Hello, everyone, and welcome to Atomera's Third Quarter Fiscal Year 2022 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'll 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 on the Company’s annual report filed on Form 10-K filed with the SEC on February 15, 2022, and in our prospective supplement filed with SEC on May 31, 2022. 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. Now, I would like to turn the call over to our President and CEO, Scott Bibaud. Go ahead, Scott.

Good afternoon, and welcome to Atomera's third quarter 2022 update call. Heading toward the end of the year, we continue to be impressed with the depth of the relationships and engagements with our customers and believe we are moving closer to commercialization each quarter. The process takes time, but we are seeing good traction. I will highlight some of our progress in the third quarter, then I'll turn the call over to Frank to go through our financials. First, though, I'd like to address some industry trends and their impact on Atomera. Last quarter, I predicted the softening of demand in the semiconductor industry that's now playing out in earnings calls and analyst reports. Forecast reductions seem to be broad-based, driven by lower demand and export control restrictions. Associated with that, we are seeing some reductions in projected capital expenditures, although I would emphasize that this is a reduction from the record levels previously forecast by many companies. What does this mean for Atomera? Historically, in periods like this, we have seen an increase in development activity by our customers, resulting in additional wafer runs, and a growing interest from new customers as they seek competitive advantages coming out of the industry slowdown. This case does not appear to be an exception. We see strong and growing interest among our customers in introducing new specialty processes that can benefit from MST. Capacity is available in their factories to get the work done, and allocation of CapEx budgets, although somewhat reduced, is still plentiful to support the acquisition of new technologies and equipment. In short, this is the type of environment that provides a tailwind to the adoption of Atomera technology. As you can see from our customer pipeline, we continue to work with a wide range of customers, together representing at least 50% of the world's largest semiconductor makers. The solid progress we experienced in prior quarters has continued into the second half of this year. We maintain our focus on driving customers to adopt MST, in particular, those who are furthest along in their development. The semiconductor industry is known to experience the domino effect, where once a significant industry participant adopts a new technology, other players respond as fast followers. We are encouraged by the activity among early adopters and are working with urgency to move them towards production. On that note, I'd like to update you on some of our more important customer progress. In the past, we've spoken about two JDA customers. During the last quarter, the Atomera team has been collaborating closely with each of these customers to find MST solutions to real-world problems being experienced in their fabs. We have been making very strong progress. In each of their applications, I believe we are bringing new technical capabilities that were not possible to achieve prior to their use of MST. Although we are restricted on what we can publicly disclose, let me assure you that we have been achieving the results that we have been hoping for since early this year and are now more assured that our solutions will progress through the development process toward volume production. Likewise, we are actively working with each of our four other licensees to advance plans we hope will ultimately lead to further stages of licenses and then on to commercialization. For some, we are awaiting data that will help us to prepare for the next steps. For others, we have the proof that is necessary to shift from demonstrating MST benefits to planning for production. As always, we will provide you with news on any significant milestones as they happen, subject to the confidentiality requirements of our customer engagements. In particular, when agreements are executed, we will disclose them in real time and several of these are in the pipeline. Unfortunately, this process can be frustratingly slow. But given the positive developments we have driven, I believe it's only a matter of time for MST to become widely adopted. During this quarter, we continue to see strong interest in plans by more companies to adopt our two most mature and complete MST solutions or products, namely those around MST-SP and MST for RF-SOI. In both those areas, we now are convinced of two important things: one is that the solutions we are offering here are only possible through the use of MST; secondly, we now understand the complex mechanisms driving these solutions even better than our customers, which gives us a unique ability to not only license our technology but to meet our mission, which is to collaborate with customers to achieve financial benefit for both companies. MST technology is specifically designed to help customers shrink their die to put more product on each wafer, which leads to cost reductions and higher profitability. In times when capacity is tight, this may not be the first priority of semiconductor makers. But when they go into a slowdown like they are in now, this becomes absolutely critically important. I think it's a fair question to ask, why if these technologies and their associated economic benefit are so compelling, does it take so long to adopt? Of course, there are many answers to this question, but two stand out. Most companies have some kind of long-range product development roadmap; perhaps they have been in production with technology A for three or more years, and it’s time to work on an upgrade. Consequently, their engineering team focuses on technology A for a period, so technology B and C will have to wait their turn even if they have identified a real breakthrough. Generally, after identifying the big breakthrough, they immediately add that development plan to the next year's development efforts. So, although they're committed, work does not begin for several months. This is no reflection on the interest or expected return; it’s just an example of allocating scarce resources. Once they do begin, the development project timeline can vary greatly depending on how full the fab is. For the last few years, throughput was extremely slow, but we expect it to accelerate now. So, as I said earlier, it's only a matter of time. As an example, we introduced MST-SP to the market last year, and even though it generated a lot of interest, we are in more discussions about new customer engagements now than we were last year. And once new programs get started, I expect development to move faster than in the past. In the press, you frequently read about developers of the most advanced nodes and how they are experiencing delays due to yield problems, which prevent manufacturability in high volume. This is one of the principal reasons why it's taking longer to bring new nodes to market, a phenomenon people call the slowing of Moore's Law. Atomera's technology is particularly versatile for use in these most advanced architectures of next-generation transistors, which are called gate-all-around transistors. During the last quarter, we have seen evidence of this in successful experiments conducted on our tools. A fundamental challenge designers are trying to deal with at these ultra-small nodes is that they are precise, highly-doped structures are sitting only angstroms away from other precise highly-doped structures, and they need to keep these boundaries in place through the whole manufacturing process. But high concentration dopants in nano-transistor structures tend to diffuse when exposed to the heat required in subsequent manufacturing steps. And there are a few mechanisms to prevent that diffusion. The industry has reacted by trying to lower the temperature of its manufacturing process, but a certain amount of heat is still necessary, so they need more techniques to solve the problem. Atomera's MST is one of the best-known materials for preventing dopant diffusion. In gate-all-around transistors, that means it can be used to prevent source or drained dopants from diffusing into the channel and thus preserve high electron mobility. It can also help prevent punch-through between source and drain in the silicon substrate. Even beyond dopant engineering, MST can be used to lower contact resistance at the silicon-metal interface. It can reduce high-k metal gate stack height. And finally, it can improve carrier mobility and gate leakage by reducing high-k metal gate intermixing. For a process development engineer, each of these MST benefits provides a distinct tool for getting gate-all-around technology into production faster and at a higher yield. An implementation of MST in the manufacturing process is straightforward, because epitaxial deposition is already used extensively for the process steps adjacent to the MST layers when building gate-all-around structures. Many of the ideas I've just spoken about have become apparent through our team's R&D efforts this year between progress with our customers, new emerging opportunities, and the increasing expertise of the Atomera team in addressing critical industry issues. I believe our progress this past quarter is even greater than what we saw in the first half of the year. I wish you could experience the pace of customer and development activity inside Atomera. As I said before, this point in the industry cycle is ideal for our company, and we are doing everything in our power to take advantage. Our team is optimistic that these advances will soon lead to new customer growth, and even more importantly, licensing activity that will take more customers towards commercialization and will make Atomera a recognized semiconductor technology leader in the industry. Now let's have Frank review our financials.

