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spk05: Good day, everyone, and welcome to the WICOR earnings results for the first quarter conference call. My name is Wanda, and I will be your event manager today. During the presentation, your earnings will remain on this one only. If you require assistance at any time, please press star zero on your telephone, and the coordinator will be happy to assist you. I would like to advise all parties that this conference is being recorded, and with that, I would like to hand over to Dick Nagel. Please proceed.
spk00: Thank you.
spk11: Good afternoon and welcome to Vicor Corporation's earnings call for the first quarter ended March 31st, 2021. I'm Dick Nagel, Chief Accounting Officer, and in Andover, our Patricio Vincerelli, Chief Executive Officer, Phil Davies, Vice President of Global Sales and Marketing, and Kemble Morrison, Vice President and Corporate Controller. After the markets closed today, we issued a press release summarizing our financial results for the three months ending March 31st. This press release has been posted on the investor relations page of our website, www.vicorpower.com. We also filed a form 8K today related to the issuance of this press release. Our mind 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. 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 2020 Form 10-K, which we filed with the SEC on March 1st, 2021. 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, April 22nd, 2021. VICOR undertakes no obligation to update any statements, including forward-looking statements made during this call. And you should not rely on such statements after the conclusion of this call. A replay of today's call will be available beginning at midnight tonight through May 7th, 2021. The replay dial-in number is 888-286-8010, followed by the passcode 66693367. This dial-in and passcode are also set forth in today's press release. In addition, a webcast replay of today's call, along with a transcript, will be available shortly on the Investor Relations page of our website. As noted in our press release dated April 6, 2021, we announced the appointment of Jim Schmidt as Chief Financial Officer, effective June 1, 2021, succeeding Jamie Sims. Jim will also join the VICOR Board of Directors and serve as the corporate company's treasurer and secretary. We're looking forward to having Jim join the company. I'll now turn to a review of our Q1 financial performance after which Phil will review recent market developments, and Patricio and Phil will take your questions. In my remarks, I will focus mostly on the sequential quarterly change for P&L and balance sheet items and refer you to our press release or our upcoming Form 10-Q for year-over-year comparisons. As stated in today's press release, VICOR recorded total revenue for the first quarter of $88.8 million, up 5.3% from the fourth quarter total of $84.3 million. Quarterly, advanced products revenue rose 2.2% sequentially. This growth was constrained by limited component availability due to global semiconductor supply allocation issues experienced during the quarter. Brick products revenue rose 7.6% sequentially Reflecting a resumption of shipments to our European customers after the pandemic-related trough of 2020, while Asian customers grew 18% from Q4 2020. These increases offset a modest sequential decline in shipments to North America. Shipments to stocking distributors rose 79% sequentially, primarily due to an increase in brick products shipments. Turns volume also increased sequentially. Exports for the first quarter increased sequentially as a percentage of total revenue, approximately 69% of consolidated revenue from the prior quarter's 64%, reflecting the factors just mentioned regarding Europe and Asian shipments. For Q1, advanced products share of total revenue declined slightly to 39%. compared to 40% for the fourth quarter, with brick product share correspondingly increasing to 61% of total revenue. We believe advanced product sales, though, will expand significantly as a percentage of total revenues, especially once new manufacturing capacity comes online, given the high-growth segments we have penetrated with our 48-volt technology, including AI, data center, and automotive. in contrast to the maturity of the segments we serve with GRIP products. Turning to Q1 gross margin, we recorded a consolidated gross profit margin of 50.3%. Higher volumes and improved mix contributed to higher profitability, as did a reduction in cost variances and tariff charges. Gross margin dollars rose 11% sequentially. While margins remain under the pressure of high tariff charges, the Q1 charge declined approximately 33% from Q4's charge of approximately $1.5 million. We expect to see further improvement through 2021, in part reflecting our ongoing efforts to reduce component imports from China. I'll now turn to Q1 operating expenses. Total OpEx rose just under 4% sequentially but consistent with longer-term trend reflecting periodic swings in discretionary spending. The amounts of total equity-based compensation expense for Q1 included in cost of goods, SG&A, and R&D were approximately $228,000, $853,000, and $490,000, respectively, totaling $1.6 million. For Q1, we reported operating income of $14.7 million, representing an operating margin of 16.6 percent. The sequential 27 percent increase in operating income reflects the operational leverage in our model. Referring to taxes, we recorded a net benefit for Q1 of $143,000, representing an effective tax rate for the quarter of minus 1 percent. Net