STEM, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. Stem provides battery energy storage hardware and software-enabled services through its Athena platform. Results include AlsoEnergy from its February 1, 2022 acquisition; prior-period comparisons therefore are not fully comparable.
Financial results and liquidity
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Revenue | $41.1 million | $15.4 million |
| Gross margin | $3.6 million; 9% | $(0.1) million; (1)% |
| Non-GAAP gross margin | $6.4 million; 16% | $2.0 million; 13% |
| Operating loss | $(35.0) million | $(9.9) million |
| Net loss | $(22.5) million | $(82.6) million |
| Adjusted EBITDA | $(12.8) million | $(3.2) million |
| Cash used in operating activities | $(26.0) million | $(1.8) million |
- Hardware revenue was $31.1 million and services revenue was $10.0 million. Revenue increased 166%, primarily from higher hardware demand and the inclusion of AlsoEnergy.
- GAAP gross margin improved, but operating expenses rose to $38.6 million from $9.8 million. The net loss narrowed substantially, in part because Q1 2021 included a $66.4 million warrant and embedded-derivative revaluation loss; Q1 2022 also included a $15.2 million income tax benefit from a partial valuation-allowance release.
- At March 31, cash and cash equivalents were $174.5 million and short-term investments were $177.3 million. Net working capital was $339.1 million. Management said available cash was sufficient for at least 12 months from issuance of the filing.
- Investing cash outflow was $542.9 million, including $532.8 million net cash paid for AlsoEnergy. Cash declined by $573.2 million during the quarter.
- Debt included $460.0 million principal of 0.50% convertible notes due 2028, with a $446.4 million carrying value; $84.6 million in financing obligations, including $14.2 million current; and $1.9 million of notes payable. The convertible notes have an initial conversion price of approximately $29.24 per share.
Material changes and business developments
- Stem acquired AlsoEnergy for approximately $653.0 million: $544.1 million cash and $108.9 million in Stem shares. AlsoEnergy contributed $9.6 million revenue and $3.5 million net loss from acquisition through quarter-end.
- The acquisition added $545.9 million of goodwill and $152.1 million of identifiable intangible assets; the purchase-price allocation was preliminary. AlsoEnergy expands the company’s solar monitoring and control software offering through PowerTrack.
- Common shares outstanding increased from 144.7 million at December 31, 2021 to 153.7 million at March 31, 2022, including 8.6 million shares issued for the acquisition.
- Reported operating metrics increased year over year: bookings were $150.8 million versus $50.8 million; contracted backlog was $565.1 million versus $221.0 million; 12-month pipeline was $5.2 billion versus $1.4 billion; and contracted storage AUM was 1.8 GWh versus 1.1 GWh. Solar monitoring AUM was 32.4 GW and CARR was $51.5 million; comparable prior-period figures were not provided.
Outlook, risks and unusual items
- The filing provides no specific numerical revenue, earnings or cash-flow guidance. Management expects sales and marketing, research and development, and general and administrative expenses to increase as the business scales.
- Management identified supply shortages and shipping delays for batteries, inverters and related components, linked to pandemic disruption and broader macroeconomic conditions and exacerbated by the Russia-Ukraine conflict. Suppliers were believed to have secured enough supply for delivery and installations through 2022; longer disruption could delay projects and revenue.
- Other risks include customer and supplier execution, competition, changing electricity regulation and incentives, tariffs and trade restrictions, and successful integration of AlsoEnergy. Management noted that failure to generate revenue, achieve planned margins, control costs or obtain financing could require changes to expansion plans.
- Disclosure controls were deemed ineffective at March 31, 2022 due to material weaknesses involving energy-system and inventory accounting, financial statement review, control formality and revenue-recognition calculations. Remediation steps were underway but not yet fully implemented or tested as effective.
- Management said material loss from pending legal proceedings was remote. A post-quarter insurer settlement yielded $1.1 million net of legal costs and fees, expected to be recorded as a gain in Q2 2022.
Key facts for investors to verify
- Whether AlsoEnergy integration, preliminary purchase accounting and expected synergies progress as planned.
- Whether revenue growth converts into stronger gross margins and improved Adjusted EBITDA, which deteriorated year over year despite higher revenue.
- Cash burn, working-capital needs and the effect of acquisition-related spending on liquidity.
- Supplier delivery timelines, project commissioning and whether bookings and backlog convert into recognized revenue.
- Progress in remediating the disclosed material weaknesses and the potential dilution from equity awards and convertible notes.