Stem Inc.
03/05/2026 | Press release | Distributed by Public on 03/05/2026 05:01
Annual Report for Fiscal Year Ending December 31, 2025 (Form 10-K)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following management's discussion and analysis of our financial condition and results of operations ("MD&A") in conjunction with our consolidated financial statements and the related notes included in Part II, Item 8, "Financial Statements and Supplementary Data" of this Report. In addition to our historical consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs. Our actual results and the timing of certain events could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include, but are not limited to, those discussed below and elsewhere in this Report, particularly in Part I, Item 1A, "Risk Factors."
This MD&A generally discusses 2025 and 2024 items and year-to-year comparisons between 2025 and 2024. Discussions of 2023 items and year-to-year comparisons between 2024 and 2023 that are not included in this Annual Report on Form 10-K can be found in Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained in our Annual Report on Form 10-K filed with the SEC on March 5, 2025.
The Merger
The information regarding the Merger set forth in the first paragraph of Part 1, Item 1, "Business - History" above is incorporated herein by reference. For financial reporting purposes, Legacy Stem is treated as the accounting acquirer.
Overview
Stem is reimagining technology to drive the energy transition. We help asset owners, operators and stakeholders benefit from the full value of their energy portfolio by enabling the intelligent development, deployment and operation of clean energy assets. Our integrated software suite, PowerTrack, provides asset monitoring software and solutions, supported by professional and managed services, under one consolidated set of solutions. Our solutions and services are designed to provide customers with the information they need clearly and accurately and help harness raw data to inform actionable insight. With global projects managed in 55 countries, customers have relied on Stem for nearly 20 years to help maximize the value of their clean energy projects.
PowerTrack is our integrated suite of software and solutions for solar, storage and hybrid assets. Within the PowerTrack product suite we offer PowerTrack Software, PowerTrack Energy Management System, PowerTrack Supervisory Control and Data Acquisition ("SCADA"), PowerTrack Power Plant Controller ("PPC"), PowerTrack Logger, and PowerTrack Optimizer.
Our PowerTrack Software for solar monitoring and analytics enables the standardization of energy portfolios on one hardware agnostic application. We offer commercial- and utility-scale edge hardware solutions, which are original equipment manufacturer ("OEM")-agnostic devices that are used to connect customers' solar and storage assets to our software applications in a unified view. We offer project services to our PowerTrack customers to assist with designing and commissioning of solutions. We offer Managed Services, which are full lifecycle, storage services covering the design, procurement, commissioning, operation and optimization of energy storage and hybrid systems, enabled by our PowerTrack Optimizer software, to our customers. We also offer a comprehensive suite of Professional Services to support solar and storage projects through every stage of the project lifecycle, providing our customers with the expertise needed to navigate the complexity and scale of clean energy portfolios. We serve project developers, asset owners, engineering, procurement and construction firms (EPCs) and distributors.
Since our inception in 2009, we have engaged in developing and marketing AI-enabled software and services, raising capital, recruiting personnel, and growing our annual recurring revenue. Over the last 15 years, we have been an industry leader in clean energy software and solutions.
Each year since our inception, we have incurred net operating losses and negative cash flows from operations. We have financed our operations primarily through cash flows from customers and the issuance of convertible senior notes.
Our total revenue increased from $144.6 million for the year endedDecember 31, 2024 to $156.3 million for the year endedDecember 31, 2025. For the years endedDecember 31, 2025 and 2024, we generated net incomeof $137.8 million and incurred a net loss of $854.0 million, respectively. As of December 31, 2025, we had an accumulated deficit of $1,488.7 million.
On April 9, 2025, we announced an approximately 27%reduction of our global workforce, as part of our broader efforts to prioritize investments in software, reduce operating costs, increase efficiency, drive profitable growth and increase stockholder value. For the year endedDecember 31, 2025, we incurred $6.1 million in restructuring costs related to the reduction of our global workforce. We expect to continue to exercise discipline and moderate expenses associated with sales and marketing, research and development, regulatory and related functions. In addition, we expect to continue to manage and reduce our general and administrative expenses associated with scaling our business operations, including legal, audit, additional insurance expenses, investor relations activities and other administrative and professional services.
Key Factors, Trends and Uncertainties Affecting our Business
We believe that our performance and future success depend on several factors, some of which present significant opportunities for us, and some of which pose risks and challenges, including but not limited to:
Our Strategy
In 2024, we announced a new business strategy that reflects a renewed focus on developing and marketing our AI-enabled software, edge and services offerings. This transition has entailed significant operational changes during calendar years 2024 and 2025, including reduction of what had historically been the source of most of our revenue (battery resales), adjustments to the way we develop and market our products and services, and realignment of our business processes. These changes have resulted in reduced revenue, increased restructuring-related costs, reduced operating expenses, and short-term disruptions in our operations, which may negatively affect our ability to effectively scale our software and services offerings and achieve our financial and operational targets. Failure to achieve the anticipated benefits of our strategy may have a material adverse effect on our business, financial condition, and results of operations. See "Our strategy may not achieve anticipated benefits."in Part I. Item 1A. "Risk Factors" in this Report for additional information about some risks related to our strategy.
Cash Reserves
The execution of our new business strategy has required, and is expected to continue to require, investment in our software, our employees and infrastructure. As of December 31, 2025, we had cash and cash equivalents of $48.9 million(as compared to $43.1 millionas of September 30, 2025 and $56.3 millionas of December 31, 2024), while our operating expenses for the year endedDecember 31, 2025were $115.6 million. If our cash flow from operations does not improve as expected, or if we are unable to secure additional sources of capital if or when the need arises, we may be constrained in our ability to make the investments required to continue execution of our new strategy.
Customer Concentration
We have historically depended on a small number of significant customers for our sales, and a small number of customers have historically accounted for a material portion of our revenue. Although we continue to diversify our customer base, we may continue to derive a significant portion of our revenue from a small number of customers. Loss of a significant customer, the inability to close (or a delay in closing) a significant contract at any time, or a significant reduction in pricing or order volume from a significant customer, have (in the case of contractual delays) resulted in material reductions in revenue and other adverse effects in certain quarters, and may do so in the future.
Reverse Stock Split
On August 28, 2024, we received formal notice from the New York Stock Exchange (the "NYSE") that we were not in compliance with Section 802.01C of the NYSE Listed Company Manual because the average closing price of our shares of common stock had fallen below $1.00 per share over a period of 30 consecutive trading days.
At the Company's 2025 Annual Meeting of Stockholders, our stockholders approved a reverse stock split of our common stock, par value $0.0001 per share. After such stockholder approval, our Board of Directors implemented the reverse stock split at a ratio of 1-for-20 and a reduction in the total number of authorized shares of common stock from 500.0 millionshares to 250.0 millionshares on June 23, 2025 (the "Effective Time").
At the Effective Time, every 20 shares of common stock outstanding was combined, automatically and without any action on the part of the Company or its stockholders, into one new share of common stock. No fractional shares of common stock were issued as a result of the reverse stock split. In lieu of any fractional shares to which a stockholder of record was otherwise entitled, the Company paid cash to the applicable stockholder. The common stock began trading on a split-adjusted basis at the open of trading on June 23, 2025.
Adjustments proportionate to the 1-for-20 split ratio were made to the number of shares of Common Stock available for issuance under the Company's equity incentive plans; the number of shares issuable, and the applicable exercise prices under the Company's outstanding equity awards under such plans and any outstanding warrants; the conversion rates of outstanding convertible notes, in accordance with the related indentures; the strike prices of existing capped call options; the number of shares authorized for issuance pursuant to the convertible notes and capped call options; the shares reserved for issuance under any equity plan, outstanding equity award, convertible notes, capped call options or otherwise, and as otherwise described in the Company's Definitive Proxy Statement filed with the Securities and Exchange Commission on April 23, 2025.
