Stem Aktie

Greetings and welcome to the Stem, Inc. Second Quarter 2026 Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Erin Reed, Head of Investor Relations.

Thank you, operator. Welcome to Stem's Second 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 10-Q, 10-K, and other SEC filings and supplemental presentation, which can be found on the company's Investor Relations 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 in our second quarter 2026 earnings release and supplemental materials, which are available on our Investor Relations website.

Arun Narayanan, CEO, and Brian Musfeldt, CFO, will start the call today with prepared remarks, and then we will conduct a question-and-answer session.

And now, I'll turn the call over to Arun.

Thank you, Erin. Good afternoon, everyone, and thank you all for joining us today. On our Q1 call, I told you that we would demonstrate what our software-centric transformation was designed to deliver. Halfway through 2026, I am pleased to see evidence of this transformation in the results. The second quarter marked our fifth consecutive quarter of positive adjusted EBITDA. Our non-GAAP gross margin remains at record levels, and we saw meaningful commercial momentum across the PowerTrack platform. We made a new market entry in Latin America, received industry recognition for PowerTrack EMS, and continued the expansion of our product capabilities. Given this progress, we are reaffirming our full year 2026 guidance today, which Brian will walk through in detail later in the call.

Let me turn now to an update on our three key priorities for 2026. Our first priority is to drive operational leverage and ensure that the structural improvements we made in 2025 continue. We achieved record non-GAAP gross margins in the second quarter. As in Q1, this was driven by a revenue mix weighted meaningfully towards software, services, and edge hardware, with battery hardware resales remaining relatively low in the quarter as expected. Because we have had minimal revenue from battery hardware resales in the first half of the year, we are trending above the high end of our guidance range for non-GAAP gross margin. We expect to track within the high end of our guidance range of 40% to 50%. We see more battery hardware resale revenue during the second half of the year.

On the operating expense side, we continue to manage costs with discipline and drive efficiency through the use of AI. Cash operating expenses remain sequentially flat and were down versus the second quarter of 2025. We are proving that these OpEx levels are sustainable. The improved gross margins and low operating expenses drove adjusted EBITDA of $6 million in the second quarter, up 63% from the second quarter of 2025, and more than double that of the first quarter of 2026. For the first half of 2026, adjusted EBITDA was $8 million compared to negative $1 million for the first half of 2025. This is clear evidence of the inflection point we've been building towards. Operating cash flow reached breakeven this quarter at $0.3 million, a $9 million sequential improvement and a $22 million improvement versus the second quarter of 2025. Because we expect billings and revenue to continue to build throughout the second half of the year, we expect this metric to continue improving.

The second priority is strengthening the core PowerTrack platform. In the quarter, we added approximately 0.8 gigawatt of solar assets under management, which in turn drove 3% sequential growth in PowerTrack ARR. During the second quarter, we also shipped a handful of product improvements, including an updated UX with dark mode, in-app feedback tools, and keyboard shortcuts. These are changes that our operators and asset managers value in their daily workflows and that set the stage for further product enhancements. Customer adoption of PowerTrack Sage, our AI assistant within PowerTrack, remains strong, reflected in consistent day-to-day usage across a range of organizations.

As we discussed last quarter, a key part of our platform investment strategy is a disciplined build-or-buy approach. On the buy side, we continue to advance the integration of raicoon, the automated fault detection and event management technology we acquired in April. That integration into PowerTrack is progressing well, and our development and sales teams are now working through how best to package and release this new capability to customers. We expect to share a more substantive update during our third quarter call.

The third and final strategic priority is building the foundation for accelerated growth in 2027 and beyond. That means expanding into utility-scale deployments, advancing our international footprint, and unlocking new market opportunities. Starting with utility-scale expansion, bookings grew nearly 15% (sic) [ 40% ] sequentially in the quarter. We brought PowerTrack EMS to Latin America through the Granja Solar Project in Chile, where it will serve as the primary control system for a 420 megawatt hour battery storage system being added to an existing 135-megawatt solar facility. This is exactly the kind of hybrid utility-scale project that validates the commercial prospects of our EMS offering. We see real potential to extend this delivery model across additional projects in Latin America.

We added another new booking in Hungary like Solarmarkt Group, along with EPC partner, Pannonwatt, selected PowerTrack EMS as the integrated energy management, power plant control, and SCADA platform for two 80 megawatt hour battery systems being added to two existing 60 megawatt solar sites. There is a PowerTrack PPC already in place for these existing solar assets. So this is another proof point for our growth ambitions around hybridization, where we deepen our controls and software offerings over time as plants evolve. Commercial operation of the fully hybridized assets is expected in fall 2026. Altogether, PowerTrack EMS now has bookings across six countries and three continents. The first initial bookings have begun to come live and our Everyray project in Germany announced in March is now live.

Alongside the commercial progress, we also earned external recognition for the PowerTrack EMS product. I am proud to share that PowerTrack EMS won The smarter E AWARD 2026 in the Smart Integrated Energy category, recognized by Solar Promotion International and Freiburg Management and Marketing International at The smarter E Europe Conference. The Smart Integrated Energy category specifically highlights technologies innovating and advancing the integration, management, and performance of clean energy systems. This is a meaningful external validation of the innovative platform that we have built.

A co-marketing agreement and partnership with Nuvation Energy also continues to build optionality around projects that require domestic control. We are working closely with Nuvation's technical and sales team, and in late July, we co-presented at the IEEE Power & Energy Society General Meeting in Montreal. Finally, on new market opportunities. We officially launched AIONA, our AI services offering, in June. We are currently in conversations with potential customers and running workshops to help them identify where AI can have the greatest impact on their day-to-day operations, focusing first on our existing customer base. We will share a substantive update on AIONA's customer traction as these engagements progress.

We are also continuing to explore how our strength in energy optimization software and deep energy market expertise can support data center developers and operators. Development on this offering is ongoing. Two quarters into 2026, we are executing with discipline and delivering the results we committed to at the start of the year, and I'm confident in our team's ability to keep building on this momentum.

With that, I will turn the call over to Brian.

Thanks, Arun, and good afternoon, everyone. Let's walk through the results. Total revenue for the second quarter was $34 million, down 12% year-over-year from $38 million. Nearly all of that decline came from lower battery hardware resale revenue, which was $300,000 in the second quarter versus $5 million in the second quarter of 2025. Excluding battery hardware resales, revenue from software, services, and edge hardware was $33 million, up 1% versus the second quarter of 2025. Within that, the revenue mix shifted meaningfully. PowerTrack software revenue grew 11% year-over-year to $11 million, reflecting continued strength in our core commercial and industrial solar monitoring business.

Edge hardware grew 22% year-over-year to $15 million, and project and professional services revenue was $2 million, down 6% year-over-year. Managed services revenue was $6 million, down 34% year-over-year, against an unusually strong second quarter in 2025, where we brought roughly 100 megawatt hours online in a single quarter.

GAAP gross margin was 41% in the second quarter, compared to 33% in the second quarter of 2025. Non-GAAP gross margin reached a record 55%, up from 49% in the second quarter of 2025, driven by the continued shift of our product mix toward higher-margin software, services, and edge hardware, and less from lower margin battery hardware resale. Given the revenue mix in the first half, non-GAAP gross margin has been tracking above our 40% to 50% guidance range. Because we expect more battery hardware resale revenue during the second half of the year, we expect the full year margins to move back toward the upper end of that range. GAAP operating expenses were down both year-over-year and sequentially. Cash operating expenses were sequentially flat and down 11% year-over-year as we continue to manage costs with discipline, even as we invest deliberately in target growth areas.

The second quarter of 2026 marked our fifth consecutive quarter of positive adjusted EBITDA at $6 million, representing an 18% adjusted EBITDA margin. Adjusted EBITDA was up 63% from $4 million in the second quarter of 2025. Operating cash flow was positive $300,000 in the second quarter compared to negative $21 million in the second quarter of 2025 and negative $8 million in the first quarter of 2026, representing a sequential improvement of nearly $9 million from the first quarter of 2026. The improvement reflects the benefit of increased high margin billings and revenue flowing through the business. We expect continued improvement through the balance of the year.