Thank you, Scott. At the close of the market today, we issued a press release announcing our results for the third quarter of 2022. This slide here shows our summary financials. Our GAAP net loss for the three months ended September 30, 2022, was $4.6 million or $0.20 per share, up slightly from our Q2 GAAP net loss of $4.5 million, which was also $0.20 per share. In Q3 of 2021, GAAP net loss was $4.2 million or $0.19 per share. GAAP operating expenses in Q3 2022 were $4.7 million, an increase of approximately $210,000 over our $4.4 million of operating expense in Q2. This increase was primarily due to an increase of approximately $310,000 in R&D expenses reflecting headcount growth, offset partly by a $100,000 decline in G&A expense as legal and other fees declined sequentially, while sales and marketing expenses were basically flat quarter-over-quarter. As compared to our Q3 2021, GAAP operating expenses last quarter increased by $521,000, primarily as a result of a $510,000 increase in R&D expense due to increased engineering headcount, recruiting expenses, and higher total lease costs due to a full quarter of lease expense in Q3 2022 compared to only a partial quarter in Q3 2021. Non-GAAP net loss for the third quarter of 2022 was $3.7 million, compared to losses of $3.6 million in Q2 and $3.4 million in Q3 2021. The differences between GAAP and non-GAAP operating expenses and accordingly between GAAP and non-GAAP net loss are almost entirely due to non-cash stock compensation expenses. Our cash balance at September 30, 2022 was $23.3 million compared to $21.8 million at the end of Q2, which is an increase of $1.5 million. Operating cash used during Q3 was $3 million. And during the quarter, we brought in approximately $4.6 million of cash from financing net of expenses and commissions, reflecting sales under our at-the-market, or ATM, equity program. During the third quarter, we sold 386,415 shares at an average price per share of approximately $12.34 under the ATM. As of September 30, 2022, we had 23.9 million shares outstanding. Turning now to our outlook for the rest of this year and 2023. Never before has Atomera been engaged across such a diverse array of applications where our customers need innovative breakthroughs like MST. Obviously, we'd like these engagements to offer near-term revenue. And when additional customer wafer runs are required, licensing and go-to-market decisions get pushed out. Accordingly, our guide for revenue in Q4 is zero, and we're not providing revenue guidance beyond the current quarter, which is consistent with our past practice. Our last update call in July, I reduced our full year guidance from non-GAAP operating expenses to a range of $14.75 million to $15.25 million. For the first nine months of this year, our non-GAAP expenses totaled $10.6 million. And because we have good visibility through the end of the year, I expect our full-year operating expense on a non-GAAP basis will be at or slightly below the bottom end of that guidance range. On our next earnings call, I'll provide more specific color on our planned 2023 spending.

