Q1 2024 Stem Inc Earnings Call
Greetings and welcome to time, Inc. First quarter 'twenty 'twenty four results conference call. At this time, all participants are in a listen only mode.
Brief question and answer session to follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on the telephone keypad. As a reminder, this conference is being recorded it is now my pleasure to introduce your host Mr.
Ted Durbin head of Investor Relations. Thank you Mr. Devin you may begin.
Thank you operator this is Ted Durbin head of Investor Relations at stem welcome to our first quarter 2024 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 and we therefore refer you to our latest 10-Q and other SEC filings.
Our comments today also include non-GAAP financial measures additional details and reconciliations to the most directly comparable GAAP financial measures can be found in our earnings release, we'll be using a slide presentation today, our earnings release and presentation on the Investor Relations section of our website at Www dot stem dot com.
John Harrington, our CEO and Bill Bush CFO will start the call today with prepared remarks are catch Patel Chief strategy Officer will also be available for the question and answer portion of the call.
John E. Carrington: Now I'll turn the call over to John Thanks, Ted Good afternoon, and thank you all for joining US today, beginning with slide three and our agenda. We will cover our first quarter results product announcements and business updates then bill will discuss our financial results in greater detail.
John E. Carrington: Now, let's turn to slide four on our first quarter 2024 results and highlights we continue to execute on our three guiding principles in the first quarter, we delivered record non-GAAP gross margin and near breakeven performance on operating cash flow. We also accelerated our pace of annual recurring revenue Activations and finally.
John E. Carrington: We launched another software only product offering.
John E. Carrington: We're on a solid foundation to continue delivering against our financial targets for the full year 2024.
John E. Carrington: In the first quarter, we recorded $25 million in revenue down 62% versus first quarter 2023 revenue. This quarter was negatively impacted by a $33 million adjustment as a result of some legacy contract guarantees from 'twenty to 'twenty, two and the first half of 2023, which were further.
Impacted by accelerating market conditions, including extended project timelines and declining battery prices.
John E. Carrington: It is important to note. This change had no impact on our cash flows in the quarter and as a result of a legacy contract structure, which as previously committed we have not offered such guarantees to customers since the first half of 2023.
John E. Carrington: We achieved a record non-GAAP gross margin of 24% this quarter due to a higher mix of software and services revenue in particular, our high margin solar revenue was up 16% year over year and storage software wins drove AUM up 66% year over year.
John E. Carrington: Gross profit was negative $24 million, primarily driven by the net revenue reduction.
John E. Carrington: Bookings in the first quarter were $24 million as a result of our expansion into large scale front of the meter storage projects. The timing of our bookings has become increasingly variable on a near term basis. Our average project size has tripled over the past two years and we have a substantial number of projects in advanced stages of.
John E. Carrington: <unk> or that are expected to close in the near term given the strong commercial momentum we remain confident in achieving our one $5 billion to $2 billion bookings target for the full year 2024 contracted.
John E. Carrington: Contracted annual recurring revenue our car was up 25% versus the first quarter of 2023 in the quarter, we implemented a proactive effort to upgrade the backlog to focus on the most profitable opportunities, which caused a slight reduction to car. This underscores our unwavering focus on driving cash flow.
John E. Carrington: Generation against our full year target of more than $50 million for 2024.
John E. Carrington: Adjusted EBITDA came in at a negative $12 $2 million versus negative $13 $7 million in the same quarter last year.
John E. Carrington: Excluding the impact of the revenue adjustments adjusted EBITDA improved despite a lower revenue base compared to the prior year, reflecting our focus on operating efficiency and gross margin improvement and lastly, operating cash flow was roughly breakeven this quarter, a $35 million improvement over the same quarter.
John E. Carrington: <unk> last year.
John E. Carrington: We are updating our revenue guidance solely to reflect the noncash adjustment and otherwise reaffirming our guidance across our key metrics, including $5 million to $20 million of adjusted EBITDA and more than $50 million of operating cash flow for the full year 2024.
John E. Carrington: Importantly, we are confident that we can achieve these goals and continue to grow our business without the need for additional equity issuance.
John E. Carrington: Bill will provide more details on our financial results later on the call.
William J. Bush: We're also announcing today, our next generation power track asset performance management suite for clean energy portfolios, Let's go to slide five for a deeper dive into this new and exciting product. The power Trek APM suite is a software solution for centralizing and streamlining the management of storage solar.
William J. Bush: And hybrid energy asset portfolios. It will help customers understand the commercial impact of technical decisions and the technical impact of commercial strategies. So they can more effectively manage risks and drive enhanced returns. Our track APM was built by experts in the storage and solar industry on a dual foundation.
William J. Bush: <unk> industry, leading solar asset monitoring software powered track and the company's award winning Athena AI for energy storage forecasting and optimization. This solution was built for purpose in collaboration with many of our closest customers providing feedback on gaps in currently available alternatives.
William J. Bush: Some highlights on power track APM. This product will continuously monitor the health of individual assets Holistically track commercial performance of a portfolio and individual sites.
John E. Carrington: <unk>, we manage energy storage warranty obligations streamline operation center processes, and finally measure commercial impacts of technical events to minimize risk and drive returns.
