Atomera Incorporated Q1 2023 Earnings Call
<unk> technology can improve the power performance and area of different memory devices, including DRAM and <unk> brand.
Further we are encouraged by better traction with memory customers themselves.
I have not highlighted this area in the past as the memory customers are particularly challenging to break into but we are confident in the big gains MST can bring to this space and hope to see adoption in that market in the future.
I'd like to take a moment and highlight one new area of development, we have underway that shows very strong potential.
In discussions with customers about our five volt power management focused solutions. We're consistently asked if MST can help for higher voltage transistors up to the 40 volt range used in a wide set of applications requiring greater power.
Over a year ago, Adam era started designing silicon to enhance these very hard to improve devices.
Our early test data shows very promising results in this slide is one of the most important specs from our first silicon.
<unk> brings both lower on resistance and higher breakdown voltage so reading the graph vertically, we see a 38% lower on resistance at the same breakdown voltage which would be extremely attractive.
Two powered device manufacturers.
If this technology continues to progress as we hope it will open up a much larger slice of the power market for us.
Where we know there's widespread customer interest we call. This new technology MST SP X and we are now sharing early access data with key Ibms Fabs and also fabless companies. So far that's been favorable feedback wherever it's been shown.
I'm glad to give you this insight into our technology pipeline and customer activity and I know investors would like to see more believe me I know.
No.
But this past quarter illustrated.
Activities and the process development World take a long time to unfold and are frequently secret as I've discussed in the past customers, who are satisfied with our technology may have to wait for the right time to release it and they are likely to demand confidentiality until they are ready to do so <unk> announcement is a classic example.
As you may have seen in recent semiconductor earnings announcements that are now that now that we now appear to be at the bottom of the semiconductor cycle.
How long we stay here is an open question, but we continue to see this year is a prime period to engage with customers to add MST to their manufacturing technology tool bag. So our focus has to be on acquiring new customers and getting existing ones over the hump and into the licensing phase while the timing is right.
As you can imagine we're very glad to finally be able to share the <unk> license news with our investors, but our team has been energized for months by it because we believe it validates the commercial potential of our technology and represents our initial push to get into production.
It has been I believe for some time that potential licensees have been waiting to see a first mover and now we have one we are also motivated by our advances in new technology areas and the associated new market potential it provides.
We believe that a major step has been taken towards making us successful commercial enterprise and we plan to continue building on that momentum as we go forward.
Frank will now review our financials.
Thank you Scott.
Yeah.
I don't appear to have video.
Thank you Scott at the close of the market today, we issued a press release announcing our results.
First quarter of 2023.
Thanks, Mike.
This slide shows our summary financials.
Our GAAP net loss for the three months ended March 31, 2023 was $5 million for 21 per share compared to a net loss of $4 $1 million or <unk> 18 per share in the first quarter of 2022.
In Q4 of 2022, our GAAP net loss was $4 $3 million or <unk> 18 per share.
We did not recognize any revenue in Q1, 2023, and only minimal revenue in Q4 of 2022.
In Q1 of 2022, our revenue was $375000.
GAAP operating expenses were $5 $2 million in Q1 of 2023, which was an increase of approximately $855000 from $4 2 million in Q1 2022.
This increase was mainly due to a $697000 increase in R&D expenses, primarily reflecting increased head count costs as well as higher spending on wafers and outsourced fabrication.
Sales and marketing and general and administrative expenses increased by less than $100000 each.
Sequentially, our GAAP operating expenses increased by $756000 from $4 4 million in Q4 to $5 2 million in Q1, primarily due to higher payroll expenses wafer costs and outsourced fabrication.
During Q1, we saw significantly faster cycle times at our contract foundry Tsi semiconductors compared to prior periods as the tight conditions in the industry eased and we processed wafer lots that had been backed up.
The mix of wafers purchased for R&D in Q1, 2023 was also substantially more expensive than prior quarters.
We do not expect these factors to recur in future quarters.
non-GAAP net loss in Q1, 2023 was $4 3 million versus $3 3 million in Q1 of 2022 and $3 5 million in Q4 2022.
The differences between GAAP and non-GAAP operating expenses in all periods presented are almost entirely due to non cash stock compensation expense. So the reasons for the changes in non-GAAP net loss are the same as I already highlighted.
Our balance of cash cash equivalents and short term investments on March 31, 2023 was $17 1 million compared to $21 1 million on December 31 2022.
During Q1, we used $4 $2 million of cash in operating activities and under our ATM facility. We sold 49593 shares during the quarter at an average price of $6 40 per share.
