Vicor Q4 2024 Earnings Report

Vicor EPS Results

• Actual EPS: $0.23
• Consensus EPS: $0.18
• Beat/Miss: Beat by +$0.05
• One Year Ago EPS: N/A

Vicor Revenue Results

• Actual Revenue: $96.17 million
• Expected Revenue: $91.03 million
• Beat/Miss: Beat by +$5.14 million
• YoY Revenue Growth: N/A

Vicor Announcement Details

• Quarter: Q4 2024
• Date: 2/20/2025
• Time: After Market Closes
• Conference Call Date: Thursday, February 20, 2025
• Conference Call Time: 5:00PM ET

Vicor (NASDAQ:VICR), together with its subsidiaries, designs, develops, manufactures, and markets modular power components and power systems for converting electrical power in the United States, Europe, the Asia Pacific, and internationally. The company offers a range of brick-format DC-DC converters; complementary components provide AC line rectification, input filtering, power factor correction, and transient protection; and input and output voltage, and output power products, as well as electrical and mechanical accessories. It also design, sells, and service custom power systems solutions. The company serves independent manufacturers of electronic devices, original equipment manufacturers, and their contract manufacturers in the aerospace and aviation, defense electronics, satellites, factory automation, instrumentation, test equipment, transportation, telecommunications and networking infrastructure and vehicles, and transportation markets. Vicor Corporation was incorporated in 1981 and is headquartered in Andover, Massachusetts.

Vicor Q4 2024 Earnings Call Transcript

Key Takeaways

• Q4 revenue of $96.2 million was up 3.2% sequentially and 3.8% year-over-year, though full-year 2024 revenue fell 11.4% to $359.1 million.
• Advanced Products mix drove an 18% sequential revenue gain and lifted consolidated gross margin to 52.4% in Q4, with Advanced Products representing 60.6% of total sales.
• For 2024, Vicor posted an operating loss of $1.3 million (-0.4% margin) and net income of $6.1 million (EPS $0.14), compared to operating income of $51.4 million (12.7% margin) and EPS $1.19 in the prior year.
• Vicor ended Q4 with $277.3 million in cash, a book-to-bill above 1.0, and a one-year backlog of $155.5 million (up 3.3%), but deferred providing quarterly guidance amid a “wide range” of 2025 scenarios.
• Leadership highlighted the ramp of its new chip fab with short cycle times and 96% yields, progress on second-generation VPD ASICs for AI/HPC, and a successful ITC ruling that spurred significant hyperscaler IP licensing.

Presentation

[Operator]

Ladies and gentlemen, thank you for standing by. Welcome to the Fourth Quarter twenty twenty four Vicor earnings conference call. I would now like to turn the conference over to Jim Schmidt, Chief Financial Officer. Sir, please go ahead.

[James Schmidt, Corporate VP, CFO, Treasurer, Corporate Secretary & Director at Vicor]

Thank you. Good afternoon and welcome to Vicor Corporation's earnings call for the fourth quarter and year ended 12/31/2024. I'm Jim Schmidt, Chief Financial Officer and I'm in Andover with Patrizio Vinciaralli, Chief Executive Officer and Phil Davies, Vice President, Global Sales and Marketing. After the markets closed today, we issued a press release summarizing our financial results for the three months and year ending December 31. This press release has been posted on the Investor Relations page of our website, www.vicorpower.com.

[James Schmidt, Corporate VP, CFO, Treasurer, Corporate Secretary & Director at Vicor]

We also filed a Form eight K today related to the issuance of this press release. I remind listeners this conference call is being recorded and is 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 risks 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.

[James Schmidt, Corporate VP, CFO, Treasurer, Corporate Secretary & Director at Vicor]

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 twenty twenty three Form 10 ks, which we filed with the SEC on 02/28/2024. 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, Thursday, 02/20/2025. Vicor undertakes no obligation to update any statements, including forward looking statements made during this call, and you should not rely upon such statements after the conclusion of this call.

[James Schmidt, Corporate VP, CFO, Treasurer, Corporate Secretary & Director at Vicor]

A webcast replay of today's call will be available shortly on the Investor Relations page of our website. I'll now turn to our review of Q4 and full year financial performance. After which Phil will review recent market developments and Patrizio, Phil and I will take your questions. In my remarks, I will focus mostly on the sequential quarterly change for P and L and balance sheet items as well as full year on year changes and refer you to our press release or our upcoming Form 10 K for additional information. As stated in today's press release, Vicor recorded total revenue for the fourth quarter of $96,200,000 up 3.2% from the third quarter total of $93,200,000 and up 3.8% from the fourth quarter of twenty twenty three total of $92,700,000 Revenues for the year ended 12/31/2024 decreased 11.4% to $359,100,000 from $405,100,000 for the prior year.

