Q2 2020 Atomera Inc Earnings Call
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Ladies and gentlemen, today's conference is scheduled to begin shortly please continue to standby and thank you for your patience.
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Good afternoon, and welcome to the Adam <unk> second quarter 2020 earnings call at this time, all participants will be no listen.
The node should you need assistance, please didn't allow companies, especially by pressing star zero when you touched on telecom.
After today's presentation there'll be opportunities and ask questions.
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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.
Thank you and good afternoon, I make bishop with the company's Investor Relations joining me on today's call. It's got vivo, Adam as President and CEO and Frank Laurencio, Adam as CFO.
If you're joining by telephone. Please go to the event section of our Investor Relations page on our website to follow with slide presentation that accompanies our remarks.
That presentation will remain available on our website after the call.
After prepared comments by Scott and Frank will open the call up to your question.
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 are during the kuni session are subject to inherent risks and uncertainties. These risks and uncertainties are detailed in the risk factor section.
Of our filings with the Securities Exchange Commission, specifically in the company's prospectus supplement filed with the FCC on May 13, 2000 2020.
Except as otherwise required by federal Securities laws.
Adam Air 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 FCC 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 Vivo go ahead Scott.
Thanks, Mike.
Welcome to add Americas' Q2 update call.
While the current a virus continues to bad or many segments of the economy and the electronics industry.
Adam era has been able to keep making great progress on customer developments without significant disruption.
Our customers continued to do wafer runs Testim review results and have them have regular and detailed technical meetings with us.
Certainly love to join them and their facilities for more intensive analysis and planning sessions. Indeed, we believe that would help us to accelerate progress, but even without the ability to visit we continue to make great strides together.
Since our team primarily does engineering design simulations and analysis that can be conducted remotely stay at home restrictions have not affected our work.
Further few who need to work with specialized tools access to those facilities under social distance conditions has a lot of work to progress without significant interruption.
All of our customers Fabs have continued to run during the past month and our programs, which are launched before the virus period have not been affected.
So although the pandemic has slowed down many things around us.
Our efforts continue largely undiminished.
As you can see from this chart, we continue to make progress with customers in the last few months one of our returning customers who had started a new program has now advanced into phase three giving a 17 customers and that most critical stage.
Several of our existing customers have multiple engagements underway. So we now have 26 engagements with 19 customers. We continue to speak with several other new cut prospects. We're not currently in our pipeline, but are interested in working with our technology.
New customer acquisition is one area somewhat affected by the Corona virus slow down for a few reasons.
In years past, when we were able to hold a multi hour in person technology review session with a potential customer they would generally agree to start working with us and enter into our pipeline.
During that meeting we could read the room identify the decision makers and try to address concerns expressed verbally or with body language.
But it's hard to convince a potential customer to sign up for a multi our zoom call and is harder still for our sales team to gauge reactions for follow up.
Needless to say, we're anxious to start traveling for in person meetings again.
In addition, due to just have busier team has been in the last few months, we have Dow back on our efforts to aggressively seek new customers naturally, giving the choice of where to extend our limited engineering resources, we have been prioritizing engagements, which have a better chance to advance into phase four over adding new cuts.
Summers into phase one.
Adam there is constantly working to develop deeper and more strategic relationships with customers. Most recently through the pursuit of joint development agreements.
We are advancing our work on this new agreement format with several large companies those with multiple production nodes and multiple technology and product divisions.
And approach the integrates develop development licensing components and manufacturing requirements.
But the execution of those agreements has been slow down by the uncertainty and logistical constraints put in place by the current of Iris.
Since our last update call, we've been making substantial progress with the first of our customers.
Whom we hope to institute that J.D.A.
Technical work and communication between our two companies has ramped up with extensive planning and data exchange happening in the last few months to allow them to do the pre work for the JV now.
We have even been informed the JV has overcome the most significant hurdle put in place by the customers development organization.
Unfortunately as of this earnings call the formal contract to kick off this effort has not been completed.
