Q2 2022 Stem Inc Earnings Call
Apply targeting the btn market in particular.
Industry experts expect increases in lithium ion battery manufacturing capacity in 2023 and beyond.
Which should help alleviate some of the supply constraints. The industry is currently facing we continue to monitor inflationary pressure logistics issues in the supply chain.
And developing mitigation strategies, including revised pricing as well as a more proactive sourcing plan.
On the solar side, the CVD and <unk> issues could impact near term panel deliveries for customers and as I stated before we have seen an impact on utility scale solar projects the U S.
Process is presenting some uncertainty for developers specifically more paperwork and compliance requirements are slowing logistics and delivery times. The software price increases I described earlier have mitigated part of this impact on our financials.
Lastly project timelines continue to be stretched relative to pre COVID-19 levels with our operations team supporting our customers and their interconnection and permitting processes. In addition to staffing issues at utilities and permitting offices required utility upgrades to the grid that had been deferred are also affecting <unk>.
<unk> timelines next I'd like to highlight some of the examples of our technology leadership, Please turn to slide nine.
As you saw from our press release earlier this week.
We received the number one ranking from guide house for solar and storage monitoring and control.
Gatehouse is a leading industry research consultancy that covers the global energy transition the report called out our integrated edge to cloud platform led by our flagship power track application.
As a key differentiator over other vendors also energy provides a vertically integrated platform that enables its utility scale C&I and aggregated residential customers to standardize their entire clean energy portfolio on one application.
This is the second time in two years. The guide houses ranked also energy is number one in its category and it speaks to the tremendous effort Bob and his team have put into lowering the total cost of ownership, while increasing operational excellence for their customers also energy received high marks across multiple categories, including <unk>.
Strategy suite of offerings technology, and global partnerships, we couldnt be more proud of this external validation and we look forward to delivering continued differentiation in the future moving over to Athena. Please turn to slide 10. This quarter, we launched two additional software applications that enable.
<unk> Athena to execute on all 13 value streams in the Rocky Mountain Institute wheel.
As a result, Athena continues to provide the most comprehensive suite of applications to our storage customers with no. Other software solution in the market matching our track record and runtime hours. Our software performance continues to lead the market across the fleet, we have executed on 100% of our obligations year to date.
Despite a 72% increase in grid, this factors, which points to the scalability and robustness of our technology.
We are continuing to perform well in the market segments, we serve and ISO New England, Athena achieved 96% of perfect foresight revenues. This means that Athena had exceptional forecasting ability due to our data advantage delivering near perfect estimates of customer load and market conditions ahead.
Of implementing its algorithms.
In California in June we outperformed by 43% for our key grid incentive payment and we have outperformed year to date across over 500 megawatt hours representing hundreds of sites in this program.
And for many of our customers, who want to optimize for both economic results and greenhouse gas reductions Athene as co optimization technology resulted in exceeding the annual GHT reduction target within the first four months of operation.
All of these accomplishments speak to the depth of our software expertise breath of differentiated offerings and a strong moat. We continued to build relative to our competitors building on our success, we aim to continuously outperform our commitments and exceed customer expectations. We are proud of the platform that we've built the last 12 years.
Which wouldn't be possible without our people stem and also energy have built the leading clean energy intelligence platform through innovation collaboration and rigor that come from our talented employees. We are attracting the best talent with deep domain expertise critical as we facilitate the clean energy transition.
Thank you and now I'll turn the call over to Bill Bush, our Chief Financial Officer.
Thanks, John starting on page 11, with our results for the second quarter 2022.
Before I begin recall that we closed they also energy transaction on February the first of this year, which impacts the comparability to last year's results.
As John mentioned, we reported record revenue of $67 million, which was a 246% increase versus the $19 million in the second quarter of 2021.
Quarterly revenue performance surpassed the Q4 2021 performance at $53 million.
Or an increase of 26% most.
Most of the growth came from the storage hardware sales on MTN in btn partner projects and about $14 million from the addition of also energy.
We also recognized approximately $13 million of high margin software and services revenue, representing 19% of the total revenue for the quarter.
First half revenue was $108 million, an increase of 246% on a year over year basis.
Our GAAP gross margin was $7 7 million or 12% versus a slight loss in the same quarter last year.
This is the second straight quarter of positive GAAP gross margin highlighted by the growing base of our software and services offerings.
