Hello, everyone, and welcome to Atomera's Second Quarter Fiscal Year 2021 Earnings 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.

We’re again using Zoom and we will follow a format similar to prior quarters with participants in a listen-only mode. We will open with prepared remarks from Scott Bibaud, Atomera's President and CEO; and Frank Laurencio, 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 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 Factors 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 19, 2021.

Except as otherwise required by federal securities laws, Atomera 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.

And with that, I would like to turn the call over to our President and CEO, Scott Bibaud. Go ahead, Scott..

Thanks, Mike. Good afternoon and welcome everyone to our Q2 update call. Atomera has had some very strong, behind the scenes accomplishments this past quarter, which I'd like to share with you. But let's start first by talking about the industry. The semiconductor space has never been more tumultuous.

Not only do we have the pandemic playing out around the world, we have ongoing supply shortages, unprecedented sales and profitability, widespread consolidation, or rumored consolidation, and giant geopolitical forces at play. I can tell you that Atomera has been witnessing all of these events up close and personal.

Customer visits is still out of the question in Asia, but it's starting to become more possible in Europe and the Americas. New wafer starts have been somewhat limited, but remarkably, the delays we've experienced in ongoing way for runs have been minor and we've even been able to get approved for some new starts.

Considering the constraints in our industry, I view this as a strong endorsement of our technology's potential. Overall, we are weathering the storm quite well with inbound customer interest and no major disruptions to development projects underway.

In this environment we're not surprised at the number of customers and engagements in our pipeline has not changed. New customer growth is being held back by COVID travel restrictions and the capacity limitations in customers’ factories.

Our JDA partner, existing licensees, and other Phase 3 customers, continue to advance their efforts with us, undaunted by the industry's communications and logistics challenges. We are making headway every day towards the goals our customers established at the beginning of our project.

So, although this chart is unchanged from last quarters, there's a lot of good progress hidden within the phases and our JDA is on track. Here's another positive phenomenon that I'd like to address. And it's related to TCAD. We have had a lot of inbound questions about how our TCAD product is doing and its success with customers.

The first cohort of customers who've adopted MSTcad are finding it is assisting them greatly and narrowing down the wafer runs needed before achieving success. I think this is best illustrated with an example. One of our customers has a wafer run underway with the integration steps that we mutually agreed with the best suited for their devices.

About two months after the wafer started MSTcad helped us identify an even better way to integrate our technology that would add to the device’s performance. We shared it with the customer who got very excited and contributed some of their own ideas about how it could be improved even further.

So, we ran TCAD again and sure enough, their idea did make it better. Then last week we found another innovation to optimize the device yet again, that was subsequently proven on MSTcad. We are now talking with our customer about starting wafers to demonstrate these latest innovations.

Why is this remarkable? Well, just a few years ago, each of these three innovations would have needed silicon runs that typically takes six to nine months. We ran these three TCAD simulations in just a month and a half.

As a matter of fact, we still haven't even gotten the results from the first wafer run and we already have a very specific plan for making the next wafer run much more successful. This is the power of MSTcad.

In the hands of smart integration engineers this tool can help us do fewer wafer runs that will be more successful and so therefore get us to production more quickly.

So how does this relate to the engagement chart? Well, today it's becoming standard that our Phase 1 customers want to develop a detailed TCAD simulation before finalizing a plan to run MST wafers. So, customers are staying Phase 1 longer than in the past.

But we believe this will lead to customers going through Phase 2 and Phase 3 faster than ever before. This should also make engagement contracts easier since both sides will be able to exactly define what success looks like.

It may appear that additional work in the planning phase will add time, but a more focused set of targets established upfront, will lead to faster progress through Phase 3 and to production. And that's great news for our customers, for Atomera and for our investors.

Since we're talking about customers, I'd like to clarify our JDAs in general and our current engagement in particular. By now you're all familiar with our standard customer flow.

Usually this involves one process note where we work with customers to achieve a targeted performance spec by integrating MST in Phase 3, leading to a decision to go to production. MST is then installed in their fab, which is Phase 4. And then we go through process qualification in Phase 5 before production begins.

I'd like to emphasize that this phased approach is a model. And many customers do not follow one through steps – one through six steps in order. But they do have to perform all of the functions shown here where they can go to production. JDAs had done differently. So, I've removed the phase numbering to avoid some confusion.

Generally speaking, we believe most JDAs will involve integration beginning and continuing while MSTs installed at a customer fab. By combining installation and integration at the same location, development efforts will be expedited since the logistics of MST wafer handling are much more efficient.

Also, because we believe the customer will understand MST better and have more buy-in and urgency on the program, it's our belief that MST JDA engagements like the one shown here are more likely to get to production quickly. That being said, the JDA we're working on today is somewhat unique.