income attributable to VICOR for Q1 totaled $15.1 million. GAAP diluted earnings per share was 34 cents based on a fully diluted share count of $44,841,000. Before I turn to our financial position, just a brief update about COVID-19 and our workforce. As previously discussed, the designated essential manufacturer using masks and practicing social distancing from the onset of the pandemic, we have continuously operated three shifts at our Andover manufacturing facility. While we have seen a small increase in cases again recently, cases are below the levels experienced in the December through January timeframe, and absenteeism has declined. Nevertheless, because much of the potential influence of the COVID-19 pandemic is associated with risks outside of our control, we cannot estimate the extent of such influence on our financial or operational performance or when such influence might occur. Turning to our cash flow and balance sheet, cash, cash equivalents, and short-term investments totaled $223 million at Q1, a sequential increase of 5%. Accounts receivable net of reserves totaled $47.7 million at quarter end, an increase of 16.3% over Q4, with DSOs for trade receivable steady at 38 days. All balances are current. Inventories net of reserves declined 5.3% sequentially to $54.3 million. Annualized turns improved to 3.1 more. Reflecting the positive operating results, operating cash flow totaled $17.6 million for the quarter. Capital expenditures for Q1 totaled $9.3 million. We ended the quarter with a construction and progress balance of $19 million, leaving approximately $38 million of our capital budget scheduled to be spent through the year. Our factory expansion project is proceeding on schedule and on budget. I'll now address bookings and backlogs. Q1 bookings totaled $99 million, an 8.1% sequential increase. The overall book-to-bill was approximately 1.1, with advanced products at 1.4 and brick products at 1.0. Q1 bookings largely reflected the same circumstances we saw with shipments, growth in Europe and Asia with a modest decline in North America. At year end, one-year backlog totaled $157.1 million, an increase of 6.5 percent sequentially. Turning to our outlook for the second quarter of 2021, we expect revenue growth. We continue to address the sources of gross margin pressure and are forecasting improvement in product-level profitability. Further, we do not anticipate any meaningful increase in operating expenses. While substantial further improvements in gross margins will have to await production from our new vertically integrated factory, we expect incremental revenue to drive earnings per share given the scalability of our operating model. With that, Phil will provide an overview of recent market developments, and then Patricio and Phil will take your questions. I ask that you limit yourself to one question and a related follow-up so that we can respond to as many of you as we can in the limited time available. If you have more than one topic to address, please get back in the queue. Bill?
spk08: Thank you, Dick. Well, we're off to a great start in 2021 with bookings increasing across a range of markets and regions globally. Our legacy product bookings were strong, as was our data center, supercomputer, and AI customer demand. To reflect the supply chain challenges that the industry is facing, we have recently increased lead times to 32 weeks for advanced products and 26 weeks for legacy products. Manufacturing capacity for Q2 and Q3 is essentially filled, and new orders subject to standard lead times are being booked into Q4 and beyond. We continue to engage with existing and new data center, HPC, and AI customers for our 48-volt point-of-load power delivery solutions, driven by rapidly escalating demand for higher currents that will enable next generation GPU and ASIC performance enhancements. We are also taking to the next stage our OEM licensing initiative to enable OEMs to develop alternate sources without risk of OEM systems using infringing power modules being excluded from importation into the United States. Our robust automotive pipeline continues to grow with new 48-volt and 400-800-volt modular power solutions for OEMs. The automotive market is not only undergoing a major shift with electrification of vehicles, but as OEMs look for innovative and cost-effective solutions for higher-power electrified systems, They are also looking towards new suppliers who can deliver solutions and value without the traditional Tier 1 margin stack. These market shifts are opening up more opportunities for VICA to work with new partners on our automotive business development. So a very quick update on the satellite market opportunity. In Q1, we started delivery of evaluation boards from our initial family of radiation-tolerant power modules to customers in Europe and North America who have been eagerly awaiting their delivery. We'll have more to say on this initiative in future quarters as we begin to build this business out. Overall, I'm pleased with the progress we made in QI on a number of important initiatives with a level of exciting new customer engagements and new opportunities that we are creating. The power systems market is rapidly changing. and our holistic, high-density, modular power component strategy has us in the right place at the right time. We plan to maximize the substantial opportunities that are ahead of us while also asserting and monetizing the intellectual property that effectively protects our pioneering innovations. Thank you. Operator, we will now take questions.
