Stem(US:STEM)2024-10-31 02:36Financial Data and Key Metrics Changes - Revenues for Q3 2024 were $29 million, a sharp decline year-over-year, primarily due to lower hardware resale revenue [21] - GAAP gross margin was reported at 21%, while non-GAAP gross margin reached a record 46%, reflecting a larger contribution from high-margin software and services revenue [21] - Adjusted EBITDA and operating cash flow declined slightly year-over-year due to lower gross profit from battery hardware resales [23] Business Line Data and Key Metrics Changes - Solar revenue grew by 19% year-over-year, while services revenue reached a record $22 million, up 33% year-over-year [23] - Software revenues increased by 10% quarter-over-quarter and 19% year-over-year [22] - The company reported a slight uptick in storage assets under management by about 200 megawatt hours and growth of about 1.6 gigawatts for solar during the quarter [24] Market Data and Key Metrics Changes - The backlog fell slightly since the second quarter, with relatively low bookings of $29 million [24] - Annual recurring revenue (ARR) increased by over $3 million, split roughly evenly between solar and storage assets [22] Company Strategy and Development Direction - The new strategy focuses on four key initiatives: refining the product and go-to-market approach centered around software and services, expanding consultative energy services, enhancing innovation through AI, and changing the approach to battery hardware [8][9] - The company aims to generate revenue earlier in the project lifecycle through consultative energy services, reducing reliance on hardware resale [9] - The strategy aims for more predictable revenue growth, higher gross margins, and improved profitability [31] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the unpredictability of project timelines for utility-scale storage hardware, prompting a strategic shift to reduce reliance on this revenue stream [9] - The company expects a lower overall revenue base in the long term but anticipates much more predictable revenue growth and significantly higher gross margins [26] - Operating expenses are expected to be reduced by around 15% by the end of the year, focusing on driving the company to profitability [27] Other Important Information - The company is undergoing a CEO search, with hopes to identify a new permanent CEO by the end of the year [30] - The leadership team has undergone significant changes, with a focus on driving innovation and achieving strategic goals [12] Q&A Session Summary Question: Customer feedback on strategic shift and management changes - Customer response has been generally positive, with an increasing sophistication in purchasing storage hardware [36] Question: Enhancements requested by customers for software products - Customers are looking for improved user information flow, predictive capabilities leveraging AI, and automated warnings and resolution processes [38] Question: Modular ESS solution's relevance in the new strategy - The modular component remains a significant part of the overall architecture and strategy [40] Question: Nature of future bookings under the new strategy - Future bookings will likely include both hardware and software, depending on customer requirements [44] Question: Change in contract duration from 15-20 years to 3-5 years - The shift is primarily driven by the focus on software, with shorter contracts providing more flexibility for customers [46] Question: Revenue expectations for shorter duration contracts - There is not expected to be a significant change in annual revenue numbers, primarily focusing on shorter contracts [50] Question: Outlook for storage software activations and ARR - The company is taking a close look at the cadence between CARR and ARR but is not in a position to disclose specific figures at this time [54]