Hello, everyone, and welcome to Atomera's Third Quarter Fiscal Year 2022 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'll follow a similar format 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 on the Company’s annual report filed on Form 10-K filed with the SEC on February 15, 2022, and in our prospective supplement filed with SEC on May 31, 2022.

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 regard 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 Bibaud. Go ahead, Scott..

one is that the solutions we are offering here are only possible through the use of MST; secondly, we now understand the complex mechanisms driving these solutions even better than our customers, which gives us a unique ability to not only license our technology, but to meet our mission, which is to collaborate with customers to achieve financial benefit for both companies.

MST technology is specifically designed to help customers shrink their die to put more product on each wafer, which leads to cost reductions and higher profitability. In times when capacity is tight, this may not be the first priority of semiconductor makers.

But when they go into a slowdown like they are in now, this becomes absolutely critically important. I think it's a fair question to ask, why if these technologies and their associated economic benefit are so compelling it takes so long to adopt. Of course, there are many answers to this question, but two stand out.

Most companies have some kind of long-range product development road-map, perhaps they have been in production with technology A for three or more years, and it’s time to work on an upgrade.

Consequently, their engineering team focuses on technology A for a period, so technology B and C will have to wait their turn even if they have identified a real breakthrough. Generally, after identifying the big breakthrough, they immediately add that development plan to the next year's development efforts.

So, although they're committed, work does not begin for several months. This is no reflection on the interest or expected return, it’s just an example of allocating scarce resources. Once they do begin, the development project timeline can vary greatly depending on how full the fab is.

For the last few years, throughput was extremely slow, but we expect it to accelerate now. So, as I said earlier, it's only a matter of time. As an example, we introduced MST-SP to the market last year, and even though it generated a lot of interest, we are in more discussions about new customer engagements now than we were last year.

And once new programs get started, I expect development to move faster than in the past. In the press, you frequently read about developers of the most advanced nodes and how they are experiencing delays due to yield problems, which prevent manufacturability in high volume.

This is one of the principal reasons why it's taking longer to bring new nodes to market, a phenomenon people call the slowing of Moore's Law. Atomera's technology is particularly versatile for use in these most advanced architectures of next-generation transistors, which are called gate-all-around transistors.

During the last quarter, we have seen evidence of this in successful experiments conducted on our tools.

A fundamental challenge designers are trying to deal with at these ultra-small nodes is that they are precise, highly-doped structures are sitting only angstroms away from other precise highly-doped structures, and they need to keep these boundaries in place through the whole manufacturing process.

But high concentration dopants in nano-transistor structures tend to diffuse when exposed to the heat required in subsequent manufacturing steps. And there are a few mechanisms to prevent that diffusion.

The industry has reacted by trying to lower the temperature of its manufacturing process, but a certain amount of heat is still necessary, so they need more techniques to solve the problem. Atomera's MST is one of the best-known materials for preventing dopant diffusion.

In a gate-all-around transistors, that means it can be used to prevent source or drained dopants from diffusing into the channel and thus preserve high electron mobility. It can also help prevent punch-through between source and drain in the silicon substrate.

Even beyond dopant engineering, MST can be used to lower contact resistance at the silicon metal interface. It can reduce high-k metal gate stack height. And finally, it can improve carrier mobility and gate leakage by reducing high-k metal gate intermixing.

For a process development engineer, each of these MST benefits provides a distinct tool for getting gate-all-around technology into production faster and at a higher yield.

An implementation of MST in the manufacturing process is straightforward, because epitaxial deposition is already used extensively for the process steps adjacent to the MST layers when building gate-all-around structures.

Many of the ideas I've just spoken about have become apparent through our team's R&D efforts this year between progress with our customers, new emerging opportunities, and the increasing expertise of the Atomera team in addressing critical industry issues.

I believe our progress this past quarter is even greater than what we saw in the first half of the year. I wish you could experience the pace of customer and development activity inside Atomera. As I said before, this point in the industry cycle is ideal for our company, and we are doing everything in our power to take advantage.

