Q1 2021 Vicor Corp Earnings Call
[music].
Good day, everyone and welcome to the Michael earnings results for the first quarter Conference call. My name is one day that you'd be you're even non injected day.
During the presentation to you on a hanger remain on a cent on me you true client <expletive>istance at any time. Please press star zero on your steady phone and a coordinator will be happy to <expletive>ist you I would like that that's all thought is that this conference is being recorded and the debt I would like to hand over to Dick Nagel. Please proceed.
Thank you.
Good afternoon, and welcome to <unk> Corporation's earnings call for the first quarter ended March 31 2021.
I'm, Dick Nagel, Chief Accounting Officer.
And in Andover are true children, Shirley Chief Executive Officer.
Bill Davis, Vice President of global sales and marketing and.
Kimball Morrison, Vice President and corporate controller.
After the market closed today, we issued a press release.
Summarizing our financial results for the three months ending March 31.
This press release has been posted on the Investor Relations page of our website.
W. W. A bike horsepower dot com.
We also filed on form 8-K today related to the issuance of this press release.
I remind listeners this conference call is being recorded in this day.
Copyrighted property of by CT Corp.
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.
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.
<unk> events and announcements and our capacity expansion as well as management's expectations for sales growth.
Spending on profitability are forward looking statements involving risks and uncertainties.
In light of these risks and uncertainties, we can offer no <expletive>urance 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 one day of.
Of our 2020 form 10-K.
Which we filed with the SEC on March one.
2021.
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 April 22nd 2021.
<unk> undertakes no obligation to update any statements, including forward looking statements made during this call.
You should not rely on such statements. After the conclusion on this call.
A replay of today's call will be available beginning at midnight Tonight through May seven 2021.
The replay dial in number 888.
2868010.
Followed by the p<expletive>code 66693367.
This dial in and p<expletive> code are also set forth in today's press release.
In addition, a webcast replay of today's call along with a transcript will be available shortly on the Investor Relations page of our website.
As noted in our press release dated April six 2021.
We announced the appointment of Jim Smith, as Chief Financial Officer affair.
Effective June one 2021.
Succeeding Jamie Simms.
Jim will also join the fight Corp Board of directors and serve as the corporate company as Treasurer and Secretary.
We're looking forward to having Jim joined the company.
I'll now turn to a review of our Q1 financial performance.
After which bill will review recent market developments and Patrice you on Phil will take your questions.
In my remarks, I'll focus mostly on the sequential quarterly change for P&L.
And balance sheet items and refer you to our press release.
Or are other upcoming form 10-Q, four year over year comparisons.
As stated in today's press release <unk> recorded reported total revenue for the first quarter of $88 $8 million.
Up five 3% from the fourth quarter total of $84 $3 million.
Quarterly advanced products revenue rose, 2.2% sequentially.
This growth was constrained by limited component availability due to global semiconductor supply allocation issues experienced during the quarter.
Brick products revenue rose seven 6% sequentially.
Reflecting a resumption of shipments to our European customers after the pen delek related trough.
Of 2020 will Asian customers grew 18% from Q4 of 2020.
These increases offset a modest sequential decline in shipments to North America.
Shipments to stocking distributors rose, 79% sequentially, primarily due to an increase from brick products shipments.
<unk> volume also increased sequentially.
Yeah.
Exports for the first quarter increase increased sequentially as a percentage of total revenue approximately 69% on consolidated revenue from the prior quarter, 64%.
Reflecting the factors just mentioned regarding Europe and Asian shipments.
For Q1 advanced products share of total revenue declined slightly to 39%.
Paired to 40% from the fourth quarter.
With brick product sure correspondingly increasing to 61% of total revenue.
We believe advanced product sales, so we'll expand significantly as a percentage of total revenues.
Especially once new manufacturing capacity comes online.
Given the high growth segments, we are penetrated with our 48 volt technology include.
Including AI.
Data center and automotive.
In contrast in the maturity of the segments, we serve with current products.
Yeah.
Turning to Q1 gross margin we recorded a consolidated gross gross profit margin of 53%.
Higher volumes and improved mix contributed to higher profitability as did a reduction in cost variances and tariff charges.
Gross margin dollars rose 11% sequentially.
While margins remain under the pressure of high tariff charges Q1 charge declined approximately 33% from.
From Q4's charge of approximately $1 5 million.
We expect to see further improvement through 2021.
In part, reflecting our ongoing efforts to reduce component imports from China.
I'll now turn to Q1 operating expenses.
Total opex rose just under 4% sequentially, but consistent with longer term trends, reflecting periodic swings and discretionary spending.
The amount of total equity based compensation expense for Q1 included in cost of goods SG&A.
