Good day, ladies and gentlemen and welcome to the Vicor Earnings Results for the Fourth Quarter and Year Ended December 31, 2014 Conference Call. My name is Stephanie and I will be your operator for today. At this time, all participants are in listen-only mode. We will conduct a question-and-answer session toward the end of this conference. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like turn the call over to your host today, James Simms, CFO; and Dr. Patrizio Vinciarelli, CEO. Please proceed.

Thank you, Stephanie. Good afternoon everyone and welcome to Vicor's conference call for the fourth quarter and full year ended December 31, 2014. As mentioned, I am Jamie Simms, CFO and here with me in Andover are Patrizio Vinciarelli, CEO and Dick Nagel, Chief Accounting Officer. Today, we issued a press release summarizing our financial results for the fourth quarter and the full year. This press release is available on the Investor Relations page of our website, www.vicorpower.com. We have also have filed a Form 8-K with the Securities and Exchange Commission in association with issuing this press release. I will now proceed with our customary Safe Harbor statement. I remind listeners this conference call is being recorded and is the copyrighted property of Vicor Corporation. I also remind you various remarks we may make during this call may constitute forward-looking statements for purposes of the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995. Our forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those explicitly set forth or implied in our statements. Such risks and uncertainties are discussed in our most recent Forms 10-K and 10-Q filed with the SEC. Please note the information provided during this conference call is accurate only as of the date of the call. Vicor undertakes no obligation to update statements made during this call and you should not rely upon them after the conclusion of the call. A replay will be available beginning at midnight tonight through March 10, 2015. The replay dial-in number is 888-286-8010 and the passcode 26564337. In addition, a webcast replay of the conference call will shortly be available on the Investor Relations page of our website. I will start this afternoon’s discussion with a review of…

Thank you, Jamie. As Jamie addressed, Q4 was characterized by rising shipments of our 48-volt Chip VTM and Chip PRM solution powering Intel processors. Increasing contributions from VI Chip and Picor were complemented by steady results from the Brick Business Unit. While lower legal fees contributed to our breakeven Q4, I am pleased the quarter confirms the leverage of our business model. Volume related efficiencies have reaching a level of rich incremental profits will flow through pretax earnings. While quarterly performance will vary because of product mix, reaching a point with the expanding production of our new products as richer fixed costs would be efficiently absorbed by revenue levels. To gain additional momentum, Vicor has entering in a phase that will be characterized by introduction of comprehensive array of game changing products. Throughout 2015, the pace which we introduction these highly differentiated new products will accelerate. These products will enable end-to-end implementation of Factorized Power solutions across a broad range of applications, requiring high power density, high efficiency and improved marketing leading design flexibility. Families of Chip BCMs, NBMs, DCMs and VTMs are scheduled for release, as are additional members of our family of market leading SiP point of load regulators. For chassis-mount front-end applications, upstream of the point of load, we will rollout next generation system solutions, called VIA or Vicor Integrated Adapter, which we recently profiled are better target [ph]. VIAs incorporate ChiPs within mechanically and thermally adept packages. Among the game-changers in the VIA family are PFM-based AC-DC converters, as well as BCM, NBM and DCM DC-DC converters. Architected with ease of use in mind, VIA front-end will provide attractive power system solutions across a multiplicity of markets and as I've eluded in the past should contribute to the reinvigoration of our performance in the markets traditionally…

[Operator Instructions] And your first question comes from the line of John Dillon. Please proceed.

Hey guys. Congratulations on a pretty good quarter.

Thank you.

In regard to the PFM, Patrizio, in your VIAs, can you talk to us a little bit about what kind markets that you're going to be able to place us in? Is there going to be a specialty market or is this going to be like wide ranging markets?

So, the initial traction is taking place to some degree in a particular market that is emerging. I will not define what that market is for competitive reasons, but we see broadening range of opportunities for PFM products in the VIA package. To be more specific, we're getting initial production orders for diversion of the PFM that was introduced some time ago as a double chip device in a brick package, more traditional type of brick. It was cost structure and power density levels are faster path construction being lower, density being higher with the VIA counterpart leveraging a chip type of device in a 6123 package. So, we expect that as we rollout new types of PFM VIA products, that we're going to be able to build on the initial traction that we already got with realization version of the PFM using more classic brick package.

I guess what I'm asking though is, I know you talked about micro sales before, but are you going to be able to place these in like the switch market in telecommunications or service going to be able to -- are you going to be able to address the server market? Historically, in the AC to DC, you've been very unitary and I'm just wondering are you cost-effective on that now to hit a much broader market. And in the same line of questioning, I'm just wondering is this like $2 million year business or is this is a $50 million a year business or can you just give us some kind of color on that?

