💙 🔷 Not impressed by Big Tech in Q3? Explore these Blue Chip Bargains insteadExplore for free

Earnings call: Stem, Inc. faces delays but remains optimistic on fundamentals

EditorNatashya Angelica
Published 2024-08-07, 08:48 a/m
© Reuters.
STEM
-

Stem, Inc. (STEM), a leader in smart energy storage solutions, reported lower-than-expected revenue for the second quarter at $34 million, attributing the shortfall primarily to project delays stemming from financing issues and extended interconnection approvals.

Despite these headwinds, the company reported an increase in gross margins year-over-year and remains committed to improving its operating cash flow. Stem is also revising its full-year guidance due to the project delays and has announced leadership changes, including a new CFO.

Key Takeaways

  • Stem, Inc. reported Q2 revenue of $34 million, missing expectations due to project delays caused by financing and interconnection approvals.
  • The company's bookings for the quarter stood at $25 million.
  • Gross margins improved year-over-year, attributed to a strategic shift towards software and services and lower hardware revenue.
  • Adjusted EBITDA remained nearly flat year-over-year, despite the revenue decrease.
  • Stem is revising its guidance and has lowered its full-year revenue and bookings outlook.
  • The company is focused on driving operating leverage and improving cash flow generation.
  • New features and products are enhancing Stem's technology stack.
  • Leadership changes include the appointment of a new CFO and the initiation of a strategic business review.

Company Outlook

  • Stem is taking steps to diversify its customer base and deepen its supply chain to address financing and interconnection delays.
  • The company aims to achieve positive operating cash flow and control operating expenses.
  • A strategic review of the business is underway.

Bearish Highlights

  • The company made a goodwill adjustment due to a decline in market capitalization.
  • Near-term guidance was reduced, reflecting the impact of project delays and external challenges.

Bullish Highlights

  • Stem achieved its highest gross margins in history.
  • Cash operating expenses were reduced by 9%, alongside a decrease in the company's real estate footprint and cloud/data com costs.
  • The solar and storage annual recurring revenue (ARR) is growing, with a 19% CAGR in software revenue.

Misses

  • Storage hardware revenue decreased due to a strategic shift towards software and services.
  • Full-year revenue guidance and bookings guidance were lowered due to ongoing project delays.

Q&A Highlights

  • Bill Bush clarified that less than a third of the $1.6 billion backlog is dependent on USDA financing.
  • The company is experiencing interconnection delays of 18-24 months in Texas.
  • Demand is growing in Europe and Japan, with a focus on solar projects.
  • Inquiries about storage opportunities are increasing from both existing customers and new sites.

Stem, Inc. is navigating through a challenging period marked by delays and external factors. Nevertheless, the company's strategic shift towards software and services, coupled with its focus on operational efficiency and cash flow generation, provides a foundation for future growth.

With a revised outlook and new leadership, Stem is positioning itself to adapt to the current market environment while capitalizing on opportunities in the solar and storage sectors. The next earnings call is scheduled for the fall, where further updates on the company's progress will be provided.

InvestingPro Insights

Stem, Inc.'s recent earnings report has highlighted several challenges and strategic shifts within the company. As investors consider the implications of these developments, InvestingPro provides additional insights that may be pertinent:

InvestingPro Tip: Stem operates with a significant debt burden, which may be a factor in the project delays due to financing issues as reported in the company's earnings. The company's ability to manage this debt will be crucial for its financial stability and future growth prospects.

InvestingPro Tip: Analysts do not anticipate the company will be profitable this year, which aligns with Stem's revised full-year guidance and the reported challenges. This outlook may influence investor sentiment and expectations for the company's performance in the near term.

InvestingPro Data:

  • Market Cap (Adjusted): $161.17M, reflecting the company's current valuation in the market.
  • Revenue (last twelve months as of Q2 2024): $360.63M, which indicates the scale of Stem's operations despite the reported revenue shortfall.
  • 1 Year Price Total Return: -84.15%, showing a significant decline in the stock price over the past year, which may be of concern to investors.

For those seeking a deeper analysis, InvestingPro offers additional tips on Stem, Inc., which can be found at https://www.investing.com/pro/STEM. With a total of 15 InvestingPro Tips available, investors can gain a more comprehensive understanding of the company's financial health and market position.

