Q3 2022 Vicor Corp Earnings Call
Good day, everyone and welcome to whack with earnings results for the third quarter ended September 32022.
Jim Schmidt Chief Financial Officer, My name is Peter and then get even made year to date during the presentation. Your lines will be remain on listen only beauty by yesterday's test any time, please key star zero on your phone.
Wish to ask a question please press star and what I.
I would like to advise all parties. This conference is being recorded I'd now like to handle that.
James Please proceed.
Thank you.
Good afternoon, and welcome to <unk> Corporation's earnings call for the third quarter ended September 32022.
I'm, Jim Schmidt, Chief Financial Officer, I'm in Andover, with Phil Babies, Vice President of global sales and marketing.
Our CEO Patricio Vince you rally is unable to join today's call because he is out of state attending the trial relating to IP litigation, we referenced on our earnings call last.
Last quarter after the market closed today, we issued a press release summarizing our financial results for the three months and nine months ending September 30th.
This press release has been posted on the Investor Relations page of our website www dot five horsepower dotcom.
We also filed a form 8-K today relating to the issuance of this press release.
I remind listeners this conference call is being recorded and is the copyrighted property of <unk> 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.
Matters discussed on this call, including 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.
Actual results may differ materially from those explicitly set forth or implied by any of our remarks today.
Risks and uncertainties, we face are discussed in item one a of our 2021 Form 10-K, which we filed with the SEC on March one 2022.
The 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 October 25 2022.
<unk> 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 replay of today's call will be available beginning at midnight Tonight through November nine 2022 three.
The replay dial in number is 8882868010, followed by the passcode 10145508.
This dial in and passcode are also set forth in today's press release.
In addition, a webcast replay of today's call along with the transcript will be available shortly on the Investor Relations page of our website.
I'll now turn to a review of our Q3 financial performance after which Bill will review recent market developments and Phil and I will take your questions.
In my remarks, I will focus mostly on the sequential quarterly change for P&L and balance sheet items and refer you refer you to our press release or our upcoming Form 10-Q for a year over year comparisons.
As stated in today's press release <unk> recorded total revenue for the third quarter of $103 1 billion.
Approximately a 1% sequential increase from $102 2 million in the second quarter of 2022 and.
And a 21, 4% increase from the same quarter a year ago.
Advanced products revenue decreased 12, 5% sequentially, while brick product revenue increased 27, 2% from the prior quarter.
<unk> product revenue increased 36, 2% from the same quarter a year ago.
Shipments to stocking distributors increased 22, 5% sequentially and 27, 3% year over year.
The brick product revenue increase over the prior quarter as the result of our manufacturing team's ability to adapt to changing circumstances and focus on the open break backlog as we have the supply to get the additional output for the quarter.
The sequential decline in advanced products revenue in Q3 was due in part to the issuance of approximately $6 million return material authorization or RMA in the quarter.
Product covered by this RMA will be evaluated upon receipt and prior to restocking in advance of its future shipments.
Exports for the third quarter were relatively flat sequentially as a percentage of total revenue at approximately 71% from the prior quarter 69, 2%.
For Q3 advanced product share of total revenue decreased to 57, 4% compared to 66, 2% in the second quarter of 'twenty two 2022.
With brick products sure correspondingly increasing to 42, 6% of revenue.
Turning to Q3 gross margin we recorded a consolidated gross profit margin of 45, 5%.
Gross margin decreased sequentially from 45, 8% in the second quarter of 2022, primarily as a net result of favorable overhead absorption offset by tariff costs higher costs at outside vendors and incremental in house manufacturing cost associated with ongoing vertical integration investment.
In advance of substantial in house production.
Tariffs continue to be a drag on gross margin at $3 million in Q3, and two 9% of revenue.
Our work to reduce tariffs by reducing imports from China continues.
I'll now turn to Q3 operating expenses.
Total operating expense increased five 4% from the second quarter of 2022.
Like last quarter and for the same reasons. This above average sequential increase was largely due to legal fees incurred in connection with intellectual property litigation. We've described previously and as disclosed in our filings.
The amounts of total equity based compensation expense for Q3 included in cost of goods SG&A and R&D was 479000.
1.537 million and 813000, respectively totaling approximately $2 8 million.
For Q3, we recorded operating income of $9 $5 million, representing an operating margin of nine 2%.
Income taxes for Q3 were a tax provision of $842000.
Net income for the quarter totaled $8 1 million.
GAAP diluted earnings per share was <unk> 18 cents based on a fully diluted share count of 44 million 819 898000 shares.
