Q3 2025 Stem Inc Earnings Call

Speaker #3: Ladies and gentlemen . Greetings and welcome to the Stem . Third quarter 2025 results conference call . At this time , all participant lines are in .

Operator: Ladies and gentlemen, greetings and welcome to the Stem Inc. Third Quarter 2025 Results Conference Call. At this time, all participant lines are in the listen-only mode. A brief question and answer session will follow the formal presentation. If anyone requires operator assistance during the conference, please signal the operator by pressing star and zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host for today, Erin Reid, Head of Investor Relations. Please go ahead.

Speaker #3: Listen only mode . A brief question and answer session will follow the formal presentation . If anyone requires operator assistance during the conference , please signal the operator by pressing star and zero on your telephone keypad .

Speaker #3: As a reminder , this conference is being recorded . It is now my pleasure to introduce your host for today , Erin Reid , Investor Relations Manager .

Speaker #3: Please go ahead .

Speaker #4: Thank you . Operator . This is Erin Reid , head of relations at Stem . We welcome you to our third quarter 2020 earnings call .

Erin Reid: Thank you, Operator. This is Erin Reid, Head of Investor Relations at Stem Inc. We welcome you to our Third Quarter 2025 Earnings Call. Before we begin, please note that some of the statements we will be making today are forward-looking. These statements involve risks and uncertainties that could cause our results to differ materially from those projected in these statements. We therefore refer you to our latest 10-Q, 10-K, and other SEC filings and supplemental materials, which can be found on our website. 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 Third Quarter 2025 Earnings Release, which is on our website. Arun Narayanan, CEO, and Brian Musfeldt, CFO, will start the call today with prepared remarks, then we will take your questions. I will turn the call over to Arun.

Speaker #4: Before we begin , please note that some of the statements we will be making today are forward looking . These statements involve risks and uncertainties that could cause our results to differ materially from those projected in these statements .

Speaker #4: We therefore refer you to our latest 10-q , 10-K and other SEC filings and supplemental materials , which can be found on our website .

Speaker #4: Our comments today also include non-GAAP financial measures . Additional details and reconciliations to the most comparable GAAP financial measures can be found in our third quarter 2020 earnings release , which is on our website .

Speaker #4: Arun Narayanan . CEO and Brian Musfeldt CFO will start the call today with prepared remarks , and then we will take your questions .

Speaker #4: And now I will turn the call over to Arun .

Speaker #5: Thanks , Erin . Hello , everyone , and thank you for joining us today . Q3 2025 marks 12 months since we announced our strategic realignment , and I'm proud to report that our transformation continues to deliver tangible , positive results .

Arun Narayanan: Thanks, Erin. Hello everyone, and thank you for joining us today. Q3 2025 marks 12 months since we announced our strategic realignment, and I'm proud to report that our transformation continues to deliver tangible, positive results. Today, we reported third quarter revenue of $38 million, up 31% year over year, with ARR growing 17% year over year to $60 million. We achieved our second consecutive quarter of positive adjusted EBITDA and generated positive operating cash flow. Our software-centric strategy is delivering results. The success of our strategic transformation is evident in our consistent earnings performance, with steady growth in software and services revenue and continued improvement across key profitability metrics. As we maintain disciplined cost management, we believe we have achieved operational stability, and our high-performing team is laser-focused on execution and results.

Speaker #5: Today , we reported third quarter revenue of $38 million , up 31% year over year with IRR growing 17% year over year to 60 million .

Speaker #5: We achieved our second consecutive quarter of positive adjusted EBITDA and generated positive operating cash flow . Our software centric strategy is delivering results .

Speaker #5: The success of our strategic transformation is evident in our consistent earnings performance , with steady growth in software and services revenue and continued improvement across key profitability metrics .

Speaker #5: As we maintain disciplined cost management . We believe we have achieved operational stability and our high performing team is laser focused on execution and results .

Speaker #5: Today , we are also refining guidance to reflect our revised forecast , which we will go into more detail later in the call .

Arun Narayanan: Today, we are also refining guidance to reflect our revised forecast, which we will go into more detail later in the call. The key takeaways are we have reduced the historical volatility in our business, we have de-risked the low end of nearly all guidance ranges, and we feel confident about the stability of our business. This quarter also marked a pivotal moment in our evolution as we unified our corporate identity under the Stem Inc. brand and streamlined our entire product portfolio within the comprehensive PowerTrack suite. This transformation goes far beyond surface-level changes. It reflects the deep integration of AlsoEnergy's solar expertise with Stem Inc.'s storage and AI capabilities. For our customers, this means that we approach them with a single voice, with superior technical solutions across their entire energy portfolio, covering solar, storage, and hybrid assets alike.

Speaker #5: The key takeaways we have reduced the historical volatility in our business . We have de-risked the low end of nearly all guidance ranges .

Speaker #5: And we feel confident about the stability of our business this quarter . Also marked a pivotal moment in our evolution as we unified our corporate identity under the Stem brand and streamlined our entire product within the comprehensive power track Suite .

Speaker #5: This transformation goes far beyond surface level changes . It reflects the deep integration of Also Energy's solar expertise with stems , storage and AI capabilities for our customers .

Speaker #5: This means that we approach them with a single voice , with superior technical solutions across the entire energy portfolio , covering solar storage and hybrid assets alike are .

Speaker #5: Combined with Stem's industry leading subject matter expertise . This creates an unparalleled customer value proposition . We welcome you to visit our redesigned website at STEM, INC. .

Arun Narayanan: Combined with Stem Inc.'s industry-leading subject matter expertise, this creates an unparalleled customer value proposition. We welcome you to visit our redesigned website at stem.com to see this unified vision in action. Each quarter, we have touched upon our strategic priorities for 2025, driving software and services revenue growth, revamping software development, and reducing our cost structure and driving profitability. We've advanced all three strategic priorities in Q3 with concrete results. Let me detail our progress. First, let's focus on software and services growth and revamping our software. On September 2, we launched PowerTrack EMS for hybrid and standalone storage projects. This energy management system integrates AlsoEnergy's solar C&I offerings with Stem's storage offerings and positions us to meet the needs of key markets, including solar, storage, and hybrid assets in both the C&I and utility scale segments.

