Good afternoon. Welcome to day 2 of Cowen's Sustainability and Energy Transition Summit. My name is Thomas Boyes. I'm a Vice President on the Sustainability and Mobility Technology team. I'm joined by Jeff Osborne, who is the Lead Senior Analyst and Managing Director of the group.
And today, we have the pleasure of hosting John Carrington, who's the CEO of STEM. Thank you for joining us today. Before we begin, I just want to take a moment to call out the Q and A chat feature that's in the top right hand corner of everyone's screen. Please feel free to submit questions and we can ask them anonymously on your behalf. There is a slight delay.
So if you do have questions, please hold until the end. But yes, to kick things off, maybe you could just take a few minutes, John, to introduce STEM to the audience who may not be familiar with the company.
Company. First, and thank you both for including me in the conference and really looking forward to hopefully spending time together live in the future and doing this face to face going forward. But on the company, so just to kind of level set, we are a market leader in AI driven energy storage solutions. And it's really about enabling the rapid adoption of renewables on the electricity grid. So we provide our customers a complete clean energy storage solution that includes integrated battery hardware and battery optimization from our proprietary software platform called Athena.
With this integrated system, we deliver value to our customers by lowering their energy costs, stabilizing the grid, solving intermittency and reducing carbon emissions. And from a customer standpoint, it's really C and I, commercial industrial, renewable asset owners and renewable developers. And just to kind of break those down a little bit, from a C and I standpoint, we'll deliver up to 30% monthly energy bill reduction for these customers. We also help reduce dependency on conventional generation. And finally, serve as a fast acting reserve that could be called on instantaneously to supply energy when there's intermittency in solar output, as an example.
And we get paid for all of those services. And when you think about a grid operator or utility, we are very material on that front. Here in California alone, we had over 20, 000 calls last year when they were having the wildfires and rolling blackouts. Now on the developer side or what we think of as front of the meter or asset owner, we help them lever up their returns by anywhere from 10% to 30%. From a market standpoint, super compelling time right now.
We really think of it as an inflection point, and it's driven by the dramatic decrease in costs for both renewable energy generation and the reduction in battery hardware. The other part about this that's really compelling is the fact that the storage market according to BNEF is going to grow at 25 times over the next 10 years. And that turns into a $1, 200, 000, 000, 000 TAM. So we're 1 of the market leaders in a worldwide storage development with a 1.1 gigawatt hours under management. So tremendous market, tremendous tailwind, really globally.
And then finally, the key to our growth and success is really this Athena software platform I mentioned. And the platform ingests 1, 000, 000 data points per second from our customers and pairs that with localized information that could include weather, energy prices, and that really is about optimizing the battery value for our customers. We can provide 11 of the 13 storage value streams in multiple markets across the world, and we can kind of unpack the geography piece a little later. But and we've spent several years at this. I mean, I joined in 2013.
We had 5 systems. We now have over 950. So the growth rate has been exceptional. But what's also important is all that data we've ingested has also and that's 20, 000, 000 runtime hours, by the way, has really helped us refine our algorithms and created this AI machine that we believe is best in class and really creates a higher competitive moat for the company. So I'll stop there.
Excellent. That was great. Actually, I've had a couple of questions come in already. 1 of them maybe just dovetails me with the kind of the policy tailwinds that maybe you're seeing in the space. They were just asking what conversations you're having with regulators and policymakers to support storage and AI based solutions like that stem has?
And then is there any support expected for the maybe the speed of implementation at the state and federal level?
Sure. Yes, it's obviously very hot topic right now. It's interesting because storage really had bipartisan support under the previous administration. I think what we saw was we would get right to the alter and inevitably the bill would include all sorts of things completely unrelated to storage. And now, for the first time, you see in the Biden bill a standalone storage ITC.
And I believe that we'll see this come into view later this year. We've actually and have planned to increase our voice and capital level. We've added a federal policy leader to lead our efforts in D. C. And everybody's very bullish that this ITC gets done this year and the second half.
Now we don't think that will provide revenue upside in 2021. We do think going forward, it could be interesting. If you look at Wood Mackenzie as an example, they've just come out and said the standalone ITC would provide upside of about 25% in the total available market. So it's something that is probably the most compelling component that we see at a federal level. The other thing to think about with the stand alone storage ITC is, not only does it help solar plus storage, but there's this really massive opportunity in the retrofit market.
So if you think about it, all the customers that have solar in place today, we can go back and our partners can go back into these existing installations and now install storage to significantly improve their economics. So look, we're very bullish on what's going on at a federal level. We've seen some other activities that have been positive. At a state level, because there's not a national energy policy, as many of you know, there every state becomes its own country. Now what I will say is many states are adopting a variety of different And that is really where storage is a terrific fit.
