Good day, ladies and gentlemen. And welcome to the Vicor Earnings Result for the Fourth Quarter and Year Ended December 31, 2017 Conference Call. My name is Lisa, I’ll be the operator. At this time, all participants are on listen-only mode. Later, there will be a question-and-answer session [Operator Instructions]. I would now like to turn the conference over to your host for today, James Simms, CFO. Please proceed.

Thank you, Lisa. Good afternoon, and welcome to Vicor Corporation’s earnings call for the fourth quarter and the full year of 2017. I’m Jamie Simms, CFO, and with me here in Andover are Patrizio Vinciarelli, CEO, and Dick Nagel, our Chief Accounting Officer. Today, we issued a press release summarizing our financial results for the three and 12 month periods ended December 31st. The press release is available on the Investor Relations page of our Web site, www.vicorpower.com. We also filed a Form 8-K earlier today with the SEC related to the issuance of this press release. As always, 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. Except for historical information contained in this call, the matters discussed on this call, including any statements regarding planed products, current or potential customers, potential market opportunities, expected events and announcements, as well as forecast sales growth, spending, and profitability, are forward-looking statements involving risks and uncertainties. In light of these risks and uncertainties, we can offer no assurance that any forward-looking statements will, in fact, prove to be correct. Actual results may differ materially from those explicitly set forth in or implied by any of our remarks today. The risks and uncertainties we face are discussed in item 1A of our 2016 Form 10-K, which we filed with the SEC on March 7, 2017, and also will be set forth in item 1A of our 2017 Form 10-K, which we expect to file with the SEC on or about March 6, 2018. Please note, the information provided during this conference call…

Thank you, Jamie. As discussed during last quarter's earnings call, we've been working towards the January 01, 2018 deadline for adoption of ASC 606, which codifies new guidance for revenue recognition. The new guidance replaces most of the prior revenue recognition guidance under U.S. GAAP. Our adoption of ASC 606 as of January 1st will be reflected in Vicor's financial statements presented in our Form 10-Q filing for the first quarter of 2018, which we expect to file in early May. In adopting the new guidance, we’ve applied the modified retrospective method. With this method, prior year's data is not restated, but instead a single adjustment of approximately $3.3 million has been made to retained earnings as of January 2018. This increase in retained earnings represents the net effect of application of ASC 606 to existing contracts with customers that are subject to such application. The most significant impact going forward is on the timing of recognition of sales to our stocking distributors. Through December 31, 2017, we deferred revenue and the related cost of sales on shipments to stocking distributors until the distributors resold the products to their customers. With the adoption of ASC 606, we're no longer deferring revenue until sale by the stocking distributor to the end customer. Instead, we will record revenue at the time of sales to the stocking distributor and a reserve, based on our historically-based estimates of returns and allowances provided to the stocking distributor. While there will be considerable disclosure associated with the adoption, notably in our first quarter 10-Q, we believe reporting at the end of the day will be far more straightforward. Turning to the impact of the Tax Cuts and Jobs Act, enacted in December, the immediate consequence for Vicor was the net benefit recorded for the fourth quarter.…

Thank you. Turning to our outlook, given the recent increases in backlog and where we are within the quarter, we anticipate an 11% sequential increase in revenue and further growth in profitability. We also expect a sequential quarterly increase in bookings. I must remind listeners as I do each time I speak with you, the decisions made by early adopting customers and their contract manufacturers, and the timing of those decisions, are subject to changes brought about by many factors outside of our control, with the consequence being sudden and anticipated changes in our operating and financial forecast. Similarly, I remind you of the difficulty of accurately forecasting sales, given the characteristics of sales cycles for disruptive innovative technologies. The good news, which Patrizio now will address in his remarks, is these efforts are being rewarded with higher bookings and an expanding quantifiable pipeline of opportunities.

