This prospectus supplement no. 2 is being filed to update and supplement
information contained in the prospectus dated June 15, 2021 (the “Prospectus”) related to: (1) the issuance by us of up to
19,967,263 shares of our common stock, par value $0.0001 per share (“Common Stock”) that may be issued upon exercise of warrants
to purchase Common Stock at an exercise price of $11.50 per share of Common Stock, including the public warrants and the Private Placement
Warrants (as defined in the Prospectus); and (2) the offer and sale, from time to time, by the Selling Securityholders (as defined in
the Prospectus) identified in the Prospectus, or their permitted transferees, of (i) up to 52,107,817 shares of Common Stock and (ii)
up to 7,181,134 Private Placement Warrants, with the information contained in our Quarterly Report on Form 10-Q for the fiscal quarter
ended June 30, 2021 (the “Report”). Accordingly, we have attached the Report to this prospectus supplement. Any document,
exhibit or information contained in the Report that has been deemed furnished and not filed in accordance with Securities and Exchange
Commission rules shall not be included in this prospectus supplement.
This prospectus supplement updates and supplements the information
in the Prospectus and is not complete without, and may not be delivered or utilized except in combination with, the Prospectus, including
any amendments or supplements thereto. This prospectus supplement should be read in conjunction with the Prospectus and any prior amendments
or supplements thereto and if there is any inconsistency between the information therein and this prospectus supplement, you should rely
on the information in this prospectus supplement.
Our Common Stock and warrants are traded on the
New York Stock Exchange under the symbols “STEM” and “STEM.WS,” respectively. On August 11, 2021, the closing
price of our Common Stock was $26.86 per share and the closing price of our warrants was $15.27 per warrant.
Neither the Securities and Exchange Commission
nor any other regulatory body have approved or disapproved these securities, or passed upon the accuracy or adequacy of this prospectus
supplement. Any representation to the contrary is a criminal offense.
(Former name, former address and former fiscal
year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes x No ¨
Indicate by check mark whether the registrant has submitted
electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x
No ¨
Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions
of “large accelerated filer”, “accelerated filer”, “smaller reporting company,” and “emerging
growth company” in Rule 12b-2 of the Exchange Act
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
Description of the Business
Stem, Inc. and its subsidiaries
(together, “Stem” or the “Company”) is an energy technology company that creates innovative technology services
that transform the way energy is distributed and consumed. Through its technology, the Company enables businesses to control their electricity
expense and helps the electrical grid be more efficient in managing peak usage. The Company operated as Rollins Road Acquisition Company
(f/k/a Stem, Inc.) (“Legacy Stem”) prior to the Merger (as defined below).
Stem, Inc. was incorporated on
March 16, 2009 in the State of Delaware and is headquartered in San Francisco, California.
Star Peak Acquisition Corp. Merger
On December 3, 2020, the Company
entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Star Peak Transition Corp. (“STPK”,
prior to the closing of the Merger and the “New Stem”, following the closing of the Merger), an entity listed on the New York
Stock Exchange under the trade symbol “STPK”, and STPK Merger Sub Corp., a Delaware corporation and wholly owned subsidiary
of STPK (“Merger Sub”), providing for, among other things, and subject to the conditions therein, the combination of the Company
and STPK pursuant to the merger of Merger Sub with and into the Company with the Company continuing as the surviving entity (the “Merger”).
On April 28, 2021, shareholders
of STPK approved the Merger, under which Stem received approximately $550.3 million, net of fees and expenses as follows:
|
|
|
Recapitalization
|
|
|
Cash — STPK trust and working capital cash
|
|
$
|
383,383
|
|
|
Cash — PIPE
|
|
|
225,000
|
|
|
Less: transaction costs and advisory fees paid
|
|
|
(58,061
|
)
|
|
Merger and PIPE financing
|
|
$
|
550,322
|
|
Immediately prior to the closing
of the Merger, (i) all issued and outstanding shares of Legacy Stem preferred stock, par value $0.00001 per share (the “Legacy Stem
Preferred Stock”), were converted into shares of Legacy Stem common stock, par value $0.000001 per share (the “Legacy Stem
Common Stock”) in accordance with Legacy Stem’s amended and restated certificate of incorporation, (ii) all outstanding convertible
promissory notes of Legacy Stem (the “Legacy Stem Convertible Notes”) were converted into Legacy Stem Preferred Stock in accordance
with the terms of the Legacy Stem Convertible Notes and (iii) certain warrants issued by Legacy Stem to purchase Legacy Stem Common Stock
and Legacy Stem Preferred Stock (the “Legacy Stem Warrants”) were exercised by holders into Legacy Stem Common Stock in accordance
with the terms thereof. Upon the consummation of the Merger, each share of Legacy Stem common stock then issued and outstanding was canceled
and converted into the right to receive shares of Class A common stock of Stem using an exchange ratio of 4.6432 (the “Exchange
Ratio”).
In connection with the execution
of the Merger Agreement, STPK entered into separate subscription agreements (each, a “Subscription Agreement”) with a number
of investors (each a “Subscriber”), pursuant to which the Subscribers agreed to purchase, and STPK agreed to sell to the Subscribers,
an aggregate of 22,500,000 shares of common stock (the “PIPE Shares”), for a purchase price of $10 per share and an aggregate
purchase price of $225.0 million, in a private placement pursuant to the subscription agreements (the “PIPE”). The PIPE investment
closed simultaneously with the consummation of the Merger. The Merger is accounted for as a reverse recapitalization in accordance with
GAAP. Under this method of accounting, STPK was treated as the “acquired” company for financial reporting purposes. Accordingly,
for accounting purposes, the Merger was treated as the equivalent of Stem issuing stock for the net assets of STPK, accompanied by a recapitalization.
The net liabilities of STPK of $304.0 million, comprised primarily of the warrant liabilities associated with the Public and Private
Placement Warrants discussed in Note 8, are stated at historical cost, with no goodwill or other intangible assets recorded.
STEM, INC.
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(UNAUDITED)
Liquidity and Going Concern
The accompanying unaudited condensed
consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”)
and with the instructions to Form 10-Q and Article 10 of the Regulation S-X, assuming the Company will continue as a going concern. As
of June 30, 2021, the Company had cash and cash equivalents of $474.1 million, an accumulated deficit of $590.6 million and net
working capital of $452.5 million, with $15.3 million of financing obligation coming due within the next 12 months. During the six months
ended June 30, 2021, the Company incurred a net loss of $182.8 million and had negative cash flows from operating activities of
$41.8 million. However, the Merger provided the Company with a significant amount of cash proceeds and, as such, the Company believes
that its cash position, inclusive of funds raised with the Merger, is sufficient to meet capital and liquidity requirements for at least
the next 12 months after the date that the financial statements are available to be issued.
The Company’s business
prospects are subject to risks, expenses, and uncertainties frequently encountered by companies in the early stages of commercial operations.
Prior to the Merger, the Company had been funded primarily by equity financings, convertible promissory notes and borrowings from affiliates.
The attainment of profitable operations is dependent upon future events, including obtaining adequate financing to complete the Company’s
development activities, securing adequate supplier relationships, building its customer base, successfully executing its business and
marketing strategy, and hiring and retaining appropriate personnel. Failure to generate sufficient revenues, achieve planned gross margins
and operating profitability, control operating costs, or secure additional funding may require the Company to modify, delay or abandon
some of its planned future expansion or development, or to otherwise enact operating cost reductions available to management, which could
have a material adverse effect on the Company’s business, operating results and financial condition.
COVID-19
In March 2020, the World Health
Organization declared the outbreak of the novel coronavirus disease (“COVID-19”) as a pandemic, adversely impacting global
commercial activity and greatly disrupting supply chains and the manufacturing, delivery and installation of energy storage systems worldwide.
As a result, we adjusted certain aspects of our operations to protect our employees and customers while still meeting customers’
needs for vital technology. Government and business responses to COVID-19, along with the rise of the COVID-19 Delta variant and resurgence
of related disruptions, could have a continued material adverse impact on economic and market conditions and trigger a period of continued
global economic slowdown. The continued uncertainty and fluidity of this situation precludes any predication as to the extent and the
duration of the economic impact of government and business responses to COVID-19 and the Delta variant, and therefore present material
uncertainty and risk with respect to the Company and its performance and could materially and adversely affect our business, financial
condition, and results of operations.
|
|
2.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|
Basis of Presentation
The accompanying unaudited consolidated
financial statements of the Company have been prepared in accordance with GAAP for interim reporting and with the instructions to Form
10-Q and Article 10 of Regulation S-X. Accordingly, the condensed balance sheet at December 31, 2020 has been derived from the audited
financial statements at that date, but certain notes or other information that are normally required by GAAP have been omitted if they
substantially duplicate the disclosures contained in the Company’s annual audited consolidated financial statements. In the opinion
of Stem management, all adjustments considered necessary for a fair statement of the results for the interim period presented have been
included in the accompanying unaudited financial statements. The consolidated financial statements include the accounts of the Company,
its wholly-owned subsidiaries, and consolidated variable interest entities (“VIEs”). All intercompany balances and transactions
have been eliminated in consolidation. These unaudited condensed financial statements should be read in conjunction with the Company’s
audited financial statements for the year ended December 31, 2020. Operating results three and for the six-month period ended June 30,
2021 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2021 or for any other future
year.
STEM, INC.
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(UNAUDITED)
Use of Estimates
The preparation of consolidated
financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of
assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and
the reported amounts of revenues and expenses during the reporting period. The Company bases its estimates on historical experience and
on various other assumptions believed to be reasonable. Actual results could differ from those estimates and such differences could be
material to the financial position and results of operations.
Significant estimates and assumptions
reflected in these consolidated financial statements include, but are not limited to, depreciable life of energy systems; the amortization
of financing obligations; deferred commissions and contract fulfillment costs; the valuation of energy storage systems, internally developed
software, and asset retirement obligations; and the fair value of equity instruments, equity-based instruments, warrant liabilities and
embedded derivatives.
Segment Information
Operating segments are defined as components
of an entity for which discrete financial information is available that is regularly reviewed by the Chief Operating Decision Maker (“CODM”)
in deciding how to allocate resources to an individual segment and in assessing performance. Our Chief Executive Officer is the CODM.
The CODM reviews financial information presented on a consolidated basis for purposes of making operating decisions, allocating resources,
and evaluating financial performance. As such, we have determined that the Company operates as one operating segment that is focused
exclusively on innovative technology services that transform the way energy is distributed and consumed. Net assets outside of the U.S.
were less than 10% of total net assets as of June 30, 2021 and December 31, 2020.
Significant Customers
A significant customer represents
10% or more of the Company’s total revenue or accounts receivable, net balance at each respective reporting date. For each significant
customer, revenue as a percentage of total revenue and accounts receivable as a percentage of total accounts receivable are as follows:
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|
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Accounts Receivable
|
|
|
Revenue
|
|
|
Revenue
|
|
|
|
|
June
30,
|
|
|
December
31,
|
|
|
Three
Months Ended June 30,
|
|
|
Six
Months Ended June 30,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
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2020
|
|
|
2021
|
|
|
2020
|
|
|
Customers:
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|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
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Customer A
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|
|
10
|
%
|
|
|
30
|
%
|
|
|
27
|
%
|
|
|
|
*
|
|
|
15
|
%
|
|
|
|
*
|
|
Customer B
|
|
|
|
*
|
|
|
20
|
%
|
|
|
10
|
%
|
|
|
|
*
|
|
|
|
*
|
|
|
|
*
|
|
Customer C
|
|
|
17
|
%
|
|
|
17
|
%
|
|
|
|
*
|
|
|
|
*
|
|
|
|
*
|
|
|
|
*
|
|
Customer D
|
|
|
|
*
|
|
|
|
*
|
|
|
|
*
|
|
|
|
*
|
|
|
15
|
%
|
|
|
|
*
|
|
Customer E
|
|
|
|
*
|
|
|
|
*
|
|
|
|
*
|
|
|
|
*
|
|
|
|
*
|
|
|
12
|
%
|
|
Customer F
|
|
|
10
|
%
|
|
|
|
*
|
|
|
25
|
%
|
|
|
|
*
|
|
|
14
|
%
|
|
|
|
*
|
|
Customer G
|
|
|
16
|
%
|
|
|
|
*
|
|
|
|
*
|
|
|
|
*
|
|
|
|
*
|
|
|
|
*
|
*Total less than 10% for the
respective period
Fair Value of Financial Instruments
Assets and liabilities recorded
at fair value in the consolidated financial statements are categorized based upon the level of judgment associated with the inputs used
to measure their fair value. The fair value of the Company’s financial assets and liabilities reflects management’s estimate
of amounts that the Company would have received in connection with the sale of the assets or paid in connection with the transfer of
the liabilities in an orderly transaction between market participants at the measurement date. In connection with measuring the fair
value of its assets and liabilities, the Company seeks to maximize the use of observable inputs (market data obtained from independent
sources) and to minimize the use of unobservable inputs (internal assumptions about how market participants would price assets and liabilities).
