Greetings, and welcome to the Stem, Inc. First Quarter 2025 Results Conference Call. At this time, all participants are in listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference call is being recorded. It's now my pleasure to introduce Ted Durbin, Head of Investor Relations. Please go ahead.

Thank you, Operator. This is Ted Durbin, Head of Investor Relations at Stem. Welcome to our first quarter 2025 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-Q, 10-K filing and other SEC filings and the supplemental materials which can be found on our website. 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, which is on our website. Arun Narayanan, CEO; and Doran Hole, CFO and EVP, will start the call today with prepared remarks and then we will take your questions. And now I will turn the call over to Arun.

Thanks Ted, hello everyone and thank you all for joining us today. We made significant progress advancing our strategic priorities in the first quarter with early success evident in our results. But before diving into these results and our outlook, I want to highlight important changes we have recently implemented in how we structure our business internally. Since becoming CEO, a key priority has been implementing organizational adjustments to realize our strategic shift. We have transformed our operating model by establishing four distinct business units that clearly define how we organize and run our business. Our four business units are Software, Professional Services, Managed Services and OEM Hardware. Each unit will have full P&L responsibility and accountability for their financial performance, including EBITDA and cash flow metrics. This new structure represents an intentional shift in how we manage our business and we believe it will deliver multiple strategic benefits. It empowers our leaders to make efficient, market responsive decisions about resource allocation and investment priorities. The new structure also enables more precise tracking of return on investment across our portfolio, allowing us to optimize capital deployment towards our highest growth opportunities. Additional details about these business units are available in our supplemental materials on the IR website. I'd like to once again emphasize that while these business units guide our internal operations, they may differ from external reporting segments. We look forward to sharing more about these changes and their impact in the coming quarters. Directly related to these changes in how we organize and run our business, on April 9, we announced a targeted 27% reduction in force that we expect to result in $30 million of annual cash cost savings, including an expected $24 million cash benefit in 2025. These reductions were thoughtful and consistent with our software…

Thanks, Arun. I'll start with a quick review of our first quarter 2025 financial performance. Overall, our quarterly results were in line with the expected cadence of our 2025 guidance that we announced on our last quarterly call. Total revenue was up 27% year-over-year, driven by strong growth across the business. Importantly, software revenue was up 17% versus Q1 2024 reflecting continued strong performance from PowerTrack and increased storage software activations. We generated a record GAAP gross margin of 32% and our non-GAAP gross margin of 46% was close to an all-time high. The significant margin expansion versus prior year evidences the value of our refined strategy focused on higher margin software and services revenue while reducing our reliance on battery hardware resale. Adjusted EBITDA for the quarter improved versus Q1 2024, not only driven by margin expansion but also by continued operating cost discipline. We generated $9 million of operating cash flow, which as Arun mentioned is the first quarter of positive operating cash flow. We think this milestone proves that the company is on the right strategic path. Additionally, we generated just over $2 million in net cash during the quarter, growing our cash balance to $59 million at quarter-end. We plan to remain disciplined with our dedication to cash conservation, margin improvement and working capital usage. Turning to our operating metrics. As we announced during our fourth quarter earnings call, we've introduced enhanced operating metrics that should provide stakeholders with better visibility into the key drivers of our financial results. During the first quarter of 2025, Contracted Backlog and CARR both increased sequentially, largely due to solar bookings. Total bookings were lower sequentially due to slight seasonality in this metric. We generally see heavier bookings in the second half of the year. We saw solid growth in…

Thanks, Doran. In closing, I want to directly address our team, our customers and our investors. First to our team. We have recently undergone significant organizational changes, including a difficult but necessary 27% reduction in our workforce. To those individuals who have departed Stem, we are grateful for your contributions. To our current team members, I recognize this period of change creates uncertainty and challenges. Your resilience, professionalism and unwavering focus on customer success during these changes has been remarkable and is part of what attracted me to Stem in the first place. Second to our customers. We remain committed to providing you with superior software and services that maximize the value of your storage and solar assets. We are doubling down on our commitment to enhance the features and functionality of our software products to deliver the insights and performance you need. Our financial position is getting stronger and we are all well-positioned to grow with you throughout the market cycles. Lastly, to our investors, we are appreciative of your support and trust in the company and that you are standing with us. We are now better positioned for sustainable growth. We believe that our refined product focus on our core software and services along with our streamlined organization, strengthen our path to profitability. With our industry leading solutions and dedicated team, I remain confident in Stem's future. With that, operator, let's open the line for questions, please.