One central engineering group is pre-qualifying MST, so they can confirm it meets the company's specifications and will subsequently make it available to their various business units for adoption.

At that point, a business unit will integrate MST into their products and then complete process qualification on that product line when they're ready to go to production. Because the technology is already installed, they will be able to move directly from integration to qualification.

As in the prior JDA example, the integration works should definitely be much quicker than a typical. And MST will be offered to multiple different product lines, simultaneously, creating a much bigger revenue opportunity than a single process note engagement.

We would love to replicate this type of unique JDA with large customers throughout the semiconductor industry. Today Atomera is in discussions with multiple customers about both types of JDAs. Our development organization has accomplished a lot during the last quarter, especially in our MST technology focus areas.

Having demonstrated industry-leading performance in several critical specifications for power analog devices, using MST-SP, our attention shifted to optimizing for device reliability and manufacturability. In the last few months, we've completed that task, making it easier for designers to adopt these technologies and bring them to production.

This is a very large opportunity because the initial focus for MST-SP is in power management, which is the largest market segment of general-purpose analog ICs. We can now start the process of rolling this technology out to a wider set of users not just foundries and IDMs, but also to the many fabulous semiconductor companies in this space.

This quarter, we have also demonstrated significantly higher performance using MST on RF-SOI wafers, which will enable more advanced and efficient implementations of the next generation of 5G cellular RF chips. But our technology clearly applies to areas beyond the more market segments.

This quarter we put the industry on notice that our capabilities span to the bleeding edge with our white paper on MST for advanced nodes.

I recommend looking over the white paper, although it covers some sophisticated transistor concepts, it's not a difficult read and give some good insights into the type of discussions we have with customers of the advanced nodes. The executive summary is this.

As the industry goes to smaller and smaller process geometries like two or three nanometers or below, the need to control dopant diffusion becomes even more critical.

The industry has tried to use carbon, but our white paper makes the case that MST is a significantly more effective method of controlling diffusion across a number of different interfaces, even for very thin MST film implementations.

And although the paper is targeted at manufacturers of 3D transistors like nanosheets and gate-all-around structures, the benefits we described also applied to work going on in memories, CMOS image sensors, and in other advanced products.

Development in the most advanced nodes require operation and ultra clean environment to deliver 300 millimeter wafers to customers at very high levels of purity, which requires sophisticated cleaning and inspection equipment along with a state-of-the-art Epi tool.

Although we have been depositing MST using the Epi tool for months, the facility has struggled to meet their contamination specifications. Now new support equipment is being added that will finally resolve this issue. Within this quarter, we expect to reach formal acceptance and start paying for the lease on our new Epi tool facility.

This tool and the advances we've demonstrated in the last quarter will allow us to promote MST to a wider market. And we're working to do so much more aggressively. Therefore, I'm pleased to welcome Jeff Lewis, who has taken the reins of our business development and marketing efforts.

Jeff is a longtime semiconductor veteran and bring strong expertise in transistors, memory and EDA. He already is implementing strategies which will increase Atomera’s visibility and drive faster conversion from integration to revenue. As you can see Atomera has accomplished a lot during the last three months.

And I believe we are positioned for continued strong execution over the second half of the year. As COVID restrictions lift around the world, we will be getting on the road and strengthening our personal contact with customers to make sure we're at the forefront of every company's mind.

Since industry profitability is at an all time high customers are looking to spend that money building up a competitive advantage. And Atomera is offering very compelling solutions to do that using MST. So the potential for some very big wins is excellent. Now, Frank will review our financials..

Thanks, Scott. At the close of the market today, we issued a press release announcing our second quarter 2021 results. This slide shows our summary financials, which I'll discuss now in more detail. Our GAAP net loss for the three months ended June 30, 2021 was $3.7 million, which is $0.17 per share.

In the second quarter of 2020, GAAP net loss was $3.8 million with $0.21 per share. Each of the components of our OpEx were basically unchanged from the same period in 2020 with total GAAP operating expenses declining by $69,000. We did not recognize revenue in either of those periods.

Weighted average shares outstanding were 22.5 million in Q2, 2021 compared to 17.8 million in the prior year period. Sequentially, our GAAP net loss in Q2 increased to $3.7 million from $3.6 million in Q1 due to revenue declining by $400,000, which more than offset a $296,000 quarter-on-quarter decline in GAAP operating expenses.

Lower expenses resulted from the timing of changes in our executive team. Net loss per share increased to $0.17 per share in Q2, compared to $0.16 in Q1. Weighted average shares outstanding of 22.5 million in Q2 compares to $22.1 million in Q1. The press release and the slide container reconciliation between GAAP and non-GAAP results.

Non-GAAP adjusted EBITDA was a loss of $2.9 million and $0.13 per share in both Q2 and Q1 of this year, reflecting non-GAAP operating expense of $2.8 million in Q2 and $3.3 million in Q1. For a total of $6.1 million of non-GAAP operating expenses in the first half of 2021.