[James Schmidt, Corporate VP, CFO, Treasurer, Corporate Secretary & Director at Vicor]

Advanced Products revenue increased 18% sequentially, while Brick Products revenue declined 13% from the third quarter. Revenues for Advanced Products for the year ending 2024 decreased 11.9% to $197,300,000 from $223,900,000 the year before. Revenues for brick products for the year ending 2024 decreased 10.7% to $161,700,000 from $181,200,000 the year before. Shipments to stocking distributors decreased 4% sequentially, but increased 7.6% year over year. Exports for the fourth quarter increased sequentially as a percentage of total revenue to approximately 56.9% from the prior quarter's 49%.

[James Schmidt, Corporate VP, CFO, Treasurer, Corporate Secretary & Director at Vicor]

On a year over year basis, exports decreased as a percentage of total revenue to approximately 48.2% from the prior year's 63.1%. For Q4, Advanced Products share of total revenue increased to 60.6% compared to 53% for the third quarter with brick product share correspondingly decreasing to 39.4% of revenue. Turning to gross margin, we recorded a consolidated gross profit margin of 52.4%, approximately 3.3 more than the prior quarter. For the full year 2024, gross margin rose by 0.7% to 51.2% from 50.6% in the prior year. The year on year increase in gross margin percentage was primarily due to increased royalty income and reductions in supply chain costs.

[James Schmidt, Corporate VP, CFO, Treasurer, Corporate Secretary & Director at Vicor]

I'll now turn to Q4 operating expenses. Total operating expense including litigation expenses increased 2% from the third quarter. For the full year 2024, total operating expense as a percent of revenue increased to 51.6% from 37.9% in the prior year. The amounts of total equity based compensation expense for Q4 included in cost of goods, SG and A and R and D was $858,000 2 million 1 hundred and 6 thousand dollars and 1 million 90 3 thousand dollars respectively totaling approximately $4,100,000 For Q4, we recorded operating income of $9,200,000 representing an operating margin of 9.6%. For the full year 2024, operating loss totaled $1,300,000 or negative 0.4% of revenue compared to operating income of $51,400,000 or 12.7% of revenue in the prior year.

[James Schmidt, Corporate VP, CFO, Treasurer, Corporate Secretary & Director at Vicor]

Turning to income taxes, we recorded a tax provision for Q4 of approximately $1,500,000 dollars representing an effective tax rate for the quarter of 12.9%. The tax provision for the full year 2024 was approximately $4,300,000 representing an effective tax rate for the year of 41.5%. Net income for Q4 totaled 10,200,000 GAAP diluted earnings per share was $0.23 based on a fully diluted share count of 45,296,000 shares. For the full year 2024, net income decreased to $6,100,000 from $53,600,000 in the prior year. In 2024, diluted fully diluted earnings per share decreased to $0.14 from $1.19 in the prior year.

[James Schmidt, Corporate VP, CFO, Treasurer, Corporate Secretary & Director at Vicor]

Turning to our cash flow and balance sheet, cash and cash equivalents totaled $277,300,000 in Q4. Accounts receivable net of reserves totaled $52,900,000 at quarter end with DSOs for trade receivables at thirty nine days. Inventories net of reserves increased 0.3% sequentially to $106,000,000 annualized inventory turns were approximately flat at $1.65 Operating cash flow totaled approximately $10,100,000 for the quarter. Capital expenditures for Q4 totaled $1,700,000 We ended the quarter with a construction in progress balance primarily for manufacturing equipment of of approximately $8,200,000 and with approximately $4,900,000 remaining to be spent. I'll now address bookings and backlog.

[James Schmidt, Corporate VP, CFO, Treasurer, Corporate Secretary & Director at Vicor]

Q4 book to bill improving sequentially came in above one and with one year backlog increasing 3.3% from the prior quarter closing at $155,500,000 Turning to the first quarter and the full year, 2025 is a year of uncertainty and opportunity. As of today, the year's outcome in terms of top line and bottom line is subject to a relatively wide range of scenarios. Given the wide range of possible outcomes, we are unable to provide quarterly guidance until we are further along resolving uncertainties and capitalizing on opportunities. With that, Phil will provide an overview of recent market developments and then Patrizio Ful and I will take your questions. I ask that you limit yourselves to one question and a related follow-up, so that we can respond to as many of you as we have the time available.

[James Schmidt, Corporate VP, CFO, Treasurer, Corporate Secretary & Director at Vicor]

If you have more than one topic to address, please get back in the queue. Phil?

[Philip Davies, Corporate VP of Global Sales & Marketing and Director at Vicor]

Thank you, Jim. When we entered twenty twenty four, we talked about the year in terms of challenges and opportunities. As we enter a new fiscal year, a number of challenges have been overcome and we now see 2025 in terms of opportunities. The two main challenges we faced in 2024 were refining processes and scaling up capacity in our chip fab and protecting our intellectual property. We are pleased with the successful ramp of our new vertically integrated chip factory, which is now achieving the short cycle times and high yield goals that we set, enabling a more efficient operation and improving our customer responsiveness and key performance measures.

