Vicor Q1 2025 Earnings Report

Vicor EPS Results

• Actual EPS: $0.06
• Consensus EPS: $0.29
• Beat/Miss: Missed by -$0.23
• One Year Ago EPS: $0.06

Vicor Revenue Results

• Actual Revenue: $93.97 million
• Expected Revenue: $96.63 million
• Beat/Miss: Missed by -$2.66 million
• YoY Revenue Growth: +12.00%

Vicor Announcement Details

• Quarter: Q1 2025
• Date: 4/29/2025
• Time: After Market Closes
• Conference Call Date: Tuesday, April 29, 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 Q1 2025 Earnings Call Transcript

Presentation

[Operator]

Good day and thank you for standing by. Welcome to the Q1 twenty twenty five VICR Earnings Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there'll be a question and answer session. To ask a question during the session, you will need to press 11 on your telephone.

[Operator]

You will then hear an automated message advising your hand is raised. To withdraw your question, please press 11 again. Please be advised that today's conference is being recorded. I would now like to turn the conference over to Jim Smith, Chief Financial Officer. Please go ahead.

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

Thank you. Good afternoon and welcome to Vicor Corporation's earnings call for the first quarter ended 03/31/2025. 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 market closed today, we issued a press release summarizing our financial results for the three months ended March 31. This press release has been posted on the Investor Relations page of our website, www.psychorpower.com.

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

We also filed a Form eight ks 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 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 & Secretary 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 2024 Form 10 ks, which we filed with the SEC on 03/03/2025. 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, 04/29/2025. 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 & Secretary 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 a review of our Q1 financial performance, after which, Bill will review recent market developments And Patricio, Phil and I will take your questions. In my remarks, I will focus mostly on the sequential quarterly changes for P and L and balance sheet items and refer you to our press release or our upcoming Form 10 Q for additional information. As stated in today's press release, Vicor recorded total revenue for the first quarter of '90 '4 million dollars down 2.3% sequentially from the fourth quarter of twenty twenty four total of 96,200,000.0, and up 12% from the first quarter of twenty twenty four total of 83,900,000.0. Advanced products revenue increased 2.7% sequentially to 59,900,000.0, while product revenue decreased 10% sequentially to 34,100,000.0.

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

Shipments to stocking distributors decreased 16.9% sequentially and decreased 33.8% year over year. Exports for the first quarter increased sequentially as a percentage of total revenue to approximately 60.8% from the prior quarter's 56.9%. For q one, advanced product share of total revenue increased to 63.7% compared to 60.6% for the fourth quarter of twenty twenty four, with Brick product share correspondingly decreasing to 36.3% of total revenue. Turning to Q1 gross margin, we recorded a consolidated gross profit margin of 47.2%, which is a five twenty basis point decrease from the prior quarter. To elaborate on the factors causing the sequential decline in gross margin, I'd like to first mention that over the course of fourth quarter of last year and into the first quarter of this year, Vicor transitioned off of a legacy ERP system and onto a state of the art ERP system, SAP, which went live on January 1.

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

In planning for a successful transition, and to de risk it, we increased production in Q4, required a mandatory week of paid time off in December by any employees not involved in the cutover, and funded outside consultants who provided the necessary expertise as we implemented the change. All required actions were successfully completed in Q1. What I've just described is important contributor to about half of the percentage point decline in gross margin. As sequentially, utilization and absorption declined, compensation increased, and so did consulting expense. Aside from these factors, the sequential decline in royalty revenue, which on its own accounted for about half of the percentage point decline in gross margin, other components of the decline included the normal seasonal reset higher of FICA expense to start the year, as well as incremental depreciation expense associated with bringing online capital investments in US based semiconductor manufacturing in both Andover and Rhode Island.

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

Tariff expense, net of duty drawback was approximately $700,000 in Q1. I'll now turn to Q1 operating expenses. Total operating expense increased 8.2% sequentially from the fourth quarter of twenty twenty four to $44,500,000 The sequential increase was primarily due to an increase in research and development expenses. Here too, the sequential increase was due in part to the mandatory time off in Q4 that did not repeat in Q1, as well as the normal seasonal reset higher of FICA expense. The amounts of total equity based compensation expense for Q1 included in cost of goods, SG and A, and R and D was 967,000, 2 million 1 hundred and 90 4 thousand, and 1,188,000 respectively, totaling approximately 4,300,000.0.

