10q10k10q10k.net

What changed in STEM, INC.'s 10-K — 2022 vs 2023

vs

Paragraph-level year-over-year comparison of STEM, INC.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+413 added−365 removedSource: 10-K (2024-02-29) vs 10-K (2023-02-17)

Top changes in STEM, INC.'s 2023 10-K

413 paragraphs added · 365 removed · 302 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

71 edited+14 added−17 removed19 unchanged
Biggest changeBUSINESS Overview Stem, Inc., a Delaware corporation (“Stem,” the “Company,” “we,” “us,” or “our”), is a global leader in AI-driven clean energy solutions and services with a large, digitally connected, renewable energy network, providing customers 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, (ii) edge hardware to aid in the collection of site data and the real-time operation and control of the site plus other optional equipment, (iii) ongoing software platform and professional services to operate integrated energy storage, and solar systems, through our Athena® artificial intelligence (“AI”) platform (“Athena”), and (iv) solar asset performance monitoring and control, through Athena’s PowerTrack application.
Biggest changeWe maintain one of the world’s largest digitally connected, intelligent, renewable energy networks, providing customers with (i) energy storage hardware, sourced from leading, global battery original equipment manufacturers (“OEMs”), that we deliver through our partners, including developers, distributors and engineering, procurement and construction (“EPC”) firms, (ii) edge hardware to aid in the collection of site data and the real-time operation and control of the site plus other optional equipment, and (iii) an ongoing software platform, Athena ® , and professional services to operate and manage the performance of standalone energy storage, integrated solar plus storage 3 systems, and solar assets.
We are committed to creating an inclusive environment that promotes equality, cultural awareness and respect by implementing policies, benefits, training, recruiting and recognition practices to support our colleagues. We believe that diversity and inclusion is about valuing our differences and continually identifying ways to improve our cultural intelligence which ultimately leads to better decision-making and a more tailored client experience.
We are committed to creating an inclusive environment that promotes equality, cultural awareness and respect by implementing policies, benefits, training, recruiting and recognition practices to support our colleagues. We believe that diversity and inclusion is about valuing our differences and identifying ways to improve our cultural intelligence which ultimately leads to better decision-making and a more tailored client experience.
We believe these steps are essential to effectively interview for identifiable skill sets and not just “personality fits.” We strive to build our workforce from within whenever possible; however, if the best candidate for an available position is not identified from within our existing talent pool, we will look externally.
We believe these steps are essential to effectively interview for identifiable skill sets and not just “personality fits.” We strive to build our workforce from within whenever possible; however, if the best candidate for an available position is not identified from within our existing talent pool, we look externally.
Human Capital Resources Our mission is to maximize the economic, environmental, and resiliency value of energy assets through our leading AI platform , and we are also committed to creating a world-class employee experience. We aim to foster and maintain a workplace that values the unique talents and contributions of every individual.
Human Capital Resources Our mission is to maximize the economic, environmental, and resiliency value of energy assets through our leading AI platform , and we are also committed to creating a world-class employee experience. We aim to foster and maintain a workplace that values the unique talents and contributions of every employee.
Government Regulation and Compliance There are varying policy frameworks across the U.S. and abroad designed to support and accelerate customer adoption of clean and/or reliable distributed generation technologies. These policy initiatives come in the form of tax incentives, cash grants, performance incentives and/or electric tariffs.
Government Regulation and Compliance There are varying policy frameworks across the U.S. and abroad designed to support and accelerate customer adoption of clean and reliable distributed generation technologies. These policy initiatives come in the form of tax incentives, cash grants, performance incentives and electric tariffs.
The results of the employee survey are disseminated to all employees, and the results are used to design action plans to assist managers with actively responding to employees’ sentiments. The employee survey is an important tool that allows us to continuously improve, innovate and evolve through ongoing engagement and measurement.
The results of the employee survey are disseminated to all employees, and the results are used to design action plans to assist managers with actively responding to employees’ sentiments. The employee survey is an important tool that allows us to improve, innovate and evolve through ongoing engagement and measurement.
Stem’s goal is to have programs that are based on clear and consistent policies, recognizing the need to have flexibility to meet different organizational or market conditions. 9 Available Information Our website is www.stem.com. We use our Investor Relations website, at https://investors.stem.com, as a routine channel for distribution of important information, including news releases, analyst presentations, and financial information.
Our goal is to have programs that are based on clear and consistent policies, recognizing the need to have flexibility to meet different organizational or market conditions. Available Information Our website is www.stem.com. We use our Investor Relations website, at https://investors.stem.com, as a routine channel for distribution of important information, including news releases, analyst presentations, and financial information.
Our industry peers are typically focused on the development and marketing of single-purpose built solutions with captive hardware offerings, while our AI-powered platform is capable of delivering a multitude of software-enabled services operating an extensive and diverse network of energy storage systems across multiple geographies, utility, and grid operator service areas.
Our industry peers are typically focused on the development and marketing of single-purpose built solutions with captive hardware offerings, while our AI-powered platform is capable of delivering a multitude of software-enabled services operating an extensive and diverse network of clean energy systems across multiple geographies, utility, and grid operator service areas.
Our solutions have been designed to mitigate the challenges of today’s enterprise customers, independent power producers, utilities, renewable asset owners and the modern electrical grid at scale with continuous improvements to artificial intelligence optimization strategies informed by operational data from one of the industry’s largest network of digitally-connected energy storage systems.
Our solutions have been designed to mitigate the challenges of today’s enterprise customers, independent power producers, utilities, renewable asset owners and the modern electrical grid at scale with continued improvements to artificial intelligence optimization strategies informed by operational data from one of the industry’s largest network of digitally-connected energy storage systems.
There is rising demand for clean electric power solutions that can provide electric power with lower carbon emissions with high availability. Additionally, the transition to renewable energy sources and distributed energy infrastructure has increased the complexity and variability of end-customer electricity demand. This industry transformation has created an opportunity for an increased role for energy storage solutions like ours.
There is rising demand for solutions that can provide clean electric power with lower carbon emissions with high availability. Additionally, the transition to renewable energy sources and distributed energy infrastructure has increased the complexity and variability of power generation and end-customer electricity demand. This industry transformation has created an opportunity for an increased role for clean energy solutions like ours.
There are government regulations pertaining to battery safety, transportation of batteries and disposal of hazardous materials. Stem and our suppliers, as applicable, are required to comply with these regulations in order to sell our batteries into the market. The license and sale of our batteries and technology abroad is likely to be subject to export controls in the future.
There are government regulations pertaining to battery safety, transportation of batteries and disposal of hazardous materials. We and our suppliers, as applicable, are required to comply with these regulations in order to sell our batteries into the market. The license and sale of our batteries and technology abroad is likely to be subject to export controls in the future.
The platform is able to co-optimize multiple energy market revenue streams across a diverse fleet of hardware throughout multiple geographies and energy markets. • Compelling Business Model & Customer Solutions : Our goal is to provide a seamless customer experience from commercial proposal to installation.
The platform is able to co-optimize multiple energy market revenue streams across a diverse fleet of hardware throughout multiple geographies and energy markets. • Compelling Business Model & Customer Solutions : Our goal is to provide a seamless customer experience from commercial proposal to installation and to ongoing operations.
Unless expressly noted, the information on our website or any other website is not incorporated by reference in this Form 10-K and should not be considered part of this Form 10-K or any other filing that we make with the SEC.
Unless expressly noted, the information on our website or any other website is not incorporated by reference in this Annual Report on Form 10-K and should not be considered part of this Report or any other filing that we make with the SEC.
We believe that Athena’s ability to optimize operations in both the BTM and FTM markets is unique in the industry and provides us with a competitive advantage. Through our February 2022 acquisition of Also Energy Holdings, Inc. (“AlsoEnergy”), we combined our storage optimization capabilities with solar asset performance monitoring and control software.
We believe that Athena’s ability to optimize operations in both the BTM and FTM markets for storage and solar assets is unique in the industry and provides us with a competitive advantage. Through our February 2022 acquisition of Also Energy Holdings, Inc. (“AlsoEnergy”), we combined our storage optimization capabilities with AlsoEnergy’s solar asset performance monitoring and control software.
We believe the global push for lower carbon emissions combined with vast technological improvements in lithium-ion battery-powered technologies will drive C&I customers, utilities, independent power producers and project developers to grow their use of and investment in energy storage systems.
We believe that the global push for lower carbon emissions, combined with vast technological improvements in lithium-ion battery-powered technologies, will drive C&I customers, utilities, independent power producers and project developers to grow their use of and investment in clean energy systems.
We believe that one of the key advantages driving sustainable differentiation for our company includes the focus and capabilities built in our pioneering history in the BTM segment of the energy storage industry.
We believe that one of the key advantages driving sustainable differentiation for us includes the focus and capabilities built in our pioneering history in the BTM segment of the energy storage industry.
In addition, in all the markets where we help manage our customers’ clean energy assets, we have agreements to use the Athena platform to participate in such markets and to share the revenue from such market participation. 5 Our Customers We operate in two key markets within the energy storage landscape: BTM and FTM.
In addition, in all of the markets where we help manage our customers’ clean energy assets, we have agreements to use the Athena platform to participate in such markets and to share the revenue from such market participation. Our Customers We operate in two key areas within the energy storage landscape: BTM and FTM.
We make available free of charge, though our Investor Relations website, our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, proxy statements and Forms 3, 4 and 5 filed on behalf of directors and executive officers, and amendments to each of those reports, as soon as reasonably practicable after such material is filed with or furnished to the SEC.
We make available free of charge, though our Investor Relations website, our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, proxy statements and Forms 3, 4 and 5 filed on behalf of directors and executive officers, and amendments to each of those reports, as soon as reasonably practicable after such documents are filed with or furnished to the SEC.
In addition, in all the markets where we help manage our customers’ clean energy assets, we 3 have agreements to use the Athena platform to participate in such markets and to share the revenue from such market participation. We deliver hardware and our software-enabled services to our customers through our Athena platform.
In addition, in all of the markets where we help manage our customers’ clean energy assets, we have agreements to use the Athena platform to participate in such markets and to share the revenue from such market participation. We deliver our battery hardware and software-enabled services to our customers through our Athena platform.
Our executive and data science team has more than 150 years of combined experience in machine learning, optimization and controls. Our Strategy Our mission is to maximize the economic, environmental, and resiliency value of energy assets through our leading AI platform.
Our data science team has more than 150 years of combined experience in machine learning, optimization and controls. Our Mission Our mission is to maximize the economic, environmental, and resiliency value of renewable energy assets through our leading AI platform.
Our operations are subject to stringent and complex federal, state, and local laws and regulations governing the occupational health and safety of our employees and wage regulations. For example, Stem is subject to the requirements of the federal Occupational Safety and Health Act (“OSHA”), as amended, and comparable state laws that protect and regulate employee health and safety.
Our operations are subject to stringent and complex federal, state, and local laws and regulations governing the occupational health and safety of our employees and wage regulations. For example, we are subject to the requirements of the federal Occupational Safety and Health Act (“OSHA”), as amended, and comparable state laws that protect and regulate employee health and safety.
Kim Homenock 49 Chief People Officer, since March 2022 and was promoted to executive officer in July 2022; Director, Devices Software & Services HR for Amazon from May 2021 to March 2022; Director, NA Transportation HR from January 2018 to May 2021.
Kim Homenock 49 Chief People Officer, since March 2022 and was promoted to executive officer in July 2022; Director, Devices Software & Services HR for Amazon (a technology company) from May 2021 to March 2022; Director, NA Transportation HR from January 2018 to May 2021.
This generates a significant amount of operational data leading to enhanced software performance through machine-learning and improving customer economics. • Advanced Technology Platform : We developed one of the first AI platforms for energy storage and virtual power plants that automates storage participation in electricity markets and performs monitoring and management of customer loads, solar generation and energy prices with real-time, complex decision- making algorithms.
This large, diverse network generates a significant amount of operational data leading to enhanced software performance through machine-learning, which improves customer economics. • Advanced Technology Platform : We developed one of the first AI platforms for energy storage and virtual power plants that automates storage participation in electricity markets and performs monitoring and management of customer loads, solar generation and energy prices with real-time, complex decision-making algorithms.
Stem’s “Athena®” is a registered-trademark, and Athena’s trademarked applications include “Analyzer™,” “Supervisor™,” “Explorer™,” and “Bidder™.” The services relating to these trademarks include, but are not limited to, energy optimization services, software as a service for energy optimization services and energy storage charge and discharge. We continually review our development efforts to assess the existence and patentability of our intellectual property.
“Athena®” is a registered-trademark, and Athena’s trademarked applications include “Analyzer™,” “Supervisor™,” “Explorer™,” and “PowerBidder™.” The services relating to these trademarks include, but are not limited to, energy optimization services, software as a service for energy optimization services and energy storage charge and discharge. We routinely review our development efforts to assess the existence and patentability of our intellectual property.
We recognize the success of Stem is dependent on our talent and the satisfaction of our global workforce, and we are greatly invested in the ability of our people to succeed and thrive. The following discussions provide a description of our employees, and outline how we manage our human capital resources and how we invest in our employees’ success.
We recognize that our success is dependent on our talent and the satisfaction of our global workforce, and we are greatly invested in the ability of our people to succeed and thrive. The following is a description of our employees, and outline how we manage our human capital resources and how we invest in our employees’ success.
Alan Russo 53 Chief Revenue Officer, since February 2019; Senior Vice President of Global Sales and Marketing, April 2018 to February 2019; Senior Vice President of Sales and Marketing at REC Solar Holdings AS (subsidiary of Duke Energy), from October 2015 to April 2018. Larsh Johnson 65 Chief Technology Officer, since January 2016.
Alan Russo 54 Chief Revenue Officer, since February 2019; Senior Vice President of Global Sales and Marketing, April 2018 to February 2019; Senior Vice President of Sales and Marketing at REC Solar Holdings AS (subsidiary of Duke Energy), from October 2015 to April 2018. Larsh Johnson 66 Chief Technology Officer, since January 2016.
Competition The energy storage industry is highly competitive, and new regulatory requirements for carbon emissions, technological advances, the lower cost of renewable energy, the decrease in battery costs, improving battery technology and shifting customer demands are causing the industry to evolve and expand.
Competition The clean energy industry is highly competitive, and new regulatory requirements for carbon emissions, technological advances, the lower cost of renewable energy, the decrease in battery and solar panel costs, improving battery technology and shifting customer demands are causing the industry to evolve and expand.
Our software development team of more than 200 product and technology professionals is responsible for the design, development, integration and testing of the Athena platform. We focus our efforts on developing Athena to continuously improve our algorithms, augment value with new revenue streams and localize based on geography and regulatory considerations.
Our team of more than 200 software development, data science, and product professionals is responsible for the design, development, integration, and testing of the Athena platform. We focus our efforts on developing Athena to improve our algorithms, augment value with new revenue streams and localize our capabilities based on geography and regulatory considerations.
Diversity and Inclusion We are committed to building an inclusive culture and team environment that supports current and future diversity in our industry and our talent. In the spirit of Stem’s core values we are “One Team” and succeed through collaboration when we respect, acknowledge and celebrate each other’s differences.
Diversity and Inclusion We are committed to building an inclusive culture and team environment that promotes equal employment opportunities and supports current and future diversity in our industry and our talent. In the spirit of our core values, we are “One Team” and succeed through collaboration when we respect, acknowledge and celebrate each other’s differences.
We believe that the principal competitive factors in the energy storage market include, but are not limited to: • safety, reliability and quality; • product performance and uptime; • historical track record and references for customer satisfaction; • experience in utilizing the energy storage system for multiple stakeholders; 6 • technological innovation; • comprehensive solution from a single provider; • ease of integration; and • seamless hardware and software-enabled service offerings.
We believe that the principal competitive factors in the clean energy market include, but are not limited to: • safety, reliability and quality; • product performance and uptime; • historical track record and references for customer satisfaction; • experience in maximizing the value of clean energy systems for multiple stakeholders; • technological innovation; • comprehensive solution from a single provider; 6 • ease of integration; and • seamless hardware and software-enabled service offerings.
Information About Our Executive Officers The following table sets forth, as of January 31, 2023, the names and ages of the executive officers of Stem, Inc., including all offices and positions held by each for the past five years. Name Age Current Position and Five-Year Business Experience John Carrington 56 Chief Executive Officer and Director, since December 2013.
Information About Our Executive Officers The following table sets forth, as of January 31, 2024, the names and ages of our executive officers, including all offices and positions held by each for the past five years. Name Age Current Position and Five-Year Business Experience John Carrington 57 Chief Executive Officer and Director, since December 2013.
We believe as one of the largest in this industry we have a significant head start against our competition in this rapidly evolving environment.
We believe that, as one of the largest solutions providers in this industry, we have a significant head start against our competition in this rapidly evolving environment.
Prakesh Patel 48 Chief Strategy Officer since January 2020; Vice President of Capital Markets and Strategy from 2013 to January 2020. Robert Schaefer 61 President of Transformational Initiatives since January 2023; President, AlsoEnergy from February 2022 to January 2023; CEO of AlsoEnergy from August 2017 to January 2022.
Prakesh Patel 49 Chief Strategy Officer since January 2020; Vice President of Capital Markets and Strategy from 2013 to January 2020. Robert Schaefer 62 President of Transformational Initiatives since January 2023; President, AlsoEnergy from February 2022 to January 2023; CEO of AlsoEnergy from August 2017 to January 2022.
For BTM customers, we seek to maximize value by providing AI-powered storage services that reduce spending on utility bills, enhance the economics of solar and provide backup power. Additionally, we help BTM customers achieve renewable energy targets as part of their ESG commitments.
For BTM customers, we seek to maximize value by providing AI-powered storage services that reduce spending on utility bills, enhance the economics of solar and provide backup power. Additionally, we help BTM customers achieve renewable energy targets as part of their environmental, social 5 and governance (“ESG”) commitments.
In September 2020, the FERC issued Order 2222, opening up U.S. wholesale energy markets to aggregations of distributed energy resources like rooftop solar, BTM batteries, and electric vehicles. Energy storage systems require interconnection agreements from the applicable local electricity utilities in order to operate.
In September 2020, the FERC issued Order 2222, opening up U.S. wholesale energy markets to aggregations of distributed energy resources like rooftop solar, BTM batteries, and electric vehicles. FERC Order 2222 is currently in the implementation stage. Energy storage systems require interconnection agreements from the applicable local electricity utilities in order to connect to the grid and operate.
This experience required an emphasis on AI-driven co-optimization of energy storage operations and the build out of significant operational infrastructure to execute economic considerations for enterprise customers, utilities, and grid operators.
This experience required an emphasis on AI-driven co-optimization of energy storage operations and the build-out of significant operational infrastructure to maximize economic value and grid stability for enterprise customers, utilities, and grid operators.