Thank you. [Operator Instructions] Our first question is from Justin Clare with ROTH Capital Partners.

Hi guys, thanks for taking the questions.

Hi, Justin.

Hi, wanted to start off here, just on the bookings environment and how that's evolving. So given the tariffs, just wondering, how is your ability to secure, new storage bookings for U.S. projects potentially being affected? And then I'm just thinking through, for customers that might not have batteries in the U.S. right now, are your customers looking to contract, whether it's for, batteries that would be sourced domestically from Southeast Asia, or even potentially from China? Just wondering if it's. Are people in kind of a wait and see mode, or are you still seeing contracting in the current environment?

Thanks, Justin. It's Doran. I'll try to take a stab at this one first, but I'll open by saying, I guess it's just kind of a reminder. As far as looking at the overall guidance for the year, the OEM hardware sales, like the battery transactions you're talking about, are not a significant component of the business going forward. So while we're continuing to have really active dialogues with the customers that, we've got in our backlog and those who are close to PO. We're looking at all of the well, volatility and what the tariffs may end up looking like, et cetera. And we've been in direct contact with probably the three major OEM providers that we've been integrating with and spending quite a bit of time, on what the tariffs will look like. However, when I look at our overall plan for the year, the cadence of those types of POs at this point in time is really impacting our outcomes, at least not at this stage. I don't think, I can get into the nuances of particular countries, or particular directions at this point. But of course, as you know, we deal with both domestic and Chinese players there.

Right, right. Okay. I guess, what I'm trying to get at, is you may not be selling the hardware yourself, but if there's a limited supply of hardware, it might be a tougher environment for you to contract the software for storage projects. And so I guess, I'm wondering if that's being affected. And then I guess it's possible, it could be affected on the solar side as well, but maybe to a lesser extent, maybe could you talk about that in regards to solar and storage?

I'll tackle both of those. So the plan for 2025, is largely driven by activations of things that we've already got in the kind of call it contracted backlog or in CARR, where our managed service offerings are just really dependent upon activations. These are projects that batteries are - and we're, you know, they're going through the process of finalizing construction, commissioning, et cetera. And that's really kind of what we're looking at for 2025 on the storage side for managed services, when you move into solar. We - as you intimate, have not noticed a real slow down there in terms of our bookings. Bookings have been continued to be strong. We are constantly out there talking to customers, as you know, and we're not really seeing a significant impact there. And as the systems. First of all, software and services doesn't really hit tariffs. But really what we're talking about here is the pace of deployment, and the pace of deployment we haven't seen slowdown at this point in time, at this juncture. Our customers are still developing new projects, they're still mapping out construction of new projects. And our edge device and software solution is something that comes, kind of at construction time. It's a very small line item in the overall construction cost. And we feel very comfortable that, if we do end up with some tariff impact, we'll be able to pass along those costs to our customers without much resistance.

Justin, this is Arun answer the question. Can I just add one piece to it? I mean, I would like you all to just maybe think about our software, as something that adds value to our customers operations. And there's always an opportunity for us to continue, to sell additional value added components into that customer account as well. So activations and deployments in new deployments is one dimension, but continued engagement with the same customer is perhaps another dimension to think about as well.

Got it. Okay. One more just on the comments that you made in the prepared remarks. It sounds like you expect improving profitability quarter-by-quarter this year. Just wondering, if you could share a little bit about more what the drivers are. So are you anticipating primarily the improvement to come from the OpEx reductions that you've announced, or do you see revenue growth, or potential gross margin expansion as we move through the year?

Okay. Just to take a stab at it, before I hand over to Doran as well. There are dimensions to it as well. One is the nature of revenue and the fact that the cyclicality pushes the revenue towards the second half of the year, is one piece that affects operational profitability quarter-by-quarter. But then the other piece obviously is the way we are looking at managing our operating expenses. As well as opportunities that we continue to look at in that space, beyond the reduction in force and trying to bring efficiency, to everything that we do.

Justin, it's Doran. I would only add that that ability to really hone in on margins and operating expenses on a business unit-by-business unit basis, is now much more, clear for us going forward with the four business units.

Got it. Okay. All right, thanks guys.

Thanks, Justin.

Our next question is from Thomas Boyes with TD Cowen.