Speaker #5: To see this unified vision in action portfolio . Each quarter we have touched upon our strategic priorities for 2025 , driving software and services revenue growth , revamping software development , and reducing our cost structure and driving profitability .

Speaker #5: We've advanced all three strategic priorities in Q3 with concrete results . Let me detail our progress . First , let's focus on software and services growth and revamping our software .

Speaker #5: On September 2nd , we launched Powertrack EMS for hybrid and standalone storage projects . This energy management system integrates also Energy's solar CNI offerings with stems , storage offerings and positions us to meet the needs of key markets , including solar storage and hybrid assets .

Speaker #5: In both the CNI and utility-scale segments, it is an intelligent control system that manages battery charging and discharging operations, while coordinating grid services and enabling revenue for energy storage projects.

Arun Narayanan: It is an intelligent control system that manages battery charging and discharging operations while coordinating grid services and enabling revenue streams for energy storage projects. PowerTrack EMS fills the critical gap between basic battery management and advanced optimization software such as our PowerTrack Optimizer product, enabling us to provide important control offerings regardless of the commercial management of the battery, including in territories where merchant optimization is not permitted. We remain excited about PowerTrack EMS because it expands our total addressable market by widening our potential customer base and the markets we can serve. Here in the U.S., it unlocks for us the utility scale market, which is heavily hybridized versus the C&I market. Outside of the U.S., PowerTrack EMS unlocks the international market for C&I and utility scale projects, which are also largely hybridized.

Speaker #5: Powertrack EMS fills the critical gap between basic battery management and advanced optimization software such as our Powertrack optimiser product , enabling us to provide important control offerings regardless of the commercial management streams of the battery , including in territories where merchant optimization is not permitted .

Speaker #5: We remain excited about Powertrack EMS because it expands our total addressable market by widening our potential customer base and the markets we can serve here in the US .

Speaker #5: It unlocks for us the utility scale market , which is heavily hybridized versus the CNI market outside of the US . Powertrack EMS unlocks the international market for CNI and utility scale projects , which are also largely hybridized .

Speaker #5: International expansion is a key component of our corporate strategy that also helps us manage near-term macro headwinds in the US . Importantly , in all markets , Powertrack EMS is an optimization agnostic , controls oriented product , which means that it can be sold in markets where utilities provide dispatch signals without the need for a third party optimizer or an international markets where Stem does not provide managed optimization services with powertrack optimizer .

Arun Narayanan: International expansion is a key component of our corporate strategy that also helps us manage near-term macro headwinds in the U.S. Importantly, in all markets, PowerTrack EMS is an optimization-agnostic, controls-oriented product, which means that it can be sold in markets where utilities provide dispatch signals without the need for a third-party optimizer or in international markets where Stem does not provide managed optimization services with PowerTrack Optimizer. It is truly a complementary offering to the existing portfolio and allows us to offer an end-to-end solution for our customers. We launched PowerTrack EMS at the RE+ Conference to strong customer reception. This product garnered particularly high interest from operators of hybrid energy sites. Just eight weeks after launch, we've already booked significant capacity deployments with blue-chip customers in three different countries, validating both our product capabilities and marketing positioning.

Speaker #5: It is truly a complementary offering to the existing portfolio and allows us to offer an end to end solution for our customers . We launched Powertrack EMS at the Plus conference to strong customer reception .

Speaker #5: This product garnered particularly high interest from operators of hybrid energy sites . Just eight weeks after launch , we've already booked significant capacity deployments with blue chip customers in three different countries , validating both our product capabilities and marketing positioning .

Speaker #5: These deals cover primarily hybrid utility scale projects with existing solar assets that expect to convert to hybrid in the near term , and are using Powertrack EMS as a way to future proof this conversion while limiting downtime .

Arun Narayanan: These deals cover primarily hybrid, utility scale projects with existing solar assets that expect to convert to hybrid in the near term and are using PowerTrack EMS as a way to future-proof this conversion while limiting downtime. We expect these bookings to convert to revenue in the coming quarters with about a six to nine-month typical lead time. Our core C&I solar monitoring platform is deeply established in the industry, but we remain dedicated to continuous innovation and addressing key customer feedback as quickly as we can. In the last 90 days alone, we've rolled out over 100 software improvements and bug fixes, directly enhancing the PowerTrack experience for our customers. Recently, we have added best monitoring features and enhanced PV performance analytics, ensuring that PowerTrack is the platform of choice for our customers as they add storage to their solar portfolios and scale to more complex operations.

Speaker #5: We expect these bookings to convert to revenue in the coming quarters , with about a 6 to 9 month typical lead time . Our core CNI solar monitoring platform is deeply established in the industry , but we remain dedicated to continuous innovation and addressing key customer feedback as quickly as we can .

Speaker #5: In the last 90 days alone , we've rolled out over 100 software improvements and bug fixes directly enhancing the Powertrack experience for our customers .

Speaker #5: Recently , we have added best monitoring features and enhanced PV performance analytics , ensuring that Powertrack is the platform of choice for our customers .

Speaker #5: As they add storage to their solar portfolios and scale to more complex operations . As we announced last quarter , we are also incorporating advances in AI into our offerings with Powertrack sage Powertrack sage is an AI powered assistant that sits on top of Powertrack and transforms complex solar and storage data analysis into natural language conversations .

Arun Narayanan: As we announced last quarter, we are also incorporating advances in AI into our offerings with PowerTrack Sage. PowerTrack Sage is an AI-powered assistant that sits on top of PowerTrack and transforms complex solar and storage data analysis into natural language conversations. It's like an expert analyst available 24/7 to simplify certain important product workflows and serve as a first line of support for customer questions. There's high customer interest and excitement about this product, particularly around solar analytics and diagnosing root causes for unusual data. PowerTrack Sage development remains on track for limited beta release with select customers in December and is expected to be broadly available in 2026. PowerTrack software continues to demonstrate strong performance across key metrics. Revenue increased 10% year over year, ARR expanded 19% year over year, and we commissioned 1.2 gigawatts of solar assets this quarter.

Speaker #5: It's like an expert analyst . Available 24 over seven to simplify certain important product workflows and serve as a first line of support for customer questions .

