Earnings Call Transcript - ATOM Q1 2022

Mike Bishop, Investor Relations

Hello, everyone, and welcome to Atomera’s First 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 start with prepared remarks from Scott Bibaud, Atomera’s President and CEO, and Frank Laurencio, Atomera’s CFO. Following that, we will open the call to questions. If you are joining by telephone, you can follow a slide presentation that accompanies our remarks on the Events & Presentations section of our Investor Relations page on our website. Before we begin, I want to remind everyone that we will make forward-looking statements today. These statements, whether in the prepared remarks or during the Q&A session, involve inherent risks and uncertainties. Such 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, 2022. Except as required by federal securities laws, Atomera has no obligation to update or revise forward-looking statements made here or elsewhere to reflect changes in expectations. Additionally, please note that we will be discussing non-GAAP financial measures as defined by SEC Regulation G. Reconciliations of these non-GAAP financial measures to the most comparable GAAP measures are included in today’s press release on our website. Now, I would like to turn the call over to our President and CEO, Scott Bibaud. Go ahead, Scott.

Scott Bibaud, President and CEO

Good afternoon, and welcome to Atomera’s first quarter 2022 update call. I’m sure you’ve noticed the momentum that’s been building over the course of this year, and I hope to share some details of that with you today. Then, after providing some insight into latest industry trends and how they affect us, I’ll turn the call over to Frank to briefly review the numbers and outlook. As you recall, we entered into a joint development agreement in January of last year with a large market-leading semiconductor provider. The goal of the agreement was to install MS capability in their fab and to work with their R&D team to validate MST’s performance benefits while simultaneously proving that it could meet their manufacturability requirements. This opportunity arose because one of this customer’s business units had found MST’s capabilities compelling and subsequently referred us to their R&D arm, whose job it is to vet incoming technologies. This customer invested a lot including production tool resources, engineering time and money into the initiative. And working together, we were able to install the MST technology in their fab. Two weeks ago, we were proud to announce that we had successfully met or exceeded all the requirements of the JDA, resulting in two important outcomes. One is obviously the milestone payment from the customer, which are recognized as revenue in the first quarter. But the more important step is the ability to work with the customer’s business units to eventual production. As you know, Atomera’s number one goal is to ship MST-based products, resulting in royalty payments. A successful outcome to this JDA was necessary, so we can start moving those business units forward on MST integration and towards commercial royalty-bearing production. Comparing the phases in this JDA with our standard business model is not appropriate, since BUs will have to go into integration before moving into qualification and later into production. We will continue to provide updates as best we can, but as our followers know, there’s a high degree of confidentiality demanded in this industry. And this customer is especially sensitive. Further, as everything in this JDA has taken a bit longer than our initial expectations, we’re not guiding to a timeframe on these next steps. However, since they completed the time-consuming epi installation process and will not have to send wafers to Atomera for MST deposition, future integration process cycles should be shortened. An hour ago Atomera announced that we entered into our second JDA, this time with a large semiconductor foundry who’s been working with us in phase 3 for a number of quarters. After extensively reviewing our technology, our TCAD simulations, MST enabled wafers and the impact MST can have on their designs, this customer decided to enter into a joint development agreement with Atomera, the purpose of which is to define exactly what steps will be taken with high priority and with a full set of resources to take MST-based products into production, if the results of our latest experiments meet their expectations. In our business, we expect each engagement to differ and therefore each JDA to have unique properties. So, I’d like to note that this JDA is different from our first in some important ways. First, it’s not being administered by a central R&D group, but by one specific technology area. So, we believe this customer has the ability to move faster than our prior JDA partner on a first product. Second, this contract was structured to smooth the path towards productization after we pass the next milestone. So, there’s no revenue associated with signing but the customer has committed to prioritize our wafers and dedicated team who can help move the process to production quickly, and it clearly spells out the revenue expectations coming in the later phases of the JDA. That said, if we’re successful on this JDA, we believe the customer will move expeditiously towards commercialization because all the legal and contract delays should be behind us. So, with these two JDAs underway, I’d like to take a step back and review where we are. We have 19 customers and 25 engagements in our pipeline, of which we have 2 JDAs and 5 paid licenses. We’ve had one new customer move into phase 2, offset by another engagement that was consolidated as a customer combined two programs into one. Two of our analysis customers are foundries