Q1 2022 Stem Inc Earnings Call
After the department of Commerce opened an investigation into the imports of solar cells and modules from four key southeastern Asian countries. The.
The inquiry focuses on whether those imports are circumventing the anti dumping duty and countervailing duty orders on certain solar components from China.
We are working with our customers to manage any potential impact of project timelines and engaging with the solar energy Industries Association in other forums to communicate our position to stakeholders to be clear, we do not support additional tariffs on an industry that is integral to meeting climate mitigation and resilient goals.
And that supports jobs for hundreds of thousands of people.
As a team our focus is to manage through risks and uncertainties like the enquiry and this slide outlines some of the potential impacts the data was developed by our operations teams, who evaluated each project across the full contracted backlog with our customers to confirm project detailed and key milestone status.
Starting with energy storage for this year, we estimate over 85% of the remaining 2022 total revenue at the midpoint of our guidance will come from recurring revenue and contracted Standalone storage projects, we do not expect those projects to be impacted by the inquiry of the remaining projects that are <unk>.
Solar plus storage, we believe virtually all of those customers have secured their solar panels.
And we will closely monitor project status finally, our business development team continues to assess additional international markets and as recently announced we are launching the first virtual power plant in South America with an expected completion in the second half of 2022.
On the solar asset monitoring side, we expect a larger impact to our utility scale or front of meter business from the circumvention uncertainty we are driving greater uptake in behind the meter deployment. In addition to greater international market volumes importantly related to our solar attached business we.
<unk> impacts from this action to result, largely and project delays not cancellations underlying demand for solar and storage is incredibly strong and the project timelines might be hampered in the near term by regulatory uncertainty, we expect it to bounce back sharply once these issues are resolved.
The executive teams that stem and also energy had been active in the renewable energy industry.
For several decades and have successfully managed through various cycles of volatility. In addition, we believe our customer and market diversification strategy provides greater certainty into our financial execution.
Please turn to slide seven for an update on our supply chain.
Starting with energy storage in early March we lock in the remainder of our 2022 supply requirements to meet our revenue goal and made progress on our supply requirements for 2023 note all changes in commodity and freight cost or pass through to our customers. We anticipate the CVD inquiry.
Lead to additional battery supply availability in the second half of 2022 as it may cause developers to delay solar plus storage projects. We've received incoming offers from hardware suppliers and anticipation of project delays. We believe this may lead to battery price deflation as suppliers build inventory.
And bring additional capacity online.
We continue to expect battery availability to improve in the coming years as you see in the graph on the bottom of this page a recent analysis from wood Mackenzie forecast supply to outstrip demand in 2023 and that gap will widen in the following years this bodes well for availability and pricing for our.
Customers, which should stimulate additional demand and opened new markets on the solar asset performance side, we're seeing some project delays in the near term related to large utility scale projects because of the dose inquiry as mentioned earlier, we have placed additional focus on the <unk> in international markets and we are.
We'll also evaluate near term cost containment measures to protect our profitability.
On the permitting and interconnection process timelines our operations teams continue to focus and support our customers to advance their project time lines, we have not yet seen a normalization of these timelines to pre COVID-19 levels now moving to slide eight we talked last quarter about driving operational leverage across the business and this slide.
Highlights that leverage and our technology platform. The investment we are making in our software development team enables growth and margin expansion through capabilities that are designed to quickly scale across all markets. As an example, the flexible market framework of the Athena bidder allows us to rapidly configure custom.
<unk> projects and execute trading strategies for participation in multiple wholesale energy markets. This framework will allow our customers higher velocity to enter new markets with minimal additional software development by stem. For example, we opened the multi gigawatt, Texas ERCOT market through <unk>.
Scam also energy platform will create competitive differentiation as we leveraged data on over 32 gigawatts of projects across over 50 countries.
We expect this to drive substantial cross sell opportunities with an unmatched set of capabilities and technology edge.
