Stem, Inc. Q1 2026 Earnings Call - First Ever Positive Q1 Adjusted EBITDA Driven by Software Margin Expansion and Utility Scale Momentum

Operator: Greetings, welcome to the Stem, Inc. fourth quarter 2026 results conference call. It is now my pleasure to introduce Erin Reed, Head of Investor Relations. Thank you. You may begin.

Erin Reed, Head of Investor Relations, Stem, Inc.: Thank you, operator. Welcome to Stem’s first quarter 2026 earnings call. This is Erin Reed, Head of Investor Relations. Before we begin, please note that some of the statements we will be making today are forward-looking. These statements involve risks and uncertainties that could cause our results to differ materially from those projected in these statements. For more information, we refer you to our latest Form 10-Q, Form 10-K, other SEC filings and supplemental presentation, which can be found on our investor relations website. Our comments today also include non-GAAP financial measures. Additional details and the reconciliations to the most directly comparable GAAP financial measures can be found in our first quarter 2026 earnings release and supplemental materials, which are available on the company’s investor relations website.

Arun Narayanan, CEO, and Brian Musfeldt, CFO, will start the call today with prepared remarks, then we will conduct a question and answer session. Now I’ll turn the call over to Arun.

Arun Narayanan, Chief Executive Officer (CEO), Stem, Inc.: Thank you, Erin. Good afternoon, everyone, and thank you all for joining us today. When I spoke with you last during our fourth quarter and full year 2025 earnings call, I framed 2025 as a transformative year and 2026 as the year to demonstrate what that transformation was designed to deliver. One quarter in, I’m encouraged by the progress we’re making. Our results are moving in the right direction, and we remain on track against the commitments we’ve set. Q1 is historically the lightest revenue quarter for us and our industry, and yet this quarter we delivered our fourth consecutive quarter of positive adjusted EBITDA. In fact, this was our first ever positive adjusted EBITDA in a first fiscal quarter, supported by strong growth margins and continued growth in core software services and edge hardware revenue.

This reflects a cost structure and a margin profile that are now increasingly durable. We remain on track across all 2026 financial and operating targets, and we are reaffirming full year guidance across all metrics today. Now, turning to an update on our 3 key priorities for 2026. Our first priority is to drive operational leverage and ensure that the structural improvements we made in 2025 are sustainable and continue over time. Growth margins for the first quarter were again very strong. With no battery hardware resales in the quarter, our revenue mix was entirely software services and edge hardware, which drove non-GAAP growth margin to 52%. As we opportunistically layer in battery hardware through the balance of the year, we expect margins to naturally compress towards the midpoint of our 40%-50% non-GAAP growth margin guidance range.

Importantly, the underlying software and services margin engine remains strong. On the operating expense side, we continue to maintain what we have characterized as permanent structural efficiency. Cash operating expenses were down significantly year-over-year and down sequentially versus the fourth quarter of 2025. We remain focused on resourcefulness and driving further efficiency wherever we can, while continuing to invest deliberately in the areas that drive longer-term growth. One area where we are seeing meaningful efficiency gains is in AI adoption. Today, nearly 70% of our employee base is actively using AI tools in their weekly workflows with tangible productivity benefits to our customers. Within our development team specifically, AI is accelerating feature delivery and improving triage and operations. These productivity gains are real, and they are helping us do more with a leaner organization.

As a result of our strong execution, as well as these achievements and advancements, we delivered $2 million in adjusted EBITDA, our fourth consecutive positive quarter and our first ever positive first quarter performance. This clearly evidences the operating leverage embedded in this business, and we expect it to expand as we move through the year. Operating cash flow was negative $8 million for the first quarter. This reflects expected Q1 working capital timing and scheduled interest payments. Bookings and billings increase and working capital requirements lessen throughout the year, we expect improvements in operating cash flow and remain confident in our full year guidance range of $0-$10 million. Moving on to our second priority: strengthening the core PowerTrack platform.