We ended the second quarter with $38.4 million in cash and cash equivalents, up from $36.6 million at the end of the first quarter. We remain very focused on our capital structure. During the quarter, we opportunistically used our at-the-market, or ATM, equity sales program, raising approximately $6 million at an average stock price of roughly $9.75 for general corporate purposes.

Now turning to our operating metrics. Bookings were $37 million in the second quarter, up 39% from $27 million in the first quarter of 2026, and up approximately 7% from $34 million in the second quarter of 2025. Contracted backlog was $27 million at the end of the second quarter, up 18% from $23 million at the end of the first quarter. CARR was $69 million, up 3% from $67 million at the end of the first quarter. ARR increased 2% to $62.4 million from $61.2 million at the end of the first quarter. Within that, PowerTrack ARR grew 3% sequentially and 13% year-over-year to $42.8 million, and managed services ARR was roughly flat sequentially at $19.6 million. Solar operating AUM grew 2% sequentially to 38.3 gigawatts, and storage operating AUM grew 6% sequentially to 1.8 gigawatt hours, driven by PowerTrack EMS projects coming online.

Now turning to guidance. As Arun mentioned, we are reaffirming our full year 2026 guidance across all metrics. Total revenue of $140 million to $190 million with software, services, and edge hardware expected in the range of $130 million to $150 million. We provided guidance on battery hardware resales of up to $40 million, which we still anticipate to be weighted to the second half of the year, and we expect to trend toward the lower end of that range. We expect non-GAAP gross margin of 40% to 50%, with the range driven by timing and volume of battery hardware resales. Given that we expect to trend toward the lower end of the battery hardware resale revenue range, we expect to trend toward the higher end of our non-GAAP gross margin range. Adjusted EBITDA remains at $10 million to $15 million, and we are tracking toward the high end of the range. We expect operating cash flow of $0 to $10 million and year-end ARR of $65 million to $70 million.

And now I will pass the call back over to Arun for closing remarks.

Thank you, Brian. I'd like to leave you all with three key takeaways from this quarter. First, our operating leverage story continues to build. Five straight quarters of positive adjusted EBITDA, a second consecutive quarter of record non-GAAP margins, and operating cash flow at breakeven, all without pulling back on investment. This is the kind of durable structural improvement we told you we were building. Second, our core platform continues to strengthen. PowerTrack software revenue grew 11% year-over-year, and we took disciplined steps to extend our platform capabilities and make PowerTrack a more complete solution for our customers. Third, we are making tangible progress on the growth initiatives that will carry us into 2027 and beyond.

PowerTrack EMS is now booked across three continents. We entered a new region in Latin America with Copec's Granja Solar Project in Chile, alongside a new hybridization booking with Solarmarkt Group in Hungary. And we earned industry recognition with The smarter E AWARD. Halfway through 2026, I'm very pleased with the progress we are making against our commitments we set out at the beginning of the year. 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 Instructions] Our first question comes from the line of Jon Windham with UBS.

Congratulations on the quarter. Maybe just a couple from me. First, the edge hardware seemed to have a really good quarter, both in terms of revenue, which was up like 22% year-over-year, as well as the gross margin. Just any comments on what's driving that?

Jonathan, this is Arun. Good to hear from you. Yes, look, we had a good quarter, and as we grow into the utility scale space, this kind of shift in the mix is natural. These projects come as a configuration with a greater percentage of edge hardware deployment just because of the nature and the size of these projects. So I think that's consistent with how the revenue mix is shifting and our growth patterns.

Right. That's perfect because it will lead to my next question, which is kind of a bigger picture question. There's obviously been some policy changes announced, whether it be the FCC's ruling on imported inverters or the Section 232 Solar Module Tariff. Just any thoughts you have about potential impact and how you would mitigate any impact on solar projects in the U.S. due to policy changes?

Yes, thanks for that too. Listen, I think we are seeing -- first of all, our projects are spread across, as we said, in multiple countries, different continents. So some of these policy changes are U.S. only. And the particular policy that you're raising, we've not seen any impact from that on our projects, be it within the C&I space or even in the utility-scale space. We continue to navigate this space by staying on top of it and working with our customers and partners to deliver effective solutions for our customers.

Our next question comes from the line of Justin Clare with ROTH Capital Partners.

I first wanted to just ask on the guidance. So when we look at the EBITDA generated in the first half, so just over $8 million, and then the annual guidance range of $10 million to $15 million. So it implies a modest step down in EBITDA in the second half versus the first half. So just wondering if you could speak to what might drive a decline, or is that the right way to interpret it? And then, is there potential for you to maybe exceed the high end of the guidance here given what you've delivered so far this year?

Justin, this is Brian. Thanks for the question. Yes, I think if you look at the numbers, we did state that we think we're trending toward the higher end of that guidance. You're correct that we had a really strong first quarter, or second quarter really, which brings our year-to-date a little over $8 million, so a bit over halfway there. Remember, we had a very low percentage of our revenue coming from battery hardware resale this quarter, or this first half, so that will increase as a percentage of the revenue, which will bring our margins down a little bit more in line. It'll also put a little pressure on the EBITDA margins. So I think the answer there is, we don't see any real weakness in that space. It's just a matter of timing and our battery hardware resale.

Got you. Okay. And then kind of similar question, just speaking about the gross margin. So it implies a decline in the back half relative to the first half. I'm assuming that, that's primarily mix related, just higher mix of battery resale in the second half, but wondering on the software and services side, any notable changes you anticipate in margins as we move through Q3, Q4?

Yes, thanks, Justin. No, I think you're right. The reason we're saying it's going to pull back a little bit is if you look at our Slide 12 and our appendix of the supplement, you'll see battery hardware is expected to be around 10% to 11% margins. So when we bring that in, it just naturally lowers our margin percentage, and those deals are generally a little bit bigger in size with that lower margin. So it'll help gross margin dollars, but it'll bring down the margin percentage a little bit. As far as our other products, no, I think if you look at that slide, I think we expect to see that continued margin. PowerTrack running around 75%, edge hardware at 45% to 47%. So nothing indicating that we should see a slip in any of those margins.

Got you. Okay. Great. That's helpful. And then just curious on the hybrid projects, the announcement today on the project in Hungary. I was wondering if you could just compare the economics of a traditional PowerTrack solar monitoring contract with a contract that includes a hybridization. Does this materially increase the ARR or the profitability per megawatt for you guys?

I don't think we are disclosing it at the contract level.

Yes, this is Erin. I can take that question. So when we have a hybrid deployment, for example, with the Hungary deal, you saw that, that was previously a PowerTrack PPC customer of ours, so there is a software contract already in place, and as they hybridize, we're adding another software contract in place with PowerTrack EMS. So yes, there are two sources of ARR there, but there are also the services and the edge hardware deployments on those sites.

And we have reached the end of this portion of the question-and-answer session. I would now like to turn the floor back to Erin Reed for the retail questions.

Thank you, operator. We have a few questions here. First question is on guidance. Full year 2026 revenue guidance is still at a fairly wide range with two quarters left to go. What are the key swing factors that would move you toward the higher or the lower end of that range?

Okay, this is Arun. I'm going to take the answer. Battery hardware resale revenue is the potential source of this swing. We are expecting to come in at the lower end of our $40 million range. Software, services and edge hardware revenue has a smaller range of $130 million to $150 million. The pace of deployments would determine how we swing within that range. And as we said before, we are on track and we remain within the range, and we are very pleased to reaffirm guidance across all metrics today.

Thanks, Arun. The next question I have for you is on international expansion. Today on the call we talked a lot about our new deal in Latin America with PowerTrack EMS and the one in Hungary. Is there a region you're most excited about beyond those or one where you see a next real opportunity opening up?

Again, this is Arun. For me, if you just take a step back and you look at what we are saying in this quarter, The smarter E AWARD win and the feedback from customers in these recent transactions show that we have really built an innovative product that is really a key solution for our customers in this marketplace. What's happening is that PowerTrack EMS is becoming the solution for solar asset owners who are trying to add storage and hybridizing their plants. As well as PowerTrack EMS is a really good compatible product for those international deployments.