Before I review, our financial position just a brief update of our COVID-19 in our workforce as previously discussed as a designated essential manufacturer using maskin practicing social distancing from the onset of the pandemic. We have continuously operated three shifts at our Andover manufacturing facility.
[noise] cases, and absenteeism due to COVID-19 are now negligible. Nevertheless, because much of the potential influence of the COVID-19 pandemic are associated with risks outside of our control.
We cannot estimate the extent of such influence on our financial or operational performance or when such influence might occur.
In particular in particular, the zero equivalent policy adopted by China has caused disruptions in parts of our supply chain and the impact and timing of the effect on our results are unpredictable.
Turning to our cash flow and balance sheet cash cash equivalents and short term investments totaled $202 million at the end of Q3, okay.
Accounts receivable net of reserves totaled $56 3 million at quarter end.
With Dsos for trade receivables of 38 days all balances are current inventories.
Inventories net of reserves increased 13, 6% sequentially to $94 3 million and with annualized turns of 261.
Operating cash flow totaled $6 6 million for the quarter.
Capital expenditures for Q3 totaled $14 4 million.
We ended the quarter with a total construction in progress balance of 57 million and approximately $13 5 million scheduled to be spent through the end of the year.
Primarily for manufacturing equipment.
I'll now address bookings and backlog.
Q3 book to Bill came in below one and with one year backlog decreasing sequentially by nine 4% from the second quarter of 2022.
Before addressing our outlook for the fourth quarter of 2022.
To combat on significant external events and developments that have occurred since our last earnings call in July .
Over the course of the last three months the macroeconomic environment has deteriorated.
Many parts of the semiconductor and semiconductor industry has entered a downturn the.
The Commerce Department issued newest stricter export control rules and the chips and Science Act became law.
While it's too soon to tell what the impact of the first three of these developments may mean for our business. They certainly represent headwinds in here in the near term.
On the other hand, the passage of the chips and science that could present, an opportunity for VI Cor.
Both in terms of potential funding for new investments and vertically integrated U S based manufacturing.
And also the possibility of leveraging its investment tax credit.
As we operate in this environment, we are working to control all the factors that we can control for example.
We are taking a more conservative stance on hiring and have recently re prioritized and reduced open personnel requisitions.
We continue to work to bring our vertically integrated U S. Based production capacity online while also looking for opportunities to take advantage of the investment tax credit and the chips Act relating to equipment procured after the chips Act became law and is subsequently placed into service after December .
We have taken steps three balance our manufacturing production plan in order to make progress catching up with customer demand that we've not been able to adequate adequately support in the past.
We are continuing our companywide work in support of operational excellence.
And we remain focused on the development of our next generation power delivery technology, while building the business across our customer base, and HTC automotive industrial and aerospace and defense end markets.
And all of this we remain focused on executing our strategy, which we laid out at our annual shareholders meeting in June .
Given our continued near term dependence on outsourced production for certain package process steps.
Our outlook for the fourth quarter is approximately flat to our Q3 results.
With the potential for modest sequential improvement as we increasingly leverage in house process equipment to alleviate production constraints.
With that Phil will provide an overview of recent market developments and then Phil and I will take your questions.
That you limit yourselves to one question and a related follow up so that we can respond to as many of you as we can in the limited time available.
More than one topic to address please get back into queue.
Phil.
Thank you Jim.
As Jim mentioned, our book to Bill ratio came in below one in Q3, reflecting the second quarter in a row, where this has occurred at.
At a high level. This trend is reflective of the deteriorating macroeconomic environment.
However, it's important to point out that we maintain substantial backlog as we enter Q4.
From an end market perspective, and on a more positive note the outlook for the data center market in North America at the current time is still good as Hyperscale has continued to build out their machine learning technologies and capabilities as well as upgrading their CPU racks with the latest Intel and AMD Cpus.
Managing the transitions to new across our platforms and our customer base will require some maneuvering of our N C. In our backlog in Q4 from Gen. Three to Gen four factor <unk> power modules.
I remain confident in our position in the <unk> market and in the customers that we have worked hard to develop in recent years.
<unk> power solutions remain the highest performance in terms of current density low noise and overall pollo system efficiency power.
Power generation five technology, our new FPGA modules, which we are now beginning to introduce the lead customers will be a game changer in cloud computing and machine learning with a significant step up in current density.
Our Gen. Five technology will also enable direct chip on process solutions, which will completely eliminate board and substrate PD and losses for our advanced process of customers. While also providing a significant step up in transient performance.
While multiphase Buck regulators have increased their power density and represent an attractive alternative due to the multi sourcing.
