Atomera Incorporated

Ladies and gentlemen, thank you for standing by, and welcome to the Adam Mera Third Quarter 2019 Financial Results Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference call is being recorded. It will be available for replay for approximately one week. If you require any further assistance, please press star zero. I would now like to hand the conference over to your speaker, Mike Bishop. Please go ahead, sir.

Thank you, Sydney, and good afternoon. I'm Mike Bishop with the company's investor relations, and joining me on today's call is Scott Bibaud, Atomera's president and CEO, and Frank Laurencio, Atomera's CFO. If you are joining by telephone, please go to the events section of our investor relations page on our website to follow a slide presentation that accompanies our remarks. That presentation will remain available on our website after the call. After prepared comments by Scott and Frank, we will open the call up for your questions. Before we begin, I would like to remind everyone that during today's call, we will make forward-looking statements. These forward-looking statements, whether in prepared remarks or during the Q&A session, are subject to inherent risks and uncertainties. These risks and uncertainties are detailed in the risk factor section of our filings with the Securities and Exchange Commission specifically in the company's prospective supplement filed with the SEC on May 30, 2019, except as otherwise required by federal securities laws, Ad Amer disclaims any obligation to update or make revisions to such forward-looking statements contained herein or elsewhere to reflect changes in expectations with regards to those events, conditions, and circumstances. Also, please note that during this call, we will be discussing non-GAAP financial measures as defined by SEC Regulation G. Reconciliations of these non-GAAP financial measures to meet the most directly comparable GAAP measures are included in today's press release, which is posted on our website. Now, I will turn the call over to our President and CEO, Scott Bibaud. Go ahead, Scott.