In Q2 of 2020, non-GAAP adjusted EBITDA as well as non-GAAP OpEx were $3.0 million. Our cash balance at June 30 of this year was $34.3 million compared to $36.7 million at March 31. The $2.4 million decline reflects $2.7 million of cash used in operating activities offset by cash inflow of $354,000 from financing activities.

During the first half of this year, our cash used in operating activities was $6.6 million and total cash balance declined by $3.6 million as operating cash use was partly offset by $3.1 million of cash from financing activities. As of June 30, 2021, we have 23.1 million shares outstanding.

As Scott mentioned in his remarks work with our JDA customer remains on track, and we hope to successfully complete the milestones remaining in that contract in the next few quarters.

However, we don't have enough visibility to forecast the timing of achieving those milestones or the timing of closing on other customer agreements that were negotiated. Our guidance is for zero revenue in Q3 and consistent with past practice, we're not providing revenue guidance beyond this current quarter.

Our $6.1 million of non-GAAP operating expenses in the first half this year indicate a run rate below the plan on which I based my earlier annual expense guidance. The lower run rate is primarily due to the delay in commencing payments on the new Epi tool.

However, we do to begin making those payments this quarter, and we have not changed our plans to add engineering headcount this year. We also expect that sales and marketing expenses will increase going forward as we roll out our offerings to a broader set of customers.

I had previously guided the non-GAAP operating expenses would be in the range of $14 million to $14.5 million for the full year, which would imply about $8 million in the second half of this year. We don't expect to reach that level. So we're reducing the range of our full year non-GAAP operating expense to a range of $13.25 million to $13.75 million.

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?.

Thanks Frank. As I shared earlier, we have a very – we've had a very strong quarter of execution. We're making great progress on our key focus technologies with assistance from our increasingly sophisticated MSTcad. Customers continue to show strong interest in start wafer runs with us even in the face of severe capacity restrictions in their fabs.

Our new white paper on dopant blocking for advanced 3D applications is gaining interest in the industry. And we are bringing those ideas to customers working in other advanced areas. Inside Atomera, our engineers are energized. Since every day, they realize the huge benefits MST can bring the industry.

Enthusiasm and fresh ideas from our new executives are sure to help us gain even more traction in upcoming quarters, leading to more commercialization opportunities around the industry. Mike, we can now take questions..

Thanks Scott. So we will now open the call to the Q&A session. [Operator Instructions] And its Richard Shannon from Craig-Hallum. Did you have a question? Go ahead..

Mike, can you hear me?.

Yes. Got you..

Excellent. Probably two questions here. First one is Scott, I jumped on the call just as it was starting. So I may have missed your specific language here, but it sounds like one of the issues here in the industry about getting access to R&D wafer something like you've seen a little bit of loosening there.

Can you expand on that and is there any consistent theme around those customers where you seeing these restrictions loosening a bit by node, by customer type by phase of customer, et cetera.

Can you just give us some more flavor there please?.

Yes, I think for all of our customers, it's in, we're talking about customers in the integration phase as we mentioned it, the interesting thing is that for projects that are ongoing, the fabs they're seeing benefits, they're seeing, really good potential.

And so they're more willing to start new wafers and definitely to continue wafers that have been running in the fab. But starting up new programs has been much harder. So it's not so much related to the process node or the wafer size or anything.

It's more related to when we have programs that are – have been underway and they're starting to see the good results of those, they get excited. They want to keep them moving, even if they have to fight for the wafers to get them in the factory. So that's kind of what we're seeing out there..

Okay. Fair enough. Another question for me on JDAs, I think last call, you said that you worked in any, what you think the specific language users, late stage discussions with any new JDAs out there? I didn't hear you say anything regarding that these – in these prepared remarks.

Can you kind of, is there any way, any statements you can make regarding progression with any customers who you've been in discussions with on new JDAs?.

Yes, I think it's always challenging for us to talk about timing. I think a long time investors lived through the very difficult negotiations that we had before we finalize this last JDA. And so I don't really want to make any predictions, but I will say, yes, we do have discussions ongoing with a number of companies.

I think some pretty interesting projects with some large companies that we really hope that will convert. We're not predicting timing, but they could happen – it could happen anytime. Okay..

Okay. Fair enough. One more question. I'll jump out of line here. And before I asked that, I'll say that your comments on the TCAD very interesting. I'll probably follow up with you offline on that one.

The one I did want to ask about is related to the leading edge work that you've been doing here, your blog post and paper were interesting, the extent to which I can actually understand it as not being a device engineer.

But it kind of begs a question of how long have you been in work on this node? And is there any thought process investors should have that it's going to come to fruition faster than what we've seen with other product areas nodes, et cetera that you've been working with,.

