Everyone, our next session here is on the outlook for energy storage. We're joined by John Carrington, CEO of Stem, a leading pure play integrator and software provider to the energy storage and solar end markets. John, welcome, and thank you for joining us. John, I think you might be on mute. Yeah. Is that? Can you hear me now? Yes. You're good now. Okay. Sorry about that. I don't know what happened. Good to see you as well, Brian. I'm sorry we're not all together, but hopefully next year we'll have a chance to do this face-to-face. Absolutely. We're looking forward to it, and we'll definitely pencil you in. I think, given it is a new year, although we're not all together, I think a lot of focus on the energy storage market as well as your company, John, as you can probably attest to. Maybe starting with demand, couple questions here. I think investors clearly appreciate that there's a big TAM here. How linear should we be thinking about the demand picture here? And then what's your view, just generally speaking, of demand conditions as we head into 2022 for your key end markets? Yeah. I'd say that we continue to see very strong demand for storage. and as you referenced in our Q3 results we set numerous consumer rather commercial records. You know, our backlog was up 25% from the previous quarter. We saw our pipeline grow 40% versus the Q2. Revenue, assets under management, bookings, all of our metrics really across the board are growing very quickly. I think a big part as well, Brian, to our success is the go-to-market strategy we put in place, and we're leveraging our partner channel to really expand the reach and win rates and we feel good about that setup going into 2022. Look, you can reference a variety of different things about what you think the growth rate will look like. One of the third party forecasts is Wood Mackenzie that we've done some work with. You know, they're calling for a 40%-50% CAGR over the next five years in the U.S. and globally. BNEF's another one, and they're about the same range. At an aggregate, very strong demand throughout 2021. We expect more of the same in 2022 and beyond. I know you guys specifically have talked about your backlog having and not quite equal parts C&I and utility scale, but as you think about your sort of balanced exposure between behind the meter and front of the meter, are you more bullish on one versus the other? Maybe if you can drill down into each of the specific end markets as to your views for the outlook here. Yeah, sure. We're certainly seeing tremendous growth in utility scale or, as some call it, front of the meter. 80% of our bookings in the Q3 were for front of the meter, and a full 75% of our pipeline is front of the meter. Texas was a big part of that. We see that as a large and growing market. You know, I'd expect a similar shift to more and more of front of the meter, but we're very bullish on behind the meter. I mean, that's really where we got our start. It continues to be a solid contributor to our results, both on a revenue front as well as a gross margin standpoint. If you look at the corporates, C&I corporates, Fortune 500s, I mean, they're laser focused on ESG initiatives. They wanna put more solar in. They'd like to put more storage in. They wanna be a better grid citizen, are the things that we kind of hear from them. You know, in an aggregate, they all wanna save money on their energy. I think you're gonna continue to see a very robust C&I market. I like the fact that we have front of the meter and behind the meter, quite frankly, because it gives you a little bit of flexibility as projects move around on the front of the meter. They're very lumpy, as you know. Behind the meter there's less permitting, less interconnection issues. Having both in our portfolio, we think is important. You used the keywords here, projects moving around. I think that's one of the things that investors have been clearly trying to key in on in terms of larger scale projects across the renewables landscape, whether it's you know wind, solar, battery storage. Energy storage, as most people know, it's being coupled a lot with solar projects these days. For your front of the meter, how are you thinking about the risk profile moving into 2022 around some of these push-outs and project timing issues? I know you guys aren't necessarily the tip of the spear. Sometimes you know solar panels aren't there or the you know the labor force isn't there to build the project on time. But what's your sort of exposure to that risk and then your current build visibility in general? Yes. I mean, from a visibility standpoint, our project cycles are really anywhere from 6-18 months, depending on type of project. Again, the Behind the Meter is on the short side of that. You know, we have good visibility out just for several quarters. I'd say the Front of the Meter projects tend to be longer lead times, and as we talked earlier, that they're lumpier in terms of when they get deployed. We could see some quarter to quarter swings, but we're not seeing cancellations. The projects move forward. It might go into the next quarter. At an aggregate, we're