Speaker #5: There's high customer interest and excitement about this product , particularly around analytics and diagnosing root causes for unusual . Powertrack Sage development remains on track for limited beta release , with select customers in December , and is expected to be broadly available in 2026 .

Speaker #5: Powertrack software continues to demonstrate strong performance across key metrics . Revenue increased 10% year over year . IRR expanded 19% year over year , and we commissioned 1.2GW of solar assets this quarter .

Speaker #5: Our platform now manages nearly 34GW of solar assets , reinforcing our market leading position in CNI solar monitoring . Now , let's move on to managed services .

Arun Narayanan: Our platform now manages nearly 34 gigawatts of solar assets, reinforcing our market-leading position in C&I solar monitoring. Now, let's move on to managed services. Our managed services are software-enabled, full lifecycle energy storage services covering the design, procurement, commissioning, operation, and optimization of energy storage and hybrid solar plus storage systems. We help asset owners maximize the reliability, performance, and returns of their storage assets. Managed services are supported by our PowerTrack Optimizer software, previously known as Athena. Energy optimization, especially when value stacking, is a specialized area that requires both our optimization software and humans in the loop to execute well. Humans in the loop ensure that the optimization is keeping up with the constant market and program rule changes, market dynamics, and new value streams.

Speaker #5: Our managed services are software enabled . Full lifecycle energy storage services covering the design , procurement , commissioning , operation and optimization of energy storage and hybrid solar plus storage systems .

Speaker #5: We help asset owners maximize the reliability , performance and returns of their storage assets . Managed services are supported by our power track Optimiser software .

Speaker #5: Previously known as Athena Energy Optimization , especially when value stacking is a specialized area that requires both our optimization software and humans in the loop to execute well .

Speaker #5: Humans in the loop ensure that the optimization is keeping up with the constant market and program rule changes . Market dynamics , and new value streams .

Speaker #5: Our competitive advantage in managed services lies in our ability to serve as a full service provider , leveraging our substantial market share across diverse segments .

Arun Narayanan: Our competitive advantage in managed services lies in our ability to serve as a full-service provider, leveraging our substantial market share across diverse segments. We remain one of the few companies with this expertise. Our managed services contracts include both recurring revenue and performance-based upside when we exceed operational targets. Q3 2024 included significant overperformance that we did not repeat this quarter, which impacts the year-over-year comparison. The underlying health of this business is strong, as our recurring base revenue grew 14% year over year and 4% sequentially. Finally, our consultative professional services offering continues to resonate with customers across a wide range of development, deployment, and operational needs. We are continuing to drive repeat business, a clear mark that our offerings are adding value, and we are increasingly focused on cross-selling professional services with other business units' offerings.

Speaker #5: We remain one of the few companies with this expertise . Our managed Services contracts include both recurring revenue and performance based upside . When we exceed operational targets , Q3 2024 included significant overperformance that we did not repeat this quarter , which impacts the year over year comparison .

Speaker #5: The underlying health of this business is strong as our recurring base revenue grew 14% year over year and 4% sequentially . Finally , our consultative professional services offering continues to resonate with customers across a wide range of development , deployment and operational needs .

Speaker #5: We are continuing to drive repeat business a clear mark that our offerings are adding value , and we are increasingly focused on cross-selling professional services with other business units , offerings .

Speaker #5: Now to another strategic priority reducing our cost structure and driving profitability . We remain diligently focused on cost management . We've achieved our second consecutive quarter of positive adjusted EBITDA while maintaining robust GAAP and non-GAAP gross margins .

Arun Narayanan: Now, to another strategic priority: reducing our cost structure and driving profitability. We remain diligently focused on cost management. We've achieved our second consecutive quarter of positive adjusted EBITDA while maintaining robust GAAP and non-GAAP gross margins. Operating expenses remain flat compared to the second quarter, and we are continuing to drive further efficiencies through AI implementation. Additionally, we've generated positive operating cash flow and kept cash flat sequentially. Our financial performance validates the business model transformation, expanding gross margins, two consecutive quarters of positive adjusted EBITDA, and positive operating cash flow. These results demonstrate both profitability and sustainability. We are dedicated to financial transparency, and we remain committed to helping our investors and stakeholders better understand our business. To that extent, our Form 10-Q to be filed today once again disaggregates revenue across distinct categories.

Speaker #5: Operating expenses remained flat compared to the second quarter , and we are continuing to drive further efficiencies through AI implementation . Additionally , we've generated positive operating flow and kept cash flat sequentially .

Speaker #5: Our financial performance validates the business model transformation , expanding gross margins , two consecutive quarters of positive adjusted EBITDA and positive operating cash flow .

Speaker #5: These results demonstrate both profitability and sustainability . We are dedicated to financial transparency , and we remain committed to helping our investors and stakeholders better understand our business .

Speaker #5: To that extent , our form 10-q to be filed today , once again , Disaggregates revenue across distinct categories . What's new this quarter is that we are also providing detailed gross margin disclosure for each revenue category in our supplemental slides .

Arun Narayanan: What's new this quarter is that we are also providing detailed gross margin disclosure for each revenue category in our supplemental slides. Now, on to guidance. With nine months of reported results and early visibility into Q4, today we are refining our full-year 2025 guidance ranges, including a tightening of ranges previously disclosed. First, we'd like to highlight that our ability to tighten ranges is a significant advancement versus where we were previously, where volatility and backend seasonality negatively impacted our ability to guide with precision. Our software-centric model has reduced this volatility and enhanced our forecasting accuracy. With that said, we are tracking towards the midpoint, or better, on all metrics except operating cash flow, where timing of working capital moments could result in performance towards the lower end of our range.

Speaker #5: Now on to guidance . With nine months of reported results and early visibility into Q4 today , we are refining our full year 2020 guidance ranges , including a tightening of ranges previously disclosed .

Speaker #5: like to highlight that our ability to tighten ranges is a significant advancement versus where we were previously , where volatility and back end seasonality negatively impacted our ability to guide with precision our software centric model has reduced this volatility and enhanced our forecasting accuracy .

Speaker #5: With that said , we are tracking towards the midpoint or better on all metrics except operating cash flow , where timing of working capital movements could result in performance towards the lower end of our range .

