STEM, INC.STEM
STEM, INC. Income Taxes Disclosure
INCOME TAXES
The components of loss before provision for income taxes for the years ended December 31, 2024, 2023, and 2022 are as follows (in thousands):
| December 31, | |||||||||||||||||
| 2024 | 2023 | 2022 | |||||||||||||||
| Domestic | $ | (852,576) | $ | (138,934) | $ | (137,164) | |||||||||||
| Foreign | (1,106) | (1,046) | (2,051) | ||||||||||||||
| Loss before (provision for) benefit from income taxes | $ | (853,682) | $ | (139,980) | $ | (139,215) | |||||||||||
Due to the Company’s net losses, the Company did not record a provision for federal income taxes during the years ended December 31, 2024, 2023 and 2022, respectively. The Company continues to maintain a full valuation allowance for its net U.S. federal and state deferred tax assets.
The components of the provision for income tax expense for the years ended December 31, 2024, 2023, and 2022 are as follows (in thousands):
| December 31, | |||||||||||||||||
| 2024 | 2023 | 2022 | |||||||||||||||
| Current: | |||||||||||||||||
| Federal | $ | — | $ | — | $ | (24) | |||||||||||
| State | 200 | 490 | 184 | ||||||||||||||
| Foreign | 242 | 381 | 188 | ||||||||||||||
| Total current | 442 | 871 | 348 | ||||||||||||||
| Deferred: | |||||||||||||||||
| Federal | — | (294) | (12,448) | ||||||||||||||
| State | — | (41) | (3,021) | ||||||||||||||
| Foreign | (110) | (103) | (40) | ||||||||||||||
| Total deferred | (110) | (438) | (15,509) | ||||||||||||||
| Total provision for (benefit from) income taxes | $ | 332 | $ | 433 | $ | (15,161) | |||||||||||
The effective tax rate of the Company’s provision (benefit) for income taxes differs from the federal statutory rate as follows:
| December 31, | |||||||||||||||||
| 2024 | 2023 | 2022 | |||||||||||||||
| Statutory rate | 21.00 | % | 21.00 | % | 21.00 | % | |||||||||||
| State tax | (0.02) | % | (0.32) | % | 2.04 | % | |||||||||||
| Foreign income and withholding taxes | (0.04) | % | (0.36) | % | (0.42) | % | |||||||||||
| Non-deductible goodwill impairment | (13.42) | % | — | % | — | % | |||||||||||
| Stock-based compensation | (0.29) | % | (1.48) | % | (0.51) | % | |||||||||||
| Change in fair value of warrants | — | % | — | % | — | % | |||||||||||
| Other | (0.19) | % | (3.16) | % | (2.26) | % | |||||||||||
| Non-deductible interest expense | (0.11) | % | (0.85) | % | (0.96) | % | |||||||||||
| Valuation allowance | (6.97) | % | (15.14) | % | (8.00) | % | |||||||||||
| Total | (0.04) | % | (0.31) | % | 10.89 | % | |||||||||||
Deferred income taxes arise from temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax reporting purposes, as well as net operating losses (“NOLs”) and tax credit carryforwards.
