Atomera Inc. (NASDAQ:ATOM) Q1 2021 Earnings Conference Call April 28, 2021 5:00 PM ET Company Participants Mike Bishop - Investor Relations Scott Bibaud - President & Chief Executive Officer Francis Laurencio - Chief Financial Officer Conference Call Participants Cody Acree - The Benchmark Company Richard Shannon - Craig-Hallum Mike Bishop Okay, I think we're ready to begin the call. Hello, everyone, and welcome to Atomera's First Quarter Fiscal Year 2021 Earnings Webinar. I'd like to remind everyone that t ...

MST Technology & Benefits - Mears Silicon Technology (MST®) enhances semiconductors, leading to higher performance, lower power, and lower costs for ICs[5] - MST offers improved efficiency, including higher transistor performance, lower power consumption, and better reliability[7] - MST can lower costs through reduced die size, improved yield, and higher throughput, similar to a node shrink[8] Customer Engagement & Revenue Model - Atomera is engaged with 50% of the world's top semiconductor makers[5,20] - The company utilizes a phased approach to customer engagement, including planning, setup, integration, installation, qualification, and production[17] - Revenue streams include engineering service fees, license fees (integration, manufacturing, distribution), and royalties[17,18] Financials & Opportunity - In 2020, Atomera's GAAP revenue was $0.06 million, with a net loss of $14.9 million[29] - 2021 non-GAAP OPEX guidance is $14.00-14.5 million[21] - A single fab adopting MST could make Atomera profitable from royalties alone[21] - A worldwide average fab with a monthly capacity of 49,000 wafers has an annual revenue potential of $13 million at a 2% royalty rate[22] - A leading foundry 28nm fab with a monthly capacity of 80,000 wafers has an annual revenue potential of $58 million at a 2% royalty rate[22]

Company Overview - Atomera is targeting the $450 billion semiconductor market with its transistor enhancement technology[7] - The company operates with a high leverage IP licensing business model[7] - Atomera has a strong, growing, and defensible patent portfolio[7] - The company is working with at least 10 of the top 20 semiconductor makers, representing 50% of the world's top semiconductor manufacturers[9] Joint Development Agreements (JDA) - The first JDA was signed with a market-leading semiconductor company, including a manufacturing license, placing them in Phase 4[10] - Each business unit of the JDA partner represents an incremental licensing opportunity for Atomera[10] MSTcad - MSTcad optimizes complex statistical experiments to assess the impact of multiple manufacturing options, lowering the cost of MST evaluation and accelerating time to successful results for customers[12] Financial Performance (FY2020) - Atomera's revenue for FY2020 was $0.06 million[20] - The company's total operating expenses for FY2020 were $15.0 million, including $8.4 million in R&D, $5.6 million in G&A, and $0.9 million in S&M[20] - Net loss for FY2020 was ($14.9 million), or ($0.79) per share[20] - Atomera's cash balance as of December 31, 2020, was $37.9 million[20]

