Atomera Incorporated
Q4 2020 Earnings Call Transcript

Published: 10 Feb 2021

[Mike Bishop:]

Okay, I think we're ready to begin. Hello everyone and welcome to Atomera's Fourth Quarter and Fiscal Year 2020 Earnings Webinar. I'd like to remind everyone that this call and webinar are being recorded and a replay will be available from Atomera IR website for one year. I'm Mike Bishop with the company's Investor Relations. We're obviously changing things up a bit this quarter using Zoom, but we will follow a similar format as prior quarters with participants in the listen-only mode. We will open with prepared remarks from Scott Bibaud, Atomera's President and CEO; and Francis Laurencio, Atomera's CFO. We will then 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.

[Scott Bibaud:]

Thanks, Mike. And welcome all of you to our Q4 update and 2020 review, using our new Zoom format. As you know, we've had some very notable progress over the last three months and I'm excited to share more details with you. Our work is ongoing in the context of an industry-wide turnaround that has been remarkable. From this past springtime, when semiconductor companies pulled back out of caution, to an environment today that is exceeding all expectations. In periods like this, where manufacturing lead times increased due to capacity constraints, we sometimes see customers limit or restrict access to R&D runs, since production lots become so precious. But as of today, we did not see that in our customer base. Instead, we continued starting customer and R&D wafer runs and holding regular detailed technical meetings at the same pace as before the pandemic. We now believe visit to customer facilities will start happening again later this year, but for now they remain restricted. With so many industry players reporting strong financial results and outlooks, we believe customers will be working even harder to find ways to enhance their products, which will provide a positive tailwind to Atomera. Although restrictions on travel during the pandemic have affected at Atomera's ability to add new customers to our pipeline, as you can see, our customer base continues to be large and broad-based. Our highest priority therefore is to move existing customers through the phases towards production, while adding new ones as a secondary objective. We do believe that MST CAD will be an effective tool to add new customers, even without face-to-face meetings. Our recent release of MST CAD has gotten a good response from the industry, with several companies starting to look into the modeling capabilities. Today, we have 25 engagements with 19 customers, several of whom have multiple engagements underway. We are also in discussions with new prospects that are not currently in our pipeline.

[Francis Laurencio:]

Thank you, Scott. At the close of market today, we issued a press release announcing our fourth quarter and full year 2020 results. This slide shows our summary financials and I will now review them in more detail. Our GAAP net loss for the year ended December 31, 2020, was $14.9 million, which is $0.79 per share, compared to a net loss of $13.3 million or $0.84 per share in 2019. The larger net loss in 2020 was due to higher GAAP operating expenses and lower revenue. On a per share basis, net loss declined as a result of an increase in weighted average shares outstanding to 18.8 million shares in 2020, from 15.9 million in 2019. Revenue in 2020 was $62,000, compared to 2019 revenue of $533,000. GAAP operating expenses in 2020 were $15 million, an increase of $1.1 million from 2019 operating expenses of $13.9 million. This increase was primarily due to increases of $676,000 in research and development, $421,000 in general and administrative expenses, while sales and marketing expenses were flat. Our press release in this slide contains reconciliation between our GAAP and non-GAAP results. As has generally been the case for us, the biggest difference between GAAP and non-GAAP expenses is stock compensation, which is a non-cash item. Our stock compensation expenses were $3 million in 2020 and $2.9 million in 2019. Non-GAAP adjusted EBITDA in 2020 was a loss of $11.7 million, compared to a loss of $10.7 million in 2019. Since stock compensation expense did not change significantly between the periods, the factors affecting GAAP and non-GAAP expenses are basically the same and my discussion of operating expenses is based on the non GAAP numbers. Non-GAAP R&D expense was $7.3 million in 2020, compared to $6.9 million in 2019, an increase of approximately $367,000. This was primarily due to an increase of $509,000 in payroll and related expense based on adding three headcount in engineering, offset in part by a $216,000 decline in travel expenses due to COVID. Non-GAAP G&A expense increased by approximately $500,000 to $3.7 million in 2020, from $3.2 million in 2019, primarily due to higher legal expenses, which mainly related to filing new patents and maintaining our patent portfolio. Lastly, non-GAAP sales and marketing expenses were basically unchanged, at $769,000 in 2020, compared to $820,000 in 2019. Turning now to our quarterly results, GAAP net loss in the fourth quarter of 2020 was $3.9 million, compared to a $3 million net loss in Q4 of 2019. The higher net loss was primarily due to an increase of $662,000 in GAAP operating expenses, as well as a decline in revenue from 138,000 in Q4 2019, to zero in Q4 2020. GAAP net loss per share was $0.19 cents in Q4 2020, compared to a loss of $0.18 cents per share in Q4 2019, reflecting our higher net loss, partly offset by the higher share count. Non-GAAP adjusted EBITDA in Q4 2020 was $3.0 million, compared to $2.4 million in Q4 2019, also reflecting higher operating expense and lower revenue. Cash balance at December 31, 2020 was $37.9 million, compared to $14.9 million at the end of 2019. Cash use in 2020 reflects $12.1 million used in operating activities and the receipt of $35.3 million from financing activities. Cash from financing includes net proceeds of $24 million from our aftermarket or ATM equity program that commenced on September 2, 2020, $9.4 million of net proceeds from our public offering in May, 2020, and $1.9 million of proceeds from exercises of warrants and options. On January 5, 2021, we announced the completion of the ATM program, which resulted in the sale of 2.2 million shares with net proceeds to us of $24.2 million after commissions and expenses. As of December 31, 2020, we had 22.4 million shares outstanding. As Scott mentioned in his remarks, our JDA includes the grant of a manufacturing license and will generate revenue for Atomera. Consistent with past practice, we are only providing revenue guidance for this quarter. We anticipate that our Q1 revenue will be $400,000 based on payments under the JDA. However, the recognition of this revenue will depend on future events and therefore could slip from Q1 into Q2. The JDA includes other milestones that could result in additional revenue in later periods, but we're not in a position to forecast the timing or likelihood of those milestones. During 2020, our operating expenses were lower than we had forecast at the start of the year, mainly due to delays in reaching acceptance of the new 300 millimeter epi deposition tool. Although we have not yet reached that final acceptance step, which triggers the commencement of lease payments, we are very close. Our guidance is non-GAAP operating expense in 2021 will increase to a range of $14 million to $14.5 million. The main drivers of this increase will be 300 millimeter tool costs, higher engineering headcount, and higher GMA expense as we become subject to additional reporting obligations. With that, I will turn the call back over to Scott for a few summary remarks before we open the call up for questions.

