September 10, 2021 – On today’s podcast we welcome special guest John Carrington. John is the CEO of Stem, the market leader in AI-driven clean energy storage systems.

On the show, John discusses:

  • How Stem’s business has evolved in the 8 years since he joined
  • The competitive landscape and what makes Stem the market leader
  • Insights into the recent going-public process
  • ESG, AI and the company’s growth opportunities
  • And more

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Welcome investors to the Absolute Return Podcast. Your source for stock market analysis, global macro musings and hedge fund investment strategies. Your hosts Julian Klymochko and Michael Kesslering aim to bring you the knowledge and analysis you need to become a more intelligent and wealthier investor. This episode is brought to you by Accelerate financial technologies. Accelerate, because performance matters. Find out more at www.Accelerateshares.Com.

Julian Klymochko: We’re going to be talking about stem today. Three point two billion market cap traded on the New York stock exchange under the ticker symbol, STEM. Really easy to remember. Now we have STEM CEO, John Carrington on the show today. Just a little background on STEM, recently went public this spring, just came out with Q2 results, reaffirm guidance, which is great to see from a new issuer. And you recently joined the Russell 2000. So, John, thanks for coming on the show. How are you today?

John Carrington: Julian good. Thanks for having me. Pleasure to be here.

Julian Klymochko: Alright perfect. I’ve had two cups of coffee and an energy drink. I’m ready to go. Let’s get into it. I wanted to first touch on your background career history and why you joined STEM almost eight years ago?

John Carrington: Yeah, I was primarily a GE guy. I had actually spent about 16 years at the company and had the pleasure to work on directly, really under both Jack Welch and Jeff Immelt. And they really moved me around a lot of different opportunities. So, I was in sales, product management, manufacturing, and then when Jack Welch decided that the center of the universe for the company was moving to Asia, they selected four leaders to go buy a business. And I moved to Tokyo for about four years of the ripe old age of I think thirty-two. So, it was a great experience and really had a terrific learning at my time there. And then I came back to the U.S. and was selected to sell one of the businesses in GE. And at that time, we had a multitude of buyers and ended up going to a Saudi Arabian company called SABIC.

This was a GE plastics business. And in the end, I ended up moving from there to First Solar, which was a great ride, you know? We took that from a couple of hundred million to two billion in two years. And then John Doerr called and said, Hey, would you like to take a look at another solar technology, is our CEO of a portfolio company. And I elected to do that. And we sold that business and was introduced to the board. And one of the board members here at STEM and, you know? I joined 2013 and it’s been a great run. I mean, we’ve hired terrific people. We raised a lot of capital from some significant shareholders. And as mentioned, we subsequently went public at an innovative role and happy to go into more details on it, but it’s been a very great run and a great outcome for the shareholders and employees. 

Julian Klymochko: Speaking of this great run. I was wondering how is STEM evolved since you joined back in 2013? 

John Carrington: Wow, about everything. We really changed out the entirety staff. I think when I joined Julian, we had, I think five or six sites. We’re now nearly a thousand. 

Julian Klymochko: Wow.

John Carrington: We basically were doing a single 18-kilowatt, 36-kilowatt hour product that looked like the gym locker, would save our customers about seven thousand dollars a year. Some of our customers gave us feedback. The contracting process would be more expensive than what you’d save in a year. So, we really had to build our own system. It was that early in the process. So, we designed the inverter, we designed with the battery packs should look like, and it’s come a long way, you know? Now we’re leading industry leader in the software platform that we call Athena, as I mentioned, significant amount of sites. And, you know? We’re number one market share in California, which is the largest storage market today. So, it’s been a remarkable run and really attributed to the great team that we put in place.

Julian Klymochko: Yeah, I did notice you have emerged as the market leader. I was wondering if you could get into STEM’s business model and specifically this Athena, your proprietary AI driven software platform, how that plays a role in your business model?

