Stem, Inc. ((STEM)) has held its Q4 earnings call. Read on for the main highlights of the call.
Stem, Inc.’s recent earnings call painted a mixed picture for investors. While there was promising growth and high margins in the software segment, particularly with PowerTrack, the company faced significant challenges. A decline in total revenue, operational hurdles, and adjustments to backlog were notable concerns. Efforts to reduce costs and focus on high-margin business were seen as positive steps, yet issues surrounding NYSE compliance and financial impairments added to the cautious sentiment.
PowerTrack Software Success
PowerTrack has emerged as a key player in the U.S. solar asset market, becoming the standard for 13 of the top 16 commercial and industrial solar asset owners. The software’s success is not limited to the U.S., as it has secured a significant international deal with Neovolt in Hungary, covering 484 megawatts. This expansion highlights the software’s robust capabilities and potential for further growth.
High Gross Margins
The PowerTrack software continues to deliver impressive financial results, achieving gross margins between 70% and 80%. This high-margin performance is complemented by associated professional services and edge devices, which also contribute significantly to the company’s profitability.
Cost Reduction Initiatives
Stem, Inc. is actively working to streamline its operations, planning to reduce its cost structure by more than 20% in 2025. This follows a 15% reduction already achieved, indicating a strong commitment to operational efficiency and a leaner corporate structure.
2025 Guidance on Revenue Mix
Looking ahead, Stem, Inc. expects a revenue mix shift towards high-margin software, edge devices, and services. The company forecasts 2025 revenue between $125 million and $175 million, with a substantial portion coming from these high-margin areas, underscoring a strategic focus on sustainable, recurring revenue streams.
Decline in Total Revenue
Despite a 6% increase in software revenue, Stem, Inc. experienced a significant year-over-year decline in total revenue, primarily due to reduced hardware sales. This decline highlights the challenges faced by the company in balancing its product offerings.
Operational Challenges
The company encountered several operational challenges, including a one-time impairment of deferred services and other adjustments totaling $38.7 million. These factors negatively impacted the financial results and underscore the need for careful management of operational risks.
Backlog Adjustments
Stem, Inc. reported sequential declines in contracted backlog and CARR, driven by significant adjustments due to repricing of OEM hardware and the elimination of delayed projects. These adjustments reflect the company’s efforts to align its backlog with current market conditions.
NYSE Compliance Issue
The company received a notice from the NYSE for non-compliance with listing standards due to a low share price. This situation may necessitate a reverse stock split to regain compliance, posing a potential challenge for the company’s stock market presence.
Forward-Looking Guidance
Stem, Inc.’s guidance for 2025 emphasizes a strategic shift towards software and services revenue. The company anticipates recognizing revenue between $125 million and $175 million, with a focus on high-margin areas. Non-GAAP gross margins are projected to be between 30% and 40%, with adjusted EBITDA ranging from negative $10 million to positive $5 million. The company also aims to reduce cash operating expenses by more than 20% and forecasts 15% growth in Annual Recurring Revenue (ARR) by year-end 2025.
In summary, Stem, Inc.’s earnings call highlighted both opportunities and challenges. The company’s focus on high-margin software and services is promising, yet operational hurdles and compliance issues present significant obstacles. Investors will be keenly watching how Stem navigates these challenges while capitalizing on its software success.