Vicor Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
February 22, 2024

There are 10 speakers on the call.

Operator

Welcome, everyone, to today's webinar entitled Baikol Earnings Results for the Q4 Ended December 31, 2023. My name is Jano, and I'm your producer for today. I would like to advise all parties this conference is being recorded. And now I'd like to hand it over to James Smith, Chief Financial Officer. Please go ahead.

Speaker 1

Thank you. Good afternoon, and welcome to Vicor Corporation's earnings call for the Q4 year ended December 31, 2023. I'm Jim Schmitt, Chief Financial Officer and I'm in Andover with Patrizio Vinciarelli, Chief Executive Officer and Phil Davies, Vice President, Global Sales and Marketing. After the markets closed today, we issued a press release summarizing our financial results for the 3 months and year ending December 31. This press release has been posted on the Investor Relations page of our website, www.vicorpower.com.

Speaker 1

We also filed a Form 8 ks 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 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.

Speaker 1

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 2022 Form 10 ks, which we filed with the SEC on February 28, 2023. 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 22, 2024. Vicor 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.

Speaker 1

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 Phil will review recent market developments and Patrizio, Phil and I will take your questions. In my remarks, I will focus mostly on the sequential quarterly change for P and L and balance sheet items as well as full year on year changes and refer you to our press release or our upcoming Form 10 ks for additional information. As stated in today's press release, Ficor recorded total revenue for the Q4 of $92,700,000 down 12.2% from the 3rd quarter total of 107,800,000 dollars and down 12.2 percent from the Q4 'twenty two total of 105,500,000 for the prior year. Advanced Products revenue declined 20.1 percent sequentially, while Brick Products revenue declined 7% from the 3rd quarter.

Speaker 1

Revenues for Advanced Products for the year ending 2023 decreased 8% to $223,900,000 from $243,300,000 the year before. Revenues for Brick Products for the year ending 2023 increased to 16.3 percent to $181,200,000 from $155,800,000 the year before. Shipments to stocking distributors decreased 23.5% sequentially, but increased 46.9% year over year. Exports for the 4th quarter decreased sequentially as a percentage of total revenue to approximately 56.5% from the prior quarter's 62.8%. On a year over year basis, exports decreased as a percentage of total revenue to approximately 63.1% from the prior year's 67.6%.

Speaker 1

For Q4, Advanced Products share of total revenue decreased to 50.4% compared to 54.2% for the 3rd quarter with Brick Products share correspondingly increasing to 49.6 percent of total revenue. Turning to Q4 gross margin, we recorded a consolidated gross profit margin of 51.1 percent, approximately 0.7% less than the prior quarter. For the full year 2023, gross margin rose by 5.4% to 50.6 percent from 45.2% in the prior year. A number of factors contributed to the year on year increase in gross margin percentage including improved sales mix, increased royalty income, reductions in supply chain costs and lower freight and tariff costs. I'll now turn to Q4 operating expenses.

Speaker 1

Total operating expense including litigation expenses decreased 0.4% from the 3rd quarter. For the full year 2023, total operating expense as a percent of revenue decreased to 37.9% from 38.4% in the prior year. The amounts of total equity based compensation expense for Q4 included in cost of goods, SG and A and R and D was $680,000 $1,895,000 dollars and $1,700,000 respectively totaling approximately $3,600,000 For Q4, we recorded operating income of $7,300,000 representing an operating margin of 7.9 percent. For the full year 2023, operating income totaled $51,400,000 or 12.7 percent of revenue compared to $27,200,000 or 6.8 percent of revenue in the prior year. Turning to income taxes, we recorded a tax provision for Q4 of approximately $1,900,000 representing an effective tax rate for the quarter of 18.2%.

Speaker 1

The tax provision for the full year 2023 was approximately 6,600,000 dollars representing an effective tax rate for the year of 11%. Net income for Q4 totaled 8,700,000 dollars GAAP diluted earnings per share was $0.19 based on a fully diluted share count of 45,017,000. For the full year 2023, net income increased to $53,600,000 from $25,500,000 in the prior year. In 2023, fully diluted earnings per share rose from the prior year increasing to $1.19 from $0.57 Turning to our cash flow and balance sheet. Cash and cash equivalents totaled $242,200,000 at Q4.