And in fact, we're And that is really where storage is a terrific fit. And in fact, we're seeing 5 times the adoption of storage onto solar and wind. So it's a massive opportunity. If you're a believer in renewables long term, smart storage is going to be right there with it and growing faster, quite frankly, because of that retrofit piece I mentioned.
Absolutely. When we first started, you had kind of mentioned the different types of customers for in front of the meter and behind the meter. I was just wondering what services or features a commercial industrial customer would use first when leveraging the athenaai? And then as they become more comfortable with the software, is there some sort of like you just sell more features into that? Or how do you think about that?
Yes. What we'll typically see our commercial industrial customers with 1 or 2 use cases. And again, that might be demand charge reduction, that could be market participation, and those savings will be upwards of 30% on their electricity bill. But you're hitting a key point that I really, when I looked at the storage market having spent several years in solar, caught my attention, and that is this land and expand notion. So the 1st mover advantage is important, and we have a massive customer base, a lot of Fortune 500s, where when we open new markets or they open new locations, we're the 1st to go there together.
And obviously, we're making tremendous traction in the front of the meter with the developers and asset owners. But from a customer standpoint, they look at it and say, okay, these value streams are really compelling. But as new ones open and we work with regulators, we look at the tariffs, so we really become a consultative salesperson for our customers. And so we can add a variety of use cases. And when you look at solar, it's kind of a 1 trick pony.
I was at First Solar, I was at BSLA. And I got to tell you, it's a long term constantly clipping coupons, which is great. But there are 13 value streams we can go monetize. So getting into the customer, owning that customer, and then expanding, that's very important to our model. And we're doing it.
Up in Ontario is a good point a good case where we had a couple of use cases. We're now up to 45. And it enhanced the really provides a massive residual value and long term play for the company in our view.
Excellent. And maybe then kind of just the same thing for in front of the meter services, certainly the virtual power plant should be enabler of new revenue streams. I mean, what benefits for utilities or for the ISOs, RTOs? What services are in most demand? Is it frequency regulation, energy arbitrage?
What about that?
Yes, it's kind of all the above. I'd say from our larger front of the meter customers, we're often pairing storage with solar. So it's really about enhancing the revenue opportunity. And really, that can include energy arbitrage, as you mentioned, resource adequacy, frequency regulation and transmission deferral. And with that, we can provide up to 30% increase in IRRs for our developers and asset owners.
We also help customers take advantage of any regulatory benefits, as I mentioned earlier, and stay in compliance with things like ITC. Solar ITC, when combined with storage, is very complex. And so our Athena platform is managing that for our customer and making sure that they're in compliance. And if you think about Massachusetts as an example, we just started an installation that's paired with solar. It's bidding into the real time electricity markets.
But Athena has to account for many different aspects in that market. So you have a Clean Peaks requirement, which is part of the MA, the Massachusetts program. There is the ITC piece that I just mentioned. We're also having to factor in degradation over the life of the battery because there are warranty terms, which are based on the number of cycles. So there's a tremendous amount of complexity.
Our Athena platform really excels on complexity. So the markets and regulators are only getting more complex. And this drives more value to Athena, which again, as I said earlier, really creates a competitive mode. But we thrive on complexity. We don't think it's going to be less complex.
There are more and more use cases. And you really have to co optimize between which 1 to pull from to maximize our customer benefit and that's where Athena really excels.
Absolutely. I appreciate the color. Jeff, I know you had a couple of questions. I was wondering if you
Yes, perfect. Thanks, Thomas. John, great to see you again. In terms of the theme of this conference, a big question we're getting is around the supply chain. I think on your Q1 call, you referenced that you're fully booked or fully committed in terms of supply needed for 2021.
But just given the sudden urgency around battery storage demand, are you already locking in or having conversations around 2022?
Yes. We feel really good, as you mentioned. From a supply standpoint. We forecasted some constraints, I think, going into the Q4 of last year. So we took a position to let's just contract the entire 2021.
Typically, we would have put a quarterly forecast out and based upon our suppliers and maybe hedged a little bit. But this time, we said, all right, let's just go all in and make sure we have enough and in the overage that we think we might need. So at a higher level, I'd say the company has been very strategic related to our supply chain. And our process is to run an annual RFP process where we evaluate multiple suppliers, and it's across a variety of metrics. We look at things like energy density, cost roadmap, geographic footprint, and which becoming more and more important, kind of your countries of origin, right?
