Greetings, and welcome to the Stem Inc. Second Quarter 2025 Results Conference Call. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to your host, Erin Reed. Please go ahead.

Thank you, operator. This is Erin Reed, Head of Investor Relations at Stem. We welcome you to our second quarter 2025 earnings call. Before we begin, please note that some of the statements we will be making today are forward-looking. These statements 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 and other SEC filings and 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 second quarter 2025 earnings release, which is on our website. Arun Narayanan, CEO; and Brian Musfeldt, CFO, 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, Erin. Hello, everyone, and thank you for joining us. Q2 2025 was a quarter unlike those prior as we took many steps to stabilize and position the business for future success and growth. We've delivered record software revenue and positive adjusted EBITDA for the quarter, refinanced our debt and significantly strengthened our balance sheet, continue to manage our operating costs, including a difficult but critical strategic reduction in force and executed on our software-centric strategy defined by our new BU structure. While achieving all this, we are also looking to the future, and we will announce an AI-enabled PowerTrack offering today. I will also touch upon the macro environment and guidance for the year. Let's delve into these topics now. I am pleased to report outstanding results for the quarter. We reported total revenue of $38.4 million for the quarter, up 13% year-over-year. Total ARR grew 3% sequentially and 22% year-over-year to $59 million, demonstrating continued momentum in our recurring revenue base. We entered into several new PowerTrack software engagements during the quarter, including Norbut Solar Farms standardization across their 50-megawatt portfolio and PowerTrack power plant controller and data acquisition support for Avangrid's 57-megawatt Camino Solar project. PowerTrack continues to be the industry standard for C&I solar asset monitoring. And looking ahead, we remain focused on driving PowerTrack adoption in international and utility scale markets. For storage, our strategic focus remains centered on software and services, particularly with brownfield opportunities for managed services that enable faster revenue conversion. This quarter, we saw this strategy pick up momentum and signed multiple brownfield deals with customers. The managed services team continues to deliver proven strategic advantages across the value chain to our storage customers. Professional services continued expanding during the second quarter with a number of new consulting engagements. This included…

Thanks, Arun, and hello, everyone. I'm excited to be back with Stem. I've spent nearly 3 decades in finance and operations leadership, most recently in software-related clean technology and energy. I spent over 5 years helping manage and build PowerTrack into the U.S. market leader in solar asset monitoring. And I'm excited to continue that journey as I see tremendous opportunity ahead as we execute our software-focused strategy into the solar and storage markets. My key strategic priorities as CFO are focused on profitable growth and cash management as we look to expand each of our key business segments over the coming years. Turning to our second quarter 2025 financial performance. Total revenue grew 13% year-over-year to $38 million. Notably, solar software continued its strong growth trajectory, growing 20% year-over-year and storage software and managed service revenue grew an impressive 53% year-over-year with 100-megawatt hours of new storage assets commissioned in the quarter. This quarter, we introduced a more detailed revenue breakout on our income statement in our Form 10-Q to provide enhanced clarity into our business. You can see it further highlighted on Page 6 of our supplemental materials. We again achieved strong gross margins this quarter with GAAP gross margins of 33% and a record non-GAAP gross margin of 49%. This expansion reflects the increasing mix of higher-margin software and services in our revenue base. GAAP operating expenses were down 17% quarter-over-quarter and cash operating expenses were down 20% quarter-over-quarter and 39% year-over-year. These OpEx reductions were primarily the result of the completion of our targeted workforce reduction in the second quarter that resulted in annualized savings of over $27 million or approximately 35% of our personnel expenses. Cash operating expenses of $18 million this quarter exclude the $6 million in onetime expenses from this reduction in force.…

Thanks, Brian. As we look ahead, I remain highly confident in Stem's trajectory and our ability to deliver sustainable, profitable growth. Our new business unit structure is operating effectively with each unit driving focused results. Our strategic priorities are delivering measurable outcomes and our strengthened balance sheet provides the financial flexibility to invest in compelling growth opportunities. The clean energy transformation continues accelerating globally, creating a massive market opportunity. Our market-leading software platforms, industry-leading solutions and dedicated team positions us to capitalize on this transformation. Combined with our enhanced financial foundation and proven ability to navigate macro challenges, Stem is exceptionally well positioned for the road ahead. I want to thank our investors and customers for their continued confidence and trust in us. And I want to take this opportunity to also express my gratitude for the hard work and contributions of Stem's employees in achieving these results. With that, operator, let's open the line for questions, please.

[Operator Instructions] And our first question will come from Justin Clare with ROTH MKM.

So I guess, first off, I just wanted to start with -- so you're shifting the business and you have a much greater emphasis on software products here. So just wondering how we should think about hardware sales moving forward. Any sense for what the battery resale revenue could look like in the back half of the year? And then curious on if you're continuing to book orders for battery hardware or at this point and how that's evolving here?

Justin, can you just repeat the last part of the question? This is Arun. I got your first half.

Yes. I'm just wondering if you're continuing to book battery hardware sales, if that's something that's continuing here or if you've deemphasized it and it's primarily a software focus?

