Vicor Q1 2024 Earnings Call Transcript

Quartr
Provided by Quartr
April 23, 2024

There are 10 speakers on the call.

Operator

Good day, everyone, and thank you for standing by. Welcome to the Q1 2024 Vicor Earnings Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer Please be advised that today's conference is being recorded. I would now like to hand the conference to Jim Schmidt, Chief Financial Officer.

Operator

Please go ahead.

Speaker 1

Thank you. Good afternoon and welcome to Vicor Corporation's earnings call for the Q1 ended March 31, 2024. I'm Jim Schmidt, Chief Financial Officer and I am in Andover with Bill Davies, Vice President, Global Sales and Marketing. Patrizio Vinciarelli, Chief Executive Officer is joining the call from Washington DC ahead of the upcoming patent infringement trial before the International Trade Commission. After the markets closed today, we issued a press release summarizing our financial results for the 3 months ending March 31.

Speaker 1

This press release has been posted on the Investor Relations page of our website,

Speaker 2

www.vicorpower.com.

Speaker 1

We also filed a Form 8 ks today related to the issuance of this press release. I remind listeners this conference call is being recorded and is the copyrighted property of Ichor Corporation. I also remind you various remarks we make during this call may 1995. Except for historical information, 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.

Speaker 1

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 2023 Form 10 ks, which we filed with the SEC on February 28, 2024. 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 23, 2024.

Speaker 1

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. 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 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 year over year changes and refer you to our press release or our upcoming Form 10 Q for additional information. As stated in today's press release, FICO recorded total revenue for the Q1 of $83,900,000 down 9.5% from the 4th quarter total of 92,700,000 and down 14.3 percent from the Q1 2023 total of $97,800,000 Brick Products revenue declined 11 point 7% sequentially, while Advanced Products revenue declined 7.3% from the 4th quarter.

Speaker 1

Shipments to stocking distributors increased 21.8% sequentially. Exports for the Q1 decreased sequentially as a percentage of total revenue to approximately 42.6 percent from the prior quarter's 56.5%. For Q1, advanced product share of total revenue increased to 51 point 6% compared to 50.4% for the 4th quarter with Brick Products' share correspondingly decreasing to 48.4% of total revenue. Turning to Q1 gross margin, we recorded a consolidated gross profit margin of 53.8%, increasing approximately 2.7% from the prior quarter. A number of factors contributed to the sequential increase in gross margin percentage including increased royalty income, improved sales mix, reductions in tariff spending and lower freight costs.

Speaker 1

I'll now turn to Q1 operating expenses. Total operating expenses increased 10.1 percent from the 4th quarter or $4,000,000 with the increase being primarily due to legal expenses incurred ahead of trial in our patent infringement case before the ITC. The amounts of total equity based compensation expense for Q1 excluding goods, SG and A and R and D was 754,000 dollars $3,026,000 respectively totaling approximately 3,800,000 dollars For Q1, we recorded operating income of $1,100,000 representing an operating margin of 1.3%. Turning to income taxes, we recorded a tax provision for Q1 of approximately $1,200,000 representing an effective tax rate for the quarter of 31.3%. Net income for Q1 totaled $2,600,000 GAAP diluted earnings per share was $0.06 based on a fully diluted share count of 45,031,000

Speaker 2

shares.

Speaker 1

Turning to our cash flow and balance sheet. Cash and cash equivalents totaled $239,200,000 at Q1. Accounts receivable net of reserves totaled $57,600,000 atquarterend with DSOs for trade receivables at 47 days. Inventories net of reserves increased 5 point 4% sequentially to $112,300,000 annualized inventory turns decreased sequentially to 1.71 Operating cash flow totaled approximately $2,700,000 for the quarter. Capital expenditures for Q1 totaled 7,400,000 dollars We ended the quarter with a construction in progress balance primarily for manufacturing equipment of approximately 13,600,000 dollars and with approximately $17,800,000 remaining to be spent.