Yeah, so say I focus first on the issue cost effectiveness. So, the adjusted -- in answer to your first question, we're making a first significant staff integration in terms of further improvements in performance, a reduction in cost measuring terms SaaS per one, with the first VIP firms that are about to be introduced, both the 48-volt app and 24-volt app of PFM leveraging what's called the 6123 ChiP. This is same that the 400-watt level and 400 watts as compared to the 330-watt level of -- is nearly a double chip at PFM. We're increasing the power capability, while at the same time, reducing the cost structure significantly. So, that will broaden the market opportunity for the micro sales and other types of applications is the keen in achieving high power density, low profile in certain other attributes of our PFM product strategy. But these are further level events that is they file on -- in the making and which will raise the power capability well beyond 400 watts with the cost structure that will come down commensally with the increases in power levels. And that's going toward even greater rate. So, I think the answer to your question is layer and a function of generation of products and time, but a strategy with respect to way receive products is not a niche. It’s a robust strategy, we believe we're going toward as we do now, for instance, at the point of load in powering Intel processors, not just the best performance, but also the overall -- most of cost effective solution.

Okay. Do you think this might be a $2 million a year business or like--

Sorry. Please -- I didn’t answer your question. Obviously, our solution at the point of load is far, far greater than that and likewise I expect a similar opportunity in the CAA and you should bear in mind that that is actually a very, very large market. It is -- one way of looking at it, one way of categorizing the power system market, the biggest market.

Well, that -- and that's exactly why I'm asking the question. So, I mean this like it could be a game-changer for Vicor, but I just want to make sure I don't -- not reading something into that I shouldn’t.

Well, so -- game-changing claims are obviously some degree presumptuous assertions to make. We don't make them lightly. We believe that for both of point of load solutions where we gather significant attraction has already reflected in major revenue generation. And in this other classes of applications with product abilities and technology that are equally revolutionary that we have a corresponding opportunity. And these are all in fact fast-over very -- we think, well-orchestrated strategy that as is commented, as our team enabling modular solutions, modular power component methodology for power systems, such that customers in all major end markets are going to be able to address their power systems requirements with modular building blocks that have requisite scalability performance and cost effectiveness and that entails the combination of DC to AC solution at the point of load, AC to DC solution in the front-end and in between those two.

In the PFM, when do you expect that to be out--?

Be aware that [indiscernible] is double chip PFM for some time. As I mentioned, we're making good progress with that with a number of customers and we're going to be making announcements very soon with respect to two new VIA products that are PFM based.

Great, okay. Jaime, I got a question for you. It sounded like you're cautioning us that this quarter may be better than we expect. But then on the other hand I heard Patrizio say that -- cautioning us that it will take 2016 for some reasons new products to really hit a gross bird. Can you give me a little more clarification on what exactly are you trying to relate to us in those two statements?

So, let me address that. My comments regarding the new products we introduced this year, not generating significant revenues until next year did not, in any way, negate earlier suggestions regarding the opportunity for revenue growth this year, because that's predicated on products that we'd be working or we introduced last year or had been recently introduced. So, I think what should be noted is that because of the fact that the -- R portion of our R&D major effort in which we invested $0.25 billion over a long timeframe is essentially behind us and we're now in from early development phase. The rate of new product introductions is accelerating -- is accelerated and is going to continue to accelerate as we harvest the fruits of an effort that is in making for quite some time.

And it sounds like from Jaime's comment, we're pretty well into the first quarter, it sounds like you're going to have a pretty good first quarter, is that what I heard Jaime?

Well, I think what's good is to some extent the function expectations. I don't want to get pinned down with respect to that. But I think you heard earlier comments and we mean what we say.

So, you're cautioning us that we could -- what I think I heard, I just want to make sure what I heard, I think--

I think you heard that we expect growing revenues in Q1.

Okay. All right. Thank you. I'll get back in the queue.

Thank you.

And we have our next question coming from Jim Bartlett. Please proceed.

Given the question that John just asked, in the last conference call, Patrizio, you gave a level of confidence that in 2016, you're achieving a milestone of something like 50% in the first quarter and 90% in the second, would that change now?

No, we're on-track to achieving the key milestone. I think we characterize loosely as a breakaway revenue levels with that same confidence level in the same timeframe. There has been no change with respect to that. Things are propelling along without spillages in support of that growth.

You also mentioned on the same core litigation, the trail had been delayed indefinitely, what's behind that?

