Good day, and welcome, everyone, to the Vicor Earnings Results for the First Quarter ended March 31st, 2022. Hosted by Jim Schmidt, Chief Financial Officer. My name is Matta Amrivamager. During the presentation, your lines will remain on listen-only. [Operator Instructions] I would like to advise all parties that this conference is being recorded. And now, I will hand over to James, you may proceed.

Thank you. Good afternoon and welcome to Vicor Corporation 's earnings call for the first quarter ended March 31, 2022. I'm Jim Schmidt, Chief Financial Officer, and I am in Andover with Patrizio Vinciarelli, Chief Executive Officer, and Phil Davies, Vice President of Global Sales and Marketing. After the markets closed today, we issued a press release summarizing our financial results for the three months ending March 31. This press release has been posted on the Investor Relations page of our website, www.vicorpower.com. We also filed a Form 8-K today relating to the issuance of 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 make during this call may constitute forward-looking statements for purposes of the safe harbor provisions under this Private Securities Litigation Reform Act of 1995. Except for historical information contained in this call, the matters discussed on this call, including statements regarding current and planned products, current and potential customers, potential market opportunities, expected events and announcements, and our capacity expansion, as well as management's expectations for sales growth, spending, and profitability are forward-looking statements involving risk and uncertainties. In light of these risks and uncertainties, we can offer no assurance that any forward-looking statement will in fact prove to be correct. Actual results may differ materially from those explicitly set forth or implied by any of our remarks today. The risks and uncertainties we faced are discussed in Item 1a of our 2021 Form 10-K, which we filed with the SEC on March 1, 2022. The document is available via the Edgar System on the SEC's website. Please note the information provided during this conference call is accurate only as of today, Thursday, April 21, 2022. Vicor undertakes…

Thank you, Jim. I'll keep my comments short and focused and primarily on a high performance computing business, which has received a lot of attention from our investor community. Our backlog growth is driven by our global high performance computing customers and new supercomputer, Cloud server, and AI accelerated cards solutions being brought to market. The 48 volt bridging applications are now ramping with major hyperscalers as they deploy rack-based clustered GPU AI systems into their Data Center in rapidly increasing numbers. Additionally, GPU and ASIC raised 48 Volt accelerated cards, which have very empowered requirements, are ramping with both 48 volt to 12 volt bridging solutions for lower power cards, as well as direct 48 volt, the point of load factorized power solutions for higher power GPUs and A6. The technology gap separating Vicor from a multiplicity of aspiring competitors is expanding, not contracting. Specifically, current density and other key performance attributes of Vicor power system solutions are improving at a rate faster than achievable with intermediate bus architecture, multi-phase solutions. Pipe performance computing applications require the level of performance that only Vicor modules are capable of providing. Very soon, they will require Vicor proprietary power system architectures such as vertical and lateral vertical power delivery. And that is why our Data Center business opportunity is broadening and going up knockdown. To be clear, the high performance computing industry is no different than any other high-volume industry seeking multiple sources to de -risk supply chains. However, wishing to accomplish a multiplicity of sources does not necessarily mean being able to do it with good enough performance. We remain confident that our performance advantages will continue to expand our opportunities and design wins with major customers. With a few current multiplier modules deployed laterally or preferably vertically, a Vicor power…

[Operator Instructions] And we've already received our first question and it is coming from the line of Quinn Bolton from Needham & Company, LLC. You may proceed.

Hey, guys. Thanks for taking my question. One of your large customers and video recently showed its next-generation H100 card powered by a multi-phase voltage regulator architecture, yet this card has power consumption of 700 Watts. I'm wondering if you can talk to this, is this evidence that multi-phase is viable above 400 Watts and 1,000 amps of current or will Vicor participate in this next-generation architecture at that customer?