Speaker 1

I'll now address bookings and backlog. Q1 book to bill came in below 1 and with 1 year backlog decreasing 6.5% from the prior quarter closing at 150,300,000 dollars As stated in our earnings call in February, 2024 is a year of uncertainty and opportunity. As of today, the quarterly and annual outcome in terms of top line and bottom line remain subject to a 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. My remarks this quarter will build on Patrizio's comments in the press release that we issued earlier today. As a reminder, Patrizio commented, as we confront challenges and pursue opportunities, 2024 will be seen as the year in which our product strategy, selective licensing of intellectual property and clarity of purpose secured Vicos future growth and profitability. So let's look at this from the point of view of our 4 business units and the growth opportunities each of them has with our top 100 customers. The current base of our business lies with the industrial business unit and the aerospace and defense business unit.

Speaker 2

This year, we will release to production over 20 new high power density products that leverage our new chip fab capabilities. These products utilize advances in our topologies, control systems, components and packaging to raise the bar on power density and performance. From high power regulated and fixed ratio DC DC converters to new AC to DC products aimed at the aerospace industry to a new family of radiation tolerant factorized power products for both LEO and MEO satellite constellation deployments. Customers from our top 100 are now designing advanced power systems for exciting new product launches that leverage electrification and autonomy in their systems. As part of our industrial and aerospace and defense strategies, we have also consolidated our distribution channel partners to large global distributors who have the customer base, the reach and the market status needed to achieve our broad market growth goals.

Speaker 2

Our global channel partners, Arrow and Avnet, are now placing a higher focus on power conversion and power management as a strategic business and a major growth driver due to the electrification trends in broad industrial and transportation markets. They clearly recognize the advantages and differentiation that our high density power modules bring to their customer base. This quarter, we concluded a series of meetings with both channel partners jointly laying out clear strategies and targets for growth by focusing on specific vertical markets with a clear set of identified target customers globally that map to the numerous new products that we will launch in 2024. Technology licensing will become an expanding segment of our business portfolio and an important parallel path to our product revenues across our 4 business units. Licensing will enable more rapid scaling of our automotive market opportunity as we expand our relationships with OEMs and automotive Tier 1 suppliers.

Speaker 2

The automotive market in particular is aggressively looking for new technologies for both 48 volt Zonal architectures, onboard charging and 800 to 48 volt powertrain conversion systems, which deliver high power density and low weight for electric vehicles. OEM technology licensing partnerships are a way to monetize and rapidly scale this business. Our HPC customer engagements continue to expand with a set of customers with target production dates now for new innovative and higher performance AI processes that will take full advantage of our Generation 5 vertical power delivery chipset. VPD is very strategic in achieving the power delivery, low power losses and performance required. Electrical and thermal models representing the Gen 5 chips have now been delivered to leading customers, enabling their system simulations at process occurrence up to 2,000 amps.

Speaker 2

We are on track to deliver evaluation systems and power module samples in Q2 and Q3 respectively. Q2 will be very busy for our automotive business unit as we host at the current count 6 customers at our new facility in Andover, Massachusetts. New collaborations and design ins continue ins continue with significant new engagements with OEMs and Tier 1s in the Asia Pacific region, where investments in electric vehicles and 48 volt zonal architectures are leading the rest of the world. The team had a very successful WCX in Detroit once again this year with 4 technology papers that showcased our power module based power system value propositions for 800 volt and 48 volt powertrains. The new 48 volt Zonal architecture will provide both product and OEM licensing revenue opportunities.

Speaker 2

Thank you. And with that, we will now take your questions.

Operator

Thank It comes from the line of Quinn Bolton with Needham and Company. Please proceed.

Speaker 3

Hey, guys. I was wondering if you could start with, I think the ITC case is going to be heard next week, but I was hoping you could give us just sort of an update on the ITC schedule, What you expect to happen next week? And then, what would you expect to sort of follow over the summer until the expected decision date, which I believe is in early October. But anything you could sort of provide us what the next key milestones in the ITC case are would be helpful.

