Q4 2020 Atomera Inc Earnings Call
It's J D. A with a major semiconductor company, who is one of our existing phase III customers.
This is evidenced Nevada merit delivering on a critical step towards commercializing M. S T.
This is J D. A will result in the first customer moving to phase for since our agreement includes the manufacturing license, which gives our customer the right to install our processes and deposit MST on wafers in their own fab.
As you can see our pipeline does not yet show them in phase for because they have not met our strict criteria yet.
For a customer to enter into phase four we must have delivered to them. Our MST IP transfer package, which is typically done when the customers tools properly configured and we have received payment.
At that point, we will update the status on our customer engagement chart.
Adam Ara believes that working with some customers and a joint development format is one of the most efficient methods of achieving breakthrough results for three reasons.
First in some of our engagements for team that's evaluating our results can review can view our efforts as competitive to their own.
J D. A R. Two engineering teams work together to achieve mutually beneficial goals, which is far more productive.
Second.
Joint development efforts are concentrated in a small centralized engineering team, which will become the customers' resident experts on MST technology we'd.
We believe these highly capable teams will do more than just adopt M. S. T. They will customize it and add modifications on top of our licensed technology, creating a unique competitive advantage for themselves.
We support these efforts wholeheartedly and believe it will make MST and our customers more successful in the long run.
And finally as business units continue to consider adopting MST. They will look to these residents experts who will act as natural internal resources for <unk> technology.
We hope this will allow MST to proliferate more quickly to the customers organization.
Now let me explain how this J J D day fits into the Big picture.
In our non J D eight customer phase for would typically take about three to six months to complete for.
But I phase five, which we expect to take nine to 12 months.
Customers do not typically enter into phase five unless they are sure. They will go into production since it is expensive and requires a lot of resources.
And a J D E. We expect customers to be in phase for longer but when completed business units adopting MFC should be able to move more quickly through phase III and directly interface spot.
Each business unit that adopts MST for a distinct process technology represents a separate revenue opportunity as each must enter into manufacturing and distribution licenses with us potentially opening up multiple royalty stream if they go into production.
Our first J D. A is a major milestone in the history of EDA Meera negotiations had been moving slowly all year, but picked up considerably in November and the final contract was signed at the end of December.
It is gratifying to be working with a company, which has such a great reputation for innovation.
After evaluation of our technology over the last couple of years, they saw enough potential to take it to the next level and we are excited to show them everything he can do.
Beyond the business opportunity with this customer that J D announcement was important in other ways.
It signals to other industry leaders that they should be working with us and it proves that at least for certain type of customers.
J D. A is perhaps the best way to engage with at a mirror.
We do expect each J D a to be unique but our first one has established the structure of IP protection license grants and fees that will form a baseline for future negotiations with other companies.
In December we were able to announce the general release of our MST CAD version, one point on modeling software.
Our customers use this tool extensively to model chip performance given planned changes in design and construction of a wafer.
Obviously, adding the ability to model MST is invaluable to our customers and will help accelerate adoption of the technology.
I'd like to take a minute and explain how.
In phase three we confront the most complex part of integrating <unk> into our customers' process design.
It's understanding the integration of MST with our manufacturing steps surrounding our material.
As an example, let's just look at a single step the implant of Dopants into a transistor.
Multiple different species of dopant, such as boron phosphorus and other elements can be implanted both for our after deposition of MFC and <unk>.
<unk> energy levels angles in different regions of the transistor and then our activated using a wide variety of temperatures times and annealing methods.
For this one step alone there are thousands of permutations that can be used with different levels of effectiveness.
Experienced integration engineers can make their best yet guests on a set of combinations and design experiments to test them.
Although there always limited in the number of combinations that they can try.
M. S. T allows us to assess the different options much more accurately prior to running silicon and narrow the set of experiments to only those most likely to succeed which can reduce the number of experimental wafers and development cycles.
We believe this will help to accelerate our time to successful results with customers.
Customer reaction to MST can release has been positive and we believe as we introduce it to more companies it will allow for a lower cost option.