Thank you and now let's turn the call over to Bill Bush, our Chief Financial Officer.
Thanks, John starting on page 10, with our results for the first quarter of 2022.
But before I begin remember that we closed the also energy acquisition on February 1st saw results only include February and March financial results from Austin Energy for Q1.
We reported revenue of $41 million, which was a 166 per cent increase versus the $15 million in the first quarter of 2021.
Most of the growth came from the storage hardware sales on FTM and btn partner projects and in about $10 million from the addition of also energy. We also recognize approximately $10 million of high margin software and services revenue, representing 24% of total revenue for the quarter.
The revenue he recognized in the first quarter exceeds our revenue for the entire year of 2020, which underscores the tremendous momentum in the business.
Our gas 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 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 2003 per cent increase.
Our margins benefited from a greater share of the high margin software and services revenue.
That's 16% margin is squarely in line with the 15 to 20 per cent guidance, we provided in February .
One important to note I would like to make here is for investors to refer to the reconciliation of gap and non-GAAP financial measures included in the appendix of the supplemental slide in particular, we have implemented certain adjustments, including additional allocations of operating expenses and the cost of goods sold for the calculation of non-GAAP gross margin.
That impacts compare ability of these figures adjusting for those changes, resulting Q1 pro forma gross margin would have been approximately 21%.
Net loss was $23 million versus a loss of $83 million in the same quarter last year that swing is almost completely the result of a large non-cash loss in the first quarter of 2021 from the then outstanding Comstock warrants. We retired substantially all of those Lawrence last year, and we do not expect a.
Getting charged like that in the future.
And lastly, adjusted EBITDA was a negative $12.8 million versus a negative $3.2 million in the same quarter last year. Adjusted EBITDA was negatively impacted by higher operating costs from additional hiring personnel related expenses costs associated with public reporting and related expenses as we continue to build on our teams.
And advance our technology roadmap to take advantage of market opportunities.
Moving from our financial results to the operating metrics on slide 11, a backlog more than doubled year over year with from $221 million in the first quarter of 2000 $21 million to $565 million in the first quarter of 2022.
The backlog increased possibly 26% on a sequential basis from the period ended December 31st 2021, the largest driver of the backlog increase was $151 million of new bookings in the quarter offset by revenue recognized during the quarter as well as some adjustments and amendments to book project configurations.
We believe the backlog gives us an excellent visibility into the short and medium term and particularly.
Major of 2022.
Ah contracted EUM on the storage side of the business grew from one one gigawatt hours in the first quarter of 2021 218 gigawatt hours in the first quarter of 2022, that's a 64% year over year increase in again, driven by our strong execution on the sales and operating side of the business.
Operating ohm on the solar asset performance monitoring side of that ended the quarter at 32.4, Gigawatts, which provides a strong foundation for growth and cross selling we believe that the opportunity to bring the Athena platform to the power track customers represents a significant cross sell opportunity as those customers look for additional revenue.
Positively impact the IRR of their projects.
Contracted annual recurring revenue or car.
Ended the quarter at $51.5 million. This software metrics showcases the importance of the Athena and power track network and services, we offer our customers that drive long term value the growth in this metric underlies the transition from a predominantly hardware revenue model to one focused on low churn high margin differentiated software Sir.
Mills.
We ended the quarter with $352 million in cash on the balance sheet as in this quarter, you'll see us strategically deploy our cash to secure storage hardware for our customers and drive greater adoption of high margin recurring revenue consistent with industry forecast, we see additional supply coming into the market in 2000.
23, and it was a result expect less cash utilization for supply chain activities in the medium and long term in the interim we are also evaluating other structures to reduce the cash burn associated with our purchases of energy storage systems.
Turning to slide 12.
As John mentioned earlier, we are reaffirming our guidance for the full year 2022, we're off to a fast start on the revenue side, particularly the $41 million this quarter is $9 million or.