which will help us make MST available to a wide set of fabulous companies targeting many different applications. This has been a goal of Atomera’s for the last year, and we’re making good progress in that direction. Unfortunately, I can’t go into the exciting details of each engagement because we are working on some high-potential areas which can provide significant competitive advantage to our customers, making them especially sensitive to confidentiality. I can say that we are getting very promising results, which has led these customers to deeper engagement and hopefully to more JDAs on licenses. The pace of the activity in our facility has increased over the past six months. And our goal, as always, is to move each customer towards commercialization, as quickly as possible. We believe the advancements in our JDA program will spur competitive pressures on all of those in our pipeline to move faster. Last quarter, our technology was recognized by some important third parties, which has resulted in several key marketing initiatives. Towards the goal of moving customers faster, Atomera created MSTcad simulation software, which rides on top of Synopsys’ industry-leading Sentaurus TCAD tools. Last month, Synopsys hosted a joint webinar on how the MST tool set can be used to model MST’s optimized transistor performance. Working together with Synopsys, we have already helped industry players gain a much better understanding of how MST can be integrated into their semiconductor manufacturing process. This webinar has directly led to several incoming inquiries about using MST in new customer designs. Also, we submitted a paper showcasing the results of our MST-SP technology to a very prestigious IEEE power conference. The ISPSD conference is the premier international forum for technical discussions on all aspects of power devices. Although thousands of papers were submitted, ours was one of only a few selected for the conference in May. There is no doubt that our submission will expand interest in MST-SP, with the key players in the power semiconductor industry, who we know will attend this important conference in May. Our work on RF-SOI technology, which is critically important to 5G cellular continues to consume a lot of our time and resources because of its great commercial potential. We hope this area will be one of the earliest to adopt MST and to bring it to production, considering the significant improvements we can bring to designs. Likewise, we continue to believe our technology has excellent potential in memory and for advanced nodes. Now, I’d like to address some recent developments in the semiconductor industry, which I believe create an exceptionally favorable environment for Atomera. Although the big headlines tend to focus on how TSMC, Samsung and Intel are competing to bring the 3-nanometer or 2-nanometer nodes to market, the industry has recently been recognizing the importance of the legacy nodes and in particular fabs running 200-millimeter wafers. Given the chip supply shortfalls, it seems obvious that the industry needs to add capacity in this area, and 200-millimeter fab capacity is forecast to grow 21% to mitigate the supply imbalance. But there are a few problems. First, the vast majority of 200-millimeter lines have been operating in fully depreciated fabs, which can be very attractive financially when operated near capacity limits. Building new fabs is very expensive and 200-millimeter equipment, which has had very limited production over the last decade is in short supply and is priced at a premium. This situation will place substantial margin pressure on these companies for many years until they can defray the very-expensive build costs. So, these new fabs can’t easily get equipment, and when they can, the associated CapEx costs will drive lower profitability than they’ve experienced in the past. MST can help solve these problems for both the fab owners and their fabless customers by allowing them to shrink die and thus boost throughput with only a minor increase in tool costs. 200-millimeter epi tools are available and MST will allow operators to continue utilizing their depreciated fabs with the associated good economics. Foundry capacity is forecast to stay tight, while industry-wide CapEx is forecast to grow by 24% in 2022, primarily in 300-millimeter wafer fabs. To deal with the capacity crunch and pay for the CapEx, fabs are raising prices on their wafers up to 20% now, and industry insiders say that price rises are not transitory, they’re permanent. In this situation, as fabless semiconductor makers will tell you, the need to get more die per wafer is imperative. MST provides a path to get to these improvements that is both easily implementable and at a more reasonable price than most other alternatives. Atomera’s spreading this message to industry players, and we believe that it will lead to widespread adoption over time. We remain laser-focused on getting the first player into production, who we believe will drive the domino effect that’s been predicted for some time. As I said in the past, we believe industry conditions have reached a point where both near and long-term structural changes will provide exceptional opportunities for Atomera. In our Q4 call, I said that we were entering into 2022 with strong momentum, and I think you will agree that it is continued with a new licensee, successful execution on our first JDA, and the opening of a new JDA. On the technical development side, we also continue to make good progress, as recognized by important third parties in the industry. We still do have more JDAs and licenses in our pipeline, which I believe will help illustrate our gathering momentum as we move through the year. Now, Frank will review our financials.