On R&D were approximately 228000.
853000.
And $490000 respectively.
Holding $1 6 million.
For Q1, we reported operating income of $14 $7 million Rep.
Representing an operating margin of 16, 6%.
The sequential 27% increase in operating income reflects the operational leverage in our model.
Turning to taxes, we recorded a net benefit for Q1 of $143000.
Representing an effective tax rate for the quarter from minus 1%.
Net income attributable to volume corporate Q1 totaled $15 $1 million.
GAAP diluted earnings per share was <unk> 34 cents.
Based on a fully diluted share count of $44 million 841000.
Before I turn to our financial position just a brief update on COVID-19, and our work force.
As previously discussed as a designated essential manufacturer using.
Using masks and practicing social distancing from the onset of Covid pandemic.
We have continuously operated three shifts at our Andover manufacturing facility.
While we have seen a small increase in cases again recently.
Those are below the levels experienced in the December through January timeframe, and absenteeism has declined.
Nevertheless, because much of the potential influence on the COVID-19 pandemic.
It was <expletive>ociated with risks outside of our control.
We cannot estimate the extent of such influence on our financial our operational performance for.
Or one such influence might occur.
Turning to our cash flow on balance sheet cash.
Cash cash equivalents from short term investments totaled $223 million.
At Q1.
The sequential increase of 5%.
Accounts receivable net of reserves totaled $47.7 million at quarter end.
An increase of 16, 3% over Q4.
With Dsos for trade receivable steady at 38 days.
All balances are current.
Inventories net of reserves declined five 3% sequentially to $54 $3 million.
Annualized turns improved to $3 one more.
Reflecting the positive operating results operating cash flow.
Total $17 $6 million for the quarter.
Capital expenditures for Q1 totaled $9 $3 million.
We ended the quarter with the construction in progress balance of 19 million, leaving approximately $38 million.
Our capital budget scheduled to be spent through the year.
Our factory expansion project is proceeding on schedule and on budget.
I'll now address bookings and backlog.
Q1 bookings totaled $99 million.
8.1% sequential increase.
Overall book to Bill of approximately 1.1.
With advanced products of 1.4 and brick products at 1.0.
Q1 bookings largely reflected the same circumstances, we saw with shipments.
Both in Europe and.
In Asia with a modest decline in North America.
At year end, one year backlog totaled $157 1 million and.
An increase of six 5% sequentially.
Turning to our outlook for the second quarter of 2021, we expect.
Revenue growth.
We continue to address the sources of gross margin pressure.
And our forecasting improvement in product level profitability.
Further we do not anticipate any meaningful increase in operating expenses.
While substantial further improvements in gross margins will have to await production.
New vertically integrated factory.
We expect incremental revenue to drive earnings per share.
Given the scalability of our operating model.
With that silver will provide an overview of recent market developments.
And then for treat you on Phil will take your questions.
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.
Bill.
Thank you Dick.
Well, we're off to a great start in 2021 with bookings increasing to a range of markets on regions globally.
Our legacy product bookings were strong.
As far as our data center supercomputer and AI customer demand.
To reflect the supply chain challenges that the industry is facing we have recently increased lead times to 32 weeks for advanced products on 26 weeks of legacy products.
Our manufacturing capacity for Q2, and Q3 is essentially filled.
New orders subject to standard lead times are being booked into Q4 and beyond.
Yeah.
We continue to engage with existing a new data center H P. C. NII customers for our 48 volt point of low power delivery solutions driven by rapidly escalating demand for higher current that will enable next generation GPU on ASIC performance enhancements.
We are also taking to the next stage, our OEM licensing initiative to enable Oems to develop alternate sources without risk of OEM systems, using infringing power module being excluded from importation into the United States.
Our robust automotive pipeline continues to grow with new 48 volt and 400 800 volt modular power solutions for Oems.
The automotive market is not only undergoing major shift with electrification of vehicles, but as Oems look for innovative and cost effective solutions from the higher power electric closed system.
We're also looking towards new suppliers.
Who can deliver solutions and value without the traditional tier one module stack.
These market shifts are opening up more opportunities provides us with new partners on our automotive business development.
So a very quick update on the satellite market opportunity in Q1, we started delivery of evaluation boards from our initial family of radiation tolerant power modules to customers in Europe, and North America, who have been eagerly awaiting their delivery.
We will have more to say on this initiative in future quarters as we begin to build this business out.
Overall I'm pleased with the progress we made in Q1 on a number of important initiatives with a level with a low level of exciting new customer engagements on new opportunities that we are creating.
The power systems market is rapidly changing and on.
Our holistic high density modular power components strategy has us in the right place at the right time.
