Good day and thank you for standing by. Welcome to the Q1 2025 Vicor Earnings Conference Call. At this time all participants are in a listen-only mode. After the speakers’ presentation there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded. I would now like to turn the conference over to Jim Schmidt, Chief Financial Officer. Please go ahead.

Thank you. Good afternoon and welcome to Vicor Corporation’s earnings call for the first quarter and year ended March 31, 2025. I’m Jim Schmidt, Chief Financial Officer; and I’m in Andover with Patrizio Vinciarelli, Chief Executive Officer; and Phil Davies, Corporate Vice President, 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 related 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 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 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 risk 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 in or implied by any of our remarks today. The risk and uncertainties we face are discussed in Item 1A of our 2024 Form 10-K, which we filed with the SEC on March 03, 2025. This 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, Tuesday, April 29, 2025.…

Thank you, Jim. Our first quarter book-to-bill ratio increased well above 1 with new orders for NBMs in our HPC business from a hyperscaler licensee. Conversations continue with potential licensees facing a first exclusion order following the ITC final determination and Presidential review period. Our second generation high density VPD for leading AI applications is coming to fruition with the recent arrival of an ASIC raising the bar on the density and bandwidth of our MCM current multipliers. 2nd generation VPD will enable AI processors to set new standards for performance. Development of the next generation VPD system for a lead customer is approaching completion and we will soon provide evaluation systems to processor chip companies and hyperscalers. Appetite for factorized power VPD solutions is growing as multiphase voltage regulators are unable to deliver the performance and current density required by future AI systems. With AI driving rack power up to 160kW, the HPC industry is evaluating a transition to 800 volt power delivery to the rack and bus conversion to 48 volt nodes within the rack on the way to the point of load. Vicor's fixed ratio bus converter modules with industry leading power density and liquid cooled thermal management flexibility are a perfect solution for these requirements. Given these market forces, Vicor will be uniquely positioned to offer front end 800 volt to 48 volt bus converters and direct VPD 48 volt to sub 1 volt solutions enabling a complete high-efficiency high-density power delivery network for our customers. The market SAM for these solutions is expected to exceed $5 billion by 2028. As with other USA based manufacturers, we are navigating a changing tariff landscape. Components used in our power modules are not exempt from tariffs. In Q1 we informed our customers and channel partners that a 10%…

Thank you. [Operator Instructions] The first question will come from the line of Quinn Bolton of Needham & Company. Your line is open.

Hey guys. I wanted to ask about something in the press release. In the press release you mentioned revenue and gross margins declined sequentially with reduced income from a licensee transitioning to a new generation of unlicensed products. Can you just elaborate on that? Is that new generation of products span an entire family of new GPUs or XPUs or is it more limited? Just trying to gauge how significant the change in your licensing or royalty income might be as a result of this transition.

I really cannot, for a variety of reasons elaborate on that.

Can you elaborate just on the impact of Vicor? Would you expect a material change in the licensing outlook with that licensee?

Well, obviously that had a short-term impact in our results for Q1, but we remain confident with respect to our licensing business being a growth business that will contribute substantially at levels to both the top line and particularly the bottom line.

And Patricia, maybe there, that was my sort of follow on. I think in the script you guys mentioned ongoing negotiations or discussions with additional licensees. Can you clarify now that we have, I think the injunction against Delta, if non-licensee hyperscalers import modules from Delta, would that be subject to the injunction?

Yes.

Got it. Okay, I will get back in the queue with a couple more. Thank you.

Thank you. One moment for the next question. And our next question will be coming from the line of Jon Tanwanteng of CJS Securities. Your line is open.

Hi. Thank you for taking my questions. I was wondering if you could just talk about the indirect impacts from tariffs and the direct impacts from tariffs. If you've made any assumptions going forward, you know, what do you think the, excuse me, what do you think the indirect might be on supply and demand as potentially other suppliers may not be able to import as much stuff and the impact on your own tariff paying to modules from China?

