Stem Inc. Q1 2023 Earnings Call
Thank you for standing by this is the conference operator, welcome to the stem Inc. First quarter 2023 conference call.
As a reminder, all participants are in a listen only mode and the conference being recorded.
After the presentation, there will be an opportunity to ask questions.
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I would now like to turn the conference over to Ted Durbin, Vice President Investor Relations. Please go ahead.
Thank you operator this is Ted Durbin head of Investor Relations welcome to our first quarter 2023 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.
Therefore, we refer you to our latest 10-Q and our other SEC filings.
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, we will be using a slide presentation today, our earnings release and presentation on the Investor Relations portion of our website at Www Dot Dot com.
John Harrington, our CEO and Bill Bush CFO will start the call today with prepared remarks, Mike Carlson, Chief operating officer and for cash Patel Chief strategy Officer will also be available for the question and answer portion of the call.
Now I'll turn the call over to John .
Thank you Ted and thank you all for joining us on the call today, beginning with slide three on the agenda for the discussion today I'll review, our first quarter 2023 results and highlights followed by an overview of our commercial execution and recent business updates I will then review our continued technology leadership.
<unk> execution and following my remarks, I will turn the call over to Bill Bush, who will discuss our financial results in more detail and speak to our recent convertible note offering.
Now, let's turn to slide four today, we reported strong first quarter results, including revenue of $67 million up 63% versus first quarter 2022, which was above the high end of our guidance range. We reported another all time record and contracted backlog now over one.
$2 billion bookings were up 141% year over year at $364 million, our core services revenue grew 14% sequentially and contracted annual recurring revenue or car is up 10% since the fourth quarter of 2022 and <unk>.
Lastly, our non-GAAP gross margin was 19% in line with our full year guidance. We see these strong metrics as indicators of demand for our differentiated solutions and services.
Looking to the right side of the page I'm excited to announce that wood Mackenzie recognized stim as the largest storage virtual power plant operator in North America. We're also continuing to see momentum in the EV charging space, including a recent project with Cisco bottom line, we are reaffirming our full year guidance, which includes <unk>.
Revenue growth of 65% at the midpoint.
Reaching EBIT positive in the second half of this year accelerating services growth will be the key factor that helps us achieve our goals this year and for years to come.
Moving to slide five and our continued commercial execution.
To report that we are seeing growth in services revenue in both the solar and storage aspects of the business storage services revenue increased 22% sequentially and solar services revenue was up 7% sequentially. Both figures exclude project services. This is a new disclosure which helps isolate.
<unk> the software in a revenue stack project services revenue tends to be more variable and tied to project timing.
We reported another new record for contracted backlog, which was up 120% year over year driven by strong first quarter 2023 bookings, we expect bookings growth to continue through the year as customers are increasingly standardizing on the Athena platform.
We are currently pursuing several significant software only and professional services deals that we expect may close later this year. If executed. These deals will have several benefits for the company first they will generate higher margin software and services revenue second they will provide revenue sooner rather.
And waiting for system commissioning and third because there will be very little hardware involved our growth in software and services will not tie up cash on our balance sheet.
<unk> grew 10% sequentially and is up 39% year over year. This is another demonstration of the differentiation and strength of our software offering.
Turning to page six on the solar side of the business, we've seen some evidence of improvement and supply chain issues labor shortages and related regulatory actions, we're seeing improvements in 2023 and expect an upturn in 2024 as these issues work towards a resolution.
Our solar services revenue increased 4% since the fourth quarter of 2022, and our backlog is up 58% year over year showing that we have turned the corner. After many setbacks the industry faced in 2022 solar <unk> returned to growth this quarter another sign of recovery in this sector.
We are beginning to capture the cross sell opportunities. We have previously discussed from our legacy solar customers and we are extending the solar offerings into stems distributed channel relationships on the storage side, we continue to progress our high margin E mobility offering we recently announced an exciting project with food.
Cisco, where we will integrate our Athena software into their Riverside EV hub as Cisco noted Athena is one of the key technologies integrating the charging infrastructure to optimize onsite energy assets, including solar and energy storage. This is also our first joint dipped.
