Atomera Incorporated
Q2 2019 Earnings Call Transcript

Published: 10 Aug 2019

[Operator:]

Good afternoon and welcome to the Atomera Second Quarter 2019 Earnings Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] This event is being recorded and will be available for replay for approximately one week.I would now like to turn the conference over to Mike Bishop. Please go ahead.

[Mike Bishop:]

Thank you. Good afternoon. I’m Mike Bishop with the Company's Investor Relations. Joining me on today's call is Scott Bibaud, Atomera's President and CEO; and Frank Laurencio, Atomera's CFO.If you are joining by telephone, please go to the Events section of our Investor Relations page on our website to follow a slide presentation that accompanies our remarks. That presentation will remain available on our website after the call. After prepared comments by Scott and Frank, we will open up the call for your questions.Before we begin, I would like to remind everyone that during today's call, we will make forward-looking statements. These forward-looking statements, whether in prepared remarks or during 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 prospective supplement filed with the SEC on May 30, 2019. Except as otherwise required by federal securities laws, Atomera disclaims any obligation to update or make revisions to such forward-looking statements contained herein or elsewhere to reflect changes in expectations with regards to those events, conditions and circumstances.Also please note that during this call, we will be discussing non-GAAP financial measures as defined by SEC Regulation G. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures are included in today's press release, which is posted to our website.Now, I would like to turn the call over to our President and CEO, Scott Bibaud. Please go ahead, Scott.

[Scott Bibaud:]

Thanks, Mike. Good afternoon, everyone, and welcome to this review of our second quarter results. It's been a very busy quarter and we have a lot to talk about. After my remarks, I will turn the call over to Frank, so he can go over our financial results and we will open it up to questions.Atomera is a materials and intellectual property licensing company with a proprietary transistor enhancement film called Mears Silicon Technology or MST. Our Company develops new materials designed to improve the performance of semiconductors and helps our customers integrate them into the manufacturing flow of both existing and new fabs. Our technology can address the slowdown in Moore's Law by providing new materials and integration techniques to the industry, which will improve performance, cut power consumption and decrease product costs.Atomera is not a manufacturer, we are an IP provider, granting customers the right to manufacture using our technology in exchange for a license fee and royalty payments upon shipment of the products. Last quarter, I was able to share with you three technical breakthroughs achieved through work with our customers and our internal R&D efforts. These past few months have been a demanding period with many trips to share our results with both new and existing customers and with further efforts to react to their feedback. The customer interest has been gratifying and the resulting development work looks very promising.I will share with you some of the more compelling technical results later, but first, let me cover our customer activity. In Q2, after publicly announcing our breakthrough results, we were able to meet with most of our existing customers and to discuss the data and to plan for future work together. In addition, we were able to meet with several new customers who are now either in the early stages of discussion or have already started planning to work with us. As a way of illustrating our progress, Atomera represents customer activity with the phases of engagement shown here.Phase 1 includes customers under NDA who are planning an evaluation of our technology. In Phase 2, we deposit MST film on customers' wafers and conduct physical characterization. Phase 3 is where customers incorporate MST on their wafers during an R&D run in their fab and use the test results to justify licensing our technology. It is generally in Phase 3 that we are most likely to sign license agreements with customers. Phases 4 and 5, our customers install our technology in their fab, execute manufacturing and distribution licenses, and transition to production.Atomera gets revenue from three sources

[Frank Laurencio:]