Our team is optimistic that these advances will soon lead to new customer growth, and even more importantly, licensing activity that will take more customers towards commercialization and will make Atomera a recognized semiconductor technology leader in the industry. Now let's have Frank 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 2022. This slide here shows our summary financials.

Our GAAP net loss for the three months ended September 30, 2022, was $4.6 million or $0.20 per share, up slightly from our Q2 GAAP net loss of $4.5 million, which was also $0.20 per share. In Q3 of 2021, GAAP net loss was $4.2 million or $0.19 per share.

GAAP operating expenses in Q3 2022 were $4.7 million, an increase of approximately $210,000 over our $4.4 million of operating expense in Q2.

This increase was primarily due to an increase of approximately $310,000 in R&D expenses reflecting headcount growth, offset partly by a $100,000 decline in G&A expense as legal and other fees declined sequentially, while sales and marketing expenses were basically flat quarter-over-quarter.

As compared to our Q3 2021, GAAP operating expenses last quarter increased by $521,000, primarily as a result of a $510,000 increase in R&D expense due to increased engineering headcount, recruiting expenses and higher total lease costs due to a full quarter of lease expense in Q3 2022 compared to only a partial quarter in Q3 2021.

Non-GAAP net loss for the third quarter of 2022 was $3.7 million, compared to losses of $3.6 million in Q2 and $3.4 million in Q3 2021. The differences between GAAP and non-GAAP operating expenses and accordingly between GAAP and non-GAAP net loss are almost entirely due to non-cash stock compensation expenses.

Our cash balance at September 30, 2022 was $23.3 million compared to $21.8 million at the end of Q2, which is an increase of $1.5 million. Operating cash used during Q3 was $3 million.

And during the quarter, we brought in approximately $4.6 million of cash from financing net of expenses and commissions, reflecting sales under our at-the-market, or ATM, equity program. During the third quarter, we sold 386,415 shares at an average price per share of approximately $12.34 under the ATM.

As of September 30, 2022, we had 23.9 million shares outstanding. Turning now to our outlook for the rest of this year and 2023. Never before has Atomera been engaged across such a diverse array of applications where our customers need innovative breakthroughs like MST. Obviously, we'd like these engagements to offer near-term revenue.

And when additional customer wafer runs are required, licensing and go-to-market decisions get pushed out. Accordingly, our guide from revenue in Q4 is zero, and we're not providing revenue guidance beyond the current quarter, which is consistent with our past practice.

Our last update call in July, I reduced our full year guidance from non-GAAP operating expenses to a range of $14.75 million to $15.25 million. For the first nine months of this year, our non-GAAP expenses totaled $10.6 million.

And because we have good visibility through the end of the year, I expect our full year operating expense on a non-GAAP basis will be at or slightly below the bottom end of that guidance range. On our next earnings call, I'll provide more specific color on our planned 2023 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?.

Thanks, Frank. As expected, the strong momentum we built in the first half of this year has given us a solid platform to build on for the accomplishments of the second half, and we are taking full advantage. Customer visits and associated progress and development are accelerating.

And with the dip in semiconductor backlog, companies have the capacity and inclination to implement new solutions like MST to add capacity, cut product cost, and achieve competitive advantage. Atomera is perfectly positioned in this environment with a variety of tools to meet their needs.

We continue to believe that this combination of our technical capabilities in the context of this market provide an ideal environment to add to our license portfolio and to move forward to commercialization, and we look forward to sharing news of those efforts with you in the future. Mike, we will now take questions..

Thank you, Scott. If you wish to ask a question, please click the Q&A button at the bottom of the Zoom window, then feel free to type in your question. I will do my best to aggregate the incoming queries and relay them to management. Alternatively, you can click the Raise Hand button and we may call on you to ask your question live.

All right, and now, our first question comes from Richard Shannon of Craig-Hallum. Richard, if you can kindly unmute and turn on your camera, you may begin..

Thanks, Mike, and thanks Scott and Frank for having me. Apologize in advance here for trying to listen to two calls at once here. So, you may have touched on some of these topics here. But maybe just touching on your first JDA customer, I think, you've talked about being in central engineering and working with one business unit.