Following the Effective Time, we regained compliance with the requirement of Section 802.01C, as our share price promptly exceeded $1.00 per share, and remained above that level for the following 30 trading days.
All share and per share amounts, exercise prices, conversion rates and conversion prices presented herein that relate to dates, or were established, prior to the reverse stock split have been adjusted retroactively to reflect these changes.
One Big Beautiful Bill Act of 2025
In July 2025, the OBBB was enacted, which introduced material changes to clean energy tax credit programs that are significant to our business and may affect our financial condition, results of operations and future prospects. Included in this legislation are provisions that allow for the immediate expensing of domestic United States research and development expenses, immediate expensing of certain capital expenditures, and other changes to the U.S. taxation of profits derived from foreign operations. The OBBB did not result in any material changes to tax expense or cash tax for 2025, primarily as a result of the valuation allowance we have on our deferred tax assets.
The OBBB scales back the Investment Tax Credit (the "ITC") available under Section 25D of the Internal Revenue Code (the "Code") for residential solar and storage systems purchased through cash or loans. Under the OBBB, the Section 25D credit expired on December 31, 2025. In addition, the OBBB imposes new timing requirements for eligibility under Section 48E of the Code, which governs ITCs for leased solar and storage systems. Previously under the IRA, Section 48E credits were available through 2032 or such later period when the U.S. power sector emitted 75% less carbon emissions than 2022 levels. Under the OBBB, these credits will no longer be available for solar-only projects placed in service after December 31, 2027, unless construction begins on or before July 4, 2026, pursuant to a grandfathering rule. Projects that qualify under this rule must still meet continuity requirements to remain eligible. Energy storage projects are not subject to this placed-in-service deadline; however, the ITC for storage systems will begin to phase down in 2034 - decreasing to 75% in 2034, 50% in 2035 and phasing out entirely by 2036.
The OBBB also amends the domestic content bonus credit rules for Section 48E projects. Projects commencing construction after June 16, 2025 and before January 1, 2026 must meet a 45% domestic cost threshold. If construction begins in
2026, the project's domestic cost threshold is 50%, and if construction begins after 2026, the project's domestic cost threshold is 55%.
Additionally, the OBBB introduces new compliance requirements under the Foreign Entity of Concern ("FEOC") provisions for both Section 48E and the Advanced Manufacturing Production Tax Credit ("AMPTC") under Section 45X. These provisions limit "material assistance" from FEOCs in projects otherwise eligible for tax credits under Section 48E and Section 45X and establish an escalating threshold of non-FEOC content that must be met by solar and storage projects beginning construction in 2026 and by manufactured components produced beginning in 2026.
On July 7, 2025, the President issued an Executive Order directing the Secretary of the Treasury to issue updated guidance on the "beginning of construction" requirements applicable to Section 48E projects under the OBBB and also to implement the FEOC restrictions set forth in the OBBB. On August 15, 2025, the Treasury Department released Notice 2025-42, which modifies the rules for determining when construction begins for purposes of qualifying for the Section 48E credits. The guidance eliminates the longstanding 5 percent safe harbor for solar projects larger than 1.5 megawatts (AC), effective for projects that begin construction on or after September 2, 2025. Projects that began construction prior to that date continue to be governed by prior IRS guidance. The 5 percent safe harbor remains available for solar facilities of 1.5 MW or smaller. Under the new rules, the physical work testis now the sole method for establishing that construction has begun for affected solar projects larger than 1.5 MW and for all wind projects. The test requires that "physical work of a significant nature" be performed, without regard to cost, and may include certain on-site and off-site activities but excludes preliminary activities such as planning, permitting, and financing. We are currently evaluating the full impact of this legislation on our consolidated financial statements.
The OBBB makes permanent key elements of the Tax Cuts and Jobs Act, including 100% bonus depreciation, domestic research cost expensing, and the business interest expense limitation. ASC 740, "Income Taxes", requires the effects of changes in tax rates and laws to be recognized in the period in which the legislation is enacted, which is the date the legislation is signed into law. The OBBB did not have a material impact on our financial statements for 2025, but we continue to evaluate the potential future impact of the OBBB on our financial statements.
Parent Company Guarantees
Prior to July 2023, we agreed in certain customer contracts, to provide a guarantee that the value of purchased hardware will not decline for a certain period of time, as more fully described below under Note 3 - Revenue, in the accompanying notes to the consolidated financial statements included in Part II, Item 8, "Financial Statements and Supplementary Data" of this Annual Report on Form 10-K. We accounted for such contractual terms and guarantees as variable consideration at each measurement date. As a result, the Company recorded a net revenue reduction of $38.7 millionin hardware revenue during the year endedDecember 31, 2024. The overall reduction in revenue was related to deliveries that occurred prior to 2024.
There are no remaining parent company guarantees ("PCGs") outstanding, and the Company expects no future impact on its financial results as a result of PCGs.
Because we have not included these parent company guarantees in our contracts since July 2023, and because we do not intend to provide guarantees in customer contracts going forward, we believe that excluding the effect of the $38.7 millionnet reduction in revenue for the year ended December 31, 2024, from adjusted EBITDA and non-GAAP gross profit enhances the comparability to these metrics in prior periods.
Impairment and Accounts Receivable Write-Off
For those contracts where the customers invoked PCG protection pursuant to the applicable contract, we have worked actively to remarket the remaining systems subject to PCG with a wide variety of potential customers, as more fully described below under Note 3 - Revenue, in the accompanying notes to the consolidated financial statements included in Part II, Item 8, "Financial Statements and Supplementary Data" of this Annual Report on Form 10-K. Given the uncertainty of collection from the original customers of due and unpaid amounts in those cases where we believe we have enforceable rights of recovery, we believe the likelihood for collection of the accounts receivable outstanding relating to hardware subject to these PCG's is no longer probable. Accordingly, we wrote-off the remaining receivables of $104.1 million during the year endedDecember 31, 2024. As of June 30, 2025, the Company had entered into an arrangement to recover $3.5 million of the receivables previously written off. As of December 31, 2025, the Company has recovered the full balance of $3.5 million. We are pursuing all potential remedies with respect to its enforceable rights under applicable contracts.
Seasonality
Our results of operations have typically fluctuated due to seasonal trends, which we expect to recur in future periods. Historically, we have recognized most of our revenue in the third and fourth fiscal quarters of each year due to various factors, including the requirement by our customers to reach target commercial operation dates for their renewable energy projects as well as tax equity and financing considerations. For instance, our revenue recognized in the third and fourth quarters of the fiscal year ended December 31, 2025accounted for 55% of the total revenue recognized in the fiscal year ended December 31, 2025. The seasonality of our results of operations may be mitigated as our software and services offerings begin to comprise a greater percentage of our total revenue.
DevCo Joint Ventures
We, through an indirect wholly-owned development subsidiary, entered into strategic joint ventures with qualified third parties to develop select energy storage generation projects ("DevCo Projects"), as more fully described below under Note 2 - Summary of Significant Accounting Policiesin the accompanying notes to the consolidated financial statements included in Part II, Item 8, "Financial Statements and Supplementary Data" of this Annual Report on Form 10-K. We have not made an investment in any DevCo Project since 2024, and we are not making further investments in these DevCo Projects. As of December 31, 2025 we have sold, or written off, all project assets associated with the DevCo Projects.
