Stem Q4 2024 Earnings Report

Stem EPS Results

• Actual EPS: -$0.12
• Consensus EPS: -$0.16
• Beat/Miss: Beat by +$0.04
• One Year Ago EPS: -$0.21

Stem Revenue Results

• Actual Revenue: $55.83 million
• Expected Revenue: $47.89 million
• Beat/Miss: Beat by +$7.95 million
• YoY Revenue Growth: N/A

Stem Announcement Details

• Quarter: Q4 2024
• Date: 3/4/2025
• Time: After Market Closes
• Conference Call Date: Tuesday, March 4, 2025
• Conference Call Time: 5:00PM ET

Stem (NYSE:STEM) is a leading provider of intelligent energy storage systems. Based in California, the company offers smart energy solutions to commercial, industrial, and residential customers, providing energy savings, grid support, and reliable backup power.

Stem's management team is led by Chief Executive Officer John Carrington, who has over 20 years of experience in the energy sector, including leadership positions at companies such as First Solar and the Department of Energy. Under his leadership, the company has experienced significant growth and expansion, with a focus on innovation and technology.

Stem has shown impressive financial performance in recent years, with steady revenue growth, but the company has yet to become profitable. The company has a healthy profit margin, and with increased revenue, the company is making strides toward profitability. Despite its financial performance, Stem has been managing its debt levels. In terms of ownership, the company has a diversified shareholder base, with institutional investors holding a significant portion of the outstanding shares. Stem's valuation metrics are also impressive, with a price-to-sales ratio averaging around nine, twice the industry average. The company's price-to-book ratio is higher than the industry average. This may indicate that investors are willing to pay a premium for Stem's growth potential. Regarding market performance, Stem's stock has experienced a significant decrease in price over the past few years. Since going public in 2020, the company's stock price has been on the downswing.

Stem operates in the broader energy storage industry, which has seen significant growth in recent years due to increased demand for renewable energy sources and the need for reliable backup power. The industry is highly competitive, with several established players and new entrants vying for market share.

Stem has differentiated itself through its innovative technology and focus on customer needs. The company's proprietary Athena AI platform allows for real-time energy optimization, improving customer efficiency and cost savings.

Stem's growth opportunities are numerous, with the company expanding into new markets and developing new products. In 2021, Stem announced a partnership with Canadian energy company Hydro-Quebec to strengthen its presence in the North American market. Additionally, the company has been investing in research and development, improving its technology, and expanding its product offerings.

Despite its strong industry position, Stem faces several risks and challenges. Changes in government policies and regulations could impact the company's growth potential, particularly in terms of incentives for renewable energy sources. Additionally, competition in the industry is intense and Stem must continue to innovate and differentiate itself to maintain its market position.

Overall, Stem is a well-positioned company with a strong track record of financial performance and a focus on innovation and technology. With its differentiated products and focus on customer needs, the company is well-positioned for continued growth and success in the dynamic energy storage industry.

Stem Q4 2024 Earnings Call Transcript

Presentation

[Operator]

Greetings, and welcome to the Stem Inc. Fourth Quarter twenty twenty four Results Conference Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation.

[Operator]

As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to your host, Ted Durbin, Head of Investor Relations. Ted, please go ahead.

[Ted Durbin, Vice President - Investor Relations at Stem]

Thank you, operator. This is Ted Durbin, Head of Investor Relations at Stem. Welcome to our fourth quarter and full year twenty twenty four earnings call. Before we begin, please note that some of the statements we will be making today are forward looking. These matters involve risks and uncertainties that could cause our results to differ materially from those projected in these statements.

[Ted Durbin, Vice President - Investor Relations at Stem]

We therefore refer you to our latest 10 K filing and other SEC filings and the supplemental materials which can be found on our website. Our comments today also include non GAAP financial measures. Additional details and reconciliations to the most directly comparable GAAP financial measures can be found on our earnings release, which is on our website. Arun Narayanan, CEO and Doran Hall, CFO and EVP, will start the call today with prepared remarks, and then we will take your questions. And now I'll turn the call over to Arun.

[Arun Narayanan, CEO at Stem]

Thanks, Ted. Good afternoon, and thank you all for joining us today. I'm excited to join Stem at a critical juncture for the company and the industry. It is a pleasure to speak with you all today on my first earnings call since joining Stem. In my first five weeks as CEO, I've spent time with our customers, partners and employees.