Speaker 4

So to your point, the proceedings remain on schedule. There's going to be a trial next week and a decision by the administrative law judge in September with a deadline of early October. We look forward to an outcome that we expect to be favorable to buy. We are on the right side of the issues and our opponents are on the wrong side of the issues and that's clear or should be clear to everybody. But again, we're going into trial prepared, confident or positive outcome.

Speaker 5

Great. And then, you had mentioned both

Speaker 3

in the press release and the prepared script, that royalty revenue has continued to increase in the March quarter. Just wondering if you might be able to quantify that, how

Speaker 4

much of an uptick did

Speaker 3

you see in March? And then would you expect that royalty line to continue to grow through the remaining quarters of 2024?

Speaker 4

So generally, we expect that royalty contribution to our revenues and bottom line to continue to expand as far as we can see. And there may be a step up events that occur at certain points in time. But to be clear, we're taking a very long term view with respect to the opportunity and approaching it with the right balance in terms of Vago's interest as well as the interest of OEMs that elect to take a license as opposed to potentially be confronted with lying down situations following exclusion. Route.

Speaker 3

Got it. I'll go back in the queue. Thank you. Thank you.

Operator

Thank you. One moment for our next question please. And it comes from the line of Richard Shannon with Craig Hallum. Please proceed.

Speaker 6

Hi, guys. Thanks for taking my questions. I guess I've got a couple of interlocking questions on your 5 gs 2nd gen PPD product here. I guess I want to get a sense of kind of the milestones that we should expect to see over the next coming quarters towards getting bookings and eventual revenues here. I think in the past you've talked about models and tool delivery, which I think I heard some detail that I missed some of that.

Speaker 6

I think last quarter you talked about some maybe some more equipment need to be delivered to support that. And then anything about manufacturing experience required for essentially the larger customers to have confidence in the ramp here? If you could kind of detail that what we should be looking for this year, that'd be great.

Speaker 4

Sure. So let's start with the revenue opportunity. I think as we made clear in prior calls, 5 gs is not a 2024 revenue opportunity. It's revenue opportunity starting in 2025. This is a year of delivery of solutions to initial key customers And we're far along particularly with 1 and before too long with more.

Speaker 4

So I will look again at 2024 as bringing this development effort to fruition, setting the stage with some leading customers before we get into production volumes next year.

Speaker 6

Okay. Let me follow-up and kind of looking at this 5 gs opportunity a different way and certainly understanding it as you said last quarter that this is not the year for 5 gs revenues at all here. But I guess, do you expect to be able to intersect with the 1st generation of 3 nanometer accelerators, GPUs, CPUs, whatever is out there to be ready by then? Or is that something you might be lagging the leading edge there?

Speaker 4

I would say that we have highest pretensions, both premise on our capability, the much higher current density, the other performance outages of our 5 gs VPD solution, which is what we call a 2nd generation VPD, distinct from the 1st generation Bagel, Self Pioneer and Palantir, in which it's being practiced by competitors with a great deal of difficulty from the performance perspective, from the reliability perspective and last but not least, from the intellectual property perspective. So we believe that customers with the visibility to all the issues and we're engaged with some of them, Understand that to get to reliable, scalable and not challenged by intellectual property issues. VIGO is the source. And at this point in time, no other source for a VPD system that works well, that is scalable, and that is not devoid of intellectual property challenges.

Speaker 6

Okay, fair enough. Thank you.

Operator

Thank you. One moment for our next question please. All right, one moment. It comes from the line of Jon Tanwanteng with J. S.

Operator

Securities. Please proceed.

Speaker 7

Hi, good afternoon and thank you for taking my questions. I was wondering if you could give us an update on the potential for lateral vertical products shipping, if that might contribute to 2024, 2025 and if there's active programs in the pipeline for that?

Speaker 4

I'm sorry, I missed the potential for which, if you could

Speaker 7

Lateral vertical products, so the in between product.

Speaker 4

Yes. So I think as it turns out, the potential is limited. I will let Phil fill in with more color on this with a global view because the answer depends on which particular end market we're looking for. Phil?

