Stem(STEM) - 2024 Q1 - Quarterly Report

Part I. Financial Information Presents unaudited condensed consolidated financial statements and management's analysis of financial condition and results of operations Item 1. Financial Statements (Unaudited) Presents STEM, INC.'s unaudited condensed consolidated financial statements, detailing financial position, performance, and cash flows Condensed Consolidated Balance Sheets Presents the company's assets, liabilities, and stockholders' equity at specific reporting dates Condensed Consolidated Balance Sheet Highlights (in thousands): | Metric | March 31, 2024 | December 31, 2023 | | :-------------------------- | :------------- | :---------------- | | Total Assets | $1,284,895 | $1,356,977 | | Total Liabilities | $912,844 | $930,296 | | Total Stockholders' Equity | $372,051 | $426,681 | | Cash and cash equivalents | $112,804 | $105,375 | | Accounts receivable, net | $239,934 | $302,848 | | Accumulated deficit | $(844,801) | $(772,494) | Condensed Consolidated Statements of Operations Reports the company's revenues, expenses, and net loss over a period, indicating operational performance Condensed Consolidated Statements of Operations Highlights (Three Months Ended March 31, in thousands, except per share): | Metric | 2024 | 2023 | | :------------------------------------------------ | :--------- | :--------- | | Total Revenue | $25,469 | $67,405 | | Services and other revenue | $14,840 | $14,673 | | Hardware revenue | $10,629 | $52,732 | | Gross (loss) profit | $(24,191) | $994 | | Loss from operations | $(68,013) | $(42,653) | | Net loss | $(72,307) | $(44,778) | | Net loss per share, basic and diluted | $(0.46) | $(0.29) | - Total revenue decreased by 62% year-over-year, primarily driven by an 80% decrease in hardware revenue[12] - The company's net loss widened by 61% year-over-year[12] Condensed Consolidated Statements of Comprehensive Loss Details the company's net loss and other comprehensive income/loss, reflecting total non-owner changes in equity Condensed Consolidated Statements of Comprehensive Loss (Three Months Ended March 31, in thousands): | Metric | 2024 | 2023 | | :-------------------------------- | :--------- | :--------- | | Net loss | $(72,307) | $(44,778) | | Unrealized gain on available-for-sale securities | $3 | $1,543 | | Foreign currency translation adjustment | $193 | $127 | | Total other comprehensive loss | $(72,111) | $(43,108) | Condensed Consolidated Statements of Stockholders' Equity Outlines changes in the company's equity accounts, including common stock, additional paid-in capital, and accumulated deficit Changes in Stockholders' Equity (Three Months Ended March 31, in thousands, except shares): | Metric | Balance as of Jan 1, 2024 | Balance as of Mar 31, 2024 | | :------------------------------------ | :------------------------ | :------------------------ | | Common Stock Shares | 155,932,880 | 161,526,782 | | Additional Paid-In Capital | $1,198,716 | $1,216,197 | | Accumulated Deficit | $(772,494) | $(844,801) | | Total Stockholders' Equity | $426,681 | $372,051 | - Net loss of $72.3 million contributed to the increase in accumulated deficit and decrease in total stockholders' equity[17] - Stock-based compensation added $9.4 million to additional paid-in capital during Q1 2024[17] Condensed Consolidated Statements of Cash Flows Summarizes cash inflows and outflows from operating, investing, and financing activities over a period Condensed Consolidated Statements of Cash Flows (Three Months Ended March 31, in thousands): | Activity | 2024 | 2023 | | :------------------------------------------ | :--------- | :--------- | | Net cash used in operating activities | $(621) | $(35,821) | | Net cash provided by investing activities | $4,675 | $67,831 | | Net cash provided by (used in) financing activities | $3,142 | $(2,156) | | Net increase in cash, cash equivalents and restricted cash | $7,429 | $29,980 | | Cash, cash equivalents and restricted cash, end of period | $113,904 | $117,883 | - Net cash used in operating activities significantly decreased from $35.8 million in Q1 2023 to $0.6 million in Q1 2024[20] Notes to Condensed Consolidated Financial Statements Provides detailed explanations and disclosures supporting the condensed consolidated financial statements 