Good afternoon, and welcome to the Atomera Second Quarter 2020 Earnings Call. At this time, all participants will be in a listen-only mode. [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 to 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 our 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 March 13, 2020. 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 to our website. Now, I would like to turn the call over to our President and CEO, Scott Bibaud. Go ahead, Scott.

Thanks, Mike. Welcome to Atomera's Q2 update call. While the coronavirus continues to batter many segments of the economy and the electronics industry, Atomera has been able to keep making great progress on customer developments without significant disruptions. Our customers continue to do wafer runs, test and review results and have regular and detailed technical meetings with us. We would certainly love to join them in their facilities for more intensive analysis and planning sessions, indeed, we believe that would help us to accelerate progress. But even without the ability to visit, we continue to make great strides together. Since our team primarily does engineering design, simulations and analysis that can be conducted remotely, stay-at-home restrictions have not affected our work. For the few who need to work with specialized tools, access to those facilities under social distance conditions has allowed our work to progress without significant interruption. All of our customers' fabs have continued to run during the past month. And our programs, which were launched before the virus period have not been affected. So although the pandemic has slowed down many things around us, our efforts continue largely undiminished. As you can see from this chart, we continue to make progress with customers. In the last few months, one of our returning customers who had started a new program has now advanced into Phase 3, giving us 17 customers in that most critical stage. Several of our existing commercials have multiple engagements underway. So we now have 26 engagements with 19 customers. We continue to speak with several other new prospects who are not currently in our pipeline but are interested in working with our technology. New customer acquisition is one area somewhat affected by the coronavirus slowdown for a few reasons. In years past, when we were…

Thank you, Scott. At the close of the market today, we issued a press release announcing our second quarter 2020 results. This slide shows our summary financial results, and I will now review them in more detail. Our GAAP net loss for the 3 months ended June 30, 2020, was $3.8 million or $0.21 per share compared to a net loss of $3.6 million or $0.24 per share in the second quarter of 2019. The larger net loss in Q2 2020 was due to a $70,000 difference in revenue as compared to Q2 2019, as well as earning lower interest income in Q2 2020. GAAP operating expenses were approximately $3.8 million in both Q2 2020 and Q2 2019. Net loss per share declined due to an increase in weighted average shares outstanding, from $15.4 million in Q2 2019 to $17.8 million in Q2 2020. Non-GAAP adjusted EBITDA in the second quarter was a loss of $3 million dollars compared to a loss of $2.9 million in Q2 2019. Our press release and this slide contain a reconciliation between GAAP and non-GAAP results. As has generally been the case for Atomera, the biggest difference between our GAAP and non-GAAP results is stock compensation expense, which is a non-cash item and was $766,000 in Q2 2020 compared to $788,000 in Q2 2019. In my discussion of the factors affecting our operating expenses and operating loss, I will focus on non-GAAP expenses, which we use for internal planning and to provide expense guidance. Our non-GAAP operating expenses were approximately $3 million in both Q2 2020 and Q2 2019. Non-GAAP research and development expense was $1.8 million in both periods, as increased payroll expense due to higher headcount was offset by lower outsourced fabrication and testing expense in Q2 2020, reflecting the surge in…

Thanks, Frank. As you have heard on this call, while the coronavirus has caused some minor delays, our business has continued to advance and our efforts at customers are being rewarded. We now have a record number of customers engaged with us in Phase 3, and we have made strong technical progress with our lead JDA customer. The technical breakthroughs enabled by our Quantum Engineering achievements, continue to gain notoriety in the industry and we are building on their success. Our new 300 millimeter EPI tool is weeks away from giving us multiple advantages to accelerate licenses and time-to-manufacturing revenue. Internally to Atomera, we are excited and optimistic. We will continue to execute aggressively to take advantage of the momentum we've built during this period and I look forward to sharing the results of those efforts with you in the future. Operator, we will now take questions.

[Operator Instructions] And our first question comes from David Williams with Loop Capital.

I'm actually on for Cody Acree today. But first, just congratulations on the quarter and the progress. You guys are clearly moving forward even in the backdrop that is less than healthy. But maybe, can you may be give us a little bit of color about the implementation of the 300 millimeter tool and how that's going to help proceed through the customer licenses into the next phase? Kind of any kind of direct color around that would be helpful.