It remains to be proven if these multi phased solutions can manage significantly higher PD and losses and meet the low noise and high performance required by high power network processes.
Our industrial and aerospace business remained stable in Q3 in both Pos and new orders within our global distributors remained strong.
However, we have started to see signs of a potential slowdown in some segments of our industrial business in China, and Europe , which reflect microeconomic headwinds.
Our automotive business development continued its positive trajectory with OEM and tier one pollo system evaluations, making great progress towards securing startup production dates with very attractive volume opportunities at several Oems.
We have two successful OEM audits in Q3, both Oems have approved <unk> is a supplier of power modules for their vehicles.
In Q3, we also engaged with additional Hyperscale us and processor Oems regarding an OEM license that would ensure continuity of supply ahead of our upcoming campaign to enforce vehicle bus converter patents.
Thank you, Jim and I will now take your questions.
Yeah.
Okay. Operator, if you could go ahead and start into the questions.
Yes sure everyone. If you wish to ask a question. Please make sure to mute your phone Denki Star one.
All questions be Blazina order received in UV goodbyes went to ask your question what are the lines you may know on listen only.
The first question is coming from the line of John tell them. One thing. Please proceed.
Hi, good afternoon. Thank you for taking my questions.
My first one is how long have you seen orders turned in October so far has it gotten worse from what you've seen in Q3 and when do you see that kind of picking back up or is it more declines ahead. Thank you look forward and talk to your customers and think about what theyre needing for 'twenty three.
So the daily order rate in October is below what it was in Q.
Q3, John .
In terms of you know, there's lots of uncertainty out there with China and Europe as I mentioned.
I mentioned that the data center cloud computing in the Hyperscale is in process of guys in North America are.
Still strong, but they they've also got large amounts of backlog right in place with like or that would allow us to maintain healthy revenue shipments.
For the foreseeable future.
I think that what's what.
To be seen in that particular market is really the rollout of the new platforms and the successful goes and what happens with China business for several of those processor companies. So.
So that's a little bit of uncertainty there as well, but like I said North America is still very strong in investment in capital expenditure in the in the data center cloud computing as well as machine learning.
Got it. Thank you and my next one is just could you give us an update on the new facility. How is it running so far and kind of what kind of utilization are you expecting out of in the near future.
So yes. This is Jim here I would say that we're on track as we described on our last call.
I think we said in the in the range of 80% to 90% vertical integration this quarter and where we are on track to do that later this quarter.
We're hitting some significant milestones.
In terms of bringing up production equipment it helped us in it.
It helped us in third quarter, it will help us in fourth quarter as well too to really handle some of the backlog in and clear some of the backlog.
So I would say that that is very much on track as we've described it in the past.
Okay, great I'll jump back in queue. Thank you.
Yeah.
Thank you. The next question is coming from Quinn Bolton from Needham <unk> Company. Please proceed.
Thanks for taking my question I guess, a question around the China export controls one of your large customers clearly saw an impact for the tighter restrictions on shipments of Gpus to the China market I'm wondering you know can.
Can you quantify or give us some sense as to how that might impact your revenue or what what.
What's lost revenue might might be associated with those tighter export controls.
Yes sure.
So it's really mostly with though we call our legacy business and some of our older chip products.
And it's really.
New companies being added.
Master I think the Commerce Department is doing more investigations and the types of businesses that these customers are involved in so it's not for if you like our advanced products, it's really our older products and we we started to see some of the effects of that at the beginning of Q4 as well as some weakness in the general market over there due to the.
Zero Covid policies.
Factories, not yet really getting back to where they were you know a couple of years ago. So.
It's really a legacy business issue right.
It just feels to you or what are your large customers. I believe you said that they say it would be affected by as much as 400 million of their G. P use.
And so I guess I'm surprised that you're saying that's more of a legacy impact is it can you provide any more color. If one of your larger customers is seeing that level of it the shipments of their gpus, how how that doesn't affect your advanced products.
Well I think that.
In terms of increased bookings for those advanced products, that's where it would hit but again like I said, we've got extensive backlog in place with them and they've got really big positions in North America, and Europe with different types of data center customers.
So thats what we are you know we're relying on for the next couple of quarters, and then I think things will change as the new platform start to rollout.
Great and then my follow up is just.
Yeah.
Lots of questions. This year about competition for multi phase and I think it's pretty clear your next generation.
Product from from elite GPU customer is starting off with multi phase, but I guess can you give us any updated thoughts on on your position both on current generation.
Gpus as well as next generation Gpus do you do you feel like multi phase is gaining share do you think you're holding share again. This is this is both for current generation as well as next generation Gpus.
No.