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

Turning to income taxes, we recorded a tax provision for Q1 of approximately $400,000 representing an effective tax rate for the quarter of 14.2%. Net income for Q1 totaled $2,500,000 GAAP diluted earnings per share was $06 based on a fully diluted share count of 45,495,000 shares. Turning to our cash flow and balance sheet, cash and cash equivalents totaled 296,100,000.0 at Q1. Accounts receivable net of reserves totaled 65,900,000.0 at quarter end, with DSOs for trade receivables at forty three days. Inventories net of reserves decreased 7.1 sequentially to 98,500,000.0.

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

Annualized inventory turns were 1.7. Operating cash flow totaled 20,100,000 for the quarter. Capital expenditures for Q1 totaled 4,600,000.0. We ended the quarter with a construction and progress balance primarily for manufacturing equipment of approximately 9,900,000.0 and with approximately 12,300,000.0 remaining to be spent. I'll now address bookings and backlog.

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

Q1 book to bill came in above one, and one year backlog increased 10.4% from the prior quarter, closing at $171,700,000 As we said on last quarter earnings call, 2025 is a year of uncertainty and opportunity. As of today, the quarterly and annual 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 Phil, 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 possible in the limited time available.

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

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

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

Phil?

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

Thank you, Jim. Our first quarter book to bill ratio increased well above one, 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.

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

Second 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 160 kilowatts, 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. VICCO's fixed ratio bus converter modules with industry leading power density and liquid cooled thermal management flexibility are a perfect solution for these requirements.

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

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 one 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 $5,000,000,000 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% tariff surcharge line item will be added to invoices for shipments after July.

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

Due to higher reciprocal tariffs levied by the Chinese government, we have also seen cancellation requests from China based customers. But these potential cancellations are not at levels high enough to impact our overall business. New product introductions will continue to ramp as we move through 2025. In Q1, we announced availability for general sale of a new high density 48 volt DC to DC converter family. We have also initiated sampling of a new family of three phase AC to DC power modules to lead customers in the aerospace market.

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

This will be a new market for Vicor, offering excellent growth opportunities. Our engagement with our top 100 customers continues to strengthen as 48 volt power delivery moves to the mainstream, along with 800 volt DC based front end power systems. Our strategy of developing complete front end to point of load solutions that are centered on a 48 volt hub, offering high power density, ease of use, scalability, and flexibility across product platforms is proving to be right, as evidenced by strong engagements across our top 100 customers in our four target business segments. As stated in our Q4 call, we see 2025 as a year of opportunities and have high confidence in our business. Thank you.

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

With that, we'll now take your questions.

[Operator]

Thank you. We also ask that you please wait for your name and company to be announced before proceeding with your question. One moment while we come to the first question. The first question will come from the line of Quinn Bolton of Needham and Company. Your line is open.

[Quinn Bolton, Senior Analyst at Needham & Company]

Hey guys, I wanted to ask about something in the press release. In the press release, you mentioned revenue 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?

[Patrizio Vinciarelli, Chairman, CEO & President at Vicor]

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

[Quinn Bolton, Senior Analyst at Needham & Company]

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

[Patrizio Vinciarelli, Chairman, CEO & President at Vicor]

Well, obviously, that's 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 the driving levels to both the top line and particularly the bottom line.

[Quinn Bolton, Senior Analyst at Needham & Company]

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 if non licensee hyperscalers import, you know, modules from Delta, would that be subject to the injunction?

[Patrizio Vinciarelli, Chairman, CEO & President at Vicor]

Yes.

[Quinn Bolton, Senior Analyst at Needham & Company]

Got it. Okay. I will get back in

[Quinn Bolton, Senior Analyst at Needham & Company]

the queue with a couple more. Thank you.

[Operator]

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

[Jonathan Tanwanteng, Managing Director at CJS Securities]

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. What do you 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?