Thanks, Frank. As expected, the strong momentum we built in the first half of this year has given us a solid platform to build on for the accomplishments of the second half, and we are taking full advantage. Customer visits and associated progress and development are accelerating. And with the dip in semiconductor backlog, companies have the capacity and inclination to implement new solutions like MST to add capacity, cut product costs, and achieve a competitive advantage. Atomera is perfectly positioned in this environment with a variety of tools to meet their needs. We continue to believe that this combination of our technical capabilities in the context of this market provides an ideal environment to add to our license portfolio and to move forward to commercialization, and we look forward to sharing news of those efforts with you in the future. Mike, we will 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. All right, and now, our first question comes from Richard Shannon of Craig-Hallum. Richard, if you can kindly unmute and turn on your camera, you may begin.

Thank you, Mike, Scott, and Frank for having me. I apologize for trying to listen to two calls at once, so some topics may have already been addressed. Regarding your first JDA customer, I understand you have been working with one business unit in central engineering. Have you expanded that relationship beyond the initial business unit? If not, do you have any updates on efforts to broaden that relationship?

Yes, thanks for the question, Richard. So, we aren't really talking about expanding into different business units. But what I can say, when we get to kind of a license agreement, we will be able to say, we’ve definitively expanded within the business unit, that's when we will be able to disclose it. But I can say, and in my prepared remarks I made a few comments about the work that we're doing with JDA customer one and the breakthroughs that we've kind of achieved with our R&D team here. So, obviously, we are continuing to work very closely with them and continuing to develop work that we believe positions us well to get to that type of agreement in the future.

Okay. Fair enough then. Scott, I think you had some comments, and again, I probably missed some of them. But it sounds like you're fairly excited about the environment here that allows a little less utilization and offers more opportunity to run more R&D wafers. To what degree are you seeing that? Did you get a full view on what utilization customers have and to what degree they're prioritizing work with you versus other avenues they may have for the small number of R&D wafers they run?

