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STEM, INC. (STEM)·Q3 2025 Earnings Summary

Executive Summary

  • Revenue of $38.2M, up 31% YoY, with GAAP gross margin at 35% and non-GAAP gross margin at 47%; adjusted EBITDA was $2.0M and operating cash flow was $11.4M . ARR reached $60.2M (+3% QoQ, +17% YoY) and cash/equivalents rose to $43.1M .
  • Guidance tightened: FY25 revenue $135–$160M (raised low end), non-GAAP GM 40–50% (raised), adjusted EBITDA -$5M to $5M (raised low end), operating cash flow -$5M to $5M (lowered from $0–$15M), year-end ARR unchanged at $55–$65M .
  • Sequential bookings/backlog declined (bookings $30.3M; backlog $22.2M) on deliberate de-emphasis of low-margin battery hardware resales; storage AUM up 6% QoQ to 1.8 GWh and solar AUM up 4% QoQ to 33.9 GW .
  • Near-term stock catalysts: visibility and margin credibility from raised gross margin guidance, second consecutive positive adjusted EBITDA, and international expansion/product launches (PowerTrack EMS; Sage) offset by expected Q4 gross margin mix compression from edge deliveries .

What Went Well and What Went Wrong

What Went Well

  • Second consecutive quarter of positive adjusted EBITDA ($2.0M) and strong gross margins (GAAP 35%; non-GAAP 47%) demonstrating software-centric operating leverage . “We have reduced the historical volatility… de-risked the low end of nearly all guidance ranges” — CEO Arun Narayanan .
  • Positive operating cash flow ($11.4M) and sequentially higher cash/equivalents ($43.1M), underpinning improved liquidity and sustainability of the model — “underlying quality and sustainability” — CFO Brian Musfeldt .
  • Strategic execution: launch of PowerTrack EMS to expand TAM into utility-scale/hybrid internationally and rebrand Athena to PowerTrack Optimizer; initial bookings within 8 weeks across three countries; continued ARR growth (+17% YoY to $60.2M) .

What Went Wrong

  • Sequential softness in bookings ($30.3M vs. $34.3M in Q2) and backlog ($22.2M vs. $26.8M in Q2) due to de-emphasis of low-margin battery hardware and higher quarterly revenue recognition pulling backlog lower .
  • Managed services revenue down YoY given one-time overperformance in Q3’24; project/professional services down YoY (prior-year dev co revenue boost) — press release and call commentary .
  • FY25 operating cash flow guidance lowered to -$5M to $5M (from $0–$15M), acknowledging working capital timing risk; management flagged macro/policy headwinds (tariffs/OBBB/geopolitics) as ongoing external risks .

Financial Results

MetricQ1 2025Q2 2025Q3 2025
Revenue ($USD Millions)$32.5 $38.4 $38.2
GAAP Gross Margin (%)32% 33% 35%
Non-GAAP Gross Margin (%)46% 49% 47%
Net (Loss)/Income ($USD Millions)$(25.0) $202.5 $(23.8)
Adjusted EBITDA ($USD Millions)$(4.6) $3.8 $2.0
Operating Cash Flow ($USD Millions)$8.5 $(21.3) $11.4
Cash and Equivalents ($USD Millions)$58.6 $40.8 $43.1

Segment breakdown (current quarter):

SegmentQ3 2025 Revenue ($USD Millions)
Services and Other$18.409
Hardware$19.828

Key KPIs:

KPIQ1 2025Q2 2025Q3 2025
Bookings ($USD Millions)$34.5 $34.3 $30.3
Contracted Backlog ($USD Millions)$25.3 $26.8 $22.2
ARR ($USD Millions)$56.9 $58.5 $60.2
CARR ($USD Millions)$69.0 $69.2 $70.1
Storage AUM (GWh)1.6 1.7 1.8
Solar AUM (GW)32.4 32.7 33.9

Estimate comparisons (S&P Global):

MetricQ1 2025Q2 2025Q3 2025
Revenue Consensus ($USD Millions)$30.06*$32.47*$37.93*
Revenue Actual ($USD Millions)$32.51 $38.37 $38.24
Primary EPS Consensus Mean ($)$(3.70)*$(2.99)*$(2.37)*
Primary EPS Actual ($)$(3.00)*$(27.71)*$(1.93)*

Values retrieved from S&P Global. Note: Q2 2025 S&P “Primary EPS actual” differs from GAAP EPS per 8-K (basic $24.31; diluted $(1.79)), reflecting methodology differences around “Primary EPS” and extraordinary items (debt extinguishment) .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Total Revenue ($USD Millions)FY 2025$125–$175 $135–$160 Raised low end
Software, Edge Hardware & Services ($USD Millions)FY 2025$120–$140 $125–$140 Raised low end
Battery Hardware Resale ($USD Millions)FY 2025Up to $35 Up to $20 Lowered
Non-GAAP Gross Margin (%)FY 202530%–40% 40%–50% Raised
Adjusted EBITDA ($USD Millions)FY 2025$(10)–$5 $(5)–$5 Raised low end
Operating Cash Flow ($USD Millions)FY 2025$0–$15 $(5)–$5 Lowered
Year-end ARR ($USD Millions)FY 2025$55–$65 Unchanged Maintained

