# Stem, Inc.: Form 10-Q for the period ended Sep 30, 2022

- Company: [Stem, Inc.](/companies/stem.md) (CIK 1758766)
- Form: 10-Q
- Filed: 2022-11-04
- Accepted by EDGAR: Nov 3, 2022, 21:24 ET
- Period: 2022-09-30
- Accession: 0001758766-22-000185
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1758766/000175876622000185/stem-20220930.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1758766/000175876622000185/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2022-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2022-07-01 to 2022-09-30 | $99.5m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2022-01-01 to 2022-09-30 | $207.5m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2022-07-01 to 2022-09-30 | $90.4m | us-gaap:CostOfRevenue |
| Cost of revenue | 9 months, 2022-01-01 to 2022-09-30 | $187.0m | us-gaap:CostOfRevenue |
| Gross profit | 3 months, 2022-07-01 to 2022-09-30 | $9.1m | us-gaap:GrossProfit |
| Gross profit | 9 months, 2022-01-01 to 2022-09-30 | $20.6m | us-gaap:GrossProfit |
| Research and development | 3 months, 2022-07-01 to 2022-09-30 | $10.5m | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 9 months, 2022-01-01 to 2022-09-30 | $28.4m | us-gaap:ResearchAndDevelopmentExpense |
| Operating income | 3 months, 2022-07-01 to 2022-09-30 | −$32.6m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2022-01-01 to 2022-09-30 | −$97.4m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2022-07-01 to 2022-09-30 | $2.5m | us-gaap:InterestExpense |
| Interest expense | 9 months, 2022-01-01 to 2022-09-30 | $8.4m | us-gaap:InterestExpense |
| Income tax | 3 months, 2022-07-01 to 2022-09-30 | $19.0k | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2022-01-01 to 2022-09-30 | −$15.2m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2022-07-01 to 2022-09-30 | −$34.3m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2022-01-01 to 2022-09-30 | −$88.8m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2022-07-01 to 2022-09-30 | −$0.22 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2022-01-01 to 2022-09-30 | −$0.58 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2022-07-01 to 2022-09-30 | −$0.22 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2022-01-01 to 2022-09-30 | −$0.58 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2022-07-01 to 2022-09-30 | 154,392,573 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2022-01-01 to 2022-09-30 | 153,043,010 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2022-01-01 to 2022-09-30 | −$68.6m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Cash and equivalents | at 2022-09-30 | $100.1m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2022-09-30 | $537.2m | us-gaap:AssetsCurrent |
| Total assets | at 2022-09-30 | $1.42bn | us-gaap:Assets |
| Current liabilities | at 2022-09-30 | $240.5m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2022-09-30 | $840.0m | us-gaap:Liabilities |
| Shareholders' equity | at 2022-09-30 | $576.8m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 61,783 characters.

### Special Note Regarding Forward-Looking Statements

This third quarter 2022 Form 10-Q, as well as other statements we make, contains “forward-looking statements” within the meaning of the federal securities laws, which include any statements that are not historical facts. Such statements often contain words such as “expect,” “may,” “can,” “believe,” “predict,” “plan,” “potential,” “projected,” “projections,” “forecast,” “estimate,” “intend,” “anticipate,” “ambition,” “goal,” “target,” “think,” “should,” “could,” “would,” “will,” “hope,” “see,” “likely,” and other similar words.

Forward-looking statements address matters that are, to varying degrees, uncertain, such as statements about our financial and performance targets and other forecasts or expectations regarding, or dependent on, our business outlook; the expected synergies of the combined Stem and AlsoEnergy company; our ability to continue to successfully integrate the combined companies; our ability to security sufficient inventory from suppliers to meet customer demand; our ability to manage supply chain issues and manufacturing or delivery delays; our joint ventures, partnerships and other alliances; reduction of greenhouse gas (“GHG”) emissions; the integration and optimization of energy resources; our business strategies and those of our customers; the global commitment to decarbonization; our ability to retain or upgrade current customers, further penetrate existing markets or expand into new markets; our ability to manage our supply chains and distribution channels and the effects of natural disasters and other events beyond our control, such as the COVID-19 pandemic and variants thereof, and government and business responses thereto; the impact of the ongoing conflict in Ukraine; our ability to meet contracted customer demand; the expected impact of the Inflation Reduction Act on our business; and future results of operations, including revenue and Adjusted EBITDA.

Such forward-looking statements are subject to risks, uncertainties, and other factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements, including but not limited to our inability to secure sufficient inventory from our suppliers to meet customer demand, and provide us with contracted quantities of equipment; supply chain interruptions and manufacturing or delivery delays; disruptions in sales, production, service or other business activities; general economic, geopolitical and business conditions in key regions of the world, including inflationary pressures, general economic slowdown or a recession, increasing interest rates, and changes in monetary policy; the ongoing effects of the COVID-19 pandemic on our workforce, operations, financial results and cash flows; the effects of the ongoing conflict in Ukraine; the results of operations and financial condition of our customers and suppliers; pricing pressure; inflation; weather and seasonal factors; challenges, disruptions and costs of integrating AlsoEnergy and achieving anticipated synergies, or such synergies taking longer to realize than expected; risks that the integration disrupts current plans and operations that may harm our business; uncertainty as to the effects of the transaction on the long-term value of our common stock; our ability to continue to grow and to manage our growth effectively; our ability to attract and retain qualified employees and key personnel; our ability to comply with, and the effect on their businesses of, evolving legal standards and regulations, particularly concerning data protection and consumer privacy and evolving labor standards; risks relating to the development and performance of our energy storage systems and software-enabled services; our inability to retain or upgrade current customers, further penetrate existing markets or expand into new markets; the risk that our business, financial condition and results of operations may be adversely affected by other political, economic, business and competitive factors; and other risks and uncertainties set forth in our most recent Forms 10-K, 10-Q and 8-K filed with or furnished to the SEC. If one or more of these or other risks or uncertainties materialize (or the consequences of any such development changes), or should our underlying assumptions prove incorrect, actual outcomes may vary materially from those reflected in our forward-looking statements. Forward-looking and other statements in this Form 10-Q regarding our environmental, social and other sustainability plans and goals are not an indication that these statements are necessarily material to investors or required to be disclosed in our filings with the SEC. In addition, historical, current, and forward-looking environmental, social and sustainability-related statements may be based on standards for measuring progress that are still developing, internal controls and processes that continue to evolve, and assumptions that are subject to change in the future. Statements in this Form 10-Q are made as of November 3, 2022, and Stem disclaims any intention or obligation to update publicly or revise such statements, whether as a result of new information, future events or otherwise.

