Q2 2024 Stem Inc Earnings Call

John Carrington: 3, and our agenda. We will cover our second quarter results, business updates, and recent commercial performance. Then Bill will discuss our financial results in greater detail. Now, let's turn to slide four on our second quarter 2024 results and highlights. Our financial results in the second quarter were disappointing. We recorded $34 million in revenue, substantially lower than expected, primarily due to unforeseen extensions of project time.

Operator: 3, and our agenda. We will cover our second quarter of results, business updates, and recent commercial performance.

For our second quarter results business updates and recent commercial performance then bill will discuss our financial results in greater detail now, let's turn to slide four on our second quarter 2024 results and highlights our financial results in the second quarter were disappointing we recorded 34 million.

John Carrington: Then Bill will discuss our financial results in greater detail.

John Carrington: This was caused by certain customers' project financing delays and extended interconnection approval. We are seeing project delays impacting the broader industry. The shortfall was largely in storage hardware revenue, although our high-margin software and services revenue was mostly in line with our expectations; bookings in the second quarter were $25 million. Our recent strategic expansion into the large-scale storage market has resulted in significantly larger average deal sizes with increased variability and increased project complexity.

John Carrington: Now let's turn to slide for our second quarter of 2024 results in highlights. Our financial results in the second quarter were disappointing. We recorded $34 million in revenue, substantially lower than expected, primarily due to unforeseen extensions of project timelines. This was caused by certain customers' project financing delays and extended interconnection approvals. We are seeing project delays impacting the broader industry. The shortfall was largely in storage hardware revenue, although our high-margin software and services revenue was mostly in line with expectations. Bookings in the second quarter were $25 million. Our recent strategic expansion into the large-scale storage market has resulted in significantly larger average deal sizes with increased variability and increased project complexity.

And revenue substantially lower than expected, primarily due to unforeseen extensions of project timelines.

Bill: This was caused by certain customers project financing delays and extended interconnection approvals, we're seeing project delays impacting the broader industry. The shortfall was largely in storage hardware revenue, although our high margin software and services revenue was mostly in line with our expectations.

Bookings in the second quarter were $25 million, our recent strategic expansion into the large scale storage market has resulted in significantly larger average deal sizes with increased variability and increased project complexity.

John Carrington: This has protracted our sales cycle and negatively impacted our bookings for the first half of 2024. These projects were also impacted by the delay stemming from customer project financing, particularly tied to USDA funding. As we will discuss in further detail today, gap gross margins were 28%, and non-gap gross margins were 40%, representing a double-digit percentage point improvement relative to Q2 2023. Both GAAP and non-GAAP gross margins were significantly up year over year due to the lower than expected hardware revenue in the quarter.

John Carrington: This is protracted our sales cycle and negatively impacted our bookings in the first half of 2024. These projects were also impacted by the delays stemming from customer project financing, particularly tied to USDA funding. As we will discuss in further detail today, gap gross margins were 28 percent and non-gap gross margins were 40 percent, representing a double-digit percentage point improvement relative to Q2 2023. Both gap and non-gap gross margins were significantly up year over year due to the lower-than-expected hardware revenue in the quarter. Contracted annual recurring revenue our car was up 20 percent versus a second quarter of 2023, but relatively flat versus the first quarter of 2024 due to low-bookings.

This is protracted our sales cycle and negatively impacted our bookings in the first half of 'twenty 'twenty four.

Bill: These projects were also impacted by the delays stemming from customer project financings, particularly tied to U S. T a funding.

John Carrington: Contracted annual recurring revenue, or CAR, was up 20% versus the second quarter of 2023 but relatively flat versus the first quarter of 2024 due to low book. And lastly, operating cash flow was negative $12 million this quarter, a $154 million improvement over the same quarter last year. We are revising guidance to reflect the push out of planned project timelines, which Bill will provide more details during his portion of the call. Turning to the right side of the page,

John Carrington: And lastly, operating cash flow was negative $12 million this quarter, a $154 million improvement over the same quarter last year.

John Carrington: We were reviving guidance to reflect the push out of planned project timelines, which Bill will provide more details during his portion of the call. Turning to the right side of the page, despite these headwinds, we remain confident in the underlying business fundamentals. We continue to drive operating leverage with relatively flat year-over-year adjusted EBITDA results, despite a 63 percent decline in revenue year-over-year. This operating leverage is the result of an accelerated pace of software activations in the quarter, continued strong growth in solar asset performance management, and importantly, a shift towards a greater mix of software services revenue.

John Carrington: Despite these headwinds, we remain confident in the underlying business fundamentals. We continue to drive operating leverage with relatively flat year-over-year adjusted EBITDA results, despite a 63% decline in revenue year-over-year. This operating leverage is the result of an accelerated pace of software activations in the quarter, continued strong growth in solar asset performance management, and importantly, a shift towards a greater mix of software services revenue. We made significant progress converting PAR to Annual Recurring Revenue or ARR. We deployed over 300 MWh of storage assets this quarter, which combined with solar added approximately $3 million of ARR.

John Carrington: We made significant progress converting far to annual recurring revenue our ARR. We deployed over 300 megawatt hours of storage assets this quarter, which combined with solar added approximately $3 million of ARR. That includes our 40 megawatt hour deployment in Arizona, along with a substantial portion of our 313 megawatt hour project with Amoresco in Colorado. A great example of our focus on Muni, co-ops, and shift to larger projects.

John Carrington: That includes our 40-megawatt-hour deployment in Arizona, along with a substantial portion of our 313-megawatt-hour project with Amoresco in Colorado, a great example of our focus on muni, co-ops, and the shift to larger projects. Lastly, we continue to advance our software roadmap with significant progress in advancing next-generation offerings for optimization, asset management, and edge solutions. This technology platform positions the company for continued acceleration of ARR as customers standardize on our software services offering, and this should continue to drive operating leverage and improve cash flow generation in future quarters. On the next two slides, we'll take a deeper dive into factors currently impacting STEM. Let's go to slide five.

John Carrington: Jacks. Lastly, we continue to advance our software roadmap with significant progress in advancing next-generation offerings for our optimization, asset management, and edge solutions. This technology platform positions the company for continued acceleration of ARR as customers standardized on our software services offerings, and this should continue to drive operating leverage and improve cash flow generation in future quarters. On the next two slides, we'll take a deeper dive into factors currently impacting Stem. Let's go to slide five. Over the past two years, we've focused on the public power segment as these customers value the full stack of our offerings, including the need for sophisticated software to help them manage low growth in their service territory.

John Carrington: Over the past two years, we've focused on the public power segment as these customers value the full stack of our offerings, including the need for sophisticated software to help them manage load growth in their service territory. Since we made this strategic shift, we've built about 15% market share in public power, the fastest growing segment of the large-scale FTM market. However, we did not anticipate the recent delays in our customers' receipt of USDA funding.

John Carrington: Since we made this strategic shift, we've built about 15% market share in public power, the fastest growing segment of the large-scale FTM market. However, we did not anticipate the recent delays in our customers' receipt of USDA funding. Specifically, we have seen munis and coops rush to secure the USDA's pace and new era of financing vehicles, which has created a bottleneck on the review and distribution of this funding. In turn, this bottleneck has significantly impacted our project timelines and pushed out customer's ability to contract projects, which impact our bookings and hardware delivery, impacting our revenue.

John Carrington: Specifically, we have seen munis and co-ops rush to secure the USDA's PACE and New Era financing vehicles, which has created a bottleneck on the review and distribution of this funding. In turn, this bottleneck has significantly impacted our project timelines and pushed out customers' ability to contract projects, which impacts our bookings and hardware delivery, which impacts our revenue. This is the primary driver in our decision to adjust guidance for the balance of 2024. I would like to emphasize that none of the projects we built our guidance around in one queue have been cancelled.

John Carrington: This is the primary driver in our decision to adjust guidance for the balance of 2024. I would like to emphasize that none of the projects we built our guidance around in one queue have been canceled. Some projects are awaiting contracting, and some are awaiting on scheduling of hardware delivery. New projects continue to enter the pipeline, and existing public power pipeline deals are being evaluated for upsizing due to improved economics from USDA financing and lower battery prices.

John Carrington: Some projects are awaiting contracting, and some are awaiting the scheduling of hardware delivery. New projects continue to enter the pipeline, and existing public power pipeline deals are being evaluated for upsizing due to improved economics from USDA financing and lower battery prices. Please turn to slide six for a discussion of the factors impacting our results and our action plan to address these issues. On the left side, you can see the three key issues we are facing today, financing delays, interconnection delays, and policy-driven risk. These issues are prevalent across the renewable energy space.