So we've assessed the impact on our bill of material and obviously the impact varies depending on which particular platform we're talking about and the mix of components from various countries of origin. But having gone through that assessment as of weeks ago, we took corrective action as Phil pointed out in his prepared remarks, in terms of instituting a 10% tariff surcharge that will be applied at the beginning of the third quarter. We don't expect that to have an appreciable negative impact on demand for our products. But when it comes to reciprocal tariffs, as Phil pointed out, in China we do expect with some of the programs to see an impact in a quantity that, as Phil pointed out, is not as of now assessed to be significant in terms of moving the needle or altering ground revenue.

Okay, great. And then my second question just has there been any change to the timeline for ramping your second generation VPD products to lead customer? Do you still expect that to be happening at the end of this year or maybe early next year?

So based on the testing that's been done today on recently received ASIC, which is instrumental to, to the point of load car multiplier, we feel very good with respect to being able to bring the development to fruition. As mentioned in the press release and in Phil's remarks, we remain totally focused on our lead customer. Very important to raise the bar on current capability delivering the goods for that next generation application first and we'll follow that up with demo systems for the provincial customer base at large as soon as we completed the effort for the lead customer.

Thank you. I'll jump back to queue.

Thank you. One moment for the next question. And the next question will come from the line of John Dillon of D&B Capital. Your line is open.

Thank you. Patricia I have a follow up to Jon's question that's in regard to what you're shipping to your lead customer. Are those alpha or beta units? And can you kind of give us a timeframe or schedule what it's going to take to actually productize the gen 5 point of load that you're giving to that customer, you know, so it's available, generally available, and you can manufacture that in quantities.

So to be clear, we are on a ramp with respect to lead customer on an older generation platform. And I mentioned this, I think in most recently quarterly call and we are closing in on being able to ship units that meet the estimations as they've evolved upwards in terms of current capability and current density, but we're not quite there yet. We expect to be there soon and we are targeting power production in the second half of this year for the 5 point solution.

Okay, and that would be a productized and would that be completely productized? I mean, what I mean by that is, you know, typically when I've been in the industry, when we shift the initial product to a customer, they evaluate it and they find some bugs and then they feed it back to Vicor and then Vicor makes the corrections and then they give it back to them. Do you expect a lot of that to go on or are you very confident that you can make the second half of the year to ship to them production quality units?

Well, obviously in order to be very confident, we need to complete the development effort. But as you can imagine, based on your experience, this has not been a case where it all awaits the availability of fully functional units. We've been able to make incremental steps happen even before the arrival of the ASICs, which we recently received. And we now expect as next major step to begin deliver current multipliers using data ASICs in a matter of several weeks. And we expect with that step to be able to achieve the base level performance originally being targeted by our customers.

I guess I understand that, but then after that you still got to get to a product that you can manufacture in quantities and sell to the customer, correct or am I missing something?

No, you're not missing anything. To your point, the challenge is a complex challenge, right, that involves electrical, mechanical, thermal, as well as, to your point, process capability, equipment capacity and all that is involved in being able to ramp the chipset for this application. So this is not -- it’s a multifaceted challenge. But again, with respect to each of the elements of challenge, we have been making good progress. In particular, when it comes to the processes and the capacity we've been able to make steps in the right direction. And I expect that all of it will come together as it has in prior initiatives of a similar kind as we progress through the summer months.

Great. Thank you very much for that detailed response. I'll get back in the queue.

Thank you.

Thank you. One moment for the next question. And the next question is coming from the line of Richard Shannon of Craig-Hallum. Your line is open.

Well, thanks guys, for taking my question. I guess I want to follow up on the comments in the press release, I think Quinn asked on as well here which is the hyperscaler or some customer transitioning to an unlicensed product, is this also an infringing product? And if so, are there some actions being contemplated here to alter the trajectory of what this customer is doing?

Yes, yes, yes.

Okay. Well, maybe I'll follow up on this topic here and licensing here, following on the prior response here on looking at this revenue stream here. But how do we think about this? I know we're turning to a growth track here. Is it something we expect to start in the second quarter, in the second half and what are the dynamics under which that occurs?

