Hello, everyone, and welcome to Atomera's First Quarter Fiscal Year 2024 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 presentation 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'd 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, 2024, 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 also posted to our website. Now I would like to turn the call over to our President and CEO, Scott Bibaud. Scott, go ahead.

Good afternoon, and welcome to Atomera's update call covering the first quarter of 2024. The past three months have seen more customer activity progressing to the proposal stage than any in our history. This unprecedented level of interest in our technology as a result of announced customer commercialization, widespread recognition of the efficacy of our MSC technology and detailed solutions to these issues faced in today's complex transistors. I will talk more about customer progress after a short comment on the semiconductor market. This year, we see the semiconductor industry modestly growing led by companies executing in the AI space. The pressure on leading-edge logic fabs to advance their latest nodes with higher performance per watt is intense. Most of the growth in the industry is happening here as well as in DRAM, which is snapping back strongly after contracting throughout 2023. In addition, Consumer Cellular is expected to show modest growth. Automotive with its associated power and analog component companies have softened as they work through inventory and see new competition from China, although the consensus seems to be that the outlook for the second half of the year is better. What does all this mean for Atomera? We are a company that benefits from modest capacity utilization at our IDM and foundry customers so they can run R&D wafers. We continue to see this favorable environment for the medium term, except in the bleeding edge where capacity is tight, offset by a strong desire to improve performance yield and cost of those new manufacturing processes. Right now, industry dynamics and customer interest indicate a strong willingness to invest. Now let's review customer activity. As you know, our first announced customer on track towards production is STMicroelectronics, who are currently incorporating MST into the design of the next-generation smart…

Thank you, Scott. At the close of the market today, we issued a press release announcing our results for the first quarter of 2024, and this slide shows our summary financials. Our GAAP net loss for the three-months ended March 31, 2024, was $4.8 million or $0.19 per share compared to a net loss of $5 million or $0.21 per share in the first quarter of 2023. In Q4 of 2023, our GAAP net loss was $4.6 million, which was $0.18 per share. Revenues were $18,000 in Q1 of 2024 compared to $550,000 in Q4 and $0 in Q1 of 2023. GAAP operating expenses were $5 million in Q1 of 2024, which was a decrease of approximately $148,000 from $5.2 million of OpEx in Q1 2023. This decrease in operating expense was mainly due to a $178,000 decline in R&D expenses, reflecting the closure of our outsourced foundry TSI semiconductor at the end of January. General and administrative expenses increased by $69,000 and sales and marketing expense decreased by $39,000. Sequentially, our GAAP operating expenses decreased by $300,000 from Q4 2023 to $5 million in Q1, reflecting a $134,000 decrease in R&D expenses also due to the R&D -- also due to the TSI closure, a decline of $102,000 in sales and marketing expense due to lower headcount and G&A expense declining by $64,000. Non-GAAP net loss in Q1 2024 was $4 million and compares to a loss of $4.2 million in Q1 2023. And as with our GAAP results, this was primarily due to lower R&D expenses. Sequentially, non-GAAP net loss increased by $228,000 from $3.8 million in Q4 as lower revenues were partly offset by the decline in operating expenses. The differences between GAAP and non-GAAP operating expenses in all periods presented are primarily due to noncash stock…

Thank you, Frank. I'm proud of the progress we've made in the last quarter, and I hope you get a sense of the momentum we have underway both in development and in new production opportunities. Our team is confident that it's only a matter of time before we can announce license deals that will further solidify the potential of Atomera's business for the future. In addition, it is great to give you a peek at our early compound semiconductor work, which could form a whole new revenue stream for the company. We are doing everything in our power to get ST to production quickly, while simultaneously building a diversified, sustained business around that first deal. Thanks as always for your support. Mike, we can now take questions.

Okay. Thank you, Scott. [Operator Instructions.] And right now, our first question comes from Richard Shannon of Craig-Hallum. Richard, if you would kindly unmute and turn on your camera. It's already on. Great. You may begin.

All right. Mike, can you hear me?

Yes.