Speaker 2

Yes. So we do have still have engagement with customers on lateral vertical designs. We've also seen lateral vertical be used with some reference designs for the network communications market for the Broadcom Marvell type of processes from some of the contract manufacturers in Asia. So there could still be some revenues on lateral vertical towards the end of this year, early next year. So that's still a potential for us.

Speaker 3

Got it.

Speaker 7

Thank you. And then so you mentioned something about licensing and enabling more rapid scaling in automotive. Are you allowing your partners there to produce your designs? Or is it something more similar to the current status quo where you are allowing people to use your IP from different vendors, like it's happening in HPC markets?

Speaker 4

So we are open to the opportunity for selective licensing in among others, the automotive market. And there's been some special interest with respect to that. It's predicated on the distinct attributes of our solutions. And I'm referring to solutions involving 400 volt to 100 volt bus conversion as well as other solutions, including so called zone architecture, which once again something is a ZIGOR conceived of 10 years ago with respect to which we have intellectual property. So we have a number of opportunities in the Alamoire area in Partizia.

Speaker 4

There are some that are now beginning to develop also related to ACVIC. I do expect that over time, some of these opportunities may turn into licensing deals.

Speaker 7

Okay, great. Thank you. And then finally, could you Jim, could you break out the legal expense in the quarter and what you expect over the next 2 or 3 as the ITC case wraps up?

Speaker 1

Like we said on the in prepared remarks, legal expense was the primary driver of the $4,000,000 incremental OpEx. I would stop short of trying to predict the future on that, John. And I might let Patrizio comment as well because he's obviously been very close to all of it.

Speaker 4

Yes. So to Jim's point, last quarter, there was a significant step up primarily relating to preparations for the upcoming trial next week. We are not in a position to forecast the evolution of legal expenses. Frankly, they could keep stepping up, they could level off or they come down depending on a variety of scenarios. So I think if you wanted to pick one among those three scenarios, keeping it pretty much level would be probably the middle of the road alternative, but it could step up again because of additional actions we might take.

Speaker 7

Understood. Thank you.

Operator

Thank you. One moment for our next question please. And comes from the line of Don McKenna of D. B. McKenna and Company.

Operator

Please proceed.

Speaker 5

Thank you. Patricio, the comments that on future sales opportunities again are pretty positive. And with the exception of last quarter, the outlook has always been quite positive. And if you go back and read the transcripts, it's obvious that the potential markets that you envisioned and the superior products that you're offering just haven't produced the results you would hope for. And I'm wondering what you've learned from that failure to capture the potential and what changes you've made in your approach to improve the sales and profitability?

Speaker 4

So as suggested in my calls, we believe we are executing well with a clear vision of what challenges and opportunities are. And frankly, I think it is a big part of the answer to your question that has to do with the vagaries of what has been going on with certain leading OEMs, where their priorities have taken them in terms of product development. And to keep it at a very high and general level, I would say that from our visibility, our unique perspective with respect to the evolution of power system requirements, some of the choices that have been made with certain OEMs are going to get those OEMs into a real bind, both in terms of the performance of their platforms and more importantly, their competitive standing relative to other companies that are starting to capture market share, and they see the opportunity of leveraging a superior power system technology from VAIGO. So I guess, I'm not apologetic with respect to how we got to where we are. We don't control our destiny in every respect.

Speaker 4

Obviously, we make accretive decisions with respect to strategy and how we're going to make the most of the opportunity, both in terms of fab, our 5 gs technology and importantly, our intellectual property. And I would say that I'm quite satisfied with how we got to where we are, and I think we have tremendous opportunity. It takes perseverance, clarity of vision, persistence. We have all those trades and we expect to before too long capitalize on the opportunity.

Speaker 5

Yes. And I realize it's very difficult for you to try to make any projections on the short term. Can you give us some kind of a feel for where you would expect revenues as a percentage increase over current, let's say, 3 years down the road? What would you be satisfied with?