Well, I think it's again, a combination of increased product revenues. Needless to say, the step up in the bookings and the backlog sets the stage for that, as well as increased licensing income. It's as simple as that. Those are the components of the revenue growth that we anticipate happening as the year progresses.

Okay, I'll jump back in the queue. Thank you.

Thank you.

Thank you. And our next question will come from the line of Alan Hicks of Ainsley Capital Management. Your line is open.

Good afternoon. Yes, I wanted to clarify on the royalties in Advanced Products. It sounded like royalties fell about $5 million or about a third while Advanced Products still grew. In-house produced products grew about 16% and they did in the fourth quarter also. So I guess my question is, did you sign up new licensees in the Q1 and so that will continue to grow in royalties?

We did sign up a licensee in Q1, a new licensee. But you're right to say that the advanced products, excluding the decline in royalty grew, the product revenue in the factory grew on the Advanced Products side, so that was a positive outcome.

Okay, so you had a significant customer that transitioned from royalties to accepting in-house produced products.

Oh I wouldn’t want to make that assumption. No that wouldn’t be the right assumption, yes.

Okay, so what's driving the actual in-house produced products?

An existing customer ramping further on production and as well as new opportunities that we, yes and as mentioned in the press release and you know, as earlier as we did have an existing licensee transition to a new product platform where this new product is unlicensed.

Okay, is that a new version of the NBM products?

That's all I can say at this point in time. I think this question has been answered already to the extent I can.

Okay, so we can expect continued growth in royalties and continued growth in product sales the rest of the year.

I think we can confidently say that we see growth in product revenues and we see growth in licensing income. We are still obviously when it comes to, let's say the licensing income, relying on the relatively small multiplicity of license fees. And with that there can be surprises as it happened, they can be negative surprises become positive surprises. And once the OEMs and hyperscalers, the technical license increases, then I would expect the licensing business is going to become more predictable in terms of its quarter to quarter evolution. And the same can be said on the product revenue side. Obviously we have invested a great deal in our 5G technology. We believe it's unique without equals, without close competition. Obviously it's taking longer than expected, but it is a reflection of the magnitude of the challenge. And I believe it will pay great dividends as we roll it out. So we have strong revenue growth opportunities in years to come being enabled by that capability.

Okay then, can you give any update on the ITC case? Was it a Texas case on damages I think. Can you say anything about that?

So the ITC case came to an end with the ITC issuing its final determination. It came to a further end once the 60 days residential review period came to an end. As you may know, through the presidential review period respondents, the customers can continue to import infringing product by posting a bond following the end of the presidential review period. There's an exclusion order of sending and they can no longer import infringing product. So that's where things stand with respect to the ITC case. There are certain aspects of the final determination that are objectionable and with respect to which, Vicor has filed an appeal at the federal segment and so that's the next SAP on that general front.

Okay. And lastly, BBU products fell about $4 million, but is that going to continue about that level or what do you see in the BBU area?

I would say yes. I mean I think that we wouldn't expect, it bounces around a bit. I think it's fairly stable I guess. As Phil mentioned, potential risk element is in the China, the simple tariffs and the cost of our product being higher in China. But I think we're sorting that out and as Phil said, so far at least there's no pressure or significant impact. So I would say that steady as it goes with the Brick business over the course of the year.

Okay, thank you very much.

Thank you. One moment for the next question. The next question is going to be a follow-up from Jon Tanwanteng of CJS. Your line is open.

Hi could you clarify what your pricing expects to look like after you implement the tariff surcharges? Is that plus 10% on just the advanced products that have the Chinese component exposure or is that across Bricks as well? Which portion of your portfolio has that increased? Thank you.

Hi, Jon it's Phil. So it's across the board. It's a 10% tariff surcharge, as Patrizio mentioned, that will go into effect after the beginning of July. It was 10% across the board. We've analyzed, as Patrizio mentioned, the different products, the different variations in it up or down on the tariff impact. So 10% was a good base number to begin with.

Okay, and does that cover the expected gross profit you were expecting to make before the tariffs and maybe dilute the margins a little bit, or is it a different formula than that?

bomb:

Understood, thank you. And then finally, could you talk a little bit more about your expected OpEx heading forward, including R&D and maybe any litigation or legal expense you might have coming up?

