Vicor Corporation

Thank you for standing by, and welcome to VICOR's second quarter 2024 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1-1. To remove yourself from the queue, you may press star 1-1 again. I would now like to hand the call over to Jim Schmidt, Chief Financial Officer. Please go ahead.

Thank you. Good afternoon and welcome to Vicor Corporation's earnings call for the second quarter ended June 30th, 2024. I'm Jim Schmidt, Chief Financial Officer, and I am in Andover with Patrizio Vinciarelli, Chief Executive Officer. Bill Davies, Corporate Vice President, Global Sales and Marketing, is joining remotely. After the markets closed today, we issued a press release summarizing our financial results for the three and six months ended June 30th. This press release has been posted on the investor relations page of our website, www.vicorpower.com. We also filed a Form 8-K today related to the issuance of this press release. I remind listeners this conference call is being recorded and is the copyrighted property of Vicor Corporation. I also remind you various remarks we make during this call may constitute forward-looking statements for purposes of the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995. Except for historical information contained in this call, the matters discussed on this call, including any statements regarding current and planned products, current and potential customers, potential market opportunities, expected events and announcements, and our capacity expansion, as well as management's expectations for sales growth, spending, and profitability, are forward-looking statements involving 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 2023 Form 10-K. which we filed with the SEC on February 28, 2024. This document is available via the EDGAR system on the SEC's website. Please note the information provided during this conference call is accurate only as of today, Tuesday, July 23, 2024. 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. 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 Q2 financial performance, after which Phil 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&L and balance sheet items, and refer you to our press release or our upcoming form 10Q for additional information. As stated in today's press release, VICOR recorded total revenue for the second quarter of $85.9 million, up 2.4% sequentially from the first quarter of 2024, total of $83.9 million, and down 19.6% from the second quarter of 2023, total of $106.7 million. Advanced product revenue increased 7.1% sequentially to $46.4 million, while burnt product revenue decreased 2.7% sequentially to $39.5 million. Shipments to stocking distributors decreased 5.2% sequentially and increased 33.1% year-over-year. Exports for the second quarter increased sequentially as a percentage of total revenue to approximately 43.3% from the prior quarter's 42.6%. For Q2, advanced product share of total revenue increased to 54%, compared to 51.6% for the first quarter of 2024, with BRIC product share correspondingly decreasing to 46% of total revenue. Turning to Q2 gross margin, we recorded a consolidated gross profit margin of 49.8%, which is a 400 basis point decrease from the prior quarter, primarily due to a change in product mix. During the quarter, we recovered approximately $662,000 in duty drawback of previously paid tariffs. Tariff expense net of duty drawback was approximately zero in Q2. I'll now turn to Q2 operating expenses. Total operating expense decreased 30.5% sequentially from the first quarter of 2024, to $42.6 million. The sequential decrease was primarily due to a reduction in legal fees and expenses. The amounts of total equity-based compensation expense for Q2 included in cost of goods, SG&A, and R&D was $744,000, $1,757,000, and $930,000 respectively, totaling approximately $3.4 million. Turning to income taxes, we recorded a tax provision for Q2 of approximately $4.2 million. The company's tax expense and the rate for the quarter has been impacted by the capitalization of R&D expenses under Section 174, as well as the full valuation allowance we carry against deferred tax assets. Net loss for Q2 totaled $1.2 million. GAAP diluted loss per share was 3 cents. based on a fully diluted share count of 44,855,000 shares. Turning to our cash flow and balance sheet, cash and cash equivalents totaled 251.9 million at Q2. Accounts receivable net of reserves totaled 54.9 million at quarter end, with DSOs for trade receivables at 45 days. Inventory's net of reserves decreased 2.9% sequentially to 109.1 million, Annualized inventory terms were 1.7. Operating cash flow totaled $15.6 million for the quarter. Capital expenditures for Q2 totaled $6.1 million. We ended the quarter with a construction and progress balance primarily for manufacturing equipment of approximately $12.6 million, and with approximately $15.8 million remaining to be spent. I'll now address bookings and backlog. Q2 book to build came at above 1. and one year backlog increased 2.3% from the prior quarter, closing up $153.8 million. As we said on last quarter earnings call, 2024 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 Patricio, Phil, and I 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 possible in the limited time available. If you have more than one topic to address, please get back in the queue. Phil?

Thank you, Jim. It was good to see get above one for the first time in eight quarters, driven by stronger demand in our industrial and aerospace and defense markets, and ramping new programs in high performance computing. As we discussed at our annual shareholders meeting a few weeks ago, our HPC business is in transition to our power technology whose high current density enabled scalable VPD solutions. The AI market is forecast to continue its remarkable growth, providing significant business opportunities for the leading GPU company and all of its aspiring competitors, focused on taking a share of the sizable opportunity. We are currently working with customers wishing to capture the value proposition of cutting PDN power loss and gaining a competitive edge by moving to scalable vertical power delivery, VPD, for new higher-powered GPUs and network processors, and also with wafer-scale and chiplet-based AI processor designs utilizing advanced packaging technologies. Our Gen 5 current multipliers occupy one-third of the footprint and are three times thinner than stacked package multi-phase solutions. Stacked multi-phase VPD solutions are challenged mechanically, thermally, and last but not least, from the IP perspective. Preparations for the introduction of our Gen 5 chipset are progressing, and we have powered up our first Gen 5 customer evaluation board. A broad business portfolio is necessary to provide greater stability to our business by focusing on 100 customers globally across four main markets, and a product development strategy of leveraging technologies and products developed for our HPC and automotive markets for the industrial and aerospace and defense customers, we believe that we are well positioned. We have also partnered with top distributors globally in supply and logistics support for our broad market business that further amplifies our capabilities and opportunities. At the ASM, we outlined our goal of doubling revenues in our industrial and aerospace and defense markets. New AC to DC and DC to DC converter power modules utilizing advanced packaging technologies from our new chip fab and advances in control systems and components enable a two to three time higher power density and are being sampled to our top 100 customers in these markets. The movement of automotive OEMs to a 48-volt-based zonal architecture has diversified our opportunity base from the BEV market into mild and plug-in hybrid powertrain applications. And we are seeing an increase in new business opportunities across EMEA, Japan, and Asia Pacific. I am pleased that in Q2, we were rewarded an additional program for an onboard charger at a leading high-end automotive OEM, which will begin to ramp in 2026. Overall, our automotive pipeline, which currently stands at $1.3 billion, continues to grow, and we are quickly regaining the momentum lost due to the slowdown in new platform development during COVID. Thank you. And with that, we'll now take your questions.