In February 2018, the FERC issued Order 841 directing regional transmission operators and independent system operators to remove barriers to the participation of storage in wholesale electricity markets and to establish rules to help ensure storage resources are compensated for the services they provide.
In February 2018, the Federal Energy Regulatory Commission (“FERC”) issued Order 841, directing regional transmission operators and independent system operators to remove barriers to the participation of storage in wholesale electricity markets and to establish rules to help ensure storage resources are compensated for the services they provide.
Bill Bush 57 Chief Financial Officer, s ince November 2016. Saul R. Laureles 57 Chief Legal Officer and Corporate Secretary, since May 2021; Director, Corporate Legal Affairs an d Assistant Corporate Secretary at Schlumberger Limited ( a global oilfield services company), from May 2007 to May 2021.
Bill Bush 58 Chief Financial Officer, s ince November 2016. Saul R. Laureles 58 Chief Legal Officer and Corporate Secretary, since May 2021; Director, Corporate Legal Affairs an d Assistant Corporate Secretary at Schlumberger Limited ( a global energy technology company), from May 2007 to May 2021.
These patents relate to the following broad categories: • power electronics, including the basic interaction of batteries with the power grid where such electronics convert direct current (DC) battery power to alternating current (AC) compatible grid power; • analytics and control, including use cases and decisions into the operation of an energy storage system and the coordination of providing economic or operational value to a customer; and • networked operations and grid services that involve the aggregation and operation of a group of energy storage systems to provide value to a utility or grid operator.
These patents relate to the following broad categories: • power electronics, including the basic interaction of batteries with the power grid where such electronics convert direct current (DC) battery power to alternating current (AC) compatible grid power; • analytics and control, including use cases and decisions into the operation of an energy storage system and the coordination of providing economic or operational value to a customer; • networked operations and grid services that involve the aggregation and operation of a group of energy storage systems to provide value to a utility or grid operator; and • monitoring and control of solar photo-voltaic power assets along with fault detection, performance analytics and solar generation forecasting.
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 installed at customer locations generate energy that can be used on-site without interacting with the electric grid and passing through an electric meter.
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.
We pursue the registration of our domain names and trademarks and service marks in the U.S. In an effort to protect our brand, as of December 31, 2022, we had nearly ten registered trademarks in the U.S.
We pursue the registration of our domain names and trademarks and service marks in the U.S. In an effort to protect our brand, as of December 31, 2023, we had nine registered trademarks in the U.S.
Federal, state and local government statutes and regulations concerning electricity heavily influence the market for our product and services even though Stem is not regulated as a utility. These statutes and regulations often relate to electricity pricing, net metering, incentives, taxation, competition with utilities and the interconnection of customer-owned electricity generation.
Federal, state and local government statutes and regulations concerning electricity heavily influence the demand for our products and services even though we are not regulated as a utility. These statutes and regulations often relate to electricity pricing, net metering, incentives, taxation, competition with utilities and the interconnection of customer-owned electricity generation.
In the U.S., governments, often acting through state utility or public service commissions, change and adopt different rates for commercial customers on a regular basis. These changes can have a positive or negative effect on our ability to deliver cost savings to customers for the purchase of electricity.
In the U.S., governments, often acting through state utility or public service commissions, change and adopt different rates for commercial customers on a regular basis. These changes can have a positive or negative effect on our ability to deliver cost savings to customers for the purchase of electricity. Several states have mandates or policies designed to encourage energy storage adoption.
As of December 31, 2022, Athena had accumulated more than 31 million runtime hours, with more than 500,000 industrial Internet of Things (“IoT”) devices under management, across more than 200,000 sites in over 50 countries. We operate in two key areas within the energy storage landscape: Behind-the-Meter (“BTM”) and Front-of-the-Meter (“FTM”).
As of December 31, 2023, Athena had accumulated more than 37 million runtime hours, with more than 500,000 industrial Internet of Things (“IoT”) devices under management, across more than 184,000 sites in 48 countries. We operate in two key areas within the energy landscape: Behind-the-Meter (“BTM”) and Front-of-the-Meter (“FTM”).
In order to fulfill our mission, we provide our customers, which include C&I companies and 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 OEMs, that we deliver through our partners, including developers, distributors, and engineering, procurement and construction firms, (ii) edge hardware to aid in the collection of site data and the real-time operation and control of the site plus other optional equipment, (iii) ongoing software platform and professional services to operate integrated energy storage, and solar systems, through our Athena, and (iv) solar asset performance monitoring and control, through Athena’s PowerTrack application.
In order to fulfill our mission, we provide our customers, which include C&I enterprises as well as independent power producers, renewable project developers, utilities and grid operators, with (i) energy storage hardware, sourced from leading, global battery OEMs, that we deliver through our partners, including developers, distributors and EPC firms, (ii) edge hardware to aid in the collection of site data and the real-time operation and control of the site plus other optional equipment, and (iii) an ongoing software platform and professional services to operate and manage the performance of standalone energy storage, integrated solar plus storage systems, and solar assets .
As of December 31, 2022, we had 87 patents across storage and solar assets performance. Our intellectual property encompasses a diverse mix of patents with respect to our proprietary systems and software.
As of December 31, 2023, we had 82 patents across storage and solar asset performance. Our intellectual property encompasses a diverse mix of patents with respect to our proprietary systems and software.
Professional Development 8 We are committed to helping people realize their highest potential and fostering a culture that supports personal development for individuals, leaders and teams across the organization.
We also occasionally use recruitment consultants and search firms. 8 Professional Development We are committed to helping people realize their highest potential and fostering a culture that supports personal development for individuals, leaders and teams across the organization.
The resulting network created by our growing customer base is designed to increase grid resilience and reliability through the real-time processing of market-based demand signals, energy prices and other factors in connection with the deployment of renewable energy resources to such customers.
We believe that the network created by our growing customer base increases grid resilience and reliability through the real-time processing of market-based demand signals, energy prices and other factors in connection with the deployment of renewable energy resources to our customers.
Our key competitors include energy optimization software providers, energy storage system OEMs, hardware integration providers, renewable project developers and engineering, procurement and construction firms.
Our key competitors include energy monitoring and optimization software providers, energy storage system OEMs, hardware integration providers, renewable project developers and EPC firms.
We support the continuing development of our staff around the world by offering several educational programs. Stem designs its employee compensation and benefits programs to be competitive in relation to the market. Stem adjusts its employee compensation and benefits programs as needed based upon regular monitoring of applicable laws and practices and the competitive market.
We support the continuing development of our staff around the world by offering several educational programs. We design our employee compensation and benefits programs to be competitive relative to our market. We adjust our employee compensation and benefits programs as needed based upon regular monitoring of applicable laws and practices and the competitive market.
In almost all cases, interconnection agreements are standard form agreements that have been pre-approved by the local public utility commission or other regulatory body with jurisdiction over interconnection agreements. As such, no additional regulatory approvals are typically required once interconnection agreements are signed.
In almost all cases, interconnection agreements are standard form agreements that have been pre-approved by the local public utility commission or another regulatory body with jurisdiction over interconnection agreements. As such, no additional regulatory approvals are typically required once interconnection agreements are signed. For wholesale transmission, energy storage systems require interconnection agreements with transmission providers.
Our recruitment strategy is to initially search for candidates directly through our professional networks, university and mentorship programs, and through advertising with certain partners. We also occasionally use recruitment consultants and search firms.
Our recruitment strategy is to initially search for candidates directly through our professional networks, university and mentorship programs, and through advertising with certain partners.
In structuring these benefit programs, Stem strives to provide an aggregate level of compensation and benefits that are comparable to the demands of the market. Stem’s compensation policies and procedures will continue to be designed to promote compliance with applicable government and regulatory guidelines as well as generally accepted compensation practices.
In structuring these benefit programs, we strive to provide an aggregate level of compensation and benefits that are comparable to the demands of the market. 9 Our compensation policies and procedures are designed to promote compliance with applicable government and regulatory guidelines as well as generally accepted compensation practices.
Mike Carlson 59 Chief Operating Officer, since September 2022; Vice President of Koch Engineered Solutions, from August 2020 to September 2022; President of Digital Grid North America at Siemens Industries, Inc. from July 2014 to March 2019.
Mike Carlson 60 Chief Operating Officer, since September 2022; Vice President of Koch Engineered Solutions (an equipment technology and services company) from August 2020 to September 2022; President of Digital Grid North America at Siemens Industries, Inc. (a technology company) from July 2014 to March 2019.
We also provide a monthly global Culture Coalition cadence to address our mission of “bringing a community of employees together to improve the work experience through innovative, creative, and fun culture initiatives.” Each month we host a DEI subject and guest speaker to educate our workforce and provide pamphlets for employees and their families, books honoring and educating on Black History Month, women artists (displayed in our offices), and goods from indigenous owned business’ as giveaways in our monthly contests.
We also provide a monthly global culture coalition cadence to address our mission of “bringing a community of employees together to improve the work experience through innovative, creative, and fun culture initiatives.” Each month we discuss a different diversity, equity and inclusion subject, and we also invite relevant guest speakers to educate our workforce and provide pamphlets for employees and their families, provide books honoring Black History Month, display in our offices artwork from women artists, and provide goods from indigenous owned businesses as giveaways in our monthly contests.
Our AI-powered platform manages energy assets currently installed worldwide with diverse policy frameworks across each energy market. States within the U.S. have utility procurement programs and/or renewable portfolio standards for which our technology is eligible, including California, Connecticut Hawaii, Massachusetts, New York, and Texas.
Our AI-powered platform manages energy assets operating worldwide, with various policy frameworks across each energy market. Several U.S. states have utility procurement programs, energy system decarbonization goals and/or renewable portfolio standards for which our technology is eligible, including California, Connecticut, Hawaii, Illinois, Massachusetts, Maryland, Michigan, New Jersey, New York and Texas.
Our FTM systems are designed to decrease risk for project developers, asset owners, independent power producers and investors by adapting to dynamic energy market conditions in connection with the deployment of electricity and improving the combined value of the solar renewable resource and energy storage over the course of their FTM system’s useful life.
For FTM customers, our software decreases risk for project developers, asset owners, 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 assets over the course of their FTM system’s lifetime.
Employees As of December 31, 2022, we had 660 employees, of whom 489 were based in the United States and 171 in international locations. As of December 31, 2022, approximately 29% of the global team was female and 71% was male.
Employees As of December 31, 2023, we had 624 employees, of whom 425 were based in the United States and 199 in international locations. As of December 31, 2023, approximately 26% of the global team was female and 74% was male.
To help us achieve and maintain a diverse workforce, we continue to build a strong and inclusive culture at Stem with the launch of two new employee networks focused on LGBTIA+, and Women in Leadership. We are committed to building the best workplace in our communities and the broader industry.
To help us achieve and maintain a diverse workforce, we continue to build a strong and inclusive culture, including through employee affinity networks. We are committed to building the best workplace in our communities and the broader industry.
Competitive Strengths Our competitive strengths include the following: • Significant Benefits from Scale & Network Effects : We believe we are the largest in global distributed energy storage megawatts under management, with more than 2.0 GWh operating or contracted across more than 960 sites and more than 25GW of solar assets under management.
Competitive Strengths Our competitive strengths include the following: • Significant Benefits from Scale & Network Effects : We believe we operate one of the largest global distributed clean energy storage networks, with more than 5.5 Gigawatt-hours (“GWh”) of operating or contracted energy storage assets and more than 27.5 GW of solar assets under management.
Storage installations also are supported 7 in certain states by state public utility commission policies that require utilities to consider alternatives such as storage before they can build new generation.
For example, California offers a cash rebate for storage installations through the Self Generation Incentive Program and Massachusetts and New York offer performance-based financial incentives for storage. Storage installations also are supported in some states by state public utility 7 commission policies that require utilities to consider alternatives such as storage before they can build new generation.
In addition to competitive base salaries and bonus plans, Stem also offers attractive benefits programs both in the U.S. and globally.
Our compensation and benefits programs are designed to attract and retain talent as well as motivate employees globally. In addition to competitive base salaries and bonus plans, we also offer attractive benefits programs both in the U.S. and globally.
Employee Compensation, Benefits & Well-being We strive to enrich and elevate the lives of our employees through a robust compensation and benefits package that is flexible to meet both individual and family needs. Stem’s compensation and benefits programs are designed to attract and retain talent as well as motivate employees globally.
In addition, we recently implemented a three-part diversity leadership training series on equity, equality, and inclusion. Employee Compensation, Benefits & Well-being We strive to enrich and elevate the lives of our employees through a robust compensation and benefits package that is flexible to meet both individual and family needs.
Internationally, we have partnerships with leading regional industrial equipment and energy firms such as Copec in South America, each focused on leveraging the partner’s local market knowledge and reputation with leading corporates, utilities and grid operators. • Exceptional AI and Energy Storage Expertise : We have a seasoned leadership team with a demonstrated track record of execution and more than 150 years of accumulated experience in energy storage, software and distributed energy expertise focused on AI, technology development, new market commercialization, renewable project development and utility / grid program operations.
Athena will enable the electric cooperative to dispatch the battery into system peaks to minimize costs and maximize efficiency. • Exceptional AI and Energy Storage Expertise : We have a seasoned leadership team with a demonstrated track record of execution and more than 150 years of accumulated experience in energy storage, software and distributed energy expertise focused on AI, technology development, new market commercialization, renewable project development and utility / grid program operations.
We also encourage continuing education programs through approved institutions and online learning such as Udemy and Stem University and are activating a Middle Manager Learning series to supplement essential and leadership skills. Employee Feedback We value the feedback we receive from our employees. Our annual employee engagement survey asks all our employees for their input on a variety of matters.
We encourage our managers and employees to participate in continuing education programs through approved institutions and online learning such as Udemy, Stem University, and the Middle Manager Learning series to supplement essential and leadership skills.
Customers sign long-term contracts, typically between 10 and 20 years in duration, while providing us the flexibility to control their energy storage system to earn market participation revenue, lower their energy costs and meet their decarbonization goals. • Leading Strategic Partnerships : We have numerous partnerships with a diverse set of industry leaders to reduce execution risk and increase speed to market in certain geographies.
Customers sign long-term contracts, typically between 3 and 20 years in duration, while providing us the flexibility to control their clean energy systems to maximize revenue, lower their energy costs, earn market participation revenue, and meet their decarbonization goals.
Additionally, our energy storage solutions are designed to support renewable energy generation by alleviating grid intermittency issues, thereby potentially reducing our customers’ dependence on traditional, fossil fuel resources and subsequent greenhouse gas emissions (GHG) to help advance our customers’ environmental, social, and governance (ESG) goals.
Additionally, our clean energy solutions are designed to support renewable energy generation by helping to alleviate grid intermittency issues, thereby reducing customer dependence on traditional, fossil fuel resources.
To install and operate energy storage systems on our platform, Stem, our customers or our partners, as applicable, are required to obtain applicable permits and approvals from local authorities having jurisdiction to install energy storage systems and to interconnect the systems with the local electrical utility.
Each installation must be designed, constructed, and operated in compliance with applicable federal, state, and local regulations, codes, standards, guidelines, policies, and laws. To install and operate energy storage systems on our platform, we, our customers or our partners are required to obtain applicable permits and approvals from various authorities with jurisdiction over energy storage systems and interconnection.
These energy storage systems currently qualify for tax exemptions, incentives or other customer incentives in many states, and now with the United States Inflation Reduction Act of 2022 (the “IRA”), storage incentive tax credit and solar production tax credit.
Additionally, these energy assets often qualify for tax or financial incentives and, following passage of the United States Inflation Reduction Act of 2022 (the “IRA”), provisions such as the storage investment tax credit (ITC) and solar production tax credit (PTC), among others, provide additional federal incentives.
On November 17, 2021, in connection with the pricing of the 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 Notes.
On April 3, 2023, we used approximately $99.8 million of the net proceeds to purchase and surrender for cancellation approximately $163.0 million aggregate principal amount of our 0.50% Green Convertible Notes due 2028 (the “2028 Convertible Notes”) . 4 On March 29, 2023 and March 31, 2023, in connection with the pricing of the 2030 Convertible Notes, and on April 3, 2023, in connection with the exercise in full by the 2023 Initial Purchasers of their option to purchase additional notes, we entered into Capped Calls (the “2030 Capped Calls”) with certain counterparties.
Our BTM systems are designed to reduce commercial and industrial (“C&I”) customer energy bills and help our customers achieve their corporate ESG objectives. FTM, grid-connected systems deliver power into the grid, which is often sold to off-site customers and must pass through an electric meter prior to reaching an end-user.
FTM, grid-connected systems provide power to off-site locations and must pass through an electric meter prior to reaching an end-user. For BTM customers, Athena mitigates 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.
Removed
Our hardware, professional services, and recurring software-enabled services seek to mitigate customer energy costs through time-of-use and demand charge management innovations and a network of virtual power plants, while capturing revenue through participation in programs and merchant markets.
Added
ITEM 1. BUSINESS Overview Stem, Inc., a Delaware corporation (“Stem,” the “Company,” “we,” “us,” or “our”), is a global leader in artificial intelligence (“AI”)-driven clean energy solutions and services.
Removed
On June 30, 2021, we issued 4,683,349 shares of common stock (the “Exchange Shares”) to Star Peak Sponsor LLC, a Delaware limited liability company (“STPK Sponsor”), and Star Peak Sponsor Warrantco LLC, a Delaware limited liability company (together with STPK Sponsor, the “Sellers”).
Added
Our software is designed to reduce commercial and industrial (“C&I”) customer energy bills, increase their energy yield, and help our customers facilitate the achievement of their corporate environmental, social, and corporate governance (“ESG”) and carbon reduction objectives. Through Athena’s PowerTrack application, our software is designed to maximize solar energy output and minimize asset downtime.
Removed
The issuance was pursuant to an Exchange Agreement dated as of June 25, 2021 by and among us and the Sellers (the “Exchange Agreement”).
Added
On April 3, 2023, we issued $240.0 million aggregate principal amount of 4.25% Green Convertible Senior Notes due 2030 (the “2030 Convertible Notes”) in a private placement offering to qualified institutional buyers (the “2023 Initial Purchasers”) pursuant to Rule 144A under the Securities Act of 1933, as amended.
Removed
Pursuant to the Exchange Agreement and in consideration of the issuance to the Sellers of the Exchange Shares, the Sellers exchanged 7,181,134 warrants originally issued to STPK Sponsor in a private placement that closed simultaneously with the STPK initial public offering.
Added
The 2030 Convertible Notes are senior, unsecured obligations of the Company and bear interest at a rate of 4.25% per year, payable in cash semi-annually in arrears in April and October of each year, beginning in October 1, 2023.
Removed
The Exchange Shares were issued in reliance upon the exemption provided by Section 3(a)(9) of the Securities Act of 1933, as amended (the “Securities Act”). On August 20, 2021, we issued an irrevocable notice for the redemption of all 12,786,129 of our outstanding public warrants at 5:00 p.m. Eastern time on September 20, 2021 (the “Redemption Date”).

