Stem Inc. shifts focus to software for cleaner revenue growth

SAN FRANCISCO - Stem, Inc. (NYSE: STEM), a company specializing in AI-driven clean energy software and services, has announced a strategic shift towards a software and services-centric business model. The initiative, led by Stem's Board Software Strategy Working Group in collaboration with management, aims to foster more predictable and recurring revenue streams with improved gross margins.

Interim CEO and Board Executive Chair David Buzby expressed confidence in the new strategy, emphasizing its potential to leverage the company's industry-leading software and services to drive profitable, scalable growth. The approach is expected to reduce reliance on hardware resale, which has historically introduced volatility in financial performance and increased operational complexity.

The company has outlined four strategic priorities, including the transition to software and services to drive high-margin revenue, expanding energy services to ensure more predictable revenue, enhancing AI-enabled software and edge device capabilities, and updating the approach to battery hardware resales. These measures are anticipated to shorten the runway to revenue, significantly improve the gross margin profile, and lower working capital usage, according to CFO and Executive VP Doran Hole.

Stem will continue to honor existing hardware commitments but will alter future customer engagements. The strategy also involves providing hardware procurement advisory services, aligning with stringent profitability criteria, and ensuring cash flow-positive payments to alleviate balance sheet burdens.

Stem's consolidated software platform, building on its PowerTrack and Athena platforms, seeks to maximize value for solar and storage customers. The new direction is designed to benefit Stem's existing customer base of over 16,000 and attract new clients by targeting both "greenfield" and "brownfield" opportunities.

The company plans to provide further details on its strategic roadmap during the third quarter 2024 earnings conference call scheduled for October 30, 2024. This announcement is based on a press release statement from Stem, Inc.

In other recent news, Stem Inc (NYSE:STEM). has faced a series of challenges. The company reported lower-than-expected second-quarter revenue of $34 million, primarily due to project delays. Despite these setbacks, Stem's gross margins improved year-over-year. The company also revised its full-year guidance and announced leadership changes, including the appointment of a new CFO.

Stem Inc. was notified by the New York Stock Exchange of a potential delisting risk, due to its stock price averaging below the required $1.00 over a recent period. The company is preparing a plan to address this within the stipulated six-month cure period. Despite these challenges, Stem's business operations and SEC reporting obligations remain unaffected.

In other recent developments, Stem Inc. saw the resignation of board member Michael C. Morgan and the departure of its Chief Revenue Officer, Alan Russo. These changes are unrelated to the company's operations, policies, or practices. Stem Inc. has restructured its sales operations to align better with its primary business lines.

BMO Capital Markets, Piper Sandler, and TD Cowen adjusted their outlook on Stem Inc.'s shares. BMO Capital Markets reduced its price target, maintaining its Market Perform rating, while TD Cowen downgraded the stock's rating from Buy to Hold and significantly lowered the price target due to project delays affecting the company's performance. These are the recent developments as Stem Inc. continues to adapt its strategy in response to the evolving demands of the energy storage market.

InvestingPro Insights

Stem's strategic shift towards a software and services-centric model comes at a critical time for the company, as recent InvestingPro data paints a challenging financial picture. The company's market capitalization stands at a modest $53.18 million, reflecting the market's current valuation of its prospects.

InvestingPro Tips highlight that Stem is "quickly burning through cash" and "may have trouble making interest payments on debt." These factors underscore the urgency of the company's new strategy to improve its financial health. The transition to higher-margin software and services could be crucial in addressing these concerns, potentially slowing cash burn and improving the company's ability to manage its debt obligations.

The company's revenue for the last twelve months as of Q2 2024 was $360.63 million, with a concerning revenue growth rate of -13.16% over the same period. This decline in revenue aligns with another InvestingPro Tip indicating that "analysts anticipate sales decline in the current year." Stem's strategic pivot aims to create more predictable and recurring revenue streams, which could help reverse this negative trend.

Investors considering Stem's potential turnaround should note that InvestingPro offers 22 additional tips for STEM, providing a more comprehensive analysis of the company's financial health and market position. These insights could be valuable for those looking to understand the full implications of Stem's strategic shift.

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