STEM, INC.
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(UNAUDITED)
Hierarchical levels which are
directly related to the amount of subjectivity associated with the inputs to the valuation of these assets or liabilities are as follows:
Level 1 — Unadjusted
quoted prices in active markets for identical assets or liabilities that the Company has the ability to access as of the measurement
date.
Level 2 — Inputs
other than quoted prices included within Level 1 that are directly observable for the asset or liability or indirectly observable through
corroboration with observable market data.
Level 3 — Unobservable
inputs for the asset or liability only used when there is little, if any, market activity for the asset or liability at the measurement
date.
This hierarchy requires the Company
to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value. Assets and
liabilities measured at fair value are classified in their entirety based on the lowest level of input that is significant to their fair
value measurement. The Company’s assessment of the significance of a specific input to the fair value measurement in its entirety
requires management to make judgments and consider factors specific to the asset or liability.
Financial assets and liabilities
held by the Company measured at fair value on a recurring basis as of June 30, 2021 and December 31, 2020 include cash and
cash equivalents and warrant liabilities.
Recently Adopted Accounting Standards
In
August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2018-13,
Fair Value Measurement (Topic 820): Disclosure Framework — Changes to the Disclosure Requirements for Fair Value Measurement.
The amendments applicable to the Company on the range and weighted average of significant unobservable inputs used to develop Level 3
fair value measurements and the narrative description of measurement uncertainty should be prospectively applied in the initial fiscal
year of adoption. All other amendments applicable to the Company should be applied retrospectively to all periods presented upon their
effective date. The Company adopted ASU 2018-13 as of January 1, 2020. The Company’s disclosures related to its level 3 financial
instruments were not materially impacted for the periods presented. See Note 4, Fair Value Measurements, for more information.
In
August 2018, the FASB issued ASU 2018-15, Intangibles — Goodwill and Other — Internal-Use Software (Subtopic 350-40):
Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (“ASU
2018-15”). The intent of this pronouncement is to align the requirements for capitalizing implementation costs incurred in a cloud
computing arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain
internal-use software as defined in ASC 350-40. Under ASU 2018-15, the capitalized implementation costs related to a cloud computing
arrangement will be amortized over the term of the arrangement and all capitalized implementation amounts will be required to be presented
in the same line items of the financial statements as the related hosting fees. ASU 2018-15 is effective for public and private companies’
fiscal years beginning after December 15, 2019, and December 15, 2020, respectively, and interim periods within those fiscal years, with
early adoption permitted. The Company adopted ASU 2018-15 as of January 1, 2021. The adoption did not have a material impact to the Company’s
condensed consolidated financial statements.
Recently
Issued Accounting Standards
In
June 2016, the FASB issued ASU 2016-13, Financial instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial
Instruments, and subsequent related ASUs, which amends the guidance on the impairment of financial instruments by requiring measurement
and recognition of expected credit losses for financial assets held. This ASU is effective for public and private companies’ fiscal
years, and for interim periods within those fiscal years, beginning after December 15, 2019, and December 15, 2022, respectively. The
Company expects to adopt ASU 2016-13 under the private company transition guidance beginning January 1, 2023 and is currently assessing
the impact, if any, the guidance will have on the Company’s consolidated financial statements.
STEM, INC.
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(UNAUDITED)
In
December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU
2019-12”). ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing
guidance to improve consistent application. ASU 2019-12 will be effective for public entities for interim and annual periods beginning
after December 15, 2020, with early adoption permitted. ASU 2019-12 will be effective for private entities for annual periods beginning
after December 15, 2021, and interim periods beginning after December 15, 2020, with early adoption permitted. The Company plans to adopt
ASU 2019-12 for the fiscal year beginning January 1, 2022 and is currently assessing the impact, if any, the guidance will have on the
Company's consolidated financial statements.
In
August 2020, the FASB issued ASU 2020-06, Debt — Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and
Hedging — Contracts in Entity's Own Equity (Subtopic 815-40) — Accounting For Convertible Instruments and Contracts in an
Entity's Own Equity. The ASU simplifies accounting for convertible instruments by removing major separation models required under
current GAAP. Consequently, more convertible debt instruments will be reported as a single liability instrument with no separate accounting
for embedded conversion features. The ASU removes certain settlement conditions that are required for equity contracts to qualify for
the derivative scope exception, which will permit more equity contracts to qualify for it. The ASU also simplifies the diluted net income
per share calculation in certain areas. The new guidance is effective for annual and interim periods beginning after December 15, 2023,
and early adoption is permitted for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. The
Company plans to adopt 2020-06 for the fiscal year beginning January 1, 2024 and is currently evaluating the impact that this new guidance
will have on the Company's financial statements.
The Company generates revenue
through two types of arrangements with customers, host customer arrangements and partnership arrangements. The Company recognizes revenue
under these arrangements as described below.
Host Customer Arrangements
Host customer contracts are generally
entered into with commercial entities who have traditionally relied on power supplied directly from the grid. Host customer arrangements
consist of a promise to provide energy optimization services through the Company’s proprietary SaaS platform coupled with a dedicated
energy storage system owned and controlled by the Company throughout the term of the contract. The host customer does not obtain legal
title to, or ownership of the dedicated energy storage system at any point in time. The host customer is the end consumer of the energy
that directly benefits from the energy optimization services provided by the Company. The term for the Company’s contracts with
host customers generally ranges from 5 to 10 years, which may include certain renewal options to extend the initial contract term or
certain termination options to reduce the initial contract term.
Although the Company installs
an energy storage system at the host customer site in order to provide the energy optimization services, the Company determined it has
the right to direct how and for what purpose the asset is used through the operation of its SaaS platform and, as such, retains control
of the energy storage system; therefore, the contract does not contain a lease. The Company determined the various energy optimization
services provided throughout the term of the contract, which may include services such as remote monitoring, performance reporting, preventative
maintenance and other ancillary services necessary for the safe and reliable operation of the energy storage system, are part of a combined
output of energy optimization services and the Company provides a single distinct combined performance obligation representing a series
of distinct days of services.
The Company determines the transaction
price at the outset of the arrangement, primarily based on the contractual payment terms dictated by the contract with the customer.
Fees charged to customers for energy optimization services generally consist of recurring fixed monthly payments throughout the term
of the contract. In certain arrangements, the transaction price may include incentive payments that are earned by the host customer from
utility companies in relation to the services provided by the Company. Under such arrangements, the rights to the incentive payments
are assigned by the host customer to the Company. These incentives may be in the form of fixed upfront payments, variable monthly payments,
or annual performance-based payments over the first five years of the customer contract term. Incentive payments may be contingent on
approval from utility companies or actual future performance of the energy storage system.
STEM, INC.
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(UNAUDITED)
Substantially all of the Company’s
arrangements provide customers the unilateral ability to terminate for convenience prior to the conclusion of the stated contractual
term or the contractual term is shorter than the estimated benefit period, which the Company has determined to be 10 years based on the
estimated useful life of the underlying energy storage systems and the period over which the customer can benefit from the energy optimization
services utilizing such energy storage systems. In these instances, the Company determined that upfront incentive payments received from
its customers represent a material right that is, in effect, an advance payment for future energy optimization services to be recognized
throughout the estimated benefit period. In contracts where the customer does not have the unilateral ability to terminate for convenience
without a penalty during the estimated benefit period, the Company determined the upfront incentive payments do not represent a material
right for services provided beyond the initial contractual period and are therefore a component of the initial transaction price. The
Company revisits its estimate of the benefit period each reporting period. The Company’s contracts with host customers do not contain
a significant financing component.
The Company transfers control
of its energy optimization services to its customers continuously throughout the term of the contract (a stand-ready obligation) and
revenue is recognized ratably as control of these services is transferred to its customers, in an amount that reflects the consideration
the Company expects to be entitled to in exchange for its services. Monthly incentive payments based on the performance of the energy
storage system are allocated to the distinct month in which they are earned because the terms of the payments relate specifically to
the outcome from transferring the distinct time increment (month) of service and because such amounts reflect the fees to which the Company
expects to be entitled for providing energy optimization services each period, consistent with the allocation objective. Annual variable
performance- based payments are estimated at the inception in the transaction price using the expected value method, which takes into
consideration historical experience, current contractual requirements, specific known market events and forecasted energy storage system
performance patterns, and the Company recognizes such payments ratably using a time-based measure of progress of days elapsed over the
term of the contract to the extent that it is probable that a significant reversal of the cumulative revenue recognized will not occur
in a future period. At the end of each reporting period, the Company reassesses its estimate of the transaction price. The Company does
not begin recognition of revenue until the energy storage system is live (i.e., provision of energy optimization services has commenced)
or, as it relates to incentive payments, when approval has been received from the utility company if later.
Partnership Arrangements
Partnership arrangements consist
of promises to transfer inventory in the form of an energy storage system to a solar plus storage project developer and separately provide
energy optimization services as described previously to the ultimate owner of the project after the developer completes the installation
of the project. Under partnership arrangements, the Company’s customer is the solar plus storage project developer. The customer
obtains legal title to along with ownership and control of the inventory upon delivery and the customer is responsible for the installation
of the project. Once installation of the project is complete, the owner of the solar plus storage project provides energy to the end
consumer through a separate contractual arrangement directly with the end consumer. The term for the Company’s contracts with customers
under partnership arrangements generally ranges from 10 to 20 years.
The Company determined the promise
to deliver the inventory as a component of the solar plus storage project for which the customer is responsible to develop is a separate
and distinct performance obligation from the promise to provide energy optimization services.
The Company determines the transaction
price at the outset of the arrangement, primarily based on the contractual payment terms dictated by the contract with the customer.
Fees charged for the sale of inventory generally consist of fixed fees payable upon or shortly after successful delivery to the customer.
Fees charged to customers for energy optimization services consist of recurring fixed monthly payments throughout the term of the contract.
The Company is responsible for designing, procuring, delivering and ensuring the proper components are provided in accordance with the
requirements of the contract. Although the inventory is purchased by the Company from a third-party manufacturer, the Company determined
it obtains control of the inventory prior to delivery to the customer and is the principal in the arrangement. The Company is fully responsible
for responding to and correcting any customer issues related to the delivery of the inventory. The Company holds title and assumes all
risks of loss associated with the inventory until the customer accepts the inventory. The Company is primarily responsible for fulfilling
the delivery of the inventory to the customer, assumes substantial inventory risks and has discretion in the pricing charged to the customer.
The Company has not entered into any partnership arrangements where it is not the principal in the transaction.
STEM, INC.
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(UNAUDITED)
The Company allocates revenue
between the hardware and energy storage services performance obligations based on the standalone selling price of each performance obligation.
