Hello, everyone, and welcome to Atomera's First Quarter Fiscal Year 2023 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 will 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 in the company's annual report on Form 10-K filed with the SEC on February 15, 2023. 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. 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 to Atomera's first quarter 2023 update call. Before we begin discussions on our Q1 progress, I'd like to highlight the announcement we made in the last hour about the agreement reached with STMicroelectronics. Last week, we completed negotiations with ST on our first full commercial license for the production and sale of devices using MST technology, and today the agreement was fully executed. As you know, ST is one of the world's largest independent device manufacturers with several strong market positions in a number of areas. We've been working with them for several years signing an integration license with them in late 2018. The evaluation work completed by our teams have proven the benefit MST can bring to their products, and now they put in place the necessary prerequisites to incorporate those advances in a new production release. The license agreement we signed today includes all the terms and conditions necessary to go into production, including our standard milestones for upfront payments and the royalty rates that will go into effect when they start shipping product. As would be the case with any manufacturer the first step towards from this point forwards will be for ST to install our technology on an EPI deposition tool in one of their fabs, which will allow them to start making MST wafers and will trigger the first of our milestone payments. We've been providing support for this effort for several months. Due to logistics delays on the tool modification we cannot currently predict the exact date when this first step will be completed, but expect it to happen in the next few months. Although we are doing everything that we can to help at this point it's largely out of our hands. Once installation is complete and…

Thank you, Scott. And don’t appear to have video. Thank you, Scott. At the close of the market today, we issued a press release announcing our results first quarter of 2023. Thanks, Mike. This slide shows our summary financials. Our GAAP net loss for the three months ended March 31, 2023 was $5 million or $0.21 per share compared to a net loss of $4.1 million or $0.18 per share in the first quarter of 2022. In Q4 of 2022, our GAAP net loss was $4.3 million or $0.18 per share. We did not recognize any revenue in Q1 2023 and only minimal revenue in Q4 2022. In Q1 of 2022, our revenue was $375,000. GAAP operating expenses were $5.2 million in Q1 of 2023, which was an increase of approximately $855,000 from $4.2 million in Q1 2022. This increase was mainly due to a $697,000 increase in R&D expenses, primarily reflecting increased headcount costs as well as higher spending on wafers and outsourced fabrication. Sales and marketing and general and administrative expenses increased by less than a $100,000 each. Sequentially, our GAAP operating expenses increased by $756,000 from $4.4 million in Q4 to $5.2 million in Q1, primarily due to higher payroll expenses, wafer costs and outsourced fabrication. During Q1, we saw significantly faster cycle times at our contract foundry TSI Semiconductors compared to prior periods as the tight conditions in the industry eased and we processed wafer lots that had been backed up. The mix of wafers purchased for R&D in Q1 2023 was also substantially more expensive than prior quarters. We do not expect these factors to recur in future quarters. Non-GAAP net loss in Q1 2023 was $4.3 million versus $3.3 million in Q1 of 2022 and $3.5 million in Q4 2022. The differences between GAAP…

Thanks, Frank. There is no doubt that this ST agreement is great for our team morale and our company trajectory. You should have no doubt that we will be sharing this success with other potential customers to highlight what is possible. We do believe that this news MST’s technology advantages in many market segments, the current state of the industry and the undeniable economic value we can bring to customers creates a perfect environment for Atomera to succeed. Our technology is proven. The big question has always been whether customers will accept our business model and this fully executed commercial license with a market leader is proof that they will. Mike, we’ll 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. And right now our first question comes from Richard Shannon of Craig-Hallum. Hey, Richard. If you kindly unmute and ask the question.

Great. Mike, can you hear me?

Yes.

All right. Great. Well, first to Scott and Frank, a hearty congratulations on this great announcement today. I’ve been waiting for this for quite some time. I’m sure it’s a great release, so congratulations to you, the entire team. As you can expect, I got a number of questions on this, Scott, so let me fire some of these off here. I guess just get a couple easy questions out here. Maybe to understand the opportunity here in the near term from this agreement here. How do we think about the scale of the milestone payments that could be triggered here from the events that you know about?

Yes, Richard by the way, thank you for that congratulations. The team seems very happy today. So yes, so we aren’t going to give the exact terms of the contract. But I can tell you that for the last several years, we’ve been talking about a business model that had a kind of our list price of upfront milestone payments would be is total of about $3.2 million. And then our royalties that we were looking for a range between 1% and 3%. Well, I can’t share with you where we are with this contract. I can tell you that we’re close to our business model and we’ve always said that we would make some special deals for people that – first few people to get into production. So we may have done a little of that, but I can tell you we feel comfortable with the ranges that we’ve talked about all along.