And so when you look at the situation in India right now, and it's just really tough down there, some of our supply chain has been impacted by that. But we are very confident that we're in good shape for 2021. So if you go to 2022, what we're doing is we're actually starting a contract for supply now, we'll continue to do so as we get more transparency based on our sales team execution. But given our throughput, we really are a material buyer of batteries and have generally been able to secure supply to meet our customers' demand. And then I'd say finally, we've made a concerted effort to diversify our supply chain over the last few years.
And whether that's from the number of OEMs we work with, and typically that's 3 or 4, or what geographies we source from and even the battery chemistries we work with. So I think now with the balance sheet that we have, where we can get better terms for our suppliers, and we can opportunistically pick up some extra capacity when it becomes available. And we've seen that in a couple of cases recently. So we feel very good about where we are for 2021. We think 2022 is starting to come into scope.
And I would also add, we've really added some additional sourcing expertise and recently named VP of Strategic Sourcing. But it's front and center for us. I mean, we are looking at our supply chain weekly in our operations call. And it's obviously very important because we are going to only recognize revenue when the hardware is delivered to our customer.
Got it. Thomas, there's several questions that came in on the dashboard. Putting them together, There's a lot around competition. So people are asking about Tesla Auto bidder, Fluence and AES and their AMS acquisition. 1 investor is asking about the inverter guys getting into storage.
People are basically just trying to figure out your Athena platform, how it differentiates from the myriad of different players that are in the I guess my response would be, you're addressing the entire Rocky Mountain Institute wheel of services all in 1 software platform. Many of those that people are referencing are only offering 1 or 2 or 3 services, not the whole Whitney. But what's your response to that?
Yes, I think that's right, Jeff. I would say that a couple of things. Number 1, we are addressing and we have 11 of the 13 actually built under the Athena platform today. So we are very well positioned on that front. We believe we have industry leading from a customer's perspective.
We also have a significant amount of runtime hours, as I alluded to earlier, that really feeds that AI platform and makes it that much smarter. The fact is, if you're talking about C and I, a hospital operates differently than a hotel that operates differently than a Fortune 500 large office complex. So all of that data is very material and we believe is a sustainable competitive advantage for the company. And so I think that on the Tesla side, look, they and all the hardware suppliers really view this as a throughput model. They want to drive batteries into the market.
If they're going to compete with STEM, we'll go elsewhere. We have a very good relationship with Tesla, have for many years, and we think it will continue for many years forward. When you see what they're doing, it's much larger projects that are just really not in our sandbox, quite frankly, and not an area that we're positioning the company to go into. So we feel like there's a good understanding. And my analogy I use when that comes up, if you look at Foxconn or Flextronics, they're unlikely to go out and build a computer or an iPhone that's going to compete with Apple or 1 of their other large customers.
And we feel the same way when we integrate with our supplier base. And quite frankly, whether it's LG, Samsung, these companies are coming to us asking about our customer use case. We're developing products together. We're working on different types of chemistry, particularly around solar plus storage, where you need longer warranties and different cycles. So it's a very collaborative relationship.
And if those change in any way, particularly if somebody decides they're going to compete with STEM, then we'll go procure our hardware elsewhere. But we feel like we're in a very, very strong position from a software platform standpoint. Perfect. By the way, I'll add 1 more thing. You mentioned Fluence and AMS.
There's a good example there. There is a large portfolio that was being managed by the AMS platform in Southern California. It over 80 customers, 3.50 plus megawatt hours. It was put out to bid with 10 suppliers bidding into that. Stim won that.
We did not win on cost. We won on our domain expertise and our software platform. And that platform, we replaced in its entirety in 60 days at all the customers. We also integrated a new hardware platform in that timeframe. And I can tell you, we've had double digit improvement in the savings of the customer.
And that was the reason the new asset owners put it out to bid. The customers weren't happy. It wasn't meeting the pro form a. And that has changed significantly under the Athena platform. So that's a terrific use case.
And I would say in the due diligence process with Star Peak through the merger, they hired 2 outside consultants and the feedback was exceptional as far as the platform goes. And so we feel like we're very well positioned on that front.
Good to hear. Thomas, I'll turn it back over to you.
Excellent. Thank you. Maybe again to reference the geographic expansion plans and where you're currently seeing demand. If you're starting in the U. S, why U.