Speaker 4

I don't know that I can honestly give you numbers or general expectations without substantial risk in either direction. I think I can say that we do expect to fill our fab. As we know, the fab has got $1,000,000,000 worth of capacity and maybe a little more than that. We're going to be able to fill that fab with opportunities relating 5 gs in AI and data center type of applications as well as automotive applications. And generally speaking to Phil's earlier point, our top 100 customers in diversified several markets.

Speaker 5

And would you expect to fill that fab in the next 3 years?

Speaker 4

I do expect that, that will happen. I don't know if Phil wants to add some color to this.

Speaker 2

No, I would just say that that's the objective is to achieve that and to do it with the broad based market, with our distribution channel on the broad based level, but also the top 100 focus. And we're making great progress across the 4 BUs with the top 100. And the new products that we're introducing this year, not just the Gen 5, but new high power front end products are getting designed into these top 100 customers that we're now focused on. So I'm confident that we'll fill the fab and I think that some exciting times are ahead of us.

Speaker 5

All right, great. Thanks guys.

Speaker 3

Thank you.

Operator

Thank you. One moment for our next question please. It comes from the line of Alan Hicks with Ainsley Capital. Please proceed.

Speaker 8

Yes. Good afternoon. I think I heard you say 48% on BBU and 50% on Advanced Products. Was that correct?

Speaker 4

I'm sorry, could you repeat that? I'm a little bit handicapped here with my audio today.

Speaker 8

On the percentage of revenues, advanced products, I think, were a little over 50% and BBU was a little over 48%, was that

Speaker 4

correct? That's correct. For the past quarter, yes, the mix between Advanced Products and Brick Products changed.

Speaker 8

Okay. So could we assume that royalties with that other 2%?

Speaker 4

I'm sorry, the royalties what?

Speaker 8

The differential added up to 98% roughly. So the differential would be roughly 2%.

Speaker 4

I wouldn't make that assumption. I don't know that I can give you a quantitative measure here. I know as part of our reporting and maybe Jim can comment on that. He can point you to where you can find additional information.

Speaker 1

Yes. Alan, the better way to think about it is we said 51.6% advanced, 48.4% BRIC, which is 100%. And the royalty income is associated with advanced products.

Speaker 8

Okay. So did it last quarter it was $7,000,000 I believe. Did it grow significantly from last quarter?

Speaker 3

It did

Speaker 1

grow. It stepped up substantially from last quarter.

Speaker 8

Okay. And there's the factory are the gross margins also improving on the factory?

Speaker 1

Sorry, go ahead for Trito.

Speaker 4

Okay. Well, so it needs to say, capacity utilization in the factory is an issue, was an issue as the last quarter, still going to be an issue this quarter. And the fact that the revenues, particularly for our revenues, took a step down last quarter at DNAP with respect to margins. But all the factors that Jim pointed to in his prepared remarks, including beyond licensing income, reduction in tariffs, changing mix, federal mix, This contributed to a significant improvement in total gross margins. And that's the trend line that we are satisfied with.

Speaker 4

I think we've represented in the past that we have a goal to achieve substantially higher margins. And that goal is supported by the strategies that we're implementing and executing with the mix of further advances with respect to our product capabilities as well as the complementary element of, in effect, monetizing some of the value or IP through selective licensing.

Speaker 8

So I think those gross margins were easily the best you've ever had. I think it was 53.6%.

Speaker 4

I think gross margins for the quarter, Jim, correct me if I'm wrong, but 53 change, right?

Speaker 1

Yes. So I can comment on that, Alan, actually. So 53.8 was the result last quarter and that was the highest for sure since I've been at Vicor.

Speaker 8

I've got going back over 20 years, so that's the highest I've ever seen. Do you expect that to continue to grow the rest of the year based on royalty increases?

Speaker 4

Again, we're not going to be making detailed quarterly prediction in a year in which so much could happen. So I think we're just going to have to the ones that are invested in VIGO for the long term are going to look at this. I think one of the analysts asked a question in the last call about 2024 being the transition year. I think at the time, I didn't embrace that characterization. I think in hindsight, it's probably the better way of looking at it.

