Vicor Corporation

Good day, everyone, and thank you for standing by. Welcome to the Q3 2024 Vicor Earnings Conference Call. Now it's my pleasure to turn 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 third quarter ended September 30th, 2024. I'm Jim Schmidt, Chief Financial Officer, and I'm in Andover with Patrizio Vinciarelli, Chief Executive Officer, and Phil Davies, Corporate Vice President, Global Sales and Marketing. After the markets closed today, we issued a press release summarizing our financial results for the three and nine months ended September 30th. 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 I-Corps 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 risk 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, October 22, 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 Q3 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 10-Q for additional information. As stated in today's press release, VICOR recorded total revenue for the third quarter of $93.2 million. up 8.5% sequentially from the second quarter of 2024, a total of $85.9 million, and down 13.6% from the third quarter of 2023, a total of $107.8 million. Advanced products revenue increased 6.5% sequentially to $49.4 million, while brick products revenue increased 10.8% sequentially to $43.8 million. Shipments to stocking distributors decreased 12.5 percent sequentially and decreased 22.7 percent year over year. Exports for the third quarter increased sequentially as a percentage of total revenue to approximately 49 percent from the prior quarter's 43.3 percent. For Q3, advanced product share of total revenue decreased to 53 percent compared to 54 percent for the second quarter of 2024. with BRIC product share correspondingly increasing to 47% of total revenue. Turning to Q3 gross margin, we recorded a consolidated gross profit margin of 49.1%, which is a 70 basis point decrease from the prior quarter, primarily due to a change in product mix. Tariff expense net of duty drawback was approximately $1.1 million in Q3. I'll now turn to Q3 operating expenses. Total operating expense decreased 5.2% sequentially from the second quarter of 2024 to $40.4 million. The sequential decrease was primarily due to a litigation contingency expense of $2.3 million recorded in the second quarter of 2024. The amounts of total equity-based compensation expense for Q3 included in cost of goods, SG&A and R&D was $886,000, $2,036,000, and $1,112,000 respectively, totaling approximately $4 million. Turning to income taxes, we recorded a tax benefit for Q3 of approximately $2.4 million as we trued up the year-to-date tax provision. Net income for Q3 totaled $11.6 million. GAAP diluted income per share was 26 cents. based on a fully diluted share count of 45,174,000 shares. Turning to our cash flow and balance sheet, cash and cash equivalents totaled 267.6 million at Q3. Accounts receivable net of reserves totaled 58.5 million at quarter end, with DSOs for trade receivables at 43 days. Inventories net of reserves decreased 3% sequentially to $105.8 million. Annualized inventory turns were 1.6. Operating cash flow totaled $22.6 million for the quarter. Capital expenditures for Q3 totaled $8.4 million. We ended the quarter with a construction and progress balance primarily for manufacturing equipment of approximately $13.9 million, and with approximately $8 million remaining to be spent. I'll now address bookings and backlog. Q3 book to bill came in below 1, And one year backlog decreased 2.1% from the prior quarter, closing at $150.6 million. As we said on last quarter's 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 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. If you have more than one topic to address, please get back in the queue. Phil?

Thank you, Jim. Our Q3 bookings reflected continued strength in our industrial and aerospace and defense markets and temporary weakness in high-performance computing. Focusing on the high-performance computing market, we have successfully completed development of all the ASICs and semiconductor devices included in our first Gen 5 chipset. but its introduction was delayed because of an issue requiring a re-spin of one of the module's printed circuit boards. This work has now been completed, and we will soon schedule VPD demo system meetings with lead customers. Interest in our second generation VPD for artificial intelligence and network processors is very high, partly because competitive VPD solutions using stacked modular assemblies lack the requisite current density, robustness, and cost effectiveness. Our Gen 5 current multipliers occupy one-third of the footprint and are three times thinner than first generation stacked VPD solutions. Stacked multi-phase VPD modules are challenged electrically, mechanically, thermally, and last but not least from the IP perspective. The AI market has significant business opportunities for VICOR with 48-volt bus converters, Gen 5 VPD solutions, and OEM licensing. Leading AI companies relying on VICOR's power system technology have licensed VICOR IP or are procuring modules directly from VICOR. As evidenced by a recent ITC initial determination, certain actors have been playing a game of catch me if you can with copycard suppliers of infringing modules or discrete solutions. We are executing a comprehensive plan to enforce VICOR IP and protect the domestic industry from foreign theft of U.S. intellectual property. In Q3, we introduced five new DC-to-DC converter power module families that utilized advanced packaging technologies from our new chip fab. featuring advances in control systems and components, enabling two to three times higher power density. These are now being sampled to our top 100 customers and soon will be available to our broad customer base via our distribution partners, who will work with our global channel team targeting our top channel accounts across eight target market and application segments. We are beginning to see the results of our strategy to focus the majority of our resources on a set of 100 customers globally across four main markets. These customers will drive our revenue growth in the coming years to our $1 billion target and 65% gross margins. By focusing on the top 100, we are able to set resources, goals, and priorities to achieve higher levels of efficiency in delivering new products, production support, technical support, and exceeding customer expectations. We are not 100% of the way there yet, but we are well on the way to achieving our operational excellence and customer centricity objectives by having our entire company aligned in achieving these objectives. The adoption of a 48-volt zonal architecture by automotive OEMs across Asia Pacific and Europe is driving significant new opportunities for us with lower voltage fixed ratio bus converters and regulated 48-volt DC to DC converter power modules. Our new Gen 5 product families, with their higher power density and lower cost, put VICOR in an excellent position to participate in higher volume 48 volt zonal BEV and hybrid automobile platforms. These Gen 5 products were initially designed for our high performance compute customers, but new automotive grade versions will become available in Q1 of 2025. With regards to automotive grade capabilities, we were notified by the TUV that VICO has met the requirements of the IATF 16949 standard. This is a critical milestone in our journey to full certification and building out our full automotive design and manufacturing capabilities to meet the needs of our automotive OEMs and Tier 1s. Thank you. And with that, we will now take your questions.