*You should read the following management’s discussion and analysis of our financial condition and results of operations together with our unaudited condensed consolidated financial statements and related notes included under Part I, Item 1 of this Quarterly Report on Form 10-Q. This discussion and analysis should also be read together with our audited consolidated financial statements and related notes, as well as the section entitled “Stem’s Management’s Discussion and Analysis of Financial Condition and Results or Operations” contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021. You should carefully read the sections entitled “Special Note Regarding Forward-Looking Statements” contained herein and the section entitled “Risk Factors” contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 and our Quarterly Report for the quarter ended March 31, 2022 and June 30, 2022, to gain an understanding of the important factors that could cause actual results to differ materially from our forward-looking statements.*

*Throughout this section, unless otherwise noted “we,” “us,” “our” and the “Company” refer to Stem and its consolidated subsidiaries.*

### Overview

Our mission is to build and operate the largest, digitally connected, intelligent renewable energy network for our customers. In order to fulfill our mission, we provide our customers, which include commercial and industrial (“C&I”) enterprises as well as independent power producers, renewable project developers, utilities and grid operators, with (i) an energy storage system, sourced from leading, global battery original equipment manufacturers (“OEMs”), that we deliver through our partners, including developers, distributors, and engineering, procurement and construction firms and (ii) solar, energy storage and EV charging infrastructure monitoring, control, optimization, and reporting through our Athena® artificial intelligence (“AI”) platform (“Athena”) and supporting applications, including Athena PowerTrack.

We operate in two key areas within the energy storage landscape: Behind-the-Meter (“BTM”) and Front-of-the-Meter (“FTM”). An energy system’s position in relation to a customer’s electric meter determines whether it is designated a BTM or FTM system. BTM systems provide power that can be used on-site without interacting with the electric grid and passing through an electric meter. Our software reduces C&I customer energy bills, increases their energy yield, and helps our customers facilitate the achievement of their corporate environmental, social, and corporate governance (“ESG”) objectives.

FTM, grid-connected systems provide power to off-site locations and must pass through an electric meter prior to reaching an end-user. Through Athena, our FTM storage systems decrease risk for project developers, lead asset professionals, independent power producers and investors by adapting to dynamic energy market conditions in connection with the deployment of electricity and improving the value of energy storage over the course of their FTM system’s lifetime. Through PowerTrack, our software maximizes FTM energy output and minimizes asset downtime.

Since our inception in 2009, we have engaged in developing and marketing software-enabled services, raising capital, and recruiting personnel. We have incurred net operating losses and negative cash flows from operations each year since our inception. We have financed our operations primarily through proceeds received from the Merger, the issuance of convertible preferred stock, convertible senior notes, debt financing, and cash flows from customers. Our total revenue grew from $39.8 million for the three months ended September 30, 2021 to $99.5 million for the three months ended September 30, 2022. We incurred net losses of $34.3 million for the three months ended September 30, 2022 and net income of $115.6 million for the three months ended September 30, 2021. Our total revenue grew from $74.6 million for the nine months ended September 30, 2021 to $207.5 million for the nine months ended September 30, 2022. For the nine months ended September 30, 2022 and 2021, we incurred net losses of $88.8 million and $67.2 million, respectively. As of September 30, 2022, we had an accumulated deficit of $596.8 million.

We expect that our sales and marketing, research and development, regulatory and other expenses will continue to increase as we expand our marketing efforts to increase sales of our solutions, expand existing relationships with our customers, and obtain regulatory clearances or approvals for future product enhancements. In addition, we expect our general and administrative costs and expenses to increase due to the additional costs associated with scaling our business operations as well as being a public company, including legal, accounting, insurance, exchange listing and SEC compliance, investor relations and other costs and expenses.

### Acquisition of AlsoEnergy

On February 1, 2022, we acquired 100% of the issued and outstanding capital stock of AlsoEnergy. The transaction combines our storage optimization capabilities with AlsoEnergy’s solar asset performance monitoring and control software. Through AlsoEnergy, we provide 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. The total consideration for the AlsoEnergy acquisition was $652.0 million, comprised of $543.1 million paid in cash net of a working capital adjustment for an escrow recovery, and $108.9 million in the form of 8,621,006 shares of our common stock. We incurred $6.1 million of transaction costs related to the acquisition of AlsoEnergy, which were recorded in general and administrative expense during the nine months ended September 30, 2022. See Note 6 — *Business Combinations,* of the Notes to the unaudited condensed consolidated financial statements in this report, for additional details regarding this transaction.

### Key Factors, Trends and Risks Affecting our Business

We believe that our performance and future success depend on several factors that present significant opportunities for us but also pose risks and challenges, including but not limited to:

### Decline in Lithium-Ion Battery Costs

Our revenue growth is directly tied to the continued adoption of energy storage systems by our customers. The cost of lithium-ion energy storage hardware has declined significantly in the last decade and has resulted in a large addressable market today. The market for energy storage is rapidly evolving, and while we believe costs will continue to decline, there is no guarantee. If costs do not continue to decline, or do not decline as quickly as we anticipate, this could adversely affect our ability to increase our revenue and grow our business. The United States Inflation Reduction Act of 2022 (the “IRA”) was signed into law on August 16, 2022 and includes incentives and tax credits aimed at reducing the effects of climate change, such as a tax credit for stand-alone battery storage projects. The implementation of the IRA is expected to further reduce the cost of battery storage systems for certain customers; however, there are numerous restrictions and requirements associated with qualifying for the tax credits and other incentives available under the IRA, and the Company continues to assess how the IRA may affect its business.

### Increase in Deployment of Renewables

Deployment of intermittent resources has accelerated over the last decade, and today, wind and solar have become a low cost fuel source. We expect the cost of generating renewable energy to continue to decline and deployments of energy storage systems to increase. As renewable energy sources of energy production are expected to represent a larger proportion of energy generation, grid instability rises due to their intermittency, which can be addressed by energy storage solutions. The IRA is expected to further increase the deployment of renewable energy assets. We are continuing to evaluate the IRA and its requirements, as well as the application to our business and our customers.

### Competition

We are a market leader in terms of capacity of energy storage under management. We intend to strengthen our competitive position over time by leveraging the network effect of Athena’s AI infrastructure. Existing competitors may expand their product offerings and sales strategies, and new competitors may enter the market. Furthermore, our competitors include other types of software providers and some hardware manufacturers that offer software solutions. If our market share declines due to increased competition, our revenue and ability to generate profits in the future may be adversely affected.

### Government Regulation and Compliance

Although we are not regulated as a utility, the market for our product and services is heavily influenced by federal, state, and local government statutes and regulations concerning electricity. These statutes and regulations, like the IRA, affect electricity pricing, net metering, incentives, taxation, competition with utilities, and the interconnection of customer-owned electricity generation. In the United States and internationally, governments continuously modify these statutes and regulations and acting through state utility or public service commissions, regularly change and adopt different rates for commercial customers. These changes can positively or negatively affect our ability to deliver cost savings to customers.

### Supply Chain Constraints and Risk; COVID-19

We rely on a very small number of suppliers of energy storage systems and other equipment. If any of our suppliers was unable or unwilling to provide us with contracted quantities in a timely manner at prices, quality levels and volumes acceptable to us, we would have very limited alternatives for supply, and we may not be able find suitable replacements for our customers, or at all. Such an event could materially adversely affect our business, prospects, financial condition and results of operations.

The ongoing COVID-19 pandemic has resulted and may continue to result in widespread adverse effects 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 impact on economic and market conditions and trigger a period of continued global and U.S. economic slowdown.

