STEM, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024. STEM provides energy-storage hardware and software-enabled services, including its Athena platform and solar monitoring. Results are unaudited.
Financial performance and liquidity
| Metric | Q1 2024 | Q1 2023 |
|---|---|---|
| Revenue | $25.5 million | $67.4 million |
| GAAP gross profit (loss) / margin | $(24.2) million / (95)% | $1.0 million / 1% |
| Non-GAAP gross profit / margin | $13.8 million / 24% | $15.1 million / 19% |
| Operating loss | $(68.0) million | $(42.7) million |
| Net loss | $(72.3) million; $(0.46) per share | $(44.8) million; $(0.29) per share |
| Adjusted EBITDA | $(12.2) million | $(13.7) million |
| Cash used in operating activities | $(0.6) million | $(35.8) million |
- Cash and cash equivalents were $112.8 million at quarter-end; working capital was $168.9 million and net accounts receivable was $239.9 million. Management believes cash and expected receivable collections can meet liquidity requirements for at least 12 months from the filing date.
- Cash, cash equivalents and restricted cash totaled $113.9 million at quarter-end. Operating cash use improved substantially, helped by a $63.9 million decline in accounts receivable and other working-capital movements.
- Convertible notes had a net carrying value of $524.2 million: $297.0 million principal due 2028 at 0.5% and $240.0 million principal due 2030 at 4.25%. Financing obligations totaled $64.6 million, including $15.4 million current.
Changes versus the prior-year quarter
- Revenue fell 62%. Hardware revenue declined $42.1 million, including a $33.1 million reduction related to guarantees on previously delivered hardware and $9.0 million from fewer deliveries. Services and other revenue edged up 1% to $14.8 million.
- The guarantee-related adjustment drove the GAAP gross loss. Excluding specified items, non-GAAP gross profit was $13.8 million, down from $15.1 million, while non-GAAP gross margin increased to 24% from 19%. The company’s non-GAAP measures exclude items including the guarantee adjustment; they are supplemental and not substitutes for GAAP results.
- Net loss widened by $27.5 million. Operating expenses were broadly flat at $43.8 million, while net interest expense increased $2.9 million to $4.7 million.
- Bookings were $23.8 million versus $363.5 million. Contracted backlog rose to $1.64 billion from $1.24 billion; contracted storage under management increased to 5.8 GWh from 3.5 GWh, and contracted annual recurring revenue increased to $89.3 million from $71.5 million.
Outlook, commentary, risks and unusual items
- No specific quarterly or full-year revenue or earnings guidance is provided. Management says results are seasonal, with 65% of 2023 revenue recognized in the third and fourth quarters, and cautions that first-quarter results are not necessarily indicative of the full year.
- Management expects investment in sales, research and development, and business operations to continue. It identifies reaching profitable operations as dependent on customer growth and retention, supplier relationships, execution, cost control and adequate financing.
- The $33.1 million guarantee-related revenue reduction reflects updated estimates for legacy customer guarantees; the remaining billed and unbilled receivable subject to possible further adjustments was $108.1 million. The company says it stopped including these guarantees in contracts after July 2023 and does not intend to offer them going forward, but further reductions on outstanding guarantees could be material.
- Adjusted EBITDA excludes the guarantee adjustment, $1.0 million of excess supplier costs and $1.1 million of restructuring costs, among other items. The restructuring related to severance and other exit costs.
- Key risks include customer and supplier concentration, supply-chain disruption, seasonality, competition, changing energy regulation, macroeconomic and geopolitical uncertainty, and risks from upfront investment in DevCo projects. Customer A represented 50% of receivables at quarter-end; two customers each contributed 22% of Q1 revenue.
- The company accrued $5.6 million for estimated sales-tax liabilities and related interest in certain states while its analysis is ongoing. Management said pending legal proceedings were not expected to have a material adverse effect; it also reported disclosure controls were effective at a reasonable-assurance level.
Important facts for investors to verify
- How much of the $108.1 million receivable exposed to legacy guarantees may require further revenue adjustments, and how collections progress.
- Whether hardware deliveries, bookings and customer purchase orders recover; some partnership bookings without binding purchase orders are cancellable without penalty.
- Whether backlog converts into revenue and recurring software/services revenue grows, given the sharp year-over-year bookings decline and seasonality.
- Whether liquidity remains adequate as losses continue, and the repayment, conversion and potential dilution implications of the convertible notes and equity awards.
- The final extent of potential sales-tax liabilities and the performance and funding exposure of DevCo projects.