As a matter of general policy, we will not comment on specific customers or specific applications, but in general addressing your question, which is not surprising. I think Phil made some key points that are relevant to addressing your question. First of all, the GAAP separates Vicor technology from the intermediate bus architecture and multi-phase solutions in the contests of 48 volt architecture, which would anything yet above usually requires two stages of power processing. Our technology, our GAAP, is advancing and advancing at a rapid pace that the intermediate bus architecture cannot keep up with. To the point of your question, the intermediate bus architecture and multi-phase continues to make advances, and certainly the last few years, they've made some sides with respect to increasing the current density and general capability of that solution. But as you know from past comments, it is a solution. It is an architecture and building blocks. These are fundamental handicapped in terms of what can be achieved. and this fundamentally adapts with industry rails that to your point require for advanced applications. Increasing current levels, increasing account density, by the way, not just in terms of primary rail, but also in terms of auxiliary rails. And all of these, we believe, continue to support the choice of Vicor solutions.

Patrizio, maybe just a quick follow-up on that without speaking to a specific customer. If you look at an architecture that's multiple hundreds of watts of power consumption, and say 1,000 amps, can you give us some sense how much more efficient or what advantage in terms of power efficiency or power savings do you think the factorized power architecture has over today's multi-phase bus architecture approach?

So I'll give you a general example, though I should say an example that we generally apply to the GPU, or [Indiscernible] in the realm of integrate [Indiscernible] between primary on rails in the thousand amp range. So we recently benchmark lateral vertical solution, which has been adopted by a notable company in the industry. And we bench market it relative to our own collateral solution involving a multiplicity of modules or current multipliers deployed on the size of the ASIC. And with the lateral vertical solution, we can increase efficiency by something close to 10 percentage points. And that's an efficiency advantage that sets us far apart from anything else that can be done as you're getting much.

Thank you Patricia, I'll get back in the queue and come back with a question later. Thank you.

The next question is coming from the line of Jon Tanwanteng from CJS Securities. You may proceed.

Hi. Good afternoon, gentlemen. Thank you for taking my questions. My first one is a follow-up to that. When a customer using a 700 watt processor decides to go with the traditional power system. Is that purely a capacity-related decision from their perspective or are there other factors that they're considering such as price or maybe something else that we're not thinking of?

Well, it to your point, there is multiplicity of factors play in generally speaking, within a larger OEMs, there are various consistencies with, as you can imagine a different set of priorities. But at the end of the day, the solution not only as to work rolling out, is this to in effect enable the compute density and the advanced computing density that customers expect. The people are question. In the real world nobody understood the proposition that in OEM would like the best of all worlds, larger multiple USIO suppliers, commodity solutions are limited capacity and the list goes on. In the real-world. Obviously, not all those opportunities out available. And I agonizingly appraisals maybe required to satisfy the essential objectives.

Okay, fair enough. Then I think I understand. Having said that, your orders are still up, your backlog is strong. Is there anything at risk in your backlog at this point just because some of these lead times are getting so long. And perhaps there are, there is a risk of your customer second-sourcing at this point.

No other -- Jon, this is Phil, that the backlog is strong, I'm very confident in it. Don't see any risk in the backlog at this point in time because the customers’ demands are still really strong and they really want us to deliver that backlog as quickly as we possibly can, which is why the second half of the year is going to look a lot better than the first half for us.

Got it. I'll jump back in queue. Thank you.

The next question is coming from the line of Don McKenna from D.B. McKenna & Co, Inc. You may proceed.

Thank you. Hi, guys. Just to follow-up a little bit on the previous question. Phil, can you just address how much of the increase in the back envelope number, I'm coming up with somewhere in the range of $425 million. Is the result of the expanded lead times versus strong new demand? And then my other question, Patrizio, I guess, would be to you, was in the past I've spent a number of years in manufacturing and the plating process back then was considered as much an art as a science, and good operators were highly valued. And I'm wondering what you see as the learning curve, how you've been preparing for it and how long you anticipate or be before you achieve the same efficiency as your current subcontractor.

Let me take your question first. I expect that very quickly we're going to achieve efficiencies favorable, uh, where we've been able to achieve working with the outside contractor and that's because we have better equipment, redundancy, a well-trained team. So I do expect that we're going to be able to ramp faster and more predictably than we've been able to accomplish with all the unpredictability to the -- in the way of progress, particularly over the last nine months. Phil?

