Stem, Inc. Earnings Call Marks Profitability Pivot

Stem, Inc. ((STEM)) has held its Q4 earnings call. Read on for the main highlights of the call.

Stem, Inc.’s latest earnings call painted a cautiously optimistic picture, with management emphasizing a successful 2025 transformation. Profitability, margins and recurring software revenue all moved sharply higher, even as some gains leaned on one‑time items and exposed pockets of demand and hardware volatility that could challenge consistency.

Full Year Revenue Growth

Total revenue for 2025 rose 8% year over year to $156 million, underscoring progress against the company’s strategic shift toward higher‑value offerings. While not a breakneck pace, the growth signals that Stem can expand even as it reshapes its business mix and pulls back from lower‑margin lines.

Software & Services Momentum

The clear star of the quarter was software, services and edge hardware, where revenue jumped 25% to $141 million. These higher‑margin lines now make up more than 55% of total revenue, reinforcing Stem’s ambition to be valued more like a software platform than a hardware reseller.

ARR Expansion

Annual recurring revenue ended the year at $61 million, up 16% from a year earlier and 1% sequentially. That steady climb in ARR highlights growing stickiness in Stem’s customer base, even as one‑off events trim some contracts at the margin.

Profitability and Cash Flow Turnaround

Stem delivered its first full year of positive adjusted EBITDA at $7 million alongside $7 million in positive operating cash flow. Fourth‑quarter adjusted EBITDA of $5 million, a 30% improvement from Q4 2024, shows that profitability gains are accelerating rather than stalling.

Gross Margin Improvement

Margins strengthened markedly, with full‑year GAAP gross margin at 38% and non‑GAAP at 46%. In the fourth quarter, GAAP gross margin reached 49% and non‑GAAP 45%, helped by a richer revenue mix and improved edge hardware economics that lessen dependence on low‑margin battery sales.

Cost Structure Discipline

Management’s cost‑cutting program is clearly biting, as full‑year cash operating expenses fell 41% from 2024 levels. Fourth‑quarter cash opex was down an even steeper 50%, suggesting that many of these efficiency gains are structural and not just temporary belt‑tightening.

Product Launches and Early Traction

The company rolled out its PowerTrack EMS for utility‑scale energy management and PowerTrack Sage, an AI assistant. PowerTrack Sage is already in beta with more than 80 customers, and PowerTrack EMS landed a 100 MWh engagement in Germany slated to begin commercial operations in summer 2026.

Assets Under Management and PowerTrack ARR Growth

Stem added 6 GW of solar assets, bringing total assets under management to 36 GW as its software footprint widens. PowerTrack ARR grew by $7 million to reach $41 million, underscoring the platform’s central role in the company’s long‑term recurring revenue story.

Liquidity Position

The balance sheet also strengthened, with cash rising to $49 million at year‑end from $43 million at the end of the third quarter. This improved liquidity gives Stem more room to fund product rollouts and weather demand swings as it pursues its 2026 plan.

Dependence on One-Time Revenue

Investors should note that some Q4 strength was driven by roughly $11 million in one‑time development company revenue. Managed services growth also benefited from performance‑based payouts, introducing volatility that may not repeat and potentially masking the underlying run‑rate.

Sequential CARR Decline and Customer Cancellation

Contracted ARR slipped by $3 million sequentially to $67 million following the cancellation of a managed services agreement. The move shaved $1 million off ARR and a small amount of assets under management, highlighting friction when customers seek features outside Stem’s product roadmap.

Contracted Backlog Softness

Contracted backlog edged down 4% quarter over quarter to $21 million, although it remained 2% above year‑ago levels. Stripping out hardware, the data suggest gains are concentrated and may expose Stem to the timing of a smaller set of deals.

Battery Hardware Resale Volatility

Battery hardware resale remained a wild card, with full‑year revenue at $15 million but Q4 battery sales plunging from $27 million to less than $1 million year over year. Management still sees up to $40 million of opportunistic resales in 2026, but warns this could drag gross margins toward the low end of its 40%–50% target.

Longer Utility-Scale EMS Sales Cycle

PowerTrack EMS is targeted at large utility‑scale projects with inherently long sales and commissioning timelines. Stem does not expect meaningful revenue contribution from this product until 2027, meaning investors will need patience before seeing these early wins flow to the top line.

Modest Bookings Growth

Fourth‑quarter bookings came in at $33 million, only modestly higher than the prior quarter. The figure reflects healthy momentum in software and services, tempered by weaker battery hardware bookings that limit total growth in the near term.

Forward-Looking Guidance

For 2026, Stem guided total revenue to a wide range of $140 million to $190 million, dominated by $130 million to $150 million from high‑margin software, services and edge hardware. The company projects non‑GAAP gross margins of 40%–50%, adjusted EBITDA of $10 million to $15 million, operating cash flow between breakeven and $10 million, and ARR of $65 million to $70 million, while expecting PowerTrack EMS bookings to start translating into revenue late in the year.

Stem’s call framed 2025 as a turning point, with durable cost cuts, better margins and expanding recurring revenue outweighing one‑time contributions and isolated setbacks. For investors, the story is shifting from survival toward measured, software‑driven growth, with 2026 set up as a proving ground and 2027 as the year when utility‑scale bets could begin to pay off at scale.