Frank Laurencio, CFO

Thank you, Scott. At the close of the market today, we issued a press release announcing our results for the first quarter of 2022. This slide shows our summary financials. Our GAAP net loss for the three months ended March 31, 2022 was $4.1 million or $0.18 per share, compared to a net loss of $3.6 million or $0.16 per share in the first quarter of 2021. In Q4 2021, GAAP net loss was $4.2 million or $0.18 per share. Revenue in Q1 2022 was $375,000 compared to $400,000 in Q1 2021. We did not recognize any revenue in Q4 last year. GAAP operating expenses in Q1 2022 were $4.3 million compared to $4 million in Q1 2021 and $4.1 million in Q4. Non-GAAP net loss for the first quarter of 2022 was $3.3 million compared to losses of $2.9 million in Q1 2021 and $3.4 million in Q4 2021. Non-GAAP operating expense last quarter was $3.6 million, compared to $3.4 million in Q4 and $3.3 million in Q1 2021. The $400,000 of revenue that we recognized in Q1 of last year had a 100% gross margin since it consisted solely of the grant of a manufacturing license to our first JDA customer. In Q1 2022, our $375,000 of revenue consisted of a JDA success fee, which involved Atomera engineering costs and the integration license revenue, which included costs of MST deposition and wafer delivery. Our cash balance at March 31, 2022 was $24.5 million, compared to $28.7 million at the end of 2021, a decline of $4.2 million during the quarter. As we’ve discussed on previous earnings calls, our cash usage is typically highest in the first quarter of each year due to annual payments, which are expensed throughout the year on our income statement. As of March 31, we had 23.4 million shares outstanding. Scott mentioned in his remarks that we’ve signed a new JDA, which we believe will lead to us recognizing license and engineering services revenue, and more importantly, will accelerate our path to commercialization with this foundry partner. We are not yet in a position to predict the timing of when we may reach these revenue-generating milestones under the JDA. And consistent with our past practice, I’m not guiding revenue beyond the current quarter. So, our guide for Q2 revenue is zero. On our last quarterly update call in February, my guidance for non-GAAP operating expense for 2022 was a range of $15.25 million to $15.75 million. Although, we are slightly behind our hiring targets, we remain focused on adding engineering headcount, and we are not changing our previously stated guidance. With that, I’ll turn the call back over to Scott for a few summary remarks before we open up to questions.

Scott Bibaud, President and CEO

Thanks, Frank. As you’ve heard in this call, we continue to gather steam here at Atomera and are quite excited about some of our near-term developments as well as the underlying macro environment, which is creating favorable long-term conditions for MST to be widely adopted across more and more applications. As we work with more customers and unveil new capabilities of our technology, our total addressable market is constantly expanding. We believe our recent successes are only the beginning of momentum, which will continue throughout the year, and will establish Atomera as a technology licensing leader in the semiconductor industry. I truly look forward to sharing those successes with you in the future. Mike, we can now take questions.

Mike Bishop, Investor Relations

Thank you, Scott. Our first question comes from Richard Shannon of Craig-Hallum.

Richard Shannon, Analyst

Thanks Mike. And Scott, thanks for getting me on here. Congratulations on your JDA announcement today. I think my first couple of questions are on that topic. I guess, Scott, first question here is, I’d like you to describe this a little bit better. You described how this is a little bit different than the first JDA that’s going through central engineering versus the new one that’s going through a business unit. Maybe you could help us describe how this moves faster to the first product here than in the other way. Is it just simply because it’s not going through the central engineering pipeline, or is there some other reason for that?