John Carrington: Sure, so just to kind of quick intro, you know? We have this artificial intelligence software that controls energy storage devices and, you know? These smart energy storage solutions effectively enable rapid development of renewables onto the electricity grid. We also provide our customers with a complete energy storage solution. That really includes the integrated battery hardware and the battery optimization from this proprietary software platform that you mentioned called Athena. And it’s great because all of this is integrated into providing value or customer by reducing their energy costs, reducing carbon emissions, and stabilizing the grid. And so, our customers specifically, are commercial industrial or CMI, utilities, and co-ops renewable asset owners or renewable developers. And the business model is, we will go in and we have significant domain experience in a variety of markets. So, we’ll go into the market and we will look at the customer’s load.

And if it’s a CMI fortune 500 customers as and example, let’s take Walmart or Home Depot, Home Depot is fine, we’ll do that. And we’ll go in and we’ll put an MSA in place for specific state. So, in California, we know a variety of the tariffs. We know what the wholesale markets look like. We even have utility programs with utilities here in California, that we can enroll those locations into. So, from a Home Depot standpoint, they’re saving money right away with, you know? with the product and lowering their energy costs. They’re also participating in utility programs or even wholesale market programs where they’re actually generating revenue from that system that we have at their sites. So, if you’re a CMI customer, you’re saving money, you also get an ESG narrative that they’re all looking for. And so that’s kind the model, at least on the CMI side. 

The developer’s piece, which are your big solar developers. We actually put our systems in place, the solar developers, and I’ve been in that business. I was at First Solar and we didn’t really know much about stores and still probably don’t care a lot about it because it’s still fairly new. So, we would depend on a stem to help us understand what we would do in those markets. And that’s where the large solar developers are doing today. So, we’ll put that system in place. We’ll help them participate in markets and actually bring upwards of thirty percent IRR addition to those sites, which is significant. And then on the CMI side, those customers are saving up to thirty percent. So, we put the hardware solution in place at both customers. We then put the Athena platform on and what’s great about the model is the Athena platform is contracted for ten or twenty years.

CMI typically ten, the solar industry is more like twenty, and what’s great about it is there’s all these values stacking we can do. Unlike solar, you don’t have that ability to really have a multiple value chain. Use kind of a one trick pony, if you will. And storage has so many. So, we’re right now, we have seven different value chains where monetizing today, there are thirteen totals. And what’s interesting as we get into new markets, we can then extend our value and sell more Athena products to optimize whatever that market may value and provide for our customers. So, it’s a really unique model. The long tail of these residual software revenues is significant. It also gives us great, you know? Revenue visibility. And if you think about a typical SAS company, it’s a one- or two-year contract.

And, you know? We have twenty-year software contracts locked down with our Athena platform. So, it’s very exciting. As I mentioned, we also have the ability to add on, as I stated, also, we have the ability to participate in markets for our customers. And, you know? That’s something as I said, in the CMI side, they’re very interested. And it’s evolving, but we are, you know? Once you’re that customer, they don’t throw us out. And so, we have the ability to really kind of land and expand as we talk internally.

Michael Kesslering: So historically hardware was really the bottleneck of the storage solution. And obviously you’re addressing this with STEM. How do you see that changing over the next kind of five to ten years in terms of where hardware used to be the bottleneck and maybe no longer will be? 

John Carrington: Yeah, Mike, it’s a good point. I mean, look, I would say that the reason it was the bottleneck was because of the cost, right? And so, we’ve seen significant cost declines in batteries over the last five, six years, we’re continuing to see it, although it has tightened a little bit, but we were seeing double digit decline year over year for several years. And I think you’ve also got this very interesting activity going on around the levelized cost of generation related to solar and wind, which is now below coal and even CCGT.