Okay. I understand. Justin, this is Arun. Thank you for the question. I want to reaffirm our guidance. In our supplement, we state that we are aiming to achieve up to $35 million in hardware sales. But maybe more importantly, I think it is true that we have pivoted to becoming a more software and services-centric as an organization. And for me, what is really encouraging is that, that strategy is playing out, and we are able to deliver on the software outcomes that we have promised, and that comes with the associated gross margins as we had hoped to achieve as well.

Got it. Okay. So then I guess just maybe on a kind of separate topic here. Just wondering, C&I solar, I think, is the largest share of your revenue today, but you've talked about utility scale solar and obviously, you have a storage business and hybrid business as well. Wondering if you anticipate the mix shifting? And if you could just speak to the progress you're making on rolling into utility scale solar, for example.

Yes, it's a really good question. So each market has different characteristics. If you look at the C&I solar space, PowerTrack is a very strong player in that, and we have a good set of customers who use the technology and very positive feedback that we receive. Utility scale is a -- if you imagine the market, it's basically a market in which solar assets are deployed alongside a storage asset. That's what characterizes the utility scale space. And for us to be able to play in that market, we need a compelling offering, and that offering is PowerTrack EMS. And PowerTrack EMS allows us to bring the excellence that we have within the solar capabilities of PowerTrack but allow for that to be deployed alongside the management of energy in the storage space. And that's why this product that we're releasing very soon is so exciting for us. It allows us to tap into that space. In the storage space, EMS can be used as well as the fact that the strength that we have in Stem is that we are able to provide managed services to our customers in the storage and hybrid spaces. And in these spaces, we rely on the capabilities that we have in technical experts in the organization, but also the fact that we have technology like Athena that's used to make managed services so successful. And then across the full spectrum, including projects that have not been commissioned, we are able to bring professional services there.

Got it. Okay. And then just one last one here on OpEx. I think I heard that it's expected to continue to decline through the end of the year here. I was wondering where do you think you could be at the end of the year? And what could be kind of run rate be as we move into 2026?

Yes. Thanks. This is Brian. I'll take that one. Yes, we obviously don't give future guidance on kind of forward-looking statements that way. But I can say, as we get into the second half of the year, we are going to continue to reduce our cash OpEx. The team is still working on what I would call non-personnel related savings. So there's a continued effort to bring that OpEx in line with the size and the revenue and the margins we're generating. So you can look for that. I think we do use cash OpEx. I think we showed that it went down to over $18.3 million this quarter compared to $29 million year-over-year. So that's a great decrease already. We do expect to -- you'll see more coming into the third quarter and that we will manage toward that run rate.

I believe we have some investor questions, if management would like to go over those.

Yes. I realize today is a busy earnings day, and I'm trying to represent some of the investor questions as well as questions that we receive frequently from retail investors online. And maybe just a couple of questions, Brian, you can maybe comment on them. Can you give a little bit more color to the recent debt deal and why it is such a big important transaction for us?

Yes. Thanks. Yes. So as we talked about in the call, this is an important improvement to our balance sheet for this company. We did an exchange of about $350 million of aggregate principal debt in this company and converted that into $155 million of debt. And there's really 2 key benefits around that. First, we obviously reduced the outstanding debt by approximately $200 million. It's really a gain and a capture for the company that we won't have to deleverages the company significantly. Secondly, in doing so, we pushed out the maturity. So we pushed out the maturity of about $297 million of debt that was due in 2028 and reduced it to about $68 million in 2030. So that extends our first debt maturity now is significantly reduced and the majority of this is now 5 years out. So it's a great, I think, win for the company. It comes with very reasonable covenants, and I think it was a really good strategic move by the company to kind of get that taken care of and deleverage the balance sheet.

Good. And then one other question that we get is around cash, right? If you look at cash OpEx for the quarter, we were able to manage the cash very well, but the ending cash position is lower. But how does that reconcile with how we think about growing the company and end of year guidance that we have stated of 0 to 15.

Yes. So we reported, as you saw there, about a $21 million operating cash flow reduction in the quarter. And if you look at what that -- what drove that as compared to a $4 million positive EBITDA quarter, really was driven by a use of working capital outflows. If you look at our balance sheet or our cash flow, you'll see that we actually, for the first time in 4 quarters, increased accounts receivable, which is great. It's just due to timing of deals, and this is all current. So we're happy to see that, that the business is stabilizing on that front. And on the other side, we made some pretty significant paydowns against just vendor payables and our accounts payable as well as onetime payments, for example, the risk that we talk about, about $5.9 million of cash outflows that had to go out of the business to kind of help right size the cost of the operating expense of the company. So as you look at the balance sheet now, you're going to start to see a lot more stabilized working capital as we've kind of now with the focus on software and the move away from this OEM battery business, I think you'll start to see working capital stabilize, and we will expect to start generating cash flow into the second half.

Okay. Very good. Thanks, Brian. So with that, I want to thank everyone for joining our second quarter earnings call and look forward to speaking with you during our third quarter earnings call in the fall. Thank you, everyone.

Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines and have a wonderful day.