[Philip Davies, Corporate VP of Global Sales & Marketing and Director at Vicor]

2025 will see further progress as we build out our top 100 customer operational excellence program leveraging the new factory. The recent final determination by the ITC in our first NBN patent infringement case has resulted in exclusion and cease and desist orders banning the importation of infringing power modules and unlicensed computer systems infringing two VICO patents. Affected companies are taking notice of the risk of computing hardware being stranded because of infringing NBMs and the hyperscaler has recently taken a license to Veiko's MBM IP. While our first ITC action achieved most of its goals, foreign power module makers, certain contract manufacturers and some of their U. S.

[Philip Davies, Corporate VP of Global Sales & Marketing and Director at Vicor]

Customers are still playing a game of catch me if you can, which we will. By pursuing monetary damages and by seeking additional exclusion orders enforcing relevant patents in our comprehensive IP portfolio. Turning to our fourth quarter, our book to bill ratio rose above one in Q4 and with our new licensee booking its future MBM requirements in January, our high performance computing business is beginning to strengthen. On the new product front, we are laser focused on delivering our ultra high density, high bandwidth Gen five VPD system to a lead customer and to leading AI and network processor companies and hyperscalers. As Patrizio commented in our press release today, perfecting our second generation VPD has taken longer than expected with the fab out of a new ASIC raising the bar on the density and bandwidth of our current multipliers for customers who need current densities up to five amps per millimeter squared.

[Philip Davies, Corporate VP of Global Sales & Marketing and Director at Vicor]

Our industrial and broad business remains strong with bookings from top 100 customers and strength with channel partners globally. Our ATE customers are continuing to see strong growth servicing the processor, ASIC and memory testing needs for AI markets. A new family of factorized power chips will be sampled to these major ATE customers in Q2, further strengthening our position as a leading modular power system provider. Our aerospace and defense business maintained a double digit growth trajectory that began three years ago with our top 100 accounts. Power system standardization with rack based power supplies offers further growth opportunities to Vicor for both power modules and for complete systems designed and manufactured by our subsidiaries.

[Philip Davies, Corporate VP of Global Sales & Marketing and Director at Vicor]

Opportunities in the satellite market for our factorized power radiation tolerant modules are significant and we are well positioned should favorable program award decisions occur in the second half of twenty twenty five. We closed out 2024 with continued global pipeline expansion for our automotive business and we are now shipping into production programs. Our focus for 2025 is to bring the many OEM and Tier one collaborations to a design win status, setting us up for continued growth in this new business through 2027. So in closing, we are in a stronger position at the start of this year than at this time last year. No doubt there are still challenges to be overcome, but we have the determination, the staying power and the bench strength with our superior power system technology, our new chip fab and our global team to achieve our Northstar financial goals of $1,000,000,000 in revenues, 65% gross margins.

[Philip Davies, Corporate VP of Global Sales & Marketing and Director at Vicor]

2025 will be another exciting year. Thank you. So with that, we'll now take your questions.

[Operator]

Thank you. And our first question will come from John Tanwanteng with CJS Securities. Your line is now open.

[Jonathan Tanwanteng, Managing Director at CJS Securities]

Good afternoon. Thank you for taking my questions and nice quarter. I was first wondering if you could talk a little bit more about the delay you mentioned or taking longer than you expect in the VPT products. Is there a change in your expectation for when that product will ship in volume? And if so, when do you think that window might be?

[Patrizio Vinciarelli, CEO at Vicor]

So it turns out we needed to compete in ASIC in order to achieve the performance goals and in particular, current capability, efficiency that we think are key to major penetration with our five gs power line, in particular with second generation VPD. That ASIC is coming out of fab before the February in the next ten days. And we expect to be able to, in the month of March, take fast steps with respect to being in a position to provide complete high performance solution for our lead customer. And at the same time, have the most session capabilities to full performance for a broader set of customers. So it's taken longer than expected.

[Patrizio Vinciarelli, CEO at Vicor]

To set it in relevant perspective, I view this as a once in a lifetime development in terms of its significance for AI and high end computing. And the extra time necessary to achieve the level of performance we targeted, we think is worth it. In terms of our lead customer, we are very focused on being able to support their ramping needs in the second half of this year. We think we're going to be able to accomplish that.

[Jonathan Tanwanteng, Managing Director at CJS Securities]

Got it. Thank you, Priscilla. Can I ask a question for your lead customer? Do they have a dual source strategy on this product where maybe on one side they use your VPD, on the other they use a traditional multi phase maybe for a different type of SKU, but with the same silicon?

[Patrizio Vinciarelli, CEO at Vicor]

So our lead customers relied on us with respect to their escalating production requirements on our generation products. And I believe they're relying on us for the foreseeable future. The level of performance they require is not achievable by any competitive alternative. The nature of the solution is highly proprietary very extensively covered by our IP portfolio. So we are on a sound foundation in terms of long term collaboration with this lead customer.

