Q4 2022 Vicor Corp Earnings Call

Good day, everyone and welcome to the <unk> earnings results for the slick water and your ended December 31, 2020 to comprehend school hosted by Jim Smith, Chief Financial Officer My.

My name is <unk> and I'm your operator yesterday during the presentation. Your lines will remain on listen only if you require assistance at any time. Please press star zero on your telephone and a coordinator will be happy to assist you I would like to advise all parties that the school is being recorded and with that I would like to hand over to.

Jim. Please go ahead.

Thank you.

Good afternoon, and welcome to <unk> Corporation's earnings call for the fourth quarter and year ended December 31, 2022, and Jim Schmidt, Chief Financial Officer, and I'm in Andover, with Pretreat CEO , Vince you Rally Chief Executive Officer, and Phil Davies, Vice President Global sales and marketing.

After the market closed today, we issued a press release summarizing our financial results for the three months and year ending December 31.

This press release has been posted on the Investor Relations page of our website Www Dot <unk> powered dot com.

Also filed a form 8-K today related to the issuance of this press release.

I remind listeners this conference call is being recorded and is the copyrighted property of <unk> Corporation.

To 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 1095.

Except for historical information contained in this call the matters discussed on this call, including any statements regarding current and planned products current and potential customers potential market opportunities expected events and announcements and our capacity expansion as well as management's expectations for sales growth spending and profitability.

Our 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 in or implied by any of our remarks today the 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. This document is available via the Edgar system on the SEC's website. Please note. The information provided during this conference call is accurate only as of today Thursday February 23, 2023 Bancorp 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 March 10, 2023. The replay dial in number is 8882868010, followed by the passcode 990 813 $94 seven.

This dial in and passcode also are 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.

I'll now turn to a review of our Q4 and full year financial performance after which Bill will review recent market developments and Patricio, Phil and I will take your questions. In my remarks, I will focus mostly on the sequential quarterly change for P&L and balance sheet items as well as full year on year changes and refer you to our press.

Lease for our upcoming Form 10-K for additional information.

As stated in today's press release <unk> recorded total revenue for the fourth quarter of $105 5 million up two 3% from the third quarter total of $103 1 million and up 16, 8% from the fourth quarter 2021 total of $90 3 million revenues for the year ended December 31 2022 inch.

Creased 11, 1% to $399 1 million from $359 4 million for the prior year advanced product revenue Rose 737, 3% sequentially, while brick products revenue declined four 4% from the third quarter.

Revenues for advanced products for the year, ending 2022 increased 42, 9% to $243 3 million from $172 million a year before.

Shipments to stocking distributors and increased 16, 4% sequentially and three 4% year over year.

Exports for the fourth quarter decreased sequentially as a percentage of total revenue to approximately 59, 8% for the prior from the prior quarter, 71% on.

On a year over year basis exports increased as a percentage of total revenue to approximately 67, 6% from the prior year a 67%.

For Q4 advanced products share of total revenue increased to 62% compared to 57, 4% for the third quarter with brick products share correspondingly decreasing to 39, 8% of total revenue.

Turning to Q4 gross margin we recorded a consolidated consolidated gross profit margin of 46, 6%, which is approximately a 100 basis point increase from the prior quarter for the for the full year 2022 gross margin declined to 45, 2% from 49, 6% in the prior year.

A number of factors contributed to the year on year decline in gross margin percentage, including less factory utilization associated with lower brick volume increasing startup costs incurred as we equip our in house vertically integrated manufacturing facility.

Higher outsourced manufacturing costs during the year and higher freight and tariff costs.

I'll now turn to Q4 operating expenses total operating expense decreased six 7% from the third quarter.

For the full year 2022, total operating expense as a percent of revenue increased to 38, 4% from 34, 1% in the prior year.

The amounts of total equity based compensation expense for Q4 included in cost of goods SG&A and R&D was $486001 551780, 1000, respectively totaling approximately $2 8 million.

For Q4, we recorded operating income of $8 1 million, representing an operating margin of seven 7%.