As we've discussed on previous calls our cash usage is typically highest in the first quarter of the year due to annual payments, which are expense throughout the year on our income statement.
Our limited use of the ATM. During this quarter reflects our view that our share price over the past few months did not adequately reflect our business out.
We will continue to use the ATM judiciously.
As of March 31, 2023, we had $24 3 million shares outstanding.
Our policy on revenue guidance is that we only guide as to the current quarter Q2 and in this case and we will continue that practice for the foreseeable future.
As Scott said in his remarks, our license agreement with S. T setup milestones that will trigger upfront license payments in the first of these will be the installation of MST and a tool it has T style.
As of now that installation date dependents on readiness their tool and facilities. So we're guiding to zero revenue revenue for Q2, but it is possible we would hit that milestone and recognize the associated revenue as soon as this quarter.
However, we believe it is more likely that the trigger will happen after that and once we have better visibility, we hope to provide clearer revenue guidance.
Our 2023 guidance for non-GAAP operating expenses remains unchanged from our last update call and we expect it to be in the range 16, two five to $16 $75 million with the main drivers being adding head count and expenses associated with participating.
In advanced node ecosystems.
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.
There is no doubt that this FTE agreement is great for our team morale and our company trajectory.
You should have no doubt that we will be sharing this success with other potential customers to highlight what is possible.
<unk> believes this news Mst's technology advantages in many market segments. The current state of the industry and the undeniable economic value, we can bring to customers creates a perfect environment for <unk> to succeed our technology has proven the big question has always been where the customers will accept.
Our business model and that's fully executed commercial license with a market leader is proof that they will.
Mike will now take questions.
Thank you Scott if you wish to ask a question. Please click the Q&A button at the bottom of the zoom window, then feel free to type in your question I will do my best to aggregate, the incoming queries and relay them to management.
Alternatively, you can click the button and we May call on you to ask your question line and right now our first question comes from Richard Richard Shannon of Craig Hallum, Hey, Richard There. If you can kind of unease and ask the question.
Great Mike can you hear me.
Alright, great.
Well first to Scott and Frank are hurting congratulations on the screen announcement today.
<unk> been waiting for this for quite some time and Im sure. Its a great relief. So congratulations to you and the entire team.
As you can expect to get a number of questions on this Scott. So let me fire of some of these off here.
I guess just get a couple of easy questions out here.
Maybe to understand the opportunity here in the near term from this agreement here, how do we think about the scale of the of the milestone payments that can be triggered here from the events that you that you know about.
Yeah Richard.
By the way thank you for that and congratulations the team seems very happy today. So.
Yeah. So we we arent going to give the exact terms of the contract, but I can tell you that you know for the last several years, we've been talking about a business model that that had.
Kind of our list price of upfront milestone payments would be a total of about $3 $2 million and then our royalties.
That we were looking for a range between one and 3%.
While I can't share with you, where we are with this contract I can tell you that we're you know we're close to our business model.
And.
We've always said that we we would make some.
Special deals for people that first few people to get into production.
So we may have done a little of that but I can tell you we feel comfortable with.
The ranges that we've talked about all along.
Okay that is helpful. Scott let's.
Let's talk about kind of the timing of the next steps here I think you described what they were but maybe you can talk about the timing I know theres some risk involved in including what you said was you know theres a potential for them to deciding not to go forward, but assuming we get all the way to production how do we think about.
A potential timing of these steps.
And you know one of the things I said was that the design of the of the product is really going to be in their hands. So.
What I can tell you is that in the past.
We've talked about the phase or installation is usually relatively quick.
345 months maybe.
From beginning of the installation until they have the film completely calibrated and working well.
And then.
For this company, they're making a new process, so they're going to be doing some integration work after that they've already done integration with where this in the past, but theyre going to be making a new.
Manufacturing process and.
Hard to predict exactly how long that would take.
Then they would enter into process qualification, which we've always called about a nine month process older nodes are shorter newer nodes or longer. So I think it's reasonable to say that.
Uh huh.
I wouldn't expect to see royalty payments happening even under a best case scenario in less than a year and a half.
But maybe a year and a half to two years as is.
Is there a range if things went pretty smoothly that we would expect.
Okay.
That is fair enough.
What process node or nodes is being installed and can you disclose that sir.
I don't really want to talk about that that's a that's the STS confidential information.
I do want to say that they are S.
S T.
Has been very secretive about some things, but they were gracious enough to let us use their name in the in the product area, which theyre smart products.