Full transcript - Stem Inc (NYSE:STEM) Q2 2024:

Operator: Good day and welcome to Stem, Inc. Second Quarter 2024 Results Conference Call. All participants are in a listen-only mode. [Operator Instructions]. Please note, this event is being recorded. I would now like to turn the conference over to Ted Durbin, Head of Investor Relations. Please go ahead.

Ted Durbin: Thank you, operator. This is Ted Durbin, Head of Investor Relations at Stem. Welcome to our second quarter 2024 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. We, therefore, refer you to our latest 10-Q and other SEC filings. 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 earnings release. We will be using a slide presentation today. Our earnings release and presentation are on the Investor Relations section of our website at www.stem.com. John Carrington, our CEO; and Bill Bush, CFO, will start the call today with prepared remarks. Now I'll turn the call over to John.

John Carrington: Thanks, Ted. Good afternoon, and thank you all for joining us today. Beginning with slide three in our agenda, we will cover our second quarter results, business updates, and recent commercial performance. Then Bill will discuss our financial results in greater detail. Now let's turn to slide four on our second quarter 2024 results and highlights. Our financial results in the second quarter were disappointing. We recorded $34 million in revenue, substantially lower than expected, primarily due to unforeseen extensions of project timelines. This was caused by certain customers' project financing delays and extended interconnection approvals. We are seeing project delays impacting the broader industry. The shortfall was largely in storage hardware revenue, although our high margin software and services revenue was mostly in line with our expectations. Bookings in the second quarter were $25 million. Our recent strategic expansion into the large-scale storage market has resulted in significantly larger average deal sizes with increased variability and increased project complexity. This has protracted our sales cycle and negatively impacted our bookings in the first half of 2024. These projects were also impacted by the delays stemming from customer project financings, particularly tied to USDA funding, as we will discuss in further detail today. GAAP gross margins were 28% and non-GAAP gross margins were 40%, representing a double-digit percentage point improvement relative to Q2 2023. Both GAAP and non-GAAP gross margins were significantly up year-over-year due to the lower-than-expected hardware revenue in the quarter. Contracted annual recurring revenue, or CAR, was up 20% versus the second quarter of 2023, but relatively flat versus the first quarter of 2024 due to low bookings. And lastly, operating cash flow was negative $12 million this quarter, a $154 million improvement over the same quarter last year. We are revising guidance to reflect the push-out of planned project timelines, which Bill will provide more details during his portion of the call. Turning to the right side of the page, despite these headwinds, we remain confident in the underlying business fundamentals. We continue to drive operating leverage with relatively flat year-over-year adjusted EBITDA results despite a 63% decline in revenue year-over-year. This operating leverage is the result of an accelerated pace of software activations in the quarter, continued strong growth in solar asset performance management, and importantly, a shift towards a greater mix of software services revenue. We made significant progress converting CAR to annual recurring revenue, or ARR. We deployed over 300 megawatt hours of storage assets this quarter, which combined with solar added approximately $3 million of ARR. That includes our 40 megawatt hour deployment in Arizona, along with a substantial portion of our 313 megawatt hour project with Ameresco (NYSE:AMRC) in Colorado, a great example of our focus on muni, co-ops, and shift to larger projects. Lastly, we continue to advance our software roadmap with significant progress in advancing next generation offerings for our optimization, asset management, and edge solutions. This technology platform positions the company for continued acceleration of ARR as customers standardized on our software services offerings, and this should continue to drive operating leverage and improve cash flow generation in future quarters. On the next two slides, we'll take a deeper dive into factors currently impacting Stem. Let's go to slide five. Over the past two years, we've focused on the public power segment as these customers value the full stack of our offerings, including the need for sophisticated software to help them manage load growth in their service territory Since we made this strategic shift, we've built about 15% market share in public power, the fastest growing segment of the large-scale FTM market. However, we did not anticipate the recent delays in our customers' receipt of USDA funding. Specifically, we have seen munis and co-ops rush to secure the USDA's PACE and New Era financing vehicles, which has created a bottleneck on the review and distribution of this funding. In turn, this bottleneck has significantly impacted our project timelines and pushed out customers' ability to contract projects, which impact our bookings and hardware delivery, impacting our revenue. This is the primary driver in our decision to adjust guidance for the balance of 2024. I would like to emphasize that none of the projects we built our guidance around in 1Q have been canceled. Some projects are awaiting contracting and some are awaiting the scheduling of hardware delivery. New projects continue to enter the pipeline and existing public power pipeline deals are being evaluated