On a sequential basis. This represents a 33% increase in GAAP gross margin, reflecting the strength of our commercial offerings.
non-GAAP gross margin was $11 3 million up from.
$1 $5 million or 665% increase in the second quarter last year due to higher revenues and an increased mix of software and services revenue on a percentage basis non-GAAP gross margin was at 17% in the quarter versus 8% last year, an increase of just over <unk>, our margins that benefited from.
A greater share of high margin software and services revenue that 17% margin and squarely in line with a 15% to 20% guidance for 2022, we initially provided in February .
Net loss was $32 million versus a loss of $100 million in the same quarter last year that swing is almost completely the result of a large noncash loss in the second quarter of 2021, and the then outstanding common stock warrants. We retired all of those warrants last year and we do not expect significant charges similar to those in the future.
And lastly, adjusted EBITDA was negative $11 million versus a negative $8 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 out our teams and advance our technology roadmap.
Take advantage of market opportunities.
Second quarter bookings were $226 million up more than five times versus bookings in the same quarter last year. This was the second highest bookings quarter in the company history and $375 million of bookings for the six months ended June 30th is nearly what we booked in all of 2021.
Moving from our financial results to our operating metrics on slide 12, our backlog nearly tripled year over year from $250 million in the first quarter of 2000 $21 million to $727 million in the second quarter of 2022, the backlog increased approximately 29% from $560 million on a sequential basis.
And the period ended March 31 2022.
The largest driver of the backlog was the $226 million of new bookings in the quarter offset by revenue recognized during the quarter as well as some amendments and adjustments to book project configurations.
We believe that the backlog gives us excellent visibility in the short and medium term that is for the back half of 'twenty two and into 2023.
Our contracted AUM on the storage side grew from one two gigawatt hours in the second quarter of 2021% to $2. One gigawatt hours in the second quarter of 2022, that's a 75% year over year increase again, driven by our strong execution on sales and operations side of the business.
Our our operating AUM on the solar asset performance and monitoring side of the business in the quarter at $32. One gigawatts relatively flat sequentially, we believe the opportunity to bring the Athena platform to the power track customer base represents a significant cross sell opportunity with low penetration of storage into that solar AUM as John mentioned.
ITC could accelerate that cross sell opportunity.
Contracted annual recurring revenue or car ended the quarter at $58 million.
This software metric showcases the importance of the Athena and power track network and services as we offer our customers, which drive long term value.
We ended the quarter with $335 million in cash on the balance sheet as in this quarter, you will see as strategic to deploy our cash to secure storage hardware for our customers and drive greater adoption of high margin recurring revenue in the interim we are also evaluating other tools and structures to allow us to continue to deliver energy storage systems to our <unk>.
<unk>.
Turning to slide 13, as John mentioned earlier, we are raising our guidance for bookings and car for the full year 2022, and we are affirming our guidance for revenue in the range of $350 million to $425 million non-GAAP gross margin in the range of 15% to 20% and adjusted EBITDA in the range of a net.
<unk> $20 million to $60 million remember none of these updates reflect any potential impact of the inflation reduction act on bookings, we are raising our guidance by about 20% at the midpoint from $700 million to about four $840 million.
Adjusting our disclosures to show absolute dollar ranges rather than the percentages for the remaining half of the year.
While the business continues to be lumpy based on the increasing importance of the <unk> business and its project sizes based on our sales visibility we feel confident that we will be able to hit the low end of these ranges and if things break well, we expect that we will be able to hit the high end of our range.
Our revised bookings guidance now calls for us to more than double our bookings relative to 2021 and remember our 2021 bookings were triple our 2020 bookings.
Grown the business very rapidly in a short amount of time and without any changes in legislation.
This is a testament to our differentiated software offering as well as our ability to help customers enter new markets. Profitably is also due to our focus on customer service and supply chain management that allows us to deliver the right product to the customer that meets their needs.
We're also raising the range of our car guidance by $5 million to 65% to $85 million. This is a function of our increased bookings, which will drive solid upfront hardware hardware margins, but more importantly high margin long dated software revenue.
By now you should have received the save your date notice for our Investor and Analyst Day on September 28 in Midtown Manhattan.
We will provide additional details on our financial outlook from our long range planning process as well as discuss our strategy and technology differentiation at the event, we continue to focus on commercial differentiation and an important component of our planning processes is accelerating our operating leverage and the drive to profitability. Let me turn the call back to John for some closing remarks.
Arcs.