In addition, the global supply chain and our industry have experienced significant disruptions in recent periods. We have seen supply chain challenges and logistics constraints increase, including shortages of inverters, enclosures, battery modules and associated component parts for inverters and battery energy storage systems available for purchase. In certain cases, this has caused delays in critical equipment and inventory, longer lead times, and has resulted in cost volatility. 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 we believe that a majority of our 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) we can begin to generate revenue from those systems. In addition, we have experienced and are experiencing varying levels of volatility in costs of equipment and labor resulting in part from disruptions caused by general global economic conditions, including inflationary pressures and the COVID‐19 pandemic.

We 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. Given the dynamic nature of these circumstances on our ongoing business, results of operations and overall financial performance, the full impact of COVID-19 and other macroeconomic factors, including the conflict in Ukraine, cannot be reasonably estimated at this time. In the event we are unable to mitigate the impact of delays or price volatility in energy storage systems, raw materials, and freight, it could materially adversely affect our business, prospects, financial condition and results of operations.

### DevCo Cash Advances

From time to time, the Company, through an indirect wholly-owned development subsidiary, has entered into strategic joint ventures with qualified third parties to develop select energy storage power generation projects (“DevCo Projects”), as more fully described above under Note 1 — *Business*, of the Notes to the unaudited condensed consolidated financial statements in this report. These projects require significant upfront investment by us and involve a high degree of risk. If a DevCo Project fails to reach completion or is significantly delayed, we could lose all or a portion of our development capital investment and our cash advances to purchase hardware. See “*We Face Risks Related to our DevCo Business Model”* in Part II, Item 1A. “Risk Factors” of our Quarterly Report on Form 10-Q for the quarter ended June 30, 2022 for additional information about certain risks related to these DevCo Projects.

### Non-GAAP Financial Measures

In addition to financial results determined in accordance with U.S. generally accepted accounting principles, or GAAP, we use Adjusted EBITDA and non-GAAP gross margin, which are non-GAAP financial measures, for financial and operational decision making and as a means to evaluate our operating performance and prospects, develop internal budgets and financial goals, and to facilitate period-to-period comparisons. Our management believes that these non-GAAP financial measures provide meaningful supplemental information regarding our performance and liquidity by excluding certain expenses and expenditures that may not be indicative of our operating performance, such as stock-based compensation and other non-cash charges, as well as discrete cash charges that are infrequent in nature. We believe that both management and investors benefit from referring to these non-GAAP financial measures in assessing our performance and when planning, forecasting, and analyzing future periods. These non-GAAP financial measures also facilitate management’s internal comparisons to our historical performance and liquidity as well as comparisons to our competitors’ operating results. We believe these non-GAAP financial measures are useful to investors both because they (1) allow for greater transparency with respect to key metrics used by management in their financial and operational decision making and (2) are used by our institutional investors and the analyst community to help them analyze the health of our business. Adjusted EBITDA and non-GAAP gross margin should be considered in addition to, not as a substitute for, or superior to, other measures of financial performance prepared in accordance with GAAP.

### Non-GAAP Gross Margin

We define non-GAAP gross margin as gross margin excluding amortization of capitalized software and impairments related to decommissioning of end-of-life systems.

The following table provides a reconciliation of gross margin (GAAP) to non-GAAP gross margin ($ in millions, except for percentages):

|  | Three Months Ended September 30, 2022 | 2021 | Nine Months Ended September 30, 2022 | 2021 |
| --- | ---: | ---: | ---: | ---: |
| Revenue | $99.5 | $39.8 | $207.5 | $74.6 |
| Cost of revenue | (90.4) | (36.7) | (187.0) | (71.7) |
| GAAP gross margin | 9.1 | 3.1 | 20.5 | 2.9 |
| GAAP gross margin (%) | 9% | 8% | 10% | 4% |
| Adjustments to Gross Margin (1): |  |  |  |  |
| Amortization of capitalized software & developed technology | 2.9 | 1.4 | 7.6 | 3.8 |
| Impairments | 0.4 | 0.7 | 2.2 | 2.0 |
| Non-GAAP gross margin | $12.4 | $5.2 | $30.3 | $8.7 |
| Non-GAAP gross margin (%) | 13% | 13% | 15% | 12% |

(1) Historically, management included a separate “Other Adjustments” caption in the table above as part of the adjustments to gross margin. Other Adjustments consisted of certain operating expenses including communication and cloud service expenditures reclassified to cost of revenue. Other Adjustments are no longer in the calculation of Non-GAAP Gross Margin and Non-GAAP Gross Margin %. The Company believes that this change reflects a more accurate representation of our business for stakeholders to assess its performance.

### Adjusted EBITDA

We calculate Adjusted EBITDA as net loss attributable to Stem before depreciation and amortization, including amortization of internally developed software, net interest expense, further adjusted to exclude stock-based compensation and other income and expense items, including transaction and acquisition related charges, the change in fair value of warrants and embedded derivatives, vesting of warrants, loss on extinguishment of debt, litigation settlement and income tax provision or benefit. The expenses and other items that we exclude in our calculation of Adjusted EBITDA may differ from the expenses and other items, if any, that other companies may exclude when calculating Adjusted EBITDA.

The following table provides a reconciliation of Adjusted EBITDA to net loss:

*(in thousands)*

*(in thousands)*

|  | Three Months Ended September 30, 2022 | 2021 | Nine Months Ended September 30, 2022 | 2021 |
| --- | ---: | ---: | ---: | ---: |
| Net (loss) income attributable to Stem | $(34,279) | $115,612 | $(88,781) | $(67,157) |
| Adjusted to exclude the following: |  |  |  |  |
| Depreciation and amortization (1) | 11,547 | 6,003 | 33,353 | 17,558 |
| Interest expense | 2,520 | 2,674 | 8,429 | 12,835 |
| Loss on extinguishment of debt | — | — | — | 5,064 |
| Stock-based compensation | 7,678 | 6,199 | 20,410 | 7,983 |
| Vesting of warrants | — | — | — | 9,183 |
| Change in fair value of warrants and embedded derivative | — | (137,001) | — | (3,424) |
| Transaction costs in connection with business combination | — | — | 6,068 | — |
| Litigation settlement | — | — | (727) | — |
| Income tax provision (benefit) | 19 | — | (15,201) | — |
| Adjusted EBITDA | $(12,515) | $(6,513) | $(36,449) | $(17,958) |

(1) Adjusted EBITDA for the three and nine months ended September 30, 2021 reflects adjustments to depreciation and amortization of approximately $0.7 million and $1.9 million, respectively, for expenses related to impairments, decommissioning and forfeited incentives that were not previously reflected in reported Adjusted EBITDA amounts.

