Stem - Earnings Call - Q4 2024

Executive Summary

• Q4 2024 revenue was $55.8M, down 67% YoY due to sharply reduced battery hardware sales; GAAP gross margin fell to (4)%, while non-GAAP gross margin improved to 36% as mix shifted toward software/services.
• Net loss was $51.1M; adjusted EBITDA was $4.2M; cash and cash equivalents ended at $56.3M versus $75.4M in Q3, reflecting working capital pressures and onetime adjustments.
• Management introduced FY 2025 guidance: revenue $125–$175M, non-GAAP GM 30–40%, adjusted EBITDA $(10)M to $5M, operating cash flow $0–$15M, year-end ARR $55–$65M (~15% growth) and a pivot to high-margin software, edge devices and services with up to $35M hardware resale.
• Key catalysts: software-centric pivot (PowerTrack wins with Summit Ridge 514 MW and Neovolt 484 MW), backlog “clean-up” to improve predictability, >20% planned cash OpEx reductions, and reverse split proposal to regain NYSE compliance.

What Went Well and What Went Wrong

What Went Well

• PowerTrack traction and margins: “We earn 70% to 80% gross margin on the PowerTrack software…50% on professional services…30% to 40% on edge devices,” underscoring the pivot to high-margin recurring revenue.
• New wins supporting pivot: Summit Ridge standardized PowerTrack across 200 sites (514 MW) and Neovolt standardized on 484 MW in Hungary, expanding international utility-scale presence.
• Non-GAAP gross margin improved YoY to 36% (from 13%), reflecting mix shift toward software/services and exclusion of legacy guarantee impacts.

What Went Wrong

• Revenue fell 67% YoY to $55.8M on reduced battery hardware sales; GAAP gross margin turned negative (4)%, including a onetime impairment to deferred services tied to OEM warranty.
• Contracted backlog declined 25% sequentially to $1.17B after repricing OEM hardware and removing delayed projects; CARR fell to $86.0M (−7% q/q) due to proactive backlog adjustment.
• FY 2024 had substantial charges: $104.1M bad debt from receivables tied to parent guarantees and $547.2M goodwill impairment, weighing on full-year net loss of $854.0M.

Transcript

Operator (participant)

Greetings and welcome to the Stem fourth quarter 2024 results conference call. At this time, all participants are in listen-only mode. If anyone should require operator assistance, please press star zero on your telephone keypad. A question-and-answer session will follow the formal presentation. You may be placed into question queue at any time by pressing star one on your telephone keypad. We ask that you please ask one question, one follow-up, then return to the queue. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to your host, Ted Durbin, Head of Investor Relations. Ted, please go ahead.

Ted Durbin (VP of Investor Relations)

Thank you, Operator. This is Ted Durbin, head of investor relations at Stem. Welcome to our fourth quarter and full year 2024 earnings call. Before we begin, please note that some of the statements we will be making today are forward-looking. These matters involve risks and uncertainties that could cause our results to differ materially from those projected in these statements. We therefore refer you to our latest 10-K filing and other SEC filings and the supplemental materials which can be found on our website. Our comments today also include non-GAAP financial measures. Additional details and reconciliations to the most directly comparable GAAP financial measures can be found on our earnings release, which is on our website. Arun Narayanan, CEO, and Doran Hole, CFO and EVP, will start the call today with prepared remarks, and we will take your questions. Now I'll turn the call over to Arun.

Arun Narayanan (CEO)

Thanks, Ted. Good afternoon, and thank you all for joining us today. I'm excited to join Stem at a critical juncture for the company and the industry. It is a pleasure to speak with you all today on my first earnings call since joining Stem. In my first five weeks as CEO, I've spent time with our customers, partners, and employees. Even in this short period, I'm convinced that we have the foundation to build a truly great software company. I'm honored the board chose me to lead the company into its next chapter. As part of the diligence process that I undertook before I joined the company, I evaluated the overall financial potential of the company and also the underlying ingredients: talent, technology, and vision to make my decision.