Speaker #5: I'd like to highlight that we have brought up the low end of the ranges for software edge hardware and services revenue and adjusted EBITDA , and raised the guidance for non-GAAP gross profit .

Arun Narayanan: I'd like to highlight that we have brought up the low end of the ranges for software, edge hardware, and services revenue, and adjusted EBITDA, and raised the guidance for non-GAAP gross profit. Brian will provide the specific updated ranges, but I want to emphasize that the underlying business fundamentals remain strong, and we are well-positioned entering into 2026. Now, turning to the macro environment. Headwinds from policy uncertainty remain, and we are actively working with our customers to navigate this environment. We remain on track to meet our guidance expectation through the end of the year. In addition, our diversified software-centric model, combined with our recently enhanced international strategy, should position us well against the potential impact of domestic headwinds. We remain confident in our end markets, and we believe that we are well-positioned to benefit from the projected international load growth.

Speaker #5: Brian will provide the specific updated ranges, but I want to emphasize that the underlying business fundamentals remain strong, and we are well positioned entering into 2026.

Speaker #5: Now , turning to the macro environment , headwinds from policy uncertainty remain , and we are actively working with our customers to navigate this environment .

Speaker #5: We remain on track to meet our guidance , expectations through the end of the year . In addition , our diversified software centric model combined with our recently enhanced international strategy should position us well against the potential impact of domestic headwinds .

Speaker #5: We remain confident in our end markets, and we believe that we are well positioned to benefit from the projected international load growth.

Speaker #5: Our international expansion efforts are focused on a multi-phased approach . First , we developed an internationally ready product suite with Powertrack EMS . Second , we are leveraging our regional expertise through our existing teams in Berlin and Japan .

Arun Narayanan: Our international expansion efforts are focused on a multiphased approach. First, we developed an internationally ready product suite with PowerTrack EMS. Second, we are leveraging our regional expertise through our existing teams in Berlin and Japan. We see significant opportunities to expand within the European markets, and in Berlin, we recently moved our operations to more centralized and collaborative facilities. We are expanding our technical depth and customer support in Berlin to combine our global expertise with local execution that can service high-priority European markets. Our growth strategy for Q4 and beyond centers on two drivers: PowerTrack EMS, expanding our addressable market into utility scale and international hybrid projects, and continued focus and acceleration in our core C&I solar business. Our recurring revenue base, substantial backlog, and international diversification provide a strong foundation for sustained growth.

Speaker #5: We see significant opportunities to expand within the European markets and in Berlin . We recently moved our operations to more centralized and collaborative facilities .

Speaker #5: We are expanding our technical and customer support in Berlin to combine our global expertise with local execution . That can service high priority European markets .

Speaker #5: Our growth strategy for Q4 and beyond centers on two drivers Powertrack EMS , expanding our addressable market into utility scale and international hybrid projects , and continued focus and acceleration in our core CNI solar business .

Speaker #5: Our recurring revenue base , substantial backlog , and international diversification provide a strong foundation for sustained growth . With that , let me turn the call over to Brian for detailed financial results and the updates to guidance .

Arun Narayanan: With that, let me turn the call over to Brian for detailed financial results and the updates to guidance.

Speaker #6: Thanks , Arun , and hello everyone . In the third quarter of 2025 , we saw solid financial performance across the business . Total revenue grew an impressive 31% year over year to 38 million Powertrack software revenue continued its strong performance in the third quarter , growing 11% year over year , and edge hardware grew a notable 18% year over year .

Brian Musfeldt: Thanks, Arun, and hello, everyone. In the third quarter of 2025, we saw solid financial performance across the business. Total revenue grew an impressive 31% year over year to $38 million. PowerTrack software revenue continued its strong performance in the third quarter, growing 11% year over year, and edge hardware grew a notable 18% year over year. As a note, this quarter, with the introduction of PowerTrack EMS for hybrid and storage sites, we have redefined solar software revenue to PowerTrack software revenue, as our PowerTrack software revenue will now include all customer-facing SaaS revenue generated from solar, storage, and hybrid assets. Project and professional service revenue decreased year over year as the third quarter of 2024 benefited from approximately $5 million of one-time devco revenues. As Arun discussed, managed service revenue was also down year over year due to one-time overperformance in the third quarter of 2024.

Speaker #6: As a note this quarter , with the introduction of Powertrack EMS for hybrid and storage sites , we have redefined solar software revenue to powertrack software revenue as our Powertrack software revenue will now include all customer facing SaaS revenue generated from solar storage and hybrid assets .

Speaker #6: Project and professional service revenue decreased year over year as the third quarter of 2024 benefited from approximately $5 million of one time Devco revenues .

Speaker #6: As Arun discussed, managed service revenue was also down year over year due to a one-time overage in the third quarter of 2024.

Speaker #6: Although we are deemphasizing the business as part of our software centric strategy , battery hardware resale brought in 4 million in revenue this quarter .

Brian Musfeldt: Although we are de-emphasizing the business as part of our software-centric strategy, battery hardware resale brought in $4 million in revenue this quarter. You can find this revenue detail in the disaggregation of revenue footnote in our Form 10-Q and supplemental materials, which provide enhanced clarity into our business. We again achieved strong gross margin this quarter, with GAAP gross margins of 35% and non-GAAP gross margins of 47%. This expansion reflects the increasing mix of higher margin software and services in our revenue base and improving hardware margins for both edge hardware and battery resales. Our disaggregation of revenue provided in our supplemental materials now includes gross margin ranges for each revenue category to provide more clarity for investors and analysts. GAAP and cash operating expenses were both flat sequentially from the second quarter of 2025. Cash operating expenses were down an impressive 47% year over year.

Speaker #6: You can find this revenue detail in the disaggregation of revenue footnote in our Form 10-Q and supplemental materials, which provide enhanced clarity into our business.

Speaker #6: We again achieved strong gross margin this quarter with GAAP gross margins of 35% and non-GAAP gross margins of 47% . This expansion reflects the increasing mix of higher margin software and services in our revenue base , an improving hardware margins for both edge hardware and battery resales .

Speaker #6: Our disaggregation of revenue provided in our supplemental materials now includes gross margin ranges for each revenue category to provide more clarity for investors and analysts , GAAP and cash operating expenses were both flat sequentially from the second quarter of 2025 .