John Carrington: Please turn to slide six for discussion of the factors impacting our results and our action plan to address these issues. On the left-hand side, you can see the three key issues we are facing today. So, an answering delays, interconnection delays, and the policy-driven risks. These issues are prevalent across the renewable space. On the right side, we list the actions we're taking to address these issues. We are diversifying our customer base, deepening our supply chain to include more optionality, and engaging with U.S. manufacturers of batteries and policymakers. Importantly, we are laser-focused on controlling operating expenses and are evaluating additional plans for driving efficiency across the organization.

John Carrington: On the right side, we list the actions we're taking to address these issues. We are diversifying our customer base, deepening our supply chain to include more optionality, and engaging with U.S. manufacturers of batteries and policymakers. Importantly, we are laser-focused on controlling operating expenses and are evaluating additional plans for driving efficiency across the organization. As our gross margin performance in the second quarter indicates, we can drive significant operating leverage through accelerating software activations and product launches. Despite that, we are building plans to deliver EBITDA positive at a meaningfully lower revenue level.

Bill: One across the renewable space.

Bill: On the right side, we list the actions we're taking to address these issues. We are diversifying our customer base deepening our supply chain to include more optionality and engaging with U S manufacturers of batteries and policymakers importantly, we are laser focused on controlling operating expenses and are evaluating additional.

Bill: Plans for driving efficiency across the organization as our gross margin performance in the second quarter indicates we can drive significant operating leverage through accelerating software activations and product launches. Despite that we were building plans to deliver EBITDA positive at a meaningfully lower revenue level.

John Carrington: As our gross margin performance in the second quarter indicates, we can drive significant operating leverage through accelerating software activations and product launches. Despite that, we are building plans to deliver even a positive at a meaningfully lower revenue level. To be clear, we anticipate these push projects to continue in our backlog, but are committed to delivering positive operating cash flow regardless of the impact of factors outside of our control. Our software-only offerings also continue to gain traction, which I will discuss in a moment.

John Carrington: To be clear, we anticipate these PUSH projects to continue in our backlog but are committed to delivering positive operating cash flow regardless of the impact of factors outside of our control. Our software-only offerings also continue to gain traction, which I will discuss in a moment. Now moving to slide seven for an update on our progress against guidance.

Bill: To be clear, we anticipate these push projects to continue in our backlog, but are committed to delivering positive operating cash flow regardless of the impact of factors outside of our control.

Bill: Our software only offerings also continue to gain traction, which I'll discuss in a moment.

John Carrington: As a reminder, in 2024, we focused on three key business and financial targets, cash flow generation, building software and services revenue, and extending our technology leadership position. First, our operating cash flow continues to improve, up $154 million versus the second quarter of last year. We continue to make solid progress on reducing our working capital intensity, and our net working capital has steadily decreased for five consecutive quarters.

John Carrington: Now, moving to slide seven for an update on our progress against guidance. As a reminder, in 2024, we focused on three key business and financial targets: cash flow generation, building software and services revenue, and extending our technology. First, our operating cash flow continues to improve, up $154 million versus the second quarter of last year. We continue to make solid progress on reducing our working capital intensity, and our networking capital has steadily decreased for five consecutive quarters. Second, our software revenue grew again this quarter, up 3% for storage and 1% for solar versus the first quarter of this year.

Bill: Now moving to slide seven for an update on our progress against guidance as a reminder, in 'twenty 'twenty four we focused on three key business and financial targets cash flow generation building software and services revenue and extending our technology leadership position.

Bill: First our operating cash flow continues to improve up $154 million versus the second quarter of last year, we continue to make solid progress on reducing our working capital intensity and our net working capital has steadily decreased for five consecutive quarters second our software revenue grew again this quarter.

John Carrington: Second, our software revenue grew again this quarter, up 3% for storage and 1% for solar versus the first quarter of this year. We converted $3 million of CAR to ARR and will provide more details on this progress on the following slide. Third, we are enhancing our technology stack with new features across our existing products and advancing new products such as Powertrack APM, which will launch in the fourth quarter of this year. At the REplus conference in September, we will provide the latest product demonstrations of PowerBitter Pro, Powertrack APM, and our Energy Management System, or EMS, offering.

John Carrington: We converted $3 million of cars into ARR and will provide more details on this progress on the following slide. Third, we are enhancing our technology stack with new features across our existing products and advancing new products such as PowerTrack APM, which will launch in the fourth quarter of this year. At the RE Plus Conference in September, we will provide the latest product demonstrations of PowerBitter Pro, PowerTrack APM, and our Energy Management System or EMS offerings.

John Carrington: Now let's turn to slide eight for a closer look at our software development progress in Q2. Since the beginning of this year, we've stepped up our focus on driving a high-velocity software development cadence. Our teams have advanced significant new product features and enhancements across our key product areas, including enhanced simulation tools for energy storage projects, continuing the work to deliver our next generation PowerTrack APM offering and integrating with hardware OEMs. This is a great opportunity to offer customers unparalleled flexibility in the design and modularity across their energy storage and solar projects. The key takeaway here is that we are expanding our technology leadership.

John Carrington: Now, let's turn to slide 8 for a closer look at our software development progress in Q2. Since the beginning of this year, we've stepped up our focus on driving a high-velocity software development capability. Our teams have advanced significant new product features and enhancements across our key product areas, including enhanced simulation tools for energy storage projects, continuing the work to deliver our next-generation Powertrack APM offering, and integrating with hardware OEMs to offer customers unparalleled flexibility in the design and modularity across their energy storage and solar projects. The key takeaway here is that we are expanding our technology leadership, and these additions to our high-margin software services should continue to fuel increasing annual Please turn to slide nine.

John Carrington: And these additions to our high-margin software services should continue to fuel increasing annual recurring revenue and improved operating leverage.

John Carrington: Please turn to slide nine. During the second quarter, we made substantial progress in growing our solar and storage annual recurring revenue, or ARR. On the storage side, we brought 334 megawatt hours of assets online. We deployed assets across the diversity of markets, customers, and use cases. We activated new regions like Indiana, and more than 289 megawatt hours of utility scale projects were deployed with coops and public power sector customers, increasing the company's growing foothold in that space. We deployed five of eight assets for Ameresco and Colorado and expected to bring the remaining systems online imminently.

John Carrington: During the second quarter, we made substantial progress in growing our solar and storage annual recurring revenue, or ARR. On the storage side, we brought 334 megawatt hours of assets online. We deployed assets across a diversity of markets, customers, and use cases. We activated new regions like Indiana, and more than 289 megawatt hours of utility-scale projects were deployed with co-ops and public power sector customers. Increasing the company's growing foothold in that space. We deployed five of eight assets for Amoresco in Colorado and expect to bring the remaining systems online imminently.

John Carrington: This quarter, storage deployments are equal to more than 5% of our total contracted AUM and a significant increase in ARR. We continue to optimize storage assets for both front of the meter and behind the meter customers across a variety of use cases, including energy, capacity, and ancillary revenue optimization, and utility bill optimization. In total, we activated $1.7 million of high margin storage ARR in the quarter. As we've highlighted in prior quarters, more than half of our contracted annual recurring revenue has not yet reached software activation at customer sites. We believe this is a significant source of earnings power as these customers achieve interconnection approvals, which we expect to continue to drive our industry-leading gross margin performance.

John Carrington: This quarter's storage deployments are equal to more than 5% of our total contracted AUM and a significant increase in ARR. We continue to optimize storage assets for both front-of-the-meter and behind-the-meter customers across a variety of use cases, including energy, capacity, and ancillary revenue optimization and utility bill optimization. In total, we activated $1.7 million of high-margin storage ARR in the quarter. However, as we've highlighted in prior quarters, more than half of our contracted annual recurring revenue has not yet reached software activation at customer sites.

John Carrington: We believe this is a significant source of earnings power as these customers achieve interconnection approvals, which we expect to continue to drive our industry-leading gross margin performance. Our solar business continued its consistent growth. We added another one million dollars of ARR in the second quarter.

John Carrington: Jones. Our solar business continued its consistent growth. We added another $1 million of ARR in the second quarter. We believe our solar business is an important source of delivering predictable growth and profitability through its large active base of ARR today.