So this is how we are ending up in this situation. We are seeing PowerTrack EMS entering into Latin America in this quarter. This sets us up for expansion in Latin America with key markets like Chile and Colombia on our radar. And as we have also shown in the past few quarters, we can see that using our office in Berlin, we are able to make expansion within the European market. So maybe the broader answer is, this is really a fit-for-market product solution that we've built, and we want to be where our customers are.

Great. Now looking into 2027, as we look past 2026, what's one of the things that you're most focused on getting right in 2027 to keep this momentum going?

We've reiterated many times on the earnings call that growth in 2027 is where we are focused on. And we're going to achieve this by continuing to focus on the utility scale market. This is both within the United States as well as internationally. The products that are in the solution are PowerTrack EMS, PowerTrack SCADA, as well as the PowerTrack PPC product. The examples we have listed today and in other recent press releases show how our customers are configuring their solutions with these different products. And expanding into these markets successfully gives us the best opportunity for revenue growth.

Great. Thank you. My last question here is for Brian. A key metric investors are focused on is operating cash flow. What gives you the confidence in reaching positive operating cash flow for the full year of 2026?

Yes, thanks. If you remember, our first quarter is traditionally our lowest billing and revenue quarter. So we had $8 million of negative OCF in the first quarter, which was really driven by those low billings and a combination of some expected working capital outflows. You can see in the second quarter, there was already significant improvement in that space. We came in the quarter about $0.3 million positive OCF, which was sequentially about a 9% (sic) [ $9 million ] improvement. So we do expect that trend to continue through the second half of the year as our billings and our revenue continue to grow with our seasonality. So that's what gives us the confidence to reaffirm the guidance we've given for the year.

Great. Thanks, Brian. This concludes the retail investor questions. I'll now turn the call back to Arun for closing remarks.

I want to thank everyone for joining our second quarter earnings call, and we look forward to speaking with you next during our third quarter 2026 earnings call this fall. Thanks, everyone.

This concludes today's conference. You may now disconnect your lines at this time. Thank you for your participation.

Greetings, and welcome to the Stem Inc. First Quarter 2026 Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce Erin Reed, Head of Investor Relations. Thank you. You may begin.

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 10-Q, 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 Naryanan, CEO; and Brian Musfeldt, CFO, will start the call today with prepared remarks, and then we will conduct a question-and-answer session.

And now I'll turn the call over to Arun.

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 are 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 gross 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 three 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. Gross 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 gross 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% to 50% non-GAAP gross 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. As 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 million to $10 million.

Now 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 site 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 gigawatts of solar assets under management in the first quarter, bringing total solar AUM to 37.5 gigawatts, 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 and 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 life cycle energy storage services, covering design, procurement, commissioning and the ongoing operation and optimization of energy storage systems typically under five- 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 stand-alone 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 two utility scale sites exceeding 50 megawatts in Hungary. This customer made the decision to hybridize their portfolio and selected PowerTrack EMS to manage a new 50-plus megawatt hour battery system.

This is precisely the expansion dynamic we anticipated when we built PowerTrack EMS, an existing customer deepening their relationship with them 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, and 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 strength 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. Both remain important future growth opportunities, and 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, and I'm confident in our team's ability to execute.

With that, I'll turn the call over to Brian.

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 in the 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 resales volumes pick up in the second half of the year, non-GAAP gross margin percentage will trend toward the middle of our 40% to 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 fourth consecutive quarter of positive adjusted EBITDA and our first ever positive adjusted EBITDA in the first 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 first 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 to $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. CARR 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 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 to $190 million with software, services and edge hardware expected in the range of $130 million to $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 margin of 40% to 50%, with the range driven by the timing and volume of battery hardware resales. Adjusted EBITDA of $10 million to $15 million, operating cash flow of $0 to $10 million and year-end ARR of $65 million to $70 million.

And I will now pass the call back over to Arun for closing remarks.

Thank you, Brian. I'd like to leave you all with three 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 onetime achievement. It's the foundation we are 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. And 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. One 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 Instructions] The first question comes from Justin Clare with ROTH Capital.

So I wanted to just start out on bookings. So you've mentioned utility scale bookings had doubled quarter-over-quarter. And so 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? So which products or services are you seeing the most uptake for?

Justin, 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. They bring unified controls, cloud monitoring as well as portfolio level visibility to our customers. And I think this is what's extending the ability to engage with us beyond solar projects into these utility scale projects.

Now 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, and they have done a great job in doubling bookings.

There are two maybe examples I can cite. In the last quarter, we spoke about Everyray, which was a German customer. That was a 100-plus megawatt hour project. And then in the prepared remarks, we referred to a Hungarian project that went through hybridization that was 50-plus megawatt hour deal as well. And overall, I think we remain confident that this conversion continues. The first CMS bookings from the Q4 2025 cycle, we expect to start seeing that as revenue starting in Q2 of 2026. So we remain very optimistic on this, Justin.

Okay. Got it. Got it. I appreciate that. And then just wanted to ask on PowerTrack. So we did see a pretty good growth, I think, 16% year-over-year revenue growth for that. Though we did see the ARR was flat sequentially. And so I'm 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 to $70 million at the end of the year? And then just what are the drivers that could potentially enable you to get to the higher end of that target?

Yes, Justin, I can answer that as well. PowerTrack ARR was up 12% year-over-year, 2% sequentially. And this moderate sequential growth in PowerTrack ARR is just due to seasonality. We expect ARR to ramp up throughout the remainder of the year.

And 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, but it won't be a significant portion of ARR this year. And we're very focused and we continue to drive ARR across our business over the long term. And as I said earlier, we're pleased to reaffirm our guidance of $65 million to $70 million for ARR.

Got it. Okay. Great. And then just one more. I wanted to ask on the margins here. So we just see that PowerTrack non-GAAP gross margins that continue to move higher in Q1. I think you're at 75% versus 69% a year ago, 71% in Q4.

So just wondering if you could 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?

Yes. Thanks, Justin. This is Brian. I'll take that one. Yes, I mean, we are always reviewing the supply chain and the macro environment for our PowerTrack product. So you're seeing good growth in a couple of ways. One, our AUM is increasing. And so that is a kind of traditional SaaS product that gains leverage as we get more volume, which is always great, and that's going to improve margin.

But also, you do see us -- as we watch the environment in the supply chain this last year, we have been able to increase pricing modestly where we've needed to kind of between tariffs and other things that have kind of driven that environment. So as the volume increases, you'll continue to see margins push up on that space. And then you always -- 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.

This concludes the equity research questions. I'd like to turn the floor over to Aaron for retail investor questions at this time.

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

Yes. This is Brian again. I'll grab that one. As Arun stated in the call, Q1's negative operating cash flow was really driven by a combination of expected higher working capital requirements in Q1 and it being our traditionally lowest kind of billings and revenue quarter.

When you look forward, we expect that bookings and billings will increase with our seasonality and you look at this business and how it operates. And we also expect reduced working capital requirements through the rest of the year. And 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, 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 see that cash operating expenses were down 30% year-over-year and another 10% sequentially. So with that, we were able to achieve positive EBITDA in our lowest revenue quarter for the first time, which is great.

And I think 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. So I think that's what really gives us the confidence to reiterate our guidance on all our metrics this year.

Thanks, Brian. The next question is on the recent acquisition of raicoon. Why did you acquire raicoon and why now?

I'll take this. This is Arun. Well, I'm 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 false detection and prioritization. What this means is as our customer base scales and portfolios are 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, and we saw an opportunity to bring in a proven already deployed technology rather than build it from scratch. And this brings additional value to our existing customer base as well as it's a differentiator as we try to acquire new customers. So we're very pleased that raicoon is joining us.

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?

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

Thanks, Arun. This concludes the retail investor question. Turning back to you now for closing remarks.

I want to 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.

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.

Greetings. Welcome to Stem's Fourth Quarter 2025 Results Conference Call. [Operator Instructions] Please note, this conference is being recorded.

