what you're saying about adding to the operating base?

So, CARR wouldn't increase as a result of operating assets first. So I think that's an important distinction. CARR is a contracted amount. So CARR is going to increase based on the amount of software on say that is attached on an annual basis to a particular contract. The software number that we recognize as revenue in the business is tied to the operating assets. And so that's where I'd say, like, when you look at the growth rates that we've had so far, put 9% in the third quarter, 17% in the fourth quarter, that's where you are seeing the actual operating assets being able to generate actual revenue and then gross margin. So CARR is an indicator of what will happen, not what has happened. And so when I say, hey, operating assets are going to double, that means that we are going to have a faster conversion of CARR into ARR. And what we have had. So that's the distinction that I would make.

Okay. I'll take it offline, but I think that $64,000 dollars question here is what is the software and services run rate going to be by the end of next year?

I think I would say, the way I would answer that is a 75% growth rate on what we have currently reported. So that's the number that we have talked about. It's like the services are going to grow at a compound rate across the three year time period at 75%. So if you look at what the services number was for 2022, we expect that number to grow at 75% in 2023.

The next question comes from Biju Perincheril of Susquehanna. Please go ahead.

Hi. Thanks for taking my question. So I guess my question was also related to CARR and sort of -- when I sort of look at compare your CARR to asset under management, it's been pretty stable through last year. But when I look at the guidance, it seems like there is a step down in that how much of AUM is translating into CARR. I guess, is that related to project sites? Or is there anything going on the software attached ratio?

It's not the -- everything we sell has all hardware has a hundred software attachment. Really, the dynamic that's happening, and Bill mentioned this in his discussion, is we're selling and winning much larger front of the meter deals. And some of those are expanding beyond 20 years in term. And so when you see the average length of the software terms expand, that's bringing down the per year CARR conversion.

And then, I think on the last call you sort of mentioned the, you are starting to see the BTM mix come up a bit, I think, in your pipeline. So can you give us sort of an update where you stand now? Where the recent bookings are you, are you still sort of set at for the bookings in that 90:10 ratio or has that moved?

Yes, we really have Viju, and thanks for the questions. So one of the -- certainly one of the things that we've seen is that larger FDM or our ability to win larger FDM deals. So what that tends to do in terms of the bookings. And then of course the backlog is it weights it heavily towards FTM projects. So we are absolutely increasing the, both the percentage and absolute values of the BTM side of our business. But, it's a smaller part. It's just those are just smaller projects. By their very nature, they're not going to grow in size nearly as fast as the FTM projects. And so I think one of the things -- one of the benefits of the integration of AlsoEnergy and STEM has been -- I'll call it refocus on BTM. And I think are going to continue to invest in that area. It's where time got started years ago, and I think it's a market which we can do very well, and it has better as a competitor to FTM, it has better margin attributes to it. Not necessarily the same term. The terms of the FTM deals are longer, but the margins both on hardware and software are a bit better. And it's also, within the context of our classifications, all the EV businesses in BTM. And so that, we've talked pretty consistently about the ability because we're delivering customers more value that we'll be able to drive higher, software attach rates and actual dollars. So we're really excited about the BTM or behind the meter side. I think it's going to be a nice growth area for us, but it's always going to just because of the absolute size of the projects, it's always going to get a bit swamped by what we're doing on FTM.

It's certainly more incoming, than we've had in the past because you post IRA in particular, the corporates, I think we've discussed this in the past, is we're seeing Fortune 100s coming to us asking to look at 200 sites across the country. And we're trying to operationalize that process to enable that.

The next question comes from Justin Clare of Roth Capital Partners. Please go ahead.

So first one here, just wanted to ask, if you could give us a sense for how much of your revenue for Q4 was the 80% gross margin software sales and how that was split between your battery software and your solar monitoring software? And then looking into 2023, are you expecting that 80% margin software revenue to drive the vast majority of your services growth? Or is there a meaningful contribution from the 1x kind of services sales?

So, thanks for the question. I think, the first point I would mention is that all of the recent additions in software in terms of revenue are at the high gross margin rate. So that's a 100% what's going on there. And mostly, that's because of the way we shifted our model from a structured finance model to a straight buy sell. We did that now a couple years ago. So, everything over the last three, four years has been that's added into the services line has been the high margin software. So from that --we don't -- then your other question what's the breakout? We have not done that yet. Likely we will in the future, but at this point we're not breaking out those individual components. And AlsoEnergy, of course, and you can see from what they from the tables that are in the back of the PowerPoint deck, which posted, you can see kind of what the software and hardware component of that business is, which we think is what makes it particularly interesting in what's driving that 60% plus margin across that business.

Okay, great. Thanks. And then just one more contracted storage AUM is up I think it was about 4% sequentially in Q4, but you had very strong bookings in the quarter. So just wondering if you could better help us understand why the contracted AUM didn't move upward more significantly. Did you see any meaningful customer cancellations of battery storage software contracts, or was there may be a higher mix of solar monitoring bookings? Any additional color will be helpful, thank you.