PowerTrack is a critical digital infrastructure platform which enables our customers to go from data to insight to action. PowerTrack generates data at the customer sites with our Edge hardware and sends that data to the cloud and ultimately to our PowerTrack software platform, enabling our customers to make meaningful decisions about their portfolios and optimize their assets. We added approximately 1.5 GW of solar assets under management in the first quarter, bringing total solar AUM to 37.5 GW, and we drove 2% growth in PowerTrack ARR. We are committed to maintaining and extending our market-leading position in commercial and industrial solar asset monitoring while extending into additional customer segments, and we continue to invest in the platform’s stability, performance, and feature depth to achieve these goals. A key part of that investment strategy is a disciplined build or buy analysis.

Our acquisition of raicoon, which we announced on April 28th, is a direct and strategic move towards building out that platform capability and improving the actionability from insights in data. raicoon is an Austrian provider of automated fault detection and event management for solar assets. This is a targeted high-impact acquisition, a natural capability extension to our platform that we believe has immediate value across our wide customer base. raicoon’s technology provides enhancements to PowerTrack through automated fault detection and alert prioritization. As our customer base scales and portfolios grow more complex, the ability to surface and triage performance issues faster is increasingly important for our customers to drive meaningful actions at scale. We expect raicoon’s technology will drive customers to do even more work with PowerTrack, further establishing our product as the platform of choice for solar asset managers.

What’s more, this is a small, focused tuck-in acquisition that we executed opportunistically and will integrate quickly. We look forward to sharing more on the benefits of this acquisition as product integration progresses. Another way in which we make data more accessible for our customers is with PowerTrack Sage. PowerTrack Sage is now live and available in PowerTrack to our broader customer base. The AI assistant synthesizes live site data, alerts, and performance analytics into plain language briefings, giving operators, performance engineers, and asset managers the ability to detect, diagnose, and resolve issues faster. The early adoption signals are very exciting. We are seeing consistent daily engagement across multiple customer organizations with integrations into their daily workflows. In the future, as more heterogeneous data appears in PowerTrack, the capabilities of PowerTrack Sage will become more meaningful to our customers. Turning now to Managed Services.

Our Managed Services business provides software-enabled full lifecycle energy storage services, covering design, procurement, commissioning, and the ongoing operation and optimization of energy storage systems, typically under 5 to 20-year contract terms. Managed Services brought in approximately $7 million in revenue during the first quarter. Customer satisfaction remains high, and our optimization service continues to exceed the performance targets we have set with our customers. Shifting now to our final strategic priority, building the foundation for accelerated growth in 2027 and beyond, which includes expanding into utility scale deployments, advancing our international footprint, and unlocking new market opportunities. I’m particularly excited about bookings momentum we are seeing in the utility scale segment. Bookings more than doubled quarter-over-quarter, and our pipeline in this segment is the strongest we have ever seen.

We booked new deals in four different geographies and across various asset types, including standalone storage, solar, and new build hybrid. While PowerTrack EMS is valuable across our portfolio, including C&I, it is also a key offering for us to drive expansion in the utility scale space, both internationally and domestically. It differentiates us by providing customers with unified controls, cloud monitoring, and portfolio-level visibility. PowerTrack EMS also helps customers extend the value of existing solar assets by adding storage with minimal disruption.

PowerTrack EMS has a longer commercial life cycle than our core C&I business because of the utility scale end market, since it requires more time for commissioning, and we expect these bookings to convert to meaningful revenue in late 2026 and into 2027. Our first PowerTrack EMS bookings from Q4 2025 are developing well and are on track to convert to revenue during the second quarter of 2026. One key PowerTrack EMS booking from Q1 I’d like to highlight is with a long-standing PowerTrack solar monitoring customer operating 2 utility scale sites exceeding 50 MW in Hungary. This customer made the decision to hybridize their portfolio and selected PowerTrack EMS to manage a new 50-plus MWh battery system. This is precisely the expansion dynamic we anticipated when we built PowerTrack EMS. An existing customer deepening their relationship with Stem as their assets evolve.

