0001758766-22-000129.txt : 20220805 0001758766-22-000129.hdr.sgml : 20220805 20220804181159 ACCESSION NUMBER: 0001758766-22-000129 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 97 CONFORMED PERIOD OF REPORT: 20220630 FILED AS OF DATE: 20220805 DATE AS OF CHANGE: 20220804 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: 221138061 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-20220630.htm 10-Q stem-20220630
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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 June 30, 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 July 25, 2022
Common Stock, $0.0001 par value per share
154,227,627




STEM, INC.
Quarterly Report on Form 10-Q
For the Quarterly Period Ended June 30, 2022

TABLE OF CONTENTS


Page





















Part I. Financial Information
STEM, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(in thousands, except share and per share amounts)
June 30, 2022December 31, 2021
ASSETS
Current assets:
Cash and cash equivalents$151,003 $747,780 
Short-term investments183,890 173,008 
Accounts receivable, net of allowances of $1,639 and $91 as of June 30, 2022 and December 31, 2021, respectively
95,855 61,701 
Inventory, net63,055 22,720 
Other current assets (includes $58 and $213 due from related parties as of June 30, 2022 and December 31, 2021, respectively)
47,927 18,641 
Total current assets541,730 1,023,850 
Energy storage systems, net98,427 106,114 
Contract origination costs, net9,321 8,630 
Goodwill546,732 1,741 
Intangible assets, net164,796 13,966 
Operating lease right-of-use assets13,200 12,998 
Other noncurrent assets52,496 24,531 
Total assets$1,426,702 $1,191,830 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable$113,180 $28,273 
Accrued liabilities33,057 25,993 
Accrued payroll10,132 7,453 
Financing obligation, current portion14,784 15,277 
Deferred revenue, current portion49,692 9,158 
Other current liabilities (includes $354 and $306 due to related parties as of June 30, 2022 and December 31, 2021, respectively)
4,415 1,813 
Total current liabilities225,260 87,967 
Deferred revenue, noncurrent65,849 28,285 
Asset retirement obligation4,217 4,135 
Notes payable, noncurrent1,673 1,687 
Convertible notes, noncurrent446,914 316,542 
Financing obligation, noncurrent67,102 73,204 
Lease liabilities, noncurrent11,921 12,183 
Other liabilities339  
Total liabilities823,275 524,003 
Commitments and contingencies (Note 15)
Stockholders’ equity:
Preferred stock, $0.0001 par value; 1,000,000 shares authorized as of June 30, 2022 and December 31, 2021; 0 shares issued and outstanding as of June 30, 2022 and December 31, 2021
  
Common stock, $0.0001 par value; 500,000,000 shares authorized as of June 30, 2022 and December 31, 2021; 154,226,275 and 144,671,624 issued and outstanding as of June 30, 2022 and December 31, 2021, respectively
15 14 
Additional paid-in capital1,166,865 1,176,845 
Accumulated other comprehensive (loss) income(1,136)20 
Accumulated deficit(562,529)(509,052)
Total Stem's stockholders' equity603,215 667,827 
Non-controlling interests212  
Total stockholders’ equity603,427 667,827 
Total liabilities and stockholders’ equity$1,426,702 $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
June 30,
Six Months Ended
June 30,
2022202120222021
Revenue
Services revenue$12,521$5,153$22,486$10,035
Hardware revenue54,42614,18485,54924,723
Total revenue66,94719,337108,03534,758
Cost of revenue
Cost of service revenue10,141 5,809 18,774 12,715 
Cost of hardware revenue49,018 13,655 77,829 22,286 
Total cost of revenue59,159 19,464 96,603 35,001 
Gross margin7,788 (127)11,432 (243)
Operating expenses:
Sales and marketing12,955 3,913 22,097 6,580 
Research and development8,963 4,827 17,906 9,234 
General and administrative15,693 15,014 36,205 17,706 
Total operating expenses37,611 23,754 76,208 33,520 
Loss from operations(29,823)(23,881)(64,776)(33,763)
Other expense, net:
Interest expense(2,691)(3,929)(5,909)(10,162)
Loss on extinguishment of debt (5,064) (5,064)
Change in fair value of warrants and embedded derivative  (67,179) (133,577)
Other income (expenses), net484 (163)959 (203)
Total other expense, net(2,207)(76,335)(4,950)(149,006)
Loss before income taxes(32,030)(100,216)(69,726)(182,769)
Income tax benefit7  15,220  
Net loss(32,023)(100,216)(54,506)(182,769)
Net loss attributed to non-controlling interests(4) (4) 
Net loss attributable to Stem$(32,019)$(100,216)$(54,502)$(182,769)
Net loss per share attributable to Stem common stockholders, basic and diluted$(0.21)$(1.00)$(0.36)$(2.59)
Weighted-average shares used in computing net loss per share to Stem common stockholders, basic and diluted154,125,061 100,611,965 152,318,090 70,684,750 