The standalone selling price for the hardware is established based on observable pricing. The standalone selling price for the energy
optimization services is established using a residual value approach due to the significant variability in the services provided to each
individual customer based on the specific requirements of each individual project and the lack of observable standalone sales of such
services. The Company’s partnership arrangements do not contain a significant financing component.
The Company transfers control
of the inventory upon delivery and simultaneous transfer of title to the customer. The Company transfers control of its energy optimization
services to its customers continuously throughout the term of the contract (a stand-ready obligation), which does not commence until
the customer successfully completes the installation of the project. As a result, the time frame between when the Company transfers control
of the inventory to the customer upon delivery is generally several months, and can be in excess of one year, before the Company is required
to perform any subsequent energy optimization services. Revenue is recognized ratably as control of these services is transferred to
its customers based on a time-based output measure of progress of days elapsed over the term of the contract, in an amount that reflects
the consideration the Company expects to be entitled to in exchange for its services.
In some partnership arrangements,
the Company charges shipping fees for the inventory. The Company accounts for shipping as a fulfillment activity, since control transfers
to the customer after the shipping is complete and includes such amounts within cost of revenue.
Disaggregation of Revenue
The following table provides
information on the disaggregation of revenue as recorded in the consolidated statements of operations (in thousands):
|
|
|
Three
Months Ended
June 30,
|
|
|
Six
Months Ended
June 30,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
Partnership hardware revenue
|
|
$
|
14,184
|
|
|
$
|
709
|
|
|
$
|
24,723
|
|
|
$
|
1,427
|
|
|
Partnership service revenue
|
|
|
42
|
|
|
|
—
|
|
|
|
79
|
|
|
|
—
|
|
|
Host customer service revenue
|
|
|
5,111
|
|
|
|
3,670
|
|
|
|
9,956
|
|
|
|
7,062
|
|
|
Total revenue
|
|
$
|
19,337
|
|
|
$
|
4,379
|
|
|
$
|
34,758
|
|
|
$
|
8,489
|
|
Remaining Performance Obligations
Remaining performance obligations
represent contracted revenue that has not been recognized, which include contract liabilities (deferred revenue) and amounts that will
be billed and recognized as revenue in future periods. As of June 30, 2021, the Company had $189.8 million of remaining performance
obligations, and the approximate percentages expected to be recognized as revenue in the future are as follows (in thousands):
|
|
|
|
|
|
Percent
Expected to be Recognized as Revenue
|
|
|
|
|
Total
remaining
performance
obligations
|
|
|
Less
than
one year
|
|
|
Two
to
five years
|
|
|
Greater
than
five year
|
|
|
(in
thousands, except percentages)
|
|
Service
revenue
|
|
$
|
130,564
|
|
|
|
13
|
%
|
|
|
50
|
%
|
|
|
37
|
%
|
|
Hardware
revenue
|
|
|
59,238
|
|
|
|
100
|
%
|
|
|
—
|
%
|
|
|
—
|
%
|
|
Total
revenue
|
|
$
|
189,802
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STEM, INC.
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(UNAUDITED)
Contract Balances
Deferred revenue primarily includes
cash received in advance of revenue recognition related to energy optimization services and incentives. The following table presents
the changes in the deferred revenue balance during the six months ended June 30, 2021 (in thousands):
|
Beginning balance as of January 1, 2021
|
|
$
|
52,410
|
|
|
Upfront payments received from customers
|
|
|
25,146
|
|
|
Upfront or annual incentive payments received
|
|
|
2,959
|
|
|
Revenue recognized related to amounts that were
included in beginning balance of deferred revenue
|
|
|
(19,457
|
)
|
|
Revenue recognized related
to deferred revenue generated during the period
|
|
|
(5,354
|
)
|
|
Ending balance as of June 30, 2021
|
|
$
|
55,704
|
|
|
|
4.
|
FAIR VALUE MEASUREMENTS
|
Fair value accounting is applied
for all financial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring basis.
At June 30, 2021 and December 31, 2020, the carrying amount of accounts receivable, other current assets, other assets, accounts
payable, and accrued and other current liabilities approximated their estimated fair value due to their relatively short maturities.
The following table provides
the financial instruments measured at fair value (in thousands):
|
|
|
June
30, 2021
|
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market fund
|
|
$
|
225,795
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
225,795
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Public warrant liability
|
|
$
|
303,798
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
303,798
|
|
|
|
|
December 31, 2020
|
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market fund
|
|
$
|
67
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
67
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible preferred stock
warrant liability
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
95,342
|
|
|
$
|
95,342
|
|
The Company’s money market
funds are classified as Level 1 because they are valued using quoted market prices. The convertible preferred stock warrant liabilities
are defined as Level 3 in the fair value hierarchy as the valuations are based on significant unobservable inputs, which reflect the
Company’s own assumptions incorporated in valuation techniques used to determine fair value; further discussion of these assumptions
is set forth below. There were no transfers into or out of Level 3 of the fair value hierarchy during the periods presented.
Convertible Preferred Stock Warrant Liabilities
As discussed in Note 8, upon
effectiveness of the Merger, substantially all of the outstanding convertible preferred stock warrants were converted into shares of
Class A common stock of Stem. As such, the associated warrant liability was reclassified to additional paid-in-capital upon the Merger
and was no longer an outstanding Level 3 financial instrument as of June 30, 2021. The fair value of the convertible preferred stock
warrants as of June 30, 2020 was determined using the Black-Scholes method as well as a discount for lack of marketability. Black-Scholes
inputs used to value the warrants are based on information from purchase agreements and within valuation reports prepared by an independent
third party for the Company. Inputs include exercise price, volatility, fair value of common or preferred stock, expected dividend rate
and risk-free interest rate.
STEM,
INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The key assumptions used for
the valuation of the preferred stock warrant liabilities upon remeasurement were as follows:
|
|
|
Six
Months Ended
June 30,
|
|
|
|
|
2020
|
|
|
Volatility
|
|
|
75.0
|
%
|
|
Risk-free interest rate
|
|
|
16.0
|
%
|
|
Expected term (in years)
|
|
|
2.0
|
|
|
Dividend yield
|
|
|
—
|
%
|
|
Discount for lack of marketability
|
|
|
19.3
|
%
|
The following table presents
the changes in the liability for warrants on convertible preferred stock during the six months ended June 30, 2021 (in thousands):
|
|
|
Convertible Warrant
Stock Liability
|
|
|
Balance as of December 31, 2020
|
|
$
|
95,342
|
|
|
Changes in estimated fair value
|
|
|
133,577
|
|
|
Assumption of warrant liability upon Merger
|
|
|
303,221
|
|
|
Conversion of warrants upon Merger
|
|
|
(59,442
|
)
|
|
Exchange of warrants
|
|
|
(168,647
|
)
|
|
Exercised warrants
|
|
|
(253
|
)
|
|
Balance as of June 30, 2021
|
|
$
|
303,798
|
|
|
|
5.
|
ENERGY STORAGE SYSTEMS, NET
|
Energy Storage Systems, Net
Energy storage systems, net, consists of the
following (in thousands):
|
|
|
June 30, 2021
|
|
|
Energy storage systems placed into service
|
|
$
|
144,754
|
|
|
Less: accumulated depreciation
|
|
|
(39,848
|
)
|
|
Energy storage systems not yet placed into service
|
|
|
13,310
|
|
|
Total energy storage systems, net
|
|
$
|
118,216
|
|
Depreciation expense for energy
storage systems was approximately $3.6 million and $3.4 million within cost of service revenue for the three months ended June 30,
2021 and 2020, respectively, and approximately $7.3 million and $5.7 million within cost of service revenue for the six months
ended June 30, 2021 and 2020, respectively.
Revolving Loan Due to SPE Member
In April 2017, the Company entered
into a revolving loan agreement with an affiliate of a member of certain of the Company’s special purpose entities (“SPE”).
This agreement was, from time to time, subsequently amended. The purpose of this revolving loan agreement was to finance the Company’s
purchase of hardware for its various energy storage system projects. As of the beginning of 2020, the agreement had a total revolving
loan capacity of $45.0 million that bore fixed interest at 10% with a maturity date of June 2020.
STEM,
INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
In May 2020, concurrent with
the 2020 Credit Agreement discussed below, the Company entered into an amendment to the revolving loan agreement, which reduced the loan
capacity to $35.0 million and extended the maturity date to May 2021. The amendment increased the fixed interest rate for any borrowings
outstanding more than nine months to 14% thereafter. Additionally, under the original terms of the revolving loan agreement, the Company
was able to finance 100% of the value of the hardware purchased up to the total loan capacity. The amendment reduced the advance rate
to 85%, with an additional reduction to 70% in August 2020. The amendment was accounted for as a modification of the debt, which did
not have a material impact on the condensed consolidated financial statements. As of December 31, 2020, the Company had $7.4 million
outstanding under the revolving loan agreement. In April 2021, the Company repaid the remaining outstanding balance of this facility
with the proceeds received from the Merger. The facility was terminated after the repayment in April 2021.
Term Loan Due to SPE Member
In December 2018, the Company
entered into a term loan in the amount of $13.3 million with an affiliate of a member of certain SPEs with the Company. As of the beginning
of 2020, the term loan bore fixed interest of 12.5% on the outstanding principal balance with a final balloon payment of $3.0 million
due at the maturity date of June 30, 2020. In May 2020, the Company repaid the remaining outstanding balance of $5.9 million with the
proceeds received through the 2020 Credit Agreement discussed below.
Term Loan Due to Former Non-Controlling Interest
Holder
In June 2018, the Company acquired
the outstanding member interests of an entity controlled by the Company for $8.1 million. The Company financed this acquisition by entering
into a term loan agreement with the noncontrolling member bearing fixed interest of 4.5% per quarter (18.0% per annum) on the outstanding
principal balance. The loan required fixed quarterly payments throughout the term of the loan, which was scheduled to be paid in full
by April 1, 2026.
In May 2020, the Company amended
the term loan and, using the proceeds from the 2020 Credit Agreement discussed below, prepaid $1.5 million of principal and interest
on the note, of which $1.0 million was towards the outstanding principal balance, thereby reducing the fixed quarterly payment due to
the lender. In relation to this amendment, the Company was required to issue warrants for 400,000 shares of common stock resulting in
a discount to the term loan of $0.2 million. As of December 31, 2020, the outstanding balance was $5.8 million. In
April 2021, the Company repaid the remaining outstanding balance of this facility with the proceeds received from the Merger. Upon prepayment
of this facility, the Company incurred $2.6 million in prepayment penalties that were recorded to loss on extinguishment of debt
in the Company’s statement of operations. The facility was terminated after the repayment in April 2021.
2020 Credit Agreement
In May 2020, the Company entered
into a credit agreement (“2020 Credit Agreement”) with a new lender that provided the Company with proceeds of $25.0 million
to provide the Company with access to working capital towards the purchase of energy storage system equipment. The 2020 Credit Agreement
has a maturity date of the earlier of (1) May 2021, (2) the maturity date of the revolving loan agreement, or (3) the maturity date of
the convertible promissory notes discussed below. The loan bore interest of 12% per annum, of which 8% was paid in cash and 4% added
back to principal of the loan balance every quarter. The Company used a portion of the proceeds towards payments associated with existing
debt as previously discussed. As of December 31, 2020, the outstanding balance was $25.6 million. In
April 2021, the Company repaid the remaining outstanding balance of this facility with the proceeds received from the Merger. Upon prepayment
of this facility, the Company incurred $1.4 million in prepayment penalties that were recorded to loss on extinguishment of debt
in the Company’s statement of operations. The facility was terminated after the repayment in April 2021.
2021 Credit Agreement
In January 2021, the Company,
through a wholly owned Canadian entity, entered into a credit agreement to provide a total of $2.7 million towards the financing
of certain energy storage systems. The credit agreement is structured on a non-recourse basis and the system will be operated by the
Company. The credit agreement has a stated interest of 5.45% and a maturity date of June 2031. The Company 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 the Company through the operation of the underlying energy storage systems. As of June 30,
2021, and December 31, 2020, the outstanding balance was $1.8 million and zero, respectively. The Company was in compliance with
all covenants associated with the 2021 Credit Agreement as of June 30, 2021.
