DEFA14A: Stem, Inc. Seeks Shareholder Approval for Key Equity Plan Expansion and Reverse Stock Split Amidst Executive Compensation Adjustments

Stem, Inc. is soliciting shareholder votes for its 2025 Annual Meeting, proposing an increase in its equity incentive plan shares and a reverse stock split, following recent adjustments to executive compensation and a lower-than-expected say-on-pay vote.

Summary

• Stem, Inc. is seeking shareholder approval for seven proposals at its 2025 Annual Meeting, including the election of directors, an amendment to its equity incentive plan, executive compensation, auditor ratification, and a reverse stock split.
• The company's 2024 Say-on-Pay vote for 2023 NEO compensation received approximately 62% support, which was lower than anticipated due to unvoted shares from securities lending arrangements.
• Stockholder engagement efforts involved three of 24 invited largest stockholders, representing 14% of outstanding common stock, with two expressing support for the executive compensation program and no substantive concerns raised.
• No direct changes were made to the 2024 NEO compensation program based on these discussions, but performance-based stock units were introduced for 2025 to better align executive compensation with performance.
• Executive equity award grant values for Named Executive Officers (NEOs) in 2024 were 54% to 65% lower than in 2023, and 2025 values are expected to be significantly lower than 2023.
• The company requests approval for 4,000,000 new stock plan shares, which would bring the total available shares for future grant to 9,574,979 as of April 1, 2025.
• The fully-diluted overhang would increase from 11.4% (as of March 31, 2025) to 13.2% if the 2025 Restatement is approved, which the company deems reasonable.
• The stock plan is crucial for motivating and retaining talent, with 92.8% of employees holding equity awards and 77% receiving grants in 2024.
• The company's 3-year average net equity compensation share burn rate was 4.3%, significantly lower than the gross average of 6.4%, due to forfeitures from executive and employee departures.
• In Q1 2025, 4,448,297 shares (206,517 RSUs and 4,241,780 stock options) were forfeited/cancelled, representing approximately 2.7% of total common shares outstanding as of March 31, 2025.
• Shareholders are asked to approve a reverse stock split ranging from 10:1 to 20:1 and a corresponding reduction in authorized shares, conditioned on the reverse stock split's approval and implementation.

Sentiment

Score: 4

Explanation: The document presents a mixed picture. While management highlights efforts to align compensation and a lower net burn rate, the low Say-on-Pay vote, the need for a reverse stock split, and explicit mentions of a 'challenging time' and 'turnaround plan' indicate significant underlying issues and shareholder concerns. The request for more shares and the reverse split are often signs of distress or efforts to regain compliance/attract investment, rather than strong performance.

Positives

• Two out of three engaged stockholders expressed support for the executive compensation program, with no substantive concerns raised.
• Introduction of performance-based stock units for 2025 aims to better align executive compensation with performance.
• Executive equity award grant values for NEOs in 2024 were 54% to 65% lower than in 2023, indicating a reduction in equity compensation.
• The company's net equity compensation share burn rate (4.3% over 3 years) is significantly lower than the gross rate (6.4%), reflecting substantial forfeitures and reduced actual dilution.
• A high percentage of employees (92.8%) hold outstanding equity awards, indicating broad employee participation and alignment.

Negatives

• The 2024 Say-on-Pay vote received only 62% support, indicating a significant portion of shareholders did not approve the 2023 NEO compensation program.
• A large majority of outstanding shares held by some of the largest institutional stockholders were subject to securities lending arrangements, resulting in unvoted shares and contributing to the lower Say-on-Pay approval.
• The company's historical gross equity compensation share burn rate was elevated, which has been a focus for third-party proxy advisor firms.
• The company explicitly states it is in a 'challenging time for our industry' and is executing a 'turnaround plan,' suggesting ongoing business difficulties.