Speaker #6: Cash operating expenses were down an impressive 47% year over year . These reductions were primarily the result of the difficult but necessary workforce reduction that took place in the second quarter , and we remain focused on driving operating leverage and further cost savings across the business .

Brian Musfeldt: These reductions were primarily the result of the difficult but necessary workforce reduction that took place in the second quarter, and we remain focused on driving operating leverage and further cost savings across the business. That said, we feel positive about our ability to grow revenue without significant OPEX increases, as demonstrated by our development of PowerTrack EMS and PowerTrack Sage products with current staffing levels. The improved margins and significantly reduced OPEX drove positive adjusted EBITDA of $2 million for the quarter, demonstrating that we are finding sustained operational profitability in our lower OPEX structure and our business transformation. Operating cash flow turned decisively positive at $11 million this quarter, a $21 million swing versus the same quarter last year, and our cash position remains stable at $43 million.

Speaker #6: That said , we feel positive about our ability to grow revenue without significant opex increases , as demonstrated by our development of power track , EMS and power track , sage products with current staffing levels , the improved margins and significantly reduced OpEx drove positive adjusted EBITDA of $2 million for the quarter , demonstrating that we are finding sustained operational profitability in our lower OpEx structure and our business transformation .

Speaker #6: Operating cash flow turned decisively positive at 11 million this quarter . A $21 million swing versus the same quarter last year . And our cash position remains stable at 43 million .

Speaker #6: My key strategic priorities as CFO remain to help drive profitable growth and manage our capital structure . As we look to continue growing in key revenue categories over the coming years .

Brian Musfeldt: My key strategic priorities as CFO remain to help drive profitable growth and manage our capital structure as we look to continue growing in key revenue categories over the coming years. Now, turning to our operating metrics. Bookings were $30 million, down slightly versus last quarter, largely due to timing of bookings from our historically lumpy low-margin battery hardware resales. Software and service bookings were sequentially flat, and contracted backlog was $22 million, down from $26.8 million last quarter due to lower bookings and increased hardware revenue recognition in the quarter. Contracted ARR remains stable at $70 million, and importantly, ARR increased 3% sequentially and 17% year over year, demonstrating the strength and scalability of our recurring revenue model. Finally, storage and solar AUM increased 6% and 4% respectively since last quarter. Now, turning to our updated guidance for full year 2025.

Speaker #6: And now turning to our operating metrics . Bookings were 30 million , down slightly versus last quarter , largely due to timing of bookings from our historically lumpy low margin battery hardware resales , software and service bookings were sequentially flat and contracted .

Speaker #6: Backlog was 22 million , down from 26.8 million last quarter due to lower bookings and increased hardware revenue recognition in the quarter contracted RR remained stable at 70 million and importantly , AR increased 3% sequentially and 17% year over year .

Speaker #6: Demonstrating the strength and scalability of our recurring revenue model . Finally , storage and solar AUM increased 6% and 4% , respectively , since last quarter .

Speaker #6: Now , turning to our updated guidance for full year 2025 . First , for revenue , we are tightening our revenue range to 135 to 160 million from the prior , 125 to $175 million range .

Brian Musfeldt: First, for revenue, we are tightening our revenue range to $135 to $160 million from the prior $125 to $175 million range. This reflects strong software and service performance with an updated range of $125 to $140 million and is offset by lower battery hardware resale expectations of up to $20 million as we continue to de-emphasize that business. For gross margins, we are raising the range to 40% to 50%. We are already tracking toward the high end of this range, but expect some margin compression in the fourth quarter with increased edge hardware deliveries. For adjusted EBITDA, we are raising the low end of the range and now forecast between negative $5 million and positive $5 million for the fiscal year 2025. We have factored in some conservatism in this metric, and I would highlight that we are currently tracking above the midpoint of our updated range.

Speaker #6: This reflects strong software and service performance, with an updated range of 125 to 140 million, and is offset by lower battery hardware resale expectations of up to 20 million.

Speaker #6: As we continue to de-emphasize that business for gross margins, we are raising the range to 40% to 50%. We are already tracking toward the high end of this range, but expect some margin compression in the fourth quarter with increased edge hardware deliveries.

Speaker #6: For adjusted EBITDA , we are low end of the range and now forecast between 5 million and 5 million for the fiscal year 2025 .

Speaker #6: We have factored in some conservatism in this metric , and I would highlight that we are currently tracking above the midpoint of our updated range .

Speaker #6: For operating cash flow , we are adjusting our range for this metric to between 5,000,005 million . This quarter is 11 million in positive cash flow demonstrates the underlying cash generation capability of the business .

Brian Musfeldt: For operating cash flow, we are adjusting our range for this metric to between negative $5 million and positive $5 million. This quarter's $11 million in positive cash flow demonstrates the underlying cash generation capability of the business. Any fourth quarter working capital fluctuations will reflect normal timing differences in customer payment cycles, not fundamental business performance. Finally, our forecast for year-end ARR remains consistent at $55 to $65 million and continues to reflect an attractive base of recurring revenue. While we won't provide formal guidance for 2026 until early next year during our fourth quarter and full year 2025 call, I can share that we enter 2026 with strong visibility from our recurring revenue base and contracted backlog, positioning us well for continued growth. I will pass the call back over to Arun for closing remarks.

Speaker #6: Any fourth quarter working capital fluctuations will reflect normal timing differences in customer payment cycles , not fundamental business performance . Finally , our forecast for year end RR remains at 55 to 65 million and continues to reflect an attractive base of recurring revenue .

Speaker #6: While we won't provide formal guidance for 2026 until early next year , during our fourth quarter and full year 2025 call , I can share that we entered 2026 with strong visibility from our recurring revenue base and contracted backlog , positioning us well for continued growth .

Speaker #6: And now I will pass the call back over to Arun for closing remarks .

Speaker #5: Thank you . Brian . Our team delivered strong execution across the business this quarter , one year into our strategic transformation . The results are evident .