Increase in Deployment of Renewables
Deployment of intermittent resources has accelerated over the last decade, and today, wind and solar have become a low cost energy source. We expect the cost of generating renewable energy to continue to decline and deployments of energy storage systems to increase. 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
Our key competitors include energy monitoring and optimization software providers, energy storage and edge device OEMs and hardware integration providers. Our PowerTrack software is hardware agnostic and benefits from operational data across a multitude of hardware types, geographies, utilities and grid operator service areas. Our edge devices provide customers with a flexible solution that meets their individual project needs.
We believe we are well-positioned to compete successfully in the market for software and software-enabled services. We are among the leaders in global distributed solar and energy storage assets under management, supported by proven technology, focused customer service, strong strategic partnerships and a seasoned leadership team with a track record of success.
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 products 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 regularly modify these statutes and regulations and acting through state utility or public service commissions, regularly change and adopt different rates for commercial customers. These changes can positively or negatively affect our ability to deliver cost savings to customers.
Non-GAAP Financial Measures
In addition to financial results determined in accordance with U.S. generally accepted accounting principles ("GAAP"), we use adjusted EBITDA and non-GAAP gross profit and margin, which are non-GAAP financial measures, for financial and operational decision making and as a means to evaluate our operating performance and prospects, develop internal budgets and financial goals, and to facilitate period-to-period comparisons. 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. Adjusted EBITDA and non-GAAP gross profit and margin should be considered in addition to, not as a substitute for, or superior to, other measures of financial performance prepared in accordance with GAAP.
Non-GAAP Gross Profit and Margin
We define non-GAAP gross profit as gross profit excluding amortization of capitalized software, impairments related to decommissioning of end-of-life systems, impairments related to DevCo project assets and other write-offs, excess supplier costs, and reduction in revenue. We define non-GAAP gross margin as non-GAAP gross profit as a percentage of revenue.
During 2024, we incurred costs of $1.0 million above initially agreed prices on the acquisition of certain hardware systems from one of our suppliers, which resulted from production delays by such supplier. Because we had not previously incurred costs above initially agreed prices with a hardware supplier, we excluded this item from adjusted EBITDA and non-GAAP gross profit to better facilitate comparisons of our underlying operating performance across periods.
The following table provides a reconciliation of gross profit (loss) and margin (GAAP) to non-GAAP gross profit and margin (in millions, except for percentages):
| Years Ended December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| Revenue | $ | 156.3 | $ | 144.6 | |||||||
| Cost of revenue | (96.3) | (155.7) | |||||||||
| GAAP gross profit (loss) | $ | 60.0 | $ | (11.1) | |||||||
| GAAP gross margin (%) | 38 | % | (8) | % | |||||||
| Non-GAAP Gross Profit | |||||||||||
| GAAP Revenue | $ | 156.3 | $ | 144.6 | |||||||
|
Add: Revenue reduction, net (1)
|
- | 38.7 | |||||||||
|
Less: Other revenue adjustments (2)
|
(0.5) | - | |||||||||
| Subtotal | 155.8 | 183.3 | |||||||||
| Less: Cost of revenue | (96.3) | (155.7) | |||||||||
| Add: Amortization of capitalized software & developed technology | 17.6 | 16.2 | |||||||||
| Add: Impairments and other write-offs | (4.8) | 18.9 | |||||||||
|
Add: Excess supplier costs(3)
|
- | 1.0 | |||||||||
| Non-GAAP gross profit | $ | 72.3 | $ | 63.7 | |||||||
| Non-GAAP gross margin (%) | 46 | % | 35 | % | |||||||
(1) Refer to the discussion of reduction in revenue in "- Parent Company Guarantees" above.
(2) Other revenue adjustments refer to terminations and modifications of significant contracts with customers prior to their scheduled termination dates.
(3) Refer to the discussion of excess supplier costs in "- Non-GAAP Gross Profit and Margin" above.
Adjusted EBITDA
As discussed above, we believe that adjusted EBITDA is useful for investors to use in comparing our financial performance with the performance of other companies. Nonetheless, 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 when calculating adjusted EBITDA.
We calculate adjusted EBITDA as net income (loss)attributable to us before depreciation and amortization, including amortization of internally developed software, interest expense, further adjusted to exclude stock-based compensation and other income and expense items, including the gain on extinguishment of debt, reduction in revenue, other revenue adjustments, excess supplier costs, change in fair value of derivative liability, change in fair value of warrant liability, impairment of goodwill, contract termination payment, (expected recovery of) impairment and accounts receivable write-off, impairment of inventory and other deferred costs, impairment of deferred costs with suppliers, impairment of DevCo project assets, and income tax provision or benefit.
The following table provides a reconciliation of adjusted EBITDA to net income (loss) (in thousands):
| Years Ended December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| (in thousands) | |||||||||||
| Net income (loss) | $ | 137,761 | $ | (854,014) | |||||||
| Adjusted to exclude the following: | |||||||||||
|
Depreciation and amortization (1)
|
48,621 | 48,807 | |||||||||
| Interest expense | 23,933 | 18,293 | |||||||||
| Gain on extinguishment of debt | (220,047) | - | |||||||||
| Stock-based compensation | 10,216 | 18,471 | |||||||||
|
Revenue reduction, net (2)
|
- | 38,653 | |||||||||
|
Other revenue adjustments (3)
|
(453) | - | |||||||||
|
Excess supplier costs (4)
|
- | 1,012 | |||||||||
| Change in fair value of derivative liability | - | (1,477) | |||||||||
| Change in fair value of warrant liability | 3,222 | - | |||||||||
| Impairment of goodwill | - | 547,152 | |||||||||
|
Contract termination payment (5)
|
- | 10,000 | |||||||||
|
(Recovery of) impairment and accounts receivable write-off (6)
|
(3,500) | 104,134 | |||||||||
|
(Recovery) impairment of inventory and other deferred costs (7)
|
(13,220) | 18,059 | |||||||||
|
Impairment of deferred costs with suppliers (8)
|
- | 13,409 | |||||||||
|
Impairment of DevCo project assets (9)
|
6,390 | - | |||||||||
| Provision for income taxes | 536 | 332 | |||||||||
|
Other expenses (10)
|
13,249 | 14,328 | |||||||||
| Adjusted EBITDA | $ | 6,708 | $ | (22,841) | |||||||
(1) Depreciation and amortization includes depreciation and amortization expense, impairment loss of energy storage systems, impairment loss of project assets, and impairment loss of right-of-use assets.
(2) Refer to the discussion of reduction in revenue in "- Parent Company Guarantees" above.
(3) Other revenue adjustments refer to terminations and modifications of significant contracts with customers prior to their scheduled termination dates.
(4) Refer to the discussion of excess supplier costs "- Non-GAAP Gross Profit and Margin" above.
(5) Contract termination payments and hardware deposit forfeitures with certain suppliers.
(6) Refer to the discussion of write-offs relating to parent company guarantee related arrangements in "- Impairment and Accounts Receivable Write-Off" above.
(7) Recovery of inventory for the year ended December 31, 2025 represents changes to cost of goods due to terminations of significant contracts with customers prior to their scheduled termination dates. For the year ended December 31, 2024, impairment of inventory and other deferred costs represents charges to cost of goods to reduce the value of certain inventory items and deferred assets to their net realizable value.
(8) Deposit forfeitures with certain hardware suppliers.
(9) Impairment of DevCo project assets represent the excess of cost of goods over the sales transaction price for certain DevCo projects sold during the period.