We definitely have no issues planning and starting new runs for customers who are already running wafers and looking to do more. In the past, new customers often expressed concerns about our technology due to difficulties getting wafers through the fab, but we've seen that concern diminish. Now, we have many new customers we are in discussions with and expect to engage with them swiftly. Additionally, even when we had wafers running with some customers over the past couple of years, the process was often slow because their facilities were fully occupied with revenue-generating wafers. However, we are starting to see some easing in that area. It's important to note that while analysts are discussing a slowdown in semiconductors, that mainly reflects expected future bookings and hasn't fully impacted the factories yet, although people are aware it's on the horizon.

Okay. Fair enough then. Hitting on the topic of leading edge, which had some nice comments. I think I heard most of them there. I guess a couple of questions there. Obviously, there is a lot of work that needs to be done here both on your end as well as industry work here. To what degree of confidence do you have of not only getting licensees for the kind of gate-all-around technologies but also intersecting with the introduction of those technologies to the market versus some updates they may have down the road? How do you think about that?

It's always a challenge to get on board at the right time so you can be there when it takes off. I've mentioned this before regarding other technologies; everything we discuss involves additive technologies that will enhance gate-all-around processes. Even if they're not utilized in the initial stages, they might be applied in subsequent versions for better yields and performance. If you examine TSMC's 5-nanometer product lineup, you'll notice they had several iterations of 5—first, second, and third versions. We believe if we don't connect with the first, we can certainly connect with the later ones. There are only three companies working on this technology, but the methods we've developed for gate-all-around are also relevant to the advanced work being done by memory manufacturers. Therefore, we are very optimistic about it.

Okay. Great perspective there, Scott. Thanks. Maybe a couple of quick questions for Frank. If I missed this, my apologies, but did you update the FX spend rate for this year? Did you change it? And would you have us think about a different rate for next year? It sounds like there's a little bit of hiring plans or other work that might lead us to think there's something of an increase next year. Just kind of qualitatively can you help us think about that?

Yeah. No, happy to do that, Richard. So, in terms of, for the rest of the year, I had given a band of $14.75 million to $15.25 million. And given that we ended Q3 at under $10.6 million through the first three quarters of the year, I'd expect that we'd come in kind of right around the bottom of that range. So, the bottom end being $14.75 million, I think we'll be at or below that. Directionally, we're in the middle of our planning process for next year. I wouldn't expect there to be big step functions. But if you look back for the last four or five quarters and look at the sequential growth rate, I don't expect that we would grow spending less than that. But I'm not prepared to give any specific guidance for next year. But I think if you look at the trends quarter-on-quarter that we've seen throughout the year and carry that into next year, that's a reasonable place to think about where we'll be.

Okay, that's helpful, Frank. And last question from me. On the comments you had on the ATM, I caught the price per share average that you had there, but I missed the number of shares that you took down.

Yeah. So, the number of shares we sold last quarter was 386,415, and that's in our 10-Q also.

Yeah, thanks guys. Thanks for taking my question. Maybe Scott, if I can start off with your Chinese exposure, to what extent are you exposed to the China market and those partners that may or may not be having any of the economic malaise that we're seeing around the rest of the industry?

Thank you for the question, Cody. For many years, we were cautious about heavily engaging in China due to intellectual property concerns. As we began to get more involved, we decided to pull back during the Trump Administration because of certain signals from Washington. Currently, we do not have significant exposure to China. If the trade situation changes, we would likely explore opportunities there, but at the moment, it does not affect us. In fact, the trend of companies seeking to move process technologies into domestic fabs presents us with the opportunity to help these fabs stand out by incorporating our technology as they adapt.

But you're not currently working with any partners in China?

That's right.

Could you discuss the current macroeconomic environment and its impact on customer sentiment as companies are tightening their budgets? I understand that reduced facility usage could present opportunities for you, but there comes a point when customer attitudes shift towards caution and restraint. You've experienced similar cycles in the past that may position you advantageously in the future.

