Good afternoon and welcome to the Atomera Fourth Quarter 2019 Earnings Call. All participants will be in listen-only model. [Operator Instructions] After today's presentation there will be an opportunity to ask questions. [Operator instructions] This event is being recorded and will be available for replay for approximately one week. I would now like to turn the conference over to Mike Bishop. Please go ahead.

Thank you and good afternoon. I'm Mike Bishop with the Company's Investor Relations. Joining me on today's call is Scott Bibaud, Atomera's President and CEO; and Frank Laurencio, Atomera's CFO. If you are joining by telephone, please go to the Events section of our Investor Relations page on our website to follow a slide presentation that accompanies our remarks. That presentation will remain available on our website after the call. After prepared comments by Scott and Frank, we will open the call up for your questions. 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 prospectus supplement filed with the SEC on May 30, 2019 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 meet the most directly comparable GAAP measures are included in today's press release, which is posted on our website. Now, I will turn the call over to our President and CEO, Scott Bibaud. Go ahead, Scott.

Thanks Mike. I'd like to welcome all of you who joined to hear about our progress over the last quarter and during 2019. A lot of positive developments are underway for Atomera and I'm looking forward to giving you an outlook on what we've accomplished and how it sets us up positively for the future. At the completion of Frank and my remarks, we'll be happy to take questions. As you may have seen from our press release, we are able to close the year with revenue of $138,000 in Q4. Likewise, we were able to show a higher than expected cash balance for a variety of reasons including increased payments from customers, partners working with us to minimize costs, and good cash management. This seems counterintuitive because we have simultaneously conserved cash while dramatically increasing the amount of work we are doing with customers in the late part of 2019. It's always difficult for us to illustrate in a quantitative manner this type of burst in activity, but we'll give it a try. Although it would not be that meaningful to present regularly because of his episodic nature, one metric which may help give a sense of the depth of customer engagement that experienced over the last several months would be wafer count. In the late part of 2019, we have delivered a dramatic increase in MST wafers to customers to test and prepare our technology for manufacturing. During this period, we have shipped more than three times the amount of wafers to customers, which is typical for a similar period and it's certainly a record for Atomera. In addition to demonstrating customer integration and pre-manufacturing activity, it is also measures of customer commitment since wafer deliveries by us lead to a significant customer investment to complete the processing…

Thank you, Scott. At the close of the market today, we issued a press release announcing our fourth quarter and full year 2019 results. This slide shows a summary of financial results and I will now review them in more detail. Our GAAP net loss for the year ended December 31, 2019 was $13.3 million $0.84 per share, compared to a net loss of $12.9 million, or $1.02 per share in 2018. Our higher net loss was primarily due to higher operating expenses, offset in part by higher revenue. Loss per share decreased due to an increase in weighted average shares outstanding from 12.7 million for 2018 to 15.9 million for 2019. Revenue in 2019 was $533,000 compared to $246,000 in 2018. Our 2019 revenue consisted of $259,000 from license agreements and $274,000 with engineering services revenue. By comparison, our 2018 revenue consisted of 70,000 of license revenue in $176,000 of engineering services. GAAP operating expenses in 2019 were $13.9 million, an increase of approximately $674,000 from #13.2 million of operating expenses in 2018. Our press release in this slide contained reconciliation between our GAAP and non-GAAP results. Our stock compensation expense in 2019 was $2.9 million as compared to 2.4 million in 2018, and as it has been typical for us, this item is the main difference between GAAP and non-GAAP results. Atomera's non-GAAP adjusted EBITDA in 2019 was the same as in 2018, a loss of $10.7 million. This is because our 2019 increase in non-GAAP operating expenses from 10.8 million to 10.9 million was offset by higher revenue. To review the components of our operating expenses, I will focus on non-GAAP numbers, which exclude expenses for stock compensation, since they do not use cash. On this basis, research and development expense was $6.9 million in 2019, an…

Thanks, Frank. As you've heard on this call, Atomera has had a very strong end of 2019 positioning us extremely well for growth in 2020. We have more MST wafers out with customers and a larger base of Phase 3 customers than ever before. Our relationships in those customers are getting wider and deeper necessitating our work on new joint development agreements and new customer interests continues to grow. Our technology development continues to produce outstanding results as exemplified by our advances in MST SP, RF SOI and our new customer measured matching performance. The amount of interest we have generated in MST is now at a point where we need to move aggressively to take advantage of it and we intend to do so. I look forward to sharing the results of those efforts with you in the future. Operator, we will now take questions.

Hi, Scott. Hi Frank. Congratulations on the record wafer activity. Sounds like a lot of things that works there. Maybe you could talk a little bit about the EPI tool. It sounds like it got pushed into this year from last year and what the opportunities are as this tool comes online?

