Good day, ladies and gentlemen, and welcome to the Vicor earnings results for the first quarter ended March 31, 2015. My name is Irene, and I will be your operator today. [Operator Instructions] As a reminder, this call is being recorded for replay purposes. I would like to turn now the conference over to your host for today, Mr. Jamie Simms, CFO of Vicor Corporation. You may proceed.

Thank you, Irene. Good afternoon, and welcome to Vicor Corporation's conference call for the first quarter ended March 31, 2015. As stated, I'm Jamie Simms, Chief Financial Officer; and with me here in Andover are Patrizio Vinciarelli, Chief Executive Officer; and Dick Nagel, Chief Accounting Officer. Today, we issued a press release summarizing our financial results for the first quarter. The press release is available on the Investor Relations page of our website, www.vicorpower.com. We also filed an 8-K with the SEC in association with issuing this press release. 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 provision 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 Form 10-K filed with the SEC on March 6, 2015. 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 May 13, 2015. The replay dial-in number is (888) 286-8010, and the passcode is 93464591. In addition, a replay of the conference call will be shortly available on the Investor Relations page of our website. As is our practice, I'll start this afternoon's discussion with a review of our financial performance for the quarter, and Patrizio will follow with his comments, after…

Thank you, Jamie. As pointed out by Jamie, Q1 by Q4 was characterized by a steep ramp in shipments for our 48-volt to point of load ChiP VTM 3 and CPRM 3 solution following VR12.5 Intel processors. We also spoke of expectations for the clients in Q2 shipments for these products. My remarks that will focus on expectations for the remainder of 2015 and into 2016. I remind listeners that this is not a first product transition relating to generations of Intel processors. Our initial transaction with Intel center space was with earlier generation PRM and with PM [ph] VIA chips, meeting the VR 12.0 standard, which took place in Q3 2011. We introduced a unique 48 to point-of-load solution to the market in late 2011 and received initial orders in early 2012. We had expected significant bookings for the second half of 2012. Our production did not begin until Q1 2013, as VR 12 represent a significant shift in architecture. By the time we ramped production of our VR 12 solution in 2013, the VR 12 announced this week [indiscernible] was released, and we are responding in Q3 2015 by announcing our next-generation solution consisting of VTM 3 ChiP and PRM 3 SIP. Our expectation was that this solution will ramp in the second half of 2014, which turned out to be the case. However, we did not anticipate that orders for earlier generation solution would decline as suddenly as they did. As is the case today, the 2013, 2014, transition was characterized by inventory management issues across [ph] the manufacturers. Also, this history in support of my strong belief that we are far better positioned for the next transition to VR 13 than we were during prior transitions. First, we have the VR 12.5 backlog and additional demand…

[Operator Instructions] Your first question comes from the line of Mr. Jim Bartlett.

Yes, Patrizio, could you just help us understand about the India Intel processor rollouts and their data center chips and the names of those and how that rollout with the time lag will not -- impacts on you with the VR13?

So, the roll-out has got some uncertainties. As I'm sure you know, the flexibility with respect to availability of next-generation Intel processors is not being consistently good. So there is nearly some uncertainty with respect to that. And that's a factor which is factored to our expectations on revenue levels over the next few quarters because of the impact it might have on the timing of VR13 ramp and this factor would decline with respect to VR12 in our first shipments. Part of the opportunity going forward is outside of the center space. It's in other type of computing or supercomputing applications. So that's going to be a factor. The timing of rollout of different programs is not efficient. It's likely to be staggered. VR13 is likely to be around for a longer time frame than VR12.5. And we're aware of some of our new customers looking to introduce their products or begin to build their server farms at a date that might not coincide with the start of the VR13 availability. So it's a complex landscape. And there are many facets to it. We view the most recent facet as compulsive factor in having us achieve the greater level of elusive [ph] cash that we've been pursuing.

What is Intel saying now about the availability of the VR13?

Well, it's a function of what you mean by availability. Limited availability in terms of systems being brought up depending on which particular cash -- penalty cash, and we're referencing is as early as the next couple of months, okay? But from that to the start of production, there are lags that again are going to be a function of the customer and the nature of the application.

And are those lags months, lags several months? And they can be several months or it can be [indiscernible].

I think it can be -- as of now, a good time frame for the start of meaningful ramps is the beginning of 2016.

Beginning.

Yes.

That's for them, and you would closely follow that?

Well, actually, we would, generally speaking -- I was answering your question more from the perspective of our ramp, which must precede customer ramp given our lead times, assembly times and so on and so forth.

And it would be fair to say as far as getting a new data center customer, it is -- or customers, it's dependent on that?

I'm sorry, I'm not sure I understood your question. What's dependent on that?

Any -- you have large 1 data center customer now.