It validates both the platform’s ability to grow with our customers and the increasing prevalence of hybridization in the European utility scale market. Just last week, we further strengthened PowerTrack EMS with a co-marketing relationship with Nuvation Energy, a North American provider of battery management and energy control solutions. Together, we will market a cell-to-cloud BESS and hybrid control stack that is exclusively North American designed and manufactured. This collaboration will allow us to deliver real value to our customers as regulatory requirements, including FEOC, tighten. Further, this agreement proves we are on our way to building a robust ecosystem of commercial and product partnerships to extend our reach. On the international front, we continue to build out our European presence anchored by our Berlin office.

International revenue represented approximately 5% of total revenue in the first quarter. We expect that proportion to grow as PowerTrack EMS and other utility scale projects in Europe move through commissioning and into revenue recognition in late 2026 and in 2027. Beyond our core growth drivers, I’d like to briefly update you on the two new offerings we introduced during our Q4 call. Our AI services offering continues to progress with active customer conversations focused on helping organizations identify and implement practical AI use cases that streamline internal processes, improve decision making, and unlock operational efficiency. In parallel, we are exploring how our core strengths in energy optimization software and deep energy market expertise can support data center developers and operators as they navigate rising power costs, grid constraints, and resilience requirements.

We will share more substantive updates as customer engagements and market validations advance. To close, I want to reinforce our confidence in the rest of the year ahead. Q1 came in as expected. Strong margins, positive adjusted EBITDA, and solid progress on all three priorities. As I stated earlier, we are reaffirming our full year 2026 guidance across all metrics. I’m confident in our team’s ability to execute. With that, I’ll turn the call over to Brian.

Brian Musfeldt, Chief Financial Officer (CFO), Stem, Inc.: Thanks, Arun, and good afternoon, everyone. Let’s walk through the results. As Arun noted, Q1 is historically the lightest revenue quarter for the company, driven by the natural sales cycle of construction projects, which typically begin to ramp into summer and through the end of the year. Total revenue for the first quarter was $29 million, down 11% year-over-year from $32 million in the first quarter of 2025. The year-over-year decline was entirely attributable to the absence of battery hardware resales this quarter and our expectation that battery hardware resale activity will be weighted to the second half of 2026. Core revenue from software, services, and edge hardware was up 4% from the first quarter of 2025. Within that, I want to highlight a few components.

PowerTrack software revenue grew 16% year-over-year, reflecting continued strength in our commercial and industrial solar monitoring business and early contributions from utility scale expansion. This is the highest margin recurring revenue in our portfolio, and its growth rate is a meaningful indicator of the health of our core business. Edge hardware revenue grew approximately 1% year-over-year. Project and professional services revenue declined 5% year-over-year, and managed service revenue was down 5% year-over-year. First quarter GAAP gross margin was 38%, compared to 32% in the first quarter of 2025. Non-GAAP gross margin was a record 52%, compared to 46% in the first quarter of 2025.

The significant margin expansion reflects the increasing mix of software, services, and edge hardware in our revenue base, combined with the structural cost improvements we made in 2025. As battery hardware resale volumes pick up in the second half of the year, non-GAAP gross margin percentage will trend toward the middle of our 40%-50% full year guidance range, but the underlying software and service margins remain strong. Cash operating expenses were down 30% year-over-year and down approximately 10% sequentially. The workforce and cost optimization actions we completed in 2025 and continue to implement into 2026 have become permanent structural efficiency, and the first quarter confirms that characterization. Adjusted EBITDA was $2 million, a $7 million improvement compared to a negative $5 million in the first quarter of 2025.