… 22 more changes not shown on this page.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

125 edited+39 added−18 removed234 unchanged
Biggest changeYou may not be able to resell your shares at an attractive price due to a number of factors such as those listed in “- Risks Relating to Stem’s Business and Industry ” and the following: • results of operations that vary from the expectations of securities analysts and investors; • results of operations that vary from those of our competitors; 31 • the effects of the COVID-19 pandemic and its effect on the Company’s business and financial conditions; • changes in expectations as to the Company’s future financial performance, including financial estimates and investment recommendations by securities analysts and investors; • declines in the market prices of stocks generally; • strategic actions by us or our competitors; • announcements by us or our competitors of significant contracts, acquisitions, joint ventures, other strategic relationships or capital commitments; • any significant change in the Company’s senior management; • changes in general economic or market conditions or trends in the Company’s industry or markets, including as a result of a general economic slowdown or a recession, increasing interest rates and changes in monetary policy, or inflationary pressures; • changes in business or regulatory conditions, including new laws or regulations or new interpretations of existing laws or regulations applicable to the Company’s business; • future sales of our common stock or other securities or the incurrence of significant debt; • investor perceptions or the investment opportunity associated with our common stock relative to other investment alternatives; • the public’s response to press releases or other public announcements by us or third parties, including the Company’s filings with the SEC; • litigation involving the Company, the Company’s industry, or both, or investigations by regulators into the Company’s operations or those of the Company’s competitors; • financial and operating guidance, if any, that we provide to the public, any changes in this guidance or the Company’s failure to meet this guidance; • the development and sustainability of an active trading market for our common stock; • actions by institutional or activist stockholders; • changes in accounting standards, policies, guidelines, interpretations or principles; and • other events or factors, including those resulting from natural disasters, war, acts of terrorism or responses to these events.
Biggest changeFactors that could cause fluctuations in the trading price of our common stock include the following: • results of operations that vary from the expectations of securities analysts and investors; • results of operations that vary from those of our competitors; • volatility in the trading prices and trading volumes of technology stocks; • changes in expectations as to our future financial performance, including financial estimates and investment recommendations by securities analysts and investors; • declines in the market prices of stocks generally; • strategic actions by us or our competitors; • announcements by us or our competitors of significant contracts, acquisitions, joint ventures, other strategic relationships or capital commitments; • any significant change in our senior management; • changes in general macroeconomic or market conditions or trends in our industry or markets, including as a result of a general economic slowdown or a recession, increasing interest rates and changes in monetary policy, or inflationary pressures; • changes in business or regulatory conditions, including new laws or regulations or new interpretations of existing laws or regulations applicable to our business; • future sales of our common stock or other securities or the incurrence of significant debt; • investor perceptions or the investment opportunity associated with our common stock relative to other investment alternatives; • the public’s response to press releases or other public announcements by us or third parties, including our filings with the SEC; • litigation involving us, our industry, or both, or investigations by regulators into our operations or those of our competitors; • financial and operating guidance, if any, that we provide to the public, and any changes in this guidance or our failure to meet this guidance; • actions by institutional or activist stockholders; • changes in accounting standards, policies, guidelines, interpretations or principles; and • other events or factors, including those resulting from natural disasters, geopolitical instability or war, acts of terrorism or responses to these events.
More specifically, in March 2018, the United States imposed a 25% tariff on steel imports and a 10% tariff on aluminum imports pursuant to Section 301 of the Trade Act of 1974 and has imposed additional tariffs on steel and aluminum imports pursuant to Section 232 of the Trade Expansion Act of 1962.
More specifically, in March 2018, the United States imposed a 25% tariff on steel imports and a 10% tariff on aluminum imports pursuant to Section 232 of the Trade Expansion Act of 1962 and has imposed additional tariffs on steel and aluminum imports pursuant to Section 301 of the Trade Act of 1974.
The diversion of management’s attention and any difficulties encountered in the integration process could hurt our business; • the identification, acquisition and integration of acquired businesses requires significant investment, including to determine which new service offerings we might wish to acquire, harmonize service offerings, expand management capabilities and market presence, and improve or increase development efforts and technology features and functions; • the anticipated benefits from any acquisition may not be achieved on a timely basis or at all, including as a result of loss of clients or personnel of the target, other difficulties in supporting and transitioning the target's clients, difficulties in managing expanded operations and operations in foreign jurisdictions in which we have never operated, the inability to realize expected synergies from an acquisition, or negative organizational cultural effects arising from the integration of new personnel; • we may face difficulties in integrating the personnel, technologies, solutions, operations, and existing contracts of the acquired business; • we may fail to identify all of the problems, liabilities, risks or other shortcomings or challenges of an acquired company, technology or solution, including issues related to intellectual property, solution quality or architecture, income tax and other regulatory compliance practices, revenue recognition or other accounting or internal control practices, or employee or client issues; • to pay for future acquisitions, we could issue additional shares of our common stock or pay cash.
The diversion of management’s attention and any difficulties encountered in the integration process could hurt our business; • the identification, acquisition and integration of acquired businesses requires significant investment, including to determine which new service offerings we might wish to acquire, harmonize service offerings, expand management capabilities and market presence, and improve or increase development efforts and technology features and functions; • the anticipated benefits from any acquisition may not be achieved on a timely basis or at all, including as a result of loss of clients or personnel of the target, other difficulties in supporting and transitioning the target's clients, 17 difficulties in managing expanded operations and operations in foreign jurisdictions in which we have never operated, the inability to realize expected synergies from an acquisition, or negative organizational cultural effects arising from the integration of new personnel; • we may face difficulties in integrating the personnel, technologies, solutions, operations, and existing contracts of the acquired business; • we may fail to identify all of the problems, liabilities, risks or other shortcomings or challenges of an acquired company, technology or solution, including issues related to intellectual property, solution quality or architecture, income tax and other regulatory compliance practices, revenue recognition or other accounting or internal control practices, or employee or client issues; • to pay for future acquisitions, we could issue additional shares of our common stock or pay cash.
In addition to the other risks described herein, the following factors could also cause our financial condition and results of operations to fluctuate on a quarterly basis: • the timing of customer installations of our hardware, which may depend on many factors such as availability of inventory, product quality or performance issues, or local permitting requirements, utility requirements, environmental, health and safety requirements, weather and customer facility construction schedules, and availability and schedule of our third-party general contractors; 32 • the sizes of particular customer hardware installations and the number of sites involved in any particular quarter; • delays or cancellations of energy storage system purchases and installations; • fluctuations in our service costs, particularly due to unaccrued costs of servicing and maintaining energy storage systems; • weaker than anticipated demand for our energy storage systems due to changes in government incentives and policies; • interruptions in our supply chain; • the timing and level of additional purchases by existing customers; • unanticipated expenses or installation delays incurred by customers due to changes in governmental regulations, permitting requirements by local authorities at particular sites, utility requirements and environmental, health and safety requirements; and • disruptions in our sales, production, service or other business activities resulting from our inability to attract and retain qualified personnel.
In addition to the other risks described herein, the following factors could also cause our financial condition and results of operations to fluctuate on a quarterly basis: • the timing of customer installations of our hardware, which may depend on many factors such as availability of inventory, product quality or performance issues, or local permitting requirements, utility requirements, environmental, health and safety requirements, weather and customer facility construction schedules, and availability and schedule of our third-party general contractors; • the sizes of particular customer hardware installations and the number of sites involved in any particular quarter; • delays or cancellations of energy storage system purchases and installations; • fluctuations in our service costs, particularly due to unaccrued costs of servicing and maintaining energy storage systems; • weaker than anticipated demand for our energy storage systems due to changes in government incentives and policies; • interruptions in our supply chain; • the timing and level of additional purchases by existing customers; • unanticipated expenses or installation delays incurred by customers due to changes in governmental regulations, permitting requirements by local authorities at particular sites, utility requirements and environmental, health and safety requirements; and • disruptions in our sales, production, service or other business activities resulting from our inability to attract and retain qualified personnel.
These provisions, among other things: • establish a staggered board of directors divided into three classes serving staggered three-year terms, such that not all members of our board of directors will be elected at one time; • authorize our board of directors to issue new series of preferred stock without stockholder approval and create, subject to applicable law, a series of preferred stock with preferential rights to dividends or our assets upon liquidation, or with superior voting rights to our existing common stock; • eliminate the ability of stockholders to call special meetings of stockholders; • eliminate the ability of stockholders to fill vacancies on our board of directors; • establish advance notice requirements for nominations for election to our board of directors or for proposing matters that can be acted upon by stockholders at our annual stockholder meetings; • permit our board of directors to establish the number of directors; • provide that our board of directors is expressly authorized to make, alter or repeal our Amended and Restated Bylaws; • provide that stockholders can remove directors only for cause and only upon the approval of not less than 66 2∕3 of all outstanding shares of our voting stock; • require the approval of not less than 66 2∕3 of all outstanding shares of our voting stock to amend our Amended and Restated Bylaws and specific provisions of our Amended and Restated Charter; and • limit the jurisdictions in which certain stockholder litigation may be brought.
These provisions, among other things: • establish a staggered board of directors divided into three classes serving staggered three-year terms, such that not all members of our board of directors will be elected at one time; • authorize our board of directors to issue new series of preferred stock without stockholder approval and create, subject to applicable law, a series of preferred stock with preferential rights to dividends or our assets upon liquidation, or with superior voting rights to our existing common stock; • eliminate the ability of stockholders to call special meetings of stockholders; • eliminate the ability of stockholders to fill vacancies on our board of directors; • establish advance notice requirements for nominations for election to our board of directors or for proposing matters that can be acted upon by stockholders at our annual stockholder meetings; • permit our board of directors to establish the number of directors; • provide that our board of directors is expressly authorized to make, alter or repeal our Amended and Restated Bylaws; • provide that stockholders can remove directors only for cause and only upon the approval of not less than 66 2∕3 of all outstanding shares of our voting stock; 34 • require the approval of not less than 66 2∕3 of all outstanding shares of our voting stock to amend our Amended and Restated Bylaws and specific provisions of our Amended and Restated Charter; and • limit the jurisdictions in which certain stockholder litigation may be brought.
Any further international expansion could subject our business to risks associated with international operations, including: • compliance with multiple, potentially conflicting and changing governmental laws, regulations and permitting processes, including trade, labor, environmental, banking, employment, privacy and data protection laws and regulations, such as the EU Data Privacy Directive, as well as tariffs, export quotas, customs duties and other trade restrictions; • compliance with U.S. and foreign anti-bribery laws, including the Foreign Corrupt Practices Act of 1977, as amended; • difficulties in collecting payments in foreign currencies and associated foreign currency exposure; • compliance with potentially conflicting and changing laws of taxing jurisdictions where we conduct business and applicable U.S. tax laws as they relate to international operations, the complexity and adverse consequences of such tax laws and potentially adverse tax consequences due to changes in such tax laws; • the laws of some countries do not protect proprietary rights as fully as do the laws of the U.S.
Any further international expansion could subject our business to risks associated with international operations, including: • compliance with multiple, potentially conflicting and changing governmental laws, regulations and permitting processes, including trade, labor, environmental, banking, employment, privacy and data protection laws and regulations, such as the EU Data Privacy Directive, as well as tariffs, export quotas, customs duties and other trade restrictions; • compliance with U.S. and foreign anti-bribery laws, including the Foreign Corrupt Practices Act of 1977, as amended; • difficulties in collecting payments in foreign currencies and associated foreign currency exposure; 18 • compliance with potentially conflicting and changing laws of taxing jurisdictions where we conduct business and applicable U.S. tax laws as they relate to international operations, the complexity and adverse consequences of such tax laws and potentially adverse tax consequences due to changes in such tax laws; • the laws of some countries do not protect proprietary rights as fully as do the laws of the U.S.
Successful completion of a project may be adversely affected, delayed or rendered infeasible by numerous factors, including: • interconnection costs and capacity constraints; • transmission grid congestion issues; • delays in obtaining required governmental permits and approvals; • regulatory changes that adversely affect energy storage participation in wholesale markets; • changes in wholesale market energy and ancillary services prices and costs; • construction delays and contractor or developer partner performance shortfalls; • cost overruns, including costs related to renting or owning land necessary to develop DevCo Projects; • labor, equipment, and material supply shortages, failures or disruptions; and 23 • force majeure and other events out of our control.
Successful completion of a project may be adversely affected, delayed or rendered infeasible by numerous factors, including: • interconnection costs and capacity constraints; • transmission grid congestion issues; • delays in obtaining required governmental permits and approvals; • regulatory changes that adversely affect energy storage participation in wholesale markets; • changes in wholesale market energy and ancillary services prices and costs; • construction delays and contractor or developer partner performance shortfalls; • cost overruns, including costs related to renting or owning land necessary to develop DevCo Projects; • labor, equipment, and material supply shortages, failures or disruptions; and • force majeure and other events out of our control.
The installation and operation of our energy storage systems at a particular site is also generally subject to oversight and regulation in accordance with national, state and local laws and ordinances relating to building codes, safety, environmental protection and related matters, and typically requires obtaining and keeping in good standing various local and other 21 governmental approvals and permits, including environmental approvals and permits, that vary by jurisdiction.
The installation and operation of our energy storage systems at a particular site is also generally subject to oversight and regulation in accordance with national, state and local laws and ordinances relating to building codes, safety, environmental protection and related matters, and typically requires obtaining and keeping in good standing various local and other governmental approvals and permits, including environmental approvals and permits, that vary by jurisdiction.
For example, our trade secrets and other confidential information could be disclosed in an unauthorized manner to third parties, our owned or licensed intellectual property rights could be challenged, invalidated, circumvented, infringed, or misappropriated or our intellectual property rights may not be sufficient to provide us with a competitive advantage, any of which could have a material adverse effect on our business, financial condition and results of operations.
For example, our trade secrets and other confidential information could be disclosed in an unauthorized manner to third parties, our owned or licensed intellectual property rights could be challenged, 28 invalidated, circumvented, infringed, or misappropriated or our intellectual property rights may not be sufficient to provide us with a competitive advantage, any of which could have a material adverse effect on our business, financial condition and results of operations.
Enterprises may be unwilling to adopt our offerings over traditional or competing power sources for any number of reasons, including the 12 perception that our technology is unproven, lack of confidence in our business model, unavailability of back-up service providers to operate and maintain the energy storage systems, and lack of awareness of our related hardware and software-enabled services.
Enterprises may be unwilling to adopt our offerings over traditional or competing power sources for any number of reasons, including the perception that our technology is unproven, lack of confidence in our business model, unavailability of back-up service providers to operate and maintain the energy storage systems, and lack of awareness of our related hardware and software-enabled services.
In addition, there has been in the past, and may be in the future, an adverse impact on our customers’ 18 willingness to continue to procure additional hardware and software-enabled services from us if any of our customer’s projects incur operational issues that indicate expected future cash flows from the project are less than the project’s carrying value.
In addition, there has been in the past, and may be in the future, an adverse impact on our customers’ willingness to continue to procure additional hardware and software-enabled services from us if any of our customer’s projects incur operational issues that indicate expected future cash flows from the project are less than the project’s carrying value.
Some states have utility procurement programs and/or renewable portfolio standards for which our technology is eligible. Our offerings are currently installed in various U.S. states, each of which may have its own enabling policy framework. There is no guarantee that these policies will continue to exist in their current form, or at all.
Some states have utility procurement programs and/or renewable portfolio standards for which our technology is eligible. Our offerings are currently installed in various U.S. states, each of which may have its own enabling policy framework. There is no guarantee that these policies will continue to exist in their 21 current form, or at all.
We have received patents and have filed patent applications with respect to certain aspects of our technology, and we generally rely on patent protection with respect to our proprietary technology, as well as a combination of trade secrets and copyright law, employee and third-party non-disclosure agreements and other protective measures to protect intellectual property rights pertaining to our proprietary technology and hardware and software- enabled services.
We have received patents and have filed patent applications with respect to certain aspects of our technology, and we generally rely on patent protection with respect to our proprietary technology, as well as a combination of 26 trade secrets and copyright law, employee and third-party non-disclosure agreements and other protective measures to protect intellectual property rights pertaining to our proprietary technology and hardware and software- enabled services.
Any manufacturing defects or other failures of our energy storage systems to perform as expected could cause us to incur significant re-engineering costs, divert the attention of our personnel from operating and maintenance efforts, expose us to adverse regulatory action and litigation and significantly and adversely affect customer satisfaction, market acceptance and our business reputation.
Any manufacturing defects or 19 other failures of our energy storage systems to perform as expected could cause us to incur significant re-engineering costs, divert the attention of our personnel from operating and maintenance efforts, expose us to adverse regulatory action and litigation and significantly and adversely affect customer satisfaction, market acceptance and our business reputation.
Our market opportunities are also based on the assumption that our existing and future offerings will be more 13 attractive to our customers and potential customers than competing products and services. If these assumptions prove inaccurate, our business, financial condition and results of operations could be adversely affected. We currently face and will continue to face significant competition.
Our market opportunities are also based on the assumption that our existing and future offerings will be more attractive to our customers and potential customers than competing products and services. If these assumptions prove inaccurate, our business, financial condition and results of operations could be adversely affected. We currently face and will continue to face significant competition.