Evaluation of MST prior to running wafers.
This should have the effect of speeding customers into our funnel and increasing our market reach.
Yeah.
Since our last call. We've also made good progress both internally and with customers on both MST SP and RF Soi.
Our improved ability to combine MST cat modeling with internal wafer runs just to help us bring both technologies closer to production worthiness.
Today, we are witnessing growth of a new market.
In the rollout of <unk> cellular.
S. E. S. P is targeted primarily at products that are battery operated and RF Soi brings new design options for five G front ends.
As the large manufacturers of <unk> cellular devices seek out ways to achieve competitive advantage.
Adam Eris MST will be one of the options that can provide them with a leg up.
This is the type of market transition, which allows new technologies like ours to get a foothold and start expanding.
That'd be deposition work by Adam Aron Engineers, and our new facility has been underway for the last few months, allowing us to get a running start qualifying MST on our new epic tool.
We are very excited to take full possession of this instrument. So we can accelerate our customer work on both 300 200 millimeter wafers with a fully state of the art setup.
A single tool that sports book 203 hundred millimeter wave 300 millimeter wafers is certainly not industry standard.
While that gives us unprecedented flexibility to meet our development activities. It is also put up some challenges in the installation since many of the fixtures needed to be custom made.
Typically we expect a 200 or 300 millimeter tool could take approximately three months to be qualified to produce MST wafers.
This one has taken much longer since it will support both wafer sizes at.
At present, we're down to the last few punch list items before our compliance to specification tests can be signed off and acceptance approved by Adam era.
At that point, we will take full possession of the tool start paying on a lease and commence work on customer wafers, we expect that to happen soon.
Regardless of the installation delay we continue to be excited about the opportunities for 300 millimeter tool will open to Adam Aron.
Today greater than 65% on the semiconductor industry revenue is driven by 300 millimeter wafers.
Since the advanced nodes use this larger size, we will gain access to the higher asps.
And therefore higher royalty segment of the market.
It's worth taking a moment now to review some of our accomplishments in 2020, a year most of us otherwise would rather forget.
After getting off to a strong start with some great technical results on MST Sp.
RF soi matching and other areas in Q1, we were hit with a pandemic induced slowdown.
Our engineers have to vacate the office, but they certainly didn't stop work on customer and R&D activities.
<unk> to generate breakthrough results that helped to achieve successes, we will reap going forward.
First and most important of which is the execution of our J D. A with a market leader in the semiconductor space.
Across a wide variety of technical areas, we made strong progress, but we also took the pandemic as an opportunity to build company infrastructure to position ourselves for long term success.
First we acquired enough on completed a 300 millimeter F b deposition facility, which will give us reliable access to our resources.
<unk> needed since the founding of our company.
Our engineering team delivered on M. S T Kat and incredibly complex tool, which opens up MST to many more players and will accelerate our time to market.
We dramatically improved access and information on the company through our new website, which both potential customers and investors seem to greatly appreciate.
Innovation is critical for Adam era, and one way to gauge innovation is to look at our patent portfolio metrics, which we had great success growing in 2020.
Our patent count is now up to 269 granted and pending which is a 17% increase year over year.
Even more impressive is that we are up 46% over the last two years, which show how we continue to build the value of our company and core MST patents, along with the devices and next generation architectures MST enables.
Since our technology is discoverable and end customer chips are patents can be defended making them more valuable.
And since we also licensed Knowhow, which has no expiration date.
Our licenses will have plenty of running room.
The bedrock of any great licensing business is its patent portfolio and I think you can agree that Adam era has taking strong steps to solidify that foundation.
Finally, I would point to the closing of our ATM funding facility in January which has given us the strongest balance sheet in the history of our company, enabling us to aggressively execute to grow our business.
All of these pieces have come together at an advantageous time.
Our customers are growing rapidly are flushed with cash looking for competitive advantage and we are ready to help them. Our team is confident that 'twenty 'twenty, one will be a breakout year for Adam are a.
Tools are in place and our technology position is solid with hard work continued innovation and a strong focus on execution. We are now truly well situated to create an amazing future for Adam era.