[Jonathan Tanwanteng, Managing Director at CJS Securities]

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

[Patrizio Vinciarelli, CEO at Vicor]

queue. Thank you.

[Operator]

And our next question will come from Nicholas Doyle with Needham. Your line is open.

[Quinn Bolton, Managing Director, Equity Research at Needham & Company]

Hey, guys. This is actually Quinn from Needham. Just wanted to ask Patricio and Phil, congratulations on your second licensee to the patent portfolio. Wondering if you could at all give us some sense, how that might impact your future royalty revenue? I know in the third quarter of last year you generated over $13,000,000 in royalty income.

[Quinn Bolton, Managing Director, Equity Research at Needham & Company]

Does this meaningfully increase the royalty revenue going forward? Or would you expect your first licensee to continue to represent the majority of royalty income going forward? And then I have a follow-up.

[Patrizio Vinciarelli, CEO at Vicor]

So all that I can tell you is that it's a significant license, but we are constrained in terms of not being at liberty to disclose for obvious reasons. Any information relating to what it would mean for us, what it means for the licensee. We obviously value our licensing relationships and want to be want to honor commitments with respect to maintaining the national relationship highly confidential. So I can't tell you anything beyond the fact that it's an hyperscaler and it's a significant license.

[Quinn Bolton, Managing Director, Equity Research at Needham & Company]

Understood the sensitivity. Appreciate, thank you for sharing what you can. Patricio, it sounds like you also may have secured MBM product orders from this hyperscaler. I believe in the script, Phil mentioned that you received orders from this hyperscaler for MBM product in the January. Can you give us any sense how meaningful those MBM orders are?

[Quinn Bolton, Managing Director, Equity Research at Needham & Company]

I know in the press release you talked about margins going forward would depend on your ability to fill the new chip fab. And I'm curious if the orders for MBMs are meaningful and could start you on your way to increasing the capacity utilization at the ChipFAB? Thank you.

[Patrizio Vinciarelli, CEO at Vicor]

So in general, the answer is yes. A common remedial feature of our standard licensing methodology is incentives for licensees to do business with us as a module provider. Needless to say with our fab, we have a very unique highly proprietary capability that is getting more and more leveraged with advances including our five gs capability. So all of this goes in a common denominator type of direction in terms of engaging with licensees, both as a licensor of critical intellectual property and as a supplier for major programs that enable the licensee to achieve levels of performance they can't realize otherwise. And all of this will lead to our fast fab getting filled.

[Patrizio Vinciarelli, CEO at Vicor]

It is not going to happen overnight. It takes time. There is obviously gestation period associated with all of these. There is no sudden change. So I urge us all to be realistic with respect to the timescale and expectations.

[Patrizio Vinciarelli, CEO at Vicor]

But we do see our first fab with $1,000,000,000 per year in round numbers capacity getting filled before too long.

[Quinn Bolton, Managing Director, Equity Research at Needham & Company]

Thank you.

[Operator]

And our next question will come from Richard Shannon with Craig Hallum Capital. Your line is now open.

[Richard Shannon, Senior Research Analyst at Craig-Hallum Capital Group LLC]

Well, Craig, thanks for taking my question as well. Let me ask you kind of a top down question here. Jim's prepared remarks, you talked about as you have recently about this year being one of uncertainty and opportunity. And then you also described some of the dynamics here between your AIHPC opportunities and other markets. So I guess my question here is trying to get a sense of the degree to which these uncertainties are related mostly related to HPC versus other markets.

[Richard Shannon, Senior Research Analyst at Craig-Hallum Capital Group LLC]

Is there a heavy influence or kind of a balance between those? Just want to get a sense here given some of your remarks about non HPC markets? Thank you.

[Patrizio Vinciarelli, CEO at Vicor]

I think the uncertainties and opportunities for this year revolve primarily around AI and high end computing. I think with respect to our other markets, I think there is a high degree of profitability. Phil, do you want to answer?

[Philip Davies, Corporate VP of Global Sales & Marketing and Director at Vicor]

Yes. No, I totally agree. Yes. The I mean, our automotive business is a fledgling business, so there's just full of opportunity there. And as I talked about, our goal is conversion of the pipeline.

[Philip Davies, Corporate VP of Global Sales & Marketing and Director at Vicor]

Industrial and Defense and Aerospace, they're going from strength to strength. And as I've mentioned before, our goal is to double those businesses and we're in good shape to do that. So it's about HPC and

[Patrizio Vinciarelli, CEO at Vicor]

And that's a market that where we had a big reset, right, couple of years ago, we're rebuilding it. And I think we're rebuilding it from a position of strength, not just from the IP perspective, but before too long in terms of enabling solutions that cannot otherwise be realized with our own hardware made in our fab.

[Richard Shannon, Senior Research Analyst at Craig-Hallum Capital Group LLC]

Okay. I appreciate that detail. My second question is related to your second gen VPD products here. I guess it's a two part, I guess it wasn't clear to me whether this ASIC resend that you talked about is specific to the leading customer applied to the kind of the broader portfolio across the AI space here, if you can confirm that. And then maybe just talk about the kind of the pipeline here for the next set of customers when you expect to sample and get some understanding of design wins is going to happen this year, first half, second half or just some kind of detail how that's progressing?