Well, I would say, Jon, we've taken the position that we're not going to guide specifically on any of the P&L elements. What I tried to describe the Q4 to Q1 transition did have some moving parts in there that we felt worth kind of describing and talking through. But beyond that, I think Vicor is a very stable place relative to spend and headcount, et cetera. So that's, I think, as much as I would say on it.

Okay, great. Thank you.

Thank you. One moment. And we have a follow up coming from the line of Quinn Bolton of Needham and Company. Your line is open.

Hey guys, I wanted to follow-up. I think you said in the prepared script that you'd seen a recovery in the NBM business, which I think might be associated with one of your licensees. Just wondering if you could give us as you look out through the year, would you expect that NBM business to continue to grow? Would it be stable at Q1 levels? Just any kind of shape to that NBM business on a go forward basis and then I've got a follow-up.

So we expect our NBM business to grow. And at the risk of saying the obvious, years ago we had enjoyed the significant ramp of revenues associated with NBMs until infringers came about and undermined our market opportunity. The win we scored at the ITC and concern on the part of OEMs and upper scalers with respect to the exclusion order as brought about revival of demand for NBM.

Thank you for that. And then just want to make sure I sort of understand your comments about licensing or royalty income going forward. You said that you expect that to grow. I think some of that is driven by an expectation or the likelihood of additional licensees signing agreements with you. But I guess, I just wanted to clarify if you've got a licensee that's currently transitioned to an unlicensed product, I think in response to Richard's comment, it didn't sound like that was something that necessarily changes in a quarter. And so to the extent licensing or royalty income grows, say in 2025, would you expect that to be mostly generated from new licensees signing new license agreements, or would you expect that existing licensee revenue to recover?

There's a lot of moving pieces there. And so I'm not able to make a specific statement with respect to how each of these components will play out. But it's enough to know that in the aggregate we have lots of opportunities with both existing licensees whose revenue license income is ramping. All the licensees, there's been a change that could lead to a number of different places and then there is potential for additional licensees. How each of these components will play out is frankly difficult to predict. But there is enough opportunity in the aggregate to be comfortable in forecasting that license income is going to, licensing revenue is going to be a growth business for Vicor.

Understood. Okay, thank you Patrizio.

Thank you.

Thank you. One moment. And we do have a follow-up from John Dillon of D&B Capital. Your line is open.

Hi, Patrizio, on the last conference call you mentioned that you're expecting a record year. So I'm just wondering, are you still expecting a record year?

Yes.

Excellent. And my follow-up is, I was wondering about the new fab. Are all the kinks iron out of the new fab? And in particular is the plating turnkey. Is it better than what you're getting from your previous outsource supplier?

Yes, we are happy with the progress we made. We have a lot of capacity. We're going to put that capacity to good use, particularly with our 5G product platforms. We made the right decisions. It's a big investment. Needless to say, in terms of margins, we have been paying a price of late with all the equipment that we're depreciating not being close to being fully utilized. But we think that as we get into later this year and to next year, we're going to see improvements in prior margins beyond the contribution from licensed income.

That sounds good. Thank you very much for that response. Thank you. And we'll talk next quarter or the annual meeting, I guess. Yes.

That's right.

Thank you. One moment. And we have a follow-up coming from the line of Richard Shannon of Craig-Hallum. Your line is open.

Hi guys, thanks for let me ask a follow-up here. I want to ask about, product growth the rest of the year and I've heard a couple of pieces and other responses here. I think you're talking about NBMs growing nicely here. It sounds like work will be flat, obviously it sounds like advance include NBMs will be up to some degree. Obviously you're not going to quantify. But also I’d love if you maybe you could divine out what this is going to look like between end markets. Obviously you talk mostly about HPC versus everything else here. How do we see those two end markets, relatively speaking, growing the rest of the year?