Or 29% above the high end of our guidance, but we are well positioned across all of our metrics for a successful year or 16% gross margin for the quarter is in line with the 15 to 20 per cent range are bookings are on track and our operating expenses are in line with our expectations.
The biggest change in the environment, we have seen since we provided our guidance as the department of Commerce investigation as John mentioned earlier, the diversity of our customer base and and markets will help buffer some of the potential impact on our results. However, we will also take proactive steps to protect our revenues and profitability, including a refocused commercial fs.
Synergistic selling and the potential cost containment, while continuing to invest in people and process. The scale are fast growing business and as John mentioned demand remains very strong while.
While the impacts of the department of Commerce investigation are yet known we expect any potential weaknesses in our solar attached businesses of 2022 will have a catch up effect in 2023.
Turning to slide 13.
This graph highlights strong operating leverage we expect in 2022 with operating expenses dropping to 27% of revenue versus 45% in 2021, we.
We expect this operating leverage will continue in 2023 and beyond I won't read all of the points on the right hand side, but suffice to say we are focused on using our existing software tools and personnel to maximize new high margin revenue streams, we expect to leverage the newly acquired internationally infrastructure should that drive technical innovation and <unk>.
<unk>, especially with our teams in India we.
We look forward to providing additional details on our financial outlook. As we are currently in the midst of our long range planning process aligning the entire organization is market trends and growth opportunities an important component of this process is accelerating operating leverage and profitability. We plan to provide additional context and discussion of these plans and a fourth.
Coming analyst day later this year.
Let me turn the call back to John for some closing remarks.
Thanks, Bill wrapping up on slide 14, with our key takeaways for this quarter's performance, we close 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.
1%, 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 are unique capabilities and technology leadership is highlighted in the pricing power.
We are reiterating our full year guidance and believe the value of our customer and market diversification strategy, including growing momentum and Standalone storage provides greater certainty into our for neutral execution we.
We will continue to closely monitor and manage any potential impacts arising from the solar a D. C V. D 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 also energy.
On track and we expect to see traction and generating joint booking wins. This year. In addition, we are excited by the operating leverage of expanding software development customer and engineering support and finance headcount via the recently acquired infrastructure. It also energy India.
We are excited about the momentum specific DSG 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 them and also energy 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 focused on execution has resulted in 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 lines for questions. Please.
Absolutely we will now begin the question.
If you would like to ask the question. Please press star one on your telephone keypad.
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Frequently asked questions I'd like to <unk>.
The first question comes from Brian with Goldman Sachs.
<unk>.
Hey, guys. Thanks for taking the questions and.
And kudos on the strong start to the year.
I guess with that is 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 nice pick up year on year as well as Q on queue.
You're keeping the 15 to 20.
Can you kind of walk us through the thought process ally why no real margin expansion implied here for the rest of the year here, even though you started off the year.
Pretty solid even on a low volume quarter here.
Okay.
Hey, Thanks, Brian I. Appreciate the question I think with respect to the gross margins I mean, I think one thing for sure. That's true as we are guided to the full year in the 15% to 20% in 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 a.
Another look at the guidance from that standpoint.
And 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.
Well.
Is it mix is it costs like what what would keep be 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 good.
Good start to the year here, you got a lot of volume growth embedded in.
For the next several quarters.
I guess what are some of the puts and takes around cost expectations as well as maybe mixed center. The key drivers here on the margin view.
Well I mean, certainly the software services are going to be the thing to drive his margin of error I think we've been pretty consistent and talking about that.
I think there is obviously the the highest revenue item is on the hardware and so there's been a lot of movement in terms of pricing.
Yes.
Lot of supply chain.
Choppiness, which we've I think work through pretty successfully in terms of getting our supply in place for the full year. So I think from that standpoint, we're we're feeling confident about where we are for the year.
And we feel very comfortable with what's going on on the solar side lot of.
I think there is.
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 the nice uptick in car again.
