0001758766-22-000093.txt : 20220506 0001758766-22-000093.hdr.sgml : 20220506 20220505181118 ACCESSION NUMBER: 0001758766-22-000093 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 94 CONFORMED PERIOD OF REPORT: 20220331 FILED AS OF DATE: 20220506 DATE AS OF CHANGE: 20220505 FILER: COMPANY DATA: COMPANY CONFORMED NAME: STEM, INC. CENTRAL INDEX KEY: 0001758766 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS ELECTRICAL MACHINERY, EQUIPMENT & SUPPLIES [3690] IRS NUMBER: 264466193 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-39455 FILM NUMBER: 22898131 BUSINESS ADDRESS: STREET 1: 100 CALIFORNIA STREET, 14TH FLOOR CITY: SAN FRANCISCO STATE: CA ZIP: 94111 BUSINESS PHONE: (415) 937-7836 MAIL ADDRESS: STREET 1: 100 CALIFORNIA STREET, 14TH FLOOR CITY: SAN FRANCISCO STATE: CA ZIP: 94111 FORMER COMPANY: FORMER CONFORMED NAME: Star Peak Energy Transition Corp. DATE OF NAME CHANGE: 20200714 FORMER COMPANY: FORMER CONFORMED NAME: Star Peak Energy Acquisition Corp. DATE OF NAME CHANGE: 20181119 FORMER COMPANY: FORMER CONFORMED NAME: Roaring Fork Acquisition Corp. DATE OF NAME CHANGE: 20181109 10-Q 1 stem-20220331.htm 10-Q stem-20220331
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
—————————————————
FORM 10-Q
—————————————————
 
QUARTERLY QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2022
OR
 
QUARTERLY TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
for the transition period from ________ to ________

STEM, INC.
(Exact name of registrant as specified in its charter)
Delaware333-25139785-1972187
(State or Other Jurisdiction
of Incorporation)
(Commission File Number)(IRS Employer
Identification No.)
100 California St., 14th Fl, San Francisco, California 94111
(Address of principal executive offices including zip code)
1-877-374-7836
Registrant’s telephone number, including area code

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, par value $0.0001
STEM
New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act
Large accelerated filerAccelerated filer
Non-accelerated filer Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No

Class
Outstanding as of April 25, 2022
Common Stock, $0.0001 par value per share
154,057,258






TABLE OF CONTENTS


Page






















Part I. Financial Information

STEM, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(in thousands, except share and per share amounts)
March 31, 2022December 31, 2021
ASSETS
Current assets:
Cash and cash equivalents$174,537 $747,780 
Short-term investments177,273 173,008 
Accounts receivable, net74,123 61,701 
Inventory, net72,985 22,720 
Other current assets (includes $207 and $213 due from related parties as of March 31, 2022 and December 31, 2021, respectively)
28,252 18,641 
Total current assets527,170 1,023,850 
Energy storage systems, net102,320 106,114 
Contract origination costs, net9,620 8,630 
Goodwill547,700 1,741 
Intangible assets, net165,840 13,966 
Operating leases right-of-use assets13,785 12,998 
Other noncurrent assets51,380 24,531 
Total assets$1,417,815 $1,191,830 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable$99,307 $28,273 
Accrued liabilities22,785 25,993 
Accrued payroll8,422 7,453 
Financing obligation, current portion14,177 15,277 
Deferred revenue, current portion40,722 9,158 
Other current liabilities (includes $179 and $306 due to related parties as of March 31, 2022 and December 31, 2021, respectively)
2,622 1,813 
Total current liabilities188,035 87,967 
Deferred revenue, noncurrent64,051 28,285 
Asset retirement obligation4,168 4,135 
Notes payable, noncurrent1,719 1,687 
Convertible notes, noncurrent446,418 316,542 
Financing obligation, noncurrent70,395 73,204 
Lease liability, noncurrent12,526 12,183 
Other liabilities367  
Total liabilities787,679 524,003 
Commitments and contingencies (Note 16)
Stockholders’ equity:
Preferred stock, $0.0001 par value; 1,000,000 shares authorized as of March 31, 2022 and December 31, 2021; 0 shares issued and outstanding as of March 31, 2022 and December 31, 2021
  
Common stock, $0.0001 par value; 500,000,000 shares authorized as of March 31, 2022 and December 31, 2021; 153,717,797 and 144,671,624 issued and outstanding as of March 31, 2022 and December 31, 2021, respectively
15 14 
Additional paid-in capital1,161,109 1,176,845 
Accumulated other comprehensive income (loss)(619)20 
Accumulated deficit(530,510)(509,052)
Total Stem's stockholders' equity629,995 667,827 
Non-controlling interests141  
Total stockholders’ equity630,136 667,827 
Total liabilities and stockholders’ equity$1,417,815 $1,191,830 
The accompanying notes are an integral part of these condensed consolidated financial statements.
3


STEM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(in thousands, except share and per share amounts)
Three Months Ended
March 31,
20222021
Revenue
Services revenue$9,965$4,881
Hardware revenue31,12310,539
Total revenue41,08815,420
Cost of revenue
Cost of service revenue8,633 6,905 
Cost of hardware revenue28,811 8,632 
Total cost of revenue37,444 15,537 
Gross margin3,644 (117)
Operating expenses:
Sales and marketing9,142 2,667 
Research and development8,943 4,407 
General and administrative20,512 2,692 
Total operating expenses38,597 9,766 
Loss from operations(34,953)(9,883)
Other income (expense), net:
Interest expense(3,218)(6,233)
Change in fair value of warrants and embedded derivative  (66,397)
Other income (expenses), net475 (40)
Total other expense, net(2,743)(72,670)
Loss before income taxes(37,696)(82,553)
Income tax benefit15,213  
Net loss$(22,483)$(82,553)
Net loss per share attributable to common stockholders, basic and diluted$(0.15)$(2.04)
Weighted-average shares used in computing net loss per share, basic and diluted150,491,041 40,425,009 