John Carrington: We believe our solar business is an important source of delivering predictable growth and profitability through its large active base of ARR today. Let's turn to slide 10 to take a closer look at the positive trends in that business. We remain a market leader in CNI Solar Asset Performance Management, with steadily growing high-margin revenues for software, services, and our edge hardware device. Our customer satisfaction remains high, driving low churn, and we see significant growth potential internationally, where we have a lower market share today but significant recent customer wins pointing to an untapped opportunity for growth.

John Carrington: Let's turn to slide 10 to take a closer look at the positive trends in that business. We remain a market leader in CNI solar asset performance management with steadily growing high-margin revenues for software services and our edge hardware device. Our customer satisfaction remains high, driving low churn, and we see significant growth potential internationally, where we have a lower market share today but significant recent customer winds pointing to an untapped opportunity for growth. Our focus on large and more sophisticated customers has allowed us to consistently gain share and out for market growth rates. As you can see on the right side of the page, we have grown our ARR significantly with nine of our top 10 customers over the past year.

John Carrington: Our focus on large and more sophisticated customers has allowed us to consistently gain share and outperform market growth. As you can see on the right side of the page, we have grown our ARR significantly with nine of our top ten customers over the past year. With that, I will now turn the call over to Bill. Thanks, John.

John Carrington: With that, I will now turn the call over to Bill.

William Bush: Thanks, John.

Bill: Thanks, John. Starting on page 12, with our results for the second quarter of 2024. As John mentioned, revenue was down 63% year-over-year as we realized less storage hardware revenue this quarter, in large part because the company did not utilize working capital to fund lower-margin hardware sales through its balance sheet. As we have discussed, we modified our payment terms to eliminate the hardware drag on working capital, and as a result, there may be some instances of changes to product timelines to satisfy these new requirements.

William Bush: Starting on page 12 with our results for the second quarter of 2024. As John mentioned, revenue was down 63% year-over-year as we realized less storage hardware revenue this quarter, in large part because the company did not utilize more capital to fund lower margin hardware sales through its balance sheet. As we have discussed, we modified our payment terms to eliminate the hardware drag on the working capital and ever as a result. There may be some instances of changes to product timelines to satisfy these new requirements. You have heard us talk about our shift to software and services, and this quarter's margins are a preview of our longer term vision for the company.

Bill: You have heard us talk about our shift to software and services, and this quarter's margins are a preview of our longer-term vision for the company. As a result, we generated the highest GAAP and non-GAAP gross margins in our company history.

William Bush: As a result, we generated the highest gap and non-gap growth margins in our company history. As a demonstration of our continued focus on cost control, we sequentially decreased cash operating expenses by approximately 9%. And we expect to continue to maintain that focus. As an example of the permanent cost savings we have implemented, we recently reduced our real estate footprint, which will generate annual savings of approximately $3 million. In addition, we continue to reduce our cloud and data come costs as a percentage of operational assets, of which those are our two largest costs. As we advance through the year, we will continue to focus on cost reductions and improved efficiencies leading to positive ePTH outcomes.

Bill: As a demonstration of our continued focus on cost control, we sequentially decreased cash operating expenses by approximately 9%, and we expect to continue to maintain that focus. As an example of the permanent cost savings we've implemented, we recently reduced our real estate footprint, which will generate annual savings of approximately $3 million. In addition, we continue to reduce our cloud and Datacom costs as a percentage of operational assets, which those are our two largest costs.

Bill: As we advance through the year, we will continue to focus on cost reductions and improved efficiencies leading to positive EPSA. Adjusted EBITDA was nearly flat on a year-over-year basis, down just under $2 million despite a $59 million decrease in revenue. Again, this is a testament to our increased software and services revenue and continued cost controls, which are driving operating leverage. Our solar business was up 9% year over year and continues to generate strong gross margin performance from our market-leading share in the United States. We made an adjustment to our goodwill balance in the quarter with an approximately $550 million impairment charge.

William Bush: The adjusted EBITDA was nearly flat on a year-over-year basis, down just under $2 million, despite a $59 million decrease in revenue. Again, this is a testament to our increased software and services revenue and continued cost controls, which are driving operating leverage. Our solar business was up 9% year-to-year and continuing to generate strong growth margin performance from our market leading share in the United States. We made an adjustment to our Goodwill balance in the quarter within approximately $550 million in paramount charge. The adjustment is the result of a decline in the market capitalization and the reduction in our near-term guidance.

Bill: The adjustment is the result of a decline in the market capitalization and a reduction in our near-term guidance. While the goodwill balance resulted from the purchase of the solar business, which continues to perform well, as noted above, the analysis was based on the consolidated business and, in particular, the change in the market capitalization. Operating cash flow was a negative $12 million for the quarter, a major improvement over last year, as we continue to reduce our working capital usage.

William Bush: While the goodwill balance resulted from the purchase of the solar business, which continues to perform well as noted above, the analysis was based on the consolidated business, and in particular the change in the market capitalization. Cooperating cash flow was a negative $12 million for the quarter, a major improvement over last year, as we continue to reduce our working capital usage. We invested around $10 million in our debt co-visants this quarter, which will recirculate as high margin revenue in future quarters. If not for that investment, our operating cash flow would have been roughly flat and equal to last quarter's performance.

Bill: As we continue to reduce our working capital usage, we invested around $10 million in our Dev co businesses this quarter, which will serve recirculating as high margin revenue in future quarters, if not for that investment our operating cash flow would have been roughly flat and equal to last quarters performance.

Bill: We invested around $10 million in our Devco businesses this quarter, which will recirculate as high-margin revenue in future quarters. If not for that investment, our operating cash flow would have been roughly flat and equal to last quarter's performance. Please turn to slide 13.

William Bush: Please turn to slide 13. Backlog declined approximately $61 million over quarter, but was up $215 million year over year. The low level of bookings was the main driver of the quarter-over-quarter decline in the backlog. On a modeling note, you will see a negative $47 million dollar software and services adjustment in the backlog reconciliation table in the earnings release. This is larger than usual because we activated so many systems on the storage side of this quarter. Most of the systems carry a 20-year software contract, so the entire value of the contract follows out of backlogs. When the asset becomes operational, as we activate more storage systems with long-dated contracts in the coming quarters, you will see these higher declines in backlog. But, of course, that is a good thing.

Bill: Please turn to slide 13.

Bill: Backlog declined approximately $61 million quarter-over-quarter, but it was up $215 million year-over-year. The low level of bookings was the main driver of the quarter-over-quarter decline in the backlog. On a modeling note, you will see a negative $47 million software and services adjustment in the backlog reconciliation table in the earnings report. This is larger than usual because we activated so many systems on the storage side. Most of those systems carry a 20-year software contract, so the entire value of the contract falls out of backlog when the asset becomes operational.

Bill: Backlog declined approximately $61 million quarter over quarter, but was up $215 million year over year. The low level of bookings was the main driver of the quarter over quarter decline in the backlog.

Bill: On a modeling note you will see a negative $47 million software and services adjustment in the backlog reconciliation table in the earnings release.

Speaker Change: This is larger than usual because we activated so many systems on the storage side. This quarter most of the systems carry a 20 year software contract. So the entire value of the contract falls out of backlog when the asset becomes operational as we activate more storage systems with long dated contracts in the coming quarters, you'll see these higher declines.

Bill: As we activate more storage systems with long-dated contracts in the coming quarters, you will see these higher declines in backlog, but, of course, that is a good thing. It means that the system is now generating software revenue for us and a high gross margin. Bottom line, you should rely on the CAR and ARR metrics as you think about the software revenue potential of our business. CAR was relatively flat quarter to quarter, though ARR improved by about 7% sequentially as you activated more.

Speaker Change: Backlog, but of course that is a good thing it means that the system is now generating software revenue for us and high gross margin bottom line you should rely on the car in our metrics as you think about the software revenue potential of our business.

William Bush: It means that the system is now generating software revenue for us and high-grows margin. Bottom line, you should rely on the car and ARR metrics as you think about the software revenue potential of our business. Car was relatively flat quarter-over-quarter, though ARR proved by about 7% sequentially as we activated more systems. AUM for both solar and storage was relatively flat as well.

Speaker Change: Car was relatively flat quarter over quarter, though a R. R improved.

Speaker Change: Improved by about 7% sequentially as we activated more systems.

