Good day, ladies and gentlemen and welcome to the Vicor Earnings Results for the Second Quarter Ended June 30, 2015 Conference Call. My name is Tiya, and I’ll be your operator for today. At this time, all participants are in listen-only mode. Later we will conduct a question-and-answer session. [Operator Instructions] I would now like turn the conference over to your host for today Dr. Patrizio Vinciarelli, CEO; and James Simms, CFO. Please proceed.

Thank you, operator. Good afternoon everyone and welcome to Vicor’s conference call for the second quarter ended June 30, 2015. I am Jamie Simms, CFO 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 second quarter and six months ended June 30th. This press release is available on the Investor Relations page of our website, vicorpower.com. We have also have filed a Form 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 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 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 today, Tuesday, July 28, 2015. Vicor undertakes no obligation to update any statements made during this call and you should not rely upon such statements after the conclusion of the call. A replay of today’s call will be available beginning at midnight tonight through August 12, 2015. The replay dial-in number is 888-286-8010 and the passcode is 31503478. In addition, a webcast replay of today’s call will be available shortly on the Investor Relations page of our website. I should also point out the audio recording from the annual shareholders meeting, which took place on…

Did you mean to say excludes?

Did I say excludes?

You said includes.

Sorry. Employee headcount as of June 30th was 1,031 down 2 from March 31st figure of 1,033. I’ll now turn to the performance of our business units. As stated earlier, the Brick Business Unit as a whole recorded a 1.3% sequential increase in revenue after a 4% sequential decline in revenue for the first quarter. We did not see a pronounced shift in our mix of brick configurable and custom system revenue quarter-to-quarter as the performance of certain market segments and geographies offset one another. However, BBU bookings declined 12% for the second quarter with pockets of weakness throughout North America, Europe and Asia. The book-to-bill ratio for the BBU declined to approximately 0.9 to 1. As discussed before, we look at bookings trends for the BBU which serves a diverse customer base with a wide range of products using a mass customization model over many quarters. Despite what we see in the news regarding various countries’ economies, we do not see any worrisome trends. The global economic recovery is neither robust nor uniform and certain market segments and regions appear to be experiencing some degree of uncertainty. As with revenue, bookings form BBU customers in certain market segments and geographies offset one another quarter-to-quarter. However, we are looking to break this pattern for the BBU with our new highly differentiated VIA front-end system products with which we intend to drive long-term success and growth opportunities across a diverse set of market segments. VI Chip revenue for the second quarter, as stated, decreased 41% and Picor revenue declined 52%, reflecting customer concentration in the data center space and the circumstances I described earlier. We continue to ship the current generation of VTM 3 and PRM 3 solutions for VR 12.5 motherboards and expect to do so into 2016. However, due…

Thanks, Jamie. As Jamie addressed, Q2 results largely reflect expectations we communicated to you during recent earnings calls. Since the start of 2015, the timing of Intel processors transitions and our ramp of VR 13 solutions for data center applications have been delayed. We now believe our bookings will accelerate as soon as Q4 of this year with volume shipments occurring starting immediate 2016. While Intel has addressed delays in the transition from the Broadwell to the Skylake processor platform, it has set forth the roadmap with the launch of the first chips this quarter. The server specific chips will not ship in volume until later. Despite the delay which was not anticipated, the good news is we have the necessary products ready to meet 2016 demand. If you were lining for us as the opportunity to capture, we didn’t have [ph] VTM/PRM solutions and expanded share of VR 13 applications. As earlier indicated, Vicor is in far better position for the transition to VR 13 than we were during prior transitions. We have remaining VR 12.5 backlog to ship through 2015 and do not have an inventory exposure. We also expect demand for our VR 12.5 chipset to extend to at least the first half of 2016 overlapping the ramp for our VR 13 design wins. Importantly we are having success with our customer diversification efforts by securing important design wins for our Factorized Power 48-volt Architecture in enterprise and performance computing in addition to data center applications. A growing base of customers are concluding the use of Vicor’s highly differentiated Factorized Power point of load solutions can translate into higher performance at a lower cost for their own products. At a growing rate, the customers’ performance objectives can only be met by using our products as components or…

[Operator Instructions] The first question is coming from the line of Jim Bartlett. Please proceed.

Patrizio, could you give us a little more insight if you can on the Intel server VR 13 rollout? And also given what’s happening in this delay, how would you characterize the milestones that you had previously been thinking that would be achieved in 2016?

