Stem tightens 2025 revenue guidance to $135M–$160M as software-driven model advances

Earnings Call Insights: Stem, Inc. (STEM) Q3 2025

MANAGEMENT VIEW

* CEO Arun Narayanan reported, "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." The company recorded third quarter revenue of $38 million, with ARR growing 17% year-over-year to $60 million, and achieved its second consecutive quarter of positive adjusted EBITDA and positive operating cash flow. Narayanan stated, "We are also refining guidance to reflect our revised forecast... 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."
* Stem unified its product portfolio under the PowerTrack suite, integrating AlsoEnergy's solar expertise with Stem's storage and AI capabilities, aiming to provide a comprehensive solution across solar, storage, and hybrid assets.
* PowerTrack EMS was launched for hybrid and stand-alone storage projects, targeting utility scale and international markets. Narayanan explained, "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."
* PowerTrack Sage, an AI-powered assistant, is set for limited beta release in December, with broader availability expected in 2026.
* CFO Brian Musfeldt stated, "Total revenue grew an impressive 31% year-over-year to $38 million." He emphasized, "We again achieved strong gross margin this quarter with GAAP gross margins of 35% and non-GAAP gross margins of 47%."

OUTLOOK

* Narayanan indicated, "Today, we are refining our full year 2025 guidance ranges, including a tightening of ranges previously disclosed." The updated revenue range is $135 million to $160 million for 2025, with software and service performance expected between $125 million to $140 million. Battery hardware resale is forecasted up to $20 million as that business is deemphasized.
* Gross margin guidance is raised to 40% to 50%. Adjusted EBITDA is now forecasted between negative $5 million and positive $5 million for the full year 2025.
* Operating cash flow guidance has been adjusted to between negative $5 million and positive $5 million. Year-end ARR is forecasted in the $55 million to $65 million range.
* The company is not providing formal 2026 guidance until the next earnings call but highlighted strong visibility from its recurring revenue base and contracted backlog.

FINANCIAL RESULTS

* Third quarter revenue was $38 million, with PowerTrack software revenue growing 11% year-over-year and edge hardware up 18% year-over-year. Battery hardware resale contributed $4 million in revenue.
* GAAP gross margins were 35% and non-GAAP gross margins reached 47%.
* Cash operating expenses remained flat sequentially and were down 47% year-over-year, driven by workforce reductions executed in the second quarter.
* Adjusted EBITDA was $2 million for the quarter, and operating cash flow turned positive at $11 million, with a cash position of $43 million.
* Bookings for the quarter were $30 million. Contracted backlog was $22 million, and ARR increased 3% sequentially and 17% year-over-year.

Q&A

* Justin Clare, ROTH Capital Partners: Asked if outlook had moderated with tighter guidance. Narayanan replied the change mainly reflects a tightening of ranges and deemphasis of the OEM hardware resale business, with tracking still toward the midpoint or high end of metrics.
* Clare inquired about gross margin compression in Q4. Musfeldt said, "It's just going to be mix. Q4 is our largest delivery quarter for our edge hardware to a slightly lower margin."
* Clare questioned bookings outlook for PowerTrack EMS. Narayanan expressed enthusiasm for the product, especially its fit for small utility scale sites, and noted, "As PowerTrack EMS becomes a more meaningful portion of the revenue, we will provide more breakup and details around that."
* Jonathan Windham, UBS: Asked about demand trends amid market uncertainty. Narayanan reported, "We see reasonably unchanged sort of conversation momentum in customer engagements."
* Windham also asked about the path to positive operating and net income. Narayanan pointed to ongoing cost management and said, "We'll give more guidance on this in the next call," referencing a recent investor note for further details on strategy.
* Thomas Roche, Barclays: Asked about targeting hyperscaler data center customers. Narayanan said, "We continue to target all of these opportunities... it's an exciting development as that shift seems to be happening."
* Roche asked about OpEx run rate. Musfeldt responded, "I think we're done with the fundamentally large execution of that... but we are now -- we continue to look at other opportunities for savings."

SENTIMENT ANALYSIS

* Analysts' tone was neutral to slightly positive, expressing interest in new product launches and financial discipline but probing for more detail on profitability and growth drivers.
* Management maintained a confident outlook in prepared remarks and Q&A, repeatedly highlighting stability, strong execution, and strategic progress. Phrases like "we are quite enthusiastic about it" and "these results demonstrate both profitability and sustainability" signaled ongoing confidence.
* Compared to the previous quarter, management’s tone shifted from cautious optimism to more confident and detailed disclosures, while analysts maintained focus on guidance precision and profitability milestones.

QUARTER-OVER-QUARTER COMPARISON

* Guidance language shifted from reiterating wide ranges to tightening and raising the low end of key ranges, reflecting greater confidence and reduced volatility.
* Strategic focus sharpened on international expansion, PowerTrack EMS adoption, and AI-enabled offerings, compared to last quarter's emphasis on business unit structure and debt reduction.
* Key metrics such as revenue growth, ARR, and positive operating cash flow remained strong, with continued cost discipline and a second consecutive quarter of positive adjusted EBITDA.
* Management sentiment evolved from stabilizing and restructuring toward executing and expanding, while analysts consistently pressed for clarity on growth and profitability paths.
* Analysts’ questions continued to center on the sustainability of growth, margin outlook, bookings trajectory, and OpEx containment.

RISKS AND CONCERNS

* Policy uncertainty and macro headwinds in the U.S. remain a challenge, with management "actively working with our customers to navigate this environment."
* The company continues to deemphasize battery hardware resale due to its unpredictability and lower margins.
* Management is monitoring working capital timing and customer payment cycles as potential sources of cash flow fluctuation.

FINAL TAKEAWAY

Stem delivered another quarter of revenue growth, margin expansion, and positive cash flow, supported by strategic realignment and disciplined cost management. The company tightened its 2025 guidance ranges, advanced AI-enabled and international offerings, and maintained a confident outlook for continued growth, underpinned by a robust recurring revenue base and a streamlined product suite.

Read the full Earnings Call Transcript [https://seekingalpha.com/symbol/stem/earnings/transcripts]

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