Climate change is projected to affect the occurrence of certain natural events, such as an increase in the frequency or severity of wind 22 and thunderstorm events, and tornado or hailstorm events due to increased convection in the atmosphere; more frequent wildfires and subsequent landslides in certain geographies; higher incidence of deluge flooding; and the potential for an increase in severity of the hurricane events due to higher sea surface temperatures.
Climate change is projected to affect the occurrence of certain natural events, such as an increase in the frequency or severity of wind and thunderstorm events, and tornado or hailstorm events due to increased convection in the atmosphere; more frequent wildfires and subsequent landslides in certain geographies; higher incidence of deluge flooding; and the potential for an increase in severity of the hurricane events due to higher sea surface temperatures.
We have entered into long-term supply agreements that could result in insufficient inventory and negatively affect our results of operations. 14 We have entered into long-term supply agreements with certain suppliers of battery storage systems and other components of our energy storage systems. Some of these supply agreements provide for fixed or inflation-adjusted pricing and substantial prepayment obligations.
We have entered into long-term supply agreements that could result in insufficient inventory and negatively affect our results of operations. We have entered into long-term supply agreements with certain suppliers of battery storage systems and other components of our energy storage systems. Some of these supply agreements provide for fixed or inflation-adjusted pricing and substantial prepayment obligations.
The application of Section 203 of the DGCL could also have the effect of delaying or preventing a change of control of our company. These anti-takeover provisions could make it more difficult for a third-party to acquire us, even if the third-party’s offer may be considered beneficial by many of our stockholders.
The application of Section 203 of the DGCL could also have the effect of delaying or preventing a change of control of us. These anti-takeover provisions could make it more difficult for a third-party to acquire us, even if the third-party’s offer may be considered beneficial by many of our stockholders.
As a result, we may be unable to procure a sufficient supply of the items in the event that our suppliers fail to produce sufficient quantities to satisfy the demands of all of their customers. Any of these occurrences could materially adversely affect our business, prospects, financial condition and results of operations.
As a result, we may be unable to procure a sufficient supply of the items we require in the event that our suppliers fail to produce sufficient quantities to satisfy the demands of all of their customers. Any of these occurrences could materially adversely affect our business, prospects, financial condition and results of operations.
We currently host our Athena platform and support our energy storage network operations on one or more data centers provided by Amazon Web Services (“AWS”), a third-party provider of cloud infrastructure services. We do not have control over the operations of the facilities of AWS that we use.
We currently host our Athena platform and support our energy storage network operations on one or more data centers provided by Amazon Web Services (“AWS”), a third-party provider of cloud infrastructure services. We do not have control 20 over the operations of the facilities of AWS that we use.
You should consider our prospects in light of the risks and uncertainties emerging companies encounter when introducing new products and services into a nascent industry. The failure of renewable energy hardware costs to continue to decline would have a negative effect on our business and financial condition.
You should consider our prospects in light of the risks and uncertainties emerging companies encounter when introducing new products and services into a nascent industry. 13 The failure of renewable energy hardware costs to continue to decline would have a negative effect on our business and financial condition.
In the event any such supplier experiences financial difficulties, it may be difficult or may require substantial time and expense to replace such supplier. We do not know whether we will be able to maintain long-term supply relationships with our critical suppliers, or secure new long-term supply agreements.
In the event any such supplier experiences financial difficulties, it may be difficult or may require substantial time and expense to replace such a supplier. We do not know whether we will be able to maintain long-term supply relationships with our critical suppliers, or secure new long-term supply agreements.
Industry competition and cross-industry labor market pressures may negatively impact our ability to attract and retain our executive officers and other key technology, sales, marketing and support personnel and drive increases in our employee costs, both of which could adversely affect our business, financial condition and results of operations.
Industry competition and cross- 16 industry labor market pressures may negatively impact our ability to attract and retain our executive officers and other key technology, sales, marketing and support personnel and drive increases in our employee costs, both of which could adversely affect our business, financial condition and results of operations.
This activity could cause or avoid an increase or decrease in the market price of our common stock. We are subject to counterparty risk with respect to the capped call transactions. The Option Counterparties are financial institutions, and we are subject to the risk that any or all of them might default under the capped call transactions.
This activity could cause or avoid an increase or decrease in the market price of our common stock. 35 We are subject to counterparty risk with respect to the capped call transactions. The Option Counterparties are financial institutions, and we are subject to the risk that any or all of them might default under the capped call transactions.
Any delays in our customers’ ability to connect with utilities, delays in the performance of installation-related services or poor performance of installation-related services will have an adverse effect on our results and could cause operating results to vary materially from period to period. Our business depends on customers renewing their services subscriptions.
Any delays in our customers’ ability to connect with utilities, delays in the performance of installation-related services or poor performance of installation-related services will have an adverse effect on our results and could cause operating results to vary materially from period to period. 22 Our business depends on customers renewing their services subscriptions.
Risks Related to Our Business and Industry Our limited operating history at current scale and our nascent industry make evaluating our business and prospects difficult. From our inception in 2009 through 2012, we were focused principally on research and development activities relating to our energy storage systems technology.
Risks Related to Our Business and Industry 12 Our limited operating history at current scale and our nascent industry make evaluating our business and prospects difficult. From our inception in 2009 through 2012, we were focused principally on research and development activities relating to our energy storage systems technology.
Any of the foregoing could materially adversely affect our business, financial condition and results of operations. Our hardware and software-enabled services involve a lengthy sales and installation cycle. If we fail to close sales on a regular and timely basis it could adversely affect our business, financial condition and results of operations.
Any of the foregoing could materially adversely affect our business, financial condition and results of operations. 15 Our hardware and software-enabled services involve a lengthy sales and installation cycle. If we fail to close sales on a regular and timely basis, it could adversely affect our business, financial condition and results of operations.
To help attract, retain, and motivate qualified employees, we use share-based awards, such as restricted stock units, and performance-based cash incentive awards. Sustained declines in our stock price, or lower stock price performance relative to competitors, can reduce the retention value of our share-based awards.
To help attract, retain, and motivate qualified employees, we use stock-based awards, such as restricted stock units, and performance-based cash incentive awards. Sustained declines in our stock price, or lower stock price performance relative to our competitors, can reduce the retention value of our stock-based awards.
If the estimates and assumptions we use to determine the size of our total addressable market are inaccurate, our future growth rate may be affected and the potential growth of our business may be limited. Market estimates and growth forecasts are subject to significant uncertainty and are based on assumptions and estimates that may prove to be inaccurate.
If the estimates and assumptions we use to determine the size of our total addressable market are inaccurate, our future growth rate may be negatively affected and the potential growth of our business may be limited. Market estimates and growth forecasts are subject to significant uncertainty and are based on assumptions and estimates that may prove to be inaccurate.
Amounts included in our pipeline and contracted backlog may not result in actual revenue or translate into profits. Our sales cycle is typically six to 12 months for our hardware and software-enabled services, but can vary considerably.
Amounts included in our contracted backlog may not result in actual revenue or translate into profits. Our sales cycle is typically six to 12 months for our hardware and software-enabled services, but can vary considerably.
Regulatory Risks The installation and operation of our energy storage systems are subject to environmental laws and regulations in various jurisdictions, and there is uncertainty with respect to the interpretation of certain environmental laws and regulations to our energy storage systems, especially as these regulations evolve over time.
Regulatory Risks 29 The installation and operation of our energy storage systems are subject to environmental laws and regulations in various jurisdictions, and there is uncertainty with respect to the interpretation of certain environmental laws and regulations to our energy storage systems, especially as these regulations evolve over time.
Our management team may not successfully or efficiently manage us as a public company that is subject to significant regulatory oversight and reporting obligations under the federal securities laws and the continuous scrutiny of securities analysts and investors.
Our management team may not successfully or efficiently manage us as a public company that is subject to significant regulatory oversight and reporting obligations under the federal securities laws and the scrutiny of securities analysts and investors.
Additionally, increased demand for 20 these services, without corresponding revenue, could increase costs and adversely affect our business, financial condition and results of operations. Our business currently depends on the availability of rebates, tax credits and other financial incentives.
Additionally, increased demand for these services, without corresponding revenue, could increase costs and adversely affect our business, financial condition and results of operations. Our business currently depends on the availability of rebates, tax credits and other financial incentives.
In addition, our failure or perceived failure to pursue or fulfill our goals, targets and objectives or to satisfy various reporting standards within the timelines we announce, or at all, could expose us to government enforcement actions and private litigation.
In addition, our failure or perceived failure to pursue or fulfill our goals, targets and objectives 23 or to satisfy various reporting standards within the timelines we announce, or at all, could expose us to government enforcement actions and private litigation.
The effect of such public opposition to renewable energy projects and any resulting reduction in customer demand for our hardware and software-enabled services could adversely affect our business, financial condition and results of operations.
The effect of such public opposition to renewable energy 30 projects and any resulting reduction in customer demand for our hardware and software-enabled services could adversely affect our business, financial condition and results of operations.
Any such delays or reduced availability of energy storage systems or other component materials may impact our sales and operating results. Further, these risks may increase as market demand for our offerings grows.
Any such delays or reduced availability of energy storage systems or other component materials may impact our sales and operating results. Further, these risks may increase as the market demand for our offerings grows.
Methodologies for reporting ESG data may be updated and previously reported ESG data may be adjusted to reflect improvement in availability and quality of third-party data, changing assumptions, changes in the nature and scope of our operations and other changes in circumstances.
Methodologies for reporting ESG data may be updated and previously reported ESG data may be adjusted to reflect improvement in availability and quality of third-party data, changes in assumptions, changes in the nature and scope of our operations and other changes in circumstances.
We Face Risks Related to our DevCo Business Model From time to time, we have entered into strategic joint ventures with qualified third parties to develop energy storage power generation projects (“DevCo Projects”), as more fully described above under Note 1 — Business , of the Notes to the consolidated financial statements in Part II, Item 8, “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K.
We Face Risks Related to our DevCo Business Model From time to time, we have entered into strategic joint ventures with qualified third parties to develop energy storage power generation projects (“DevCo Projects”), as more fully described under Note 1 — Business , in the accompanying notes to the consolidated financial statements in Part II, Item 8, “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K.
There can be no assurance that the steps taken by us to protect any of our proprietary technology will be adequate to prevent 25 misappropriation of these technologies by third parties.
There can be no assurance that the steps taken by us to protect any of our proprietary technology will be adequate to prevent misappropriation of these technologies by third parties.
As a result, we may not be able to protect our proprietary rights adequately outside of the U.S.; • regional economic and political conditions; • conformity with applicable business customs, including translation into foreign languages and associated expenses; • lack of availability of government incentives and subsidies; • potential changes to our established business model; • cost of alternative power sources, which could vary meaningfully outside the U.S.; • difficulties in staffing and managing foreign operations in an environment of diverse culture, laws and customers, and the increased travel, infrastructure and legal and compliance costs associated with international operations; • customer installation challenges which we have not encountered before, which may require the development of a unique model for each country; • differing levels of demand among members of our customer base, including commercial and industrial customers, utilities, independent power producers and project developers; and • restrictions on repatriation of earnings.
As a result, we may not be able to protect our proprietary rights adequately outside of the U.S.; • regional macroeconomic and geopolitical conditions; • conformity with applicable business customs, including translation into foreign languages and associated expenses; • lack of availability of government incentives and subsidies; • potential changes to our established business model; • cost of alternative power sources, which could vary meaningfully outside the U.S.; • difficulties in staffing and managing foreign operations in an environment of diverse culture, laws and customers, and the increased travel, infrastructure and legal and compliance costs associated with international operations; • customer installation challenges which we have not encountered before, which may require the development of a unique model for each country; • differing levels of demand among members of our customer base, including commercial and industrial customers, utilities, independent power producers and project developers; and • restrictions on repatriation of earnings.
We are continuing to develop and refine our disclosure controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we will file with the SEC is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms and that information required to be disclosed in reports under the Exchange Act is accumulated and communicated to our principal executive and financial officers.
We continue to develop and refine our disclosure controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we will file with the SEC is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms and that information required to be disclosed in reports under the Exchange Act is accumulated and communicated to our principal executive and financial officers.
It is not possible to predict the broader consequences of this conflict, which could include further sanctions, embargoes, greater regional instability, geopolitical shifts and other adverse effects on macroeconomic conditions, currency exchange rates, supply chains and financial markets. Our platform performance may not meet our customers’ expectations or needs.
It is not possible to predict the broader consequences of this conflict, which could include further sanctions, embargoes, greater regional instability, geopolitical shifts and other adverse effects on macroeconomic conditions, international trade, currency exchange rates, supply chains and financial markets. Our platform performance may not meet our customers’ expectations or needs.
These risks include a failure or wearing out of our or our operators’, customers’ or utilities’ equipment; an inability to find suitable replacement equipment or parts; less than expected supply or quality of the project’s source of electricity and faster than expected diminishment of such electricity supply; or volume disruption in our supply collection and distribution system.
These risks include a failure or wearing out of our or our operators’, customers’ or utilities’ equipment; an inability to find suitable replacement equipment or parts; lower than expected supply or quality of the project’s source of electricity or faster than expected diminishment of such electricity supply; or volume disruption in our supply collection and distribution system.
Further, we face significant specific counterparty risk under long-term supply agreements when dealing with certain suppliers without a long, stable production and financial history. Given the uniqueness of our product, some of our suppliers do not have a long operating history and may not have substantial capital resources.
Further, we face significant specific counterparty risk under long-term supply agreements when dealing with certain suppliers without a long, stable production and financial history. Given the uniqueness of our product, some of our suppliers do not have a long operating history and may not have sufficient capital resources.
Our software-enabled services are essential to the operation of these hardware products. As a result, in connection with the sales of energy storage hardware, we enter into recurring long-term services agreements with customers for the usage of our Athena platform for approximately 10 to 20 years.
Our software-enabled services are essential to the operation of these hardware products. As a result, in connection with the sales of energy storage hardware, we enter into recurring long-term services agreements with customers for the usage of our Athena platform for approximately 3 to 20 years.
We rely upon the capacity, reliability and security of our IT and data security infrastructure and our ability to effectively manage our business data, accounting, financial, legal and compliance functions, communications, supply chain, order entry and fulfillment, and expand and continually update this infrastructure in response to the changing needs of our business.
We rely upon the capacity, reliability and security of our IT and data security infrastructure and our ability to effectively manage our business data, accounting, financial, legal and compliance functions, communications, supply chain, order entry and fulfillment, and expand and routinely update this infrastructure in response to the changing needs of our business.
We are also continuing to improve our internal control over financial reporting. In order to maintain and improve the effectiveness of our disclosure controls and procedures and internal control over financial reporting, we have expended, and anticipate that we will continue to expend, significant resources, including accounting-related costs and significant management oversight.
We also continue to improve our internal control over financial reporting. In order to maintain and improve the effectiveness of our disclosure controls and procedures and internal control over financial reporting, we have expended, and anticipate that we will continue to expend, significant resources, including accounting-related costs and significant management oversight.
We expect to continue to expand our operations, including by investing in sales and marketing, research and development, staffing systems and infrastructure to support our growth. Under our current plans, we expect to incur net losses on a GAAP basis through at least 2023.
We expect to continue to expand our operations, including by investing in sales and marketing, research and development, staffing systems and infrastructure to support our growth. Under our current plans, we expect to incur net losses on a GAAP basis through at least 2024.
General Risk Factors • We will continue to incur significant costs as a result of operating as a public company. • Future litigation, investigations or regulatory or administrative proceedings could have a material adverse effect on our business.
General Risk Factors • We will continue to incur significant costs as a result of operating as a public company. • Current and future litigation, investigations or regulatory or administrative proceedings could have a material adverse effect on our business.
Cancellation rates may be affected by factors outside of our control including an inability to install an energy storage system at the customer’s chosen location because of permitting or other regulatory issues, unanticipated changes in the cost or availability of alternative sources of electricity available to the customer or other reasons unique to each customer.
Cancellation rates may be affected by factors outside of our control including, but not limited to, an inability to install an energy storage system at the customer’s chosen location because of permitting or other regulatory issues, unanticipated changes in the cost or availability of alternative sources of electricity available to the customer or other reasons unique to each customer.
We urge you to consider carefully the risks described below, which discuss the material factors that make an investment in our securities speculative or risky, as well as in other reports and materials that we file with the SEC and the other information included or incorporated by reference in this Form 10-K.
We urge you to consider carefully the risks described below, which discuss the material factors that make an investment in our securities speculative or risky, as well as in other reports and materials that we file with the SEC and the other information included or incorporated by reference in this Annual Report on Form 10-K.
We have been and continue to be involved in legal proceedings, administrative proceedings, claims, and other litigation.