for upsizing due to improved economics from USDA financing and lower battery prices. Please turn to slide six for discussion of the factors impacting our results and our action plan to address these issues. On the left-hand side, you can see the three key issues we are facing today, financing delays, interconnection delays, and the policy-driven risks. These issues are prevalent across the renewable space. On the right side, we list the actions we are taking to address these issues. We are diversifying our customer base, deepening our supply chain to include more optionality, and engaging with U.S. manufacturers of batteries and policy makers. Importantly, we are laser-focused on controlling operating expenses and are evaluating additional plans for driving efficiency across the organization. As our gross margin performance in the second quarter indicates, we can drive significant operating leverage through accelerating software activations and product launches. Despite that, we are building plans to deliver EBITDA positive at a meaningfully lower revenue level. To be clear, we anticipate these pushed projects to continue in our backlog, but are committed to delivering positive operating cash flow regardless of the impact of factors outside of our control. Our software-only offerings also continue to gain traction, which I will discuss in a moment. Now, moving to slide seven for an update on our progress against guidance. As a reminder, in 2024, we focused on three key business and financial targets, cash flow generation, building software and services revenue, and extending our technology leadership position. First, our operating cash flow continues to improve, up $154 million versus the second quarter of last year. We continue to make solid progress on reducing our working capital intensity, and our net working capital has steadily decreased for five consecutive quarters. Second, our software revenue grew again this quarter, up 3% for storage and 1% for solar versus the first quarter of this year. We converted $3 million of CAR to ARR, and we'll provide more details on this progress on the following slide. Third, we are enhancing our technology stack with new features across our existing products, and advancing new products such as PowerTrack APM, which will launch in the fourth quarter of this year. At the RE+ Conferences in September, we will provide the latest product demonstrations of PowerBidder Pro, PowerTrack APM, and our Energy Management System, or EMS, offerings. Now, let's turn to slide eight for a closer look at our software development progress in Q2. Since the beginning of this year, we've stepped up our focus on driving a high-velocity software development cadence. Our teams have advanced significant new product features and enhancements across our key product areas, including enhanced simulation tools for energy storage projects, continuing the work to deliver our next-generation PowerTrack APM offering, and integrating with hardware OEMs to offer customers unparalleled flexibility in the design and modularity across their energy storage and solar projects. The key takeaway here is that we are expanding our technology leadership, and these additions to our high-margin software services should continue to fuel increasing annual recurring revenue and improved operating leverage. Please turn to slide nine. During the second quarter, we made substantial progress in growing our solar and storage annual recurring revenue, or ARR. On the storage side, we brought 334 megawatt hours of assets online. We deployed assets across a diversity of markets, customers, and use cases. We activated new regions like Indiana and more than 289 megawatt hours of utility scale projects were deployed with co-ops and public power sector customers, increasing the company's growing foothold in that space. We deployed five of eight assets for Ameresco in Colorado and expect to bring the remaining systems online imminently. This quarter storage deployments are equal to more than 5% of our total contracted AUM and a significant increase in ARR. We continue to optimize storage assets for both front of the meter and behind the meter customers across a variety of use cases, including energy capacity and ancillary revenue optimization and utility bill optimization. In total, we activated $1.7 million of high margin storage ARR in the quarter. As we've highlighted in prior quarters, more than half of our contracted annual recurring revenue has not yet reached software activation at customer sites. We believe this is a significant source of earnings power as these customers achieve interconnection approvals, which we expect to continue to drive our industry leading gross margin performance. Our solar business continued its consistent growth. We added another $1 million of ARR in the second quarter. We believe our solar business is an important source of delivering predictable growth and profitability through its large active base of ARR today. Let's turn to slide 10 to take a closer look at the positive trends in that business. We remain a market leader in C&I solar asset performance management with steadily growing high margin revenues for software services and our edge hardware device. Our customer satisfaction remains high, driving low churn. And we see significant growth potential internationally, where we have a lower market share today, but significant recent customer wins pointing to an untapped opportunity for growth. Our focus on large and more sophisticated customers has allowed us to consistently gain share and outperform market growth rates. As you can see on the right side of the page, we have grown our ARR significantly with nine of our top 10 customers over the past year. With that, I will now turn the call over to Bill.