Speaker 1

Accounts receivable net of reserves totaled $52,600,000 atquarterend with DSOs for trade receivables at 40 days. Inventories net of reserves increased 1.9 percent sequentially to 106,600,000 dollars annualized inventory turns were approximately flat sequentially at 1.92. Operating cash flow totaled approximately $22,100,000 for the quarter. Capital expenditures for Q4 totaled $7,700,000 We ended the quarter with a construction and progress balance primarily from manufacturing equipment of approximately $17,700,000 and with approximately $17,300,000 remaining to be spent. It's worth noting that in Q4, we accrued approximately $13,000,000 as an investment tax credit related to the Chips Act for equipment installed in our vertically integrated chip fab.

Speaker 1

I'll now address bookings and backlog. Q4 book to bill, while improving sequentially, came in below 1 and with 1 year backlog decreasing 8% from the prior quarter, closing at 160,800,000 dollars Turning to the Q1 and the full year, 2024 is a year of uncertainty and opportunity. As of today, the year's 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 Patrizio, Phil and I will take your questions.

Speaker 1

I ask that you limit yourself 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. Phil?

Speaker 2

Thank you, Jim. As Jim covered in his update, our book to bill ratio was still below 1 in Q4, mainly due to low booking levels in our HPC business and the automatic test equipment segment of our industrial business. In HPC, Q4 bookings were lower than expected as we turned down deals inconsistent with our long term OEM licensing strategy. The license gives OEMs access to alternate sources of supply for products covered by Vicor IP from otherwise infringing suppliers, enabling current and future gen AI processors to achieve higher performance. The OEM license provides access to game changing technology from a single source innovator through multi source supply chains.

Speaker 2

The OEM license avoids the risk of exclusion orders and the OEM license respects the IP of American innovators and manufacturers. In anticipation of market needs, Michael was the first to develop key technologies, control systems, topologies, components and packaging for 48 volt high current processor power delivery networks. Those market needs are clearly with us now in the advent of Gen AI, machine learning, 48 volt rack power systems and vertical power delivery. As evidenced by progress already made enforcing our IP to MBMs, our message to the market is clear. The OEM license gives you open ended access to superior power system technology.

Speaker 2

It provides continuity of supply for otherwise infringing servers and AI processes. Additional customer engagements in Q4 confirm that GenAI and network processor platforms will require significantly higher current density and vertical power delivery. Our investment in the world's first chip foundry and our 5 gs product line once again anticipated these future AI power system requirements, uniquely positioning us to expand our share of the AI power system market. We are getting ready to deliver evaluation systems, models, tools and samples to lead AI processor customers. On other market and customer fronts, our new product and applications pipeline continues to grow, creating both near term and future demand to fill our vertically integrated foundry.

Speaker 2

In our automotive business, collaborations that were initiated with OEMs in 2021 have started to move into production with low volume platforms as we ramp our automotive qualification, manufacturing and OEM relationships through early learning cycles. Momentum is picking up in both the mild hybrid and BEV market for Vicor's technology in response to the 48 volt zono architecture first conceived and patented by Vicor and recently promoted by Tesla. Collaborations with larger OEMs on higher volume platforms are gaining momentum, with visibility to production dates in coming years. We will be participating at WCX in Detroit once again this year with 4 technology papers that will showcase our technology and power system value propositions for 800 volt and 48 volt power modules. In our other business units, we continue to see stronger demand in our broad industrial, aerospace and defense markets for both large OEMs and smaller customers who purchase through our channel partners.

Speaker 2

Customer visits from our top 100 accounts have also continued to view and audit our new chip fab as we now ramp production of advanced products. Thank you. And with that, we will now take your questions.

Operator

And the first question is coming from John Tanwanteng. Please go ahead. Your line is unmuted now.

Speaker 1

Hello, John.

Speaker 3

Hello?

Speaker 1

Yes, go ahead, John.

Speaker 4

Great. Thanks for taking my questions. So to clarify, you turned down data center or HPC deals. Are you saying for XPU power due to NBM licensing issues or were they just pure NBM deals? And kind of help me understand what the concerns were surrounding the technology.

Speaker 4

Was it economic or purely surrounding the IP?

Speaker 3

Yes. So you're not going to have an opportunity to analyze it because we're not going to get into specific details. But I think it's important to understand that we have a clear vision of where we're going and we're sticking to that vision as events unfold on a variety of fronts relating to asserting our patterns with respect to the NBM and other developments. So the marketplace, needless to say, is driven by a complex set of forces. On the one hand, there is a drive to multi sourcing, particularly for very high volume applications.

