Atomera Incorporated

Hello, everyone, and welcome to Adam Mara's third 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, 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'd like to remind everyone that during today's call, we will make forward-looking statements. These four 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 15th, 2024. Except as otherwise required by federal securities laws, Atom Air 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 on our website. Now, I would like to turn the call over to our President and CEO, Scott Bebo. Go ahead, Scott.

Good afternoon, and thanks for joining today's call. The last three months for Atomera have been the busiest and most positive in my memory. I do feel that right now, our team is firing on all cylinders in our development efforts, customer activity, partnerships, and technology advancement. Today, I'll provide a comprehensive picture of the company with as much information on customer progress as I can by detailing our different technology segments and where our primary customers are making significant progress towards JDAs and or license agreements. First, let's go over the opportunity for MST and power chips. The power semiconductor market is a large and rapidly growing segment driven by the power demands of large compute infrastructure and vehicle electrification. In 2024, this market is expected to be over $52 billion, and innovations to drive efficiency, power, and cost savings are being widely pursued. Of course, our most visible opportunity in this segment is with ST and the development of their next generation smart power products, incorporating MST. Atomera has been supporting ST in the development of their new process for over a year now, and I recognize that investors would like more insight into exactly where we are in the transition for production. There are two main areas in which Atomera has been supporting ST. The first is on MST CAD simulations to optimize silicon performance through integration of MST. This work has been underway for over a year, and the correlation between modeling and hardware has been confirmed with real silicon multiple times. The number of silicon validation runs required will depend on how quickly ST achieves their design objectives. Second area in which we are cooperating with ST is manufacturability by enhancing throughput of MST deposition on ST's factory production tools. I want to emphasize that this project is in great shape. Indeed, ST has authorized me to say that development is going well and that we are still on track to go to production as soon as development and qual are complete. At that time, We expect royalties that will be compelling, high gross margin revenue for Atomera. As with prior statements, I cannot comment on timing or schedule except to say that it is entirely under ST's control. ST is not the only company we've been working with in this segment. Atomera's MST SPX technology is applicable to voltage ranges from 7 to 48 volts, meaning it's interesting to many different players for a variety of applications. Since this is typically a legacy technology with relatively few knobs that will bring big performance improvements, when we demonstrate that MST can help them gain 20 plus percent, there's usually strong customer interest. We are currently in discussions with multiple customers on proposals to either license the technology outright or to enter into a JDA that will ultimately lead to production. One part of this market is particularly hot right now and provides a compelling opportunity for Atomera. Traditionally, server racks and data centers have been fed by a 12-volt power supply, but that standard is currently changing to 48 volts, accelerating AI-driven power demands have created a need for higher power efficiency of those data centers, and 48 volts can reduce power dissipation by a factor of up to 16 times, which has led to a chip war to deliver the best devices. In the last quarter, Atomera has finalized a 48-volt version of our SPX technology with dramatic performance improvements specifically to address this segment. Introductions to new customers are just starting, but we are optimistic about its potential due to the further efficiency improvements it can bring to data centers. Next, we have the advanced node work for gate all-around transistors at the leading edge, which represents about a $150 billion market in 2023. Manufacturing technology at these advanced line widths has shifted from a primary focus on lithography to more extensive use of materials engineering solutions, and in particular, epi. As device architecture shifts from FinFET to gate-all-around, the number of epi steps incorporated into the process flow is projected to more than triple. This trend makes it significantly easier to add MST to the primary epi steps to deliver improved device performance. As epitaxy becomes a more critical component of device architecture, It opens the door to our MST technology being more easily slotted into the production flow since the MST insertion cost to an existing EPI step is incremental compared to