Bill Bush: Thanks, John. Starting on page 12 with our results for the second quarter of 2024. As John mentioned, revenue was down 63% year-over-year as we realized less storage hardware revenue this quarter, in large part because the company did not utilize working capital to fund lower margin hardware sales through its balance sheet. As we have discussed, we modified our payment terms to eliminate the hardware drag on working capital and as a result, there may be some instances of changes to product timelines to satisfy these new requirements. You have heard us talk about our shift to software and services, and this quarter's margins are a preview of our longer term vision for the company. As a result, we generated the highest GAAP and non-GAAP gross margins in our company history. As a demonstration of our continued focus on cost control, we sequentially decreased cash operating expenses by approximately 9%. And we expect to continue to maintain that focus. As an example of the permanent cost savings we've implemented, we've recently reduced our real estate footprint, which will generate annual savings of approximately $3 million. In addition, we continue to reduce our cloud and data com costs as a percentage of operational assets, of which those are our two largest costs. As we advance through the year, we will continue to focus on cost reductions and improved efficiencies, leading to positive EBITDA outcomes. Adjusted EBITDA was nearly flat on a year-over-year basis, down just under $2 million, despite a $59 million decrease in revenue. Again, this is a testament to our increased software and services revenue and continued cost controls, which are driving operating leverage. Our solar business was up 9% year-over-year and continuing to generate strong gross margin performance from our market-leading share in the United States. We made an adjustment to our goodwill balance in the quarter with an approximately $550 million impairment charge. The adjustment is the result of a decline in the market capitalization and the reduction in our near-term guidance. While the goodwill balance resulted from the purchase of the solar business, which continues to perform well, as noted above, the analysis was based on the consolidated business, and in particular, the change in the market capitalization. Operating cash flow was a negative $12 million for the quarter, a major improvement over last year. As we continue to reduce our working capital usage, we invested around $10 million in our DevCo businesses this quarter, which will recirculate as high-margin revenue in future quarters. If not for that investment, our operating cash flow would have been roughly flat and equal to last quarter's performance. Please turn to slide 13. Backlog declined approximately $61 million quarter-over-quarter, but was up $215 million year-over-year. The low level of bookings was the main driver of the quarter-over-quarter decline in the backlog. On a modeling note, you will see a negative $47 million software and services adjustment in the backlog reconciliation table in the earnings release. This is larger than usual because we activated so many systems on the storage side this quarter. Most of those systems carry a 20-year software contract, so the entire value of the contract falls out of backlog when the asset becomes operational. As we activate more storage systems with long-dated contracts in the coming quarters, you will see these higher declines in backlog, but of course, that is a good thing. It means that the system is now generating software revenue for us and high gross margin. Bottom line, you should rely on the CARR and ARR metrics as you think about the software revenue potential of our business. CARR was relatively flat quarter over quarter, though ARR improved by about 7% sequentially as we activated more systems. AUM for both solar and storage was relatively flat as well. Please turn to slide 14 for our revised guidance. As John mentioned, we are lowering our full year guidance to $200 million to $270 million for revenue and updating our quarterly expectations as well. We are disappointed that many of the projects we expected to recognize this year have been pushed out to 2025, but importantly, no high impact projects have been canceled. As John mentioned, these projects have been pushed out due to a number of unforeseen issues, including interconnection delays, permitting equipment availability, and the USDA funding issues. We have good visibility into achieving the low end of the range and so all of the storage projects we have financing and interconnections locked in. And our software and services revenue has strong visibility and momentum. We are raising our full year gross margin guidance to 25% to 30% as we recognize less lower margin storage hardware revenue. Our software and services revenue is tracking roughly in line with what we expected at the beginning of the year. We are also lowering our bookings guidance to a range of $600 million to $1.1 billion. Our pipeline remains healthy and continues to grow, but given the slow start to the year, we are tempering our full year expectations. We are actively tracking several large projects which have been delayed from a contracting standpoint due to USDA delays. These projects are either using the PACE or New Era funding programs and delays in those approvals slow the contracting process. Also, because of the lower bookings trajectory, we are also lowering our year-end car guidance to a range of $100 million to $110 million. Because of our lower revenue and gross profit dollars, we now expect EBITDA in the range of negative $20 million to negative $30 million. Finally, we still expect to generate positive operating cash flow of over $15 million in the year. We believe we have sufficient liquidity to operate the business and do not expect to raise equity. We made good progress this quarter on reducing our accounts receivable balance, which declined approximately $30 million while maintaining our inventory balances at sustainable levels. We also made progress on finding buyers for the battery hardware subject to the legacy price guarantees that we discussed last quarter. And as we close out those transactions, our cash flow and liquidity should improve. Please turn to slide 15. On the right-hand side, you can see the key drivers of the reduction in revenue and adjusted EBITDA. For revenue, around two-thirds of the reduction is tied to delays in the receipt of funding, while the remainder are driven by interconnection delays and other factors. For EBITDA, the impact of these factors is roughly similar, although we are seeing some push out of our high-margin DevCo business, which has a greater impact on EBITDA than revenue. Again, these projects are still contracted and advancing, and we expect them to generate revenue and margin as they come to fruition. Despite these headwinds, we still expect to generate positive operating cash flow for the year. We have reduced our working capital significantly over the year, and we expect to continue to minimize working capital usage as we move forward. Please turn to slide 16. We believe our underlying business fund middles are strong, and we will continue to improve the factors under our control, which should continue to accrue non-GAAP gross margin, provide operating leverage, and continue to reduce working capital intensity. At the same time, we will work to minimize the uncontrollable factors you see on the right-hand side of the page, as John discussed earlier, on our actions to mitigate their business impact in the future. We are managing the business to maximize cash flow and remain positive on our multi-year outlet for growth and profitability. With that, let me turn the call back to John for some closing remarks.

