Vicor Corporation

Good day, and thank you for standing by. Welcome to the VICOR first quarter 2026 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 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 hand the conference over to your speaker today, Jim Schmidt, Chief Financial Officer. Please go ahead.

Thank you. Good morning, and welcome to Vicor Corporation's earnings call for the first quarter ended March 31, 2026. 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. Earlier this morning, we issued a press release summarizing our financial results for the three months ended March 31, 2026. This press release has been posted on the investor relations page of our website, www.vicorpower.com. We also filed a form 8K 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 the 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 risk and uncertainties. In light of these risk 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 2025 Form 10-K, which we filed with the SEC on March 2, 2026. 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 21, 2026. VICE Corps 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 Q1 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, BICOR recorded product and royalty revenue for the first quarter of $113 million, up 5.3% sequentially from the fourth quarter of 2025, total of $107.3 million, and up 20.2% from the first quarter of 2025, total of $94 million. Advanced products revenue increased 3.7% sequentially to $64.9 million. And brick products revenue increased 7.7% sequentially to $48 million. Shipments to stocking distributors increased 0.5% sequentially and increased 63.6% year over year. Exports for the first quarter decreased sequentially as a percentage of total revenue to approximately 48.9% from the prior quarter's 49.3%. For Q1, advanced product share of total revenue decreased to 57.5%, compared to 58.4% for the fourth quarter of 2025, with brick product share correspondingly increasing to 42.5% of total revenue. Turning to Q1 gross margin, we recorded a consolidated gross profit margin of 55.2%, a 20 basis point decrease from the prior quarter, Q1 gross margin increased 800 basis points from the same quarter last year. I'll now turn to Q1 operating expenses. Total operating expense increased 4% sequentially from the fourth quarter of 2025 to $45.5 million. This increase included higher legal expenses related to enforcement of RIP. The amounts of total equity-based compensation expense for Q1 included in cost of goods, SG&A, and R&D was $836,000, $1,959,000, and $1,057,000, respectively, totaling approximately $3.9 million. Turning to income taxes, we recorded a tax benefit for Q1 of approximately $0.3 million, representing an effective tax rate for the quarter of minus 1.3%. The company's tax provision and effective tax rate for the quarter ended March 31, 2026, was positively impacted by stock options exercised in the quarter. Net income for Q1 totaled $20.7 million. GAAP diluted income per share was 44 cents, based on a fully diluted share count of 47,254,000 shares. Turning to our cash flow and balance sheet, Cash equivalents totaled $404.2 million at Q1, an increase of $1.4 million sequentially. Accounts receivable net of reserves totaled $67.4 million at quarter end, with DSOs for trade receivables at 42 days. Inventories net of reserves increased 3.8 percent sequentially to $94.8 million. Annualized inventory turns were 2.1, Cash flow used for operating activities totaled $3.9 million for the quarter, which was net of a litigation settlement payment of $28.6 million. Capital expenditures for Q1 totaled $12.4 million. We ended the quarter with a construction and progress balance primarily for manufacturing equipment of approximately $10.7 million, and with approximately $33.9 million remaining to be spent. I'll now address bookings and backlog. Q1 book to bill came in above two, and one year backlog increased 70% from the prior quarter, closing at $300.6 million. 2026 is a year of great opportunity for VICOR. We expect Q2 revenues of nearly $126 million, and 2026 revenues of nearly $570 million. This guidance is based on conservative assumptions about our licensing practice. specifically that we will not enter into new licensing agreements until our second ITC case gets to its final determination in 2027. Additional exclusion orders further restricting importation of infringing computing systems will provide motivation to close new licensing deals on the right terms. Along with revenue growth in 2026, we expect margin expansion. Phil?

Thank you, Jim. With the book to bill above two, Q1 bookings were strong across our high-performance computing, industrial, and aerospace and defense markets. They remain strong in this second quarter, and I'll discuss each of them in turn. Our lead computing customer is continuing a steep production ramp of its wafer-scale engine with best-in-class AI inference performance. Wafer-scale engines and future embedded multi-die and co-wash packages for AI chiplet solutions are uniquely enabled by vertical power delivery. Further advances in AI performance are about to be enabled by VICO's second-generation VPD solution, with 3 amps per square millimeter current density and a current multiplication factor of up to 40 in a 1.5 millimeter thin package. Per my Q4 comments, engagement with other HPC customers for second generation VPD solutions will follow the generational transition by our lead customer. With capacity in our first chip fab earmarked for existing strategic customers, we will continue to be selective as we add additional customers. On the VPD front, competition is handicapped by a multiplicity of issues, including inadequate current density, and stacked packages that are not mechanically and thermally adept. That's because competition copied a first-generation VPD solution whose pioneering aspects are still immature and at risk of continuity of supply challenges caused by patent infringement. Our broad industrial market, which is supported by our global distribution partners, had a strong first quarter, and our top 100 industrial OEMs in the automated test and semiconductor manufacturing equipment markets continue to benefit from the AI data center build out with strong order placement. We are also winning next generation platforms with earlier generation and new factorized power system solutions. Our current multipliers supplying high power to ASIC and memory test heads and pin electronics remain unchallenged in terms of current density low noise, and thin packages. Geopolitical developments have been a key driver of our aerospace and defense business in recent quarters. Increases in spending as a percentage of GDP and replenishment of defensive and offensive systems supports the growth of this market. Our objectives, goals, and strategies for 2026 remain unchanged with a focus on a portfolio of 100 customers globally across four market segments. Future growth opportunities will require capacity expansion, including a second FAB. A combinatorial strategy of being the power system technology innovator and an IP licensing company is delivering results. With that, we'll take your questions.