I'm confident in our position with the technology. The factor is powered technology. It's a it's a very very clean solution. It's a as we've talked about before it's pollo modules, which are you know.
Significantly less component count easier for board layout, much lower noise because of the performance of the parch batter thermal management of the design. So so I'm confident that the <unk> technology will compete effectively because I still think the jury's out with regards to multi phase and whether or not it can really hit.
The performance levels that are that are needed but.
That's yet to be seen so we'll we'll keep pushing ahead with our stuff and I'm looking forward to the gen five stuff, even pushing us further out are ahead of the competition.
Thanks, I'll go back in queue.
Thank you. The next question is coming from online that was no name be quoted so issued press star one.
Please limit yourself to state your name and company.
Yeah.
Yes Hello.
Hello.
Yes.
John .
Yes, you're right.
Okay. This is Alan Hicks Ainsley capital management.
I wasn't able to pre register.
So did I hear you say.
Got a licensing deal.
What we are offering, but we have stepped up basically our interaction with potential.
Potential hyperscale is in process of companies that we've now obviously have confirmation about use of ultimate bus converters and so we are offering them to take an OEM license them before the action begins.
In restricting importation of those products into the United States. So we're in conversation with a number of them at the moment to take a license and.
It will progress through the next three or four months.
Okay, so youre getting closer to them a licensing deal.
Well, we already have one licensing deal in place but.
As we as this move forward.
I do expect others to to happen.
Okay, and then I had a question on.
You've been paying quite a bit in tariffs and.
At what point do you think you'll be able to I'm, assuming that's all from China.
At what point.
This guy was around.
I think seven cents.
Last quarter $3 million and two.
2 million in the previous quarter.
So at what point do you expect to get past tense.
So I think.
I think thanks for that question, that's a great question.
We will probably have to say, we're not satisfied as we walk that we would like to be in terms of you know.
Extricating ourselves from some of these production operations they are difficult to to move out of China in some cases.
And in one case, we actually moved unfortunately salad.
Semiconductor process step from an operation that shut down in the U S and we had to move it to China.
And that'll move ultimately likely to South Korea, but we are getting some momentum going on on that front end and I think we're.
We're also getting some additional momentum going on what its called duty drawback, where we make an application to the customs and border patrol to recover some of the terrorists. We've already paid in the past so I'm hopeful that we're able to talk.
Talk about better results on that front going forward.
We have seen on a maybe not completely related topic, but we have seen some.
Relief on freight costs.
Some small amount of improvement there.
For us so that's a good indicator for us in terms of the P&L, but we got more work to do on tariffs and there is a team inside by core working very hard on that.
Mhm.
Okay, and then last question.
Legal costs are up 4 million from Q1.
Can you give an update on on that now.
When can you get past those legal costs.
So that's.
As I said in the prepared remarks, that's a function of really a <unk>.
<unk> the amount of ramp in legal expense associated with preparing for the trial that.
This is happening right now.
So I think that'll that'll taper down obviously as that ramps up but but there will be other incremental.
It's coming in as we pick back up where we left off with the ITC activity around what Phil had mentioned which is the.
Basically <unk> is a plane of defending our.
Our IP. So I would say there is going to be a net reduction in legal costs over the next over the coming quarters.
But it won't revert back down to the <unk>.
Low level had been maybe a year year and a half ago.
Okay. Thank you very much.
Thank you. The next question is coming from the line of John Dillon from DB kept because please proceed.
Hi, guys. Thanks for taking my call.
I had a question on last call, we talked about the bubble chart, a little bit in particular about the b. The GPU customer a bubble that you had at your annual meeting.
And at that time, you're expecting revenue from that current from their current product for a longer time than you initially expected until their new five nanometer product we kick in and then you expected revenue from that.
Than you expected a kind of a fairly smooth transition as far as revenue is concerned I'm. Just wondering is that still the case.
Yes, yeah, we see that initial program.
Big program that we've been involved in to continue through.
Next year or even into Q4, it wont be at the same rate as in Q1 Q2, but it'll still be there and then the next generation program will kick in and.
That'll start to take off but.
<unk> hundred project is a is a very successful project and its still going very strong.
Okay. So youre still on all the a one hundreds and you expect to be on the H, one hundreds coming up here.
Yes.
Excellent excellent and then.
I'm wondering about your next generation vertical lateral lateral vertical and you talked about some new design wins I was just wondering if you can give some color on that and when we might see.
Some of those come into production.
Production quantities.
Sure so the.
Let's take them just start with lateral vertical I think that we will see production on lateral vertical next year with a couple of processor guys and then I.
Think that the pure vertical into the trusted computing sort of market.