Thanks, David. Absolutely. The 300 millimeter tool, so just to give you an idea, that in years past, we typically would get access to a 300 millimeter tool either once or twice during the course of the year. It was very expensive and we'd only have access to it for about a month. So naturally, a number of customers who wanted to do experiments with us and work with us, would have to wait for that period when we'd get a tool available to us. Now we'll have the ability to do those type of lots much faster and we believe that will help for most of our customers who are using 300 millimeter, to get to their results, positive results much faster and help us to get to licenses earlier. It also allows us to do wider range of work on 300 millimeter things and to take our time a little bit more to make sure that every customer run that we do will have greater success. So yes, it's going to be really major new capability that we have internally and we think that it will give us lots of ability to go and improve our business.

Great. That's good. And you said you would expect that to be installed and maybe accepted in the next several weeks; is that right?

Yes, that's right, just in the next few weeks.

Great. And then, how long will it take once that's accepted, before you can really start to trial the equipment and start really using that and gaining that efficiency?

Yes. So when it passes acceptance, that means the tool fully functional and working and they turn it over to us. Then we have some work do to get our MST film qualified and properly calibrated on the device. And that will take three weeks, three to four weeks, maybe. So by September, we really believe that we should be able be doing deposition on customer wafers.

Okay, great. And then one more, if you don't mind. You'd mentioned that you guys are not really prioritizing new customer acquisition right now. When do you think that maybe the conditions change where you'll be able to start doing that or maybe have the resources so you can continue to grow that pipeline?

Yes. We have gotten to the point where we're so busy with existing customers that we really have to ask a question about whether adding new customers makes the most sense. And as I said in my comments, in most cases it doesn't. Now if a very large potential customer came onboard that we're not working with already, then we would probably try to squeeze them in. But we've been held up by the fact that our engineers are just too busy with all of the work we have with existing customers. So now we have brought on a number of engineers just in the last couple months. It'll take them a little while to get to fully productive. And when they do, I think it'll open up bandwidth for us to add a few more customers. The other thing is, as we push customers over into Phase 4 and beyond, the workload on our team actually starts to decline as the customer takes on more and more of those efforts. So that would be another way that we'd be able to have a lot more bandwidth to bring in new customers. But I do want to emphasize that we've always talked about one of the primary ideas about Atomera, our objectives as a company is that we will stay lean so that there's a lot of leverage to the bottom line when we work with customers. Today we have a very large pipeline with a relatively small team. And we hope to continue that same level of efficiency as we add more customers.

Best of luck on the quarter.

[Operator Instructions] Our next question comes from Daniel Carlson with Tailwinds Research.

First off, it sounds like you've made great progress on MST SP. Wondering if you can sort of quantify how large the opportunities are in the market and how much of your pipeline is that applicable to?

Yes. Thanks for the comment, Dan. So MST SP, when we talk about it, we usually talk about it in the context of 5-volt power management devices, which a number of our customers are working on. But it really is a technology that's applicable across the entire analogue semiconductor segment, it's our belief anyway. And so the analogue segment of semiconductors really accounts for between 15% and 20% of the total revenue that's available in the $400 billion semiconductor market every year. So it's an extremely large market and extremely large opportunity. We do have a number of customers either -- a big cluster of customers in our existing pipeline that are working on analogue technology like this. I can't tell you who's working on MST SP specifically. But we've announced two out of three of our customers that we've given the names of them, and both of them are very big players in the analogue space. And that's representative of a lot of our customers in the pipeline. So, lots of exposure to this big breakthrough technology that we're working on.

Great. Thanks. That's really helpful actually. And just speaking of you keep talking about the JDA structure and it seems like it's real focused. Does that indicate a departure from your typical phases of engagement? And does it affect the timing of licenses from typical engagements?

It does not -- I mean it isn't a major departure from the phased approaches that we've talked about before. And I think in our graphic, we show it kind of spanning Phases 2 through 4. There's a few important things in there. Basically a customer has to go through the same type of evaluation process whether they're a JDA or just a normal license customer. And so they will still go through the same things that are happening in those phases. But secondly, we also are setting the expectation with our JDA customers that they will also have to execute the same licenses that they would in a JDA as they would if they were just going through regular phases of the license process with us. The big difference is that when they get to the end of the process, they will have approved the technology across a large organization, making it much faster to add incremental process notes as new licensees. So first one, maybe it'll take the same amount of time as a normal cycle. We're hopeful that it will be faster. But definitely with the second and third engagements inside that customer, they should be pre-approved through the JDA and be able to move much faster.

And there are no further questions in the queue. I'd like to turn the call back to Mr. Bibaud for closing remarks.

Well, I want to thank you all for attending today's presentation. We're pleased to be able to share with you some of the excitement we're feeling inside at Atomera. 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 investor alerts, on our website, 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 such as at the LD Micro Virtual Conference on September 1. We thank you again for your support and look forward to speaking with you again on our next update call.

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