spk05: All right. So everyone, your question and answer session will now begin. If you wish to ask a question, please press star 1 on your telephone. If you then decide to withdraw your question, simply press star 2. Thank you. We have some upcoming questions. The first one is coming from Hamid Koshan. Please go ahead.
spk06: Hi. So first off, could you just talk about the timing that you experienced in North American shipments and advanced products? and the feedback you're getting from those customers as far as the decline that you experienced in Q1.
spk07: Yes, we have commented in the prepared remarks. We've been constrained with respect to advanced products by the capacity within our existing factory and with external partners for those process steps that are not vertically integrated yet. There have also been some component availability limitations due to the state of the semiconductor industry. Our customers understand the capacity constraints. We're working with them very closely. They appreciate the efforts to address their needs. We are catching up with their requirements We expect in Q2 to have a significant step up in advanced product deliveries, and that trend will continue into Q3 and Q4 at an accelerating pace. And as we progress towards the end of this year, we're going to begin to deploy the expanded capacity and reduce cycle time that are enabled by our expanded manufacturing facility with all of the packaging process steps vertically integrated.
spk06: Okay, and then are you still testing out your advanced products with these customers, or is this purely at the deployment level?
spk07: Well, it depends on which advanced product we're talking about. Some of these advanced products, are being made and shipped literally by the millions. Other advanced products at the other end of the spectrum are still being sampled in initial prototype or pilot quantities. So there is a wide range of you know, depending on when the engagement began with a particular customer, what particular type of advanced product we're talking about. You know, so with our very unique packaging technology, we have a very broad range of capabilities that apply somewhat differently, but also in a related way across the metal markets that are very unique our component methodology addresses. So there's a whole range of volumes involved, depending on the customer, the application, and when that particular product happened to have been introduced. OK.
spk06: Thank you.
spk07: You're welcome.
spk05: The next question is coming from . Please go ahead.
spk12: Hi, Patricia and Phil. Congratulations on the nice results and outlook. Patricia, I just wanted to follow up on that last question. Obviously, you're highlighting some manufacturing capacity constraints as well as component availability constraints. And I'm just trying to reconcile the comment that you had in the press release about revenue growth would be limited to 7% sequentially. Are you looking at, is that a comment on overall revenue, you know, will be up 7%, you know, quarterly for Q2, Q3, Q4? Is that the way we should interpret the comment in the press release? And then within that growth, are you mostly constrained on advanced products or are you also constrained on brick products?
spk07: So the primary constraints are on advanced products, and given near-term capacity, we see the revenue growth overall based on the ability to scale up the quantities of advanced products being limited to about 7% for this quarter and the quarter after that and the fourth quarter of this year. Again, once we get past... this timeframe and we begin to deploy the additional capacity and the short cycle time of the expanded factory with vertically integrated processes, those constraints will go away. Needless to say, the rate of bookings, demand book to bill, would have us absent the capacity step up revenues at a faster rate quarter to quarter, but in the short term, the capacity constraints are the limiting factor, and that's what's projected in the statements of the press release.
spk12: I guess my follow-up on that is, will most of the growth come from advanced products over the next three quarters, such that, you know, Advanced products will grow faster than 7% sequentially, but overall revenue is constrained to 7%. So brick products, perhaps more flattish with higher growth than advanced products with the net result is overall top line growing about 7% Q2, Q3, Q4.