Now I will turn the call over to Frank to review our financials.
Thank you Scott.
At the close of market today, we issued a press release announcing our fourth quarter and full year 2020 results.
This slide shows our summary financials and I will now review them in more detail.
Our GAAP net loss for the year ended December 31, 2020 was $14 9 million, which is 79 per share.
Compared to a net loss of $13 $3 million for 84 per share in 2019.
The larger net loss in 2020 was due to higher GAAP operating expenses and lower revenue.
On a per share basis net loss declined as a result from an increase in weighted average shares outstanding to $18 8 million shares in 2020 from $15 9 million in 2019.
Revenue in 2020 was $62000 compared to 2019 revenue of $533000.
GAAP operating expenses from 2020 with $15 million, an increase of $1 $1 billion from 2019 operating expenses $13 $9 million.
This increase was primarily due to increases of $676000 in research and development.
$421000 and general and administrative expenses, while sales and marketing expenses were flat.
Our press release and this slide contain a reconciliation between our GAAP and non-GAAP results.
As has generally been the case for us the biggest difference between GAAP and non-GAAP expenses stock compensation, which is a noncash item.
Our stock compensation expenses were $3 million in 2020, and $2 $9 million in 2019.
Non-GAAP adjusted EBITDA in 2020 was a loss of $11 7 million compared to a loss of $10 $7 million in 2019.
Since stock compensation expense did not change significantly between the periods for stock.
Affecting GAAP and non-GAAP expenses are basically the same.
My discussion of operating expenses based on the non-GAAP numbers.
Non-GAAP R&D expense was $7 $3 million in 2020 compared to $6 $9 million from 2019 and.
An increase of approximately $367000.
This was primarily due to an increase of $509000 on payroll and related expense based on adding free head count on engineering.
Offset in part by a $216000 decline in travel expenses due to COVID-19.
Non-GAAP G&A expense increased by approximately $500000 to $3 7 million in 2020 from $3 2 million in 2019, primarily due to higher legal expenses, which mainly related to filing new patents and maintaining our patent portfolio.
Lastly, non-GAAP sales and marketing expenses were basically unchanged at $769000 in 2020 compared to 820000 in.
In 2019.
Turning now to our quarterly results.
GAAP net loss in the fourth quarter of 2020 was $3 9 million compared to $3 million net losses in Q4 of 2019.
The higher net loss was primarily due to an increase of $662000 and GAAP operating expenses.
As well as a decline in revenue from 138000 in Q4 2019, two zero in Q4 2020.
GAAP net loss per share was <unk> 19.
In Q4 of 2020 compared to a loss of <unk> 18 per share in Q4 2019.
<unk>, our higher net loss, partly offset by the higher share count.
Non-GAAP adjusted EBITDA in Q4, 2020 was $3.0 million compared to $2 4 million in Q4 2019.
Also reflecting higher operating expense on lower revenue.
Cash balance at December 31, 2020 was $37 9 million.
Compared to $14 9 million at the end of 2019.
Cash use in 2020 reflects $12 1 million used in operating activities and the receipt of $35 $3 million from financing activities.
Cash from financing includes net proceeds of $24 million from our aftermarket or ATM equity program and commenced on September <unk> 2029.
$9 $4 million of net proceeds from our public offering in May 2020.
And $1 $9 million of proceeds from exercises of warrants and options.
On January 15, 2021, we announced the completion of the ATM program, which resulted in the sale of $2 2 million shares with net proceeds to us of $24 $2 million after commissions on expenses.
As of December 31, 2020, we had $22 4 million shares outstanding.
As Scott mentioned in his remarks, our J D. A includes the graph on the manufacturing license and will generate revenue for Albemarle.
Consistent with past practice, we are only providing revenue guidance for this quarter.
We anticipate that our Q1 revenue will be $400000 based on payments under the J D.
However, the recognition of this revenue will depend on future events, and therefore could slip from Q1 into Q2.
J D. On includes other milestones that could result in additional revenue in later periods.
But we're not in a position to forecast the timing for likelihood of those milestones.
