Vicor Corporation

Good day, and thank you for standing by. Welcome to the Q1 2025 Vicar Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there'll be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to turn the conference over to Jim Schmidt, Chief Financial Officer. Please go ahead.

Thank you. Good afternoon and welcome to Vicor Corporation's earnings call for the first quarter ended March 31, 2025. I'm Jim Schmidt, Chief Financial Officer, and I'm in Andover with Patrizio Vincerelli, 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 months ended March 31st. 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 risk and uncertainties we face are discussed in item 1A of our 2024 Form 10-K, which we filed with the SEC on March 3, 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, April 29, 2025. BICOR 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 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&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 $94 million, down 2.3% sequentially from the fourth quarter of 2024, total of $96.2 million, and up 12% from the first quarter of 2024, a total of $83.9 million. Advanced product revenue increased 2.7% sequentially to $59.9 million, while brick product revenue decreased 10% sequentially to $34.1 million. 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 Q1, advanced product share of total revenue increased to 63.7% compared to 60.6% for the fourth quarter of 2024, 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 520 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 full quarter of last year and into the first quarter of this year, NICOR transitioned off of a legacy ERP system and onto a state-of-the-art ERP system, SAP, which went live on January 1st. 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 an 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, a 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 U.S.-based semiconductor manufacturing in both Andover and Rhode Island. 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 2024, to $44.5 million. 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 hire of FICA expense. The amounts of total equity-based compensation expense for Q1 included in cost of goods, SG&A, And R&D was $967,000, $2,194,000, and $1,188,000, respectively, totaling approximately $4.3 million. Turning to income taxes, we recorded a tax provision for Q1 of approximately $0.4 million, representing an effective tax rate for the quarter of 14.2%. Net income for Q1 totaled $2.5 million. got diluted earnings per share with $0.06, 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 $296.1 million at Q1. Accounts receivable net reserves totaled $65.9 million at quarter end, with DSOs for trade receivables at 43 days. Inventory's net reserves decreased 7.1 sequentially to 98.5 million. Annualized inventory turns were 1.7. Operating cash flow totaled $20.1 million for the quarter. Capital expenditures for Q1 totaled 4.6 million. We ended the quarter with a construction and progress balance primarily for manufacturing equipment of approximately 9.9 million. and with approximately 12.3 million remaining to be spent. I'll now address bookings and backlog. 2-1 book to bill came at above one, and one year backlog increased 10.4% from the prior quarter, closing at $171.7 million. As we said on last quarter, earnings call 2025 as 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 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. 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 multi-phase 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. VICO's fixed ratio bus converter modules with industry-leading power density and liquid-cooled thermal management flexibility are a perfect solution for these requirements. Given these market forces, VICO will be uniquely positioned to offer front-end 800-volt to 48-volt bus converters and direct VPD 48-volt to sub-1-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 billion 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 2. 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. 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 of high confidence in our business. Thank you. We'll now take your questions.