spk07: Yeah, your interpretation is correct. As you know, advanced products are, you know, too... time, tens of years, they're decades old, right, and is suggesting the prepared remarks. They are not, they're serving mature applications in relatively mature markets and there's no growth with the classic products. They are essentially a stable component of our revenues in dollars. So all of the unit growth and revenue growth is being generated by the advanced products, which before too long are going to make the classic bricks and the standard products for particular purposes fade into the sunset, right? So the combined revenue growth is essentially driven by advanced products, which will step up at a rate considerably faster than 7% this quarter, next quarter, and the one after that.
spk12: Thank you, Patricio. I'll get back in the queue.
spk08: Operator, do we have another question?
spk04: OK. As I can see, there is a question in the queue. And able to speak is Ellen Hicks. So your line is open. Please go ahead.
spk03: Yeah, good afternoon. I had a question about the BRIC revenues. It sounded like they were up 7.6%, which puts them around $54.5 million, I think, which would be about a 10-year high. And I think the book to build last quarter was 0.9%. So what explains such strong strength in BBU? It also implies advanced products were only up, around 3% or so. So what's the strength in the brick products and what's the length of the year? Would we expect that to stay at that level?
spk07: So again, the fact that from Q4 of last year to Q1 of this year, brick revenues rose should not be interpreted to suggest that there is substantial growth in big products. The big component of our revenues, but for quarterly fluctuations, may have to do with a variety of factors like capacity or particular demand. component in dollars and units is essentially constant. It's not really going anywhere, as suggested earlier. So in Q1, because of the constraints with certain semiconductor components and general capacity constraints, the advanced products could not grow as fast as the demand would have allowed. which is something that is suggested earlier, we are focused on effectively addressing in Q2, Q3, and Q4. So you should expect that in this quarter and following quarters this year, the revenue growth will come entirely out of advanced products.
spk03: Okay. So will BRIC products remain at this level the rest of the year, around $54.5 million?
spk07: Well, you know, I wouldn't try to pin it down to three significant digits, right? So they're going to stay at essentially the same level.
spk03: Okay. So that's pretty positive for the brick customers that they're ordering. Like I said, it was about a 10-year high, I think, for brick revenues.
spk07: Yeah, but again, I wouldn't read into that any – sustained growth in brick products. The action is all to do with the advanced products. The big products have been remarkably long-lasting and they continue to be that way. They're not going anywhere, but they're not going up.
spk03: Okay. But you don't expect them to fall off?
spk07: We don't expect them to either fall off or go up. Again, Vagor going forward is going to be almost entirely about advanced products. The BRICS will fade away in terms of their relevance to our financial performance.
spk03: But over time, do you expect them to stay relatively, say, in the $15 million range or...?
spk07: Yeah, we expect it to be essentially constant in dollars, but a tiny percentage of our total revenues.
spk03: Yeah, but I think it's pretty positive that those products are continuing to sell well. Okay, thank you, and I'll get back to you. Thank you.
spk05: This is one of the operators speaking. I'm sorry for the technical issue. It seems to be okay now. And the next question is coming from the line of John Dillon. Please go ahead.
spk09: Hi, guys. Really, congratulations on some great numbers. Really good. Thank you. Yeah, you're welcome. Phil, in your prepared remarks, you talked about OEM licensing for alternative sources. Can you expand on that a little bit? I didn't quite catch the gist of what you were saying in that.
spk08: Yeah, I'll let Patricio take that one.
spk07: Yeah, so we have a strategy with respect to addressing OEM requirements for multiplicity of sources that obviously respects intellectual property but accommodates the needs of OEMs for more scalable capacity and alternate sources and that's been the subject of conversations and discussions and negotiations with a growing number of OEMs. You know, we are seeing a good deal of pressure in the marketplace given escalating demands for current high power density in a variety of applications and markets. And that's a market pressure that, in our mind, it needs to be addressed with an intelligent strategy that satisfies market needs while providing us with an opportunity to get a return on investment, both based on revenue growth with exciting quantities of advanced products and with licensing income to be derived from royalties that OEMs will pay for the privilege of being able to access alternative sources for certain of these products.
spk09: Can we, I mean does this mean that you're close to a licensing deal with someone?