John Carrington: Thank you, Bill. Finally, on page 17. While we recognize this was a disappointing quarter from a financial perspective, our CARR to ARR conversion has been a core focus of the committee. Our CARR to ARR conversion has been a core focus of the company, and we saw our best quarter in company history on storage software activations and gross margin. We activated over 300 megawatts hours of storage projects in the quarter, and most importantly, the projects are delayed, not canceled. Another key guiding principle is our focus on EBITDA and cash flow generation. Adjusted EBITDA remained relatively flat year-over-year, while revenue was off 63%, demonstrating continued operating leverage execution. In the quarter, we reduced cash operating expenses by 9%. Our ARR was up 7% quarter-over-quarter, driving record GAAP and non-GAAP gross margins of 28% and 40% respectively. And lastly, we reduced networking capital $26 million quarter-over-quarter and $162 million year-over-year. Based on our expected cash flow generation for the balance of the year, we remain confident that no new equity will be required to fund the business. I now would like to briefly discuss today's leadership announcements. As you know, we've been focused on taking actions that will position our company for the future. The changes we announced today will support our continued focus on growing software services revenue, extending our technology leadership, and driving profitable growth. First, the management changes we announced. Bill Bush will be stepping down as Chief Financial Officer on September 2nd. He will continue to lead our strategy targeting public power and large FTM projects, along with the supply chain team. And Prakash Patel, our Chief Strategy Officer, is departing from the company, effective immediately, with his responsibilities assumed by existing members of the management team. On behalf of the board and the management team, I'd like to thank Prakash for his contributions to STEM over the years and wish him the best in future endeavors. Prakash was an integral part of the core team that took STEM public and was a key player in building relationships with capital providers, stockholders, and analysts. These changes will help us enhance our leadership and streamline our management structure to better align with our strategic and operational priorities. Doran Hole has been appointed as our new Chief Financial Officer and Executive Vice President, and he will also be responsible for the company's software and services group. Doran is an executive with more than 25 years of global finance and management experience, providing leadership and strategy and operational efficiency in the growing clean technology industry. He most recently served as EVP and CFO of Ameresco, where he led the company's financial strategy, capital management, and strategic digitization efforts across the organization. Doran has deep financial and business experience, strong strategic acumen, and proven leadership success. This will be critical to our goal of cash flow generation and increasing our software and services revenue. We look forward to welcoming him to our team on September 2nd and fostering a seamless transition with Bill. We are also commencing a strategic review of the business. Our newest board member, Gerard Cunningham, has been appointed Chair of an Ad Hoc Software Strategy Working Group that will closely align with the management team to expand this strategy. We have seen strong initial customer reaction to our software-only product offering and believe that this business represents an attractive long-term opportunity for enhanced strategic focus and shareholder value creation. At the board level, David Buzby, who will continue to serve in his current role as Chairman of the Board of Directors, has also been appointed Executive Chair of the Board to partner with me on the strategic review of our business. Laura Tyson, a STEM Director since 2021 and current Chair of the nominating Governance and Sustainability Committee, has been appointed Lead Independent Director of the Board, effective immediately. In closing, I want to thank our global team for the continued commitment and contributions to our mission. We have an exceptional talent base and remain confident in our ability to extend our leadership position on a global level. Operator, let's open the line for questions, please.

