Revision to STEM post

Sorry to clutter the board, but I made such a mess in formatting the previous post, that I thought I should try again. A tip from a fellow board member set me straight.

Stem, Inc (STEM) is a small $1.8B green energy company combining SaaS and hardware sales (think Gillette razor and blades).
The company which has shown excellent growth since its SPAC listing in December 2020. Stem delivers and operates smart battery
storage solutions. The Company is focused on providing smart energy storage and energy management software and also offers clean
energy intelligence and optimization. Stem’s energy software platform, Athena, is an artificial intelligence (AI)-powered
analytics platform that enables customers to optimize energy use by automatically switching between battery power, onsite
generation and grid power. Stem has over 950 storage systems across the U.S. and $449 million in contracted backlog-more than Tesla, a competitor on the storage side but a partner with Stem on the AI side. Its current mix of revenue is 60% hardware on which its margin is only 10-30% and 40% software which throws off 80% margin. The hardware sales are primarily batteries which it acquires from a number of suppliers. This is the razor of the Gillette razor and blades dynamic. The big money is in the recurring sale of blades (or subscription software).

STEM recently acquired AlsoEnergy, which has the industry leading SaaS platform with their PowerTrack software that monitors and controls 33 gigawatts of solar assets in over 50 countries. The companies’ customers overlap only 30% and include Amazon, Google, Walmart, UPS, Cargill. The deal closed in February this year and its results are not included in STEM’S most
recent earnings. A look at AlsoEnergy’s numbers reveals $57M LTM total revenue, CAGR of 23%1, $23M ARR, 99% gross revenue retention rate.

As mentioned earlier, STEM alone now has $449M in contracted software backlog. Its contracts run from 10 to 20 years. STEM has just started to use a metric like Annual Recuring Revenue, which it calls “Contracted Annual Recurring Revenue” (CARR). In its March 2022 investor ppresentation, it estimates 2022 CARR to be $60-$80M.

What I find engaging about the combined companies is that by 2030 alone, just battery storage capacity alone globally is going to increase 25-fold. That primarily due to the shrinking cost of batteries and alternative energy costs. The long-term estimates are that by 2050 $1.2 TRILLION is going to be spent to deploy integrated storage.

Here are the numbers for the two companies. You’ll immediately spot that gross margin for STEM is abysmal. This will improve somewhat with the addition of AlsoEnergy, which has 60% gross margin; nevertheless, since AlsoEnergy’s revenue is only 45% of STEM’s, the resulting gross margin will be much less than most companies we follow; perhaps in the 25% range.

For full 2022, the company projects a near tripling of revenue to $425M, but this includes AlsoEnergy. Based on the fact that AlsoEnergy’s revenue growth rate is 23% and its total revenue for 2021 is $57M, I estimate the proforma 2022 STEM revenue to be $355M or a 235% yoy increase or more than triple 2021 TTM revenue.

For an in-depth, glowing review of STEM’s prospects, you might want check out Motley Fool’s December 2021 presentation (audio and transcript) at……


	              Q4	Q3	Q2	Q1'21	Q4	Q3	Q2	TTM																							
Revenue	              52.8	39.8	19.3	15	18.6	9.2	4.4	127																				
seq chg	              33%	106%	29%	-19%	102%	109%																																	
yoy chg	              184%	333%	339%																																				
Gross Mar	      -1.6	3.1	-0.1	-0.2	0.9	-1.7	-1.7	1.2																															
Gross Mar %	      -3.0%	7.8%	-0.5%	-1.3%	4.8%	-18.5%	-38.6%	4.0%																															
Non-Gaap Gross Mar.    3.3	5.8	2.1	2.8	2.5	0.7	0.2																																
NG Gross Mar %	       6%	15%	11%	19%	13%	8%	5%																																
Bookings	      216.9	104	45	50.6	43	37	38																																
seq chg	              109%	131%	-11%	17%	17%	-3%																																	
Contracted Backlog	449	312	250	221	184																																		
seq chg	                44%	25%	13%	20%																																			
Revenue LTM	57
yoy chg	        23%																																						
Gross Mar %     60%

It’s been pointed out to me that the Motley Fool video/transcript link I gave in the original post extolling the promise of STEM is broken. The full link is…

For those looking for a non-data,cybersecurity SaaS pick, STEM checks a lot of the boxes we like. Unfortunately, its gross margins are poor and as of yet, its revenue from software has not kicked in.

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