Atomera Incorporated

Good afternoon, and welcome to the Atomera Second Quarter 2020 Earnings Call. At this time, all participants will be in a listen-only mode. Should you need assistance, please signal our conference specialist by pressing star zero on your touch-tone telephone. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star one on your touch-tone telephone. To withdraw your question, please press star two. 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 the call up 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 factor sections of our filings with the Securities and Exchange Commission, specifically in the company's prospective supplement filed with the SEC on May 13, 2020. Except as otherwise required by federal securities laws, Adam Mayer 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 to our website. Now, I would like to turn the call over to our President and CEO, Scott Bibaud. Go ahead, Scott.

Thanks, Mike. Welcome to Atomera's Q2 update call. While the coronavirus continues to batter many segments of the economy and the electronics industry, Atomera has been able to keep making great progress on customer developments without significant disruptions. Our customers continue to do wafer runs, test and review results, and have regular and detailed technical meetings with us. We would certainly love to join them and their facilities for more intensive analysis and planning sessions. Indeed, we believe that would help us to accelerate progress, but even without the ability to visit, we continue to make great strides together. Since our team primarily does engineering design, simulations, and analysis that can be conducted remotely, stay-at-home restrictions have not affected our work. For the few who need to work with specialized tools, access to those facilities under social distance conditions has allowed our work to progress without significant interruption. All of our customers' fabs have continued to run during the past months, and our programs which were launched before the virus period have not been affected. So although the pandemic has slowed down many things around us, our efforts continue largely undiminished. As you can see from this chart, we continue to make progress with customers. In the last few months, one of our returning customers who had started a new program has now advanced into phase three, giving us 17 customers in that most critical stage. Several of our existing customers have multiple engagements underway, So we now have 26 engagements with 19 customers. We continue to speak with several other NUCUT prospects who are not currently in our pipeline but are interested in working with our technology. New customer acquisition is one area somewhat affected by the coronavirus slowdown for a few reasons. In years past, when we were able to hold a multi-hour in-person technology review session with a potential customer, They would generally agree to start working with us and enter into our pipeline. During that meeting, we could read the room, identify the decision makers, and try to address concerns expressed verbally or with body language. But it's hard to convince a potential customer to sign up for a multi-hour Zoom call, and it is harder still for our sales team to gauge reactions for follow-up. Needless to say, we are anxious to start traveling for in-person meetings again. In addition, due to just how busy our team has been in the last few months, we have dialed back on our efforts to aggressively seek new customers. Naturally, given the choice of where to expend our limited engineering resources, we have been prioritizing engagements which have a better chance to advance into phase four over adding new customers into phase one. Atomera is constantly working to develop deeper and more strategic relationships with customers. most recently through the pursuit of joint development agreements. We are advancing our work on this new agreement format with several large companies, those with multiple production nodes and multiple technology and product divisions, an approach that integrates development, licensing components, and manufacturing requirements. But the execution of those agreements has been slowed down by the uncertainty and logistical constraints put in place by the coronavirus. Since our last update call, we have been making substantial progress with the first of our customers with whom we hope to institute a JDA. Technical work and communication between our two companies has ramped up with extensive planning and data exchange happening in the last few months to allow them to do the pre-work for the JDA now. We have even been informed that the JDA has overcome the most significant hurdle put in place by the customer's development organization. Unfortunately, as of this earnings call, the formal contract to kick off this effort has not been completed. 