On power products.
And so I'm thankful for that and I think there'll be adventurous to them and us for that going forward.
Okay.
In a sense of the revenue stream of the Super power products that they.
But they sell today I have got a basic model for them, but certainly no.
So a good amount of detail to give me a great idea is that something you can quantify or do you have a sense I don't actually know the answer to that I do know that it's a very large segment for them.
A significant portion of their.
Of their revenue but.
Got.
It's something that we haven't dug into yet.
Okay.
Oh, I'm going to do some digging and if I could find some numbers I will share with you, but appreciate that two other things on SD micro will jump to a couple of other quick topics here.
You talked about powered products I assume that you're referring to five volt with which you've talked liberally in the past is that what we're referring to here is it.
It expands beyond five volt area, yes. This would be an expanse now so we have talked about technology. We have that we can bring to customers for five volt and now today I spoke a little bit about higher voltage that went up to 40 volts, but in this case, we're delivering our MST technology and then.
FTE is going to be integrating it into their products so to prove probably be a wide voltage range theyre not necessarily using the <unk>.
Offerings that we have in that space.
Their offerings are probably better.
They can but we do have.
The techniques that we've learned by doing it ourselves and then we can help them.
I understand so that they could decide to incorporate into their tool in their products or not and also importantly, we have the <unk>.
Modeling tools MST CAD that had been kind of fully calibrated for that type of work from the R&D efforts that we've done that will really help.
Okay.
One last question on this <unk> had a couple of other quick ones here.
So you talked about the last few quarters as we've seen industry utilization come down and open up an opportunity a better opportunity to run R&D wafers and this seems to be evidence of of that cycle coming.
Coming towards you and giving some benefit here, you've obviously been signed up with SG publicly for whilst we know you've got a good long long lasting relationship. We tried to extrapolate. This opening up of utilization helps run R&D wafers here can you translate your experience here with SG over the last year or so to others.
And your pipeline either named or unnamed.
Give you confidence what we see others like this but I'll use it in quotes not too distant future. How would you how would you couch that.
I I I don't know if I could draw a straight line from the fact that the industry has got is that is that the low point and so this capacity to run.
Factory with this decision by S T a.
They made the decision after knowing about our technology for some time that they were ready to make this move now and I'm sure. It was based on a number of.
And our roadmap.
Development opportunities that they have in house.
So it's hard to extrapolate that to what our other customers do I would say.
We're working with a lot of people on power power is an older process. There's very few knobs to turn to get big improvements there.
We definitely hear of some customers that say if they could see a 10% improvement in that area. They must make the change and so.
I think this announcement will spur some of them on and if they decided they wanted to go fast and kind of.
Start running wafers, probably they have wafer capacity available to do that right now so that's that's the linkage.
Okay.
Fair enough. That's good perspective, one other question and I'll jump out of line and let others jump in here.
Your outsourced foundry Tsi semi has announced that they were being acquired by Bosch.
I know, it's just a few hours since this was announced it what do you foresee as is the benefits or potential disadvantages to your work with them how.
How should we understand as we understand this.
Yes, it's quite an interesting move and affects us in a few ways. So first of all for those who may not be familiar tsi is is the foundry that we use to run our R&D wafers.
And so the.
The benefits and risks.
The risk is that Bosch might come in they did announce that they are buying this for among other things the silicon carbide market that they'd like to ramp up but it's our understanding that they are going to continue at least for quite some time their existing business, which is the.
Which includes both foundry of Cmos devices, and what they call <unk>, which is technology development area, where we work.
Now.
You got to imagine that Bosch coming in will bring a good infusion of capital that will help them and will allow us to run more experiments and hopefully get higher throughput with them. So that's really good the other thing thats, good and a real potential.
Interesting development for Us is.
Tsi actually has our technology integrated into their manufacturing line, we've been running it with them for years, and so Bosch decided that they wanted to try to adopt our technology there.
Through this fab that theyre acquiring they would be quite a ways down the road in the development of that.
<unk>.
Of course, we have to worry that at some point they may decide that they want to exit from that <unk> market and that's something that we have to plan for it we actually have already initiated.
Discussions with alternative sources.
Frank mentioned something about work on advanced nodes, but we're also looking for.
Some of the older nodes, where we can start running wafers elsewhere, just to get access to different technology. So if the worst happens hopefully we'd be able to just transition over to that new foundry.
Okay.
I will jump out of line, but again, congratulations upon with cigarette announced with SD micro that's all for me strengthens.
