Atomera Incorporated

Good afternoon, everybody. We will be starting in just a few minutes. All right, I think we're ready to begin. Hello, everyone. And welcome to Atomera's first quarter fiscal year 2022 update call. I'd like to remind everyone that this call and webinar are being recorded and a replay will be available on Atomera's IR website for one year. I'm Mike Bishop with the company's investor relations. As in prior quarters, we're using Zoom and we'll follow a similar format with participants in a listen-only mode. We will open the call with prepared remarks from Scott Bebo, Atomera's president and CEO, and Frank Lorenzio, Atomera's 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 federal securities laws, and a mayor disclaims any obligation to update or make revisions to such forward-looking statements contained herein or elsewhere to reflect changes in expectations with regard 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. These 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'd like to turn the call over to our President and CEO, Scott Debo. Go ahead, Scott.

Good afternoon, and welcome to Adam Ayer's first quarter 2022 update call. I'm sure you've noticed the momentum that's been building over the course of this year, and I hope to share some details of that with you today. Then, after providing some insight into the latest industry trends and how they affect us, I'll turn the call over to Frank to briefly review the numbers and outlook. As you recall, we entered into a joint development agreement in January of last year with a large market-leading semiconductor provider. The goal of the agreement was to install MS capability in their fab and to work with their R&D team to validate MSD's performance benefits while simultaneously proving that it could meet their manufacturability requirements. This opportunity arose because one of this customer's business units had found MST's capabilities compelling and subsequently referred us to their R&D arm, whose job it is to vet incoming technologies. This customer invested a lot, including production tool resources, engineering time and money into the initiative, and working together, we were able to install the MST technology in their fab. Two weeks ago, we were proud to announce that we had successfully met or exceeded all of the requirements of the JDA resulting in two important outcomes. One is obviously the milestone payment from the customer, which are recognized as revenue in the first quarter. But the more important step is the ability to work with the customer's business units to eventual production. As you know, Atomera's number one goal is to ship MST-based products resulting in royalty payments. A successful outcome to this JDA was necessary so we can start moving those business units forward on MST integration and towards commercial royalty bearing production. Comparing the phases in this JDA with our standard business model is not appropriate since BU's will have to go into integration before moving into qualification and later into production. We will continue to provide updates as best we can, but as our followers know, there's a high degree of confidentiality demanded in this industry, and this customer is especially sensitive. Further, as everything in this JDA has taken a bit longer than our initial expectations, we're not guiding to a timeframe on these next steps. However, since they completed the time consuming epi-installation process and will not have access, I mean, will not have to send wafers to Atomera for MST deposition, future integration process cycles should be shortened. An hour ago, Atomera announced that we had entered into our second JDA, this time with a large semiconductor foundry who's been working with us in phase three for a number of quarters. After extensively reviewing our technology, our TCAD simulations, MST-enabled wafers, and the impact MST can have on their designs, this customer decided to enter into a joint development agreement with Atomera, the purpose of which is to define exactly what steps will be taken with high priority and with a full set of resources to take MST-based products into production if the results of our latest experiments meet their expectations. In our business, we expect each engagement to differ and therefore each JDA to have unique properties. So I'd like to note that this JDA is different from our first in some important ways. First, it's not being administered by a central R&D group, but by one specific technology area. So we believe this customer has the ability to move faster than our prior JDA partner on a first product. Second, this contract was structured to smooth the path towards productization after we pass the next milestone. So there's no revenue associated with signing, but the customer has committed to prioritize our wafers and dedicate a team who can help move the process to production quickly. And it clearly spells out the revenue expectations coming in the later phases of the JDA. That said, if we're successful on this JDA, we believe the customer will move expeditiously towards commercialization because all the legal and contract delays should be behind us. So with these two JDAs underway, I'd like to take a step back and review where we are. We have 19 customers and 25 engagements in our pipeline, of which we have two JDAs and five paid licenses. We've had one new customer move into phase two, offset by another engagement that was consolidated as a customer combined two programs into one. Two of our announced customers are foundries, which will help us make MST available to a wide set of fabulous companies targeting many different applications. This has been a goal of Adam Harris for the last year, and we're making good progress in that direction. Unfortunately, I can't go into the exciting details of each engagement because we are working on some high potential areas which can provide significant competitive advantage to our customers, making them especially sensitive to confidentiality. I can say that we are getting very promising results, which has led these customers to deeper engagement and hopefully to more JDAs and licenses. The pace of the activity in our facility has increased over the past six months, and our goal, as always, is to move each customer towards commercialization as quickly as possible. We believe the advancements in our JDA program will spur competitive pressures on all of those in our pipeline to move faster. Last quarter, our technology was recognized by some important third parties, which has resulted in several key marketing initiatives. Towards the goal of moving customers faster, Atomera created MSTCAD simulation software, which rides on top of Synopsys' industry-leading Centaurus TCAD tools. Last month, Synopsys hosted a joint webinar on how the MST tool set can be used to model MST's