The accompanying notes are an integral part of these condensed consolidated financial statements.
4


STEM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(UNAUDITED)
(in thousands)
Three Months Ended March 31,
20222021
Net loss$(22,483)$(82,553)
Other comprehensive loss:
Unrealized loss on available-for-sale securities(611) 
Foreign currency translation adjustment(28)251 
Total comprehensive loss$(23,122)$(82,302)
The accompanying notes are an integral part of these condensed consolidated financial statements.
5


STEM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
(UNAUDITED)
(in thousands, except share amounts)
Common StockAdditional Paid-In CapitalAccumulated Other Comprehensive Income (Loss)Accumulated DeficitNon-controlling InterestsTotal Stockholders’ Equity
Shares Amount
Balance as of January 1, 2022144,671,624 14 1,176,845 20 (509,052) 667,827 
Cumulative-effect adjustment upon adoption of ASU 2020-06 (Note 10)— — (130,979)— 1,598 — (129,381)
Cumulative-effect adjustment upon adoption of ASU 2016-13— — — — (573)— (573)
Common stock issued upon business combination (Note 6)8,621,006 1 108,882 — — — 108,883 
Stock option exercises, net of statutory tax withholdings425,167 — (426)— — — (426)
Stock-based compensation— — 6,787 — — — 6,787 
Unrealized loss on available-for-sale securities— — — (611)— — (611)
Foreign currency translation adjustments— — — (28)— — (28)
Acquisition of non-controlling interests— — — — — 141 141 
Net loss— — — — (22,483)— (22,483)
Balance as of March 31, 2022153,717,797 15 1,161,109 (619)(530,510)141 630,136 

Common StockAdditional Paid-In CapitalAccumulated Other Comprehensive Income (Loss)Accumulated DeficitNon-controlling InterestsTotal Stockholders’ Equity (Deficit)
Shares Amount
Balance as of January 1, 202140,202,785 4 230,620 (192)(407,841) (177,409)
Recognition of beneficial conversion feature related to convertible notes— — 1,126 — — — 1,126 
Stock option exercises1,392,494 — 2,750 — — — 2,750 
Legacy warrant exercises19,531 — 397 — — — 397 
Stock-based compensation— — 784 — — — 784 
Foreign currency translation adjustments— — — 251 — — 251 
Net loss— — — — (82,553)— (82,553)
Balance as of March 31, 202141,614,810 4 235,677 59 (490,394) (254,654)
The accompanying notes are an integral part of these condensed consolidated financial statements.
6


STEM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)
Three Months Ended March 31,
20222021
OPERATING ACTIVITIES
Net loss$(22,483)$(82,553)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization expense8,725 5,079 
Non-cash interest expense, including interest expenses associated with debt issuance costs456 3,902 
Stock-based compensation6,265 760 
Change in fair value of warrant liability and embedded derivative 66,397 
Noncash lease expense546 160 
Accretion expense60 50 
Impairment of energy storage systems171 613 
Net (accretion of discount) amortization of premium on investments293  
Income tax benefit from release of valuation allowance(15,100) 
Other(17) 
Changes in operating assets and liabilities:
Accounts receivable(3,352)(955)
Inventory(46,564)(1,466)
Other assets(32,284)(4,690)
Contract origination costs(1,670)(779)
Accounts payable and accrued expenses61,755 8,640 
Deferred revenue17,705 2,992 
Lease liabilities(54)(176)
Other liabilities(457)199 
Net cash used in operating activities (26,005)(1,827)
INVESTING ACTIVITIES
Acquisition of AlsoEnergy, net of cash acquired(532,839) 
Purchase of available-for-sale investments(41,437) 
Sales/maturities of available-for-sale investments36,271  
Purchase of energy storage systems(108)(1,525)
Capital expenditures on internally-developed software(3,537)(1,238)
Purchase of property and equipment(1,278) 
Net cash used in investing activities (542,928)(2,763)
FINANCING ACTIVITIES
Proceeds from exercise of stock options and warrants347 2,894 
Payments for taxes related to net share settlement of stock options(773) 
Proceeds from financing obligations311 2,732 
Repayment of financing obligations(4,178)(3,369)
Proceeds from issuance of convertible notes, net of issuance costs of $0 and $8 for the three months ended March 31, 2022 and 2021, respectively
 1,118 
Proceeds from issuance of notes payable, net of issuance costs of $0 and $101 for the three months ended March 31, 2022 and 2021, respectively
6 3,879 
Repayment of notes payable (161)
Net cash provided by (used in) financing activities (4,287)7,093 
Effect of exchange rate changes on cash and cash equivalents (23)428 
Net increase (decrease) in cash and cash equivalents (573,243)2,931 
Cash and cash equivalents, beginning of period 747,780 6,942 
Cash and cash equivalents, end of period $174,537 $9,873 
The accompanying notes are an integral part of these condensed consolidated financial statements.
7


SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest$1,869 $1,480 
NON-CASH INVESTING AND FINANCING ACTIVITIES
Change in asset retirement costs and asset retirement obligation$27 $37 
Purchases of energy storage systems in accounts payable$ $1,260 
Conversion of accrued interest into outstanding note payable$ $256 
Settlement of warrant liability into preferred stock due to exercise$ $253 
Stock-based compensation capitalized to internal-use software$522 $24 
The accompanying notes are an integral part of these condensed consolidated financial statements.
8

