STEM, INC.STEM
STEM, INC. Stock Compensation Disclosure
STOCK-BASED COMPENSATION
Under both the Stem, Inc. 2009 Equity Incentive Plan (the “2009 Plan”) and the Stem, Inc. 2021 Equity Incentive Plan (the “2021 Plan,” and together with the 2009 Plan, the “Plans”), the Company may grant stock options, stock appreciation rights, restricted stock, restricted stock units (“RSUs”), performance stock units (“PSUs”), and other awards that are settled in shares of the Company’s common stock. The Company does not intend to grant new awards under the 2009 Plan and 2021 Plan. In May 2024, the Company adopted the 2024 Equity Incentive Plan (the “2024 Plan”). Under the 2024 Plan, the Company may grant stock options, stock appreciation rights, restricted stock, RSUs, and other awards that are settled in shares of the Company’s common stock. All shares that remain available for future grants are under the 2024 Plan.
Stock Options
Under the Plans, the exercise price of an option cannot be less than 100% of the fair value of one share of common stock for incentive or non-qualified stock options, and not less than 110% of the fair value for stockholders owning greater than 10% of all classes of stock, as determined by the Company’s Board of Directors (the “Board”). Options under the Plans generally expire after 10 years. Under the Plans, the Compensation Committee of the Board determines when the options granted will become exercisable. Options granted under the Plans generally vest 1/4 one year from the grant date and then 1/48 each month over the following three years and are exercisable for 10 years from the date of the grant. The Plans allow for exercise of unvested options with repurchase rights over the restricted common stock issued at the original exercise price. The repurchase rights lapse at the same rate as the options vest.
The following table summarizes the stock option activity for the year ended December 31, 2024:
| Number of Options Outstanding | Weighted- Average Exercise Price Per Share | Weighted- Average Remaining Contractual Life (years) | Aggregate Intrinsic Value (in thousands) | ||||||||||||||||||||
| Balances as of December 31, 2023 | 9,011,616 | $ | 6.99 | 6.0 | 8,686 | ||||||||||||||||||
| Options granted | 1,410,261 | 2.07 | |||||||||||||||||||||
| Options exercised | — | — | |||||||||||||||||||||
| Options forfeited | (1,869,594) | 9.66 | |||||||||||||||||||||
| Options expired | — | — | |||||||||||||||||||||
| Balances as of December 31, 2024 | 8,552,283 | $ | 5.60 | 3.1 | $ | 6 | |||||||||||||||||
| Options vested and exercisable — December 31, 2024 | 7,289,080 | $ | 5.26 | 2.1 | $ | — | |||||||||||||||||
The weighted-average grant date fair value of stock options granted to employees was $2.07, $6.44 and $5.82 during the years ended December 31, 2024, 2023, and 2022, respectively. The intrinsic value of options exercised was $0.5 million and $12.7 million during the years ended December 31, 2023, and 2022, respectively. There were no options exercised during the year ended December 31, 2024.
Significant Assumptions in Estimating Option Fair Value
The Company uses the Black-Scholes model for estimating the fair value of options granted. The weighted-average assumptions used in the Black-Scholes are as follows:
| December 31, | |||||||||||||||||
| 2024 | 2023 | 2022 | |||||||||||||||
| Expected volatility | 91.02 | % | 69.05 | % | 68.28 | % | |||||||||||
| Risk-free interest rate | 4.53 | % | 3.97 | % | 1.73 | % | |||||||||||
| Expected term (years) | 6.00 | 6.01 | 6.25 | ||||||||||||||
| Dividend yield | — | — | — | ||||||||||||||
Restricted Stock Units
RSUs represent a right to receive one share of the Company’s common stock that is both non-transferable and forfeitable unless and until certain conditions are satisfied. RSUs generally, either cliff vest on the third anniversary of the award grant date, vest 1/4 per year over a four-year period, or vest 1/3 per year over a three-year period, subject to continued employment through each anniversary. The fair value of restricted stock units is determined on the grant date and is amortized over the vesting period on a straight-line basis.
The following table summarizes the RSU activity for the period ended December 31, 2024:
Number of RSUs Outstanding (1) | Weighted- Average Grant Date Fair Value Per Share | ||||||||||
| Balances as of December 31, 2023 | 11,159,272 | $ | 10.31 | ||||||||
| RSUs granted | 12,957,864 | 1.65 | |||||||||
| RSUs vested | (6,863,722) | 8.16 | |||||||||
| RSUs forfeited | (4,969,122) | 8.68 | |||||||||
| Balances as of December 31, 2024 | 12,284,292 | $ | 3.05 | ||||||||
(1) Includes certain restricted stock units with service and market-based vesting criteria.
During the period ended December 31, 2024, the Company issued 3.0 million shares of fully vested RSU awards through the Company’s stock bonus program under the Company’s 2021 Equity Incentive Plan.
Stock-Based Compensation Expense
The following table summarizes stock-based compensation expense recorded in each component of operating expenses in the Company’s consolidated statements of operations and comprehensive loss (in thousands):
| Year Ended December 31, | |||||||||||||||||
| 2024 | 2023 | 2022 | |||||||||||||||
| Sales and marketing | $ | 2,514 | $ | 6,293 | $ | 4,251 | |||||||||||
| Research and development | 6,953 | 13,463 | 4,634 | ||||||||||||||
| General and administrative | 9,004 | 25,353 | 19,776 | ||||||||||||||
| Total stock-based compensation expense | $ | 18,471 | $ | 45,109 | $ | 28,661 | |||||||||||
As of December 31, 2024, the Company had approximately $3.0 million of remaining unrecognized stock-based compensation expense for stock options, which is expected to be recognized over a weighted average period of 1.0 years. As of December 31, 2024, the Company had approximately $19.9 million of remaining unrecognized stock-based compensation expense for RSUs, which is expected to be recognized over a weighted average period of 1.2 years. Research and development expenses of $2.8 million and $4.3 million corresponding to internal-use software, were capitalized during the years ended December 31, 2024 and 2023, respectively.
During the year ended December 31, 2024 stock-based compensation expense included stock modifications in connection with the separation agreements for certain of the Company’s former executive officers. For the year ended December 31, 2024, a net reduction of stock-based compensation expense of $2.0 million was recorded within general and administrative expense and an additional charge of $0.7 million was recorded within research and development expense.
Awards under the Company’s stock bonus program issued through the 2021 Plan are accounted for as liability-classified awards, because the obligations are based predominantly on a fixed monetary amount determined at a future date to be settled with a variable number of shares of the Company’s common stock. The Company recognized an actual payout related to such bonuses in the amount of $0.6 million during the year ended December 31, 2024.
About Stock Compensation Disclosures
Stock-based compensation disclosures detail the equity awards granted to employees and executives — including stock options, restricted stock units (RSUs), and performance shares — along with the valuation methods and assumptions used to expense them. This section reveals the true cost of talent retention and the alignment between management incentives and shareholder interests.
Key signals: total unrecognized compensation expense and its expected recognition period signal future earnings headwinds from already-granted awards. For stock options, examine Black-Scholes assumptions — expected volatility, risk-free rate, and expected term — as understating any of these reduces reported compensation expense. Compare stock compensation expense as a percentage of revenue against peers to assess dilution cost. Watch vesting schedules for acceleration clauses tied to change-of-control events. Performance-based awards with undemanding targets may indicate weak governance. Add back stock compensation to operating cash flow to calculate a more conservative free cash flow figure.