Hi Richard, it's Phil. So again, so HPC is a growth business for us, not just NBMs. Patrizio talked about a lead customer that's ramping their high-performance AI system on existing solutions that we're shipping. So we're excited to see that happen and we'll follow that on with Gen 5. If I look at the defense and aerospace market, we've been planting a lot of seeds there over the last number of years that are coming to fruition on new sort of defense systems, aerospace applications, sort of warfare equipment. Unfortunately, the state of the world, that's a growth market for us. In the industrial area lots of again seeds planted over the last number of years with channel partners at smaller accounts. But also we've targeted very specific application segments such as the ATE test equipment market and picked up four or five new entries into that, entrance into that marketplace which are now growing for us with advanced products. So it's really sort of across the board that we're seeing the lift and certainly having consolidated the channel to mainly Avnet and Arrow and Macnica in Asia, we're getting far more focused, far more targeted at customer bases and specific segments that value the density and what we bring. So that's also giving us a general lift. So it's occurring right across the four. Well, the three businesses in automotive that's still fledgling. We're pulling down NREs for collaborations, but that's not really impacting anything at this point in time. But next year we'll see production start to ramp with some high-end OEMs there. So again that will contribute to our portfolio.

Okay, thanks for that detail, Phil. Maybe a quick question for Jim on gross margins. If I heard the prepared remarks sound like the gross margin decline, about half of it was from some investments for the SAP system and other things. The other rest of it was from royalties here. So I guess my question is in all other things equal basis here as we go into the second quarter and obviously I'm not sure how complicated adding tariffs into this might affect gross margins here, but I'm assuming the gross margins in the second quarter, all things being equal, would be kind of roughly half between the fourth quarter and the first. Is that a good starting point to think about?

Sorry Richard, did you say half of?

Yes, halfway between first quarter and fourth?

Oh well, I mean we're going to have to be reluctant about offering guidance of any kind. It's just that's the position we've taken. I will say that I described the SAP installation as what caused the sequential kind of changes because we required PTO in fourth quarter and drew down a vacation balance and then ramped up vacation accrual again in Q1. So there was some lumpiness associated with that. That investment is behind us now. So we are done with the SAP project. So without giving you as far specific on the guidance, I think we feel like we're well positioned. I mean I feel very good about the factory, I feel good about the infrastructure in Vicor. Its state of the art, so everything is set to move the needle on GM going forward once we get more loading and keep building up the licensing revenue.

On the tariff front we're building now in the second quarter is out of components that were procured largely before the institution of recent tariffs and by the time we get into the third quarter where the bond cost is going to start suffering because of tariffs will be compensating for that through the tariff surcharge.

Thank you, guys.

Just a comment on tariffs. As a matter of interest, it's worth noting that, success over multiple years has been good relative to tariffs and our ability to manage it. Now the future is changing, but we've gone from, 10 to eight to four to, less than a $1 million a quarter. So that's a good track record, but that's very narrow. That's rearview mirror. And the environment's changing rapidly. But, so far, I mean, our track record has been strong.

Okay, great. Thanks for all the comments, guys.

Thank you. One moment for the next question. And the next question is coming from the line of James Liberman of American Trust Investment Services. Your line is open.

Thank you. I really appreciate the progress you're making and looking forward to the year as it rolls out. Are you able to comment? Maybe you have already given some comment on the Foxconn appeal, in terms of the timeline or process that might take where the International Trade Commission could realize that they're in fact defrauding and that the bills, the indications that they have rights to your technology is not correct.

I'm not going to be very specific with respect to, the Foxconn license and the appeal to the Federal Circuit that relates to that, beyond saying what we said in the past, which is that, the ITC process, just as with every formal litigation, isn't the perfect process. You can't expect that judges get it 100% right, particularly when confronted with legal teams that, put a lot of dust up in the air and try to confuse the issues. But what I can tell you is that the administrative law judge at the ITC and the district court judge in Federal District Court in Boston got it right, which is Foxconn has no license. The Commission took a different position, which we believe is contrary to all the evidence, and we feel good about being able to overcome that. And in any case, the license that the commission found to have been acquired, “by virtue of Foxconn” issuing purchase orders with [indiscernible] fine print, contradicted by our sales order and other relevant evidence, including the conduct of the parties over many, many years. We think that matter in the long-term for many reasons. Again, not least of which there's only one patent that was found licensed. Vicor has a very big plant portfolio. And ultimately being able to compete in this industry will depend on parties that practice advanced power system technology having a license to many, many patents, not just one. But even with respect to that one, we expect that the Federal Circuit will come to the right conclusion. As both the administrative law judge and district court judge in Boston found.

