Stem Announces Fourth Quarter and Full Year 2023 Results

Achieved Key Milestone with Positive Adjusted EBITDA in Q4 and 2H23

Expect to Generate at Least $50 Million of Operating Cash Flow in 2024

Awarded PowerBidder^™ Pro Contract by Mercuria Energy Trading

Outlook

• Expect to achieve positive adjusted EBITDA of between $5 million and $20 million in 2024¹
• Project at least $50 million in operating cash flow generation for the full year 2024 with no equity issuance

Fourth Quarter and Full Year 2023 Financial and Operating Highlights

Financial Highlights – Fourth Quarter 2023

• Revenue of $167.4 million, up from $155.5 million (+8%) in Q4 2022
• GAAP gross margin of 7%, down from 8% in Q4 2022
• Non-GAAP gross margin of 13%, up from 11% in Q4 2022
• Net loss of $37.7 million versus net loss of $35.3 million in Q4 2022
• Adjusted EBITDA of $4.6 million versus $(9.5) million in Q4 2022
• Ended Q4 2023 with $113.6 million in cash, cash equivalents, and short-term investments

Financial Highlights – Full Year 2023

• Revenue of $461.5 million, up from $363.0 million (+27%) for full year 2022
• GAAP gross margin of 1%, versus 9% for full year 2022
• Non-GAAP gross margin of 15%, versus 13% for full year 2022
• Net loss of $140.4 million versus net loss of $124.1 million for full year 2022
• Adjusted EBITDA of $(19.5) million versus $(46.0) million for full year 2022

Operating Highlights – Fourth Quarter 2023 and Full Year 2023

• Bookings of $256.1 million in Q4 2023, versus $457.5 million (-44%) in Q4 2022
• Bookings of $1.53 billion in full year 2023, up from $1.06 billion (+44%) in full year 2022
• Contracted backlog of $1.9 billion at end of Q4 2023, up from $969.0 million (+99%) at end of Q4 2022
• Contracted storage assets under management (AUM) of 5.5 gigawatt hours (GWh) at end of Q4 2023, up from 5.0 GWh (+10%) at end of Q3 2023 and 3.1 GWh (+77%) at end of 2022
• Solar monitoring AUM of 27.5 gigawatts (GW), up from 26.3 GW (+5%) at the end of Q3 2023 and 25.0 GW (+10%) at the end of 2022
• Contracted Annual Recurring Revenue (CARR) of $91.0 million, up from $87.5 million (+4%) at end of Q3 2023 and $65.3 million (+39%) at end of 2022

SAN FRANCISCO–(BUSINESS WIRE)–Stem, Inc. (“Stem” “we” or the “Company”) (NYSE: STEM), a global leader in artificial intelligence (AI)-driven clean energy solutions and services, announced today its financial results for the three and twelve months ended December 31, 2023. Reported results in this press release reflect AlsoEnergy’s operations from February 1, 2022.

John Carrington, Chief Executive Officer of Stem, commented, “We are proud to report that Stem reached our commitment to deliver positive adjusted EBITDA in the second half of 2023. We accomplished our goal through increased margins and ongoing operating cost discipline. We believe we are in a strong position to generate positive operating cash flow driven by our software technology leadership.

“Underlying demand for our market-leading solutions remains strong, as evidenced by another solid quarter of bookings, which drove our contracted backlog near $2 billion. In September, we introduced Athena^® PowerBidder Pro, an exciting new SaaS product for participation in wholesale energy markets, and today I am pleased to announce our first PowerBidder Pro contract with Mercuria, a leading energy trader. Our customers continue to value our differentiated services, as indicated by our high retention rates and top quartile net promoter scores.

“We are introducing our full year 2024 financial and operating outlook. For the year, we forecast adjusted EBITDA of between $5 million and $20 million and positive operating cash flow of at least $50 million. We also expect strong growth in revenue, bookings, CARR and AUM. Finally, we expect to achieve our plan without needing to issue equity.