STEM,
INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The Company’s outstanding
debt consisted of the following as of June 30, 2021 (in thousands):
|
|
|
6/30/2021
|
|
|
Outstanding principal
|
|
$
|
1,951
|
|
|
Unamortized discount
|
|
|
(232
|
)
|
|
Carrying value of debt
|
|
$
|
1,719
|
|
|
|
7.
|
CONVERTIBLE PROMISSORY
NOTES
|
As of December 31, 2020,
the Company had various convertible notes outstanding to investors. The Company refers to the collective group of all such note instruments
as the “Convertible Promissory Notes”. As of December 31, 2020, these Convertible Promissory Notes had a balance of
$67.6 million. During the six months ended June 30, 2021, the Company issued additional Convertible Promissory Notes. The details
of the convertible notes issued are set forth below. As of June 30, 2021, there were no Convertible Promissory Notes outstanding due
to their conversion and cancellation upon the Merger.
Q1 2021 Convertible Notes
In January 2021, the Company
issued and sold convertible promissory notes (the “Q1 2021 Convertible Notes”) under the same terms as the existing Convertible
Promissory Notes to various investors with aggregate gross proceeds of $1.1 million. The Company evaluated the conversion option
within the Q1 2021 Convertible Notes and determined the effective conversion price was beneficial to the note holders. As such, the Company
recorded a beneficial conversion feature (“BCF”) related to the issuance of the Q1 2021 Convertible Notes based on the difference
between the effective conversion rate and the fair value of the stock into which it was convertible, limited by the amount of the aggregate
gross proceeds. The BCF resulted in a $1.1 million discount to the Q1 2021 Convertible Notes with an increase to additional paid
in capital. The Company accreted the discount in connection with the BCF as interest expense over the term of the Q1 2021 Convertible
Notes using the effective interest rate method.
Conversion and Cancellation of Convertible Promissory
Notes Upon Merger
Immediately prior to the effectiveness
of the Merger, the entire balance of the Company’s outstanding Convertible Promissory Notes issued by Legacy Stem automatically
converted into shares of Legacy Stem Common Stock. Upon the effectiveness of the Merger, these shares of Legacy Stem Common Stock automatically
converted into 10,921,548 shares of Class A common stock of Stem. The balance associated with the outstanding Convertible Promissory
Notes totaling $77.7 million, including $7.7 million of interest accrued on the notes through the date of Merger, was reclassified
to additional paid-in-capital. The unamortized portion of the debt discount associated with the outstanding Q1 2021 Convertible Notes
totaling $1.1 million was fully expensed to loss on extinguishment of debt on the Company’s statement of operations.
Legacy Stem Warrants
Since inception the Company has
issued warrants to purchase shares of Legacy Stem’s preferred stock in conjunction with various debt financings. See Note 4 for
further information regarding fair value measurements associated with the resulting warrant liabilities, which are remeasured on a recurring
basis each period. The Company has also issued warrants to purchase shares of Legacy Stem’s common stock. Upon effectiveness of
the Merger, the Company had 50,207,439 warrants outstanding, of which substantially all were converted into 2,759,970 shares of Class
A common stock of Stem. Upon conversion of the warrants, the existing warrant liabilities were remeasured to fair value resulting in
a gain on remeasurement of $100.9 million and a total warrant liability of $60.6 million, which was then reclassified to additional paid-in-capital.
As of June 30, 2021, there were 23,634 Legacy Stem Warrants that remain outstanding. These instruments are exercisable into the Company’s
Class A common stock and are equity classified.
STEM,
INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Public Warrants and Private Placement Warrants
As part of STPK’s initial
public offering on August 20, 2020, prior to the effectiveness of the Merger, STPK issued 12,786,168 warrants each of which entitles
the holder to purchase one share of Class A common stock at an exercise price of $11.50 per share (the “Public Warrants”).
Simultaneously with the closing of the IPO, STPK completed the private sale of 7,181,134 million warrants to STPK’s sponsor (the
“Private Warrants”). Upon issuance, these warrants met the criteria for liability classification. Upon the effectiveness
of the Merger, Stem assumed the outstanding Public Warrants and Private Warrants, which continued to meet the criteria for liability
classification, resulting in assumed warrant liabilities of $185.9 million and $118.4 million, respectively, or a total warrant liability
of $304.3 million.
On June 25, 2021, the Company
entered into an exchange agreement (the “Exchange Agreement”) with the holders of the 7,181,134 outstanding Private Placement
Warrants, pursuant to which such holders received 4,683,349 shares of the Company’s common stock on June 30, 2021, in exchange
for the cancellation of the outstanding Private Placement Warrants. Immediately prior to the exchange, the Private Warrants were marked
to fair value, resulting in a loss of $52.0 million. As a result of the Exchange Agreement, there were no Private Warrants outstanding
as of June 30, 2021.
Warrants Issued for Services
On April 7, 2021, the Company
entered into a strategic relationship with an existing shareholder not deemed to be a related party to jointly explore on a non-exclusive
basis possible business opportunities to advance projects in the United States, United Kingdom, Europe and Asia. As consideration for
the strategic relationship, upon closing of the Merger, the Company issued warrants to purchase 350,000 shares of the Company’s
common stock at an exercise price of $0.01 per share. These warrants were deemed to have been fully earned as of the grant date. The
warrants were valued at fair market value as of the grant date totaling $9.2 million and recorded to general and administrative expense
in the Company’s statement of operations. In May 2021, these warrants were exercised for shares of the Company’s common stock.
The Company had reserved shares
of common stock for issuance as follows:
|
|
|
June 30,
2021
|
|
|
Shares reserved for warrants
|
|
|
12,809,802
|
|
|
Options issued and outstanding
|
|
|
10,357,133
|
|
|
Shares available for future issuance under equity
incentive plan
|
|
|
23,016,754
|
|
|
Total
|
|
|
46,183,689
|
|
|
|
10.
|
STOCK-BASED COMPENSATION
|
Under the Company’s 2009
Equity Incentive Plan (the “2009 Plan”), incentive stock options (ISOs), nonqualified stock options (NSOs), stock bonuses,
and rights to acquire restricted stock are available for grant to employees, directors and consultants. At June 30, 2021, 9,647,780 stock
options outstanding under the 2009 Plan and zero shares were available for future grant. In May 2021, the Company issued stock options
under the Stem Inc 2021 Equity Incentive Plan (the “2021 Plan”), with 23,722,254 shares reserved thereunder.
Under both the 2009 Plan and
the 2021 Plan (collectively, the “Plans”), the exercise price of an option cannot be less than 100% of the fair value of
one share of common stock for incentive or non-qualified stock options, and not less than 110% of the fair value for stockholders owning
greater than 10% of all classes of stock, as determined by the Company’s Board of Directors (the “Board”). Options
under the Plans generally expire after 10 years. Under the Plans, the Compensation Committee of the Board determines when the options
granted will become exercisable. Options granted under the Plans generally vest 1/4 one year from the grant date and then 1/48 each month
over the following three years and are exercisable for 10 years from the date of the grant. The Plans allow for exercise of unvested
options with repurchase rights over the restricted common stock issued at the original exercise price. The repurchase rights lapse at
the same rate as the options vest.
STEM,
INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
A summary of activity under the
Plans is as follows:
|
|
|
Number
of
Options
Outstanding
|
|
|
Weighted-
Average
Exercise
Price
Per
Share
|
|
|
Weighted-
Average
Remaining
Contractual
Life
(years)
|
|
|
Aggregate
Intrinsic
Value
(in
thousands)
|
|
|
Balances as of December 31, 2020
|
|
|
51,379,939
|
|
|
$
|
0.56
|
|
|
|
7.2
|
|
|
$
|
46,516
|
|
|
Retroactive application
of recapitalization
|
|
|
(40,314,281
|
)
|
|
|
2.05
|
|
|
|
—
|
|
|
|
—
|
|
|
Adjusted Balance as of December 31, 2020
|
|
|
11,065,658
|
|
|
|
2.61
|
|
|
|
7.2
|
|
|
|
46,516
|
|
|
Options granted
|
|
|
709,448
|
|
|
|
25.53
|
|
|
|
|
|
|
|
|
|
|
Options exercised
|
|
|
(1,402,538
|
)
|
|
|
1.97
|
|
|
|
|
|
|
|
|
|
|
Options forfeited
|
|
|
(15,435
|
)
|
|
|
2.25
|
|
|
|
|
|
|
|
|
|
|
Balances as of June 30, 2021
|
|
|
10,357,133
|
|
|
$
|
4.27
|
|
|
|
7.0
|
|
|
$
|
328,644
|
|
|
Options
vested and exercisable — June 30, 2021
|
|
|
7,273,421
|
|
|
$
|
2.15
|
|
|
|
6.2
|
|
|
$
|
247,154
|
|
The weighted-average grant date
fair value of stock options granted to employees was $16.84 during the six months ended June 30, 2021. There were 2,354,515 stock
options granted during the six months ended June 30, 2020. The intrinsic value of options exercised was $47.6 million and less than
$0.1 million during the six months ended June 30, 2021 and 2020, respectively.
Stock-Based Compensation
The following
table summarizes stock-based compensation expense recorded in each component of operating expenses in the Company’s consolidated
statements of operations and comprehensive loss (in thousands):
|
|
|
Three
Months Ended
June 30,
|
|
|
Six
Months Ended
June 30,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
Sales and marketing
|
|
$
|
168
|
|
|
$
|
150
|
|
|
$
|
252
|
|
|
$
|
220
|
|
|
Research and development
|
|
|
264
|
|
|
|
301
|
|
|
|
419
|
|
|
|
486
|
|
|
General and administrative
|
|
|
592
|
|
|
|
25
|
|
|
|
1,113
|
|
|
|
226
|
|
|
Total stock-based compensation
expense
|
|
$
|
1,024
|
|
|
$
|
476
|
|
|
$
|
1,784
|
|
|
$
|
932
|
|
As of June 30, 2021, the
Company had approximately $17.9 million of remaining unrecognized stock-based compensation expense, which is expected to be recognized
over a weighted average period of 3.6 years.
The following table sets forth
the computation of basic and diluted net loss per share attributable to common stockholders (in thousands, except share and per share
amounts):
|
|
|
Three
Months Ended
June 30,
|
|
|
Six
Months Ended
June 30,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to common stockholders
|
|
$
|
(100,216
|
)
|
|
$
|
(18,981)
|
|
|
$
|
(182,769
|
)
|
|
$
|
(36,452
|
)
|
|
Less: Deemed dividend
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(9,484
|
)
|
|
|
|
$
|
(100,216
|
)
|
|
$
|
(18,981
|
)
|
|
$
|
(182,769
|
)
|
|
$
|
(45,936
|
)
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average
number of shares outstanding used to compute net loss per share attributable to common stockholders, basic and diluted
|
|
|
100,611,965
|
|
|
|
39,801,379
|
|
|
|
70,684,750
|
|
|
|
40,209,877
|
|
|
Net loss
per share attributable to common stockholders, basic and diluted
|
|
$
|
(1.00
|
)
|
|
$
|
(0.48
|
)
|
|
$
|
(2.59
|
)
|
|
$
|
(1.14
|
)
|
STEM,
INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The following potentially dilutive
shares were not included in the calculation of diluted shares outstanding for the periods presented as the effect would have been anti-dilutive:
|
|
|
June
30, 2021
|
|
|
June
30, 2020
|
|
|
Convertible promissory notes
|
|
|
—
|
|
|
|
7,473,946
|
|
|
Outstanding stock options
|
|
|
10,357,133
|
|
|
|
9,585,364
|
|
|
Outstanding warrants
|
|
|
12,809,802
|
|
|
|
9,842,181
|
|
|
Total
|
|
|
23,166,935
|
|
|
|
26,901,491
|
|
The Company did not record a
provision or benefit for income taxes during the six months ended June 30, 2021 and 2020. The Company continues to maintain a full
valuation allowance for its net U.S. federal and state deferred tax assets.
|
|
13.
|
COMMITMENTS AND CONTINGENCIES
|
Contingencies
The Company is party to various
legal proceedings from time to time. A liability is accrued when a loss is both probable and can be reasonably estimated. Management
believes that the probability of a material loss with respect to any currently pending legal proceeding is remote. However, litigation
is inherently uncertain and it is not possible to definitively predict the ultimate disposition of any of these proceedings. The Company
believes there is no current litigation pending or loss contingencies that could have, either individually or in the aggregate, a material
adverse impact on the Company’s consolidated financial statements.
