Atomera Incorporated (NASDAQ:ATOM) Q4 2023 Earnings Call Transcript

Atomera Incorporated (NASDAQ:ATOM) Q4 2023 Earnings Call Transcript February 14, 2024

Atomera Incorporated isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Mike Bishop: Hello, everyone and welcome to Atomera’s Fourth Quarter and 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 website for 1 year. I’m Mike Bishop with the company’s Investor Relations. As in prior quarters, we’re 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 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, the company’s annual report on Form 10-K filed with the SEC on February 15, 2023 and its quarterly report on Form 10-Q filed with the SEC on November 1, 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 also posted on our website. And with that, I’d like to turn the call over to our President and CEO, Scott Bibaud. Go ahead, Scott.

Scott Bibaud: Good afternoon and welcome to Atomera’s fourth quarter and full year 2023 update call. I believe that when we look back at 2023, we will consider it the catalyst year, where our first major business deal that drove our success was announced and our fourth quarter will be where the execution of that mission became most obvious. In addition, we’ve seen excellent results from customers and partners and strong advances in R&D that will ultimately result in more commercial licenses. We will dive into the details but first, let me give you a view of the industry status and how to flex Atomera. As you know, 2023 was not the strongest year in the semiconductor industry, characterized by negative growth cutbacks in CapEx plans and some slowdown in spending.

As is usually the case in this type of environment, we saw increased interest in new design activity and plenty of fab capacity to run R&D lots. As we enter 2024, we are seeing much more optimism as growth prospects driven by new artificial intelligence capabilities start to emerge. We are happy to see this since our customers’ cash flow will improve but we still expect to see modest fab utilization rates which benefits our business development prospects. This is really the ideal time for customers to adopt MST. Obviously, the big news of the quarter was the installation of our technology at STMicro’s fab in Agrate, Italy. In case you are new to the Atomera name, in April of last year, we announced a commercial license agreement with STMicroelectronics that was important for our company in several ways.

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Q&A Session

First, it validates our business model and the value that MST brings to customers when they truly appreciate its capabilities. Second, it is certainly an important signal to industry participants when a large respected IDM decides to take MSC to production. Although their decisions are primarily on technical criteria, engineering management always feels more comfortable if other leading companies are going down the same path that they are considering. We have always represented our customers out to production with MST in 6 phases, as shown here. For ST, Phase 4 includes both installation and productization. This slide shows a rough approximation of where we are in that process with the great out boxes representing items that have been completed.

Last year, we were waiting for some equipment modifications to happen at ST before we could start the install. We felt quite certain the installation would happen a short period after our last quarterly update call and it did. Let’s look at the remaining steps in more detail. Our progress since our last update call has been truly remarkable. Since last May, the ST Engineering team has been developing a new manufacturing process using TCAD which also includes our own simulation tool called MST CAD. In early November, after their EPI tool upgrades were complete, we provided ST with a critical IP necessary to start making MST wafers which triggered the revenue milestone we announced on November 14. Although we’ve always guided that installation can take up to 3 months, the ST EPI team was able to get trained on our technology to the point that they could grow high-quality MST on their wafers which allowed us to pass all their acceptance criteria before Christmas.

This accomplishment completed the formal installation of MST technology at ST which triggered a second revenue milestone. In January, we spent more time with their team helping to optimize both the EPI deposition process and the MST design integration. ST has now started manufacturing MST wafers in their own fab which will be used for electrical lots providing silicon validation. Because this entire process is in-house, their cycles of learning in this stage should be quick. When ST is satisfied that they’ve created a fully optimized transistor and manufacturing process development kit, or PDK, they will freeze it. Just to be clear, we consider this entire effort from installation through PDK to be part of Phase 4. For a chip designer, a new PDK is like getting the latest and greatest software with all the newest features.

In my experience, engineers will hold off on new chip designs until this PDK becomes available, creating a pent-up demand for new design starts. So in this case, we expect that multiple chips will be developed in parallel with process Qual and some may even take out prior to the Qual being complete. For the next several years, new chip designs will be taped out based on this PDK and will enter production and start generating royalties. It’s difficult for us to forecast the volume of these designs because they will be in many different applications and market sectors and will ramp at different rates. But as you can imagine, over time, the percentage of MST-based designs in their fab will increase significantly. When we first announced this transaction, we believed SDM could get to commercialization in 1.5 years to 2 years.

Despite the delay in starting installation, we believe that timing still holds. Although much of this execution is out of our control, we are laser-focused on doing everything we can to ensure ST’s production ramp of MST is as successful and as rapid as possible. Our other top priority as a company is getting more customers under the same path to production. So now let me provide some updates there. As you can see from our customer pipeline, we are showing growth in Phase 4, reflecting the ST installation but there’s a lot more going on under the hood. In the last call, we spoke about the excellent results we had with our JDA 1 customer and its applicability to one of their largest BUs. Development efforts continue but we are still working on putting together a business arrangement which will meet both our needs.