Buoyant with in charge of partnership we announced three Q2 thousand 22.
We continue to see strong growth in our core FTM markets developers are standardizing their projects on the Athena platform because of the differentiated economics, we offer our customers we will discuss the impact of our software on the success of these projects in subsequent slides.
Now turning to slide seven supply chain is steadily improving on the storage front, we have contracted hardware into 2024, we have begun to slow the growth of our purchasing activity as we position the business in line with long term storage hardware revenue growth of 25% to 35% we continue to target.
<unk>, 65% to 85% growth of our services in 2023 and future years. This is consistent with what we presented at our Investor and Analyst day in September 2022, our modular ESF solution, which is targeted for our largest partner projects will lead to the company being less reliant.
On contracting significant hardware supply these customers are asking for sourcing flexibility reduced working capital usage and it enables us to drive additional software and services.
Bill and I were in China meeting with the largest Oems for nearly two weeks in March and plan on adding multiple tier one hardware vendors as I mentioned on the previous slide solar supply chain is improving there has been solid installation growth amongst our solar be TM customers are FTM customers are still facing some.
Why chain constraints, which has caused revenue conversion in that segment to lag, but we are seeing strong bookings here as conditions are expected to improve.
Turning to slide eight and our technology leadership continued strong performance across markets and ISO New England, we cleared 72% more megawatts in the most recent auction for forward capacity versus the prior auction the auction cleared at $2 59 per kilowatt month across the region.
And expect to clear even more capacity in the next auction.
And it continues to control leading market share of grid energy storage in that region and this capacity will support the transition to clean energy for decades to come and California site events were up 110% year over year and demand response calls were up 250% year over year.
We are providing more support for the grid every year importantly, we saw no degradation in performance. Despite this increased call activity.
Internally, we continue to innovate and adapt Athena with the mission of being at the leading edge of development. We are leveraging AI assisted coding to increase productivity and look forward to discussing the impact of these initiatives and subsequent quarters. We're also investing in improving our day ahead power forecasting capabilities.
To generate more value for our customers, our AI driven software benefits from our growing data advantage as well we run approximately 8000 simulations per month, which means Athena get smarter and more accurate with real world assets that drives better results for our customers Lastly, Athena continues.
B independently validated as the industry leader, most recently by Wood Mackenzie, which recognize stem is the largest virtual power plant operator in North America Wood Mackenzie VP market report highlights since two five gigawatt hours of contracted storage assets under management across.
<unk> 14 different grid territories.
And the most among DPP operators Athena is at the heart of stems Vps and provides granular actionable energy asset insights coupled with automated intelligent dispatch capabilities that help maximize the value of renewable energy assets are record setting and expanding storage.
Software offerings are a testament to the value that stems premier technology and services delivered to our customers and now I will turn the call over to Bill Bush, our Chief Financial Officer on our financial and operating results. Thanks, John starting on page 10, with our results for the first quarter 2023.
As John mentioned, we reported revenue of $67 million, which was a 63% increase versus the $41 million in first quarter 2022.
First quarter revenue was above the top end of our guidance.
Most of the revenue growth this quarter came from storage sales with growth of.
$5 million from solar sales, we recognized approximately $15 million of high margin services revenue, representing 22% of total revenue for the quarter software services revenue increased 14% sequentially.
Our GAAP gross margin was $1 million or 1% down.
Of the 9% in the same quarter last year non-GAAP gross margin was $15 million up from $6 $5 million in the first quarter of last year due to higher revenues and the increased mix of software and services revenue.
On a percentage basis non-GAAP gross margin was 19% in the quarter up from 16% last year.
The difference between our GAAP and non-GAAP gross margin. This quarter includes approximately $10 million classified as constrained revenue our GAAP results reflect 100% of the cost of the battery and the cost of goods sold but only a portion of the revenue for those certain contracts. The constrained revenue represents the additional revenue we could realize based on the price of a third party.
Commodity index forecast for lithium carbonate we have kept our downside within the next floor and we may ultimately adjusted revenue up or down depending on the index tier statements and non-GAAP measures in our earnings press release for discussions of adjustments to non-GAAP gross margin.