Arun Narayanan: Thank you, Brian. Our team delivered strong execution across the business this quarter. One year into our strategic transformation, the results are evident: revenue growth, margin expansion, sustained profitability, and positive cash generation. We established clear objectives for this transformation, and we are achieving them. The clean energy transformation continues accelerating globally, and our industry-leading software platforms, solutions, and dedicated team position us to capitalize on this transformation. I want to thank our investors and customers for their continued confidence and trust in us, and I want to take this opportunity to also express my gratitude for the hard work and contributions of Stem employees in achieving these results. With that, Operator, let's open the line for questions, please.

Speaker #5: Revenue growth margin expansion , sustained profitability and positive cash generation . We established clear objectives for this transformation . And we are achieving them .

Speaker #5: The clean energy transformation continues accelerating globally and our industry leading software platforms , solutions and dedicated team positions .

Speaker #3: Thank you . Ladies and gentlemen , we will now begin the question and answer session . If you would like to ask a question , please star and one on your telephone keypad .

Operator: Thank you. Ladies and gentlemen, we will now begin the question and answer session. If you would like to ask a question, please press star and one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star and two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Ladies and gentlemen, we will wait for a moment while we poll for questions. The first question comes from Justin Clare with ROTH Capital Partners. Please go ahead.

Speaker #3: A confirmation tone will indicate your line is in the question queue . You may press star and two . If you would like to remove your question from the queue for participants using speaker equipment , it may be necessary to pick up your handset before pressing the star key's .

Speaker #3: Ladies and gentlemen , we will wait for a moment while we poll for questions . The first question comes Justin Claire with Roth MKM .

Speaker #3: Please go ahead .

Speaker #7: Hey , thanks for the time . So I to start with the guidance . with the update it looks like you're you're guiding to the midpoint or better across all the , all the metrics .

[Analyst 1]: Hey, thanks for the time. I wanted to start with the guidance. With the update here, it looks like you're guiding to the midpoint or better across all the metrics. Just looking back to what you said last quarter, it sounded like you were tracking toward the high end of the guidance based on your comments from last quarter. I'm just wondering, has your outlook moderated somewhat given the new ranges, or maybe you could speak to the potential to kind of deliver at the high end?

Speaker #7: But just looking back to what you said last quarter, it sounded like you were tracking toward the high end of the guidance based on your comments.

Speaker #7: From last quarter . So just wondering , you know , has your outlook moderated somewhat given the new ranges ? Or maybe you could speak to the potential to kind of deliver at the high end ?

Speaker #5: Justin , this is Arun . Thanks for the question . Let's let's address your point . The the way we we show the updated guidance on slide six in the exhibit .

Arun Narayanan: Justin, this is Arun. Thanks for the question. Let's address your point. The way we show the updated guidance on slide six in the exhibit, you can see that we are actually still tracking towards the midpoint or high end of all the ranges. Only the de-emphasized and non-predictable sort of OEM hardware resale business, which was ranged at $0 to $35 million, is now ranged between up to $20 million. I think that difference is sort of, you could say, the main difference. The rest of it is just a tightening of the ranges, and I would say that that's the main interplay between the two quarters.

Speaker #5: You can see that we are actually still tracking towards the midpoint or high end of all the ranges . Only the de-emphasized and non predictable sort of OEM hardware resale business , which was ranged at 0 to 35 , is now ranged between up to 20 million .

Speaker #5: I think that difference is is sort of you could say the main difference . The rest of it is just a tightening of the ranges .

Speaker #5: And I would say that that's the main interplay between the two quarters .

Speaker #7: Okay . Got it . That's helpful . And then just on the gross margins , it looks like in Q4 you could see a slight compression .

[Analyst 1]: Okay. Got it. That's helpful. Just on the gross margins, it looks like in Q4 you could see a slight compression. I'm wondering, is this only really due to a mix shift with a little bit higher sales of the battery hardware, or should we anticipate any other notable change to the gross margins by business line? I guess just looking beyond Q4, how should we be thinking about the gross margins by business line? I definitely appreciate the added disclosure here that you've provided this quarter.

Speaker #7: I'm wondering , is this only really due to a mix shift with a little bit higher sales of the battery hardware or , you know , should we anticipate any other notable change to the gross margins by business line ?

Speaker #7: And then I guess just looking beyond Q4 , you know , how should we be thinking about the gross margins ? You know , by business line ?

Speaker #7: And , you know , definitely appreciate the the added disclosure here that you've provided this quarter .

Speaker #6: Yeah . Thanks , Justin . This is Brian . Yeah , I think when you look at the new disclosure there , hopefully you see on detailed on page 12 , when we talked about a little bit about compression in Q4 , it's just going to be mix .

Brian Musfeldt: Yeah, thanks, Justin. This is Brian. I think when you look at the new disclosure there, hopefully you can see detailed on page 12, when we talked a little bit about compression in Q4, it's just going to be mixed. Q4 is our largest delivery quarter for our edge hardware with a slightly lower margin. That's really what will compress it in the fourth quarter, just in that period. As far as the out periods, you know we don't give guidance until Q1, but I think you can kind of see the three and nine months' trends. We do expect to keep working on margins and improving them over the next coming years, especially as, again, we're de-emphasizing that OEM hardware, but the other categories are pretty stable and will continue to improve.

Speaker #6: Q4 is our largest delivery quarter for our edge hardware . So it's a slightly lower margin . So that's really what will compress it in the fourth quarter .

Speaker #6: Kind of just in that period far as the out periods , you know , we don't give guidance until Q1 , but I think you can kind of see the three and nine months trends .

Speaker #6: And so we do expect , you know , to keep working on margins and improving them over the next coming years , especially as , you know , again , we're deemphasizing that OEM hardware .

Speaker #6: But the other the other categories are pretty stable and will continue to improve .

Speaker #7: Got it . Okay . And then maybe just one more , you know , bookings in Q3 modestly lower than Q2 . But again , that sounds like it's more a de-emphasis of the battery hardware sales .

[Analyst 1]: Got it. Okay. Maybe just one more, you know bookings in Q3 modestly lower than Q2, but again, that sounds like it's more a de-emphasis of the battery hardware sales. Wondering, you know with the release of PowerTrack EMS, can you talk a little bit more about the demand that you're seeing, the potential to see an increase in bookings potentially in Q4 here, and just what you're seeing at this point?