Thanks Richard.
Our next question comes from Coty acreage.
Benchmark Company go ahead, yes, thanks, Mike and let me Echo my congratulations on the signing of the licensing agreement.
I guess guys I guess just.
What do you think Scott this does to your other.
Engagements.
Do you think that this is enough to prompt.
Other <unk>.
Terms your or the discussions you're having so do you feel like there are those that.
Good could be swayed to move forward.
Yeah, you know it's a it's a hard question to answer there's no. Nobody has told me we're not moving forward until someone else comes but most of our customers.
I have.
Talked about wanting to the couch it in different terms, but they say.
Who else is in production today.
Who else is going to production.
To the extent that we were able to announce a small company that they didn't really respect as being a market leader.
I don't think it would have had much impact, but now we can announce SD micro of course, I think it'll have a big impact.
And now several.
But we're working with are going down our technology development path and we hope that they get to a point, where they're ready to make this type of announcement will speed that up it might raise the priority I've always thought that.
We talked about we've talked about the Domino theory, when one player enters the market others frequently speed up to try to make sure. They arent at a competitive disadvantage and so we hope that's what happens and we're going to encourage that to happen as much as we can.
I guess.
Just on to the licensing agreement itself.
In your negotiations on price I am sure you have to pair that with potential volume discussions and so is there any color that you can give.
As to that side of the coin that.
That.
Would give some comfort that.
You are giving a.
Break on the royalty side that that could be made up for in volume.
Yeah, I mean on the royalty our standard approach to royalty would be that we we started kind of a higher royalty level and as they've shipped a lot of product they move down the price curve just like they would if they were buying chips.
So although I can't go into any details about this.
Particular royalty table.
It conforms to that type of a view.
And and I guess as you look at.
The potential volumes.
<unk>.
How much did that factor into the royalties that that were.
Finalized.
You know our belief going into this we were thinking two things first of all these guys.
Very high volume manufacturer.
And so what we wanted to try to do for our first customer in particular is try to make sure that we were able to get to a price that was attractive enough that it really rewarded us for what benefits, we bring them, but also encourage them to.
Use the technology across a very wide range of products.
So you kind of finding that right balance.
We do believe that our balance between 1% to 3% is something the industry has absorbed a number of times in the past at least more on the chip IP side than on the kind of wafer IP side, but.
But we think that's doable and and we fell into that range and so we feel good about it.
Do you think the terms of this agreement set the stage for.
The terms that you would come to expect for future agreements.
So whenever we talk about royalties the thing where.
We're trying to do is we're trying to look at what economic value are we bringing to the customer. So if we bring them a really large die size reduction for example, and I can I can easily run a spreadsheet that shows them, we're going to bring them a big gross margin improvement by doing that and then we want a small slice.
We don't take a percentage of their gross margin or anything, but let's say, we can bring them in 8% gross margin improvement we might ask them for a higher royalty then if we can bring them a 2% gross margin improvement and so that's how we do it so it's really dependent on what the application is and how big a benefit we're bringing.
I guess as well.
As I look back at some of the.
Potential models that we had initially put together four revenue streams.
I think we talked about.
X number of Fabs out there X number of wafers being run.
Is this agreement per fab with SD micro.
Or is this a more broad company to company license that ft micro can use more broadly.
For the most part we tried to license our technologies based on process nodes and so.
And that includes kind of optical shrinks switches.
A term we use in the industry to mean half node shrinks.
<unk>.
And this is a similar.
Situation right. So we've licensed them for a node and perhaps shrink soft that node and if they decided to use it on the new note and we would we would undertake a new.
License term sheet too.
To negotiate that.
Okay, so across a given node regardless of the application or is that only applicable power.
It's probably.
For the most part companies don't have a lot of different process nodes working on different applications, but.
But yes in this case I'd say if another group of nasty that was not doing power was in the same node they'd still be able to take advantage of this.
Okay, Alright, and then lastly, Frank just any discussion or thoughts on your liquidity options.
Knowing the ATM is less attractive that your recent stock price.
Well I think at.
At the recent stock price that has been less attractive, although I would say.
<unk>.
Really fancy myself, an expert on the equity market, but I can tell you that.
<unk> financing through other means would probably be even more expensive.
Compared to the ATM.
As I said in my comments, we were not very active on the ATM obviously.
We felt like the last six months just didn't reflect the real potential for the business. So.
We were probably.
Raising less capital in the last two quarters in a normal way I would have in terms of what I would target.
