Stem enters its third-quarter report with a striking disconnect. Last quarter management described clear evidence of an inflection point, backed by a record 55% non-GAAP gross margin, a doubling of adjusted EBITDA to $6 million and the first breakeven operating cash flow in recent memory. The market answered by cutting the stock by more than half. Shares have fallen 55.5% since the last report while the S&P 500 was essentially flat, leaving the stock at $2.56, far below its 200-day moving average of $8.57 and only modestly above its post-earnings low of $2.35. The November 5 release has to show that the software-led transformation is durable, not a one-quarter high-water mark.
The Street expects a loss of $1.73 per share on revenue of $37.2 million. That would mark a 39% improvement in the per-share loss from a year ago, but a slightly wider loss than the $1.58 posted last quarter. Revenue is forecast to slip 2.7% year over year, though it would rise from $33.7 million in the second quarter. Management reaffirmed full-year revenue guidance of $140 million to $190 million, and the $152.3 million consensus sits in the lower third of that range. That placement looks deliberate. Management said battery hardware resale would land at the low end of its up-to-$40 million range, a retreat from earlier talk of a second-half ramp, and resale nearly vanished last quarter at $0.3 million.
That mix shift is the key to reading this quarter's margins. Battery resale carries margins of roughly 10% to 11%, so any rebound in hardware revenue will lift the top line while dragging blended margins down from the record 55%. Management steered toward the high end of its 40% to 50% gross margin range and the high end of its $10 million to $15 million adjusted EBITDA target. With $8 million already earned in the first half, the high end implies about $7 million for the entire second half, or roughly half the pace of the second quarter. A step down in EBITDA is therefore built into the plan. The real test is whether the decline is driven by mix, which is benign, or by softness in software and services, which would be more troubling.
The recurring revenue engine deserves the closest scrutiny. PowerTrack ARR reached $42.8 million, up 13% from a year earlier, and bookings jumped 39% sequentially to $37 million, with utility-scale bookings up about 15%. Continued ARR growth and another solid bookings figure would confirm that the new international wins are converting. Those include the 420 MWh Copec project in Chile, the Hungary hybridization deal and EMS deployments now spanning six countries. Managed services is the weak spot. ARR there was flat sequentially and revenue fell 34% from a year ago, so stabilization would help. Management also promised a packaging update on the Raccoon fault-detection integration this quarter, and early commercial traction for the IONA AI services offering launched in June would give the growth narrative some new support.
Cash is the other pressure point. Breakeven operating cash flow followed an $8 million outflow in the first quarter, and repeating that result would ease concerns about the ongoing at-the-market equity sales, which raised about $6 million last quarter. Further dilution at today's depressed share price would be costly. Sentiment has moved from deeply bearish before the last report to roughly neutral, which suggests some investors view the selloff as overdone. Still, that shift guarantees nothing about the results.
The central question is whether Stem can show that its profitability gains survive a less flattering revenue mix. Steady ARR growth, positive cash flow and EBITDA tracking toward the high end would keep the turnaround story intact. A wider cash burn or stalling software metrics would give the market reason to believe its harsh verdict was justified.