Excellent. Hi, Scott and Frank, thanks for taking my questions. I guess maybe I'll ask the first one here on kind of a new -- I know new language you've been using here, and you put it in your press release as well but regarding proposals, record number of proposals this quarter versus last. I guess, just to understand the significance of this. To what degree of these proposals, kind of a push mechanism for you versus a pull mechanism from your customers to kind of get an understanding of true demand here and interest? How do we take that?

Yes, Mike, I'm glad you asked that question because it's important to understand, we don't push proposals out. We don't just generate proposals and send them to people. The only time we make a proposal is when we've gone far enough down the road with a customer in our work that they are interested in receiving a proposal from us. Of course, we share budgetary ideas about what doing business with us will be from the very first day. But creating a proposal, a term sheet and everything around that is a lot of work. And what we're talking about is that type of proposal, not just a speculative send it out and hope they respond to a type of thing.

Okay. That's helpful. I just want to make sure on that. And then any kind of sweet spot of technology areas that are -- where these proposals are going out on? Is it a different mix than what you've had in the past? Obviously, we talked a lot about RF SOI and power.

No, I think I talked a little bit about it in my script, but the proposals are going out in almost all of our focused areas. Yes, I would say, all of our focused areas. And in addition, in one other area that we haven't talked about before, isn't something we've done a lot of work in so far, but it's something that we have been hoping to enter for some time. So, it's good potential.

Okay. That's helpful. Let's see a question or two on STMicro here. You talked about, I think, the last couple of quarters about -- and one of the next major steps here is getting a PDK frozen. Is this something you have visibility into from STMicro and have any expectations on timing for that?

Yes. I think -- we definitely have a view into their development process. We don't have a very clear view into their exact schedule. And if we did, they've asked us not to share that publicly, so we won't be able to provide guidance on exactly when those things get done. But I can tell you that we're on track. When we shared in prior presentations, kind of a time line and the process, like we had some graphics that we're showing the process; that's a standard process that people would use in the industry kind of a standard time line. I still think that, that's very reasonable. And one thing that both we and ST have agreed that we can say is that we're on track to that process.

Okay. All right. Fair enough then. Scott, I probably missed writing down the exact language you had on the topic of RF SOI, but I think you said something along the lines of you're running wafers at most of the manufacturers out there. Maybe if you can repeat that passage and then help us understand the point of that comment, please.

Yes. So, the RF SOI market has got a certain amount of manufacturers that really constitute the bulk of the capacity that's available in the industry. And today, we're working with the vast majority of them and starting wafers with a lot of them.

Okay. Okay. Fair enough then. Let's jump over to the large analog player for which you've got a license for MST CAD here. I guess just what do you kind of see as the outcome for this work? I think Frank mentioned [you're expecting] a license -- to generate license revenues throughout this year. I'm not sure if that implies stopping after that point. But what do you expect to be the outcome or hope to outcome here? And when will that happen? And does Frank's comment about revenues lasting through this year imply it's not going into next year? And is that the -- an end point of the work, or just want to correlate those two comments and understand the dynamics there.

Yes. Okay. I apologize if that was a little confusing. So just our MST CAD tools, we licensed to customers just like Cadence or Synopsys, would license their tools to customers. In this case, we have this customer who has signed up for a one-year license with it. It doesn't mean they're going to stop at the end of the year. It just means that, that is a contract that we have in place that would be extended as we got closer, just like most simulation model licenses. And what does that mean? Well, what it means is this large customer is doing work on their next-generation process, and they're adding MST in to see if that makes sense for them. And they're adding it in at the simulation level and so then it's easy for them to try a bunch of different things. We can give them advice on different ways of integrating to get different levels of performance improvement. And when they have seen results that they think they like then our next goal would be to get them to take an installation -- a manufacturing license and install it in their fab and actually start running wafers inside their own fab. They could actually do demos with us where they send us wafers and then they run wafers in their fab, but we'd be really encouraging them to install. So that TCAD license is kind of a first step in that direction.

