Atomera Incorporated

Okay, we'll start. Hello, everyone, and welcome to Adam Ayers' fourth quarter and fiscal year 2023 update call. I'd like to remind everyone that this call and webinar are being recorded, and a replay will be available on Adam Ayers' website for one year. I'm Mike Bishop with the company's investor relations. As in prior quarters, we're using Zoom, and we will follow a similar presentation format with participants in a listen-only mode. We will open with prepared remarks from Scott Bebo, Adam Ayers' president and CEO, and Frank Lorenzio, Adam Ayers' 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 presentations 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 factor section of our filings with the Securities and Exchange Commission, specifically the company's annual report on Form 10-K, filed with the SEC on February 15, 2023, and its quarterly report on Form 10-Q, filed with the SEC on November 1, 2023. 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 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 also posted on our website. And with that, I'd like to turn the call over to our President and CEO, Scott Bebo. Go ahead, Scott. Good afternoon.

Good afternoon. and welcome to Atomera's fourth quarter and full year 2023 update call. I believe that when we look back at 2023, we will consider it the catalyst year, where our first major business deal that drove our success was announced, and our fourth quarter will be where the execution of that mission became most obvious. In addition, we've seen excellent results from customers and partners and strong advances in R&D that will ultimately result in more commercial licenses. We will dive into the details, but first, let me give you a view of the industry status and how to flex Atomera. As you know, 2023 was not the strongest year in the semiconductor industry, characterized by negative growth cutbacks in CapEx plans and some slowdown in spending. As is usually the case in this type of environment, we saw increased interest in new design activity, and plenty of fab capacity to run R&D lots. As we enter 2024, we are seeing much more optimism as growth prospects driven by new artificial intelligence capabilities start to emerge. We are happy to see this since our customers' cash flow will improve, but we still expect to see modest fab utilization rates, which benefits our business development prospects. This is really the ideal time for customers to adopt MST. Obviously, the big news of the quarter was the installation of our technology at STMicro's fab in Agrate, Italy. In case you're new to the Atomera name, in April of last year, we announced a commercial license agreement with STMicro Electronics that was important for our company in several ways. First, it validates our business model and the value that MST brings to customers when they truly appreciate its capabilities. Second, it is certainly an important signal to industry participants when a large, respected IDM decides to take MST to production. Although their decisions are primarily on technical criteria, engineering management always feels more comfortable if other leading companies are going down the same path that they are considering. We have always represented our customers route to production with MST in six phases, as shown here. For ST, phase four includes both installation and productization. This slide shows a rough approximation of where we are in that process with the grayed out boxes representing items that have been completed. Last year, we were waiting for some equipment modifications to happen at ST before we could start the install. We felt quite certain the installation would happen a short period after our last quarterly update call, and it did. Let's look at the remaining steps in more detail. Our progress since our last update call has been truly remarkable. Since last May, the ST engineering team has been developing their new manufacturing process using TCAD, which also includes our own simulation tool called MSTCAD. In early November, after their EpiTool upgrades were complete, we provided ST with the critical IP necessary to start making MST wafers, which triggered the revenue milestone we announced on November 14th. Although we've always guided that installation can take up to three months, the ST epi team was able to get trained on our technology to the point that they could grow high quality MST on their wafers, which allowed us to pass all their acceptance criteria before Christmas. This accomplishment completed the formal installation of MST technology at ST, which triggered a second revenue milestone. In January, we spent more time with their team helping to optimize both the epi deposition process and the MST design integration. ST has now started manufacturing MST wafers in their own fab, which will be used for electrical lots, providing silicon validation. Because this entire process is in-house, their cycles of learning in this stage should be quick. When ST is satisfied that they've created a fully optimized transistor and manufacturing process development kit, or PDK, they will freeze it. Just to be clear, we consider this entire effort from installation through PDK to be part of phase four. For a chip