STEM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

1.BUSINESS
Description of the Business
Stem, Inc. and its subsidiaries (together, “Stem” or the “Company”) is one of the largest digitally connected, intelligent energy storage networks, providing customers (i) with an energy storage system, sourced from leading, global battery original equipment manufacturers (“OEMs”), that the Company delivers through its partners, including solar project developers and engineering, procurement and construction firms and (ii) through its Athena® artificial intelligence (“AI”) platform (“Athena”), with ongoing software-enabled services to operate the energy storage systems for up to 20 years. In addition, in all the markets where the Company operates its customers’ systems, the Company has agreements to manage the energy storage systems using the Athena platform to participate in energy markets and to share the revenue from such market participation.
The Company delivers its battery hardware and software-enabled services through its Athena platform to its customers. The Company’s hardware and recurring software-enabled services mitigate customer energy costs through services such as time-of-use and demand charge management optimization and by aggregating the dispatch of energy through a network of virtual power plants. The resulting network created by the Company’s growing customer base increases grid resilience and reliability through the real-time processing of market-based demand cycles, energy prices and other factors in connection with the deployment of renewable energy resources to such customers. Additionally, the Company’s energy storage solutions support renewable energy generation by alleviating grid intermittency issues and thereby reducing customer dependence on traditional, fossil fuel resources.
On February 1, 2022, the Company acquired all of the issued and outstanding capital stock of Also Energy Holdings, Inc. (“AlsoEnergy”), which has been consolidated since the date of acquisition. Through AlsoEnergy, the Company provides end-to-end turnkey solutions that monitor and manage renewable energy systems through AlsoEnergy’s PowerTrack software. PowerTrack includes data acquisitions and monitoring, performance modelling, agency reporting, internal reports, work order tickets, and supervisory control and data acquisition (“SCADA”) controls. AlsoEnergy has deployed systems at various international locations, but its primary customer base is in the United States, Germany and Canada. See Note 6 Business Combinations.
The Company operated as Rollins Road Acquisition Company (f/k/a Stem, Inc.) (“Legacy Stem”) prior to the Merger (as defined below). Stem, Inc. was incorporated on March 16, 2009 in the State of Delaware and is headquartered in San Francisco, California.
Star Peak Acquisition Corp. Merger
On December 3, 2020, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Star Peak Transition Corp. (“STPK”), an entity listed on the New York Stock Exchange under the trade symbol “STPK,” and STPK Merger Sub Corp., a Delaware corporation and wholly-owned subsidiary of STPK (“Merger Sub”), providing for, among other things, and subject to the conditions therein, the combination of the Company and STPK pursuant to the merger of Merger Sub with and into the Company, with the Company continuing as the surviving entity (the “Merger”).
On April 28, 2021, shareholders of STPK approved the Merger, under which Stem received approximately $550.3 million, net of fees and expenses as follows (in thousands):
Recapitalization
Cash — STPK trust and working capital cash$383,383 
Cash — PIPE (as described below)225,000 
Less: transaction costs and advisory fees paid(58,061)
Merger and PIPE financing$550,322 

