Ladies and gentlemen, greetings, and welcome to the Stem, Inc. Third Quarter 2025 Results Conference Call. [Operator Instructions]. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host for today, Erin Reed, Investor Relations Manager. Please go ahead.

Thank you, operator. This is Erin Reed, Head of Investor Relations at Stem. We welcome you to our third 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 third 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 today. Q3 2025 marks 12 months since we announced our strategic realignment, and I'm proud to report that our transformation continues to deliver tangible positive results. Today, we reported third quarter revenue of $38 million, up 31% year-over-year, with ARR growing 17% year-over-year to $60 million. We achieved our second consecutive quarter of positive adjusted EBITDA and generated positive operating cash flow. Our software-centric strategy is delivering results. The success of our strategic transformation is evident in our consistent earnings performance with steady growth in software and services revenue and continued improvement across key profitability metrics. As we maintain disciplined cost management, we believe we have achieved operational stability and our high-performing team is laser-focused on execution and results. Today, we are also refining guidance to reflect our revised forecast, which we will go into more detail later in the call. The key takeaways are we have reduced the historical volatility in our business. We have derisked the low end of nearly all guidance ranges, and we feel confident about the stability of our business. This quarter also marked a pivotal moment in our evolution as we unified our corporate identity under the Stem brand and streamlined our entire product portfolio within the comprehensive PowerTrack suite. This transformation goes far beyond surface level changes. It reflects the deep integration of AlsoEnergy's solar expertise with Stem's storage and AI capabilities. For our customers, this means that we approach them with a single voice with superior technical solutions across their entire energy portfolio, covering solar, storage and hybrid assets alike. Combined with Stem's industry-leading subject matter expertise, this creates an unparalleled customer value proposition. We welcome you to visit our redesigned website at stem.com to see this unified vision in action. Each…

Thanks, Arun, and hello, everyone. In the third quarter of 2025, we saw solid financial performance across the business. Total revenue grew an impressive 31% year-over-year to $38 million. PowerTrack software revenue continued its strong performance in the third quarter, growing 11% year-over-year, and edge hardware grew a notable 18% year-over-year. As a note, this quarter with the introduction of PowerTrack EMS for hybrid and storage sites, we have redefined solar software revenue to PowerTrack software revenue as our PowerTrack software revenue will now include all customer-facing SaaS revenue generated from solar, storage and hybrid assets. Project and professional service revenue decreased year-over-year as the third quarter of 2024 benefited from approximately $5 million of onetime DevCo revenues. As Arun discussed, managed service revenue was also down year-over-year due to onetime overperformance in the third quarter of 2024. Although we are deemphasizing the business as part of our software-centric strategy, battery hardware resale brought in $4 million in revenue this quarter. You can find this revenue detail in the disaggregation of revenue footnote in our Form 10-Q and supplemental materials, which provide enhanced clarity into our business. We again achieved strong gross margin this quarter with GAAP gross margins of 35% and non-GAAP gross margins of 47%. This expansion reflects the increasing mix of higher-margin software and services in our revenue base and improving hardware margins for both edge hardware and battery resales. Our disaggregation of revenue provided in our supplemental materials now includes gross margin ranges for each revenue category to provide more clarity for investors and analysts. GAAP and cash operating expenses were both flat sequentially from the second quarter of 2025. Cash operating expenses were down an impressive 47% year-over-year. These reductions were primarily the result of the difficult but necessary workforce reduction that took place in…

Thank you, Brian. Our team delivered strong execution across the business this quarter. One year into our strategic transformation, the results are evident. Revenue growth, margin expansion, sustained profitability and positive cash generation. We established clear objectives for this transformation, and we are achieving them. The clean energy transformation continues accelerating globally and our industry-leading software platforms, solutions and dedicated team positions us to capitalize on this transformation. 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 employees in achieving these results. With that, operator, let's open the line for questions, please.

[Operator Instructions]. The first question comes from Justin Clare with ROTH MKM.

So I wanted to start with the guidance. And so with the update here, it looks like you're guiding to the midpoint or better across all the metrics. But just looking back to what you said last quarter, it sounded like you were tracking toward the high end of the guidance based on your comments from last quarter. So just wondering, has your outlook moderated somewhat given the new ranges? Or maybe you could speak to the potential to kind of deliver at the high end.

Justin, this is Arun. Thanks for the question. Let's address your point. The way we show the updated guidance on Slide 6 in the exhibit, you can see that we are actually still tracking towards the midpoint or high end of all the ranges. Only the deemphasized and nonpredictable sort of OEM hardware resale business, which was ranged at [ 0 to $35 million ] is now ranged between up to $20 million. I think that difference is sort of, you could say, the main difference. The rest of it is just a tightening of the ranges. And I would say that that's the main interplay between the 2 quarters.

Okay. Got it. That's helpful. And then just on the gross margins, it looks like in Q4, you could see a slight compression. I'm wondering, is this only really due to a mix shift with a little bit higher sales of the battery hardware or should we anticipate any other notable change to the gross margins by business line? And then I guess just looking beyond Q4, how should we be thinking about the gross margins by business line? And definitely appreciate the added disclosure here that you provided this quarter.

Thanks, Justin. This is Brian. Yes, I think when you look at the new disclosure there, hopefully, you see detailed on Page 12, when we talked about a little bit about compression in Q4, it's just going to be mix. Q4 is our largest delivery quarter for our edge hardware to a slightly lower margin. So that's really what will compress it in the fourth quarter kind of just in that period. As far as the out periods, we don't give guidance until Q1, but I think you can kind of see the 3 and 9 months trends. And so we do expect to keep working on margins and improving them over the next coming years, especially as, again, we're deemphasizing that OEM hardware, but the other categories are pretty stable and will continue to improve.