Bill: AUM for both solar and storage was relatively flat as well. Please turn to slide 14 for our revised guidance. As John mentioned, we are lowering our full-year guidance to $200 to $270 million for revenue and updating our quarterly expectations as well. We are disappointed that many of the projects we expected to recognize this year have been pushed out to 2025, but importantly, no high-impact projects have been canceled. As John mentioned, these projects have been pushed out due to a number of unforeseen issues, including interconnection delays, permitting, equipment availability, and USDA funding issues.

Speaker Change: AUM for both solar and storage was relatively flat as well.

William Bush: Please turn to slide 14 for our revised guidance. As John mentioned, we are lowering our full-year guidance to $200-$270 million dollars for revenue and updating our quarterly expectations as well. We are disappointed that many of the projects we expected to recognize this year have been pushed out to 2025, but importantly, no high-impact projects have been canceled. As John mentioned, these projects have been pushed out due to a number of unforeseen issues, including interconnection delays, permitting, equipment availability, and the USDA funding issues. We have good visibility into achieving the low end of the range, and to all of the storage projects we have financing and interconnections locked in, and our software and services revenue has strong visibility momentum.

Speaker Change: Please turn to slide 14 for our revised guidance.

Speaker Change: As John mentioned, we are lowering our full year guidance to 200 $270 million for revenue and updating our quarterly expectations as well we are disappointed that many of the projects. We expected to recognize this year its been pushed out to 2025, but importantly, no high impact projects have been canceled as John mentioned these.

Speaker Change: <unk> had been pushed out due to a number of unforeseen issues, including interconnection delays permitting equipment availability and the USDA funding issues.

Bill: We have good visibility into achieving the low end of the range, and so all of the storage projects we have financing and interconnections locked in, and our software and services revenue has strong visibility and momentum. We are raising our full year gross margin guidance to 25 to 30% as we recognize less lower-margin storage hardware revenue. Our software and services revenue is tracking roughly in line with what we expected at the beginning of the year.

Speaker Change: Have a good visibility into achieving the low end of the range and so all of the storage projects, we have financing in interconnections locked in and our software and services revenue has strong visibility and momentum.

William Bush: We are raising our full-year gross margin guidance to 25-30% as we recognize less lower-margin storage hardware revenue. Our software and services revenue is tracking, roughly in line with what we expected at the beginning of the year. We are also lowering our bookings guidance to a range of $600 million to $1.1 billion. Our pipeline remains healthy and continues to grow, but given the slow start to the year, we are tempering our full-year expectations. We are actively tracking several large projects which have been delayed from a contracting standpoint due to USDA delays. These projects are either using the PACE or New Era funding programs, and delays in those approvals slow the contracting process.

Speaker Change: We are raising our full year gross margin guidance to 25% to 30% as we recognized less lower margin storage hardware revenue, our software and services revenues tracking roughly in line with what we expected at the beginning of the year.

Bill: We are also lowering our bookings guidance to a range of $600 million to $1.1 billion. Our pipeline remains healthy and continues to grow, but given the slow start to the year, we are tempering our full year expectations. We are actively tracking several large projects which have been delayed from a contracting standpoint due to USDA delays. These projects are either using the PACE or New Era funding programs, and delays in those approvals slow the contracting process.

Speaker Change: We're also lowering our bookings guidance to a range of $600 million to $1 1 billion. Our pipeline remains healthy and continues to grow but given the slow start to the year. We are tempering, our full year expectations. We're actively attracting several large projects, which had been delayed from a contracting standpoint do the USDA delays.

Speaker Change: These projects are either using the pace, our new era funding programs and delays in those approvals slow the contracting process also because of the lower bookings trajectory. We're also lowering our year end car guidance to a range of $100 million to $110 million.

William Bush: Also, because of the lower bookings trajectory, we are also lowering our year-end car guidance to a range of $100 to $110 million. Because of our lower revenue and gross profit dollars, we now expect EBITDA in the range of negative $20 to negative $30 million.

Bill: Also, because of the lower bookings trajectory, we are also lowering our year-end car guidance to a range of $100 million to $110 million. Because of our lower revenue and gross profit dollars, we now expect EBITDA in the range of negative 20 to negative 30 million dollars. Finally, we still expect to generate positive operating cash flow of over $15 million. We believe we have sufficient liquidity to operate the business and do not expect to raise equity.

Speaker Change: Because of our lower revenue and gross profit dollars, we now expect EBITDA in.

Speaker Change: In the range of negative 20 to negative $30 million.

William Bush: Partners. Finally, we still expect to generate positive operating cash flow of over $15 million dollars in the year. We believe we have sufficient liquidity to operate the business and do not expect to raise equity. We made good progress this quarter reducing our accounts receivable balance, which declined approximately $30 million while maintaining our inventory balances at sustainable levels. We also made progress on finding buyers of the battery hardware, subject to the legacy price guarantees that we discussed last quarter. As we close out those transactions, our cash flow and liquidity should improve.

Speaker Change: Finally, we still expect to generate positive operating cash flow of over $15 million for the year.

Speaker Change: We believe we have sufficient liquidity to operate the business and do not expect to raise equity we.

Bill: We made good progress this quarter on reducing our accounts receivable balance, which declined approximately $30 million, while maintaining our inventory balances at a sustainable level. We also made progress on finding buyers for the battery hardware subject to the legacy price guarantees that we discussed last quarter, and as we close out those transactions, our cash flow and liquidity should improve. Please turn to slide 15.

Speaker Change: We made good progress this quarter on reducing our accounts receivable balance, which declined approximately $30 million or maintaining our inventory balances at sustainable levels.

Speaker Change: We also made progress in finding buyers for the battery hardware subject to the legacy price guarantees that we discussed last quarter and as we close out those transactions, our cash flow and liquidity should improve.

William Bush: Please turn to slide 15. On the right-hand side, you can see the key drivers of the reduction revenue in the adjusted evita. For revenue, around two thirds of the reduction is tied to delays in the receipt of funding, while the remainder driven by interconnection delays are the factors. Free Vida, the impact of these factors is roughly similar, although we are seeing some push out of our high margin dev co business, which has a greater impact on evita than revenue. Again, these projects are still contracted and advancing, and we expect them to generate revenue and margin as they come to fruition.

Speaker Change: Please turn to slide 15.

Bill: On the right-hand side, you can see the key drivers of the reduction in revenue in the adjusted EBITDA. For revenue, around two-thirds of the reduction is tied to delays in the receipt of funding, while the remainder is driven by interconnection delays and other factors. For EBITDA, the impact of these factors is roughly similar, although we are seeing some push-out of our high-margin DevCo business, which has a greater impact on EBITDA than revenue.

Speaker Change: On the right hand side, you can see the key drivers of the reduction in revenue and adjusted EBITDA for revenue around two thirds of the reduction is tied to delays in the receipt of funding while the remainder driven by interconnection delays and other factors for EBITDA. The impact of these factors is roughly similar although we are seeing some push out of our high margin Dev co business, which has it.

Speaker Change: Greater impact on EBITDA and revenue again these projects are still contracted and advancing and we expect them to generate revenue and margin as they come to fruition.

Bill: Again, these projects are still contracted and advancing, and we expect them to generate revenue and margin as they come to fruition. Despite these headwinds, we still expect to generate positive operating cash flow for the year. We have reduced our working capital significantly over the year, and we expect to continue to minimize working capital usage as we move forward. Please turn to slide 16.

William Bush: Despite these headwinds, we still expect to generate positive operating cash flow for the year. We have reduced our working capital significantly over the year, and we expect to continue to minimize working capital usage as we move forward.

Speaker Change: Despite these headwinds we still expect to generate positive operating cash flow for the year, we have reduced our working capital significantly over the year and we expect to continue to minimize working capital usage as we move forward. Please turn to slide 16, we believe our underlying business fundamentals are strong and we will continue to improve the factors under our control which should continue.

William Bush: Please turn to slide 16. We believe our underlying business fund and the middle is strong, and we will continue to improve the factors under our control, which should continue to accrue non-gap growth margin, providing operating leverage and continue to reduce working capital intensity. At the same time, we will work to minimize the uncontrollable factors you see on the right-hand side of the page, as John discussed earlier on our actions to mitigate their business impact in the future. We are managing the business to maximize cash flow and remain positive on our multi-year outlet for growth and profitability.

Bill: We believe our underlying business fundamentals are strong, and we will continue to improve the factors under our control. As a result, we should continue to accrue non-gap gross margins. Provide Operating Leverage, and Continue to Reduce Work Capital Intensity. At the same time, we will work to minimize the uncontrollable factors you see on the right-hand side of the page, as John discussed earlier, in our actions to mitigate their business impact in the future. We are managing the business to maximize cash flow and remain positive about our multi-year outlook for growth and profitability. With that, I will turn the call back to John for some closing remarks.