Looking at the company's competitive positioning and the broader industry's outlook, it's clear to me that the software-centric strategy announced in the fall of 2024 is the right plan for the company's future financial success and growth. I see strong offerings from Stem, a clear market need, and the opportunity to leverage emerging technologies like AI to address real customer challenges, thus laying the foundation for our path to profitability. Over the course of my career, I have built and grown digital businesses across multiple industries around the world. The common thread throughout my experience has been launching innovative software products, harnessing data analytics to improve workflows and customer productivity, and leading complex, high-impact change management initiatives driven by technology adoption. At the core of my experience is an understanding of the key drivers of a software business and the broader ecosystem of B2B software.

Driving revenue growth, securing major customer deals, and sustaining profitability have been key achievements. I also have a strong understanding of the foundational technologies needed to build software at scale and modernizing our own software development processes. Innovating and introducing digital solutions to traditional capital-intensive industries is hard, and a lot of my experience is also centered around change management. I believe software is mission-critical for virtually every industry, including renewables, but it means embracing a new way of doing things. Software also needs to be combined with human expertise and an intense focus on the customer value proposition, which brings me back to Stem. I see opportunities for us in every direction. I'll highlight a few. First, customers. We have a strong, loyal base of 16,000 solar and storage customers, and at the same time, that market is continuing to grow. Second, products.

Most importantly, PowerTrack, which has the trifecta of a solid domestic market share, generates high gross margins and has growth opportunities both domestically and internationally. The third opportunity is people. We bring deep subject matter expertise to every engagement. Despite our strengths, I fully recognize and acknowledge the challenges we face. Our financial results in the recent quarters have been disappointing, and we are taking concrete steps to improve those results. This has been a key focal point for me, and in my initial few weeks, I've identified three priorities. Number one, we will grow our software revenue with renewed focus on PowerTrack. Number two, we will reduce our cost structure. Thirdly, we will revamp our software development. First, as I have spent more time with customers and our team, I'm particularly impressed with PowerTrack.

13 of the top 16 commercial and industrial solar asset owners in the U.S. have standardized on PowerTrack. Today, we announced that Summit Ridge Energy has standardized on PowerTrack across its fleet of 200 solar sites, totaling 514 megawatts. I'm also especially excited about our international opportunities with PowerTrack, where we see significant growth potential in largely untapped markets. In January, we announced that Nofar, one of the largest asset owners in Hungary, will standardize on PowerTrack for a 484-megawatt solar portfolio. We earn 70%-80% gross margin on the PowerTrack software and a high margin on associated offerings, such as 50% gross margin on our professional services tied to PowerTrack installation and commissioning, and 30%-40% on PowerTrack edge devices. This is a high-margin business with large and growing annual recurring revenue. It's also relatively short-cycle.

Unlike our legacy managed services for storage, the time between a booking and software revenue is often less than six months. You can see this reflected in our 2025 guidance, where we expect continued strong growth in our software and edge device sales this year. Second, on cost savings. From an operational perspective, we expect additional cost savings of more than 20% in 2025, above and beyond the 15% reduction that we discussed on the third quarter call. I believe that we will achieve these savings through a combination of factors, including eliminating operational inefficiencies, streamlining our corporate structure, and lastly, empowering our management teams with control over and responsibility for operational decisions. Third, on our software products and roadmap, we will do the following: revamp our software development, refine the product roadmaps, and increase the use of AI in our software development and in our products.

We expect these changes will have limited or no impact on our customers. Before turning things over to Doran for a detailed discussion of our financials and outlook, I want to emphasize the strong partnership we've already built. Doran will be a key leader in driving our transformation into a high-growth, profitable software company. With that, let me turn the call over to Doran.