We continue to be huge believers in joint development agreements, because we expect that they will give us an advantage on both leading and trailing edge technologies and will provide access to a variety of platforms ultimately leading to deeper customer penetration faster adoption and corporate Rick quicker ramping of manufacturing activities.
Across the product lines.
Discussions on Jds with other customers continue.
Believed that this trend is very positive for Adam era, and will help us to be more successful with bigger customers.
As you know we have three existing license partners and I can tell you that advancements continue with them toward solutions. We hope will go into production as soon as possible. Each is still excited about the impact admires MST can have on their competitiveness.
One of the three has identified a current a virus impact due to concerns on the market recovery and its potential change to their capex plans, but all of them continue to make progress forward.
Although there are uncertainties in the market and we have not executed formal contracts that we can share with you today.
Inside Atomera, there's a lot of confidence that MST technology offers customers significant benefits that they cannot achieve on their own.
We are busier than ever working on R&D programs, perfecting, our simulations and deeply engaging with customers as we design revise and analyze their ongoing wafer runs and plan for new ones.
During the last few calls I've been speaking about Adam errors, MST SP technology and the potential it has to bring entirely new levels of performance to the large and growing five volt semiconductor segment.
Recently, our engineering team with very excited to view the first results from an important customers latest wafer Ron using MST Sp.
Datasets generated from an evaluation lot can be quite extensive because we include many different split conditions, which span multiple different channel length implant conditions annealing temperatures and many other factors. So collecting all the data can take weeks and analyzing it takes even longer but early.
Indications from this customer's results, although not perfect are exceeding expectations of both the customer and Atomera and validate some of the early projections, we are making on the benefits of MST SP technology.
These benefits will allow for example, a more compact low cost and efficient power management IC for use in the next generation of Fiveg cellular phones or other battery operated products.
In the near term we hope this customer takes advantage of those results to move forward quickly and we hope to achieve similarly, promising results with our many other customers who develop fivefold power devices.
Likewise work with customers on RFS, Hawaii and partnerships in this area continue to expand.
Early in the pandemic there was talk of the Fiveg cellular rollout being delayed due to the resulting economic uncertainty, but that toxic seems to have faded.
One of the most challenging and costly aspects of designing and manufacturing of Fiveg cellular phone is the complicated RF front end required.
Our MSP technology on top of the RFS III wafers used for many of these designs continues to show that it can markedly improve the performance of the critical RF front end components that do the heavy lifting in these phones.
This is a real near term market transition, where we believe MST can provide a competitive advantage.
In addition to the focus areas that we've been highlighting we continue to do R&D and customer work with MSC and several other promising areas. As a result of these efforts. We have now grown our list of patents issued and pending to 244, which is truly an impressive portfolio for any company, but certainly for one of our.
Our size.
Since filing and maintaining patents is very expensive. Our goal is not simply to increase our numbers, but to protect our technology in the key areas in which MSC is most likely to be successful.
With our growing body of know how and the fact that our film is discoverable and manufactured chips. We believe our license portfolio has increasingly strong long lasting and defensible value in the marketplace.
Adam Air is also excited about the new state of the art 300 millimeter EFI deposition tool we've been working to secure installation of this tool has been underway since March and after some minor delays caused by supply chain disruptions during the pandemic.
We expect to take possession of the new tool under lease arrangement in the next few weeks when certification and acceptance tests have been completed.
Most of our customer engagements use 300 millimeter wafer sizes.
So this tool will have many benefits, which will help to accelerate at Americas time to revenue.
For one we will now have the ability to do short flow wafer trial run to protect our integration before entering into full flow customer trials, which as you know can take up to nine months or longer to get results.
With this new capability, we will finally be able to take the time necessary to ensure earlier customer success.
On SP runs.
We will no longer need to ask customers, who use 300 millimeter wafers to conduct R&D efforts on 200 millimeter wafers, which in the passive delayed decision, making as customers then seek to revalidate results on 300 millimeter tools.
