Stem Q1 2025 slides: First positive operating cash flow as software strategy gains traction

Stem Inc (NYSE:STEM) reported significant progress in its strategic transformation during its first quarter 2025 financial results presentation on April 29, with the company achieving its first-ever quarter of positive operating cash flow as its software-focused strategy begins to yield results.

Quarterly Performance Highlights

Stem delivered strong year-over-year growth across key financial metrics in Q1 2025. Revenue reached $33 million, representing a 27% increase compared to the same period last year. Annual Recurring Revenue (ARR) grew to $57 million, up 8% quarter-over-quarter and 26% year-over-year, underscoring the company’s successful pivot toward recurring software revenue streams.

Perhaps most notably, Stem achieved positive operating cash flow of $9 million, a $9 million improvement year-over-year and the first positive quarter in the company’s history. This milestone reflects the early benefits of the company’s software-focused strategy and operational improvements.

As shown in the following financial metrics chart, gross margins saw substantial improvement, with GAAP gross margin reaching 32% (up 127 percentage points year-over-year) and non-GAAP gross margin hitting 46% (up 22 percentage points year-over-year):

Adjusted EBITDA also showed significant improvement at $(5) million, representing an $8 million enhancement compared to Q1 2024. The company’s cash position strengthened, with $59 million in cash and cash equivalents at the end of Q1 2025, after generating $2 million in the quarter.

"We have achieved our first-ever quarter of positive operating cash flow, reflecting the early benefits of our software-focused strategy," noted the company in its presentation highlights.

Strategic Initiatives

A key element of Stem’s transformation is its reorganization into four distinct business units, designed to optimize operations and drive growth. The company outlined the rationale and benefits of this new structure:

The four business units include Software (ETR:SOWGn) Products, Professional Services, Managed Services, and OEM Hardware, each with specific focus areas and growth objectives. This reorganization aims to align services with market demands, strengthen profitability, enhance focus on high-margin offerings, and diversify revenue streams.

The company provided further details on each business unit’s role within its overall strategy:

Software Products represents the core of Stem’s growth strategy, featuring differentiated intellectual property and recurring revenue streams. The Professional Services unit focuses on specialized advisory services with high margins, while Managed Services provides end-to-end operations with long-term recurring revenue. The OEM Hardware unit handles battery resale with selective engagement, supporting sales in other segments.

Detailed Financial Analysis

Stem’s Q1 2025 operating metrics reveal the company’s continued transformation toward a software-centric business model. While bookings decreased slightly quarter-over-quarter to $34.5 million due to seasonality, the contracted backlog grew to $25.3 million from $20.9 million in Q4 2024.

The following chart illustrates key operating metrics including bookings, backlog, CARR (Contracted Annual Recurring Revenue), ARR, and Assets Under Management:

A detailed breakdown of revenue streams shows strength across multiple categories. Solar software revenue reached $8.8 million (up from $7.8 million in Q1 2024), while storage software and recurring managed services revenue grew to $7.0 million (up from $5.7 million). Edge hardware revenue increased to $10.3 million from $8.0 million year-over-year, and battery hardware resale revenue rose to $4.5 million from $2.6 million.

This performance represents a significant improvement from the company’s challenging Q4 2024, when revenue of $55.8 million missed analyst forecasts of $69.68 million. The current quarter’s results suggest that Stem’s strategic pivot is beginning to deliver tangible financial improvements.

Forward-Looking Statements

Stem reaffirmed its 2025 guidance, projecting total revenue between $125 million and $175 million, with $120-$140 million coming from software, edge hardware, and services, and up to $35 million from battery hardware resale:

The company expects non-GAAP gross margin to range between 30% and 40%, with adjusted EBITDA between $(10) million and $5 million. Operating cash flow is projected to be between $0 and $15 million, while year-end ARR is expected to reach $55-$65 million.

Additionally, Stem implemented targeted workforce reductions in April, which are expected to drive $30 million in annualized cost savings, further accelerating the company’s path to profitability.

The company also strengthened its Board of Directors with the appointment of software and finance veterans Vasudevan Guruswamy and Krishna Shivram, reinforcing its commitment to the software-focused strategy.

Stem’s stock closed at $0.419 on April 29, down 0.95% for the day, but rose 5.06% to $0.436 in aftermarket trading following the earnings release. The stock has traded between a 52-week high of $1.97 and a low of $0.291, reflecting the volatility as the company executes its strategic transformation.

Full presentation:

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