Net loss was $45 million versus a net loss of $22 million in the same quarter last year Lastly, adjusted EBITDA was a negative $14 million versus a negative $13 million in the same quarter last year, we are executing on our initiatives to drive operating leverage including the expansion of the team in India, and we continue to drive down our <unk>.
Cash opex as a percentage of revenue we remain on track for full year adjusted EBITDA guidance.
Turning now to slide 11 for a look at our operating metrics backlog more than doubled year over year and increased 28% on a sequential basis to $1 2 billion.
The largest driver of the backlog increase was $364 million of bookings in the quarter end market customer demand remains strong with significant increase year over year in bookings with the increase in gross margins in both pipeline and backlog. We believe the backlog gives us good revenue and margin visibility in the short and medium term that is for the <unk>.
Half of 2023 and into 2024.
Our AUM on the storage side of our business grew from $3 one gigawatt hours in the fourth quarter of 2022 to three five gigawatt hours in the first quarter 2023, that's a 13% sequential increase driven by our strong commercial momentum.
Our operating AUM in the solar asset performance monitoring side of our business ended the quarter at 25, six gigawatts up about 600 megawatts. The industry is beginning to recover and the increase in AUM as evidence of this momentum.
When successful migrating customers from our legacy applications onto the core power Tech platform, turning to slide 12, I want to walk through our recent green convertible senior note offering.
On April <unk>, we issued $240 million of Green convertible senior notes. The net proceeds from the offering were $234 million $106 million of the proceeds went straight to the balance sheet as cash $100 million was used to repurchase and retire $163 million of principal of the <unk>.
28 convertible notes, which are trading at a deep discount and $28 million were used to purchase capped calls to reduce potential equity dilution with a conversion price of $11 18 per share.
This convert put us in a stronger cash positions and extends our debt maturity schedule and importantly, it also puts us in a stronger position with the supply chain to improve hardware pricing and payment terms. The transaction also resulted in an overall decrease in net debt.
Turning to slide 13, and our 2023 guidance as John mentioned earlier, we are reaffirming our guidance for the full year 2023, and we are off to a great start.
We're well positioned across all of our metrics for successful year, we've had strong growth in software services for the quarter and expect a 75% service revenue growth this year as previously discussed.
We are also focused on converting backlog to revenue and continuing to improve our operating leverage while reducing working capital usage.
That let me turn the call back to John for some closing remarks.
Thanks, Bill wrapping up on slide 14, with our key takeaways, we closed the first quarter of 2023 with strong performance and momentum revenue was at the high end of guidance and we set another record for backlog in card growth. We begin the year in a strong position with double digit quarterly growth in software and services with large software.
The deals in the pipeline.
Advancing our capital light modular esf's offering reached.
<unk> E mobility bookings validate differentiated stem software value and our partnering strategy and finally technology leadership with continued third party values validation. We're in a great position to achieve our full year 2023 guidance and reaffirm full year estimates with that I want to thank all of our stakeholders our customers.
<unk> channel partners suppliers shareholders and employees and now let's open the lines for questions. Please.
We will now begin the question and answer session.
During the question queue you May Press Star then one on your telephone keypad.
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Thank you.
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The first question comes from.
Thank you.
From Morgan Stanley . Please go ahead.
Great.
Sorry.
Find jobs. So the next question comes from Brian Lee from Goldman Sachs. Please go ahead.
Hey, guys. Good afternoon, thanks for taking the question.
The first one maybe for you John you mentioned a couple of <unk>.
I will start with prepared remarks and software only.
Opportunities that you have pretty good visibility into can you.
Kind of level set us as to where your software only.
Makes sense today.
We define it on.
Revenue basis or out of backlog basis, and then the ones that you have visibility.
<unk> in the back half of the year, maybe just.
A sense of kind of scale.
Of those opportunities.
Thanks <unk>.
And then also.
To the extent that quite a bit they're going to be higher margin given the worst I'll. Finally is there any.
Potential pull forward.
Profitability targets, if those if those hit.
Were hoping to execute on thanks.
Yes, Thanks, Brian a couple of things I'd say number one that the software.