We have been and continue to be involved in legal proceedings, claims, and other litigation.
In addition, sustained unfavorable economic conditions might also have a negative impact on many of our customers or suppliers, which could impair their ability to meet their obligations to us.
In addition, sustained unfavorable macroeconomic conditions might also have a negative impact on many of our customers or suppliers, which could impair their ability to meet their obligations to us.
Unexpected changes in business conditions, materials pricing, including inflation of raw material costs, labor issues, wars, natural disasters, health epidemics such as the COVID-19 pandemic, trade and shipping disruptions, port congestions and other factors beyond our or our suppliers’ control could also affect these suppliers’ ability to deliver components to us or to remain solvent and operational.
Unexpected changes in business conditions, the macroeconomic environment, geopolitical instability, materials pricing, including inflation of raw material costs, labor issues, wars, natural disasters, health epidemics, such as the COVID-19 pandemic, trade and shipping disruptions, port congestions and other factors beyond our or our suppliers’ control could also affect these suppliers’ ability to deliver components to us or to remain solvent and operational.
We are committed to compliance with applicable environmental laws and regulations, including health and safety standards, and we continually review the operation of our energy storage systems for health, safety and compliance.
We are committed to compliance with applicable environmental laws and regulations, including health and safety standards, and we routinely review the operation of our energy storage systems for health, safety and compliance.
As a Delaware corporation, we are subject to the anti-takeover provisions of Section 203 of the DGCL, which prohibits a Delaware corporation from engaging in a business combination specified in the statute with an interested stockholder (as defined in the statute) for a period of three (3) years after the date of the transaction in which the person first becomes an interested stockholder, unless the business combination is approved in advance by a majority of the independent directors or by the holders of at least two-thirds of the outstanding disinterested shares.
As a Delaware corporation, we are subject to the anti-takeover provisions of Section 203 of the Delaware General Corporation Law (the “DGCL”), which prohibits a Delaware corporation from engaging in a business combination specified in the statute with an interested stockholder (as defined in the statute) for a period of three years after the date of the transaction in which the person first becomes an interested stockholder, unless the business combination is approved in advance by a majority of the independent directors or by the holders of at least two-thirds of the outstanding disinterested shares.
Such an event may impair our ability to meet scheduled deliveries of our products to customers, which may cause our customers to cancel orders and subject us to liability, and may materially adversely affect our customer relationships, business, prospects, financial condition and results of operations.
Such an event may impair our ability to meet scheduled deliveries of our products to customers, which may cause our customers to cancel orders and subject us to liability, including liquidated damages to our customers, and may materially adversely affect our customer relationships, business, prospects, financial condition and results of operations.
A manifestation of any of the following risks and uncertainties, or additional risks and uncertainties not currently known to us or that we currently deem immaterial, could, in circumstances we may or may not be able to accurately predict, materially adversely affect our business, operations, reputation, financial condition, results of operations, cash flows, liquidity, growth, prospects and stock price.
The occurrence of any of the following risks and 10 uncertainties, or additional risks and uncertainties not currently known to us or that we currently deem immaterial, could, in circumstances we may or may not be able to accurately predict, materially adversely affect our business, operations, reputation, financial condition, results of operations, cash flows, liquidity, growth, prospects and stock price.
Additional Risks Related to Our Securities • If we fail to maintain an effective system of disclosure controls and internal control over financial reporting, our ability to produce timely and accurate consolidated financial statements or comply with applicable regulations could be impaired. • We may issue a significant number of shares in the future in connection with investments or acquisitions. • We do not intend to pay cash dividends for the foreseeable future. • Analysts may not publish sufficient or any research about our business or may publish inaccurate or unfavorable research. • The trading price of our common stock is volatile. • Certain provisions of the Company’s organizational documents may have an anti-takeover effect. • The Company’s exclusive forum provision may limit the Company’s stockholders’ ability to obtain a favorable judicial forum for disputes. • The capped call transactions entered into in connection with the pricing of our Convertible Notes may adversely affect the market price of our stock.
Additional Risks Related to Our Securities • If we fail to maintain an effective system of disclosure controls and internal control over financial reporting, our ability to produce timely and accurate consolidated financial statements or comply with applicable regulations could be impaired. • We may issue a significant number of shares in the future in connection with investments or acquisitions. • Analysts may not publish sufficient or any research about our business or may publish inaccurate or unfavorable research. • The trading price of our common stock is volatile. • Certain provisions of our organizational documents may have an anti-takeover effect. • Our exclusive forum provision may limit our stockholders’ ability to obtain a favorable judicial forum for disputes. • The capped call transactions entered into in connection with the pricing of our 2028 and 2030 Convertible Notes may adversely affect the market price of our stock.
In addition to longstanding competition for highly skilled and technical personnel, we face increased competitive pressures and employee cost inflation in tighter labor markets, such as has been experienced during the COVID-19 pandemic.
In addition to longstanding competition for highly skilled and technical personnel, we face increased competitive pressures and employee cost inflation in tighter labor markets, such as was experienced during the COVID-19 pandemic.
If one or more of the analysts who cover us downgrade our common stock or publish inaccurate or unfavorable research about our business, the price of our common stock would likely decline. If few analysts cover us, demand for our common stock could decrease and our common stock price and trading volume may decline.
If one or more of the analysts who cover us downgrade our common stock or publish inaccurate or unfavorable research about our business, demand for our common stock could decrease and our common stock price and trading volume may decline.
Future product recalls could materially adversely affect our business, financial condition and operating results. Any product recall in the future, whether it involves our or a competitor’s product, may result in negative publicity, damage our brand and materially and adversely affect our business, financial condition and results of operations.
Any product recall in the future, whether it involves our or a competitor’s product, may result in negative publicity, damage our brand and materially and adversely affect our business, financial condition and results of operations.
Regulatory Risks • The installation and operation of our energy storage systems are subject to environmental laws and regulations. • Existing regulations and changes to such regulations may reduce demand for our energy storage systems. • Our business could be adversely affected by trade tariffs or other trade barriers. • Negative attitudes toward renewable energy from lawmakers and others may adversely affect our business, including by delaying permits for our customers’ projects.
Regulatory Risks • The installation and operation of our energy storage systems are subject to environmental laws and regulations. • Existing regulations and changes to such regulations may reduce demand for our energy storage systems. • Our business could be adversely affected by trade tariffs or other trade barriers. • Negative attitudes toward renewable energy from lawmakers and others may adversely affect our business, including by delaying permits for our customers’ projects. • Opposition to our customers’ project requests for permits could adversely affect our operating plans.
We may also be unsuccessful in our continuous efforts to negotiate with existing suppliers to obtain cost reductions and avoid unfavorable changes to terms. Global demand has increased for lithium-ion battery cells, which may cause challenges for our suppliers, including delays or price volatility.
We may also be unsuccessful in our continued efforts to negotiate with existing suppliers to obtain cost reductions and avoid unfavorable changes to terms. Global demand has increased for lithium-ion battery cells, which has caused challenges for our suppliers, including delays or price volatility.
If we fail to close sales on a regular and timely basis it could adversely affect our business. • We may fail to attract and retain qualified management and technical personnel, which may adversely affect our ability to compete and grow our business. • We may not be able to develop, produce, market and sell our hardware and software-enabled services successfully. • We have incurred significant losses in the past and expect to incur net losses through 2023. • We may be unable to reduce our cost structure. • Any future acquisitions we undertake may disrupt our business, adversely affect operations, dilute our stockholders, and expose us to significant costs and liabilities. • Our current and planned foreign operations will subject us to additional business, financial, regulatory, and competitive risks. • If any energy storage systems procured from OEM suppliers and provided to our customers contain manufacturing defects, our business and financial results could be adversely affected. • Estimates of useful life for our energy storage systems and related hardware and software-enabled services may be inaccurate, and our OEM suppliers may not meet service and performance warranties and guarantees. • Future product recalls could materially adversely affect our business, financial condition and operating results. • Any disruption of, or interference with, our use of Amazon Web Services could adversely affect our business. • Any failure to offer high-quality technical support services may adversely affect our relationships with our customers. • Our business currently depends on the availability of rebates, tax credits and other financial incentives. • The economic benefit of our energy storage systems to our customers depends on the cost of electricity available from alternative sources. • We face risks related to our DevCo business model. • We depend on significant customers for a substantial portion of our revenue.
If we fail to close sales on a regular and timely basis, it could adversely affect our business. • We may fail to attract and retain qualified management and technical personnel, which may adversely affect our ability to compete and grow our business. • We may not be able to develop, produce, market or sell our hardware and software-enabled services successfully. • We have incurred significant losses in the past and may continue to incur net losses through at least 2024. • We may be unable to reduce our cost structure. • Any future acquisitions we undertake may disrupt our business, adversely affect operations, dilute our stockholders, and expose us to significant costs and liabilities. • Our current and planned foreign operations will subject us to additional business, financial, regulatory, and competitive risks. • If any energy storage systems procured from OEM suppliers and provided to our customers contain manufacturing defects, our business and financial results could be adversely affected. • Estimates of useful life for our energy storage systems and related hardware and software-enabled services may be inaccurate, and our OEM suppliers may not meet service and performance warranties and guarantees. • Future product recalls could materially adversely affect our business, financial condition and operating results. • Any disruption of, or interference with, our use of Amazon Web Services could adversely affect our business. • Any failure to offer high-quality technical support services may adversely affect our relationships with our customers. 11 • Our business currently depends on the availability of rebates, tax credits and other financial incentives. • The economic benefit of our energy storage systems to our customers depends on the cost of electricity available from alternative sources. • We face risks related to our DevCo business model. • If customers do not continue to use our subscription offerings or if we fail to expand the availability of hardware and software-enabled services, our operating results will be adversely affected.
In February 2022, Auxin Solar Inc., a U.S. producer of crystalline silicon PV products, petitioned the USDOC to investigate alleged circumvention of antidumping and countervailing duties on Chinese imports by crystalline silicon PV cells and module imports assembled and completed in Cambodia, Malaysia, Thailand, and Vietnam.
In February 2022, Auxin Solar Inc., a U.S. producer of crystalline silicon PV products, petitioned the USDOC to investigate alleged circumvention of antidumping and countervailing duties on crystalline silicon PV cell and module imports assembled and completed in Cambodia, Malaysia, Thailand, and Vietnam.
Unfavorable economic conditions, such as a general slowdown or recession of the global or U.S. economy, uncertainty and volatility in the financial markets, or inflation and rising interest rates, could reduce investment in projects that make use of our services.
Unfavorable macroeconomic conditions, such as a general slowdown or recession of the global or U.S. economy, uncertainty and volatility in the financial markets, inflation or rising interest rates, as well as geopolitical conditions could reduce investment in projects that make use of our services.
For the fiscal year ended December 31, 2022, one customer accounted for approximately 46% of our revenue. Loss of a significant customer or a significant reduction in pricing or order volume from a significant customer could materially reduce our revenue and operating results in any reporting period.
For the fiscal year ended December 31, 2023, one customer accounted for approximately 26% of our revenue. Loss of a significant customer or a significant reduction in pricing or order volume from a significant customer could materially reduce our revenue and operating results in any reporting period.
For example, we rely on our brand names, trade names and trademarks to distinguish our products and services, such as our Athena® platform, from the products of our competitors; however, third parties may oppose our trademark 27 applications, or otherwise challenge our use of such trademarks.
Additionally, we rely on our brand names, trade names and trademarks to distinguish our products and services, such as our Athena® platform, from the products of our competitors; however, third parties may oppose our trademark applications, or otherwise challenge our use of such trademarks.
On rare occasions, lithium-ion batteries can rapidly release the energy they contain by venting smoke and flames in a manner that can ignite nearby materials as well as other lithium-ion batteries. This faulty result could subject us to lawsuits, product recalls or redesign efforts, all of which would be time consuming and expensive.
On rare occasions, lithium-ion batteries can rapidly release the energy they contain by venting smoke and flames in a manner that can ignite nearby materials as well as other lithium-ion batteries. Any such occurrences could subject us to lawsuits, product recalls or redesign efforts, all of which would be time consuming and expensive.
As a result of our acquisition of AlsoEnergy, we now operate in more than 50 countries, including the United States and Canada, and in multiple EU and Latin American countries and Asia. Prior to our acquisition of AlsoEnergy, we operated in only three countries.
As a result of our acquisition of AlsoEnergy, we now operate in more than 50 countries, including the United States and Canada, and in multiple European Union (“EU”) and Latin American countries and Asia. Prior to our acquisition of AlsoEnergy, we operated in only three countries.
We are subject to national, state and local environmental laws and regulations, as well as environmental laws in those foreign jurisdictions in which we operate. Environmental laws and regulations can be complex and may change often. These 28 laws can give rise to liability for administrative oversight costs, cleanup costs, property damage, bodily injury, fines and penalties.
We are subject to national, state and local environmental laws and regulations, as well as environmental laws in those foreign jurisdictions in which we operate. Environmental laws and regulations can be complex and are evolving. These laws can give rise to liability for administrative oversight costs, cleanup costs, property damage, bodily injury, fines and penalties.
Our ability to achieve profitability in the future will depend on a number of factors, including: • growing our sales volume; • increasing sales to existing customers and attracting new customers for our hardware and software- enabled services; • improving our ability to procure energy storage systems from OEMs on cost-effective terms; • improving our consolidated gross margins reflecting the ability to maintain favorable contract pricing and terms with our customers for our hardware and software-enabled services; • improving the effectiveness of our sales and marketing activities; • attracting and retaining key talent in a competitive marketplace; • operating our systems profitably for the benefit of our customers; and • the availability of incentives, including those associated with the IRA.
Our ability to achieve profitability in the future will depend on a number of factors, including: • increasing sales to existing customers and attracting new customers for our hardware and software-enabled services; • improving our gross margins; • growing our sales volume; • managing operating expenses; • improving our ability to procure energy storage systems from OEMs on cost-effective terms; • improving the effectiveness of our sales and marketing activities; • attracting and retaining key talent in a competitive marketplace; • operating our systems profitably for the benefit of our customers; and • the availability of incentives, including those associated with the IRA.
In addition, settlement of claims could adversely affect our financial condition and results of operations. Our operating results may be adversely affected by unfavorable economic and market conditions.
In addition, settlement of claims could adversely affect our financial condition and results of operations. Our operating results may be adversely affected by unfavorable macroeconomic, geopolitical, and market conditions.
Additionally, we procure many of the battery storage systems and components of our energy storage systems from non-U.S. suppliers, which exposes us to risks including unforeseen increases in costs or interruptions in supply arising from changes in applicable international trade regulations, such as taxes, tariffs, or quotas.
Additionally, we procure many of the battery storage systems and components of our energy storage systems from non-U.S. suppliers, which exposes us to risks, including but not limited to unforeseen increases in costs or interruptions in supply arising from macroeconomic or geopolitical factors and from changes in applicable international trade regulations, such as taxes, tariffs, or quotas.
Although we have contractual protections, such as warranty disclaimers and limitation of liability provisions, in many of our agreements with customers, resellers and other business partners, such protections may not be uniformly implemented in all contracts and, where implemented, may not fully or effectively protect from claims by customers, resellers, business partners or other third parties.
Although we have contractual protections, such as warranty disclaimers and limitation of liability provisions, in many of our agreements with customers, resellers and other business partners, such protections may not be uniformly implemented in all guarantees that we have issued under certain customer contracts and, where implemented, may not fully or effectively protect from claims by customers, resellers, business partners or other third parties.
If a DevCo Project experiences any of the factors listed above or otherwise 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. If a DevCo Project fails then we may be unable to recover our investment.
If a DevCo Project experiences any of the factors listed above or otherwise fails to reach completion or is significantly delayed, we could lose all or a portion of our development capital investment. If a DevCo Project fails then we may be unable to recover our investment.
Even if we are able to establish and maintain these relationships, we may not be able to execute on our goal of leveraging these relationships to meaningfully expand our business, brand recognition and customer base. Such circumstance would limit our growth potential and our opportunities to generate significant additional revenue or cash flows.
Even if we are able to establish and maintain these relationships, we may not be able to execute on our goal of leveraging these relationships to meaningfully expand our business, brand estimates of variable consideration related to revenue recognition, and customer base. Such circumstances would limit our growth potential and our opportunities to generate significant additional revenue or cash flows.
Further, the occurrence of any defects, errors, disruptions in service, or other performance problems, interruptions, or delays associated with our energy storage systems or the Athena platform, whether in connection with day-to-day operations or otherwise, could result in: • loss of customers; • loss or delayed market acceptance and sales of our hardware and software-enabled services; • delays in payment to us by customers; • injury to our reputation and brand; • legal claims, including warranty and service level agreement claims, against us; or • diversion of our resources, including through increased service and warranty expenses or financial concessions, and increased insurance costs. 19 The costs incurred in correcting any material defects or errors in our hardware and software or other performance problems may be substantial and could adversely affect our business, financial condition and results of operations.
Further, the occurrence of any defects, errors, disruptions in service, or other performance problems, interruptions, or delays associated with our energy storage systems or the Athena platform, whether in connection with day-to-day operations or otherwise, could result in: • loss of customers; • loss or delayed market acceptance and sales of our hardware and software-enabled services; • delays in payment to us by customers; • injury to our reputation and brand; • legal claims, including warranty and service level agreement claims, against us; or • diversion of our resources, including through increased service and warranty expenses or financial concessions, and increased insurance costs.
For example, the amount of revenue we recognize in a given period is materially dependent on the volume of purchases of our energy storage systems and software-enabled services in that period.
For example, the amount of revenue we recognize in a given period is materially dependent on the volume of purchases of our energy storage systems and software-enabled services in that period, as well as on a small number of customers.