Have you expanded that beyond the first business units? Or -- and if not, any visibility or work being done to expand that relationship?.

Yes, thanks for the question, Richard. So, we aren't really talking about expanding into different business units. But what I can say, when we get to kind of a license agreement, we will be able to say, we’ve definitively expanded with business unit, that's when we will be able to disclose it.

But I can say, and in my prepared remarks I made a few comments about the work that we're doing with JDA customer one and the breakthroughs that we've kind of achieved on our R&D team here.

So, obviously, we are continuing to work very closely with them and continuing to development work that we believe positions us well to get to that type of agreement in the future..

Okay. Fair enough then. Scott, I think you had some comments -- and again, I probably missed all of -- or missed some of them. But it sounds like you're fairly excited about the environment here that allows a little bit less utilization and offers more opportunity to run more R&D wafers.

To what degree are you seeing that? I mean, did you get a full view on what utilization customers have and to what degree they're prioritizing work with you versus other avenues they may have for those -- the small number of R&D wafers they run?.

Yeah, I mean, we definitely -- with the customers that we have that are running wafers, if they are planning to do additional wafers, they -- it's been no problem whatsoever to get new runs planned and started.

For our newer customers, one of the challenges that we have had in the past is a customer that was interested in working with us may say, “hey, we think your technology has a lot of promise, but I can't get any wafers through the fab.” And we've seen that concern go away.

So, now, we have a lot of new customers that we are talking about and we think we will be able to engage with them quickly. And then finally, sometimes even when we had wafers running in fabs with folks in the past couple of years, it has taken a very long time to progress through, just because they are fully utilized for revenue-bearing wafers.

And so, we are starting to see that loosen up as well. Although, I would say, when analysts like yourself are talking about the slowdown in semiconductors, it's about bookings, right? And it's about things that are going to happen in the future. The slowdown in practice has not entirely hit the factories yet. So -- but people can see it coming..

Okay. Fair enough then. Hitting on the topic of leading edge, which had some nice comments. I think I heard most of them there. I guess a couple of questions there. Obviously, there is a lot of work that needs to be done here both on your end as well as industry work here.

To what degree of confidence do you have of not only getting licensees for the kind of gate-all-around technologies, but also intersecting with the introduction of those technologies to the market versus some updates they may have down the road? How do you think about that?.

Yeah, it's always a challenge trying to get on the train at the right point, so that you can be there when it leaves the station.

But I've talked about this on other technologies before, everything that we are talking about are additive technologies that will help the gate-all-around processes, and even if they move to the process beyond that, it makes it easier for them to manufacture and get higher performance out of those wafers.

So, even if they don't use it on the first round, they may use it on a follow-on version of it to get higher yields or to better performance. If you look at TSMC's 5-nanometer product portfolio, you can see that they had a whole bunch of variations of 5, right? The first version, the second version, the third version.

And we believe that we can definitely -- if we don't intersect with the first, we definitely believe we'll be able to intersect with the later ones.

Now, there is only three players that are developing this type of technology, but the techniques that we've developed for gate-all-around are also very applicable to some of the more advanced work that's being done by memory players as well. And so, we're very optimistic about it..

Okay. Great perspective there, Scott. Thanks. Maybe a couple of quick questions for Frank.

If I missed this, my apologies, but did you update the FX spend rate for this year? Did you change it? And would you have us think about a different rate for next year? It sounds like there's a little bit of hiring plans or other work that might lead us to think there's something of an increase next year.

Just kind of qualitatively can you help us think about that?.

Yeah. No, happy to do that, Richard. So, in terms of, for the rest of the year, I had given a band of $14.75 million to $15.25 million. And given that we ended Q3 at under $10.6 million through the first three quarters of the year, I'd expect that we'd come in kind of right around the bottom of that range.

So, the bottom end being $14.75 million, I think we'll be at or below that. Directionally, we're in the middle of our planning process for next year. I wouldn't expect there to be big step functions.