That was precisely the color I was looking for. Thank you so much. I appreciate it.

Thank you.

Thank you. One moment the next question, the next question is coming from the line of Jeff Cohn [ph] of Wall Street Research. Your line is open.

Hello. Thanks for taking my question. So just a little color on this customer that is transitioning to a non-licensed product. Wouldn't the ITC injunction make that prohibitive or is this somebody through Foxconn? Or can you give me a little color on the situation?

I really can't be on what I said earlier. So we think that this was a unwise decision. And as I mentioned in answer to an earlier question, we believe these unlicensed products infringing -- relevant Vicor IP.

So would we expect legal expense to go up as a result of that or is that already being litigated?

And from time to time that will require substantial investment -- case Vicor, I think somewhere around $12 million, $15 million in that general ballpark, I think the return on investment on debt is going to be [indiscernible] and it warrants additional investments of that kind if infringement in the industry persists.

Okay, so I'm hearing that the ITC decision, the injunction is not a panacea.

Well, in this kind of a dispute, I don't think one should think in terms of [indiscernible] but let's put it this way, we believe we are well within our rights to protect IP, assert it as appropriate. And thus far we've done quite well with that. The return on investment is quite good and we expect it to continue to be that way. And going back to your core question, that does imply that the over the expense line item when it comes to legal expenses may from time to time take significant steps. And that's part of our business model going forward.

Okay. All right, well, thank you.

Thank you.

Thank you. One moment for the next question. And the next question will come from the line of John Dillon of D&B Capital. Your line is open.

Hi guys. Thanks for taking my call again. I had another one pop up. Phil, you mentioned new opportunities in the Data center with 800 volts to 48 volts. I'm just wondering how much customer interest are you getting in this and what's the time frame for orders and will it move the needle on revenues at all?

So, it's interesting, I would say that, six months ago we started to hear, from engineers, power system engineers at different customers that they were looking at 400-volt, a 400-volt system. And then within the last few months we've seen, because of the AI power growth and the rack power growth that jumped to 800-volt systems. And we're hearing it now from pretty much all of the big hyperscalers and any of the companies, chip companies that are transitioned to providing rack based systems, looking at that type of technology, and I mean that is right in our wheelhouse. We've been supplying 800-volt to 48-volt products to automotive OEMs and Tier 1s for the last three, four years, building out that business. And so the technology comes from a number of years ago. We're sitting really, really well with great products and technologies that we can do derivatives off of for higher powers and really engage with these customers. Now in the coming months, which is what our plan is. Patrizio and I are making a trip to the Valley and we're having conversations with a couple of big hyperscalers about those systems in the next few weeks. So it's an exciting time. I'm really excited by that opportunity, John.

So it sounds like this is significant and it could move the needle some on revenues, say in six months to a year what I think I'm hearing?

I think you're looking at probably at, early 8 – 400-volt systems coming to market early 2027 and then I think 800-volt later in 2027. That's what we're hearing.

This is very synergistic with what is going on in the automotive.

Yes.

We have design ins for active suspensions involving 800-volt to 48-volt, high density, lightweight bus converters that once again getting to the AP side of things, fall within many claims of several enabling Vicor patterns with respect to these kinds of high voltage bus converters ranging from the control system, some of the components and technology. There are many aspects to the AP portfolio that is relevant on this kind of high voltage, high input voltage bus converters.

Yes, it's actually really exciting. It looks like you have a very long runway of products and opportunities coming out the next several years, so I'm looking forward to this. Thank you.

Okay.

Thank you. And this does conclude today's conference call. Thank you so much for participating. You may all disconnect.