Doran Hole (CFO and EVP)

Thank you, Arun. On behalf of the Stem team, we're excited to have you on board. Today, I'll cover three key items: our fourth quarter and full year 2024 results, 2025 guidance, and then updates to our operating and financial metrics. Starting with the fourth quarter, results were largely in line with the expectations we outlined during our Q3 call. We continue to expect battery hardware resales to decline over time as we focus on driving recurring software and services revenues. Total revenue was down significantly year-over-year due to reduced hardware sales, but software revenue was up 6% year-over-year, driven by continued strong performance from PowerTrack and increased storage software activations. As Arun mentioned, we are seeing success for PowerTrack among larger customers and internationally.

GAAP gross margin was down sequentially due to a one-time impairment of deferred services related to OEM warranty services that hit total services cost of goods sold. non-GAAP gross margin was down sequentially in the fourth quarter, but up year-over-year. In general, our gross margins are influenced by the mix of battery resale revenue and software and services revenue. Adjusted EBITDA and operating cash flow declined on a year-over-year basis due to lower gross profit dollars from reduced battery hardware sales. On liquidity, we ended the year with approximately $58 million of cash. As I'll discuss shortly with guidance, we expect operating cash flows to improve in 2025, including some working capital releases related to OEM hardware that we have already seen hit in the first quarter.

This quarter, we recorded some one-time adjustments to our current assets, approximately $38.7 million in the aggregate, related to AR reserves, impairment of inventory, and hardware deposit forfeitures with certain suppliers. Turning now to our operating metrics, contracted backlog, CAR, and contracted storage AUM were down sequentially as we adjusted our backlog to reflect repricing of OEM hardware and the elimination of delayed projects. Operating ARR was up 3% versus the third quarter and up 19% year-over-year, driven by storage activations and steady PowerTrack growth. Now moving to our 2025 guidance. Starting with revenue, we expect to recognize between $125 million and $175 million, of which approximately $120-$140 million is expected to come from high-margin software, edge device, and services revenue. We expect up to $35 million of the remaining balance to be driven by battery hardware resales.

In general, software, edge device, and services revenue is expected to be roughly ratable over the balance of the year, with some slight back-end seasonality. I understand that many analyst models were anticipating significantly higher battery resale revenue. We're taking a prudent approach to this portion of the business, given our strategy shift and some of the policy and funding uncertainties in the market. We expect battery resale revenue to be heavily weighted toward the back end of the year, with gross margins in the 5%-10% range. We expect non-GAAP gross margins of 30%-40%, roughly in line with our gross margins in 2024. Higher battery hardware resale revenue would cause our gross margin percentage to trend lower, although we would benefit from more gross profit dollars.

We expect adjusted EBITDA of negative $10 million to positive $5 million and operating cash flow of $0 to $15 million. As Arun mentioned, we expect to reduce run rate cash OPEX by more than 20% during 2025 relative to our 2024 exit rate to achieve these targets. As I mentioned, during the first quarter, we expect working capital releases related to OEM hardware to also drive an improvement in operating cash flow. For the first time, we are providing guidance on operating ARR. Our revised strategy is built on driving recurring and predictable software and services revenues, and we see ARR as a key metric for tracking our progress, which is also in line with other publicly traded software-focused businesses. With that in mind, we expect 15% ARR growth at the midpoint from year-end 2024 to year-end 2025, with a range of $55 million-$65 million.

As we continue to evolve our business in line with our new strategy, we are rolling out new and redefined metrics that we believe will help stakeholders better understand and forecast our results. Commencing with the first quarter 2025 earnings call, we will be making several adjustments, which are outlined in detail in our supplemental materials. Key among those are changes to reported backlog, CAR, and ARR and storage operating AUM. We are redefining backlog as all contracted hardware and professional services revenues where we have a fully executed purchase order from a customer. Backlog will exclude software and software-related managed services. That revenue will be captured in CAR and ARR. We plan to disclose a consolidated ARR, which will include a breakdown of solar and storage. Much like backlog, CAR includes ARR and future revenues where we have a fully executed purchase order from a customer.

