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.

Thank you. As a reminder, if you would like to ask a question, please press star 11 on your telephone. You will then hear an automated message advising your hand is raised. 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 & Company. Your line is open.

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?

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

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

Well, obviously, that's a short-term impact in our results for Q1, but we remain confident with respect to a licensing business being a growth business that will contribute substantially at deciding levels to both the top line and particularly the bottom line.

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

Yes.

Got it. Okay. I will get back in the queue with a couple more. Thank you.

Thank you. One moment for the next question.

And our next question will be coming from the line of John Tangwang of CJS. Your line is open.

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 think 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?

So we've assessed 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 as of weeks ago, We took collective action, as Phil pointed out in his prepared remarks, in terms of instituting a 10% tariffs to China 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, When it comes to reciprocal tariffs, as Phil pointed out, in China, we do expect with some of the programs to see an impact. In quantity, as Phil pointed out, it's not, as of now, assessed to be significant in terms of moving the needle or altering

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?

So based on the testing that's been done today on the recently received ethic, 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 in 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, Otto. Thank you.

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

Thank you. Patrice, 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 timeframe or schedule what it's going to take to actually productize the Gen 5 point of load that you're giving to that customer? You know, so it's available, generally available and you can manufacture that in quantities.

So typically, we are on a ramp with respect to lead customer on an older generation platform. And I mentioned this, I think, in the most recently quarterly call. And we are closing in on being able to ship units that meet these directions as they have evolved upwards 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 the five-gen solutions.

Okay, and that would be a productized, and would that be completely productized? I mean, what I mean by that is, you know, typically when I've been in the industry, when we ship the initial product to a customer, they evaluate it, and they find some bugs, and then they feed it back to Vicor, and then 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?

Well, obviously... In order to be very confident, we need to complete the development effort. But 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 to deliver current multipliers using that ethic 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 customers.

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

No, you're not missing anything. And to your point, the challenge is a complex challenge, right? That involves, you know, 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 has in prior initiatives of a similar kind as we progress through the summer months.

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

Thank you. Thank you. One moment for the next question. And the next question is coming from the line of Richard Shannon of Craig Halem. Your line is open.

Well, thanks, guys, for taking my question. I guess I want to follow up on the comments and 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, are there some actions being contemplated here to alter the trajectory of what this customer is doing?

Yes, yes, yes.

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

Well, I think it's, again, a combination of increased prior revenues, and 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.

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

Thank you. 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.

Hey, good afternoon. Yeah, I wanted to clarify on royalties and advanced products. Sounded like royalties fell about 5 million or about a third, while advanced products still grew but 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 so that will continue to grow in royalties?

We did sign up a licensee 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. So that was a positive outcome.

Okay. So you had a significant customer that transitioned from royalties to accepting in-house produced products?

I wouldn't make that assumption. That wouldn't be the right assumption, no.

Okay. So what's driving the

they actually in-house produced an existing customer wrapping further on production and as well as new opportunities that we yeah and as mentioned the facilities and you know as earlier asked we did have an existing licensee transition to you know a new product from where this new product is unlicensed

Okay, is that a new version of the NBM products?

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

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

I think we can confidently say that we see growth in private revenues, and we see growth in licensing income. We are still, obviously, when it comes to, let's say, the licensing income, relying on the relatively small multiplicity of licensees. And with that, there can be surprises, as it happened before. They can be negative surprises, they can be positive surprises. And once the obesity of OEMs and hyperscalers, the technical license increases, then I would expect the licensing business is going to become more predictable in terms of its quarter to quarter evolution. And the same can be said on the product revenue side. Obviously, we have invested a good deal in our 5G technology. We believe it's unique, without equals, without close competition. Obviously, it's taking longer than expected, but it is a reflection of the magnitude of the challenge we're on. and I believe it will pay great dividends as we roll it out. So we have strong revenue growth opportunities in years to come being enabled by that capability.