[Richard Shannon, Senior Research Analyst at Craig-Hallum Capital Group LLC]

Thank you.

[Patrizio Vinciarelli, CEO at Vicor]

So the new ASIC is generally applicable to all of the current multipliers that fundamentally enable the Faramp per square millimeter capability of five gs and its VPD implementation. And it's something that we add in the pipeline from a next development perspective that we needed to prioritize and accelerate delivery of in order to address some issues that we encountered in competing development of the current multipliers. So we are very close to adding the device and looking forward to completing this chapter. I must say, this one building block of very comprehensive set of modules that perform in combination all the essential functions of very high performance factorized power system. Everything has gone very well with respect to other building blocks, the crown multiplier from a control perspective as an issue that we needed to address.

[Operator]

And our next question comes from John Dillon with DNB Capital. Your line is open.

[Analyst]

Hi guys. Congratulations on a good quarter and a nice book to bill, really good to see. Patricio, at the fireside chat, Quinn asked you if you had everything you need for a GPU manufacturer who is having heat problems. I think your answer was you think you do. And what I'm wondering is, has that customer got an insight into your second gen VPD and the new factory and what is their reaction?

[Patrizio Vinciarelli, CEO at Vicor]

I'm afraid this is a little bit too customer specific. I think without naming names, it would be clear with their customers. And so I'm going to refrain from answering your questions, but I will answer the question in more general terms. I think across all of the customers and potential customers in AI and high end computing, I believe with second generation VPD and our five gs chipset, we have what it takes to address outstanding needs, challenges that all these customers face with respect to inability to deliver the cost that their Essex would want to be able to consume, thermal management issues, noise issues, a long list of issues that conventional technology is saddled with and a factorized power system with its entry converter current multiplier addresses much more effectively. So no comments with respect to anyone, present customer and former customer, future customer will stick to our general practice of avoiding getting into those details.

[Patrizio Vinciarelli, CEO at Vicor]

But a good deal of confidence on my part with respect to

[Patrizio Vinciarelli, CEO at Vicor]

getting traction

[Patrizio Vinciarelli, CEO at Vicor]

across the range of customers in that space with the capability of five gs.

[Analyst]

Can I ask a question a little more generally then? Are all the major GPU customers aware of your new second gen technology and have they seen your new factory and are they satisfied with what you're doing?

[Patrizio Vinciarelli, CEO at Vicor]

Not all of them. And as implied by earlier comments, we've been keeping our powder dry for two reasons. One, to make sure that we devote all the support necessary to our lead customer, but also to make sure that when we spread out to service other applications and other customers that we have completed all that we need to have in place for their scale up to be very predictable and very efficient. Phil, do you want to add anything to that?

[Philip Davies, Corporate VP of Global Sales & Marketing and Director at Vicor]

No, I think the only thing I would add would be that John, we have very clear line of sight to the target chip companies, whether it's AI GPU or network processor companies or hyperscalers that have programs in development. So we know when those programs are starting, what their specs are. We've got a very good picture view of the market. So as Patrizio said, we're focused on our lead customer and then we'll have the demo systems go out to a set of target follow on customers. And I expect going from the evaluation to the design win will be fairly quick with some of them and little bit longer for others, but it depends on their new chip schedules.

[Philip Davies, Corporate VP of Global Sales & Marketing and Director at Vicor]

So it will be a mix.

[Analyst]

Okay. That makes a lot of sense and I really appreciate you guys giving us those details. I'll get back in the queue. Thank you so much.

[Patrizio Vinciarelli, CEO at Vicor]

Thank you.

[Operator]

And our next question will come from Don Mckenna with B. B. Kennen and Company. Your line is open.

[Donald McKenna, Financial Advisor at D. B. McKenna & Co]

Hey, Patricio, again, congratulations. During the Needham Conference, you indicated that you expected $25,000,000 to be a record year. And looking back at earnings in previous years, the high point was $126,000,000 a share and $21,000,000 Is that what you're referring to? Is the earnings that you expected to be the record?

[Patrizio Vinciarelli, CEO at Vicor]

I expected this year under reasonable scenarios would be a record year for revenues and profitability.

[Donald McKenna, Financial Advisor at D. B. McKenna & Co]

Great. Thank you very much.

[Operator]

And our next question will come from John Tanwanteng with CJS Securities. Your line is open.

[Jonathan Tanwanteng, Managing Director at CJS Securities]

I just wanted to follow-up on the licensing portion. You mentioned you signed a significant hyperscaler. How many more of those entities are out there of size number one that are negotiating good faith with you and contact with you? And then how many are there out there that maybe are trying to avoid you and that you may have to hunt down and litigate against? And if there are a significant amount in the second part, what's the cost going to be to do that?