Finally, we will begin disclosing storage operating AUM. Our storage software revenue generally commences when a system is activated, so this metric gives you better visibility into our revenue-generating AUM. Finally, as you know, we received a notice from the New York Stock Exchange in August 2024 that we were out of compliance with listing standards due to our average share price falling below $1 over a 30-day trading period. As we explained in our earnings press release, our board of directors has approved, subject to a stockholder vote, a potential range on a reverse stock split, which would bring us back into compliance with NYSE listing standards. Now I will pass it back to Arun for closing remarks.

Arun Narayanan (CEO)

In closing, I want to thank the Stem employees for their continued strong execution to support our customers. I remain bullish on the strength of PowerTrack's growth and associated margins. I also believe that we can effectively manage our cost structure. The strength of our offering ultimately depends on our people, and I believe we have some of the best in the business. With that, Operator, let's open the line for questions, please.

Operator (participant)

Certainly. We're now beginning the question and answer session. If you'd like to be placed in the question queue, please press star one on the telephone keypad. As a reminder, please ask one question, one follow-up, then return to the queue. Once again, that's star one to be placed in the question queue, and star two if you'd like to remove your question from the queue. One moment, please, while we pull up our questions. Our first question is coming from Thomas Boyes from TD Cowen, and your line is now live.

Thomas Boyes (VP of Equity Research)

Appreciate you taking the questions. Maybe just first one for me. It was just around PowerBidder, which wasn't in your prepared remarks, and I was just kind of wondering if you could comment on that offering and maybe how you think that product fits into your overall broader strategy that's led with PowerTrack.

Arun Narayanan (CEO)

Okay. Thank you very much for your question. Look, the software strategy pivot that we announced in the previous quarter obviously has us looking at a variety of technologies that we would build to address different market needs. PowerBidder Pro is part of that offering, and currently, we have one customer looking and using it actively. We are evaluating additional use cases, and we continue to search for new customers as well.

Thomas Boyes (VP of Equity Research)

Got it. That's helpful. Maybe could you just walk us through for the elimination of some of the delayed projects that was in the backlog? What were the reasons for those projects being delayed? Is it just continued challenges around those projects getting interconnection or the developers there not being able to secure transformers or just cost overages from EPC rate increases? What was kind of the impact there?

Doran Hole (CFO and EVP)

I appreciate you answering the question before I actually have a chance to answer the question. The truth is, it is a little bit of a kitchen sink. We haven't seen any new factors kind of enter into the equation, but this was a process whereby we felt like a number of these bookings were feeling stale. The developers were having continued delays, facing increased development costs associated with delays in interconnection and permitting, etc., and we took the conservative step to clean that up.

Thomas Boyes (VP of Equity Research)

Got it. If I could just sneak one more in, just for the battery hardware resale for $35 million for this year, do we think of that more of like a steady state ongoing as something that's just always kind of on offer, or in 2026 or something? Does that eventually just move to zero and kind of phase out as the new strategy takes over?

Doran Hole (CFO and EVP)

In looking at when we start talking about backlog with POs issued, what we're doing with hardware is we are going to pivot to this opportunistic. It meets all the financial criteria, a particular situation where we can carry through software services revenue and attach that to hardware deals, and we may continue to see some element of hardware going forward. However, it is certainly not the focus that it was. I wouldn't necessarily place a run rate on it in the sense that we're giving kind of this almost $0-$35 million for 2025. We'll give similar indications if we see numbers that are going to be very different from that in the same cadence as we did for 2025.

Thomas Boyes (VP of Equity Research)

Excellent. No, I appreciate taking the question.

Doran Hole (CFO and EVP)

Keep in mind that the margin there is relatively low. Our focus here is on profitability. Those are opportunistic chances to increase gross profit dollars and bring cash in the door. They don't represent kind of the long-term strategy of the business to build recurring software and services revenues.

Thomas Boyes (VP of Equity Research)

Understood. Got it.