### Financial Results and Key Metrics

The following table presents our financial results and our key metrics (in millions unless otherwise noted):

*(in millions)*

*(in millions)*

| Key Financial Metrics | Three Months Ended September 30, 2022 | 2021 | Nine Months Ended September 30, 2022 | 2021 |
| --- | ---: | ---: | ---: | ---: |
| Revenue | $99.5 | $39.8 | $207.5 | $74.6 |
| GAAP gross margin | $9.1 | $3.1 | $20.5 | $2.9 |
| GAAP gross margin (%) | 9% | 8% | 10% | 4% |
| Non-GAAP gross margin | $12.4 | $5.2 | $30.3 | $8.7 |
| Non-GAAP gross margin (%) | 13% | 13% | 15% | 12% |
| Net (loss) income attributable to Stem | $(34.3) | $115.6 | $(88.8) | $(67.2) |
| Adjusted EBITDA | $(12.5) | $(6.5) | $(36.4) | $(18.0) |
| Key Operating Metrics |  |  |  |  |
| 12-Month pipeline (in billions)\* (1) | $7.2 | $2.4 | $7.2 | $2.4 |
| Bookings (2) | $222.9 | $103.7 | $599.4 | $148.8 |
| Contracted backlog\* (3) | $817.2 | $312.0 | $817.2 | $312.0 |
| Contracted storage AUM (in GWh)\* (4) | 2.4 | 1.4 | 2.4 | 1.4 |
| Solar monitoring AUM (in GW)\* (5) | 25.0 | \*\* | 25.0 | \*\* |
| CARR\* (6) | $61.4 | \*\* | $61.4 | \*\* |
| \* at period end |  |  |  |  |
| \*\* not available |  |  |  |  |
| (1) As described below. |  |  |  |  |
| (2) As described below. |  |  |  |  |
| (3) Total value of bookings in dollars, as reflected on a specific date. Backlog increases as new contracts are executed (bookings) and decreases as integrated storage systems are delivered and recognized as revenue. |  |  |  |  |
| (4) Total GWh of systems in operation or under contract. |  |  |  |  |
| (5) Total GW of systems in operation or under contract. During the three months ended September 30, 2022, Solar monitoring AUM declined approximately 7.1 GW as the result of actions taken by AlsoEnergy to migrate or terminate a legacy-acquired software application, primarily used in Europe, that was unprofitable. |  |  |  |  |
| (6) Contracted Annual Recurring Revenue (CARR): Annual run rate for all executed software services contracts including contracts signed in the period for systems that are not yet commissioned or operating. |  |  |  |  |

### Pipeline

Pipeline represents the total value (excluding market participation revenue) of uncontracted, potential hardware and software contracts that are currently being pursued by Stem direct salesforce and channel partners with developers and independent power producers seeking energy optimization services and transfer of energy storage systems that have a reasonable likelihood of execution within 12 months of the end of the relevant period based on project timelines published by such developers and independent power producers. We cannot guarantee that our pipeline will result in meaningful revenue or profitability.

### Bookings

Due to the long-term nature of our contracts, bookings are a key metric that allows us to understand and evaluate the growth of our Company and our estimated future revenue related to customer contracts for our energy optimization services and transfer of energy storage systems. Bookings represents the accumulated value at a point in time of contracts that have been executed under both our host customer and partnership sales models.

For host customer sales, bookings represent the expected consideration from energy optimization services contracts, including estimated incentive payments that are earned by the host customer from utility companies in relation to the services provided by us and assigned by the host customer to us. For host customer sales, there are no differences between bookings and remaining performance obligations at any point in time.

For partnership sales, bookings are the sum of the expected consideration to be received from the transfer of hardware and energy optimization services (excluding any potential revenues from market participation). For partnership sales, even though we have secured an executed contract with estimated timing of project delivery and installation from the customer, we do not consider it a contract in accordance with FASB ASU 2014-09 Topic 606, *Revenue from Contracts with Customers (“*ASC 606”), or a remaining performance obligation, until the customer has placed a binding purchase order. A signed customer contract is considered a booking as this indicates the customer has agreed to place a purchase order in the foreseeable future, which typically occurs within three (3) months of contract execution. However, executed customer contracts, without binding purchase orders, are cancellable without penalty by either party.

For partnership sales, once a purchase order has been executed, the booking is considered to be a contract in accordance with ASC 606, and therefore, gives rise to a remaining performance obligation as we have an obligation to transfer hardware and energy optimization services in our partnership agreements. We also have the contractual right to receive consideration for our performance obligations.

The accounting policy and timing of revenue recognition for host customer contracts and partnership arrangements that qualify as contracts with customers under ASC 606, are described within Note 2 — *Summary of Significant Accounting Policies,* in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.

The following discussion and analysis of our results of operations and our liquidity and capital resources includes the results of operations for AlsoEnergy for the period from February 1, 2022 through September 30, 2022. For additional information, including pro forma results of operations for the three and nine months ended September 30, 2022 and 2021 calculated as if AlsoEnergy had been acquired as of January 1, 2021, see Note 6 — *Business Combinations,* of the Notes to the unaudited condensed consolidated financial statements in this report.

### Components of Our Results of Operations

### Revenue

We generate services and other revenue and hardware revenue. Services and other revenue is mainly generated through arrangements with host customers to provide energy optimization services using our proprietary cloud-based software platform coupled with a dedicated energy storage system owned and controlled by us throughout the term of the contract. Fees charged to customers for energy optimization services generally consist of recurring fixed monthly payments throughout the term of the contract and in some arrangements, an installation and/or upfront fee component. We may also receive incentives from utility companies in relation to the sale of our services.

We generate hardware revenue through partnership arrangements consisting of promises to sell an energy storage system to solar plus storage project developers. Performance obligations are satisfied when the energy storage system along with all ancillary hardware components are delivered. The milestone payments received before the delivery of hardware are treated as deferred revenue. We separately generate services and other revenue through partnership arrangements by providing energy optimization services after the developer completes the installation of the project.

### Cost of Revenue

Cost of hardware revenue includes the cost of the hardware, which generally includes the cost of the hardware purchased from a manufacturer, shipping, delivery, and other costs required to fulfill our obligation to deliver the energy storage system to the customer location. Cost of revenue may also include any impairment of energy storage systems held in our inventory for sale to our customer. Cost of hardware revenue related to the sale of energy storage systems is recognized when the delivery of the product is completed.

Cost of services and other revenue includes depreciation of the cost of energy storage systems we own under long-term customer contracts, which includes capitalized fulfillment costs, such as installation services, permitting and other related costs. Cost of revenue may also include any impairment of inventory and energy storage systems, along with system maintenance costs associated with the ongoing services provided to customers. Costs of revenue are recognized as energy optimization and other supporting services are provided to our customers throughout the term of the contract.

### Gross Margin

Our gross margin fluctuates significantly from quarter to quarter. Gross margin, calculated as revenue less costs of revenue, has been, and will continue to be, affected by various factors, including fluctuations in the amount and mix of revenue and the amount and timing of investments to expand our customer base. We hope to increase both our gross margin in absolute dollars and as a percentage of revenue through enhanced operational efficiency and economies of scale.

### Operating Expenses

#### Sales and Marketing

Sales and marketing expense consists of payroll and other related personnel costs, including salaries, stock-based compensation, employee benefits, and travel for our sales and marketing personnel. In addition, sales and marketing expense includes trade show costs, amortization of intangibles and other expenses. We expect our selling and marketing expense to increase in future periods to support the overall growth in our business.