But if you look back sort of for the last four or five quarters and look at sort of the sequential growth rate, I don't expect that we would grow spending less than that. But I'm not prepared to kind of give any specific guidance for next year.

But I think if you look at sort of the trends quarter-on-quarter that we've seen throughout this year and carry that into next year, that's a reasonable place to think about where we'll be..

Okay, that's helpful, Frank. And last question from me. On the comments you had on the ATM, I caught the price per share average that you had there, but I missed number of shares that you took down there..

Yeah. So, the number of shares we sold last quarter was 386,415, and that's in our 10-Q also..

Okay. Perfect. Thank you. That’s all from me, guys. Thanks a lot..

Thanks, Richard. And our next question comes from Cody Acree of Benchmark. Cody, if you wouldn't mind turning on the camera and unmuting..

Yeah, thanks guys. Thanks for taking my question.

Maybe Scott, if I can start off with your Chinese exposure, to what extent are you exposed to the China market and those partners that may or may not be having any of the economic malaise that we're seeing around the rest of the industry?.

Yeah, so, thanks for the question, Cody. First, we have been -- for years, we were hesitant to get involved in China too heavily because we were just had IP concerns.

Later on, we started to get engaged with China a little bit more, but we -- but then, we backed off during the Trump Administration because of some signals we were seeing coming out of Washington. So, right now, we don't really have any significant exposure to China.

I think if this trade war ever turns around, then we would probably go in and be looking for opportunities there. But right now, I wouldn't say it impacts us whatsoever.

As a matter of fact, I would say that the fact that there's a lot of folks trying to move process technologies into their own kind of domestic country fabs gives us an opportunity to help those fabs differentiate by bringing our technology in as they're adopting..

But you're not currently working with any partners in China?.

That's right..

Okay.

If I can just get you to talk a bit about the macro again, just the difference in the customer attitude as the belts are being tightened across the industry, I definitely see where the facilities being lesser used could be an opportunity to move you in, but at some point, that pendulum goes so far that -- then it's a customer attitude of restraint and tightening.

You've been through some of these cycles before where that could be a point for you at some point in the future..

Yes, that's a good question. First of all, we're very early in that pendulum swing, as you know. So, right now, we're really in the sweet spot. It's where people -- one of the things that's interesting is this past few years, the capacity has been so thin that development activity inside a lot of these companies was slowed down.

They were really focused mostly on how to improve the yield or get more wafers through a fixed capacity fab, right? So, now they have all this pent-up R&D that they're ready to do.

And I don't believe that we've seen a situation so far in our company's life where the pendulum has swung so far to the cost savings side that they aren't doing development work. I think it doesn't get -- I don't think it happens.

Once people get to the point where they say, “Hey, we really need to save money,” they start looking at what can we do on our product costs or something to lower our costs so we can drive more profitability through the limited manufacturing capacity that we have. And that's a sweet spot for us.

So, I really think if this slowdown lasts for a while, it's going to be great for us. I really think it puts us in a great position..

And your comments around MST’s application to get all around is very encouraging. But like you said, there's limited number of players that are developing that, and it's still very much in the development process.

So, I guess, are you having active discussions toward your implementation? Or is that more of a -- or was that more of a commentary of thought on your part that we should be applicable here and makes sense logically, but we're not seeing yet more partners?.

Yes, what I'd say, Cody, is we definitely are in contact with the players that are doing this type of work. They know about our technology. And we have different levels of engagement, direct engagement with different guys there.

But certainly, that's something that we are constantly kind of promoting and something that we want to get deep -- more deeply involved with each of them on. I really believe that in the most bleeding edge, that's probably where you also see the most NIH in companies, all the best engineers that at the foundries want to work on this.

And they may be somewhat hesitant to seek outside help, like what we can bring, but there's no denying. I mean, the comments I made in the call, there are at least five and maybe six different benefits we can bring, and each one of them are separate. It's not like -- I mean, you could choose just to implement one or you could implement all six.