Service only deals are definitely.
On the uptake.
Expect we see the pipeline growing significantly but didn't announce any bookings this quarter. Obviously when these deals are booked will provide more details I would say from a regional perspective, it's similar to our existing markets ERCOT pesos and I would say that.
We have baked into the backlog guidance, but not to revenue for 2023. So we'll just see how the balance of the year plays out.
Obviously, it will be enhanced margins as it relates to the hardware side and it's what we've talked about quite a bit it's directionally, where we want to take the business and you heard in Bill's prepared remarks.
The hardware piece youre going to see us youll.
You will see some decline in that particularly around this modular SaaS and we really like that product as well because we will see additional software and services.
Specifically around that as well so if I captured in St was anything else that I missed Bill I think we got it okay. Thanks.
Thanks, Brian .
Thank you that's helpful. And then maybe just one follow up for Bill.
I appreciate global color and overview of the capital raise.
And kind of the motivation to ask can you speak to maybe just.
The environment, we're in with some of your.
Customers.
Not being the largest.
<unk> grade rated Counterparties out there.
Like what the general situation and we've been talking to them over the past couple of months in the midst of a wireless banking turmoil.
Working capital.
Yes.
Payment terms and things of that sort of anything that <unk> have any sort of shift a little bolt on.
And maybe how your new capital that you raised your mobile helps you along on that front.
To better understand the working capital and go out from now.
Maybe some of the capital raise is also.
Additional value there.
Yes, Hey, Thanks, Brad I appreciate the question. So I think a couple of pieces there certainly.
There has been well documented turmoil in the say in the regional banking market I think yes.
That will certainly it looks like that's going to continue for a little bit and that is a source of working capital loans and short term loans for some of our customers I think we're fortunate in that our largest customers, which drive the biggest part of our businesses tend to be backed by large institutional asset owners.
Some of the names that we've mentioned in the past and so I think that from that standpoint, those guys tend to be much better capitalized. So I think much like we talked about when we did the convert for us that capital is really to help out let's say some of some of the partners that we work with that are smaller but.
Most of the business actually runs through the large industrial asset owners, so we feel fairly.
Insulated from that I'd say like $100 million to the balance sheet, obviously, we like that but we have to be we have to be careful with that capital because it's.
It's not limitless in anyway, and so we're taking a close look at where we are from a project standpoint, and staying really close with our partners to make sure that we're advancing things and the way that we would expect and so far we haven't seen any significant issues. So as of this date, we have not used any of that capital yet.
So let's get to I'll pass it on thanks helpful.
Thanks, Brian and thanks, Brian .
The next question comes from Joe Coppola from Morgan Stanley . Please go ahead.
Great. Thanks, So much can you guys hear me Okay. This time.
Yeah, Thanks, Andrew welcome, but great great. Thanks, so much sorry about that not sure what happened there.
Just wanted to start maybe out on a comment that was made last quarter or around operating a.
Doubling this year out of the contract and then the operating bucket just love to hear how that how that's trended this quarter and any context, you can provide in terms of how that might trend in the second quarter and throughout the remainder of the year.
Yes. So thanks, Andrew for the question I appreciate that and so I think the numbers and somebody speak for themselves I mean, we had a fairly interesting sequential increase in services revenue.
Over the last quarter, that's definitely indicative of us being able to turn systems on the way that we expect we're on track for meeting that goal and so we're happy with that I think clearly something we have to be.
Monitor closely in terms of interconnection permitting those those tend to be the two longest issue.
I'd say the long poles in the tent so.
Most of that is probably going to happen in the second half of the year, just because thats the kind of the more standard timeframes associated with having projects come online, but I think that we expect to continue to see service and software and services revenue continued to increase just like we have the last three quarters sequentially and Thats definitely reflective.
US being able to bring systems online and increase the operating even.
Great. That's very helpful. And then just one quick follow up on some commentary made earlier in the prepared remarks around.
Supply chain management.
Walking through some of this tier one battery suppliers that you may be adding can you just talk to maybe what youre thinking in terms of onshoring some of that supply chain any discussions that you're having here in the U S. In terms of maybe being an anchor tenant first for some of those suppliers.