(10) Adjusted EBITDA for the year ended December 31, 2025 reflects the exclusion of other expenses of $13.2 million. Other expenses are comprised of $6.1 million for expenses related to restructuring costs to pursue greater efficiency and to realign our business and strategic priorities, an accounts receivable write-off of $5.9 million, $0.9 million for one-time costs associated with a loss on disposal and abandonment of property, plant and equipment, and $0.3 million of other non-recurring expenses. Adjusted EBITDA for the year ended December 31, 2024reflects the exclusion of other expenses of $14.3 million. Other expenses are comprised of an accounts receivable write-off of $7.3 million, $3.7 million for expenses related to restructuring costs, $1.2 million for advisory services relating to strategy, $1.5 million in connection with separation agreements for certain of the Company's former executive officers, and $0.6 million of other non-recurring expenses. Restructuring expenses consisted of employee severance and other exit costs.
Financial Results and Key Metrics
The following table presents our financial results and our key metrics (in millions, except for percentages and unless otherwise noted):
| Years Ended December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| (in millions) | |||||||||||
| Key Financial Metrics | |||||||||||
| Revenue | $ | 156.3 | $ | 144.6 | |||||||
| GAAP gross profit (loss) | $ | 60.0 | $ | (11.1) | |||||||
| GAAP gross margin (%) | 38 | % | (8) | % | |||||||
| Non-GAAP gross profit | $ | 72.3 | $ | 63.7 | |||||||
| Non-GAAP gross margin (%) | 46 | % | 35 | % | |||||||
| Net income (loss) | $ | 137.8 | $ | (854.0) | |||||||
| Adjusted EBITDA | $ | 6.7 | $ | (22.8) | |||||||
| Key Operating Metrics | |||||||||||
| Bookings (1) | $ | 131.8 | $ | 115.9 | |||||||
| Contracted backlog* (2) | $ | 21.3 | $ | 20.9 | |||||||
| CARR* (3) | $ | 67.2 | $ | 64.5 | |||||||
| ARR* (4) | $ | 61.1 | $ | 52.8 | |||||||
| Solar operating AUM (in GW)* (5) | 36.1 | 29.9 | |||||||||
| Storage operating AUM (in GWh)* (6) | 1.7 | 1.8 | |||||||||
| * at period end | |||||||||||
| (1) Redefined versus prior periods. Beginning with the first quarter of 2025, the Company is redefining "Bookings" as the total value of executed purchase orders. Previously this metric included all relevant executed contracts, regardless of whether or not a related purchase order had been executed. The definition of Bookings is discussed in more detail below under the heading "Bookings." | |||||||||||
|
(2) Redefined versus prior periods. Beginning with the first quarter of 2025, the Company is redefining "Contracted Backlog" as the total value of hardware and non-recurring services bookings with executed purchase orders in dollars, as of a specific date. Previously, this metric included the total contract value of hardware, software and services contracts recognized ratably over the contract period, regardless of whether or not a related purchase order had been executed.
|
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| (3) Contracted Annual Recurring Revenue ("CARR"): Redefined versus prior periods. Beginning with the first quarter of 2025, the Company is redefining CARR as the annualized value from Stem customer subscription contracts with executed purchase orders signed in the period for systems that are not yet operating and all operating Stem customer subscription contracts, including PowerTrack software, storage software & recurring managed services, and some recurring professional services contracts. Previously, this metric included the annualized value from all executed Stem customer subscription contracts, regardless of whether or not a related purchase order had been executed. | |||||||||||
| (4) Annual Recurring Revenue ("ARR"): Annualized value from operating customer subscription contracts, including PowerTrack software, storage software & recurring managed services, and any recurring professional services contracts. | |||||||||||
| (5) Total GW of solar systems in operation. | |||||||||||
| (6) Represents total GWh of energy storage systems in operation. Beginning with the first quarter of 2025 contracted storage AUM was replaced with this metric. | |||||||||||
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, sales of energy storage systems, asset monitoring software, edge devices, and project and professional service engagements. Bookings represent the total value of executed customer purchase orders. Customer purchase orders are typically executed three to six months ahead of hardware installation. The booking amount includes (1) hardware revenue, which is typically recognized at delivery of the energy storage system and/or edge device to the customer, and (2) services revenue, which represents the total nominal software and services contract value which will be recognized ratably over the contract period.
Components of Our Results of Operations
Revenue
We generate services and other revenue and hardware revenue. Services and other revenue is generated through (i) energy optimization software, (ii) asset management software, and (iii) advisory services and (iv) the sale of project assets. Software fees charged to customers 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 (i) edge hardware devices and (ii) sales of OEM energy storage systems. Performance obligations are satisfied when the energy storage system and edge hardware device along with all ancillary hardware components are delivered. The milestone payments received before the delivery of hardware are treated as deferred revenue. In certain customer contracts, we agreed to provide a guarantee that the value of purchased hardware will not decline for a certain period of time, as more fully described below under Note 3 - Revenue, in the accompanying notes to the consolidated financial statements included in Part II, Item 8, "Financial Statements and Supplementary Data" of this Annual Report on Form 10-K.
Cost of Revenue
Cost of services and other revenue primarily includes costs to service our storage and solar subscription customers. It includes expenses related to providing support to our customers and cloud-related costs, such as hosting costs. These costs primarily consist of personnel-related expenses of our services and customer support personnel, amortization of capitalized internal-use software development, and public cloud and cellular infrastructure costs. Cost of services and other revenue also 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. Additionally, cost of services and other revenue may include the costs for the development and constructions of project assets or any impairment of inventory and energy storage systems, along with system maintenance costs associated with the ongoing services provided to customers.
Cost of hardware revenue generally includes the cost to produce edge hardware and the battery hardware purchased from a manufacturer, shipping, delivery, and other costs required to fulfill our obligation to deliver the edge hardware and energy storage systems to the customer location. Cost of hardware revenue may also include any impairment of energy storage systems held in our inventory for sale to our customer. Cost of hardware revenue related to the sale of energy storage systems is recognized when the delivery of the product is completed.
Gross Profit (Loss)
Our gross profit (loss) fluctuates significantly from quarter to quarter. Gross profit (loss), 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. Over the long term, we hope to increase both our gross profit in absolute dollars and gross margin as a percentage of revenue through enhanced operational efficiency and economies of scale.
Operating Expenses
Sales and Marketing
Sales and marketing expense consists of payroll and other related personnel costs, including salaries, stock-based compensation, commissions, bonuses, employee benefits, and travel for our sales and marketing personnel. In addition, sales and marketing expense includes trade show costs, amortization of intangibles and other expenses. We expect our sales and marketing expense to increase in future periods 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, bonuses and stock-based compensation expense, project material costs, services and depreciation. Our research and development expenses support our investments 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
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, human resources and other costs. In addition, general and administrative expense includes fees for professional services and occupancy costs. We expect to continue to manage and reduce our general and administrative expense associated with scaling our business operations and being a public company, including compliance with the rules and regulations of the SEC, legal, audit, additional insurance expenses, investor relations activities, and other administrative and professional services.
Impairment of Parent Company Guarantees
Account balances deemed to be uncollectible are charged to bad debt expense after all means of collection have been exhausted and the potential for recovery is considered remote.
Impairment of Goodwill
Impairment of goodwill represents impairment charges as a result of the carrying amount being greater than the fair value.
Other Income (Expense), Net
Interest Expense
Interest expense, net consists primarily of interest on our outstanding borrowings under our outstanding convertible senior notes, senior secured notes, financing obligations, and accretion on our asset retirement obligations.
Gain on Extinguishment of Debt
Gain on extinguishment of debt represents the proportional carrying value of the exchanged 2028 Convertible Notes and 2030 Convertible Notes, reduced by the collective fair value of the 2030 Senior Secured Notes and the fair value of the 2030 Private Placement Warrants, offset by cash received.
Change in Fair Value of Derivative Liability
Change in fair value of derivative liability is related to the revaluation of derivative feature within a revenue contract, whereby final settlement is indexed to the price per ton of lithium carbonate.