And they're not very hard to implement, because like, let's say, we're putting our technology in an older process node, we need to convince people to add epi and run epi on their in their production line. It's not hard to do, but it's just a new piece of equipment. But on the most advanced nodes, they are using epi everywhere.

And all they would have to do is add-in some extra steps to put in MST after the prior piece of epi that they were doing. So, I think we are very optimistic about this. If we get in at the bleeding edge, of course, it will probably be included in all future nodes that are developed as well..

And let's see, lastly, I guess, just Scott, your discussions on 2023 budgets for your customers, you have obviously been having those -- getting some thoughts on their broader CapEx plans.

And I'd just like to hear your thoughts on your customer's attitude towards spending next year? And are those -- is that in sync with your encouraging thoughts there?.

Yeah. So, absolutely, six months ago I think in my Q1 earnings call, I was talking about, basically, every one of our customers making record forecasts for what they are going to do for CapEx, spend more than they have ever spent in the company's history.

And now some of them have scaled back those forecasts, but you got to imagine that still means they are spending far more than they had planned to spend two years ago. So, yeah, I think I'm very optimistic. I think they have plenty of money.

I mean, a lot of the guys we’re talking about, their R&D budgets are in the billions of dollars, working with us is few millions of dollars, it’s peanuts. And so, this -- I don't anticipate that we are going to see problems with cutbacks from customers because of cost concerns at least in the next year to 18 months..

Okay. Great. Thanks. And then -- I'm sorry, one last thing. I just wanted to talk about your visibility, and I know that your standard has been to guide towards zero in lack of certain deliverables. But we have been sitting here at zero for the last few quarters, as far as The Street estimates go.

And I guess I'm wondering is there a point on your horizon that you could start to think about getting more positive? Are there milestones or hurdles that you believe are coming that you might see a quarter in 2023 where you can actually predict revenue or are we looking at this situation for the foreseeable term?.

No. Actually, I share your frustration on that question, Cody. We -- the challenge, and I've always said this in Phase III where we are doing kind of integration licenses, they're very hard to predict. Once a customer gets a manufacturing license, then we get a little more visibility into what they're doing.

And we do have what we believe are a number of customers in the portfolio who are -- who could do a manufacturing license soon. We are always hesitant to exactly when that'll happen, because maybe they do a wafer run that takes nine months, and we hope it happens right after that, but they might be another wafer run that will take nine months more.

So -- but I can say, we have several in our portfolio that we hope to get there.

Once they get through the manufacturing license and then we could get them into Phase V, distribution license, at that point, we can almost start to make real revenue forecast not only for license payments, like upfront license fees, but also for royalty payments down the road. So, I'm hopeful we get there soon.

Definitely, I am tired of zero revenue forecast and would love to give you more than that..

Sure. And Frank, one last thing for you.

Your ATM program, is there a range evaluation estimates that you have your thumb on that where you believe that, that it's just so cheap you've got to be buying more aggressively and the upper end of the range where you might buy less?.

I think it's the opposite, right? I mean, because this -- that would be sort of a stock buyback. I mean, you're thinking more in terms of a range of where we would sell in the ATM. And no, we don't stick to sort of ranges like that. I think the average execution price last quarter shows that we're pretty judicious about using the program.

But frankly, we balance two things, right? One is maintaining sufficient cash on our balance sheet to cover our anticipated needs. And then the second one is trying to execute at the best price to be as -- to have as little dilution as possible. I think we've proven in using ATM instruments that we've executed well to those metrics.

But I can't look forward and say that there are sort of absolute ranges, because it's just going to depend on -- part of it within our control, how are we executing, what are we delivering, what are our capital needs. But the one that I can't control is, what's the broader equity market doing.

Because I do think that without addressing our own stock price, I mean, overall, equities have been hurt pretty badly in the last year or so. We're not immune to that and we don't have a crystal ball as to when that'll change. So, there's no hard and fast formula for that..

Great. Well, thanks, Frank. Thanks, Scott. Appreciate it..

Thank you, Cody..

Thank you, Cody..

