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Sep 30
Stem Q3 2025 Earnings Report
Stem reported solid revenue growth and positive adjusted EBITDA for the third quarter of 2025, driven by its software-centric strategy and improved gross margins.
Key Takeaways
Stem delivered a strong third quarter in 2025, with revenue increasing 31% year-over-year to $38.2 million and achieving its second consecutive quarter of positive adjusted EBITDA of $2.0 million. The company's software-focused strategy is evidenced by a 17% year-over-year growth in ARR to $60.2 million and strong gross margin performance, leading to refined and de-risked full-year guidance.
Revenue increased by 31% year-over-year to $38.2 million, demonstrating solid growth.
Achieved positive adjusted EBITDA of $2.0 million for the second consecutive quarter, indicating improved profitability.
Annual Recurring Revenue (ARR) grew 17% year-over-year and 3% quarter-over-quarter to $60.2 million, highlighting the success of the software-focused strategy.
GAAP gross margin improved significantly to 35% from 21% in the prior year, and non-GAAP gross margin reached 47%, marking the third consecutive quarter of strong gross margins.
Stem
Stem
Stem Revenue by Segment
Revenue by Segment
Services and Other Revenue
CapyFin.comHardware Revenue
CapyFin.com Forward Guidance
Stem is revising its full-year 2025 guidance, reflecting increased confidence in its software-centric approach and operational discipline. The company expects revenue between $135 million and $160 million, with non-GAAP gross margin between 40% and 50%, and adjusted EBITDA between -$5 million and $5 million. Year-end ARR guidance remains unchanged at $55 million to $65 million.
Positive Outlook
- Revised revenue guidance to $135M - $160M (previously $125M - $175M), with a higher lower bound.
- Increased non-GAAP Gross Margin guidance to 40% - 50% (previously 30% - 40%), indicating improved profitability.
- Adjusted EBITDA guidance improved to $(5)M - $5M (previously $(10)M - $5M), showing a de-risked lower end.
- Software, edge hardware, & services revenue guidance increased to $125M - $140M (previously $120M - $140M).
- Year-end ARR guidance remains unchanged at $55M - $65M, indicating stable recurring revenue expectations.
Challenges Ahead
- Battery hardware resale revenue guidance reduced to up to $20M (previously up to $35M), reflecting strategic de-emphasis of low-margin hardware.
- Operating Cash Flow guidance revised to $(5)M - $5M (previously $0M - $15M), indicating potential for negative cash flow from operations.
- The company is unable to reconcile projected non-GAAP gross margin and adjusted EBITDA to GAAP measures without unreasonable effort, limiting full transparency.
- Bookings were down sequentially due to strategic de-emphasis of low-margin battery hardware bookings.
- Contracted backlog was sequentially down due to lower quarterly bookings and increased revenue recognition.
Revenue & Expenses
Visualization of income flow from segment revenue to net income