Well stocked in Q1, and then a follow on customer probably Q3 Q4 next year for that.
Hum.
I think that then.
And then by the by that timeframe, we should have Gen. Five technology starting to hit the market where that really is a game changer, because we have a significant step up in current density and the packaging gets a lot smaller and we can do a lot more with it in terms of vertical power delivery.
Even we're talking right now too to companies, where we will.
A partner with them in a way to actually attach the current multipliers directly to their process of silicon. So that you eliminate completely the PD and resistance on the losses associated with that and substrates and circuit boards I mean, it's almost a perfect.
Power delivery network right attaching it directly to the silicon. So so that's what gen five will enable and that'll be later next year and into 2024.
Bruce.
Sounds excellent I'll get back in the queue I have some other questions. Thank you very much.
Next question is coming from John <unk>.
C. G S Securities. Please proceed.
Hey, Thanks for the follow up just wanted to confirm that I heard that correctly you are expecting me to be in the eight 100 at some point in the future.
Yes.
Okay, Great. That's that's great news.
I was wondering also b b.
It's about $6 million in army products that you mentioned earlier in the cobalt within all about where does show up in our results.
Yes, so that was about was a request to return material that.
From a <unk> perspective.
Our quality team and this is where I am not an expert but what I can do is comment on what they've told me. It's it's been fully qualified to industry standard testing that's fit for us, but we work with the customer.
As these issues arise and we've agreed to take the product back it's not product. Its in production. It's product that we expect to get back vacuum sealed and be able to restock it and resell it.
Okay.
Yes.
Congrats.
Yeah, let me so sometimes customers do they have harsher environments then.
Then we expect them they expect sometimes on its part of the partnership where you work with them to to.
To deliver product on and if they've got an application that requires more robustness to work and even harsher environments. Then we'll work with them to do that and then in this particular case, we have other customers for this product. So it will go on the shelf like Jim said after its been fully tested and evaluated and we.
To be shifting that out next year early next year.
Okay got it.
One more if I could just as you shift your production in house and the new facility. What are your margin expectations. As we go forward are you still going to see a little bit appreciate you ramped that up in Q4 or is there going to be more of a lease.
Okay transition away from you got that right.
Yes.
It's our practice to not give specific guidance on gross margin but.
What I will say is that we've modeled this fairly.
Not fairly quite extensively and the entire transition internally will be accretive so.
As we move more and more of our operation out of this outside.
Operation that we've been using.
Come in turtle.
We will be generating incremental gross margin and that's before we even get to a point where were running substantially more volume. So the entire model is based on driving mark.
Margin by virtue of the volume increasing over time.
But bringing in house will be savings right away.
So we're not going to give specific guidance, Jon, but where we're mapping this out to the financial model, we've talked about on many occasions long term model at 65% gross margin.
Understood. Thank you for that call.
Thank you. The next question is coming from the line of Richard Shannon from Craig Hallum. Please proceed.
Great. Thanks for taking my questions guys.
That's still on the last earnings call <unk> made a comment about our next generation solutions that we're approaching availability, but not have.
Haven't booked those orders yet can you talk about those next gen solutions have they.
<unk> gotten to availability and have you gotten any bookings on them yet.
So I think.
If I remember rightly he was wasn't talking about the gen. Five stuff just yet he was talking still about gen. Four and some of the vertical power delivery products that we've developed for cluster computing companies.
And you know two stacked chips and three stacked chips I think that's what he was referring to when we should start seeing revenues as I mentioned on those products and in Q1.
Bookings in Q1 as well for all the other customers. So we've got about I think it's three accounts right now that should book business in the early part of next year for some of those multi stacked chips on the Gen four technology.
Okay Fair enough then.
Also wanted to follow up on one of your comments from the earlier questions.
Phil regarding multi phase and where you want it.
Did you say the jury is still out there.
Is this a comment regarding kind of the long term or are you talking about like.
Leading edge products available from leading accelerated companies next year, maybe you can delineate that comment a little bit more please.
Sure I think that you know you see the you know the.
Power MOSFET Silicon technology, improving in terms of its current density, but you still have a fundamental voltage averaging in a.
In a multi phased system with lots of phases required to support some of these very high current processes and AI and also network back plane stuff.
There's a lot more there with regards to getting a controller that's able to meet all of the current accuracies and low noise.
The requirements of the system. So and then you also have thermal challenges with the PD and relationship simple it's not easy.
It's attractive from the from the potential of having multi source, but you know again, how multi source is it when you have different controllers from different companies that require different layouts.