I will now turn the conference over to Erin Reed, Head of Investor Relations. Thank you. You may begin.

Thank you, operator. This is Erin Reed, Head of Investor Relations at Stem. We welcome you to our fourth quarter and full year 2025 earnings call. 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. We, therefore, refer you to our latest 10-K and other SEC filings and supplemental materials, which can be found on our IR 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 in our fourth quarter and full year 2025 earnings release, which is on our website. Arun Narayanan, CEO; and Brian Musfeldt, CFO, will start the call today with prepared remarks, and then we will take your questions. With that, I will turn the call over to Arun.

Thank you, Erin. Good afternoon, everyone, and thank you all for joining us today. I am pleased to be speaking with you 1 year after assuming the role of CEO, and I could not be more proud of what the Stem team has accomplished over the past 12 months, best-in-class execution, unwavering commitment to our customers and each other and disciplined financial performance. 2025 was a transformative year that methodically, yet decisively reshaped Stem into a software-centric operationally disciplined organization. Every commitment we made and the proof of our strategic transformation is in the results.

Today, I will take you through a look back on our fourth quarter and full year accomplishments. After that, I will walk you through our 2026 priorities and show you how we are determined to become the operating system for clean energy projects. And finally, I will give you a preview of guidance for the year ahead. Brian will follow with the detailed financial results and our complete 2026 outlook.

In 2025, we delivered on guidance across every metric. Full year 2025 revenue grew 8% year-over-year to $156 million with over 55% of that revenue coming from software and services, evidencing our successful and ongoing transformation. Software, services and edge hardware revenue grew by 25% year-over-year to $141 million. Year-end ARR grew 16% year-over-year to $61 million. In 2025, we substantially expanded gross margins and considerably reduced our operating expenses. We achieved 3 consecutive quarters of positive adjusted EBITDA, resulting in our first ever full year positive adjusted EBITDA of $7 million. We also achieved positive operating cash flow for full year 2025, another first and major accomplishment in the company's history.

Throughout the year, we continued to deepen and expand our PowerTrack platform, delivering meaningful improvements in platform stability, performance and customer experience. We added 6 gigawatts of solar assets to a total of 36 gigawatts under management and added $7 million in PowerTrack ARR to reach $41 million.

In 2025, we accelerated our R&D efforts, leveraged AI tools and rebuilt our product road maps. We successfully launched 2 new products last year. Both products, PowerTrack EMS and PowerTrack Sage, have resonated well with our customers, and we are encouraged by the early traction. We launched PowerTrack EMS in September 2025, and it is a premier solution for utility-scale projects.

This morning, we announced a new engagement with Everyray, a German clean energy developer and EPC. This 100-megawatt hour deal further expands Stem's presence in Germany and reinforces PowerTrack EMS' role as the control backbone for sophisticated utility-scale storage deployments across Europe and other international markets. Commercial operations for those deployments are expected to commence in the summer of 2026.

Our expansion into the utility-scale market, both domestically and internationally, gained meaningful traction in the fourth quarter with utility-scale bookings increasing 10% sequentially. Notably, nearly all fourth quarter utility-scale bookings were driven by international solar projects, underscoring growing demand in global markets.

I talked with you about PowerTrack Sage, our AI-powered assistant in previous calls, and I continue to be excited about it. We deployed PowerTrack Sage in the fourth quarter to more than 80 customers for a beta trial and the feedback has been overwhelmingly positive. PowerTrack Sage will be generally available at the end of this month. At launch, we will deploy a light version across the entire PowerTrack customer base, embedding AI-assisted capabilities into the core platform from day 1 and accelerating adoption at scale.

This universal rollout ensures immediate value realization while positioning AI as a foundational component of the PowerTrack experience. For customers seeking deeper automation, advanced analytics and expanded workflow functionality, we will soon offer premium tiers at incremental cost, creating a clear pathway for upselling, monetization and long-term platform expansion.

Finally, our managed services business delivered solid fourth quarter performance, highlighted by a new brownfield agreement. Under this deal, we will operate and optimize a 4-site energy storage portfolio for a Southern California utility. Our services include real-time asset monitoring, enrollment and dispatch into California demand response programs, performance reporting to optimize site dispatches and energy cost savings and more.

This is a solid proof point for our differentiated managed services capabilities and validation of our brownfield strategy. Overall, the result of 2025 is this. Stem has established a stable, increasingly profitable, software-centric business model.

2025 was about transformation and achieving stability. 2026 is about operational leverage and building for scale. So let's dive in. As we enter the new year with strong fourth quarter momentum, we are focused on 3 new priorities: Priority #1: Driving operational leverage; Priority # 2: Continuing to strengthen our core business; and, Priority #3, building the foundation for accelerated growth in 2027 and beyond.

Now let's dive deeper into each of these in turn. First, driving operational leverage. We have built a sustainable business model. And in 2026, we intend to demonstrate the leverage it creates. Our software-centric model delivers predictable, high-margin revenue and cost discipline is now embedded in the culture of this company. In 2026, we will continue integrating AI across the organization to drive productivity improvements, and we will maintain our relentless focus on cost reductions, cash conservation and working capital management.

Second, strengthening our core business. We remain focused on driving core platform excellence for PowerTrack in 2026. The platform maintains its market-leading position in commercial and industrial solar monitoring in the U.S. This year, we will deliver further platform stability, scalability and simplified intelligent UI updates that drive customer value and retention. The domestic C&I solar market, where we already hold significant share, offers moderate growth in 2026, but this is a stable, high retention base that continues to generate recurring revenue. Additionally, we are targeting a brownfield strategy to further increase our market share as well as a range of other adjacent offerings.

Our other core business, managed services for energy storage, continues to be a differentiated offering that sets Stem apart from competitors. Our brownfield strategy remains a key focus as does actively pursuing greenfield opportunities. We are scaling in existing domestic markets, leading with our proof of performance and winning with our differentiated offerings. And finally, to priority #3, building for growth in 2027 and beyond.

Outside of our core C&I solar and storage businesses, we are focused on expanding our utility-scale footprint domestically and internationally. We are targeting key markets across Europe, leveraging local support infrastructure that we have built and continue to invest in. Both the domestic and international utility-scale storage and solar markets are growing, and we are well positioned to capture rising demand and take share. Power EMS helps us differentiate in the utility-scale space by providing a solution for hybrid solar plus storage sites and also stand-alone BESS sites, which are increasingly common in the utility-scale market.

We expect meaningful revenue conversion of PowerTrack EMS bookings to begin at the end of 2026 and the beginning of 2027. While we are bringing PowerTrack EMS to market this year, we are also exploring other ways in which our team's expertise and our technology can deliver value in the clean energy space. This year, we are starting with 2 areas of emerging opportunity. First, as part of our suite of professional services offerings, we are developing AI services that leverage our domain expertise and operational knowledge to help customers identify, prioritize and deploy the current iteration of generative AI solutions in a way that generates real economic outcomes.

These offerings are distinct from PowerTrack Sage, and they are focused on helping customers unlock value across their broader operations. And our second area of opportunity is with data centers. More and more, we are seeing data centers adopting renewables as a power source. We believe Stem has the foundational technology and deep expertise in both solar and storage to be a meaningful player in this market. I am encouraged by these options. We see a natural extension of our existing capabilities driving our entrance into the space, and I look forward to updating you all on our progress in the coming quarters.

2026 is an optimization year, focused on margin expansion and operating leverage while we continue to invest selectively in the capabilities that will drive scale in 2027 and beyond. I want to be deliberate about that framing because it shapes how you should think about our trajectory. PowerTrack EMS was launched in late 2025. It accelerates through the end of 2026 and meaningfully scales in 2027 and beyond. Our utility-scale team is building meaningfully in 2026, and this foundation will drive us towards taking share in 2027 and beyond. We believe that the market positions we are strengthening today will pay dividends for years to come.