Right. Yes.

I mean, that's a good question because – so when we talk about our focus technologies, and we're not only working in focus areas, but in the focus areas, that's where we're specifically taking a product or a process and try to do something especially innovative there and bring that as more of a full solution to the customers, as opposed to just using MST and to improve a process that a customer has.

So on our focus areas, we're working with customers at all different stages. And it will really there, the timing for them going to production will depend on really when they want to take that thing to production, because they've in the legacy nodes, they're – it's kind of, they take them on a schedule that's different with every customer.

On the more advanced nodes, that everyone – is today there's only three leading foundries that are semiconductor companies that are developing in those advanced nodes. And they have a lot of incentives to get them to market as fast as humanly possible.

That being said, when they start working with a new material, they typically will – they'll put it in a note that they're working on at the time and that might be out a generation, or it might be out two generations. So, I can't really give much insight into where potential customers are looking at this technology.

But I would say the thing we've always been excited about, about getting integrated into the leading edge is that it tends to be something that's adopted by all the companies in the industry and then you become a part of the standard semiconductor roadmap that every company implements in the future.

That's what happened with High-K/Metal Gate back in around 2010 or 2011. And that's what happened with strained silicon back in 2000 or 2001. And today all companies run those technologies and all of the different process notes..

Okay. That's helpful perspective. That's all for me, Scott. I'll jump out of line. Thank you..

Thanks..

Thanks Richard..

Thank you, Richard. And there's some questions coming in on the Q&A chat here. And there are a little bit of an echo talking about the JDA partner, and how long the phases are going to take.

So, I'll just go ahead and ask some of the questions, is how long will Phase 4 take and once it's up and running, how long do you anticipate each run of wafers to take in the customers fab? In the past we've said that each run would be about six to nine months.

So, once it's installed in the customer's fab, how long do you anticipate that would take?.

Yes, actually, it's a good, insightful question because so logistically when someone would run wafers with us six to nine months, so let's talk about, I think, the fastest run we ever anyone do was six months from when they started the wafers until we actually got the test data.

And in the middle of that process, they had to take the wafers out of their factory, package them up, send them to us.

We had to specially clean and prepare our tools to be able to deposit onto those wafers, packaged them up and send them back on their side, they had to go through a lot of procedures to make sure there was no contaminants on those wafers and then get them in line. And that probably took a month and a half of that six-month period to happen.

Now, if our JDA partner has this installed in their tool, so literally that whole month and a half, they would just take the wafer, put it in the tool, takes 20 minutes or so to do the MST depositions, maybe a half an hour, and then they have them back out, running in the line.

So, at a minimum, you're talking about a month and a half of improvement in the time to float to the fab. So that's really attractive. But I would think that because they can schedule the wafers much more reliably, right, they will know exactly when the wafers are coming into line to go on the next step.

They will be able to schedule them to get it down to maybe four months or so. So, talking about a 30% improvement in throughput to be able to get those wafers out before they have silicon results.

For the JDA and particularly for the JDA we have right now, they're going to – the first part of the JDA is about characterizing MST to meet kind of company goals. And company goals will help them to figure out the best way of integrating MST inside their particular fab.

It will also help them really their engineers to understand how to run it better and faster for that particular situation. And so, I believe there'll be even more advantages that they get than the four months. That I talked about before.

So, once they are ready to start integrating it into the products that would go into production, I think, that process will happen much faster than we normally would expect. Maybe it will be one year or I still think about a year or two year and a half for that last part of integration and process qualification to be completed..

And then, we're getting some questions about how long Phase 4 is going to take? And when do you anticipate going into Phase 5? And I know we addressed that in the prepared comments, but maybe expand on how you see that transition rolling forward for the JDA partner?.

Yes, Phase 4, I'm very constrained about what I can talk about the timing on that that would fall underneath the customer's confidential information, they're very sensitive and understandably so that they don't want their plans shared with the industry.

I would say that, as we mentioned, the JDA is on track and we're hopeful that the Phase 4 will be completed on a very reasonable timeframe. But I can't really give a lot more insight into what that would look like..

Okay. Well, it appears that this time, we don't have anybody to ask any further questions. And if you want to go ahead and make the closing comments, Scott, thanks so much..

Well, thank you, Mike. Well, let me just say, I want to thank everybody for attending today's presentation. We're pleased to be able to share with you the results of the last three months and to get a feel for some of the excitement we're feeling here inside Atomera.

Please continue to look for our news, articles, blogs and things on our website to keep you up to date on our progress. You can sign up for them along with investor alerts on our website, atomera.com. And should you have any additional questions, please feel free to follow-up with Mike Bishop, who will be happy to help you.

So, thanks again for your support. And we look forward to speaking with you again on our next update call..