[Patrizio Vinciarelli, Chairman, CEO & President at Vicor]

So we've assessed

[Patrizio Vinciarelli, Chairman, CEO & President at Vicor]

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 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. A quantity that, as Phil pointed out, is not as of now assessed to be significant in terms of moving the needle out there in revenue.

[Jonathan Tanwanteng, Managing Director at CJS Securities]

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?

[Patrizio Vinciarelli, Chairman, CEO & President at Vicor]

So based on the testing that's been done today on recently received ASIC, which is instrumental to the point of load current multiplier, we feel very good with respect to being able to bring the development to fruition. As mentioned in the press release and in field'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 potential customer base at large, you know, as soon as we completed the effort for the lead customer. Thank you. I'll jump back in queue.

[Operator]

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

[Analyst]

Thank you. Patrizia, I have a follow-up to John'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 time frame or schedule what it's going to take to actually productize the Gen five point of load that you've given to that customer, so it's available, generally available, and you can manufacture that in quantities?

[Patrizio Vinciarelli, Chairman, CEO & President at Vicor]

So typically, we are on a ramp with respect to lead customer on an older generation platform. As I mentioned this, I think, in the most recently quarterly call. And we are closing in on being able to ship units that meet the specifications as they've evolved up 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 pipeline solution.

[Analyst]

Okay. And that would be a product ties and would that be completely product ties? I mean, I mean by that is, 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 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?

[Patrizio Vinciarelli, Chairman, CEO & President at Vicor]

Well, in order to be very confident, we need to complete the development effort. 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 ESIC, which we recently received. And we now expect this next major step to begin deliver CAR multipliers using that ESIC 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 customer.

[Analyst]

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

[Patrizio Vinciarelli, Chairman, CEO & President at Vicor]

No, you're not missing anything. And 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 does in prior initiatives of a similar kind as we progress through the summer months.

[Analyst]

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

[Patrizio Vinciarelli, Chairman, CEO & President at Vicor]

Thank you.

[Operator]

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.

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

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, there some actions being contemplated here to alter the trajectory of what this customer is doing?

[Patrizio Vinciarelli, Chairman, CEO & President at Vicor]

Yes. Yes. Yes.

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

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

[Patrizio Vinciarelli, Chairman, CEO & President at Vicor]

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.

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

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

[Patrizio Vinciarelli, Chairman, CEO & President at Vicor]

Thank you.

[Operator]

Thank you. And our next question will come from the line of Alan Hicks of Anxley Capital Markets, excuse me, Management. Your line is open.

[Alan Hicks, Founder & Managing Member at Ainsley Capital Management]

Hey, good afternoon. Yeah, I wanted to clarify on the royalties and advanced products. It sounded like royalties fell about 5,000,000 or about a third, while advanced products still grew. So 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 that will continue to grow in royalties?

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

We did sign up a licensing 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 product side.

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

So that was a positive outcome.

[Alan Hicks, Founder & Managing Member at Ainsley Capital Management]

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

[Patrizio Vinciarelli, Chairman, CEO & President at Vicor]

I wouldn't make that assumption.

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

Wouldn't be the right assumption.

[Alan Hicks, Founder & Managing Member at Ainsley Capital Management]

Okay,

[Alan Hicks, Founder & Managing Member at Ainsley Capital Management]

so what's driving actual in house produced growth?

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

An existing customer ramping further on production and as well as new opportunities that we

[Patrizio Vinciarelli, Chairman, CEO & President at Vicor]

Yeah, and as mentioned in the press release, and as earlier asked, we did have an existing licensee transition to a new product platform where this new product is unlicensed. Okay.

[Alan Hicks, Founder & Managing Member at Ainsley Capital Management]

Is that a new version of the NBM products?

[Patrizio Vinciarelli, Chairman, CEO & President at Vicor]

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

[Alan Hicks, Founder & Managing Member at Ainsley Capital Management]

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

[Patrizio Vinciarelli, Chairman, CEO & President at Vicor]

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 small multiplicity of licensees, and with that, there can be surprises, as it happened quarter. They can be negative surprises. They can positive surprises. And once the obesity of OEMs and hyperscalers, the Tegna license increases, then I would expect the licensing business is going to become more predictable in terms of its quarter to quarter evolution.