Yeah. And with regards to the backlog, we're not really expanding lead times. We're working very closely with our customers to make sure that they're obviously placing orders at the right rate. Advanced Products are out 32 weeks or so, Brick Products in that 20 week range. We haven't really touched those. It's demand, it's new programs coming on as I mentioned in my prepared remarks. We've got the 48-volt bridging applications now starting to ramp, we've got new programs in the China market, in the European market, North American market with new customers. And we've also got continued strength in our existing customer base that we expect to go on for quite a while as I've mentioned previously, so it's really demand driven. Great.

We do expect --

Thank you very much, guys.

We do expect to bring in lead times. Once we have demonstrated the additional capacity of the vertical integration facility, and I'm sure, it brought about some other limiting factors because the issue to be clear over the last 10 months hasn't been simply one of factory capacity, it's also been one of component availability and supply chain disruption. As you heard in the past, that the issues with respect to in particular, semi-conductor component availabilities. If they were to do with some unique semi-conductor components that we developed and effect for us and we've been able to secure a major step-up in that capacity. But unfortunately, it's not just a matter of those private semiconductors, even for [Indiscernible] variety. Nickel type parts, right? That's some more progress, particularly some of the Brick Products are dependent on. We've been to some degree exposed to the vagaries of the supply chain, and I've laid particularly the disruption that Jim characterized them. In his remarks. He led into the Chinese zero Covid policy.

Thank you very much.

Thank you.

The next question is coming from the line of John Dillon from D&B Capital. You may proceed.

Hi, guys. First of all, congratulations on the booking numbers, it's really phenomenal. It's a lot greater than I really expected. But today I want to ask you about the technology and about your technology versus multi-phase, which you addressed somewhat in your opening remarks. But I'm wondering, does your point-of-load technology versus the latest multi-phase still lower IO pin count, lower the motherboard copper, lower the socket resistance, free up board space, and reduce component counts?

Yes. Our technology with -- was -- are now soon becoming past generation car multipliers and regulators, is capable of delivering on the efficiency front with a lot of vertical integration, double-digit improvements in efficiency. And by the way, if 10 % doesn't sound like much in one way of looking at it, in another very relevant way of looking at it, which is the heat, the heat is generated both by the power system and the heat is generated within the ESCO GPU itself, within silicon. That 10 % differential in efficiency is a large amount of heat that the solution doesn't need to terminally manage, and that reactive translates into increased compute capability as the solutions that push the envelope as they need to with respect to elevating current requirements Often running too because they will typically be limited by the ability to [Indiscernible] manage the solution itself. So in one way to look at it, the efficiency improvement, which then translates into a reduction in need, is an enabler in terms of allowing greater compute density in a bigger value proposition for the OEM relative to its competitors, which we believe is the primary consideration, particularly if capacity is not a limiting fact.

Got you. And that kind of plays on my second question. Let's say you have a 700 watt GPU and you have the Vicor lateral point-of-load solution for -- versus the multi-phase. It sounds like you can save about 70 watts of power loss due to the power distribution network and the efficiency, you're going be about 70 % less than the competitive solutions. That's about right?

The specific example I was given was for the first implementation of what we call a lateral vertical system, which uses the same, if you will, golden current multipliers you've seen on the sides of GPUs. The vertical system, while those current multipliers gets deployed, if you will, at the quieter on the bottom side of the substrate, with that vertical element, same building block just deployed in a professional way from a power distribution architectural perspective, that kind of multiplier supports the active area of the silicon, particularly in its primary rail to deliver a much more uniform voltage. The voltage distribution within the active area gets reduced by nearly a factor of three, which results in more efficient this action of the silicon itself in its domains. And results in better performance in the silicon itself. In addition to the reduction in heat, and again, the ability to in effect run the solution, over clock it, or run it at the higher operating frequency and compute capability.

So not only are you saving electricity, you're enabling a higher-performance computer?

Yes. So fundamentally, the deficiency advances that includes and leverage to some degree, the ability to deliver a much more what we call equity potential surface across the active area or the primary URL. These advances enable more power to be delivered within the constraints of the thermally managed solution which directly translates in either power savings or more compute capacity.

Got you. And then on top of that, all it sounds like if you're talking about a datacenter or supercomputer that has thousands and CPUs, you're talking about hundreds of thousands of wasted watts by going with their competing solutions.