Thanks, Bill turning to slide 14 to wrap up we're excited about our strong commercial and operating momentum heading into the second half of 2022 with record revenue above the high end of our guidance range and record bookings up five X year over year.
Our technology differentiation continues to drive growth in contracted annual recurring revenue and supports our pricing power with customers. We are raising our guidance for bookings and car for the year and reiterating our guidance on other key metrics, which again do not include any upside from the inflation reduction Act, we continue to build.
The strong and inclusive culture, it's Tim with the launch of two new employee networks in the quarter focused on LGBT plus and women in leadership, we are committed to building the best workplace in our communities and the broader industry. In addition, the integration of the also energy acquisition is proceeding well.
And we expect to detail initiatives on driving commercial synergies and operating leverage as we drive a focus on profitability in the forthcoming analyst day as Bill mentioned on September 28 in New York City with that let's open the line for questions. Please.
We will now begin the question answer session.
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The first question comes from David Peters with Wolfe Research.
Please go ahead.
Yeah, Hey, good afternoon everybody.
Congrats on the update for first question.
I have is just on the revised guidance for bookings specifically can you.
Talk a little bit on where you're seeing increased momentum relative to initial expectations.
Is it.
Being driven primarily by FTM or anything available power related.
And then.
Just related to that what I suppose are you seeing the most success.
Yeah, Hey, David This is bill. Thanks for the question appreciate that so I think much like we've talked about in prior quarters. The FTM segment of the business is growing very rapidly and that's where we're seeing we continue to see the most momentum there. Although we are starting to see.
Some initial.
Say on the BPM side some initial.
Opportunities.
And on the AE side.
As we come out of the two.
The AC any competitive component with the government. So I think we're really seeing it across the business, but the biggest impact is clearly on the ATM side of the business and ISO wise ERCOT, yes, certainly as the strongest so although new England. ISO is also quite strong as well so really those two primary markets.
Thanks for that.
Bump up in bookings, obviously, just knowing that this drives revenue.
This year and so on does that accelerate or change the thinking about at all when you guys might expect to see EBITDA inflect positive.
Well I think for sure that the growth in bookings does and will relate.
Create revenue opportunities I mean, I think one of the things that we do see as well is that those FTM projects tend to take a little bit longer and that those are really 18 kind of 18 months an up these days I think yes in the initial guidance that we gave a while back was more like 12.
The 12 month range. So we will see that so we're starting effectively in this second half we'll start to see actually deals that will hit in 2024 as opposed to 2023.
And that of course will drive all of the software aspects that we've talked about so that's all good news from that standpoint, and I think that.
In general is it.
Relates to the EBITDA.
What we'll do.
As in the analyst day call or in Italy meeting excuse me in New York, We will get some additional guidance around that.
Okay.
Last one if I could just with respect to PRA, obviously needed to pass but just.
I'm wondering if you had any initial thoughts on what this would mean specifically for stems pipeline and then.
As it relates to also energy's solar AUM.
How quick could you move to retrofit.
Some of those solar sites with batteries and will there be any limitations just from a supply standpoint. Thank you.
Yes, David Thanks, a couple of things look we're obviously very supportive of the inflation reduction Act.
As I've said in the prepared remarks, it will certainly drive strong job growth, obviously, a renewable expansion I think U S manufacturing, which is also becoming more and more significant in light of some of the things that are going on.
At a global level, and clearly significantly more storage or the Standalone ITC included.
I would say that we need to get the final details of how this rolls out we certainly see Tam upside and if you look at some third parties there ranges all over the place for low end, 20% I think one of the things that we've talked about before is we have been talking to our customers about.
When this occurs what we would do with them and when you think about C&I Fortune 500 in particular Theres a lot of activity in markets, where maybe on the edge that become highly.
Economically viable in light of this so we have been talking to them for some time and there's a variety of other customers who are in the process of having discussions on I am really excited and think it's highly differentiated. The fact that we now have also energy as part of the family and the reason for that is there are 41000 sites.
They currently are managing and these are existing customers. Obviously, we know who they are we know the system size the location and the production. So it's a perfect.
Kind of lead lead sheet for us to go and address so we're excited about that we think it's highly differentiated and a very strong competitive moat that we will execute as soon as this is finalized.
Perfect. Thank you.
You bet. Thank you.
The next question comes from Brian Lee with Goldman Sachs. Please.
Please go ahead.