S. First and where you're looking out globally?
Sure. Yes, it's interesting, as you saw in our kind of revenue forecast, we're forecasting for 2021 a 4x growth over 2020, and 50% CAGRs over the next 5 years of the model. So this is a tremendous growth engine. We're generating 10% to 30% margins on our hardware and software's 80% plus margin. So it also should be noted for kind of when you think about the geographic expansion that our contracts on the software are 10 to 20 years and have 100% attach rate.
That's very different than a typical SaaS company of 1 to 3 years. So that recurring software piece is important part of the model. And the software that we built, we believe, is very transferable. We've taken it to different markets around the world and we'll continue to do so. But specifically around some of the geographies that we think about, I would say that we will continue to see more global opportunities.
We began our efforts here in California. We have 75% market share. We're larger than our next 4 competitors combined. It's also the largest storage market in the United States. And early on, a lot of our investors said, why are you outside of California?
Well, it's a huge market. You can have a multi $1, 000, 000, 000 company staying in California alone. But obviously, that's not our intent. We want to be even bigger. So we are going outside of California.
And I would say that 1 of the things that's interesting is our bookings last year, 90% of them came from outside of California. And we're continuing to see opportunities in multiple markets for both front of the meter and behind the meter. Massachusetts is a big market. We had 0 share there 2 years ago. We now have nearly 20% market share.
We're seeing demand in the Northeast, the Southwest and parts of the Midwest. As you'd expect, Texas is coming online, particularly around resiliency from the ice storms we saw this winter. The other thing that's interesting is the co op utility market. And we did an announcement recently with whole about Holy Cross, which serves Western Colorado, kind of Vail, Eagle, Glenwood Springs and Aspen. But what I like about that is they're very nimble.
They can move they're very focused on renewables, and storage is a big part of that equation. So that co op market is interesting to us. And then from a global perspective, I'd say that we are very fortunate to have assembled really a remarkable group of large strategic investors as STEM Private that helped us get here today. And when you think about the names, it includes the likes of Total, Iberdrola, RWE in Europe, Mitsui and Temasek in Asia. And Mitsui helped us get into Japan.
We took Tesla systems to Japan. We were the first ones to put it in. It wouldn't have happened without Mitsui. And then finally, Kopec down in South America. So and it's I'd also say it's worth noting, 100% of those investors rolled their equity into the new company.
So they're very incentivized to work with us. They have customers in many of those locations. They have regulatory insight and know where that market is going. So I kind of feel like we're starting on 3rd base with some of those partners and very excited about that. So we feel good about the platform to take it into new markets.
We've really built Athena to handle multiple use cases, different tariffs, multiple battery technologies. And we think it's easily translatable into these new global markets. So you'll see us look at you'll see us look where those partners are, and I think that that's a strong growth areas that we look to be in the next couple of years.
Absolutely. And we've talked a lot about the solution as it addresses kind of the intermittency of renewables through AI and battery storage. But EVs obviously becoming a larger portion of energy users for commercial fleets have a lot of decisions to make with upgrading T and D, whether it makes sense to go all electric or maybe pick fuel cells as an alternative. I was hoping maybe you could speak to kind of maybe some commercial EV charging efforts. Is there opportunities there?
How do you think about them those as customers?
Yes. It's interesting. We've had a significant amount of incoming around the EV side, particularly on the charger front. And we just previous to this transaction, did not have a lot of bandwidth to go do some of that. And I would say, today, it's changed significantly.
I mean, EV charging is absolutely in scope, and Athena can drive value for our customers. If you think about the use case, you have a large amount of charging demand when these fleets finish the day. And I'm going to speak in terms of a logistics customer we have as an example. But the problem is, it may not be optimal time to charge based on the local use tariffs, capacity needs and market prices. So what we do is Athena can help optimize the timing of charging to really ensure the lowest cost of energy, while balancing the need to provide charging, which is obviously very important.
So we can really orchestrate the energy management of the fleet, the building and allow them to participate in markets, all without changing the customer behavior. And that's important. If you think about Doctor, that model revolves around customers changing their operations. And we get a lot of feedback from our customers that say the elegance of STEM is you put the system in, we start saving money, we have an ESG narrative because we participate in markets and we're actually turning this into a revenue stream. So it's exciting for them.
It's providing a lot of upside beyond just the economic piece. And I would say on the EV side, 1 other good example is here in California, down in Southern California specifically, we worked with a leading transportation logistics provider and added batteries to improve their economics. What we did is we really modeled battery performance, charging behavior under the range of potential tariffs, building occupancy and use patterns, then implemented a project that was completely turnkey. And the full solution we provided our customer was highly differentiated. And particularly important for this customer is it was their first foray into using energy storage.
