10-Q: Stem Inc. Reports First Quarter 2024 Results with Revenue Decline and Strategic Adjustments

Stem Inc. reported a significant decrease in revenue for the first quarter of 2024, alongside a net loss, while making strategic adjustments to its business model.

Summary

• Stem Inc. experienced a substantial revenue decrease of 62% year-over-year, dropping from $67.4 million to $25.5 million in the first quarter of 2024.
• The company's net loss widened to $72.3 million, compared to a net loss of $44.8 million in the same period last year.
• Hardware revenue saw a significant decline of 80%, primarily due to a $33.1 million reduction related to parent company guarantees and fewer hardware deliveries.
• Services and other revenue saw a slight increase of 1%, driven by growth in solar subscription services.
• The company's gross loss was $24.2 million, compared to a gross profit of $1.0 million in the first quarter of 2023.
• Non-GAAP gross profit was $13.8 million, with a non-GAAP gross margin of 24%.
• Adjusted EBITDA was a loss of $12.2 million, compared to a loss of $13.7 million in the prior year.
• Bookings decreased significantly to $23.8 million from $363.5 million in the prior year.
• Contracted backlog increased to $1,639.6 million, up from $1,242.6 million.
• Contracted storage assets under management (AUM) reached 5.8 GWh, compared to 3.5 GWh in the prior year.
• Solar monitoring AUM increased to 26.9 GW from 25.6 GW.
• Contracted annual recurring revenue (CARR) increased to $89.3 million from $71.5 million.

Sentiment

Score: 3

Explanation: The document indicates a significant downturn in revenue and profitability, coupled with increased risks and potential need for future capital raises. While there are some positive aspects, the overall tone is negative from an investment perspective.

Positives

• Contracted backlog increased to $1,639.6 million, indicating future revenue potential.
• Contracted storage AUM increased to 5.8 GWh, showing growth in managed energy storage.
• Solar monitoring AUM increased to 26.9 GW, demonstrating expansion in solar asset management.
• Contracted annual recurring revenue (CARR) increased to $89.3 million, suggesting a growing base of recurring revenue.
• The company is making strategic adjustments to its business model, including discontinuing parent company guarantees in customer contracts.

Negatives

• Total revenue decreased by 62% year-over-year, indicating a significant downturn in sales.
• The company reported a net loss of $72.3 million, a substantial increase from the previous year.
• Hardware revenue declined by 80%, primarily due to variable consideration adjustments and fewer deliveries.
• The company's gross loss was $24.2 million, a significant swing from the previous year's gross profit.
• Bookings decreased significantly to $23.8 million, suggesting a slowdown in new contract acquisitions.

Risks

• The company faces risks related to customer concentration, as a small number of customers account for a significant portion of revenue.
• Supply chain constraints and reliance on a small number of suppliers pose a risk to the company's ability to meet customer demand.
• DevCo joint ventures require significant upfront investment and involve a high degree of risk.
• The company may experience future revenue reductions due to outstanding parent company guarantees.
• A decline in lithium-ion battery costs is not guaranteed and could affect the company's ability to increase revenue.
• Increased competition in the market could adversely affect the company's market share and profitability.
• Changes in government regulations and compliance could impact the company's ability to deliver cost savings to customers.
• The company may need to secure additional financing in the future, which may not be available on acceptable terms.

Future Outlook

The company expects sales and marketing, research and development, and regulatory expenses to increase as they expand their marketing efforts and obtain regulatory clearances. General and administrative costs are also expected to increase due to the additional costs associated with scaling the business and being a public company. The company believes its cash position is sufficient to meet capital and liquidity requirements for at least the next 12 months.

Management Comments

• Management believes that adjusted EBITDA and non-GAAP gross profit provide meaningful supplemental information regarding the company's performance.
• Management believes that the company's cash position is sufficient to meet capital and liquidity requirements for at least the next 12 months.

Industry Context

The company operates in the rapidly evolving energy storage market, which is influenced by factors such as the increasing deployment of renewable energy, declining costs of lithium-ion batteries, and government regulations. The company is a market leader in terms of capacity of energy storage under management and intends to strengthen its competitive position by leveraging the network effect of its AI infrastructure.

Comparison to Industry Standards

• Stem's revenue decline of 62% is a significant deviation from the growth trajectory seen in many renewable energy companies, which are generally experiencing increased demand.
• The company's shift from a gross profit to a gross loss of $24.2 million is concerning when compared to industry peers who are typically focused on improving gross margins.
• While the company's contracted backlog has increased, the significant decrease in bookings suggests a potential slowdown in future revenue growth compared to industry averages.
• The increase in contracted storage AUM and solar monitoring AUM is positive, but the company needs to demonstrate that it can convert these assets into revenue more effectively than its competitors.
• The company's adjusted EBITDA loss of $12.2 million is not uncommon for companies in the growth phase, but it needs to show a clear path to profitability to align with industry standards.

Legal Proceedings

• The company is party to various legal proceedings from time to time.
• Management believes that the probability of a material loss with respect to any currently pending legal proceeding is remote.

Related Party Transactions

• Other current assets include $41 and $73 due from related parties as of March 31, 2024 and December 31, 2023, respectively.
• Other current liabilities include $203 and $31 due to related parties as of March 31, 2024 and December 31, 2023, respectively.

Stakeholder Impact

• Shareholders may be concerned about the significant decrease in revenue and the widening net loss.
• Employees may be affected by potential cost reductions or restructuring efforts.
• Customers may be impacted by potential supply chain disruptions or changes in pricing.
• Suppliers may be affected by the company's financial performance and ability to meet its obligations.
• Creditors may be concerned about the company's ability to repay its debts.

Next Steps

• The company will continue to assess the impact of the Inflation Reduction Act of 2022 on its business.
• The company will focus on diversifying its customer base to reduce reliance on a small number of significant customers.
• The company will continue to manage and reduce its general and administrative expenses.
• The company will continue to evaluate its DevCo joint ventures and their impact on the business.
• The company will continue to monitor and manage its supply chain to mitigate risks.

Key Dates

Keywords

energy storage, renewable energy, software platform, AI, Athena, hardware, solar, virtual power plants, grid resilience, energy optimization, CARR, AUM, bookings, backlog