Hey, guys.
Thanks for taking the questions kudos on the nice execution.
I guess first question would just be around the bookings momentum.
We shape the color around the mix and where youre seeing that strength, but.
<unk>.
Youre not raising guidance metrics for 2022, and I think Bill just mentioned some of these bookings are even.
Set for delivery into into 'twenty, four if I heard that right. So.
Is this sort of.
Composition of bookings as you think about cadence changing.
Changing gears are you seeing more long dated bookings.
So Brian Thanks for the question first let me clarify one comment there what I was saying the bookings in the second half could be into 2024, not bookings that would have been in the first half just so that we're super clear on that point.
But as far as.
And that's of course, why we're not changing because.
I would say that 2022 revenue guidance because those are more than likely a sale is happening, particularly in the front of the meter side sale is happening in 2022 is likely not going to create revenue during that same time period, but.
As far as the you'll see the velocity of the business I mean, I think that's where it gets super interesting is that the bookings growth really.
Determined what's going to happen longer term for us and Thats really so we're kind of locking in.
Thats, where the car metric comes in and so you are starting to lock in long term long dated software contracts during that time period.
Okay fair enough.
And then just second question on the gross margins encouraging to see the uplift here. This quarter can you talk about some of the puts and takes on the margins as sort of where we should expect things to trend if not may be higher through that through the rest of the year.
Well of course, our guidance is 15% to 20%. So we're right. We're right in the middle of that we're pretty comfortable where that is I think the big impact for us longer term or even say shorter term is going to be our ability to break some of those log jams in the permitting and interconnection side of the business and we have a lot of projects that are <unk>.
Set up to start effectively start will start operating as soon as that we can get through those logjams and so I think that over time youre going to see more and more software revenue rolling into the P&L and so we would expect that in software related services line item to grow quite significantly over the coming years.
Yeah.
Okay fair enough. Thanks, a lot guys I'll pass it on.
Thanks, Brian .
The next question comes from Mohit <unk> with credit Suisse.
Please go ahead.
Hey, good evening.
Congratulations on the nice quarter here.
Maybe just quickly on.
The revenue beat here could you just talk about the drivers on that end.
Is it mostly due to ASP increase you talked about.
Is there anything any pull forward you saw from Q3 Q4 over here as well.
Yes, so I think and thanks for the question appreciate it so I mean the revenue.
It's going to be tied into hardware sales I mean, that's where you get the biggest bang for the Buck from a from a top line perspective and so.
That was really where it from the standpoint of where we outperformed during the quarter at the topline revenue level it would be there.
Now as it relates to kind of was it a pull forward or not I would say really not I don't think that.
We did.
Above the high end of the guidance, but we are affirming the full year. So I think that we're in pretty good shape from where we are from that standpoint.
Okay and then.
Just on the previous question.
From Brian on.
And just for next year.
Over here.
If we get like an Iot.
When do we get the IRB approved.
Do we have enough supply for batteries to support that kind of demand here.
I would say that we have to understand exactly.
Details around this.
As far as what the demand looks like I mean, if you as I said, if you look at some of the third party estimates, it's ranging from 20% to 300%. So we're we'll have to we'll have to unpack that for you.
Very good about our supply chain and our OEM commitments to the company we've talked about this in the past I think we've been pretty good about.
Granular reviews on a weekly level as we've discussed in previous calls and I would also say that we've been super transparent with our Oems to say mix, Tim the first call if you've got excess capacity and in fact in the last couple of weeks, we've seen that occur and we executed on a fairly significant amount of hardware.
<unk> for the Bcm market and feel great about that move and we continue to get incoming calls. So we'll monitor it closely I think we have to understand how big this could be and the timeframe associated with it in particular and and.
We feel like we could put a supply agreement in place with the variety of Oems that we have another advantage of our very dispersed.
The amount of Oems that we've partnered with over the last few years. So we have a lot of optionality in that in that category.
Got you and then just one last one.
Back in the Q1 <unk>.
<unk>.
You gave some color around that could you just elaborate more on that.
Causing project switch a previously planned.
Earlier this year to be moved to next year.
What is the latest you're hearing about that thanks.
Yes, I think we are seeing.
We're seeing a little bit of impact on the <unk>.
Large utility scale.
We are not necessarily seeing at the <unk>, it's something we are closely monitoring.
It's still a little bit early.
But it certainly.