Speaker Change: To accrue non-GAAP gross margin, providing operating leverage and continue to reduce working capital intensity at the same time, we will work to minimize the uncontrollable factors you see on the right hand side of the page as John discussed earlier, our actions to mitigate their business impact in the future. We are managing the business to maximize cash flow and remain part of.

Speaker Change: <unk> on our multi year outlook for growth and profitability with that let me turn the call back to John for some closing remarks.

John Carrington: With that, let me turn the call back to John for some closing remarks. Thank you, Bill. Finally, on page 17, while we recognize this was a disappointing quarter from a financial perspective, our CAR to ARR conversion has been a core focus of the company, and we saw our best quarter and company history on storage software activations and gross margin. We activated over 300 megawatts hours of storage projects in the quarter, and most importantly, the projects are delayed, not canceled. Another key guiding principle is our focus on EBITDA and cash flow generations. Adjusted EBITDA remained relatively flat year over year, while revenue was off 63 percent, demonstrating continued operating leverage execution.

John Carrington: Thank you, Bill. Finally, on page 7.

John: Thank you Bill finally on page 17, while we recognize this was a disappointing quarter from a financial perspective, our car to air our conversion has been a core focus of the company and we saw our best quarter in company history on storage software Activations and gross margin.

John Carrington: While we recognize this was a disappointing quarter from a financial perspective, our car to ARR conversion has been a core focus of, and we saw our best quarter in company history on storage software activations and gross margin. We activated over 300 megawatts hours of storage projects in the quarter, and, most important, projects are delayed, not canceled. Another key guiding principle is our focus on EBITDA and cash flow generation. Adjusted EBITDA remained relatively flat year over year while revenue was off 63%, demonstrating continued operating leverage execution.

John: We activated over 300 megawatts hours of storage projects in the quarter and most importantly, the projects are delayed not canceled.

Speaker Change: Another key guiding principle is our focus on EBITDA and cash flow generation adjusted EBITDA remained relatively flat year over year, while revenue was off 63% demonstrating continued operating leverage execution in the quarter, we reduced cash operating expenses by 9%.

John Carrington: In the quarter, we reduced cash operating expenses by 9 percent. Our ARR was up 7 percent quarter over quarter, driving record GAAP and non-GAAP gross margins of 28 percent and 40 percent, respectively. And lastly, we reduced networking capital $26 million quarter over quarter and $162 million year over year. Based on our expected cash flow generation for the bounce of the year, we remain confident that no new equity will be required to fund the business.

John Carrington: In the quarter, we reduced cash operating expenses by 9%. Our ARR was up 7% quarter over quarter, driving record gap and non-gap gross margins of 28% and 40%, respectively. And lastly, we reduced net working capital by $26 million quarter over quarter and $162 million year over year. Based on our expected cash flow generation for the balance of the year, we remain confident that no new equity will be required to fund the company. I now would like to briefly discuss today's leadership. As you know, we've been focused on taking actions that will position our company for the future. The changes we announce today will support our continued focus on growing software services revenue.

Speaker Change: Our <unk> was up 7% quarter over quarter, driving record GAAP and non-GAAP gross margins of 28% and 40%, respectively, and lastly, we reduced net working capital of $26 million quarter over quarter and $162 million year over year based on.

Speaker Change: Our expected cash flow generation for the balance of the year, we remain confident that no new equity will be required to fund the business.

John Carrington: I now would like to briefly discuss today's leadership announcements. As you know, we've been focused on taking actions that will position our company for the future. The changes we announced today will support our continued focus on growing software services revenue. Extending our technology leadership and driving profitable growth. First, the manager changes we announced. Bill Bush will be stepping down as Chief Financial Officer on September 2. You will continue to lead our strategy targeting public power and large FTM projects, along with the supply chain team. And Prakesh Patel, our Chief Strategy Officer, is departing from the company effective immediately, with his responsibilities assumed by existing members of the management team.

Speaker Change: Now I'd like to briefly discuss today's leadership announcements as you know we've been focused on taking actions that will position our company for the future. The changes we announced today will support our continued focus on growing software services revenue.

Speaker Change: Extending our technology leadership and driving profitable growth first the management changes, we announced bill Bush will be stepping down as Chief Financial Officer on September 2nd you will continue to lead our strategy targeting public power and large F. T M projects, along with the supply chain team.

John Carrington: Extending our technology leadership and driving profitable growth. First, the management changes we announced. Bill Bush will be stepping down as Chief Financial Officer on September 2nd.

John Carrington: He will continue to lead our strategy targeting public power and large FTM projects along with the supply chain, and Prakesh Patel, our Chief Strategy Officer, is departing from the company, effective immediately, with his responsibilities assumed by existing members of the management. On behalf of the board and the management team, I'd like to thank Prakesh for his contributions to STEM over the years and wish him the best in future endeavors. He was an integral part of the core team that took STEM public and was a key player in building relationships with capital providers, stockholders, and analysts.

Speaker Change: And for cash Patel, our Chief strategy Officer is departing from the company effective immediately with his responsibilities assumed by existing members of the management team on behalf of the board and the management team I'd like to thank protest for his contributions to stem over the years and wish him the best in future endeavors for cash was an integral part of the.

John Carrington: On behalf of the board and the management team, I'd like to thank Prakesh for his contributions to Stem over the years and wish him the best in future endeavors. Prakesh was an integral part of the core team that took Stem public and was a key player in building relationships with capital providers, stockholders, and analysts. These changes will help us enhance our leadership and streamline our management structure to better align with our strategic and operational priorities. Doran Hall has been appointed as our new Chief Financial Officer and Executive Vice President, and he will also be responsible for the company Software and Services Group.

Speaker Change: Core team that took stem public and was a key player in building relationships with capital providers stockholders and analysts. These changes will help us enhance our leadership and streamlined our management structure to better align with our strategic and operational priorities Doran hole has been appointed as our new Chief Financial Officer and Exec.

John Carrington: These changes will help us enhance our leadership and streamline our management structure to better align with our strategic and operational priorities. Doren Hull has been appointed as our new Chief Financial Officer and Executive Vice President, and he will also be responsible for the company's software and services. Doran is an executive with more than 25 years of global finance and management experience, providing leadership and strategy and operational efficiency for the growing clean technology and energy sectors. He most recently served as EVP and CFO of Amoresco, where he led the company's financial strategy, capital management, and strategic digitization efforts across the organization.

John Carrington: Dorn has deep financial and business experience, strong strategic acumen, and proven leadership success. This will be critical to our goal of cash flow generation and increasing our software and services revenue. We look forward to welcoming him to our team on September 2nd and fostering a seamless transition with Bill.

Doran: <unk> Vice President and he will also be responsible for the company's software and services group Dorn as an executive with more than 25 years of global finance and management experience, providing leadership and strategy and operational efficiency and the growing clean technology industry.

John Carrington: Doran is an executive with more than 25 years of global finance and management experience, providing leadership and strategy and operational efficiency in the growing clean technology industry. He most recently served as EVP and CFO of Ameresco, where he led the company's financial strategy, capital management, and strategic digitization efforts across the organization. Doran has deep financial and business experience, strong strategic acumen, and proven leadership success. This will be critical to our goal of cash flow generation and increasing our software and services revenue. We look forward to welcoming him to our team on September 2nd and fostering a seamless transition with Bill.

Speaker Change: He most recently served as EVP and CFO of <unk>, where he led the company's financial strategy capital management and strategic Digitization efforts across the organization during his deep financial and business experience strong strategic acumen and proven leadership success.

Speaker Change: This will be critical to our goal of cash flow generation and increasing our software and services revenue. We look forward to welcoming them to our team on September 2nd and fostering a seamless transition with bill we.

John Carrington: We are also committing a strategic review of the business. Our newest board members, Gerard Cunningham, has been appointed chair of an ad hoc software strategy working group that will closely align with the management team to expand this strategy. We have seen strong initial customer reaction to our software-only product offering and believe that this business represents an attractive long-term opportunity for enhanced strategic focus and shareholder value creation. At the board level, David Busby, who will continue to serve in his current role as chairman of the board of directors, has also been appointed executive chair of the board to partner with me on the strategic review of our business.