Speaker #7: But wondering , you know , with the release of Powertrack EMS , can you talk a little bit more about the demand that you're seeing the potential to see an increase in bookings , potentially in Q4 here ?

Speaker #7: And just what you're seeing at this point .

Speaker #5: I can take us out of that . This is Arun again , we we are very excited about Powertrack EMS as as we have said in the prepared remarks , quite a few times , it opens up new markets for us and the market .

Arun Narayanan: I could take a stab at that. This is Arun again. We are very excited about PowerTrack EMS, as we have said in the prepared remarks quite a few times. It opens up new markets for us. The market, the subsegment that we are targeting is the small utility scale sites, sort of 20 to 100 megawatts in size. As we look at the initial energy around it, we are quite enthusiastic about it, and we are quite glad that our product fit is good. As PowerTrack EMS becomes a more meaningful portion of the revenue, we will provide more breakup and details around that. I think that's what I'm thinking at this point.

Speaker #5: The subsegment that we are targeting is the small utility scale sites . So sort of 20 to 100MW in size as as we look at the initial energy around it , we we are quite enthusiastic it .

Speaker #5: And we are quite glad that our product fit is good . As EMS becomes a more meaningful portion of the revenue , we will provide more breakup and details around that .

Speaker #5: I think that's that's sort of our thinking at this point .

Speaker #7: Okay. I appreciate it. Thank you.

[Analyst 1]: Okay, I appreciate it. Thank you.

Speaker #3: Thank you . Our next question comes from John Wyndham with UBS . Please go ahead .

Operator: Thank you. Our next question comes from John Windham with UBS. Please go ahead.

Speaker #8: Hey , perfect . Thanks for taking the questions . Congratulations on the back to back quarters . Positive adjusted EBITDA . I just have two questions .

[Analyst 2]: Hey, perfect. Thanks for taking the questions. Congratulations on the back-to-back quarters. I just have two questions. I'll just ask them one at a time. We'd love any commentary or sense of color that you're getting from your customers. There's obviously a lot of moving parts going on right now, particularly around batteries with Fiat, but also with solar and some of the IRS guidance. Just, you know, love your thoughts on what you're seeing at sort of the top of the funnel, how demand looks in general for the industry and then for your product. Thanks.

Speaker #8: I'll ask them one at a time . Any any commentary or sense of color which from your customers . There's also a lot of moving parts going on right now , particularly around batteries with Fiat , but also with solar and some of the IRS guidance just , you know , some love your thoughts on what you're seeing in sort of the the top of the funnel , how demand looks in general for the industry and for your product .

Speaker #8: Thanks , John .

Speaker #5: Thanks for that question . This is Arun . I can take a stab at it . We we are maintaining the momentum in our engagement with our customers and we do see that the engagement levels that we have in terms of being able to drive our conversations Powertrack are maintained .

Arun Narayanan: John, thanks for the question. This is Arun. I can take a stab at it. We are maintaining the momentum in our engagement with our customers, and we do see that the engagement levels that we have in terms of being able to drive our conversations around PowerTrack are maintained. The comments you're making about Fiat and other points are valid, but we see reasonably unchanged sort of conversation momentum in customer engagements.

Speaker #5: So the comments you're making about Fiac and other points are valid , but we see reasonably unchanged sort of conversation momentum in in customer engagements .

Speaker #8: Perfect . And I guess the second question , you're gonna love this . Your interest to turn around . You're delivering on gross margin expansion .

[Analyst 2]: Perfect. I guess the second question, you're going to love this. You're into the turnaround. You're delivering on gross margin expansion very nicely. EBITDA is positive. How do you think about your goals for them? You know the market's always on to the next thing. When do we get to operating income positive? When do we get to net income positive? How do you think about that path? Alternatively, if you don't want to answer that question, which I would understand, how do you think about laying that out to investors on, "Here's the path we're on, our timeline to sort of get a longer term?" I think you've had a lot of success here in the first year with the strategy shift, but I think the questions from investors are increasingly, you know, how does this progress down the income statement to positive numbers all the way down?

Speaker #8: Very nicely . Even is positive . How do you think about your goals for them ? Because you know , the market's always on to the next thing .

Speaker #8: When do we get to operating income positive . When do we get to net income positive . You know once . How do you think about that path or alternatively you want to answer that question , which I would understand is how do you think about laying that out to investors .

Speaker #8: And here's the path we're on our timeline to sort of get a longer term , because I really had a lot of success here in the first year with this strategy shift .

Speaker #8: But I think the questions from investors are increasingly , you know , how does this progress down the income statement to positive numbers all the way down ?

Speaker #8: any thoughts you have on and thanks for taking the questions .

[Analyst 2]: Appreciate any thoughts you have on it, and thanks for taking the questions.

Speaker #5: Thanks . Yeah , it's a really it's a really good question . Let me let me take 2 or 3 parts to it .

Arun Narayanan: Thanks. Yeah, it's a really good question. Let me take two or three parts to it. First of all, I think this quarter is the one-year anniversary of the shift to the software-centric focus for the company. You can sort of see that that strategy is paying off in terms of stabilizing the revenue margins and being able to have a predictable business. The second piece is I've been in this role now nine months, roughly, and there's been a focus on managing costs and driving a push towards profitability. I think we'll give more guidance on this in the next call.

Speaker #5: First of all, I think this quarter is the one-year anniversary of the shift to the software-centric focus for the company.

Speaker #5: And you can sort of see that that strategy is paying off in terms of stabilizing the revenue margins and being able to have a predictable business .

Speaker #5: The second piece is I've been in this role now nine months , roughly , and there's been a focus on managing our costs and driving a push towards profitability .

Speaker #5: Now , I think we give more guidance on this in in the next call . But maybe , maybe one thing I can direct you towards is a note that we put out towards investors and stakeholders in one of the press releases in the early part of September , which sort of explains our thinking in terms of our overall product strategy , in terms of our overall service strategy , how we look at how we look at international markets and what our general approach is towards having a very continuous , full market coverage solution all the way from CNI to the smaller scale utility projects , and then going up from that space to what Powertrack optimizer provides in terms of the high end of the market .