During 2020, our operating expenses were lower than we had forecast at the start of the year.
Due to delays in reaching acceptance of the new 300 millimeter <unk> deposition tool.
Okay.
Although we have not yet reached a final acceptance stop which triggers the commencement of lease payments we are very close.
Our guidance is non-GAAP operating expense in 2020, working in 2021 will increase to a range of 14% to $14 $5 million.
The main drivers of this increase will be 300 millimeter tool costs.
Higher engineering head count.
And higher G&A expense as we become subject to additional reporting obligations.
With that I will turn the call back over to Scott for a few summary remarks before we open the call up for questions.
Scott.
Thanks, Frank I'm happy to have this platform to share with you how well positioned at Amira is going into 2021, we are very excited about starting work with our JV, a customer and proving ourselves with MST SP RF Soi and other technologies.
Our new MST cat in World Class IP deposition tool gives us the ability to get customers through the integration process and to market more quickly than ever before.
<unk> quantum engineered technology is becoming more well known over a wider set of players in the industry and we hope to continue building on this success inside at Emera, both our management and engineering teams are optimistic.
Count on us to keep generating outcomes like those achieved up to today and I look forward to sharing the results of those efforts with you in the future.
Mike will now take questions.
Okay. Thanks, Scott.
At this point.
We'll move on to questions and if you do have a question you can type it into the Q&A chat function, which is found in the lower menu bar of the zoom window. Alternatively, you can raise your hand also in that menu bar and if we have enough time on globally.
To get to some of your questions.
In the meantime, our first question comes from Cody Acree of loop capital Cody would you. Please on mute your line and then go ahead, yes. Thank you very much.
Congrats on the progress I know that 2000, twenty's difficult year for everyone, but it does feel like to share as us better position.
I guess, Scott when you talked of.
On the semi industry shortages, not having really an impact.
To date.
I guess is it is it.
Proper read of that is that maybe your customers are not as close to signing the license and so there wasn't as much to put off.
Because it sounds like the final steps are are more intensive.
And it could be that the shortages are not close to entering the production line where capacities so constrained.
Hum.
I don't think that is the right way to think about it Corey so whenever we get into this type of situation.
And we've been in a few times before on the company's history, where.
The engineering team, we're working with at the customer is excited and wants to do another set of wafer runs, but then they take it to the factory in the fab for managers say sorry.
I just can't let you put any R&D wafers in or they tell the engineering team and this month you can only put through say 50 wafers and you'd have to choose the most important ones.
So we're always watching for that in this type of market environment. The good news is so far.
Our customers, who have tried to start new wafer runs have been able to successfully get them into the fab, which means either that you.
The fab is still making room for lots of R&D ramped or more likely that they view our technology as one of the more compelling things. They want to continue working on in this time of kind of shortage.
And I guess, when we speak of shortages, specifically, maybe in the automotive market.
I know you haven't given us much color as to what your licensees are focusing on but I think you started.
With a heavy emphasis on analog and that's where we're seeing a significant amount of shortages are there things that you can do to help your customers.
On to speed time to market or is it just too late for this cycle, if theyre not signed up and ready to go it's too late to impact.
Well I would say looking at the long term growth prospects for the semiconductor industry, although we're going through a very big growth spurt break here.
Is still looks like gross will continue very strongly for the next several years and one of the things that's being experienced by the automotive industry as.
As you said, they're having shortages on these analog.
Products, among others, but really I think one of the big things holding them back or the analog solutions. They tend to be manufactured on older production notes that are using 200 millimeter wafers.
The challenge there is that people built these factories for 200 millimeter wafers decades ago.
And they don't they can't expand them anymore, very easily and even if they could build a new fab. They have a hard time getting our supply of the.
The processing tools that are needed to make 200 millimeter wafers is it just not made any more everybody's using 300 millimeter.
So one of the things that MST can do is we can actually take it.
Product designed on a 200 millimeter wafer and we can help them improve the performance to a point, where they could shrink the devices, maybe get something like a 20 or 25% shrink opportunity. What that means is that every single wafer would be able to make 25% more capacity so for a manufacturer of that.