The building blocks we are putting in place span every dimension of the business. On technology: our AI integration, improving stability and scalability. On markets: international expansion and utility-scale expansion here and abroad. On products and offerings: a comprehensive suite from solar monitoring to storage optimization. On operations: building operating leverage and driving operational excellence. Expanding the value chain of our offerings today sets up the foundation for future growth. This is important to note because it ties into our core software-centric vision for Stem. We are determined to become the operating system for new energy projects across solar, storage and hybrid assets and in different market segments and geographies.

Before turning it over to Brian, let me introduce the key themes of our 2026 guidance. We are entering the year with a strong foundation from our 2025 execution and believe we are well positioned to execute on our commitments. We expect our software-centric strategy to drive moderate top line revenue growth, strong gross margins and significant adjusted EBITDA expansion, supported by continued software momentum, our expanding product suite and the operational leverage we have built into the business. Brian will provide a more detailed look at our 2026 guidance and also dive deeper into our fourth quarter and full year 2025 financial results.

With that, let me pass over the call to him.

Thanks, Arun, and hello, everyone. Let's walk through the results. For the full year 2025, we were in line or above all of the financial expectations we outlined on our third quarter call. We exceeded our profitability guidance, demonstrating the dedication to operational discipline that runs through this organization. For the full year of 2025, total revenue was $156 million, up 8% year-over-year. Most importantly, revenue from software, services and edge hardware, the core of our software-centric model, was up 25% year-over-year to $141 million. Battery hardware resale was $15 million for the year, consistent with our strategic deemphasis of lower-margin business. This shift in revenue mix is precisely what we committed to delivering, and it is reflected in our improved gross margin performance this year.

Turning now to the fourth quarter. PowerTrack software revenue continued its strong performance, growing 14% year-over-year and edge hardware revenue grew an impressive 21% year-over-year. Managed service revenue was up 51% year-over-year, driven in part by onetime performance-based revenue, where we exceeded asset operational targets. Battery resale revenue was down from $27 million to less than $1 million year-over-year as expected.

Project and professional services revenue increased significantly year-over-year, driven by approximately $11 million of onetime DevCo revenue recognized in the fourth quarter. Excluding DevCo, fourth quarter project and professional services revenue was up 27% year-over-year. I also want to note that as of the end of the year, we have sold or written off all of the project assets associated with DevCo from our financial statements, and we do not intend to make any further investments in DevCo assets moving forward.

Now let's take a look at gross margins. For the full year 2025, we achieved record GAAP gross margins of 38% and record non-GAAP gross margins of 46%, driven by decreased battery hardware sales, a favorable software and service revenue mix and improved edge hardware margins. Fourth quarter GAAP gross margins were 49% and non-GAAP gross margins were 45%, continuing our strong results. You can again find the detailed revenue and margin breakdowns we introduced last quarter in our supplemental materials on our IR website.

Full year 2025 cash operating expenses were down 41% from 2024, and fourth quarter cash operating expenses were down an impressive 50% year-over-year. We are building sustainability into our cost structure, not temporary reductions, but permanent structural efficiency while simultaneously developing new products and entering new markets. That combination is the foundation of our operating leverage thesis moving forward into 2026 and beyond. The improved margins and significantly reduced OpEx in 2025 drove positive adjusted EBITDA of approximately $7 million for the year, above the high end of our guidance range and representing the first year of positive annual adjusted EBITDA in Stem's history. We achieved 3 consecutive quarters of positive adjusted EBITDA this year, with the fourth quarter coming in at $5 million, a 30% improvement from fourth quarter of 2024.

The improvement was primarily driven by improved gross profits and reductions in operating expenses with modest additional benefit related to the final sales of the DevCo project assets. Full year operating cash flow was $7 million, slightly above the high end of our revised guidance. The fourth quarter benefited from the sale of our DevCo project assets and other favorable working capital movements. We ended the fourth quarter and full year 2025 with $49 million in cash, up from $43 million at the end of the third quarter. This is a solid liquidity position that supports our '26 plans.

And now turning to our operating metrics. Fourth quarter bookings were $33 million, up slightly from last quarter due to increased software and service bookings, offset by decreased battery hardware bookings. Contracted backlog was $21 million, down 4% from $22 million last quarter due to decreased battery hardware bookings. Our end of year 2025 backlog is 2% higher than it was at the end of 2024 and excluding battery hardware, is 23% higher than prior year. CARR decreased $3 million sequentially to $67 million due to lower managed services bookings and the cancellation of a managed service customer agreement. This customer cancellation driven by adjacent nonscalable product requests outside of our road map, impacted CARR by $3 million, ARR by $1 million and AUM by 0.1 gigawatt hours. Despite this cancellation, total company ARR grew 1% sequentially and 16% year-over-year to $61 million, supported by increased PowerTrack software bookings.

Turning now to our full year 2026 guidance. We are encouraged by the strong momentum we carried throughout 2025 and that we bring forward into 2026. We expect that performance to accelerate as we advance throughout the year. For revenue, we expect total revenue in the range of $140 million to $190 million. Within that range, we expect $130 million to $150 million to come from high-margin software, services and edge hardware revenue, our core business. We expect the remaining balance of up to $40 million to be driven by battery hardware resales, which remain opportunistic and are not a strategic priority.

We expect non-GAAP gross margins of 40% to 50%, broadly in line with our 2025 performance. Higher battery hardware resales would cause gross margin percentage to trend toward the lower end of that range. We expect adjusted EBITDA of $10 million to $15 million, representing approximately 85% growth at the midpoint versus full year 2025, driven by revenue growth, operating expense discipline and increased operating leverage. We expect operating cash flow of $0 to $10 million, reflecting stable cash generation from operations for the year. And finally, we expect ARR of $65 million to $70 million, representing approximately 10% growth at the midpoint, continuing the momentum from 2025.

I'm extremely proud of what the team has accomplished in 2025, and we are continuing to build a strong foundation into 2026 that sets us up for accelerated growth in 2027 and beyond.

And I will now pass the call back over to Arun for closing remarks.

Thank you, Brian. As I reflect on 2025, I am struck by the scope of what our team accomplished. We delivered a business transformation, executed a financial turnaround, completed 2 new product launches and demonstrated a clear strategic path forward. We said we would do it, and we did it.

As I look ahead through the remainder of 2026 and beyond, I am confident. We have 3 clear strategic priorities to guide us in 2026. We have an ambitious but achievable adjusted EBITDA target and multiple growth drivers that derisk execution. And last but certainly not least, we have a team with a proven track record of executing.

Our long-term vision is to build a scalable, profitable software and services company that holds a market leadership position in clean energy intelligence. Stem is uniquely positioned to capitalize on the ongoing clean energy transformation with a market-leading platform, a growing product suite and an expanding global footprint.

To our customers, we are grateful for your continued partnership and trust. To our investors, we appreciate your support through this transformation and your confidence in our vision. To our team, your execution through a challenging transformational year reflects your talent, your resilience and your dedication. Thank you.

With that, I will ask the operator to open the line for questions.

[Operator Instructions] Our first question comes from Justin Clare with ROTH.

I wanted to start off on the PowerTrack EMS launch. So you mentioned that you could see an acceleration for PowerTrack EMS in 2026, but more meaningful scale in 2027. So just wondering how we should think about the timing of bookings for the product. Could we see an increase as early as Q1 or Q2? Or is that more of a second half dynamic? And then just wondering if you could talk through the typical sales cycle and lead times for the EMS deployments.

Justin, thank you for your question This is Arun. Good to hear from you again. PowerTrack EMS was launched in September 2025. And the reason we are so excited about it is it is the first time we are able to address a solar and storage solution and address a customer's need completely. If you think about even the press release that we put out today, we are able to work with newer customers in international markets as well as customers domestically as well.

And the main sort of aspect of these solutions are geared towards utility-scale projects. Inherently, they are a longer life cycle, and this means that we need to give time to build the business, build the pipeline, engage with the customer and make sure that the solution is a good fit and then work with the customer through the commissioning of the project all the way to revenue recognition. So it does take some time, and we are working on that today.

Okay. And then I guess curious, would you anticipate the revenue

[Audio Gap]

recurring revenue stream, but maybe you could help us understand that.