Scott Bibaud Thanks, Mike. Good afternoon, everyone, and welcome to our third quarter update call. I will begin with some comments on our progress this quarter and we'll discuss our recent announcements, after which I'll turn the call over to Frank to review our financial results and we'll open it up to questions. Over the last few quarters, we've been able to provide some detailed insight into the technical breakthroughs Atomera has been introducing into the market. I would like to focus this call more on our recent customer and market activity. It is certainly true that these last three months have been more consumed with customer engagement activity Thank you for joining us today. We continue to be very busy working with customers on interpreting results, preparing for work on additional customer programs using MST, and planning next steps to get closer to production. As you know, Atomera illustrates our customer activity with the phases of engagement shown here. Phase one includes customers under NDA who are planning an evaluation of our technology. In phase two, We deposit MST film on customers' wafers and conduct physical characterization. Phase 3 is where customers incorporate MST on their wafers during an R&D run in their fab and use the test results to justify licensing our technology. It is generally in Phase 3 that we are most likely to sign integration licenses with customers. Phase 4 is where customers execute a manufacturing license and install MST on an epi tool in their fab and in phase five, customers get a distribution license and transition to production. Atomera gets revenue from three sources, engineering services revenue, which will grow as more customers pay us to conduct MST deposition runs, upfront revenue for integration, manufacturing and distribution licenses, which will increase as we sign more license deals, get into the later stages of licenses on existing deals, and license additional process nodes to existing customers. Finally, customers will pay us royalties based on the sale of licensed MST wafers and chips when they get into production. During the last three months, our customer engagement process has been exhibiting consistent growth and phase advancement. We have succeeded in moving two engagements into phase three while conducting a number of other MST deposition sessions for customers already in phase three. We have also added one new customer engagement and advanced another into phase two. As a result, I'm pleased to report that we now have 19 customers with 25 engagements, meaning six customers are working on multiple process nodes with us. Our customer engagements continue to be skewed towards larger companies, with at least 50% of the world's top semiconductor companies engaged with Atomera. Our focus continues to be on advancing existing customers through the pipeline towards production. That being said, we continue to get new opportunities as a result of the breakthrough work we've done earlier this year. We evaluate each of those and pursue opportunities that make sense. To continue to support this level of engagement growth, it will be necessary for us to increase engineering and deposition resources to keep up. a good problem to have. We are extremely pleased to announce the execution of a new integration license with a large Fabless semiconductor company. They are working with MST to provide improved performance to RF devices designed using RF SOI technology. This is an excellent market opportunity for both of us as the 5G market starts to expand. Research indicates that the 5G cellular market will grow significantly over the next five years to a point where over 50% of phones shipped in 2023 will include the RF devices required to support its new frequency bands and bandwidth. 5G technology will drive the RF content in cellular handsets to new levels, and it will also drive the development of a number of new, high-performance, low-power devices using RF technology. and we believe that MSC will make all of them perform better. This integration license gives our new customer the ability to develop these cutting edge next generation RF devices for the mobile 5G market. This also marks our first license with a fabulous semiconductor supplier. In this case, the company is large enough to have established its own proprietary manufacturing process with its foundry partners. And we are working with them on development of the next generation of that technology. Although this is not the most common and typical relationship that Fabless players have with their foundries, it's not that uncommon. Many of the world's largest Fabless companies develop their own proprietary manufacturing technologies, which represents a very exciting growth area for Atomera. Of course, most Fabless companies work directly on a manufacturing process owned by their foundry partner. Because they are strong influencers of the foundry's development roadmap, it's important that we engage with them. You can imagine that if an important customer requests their foundry to implement MST, we may immediately get higher priority than if we are trying to convince that fab on our own. So although this type of fabless company would not be an Atomera licensee, they would generate demand for licensed wafers. Both type of engagements with fabless companies are an excellent development for Atomera's future business. Today's announcement of a license with our fabulous partner also represents something else that we believe is a very good trend, faster time to revenue. But before I illustrate that, let me give you some more insight into the different flavors of MST technology. Since the early days of Atomera, we have had two different versions of our MST technology. MST1 was developed as a film that was applied to a brand new wafer before any other processing was done. The industry calls that a blanket technology, and the great thing about a blanket technology is that it's very easy to integrate into a customer's manufacturing process. We typically work with them to understand their needs so that we can customize the cap layer on top of MST, and from there, deposition and integration is quite easily done. The downside to MST1 as a blanket film is that it is applied right before the transistor building blocks called STI and well modules, which are the most challenging process steps from a time and temperature perspective, which we call DT. This protracted high heat environment can have detrimental effects on the MST film's quality, which can negatively impact its performance. In order to bypass these early stages, Atomera created another version of our technology called MST2 that is applied after the STI and well modules, thereby avoiding the worst high temperature steps. MST2 is what they call a selective process. Unlike a blanket process, it's only applied where it's needed on the wafer surface. Because the film is applied after the highest heat cycles, it generally retains its high performance through the whole manufacturing process. and because we can deposit it only where needed on the wafer surface, it also allows our customers more flexibility in their designs. Maybe, for example, they want MST on some circuits but not on others. MST2 can support that. MST2 does require a much higher level of integration than MST1 since it is applied right in the middle of our customer's manufacturing process. Sometimes require modification to their standard process steps just before and after the deposition of MST. Generally speaking, if a wafer can be manufactured using MST1, we believe it will be easier to integrate and will give Atomera faster time to revenue. But MST1 will only be an option where the customer's process uses a lower DT regime. As a rule of thumb, newer process nodes generally use lower temperature profiles, so 28 nanometer is usually manufactured at lower temperatures than 65 nanometer. And when we speak about Atomera advances in FinFET technologies, they are achieved using MST1 technology. The work we are doing in RFSOI also uses MST1 since most RFSOI tends to be manufactured at lower temperatures. It is our belief that customers using MST1, including in RFSOI, will be capable of getting to production sooner than those using MST2. This is very good news since our newest licensee is using MST1 and we have many other customers working on MST1 as well. Most of the work we are doing today with 5V customers is using MST2 technology. Although the integration work is challenging, the potential upsides are obvious and the breakthrough advances we have shown and prior calls are offering customers advantages that aren't available through any other method. The use of MSD1 and MSD2 with different customers shows how Atomera is providing flexible solutions for many different process nodes and applications. Our engineering team continues to generate better films and integration techniques to provide compelling solutions to many problems the industry is facing. One way to gauge how much innovation is happening in Atomera is to look at our patent portfolio metrics. Over the last 12 months, Atomera has grown our patents granted and pending from 184 to 230. This is a 25% growth year over year and shows how we continue to build the value of our company in core MST patents along with the devices and next generation architectures MST enables. Since our technology is discoverable in end customer chips, our patents can be defended, making them more valuable. And since we also license know-how, which has no expiration date, our licenses will have very long lives. The foundation of any great licensing business is their patent portfolio, and any semiconductor technologist can attest to the value of having over 200 patents in a company this size. Speaking of technologists, I'm pleased to welcome a pioneer of the semiconductor industry to our board of directors. Zhilan Li comes to us with a very impressive track record of leadership within her company as well as deep experience assisting semiconductor companies at the board level. She was the first and only woman in the history of TI to be awarded their highest technical title of senior fellow. and has participated in all aspects of the business at TI from development to running fabs to working with partners. The contacts and experience she is bringing from the industry to our board will be very helpful. She currently sits on the board of directors of three multi-billion dollar companies including National Instruments, Cree and Ballad Power Systems. Zulan is joining our company at a very auspicious moment. We are engaged with an impressive cross-section of the industry with technology that can take advantage of some of the most important trends in the industry. With the slowdown in Moore's Law, semiconductor companies have fewer tools than before to bring new innovations to market. Atomera's MST is one of those rare tools that companies can use to continue to drive major performance enhancements. And best of all, this is not an exotic technology under development in a lab somewhere. It can be used today on tools that are available in our customer fabs right now. Let me turn the call over to our CFO to discuss our financial results. Frank?