So, you’ve got a renewable play, that’s very competitive. Now the battery costs are significantly lower. And according to Mackenzie, that adds up to a twenty-five times growth market representing one point two trillion-dollar opportunity. So, it’s kind of second or third and it’s a huge market, but that software decline to me is what really drives the significance in the growth in this market. And we’re really getting the tailwind of the EV capacity additions that help drive down that cost. And, you know? With those numbers riding with factoring in second use, but, you know? We don’t have any model and or current [Inaudible 00:09:43], I believe after a kind of a six-year timeframe. And the batteries are maybe not as useful in EVs. There’s certainly a use case for those at a grid level,

Julian Klymochko: You mentioned some fairly big numbers, 25X growth market, one point two trillion-dollar market opportunity. So, a big, big total addressable market. You’ve got the secular tailwinds from a competitive perspective. I’m sure there’s a lot of well-financed and aggressive players that are, you know? Chasing you guys down. Can you talk about some of your competitors and what makes STEM the market leader? 

John Carrington: Well, I think you hit on it. The well-financed is an important point and it was really the driver in the decision that we made, you know? We had a significant amount of incoming on M&A, and we elected to go the public route because our shareholder actually felt like if we sold, this would have been a couple of years ago, then they wouldn’t get that significant uplift because maybe then we were in the first inning. And so, they wanted the public market alternative. We elected to do that. And now we have a balance sheet that really rivals anyone out there. Specifically on your question, we see the likes of [Inaudible 00:10:57] and GELI, but [Inaudible 00:11:00] and GELI. While they look like a huge company and they are. The storage piece of some of these companies is very small and they’ve got to go out and get their own financing. So, the mothership, if you will, is not always what you see and the balance sheet isn’t maybe what you would expect. So, what we found is, we had very large opportunities, particularly in that solar plus storage developer’s side. And then they would come and look at our balance sheet and Bill Bush, my CFO would get on the phone with them and they’d be like, well, wait a minute, you’ve got eighteen to twenty-four months of runway that doesn’t work on a twenty-year PPA. And it’s hard to dispute. So now with, you know? Four hundred and seventy-five plus million on our balance sheet and zero debt that concern’s been inoculated and we’re seeing much larger opportunities than we did previously. And it’s really one of the most exciting parts of the outcome of this.

Julian Klymochko: So, speaking of the going public transaction. STEM recently went public through a merger with Star Peak Energy Transition this spring. So, you’ve been up and trading in the New York stock exchange for a number of months. This deal brought about six hundred million. You guys are cashed up on the balance sheet, is wondering, what is the use of proceeds? How are you going to utilize this capital?

John Carrington: You know? our view is that the balance, having a lot of cash on the balance sheet in this industry has never been a bad thing. And it will really support kind of more comfort in some of these larger long-term programs, whether it’s with the developers, with the utility, we’ll also look to expand our Athena platform and we’ll look at some tuck-in acquisitions, you know? Anything that we feel that could further Athena’s leadership, we would look at doing. So that’s something to keep an eye on. On the supply chain side, it’s interesting because of our balance sheet in the past, we really at asymmetrical terms, I mean, we were paying for hardware six months before it ever arrived. And today those terms have dramatically changed. We feel that could be a hundred-million-dollar savings to the business over the next two years, and that’s not even modeled than our financials today.

We also think the geographic expansion is very compelling. We have not been able to do that with a previous balance sheet. And what’s also nice about the previous investors is, you know? We have the likes of GE, we had RWE, [Inaudible 00:13:26], [Inaudible 00:13:27] Constellation, Mitsui, Tamasic. I mean, these investors are all over the world. They’re significant companies and they all want to bring STEM to their local markets. And they have obviously an incentive to do that as shareholders still today. So, we have this built-in base of really compelling investors that can help us and highly motivated as I mentioned. So, we’ll now have the balance sheet to go do some of those plays that we couldn’t do before. So those are some of the uses of funds and, you know? w we’re really well positioned, but having a lot of cash is never a bad thing in this space. 

Julian Klymochko: Yeah, no doubt. One of the key figures that stood out to me in your investor presentation is a forecast, fifty percentage revenue GAGR. Can you discuss some of the growth opportunities? That’ll help you attain that, you know? High growth rate?