This marks our 4th consecutive quarter of positive adjusted EBITDA and our 1st ever positive adjusted EBITDA in the 1st quarter, which has historically been our most challenging quarter for profitability, given seasonal revenue patterns. This is strong evidence of the operating leverage that is now entrenched in this business. We ended the 1st quarter with $37 million in cash and cash equivalents. Operating cash flow was negative $8 million in the quarter, driven primarily by the timing of working capital movements and cash interest expense. I want to be clear about the working capital dynamics. The Q1 outflow reflects timing, not a change in the underlying cash generation of the business.

As bookings and billings increase and working capital requirements lessen throughout the year, we expect improvement in our cash position and remain on track to achieve our full year operating cash flow guidance of $0-$10 million. Turning now to our operating metrics. Bookings were $27 million in the first quarter, compared to $33 million in the fourth quarter of 2025. The sequential decline is typical for first quarter seasonality. All bookings this quarter came from core software, services, and edge hardware. As Arun noted, utility scale bookings more than doubled quarter-over-quarter, which is one of the key drivers of our long-term growth objectives. While we did not have any battery hardware bookings this quarter, we continue to expect up to $40 million in opportunistic battery hardware sales this year.

The battery supply is accessible and can be delivered to customers within 90 days. Contracted backlog was $23 million at the end of the first quarter, up 8% sequentially from $21 million at the end of the fourth quarter of 2025. CAR was $67 million, flat versus the end of the fourth quarter. ARR was $61.2 million, up slightly from $61.1 million at the end of the fourth quarter. Within that, PowerTrack ARR grew 2% sequentially and Managed Services ARR declined 4% sequentially. Managed Services ARR declined modestly, reflecting the impact of a battery supplier bankruptcy, which prevented the renewal of certain recurring warranty management and other services contracts tied to that supplier’s systems.

Importantly, we continue to provide optimization and other core managed services to the owners of those assets, and associated AUM remains on our platform. Solar operating AUM grew 4% sequentially to 37.5 gigawatts, and storage operating AUM was flat sequentially at 1.7 gigawatt hours. Now turning to guidance. As Arun mentioned, we are reaffirming our full year 2026 guidance across all metrics. Total revenue of $140 million-$190 million, with software, services, and edge hardware expected in the range of $130 million-$150 million, and battery hardware resales of up to $40 million, which as I mentioned, we expect to be weighted to the second half of the year.

Non-GAAP gross margins of 40%-50%, with the range driven by the timing and volume of battery hardware resales. Adjusted EBITDA of $10 million-$15 million, operating cash flow of $0-$10 million, year-end ARR of $65 million-$70 million. I will now pass the call back over to Arun for closing remarks.

Arun Narayanan, Chief Executive Officer (CEO), Stem, Inc.: Thank you, Brian. I’d like to leave you all with 3 key takeaways from this quarter. First, the transformation we undertook in 2025 is delivering results. We achieved positive adjusted EBITDA in our historically weakest quarter with record high software margins and a cost structure that is both lean and durable. This is not a one-time achievement. It’s the foundation we’re building on. Second, our core business is strong and growing. PowerTrack software revenue grew 16% year-over-year. Our new products, PowerTrack EMS and PowerTrack Sage, are gaining real traction with customers. The raicoon acquisition demonstrates our disciplined approach to extending our platform capabilities where it matters most. Third, we are making tangible progress on the growth initiatives that will drive through 2027 and beyond. Utility scale bookings more than doubled quarter-over-quarter.

Our international footprint is expanding, and our partnership with Nuvation positions us to capitalize on the growing demand for secure, domestically sourced energy infrastructure. We said 2026 would be the year to demonstrate what our transformation was designed to deliver. 1 quarter in, we are doing exactly that. We have the right strategy, the right team, and the right momentum. We are executing with discipline, investing with purpose, and we remain confident in achieving all our full year commitments. I want to thank our customers for their continued partnership, our team for their exceptional execution, and all of you for your support and engagement. With that, I will ask the operator to open the line for questions.

Operator: Thank you. We will now conduct a question and answer session. One moment while we pull for our first question. The first question comes from Justin Clare with ROTH Capital. Please proceed.