Commitments
In June 2021, the Company entered
into a lease agreement for office space in San Francisco, California. The lease has a term of approximately 7.7 years and is expected
to commence in the third quarter of 2021. Total lease payments are estimated to be $15.2 million over the lease term.
Management has evaluated subsequent
events through August 11, 2021, the date the condensed consolidated financial statements were available for issuance, and has determined
that there are no subsequent events that require disclosure.
ITEM 2. 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 together with our unaudited condensed
consolidated financial statements and related notes included under Part I, Item 1 of this Quarterly Report on Form 10-Q. This discussion
and analysis should also be read together with our audited consolidated financial statements as of December 31, 2020 and 2019 and for
the years ended December 31, 2020 and 2019 (“Annual Financial Statements”) and the section entitled “Stem’s Management’s
Discussion and Analysis of Financial Condition and Results or Operations” contained in our Form S-1 filed with the SEC on July
19, 2021.You should carefully read the sections entitled “Special Note Regarding Forward-Looking Statements” and “Risk
Factors” to gain an understanding of the important factors that could cause actual results to differ materially from our forward-looking
statements. Throughout this section, unless otherwise noted “we”, “us”, “our” and the “Company”
refer to Stem and its consolidated subsidiaries.
Star Peak Acquisition Corp. Merger
On April 28,
2021, Star Peak Energy Transition Corp. (“STPK”), an entity listed on the New York Stock Exchange under the trade symbol
“STPK”, acquired Stem, Inc. (“Legacy Stem”), by the merger of STPK Merger Sub Corp., a Delaware corporation and
wholly-owned subsidiary of STPK (“Merger Sub”), with and into Legacy Stem, with Legacy Stem continuing as the surviving entity
and a wholly-owned subsidiary of STPK (the “Merger”). The public company resulting from the Merger was renamed Stem, Inc.,
which we refer to as “Stem”, “we”, “us”, “our”, or the Company, and is listed on the
New York Stock Exchange under the trade symbol “STEM”. Upon the consummation of the Merger, Stem received approximately $550.3
million, net of fees and expenses. See Note 1 in the accompanying condensed consolidated financial statements for additional details
regarding this transaction. For financial reporting purposes, Legacy Stem is treated as the accounting acquirer.
Overview
Our mission
is to build and operate the largest, digitally connected, intelligent energy storage network for our customers. In order to fulfill our
mission, (i) 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 an energy storage system, sourced from leading, global
battery original equipment manufacturers (“OEMs”), that we deliver through our partners, including solar project developers
and engineering, procurement and construction firms and (ii) through our Athena artificial intelligence (“AI”) platform (“Athena”),
we provide our customers with on-going software-enabled services to operate the energy storage systems for 10 to 20 years. In addition,
in all the markets where we operate our customers’ systems, we have agreements to manage the energy storage systems using the Athena
platform to participate in energy 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”).
An energy system’s position in relation to a customer’s electric meter determines whether it is designated a BTM or FTM system.
BTM systems provide power that can be used on-site without interacting with the electric grid and passing through an electric meter.
Our BTM systems reduce C&I customer energy bills and help our customers facilitate the achievement of their corporate environmental,
social, and corporate governance (“ESG”) objectives. FTM, grid-connected systems provide power to off-site locations and
must pass through an electric meter prior to reaching an end-user. Our FTM 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.
Since our inception
in 2009, we have engaged in developing and marketing Athena’s software enabled services, raising capital, and recruiting personnel.
We have incurred net operating losses and negative cash flows from operations each year since our inception. We have financed our operations
primarily through the issuance of convertible preferred stock, debt financing, and cash flows from customers.
Our total revenue
grew from $4.4 million for the three months ended June 30, 2020 to $19.3 million for the three months ended June 30,
2021. For the three months ended June 30, 2021 and 2020, we incurred net losses of $100.2 million and $19.0 million, respectively.
Our total revenue grew from $8.5 million for the six months ended June 30, 2020 to $34.8 million for the six months ended
June 30, 2021. For the six months ended June 30, 2021 and 2020, we incurred net losses of $182.8 million and $36.5 million,
respectively. As of June 30, 2021, we had an accumulated deficit of $590.6 million.
We expect that
our sales and marketing, research and development, regulatory and other expenses will continue to increase as we expand our marketing
efforts to increase sales of our solutions, expand existing relationships with our customers, and obtain regulatory clearances or approvals
for future product enhancements. In addition, we expect our general and administrative costs and expenses to increase due to the additional
costs associated with scaling our business operations as well as being a public company, including legal, accounting, insurance, exchange
listing and SEC compliance, investor relations and other costs and expenses.
Some Key Factors, Trends and
Risks Affecting our Business
We believe
that our performance and future success depend on several factors that present significant opportunities for us but also pose risks and
challenges, including but not limited to:
Decline in Lithium-Ion Battery
Costs
Our revenue
growth is directly tied to the continued adoption of energy storage systems by our customers. The cost of lithium ion energy storage
hardware has declined significantly in the last decade and has resulted in a large addressable market today. The market for energy storage
is rapidly evolving, and while we believe costs will continue to decline, there is no guarantee. If costs do not continue to decline,
or do not decline as quickly as we anticipate, this could adversely affect our ability to increase our revenue and grow our business.
Increase in Deployment of
Renewables
Deployment
of intermittent resources has accelerated over the last decade, and today, wind and solar have become a low cost fuel source. We expect
the cost of generating renewable energy to continue to decline and deployments of energy storage systems to increase. As renewable energy
sources of energy production are expected to represent a larger proportion of energy generation, grid instability rises due to their
intermittency, which can be addressed by energy storage solutions.
Competition
We are currently
a market leader in terms of capacity of energy storage under management. We intend to expand our market share over time by leveraging
the network effect of Athena’s AI infrastructure. Existing competitors may expand their product offerings and sales strategies,
and new competitors may enter the market. Furthermore, our competitors include other types of software providers and some hardware manufacturers
that offer software solutions. If our market share declines due to increased competition, our revenue and ability to generate profits
in the future may be adversely affected.
Government Regulation and
Compliance
Although we
are not regulated as a utility, the market for our product and services is heavily influenced by federal, state, and local government
statutes and regulations concerning electricity. These statutes and regulations affect electricity pricing, net metering, incentives,
taxation, competition with utilities, and the interconnection of customer-owned electricity generation. In the United States and internationally,
governments continuously modify these statutes and regulations and acting through state utility or public service commissions, regularly
change and adopt different rates for commercial customers. These changes can positively or negatively affect our ability to deliver cost
savings to customers.
Impact of COVID-19
In March 2020,
the World Health Organization declared the outbreak of the novel coronavirus disease (“COVID-19”) as a pandemic, adversely
impacting global commercial activity and greatly disrupting supply chains and the manufacturing, delivery and installation of energy
storage systems worldwide. As a result, we adjusted certain aspects of our operations to protect our employees and customers while still
meeting customers’ needs for vital technology. Government and business responses to COVID-19, along with the rise of the COVID-19
Delta variant and resurgence of related disruptions, could have a continued material adverse impact on economic and market conditions
and trigger a period of continued global economic slowdown. The continued uncertainty and fluidity of this situation precludes any predication
as to the extent and duration of the economic impact of COVID-19. Government and business responses to COVID-19 and the Delta variant
therefore present material uncertainty and risk with respect to the Company and its performance and could materially and adversely affect
our business, financial condition, and results of operations.
In particular,
we cannot predict the full impact the pandemic will have on the demand for our services, our sales cycles or installation timelines,
the collections of accounts receivable, or spending by new customers. Furthermore, we cannot predict whether the pandemic will cause
further customers to go out of business or continue to limit the ability of our direct sales force to travel to existing or potential
customers, all of which could adversely affect our business, financial condition and results of operations. In addition, if supply chains
become significantly disrupted due to additional outbreaks of the COVID-19 virus and the Delta variant or otherwise, or government and
business responses including implementation of stringent health and safety guidelines, our ability to install and service energy systems
could become adversely impacted.
Non-GAAP Financial Measures
In addition
to our results determined in accordance with 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 future prospects, develop internal
budgets and financial goals, and to facilitate period-to-period comparisons. Our management believes that these non-GAAP financial measures
provide meaningful supplemental information regarding our performance and liquidity by excluding certain expenses and expenditures that
may not be indicative of our operating performance, such as stock-based compensation and other non-cash charges, as well as discrete
cash charges that are infrequent in nature. We believe that both management and investors benefit from referring to these non-GAAP financial
measures in assessing our performance and when planning, forecasting, and analyzing future periods. These non-GAAP financial measures
also facilitate management’s internal comparisons to our historical performance and liquidity as well as comparisons to our competitors’
operating results. We believe these non-GAAP financial measures are useful to investors both because they (1) allow for greater transparency
with respect to key metrics used by management in its financial and operational decision making and (2) are used by our institutional
investors and the analyst community to help them analyze the health of our business.
Non-GAAP
gross margin
We define non-GAAP
gross margin as gross margin excluding amortization of capitalized software, impairments related to decommissioning of end-of-life systems,
and certain operating expenses including communication and cloud services expenditures reclassified to cost of revenue.
The following table provides a reconciliation of
gross margin (GAAP) to non-GAAP gross margin ($ in millions):
|
|
|
Three
Months Ended June 30,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
Revenue
|
|
$
|
19.3
|
|
|
$
|
4.4
|
|
|
Cost of revenue
|
|
|
(19.4
|
)
|
|
|
(6.1
|
)
|
|
Gross Margin (GAAP)
|
|
|
(0.1
|
)
|
|
|
(1.7
|
)
|
|
Gross Margin % (GAAP)
|
|
|
(1
|
)%
|
|
|
(40
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments to Gross Margin:
|
|
|
|
|
|
|
|
|
|
Amortization of Capitalized Software
|
|
|
1.3
|
|
|
|
0.9
|
|
|
Impairments
|
|
|
0.3
|
|
|
|
1.1
|
|
|
Other Adjustments (1)
|
|
|
0.6
|
|
|
|
(0.1
|
)
|
|
Non-GAAP Gross Margin
|
|
$
|
2.1
|
|
|
$
|
0.2
|
|
|
Non-GAAP Gross Margin %
|
|
|
11
|
%
|
|
|
5
|
%
|
(1)
Consists of certain operating expenses classified to cost of revenue for accounting purposes.