It means it could get 25% more capacity out of the fab.
Without having to add a whole bunch of new equipment and so forth.
So.
Yeah, I wouldn't I would say this is something that.
It's not going on probably helped the manufacturers in the very near term, but long term I think it's going to be a continuing problem and our technology really provides a good solution for it.
Thank you very much Scott.
On that and are there customers in your pipeline that you believe are far enough along in the process that they could move to.
Implementation quick enough, so that they could actually impact their production capacity shrinks.
Short term deal.
I think it would be hard to do it on a really short term deal, but and medium term definitely possible. Okay. Okay.
On the.
For licensees do you have and notwithstanding that J D day here you've.
You've talked about that.
Can you just talk about the progress you've seen in the other three or maybe your you or your customers as a whole you haven't given us a lot of color. After you sign them up what's happening within those.
Okay.
It's a bit challenging.
Because the progress they are making they certainly don't want to make public one of our customer one of our three licensees I think I mentioned before had a fire AKM had a fire in one of their facilities and that has slowed them down.
They still are committed to our technology on our working with us but they are in a you know they're in a bit of a scramble trying to move.
Production facilities and other things.
For the other two were continues where continues very strongly and and we have regular meetings with them.
And hopefully we're moving to the point, where we will get to the next step with them soon.
Okay.
And then just two quick ones.
What was the for delays better still holding up the ERP tool acceptance.
We've spend we've been dealing with delays for a few quarters now so.
It sounds like Youre getting close but can you maybe talk to the delays.
Yeah, I mean, it's really a bit of a challenge so and I don't want people to extrapolate on this what would happen on a production facility.
We're talking about.
Very very complex lab setup that would have the ERP tool as well as all of the associated supporting equipment that will go with that including cleaning benches and advanced.
Advanced Metropoli G tools, and other and other kind of wafer handling equipment all of it.
Like almost every factory in the world is either setup for 200 millimeter for 300 millimeter. So.
There are very well established supply chain for equipment that goes into the 300 millimeter tool.
Fabs that clean wafers that for example, and measure them on other things and for 200, but now what we're trying to do in this lab is build a single lab that can do that on a single tool. The sports book 200, 300 millimeter. So we've had to the suppliers have had to make some custom tools a lot of custom software.
To make kind of the robotics work properly and everything and we have had.
A number of setbacks.
In getting to the absolute final.
Acceptance level that we wanted to get to before we can take possession of the tool. So.
Bad News is we haven't taken possession, which will give us total control over it. The good news is ever since November we have actually had our engineers in there working on the new tool it might not be perfect, but we've been able to run wafers and do a lot of.
On bring up of the tools so that when we do finally take possession will be far down the road towards full qualification.
Great.
And do you expect that for qualification in the first quarter.
I would say it will be soon and I'm, a little gun shy about predicting because I predict it a few times now, but really like I said in my in my prepared remarks, we're in the final punch list I would hope that that would happen this quarter, but.
I wouldn't.
I mean, there's a chance that can move to next quarter okay.
Lastly, then.
You had given us quite a bit of color in 2020 ahead of the G. Eight signing that you you had a customer that you were optimistic of and it will see we're moving along and you Couldnt tell us much but we could sense your excitement about this customer.
Is there anybody moving up into that.
Into that position in your mind as to the the next possibility.
Yeah Cody.
I appreciate the question I think it's something that we we are we have a very hard time predicting I would say that I have a number of customers who are very happy with where we are on our technology and we hope we can move them to the point, where they would execute a J D or license, but we're just not forecasting when that would happen at this time share.
Alright, great. Thank you very much I appreciate all the time.
<unk>.
Thanks Cody.
Our next question comes from Richard Shannon.
Of Craig Hallum, Richard if you're there go ahead.
Yeah.
Alright, maybe it will come back to Richard I think his line is muted.
So for the for the time.
For the time being we do have a lot of questions on the Q&A.
Any other questions comes from Dan Myers.
Yes is your technology is suitable for logic DRAM and NAND.