On the balance sheet.
But obviously, that's that's because we have long term confidence in the business and stock price.
Sure. Okay. Thank you guys I appreciate it and congratulations.
Thanks Scott.
Okay.
Just reading some of the questions that come in over the Q&A line here and a real easy one Frank the $4 9 million and short term investments can you talk about that and where did those funds come from.
Sure so.
Quite a few months actually we had a plan to me.
More actively manage our cash to take advantage of the interest rate environment that exists out there.
Because.
Given the activity by the Federal reserve, which was raised.
Short term interest rates very quickly.
It was possible for us to meet our.
R R.
Our cash management executives and those are number one to preserve principle number two to maintain liquidity and number three subordinate to those first two is to maximize the return.
So these are all.
The highest rated type of government government agency bonds and we're following a very standard.
Investment management practice.
With our board monitored investment policy.
We kind of became more active with that as well.
I wouldn't read anything into it in terms of the issues at Silicon Valley Bank, Although I'd highlight that at no time did we have any risk.
Loss of funds.
By having a deposit relationship there because we were already.
Investing our money in money market accounts. So these are all our assets and that continues to be the case. So the short term investments to cash equivalents. These are all at a mere assets and they are not subject to.
Deposit.
These risks.
Okay.
And then one quick question on the J D. A.
And then a couple on the ft agreements.
So the question on the <unk> can do.
More of an update on the <unk> I know you addressed a little bit in the prepared comments, but.
Can you can you address the <unk> ones progress with the business units Scott.
Yeah, I can say that.
With J D. One we have been in discussions with multiple business units.
So.
I think what we can expect to see is that we'll be we'll be doing a lot of kind of.
Planning and modeling and other work with those guys kind of they may ask us to run a few tests, which will do ourselves and provide them are the results and when theyre getting serious enough to try to start moving that forward. We're gonna have to put in place a.
Contract and extension of our J D. A in that area and that would be something we can announce.
We you'll notice I've tried to give as much detail as I could.
In two ways, one is with the with the licensees and J D customers.
And separately with the <unk>.
Areas that we're doing work in because.
Connecting the two of them together will definitely reveal.
So they are I know that people who aren't in the industry.
May not appreciate how difficult that is and how good the industry has been great at figuring out who's doing what but we have to be very careful so.
Yeah. So I guess, that's all I can say.
Okay.
And then on.
The S.
S T.
Well the production volume, making at Amira breakeven I know thats.
We gave given sort of rough timeframe.
To win royalties would start but when those happened what do we think about approaching breakeven.
It is very hard to say, because we don't know what the ramp too and what their volume will be.
Certainly if they if.
Yeah, if we had all of the volume are there.
Are there.
Our products certainly definitely.
But we don't know, we don't know what the ramp rate and the individual volumes will be yet.
Okay.
And is the is the focus of your shifting to next generation Fabs and what would royalty has looked like in those fabs given the higher wafer costs.
Yeah, I mean, that's that's funny.
Think about our three nanometer wafer is going to cost more than $20000 for a company to buy it.
We got three 3% of one of those where to get $600 per wafer I honestly don't think that that is a level that is sustainable or that we could.
Yet, but I do think in the more advanced nodes, we would be able to get.
A higher royalty rate.
In terms of dollars per wafer and they run in very high volumes, but we would have to be.
We'd have to be realistic about about charging.
Per wafer price that they find palatable so.
Haven't negotiated one of those yet have had some discussions.
And I hope.
I hope that's something that we have have to worry about soon now.
There's been some confusion because we've written a lot of articles and we have announced a lot of things on advanced nodes that that's where we're shifting the focus of the company and that's not the case, we are still really focused on a number of different product areas advanced nodes is one of them. It's very exciting it's where people are writing about today.
But that doesn't mean that that's our exclusive focus in the company.
Alright.
Well I think at this point.
That concludes the Q&A period, Scott if you want to proceed to your closing comments.
Alright.
Hmm.
I want to thank everyone for attending today's presentation I'm happy we were able to share with you our recent progress and our enthusiasm on this S T deal.
Please continue to look for news articles and blog posts to keep you up to date on our progress.
Which are available along with investor alerts on our website at <unk> Dot Com, we look forward to seeing some of you during upcoming scheduled marketing activities should you have additional questions. Please contact Mike Bishop will be happy to follow up. Thank you again for your support and we look forward to our next update call.
Thank you Scott and this concludes the <unk> first quarter 2023 conference call.
The recording has stopped.