Financial Data and Key Metrics Changes - The GAAP net loss for the year ended December 31, 2020, was $14.9 million, or $0.79 per share, compared to a net loss of $13.3 million, or $0.84 per share in 2019, indicating a larger net loss due to higher operating expenses and lower revenue [24][25] - Revenue in 2020 was $62,000, a significant decrease from $533,000 in 2019 [24] - GAAP operating expenses in 2020 were $15 million, an increase of $1.1 million from $13.9 million in 2019 [24][25] - Cash balance at December 31, 2020, was $37.9 million, compared to $14.9 million at the end of 2019 [28] Business Line Data and Key Metrics Changes - The company has 25 engagements with 19 customers, with several having multiple engagements underway [8] - A newly completed Joint Development Agreement (JDA) with a major semiconductor company marks a critical step towards commercializing MST [10][13] - The release of MST CAD version 1.0 modeling software has received positive feedback and is expected to accelerate technology adoption [14][16] Market Data and Key Metrics Changes - The semiconductor industry is experiencing a turnaround, with manufacturing lead times increasing due to capacity constraints, but Atomera's customer base remains active in R&D wafer runs [7][8] - The rollout of 5G cellular technology is creating new market opportunities for MST SP and RF SOI technologies [17] Company Strategy and Development Direction - Atomera aims to move existing customers through the phases towards production while adding new customers as a secondary objective [8] - The company believes that joint development formats with customers will lead to more efficient results and faster adoption of MST technology [11][12] - The focus on expanding the patent portfolio is critical for the company's licensing business, with a 17% increase in patent count year-over-year [22] Management's Comments on Operating Environment and Future Outlook - Management is optimistic about 2021 being a breakout year for Atomera, with strong customer demand and a solid technology position [23][31] - The company anticipates that Q1 revenue will be $400,000 based on payments under the JDA, with potential for additional revenue from future milestones [29][57] Other Important Information - The company has made significant progress in building infrastructure, including a 300 millimeter epi deposition facility, which is expected to enhance development capabilities [21][19] - The JDA includes a manufacturing license, which will generate revenue for Atomera [29] Q&A Session Summary Question: Impact of semiconductor shortages on customer licensing - Management indicated that customers have been able to start new wafer runs successfully, suggesting that Atomera's technology remains a priority for them during shortages [34] Question: Speeding time to market for customers - Management noted that while immediate impacts may be limited, MST technology can help improve performance and capacity in the long term [37][38] Question: Progress of other licensees - One licensee faced setbacks due to a fire, but the others are progressing well with regular meetings [42] Question: Delays in epi tool acceptance - Delays are attributed to the complexity of setting up a lab that supports both 200 millimeter and 300 millimeter wafers, but engineers have been working on the tool in the meantime [44][45] Question: Future JDA opportunities - Management expressed optimism about several customers but refrained from forecasting specific timelines for new JDAs or licenses [50][55]

Financial Performance - Revenue for the three months ended September 30, 2020, was $254,000, a decrease from $395,000 in the same period of 2019, reflecting a decline of 35.7%[6] - Net loss for the three months ended September 30, 2020, was $3,578,000, compared to a net loss of $3,086,000 for the same period in 2019, indicating an increase in loss of 16%[6] - For the nine months ended September 30, 2020, the net loss was $11,002,000 compared to a net loss of $10,254,000 for the same period in 2019, representing an increase in loss of approximately 7.3%[9] - Total revenue for the nine months ended September 30, 2020, was $254,000, a decrease of 35.6% compared to $395,000 for the same period in 2019[23] - The company has incurred recurring operating losses and has generated only limited revenue since inception, indicating ongoing financial challenges[16] Assets and Equity - Total assets increased to $26,763,000 as of September 30, 2020, compared to $15,240,000 on December 31, 2019, representing a growth of 75.6%[5] - Total stockholders' equity increased to $24,732,000 as of September 30, 2020, from $13,772,000 at the end of 2019, marking an increase of 79.8%[7] - The company had working capital of approximately $24.1 million as of September 30, 2020, indicating a strong liquidity position[16] Cash Flow - Cash and cash equivalents rose to $25,297,000 from $14,871,000, an increase of 69.8%[5] - The company reported net cash used in operating activities of $9,117,000 for the nine months ended September 30, 2020, compared to $8,479,000 for the same period in 2019, indicating a 7.5% increase in cash outflow[9] - Cash and cash equivalents at the end of the period were $25,297,000, up from $16,800,000 at the end of the previous period, reflecting a 50.5% increase[10] Expenses - Research and development expenses for the three months ended September 30, 2020, were $2,049,000, up from $1,746,000 in the same period of 2019, a rise of 17.4%[6] - Total operating expenses for the three months ended September 30, 2020, were $3,579,000, compared to $3,225,000 in the same period of 2019, an increase of 10.9%[6] - Stock-based compensation expense for the nine months ended September 30, 2020, totaled $2,224,000, a slight decrease from $2,280,000 in the same period of 2019[36] Liabilities and Capital Needs - The company had total current liabilities of $1,400,000 as of September 30, 2020, slightly down from $1,468,000 at the end of 2019, a decrease of 4.6%[5] - The company may require additional capital to fund its operations, with no assurance that such funds will be available on commercially reasonable terms[17] Stock and Shares - The weighted average number of common shares outstanding for the three months ended September 30, 2020, was 19,337,000, compared to 16,567,000 in the same period of 2019, an increase of 16.8%[6] - The company has potential common stock equivalents totaling 4,548,000 shares that were not included in the diluted net loss per share calculation due to their anti-dilutive effect[27] - The company issued and sold 484,148 shares of common stock between October 1, 2020, and the date of filing this report, generating net proceeds of approximately $5.0 million[44] Lease Obligations - Total future minimum lease payments as of September 30, 2020, amounted to $842,000, with $371,000 due in 2024 and thereafter[30] - Cash paid for lease liabilities during the nine months ended September 30, 2020, was $123,000, up from $120,000 in the same period of 2019[31] - Total operating lease costs for the three months ended September 30, 2020, were $50,000, compared to $48,000 for the same period in 2019, representing a 4.2% increase[29] Other Financial Metrics - The company reported a gross margin of 50% for the three months ended September 30, 2020, compared to 49% in the same period of 2019[6] - The intrinsic value of warrants outstanding at September 30, 2020, was approximately $396,000 based on a per-share stock price of $10.45[33] - The company granted options to purchase approximately 664,000 shares under the 2017 Plan during the nine months ended September 30, 2020, with a fair value of approximately $1.9 million[40]