Well, I don’t know that I can provide any more insight than what is generally available in the trade press regarding Intel’s roadmap. And this way anything I may know that is not a public domain I can disclose. But it is another public record that being some delays affecting the rollout of a particular -- those type of VR 13 products that be actually late to our revenue opportunities. And to your point, this will have an impact with respect to the milestone that we have set, it is an unfortunate development; there is really nothing we can do about it beyond that which we’ve been doing all along which is to endeavor to bring more new products to market targeted diversifying our customer base and our opportunity base across different kinds of end applications. The impact should not be all that substantial I think, though it will change the core thing which we expected to get to a particular target revenue level by a quarter or quarter and half relative to expectations that we had this time last year.

And fourth quarter booking levels or some comments about that when you would start seeing some of that impact?

I think I’ve generally characterized our breakout revenue level to correspond to an annual rate that the company has not achieved in the past. And so, you can refer from our revenue history what the profit level would be. I am not going to be more specific than that. But as I characterized in the past, we are looking forward to the day coming relatively soon but not as soon as we thought before the delays that we referred in the early conversion when the new applications that we’ve been pursuing will enable the company with the more diversified customer base to get to levels of revenue that we’ve not seen before in which you set a foundation for significant further growth.

The next question comes from the line of Don McKenna. Please proceed.

Patrizio, following up on that same line of thinking and going back to the tripling of revenues in that five-year period and obviously that’s never going to be a straight line and we’re probably now 2 to 2.5 years into that goal and revenues are pretty much flat I think with where we started. Obviously now a lot of the products have come on now when they finally we do grasp and take hold and people are really starting to increase those orders. Do you still see that five-year goal as a potential target or is it moved out by 1 or 2 years?

Well, there have been delays I think to lay it on the table with respect to product development, given the nature of our products, given disruptive technologies or capacities are far superior than competitive technology it is. Base matcher the business of pinpointing develop early days of what I think I can really conservatively capitalize as revolutionary products has historically been not as predictable as we all like it to be. But that being the case, the good is that our track record of new product introductions over the last year proves that we are beyond the phase. And I made this point in earlier calls. We’re passed fundamental invention and the technology a revolution phase and we are well into the engineering for additional product flavors which is a much more predictable endeavor. It is not in more science, it’s more in the realm of the kind of engineer lends itself to very predictable timelines and that’s what we’ve been able to achieve. The products that come to fruition over the last 6 months to 9 months prove that. I’ll give you an example. We had for quite some time a great deal of difficulty bringing the first DCM chip to fruition. The last time I checked we had released the mass production around 40 different flavors of DCM chips in different packages. So that is of itself speaks volumes to the change in nature of the challenge. It’s gone from having to make fundamental strives with challenging technical difficulties to be overcome to more a repetitive, more predictable, more leveraged process of now generating a lot of different flavors of product to address the breadth of the market opportunities in the markets we’re targeting. So, we are in this new phase. We have already started to see new products, we’re not starting today; this process has been ongoing. We track design wins for products that been introduced and those designs wins show us tremendous progress with respect to product that is in the pipeline that is being designed in with design wins that are aggregating to cumulative level of projective revenues that are increasing at an exponential rate. And at this point it’s a matter of converting this work into that which we’re particularly interested in these call, which is financial performance and attractive from our perspective. It is not a matter of risk; it’s a matter of time; unfortunately it’s taken longer but we’re now in a different phase. And as I look at 2016, I am very optimistic about what we’re going to be able to accomplish.

And could I follow up with another question too and that would be there has been obviously significant drop in the value of the stock and the volume has increased substantially for a period of time. To the point where it looked like one of your major holders probably said that they were going elsewhere. Have you indentified who that might have been?

I frankly don’t spend any time worrying about such matters and I don’t know if Jamie does. Do you?

I do but I’m not going to comment on.

Okay.

That’s alright; they’ll report it in a couple of weeks anyway. But thank you. I’ll get back in the line.

The next question comes from the line of John Dillon. Please proceed.

It sounds like from previous discussions on comments causing in that annual meeting. You’ve got one data center now; is that correct that’s taking production quantities of your SiP and ChiP solutions?