“The management team and I are deeply focused on three guiding principles in 2024: extending our technology leadership position, building software services revenue, and profitable growth.”

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¹ See the section below titled “Reconciliations of Non-GAAP Financial Measures” for information regarding why the Company is unable to reconcile adjusted EBITDA guidance to its most comparable financial measure calculated in accordance with GAAP.

(1) Revenue, gross profit, and net loss were negatively impacted by a $35.1 million net reduction in revenue during the year ended December 31, 2023 and by excess supplier costs and resulting liquidated damages, as discussed below.

(2) Contracted storage AUM as of December 31, 2022 has been adjusted from 2.5 GWh, as previously disclosed, to 3.1 GWh. Revised AUM reflects adjustments to total GWh of energy storage as a result of revisions to the contracted system configuration or changes in hardware specifications due to updates from the original equipment manufacturer.

*Non-GAAP financial measures. Adjusted EBITDA and non-GAAP gross profit and non-GAAP margin have been adjusted to exclude the impact of the reduction in revenue, excess supplier costs and resulting liquidated damages as discussed below. See the section below titled “Use of Non-GAAP Financial Measures” for details and the section below titled “Reconciliations of Non-GAAP Financial Measures” for reconciliations.

**At period end.

Fourth Quarter and Full Year 2023 Financial and Operating Results

Financial Results

Fourth quarter 2023 revenue increased 8% to a record $167.4 million, versus $155.5 million in the fourth quarter of 2022. Full year 2023 revenue increased 27% to a record $461.5 million versus $363.0 million in full year 2022. Higher storage hardware revenue from Front-of-the-Meter (“FTM”) partnership agreements drove a majority of the year-over-year increase, in addition to higher solar asset performance revenue.

Fourth quarter 2023 GAAP gross profit was $11.0 million, or 7%, versus $12.6 million, or 8%, in the fourth quarter of 2022, and GAAP gross loss of $(20.3) million, or (15)%, in the third quarter of 2023. Full year 2023 GAAP gross profit was $3.6 million, or 1%, versus full year 2022 GAAP gross profit of $33.1 million, or 9%. The year-over-year decrease in GAAP gross profit for the fourth quarter of 2023 resulted primarily from lower Services gross profit due to lower project services revenue. The year-over-year decrease for the full year resulted primarily from a $35.1 million net reduction in revenue, as described below.

Fourth quarter 2023 non-GAAP gross profit was $22.2 million, or 13%, versus $17.0 million, or 11%, in the fourth quarter of 2022, and $21.4 million, or 12% in the third quarter of 2023. Full year 2023 non-GAAP gross profit was $75.1 million, or 15% versus full year 2022 non-GAAP gross profit of $47.3 million, or 13%. The year-over-year increase in non-GAAP gross profit for the fourth quarter and full year of 2023 resulted primarily from higher sales.

Fourth quarter 2023 net loss was $37.7 million versus fourth quarter 2022 net loss of $35.3 million. Full year 2023 Net Loss was $140.4 million versus full year 2022 net loss of $124.1 million. The year-over-year increase in net loss for the fourth quarter of 2023 was driven by lower gross profit and higher interest expense. The year-over-year increase for the full year of 2023 resulted primarily from a $35.1 million net reduction in revenue as described below.

Fourth quarter 2023 adjusted EBITDA was $4.6 million compared to $(9.5) million in the fourth quarter of 2022. Full year 2023 adjusted EBITDA was $(19.5) million compared to $(46.0) million in full year 2022. The improvement in adjusted EBITDA, including the first-time achievement of positive adjusted EBITDA in the fourth quarter and second half of 2023, was due to an increase in sales, increased gross margins, and lower cash operating costs.