Change in Fair Value of Warrant Liability
Change in fair value of warrant liability is related to the revaluation at each reporting date of our private placement warrants issued in connection with our senior secured notes.
Other Income, Net
Other income, net consists primarily of income from equity investments and foreign exchange gains or losses.
Results of Operations
Results of Operations for the Years Ended December 31, 2025and 2024
| Year Ended December 31, | $ Change | % Change | |||||||||||||||||||||
| 2025 | 2024 | ||||||||||||||||||||||
| (In thousands, except percentages) | |||||||||||||||||||||||
| Revenue | |||||||||||||||||||||||
| Services and other revenue | $ | 87,696 | $ | 67,810 | $ | 19,886 | 29% | ||||||||||||||||
| Hardware revenue | 68,570 | 76,774 | (8,204) | (11)% | |||||||||||||||||||
| Total revenue | 156,266 | 144,584 | 11,682 | 8% | |||||||||||||||||||
| Cost of revenue | |||||||||||||||||||||||
| Cost of services and other | 52,662 | 52,394 | 268 | 1% | |||||||||||||||||||
| Cost of hardware | 43,648 | 103,248 | (59,600) | (58)% | |||||||||||||||||||
| Total cost of revenue | 96,310 | 155,642 | (59,332) | (38)% | |||||||||||||||||||
| Gross profit (loss) | 59,956 | (11,058) | 71,014 | (642)% | |||||||||||||||||||
| Operating expenses | |||||||||||||||||||||||
| Sales and marketing | 28,717 | 37,759 | (9,042) | (24)% | |||||||||||||||||||
| Research and development | 35,295 | 51,282 | (15,987) | (31)% | |||||||||||||||||||
| General and administrative | 51,632 | 88,071 | (36,439) | (41)% | |||||||||||||||||||
| Impairment of parent company guarantees | - | 104,134 | (104,134) | * | |||||||||||||||||||
| Impairment of goodwill | - | 547,152 | (547,152) | * | |||||||||||||||||||
| Total operating expenses | 115,644 | 828,398 | (712,754) | (86)% | |||||||||||||||||||
| Loss from operations | (55,688) | (839,456) | 783,768 | (93)% | |||||||||||||||||||
| Other income (expense), net | |||||||||||||||||||||||
| Interest expense | (23,933) | (18,293) | (5,640) | 31% | |||||||||||||||||||
| Gain on extinguishment of debt | 220,047 | - | 220,047 | * | |||||||||||||||||||
| Change in fair value of derivative liability | - | 1,477 | (1,477) | * | |||||||||||||||||||
| Change in fair value of warrant liability | (3,222) | - | (3,222) | * | |||||||||||||||||||
| Other income, net | 1,093 | 2,590 | (1,497) | (58)% | |||||||||||||||||||
| Total other income (expense), net | 193,985 | (14,226) | 208,211 | (1,464)% | |||||||||||||||||||
| Income (loss) before provision for income taxes | 138,297 | (853,682) | 991,979 | (116)% | |||||||||||||||||||
| Provision for income taxes | (536) | (332) | (204) | 61% | |||||||||||||||||||
| Net income (loss) | $ | 137,761 | $ | (854,014) | $ | 991,775 | (116)% | ||||||||||||||||
*Percentage is not meaningful
Revenue
Total revenue increased by $11.7 million, or 8%, for the year ended December 31, 2025, as compared to the year ended December 31, 2024. The change was primarily driven by an increase in services and other revenue of $19.9 million compared to the year ended December 31, 2024, primarily due to an increase in solar services subscriptions from existing and new customers. The increase was partially offset by a $8.2 million decrease in hardware revenue that is primarily the result of a decrease in battery hardware resales being offset by increased edge hardware and service offerings as the company continues to strategically de-emphasize battery hardware resales and pursue more selective opportunities.
Cost of Revenue
Cost of revenue decreased by $59.3 million, or 38%, for the year ended December 31, 2025, as compared to the year ended December 31, 2024. The decrease was primarily driven by a decrease in cost of hardware revenue of $59.6 milliondue to a reduction in low margin battery hardware resales as the company continues to strategically de-emphasize this business line and pursue more selective opportunities.Cost of services and other revenue increased $0.3 million.
Operating Expenses
Sales and Marketing
Sales and marketing expense decreased by $9.0 million, or 24%, for the year ended December 31, 2025, as compared to the year ended December 31, 2024. The decrease was primarily due to a decrease of $7.5 million in personnel costs as a result of a decrease in headcount, and a decrease of $1.6 million of professional services, resulting from reductions in advisory services, marketing related subscription cancellations and office-related expenses.
Research and Development
Research and development expense decreased by $16.0 million, or 31%, for the year ended December 31, 2025, as compared to the year ended December 31, 2024. The decrease was primarily due to a decrease of $11.4 million in personnel costs as a result of lower headcount, and a decrease of $4.6 million in professional services and other expenses.
General and Administrative
General and administrative expense decreased by $36.4 million, or 41%, for the year ended December 31, 2025, as compared to the year ended December 31, 2024. The decrease was primarily driven by one-time prior year charges, including a one-time contract termination payment of $10.0 million, an impairment of deferred costs with suppliers of $13.4 million, along with reductions in current year expenses, including a decrease of $6.3 million in personnel costs as a result of a decrease in headcount, a decrease of $4.2 million in office-related expenses, a decrease of $1.9 million of bad debt expense, a decrease of $0.6 million of professional services and other expenses, and a decrease of $0.1 million in business taxes related to state sales tax liabilities.
Impairment of parent company guarantees
During the year ended December 31, 2024, we recorded credit losses of $104.1 million primarily due to a write-off of receivables related to certain customer contracts, which provided a parent company guarantee, that were deemed to be uncollectible.
Impairment of Goodwill
During the year ended December 31, 2024, we recorded an impairment of goodwill of $547.2 million as the carrying amount of the reporting unit exceeded its fair value.
Other Income (Expense), Net
Interest Expense
Interest expense increased by $5.6 million, or 31%, for the year ended December 31, 2025, as compared to the year ended December 31, 2024. The increase was primarily driven by an increase of $11.0 million on our 2030 Senior Secured Notes, and the accretion of discount on short-term investments of $0.1 million, partially offset by a decrease of $3.9 million in interest on our 2028 and 2030 Convertible Notes and a decrease of $1.8 million in interest on financing obligations.
Gain on Extinguishment of Debt, Net
During the year ended December 31, 2025, we recorded a $220.0 million gain on extinguishment of debt driven by the $155.4 million issuance of our 2030 Senior Secured Notes, 2030 Private Placement Warrants, and cash proceeds, which extinguished approximately $228.8 million aggregate principal amount of our 2028 Convertible Notes and approximately $121.3 million aggregate principal amount of our 2030 Convertible Notes.
Change in Fair Value of Derivative Liability
During the year ended December 31, 2024, we realized gains of $1.5 million relating to the settlement of our derivative liability related to customers contracts.
Change in Fair Value of Warrant Liability
During the year ended December 31, 2025, we recorded an increase of $3.2 million relating to our private placement warrant liability.
Other Income, Net
Other income, net decreased by $1.5 million, or 58%, for the year ended December 31, 2025, as compared to the year ended December 31, 2024. The net decrease was primarily due to a decrease of $1.5 million in interest income from money market funds.
Provision for Income Taxes
During the year ended December 31, 2025, we recorded a provision for income taxes of $0.5 million primarily due to foreign and state income tax expense. During the year ended December 31, 2024, we recorded a provision for income taxesof $0.3 million primarily as a result of foreign and state income tax expense.
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. Significant factors in the management of liquidity are funds generated from operations, levels of accounts receivable and accounts payable and capital expenditures.