Operator: [Operator Instructions] Our first question comes from Justin Clare of Roth Capital Partners. Please go ahead.

Justin Clare: Hi, thanks for taking our questions there. So, first off, I wanted to start with the USDA financing. I was just wondering if you could share a little bit more about the bottleneck that is occurring in terms of your customers being able to secure that financing. And then maybe if you could provide any visibility you have into when that financing gets unlocked and these projects can start moving forward. And then I wanted to also clarify, on slide six, this is a more than one billion of projects delayed. So does that mean more than one billion of your 1.6 billion backlog is dependent on this financing, supporting the projects?

Bill Bush: So Justin, this is Bill. Thanks for the question. So I'll kind of answer those in reverse. So the first question is on the one, the more than one billion is that in the backlog, many of those projects are actually not in the backlog. So that would be incremental to the 1.6 billion in total backlog. So the way basically, and this is kind of leading into the rest of your answer, but the way these projects generally work is that they cannot contract. So the entity which we would be providing [Indiscernible] hardware and services to and software and services would generally not be able to contract until they have a number of items completed. And that includes things like, depending on where this site is, of course, but potentially a NEPA review, as well as other development tasks. And so for that purpose, they're not allowed under the New Era and the Pace Funding, they're not allowed to start the contracting process until that is complete. And so I think that's really where we are. So we have verbal commitments from these partners that they're going to award us the project as they get past those milestones and that lock that net funding is locked in. And so this kind of kind of rolls a little bit into some of the election situation and that I think what's happening is really kind of two things. One, as John mentioned, there's a lot of these entities that we're working with that are applying for these funding. And it's actually oversubscribed at this point. So the government, as we understand it, is committed to making all these projects work. But they also have the issue that within the system, they have to be able to be able to be qualified. And so the government, what the USDA right now, which is the ministers, both of these two programs is doing, as we understand it, is really making sure that all the eyes are dotted and the T's are crossed. So to the extent that there is a potential for a different government coming in, that these projects couldn't be canceled. So that's really the most important thing is that they're doing all of the work to make sure that these projects are eventually awardable. And I think it's important to note that many of these projects are actually in red states, which are focused on rural electrification. So we think that the irrespective of government that these things are going to move forward. But I think what's happening right now is the USDA folks that I actually talked with when I was down in ribbon cutting here just a little bit ago, was they're just wanting to make sure that none of the projects fall apart later on, because they're so important to their local communities.

Justin Clare: Okay, got it. And then, so maybe just following up on that. So can you share how much of your current backlog, the 1.6 billion, is dependent on the USDA financing?

Bill Bush: Right now it's about less than a third.

Justin Clare: Less than a third, okay. And then just one more, just curious on the interconnection delays, how long the delays might be and how much of the guidance reduction was as a result of those kinds of delays.