The Company ended the fourth quarter of 2023 with $113.6 million in cash, cash equivalents, and short-term investments, consisting of $105.4 million in cash and cash equivalents and $8.2 million in short-term investments, as compared to $125.4 million in cash, cash equivalents, and short-term investments at the end of the third quarter 2023. The primary drivers of the sequential decrease in cash were increased accounts receivable, which is expected to be collected in the near-term, and decreased accounts payable.

Operating Results

Contracted backlog was $1.93 billion at the end of the fourth quarter of 2023, compared to $1.84 billion as of the end of the third quarter of 2023, representing a 5% sequential increase. The increase in contracted backlog in the fourth quarter of 2023 resulted from quarterly bookings of $256 million, partially offset by revenue recognition and contract cancellations and amendments. Bookings of $256 million in the fourth quarter of 2023 decreased by 44% year-over-year versus $458 million in fourth quarter 2022. Full year 2023 bookings of $1.53 billion increased 44% versus full year 2022 bookings of $1.06 billion.

Fourth quarter 2023 contracted storage AUM increased 77% year-over-year and 10% sequentially to 5.5 GWh, driven by new contracts.

Fourth quarter 2023 CARR increased to $91.0 million, up from $87.5 million as of the end of the third quarter of 2023, a 4% sequential increase.

The following table provides a summary of backlog at the end of the fourth quarter of 2023, compared to backlog at the end of the third quarter of 2023 ($ millions):

Recent Business Highlights

On November 16, 2023, the Company announced that Frost & Sullivan, a leading global research and growth consulting firm, has awarded Stem its 2023 New Product Innovation Award in the North America energy asset performance optimization industry. Frost & Sullivan’s independent evaluation credits Stem’s continued research and development, innovative software solutions, and strong commitment to proactively support customers as key differentiators in selecting the Company for the recognition. In addition, Frost & Sullivan states that Stem has earned the “trust and loyalty of businesses and utilities worldwide,” and that “Stem is well-positioned to drive the energy asset performance optimization space into its next growth phase, capturing market share and sustaining its leadership in the coming years.”

On December 15, 2023, the Company announced the results of its ERCOT benchmarking analysis from 2022. The analysis demonstrated that Athena’s advanced optimization capability unlocks significant revenue potential. In the backcast simulations, Athena outperformed six competitors in revenue attainment by an average of 28%. Athena’s optimization platform captured 75% of the theoretical maximum revenue vs competitors at 61% and the platform’s stochastic price forecasts enabled a 53% uplift in revenue compared to a naïve persistence-based approach. This analysis uncovered and modeled key factors determining the economic success of storage in the ERCOT wholesale market and modeled the Athena platform’s performance managing bid optimization against a set of competitors in ERCOT.

On February 28, 2024, the Company announced that its Athena PowerBidder Pro application had been selected by Mercuria Energy Trading, a leading global energy trader, to support bid optimization management for one of its energy storage systems (ESS) in ERCOT. Under this software-only contract, Mercuria will leverage PowerBidder Pro’s combination of configurability, cutting-edge analytics, advanced price forecasting and bid optimization, and seamless automation to develop customized trading strategies for its energy storage assets to participate in ERCOT. Stem’s PowerBidder Pro offers Mercuria access to real-time performance metrics, industry-leading analytics, and customizable configurations necessary to tailor trading strategies to ESS constraints, contractual obligations, risk management objectives, and emergent market conditions. As Mercuria’s ESS portfolio grows to meet its corporate objectives, PowerBidder Pro offers a scalable solution to seamlessly manage trading strategies across its entire portfolio, including across different ISO markets.

Outlook

The Company is introducing full-year 2024 guidance ranges as follows ($ millions, unless otherwise noted):

*See the section below titled “Reconciliations of Non-GAAP Financial Measures” for information regarding why Stem is unable to reconcile Non-GAAP Gross Margin and Adjusted EBITDA guidance to their most comparable financial measures calculated in accordance with GAAP.