#### Research and Development

Research and development expense consists primarily of payroll and other related personnel costs for engineers and third parties engaged in the design and development of products, third-party software and technologies, including salaries, bonus and stock-based compensation expense, project material costs, services and depreciation. We expect research and development expense to increase in future periods to support our growth, including continuing to invest in optimization, accuracy and reliability of our platform and other technology improvements to support and drive efficiency in our operations. These expenses may vary from period to period as a percentage of revenue, depending primarily upon when we choose to make more significant investments.

#### General and Administrative Expense

General and administrative expense consists of payroll and other related personnel costs, including salaries, stock-based compensation, employee benefits and expenses for executive management, legal, finance and other costs. In addition, general and administrative expense includes fees for professional services and occupancy costs. We expect our general and administrative expense to increase in future periods as we scale up headcount with the growth of our business, and as a result of operating as a public company, including compliance with the rules and regulations of the SEC, legal, audit, additional insurance expenses, investor relations activities, and other administrative and professional services.

### Other (Income) Expense, Net

#### Interest Expense

Interest expense consists primarily of interest on our outstanding borrowings under our outstanding notes payable, convertible promissory notes, and financing obligations and accretion on our asset retirement obligations.

#### Loss on Extinguishment of Debt

Loss on extinguishment of debt consists of penalties incurred in relation to the prepayment of our outstanding borrowings under our outstanding notes payable and the write-off of any unamortized debt issuance costs associated with such notes.

#### Change in Fair Value of Warrants and Embedded Derivatives

Change in fair value of warrants and embedded derivatives is related to the revaluation of our outstanding convertible preferred stock warrant liabilities and embedded derivatives related to the redemption features associated with our convertible notes at each reporting date.

#### Other Income (Expenses), Net

Other income (expenses), net consists primarily of income from equity investments and foreign exchange gains or losses.

### Results of Operations for the Three Months Ended September 30, 2022 and 2021

*(In thousands, except percentages)*

| Revenue | Three Months Ended September 30, 2022 | 2021 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Services and other revenue | $13,692 | $4,947 | $8,745 | 177% |
| Hardware revenue | 85,809 | 34,886 | 50,923 | 146% |
| Total revenue | 99,501 | 39,833 | 59,668 | 150% |
| Cost of revenue |  |  |  |  |
| Cost of services and other revenue | 11,445 | 6,639 | 4,806 | 72% |
| Cost of hardware revenue | 78,929 | 30,057 | 48,872 | 163% |
| Total cost of revenue | 90,374 | 36,696 | 53,678 | 146% |
| Gross margin | 9,127 | 3,137 | 5,990 | 191% |
| Operating expenses: |  |  |  |  |
| Sales and marketing | 13,187 | 4,975 | 8,212 | 165% |
| Research and development | 10,526 | 6,268 | 4,258 | 68% |
| General and administrative | 18,013 | 11,024 | 6,989 | 63% |
| Total operating expenses | 41,726 | 22,267 | 19,459 | 87% |
| Loss from operations | (32,599) | (19,130) | (13,469) | 70% |
| Other (expense) income, net: |  |  |  |  |
| Interest expense | (2,520) | (2,674) | 154 | (6)% |
| Change in fair value of warrants and embedded derivatives | — | 137,001 | (137,001) | (100)% |
| Other income, net | 863 | 415 | 448 | 108% |
| Total other (expense) income, net | (1,657) | 134,742 | (136,399) | (101)% |
| (Loss) income before (provision for) benefit from income taxes | (34,256) | 115,612 | (149,868) | (130)% |
| Provision for income taxes | (19) | — | (19) | 100% |
| Net (loss) income | $(34,275) | $115,612 | $(149,887) | (130)% |
| Net income attributed to non-controlling interests | 4 | — | 4 | 100% |
| Net (loss) income attributable to Stem | $(34,279) | $115,612 | $(149,891) | (130)% |

### Revenue

Revenue increased by $59.7 million, or 150%, for the three months ended September 30, 2022, as compared to the three months ended September 30, 2021. The increase was primarily driven by a $50.9 million increase in hardware revenue primarily due to increase in demand for systems related to both FTM and BTM partnership agreements. Services and other revenue increased by $8.7 million primarily due to the inclusion of AlsoEnergy’s revenue in the current period.

### Cost of Revenue

Cost of revenue increased by $53.7 million, or 146%, for the three months ended September 30, 2022, as compared to the three months ended September 30, 2021. The increase was primarily driven by an increase in cost of hardware revenue of $48.9 million, which is in line with the increase in demand for systems, as well as an increase of $4.8 million in cost of services and other revenue, primarily related to AlsoEnergy.

### Operating Expenses

#### Sales and Marketing

Sales and marketing expense increased by $8.2 million, or 165%, for the three months ended September 30, 2022, as compared to the three months ended September 30, 2021. The increase was primarily due to an increase of $3.7 million in personnel related expenses primarily as a result of higher headcount, an increase of $3.5 million in amortization expense related to intangible assets from the acquisition of AlsoEnergy, an increase of $0.5 million in office related expenses, and an increase of $0.5 million in amortization of contract origination costs.

#### Research and Development

Research and development expense increased by $4.3 million, or 68%, for the three months ended September 30, 2022, as compared to the three months ended September 30, 2021. The increase was primarily due to an increase of $3.2 million in personnel related expenses as a result of higher headcount, including AlsoEnergy employees, and an increase of $1.1 million in professional services and other costs.

#### General and Administrative

General and administrative expense increased by $7.0 million, or 63%, for the three months ended September 30, 2022, as compared to the three months ended September 30, 2021. The increase was primarily driven by an increase of $3.2 million in personnel costs driven by additional headcount, an increase of $2.4 million in insurance and office related costs, and a $1.4 million increase related to bad debt reserves.

### Other Income (Expense), Net

#### Interest Expense

Interest expense decreased by $0.2 million, or 6%, for the three months ended September 30, 2022, as compared to the three months ended September 30, 2021 due to a reduction in financing obligations.

#### Change in Fair Value of Warrants and Embedded Derivative

The change in fair value of warrants and embedded derivative reflected no activity in the three months ended September 30, 2022 (as no warrants and embedded derivatives were outstanding), as compared to income of $137.0 million in the three months ended September 30, 2021. The $137.0 million income in the three months ended September 30, 2021 resulted from a revaluation gain of warrants and embedded derivatives.

#### Other Income, Net

Other income, net increased by $0.4 million, or 108%, for the three months ended September 30, 2022 compared to the three months ended September 30, 2021, primarily due to an increase in interest income from investments.

### Income Tax Expense

During the three months ended September 30, 2022, we recorded a tax expense of $19 thousand compared to no income tax provision during the three months ended September 30, 2021.