As of December 31, 2025, our principal sources of liquidity were cash and cash equivalents of $48.9 million, which were held for working capital purposes and for investment growth opportunities. As of December 31, 2025, we had net accounts receivable of $38.4 million and our working capital (deficit), which we define as current assets less current liabilities, was $(10.5) million. We believe that our cash position is sufficient to meet our capital and liquidity requirements for at least the next 12 months.
Our attainment of profitable operations is dependent upon future events, including continued implementation of our business strategy, hiring and retaining our key executives and personnel with the requisite experience to develop our software and AI-based solutions, controlling our operating costs and building our customer base. Failure to achieve the intended benefits of our business strategy, generate sufficient revenues from our software and services offerings, achieve planned gross margins and operating profitability, control operating costs, or secure additional funding may require us to modify, delay, or abandon some of our planned future expansion or development, or to otherwise enact operating cost reductions available to management, which could have a material adverse effect on our business, operating results, and financial condition. The execution of our new strategy has required significant operational changes, including reduction of what has historically been the source of most of our revenue (battery resales), adjustments to the way we develop and market our products and services, and realignment of our business processes. These changes have resulted in reduced revenue, increased costs and short-term disruptions in our operations, which have negatively impacted our financial condition in the near term. Furthermore, our cash reserves may constrain our ability to make the investments required to execute our new strategy or may otherwise not be sufficient to fund operations. If our cash flow from operations does not improve as quickly as expected, or if we are unable to secure additional sources of capital if or when the need arises, it may have a material adverse effect on our business, financial condition, and results of operations.
In the future, we may be required to obtain additional equity or debt financing in order to support our continued capital expenditures and operations, which may not be available on terms acceptable to us or at all. 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.
Our long-term liquidity requirements are linked primarily to the expansion of our software and services offerings and our related business strategy, as well as the continued extension of PowerTrackTMand other software applications. 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 plans.
Financing Obligations
We have entered into arrangements wherein we finance the cost of energy storage systems via special purpose entities ("SPEs") we establish with outside investors. These SPEs are not consolidated into our financial statements, but are accounted for as equity method investments. The investors provide us upfront payments through the SPEs. 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 December 31, 2025 was $43.4 million, of which $13.8 million was classified as a current liability.
2028 Green Convertible Senior Notes
On November 22, 2021, we sold to Morgan Stanley & Co. LLC, Goldman Sachs & Co. LLC and Barclays Capital Inc, as initial purchasers (the "2021 Initial Purchasers"), and the 2021 Initial Purchasers purchased from us, $460.0 millionaggregate principal amount of our 0.50% Green Convertible Notes due 2028 (the "2028 Convertible Notes"), pursuant to a purchase agreement dated as of November 17, 2021, by and between us and the 2021 Initial Purchasers. Our net proceeds from this offering were approximately $445.7 million, after deducting the 2021 Initial Purchasers' discounts and commissions and the estimated offering expenses payable by us. The 2028 Convertible Notes will accrue interest payable semi-annually in arrears and will mature on December 1, 2028, unless earlier repurchased, redeemed or converted in accordance with their terms prior to such date. Upon conversion, we may choose to pay or deliver, as the case may be, cash, shares of common stock or a combination of cash and shares of common stock. The 2028 Convertible Notes are redeemable for cash at our option at any time given certain conditions. Refer to Note 11 - Debt, in the accompanying notes to the consolidated financial statements included in Part II, Item 8, "Financial Statements and Supplementary Data" of this Annual Report on Form 10-K for additional details regarding this transaction.
On November 17, 2021, in connection with the pricing of the 2028 Convertible Notes, and on November 19, 2021, in connection with the exercise in full by the 2021 Initial Purchasers of their option to purchase additional 2028 Convertible Notes, we entered into capped call transactions with certain of the 2021 Initial Purchasers of the 2028 Convertible Notes to minimize the potential dilution to our common stockholders upon conversion of the 2028 Convertible Notes. We used approximately $66.7 million of the net proceeds from the 2028 Convertible Notes to pay the cost of the capped call transactions described above. We intend to allocate an amount equivalent to the net proceeds from this offering to finance or refinance, in whole or in part, existing or new eligible green expenditures of Stem, including investments related to creating a more resilient clean energy system, optimized software capabilities for energy systems, and reducing waste through operations.
On April 3, 2023,weused approximately $99.8 millionof the net proceeds from the issuance of the 4.25% Green Convertible Senior Notes due 2030 ("2030 Convertible Notes") to purchase and surrender for cancellation approximately $163.0 millionin aggregate principal amount of our 2028 Convertible Notes. See Note 11 - Debt,in the accompanying notes to the consolidated financial statements included in Part II, Item 8, "Financial Statements and Supplementary Data" of this Annual Report on Form 10-K for additional details regarding this transaction.
On June 30, 2025, we exchanged approximately $228.8 million aggregate principal amount of the Company's 2028 Convertible Notes and approximately $121.3 million aggregate principal amount of the Company's 2030 Convertible Notes, fora portion of the Senior Secured PIK Toggle Notes due 2030 (the "2030 Senior Secured Notes"), which resulted in a $220.0 million gain on debt extinguishment. See Note 11 - Debt, in the accompanying notes to the consolidated financial statements included in Part II, Item 8, "Financial Statements and Supplementary Data" of this Annual Report on Form 10-K for additional details regarding this transaction.
We or our affiliates may, at any time and from time to time, seek to retire or purchase our outstanding 2028 Convertible Notes through cash purchases and/or exchanges for equity or debt, in open-market purchases, privately negotiated transactions or otherwise. Such repurchases or exchanges, if any, will be upon such terms and at such prices as we may determine, and will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved may be material.
2030 Convertible Notes
On April 3, 2023, we issued $240.0 millionaggregate principal amount of our 2030 Convertible Notes in a private placement offering to qualified institutional buyers (the "2023 Initial Purchasers") pursuant to Rule 144A under the Securities Act of 1933, as amended. The 2030 Convertible Notes are senior, unsecured obligations of the Company and bear interest at a rate of 4.25% per year, payable in cash semi-annually in arrears in April and October of each year, beginning in October 1, 2023. The 2030 Convertible Notes will mature on April 1, 2030, unless earlier repurchased, redeemed or converted in accordance with their terms prior to such date. Upon conversion, we may choose to pay or deliver cash, shares of common stock or a combination of cash and shares of common stock. The 2030 Convertible Notes are redeemable for cash at our option at any time given certain conditions. See Note 11 - Debt, of the Notes to the consolidated financial statements included in Part II, Item 8, "Financial Statements and Supplementary Data" of this Annual Report on Form 10-K for additional details regarding this transaction.
Our net proceeds from this offering were approximately $232.4 million, after deducting for $7.6 millionof debt issuance costs primarily consisting of underwriters, advisory, legal, and accounting fees. We used approximately $99.8 millionof the net proceeds to purchase and surrender for cancellation approximately $163.0 millionaggregate principal amount of our 2028 Convertible Notes.
On March 29, 2023 and March 31, 2023, in connection with the pricing of the 2030 Convertible Notes, and on April 3, 2023, in connection with the exercise in full by the 2023 Initial Purchasers of their option to purchase additional 2030 Convertible Notes, we entered into Capped Calls (the "2030 Capped Calls") with certain counterparties. We used $27.8 millionof the net proceeds from the 2030 Convertible Notes to pay the cost of the 2030 Capped Calls.
On June 30, 2025, we exchanged approximately $121.3 million aggregate principal amount of the Company's 2030 Convertible Notes, fora portion of the Senior Secured PIK Toggle Notes due 2030 (the "2030 Senior Secured Notes"), which resulted in a $220.0 million gain on debt extinguishment. See Note 11 - Debt, in the accompanying notes to the consolidated financial statements included in Part II, Item 8, "Financial Statements and Supplementary Data" of this Annual Report on Form 10-K for additional details regarding this transaction.