So I'm not going to be very specific with respect to customers, but I think I can clearly state that, that we're with VR13, looking at expanding our footprint both in terms of customers and applications both within the data center and outside of the data center with both computing and supercomputing applications.

[Operator Instructions] Your next question comes from the line of John Dillon.

Patrizio, I think you mentioned that there was significant increase in design wins. Can you give us a little bit more color on that? What kind of design wins? What markets? Are these quantity design wins? High quantities?

Some of them are. And they fit into our strategy of diversification. I think we've -- in this call and prior calls spent quite a bit of time talking about data centers. Obviously, that's a very important market, 1 where we achieve early penetration with the top processors. One that we want to build upon by expanding the footprint with our initial major customer to provide more of the tall solution but also with other customers in that space. But as I mentioned a little while ago, outside of the space, we are seeing a general magnification of interest with respect to 48-volt solutions which is an effect of -- the heart of our value proposition. In other words, we're seeing not just in their center but in other computing applications and supercomputing applications a transition or some interest before the -- are more efficient, more dense, more overall cost-effective solutions. So that's an important part of the strategy going forward. And by the way, while that will play a role in connection with Intel processors, it's also going to be playing a role with other kinds of processors, including some of the kinds of processors that we powered in the past. So we see a growth opportunities in the computing space in a number of different directions within and outside the data center. But now we should broaden our horizon further because it would be a mistake to think that our whole growth strategy is predicated on computing applications only. We see opportunities, significant opportunities outside that space that we've talked about for quite some time. So we're getting traction in smaller modular applications. We're getting traction in other markets, large applications, communications applications. We continue to get good traction in some specialty markets such as defense and aerospace.…

Okay. So it sounds like the 48 volts is a real differentiator for you, and that's really driving new design wins in the -- as you would say in multiplicity of markets. [indiscernible]

48-volt, the uptake of -- the more general uptake is of 48 is a driver. It certainly plays into some more strengths. I would, though, emphasize the fact that the strengths are now limited to a 48-volt input of applications. Our engines are really very flexible and can support the general needs of power system requirements, again across a broad range of markets and applications. We do like 48-volt as what you call -- might call the preferred heart [ph]. In other words, in taking -- if you want to use the line analogy, in taking customers from point A to point B and C and D, we like to go by way of the 48-volt bus because of the power distribution efficiencies and other benefits of 48-volt. And the good news is that this grassroot -- the growing grassroot realization that 48-volt is far superior to 12-volt in terms of a power distribution bus with contrasts [ph] in loads in terms of increasing requirements for density efficiency and other key attributes, 48-volt is a power distribution app. It's becoming more and more popular. And the fact that some of our early customers have had great success with this is bringing about more believers and more takers of the same kind of solutions.

Okay. And so -- I wasn't sure if I heard. Did I hear that you did have some new design wins in data centers?

Yes.

Excellent. And are these big data centers like the previous one that you had?

So I'm not going to go into details. But as I mentioned earlier, I'll go as far as saying that we anticipate that our penetration with VR13 is going to be considerably broader than it has been with the VR12.5 and VR12. We are seeing growing opportunities both within the data center and outside the data center.

In that vein, with the VR13 as a good quality open compute project, do you think you'll ever get into the open compute project with that technology?

I don't know that I want to make a comment with respect to that at this point in time. I think that -- I will save that for another day, let's put it this way. I think we are focused primarily on certain key customers that are looking to migrate from traditional 12-volt power distribution to 48-volt for the known benefits of that. And these are customers in the U.S. Notably their customers also and professional customers in Asia, particularly in China.

Okay. One other question, I'll get in the queue. You had mentioned that you're getting some traction with front ends, and I thought you mentioned in the computer marketplace, and I don't think you've ever had real -- a lot of success in the high-volume computer marketplace with front-end solutions. Is that correct? And when this hits, will we see a little spike in the revenue from that?

We are forecasting significant revenue from a first design win in that space. Starts in Q1 2016.

And that is in the computing arena?

Yes.

Your next question comes from the line of Don McKenna.

I wanted to ask you, based on your expectations for the second quarter now, do you expect that to be the low point for the year?

Well, I think that we should keep an open mind with respect to -- for the next 2 or 3 quarters will bring. As mentioned earlier, we're dealing with erratically volatile situation with respect to a particular -- the VR12.5 applications and the timing of VR13. And there are also other opportunities. Again, while we talk a lot about data center and VR12.5, these are still, at this point in time, relatively small percentage of total revenues, right? And the -- so the other factors at play. And I think it's best to take a wait-and-see attitude since things can change up and down relatively quickly. I think that the key point from my perspective is looking beyond the next couple of quarters at what opportunities we have as we get towards the end of the year and into Q1 of 2016. And that's frankly what we're formally focused on. We know that our operational teams are very capable of dealing with changing requirements, and we're prepared to deal with them going either way over the next couple of quarters.