comfortable with our projects and portfolio around that. You know, we are hearing some downstream delays. Again, we see that more based on interconnection and permitting than we do on supply of solar modules or other components. Particularly for us as we buy more and more batteries and storage solutions that we put our Athena platform on, we are not seeing a big supply constraint in our view for what we need for 2022, and we can talk more about that. I'd say overall we have a very strong backlog. We talked about this in the last quarter, earnings call, $312 million at the end of the Q3. Those are signed contracts we expect to turn to revenue. In addition, obviously, we've had bookings in the Q4 of 2021, and we'll have bookings in 1Q 2022 that could turn into revenue in the back half of the year. Overall, we see risk on project timing, but generally feel like we're managing through the situation, particularly all the controllables. We've got that handled. We feel very confident about that. It's working closely with the utilities and interconnection agencies around making sure the projects go forward at that level versus kind of a constraint on our side. No, that's great color. I guess, just digging into that comment a bit, 4Q bookings which you will report in the next few months, I would assume, and then, 1Q bookings that you materialize, you're saying could become revenues in the year of 2022. Is that conversion cycle from booking to rev rec the same across BTM and FTM? Maybe if you could parse those out for us a little bit. Yeah. I mean, I think you can think of BTM as kind of 12 months or less, sort of 6-12. Front of the meter or utility scale, I think you see more 12-18 months. Those are kind of the ranges that we see. Again, I think as we get more throughput through the permitting interconnection side and get improvement in that, those cycle times will come in. That today at least, that's what we're forecasting and what we've seen to this point. That's great. You know, not to hone in too much on the near term, but we have heard from several speakers throughout the past day and a half of fireside chats and panel sessions that battery attach rates, battery volume demand in general seems like it's pretty solid and in some cases actually accelerating into year-end. I know you guys have you know talked about seasonality in bookings. 3Q was obviously quite good for you, as you mentioned earlier, John. Any reason to think that this year is different where from a Q4 end-of-year dynamic, you wouldn't sort of see that same strength and seasonality around the bookings trends? Yeah, I mean you mentioned the Q3 bookings were a record. It was our first over $100 million quarter, which was great, exciting for us. Historically, the Q4 has been our strongest bookings quarter. We feel great about the continued momentum into 2022. We do have a $2.4 billion pipeline. Again, I expect to convert at least a piece of that to bookings during the quarter. The bookings drive our backlog, which are executed contracts. I mean, these are fully vetted, executed contracts. Backlog, in our view, is a key leading indicator for the business strength. We feel great about the bookings momentum and trajectory, both what we saw last year and what we expect to see this year. Again, as you mentioned, we'll roll out a lot more details on that front in the guidance call. That's great. Just maybe one more on the bookings and the backlog here. I think you guys had made a comment last quarter around mix software versus hardware. Is there anything sort of to read into that? I know you guys had called it out just because you had seen a subtle shift, a bit more skew into software versus the hardware side. What are the implications for you? I guess maybe more importantly, what's kind of driving that subtle mix shift you're seeing? Sure. No, you're exactly right. We said on the call, and we built the original model a little over two years ago now. At the time, we assumed a 70/30 hardware/software split on revenues. As we've signed more and more contracts, we are seeing that mix shift much closer to a 60% hardware, 40% software. I'd say in terms of drivers again, back to our heavier weighted FTM deals versus behind the meter in our backlog, we're just seeing much more software volume revenue dollars associated with that because of the scale of those projects. We also think front of the meter is becoming more complicated as solar and wind get deployed onto the grid. From our view, Brian, that's terrific news for Athena and our artificial intelligence platform, because this package will allow our customers to get more capabilities and to monetize more opportunities within these wholesale energy markets. It's an exciting time on that front. We feel like the mix shift is a very good thing long term, because if you look at the hardware side, we earn anywhere from 10%-30% gross margins on the hardware, but software is 80% plus. We're really generating more value for every contract we sign. We're driving the company to emphasize software and recurring revenues. You see that as an example in our Also Energy acquisition we announced in