1. BUSINESS Describes Stem, Inc.'s operations as a global leader in AI-driven clean energy solutions and strategic joint ventures - Stem, Inc. is a global leader in AI-driven clean energy solutions, providing energy storage hardware, edge hardware, and the Athena® software platform for managing energy assets[25] - The Athena platform enables participation in energy markets and revenue sharing from such participation[25] - The company forms strategic joint ventures (DevCo JVs) to develop and sell renewable energy projects, securing hardware and long-term software/services contracts[28] 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Outlines the key accounting principles, estimates, and assumptions used in preparing the financial statements - The unaudited condensed consolidated financial statements are prepared in accordance with U.S. GAAP for interim reporting[36] - The company consolidates Variable Interest Entities (VIEs), specifically DevCo JVs, where it is deemed the primary beneficiary[42] - Management makes significant estimates and assumptions, including for depreciable life of energy storage systems, transaction price with variable consideration, and valuation of assets and liabilities[44][45] - The company operates as one operating segment focused on innovative technology services[49] Significant Customer Concentration (as of March 31, 2024): | Customer | Accounts Receivable (%) | Revenue (%) | | :--------- | :---------------------- | :---------- | | Customer A | 50% | 24% | | Customer B | 17% | * | | Customer C | * | 22% | | Customer D | * | 22% | *Total less than 10% for the period. 3. REVENUE Details the disaggregation of revenue by type and significant adjustments, including remaining performance obligations Disaggregation of Revenue (Three Months Ended March 31, in thousands): | Revenue Type | 2024 | 2023 | | :------------------------ | :--------- | :--------- | | Hardware revenue | $10,629 | $52,732 | | Services and other revenue | $14,840 | $14,673 | | Total revenue | $25,469 | $67,405 | - Total remaining performance obligations decreased from $541.1 million as of March 31, 2023, to $440.6 million as of March 31, 2024[65] - A net revenue reduction of $33.1 million in hardware revenue was recorded in Q1 2024 due to variable consideration adjustments related to parent company guarantees on hardware value[67] 4. SHORT-TERM INVESTMENTS Reports the company's short-term investment portfolio and changes therein during the reporting period - The company had no short-term investments as of March 31, 2024[70] Short-Term Investments as of December 31, 2023 (in thousands): | Investment Type | Estimated Fair Value | | :-------------------- | :------------------- | | Commercial paper | $1,978 | | U.S. government bonds | $2,741 | | Agency bonds | $3,500 | | Total | $8,219 | 5. FAIR VALUE MEASUREMENTS Presents the fair value hierarchy and measurements for financial instruments, including derivative liabilities and convertible notes Financial Instruments Measured at Fair Value (March 31, 2024, in thousands): | Instrument | Level 1 | Level 2 | Level 3 | Fair Value | | :---------------- | :------ | :------ | :------ | :--------- | | Money market fund | $60,378 | — | — | $60,378 | | Derivative liability | — | — | $7,731 | $7,731 | - The derivative liability is classified as Level 3 due to its valuation using a third-party forecast for lithium carbonate, an unobservable input[76] - The estimated fair value of the 2028 Convertible Notes was $144.1 million and the 2030 Convertible Notes was $125.7 million as of March 31, 2024, both classified as Level 2[77] 6. GOODWILL AND INTANGIBLE ASSETS, NET Details the carrying amounts of goodwill and various intangible assets, along with accumulated amortization Goodwill (in thousands): | Metric | March 31, 2024 | December 31, 2023 | | :----------- | :------------- | :---------------- | | Total goodwill | $547,169 | $547,205 | Intangible Assets, Net (in thousands): | Asset Type | March 31, 2024 | December 31, 2023 | | :------------------------ | :------------- | :---------------- | | Developed technology | $32,618 | $32,618 | | Trade name | $11,300 | $11,300 | | Customer relationships | $106,800 | $106,800 | | Internally developed software | $71,738 | $67,282 | | Less: Accumulated amortization | $(67,451) | $(60,868) | | Total intangible assets, net | $155,008 | $157,146 | - Amortization expense for intangible assets was $6.6 million for Q1 2024, slightly up from $6.5 million in Q1 2023[82] 7. ENERGY STORAGE SYSTEMS, NET Provides information on the company's energy storage systems, including those in service and not yet in service, and depreciation Energy Storage Systems, Net (in thousands): | Metric | March 31, 2024 | December 31, 2023 | | :-------------------------------- | :------------- | :---------------- | | Energy storage systems placed into service | $139,083 | $141,181 | | Less: accumulated depreciation | $(71,800) | $(70,918) | | Energy storage systems not yet placed into service | $3,951 | $4,155 | | Total energy storage systems, net | $71,234 | $74,418 | - Depreciation expense for energy storage systems was $3.0 million for Q1 2024, down from $3.6 million in Q1 2023[83] - No impairment expense for energy storage systems was recognized in Q1 2024, compared to $0.9 million in Q1 2023[84] 8. CONVERTIBLE NOTES Details the terms, principal amounts, and interest expense for the company's 2028 and 2030 convertible notes - The company issued $460.0 million aggregate principal amount of 2028 Convertible Notes in November 2021, bearing 0.5% interest and maturing December 1, 2028[85][86] - Approximately $163.0 million of the 2028 Convertible Notes were repurchased and cancelled in Q2 2023, resulting in a $59.4 million gain on debt extinguishment[90] - The company issued $240.0 million aggregate principal amount of 2030 Convertible Notes in April 2023, bearing 4.25% interest and maturing April 1, 2030[97][98] Convertible Notes Outstanding Principal (in thousands): | Note Type | March 31, 2024 | December 31, 2023 | | :-------------------- | :------------- | :---------------- | | 2028 Convertible Notes | $297,024 | $297,024 | | 2030 Convertible Notes | $240,000 | $240,000 | Total Interest Expense for Convertible Notes (Three Months Ended March 31, 2024, in thousands): | Note Type | Cash Interest Expense | Non-Cash Interest Expense | Total Interest Expense | | :-------------------- | :-------------------- | :------------------------ | :--------------------- | | 2028 Convertible Notes | $371 | $324 | $695 | | 2030 Convertible Notes | $2,550 | $243 | $2,793 | 9. STOCK-BASED COMPENSATION Reports activity for stock options and restricted stock units, along with the total stock-based compensation expense Stock Option Activity (Period Ended March 31, 2024): | Metric | Number of Options Outstanding | Weighted Average Exercise Price Per Share | | :------------------------------------ | :---------------------------- | :---------------------------------------- | | Balances as of December 31, 2023 | 9,011,616 | $6.99 | | Options granted | 687,483 | $3.37 | | Balances as of March 31, 2024 | 9,672,634 | $6.67 | Restricted Stock Unit (RSU) Activity (Period Ended March 31, 2024): | Metric | Number of RSUs Outstanding | Weighted-Average Grant Date Fair Value Per Share | | :------------------------------------ | :------------------------- | :----------------------------------------------- | | Balances as of December 31, 2023 | 11,159,272 | $10.31 | | RSUs granted | 3,378,189 | $2.76 | | RSUs vested | (5,593,662) | $4.32 | | Balances as of March 31, 2024 | 8,493,136 | $11.30 | Total Stock-Based Compensation Expense (Three Months Ended March 31, in thousands): | Operating Expense Component | 2024 | 2023 | | :-------------------------- | :--------- | :--------- | | Sales and marketing | $1,114 | $945 | | Research and development | $1,531 | $1,718 | | General and administrative | $5,729 | $4,539 | | Total | $8,374 | $7,202 | - Unrecognized stock-based compensation expense for stock options is approximately $14.2 million (over 1.4 years) and for RSUs is approximately $60.4 million (over 1.8 years)[114] 10. NET LOSS PER SHARE Presents the calculation of basic and diluted net loss per share, including potentially dilutive securities Net Loss Per Share Attributable to Common Stockholders (Three Months Ended March 31, in thousands, except per share): | Metric | 2024 | 2023 | | :------------------------------------------------------------------------------------------------ | :--------- | :--------- | | Net loss attributable to common stockholders | $(72,307) | $(44,778) | | Weighted-average shares outstanding | 158,180,137 | 154,966,163 | | Net loss per share, basic and diluted | $(0.46) | $(0.29) | - Total potentially dilutive shares excluded from diluted EPS computation due to their anti-dilutive effect were 61,999,068 as of March 31, 2024, including convertible notes, stock options, and RSUs[119] 11. INCOME TAXES Details the company's income tax provision or benefit and effective tax rate, including valuation allowance impacts Income Taxes (Three Months Ended March 31, in thousands, except effective tax rate): | Metric | 2024 | 2023 | | :------------------------------------------ | :--------- | :--------- | | Loss before (provision for) benefit from income taxes | $(72,154) | $(44,869) | | (Provision for) benefit from income taxes | $(153) | $91 | | Effective tax rate | (0.2)% | 0.2% | - The effective tax rate was negative in Q1 2024 due to a valuation allowance on U.S. deferred tax assets[120] 12. COMMITMENTS AND CONTINGENCIES Discloses information regarding legal proceedings, purchase obligations, and sales tax liabilities - Management believes the probability of a material loss from currently pending legal proceedings is remote[121] - No material changes to non-cancelable purchase obligations since December 31, 2023[122] - The company accrued $5.6 million for probable sales tax liabilities in certain states as of March 31, 2024[123] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial condition and results of operations, covering business overview, key trends, non-GAAP measures, and liquidity Special Note Regarding Forward-Looking Statements Highlights that the report contains forward-looking statements subject to risks and uncertainties, with no obligation to update - The report contains forward-looking statements about financial targets, business outlook, and future performance, which are subject to various risks and uncertainties[124][125] - Key risks include supply chain issues, macroeconomic factors (inflation, interest rates, geopolitical instability), and evolving regulations[126] - The company does not assume any obligation to update forward-looking statements after the report date, except as required by law[126] Overview Provides a high-level summary of Stem's mission, recent financial performance, and expected operational expense trends - Stem's mission is to maximize the value of renewable energy assets through its AI platform, Athena, offering hardware and software services for Behind-the-Meter (BTM) and Front-of-the-Meter (FTM) applications[128][129] - For the three months ended March 31, 2024, total revenue decreased to $25.5 million from $67.4 million in the prior year, and net loss increased to $72.3 million from $44.8 million[133] - The company expects sales and marketing, research and development, and general and administrative expenses to increase as it scales operations and manages public company costs[134] Key Factors, Trends and Uncertainties Affecting our Business Discusses significant influences on the business, including seasonality, customer concentration, DevCo JVs, and the Inflation Reduction Act - Revenue is typically seasonal, with most recognized in the third and fourth fiscal quarters due to project completion and financing considerations[135] - Dependence on a small number of significant customers poses a risk to revenue, and the company relies on a very small number of suppliers for energy storage systems[136][138] - DevCo Joint Ventures involve significant upfront investment and a high degree of risk, with potential for loss of development capital if projects fail or are delayed[139] - A $33.1 million net revenue reduction in Q1 2024 was due to parent company guarantees on hardware value; the company does not intend to provide such guarantees going forward[140][142] - The Inflation Reduction Act of 2022 (IRA) is expected to further reduce the cost of battery storage systems and increase the deployment of renewable energy assets[143][144] Non-GAAP Financial Measures Explains the use of non-GAAP measures like adjusted EBITDA and non-GAAP gross profit for performance evaluation and reconciliation - The company uses adjusted EBITDA and non-GAAP gross profit and margin to evaluate performance and liquidity, excluding certain non-cash and infrequent