And if not applicable to those can you. Please discuss cadbury broadly with respect to those three categories.
Yeah.
Short answer is we know our technology is applicable for logic.
I may have spoken in the past about how we've done some work.
On.
Two to show that we believe we can deliver a 30% improvement in switching speed at the 28 nanometer node debt some rehab.
We hired a third party to do some stimulation work on that for us on top of some silicon work that we have done ourselves.
And we're actively out trying to talk.
For the industry about that result, yeah.
So switching speed improvement as logic and so it definitely shows an improvement on logic. We also have.
<unk> had a focus on DRAM for the last few years that we know that we can bring some significant performance improvements in DRAM.
NAND is something that we haven't been investigated that deeply I think what typically we don't like to claim that we have advantage on some unique circuits until we have experienced that we actually.
We've done the work to make that claim and I would say that on flash memory, we haven't done that much work. Although there have been we do have a few employees who used to work in flash companies and they believe that there would be.
Some advantages for we were going there as well.
Alright, and then you know again a lot of questions on the on the J D. A.
Can you update us on on the pipeline or when.
You expect a phase for or the next J D E and Cody touched on this a little bit already but maybe.
Answer Stewart Miller's question.
On the phase or in my remarks, I mentioned will will show a phase for when we deliver our IP to this first J D eight customer.
I think it corresponds closely with Frank's comments on revenue, we expect wed.
We probably expect it to happen this quarter, but it will happen near the quarter end. So it could go into next quarter, but not very far away.
And on other J D as in licenses on yeah.
As I said earlier I don't think we can.
Make a comment on the forecast for those at this point.
Okay.
Alright.
And maybe this one from Peter Mccarran for Frank What revenue did you say you can expect from the J D.
Yes, the guidance that we gave is for.
For Q1 is $400000.
And if there are subsequent.
<unk> milestones and Jay that could result in additional revenue beyond that in future quarters.
Okay.
Alright and.
Okay.
Okay.
I think at this point in time unless.
Richard has come back, which I don't think he has.
I think at this point in time, we'll turn the call to Scott for closing remarks, Mike Hey, It's scary. Okay. Go ahead could I just sneak one in here then sure for.
Frank I guess with the balance sheet that you have.
That's a much different for.
Fish and then you have been in the last few years. So now that you have the balance sheet. What are your what are your plans for usage of cash.
Yeah, So I alluded a little bit to those from talking about guidance, but we.
Have plans to add additional head count.
Yes.
In R&D, we will be more comfortably funding the increased expense from a 300 millimeter.
On the 300 millimeter tool and we currently expect that with the.
The five years passing from the IPO, we leave what's called emerging company emerging growth company status and so our G&A expense will be higher.
As we have additional reporting and compliance obligations.
Our patent portfolio continues to grow you know not.
Not only do we invest in.
In seeking new patents in the U S and.
And then the major.
Countries, where we.
We would expect our technology to be used.
But we also have to maintain the existing portfolio and for those expenses grow over time, but more than anything I think.
We feel much more positive.
Positive having closed on the J D a.
And so we're ready to pounce on opportunities to add additional talent.
For the engineering team.
And to make sure that all of the right tea CAD modeling resources are.
Available to make sure of that.
We can follow up on the success of getting that <unk> done.
On the MST cab proliferation.
Requires us to spend more money in that area and then we're also going to be able to do that.
Okay. Thank you very much.
Oh, Okay. So at this point in time, I'll turn the call over to Scott for closing remarks.
Alright, well I just want to thank you all for attending today's presentation.
We're very pleased to be able to share with you the results of the last quarter and year, along with a sense of the excitement that we feel inside at emera. Please.
Please continue to look for our news articles and blog posts to keep you up to date on our progress you can sign up for them along with Investor alerts on our website at <unk> Dot Com should you have additional questions. Please contact Mike Bishop and we'll be happy to follow up we look forward to seeing some of you during our scheduled marketing activities.
Thank you again for your support and we look forward to our next update call.
Again, thank you all for participating on today's call at this time. This conference has concluded.