designer, a new PDK is like getting the latest and greatest software with all the newest features. In my experience, engineers will hold off on new chip designs until this PDK becomes available, creating a pent-up demand for new design starts. So in this case, we expect that multiple chips will be developed in parallel with process qual, and some may even tape out prior to the qual being complete. For the next several years, new chip designs will be taped out based on this PDK and will enter production and start generating royalties. It's difficult for us to forecast the volume of these designs because they will be in many different applications and market sectors and will ramp at different rates. But as you can imagine, over time, the percentage of MST-based designs in their fab will increase significantly. When we first announced this transaction, we believed STM could get to commercialization in a year and a half to two years. Despite the delay in starting installation, we believe that timing still holds. Although much of this execution is out of our control, we are laser-focused on doing everything we can to ensure ST's production ramp of MST is as successful and as rapid as possible. Our other top priority as a company is getting more customers onto the same path to production. So now let me provide some updates there. As you can see from our customer pipeline, we are showing growth in phase four, reflecting the SD installation, but there's a lot more going on under the hood. In the last call, we spoke about the excellent results we had with our JDA1 customer. and its applicability to one of their largest BUs. Development efforts continue, but we are still working on putting together a business arrangement which will meet both our needs. I can assure you this is a very high priority for us, but the end-of-year holidays slow down those discussions, and we are working to get this program moving more quickly. We continue to be excited about the experiments with our JDA2 customer, which are still making their way through the FAB, Good results here should pave the way for a license agreement in this area. In addition, we're also in discussions with this customer about starting work in another area as well. A trend we are seeing in the higher voltage semiconductor area is providing a tailwind to our MST offerings. Chinese companies have started to enter in to the low end of this segment, which has caused some of the more established players to focus on differentiating their technology to be higher performance. MST is uniquely suited to deliver performance improvements with our SP and SPX technologies. And in Q4, we signed an MST CAD license agreement with a large manufacturer to start working on it, which shows how momentum for both MST SP and SPX is growing. Interest in our RFSOI technology also remains strong, and we have multiple different customer wafer runs underway. Recently, we were invited to give a paper co-authored with Soitec and San Jose State University at the upcoming IEDM conference in March, which will provide details on how MST on an RFSOI substrate can enhance performance of both RF switches and LNAs. The IEDM conference, which happens every December, is a great forum for us, and it is focused on the latest gate all-around and nanosheet transistors. Interest in the use of MST for these devices has been spreading and has created excellent opportunities for new engagements and partnerships. At the geometries being used in these advanced nodes, New challenges are being raised, which demand more control at the atomic level than has ever been necessary. AtomERA's diffusion control, reduction of random dopant fluctuation, and improvement in surface roughness scattering are viewed as potential to provide the control needed for these nodes. In Q1, our team has been busy working with multiple advanced node manufacturers, which should ultimately lead to new business. The same features driving interest in advanced nodes is also stimulating demand in the memory space, and our work with those customers continues to be active and exciting. Finally, we get a lot of questions about how MST is related to the fast evolving developments in artificial intelligence, and I can tell you it's extensive. Last quarter, I spoke about how AI will drive demand for more and different kinds of memory which MST can help deliver. Another area where MST will bring huge value is in chiplets. As you may know, AI algorithm demands have become so huge, it's difficult to meet them with single chip solutions. The industry has reacted to this problem by creating a new architecture, which collects a number of smaller chiplets on a silicon interposer. The beauty of this architecture is that each chiplet can be developed in the optimum process technology for its role. And the fact that MST provides performance boosts at all these different nodes brings enormous value, which should become a new driver for MST adoption. I believe we will look back at 2023 as the year when we turned the corner commercially. Our first production license with ST followed by the great progress we've made in Q4, will be looked upon as the trigger for Atomera's success. In addition to ST, we made serious customer and technical advances in each of our target product segments. One thing that has become even more apparent this quarter is that as customers start to understand our technology more, they come up with new ways of using MST that we haven't even imagined. which will become a strong growth driver for our technology horizontally across existing customers as our penetration increases. MSD is truly an amazing tool, and the brilliant team here at Enmera is hard at work uncovering its potential and delivering it into the hands of future licensees every day. This is the type of execution that leads to a successful enterprise, and I can tell you I'm more optimistic than ever about our potential. 