John E. Carrington: We're tracking APM will be released to select beta customers. Starting this summer and we will generally be available at the end of the year.
John E. Carrington: We have already received strong interest from existing and new customers for our comprehensive tool like this which we believe does not currently exist in the market for stem. This offering will drive additional high margin solar revenue expand our addressable market and allow for deployments on existing operating assets. The last point is important.
John E. Carrington: Because by targeting existing assets, we can avoid the protracted permitting and interconnection cycles impacting the broader renewable sector. This is fully aligned with our objective of accelerating our car to our our conversion as we outlined on our last call Theres approximately $65 million of annual gross profit.
John E. Carrington: <unk> embedded in the full year 2024 car.
John E. Carrington: Now moving to slide six for an update on our progress against our guiding principles. As a reminder, in 2024, we're focused on three key items cash flow generation building software and services revenue and extending our technology leadership position.
John E. Carrington: Our operating cash flow continues to improve up $1 $5 million versus the fourth quarter of last year and by $35 million versus the first quarter of 2023, we made excellent progress on reducing our work it'll cut working capital intensity this quarter as well.
John E. Carrington: Second our software revenue grew meaningfully this quarter up 4% for solar and up 6% for storage versus the fourth quarter of last year, our outlook for software and services revenue growth remains positive due in part to customer logos you see in the middle of the page.
John E. Carrington: We're also making good progress on converting our car to annual recurring revenue or <unk> as the chart in the middle of the page illustrates our expectation of storage a our activation has improved materially since the beginning of the year.
John E. Carrington: Field commissioning issues.
John E. Carrington: While our interconnection and permitting approval timelines for me protracted our customer cancellation rates are in the low single digits, which translates into a high confidence and continued <unk>.
John E. Carrington: <unk> software revenue growth our focus on the municipal and cooperative market is also paying dividends. For example, the first sites of our 313 megawatt hour storage product project with <unk> will go live in May and will generate a significant uptick in recurring software revenue the off taker for.
John E. Carrington: This project is a cooperative in Colorado and the timeframe from booking to first software revenue will be inside 12 months for this deal much faster than our typical FTM cycle. This validates our focus on public power market and should accelerate our conversion going forward.
John E. Carrington: Finally, we continue to extend our technology leadership position with software only offerings as evidenced by our recent product launches over the last several months as I detailed in the prior slides with that I'll turn the call over to Bill.
William J. Bush: Thanks, John starting on page eight with our results for the first quarter of 2024 as Jon mentioned revenue in the quarter was negatively impacted by an approximate $33 million noncash adjustment as a result of battery hardware price guarantees we made to gain a foothold in the public power and large front of the meter markets. These.
John E. Carrington: Contracts gave customers certain price protection on their hardware purchases since we entered into those contracts in late 2022 in the first half of 2023 interconnection Timeframes have extended in key markets, while the price of lithium ion batteries has fallen significantly in 2024 did the impact of new manufacturing supply entering the market.
John E. Carrington: As a result, the price protection provisions resulted in additional noncash adjustments to the revenue tied to those projects.
John E. Carrington: In the third quarter 2023, we adjust our revenue based on estimates of the noncash variable consideration embedded in those contracts given the protracted project timelines and declining battery prices, we have updated our estimate of the noncash variable consideration, which had the effect of reducing our revenue by an additional $33 million this quarter.
John E. Carrington: Importantly, this adjustment has no impact on our operating cash flow in the current quarter.
John E. Carrington: We have not issued such guarantees since June 2023, and we reiterate our commitment to not issue any hardware price guarantees in the future. We are actively advancing projects under fixed price contracts based on current market conditions that we expect will consume approximately 50% of the remaining batteries subject to these guarantees we expect that these.
John E. Carrington: Transactions will close in Q2, and Q3 of this year and they will not be subject to future adjustments post close.
John E. Carrington: Overall these transactions should enable us to convert accounts receivable into cash more quickly providing us greater confidence in our free cash flow generation goals.
John E. Carrington: Following these transactions and the $33 million adjustment the remaining batteries subject to guarantees are currently valued at approximately $50 million, we intend to integrate these batteries into projects, which we will expect will be available for sale in late two and second half 2024 and be operational in the second half of 2025, we will.
John E. Carrington: To evaluate the economics of these transactions based on the then current conditions to the extent that we are not able to integrate the remaining batteries into future projects or market conditions. Further deteriorate, we may update our estimates of the noncash variable consideration embedded in those contracts.
John E. Carrington: This may result, in one or more future impairments.
John E. Carrington: Storage AUM grew 5% sequentially to five gigawatt hours from five five gigawatt hours in the fourth quarter of 2023 solar AUM ended the quarter at 26.9, Gigawatts down 600 megawatts sequentially or approximately 2%.
John E. Carrington: Would essentially offset this.
Speaker Change: Got it thank you.
Speaker Change: There are no further questions at this time I would like to turn the floor over to John <unk> for closing comments.
John E. Carrington: Thank you Ron Zhou and I want to thank everyone for joining our first quarter earnings call and we look forward to speaking with you during our second quarter earnings call, which will take place in August.
John E. Carrington: Thank you.
Speaker Change: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
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