Speaker 3

But at the end of the day, there is also an overwhelming need for higher current density solutions, vertical power delivery and these areas where Vicor as a pioneer has established a strong beachhead of IP and opportunities that we're going to seek to realize through the right mix of licensing to facilitate the multi sourcing as needed, where needed and participation directly with module solutions from new fab.

Speaker 4

Okay, fair enough. And I understand. Is this something that can be resolved in the near term as you negotiate more? Is this something that will take the assertion of your litigation strategy and then the completion of that to complete?

Speaker 3

Well, so as implied by Jim's point in his remarks regarding the uncertainty and opportunity that characterizes the next several quarters, we can't make that position. And we don't want to make that position because we want to retain the flexibility needed to implement our long term strategy. So we're not going to go out on limb in terms of predicting when things will happen. I can tell you that my suggestion is that we're going to be successful. We're going

Operator

to be

Speaker 3

successful with our first litigation with respect to certain DNB patents. We're doing very well in that regard and we're far along with respect to that process and we're also going to fill the factory in due course. So we're very confident of our strategy, very determined to enable it and passion as need be in order to bring it above.

Speaker 4

Understood. Thank you. I'll jump back in queue.

Operator

The next question is coming from Quinn Bolton. Please go ahead. Your line is open now.

Speaker 4

Hello?

Speaker 1

Yes. Go ahead, Quinn.

Speaker 5

Okay, great. I guess, I understand you don't want to provide a lot of detail, but I just want to try to make sure I understand sort of that range of alternatives. You said you're turning down deals for MBMs. It sounds like from your opinion or perspective, many of the competing MBMs may infringe your patents. And so if you turn down the deal, what's the alternative for the customer?

Speaker 5

They just use infringing MBMs until you have asserted those patents or competitors license your patents?

Speaker 3

So we have existing proof of business model that works quite well. We have a significant licensee that has been sourcing NDMs from an otherwise infringing source by virtue of an OEM license with us. And that's again part of our overall strategy, which is factored balancing a variety of needs and opportunities for our customers, the market at large and ourselves with due respect for intellectual property as well as the needs of the customers that in some relevant instances do have an overwhelming need for multiple sources.

Speaker 5

Okay. I guess a second question just sort of around the IP front. I know we've got the APEC show next week, a lot of papers at that conference. We'll be talking about vertical power delivery. I think monolithic power, Analog Devices and Infineon have all talked about vertical power delivery from the multi phase perspective.

Speaker 5

Can you give us your latest thoughts, Patricio? Just where do you feel the industry is in terms of adopting vertical power delivery? And to the extent that multi phase competitors are moving in that direction, is that an area where you may have to assert your patents on that front? Because I know you've been talking about vertical power delivery now for probably 3 plus years. Thank you.

Speaker 3

Yes. So, Vectlia part delivery means certain specific things. One of them with what we call 1st gen VPD, the stacking of what we call a multi cell converter. The multi cell converter can be a microcurrent multiplier. It can also be a multiphase solution.

Speaker 3

It doesn't matter. It falls within our IP in the context of a stack solution with certain attributes. So we pioneered that concept. It's been implemented to a limited extent by competitors whose solutions lack robustness, lack scalability, lack cost effectiveness. They suffer from all the traits of 1st generation technology that in many respects is immature and not scalable.

Speaker 3

Without question, it's going to become somewhat more mature and somewhat more scalable as initially conceived by Viagra, but still handicapped in a variety of fronts, including the international property front. With our 5 gs technology, we are on what we call a 2nd generation of DPD, which is much more scalable, much more cost effective, much lower profile, much more efficient, and which we believe before too long will enable much more advanced solutions.

Speaker 5

Understood. Thank you.

Speaker 6

Hey, guys.

Speaker 1

Pretty faint, John. Yes, I don't

Speaker 3

think we can hear you.

Speaker 6

Okay. Phil, in your prepared remarks, you were talking about some IP that you have in the automotive. And then right after that, you said it was promoted by Tesla. Can we infer from that that Tesla might be a customer of yours soon?

Speaker 3

So I heard the word FastLock and 48 volt zono and I Okay.

Speaker 2

Is Tesla going to be a customer soon, I think is what John was asking.

