Atomera Incorporated

Hello, everyone, and welcome to Adamera's fourth quarter fiscal year 2021 update call. I would like to remind everyone that this call and webinar are being recorded, and a replay will be available on Adamera's IR website for the one year. I'm Mike Bishop with the company's investor relations. As in prior quarters, we are using Zoom, and we will follow a similar format with participants in a listen-only mode. We will open the call with prepared remarks from Scott Bibaud at Ameris President and CEO and Frank Laurencio at Ameris CFO. Then we will open the call to questions. If you are joining by telephone, you may follow a slide presentation to accompany our remarks on the events and presentation section of our investor relations page on our website. 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 annual report on Form 10-K filed with the SEC on February 15, 2022. Except as otherwise required by the federal securities laws, Atomer just claims 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. Good afternoon and welcome to Adam Harris update call for Q4 2021. We've had a very eventful three months, capped by our recent announcements of an integration license with a foundry and progress on our JDA. If you've been following us for any length of time, you know that large semiconductor companies are not fast moving. A week ago, we announced our fifth license agreement, an integration license with a foundry partner. This builds on the license agreements with AKM, NFC Micro, plus another unnamed partner, and of course the JDA. Given the customary non-disclosures, we provided as much information as we were allowed to in the press release. Let me say, however, that we are very happy to be working with this foundry partner because they're very well known in the industry for bringing innovative technologies to market. We started our engagement with them some time ago, So they are already a Phase 3 customer. Over the last year, they have used our MSTCAD modeling software to unveil some compelling new uses of MST that may enhance some of their specialty processes. Once that advantage was made clear to them through our modeling software, they immediately took steps to start running MST on device waivers. Electrical results, which validate the modeling run by this new license fee, would be a breakthrough in performance that I think they would be extremely enthusiastic about taking into production. We also hit a significant milestone in our JDA partnership with a large semiconductor manufacturer. Very recently, we were informed that we have passed all the technical specifications required to complete the JDA. While some documentation is required before the JDA is officially completed, Our customer is satisfied that Atomera's technology meets their challenging requirements, which validates the manufacturability and the effectiveness of using MST in a world-class fab. At this point, our focus for this customer will turn towards engaging with different business units or application areas within the company to have MST integrated into their devices and hopefully taken to production. As I have said in the past, If a business unit wants to use MSD, the next step is for us to do integration work on those specific applications. While it is hard for us to predict the required time frame, these are the opportunities that we've been looking forward to over the last year. The completion of the JDA is a revenue-bearing event, so Frank will have more to say on that in our financial section. As you can see from our engagement chart, we do remain flat with a number of customers last quarter. But during Q4, we have seen a significant uptick in the amount of activity by those customers inside Phase 3, and we believe this will continue over the next year as availability of R&D wafers and a focus on innovation returns to the industry. We have heard feedback asking for more details of the activities within Phase 3 of our customer pipelines. Although we've considered several ways to do this, given the highly competitive nature of our industry, small disclosures by us about the details of our work can be extrapolated by knowledgeable players into competitive intelligence. I can tell you that within Phases 3 and 4, we have projects representing at least six different application areas. In some of those, we're engaged with many different customers working on very similar solutions. In others, the focus is on quite different specifications within a single broad application area, and in some applications, there may be only one or two customers. In each of these engagements, confidentiality is vital to our customers. Our engineering team has got their hands full servicing the customer interest coming into Atomera these days. In the past, we've noticed an increase in interest by other semiconductor companies when new licensees are announced, and we think this trend is very helpful for Atomera to build our customer base in the long term. In November, Atomera announced the availability of MST SP technology which was our first design package ready for customers to adopt as a full transistor solution. We accomplished this by developing MST SP on our own wafers in our partner development fab so we can freely share all the designs and resulting data we generated. The detailed announcement and promotional materials were very comprehensive and give us something we haven't had before, the ability to market our technology to potential customers without actually meeting them face-to-face. Although quite technical, the information was picked up by many different publications. As an example, I would point you to an EE Times article on January 26th called Quantum Engineered Material Boost Transistor Performance, which is available in the news section of our website. We hope this type of article will extend the reach of MSD and established semiconductor designers worldwide. Market reaction to the launch has been quite good. We have seen excellent incoming interest on this technology. We are hopeful that MSDST, which is targeted at 5-volt devices, will gain strong traction, will be introduced into new fab capacity being added at legacy nodes and will become a new standard for the industry. The economic benefit of this technology is very compelling for all members of the value chain, and we will continue to deliver that message until we get customers into production. We also continue to see strong interest in MST focused at RFSOI, which is a technology fundamental to the success of the 5G cellular market. Atomera has a large body of simulation results and diffusion blocking data to prove that our technology will have significant performance benefits for RFSOI devices, which has led us to having multiple engagements underway in this area. Earlier, I spoke about how our newest licensee used MSTCAD to model a big improvement in device performance using our technology. This is an example of how MSTCAD is becoming a more and more important tool for Atomera, especially in the earlier parts of customer engagement when they're trying to understand how best to integrate MST into their products. MSTCAD is a tool that sits on top of the market-leading industry TPAD tools made by Synopsys, so it's vital that we work closely with them as a partner. Synopsys believes in Atomera because they understand the