STEM INC

To the Stockholders and the Board of Directors of Stem, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Stem, Inc. and subsidiaries (the "Company") as of December 31, 2023 and 2022, the related consolidated statements of operations, comprehensive loss, stockholders’ equity, and cash flows, for each of the three years in the period ended December 31, 2023, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 28, 2024, expressed an unqualified opinion on the Company's internal control over financial reporting.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Revenue – Partnership Arrangements — Refer to Notes 2, 3, and 5 to the financial statements

Critical Audit Matter Description

Partnership arrangements consist of promises to transfer inventory in the form of an energy storage system to a “solar plus storage” project developer and to separately provide energy optimization services to the ultimate owner of the project after the developer completes the installation of the project. Under partnership arrangements, the Company’s customer is the “solar plus storage” project developer. The Company determined the promise to deliver the inventory as a component of the solar plus storage project for which the customer is responsible to develop is a separate and distinct performance obligation from the promise to provide energy optimization services. The Company determines the transaction price at the outset of the arrangement, primarily based on the contractual payment terms dictated by the contract with the customer. Fees charged to customers for energy optimization services consist of recurring fixed monthly payments throughout the term of the contract. Fees charged for the sale of inventory generally consist of fixed fees payable upon or shortly after successful delivery to the customer. For certain customer contracts, the terms of the arrangement provide for variable consideration. The Company accounts for such contractual terms as variable consideration at each measurement date at its most likely amount. In certain revenue contracts, the final settlement is indexed to the price per ton of lithium carbonate, which results in an embedded derivative feature that should be considered for bifurcation and accounting recognition separate from the revenue contract. The Company allocates revenue between the hardware and energy storage services performance obligations based on the standalone selling price of each performance obligation. The standalone selling price for the hardware is established based on observable pricing. The standalone selling price for the energy optimization services is established using a residual value approach due to the significant variability in the services provided to each individual customer based on the specific requirements of each individual project and the lack of observable standalone sales of such services.

The Company transfers control of the inventory upon delivery and simultaneous transfer of title to the customer. The Company transfers control of its energy optimization services to its customers continuously throughout the term of the contract (a stand-ready obligation), which does not commence until the customer successfully completes the installation of the project. As a result, the time frame between when the Company transfers control of the inventory to the customer upon delivery is generally several months, and can be in excess of one year, before the Company is required to perform any subsequent energy optimization services. Revenue is recognized ratably as control of these services is transferred to its customers based on a time-based output measure of progress of days elapsed over the term of the contract, in an amount that reflects the consideration the Company expects to be entitled to in exchange for its services.

We identified the Company’s accounting for the partnership arrangements as a critical audit matter because of (1) the complexity of certain revenue contracts with derivative features, and the significant judgment used by management to determine whether the derivative feature should be bifurcated and accounted separately from the revenue contracts in accordance with accounting principles generally accepted in the United States of America and (2) management’s judgment to determine the most likely amount of variable consideration at each measurement date. This required a high degree of auditor judgment and an increased extent of effort in auditing the judgments and estimates made in allocating revenue and determining the most likely amount of variable consideration, including the need to involve professionals with expertise in accounting for revenue contracts with derivative features when performing audit procedures to evaluate management’s accounting for such contracts.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to revenue from partnership agreements included the following, among others:

•We tested the effectiveness of the controls relevant to the revenue process.

•For partnership arrangements with embedded derivative features, we performed the following procedures:

–Obtained and evaluated the Company’s accounting memoranda and other documentation regarding the application of the relevant accounting guidance to the revenue contracts with derivative features.

–Obtained, read, and compared the underlying terms and conditions of the relevant contracts and contract amendments, if any, to the Company’s accounting memoranda and other documentation, and tested management’s identification of significant terms and conditions.

–Evaluated the Company’s conclusions regarding the accounting treatment applied to the revenue contracts with derivative features, with the assistance of professionals with expertise in accounting for revenue contracts.

–Tested the allocation of the contract value between the primary performance obligation and the embedded derivative.

•For remaining partnership arrangements, we selected a sample of contracts with customers and performed the following procedures:

–Obtained and read the contracts and contract amendments, if any, and tested management’s identification of significant terms and conditions.

–Tested management’s identification of distinct performance obligations by evaluating whether the underlying goods, services, or both were highly interdependent and interrelated.

–Evaluated management’s estimate of variable consideration for reasonableness.

–Evaluated the timing of revenue recognition for each performance obligation through obtaining signed proof of delivery documents.

–Tested the mathematical accuracy of management’s calculation of revenue recognized in the financial statements.

•We evaluated the sufficiency of the disclosures related to revenue from Partnership Arrangements in the financial statements.

Goodwill— Refer to Notes 2 and 7 to the financial statements

Critical Audit Matter Description

Goodwill amounts are not amortized, but rather tested for impairment at least annually or more often if circumstances indicate that the carrying value may not be recoverable. Goodwill is considered impaired if the carrying value of the reporting unit exceeds its fair value. The Company has one reporting unit and as a result, goodwill has been assigned to the single reporting unit. For 2023, the Company performed its annual impairment test utilizing the quantitative approach. The Company’s fair value measurement approach combines the income and market valuation techniques for the Company’s reporting unit. These valuation techniques use estimates and assumptions including, but not limited to, the determination of appropriate market comparables, projected future cash flows (including timing and profitability), a discount rate reflecting the risk inherent in future cash flows, a perpetual growth rate, and projected future economic and market conditions. Changes in these assumptions could have a significant impact on either the fair value, the amount of any goodwill impairment charge, or both. The goodwill balance was $547.2 million as of December 31, 2023. The Company determined that no adjustment to the carrying value of goodwill was required.

We identified the annual impairment test of goodwill as a critical audit matter because of the significant judgments made by management to estimate the fair value of the Company’s reporting unit. This required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists, when performing audit procedures to evaluate the reasonableness of management’s estimates and assumptions related to the determination of appropriate market comparables, projected future cash flows, the selection of the discount rate and the selection of the perpetual growth rate.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the determination of appropriate market comparables, projected future cash flows, the selection of the discount rate, and the selection of the perpetual growth rate used by management to estimate the fair value included the following, among others:

•We tested the effectiveness of controls over management's goodwill impairment test, including those over the determination of the fair value, such as controls related to management's determination of appropriate market comparables, projected future cash flows, the selection of the discount rate, and the selection of the perpetual growth rate.

•We evaluated management's ability to accurately projected cash flows by comparing actual results to management's historical forecasts.

•We evaluated the reasonableness of management's projected cash flows by comparing the forecasts to (1) historical results, (2) internal communications to management and the Board of Directors, and (3) forecasted information included in the industry reports and analyst reports of the Company and companies in its peer group.

•With the assistance of our fair value specialists, we evaluated the reasonableness of the valuation methodology, the discount rate, and the perpetual growth rate, including testing the underlying source information and the mathematical accuracy of the calculations, and developing a range of independent estimates and comparing those to the discount rate and the perpetual growth rate selected by management.

•With the assistance of our fair value specialists, we evaluated the market multiples, including testing the underlying source information and mathematical accuracy of the calculations, and comparing the multiples selected by management to its guideline companies.

/s/DELOITTE & TOUCHE LLP

San Francisco, California

February 28, 2024

We have served as the Company’s auditor since 2018.