optimized transistor performance. Working together with Synopsys, we have already helped industry players gain a much better understanding of how MST can be integrated into their semiconductor manufacturing process. This webinar has directly led to several incoming inquiries about using MST in new customer designs. Also, we submitted a paper showcasing the results of our MSDSP technology to a very prestigious IEEE Power Conference. The ISPSD Conference is the premier international forum for technical discussions on all aspects of power devices. Although thousands of papers were submitted, ours was one of only a few selected for the conference in May. There is no doubt that our submission will expand interest in MSTSP with the key players in the power semiconductor industry who we know will attend this important conference in May. Our work on RFSOI, a technology which is critically important to 5G cellular, continues to consume a lot of our time and resources because of its great commercial potential. We hope this area will be one of the earliest to adopt MST and to bring it to production, considering the significant improvements we can bring to designs. Likewise, we continue to believe our technology has excellent potential in memory and for advanced nodes. Now I'd like to address some recent developments in the semiconductor industry, which I believe create an exceptionally favorable environment for Atomera. Although the big headlines tend to focus on how TSMC, Samsung, and Intel are competing to bring the 3 nanometer or 2 nanometer nodes to market, the industry has recently been recognizing the importance of the legacy nodes, and in particular, fabs running 200 millimeter wafers. Given the chip supply shortfalls, it seems obvious that the industry needs to add capacity in this area. And 200 millimeter fab capacity is forecast to grow 21% to mitigate the supply imbalance. But there are a few problems. First, the vast majority of 200 millimeter lines have been operating in fully depreciated fabs, which can be very attractive financially when operated near capacity limits. Building new fabs is very expensive and 200 millimeter equipment, which has had very limited production over the last decade is in short supply and is priced at a premium. This situation will place substantial margin pressure on these companies for many years until they can defray the very expensive build costs. So these new fabs can't easily get equipment, and when they can, the associated capex costs will drive lower profitability than they've experienced in the past. MST can help solve these problems for both the fab owners and their fabless customers by allowing them to shrink dye and thus boost throughput with only a minor increase in tool costs. 200 millimeter epi tools are available and MST will allow operators to continue utilizing their depreciated fabs with the associated good economics. Foundry capacity. percent in 2022, primarily in 300 millimeter wafer fabs. To deal with the capacity crunch and pay for the CapEx, fabs are raising prices on their wafers up to 20 percent now, and industry insiders say that price rises are not transitory, they're permanent. In this situation, as fabulous semiconductor makers will tell you, the need to get more dye per wafer is imperative. MST provides a path to get to these improvements that is both easily implementable and at a more reasonable price than most other alternatives. Atomera is spreading this message to industry players, and we believe that it will lead to widespread adoption over time. we remain laser focused on getting the first player into production, who we believe will drive the domino effect that's been predicted for some time. As I said in the past, we believe industry conditions have reached a point where both near and long-term structural changes will provide exceptional opportunities for Atomera. In our Q4 call, I said that we were entering into 2022 with strong momentum, and I think you will agree that it has continued with a new licensee, successful execution on our first JDA, and the opening of a new JDA. On the technical development side, we also continue to make good progress as recognized by important third parties in the industry. We still do have more JDAs and licenses in our pipeline, which I believe will help illustrate our gathering momentum as we move through 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 results for the first quarter of 2022. This slide shows our summary financials. Our gap net loss for the three months ended March 31st, 2022 was $4.1 million or 18 cents per share compared to a net loss of $3.6 million or 16 cents per share in the first quarter of 2021. In Q4 2021, gap net loss was $4.2 million or 18 cents a share. Revenue in Q1 2022 was $375,000. compared to $400,000 in Q1 2021. We did not recognize any revenue in Q4 of last year. Gap operating expenses in Q1 2022 were $4.3 million, compared to $4 million in Q1 2021 and $4.1 million in Q4. Non-GAAP net loss for the first quarter of 2022 was $3.3 million compared to losses of $2.9 million in Q1 2021 and $3.4 million in Q4 2021. Non-GAAP operating expense last quarter was $3.6 million compared to $3.4 million in Q4 and $3.3 million in Q1 2021. The $400,000 of revenue that we recognized in Q1 of last year had a 100% gross margin, since it consisted solely of the grant of a manufacturing license to our first JDA customer. In Q1 2022, our $375,000 of revenue consisted of a JDA success fee, which involved Atomera engineering costs, and the integration license revenue, Our cash balance at March 31, 2022 was $24.5 million, compared to $28.7 million at the end of 2021, a decline of $4.2 million during the quarter. As we've discussed on previous earnings calls, our cash usage is typically highest in the first quarter of each year due to annual payments which are expensed throughout the year on our income statement. As of March 31st, we had 23.4 million shares outstanding. Scott mentioned in his remarks that we've signed a new JDA, which we believe will lead to us recognizing license and engineering services revenue, and more importantly, will accelerate our path to commercialization with this foundry partner. We are not yet in a position to predict the timing of when we may reach these revenue generating milestones under the JDA. And consistent with our past practice, I'm not guiding revenue beyond the current quarter. So our guide for Q2 revenue is zero. On our last quarterly update call in February, my guidance for non-GAAP operating expense for 2022 was a range of 15.25 to 15.75 million dollars. Although we are slightly behind our hiring targets, we remain focused on adding engineering headcount, and we are not changing our previously stated guidance. With that, I'll turn the call back over to Scott for a few summary remarks before we open up to questions. Scott?