Metrics here that you are starting the year off pretty pretty well on.
How much of the 51 and a half million in car came from also energy it sounds like in the release that was a decent part of it. So I'm just trying to get the the mix. There and then you are already at the low end of guidance until most for 2022 year and the 60 to 80.
Maybe similar question why not.
As much of a ramp you're implied over the next few quarters, given where where you're starting off already at the.
Close to $52 million a car in Q1. Thank you.
Yeah. So I mean that we talked about this in the year and call around around $24 million was attributable to the also energy business.
And I think in terms of updated in the guidance I think kind of thing.
I'm kind of comments a little early.
Let's get a couple more things 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 a reflection of course in the backlog, which is a great metric.
For us in terms of short and medium term performance of the business. So stays taken for that and we'll certainly keep you up to date as we feel confident about changing numbers.
Okay. So roughly 7 million organic car growth in 24, inorganic if I have the numbers correct.
Yeah, actually a little bit more than that.
On the on the stand legacy said.
Okay I'll take the math offline. Thank you guys.
Excellent.
Thank you.
The next question comes from David Peters with Wolf Research.
<unk>.
Good afternoon everybody.
First one for me has just gone back to a strong start on sales in Q1, you originally got it so I think.
Seven and a half of the total revenues hitting in Q1, but obviously you came in well above that should we extrapolate that to me in that you're at least trending towards the top and again understanding it's still early or was there some sort of timing impact pulled revenue in the queue on.
I would I would say that and first thanks for the question I appreciate that David.
I think it's too early for us to say that we're going to end the.
Hi, 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 other occurring in Standalone site 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 in the high end or mid range, we're still very much targeting the mid range for business.
From a metric standpoint, I think you can kind of see that throat.
Great. The the other question I had was just related to that.
The last I heard from you guys. The bookings target for 22 sounded like it could be on the conservative side in Q1 booking certainly look strong.
As well ahead of your 20 per cent target, but this was obviously before the DLC is investigation. So maybe you could just talk to any updated thoughts there and has there been a shift at all in STM versus BPM as a result of August .
David John Kerry from here on the bookings front, you get 151 million and again, that's nearly triple the same quarter of 2021, the mix was 90% up to you in 10% <unk>.
<unk> as you might recall the fourth quarter was 95 five.
From a pipeline standpoint, we're running about.
Little over 80% side of the meter with.
With a 12 month pipeline of around five 2 billion in 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 has continued to see acceleration.
As it relates to.
Some of the DB CVV 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 and hardware and recurring fast revenues gets us to the midpoint of guidance. So.
We do feel good about a year and again I think it really highlights just the diversity of a 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.
To our shareholders industry.
Alright, and the last one if I could just for also energy to power track you mentioned you guys were.
Implementing price increases.
We expect that to be incremental to the gross margins you highlighted initially for the business.
I guess in other words are you able to or something offsetting that at all or are you just able to flex guy pricing power given the market position. Thanks.
Sure and I'll I'll turn it over to Bob It's great to have have you on board for the call. Bob. So go ahead and take that one.
I appreciate that question. So it is above schafer, 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 Chern and further we've received no negative feedback.
So we're excited about that we really think that the technology leadership that we have allowed us to to do this and continue to act as a trusted advisers to our customers.
Great I'll pass long thanks.
That's good.
Thank you.
The next question comes from Joseph Oh, Sir.
Guggenheim.
Mine is awesome.
Hello, everybody and let me add my congratulations to the root beer great Great performance a couple of questions first 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 I know some of <unk>.
Does your folded and also but I'm just wondering how you feel about working capital management as you as you work through the the year or is this kind of as high as we are going to see them or or there may be some more money.
Money that gets pulled into it cause it was working capital account and then I have a follow up.
Yeah. Thanks, Joe for the question there in terms of working capital.
I think as we look at what happened throughout the quarter comparisons last year is that the hardware side of the business is growing so it really reflect those changes that you mentioned you're really reflect the growth.