Yes. So it depends on the components, right? So think about a project that we deploy, it would have hardware, software as well as service components and the mix of these 3 components would be the totality of the contracts that we are executing. Depending on the component we're talking about, the revenue recognition would follow specific time line. So maybe hardware is recognized immediately upon delivery, but the service component would need to run through the commissioning life cycle. So that -- if you look at the Everyray press release that we announced today, we are encouraged by the feedback that we're getting from our customers. That's a 100-megawatt hour project that we have deployed. And just connecting back to the remarks that we made earlier, we are looking at 2026 as a way to build the foundation and then see 2027 as the point at which we're able to scale the revenue.

I see. Got it. Got it. Okay. And then just on the 2026 guidance, it does look like the battery resale revenue up to $40 million. That's a fairly meaningful increase potentially from the 2025 storage resale revenue of $15 million. So just wondering if you could speak to what's driving the increase there, considering you are shifting emphasis toward software and services, are you still seeing demand from customers where they prefer you to do the procurement?

I would characterize Stem as a trusted adviser. We have really good relationships with our customer and the ability for our technical expertise in the organization to assist customers through that journey is very valuable to our customers. So we have deemphasized the OEM hardware resale component of the business. But when we see opportunities to help customers meaningfully and it doesn't use up our balance sheet, we do pursue it. And this is how we see the year develop, and that's how we are guiding to it.

Got it. Okay. And then just one more on margins. Wondering if you could give us a sense for how you see the gross margins evolving for software, services and edge hardware in '26 relative to '25. It looks like you could potentially have a higher mix of battery hardware resale, which is lower margin. But overall for the year, it looks like margins could be flat year-over-year. So it implies there could be an expansion in the software margins. So just checking, is that the right interpretation and how we should think about it?

Justin, this is Brian. Yes, I mean, we've guided you to 40% to 50% for the year. And that is obviously at a mix of kind of revenue, software services and hardware. We do break out for you now in our slide deck the kind of detail by each revenue kind of line. You can look at that in the appendix for that. But yes, I think you see that this year, software was over 70% or just north of 70%. So I think you can look at that from a mix perspective and based on our guidance and what we're looking at for improved software revenue will drive that mix up a bit.

[Operator Instructions] There are no further questions at this time. This concludes our question-and-answer session. I'd like to turn the call back over to Arun for closing comments.

I want to thank everyone for joining our fourth quarter and full year earnings call, and we look forward to speaking with you next during our first quarter 2026 earnings call this spring. Thanks, everyone.

Ladies and gentlemen, thank you for your participation. This concludes today's conference. Please disconnect your lines, and have a wonderful day.

Ladies and gentlemen, greetings, and welcome to the Stem, Inc. Third Quarter 2025 Results Conference Call. [Operator Instructions]. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host for today, Erin Reed, Investor Relations Manager. Please go ahead.

Thank you, operator. This is Erin Reed, Head of Investor Relations at Stem. We welcome you to our third quarter 2025 earnings call. 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. We, therefore, refer you to our latest 10-Q, 10-K and other SEC filings and 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 in our third quarter 2025 earnings release, which is on our website. Arun Narayanan, CEO; and Brian Musfeldt, CFO, will start the call today with prepared remarks, and then we will take your questions. And now I will turn the call over to Arun.

Thanks, Erin. Hello, everyone, and thank you for joining us today. Q3 2025 marks 12 months since we announced our strategic realignment, and I'm proud to report that our transformation continues to deliver tangible positive results. Today, we reported third quarter revenue of $38 million, up 31% year-over-year, with ARR growing 17% year-over-year to $60 million. We achieved our second consecutive quarter of positive adjusted EBITDA and generated positive operating cash flow. Our software-centric strategy is delivering results.

The success of our strategic transformation is evident in our consistent earnings performance with steady growth in software and services revenue and continued improvement across key profitability metrics. As we maintain disciplined cost management, we believe we have achieved operational stability and our high-performing team is laser-focused on execution and results. Today, we are also refining guidance to reflect our revised forecast, which we will go into more detail later in the call. The key takeaways are we have reduced the historical volatility in our business. We have derisked the low end of nearly all guidance ranges, and we feel confident about the stability of our business.

This quarter also marked a pivotal moment in our evolution as we unified our corporate identity under the Stem brand and streamlined our entire product portfolio within the comprehensive PowerTrack suite. This transformation goes far beyond surface level changes. It reflects the deep integration of AlsoEnergy's solar expertise with Stem's storage and AI capabilities.

For our customers, this means that we approach them with a single voice with superior technical solutions across their entire energy portfolio, covering solar, storage and hybrid assets alike. Combined with Stem's industry-leading subject matter expertise, this creates an unparalleled customer value proposition.

We welcome you to visit our redesigned website at stem.com to see this unified vision in action. Each quarter, we have touched upon our strategic priorities for 2025, driving software and services revenue growth, revamping software development and reducing our cost structure and driving profitability. We've advanced all 3 strategic priorities in Q3 with concrete results. Let me detail our progress. First, let's focus on software and services growth and revamping our software. On September 2, we launched PowerTrack EMS for hybrid and stand-alone storage projects. This energy management system integrates AlsoEnergy's solar C&I offerings with Stem's storage offerings and positions us to meet the needs of key markets, including solar, storage and hybrid assets in both the C&I and utility scale segments.

It is an intelligent control system that manages battery charging and discharging operations while coordinating grid services and enabling revenue streams for energy storage projects. PowerTrack EMS fills the critical gap between basic battery management and advanced optimization software such as our PowerTrack Optimizer product, enabling us to provide important control offerings regardless of the commercial management of the battery, including in territories where merchant optimization is not permitted. We remain excited about PowerTrack EMS because it expands our total addressable market by widening our potential customer base and the markets we can serve. Here in the U.S., it unlocked for us the utility scale market, which is heavily hybridized versus the C&I market.

Outside of the U.S., PowerTrack EMS unlocks the international market for C&I and utility scale projects, which are also largely hybridized. International expansion is a key component of our corporate strategy that also helps us manage near-term macro headwinds in the U.S. Importantly, in all markets, PowerTrack EMS is an optimization-agnostic controls-oriented product, which means that it can be sold in markets where utilities provide dispatch signals without the need for a third-party optimizer or in international markets where Stem does not provide managed optimization services with PowerTrack Optimizer.

It is truly a complementary offering to the existing portfolio and allows us to offer an end-to-end solution for our customers. We launched PowerTrack EMS at the RE+ conference to strong customer reception. This product garnered particularly high interest from operators of hybrid energy sites. Just 8 weeks after launch, we've already booked significant capacity deployments with blue-chip customers in 3 different countries, validating both our product capabilities and marketing positioning. These deals cover primarily hybrid utility scale projects with existing solar assets that expect to convert to hybrid in the near term and are using PowerTrack EMS as a way to future-proof this conversion while limiting downtime.

We expect these bookings to convert to revenue in the coming quarters with about a 6- to 9-month typical lead time. Our core C&I solar monitoring platform is deeply established in the industry, but we remain dedicated to continuous innovation and addressing key customer feedback as quickly as we can. In the last 90 days alone, we have rolled out over 100 software improvements and bug fixes directly enhancing the PowerTrack experience for our customers. Recently, we have added best monitoring features and enhanced [ PV ] performance analytics, ensuring that PowerTrack is the platform of choice for our customers as they add storage to their solar portfolios and scale to more complex operations.

As we announced last quarter, we are also incorporating advances in AI into our offerings with PowerTrack Sage. PowerTrack Sage is an AI-powered assistant that sits on top of PowerTrack and transforms complex solar and storage data analysis into natural language conversations. It's like an expert analyst available 24/7 to simplify certain important product workflows and serve as a first line of support for customer questions. There's high customer interest and excitement about this product, particularly around solar analytics and diagnosing root causes for unusual data. PowerTrack Sage development remains on track for limited beta release with select customers in December and is expected to be broadly available in 2026. PowerTrack software continues to demonstrate strong performance across key metrics.