mid-December. You know, that's true for existing business as well. We're really excited that we actually are seeing that mix shift. It's something we think our investors appreciate us moving more in the software and higher gross margin side. I know on the software side, you guys offer typically just like any software provider, multiple packages and tiers. Are you seeing any notable trends in either, more customers just signing up for the more valuable software, more robust platforms, or maybe, signing up for longer-term subscription packages, and that's also increasing the value? Yeah. I think we're seeing wherever we can execute in the market, the various attributes that Athena can provide, right? We have 11 of the 13 attributes that Rocky Mountain Institute have put out on that wheel of storage. If there are 2, 3, 4 or 6, that's what we'll contract with the customer. What's great about it is in many cases, we'll see it start with 2, and it could go to 3, 4 or 5. I mean, as we said in the last call, we're doing 6 in Massachusetts alone. I think it's more driven by what's available in the market, Brian. What's exciting is once you're in, that first mover advantage is very important because then as new opportunities to monetize within the market come about, we can put more Athena and obviously upsell the software side. It's also important to note that we actually in our contracts share in those economics. As we get more and more use cases with our customers, we get more revenue from the software services as well. Great, great. Wanted to switch gears a bit. You alluded to this, and I think it's top of mind for lots of different industries, but just the supply chain, batteries. I think people have generally been a little bit more worried on the battery side of things that supply is gonna be able to keep up with demand. I know, John, you've been vocal about supply being there for you and potentially for the industry sooner than people have been kind of forecasting. Maybe level set us on your battery supply situation heading into 2022 and just the sort of visibility you have now. Yeah, I mean, look, as we said in the November call, we are fully contracted through 3Q of 2022. We started to contract into the Q4, as what we stated at the call. Today, we have been busy negotiating additional supply. I don't wanna get exact details on just how much we've contracted. We'll obviously do that with guidance, but making great progress and confident in our 2022 supply availability. You know, I continue to be maybe a bit of a contrarian around this, Brian, but I'm not as negative on the battery supply as I think some others have been out there. That's definitely true. I think contrarian is probably the right characterization and maybe accurate if your H2 views materialize. Maybe just digging into that a bit, is that specific to stem your sort of better battery supply outlook and your suppliers in general, I guess? Or is there something more broad-based? Maybe give us a feel for what it is you're seeing out there that gives you that view, which seems to be a bit different than some of your peers maybe. yeah I'm not sure how to comment on the peer side, but what I will tell you is we put this front and center as the number one risk factor in December of 2020 for the board throughout 2021. I put a very strong team around this. We have a weekly review, and as I've said in the past, we literally look at each project by hardware supplier, by geography, and how it's going in the project cycle to ensure that we have the product when the customer needs it. We've also worked with our suppliers for a very long time. I mean, we've worked with Tesla for multiple years, and I think we have good relationships across the board. I think at a more aggregate perspective if you look at the forecasts that are out there, and BNEF is a good example of one that's done a lot of work around this. The amount of capacity coming into service is remarkable. In fact they're forecasting over 4x growth in capacity in 2025. When you break it apart, you'd say, okay, 342 gigawatt-hours of additional capacity was to be commissioned last year. This year they're saying 413 gigawatt-hours. It steps up to like 820 gigawatt-hours in 2023. Now, what's interesting, those are all lithium-ion manufacturers, so of course it goes into EVs as well as storage, but that's against the demand number in the 500 gigawatt hour range this year and 700 gigawatt hours next year for EVs and storage. If you just look at that holistically, it says the additional 2022 capacity represents about 60% of the total demand this year. Yeah, it feels like we're moving in from an undersupply situation maybe in 2021 and perhaps later into this year or part of this year. Boy, it's just glaring to me anyway, that there's an oversupply situation as we move into next year. Now, if the capacity additions change, then we'll reset. There's other variables like an ITC, if that comes into being, or there's market dislocation. Those numbers alone to think about the total aggregate market need, 60% of additional capacity is going to be added against what's already out there is