John Carrington: We're also commencing a strategic review of the business. Our newest board member, Gerard Cunningham, has been appointed chair of an ad hoc software strategy working group that will closely align with the management team to expand this strategy. We have seen strong initial customer reaction to our software-only product offering and believe that this business represents an attractive long-term opportunity for enhanced strategic focus and shareholder value creation. At the board level, David Busby, who will continue to serve in his current role as Chairman of the Board of Directors, has also been appointed Executive Chairman of the Board to partner with me on the strategic review of our business.

Speaker Change: We're also commencing a strategic review of the business our newest board members yard Cunningham has been appointed chair of an AD hoc software strategy working group that will closely align with the management team to expand the strategy. We have seen strong initial customer reaction to our software only product offering and believe the business and believe that this.

Speaker Change: Business represents an attractive long term opportunity for enhanced strategic focus and shareholder value creation at the board level, David Busby, who will continue to serve in his current role as chairman of the board of Directors has also been appointed executive chair of the board to partner with me on the strategic review of our business Laura type.

John Carrington: Laura Tyson, a STEM director since 2021 and current chair of the Nominating Governance and Sustainability Committee, has been appointed lead independent director of the board effective immediately. In closing, I want to thank our global team for the continued commitment and contributions to our mission. We have an exceptional talent base and remain confident in our ability to extend our leadership position on a global level.

John Carrington: Laura Tyson, a STEM director since 2021 and current chair of the nominating Governance and Sustainability Committee, has been appointed lead independent director of the board, effective immediately. In closing, I want to thank our global team for the continued commitment and contributions to our mission. We have an exceptional talent base and remain confident in our ability to extend our leadership position on a global level. Operator, let's open the line for questions.

Speaker Change: Often they stem director since 2021, and current chair of the nominating governance and sustainability Committee has been appointed lead independent director of the board effective immediately in closing I want to thank our global team for their continued commitment and contributions to our mission, we have an exceptional talent base and remain confident.

Speaker Change: And our ability to extend our leadership position on a global level operator, let's open the line for questions. Please.

Operator: But, operator, let's open the line for questions, please. You will now begin the question and answer session. To ask a question, you may press star, then one on your touchtone phone. If you're using a speaker phone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw it, please press star, then two. At this time, we will pause momentarily to assemble our office.

Operator: We will now begin the question and answer session. To ask a question, you may press star, then one on your touch-tone phone. If you're using a speaker phone, please pick up your handset before pressing the keys. If at any time your question has been answered and you would like to withdraw it, please press star, then two. At this time, we will pause momentarily to assemble RF. Our first question comes from Justin Clare of Roth Capital Park. Please go ahead.

Speaker Change: We will now begin the question and answer session.

Speaker Change: To ask a question you May press Star then one on your Touchtone phone if youre using a speakerphone. Please pick up your handset before pressing the keys if at any time. Your question has been addressed and you would like to withdraw. It. Please press Star then two at this time, we will pause momentarily to assemble our roster.

Justin Clare: Professor. Our first question comes from Justin Clare of Roth Capital Partners. Please go ahead. Hi, thanks for taking our questions there. So first off, wanted to start with the USDA financing. What's just wondering if you could share a little bit more about the bottleneck that is incurring in terms of your customers being able to secure that financing. And then maybe if you could provide any visibility you have into, you know, when that financing gets unlocked and these projects can start moving forward. And then I wanted to also clarify, you know, on slide six, this is more than one billion of projects delayed.

Speaker Change: Our first question comes from Justin Clare of Roth Capital Partners. Please go ahead.

Justin Clare: Hi, thanks for taking our questions there. So, first off, I wanted to start with USDA financing. I was just wondering if you could share a little bit more about the bottleneck that is occurring in terms of your customers being able to secure that financing, and then maybe if you could provide any visibility you have into when that financing gets unlocked and these projects can start moving forward. And then I wanted to also clarify, you know, on slide six, this is more than 1 billion projects delayed. So, does that mean more than 1 billion of your 1.6 billion backlog is dependent on this financing, you know, supporting the project?

Justin Clare: Hi, Thanks for taking my questions here. So first of all wanted to start with the USDA financing was just wondering if you could share a little bit more about the bottleneck that is incurring in terms of your customers being able to secure that finding.

Speaker Change: And then maybe if you could provide any visibility you have into.

Speaker Change: When that financing gets unlocked and these projects can start moving forward.

Speaker Change: And then.

Speaker Change: It also clarify you know on slide six this is more than 1 billion of projects delayed. So it does so does that mean more than $1 billion of your $1 6 billion backlog.

Justin Clare: So does that mean more than one billion of your 1.6 billion backlog is dependent on this financing, you know, supporting the projects.

Speaker Change: Is dependent on this financing.

Speaker Change: Supporting the projects.

Bill: So, Justin, this is Bill. Thanks for the question. So I'll kind of answer those in reverse. So the first question is on the one, the more than $1 billion, is that in the backlog? Many of those projects are actually not in the backlog, so that would be incremental to the $1.6 billion in total backlog. So the way, basically, and this is kind of leading into the rest of your answer, but the way these projects generally work is that they cannot contract.

Speaker Change: So.

William Bush: So Justin, this is Bill. Thanks for the question. So I'll kind of answer those in reverse. So the first question is on the one, the more than one billion. Is that in the backlog? Many of those projects are actually not in the backlog. So that would be incremental to the 1.6 billion in total backlog. So the way, basically, and this is kind of leading into the rest of your answer. But the way these projects generally work is that they cannot contract. So the entity which we would be providing serving a hardware and services to and software and services would generally not be able to contract until they have a number of items completed.

Speaker Change: Justin This is bill and thanks for the question, so I'll kind of answer those in reverse.

Justin: So the first question is on the one.

Speaker Change: More than 1 billion is that in the backlog many of those projects are actually not in the backlog so that would be incremental to the $1 6 billion in total backlog. So the way basically and this is kind of leading into the rest of your answer but the way. These projects generally work is that they cannot contract so the entity, which we.

Bill: So the entity to which we would be providing hardware and services and software and services would not be in the backlog, would generally not be able to contract until they have a number of items. And that includes things like, you know, depending on where the site is, of course, but potentially a NEPA review as well as other development tasks.

Speaker Change: We would be providing server hardware and services two in software and services would generally not be able to contract until they have.

Speaker Change: A number of items.

Speaker Change: Completed and that includes things like depending on where the site is of course, but potentially NEPA review as well as other development tasks and so for that purpose, they're not allowed under the new era and the pace funding, they're not allowed to start the contracting process and.

William Bush: And that includes things like, you know, depending on where the site is, of course, but potentially a NEPA review as well as other development tasks. And so for that purpose, they're not allowed under the new era and the pace funding. They're not allowed to start the contracting process until that is complete. And so I think that's, that's really where we are. So we, you know, we have verbal commitments from these partners that they're going to award a project as they get past those milestones and that lock that net funding is locked in. And so this kind of kind of rolls a little bit into some of the election situation, and that I think what's happening is really kind of two things.

Bill: And so for that purpose, they're not allowed under the new era and the PACE funding to start the contracting process until that is completed. And so I think that's really where we are. So we have verbal commitments from these partners that they're going to award us the project as they get past those milestones, and that net funding is locked in. And so this kind of rolls a little bit into some of the election situation. And then I think what's happening is really kind of two things.

Speaker Change: That is complete and so I think that that's really where we are and so we you know we have verbal commitments from these partners that they're going to award us the project as they get past those milestones in that lock that in that funding is locked in and so this is kind of our role as a little bit into some of the election situation and then I think what's happening.

Speaker Change: It's really kind of two things one as Jon mentioned, there's a lot of these entities that were working with at our are applying for these fundings and it's actually oversubscribed at this point. So then the government has as we understand it is committed to making all of these projects work, but they also have the issue that within the.

William Bush: One, as John mentioned, there's a lot of these entities that we're working with that are applying for these funding. And it's actually oversubscribed at this point. So the government, as we understand, is committed to making all these projects work. But they also have the issue that within the system, they have to be able to be qualified. And so the government, what the USDA right now, which is ministers, both of these two programs, is doing, as we understand it, is really making sure that all the i's are dotted and the t's are crossed. So to the extent that there is a potential for, you know, a different government coming in that these projects couldn't cancel.

Bill: One, as John mentioned, there are a lot of these entities that we're working with that are applying for these fundings, and it's actually oversubscribed at this point. So then the government is, as we understand it, committed to making all these projects work. But they also have the issue that, within the system, they have to be able to be qualified.