Got it. Okay. And then maybe just one more. Bookings in Q3 modestly lower than Q2. But again, that sounds like it's more a deemphasis of the battery hardware sales. But wondering with the release of PowerTrack EMS, can you talk a little bit more about the demand that you're seeing, the potential to see an increase in bookings potentially in Q4 here and just what you're seeing at this point?

I can take a stab at that. This is Arun again. We are very excited about PowerTrack EMS, as we have said in the prepared remarks quite a few times. It opens up new markets for us. And the market -- the subsegment sort of that we are targeting is the small utility scale sites. So sort of 20 to 100 megawatts in size. As we look at the initial energy around it, we are quite enthusiastic about it, and we are quite glad that our product fit is good. As PowerTrack EMS becomes a more meaningful portion of the revenue, we will provide more breakup and details around that. I think that's sort of our thinking at this point.

Our next question comes from Jon Windham with UBS.

Congratulations on the back-to-back quarters, probably adjusted EBITDA. I just have 2 questions. I'll ask one at a time. Any -- would love any commentary or color you're getting from your customers. There's obviously a lot of moving parts going on right now, particularly around batteries with [indiscernible] , but also with solar and some of the [indiscernible] guidance. Just love your thoughts on what you're seeing in sort of the top of the funnel, how demand looks in general for the industry and for you?

John, thanks for the question. This is Arun. I can take a stab at it. We are maintaining the momentum in our engagement with our customers. And we do see that the engagement levels that we have in terms of being able to drive our conversations around PowerTrack are maintained. So the comments you're making on [indiscernible] and other points are valid, but we see reasonably unchanged sort of conversation momentum in customer engagements.

Perfect. And I guess the second question, may I love this. You're into the turnaround, you're delivering on gross margin expansion very nicely. EBITDA is positive. How do you think about your goals for them because the market is always on to the next thing. When do we get to operating income positive, when do we get to net income positive? Once how do you think about that path or alternatively, if you don't want to answer that question, which I would understand, is how do you think about laying that out to investors and here's the path we're on a time line to sort of get longer term. Clearly, we had a lot of success here in the first year with the strategy shift. But I think the questions from investors are increasingly -- how does this progress down the income statement to positive numbers all the way down? Appreciate any thoughts you have on it.

It's a really good question. Let me take 2 or 3 parts to it. First of all, I think this quarter is the 1-year anniversary of the shift to the software-centric focus for the company. And you can sort of see that, that strategy is paying off in terms of stabilizing the revenue margins and being able to have a predictable business. The second piece is I've been in this role now 9 months roughly. And there's been a focus on managing our costs and driving a push towards profitability. Now I think we'll give more guidance on this in the next call. But maybe one thing I can direct you towards is a note that we put out towards investors and stakeholders in one of the press releases in the early part of September, which sort of explains our thinking in terms of our overall product strategy, in terms of our overall service strategy, how we look at international markets and what our general approach is towards having a very continuous full market coverage solution all the way from C&I to the smaller scale utility projects and then going up from that space to what PowerTrack Optimizer provides in terms of the high end of that market. So I think it's an elegant story. And I would sort of encourage you and the other listeners to go back to our website and read that note that we have put out towards investors that comes with an attachment and a very nice presentation.

Our next question comes from Thomas Roche with Barclays.

This is Tom on for Christine. Congrats on the great quarter. So I guess I just first wanted to ask, do you foresee the business benefiting from the hyperscaler data center build-out in any way? I know you've typically been more focused on C&I and smaller utility scale customers, but has there been any internal strategy discussions around trying to go after hyperscaler customers with either your solar or storage offering?

Yes, Tom, really good question. This is Arun. One of the things I love about Stem is the team is very energetic, always focused on new business models, new business opportunities. We continue to target all of these opportunities with a lot of bigger -- what we're seeing in the data center markets, which typically prefer sort of natural gas solutions is that there are early indications that it's going to come around towards more renewable energy plays. So it's an exciting development as that shift seems to be happening, and we continue to watch that market space and see how we can play into that effectively.

Got it. Understood. And then just one more quick one for me. So you guys have -- you've cut a fair amount of OpEx here in the last few quarters. Would you say that it's safe to assume that we're at a decent quarterly run rate here on a go-forward basis?

Yes. Tom, this is Brian. I can take that one. Yes, I mean, as you've seen, right, we've cut cash OpEx, we've cut about 47% year-over-year. We reported just over $20 million of cash OpEx this quarter. I think we're done with the fundamentally large execution of that, that you've seen in the second quarter, we took a really large chunk out of the team with a very difficult but motivated strategy. But we are now -- we continue to look at other opportunities for savings. An example, this quarter, we exited our India facility, which was just oversized for what we needed. So the team is working on it. We'll always kind of manage cash just in the fundamental blood of this company now to make sure that we're operating that way. So we'll expect -- we're not really giving guidance yet, but I would say this quarter's trend is a good indication, and we'll keep working it down.

Ladies and gentlemen, this concludes the question-and-answer session. I would now like to hand the conference over to Arun Narayanan, the CEO, for the closing comments.

I want to thank everyone for joining the third quarter earnings call, and we look forward to speaking with you during our fourth quarter and full year 2025 earnings call next year. Thanks, everyone.

Ladies and gentlemen, the conference of Stem, Inc. has now concluded. Thank you for your participation. You may now disconnect your lines.