[Arun Narayanan, CEO at Stem]

Even in this short period, I'm convinced that we have the foundation to build a truly great software company. I'm honored the board chose me to lead the company into its next chapter. As part of the diligence process that I undertook before I joined the company, I evaluated the overall financial potential of the company and also the underlying ingredients, talent, technology and vision to make my decision. Looking at the company's competitive positioning and the broader industry's outlook, it's clear to me that the software centric strategy announced in the fall of twenty twenty four is the right plan for the company's future financial success and growth. I see strong offerings from Stem, a clear market need and the opportunity to leverage emerging technologies like AI to address real customer challenges, thus laying the foundation for our path to profitability.

[Arun Narayanan, CEO at Stem]

Over the course of my career, I have built and grown digital businesses across multiple industries around the world. The common thread throughout my experience has been launching innovative software products, harnessing data analytics to improve workflows and customer productivity and leading complex high impact change management initiatives driven by technology adoption. At the core of my experience is an understanding of the key drivers of a software business and the broader ecosystem of B2B software. Driving revenue growth, securing major customer deals and sustaining profitability have been key achievements. I also have a strong understanding of the foundational technologies needed to build software at scale and modernizing our own software development processes.

[Arun Narayanan, CEO at Stem]

Innovating and introducing digital solutions to traditional capital intensive industries is hard. And so a lot of my experience is also centered around change management. I believe software is mission critical for virtually every industry, including renewables, but it means embracing a new way of doing things. Software also needs to be combined with human expertise and an intense focus on the customer value proposition, which brings me back to STEM. I see opportunities for us in every direction.

[Arun Narayanan, CEO at Stem]

I'll highlight a few. First, customers. We have a strong loyal base of 16,000 solar and storage customers and at the same time that market is continuing to grow. Second, products. Most importantly, Powertrack, which has the trifecta of a solid domestic market share, generates high growth margins and has growth opportunities both domestically and internationally.

[Arun Narayanan, CEO at Stem]

And the third opportunity is people. We bring deep subject matter expertise to every engagement. Despite our strength, I fully recognize and acknowledge the challenges we face. Our financial results in the recent quarters have been disappointing and we are taking concrete steps to improve those results. This has been a key focal point for me and in my initial few weeks, I've identified three priorities.

[Arun Narayanan, CEO at Stem]

Number one, we will grow our software revenue with renewed focus on Powertrack. Number two, we will reduce our cost structure. And thirdly, we will revamp our software development. First, as I have spent more time with customers and our team, I'm particularly impressed with PowerTrak. Thirteen of the top 16 commercial and industrial solar asset owners in The U.

[Arun Narayanan, CEO at Stem]

S. Have standardized on PowerTrak. And today, we announced that Summit Ridge Energy has standardized on Powertrack across its fleet of 200 solar sites totaling five fourteen megawatts. I'm also especially excited about our international opportunities with PowerTrak, where we see significant growth potential in largely untapped markets. In January, we announced that Niewoldt, one of the largest asset owners in Hungary, will standardize on PowerTrak for a four eighty four megawatt solar portfolio.

[Arun Narayanan, CEO at Stem]

We earned 70% to 80% gross margin on the PowerTrak software and a high margin on associated offerings, such as 50% gross margin on our professional services tied to PowerTrak installation and commissioning and 30% to 40% on PowerTrak Edge devices. This is a high margin business with large and growing annual recurring revenue. It's also relatively short cycle. Unlike our legacy managed services for storage, the time between a booking and software revenue is often less than six months. And you can see this reflected in our 2025 guidance where we expect continued strong growth in our software and edge device sales this year.

[Arun Narayanan, CEO at Stem]

Second, on cost savings, from an operational perspective, we expect additional cost savings of more than 20% in 2025, above and beyond the 15% reduction that we discussed on the third quarter call. I believe that we will achieve these savings through a combination of factors including eliminating operational inefficiencies, streamlining our corporate structure and lastly, empowering our management teams with control over and responsibility for operational decisions. Third, on our software products and roadmap, we will do the following: revamp our software development, refine the product roadmaps and increase the use of AI in our software development and in our products. We expect these changes will have limited or no impact on our customers. Before turning things over to Doran for a detailed discussion of our financials and outlook, I want to emphasize the strong partnership we've already built.