We will be able to accommodate more customers running more experiment and opens the possibility for atomera to help customers, who need a larger amount of wafers as they transition from development to pilot runs to early production.
Because this will be a state of the RFP tool. It will also allow us to make process improvements that will directly transition to our customers production facilities when complete.
Since the more advanced nodes used 300 millimeter. This tool also helps us to more directly address the segment of the market with higher royalty potential.
For all those reasons and more we're about to become better position to assist our customers and the transition to production than ever before.
Adam area has continued making progress at a fast pace and some of the results coming into US right now make us, particularly optimistic.
In prior calls we indicated that our biggest limitation in customer engagements with the size of our team.
At this point, we've made great progress resolving that issue by adding engineers to feel critical areas of support.
Although we are being careful with our cash. We're also very focused on growth and will carefully target our spending only the most hard hitting areas.
Despite disruptions from the pandemic very few of activities have slowed customer results are improving and we continue to prioritize near term manufacturing opportunities.
Now I will turn the call over to frame to review our financials.
Thank you Scott.
At the close of the market today, we issued a press release announcing our second quarter 2020 results.
This slide shows our summary financial results and I will now review them in more detail.
Our GAAP net loss for the three months ended June Thirtyth, 2020 was $3.8 million or 21 cents per share compared to a net loss of 3.6 million or 24 cents per share in the second quarter of 2019.
The large and net loss in Q2 2020 was due to a $70000 difference in revenue as compared to Q2 2019, as well as low earning lower.
Interest income in Q2 2020.
GAAP operating expenses were approximately $3.8 million in both Q2 2020 in Q2 2019.
Net loss per share declined due to an increase in wave at a weighted average shares outstanding for 15.4 million in Q2 2019 to 17.8 million in Q2 2020.
Non-GAAP adjusted EBITDA in the second quarter was a loss of $3.0 million compared to a loss of 2.9 million in Q2 2019.
Our press release and this slide contain a reconciliation between GAAP and non-GAAP results.
As has generally been the case for Atomera the biggest difference between our GAAP and non-GAAP results in stock compensation expense, which is a noncash item and was $766000 in Q2 2020.
Compared to $788000 in Q2 2019.
In my discussion of the factors affecting our operating expenses and operating loss I will focus on non-GAAP expenses.
Which we use for internal planning its provide expense guidance.
Our non-GAAP operating expenses were approximately $3 million in both Q2 2020 in Q2 2019.
Non-GAAP research and development expense was $1.8 million in both periods has increased payroll expense due to higher headcount was offset by lower outsourced fabrication and testing expense in Q2 2020.
Reflecting the surge in R&D spending in the first two quarters of 2019 for our MSP SP development.
As well as lower travel expenses in Q2 2020 on account of Corona virus restrictions.
Non-GAAP DNA expense was $1.0 million in Q2, 2020 as compared to $943000 into Q2 2019.
Lastly, non-GAAP sales and marketing expenses were unchanged.
On a sequential basis, our GAAP net loss in the second quarter 2020 was a three was $3.8 million compared to a $3.6 million net loss in Q1 of 2020.
The higher net loss was due to this.
Due to the fact.
The Q1 2020 included a $138000 charge related to a warrant that had been issued in connection with our pre IPO financings and also due to lower revenue.
The warrant modification was a noncash item in did not recur in Q2.
GAAP net loss per share was 21 cents per share in Q2, 2020 compared to 22 cents per share in Q1, reflecting a higher share count.
Non-GAAP adjusted EBITDA of $3.0 million in Q2, 2020 compares to 2.9 million in Q1, primarily due to the decline in revenue.
Total non-GAAP operating expenses were unchanged at $3.0 million in both Q1 and Q2.
Our cash balance at June 32020 was $18.0 million compared to 11.4 million on March 31.
On May 15 at this year, we closed a public offering of 2.024 million shares of our common stock at a price of $5 per share netting us proceeds of approximately $9.4 million after our underwriting commission and offering expenses.
Excluding the offering proceeds our cash use was approximately $2.9 million in Q2 compared to $3.6 million of operating cash use in Q1.