That's a great question. We're at the early stages of this shift, and currently, we're in a favorable position. Over the past few years, capacity has been limited, which has hindered development activities for many companies. They were mainly focused on improving yield or increasing output from existing capacity. Now, with a buildup of research and development ready to be implemented, we haven't experienced a situation where the focus has been solely on cost-saving to the extent that development work is neglected. Typically, when companies recognize the need to cut costs, they start to explore ways to reduce product costs, which allows them to enhance profitability using the limited manufacturing capacity they have. This presents a strong opportunity for us. If this slowdown continues for a while, I believe it will significantly benefit us and put us in an excellent position.

Your comments about MST's application are very encouraging. However, as you mentioned, there are only a few players developing this and it is still in the development phase. Are you currently having active discussions about your implementation, or was that more of a general thought on your part that it should be applicable and makes logical sense, but we aren't seeing additional partners yet?

We are in contact with the companies involved in this work, and they are aware of our technology. We have varying levels of direct engagement with them, and we are actively promoting deeper involvement. I believe that at the cutting edge, you often see the most innovative efforts, with top engineers eager to work on these projects. While they may be reluctant to seek external assistance like ours, the advantages we can offer are significant. There are several distinct benefits we can provide, and companies can choose to implement any or all of them easily. For instance, adding our technology to an older process node requires convincing them to incorporate a new piece of equipment, which is straightforward. However, at the most advanced nodes, where they already use epi extensively, they would only need to add a few extra steps to integrate MST. We are optimistic about our prospects if we get involved at the cutting edge, as this could lead to inclusion in future node developments.

Lastly, Scott, can you share your thoughts on the 2023 budgets for your customers? You've likely been gathering insights on their overall capital expenditure plans. How do you perceive your customers' willingness to invest next year? Is that in line with your positive outlook?

Yeah. So, six months ago in my Q1 earnings call, I mentioned that our customers were making record forecasts for their CapEx, planning to spend more than ever before in the company's history. While some have since scaled back those forecasts, they are still planning to spend significantly more than they did two years ago. I'm very optimistic about this. Many of these companies have substantial R&D budgets in the billions, and our collaboration only involves a few million dollars, which is minor for them. Therefore, I don't expect to see any issues with customer cutbacks due to cost concerns in the next year to 18 months.

I appreciate that. I wanted to discuss your visibility. I understand that your typical approach has been to guide towards zero in the absence of certain deliverables. However, we have remained at zero for estimates over the past few quarters. I'm curious if there is a point on the horizon where you might become more optimistic. Are there specific milestones or hurdles you anticipate that could allow for more accurate revenue predictions in 2023? Or should we expect to maintain this outlook for the foreseeable future?

No, I understand your frustration with that question, Cody. The challenge we've been facing during Phase III, when we're working on integration licenses, is that they are difficult to predict. Once a customer secures a manufacturing license, we gain a bit more insight into their activities. We believe there are several customers in our portfolio that may obtain a manufacturing license soon. However, we are cautious about predicting exactly when that will occur, as a wafer run could take nine months, and while we hope to see progress shortly after that, it’s possible they could have another wafer run that takes an additional nine months. Nevertheless, I can say that we have several potential customers that we hope to reach that milestone with. Once they obtain the manufacturing license, we can move them into Phase V, distribution license, at which point we can start making more accurate revenue forecasts, including upfront license fees and future royalty payments. I am optimistic we will reach this stage soon, as I too am weary of providing zero revenue forecasts and would like to offer more substantial information.

Sure. And Frank, one last thing for you. Your ATM program, is there a range evaluation estimates that you have your thumb on that where you believe that, that it's just so cheap you've got to be buying more aggressively and the upper end of the range where you might buy less?

I believe it's quite the opposite. This situation resembles a stock buyback, as you're considering a range for our ATM sales. However, we don't adhere to strict ranges. The average execution price from last quarter indicates that we are quite careful with the program. We have to balance two things: maintaining enough cash on our balance sheet for anticipated needs and executing at the best price to minimize dilution. We’ve shown good execution using ATM instruments according to these metrics. While I can’t predict absolute ranges going forward, it will depend partly on our control, such as how we execute and our capital requirements. The unpredictable factor is the broader equity market. Our stock price is impacted by general market trends, which have been quite challenging over the past year. We can’t forecast when that might improve, so there isn’t a rigid formula for our approach.