John Carrington: Sure, I mean, you know? It’s interesting, from a commercial go-to-market standpoint, we elected to focus on channel partners and it’s been very successful for us. So as an example, we have we have a direct salesforce and those are STEM employees calling on fortune 500 companies. Think, you know? The Walmart, Home Depot, Amazon, UPS of the world. And then we put together what’s called the sales channel partner. And that group goes into commercial customers. There are over six hundred sales executives in that group that have been trained through STEM University and they’re out selling on our behalf. Then we have distributors. We have over five thousand of those that are around the United States, all selling our product. So, we feel like we have multiple shots on goal at the CMI level, that business continues to grow significantly. And if you think about or read any of the Fortune 500 CEO letters, it’s all about ESG, it’s all about renewable.

So, we’ve got a lot of tailwinds there. On the developer side, there’s the small, what we call small generation and large generation. We’ve been very good in the small side. Let’s called that twenty-five megawatts and below. Now we’re going to need a larger opportunity with our balance sheet. Both of those markets are growing at nearly fifty percent. So, we are in a very good spot. We have the software in place to handle both of those markets. And we feel like we’re, you know? From a revenue standpoint and EBITDA, et cetera, we, you know? Reaffirmed our numbers for 2021. We’re getting great visibility into 2022 now based on our bookings and feel great about next year. So, you know? One of the things you mentioned on the kickoff was good to see you meet the numbers and reaffirming your commitments, and we’re big on that. That’s the GE and me and our team. We are committed to what we say. We’re going to go and do and go do it.

Julian Klymochko: Well, that’s really important for investors, especially a newly public company. I see some of these, you know? Miss their guidance and it’s just a disaster and it takes a while for them to build up investor’s trust or regain investors’ trust. So, it’s certainly off to the right foot, but the other thing that is notable, you guys went public to via SPAC, which allowed you to go tap the public markets relatively quickly. You raised a large amount of capital as well. And I should note it’s one of the best performing companies in terms of share price performance that went public via SPAC. What did you think of the SPAC process now that you’ve completed it? 

John Carrington: Well, I was a big seller on SPAC. We probably had the first outreach in March and I was more inclined to just keep doing what we were doing and go traditional public route eventually when it made sense. Now you’re in the heart of COVID. I mean, you know? An interesting time. This was March, 2020, I guess. So, and then a little while later, I started to come around to it and bigger and bigger banks were calling us. We have a good relationship with Morgan Stanley and Greentech Capital, which is now Nomura. And they were both advisors on a variety of things. And they said, you all got to take a look at this. So, I put together some criteria on what I wanted to see. And we, you know? We only talked to three SPACs out there and one of them ended up going to a large EVs charging company that’s also done well.

And they were very candid about that. Another one wanted cash flow EBITDA today, that wasn’t us. And then finally Star Peak. I have a whole document of criteria around it because I really wanted very smart money that had a significant following and sticky money. And Magnetar certainly had that. I mean, they are exceptional or incredible partner to us, Mike Morgan, on the other side from, you know, Kendra Morgan, very deep domain experience in the energy side, as well as, you know? The pre-court Institute at Stanford. So, has kind of the traditional energy side as well as the new and up and coming technology. So, and Mike’s on the board Morgan as well as Adam Daly from [Inaudible 00:18:43]. So, it couldn’t have been better. I think both sides would agree to that. And we’re having a great, really having a great time now with the capital. We have been prudent on where we want to go with it, but it’s just such an incredible relationship that we have. And I look forward to many, many years of success together. And, you know? I think that Magnetar can really help us be better and probably vice versa. So, we’re, we’re excited. I really cannot think of a better partner, but it’s kind of been like the company for many years, you know? The investors that we brought on were very significant to our success. And so, this is continuing to the next chapter and I couldn’t be happier about that.

Julian Klymochko: And in terms of the next chapter, certainly going public is a massive step change in the progression of the business. What specifically are some of the advantages that brings to STEM in terms of now being public? 