… 102 more changes not shown on this page.

Item 2. Properties

Properties — owned and leased real estate

2 edited+0 added−0 removed1 unchanged
Biggest changeWe have additional facilities, including in the following locations: 35 Type of Space Location Approximate Square Footage Leased or Owned Office and Warehouse Burlingame, California 20,800 square feet Leased Office Boulder, Colorado 15,800 square feet Leased Warehouse Longmont, Colorado 13,950 square feet Leased Warehouse Niwot, Colorado 7,800 square feet Leased We believe our space is adequate for our current needs and that suitable additional or substitute space will be available to accommodate the foreseeable expansion of our operations.
Biggest changeType of Space Location Approximate Square Footage Leased or Owned Office Gurugram, India 41,800 square feet Leased Office Boulder, Colorado 15,800 square feet Leased Warehouse Longmont, Colorado 13,950 square feet Leased We believe our space is adequate for our current needs and that suitable additional or substitute spaces will be available to accommodate the foreseeable expansion of our operations.
ITEM 2. PROPERTIES Our corporate headquarters is located in San Francisco, California. This facility comprises approximately 23,500 square feet of office space. We lease this facility.
ITEM 2. PROPERTIES Our corporate headquarters is located in San Francisco, California. This facility comprises approximately 23,500 square feet of office space. We lease this facility. In addition, our other material properties are described below.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

2 edited+0 added−0 removed0 unchanged
Biggest changeITEM 3. LEGAL PROCEEDINGS The information with respect to this Item 3. Legal Proceedings is set forth in Note 20 — Commitments and Contingencies, in the accompanying notes to the consolidated financial statements included in Part II, Item 8, “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K. ITEM 4.
Biggest changeITEM 3. LEGAL PROCEEDINGS The information with respect to this Item 3, “Legal Proceedings” is set forth in Note 20 — Commitments and Contingencies, in the accompanying notes to the consolidated financial statements included in Part II, Item 8, “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K. ITEM 4.
MINE SAFETY DISCLOSURES Not applicable. 36 Part II.
MINE SAFETY DISCLOSURES Not applicable. 37 PART II.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

4 edited+1 added−1 removed2 unchanged
Biggest changeAs discussed above, we have never declared or paid a cash dividend on our common stock and do not anticipate declaring or paying a cash dividend in the foreseeable future.
Biggest changeAs discussed above, we have never declared or paid a cash dividend on our common stock and do not anticipate declaring or paying a cash dividend in the foreseeable future. 38 Recent Sales of Unregistered Securities Except as previously disclosed in a Current Report on Form 8-K filed with the SEC on April 3, 2023, no other unregistered sales of our common stock were made during the year ended December 31, 2023 .
The payment of cash dividends is subject to the discretion of our Board of Directors and may be affected by various factors, including our future earnings, financial condition, capital requirements, share repurchase activity, current and future planned strategic growth initiatives, levels of indebtedness, and other considerations our Board of Directors deem relevant.
The payment of cash dividends is subject to the discretion of the Board and may be affected by various factors, including our future earnings, financial condition, capital requirements, share repurchase activity, current and future planned strategic growth initiatives, levels of indebtedness, and other considerations our Board of Directors deems relevant.
The following graph compares (i) the cumulative total stockholder return on our common stock from August 20, 2020 (the date our common stock commenced trading on the New York Stock Exchange under the symbol “STPK.”) through December 31, 2022 with (ii) the cumulative total return of the Russell 2000 Index (“RUT”) and the Nasdaq Clean Edge Green Energy Index (“CELS”) over the same period, assuming the investment of $100 in our common stock and in both of the other indices on August 20, 2020 and the reinvestment of dividends.
The following graph compares (i) the cumulative total stockholder return on our common stock from August 20, 2020 (the date our common stock commenced trading on the New York Stock Exchange under our former symbol “STPK.”) through December 31, 2023 with (ii) the cumulative total return of the Russell 2000 Index and the NASDAQ Clean Edge Green Energy Index over the same period, assuming the investment of $100 in our common stock and in both of the other indices on August 20, 2020 and the reinvestment of dividends.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information for Common Stock Our common stock is listed on The New York Stock Exchange under the symbol “STEM.” Holders As of February 9, 2023, there were 108 holders of record of our common stock.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information for Common Stock Our common stock is traded on The New York Stock Exchange under the symbol “STEM.” Holders As of February 21, 2024, there were 93 holders of record of our common stock.
Removed
Recent Sales of Unregistered Securities Except as previously disclosed in a Current Report on Form 8-K, no other unregistered sales of our common stock were made during the year ended December 31, 2022 . 37 Purchases of Equity Securities by the Issuer and Affiliated Purchasers None, other than shares of our common stock repurchased pursuant to net settlement by employees in satisfaction of income tax withholding obligations incurred through the vesting of stock awards.
Added
Purchases of Equity Securities by the Issuer and Affiliated Purchasers None. ITEM 6. [RESERVED]

