Atomera Incorporated

Hello, everyone, and welcome to Atomera's fourth quarter and 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'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 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 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 15th, 2024. except as otherwise required by federal securities laws, and a mayor disclaims any obligations 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.

Thanks, Mike. This past year has been an incredibly productive one with Atom Air advancing across all customer categories, building our stature as a technology pioneer, entering new segments and getting closer to first production. Building on the strength of Q3, our fourth quarter has been filled with progress on every front with one setback. And I'll start off with the details there. Last quarter, we mentioned an active negotiation with a transformative customer. Discussions underway have been underway with them for some time with periods of very intense negotiation, followed by lengthy delays on their part. At the time of our last call, we felt very close to concluding a deal, but it is dragged on much longer than expected. And at this point, we have to say it is stalled. We are confident that MST can deliver to this customer one and a half to two generations of performance improvement in a critical area, and we are asking for only a small fraction of the economic value they would be receiving, but they still have yet to move forward. Although disappointing, it is not surprising, since resistance to innovative ideas is expected, and in this case we're providing two, an externally developed material delivered with low upfront cost and an ongoing royalty, a format which is new to some customers. We continue to believe there is strong support for our technology at the engineering level in this company. Indeed, in this market segment, all of their competitors are struggling with the same issues, and we believe one or more of them will adopt MST for this application. Furthermore, we believe their ability to achieve the improvements they need through other means will be limited and will take much longer than would be possible by adopting MST. So we are hopeful discussions will restart soon and we're doing everything we can to make that happen. The performance improvement potential we showed them is important to advance Moore's law across all semiconductors and in particular for artificial intelligence devices being designed today on the most advanced nodes using gate all around transistors. So I'd like to dig a little deeper into the opportunity this market represents valued at about $150 billion in 2023. As leading advanced logic IDMs and foundries like TSMC, Samsung, and Intel ramp up manufacturing capability for the gate all-around architecture at two nanometers and below, it is becoming increasingly clear, more so than in previous generations, that materials engineering will play a crucial role and driving the performance improvements expected at these nodes. The high costs associated with lithographic scaling have led FAB module engineers to place greater emphasis on incorporating new materials into their standard toolbox for transistor engineering. Epitaxy is a critical process in this context, directly impacting the channel definition and source drain regions of gate all-around transistors. Indeed, we believe that epitaxy is now more widely used than lithography in gate-all-around architectures. Since MST is an epi-based technology, the barrier to incorporate MST into the process flow is much lower than it has been in the past. Given that gate-all-around requires at least twice as many epi-steps as the previous FinFest architecture, we anticipate that our partnerships with IDMs, foundries, and OEMs will significantly increase the potential for MST to be integrated into multiple regions of the gate all around transistor. These diagrams show different areas where MST can help improve performance of gate all around devices. In the channel area, MST can increase drive current and reliability by improving interface traps at the channel gate interface. MST can reduce contact resistance improved transistor variability, reduced leakage in the source drain area, and even improved backside contacts. These are all problems the industry faces, and MST provides a compelling, fast time to market material solution. The memory segment, valued at over $125 billion in 2024, has many characteristics in common with the advanced node segment, except Because it's a commodity market, it is hyper-focused on low production costs. Similar to Git all around, memories are in a relentless drive to smaller node sizes. Today, Epi is being introduced into memory flows, enabling MSD to become a small incremental cost adder while delivering substantial performance, die size, and margin improvement potential for our customers, even after paying us a royalty. As in GATE all around, the opportunity is huge with very high volumes and long technology cycles. We have engagements with multiple customers in both these segments. Likewise, in RF SOI, we provide a performance advantage that we do not believe is possible without MST. Not only can we assist with complex RF power switch devices, we can also improve LNAs and analog components critical for 5G mobile phones. Today, we are working with the majority of device manufacturers who use RF-SOI substrates in their designs. We continue to make inroads in the power semiconductor market, which is a large, rapidly growing segment driven by the power demands of AI, large compute infrastructure, and vehicle electrification. Our products here are MST-SP for 5 volt and SPX for 5 to 48 volt devices. With ST as our lead customers, we are attracting interest from many other players in this segment. We expect this market to be worth over $52 billion in 2024, so innovations to drive efficiency, power, and cost savings are clearly needed. Gallium nitride also is emerging as a major market opportunity for us, projected to represent a $12 billion market in five years and growing at more than 26% annually. The great news here is that many of the potential customers for GAN overlap with our existing customer base, and we have lots of interest from them and from others. Electrical results from our latest set of tests at Sandia are around the corner, and we're hopeful they will provide enough ammunition to begin engagements with a lot of interested parties in GAN. Now let me give a brief customer update. SD continues to progress very well in both design and manufacturability efforts. The next step, which is called process qualification, is complicated, and the schedule can vary depending on how many issues they need to resolve. Typically, the industry takes about nine months on this step, after which production will start. We are planning to announce when we enter process qualification, which will also result in us recognizing license revenues. so you should be able to estimate production start timeframes from there. We are not free to update ST's schedule otherwise. Efforts continue on JDA1, where data acquisition to address specifications they have given us is underway, including in areas beyond the initial scope of the JDA. JDA2 is starting a multi-stage wafer run with us, demonstrating their commitment to getting beyond the development phase and into a license agreement enabling volume production in the future. Results from the latest wafer run with our fabulous licensee have been received, but additional wafers need to be processed to achieve a full cycle of learning, as the data we could