And some questions coming in here on the Q&A chat. One of them -- there's a couple questions, Scott, on the wafer runs that we've talked about before.

And so, the question is, can you give some more color on the wafer runs that you've announced or discussed on prior conference calls?.

Yeah, I think on prior conference calls, what we said was that we had a number of different wafer runs underway. We've gotten some preliminary results that looked very promising. Some of those wafer runs have made to the end and, unfortunately, some of them haven't yet.

So, what I can tell you is that we've seen data come out of those runs that we were hoping to see at the beginning of this year. And we -- then there were some technical challenges with one of the runs that have nothing to do with our technology, but may delay the results further.

So, I don't want to say what type of decisions the customers have made based on those, but I can -- I'll just say we're continuing to work with them and we hope that what we're doing will lead us to a next generation -- I mean a next step, which would be license agreements in the near future..

Okay. And I know we touched on it a little bit in the prepared comments, but there's a couple questions about updating on the status of the JDA. So, maybe address what things are needed for your JDAs to make it to production..

Okay. I did make some comments about our JDAs.

I think, on JDA number one, as we've spoken about in the past, the -- so we are -- we had been working with the central engineering organization, and we continue to work with that customer -- various groups who've asked us to look at some other technology that they really need help solving, and we've been working on that jointly with them.

I mentioned in my prepared remarks that we've seen really compelling results there. And -- but we -- and we're talking to multiple business units. But we haven't gotten to the point where a business unit has signed up and said, “Okay, we're going to take a license and start moving forward.” That's something I can announce.

And that's the point where I can give you, I mean, -- I'll give you at least as much color as I can there. But right now, we're not quite at that point, so I can't say much more about it. The other JDA customer we have, we're working directly with the business unit.

It falls in the category of one of those guys who had wafers in the fab, but we don't quite have results yet, so I can't really give you much update there either. But still working very closely with them, and we hope to kind of get to the point where we can push into the license stage soon..

Okay.

And so, there's a question about the intellectual property and the question is, how does your IP portfolio create a moat around the -- where the semiconductor industry is moving?.

Yes, this is -- that's actually a really good question. So, our tech -- our IP portfolio is composed of -- we have more than 300 patents granted and pending, and they cover -- I like to think of it as a cloud. If you look inside each patent, there are dozens and dozens of claims in there, and each claim is something that protects us.

And so, what we try to do whenever possible is we try to take fundamental MST capability and we try to build patents around applications, how people would use that in certain areas. So, for example, today I talked a little bit about gate-all-around technology and we may have some patents that cover MST and gate-all-around technology.

Now, for somebody who would like to use MST, we have such a cloud of coverage around that technology that they would be crazy to try to figure out how to work around the cloud or find a hole in it. Because there's just too many intersecting kind of lines that they would have to try to get around.

And so, we believe we have very good coverage, not only for our core technology, but also for a lot of the most likely future uses of it with ongoing patent applications that are application specific..

Okay. And final question here.

What has Atomera done in the memory sector?.

we need to have a theory about why it would work; we need to have some modeling, so TCAD modeling software to show people exactly how it would be implemented and how it would work; and then finally, ideally, will have some measured silicon results that show the benefits that we are promising to customers.

And if we can do those three things, we have a very strong chance of engaging with them and trying to move forward. So that's one of the key area things that we have going on in the memory market. We have a number of other ideas that we are working on a little bit more in the background. But -- so that's what's going on..

Okay. Thanks, Scott. And we’ll turn it back to you for closing comments..

All right. Well, I just want to thank everyone for attending today's presentation. I'm very pleased to share with you our recent strong progress and to give you a sense of the optimism we are experiencing inside Atomera.

Please continue to look for our news, articles and blog posts to keep you up to date on our progress, which are available along with investor alerts on our website atomera.com. We look forward to seeing some of you during our scheduled marketing activities, including the Benchmark Discovery Conference.

Should you have additional questions, please contact Mike Bishop, who'll be happy to follow-up. Thank you again for your support, and we look forward to our next update call..

Thank you, everyone. This concludes the Atomera third quarter '22 conference call..