Yes.
One area that Mike Carlson, who is with US here today and I worked quite closely on it is definitely something that we're paying a lot of attention to I think right now most of our supply comes either from Tesla here in the U S for a number of different Chinese manufacturers.
And there's been a lot of announcements and we've had a lot of it was say a substantive conversations with the folks that are looking at bringing battery capacity into the states. We just haven't yet seen any groundbreakings.
We're really kind of.
Proceeded at least as we're aware of proceeded much past conversations about doing things.
But it's something that we're very interested in and certainly could be an important part of our total battery supply in the coming years I think that the.
The issue right now is that most of those plants are looking in 2024 really late 2024 installations, which will probably mean batteries in kind of mid 2025. So it's definitely a conversation that we're having but unfortunately, just yet it's not a it's not a near term issue.
Yeah.
Great. Thanks, so much.
Okay.
The next question comes from BQ.
From Hana.
Shannon. Please go ahead.
Hey, Thanks for taking my platform.
Couple of questions around that.
Index price.
Can you just get a little more on the tax.
System coming on.
And also.
How you're mitigating your cost exploration there.
And so we think of that.
First of all I would come on.
$34 million that you reference.
The floor price bottomed.
We looked into that contract.
Yeah. Thanks, Vijay for the question. So a couple of points there the contract will resolve itself in basically the measurement period is in the middle of the first quarter of 2024 and would get reflected in the books of the company.
As of the end of 2023, so that all resolved this year.
Yes, I think it's the way the contract is set up in terms of Cogs from from the standpoint of our books, we have recorded a 100% of the cost of the materials. So theres no theres no variability when it comes to the cost. This is all a revenue adjustment depending on what happens with the index. The reason the reason that we did it really was we wanted to make.
Sure that we had certainty in terms of our ability to move the equipment off of our balance sheet, which is which is a primary focus of ours and at the same time preserve some ability.
Assuming the index moves in the way that is currently being forecast that we wouldn't give up all of that upside and so that's really the basics behind what we did.
Okay.
Paul.
And then maybe a follow up.
Can you talk about the Athena platform.
The trading.
A portion of that in court when that is going to be.
How do you sort of expect.
Sure.
Business evolving one study pack.
Yes, it's Jon Carrington I expect that we'll be active this year.
And as we've talked in the past.
ERCOT is one of our largest front of the meter markets.
It's been a great market for us, particularly in light of some of the solar module solar module delays that we saw.
Earlier middle of last year and into the second half because most of those are standalone. If not all of those are stand alone storage 90, nines as we'd like to call them, because theres a faster permitting cycle. When it's sub 10 megawatts. So we will continue to grow in that market, it's an exciting market for us and.
Again, the Athena platform will be up and running this year.
Got it thank you.
The next question comes from Julien Dumoulin Smith from Bank of America. Please go ahead.
Hey, good afternoon, and thanks for the time guys.
Thanks Julien.
Hey, Howdy.
Clarify Europe proserv.
I would see the disclosed quarterly dynamics I wanted to talk about sort of how lumpy that is and how you think about the seasonality of that again I get that there's a certain level of just hey, when a contract comes in or what youre going to recognize it but can you talk a little bit about the seasonality obviously the business overall has a pretty meaningful seasonality to it and how should we expect it to be the cadence this year.
You continue to ramp that business itself.
Yes, thanks, Thanks, Julian for the question.
I think the seasonality is really going to track tool to the natural cycle of the construction projects themselves, which which means that youre going to see a lot of projects.
Looking for a summer start and then gearing back up again in the fall and so I think we're going to see kind of like our standard business is much more backend loaded I think youre going to see particularly over time as the AUM continues to increase you're going to see more pro serve in the first the first part of the year with let's say call. It the first trimester.
And then the third trimester of the year I think thats whats really tracks. The basic construction cycle, which is absolutely tied into what we're doing and so I mean, the good news is that we have.
Continue to see increases in our software services revenue, we had a nice quarter sequential growth again this quarter in the first quarter and we expect to continue to see that I think the lumpiness part of the business as it relates to the services line item in total is going to be on the project services I think that's one we're saying.