Well, this has been a fairy tale of swords. And I think that the fairy tale that comes to mind is the Emperor that was no close. I think what's been happening it affects us with this fact this regard and by the way, more recently with the first, second quarter PLC in Washington DC is that they come to realize that the Emperor was no close. And what I mean by that there are no by-products that Vicor could possible infringe. And beyond that I will say that the naked Emperor is an ugly character that should be punished for his past abuse of power in the judicial system. So, I think those kinds of realizations are underlying what maybe going on with respect to things getting put off.

Was there also a new Judge appointed; it may have something to do with it or not?

I can't comment with respect to that. I think the fact that some Judge may face is taking this long as it has and cause the postponements last year is indicative of the complexity of the issues and the fact that the Judge is seeing -- the plant we've seen in a new life.

Just going to another subject. You were talking about the first quarter revenues may being lower because the customer pull-forward some requirements from the second quarter, is this one large customer doing this, or is this several customers?

I think in some instances we're seeing pullings or it's hard for pulling. Obviously, we're dealing with very large multiplicity of customers overall. So, I think the fact that some are pulling in doesn’t imply that they are all pulling in. So, we got a complex situation when it comes to that. But net-net, in terms of the revenues for the quarter, the push is for the revenues to rise above our forecast level, our internal forecast level.

One final question. There's a -- obviously, awful lot of publicity about the data center space, Amazon, and Microsoft and others. Could you just give us some of your insights into new developments in the data center growth, how that's been affecting you?

Well, I think that we are seeing a broadening interest with respect to the benefits of the 48-volt – the backbone of 48-volt infrastructure. As, I'm sure, you are familiar with these classic type of perspective to this with earlier adopters and other companies that are in affect less willing to be on the forefront of initiative that is worthwhile, but follow developments by the early adopters and want to capture senior benefits. So we are seeing that happening and things again creating along in the channel sense with – a number of companies that are major internal users of large datacenters.

Thank you.

And your other question comes from the line of John Dillon. Please proceed.

Patrizio, in regards to the datacenters, again, I think you've got the one big datacenter you've talked about and then there is, I know you've been talking to a number of others. How close are we to a second datacenter customer coming on board? Or are you under contract with another datacenter?

I think that we are going to see a multicity opportunities with VR13, which is, as you know, the next-generation of Intel processors going into production in 2016.

So, can I infer from that that you've got the one datacenter customer and you'll probably stay with that one until 2016 or you will pick up some additional data center customers?

I think that's too granular statement for me to be able to make. I think right now we've suggesting that we see the datacenter space transitioning more and more to a 48-volt system because of its benefits. And I would say on a related front, the front-end portion of the power system infrastructure. There too we see a growing trend towards high-voltage DC buses, which also fits very well within atop our system cells. So at the point of load or across the point of load and also the point of load in terms of 48 to one volt for memory or 1.8 volt for processor type applications, we see a growing trend, because of its benefits. And we've been working closely with a variety of key partners both users of this kinds of systems as well as the makers of the components that gets sold in terms of processor and memory solutions between above systems. So there is progress on the general front and likewise we are making progress in the frontend space in terms of breaching the gap from the power source to the point of load with a very comprehensive and integrated service.

So in the front-end you are talking about like 400 volts down to 48-volts is that what you are referring to?

Yeah, we are talking about both AC conversion as we talked at the beginning of the question-answer session, as well as 380 volt distribution as a stepping stone to 48-volt.

So there could be an AC to DC solutions for datacenters? Is that what I'm hearing?

Guess what I'm saying – well, there is obviously AC to DC solutions is in datacenters today, but…

Yes that’s…

See where these datacenters or other types of systems in communications, as an example, we are seeing – we are partnering with leading companies in that space that have their own infrastructure which is going to be starting to use a 380-volt pass in the not too recent future.

Okay. And do you have any additional large server companies – OEM server companies that you are supplying to now?

We are making progress with companies that are in the server business as well. But I'm not prepared to make any definitive statement today with respect to that. But along the line that – which works for the companies that vertically integrated in terms of datacenters also works for companies that are manufacturers of servers or one form or another.

Yes, okay. And you used the term in the press release saying NBM, I've not heard that term before. Can you tell us what an NBM is?