All sorts of different considerations, if the 12 phase <unk> phase <unk> phase wherever they are that's not really a multi sourcing strategy, but you can make yourself feel good about that but.
There's a lot of issues around getting a multiphase solution to deliver 1000 amps.
Very small.
Accelerated cost there's still a lot of work to be done to get that thing and we are ready to go primetime.
It's not just that.
GPU customers that set our ethics and network processors, there's a whole host of applications, where there are challenges to do that.
Okay, Great and then one last question for me I'll jump out of line here just about the guidance for the quarter and kind of the broader commentary on the macro and maybe if you can tell us just generally speaking how you're expecting the trends in the fourth quarter between advanced and and brick products and to what degree are you seeing in the macro affecting either grouping.
Well I think that as Phil said.
The order rate is depressed going into the quarter, but to get to your first part of the question Richard.
Our expectations advanced products revenue will rebound this quarter and break may be down sequentially. So there'll be kind of a mix shift there but.
But as we said I'm looking for approximately flat to Q3.
And.
As we get more and more activity internal and can rely more on ourselves to produce the product we might have some modest upside this quarter.
Okay Fair enough. That's all from me guys. Thank you.
Yeah.
Thank you. The next question hasn't speak what did they.
So.
Do you happen to live didn't meet your SaaS and state your name and company.
Yes.
Just Don Mckenna.
DB Mckenna.
Hi, Hello.
Okay.
Yeah, I I wanted to ask.
Yeah.
During the year, we've had the additions from Oh.
Wellington Group.
Also from a thriving financial and of course capital group has continued to add to their positions.
Last I saw the last three quarter Theres 630, they were over.
Oh.
Three and a half million shares that they owned and I know they've held a mine in their small cap fund right through the end of September .
I've got to think that there there.
Have more access to you for information than what we're getting on this quarter.
Quarterly conference call.
And I'd like to suggest a fit especially in this upcoming blackout period I'll call. It over the next four months before we talk again to perhaps just schedule a meeting at the new facility like you did probably 25 years ago. When you brought in a lot of the ore.
Financial people to have a general discussion.
Beyond what's just happened at the end of the quarter.
So that's my request anyway.
Well I appreciate that and I. Thank you for that didn't we.
We did have a on may 18th we had it was fairly limited audience. We did have a ribbon cutting.
We're really in.
Intent on doing that.
In terms of more of.
Those kind of events, what we focused on a lot in the last six months quite frankly is getting this operation up and running.
And you know keeping.
The factory team focused but that's that's very good input we appreciate that.
Have you maintained your <unk> positions with all these are major institutional investors.
I would say I am not sure if we have an <unk>.
Data is out there I think we have.
Interest from.
A large number of investors.
<unk> are interested in the <unk> story.
And I think we've got a compelling story.
Yes.
Yeah, I I, particularly like the capital group taken a long term approach. That's why I was wondering if they hung through all the way.
Thank you.
I'll get back in line.
Thank you.
Junk rubber from like when he does please proceed.
Okay.
Yes.
These the $6 million.
Return.
Hum.
Uh huh.
Why we eat it if that was the case it was a minus $6 million in the quarter. There. Why then can't you get an up quarter given that you have.
You know if you were flat you'd be you would be at a 6 million higher right.
Why is it a quarter so we given that the large backlog.
Well I think like I said, John we will get a rebound in our advanced products.
We're counting on that.
One of the reasons, we're really.
A bit challenged with respect to being.
Confident in some of these statements is that there is still a significant process.
At least step or two.
That's outside of our control.
Which is going to be the case through the end of this quarter. So we really are a bit guarded.
Making any kind of more bullish predictions because of that.
I think as we get into next year. The early part of next year.
We're going to have some of the final pieces come together.
And I think as <unk> said on the last call. It is not an expectation that by quarters going to be 100% vertically integrated it will approach that level, but there's always going to be parts of this that are done outside however, as we get into next year. The key pieces will be inside vycor and until that happens we just have to be.
Careful about our expectation setting.
Okay.
And then the.
The last question or ask a question that we really weren't answered do you plan on having an analyst meeting or be more open this quarter to the analysts in the island.
Festers than you were last quarter, where you were total silence.
None of the analysts talk to you, Jim or so which was very strange so.
What's the policy going forward I think I think we will gear up to have.
At Investor day, but like I said, our focus has been on execution.
No.
Generally the view as you know, let the results through the talking in the short term, but we know we have to be open to the idea of an investor day, and we're going to put that on the docket and at some point in next year, I think I'll feel better about that when the factories up and running.
Thank you.
The next question is coming from John Dillon deep it could be cool.