extract from the prior run was incomplete. However, the results we were able to analyze provided insights which we believe will yield an even higher performance result in the next wafer lot, which we are working on right now. In the last three months, we've made headway with several other customers, and in particular, two new ones who I would put into the category of transformative. We have been trying to start work with one of them for years without success until now, and they've recently started their first demo wafer run with us, a major milestone. The other has solidified plans for a comprehensive set of wafer runs to validate their own internal TCAD simulations, which show very promising results using MST. We've been pursuing each of these opportunities for quite a while, and they have now moved to an implementation stage. I call these customers transformative because they are some of the industry's largest manufacturers, They have the ability to move quickly and they are well known for cutting edge products. Our business potential with each of them is huge. Finally, our ability to land and expand has really accelerated this past quarter with two of our existing customers planning demos in entirely different product areas than our original engagements. We believe this illustrates a few positives. First, it shows that customers who have worked with MST believe in the technology enough to recommend its use by other product lines. Second, it shows how deeply our customer relationships go once we start working together on a serious engagement. We've talked about the domino effect in the past, and this is a sign that it's starting to happen with existing customers and will hopefully lead to wider adoption over time. 2024 has been a very good year of market and technology development at Amera. We've solidified our value proposition in four major high growth markets and semiconductors and positioned ourselves to enter into another that offers a path to faster time to revenue while still supporting the enormous potential of our traditional business model. Our R&D pipeline and new markets and applications continues to expand as reflected in our patent portfolio which had an increase of over 30 granted and pending patents in 2024. Our new business development execution is clearly improving as evidenced by our deeper penetration with both new and existing customers and with partners. Right now, our team morale is high because we are getting direct feedback from customers that our technology provides important solutions necessary to deal with big issues in the semiconductor roadmap. Our engineers are doing the detailed, innovative, and thorough work that they know is necessary to overcome customers' bias for internally developed solutions and to integrate our technology into their designs. ST is a great example of how this can happen in a large, successful company, and right now they are moving nicely towards production. Our potential in other target markets is even larger, and I feel we are close to announcing deals which will cement that position. The work we are 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 Gate All Around 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. There is no doubt about the value proposition we are offering the industry. And we believe it will ultimately allow us to build Atomera into a successful material solution provider to the entire industry. Now, Frank, we'll 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 2024. And this slide shows our summary financials. Revenue in 2024 was $135,000 and consisted of MSTCAD licensing and NRE fees. Our gap net loss for the year ended December 31, 2024 was $18.4 million or 68 cents per share compared to a net loss of 19.8 million or 80 cents per share in 2023. Gap operating expenses were $19.3 million in 2024, which was a decline of $1.9 million from $21.2 million of OPEX in 2023. The main driver of the decline in operating expense was a $1.5 million decrease in R&D expenses, which was almost entirely due to a decline in outsourced engineering spending, resulting from the closure of TSI Semiconductor's services business, after TSI was acquired by Bosch. Sales and marketing expenses declined by $546,000 due to lower headcount costs, whereas G&A expenses increased by $191,000 due to higher payroll and legal costs, offset in part by lower stock compensation expenses. Turning to our quarterly results, fourth quarter 2024 gap net loss was $4.7 million. or $0.16 per share, compared to a net loss of $4.6 million or $0.17 per share in Q3, and a net loss of also $4.6 million or $0.18 per share in Q4 2023. Revenue was $23,000 in Q4, $22,000 in Q3, and $550,000 in the fourth quarter of 2023. GAAP operating expenses were $4.9 million in Q4 2024, compared with $4.8 million in the previous quarter, and $5.3 million in Q4 2023. Non-GAAP net loss in 2024 was $15.4 million, compared to a loss of $16.6 million in 2023. reflecting a decline in non-GAAP OPEX from $17.1 million in 2023 to $15.4 million in 2024. The decline in operating expenses reflected the same factors I discussed about GAAP results. Stock compensation expenses, which is the main difference between GAAP and non-GAAP operating expense, were $3.9 million in 2024 and $4 million in 2023. In Q4 2024, non-GAAP operating expense was $3.9 million, which was the same level as Q3, and compares to $3.8 million in Q4 2023. Our balance of cash, cash equivalents, and short-term investments on December 31st of 2024 was $26.8 million, compared to $19.5 million at the end of 2023, and $17.3 million at the end of Q3, 2024. We used $13.2 million of cash in operating activities during 2024, $3 million of which was used in Q4. During 2024, we sold approximately 4.1 million shares under our ATM facility at an average price per share of $5.38, resulting in net proceeds of approximately $21.3 million. During Q4, we raised net proceeds of $12.8 million based on sales of approximately 2.2 million shares at an average price of 592. As of December 31, 2024, we had 30.1 million shares outstanding. After year end, we raised an additional $2.4 million by selling approximately 163,000 shares at an average price of $15.19. So I'm pleased that we were able to take advantage of favorable stock market conditions in recent months and strengthened our balance sheet with less dilution than earlier last year. In Q1, we're not expecting to recognize any revenue. The wafer run we are working on with our FABLIS licensee will result in engineering services or NRE revenue, which may happen in either this quarter or Q2. The timing will depend on when the wafers ship. Consistent with our usual practice, we're not providing revenue guidance any further out. The next major revenue milestone under our agreement with ST will occur when they get into formal process qualification. Moving to expenses, During 2024, our non-GAAP OPEX was $15.4 million, which was below the low end of guidance and was down from $17.1 million in 2023. As I mentioned, the main reasons for the decline in spending was that we did not replace TSI and our average headcount through the year was lower. For 2025, we expect our non-GAAP OPEX to be more consistent with 2023 levels. So we're planning for it to be in the range of $17 to $18 million. with the exact amount depending mostly on our use of outsourced engineering services and additions of headcount. Given our limited revenue visibility, I assure you we will be conservative about any structural increases in spending. With that, I'll turn the call back over to Scott for a few summary remarks before we open the call up to questions. Scott?