### Results of Operations for the Nine Months Ended September 30, 2022 and 2021

*(In thousands, except percentages)*

| Revenue | Nine Months Ended September 30, 2022 | 2021 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Services and other revenue | $36,178 | $14,982 | $21,196 | 141% |
| Hardware revenue | 171,358 | 59,609 | 111,749 | 187% |
| Total revenue | 207,536 | 74,591 | 132,945 | 178% |
| Cost of revenue |  |  |  |  |
| Cost of services and other revenue | 30,219 | 19,354 | 10,865 | 56% |
| Cost of hardware revenue | 156,758 | 52,343 | 104,415 | 199% |
| Total cost of revenue | 186,977 | 71,697 | 115,280 | 161% |
| Gross margin | 20,559 | 2,894 | 17,665 | 610% |
| Operating expenses: |  |  |  |  |
| Sales and marketing | 35,284 | 11,555 | 23,729 | 205% |
| Research and development | 28,432 | 15,502 | 12,930 | 83% |
| General and administrative | 54,218 | 28,730 | 25,488 | 89% |
| Total operating expenses | 117,934 | 55,787 | 62,147 | 111% |
| Loss from operations | (97,375) | (52,893) | (44,482) | 84% |
| Other expense, net: |  |  |  |  |
| Interest expense | (8,429) | (12,835) | 4,406 | (34)% |
| Loss on extinguishment of debt | — | (5,064) | 5,064 | (100)% |
| Change in fair value of warrants and embedded derivatives | — | 3,424 | (3,424) | (100)% |
| Other income, net | 1,822 | 211 | 1,611 | 764% |
| Total other expense, net | (6,607) | (14,264) | 7,657 | (54)% |
| (Loss) income before (provision for) benefit from income taxes | (103,982) | (67,157) | (36,825) | 55% |
| Benefit from income taxes | 15,201 | — | 15,201 | 100% |
| Net loss | $(88,781) | $(67,157) | $(21,624) | 32% |
| Net loss attributed to non-controlling interests | — | — | — | —% |
| Net loss attributable to Stem | $(88,781) | $(67,157) | $(21,624) | 32% |

### Revenue

Revenue increased by $132.9 million, or 178%, for the nine months ended September 30, 2022, as compared to the nine months ended September 30, 2021. The increase was primarily driven by a $111.7 million increase in hardware revenue primarily due to increase in demand for systems related to both FTM and BTM partnership agreements. Services and other revenue increased by $21.2 million primarily due to the inclusion of AlsoEnergy’s revenue in the current period.

### Cost of Revenue

Cost of revenue increased by $115.3 million, or 161%, for the nine months ended September 30, 2022, as compared to the nine months ended September 30, 2021. The increase was primarily driven by an increase in cost of hardware revenue of $104.4 million, which is due to the increase in demand for systems, as well as an increase of $10.9 million in cost of services and other revenue, primarily related to AlsoEnergy.

### Operating Expenses

#### Sales and Marketing

Sales and marketing expense increased by $23.7 million, or 205%, for the nine months ended September 30, 2022, as compared to the nine months ended September 30, 2021. The increase was primarily due to an increase of $9.4 million in personnel related expenses as a result of higher headcount, inclusive of $2.1 million in stock-based compensation expense primarily due to new employee grants, an increase of $9.3 million in amortization expense related to intangible assets from the acquisition of AlsoEnergy, an increase of $2.9 million amortization of contract origination costs, and $2.1 million of additional office-related expenses.

#### Research and Development

Research and development expense increased by $12.9 million, or 83%, for the nine months ended September 30, 2022, as compared to the nine months ended September 30, 2021. The increase was primarily due to an increase of $10.1 million in personnel related expenses as a result of higher headcount and an increase of $2.8 million in professional services and other expenses.

#### General and Administrative

General and administrative expense increased by $25.5 million, or 89%, for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021. The increase was primarily driven by an increase of $16.6 million in personnel related expenses as a result of higher headcount, inclusive of an $8.2 million increase in stock-based compensation expense due to new employee grants, as well as an increase of $8.9 million in insurance, legal, office, and other expenses.

### Other Income (Expense), Net

#### Interest Expense

Interest expense decreased by $4.4 million, or 34%, for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021. The decrease was primarily driven by the repayment of loans and the conversion of convertible notes in relation to the Merger for $7.3 million, partially offset by the recognition of $3.2 million of interest expense corresponding to the 0.50% Green Convertible Notes issued in November 2021.

#### Loss on Extinguishment of Debt

Loss on extinguishment of debt decreased by $5.1 million, or 100% for the nine months ended September 30, 2022, as compared to the nine months ended September 30, 2021. The decrease was driven by a prior year payment of a $4.0 million penalty on debt extinguishment and the write-off of $1.1 million of unamortized debt issuance costs upon the conversion of our Series D convertible notes in relation to the Merger.

#### Change in Fair Value of Warrants and Embedded Derivative

The change in fair value of warrants and embedded derivatives reflected no activity in the nine months ended September 30, 2022 (as no warrants and embedded derivatives were outstanding), as compared to income of $3.4 million in the nine months ended September 30, 2021, which resulted from a revaluation gain of warrants and embedded derivatives.

#### Other Income, Net

Other income (expenses), net increased by $1.6 million, or 764%, for the nine months ended September 30, 2022, as compared to the nine months ended September 30, 2021 primarily as a result of an increase in interest income from short-term investments.

### Income Tax Benefit

During the nine months ended September 30, 2022, we recorded $15.2 million of income tax benefit, as a result of the partial release of our deferred tax asset valuation due to the acquisition of AlsoEnergy. The Company did not record a provision or benefit for income taxes during the nine months ended September 30, 2021.

### Liquidity and Capital Resources

### Sources of Liquidity

Liquidity describes the ability of a company to generate sufficient cash flows to meet the cash requirements of its business operations, including working capital needs, debt service, acquisitions, contractual obligations and other commitments. We assess liquidity in terms of our cash flows from operations and their sufficiency to fund our operating and investing activities. To meet our payment service obligations we must have sufficient liquid assets and be able to move funds on a timely basis.

As of September 30, 2022, our principal source of liquidity were cash, cash equivalents, and short-term investments of $293.5 million, which were held for working capital purposes and for investment growth opportunities. Our marketable securities generally consist of high-grade commercial paper, agency bonds, corporate debt securities, U.S. government agency securities, and treasury bills. We believe that our cash position is sufficient to meet our capital and liquidity requirements for at least the next 12 months from the date of issuance of this Form 10-Q.

Our business prospects are subject to risks, expenses and uncertainties frequently encountered by companies in the early stages of commercial operations. The attainment of profitable operations is dependent upon future events, including obtaining adequate financing to complete our development activities, obtaining adequate supplier relationships, building our customer base, successfully executing our business and marketing strategy and hiring appropriate personnel. Failure to generate sufficient revenues, achieve planned gross margins and operating profitability, control operating costs, or secure additional funding may require us to modify, delay, or abandon some of our planned future expansion or development, or to otherwise enact operating cost reductions available to management, which could have a material adverse effect on our business, operating results, financial condition.

In the future, we may be required to obtain additional equity or debt financing in order to support our continued capital expenditures and operations. In the event that additional financing is required from outside sources, we may not be able to raise it on terms acceptable to us or at all. If we are unable to raise additional capital or generate cash flows necessary to expand our operations and invest in new technologies, this could reduce our ability to compete successfully and harm our business, growth and results of operations.