Hi, guys first of all I would just want a second what Don and John just requested.
How much misinformation floating around about five core and you know I tried to respond to a license, but there's only so much I could do would be so much better if it came directly from the company.
Jim I have a question for you with.
But with the vertical integration getting to the 80 or 90% level will that have a positive effect on your turns in that well that positively affect your cash flow.
So one of the metrics that you reported on weekly in a in an update from our manufacturing team is just that very thing.
Turns.
And there is incremental improvement that we're getting in the factory.
Ultimately it certainly will affect.
The level of inventory, we have to carry and ultimately that will affect cash flow.
That's out in the future right.
Right now in the short term, we're still dependent on this outside operation.
We have steel beams going up right now inside 400 Federal Street.
To install various parts of the plating operation. So it's a work in progress and I think what I think it should be understood is that the manufacturing team that's putting that factory together is the same team that's continuing to work with the outsource supplier. So it's quite a complicated world.
They're dealing with right now, but yes. The answer is that the answer is their scorecards theres metrics it'll include wet.
With inventory turns cycle time all of those metrics.
I would imagine that's can be fairly substantial because I would imagine your yeah.
Sending your product out to a third party you haven't been played it having them send it back that all adds a lot of time and money to the thing. So I would imagine your cash flow is gonna be.
Pretty positive is that a fair statement.
I would say, it's fair over time, I don't want to add a lot of right now.
Soon that is because we still got months ahead of us.
To get this factory up and running and qualified so I think I would just ask that.
Be patient about that.
Culminating in the kind of operational excellence, we want with this factory over the coming months.
I completely understand and I appreciate that.
With the current economic slowdown in the China situation can you still ship as much that you can build or some of your orders getting pushed out to the extent you supply exceeding demand.
No we still got significant overdue.
Even though on advanced products and legacy products. So.
The guys are working hard to.
Get that completed I think its going to take a couple of quarters before we get totally caught up with all the legacy stuff and all of the advanced product stuff. So there's still a lot of work to do like Jim said the guys are focusing also on the same guys to do that and also bringing up the new factory. So.
Gotcha.
There's plenty of business yet to ship in the short term.
That's great.
It all looks good thanks, guys I'll, maybe get back in the queue, maybe not but I appreciate the update thank you.
Thank you.
Next question is coming from third.
Participants you on the line please limit yourself to state your name and company. Thank you.
Hi, This is Doug Campbell from partners capital I believe I've been put on the line is that correct yes.
Yes, Hi, Doug.
Hey, guys.
I don't Wanna, selling a broken record I've been in the queue for about 30 minutes.
100% endorse what the other guys are saying.
During the quarter there theres just a lot of.
Negativity, there's a lot of misunderstood information you know one of your main competitors, it's been called a.
Just a production machine as far as efficiency and they're producing the lower end competition for you.
You're like doing touchdown dances, they're beating their chests that there that they are taking business from you and.
As an investor.
You know all the publicly traded company and I again, I don't want it sound like broken record it would be great to hear from you more than four times, a year and maybe two fireside chat now.
A specific question.
Last quarter, you guys talked about your backlog and a lot of those orders being noncancelable I forgot the exact term I don't have it in front of me is that still the case I mean, how ironclad is are the backlog of orders.
So that quote unquote, where noncancelable.
Economic conditions get tough.
Yeah, Yeah, I'll stop because you can't billable, even if it's documented.
Well you always have to deal with some of that but no. We've got firm in CNR.
Purchase orders that have been placed with a clear understanding of also their end market demands of the different customers that make that make up but <unk> backlog. So.
I get it but it's.
I'm confident in our backlog position.
Okay, and just one follow up without what I said at the beginning and what the other guys said.
And maybe it's not so much.
Talking to investors, but you guys get on the call ever every three months and you talk about your technology and I'm, a big believer in the technology that it's better why it wouldn't be an investor in my son However.
I, just I think you guys need to educate.
Other its investors or the marketplace or whatever it may be a little bit more I mean, I receive your E mails and released a new product I I read them some of it might be above my pay grade from a technology standpoint, but I'm pretty well versed.
I think.
You know moving forward as you're about to become a much larger company hopefully.
There needs to be in education and in place you know look I know the ownership structure change. He owns a lot of the company may be the end game is just.
A parachute out to do an acquisition I don't know.
Not asking for a comment I'm, just saying, maybe we just as investors we have to deal with the volatility and we have to deal with the misconception until the end game.
But maybe what some of us would like it to be a little more smoothed out do you know what I mean.
Yeah understood.
I know the company is talking about we all do Yep Yep.