We or our affiliates may, at any time and from time to time, seek to retire or purchase our outstanding 2030 Convertible Notes through cash purchases and/or exchanges for equity or debt, in open-market purchases, privately negotiated transactions or otherwise. Such repurchases or exchanges, if any, will be upon such terms and at such prices as we may determine, and will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved may be material.
2030 Senior Secured Notes
On June 30, 2025, the Company issued $155.4 million aggregate principal amount of its 2030 Senior Secured Notesto holders of the Company's 2028 Convertible Notes and the Company's 2030 Convertible Notes in a privately negotiated exchange (the "Exchange") pursuant to Rule 144A under the Securities Act of 1933, as amended.
The transaction included an exchange of approximately (i) $228.8 million principal amount of the 2028 Convertible Notes and (ii) $121.3 million principal amount of the 2030 Convertible Notes, less amounts in lieu of fractional notes, for the 2030 Senior Secured Notes, warrants to purchase 439,919 shares of common stock (the "2030 Private Placement Warrants"), (iii) $10.0 million of cash proceeds, and accrued and unpaid interest on the exchanged 2028 Convertible Notes and 2030 Convertible Notes. The exchange resulted in a $220.0 million gain on debt extinguishment recorded within other income (expenses), net in the unaudited consolidated statements of operations. The gain on debt extinguishment represented the proportional carrying value of the exchanged 2028 Convertible Notes and 2030 Convertible Notes, which in aggregate was $343.9 million, reduced by the collective fair value of the 2030 Senior Secured Notes of $132.0 million and the fair value of the 2030 Private Placement Warrants of $1.9 million, offset by cash received. The fair value of the 2030 Senior Secured Notes was estimated using a Black Derman-Toy lattice model with a yield of approximately 14.6%, synthetic credit rating for the Company, volatility of 32%, and the risk free rate of 3.79% for the expected term associated with the 2030 secured notes. The fair value of the 2030 Private Placement Warrants was estimated using the Black-Scholes-Merton model based on the Company's closing strike price on the date of extinguishment of $6.23, volatility of 118.6%, and the risk free rate of 3.79% for the expected term associated with the 2030 secured notes. The Company accrued $5.2 million in debt issuance costs primarily consisting of financial advisory, legal, and accounting fees. See 2028 Convertible Notes and 2030 Convertible Notes above for further details on the impacts of the debt extinguishment.
At the Company's election for any interest period, the 2030 Senior Secured Notes bear interest at a rate of (i) 12.00%per year, if interest is paid in kind, subject to a maximum amount of interest able to be paid in kind, and (ii) 11.00%per year if interest is paid in cash. In each case, interest is payable semi-annually in arrears in January and July of each year, beginning on January 1, 2026. The 2030 Senior Secured Notes will mature on December 30, 2030 unless redeemed in accordance with their terms prior to such date.
The 2030 Senior Secured Notes will be redeemable, in whole or in part, for cash at the Company's option at any time, and from time to time, at the following redemption prices: on or after the date of issuance to December 31, 2027, at 105.00% of the principal amount of the notes being redeemed, including interest paid in kind, if any, plus accrued and unpaid interest; from January 1, 2028 to December 31, 2028, at 102.50% of the principal amount of the notes being redeemed, including interest paid in kind, if any, plus accrued and unpaid interest; and on or after January 1, 2029, at 100.00% of the principal amount of the notes being redeemed, including interest paid in kind, if any, plus accrued and unpaid interest.
Cash Flows
The following table summarizes our cash flows for the periods indicated (in thousands):
| Year Ended December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| Net cash provided by (used in) operating activities | $ | 6,861 | $ | (36,650) | |||||||
| Net cash used in investing activities | (6,602) | (3,517) | |||||||||
| Net cash used in financing activities | (7,563) | (8,438) | |||||||||
| Effect of exchange rate changes on cash, cash equivalents and restricted cash | (80) | 215 | |||||||||
| Net decrease in cash, cash equivalents and restricted cash | $ | (7,384) | $ | (48,389) | |||||||
Operating Activities
During the year ended December 31, 2025, net cash provided by operating activities was $6.9 million, primarily due to our net incomeof $137.8 million, adjusted for non-cash charges of $161.3 million and a net cash inflow of $30.4 million from changes in operating assets and liabilities. Non-cash charges primarily consisted of a gain on debt extinguishment of $220.0 million, write-offof accrued expenses and other liabilities of $38.3 million, partially offset by depreciation and amortization of $44.9 million, non-cash interest expense of $1.5 million related to debt issuance costs, stock-based compensation expense of $10.2 million, a change in fair value of warrant liability of $3.2 million, non-cash lease expense of $2.7 million, impairment of energy storage systems of $2.0 million, loss on disposal of property and equipment of $0.8 million,impairment loss of project assets of $1.7 million, impairment of right-of-use assets of $1.4 million, impairment of other assets of $25.1 million, provision for accounts receivable allowance of $3.0 million, and other non-cash items of $0.5 million. The net cash inflow from changes in operating assets and liabilities was primarily driven by a decrease in accounts receivable of $17.7 million, a decrease in inventory of $6.3 million, a decrease in deferred costs with suppliers of $0.5 million, a decrease in other assets of $9.4 million, and a decrease in project assets of $14.8 million, partially offset by a decrease in deferred revenue of $0.3 million, an increase in contract origination costs of $1.5 million, a decrease in accounts payable of $19.9 million, an increase in accrued expenses of $7.4 million, and a decrease in lease liabilities, net of $4.2 million.
During the year ended December 31, 2024, net cash used in operating activities was $36.7 million, primarily due to our net lossof $854.0 million, adjusted for non-cash charges of $757.6 million and net cash inflow of $59.8 million from changes in operating assets and liabilities. Non-cash charges primarily consisted of depreciation and amortization of $45.0 million, non-cash interest expense of $2.1 million related to debt issuance costs, stock-based compensation expense of $18.5 million, non-cash lease expense of $3.0 million, impairment of inventory of $14.7 million, impairment of deferred costs with suppliers of $13.4 million,impairment of energy storage systems of $0.8 million, impairment loss of project assets of $0.9 million, impairment of right-of-use assets of $2.1 million, impairment and accounts receivable write-off of $104.1 million, impairment of goodwill of $547.2 million, impairment of deferred services $3.4 million, provision for accounts receivable allowance of $4.0 million, partially offset by change in fair value of derivative liability of $1.5 million. The net cash inflow from changes in operating assets and liabilities was primarily driven by a decrease in accounts receivable of $133.1 million, a decrease in inventory of $2.8 million, a decrease in deferred costs with suppliers of $6.5 million, a decrease in other assets of $6.5 million, partially offset by an increase in contract origination costs of $2.1 million, an increase in project assets of $8.9 million, a decrease in accrued expenses and other liabilities of $20.3 million, a decrease in accounts payable of $48.1 million, a decrease in lease liabilities, net of $2.8 million, and a decrease in deferred revenue of $6.9 million.
Investing Activities
During the year ended December 31, 2025, net cash used in investing activities was $6.6 million, consisting of $6.6 million in capital expenditures on internally-developed software.
During the year ended December 31, 2024, net cash used in investing activities was $3.5 million, primarily consisting of $0.3 million used for the purchase of energy systems, $11.3 million in capital expenditures on internally-developed software, and $0.2 million used for the purchase of property and equipment, partially offset by $8.3 million in net proceeds of available-for-sale investments.