I can assure you this is a very high priority for us but the end-of-year holidays slowed down those discussions and we are working to get this program moving more quickly. We continue to be excited about the experiments with our JDA 2 customer which are still making their way through the fab. Good results here should pave the way for a license agreement in this area. In addition, we’re also in discussions with this customer about starting work in another area as well. A trend we are seeing in the higher voltage semiconductor area is providing a tailwind to our MST offerings. Chinese companies have started to enter into the low end of this segment which has caused some of the more established players to focus on differentiating their technology to be higher performance.

MST is uniquely suited to deliver performance improvements with our SP and SPX technologies. And in Q4, we signed an MST CAD license agreement with a large manufacturer to start working on it which shows how momentum for both MST SP and SPX is growing. Interest in our RF SOI technology also remains strong and we have multiple different customer wafer runs underway. Recently, we were invited to give a paper, co-authored with Soitec in the San Jose State University at the upcoming IEDM Conference in March which will provide details on how MST on an RF SOI substrate can enhance performance of both our switches and LNA’s. The IEDM conference which happens every December is a great forum for us and it is focused on the latest gate all around and nanosheet transistors.

Interest in the use of MST for these devices has been spreading and has created excellent opportunities for new engagements and partnerships. At the geometries being used in these advanced nodes, new challenges are being raised which demand more control at the atomic level than has ever been necessary. Atomera’s diffusion control, reduction of random open fluctuation and improvement in surface roughness scattering are viewed as potential to provide the control needed for these nodes. In Q1, our team has been busy working with multiple advanced node manufacturers which should ultimately lead to new business. The same features driving interest in advanced nodes is also stimulating demand in the memory space and our work with those customers continues to be active and exciting.

Finally, we get a lot of questions about how MST is related to the fast-evolving developments in artificial intelligence. And I can tell you it’s extensive. Last quarter, I spoke about how AI will drive demand for more and different kinds of memory which MST can help deliver. Another area where MST will bring huge value is in chiplets. As you may know, AI algorithm demands have become so huge. It’s difficult to meet them with single-chip solutions. The industry has reacted to this problem by creating a new architecture which collects a number of smaller chiplets on a silicon interposer. The beauty of this architecture is that each chiplet can be developed in the optimum process technology for its role and the fact that MST provides performance boosts that all these different nodes brings enormous value which should become a new driver for MST adoption.

I believe we will look back at 2023 as the year when we turned the corner commercially. Our first production license with ST, followed by the great progress we’ve made in Q4 will be looked upon as the trigger for Atomera’s success. In addition to ST, we made serious customer and technical advances in each of our target product segments. One thing that has become even more apparent this quarter is that as customers start to understand our technology more, they come up with new ways of using MST that we haven’t even imagined which should become a strong growth driver for our technology horizontally across existing customers as our penetration increases. MST is truly an amazing tool and the brilliant team here at Atomera is hard at work on covering its potential and delivering it into the hands of future licensees every day.

This is the type of execution that leads to a successful enterprise and I can tell you, I’m more optimistic than ever about our potential. Now, Frank will review our financials.

Francis Laurencio: Thank you, Scott. At the close of the market today, we issued a press release announcing our fourth quarter and full-year results with 2023. This slide shows our summary financials. Revenue in 2023 was $550,000, all of which was recognized in Q4 and resulted from installation and acceptance of our MST technology at ST Fab. Our GAAP net loss for the year ended December 31, 2023, was $19.8 million or $0.80 per share compared to a net loss of $17.4 million or $0.75 per share in 2022. GAAP operating expenses were $21.2 million in 2023 which was an increase of approximately $3.4 million from $17.8 million in 2022. The biggest driver of the year-on-year increase was a $2.5 million increase in R&D expenses, approximately $1.4 million of which was due to higher spending on foundry services, metrology and other outsourcing and $739,000 of which was due to higher payroll and related costs.

General and administrative expenses increased by approximately $634,000 reflecting higher payroll expenses as well as higher legal fees. Sales and marketing expenses increased by approximately $251,000. Other income net in 2023 increased by $802,000 as compared to 2022, mainly due to the higher interest rates on cash and short-term investments. Turning to our quarterly results; Q4 2023 GAAP net loss was $4.6 million or $0.18 per share compared to a net loss of $4.3 million in Q4 2022 which was also $0.18 per share. In the third quarter of 2023, GAAP net loss was $5 million or $0.20 per share. The lower net loss in Q4 compared to Q3 was due to our Q4 revenue. While GAAP operating expenses were basically flat at $5.3 million in Q4 in 2023 compared to $5.4 million in the preceding quarter as R&D expenses declined due to the winding down of activities at TSI, offset by increases in G&A and sales and marketing.