[Arun Narayanan, CEO at Stem]

Doran will be a key leader in driving our transformation into a high growth profitable software company. With that, let me turn the call over to Doran.

[Doran Hole, EVP & CFO at Ameresco]

Thank you, Arun. On behalf of the STEM team, we're excited to have you on board. Today, I'll cover three key items: our fourth quarter and full year 2024 results, 2025 guidance and then updates to our operating and financial metrics. Starting with the fourth quarter, results were largely in line with the expectations we outlined during our Q3 call. We continue to expect battery hardware resales to decline over time as we focus on driving recurring software and services revenues.

[Doran Hole, EVP & CFO at Ameresco]

Total revenue was down significantly year over year due to reduced hardware sales, but software revenue was up 6% year over year driven by continued strong performance from PowerTrak and increased storage software activations. As Arun mentioned, we are seeing success for PowerTrak among larger customers and internationally. GAAP gross margin was down sequentially due to a one time impairment of deferred services related to OEM warranty services that hit total services cost of goods sold. Non GAAP gross margin was down sequentially in the fourth quarter, but up year over year. In general, our gross margins are influenced by the mix of battery resale revenue and software and services revenue.

[Doran Hole, EVP & CFO at Ameresco]

Adjusted EBITDA and operating cash flow declined on a year over year basis due to lower gross profit dollars from reduced battery hardware sales. On liquidity, we ended the year with approximately $58,000,000 of cash. As I'll discuss shortly with guidance, we expect operating cash flows to improve in 2025, including some working capital releases related to OEM hardware that we have already seen hit in the first quarter. This quarter, we recorded some one time adjustments to our current assets, approximately $38,700,000 in the aggregate related to AR reserves, impairment of inventory and hardware deposit forfeitures with certain suppliers. Turning now to our operating metrics.

[Doran Hole, EVP & CFO at Ameresco]

Contracted backlog, car and contracted storage AUM were down sequentially as we adjusted our backlog to reflect repricing of OEM hardware and the elimination of delayed projects. Operating ARR was up 3% versus the third quarter and up 19% year over year, driven by storage activations and steady PowerTrak growth. Now moving to our 2025 guidance. Starting with revenue, we expect to recognize between $125,000,000 and $175,000,000 of which approximately $120,000,000 and $140,000,000 is expected to come from high margin software, edge device and services revenue. We expect up to $35,000,000 of the remaining balance to be driven by battery hardware re sales.

[Doran Hole, EVP & CFO at Ameresco]

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

[Doran Hole, EVP & CFO at Ameresco]

Higher battery hardware resale revenue would cause our gross margin percentage to trend lower, although we would benefit from more gross profit dollars. We expect adjusted EBITDA of negative $10,000,000 to positive $5,000,000 and operating cash flow of $0 to $15,000,000 As Arun mentioned, we expect to reduce run rate cash OpEx by more than 20% during 2025 relative to our 2024 exit rate to achieve these targets. As I mentioned, during the first quarter, we expect working capital releases related to OEM hardware to also drive an improvement in operating cash flow. For the first time, we are providing guidance on operating ARR. Our revised strategy is built on driving recurring and predictable software and services revenues and we see ARR as a key metric for tracking our progress, which is also in line with other publicly traded software focused businesses.

[Doran Hole, EVP & CFO at Ameresco]

With that in mind, we expect 15% ARR growth at the midpoint from year end twenty twenty four to year end twenty twenty five with a range of $55,000,000 to $65,000,000 As we continue to evolve our business in line with our new strategy, we are rolling out new and redefined metrics that we believe will help stakeholders better understand and forecast our results. Commencing with the first quarter twenty twenty five earnings call, we will be making several adjustments, which are outlined in detail in our supplemental materials. Key among those are changes to reported backlog, car and ARR and storage operating AUM. We are redefining backlog as all contracted hardware and professional services revenues where we have a fully executed purchase order from a customer. Backlog will exclude software and software related managed services.

[Doran Hole, EVP & CFO at Ameresco]

That revenue will be captured in CAR and ARR. We plan to disclose a consolidated ARR, which will include a breakdown of solar and storage. Much like backlog, CAR includes ARR and future revenues where we have a fully executed purchase order from a customer. Finally, we will begin disclosing storage operating AUM. Our storage software revenue generally commences when a system is activated, so this metric gives you better visibility into our revenue generating AUM.