Financing Activities
During the year ended December 31, 2025, net cash used in financing activities was $7.6 million, primarily consisting of the repayment of financing obligations of $12.2 million and a redemption of non-controlling interest of $0.2 million, partially offset by net proceeds from the issuance of senior secured notes of $4.8 million.
During the year ended December 31, 2024, net cash used in financing activities was $8.4 million, primarily consisting of repayment of financing obligations of $8.5 million, partially offset by an investment from non-controlling interest of $0.1 million.
Contractual Obligations and Commitments
The contractual obligations presented in the table below represent our estimates of future payments under fixed contractual obligations and commitments. Changes in our business needs, cancellation provisions and changes in interest rates, as well as action by third parties and other factors, may cause these estimates to change. Therefore, our actual payments in future periods may vary from those presented in the table below. We generally expect to satisfy these commitments with cash on hand and cash provided by operating activities.
The following table summarizes our contractual obligations and commitments as of December 31, 2025 (in thousands).
| Less than | More than | |||||||||||||||||||||||||||||||
| Total | 1 Year | 1-3 Years | 3-5 Years | 5 Years | ||||||||||||||||||||||||||||
| Interest on 2028 Convertible Notes | $ | 995 | $ | 341 | $ | 654 | $ | - | $ | - | ||||||||||||||||||||||
| Interest on 2030 Convertible Notes | 21,438 | 5,044 | 10,089 | 6,305 | - | |||||||||||||||||||||||||||
| Interest on 2030 Senior Secured Notes | 96,695 | 17,788 | 35,738 | 43,169 | - | |||||||||||||||||||||||||||
| Operating lease obligations | 14,856 | 3,796 | 7,907 | 2,978 | 175 | |||||||||||||||||||||||||||
| Non-cancelable purchase obligations | 2,998 | 1,866 | 1,132 | - | - | |||||||||||||||||||||||||||
| Total | $ | 136,982 | $ | 28,835 | $ | 55,520 | $ | 52,452 | $ | 175 | ||||||||||||||||||||||
See Note 6 - Leasesand Note 11 - Debt, in the accompanying notes to the consolidated financial statements included in Part II, Item 8, "Financial Statements and Supplementary Data" of this Annual Report on Form 10-K for more details.
We do not consider our financing obligations as contractual obligations, as our repayments of such obligations are required only to the extent payments are collected in relation to the operation of the underlying energy storage systems. The obligation is nonrecourse and there are no contractual commitments to pay specific amounts at any point in time throughout the life of the obligation.
We are not a party to any off-balance sheet arrangements, including guarantee contracts, retained or contingent interests, or unconsolidated variable interest entities that either have, or would reasonably be expected to have, a current or future material effect on our consolidated financial statements.
Critical Accounting Policies and Estimates
Our discussion and analysis of financial condition and results of operations are based upon our consolidated financial statements. Our consolidated financial statements are prepared in accordance with GAAP. The preparation of our consolidated financial statements in accordance with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses. We base our estimates on past experience and other assumptions that we believe are reasonable under the circumstances, and we evaluate these estimates on an ongoing basis. Actual results may differ from those estimates.
Our critical accounting policies are those that materially affect our consolidated financial statements and involve difficult, subjective or complex judgments by management. A thorough understanding of these critical accounting policies is essential when reviewing our consolidated financial statements. We believe that the critical accounting policies listed below involve the most difficult management decisions because they require the use of significant estimates and assumptions as described above.
Our significant accounting policies are described in Note 2 - Summary of Significant Accounting Policies, in the accompanying notes to the consolidated financial statements included in Part II, Item 8, "Financial Statements and Supplementary Data" of this Annual Report on Form 10-K. We believe that the following critical accounting policies reflect the more significant estimates and assumptions used in the preparation of our consolidated financial statements:
Revenue Recognition
We generate revenue through host customer arrangements, partnership arrangements, and sales of project assets. We apply judgment during the identification of a contract to determine the customer's ability and intent to pay, which is based on a variety of factors, including the customer's historical payment experience or, in the case of a new customer, credit and financial information pertaining to the customer.
For contracts that contain multiple performance obligations, we allocate the transaction price for each contract to each performance obligation based on the relative standalone selling price, or SSP for each performance obligation. We use
judgment in determining the SSP for our products and services. We typically assess the SSP for our products and services on an annual basis or when facts and circumstances change. To determine SSP, we maximize the use of observable standalone sales and observable data, where available. In instances where performance obligations do not have observable standalone sales, we utilize available information that may include other observable inputs or use the expected cost-plus margin approach to estimate the price we would charge if the products and services were sold separately. The expected cost-plus margin approach is currently used to determine SSP for each distinct performance obligation for sale of hardware.
In some cases, the total transaction price is determined based on the total consideration specified in the contract, including variable consideration in the form of a performance guaranty payment that represents potential amounts payable to customers. The expected value method is generally used when estimating variable consideration, which typically reduces the total transaction price due to the nature of the performance obligations to which the variable consideration relates. These estimates reflect our historical experience and current contractual requirements which cap the maximum amount that may be paid. The expected value method requires judgment and considers multiple factors that may vary over time depending upon the unique facts and circumstances related to each performance obligation. Depending on the facts and circumstances, a change in variable consideration estimate will either be accounted for at the contract level or using the portfolio method.
Impairment of Long-Lived Assets
Long-lived assets, including energy storage systems, and intangible assets with finite lives, are reviewed for impairment when events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Factors that we analyze in determining whether an impairment in our long-lived assets exists include determining if a significant decrease in the market price of a long-lived asset is present; a significant adverse change in the extent to which a long-lived asset is being used in its physical condition; legal proceedings or factors; significant business climate changes; accumulations of costs in significant excess of the amounts expected; a current-period operating or cash flow loss coupled with historical negative cash flows or expected future negative cash flows; and current expectations that more likely than not, a long-lived asset will be sold or otherwise disposed of significantly before the end of its estimated useful life.
When an impairment indicator is present, we determine if the carrying value of the asset is recoverable by comparing it to its expected undiscounted future cash flows. If the asset group is not recoverable, the impairment loss is calculated as the excess of the carrying value over the fair value. Key estimates in the undiscounted cash flow model include management's estimate of the projected revenues and operating margins. If fair value is used to determine an impairment loss, an additional key assumption is the selection of a weighted-average cost of capital to discount cash flows. We recorded impairment charges for energy storage systems amounting to $2.0 millionduring the year ended December 31, 2025. We recorded $1.7 million in project asset impairments during the year ended December 31, 2025.
Fair Value Measurements - 2030 Senior Secured Notes
The Company's 2030 Senior Secured Notes, issued in June 2025, represent a significant component of our long-term debt. The fair value measurement of these notes is a critical accounting estimate due to the complexity of the instrument, the lack of an active market, and the significant management judgment required in the valuation process.
The 2030 Senior Secured Notes are not publicly traded and do not have readily observable market prices. As a result, we estimate their fair value using an option pricing model, specifically a Black Derman-Toy lattice model. The valuation incorporates both observable and unobservable inputs, and is classified as a Level 3 measurement in the fair value hierarchy. Key inputs and assumptions used in the valuation include yield, synthetic credit rating for the Company, volatility, and risk-free rate. Refer to Note 11 - Debt , in the accompanying notes to the consolidated financial statements included in Part II, Item 8, "Financial Statements and Supplementary Data" of this Annual Report on Form 10-K.
Recent Accounting Pronouncements
Information with respect to recent accounting pronouncements may be found in Note 2 - Summary of Significant Accounting Policies, in the accompanying notes to the consolidated financial statements included in Part II, Item 8, "Financial Statements and Supplementary Data" of this Annual Report on Form 10-K.
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