As has been the case for the past three years, our cash use during the first quarter is higher than in other quarters due to the timing of annual payments that are expense ratably over the course of the year.
This year approximately $211000 for costs normally paid for in Q1 can do and were paid in April so that cash use shifted over into Q2.
As of June 32020, we had 19.8 million shares outstanding.
Consistent with our past practice, we are only providing revenue guidance for the current quarter.
As Scott mentioned in his remarks, we have not reached a formal agreement with the customer in most advanced J.D.A. discussions despite significant progress in passing tactical milestones.
License agreement and engineering services discussions have been impacted by Corona virus travel restrictions and the backlog of work at customers gradually coming back to normal work schedules.
Accordingly, we're not expecting to recognize any revenue in Q3.
We have taken a conservative approach to growing our operating expenses and we will continue to do so.
We are rare reiterating our guidance for 2020, non-GAAP operating expense in a range of $12.75 million to $13.25 million.
This reflects our additional headcount along with lease payments for the 300 millimeter EFI deposition tool beginning upon formal acceptance, which we expected a matter of a few weeks.
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.
Thanks Frank.
As you have heard on this call while the Corona virus has caused some minor delays our business has continued to advance and our efforts at customers are being rewarded.
We now have a record number of customers engaged with us in phase three and we have made strong technical progress with our lead JD a customer.
The technical breakthroughs enabled by our quantum engineering achievements continue to gain notoriety in the industry and we are building on their success.
Our new 300 millimeter EFI tool is weeks away from giving us multiple advantages to accelerate licenses and time to manufacturing revenue.
Internally to add America, we are excited and optimistic.
We will continue to execute aggressively to take advantage of the momentum we've built during this period and I look forward to sharing the results those efforts with you in the future.
Operator, we will now take questions.
Thank you.
And as a reminder, if he would like to ask a question press the star one on your telephone to withdraw your question.
Press the pound key.
And our first question comes from David Williams with Loop capital. Your line is open.
Hey, good afternoon and thanks.
Question, I'm actually on or off quickly acre today.
But the first just congratulations on the order in the progress together are clearly moving forward even though.
Backdrop.
Less than healthy, but maybe he can you maybe give us a little bit the up color around the implementation of the 300 millimeter tool and how thats going to help the customer life.
The next they kind of indeed.
Correct, no what color around that.
Yes.
Thanks, David.
Absolutely the 300 millimeter tools. So just to give you an idea that in years past, we typically would get access to a 300 millimeter to either once or twice during the course of the year.
It was very expensive and we'd only have access to it for about a month. So naturally a number of customers who wanted to do experiments with us and work with us would have to wait for that period, when we'd get a tool available to us.
Now, we'll have the ability to do those type of lots much faster and we believe that will help to Pete for most of our customers who are using 300 millimeter to get to their results in a positive results much faster and help us to get to licenses earlier.
It also allows us to do.
Wider range of work on 300 millimeter things and to take our time, a little bit more to make sure that every customer around that we do.
We'll have greater success, so yes, it's going to its going to be really major new.
Capability that we have internally and we think that it will give us lots of ability to go and improve our business.
Fantastic and you said you would expect that to be installed and may be accepted in the next several weeks is that right.
Yes, Thats right just in the next few weeks.
Great and then how long will it take wants that excepted before you can really start to trial. The this is coming in and start really using that and gaining that.
Yes so.
When they when it passes acceptance that means a tool is fully functional and working and they turn it over to us.
Then we have some work to do to get our two hour.
MSP film.
Qualified and properly.
Calibrated on the device and that will take.
Three weeks three to four weeks, maybe so by September we really believe that we should be able to.
The doing deposition on customer wafers.
Okay, Great and then one more if you don't mind.
Mentioned that you guys are not really prioritizing new customer acquisition right now when do you think that that may be the the conditions change where you'll be able to start doing that will maybe after the resources and continue to grow that pipeline.
Yes.