There's a green element that's who -- these value proposition. Optimally, I think it's all about compute capacity, which is obviously what drives the industry, to continue to raise the bar.

Great, this is really great, guys. I will get back in the queue. Thanks so much.

The next question is coming from the line of Richard Shannon from Craig-Hallum Capital Group. You may proceed.

Thanks, guys, for taking my question. Patrizio, my follow-up on this last few questions here, don't mean to ask something that's similar to them, but just want to delve on a different way here. What you're describing here, and certainly what I think most people's belief is you have a solution that's much better than others out there. Power savings and heat savings alone would be a dramatic improvement. So are you expecting at the highest levels of power delivery in GPU and other ASIC accelerators systems that you are going to be a sole source? Because it seems like if you're not, then customers are using a steeply sub-optimal solution. So can you state what your expectations are, generally, across existing and new customers at these kinds of power levels?

Let me take that in parts and then feel were weighing. So in general, as you can imagine, because of the proprietary nature of our solution as a Factorized Power Solution, and also as a solution, I would say with unique power distribution architecture. So with or without Factorized Power being an element of it. Vicor is proprietorship, it tends to be single-source, right? And as discussed earlier, customers have to make a choice, which from a mentor it comes down to getting more performance. In effect, a better product, a more capable product. But being single-source with Vicor or it being a multi-source solution with intermediate bus architecture type of power system with its limitations and handicaps. The integration with respect to the performance of the solution itself.

Yeah. Just to add to that, I think that we're getting -- if you look at new customers that we have -- that we've brought on in the last, l don't know, six months, nine months, they have options to use multi-phase and bus converters with multi-phase if they want to do that, but they're not doing that. They're using Vicor's lateral for now and also in the future, we're also working on a number of lateral vertical for higher current ASICs and network processors, for example, some of the stuff I talked about in the last call. So they have choices and they're choosing Vicor which says very clearly what the advantage is as we've spoken about many times of our solution is. So those are going to be single-sourced opportunities and they're doing it because they need the performance, they compete on performance, they want it for their customers. And so that's the way they're choosing, Vicor over the multi-phase.

But just to be clear, it's not that the Vicor solution is the only solution, there are other solutions. The other solutions which tend to be all grouped in the multi-phase bus converter and to be the bus architecture realm, they can be made to work, a lower current density's with modernized, with more challenges from an implementation perspective would grow in multiplicity of phases that there are there to make work reliably, and certainly customers and applications opt for those kinds of solutions if their requirements allow. We're not suggesting they fetch that we have them hopefully on the industry to the contrary, it's a broad industry with a broad sense of applications and requirements, and for less demanding applications multi-phase can be perfectly viable. Particularly again, if the current levels and the overall demands of the applications dynamically otherwise can make do with a multi-phase application.

We like that as well because we supply the 48 to 12 bus converter, we've got the highest density, highest performance device there and we're increasing its power capability. And I know that's very good business for us as well. So we're happy to support the multi-phase in those low-power applications too.

Okay. Guys, thanks for those starts, appreciate it. My follow-on question here on your comments about the second half being better than the first half. Seems implicit that you have confidence in your manufacturing, getting up to speed. So maybe if you can talk about the next steps here. And, at what point, do you have full 100 % confidence in are going to be running at full rate or at least commensurate with demand? When does that happen? That sometimes in the third quarter, the fourth quarter? Not easy to tell right now, maybe you can just give us a little bit more color on why you say this about second half better than first. Thanks.

So I have confidence in our [Indiscernible] team, particularly, when they can be in control of their destiny as they're going to be very soon with that integration of important process steps. And it is to say, over the last three quarters, investors have been disappointed. I've been disappointed by the unpredictability of being able to step up units rates and revenues as we had anticipated, that's been frustrating. But to be fair, there's been a combination of factors at play. Not just the lack of vertical integration with respect to critical process steps, but also the supply chain bottlenecks and upsets that impacted many of the products, including some of the Brick Products and getting in the way of having a predictable output. I think as we get into July and the start of the third quarter, we're going to have had all the equipment then. The last critical piece of equipment is arriving this quarter. And at that point in time, our team, who will be in full control of his destiny. And I do expect that we're going to see revenues get trapped with a backlog that is obviously stretched way out, in terms of customers having again, to place orders with lead times that are longer than they and we would like them to be.