Speaker Change: The system, they have to be able to be able to be qualified and so the government what the USDA right now which administers both of these two programs is doing is as we understand it is really making sure that all the i's are dotted and t's are crossed so to the extent that there is a potential for you know a different <unk>.

Bill: And so what the USDA right now, which administers both of these two programs, is doing, as we understand it, really making sure that all the I's are dotted and the T's are crossed. So to the extent that there is a potential for a different government coming in, these projects couldn't be canceled. So that's really the most important thing is that they're doing all of the work to make sure that these projects are eventually awardable.

Speaker Change: <unk> coming in that these projects can be cancelled. So that's really the most important thing is that theyre doing all the work to make sure that these projects are eventually awarded will and I think it's important to note that many of these projects are actually in Red States, which are you know what I'm focused on rural electric electrification. So we think that the you know Erie.

William Bush: So that's really the most important thing is that they're doing all of the work to make sure that these projects are eventually awardable. And I think it's important to note that many of these projects are actually in red states, which, you know, are focused on rural electrification. So we think that the, you know, irrespective of government, that these things are going to move forward. But I think what's happening right now is the USDA folks that I actually talked with when I was down in ribbon cutting here just a little bit ago. They're just wanting to make sure that none of the projects fall apart later on because they're so important to their local community.

Bill: And I think it's important to note that many of these projects are actually in red states, which are focused on rural elections and electrification. So we think that, irrespective of government, these things are going to move forward. But I think what's happening right now is the USDA folks that I actually talked with when I was down here for the ribbon cutting just a little bit ago. They're just they're just wanting to make sure that none

Speaker Change: Back to the government that these things are going to move forward, but I think what's happening right now is that the USDA folks that I actually talked with when I was down at ribbon cutting here, just a little bit ago, but they're just they're just wanting to make sure that none of the projects fall apart later on because they're so important to their local communities.

William Bush: Okay, I got it. And then, so maybe just following up on that, the, so can you share how much of your current backlog the 1.6 billion is dependent on the USA, USDA financing? We, you know, right now it's about less than a third. Less than a third. Okay.

Bill: Okay, got it. And then maybe just following up on that, can you share how much of your current backlog, the 1.6 billion, is dependent on USA, USDA financing?

Speaker Change: Okay got it.

Speaker Change: And then maybe just following up on on that.

Speaker Change: So can you share how much of your current backlog the $1 6 billion is dependent on the USA USDA financing.

Bill: We, you know, right now it's about less than a third.

Speaker Change: We you know right now its about less than a third no less than a third okay.

Bill: And then just one more, just curious about the interconnection delays, you know, how long the delays might be and how much of the guidance reduction was as a result of those kinds of delays.

William Bush: And then just one more, just curious on the interconnection delays, you know, how long the delays might be and how much of the guidance reduction was as a result of those kinds of delays. Okay. It's really, I would say, difficult, you know, because you got to do a project-by-project analysis to be able to answer that fully. But in general, what we're seeing, and I think we've mentioned this before, is an extending of interconnection timeframes. And so like as a, for instance, in Texas market, which we do quite a bit of work in, I mean, we've generally seen projects, you know, or say interconnection approvals extending between 18 and 24 months.

Speaker Change: And then just one more I'm just curious on the interconnection delays you know how long the delays might be and how much of the guidance reduction was as a result.

Speaker Change: All of those kinds of delays.

Bill: Okay, it's really, I would say, difficult, you know, because you've got to do a project-by-project analysis to be able to answer that fully. But in general, what we're seeing, and I think we've mentioned this before, is an extension of interconnection timeframes. And so, like, for instance, in Texas, a market we do quite a bit of work in, I mean, we've generally seen projects, you know, or say interconnection approvals extending between 18 and 24 months. And so, that's definitely longer than we saw when we first got started in Texas, now, three years ago. So, yeah, that definitely has had an impact.

Speaker Change: Okay, It's really I would say difficult you know because you've got to do a project by project analysis to be able to answer that fully but in general what we're seeing and I think we've mentioned this before is it in extending our interconnection timeframes and so like as a for instance, in Texas market, which we do quite a bit of work in I mean, we've generally.

Speaker Change: Seen projects.

Speaker Change: Or say interconnection approvals extending between 18 and 24 months and so that's definitely longer than we saw when we first got started in Texas now three years ago. So yeah that definitely has had an impact in terms of the guidance push out there's really it comes down to just a few projects I mean, because one of the things that has happened in this transition.

William Bush: And so that's definitely longer than we saw when we first got started in Texas, now three years ago. So, you know, that definitely has had an impact. In terms of the guidance push out, there's really a comes down to just a few projects. I mean, because one of the things that has happened in this transition that John mentioned is that we've moved to larger projects. And so those larger projects create a lumpier version of the P&L than maybe what we saw in the past, where we have, you know, like a good example of this United Power contract that John mentioned, you know, that, you know, really drove a lot of the ARR conversion in this quarter.

Bill: In terms of the guidance pushout, there's really, it comes down to just a few projects. I mean, because one of the things that has happened transition that John mentioned is that we've moved to larger projects and so those larger projects can create a lumpier version of the P&L than maybe what we saw in the past where we have you know he's like a good example is this United Power Contract that John mentioned you know that you know really drove a lot of the ARR conversion this quarter and that's a 300 megawatt hour project and we're seeing more and more like that I mean like the one that we announced here you know coming up on six eight months ago with APCO which is you know 1.3 gigawatts and so I think or gigawatt hours importantly so you really you know you have these larger projects and they have a lumpier impact and so when you look at the guidance and which is what we pointed out on one of the slides was that had those not pushed out we actually were on track to meet our guidance but one of the things that's happened is it's really a combination of things one is that high voltage transformers are harder and harder to get and many of these groups want to use U.S. and really kind of maybe call it non-Chinese transformer product, which means that there's only a couple of manufacturers that can make those devices.

John: John mentioned is that we've moved to larger projects and so those larger projects and create all of them are lumpier version of the P&L than maybe what we saw in the past where we have you know he's like a good example is the United power contract that John mentioned, you know that you know really drove a lot of the a or our conversion this quarter.

William Bush: And that's a 300 megawatt-hour project. And we're seeing more and more like that. You know, like the one that we announced here, you know, coming up on six, eight months ago with APCO, which is, you know, 1.3 gigawatts. And so I think gigawatt hours is important. So you really, you know, you have these larger projects, and they have a lumpier impact. And so when you look at the guidance, which is what we pointed out on the slides, was that had those not pushed out, we actually were on track to meet our guidance. But one of the things that's happened is it's really a combination of things.

Speaker Change: And that's a 300 megawatt hour project, we're seeing more and more like that I mean like the one that we announced here coming up on six to eight months ago with Atco, which as you know 1.3, gigawatts and so I think or gigawatt hours importantly, so he really had these larger projects and they have a lumpier impact.

Bill: And so when you look at the guidance and which is what we pointed out on one of the slides was that had those not pushed out we actually were on track to meet our guidance, but one of the things that has happened is it's really a combination of things one is.

William Bush: One is that high voltage transformers are harder and harder to get. And many of these groups want to use U.S. and really kind of maybe call it non-Chinese transformer product, which means that there's only a couple of manufacturers that can make those devices. And so you've got to, you know, in some ways, there's a line there. Then you have interconnection and some of these other issues that just run into these projects. And so we were hopeful that we were going to have; we were going to be able to get past that. But we just, you know, after talking with our customers, we just realized that it was less likely that was going to happen.

Bill: Is that high voltage transformers are harder and harder to get and many of these these groups want to use.

Speaker Change: U S and it's really kind of maybe call it non Chinese transformer product, which means that there's only a couple of manufacturers that can make those devices and so you've got a you know in some ways. There's a line. There then you have interconnection and some of these other issues to just run into these projects and so we were hopeful that we were gonna have we were gonna be able to get past that.

Bill: And so you've got to, you know, in some ways, there's a line there. Then you have interconnection and some of these other issues that just run into these projects. And so we were hopeful that we were going to have, we were going to be able to get past that. But we just, you know, after talking with our customers, we just realized that it was less likely that that was going to happen. And so we wanted to accurately reflect that in the guidance.

Bill: But we just you know after talking with our customers. We just realized that it was less likely that was going to happen and so we wanted to accurately reflect that in the guidance.

William Bush: And so we wanted to accurately reflect that in the guidance.

William Bush: Okay. Great. I appreciate it. Thank you. Absolutely.