We we have gotten to the point worth so busy with existing customers that we really have to ask a question about weather.
Adding new customers makes most sense and as I said in my comments in most cases that doesnt now very large potential customer came onboard.
We're not working with already than we would probably try to squeeze them in but we.
We've been held up by the fact that our engineers to just too busy with all of the work we have with existing customers. So now we've met we have brought on a number of engineers just on last couple of months it will take them a little while to get too.
Fully productive and when they do I think it will open up bandwidth for us to add a few more customers. The other thing is as we push customers over into phase four and beyond the workload on our team actually starts to decline as the customer takes on more and more of those efforts so that would be another way that.
We'd be able to have a lot more bandwidth to bring in new customers, but I do want to emphasize that we've always talked about.
One of the primary ideas about Atomera, our objectives as a company is that we will stay lean so that there's a lot of leveraged to the bottom line. When we work with customers today, we have a very large pipeline with the.
Relatively small team and we hope to.
Continue that same level efficiency as we add more customers.
Great. Thank Mike Burton appreciate it then.
Or.
Thanks very much.
Thank you as a reminder, if you'd like to ask a question Press Star One. Our next question comes from Daniel Carlson with Tailwinds Research. Your line is open.
Hey, guys.
Thanks for taking my questions.
Stop it sounds like you've made great progress on mm CSP wondering sort of quantify how large the opportunities are in the market and how much via pipeline is that applicable to.
Yes, thanks, Thanks for the.
Comment Dan.
So and its DSP when we talk about it we usually talk about it in the context of five will power management devices, which a number of our customers are working on.
But it really is a technology that's applicable across the entire analog semiconductor segment, it's our belief anyway.
And so.
The analog segment of semiconductors really accounts for between 15 and 20% of the total revenue that's available in the $400 billion semiconductor market every year. So it's an extremely large market an extremely large opportunity we do have a number of customers.
Hi, there.
A big cluster of customers in our existing pipeline that are working on analog technology like this I can't give you I can't tell you who's working on Emmis DSP, specifically, but weve net we've announced two out of three of our customers. We've given the names of them on both of them are very big players in the analog space. So you can.
And Thats representative of a lot of our.
Customers in the pipeline so lots of exposure to this.
Big breakthrough technology that word we're working on.
Great. Thank thats really helpful actually and.
Just speaking of you keep JV structure and it seems like it's real focus it does that indicate a departure from your typical phases of engagement and and does it affect the timing of licenses from typical engagements.
It does not I mean it.
Isn't a major departure from the phased approach is that we've talked about before and I think and our graphic we show it kind of spanning phases two through four.
As a few important things in there basically a customer has to go through the same type of evaluation process as whether their agenda or just the normal license customer and so they will still go through the same things that are happening in those phases, but secondly, we also are are.
Setting the expectation with our JD customers that they will also have to execute the same licenses that they would in agenda as they would if they were just going through regular phases of the license process with us the big differences that when they get to the end of the process.
They will have approved the technology across across a large organization, making it much faster to add.
Incremental process nodes as new licensees. So first one maybe it'll take the same amount of time as a normal.
Cycle, we're hopeful that it will be faster, but definitely with the second and third engagements inside that customer they should be pre approved through the JT, AA and and be able to move much faster.
Great Thats helpful. Thank you I'll jump back. Thank you appreciate guys.
Thanks, Dan.
Thank you and there are no further questions in the queue I'd like to turn the call back to Mr. vivo for closing remarks.
Well I want to thank you all for attending today's presentation, we're pleased to be able to share with you some of the excitement we're feeling inside our atomera.
Please continue to look for our news articles and blog posts to keep you up to date on our progress you could sign up for them along with Investor alerts on our web site at American Dot Com.
Should you have additional questions. Please call, Mike Bishop and we'll be happy to follow up.
We look forward to seeing some of you during our scheduled marketing activities such as at the LD Micro virtual conference on.
September 1st.
We thank you again for your support and look look forward to speaking with you again on our next update call.
Ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect everyone have a great day.
Okay.
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