Arun Narayanan: Maybe one thing I can direct you towards is a note that we put out towards investors and stakeholders in one of the press releases in the early part of September, which sort of explains our thinking in terms of our overall product strategy, in terms of our overall service strategy, how we look at international markets, and what our general approach is towards having a very continuous, full market coverage solution all the way from C&I to the smaller scale utility projects and then going up from that space to what PowerTrack provides in terms of the high end of that market. I think it's an elegant story, and I would sort of encourage you and the other listeners to go back to our website and read that note that we have put out towards investors that comes with an attachment and a very nice presentation.

Speaker #5: So I think I think it's an elegant story , and I would sort of encourage you and the other listeners to go back to our website and read that , that note that we've put out towards investors that comes with an attachment and a very nice presentation .

Speaker #8: Appreciate it .

[Analyst 2]: Appreciate it.

Speaker #9: Appreciate it .

Speaker #3: Thank you .

Speaker #5: Thank you .

Arun Narayanan: Thank you.

[Analyst 1]: Thank you.

Speaker #3: Our next question comes from Thomas Roche with Barclays . Please go ahead .

Operator: Our next question comes from Thomas Boyes with Barclays. Please go ahead.

Speaker #10: Hi, this is Tom on for Christine. Congrats on the great quarter.

[Analyst 3]: Hi, this is Tom on for Christine. Congrats on the great quarter.

Speaker #5: Thank you .

Speaker #10: Tom . Thank you . So I guess I just first wanted to ask , you know , do you foresee the business benefiting from the Hyperscaler data center build out in any way I know you've typically been more focused on CNI and smaller utility scale customers , but has there been any internal strategy discussions around trying to go after Hyperscaler customers with either ?

[Analyst 1]: Thank you, Tom.

[Analyst 3]: Thank you. I just first wanted to ask, do you foresee the business benefiting from the hyperscaler data center buildout in any way? I know you've typically been more focused on C&I and smaller utility scale customers, but has there been any internal strategy discussions around trying to go after hyperscaler customers with either your solar or storage offering?

Speaker #10: You know , your solar or storage offering ?

Speaker #5: Yeah , Tom , really good question . This is Arun . You know , one of the things I love about Stem is that the team is very energetic , always focused new business models , new business opportunities .

Arun Narayanan: Yeah, Tom, really good question. This is Arun. One of the things I love about Stem is the team is very energetic, always focused on new business models, new business opportunities. We continue to target all of these opportunities with a lot of vigor. What we're seeing in the data center markets, which typically prefer sort of natural gas solutions, is that there are early indications that it's going to come around towards more renewable energy plays. It's an exciting development as that shift seems to be happening, and we continue to watch that market space and see how we can play into that effectively.

Speaker #5: We continue to target all of these opportunities with a lot of vigor . What we're seeing in the data center markets , which typically prefer sort of natural gas solutions , is that there are early indications that it's going to come around towards more renewable energy plays .

Speaker #5: So it's an exciting development as that shift seems to be happening and we we continue to watch that market space and see how we can play into that effectively .

Speaker #10: Got it . Understood . Thank you . And then just one more quick one for me . So you guys have you've cut a fair opex here in the last few quarters .

[Analyst 3]: Got it. Understood. Thank you. Just one more quick one for me. You guys have cut a fair amount of OPEX here in the last few quarters. Would you say that it's safe to assume that we're at a decent quarterly run rate here on a go-forward basis?

Speaker #10: Would you , would you say that it's safe to assume that we're at a decent quarterly run rate here on a go forward basis ?

Speaker #6: Yeah . Hi , Tom , this is Brian . I can take that one . Yeah . I mean , as you've seen , right .

Brian Musfeldt: Yeah, hi, Tom. This is Brian. I can take that one. As you've seen, we've cut cash OPEX. We've cut about 47% year over year. We reported just over $20 million of cash OPEX this quarter. I think we're done with the fundamentally large execution of that that you've seen in the second quarter. We took a really large chunk out of the team with a very, you know, difficult but motivated strategy. We are now, you know, we continue to look at other opportunities for savings. An example this quarter, we exited our India facility, which was just oversized for what we needed. The team is working on it. We'll always kind of manage cash. It's just in the fundamental blood of this company now to make sure that we're operating that way.

Speaker #6: We've we've cut cash opex . We've cut about 47% year over year . We reported just over 20 million of cash opex this quarter .

Speaker #6: I think we're done with the fundamentally large execution of that that you've seen in the second quarter . You know , we took a really large chunk out of the team with a very difficult but motivated strategy .

Speaker #6: But we are now , you know , we continue to look at other opportunities for savings . An example this quarter , we exited our our India facility , which was just oversized for what we needed .

Speaker #6: So the team is working on it . We'll always kind of manage cash just in the fundamental blood of this company . Now to make sure that we're we're operating that way .

Speaker #6: So we'll expect we're not really giving guidance yet . But I would say this quarter's trend is a good , you know , a good indication .

Brian Musfeldt: We'll expect, we're not really giving guidance yet, but I would say this quarter's trend is a good indication, and we'll keep working it down.

Speaker #6: And we'll keep working it down.

Speaker #10: Great . Thank you very much . Appreciate it .

[Analyst 3]: Great. Thank you very much. Appreciate it.

Speaker #3: Thank you ladies and gentlemen . This concludes the question and answer session . I would now like to hand the conference over to Arun Narayanan .

Operator: Thank you. Ladies and gentlemen, this concludes the question and answer session. I would now like to hand the conference over to Arun Narayanan, the CEO, for the closing comments.

Speaker #3: The CEO for the closing comments .

Speaker #5: I want to thank everyone for joining the third quarter earnings call , and we look forward to speaking with you during our fourth quarter and full year 2025 earnings call next year .

Arun Narayanan: I want to thank everyone for joining the third quarter earnings call, and we look forward to speaking with you during our fourth quarter and full year 2025 earnings call next year. Thanks, everyone.

Speaker #5: Thanks , everyone .

Speaker #3: Ladies and gentlemen, the conference of STEM, INC. Corp. has now concluded. Thank you for your participation. You may now disconnect your lines.

Operator: Ladies and gentlemen, the conference of Stem Inc. has now concluded. Thank you for your participation. You may now disconnect your lines.