For the full year 2022, operating income totaled $27 2 million or six 8% of revenue compared to $55 6 million or 15, 5% of revenue in the prior year.

Turning to income taxes, we recorded a tax provision for Q4 of approximately $1 9 million, representing an effective tax rate for the quarter of 18, 8% the tax provision for the full year 2022 was approximately $3 3 million, representing an effective tax rate for the year of 11, 4%.

Net income for Q4 totaled $8 1 million GAAP diluted earnings per share was <unk> 18.

Based on a fully diluted share count of 44 million to 859000.

For the full year 2022, net and net income decreased to $25 5 million from $56 6 million in the prior year and 2022 fully diluted earnings per share declined from the prior year decreasing to 57 from $1 26.

Turning to our cash flow and balance sheet cash and cash equivalents totaled $190 6 million in Q4 accounts receivable net of reserves totaled $65 4 million at quarter end with Ddos Dsos for trade receivables at 40 days inventories net of reserves increased seven five sequentially seven 5%.

<unk> $101 4 million.

Annualized inventory turns were approximately flat sequentially at 259 operating.

Operating cash flow totaled $929000 for the quarter.

Capital expenditures for Q4 totaled $12 7 million.

We ended the quarter with the construction in progress balance primarily for manufacturing equipment of approximately $60 4 million and with approximately $26 million remaining to be spent.

I'll now I'll now address bookings and backlog Q.

Q4 book to Bill came in far below one and with one year backlog decreasing 18, 1% from the prior quarter and 11, 9% from the same period last year closing at $3 million to $4 million at year end.

Q4 bookings included cancellations cancellation of orders as well as new orders for our next generation program and our high performance compute business.

The net effect was a reduction in backlog of $15 million, which contributed to the $18 one sequential decline in total backlog.

Turning to our factory expansion our manufacturing team is working diligently to bring our in house vertically integrated advanced products factory fully online.

While we have begun to benefit from the use of certain process steps in the fabrication of our advanced products. We are not yet self sufficient in our key plating process operation installation and startup of this process equipment has been delayed due to resource and material constraints of the equipment manufacturer from the first quarter of this year to what is now expected to be the second quarter.

As we near the completion of our vertically integrated U S based fab for advanced products. We are looking forward to the substantial reduction in cycle time improved manufacturing efficiency and full manufacturing control that this facility will allow.

And we are anxious to leverage the imminent completion of our factory to provide shorter and more consistent lead times to our customers.

Turning to the fourth first quarter of 2023, we expect results to be approximately flat to Q4, we expect operating expenses to decline modestly sequentially and a tax rate on the order of 15% to 20% in 2023.

With that Phil will provide an overview of recent market developments.

And then for <unk> and I will take your questions.

I ask 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.

If you have more than one topic to address please get back in the queue. So thank.

Thank you Jim.

Although order rate for the second half of 2022, and specifically in Q4 continued to reflect the backlog that we've built in prior quarters and the transitions that are occurring to next generation processor platforms as hyper scaler on <unk> customers.

While a number of process of chip companies on Hyperscale is with internal ASIC developments are about to launch five nanometer based products with FPGA solutions and bus converters from vehicle next generation R&D is focused on three nanometer technology.

This process node will drive chip current requirements, even higher closer to 2000 amps and at the same time reduced coal voltages down to zero point 45 volts.

Predictions about the future of power delivery is playing out in real time.

High performance processes and cluster processor raise will soon require vertical power delivery bpd and current multiplication both proprietary vehicle technologies.

Instead of voltage averaging <unk> chips uniquely enabled processes to meet the performance requirements. In Q4, we initiated discussions with several major Oems on how to best intersect their three nanometer products with our next generation <unk> solutions.

Our SBA solutions provide the highest performance in terms of current density low noise on overall pollo system efficiency.

On our generation five technology will as I have said in previous calls be a game changer in cloud computing and machine learning with the three X step up in current density.

The journey to smaller geometries to support ever expanding AI processor performance requirements fully aligns to vehicles proprietary technology.