[Doran Hole, EVP & CFO at Ameresco]

Finally, as you know, we received a notice from the New York Stock Exchange in August 2024 that we were out of compliance with listing standards due to our average share price falling below $1 over a thirty day trading period. As we explained in our earnings press release, our Board of Directors has approved, subject to a stockholder vote, a potential range on a reverse stock split, which would bring us back into compliance with NYSE listing standards. Now I will pass it back to Arun for closing remarks.

[Arun Narayanan, CEO at Stem]

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

[Operator]

Certainly. We'll now be conducting a question and answer session. You. Our first question is coming from Thomas Boyes from TD Cowen. Your line is now live.

[Thomas Boyes, Analyst at Cowen]

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

[Arun Narayanan, CEO at Stem]

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

[Thomas Boyes, Analyst at Cowen]

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

[Thomas Boyes, Analyst at Cowen]

What was kind of the impact there?

[Doran Hole, EVP & CFO at Ameresco]

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

[Thomas Boyes, Analyst at Cowen]

Got it. And if I could just sneak one more in.

[Thomas Boyes, Analyst at Cowen]

Just for the battery hardware resale for $35,000,000 for this year, do we think of that more of like a steady state ongoing as something that's just always kind of on offer or in 2026 or something, does that eventually just move to zero and kind of phases out as the new strategy takes over?

[Doran Hole, EVP & CFO at Ameresco]

So in looking at and when we start talking about backlog with POs issued, what we're doing with hardware is we are going to pivot to this opportunistic, it meets all the financial criteria, particular situation where we can carry through software services revenue and attach that to hardware deals and we may continue to see some element of hardware going forward. However, it is certainly not the focus that it was. So I wouldn't necessarily place a run rate on it in the sense that we're giving kind of this almost $0 to $35,000,000 for 2025. We'll give similar indications if we see numbers that are going to be very different from that in the same cadence as we did for 2025.

[Thomas Boyes, Analyst at Cowen]

Excellent. I appreciate taking

[Thomas Boyes, Analyst at Cowen]

the questions.

[Doran Hole, EVP & CFO at Ameresco]

And keep in

[Doran Hole, EVP & CFO at Ameresco]

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

[Doran Hole, EVP & CFO at Ameresco]

revenues.

[Thomas Boyes, Analyst at Cowen]

Understood. Got it.

[Operator]

Thank you. Next question is coming from Justin Clare from Rolf M. K. M. Your line is now live.

[Justin Clare, MD & Research Analyst at Roth Capital Partners, LLC]

Hi. Thanks for the time here. So I wanted to start out just with the new metrics. And so I'm looking at Slide nine here where you have the bookings $38,000,000 contracted backlog $21,000,000 And wondering if you could just help us understand a little bit more of the difference between if we look at Slide 13, we see $358,000,000 of bookings contracted backlog of $1,200,000,000 So is the difference that the new metrics represent fully executed purchase orders and that's the gap? Maybe just help us walk through the difference here.

[Doran Hole, EVP & CFO at Ameresco]

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

[Doran Hole, EVP & CFO at Ameresco]

Whereas CAR will contain everything related to recurring software and services.

[Justin Clare, MD & Research Analyst at Roth Capital Partners, LLC]

I see. So the contracted backlog, the $21,000,000 does not include recurring revenue in there for software. Is that right?

[Doran Hole, EVP & CFO at Ameresco]

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

[Justin Clare, MD & Research Analyst at Roth Capital Partners, LLC]

Okay, got it. And then just one more, the, looking at the same Slide nine, the storage operating AUM going from 800 megawatt hours to 1.8 gigawatt hours through the course of 2024, so pretty significant growth there. We didn't see a corresponding jump in the software revenue associated with storage. Wondering if you could just help us understand why we didn't see that increase?

[Doran Hole, EVP & CFO at Ameresco]

Sorry.

[Doran Hole, EVP & CFO at Ameresco]

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

[Justin Clare, MD & Research Analyst at Roth Capital Partners, LLC]

Okay.

[Justin Clare, MD & Research Analyst at Roth Capital Partners, LLC]

I appreciate it. I'll pass it on.

[Doran Hole, EVP & CFO at Ameresco]

Thanks, Justin.

[Operator]

Thank you. Next question is coming from Amit Thacker from BMO Capital Markets. Your line is now live.