Speaker 4

This is a year of transition in which, in effect, a lot of things are going to change and that we expect for the better.

Speaker 8

Okay. I was at the NVIDIA conference, I think it was February or last month, and I stopped by the Delta booth and they showed I asked about the NBM product and they showed it to me and said, we're not infringing because we have a different process. I don't know. That's all they said and they kind of shut up. But can you comment on that or?

Speaker 4

Yes. The letter B and S come to mind. The fact is that their copycat product infringes 3 of our patents. And thus far, the proceedings corroborated that expectation. So let's wait and see what happens with what I expect to be an exclusion order against them.

Speaker 8

Okay. And just a quick question on that. There was a product, I think it was showed at the WCX that had DC DC converter, 150,000 watts, I think. Is that for charging stations?

Speaker 4

Phil, could you answer that?

Speaker 2

Yes. That was the PSU Patrizio, the demo of the 5 parallel MBMs in the PSU, the 150 kilowatt onboard 800 to 400 volt charger. That was on demo. We added in the case not covered up but WCX.

Speaker 8

But is the application for charging stations?

Speaker 2

No, that's not all.

Speaker 4

That's an application for fast charging and it's an application where we have a major weight advantage as well as a major efficiency advantage. So that system comprising, at the moment, 5 of our modules, and in fact, we'll be able to get to the 150 kilowatt capability with a reduced number of 4. That system supports peak efficiency of over 99%, and it has astronomical power density, meaning its volume measured in liters and weight measuring kilograms is small fraction of any competitive unit.

Speaker 8

So that would go both in the car and the charging station?

Speaker 4

No, this is a device that certain automakers are going to incorporate within the vehicle in order to facilitate flexible charging.

Speaker 8

Okay. How far away are you from design wins there?

Speaker 4

We have design wins with 2 smaller automakers.

Speaker 8

Okay. And one last question. You say you're going to fill the factory to $1,000,000,000 in 3 years or whatever. So that's in addition to whatever OEMs are also manufacturing or licensing your products?

Speaker 4

Phil, I'm having a hard time here with my audio. Could you respond to that?

Speaker 2

Yes. So our goal is product revenues out of the factory. As Patricio said, just over $1,000,000,000 out of that new fab and OEM licensing activities adding to that, yes.

Speaker 8

Okay. Thank you very much.

Speaker 4

Thank you.

Operator

Thank you. One moment for our next question please. And it comes from the line of John Dillon with DNB Capital. Please proceed.

Speaker 9

Hi, guys. Thanks a lot for taking my questions. I appreciate it. Phil, now that your factory is finished and we're seeing processors at 1,000 watts and higher coming to the market and also in your prepared remarks, I think I heard you say target production dates for HPC. When will we start seeing evidence of GPUs from major manufacturing factories using the BiCore PUL solutions?

Speaker 2

So I think Patricio talked about that, John. I think that, as I mentioned in the prepared remarks, we're delivering electrical, mechanical, thermal models to leading customers right now. Then we'll follow that up in at the end of Q2 with a demo system that they'll be able to check out hardware and test the models against the demo system. And then we'll be sampling in the towards the end of Q3. And we expect production probably towards the second half of twenty twenty five.

Speaker 2

That's when we'll have vertical power delivery and production.

Speaker 9

Is that what you're referring to

Speaker 2

when you talk

Speaker 4

about? There's one notable customer though that may well be in production come the very beginning of next year. And for that customer, the hardware is due to be delivered in the summer months.

Speaker 9

Excellent. And Phil, is that the target production dates that you were talking about? Or is that something different?

Speaker 2

No, that's the target production dates, yes.

Speaker 9

Got you. And are there current Gen 4 designs in production or about to go in production that will act as a bridge from the Gen 5?