Immediately prior to the closing of the Merger, (i) all issued and outstanding shares of Legacy Stem preferred stock, par value $0.00001 per share (the “Legacy Stem Preferred Stock”), were converted into shares of Legacy Stem common stock, par value $0.000001 per share (the “Legacy Stem Common Stock”) in accordance with Legacy Stem’s amended and restated certificate of incorporation, (ii) all outstanding convertible promissory notes of Legacy Stem (the “Legacy Stem Convertible Notes”) were converted into Legacy Stem Preferred Stock in accordance with the terms of the Legacy Stem Convertible Notes and (iii) certain warrants issued by Legacy Stem to purchase Legacy Stem Common Stock and Legacy Stem Preferred Stock
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STEM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(the “Legacy Stem Warrants”) were exercised by holders into Legacy Stem Common Stock in accordance with the terms thereof. Upon the consummation of the Merger, each share of Legacy Stem common stock then issued and outstanding was canceled and converted into the right to receive shares of common stock of Stem using an exchange ratio of 4.6432.
In connection with the execution of the Merger Agreement, STPK entered into separate subscription agreements (each, a “Subscription Agreement”) with a number of investors (each a “Subscriber”), pursuant to which the Subscribers agreed to purchase, and STPK agreed to sell to the Subscribers, an aggregate of 22,500,000 shares of common stock (the “PIPE Shares”), for a purchase price of $10 per share and an aggregate purchase price of $225.0 million, in a private placement pursuant to the subscription agreements (the “PIPE”). The PIPE investment closed simultaneously with the consummation of the Merger. The Merger was accounted for as a reverse recapitalization in accordance with U.S. generally accepted accounting principles (“GAAP”). Under this method of accounting, STPK was treated as the “acquired” company for financial reporting purposes. Accordingly, for accounting purposes, the Merger was treated as the equivalent of Stem issuing stock for the net assets of STPK, accompanied by a recapitalization. The net liabilities of STPK of $302.2 million, comprised primarily of the warrant liabilities associated with the Public and Private Placement Warrants discussed in Note 11 Warrants, are stated at historical cost, with no goodwill or other intangible assets recorded.
Liquidity
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and with the instructions to Form 10-Q and Article 10 of the Regulation S-X, assuming the Company will continue as a going concern. As of March 31, 2022, the Company had cash and cash equivalents of $174.5 million, short-term investments of $177.3 million, an accumulated deficit of $530.5 million and net working capital of $339.1 million, with $14.2 million of financing obligations coming due within the next 12 months. During the three months ended March 31, 2022, the Company incurred a net loss of $22.5 million and had negative cash flows from operating activities of $26.0 million. However, the net proceeds from the Merger of $550.3 million, the proceeds of $145.3 million from the exercise of Public Warrants (as described in Note 11 Warrants), and the net proceeds of $445.7 million from the issuance of the Company’s 0.50% Green Convertible Senior Notes due 2028 (the “2028 Convertible Notes”) (as described in Note 10 Convertible Promissory Notes) provided the Company with a significant amount of cash proceeds. As discussed in Note 6 Business Combinations, the Company acquired 100% of the issued and outstanding capital stock of AlsoEnergy for an aggregate purchase price of $653.0 million, including $544.1 million in cash and $108.9 million in common stock. The Company believes that its cash position is sufficient to meet capital and liquidity requirements for at least the next 12 months after the date that the financial statements are available to be issued.
The Company’s business prospects are subject to risks, expenses, and uncertainties frequently encountered by companies in the early stages of commercial operations. Prior to the Merger, the Company had been funded primarily by equity financings, convertible promissory notes and borrowings from affiliates. The attainment of profitable operations is dependent upon future events, including securing new customers and maintaining current ones, securing and maintaining adequate supplier relationships, building its customer base, successfully executing its business and marketing strategy, obtaining adequate financing to complete the Company’s development activities, and hiring and retaining appropriate personnel. Failure to generate sufficient revenues, achieve planned gross margins and operating profitability, control operating costs, or secure additional funding may require the Company to modify, delay or abandon some of its planned future expansion or development, or to otherwise enact operating cost reductions available to management, which could have a material adverse effect on the Company’s business, operating results and financial condition.
COVID-19
The ongoing COVID-19 pandemic has resulted and may continue to result in widespread adverse impacts on the global and U.S. economies. Ongoing government and business responses to COVID-19, along with COVID-19 variants and the resurgence of related disruptions, could have a continued material adverse effect on economic and market conditions and trigger a period of continued global and U.S. economic slowdown.
The Company’s industry is currently facing shortages and shipping delays affecting the supply of inverters, enclosures, battery modules and associated component parts for inverters and battery energy storage systems available for purchase. These shortages and delays can be attributed in part to the COVID-19 pandemic and resulting government action, as well as broader macroeconomic conditions that may persist once the immediate effects of the COVID-19 pandemic have subsided, and have been exacerbated by the ongoing conflict between Russia and Ukraine. While management believes that a majority of the Company’s suppliers have secured sufficient supply to permit them to continue delivery and installations through the end of 2022, if these shortages and delays persist into 2023, they could adversely affect the timing of when battery energy storage
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STEM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
systems can be delivered and installed, and when (or if) the Company can begin to generate revenue from those systems. The Company cannot predict the full effects the COVID-19 pandemic will have on our business, cash flows, liquidity, financial condition and results of operations at this time due to numerous uncertainties. The Company will continue to monitor developments affecting its workforce, its suppliers, its customers and its business operations generally, and will take actions the Company determines are necessary in order to mitigate these.
2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with GAAP for interim reporting and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, the condensed balance sheet at December 31, 2021 has been derived from the audited financial statements at that date, but certain notes or other information that are normally required by GAAP have been omitted if they substantially duplicate the disclosures contained in the Company’s annual audited consolidated financial statements. In the opinion of Stem management, all normal and recurring adjustments considered necessary for a fair statement of the results for the interim period presented have been included in the accompanying unaudited financial statements. The unaudited condensed consolidated financial statements include the accounts of the Company, its wholly-owned subsidiaries, and consolidated variable interest entities (“VIEs”). The Company presents non-controlling interests within the equity section of its condensed consolidated balance sheets, and the amount of consolidated net income (loss) that is attributable to Stem and the non-controlling interest in its condensed consolidated statements of operations. All intercompany balances and transactions have been eliminated in consolidation. These unaudited condensed financial statements should be read in conjunction with the Company’s audited financial statements for the year ended December 31, 2021. Operating results for the three months ended March 31, 2022 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2022 or for any other future interim period or year.
Use of Estimates
The preparation of unaudited condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the unaudited condensed consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. The Company bases its estimates on historical experience and on various other assumptions believed to be reasonable. Actual results could differ from those estimates and such differences could be material to the financial position and results of operations.
Significant estimates and assumptions reflected in these unaudited condensed consolidated financial statements include, but are not limited to, depreciable life of energy systems; the amortization of financing obligations; deferred commissions and contract fulfillment costs; the valuation of energy storage systems, internally developed software, and asset retirement obligations; and the fair value of equity instruments, equity-based instruments, warrant liabilities, embedded derivatives and net assets acquired in a business combination.
Segment Information
Operating segments are defined as components of an entity for which discrete financial information is available that is regularly reviewed by the Chief Operating Decision Maker (“CODM”) in deciding how to allocate resources to an individual segment and in assessing performance. The Company’s Chief Executive Officer is the CODM. The CODM reviews financial information presented on a consolidated basis for purposes of making operating decisions, allocating resources, and evaluating financial performance. As such, management has determined that the Company operates as one operating segment that is focused exclusively on innovative technology services that transform the way energy is distributed and consumed. The operations acquired as part of the acquisition of AlsoEnergy have been included in the Company’s operating segment. Net assets outside of the U.S. were less than 10% of total net assets as of March 31, 2022 and December 31, 2021.
Significant Customers
A significant customer represents 10% or more of the Company’s total revenue or accounts receivable, net balance at each reporting date. For each significant customer, revenue as a percentage of total revenue and accounts receivable as a percentage of total accounts receivable are as follows:
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STEM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Accounts ReceivableRevenue
March 31,December 31,Three Months Ended March 31,
2022202120222021
Customers:
Customer A*23 %**
Customer B19 %15 %11 %14 %
Customer C*13 %**
Customer D15 %*38 %*
*Total less than 10% for the respective period.
Fair Value of Financial Instruments
Assets and liabilities recorded at fair value in the unaudited condensed consolidated financial statements are categorized based upon the level of judgment associated with the inputs used to measure their fair value. The fair value of the Company’s financial assets and liabilities reflects management’s estimate of amounts that the Company would have received in connection with the sale of the assets or paid in connection with the transfer of the liabilities in an orderly transaction between market participants at the measurement date. In connection with measuring the fair value of its assets and liabilities, the Company seeks to maximize the use of observable inputs (market data obtained from independent sources) and to minimize the use of unobservable inputs (internal assumptions about how market participants would price assets and liabilities).