Financial Data and Key Metrics Changes - The GAAP net loss for Q3 2020 was $3.6 million or $0.19 per share, compared to a loss of $3.1 million or $0.19 per share in Q3 2019 [24] - The increase in net loss was attributed to a rise in GAAP operating expenses by $354,000 and $50,000 less in gross margin, with no revenue recognized in Q3 2020 compared to $254,000 in Q3 2019 [24][25] - Non-GAAP adjusted EBITDA for Q3 2020 was a loss of $2.7 million, compared to a loss of $2.4 million in Q3 2019 [25] - Cash balance at September 30, 2020, was $25.3 million, up from $18 million on June 30 [27] Business Line Data and Key Metrics Changes - The company maintained 25 engagements with the same number of customers as the previous quarter, indicating stability in customer relationships despite the pandemic [9] - The company is focusing on joint development agreements (JDAs) with several large companies, although negotiations have been slowed by COVID-19 [11] Market Data and Key Metrics Changes - The semiconductor industry has seen an acceleration in R&D spending, with prospective customers financially capable of more expensive projects [8] - The company is experiencing challenges in acquiring new customers due to the inability to hold in-person meetings, which have historically been effective for customer acquisition [10] Company Strategy and Development Direction - The company is prioritizing engagements that have a better chance of advancing into Phase 4 over adding new customers into Phase 1 [10] - The introduction of MST CAD version 1.0 to beta customers is a significant technological achievement, aimed at optimizing semiconductor processes and reducing development cycles [15] - The company is excited about the opportunities presented by a new 300 millimeter Epi deposition tool, which is expected to enhance customer integration and accelerate time to revenue [19][20] Management's Comments on Operating Environment and Future Outlook - Management remains optimistic about customer engagement and the potential for licensing opportunities, despite the challenges posed by COVID-19 [34] - The company is well-positioned for growth, with a strong balance sheet and ongoing negotiations for JDAs that could lead to revenue recognition [23][29] Other Important Information - The company has received net proceeds of $8.5 million from an At-The-Market (ATM) equity program during Q3, totaling $13.5 million to date [28] - A fire at one of the company's partner's fabs may impact the completion schedule for integration wafer runs, but the extent of the impact is still uncertain [36] Q&A Session Summary Question: Cash generation from the ATM program - The cash generation from the ATM program was $8.5 million in Q3 and $13.5 million total to date [32] Question: Visibility on customer engagements - The company continues to move forward with customers in the pipeline, with delays primarily attributed to COVID-19 and normal operational timelines [34] Question: Impact of the fire at a partner's fab - The fire occurred in a facility with multiple fabs involved with the company, and the impact on scheduled wafers is still being assessed [36]