spk07: I'm not going to speculate with respect to the timing of any deal. We are having discussions. We are looking to establish certain standards with respect to OEM license agreements that we're going to be able to apply consistently and fairly at each stage of an engagement. And there can be a progression with respect to the stage And generally speaking, our methodology rewards early adopters and conversely puts late adopters at a relative handicap with respect to their royalty rates. So this is a strategy that is very well implemented structured and which we're going to take the time necessary to fully implement.
spk09: That sounds good. Do you have like a target of hopefully closing a deal within this calendar year then or is there some kind of internal target for that?
spk07: We don't feel pressured. We believe that with the passage of time the value of these licenses in terms of royalty rates is going up. It's not going down. Fundamentally, when it comes to applications like AI, we don't believe there is any way, there is no alternate technology that can address the solutions with the level of performance the competitive pressures in that market require. So we don't see the value of technology going down. We see it going up, and we're prepared to take the time necessary to make the most out of it.
spk09: Great. I'll get back in the queue. Congrats, guys.
spk07: Thank you. Thank you.
spk05: The next question is coming from John Gruber. Please go ahead.
spk01: Yes, the new addition to the Andover facility, when does revenue kick in, and how much will that be, and how soon will you have all the machines moved in there? What's the status of that addition to Andover?
spk07: So the building is up. It's not quite fully enclosed, but it's about to be. Some of the initial equipment is moving in next month, and there's going to be a progression through the balance of the year. We're going to begin to get some initial capacity as we get towards the latter part of the year. The entire Deployment will not come together until the beginning of next year. In terms of the total capacity of the building, we believe that we can ship upwards of $750 million in yearly product revenues out of the expanded facility with its vertically integrated capabilities. And that will take care of us for a while. We're beginning to look at the next increment of capacity. Referring back to the early discussions regarding OEMs and licensing deals, we're also entertaining the possibility of some joint venture to expand capacity working in concert with certain OEMs.
spk01: So the 7% you're seeing addition, not addition, the 7% increase in revenue in Q2, Q3, Q4 does not include this extra $250 million. That's more in 2022, is that correct?
spk07: So yeah, the 7% this quarter, next quarter, the quarter after that, that's coming out of getting more capacity before we get to take advantage of the equipment that is being installed into the new facility. So as I mentioned earlier, some of the equipment is going in in May. and more equipment will go in as the months progress in the second half of the year. But obviously this equipment, in addition to being installed, needs to be qualified. We need to do some pilot runs. So we're not going to be, in effect, turning on the additional capacity in earnest until the very end of the year, beginning of next year. So the increasing capacity that are being brought about this quarter, next quarter, and for the most part, the quarter after that, those are, you should think of them as being brought about based on improvements in capacity recession from equipment that is accessible to us today. Thank you.
spk05: The next question is coming from Richard Shannon. Please proceed.
spk13: Well, good afternoon, guys. Thanks for taking my questions as well. Maybe a quick question following up on the topic of constraints here. You've talked about it on the capacity side. I think you've also had some constraints in inputs here. I think you've described them as semiconductors. Are these commodity or custom products, and do they affect both advanced and bricks or just advanced products?
spk07: They affect primarily advanced products. And, you know, they're semiconductor components in effect of our own making, but working with SAP partners and other, you know, back-end partners. You know, part of our plan going forward is to become also more vertically integrated with respect to, in particular, the back-end. But that's not going to happen, a federal fee is going to happen in a campus that will provide the next increment of capacity, and that's still some time away. But needless to say, the semiconductor industry is becoming more challenged, as you know, in terms of demand for capacity. and we're mindful of that and we're looking to become more vertically integrated with respect to those dependencies.
spk13: Okay, so your vertical integration is going to ease or eliminate these constraints on commodity parts then? Is that what you're saying?
spk07: Excuse me, on the... Not in the near term, but we do have a plan with respect to vertically integrating the back-end processes, which are very much our bottleneck right now. So that's the primary constraint. It's been the primary constraint over the last several months.
spk13: Okay. And so is the timeframe by which that is relieved, is that coincidence and highly correlated with your capacity additions and then getting those online per what you just answered for Mr. Gruber?