Adjusted EBITDA
We believe
that Adjusted EBITDA is useful for investors to use in comparing our financial performance with the performance of other companies for
the following reasons:
|
●
|
Adjusted EBITDA is widely used by investors and securities analysts
to measure a company’s operating performance without regard to items such as stock-based compensation expense, depreciation and
interest expense, which can vary substantially from company to company depending upon their financing and capital structures, and the
method by which assets were acquired; and
|
|
●
|
Adjusted EBITDA provides consistency and comparability with
our past financial performance, and facilitates comparisons with other companies, many of which use similar non-GAAP financial measures
to supplement their GAAP results.
|
|
|
Our use of Adjusted EBITDA has limitations as an analytical tool, and you should not consider this
measure in isolation or as a substitute for analysis of our financial results as reported under GAAP. Some of these limitations are
as follows:
|
|
●
|
Although depreciation expense is a non-cash charge, the assets
being depreciated may have to be replaced in the future. Adjusted EBITDA does not reflect cash capital expenditure requirements for such
replacements or for new capital expenditure requirements;
|
|
●
|
Adjusted EBITDA excludes stock-based compensation expense, which
has been, and will continue to be for the foreseeable future, a significant recurring expense for our business and an important part
of our compensation strategy;
|
|
●
|
Adjusted EBITDA does not reflect: (1) changes in, or cash requirements
for, our working capital needs; (2) interest expense, or the cash requirements necessary to service interest or principal payments on
our debt, which reduces cash available to us; or (3) tax payments that may represent a reduction in cash available to us; and
|
|
●
|
The expenses and other items that we exclude in our calculation
of Adjusted EBITDA may differ from the expenses and other items, if any, that other companies may exclude from Adjusted EBITDA when they
report their operating results.
|
Because of these limitations,
Adjusted EBITDA should be considered along with other operating and financial performance measures presented in accordance with GAAP.
We define Adjusted
EBITDA as net loss before depreciation and amortization, including amortization of internally developed software, net interest expense,
further adjusted to exclude stock-based compensation and other income and expense items, including the change in fair value of warrants
and embedded derivatives, vesting of warrants and loss on extinguishment of debt.
The following table provides a reconciliation
of net loss to Adjusted EBITDA:
|
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
|
|
(in thousands)
|
|
|
(in thousands)
|
|
|
Net loss
|
|
$
|
(100,216
|
)
|
|
$
|
(18,981
|
)
|
|
$
|
(182,769
|
)
|
|
$
|
(36,452
|
)
|
|
Adjusted to exclude the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
5,236
|
|
|
|
3,924
|
|
|
|
10,315
|
|
|
|
7,918
|
|
|
Interest expense
|
|
|
3,929
|
|
|
|
5,192
|
|
|
|
10,162
|
|
|
|
9,561
|
|
|
Loss on extinguishment of debt
|
|
|
5,064
|
|
|
|
—
|
|
|
|
5,064
|
|
|
|
—
|
|
|
Stock-based compensation
|
|
|
1,024
|
|
|
|
476
|
|
|
|
1,784
|
|
|
|
932
|
|
|
Vesting of warrants
|
|
|
9,184
|
|
|
|
—
|
|
|
|
9,184
|
|
|
|
—
|
|
|
Change in fair value of warrants and embedded derivative
|
|
|
67,179
|
|
|
|
1,918
|
|
|
|
133,577
|
|
|
|
909
|
|
|
Provision for income taxes
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Adjusted EBITDA
|
|
$
|
(8,600
|
)
|
|
$
|
(7,471
|
)
|
|
$
|
(12,683
|
)
|
|
$
|
(17,132
|
)
|
Key Metrics
The following table presents our
key metrics:
|
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
|
|
(in thousands)
|
|
|
(in thousands)
|
|
|
Key Financial Metrics:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
19,337
|
|
|
$
|
4,379
|
|
|
$
|
34,758
|
|
|
$
|
8,489
|
|
|
Gross Margin (GAAP)
|
|
|
(127
|
)
|
|
$
|
(1,745
|
)
|
|
$
|
(243
|
)
|
|
$
|
(3,131
|
)
|
|
Non-GAAP Gross Margin
|
|
|
2,118
|
|
|
$
|
150
|
|
|
$
|
5,054
|
|
|
$
|
297
|
|
|
Net loss
|
|
|
(100,216
|
)
|
|
$
|
(18,981
|
)
|
|
$
|
(182,769
|
)
|
|
$
|
(36,452
|
)
|
|
Adjusted EBITDA
|
|
|
(8,600
|
)
|
|
$
|
(7,471
|
)
|
|
$
|
(12,683
|
)
|
|
$
|
(17,132
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Key Operating Metrics:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12-Month Pipeline (in billions)
|
|
$
|
1.7
|
|
|
|
**
|
|
|
|
*
|
|
|
|
**
|
|
|
Bookings (in millions)
|
|
|
45.1
|
|
|
|
37.9
|
|
|
|
95.9
|
|
|
|
57.7
|
|
|
Contracted Backlog (in millioms)
|
|
|
249.7
|
|
|
|
**
|
|
|
|
*
|
|
|
|
**
|
|
|
Contracted AUM (in millions)
|
|
|
1.2
|
|
|
|
0.5
|
|
|
|
*
|
|
|
|
**
|
|
|
* at period end
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
** not available
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bookings
Due to the
long-term nature of our contracts, bookings are a key metric that allows us to understand and evaluate the growth of our Company and
our estimated future revenue related to customer contracts for our energy optimization services and transfer of energy storage systems.
Bookings represents the accumulated value at a point in time of contracts that have been executed under both our host customer and partnership
sales models.
For host customer
sales, bookings represent the expected consideration from energy optimization services contracts, including estimated incentive payments
that are earned by the host customer from utility companies in relation to the services provided by us and assigned by the host customer
to us. For host customer sales, there are no differences between bookings and remaining performance obligations at any point in time.
For partnership
sales, bookings are the sum of the expected consideration to be received from the transfer of hardware and energy optimization services
(excluding any potential revenues from market participation). For partnership sales, even though we have secured an executed contract
with estimated timing of project delivery and installation from the customer, we do not consider it a contract in accordance with ASC
606 or a remaining performance obligation until the customer has placed a binding purchase order. A signed customer contract is considered
a booking as this indicates the customer has agreed to place a purchase order in the foreseeable future, which typically occurs within
three (3) months of contract execution. However, executed customer contracts, without binding purchase orders, are cancellable without
penalty by either party.
For partnership
sales, once a purchase order has been executed, the booking is considered to be a contract in accordance with ASC 606, and therefore,
gives rise to a remaining performance obligation as we have an obligation to transfer hardware and energy optimization services in our
partnership agreements. We also have the contractual right to receive consideration for our performance obligations.
The accounting
policy and timing of revenue recognition for host customer contracts and partnership arrangements that qualify as contracts with customers
under ASC 606, are described within Note 3 of the notes to our annual Financial Statements.
Adjusted EBITDA
We calculate Adjusted EBITDA
as net loss before net interest expense, income tax provision and depreciation and amortization, including amortization of internally
developed software, further adjusted to exclude stock-based compensation and other income and expense items, including the change in
fair value of warrants and embedded derivatives, vesting of warrants and loss on extinguishment of debt. See description of Adjusted
EBITDA in Non-GAAP Financial Measures above.
Components of Our Results of
Operations
Revenue
We generate
service revenue and hardware revenue. Service revenue is generated through arrangements with host customers to provide energy optimization
services using our proprietary cloud-based software platform coupled with a dedicated energy storage system owned and controlled by us
throughout the term of the contract. Fees charged to customers for energy optimization services generally consist of recurring fixed
monthly payments throughout the term of the contract and in some arrangements, an installation and/or upfront fee component. We may also
receive incentives from utility companies in relation to the sale of our services.
We generate
hardware revenue through partnership arrangements consisting of promises to sell an energy storage system to a 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 is 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.
Cost of Revenue
Cost of hardware
revenue includes the cost of the hardware, which generally includes the cost of the hardware purchased from a manufacturer, shipping,
delivery, and other costs required to fulfill our obligation to deliver the energy storage system to the customer location. Cost of revenue
may also include any impairment of energy storage systems held in our inventory for sale to our customer. Cost of hardware revenue related
to the sale of energy storage systems is recognized when the delivery of the product is completed.
Cost of service
revenue includes depreciation of the cost of energy storage systems we own under long-term customer contracts, which includes capitalized
fulfillment costs, such as installation services, permitting and other related costs. Cost of revenue may also include any impairment
of inventory and energy storage systems, along with system maintenance costs associated with the ongoing services provided to customers.
Costs of revenue are recognized as energy optimization and other supporting services are provided to our customers throughout the term
of the contract.
Gross Margin
Our gross margin
fluctuates significantly from quarter to quarter. Gross margin, calculated as revenue less costs of revenue, has been, and will
continue to be, affected by various factors, including fluctuations in the amount and mix of revenue and the amount and timing of
investments to expand our customer base. We hope to increase both our gross margin in absolute dollars and as a percentage of
revenue through enhanced operational efficiency and economies of scale.
Operating Expenses
Sales and Marketing
Sales and marketing expense consists
of payroll and other related personnel costs, including salaries, stock-based compensation, employee benefits, and travel for our sales
and marketing personnel. In addition, sales and marketing expense includes trade show costs, amortization of intangibles and others expenses.
We expect to increase selling and marketing expense to support the overall growth in our business.
Research and development
Research and development expense
consists primarily of payroll and other related personnel costs for engineers and third parties engaged in the design and development
of products, third-party software and technologies, including salaries, bonus and stock-based compensation expense, project material costs,
services and depreciation. We expect research and development expense to increase in future periods to support our growth, including continuing
to invest in optimization, accuracy and reliability of our platform and other technology improvements to support and drive efficiency
in our operations. These expenses may vary from period to period as a percentage of revenue, depending primarily upon when we choose to
make more significant investments.
General and Administrative Expense
General and administrative expense
consists of payroll and other related personnel costs, including salaries, stock-based compensation, employee benefits and expenses for
executive management, legal, finance and other costs. In addition, general and administrative expense includes fees for professional services
and occupancy costs. We expect our general and administrative expense to increase as we scale up headcount with the growth of our business,
and as a result of operating as a public company, including compliance with the rules and regulations of the SEC, legal, audit, additional
insurance expenses, investor relations activities, and other administrative and professional services.
Other Income (Expense), Net
Interest Expense
Interest expense consists primarily
of interest on our outstanding borrowings under our outstanding notes payable, convertible promissory notes, and financing obligations
and accretion on our asset retirement obligations.
Loss on Extinguishment of Debt
Loss on extinguishment of debt
consists of penalties incurred in relation to the prepayment of our outstanding borrowings under our outstanding notes payable and the
write-off of any unamortized debt issuance costs associated with such notes.
Change in Fair Value of Warrants and Embedded Derivatives
Change in
fair value of warrants and embedded derivatives is related to the revaluation of our outstanding convertible preferred stock warrant liabilities
and embedded derivatives related to the redemption features associated with our convertible notes at each reporting date.
Other Expenses, Net
Other expenses, net consists primarily
of income from equity investments and foreign exchange gains or losses.