pretty remarkable. Yeah, we're confident. Again, I feel like we're in great shape for 2022, and I feel like 2023-2024 will be an oversupply situation. Broad-based capacity adds, clearly that could help shore up a lot more supply. Are you at the Stem company specific level also looking at expanding the supplier base or you mentioned lithium-ion, but are you looking at any other battery types or chemistries as well, sort of in the medium to longer term? Yeah. I'd say our you know our supply strategy is really continues to be about diversifying our suppliers over time. We've had 3 suppliers up to 2021. We'll add a fourth one this year. As far as you know technology or you know solutions we really are hardware agnostic and our focus is to kind of fit for purpose solution. We've integrated Athena into over 12 OEMs. We have a broad base of battery technologies with a software platform that can manage that solution. But you know the way we look at it is we really wanna think about meeting the needs of a large FTM developer in Texas and maybe a small C&I customer in California or Massachusetts. Our supplier diversity really helps with that. Our customers will tell us they want a certain brand in some cases as well. Having that breadth is important. I'd say in terms of battery chemistry types, our customers are all using lithium-ion, and the primary reason is it's proven and it's very bankable. We saw that in solar. You know, we're also seeing a bit of a shift away from NMC and more to LFP, primarily because it's cheaper, it's also safer, and the longer battery life is very important when you talk about solar-plus-storage projects. Now, it's a little bigger footprint, so some of the C&I customers like NMC still because, and they may not have enough room in the back of their Home Depot or Walmart. But in general, we're definitely seeing a shift to LFP. I'd say on the other technologies, Brian, look, we've done pilots with those technologies, and Athena can sit on top of almost any storage asset. We'll be ready when those technologies become both commercially available and, maybe more importantly, get enhanced bankability. That's always been a constraint, certainly in the solar business. When I was at First Solar, we saw it quite a bit, and I think you're seeing it in the battery side. There's just such a comfort level with lithium-ion that it's challenging for these new technologies to gain a foothold, particularly if they're larger projects that require financing. That makes sense. You mentioned the customer feedback. That's probably a good segue to talk a little bit about competition on the software side, where your value add really is. You know, when we talk to investors, there does seem to be, at times, a lack of knowledge or appreciation on the differences in the software space for energy storage. I know it's newer to the public markets, and that might be part of the why that's the case. You know, the question we get a lot is how do battery software players like yourself differentiate from competitors from a tech perspective? Why would a utility or C&I customer choose your platform versus another platform that might be out there? Sure. Look, I'd say we have the most complete solution for both behind the meter, in front of the meter energy storage deployments. Why does that matter? Well, we have significant experience in achieving compelling project economics. When a C&I customer thinks about the say/do ratio of, are we getting what Stem told us we were going to save? The answer is yes. That's a very tight community of energy buyers, actually. They talk a lot about what other suppliers are doing, how they performed, and our repeat customer purchases is exceptional. Over 50% of our Q3 bookings were from repeat customers. They are seeing what we said we were going to do. They're saving the money we said, and we're executing on the software solution we committed to. We also help selecting the right hardware for particular use case, and importantly, the software to ensure the best outcome by optimizing the charge and discharge of the battery. When you look at again, a corporate customer reducing their electricity bill, or we're deciding when to help trade in and out of a wholesale market for utility scale development. All of that runtime hours and experience that we've accumulated, and there's 22 million runtime hours, that data really drives better outcome through our machine AI platform. You know, effectively in the end, Brian, what we're doing is we could do more with a battery resource than any other competitor in our view, and that's the feedback we get from customers. Again, I think when you have over half of your bookings coming from repeat customers, that's a pretty loud voice saying that, "Hey, we're differentiated. We're executing what we said we would do, and the software is either meeting or exceeding their expectations. It's not all storage anymore. You made a recent acquisition to move into solar. You referenced it earlier, AlsoEnergy. You know, with that deal, you're buying what, close to 33 gigawatts of market share in the solar asset management space. Maybe talk about how