Speaker 3

Yes. So we're not going to make comments about specific companies or potential customers. But I will mention that as in other fronts, Vicor was a pioneer with respect to the concept of using bus converters within automotive power distribution. So that's an area of intellectual property that may come to fruition at some point in time. As you can imagine or as implied by earlier comments, there's no shortage opportunity.

Speaker 3

As of now, we're very focused on bringing to fruition our NBM initiative. But it is part of a very broad campaign, which again is part of a very comprehensive strategy to enable a more efficient, scalable and fair market when it comes to advanced power system technology.

Speaker 6

Great. The other thing I wanted to congratulate you on the bookings, looks like from the press release, it's headed up and it looks like your bookings were up about $13,500,000 on the previous quarter. So I'm just wondering, Bill, do you expect this trend to continue? I don't want any specifics, but can we expect the trend to continue throughout the year?

Speaker 3

Yes. So I don't think that the word trend applies or linear separation, whatever you want to call it, to events unfolding over the next few quarters. Because as discussed earlier, I think we should all be clear with respect to this. There is a wide range of scenarios and because of that individual events could impact bookings, top line, bottom line from 1 quarter to the next in ways that are frankly unpredictable. Needless to say, there is a book stop at the low end, but we're not going to quantify what that is.

Speaker 3

There is limited downside, I would say. There is quite a bit of upside, but that upside is hard to predict in terms of the time to fruition.

Speaker 6

I get that. I understand that. So this is last quarter you alluded to the last conference call you alluded to sizable upside. It sounds like that sizable upside is still out there, but it's not predictable at this time.

Speaker 3

That's right. I will say that the cumulative impact over time is more predictable than instant contribution that may happen sooner or later. So fundamentally, our strategy, as it has always been, is to take a very long term view. We're not I know we're in the context of reporting to the financial markets, but we're not to be perfectly honest with you making decisions based on what may look particularly good in any one quarter. We are making decisions based on what we think is in the long term interest of the shareholders, again, balancing the various factors of play in a comprehensive strategy.

Speaker 6

Got it. I'll get back in the queue. Thank you. Thank you very much.

Operator

The next question is coming from Quinn Morton. Please go ahead. Your line is open.

Speaker 5

Okay. So I guess I wanted to follow-up on John's question There are obviously a range of scenarios you're talking about. But to the extent the upside scenario plays out, I assume that those are likely either MBM or 4th generation or more hopefully 5th generation design wins. How quickly could you ramp that business? I mean, I think in past quarters you've talked about manufacturing lead times that are about 6 months.

Speaker 5

And so would it take a couple of quarters to sort of start to realize some of those upside opportunities? Is that the right kind of way to think about the timing to the extent the upside case begins to play out? And then I've got a follow-up.

Speaker 3

So we have capacity in place now. We could in the next quarter or the quarter after that manufacture more subject to obviously material procurement lead time then we would based on where we stand currently in terms of the bookings and backlog situation. Just as a reminder, the issues and challenges of yesteryears when we didn't have a vertically integrated factory were dependent on outside sources of supply for critical process steps are gone. Those are no longer challenges. Now we face a different type of challenges, again, is resulting from sticking to a strategy that has us bounced a variety of considerations.

Speaker 3

But as I think back about historic challenges, I feel that with the establishment of our first chip foundry, we are in a position we've never been in, in answer to your question regarding scalability. We have a level of scalability that ViGo never had. We manufacture advanced products in panels, which are akin to wafers. And in our chip foundry, we can make a very, very large quantity of panels. We have a lot capacity.

Speaker 3

Needless to say, there's still going to be a lead time. There's no set function to be had, but demand can be addressed with supply within a relatively short cycle time.

Speaker 5

Thank you. Patricia, the follow-up question is, in the current latest generation GPU market, one of the multi phase vendors that has pretty high share recently had some testing issues. And I'm wondering if you've had any discussions sort of since that event that might lead you to believe that any of the large AI processor or GPU vendors, 1, are now more open to having multiple sources of supply? And particularly, has this event potentially raised some concerns about the multi phase approach in general, given that you've got 1 or more controllers that may have to control 20, 30, 40 phases. Have you seen anything coming out of that event that may benefit Vicor either in the near term or the longer term?

Speaker 5

Thank you.