Our competitive position in HBC is growing stronger and as a result, my confidence in our <unk> market position and in the customers that we have worked hard to develop in recent years is increasing.

Our industrial and defense and aerospace businesses remained stable in Q4 and pass a new orders with our global distributors remained strong.

The addition of Avnet as a globally franchise distributor will add strength to our broad market efforts.

And support the identification and engagement with new customers developing advanced electrified systems across a broad set of applications.

I expect the revenues from these two business units to grow in 2023 as a result of design wins in emerging high growth markets that are being driven by the electrification automation and autonomy.

These target markets represent over $2 billion and Sam for Veeco.

One exciting new opportunity spans the entire battery ecosystem that includes forming and testing cells testing packs using packs in the electrified applications and battery recycling.

We have important design wins with leading customers in all of these high growth markets for our high voltage modules with early revenues in 2023.

Our progress in the automotive market remains very positive with three successful OEM audits in the past six months, resulting in approval of vehicle as an automotive supplier.

We expect to be IAA Etfs certified in Q2, 2023, and we will pay pop our top III flagship advanced products in Q2 with additional products to follow in Q3 and Q4.

OEM and tier one engagements are strong and we expect further <unk> funded collaborations in 2023.

As in our HBC market automotive customers are valuing the modularity and power density that veeco modules bring to their powertrain system designs on the competitive advantage that we enable for their vehicles.

As our new factory comes online and we release, our new <unk> modules into production. This year. Our front end team is laser focused on our top 100 customers securing design and production wins that will put us on track to achieve our Northstar goal of $1 billion in revenues and 65%.

<unk> gross margins.

Thank you Patricio, Jim and I will now take your questions.

So operator, we're ready for questions now.

Thank you everyone in the question and answer session will now begin.

To ask a question please.

And press Star then one on your device.

Secondly, a question just press star two.

We have been advised Glenn to ask your question and the other lines will remain on listen only.

So just to remind everyone. If you wish to ask a question. Please press star one.

Okay.

Yeah.

Yes.

Okay.

And for.

Four questions.

One is coming from John Donovan.

Please go ahead your line is open.

Hi, good afternoon, and thank you for taking my question.

My first one is a celebrity.

<unk> could you give us any more color on the low orders in the quarter and the cancellation.

Maybe just a bit on both first time clients simply digesting the long lead time order data ready please.

Or is it more of a supply and ramp concern with the new factory.

Being able to get that up on time.

Our new product ramp.

Just on the order rate number one and number two any cancellations with what's going on there. If you have any more color that'd be great.

I think as Phil pointed out.

Yes.

We are.

Seeing the effects of <unk>.

The long lead times.

<unk>.

A growth.

Yes.

A year ago.

Some key cast homeowners.

Being concerned with respect to.

Being able to get enough product and auditing I had.

Two ensuing of assay involve being.

If our IVF factors from.

The exclusion of shutdown for all of us from the Chinese market too.

<unk>.

The setbacks that.

Yes.

Industry, our largest safford with respect to.

Contraction in the general level of activity.

That capital with.

Josh I'll transition so with respect to older products being faced out in Europe products of being.

Throw that in.

Is that sequence.

S led to the party.

Changes that have taken place with respect to our backlog in the last quarter.

Okay, great. Thank you and then you gave some interesting stats on <unk> nanometer and the current requirements there.

I was wondering if you could give us some indication as to the level of participation you are having.

Or perhaps the relative market share you're having it at five nanometers today.

<unk> computes.

We know that there is a lot of frenzy around.

The.

The advent of chat GBT and similar and model of the NIM.

The general requirements that change such large language models and similar things.

Are you does that change the discussion at all with your customers and are you able to participate in that this year or is that something that's going to have to wait for next generation.

No I think that what we've spoken about in the past is that the the five nanometer nodes that have the significantly higher currents.

<unk> power architecture has significant benefits.

<unk> got about five or six companies ramping with five nanometer nodes.

In 2023.

We've also got other customers that have started out with <unk> architectures.

48 volts down to 12, and then multi phase that seeing that these architectures are actually not giving them. The maximum amount of performance that they can get from their processes and are looking at even re spins possibly of those boards to.