A steady stream of design wins, higher bookings for existing customers, substantial bookings from new customers, and recent indications of imminent announcements from high-profile new customers bode well for 2018, starting in the first quarter. Fourth quarter bookings increased to $71 million, up 11% sequentially, and up over 20% on a year-over-year basis. A sequential recovery of bookings for legacy Bricks was dwarfed by a 15% sequential increase in bookings for advanced products from VI Chip and Picor. Total backlog at the end of the fourth quarter was $73 million, compared to $60 million at the end of the third quarter and $48 million at the end of the prior year. Our penetration of the supercomputer segment continues, with important design wins in the fourth quarter. Other opportunities we have discussed, including applications in aerospace and defense electronics, wireless communications, network infrastructure, and solid state lighting, continue to progress, with some moving from pre-production engagements to volume production orders. We’ve also recently received encouraging news from a leading customer in the autonomous vehicles space regarding its future prospects. This bodes well for our long-term position in this emerging market. Notably, during the fourth quarter, the datacenter market’s momentum continued to build, based on expanding interest in, and adoption of, 48 volt bus solutions. Our engagements in cloud and artificial intelligence applications, as well as with XPU vendors serving key end customers and their captive needs, showed further encouraging results. We believe 2018 will be a breakout year in which adoption of our Factorized Power solutions, including Power-on-Package, will expand rapidly with breadth across key industry players, driven by explicit acknowledgement of adoption of our solutions by market leaders. Customers are very interested in Power-on-Package, a Factorized Power system consisting of modular current multipliers, so called MCMs, and modular current drivers, so called MCDs. Our power stage technology has enabled high visibility market leaders to achieve unprecedented levels of performance with their new XPUs that will soon drive widespread adoption of Factorized Power system solutions. There is a great deal more I could say, but I'm sure listeners have many questions, so we will open the call.

[Operator Instructions] The first question comes from the line of Don McKenna. Please proceed.

I wanted to ask, I know you had the 11% increase in bookings over the past quarter, what you might see for the rest of the year? Do you think you might be able to achieve 5% a quarter sequential quarterly increase? Will that be within reason for you?

I think we should be able to exceed that. So thus far this quarter, we're well ahead of where we were last quarter.

And then sequential quarters after that, do you think that momentum building at that same kind of level or do you -- would have been lower rates?

The forecast for the year shows progression through the quarters. I think forecasts in recent quarters have been -- have shown the results to be conservative, certainly that was the case in Q4, and it is the case thus far in Q1.

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

Congratulations also, that was really, really nice numbers you put up on the board. I wonder if you can comment on the new plant that you've talked about. Is that still on schedule? Are you still looking at breaking ground this spring?

So, we've had a change of plans regarding that. What we concluded after investigating certain options in the neighborhood of our existing Federal Street facility is that a building on the order of 80,000 to 100,000 square feet would not serve our long term needs. So we were able to secure a deal with partner to help short term capacity requirements to give us some breathing room for breaking ground on a larger lot with considerably more room for expansion. So we're looking at options for as much as 250,000 square feet, which would be equivalent in terms of capacity to our Federal Street building. So to recap, late last year, in the fourth quarter, we came to the conclusion that, rather than divert our effort in the short term from other operational challenges to the expansion in facilities, we should seek, and we procured, a short term partnership to help with those capacity bottlenecks that would have otherwise impacted, in particular, the SM-ChiP product line. And that gave us the breathing room we're going to need for a bigger, but somewhat longer term, expansion. So, my guess at this point is that the breaking of new ground in a larger lot with larger square footage may not take place until either the latter part of this year or more likely the first half of 2019. So, we reconfirm that within Federal Street, we have the wherewithal to expand capacity to about a half billion in yearly revenues with judicious choice of the space and allocation of manufacturing processes.

Can you elaborate on the partnership? Is this a licensing deal or it’s just somebody who's going to be doing some contract manufacturing for you?

It’s contract manufacturing for us. So we've entered into a long term deal granting a fraction of our capacity requirements. And it’s a great partnership that is going to bring about significant benefits for us.

Can you say who the partnership's with?

Not at this time.

And is it domestic or international?

It's domestic, and it's not far away from our existing facilities in northern Massachusetts.

And does that have something to do with the cash that you -- you had a pretty big cash burn this quarter. I'm just wondering if that went to capital equipment or something else. It wasn't really clear what that went to.

So, in the past quarter, it wasn't -- capital equipment was primarily even, though there was some capital equipment investments, but it was primarily working capital related, materials and the like. So the decision is predicated on the reasoning outlined a little while ago. The realization that this year, given ramps in key new product lines, we’ll be better off sub-contracting out those process steps that can be rather easily subcontracted out, while keeping in-house those process steps that in a way are more proprietary and critical to the end product. Again, by doing that we gave ourselves extra time to make provisions for a much larger expansion. There’s going to be more critical mass in terms of economies of scale. Fundamentally, with the addition of an 80, 000 square foot building, we'd be incurring non-negligible incremental fixed costs, without that much of a capacity expansion relative to the 250,000 square foot production facility we already have. And a smarter incremental capacity that would be more economical and longer term, in terms of capacity expansion requirements, is a doubling of our existing facility. And in the short term, that’s not something that is needed to be done or could be done. Hence, the partnership to give us the breathing room to do it late this year or in the first half or next year.

And just to expand on Don’s question a little bit with your answer. When you said you’re ahead of last quarter as far as bookings, are you referring to the sequential growth in bookings that you had last quarter? Or you’re referring to just the total amount of bookings?