Speaker 3

So multi phase systems have challenges and those challenges get compounded in a VPD type of solution. So the underlying primary challenge of multi phase is that in ENV is a lower current density type of solution. It involves the averaging down over voltage to step up the current through switching elements that need to support a much higher voltage withstand and do so reliably and with other safe operating area than with the VICO car multiplier, which can in effect multiply current and do so much more efficiently with lower voltage semiconductors without commensurate safe operating area challenges. There are other benefits that have to do, in particular, just to give you some examples with the fact that with our proprietary approach, there is no multiplicity of phases, each one of which, should it fail, could take a GPU or the AI processor with it as it can fail with a top switch short, which could happen with any of a larger multiplicity of phases. So we have many, many advantages in terms of the power distribution architecture, the topology, the type of components that these solutions require, which are fundamentally different.

Speaker 3

But then getting back to the VPD side of things, with a multi cell approach involving a multiplicity of phases as opposed to a multiplicity of current multivirus as we have, you have in effect the compounded challenge of a back conversion of topology, the back converter, which is inherently low current density, compounded by the mechanical challenges with 1st generation VPD of stacking this multi cell topology with gearboxes or capacitive layers that are required in order to provide filtering and dynamic response. And I don't mean to get too technical with this. Getting to the punch line, VPD, 1st generation VPD implemented with multi cell solutions in the form of multi phase is very, very challenged, costly, not truly scalable, inherently handicap and in need of an overall. And we're not seeing, based on our visibility, it being scaled up with the level of load effect rates and manufacturability that larger OEMs would expect to have. Got it.

Speaker 3

Thank you.

Operator

The next question is coming from Alan Hicks. Please go ahead. Your line is open.

Speaker 7

You hear me?

Speaker 3

Yes.

Speaker 7

Okay. It sounds like the factory is virtually complete, although I know you have some more build out. Is that can you confirm that?

Speaker 3

Yes. We have a bar graph that we review every week. It used to be yellow and red. It's now all green in the sense that the green sourcing of yesteryear, which was yellow or red, has become a green source as made in Andover in our Vertia integrated facility. And those bars are rising from week to week.

Speaker 3

So we are doing well in that regard. So that challenge is essentially behind us. To your point, we're not tied up with bringing in equipment. There's still some additional equipment that is equipment we committed to, that's going to add some additional capacity and process capability is doing in the next several months. But the core capability of in effect building up the other layers of our unique converters in package type of technology to panels.

Speaker 3

Again, the weather analogy when it comes to high density, bulk converter modules, that capability is in place and were using it and we're scaling it up.

Speaker 7

Okay. So you would say your lead times are coming down?

Speaker 3

Well, so what is going on in what has been going on in particular within the last quarter is that the mix has changed, right, with the different backlog situation and the need to utilize capacity to address some of the backlog that have been overdue, our mix has changed and that places its own constraint on our capacity. And that's frankly the reason why we fell short somewhat of our internal target in terms of top line within the quarter. It wasn't that we didn't have a backlog. It's just that there was a bit of a mix challenge because instead of making lots of modules of a certain kind, we had to make somewhat smaller quantity or a variety of different things, right. So that's a factor with respect to total capacity and it was a factor in particular with respect to top line in the last quarter.

Speaker 7

Okay. Then going forward, you're capable of rolling the 4 gs products lateral vertical? And what's the interest in 4 gs?

Speaker 2

I'm sorry, what is what? Interest in

Speaker 1

4 gs? Yes.

Speaker 3

So I think frankly, our focus right now, we do have Phil, do you want to answer that question?

Speaker 2

Well, we have some 4 gs design wins. Yes, absolutely. So that will play out as we move through the year. But the real focus, and I think that's where Patrizio is going, is really establishing the 5 gs technology because it's 3x the power density of 4 gs, which is a major value proposition to vertical power delivery and other lower current lateral applications too. So it opens up new markets for us, bigger markets.

Speaker 2

So I think it's an exciting time.

Speaker 3

Yes. And in fact, I'm not thinking about 4 gs. I'm thinking and the excitement team is very much focused on making sure that we bring 5 gs to completion and get them assistance powers out to customers, tools and begin that scale up.

Speaker 7

Okay. Thank you very much.

Operator

The next question is coming from John Tomlinson. Please go ahead. Your line is open.

Speaker 4

Hi, thanks for the follow-up. I was wondering if your expectations for the automotive applications have changed at all just given the shift in automotive sentiment or maybe hybrids are back a little bit more back in fashion versus pure EVs and how that plays out to your 48 volt technology?