[Patrizio Vinciarelli, CEO at Vicor]

Phil has been getting phone calls. So you want to

[Philip Davies, Corporate VP of Global Sales & Marketing and Director at Vicor]

answer this? Well, the ITC action is certainly smoking out the people that we're hiding, that's for sure. So I think that, yes, I'm getting contacted now by other companies wanting to talk about licensing. So that's a good thing and that's what the ITC action was meant to do. I think one of the key things here is that I think when people think about this, they might think about it as adversarial, but our goal is not to have an adversarial relationship with our licensees.

[Philip Davies, Corporate VP of Global Sales & Marketing and Director at Vicor]

As Patrizio talked about, there's a big incentive to buy modules from Vicor, not just because it helps you with the license royalty, but because it's amazing technology and it enables new performance levels that you haven't been able to achieve before. So as I said earlier, I think 2025 is going to be a very exciting year.

[Patrizio Vinciarelli, CEO at Vicor]

And to double up on that, clearly these customers or potential customers, surface carriers, other parties that have been using, buying Infringing modules, they are not in effect directly responsible for things that happened without their understanding. And because of that we owe them respect with respect to ensuring that they're dealt with fairly in the aftermath of an exclusion order. The cause of the issues rest with the infringing parties. They are the ones responsible for creating these kinds of issues and hopefully they will learn from this experience not to make the same kinds of mistakes in the future. And if they do, there's going to be unfortunately more of these kinds of experiences coming their way and coming the way of their customers and their customers before too long will come to the conclusion that they can't really rely on suppliers that copy innovative products of America Innovator that are well protected by intellectual property to avoid that property being infringed.

[Jonathan Tanwanteng, Managing Director at CJS Securities]

Got it. That's very helpful. I was wondering if you could also update us on if there's any viable workarounds that you've seen or heard about from the infringers if they're trying to get around the

[Patrizio Vinciarelli, CEO at Vicor]

path? Let me be categoric with respect to that. There is no NBN alternative that doesn't infringe Vigor panels. We have not played out all the patterns, but there is no viable alternative known to me. Now here again, there are suppliers to the market that are going to customers telling them we don't infringe Vigor IP, we know Vigor, you can buy from us without any concern.

[Patrizio Vinciarelli, CEO at Vicor]

But the reality of it is that either they don't really understand their product and VIP that covers them or they're misleading their customers and they should know by now that that's not a long term win win strategy for their relationship with their customers.

[Jonathan Tanwanteng, Managing Director at CJS Securities]

Got it. Thank you.

[Operator]

And the next question comes from Patrick Connors with Ajax Capital. Your line is open.

[Analyst]

Hi guys. Really good quarter, really happy for you. Nice book to bill. But I think most importantly, so far it looks like a successful defense of your IP, which I know has been very important to you. In that context, can you describe the I understand that your defendants have to post the bond.

[Analyst]

Can you describe the mechanics of the bond? What's the purpose

[Analyst]

of the bond? The size of

[Analyst]

the bonds, etcetera? Can you walk me through those mechanics, please?

[Patrizio Vinciarelli, CEO at Vicor]

Yes. So in general terms, following the Saudi Demination, the ADC case is closed. It undergoes a mandatory sixty days presidential review period, the accrual which is for the most part that have gone conclusion that there have been few instances in which there has been a presidential detail of an exclusion order. So we should all expect the exclusion order will go into effect sixty days from the final determination. At that point in time, infringing products cannot be imported into The U.

[Patrizio Vinciarelli, CEO at Vicor]

S. But up to the expiration of the presidential review period, there is in effect a sixty day grace period within which to your point, the respondents, their customers can import infringing products in The U. S. If they post a bond. Now the bond in this particular investigation for computing systems was set 100% of the value of the computing system.

[Patrizio Vinciarelli, CEO at Vicor]

So in the case of computing system, it would be a lot of money to post a bond and that bond will not be recoverable.

[Analyst]

So who puts the bond? Is it the customer or is it the vendor?

[Patrizio Vinciarelli, CEO at Vicor]

Well, I cannot help you with respect to that, but fundamentally customs will not allow the importation of an infringing product for which there is no bond through the sixty day presidential review period. At the end of that, they would simply not allow the importation of an infringing product.

[Analyst]

Can I make the analogy to a bail bond whereby if they it goes for in forfeiture if they infringe upon your IP?

[Patrizio Vinciarelli, CEO at Vicor]

Yes. And in fact, the complainant cover the bond because we are in effect the affected party.

[Analyst]

But you just said Vicor can recover the bond?

[Patrizio Vinciarelli, CEO at Vicor]

We could if bonds get posted. Now we have no way of knowing what is going to happen, right. So needless to say, we are today is one week from the first elimination and there is still like the idea of uncertainty with respect to what is actually going to happen.

[Analyst]

Okay. That's extremely helpful. Congratulations. Thank you. I'll jump back in the queue.