So we’re passed the $50 million mark already on February 22nd. So the quarter is looking quite good in terms of the bookings rate.

So the bookings so far are $50 million?

Yes, north of $50 million.

And the next question comes from the line of comes from the line of Jim Bartlett. Please proceed.

One, on the margin question with advanced products. Is that including Picor or is that just on the VI Chip products where you said the margins had surpassed the legacy products?

The Picor margins have been quite good all along, at least, once Picor achieve some level of critical mass. So the remarks were specific to our VI Chip products.

I just want to make sure -- that is a very big step up.

Well, so, I don’t think there’s a lot of magic in this, as we've indicated all along. We have significant fixed costs, and those fixed costs need to be absorbed with greater volumes to bring about economies of scale and manufacturing efficiencies and, ultimately, good margins. We believe we have, with our packaging technology, an inherently very cost-effective, very scalable product platform. Again tremendous scalability, tremendous flexibility, and inherent cost effectiveness. There’s nothing that in these products would keep them from being able to compete on cost with conventional technology with much lower level performance. So this is just a volume game. We need to build volume to achieve those economies, and as we achieve those economies, we’re going to become even more cost competitive in the marketplace, while at the same time delivering better margins.

At one point you gave a breakdown of what kind of percentage gain you had shown in 48 volt for the company as well as dollar amount. Would you be willing to do this again given the importance of what's happened here in 48 volt?

So I think one way to answer the question would be in terms of power densities or current densities, those are key figures of merit in the industry. But perhaps from my perspective, the most significant way to characterize the competitive advantage is in term of enabling customers to accomplish levels of performance with their own products that are otherwise unattainable. So, the level of performance that we’ve enabled in datacenters could not have been achieved without our technology.

I get the importance of that, what I was saying is for example that you had so much revenues, some percentage of your Vicor business last quarter was 48 volt and that revenue base increased by how much, for you?

So what we call advanced products within the last year grew by slightly over 50%. And one way to look at that revenue make-up is that, fundamentally, we have a legacy business that is essentially flat up and down a little year-over-year. And then we have the new products that we’ve been talking about for quite some time that has grown substantially. And now at the level of really moving the needle, because while there used to be tiny little fraction of total revenue, they’re not quite comparable and I think before too long this year, we’re going to see them exceeding considerably the legacy business. So with that comes slower with respect to top line, with that comes leverage with respect to the bottom line, and going back to my answer to the…

…advanced products almost all 48 volt?

I wouldn’t say that there are only 48 volts, because with the VI Chip technology, we’re able to address requirements from the wall plug, be it the single phase AC or three phase AC, to the point of load. But generally speaking, our strategy revolves around the 48 volt hub. So while many of these products have to do with taking the solution powered from 48 volt to the point of load,we have new applications where in fact we take customers from high voltage busses or AC into voltages single phase and three phase to 48 volt. Again, the power conversion technology and the unique packaging technology support this breadth of application capabilities. And that's an essential part of our strategy something that, once again, very much differentiates our approach from other companies in this space.

So you are now getting so called front-end business? You had mentioned at one point in the past where that front end business, which would be reflected in the…

Yes, we are getting – we’ve gotten within the last year -- getting more and more traction with our front end business. You know, I was at a customer, potential customer I should say, at the beginning of last week, where, front end business -- and this is still couple of years out -- has potential of the order of our current revenues was possible, at one customer, and that’s just front end business…

And when would that start impacting if you're including that within the BBU…

That's not in our forecast, it’s not our current plan. It’s highly speculative at this time. It's just indicative of potential. Generally speaking, the AC/DC portion of the TAM is actually larger than the 48 volt to point of load portion. You can imagine that in effect all the power goes through the power chains starting at the source, which is typically AC, to the point of load. And to the extent that not all of the points of load power is necessarily provided by our solution, in applications where we provide the complete power systems solution, in terms of deploying not just point of load solutions for a portion of the system, but also the front end solution, the value of that opportunity is more than a factor of two greater than just supplying point of load solutions.

But right now the big growth is datacenter and 48 volt point of load?

Right now, the growth is coming from point of load solutions. I think it's also coming from other applications of, in particular, VI Chips that include front end types of systems. So that’s been already in the works and it is growing -- I don’t have in front of me a relative growth rate to quantify for you, but I know in general that it is also quite substantial.

And the next question comes from the line of Alan Hicks. Please proceed.

I have a question on, you had a few delays that you talked about last quarter, one of which was the supercomputing project in Japan. Is that still going ahead?