Results of Operations for the Three Months Ended
June 30, 2021 and 2020
|
|
|
Three Months Ended
June 30,
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
|
2020
|
|
|
$ Change
|
|
|
% Change
|
|
|
|
|
(In thousands, except percentage)
|
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service revenue
|
|
$
|
5,153
|
|
|
$
|
3,670
|
|
|
$
|
1,483
|
|
|
|
40
|
%
|
|
Hardware revenue
|
|
|
14,184
|
|
|
|
709
|
|
|
|
13,475
|
|
|
|
*
|
|
|
Total revenue
|
|
|
19,337
|
|
|
|
4,379
|
|
|
|
14,958
|
|
|
|
342
|
%
|
|
Cost of revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service revenue
|
|
|
5,809
|
|
|
|
5,510
|
|
|
|
299
|
|
|
|
5
|
%
|
|
Cost of hardware revenue
|
|
|
13,655
|
|
|
|
614
|
|
|
|
13,041
|
|
|
|
*
|
|
|
Total cost of revenue
|
|
|
19,464
|
|
|
|
6,124
|
|
|
|
13,340
|
|
|
|
218
|
%
|
|
Gross margin
|
|
|
(127
|
)
|
|
|
(1,745
|
)
|
|
|
1,618
|
|
|
|
(93
|
)%
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
|
3,913
|
|
|
|
4,242
|
|
|
|
(329
|
)
|
|
|
(8
|
)%
|
|
Research and development
|
|
|
4,827
|
|
|
|
3,619
|
|
|
|
1,208
|
|
|
|
33
|
%
|
|
General and administrative
|
|
|
15,014
|
|
|
|
2,404
|
|
|
|
12,610
|
|
|
|
525
|
%
|
|
Total operating expenses
|
|
|
23,754
|
|
|
|
10,265
|
|
|
|
13,489
|
|
|
|
131
|
%
|
|
Loss from operations
|
|
|
(23,881
|
)
|
|
|
(12,010
|
)
|
|
|
(11,871
|
)
|
|
|
99
|
%
|
|
Other income (expense), net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(3,929
|
)
|
|
|
(5,192
|
)
|
|
|
1,263
|
|
|
|
(24
|
)%
|
|
Loss on extinguishment of debt
|
|
|
(5,064
|
)
|
|
|
—
|
|
|
|
(5,064
|
)
|
|
|
*
|
|
|
Change in fair value of warrants and embedded derivative
|
|
|
(67,179
|
)
|
|
|
(1,918
|
)
|
|
|
(65,261
|
)
|
|
|
*
|
|
|
Other expenses, net
|
|
|
(163
|
)
|
|
|
139
|
|
|
|
(302
|
)
|
|
|
(217
|
)%
|
|
Total other income (expense)
|
|
|
(76,335
|
)
|
|
|
(6,971
|
)
|
|
|
(69,364
|
)
|
|
|
*
|
|
|
Loss before income taxes
|
|
|
(100,216
|
)
|
|
|
(18,981
|
)
|
|
|
(81,235
|
)
|
|
|
428
|
%
|
|
Income tax expense
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—%
|
|
|
Net loss
|
|
$
|
(100,216
|
)
|
|
$
|
(18,981
|
)
|
|
$
|
(81,235
|
)
|
|
|
428
|
%
|
*Not meaningful
Revenue
Revenue increased by $15.0 million,
or 342%, for the three months ended June 30, 2021, as compared to the three months ended June 30, 2020.
The increase was primarily driven by a $13.5 million increase in hardware revenue due to increase in demand for systems related to FTM
partnership agreements. Services revenue increased by $1.5 million primarily due to continued growth in host customers arrangements and
partnership revenue related to services provided.
Cost of Revenue
Cost of revenue increased by $13.3
million, or 218%, for the three months ended June 30, 2021, as compared to the three months ended June 30, 2020. The
increase was primarily driven by an increase of cost of hardware sales of $13.0 million in line with the increase in hardware revenue
and an increase of $0.3 million in cost of service revenue associated with growth in service revenue.
Operating Expenses
Sales and Marketing
Sales and marketing expense decreased
by $0.3 million, or 8%, for the three months ended June 30, 2021, as compared to the three months ended June 30, 2020. The decrease
was primarily due to lower marketing expense by $0.2 million compared to to 2020 during which educational material to sell, model and
deploy energy storage systems was created, An increase in capitalized commissions in 2021 by $0.1 million due to higher volume of sales
in 2021 added to the variance..
Research and Development
Research and development expense
increased by $1.2 million, or 33%, for the three months ended June 30, 2021, as compared to the three months ended June 30,
2020. The increase was primarily due to higher personnel related costs as a result of higher headcount to support the growth of our operations.
General and Administrative
General and administrative expense
increased by $12.6, or 525% for the three months ended June 30, 2021 compared to the three months ended June 30, 2020. The increase
was primarily driven by an increase of $10.1 million in professional and legal services, an increase of $1.1 million in insurance and
office related expenses, an increase of $0.9 million in personnel related costs due to increase in headcount and an increase of $0.5 million
in stock-based compensation as a result of additional options to purchase our common stock granted to certain executives and other key
employees.
Other Income (Expense), Net
Interest Expense
Interest expense increased by
$1.3 million, or 24%, for the three months ended June 30, 2021 compared to the three months ended June 30, 2020. an The increase
was partially offset by a decrease of $1.3 million in interest expense due to the repayment of notes payable in 2021.
Loss on Extinguishment of Debt
Loss on extinguishment of debt
increased by $5.1 million for the three months ended June 30, 2021 compared to the three months ended June 30, 2020. The increase
was driven by payment of a $4.0 million penalty on debt extinguishment and the write-off of $1.1 million of unamortized debt issuance
costs upon the conversion of our Series D convertible notes in relation to the Merger.
Change in Fair Value of Warrants and Embedded Derivative
Change in fair value of warrants
and embedded derivative increased by a $65.3 million for the three months ended June 30, 2021 compared to the three months ended
June 30, 2020. This increase was due to the increase in the fair value of warrant liabilities in 2021.
Other Expenses, Net
Other
expenses, net increased by $0.3 million, or 217%, for the three months ended June 30, 2021 compared
to the three months ended June 30, 2020. The net increase was primarily driven by foreign
exchange losses realized in the period related to operations in Canada.
Results of Operations for the Six Months Ended
June 30, 2021 and 2020
|
|
|
Six Months Ended
June 30,
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
|
2020
|
|
|
$ Change
|
|
|
% Change
|
|
|
|
|
(In thousands, except percentage)
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service revenue
|
|
$
|
10,035
|
|
|
$
|
7,062
|
|
|
$
|
2,973
|
|
|
|
42
|
%
|
|
Hardware revenue
|
|
|
24,723
|
|
|
|
1,427
|
|
|
|
23,296
|
|
|
|
*
|
|
|
Total revenue
|
|
|
34,758
|
|
|
|
8,489
|
|
|
|
26,269
|
|
|
|
309
|
%
|
|
Cost of revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service revenue
|
|
|
12,715
|
|
|
|
10,255
|
|
|
|
2,460
|
|
|
|
24
|
%
|
|
Cost of hardware revenue
|
|
|
22,286
|
|
|
|
1,365
|
|
|
|
20,921
|
|
|
|
*
|
|
|
Total cost of revenue
|
|
|
35,001
|
|
|
|
11,620
|
|
|
|
23,381
|
|
|
|
201
|
%
|
|
Gross margin
|
|
|
(243
|
)
|
|
|
(3,131
|
)
|
|
|
2,888
|
|
|
|
(92
|
)%
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
|
6,580
|
|
|
|
8,646
|
|
|
|
(2,066
|
)
|
|
|
(24
|
)%
|
|
Research and development
|
|
|
9,234
|
|
|
|
7,032
|
|
|
|
2,202
|
|
|
|
31
|
%
|
|
General and administrative
|
|
|
17,706
|
|
|
|
5,383
|
|
|
|
12,323
|
|
|
|
229
|
%
|
|
Total operating expenses
|
|
|
33,520
|
|
|
|
21,061
|
|
|
|
12,459
|
|
|
|
59
|
%
|
|
Loss from operations
|
|
|
(33,763
|
)
|
|
|
(24,192
|
)
|
|
|
(9,571
|
)
|
|
|
40
|
%
|
|
Other income (expense), net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(10,162
|
)
|
|
|
(9,561
|
)
|
|
|
(601
|
)
|
|
|
6
|
%
|
|
Loss on extinguishment of debt
|
|
|
(5,064
|
)
|
|
|
—
|
|
|
|
(5,064
|
)
|
|
|
*
|
|
|
Change in fair value of warrants and embedded derivative
|
|
|
(133,577
|
)
|
|
|
(909
|
)
|
|
|
(132,668
|
)
|
|
|
*
|
|
|
Other expenses, net
|
|
|
(203
|
)
|
|
|
(1,790
|
)
|
|
|
1,587
|
|
|
|
(89
|
)%
|
|
Total other income (expense)
|
|
|
(149,006
|
)
|
|
|
(12,260
|
)
|
|
|
(136,746
|
)
|
|
|
*
|
|
|
Loss before income taxes
|
|
|
(182,769
|
)
|
|
|
(36,452
|
)
|
|
|
(146,317
|
)
|
|
|
401
|
%
|
|
Income tax expense
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
Net loss
|
|
$
|
(182,769
|
)
|
|
$
|
(36,452
|
)
|
|
$
|
(146,317
|
)
|
|
|
401
|
%
|
*Not meaningful
Revenue
Revenue increased by $26.3 million,
or 309%, for the six months ended June 30, 2021, as compared to the six months ended June 30, 2020.
The increase was primarily driven by a $23.3 million increase in hardware revenue as our sales of standalone systems related to FTM partnership
agreements continue to grow. Services revenue increased by $3.0 million primarily due to continued growth in host customers arrangements
and partnership revenue related to services provided.
Cost of Revenue
Cost of revenue increased by $23.4
million, or 201%, for the six months ended June 30, 2021, as compared to the six months ended June 30, 2020. The
increase was primarily driven by an increase of cost of hardware sales of $20.9 million in line with the increase in hardware revenue
and an increase of $2.5 million in cost of service revenue associated with growth in service revenue.
Operating Expenses
Sales and Marketing
Sales and marketing expense decreased
by $2.1 million, or 24%, for the six months ended June 30, 2021, as compared to the six months ended June 30, 2020. The decrease
was primarily due to a decrease of $0.8 million in
personnel related costs as a result of turnover in the period, a decrease of $0.6 million
in commission expenses as a result of a change in our commission plan structure, and a $0.2 million
increase in capitalized commissions. Higher costs in marketing consulting expense by $0.5 million in 2020 compared to 2021.
Research and Development
Research and development expense
increased by $2.2 million, or 31%, for the six months ended June 30, 2021, as compared to the six months ended June 30, 2020.
The increase was primarily due to an increase of $3.6 million in personnel related costs as a result of increased headcount, which was
partially offset by an increase of $1.4 million in capitalized software development costs.
General and Administrative
General and administrative expense
increased by $12.3 million, or 229%, for the six months ended June 30, 2021, as compared to the six months ended June 30, 2020.
The increase was primarily driven by $9.1 million of warrants issued for services in April 2021, an increase of $1.5 million in professional
and legal services, an increase of $1.0 million in insurance related expenses, and an increase of $0.7 million in personnel-related costs
due to higher headcount.
Other Income (Expense), Net
Interest Expense
Interest expense increased by
$0.6 million, or 6%, for the six months ended June 30, 2021, as compared to the six months ended June 30, 2020. An increase
of $0.6 million in interest expense mainly from the issuance of Series D convertible notes from October 2020 through January 2021.
Loss on Extinguishment of Debt
Loss on extinguishment of debt
increased by $5.1 million for the six months ended June 30, 2021 compared to the six
months ended June 30, 2020. The increase was driven by payment of a $4.0 million penalty on debt extinguishment and the write-off
of $1.1 million of unamortized debt issuance costs upon the conversion of our Series D convertible notes in relation to the Merger.
Change in Fair Value of Warrants and Embedded Derivative
Change in fair value of warrants
and embedded derivative increased by $132.7 million for the six months ended June 30, 2021, as compared to the six months ended June 30,
2020. This increase was due to the increase in the fair value of warrant liabilities in 2021.
Other Expenses, Net
Other expenses, net decreased
by $1.6 million, or 89%, for the six months ended June 30, 2021, as compared to the six months ended June 30, 2020. The net
decrease was primarily driven by $1.2 million in legal settlement and late fees incurred in the six months ended June 30, 2021 and a $0.4
million decrease in foreign exchange losses realized in the period related to operations in Canada.
Liquidity and Capital Resources
Sources of liquidity
Liquidity describes the ability
of a company to generate sufficient cash flows to meet the cash requirements of its business operations, including working capital needs,
debt service, acquisitions, contractual obligations and other commitments. We assess liquidity in terms of our cash flows from operations
and their sufficiency to fund our operating and investing activities. To meet our payment service obligations we must have sufficient
liquid assets and be able to move funds on a timely basis.