Scott Bibaud, President and CEO

Yes. Generally, when we engage with a customer, we are connecting with a specific business unit that identifies a problem and wants to use our technology to address it. They implement it and take it to production as a focused effort. This is the case with our current JDA customer. When we began working with them last year, one business unit expressed interest in our technology. However, because it is a large company, they have a policy requiring any new technology introduced by a business unit to be vetted by the central engineering group before it can be utilized more broadly. After consulting with that group, the positive outcome is that they invested time to evaluate and ultimately approved the technology for the rest of the company, allowing other business units to adopt it and move quickly to production. While the initial path from the start of the JDA to production has taken longer due to this vetting process, they are now prepared to go to production quickly across several business units. The new JDA we announced today focuses on a specific business, and if all goes according to plan, they will be moving towards production and hopefully gaining adoption from additional business units within the company.

Richard Shannon, Analyst

And regarding your last comment, Scott, I wanted to ask about the potential here. Do you have any engagement or potential engagement with other business units? Does this company also have central engineering working with them?

Scott Bibaud, President and CEO

Yes. In fact, we have been collaborating with this company during phase 3 for some time. They have experimented with various applications of our technology and have chosen to concentrate on this particular area first. However, we are discussing several other areas with them that could potentially expand once we achieve success in this initial area.

Richard Shannon, Analyst

Is there any additional information you can provide about this second JDA? You referred to it as a major semiconductor foundry. Can you describe any other aspects such as location, technology focus, or anything else? I suspect there isn't, but I wanted to check if there's more you can share.

Scott Bibaud, President and CEO

Yes. I can tell you that we did ask and try to say a lot more than we did and kind of negotiated for that. But ultimately, they weren’t very comfortable with it. And they may be more comfortable when we get to the later stages of licensing. But, we’ll see.

Richard Shannon, Analyst

We look forward to that day. Moving on to the first JDA, it's great to see the progress and the funds coming in. I would like your thoughts on how long the next steps will take. I realize it won't be immediate and will take a few quarters. Could you share your current expectations? Are there any limitations with this customer regarding wafer runs and analysis? Given the tight capacity, do you think that will be a constraint for you?

Scott Bibaud, President and CEO

I don't believe that obtaining wafers is the main constraint at this time. Currently, our central engineering group has confirmed that the technology is effective and meets performance criteria. We have also conducted tests that show we can move into high volume production, which is one of the aspects we are evaluating. Our next step is to persuade individual business units to adopt this technology and to go through the integration process, which is still in the early stages. Ideally, we aim to convince multiple business units, but it's too early to provide specific insights on that front. Additionally, we've installed MST at our first JDA customer's factory, which allows any new business unit interested in our technology to quickly test it. They can take wafers off their production line, process them through MST in the same facility, and conduct tests within a single day. This contrasts with standard procedures for other customers, which typically involve a month-long process for inspections and preparations after sending their wafers to us. For this initial JDA customer, the one-day testing capability should significantly accelerate their production timeline.

Richard Shannon, Analyst

Scott, you’ve mentioned several times during this call and in previous ones that your main focus is to get the first customer through the final stages, advance to phase 6, and begin production with the wafers. I’m not sure if I'm framing this question correctly, but I believe it's important to address it. Do you think we will transition a customer to phase 5 this year? Is this an appropriate way to describe the process for announcing the first customer in the JDA? Ultimately, will this lead to positive news for Atomera’s production wafers?

Scott Bibaud, President and CEO

Yes. I’m not going to predict when anyone will reach Phase 5. Is it possible? Yes. For the JDA customer, they will need to complete some integration work. To put it simply, think of it as developing a product. Their engineering team has indicated that this is a good ingredient for their product. However, before they move into production, they need to incorporate the ingredient and conduct several tests to ensure it functions properly and does not cause any errors. Once that is completed, they will progress towards production. Phase 5 involves entering production, so there is still some integration work that needs to be done. I prefer not to label these as phases since the process isn’t entirely linear, but they do need to complete the integration work before moving into the qualification work for Phase 5. That said, the integration work can proceed quite quickly if they utilize their internal tools.

Richard Shannon, Analyst

Scott, you made some interesting comments about the 200-millimeter capacity. My understanding is that several technology areas are primarily focused on that capacity. Previously, you mentioned RF-SOI, and I believe a significant portion of industry capacity for 5 volt analog is also involved. Is this limited capacity creating challenges for adoption, making it difficult to implement your technology despite the apparent benefits, or is it actually driving acceleration? Let me pause there.