Speaker 2

No. Hi, John. It's Phil. So no, the market is sizable for us as a new entrant, of course. I mean, there's still millions of BEVs and mild hybrids out there for us to go after with their 800 volt or 400 volt battery technology.

Speaker 2

And what we're seeing at the moment, it's actually quite interesting is that we have powertrain solutions that go from 800 to 48 or 800 to 12. We have an onboard charger platform that is incredibly power dense and is getting a lot of interest in the market with 800 volt, 400 volt bidirectional conversion. And so what we're seeing recently actually are different applications like for example converting a condenser or an active suspension system or a seat heater from an 800 volt or 400 volt battery down to 48 volts as 48 volts starts to take a hold in some of these electromechanical applications. So we've seen a lot more of that in the last, I would say, the last two quarters. And that's exciting for us because those are relatively high volume applications, like the active suspension, for example, is 2 to 4 modules per vehicle.

Speaker 2

So we're encouraged about the continued progress in automotive. And the application spread is actually increasing for us.

Speaker 4

Understood. And then second, I just wanted to go back to the issues with the IBM and the IP. As you assert your intellectual property there, is there a risk that it deters you or potential customers from pursuing designs or closing deals on 5th generation VPT technology? Or do you view them as mostly ring fenced here? I'm just thinking that maybe if you're pursuing this path and the demand is out there for all these AI processes, maybe the customers might settle for something that's less than perfect just to meet the demand that they see.

Speaker 3

So I guess the way I would view this is that in terms of encouraging or discouraging OEMs doing business with us, I would expect that OEMs make these decisions based on their considered interest, right, which involves access to competitive technology because it is to say, if they are foreclosed from a power system technology that their competitors have, they are in a challenging competitive position of their own. And so to the extent that Vicor provides access to enabling power system technology, whether it's VPDs, particularly second term VPD or high current density solutions. Customers come to us because they realize we have those capabilities which the commodity pack of multi phase does not have. Now the enforcement of the IP is a necessity. IP needs to be respected.

Speaker 3

We can't have a market in which OEMs, particularly large OEMs, wish to commoditize a proprietary product covered by a lot of innovation and patents as is the case for DNBM and other unique VITO capabilities. So we need to make the investment necessary in getting the respect that the intellectual property deserves. And our first action in this regard is an action of the International Trade Commission. We're now more than halfway through that process. We are going to be at trial at the end of April.

Speaker 3

And thus far, we're winning on just about every key decisions that's been made to date. So I'm very encouraged with respect to the outcome, and we're very focused on bringing that to a successful conclusion later this year.

Speaker 4

Got it. When do you expect the final decisions to be made there? And what are the what are you expecting the legal costs to be just on a run rate basis as we get there?

Speaker 3

So the LJ will render his decision by I think the very beginning of October. The trial is at the end of April, beginning of May. Cherry products sometime in Washington, D. C, good time to be in Washington.

Speaker 4

Got it. And the cost the legal expenses associated with that?

Speaker 3

It's significant, but not nearly as significant for our opponents because of how we structured RBL with law firms that work with us as partners. So we have a common goal and a common set of interests.

Speaker 4

Got it. Okay. Thank you.

Operator

The next question is coming from John Dillon. Please go ahead. Your line is open.

Speaker 6

Hi, guys. Thanks for the follow-up. Patricio, your cash keeps increasing even after investing and building a new factory. So I'm wondering, are you saving the cash for building a multiplicity of chip fabs? Or are you considering stock buybacks for that cash?

Speaker 1

Building more fabs or a stock buyback? Yes. So I'm

Speaker 3

sorry, I couldn't understand all of what you said. But regarding MOPFETs, we first have to fill the existing one, right? And the existing one, which we have represented to have a capability of nearly $1,000,000,000 based on some of the advances we made with our 5 gs technology is now expected to be able to support considerably more that level of yearly revenues. So we got a while to go before having to invest in the second fab.

Speaker 6

What about stock buybacks?

Speaker 3

Well, we're focused on a variety of opportunities at this point in time. And frankly, that's not been on Miretta Screen, but it may get on a regular screen. And if and when that happens, we'll find out when it happens.

Speaker 6

And what do you say to your cash flow then? You said a huge cash flow that keeps growing.