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

95 edited+57 added−26 removed40 unchanged
Biggest changeThe 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 . 41 The following table provides a reconciliation of Adjusted EBITDA to net loss (in thousands): Years Ended December 31, 2022 2021 (in thousands) Net loss $ (124,054) $ (101,211) Adjusted to exclude the following: Depreciation and amortization expense 48,783 29,098 Interest expense 10,468 17,395 Loss on extinguishment of debt — 5,064 Stock-based compensation 28,661 13,546 Vesting of warrants — 9,183 Change in fair value of warrants and embedded derivatives — (3,424) Transaction costs in connection with business combination 6,068 — Litigation settlement (727) — Benefit from (provision for) income taxes (15,161) — Adjusted EBITDA $ (45,962) $ (30,349) 42 Financial Results and Key Metrics The following table presents our financial results and our key metrics (in millions, except for percentages and unless otherwise noted): Years Ended December 31, 2022 2021 (in millions) Financial Results Revenue $ 363.0 $ 127.4 GAAP Gross Margin $ 33.1 $ 1.3 GAAP Gross Margin (%) 9 % 1 % Non-GAAP Gross Margin $ 47.3 $ 11.2 Non-GAAP Gross Margin (%) 13 % 9 % Net loss $ (124.1) $ (101.2) Adjusted EBITDA $ (46.0) $ (30.3) Key Operating Metrics 12-Month pipeline (in billions)* (1) $ 7.1 $ 4.0 Bookings (2) $ 1,056.9 $ 416.5 Contracted backlog* (3) $ 969.0 $ 449.0 Contracted storage AUM (in GWh)* (4) 2.5 1.6 Solar monitoring AUM (in GW)* (5) 25.0 ** CARR* (6) 65.3 ** * at period end ** not available (1) As described below.
Biggest changeRestructuring expenses consisted of employee severance and other exit costs. 44 Financial Results and Key Metrics The following table presents our financial results and our key metrics (in millions, except for percentages and unless otherwise noted): Years Ended December 31, 2023 2022 (in millions) Key Financial Metrics Revenue $ 461.5 $ 363.0 GAAP gross profit $ 3.6 $ 33.1 GAAP gross margin (%) 1 % 9 % Non-GAAP gross profit $ 75.1 $ 47.3 Non-GAAP gross margin (%) 15 % 13 % Net loss $ (140.4) $ (124.1) Adjusted EBITDA $ (19.5) $ (46.0) Key Operating Metrics Bookings (1) $ 1,532.4 $ 1,056.9 Contracted backlog* (2) 1,929.3 969.0 Contracted storage AUM (in GWh)* (3) 5.5 3.1 Solar monitoring AUM (in GW)* (4) 27.5 25.0 CARR* (5) 91.0 65.3 * at period end (1) As described below.
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.
We expect that our sales and marketing, research and development, regulatory and other expenses will continue 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.
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.
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, and financial condition.
The net cash outflow from changes in operating assets and liabilities was primarily driven by an increase in accounts receivable of $155.8 million, an increase in deferred costs with suppliers of $37.1 million, an increase in other assets of $29.4 million, an increase in contract origination costs of $9.6 million, an increase in project assets of $3.7 million, a decrease in lease liabilities, net of $1.6 million, partially offset by a decrease in inventory of $18.6 million, an increase in accounts payable of $53.3 million, an increase in accrued expenses of $62.2 million, and an increase in deferred revenue of $51.0 million.
The net cash outflow from changes in operating assets and liabilities was primarily driven by an increase in accounts receivable of $155.8 million, an increase in deferred costs with suppliers of $37.1 million, an increase in other assets of $29.4 million, an increase in contract origination costs of $9.6 million, an increase in project assets of $3.7 million, a decrease in lease liabilities, net of $1.6 million, partially offset by a decrease in inventory of $18.6 million, an increase in accounts payable of $53.3 million, an increase in accrued expenses and other liabilities of $62.2 million, and an increase in deferred revenue of $51.0 million.
We are continuing to evaluate the IRA and its requirements, as well as the application to our business and our customers. 39 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.
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.
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.
In the United States and internationally, governments regularly 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.
An energy system’s position in relation to a customer’s electric meter determines whether it is designated a BTM or 38 FTM system. BTM systems provide power that can be used on-site without interacting with the electric grid and passing through an electric meter.
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.
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.
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 energy source. We expect the cost of generating renewable energy to continue to decline and deployments of energy storage systems to increase.
Financing Activities During the year ended December 31, 2022, net cash used in financing activities was $9.3 million, primarily consisting of repayment of financing obligations of $10.3 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 $1.3 million, proceeds from other financing obligations of $1.5 million, and an investment from non-controlling interest of $0.5 million.
During the year ended December 31, 2022, net cash used in financing activities was $9.3 million, primarily consisting of payments for withholding taxes related to net share settlement of stock options of $2.3 million, repayment of financing obligations of $10.3 million, partially offset by proceeds from exercise of stock options of $1.3 million, proceeds from financing obligations of $1.5 million, and an investment from non-controlling interest of $0.5 million.
Other Income (Expense), Net Interest Expense Interest expense consists primarily of interest on our outstanding borrowings under our outstanding notes payable, convertible promissory notes, convertible senior notes, and financing obligations and accretion on our asset retirement obligations.
Other Income (Expense), Net Interest Expense, Net Interest expense, net consists primarily of interest on our outstanding borrowings under our outstanding notes payable, convertible senior notes, and financing obligations and accretion on our asset retirement obligations.
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.
Acquisition of AlsoEnergy On February 1, 2022, we acquired 100% of the issued and outstanding capital stock of AlsoEnergy. The transaction combined 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.
If any of our suppliers were unable or unwilling to provide us with contracted quantities in a timely manner at prices, quality levels and volumes acceptable to us, we will have very limited alternatives for supply, and we may not be able find suitable replacements for our customers, if at all.
If any of our suppliers were 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, if at all.
In addition, in all the markets where we help manage our customers’ clean energy assets, we have agreements to use the Athena platform to participate in such markets and to share the revenue from such market participation. We operate in two key areas within the energy storage landscape: Behind-the-Meter (“BTM”) and Front-of-the-Meter (“FTM”).
In addition, in all of the markets where we help manage our customers’ clean energy assets, we have agreements to use the Athena platform to participate in such markets and to share the revenue from such market participation. 39 We operate in two key areas within the energy landscape: Behind-the-Meter (“BTM”) and Front-of-the-Meter (“FTM”).
LLC and Barclays Capital Inc, as initial purchasers (the “Initial Purchasers”), and the Initial Purchasers purchased from us, $460.0 million aggregate principal amount of our 0.50% Green Convertible Notes due 2028 (the “2028 Convertible Notes”), pursuant to a purchase agreement dated as of November 17, 2021, by and between us and the Initial Purchasers.
LLC and Barclays Capital Inc, as initial purchasers (the “2021 Initial Purchasers”), and the 2021 Initial Purchasers purchased from us, $460.0 million aggregate principal amount of our 0.50% Green Convertible Notes due 2028 (the “2028 Convertible Notes”), pursuant to a purchase agreement dated as of November 17, 2021, by and between us and the 2021 Initial Purchasers.
Therefore, our actual payments in future periods may vary from those presented in the table below. We generally expect to satisfy these commitments with cash on hand and cash provided by operating activities. The following table summarizes our contractual obligations and commitments as of December 31, 2022 (in thousands).
Therefore, our actual payments in future periods may vary from those presented in the table below. We generally expect to satisfy these commitments with cash on hand and cash provided by operating activities. The following table summarizes our contractual obligations and commitments as of December 31, 2023 (in thousands).
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 the Company’s common stockholders upon conversion of the 2028 Convertible Notes.
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 2021 Initial Purchasers of their option to purchase additional 2028 Convertible Notes, we entered into capped call transactions with certain of the 2021 Initial Purchasers of the 2028 Convertible Notes to minimize the potential dilution to our common stockholders upon conversion of the 2028 Convertible Notes.
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 the Company’s option at any time given certain conditions.
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.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our consolidated financial statements and the related notes included in Part II, Item 8, “Financial Statements and Supplementary Data” of this Report.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS You should read the following management’s discussion and analysis of our financial condition and results of operations (“MD&A”) in conjunction with our consolidated financial statements and the related notes included in Part II, Item 8, “Financial Statements and Supplementary Data” of this Report.
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.
Government Regulation and Compliance Although we are not regulated as a utility, the market for our products and services is heavily influenced by federal, state, and local government statutes and regulations concerning electricity. These statutes and regulations, like the IRA, affect 41 electricity pricing, net metering, incentives, taxation, competition with utilities, and the interconnection of customer-owned electricity generation.
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.
Gross profit, 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 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 this Form 10-K. Our business prospects are subject to risks, expenses and uncertainties frequently encountered by companies in the early stages of commercial operations.
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 this Annual Report on Form 10-K. Our business prospects are subject to risks, expenses and uncertainties frequently encountered by companies in the early stages of commercial operations.
Investing Activities During the year ended December 31, 2022, net cash used in investing activities was $544.4 million, primarily consisting of $533.0 million used for our acquisition of AlsoEnergy, net of cash acquired, $2.6 million used for the purchase of energy systems, $16.8 million in capital expenditures on internally-developed software, and $1.5 million used for the purchase of property and equipment, partially offset by $9.6 million in net proceeds of available-for-sale investments.
During the year ended December 31, 2022, net cash used in investing activities was $544.4 million, primarily consisting of $533.0 million used for our acquisition of AlsoEnergy, net of cash acquired, $2.6 million used for the purchase of energy systems, $16.8 million in capital expenditures on internally-developed software, $0.1 million used for the purchase of equity method investment, and $1.5 million used for the purchase of property plant and equipment, partially offset by $9.6 million in net proceeds of available-for-sale investments.
Factors that could cause or contribute to these differences include, but are not limited to, those discussed below and elsewhere in this Report, particularly in Part I, Item 1A, “Risk Factors.” This MD&A section generally discusses 2022 and 2021 items and year-to-year comparisons between 2022 and 2021.
Factors that could cause or contribute to these differences include, but are not limited to, those discussed below and elsewhere in this Report, particularly in Part I, Item 1A, “Risk Factors.” This MD&A generally discusses 2023 and 2022 items and year-to-year comparisons between 2023 and 2022.
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 3- Revenue , in the accompanying notes to the consolidated financial statements included in Part II, Item 8, “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K .
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 the accompanying notes to the consolidated financial statements included in Part II, Item 8, “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K .
Supply Chain Constraints and Risk; COVID-19 We rely on a very small number of suppliers of energy storage systems and other equipment.
Supply Chain Constraints and Risk We rely on a very small number of suppliers of energy storage systems and other equipment.
Over the long term, 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. 44 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.
Over the long term, we hope to increase both our gross profit in absolute dollars and gross margin as a percentage of revenue through enhanced operational efficiency and economies of scale. 46 Operating Expenses Sales and Marketing Sales and marketing expense consists of payroll and other related personnel costs, including salaries, stock-based compensation, commissions, bonuses, employee benefits, and travel for our sales and marketing personnel.
See Note 6 — Business Combinations, in the accompanying notes to the consolidated financial statements included in Part II, Item 8, “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K . Overview Our mission is to maximize the economic, environmental, and resiliency value of energy assets through our leading AI platform.
See Note 6 — Business Combinations, in the accompanying notes to the consolidated financial statements included in Part II, Item 8, “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K . Overview Our mission is to maximize the economic, environmental, and resiliency value of renewable energy assets through our leading artificial intelligence (“AI”) platform.
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.
We expect research and development expense to increase in future periods to support our growth, including our investments in optimization, accuracy and reliability of our platform and other technology improvements to support and drive efficiency in our operations.
Non-cash charges primarily consisted of depreciation and amortization of $45.4 million, non-cash interest expense of $1.9 million related to debt issuance costs, stock-based compensation expense of $28.7 million, non-cash lease expense of $2.3 million, accretion of asset retirement obligations of $0.2 million, impairment of energy storage systems of $2.6 million, loss on disposal of property and equipment of $0.3 million, impairment loss of project assets of $0.5 million, provision for accounts receivable allowance of $3.6 million, which were partially offset by an income tax benefit of $15.1 million and net accretion of discount on investments of $0.1 million.
Non-cash charges primarily consisted of depreciation and amortization of $45.4 million, non-cash interest expense of $1.9 million related to debt issuance costs, stock-based compensation expense of $28.7 million, non-cash lease expense of $2.3 million, impairment of energy storage systems of $2.6 million, loss on disposal of property and equipment of $0.3 million, impairment loss of project assets of $0.5 million, provision for accounts receivable allowance of $3.6 million, and other non-cash items of $0.2 million, partially offset by an income tax benefit of $15.1 million, and net accretion of discount on investments of $0.1 million.
(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.
(2) 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. (3) Total GWh of systems in operation or under contract.
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.
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 we continue to assess how the IRA may affect our business.
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.
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 Financial Accounting Standards Board (“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.
R efer to Note 13 — Convertible Promissory Notes , in the accompanying notes to the consolidated financial statements included in Part II, Item 8, “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K.
R efer to Note 13 — Convertible Notes , in the accompanying notes to the consolidated financial statements included in Part II, Item 8, “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K for additional details regarding this transaction .
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.
In addition, we expect to continue to manage and reduce our general and administrative costs and expenses 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.
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 $127.4 million for the year ended December 31, 2021 to $363.0 million for the year ended December 31, 2022.
We have financed our operations primarily through cash flows from customers, proceeds received from the Merger, convertible senior notes, and the issuance of convertible preferred stock. Our total revenue grew from $363.0 million for the year ended December 31, 2022 to $461.5 million for the year ended December 31, 2023.
The Merger The information regarding the Merger set forth in the first paragraph of “Item 1. Business — History” above is incorporated herein by reference .
The Merger The information regarding the Merger set forth in the first paragraph of Part 1, Item 1, “Business — History” above is incorporated herein by reference .
Acquisition costs, such as legal and consulting fees, are expensed as incurred. 51 Recent Accounting Pronouncements Information with respect to recent accounting pronouncements may be found in Note 2 — Summary of Significant Accounting Policies , in the accompanying notes to the consolidated financial statements included in Part II, Item 8, "Financial Statements and Supplementary Data" of this Annual Report on Form 10-K .
Recent Accounting Pronouncements Information with respect to recent accounting pronouncements may be found in Note 2 — Summary of Significant Accounting Policies , in the accompanying notes to the consolidated financial statements included in Part II, Item 8, "Financial Statements and Supplementary Data" of this Annual Report on Form 10-K .
DevCo Joint Ventures 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 in the accompanying notes to the consolidated financial statements included in Part II, Item 8, “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K.
Such an event could materially adversely affect our business, prospects, financial condition and results of operations. 40 DevCo Joint Ventures We, through an indirect wholly-owned development subsidiary, have entered into strategic joint ventures with qualified third parties to develop select energy storage generation projects (“DevCo Projects”), as more fully described above under Note 1 — Business in the accompanying notes to the consolidated financial statements included in Part II, Item 8, “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K.
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.
However, executed customer contracts, without binding purchase orders, are cancellable without penalty by either party. 45 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.
Discussions of 2020 items and year-to-year comparisons between 2021 and 2020 that are not included in this Annual Report on Form 10-K can be found in the section entitled “Item 7. Management’s Discussion and Analysis of Financial Condition and Results or Operations” contained in our Form 10-K filed with the SEC on February 28, 2022.
Discussions of 2021 items and year-to-year comparisons between 2022 and 2021 that are not included in this Annual Report on Form 10-K can be found in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in our Annual Report on Form 10-K filed with the SEC on February 17, 2023.
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 IRA was signed into law in August 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.
(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.
(4) Total GW of systems in operation or under contract. (5) 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.
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. See “We Face Risks Related to our DevCo Business Model” in Part I, Item 1A.
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.
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.
Gain on Extinguishment of Debt, Net Gain on extinguishment of debt, net consists of income recognized in relation to the prepayment of our outstanding borrowings under our outstanding convertible notes and the write-off of any unamortized debt issuance costs associated with such notes.
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 would reasonably be expected to have, a current or future material effect on our consolidated financial statements. 50 Critical Accounting Policies and Estimates Our discussion and analysis of financial condition and results of operations are based upon our consolidated financial statements.
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 would reasonably be expected to have, a current or future material effect on our consolidated financial statements.
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.
In the future, we may be required to obtain additional equity or debt financing in order to support our continued capital expenditures and operations, which may not be available on terms acceptable to us or at all.
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, (ii) edge hardware to aid in the collection of site data and the real-time operation and control of the site plus other optional equipment, (iii) ongoing software platform and professional services to operate integrated energy storage, and solar systems, through our Athena® artificial intelligence (“AI”) platform (“Athena”), and (iv) solar asset performance monitoring and control, through Athena’s PowerTrack application.
In order to fulfill our mission, we provide our customers, which include C&I enterprises as well as independent power producers, renewable project developers, utilities and grid operators, with (i) energy storage hardware, sourced from leading, global battery OEMs, that we deliver through our partners, including developers, distributors and EPC firms, (ii) edge hardware to aid in the collection of site data and the real-time operation and control of the site plus other optional equipment, and (iii) an ongoing software platform, Athena ® , and professional services to operate and manage the performance of standalone energy storage, integrated solar plus storage systems, and solar assets.
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.
We received an advance under the credit agreement of $1.8 million in January 2021. The repayment of advances received under this credit agreement was determined by the lender based on the proceeds generated by us through the operation of the underlying energy storage systems.
For the years ended December 31, 2022 and 2021, we incurred net losses of $124.1 million and $101.2 million, respectively. As of December 31, 2022, we had an accumulated deficit of $632.1 million.
For the years ended December 31, 2023 and 2022, we incurred net losses of $140.4 million and $124.1 million, respectively. As of December 31, 2023, we had an accumulated deficit of $772.5 million.
The cost of lithium-ion energy storage hardware has generally declined over the last decade, notwithstanding increases in recent months. The market for energy storage is rapidly evolving, and while we believe costs will continue to decline over time, there is no guarantee.
The cost of lithium-ion energy storage hardware has generally declined over the last decade, but increased demand and global supply chain constraints could cause price increases in the future. The market for energy storage is rapidly evolving, and while we believe costs will continue to decline over time, there is no guarantee.
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 months of contract execution. However, executed customer contracts, without binding purchase orders, are cancellable without penalty by either party.
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 months of contract execution.
Research and Development Research and development expense increased by $15.6 million, or 69%, for the year ended December 31, 2022, as compared to the year ended December 31, 2021.
Research and Development Research and development expense increased by $18.2 million, or 48%, for the year ended December 31, 2023, as compared to the year ended December 31, 2022.
“Risk Factors” of this Annual Report on From 10-K for additional information about certain risks related to these DevCo Projects. 40 Non-GAAP Financial Measures In addition to financial results determined in accordance with U.S. generally accepted accounting principles (“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.
Non-GAAP Financial Measures In addition to financial results determined in accordance with U.S. generally accepted accounting principles (“GAAP”) , we use adjusted EBITDA and non-GAAP gross profit and 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.
We believe this change reflects a more accurate representation of our business for stakeholders to assess its performance. Adjusted EBITDA As discussed above, we believe that Adjusted EBITDA is useful for investors to use in comparing our financial performance with the performance of other companies.
Adjusted EBITDA As discussed above, we believe that adjusted EBITDA is useful for investors to use in comparing our financial performance with the performance of other companies.
Income Tax Benefit During the year ended December 31, 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.
(Provision for) Benefit from Income Taxes During the year ended December 31, 2023, we recorded $0.4 million of income tax expense. During the year ended December 31, 2022, we recorded an income tax benefit of $15.2 million due to the partial release of our deferred tax asset valuation due to the acquisition of AlsoEnergy.
A thorough understanding of these critical accounting policies is essential when reviewing our consolidated financial statements. We believe that the critical accounting policies listed below involve the most difficult management decisions because they require the use of significant estimates and assumptions as described above.
We believe that the critical accounting policies listed below involve the most difficult management decisions because they require the use of significant estimates and assumptions as described above.
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.
Adjusted EBITDA and non-GAAP gross profit and 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.
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.
For FTM customers, our software decreases risk for project developers, asset owners, 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 assets over the course of their FTM system’s lifetime.
During the year ended December 31, 2021, net cash used in investing activities was $185.2 million, primarily consisting of $189.9 million used for the purchase of available-for-sale investments, $3.6 million used for the purchase of energy systems, $5.9 million in capital expenditures on internally-developed software, $1.2 million used for the purchase of equity method investment, and $0.6 million used for the purchase of property plant and equipment, partially offset by $16.0 million in proceeds from the sale of available-for-sale investments.
Investing Activities During the year ended December 31, 2023, net cash provided by investing activities was $135.7 million, primarily consisting of $155.7 million in net proceeds of available-for-sale investments, partially offset by $1.8 million used for acquisitions, net of cash acquired, $2.6 million used for the purchase of energy systems, $14.1 million in capital expenditures on internally-developed software, and $1.5 million used for the purchase of property and equipment.
Cost of hardware 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. Gross Margin Our gross margin fluctuates significantly from quarter to quarter.
Cost of hardware revenue related to the sale of energy storage systems is recognized when the delivery of the product is completed. Gross Profit Our gross profit fluctuates significantly from quarter to quarter.
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. 43 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, 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.
Through our February 2022 acquisition of AlsoEnergy, we combined our storage optimization capabilities with solar asset performance monitoring and control software. 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.
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 separately generate services revenue through partnership arrangements by providing energy optimization services after the developer completes the installation of the project. Cost of Revenue 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 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 services and other revenue also includes the costs for the development and constructions of project assets.
The increase was primarily due to an increase of $11.0 million in personnel related expenses as a result of higher headcount, inclusive of an additional $2.5 million in stock-based compensation expense, an increase of $12.9 million in amortization expense related to intangible assets from the acquisition of AlsoEnergy, an increase of $1.9 million amortization of contract origination costs, and an increase of $3.1 million of professional services and other expenses.
The increase was primarily due to an increase of $5.5 million in personnel related expenses driven by additional stock-based compensation expenses and higher payroll costs, partially offset by a decrease of $1.7 million in amortization expense related to intangible assets from the acquisition of AlsoEnergy, and a decrease of $1.1 million of professional services and other expenses.
Cost of services and other revenue and other also includes the costs for the development and constructions of project assets. 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.
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.
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.
We expect to continue to manage and reduce our general and administrative expense associated with scaling our business operations and being 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.
General and Administrative General and administrative expense increased by $35.4 million, or 85%, for the year ended December 31, 2022, as compared to the year ended December 31, 2021.
General and Administrative General and administrative expense decreased by $2.1 million, or 3%, for the year ended December 31, 2023, as compared to the year ended December 31, 2022.
Other Expense, Net Interest Expense Interest expense decreased by $6.9 million, or 40%, for the year ended December 31, 2022, as compared to the year ended December 31, 2021.
Other Expense, Net Interest Expense, Net Interest expense increased by $4.5 million, or 43%, for the year ended December 31, 2023, as compared to the year ended December 31, 2022.
Our consolidated financial statements are prepared in accordance with GAAP. The preparation of our consolidated financial statements in accordance with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses.
The preparation of our consolidated financial statements in accordance with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses. We base our estimates on past experience and other assumptions that we believe are reasonable under the circumstances, and we evaluate these estimates on an ongoing basis.
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.
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. 51 On April 3, 2023, we used approximately $99.8 million of the net proceeds from the issuance of the 4.25% Green Convertible Senior Notes due 2030 (“2030 Convertible Notes”) to purchase and surrender for cancellation approximately $163.0 million in aggregate principal amount of our 2028 Convertible Notes.
Cash Flows The following table summarizes our cash flows for the periods indicated (in thousands): Year Ended December 31, 2022 2021 Net cash used in operating activities $ (106,030) $ (101,266) Net cash used in investing activities (544,373) (185,233) Net cash (used in) provided by financing activities (9,272) 1,027,095 Effect of exchange rate changes on cash and cash equivalents (202) 242 Net (decrease) increase in cash and cash equivalents $ (659,877) $ 740,838 Operating Activities During the year ended December 31, 2022, net cash used in operating activities was $106.0 million, primarily resulting from our net loss of $124.1 million, adjusted for non-cash charges of $70.3 million and net cash outflow of $52.3 million from changes in operating assets and liabilities.
Cash Flows The following table summarizes our cash flows for the periods indicated (in thousands): Year Ended December 31, 2023 2022 Net cash used in operating activities $ (207,377) $ (106,030) Net cash provided by (used in) investing activities 135,727 (544,373) Net cash provided by (used in) financing activities 90,238 (9,272) Effect of exchange rate changes on cash, cash equivalents and restricted cash (16) (202) Net increase (decrease) in cash, cash equivalents and restricted cash $ 18,572 $ (659,877) Operating Activities During the year ended December 31, 2023, net cash used in operating activities was $207.4 million, primarily due to our net loss of $140.4 million, adjusted for non-cash charges of $50.6 million and a net cash outflow of $117.6 million from changes in operating assets and liabilities.
The net cash outflow from changes in operating assets and liabilities was primarily driven by an increase in accounts receivable of $48.1 million, an increase in deferred costs with suppliers of $7.5 million, an increase in other assets of $17.2 million, a decrease in deferred revenue of $15.0 million, an increase in inventory of $1.9 million, an increase in contract origination costs of $2.6 million, a decrease in lease liabilities, net of $0.5 million, partially offset by an increase in accounts payable of $16.3 million and accrued expenses and other liabilities of $17.0 million.
The net cash outflow from changes in operating assets and liabilities was primarily driven by an increase in accounts receivable of $80.9 million, an increase in inventory of $18.3 million, an increase in other assets of $18.0 million, an increase in contract origination costs of $5.9 million, an increase in project assets of $5.4 million, a decrease in accrued expenses of $15.8 million, a decrease in accounts payable of $5.2 million, and a decrease in lease liabilities, net of $2.9 million, partially offset by a decrease in deferred costs with suppliers of $30.3 million, and an increase in deferred revenue of $4.6 million. 52 During the year ended December 31, 2022, net cash used in operating activities was $106.0 million, primarily due to our net loss of $124.1 million, adjusted for non-cash charges of $70.3 million and net cash outflow of $52.3 million from changes in operating assets and liabilities.
The increase was primarily due to an increase of $12.5 million in personnel related expenses as a result of increased headcount, inclusive of an additional $2.3 million in stock-based compensation expense, and an increase of $3.1 million in professional services and other expenses.
The increase was primarily due to an increase of $12.9 million in personnel costs driven by additional stock-based compensation expenses and higher payroll costs, and an increase of $5.3 million in professional services and other expenses.
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.
Our net proceeds from this offering were approximately $445.7 million, after deducting the 2021 Initial Purchasers’ discounts and commissions and the estimated offering expenses payable by us. 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.
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 revenue through partnership arrangements by providing energy optimization services after the developer completes the installation of the project. We generate hardware revenue through partnership arrangements consisting of sales of 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.
Costs of revenue are recognized as energy optimization and other supporting services are provided to our customers throughout the term of the contract. Cost of hardware revenue 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 hardware revenue 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 hardware revenue may also include any impairment of energy storage systems held in our inventory for sale to our customer.
We base our estimates on past experience and other assumptions that we believe are reasonable under the circumstances, and we evaluate these estimates on an ongoing basis. Actual results may differ from those estimates. Our critical accounting policies are those that materially affect our consolidated financial statements and involve difficult, subjective or complex judgments by management.
Actual results may differ from those estimates. Our critical accounting policies are those that materially affect our consolidated financial statements and involve difficult, subjective or complex judgments by management. A thorough understanding of these critical accounting policies is essential when reviewing our consolidated financial statements.
The total financing obligation as of December 31, 2022 was $79.6 million, of which $15.7 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.
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 owned and operated (the “2021 Credit Agreement”). The credit agreement had a stated interest of 5.45% and a maturity date of June 2031.
Key Factors, Trends and Uncertainties 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.
Key Factors, Trends and Uncertainties Affecting our Business We believe that our performance and future success depend on several factors, some of which present significant opportunities for us, and some of which pose risks and challenges, including but not limited to: Seasonality Our results of operations have typically fluctuated due to seasonal trends, which we expect to recur in future periods.
The increase was primarily driven by an increase of $20.8 million in personnel related expenses as a result of higher headcount, inclusive of an additional $10.3 million in stock-based compensation expense, as well as an increase of $14.6 million in professional services, insurance, office, and other expenses.
The decrease was primarily driven by a decrease of $9.6 million of professional services and other expenses, as well as a decrease of $2.1 million in office-related expenses, partially offset by an increase of $4.0 million in personnel costs driven by additional stock-based compensation expense, and an increase of $5.6 million in business taxes related to state sales tax liabilities.