We plan to maximize the substantial opportunities that are ahead of us while also <expletive>erting and monetizing the intellectual property that effectively protects our pioneering innovations.
Thank you operator, we will now take questions.
Alright.
Your question and answer session on the I'll now begin interest.
Just a question. Please press star one on your phone.
On the factory Julie a question simply press Star team. Thank you.
We have some upcoming questions. The first line is coming from Hamid Kushan. Please go ahead.
Hi, So first off could you just talk about the timing that you experienced in north American shipments and advanced products and.
And the feedback you're getting from those customers as far as the the decline that you experienced in Q1.
Yeah.
Yes.
Yes, we have commencing in the prepared remarks.
We've been cross trained with respect to advanced products.
By the capacity.
Within our existing factory and with itself, there's four of those process steps because I've now forgotten.
Things like that as yet.
I've also been some.
A quick point of availability.
Cash costs are due to the state of.
The semiconductor industry.
Our cost of us understand.
The capacity constraints, we're working with them very closely.
Straight debt.
Force cosas that needs.
Hmm.
We are catching.
Catching up with their requirements.
We expect Q2 to.
To have a significant step up in our vast product deliveries.
And that trend will continue into Q3 and Q4 other than.
Accelerating pace.
And as we progressed towards the end of this year, we're going to begin.
To deploy the expanded capacity, having your cycle time.
The day enabled by.
Our expanded manufacturing facility with all of the packaging process steps vertically integrated.
Okay and then.
You too.
Still testing out your advanced products with these customers or is this purely.
At the deployments level.
Well it depends on which a vast product we're talking about you know some of these are SaaS products.
Being made.
May the ship by the millions.
Other advanced products.
The other hands on the spectrum.
Steel being sampled the initial.
A prototype or five on.
Properties, so they use a wide range.
Volumes.
Being on when the engagement that began with a party or cash what particular type of product we're talking about.
So with a very unique packaging technology, we have.
A very broad range of capabilities.
Debt apply.
Somehow differently, but also in a related way across the type of markets that are very unique.
Power component methodology addresses so.
There's a whole range of volume involved depending on the cash somebody up free cash flow and when that particular product happened to have been introduced.
Okay. Thank you.
Sure.
Yeah.
The next question.
[noise] cleaning from Boston.
Please go ahead.
Yeah.
Hi, it's true soon so congratulations on the nice results and an outlook on that.
So I just wanted to follow up on on that last question, obviously, you're highlighting some manufacturing capacity constraints.
Constraints as well as component availability constraints and I'm just trying to reconcile the comment that you had in the press release about a.
Revenue growth would be limited to 7% sequentially.
Are we are you looking at it is that a comment on overall revenue.
We'll be up 7%.
Quarterly for Q2 Q3 Q4 is that is that the way we should we should interpret the day comment in the press release, and then within that that growth or are you mostly constrained on advanced products or are you also constrained on on brick products.
So the primary gross saying, sorry on our vas products and given <unk>.
And you have time on capacity.
We see the revenue growth overall.
Based on the ability to scale up.
The quantity is so vast products it being limited to.
About 7% for this quarter.
And the quarter after debt in the fourth quarter of this year again, once we get past.
This timeframe and we begin to deploy the dish on capacity in the short cycle time on this.
On the factory.
With vertically integrated processes those constraints.
We will go away and he has to say that the rate of bookings demand book to Bill.
Would you have us absent the capacity constraints.
Net revenues faster right quarter to quarter, but in the short term.
The capacity across phase I better be the factor that's false.
Projected.
In the statements on the press release.
And I guess my follow up on on that as well will most of the growth come from advanced products over the next three quarters from.
Such that you know.
Advanced products will grow faster than 7% sequentially.
But overall revenue was constrained to 7% so Brett.
Brick products, perhaps more flattish with with higher growth in advanced products with the net result is overall top line growing about 7%.
Q2, Q3 Q4.
Yes, except for that Sean is correct.
As you know.
<unk> products are.
Two two time on.
Tens of years that decades old right and.
As suggested in the prepared remarks that they they have not.
They are serving mature after cash interest.
Interestingly mature.
Markets.
And as there is no growth.
The the cl<expletive>ic products. They are essentially a stable component of our revenues in dollars. So all of it.
Yeah.
Net growth.
And revenue growth.
It is being generated by the advanced products, which before too long are going to make.
The cl<expletive>ic bricks and the Samsung products, probably got purposes phase into the South that's right.
So the combined revenue growth is a saturated driven by advanced products, which will step up.
Other rate because 75% this quarter next quarter on a one off for that.
Thank you for sure so I will get back in the queue.