[Scott Bibaud:]

Thanks, Francis. I'm happy to have this platform to share with you how well-positioned Atomera is going into 2021. We are very excited about starting work with our JDA customer and proving ourselves with MST SP, RF SOI and other technologies. Our new MST CAD and world-class epi deposition tool give us the ability to get customers through the integration process into market more quickly than ever before. Atomera's quantum engineer technology is becoming more well-known over a wider set of players in the industry and we hope to continue building on this success. Inside Atomera, both our management and engineering teams are optimistic. Count on us to keep generating outcomes like those achieved up to today, and I look forward to sharing the results of those efforts with you in the future. Mike, we will now take questions.

[A - Mike Bishop:]

Okay, thanks, Scott. At this point, we'll move on to questions. Our first question comes from Cody Acree of Loop Capital. Cody, would you please unmute your line and then go ahead.

[Cody Acree:]

Yes, thank you very much and congrats on the progress. I know that 2020 is a difficult year for everyone. But it does feel like this year, it's a better position. I guess, Scott, when you talked of the semi industry shortages not having really an impact to-date, is it a proper read of that that maybe your customers are not as close to signing the license and so there wasn't as much to put off? Because it sounds like the final steps are more intensive and it could be that the shortages are not close to entering the production line where capacity is so constraint.

[Scott Bibaud:]

I don't think that is the right way to think about it, Cody. So whenever we get into this type of situation, and we've been in it a few times before in the company's history, where the engineering team we're working with, and the customer is excited and wants to do another set of wafer runs, then they take it to the factory, and the factory managers say, sorry, I just can't let you put any R&D wafers in, or they tell the engineering team, in this month, you can only put through, say, 50 wafers, and you have to choose the most important ones. So, we're always watching for that in this type of market environment. The good news is, so far, our customers who have tried to start new wafer runs have been able to successfully get them into the fab, which means either that the fab is still making room for lots of R&D rounds, or more likely, that they view our technology as one of the more compelling things that they want to continue working on in this time of shortage.

[Cody Acree:]

And I guess when we speak of shortages, specifically, maybe in the automotive market, I know you haven't given us much color as to what your licensees are focusing on. But I think you started with a heavy emphasis on analog. And that's where we're seeing a significant amount of shortages. Are there things that you can do to help your customers to speed time to market? Or is it just too late for this cycle, if they're not signed up and ready to go, it's too late to impact?

