Business context and reporting period
STEM, Inc.’s Form 10-Q covers the quarter ended March 31, 2021. Despite the registrant name, the quarter’s financial statements report the pre-merger blank-check company, Star Peak Energy Transition Corp.; they do not include Stem, Inc.’s operating business. The merger with Stem, Inc. closed on April 28, 2021, after quarter-end.
Financial performance and position
| Metric | Q1 2021 / March 31, 2021 | Comparable period / prior year-end |
|---|---|---|
| Revenue | No operating revenue; the company had not commenced operations | No operating revenue in Q1 2020 |
| Net loss | $156.3 million | $1,100 loss in Q1 2020 |
| Major loss driver | $155.8 million noncash charge from increased fair value of warrant liabilities | No comparable charge reported |
| Trust investment income | $35,469 gain | None reported |
| Operating cash flow | $510,709 used | No cash flow reported |
| Cash | $426,064 | $936,773 at December 31, 2020 |
| Trust investments | $383.6 million | $383.7 million at December 31, 2020 |
| Warrant liabilities | $276.9 million | $121.1 million at December 31, 2020 |
| Total liabilities | $293.2 million | $137.5 million at December 31, 2020 |
| Working capital | $1.7 million deficit | Prior comparable value not clearly stated |
| Debt | No long-term debt reported; no working-capital loans outstanding |
Net loss per Class B share was $16.30, compared with approximately zero in Q1 2020. The company reported $5.0 million of stockholders’ equity, with redeemable Class A shares presented separately as temporary equity. No meaningful operating margin comparison is available because the company had no operating revenue.
Changes, outlook, and risks
- The increase in net loss largely reflects warrant accounting: warrants were recorded as liabilities and remeasured at fair value each reporting date. The charge was noncash and drove the rise in reported liabilities.
- Management said the limited operating cash and approximately $1.7 million working-capital deficit raised substantial doubt about the company’s ability to continue as a going concern. The Trust Account was primarily designated for a business combination and should not be viewed as ordinary operating liquidity.
- The merger with Stem, Inc. closed April 28, 2021. This is a material subsequent event; the quarter’s results are not post-merger operating results.
- No financial guidance was provided. Management said the impact of COVID-19 was not readily determinable. The filing reported no material changes to the risk factors in the prior Form 10-K/A and no legal proceedings.
- Disclosure controls were deemed ineffective as of March 31, 2021 due to a previously reported material weakness in internal control over financial reporting. Management described remediation efforts focused on complex securities accounting and related review processes.
Important facts for investors to verify
- Review post-merger filings for Stem’s operating results, cash position, debt, and liquidity; these Q1 statements are for the pre-merger SPAC.
- Assess the merger’s final financing, redemptions, share issuance, and resulting dilution. The filing reports 125,754,510 common shares outstanding as of May 14, 2021.
- Verify the accounting and subsequent treatment of the substantial public and private warrant liabilities, including potential dilution and valuation volatility.
- Check whether the material weakness was remediated and whether disclosure controls became effective in subsequent reporting.
- Confirm how the low pre-merger operating cash and going-concern uncertainty were addressed following the April 28 merger.