[Ameet Thakkar, Energy Transition & Infrastructure Analyst at BMO Capital Markets]

Hi, good afternoon. Just two questions for me. The cash and equivalents of $56,000,000 I was just wondering if you can kind of level set us on kind of what's the minimum amount of cash you guys can kind of go forward with the 2025 plan before you have to think about external financing?

[Doran Hole, EVP & CFO at Ameresco]

So the cash balance at the end of the year, I think as we put forth in the guidance that we expect operating cash flow to be kind of somewhere between $0 and $15,000,000 for the year. I mean, what that means is that that cash balance is sufficient to keep us going. We're not facing any huge cyclicality associated with that. And I think as I mentioned in my comments, we've already seen some releases on working capital that was tied up in some of the OEM hardware deals. So we feel comfortable with where we're sitting.

[Arun Narayanan, CEO at Stem]

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

[Ameet Thakkar, Energy Transition & Infrastructure Analyst at BMO Capital Markets]

Okay. Understood. And then not to belabor this point, but just going back to Slide five and the change in the backlog. I think at the end of your strategic review and sometime in November, the backlog was $1,600,000,000 and you're just evicted to $1,200,000,000 And I appreciate some of the commentary earlier and some of the verbiage here. But like was the backlog not scrubbed as part of the strategic review?

[Ameet Thakkar, Energy Transition & Infrastructure Analyst at BMO Capital Markets]

I guess trying to understand, has the kind of the operating conditions continued to change amongst the kind of a segment of developers that you target? I'm going to stick with

[Doran Hole, EVP & CFO at Ameresco]

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

[Doran Hole, EVP & CFO at Ameresco]

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

[Ameet Thakkar, Energy Transition & Infrastructure Analyst at BMO Capital Markets]

So I'm sorry, just and sorry, because this is a silly question, but of the updated backlog figure for year end 2024, can we surmise that all of that has POs issued against it?

[Doran Hole, EVP & CFO at Ameresco]

Bear with me one second. The updated backlog for

[Arun Narayanan, CEO at Stem]

The one segment.

[Doran Hole, EVP & CFO at Ameresco]

You're talking about the $20,000,000 the $21,000,000 or you're talking about the

[Ameet Thakkar, Energy Transition & Infrastructure Analyst at BMO Capital Markets]

No, the $1,200,000,000 on Slide five.

[Doran Hole, EVP & CFO at Ameresco]

The $1,200,000,000 does not have That is the backlog under the old definition, not

[Doran Hole, EVP & CFO at Ameresco]

the new definition.

[Ameet Thakkar, Energy Transition & Infrastructure Analyst at BMO Capital Markets]

Okay. Got it. So all of

[Ameet Thakkar, Energy Transition & Infrastructure Analyst at BMO Capital Markets]

that, it's about $21,000,000 with POs issued.

[Ameet Thakkar, Energy Transition & Infrastructure Analyst at BMO Capital Markets]

Got it. Thank you. Understood.

[Operator]

Thank you. Next question is coming from Dylan Massaro from Wolfe Research.

[Dylan Nassano, Vice President at Wolfe Research, LLC]

Hey, good afternoon, everyone, and welcome, Arun. Hi. Just want to kind of go back to the 2025 outlook. So when I kind of take a step back and I look at the revenue and the adjusted gross margin specifically, it like kind of winds up pretty similarly to 2024 actual. So I guess if you're kind of bridging between 2024 and 2025, would you say those kind of operating cost reductions are the big driver of the delta?

[Dylan Nassano, Vice President at Wolfe Research, LLC]

And can you just kind of give us an idea of specifically where can you kind of find some of those savings?

[Arun Narayanan, CEO at Stem]

Yes. I can talk to it a little bit. So one thing is that you referred to is the operational cost savings and trying to make sure that we eliminate some of the inefficiencies that might exist. For example, some of the software applications might be duplicated or some of the tools that we might use be using are quite expensive. But we also want to try to bring some of the other costs down in our software development production and in runtime cloud computing costs, for example.

[Arun Narayanan, CEO at Stem]

So these type of operational efficiencies will help us on the one hand. But on the other hand, we continue to be quite focused on growth and this is a growth story centered around Powertrack and other software applications that we have. So that's the combination of the two things that we're trying to achieve.