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

So the ITC case came to an end with the ITC issuing its final determination. It came to a further end once the 60 days presidential review period came to an end. As you may know, through the presidential review period, respondents, the customers, continued 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 no longer import infringing product. So that's where things stand with respect to the IDC case. There are certain aspects of the file determination that are objectionable and with respect to which Rigor's file an appeal at the federal signal. And so that's the next step on that general front.

Okay. And lastly, BBU products fell about 4 million. But is that going to continue about that level? Or what do you see in the BBU area?

I would say, yeah, I mean, I think that we wouldn't expect, you know, it bounces around a bit. I think it's fairly stable. I guess, you know, as Phil mentioned, a potential risk element is in the China reciprocal tariffs and the cost per 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. So I would say that, you know, steady as she goes with the brick business over the course of the year.

Okay. Thank you very much.

Thank you. One moment for the next question. The next question is going to be a follow-up from John Tang-Wen-Ting of CJS. Your line is open.

Hi. Could you clarify what your pricing is 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? Which portion of your portfolio has that increase? Thank you.

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 beginning of July. So it's 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. So 10% was a good base number to begin with.

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?

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 tax charge as of a few weeks ago was as high as 31, 32%, 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 bond costs, other costs, and the maintenance of margin.

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

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

Okay, great. Thank you.

Thank you. One moment. And we have a follow-up coming from the line of Quinn Bolton of Needham & Company. Your line is open.

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, you know, as you look out through the year, would you expect that MBM business to, you know, continue to grow? Would it be stable at Q1 levels? Just any kind of shape to that MBM business on a go-forward basis? And then I've got a follow-up.

So we expect the MBM business to grow. And, you know, at the risk of... 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 has brought about revival of demand for RNBM.

Thank you for that. And then I 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, 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?

There's a lot of moving pieces there, and 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 and 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 revenue is going to be a growth business for Vigo.

Understood. Okay. Thank you, Patricio.

Thank you.

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

Patricio, on the last conference call, you mentioned that you're expecting a record year So I'm just wondering, are you still expecting a record year?

Yes.

Excellent. And my follow-up is, I was wondering about the new fab. Are all the kinks ironed out of the new fab? And in particular, is the plating turnkey and is it better than what you were getting from your previous outsource supplier?

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 5G platforms. We made the right decisions. It's a big investment. It needs to say in terms of margins, you know, 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.

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

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

Hi, guys. Thanks for letting me ask a follow-up here. I want to ask about product growth the rest of the year. And I've heard a couple of pieces and other responses here. I think you're talking about MBMs growing nicely here. It sounds like work will be flat. Obviously, it sounds like advanced that include MBMs will be up to some degree. Obviously, you're not going to quantify, but also love it if maybe you could divine out what this is going to look like between end markets. Obviously, you talk mostly about HPC versus everything else here. How do we see those two end markets, relatively speaking, growing the rest of the year?

Hi, Richard. It's Phil. Again, HPC is a growth business for us, not just MBMs. Patricio 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 5. 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 defense systems, aerospace applications, you know, sort of warfare equipment. 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, you know, test equipment market, and picked up four or five new entries into that, entrance 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 Avenit and Arrow and Macnica in Asia, we're getting far more focused, far more targeted at customer bases in specific segments that value the density and what we bring. So that's also giving us a general lift. 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 So, again, that will contribute to our portfolio.

Okay. Thanks for that detail, Phil. Maybe a quick question for Jim on gross margins. If I heard the prepared remarks, it sounded like of the gross margin decline, about half of it was from some investments for the SAP system and other things. The rest of it was from? royalties here. So I guess my question is, and 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, but I'm assuming the gross margins in the second quarter, all things being equal, would be kind of roughly half between the fourth quarter and the first. Is that a good starting point to think about?

Sorry, Richard, did you say half?

Yes, halfway between first quarter and fourth.