complex physics behind our film, and how it can impact devices. In March, Synopsys will be sponsoring a webinar for their worldwide PCAD user base to learn about Atomera's technology and how MS-PCAD can be used to optimize transistors. We're very excited to leverage the marketing strength of Synopsys to bring our technology to a much wider audience. During our last earnings call, we announced that we had reached formal acceptance of our new 300mm EPI tool, and had commenced MFT deposition on wafers. I'm pleased to say that in the last three months, our epi tools have been utilized for multiple customer wafer runs and the operations of these tools is meeting all of our expectations. Now I'd like to provide some thoughts on the overall semiconductor manufacturing environment. Industry analysts seem to have a wide ranging set of estimates for when capacity constraints in the semiconductor industry will start to dissipate. generally falling sometime from Q3 of this year into 2023. As you know, Atomera has been affected by these fab constraints in a few different ways. Essentially, when customers can't run wafers or add tools, they do not prioritize development that requires those resources. I'm pleased to report that Atomera is currently engaged in a large number of different R&D runs with customers in Phase 3 of our pipelines. And we believe that this indicates the development pendulum is starting to swing away from dealing with supply issues and back to new technology development. As you can imagine, this is a very beneficial trend for us. We also believe it's a strong vote of confidence in Atomera's technology when companies with very limited R&D wafer capability are allocating it to development using MSP technology. We continue to see very strong CapEx growth by almost all players in the semiconductor industry. Inevitably, the most advanced nodes are getting a lot of that CapEx, but legacy nodes are now starting to get long overdue attention, with capital directed towards building new factories or expanding production in existing fabs to correct long-term capacity issues. Today's Intel announcement of the tower acquisition is a good example of this type of investment. We believe this allocation of capital provides a very strong opportunity for Atomera since MSD can uniquely enhance older nodes that have run out of other options. Our MSD SP product is a great example of how our technology can be used to improve both performance and die size and therefore capacity in a legacy fab. We are at the beginning of an unprecedented period of CapEx growth in the semiconductor industry and with that growth come exceptional opportunities for Adamera. I think you can agree that the last three months have been very productive for Adamera. Our company achieved several important milestones, including publicly announcing MSDSB, reaching 300 patents granted and pending, inclusion in the Forbes list of best American small companies for 2022, and more recently announcing a new license for the foundry, and fulfillment of the technical milestones specified in our JDA. We are clearly entering 2022 with strong momentum, which is something we hope to carry forward through the remainder of the year. Now Frank will review our financials.

Thank you, Scott. At the close of the market today, we issued a press release announcing our fourth quarter and full year 2022 results. This slide shows our summary financials. Our gap net loss for the year ended December 31, 2021 was $15.7 million or 70 cents per share compared to a net loss of 14.9 million or 79 cents per share in 2020. Revenue increased by $338,000 from $62,000 in 2020 to $400,000 in 2021. GAAP operating expenses were $15.9 million in 2021, which was an increase of $960,000 from $15.0 million in 2020. Non-GAAP net loss to 2021 was $12.5 million, and reflected $12.9 million in non-GAAP operating expenses. In 2020, our non-GAAP net loss was $11.7 million, the same as our non-GAAP operating expenses for that year. Stock compensation expense, which is the largest component of non-GAAP costs, was $3 million in both years. Our press release and this slide contain a reconciliation between our GAAP and non-GAAP results. In the fourth quarter of 2021, our GAAP net loss was $4.2 million, or 18 cents per share, compared to a net loss of $3.9 million, or 19 cents per share, in Q4 of 2020, reflecting higher operating expenses. Sequentially, the Q4 net loss since 2021 was approximately flat compared to Q3. On a non-GAAP basis, and others. The $3.4 million in non-GAAP net loss in Q4 was unchanged sequentially from Q3 2021. Focusing now on the components of operating expenses, our full-year research and development expenses in 2021 were $8.8 million. An increase of $355,000 from $8.4 million in 2020. This increase was mainly due to the new EpiTool lease, which we started making payments on in August of 2021. General and administrative expenses increased to $6.2 million in 2021 from $5.6 million in 2020, mainly reflecting higher insurance and payroll costs. Sales and marketing expenses in 2021 were $986,000 compared to $921,000 in the prior year. Our cash balance at the summer 31, 2021 was $28.7 million compared to $37.9 million at the end of 2020. The $9.2 million decline over the year reflects $12.4 million of cash used in operating activities. offset by $3.3 million of cash received from financing activities. As of December 31, 2021, we had 23.2 million shares outstanding. Last year, we recognized $400,000 of manufacturing license revenue when we transferred our MST recipe to our JDA partner. The JDA also included technical objectives which, if achieved, would result in incremental revenue of $300,000 to us. As Scott mentioned, we have now completed those practical objectives. And revenue recognition depends on receiving final documentation, which is likely to happen in Q2 2022, though it could happen in Q1, depending on our partner's internal process. Likewise, timing of revenue recognition under the new integration license is dependent on delivery of wafers and other factors. So our estimate is that revenue for Q1 will be between $0 and $25,000, and that the remaining JDA revenue will be recognized in Q2 of 2022. Our non-GAAP operating expenses for 2021 were $12.9 million. At this time last year, my guidance for 2021 OPEX was a raise of $14 to $14.5 million, which was based on two assumptions that played out differently from what we had been expecting back then. First, we had assumed that we would accept the tool and start making lease payments on it in Q1 of 2021. As the year progressed, We provided updates on delays related to the tool, and ultimately, we only reached final acceptance in August. Secondly, we did not grow our headcount at the rate we originally anticipated. But now, the lease payments of $150,000 per month are part of our baseline R&D expenses, and we are actively hiring, primarily in engineering. Based on these assumptions, we expect that our 2022 non-GAAP operating expenses will be in the range of $15.25 to $15.75 million. Earlier today, we filed a universal shelf registration statement on Form S3 with the SEC. We had put up a similar shelf registration in 2019, and those facilities have a term of three years. With that, I will turn the call back over to Scott for a few summary remarks before we open the call-up questions. Scott?