Speaker 1

Cash flow. So what are we using the cash flow for? Well, I think at this point, it is the case, John, that one very favorable thing that occurred in the last couple of quarters is couple of quarters of greater than $20,000,000 per quarter of operating cash flow. So there is a sense now that with royalties and other parts of the P and L and the factory internalized and no more spend outside that we can be pretty efficient and very efficient in fact in generating cash. So but let's let the cash pile grow a bit and then we'll decide as Patrizio said you look at

Speaker 3

it. Yes. So needless to say, we particularly in the early stage of our IP campaign want to be in a very strong financial position, right? And there the second several is with respect to being able to invest in the campaign to the extent necessary for as long as it takes to achieve the goals. And that's our top priority.

Speaker 3

That's most important strategically, right? Going back to your question, let's say we could buy back 5% or 10% of float, that opportunity, relatively speaking, pales relative to the opportunity to double the value or do more than that by succeeding at the strategy and the mission. And that's our focus.

Speaker 6

Got you. And Bill, can you just give us a brief update on your design wins how to go and where you see coming up?

Speaker 2

Sorry, John, I couldn't make out that question

Speaker 3

for you. Yes. It's very, very hard. Speak louder or run.

Speaker 6

Yes. Sorry, Ed. Can you just give us an update on the design wins, a quick update

Speaker 1

on the wind?

Speaker 2

No. As I mentioned in my remarks, John, the pipeline is continuing to grow. I mean, we're as I talked about, we're focused as a strategy on 100 customers. We've identified those 100 customers with about a $6,000,000,000 SAM for Vicor. We're very focused on those top 100 with account managers on every single one of them.

Speaker 2

And every single one of them is targeted for a set of new products that will have started to release in Q4 and we'll have more in Q1 and Q2. So the pipeline is growing. We've got a very healthy growing pipeline. I'm quite confident in all four business units achieving their goals over the next 3 to 4 years by 2027.

Speaker 3

Yes. You see part of the note, this is the UF C5 model, right? We're not even though there's been a lot of talk, a lot of focus, particularly from the investors community on AI, for obvious reasons, the center opportunities. That is one of the primary markets. It's not the only market.

Speaker 3

You've heard us talk about automotive. That's an important market as well, obviously an emerging market for us. But we have 2 other end markets that in their own right represent a great deal of opportunity. Aerospace and Defense, Industrial Market, our products evolve the right trades for those applications in those end markets and those in their own right represent a good opportunity for us. And if you see here in the business model is obviously key to the overall strategy in terms of market transaction.

Speaker 6

Great. Thank you guys very much. I really appreciate it.

Operator

The next question is coming from attendee, Gujuan Dovrefung. So I will unmute you now, but I would like to ask you to introduce yourself before you take your question.

Speaker 3

Hello?

Operator

Yes, we can hear you.

Speaker 2

You might want to go

Speaker 1

to the next questions, operator.

Operator

Sure. The next questioner also joined over the phone. So I will now unmute you now. And as I asked earlier, please introduce yourself before you ask a question. Please go ahead.

Speaker 8

Okay. Hi. This is Don McKenna.

Speaker 3

Hi, Don. Please go ahead.

Speaker 8

All right. Can you guys hear me?

Speaker 3

Yes, very well. Yes.

Speaker 8

Okay. Then I was following up on John Dillon's earlier question relative to bookings. And I know you said you didn't want to project any kind of trends. But can you give a rough idea how they're running so far? You're halfway through the quarter, how they're running compared to last quarter?

Operator

Again,

Speaker 3

setting expectations with respect to what is going to happen this quarter or next quarter is not something we're going to do because it could be misleading one way or the other and we don't want to do that. So we want to be very honest in effect shedding what we characterize as challenges and opportunities that on balance could lead to a variety of outcomes. So given that setting any kind of specific expectation could be potentially misleading one way or the other, and we don't want to do that.

Speaker 8

All right. Thanks.

Operator

And we have one more question from attendee who also joined over the phone. So I will unmute you now, but please introduce yourself before you take a question.

Speaker 3

Hello?

Operator

You're muted, Nao. Yes. We can hear you.

Speaker 7

Hello. Yes,

Speaker 2

we can hear you.

Speaker 3

Hello. Go ahead.

Operator

Hello. This is

Speaker 2

General Motors announced that they're building a big plant domestically for EVs. You expect that you'll be selling your products to GE up for this? So we not again, not talking about any specific customers, but we have really covered most of the OEMs globally with our technology. It's been part of our strategy to get the OEMs excited about Vicor technology and what it can do in their BEV platforms or mild hybrid platforms. And for them to really start collaborations with us and to then bring in Tier 1s.