<unk> gotten our attention and we will continue to closely monitor I don't know bill you've been we're doing supply chain quite a bit recently, if you have anything to add yes, we haven't yet seen an impact on the it's really probably more of the battery cells, I think thats, where youre going to see probably the most and that some of the ruling seem to indicate that the.
The customs Department is looking at actually at the.
At the mineral level and so I think that is probably going to.
Depending on how that works out.
We could see some impacts there, but we have not seen any yet I think what we have heard is that it's more impacting solar panels coming into the port and so I think that.
Which we haven't seen a significant impact yet, but that's what we've heard I don't know Bob If you guys have seen anything on your.
So for US this is Bob Schaffer things.
Question.
I think for us when we see you see challenges just related about kind of large scale utility projects on the PV side.
There is just a timing problem. It takes a long time to get those projects in the ground. So unique pricing certainty before you really want to embark.
And so that favors projects that can execute quickly.
And that's kind of what we see here.
Part of the business.
Gotcha, Thanks for the color.
Once again. Thank you have a question. Please press Star then one.
The next question comes from Bijou parents Zhou with Susquehanna.
Please go ahead.
Hey, Thanks, Congrats on a.
Great quarter.
So I was kind of intrigued by your comments about.
Software only deals the increase there.
So can you give us a little bit more color are these are you replacing.
Previous provider of software solutions or are these.
Adding software.
Hi existing call it.
Storage.
Facilities any extra color that will be good.
Sure. Thanks.
Thanks for the question good to hear from you I would say a couple of things one is the largest behind the meter portfolio down in southern California. It was a replacement.
With Athena software on an existing platform and we've talked about that in the past that's not inclusive of Mr. Next obviously, but I would say the majority of what we're seeing are large front of the meter projects whereby the developer may be procuring their own hardware and utilizing Athena.
And all the attributes that we bring I think it's exciting too because as we mentioned in the prepared comments.
We've added two more applications as part of our offering that gives us all 13 of the Rocky Mountain wheel. So that's really compelling we think.
And obviously as you look at the car metric, it's one that captures the progress of the business and so thats going to continue to grow both as we sell more hardware and software and start to do more software only deals. It's something we've talked about something we've been focused on and we're really starting to see strong demand for our platform. So very excited.
To see that we'll update everybody as we get more closes and hopefully have more to talk about on the analyst day as well in September around this.
One thing I would add to that though as well as even if we're not selling the hardware.
Selling services into those same projects.
So the interesting part of the business for Us of course from a margin perspective is on that software and services line. So even if we are losing the quote unquote top end of it as a result of the hardware, we're not necessarily losing the engineering services and such that we would be providing to those same customers. So they still need our help in terms of the battery warranty.
The selection itself in a number of other topics interconnection et cetera.
Got it no I was saying and this is this isn't sort of a nice tailwind sort of adding to your.
Hardware.
Plus software business.
Making that transition to software, becoming a bigger part of the business.
Making that so faster transition.
Yes.
Feel great about the momentum and I think it will only continue to be easier. Thanks go ahead.
And then maybe.
You add a little bit more color on the bookings this quarter. It was a nice pleasant surprise.
All of the headwinds the sector has been facing but.
Are these stores.
No.
The bookings are they mostly.
Standalone storage.
<unk>.
Or is it because of the behind the meter projects were not as impacted by the SEC.
The supply chain constraints.
Yes, I mean I appreciate the comment on the bookings, we're really excited about it as wells as we mentioned $226 million, that's 50% quarter over quarter growth in 400% year over year. So the demand on the ground continues to be extremely strong.
From a mix standpoint, 91% FTM, 9% <unk>, we do believe that <unk> will increase.
We feel like coming out of Covid, we're seeing more and more activity around.
Behind the meter opportunities, obviously with the <unk>.
Inflation reduction act, that's a huge lever for that as well so we'll monitor that piece, but.
Just continued strong demand really across the board I wouldn't highlight one geography than it has been very strong.
We're excited about about the balance of the year and obviously.
Excited enough to.
<unk> guidance so.
Alright, thank you.
Thank you conclude the question and answer session I would now.
Like to turn conference back over to John Carrington for any closing remarks.
Thank you and thank everyone for joining us on our second quarter 2022 earnings call. We look forward to speaking with you at our Investor and Analyst Day on September 28 in New York.
This concludes today's conference call you may disconnect your lines.
Thank you for participating and have a pleasant day.
[music].