I’m not going to make specific comments about how many. I think beyond to the comments we made earlier which is we are in ongoing production with respect to VR 12.5 and we progressed to 12.5 from VR 12; we’re getting ready to ramp VR 13 as soon as the server Chips are ready to ship in mass production. And as discussed in the past, we are very progressed on diversifying the customer base, expanding our reach, not just into the center space but in high-end computing and other possible opportunities for our devices. We are seeing a growing migration to 48 volt which is at the heart of our value proposition. This is something that is resonating with more and more customers that are manufacturing their own datacenters and for a variety of reasons are viewing 48 volt factorized power solutions as something can deliver better performance with lot lower total ownership cost. I see this is as an expanding trend. We are seeing it from a number of different directions with customers and potential customers.

And it sounds like the current customer or customers plan to continue to take the VR 12.5 solution throughout the first half of next year, is that what I heard in the prepared remarks?

Yes. So, I think you can logically say that to the extent that there being delays with respect to more powerful processors, customers that have need for additional capabilities will continue to avail themselves of the existing solution even though anticipating the benefit of an extra action solution I think we’re going all logically summarize that they are going to be very conservative with respect to much incremental capacity they deploy, since the capacity would be in effect technology very superseded before too long by the next generation solution. So there is going to be ongoing demand. But as suggested in the prepared remarks that demand is going to be at reduced levels and we are in the midst of that now. That demand for VR 12.5 solutions will however continue to be there and overlap with the ramp in VR 13.0 solutions as soon as that begins. And at that time, there is going to be a combination of some remaining level of business with 12.5 and rapidly ramping VR 13.0 business.

So won’t see the trough, like I remember when we went from the VI Chip solution to the 12.5; we saw a really steep dip in Vicor’s…

So, we’ve been now through a couple of cycles and in fact we’ve learned from business PNCs. [ph] We learned how this demand cycles evolved and we are well equipped at dealing with them in a way that addresses the customer needs without creating a risk of obsolete inventory or other kinds of issues even though frankly we have right now a capacity underutilization issue that we are only going to be able to address as demand sets up again.

And talking of which, you mentioned you are going to be reallocating space, I think in your Andover to beef up your production. Can you give us little more color on that? How much are you -- are you going to be prepared for the 2013 orders that you are expecting, I know you are going to -- how much are you going to build out in Andover?

We’re about to spend several million dollars to put in place initial capacity for -- automated capacity for VIA products. We got some design wins, some are provincially very significant and we want to be sure to be ahead of the demand curve and have more capacity in place ahead of that curve. So that’s sot of 2016 event. And so the second half of this year is catheterized in terms of operational preparations by investing a good deal of focus and resources in this additional capacity, while also continuing to expand our capabilities at the point of load. To be clear, this is not a case of one capability at the expense of the other. There really very -- we see developments that support one another, at least in some applications and in other ways do not destructively interfere with one another in that. We are pursuing both with aggressive level of focus.

And you mentioned before in previous calls how there is two new data centers that you’ve got on design wins for. And I’m wondering are you still making progress with them on the memory rails and also are these tier 1 data center customers?

So, I’m not going to again be very specific with respect to the customers. As discussed asked before, we’re making very good progress with expanding our footprint outside of just addressing the processor rail. We got design wins that involve other parts of the system and we are expanding our footprint in different ways, depending on the particular customer and application.

The next question comes from the line of Mr. Zelman. [Ph] Please proceed.

Patrizio, could you comment on two things? One; how do you see your efforts in penetrating the ever growing use of electronics in the automobile industry?

On the automotive front, we have some design wins, they are not very high volume but it’s a first step; they’re primarily in Asia. We as I mentioned in the past had been working on products for the automotive market that will advance our figure merit substantially, both by taking the efficiency to unprecedented levels, taking the efforts beyond that of our initial products while at the same time counting our cents per watt cost magic way down. I expect that we’re going to start seeing opportunities with these products within the next six months. Now there is going to be again unfortunately a few long gestations period in terms of customer engagement and design cycles, but we’re ready of customers that they have some level of exposure to our roadmap product and more advanced capabilities and have expressed great interest in them as soon as they are available. And we’re working very hard to bring into fruition as soon as possible and we’re getting very close.

Is this in this in electric vehicles and hybrid vehicles or in more standardized autos?