Okay.
Oh.
Yes.
Okay.
Operator, do we have another question.
Okay.
Yeah.
Okay.
Yes.
Yes.
Hello.
Operator are you there.
We are here deck are you there.
Yeah.
Operator is there another question.
Yeah.
Should we hang up on dial back in.
Hmm.
All right.
I think we may have lost the operator.
Yeah.
Okay.
I think we're going to have to find a new firm.
[laughter].
Yeah Yeah.
Hmm.
Yeah.
Yes, sure me everything worked flawlessly.
Well, let me try it a caller from my cellphone.
The weighted apps.
Okay.
Yeah.
Okay.
Okay.
Sure.
Yes.
It doesn't sound like as a backup to the yogurt either.
I'm sorry, she was on a bad line it was a lot of echoing.
Yeah.
Well I don't I don't see any emergency number on the instructions.
Hello. This is line of begin Gaiam <expletive>ist all day, Mike Lee.
As far as I remember she has technical glitches at this point, so I'm taking over to Carl.
Thank you. Thank you.
Are there other questions I'm going with it.
Okay. I guess there is a question in the queue.
Able to speak as Alan Hicks, Sir Your line is open. Please go ahead.
Yeah good afternoon.
Go ahead.
How about the BRIC revenue.
If they were up 7% sounded like they were up seven 6% which would.
But something around $54 $5 million I think.
Which would be about a 10 year high.
And I think order book to Bill.
Last quarter was 0.9, so what what explains that.
Songs strength in D B U.
No that's in place.
Net products really yep.
On 3% himself.
So.
The strength in.
And the big products and what.
Moving to the year would we expect that to stay at that level.
So again the.
Yes.
The fact that.
From Q4 last year to Q1 of this year.
You know Greek revenues rose should not be interpreted to suggest that debt.
There is substantial growth.
In our <unk> products.
[noise] component of our revenues.
But for quarterly fluctuations that may have to do with a variety of factors like capacity or particular demand.
The debt component in in dollars and do you on is is essentially cost something it's not really going anywhere as suggested earlier.
So in in Q1 <unk>.
Because of the constraints with certain on semiconductor components NGL capacity good science.
The advanced products.
Would not grow as fast as the demand would ever lap.
Oh, it which is sampling debt as suggested earlier.
We are focused on effectively addressing in Q2 Q3 and Q4.
So you should expect that.
In.
In this quarter following quarters this year.
The revenue growth.
Entirely other world cl<expletive> products.
Okay, well great products remain at this level rest of the year of around 54, and a half million dollars.
Alright.
Hi.
I wasn't trying to pin it down to three significant the interest rate. So they are going to say other essentially the same level.
Okay. So that was that's pretty positive for the bad debt.
Customers.
They're ordering.
But like I said it was about a 10 year high I think for a big revenue.
But again I would win.
Read into that any.
Sustained growth in brake products. The action is all to do with your vast proud as I said, the big products have been remarkably.
A long lasting and and.
They're continuing to beat that why is that.
I'm, not going anywhere, but theyre not going up.
Okay. That's a big one, but you don't expect them to fall off.
With respect to either fill.
Off or go up again.
Vical going forward, there's going to be.
Almost entirely about the vas products.
The brakes will fade away in terms of the relevance to our financial performance.
Okay.
Over time do you expect them to.
Relative maintenance.
Saying that $15 million range or.
Yeah, we go back on.
Could be to be essentially <unk>.
Costs in in.
In dollars.
A tiny percentage of our call revenues.
Yeah, I think it's pretty positive that those products their.
Continuing to sell out so.
No.
Okay. Thank you and I'll get back in the current Ya.
Okay.
This is Linda the operator speaking I'm sorry go ahead Greg.
Sue.
Thanks <unk>.
And the next question is coming from the line of John Dillon. Please go ahead.
Hi, guys on really congratulations on some great numbers really good.
Thank you.
Welcome.
Phil in your prepared remarks, you talked about OEM licensing for alternative alternative sources can you expand up on that a little bit I didn't quite catch what your the gist of what you were saying on that.
Yes, I'll, let <unk> take that one yes.
Yes so.
We have.
Our strategy with respect to.
Addressing.
OEM requirements for a multiplicity of sources.
Debt.
On the ops.
Lee.
Yeah.
Respects.
Intellectual property.
But accommodates the needs Oems for more scalable capacity in alternate sources.
And Thats been this object Oh from.
Conversations and as cash on some negotiations.
With a growing number of Oems.
We are.
Seeing because they are pressuring the market price given.
Escalating demand Sephora com.
High power density in a variety of obligations and other markets.
And that's a market pressure on that.
In our mind.