[Operator]

And the next question comes from Richard Shannon with Craig Hallum Capital. Your line is open.

[Richard Shannon, Senior Research Analyst at Craig-Hallum Capital Group LLC]

Well, thanks guys. Let me ask a follow-up here. This is kind of taking two different comments during the call here. Phil's prepared remarks to talk about the ramp of the chip factory with getting short cycle times that you've been envisioning all along here, as well as high yields. And then a response to a later question here, you're talking about devoting all your support to a lead customer, making sure you've got everything in place to scale out to be predictable and efficient.

[Richard Shannon, Senior Research Analyst at Craig-Hallum Capital Group LLC]

So I guess my question here is, to what degree is the chip fab been exercised at high volumes and utilization? Can you describe or quantify the level of utilization today? And then what do you mean by getting ready to be able to scale up predictably and efficiently?

[Patrizio Vinciarelli, CEO at Vicor]

Yes. So, back to your question has to do with capacity and factory utilization. In effect, working out the narrower glitches as you bring up something as new as the first shapefile. The second part is really to do with the novelty of a new generation of products. So that has to do with other factors apply.

[Patrizio Vinciarelli, CEO at Vicor]

Let me address the first part of the question first. So as implied by Jim's opening remarks, pointing to the change in mix within the last quarter toward Advanced Products, you should assume that those advanced products, they're all made in our chief fab. So within the last year and particularly getting into the fourth quarter, we've been scaling up its capacity. We all of us review every Thursday morning a bar chart showing the progression of chips made that we call three d I or three dimensionally interconnect which are some of the core fab processes. And that bar chart has been stepping up at a nice space in every period segment within the year.

[Patrizio Vinciarelli, CEO at Vicor]

So good progress there. And again to your point, it relates to related metrics, right? It's not just capacity, it's cycle time, it feels, they all play together. You need them to support each other in accomplishing the overall goal. So we've been able to enjoy we're able to make chips in a pinch if there is a very high priority in as little soup to nuts, in as little as ten days, which is a tiny little fraction of the time it used to take to complete the corresponding task two years ago, very small fraction of the time.

[Patrizio Vinciarelli, CEO at Vicor]

And with respect to devices that are in mass production in new fab, we have fab test yields of 96%. So those are measures of progress with respect to the capability of the processes implemented in the new factor. With respect to the second part of your question, capability in the deployment of a new generation of products relates to having everything in place to enable solutions that can take on different forms in terms of current requirement, multiplicity of rails in different customer applications. It's more than adding the core modules and core capability, it's saving the complete understanding of how to adapt system solutions to a particular set of requirements, which would be different from customer to customer, application to application. And that's where we've been through a few other actions of our demo system capability.

[Patrizio Vinciarelli, CEO at Vicor]

I think we are on the third round and it's gotten to a level of maturity that with respect to all the building blocks will showcase the performance that we think will bring about predictable adoption by customers other than our lead.

[Richard Shannon, Senior Research Analyst at Craig-Hallum Capital Group LLC]

Okay. Appreciate all the detail there. Very interesting Patrizio. My follow on question here is related to kind of thinking through the towards the endpoint of your ITC case. Obviously, these patents were directed specifically at your NBN products here.

[Richard Shannon, Senior Research Analyst at Craig-Hallum Capital Group LLC]

And obviously, good to see a successful outcome here. I guess wondering not only the conversations about licensing related to NBN, so to what degree are these conversations having or intending by you to also involve your point of load products as well? Thank you.

[Patrizio Vinciarelli, CEO at Vicor]

So with different licensees, the focus is different. And so we have in particular, we call an OEM license, which gives access to all our IP. The licensee decides what particular capabilities to license, but they encompass the entire portfolio and that spans the gamut from the first stage of a two stage point of load solution or it could be a centralized power system or a point of load device. Our first non OEM licensee as a narrow license, the specific to MBMs. So going forward we expect to have a mix of different scenarios.

[Patrizio Vinciarelli, CEO at Vicor]

But generally speaking, we favor OEMs getting full access for their outside sourcing requirements, for their capacity requirements to in effect take risk out of the supply chain, which recent events underscore can otherwise be a serious issue. And to be clear, in regards to our first IDC case, I want to be clear about the fact that litigation is never a perfect process, right? It's full of uncertainties. People have to make legal decisions with some of our limited visibility and they need to do so with critical timelines and under a certain level of pressure. To be sure, we didn't get 100% that we're looking for, but it's been successful.

[Patrizio Vinciarelli, CEO at Vicor]

And as I look at it in terms of the overall strategy, it accomplishes it accomplished its mission as a first demonstration of the risks inherent in foreign suppliers that have had a practice of just copying and taking their chances with respect to what might happen with the legal system. I think more the kind of lessons we have just had, maybe necessary to get the industry to respect IP as it should be for all that it's worth, right, in terms of fostering innovation, fostering investment in the advance of technology. It shouldn't be that a company does the heavy lifting and others copy what the company does. That's not the right solution to the industry needs.