Something that will lower the PD and.

Voltage drops and Pollo losses, and that's also a factor a solution. So we're also engaged with two or three other customers on that.

Sort of upgrades, if you like to get the best processor performance John out of their five nanometer node. So we see both of those going on.

When you get the three nanometers, that's a completely different area for the high current so low voltages and we feel very strongly that our five <unk> technology and vertical power delivery is going to do extremely well when that starts to happen and the interest is very high in the market.

And vertical power delivery.

From <unk>. So that's what we were talking about in the in the prepared remarks here.

Just to quantify that value proposition.

Looking at the test case.

For icon.

Process so.

Routes.

With a target.

While our comp.

<unk>.

In the 1000.

Thus in NPL range.

Pending on whether you look at it in terms of <unk>.

Steady state of <unk>.

Current requirements.

The value proposition of <unk>.

All of our stock price Pos solution as a lateral vertical solution.

He is a net reduction in.

Just PD and loss that is the power distribution that pop in the copper.

From.

About 120 watts down to pretty close to 50 watts.

Definitely the actual doesn't account other reductions in portal also take place within the ceiling on itself is due to a major reduction in the volatility of differentials within the <unk> field that within.

The.

Domains that.

Our by each of the multiplicity of rails. So and this is already the case in our five nanometer.

All type off free cash.

Two feels early a point.

Is this kind of a challenge gets.

Elevated to a new level.

Paul.

The difficulty.

Going down to three nanometer.

Lower voltages and even our cross where fundamentally the very sharp solutions, the multi phase multi soar solution is up against.

In terms of servicing these themes.

Got it I have a lot more but I'll jump back in queue. Thank you.

Thank you and the next question is coming from Boston Your line is open.

Hey, guys I wanted to follow up on that.

Last question <unk> response to that.

They're perhaps trying to be a little bit more direct your largest GPU customer last night.

So revenue for its next generation five nanometer GPU exceeded the revenue from its older generation GPU and just the second quarter of shipments. So it's obviously, a very fast ramp of the new generation five nanometer GPU. You've previously stated <unk> expects to have content on this five nanometer platform has anything.

Changed recently on <unk> opportunity with this new five nanometer GPU.

And if not when would you expect to see meaningful revenue for this program ramping.

So we're not going to make.

Customer specific.

Comment is.

As you know is amount of general policy, we don't get into that I will answer your question in general terms and Phil May supplement to what I have to say.

These statements are what we just said we believe that our competitive position.

Is getting stronger, particularly.

<unk>.

Particularly with respect to our unique PD on architectures.

The demand for our solutions.

Rising now I cant comment with respect to specific estimates specific epigastrium. So at any one point in time again as a matter of policy Phil Yes, I mean in terms of has anything changed though we're confident in the future like you said and.

We're going to go through the ramps this year with.

With lead customers and some new customers and as I mentioned in my remarks.

My confidence in our position in this market is growing not not reducing.

So it sounds like without speaking to specific customers you feel good that you will participate in five nanometer ramps with multiple customers as I think you just.

Just mentioned, but it sounds like you feel even better positioned as we get to three nanometer next generation architectures, because the current requirements just move more into your sweet spot.

The answer is yes, and also I think that there will be upgrades on five nanometer nodes two they're not getting the performance out of the IPA architectures and as there's more performance to be gained by reducing <unk> and other significant.

A drawback to the to the <unk> architecture and so.

<unk> vertical solutions, and then <unk> solutions from us.

We can intersect in a number of places and improve.

Processor performance, sometimes to two X the levels that they are getting now so so I expect some of that to play out this year as well Quinn.

Understood and then the second question I have.

Obviously, I understand youre going through the process of ramping the Andover facility. It sounds like if I listen to comments that you think youll be largely independent of the outsourced.

Provider.

By the end of the second quarter I, just wanted to confirm that and I guess can you just comment how your yields have progressed.

You've started to ramp this internal capacity have you had any meaningful yield excursions or manufacturing issues that could delay manufacturing ramps of some of these next generation processor designs or current programs.