He has to be addressed with a intelligent <unk>.
Tom.
Satisfies our market needs.
While.
Providing us with an opportunity to get the return on investment.
Both based on.
Revenue growth with Scribing quantities.
<unk> products.
And with licensing income to be there.
On the from a.
Royalties that Oems will pay.
For the privilege of being able to access our alternate sources for sales to how these products.
Can we.
Alright, I mean does this mean that youre close to a licensing deal with someone.
I'm not going to speculate with respect to the timing.
Of any.
The deal.
We are.
Having this cash us.
Looking to establish a certain standards with respect to.
OEM license agreements.
We're going to be able to apply consistently.
Family.
At each stage.
All of.
And engagement and.
Is there can be a progression with respect to stage.
And Jamie speaking.
Our methodology rewards are early adopters and.
And commercially boats.
Later on this.
And I'll give a handicap, but with respect to the royalty rates are.
So this is.
Hey, Savi.
<unk> debt is very well I'm sorry.
<unk> and which we're going to take the time necessary.
To fully implement.
It sounds good you have like a target of hopefully closing the deal with any within this calendar year, and then or is there some kind of internal target for that.
We don't feel.
Sure.
We believe debt with the p<expletive>age of time debt.
<unk>.
All these licensees.
In terms of royalty rights is going up it's not going down.
Fundamentally.
When it comes to our free cash on flake AI, we don't believe there is.
Anyway, there's no.
Alternate technology that can address.
The address those solutions.
With the level of performance there.
Competitive pressures in that market required.
So we don't see the value of technology going down, we see going up and down and we're prepared to take the time necessary to make the most out of it.
Great I'll get back on the Kid Congrats guys. Thank you. Thank.
Thank you.
The next question is coming from John Group. There. Please go ahead.
Yes.
New addition to the.
At the end over facility.
When does revenue kick in and how much will that be and when.
How soon will you have other machines moved in there.
What's the status of that facility.
In addition to the handover.
So the building is up it's not quite fully closed, but it's about to be.
Some of the initial equipment is moving in next month, there's going to be a progression.
Through the balance of the year.
We're going to begin to get.
Initial capacity.
As we get towards the latter part of the year.
On the car.
Deployment.
It will not come together until the beginning of next year in terms of.
The taller capacity out of the building, we believe that we can ship upwards of a sorry on a $50 million.
In a yearly profit revenues.
The expanded facility with its vertically integrated capabilities.
And.
And that will take care of Lhasa, Florida for a while we're beginning to look at the next.
Income at all.
Capacity.
Moving back into the already on this cash on city guarding our Oems and licensing deals.
Also.
Entertaining the possibility of some joint venture to expand capacity.
In.
Working concert with.
Certain Oems.
So the 7% Youre seeing it.
<unk> not not in addition, the 7% increase in revenue in Q2 Q3 Q4 does not include the this.
This extra $250 million, that's more than in the in 2022 is that correct.
So yes. This half percentage this quarter next part of the path after that.
Thats coming out of you don't getting more capacity before we get too.
Take advantage of the equipment that is being installed into the new facility. So as I mentioned earlier.
Some of the equipment is going in.
May and more equipment that will go in.
The amounts are progress in the second half of the year.
Obviously this equipment in addition to being sold it needs to be qualified but we need to do some pilot ramps. So we're not going to be.
Turning on the leash on capacity in earnest on <unk>.
The very end of the year beginning on Nexium.
So on.
The increasing capacity.
Debt are being brought about this quarter.
Next quarter and for most part the quarter. After debt. Those are you you should think of them as being.
What about based on improvements in capacity utilization from equipment things accessible to us today.
Thank you.
Yeah.
The next question is coming from Richard Shannon. Please proceed.
Well good afternoon, guys. Thanks for taking my questions as well.
Maybe a quick question on following up on that on the topic of constraints here you've talked about it on the capacity side I think you've also had some constraints in inputs here I think you've described in the semiconductors are these commodity or custom products and do they affect both the both advanced and bricks or just just to be in price.
The effect from early advanced products.
And you know.
Semiconductor though.
<unk>.
In effect of our own making but working with.
Fab partners and other backend partners.
Part of our plan going forward.
Cam also more vertically integrated with respect to in particular on the back half.
But thats not going to often offhand I'll see if that's going to happen in a campus that will provide the next incremental capacity and thus feel is some time away.
But yes.
I guess to say the semiconductor industry.
He is becoming.
And more challenged as you know in terms of.
Demand for capacity.
And we're mindful of debt and we're looking to become more vertically integrated with respect to those <unk>.
Pans on fees.