Hierarchical levels which are directly related to the amount of subjectivity associated with the inputs to the valuation of these assets or liabilities are as follows:
Level 1 — Unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access as of the measurement date.
Level 2 — Inputs other than quoted prices included within Level 1 that are directly observable for the asset or liability or indirectly observable through corroboration with observable market data.
Level 3 — Unobservable inputs for the asset or liability only used when there is little, if any, market activity for the asset or liability at the measurement date.
This hierarchy requires the Company to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value. Assets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is significant to their fair value measurement. The Company’s assessment of the significance of a specific input to the fair value measurement in its entirety requires management to make judgments and consider factors specific to the asset or liability.
Financial assets and liabilities held by the Company measured at fair value on a recurring basis as of March 31, 2022 and December 31, 2021 include cash and cash equivalents and short-term investments.
Recently Adopted Accounting Standards
The Company has adopted ASU 2020-06, Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40), effective January 1, 2022 using the modified retrospective approach. ASU 2020-06 simplifies the accounting for convertible instruments. The guidance removes certain accounting models which separate conversion features from the host contract for convertible instruments. As a result of the adoption of ASU 2020-06, the 2028 Convertible Notes are no longer bifurcated into separate liability and equity components in the March 31, 2022 condensed consolidated balance sheet. Rather, the $460.0 million principal amount of the Company’s 2028 Convertible Notes was classified as a liability in the March 31, 2022 condensed consolidated balance sheet. Upon adoption of ASU 2020-06, an adjustment was recorded to the 2028 Convertible Notes liability component, equity component (additional paid-in-capital) and accumulated deficit. The cumulative effect of the change was recognized as an adjustment to the opening balance of accumulated deficit at the date of adoption. The comparative information has not been restated and continues to be presented according to accounting standards in effect for those periods. This adjustment was calculated based on the carrying amount of the 2028 Convertible Notes as if it had always been treated only as a liability. Further, an adjustment was recorded to the debt discount and issuance costs as if these had always been treated as a contra liability only. Interest expense related to the
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STEM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
accretion of the 2028 Convertible Notes is no longer recognized. Interest expense for the 2028 Convertible Notes for the three months ended March 31, 2022 would have been $3.7 million higher without the adoption of ASU 2020-06. As such, net loss attributable to the Company per common share for the three months ended March 31, 2022 is $0.02 lower due to the effect of adoption of ASU 2020-06.
In June 2016, the FASB issued ASU 2016-13, Financial instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, and subsequent related ASUs, which amends the guidance on the impairment of financial instruments by requiring measurement and recognition of expected credit losses for financial assets held. This ASU is effective for public and private companies’ fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2019, and December 15, 2022, respectively. As the Company is no longer an emerging growth company as of January 1, 2022, the Company adopted ASU 2016-13 effective on such date, utilizing the modified retrospective transition method. Upon adoption, the Company updated its impairment model to utilize a forward-looking current expected credit losses (“CECL”) model in place of the incurred loss methodology for financial instruments measured at amortized cost, primarily including its accounts receivable. The adoption did not have a material effect on the Company’s unaudited condensed consolidated financial statements.
In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. Under ASU 2021-08, an acquirer must recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606. The Company early adopted ASU 2021-08 on a prospective basis effective January 1, 2022. As indicated in Note 6 Business Combinations, the Company completed the acquisition of AlsoEnergy on February 1, 2022. The adoption of ASU 2021-08 resulted in the recognition of deferred revenue at amounts consistent with those recorded by the acquiree immediately before the acquisition date rather than at fair value.
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”). ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. ASU 2019-12 was effective for public entities for interim and annual periods beginning after December 15, 2020, with early adoption permitted. ASU 2019-12 will be effective for private entities for annual periods beginning after December 15, 2021, and interim periods beginning after December 15, 2020, with early adoption permitted. The Company adopted ASU 2019-12 effective May 1, 2021. The adoption of this standard did not have a material impact on the Company’s unaudited condensed consolidated financial statements.
3.REVENUE
Disaggregation of Revenue
The following table provides information on the disaggregation of revenue as recorded in the consolidated statements of operations (in thousands):
Three Months Ended
March 31,
20222021
Hardware revenue
$31,123$10,539
Services revenue
9,9654,881
Total revenue
$41,088$15,420
The table above includes AlsoEnergy’s hardware and services revenue of $4.8 million and $4.8 million, respectively, for the three months ended March 31, 2022.
The following table summarizes reportable revenue by geographic regions determined based on the location of the customers (in thousands) :
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STEM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Three Months Ended
March 31,
2022
United States$39,458 
Rest of the world1,630 
Total revenue$41,088 
Remaining Performance Obligations
Remaining performance obligations represent contracted revenue that has not been recognized, which include contract liabilities (deferred revenue) and amounts that will be billed and recognized as revenue in future periods. As of March 31, 2022, the Company had $313.6 million of remaining performance obligations, and the approximate percentages expected to be recognized as revenue in the future are as follows (in thousands, except percentages):
Total remaining
performance
obligations
Percent Expected to be Recognized as Revenue
Less than
one year
Two to
five years
Greater than
five years
Service revenue
$232,136 18 %51 %31 %
Hardware revenue
81,427 100 % % %
Total revenue$313,563 
Contract Balances
Deferred revenue primarily includes cash received in advance of revenue recognition related to energy optimization services and incentives. The following table presents the changes in the deferred revenue balance during the three months ended March 31, 2022 (in thousands):
Beginning balance as of January 1, 2022$37,443 
Deferred revenue acquired upon business combination49,626 
Upfront payments received from customers35,050 
Upfront or annual incentive payments received2,895 
Revenue recognized related to amounts that were included in beginning balance of deferred revenue(2,938)
Revenue recognized related to amounts that were included in acquired balance of deferred revenue(3,338)
Revenue recognized related to deferred revenue generated during the period(13,965)
Ending balance as of March 31, 2022$104,773 
4.SHORT-TERM INVESTMENTS
The following tables summarize the estimated fair value of the Company’s short-term investments and the gross unrealized holding gains and losses as of March 31, 2022 and December 31, 2021 (in thousands):