Yeah, so this is a proprietary device for which Vicor holds intellectual property which has to do with fixed ratio conversion without insolation. And with a non-isolated bus module, that's what NBM stands for. What we can do is raise further the bar with respect to efficiency and power density. So we have initial devices that introduced that will bring the power capability of a device 61 millimeter by 23 millimeter, all the way up to 24 kilowatts with unprecedented efficiency and power density and cost effectiveness. So the ability of this device is to process power very efficiently, very cost effectively is enhanced by a non-insolated key pressure we have already established with some key customers. The fact that fixed ratio conversion can be deployed without isolation and we are about to roll out the first two products that perform that function, again, again with unprecedented level of efficiency, density and cost effectiveness. Because, fact as we raised the bar on the power capability of a chip of a given size, we can at the same time the cost per watt, the cents per watt in an inverse proportion. So case in point, we have two new BCMs that we introduced K 1/4 to K 1/6 which are in the 50 under watt range, the K 1/5 and the K 1/3 which are nonetheless an insolated counterparts raised the bar all the way up to 2.4 kilowatts with the cost structure that is very comparable. So the cents per watt goes down in inverse proportion and efficiency gets up to 98.4%, 98.5%.

And what type of markets will that be going into?

Communications, once again, they could play a role in datacenters for some of them automotive, K 1/3 in particular.

Excellent. Okay. And regarding automotive, can you give us an update on how you are doing with automotive?

We are making progress with relatively small scale, but significant in terms of early transaction wins that are approaching initial production this year. We have, as you've heard in the past, developed them in the works that raised the bar on density efficiency and cost effectiveness that are going to be opening up more opportunities. The traditional requirement in that space, there’s area of great progress its involved high voltage such as typically 300 volt bus down to 12 volt. But there are greater and greater requirements for automotive systems that involve lower voltage conversion from a 48-volt type of bus to 12-volt, while the NBMs plays potentially an important role with respect to that, because with a similar density efficiency and cost effectiveness with or without companion peers amps of peer together modules either rational or irrational type of systems.

Great. Thank you.

You’re welcome.

And you have another question coming from the line of Don McKenna. Please proceed.

I have read about both Microsoft and Apple developing the solar farms to power their datacenters, does that have any implication for you at all. I mean, would it be a net positive opportunity, negative or just neutral?

We’re not directly involved at this time with that – with any of that. But I think generally speaking trends such as the one you are pointing to only go in the direction of expanding the opportunity for advanced modular solutions to power system requirements. And that’s an area that we are investigating, but has not been part of ours – of effort.

What is your capacity utilization ratio and over?

Our capacity utilization at the factory to review just within the last week and our capacity utilization is expanding, but capable of significantly greater expansion. We have suggested in the prepared remarks various levels of freedom with respect to significant further expansions. There is opportunity for chips for rational rates as we get from 2015 to 2016 to undergo a multiple of three, potentially greater than that 3X and we know or has accomplished that in a variety of ways. We are diligently pursuing a competitive salvage to accomplish that.

And is the multiple of 3X, is that be for you do you additionals as we talked in the last quarter expansion and maybe even in need of a capital raise to do that overseas?

Well, so we are looking at a variety of options and the options involve further expansion to your earlier point of our tall capacity within the main factory and Andover where we have 250,000 square feet, where we have the ability to add additional floor space, because we have IBA areas within which we can add floors. We have seven SMB lines. But there – as an example we have the opportunity to partner with outside vendors who supplement our SMB lines, because there are portions of manufacturing floor that can be relatively easily be contracted out to the right kinds of partners and we have the opportunity to add capacity in a variety of ways with respect to those portions of the manufacturing process that are, what you call, key to chip making, where there is much higher level of proprietorship in the processes in some of the equipment. And again, we can do that within the facility, the 250,000 square feet facility in Andover and medium to long-term we are going to be doing that elsewhere as well.

Okay. Thank you.

And we have another question coming from the line of Alan Hicks. Please proceed.

Good afternoon. Congratulations on good progress you are making on all fronts.

Thank you.

My question is on – on the server market, it sounds like you have one big customer and it can be lumpy from quarter-to-quarter, where are you in the penetration of that market? And within that particular customer also?

So I think answer to some degree your question earlier, maybe beating myself to some extent. But with respect to an earlier adapter, we are making progress in fact to further expansion opportunity it would next generation Intel processors and memory slots. We are also penetrating other key players in that trial place. Companies that they are vertically integrated datacenters actions and it’s more than one that you see involved adverse stages of engagement. And as I suggested earlier we are also making progress with respect to companies that manufacture servers, but they don’t have their data centers. So some of it is that the value of our position in terms of high efficiency, higher density, lower cost of ownership, a greater scalability, the ability to address escalating requirements with the next generation Intel processor, the demand much higher, the crack [ph] capability than past generation devices did for which unique proprietary technology is extremely well suited unlike the competitive alternative. All of these factors are drivers in the rationalizing in terms of motivating a more diversity of customers, other users or manufacturers of servers to adopt our solution.