charges for better comparability[147] Non-GAAP Gross Profit and Margin Reconciliation (Three Months Ended March 31, in millions, except percentages): | Metric | 2024 | 2023 | | :------------------------------------------ | :----- | :----- | | GAAP gross (loss) profit | $(24.2) | $1.0 | | GAAP gross margin (%) | (95)% | 1% | | Non-GAAP gross profit | $13.8 | $15.1 | | Non-GAAP gross margin (%) | 24% | 19% | Adjusted EBITDA Reconciliation (Three Months Ended March 31, in thousands): | Metric | 2024 | 2023 | | :------------------------------------------ | :--------- | :--------- | | Net loss | $(72,307) | $(44,778) | | Depreciation and amortization | $11,154 | $11,958 | | Interest expense, net | $4,707 | $1,777 | | Stock-based compensation | $8,374 | $7,202 | | Revenue constraint | — | $10,200 | | Revenue reduction, net | $33,128 | — | | Excess supplier costs | $1,012 | — | | Provision for (benefit from) income taxes | $153 | $(91) | | Other expenses | $1,540 | — | | Adjusted EBITDA | $(12,239) | $(13,732) | Financial Results and Key Metrics Presents a comparative analysis of key financial and operating metrics, including revenue, net loss, bookings, and backlog Key Financial Metrics (Three Months Ended March 31, in millions, except percentages): | Metric | 2024 | 2023 | | :-------------------- | :----- | :----- | | Revenue | $25.5 | $67.4 | | GAAP gross (loss) profit | $(24.2) | $1.0 | | Non-GAAP gross profit | $13.8 | $15.1 | | Net loss | $(72.3) | $(44.8) | | Adjusted EBITDA | $(12.2) | $(13.7) | Key Operating Metrics (at period end, in millions, except GWh/GW): | Metric | March 31, 2024 | March 31, 2023 | | :-------------------------- | :------------- | :------------- | | Bookings | $23.8 | $363.5 | | Contracted backlog | $1,639.6 | $1,242.6 | | Contracted storage AUM (in GWh) | 5.8 | 3.5 | | Solar monitoring AUM (in GW) | 26.9 | 25.6 | | CARR | $89.3 | $71.5 | - Bookings significantly decreased from $363.5 million in Q1 2023 to $23.8 million in Q1 2024, while contracted backlog increased to $1,639.6 million[160] - Contracted Annual Recurring Revenue (CARR) increased to $89.3 million as of March 31, 2024, from $71.5 million in the prior year[160] Components of Our Results of Operations Describes the various revenue streams, cost of revenue components, and operating expense categories impacting financial results - Revenue is generated from services (energy optimization, solar subscription) and hardware sales (energy storage systems)[167][168] - Cost of revenue includes depreciation of energy storage systems, capitalized fulfillment costs, project asset development, and hardware purchase/delivery costs[169][170] - Operating expenses (Sales and Marketing, Research and Development, General and Administrative) are expected to increase to support business growth and technology improvements[172][174][175] - Other expense, net, primarily consists of interest on outstanding borrowings and accretion on asset retirement obligations[176] Results of Operations for the Three Months Ended March 31, 2024 and 2023 Provides a detailed comparative analysis of the company's financial performance for the three months ended March 31, 2024 and 2023 Comparative Results of Operations (Three Months Ended March 31, in thousands, except percentages): | Metric | 2024 | 2023 | $ Change | % Change | | :------------------------ | :--------- | :--------- | :--------- | :--------- | | Total revenue | $25,469 | $67,405 | $(41,936) | (62)% | | Gross (loss) profit | $(24,191) | $994 | $(25,185) | (2,534)% | | Loss from operations | $(68,013) | $(42,653) | $(25,360) | 59% | | Net loss | $(72,307) | $(44,778) | $(27,529) | 61% | - The $42.1 million decrease in hardware revenue was primarily due to $33.1 million in variable consideration adjustments related to parent company guarantees and $9.0 million from fewer hardware deliveries[180] - Cost of hardware revenue decreased by $15.2 million due to improved lithium prices[181] - Interest expense, net, increased by $2.9 million, mainly driven by higher interest on convertible notes[185] Liquidity and Capital Resources Assesses the company's ability to meet short-term and long-term obligations, including cash position, receivables, and financing - As of March 31, 2024, the company had $112.8 million in cash and cash equivalents, $239.9 