Okay. So your vertical integration is going to ease or eliminate these constraints on on commodity parts on that what you're saying excuse me on that.
No.
Nothing in the near term, but we do on a fan of with respect to vertically integrating the backend processes, which are very much of a bottleneck right now so.
So that's the primary constraint has been the primary cost strength over the last several months.
Okay.
And so it is a timeframe by which that is relieved does that get you know coincident and highly correlated with your capacity additions and then getting those online per what you just answered group from Mr. Gruber.
No.
What what I'm referencing in terms, so vertically integrating backend that they've some other that for packaging.
Processes.
The next.
Opportunity for vertical integration beyond.
The the packaging processes, which we're vertically integrating in the expanded.
Philosophy facility so the next.
Other opportunity, which is in the works as we speak and which will be realized.
This year there.
That has to do with the <unk> packaging technology.
On the convert on housing package technology, which is quite unique heavily.
<unk> and other.
Part of the so called Golden products that you've seen in a variety of our free cash outs.
The vertical integration, which is currently.
Being implemented and for which we've been relying.
On ex South Park.
Significant constraints.
The the backend processes with respect to the semiconductor.
The components that we use inside of that package is that's in next day opportunity and Thats still frankly at least a year away.
Got it okay. Thanks for that detail pretty T. O. Just a one follow on question on your licensing is this related to both on both or just with the automotive segment or do you also see this in datacenter in supercomputing and other segments too.
We see it in both of those end markets.
Okay perfect. Thank you much from the detail that's all for me. Thank.
Thank you.
The next question is coming from guys who track. Please go ahead.
Yes. Thank you very much for taking the question I just wanted to see if I could get a little color as you bring on your new facility can you talk about at least quantitatively or qualitatively what the margin profile.
That will be affected you know will there be a hidden depreciation at first and then it'll expand and any color there would be very helpful.
So.
Even before we bring on the expanded.
Facility with its first day and think of Ashram.
Our goal our internal goal is to get to approximately 55% gross margin.
<unk> as a run rate gross margin at the end of this year and beyond that next year.
The diversity and to take action.
That facility they will play a role with respect to getting us beyond that 50, 55% now to your implicit point as we bring on.
The new facility, we're going to start depreciating, a significant amount of equipment that we're going to be deploying.
And that's obviously a factor with respect to the overall margin opportunity.
But I think as we commented in the past.
It's all cost.
It performing all of the process steps that are the heart of our packaging technology through Accel partners well.
Fundamentally our panels, which are the equivalent of wafers in the semiconductor industry.
Type a fab.
Our panels have to travel from.
Our federal state facility to someplace in New Hampshire to in other places in M<expletive>achusetts.
Yes.
They put on.
Hundreds of miles and.
And they require.
Weeks of cycle time, which are all going to get collapsed into a much shorter cycle time.
Within a facility.
The panels that is the equivalent of waivers.
Are you going to have to travel maybe from one floor to another so.
On the economies of scale.
Scale efficiency that is actually on cycle time.
The improvement with respect to yields.
Going to weigh heavily with respect to the margin opportunity.
And thats going to start.
Out in 2022.
Got it.
That's very helpful. And then just in terms of the strength in gross margin in Q.
Q1.
There was a couple of factors I think higher utilization and mix is is could you talk a little bit about.
Other factors the puts and takes on gross margin.
And is there a day.
So between the gross margin of advanced products and brick products or you know are they similar or does it even vary within brick and an advanced.
Yeah.
So to your point capacity is Ashok <unk> by itself.
More revenue irrespective of which 40 year on mix.
Make makes up that revenue.
Contributes.
Because of the leverage on the model we have significant.
Cost of shred it with overlap.
And he has to say that there's overhead cost in dollars is now expanding.
Nearly at the rate of the revenues in debt.
The factor with respect to margin improvement.
Getting through cycles of learning with respect to in particular, the advanced products you don't learning.
How to refine the process parameters and improve the yields.
Is the other factor, so, we're getting better and better little debt.
Getting yields from da these into the nineties and he has to say.
Those are points of margin debt.
Go to the bottom line will go into the gross margin other products and help lift those margins.
With.
Larger quantities, we also can achieve.
Reduce our cost for the components, even though of late.
Thats been impeded that progress by.
The current.
<unk> for capacity, particularly into the semiconductor area.
Two.
A couple of day, some cost challenges but.
Overall all of these factors.
Contribute to the near term.
Margin improvement with the revenue growth to being a significant driver.
Got it thank you so much.
Thank you.
The next question from Quinn Bolton. Please go ahead.
Hey, guys wanted to ask I think it was on the last call you talked about your engagements with with new and existing customers on their next generation architectures I'm wondering if you could comment whether those next generation designs are still on track or have some of the component shortages and manufacturing capacity constraints.