So the supercomputing project in Japan had a set back the last quarter having to do with some legal issues that popped up and involved the CEO of the company. And because of that, there've been further delays. But the outlook, as we understand it, is good, in that a new management, top management, may be brought in very soon and projects that were put on hold will likely resume as early as in the next quarter. So that particular engagement has suffered the setback -- we think, it may well be a temporary setback. But clearly from what is being going on in terms of our bookings and both in the fourth quarter and this quarter thus far and in terms of the forecast for this year, is certainly minor glitch that has been more than made up by a lot of other very exciting opportunities.

So that may ship next quarter -- it would be the soonest, I would assume?

Well, so, we’ll have to wait and see what happens given the change of leadership and new owners and their plans. But without getting into the details -- by the way, we're not that privy of -- but from what we can surmise, there’s likely to be a resumption of activity soon.

So orders must be very strong in the datacenter area then?

Well, we are very diversified. And maybe I wasn't clear enough in answering the earlier question. One should not assume that all the action is at the point-of-load. Needless to say, there’s a lot of action there and it’s very exciting and it’s going to get lot more exciting soon. But that’s not to say that that’s the only place where we’re making inroads. We are making inroads elsewhere. And there's tremendous excitement, in particular, with our front end products. Monday and Tuesday last week, I was at two customers, potential customers I should say, on the West Coast and there is tremendous interest in the solutions, with a lot of revenue potential.

Yes, so that in the VIA product area?

No, these are -- it’s a front-end product that we pioneered with the Japanese customer that we were discussing a moment ago, and we’re now beginning to market to the rest of the world.

Just looking broader at the supercomputing opportunity, it seems like worldwide there's a race going on to build the biggest, fastest supercomputers, and it could be a national defense issue. And it seems like you’re really well-positioned there. But can you comment on other opportunities in supercomputing?

So we're very well-positioned there. And I will say that we're extremely well-positioned wherever established companies and entrepreneurs with new startups are breaking new grounds in resetting the bar with respect to computing capabilities. So, a common trait of these applications is that the current levels that are required to enable state-of-the-art ASICs operating at 0.8 volts going down 0.7 volts. More and more we're seeing current requirements ranging up to 500 amps to 600 amps, to 700 amps or 800 amps with transient requirements of 1000 amps. And for anybody on the call who is well versed with the significance of that, those are huge current levels where our current multiplier technology that enables a factor or 40 or 50, or 60 of the point of load within the package has a capability that nothing else can support. And so as I was articulating a little while ago, the true test of superiority is in enabling solutions by customers that cannot otherwise be made to happen. That’s what get customers excited, it’s not the density by itself, its enabling high levels of performance that give them some competitive advantage. And we're going to see a lot more evidence of that in months to come.

The PoP product, is that part of that?

Yes, the PoP product is very much part of that. So we're getting more and more design wins, to power supercomputers on a very, very small scale, but a variety of ASICs, GPU, XPU of one form or another.

And then there was a couple other delays, last time you mentioned storages and memory, somewhat customers redesigning their boards for 48 volt be more effective. And also there was a non-Intel chip that you were working with that got delayed…

So, I think you might be referring to some of the issues that had popped up earlier in 2017. Many of those issues got resolved, even though there is still shortages in the industry and is undergoing a period of strategic tight supply. And that’s still a consideration. But the specific bottlenecks that were referenced in earlier call, I think that this was probably two or three quarters ago, those got resolved. Regarding traction in Intel sockets and non-Intel sockets, as suggested by the earlier comments, we're seeing a lot more traction across the board. And I would say that, when it comes to sub one volt ASICs that consume 100s of amperes, we’re really the only game in town to enable those kinds of solutions. For Intel sockets, where because of internal regulators that used within Intel chips, wher the power delivery is done at 1.8 volt, which is higher voltage, much lower current, that’s where there is more of a competitive landscape, because those requirements in a way are not as demanded and not that’s pressing, in terms of several hundred or close to a thousand amperes. But we're seeing more and more opportunities come up for those sub-one volt ASICs. I think a lot of the AI activity that is going on in one form or another is to do with chips that have those kinds of current consumptions. And again, whether it’s ASICs or GPUs, the trend there is for current capabilities that will very soon get very close to a thousand amps. And that's where a current multiplier is far and away the best solution.

So you're able to work with quite a few different processors?

Yes, we're engaged on a, with many customers on more and more projects, particularly in the sub-one volt ASICs, GPU, XPU area.

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

Patrizio, I'm wondering if you could give us more color on how you're doing with GPUs and also Nvidia, in particular.

I cannot comment with respect to specific customer engagements, I think we’re going to have to wait for announcements that are to be made.