John Carrington: The balance sheet obviously is a big one. The other thing is, you know? You talk to utilities or customers. I think there’s just a little more of a trust or confidence that, you know? You’re a public, you’ve got a three billion plus dollar market cap that certainly brings them confidence and assurity that you’ll be there in the long run versus kind of a startup company in California. It’s nice, it really gives you a bigger seat at the table on the regulatory side, which is clearly important in this space. I think the storage industry in general could step up their game. You’ve got a lot of focus in solar having done solar and storage. I see the differences. So, I’m going to make a commitment to spend more time on the legislative side, both at the state and federal level and see what we can make happen there. But I think those are a few of the things that we see and just, you know? The ability for us to now go internationally and have name recognition is very important. 

Michael Kesslering: Earlier on, you mentioned a couple of pretty well-known operators being Jack Welch and John Doerr as well, you kind of also mentioned that the GE in you, where there’s that real desire and ability to meet guidance, if you’re going to set numbers out to the public that you’re going to meet that. And so that’s kind of a takeaway from the GE side. What about on John Doerr? What were some of the takeaways in working with him on a portfolio company? 

John Carrington: Yeah, I mean, I have the utmost respect in John, he was, and is still a great friend. He is a remarkable investor, I think from John, he was probably the most customer centric individual. That’s a big statement because Jack Wells certainly was. They’re very similar, very customer centric. I think the other thing that John did very well was he really focuses on not only the CEO and success of the CEO of the company, but the broader view of look, if you’re a client portfolio company, your family, and by the way, your family’s family, I’ll give you a quick story. When I was hired I went over to Kleiner, stayed across the street, walked across the street to Kleiner. I walked in to review the offer from John. And the first thing he said is where’s your wife? Because we had dinner the night before with the board. This is a family discussion, let’s bring her over here. And that’s the kind of guy he was and is, I mean, it’s remarkable to have her sitting there as he’s presented the offer, which may not have been a good idea. She was a career wall street trader, and actually started pushing back on a few things. So maybe he regretted that idea, but in the end, a very customer centric, very focused on, you know? Really what he can do to help and went above and beyond on several occasions to make sure that [Inaudible 00:22:31] was a success. I go work at any company in the future that he was involved with, or be on a board for him, if I could help him in any way. He is just a remarkable individual.

Julian Klymochko: Speaking of that, you do have a number of big-name backers in terms of investors of STEM. But now that you are up and trading, you get new investors basically every day in the market. I was wondering how investor feedback has been. And have you seen most of the interest from ESG focus investors?

John Carrington: Yeah, well, I would say look to the point earlier everybody’s pretty happy. I mean, things are going well. We’re meeting our commitments and I think the feedback is, you know? Very good. The investor level is it’s a mix, you know? I mean, you’ve got some large institutional, you have ESG, a lot of ESG focus out of Europe. I think that’ll continue; you know? We’re spending time with a variety of analysts. We have four analysts that have picked up coverage on the company and, you know? That’s an important metric for us to make sure that we have good coverage on the company and the space in general. But I would say the retail side is also really picked up, you know? And I think that’s a little different structure to communicate with that group, but it’s a powerful group of investors.

So, you know, will continue to address and talk to all of those stakeholders as best we can. And again, I think if the results continue to be what they are and what we expect them to be, then it should continue to be some very good discussions. And what I do like about some of our investors is they call us and come to us with interesting ideas. I mean, there’s some that say, hey, look, have you thought about this acquisition? Or are you thinking about this different market? And you’ll look, I appreciate that input and that feedback, because, you know? They’re kind of have a different lens. We’re heads down running the company every day, and they’re looking at different investment opportunities, maybe more broadly than we have time to do at this point.

Julian Klymochko: So, say a long-term investor would be looking at STEM stock and was wondering, looking ten years out. What is the vision for the company? Where do you see STEM moving over the long-term?

