Vicor Corporation

Hello, and welcome to VICOR's second quarter earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask the 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. I would now like to turn the conference over to Jim Smith, Chief Financial Officer. You may begin.

Thank you. Good afternoon and welcome to Vicor Corporation's earnings call for the second quarter ended June 30th, 2025. I'm Jim Schmidt, Chief Financial Officer, and I'm in Andover with Patricio 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 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. We remind listeners this conference call is being recorded and is the copyrighted property of Vicorp Corporation. I also remind you various reports we make during this call They constitute forward-looking statements for purpose of provisions under the Private Security Delegation 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 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, 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, July 22, 2025. BICOR undertakes no obligation to update any statement including forward-looking statements made during this call, and you should not rely upon such statements after the completion 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 Patricia, 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 10Q for additional information. As stated in today's press release, MICOR recorded product revenues, licensing income, and a patent litigation settlement for the second quarter of $141 million, up 50.1% sequentially from the first quarter of 2025, total of $94 million, and up 64.3% in the second quarter of 2024, a total of $85.9 million. Advanced products revenue increased 1.2% sequentially to $60.6 million, and brick products revenue increased 4% sequentially to $35.5 million. Shimmits to stocking distributors increased 18.9% sequentially and decreased 14.3% year-over-year. Exports for the second quarter decreased sequentially as a percentage of total revenue to approximately 51.9% from the prior quarter 60.8%. For Q2, advanced product share of total revenue decreased to 63.1% compared to 63.7% for the first quarter of 2025, with this product share correspondingly increasing to 36.9% of total revenue. Turning to Q2 gross margin, we recorded a consolidated gross profit margin of 65.3%, which is an 1,810 basis point increase for the quarter, primarily due to patent litigation settlement within the quarter. Tariff expense was approximately $2 million. We'll now turn to Q2 operating expenses. Total operating expense increased 5% sequentially from the first quarter of 2025, So $46.7 million. The sequential increase was primarily due to increase in selling, general, and administrative expenses, which was primarily attributable to $5.1 million of incentive legal fees associated with the patent litigation settlement. The amounts of total equity-based compensation expense for Q2 included in cost of goods, SG&A, and R&D was $900,000. $1,790,000, and $1,020,000 respectively, totaling approximately $3.7 million. Turning to income taxes, we recorded a tax provision for Q2 of approximately $7.8 million, representing an effective tax rate for the quarter of 16%. Net income for Q2 totaled $41.2 million. GAAP diluted income per share was $0.91, based on the fully diluted share count of 45,077,000 shares. While royalties, legal expenses, and income from patent litigation have become part of VICOR's ordinary course of business, I will point out that without the patent litigation settlement, net Q2 revenue would have increased by approximately $2 million. Gross margin would have increased by approximately 200 basis points. Operating expenses would have declined by approximately $3 million, and income before taxes would have increased from approximately $3 million in Q1 to approximately $9 million in Q2. Turning to our cash flow and balance sheet, cash and cash equivalents totaled $338.5 million in Q2, an increase of $42.4 million sequentially, and net of approximately $17.5 million in share repurchases during the quarter. Accounts receivable net of reserves equal $55.1 million a quarter, with DSOs for trade receivable for 31 days. Inventories net of reserves decreased 3.1% sequentially to $95.5 million. Annualized inventory turns were 1.6. Operating cash flow totaled $65.2 million for the quarter. Capital expenditures for Q2 totaled $6.2 million. We ended the quarter with a construction and progress balance primarily for manufacturing equipment of approximately $11.8 million and with approximately $3.1 million remaining to be spent. I'll now address bookings and backlog. Q2 booked bill came in below 1. and one-year backlog decreased 9.6% for the prior quarter, closing at $155.2 billion. As we said on last quarter earnings, fall 2025 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 second quarter book-to-bill ratio came in below one due to order cancellations from customers in China and widespread order placement hesitancy around tariffs. FICO has instituted a 10% tariff surcharge applicable to all new orders and customer backlog shipping after July 2nd. This tariff surcharge is now in effect. Earlier this year, we brought to fruition our first ITC action. which has resulted in cease and desist orders against the named respondents and an exclusion order against their customers, both OEM and hyperscalers. We are pursuing additional actions against companies unknowingly infringing our IP while playing a game of catch me if you can. At the annual shareholders meeting on June 20th, I presented an update on our business strategy is fundamentally centered around our top 100 customers enabling high-performance modular power delivery networks. At the meeting, we showcased next-generation products providing significant advances in power and current density at levels far beyond our nearest competitors. These next-generation products are being sampled to lead customers across our four target markets, and customer engagements are expected to expand in Q3 and Q4. I am pleased to announce that our Gen5 vertical power delivery solution to a lead customer is coming to fruition with a current density exceeding its original target specification. Higher current density, thermally adapted and scalable VDD will enable us to engage with hyperscalers, AI processor and network processor companies to deliver solutions with superior performance and cost effectiveness. These engagements will begin with the delivery of VPD evaluation boards and online selection and simulation tools. As discussed at the ASM, we're also focused on the future AI megawatt rack, which will require 800 volt DC power delivery and conversion to 48 volts. RICO has pioneered high density, non-isolated 400 volt to 800 volt, and isolated 800 volt to 48 volt bus converters automotive applications. A new 800 volt power module, which will deliver 10 kilowatts at 48 volts in a package smaller than an iPhone, will begin sampling in Q4. Beico will be uniquely positioned to offer front-end 800 volt to 48 volt bus converters and direct BPD 48 volt to sub-1 volt solutions, enabling a high efficiency high density power delivery network for our customers. The market SAM for these solutions is expected to exceed $5 billion by 2027. Opportunities continue to grow in our automotive business. We have just concluded a successful audit with a large European OEM for initial low volume project, and we are now preparing for an audit by a large ASEAN OEM in Q3. It is very clear that 48-volt zonal architectures are the highest growth opportunity in automotive, followed by 800-volt to 48-volt conversion, which will allow us to scale and leverage technologies across our AI and automotive markets. The pipelines in our industrial and aerospace and defense businesses are healthy and growing. Our new product introductions will strengthen these businesses and put them firmly on a path to doubling in four to six years respectively. As presented at the EASM, we remain confident in our business strategy of innovation, customer focus, market focus, and a successful technology licensing practice. Thank you. We will now take your questions.