Earnings Call Themes & Trends

TopicQ1 2025 (prior two qtrs theme)Q2 2025Q3 2025 (current period)Trend
AI/Technology initiativesRevamp software; focus PowerTrack; pause APM/PowerBidder Pro; plan AI integration to boost dev productivity Record software revenue; segment disclosures; debt exchange improves runway Launch PowerTrack EMS (utility-scale/hybrid); PowerTrack Sage beta Dec; >100 improvements; ARR +19% YoY in software Accelerating product innovation and platform unification
Supply chain/tariffs/macroTariff exposure limited, pass-through on edge devices; OEM resales de-emphasized; bookings robust Policy headwinds noted; reaffirm guidance; balance sheet strengthened Macro/policy headwinds (tariffs/OBBB) acknowledged; confidence in diversified model and international expansion Managed risk posture; diversification reduces volatility
Product performanceSolar ARR/CNI leading; brownfield managed services opportunities PowerTrack software +11% YoY; Edge +18% YoY; managed services down YoY (Q3’24 overperformance) Non-GAAP GM 47% and GAAP GM 35%; battery resale ~$4M; Q4 margin compression expected due to edge mix Mix shifting to higher-margin software/services; hardware de-emphasized
Regional/InternationalInvesting to grow internationally Camino Solar deployment; reverse split; CFO appointment Berlin hub expansion; EMS opens international CNI/utility-scale TAM; early bookings in 3 countries Building EMEA footprint
Regulatory/legalReverse split proposal to regain NYSE compliance Exchange of convertibles; reverse split executed OBBB/tariffs/geopolitics monitored; no remaining PCGs; expect no future impact from PCGs Reduced legacy risk; ongoing monitoring

Management Commentary

  • CEO: “Our diversified AI-driven platform continues to capitalize on rising energy demand… we have reduced the historical volatility… de-risked the low end of nearly all guidance ranges” .
  • CFO: “Operating cash flow generation and stabilization of cash reflect the underlying quality and sustainability of our business model… raising gross margin and adjusted EBITDA ranges” .
  • Strategy: Unification under PowerTrack suite; launch of PowerTrack EMS and rebrand of Athena to PowerTrack Optimizer; expansion in Berlin as European competence center .

Q&A Highlights

  • Guidance precision: Management reiterated tracking to midpoint/high end across metrics with lower battery resale range, while tightening ranges overall .
  • Gross margin outlook: Q4 compression due to edge hardware mix; medium-term continued margin improvement as OEM hardware is de-emphasized .
  • Bookings and EMS demand: Early enthusiasm and bookings for PowerTrack EMS in small utility-scale hybrid sites (20–100MW), with ~6–9 month lead times .
  • Macro/customer engagement: Despite policy uncertainty (tariffs/IRS guidance), customer engagement momentum maintained; diversified software-centric model offsets domestic headwinds .
  • Operating expense run-rate: Cash OPEX down ~47% YoY; expect current trend to be a reasonable indicator with continued efficiency focus; exit of India facility cited .

Estimates Context

  • Q3 2025 revenue modestly above consensus ($38.24M actual vs. $37.93M estimate)* and EPS beat (Primary EPS $(1.93) actual vs. $(2.37) estimate)*. Q1 beat on both metrics; Q2 revenue beat but EPS miss on S&P “Primary EPS” due to methodology/extraordinary items; GAAP 8‑K shows positive basic EPS in Q2 . Values retrieved from S&P Global.
  • FY25 estimates likely to adjust: upward for non-GAAP gross margin given range raised to 40–50%, and for adjusted EBITDA (higher low end), while battery resale lowered and operating cash flow range reduced to reflect working capital timing .

Key Takeaways for Investors

  • Margin credibility is improving: non-GAAP GM raised to 40–50% and two straight quarters of positive adjusted EBITDA, supporting a higher-quality earnings profile .
  • Mix pivot is working: deliberate de-emphasis of low-margin battery hardware is compressing backlog/bookings short term but enhancing blended gross margins and profitability .
  • Cash discipline: Q3 operating cash flow positive and cash stable; watch for working capital timing in Q4 per guidance discussion .
  • Product catalysts: PowerTrack EMS expands TAM into utility-scale/hybrid internationally; PowerTrack Sage (AI assistant) enters beta in December — potential narrative tailwinds .
  • International strategy: Berlin hub and multi-country EMS bookings diversify exposure away from U.S. policy risk and support growth in EMEA markets .
  • Estimate trajectory: Street likely to lift margin and EBITDA assumptions; monitor Q4 edge hardware deliveries for mix-driven gross margin compression .
  • Risk monitor: Policy/tariff headwinds persist; however, elimination of PCGs reduces legacy risk; focus on recurring ARR growth provides stability .