John Carrington: Well, ten years is a big number, especially when I feel like we’re kind of in the second or third in anything. I mean, our model, you know? Would say you’re moving much more towards software. And we want to do that, you know? From a gross margin standpoint, software is not deflationary. Our model has, you know? Hardware gross margins coming down, but in 2026, we’re, you know? From a proforma gross margin standpoint, fifty/fifty on the gross margin dollars and that’s nearly five hundred million dollars. So, there’ll be a lot of software. And I think in ten years we’ll be much more software even than that. I mean, the ideal situation for STEM is, to take the Athena platform and it becomes the operating system for all energy storage globally. Right? Think of Microsoft operating system. That’s what I would like to see this company be today. Our customers need the hardware and the software tomorrow. I think the software has Athena embedded in it, and it’s a pure software play, but you know? we’re still building out this market. Our customers need the fully wrapped solution. So, we’re going to continue to bring that to them today. And in fact, our model through twenty-six doesn’t contemplate software only, but I would add, we won the largest software, only RFP that was put out. It was in Southern California, eighty-five sites, three hundred and fifty megawatt hours. And we were up against ten other potential suppliers. And the investors that owned it had acquired it from a quarry and they were not happy with the performance. We replaced it within sixty days and we’re at thirty percent better savings and performance to those customers. And we did a press release around that. So, it’s a real attribute that we can put Athena on top of existing hardware. So, we’ll continue to do that, but today a hundred percent of our hardware comes with Athena attached. Tomorrow, hopefully it’s embedded, and we’re now operating those systems and executing whatever market participation and revenue streams we can with that software.

Julian Klymochko: Now, prior to wrapping things up, John I want put you on the spot, head-to-head, who’s the better CEO, Jack Welch, Jeff Immelt? 

John Carrington: Oh, that’s a good question. They’re very different. Jack encouraged you to challenge him. And if you didn’t, it would not serve you well in your career, which is uncomfortable when you see fortune 500 CEO of the year or century or whatever he’d been, you know? Staring at you and really challenging your idea. Jeff was more of a collaborative. He wanted to hear kind of everybody talk about it. And he had the edge to make the call, but it was a more collaborative discussion I’d say. I also think that Jack was more let’s go get it done and then announce it. And Jeff, I think got out ahead of things a little bit, and here’s what we’re going to go do. I prefer the Jack method a little bit more.

My style is to go out and get it done and then report what we did as opposed to these big vision ideas that are maybe not attainable. So, look, I learned a lot from both of them, very high regard for both. And, you know? It was a tough run for Jack at the end. And I think in most situations, people probably aren’t as great as people think and not as bad as people think, and there’s two sides to a story, you know? Jeff just had some tough time in buying a lot of companies at the peak of [Inaudible 00:28:23], hadn’t been the trough. And it went to the people maybe talking about him being the smartest guy in the world. So, it was a timing problem. And, you know? He’s onto other things with NEA. I know, and doing some good stuff out there. So great guys, very fortunate to work for both and all the leaders. I mean, there’s such talented GE it’s a remarkable company that I had the fortunate opportunity to spend as much time as I did. And as young as I was to learn from everybody

Julian Klymochko: Well said, well, John, thank you for coming on the podcast today. For investors interested in learning more about STEM. I encourage you to check out the Q1 and Q2 results, which came out as a public company. As I indicated, reaffirming guidance in the second quarter. Recently joined the Russell 2000 index. So, you guys are off to a great start and we wish you the best of success.

John Carrington: Thank you. 

Julian Klymochko: All right. Take care. Bye everybody.

Thanks for tuning in to the Absolute Return Podcast. This episode was brought to you by Accelerate Financial Technologies. Accelerate, because performance matters. Find out more at The views expressed in this podcast to the personal views of the participants and do not reflect the views of Accelerate. No aspect of this podcast constitutes investment legal or tax advice. Opinions expressed in this podcast should not be viewed as a recommendation or solicitation of an offer to buy or sell any securities or investment strategies. The information and opinions in this podcast are based on current market conditions and may fluctuate and change in the future. No representation or warranty expressed or implied is made on behalf of Accelerate as to the accuracy or completeness of the information contained in this podcast. Accelerate does not accept any liability for any direct indirect or consequential loss or damage suffered by any person as a result relying on all or any part of this podcast and any liability is expressly disclaimed.


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