Second the timelines of some of those next Gen products and then I've got a follow up on automotive.
This is Phil.
So no.
We're still very actively engaged on the Nextgen Gpus.
<unk>.
On high performance CPU projects with a number of the Hyperscale is and chip manufacturers globally actually not just in North America.
So no that's been going really well.
And we've got a next generation product technology that.
Really interested in because of the current density that we offer.
The current so just continuing to go up and actually this quarter on I'd say that.
We've seen an uptick in the 48 volt.
Interest from some of the companies that Hyperscale is that have been lagging behind if you like and converting data centers 248 wells. We've got a couple of really great conversations going on right now.
Early but I'm confident that they will turn into opportunities for us.
Michael.
And.
It's really nice to see that our 48 volt prediction of.
I guess is finally coming to bear in the marketplace. So.
It's been an exciting quarter.
Great and then Phil I wanted to follow up you had made some comments on the automotive design pipeline. It seems like you continue to expand your engagement should we still be thinking about calendar 'twenty. Three is when you start to see some of the initial revenue ramp I know, you'll probably shipping some sample revenue today, but you know in terms of the meaningful ramp.
That's still a calendar 'twenty three program or could there be opportunities say in things like charging stations that might even ramped before then.
Yes, the charging station.
<unk> opportunity for US is really on vehicle I mean, that's what where we're really focused on so yes, you're right. It's really towards I would say middle to end of 'twenty three in terms of the early ramps with some of the early customers that we have and then picking up through 'twenty four 'twenty five and.
On the opportunities that the team is developing for the company are very exciting and.
I mentioned in some of my remarks, the market's changing too I mean, the electrification challenge has always been there and it's picking up but.
On the Oems are really looking at the supply chain is very hard.
Looking to the companies that can bring the next generation technology to them, but at the right value in that.
That's changing the supply chain too. So so I think as we go through this this year, we will we will probably be announcing some.
Some engagements with with partners that will help us bring the automotive opportunity I think even bigger than the one from just supplying modules.
Great. Thank you.
The next from next coming from jumped on with Inc. Please go ahead.
Hi, guys nice quarter on thank you for taking my question.
I just wanted to address the new facility and how you've been limited.
We will be limited this year, so that 7% sequentially do you immediately breakthrough that limitation is you get the new facility online in Q1 or is there. Some other constraints that we should be thinking about that maybe youre not going to be able to go past that.
Yes.
With.
The turn on our capacity after completion of body dash on after the equipment is installed.
The step up in capacity from the new facility is going to be or.
On the scale major on right.
We're talking about.
Whether we measure the number of panels or illness, which obviously depends on general are granted on the devices within our panel.
If it's a major step up again it gets us.
The best way to relate to it from a fashion perspective, you've seen aggregate revenue dollars. So we have oh sorry.
On a $50 million.
Bogey with respect to it.
The capacity the FERC capacity with vertical integration and I would say that that number.
Could be go serve other that there could be opportunity too.
With all the equipment.
Going into the new wing.
To get maybe a little beyond the $750 million so.
Debt, obviously represents a lot of headroom relative to what we're going to be at.
At the end of this year.
Okay, great. Thank you.
And just wanted a little more color on the licensing discussions that you're having are they have they been received well are they combat edmar or they constructive just trying to get an order on center. The direction do you think those discussions are going.
Well I think of that day.
The way they should be you know.
On the circumstances I think.
Averaging our costs.
A number of these cash on Sept second place.
I will say that Oems.
Oems you know.
Recognize that you have.
A huge investment in very unique technology.
The cash.
The old investment.
It is up to well over a half a billion dollars.
In R&D.
And.
And you know a measurable credit DVD.
I understand that we have a very.
Comprehensive power portfolio that covers.
Many clearly all facets of our advance.
Power systems, both in terms of the engines the control system the packaging technology.
The the power distribution architecture.
And.
They appreciate the fact that debt.
Logic Ali.
We would.
They want to get a return on debt investment that would not allow a scrupulous competitors to.
Stepping to our turf.
But at the same time.
We understand that debt.
We have to use our intellectual property in it.
On intelligent.
Consider it.
And our corporate on the way.
With with Oems debt.
Logically.
Want to be sure that theyre going to have all their eggs in one basket debt.
They can have the incremental capacity that they needed to take care of it.
Growth in these.
As a.
Legitimate requirements and I think of it as a way to a win win.
Relationship.
You see Oems.
That is high on these objectives.
Okay, great. Thank you for that color on just one more if I could is there any risk of your customers delaying shipments because of supply constraints on there and maybe a bottleneck might pop up and they won't want to take you up on it until they can get more into their factories that they may not be related to yours at all.