Scott Bibaud, President and CEO

Yes, at this time last year, there were quite a few challenges, particularly with access to fabs. This year, while the industry hasn't seen clear signs that the capacity crunch is over, things are improving. People are starting to express more interest and willingness to run R&D wafers. After prioritizing production for some time, they now need to refocus on R&D to maintain innovation. Therefore, I don't see this as a significant obstacle for us in accessing 200-millimeter fabs.

Richard Shannon, Analyst

Sure, I will follow up on that topic later. There seems to be an interesting dynamic. I have one last question before I exit the call. From a broader long-term perspective, one of the six product or technology areas discussed in the last call involved advanced nodes, a significant topic in the semiconductor industry. Do you have any comments on engagement in that area? Specifically, I would like to know if you anticipate intersecting only with new node introductions or major variations of those introductions, or if there might be opportunities to engage with older nodes that are undergoing some refresh.

Scott Bibaud, President and CEO

Yes. I don’t know the exact answer to that question, Richard. But, I will tell you that we’ve had customers that have talked to us about yield enhancement on existing nodes that are in production, we have still advanced nodes, but doing work there. We also are talking to someone about something that would come out in the next generation, the leading edge. And I also want to say that when we talk about advanced nodes internally, we also kind of throw the memory guys into that category. Even though memory tends to be a little bit bigger line with, they’re still pushing the envelope on how they’re building wafers and are looking for solutions. And so, yes, I think we have a number of opportunities, both for new process nodes coming out and ideally to enhance some existing ones.

Mike Bishop, Investor Relations

Our next question comes from Cody Acree of The Benchmark Company.

Cody Acree, Analyst

Great. Thanks, everyone. I appreciate you taking my questions and I would like to congratulate you on the new JDA. Can you walk us through, Scott, your expectations for how we should view the license fees from this JDA? Given the situation with the foundry and that you’re not going through central research or central development, do you anticipate a different timing schedule, or is the first JDA signed a model to follow?

Scott Bibaud, President and CEO

I don't believe the first JDA we signed serves as a model. It's great to hear from you, Cody. I view our JDAs as mostly unique and not necessarily a template for one another. This specific JDA doesn’t generate revenue upon signing, but we have set milestones for the future. The first milestone depends on achieving positive results from our current collaborative efforts. The purpose of the JDA is to facilitate the process, so if we achieve good results, we're very confident about the next steps. They understand the necessary licenses, the timing, and associated costs. Additionally, they've committed to allocating certain engineering resources and priority production runs. We're investing significant effort into this and want to avoid delays due to contractual discussions or misunderstandings. We made our expectations clear regarding the high priority of this project. With everything now signed and finalized, I believe this is a significant advancement for us.

Cody Acree, Analyst

Excellent. So, as you look at the breadth of the engagement, what are the deliverables that you have committed to? And is it a matter of a single wafer run, so we were talking months, or are there larger developments at hand?

Scott Bibaud, President and CEO

I need to be cautious not to reveal too many specifics. However, I can say that based on the outcomes of several wafer runs that have been established, it's important to note that with any new semiconductor process development, the initial attempt is seldom a straightforward success. It's an iterative process. This aspect is considered in the agreement. We are looking for an indicator that with some adjustments, we can achieve the desired results. There are a few runs planned, and we have several opportunities to assess before we can conclude. If the first run exceeds expectations, we will meet the milestones sooner. Otherwise, if another run is needed, it will extend the timeline.

Cody Acree, Analyst

And how broad is the engagement with the foundry, across processes or customer?

Scott Bibaud, President and CEO

This first one is focused on a specific product area and process. However, we have engaged with several other organizations within the company. If we achieve good results with one, I believe we will have the opportunity to expand into various other businesses.

Cody Acree, Analyst

So, you are getting access to a larger customer base, or do you think it’s just different processes within the foundry?

Scott Bibaud, President and CEO

Yes, different processes within the foundry, which would be focused on different applications and so forth.