Appreciate you taking the questions. Maybe the first one just on the Brownfield opportunity that you highlighted in the prepared remarks. It's kind of a way to sidestep, interconnection congestion and things that have been, plaguing the energy sector at large. Are there specific geographies that you're targeting for first, or maybe I'm trying to get a better understanding of maybe the size of that opportunity?

So, this is Doran. I'll tell you, geographically speaking, I think that we've got some core geographies where we operated our managed service platform, and as you've seen our assets under management continue to grow. What we're seeing is a lot of opportunities, for the market shifting and changing providers in those particular cases. There's not a single geography where that is jumping out as being attractive. I think it's a little bit more broad-based, but it is very much connected to the geographies where we are already operating. Managed services as a business line requires you to one like a company to step up and stand up a platform, a rock the services individuals who need to be actually working, the software tools in order to actually bring value to the customers. And the more volume, we have running through in terms of megawatt hours, gigawatt hours, the more profitable that business line is going to become. And those Brownfield opportunities therefore, really do present a good opportunity for us. And we are, we don't have anything in particular to announce today, but we are pursuing a number of situations in that area.

Great. And I appreciate you.

Just one other dimension on it is, managed services and Brownfields is one thing. If you look at PowerTrack and the ability to deploy into PowerTrack. There are remarks that you've made maybe to think about it in three groups. One group is the C&I group or the C&I segment, which is growing and are dominating market share in that space. What we can do in the utility scale space as we bring PowerTrack EMS online, as well as the ability to grow internationally into other markets as well, sort of helps us look at an overall picture.

Understood. Appreciate that. Maybe my follow-up or my second question is just, could you speak to the nature of the PowerBidder Pro contract? The kind of removal from the assets under management. Was this from customers where since you would discontinue active development for the product that they elected not to continue? And then, was - I just wanted to better understand maybe the rationale for deemphasizing that product. Is it just the - it's difficult to differentiate market participation software. It's competitive and maybe not worth the time and attention. Just really interested for your thoughts there?

Thomas, this is Arun. You've mentioned many of the contributing factors in your question itself. As we look at a software strategy, we want to make investments based on the overall growth potential and our ability to execute and actually deliver that growth on a period-by-period basis. So looking at all of those factors, we think it's best for us to focus on PowerTrack and associated offerings. And that's what we're doing.

And this is Doran and I'll just add from a financial metric perspective, as you're looking at the numbers, you'll probably notice a slight decrease in the assets under management. On the storage side, the PowerBidder Pro contracts are fairly low ASP. And therefore we actually - we continue to increase our ARR despite the fact that we actually pulled those systems out. So that also speaks to some of what Arun was talking about there.

Got it. I appreciate it. Thanks. I'll hop back in queue.

Our next question is from Dylan Nassano with Wolfe Research.

Yes, hi, good afternoon. I just want to start with the cost reductions that were announced during the quarter. Can you just clarify to what extent were those reductions already contemplated when you originally issued 2025 guidance?

Sure. This is Doran. I'll just start with the quick comparison. Is that what we talked about in the last call was a 20% reduction in run rate end of '24 OpEx that we were mapping out. What we actually did was quite a bit higher than that as a result of the ultimate decisions that we made to realign the business units and realign our staffing accordingly. So, while we talked about 27% by headcounts, the dollar reduction there was closer to high 30s percentage. And when you kind of compare that to the 20% before, clearly we've kind of gone above and beyond. That's purely financial look.

Got you. Okay, thanks. And then for my follow-up, just looking at gross margins for the quarter, I mean, obviously some outperformance relative to guidance. Can you just give a little more color around specifically what kind of drove that this quarter? Was it revenue mix between hardware and software or how should we think about gross margin kind of trending through the rest of the year?

So I think we've talked about guidance. This is Doran. And we talked about guidance in terms of what our gross margin will look like. Q1 we came in above the non-GAAP gross margin range that we've got for the year. I think we're of course making some conservatism in there to ensure that we respond to the nature of today's macro environment. But at the same time, the straight answer is product mix. So less OEM hardware in the mix, higher software and edge device with higher margins. And that's the change in strategy, that's the change in business model and that's the way we expect to see things moving forward.

I would go back to what we are focused on. We're focused on selling those higher margins offering and that's what you're seeing there is the result in the earnings report.

Great. Thank you very much.

Thank you. There are no further questions at this time. This does conclude today's conference. You may disconnect your lines at this time. Thank you for your participation.