Bill: Okay, great. I appreciate it.

Speaker Change: Okay, Great I appreciate it thank you.

Speaker Change: Absolutely.

Speaker Change: Yeah.

Thomas Boyes: The next question comes from Thomas Boyas of TD Cohen. Please go ahead. Appreciate you taking the questions. One is, you know, great to see the SSVEC project. I was just wondering for those with the three projects in total. Are any of those using kind of the remaining hardware that was under the guarantee, you know, in it? That kind of included in the previously disclosed $50 million outstanding, or would that be part of that kind of remaining balance?

Thomas Boyes: The next question comes from Thomas Boyes of T.D. Cohen. Please go ahead.

Bill: The next question comes from Thomas Boyes of T D.

Speaker Change: Please go ahead.

Thomas Boyes: I appreciate you taking the questions. One is, you know, great to see the SSVEC project. I was just wondering if, for this, the three projects in total, are any of those using kind of the remaining hardware that was under the guarantee? You know, and if that kind of is included in the previously disclosed $50 million outstanding, or would that be part of that kind of remaining balance?

Thomas Boyes: I appreciate you taking the questions one was great to see the S. S. V. C project I was just wondering if this is the three projects in total.

Speaker Change: It is using kind of the remaining hardware that was under the guarantee.

Speaker Change: And then.

Thomas Boyes: But kind of included in the previously disclosed $50 million outstanding or would that be part of that remaining balance now.

Bill: No, they're... So the equipment that is running his SunGrow equipment is not part of that particular project. So we are working on other Devco projects, you know, which are generally described as 10 megawatt, you know, in this case, 10 megawatt hours. And so those are the types of projects which we would expect to use that access hardware.

William Bush: Now, so the equipment that is remaining is Sungrove equipment and that is not part of that particular project. So we are working on other DevCo projects, which are generally described as 10 megawatt, in this case 10 megawatt hours. So those are the types of projects which we would expect to use that access hardware on.

Speaker Change: No there <unk>.

Speaker Change:

Bill: Got it. That's helpful.

Bill: So the equipment that is remaining is sun grow equipment and that is not part of that particular project.

Speaker Change: We are working on other projects, which.

Speaker Change: Which are generally described as 10 megawatt you know in this case 10 megawatt hours and so that's those are the types of projects, which we would expect to use that that access hardware alone.

Thomas Boyes: Got it, I'm so full. And then could you talk a bit about some of the unique drivers that you're seeing for demand in the solar business, because your outline is kind of the EU and Japan. And then are those specific companies that are countries that you're focusing on in Europe?

Bill: And then, you know, could you talk a bit about some of the unique drivers that you're seeing for demand in the solar business? Because you had outlined the EU and Japan. And then are there specific companies that you're targeting or countries that you're focusing on in Europe?

Speaker Change: Got it that's helpful and then.

Speaker Change: Could you talk a bit about some of the unique drivers that you're seeing for demand in the solar business. Because you had outlined kind of the EU and Japan and then are there specific companies that you're or countries that you're focusing in Europe.

John Carrington: Yeah, and Tom's John Carrington, a couple things. I think the install base and the Power Track portfolio and platform is very compelling to customers. And we continue, as you see on one of our slides, number 10 specifically, how that ARR is increasing on a customer-by-customer level. And from a geographic standpoint, we're seeing growth in Europe, seeing growth in Japan. We announced a nice project in Hungary. So it's pretty, it's pretty broad based. And I think that you'll continue to see more momentum in those markets because we do have teams in both of those focused on the solar and actually getting a fair amount of incoming around storage.

John Carrington: Yeah, Thomas, John Carrington, a couple things I think are the installed base and the Powertrack portfolio and platform are very compelling to customers. And we continue, as you see on one of our slides, number 10, specifically how that ARR is increasing at a customer by customer level. And from a geographic standpoint, we're seeing growth in Europe, seeing growth in Japan, we announced a nice project in Hungary. So it's pretty, it's pretty broad.

Speaker Change: Yeah, Thomas John Carrington, a couple of things I think are the installed base and be Howard track portfolio and platform is very compelling to customers and we continue as you see on one of our slides number 10, specifically how that eight hours increasing at a customer.

Speaker Change: By customer level and from a geographic standpoint, we're seeing growth in Europe seen growth in Japan.

John Carrington: And I think that you'll continue to see more momentum in those markets because we do have teams in both of those focused on solar and actually getting a fair amount of incoming around storage. But we're excited about the way the business is performing. And you can also see 19% CAGR on the software revenue as well. I mean, it's a business that continues to be very strong and a very important part of our total portfolio offering.

John Carrington: It's a nice project and hungry so it's pretty it's pretty broad based and I think that you'll continue to see more minimum memorandum in those markets. Because we do have teams in both of those focused on the solar and actually getting a fair amount of incoming around storage, but.

John Carrington: But we're excited about the way the business is performing. And you can also see 19% Kagger on the software revenue as well. I mean, it's a business that continues to be very strong and a very important part of our total portfolio offering.

John Carrington: We're excited about the way the business is performing and you can also see 19% CAGR on the software revenue as well I mean, it's a it's a business that continues to be very strong and a very important part of our total portfolio offering.

John Carrington: Yeah.

John Carrington: And maybe as a quick follow-up there, just because historically, you know, on the storage side, you've been focused on the US for storage opportunities, say in the EU or in Europe. Would that be driven from a customer who's also coming, you know, through kind of a solar vector, or would you, you know, are you kind of looking more broadly? Yeah, I mean, our team out of Europe is primarily around the solar side of our business. I was referencing more incoming to them on their customer base that is asking about what we could do on the storage front.

John Carrington: Got it. And maybe as a quick follow-up there, just because historically, you know, on the storage side, you've been focused on the US for storage opportunities, say in the EU or in Europe, would that be driven from a customer who's also coming through through kind of a solar vector, or would you, you know, are you kind of looking more broadly?

Speaker Change: Got it and maybe as a quick follow up there just because historically you know on the storage side, you've been focused on the U S for storage opportunity say in the EU or in Europe would that be driven from a customer who is also coming through through kind of a solar vector or would you are you.

Speaker Change: Kind of looking more broadly yes.

John Carrington: Yeah, I mean, our team out of Europe is primarily focused on the solar side of our business. I was referencing more inbound calls to them from their customer base that is asking about what we could do on the storage front. So it's really a lot of existing customers and customers that want to use Powertrack and have an opportunity to expand at a certain site with storage. But kind of both, if you will, Greenfield, new, new, as well as existing customers on new sites. I got it.

Speaker Change: Yeah, I mean, our team out of Europe is primarily around the solar side of our business I was referencing more incoming to them on their customer base that is asking about what we could do on the storage front. So it's it's really a lot of existing customers and or customers that.

John Carrington: So it's really a lot of existing customers and/or customers that want to use Power Track and have an opportunity to expand a certain site with storage. But kind of both, if you will, Greenfield, new news as well as existing customers on new sites.

Speaker Change: Why do you use power track and have an opportunity to expand at a certain site with storage, but kind of both if you will greenfield new new as well as existing customers on new sites.

Thomas Boyes: Got it. I appreciate the clarity there.

Thomas Boyes: Got it. I appreciate the clarity there. I'll hop back in queue. Thanks.

Speaker Change: Got it I appreciate the clarity there I'll hop back in queue. Thanks.

Operator: I'll hop back into you. Thanks. Once again, if you have a question, please press star, then one to join the queue.

Operator: Once again, if you have a question, please press star and then one to join the queue. This concludes our question and answer session. I would like to turn the conference back over to Mr. John Carrington for any closing remarks. Okay, well, thank you.

Speaker Change: Once again, if you have a question. Please press star then one to join the queue.

Operator: This concludes our question and answer session.

Speaker Change: This concludes our question and answer session I would like to turn the conference back over to Mr. John Carrington for any closing remarks.

John Carrington: I would like to turn the conference back over to Mr. John Carrington for any closing remarks. Okay. Well, thank you very much for joining our second quarter earnings call and look forward to speaking with you again on our third quarter call in the fall.

John Carrington: Okay, well, thank you very much for joining our second quarter earnings call, and I look forward to speaking with you again during our third quarter call in the fall.

John Carrington: Okay, well. Thank you very much for joining our second quarter earnings call and look forward to speaking with you again on our third quarter call in the fall.

Operator: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

Operator: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

Speaker Change: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

Speaker Change: [music].

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