you know plan to increase storage attach rates across those existing assets. Just for our education, sort of what's the process for getting a client you know onto your software platform when you're inheriting a big base of customers like you are with AlsoEnergy? Yeah. I mean, we're really excited about the deal and it's a terrific management team there. We're gonna try to continue to manage them as we have, let them run like they have, and slowly integrate, particularly around commercial synergies and growth synergies. With the acquisition, as you alluded to it scales our geographic reach significantly with assets under management in over 50 countries. What I'm really excited about is the fact that there's only 30% of our customers that we see overlap for solar-plus-storage. There's a tremendous opportunity for more cross-selling of storage into those customers if they haven't, and vice versa. We're continuing to drill down the data that they have, and we think the performance on solar sites across Europe, U.S., Japan, Australia, among other markets that they're in, will really help us develop customer proposals for the deployment of more energy storage. We're confident the economics are compelling for the customer. To provide both of these solutions to a customer is really a one-stop solution. It's interesting because a lot of our developers, solar developers as well as C&I customers said, "Look, I would like to have more of the solutions that we procure from a software standpoint come from Stem. We trust you, domain expertise, everything you've done to this point." AlsoEnergy came up in a lot of conversations. It's something that we've had discussions with them over the last couple years, but it's one that our customers have been a huge proponent of, "Hey, could you build this? Could you buy it? What could you do with them? Because we'd like to, again, have Stem be the one-stop shop." We're really excited about it, Brian. Again, we've got to go through all the regulatory approvals. Hope to close it sometime in the Q1. It's accretive right out of the door and it's just a great management team and a terrific fit that I think will be a game changer for both companies, quite frankly, as we go forward. I know, like you said earlier, John, you guys have done and built your reputation in BTM with some of these corporate customers. I believe AlsoEnergy, their platform has a lot of utility scale, and so does this accelerate sort of your efforts in larger scale storage as well with them kind of opening up some doors and having some existing assets to target? Yeah. I mean, their split's about 75 BTM, 25 front of the meter. So we think it'll help both segments, quite frankly, from a cross-sell standpoint. On the corporate side we'll be able to provide a complete software solution that includes solar performance monitoring, along with Stem energy storage optimization that we believe is market leading in the C&I space today. Again, I think that one-stop value prop really resonates with the front of the meter side, where oftentimes, what's interesting is oftentimes the decision on the solar side, including asset management performance software, is made before the storage configuration is fully specified. As a result, we believe that AlsoEnergy will allow Stem to become entrenched much earlier in the sales process and potentially help us provide important consultative guidance to these customers, to these developers, that really help to optimize energy storage economics and putting us in an advantaged position, rather, to win with that scope as well. We do think that being further upstream earlier in the process is an advantage, and again, also as a trusted advisor to this developer and C&I group, and we just think it'll be the synergies will be exceptional on the growth side for both companies. I know it's early days. You haven't closed the deal quite yet, but the Athena platform, obviously quite robust and AI based, you can optimize the energy storage assets. Is there an opportunity? I think AlsoEnergy does mostly monitoring at this point, but can you add some optimization features and upgrade kind of on the solar asset side of things? Is that part of the sort of product integration/synergy you're targeting here? Yeah. We really think that that's a big opportunity, and we believe we can work together on that front. You know, I think it'll take 6, 8, 12 months maybe to really get an integrated solution. The idea for us would definitely be to provide a single piece of hardware with both software solutions that we could put at a customer. Even if the market isn't ready for the Athena or solution or a storage solution, it would be embedded in that project so that it would be an easy switch to flip once the economics became compelling in that specific market. We'll definitely be doing a lot of work, Brian, together on the product side, and it's an area that obviously we're very excited about and believe that there's some significant upside together around. Maybe switching gears to policy a bit because you've got this big piece of legislation in Washington, D.C., that's depending on your view, moving