All of the above. And before too long, I see also opportunity in terms of server utility type of applications. So, this is an emerging market that is very much related to developments with electrical vehicles and other such things. So, our core confidence is in terms of power components with very high efficiency, very density and of late a great deal of cost effectiveness as capability and flexibility. They all play well to the kinds of needs of those markets. So, the implementation of the technology that we have to-date with particular very first DCM and I was referring it implicitly in the earlier remarks, that initial capability is attractive because of some of its attributes, in particular the fact that these products offer a very good efficiency under all operating range meaning from heavy loads to very light loads. But in other respects, they’re not as efficient, advanced and as cost effective as our technology enables. But that step up in performance and cost effectiveness is coming to closure. And I think that’s going to be key to getting us with the low foot in the door at tier three accounts to having potentially much more significant play in the automotive market, which as we discussed in the past tends to drive a lot of standards. There is a great deal of interplay and potential commonality between what is good for automotive and what is good for other may seem electronic markets, particularly with the view to the power component methodology that we have.

Changing topics, I wonder if you could give us an update on your legal status where things stand with SynQor?

Well, I think that the bulk of our effort in particularly, the defense effort is behind us. We’ve already essentially validated two of their patents; we’ve got two left to go and we’re very focused on accomplishing that and then moving on with our comfort claims which counterclaims which still stand.

Is there any timetable?

Well, the timetable has been delayed, because of variety of things, including of late several developments for us at the level of federal circuit and in the patent office. So we obviously are still very focused on that. But I think from shareholders’ perspective, I would view that threat as not being any longer of any significance and potentially having an upside for us.

We have a follow-up question from Don McKenna. Please proceed.

Patrizio, could you talk a bit about Mouser? Is that a kind of an add-on or is an upgrade from the two distributors you had and in what areas do they cover that the other guys didn’t? And are they considered top tier?

Mouser is a well renowned distributor. It has complementary capabilities in terms of the kinds of customers that it services like DigiKey. It is potentially very leveraged in terms of expanding our customer base, providing us with greater breadth, greater exposure in the marketplace. It is a go-to distributor for a lot of customers just like DigiKey is. And again, it has complementary capabilities that should result in that expansion of our reach.

When they indicated they had product available to ship from their inventory, is that product still owned by Vicor or have you already sold it to them?

Jamie, do you want to comment on our conservative accounting practices?

Mouser is our third stocking distributor and under the arrangements with stocking distributors is that we do in fact sell the product to, in this case Mouser. But there are certain stocked rotation and return privileges that a stocking distributor has. So that’s where the -- you see the line item on our balance sheet, now you see deferred revenue. We only recognize the revenue when, in this case Mouser tells us that they have themselves sold it onto their customer.

So, in looking at the revenue numbers for the second quarter, they don’t -- none of that represents stocking if you will at Mouser?

Correct, because that wouldn’t be recognized.

It’s only a sale after the distributor sales the product to a third-party customer.

And do they cover different territories?

That’s the expectation, that’s their complement to DigiKey.

Well, solely. I think part of it is territory, part of it is in markets and customers. It’s not necessarily a case of it being complementary by geography, even the geography plays a role with respect to it.

The next question is from the line of John Dillon. Please proceed.

Yes, Patrizio, in the prepared remarks you’ve said something to the effect of expanded share of the VR 13 market. Can you expand upon that a little bit, what does that mean or give me a little more on that?

Well, I think it comes down to the fact that our VR 13 that we have a VR 13 multiply if you will at a level considerably above the VR 12.5 which in turn was above 12 but we expect with VR 13 to have a much more significant step up in revenues that are derived from powering rails that relate to VR 13 type processor.

Does this also mean you’ve got additional new design wins in that market?

Yes. I think we’ve talked about this earlier. So, it’s a combination of customers and footprint within a customer expanding beyond particular rails.

And again in your prepared remarks, something to the effect that the design wins are leading to exponential growth, what exactly does that mean or did I hear that correctly?

So, as I look for instance at design wins, we already have had for the PFM registrations that have been added up in recent times, since to the corresponding times of action. And registrations taking place with respect to the DCM products that have been released in chip form earlier this year. We are seeing these registrations adding up at a fast space from week to week, month to month, and it’s been a couple of quarters but over that time frame. It is the start of something that portion of our product line is very exciting because it suggests that number one, the thought is attractive to a range of customers and that they’re in effect taking it to the next stage in terms of ordering some properties, some case, ordering initial small quantity production which is stepping stone to larger future parties. We are in that phase and with some of these products, CMs in particular in chip form, we have already seen double-digit millions of dollars in the low teens worth of registrations that should lead to future business.