Great. Thanks, guys.

The next question is coming from the line of Doug Combat from Promus Capital. You may proceed.

Yes. Hi, gentlemen. Just a quick follow-up to the previous question. What would have to occur to delay the factory coming online in that July 1st time frame. And as far as components to stock the factory, as you said, the last three quarters, global supply chains are affected, it's impacted you guys deeply. How have you gone about solving those issues and getting the components that you will need internally to produce your products from start to finish and export them out the door to meet customer demand?

Well, I think as we've discussed in the past, with respect to the availability of all our proprietary semi-conductors and waiver outs, we've made strides in that front, both with respect to getting the output and also securing a long-term sourcing at rise that are expected to support the requirements. With respect to getting variety parts that it being from time-to-time unavailable because of general supply train issues, we're very focused on that, I think I'm beginning to see, and I don't want to be too definitive with respect to this because it's still relatively preliminary, I'm beginning to see some easing and some increase availability coming online later this year. Obviously we're watching that very carefully with respect to making sure that once we have all of the process steps integrated and we have our fab capacity in place, that component availability is not going to get in the way of being able to use.

Yeah. That was where I was done with it. You have all the machines, you have all the people, and then the assembly line standing around because you don't have the parts. That was more my concern because we've all heard about double and triple ordering from most of the layers of the semiconductor world. I was just wondering if you were aggressive in securing the parts you need so that when you do have everything up and running, you guys can start to talk the engine alone.

Well, we do like safety stocks when we can have it, it's been difficult to have it over the last couple of years, and we do have a plan to build some level of safety stock. I wouldn't call that double if people are opening. I will say in a different perspective that component availability, particularly when it comes to the bread and butter of some of our doctor components that we are going to use in this guiding for the next several years, it shouldn't be a hand to mouth proposition, that's not the way to run the operation from a logistics perspective. We do our work after inventory. But if you are called that double, I wouldn't call it that way, we are looking to build some level of buffer stock where appropriate in order to ensure that I spent the capacity can run without inefficiency of disruption due to unavailability of critical components.

Terrific Yes. And I know that's not the normal way to run a business, but we are in very unusual times after COVID. So thank you very much.

Thank you.

The next question is coming from the line of Quinn Bolton from Needham & Company LLC.

Hey guys, thanks for taking my follow-up, I guess first, just on the backlog. The backlog up near $425 million, if I've got my numbers right. It looks like you guys did record bookings in the first quarter and wondering if you could confirm that the first quarter was indeed a record bookings quarter for the company?

No, it was a little bit short of one quarter, but we had a little bit more. We came close.

Okay, so it is sort of Q2 of last year, it sounds like that.

Yeah.

Got it. Second question, you mentioned the vertical power delivery. I know you've got a couple of initial wins on vertical power and some more specialized applications. Could you give us a sense when vertical power for GPUs or AI-A6 mic ramp, is that a 2022 ramp or is that out further, say in 2023 or beyond?

So we have two lead cast the most for fully vertical. If I'd delivering. Those are customers that, as with Vicor, are, in effect, making a calculated choice to be on the very leading slash leading edge of technology. With particular set of components for fully vertical power delivery that are progressing in terms of their general capability and maturity, but not yet up the level of maturity that would provide the level of scalability in the millions of units that is generating part in high-volume applications. So I think to get a good sense of the landscape, it would be good to think of it in the following terms, that there is a lot of power availability, and you know what that means. So the leading edge GPU application has being using a lot of power delivery architecture with in particular current multipliers. It's the north and the south and in some cases, the West or the East of the ASIC, and the current that these devices deliver has to traverse laterally, right, under the active area of the GPU and ASIC to reach the domains of these devices. That in architecture that works with the multiplicity of entry points of the North, South, East, and West, up to 5,600 amps. Beyond 5,600 amps, Ohm's Law stands in the way of it remaining inefficient in scalable power delivery architecture. Now, vertical power delivery is at the other end of the spectrum. It's very advanced, steel, somewhat bleeding edge, but with vertical power delivery, those -- the losses and voltage drops occur as you try and carry the current from the site under the active area of the silicon. Essentially go away. There's another amount of reduction in power delivery losses. If you can, in effect supplant the multiplicity of…

Thank you, Patrizio.