As of March 31, 2022
Amortized costUnrealized gainUnrealized LossEstimated Fair Value
Corporate debt securities$37,917 $1 $(241)$37,677 
Commercial paper18,741   18,741 
U.S. government bonds84,324  (512)83,812 
Certificate of deposits17,347 2  17,349 
Treasury bills17,228  (9)17,219 
Agency bonds2,499  (24)2,475 
Total short-term investments$178,056 $3 $(786)$177,273 

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STEM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
As of December 31, 2021
Amortized costUnrealized gainUnrealized LossEstimated Fair Value
Corporate debt securities$42,174 $11 $(52)$42,133 
Commercial paper20,743   20,743 
U.S. government bonds86,265  (135)86,130 
Certificate of deposits21,501 6  21,507 
Agency bonds2,500  (5)2,495 
Total short-term investments$173,183 $17 $(192)$173,008 

The Company periodically reviews the individual securities that have unrealized losses on a regular basis to evaluate whether or not any security has experienced, or is expected to experience, credit losses resulting in the decline in fair value. The Company evaluates, among other factors, whether the Company intends to sell any of these marketable securities and whether it is more likely than not that the Company will be required to sell any of them before recovery of the amortized cost basis. During the three months ended March 31, 2022, the Company did not record an allowance for credit losses, as management believes any such losses would be immaterial based on the high-grade credit rating for each of the short-term investments as of the end of each period.
5.FAIR VALUE MEASUREMENTS
Fair value accounting is applied for all financial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring basis. At March 31, 2022 and December 31, 2021, the carrying amount of accounts receivable, other current assets, accounts payable, and accrued and other current liabilities approximated their estimated fair value due to their relatively short maturities. There were no assets or liabilities classified as Level 3 as of March 31, 2022.
The following table provides the financial instruments measured at fair value (in thousands):
March 31, 2022
Level 1Level 2Level 3Fair Value
Assets
Cash equivalents:
Money market fund$9,931$ $$9,931
Commercial paper 12,595  12,595 
Total cash equivalents9,931 12,595  22,526 
Debt securities:
Corporate debt securities 37,677  37,677
Commercial paper 18,741  18,741
U.S. government bonds 83,812  83,812
Certificate of deposits 17,349  17,349
Treasury bills 17,219  17,219
Agency bonds 2,475  2,475 
Total financial assets$9,931 $189,868 $ $199,799 

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STEM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
December 31, 2021
Level 1Level 2Level 3Fair Value
Assets
Cash equivalents:
Money market fund
$127,261 $ $ $127,261 
Debt securities:
Corporate debt securities 42,133  42,133 
Commercial paper 20,743  20,743 
U.S. government bonds 86,130  86,130 
Certificate of deposits 21,507  21,507 
Other 2,495  2,495 
Total financial assets$127,261 $173,008 $ $300,269 
The Company’s money market funds are classified as Level 1 because they are valued using quoted market prices. The Company’s short-term investments consist of available-for-sale securities and are classified as Level 2 because their value is based on valuations using significant inputs derived from or corroborated by observable market data.
6.BUSINESS COMBINATIONS
On February 1, 2022, Stem, Inc. acquired 100% of the outstanding shares of AlsoEnergy. AlsoEnergy provides end-to-end turnkey solutions that monitor and manage renewable energy systems. AlsoEnergy has deployed systems at various international locations, but its largest customer bases are in the United States, Germany and Canada. The combined company delivers a one-stop-shop solution for front-of-meter and commercial and industrial (“C&I”) customers with solar and storage needs.
The total consideration to acquire AlsoEnergy was $653.0 million, comprised of $544.1 million paid in cash and $108.9 million in the form of 8,621,006 shares of the Company’s common stock. The Company incurred $6.1 million of transaction costs related to the acquisition of AlsoEnergy, which were recorded in general and administrative expense during the three months ended March 31, 2022.
The following table summarizes the purchase price as a part of the acquisition of AlsoEnergy (in thousands):

Purchase Price
Cash consideration (1)
$544,059
Equity consideration108,883
Total consideration$652,942
(1) As of March 31, 2022, there was approximately $1.1 million of unpaid cash consideration relating to certain shareholders of AlsoEnergy.
Assets acquired and liabilities assumed are recorded based on valuations derived from estimated fair value assessments and assumptions used by the Company. The Company believes that its estimates and assumptions underlying the valuations are reasonable. However, different estimates and assumptions could result in different valuations assigned to the individual assets acquired and liabilities assumed, and the resulting amount of goodwill.
The following table summarizes the fair values of assets acquired and liabilities assumed in the acquisition of AlsoEnergy at the date of acquisition (in thousands):

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STEM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Assets Acquired