Got it. Okay. That's helpful. Maybe moving over to the first JDA partner here. It's obviously been in place for, I can't remember how many years. Like two or three years now. And I think last quarter, you talked about some strong engagement that was slowed down by the holidays, and you seem to -- I can't remember the exact language you're looking at my notes here. It sounds like there's some strong interest from business units here, but no decision made. Maybe you can give us some sense here of some back and forth in more iterations happening that you weren't expecting? Or maybe just kind of help us out relative to what sounded like you're getting fairly close to a next step several months ago?

Yes. Yes. I think it's a very frustrating situation. We did a JDA with these guys a couple of years ago. They gave us a set of specifications. We met all of those specifications. And so, then they said, okay, we're going to present this to our business units to consider adopting. We have been working with a number of their business units. And last year, they gave us a whole bunch of other tests and specs that they wanted us to run wafers for and do simulations to prove that we could solve them, and we did by the end of last year. We pretty much provided all of that test data. They reviewed, they agreed that we had met all of it. And so now we're in this very frustrating phase where they're saying, yes, your stuff seems to work well but until we kind of identify this timing when we're going to make a change to that particular area, then we'll decide whether we're going to adopt it or not and do a license. And so, we've been going back and forth with them on this for months. It may -- I think there may be an impression because we can't give many updates on it that we're not doing, but we literally are talking to these guys constantly. And right now, we just haven't gotten to the point where we can announce that we have an agreement. So yes, it's frustrating for us, and I'm sure it's very frustrating for investors. It looks like we're not doing anything. We're doing a lot. We just haven't gotten it over the finish line. And I don't think it's that unusual. If you look back at our STMicro engagement, we really by, I think 2020, we had shown them all the data that they needed to do an installation and get started, and it wasn't until 2023 that they finally did a license with us and got started on that. So, to a certain extent, you have to be prepared and sitting on the shelf when they're ready to grab something off the shelf and put it into place.

Okay. Fair enough.

And typically... When we -- typically, when we do a license with a customer, we ask them to pay an upfront license fee when we sign. So, if you're going to need to do -- use the technology in a year, why would you do a license right away, right? So that might be a little bit of a holdup as well.

Okay. Okay. Fair enough. I will jump out of line here, but probably come back in, but thanks for all the details, Scott.

Okay, Richard, thank you. Looking at some of the questions coming in on the Q&A chat. The first one regards STMicro, which is when ST makes the next milestone, what will the scale of fees that Atomera will receive?

Happy to take that one. We've said since the time that we signed the -- and announced the signature of the deal that it was consistent with our model for licensing to customers, and we expect the total fees to be in the neighborhood of $3 [million] for all stages of licensing. And this is consistent with that. So, you can do the math based on the revenue recognized already, which was $550,000 last quarter and $150,000 that we had recognized originally when we did the integration license with them several years ago. So, this is pretty significant in terms of revenue. And when I talked about the inability to give revenue guidance, it wasn't -- I wasn't implying we didn't know how much it would be, but rather it's not something that I can give guidance on the timing of when it's going to be recognized because we -- our policy has always been to guide only for the next quarter until we have solid visibility beyond that. And we don't have that kind of visibility yet. But when we get closer, we will, as long as it's consistent with our confidentiality with them, we'll give guidance when we get closer.

Okay. That answered the next question about timing for ST. You answered that quite well. So, another question that came in. Are the record number of commercial proposals for manufacturing and production licenses, are they for manufacturing and production or just integration license?

Yes, I'll take that. For the most part, we're trying to push customers to install, and they are -- most of our customers are used to working with the big tool manufacturers. And typically, if a tool manufacturer comes in and says, hey, I've got a new tool that will solve some problems for you. The way that works is they usually ask the tool manufacturer to do a number of demos for them first. So, they -- the tool manufacturer will do demos back at their fab and send them wafers. Some of them have that mindset with us. And for them, we would have to do, try to do, an integration license before we get to manufacturing. But our goal is to try to get people to install and put it in their fab and start manufacturing those wafers as soon as possible. So, I think all of our proposals that are outstanding right now include our for manufacturing licenses, but I won't preclude the fact that we might have to do some demos before we get there.

Okay. Have there been serious talks with wafer suppliers about a deal for blanket MST wafers on RF SOI?