And this exponential growth, is this all 2016 growth and…

Well, I think this has got as discussed in the past, the characteristic cycle time, gestation time of the kinds of industrial products, so we have products that we make. So, a typically lead time would be I would say 12 to 18 months. Now as discussed in the past, one of the differentiating attributes of new VR products for which we’ve add some initial each of introductions, you might seen announced in press releases and with respect to which you’re going to see a lot more introductions coming in weeks and months to come, those products have a short time to fruition because they don’t require the customers to design the solution on their motherboard, these are products that typically are used as front-end components, they can mounted to a chassis. And because of that they tend to get designed in later in the cycle, the customer cycle. And occasionally there’s an opportunity because of changing power requirements or issues the customer might have with the solution that they plan to use which may not work or may not have enough power capability, there is opportunity for in effect substituting something else. So, the characteristic time scale for those kinds of products tends to be shorter. And they could provide a contribution on a shorter time scale than let’s say PRM/VTM point of load factorized power solution whose typical designing cycle is a lot longer because the customer is fundamentally adapting to a power distribution architecture that is unique; it’s now got a significant designing cycle.

I was in AT&T Telecommunication Center the other day and I saw the 48 volt distribution and it looked like there is a lot of areas that Vicor could play in there. But in particular what really stuck out to me was on the back of a Juniper router was a silver box, it was actually four silver boxes which were 48 volt power supply systems, redundant systems. Is that the type of market you are going after and are you making progress in those types of markets?

Communication applications [ph] are part of our target for these kinds of products. To your point, there is a lot of these boxes in communication systems, they tend to be relatively fragmented type of opportunities that with conventional approaches are challenged because of the lack of scalability. I mean the box or boxes that you saw very likely were designed as traditional custom power supplies based on vendors that our challenged with respect to an ROI proposition on these kinds of boxes because frankly if any one of them, they may only be $2 million, $5 million a year worth of business opportunity which makes it difficult to justify developing the solution from the ground up with engineering team that has to be progressed on making that development to happen or time scale of 9 months or 12 months. With a VIA approach, we’ve a lot of scalability to address these kinds of needs that changes the ROI calculation and changes some of the basic criteria for success. And I think over time it’s going to give us a lot of traction in these kinds of applications.

So for example the power distribution boxes that I saw all over the place, were they potential customers or they’ll buy your DCMs or other products and use those for 48 volt distributions?

That’s a possibility, that’s part of the market opportunity.

It looks like a pretty...

In the aggregate, this is a very large market. If you look at an individual box, the revenue opportunity for any one individual box typically is not all that large. Hence the approach in the long-term in my opinion is one that doesn’t go at it on a case-by-case basis with an army of engineers. That’s not scalable. We have a scalable approach.

But building block approach that can solve these problems…

In a much more efficient and reliable way because part of the precision part of our precision is that customers can in fact reuse proven building blocks.

It looked like a nice market for you because that Juniper, they had a big ugly silver box on the back. And I guess the other question, are you going to be building several boxes for these customers?

Our focus is going to be on addressing their power requirements with solutions that to the extent possible are standard or semi-custom type of solutions as opposed to a custom tailor solution which for the reasons I outlined a moment ago, tend to be very challenged because of lack of space, because of the fact of the squeezed in terms of the power needs and the volume that is available to address the power need, they are often tempted to want to have something designed to just fit in the leftover space. But again for the reasons that we’re quickly outlined a little while ago, that’s not an attractive proposition either for the customers because of the cost, delays, risks or even further suppliers because with the traditional way of doing that kind of solution from the ground up, there is really no return on investment.

Thank you very much.

Well, if there is last question, if not -- is there any other question operator?

The next question comes from the line of Jeff Holmes. [Ph] Pleased proceed.

Patrizio, given the stock decline and the company’s outlook for growth, do you have any plans for investor relations in anyway non-deal road show or conferences or what you’re thinking on investor relations?

My thinking is that we still need to stay focused on delivering the goods with respect to delivering the products and we’ve been doing good job of that. And now delivering -- next delivering the revenues and as you know from the other discussion, we still have a few quarters of work to do to be able to present to investors very appealing success story. And that would be a better time to take our case to investors. So right now, we need to stay focused on delivering the goods.

Okay, thank you.

And with that we’ll set for the next quarterly recall. Thank you.

Ladies and gentlemen, thank you for your participation in today’s conference. That concludes the presentation. You may now disconnect. Have a great day.