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 results for 2023. This slide shows our summary financials. Revenue in 2023 was $550,000. all of which was recognized in Q4 and resulted from installation and acceptance of our MST technology at ST's FAB. Our gap net loss for the year ended December 31, 2023 was $19.8 million or 80 cents per share compared to a net loss of $17.4 million or 75 cents per share in 2022. GAAP operating expenses were $21.2 million in 2023, which was an increase of approximately $3.4 million from $17.8 million in 2022. The biggest driver of the year-on-year increase was a $2.5 million increase in R&D expenses, approximately $1.4 million of which was due to higher spending on foundry services, metrology, and other outsourcing, and $739,000 of which was due to higher payroll and related costs. General and administrative expenses increased by approximately $634,000, reflecting higher payroll expenses as well as higher legal fees. Sales and marketing expense increased by approximately $251,000. Other income net in 2023 increased by $802,000 as compared to 2022, mainly due to the higher interest rates on cash and short-term investments. Turning to our quarterly results, Q4 2023 gap net loss was $4.6 million, or 18 cents per share, compared to a net loss of $4.3 million in Q4 2022, which was also 18 cents per share. In the third quarter of 2023, GAAP net loss was $5 million, or 20 cents per share. The lower net loss in Q4 compared to Q3 was due to our Q4 revenue, while GAAP operating expenses were basically flat at $5.3 million in Q4 in 2023 compared to $5.4 million in the preceding quarter. As R&D expenses declined, due to the winding down of activities at TSI, offset by increases in G&A and sales and marketing. Non-GAAP net loss for 2023 was $16.6 million and compares to a loss of $14.1 million in 2022. And as with our GAAP results, this was primarily due to increased R&D expenses. The differences between GAAP and non GAAP operating expenses in all periods presented are primarily due to non cash stock compensation expenses, which were approximately $4 million in 2023 and $3.4 million in 2022. Our balance of cash. cash equivalents and short-term investments on December 31, 2023 was $19.5 million compared to 21.2 million at the end of 2023 and 20.4 million at the end of Q3. During the last year, we used $14.6 million of cash in operating activities, and we sold approximately 1.8 million shares under our ATM facility at an average price of $7.97 per share. Of those amounts, approximately 320,000 shares were sold in Q4 at an average price of 737. As of December 31, 2023, we had 26.1 million shares outstanding. As Scott mentioned, we met the first two milestones under the ST license agreement during Q4, resulting in $550,000 of license revenue. The next grant of license rights to ST will be our distribution license, which will enable them to both manufacture and sell products with MST. Those sales will result in royalty payments to Atomera. While we are not able to share the financial details of the ST contract, the terms are consistent with our target model. Under this model, total upfront license fees have a list price of over $3 million, with payments increasing as we grant customers additional rights. As Scott explained in his remarks, timing of entry into Phase 5 which is when we will recognize revenue on the grants of the distribution license, is largely under ST's control. Accordingly, I'm not providing guidance on the timing for recognizing that revenue. I expect that our Q1 2024 revenue will consist only of ratable recognition of MST-CAT licensing. Moving to our expense guidance, Our non-GAAP operating expenses for 2023 were $17.1 million, and we expect that in 2024, our non-GAAP OPEX will be in the range of $17 to $18 million. While this is a wider range than I've provided in previous calls, this is due to the uncertain financial impact of moving from TSI Semiconductor to a new foundry. Our work with TSI wrapped up in January of this year, and as a result, our R&D expenses in Q4 declined from prior quarters in 2023. We're making good progress in talks with possible replacement providers for foundry services, but nothing has been finalized yet. While the interruption in foundry work will cause Q1 2024 R&D expense to decline further from Q4, We expect to incur some one-time fees as we transition to a new foundry, and we will update our guidance when we have more visibility. With that, I will turn the call back over to Scott for a few summary remarks before we open up the calls and questions. Scott?