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 the product lines. Discussions on JDAs with other customers continue. We believe that this trend is very positive for Atomera and will help us to be more successful with bigger customers. As you know, we have three existing license partners, and I can tell you that advancements continue with them towards solutions we hope will go into production as soon as possible. Each is still excited about the impact Atomera's MST can have on their competitiveness. One of the three has identified a coronavirus impact due to concerns on the market recovery and its potential change to their CapEx plans, but all of them continue to make progress forward. Although there are uncertainties in the market and we have not executed formal contracts that we can share with you today, inside Atomera there is a lot of confidence that MST technology offers customers significant benefits that they cannot achieve on their own. We are busier than ever, working on R&D programs, perfecting our simulations, and deeply engaging with customers as we design, revise, and analyze their ongoing wafer runs and plan for new ones. During the last few calls, I've been speaking about Atomair's MSTSP technology and the potential it has to bring entirely new levels of performance to the large and growing 5-volt semiconductor segments. Recently, our engineering team was very excited to view the first results from an important customer's latest wafer run using MST-SP. Datasets generated from an evaluation lot can be quite extensive because we include many different split conditions, which span multiple different channel lengths, implant conditions, annealing temperatures, and many other factors. So collecting all the data can take weeks, and analyzing it takes even longer. But early indications from this customer's results, although not perfect, are exceeding expectations of both the customer and Atomera and validate some of the early projections we are making on the benefits of MST SP technology. These benefits will allow, for example, a more compact, low-cost, and efficient power management IC for use in the next generation of 5G cellular phones or other battery-operated products. In the near term, we hope this customer takes advantage of those results to move forward quickly, and we hope to achieve similarly promising results with our many other customers who develop 5-volt power devices. Likewise, work with customers on RFSOI and partnerships in this area continue to expand. Early in the pandemic, there was talk of the 5G cellular rollout being delayed due to the resulting economic uncertainty, But that talk seems to have faded. One of the most challenging and costly aspects of designing and manufacturing a 5G cellular phone is the complicated RF front end required. RMST technology, on top of the RF SOI wafers used for many of these designs, continues to show that it can markedly improve the performance of the critical RF front end components that do the heavy lifting in these phones. This is a real near-term market transition where we believe MST can provide a competitive advantage. In addition to the focus areas that we've been highlighting, we continue to do R&D and customer work with MST and several other promising areas. As a result of these efforts, we have now grown our list of patents issued and pending to 244, which is truly an impressive portfolio for any company, but certainly for one of our size. Since filing and maintaining patents is very expensive, our goal is not simply to increase our numbers, but to protect our technology in the key areas in which MST is most likely to be successful. With our growing body of know-how and the fact that our film is discoverable and manufactured chips, we believe our license portfolio has increasingly strong, long-lasting, and defensible value in the marketplace. Adamera is also excited about the new state-of-the-art 300 millimeter epi deposition tool we've been working to secure. Installation of this tool has been underway since March and after some minor delays caused by supply chain disruptions during the pandemic, we expect to take possession of the new tool under a lease arrangement in the next few weeks once certification and acceptance tests have been completed. Most of our customer engagements use 300 millimeter wafer sizes, so this tool will have many benefits which will help to accelerate Atomera's time to revenue. For one, we will now have the ability to do short flow wafer trial runs to perfect our integration before entering into full flow customer trials, which as you know, can take up to nine months or longer to get results. With this new capability, we will finally be able to take the time necessary to ensure earlier customer success on FB runs. We will no longer need to ask customers who use 300 millimeter wafers to conduct R&D efforts on 200 millimeter wafers, which in the past has delayed decision making as customers then seek to revalidate results on 300 millimeter tools. We will be able to accommodate more customers running more experiments and it opens the possibility for Atomera to help customers who need a larger amount of wafers as they transition from development to pilot runs to early production. Because this will be a state-of-the-art epi tool, it will also allow us to make process improvements that will directly transition to our customers' production facilities when complete. Since the more advanced nodes use 300 millimeter, this tool also helps us to more directly address the segment of the market with higher royalty potential. For all those reasons and more, we're about to become better positioned to assist our customers in the transition to production than ever before. Atomera has continued making progress at a fast pace, and some of the results coming in to us right now make us particularly optimistic. In prior calls, we indicated that our biggest limitation in customer engagements was the size of our team. At this point, we've made great progress resolving that issue by adding engineers to fill critical areas of support. Although we are being careful with our cash, we are also very focused on growth and will carefully target our spending in only the most hard-hitting areas. Despite disruptions from the pandemic, very fewer activities have slowed, customer results are improving, and we continue to prioritize near-term manufacturing opportunities. Now, I will turn the call over to Frank to review our financials.