Cody Acree, Analyst

Okay. So, what is the interaction with the foundry customers? The evaluation…

Scott Bibaud, President and CEO

Oh! The foundry customers? Yes. So far, it’s been limited. We’re increasing our outreach to fabless customers all the time and starting to talk to them. As a matter of fact, we have one fabless licensee. And so, that’s something that we’re building up as a capability. And it is one exciting thing about working with foundries. When you go to a fabless customer, I would say, in most cases they’re quite interested and their next question is, where can I try running some wafers on this? And so, it’s important to be able to have a foundry that you’re working with that you can point them towards that you can make that definitive next step.

Cody Acree, Analyst

Okay. But your interaction with the wafer customer through your foundry, you said has been limited today?

Scott Bibaud, President and CEO

Yes.

Cody Acree, Analyst

So, there’s no, as part of the JDA, an evaluation by the customer, the foundry customer, so that you can move to potential license volume, license fee?

Scott Bibaud, President and CEO

Yes. Even though interacting with the end customer will be valuable and insightful for us, the foundry controls the process. They will establish all the performance criteria for that process and market it to their end customers. If we can fulfill all the requirements of the foundry process, we will be able to reach customers. While direct engagement with those customers would provide additional insights, it is not absolutely necessary for our success in this endeavor.

Cody Acree, Analyst

Scott, can you talk about progress with some of your early licensees?

Scott Bibaud, President and CEO

Sure. Yes. All of our licensees with one exception, continued to work with us continue to move forward towards getting technology into production. We’ve talked a lot about one of them today, was the existing JDA, I mean, our first JDA customer. We had another licensee that started in February, and obviously, we’re going very hot and heavy with them. One of our licensees, AKM, who allowed us to use their name, we’re still on quite limited work with them, because their fab burnt down, they’re using third-party fabs right now as they figure out how to rebuild and get started again on their R&D work. But we have been talking with them and do have an assurance that when they get their stuff back together, they’ll be restarting their work on MST. But our other licensees, we continue to have great relationships and an interaction. Hopefully, we’ll be moving forward to production with them.

Cody Acree, Analyst

So, you would expect that STMicro is moving forward? If you had to handicap one of your current engagements to volume, revenue. I know Richard asked timing of this year. But whether it’s timing this year or next, which do you think gets there first?

Scott Bibaud, President and CEO

Yes. It’s a little bit hard to guess, actually. I would say we have more than one licensee and our JDA partner that could be first.

Cody Acree, Analyst

Okay. What’s going on in China? Are there any implications to your engagements?

Scott Bibaud, President and CEO

There are no implications for our engagement at this moment. In China, while we began some discussions with fabs a couple of years ago, we decided to scale back our efforts due to concerns about IP and other factors. Currently, although the situation there is quite unstable, it is not impacting us in any significant way.

Cody Acree, Analyst

Okay. And, Frank, you mentioned your OpEx, that you’ve got open racks that you’re trying to fill, what’s the process there and what are your expectations of getting that OpEx spent?

Frank Laurencio, CFO

Yes. As I've mentioned for a couple of quarters, we feel we're reaching limits on our capacity with the number of customers we're working with. We could do more with additional engineers, which is where our hiring efforts are focused. Q4 is a challenging time to hire, and we've been working to increase our staffing. The reason I haven't changed our expense guidance is that we believe there's ample work for our team. We're actively hiring, but we haven't added any new headcount during Q1, which we would have preferred to do. Our plan has always been to see headcount growth more during the second, third, and fourth quarters, as it's typically easier to bring people on during that time. However, it's a very competitive hiring environment right now, requiring a significant effort to succeed. This could potentially lead us to underspend compared to our guidance if we aren't able to hire, but we're committed to maintaining that plan.

Cody Acree, Analyst

And I guess, what is the process of hiring talent that suited your needs?

Frank Laurencio, CFO

Some of our best recent hires have come through word of mouth and the connections of current employees. We have an engineering team in the Phoenix, Arizona area, which serves as a center of excellence due to the historical presence of many fabs and significant sites for companies like ASM and Applied Materials. There are alumni from these organizations, as well as from companies with fabs like Intel, Onsemi, and Motorola, which provide a strong hiring pool. We’ve also recruited from universities. Overall, we've had the most success finding talent through technical recruiters and leveraging our team's network. However, in this competitive market, we need to use targeted recruitment approaches as well, including job postings and word-of-mouth referrals, which is typical for most engineering firms looking to expand.

