Release Date: October 30, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Stem Inc (STEM, Financial) has completed a comprehensive strategy review, leading to a refined business model focused on sustainable and predictable revenues.
- The company is shifting its focus towards software and services, which is expected to drive higher gross margins and profitability.
- Stem Inc (STEM) reported a strong non-GAAP gross margin of 46%, reflecting a larger contribution from high-margin software and services revenue.
- The company has introduced new leadership with deep industry experience, which is expected to drive innovation and achieve strategic goals.
- Stem Inc (STEM) has successfully increased its annual recurring revenue (ARR) by over $3 million in the third quarter, indicating strong commercial momentum.
Negative Points
- Stem Inc (STEM) reported a sharp decline in revenues to $29 million, primarily due to lower hardware resale revenue.
- The unpredictability of project timelines for utility-scale storage hardware has resulted in significantly lower-than-expected bookings and revenue.
- The company has lowered its full-year revenue guidance to a range of $135 million to $155 million, reflecting challenges in storage hardware resale revenue.
- Stem Inc (STEM) impaired receivables by over $100 million due to hardware contract guarantees, impacting financial statements.
- The backlog fell slightly since the second quarter, and the company recorded relatively low bookings of $29 million.
Q & A Highlights
Q: What feedback are you receiving from customers regarding the recent strategic and management changes at Stem Inc?
A: David Buzby, Independent Chairman of the Board, stated that customer response has been generally positive. Customers view storage hardware as a commodity available from multiple sources, and the new strategy reassures them of Stem's focus on software improvements. This focus aims to enhance products and optimize customer assets.
Q: What enhancements are customers requesting in the software products?
A: Michael Carlson, Chief Operating Officer, mentioned three main areas of interest: improved user information flow, predictive capabilities leveraging AI, and automated warnings and resolution processes. These enhancements aim to optimize storage and provide financial modeling.
Q: As Stem moves into procurement advisory services, will the modular ESS solution continue to be leveraged?
A: Michael Carlson confirmed that the modular edge device, part of the PowerCore EMS solution, will remain a significant component of the strategy. Doran Hole, Chief Financial Officer, clarified that while edge devices are critical, the focus will shift away from large-ticket OEM battery hardware resales.
Q: Will future bookings primarily focus on software, given the new strategy?
A: Doran Hole explained that future bookings will include both hardware and software. While the emphasis is on software, hardware resales will continue if they meet profitability and cash flow criteria. The wide range in the bookings forecast reflects this dual approach.
Q: Why is there a shift from 15- to 20-year contracts to 3- to 5-year contracts?
A: Michael Carlson explained that the shift is due to the focus on software, with industry-standard SaaS agreements typically being shorter. The longer contracts were tied to OEM hardware warranties, which are now being decoupled from software agreements.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