spk07: No. What I'm referencing in terms of vertical integrated backhand, these semiconductor packaging processes is That's the next opportunity for vertical integration beyond the packaging processes which were vertically integrating in the expanded Federal Street Facility. So the next area of opportunity, which is in the works as we speak and which will be realized by the end of this year, That has to do with the vehicle packaging technology, the converter housing package technology, which is quite unique, heavily power-productive, and at the heart of the so-called golden products that you've seen in a variety of applications. That's the vertical integration which is currently being implemented and for which we've been relying on an external partner with significant constraints. The back-end processes with respect to the semiconductor components that we use inside our packages, that's a next area of opportunity, and that's still, frankly, at least a year away. Got it.
spk13: Okay, thanks for that detail, Prudicio. Just one follow-on question on your licensing. Is this related to both or just with the automotive segment or do you also see this in data center and super computing and other segments too?
spk07: We see it in both of those end markets.
spk13: Okay, perfect. Thank you much for the detail. That's all for me. Thank you.
spk05: The next question is coming from Guy's Richard. Please go ahead.
spk02: Yes, thank you very much for taking the question. I just wanted to see if I could get a little color. As you bring on your new facility, can you talk about, at least quantitatively or qualitatively, what the margin profile, how that will be affected? Will there be a hit in depreciation at first, and then it'll expand? Any color there would be very helpful.
spk07: Even before we bring on the expanded facility with this vertical integration, our goal, our internal goal is to get to approximately 55% gross margin as a run rate gross margin at the end of this year and beyond that next year. The vertical integration of the expanded facility, they will play a role with respect to getting us beyond that 55%. Now, to your implicit point, as we bring on the new facility, we're going to start depreciating a significant amount of equipment that we're going to be deploying. And that's obviously a factor with respect to the overall margin opportunity. But I think, as we commented in the past, The tall cost of performing all the process steps that are at the heart of our packaging technology through external partners were fundamentally our panels, which are the equivalent of wafers in a semiconductor industry type of fab. Our panels have to travel from a federal seed facility to some place in New Hampshire to another place in Massachusetts They put on hundreds of miles, and they require weeks of cycle time, which are all going to get collapsed into a much shorter cycle time. Within a facility, the panels, that is the equivalent of waivers, are only going to have to travel maybe from one floor to another. So the economies of scale, the efficiency, the reduction in cycle time, the improvement with respect to yields are going to weigh heavily with respect to the margin opportunity. And that's going to start playing out in 2022.
spk02: Got it. That's very helpful. And then just in terms of the strength and gross margin in Q1, you know, there was a couple of factors, I think, higher utilization and mix. Could you talk a little bit about, you know, the factors, the puts and takes on gross margin? And is there a delta between the gross margin of advanced products in brick products, or are they similar, or does it even vary within brick and advanced?
spk07: So to your point, capacity utilization by itself, more revenues, irrespective of which particular mix makes up that revenue, contributes because of the leverage of the model. We have significant costs associated with overhead. And it is to say that overhead cost in dollars is not expanding nearly at the rate of the revenues, and that's a factor with respect to margin improvement. Getting through cycles of learning with respect to, in particular, the advanced products, learning how to refine the process parameters and improve the yields, is another factor. So we're getting better and better at that, getting yields from the 80s into the 90s. And needless to say, those are points of margin that go to the bottom line, go into the gross margin of the products and help lift those margins. With larger quantities, we also can achieve reduced costs for the components even though of late there's been impeded that progress by the current demand for capacity particularly in the semiconductor area where we've had to you know accommodate some you know cost challenges but overall all these factors contribute to you know the near-term
spk12: margin improvement with the revenue growth being a significant driver got it thank you so much thank you we have the next question from queen bolton please go ahead hey guys wanted to ask i think it was on the last call you talked about your engagements with with new and existing customers on their next generation architectures i'm wondering if you could comment whether those next-generation designs are still on track or have some of the component shortages and manufacturing capacity constraints affected the timelines of some of those next-gen products? And then I've got a follow-up on automotive.