Okay. That is helpful, Scott. Let’s talk about kind of the timing of the next steps here. I think you described what they were, but maybe you can talk about the timing. I know there’s some risk involved, including what you said was, there’s a potential for them to deciding not to go forward. But assuming we get all the way to production, how do we think about the potential timing of these steps?

Yes, one of the things I said was that the design of the product is really going to be in their hands. So what I can tell you is in the past, we’ve talked about the Phase 4 installation is usually relatively quick three, four, five months maybe from beginning of the installation till they have the film completely calibrated and working well. And then for this company, they’re making a new process. So they’re going to be doing some integration work after that. They’ve already done integration work with us in the past. But they’re going to be making a new manufacturing process and hard to predict exactly how long that would take. Then they would enter into process qualification, which we’ve always called about a nine-month process. Older nodes are shorter. Newer nodes are longer. So I think it’s reasonable to say that I wouldn’t expect to see royalty payments happening even under best case scenario in less than a year and a half, but maybe a year and a half to two years is a range of things went pretty smoothly that we would expect.

Okay. That is fair enough. What process node is or node is just being installing? Can you disclose that, Scott?

I don’t really want to talk about that. That’s ST’s confidential information. Okay. I do want to say that they ST has been very secretive about some things, but they’re gracious enough to let us use their name and the product area, which is their smart products smart power products. And so I’m thankful for that and I think there’ll be advantages to them and us for that going forward.

Okay. If you get a sense of the revenue stream of these smart power products that they sell today. I’ve got a basic model for them, but certainly no good amount of detail to give me a great idea. Is that something you can quantify or do you have a sense?

I don’t actually know the answer to that. I do know that it’s a very large segment for them. It’s a significant portion of their revenue, but I – it’s something that we haven’t dug into yet.

Okay. Well, I’m going to do some digging. If I can find some numbers, I’ll share them with you, but appreciate that. Two other things on STMicro, and I’ll jump to a couple other quick topics here. You talked about power products. I assume that you’re referring to five-volt, which you’ve talked liberally in the past. Is that what we’re referring to here? Is it in expanse beyond this five-volt area?

Yes, this would be in expense now. So we have talked about technology we have that we can bring to customers for five-volt, and now today I spoke a little bit about higher voltage that went up to 40 volts. But in this case, we’re delivering our MST technology and then ST is going to be integrating it into their products. So probably be a wide voltage range. They’re not necessarily using the offerings that we have in that space because their offerings are probably better. But they can – but we do have techniques that we’ve learned by doing it ourselves and then we can help them understand, so that they could decide to incorporate in their tool – in their products or not. And also importantly, we have the modeling tools, MSTcad, that have been kind of fully calibrated for that type of work from the R&D efforts that we’ve done that will really help.

Okay. One last question on ST and I’ll hit a couple other quick ones here. So you talked about in the last few quarters, as we’ve seen industry utilization come down and open up an opportunity a better opportunity to run R&D wafers. And this seems to be evidence of that cycle coming towards you and giving some benefit here. You’ve obviously been signed up with ST publicly for a while. So we know you’ve got a good long lasting relationship. We try to extrapolate this opening up of utilization that helps run R&D wafers here. Can you translate your experience here with ST over the last year or so to others in your pipeline, either named or unnamed that give you confidence? Well, when we see others like this and the – I’ll use it in quotes, not too distant future, how would you couch that?

I don’t know if I could draw a straight line from the fact that the industry has got, is at low point. And so this capacity to run manufacturing with this decision by ST. They made the decision after knowing about our technology for some time that they were ready to make this move now. And I’m sure it was based on a number of kind of roadmap development opportunities that they had in-house. So it's hard to extrapolate that to what our other customers do. I would say we're working with a lot of people on power. Power is an older process. There is very few knobs that turn to get big improvements there. I – we definitely hear of some customers that say, if they could see a 10% improvement in that area, they must make the change. And so, I think, this announcement will spur some of them on. And if they decided they wanted to go fast and kind of start running wafers, probably they have wafer capacity available to do that right now. So that's the linkage.

Okay. Fair enough. It's a good perspective. One other question I'll jump out of the line and let others jump in here. Your outsourced foundry, TSI Semi has announced that they're being acquired by Bosch. I know it's just a few hours since this was announced, but what do you foresee as – as the benefits or potential disadvantages to your work with them? What's – how should we understand this?