Operator (participant)

Thank you. Next question is coming from Justin Clare from Roth MKM. Your line is now live.

Justin Clare (Managing Director and Senior Research Analyst)

Hi, yeah. Thanks for the time, Arun. I wanted to start out just with the new metrics. I'm looking at Slide 9 here, where you have the bookings, $38 million, contracted backlog, $21 million. I wonder if you could just help us understand a little bit more of the difference between if we look at Slide 13, we see $358 million of bookings, contracted backlog of $1.2 billion. Is the difference that the new metrics represent fully executed purchase orders, and that's the gap? Maybe just help us walk through the difference here.

Doran Hole (CFO and EVP)

Yeah. I think we did go through the exercise of reducing the backlog under the old definitions, even through some of the contracts that were somewhat stale. When we look to the new metric, it is really focusing in on that fully executed purchase order criteria for purposes of treating something as a booking or going into the backlog. Again, the contracted backlog metric combined with the CAR metric are intended to give you full visibility on all of our revenue sources that are coming into the company in the future. Therefore, you'll see contracted backlog containing anything related to hardware and anything related to kind of one-time non-recurring services, whereas CAR will contain everything related to recurring software and services.

Justin Clare (Managing Director and Senior Research Analyst)

I see. So the contracted backlog, the $21 million, does not include recurring revenue in there for software. Is that right?

Doran Hole (CFO and EVP)

That's correct. That's absolutely correct. We're segregating that between CAR and contracted backlog. Same rule. In order to be included, we have to have an executed PO from a customer.

Justin Clare (Managing Director and Senior Research Analyst)

Okay. Got it. Just one more. Looking at the same Slide 9, the storage operating AUM going from 800 megawatt hours to 1.8 gigawatt hours through the course of 2024, some pretty significant growth there. We did not see a corresponding jump in the software revenue associated with storage. Wondering if you could just help us understand why we did not see that increase.

Oh, sorry.

Doran Hole (CFO and EVP)

I think we had a one-time kind of reduction in fourth quarter software revenue associated with the SPE deals that probably caused that disparity. I think that's probably the best way to answer that question.

Justin Clare (Managing Director and Senior Research Analyst)

Okay. I appreciate it. I'll pass it on.

Doran Hole (CFO and EVP)

Thanks, Justin.

Operator (participant)

Thank you. Next question is coming from Ameet Thakkar, sorry, from BMO Capital Markets. Your line is now live.

Hi. Good afternoon. Just two questions for me. The cash and equivalents of $56 million. I was just wondering if you could kind of level set us on kind of what's the minimum amount of cash you guys can kind of go forward with the 2025 plan before you have to think about external financing.

Doran Hole (CFO and EVP)

The cash balance at the end of the year, I think as we've put forth in the guidance that we expect operating cash flow to be kind of somewhere between $0 and $15 million for the year. I mean, what that means is that that cash balance is sufficient to keep us going. We're not facing any huge cyclicality associated with that. I think, as I mentioned in my comments, we've already seen some releases on working capital that was tied up in some of the OEM hardware deals. We feel comfortable with where we're sitting.

Arun Narayanan (CEO)

Doran, if I can add to that, I think in line with that, just to make sure that we continue to be operationally diligent on costs, I think reduces our sort of squeeze and keeps us running with that cash margin.

Okay. Understood. Not to belabor this point, just going back to Slide 5 and the change in the backlog, I think at the end of your strategic review, and sometime in November, the backlog was $1.6 billion, and here it's subjected to $1.2 billion. I appreciate some of the commentary earlier and some of the verbiage here, but was the backlog not scrubbed as part of the strategic review? I guess trying to understand, has kind of the operating conditions continued to change amongst the kind of segment of developers that you target?

