Atomera Incorporated

Good afternoon. We'll start in just a moment. Hello, everyone, and welcome to Atomera's first quarter fiscal year 2024 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 are 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 Vibo, Atom Air's President and CEO, and Frank Lorenzio, Atom Air'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'd 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 in the company's annual report on Form 10-K filed with the SEC on February 15, 2024. Except that it's 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 to our website. Now, I would like to turn the call over to our President and CEO, Scott Bebo. Scott, go ahead.

Good afternoon, and welcome to Adam Ayers' update call covering the first quarter of 2024. The past three months have seen more customer activity progressing to the proposal stage than any in our history. This unprecedented level of interest in our technology as a result of announced customer commercialization, widespread recognition of the efficacy of our MSD technology, and detailed solutions to these issues faced in today's complex transistors. I will talk more about customer progress after a short comment on the semiconductor market. This year, we see the semiconductor industry modestly growing, led by companies executing in the AI space. The pressure on leading-edge logic fabs to advance their latest nodes with higher performance per watt is intense. Most of the growth in the industry is happening here, as well as in DRAM, which is snapping back strongly after contracting throughout 2023. In addition, consumer cellular is expected to show modest growth, automotive and with its associated power and analog component companies have softened as they work through inventory and see new competition from China, although the consensus seems to be that this outlook for the second half of the year is better. What does all this mean for Atomera? We are a company that benefits from modest capacity utilization at our IDM and foundry customers so they can run R&D wafers. We continue to see this favorable environment for the medium term except in the bleeding edge where capacity is tight, offset by a strong desire to improve performance, yield, and cost of those new manufacturing processes. Right now, industry dynamics and customer interest indicate a strong willingness to invest. Now let's review customer activity. As you know, our first announced customer on track towards production is STMicroelectronics, who are currently incorporating MST into the design of the next generation smart power products. We continue to work closely with them on this effort, and their development progress is on track to a production release, which will result in royalty revenue for Atomera. Smart power products belong to the analog power and discrete MEMS and sensors, or APMS group, which ST reports publicly. In their recent earnings announcement, ST reported $2.2 billion in APMS revenue for the first quarter of this year. So the potential of this business is very large. As I've made clear, our first priority as a company is to help ST get the highest possible performance out of MST and to get it into production as quickly as possible. Our next priority is to put other customers onto that same path to production, and I believe we're making long strides in that direction. In the last three months, we have submitted a historically high number of proposals for licenses and JDAs, and these have been for both phase one and phase three customers. Although none of them have closed yet, or they would have been announced, we are currently taking a lot more shots on goal than has historically been the case. That said, we still haven't found our way into JDA1's net. We have proven and they acknowledge that MST can overcome every challenge they've given us. From past experience, we know the decision by a BU to move forward with MST is often a matter of intersecting with the customer's move to a new process or node. So I believe that our continued discussions with JDA1 will ultimately bear fruit. With JDA2, we have gotten our first peek at data, and it looks good. Although the full battery of testing has not been completed yet, early results look promising, with Atom Air providing significant improvements in some of the customer's most critical requirements. If the final results, including a much wider set of specs, look equally good, we hope to put a license in place and start development towards production. Likewise, at our previously announced Fabless licensee, DOE planning and wafer starts are ramping up to determine if MST will be included in their next generation RF products. If so, this would be another large license and royalty opportunity for Atomera, and we believe it would influence other RFSOI customers to license MST. Our foundry licensee just completed a new round of MST CAD and is interested in the possible incorporation into one of their next generation process nodes as well. They're seeking approval to start a new set of wafers as we speak. As you can tell, each of our licensees is making an effort to incorporate MST into their upcoming technology releases. But we also have proposals out with multiple companies that are not yet licensees. The proposals fall into our four focus areas, except one, which is an entirely new high potential area. During the last quarter, we've had substantive discussions about working together with almost all the major companies in the advanced node and memory area. In the advanced node segment, we are offering a variety of solutions to the challenges of making the incredibly complex gate all around structures used at the bleeding edge. The silicon data and TCAD simulations we are using to validate these solutions are constantly being refined to provide more detail, which is critical to winning these customers. In addition, we continue to secure patents around structures in this quickly evolving area. As an example, just this week, we were notified that our patent titled Gate All Around Device, including a super lattice, has been allowed and will formally issue next month. In memory, we are focusing on providing performance upgrades to DRAM to meet the needs of AI while still delivering on the cost requirements that dominate this segment. It's a tricky balance, but in memories, MST not only improves performance, but it also can lower the cost of the chip itself, making the cost-benefit analysis very favorable. In the RFSOI segment, we have customers who are running or planning to run wafers at most of the largest manufacturers, and our collaborations with major players in the power semiconductor space also continues. I do understand investors' frustration that all the good work happening inside is not generating business announcements on the outside. We believe that will happen in time. Our focus has been on making these proposals turn into revenue, and I think we're making good progress. We expect to make announcements in the coming quarters in several of these areas. Before I bring this presentation to a close, I want to let you know about a market segment that represents an entirely