Yes, it's quite an interesting move and affects us in a few ways. So, first of all, for those who may not be familiar, TSI is the foundry that we use to run our R&D wafers. And so, the benefits and risks, the risk is that Bosch might come in, they did announce that they're buying this for among other things, the silicon carbide market that they'd like to ramp up. But it's our understanding that they're going to continue at least for quite some time their existing business, which is the – which includes both foundry of CMOS devices and what they call TDCS, which is technology development area where we work. Now you got to imagine that Bosch coming in will bring a good infusion of capital that will help them and will allow us to run more experiments and hopefully get higher throughput with them. So that's really good. The other thing that's good and a real potential interesting development for us is TSI actually has our technology integrated into their manufacturing line. We've been running it with them for years. And so if Bosch decided that they wanted to try to adopt our technology, their – through this fab that they're acquiring, they would be quite a ways down the road in the development of that. Of course, we have to worry that at some point they may decide that they want to exit from that TDCS market, and that's something that we have to plan for, we actually have already initiated discussions with alternative sources. Frank, mentioned something about work on advanced nodes, but we're also looking for some of the older nodes where we can start running wafers elsewhere just to get access to different technology. So if the worst happened, hopefully we'd be able to just transition over to that new foundry.

Okay. Fair enough. I will jump out of line, but again congratulations on this great announcement of STMicro. That's all from me, Scott. Thanks.

Thanks, Richard. Our next question comes from Cody Acree of Benchmark. Cody, go ahead.

Yes, thanks, Mike. And let me echo my congratulations on the signing of the licensing agreement. I guess – guys I guess just what do you think, Scott, this does to your other engagements? Do you think that this is enough to prompt those other the terms you're or the discussions you're having? So do you feel like there are those that could be swayed to move forward?

Yes, Cody, it's a hard question to answer. There's no – nobody has told me we're not moving forward until someone else comes, but most of our customers have talked about wanting to – they couch it in different terms, but they say, who else is in production today or who else is going to production? To the extent that we were able to announce a small company that they didn't really respect as being a market leader, I don't think it would have had much impact to dig. But now we can announce STMicro, of course, I think it will have big impact. And now several customers that we're working with are going down a technology development path, and we hope that they get to a point where they're ready to make this type of announcement. Will it speed that up? It might raise the priority. I've always thought that we talked about – we've talked about the domino theory. When one player enters the market, others frequently speed up to try to make sure they aren't at a competitive disadvantage. And so, we hope that's what happens and we're going to encourage that to happen as much as we can.

I guess just onto the licensing agreement itself of – in your negotiations on price, I'm sure you have to pair that with potential volume discussions. And so, is there any color that you can give as to that side of the coin that that would give some comfort that if you are giving a break on the royalty side, that that could be made up for in volume?

Yes, I mean, on the royalty, our standard approach to royalty would be that we start at kind of a higher royalty level. And as they've shipped a lot of products, they moved down the price curve just like they would if they were buying chips. And so although I can’t go into any details about this particular royalty table it conforms to that type of view.

And I guess as you look at the potential volumes, how much did that factor into the royalties that, that were finalized?

Our belief going into this, we were thinking two things. First of all, these guys are very high volume manufacturer. And so what we wanted to try to do for our first customer in particular is try to make sure that we were able to get to a price that was attractive enough that it really rewarded us for what benefits were bringing them, but also encourage them to use the technology across a very wide range of products. So you’re kind of finding that right balance. We do believe that our balance between 1% to 3% is something the industry has absorbed a number of times in the past at least more on the chip IP side than on the kind of wafer IP side. But we think that’s doable and we fell into that range, and so we feel good about it.

Do you think the terms of this agreement set the stage for the terms that you would come to expect for future agreements?

So whenever we talk about royalties, the thing we’re trying to do is we’re trying to look at what economic value are we bringing to the customer. So if we bring them a really large die size reduction, for example, and I can easily run a spreadsheet that shows them we’re going to bring them a big gross margin improvement by doing that. And then we want a small slice. We don’t take a percentage of their gross margin or anything, but let’s say we can bring them an 8% gross margin improvement, we might ask them for a higher royalty than if we can bring them a 2% gross margin improvement. And so that’s how we do it. So it’s really dependent on what the application is and how big a benefit we’re bringing.

I guess as I look back at some of the potential models that we had initially put together for revenue streams and I think we talked about X number of fabs out there, X number of wafers being run. Is this agreement per fab with ST Micro or is this a more broad company to the company license that ST Micro can use more broadly?

For the most part, we try to license our technologies based on process nodes. And so – and that includes kind of optical shrinks, which is a term we use in the industry to mean half node shrinks. And this is a similar situation, right? So we’ve licensed them for a node and for half shrinks off that node, and if they decided to use it on a new node, then we would undertake a new license term sheet to negotiate that.

Okay. So across a given node regardless of the application, or is that only applicable to power?