Our long-term liquidity requirements are linked primarily to the continued extension of the Athena platform and supporting applications, including Athena PowerTrack and the use of our balance sheet to improve the terms and conditions associated with the purchase of energy storage systems from our hardware vendors. While we have plans to potentially expand our geographical footprint beyond our current partnerships and enter into joint ventures, those are not required initiatives to achieve our plan.

### Financing Obligations

We have entered into arrangements wherein we finance the cost of energy storage systems via special purpose entities (“SPE”) we establish with outside investors. These SPEs are not consolidated into our financial statements, but are accounted for as equity method investments. Through the SPEs, the investors provide us upfront payments. Under these arrangements, the payment by the SPE to us is accounted for as a borrowing by recording the proceeds received as a financing obligation. The financing obligation is repaid with the future customer payments and incentives received. A portion of the amounts paid to the SPE is allocated to interest expense using the effective interest rate method.

Furthermore, we continue to account for the revenues from customer arrangements and incentives and all associated costs despite such systems being legally sold to the SPEs due to our significant continuing involvement in the operations of the energy storage systems.

The total financing obligation as of September 30, 2022 was $82.3 million, of which $17.0 million was classified as a current liability.

### Notes Payable

#### 2021 Credit Agreement

In January 2021, we entered into a non-recourse credit agreement to provide a total of $2.7 million towards the financing of certain energy storage systems that we own and operate. The credit agreement has a stated interest of 5.45% and a maturity date of June 2031. We 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 us through the operation of the underlying energy storage systems. As of September 30, 2022, there were $1.8 million of outstanding borrowings under this credit facility.

### 2028 Green Convertible Senior Notes

On November 22, 2021, we sold to Morgan Stanley & Co. LLC, Goldman Sachs & Co. LLC and Barclays Capital Inc, as initial purchasers (the “Initial Purchasers”), and the Initial Purchasers purchased from us, $460 million aggregate principal amount of our 2028 Convertible Notes, pursuant to a purchase agreement dated as of November 17, 2021, by and between us and the Initial Purchasers. The 2028 Convertible Notes will accrue interest payable semi-annually in arrears and will mature on December 1, 2028, unless earlier repurchased, redeemed or converted in accordance with their terms prior to such date. Upon conversion, we may choose to pay or deliver, as the case may be, cash, shares of common stock or a combination of cash and shares of common stock. The 2028 Convertible Notes are redeemable for cash at our option at any time given certain conditions. Refer to Note 10 — *Convertible Promissory Notes*, of the Notes to the unaudited condensed consolidated financial statements in this report, for additional details regarding this transaction.

On November 17, 2021, in connection with the pricing of the 2028 Convertible Notes, and on November 19, 2021, in connection with the exercise in full by the Initial Purchasers of their option to purchase additional Notes, we entered into capped call transactions with certain of the Initial Purchasers of the 2028 Convertible Notes to minimize the potential dilution to our common stockholders upon conversion of the 2028 Convertible Notes. Our net proceeds from this offering were approximately $445.7 million, after deducting the Initial Purchasers’ discounts and commissions and the estimated offering expenses payable by us. We used approximately $66.7 million of the net proceeds to pay the cost of the capped call transactions described above. We intend to allocate an amount equivalent to the net proceeds from this offering to finance or refinance, in whole or in part, existing or new eligible green expenditures of Stem, including investments related to creating a more resilient clean energy system, optimized software capabilities for energy systems, and reducing waste through operations.

### Cash Flows

The following table summarizes our cash flows for the periods indicated (in thousands):

|  | Nine Months Ended September 30, 2022 | 2021 |
| --- | ---: | ---: |
| Net cash used in operating activities | $(68,634) | $(69,020) |
| Net cash used in investing activities | (571,925) | (182,057) |
| Net cash (used in) provided by financing activities | (6,819) | 648,819 |
| Effect of exchange rate changes on cash and cash equivalents | (304) | 505 |
| Net (decrease) increase in cash and cash equivalents | $(647,682) | $398,247 |

### Operating Activities

During the nine months ended September 30, 2022, net cash used in operating activities was $68.6 million, primarily resulting from our net loss of $88.8 million, adjusted for non-cash charges of $43.6 million and net cash outflow of $23.5 million from changes in operating assets and liabilities. Non-cash charges primarily consisted of depreciation and amortization of $32.1 million, non-cash interest expense of $1.5 million related to debt issuance costs, stock-based compensation expense of $20.4 million, noncash lease expense of $1.7 million, impairment of energy storage systems of $1.3 million, provision for accounts receivable allowance of $1.9 million, and net amortization of premium on investments of $0.3 million, partially offset by an income tax benefit of $15.1 million and gain on sale of project assets of $0.6 million. The net cash outflow from changes in operating assets and liabilities was primarily driven by an increase in accounts receivable of $75.4 million, an increase in inventory of $2.2 million, an increase in deferred costs with suppliers of $47.8 million, an increase in other assets of $25.2 million, an increase in contract origination costs of $4.8 million, and a decrease in lease liabilities of $1.1 million, offset by an increase in accounts payable of $63.2 million, an increase in accrued expenses and other liabilities of $38.3 million, and an increase in deferred revenue of $31.6 million.

During the nine months ended September 30, 2021, net cash used in operating activities was $69.0 million, primarily resulting from our net loss of $67.2 million, adjusted by non-cash charges of $40.4 million and net cash outflow of $42.2 million from changes in operating assets and liabilities. Non-cash charges primarily consisted of depreciation and amortization of $15.6 million, non-cash interest expense of $8.1 million, which includes interest expenses associated with debt issuance costs, stock-based compensation expense of $8.0 million, impairment of energy storage systems of $2.2 million, issuance of warrants for services of $9.2 million, noncash lease expense of $0.3 million, and net amortization of premium on investments of $0.3 million, offset by a change in the fair value of warrant liability and embedded derivative of $3.4 million. The net cash outflow from changes in operating assets and liabilities was primarily driven by an increase in accounts receivable of $21.4 million, an increase in other assets of $13.9 million, an increase in deferred costs with suppliers of $4.2 million, a decrease in deferred revenue of $3.5 million, an increase in inventory of $3.4 million, an increase in contract origination costs of

$1.9 million, and a decrease in lease liabilities of $0.3 million, partially offset by an increase in accounts payable of $2.9 million and accrued expenses and other liabilities of $3.3 million.

### Investing Activities

During the nine months ended September 30, 2022, net cash used for investing activities was $571.9 million, primarily consisting of $533.0 million used for our acquisition of AlsoEnergy, net of cash acquired, $22.5 million in net purchases of available-for-sale investments, $0.5 million in purchases of energy systems, $12.7 million in capital expenditures on internally-developed software, $3.0 million in capital expenditures on project assets, and $1.5 million in purchases of property plant and equipment, offset by proceeds from sale of project assets of $1.3 million.

During the nine months ended September 30, 2021, net cash used for investing activities was $182.1 million, consisting of $171.1 million in purchases of available-for-sale investments, $6.2 million in purchases of energy systems, $4.3 million in capital expenditures on internally-developed software, and $0.5 million in purchases of property and equipment.