million in net accounts receivable, and $168.9 million in working capital, deemed sufficient for the next 12 months[189] - Future operations may require additional equity or debt financing, which may not be available on acceptable terms[191] - Total financing obligations were $64.6 million as of March 31, 2024, with $15.4 million classified as current[194] - The company has $297.0 million in 2028 Convertible Notes (0.5% interest, maturing Dec 2028) and $240.0 million in 2030 Convertible Notes (4.25% interest, maturing Apr 2030) outstanding[195][198] Cash Flows Summary (Three Months Ended March 31, in thousands): | Activity | 2024 | 2023 | | :------------------------------------------ | :--------- | :--------- | | Net cash used in operating activities | $(621) | $(35,821) | | Net cash provided by investing activities | $4,675 | $67,831 | | Net cash provided by (used in) financing activities | $3,142 | $(2,156) | | Net increase in cash, cash equivalents and restricted cash | $7,429 | $29,980 | - Net cash used in operating activities significantly decreased in Q1 2024, primarily due to a decrease in accounts receivable and inventory[202] - No material off-balance sheet arrangements, critical accounting policy changes, or recent accounting pronouncement changes were reported[209][210][211] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's market risk exposure remains materially unchanged from December 31, 2023, as disclosed in its Annual Report - The company's exposure to market risk has not materially changed since December 31, 2023[212] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 31, 2024, with no material changes in internal control over financial reporting - The CEO and CFO concluded that the company's disclosure controls and procedures were effective at a reasonable assurance level as of March 31, 2024[214] - There were no material changes in internal control over financial reporting during the first quarter of 2024[215] - Management acknowledges the inherent limitations of internal control systems, which can provide only reasonable, not absolute, assurance[216][217] Part II. Other Information This section provides additional information not covered in Part I, including legal proceedings, risk factors, and exhibits Item 1. Legal Proceedings Information on legal proceedings is incorporated by reference from Note 12, with no anticipated material adverse effect - Information on legal proceedings is set forth in Note 12, Commitments and Contingencies, with no expectation of a material adverse effect[220] Item 1A. Risk Factors No material changes to the risk factors previously disclosed in the Annual Report on Form 10-K for fiscal year 2023 - No material changes to the risk factors disclosed in the Annual Report on Form 10-K for the fiscal year ended December 31, 2023[221] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales or purchases of equity securities by the issuer or affiliates occurred during the period - No unregistered sales of equity securities occurred during the period[221] - No purchases of equity securities by the issuer and affiliated purchasers occurred during the period[222] Item 3. Defaults Upon Senior Securities No defaults upon senior securities were reported during the three months ended March 31, 2024 - No defaults upon senior securities were reported[223] Item 4. Mine Safety Disclosures This item is not applicable to the company - This item is not applicable[224] Item 5. Other Information No Section 16 officer or director adopted or terminated any Rule 10b5-1 trading plan during Q1 2024 - No Section 16 officer or director adopted or terminated any Rule 10b5-1 trading plan or non-Rule 10b5-1 trading arrangement during the three months ended March 31, 2024[225] Item 6. Exhibits Lists all exhibits filed with the Form 10-Q, including corporate governance documents and CEO/CFO certifications - Exhibits include the Second Amended and Restated Certificate of Incorporation, Amended and Restated Bylaws, CEO and CFO Certifications (31.1, 31.2, 32.1, 32.2), and Inline XBRL documents[226] Signature Confirms the official signing of the report by the Chief Financial Officer on behalf of STEM, INC - The report was signed on behalf of STEM, INC. by William Bush, Chief Financial Officer, on May 2, 2024[228][229]