forward or sort of stuck a little bit here. It does have a storage tax credit, which would clearly be a boom for the sector, for yourselves, and then also for retrofit. Do you need that? Maybe some just high-level thoughts around BBB in general, but do you need the tax credit to open up the retrofit market and then even enable further cross-selling across this big set of assets you just are going to be taking over with the AlsoEnergy deal? Sure. No, I mean, certainly the standalone storage investment tax credit is something we're very focused on. You know, it's interesting because it seems to have survived everything that maybe gets pulled out or put in, and it's funny, it seems to be ring-fenced and supported by both sides of the aisle. It would certainly open up additional markets. It would allow us to do things in markets that maybe don't pencil today. Yeah, we think it's material, it's material upside. We'd like to see it come to reality and get this thing pulled through. I have no crystal ball on when, if, what time, but you know, we don't need it, Brian, to meet our financial goals that we've put forth in our model. We've always said, "Look, it's purely upside if in fact it does come about." It would be an important piece of legislation. We're excited about it. We're doing everything we can to help people think through it. Again, I think it's in the best spot it's ever been and we're looking to see that become a credit that's for the first time on standalone storage, and it would be a big, big play for the retrofit side, as you mentioned as well. Just another piece of policy that's creating a little bit of angst here to start the year, I suppose, for the sector. You're probably not as directly exposed, but you know, you are a California-based company. You're now more directly exposed to solar once the AlsoEnergy deal closes. Net metering, it's on the cusp of seeing some significant changes in the state. What does it do for your business model, if anything at all? Maybe just kind of walk us through the implications, especially as you start to get more directly involved in the solar space. Yeah. Look, I'd say that again, emphasize that the policy's still in proposal stages, right? The final details I think will be important. I think there's a lot of pushback, particularly in the resi solar companies around this, and I'm sure they're doing a great job, outlining why it maybe doesn't make sense to do it the way it was initially proposed. You know, that being said, we, as you mentioned, we really don't have exposure to the residential side of Stem. We're keeping an eye on it, only because would it potentially funnel into other areas, but it's not something that is a focus any. You know, obviously the standalone storage is much more front and center for us and tremendous upside. The resi side is not something we really are concerned about right now. Okay. Really no real pullback from the net metering- Yeah. Changes that are happening out there. Okay. You know, in the interest of time, I just wanna maybe wrap up with one more. You guys had been talking about M&A ever since you went through the de-SPAC process. This AlsoEnergy deal obviously highlights that M&A strategy moving forward. As you guys think about M&A moving forward, are there other holes in the portfolio, other areas you're thinking you'd wanna have exposure to, and do you go back to more of a tuck-in M&A strategy, which I think you had targeted initially, but clearly AlsoEnergy was a bigger deal than that. Just high-level thoughts around M&A moving forward as part of the strategy. Yeah. I mean, look, we did a corporate green bond that was super successful, and we upsized it. It was way oversubscribed. At a tremendously low cost of capital. It was 50 basis points, seven-year paper. It was really good use of capital to go acquire AlsoEnergy. As far as kind of a go-forward, Brian, I think we think of it in terms of, is it margin accretive? Does it expand our geographic footprint? Can it accelerate our roadmap from a software standpoint? And is it software? Because we are not inclined to go buy a hardware lower margin business. I think holes, I wouldn't necessarily call them holes, but I think it's a question of can you get into more adjacencies faster? Could you do something on the EV side? Could you do something in wind? Could you do something more geographically expansive on solar monitoring? Those are all things that we look at, but again, those criteria that I mentioned are really important. It's gotta be a software play for us to really consider it. Size-wise, I mean, I think it's just gonna become a matter of how compelling is the opportunity, right? On those key metrics, the criteria I mentioned. You know, we'll move as quickly as we can based upon how accretive we think it could be for the business and our investors. Okay, that's great. On that note, I think we're gonna go ahead and wrap up this session here. I wanna thank you, John, for joining us, sharing your insights, and definitely wish you and Stem all the best in the new year. We'll wrap up there. Thank you, everyone. Likewise. Thank you, Ryan. Take care.