Vicor Corporation

Good day, and thank you for standing by. Welcome to the VICOR 4th Quarter 2025 Earnings Conference Call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. Please advise that today's conference is being recorded. I would like to hand the conference over to your first speaker today, Jim Smith. Chief Financial Officer, please go ahead.

Thank you. Good afternoon, and welcome to Bicorp Corporation's earnings call for the fourth quarter and year-ended, December 31, 2025. I'm Joe Schmidt, Chief Financial Officer, and I'm in Andover with Patricia Vinciarelli, Chief Executive Officer, and Phil Davies, Vice President of Global Sales and Marketing. After the markets closed today, we issued a first release summarizing the financial results for the three-month and year-ending December 31st. This press release has been posted on the Investor Relations page of our website, www.vicorpowers.com. We also filed a Form 8-K today relating 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 purposes of the Safe Harbor provision under the Private Security and Litigation Reform Act of 1995. Except for historical information contained in this call and matters discussed on this call, including any statements regarding cons and planned products, 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 risk 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 2024 Fall 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, Thursday, February 19, 2026. RICOR 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 Q4 and full-year financial performance, after which Bill will review recent market developments, and Patricio, Bill, and I will take your questions. In my remarks, I will focus mostly on the sequential overly-changed P&L and balance sheet items as well as full year-on-year changes, and refer you to our press release for our upcoming Form 10-K for additional information. As stated in today's press release, NYCO recorded product revenue for the fourth quarter of $92.7 million, up 4.5% from the third quarter total of $88.7 million, and up 15.3% from the fourth quarter total of $80.4 million. Realty revenue for the fourth quarter totaled $14.5 million, a 33.1% decrease from $71.7 in the third quarter, and a 7.8% decrease from $15.8 million in the fourth quarter of 2024. The sequential decrease in realty revenue was the result of a catch-up amount that was included in the Q3 results. Product revenues for the year ended December 31, 2025 increased 12.1% to $350.3 million from $312.5 million for the prior year. Royalty revenue for the year ended December 31, 2025 totaled $57.4 million, a 23.2% increase from $46.6 million for the year ended December 31, 2024. Total product revenue and royalty revenue including a $45 million capital litigation settlement received for the year end of December 31, 2025, increased 26.1% to $452.7 million from $359.1 million for the prior year. Advanced product revenue, which includes royalty revenue, decreased 4.4% sequentially, which was the result of the catch-up amount of royalty revenue in 2000. Brick products revenue declined 0.6% in the third quarter. Revenues for advanced products for the year ending 2025 increased 26% to $248.6 million and $197.3 million the year before. Revenues for brick products for the year ending 2025 decreased 1.6% to $159.1 million, $161.7 million the year before. Commits to stocking distributors decreased 11.1% but increased 5.3% year-over-year. Exports for the fourth quarter increased sequentially as a percentage of total revenue to approximately 49.3% from the prior quarter of 42.8%. On a year-over-year basis, exports increased as a percentage of total revenue to approximately 50.8% from the prior year of 48.2%. Q4, advanced product share total revenue, including royalty revenue, decreased to 58.1% compared to 59.2% for the third quarter, with peak product share correspondingly increasing to 48.6% of total revenue. Turning to Q4 gross margin, we recorded a consolidated gross profit margin of 55.4%, Approximately 2.1% less than the prior quarter as a result of the roll and catch up amount in Q3. For the full year 2025, gross margin rose by 6.1% to 57.3% from 51.2% in the prior year. I'll now turn to Q4 operating expense. Total operating expense increased 2.7% from the third quarter. For the full year 2025, total operating expenses, percent of revenue, and patent litigation settlement decreased to 39.2% from 51.6% in the prior year. The amounts of total equity-based compensation expense for Q4 included in cost of goods, SG&A, and R&D was $1,008,000, $2,206,000, and $1,153,000, respectively, totaling approximately $4.4 million. For Q4, we recorded operating income of $15.7 million, representing an operating margin of 14.6%. For the full year 2025, operating income totaled $81.8 million, or 18.1% of revenue in patent litigation settlement, compared to operating loss of $1.3 million, or minus 0.4% of revenue in the prior year. Turning to income taxes, He recorded a tax benefit in Q4 of approximately $27.3 million, representing an effective tax rate for the quarter of minus 142%. As a result of the tax benefit, there's a partial recognition of certain default tax assets in the period. The tax benefit for the full year 2025 was approximately $4 million, representing an effective tax rate for the year minus 25.4%. That income for Q3 totaled $46.5 million. That diluted earnings per share was $1.01. Based on a fully diluted share count of $46,297,000, for the full year 2025, that income increased to $118.6 million from $6.1 million of the prior year. In 2025, fully diluted earnings per share increased to $2.61. from 14 cents in the prior year. Turning to our cash flow and balance sheet, cash and cash equivalents totaled $402.8 million in Q4. Accounts receivable, net of reserves totaled $60.7 million in Q4. With DSOs for trade receivable was 84 days. Inventories, net of reserves decreased 1% sequentially to $91.3 million. Annualized inventory terms were approximately flat sequentially at 1.96. Operating cash flow totaled approximately $15.7 million per quarter. Capital expenditures were Q4 totaled $5.5 million. We ended the quarter with a construction in progress balance primarily for manufacturing equipment of approximately $7.8 million, with approximately $6.9 million remaining to be spent. I'll now address bookings and backlog. Q4 booked the bill, improving sequentially, came in well above one, and with one-year backlog increasing 15.8% from the prior quarter, closing at $176.9 million. 2026 is a year of great opportunity for Vicol. We are working to deliver on the opportunities. However, given that we cannot predict with certainty timing or amounts of outcomes relating to our licensing practice, we will not provide quarterly guidance. With that, Bill will provide an overview of the development and then Patricio, Bill 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 we can in the limited time available. If you have more than one topic to address, please get back in the queue.