All right. And if -- correct me if I'm wrong here, but the way I read this, while the overall gross margin was 45 and change, it looked like the incremental part was in excess of 50%. Once you got over breakeven, does that what's dropping down to the gross margin line now about a 50% figure?

Well, so in -- as mentioned in the prepared remarks, we are -- we're quite satisfied with the progress that we've been able to make with margins for new products. In this regard, in particular, the Picor team has done a wonderful job in 1 respect. But to be fair, the VI Chip team has also done a remarkable job in a different kind of respect. The 2 operational models are quite different, very complementary, 1 is fabulous, 1 relies on very proprietary packaging technology. They both play an important synergistic role in our total solution capability. And with different factors at play, they've shown remarkable ability to deliver improved gross margins and bottom line performance, particularly in the case of VI Chip as the volumes come up. I want to emphasize that's key. Because-- the VI Chip, we have largely fixed cost attributes. It's our fabulous model. So it's very important for VI Chip to be making more and more. And as the volumes crank up, we can deliver significant improvements in margins profitability. So this was the first quarter in which our new products add margins in excess of good old bricks, which as some of you might recall, early in the life of the company delivered 65% type of margins. I've been telling you for quite some time that we expected to get to those margin levels and beyond for our new cutting-edge products, which have a very strong intellectual property foundation, have very strong investment that we made in the infrastructure that is always capable with respect to capacity and meeting growing demands by a broadening customer base. And so if that happens, we are going to see some very good performance on the part of Vicor VI Chip and eventually the merger entity of the 2, while at the same time, we're going to see through VIA products that contain the chips within them the resurgence of a growth and margin opportunity for the BBU because they're 2. There is a very strong differentiated value proposition with the VIA products.

Okay. And just one -- I'm sure somebody's going to ask anyway, but could you just try to sort out and give us a brief explanation of where the litigation stands these days? I see the press releases and I find it a little bit confusing as to what part's been put to bed and what parts are still open. Can you address that?

Well, I think our -- others are may be trying to confuse what is going on, from our perspective, what is going on is quite clear. In both the front of in validating the SynCor patents that were last quarter, we had a major milestone, while the companies that SynCor attacked in the early effects of litigation failed with respect to arguing invalidity. We succeeded at the Federal Circuit which is, in effect, the highest court in the land when it comes to patents. So [ph] Circuit agreed with us that from an Intel claims of first of a family of patents by SynCor is clearly [indiscernible] valid anticipated by powerart, which Dr. Schlecht was keenly aware as he played a role with respect to the acting research at MIT prior to his founding of SynCor. So incidentally the Federal Circuit found that it was that art that anticipated SynCor 190 patent. The other patents are all based on the same syndication. They're all based on fundamentally the same concept. This concept was known long before Dr. Schlecht claimed to have invented it, and these patents are going down the drain. And I think from my perspective, this has been obviously a source of significant distraction and cost. We're obviously not going to keep -- take our eyes off the ball. We will see it to a speedy end, which will I expect bring about an end to this patents before they expire in any case in the next couple of years. So our objective is to cause them to be validated before they expire. In any case, we don't infringe them.

Your next question comes from the line of Jim Bartlett.

Yes. Could you expand on what's going on in -- you've mentioned automotive. But will -- would you anticipate any significant automotive-related revenue in 2016?

Yes. We expect -- there's potential for millions of dollars worth of revenues in that space.

In 2016?

Yes.

Also, what is happening in the [indiscernible] electronic space? I think there was 1 very -- potentially large order that might've been postponed or delayed given what was going on with the federal budget. Could you give us an update on what's happening there?

I think the general space is still -- or market is still relatively constrained. We are maintaining focus on it. Obviously, it has played a significant role in our past, and we expect it to play a significant role in our future because our products' stance lightweight and efficient as they are, the national fit for demanding applications in defense application. So we -- and obviously, given how the world works, these [indiscernible] will be there for a long time, and it can be an important part of our revenue mix. But at the same time, as clearly suggested by earlier discussion, earlier comments, we are very focused on diversification strategy. If there is leveraged by power component a unique power component methodology. And the good news, again, is that with the same type of building blocks, we can go into an airborne application for defense type of systems. And with the same building blocks, we can be in a computer or we can be in different kinds of system, industrial systems. And so to some extent, our development activities are general-purpose. Our common denominator and our market strategy is to divide and conquer, pursue these opportunities in a cohesive and synergistic way.

You'd mentioned that the distribution declined a bit. Has your outlook for that part of the business changed?

No. We see the -- distribution channel as being a very important growing portion of our business. It's very complementary in many ways. I think that the comment that was made in the prepared remarks has to do more with the level of stock that we see with those might be too old to give them the fact that more and more of our products are, for example, far more configured or configured for an application. And that Intel's level of mass customization that calls for very rapid delivery of products by distributors but from Andover or a suitable facility that involves Vicor.

