SAN FRANCISCO – Stem, Inc. (NYSE: STEM), an AI-powered clean energy software and services company, announced a strategic shift to a software and services-focused business model. The initiative, led by the Stem Board of Directors’ Software Strategic Working Group in collaboration with management, aims to drive more predictable and recurring revenue streams with improved gross margins.
Interim CEO and Executive Chairman of the Board David Buzby expressed confidence in the new strategy, highlighting its potential to leverage the company’s industry-leading software and services to drive profitable and scalable growth. The approach is expected to reduce reliance on hardware resale, which has historically introduced volatility into financial performance and increased operational complexity.
The company outlined four strategic priorities, including transitioning to software and services to drive high-margin revenues, expanding energy services to deliver more predictable revenues, enhancing AI-powered software capabilities and edge devices , and updating the approach to battery hardware resellers. According to CFO and Executive Vice President Doran Hole, these measures are expected to shorten the path to revenue, significantly improve the gross margin profile and reduce working capital utilization.
Stem will continue to honor existing hardware commitments but will modify future customer commitments. The strategy also includes providing hardware procurement consultancy services, aligning with rigorous profitability criteria and ensuring cash flow positive payouts to alleviate balance sheet burdens.
Stem’s consolidated software platform, based 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 more than 16,000 and attract new customers by targeting both “greenfield” and “brownfield” opportunities.
The Company plans to provide additional details about its strategic roadmap during its third quarter 2024 earnings conference call scheduled for October 30, 2024. This announcement is based on a press release from Stem, Inc.
In other recent news, Stem Inc. has faced a number of challenges. The company reported lower-than-expected second-quarter revenue of €31.14 million, primarily due to project delays. Despite these setbacks, Stem’s gross margins improved year over year. The company also revised its full-year forecast and announced leadership changes, including the appointment of a new CFO.
Stem Inc. has been notified by the New York Stock Exchange of a potential delisting risk, due to its share price averaging below the €0.92 asking price in a recent period. The company is preparing a plan to address this issue 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 not related to the Company’s operations, policies or practices. Stem Inc. has restructured its sales operations to better align with its core business lines.
BMO Capital Markets, Piper Sandler and TD Cowen changed their outlook on shares of Stem Inc. BMO Capital Markets reduced its price target, maintaining its Market Perform rating, while TD Cowen downgraded the stock from Buy to Hold and significantly lowered the price target due to project delays impacting the company’s performance. These are recent developments as Stem Inc. continues to adapt its strategy in response to the evolving needs of the energy storage market.
InvestingPro Insights
Stem’s strategic shift to a software- and services-centric model comes at a critical time for the company, as recent data from InvestingPro paints a challenging financial picture. The company’s market capitalization stands at a modest €48.72 million, reflecting the market’s current assessment of its prospects.
Tips from InvestingPro highlight that Stem is “rapidly burning through cash” and “may struggle to make interest payments on its debt.” These factors underline the urgency of the company’s new strategy to improve its financial health. The transition to higher-margin software and services could be crucial to addressing these concerns, potentially slowing cash burn and improving the company’s ability to manage its debt obligations.
The company’s revenue for the trailing twelve months to Q2 2024 was €330.31 million, with a worrying revenue growth rate of -13.16% over the same period. This revenue decline aligns with another InvestingPro tip that “analysts expect a decline in sales this 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 recovery potential should note that InvestingPro offers 22 additional recommendations for STEM, providing a more comprehensive analysis of the company’s financial health and market position. These insights could be valuable to those seeking to fully understand the implications of Stem’s strategic shift.
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