[Scott Bibaud:]

Well, I would say, looking at the long term growth prospects for the semiconductor industry, although we're going through a very big growth spurt right here, it still looks like growth will continue very strongly for the next several years. And one of the things that's being experienced by the automotive industry, as you said, they're having shortages on these analog products, among others. But really, I think one of the big things holding them back are the analog solutions, they tend to be manufactured on older production nodes that are using 200 millimeter wafers. Now, the challenge there is that people built these factories for 200 millimeter wafers decades ago. And they can't expand them anymore very easily. And even if they could build a new fab, they have a hard time getting a supply of the of the processing tools that are needed to make 200 millimeter wafers because it just not made anymore, everybody's using 300 millimeter. So one of the things that MST can do is, we can actually take a product designed on a 200 millimeter wafer, and we can help them improve the performance to a point where they could shrink the devices, maybe get something like a 20% or 25% shrink opportunity. What that means is that every single wafer would be able to make 25% more capacity. So for a manufacturer, that means it could get 25% more capacity out of a fab without having to add a whole bunch of new equipment and so forth. So yes, I would say this is something that it's not going to probably help the manufacturers in the very near term. But long term, I think it's going to be a continuing problem, and our technology really provides a good solution for it.

[Cody Acree:]

Thank you very much, Scott. On that end, are there customers in your pipeline that you believe are far enough along in the process that they could move to implementation quick enough so that they could actually impact their production capacity shrinks, no short term deal?

[Scott Bibaud:]

Now, I think it would be hard to do it on a really short term deal, but medium term, definitely possible.

[Cody Acree:]

Okay. The foreign licensees do have -- notwithstanding the JDA here, you've talked about that. Can you just talk about the progress you've seen in the other three, or maybe your customers as a whole? You haven't given us a lot of color, after you sign them up what's happening within those?

[Scott Bibaud:]

It's a bit challenging when I -- because the progress they're making, they certainly don't want to make public. One of our three licensees, I think I mentioned before, had a fire, AKM had a fire in one of their facilities, and that has slowed them down. They still are committed to our technology and are working with us, but they're in a bit of a scramble trying to move production facilities and other things. For the other two, work continues very strongly and we have regular meetings with them, and hopefully we're moving to the point where we'll get to next step with them soon.

[Cody Acree:]

And then just two quick ones. What were the delays that are still holding up the epi tool acceptance? We've been dealing with delays for a few quarters now. So sounds like you're getting close. But can you maybe talk to the delays?

[Scott Bibaud:]

I mean, it's really a bit of a challenge and I don't want people to extrapolate on this, what would happen in a production facility. We're talking about a very, very complex lab setup, that would have the epi tool, as well as all of the associated supporting equipment that will go with that, including cleaning benches and advanced metrology tools, and other kind of wafer handling equipment, all of it -- like almost every factory in the world is either setup for 200 millimeter, or 300 millimeter. There are very well established supply chains for equipment that goes into the 300 millimeter tools, fabs that clean wafers for example, and measure them and other things, and for 200. But now, what we're trying to do in this lab is build a single lab that can do that on a single tool that supports both 200 millimeter and 300 millimeter. So the suppliers have had to make some custom tools, a lot of custom software to make the robotics work properly and everything, and we have had a number of setbacks in getting to the absolute final acceptance level that we wanted to get to before we can take possession of the tool. So, bad news is we haven't taken possession, which will give us total control over it. The good news is, ever since November, we have actually had our engineers in there working on the new tool. It might not be perfect, but we've been able to run wafers and do a lot of bring up of the tool, so that when we do finally take possession, we'll be far down the road towards full qualification.

[Cody Acree:]

Great. And do you expect that full qualification in the first quarter?

[Scott Bibaud:]

I would say it will be soon and I'm a little gun-shy about predicting, because I predicted a few times now. But really, like I said in my prepared remarks, were in the final punch list. I would hope that that would happen this quarter, but I wouldn't -- I mean, there's a chance it could move to next quarter.

[Cody Acree:]

Okay. Lastly then, you had given us quite a bit of color in 2020, ahead of the JDA signing that you had a customer that you were optimistic of and you were moving along and you couldn't tell us much, but we could sense your excitement about this customer. Is there anybody moving up into that position in your mind as to the next possibility?

