Stem, Inc. Earnings Call Highlights Profitability Shift

Stem, Inc. ((STEM)) has held its Q1 earnings call. Read on for the main highlights of the call.

Stem, Inc.’s latest earnings call struck a cautiously optimistic tone, with management emphasizing improved profitability, record margins, and growing software scale despite softer top-line trends. Executives acknowledged near-term pressures from lower hardware sales, negative cash flow, and managed services headwinds, but argued that structural cost cuts and strategic product moves leave the company better positioned for profitable growth.

Profitability Milestone with Positive Adjusted EBITDA

Stem posted adjusted EBITDA of $2 million in Q1 2026, marking its fourth straight quarter in the black and its first-ever profitable first fiscal quarter on this metric. The result represents a sharp $7 million swing from the $5 million adjusted EBITDA loss recorded a year earlier, highlighting operating leverage as the business mix tilts toward higher-margin software and services.

Record Non-GAAP Gross Margin Expansion

Non-GAAP gross margin climbed to a record 52% in Q1 from 46% a year earlier, while GAAP gross margin improved to 38% from 32%, underscoring a structurally more profitable model. Management credited the gains to a shift away from low-margin battery hardware resales toward software, services and edge hardware, and noted that margins may normalize lower later in the year as more hardware flows through.

PowerTrack Software Momentum and Solar Scale

PowerTrack software revenue rose 16% year over year, and PowerTrack annual recurring revenue increased about 12% versus last year and 2% sequentially, reaching part of the company’s $61.2 million total ARR base. Solar operating assets under management expanded to 37.5 GW, adding roughly 1.5 GW in the quarter and growing 4% sequentially, signaling continued adoption of the platform in renewables.

Structural Cost Cuts and AI-Driven Productivity

Cash operating expenses fell 30% year over year and about 10% sequentially in Q1, reflecting what management described as permanent structural efficiencies rather than temporary belt‑tightening. The company highlighted widespread internal AI use, with nearly 70% of employees using AI weekly, which it says is speeding feature development and boosting operational productivity across functions.

Strategic Product Launches and M&A Execution

Stem rolled out PowerTrack Sage, an AI assistant designed to help customers manage complex energy assets more efficiently, broadening the platform’s capabilities. The company also acquired raicoon for automated fault detection and event management, saw PowerTrack EMS bookings more than double quarter over quarter, and entered a co‑marketing partnership with Nuvation Energy to deepen its battery and hybrid solutions presence in North America.

Revenue Decline from Absence of Battery Resales

Total revenue slipped 11% year over year to $29 million in Q1 2026, down from $32 million in the prior-year quarter, as no battery hardware resales were recorded. Management emphasized that the decline was entirely due to this mix shift and portrayed it as a trade-off that temporarily depresses revenue while lifting margins and profitability, with hardware sales expected to resume later in the year.

Negative Operating Cash Flow and Liquidity Position

Operating cash flow was negative $8 million in Q1, a reversal from the profitability progress and driven largely by expected working capital timing and scheduled interest payments. The company ended the quarter with $37 million in cash and cash equivalents, and management suggested that as bookings and billings ramp, cash generation should improve over the balance of the year.

Managed Services Pressure and Supplier Bankruptcy Impact

Managed services revenue came in at about $7 million but declined 5% year over year, and managed services ARR fell 4% sequentially, pointing to a softer performance in this segment. Management attributed part of the decline to a battery supplier bankruptcy that blocked renewals of certain warranty and service contracts, temporarily weighing on recurring revenue until affected customers can be transitioned or replaced.

Bookings, Backlog, and Subscription Cadence

Q1 bookings totaled $27 million versus $33 million in Q4 2025, which management framed as consistent with normal seasonal patterns, and contracted backlog stood at $23 million. Committed ARR held at $67 million and total ARR was essentially flat sequentially at $61.2 million, suggesting a modest near-term subscription cadence even as PowerTrack-specific metrics show healthier growth.

Storage AUM and Early International Contributions

Storage operating assets under management were steady at 1.7 GWh, highlighting that the storage side of the portfolio remains relatively small compared with the solar footprint. International revenue accounted for roughly 5% of total revenue in Q1, indicating only early-stage traction abroad despite a growing presence in Europe and leaving ample runway for overseas expansion if demand accelerates.

Reaffirmed Guidance and Outlook for 2026

Management reaffirmed its full-year 2026 outlook, projecting total revenue of $140 million to $190 million, including $130 million to $150 million from software, services and edge hardware and up to $40 million from battery resales, likely skewed to the second half. The company continues to target non-GAAP gross margins between 40% and 50%, adjusted EBITDA of $10 million to $15 million, operating cash flow between breakeven and $10 million, and year-end ARR of $65 million to $70 million, while flagging that margins may drift toward the midpoint as hardware revenue returns even as cash flow improves on higher bookings.

Stem’s earnings call painted a picture of a company tightening its cost base, deepening its software franchise and investing selectively in AI and M&A, even as some metrics like revenue growth, cash flow and managed services face near-term strain. For investors, the key takeaway is that management is prioritizing profitability and recurring revenue quality over headline growth, betting that today’s structural moves and product initiatives will translate into more durable earnings and cash generation over time.