Speaker 2

Yes. We have some Gen 4 design wins. But again, as Patrizio pointed out, there have been some market shifts with people changing strategies with supply chain considerations ahead of performance and technology. But vertical power delivery comes along. We have with the Gen 5 technology, an incredible solution with the current density that we can get to 3x over what the competition will be.

Speaker 2

So I think there'll be some really hard reassessments being made as we move forward here with a number of accounts, but we'll see that happen. But we have some very good interest from the accounts that are building really big investments into AI and developing their own processor chips. And they're the people that you would expect. And we have great engagements with them right now. So I'm confident Gen 5 is going to be all that it can be and we're going to be having a very exciting 2025.

Speaker 9

And you're pretty confident then that the productization schedule will stay on schedule?

Speaker 2

I'm personally confident. Patrizio, you want to comment on that, but I certainly am.

Speaker 4

I'm also confident. I think we're leveraging, for the most part, processes and equipment that we have installed and have fully vetted. There are a few process steps that are going to be used in order to scale up capacity, not to deliver initial units that are still under some level of refinement. But generally speaking, the capability is in place, and we have a fab with the capacity to build very, very large quantities of panels and CISA solutions for customers.

Speaker 9

So you guys have working alpha or beta product right now?

Speaker 4

So we have a lead customer that we're going to be delivering functional systems. We started some initial partial delivery, but we're going to be delivering concrete systems in late June, July timeframe. Excellent. So the lead application to be followed by others as we get into the other part of the year.

Speaker 9

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

Operator

Thank you. And one moment for our next question please. And it comes from the line of Quinn Bolton with Needham and Company. Please proceed.

Speaker 3

Hey, Jim, just a question on the royalty, how it works. The royalty revenue you recognized in the Q1, is that for shipments of your licensee that took place a quarter in a rear, so effectively shipments in the 4th calendar quarter of last year? Or is it sort of for shipments that took place in 1Q of 2024?

Speaker 1

It's real time. It's based on shipments that basically they take Resideo. So but it's not in arrears, it's in the quarter.

Speaker 3

Okay, perfect. And then just sort of following up on John's question around that Gen 5 deliveries. The lead customer is for Gen 5, I assume that that's a data center or sort of AI or HPC application, but just wondering if you could give us in broad strokes what sort of the application is for that 1st Gen 5 customer?

Speaker 4

It's within the confines you just defined. But at this point in time, we really don't want to be specific. We want to give this customer the full advantage of being first and having an element of surprise. But it's within the general field that you identified.

Speaker 3

Got it. Got it. Okay. Thank you.

Operator

Thank you. One moment for our next question please. And it comes from the line of Richard Shannon of Craig Hallum. Please proceed.

Speaker 6

Hi, guys. Thanks for taking my follow on question here. I guess, Phil, following on your prepared remarks here, which probably has as much focus outside of HBC as we've heard in some time here. And you kind of alluded to this at your shareholders meeting last year as well. But in that context, can you give us some sort of understanding of the split of your advanced product revenues between HPC and other applications?

Speaker 6

And then also

Speaker 7

if you might just give us

Speaker 6

a flavor of how much of that advanced product segment is also point of load versus bridging and other kinds of functionality?

Speaker 1

So today yes,

Speaker 2

so can you hear me?

Speaker 8

Yes.

Speaker 2

Yes. So today the advanced product revenues

Speaker 1

Yes. The advanced product revenue was last quarter was 51.6%.

Speaker 2

Right.

Speaker 1

Some 52% of the total company. Yes.

Speaker 2

And the bulk of that was well, some of it, a number of it was into HPC. There's quite a bit of it's now going into industrial. And I think it's really based on automotive because we know so we can just leave that space in defense. That's

Speaker 4

proving quite happy to review

Speaker 2

new electronic water and defense and aerospace applications like the space satellite application that we've been talking about, we're getting more design wins there. So it's really spread amongst those 3 business units excluding automotive, Richard.

Speaker 6

Okay. That's helpful.