[Richard Shannon, Senior Research Analyst at Craig-Hallum Capital Group LLC]

Great. Thank you guys.

[Operator]

And the next question comes from Nicholas Doyle with Needham. Your line is open.

[Quinn Bolton, Managing Director, Equity Research at Needham & Company]

Hey guys. Just a couple of quick follow ups. For the hyperscaler licensee, Patricio, is that only pertinent to MBMs from Delta or other respondents or does it cover any NBN module imported by that hyperscaler?

[Patrizio Vinciarelli, CEO at Vicor]

It is any NBN module from any source.

[Quinn Bolton, Managing Director, Equity Research at Needham & Company]

Perfect.

[Quinn Bolton, Managing Director, Equity Research at Needham & Company]

And then maybe for Dan or Phil, I think you said the prepared script advanced products were up 18% sequentially. Just wondering if you could give us a sense what drove that strength? Was it mostly the industrial A and D segments? Did you see growth in AI or HPC customers? Just any color you could give would be appreciated.

[Quinn Bolton, Managing Director, Equity Research at Needham & Company]

Thank you.

[Philip Davies, Corporate VP of Global Sales & Marketing and Director at Vicor]

Yes, Quinn, it was mostly HPC pickup, but also we saw growth in industrial advanced products and also aerospace and defense, but primarily HPC.

[Quinn Bolton, Managing Director, Equity Research at Needham & Company]

Thanks.

[Operator]

And the next question comes from John Dillon with DNB Capital. Your line is open.

[Analyst]

Hi, Patricia, earlier you mentioned that the new factory should be filled pretty quickly. So I'm wondering, are you in the early stages of planning a new factory? And what kind of timeframe? And will that be a Vicor factory or licensee factory?

[Patrizio Vinciarelli, CEO at Vicor]

Yes, John. So I mentioned earlier that we should be realistic about the gestation time of all these developments, right. We're going to be filling the factory this year to be clear. So it would be premature at this point to go out on a limb with respect to the next factory. But I think it's fair to say that we understand what needs to be done there.

[Patrizio Vinciarelli, CEO at Vicor]

We've done some planning with respect to what it would take. There are scenarios as we get into next year where there could be a need depending on what happens in terms of adoption of secondary actual VPD. And as you heard me say before, it is going to be a lot easier to build the next fab having accomplished completion of the first. So we're still very focused on the first, making sure that everything is as good as it should be with it. Again, continue to reduce cycle time, improve yields, getting it filled, which will take time, right?

[Patrizio Vinciarelli, CEO at Vicor]

It won't happen this year. But the good news is that replicating and scaling up the capacity, assuming as they do that we're going to get great traction with our second gen VPD and five gs product capability in general, which is by the way not limited to point of load applications, right? It's not just for AI, it is also for industrial products, it's for automotive products. So the market opportunity there is quite broad. And with that broad market opportunity, there will be a need for more capacity and more fabs and those may come about under different scenarios involving potential partnerships within vigor and other parties.

[Analyst]

Excellent. And thank you very much for that detail. And my other question, I'm not sure if I missed this or not, but did you mention have you bought back any more of your stock in the fourth quarter?

[James Schmidt, Corporate VP, CFO, Treasurer, Corporate Secretary & Director at Vicor]

A very small amount, John. The threshold wasn't happily, the threshold wasn't hit often for the buyback to kick in.

[Analyst]

And are there any plans going forward?

[James Schmidt, Corporate VP, CFO, Treasurer, Corporate Secretary & Director at Vicor]

I would say, we'll consider it again. I'm sure Patrizio will make a decision on that. But at this point, we still learn a good rate of return on our money market fund. And we have the resources now as a company to really go forward and the investment necessary in capital is really declining now. So I think also when I think about the factory, I think about loading and the leverage we're going to get just with this factory operating extremely efficiently.

[James Schmidt, Corporate VP, CFO, Treasurer, Corporate Secretary & Director at Vicor]

It's going to be a beautiful thing as the loading comes in.

[Analyst]

Yes. I would imagine with the quick turns, you can really increase your cash flow talking about what you just said. Right. Excellent. Okay.

[Analyst]

Thanks so much, guys.

[Patrizio Vinciarelli, CEO at Vicor]

Thank you.

[Operator]

Thank you. This concludes the Q and A session and the call. And thank you for your participation. And you may now disconnect.

Participants

Executives

• James Schmidt, Corporate VP, CFO, Treasurer, Corporate Secretary & Director
• Philip Davies, Corporate VP of Global Sales & Marketing and Director
• Patrizio Vinciarelli, CEO

Analysts

• Jonathan Tanwanteng, Managing Director at CJS Securities
• Quinn Bolton, Managing Director, Equity Research at Needham & Company
• Richard Shannon, Senior Research Analyst at Craig-Hallum Capital Group LLC
• Analyst
• Donald McKenna, Financial Advisor at D. B. McKenna & Co