I said bad stuff on Volta five years ago, They said bad stuff on a 100 and they say bad stuff on an H 100, when it comes to Nvidia just Standalone and then there are other comments that were made around all the other processor in Hyperscale guys. I mean, they just constantly do it.
Much we can do about that because we can't talk about specific customers without their approval. So it puts us in a bit of a tough spot when there's a lot of you know.
Comments going around like you said, but you know, we're just executing doing our job and we are confident in our technology and to your point of explaining it better and doing more education around it we can certainly do that and then I'll, let Jim puts.
Puts together that Investor day, we'll spend some time on that.
Okay. Thank you very much I appreciate it.
Next question is coming from the line of Quinn Bolton. Please proceed.
It does.
<unk> GPU customers in its July quarter took a $122 million warranty charge due to the failure of a third party component and its data center products and I'm wondering if you guys could go on record weather Vycor, which was any way involved in in that recall are forcing that recall or or warranty.
And whether that might be related to the 6 million RMA you disclosed this quarter. Thanks.
I think we can't talk about any specific customer I don't know that we can relate what we're doing with that.
Quinn.
I think we should say that there has been a $6 billion of RMA, we agreed to take the product back.
Our quality team believes it's.
Fit for us its fully qualified.
There's a question about you know the root cause of <unk>.
Some of the analysis that has gone on but.
I would say that the there is there is a case here, where we have made incremental improvements in the product along the way and it's been in production for months now so I guess, that's as much as we can say about it yes, I mean, we wouldn't restock it and ship it to other customers. If there was something wrong with the product, but like I said before.
If you work with customers, we work within the aerospace and defense and industrial applications, as well, where you come across something that needs a little bit more capability, even though you've qualified to industry standards and all sorts of specifications and the customers also test and qualify the product too right. So.
You deal with these things and you you have a long term partnership with these customers. So we work with them to constantly improve our products, we're always doing that anyway. So.
That's something that's just normal course of business. So we're going to put that back on the shelves, we're going to retest. It first and then we're going to ship it it's a good product.
Hey, I guess it sounds like Youre, obviously in close dialogue with the customer around that $6 million do you think that theres been any long term impairment in their relationship or do you think the fact that you've agreed to take back this product.
And hopefully ship different product to that customer that there is no long term effect on the customer relationship.
Well again like I said, we know very much all of our customers' processes and Hyperscale is from you know the guys that we've been shipping to for many many years, we know ppm showed a quality levels I'm out in the field they range from in some cases zero.
Perfect quality to five or six P. P M.
Once in a while youll get an issue where you've got to work with the customer and partnership to figure out what the challenges are sometimes it's their end customers that are doing things that they shouldn't be doing but you work with them in partnership to build something thats more.
More robust in the spec you know originally called for.
When you get that work done and.
They're obviously working closely with us to get get that done so I.
I don't see any any problems with the customer relationships, we worked hard to build them and they are in good shape.
Got it thank you.
Since the introduction of the two questions on the line are you going to take it.
Yeah.
Yeah last one we can take one one question I have one more.
Certainly it is coming from John Dillon from DB. Please proceed.
Hey, Bill just wondering if you can give us an update on the front end products in the AC to DC as far as design wins and timing and whatever else you can tell us about that.
Yeah. So we are continuing to ship evaluation units to different customers in.
In the high performance computing area and edge computing and we also have a defense and aerospace set of variance that work at much higher frequency 400, Hertz instead of the 50 60 hooks that you typically have both single phase three phase products different power levels.
So those will all start to rollout and sample and get on Digi key mouser another distributor shelves in Q2 of next year.
That's that's going along really well and it's an exciting new.
Product family and my team is chomping at the bit to get those parts. So that's.
It's something I think we will have a lot of positive things to say about next year in terms of wins.
On future business ramps on that product family.
We've talked in the past about this and it sounds like the March but that is as big as the point of load market.
Do you expect an inflection point sometime late latter part of next year and that in that business.
I think probably I would say probably early 'twenty four John I mean, these markets still have long gestation periods right. It's a there's still it takes about a year 18 months two to really get this stuff firmly designed in a da Vinci those ramps go.
Some of them could go a little quicker than that but I would say, it's more of an early 24 event.
In the meantime, though I imagine Youre still then see some in the led display area.
I think the market there is really more to do with high performance compute and guiding a very high density high powered box into interacts.
Gotcha.
Okay sounds good. Thank you guys appreciate it.
Okay. Thank you. Thank you.
I think we're ready to wrap up operator.
So Tony.
Everyone that concludes your conference call. Today, you may now disconnect. Thank you for joining and enjoy the rest of the day.
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