Great. Well, thanks Frank. Thanks, Scott. Appreciate it.

Thank you, Cody.

Thank you, Cody.

Some questions have come in through the Q&A chat. One of them relates to the wafer runs we have discussed in the past. Could you provide more details about the wafer runs you have previously announced or talked about on earlier conference calls?

We previously mentioned that we have several wafer runs in progress. So far, we've received some preliminary results that are very encouraging. While some wafer runs have reached completion, others are still ongoing. I can share that we've gathered data from these runs that we anticipated at the start of this year. However, we encountered some technical issues with one of the runs, which are unrelated to our technology and may cause further delays in results. I cannot disclose the decisions customers have made based on this, but we are actively collaborating with them and are optimistic that this will lead us to the next steps, specifically license agreements, in the near future.

Okay. And I know we touched on it a little bit in the prepared comments, but there's a couple questions about updating on the status of the JDA. So, maybe address what things are needed for your JDAs to make it to production.

I made some comments about our joint development agreements. Regarding the first agreement, we have been collaborating with the central engineering organization and continue to engage with that customer and various groups seeking our assistance with technology challenges. We've seen impressive results from our efforts. However, we have not yet reached the stage where a business unit has committed to taking a license and moving forward. That would be an announcement I could make. Currently, we are not at that point, so I don't have much more information to share. For the other JDA customer, we are working directly with the business unit, which has wafers in the fab, but we do not have results yet, so I can't provide much of an update there either. We are still closely collaborating with them and hope to progress to the licensing stage soon.

There's a question about how your intellectual property portfolio provides a competitive advantage in the semiconductor industry.

Yes, that's actually a really good question. Our technology and IP portfolio consists of more than 300 patents, both granted and pending. These patents serve as a protective framework, much like a cloud. Within each patent, there are numerous claims that safeguard our innovations. We aim to build patents around fundamental MST capabilities and their applications in specific areas. For instance, I mentioned gate-all-around technology today, and we hold patents that relate to both MST and gate-all-around technology. For anyone wanting to utilize MST, our extensive coverage surrounding this technology makes it very challenging for them to circumvent it or find any gaps. The intricate intersections of our patents create a strong barrier. We are confident that our coverage is robust, not only for our core technology but also for many potential future applications, supported by ongoing patent applications that are application-specific.

Okay. And final question here. What has Atomera done in the memory sector?

Yes. Most of our work in the memory sector has focused on internal R&D aimed at addressing the needs of the memory market. We know these needs by collaborating with memory manufacturers and consulting with them to identify ways our technology can resolve their issues. One area we are particularly enthusiastic about is DRAM and our capability to use MST to create smaller sense amplifiers, which currently account for about half the size of an overall memory chip. If we can significantly reduce their size, it could lead to substantial savings in power and area, making it very valuable. However, to engage with memory companies on these issues, we must conduct extensive R&D to gather the data needed to substantiate our claims. We require three components for almost any customer engagement: a theory explaining why our solution would work, TCAD modeling software to demonstrate implementation and functionality, and ideally, measured silicon results showcasing the benefits we promise. If we can achieve these three elements, we have a strong opportunity to engage with them and progress further. This is one of the key initiatives we are pursuing in the memory market, alongside several other ideas we are exploring more discreetly.

Okay. Thanks, Scott. And we’ll turn it back to you for closing comments.

All right. Well, I just want to thank everyone for attending today's presentation. I'm very pleased to share with you our recent strong progress and to give you a sense of the optimism we are experiencing inside Atomera. Please continue to look for our 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 our scheduled marketing activities, including the Benchmark Discovery Conference. 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, everyone. This concludes the Atomera third quarter '22 conference call.