Speaker 2

And as our strategy for 20 24 evolves, we're starting to work with more Tier 1s on those types of collaborations. So rather than get specific about one customer, I can say that generally and on a global footprint, we're doing very well with those collaborations and moving forward with our automotive strategy. But it's good to see the GM investment. That really is good to see.

Speaker 1

Thank you.

Speaker 3

If there is one more question before we close.

Operator

All right. The last questioner also joined over the phone. So I will now mute you now. Please introduce yourself before you take a question. Please go ahead.

Operator

Your line is open now. Can you

Speaker 9

hear me?

Speaker 3

Yes.

Speaker 9

You can hear me?

Speaker 3

Yes.

Speaker 9

Okay, great. This is Richard Chan with Craig Hallum. I'm not sure what's wrong with this service, but I've been trying to get on for 45 minutes.

Speaker 3

We can hear you loud, I guess.

Speaker 9

Great. So I guess maybe a kind of a multi parter as we look at your 5 gs technology. I think in your last call you talked about wanting to deliver models and tools sometime this quarter. I think I got it early enough to hear the prepared remarks and didn't hear anything regarding that. I'd love to get an update on whether those have been delivered yet here.

Speaker 9

And then as we think about you're getting to volume production with this, and I think you alluded to maybe by the end of this year, early next year. What needs to happen between now and then? And how do you exercise the new facility here to give confidence to large customers that you have the ability to ramp with high yields, high quality and low lead times?

Speaker 3

So customers have come to visit the facility, kicked the tires as it were. And generally speaking, they've been very impressed. We had, as an example, a couple of weeks ago, the VP of Operations for a company with a very unique product in the realm of AI capabilities. And he commented having visited the factory that he never seen anything like that in terms of capabilities and state of the art facilities. So the customer visits and customers being exposed to the equipment, the processes, the systems that our team has put in place speaks volumes to the scalability, the methodology of making panels of chips as if they were wafers of semiconductor devices.

Speaker 3

Regarding 5 gs, we are engaged with some lead customers, including one I was referencing a moment ago and another notable one that come to mind that is particularly keen on our technology and we have a schedule that has us deliver them functional samples, tools and demo systems as we progress through Q2 and Q3 of this year. Regarding getting into production, we're going to have power production for 5 gs in the second half of the year. In terms of revenue opportunity, this is a Q1 2025 type of event. It's not in terms of contribution to revenue in any meaningful way a 2024 event, just to be clear.

Speaker 9

Okay, perfect. I wanted to get that confirmation. I appreciate that one. My last quick question here is, there was a statement made by I can't remember it was either Patrice or Phil on the last call here about expecting a dominant share of AI power systems, I think referring to with 5 gs and over a period of time. Just wanted to especially given the step down in revenues that people might have concerned people, I wanted you to reiterate, if you still believe that to be the case, reiterate that that's what you think is going to happen.

Speaker 3

It is. And it's not a dream. It's a vision that is rooted in hard numbers. The current density, the amps per square millimeter, so to speak, the efficiency, the scalability, the figure power delivery capabilities. The key attributes that we know, data center, AI and customers need and with respect to which they're really today severely handicapped.

Speaker 3

The multi phase approach, particularly with VPD, but even without VPD is very, very challenged. And it's been the de facto standard for obvious reasons because it is multi source and historically it has had a scalability of its own to the ecosystem of a large multiplicity of suppliers around the globe. But technically, it's very severely handicap. And it's that visibility that I have, which again comes down to numbers like amps per square millimeter and other attributes. The ability to provide a BPD solution in 1.5 millimeter thin car multiplier that line up with what the AI processors require.

Speaker 3

We're looking at applications with 2000, 4000 amp requirements. In other cases, we're looking at wafer scale applications at the 50,000 amp level. You can't do that with multi phase. You can only do it with our enabling technology. And that's what we're set to enable directly with our fab and to some degree indirectly through our licensee model.

Speaker 9

Okay. Appreciate those, Patricio. That's all for me.

Speaker 4

Thank you.

Speaker 3

And with that,

Speaker 1

we'll have to wrap it up. So operator, if you could close the

Speaker 3

call. Thank you.

Operator

Sure. Thank you, everyone. That marks the end of your EBITDA. Thank you for joining and have a nice day.

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Earnings Conference Call
Vicor Q4 2023
00:00 / 00:00