[Dylan Nassano, Vice President at Wolfe Research, LLC]

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

[Doran Hole, EVP & CFO at Ameresco]

So the software and services is fairly ratable with a little bit of back half seasonality to it. The hardware piece, the up $35,000,000 you should expect that to be toward the back half of the year, possibly even Q4.

[Dylan Nassano, Vice President at Wolfe Research, LLC]

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

[Doran Hole, EVP & CFO at Ameresco]

Thanks.

[Operator]

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

[Joseph Osha, Senior Managing Director - Equity Research at Guggenheim Partners]

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

[Doran Hole, EVP & CFO at Ameresco]

Hey, Joe. It's Doreen. I'll take a first stab at that. The tracker companies are largely focused on front of the meter. That's kind of step one, right?

[Doran Hole, EVP & CFO at Ameresco]

And optimization of tracking software is I believe it's going to be case by case, but we do not believe our front of the meter edge device and software solutions are in direct competition with what the tracker companies are doing necessarily. The large market share that we have as you know is in the behind the meter sector. And so we as we see the front of the meter as a growth engine for Powertrack and the related edge devices, I think that we're likely to see that expansion kind of irrespective of whether we're going after fixed tilt or tracker type of applications as you know that trackers aren't on every utility scale application especially when you look in Europe. And so, you know, I think I think it's it's going to be, you know, circumstantial in some instances but broadly speaking, I think what we're offering is to a bigger market than what the tracker software is trying to go after.

[Arun Narayanan, CEO at Stem]

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

[Joseph Osha, Senior Managing Director - Equity Research at Guggenheim Partners]

So should I just to amplify that a bit, you know, obviously behind the meter is behind the meter. But when I think about front of the meter, I should think about power track perhaps hitting more like commercial scale systems or this is something you're going to go try to sell to kind of 200 megawatt solar farms or what?

[Doran Hole, EVP & CFO at Ameresco]

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

[Joseph Osha, Senior Managing Director - Equity Research at Guggenheim Partners]

Okay. Thank you very much. Thanks Joe.

[Operator]

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

[Kashy Harrison, Senior Research Analyst at Piper Sandler Companies]

Good afternoon. Thanks for taking my question. So maybe first one for me is on the 2025 guidance. If I'm looking at this correctly, I think, you know, just gross profit less EBITDA, it looks like cash OpEx is about $55,000,000 But, you know, if I look at page slide 14, 4Q cash OpEx is $36,000,000 So that, you know, implies a pretty big drop from what you were doing in 4Q to what you're expecting in 2025. So can you maybe just help us reconcile how to bridge the gap and then and maybe how to think about the cadence of OpEx over the course of 2025?

[Doran Hole, EVP & CFO at Ameresco]

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

[Kashy Harrison, Senior Research Analyst at Piper Sandler Companies]

Got it. Okay. And then maybe a follow-up. In terms of scale, you have 1.8 gigawatt hours here on the storage side and gigawatt on

[Kashy Harrison, Senior Research Analyst at Piper Sandler Companies]

the solar side. I guess, how

[Kashy Harrison, Senior Research Analyst at Piper Sandler Companies]

do we think about the ability of this company to grow? Because certainly at these levels, you're EBITDA neutral. But to get to, like $100,000,000 of EBITDA, for example, how do we think about the level of scale that's required here and then the go to market associated with that?

[Arun Narayanan, CEO at Stem]

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

[Arun Narayanan, CEO at Stem]

But I mean, it's a great question and to that point it will be amazing and that's the journey that we're on.

[Doran Hole, EVP & CFO at Ameresco]

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

[Kashy Harrison, Senior Research Analyst at Piper Sandler Companies]

Got it. Thank you.

[Doran Hole, EVP & CFO at Ameresco]

Thanks, Kashy.

[Operator]

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

Participants

Executives

• Ted Durbin, Vice President - Investor Relations
• Arun Narayanan, CEO

Analysts

• Doran Hole, EVP & CFO at Ameresco
• Thomas Boyes, Analyst at Cowen
• Justin Clare, MD & Research Analyst at Roth Capital Partners, LLC
• Ameet Thakkar, Energy Transition & Infrastructure Analyst at BMO Capital Markets
• Dylan Nassano, Vice President at Wolfe Research, LLC
• Joseph Osha, Senior Managing Director - Equity Research at Guggenheim Partners
• Kashy Harrison, Senior Research Analyst at Piper Sandler Companies