spk08: This is Phil. Hi. So, no, we're still very actively engaged on the next-gen GPU, ASIC, and high-performance CPU projects with a number of the hyperscalers and, you know, chip manufacturers globally, actually, not just in North America. So, no, that's been going really well. And, you know, we've got a next-generation product technology that they're really interested in because of the current density that we offer. And the currents are just continuing to go up. And, actually, this quarter, I would say that... We've seen an uptick in the 48-volt interest from some of the companies, the hyperscalers, that have been lagging behind, if you like, in converting data centers to 48 volts. We've got a couple of really great conversations going on right now. They're early, but I'm confident that they will turn into opportunities for VICOR. And it's really nice to see that 48-volt prediction of is finally coming to bear in the marketplace. It's been an exciting quarter.
spk12: Great. Phil, I wanted to follow up. You made some comments on the automotive design pipeline. It seems like you continue to expand your engagement. Should we still be thinking about calendar 23 as when you start to see some of the initial revenue ramp? I know you're probably shipping some sample revenue today, but in terms of the meaningful ramp, is that still a calendar 23 program or could there be opportunities say in things like charging stations that, that might even ramp before then?
spk08: Um, yeah, the charging station or the charging opportunity for us is really on vehicle. I mean, that's what we're, we're really focused on. So yeah, you're right. It's really towards, I would say middle to end of 23 in terms of the early ramps with some of the early customers that we have and then picking up through 24 and 25. And, uh, you know, the opportunities that the team is developing for the company are very exciting. And I mentioned in some of my remarks, the market's changing too. I mean, the electrification challenge has always been there and it's picking up, but the OEMs are really looking at supply chains very hard and, you know, looking to the companies that can bring the next generation technology to them, but at the right value. And, you know, that's changing the supply chain too. So I think as we go through this year, we'll probably be announcing some engagements with partners that will help us bring the automotive opportunity, I think, even bigger than the one from just supplying modules.
spk12: Great. Thank you.
spk05: The next one is coming from Gemtown, I think. Please go ahead.
spk10: Hi guys, nice call and thank you for taking my questions. I just wanted to address the new facility and how you've been limited or will be limited this year to that 7% sequentially. Do you immediately break through that limitation as you get the new facility online in Q1 or is there some other constraint that we should be thinking about that maybe you're not going to be able to go past that?
spk07: With the turn-on of capacity after completion of validation, after all the equipment is installed, the step-up in capacity from the new facility is going to be, on a relative scale, major. We're talking about whether we measure it in number of panels or units, which obviously depend on the devices within a panel. It's a major step up. Again, it gets us, maybe the best way to relate to it from the financial perspective is in aggregate revenue dollars. So we have a $750 million bogey with respect to debt capacity, the deficit capacity with vertical integration. And I would say that that number, you know, could be conservative. There could be opportunity to, with all the equipment that is going into the new wing, to get maybe a little beyond the $750 million. So that obviously represents a lot of headroom relative to what we're going to be at the end of this year.
spk10: Okay, great. Thank you. And just wanted a little more color on the licensing discussions that you're having. Have they been received well? Are they combative? Are they constructive? Just trying to get an overall sense of the direction you think those discussions are going.
spk07: Well, I think that they are the way they should be, you know, under the circumstances. I think averaging across a number of discussions that have taken place, I would say that OEMs recognize that we have a huge investment in very unique technology. It's a decade-old investment. It adds up to well over a half a billion dollars in R&D and immeasurable creativity. They understand that we have a very comprehensive power portfolio that covers many clear facets of advanced power systems, both in terms of the engines, the control system, the packaging technology, the power distribution architecture, and they appreciate the fact that, logically, we would want to get a return on that investment, that we would not allow unscrupulous competitors to step into our turf. But at the same time, we understand that we have to use intellectual property in an intelligent, considerate, and a cooperative way with OEMs that logically want to be sure that they don't have all their eggs in one basket, that they can have the incremental capacity they need to take care of their growth needs. Those are legitimate requirements, and I think it is a way to have win-win relationships We see OEMs that satisfy all of these objectives.
spk10: Okay, great. Thank you for that, Collar. Just one more, if I could. Is there any risk of your customers delaying shipments because of supply constraints on their end? Maybe a bottleneck might pop up and they won't want to take your product until they can get more into their factories that might not be related to yours at all?