Revenue increased 10% year-over-year. ARR expanded 19% year-over-year, and we commissioned 1.2 gigawatts of solar assets this quarter. Our platform now manages nearly 34 gigawatts of solar assets, reinforcing our market-leading position in C&I solar monitoring. Now let's move on to managed services. Our managed services are software-enabled full life cycle energy storage services covering the design, procurement, commissioning, operation and optimization of energy storage and hybrid solar plus storage systems.

We help asset owners maximize the reliability, performance and returns of their storage assets. Managed services are supported by our PowerTrack Optimizer software, previously known as Athena. Energy optimization, especially when value stacking is a specialized area that requires both our optimization software and humans in the loop to execute well. Humans in the loop ensure that the optimization is keeping up with the constant market and program rule changes, market dynamics and new value streams. Our competitive advantage in managed services lies in our ability to serve as a full service provider, leveraging our substantial market share across diverse segments. We remain one of the few companies with this expertise.

Our managed services contracts include both recurring revenue and performance-based upside when we exceed operational targets. Q3 2024 included significant overperformance that we did not repeat this quarter, which impacts the year-over-year comparison. The underlying health of this business is strong as our recurring base revenue grew 14% year-over-year and 4% sequentially. Finally, our consultative professional services offering continues to resonate with customers across a wide range of development, deployment and operational needs. We are continuing to drive repeat business, a clear mark that our offerings are adding value. And we are increasingly focused on cross-selling professional services with other business units offerings.

Now to another strategic priority, reducing our cost structure and driving profitability. We remain diligently focused on cost management. We have achieved our second consecutive quarter of positive adjusted EBITDA while maintaining robust GAAP and non-GAAP gross margins. Operating expenses remained flat compared to the second quarter, and we are continuing to drive further efficiencies through AI implementation. Additionally, we've generated positive operating cash flow and kept cash flat sequentially. Our financial performance validates the business model transformation, expanding gross margins, 2 consecutive quarters of positive adjusted EBITDA and positive operating cash flow. These results demonstrate both profitability and sustainability. We are dedicated to financial transparency, and we remain committed to helping our investors and stakeholders better understand our business.

To that extent, our Form 10-Q to be filed today once again disaggregates revenue across distinct categories. What's new this quarter is that we are also providing detailed gross margin disclosure for each revenue category in our supplemental slides. Now on to guidance. With 9 months of reported results and early visibility into Q4, today, we are refining our full year 2025 guidance ranges, including a tightening of ranges previously disclosed. First, we'd like to highlight that our ability to tighten ranges is a significant advancement versus where we were previously, where volatility and back-end seasonality negatively impacted our ability to guide with precision. Our software-centric model has reduced this volatility and enhanced our forecasting accuracy.

With that said, we are tracking towards the midpoint or better on all metrics except operating cash flow, where timing of working capital movements could result in performance towards the lower end of our range. I'd like to highlight that we have brought up the low end of the ranges for software, edge hardware and services revenue and adjusted EBITDA and raised the guidance for non-GAAP gross profit. Brian will provide the specific updated ranges, but I want to emphasize that the underlying business fundamentals remain strong, and we are well positioned entering into 2026.

Now turning to the macro environment. Headwinds from policy uncertainty remain, and we are actively working with our customers to navigate this environment. We remain on track to meet our guidance expectation through the end of the year. In addition, our diversified software-centric model, combined with our recently enhanced international strategy should position us well against the potential impact of domestic headwinds. We remain confident in our end markets, and we believe that we are well positioned to benefit from the projected international load growth. Our international expansion efforts are focused on a multiphased approach. First, we developed an internationally ready product suite with PowerTrack EMS. Second, we are leveraging our regional expertise through our existing teams in Berlin and Japan.

We see significant opportunities to expand within the European markets. And in Berlin, we recently moved our operations to more centralized and collaborative facilities. We are expanding our technical depth and customer support in Berlin to combine our global expertise with local execution that can service high-priority European markets. Our growth strategy for Q4 and beyond centers on 2 drivers: PowerTrack EMS expanding our addressable market into utility scale and international hybrid projects and continued focus and acceleration in our core C&I solar business. Our recurring revenue base, substantial backlog and international diversification provide a strong foundation for sustained growth. With that, let me turn the call over to Brian for detailed financial results and the updates to guidance.

Thanks, Arun, and hello, everyone. In the third quarter of 2025, we saw solid financial performance across the business. Total revenue grew an impressive 31% year-over-year to $38 million. PowerTrack software revenue continued its strong performance in the third quarter, growing 11% year-over-year, and edge hardware grew a notable 18% year-over-year. As a note, this quarter with the introduction of PowerTrack EMS for hybrid and storage sites, we have redefined solar software revenue to PowerTrack software revenue as our PowerTrack software revenue will now include all customer-facing SaaS revenue generated from solar, storage and hybrid assets.

Project and professional service revenue decreased year-over-year as the third quarter of 2024 benefited from approximately $5 million of onetime DevCo revenues. As Arun discussed, managed service revenue was also down year-over-year due to onetime overperformance in the third quarter of 2024. Although we are deemphasizing the business as part of our software-centric strategy, battery hardware resale brought in $4 million in revenue this quarter. You can find this revenue detail in the disaggregation of revenue footnote in our Form 10-Q and supplemental materials, which provide enhanced clarity into our business.

We again achieved strong gross margin this quarter with GAAP gross margins of 35% and non-GAAP gross margins of 47%. This expansion reflects the increasing mix of higher-margin software and services in our revenue base and improving hardware margins for both edge hardware and battery resales. Our disaggregation of revenue provided in our supplemental materials now includes gross margin ranges for each revenue category to provide more clarity for investors and analysts. GAAP and cash operating expenses were both flat sequentially from the second quarter of 2025. Cash operating expenses were down an impressive 47% year-over-year. These reductions were primarily the result of the difficult but necessary workforce reduction that took place in the second quarter, and we remain focused on driving operating leverage and further cost savings across the business.

That said, we feel positive about our ability to grow revenue without significant OpEx increases as demonstrated by our development of PowerTrack EMS and PowerTrack Sage products with current staffing levels. The improved margins and significantly reduced OpEx drove positive adjusted EBITDA of $2 million for the quarter, demonstrating that we are finding sustained operational profitability in our lower OpEx structure and our business transformation. Operating cash flow turned decisively positive at $11 million this quarter, a $21 million swing versus the same quarter last year, and our cash position remained stable at $43 million. My key strategic priorities as CFO remain to help drive profitable growth and manage our capital structure as we look to continue growing in key revenue categories over the coming years.

And now turning to our operating metrics. Bookings were $30 million, down slightly versus last quarter, largely due to timing of bookings from our historically lumpy low-margin battery hardware resales. Software and service bookings were sequentially flat and contracted backlog was $22 million, down from $26.8 million last quarter due to lower bookings and increased hardware revenue recognition in the quarter. Contracted ARR remained stable at $70 million. And importantly, ARR increased 3% sequentially and 17% year-over-year, demonstrating the strength and scalability of our recurring revenue model. Finally, storage and solar AUM increased 6% and 4%, respectively, since last quarter. Now turning to our updated guidance for full year 2025. First, for revenue, we are tightening our revenue range to $135 million to $160 million from the prior $125 million to $175 million range.

This reflects strong software and service performance with an updated range of $125 million to $140 million and is offset by lower battery hardware resale expectations of up to $20 million as we continue to deemphasize that business. For gross margins, we are raising the range to 40% to 50%. We are already tracking toward the high end of this range, but expect some margin compression in the fourth quarter with increased edge hardware deliveries. For adjusted EBITDA, we are raising the low end of the range and now forecast between negative $5 million and positive $5 million for the fiscal year 2025. We have factored in some conservatism in this metric, and I would highlight that we are currently tracking above the midpoint of our updated range. For operating cash flow, we are adjusting our range for this metric to between negative $5 million and positive $5 million. This quarter's $11 million in positive cash flow demonstrates the underlying cash generation capability of the business.