introducing MST as a standalone step. In addition to MST being easier to add, advanced node production is an area where we believe our technology can provide significant benefits. Our ability to block dopants, particularly phosphorus in this application, can provide a critical tool for the formation of advanced source drain structures, as detailed in Robert Mears' presentation at the recent ECS Prime Conference. With the incredibly tight channel lengths in today's newest transistors, obtaining high production yields has become one of the central challenges, and we believe MST can help to solve this problem, which will have a direct impact on the number and cost of GPUs that can be manufactured to meet the demands of the AI market. Our new head of business development has a deep background here, and we believe he will lead us to compelling market growth in this segment. Today, we are working with multiple customers in the advanced node area. The memory segment, valued at over $110 billion in 2023, has many characteristics in common with the advanced node segment, except because it is a commodity market, it's hyper-focused on low production costs. Similar to Gate all around, they are in a relentless drive to meet smaller node sizes. But in this case, they can benefit even more from material advances to meet yield or cost targets. Again, similar to advanced logic platforms, the memory platforms are beginning to introduce epitaxy into the device structure, turning to materials engineering to drive performance. Just as we've gained all around, the introduction of epi into the memory flows, MST becomes an incremental cost-added to the epi steps while delivering substantial device performance and cost benefits. We are excited about the potential for our technology in this space because we believe it provides real performance, die size and margin improvement potential for our customers, even after paying us a royalty. And the opportunity here is huge at approximately 20% of the entire semiconductor industry with very high volumes and long technology cycles. Again, we are working with multiple customers in this area. Finally, RFSOI is another segment with excellent potential for our technology where we provide a performance advantage we don't believe is possible to achieve without MST. We continue to work with customers representing the majority of the supply of devices built on RFSOI substrates. In each of these segments, we've made proposals to customers which we are optimistic will convert into JDAs or license agreements in the near future. Indeed, we are in active negotiations today on an agreement that we believe will be transformative for the company, and we are hopeful that we will be able to announce it within the next few months. Recently, we announced an agreement with the Center for Integrated Nanotechnologies at Sandia National Labs to further our efforts on silicon technology. Earlier work with Texas State University has shown that MSD can reduce stresses induced during the manufacture of GAN on silicon substrates, which can improve the crystal quality as proven through physical tests like those shown on this slide. Now, we will take the developments a step further with fabrication of GAN devices to validate that the physical improvements convert into electrical benefits. GAN on silicon will be the high-volume, low-cost substrate of the future for GAN devices, and if this technology works as expected, MST will be valuable to anyone who manufactures with it. A lot of R&D is going into GAN on silicon, and announcements periodically come out about manufacturers bringing larger wafer sizes to production. Make no mistake, though. Those wafers are experiencing stress that lead to lower yields and higher defects, which MST may help to alleviate. The rapidly growing GAN market is particularly interesting to us because we believe the technology can be converted to revenue faster than our traditional business, and we hope the work with Sandia will help speed up our time to market. Customer engagement has intensified dramatically in the last quarter. We are engaged with a lot of very large customers, and I sense that the need for our technology is stronger than ever. So let me cut to the chase and give a quick update on prior deals. JDA1 has recently requested additional data from us to validate MST's effectiveness in a specific application, and we are already planning wafer runs to demonstrate how MST can address their requirements. Discussions with JDA2 about a company-wide license spanning multiple technologies and nodes is ongoing, although this negotiation is moving more slowly than we would like. Our Fabulous licensee has wafers coming out imminently, and if those results are strong, we believe it will lead to a production transition program with both them and their foundry partner. Beyond these engagements, we have proposals outstanding with several others, in addition to the large transformative customer we are negotiating with today. Right now, without exaggeration, I believe the Atomera team is more excited about our prospects than I've ever seen. The ST engagement, which is an enormous business with a long projected life, is moving nicely towards production, which ST has confirmed. Our potential in the outline segments is even larger, and I feel we are very close to announcing deals which will cement that position. The work we're doing in gate all around and memory is tied directly to the biggest driver of the semiconductor industry today, the rollout of AI infrastructure. And our GAN work is not only aligned with a major industry push, but we also believe it can be executed with faster time to revenue than our other segments. So today is an exciting time to be at Atomera. And if we can execute on the opportunities in front of us, We will need to grow to support all the anticipated business. 