Yes. So, I think we had already talked in the last quarter, since we did our call in November. At that time, we had signed the lease agreement in October and the tool hadn't yet been installed. It was -- at that time assumed to be maybe coming on in Q1, we've got a much better and more concrete timeline now. So, we do expect that the tool is going to be online and usable and obviously it's going to hit operating expenses because we'll start making the payments when it's installed in Q2. We think that it's going to allow us to do a much better job of doing both internal R&D and doing deposition for our customers. Because it's a more advanced tool, it's likely more similar to what customers are using in production. So we think any kind of concerns about replicating test again in their fab will be decreased. And most importantly, it will allow us to run wafers in both 200 and 300 millimeter diameters, so we can get all of that in one tool. So because of the flexibility of it, it's a little bit more expensive, but we think that that's a very wise investment for us.

And then you talked about these joint development agreements. Can you talked about the number of customers that might be eligible candidates for that type of arrangement versus the traditional one? And is there an upfront licensing amount that would be meaningful, or is this meant to be licensed to b phased into joint development agreement?

Sujeeva, this is Scott. Yes, on the joint development agreement, we're talking to multiple customers about joint development agreement today. And I think the way that you should think about them is typically, my guess is that joint development agreements would be done with larger customers and probably in most cases with somewhat newer customers. We may have been working with them for a little while, but for the customers that we've been working with for quite some time we've got the established development agreements with each other and we've been working together on the certain set of rules, and it's unlikely they would come back to us and just change that to a JDA. So it’d be more like the new people that we’re working with. And you also should be thinking, we mentioned the JDA, it's very attractive to us because one of the things I would say would be characterized by is typically someone was trying to prequalify or pre-approve our technology for use across multiple product lines. So that implies that it would be a big enough company that they would have one group within the company that was kind of doing that work for multiple different product lines.

And then lastly, you talked about three areas, you’re focusing on RF SOI, BCD and the next gen leading it. Can you talk about which of these areas, if you rank them as opposed to near term potential in terms -- and how are you prioritizing your resource allocation? And sounds like your engineering resources are scarce. So how you’re prioritizing it across these three areas? Thanks.

Yes, I would say that we have -- we're working with more customers in the first two, in RF SOI and BCD only because there are a lot more customers out in the world that are doing the work. And in terms of priority, we're more prioritizing customers by how likely they are to get to production earlier than by the technology, but let me try to do it by the technology since you asked that way. There's pros and cons of each since RF SOI uses this blanket MSP, which we call MSP one and can get to production faster, that has a lot of attractiveness to us and we're really putting a lot of effort into trying to get those customers moving very quickly. BCD is the one that we probably have the biggest customer base on. And as we showed on this -- the slides in this call, some very, very compelling technical advantage we can bring to people. It's a little bit harder to integrate than and RF SOI, but it's a bigger market. And then the next gen is something that, there’s very few customers out there that we can work with that, because there's only really three people doing investment in next gen, 3D type of technologies anymore. And we're very hopeful the work there will translate into us ramping and when they -- if it does, it will be extremely lucrative market, but I think it tends to be a little bit further out than the first two that we talked about.

[Operator instructions] Our next question comes from Cody Acree with Loop Capital.

Can you just talk about, following up on CG’s question, the newer technologies you were, one of the things you were excited about was those bringing in this bulk of new customers. Are you continuing to see that generate new activities? Is that part of your need for eliminating any bottlenecks in your production chain?

Yes, when we talk about needing new investments, it's definitely the case that we have a lot of customer. It feels like the activity has increased in a lot of those customers simultaneously. Our work with customers kind of goes in some spurts. One is when we define and build these wafers and we talked about how in late 2019 we really are doing that at a record level. The next thing that we'll hit is as those wafers start to come out of the fab, we'll be starting to get a lot of results and have to do analysis on that, and we expect we will be doing that with a lot of customers. And we want to be able to service that as quickly as we can to hopefully turn that into licenses and transitions to manufacturing.

I guess what I was asking was you've got that bolt of initial signups. But has that continued to drive new engagements?

Yes, I would say right now we have a pent up demand by a number of customers who are interested in starting to work with us, and we have not been following up on those. It actually takes quite a bit of work before we start counting someone as being in our pipeline, because we have a bunch of meetings with them and we get to the point where we're actually planning wafer runs together. So yes, I would say over the last month, month and a half, we have a lot of people that are in that high interest category that we're having a few calls with, but we've just been too busy to fully work on them to bring in that additional interest.

And is it the equipment bottleneck or is it the personnel bottleneck to be able to work on those additional...

A little bit of both, the EPI tool that Frank was speaking about will help to alleviate the equipment bottleneck. But I'd say the people bottleneck is probably the harder one to solve, we need to bring more people on.

Frank, can you just give us the cash use you expect for 2020?

Yeas, the gross which I gave in terms of guidance of non-GAAP operating expense, which is approximately that you can use for cash bracket in the range of 13 million to 13.5 million. And I made some comments in talking about the absolute level of increase being looking significant year-on-year. But there were significant timing issues from what we originally planned on in terms of the tool installation and some upfront payments for the tool that kind of pushed a significant amount of expense from Q4 last year into the first half of 2020. So year-over-year, it's about a million dollar increase over plan. But again, the outlook for 2020 is in that $13 million to $13.5 million range.