In the fourth quarter, you can see that we had some interesting revenues. There we had no revenues this quarter, we expect to see much.
Much more revenue on that line.
The coming quarters and that I think is going to be lumpy as part of where we are though.
Got it and then within that 75% growth rate you guys. Just reaffirm how are you tracking within software versus kind of the broad services bucket. If you will on this year. If you can break that out.
Yes were definitely tracking to the 75% I think we're I think we have said multiple times that we expect to see that growth, which would get us into a high <unk> kind of.
Low Ninety's total services revenue number.
And we're on track to be able to do that.
Alright fair enough I'll leave it there thank you.
Thanks Julien.
Yeah.
The next question comes from Thomas Boyes from TD Cowen. Please go ahead.
Thanks for taking the questions maybe first I just wanted to kind of get your feelings.
On the utility scale solar market.
As it recovers this year.
Some third party data that suggests it's still recovering, but it's a bit more muted than we had last spoken with the <unk> results and so I was wondering if you could just let me know how that kind of impacts you also energy business. I think you were talking about maybe 20% to 40% growth in the solar part I was just wondering if that's still kind of the case.
Yes, I'd say on the.
This is John Carrington, Thanks, I'd say on the <unk> side as it relates to behind the meter we're seeing.
Solid momentum and strength there on the front of the meter theres very strong bookings and we feel good about that aspect Thomas I would say that there is a little bit of a revenue lag as projects have bids have been delayed we're not seeing cancellations incidentally, but theres still the ongoing.
Permitting slowness in interconnection.
Beyond that we do as we said in the prepared remarks, we do feel good about.
Solar in general C&I, certainly from a recovery standpoint is well underway and again from a utility standpoint, it's less than 20% of also energies overall business.
That's helpful. And then just to follow up on the kind of the <unk>.
<unk> revenue portion is this with a specific customer or like a broader approach that we could see more of over time.
Just something in isolation.
It's with a particular customer and we don't expect to see this over time.
Got it and then just quick one last one in here just on the software only opportunities as all of this with kind of new new.
Projects or is there anything in here, where youre working on some maybe some conquest wins what are you are coming in and replacing an incumbent who has existing hardware in the field.
No actually this is Mike Carlson actually both we obviously you've got the Greenfield New project development, but we're seeing a lot of opportunity on the retrofit side either for underperforming assets or for increasingly new capabilities that we can put through the Athena platform.
Excellent I appreciate the insight there I'll hop back in queue.
Thanks Scott.
The next question comes from Rohit.
Credit Suisse. Please go ahead.
Hey, good evening, Thanks for taking my questions here.
The guidance you had a nice beat in Q1 revenue. So just curious on the full year revenue guidance.
How should we think about the range.
As you kind of net benefit.
Benefit from.
Batteries in Asia, and other places thats attractive prices, because we could see some upside to the revenue guidance okay.
Many thanks for the question I appreciate that.
I think.
When we look at.
For the full year number midpoint of $600 million.
We had a nice quarter, we beat the top end of the guide, which is which is important to be able to do that but I think it's a little early to to raise guidance at this point.
Got it.
Of the 75% interest rate for services.
The.
Uh huh.
Because similar in the solar on those struggling businesses are you seeing any difference.
We haven't broken that out so far in terms of the growth rate I mean, I think that I think the big question honestly for solar.
Which continues as Theres, a forecasted rebound in the second half of the year, which we're starting to see the opportunity to be able to do that is that you probably I don't know if <unk> got all the way through the deck and you can see some of.
The growth in the revenue numbers for the solar business. So we're certainly optimistic but I think at this point in time.
Total dollars most of the dollars are probably going to come from the storage side of the house.
Okay, and then just lastly on the EV charging opportunity here.
Any of that right now.
The backlog.
Right.
Electric received back either bookings or revenues.
Yes, it's primarily in the backlog.
The projects are to be installed and we expect that in subsequent periods.
Okay.
Although I think to us on that.
Okay.
The next question comes from Justin Clare from Roth.
Please go ahead.