The reason I bring it up is in some of my research has turned up that you're working with those guys. And what I see is whenever I see that picture of the Nividia chip, I see 16 converters outside of it and it drives me crazy, because this is exactly the type of opportunity you're talking about. It uses a lot of power, it's got a high current draw and your PoP would be perfect for that product, and they're in the datacenters and in the auto. So can you talk about GPUs in general that use high power? Can you give us some color on how you're doing with those?

I cannot comment with respect to specific customer engagements. But I can say the following in very general terms, that, to your point, for demanding applications, current requirements keep going up to levels that challenge the traditional solution involving, to your point, 12, 16 phases operating from a 12 volt bus. The power delivery at 12 volt is challenged, the limitations of having to deploy 16 different, separate power trains in parallel to supply these XPUs is challenging and limiting in terms of what you can do with them, the level of performance you can achieve with them. But there’s also another factor, and that is, I think you hinted to it, the fact that automotive is going to 48 volt. Now higher bus voltages in automotive, higher than 12 volts have been talked about for a very long time, it was initially many, many years ago to bring about the 42 volts infrastructure and didn’t get really anywhere. There were some test cases on vehicles that ran on 42 volt, but it didn't really gain long-term traction. But there's no question at this point in time that with autonomous driving with a lot more electronics in vehicles that -- even with hybrid systems because of certain economies that can be brought about by having 48 volt backbone -- that the automotive is market place is going to be migrating to 48 volt. And that brings about a convergence of requirements, where fundamentally you have to come to 48 volt, both in terms of powering ASICs, GPUs that demand a lot of current, and you have to come to 48 volt, because that's going to be the infrastructure in automotive. And there's an old saying that automotive can drive rest of the industry. So I see that happening.

And the other point, I guess is, whenever I look at that Nvidia chip with 16 converters, I think of all of pins that can be freed up. And I've been working with engineers for 30 years, and I was complaining about how they don't have enough pins. So that’s got to be a driving factor for Vicor also, isn’t it?

So, one of the distinguishing traits of our Power-on-Package, and this is one of the benefits that I was implicitly alluding to in commenting earlier about the enabling value of our technologies more than delivering a lot of current at low voltage, is in particular, when it comes to Power-on-Package, freeing up those pins and those boundaries of an XPU that are otherwise consumed by the power delivery. If the power delivery is to be done at 0.8 volts or even 1.8 volts and hundreds of amperes, we can only imagine that takes a lot of pins and that constrains what you can do in terms of information connectivity as opposed to power delivery. A current multiplier, such as our MCM, which can multiply current by 64x, reduces the number of pins that need to be devoted to power delivery by 64 times, rendering in effect the intrusion by the power delivery to a negligible fraction, and freeing up that real estate, those boundaries and the pins, for value-added function for the XPU developers. And so that’s a big value proposition, one that that we pioneered with a key customer a couple years ago, and which, within the last year and a half in Japan and now in the U.S. with a multiplicity of customers, is really taking off. And we see a lot of future opportunity arising in that general framework.

And you mentioned and I mean you’ve made some progress in the auto. Could you just give us a little more color? Does this mean you're going to revenue seen from the auto industry? Or when would you expect significant revenue from the auto industry?

So, I can’t say. Again, I cannot name names. But we power the most advanced autonomous driving system in the world. And the power delivery is with advanced products of the kind we've been talking early in this conference call.

Your next question comes from the line of Jim Bartlett. Please proceed.

Just to follow-up on John's question -- when you might be seeing revenue from the auto sector. My understanding is that was a ways off, another part of that depends on this year's strategy and dealing with automotive sector given the supply chain issues.

So from what we can see, we believe that 2019 is going to be a year in which there begins to be significant autonomous driving. And with that, we expect to see what you may call direct revenues from automotive. I think there is also an opportunity for indirect revenues, by way of systems -- XPUs powered by our 48 volt solution -- that get sold into automotive application. Harder to forecast that there’s opportunity. But I think its fact to say that next year, and perhaps more significantly come 2020, we’re all going to see real world autonomous driving and, with that, a lot of opportunity. 2020 is also a year in which 5G will come about, and with that what we’re going to see is 100-fold increase in the level of connectivity that is enabled by 5G. Whether or not we’re involved with the 5G network itself, you can imagine that that expansion in bandwidth and connectivity will carry with it significant expansion in hardware that needs to powered in automotive systems and in stationary systems. So I think generally in automotive we're going to see action. I think we're evolved at some level, but it’s still de minimis, in terms of our revenues. But we're going to see some significant contribution in 2019 and more significantly in 2020.

There are no additional questions in queue.

Very well. Talk to you soon.