It’s probably for the most part, companies don’t have a lot of different process nodes working on different applications, but in – yes, in this case, I’d say if another group in ST that was not doing power was in the same node, they’d still be able to take advantage of this.

Okay. All right. And then lastly, Frank, just any discussion or thoughts on your liquidity options knowing the ATM is less attractive at your recent stock price?

Well, I think at the recent stock price, it has been less attractive, although I would say the – I don’t really fancy myself an expert on the equity market, but I can tell you that financing through other means would probably be even more expensive as compared to the ATM. And as I said in my comments, we were not very active on the ATM, and obviously we felt like the last six months just didn’t reflect the real potential for the business. So we were probably raising less capital in the last two quarters than a normal way I would have in terms of what I would target to have on the balance sheet. But obviously that’s because we have long-term confidence in the business and stock price.

Sure. Okay. Thank you, guys. Appreciate it and congratulations.

Thanks, Cody.

Thanks, Cody.

Okay. I just reading some of the questions that come in over the Q&A line here, and a real easy one, Frank is the $4.9 million in short-term investments, can you talk about that and where do those funds come from?

Sure. So for quite a few months actually, we had a plan to more actively manage our cash to take advantage of the interest rate environment that exists out there. Because given the activity by the Federal Reserve, which is raised short-term interest rates very quickly, it was possible for us to meet our cash management executives. And those are number one to preserve principle, number two to maintain liquidity. And number three subordinate to those first two is to maximize the return. So these are all the highest rated type of government, government agency bonds, and we’re following a very standard investment management practice with a board monitored investment policy. We kind of became more active with that as well. I wouldn’t read anything into it in terms of the issues at Silicon Valley Bank, although I’d highlight that at no time did we have any risk of loss of funds by having a deposit relationship there, because we were already investing our money in money market accounts. So these are all our assets, and that continues to be the case. So the short-term investments, the cash equivalents, these are all Atomera assets and they’re not subject to deposit risk.

Okay. And then one quick question on the JDA and then a couple on the ST agreement. So the question on the JDA is, can – more of an update on the JDA one? I know you addressed a little bit in prepared comments, but can you address the JDA 1's progress with a business unit, Scott?

Yes. I can say that with JDA one, we have been in discussions with multiple business units. So I think what we can expect to see is that we’ll be doing a lot of kind of planning and modeling and other work with those guys, kind of, they may ask us to run a few tests, which we’ll do ourselves and provide them with the results. And when they’re getting serious enough to try to start moving that forward, we’re going to have to put in place a contract, an extension of our JDA in that area, and that would be something we can announce. We – you’ll notice – I try to give as much detail as I could in two ways. One is with the licensees and JDA customers and separately with the areas that we’re doing work in, because connecting the two of them together will definitely reveal who they are. I know that people who aren’t in the industry may not appreciate how difficult that is and how good the industry is figuring – at figuring out who’s doing what, but we have to be very careful. So I guess that’s all I can say.

Okay. And then on the ST will the production volume make Atomera break even? I know that’s you’ve given sort of rough timeframes and to when royalties would start, but when those happened. What do we think about approaching break even?

It is very hard to say, because we don’t know what they’ll ramp to and what their volume will be. Certainly, if they – yes, if we had all of the volume for their – our product certainly, yes. But we don’t know what the ramp rate in the individual volumes will be yet.

Okay. And is the focus here shifting to next generation fabs and what would royalties look like in those fabs given the higher wafer cups?

Yes. I mean, that’s funny to think about 3 nanometer wafer is going to be cost more than $20,000 for a company to buy it, so we – if we got 3% of one of those, we’d get $600 per wafer. I honestly don’t think that is a level that is sustainable or that we could get, but I do think in the more advanced nodes, we would be able to get a higher royalty rate in terms of dollars per wafer and they run in very high volume. But we would have to be realistic about charging per wafer price that they’d find palatable. So haven’t negotiated one of those yet, have had some discussions. And I hope that’s something that we have to worry about soon. Now there’s been some confusion because we’ve written a lot of articles and we have announced a lot of things on advanced nodes, that that’s where we’re shifting the focus of the company. And that’s not the case. We are still really focused on a number of different product areas. Advanced nodes is one of them. It’s very exciting. It’s what people are writing about today, but that doesn’t mean that that’s our exclusive focus in the company.

All right. Well, I think at this point, that concludes the Q&A period. Scott, if you want to proceed to your closing comments.

All right. Well, I want to thank everyone for attending today’s presentation. I’m happy we were able to share with you our recent progress and our enthusiasm on this ST deal. Please continue to look for 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 upcoming scheduled marketing activities. 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, Scott. And this concludes the Atomera first quarter 2023 conference call.

Goodbye.