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 June 30,Six Months Ended June 30,
2022202120222021
Net loss$(32,023)$(100,216)$(54,506)$(182,769)
Other comprehensive loss:
Unrealized loss on available-for-sale securities(399) (1,010) 
Foreign currency translation adjustment(118)(602)(146)(351)
Other comprehensive loss(32,540)(100,818)(55,662)(183,120)
Less: Comprehensive loss attributable to non-controlling interests(4) (4) 
Total comprehensive loss attributable to Stem$(32,536)$(100,818)$(55,658)$(183,120)
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 
Stock option exercises, net of statutory tax withholdings355,712 — (1,415)— — — (1,415)
Issuance of common stock upon release of restricted stock units131,665 — — — — — — 
Shares issued for exercise of warrants21,101 — 150 — — — 150 
Stock-based compensation— — 7,021 — — — 7,021 
Unrealized loss on available-for-sale securities— — — (399)— — (399)
Foreign currency translation adjustments— — — (118)— — (118)
Acquisition of non-controlling interests— — — — — 75 75 
Net loss— — — — (32,019)(4)(32,023)
Balance as of June 30, 2022154,226,275 $15 $1,166,865 $(1,136)$(562,529)$212 $603,427 

The accompanying notes are an integral part of these condensed consolidated financial statements.
6


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)
Merger and PIPE financing (Note 1)70,428,326 7 247,011 — — — 247,018 
Conversion of warrants into common stock upon Merger (Note 11)2,759,970 — 60,568 — — — 60,568 
Conversion of convertible notes into common stock upon Merger (Note 10)10,921,548 1 77,747 — — — 77,748 
Exchange of warrants into common stock (Note 11)4,683,349 1 168,646 — — — 168,647 
Issuance of common stock warrants for services (Note 11)— — 9,183 — — — 9,183 
Stock option and stock warrant exercises360,052 — 39 — — — 39 
Stock-based compensation— — 1,047 — — — 1,047 
Foreign currency translation adjustments— — — (602)— — (602)
Net loss— — — — (100,216)— (100,216)
Balance as of June 30, 2021130,768,055 $13 $799,918 $(543)$(590,610)$ $208,778 
The accompanying notes are an integral part of these condensed consolidated financial statements.
7


STEM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)
Six Months Ended June 30,
20222021
OPERATING ACTIVITIES
Net loss$(54,506)$(182,769)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization expense20,887 10,315 
Non-cash interest expense, including interest expenses associated with debt issuance costs902 7,119 
Stock-based compensation12,732 1,784 
Change in fair value of warrant liability and embedded derivative 133,577 
Noncash lease expense1,131 334 
Impairment of energy storage systems919 1,275 
Issuance of warrants for services 9,183 
Net (accretion of discount) amortization of premium on investments410  
Income tax benefit from release of valuation allowance(15,100) 
Provision for accounts receivable allowance1,010  
Other88 112 
Changes in operating assets and liabilities:
Accounts receivable(26,123)(4,219)
Inventory(36,634)(6,323)
Other assets(52,134)(16,924)
Contract origination costs(3,625)(1,650)
Accounts payable, accrued expenses and other current liabilities89,598 3,292 
Deferred revenue28,471 3,294 
Lease liabilities(469)(289)
Other liabilities(187)56 
Net cash used in operating activities(32,630)(41,833)
INVESTING ACTIVITIES
Acquisition of AlsoEnergy, net of cash acquired(533,009) 
Purchase of available-for-sale investments(98,922) 
Sales and maturities of available-for-sale investments86,623  
Purchase of energy storage systems(232)(5,603)
Capital expenditures on internally-developed software(8,085)(2,693)
Purchase of property and equipment(2,405)(300)
Net cash used in investing activities(556,030)(8,596)
FINANCING ACTIVITIES
Proceeds from exercise of stock options and warrants611 2,933 
Payments for taxes related to net share settlement of stock options(2,302) 
Net contributions from Merger and PIPE financing, net of transaction costs of $58,061
 550,322 
Proceeds from financing obligations311 4,929 
Repayment of financing obligations(6,817)(4,609)
Proceeds from issuance of convertible notes, net of issuance costs of $0 and $8 for the six months ended June 30, 2022 and 2021, respectively
 1,118 
Proceeds from issuance of notes payable, net of issuance costs of $0 and $101 for the six months ended June 30, 2022 and 2021, respectively
 3,940 
Investment from non-controlling interests216  
Repayment of notes payable (41,446)
Net cash (used in) provided by financing activities(7,981)517,187 
Effect of exchange rate changes on cash and cash equivalents(136)438 
Net (decrease) increase in cash and cash equivalents(596,777)467,196 
Cash and cash equivalents, beginning of year747,780 6,942 
Cash and cash equivalents, end of period$151,003 $474,138 
The accompanying notes are an integral part of these condensed consolidated financial statements.
8


SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest$3,407 $7,131 
NON-CASH INVESTING AND FINANCING ACTIVITIES
Change in asset retirement costs and asset retirement obligation$40 $71 
Exchange of warrants for common stock$ $168,647 
Conversion of warrants upon merger$ $60,568 
Conversion of convertible notes upon merger$ $77,748 
Conversion of accrued interest into outstanding note payable$ $337 
Right-of-use asset obtained in exchange for lease liability$ $1,230 
Settlement of warrant liability into preferred stock due to exercise$ $253 
Stock-based compensation capitalized to internal-use software$522 $47 
The accompanying notes are an integral part of these condensed consolidated financial statements.
9

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

1.BUSINESS
Description of the Business
Stem, Inc., together with its consolidated subsidiaries (“Stem,” the “Company,” “we,” “us,” or “our”), maintains one of the largest digitally connected, intelligent renewable energy 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, (ii) ongoing software-enabled services to operate the energy storage systems for up to 20 years, through its Athena® artificial intelligence (“AI”) platform (“Athena”), and (iii) solar asset performance monitoring and control, through its PowerTrack software. In addition, in all the markets where the Company operates its customers’ energy storage systems, the Company has agreements to use 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.
The Company’s PowerTrack platform provides a vertically-integrated solution that incorporates on-site power monitoring equipment that aggregates and communicates data to enable remote control of solar generation assets. PowerTrack provides direct access to individual site performance to measure and benchmark expected energy production, maximizing asset value for our customers.
From time to time, the Company, through an indirect wholly-owned development subsidiary (“DevCo”) formed in January 2022, will enter into strategic joint ventures (each a “DevCo JV”) with qualified third parties for the development of select renewable energy projects (“DevCo Projects”). In this structure, DevCo forms a new DevCo JV entity as the majority owner, with the developer as the minority owner. The purpose of the DevCo JV is to develop and sell DevCo Projects and secure Company hardware and software services for those projects. In DevCo Projects, the Company makes development capital contributions to fund project development. The Company will in some cases also elect to make cash advances to hardware suppliers to accelerate project construction timelines given long lead times to secure hardware. This business model is intended to allow the Company to opportunistically deploy its balance sheet by providing development capital to key partners in strategic markets and securing hardware upfront, in order to generate higher-margin software and services revenue via exclusive long-term services contracts under the DevCo Projects.
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 modeling, 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”).
10

STEM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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 (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.
11

STEM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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 June 30, 2022, the Company had cash and cash equivalents of $151.0 million, short-term investments of $183.9 million, an accumulated deficit of $562.5 million and net working capital of $316.5 million, with $14.8 million of financing obligations coming due within the next 12 months. During the six months ended June 30, 2022, the Company incurred a net loss of $54.5 million and had negative cash flows from operating activities of $32.6 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 $652.0 million, including $543.1 million in cash net of a working capital adjustment for an escrow recovery 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
There has been a trend in many parts of the world of increasing availability and administration of vaccines against COVID-19, as well as an easing of restrictions on social, business, travel and government activities and functions. On the other hand, infection rates and regulations continue to fluctuate in various regions of the world, and there are ongoing global effects resulting from the pandemic, including challenges and increases in costs for logistics and supply chains, such as increased port congestion, intermittent supplier delays and labor shortages. 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 continues to face 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 pandemic and resulting government action, as well as broader macroeconomic conditions that may persist once the immediate effects of the 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 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 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
12

STEM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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 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 and six months ended June 30, 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.

Variable Interest Entities
Beginning in January 2022, the Company formed DevCo JVs with the purpose of originating potential battery storage facility projects in the specific locations and conducting early-stage planning and development activities. The Company determined that the DevCo JVs are variable interest entities (“VIEs”) as they lack sufficient equity to finance their activities without additional financial support. The Company determined that it has both (1) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance, and (2) the obligation to absorb losses or receive benefits from the VIE that could potentially be significant. Accordingly, the Company has determined that it is the primary beneficiary of the DevCo JVs, and as a result, the DevCo JVs’ operating results, assets and liabilities are consolidated by the Company.
The following table summarizes the carrying values of the assets and liabilities of the DevCo JVs that are consolidated by the Company (in thousands):