[Patrizio Vinciarelli, Chairman, CEO & President at Vicor]

And the same can be said on the product revenue side. Obviously, we have invested a great deal in our five gs technology. We believe it's unique without equals, so without close competition. Obviously, it's taking longer than expected, but it is a reflection of the magnitude of the challenge that we've gone. And I believe it will pay great dividends, as you pointed out.

[Patrizio Vinciarelli, Chairman, CEO & President at Vicor]

So we have strong revenue growth opportunities in years to come being enabled by that capability.

[Alan Hicks, Founder & Managing Member at Ainsley Capital Management]

Okay. And can you give any update on the ITC case? It was a Texas case on damages, I think? Can you say anything about that?

[Patrizio Vinciarelli, Chairman, CEO & President at Vicor]

So, the ITC case came to an end with the ITC issuing its final determination. It came to a further end once the sixty days presidential review period came to an end. As you may know, through the presidential review period, respondents, their customers and continue to import infringing product by posting a bond following the end of the presidential review period. There's an exclusion order outstanding, and they can longer import infringing product. So that's where things stand with respect to the IDC case.

[Patrizio Vinciarelli, Chairman, CEO & President at Vicor]

There are certain aspects of the filed determination that are objectionable, and with respect to which RIGRs filed an appeal at the federal segment. And so that's the next step on that general front.

[Alan Hicks, Founder & Managing Member at Ainsley Capital Management]

Okay, and lastly, BBU products fell about 4,000,000, but is that going to continue about that level or what do you see in the BBU area?

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

I would say, yeah, I mean, I think that we wouldn't expect, it bounces around a bit. I think it's fairly stable. Guess, as Phil mentioned, a 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 appreciable significant impact.

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

I would say that steady as she goes with the brick business over the course of the year.

[Alan Hicks, Founder & Managing Member at Ainsley Capital Management]

Okay, thank you very much.

[Operator]

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

[Jonathan Tanwanteng, Managing Director at CJS Securities]

Hi. Could you clarify what your pricing expected 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 BRICS as well? Just which portion of your portfolio has that increased?

[Jonathan Tanwanteng, Managing Director at CJS Securities]

Thank you.

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

Hi, John, it's Phil. So it's across the board. It's a 10% tariff surcharge, as Patricio mentioned, that will go into effect after the July. It was 10% across the board. We've analyzed, as Patricio mentioned, the different products, the different variations in it, up or down on the tariff impact.

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

So 10% was a good base number to begin with.

[Jonathan Tanwanteng, Managing Director at CJS Securities]

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?

[Patrizio Vinciarelli, Chairman, CEO & President at Vicor]

We expect to be able to maintain the margin. So to be clear, you know, we've analyzed products, including some high volume products, where the impact of the types of charge as of a few weeks ago was as high as 31%, thirty two %, but then there are other products where the impact is less. And for simplicity, it didn't make sense to have a unique surcharge based on the particular customer application. So it's an across the board average, if you will, which accounts for bump costs, other costs and maintenance of margin.

[Jonathan Tanwanteng, Managing Director at CJS Securities]

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

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

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

[Jonathan Tanwanteng, Managing Director at CJS Securities]

Okay, great. Thank you.

[Operator]

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.

[Quinn Bolton, Senior Analyst at Needham & Company]

Hey, guys. I wanted to follow-up. I think you said in the prepared script that you'd seen a recovery in the MBM 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?

[Quinn Bolton, Senior Analyst at Needham & Company]

Just any kind of shape to that NBM business on a go forward basis? And then I've got a follow-up.

[Patrizio Vinciarelli, Chairman, CEO & President at Vicor]

So, we expect the NBN business to grow. And, you know, 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 hyperscalers with respect to the exclusion order is brought about the arrival of demand for our NBM.

[Quinn Bolton, Senior Analyst at Needham & Company]

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.