Risks

• Risk of losing key talent at various employee levels if the additional 4,000,000 stock plan shares are not approved, which would prevent the company from making competitive equity awards after 2025.
• The company is undergoing a 'turnaround plan' and facing 'business challenges,' indicating operational and financial risks.
• The lower Say-on-Pay vote (62%) and unvoted shares due to securities lending arrangements highlight potential governance and shareholder alignment risks.

Future Outlook

For 2025, Stem, Inc. has introduced performance-based stock units for its CEO and other executive officers to better align compensation with performance. The company anticipates that 2025 executive equity award grant values will be significantly lower than those in 2023. The approval of additional stock plan shares is critical for the company to make competitive equity awards beyond 2025 and retain key talent essential for its turnaround plan.

Management Comments

• "Given the general support of our stockholders who engaged with us, we did not make any changes to our 2024 NEO compensation program directly as a result of these discussions."
• "For 2025, in an effort to better align executive compensation with performance, we introduced performance-based stock units for the CEO and our other executive officers."
• "The equity award grant values for our named executive officers (NEOs) in 2024 were 54% to 65% lower than the equity grant values made to our NEOs in 2023."
• "The 2025 equity award grant values for our NEOs will be significantly lower than the equity grant values made to our NEOs in 2023."
• "Our stock plan is a critical tool for motivating and retaining key talent, both at the executive level and further down in the organization."
• "If the additional shares are not approved, we will not be able to make competitive equity awards after 2025."
• "If the additional shares are not approved, we risk losing key talent at various employee levels who are critical to executing our turnaround plan."
• "Our net share burn rate, which corresponds to actual dilution to our shareholders, has been much lower [than the gross rate]."
• "The Company's fully-diluted overhang... which we believe is reasonable and appropriate for companies of our size."

Industry Context

The document highlights that Stem, Inc. is operating in a 'challenging time for our industry' and is executing a 'turnaround plan.' This suggests broader headwinds or competitive pressures within the energy storage or clean energy sector, necessitating aggressive talent retention strategies and a focus on performance-aligned compensation.

Comparison to Industry Standards

• The document mentions that third-party proxy advisor firms have focused on Stem's historical gross equity compensation share burn rate, implying that this rate was higher than industry benchmarks or advisor expectations.
• The company counters this by emphasizing its 'much lower' net share burn rate (4.3% average over three years vs. 6.4% gross), which it argues corresponds to actual dilution.
• The company states that its projected overhang of 13.2% (if the share request is approved) is 'reasonable and appropriate for companies of our size,' suggesting a comparison to peer companies, though no specific comparable companies or projects are named.

Management Changes

Corporate Governance

Stakeholder Impact

• Shareholders: Potential dilution from new stock plan shares (overhang increasing to 13.2%). Potential benefit from improved talent retention and performance alignment. Impact from reverse stock split (fewer shares, higher price per share). Lower Say-on-Pay vote indicates some dissatisfaction.
• Employees: High participation in equity awards (92.8%). Approval of new shares is critical for competitive equity awards and retention, especially for those 'critical to executing our turnaround plan.' Risk of losing key talent if shares are not approved.
• Management: Executive compensation structure is being adjusted with performance-based units. Equity award values are significantly lower than previous years.

Next Steps

• Shareholders to vote on seven proposals at the 2025 Annual Meeting.
• Elect two Class I director nominees to serve until the 2028 Annual Meeting.
• Implement performance-based stock units for CEO and other executive officers for 2025.
• Potentially implement a reverse stock split (10:1 to 20:1) and a corresponding reduction in authorized shares, conditioned on shareholder approval.
• Continue to make competitive equity awards to retain talent, contingent on approval of additional stock plan shares.

Key Dates

Recommendation

Keywords

Stem Inc., SEC Filing, Proxy Statement, DEFA14A, Executive Compensation, Say-on-Pay, Stock Plan, Equity Incentive Plan, Shareholder Vote, Reverse Stock Split, Corporate Governance, Share Dilution, Talent Retention, Energy Storage, AI-driven Clean Energy