So it sounds like you have multiyear opportunity for penetrating that market quite a bit more.

Yeah, we see it as a key market for us. We are more and more focused on it, and factor internally to make the most of the opportunity has been expanding and become hot for us [ph]. It’s not the only market we are pursuing, but we are certainly putting the spotlight on it because we see tremendous opportunity in that market.

Okay. And then in communications, would you say you are very early in penetrating that market again?

We are making progress. I think we are going to be seen a greater opportunity I think as this year progresses and to next year. And it’s not to take away from other markets, industrial markets, the transportation markets, we are also -- marketing which also making progress. So defense market for that matter.

Yeah, it sounds like your traditional markets are picking up. But what -- like one of the wildcards would be like super computer market, I know you have had some regulators in the past. Does that still an area you are looking at?

Absolutely, yeah. So those opportunities not gone away. They are may be changing shape and the confidence involved maybe changing, expanding for some degree. But there are again, the value proposition if anything for us phone because where we have to offer, again, so the key attributes are set a power system apart from the competitive alternative, density efficiency, a transit response, our capability and cost effectiveness. Those value attributes have grown for us. The rate has exceeded the competitive alternative.

Okay. Can you give an update onto your progress in the other market?

I think I may have answered that question a little earlier. So we are making progress. There are some initial opportunities, they are not huge volume. But they are real production reforms coming up this year. I think as I mentioned earlier with some of the new products, they are on the pipeline, some very close up like the first NBM, some of them are third-generation PRMs, the combination of the two for other systems, and our two-stage DCMs. We see growing opportunities in that market. It’s a market that's been, first we're focused on, that we have targeted as being very strategic from number of years. I think we cautioned everybody to be very patient with respect to two verticals, while it moves faster than it used to, if still market go very long discretion phase.

Then I had a question, do you still own the building -- some of the area?

Yeah, we're about actually to lease it and derive some pretty income.

Okay. And one last question. It looks like revenues quadrupled from the first quarter, where do you expect going forward from here?

I expected to keep progressing in the right direction. I think Vicor is at some initial product introductions. They have been primarily focused of some key opportunities and you're beginning to see some of the -- progression of that focus on in early revenues and early progression. But this very broad range of very exciting products for 48-volt products that performed all the classic regulator functions, but boos, back, and boos with the unique attributes of efficiency and cost effectiveness. They are coming out as part of the same strategy with respect to enabling a modular solutions to power systems in this particular case using a packaging technology which is the result from not proprietary, but leveraging within it a control system and a powerful volt topology that is very proprietary. So, we see growing opportunities for ourselves under the Vicor umbrella and there's more of those coming -- a lot more in coming months.

Okay. Again, congratulations on all the progress you're making, and thank you.

Thank you. If there's one more question, we're getting close to the end.

All right. And last question comes from the line of Jim Bartlett. Please proceed.

…conference call, you were talking about your optimism that you could get back to a 20% operating margin, would that be compatible with a number you -- since you also were talking how near-tem, long-term was 15% R&D or it would 20% be -- something closer to 10% in investment in R&D?

So, let's start with gross margins. I think you heard in me in the past say and I repeat today that with new products, we expect to achieve and some case, we already margins wider than the margins that we achieve in the 55%, 60%, 65% area with bricks in the early going in the 80s and 90s. This new products being as differentiated as proprietary and as high performance level and given the high level investment we made in them, served to achieve margins -- gross margins that are upper to reflect again the level of innovation and value that is delivered to customers. So, starting with that the operating model needs to take into account the high of investment we made and are continuing to make in R&D. You made reference to 16% level, that's a good number to think of in terms of our typical R&D budget. We intent to keep it up there, even though I suggested earlier because of the fact that… [Audio Gap] …and this at least for the foreseeable future, a lot less of the R to be done and just a lot more of D. We think we can accomplish that for quite some time without expanding R&D resources as rate is commeasured with this partial in the topline. So, there may be an opportunity to take the R&D operating expenses down a little bit, as the topline growth. And likewise you also think [indiscernible] such as to that when it comes to the sales and market infrastructure, we have a corresponding opportunity, because we've led the growth in revenues by building up the infrastructure to pursue customer engagements front of products and opportunities. And that at this point has achieved a level of stature and capability that supports considerably higher levels…

Sounds good to me. Thank you.

Thank you. And with that thank you and look forward to talking to you in a month and a half or two. Take care.