new source of IP-protected potential revenue for Atomera beyond our main channel of business. As part of our ongoing R&D, we have developed new variations of our silicon lattice films which have opened additional potential for us in the fast growing sector of compound semiconductors. We are exploring a number of potential applications, including those involving silicon carbide, gallium nitride, silicon germanium, and other compounds that could have applications in enhancing AI chips and quantum computing. I will highlight just one we are working on. Gallium nitride, or GAN, which is a wide bandgap material that can be used to produce devices capable of operating at higher temperatures, frequencies, and voltages than those based on pure silicon. The market for GAN and power electronics is growing rapidly, dominated by mobile and consumer applications, and with a very bright future in automotive. Many of you may recently have switched to a much smaller, faster wall charger, and that was likely enabled by GAN. A recent report by the Yule Group said that the power GAN market grew by 41% in 2023 and will likely increase at a CAGR of 46% over the next five years, potentially exceeding $2 billion per year by 2028. Compound semiconductor materials have traditionally been difficult to manufacture due to crystal defects, some of which can be caused by mismatch with non-native substrates. The mismatch creates stresses at the interface which propagate through the wafer causing cracks and other defects that have limited both the size and the yield of wafers, making economical manufacturing difficult. Atomair's MST film can relax or de-strain the interface between two different crystal lattices, and we've been filing a number of patents over the years related to this effect. Recently, we began working with one of the world's leading authorities in compound semiconductor fabrication, Professor Edwin Piner at Texas State University, to investigate how MST could help solve this thorny manufacturing problem. A material which can significantly improve the quality of GAN wafers and potentially enable them to be manufactured at a larger size is a game changer that the industry is currently seeking. Early experiments growing GAN wafers using MST have shown very promising results. While we still have work to do, If our current trajectory continues, we should be able to enter the market and generate revenue much more quickly than in our traditional engagements with semiconductor customers, potentially even before the end of this year. There's a lot happening at Atomair these days. In addition to all the customer commercial activity and the potential expansion into the compound semiconductor space, we have been evaluating a large number of potential R&B foundry partners, recruiting new marketing talent, working on some critical partnerships, and becoming more active in the Chips and Sciences Act. We are very optimistic about the prospects opening before us, any one of which could take us over the top as a company. Our ST engagement has the potential to form the base of revenue for our company, and each of the areas I've outlined can grow on top of that base. Compound semiconductors would represent a new segment for us, one with much faster time to revenues, while our traditional business continues to have a massive TAM rich with opportunities for MST. Although advancing on many fronts, our team remains laser focused on converting these excellent prospects into licenses that will make Atomera into a profitable and diversified technology leader in the semiconductor industry. Thanks for taking the journey with us. 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 2024. And this slide shows our summary financials. Our gap net loss for the three months ended March 31, 2024 was $4.8 million or 19 cents per share compared to a net loss of $5 million or 21 cents per share in the first quarter of 2023. In Q4 of 2023, our gap net loss was $4.6 million, which was 18 cents per share. Revenues were $18,000 in Q1 of 2024 compared to $550,000 in Q4 and zero in Q1 of 2023. GAAP operating expenses were $5 million in Q1 of 2024, which was a decrease of approximately $148,000 from $5.2 million of OPEX in Q1 2023. This decrease in operating expense was mainly due to a $178,000 decline in R&D expenses, reflecting the closure of our outsourced foundry, TSI Semiconductor, at the end of January. General and administrative expenses increased by $69,000 and sales and marketing expense decreased by $39,000. Sequentially, Our GAAP operating expenses decreased by $300,000 from Q4 2023 to $5 million in Q1, reflecting a $134,000 decrease in R&D expenses, also due to the TSI closure. A decline of $102,000 in sales and marketing expense due to lower headcount and G&A expense declining by $64,000. Non-GAAP net loss in Q1 2024 was $4 million and compares to a loss of $4.2 million in Q1 2023. And as with our GAAP results, this was primarily due to lower R&D expenses. Sequentially, non-GAAP net loss increased by $228,000 from $3.8 million in Q4 as lower revenues were partly offset by the decline in operating 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 $1 million in both Q1 of 2024 and in Q4 of 2023, and compares to $927,000 in Q1 of 2023. Our balance of cash, cash equivalents, and short-term investments on March 31st 2024 was $19.3 million compared to $19.5 million at the end of 2023. During Q1 2024, we used $4.1 million of cash in operating activities, and we sold approximately 510,000 shares under our ATM facility at an average price per share of $8.06, resulting in net proceeds of approximately $4 million. First quarter operating cash flow includes the collection of $550,000 of fees invoiced after meeting a key milestone in Q4 under our commercial license. As of March 31, 2024, we had 26.9 million shares outstanding. Revenue in Q1 was approximately $18,000 and consisted of recognizing three months of revenue under the MST CAD license to a large semiconductor manufacturer that we announced last quarter. We expect to recognize approximately that same $18,000 of MST CAD license revenue from this customer for the remainder of 2024. For Q2, we expect our total revenue will be approximately $50,000, consisting of the MST CAD license and engineering services. As I stated in our call last quarter, the next major revenue milestone under our agreement with ST will be the grant of the distribution license upon completion of the qualification process, which is largely under ST's control. So I cannot provide guidance on the timing for recognizing that revenue. Moving to our expense guidance, given the lower operating expenses in Q1 due to the lower outsourced R&D spending, which will not ramp back up until we have a replacement for TSI, I am reducing our full year guidance for non-GAAP operating expenses to a range of $16.5 to $17.25 million. We also expect to add several headcount this year in sales and marketing and engineering, and our expense guidance reflects the impact of those planned new hires. With that, I'll turn the call back over to Scott for a few summary remarks before we open up the call to questions. Scott.