[Quinn Bolton, Senior Analyst at Needham & Company]

And so to the extent licensing or royalty income grows, say in '25, 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?

[Patrizio Vinciarelli, Chairman, CEO & President at Vicor]

There's a lot of moving pieces there. 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 licensing 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. You know, 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 licensing income is going to licensing revenue is going to be a growth business for Vigil.

[Quinn Bolton, Senior Analyst at Needham & Company]

Understood. Okay. Thank you, Patricio.

[Patrizio Vinciarelli, Chairman, CEO & President at Vicor]

Thank you.

[Operator]

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

[Analyst]

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

[Patrizio Vinciarelli, Chairman, CEO & President at Vicor]

Yes.

[Analyst]

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 outsourced supplier?

[Patrizio Vinciarelli, Chairman, CEO & President at Vicor]

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 five platforms. We made the right decisions.

[Patrizio Vinciarelli, Chairman, CEO & President at Vicor]

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 product margins beyond the contribution from licensing income.

[Analyst]

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

[Patrizio Vinciarelli, Chairman, CEO & President at Vicor]

That's right.

[Operator]

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

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

Hi, guys. Thanks for let me ask a follow-up here.

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

I want to ask

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

about product growth the rest of the year. And I've heard a couple of pieces responses here. I think you're talking about NBMs growing nicely here. It sounds like RIC will be flat. Obviously, it sounds like Advanced include NBMs will be up to some degree.

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

Obviously, you're not

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

going to quantify. But also love it

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

if maybe you could divine out what this is gonna look like between end markets. Obviously you talked mostly about HPC versus everything else here. How do we see those two end markets, relatively speaking, growing the rest of the year?

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

Hi, Richard, it's Will. So again, so HPC is a growth business for us, not just MBMs. 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 five. 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.

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

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 entrants 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 Magnica 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. That's also giving us a general lift.

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

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.

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

Okay, thanks for that detail, Phil. Maybe a quick question for Jim on gross margins. If I heard the prepared remarks, it sounds like there of the gross margin decline, about half of it was from some investments for the S and P system and other things, the rest of it was from royalties here. So I guess my question is on 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.

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

But I'm assuming the gross margins in the second quarter, all things being equal, would be kind of roughly half of it in the fourth quarter and the first. Is that a good starting point to think about?

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

Sorry, Richard, did you say half of

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

Yes, halfway between first quarter and fourth.

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

Well, I mean, we're to have to be reluctant about offering guidance of any kind. It's just that's the position we've taken. Will say that I described the SAP installation as what caused the sequential kind of changes because we've required PTO in fourth quarter and drew down the 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.

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

So we are done with the SAP project. So without giving you a specific on the guidance, I think we feel like we're well positioned. I mean, feel very good about the factory. I feel good about the infrastructure in Vicor, 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.

[Patrizio Vinciarelli, Chairman, CEO & President at Vicor]

And 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 bond cost is going to start suffering because of tariffs, we'll become setting for that through tariff surcharge.

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

Great, thank you guys.

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

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 that the future's changing, but we've gone from 10 to eight to four to less than a million a quarter. So that's a good track record, but

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

That's

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

rearview the environment's changing rapidly, but so far, I mean, our track record has been shrunk.

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

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

[Operator]

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

[James Liberman, Analyst at American Trust Investment Services]

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. What what in terms of the timeline or process that that might take where the International Trade Commission could realize that they're, in fact, defrauding and that the the bills, the indications that they have rights to your technology is not correct?

[Patrizio Vinciarelli, Chairman, CEO & President at Vicor]

I'm not going to be very specific with respect to the Spokafoxolone license and the appeal to the Federal Circuit that relates to that beyond saying what we said in the past, which is that IDC 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 tried to confuse the issues. But what I can tell you is that the administrative law judge at the ITC and the district court judge federal district court in Boston, got it right, which is Foxconn has no license. The commission took a different position, which 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, quote unquote, by virtue of Foxconn issuing purchase orders with bottle plate, fine print, contradicted by our sales order and other relevant evidence, including the conduct of the parties over many, many years.