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 third quarter of 2024. And this slide shows our summary financials. Our gap net loss for the three months ended September 30th, 2024 was $4.6 million or 17 cents per share. compared to a net loss of $5 million or 20 cents a share in the third quarter of 2023. In Q2 of this year, our gap net loss was $4.4 million, which was 16 cents per share. Revenues were $22,000 in Q3 compared to 72,000 in Q2 of this year and zero in Q3 of 2023. Gap operating expenses were $4.8 million in Q3 2024, which was a decrease of approximately $534,000 from $5.4 million of OPEX in Q3 of 2023, mainly due to a $546,000 decline in R&D expenses and $117,000 decline in sales and marketing expense. This was offset in part by a $129,000 increase in G&A expenses. The decline in R&D expense was mainly due to the closure of our outsourced foundry, TSI Semiconductor, in the first quarter of this year. Sales and marketing declined year over year, primarily due to lower headcount. Sequentially, our gap operating expenses increased by $191,000 to $4.8 million in Q3 compared to $4.6 million in Q2 of this year, reflecting an increase of $170,000 in R&D expense and a $41,000 increase in sales and marketing, while G&A decreased slightly. Non-GAAP net loss in Q3 2024 was $3.9 million and compares to a loss of $4.3 million in Q3 2023. And as with our GAAP results, the smaller loss was primarily due to R&D and sales and marketing expenses being low. Sequentially, non-GAAP net loss increased by $251,000 from Q2 of 2024 due to the increase in operating expenses combined with lower revenue. The differences between GAAP and non-GAAP operating expenses in all the periods we've presented are primarily due to non-cash stock compensation expenses, which were approximately $900,000 in Q3 of this year and $1 million in each of Q2 2024 and in Q3 of 2023. Our balance of cash, cash equivalents, and short-term investments on September 30th, 2024 was $17.3 million, compared to $18.3 million at the end of Q2 2024. During the most recent quarter, we used $2.9 million of cash in operating activities, compared to $3.2 million in the first quarter of this year. During Q3, we sold approximately 691,000 shares under our ATM facility at an average price per share of $3.18, resulting in net proceeds of approximately $2.1 million. As of September 30, 2024, we had 28.3 million shares outstanding. Revenue in Q3 was $22,000 and consisted of MSTCAD license revenue. And we expect that our Q4 revenue will be approximately the same as in Q3. We're not providing revenue guidance beyond this quarter, consistent with our normal practice. The next major revenue milestone under our agreement with ST will occur when they complete the qualification process, which, as Scott said in his remarks, is proprietary information and the timeline is in ST's control. Moving to our expense guidance, during the first nine months of this year, we incurred total non-GAAP operating expenses of $11.5 million. which has us on track for a range of $15.75 to $16 million of OpEx for the full year, below the guidance we provided last quarter. We're in our 2025 planning process now, but I can tell you we expect to make additional investments in sales and marketing, and we continue to explore the most effective ways of utilizing outsourced foundry services. So our non-GAAP OpEx in 2025 will be higher than this year, likely in the range of $16 to $17 million. We'll provide more color on this in our next quarterly update call. Lastly, I want to give a quick update on our efforts for CHIPS Act funding. This topic is especially timely since I'm joining today's call from Washington, D.C., where I'm attending the annual meeting of the Microelectronics Commons and the Symposium of the National Semiconductor Technology Centers, or NSTC. In July, we submitted a funding proposal related to our work on GAN and other compound semiconductors, but no decisions have been made on that yet. We expect that the next phase of the RFP will be announced in late Q4 or Q1. Everything I'm hearing at the conference confirms there are many applications and funding opportunities for Atomera under the CHIPS Act, and our technology is compelling to various government departments. With that, I will turn the call back over to Scott for a few summary remarks before we open the call up for questions. Scott?