Stem revenue falls sharply due to bad debt charge, lower battery hardware bookings | Utility Dive

Nov 06, 2024

The company recently announced key leadership changes and a pivot to software and services amid unexpected challenges for its clean energy hardware procurement strategy.

Stem’s third-quarter income and revenue declines mirror a second-quarter performance that then-CEO John Carrington described as a “disappointment” in Stem’s Aug. 6 earnings release, issued before the company announced its pivot away from hardware sales.

Revenue declined 65% year-over-year in Q2 2024 while bookings slumped by nearly 90%, according to the August release.

The Q2 declines were due in large part to factors “beyond our direct control,” including “unforeseen extensions of project timelines caused by certain customers’ … project financing delays and protracted interconnection timelines,” Carrington said.

While Stem’s expansion into the utility-scale energy storage market increased the company’s average deal size it “also led to increased variability, greater project complexity, and [a] longer sales cycle than we anticipated,” he said.

The hardware business continued to impair Stem’s financial performance in the third quarter as the company booked a $104.1 million “bad debt expense … related to certain customer contracts that provide a parent company guarantee,” Stem said Wednesday.

Those contracts, which date from 2022 and the first half of 2023, required Stem to provide remarketing assistance to customers unable to install hardware within a set period and subsequently “to compensate the customer for any shortfall in fair value for the [resold] hardware from the initial contract price,” Stem said.

Stem stopped offering such remarketing and fair market compensation guarantees in June 2023 and “will continue to provide hardware procurement, but only under certain strict profitability and working capital guidelines,” the company said. The third-quarter charge reduces to zero the value of assets subject to guarantees, it added.

Stem’s strategic pivot has the company primarily providing hardware procurement advisory services rather than direct procurement, it said.

Stem went public in 2021 via a special purpose acquisition company. Its stock price peaked around $47/share during its first year of trading, got a temporary boost from the August 2022 passage of the Inflation Reduction Act, and declined steadily over the subsequent two years. It has traded below $1/share since early August.

Stem’s core software product is Athena, an enterprise energy management solution that optimizes performance and enables wholesale market participation for distributed energy resources like solar plants, energy storage systems and EV charging programs. Athena helps manage more than 25 GW of solar capacity and 5 GWh of battery capacity, Stem says.