Oh, well, I mean, we're going to have to be reluctant about offering guidance of any kind. It's just that's the position we've taken. I will say that I described the SAP installation as 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. So we are done with the SAP project. So without giving you a specific on the guidance, I think, you know, we feel like we're well positioned. I mean, I feel very good about the factory. I feel good about the infrastructure in VICOR. It's 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.

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 the bond cost is going to start suffering because of tariffs, we'll be compensating for that through the tariff surcharge.

Great. Thank you, guys. Just a comment on tariffs. As a matter of interest, it's worth noting that, you know, success over multiple years has been good relative to tariffs and our ability to manage it. Now, the future is changing, but we've gone from, you know, 10 to 8 to 4 to, you know, less than a million a quarter. So that's a good track record. That's a rearview mirror, and the environment is changing rapidly. But, you know, so far, I mean, our track record has been strong.

Great. Thanks for all the comments, guys.

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.

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 in terms of the timeline or process that might take where the international trade commission could realize that they're in fact defrauding and that the, uh, the, the bills, the indications that they have rights to your technology is not, it's not correct.

Uh, I'm not going to be very specific with respect to, to, you know, the support Foxconn license. Um, and the appeal to the Federal Circuit that relates to that, beyond saying what we said in the past, which is that the 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 in federal district court in Boston got it right, which is Foxconn has no license The Commission took a different position, which we 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 Fox issued purchase orders with , contradicted by a sales order and other relevant evidence, including the conduct of the parties over many, many years. We think that matter in the long term for many reasons, again, not least of which There's only one patent that was found licensed. Vigo has a very big client portfolio. And ultimately, being able to compete in this industry will depend on, you know, 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 that conclusion as both the administrative law judge and the district judge in Boston found.

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

Thank you. Thank you. Next question. Next question is coming from the line of Jessica. of Wall Street Research. Your line is open.

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, you know, make that prohibitive? Or is this somebody through Foxconn? Or can you give me a little color on the situation?

I really can't. It would be beyond what I said earlier. So, we think that this was a wise decision, and as I mentioned in answer to an earlier question, we believe these unlicensed products in Vigor IP.

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

Well, I think you should expect over the foreseeable future are illegal operating expenses to vary from time to time because of the need to continue to protect very valuable intellectual property. LIGO has got a very comprehensive licenseable portfolio, and some VMs and hyperscalers have done the right thing. others have been taking their chances. We need to make sure that RIP is consistently applied and consistently protected, and from time to time that will require substantial investment. I think somewhere around $12, $15 million in the general ballpark. 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.

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

Well, in this kind of a dispute, I don't think one should think in terms of panacea, but let's put it this way. We believe we're within our rights to protect IP, assert it as appropriate. And the SAR, 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 you're adding expense line item when it comes to legal expenses. may from time to time take significant steps. And that's part of our business model going forward.

Okay. All right. Well, thank you.

Thank you.

Thank you. One moment for the next question. And the next question will come from the line of John Dillion of DMV Capital. Your line is open.

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 time frame for orders, and will it move the needle on revenues at all?

So, you know, it's interesting. I would say that, you know, six months ago, we started to hear, you know, from engineers, power system engineers, that 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, you know, chip companies that have transitioned to providing rack-based systems, looking at that type of technology. And that is right in our wheelhouse. 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 and really engage with these customers now in the coming months, which is what our plan is. You know, 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. I'm really excited by that opportunity, John.

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

I think you're looking at probably early 400-volt systems coming to market early 27, and then I think 800-volt later in 27.

That's what we're hearing.

I think this is very synergistic with what is going on in the other model. We have design-ins for active suspensions involving 800-volt to 48-volt high-density, lightweight bus converters that, once again, getting to the IP side of things, fall within many claims of several enabling VIGO patterns with respect to these kinds of high-voltage bus converters, ranging from the system, some of the semiconductor components, energy technology. There are many aspects to the IP portfolio that is relevant on this kind of high-voltage, high-input voltage bus company.

Yeah, it's actually really exciting. It looks like you have a very long runway of products and opportunities coming out for the next several years. Looking forward to this. Thank you.

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