Cash$10,135 
Accounts receivable9,614 
Other current assets1,795 
Inventory3,701 
Operating leases right-of-use assets1,333 
Separately identifiable intangible assets acquired other than goodwill152,100 
Other non-current assets1,032 
Total identifiable assets acquired179,710 
Liabilities Assumed
Accounts payable1,985 
Other current liabilities1,596 
Accrued payroll2,533 
Deferred revenue, current portion17,486 
Lease liabilities, current portion431 
Deferred revenue, noncurrent32,140 
Lease liability, noncurrent902 
Deferred tax liability15,476 
Other noncurrent liabilities150 
Total liabilities assumed72,699 
Total net identifiable assets acquired107,011 
Goodwill545,931 
Total consideration$652,942 

Based on the accounting guidance provided in ASC 805, the Company accounted for the acquisition of AlsoEnergy as a business combination in which the Company determined that AlsoEnergy was a business.
The Company's purchase price allocation for the acquisition of AlsoEnergy is preliminary and subject to revision as additional information about the fair value of the assets and liabilities becomes available. The fair values assigned to tangible and intangible assets acquired, and liabilities assumed, are based on management’s estimates and assumptions and may be subject to change as additional information is received. Additional information that existed as of the closing date but not known at the time of this filing may become known to the Company during the remainder of the 12-month measurement period. The Company will continue to collect information and reevaluate these estimates and assumptions quarterly.
The following table and accompanying paragraphs below summarize the intangible assets acquired, their fair value as of the acquisition date, and their estimated useful lives for amortizable intangible (in thousands, except estimated useful life, which is in years):

Fair ValueUseful Life
Trade name$11,3007
Customer relationships106,80012
Backlog3,9001.1
Developed technology30,1007
Separately identifiable intangible assets acquired other than goodwill$152,100
Trade names include the AlsoEnergy and Powertrack trade names, which were measured at fair value using the relief-from-royalty method. Customer relationships represent the estimated fair values of the underlying relationship with AlsoEnergy customers measured using the multiple-period excess earnings method under the income approach. Backlog relates to
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STEM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
subscriptions contracts that were measured at fair value using the multiple-period excess earnings method under the income approach. Developed technology represents the preliminary fair value of AlsoEnergy’s renewable energy platform that was measured using the relief-from-royalty method of the income approach. The amortization expense for all acquired intangible assets will be recognized on a straight-line basis over their respective estimated useful lives.
Goodwill represents the excess of the purchase price over the fair value of the net identifiable assets acquired. The acquisition of AlsoEnergy resulted in the recognition of $545.9 million of goodwill. The Company believes that goodwill acquired primarily consists of expanded market and product opportunities, including acceleration of growth of renewable energy onto the power grid, expanded value for the Company’s customers to manage and optimize combined solar and energy storage systems through the vertical integration of software solutions, as well as access of the Company’s product offerings to international markets.
Goodwill created as a result of the acquisition of AlsoEnergy is not expected to be deductible for tax purposes. A net deferred tax liability of $15.5 million was established for the intangible assets acquired net of deferred tax assets, which primarily consists of net operating loss carryforwards and deferred revenue. Goodwill has been allocated to the Company’s single reporting unit.
The Company included the financial results of AlsoEnergy in its unaudited condensed consolidated financial statements from the acquisition date, which contributed $9.6 million and $3.5 million of revenue and net loss, respectively, during the three months ended March 31, 2022.
Unaudited Pro Forma Financial Information
The following unaudited pro forma financial information summarizes the combined results of operations for the Company and AlsoEnergy, as if the acquisition had occurred on January 1, 2021. The pro forma financial information is as follows (in thousands):
(Unaudited)
Three Months Ended March 31,
20222021
Total revenue$44,924 $27,573 
Net loss$(30,469)$(94,158)
The pro forma financial information for the periods presented above has been calculated after adjusting the results of AlsoEnergy to reflect the business combination accounting effects resulting from this acquisition, including the elimination of transaction costs incurred by the Company, amortization expense from acquired intangible assets, and settlement of stock option awards. The historical consolidated financial statements have been adjusted in the pro forma combined financial statements to give effect to pro forma events that are directly attributable to the business combination. The pro forma financial information is for informational purposes only, and is not indicative of either future results of operations, or results that may have been achieved had the acquisition been consummated as of this date.
7.GOODWILL AND INTANGIBLE ASSETS, NET
Goodwill
Goodwill consists of the following (in thousands):
March 31,December 31,
20222021
Goodwill$547,557 $1,625 
Effect of foreign currency translation143 116 
Total goodwill$547,700 $1,741 
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STEM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Intangible Assets, Net
Intangible assets, net, consists of the following (in thousands):
March 31,December 31,
20222021
Developed technology$30,600 $500 
Trade name11,300  
Customer relationships106,800  
Backlog3,900  
Internally developed software33,772 29,706 
Intangible assets186,372 30,206 
Less: Accumulated amortization(20,576)(16,276)
Add: Currency translation adjustment44 36 
Total intangible assets, net$165,840 $13,966 
Amortization expense for intangible assets was $4.4 million and $1.4 million for the three months ended March 31, 2022 and 2021, respectively.
8.ENERGY STORAGE SYSTEMS, NET
Energy Storage Systems, Net
Energy storage systems, net, consists of the following (in thousands):
March 31,December 31,
20222021
Energy storage systems placed into service$143,134 $143,592 
Less: accumulated depreciation(48,582)(45,250)
Energy storage systems not yet placed into service7,768 7,772 
Total energy storage systems, net$102,320 $106,114 
Depreciation expense for energy storage systems was approximately $4.3 million and $3.8 million for the three months ended March 31, 2022 and 2021, respectively. Depreciation expense is recognized in cost of service revenue.
9.NOTES PAYABLE
Revolving Loan Due to SPE Member
In April 2017, the Company entered into a revolving loan agreement with an affiliate of a member of certain of the Company’s special purpose entities (“SPE”). This agreement was, from time to time, subsequently amended. The purpose of this revolving loan agreement was to finance the Company’s purchase of hardware for its various energy storage system projects. The agreement had a total revolving loan capacity of $45.0 million that bore fixed interest at 10% with a maturity date of June 2020.
In May 2020, concurrent with the 2020 Credit Agreement discussed below, the Company entered into an amendment to the revolving loan agreement, which reduced the loan capacity to $35.0 million and extended the maturity date to May 2021. The amendment increased the fixed interest rate for any borrowings outstanding more than nine months to 14% thereafter. Additionally, under the original terms of the revolving loan agreement, the Company was able to finance 100% of the value of the hardware purchased up to the total loan capacity. The amendment reduced the advance rate to 85%, with an additional reduction to 70% in August 2020. The amendment was accounted for as a modification of the debt, which did not have a material impact on the unaudited condensed consolidated financial statements. In April 2021, the Company repaid the remaining outstanding balance of this facility with the proceeds received from the Merger. The facility was terminated after the repayment in April 2021.
Term Loan Due to Former Non-Controlling Interest Holder
19