Bill Bush: Okay, it's really, I would say difficult, because you got to do a project by project analysis to be able to answer that fully. But in general what we're seeing, and I think we've mentioned this before, is an extending of interconnection time frames. And so like as a, for instance, in Texas, a market which we do quite a bit of work in, I mean we've generally seen projects, or say interconnection approvals, extending between 18 and 24 months. And so that's definitely longer than we saw when we first got started in Texas now three years ago. So yes, that definitely has had an impact. In terms of the guidance push out, there's really comes down to just a few projects. I mean because one of the things that has happened in this transition that John mentioned, is that we've moved to larger projects. And so those larger projects create a lumpier version of the P&L than maybe what we saw in the past. Where we have, like a good example of this United Power contract that John mentioned, that really drove a lot of the ARR conversion this quarter. And that’s a 300 megawatt hour project. And we’re seeing more and more of like that. Like the one that we announced here coming up on six, eight months ago with APCO, which is 1.3 gigawatts. And so I think our gigawatt hour is, importantly. So you really have these larger projects and they have a lumpier impact. And so when you look at the guidance, which is what we pointed out on one of the slides, was that had those not pushed out, we actually were on track to meet our guidance. But one of the things that's happened is that it's really a combination of things. One is that high voltage transformers are harder and harder to get. And many of these groups want to use US and really kind of maybe call it non-Chinese transformer product, which means that there's only a couple manufacturers. They can make those devices. And so you've got to, you know, in some ways there's a line there. Then you have interconnection and some of these other issues that just run into these projects. And so we were hopeful that we were going to have, we were going to be able to get past that. But we just, after talking with our customers, we just realized that it was less likely that was going to happen. And so we wanted to accurately reflect that in the guidance.

Justin Clare: Okay. Great. I appreciate it. Thank you.

Bill Bush: Absolutely.

Operator: The next question comes from Thomas Boyes of TD (TSX:TD) Cowen. Please go ahead.

Thomas Boyes: Appreciate you taking the questions. One is, great to see the SSVEC project. I was just wondering for this, the three projects in total. Are any of those using kind of the remaining hardware that was under the guarantee, that kind of included in the previously disclosed 50 million outstanding or would that be part of that kind of remaining balance?

Bill Bush: No, they're, so the equipment that is running is sun growth equipment. And that is not part of that particular project. We are working on other DevCo projects, which are generally described as 10 megawatt, in this case, 10 megawatt hours. And so that's those are the types of projects which we would expect to use that, that excess hardware on.

Thomas Boyes: Got it. And so forth. And then, could you talk a bit about some of the unique drivers that you're seeing for demand in the solar business? Because you're the outlines kind of the EU and Japan. And then are there specific companies that you're or countries that you're focusing in Europe?

John Carrington: Yes, and Thomas, it’s John Carrington. A couple of things. I think our, the install base and the PowerTrack portfolio and platform is very compelling to customers. And we continue, as you see on one of our slides, number 10, specifically how that ARR is increasing at a customer by customer level. And from a geographic standpoint, we're seeing growth in Europe, seeing growth in Japan. We announced a nice project in Hungary. So it's pretty, it's pretty broad based. And I think that you'll continue to see more momentum in those markets because we do have teams in both of those focused on the solar and actually getting a fair amount of incoming around storage. But we're excited about the way the business is performing. And you can also see 19% CAGR on the software revenue as well. I mean, it's a, it's a business that continues to be very strong and a very important part of our total portfolio offering.

Thomas Boyes: Got it. And maybe there's a quick follow up there just because historically, on the storage side, you've been focused on the U.S. for storage opportunities, say in the EU or in Europe, would that be driven from a customer who's also coming through kind of a solar vector? Or would you, are you kind of looking more broadly?

John Carrington: Yes, I mean, our team out of Europe is primarily around the solar side of our business. I was referencing more incoming to them on their customer base that is asking about what we could do on the storage front. So it's really a lot of existing customers and/or customers that want to use PowerTrack and have an opportunity to expand at a certain site with storage, but kind of both, if you will, Greenfield, Nunu [ph] as well as existing customers on new sites.

Thomas Boyes: Got it. I appreciate the clarity there. I'll hop back in queue. Thanks.

Operator: [Operator Instructions] This concludes our question and answer session. I would like to turn the conference back over to Mr. John Carrington for any closing remarks.

John Carrington: Okay, well thank you very much for joining our second quarter earnings call and look forward to speaking with you again on our third quarter call in the fall.

Operator: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.