Atomera Incorporated

Good afternoon and welcome to the Adam Era First Quarter 2020 Earnings Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal our conference specialist by pressing star then 1. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then 1 on your telephone. To withdraw your question, please press the pound key. This event is being recorded and will be available for replay for approximately one week. I would now like to turn the conference over to Mike Bishop. Please go ahead.

Thank you and good afternoon. I'm Mike Bishop with the company's Investor Relations. Joining me on today's call is Scott Bibaud, Atom Air's President and CEO, and Frank Laurencio, Atom Air'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 up the call to 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 factors section of our filings with the Securities and Exchange Commission, specifically in the company's 2019 annual report filed on Form 10-K, filed with the SEC on March 13, 2020. Except as otherwise required by federal securities laws, Anamara 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 the most directly comparable GAAP measures are included in today's press release, which is posted on our website. Now, I would like to turn the call over to our President and CEO, Scott Bibaud. Go ahead, Scott.

Thanks, Mike, and thank you all for joining us to hear about Atomera's progress during a very trying time in our lives and businesses. Let me start the call by saying that Atomera took measures swiftly, as did many other California-based companies, to be sure our employees and their families remained safe during this pandemic. We have continued to work with customers and partners from around the world who have been exposed to all kinds of hardships and we count ourselves lucky to escape some of the worst of this situation. I hope that you and all your families have been safe as well. In times like this, it would be reasonable for our investors to expect Atomera to announce major slowdowns or cancellations of customer activities. In fact, that has not been the case. Our reality during the last few months has been better than might be expected in these circumstances. Most Atomera employees do engineering design, simulations, and analysis that can be conducted remotely. For the few who need to work with specialized tools, accessibility under modified conditions has allowed our work to continue to progress without significant interruption. Most of our customers' fabs have continued to run during the past months, so our programs which were launched before the virus period have not been affected. Wafers continue to run analysis is being reviewed, and plans are being made for further work. As a matter of fact, over the last three months, we have grown our customer pipeline. As most of you know, very few of our customers have ever dropped out of our development programs, but one of them that had dropped out has now started a new program, which has advanced into phase two. Several of our existing customers have two engagements underway, But now, for the first time, we have one customer that has added a third program to the work we are doing with them, and that program has already moved into phase three. This makes a record 26 engagements with 19 customers. Sixteen of the engagements are in phase three. We continue to talk with several other new prospects who are not currently in our pipeline but are interested in working with our technology. We are seeing some modest impact from the coronavirus, primarily in newer engagements. In general, I believe many companies in the semiconductor industry have started to become a bit more cautious on spending, especially on CapEx, until they can understand the long-term revenue impact of the coronavirus. A few of them have told us that they do not expect to have visibility until at least this June. So though we have not been impacted yet by customer cost cutting, we are starting to see some more conservatism on spending. We have seen some delays in our customers' R&D engineering for new programs. For many of our customers, production personnel are working in the fab, but development engineers continue to work from home, which sometimes limits their ability to start new R&D lots that require hand-holding in the fab. So where some customers would normally be starting wafers, they may be holding back until their engineers get back into the office to start pulling the levers on new lots. In our last update call, we spoke about developing deeper and more strategic relationships with customers through joint development agreements. We are advancing our work on this new agreement format with several large customers, customers with multiple production nodes and multiple technology and product divisions, an approach that integrates both development, licensing components and manufacturing requirements. But the execution of those agreements has been somewhat impacted by coronavirus. First, our ability to personally fly to customer sites and close deals with face-to-face negotiations has obviously been halted. Negotiations continue over the phone and email, but take a bit longer. Second, uncertainty in end market demand has caused at least one of our potential GADA partners to become more cautious on spending and to postpone the beginning of a program they are planning with us. We continue to be huge believers in joint development agreements because we expect that they will give us an advantage on both leading and trailing edge technologies and will provide access to a variety of platforms, ultimately leading to deeper customer penetration, faster adoption, and quicker ramping of manufacturing activities across their product lines. But adoption of these JDAs has been delayed at least a month and maybe longer. I do want to emphasize one thing. None of our JDA discussions have stopped. They are just delayed. We believe that this trend is very positive for Atomera and will help us to become more successful with bigger customers. Finally, in terms of coronavirus impacts, I will say that the lack of visibility is