June 30, 2022
Assets
Cash and cash equivalents$4,597 
Fixed assets, net1,353 
Total assets5,950 
Liabilities
Accounts payable143 
Total liabilities$143 
For the six months ended June 30, 2022, the Company contributed approximately $5.6 million in capital investments for hardware purchases. The net loss from the DevCo JVs during the six months ended June 30, 2022 was not material.
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 acquired intangibles; 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
13

STEM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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 June 30, 2022 and December 31, 2021.
Concentration of Credit Risk and Other Uncertainties
At times, the Company may be subject to a concentration of credit risk in relation to certain customers due to the purchase of large energy storage systems made by such customers. The Company routinely assesses the creditworthiness of its customers. The Company has not experienced any material losses related to receivables from individual customers, or groups of customers, during the six months ended June 30, 2022 and 2021. The Company does not require collateral. Due to these factors, no additional credit risk beyond amounts provided for credit losses is believed by management to be probable in the Company’s accounts receivable.
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:
Accounts ReceivableRevenueRevenue
June 30,December 31,Three Months Ended June 30,Six Months Ended June 30,
202220212022202120222021
Customers:
Customer A*23 %****
Customer B12 %15 %****
Customer C*13 %****
Customer D47 %*50 %*46 %*
Customer E**15 %***
Customer F***27 %*15 %
Customer G***10 %**
Customer H*****15 %
Customer I***25 %*14 %
*Total less than 10% for the respective period.

There are inherent risks whenever a large percentage of total revenue is concentrated in a limited number of customers. Should a significant customer: terminate or fail to renew its contracts with us, in whole or in part, for any reason, or experience significant financial or operating difficulties, it could have a material adverse effect on our financial condition and results of operations. In general, a customer that makes up a significant portion of revenues in one period, may not make up a significant portion in subsequent periods. See “We depend on significant customers for a substantial portion of our revenue. If we fail to retain or expand our customer relationships or significant customers reduce their purchases, our revenue could decline significantly” in Part II, Item 1A. “Risk Factors” of this report for additional information about certain risks related to the concentration of our customers.

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:
14

STEM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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 June 30, 2022 and December 31, 2021 include cash and cash equivalents, short-term investments, and convertible promissory notes.
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 June 30, 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 June 30, 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 accretion of the 2028 Convertible Notes is no longer recognized. Interest expense for the 2028 Convertible Notes for the three and six months ended June 30, 2022 would have been $3.8 million and $7.5 million higher without the adoption of ASU 2020-06, respectively. As such, net loss attributable to the Company per common share for the three and six months ended June 30, 2022 is $0.02 and $0.05 lower due to the effect of adoption of ASU 2020-06, respectively.
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.
15

STEM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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
June 30,
Six Months Ended
June 30,
2022202120222021
Hardware revenue
$54,426$14,184$85,549$24,723
Services revenue
12,5215,15322,48610,035
Total revenue
$66,947$19,337$108,035$34,758
The table above includes AlsoEnergy’s hardware and services revenue of $6.9 million and $7.2 million, respectively, for the three months ended June 30, 2022 and $11.7 million and $12.0 million, respectively, for the six months ended June 30, 2022.
The following table summarizes reportable revenue by geographic regions determined based on the location of the customers (in thousands):
Three Months Ended
June 30,
Six Months Ended
June 30,
20222022
United States$64,202 $103,660 
Rest of the world2,745 4,375 
Total revenue$66,947 $108,035 
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 June 30, 2022, the Company had $363.8 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
$258,080 18 %51 %31 %
Hardware revenue
105,680 100 % % %
Total revenue$363,760 
16

STEM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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 six months ended June 30, 2022 (in thousands):
Beginning balance as of January 1, 2022$37,443 
Deferred revenue acquired upon business combination49,626 
Upfront payments received from customers85,598 
Upfront or annual incentive payments received3,868 
Revenue recognized related to amounts that were included in beginning balance of deferred revenue(4,488)
Revenue recognized related to amounts that were included in acquired balance of deferred revenue(7,983)
Revenue recognized related to deferred revenue generated during the period(48,523)
Ending balance as of June 30, 2022$115,541 
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 June 30, 2022 and December 31, 2021 (in thousands):

As of June 30, 2022
Amortized CostUnrealized GainUnrealized LossEstimated Fair Value
Corporate debt securities$35,366 $ $(284)$35,082 
Commercial paper19,985  (1)19,984 
U.S. government bonds105,881  (861)105,020 
Certificate of deposits10,849   10,849 
Treasury bills10,494  (11)10,483 
Agency bonds2,500  (28)2,472 
Total short-term investments$185,075 $ $(1,185)$183,890