Yes, hi, thanks for taking our questions.
First off I did want to follow up on just the structure of your battery hardware contracts. It sounds like in Q1, I was kind of a unique customer agreement, but maybe more broadly if you could just talk about how youre thinking about matching the cost structure for your hardware your battery hardware business with the <unk>.
<unk>, there and how youre thinking about that going forward.
Sure Justin this is bill.
I think you're correct in saying that the contract that we signed here in the first quarter was unique and not likely to be repeated.
As far as say the standard part of the business, which we continue to execute on I mean, thats going to be very common basically matching cash matching payments to the.
The particular vendors, meaning that typically the way. It works is you can make a deposit depending on the vendor anywhere from 10% to 30% of the purchase price when the purchase orders accepted and then then depending on that vendor youre, making payments throughout the construction cycle and then paying in full <unk>.
Generally when you receive the equipment or it's released.
To the dock and so I think that is going to be a pretty common way to do it the contracts themselves largely and this is really a result of.
The changes in the lithium index of last year, most contracts that we're entering into and I think are common in the industry have some sort of lithium index associated with them most of them have a rolling index. So youre not seeing quite so much variation in any particular quarter.
And I expect that that will continue.
And I think kind of in this kind of reduced index environment that we're in today, we'll see price declines I mean those are starting.
To be talked about pretty openly in the marketplace and we're certainly able to realize some of those and pass them onto our customers.
Okay, Great and then maybe just one more on the storage hardware business can you just talk about how the margins are evolving in the backlog I think you've shifted your focus a bit to prioritize profitability.
I think you're also moving potentially up in size in terms of the size of the projects in the <unk> market. So how should we think about those factors and just how the margin profile is evolving here.
Yes, I think so.
Again this is bill.
The margin profile of the backlog in general is improving so we think about total contract value of the backlog that has been sequentially increasing now for over five quarters. So and that's really a focus part of it is certainly the modification of the way The Commission plan works where folks are.
Getting compensated on gross margin rather than other factors and so I think all of the things that we've done kind of operationally to focus on profitability are paying off from that standpoint, I think when you think about the backlog just per kind of from a contractual standpoint.
Thank you.
For the most part those are all contracted deals either through capacity agreements that we've signed with manufacturers or for equipment that we have ordered outside of those capacity agreements. So I think we're in pretty good shape from that standpoint.
And I think you had another question there and I have forgotten what it was.
Apologize.
Well I was just mentioning is there.
Are the larger FTM projects potentially lower margin than smaller ones and if you are moving up.
Two larger projects is there some potential.
Downward pressure on margins yes.
Yes, so sorry.
We are moving up in size, that's absolutely a true statement I think what we are seeing though is through our move.
Two things one as you move up you tend to work with folks that are fully integrated developers, meaning they have their own procurement engines and so we're not necessarily going to be buying that equipment, which is really our response to that is the modular ESF and so from that standpoint on the largest projects, we're probably going to.
Be buying as a percentage of the project less of what's going on there and so I think for US one of the things that we've what we've tried to telegraph as through the bookings number so youll recall the midpoint of bookings for 2023, it's $1 5 billion.
That is that's.
An increase from $1 1 billion relatively low growth as you compare it to 2022, where we went from $400 to $1 1 billion. We don't expect to see that kind of growth and in large part that's because of the impact of the modular ISS that we're going to be booking deals like that whereby we are not.
The purchaser.
Purchaser of record, which has two benefits. One is I think we were able to do more services as a result, because we are still providing those services and charge for them and at the same time, we won't have the working capital flow that we would have had otherwise had we been buying that equipment. So I think that's when we think about the big projects, that's where we want to be.
<unk>.
We want to be able to take those big shots of services across larger platforms and I think that we're going to be able to do that through the ESI modular DSS program.
Okay, Great very helpful I'll pass it on.
Yes.
The next question comes from Brett <unk> with Daily from Morningstar. Please go ahead.
Hey, guys just picking up on that same topic can you remind us just the timeline around the modular USS sort of when that when that will be ready.
Alrighty.
So Ed this is Mike Carlson.
We're putting proposals out in front of customers right now for the solutions.