Cody Acree, Analyst

And lastly, Scott, would you agree with Frank’s comment that you’re kind of maxing out your ability to respond to customers?

Scott Bibaud, President and CEO

Yes, we definitely need to bring in more people. Our opportunities are greater than our current capacity to address them. To improve this situation, we don't need to hire 20 additional staff; a small team would suffice, but it's essential that we make this move.

Mike Bishop, Investor Relations

Thank you, Cody. And Scott and Frank, we have a number of questions coming in from today’s attendees on the Q&A window. So, I will just go ahead and ask some of the some of the relevant ones. So, the first one that comes across is comparison from the second JDA we’ve just announced to the first one is, do you think the timeline with the foundry JDA will follow the same timeline as the first JDA or will it be faster?

Scott Bibaud, President and CEO

I don't believe the timeline for the second JDA will be the same as the first. When we announced the first JDA, we were in the negotiation phase, and it took nearly a year before we could announce its start. After that, it took another year to meet all their technical specifications. I feel that process was quite slow, and we should aim to be more efficient with other customers. Therefore, I am optimistic that this next JDA will progress more quickly.

Mike Bishop, Investor Relations

All right. And then, for the second JDA, there’s just some clarification. The question is, could you state that the royalty rates were already negotiated, if MST is successful in the next step?

Scott Bibaud, President and CEO

That’s a great question, and I've heard several inquiries from investors regarding this. When we negotiate licenses, we discuss our standard upfront terms and outline the expected royalty range for when they enter production. We've had these discussions with many customers, and the royalty amounts we are proposing are reasonable and lower than other licensed technologies in the semiconductor industry. This range should be suitable for most companies. However, most prefer not to negotiate the license rate until they can see the final benefits from their production. For instance, if we can provide significant savings by increasing the number of chips per wafer—perhaps by 30%—resulting in a 10% increase in gross margin, they will be more inclined to agree to a higher royalty. Therefore, they want to wait until later in the process to finalize the royalty rates. In summary, we have not yet finalized any royalty rates with anyone, but we've discussed them with many, and we believe the levels we are proposing are fair and justifiable.

Mike Bishop, Investor Relations

All right. And would we expect a phase 4 integration license with the foundry that just you just announced the JDA with?

Scott Bibaud, President and CEO

We can’t answer the when question because, as we mentioned, it’s hard to predict. But, we can say that the JDA does include provisions for a manufacturing license, which would involve installation, at some point in the future when we met some milestones.

Mike Bishop, Investor Relations

All right. And going back to the first JDA, can you comment on any specific business units with the first JDA and the timeline of moving them to phase 5?

Scott Bibaud, President and CEO

Yes. Unfortunately, I just really can’t talk about any potential to use or what the timeframes would be. The timeframes, I can’t answer even if I knew to be used, because it’s too early in the process. But I think, I said in my remarks, that customer in particular is hypersensitive to confidentiality. They will be listening to this call and will be checking to see what I’m saying. And so, I can’t really reveal any details about what they’d be doing with the technology.

Mike Bishop, Investor Relations

And maybe to Frank, we got a question about getting more color on the $75,000 integration license.

Frank Laurencio, CFO

Yes. No, I mean, I would just say that’s from the license that we announced in the first quarter, and it’s in the range of license fees that we’ve been paid for integration licenses in the past. And so, we’ll look forward to continuing successful wafer runs with that integration licensee with the hope to get that to phase 4.

Mike Bishop, Investor Relations

Okay. Scott, I think that concludes the questions that I’ve got prepared. You may go ahead with the closing comments.

Scott Bibaud, President and CEO

All right. Well, I want to say thank you to everyone who’s attended today’s presentation. It was great to be able to share with you some information on our recent successes and give you a feeling of the enthusiasm we’re 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 Craig-Hallum Institutional Investor, Oppenheimer Emerging Growth and the Stifel Cross Sector Insight conferences coming up later this quarter. Should you have additional questions, please contact Mike Bishop. We’ll be happy to follow-up. Thanks again for your support. And we look forward to our next update call.

Mike Bishop, Investor Relations

Thank you, everyone. And this concludes today’s call.