[Patrizio Vinciarelli, Chairman, CEO & President at Vicor]

We think that matter in the long term for many reasons, again, knowledge of which is only one patent that was found licensed. Vigor has a very big patent 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 the district law judge in Boston found.

[James Liberman, Analyst at American Trust Investment Services]

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

[Patrizio Vinciarelli, Chairman, CEO & President at Vicor]

Thank you.

[Operator]

Thank you. We'll move to the next question. Next question is coming from the line of Jeff Cohen of Wall Street Research. Your line is open.

[Analyst]

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?

[Analyst]

Or can you give me a little color on the situation?

[Patrizio Vinciarelli, Chairman, CEO & President at Vicor]

I really can't. It'd be beyond 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 infringe relevant to VigorAP.

[Analyst]

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

[Patrizio Vinciarelli, Chairman, CEO & President at Vicor]

Well, I think you should expect over the foreseeable future our illegal operating expenses

[Patrizio Vinciarelli, Chairman, CEO & President at Vicor]

to

[Patrizio Vinciarelli, Chairman, CEO & President at Vicor]

vary from time to time because of the need to continue to protect a very valuable intellectual property. Libraries got very comprehensive, licensable portfolio, and, you know, OEMs and hyperscalers have done the right thing and taken a license. Others have been taking their chances. We need to make sure that our IP is consistently applied and consistently protected, and from time to time that will require substantial investment. A press release case, spike or think somewhere around $1,215,000,000 dollars in that general ballpark.

[Patrizio Vinciarelli, Chairman, CEO & President at Vicor]

I think the return on investment on that is going to be stellar, and it warrants additional investments of that kind if infringement in the industry persists.

[Analyst]

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

[Patrizio Vinciarelli, Chairman, CEO & President at Vicor]

Well, in this kind of dispute, I don't think one should think in terms of NACIA, but let's put it this way. We believe we are well within our rights to protect IP asserted as appropriate. Thus far, I think 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 already expense line item when it comes to legal expenses may, from time to time, take significant steps.

[Patrizio Vinciarelli, Chairman, CEO & President at Vicor]

And that's part of our business model going forward.

[Analyst]

Okay. All right, well, thank you.

[Patrizio Vinciarelli, Chairman, CEO & President at Vicor]

Thank you.

[Operator]

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

[Analyst]

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 timeframe for orders and will it move the needle on revenues at all?

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

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. I'm looking at that type of technology.

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

And that is right in our wheelhouse. We've been supplying 800 volt to 48 volt products to automotive OEMs and tier ones 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. Patricio 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.

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

I'm really excited by that opportunity, John.

[Analyst]

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

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

I think you're looking at probably at, you know, early eight, '4 hundred volt systems coming to market early, '27. And then I think 800 volt later in '27. That's what we're hearing. Yeah. Gotcha.

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

I mean

[Patrizio Vinciarelli, Chairman, CEO & President at Vicor]

This is basic with what is going on in in the automotive. Yeah.

[Analyst]

Yeah.

[Patrizio Vinciarelli, Chairman, CEO & President at Vicor]

Design ins for active suspensions involving 800 volt, 48 volt high density lightweight bus converters that once again getting to the IP side of things fall within many claims of several enabling Vigor patents with respect to these kinds of high voltage bus converters, ranging from the system, of the semiconductor components, and the technology. There are many aspects to the IP portfolio that is relevant on this kind of high voltage, high input voltage bus component.

[Analyst]

Yeah, 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

[Patrizio Vinciarelli, Chairman, CEO & President at Vicor]

you.

[Operator]

Thank

[Operator]

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

[Patrizio Vinciarelli, Chairman, CEO & President at Vicor]

Thank you.

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

Thank you.

Participants

Executives

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

Analysts

• Quinn Bolton, Senior Analyst at Needham & Company
• Jonathan Tanwanteng, Managing Director at CJS Securities
• Analyst
• Richard Shannon, Senior Research Analyst at Craig-Hallum Capital Group LLC
• Alan Hicks, Founder & Managing Member at Ainsley Capital Management
• James Liberman, Analyst at American Trust Investment Services