Any fourth quarter working capital fluctuations will reflect normal timing differences in customer payment cycles, not fundamental business performance. And finally, our forecast for year-end ARR remains consistent at $55 million to $65 million and continues to reflect an attractive base of recurring revenue. While we won't provide formal guidance for 2026 until early next year during our fourth quarter and full year 2025 call, I can share that we enter 2026 with strong visibility from our recurring revenue base and contracted backlog, positioning us well for continued growth. And now I will pass the call back over to Arun for closing remarks.

Thank you, Brian. Our team delivered strong execution across the business this quarter. One year into our strategic transformation, the results are evident. Revenue growth, margin expansion, sustained profitability and positive cash generation. We established clear objectives for this transformation, and we are achieving them. The clean energy transformation continues accelerating globally and our industry-leading software platforms, solutions and dedicated team positions us to capitalize on this transformation. I want to thank our investors and customers for their continued confidence and trust in us, and I want to take this opportunity to also express my gratitude for the hard work and contributions of Stem employees in achieving these results. With that, operator, let's open the line for questions, please.

[Operator Instructions]. The first question comes from Justin Clare with ROTH MKM.

So I wanted to start with the guidance. And so with the update here, it looks like you're guiding to the midpoint or better across all the metrics. But just looking back to what you said last quarter, it sounded like you were tracking toward the high end of the guidance based on your comments from last quarter. So just wondering, has your outlook moderated somewhat given the new ranges? Or maybe you could speak to the potential to kind of deliver at the high end.

Justin, this is Arun. Thanks for the question. Let's address your point. The way we show the updated guidance on Slide 6 in the exhibit, you can see that we are actually still tracking towards the midpoint or high end of all the ranges. Only the deemphasized and nonpredictable sort of OEM hardware resale business, which was ranged at [ 0 to $35 million ] is now ranged between up to $20 million. I think that difference is sort of, you could say, the main difference. The rest of it is just a tightening of the ranges. And I would say that that's the main interplay between the 2 quarters.

Okay. Got it. That's helpful. And then just on the gross margins, it looks like in Q4, you could see a slight compression. I'm wondering, is this only really due to a mix shift with a little bit higher sales of the battery hardware or should we anticipate any other notable change to the gross margins by business line? And then I guess just looking beyond Q4, how should we be thinking about the gross margins by business line? And definitely appreciate the added disclosure here that you provided this quarter.

Thanks, Justin. This is Brian. Yes, I think when you look at the new disclosure there, hopefully, you see detailed on Page 12, when we talked about a little bit about compression in Q4, it's just going to be mix. Q4 is our largest delivery quarter for our edge hardware to a slightly lower margin. So that's really what will compress it in the fourth quarter kind of just in that period. As far as the out periods, we don't give guidance until Q1, but I think you can kind of see the 3 and 9 months trends. And so we do expect to keep working on margins and improving them over the next coming years, especially as, again, we're deemphasizing that OEM hardware, but the other categories are pretty stable and will continue to improve.

Got it. Okay. And then maybe just one more. Bookings in Q3 modestly lower than Q2. But again, that sounds like it's more a deemphasis of the battery hardware sales. But wondering with the release of PowerTrack EMS, can you talk a little bit more about the demand that you're seeing, the potential to see an increase in bookings potentially in Q4 here and just what you're seeing at this point?

I can take a stab at that. This is Arun again. We are very excited about PowerTrack EMS, as we have said in the prepared remarks quite a few times. It opens up new markets for us. And the market -- the subsegment sort of that we are targeting is the small utility scale sites. So sort of 20 to 100 megawatts in size. As we look at the initial energy around it, we are quite enthusiastic about it, and we are quite glad that our product fit is good. As PowerTrack EMS becomes a more meaningful portion of the revenue, we will provide more breakup and details around that. I think that's sort of our thinking at this point.

Our next question comes from Jon Windham with UBS.

Congratulations on the back-to-back quarters, probably adjusted EBITDA. I just have 2 questions. I'll ask one at a time. Any -- would love any commentary or color you're getting from your customers. There's obviously a lot of moving parts going on right now, particularly around batteries with [indiscernible] , but also with solar and some of the [indiscernible] guidance. Just love your thoughts on what you're seeing in sort of the top of the funnel, how demand looks in general for the industry and for you?

John, thanks for the question. This is Arun. I can take a stab at it. We are maintaining the momentum in our engagement with our customers. And we do see that the engagement levels that we have in terms of being able to drive our conversations around PowerTrack are maintained. So the comments you're making on [indiscernible] and other points are valid, but we see reasonably unchanged sort of conversation momentum in customer engagements.

Perfect. And I guess the second question, may I love this. You're into the turnaround, you're delivering on gross margin expansion very nicely. EBITDA is positive. How do you think about your goals for them because the market is always on to the next thing. When do we get to operating income positive, when do we get to net income positive? Once how do you think about that path or alternatively, if you don't want to answer that question, which I would understand, is how do you think about laying that out to investors and here's the path we're on a time line to sort of get longer term. Clearly, we had a lot of success here in the first year with the strategy shift. But I think the questions from investors are increasingly -- how does this progress down the income statement to positive numbers all the way down? Appreciate any thoughts you have on it.

It's a really good question. Let me take 2 or 3 parts to it. First of all, I think this quarter is the 1-year anniversary of the shift to the software-centric focus for the company. And you can sort of see that, that strategy is paying off in terms of stabilizing the revenue margins and being able to have a predictable business. The second piece is I've been in this role now 9 months roughly. And there's been a focus on managing our costs and driving a push towards profitability.

Now I think we'll give more guidance on this in the next call. But maybe one thing I can direct you towards is a note that we put out towards investors and stakeholders in one of the press releases in the early part of September, which sort of explains our thinking in terms of our overall product strategy, in terms of our overall service strategy, how we look at international markets and what our general approach is towards having a very continuous full market coverage solution all the way from C&I to the smaller scale utility projects and then going up from that space to what PowerTrack Optimizer provides in terms of the high end of that market. So I think it's an elegant story. And I would sort of encourage you and the other listeners to go back to our website and read that note that we have put out towards investors that comes with an attachment and a very nice presentation.

Our next question comes from Thomas Roche with Barclays.

This is Tom on for Christine. Congrats on the great quarter. So I guess I just first wanted to ask, do you foresee the business benefiting from the hyperscaler data center build-out in any way? I know you've typically been more focused on C&I and smaller utility scale customers, but has there been any internal strategy discussions around trying to go after hyperscaler customers with either your solar or storage offering?

Yes, Tom, really good question. This is Arun. One of the things I love about Stem is the team is very energetic, always focused on new business models, new business opportunities. We continue to target all of these opportunities with a lot of bigger -- what we're seeing in the data center markets, which typically prefer sort of natural gas solutions is that there are early indications that it's going to come around towards more renewable energy plays. So it's an exciting development as that shift seems to be happening, and we continue to watch that market space and see how we can play into that effectively.

Got it. Understood. And then just one more quick one for me. So you guys have -- you've cut a fair amount of OpEx here in the last few quarters. Would you say that it's safe to assume that we're at a decent quarterly run rate here on a go-forward basis?

Yes. Tom, this is Brian. I can take that one. Yes, I mean, as you've seen, right, we've cut cash OpEx, we've cut about 47% year-over-year. We reported just over $20 million of cash OpEx this quarter. I think we're done with the fundamentally large execution of that, that you've seen in the second quarter, we took a really large chunk out of the team with a very difficult but motivated strategy. But we are now -- we continue to look at other opportunities for savings. An example, this quarter, we exited our India facility, which was just oversized for what we needed. So the team is working on it. We'll always kind of manage cash just in the fundamental blood of this company now to make sure that we're operating that way. So we'll expect -- we're not really giving guidance yet, but I would say this quarter's trend is a good indication, and we'll keep working it down.

Ladies and gentlemen, this concludes the question-and-answer session. I would now like to hand the conference over to Arun Narayanan, the CEO, for the closing comments.

I want to thank everyone for joining the third quarter earnings call, and we look forward to speaking with you during our fourth quarter and full year 2025 earnings call next year. Thanks, everyone.

Ladies and gentlemen, the conference of Stem, Inc. has now concluded. Thank you for your participation. You may now disconnect your lines.