We don't see that it's not to say that the sorry about that.
Capacity constraints.
Acting.
Cash the mers.
In a variety of ways.
But as suggested in the prepared remarks, we are we're sold out for Q2.
Nearly sold out for a while.
Q3.
We've had to impose some are low cash them with respect to the capacity that is available.
So.
Even if some cash from some operating cash on is otherwise constrain.
These.
Q behind debt cash.
That will gladly pickup any spare capacity that becomes so low.
Yes.
Got it that's good to hear thank you very much.
Sure.
We have another question from.
Please go ahead.
Yeah could you give us an update on the new financing products they've been working on.
Good day I'll promise.
So we have.
Two leading optical.
After cash us for that.
One.
That's up to about $15 million.
<unk>.
Revenue opportunity starting later this year.
And thats for OLED lighting on a m<expletive>ive scale.
The other one is.
In supercomputer wafer scale supercomputer.
Cash on.
And I would say from my perspective, it is the most advanced AI and machine.
In our front end on new front end, which is linked with cool.
On a major advance in the capability for them for that.
Customer and debt.
Our progression environment.
So we're very excited about this.
We have interest from some of the <unk> with respect to.
These kinds of liquid cooled front as achieve unprecedented levels of density.
Those engagements.
Not.
Not going to result in revenue near term.
The early implementations.
But as I said the art.
The advance not necessarily the most cost effective but we're looking at.
<unk>.
Follow on.
Improvements that will enable these kinds of from p<expletive> it to to become extremely cost effective.
And and the technology is there for us to deliver those kinds of capabilities. So we still view.
These kind of from 10 molecules, which are by the way manufactured the same.
<unk> package package packaging technology the same.
Panel methodology, the same equipment that is going into the expanded fell CFO Sally.
We see these front.
Front end capabilities, which also have opportunities not just.
On all in.
Especially on reality gaseous, but also in vehicle obligations, we see them as longer term, making up essentially half.
The revenue opportunity on the other way of saying this is debt.
While all of the action on any of you sometimes there's been other point of load.
For every day.
<unk> our Wap.
At the point of low.
There's an additional stage of thought processing because the power comes ultimately from the utility.
That we can capture with very unique.
Capabilities that truly sales Dr.
Okay. So you have some initial revenue opportunities by say the fourth quarter and then.
Next year, but.
Again to ramp more broadly.
Yes.
Okay. Okay. Thank you very much.
And with that if there is one more brief.
Actually on a workday.
Right.
<unk>.
Yeah.
Oh forever.
Yeah.
I'm sorry, so you can take on one more question. If it is a brief one here.
Alright, and then it is coming from John Davis. Please go ahead.
Hi, guys. Thanks for taking this last question.
<unk> talked about and our <unk> funding from customers and how it really shows our commitment to buy Corp. So I'm. Just wondering is that progressing how is it progressing and is there any pushback from the customers on that.
No Theres no pushback.
I think it is progressing and.
And.
We look at it in effect as.
What you might Corp proof of law with respect to customers.
Wanting to have us do something that is unique for them right.
It takes a skin in the game to justify.
Dedicating resources.
Requirement.
Packaging technology in general.
Our system capability provide.
Some high degree of flexibility with respect to addressing.
Unique customer requirements within the general.
Scalability of those technologies.
But we need to be selective with respect to which party our projects. So we pursue because we have otherwise a lot more projects that we have bandwidth.
To support and he is an effective filter with respect to having cash to us demonstrate debt.
These develop at the worth taking.
Taking on.
And you're seeing that increasing scale.
Yes, yeah with Mark asked of us come more opportunities and when those opportunities can't be addressed with withstand the products. Then abbvie is appropriate and one final comment with respect to these.
Because of the fact that if there is a good deal more scalability.
With standard products, because obviously the standard products can I address a multiplicity of customer requirements.
What were the more and more emphasis on those developments are so both at the point of load and with respect to front end products.
We're going to with.
Next year at Ashdown.
Deployments with our what we call our fifth generation.
Which is coming on late.
Late this year early next year.
With those developers who are looking to.
The leverage standard building blocks.
More than we might have in the past.
By in fact capture income on the room as I recall.
<unk> in a more comprehensive way.
Yeah.
And that's great because that gives you more opportunities with less work.
That's right.
Great Hi.
Alright, guys. Thank you so much thank.
Thank you and we appreciate it and with that we're happy that we've talked to you in a few months. Thank you.
Thank you very much everyone that concludes your conference call for today you may now disconnect. Thank you for joining endangered list of your day.
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