Doran Hole (CFO and EVP)

I'm going to stick with the sort of post-strategic review, we did do some significant additional scrubbing of the backlog, and that was kind of where I was commenting on some of the deals that we decided to just kind of pull. When you think about our funnel of business, that business isn't necessarily going away. It's just simply that we didn't feel confident in keeping it in the backlog. The next step was actually removing a number of projects that continue to be under discussion, but the PO issuance is pending. We made the definitive change to the definition of backlog as POs issued, which meant removing those as well from the backlog. Those two things in combination would probably be the biggest items to bridge what was the old backlog to what is the new backlog.

I think going forward, my expectation is to be able to provide you with a more predictable number using that PO issued, fully executed PO metric.

I'm sorry. Sorry if this is a silly question, but of the updated backlog figure for year-end 2024, can we surmise that all of that has POs issued against it?

Bear with me one second. The updated backlog for.

One second.

You're talking about the $20 million, the $21 million, or are you talking about the?

No, the $1.2 billion on Slide 5.

The $1.2 billion does not have.

Arun Narayanan (CEO)

That's the number.

Doran Hole (CFO and EVP)

Yeah. That is the backlog under the old definition, not the new definition.

Okay. Got it.

Of that.

Thank you so much.

$21 million with POs issued.

Got it. Thank you. Understood.

Operator (participant)

Thank you. Next question is coming from Dylan Desai from Wolfe Research. Your line is now live.

Hey, good afternoon, everyone, and welcome, Arun.

Arun Narayanan (CEO)

Hi.

Just want to kind of go back to the 2025 outlook. When I kind of take a step back and I look at the revenue and the adjusted gross margin specifically, it kind of lines up pretty similarly to 2024 actual. I guess if you're kind of bridging between 2024 and 2025, would you say those kind of operating cost reductions are the big driver of the delta? Can you just kind of give us an idea of specifically where can you kind of find some of those savings?

Yeah. I can talk to it a little bit. One thing that you referred to is the operational cost savings and trying to make sure that we eliminate some of the inefficiencies that might exist. For example, some of the software applications might be duplicated, or some of the tools that we might be using are quite expensive. We also want to try to bring some of the other costs down in our software development production and in runtime cloud computing costs, for example. These types of operational efficiencies will help us on the one hand. On the other hand, we continue to be quite focused on growth. This is a growth story centered around PowerTrack and other software applications that we have. That is the combination of the two things that we are trying to achieve.

Okay. Thank you. As a follow-up, apologies if I missed this, but can you just kind of speak to what your expectations are for seasonality for 2025 in terms of both revenue and EBITDA?

Doran Hole (CFO and EVP)

The software and services is fairly ratable with a little bit of back half seasonality to it. The hardware piece, the up to $35 million, you should expect that to be toward the back half of the year, possibly even Q4.

Okay. Thanks. I'll take the rest of my questions offline.

Thanks.

Operator (participant)

Thank you. Next question is coming from Joseph Osha from Guggenheim Partners. Your line is now live.

Joseph Osha (Managing Director and Senior Research Analyst)

Hi. Thanks for taking my question. I'm trying to understand competitively how I should think about PowerTrack and how it's positioned relative to the software offerings from the tracker companies in particular because they talk a lot about at least some of the functionality you're talking about here. Is PowerTrack directly competitive with the offerings from Array and Nextracker, or should I think of it as more complementary? Thank you.

Doran Hole (CFO and EVP)

Hey, Joe. It's Doran. I'll take a first stab at that. The tracker companies are largely focused on front of the meter. That's kind of step one, right? And optimization of tracking software is, I believe it's going to be case by case, but we do not believe our front of the meter edge device and software solutions are in direct competition with what the tracker companies are doing necessarily. The large market share that we have, as you know, is in the behind-the-meter sector. As we see the front of the meter as a growth engine for PowerTrack and the related edge devices, I think that we're likely to see that expansion kind of irrespective of whether we're going after fixed tilt or tracker type of applications. As you know, the trackers aren't on every utility scale application, especially when you look in Europe.