The Company’s full year 2024 Revenue projected quarterly performance are as follows:

Additional Factors Affecting our Business and Operations

Stem continues to diversify its supply chain, integrate additional energy technologies, and deploy a portion of its balance sheet to help position the Company to meet the expected significant growth in customer demand. However, we are subject to risk and exposure from the evolving macroeconomic, geopolitical and business environment, including the effects of increased global inflationary pressures and interest rates, potential import tariffs, potential economic slowdowns or recessions, the prospect of a shutdown of the U.S. federal government, and geopolitical pressures, including the Russia-Ukraine armed conflict, rising tensions between China and the United States, and unknown effects of current and future trade and other regulations. We regularly monitor the direct and indirect effects of these circumstances on our business and financial results, although there is no guarantee of the extent to which we will be successful in these efforts.

Use of Non-GAAP Financial Measures

In addition to financial results determined in accordance with U.S. generally accepted accounting principles (“GAAP”), this earnings press release contains the following non-GAAP financial measures: adjusted EBITDA, non-GAAP gross profit and non-GAAP gross margin.

We use these non-GAAP financial measures for financial and operational decision-making and to evaluate our operating performance and prospects, develop internal budgets and financial goals, and to facilitate period-to-period comparisons. Management believes that these non-GAAP financial measures provide meaningful supplemental information regarding our performance and liquidity by excluding certain expenses and expenditures that may not be indicative of our operating performance, such as stock-based compensation and other non-cash charges, as well as discrete cash charges that are infrequent in nature. We believe that both management and investors benefit from referring to these non-GAAP financial measures in assessing our performance and when planning, forecasting, and analyzing future periods. These non-GAAP financial measures also facilitate management’s internal comparisons to our historical performance and liquidity as well as comparisons to our competitors’ operating results, to the extent that competitors define these metrics in the same manner that we do. We believe these non-GAAP financial measures are useful to investors both because they (1) allow for greater transparency with respect to key metrics used by management in its financial and operational decision-making and (2) are used by investors and analysts to help them analyze the health of our business. Our calculation of these non-GAAP financial measures may differ from similarly-titled non-GAAP measures, if any, reported by other companies. In addition, other companies may not publish these or similar measures. These non-GAAP financial measures should be considered in addition to, not as a substitute for, or superior to, other measures of financial performance prepared in accordance with GAAP. For reconciliation of adjusted EBITDA and non-GAAP gross profit and margin to their most comparable GAAP measures, see the section below entitled “Reconciliations of Non-GAAP Financial Measures.”

Definitions of Non-GAAP Financial Measures

We define adjusted EBITDA as net income (loss) attributable to Stem before depreciation and amortization, including amortization of internally developed software, net interest expense, further adjusted to exclude stock-based compensation and other income and expense items, including gain (loss) on the extinguishment of debt, revenue constraint, reduction in revenue, excess supplier costs and resulting liquidated damages, change in fair value of derivative liability, transaction and acquisition-related charges, litigation settlement, restructuring costs, and income tax provision or benefit. The expenses and other items that we exclude in our calculation of adjusted EBITDA may differ from the expenses and other items, if any, that other companies may exclude when calculating adjusted EBITDA.

We define non-GAAP gross profit as gross profit excluding amortization of capitalized software, impairments related to decommissioning of end-of-life systems, excess supplier costs and resulting liquidated damages, reduction in revenue, and including revenue constraint. Non-GAAP gross margin is defined as non-GAAP gross profit as a percentage of revenue.