having some impact on production plans of our licensed partners as their markets and CAPEX plans may be changing. Although there are uncertainties in the market, inside Atomera there is a lot more clarity. We are busier than ever working on R&D programs, perfecting our simulations, interacting with customers as we design, revise, and analyze the ongoing wafer runs we are conducting with them and plan for new runs. I'd like to give you some insight into what we've been able to accomplish during this time period. In the last earnings call, I spoke about how Atomera's R&D has achieved extraordinary results with our MST SP technology, allowing our specific on resistance, or RSP, to reach a level that is slightly better than the industry top runners. Since then, we've been able to reduce that critical metric even more to the point where we believe our MSC silicon fabricated at our contract foundry is now yielding a lower RSP than is available anywhere in the world on that process node. Those results will be even more impressive when fabricated on the significantly more advanced processes used by our customers. Remember that the lower the RSP, the more compact and efficient a given power management IC can be. So MST SP would enable a very attractive cost reduction to makers of mobile phones or any battery operated product. We are working with several different customers in this area. MST on RFSOI continues to be a product area with excellent potential. Our customer base continues to grow and conduct extensive tests of the technology. This past quarter, we were invited to present a paper on those technologies at the EDTM conference conducted in March, and it was very well received. And the new matching data that we covered in the last call and on our blog have been accepted for another upcoming conference on semiconductor reliability coming soon. We think that this technical publicity will lead to even more customer engagements. As mentioned in prior calls, we've been working for the last few years to secure a full-time lease on a 300-millimeter, or 12-inch, epitaxial deposition tool. I'm pleased to report that the tool has now been delivered and is currently in the process of being installed. If all goes well, we hope to take possession of the tool and begin epideposition at the end of this quarter. Let me just take a moment to elaborate on how much this tool will enhance Atomera's position in the market. Since 2016, Atomera has leased a 200 millimeter or eight inch epitaxial deposition tool. This, in conjunction with our foundry partner, has dramatically improved our R&D capabilities to the point where our cycles of learning in the company went from three to four cycles per year to more than 30 cycles per year. Since many of our customer engagements have been at 130 nanometers and above and use 200 millimeter wafers, this facility is very useful for MST deposition during customer integration runs as well as for our internal R&D. Below 130 nanometer, every process node uses 300 millimeter wafers exclusively. So most of our customer engagements use this wafer size as well. There really are no facilities in the world that one can access to lease a 300mm EPI tool on a regular basis. So when we've had to do customer integration runs on 300mm wafers, we've had to negotiate with one of our EPI OEM partners to give us access to their labs for a short period. This type of arrangement has always limited us because tool access is rarely available, and when it is, it's only for short periods and is very expensive. Therefore, when we did get access to a tool, we needed to fit in as many customer runs as possible and run them as fast as we could. As you can imagine, this is not the best environment for careful experimentation and thoughtful creativity. In many cases, we tried to use 200 millimeter wafers for our customers' 300 millimeter experiments, leading to the need for specialized equipment, handling errors and other problems. Because semiconductor manufacturers prefer to see experiments under conditions that replicate their production environments as closely as possible, we also have had customers who have run experiments in 200 millimeter wafers with us who have deferred progressing their work until we can demonstrate results on 300 millimeter wafers. We expect that we can cut down on these inefficiencies with a new tool. With this new capability, we will finally be able to take the time necessary to ensure earlier success on customer epi runs. We will be able to accommodate more customers running more experiments, and it opens the possibility for Atomera to help customers who need more wafers as they transition from development to pilot runs to early production. Because this will be a state-of-the-art tool, it will also allow us to make process improvements that will allow our customers to transition to a production facility more readily. Since the more advanced nodes use 300 millimeter, this also helps us to more directly address the higher royalty potential segment of the market. Early on, we identified that a 300 millimeter epi tool was one of the most critical pieces of equipment to enable Atomera to make a big impact in the market, and we are now on the verge of that dream becoming a reality. As you can see, during a major slowdown in the economy, Atomera has continued making progress at a fast pace. Nevertheless, we need to be especially prudent on spending, so we have cut discretionary spending wherever possible. On our last update call, I talked about how our potential at this point is being limited only by our internal resources, and that is still true. We will not forsake growth in order to save the expense of a few new hires. but we will add them cautiously as we gain visibility. As you know, we are very conservative with our cash, but the potential growth we can see is something we must take advantage of. Despite the COVID situation, very few of our activities have slowed. Customer penetration is increasing and the focus is favoring near term manufacturing processes. Now I will turn the call over to Frank to review our financials.