Yields are getting better so far high volume products typically of a chip is nowadays around 95%.

We have chips or we're targeting raising the bar.

Two the upper Ninety's.

We're pursuing this steps.

Methodology to accomplish that.

And.

These advances had taken place in spite of the challenges so outsourcing they don't yet reflect the benefits of vertical integration.

And just sorry.

Timing of one year will be largely free of the dependency on third party electroplating.

Partners that is that sort of middle of 'twenty three now.

No I think it's.

Based on the cross carrier deal.

Within.

Q2.

Specifically.

The last major piece of equipment.

B E.

You sold in the month of April and coming out shortly after that.

Excellent. Thank you for the detail ill jump back in queue.

Okay.

Thank you.

Next question is coming from Jon Gruber. Please go ahead. Your line is now.

Okay.

Yes.

Good afternoon.

Hum.

And the last caller asked about.

When youre going to have an analyst meeting and I was under the impression.

Youre talking about.

This quarter.

And I haven't seen anything about that and also when we resume the analyst visit.

Communication.

Like a real public company and communicated with the analysts.

And the owners.

We have participated in the Needham Conference January 12, so that was one that we did.

At this point, we Havent decided about in analyst day John .

I think our perspective is we're going to talk again in another couple of months. So its fairly frequent in the short term here and then we're also talking about the shareholder meeting and how to handle that in June .

So those are upcoming.

And what about.

Analysts visits investor visits to the company.

Only companies.

Wanted to talk to people.

Yes, I think we do that from time to time.

<unk>.

A process that we take very seriously we want to make sure everybody is treated fairly.

That's kind of the focus we have and provide the same information to everyone. At the same time as our is our objective.

Thank you.

Thank you. The next question is coming from John .

Your line is open.

Hi, everyone. How are you doing.

Good job.

Okay.

Phil.

We're pretty far into the quarter I'm, just wondering how bookings are so far this quarter.

I don't think we can get specific about that right. We are talking about.

Halfway through the quarter, yet, but certainly the rates.

So, let's not get into specifics it.

<unk> policy, we don't get into.

Again.

<unk>.

I think both Phil and I have.

If a sizing in.

The strongest firms.

That we believe we have the winning technology.

Our.

Technology go gap to the competition is widening.

Drinking.

<unk> and <unk> that applies to.

SPC is applies to automotive as we heard earlier from Phil is a surprise to some of the industrial markets and other markets.

No.

We feel very strongly that we're going to.

You shop, the capacity that we're putting in place second.

At a little longer than anticipated, but it's a major undertaking and we.

We see the returns on that investment.

Taking place in years to come so.

As to what is happening this month with respect to bookings.

What is going to often this quarter beyond the general guidance that.

Jim provided earlier.

I don't see correlate to get into any specifics.

Okay. Thanks, Thanks for that explanation and actually helps.

And I'm wondering if you can help me with my math, a little bit here, if you still have $300 million in backlog.

Pierre from me from the outside and again I understand the inside but it would appear you would be able to ship more than $105 million a quarter, because youre going to book and ship something during the quarter you can have additional bookings.

Are you being super Conservative with that saying Thats can be revenues can be flat for the near term.

I think that's the guy to assess over now and I wouldn't categorize it as being conservative or optimistic or anything else that is yes.

Our best guidance as of now.

Okay. Okay.

And then one last question for Jim.

You mentioned that you expect incremental G&A improvements.

The factory starts coming online so can we expect to see some GM improvements this quarter.

I would say the guidance is approximately flat.

It could be slightly better, but we'll see.

There is incremental improvements by way of less spending on the outsourced manufacturing side of things real time, so as we bring up the production line that will increase so there's the opportunity for some improvement there.

Beyond that we're looking for significant efficiency out of our own factory.

We must have a trough this cycle times much better efficiencies.

Great. Thank you guys very much I'll try and get back in the queue. Thank you.

Thank you.

Next question.

John John One thing your line is open.