The Company generally records the full purchase order value as revenue at the time of hardware delivery; however, for certain non-cancelable purchase orders entered into during the first quarter of 2023, the final settlement amount payable to the Company is variable and indexed to the price per ton of lithium carbonate in the first quarter of 2024 such that the Company may increase or decrease the final prices in such purchase orders based on the price per ton of lithium carbonate at final settlement. Lithium carbonate is a key raw material used in the production of hardware systems that the Company ultimately sells to customers. The total dollar amount of such purchase orders for the indexed contracts is approximately $52.0 million. However, due to the pricing structure in such purchase orders, the Company recorded revenue in the first quarter of 2023 of approximately $42.0 million in accordance with GAAP, net of a $10.2 million revenue constraint, using a third party forecast of the lithium carbonate trading value in the first quarter of 2024. Because the Company had not previously used indexed pricing in its customer contracts or purchase orders and had not previously constrained revenue related to forecasted inputs of its hardware systems, the Company believes that including the $10.2 million revenue constraint from the first quarter of 2023 into non-GAAP gross profit enhances the comparability to the Company’s non-GAAP gross profit in prior periods. Because the purchase orders are variable and depend on the specified price per ton of lithium carbonate at the time of final measurement at the end of the first quarter of 2024, the Company is expected to receive, pursuant to such purchase orders, final consideration of at least approximately $34.0 million, subject to market conditions upon settlement. The Company recorded the full cost of hardware revenue for these indexed contracts in the first quarter of 2023.

In the fourth quarter of 2023, we incurred costs of $2.7 million above initially agreed prices on the acquisition of certain hardware systems from one of our suppliers, which resulted from production delays by such supplier. This in turn caused fulfillment and delivery delays on an order to one of our customers, as a result of which we further incurred liquidated damages of $4.8 million under the customer contract. Because we had not previously incurred costs above initially agreed upon prices with a hardware supplier and were subsequently required to pay liquidated damages to a customer, we excluded these two items from adjusted EBITDA and non-GAAP gross profit to better facilitate comparisons of our underlying operating performance across periods.

In certain customer contracts, the Company previously agreed to provide a guarantee that the value of purchased hardware will not decline for a certain period of time. Under this guarantee, if these customers were unable to install or designate the hardware to a specified project within such period of time, the Company would be required to assist the customer in re-marketing the hardware for resale by the customer. The guarantee provided that, in such cases, if the customer resold the hardware for less than the amount initially sold to the customer, the Company would be required to compensate the customer for any shortfall in fair value for the hardware from the initial contract price. The Company accounts for such contractual terms and guarantees as variable consideration at each measurement date. The Company updates its estimate of variable consideration each quarter, including changes in estimates related to such guarantees, for facts or circumstances that have changed from the time of the initial estimate and, as a result, the Company recorded a net revenue reduction of $35.1 million during the full year 2023. Because these guarantees in customer contracts had not previously resulted in a revenue reduction in prior periods, and because the Company does not intend to provide such parent company guarantees going forward, the Company believes that excluding the impact of the $35.1 million net reduction in revenue from adjusted EBITDA and non-GAAP gross profit enhances the comparability to these metrics in prior periods. $16.9 million of the $35.1 million net reduction in revenue referred to above related to deliveries of hardware that occurred during fiscal year 2022, and $18.2 million related to hardware deliveries that occurred during fiscal year 2023. Because these contractual terms and guarantees had not previously resulted in a revenue reduction in prior periods, and because we do not intend to provide such parent company guarantees in customer contracts going forward, we believe that excluding the impact of the $35.1 million net reduction in revenue from adjusted EBITDA and non-GAAP gross profit enhances the comparability to these metrics in prior periods.

We do not intend to provide new parent company guarantees in customer contracts going forward. In addition, the Company does not expect that future revenue reductions, if any, as a result of outstanding guarantees will be material.

See the section below entitled “Reconciliations of Non-GAAP Financial Measures.”

Conference Call Information

Stem will hold a conference call to discuss this earnings press release and business outlook on Wednesday, February 28, 2024 beginning at 5:00 p.

Contacts

Stem Investor Contacts
Ted Durbin, Stem

Marc Silverberg, ICR

IR@stem.com

Stem Media Contacts
Suraya Akbarzad, Stem

press@stem.com

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