Yes. The answer is yes. That's something that we've been talking about with various wafer suppliers for some time. And I think, yes, we don't have anything to announce on that just yet, but we do believe that when we're in a position where one of our RF SOI customers is ready to make a decision to go to production, which means there'll probably be another year or year and a half at least before they go to production, we will be able to arrange for a wafer supplier to deliver MST RF SOI wafers to them, if that's the path they want to go down. So that is definitely -- we've done the pre-work for that, and I think we could put that together. Just to be clear, we also make it available to our RF SOI customers that they can buy RF SOI wafers and deposit MST on them themselves and then they license that from us. So, there's lots of ways in which it can work.

Okay. And a question, maybe you can comment on the replacement for TSI. I think you addressed it a little bit in the prepared comments, but has a replacement for TSI been signed?

Yes. I would say we've spoken to almost a dozen companies, maybe less than that, but a lot of companies. And it seems very clear that we have a lot of good options. We have customers who -- I mean, possible suppliers that are much better process technology that they used to have at TSI, and we have ones with more specialty processes that we want. So, it's -- I think we're getting very close to starting working with one or more of them, and I don't have any doubt that we will end up working with multiple suppliers, not just one, but I think we'll get started with the first one very soon. So, yes, I think the replacement for TSI is well on its way.

Okay. Great. And then Richard Shannon had a follow-up question. Richard, if you would unmute and turn on your camera.

It will not let me turn on my camera, but can you hear me?

Yes, we can hear you. Go ahead.

Okay. It's not allowing me to -- oh, there we go. Now we can do this maybe. Yes. There we go. Scott, I wanted to follow up on one of your responses to my earlier questions here related to STMicro. You said you basically showed them all the data that they had requested back in 2020, but they didn't start until 2023 when they pulled it off the shelf. So, I guess kind of applying this to your other set of customers' engagements, how many other customers have you essentially satisfied all of the data that they've asked for and are sitting around? And do you think it's reasonable to think about a delay between having the technology like satisfying all the specs, and then waiting X number of years. In STMicro's case, three years before you get to production. Is that something that you expect? Or is that an extraordinarily long time? How would you relate this to your experiences with other customers that we haven't gotten to that point but seem like you've made some good progress.

Yes. It's a tricky one to answer, Richard. To be honest, ST surprised me. I think surprised all of us. We gave them results. They were very happy with them. And then just we just -- they just never went off the [dime.] We kept in conversation with them all the time, like every few months, we would meet with them, and they'd say, yes, keep waiting. I don't think that we -- so we have a number of other customers that we've run wafers with, and they've seen good results, and they are not currently in the process of going to production. But I couldn't say exactly how many or whether I think that's going to be typical that they pull it off the shelf. I can say there are a lot of customers who we -- yes, that we've shown the good results to, and we keep talking to them and they keep kind of pushing it off a little, but we do think that we'll engage with them sometime soon and JDA1 is a good example, but we have other examples like that. Actually, we have a lot of examples like that. So Yes. The frustrating thing is if they could just see the results and pull the trigger, that would be great. And that's what -- that's -- normally in a business like ours, a customer puts out an RFQ, they need a certain type of product, and you go and pitch your product and when they decide yours is the best you win it. That's what my experience in semiconductors has been my whole career. But this business we have is a little bit different. We're going out and proactively telling them, hey, if you used our technology, we can make your product a little bit better. And for the most part, we're kind of putting that into their minds. So even after we've convinced them, that's the case, we sometimes have to wait until the planned change of that process or node is happening for them to implement it. And -- but I can't say whether that would take a long time or a short time, we haven't had enough experience in it.

Okay. It seems like in all the conversations we've had on these conference calls and offline as well, it just smells like RF SOI kind of is mirroring STMicro and away where it seems like you've suggested or outright told us that you satisfied the requirements. And I think once or more than once you've even talked about some requirements to changing at some point. But it seems like RF SOI mirrors a lot of what you described with STMicro. Is that a fair comparison?