Justin Clare, Analyst, ROTH Capital: Hey, good afternoon. Thanks for taking our questions here. Wanted to just start out on bookings. You had mentioned utility scale bookings had doubled quarter-over-quarter. Just wondering if you could speak to what drove the strength there. Is that new customer wins? Is it expansion with existing customers? Are you seeing larger project sizes? And then also, just where are you seeing the most traction with utility scale customers in your portfolio? Which products or services are you seeing the most uptake for?

Arun Narayanan, Chief Executive Officer (CEO), Stem, Inc.: Justin, it’s good to hear from you. This is Arun. It’s largely driven, I would say, by PowerTrack EMS. PowerTrack EMS is the key differentiator that allows us to provide our customers in the utility scale space with solutions. It brings unified controls, cloud monitoring, as well as portfolio-level visibility to our customers. I think this is what’s extending their ability to engage with us beyond solar projects into these utility scale projects. Also, one more thing. We have PowerTrack SCADA, which is another product that we offer for monitoring and control in utility scale solar projects as well. We have a team based in Berlin. The team is working very hard, they have done a great job in doubling bookings. There are two maybe examples I can cite. In the last quarter, we spoke about Enery, which was a German customer.

That was a 100-plus megawatt-hour project. In the prepared remarks, we referred to a Hungarian project that went through hybridization that was a 50-plus megawatt-hour deal as well. Overall, I think we remain confident that this conversion continues. The first EMS bookings from the Q4 2025 cycle, we expect to start seeing that as revenue starting in Q2 of 2026. We remain very optimistic on this, Justin.

Justin Clare, Analyst, ROTH Capital: Okay. Got it. Appreciate that. Just wanted to ask on PowerTrack. We did see pretty good growth, I think 16% year-over-year revenue growth for that. Though we did see the ARR was flat sequentially. Just wondering how we should think about the cadence of ARR growth as we move through the balance of the year here, given your target of $65 million-$70 million at the end of the year. Just what are the drivers that could potentially enable you to get to the higher end of that target?

Arun Narayanan, Chief Executive Officer (CEO), Stem, Inc.: Yeah, Justin, I can answer that as well. PowerTrack ARR was up 12% year-over-year, 2% sequentially. This moderate sequential growth in PowerTrack ARR is just due to seasonality. We expect ARR to ramp up throughout the remainder of the year, the majority of our ARR growth, as usual, will come from PowerTrack C&I customers. There will be some PowerTrack EMS and utility scale deployments in the ARR, it won’t be a significant portion of ARR this year. We’re very focused, we continue to drive ARR across our business over the long term. As I said earlier, we’re pleased to reaffirm our guidance of $65 million-$70 million for ARR.

Justin Clare, Analyst, ROTH Capital: Got it. Okay. Great. And then just one more, wanted to ask on the margins here. We just see the PowerTrack, non-GAAP gross margins, they continued to move higher in Q1. I think you’re at 75% versus 69% a year ago, 71% in Q4. Just wondering if you’d just speak to the improvements that we’ve seen there, what’s been the biggest driver, and then how we should think about the margin profile as you continue to scale that business. Is there further potential for margins to move higher?

Brian Musfeldt, Chief Financial Officer (CFO), Stem, Inc.: Yeah, thanks, Justin. This is Brian. I’ll take that one. Yeah, I mean, we are always reviewing the supply chain and the macro environment for our PowerTrack products. You know, you’re seeing good growth in a couple ways. One, you know, our AUM is increasing, that is a kind of traditional SaaS product that, you know, gains leverage as we get more volume, which is always great, that’s going to improve margin. Also you do see us, you know, as we watch the environment and the supply chain this last year, we have been able to increase pricing, modestly where we’ve needed to kind of, you know, between tariffs and other things that have kind of driven that environment. You know, as the volume increases, you’ll continue to see margins push up on that space.

You know, we’re always watching for places where we can increase pricing or need to increase pricing on our customers, and that’s what’s going to drive that kind of to keep improving.