<unk>.
EV opportunity. So I mean, I think it's really.
Situated with the amount of investment that we're going to make.
And hardware throughout the quarter, So I think.
Though I'm one of the things that we talked about in the release was that we expect to see lower utilization longterm with respect to these charges hardware opportunity. So I think that's really where we look at is that.
There could be some short term increases, but longterm less.
Utilization of working capital for hardware purchases.
Okay, but you are <unk>.
Still comfortable with.
<unk> is going to be working capital one that the cash levels and so forth. It certainly seems like it what's wrong.
Yeah, no, we're very comfortable with that.
Okay.
The next question is if we look at the Brookings and we did just touch on the F. T M.
<unk>, obviously, you've got supply security, which is great, but lots of other web district considerations out there just wondering how you're feeling about this kind of bookings.
The installation wag that you see in your business how long has it taken you actually get get this stuff on the ground.
Yeah, we really haven't seen a significant.
Modification or change in that part of the business I mean, we have we.
I think we've talked about this where we've run into more problems as the interconnection permitting side of the business as opposed to the logistics and getting it through report important to note that to the extent there are any changes in costing.
Pass through to customers so to the extent that we had any of those issues that were reflected in higher cost those were not part of our P&L, but I think that's 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-19 related delays on on the project site.
[noise], Okay. Thanks, and then just a final one if we look at the composition of bookings.
You've talked some of the materials, we put out in the past.
You've talked about kind of a hardware service breakdown could you maybe give us some color as to what this current quarter bookings.
Number of it looks like I'll need to be that breakdown.
Yeah, it's really holding even with what we traditionally said 60 40 hardware software.
And of course that does not include the market participation component.
Right. Okay alrighty, thank you very much.
Okay. Thank you.
Thank you.
Next question is from <unk> This morning Sky.
Hmm.
Hi, Thanks for the time.
First question was on the F. T M pipeline I was curious if you could break that out maybe between solar plus storage opportunities and more standalone storage opportunities.
I'm, sorry, I couldn't hear who did you say that the backlog or the.
Bookings.
Yeah.
The backlog are in the pipeline for for the SPM business, just curious mix between solar plus storage versus Standalone storage.
Yeah, 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's BPM standpoint.
I think John and I mentioned, it and prepared remarks side.
There is a significant amount a 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.
The 80, CVD issue and so I think that.
Where as you look at the type 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 on the storage hardware side in terms of chemistry or new technologies.
Are you are you changing things at all or do you expect any changes in there.
Maybe not this year, but.
More in the medium term in terms of pursuing a new kind of stripes.
I'll start with waterfront should show up and I would say that.
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 her feet to operate on top of that we obviously talked to a variety of battery suppliers one of the things that you are.
Seeing us get more into his LSP with your mind 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 lost one of your jumping with new thoughts I might've missed yes.
Yeah, 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.
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 we'll be looking to have long duration storage and other chemistry is outside of lithium ion.
Within the portfolio is certainly within the next year, but I think.
Still remains to be seen as a specific which ones.
Going to make that work.
Like all involved with the use case.
Underwritten by the bank ability of the.
Of the solutions so.
Watching all of that.
And I think it's quite promising so we'll see you soon I think.
Okay.
Will do I'll pass on thank you.
Thanks.
Thank you.
As a reminder, and style telephone keypad to ask a question.
This concludes the Q&A portion of the call I will now pass the conference back to John can cancel.
Closing remarks.
Thank you and I want to thank everyone for joining us on our first quarter of 2022 earnings call. We are pleased with our strong execution of meeting or beating in all key metrics and we will continue to focus on operational excellence driving software differentiation, the lighting, our customers and growing revenues.
And marches, we look forward to speaking with you during our second quarter earnings fall and thank you again.
Yeah.
This concludes this dam E Q1 2022.
Thank you for your participation you may now disconnect your line.