Speaker 4

I would add to that, that the strategy that fill our line with better distribution among different end markets with different trades and different sets of opportunities. That's fully supported by a product strategy that leverages commonality of power conversion engines, control systems, packaging technology. So we are able to, in effect, address market needs in markets end markets that may appear to be somewhat different, like test equipment on the one hand and high current point of load VPD tower applications. With modules, in particular, 5 gs type modules, they're essentially the same. And that sets us apart in another way relative to the competition, so to speak.

Speaker 6

Okay. Thanks for all that detail. And a quick follow on question for Patrizio. You talked about consistently from the time that we've covered you and frankly a lot longer about having a distinct advantage in terms of power delivery at very high currents. You talked about delivering samples or whatever to customers up to 2,000 amps.

Speaker 6

Wondering if you characterize the competitive dynamics here in the future with 5 gs in the terms of above what do you think you're going to be the only credible solution up there? Is that at 1,000 amps or a lot of that? Just any characterization so we can think about this as we see the next generation of accelerators come to market?

Speaker 4

So we've enabled systems they're ready up to a few tens of thousands of amperes on a wafer. I would say that's the most advanced solution in terms of power system capability and from what I can tell, compute capability in the market. So that's obviously cutting edge and far above the more common denominator type of applications, which as Phil suggested earlier, are trending up to the 2000 amp levels. So we're involved in one important development with a major OEM at the 2,000 amp level. At that level, fundamentally, you need VPT and you need an adept form of VPT, such as what we call 2nd gen VPT.

Speaker 4

Yes, you could try to do it with the 1st gen VPD that has been covered to a high degree by competitors. But what you'd be stuck with is a system a power system that is involves modules very heavy, very thick, thermally inept, difficult to cool with very poor yields in assembly and reliability issues, not to mention the IP issues alluded to earlier. So we see the market in AI in particular quickly getting past the 1,000 app level and fundamentally left with VPD only solutions. Lateral is out, even lateral vertical, while achieving significant benefits relative to lateral, not as good as vertical. And fundamentally, what's going to be needed is a more advanced version of EPD that doesn't bring about the stacking challenges that characterize 1st generation VPD as LIGO pioneered and palliative.

Speaker 6

Okay, great. Thank you, guys.

Operator

Thank you. One moment for our next question, please. All right. Our last question comes from Jon Tanwanteng with CJS Securities. Please proceed.

Speaker 7

Hi, thanks for taking one more for me. I was wondering if you could update us just on the uptake of automotive and when you expect to start shipping in volume those products. I think you've said for a number of years now that you expected 25 to be the year that automotive really starts shipping and making a difference. I'm wondering if that remains on track and if that's going to be a good source of growth even before your VPDs product start shipping in

Speaker 8

the second half of twenty twenty five?

Speaker 2

Hi, John, this is Phil. So now the timing for automotive is really 26%, 27% from reasonable revenue ramps beginning. There may be opportunities in Asia Pacific conversations that we've had in the last 6 months that could pull that in, but those are yet to develop. So it's too early to talk about those yet. But this is really a 26, 27 story for automotive.

Speaker 2

Although we will begin, as I mentioned, I think last quarter or even in my remarks the quarter before, production, early production at the end of this year, for high performance applications. So I think that that's sort of the time frame that we're on with automotive.

Speaker 7

Okay. Got it. If you were to characterize what could be a bridge market between then and now, which one would be the most likely to drive some sort of upside, whether it be HPC or automotive or some of these other applications you're talking about?

Speaker 2

Yes. HPC is definitely number 1. And I think that we are, again, as I mentioned, seeing very good design ins and wins in industrial, defense and aerospace. So there's going to be some really good growth at good margins coming from those markets. But HPC and Gen 5 could just completely dominate that.

Speaker 2

Got it.

Speaker 7

Thank you, guys.

Operator

Thank you. I'm not showing any further questions in the queue.

Speaker 4

Thank you.

Speaker 1

Okay. Thank you, operator, and thank you, everyone, for joining.

Operator

And with that, everybody, we appreciate your participation. And you may now disconnect.

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Earnings Conference Call
Vicor Q1 2024
00:00 / 00:00