Hey, guys. Thanks for the follow up my question was around the returned inventory and product that you took back last quarter were you able to place that number one was it at a margin of error.

At a price of a satisfactory to you guys or if it hasn't happened yet or are you pretty close to doing so.

It's been put back into inventory and some of it has been shipped out.

Okay great.

That's good to hear and then second.

Can you give us a layman you commentary on just the current legal efforts you have the recent decisions that we've seen.

Just tell me where exactly you are and what we can expect next.

Okay.

So.

You are talking about.

Legal activity, yes, yes, correct.

I think as Syncor update.

There's no update there.

Going through the post trial briefing.

Nothing of significance.

Okay great.

And then finally just did that.

Sales in R&D.

Expense jumped up quite a bit in the quarter.

Is that indicative of any new wins or projects that are that are getting closed in the pipeline.

Is that a run rate that we should be using going forward. Jim I think you said you expect a little bit I'm not sure exactly thank you Susan.

Yes, so it might be looking at it without the without including the $6 five litigation related accrual in third quarter. So that the Opex did come up from third quarter. When you exclude that and it was mostly associated actually with legal expense because of the trial and the activity was in fourth quarter.

That caused a piece of the increase in spend R&D expense did increased 9% sequentially in fourth quarter. I think it's important to note that <unk> is increasing the rate of R&D spend and its aimed at new products and it's aimed at getting the factory online.

Got it thank you.

Sure.

You mentioned <unk>.

Revenue coming in this year.

How much of how much do you expect that this one just in terms of the cost development.

Well, that's a factor for again strategically the types of customers, we engage with them we want to engage with on the collaborative efforts of new product development or new systems development and in automotive so.

We've got a lot of opportunities to do that so.

We really look to engage with leaders in the marketplace.

These these engagements range from hundreds of thousands of dollars to sometimes millions of dollars, it's difficult to put a number on it John .

Okay, Great last one just any thoughts on the brake and legacy businesses and how you expect those to trend. This year I don't think did you give a split on advanced versus legacy.

It didn't catch in your prepared remarks.

Yes, I think Tim did the sales of.

On a go forward basis not on a go forward basis with the last quarter you did see.

Yes, I gave I gave the breakdown of the percentages.

So then I guess the business isn't going away, but as we have.

Been discussing for quite some time.

<unk> over time too.

Two.

Greater degree irrelevant. So it wasn't that long ago that it was the majority of our revenues.

It's a reducing minority and.

But it is.

Business fifth as leave the in terms of FTC timescale for the last 15 or 20 years some of it too.

25 years and.

And that our past, Switzerland, driving that isn't going to go away next month on Nexium.

Okay.

Okay. Thank you.

Thank you our next question Richard Shannon Richard Your line is now.

Alright, great. Thanks, guys for taking my question.

I think going back to the statement here in the press release about.

Only supporting essentially flat quarterly revenues in the near term, obviously I referred to the March quarter.

It would seem to suggest also beyond that in June or maybe longer maybe if you can give some language to how long you expect that near term flatness to occur or visibility into when that how long that will take.

Here again.

I think we want us to become neck out.

Ill.

The level.

As reflected in the press release.

I think can smear term.

And that could be this quarter. It could be also next quarter obviously.

Visibility given a variety of factors at play.

Diminishes as we get further out.

And that's part of the rationale.

To provide guidance.

With the caveat so we should all understand.

Hum.

Is this timeframe by which you hope to get better visibility is contingent on.

New applications, you are hoping to win or when they get scheduled or is this just potentially contingent on standing up your manufacturing facility, which I think you said youre, hoping to get done sometime in the second quarter.

The farmer to not allow there I think we have a high degree of visibility with respect to the completion of vertical integration the capacity.

Availabilities that results from that.

As you might imagine less visibility with respect to.

The timing of new programs and that perhaps frankly.

Given the challenges that field described earlier with these programs and.

And the specific technical comment that I made with respect to.

<unk> loss is getting the way of <unk>.

Apple to exact yes.

The anticipated level of performance out of <unk>.

Even five nanometer silicon.

There is a lot of uncertainty.