… 98 more changes not shown on this page.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

3 edited+0 added−1 removed4 unchanged
Biggest changeWe do not enter into derivative financial instruments, including interest rate swaps, for hedging or speculative purposes. Credit Risk We routinely assess the creditworthiness of our customers. We generally have not experienced any material losses related to receivables from individual customers, or groups of customers during the years ended December 31, 2022 and 2021. We do not require collateral.
Biggest changeWe generally have not experienced any material losses related to receivables from individual customers, or groups of customers, during the years ended December 31, 2023 and 2022. We do not require collateral. Due to these factors, no additional credit risk beyond amounts provided for collection losses is believed by management to be probable in our accounts receivable. 56
Interest Rate Risk Interest rate risk is the risk that the value or yield of fixed-income investments may decline if interest rates change. Fluctuations in interest rates may impact the level of interest expense recorded on outstanding borrowings.
Interest Rate Risk Interest rate risk is the risk that the value or yield of fixed-income investments may decline if interest rates change. Fluctuations in interest rates may impact the level of interest expense recorded on outstanding borrowings. Our 2028 Convertible Notes, 2030 Convertible Notes, and financing obligations bear interest at a fixed rate and are not publicly traded.
In addition, our convertible promissory notes, 2028 Convertible Notes, notes payable, and financing obligations bear interest at a fixed rate and are not publicly traded. Therefore, fair value of our convertible promissory notes, notes payable, financing obligations and interest expense is not materially affected by changes in the market interest rates.
Therefore, the fair value of our 2028 and 2030 Convertible Notes, financing obligations and interest expense is not materially affected by changes in the market interest rates. We do not enter into derivative financial instruments, including interest rate swaps, for hedging or speculative purposes. 55 Credit Risk We routinely assess the creditworthiness of our customers.
Removed
Due to these factors, no additional credit risk beyond amounts provided for collection losses is believed by management to be probable in our accounts receivable. 52

Other STEM 10-K year-over-year comparisons