### Financing Activities

During the nine months ended September 30, 2022, net cash used in financing activities was $6.8 million, primarily consisting of the repayment of financing obligations of $7.6 million and payments for taxes related to net share settlement of stock options of $2.3 million, partially offset by proceeds from exercise of stock options of $1.2 million, proceeds from other financing transactions of $1.5 million, and an investment from non-controlling interests of $0.4 million.

During the nine months ended September 30, 2021, net cash provided by financing activities was $648.8 million, primarily consisting of net proceeds from the Merger and PIPE financing of $550.3 million, proceeds from the exercise of stock options of $148.3 million, proceeds from financing obligations of $4.9 million, net proceeds from issuance of notes payable of $3.9 million, and net proceeds from issuance of convertible notes of $1.1 million, partially offset by repayment of notes payable of $41.4 million, payments for taxes related to net share settlement of stock options of $12.6 million, and repayment of financing obligations of $5.7 million.

### Contractual Obligations and Commitments

As of September 30, 2022, there have been no material changes to our contractual obligations described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.

### Off-Balance Sheet Arrangements

We are not a party to any off-balance sheet arrangements, including guarantee contracts, retained or contingent interests, or unconsolidated variable interest entities that either have, or are reasonably likely to have, a current or future material adverse effect on our unaudited condensed consolidated financial statements.

### Critical Accounting Policies and Estimates

A summary of our critical accounting policies and estimates is presented in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.

### Recent Accounting Pronouncements

Information with respect to recent accounting pronouncements may be found in Note 2 — *Summary of Significant Accounting Policies*, of the Notes to the unaudited condensed consolidated financial statements in this report, which information is incorporated herein by reference.

## Market risk

As filed, 322 characters.

For quantitative and qualitative disclosures about market risk affecting Stem, see Item 7A, “Quantitative and Qualitative Disclosures about Market Risk,” contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021. Our exposure to market risk has not changed materially since December 31, 2021.

## Controls and procedures

As filed, 8,098 characters.

### Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures (“Disclosure Controls”) within the meaning of Rules 13a-15I and 15d-15(e) of the Exchange Act. Our Disclosure Controls are designed to provide reasonable assurance that information required to be disclosed by us in the reports we file or submit under the Exchange Act, such as this Quarterly Report on Form 10-Q, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Our Disclosure Controls are also designed to provide reasonable assurance that such information is accumulated and communicated to our management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), as appropriate, to allow timely decisions regarding required disclosure.

Based on management’s evaluation (under the supervision and with the participation of our CEO and our CFO) as of September 30, 2022, of the effectiveness of the design and operation of our Disclosure Controls, our CEO and CFO have concluded that, as of the end of the period covered by this report, our Disclosure Controls were not effective due to material weaknesses identified in our internal control over financial reporting as disclosed below.

### Material Weakness in Internal Control over Financial Reporting

During the course of preparing our financial statements as of and for the year ended December 31, 2021, management identified certain deficiencies in our internal controls over financial reporting that management believes to be material weaknesses. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that a reasonable possibility exists that a material misstatement of our annual or interim financial statements would not be prevented or detected on a timely basis.

Specifically, the material weaknesses identified related to (i) accounting for energy storage systems, deferred cost of goods sold and inventory, (ii) ineffective internal controls over review of the Company’s unaudited condensed consolidated financial statements and related disclosures, (iii) a lack of formality in our internal control activities, especially related to management review-type controls, and (iv) ineffective internal controls over the review of certain revenue recognition calculations. With respect to energy storage systems, inventory and deferred cost of goods sold, we did not properly track inflows and outflows, including the valuation of energy storage systems, due in part to the systems that the Company used to track and value energy storage systems and inventory. With respect to a lack of formality in our control activities, we did not sufficiently establish formal policies and procedures to design effective controls, establish responsibilities to execute these policies and procedures and hold individuals accountable for performance of these responsibilities, including over review of revenue recognition calculations. We had multiple control deficiencies aggregating to a material weakness in internal control over financial reporting.

### Remediation Activities

Our management, with oversight of the Audit Committee of our Board of Directors, continues to devote significant time, attention and resources to remediating the aforementioned material weaknesses in its internal control over financing reporting, and believes that we have made significant progress to that end. The material weaknesses will be considered remediated when management designs and implements effective controls that operate for a sufficient period of time and management has concluded, through testing, that these controls are effective. As of September 30, 2022, the Company had taken, or initiated, as the case may be, the following steps intended to remediate the material weaknesses described above and strengthen its internal control over financial reporting that, as of September 30, 2022, had not yet been fully implemented or had not been in place for a sufficient period of time to demonstrate that they were having their desired effect:

- Develop and deliver internal control training to management and finance/accounting personnel, focusing on a review of management’s and individual roles and responsibilities related to internal control over financial reporting.
- Hire, train and develop experienced accounting executives and personnel with a level of public accounting knowledge and experience in the application of US GAAP commensurate with our financial reporting requirements and the complexity of our operations and transactions.
- Establish and implement policies and practices to attract, develop and retain competent public accounting personnel.
- Engage a qualified third party Sarbanes-Oxley (“SOX”) compliance firm to assist us in bolstering and implementing our SOX compliance program, with a focus on documenting processes and controls, identifying and addressing control gaps, formalizing the internal control activities and strengthening the overall quality of documentation that evidences control activities.
- Perform a financial statement risk assessment and scoping exercise to identify and assess the risks of material misstatements in our financial statements to better ensure that the appropriate effort and resources are dedicated to addressing risks of material misstatements.
- Establish a disclosure committee comprised of our CEO, CFO, Chief Legal Officer, Chief Accounting Officer and other senior finance/accounting/legal personnel to, among other things, review and, as necessary, help revise the Company’s controls and other procedures to ensure that information required by us to be disclosed is recorded, processed, summarized and reported accurately and on a timely basis.
- Implement a Section 302 sub-certification program to reinforce the Company’s culture of compliance.
- Implement processes to improve monitoring activities involving the review and supervision of our accounting operations, including increased and enhanced balance sheet reviews to allow more focus on quality account reconciliations and enhanced monitoring of our internal control over financial reporting.
- Implement new accounting applications to enhance and streamline the order-to-cash and commissions processes.

### Changes in Internal Control over Financial Reporting

Other than the remediation actions to address the existing material weaknesses as described above, there were no changes in our internal controls over financial reporting during the third quarter of 2022, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

### Inherent Limitations on Effectiveness of Internal Controls

Our management, including our CEO and CFO, does not expect that our disclosure controls or our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Furthermore, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been detected. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of the effectiveness of controls to future periods are subject to risks. Over time, controls may become inadequate because of changes in business conditions or deterioration in the degree of compliance with policies or procedures.

## Risk factors

As filed, 297 characters.

There have been no material changes to the risk factors disclosed in Part 1, Item 1A, of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 and in Part II, Item 1A. “Risk Factors” of our Quarterly Report on Form 10-Q for the quarters ended March 31, 2022 and June 30, 2022.

Filed Nov 4, 2022.
Source: SEC EDGAR, the filing index for accession 0001758766-22-000185. Last ingested by Listed: Oct 24, 2026, 15:15 ET. No prices; not investment advice.