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Stem: Full-year positive EBITDA in 2024 to follow Q4’s ‘milestone achievement’


US energy storage provider and renewable asset management services group Stem Inc. has confirmed guidance that it will be adjusted EBITDA positive throughout 2024.

The company released its financial results for Q4 and full-year 2023 periods late last week, reporting an 8% year-on-year revenue increase for the fourth quarter to US$167 million and a 27% increase in annual revenues, which reached US$462 million.

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California-headquartered Stem was one of the early entrants to the behind-the-meter (BTM) commercial and industrial (C&I) energy storage market, using its Athena software platform to help customers peak shave and reduce their electricity bills, while also leveraging the software’s AI capabilities to use those battery systems to provide grid services through utility programmes.

From there, the company has diversified to add front-of-the-meter (FTM) projects to its portfolio, predominantly smaller grid-scale solar-plus-storage projects in key markets like Massachusetts that have programmes in place to incentivise market participation of co-located resources.

It has also added solar PV asset monitoring and controls to its suite of services through the 2022 acquisition of Also Energy, again focused on the C&I market segment.

34% CAGR forecasted for revenues

The company noted that it met its previous commitment of achieving positive adjusted EBITDA in the second half of 2023. CFO Bill Bush referred to this as a “milestone achievement” for the business, which Stem said it would be on track to do in its Q3 earnings call.

Its fourth quarter performance was stronger than in the equivalent period of last year despite delays in getting grid interconnections and in permitting, as well as “slower than expected deliveries from hardware suppliers,” which impacted the storage business negatively, CFO Bill Bush said.  

Having narrowed its full-year loss from US$46 million in 2022 to US$20 million, it now expects to stay on positive EBITDA for 2024 on an adjusted basis, guiding for between US$5 million to US$20 million. This achievement of adjusted positive EBITDA for the year was another commitment the company made in 2023.

Revenue is being guided to within US$600 million to US$700 million for the year, representing a CAGR from 2022 of 34% while compound annual rate of returns (CARR) is expected to rise to between US$115 million and US$130 million. From US$65 million CARR in 2022 and US$91 million last year, that would represent a 37% CAGR.  

Inflection point

Stem claimed 2024 will be an “inflection point for profitable growth,” in which the company no longer expects to need to issue equity to fund operations.

The company claimed that factors including product and service differentiation in the various markets it is active in, as well as ongoing efforts to reduce costs, would contribute to this year’s expected profitability.

For instance, the company claimed that its battery assets in Texas’ ERCOT market theoretically outperformed others. Stem did a back-casted simulation of how its Athena software performed versus competitor softwares, and claimed it earned 28% higher revenues on average, publishing its findings in a white paper in December.

According to Stem CEO John Carrington in prepared remarks, there are two main reasons for this “outperformance”: being “highly accurate price forecasting” and “advanced optimisation”.

Stem’s spread across different market geographies means it has a “data advantage” over rivals, allowing it to forecast how volatility will play out in ERCOT’s energy-only market, rather than relying on historical pricing data.

The AI-driven Athena software meanwhile can co-optimise continuously across all market products that have changing values over time, Carrington said, with that aforementioned data advantage also coming into play to consistently improve Athena’s algorithms.

In terms of costs, recent hardware cost declines have helped drive “better economics for our customers,” Carrington said.

The hardware situation will be further improved, the company believes, by “favourable conditions in the supply chain,” Carrington said, including the potential entrance of battery cell manufacturers into the market to offer integrated energy storage hardware solutions, driving competition in the space.

On the software side, Stem has also established operations in India, including a Center for Excellence, which is a shift to a lower cost geography that the company nonetheless sees as a strong one for software development. It also wants to parlay its strengths in software into a bigger source of recurring income.

As well as federal incentives from the Inflation Reduction Act (IRA) that have put the already-expanding US market onto an even more rapid growth trajectory, state-level policy, particularly storage procurement mandates “targeting multiple gigawatt-hours” in states including Maryland, Michigan and New Mexico help the underlying economics of Stem’s core business, the CEO said.

Stem’s contracted backlog stood at US$1.9 billion as of the end of 2023, a 99% increase from US$969 million at the end of 2022. An analyst on the call to explain results asked for some clarity what sort of backlog conversion cycle times could be expected.

The company expects between US$1.5 billion to US$2 billion in bookings in 2024. CEO Carrington noted that Stem expects to add several large deals to its order book soon. CFO Bush added however that those projects for the most part represent increased size, complexity and duration of storage asset.

The backlog therefore getting longer will have some impact on the revenue guided, Bush said by way of reply to the analyst’s question.’ publisher Solar Media will host the 6th Energy Storage Summit USA, 19-20 March 2024 in Austin, Texas. Featuring a packed programme of panels, presentations and fireside chats from industry leaders focusing on accelerating the market for energy storage across the country. For more information, go to the website.

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