Justin Clare, Analyst, ROTH Capital: Okay. Got it. Appreciate it. Thank you.

Operator: Thank you. This concludes the equity research questions. I’d like to turn the floor over to Erin for retail investor questions at this time.

Erin Reed, Head of Investor Relations, Stem, Inc.: Thank you, operator. We have a few questions here. Firstly, relating to cash flow. With 2026 operating cash flow guided from $0-$10 million, what are the key levers that give you confidence that Stem can reach positive operating cash flow for the full year 2026?

Brian Musfeldt, Chief Financial Officer (CFO), Stem, Inc.: Yeah. I’ll grab This is Brian again. I’ll grab that one. You know, as Arun stated in the call, Q1’s negative operating cash flow was really driven by a combination of, you know, expected higher working capital requirements in Q1 and it being our traditionally lowest kind of billings and revenue quarter. You know, when you look forward, we expect that you know, bookings and billings will increase with our seasonality when you look at this business and how it operates. We also expect reduced working capital requirements through the rest of the year. The combination of that will allow us to build cash going into the second half of the year. I think it’s important to note, you know, cash operating expenses have really been optimized to the business and the size today.

I think you can see that in the evidence when you, when you see that, you know, cash operating expenses were down 30% year-over-year and another 10% sequentially. You know, with that, we were able to achieve positive EBITDA in our lowest revenue quarter for the first time, which is great. I think, you know, you’re just fundamentally seeing that we need significantly less cash to run this business with the new operating discipline that we have in place. I think that’s what really gives us the confidence to reiterate our guidance on all our metrics this year.

Erin Reed, Head of Investor Relations, Stem, Inc.: Thanks, Brian. The next question is on the recent acquisition of raicoon. Why did you acquire raicoon, and why now?

Arun Narayanan, Chief Executive Officer (CEO), Stem, Inc.: I’ll take this. This is Arun. Well, very excited that raicoon is joining Stem, and I want to take this opportunity to welcome all of the raicoon employees to Stem. raicoon’s technology provides significant enhancements to PowerTrack through automated fault detection and alert prioritization. What this means is, as our customer base scales and portfolios grow more complex, the ability to surface and triage performance issues faster is increasingly becoming very important to customer retention and satisfaction. This acquisition directly supports our 2026 priority of strengthening our core PowerTrack business. We saw an opportunity to bring in a proven, already deployed technology rather than build it from scratch. This brings additional value to our existing customer base, as well as it’s a differentiator as we try to acquire new customers. We’re very pleased that raicoon is joining us.

Erin Reed, Head of Investor Relations, Stem, Inc.: Thanks. This will be the last question, and it is related to AI. Where is Stem’s AI capability creating measurable value for customers today, and how does that translate into retention, expansion, or new customer wins?

Arun Narayanan, Chief Executive Officer (CEO), Stem, Inc.: I’ll take this. Look, I’m always excited about AI, and I would say that our ability to bring AI to life and to bring value to our customers maybe can be thought of in two different ways. The first way is how we embed AI into our products. AI is baked into PowerTrack as PowerTrack Sage, and this AI assistant provides customers with more fluency to interpret their site data. It expands PowerTrack users beyond the technical users that we have, and it does so by providing plain language briefings to non-technical users. Secondly, we also impact customer value by using AI internally, especially if you think about our development team. Their usage of the AI tools, it allows them to accelerate feature delivery. It improves triage in our operations. It allows us to roll out updates more quickly.

Ultimately, what this means is we reduce friction for our customers.

Erin Reed, Head of Investor Relations, Stem, Inc.: Thanks, Arun. This concludes the retail investor questions. Turning back to you now for closing remarks.

Arun Narayanan, Chief Executive Officer (CEO), Stem, Inc.: I wanna thank everyone for joining our first quarter earnings call, and we look forward to speaking with you next during our second quarter 2026 earnings call this summer. Thanks, everyone.

Operator: Thank you. This does conclude today’s teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a great day.