I think it's going to be circumstantial in some instances, but broadly speaking, I think what we're offering is to a bigger market than what the tracker software is trying to go after.

Arun Narayanan (CEO)

Maybe just to add to that, Doran, just to supplement the intention of your question, though, which is the differentiation in the competitive space, the ability for PowerTrack to sort of solve the problem holistically, getting the data from the edge devices, the data connection needed to make the edge devices come online, and the ability to do analysis as well as making sure that the software works as expected, that whole life cycle is very unique. That is a significant differentiation for PowerTrack that we have.

Joseph Osha (Managing Director and Senior Research Analyst)

Should I, just to amplify that a bit, obviously, behind the meter is behind the meter, but when I think about front of the meter, I should think about PowerTrack perhaps hitting more like commercial scale systems, or this is something you're going to go try to sell to kind of 200 MW solar farms or what?

Doran Hole (CFO and EVP)

I think our sector for the low-hanging fruit for us on the front of the meter, Joe, is going to be the kind of anywhere from, call it, 20-100, not the 200 or 500s.

Joseph Osha (Managing Director and Senior Research Analyst)

Okay. Thank you very much.

Doran Hole (CFO and EVP)

Thanks, Joe.

Joseph Osha (Managing Director and Senior Research Analyst)

Thanks.

Operator (participant)

Thank you. Next question is coming from Kashy Harrison from Piper Sandler. Your line is now live.

Good afternoon, and thanks for taking my question. Maybe first one for me is on the 2025 guidance. If I'm looking at this correctly, I think just gross profit less EBITDA looks like cash OpEx is about $55 million. If I look at Slide 14, 4Q cash OpEx is $36 million. That implies a pretty big drop from what you were doing in 4Q to what you're expecting in 2025. Can you maybe just help us reconcile how to bridge the gap and maybe how to think about the cadence of OpEx over the course of 2025?

Doran Hole (CFO and EVP)

First, I think that in 2024, there's certainly some non-cash OpEx to consider. When you move to 2025, I would say that with an overall expectation of decrease, as we continue through the year, we'll see our run rate continue to go down versus perhaps what we might see in Q1. As we've talked about, the moves that we're going to make in order to increase operational efficiencies, those will continue to roll out internally here over the course of the year. You would see naturally the run rate drop over time.

Got it. Okay. Maybe a follow-up. In terms of scale, you have 1.8 gigawatt hours here on the storage side and gigawatt on the solar side. I guess how do we think about the ability of this company to grow? Because certainly at these levels, you're EBITDA neutral. To get to like $100 million of EBITDA, for example, how do we think about the level of scale that's required here and the go-to-market associated with that?

Arun Narayanan (CEO)

Look, you're asking questions a little bit out in the future, but going back to the software strategy or the software-centric strategy that was announced last quarter, the growth for software comes with a different type of scaling. It's not linear. The ability for us to use the investment to build differentiated IP and then deploy it into different markets comes with standard established models that you are already familiar with. We will incur costs in sales, we'll incur costs in support, but not in manufacturing the software itself. We do have reliance on edge boxes, so that'll complete the overall supply chain that we would need to scale. I mean, it's a great question, and if we get to that point, it'll be amazing. That's the journey that we're on.

Doran Hole (CFO and EVP)

I think that, Kashy, we will have to continue to communicate about the growth of the business in front of the meter versus behind the meter because obviously ASPs and the amount of revenue per megawatt is a little bit different when you look at those sectors. That is a growth engine we expect to continue to try to push on the PowerTrack side, especially as well as new products out into the European market, the front of the meter market. We will continue to keep our eyes on those metrics as operating AUM. Again, one of the reasons why we're focused on operating AUM is because that's kind of really where the revenue comes.

Got it. Thank you.

Thanks, Kashy.

Operator (participant)

Thank you. We've reached the end of our question-and-answer session. Ladies and gentlemen, that does conclude today's teleconference webcast. You may disconnect your lines at this time and have a wonderful day. We thank you for your participation today.