Yes, yes. And let me just -- so let's say we have a customer, and we don't engage with them --and we engage with them as soon as we can, right? As soon as we can get them interested enough to start testing out our technology. And that customer had a plan for some process to bring out a new version of it in two years. And so, they're working on that new process. And simultaneously, we're trying to show to them that our technology is good. And maybe even with only one year left, they say, wow, your technology is really good. But it's too late to implement into our other process. We've already been working for it for more than two years. And so, you kind of missed the bus on that one. Now we have to wait for that one to go to production and then be in production for a few years before they make a new version of it. And so sometimes that's just what we face. But like I say, if we have enough shots on net, we're going to hit the right timing with some of them and the other ones will come back around.

Okay. Fair enough perspective. One last question for me, Scott. Just touching on the topic of leading edge, and I think I've even asked this in past calls here, but it sounds like you've got some long period of engagement with multiple players at leading edge. I guess my essential question here is, do you think that work is mature enough here that you have the possibility of intersecting with the first generation of a new technology coming out. You're talking about nanosheet Gate-All-Around here, which I think is being implemented first on the two-nanometer node with one or more guys out there. Do you think you're going to be early enough to do that? Or does that seem like it might be more of a follow-on derivative process later in the time frame?

Hard to say. I can say that the leading-edge guys know about our technology, and they know how it could help them. And so, it's kind of -- obviously, if one of them had decided they were definitely going to do that, they certainly would have had to do a license with us. One of the things about Gate-All-Around and the new nodes, they're so hard to make. They are so complicated that they can't just -- what we call a demo in the industry is when they run some wafers, and they send them to us and then we put our technology on and then we send them back. But for Gate-All-Around, it's so complicated to make these things that we can't do that. We really have to install at the customer site. And so, when we do that, they have to sign a license. When they do a license, we definitely will announce it. And obviously, we haven't announced it yet. But those -- I think we're well positioned to get into one of those. I also think the Gate-All-Around and even the most advanced FinFET nodes still are running at relatively low yields compared to like more mature nodes. And there's room for us to be even incorporated to improve yield in those designs. So, fingers crossed that we'll get that done.

Okay. Fair enough. That's all my questions again, Scott. Thank you.

Okay. And just one last question here from the Q&A line and that is, could you describe how the business model for entering the GaN market would be different from your approach to license -- approach to-date to licensing of MST?

Yes, yes. So, the GaN market is very interesting. Actually, this whole compound semiconductor, it's an area that we've been doing research on for a few years. So, although this is our first announcement, it isn't something we just started thinking about. So, there's multiple ways that our business model can be used for GaN, we can just license our MST technology, just like we do today with regular semiconductor makers to adopt MST on wafers and then build GaN wafers on top of that. That's one way that we could do it. We will probably license our GaN technology separately from the rest of our licensed technology because it may have very high value. The second thing we could do is maybe we could become a manufacturer of GaN wafers at least in modest volumes, and that would allow us to generate revenue. And if it was a very high-value technology, maybe we could make a very nice-looking gross margin there and help to subsidize the rest of our business. We don't have a decision to do that yet. I mean we have a very strong philosophy about making a business model that's got a lot of leverage to the bottom line. And so, if we were to become a manufacturer, obviously, we'd have to have a lot more CapEx, which might not work well with that. But we could do something on the smaller volume manufacturing side. But I think for our customers who would go into high-volume manufacturing, it's most likely that we've licensed directly to them. So, we've been looking at the GaN market for a while. We've had a lot of marketing studies going on about how to approach it, but we haven't got a final determination about what we do. I can tell you, I think it's a -- it would be a much faster time to market. And I'm pretty excited about the prospects of MST there and the prospects in a few other areas in the compound semiconductor market.

Great. Okay, Scott, why don't -- that concludes the Q&A session. If you could proceed with any closing comments.

Okay. Sure. Well, I hope today we've given you a good picture of the compelling prospects which Atomera is pursuing. We will be at the Oppenheimer 9th Annual Emerging Growth one-on-one conference on May 9. If you're planning to attend, I would welcome the opportunity to meet. Please continue to look for our news, articles and blog posts, which are available, along with investor alerts on our website, atomera.com. 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.

Great. Thanks, Scott. This concludes the Atomera call.