Thank you.

The next question is coming from the line of Jon Tanwanteng from CJS Securities.

Hi. Thanks for taking my follow-up, guys. Patrizio, you mentioned something, easing with supply chain possible later this year. I was wondering if you could talk about the new constraints that you're facing actually in Q2. Are they getting worse or better in the near-term and if there are any levers, maybe you can pull, perhaps in pricing, just to help regain a bit of that margin?

I think the environment right now, Jon, is relatively similar to last quarter. The -- we're dealing with some capacity constraints in the outsourced panel production that's the same. We have the, as Patrizio mentioned, the semiconductor supply coming in. We do have a new wrinkle to contend with, which is zero COVID policy in China, there's implications there that are tough to predict. We're making our way through that. So I think we're saying that 2Q fields like Q1 and we're working very hard to clear overdue backlog and support customers. That's our focus this quarter. And most notably, I should say, job number one is to get our factory expansion up and running. And the team is working extremely hard to make that happen.

Understood. Thank you and good luck.

The next question is coming from the line of Alan Hicks from Ainsley Capital Management.

Good afternoon. Had a question on the front-end products that you've been talking about it for a couple of years, and I know you had very high expectations, potentially as bigger than point of load products. When was that going to move the needle in terms of revenues? And is it dependent on your 5G technology coming out?

Yeah. I think, if I understand your question, it has to do with several front-end products or AC-to-DC products.

Yeah. That's correct.

So we've made very good progress. We have two major customer engagements. And we've delivered initial sample quantities. One of these two engagements is going to be scaling up into substantial revenues in the second half of this year, of the order of about $10 million. So the AC-to-DC component of our revenue mix is still at an early stage, but the products have a good deal of appeal for high density applications. And this has been tested by two lead customers. And we presume one of them is about to get deployed in substantial quantities.

Okay. Can you say what kind of application that is?

Phil, can we say what the AC-DC applications are, without many customers I think.

Yeah. We've got some Data Center opportunities, some edge computing opportunities, and lighting opportunities. Those are the three large buckets, if you like, that we're targeting. We also have a lot of interest in the higher-frequency versions of those AC products in the aerospace area where they need 400 hertz operation here in the United States, 800 in Europe. So we'll be doing sort of defense aerospace versions of those products, which actually is quite a large sum in Europe and North America, somewhere in that $200, $250 million range for an opportunity with very nice gross margin. So we're very interested in having defense aerospace versions of these front-ends too which we are working hard to bring through to the market later this year, to the broad market customers, and as I mentioned data centers, edge computing, lighting, defense, and aerospace. Those are the four areas.

So the first --

Okay. Go ahead.

Major revenue contribution is going to come from lighting in the category of several megawatts of lighting power in one location.

So that's supposed to ship in the second half?

We'll start building that market in the second half revenues next year, and then obviously ramping up in '24, '25.

Is that depending on your 5G technology or is that -- does that apply across-the-board to Advanced Products?

No, that's also using the same engines and control systems that we use for our other components, we leverage a lot of the technology, same packaging, yeah, packaging's the same.

Think of us as fab of ChiPs, Jim figured at it earlier, convert our house in package, whether it's a lighting application requiring three-phase front-end's or it's an automotive application requiring is younger volt to find a volt bus conversion at 50, 100, or a 150 kilowatts. All these -- or a point-of-load application requiring the same car multipliers we were describing earlier. They're already going through the same fab, going through the same process steps and leveraging the same common denominator methodologies in terms of components, control systems, and most of all packaging technology in effect waver-like common denominator pulse.

Okay. And just real quick, how soon do you expect production revenues in the item -- EV item?

By the end of '23 for the first customer, first OEM, and then increasing '24, '25, '26 across.

Okay. Thank you very much.

Thank you.

And I think with that, Operator, could you please call an end to the call?

Of course. Everyone, that concludes the conference call for today. You may now disconnect. Thank you all for joining and enjoy the rest of your day.