spk07: We don't see that. It's not to say that the semiconductor capacity constraints aren't impacting customers in a variety of ways. But as suggested in the prepared remarks, we are sold out for Q2. We're nearly sold out for Q3. we've had to impose some allocation with respect to the capacity that is available. So even if some customer, some application is otherwise constrained, there is a few behind that customer that will gladly pick up any spare capacity that becomes available.
spk10: Got it. That's good to hear. Thank you very much.
spk07: You're welcome.
spk05: We have another question from Ellen Hicks. Please go ahead.
spk03: Yes. Could you give us an update on the new front end products you've been working on?
spk07: A good deal of progress. So we have two leading applications for that. One adds up to about the $13 million revenue opportunity starting later this year. And that's for LED lighting on a massive scale. The other one is in a super computer, work for scale super computer application. And I would say, from my perspective, it is the most advanced AI machine And our front end, the new front end, which is liquid cooled, will enable a major advance in capability for that customer and that application environment. So we're very excited about this. We have interest from some of the hyperscalers with respect to this kind of liquid cooled front ends that achieve unprecedented levels of density. Those engagements are not going to result in revenue near term. The early implementations are state of the art, very advanced, not necessarily the most cost effective, but we're looking at follow on. improvements that will enable these kinds of front-ends to become extremely cost-effective. And the technology is there for us to deliver those kinds of capabilities. So we still view, you know, these kinds of front-end modules, which are, by the way, manufactured with the same converter housing packaging technology, the same panel methodology, the same equipment that is going into the expanded federal seed facility. We see these front-end capabilities, which also have opportunities not just in stationary applications, but also in vehicle applications. We see them as longer-term, making up essentially half of the revenue opportunity. Another way of saying this is that While all the action in recent times has been at the point of load, you know, for every ampere or watt at the point of load, there's an additional stage of power processing because the power comes ultimately from DAC utility that we can capture with very unique capabilities that truly sell the art.
spk03: Okay. So you have some initial revenue opportunities by, say, the fourth quarter and then next year would begin to ramp more broadly?
spk07: Yes.
spk03: Okay, thank you very much.
spk07: And with that, if there is one more brief question, we'll take it. Operator? Operator?
spk05: I'm sorry, sir, you can take one more question?
spk07: Yeah, if it is a brief one, yes.
spk05: Okay, all right. And then it's coming from John Dillon. Please go ahead.
spk09: Hi, guys. Thanks for taking this last question. You've talked about NRE funding from customers and how it really shows their commitment to VICOR. So I'm just wondering, is that progressing? How is it progressing? And is there any pushback from the customers on that?
spk07: No, there's no pushback. I think it is progressing. And we look at it, in effect, as what you might call proof of love with respect to customers wanting to have us do something that is unique for them. It takes skin in the game to justify dedicating resources to a particular requirement. Our packaging technology and general system capability provide some high degree of flexibility with respect to addressing unique customer requirements within the general scalability of those technologies. But we need to be selective with respect to which particular projects we pursue because we have otherwise a lot more projects that we have bandwidth to support. And NRE is an effective filter with respect to having customers demonstrate that this development is worth taking on.
spk09: And you're seeing that increasing still?
spk07: Yes. With more customers come more opportunities, and when those opportunities can't be addressed with standard products, then NRE is appropriate. And one final comment with respect to this. Because of the fact that there is a great deal more scalability with standard products, because obviously the standard products can address a multiplicity of customer requirements, we're putting more and more emphasis on those developments. So both at the point of road and with respect to front-end products, we're going to, with next generation deployments with what we call our fifth generation, which is coming on late this year, early next year, with those developments, we're looking to... leverage standard building blocks more than we might have in the past by, in effect, capturing common denominator requirements in a more comprehensive way.
spk09: That's great because that gives you more opportunities with less work.
spk07: That's right.
spk09: Great. All right, guys. Thank you so much.
spk07: Thank you. And we appreciate it. And with that, we'll wrap it up. We'll talk to you in a few months.
spk05: thank you thank you very much everyone that concludes your conference
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