Thank you, Scott.At the close of the market today, we issued a press release announcing our operating and financial results for the second quarter 2019. Our summary financial results are shown here, and I will now review them in more detail.Our GAAP net loss for the three months ended June 30, 2019 was $3.6 million compared to a net loss of $3.2 million in the second quarter of 2018. Our higher net loss was primarily due to increased operating expenses, which were $3.7 million in the first quarter of this year as compared to $3.2 million in the second quarter of 2018, offset in part by an increase in gross margin.GAAP net loss on a per share basis declined to $0.24 per share in the second quarter of 2019 from $0.26 per share in Q2 2018, primarily due to an increase in weighted average shares outstanding to 15.4 million in Q2 2019 as compared to 12.1 million shares in the same quarter a year earlier. This more than offset the higher net loss. The increased share count was mainly due to our equity financings in October 2018 and in May of this year. Our outstanding share count as of June 30, 2019 was approximately 17.1 million shares.Non-GAAP adjusted EBITDA in the second quarter was a loss of $2.9 million compared to a loss of $2.6 million in Q2 2018, reflecting the same factors that affected our GAAP results, and I will go into more details on those factors shortly.Our press release and this slide contain a reconciliation between our GAAP and non-GAAP results. As you can see, the major difference between our GAAP and non-GAAP results is stock-based compensation expense, which is a non-cash item. Our stock compensation expense in Q2 was $788,000 as compared to $621,000 in Q2 of 2018.Turning to the details of operating expense. Our R&D expense in Q2 2019 was $2.1 million, an increase of approximately $320,000 from $1.7 million in Q2 2018. The largest component of this increase was approximately $188,000 higher spending on outsourced fabrication and test in Q2 2019, as compared to the same period last year.Scott discussed several recent technical breakthroughs. One of these was in 5-volt analog devices, enabled by our MST SP integration scheme. Developing MST SP required a substantial increase in the number of internal R&D wafers and metrology, and those higher expenses hit in both Q1 and Q2 of 2019. The rest of the increase in R&D expense was due to higher payroll expenses, which increased by approximately $144,000 over Q2 2018, resulting from additional headcount and higher stock-based compensation.Our general and administrative expense in Q2 2019 was $1.5 million, which was an increase of $239,000 from $1.3 million in Q2 of 2018. The increase in G&A expense reflected a $115,000 increase in payroll and related expense, primarily reflecting higher stock-based compensation. The rest of the increase in G&A was the result of higher legal fees for filing new patents and maintaining our patent portfolio. These legal fees increased by approximately $114,000.Looking at our results on a sequential quarterly basis. Second quarter of 2019 GAAP net loss was $3.6 million compared to a GAAP net loss of $3.5 million in the first quarter. GAAP net loss per share stayed flat at $0.24 per share in Q1 and Q2. Non-GAAP adjusted EBITDA loss was $2.9 million in Q2 and Q1 as our operating expenses were basically flat quarter-over-quarter.Turning to the balance sheet. Our cash at June 30, 2019 was $19.1 million compared to cash of $15.1 million at the end of Q1, representing cash consumption of $2.4 million during the quarter, excluding net proceeds of $6.4 million from our registered direct offering in May. Q2 cash consumption of $2.4 million was down from $3.8 million in Q1.As I discussed in our last earnings call, Q1 2019 will be our highest quarterly cash burn of this year, following the same seasonal pattern we have had since our IPO, due to the timing of annual payments in Q1 that are expensed ratably over the year in our income statement.On our May update call, I gave guidance that 2019 non-GAAP operating expense would be in the range of $12 million to $13 million. We continue to anticipate that we will lease an additional EPI deposition tool, but we also expect that outsourcing and metrology expenses will return to more normal levels in the second half of this year compared to the first half. Accordingly, we expect full-year non-GAAP operating expense will be in the range of $11.5 million to $12.5 million and our cash consumption excluding proceeds of our May equity financing will be in the same range.Although we are not providing revenue guidance for the full year, we're happy to share our outlook for next quarter. Atomera expects to see a record level of paid customer engagements with a larger set of customers than ever before. We expect that revenue in Q3 2019 will be in the range of $200,000 to $250,000, primarily from engineering services. We believe that our improved pipeline is a direct result of the breakthroughs we announced in May and the pipeline includes engagements in all three areas, namely 5-volt analog, RF-SOI and FinFET. While we are pleased to have more paid engagements, I caution that we have not announced new licensees and therefore, our visibility to revenue in future quarters remains limited. Engineering services revenue in the past has been very lumpy, and we expect that will continue to be the case going forward.With that, I will turn the call back over to Scott for a few summary remarks before we open the call up to questions. Scott?

[Scott Bibaud:]

Thanks, Frank.In Q2, Atomera has been able to successfully build on the momentum we generated with our breakthrough results. Our customer acquisition is going extremely well, and we hope to report a record quarter, both in terms of revenue and customer participation in Q3. Customers are actively assisting us with feedback that is driving our R&D pipeline with ideas that will make us more successful more quickly. Atomera is delivering compelling solutions to some of the most difficult problems in the semiconductor industry, and unlike other exotic options, the technology is available now. It is very clear that the Atomera of today is far more valuable than at any point in the life of the Company. We look forward to sharing more of our successes with you as we continue to build Atomera into an important and successful technology provider to the semiconductor industry.Operator, we will now take questions.

[Operator:]

The conference has now concluded. I will now turn the call over to Mr. Bibaud for closing remarks.

[Scott Bibaud:]

Well, thank you all for attending today's presentation. Atomera had a very successful quarter, and we believe we will continue to carry this momentum into Q3. Please continue to look for our news, articles and blog posts to keep you up-to-date on the Company's progress. You can sign up for them along with investor alerts on our website, atomera.com. Should you have additional questions, please call Mike Bishop, and we'll be happy to follow up. We look forward to seeing you during some of our scheduled marketing activities, which we'll be announcing soon. We thank you again for your support and look forward to our next update call in November. Thank you.

[Operator:]

Ladies and gentlemen, thank you for your participation on today's conference. This does conclude our program, and we may all disconnect. Everybody, have a wonderful day.