As of June 30, 2021, our
principal source of liquidity is cash generated from financing activities. Cash generated from financing activities through June 30,
2021 primarily includes proceeds from the Merger that provided us with approximately $550.3 million, net of fees and expenses, sales of
convertible preferred stock, proceeds from convertible notes, and proceeds from our various borrowings. In connection with the Merger,
the convertible notes and related accrued interest converted to equity and we paid in full all other outstanding debt except the 2021
Credit Agreement described below. We believe that our cash position is sufficient to meet our capital and liquidity requirements for at
least the next 12 months after the date that the condensed consolidated financial statements are available to be issued and thereafter
for the foreseeable future; therefore, there is not substantial doubt about the Company’s ability to continue as a going concern.
Our business prospects are subject
to risks, expenses and uncertainties frequently encountered by companies in the early stages of commercial operations. The attainment
of profitable operations is dependent upon future events, including obtaining adequate financing to complete our development activities,
obtaining adequate supplier relationships, building our customer base, successfully executing our business and marketing strategy and
hiring appropriate personnel. Failure to generate sufficient revenues, achieve planned gross margins and operating profitability, control
operating costs, or secure additional funding may require us to modify, delay, or abandon some of our planned future expansion or development,
or to otherwise enact operating cost reductions available to management, which could have a material adverse effect on our business, operating
results, financial condition and ability to achieve our intended business objectives.
In the future, we may be required
to obtain additional equity or debt financing in order to support our continued capital expenditures and operations. In the event that
additional financing is required from outside sources, we may not be able to raise it on terms acceptable to us or at all. If we are unable
to raise additional capital or generate cash flows necessary to expand our operations and invest in new technologies, this could reduce
our ability to compete successfully and harm our business, growth and results of operations.
The Company’s long-term
liquidity requirements primarily are linked to the continued extension of the Athena platform and the use of our balance sheet to improve
the terms and conditions associated with the purchase of energy storage systems from our hardware vendors. While we have plans to potentially
expand our geographical footprint beyond our current partnerships and enter into joint ventures, those are not required initiatives to
achieve our plan.
In addition to the foregoing,
based on our current assessment, we do not expect any material adverse effect on our long-term liquidity due to the COVID-19 pandemic
or government responses thereto. However, we will continue to assess these effects to our operations. The extent to which the COVID-19
pandemic and government and business responses thereto will affect our business and operations will continue to depend on future developments
that are highly uncertain and cannot be predicted with confidence, such as the ultimate geographic spread of the disease, the duration
of the pandemic, any restrictions on the ability of hospitals and trial sites to conduct trials that are not designed to address the COVID-19
pandemic and the perceived effectiveness of actions taken in the United States and other countries to contain and treat the disease. While
the potential economic impact brought by COVID-19 and government and business responses may be difficult to assess or predict, a widespread
pandemic and government and business responses could result in significant disruption of global financial markets, reducing our ability
to access capital in the future. In addition, a recession or long-term market correction resulting from the spread of COVID-19 or government
and business responses could materially affect our business and the value of our common stock.
Financing Obligations
We have entered into arrangements
wherein we finance the cost of energy storage systems via special purpose entities (“SPE”) we establish with outside investors.
These SPEs are not consolidated into our financial statements, but are accounted for as equity method investments. Through the SPEs, the
investors provide us upfront payments. Under these arrangements, the payment by the SPE to us is accounted for as a borrowing by recording
the proceeds received as a financing obligation. The financing obligation is repaid with the future customer payments and incentives received.
A portion of the amounts paid to the SPE is allocated to interest expense using the effective interest rate method.
Furthermore, we continue to account
for the revenues from customer arrangements and incentives and all associated costs despite such systems being legally sold to the SPEs
due to our significant continuing involvement in the operations of the energy storage systems.
The total financing obligation
as of June 30, 2021 was $89.8 million, of which $15.3 million was classified as a current liability.
Notes Payable
Revolving Loan Due to SPE Member
In April 2017, we entered into
a revolving loan agreement with an affiliate of a member of certain SPEs in which we have an ownership interest. The purpose of this revolving
loan agreement is to finance the Company’s purchase of hardware for its various energy storage system projects. We have amended
the loan from time to time as our business has grown, and as of the beginning of 2020, the agreement had a total revolving loan capacity
of $45.0 million that bore fixed interest at 10% with a maturity date of June 2020.
In May 2020, concurrent with the
2020 Credit Agreement discussed below, we amended the facility to reduce the loan capacity to $35.0 million and extend the maturity date
to May 2021. The amendment increased the fixed interest rate for any borrowings outstanding more than nine (9) months to 14% thereafter.
Additionally, under the original
terms of the revolving loan agreement, we were able to finance 100% of the value of the hardware purchased up to the total loan capacity.
The amendment reduced the advance rate to 85%, with an additional reduction to 70% in August 2020. We had $9.6 million outstanding under
this revolving loan agreement as of March 31, 2021. In April 2021, we repaid the remaining outstanding balance in full.
Term Loan Due to SPE Member
In December 2018, we entered into
a term loan in the amount of $13.3 million with an affiliate of a member of certain SPEs in which we have an ownership interest. As of
the beginning of 2020, this term loan bore fixed interest of 12.5% on the outstanding principal balance with a final balloon payment of
$3.0 million due at the maturity date of June 30, 2020. In May 2020, we repaid the remaining outstanding balance of $5.9 million with
the proceeds received through the 2020 Credit Agreement discussed below.
Term Loan Due to Former Non-Controlling Interest
Holder
In June 2018, we acquired the
outstanding member interests of an entity we controlled for $8.1 million. We financed this acquisition by entering into a term loan agreement
with the noncontrolling member bearing fixed interest of 18% (4.5% quarterly) on the outstanding principal balance. This loan requires
fixed quarterly payments throughout the term of the loan, which will be paid in full by April 1, 2026. In May 2020, we amended the term
loan and, using the proceeds from the 2020 Credit Agreement discussed below, prepaid $1.5 million of principal and interest on the note,
of which $1.0 million was towards the outstanding principal balance, thereby reducing the fixed quarterly payment due to the lender. In
relation to this amendment, we were required to issue warrants for 400,000 shares of common stock resulting in a discount to the term
loan of $0.2 million. Such debt discount is amortized to earnings through interest expense over the expected life of the debt. In April
2021, we repaid the remaining outstanding balance in full.
2020 Credit Agreement
In May 2020, we entered into a
credit agreement (“2020 Credit Agreement”) with a new lender that provided us with proceeds of $25.0 million that increased
our access to working capital. The 2020 Credit Agreement has a maturity date of the earlier of (1) May 14, 2021, (2) the maturity date
of the revolving loan agreement, or (3) the maturity date of the convertible promissory notes discussed below. The loan bears interest
of 12% per annum, of which 8% is paid in cash and 4% is added back to principal of the loan balance every quarter. We used a portion of
the proceeds towards payments associated with existing debt as previously discussed. In April 2021, we repaid the remaining outstanding
balance in full.
2021 Credit Agreement
In January 2021, we entered
into a non-recourse credit agreement to provide a total of $2.7 million towards the financing of certain energy storage systems
that we own and operate. The credit agreement has a stated interest of 5.45% and a maturity date of June 2031. We received an
advance under the credit agreement of $1.8 million in January 2021. The repayment of advances received under this credit
agreement is determined by the lender based on the proceeds generated by us through the operation of the underlying energy storage
systems. We have $1.8 million of outstanding borrowings under this credit agreement as of June 30, 2021.
Cash Flows
The following table summarizes
our cash flows for the periods indicated (in thousands):
|
|
|
Six Months Ended June 30,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
$
|
(41,833
|
)
|
|
$
|
(16,497
|
)
|
|
Net cash used in investing activities
|
|
|
(8,596
|
)
|
|
|
(10,183
|
)
|
|
Net cash provided by financing activities
|
|
|
517,187
|
|
|
|
22,061
|
|
|
Effect of exchange rate changed on cash
|
|
|
438
|
|
|
|
(176
|
)
|
|
Net increase (decrease) in cash and cash equivalents
|
|
$
|
467,196
|
|
|
$
|
(4,795
|
)
|
Operating Activities
During the six months ended June 30,
2021, net cash used in operating activities was $41.8 million, primarily resulting from our operating loss of $182.8 million,
adjusted for non-cash charges of $163.7 million and net cash outflows of $22.8 million
from changes in operating assets and liabilities. Non-cash charges primarily consisted of
depreciation and amortization of $10.3 million, non-cash interest expense of $7.1 million, which includes interest expenses
associated with debt issuance costs, stock-based compensation expense of $1.8 million, change in the fair value of warrant liability
and embedded derivative of $133.6 million, impairment of energy storage systems of $1.3 million, and issuance of warrants for
services of $9.2 million. The net cash inflow from changes in operating assets and liabilities was primarily driven by an increase
in deferred revenue of $3.3 million and an increase in accounts payable and accrued expenses of $3.3 million, partially
offset by an increase in inventory of $6.3 million, an increase in other assets of $16.9 million, an increase in accounts receivable
of $4.2 million, and an increase in contract origination costs of $1.7 million.
During the six months ended June 30,
2020, net cash used in operating activities was $16.5 million, primarily resulting from our operating loss of $36.5 million, offset
by non-cash charges of $15.8 million and net cash inflows of $4.2 million from changes in operating assets and liabilities.
Non-cash charges primarily consisted of depreciation and amortization of $7.9 million, non-cash interest expense of $4.6 million,
which includes interest expenses associated with debt issuance costs, stock-based compensation expense of $0.9 million, change in
the fair value of warrant liability and embedded derivative of $0.9 million, and impairment of energy storage systems of $0.9 million.
The net cash inflow from changes in operating assets and liabilities was primarily driven by an increase in deferred revenue of $12.3 million,
an increase in accounts payable and accrued expenses of $0.4 million, and a decrease in accounts receivable of $2.2 million,
partially offset by increase in inventory of $6.3 million, an increase in contract origination costs of $1.4 million, and an
increase in other assets of $2.7 million.
Investing Activities
During the six months ended June 30,
2021, net cash used for investing activities was $8.6 million, primarily consisting of $5.6 million in purchase of energy systems
and $2.7 million in capital expenditures on internally-developed software.
During the six months ended June 30,
2020, net cash used for investing activities was $10.2 million, consisting of $7.6 million in purchase of energy systems and
$2.6 million in capital expenditures on internally-developed software.
Financing Activities
During the six months ended June 30,
2021, net cash provided by financing activities was $517.2 million, primarily consisting of net proceeds from the Merger and PIPE
financing of $550.3 million, proceeds from issuance of notes payable of $3.9 million, proceeds from financing obligations of
$4.9 million, proceeds from exercise of stock options and warrants of $2.9 million, net proceeds from issuance of convertible
promissory notes of $1.1 million, partially offset by repayment of notes payable and financing obligations of $41.4 million
and $4.6 million, respectively.
During the six months ended June 30,
2020, net cash provided by financing activities was $22.1 million, primarily resulting from
net proceeds from issuance of convertible notes of $14.1 million, net proceeds from
issuance of notes payable of $23.5 million, proceeds from financing obligations of $8.4 million,
partially offset by repayment of notes payable of $19.7 million and repayment of financing
obligations of $4.3 million.
Contractual Obligations and Commitments
There have been no
material changes to our contractual obligations described in our registration statement on Form S-1 as filed with the SEC on July
19, 2021.
Off-Balance Sheet Arrangements
We are not a party to any off-balance
sheet arrangements, including guarantee contracts, retained or contingent interests, or unconsolidated variable interest entities that
either have, or are reasonably likely to have, a current or future material effect on our consolidated financial statements.
Critical Accounting Policies and Estimates
A summary of our critical accounting
policies and estimates is presented in our registration statement on Form S-1 filed with the SEC on July 19, 2021. Information with respect
to changes in our critical accounting policies can be found in Note 2 of the Notes to the unaudited condensed consolidated financial statements
in this report, which information is incorporated herein by reference..
Recent Accounting Pronouncements
Information with respect to recent
accounting pronouncements may be found in Note 2 of the Notes to the unaudited condensed consolidated financial statements in this report,
which information is incorporated herein by reference.