Last week, smart battery storage solutions company Stem (STEM 3.03%) announced it achieved record revenue in its third quarter that grew 334% versus the year-ago period. That led the company to affirm its prior guidance for full-year 2021 revenue of $147 million. Investors jumped into the stock perhaps because of how fast the company is accelerating growth. Q3 sales more than doubled sequentially from just the prior quarter. But today, the company disappointed those same investors with an announcement that it was raising debt. That sent the shares down as much as 13.2% before the stock finally closed with a drop of 9.9%.
Stem has proposed to raise $350 million in new debt in a private placement offering of green convertible senior notes due 2028. One aspect related to the announcement that might have spooked investors is that last week, the company reported it ended Q3 with $576 million in cash, cash equivalents, and short-term investments, and no debt.
The company put forth an upbeat tone in its earnings release. It said its 12-month forward project pipeline has grown by 41% just since the prior three-month period. The company indicated business was strong in new markets, particularly with front-of-the-meter (FTM) battery-storage opportunities, which are typically utility-scale systems.
Stem is structuring the convertible note offering to minimize share dilution in the event the counterparties convert the notes to common stock. And the company said it intends to utilize an equivalent amount to the net proceeds of the offering for "investments related to creating a more resilient clean energy system, optimized software capabilities for energy systems, and reducing waste through operations."
While minimizing dilution is a positive aspect for existing shareholders, investors likely will still want to know why existing cash on hand couldn't fund the investments Stem is gearing up for. Until that uncertainty is clarified, shares may not rebound from today's dip.