And we've got our first implementation underway, we're looking at it being complete and energized the end of second quarter, beginning in the third quarter.
Then as we continue to bring on more to the Athena certified platform will just continue to increase that.
Modular solution availability throughout the year.
Okay, and then on on software pricing just any comments there either on the storage side.
The solar side are you kind of holding pricing flat or raising pricing.
On the software side.
Well. This is John we have announced the double digit price increase last year with the solar.
Monitoring side of our business and that was <unk>.
Very successful zero customer attrition at.
At this point, where I think standing firm and we'll update everybody as if that changes.
Great. Thank you.
The next question comes from Tim Huff from Northland Capital.
Go ahead.
Yes, hi, Thanks, guys for squeezing me in just a couple of questions here.
Last time, you attributed like several reason for the lag in revenue like supply chain interconnection.
Permitting delays cost of operation and import restrictions.
You talked about.
The bike any soon as being seeing some kind.
Kind of relief, there, but say understand how what's your take on.
Permitting delays cost inflation import restrictions what are you seeing there.
Yes. So thanks for the question this is bill.
We're definitely so.
Splitting the business into solar I think is still kind of working through some of the well documented issues around the weaker situation.
And now you probably saw that the CRA past the other day, and so theres a little bit of.
And it looks like Baidu will probably detailed that but don't want to get into the political prognostication business, but that certainly is a little bit of.
Kind of some sand in the gears on the solar side of the business.
It is getting better we think we're seeing and we're of course not a primary purchaser of.
Solar whether it'd be panels inverters are racks, but certainly the information that we're getting back from our customers there seems to be kind of breaking free there. So we're and you can I.
And I think you can see that by.
The second sequential growth on.
On the solar side of the business and so we're happy with that storage I think continues to be good from a supply chain standpoint, I think youre definitely seeing new capacity with lower prices come into the marketplace. That's definitely a positive.
And I think one of the areas that we continue to see.
Issues in the marketplaces as interconnection I think we've talked about that extensively over time, that's just not a problem that's going to get solved overnight.
The queues are the good news is that the end demand or end market demand is increasing substantially for the business, which you can see reflected in the bookings number I mean, that's almost we booked almost this in this quarter to $364 million as much as we did in 2021, So we're really happy with.
With that performance, but that also means that thats a lot of it because obviously others are growing rapidly as well that means that there is a lot of interconnection application is being filed and said that that's a problem that has to be solved over time, it's a combination of simplifying the applications themselves and hiring at the local utility level.
So we continue to monitor that closely we're definitely seeing some speeding up particularly in our primary markets in ERCOT.
And in new England, ISO but it's definitely something that has not been solved just yet.
Got it. Thank you and can you talk about the progress you have made so far with the partnership with charge point.
I know the revenues I mean, when you see it I mean, just coming up and any any operational.
The hiccup that you have seen so far.
Yes. This is it for cash I think across the board our EV partnerships are starting to bear fruit we're seeing.
Growth in our pipeline of opportunities, we announced this first deployment with the ABB in charge partnership at Cisco on the <unk> partnership specifically.
The initial focus is deploying the <unk> funds for deployment of EV infrastructure. So we'll talk about customer wins it does roll through but the pipeline continues to look strong and the economics are fairly compelling so were optimistic there and unpack Cisco a little bit more it's pretty exciting in the sense that they have announced that theyre going to <unk>.
<unk> over 2800 trucks by 2030, and this whole fleet electrification trend is something that we've seen at other customers.
It's significant and growing and again, we feel like the partnerships that we have a very compelling because when you think about the charging side of the meter. If you will they don't understand behind the meter as well as we do that is really where stim began its.
The target market and so we have that domain expertise. So the combination is natural and to <unk> point. The Navy funds really we'll open this up and we think accelerated growth significantly.
Got it. Thanks, that's all I had thank you very much.
Thank you.
This concludes the question and answer session I would like to turn the conference back over to junk Harrington for closing remarks.
Great I want to thank everyone for joining us on our first quarter 2023 earnings call. We look forward to speaking with you again during the second quarter call.
This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.
Okay.