Sure. And again, so we had a -- so we did $400 million and $460 million in booking in the quarter. Unfortunately, we had a called rounded $140 million cancellation. So that definitely tamped down the growth in that particular metric.

The next question comes from Abhi Sinha of Northland Financial. Please go ahead.

Just trying to understand the PGM market. It's interesting that you get into that. So maybe, you can just give some idea on what percentage of 2023 revenue comes from that. I'm trying to understand. What it takes for you to break the new market and in a new area. So maybe you can provide some color, like how that market you expect to unfold in 2023, '24, '25, something like that.

Yes, I can, I'll start, Prakesh, if you want to jump in. So first of all, one of the things that we did a few years ago is aligned with channel partners through distribution. And that gives us a very interesting footprint across the country. So, as we look at new markets, we have distributors and partners in those areas already. So that kind of CAC concern that you would have is eliminated through that. The other pieces, our software platform through Athena is highly translatable into new markets very quickly. So we believe we have the right technology offering for the market. We believe we have the commercial force to go in and execute in that market. And I just think that our ability with Athena to co optimize in a variety of complex value streams, as we've proven out in many markets, is highly applicable in PJM. And certainly, our coincident peak track record has been very good, if you look at some markets like Ontario. So just some of our past experiences, we believe we can execute in that market very effectively. And when you look at the size of that market being so much larger than California and our execution here in California has been very strong, market leading market share over the past few years, and then you look at some of the higher cost from a transmission standpoint, it's a really compelling opportunity early for the Company.

I would just add, this is Prakash that, we are optimistic about this market and value that we can create for our corporate customers in that geographies is tremendous. We are tempering our expectations around what gets installed in 2023 just given some of the interconnection timeline that you see in PJM. It's not exactly the case in behind the meter, but we wanted to be conservative there, but certainly seeing significant interest in the pipeline and early bookings as well.

Got it. Sure. So just one more as a follow-up. As we see more hardware I mean, hardware part of business continue to get a little bit more struggling part of it. So as you make move towards more of the software part, so how do we look at the trajectory here as the business transitions more and more toward the software only, I guess? I mean, when do we consider the business to be software only and what the trajectory looks like?

I'm not -- I didn't totally understand your question. But if I understood right, you are asking what's going to be the long-term distribution of hardware and software on contracts? Is that fair?

No, I was thinking like more as the business heads on fast forward few years, is it not like more and more towards getting more software only business? And are we heading towards that, if that's the case?

Yes. We think software and services is definitely going to be a bigger part of the business. I mean -- and I think that is, as we have discussed like as we move up the size graph in terms of how big of size projects that we are working on, it's less and less likely that will supply the hardware, which is all around the project that Mike is leading on the unit controller, the unified system that we are working on and are going to ship here this quarter. So I think longer-term, it's going to make sense for companies to probably do procurement for themselves on the batteries, the larger projects. The smaller ones, we think that won't be the case. But that's why I said earlier on, when I talked about the bookings growth on an absolute basis, $1.1 billion in 2022, obviously a slower growth rate in 2023 when comparing those two time periods. And I think over time, you are going to see more and more. I mean, it's an exciting part of the market for us. It's a much more capital light, which we've always talked about. It would be easier from a working capital standpoint if we're not taking all of that battery or the economic value onto our balance sheet. So it's definitely something that you should expect to see growing as the business matures.

Maybe we can assume that '25 or '26 would that be our software-only business or that's too aggressive?

I think we are still going to be selling hardware. I don't want anybody to hear that commentary and think like, oh, they are not going to be selling any hardware. I think we are not going to be selling hardware on the very largest projects. So make a distinction between those two things is there is going last year, we recorded over $300 million in hardware sales. I don't think that number is going to go to zero anytime soon. And with the forecast that we have given for 2023, you are looking at a number north of $500 million in terms of hardware sales. So it's definitely not a business, which we think is going to go to zero. It's just going to go, I think it's going to mature and that the larger projects with a more with a developer that what I would call would be fully integrated, that has procurement capabilities. We're not going to be buying hardware for them. But for many of these other partners that we're working with today, we will be.

I would add that the amount of our developers standardizing on Athena is growing. So I think even if they do that, we continue to see them having a need for software. So the Athena platform's ideal, and I echo Bill's comment, we are seeing many more software only deals building in the pipeline with our commercial team. And so, I'm bullish on that front as well.

This concludes the question-and-answer session. I would like to turn the conference back over to John Carrington for any closing remarks.

Sure. I want to thank everyone for joining us on our fourth quarter and full year 2022 guidance earnings call. We look forward to speaking with you during our 1Q call. And again, thank you all for joining.

This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.