Thank you, Jim. At the beginning of 2025, we talked about the year ahead being one of challenges and opportunities. As we look back, 2025 met those expectations with improvements in product bookings and revenues in Q4 and our IP licensing practice becoming a major contributor to our top and bottom lines. As we exited 2025, the bill ratio increased over 1.2 in Q4 and has continued to increase in Q4. At the start of 2026, we can say that this will be a year of different challenges and greater opportunities. They should result in record bookings, revenues, and profitability, and significantly higher utilization of our first chip crab. As Patricio commented in today's press release, The United States International Trade Commission has instituted a second investigation into illegal importation of power modules and computing systems, infringing WICO's IP to non-isolated bus converters. By now, it should be clear that WICO will methodically and relentlessly enforce its intellectual property to the many inventions it pioneered and that suppliers of infringing systems putting themselves and their customers at risk, including unlicensed OEMs and hyperscalers. Following the example set by licensed OEMs and hyperscalers, companies with an ethical backbone should do the right thing, avoiding infringement by taking a license to secure their supply chain. A lead customer for VPD solutions is ramping a Gen 4 factorized power system before transitioning to a Gen 5-based solution with higher current density and performance. This transition is expected to start in the second half of this year, while production of the Gen 4 system will continue to ramp at a steep rate at the end of 2026. Engagement with other Gen 5 VPD customers will be selective, as capacity in our existing first chip is getting earmarked for strategic customers, and additional capacity from our second chip cap may not be available until 2028. Our industrial and aerospace and defense business outlook for 2026 is strong, particularly in the automatic test equipment market, which is seeing substantial growth and projecting high growth for the next several years. Given our power density advantage, which is of paramount importance to our customers, I am confident that we can double the revenues in these markets over the next four to six years respectively. As we approach high utilization of our first chip lab, we are beginning to engage customers in capacity reservation agreements to secure their supply needs. While in the planning stages of a second chip lab to expand the market opportunity, we are having discussions with candidates an alternate source of high current density Gen5 VPD solution. An alternate source will give licensed OEMs and hyperscalers broader access to best-in-class power system technology. In view of these developments, we remain confident in our business strategy of innovation, customer focus, and market focus. With that, we'll now take your questions.