So that domain expertise that we provided was really important. And I'd say lastly, there's a lot of focus around reducing GHGs, as you can imagine. And we've built an Athena program and written code around it to meet this requirement and track the output. This is a great tool for our customers, and they want to understand and really have a sense of how much ESG that they're reducing. So we can provide them that data.
We can actually run the system to maximize for ESG reductions. And in the instance of this logistics company, it's important because they're now very well positioned for this new mandate in California, where all EVs will have to start to transition the heavy truck side into or sorry, all traditional combustion will have to move to EV starting in 2024. So they're there now and they're saving significant amount of money in advance of that. So we feel like, look, in that example, net net, a huge win for the customer on the economics front and obviously a great story from an ESG goal standpoint. Great.
I appreciate the color there. We had a couple more investor questions come in. 1 of them had kind of had to do with how big is the AI and software team currently? How do you think about how that will expand over time? Are you kind of best situated where you are now to leverage off of that?
Or is more hiring you to take place kind of to get future opportunities?
Yes. We're going to be prudent in our hiring. But obviously, with this balance sheet, we want to make sure that we can meet and exceed and hopefully accelerate our road map. So we have a couple we'll have a couple of 100 people at the end of the year. And I would say you could think of it in kind of terms of a third, a third, a third as far as software, product, commercial and operations is how we think about it.
Maybe leaning a little bit more into software because we are definitely bringing on more data scientists and others in that area.
Great. Jeff, did you have any other questions?
No, I think I'm all set. I mean, there's a few questions in here about the seasonality in the year. And then also on for C and customers, if there's an opportunity to participate in utility scale programs around demand response and other opportunities to sort of double dip and get revenue from both sides?
Yes. We're certainly seeing that. I mean, I think there's a couple of trends in the C and I piece. 1 is that they are becoming much more vocal and much more educated around how big they can be in a market. When you look at take Home Depot, they have a significant amount of employee base in California, Texas, where pick your location.
The policy individuals in these Fortune 500 companies are going to the commissions around the United States saying, We want to participate in markets. We want to be a better grid citizen. We want to have storage as part of our solution. What can you do to help us build a marketplace for that? And obviously, we're doing the same thing.
So we're seeing them really look at the whole kind of menu of opportunities to provide additional savings and participate in markets, both of which are very much in the sweet spot of what STEM can provide. I think the other thing that we're seeing is more corporate PPAs. And so you'll see them trying to procure more and more renewables visavis that vehicle. And so we're also engaging with them around that. Excellent.
Yes. So I guess maybe as a final closeout, just if we were to reconvene in a year from now, maybe what are the 1 or 2 things that investors would like to see as maybe your biggest accomplishments going forward? Any KPIs that we should be paying attention to in the future?
Sure. And you mentioned something about seasonality. I'll touch on that 1 quickly. We did do seasonality in our forecast to the Analyst Day we had, and we continue to do that on calls going forward. And it's really simply a view of what we've seen traditionally.
So we're just mirroring that. And we do believe that seasonality won't be as far back end loaded as we see more and more recurring software come into play. But for now, it's a little bit back end loaded. And again, that's what we saw in 2020, 2019, etcetera. So as far as kind of a couple of things, first, I look forward to that, as I said, be together face to face.
And if I think back to 16 years at GE, you kind of learn early to execute on your plan or you won't be around for 16 years. So you'll see us hit our commitments. And look, this transaction is transformational for the company. We'll be able to go after larger customers. We would win projects and our balance sheet did not give comfort previous to this to have a 2025 year PPA in place and making sure that this company would be here where we had 12 to 18 months of cash as a venture backed company.
Now we have $500, 000, 000 on the balance sheet with 0 debt. I touched on the supplier piece already. We feel like that's $100, 000, 000 advantage. So you'll see some savings on that front over the next couple of years. That's also not in the model.
And I think it really allows us, as we touched on, to hire more people. So I think, look, if you go fast forward to 12 months, it'll be around executing and meeting our commitments to our shareholders. I think the second 1 is really expanding our geographic footprint, as we talked about. We'll also extend, in our view, our position by really delighting our customers. And finally, hiring and retaining the best and brightest talent.
I think if we do that, it should be a pretty good year. And I feel like we're on track on all of these and very excited about the next 12 months. And particularly, as I said, with the new balance sheet that we have in place, we're just incredibly positioned in this of market and feel very fortunate to be where we are right now.
Great. John, I just want to thank you again for joining us today. We really appreciate the discussion and the insight and of course look forward to speaking with you in the future.
Thank you, Thomas and Jeff. Have a great balance of the conference. Appreciate it.