Significant components of the Company’s deferred tax assets and liabilities as of December 31, 2024 and 2023 are as follows (in thousands):
| December 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| Deferred tax assets: | |||||||||||
| Net operating losses | $ | 215,283 | $ | 134,340 | |||||||
| Tax credits | 367 | 367 | |||||||||
| Depreciable assets | — | 37 | |||||||||
| Operating lease liabilities | 3,929 | 2,808 | |||||||||
| Accruals and allowances | 5,031 | 3,708 | |||||||||
| Stock-based compensation | 4,274 | 8,088 | |||||||||
| Deferred revenue | 31,154 | 33,894 | |||||||||
| Interest expense | 4,515 | 2,831 | |||||||||
| Other | 4,618 | 4,498 | |||||||||
| Total gross deferred tax assets | 269,171 | 190,571 | |||||||||
| Less: Valuation allowance | (252,757) | (168,304) | |||||||||
| Net deferred tax assets | 16,414 | 22,267 | |||||||||
| Deferred tax liabilities: | |||||||||||
| Amortization of asset retirement obligation | (650) | (675) | |||||||||
| Intangibles | (12,047) | (18,926) | |||||||||
| Right-of-use assets | (2,954) | (2,523) | |||||||||
| Depreciable assets | (516) | — | |||||||||
| Total gross deferred tax liabilities | (16,167) | (22,124) | |||||||||
| Net deferred taxes | $ | 247 | $ | 143 | |||||||
As of December 31, 2024 and 2023, the Company had federal NOL carryforwards of approximately $736.0 million and $459.8 million, respectively, and state NOL carryforwards of approximately $624.5 million and $377.6 million, respectively. Of the $736.0 million federal net operating loss, $97.0 million will begin to expire in 2029, while the remaining amount does not expire. The state NOL carryforwards will begin to expire in 2029. As of December 31, 2024 and 2023, the Company had foreign NOL carryforwards of approximately $32.2 million and $28.1 million, respectively. The foreign net operating loss carryforwards expire in 2039.
As of December 31, 2024, the Company did not have federal research and development tax credit carryforwards. As of December 31, 2023, the Company did not have federal research and development tax credit carryforwards. As of December 31, 2024 and 2023, the Company had California research and development tax credit carryforwards of $0.7 million and $0.7 million, respectively, which do not expire.
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. As a result of a history of taxable losses and uncertainties as to future profitability, the Company recorded a full valuation allowance against its deferred tax assets with exception of a foreign subsidiary which has been profitable historically. During the years ended December 31, 2024 and 2023, the Company increased its valuation allowance by $84.5 million and $27.7 million, respectively.
Utilization of the net operating loss carryforwards and tax credit forwards may be subject to a substantial annual limitation due to ownership change limitations that may have occurred or that could occur in the future, as required by the Internal Revenue Code Section 382, as well as similar state provisions. In general, an “ownership change,” as defined by the code, results from a transaction or series of transactions over a three-year period resulting in an ownership change of more than 50 percentage points of the outstanding stock of a company by certain stockholders or public groups. Any limitation may result in expiration of all or a portion of the NOL or tax credit carryforwards before utilization. The Company performed a detailed analysis in FY2023 to determine whether an ownership change under Section 382 of the Code has previously occurred. As a result, the Company’s NOLs available after the Section 382 limitation is approximately $736.0 million as of December 31, 2024.
A reconciliation of the beginning and ending amount of unrecognized tax benefits are as follows (in thousands):
| 2024 | 2023 | ||||||||||
| Balance at January 1 | $ | 367 | $ | 720 | |||||||
| Additions based on tax positions related to the current year | — | — | |||||||||
| Additions for tax positions of prior years | — | — | |||||||||
| Reductions for tax positions of prior years | — | (353) | |||||||||
| Settlements | — | — | |||||||||
| Balance at December 31 | $ | 367 | $ | 367 | |||||||
The Company expects resolution of unrecognized tax benefits, if created, would occur while the full valuation allowance of deferred tax assets is maintained. The Company does not expect to have any unrecognized tax benefits that, if recognized, would affect the effective tax rate. As of December 31, 2024, the Company does not have a liability for potential penalties or interest. The Company does not expect its unrecognized tax benefits to change significantly over the next 12 months.
In the normal course of business, the Company is subject to examination by taxing authorities throughout the United States of America, Canada, Germany, Japan and India. The Company is not currently under audit by the Internal Revenue Service or other foreign revenue agencies, or similar state or local authorities. The tax return years 2020 through 2024 remain open to examination by the major domestic taxing jurisdictions to which the Company is subject. Net operating losses generated on a tax return basis by the Company for calendar years 2012 through 2024 remain open to examination by the major domestic taxing jurisdictions.
About Income Taxes Disclosures
The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.
Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.