Are there any other tool or considerations that might impact that cash flow?

I don’t think from a tool. No, not [Multiple Speakers] standpoint as we get more capacity, we spend a lot of money in metrology as well and I think we've accounted for that, but there could be something there.

Thank you [Operator Instruction]. Our next question comes from [Jason Cavalier], a Private Investor. Please proceed.

So among the Phase 3 engagements with that corresponding set of customers, are there any that the company has completed all outstanding work on, or requested work on?

Yes, I would say that, we have --. So, okay, first let me explain the process. So typically when a customer goes into Phase 3, they are applying our material to their wafers. They build them through the production line. At the end, they test them. And it's a bit of an iterative process they end up doing that typically a number of times in a row before they get to the point where they have the technology where they'd like it to be before they go to production. I think one of your questions, the way that you're asking the question, if you -- and I can tell you that we have some customers who are, if not finally done at least very close to being done, but there in some cases can be impediments from them or delays from when they might move into Phase 4. So for example, if they're planning to buy a new EPI tool to go into Phase 4, they would wait until they bought that tool before they licensed to us, because they don't have to pay us before they can use it. And sometimes the lead time on those tools can be long and they might need to be finding space within their clean room or even in the process of building a new factory to put that in. So there's a number of things that can cause a delay from the end of Q3 before they get into -- end of Phase 3 to get into Phase 4 that are unrelated to our technology. And I do believe we have a few customers that would fall in that cap.

You had commented on this extension of time and perhaps detail in agreements between your customers and the company. Would those agreements or those comments be directed towards a possible manufacturing agreement that has yet to be consummated or -- and again, what I'm kind of getting at is are the, call it Phase 4 engagements, are those all pre-negotiated? Or are you finding that as you get closer to Phase 4 with Phase 3 customers that the detail that they're or the terms that they're requesting in these agreements are more onerous than you would have otherwise thought?

So typically when we engage with a customer, we share with them what we expect for Phase 3, Phase 4 and Phase 5 payments and licenses that are associated with those. We have not completed negotiations on any of the Phase 4s, but it's our belief that we'll be able to close those at least within a reasonable range of what we were asking for, for a list price. But if we had closed on, we would have announced it and we can't ever say we know all the answers until we've done at least one. But yes, I mean, I think that our customers generally believe that the way we’re structuring our licenses is fair and that when we do get to that manufacturing phase that we'll be able to close it on terms that are very close to what we've been talking about.

So let me ask the question maybe a different way. Would this contract negotiation be one of the reasons why someone in Phase 3 has not moved to Phase 4?

Yes, if we were in a protracted negotiation with customers, we wouldn't be able to share that with investors and it would just look like to investors that they're still in phase three. Is that what you're asking?

Yes, that's correct.

Yes, that would be the case.

And are you giving any guidance around, or can you share any perspective on what timing might look like from one or a combination of your Phase 3 engagements moving to Phase 4?

Yes. Traditionally, we haven't given guidance on that, it's been very hard to predict. And you know, I always give the example of, we may think that we're about to get results that would propel us into Phase 4 and then the customer reviews the results and decides that want to do one more run and that extra run in some cases might take another year. So in the early days, we've we predicted those type of things and didn't have much look at, so we don't do that now unfortunately. And I can tell you that we're working with a number of customers that we hope will do licenses with us in a reasonable timeframe.

And last question more macro level, this virus that has hit certain parts of the globe. Does that have any positive or negative impact on your engagement to-date or do you have any thoughts on how things could look if things persist with that over the coming months?

I would definitely say that our travel budget is lower than expected this month. Yes, we are definitely seeing a number of our customers that we would normally visit for these comprehensive engineering meetings, turning those into video conferences. But other than that, I don't see it slowing us down all that much. In some cases, bringing on new customers generally involves more face to face meetings than once we have them in the pipeline, because we've established the relationships and we can do a lot more over the phone. But to convince them to get started takes more face to face time. And I wouldn't use as an excuse why we haven't grown our Phase 1 so much, because I think it's really been that we were too busy. But if this corona virus persists for a long time, it could have some impact on us picking up newer customers. But as I said before, our first priority is on existing customers anyway, we'd rather be pushing people further down into the licensing pipeline than just continue to add to the bottom of the pile.

Thank you. The conference has now concluded. I'll now turn the call back over to Mr. Bibaud for closing remarks.

I want to thank you all for attending today's presentation. Atomera is pleased to exit 2019 with such strong momentum, and the ability to unlock such huge potential for 2020. Please continue to look for our news, articles and blog posts to keep you up to date on our progress. You can sign up for them, along with the investor alerts on our Web site, atomera.com. Should you have additional questions, please call Mike Bishop, and we'll be happy to follow up. We look forward to seeing some of you during our scheduled marketing activities, including the ROTH Conference in March, and others that we will be announcing soon. Thank you again for your support and look forward to our next upcoming call in May. Thank you.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.