And finally, you had mentioned making or exploring a decision on capacity expansion. When do you expect to make that decision?

Well, I was reminded actually this morning that we have a team that is working this issue on 1 particular front as we speak. So we have, as part of our process, that initiative, and we're looking at all of the options with respect to expanding capacity over the next couple of years. We do have a lot of opportunity in [indiscernible]facility is 0.25 million square feet facility. There is additional space actually to be had within that facility. So we're looking at that as an option. We're looking at the option of farming out a portion of the assembly of the product. We're looking at options involving partners to make part or all of the parts.

Should we expect a decision on that this year?

I think that I don't want to pinpoint the timing for that decision is an ongoing process. And I don't mean to be cute about it, but I think it would be best to say that earlier the moment, we have seen [indiscernible] the general front.

Your next question comes from the line of John Dillon.

Hey, Patrizio, I'm trying to get a handle. It sounds like you're going to have a little bit of a down quarter this quarter. What about the second half of the year? Do you expect that to grow a little bit? Do you see a little growth coming on that? I mean, how is your bookings trending and how's your forecast look for the second half of the year?

Our forecast for the year is not really strong. I think a bit relative to last year in terms of bookings and shipments. I think that, with respect to pinpointing performance by quarter, it would be precious because of the factors that were articulated earlier in the conversation. So with experience, dramatic shifts in demands going in 1 particular direction within a matter of literally a few weeks, and that could happen going the other way or it might not. And particularly as you get a little further out, a lot of things can happen, meaning it becomes harder to forecast. But proper bookings forecast for the year is significantly up from last year. 2016 shows a bigger rate with reference to performance and some key points made in earlier calls. We're looking at an event of particular significance in the first half of next year with respect to busting out of the level of revenues that we've seen as historical cap [ph], and that's going to be on the set of design wins across customers and applications of the kind that we were referencing earlier.

So I completely understand that winds can shift very dramatically, but you do forecast continued increase in bookings and revenue for the year is what I think I'm hearing?

Well, you're trying to put words in my mouth. Don't say that. What I'm saying is that the job trend is up. Forecasting revenues from quarter-to-quarter is a treacherous game. As Jamie suggested at the beginning and I also pointed to in my prepared remarks, this quarter Q2 is likely to be a down quarter on revenues. With respect to Q3 and Q4, we're not making any forecast at this point.

Okay. But then it sounds like you've got a certain run rate business. But then in 2016, you're saying you're going to see additional data centers come on with you. You're going to see millions of dollars in the automotive. You're going to see the front ends kicking in. I would imagine you're going to see some increase in the communications and the BBU you expect to grow. Did I hear that correctly? Okay, so that's [indiscernible].

Right. So let me put it this way. Internally, the word we use to refer to this is floodgates. So we have floodgates of new products on both the ChiP front, the SiP front, the VIA front that have been coming out and are coming out at an accelerating rate. These are products that are getting customers and professional customers very excited. Depending on the type of product that we're talking about, we got longer designing cycles, anything that goes on a customer board, particularly if it involves an architectural change, but finishing has got a long designing cycle. But then, we have VIA products, which are primarily front ends. And those have a shorter design cycle. So there's a blend of products with different time to -- revenue time to fruition. They're going to play themselves out. They're already playing themselves out with some customers. There's going to be more as the year progresses. Those are right on your point of action is growing in very significant ways. We've, for example, with -- you see the converter products, if I go back last year, we called this DCMs. We had for quite some time as we think of time getting the first 1 out, we gather now tens of them out. And that's going to go from tens to hundreds of different configurations in our relative near timeframe. Bus converters, optical [indiscernible] of all different kinds, novel types, setting new records in terms of efficiency and density, CFMs, other kinds of functions coming out in both ChiP form and for -- just about every chip entry there is -- via counterpart that plays again a complementary role. So there is a lot of action going on in this front. And ultimately, I think the trick is very simple. With great products, you get a lot of customers excited and that leads to design wins, and design wins turn in to orders and revenue growth. It's as simple as that.

Yes. And I mean, it sounds like, for 2016, you're pretty confident of this because you already have the design wins is what I think I'm hearing. Is that correct?

Yes, we have design wins, and we are getting more design wins as we speak. So we are making progress with existing customers, expanding our footprint and with new customers, expanding our footprint, not just into the center space, in other space. And as more and more of these new products come out, the rate of progress is going to accelerate.

Why don't we wrap up?

Yes, if there is 1 more question. Otherwise, we are closed.

There are no further questions in queue.

Okay. Thank you.

Thank you. Have a good day. Talk to you soon.

Ladies and gentlemen, this concludes today's presentation, and you may now disconnect. Have a great day.