[Scott Bibaud:]

Yes, Cody, I appreciate the question. I think it's something that we have a very hard time predicting. I would say that I have a number of customers who are very happy with where we are and our technology. And we hope we can move them to the point where they would execute a JDA or license, but we're just not forecasting when that would happen at this time.

[Cody Acree:]

Sure. All right. Thank you very much. Appreciate all time.

[Scott Bibaud:]

Thank you.

[Mike Bishop:]

Thanks, Cody. Our next question comes from Richard Shannon of Craig-Hallum. Richard, if you're there, go ahead. All right, maybe we'll come back to Richard, I think his line is muted. So for the time being, we do have a lot of questions on the Q&A. One of the questions comes from Dan Myers. And he asks, is your technology suitable for logic DRAM and NAND? And, if not applicable to those, can you please discuss TAM very broadly with respect to those three categories?

[Scott Bibaud:]

Yes, short answer is we know our technology is applicable to logic. I may have spoken in the past about how we've done some work to show that we believe we can deliver a 30% improvement in switching speed at 28 nanometer node, that's some -- we hired a third party to do some simulation work on that for us, and on top of some silicon work that we had done ourselves. And we're actively trying to talk to the industry about that result. So, switching speed improvement is logic, definitely shows an improvement in logic. We also had a focus on DRAM for the last few years that we know that we can bring some significant performance improvements in DRAM. NAND is something that we haven't investigated that deeply. I think, typically, we don't like to claim that we have advantage on some unique circuits until we have experienced that we actually done the work to make that claim. And I would say that on flash memory, we haven't done that much work. Although there have been -- we do have a few employees who used to work in Flash companies, and they believe that there would be some advantages we were going there, as well.

[Mike Bishop:]

All right. And then, again, a lot of questions on the JDA. Can you update us on the pipeline, or when you expect a Phase 4, or the next JDA? And Cody touched on this a little bit already, but maybe answer Stuart Miller's question.

[Scott Bibaud:]

On the Phase 4, in my remarks I mentioned, we'll show a Phase 4 when we deliver IP to this first JDA customer. I think it corresponds closely with Francis' comments on revenue. We expect -- we probably expect it to happen this quarter, but it will happen near the quarter edge, so it could go into next quarter, but not very far away. And on other JDA's and licenses, as I said earlier, I don't think we can make a comment on the forecast for those at this point.

[Mike Bishop:]

All right. And maybe this one from Peter McCarran for Francis, what revenue did you say you can expect from the JDA?

[Francis Laurencio:]

Yes, the guidance that we gave for Q1 is $400,000, and that there are subsequent milestones in the JDA that could result in additional revenue beyond that in future quarters.

[Mike Bishop:]

All right. I think at this point in time, unless Richard has come back, which I don't think he has, I think at this point in time, we'll turn the call to Scott for closing remarks.

[Cody Acree:]

Mike, hey, it's Cody. Could I just sneak one in here for Francis? I guess, with the balance sheet that you have, that's a much different position than you've been in the last few years. So now that you have the balance sheet, what are your plans for usage of cash?

[Francis Laurencio:]

Yes, so I alluded a little bit to this and talking about guidance, but we have plans to add additional headcount in R&D, we will be more comfortably funding the increased expense from the 300 millimeter tool, and we currently expect that with the five years passing from the IPO, we leave what's called emerging growth company status. And so, our G&A expense will be higher as we have additional reporting and compliance obligations. As our patent portfolio continues to grow, not only do we invest in seeking new patents in the US, and in the major countries where we would expect our technology to be used, but we also have to maintain the existing portfolio. And so, those expenses grow over time. But, more than anything, I think we feel much more positive having closed on the JDA. And so, we're ready to pounce on opportunities, to add additional talent to the engineering team, and to make sure that all the right TCAD modeling resources are available to make sure that we can follow up on the success of getting that JDA done. And if the MST CAD proliferation requires us to spend more money in that area, then we're also going to be able to do that.

[Cody Acree:]

Okay, thank you very much.

[Mike Bishop:]

Okay, at this point in time, I'll turn the call over to Scott for closing remarks.

[Scott Bibaud:]

All right. Well, I just want to thank you all for attending today's presentation. We're very pleased to be able to share with you the results of the last quarter and year, along with a sense of the excitement that we feel inside 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 contact Mike Bishop and we'll be happy to follow up. We look forward to seeing some of you during our scheduled marketing activities. Thank you again for your support and we look forward to our next update call.

[Mike Bishop:]

Again, thank you all for participating on today's call. At this time, this conference has concluded.