STEM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
In June 2018, the Company acquired the outstanding member interests of an entity controlled by the Company for $8.1 million. The Company financed this acquisition by entering into a term loan agreement with the noncontrolling member bearing fixed interest of 4.5% per quarter (18.0% per annum) on the outstanding principal balance. The loan required fixed quarterly payments throughout the term of the loan, which was scheduled to be paid in full by April 1, 2026.
In May 2020, the Company amended the term loan and, using the proceeds from the 2020 Credit Agreement discussed below, prepaid $1.5 million of principal and interest on the note, of which $1.0 million was towards the outstanding principal balance, thereby reducing the fixed quarterly payment due to the lender. In relation to this amendment, the Company was required to issue warrants for 400,000 shares of common stock resulting in a discount to the term loan of $0.2 million. In April 2021, the Company repaid the remaining outstanding balance of this facility with the proceeds received from the Merger. Upon prepayment of this facility, the Company incurred $2.6 million in prepayment penalties that were recorded to loss on extinguishment of debt in the Company’s statement of operations. The facility was terminated after the repayment in April 2021.
2020 Credit Agreement
In May 2020, the Company entered into a credit agreement (“2020 Credit Agreement”) with a new lender that provided the Company with proceeds of $25.0 million to provide the Company with access to working capital towards the purchase of energy storage system equipment. The 2020 Credit Agreement has a maturity date of the earlier of (1) May 2021, (2) the maturity date of the revolving loan agreement, or (3) the maturity date of the convertible promissory notes discussed below. The loan bore interest of 12% per annum, of which 8% was paid in cash and 4% added back to principal of the loan balance every quarter. The Company used a portion of the proceeds towards payments associated with existing debt as previously discussed. In April 2021, the Company repaid the remaining outstanding balance of this facility with the proceeds received from the Merger. Upon prepayment of this facility, the Company incurred $1.4 million in prepayment penalties that were recorded to loss on extinguishment of debt in the Company’s statement of operations. The facility was terminated after the repayment in April 2021.
2021 Credit Agreement
In January 2021, the Company, through a wholly owned Canadian entity, entered into a credit agreement to provide a total of $2.7 million towards the financing of certain energy storage systems. The credit agreement is structured on a non-recourse basis and the system will be operated by the Company. The credit agreement has a stated interest of 5.45% and a maturity date of June 2031. The Company received an advance under the credit agreement of $1.8 million in January 2021. The repayment of advances received under this credit agreement is determined by the lender based on the proceeds generated by the Company through the operation of the underlying energy storage systems. As of March 31, 2022, and December 31, 2021, the outstanding balance was $1.9 million. The Company was in compliance with all covenants contained in the 2021 Credit Agreement as of March 31, 2022.
The Company’s outstanding debt consisted of the following as of March 31, 2022 (in thousands):
March 31, 2022
Outstanding principal$1,932 
Unamortized discount(213)
Carrying value of debt$1,719 
10.CONVERTIBLE PROMISSORY NOTES
As of December 31, 2020, the Company had various convertible notes outstanding to investors. The Company refers to the collective group of all such note instruments as the “Pre-Merger Convertible Promissory Notes.” As of December 31, 2020, these Pre-Merger Convertible Promissory Notes had a balance of $67.6 million. During the year ended December 31, 2021, the Company issued additional convertible notes, including convertible promissory notes issued and sold in January 2021 (the “Q1 2021 Convertible Notes”) and the 2028 Convertible Notes. Upon effectiveness of the Merger on April 28, 2021, all outstanding Pre-Merger Convertible Promissory Notes and the Q1 2021 Convertible Notes were converted to common stock and cancelled (see “—Conversion and Cancellation of Convertible Promissory Notes Upon Merger” below). As of December 31, 2021, the Pre-Merger Convertible Promissory Notes and the Q1 2021 Convertible Notes were no longer outstanding.

20

STEM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Q1 2021 Convertible Notes
In January 2021, the Company issued and sold the Q1 2021 Convertible Notes under the same terms as the then existing Pre-Merger Convertible Promissory Notes to various investors with aggregate gross proceeds of $1.1 million. The Company evaluated the conversion option within the Q1 2021 Convertible Notes and determined the effective conversion price was beneficial to the note holders.
Conversion and Cancellation of Convertible Promissory Notes Upon Merger
Immediately prior to the effectiveness of the Merger, the entire balance of the Company’s outstanding Pre-Merger Convertible Promissory Notes and the Q1 2021 Convertible Notes issued by Legacy Stem automatically converted into shares of Legacy Stem Common Stock. Upon the effectiveness of the Merger, these shares of Legacy Stem Common Stock automatically converted into 10,921,548 shares of common stock of Stem. The balance associated with the outstanding Pre-Merger Convertible Promissory Notes and the Q1 2021 Convertible Notes totaling $