Key Points
- Q2 2024 revenue was $34.0 million, significantly below management's expectation of $110 million.
- A goodwill impairment led to a net loss of $(582.3) million.
- Non-GAAP gross margins improved dramatically to 40%, up from 18% year-over-year.
Stem (STEM -19.43%), a leader in clean energy storage and AI-based energy management, released its earnings for Q2 2024 on August 6, 2024. The company reported revenue of $34.0 million, falling short of management's expectation of $110 million. This was a substantial 63% decline from $93.0 million in Q2 2023. The major cause of this revenue shortfall was project delays linked to USDA-related customer financing and extended interconnection timelines. Despite this, Stem demonstrated robust improvements in non-GAAP gross margins, which jumped to 40% from 18% in the same quarter last year. However, the quarter recorded a massive net loss of $(582.3) million, primarily due to a $547 million non-cash impairment of goodwill.
| Key Financial Results (in millions) | Q2 2024 | Management's Expectation | Q2 2023 | % Change YoY |
|---|---|---|---|---|
| Revenue | $34.0 | $110.0 | $93.0 | -63.4% |
| Adjusted EBITDA | $(11.3) | $5 - $20 | $(9.5) | -20.3% |
| Net Loss | $(582.3) | - | $19.1 | - |
| Non-GAAP Gross Margin | 40% | 15% - 20% | 18% | 122.2% |
| Source: Expectations based on management's guidance, as provided in 2024-05-02 earnings report. |
Business Overview and Recent Focus
Stem, Inc. focuses on delivering clean energy storage solutions, leveraging AI-driven software named Athena to optimize energy storage and solar asset performance. Central to its business model is the integration of hardware, software, and services designed to enhance energy efficiency and sustainability efforts for its clients.
One of the recent key focuses for Stem has been its Athena platform. This AI-driven system is crucial for managing energy assets, making real-time operational decisions to optimize performance. It has dramatically accumulated over 37 million runtime hours, managing over 500,000 IoT devices globally. Additionally, Stem's significant scale in the clean energy market is reflected in its 26.9 gigawatts (GW) of solar assets and 5.8 gigawatt hours (GWh) of storage assets under management.
Quarterly Insights and Developments
The quarter exhibited several notable developments, both in financial metrics and strategic initiatives. Revenue fell sharply due to delays in project execution and customer financing extensions. CEO John Carrington highlighted that these delays were tied to USDA-related project financing and protracted timelines for utility interconnections. As a result, the quarterly revenue was $34.0 million, down from $93.0 million year-over-year.
The most impactful figure was the net loss of $(582.3) million, mainly due to a $547 million goodwill impairment. Goodwill represents the premium paid during acquisitions above the fair value of the net assets acquired. When market conditions or performance expectations change drastically, companies may need to write down such assets, impacting net income substantially.
Despite these financial hurdles, Stem showed considerable improvement in specific key areas. The non-GAAP gross margin surged to 40%, up from 18% in Q2 2023. This improvement was driven by a higher mix of software and services revenue. John Carrington underscored the strategic shift towards more profitable projects, enhancing overall gross margins by 2200 basis points (or 22 percentage points) from Q2 2023.
In other metrics, the company saw its contracted backlog stabilize at $1.58 billion. However, bookings for the quarter plummeted to $25.4 million from $236.4 million in Q2 2023. This drop reflected ongoing project delays and a shift in focus towards more profitable engagements. Additionally, operating cash flow improved markedly, with $(11.9) million reported, a significant enhancement from Q2 2023’s $(165.4) million.
Material events in the quarter included partnerships for strategic growth. Notably, a project with Arizona Electric Power Cooperative integrated Athena for a solar and storage project. Another milestone was the completion of a 313 MWh battery energy storage system with Ameresco (NYSE:AMRC). Such partnerships highlight Stem's focus on strengthening its market presence and collaborative innovation.
On the regulatory front, Stem navigated delays in customer financing related to the Inflation Reduction Act (IRA). These delays extended project timelines, affecting quarterly financial performance. Nonetheless, the company continues to align itself with policy frameworks that support clean energy adoption.
Outlook and Future Prospects
Looking ahead, management has revised its full-year 2024 guidance. Revenue expectations have dropped significantly, now projected between $200 million to $270 million, down from the initial range of $567 million to $667 million. Adjusted EBITDA guidance is also lower, anticipated between $(30) million to $(20) million, revised from $5 million to $20 million. Correspondingly, bookings expectations have been slashed to $600 million - $1.1 billion from the previous $1.5 billion - $2 billion range.
Despite these reductions, the company remains focused on its core strengths such as driving software and service revenue. Continuous growth in AI-driven energy optimization through its Athena platform, along with strategic partnerships and navigating regulatory landscapes effectively, will be critical. Investors should monitor the company's ability to ameliorate project delays, maintain operational leverage, and capitalize on market opportunities in the upcoming quarters.