With the customers themselves so actually they don't understand.

To a high degree what they've got.

And.

And we're helping them understand what they can get so that's part of the source of uncertainty with respect to timing programs and revenues.

That uncertainty about PD and issues here as we go down notes here is that reflecting customers, who haven't yet adopted <unk> solutions are also ones who have done it in the past.

Well all of the above and vital solutions.

Moving to <unk>.

The level of capability with respect to these with our invention.

<unk> got 11 of Vertigo.

So.

Part of these advances set to do with advanced city.

All of our molecules that crop density, which.

As being ahead of the pack by a certain percentage of with five G.

As advance is becoming three times greater.

But it's not just a module density converse VFR density play it's also a.

Part of this <unk> architecture all play in.

For a variety of reasons that constrained some of the competitive alternatives with respect to what they can do.

In terms, so power distribution networks.

One of our greater opportunities aside from again the density of the mall deals.

The advantages of high price power F to do with <unk>.

Enabling ways to deliver that power that bring about much greater efficiency in the power distribution. These copper layers, so lets say within a board.

And relating to that the much greater control of the voltages within domains in the silicon itself, which.

<unk>.

In issue that frankly, many customers don't yet fully appreciate that they.

They see the ceiling on running rather have they see themselves being able to deliver the law for farmers that wasn't anticipated it.

Because of the handicap.

<unk>.

The power Seasteading fatigue.

The product distribution network.

<unk> is both direct and indirect both in terms of the drops take place within.

The copper.

And within the Silicon itself. So this.

<unk>.

The process of it.

The cassia.

There are.

<unk> associated with carrying these process to fruition because frac fleet.

The level of understanding.

Well it could be.

<unk>.

And it's incumbent on us in particular to work with our cash similar to unleash the full potential of their silicon.

Okay. Thanks for that detail I will have to review that a lot of stuff to unpack there potentially but thanks for that maybe the last question I'll jump out of line here related the automotive opportunity I think earlier. This year, you stated a bit of a delay from prior expectations and kind of ramping around the middle of next year when do you.

To get.

Orders and maybe more detailed forecast that to help you understand what that could look like for next year.

That's towards the end of this year Richard.

Really the ramps for that stuff is towards.

The middle of 'twenty, four I mentioned that there'll be some delays because of COVID-19.

Issues that hit a lot of the R&D teams in different Oems and tier ones. So so I would think this is probably more of a.

And a 24 early 'twenty slides.

Ramp for us.

Okay.

Perfect. That's all for me thank you.

Thank you our next questioner is Jeff Campbell Your line is open.

Yes, hi, guys.

If you could clarify.

Looking back at my notes in my thoughts.

It was probably the end of Q2 last year, we talked about 80% to 90% fully integrated vertically integrated at the new warehouse.

The new manufacturing plant by the end of December of last year.

It seem to.

They get pushed out in last week. There was some speculation that you guys had some contamination issue if you could kind of clear that up.

And then I'll follow up with that.

Can you just be a little more specific about the delays in the fab.

Fab two fab plant going up.

So suggestions by competitors.

As shown.

Pure bullshit.

With respect I just wanted to hear.

Okay, well, that's what it is and.

With respect to.

The timing of bringing the <unk>.

The vertically integrated facility to Felicia.

Sure.

There've been some delays.

<unk> kept your apprised of.

Sure.

What is being app inning with respect to this.

Complex and.

<unk> again.

Not to overstate the complexity, but in one way of looking at these.

What we're bringing together is the first fab four chips is in convert us as in package a unique viral technology heavily protected.

First of its kind.

And the fab to make these kinds of products with vertically integrated processes as GAAP.

A number of novel Toussaint complexities that we're bringing together for the first time.

I guess Eni side.

<unk>.

The delivery of some of this equipment.

Delayed by I think.

Five or six months.

All told given the cycle time for developing the equipment and manufacturing.

Sure.

It may not be all that surprising is the good news is that as I am.

Plus it is earlier in answer to an earlier question.

We're now in the hands of February and we're looking.

I'll ask Amit <unk> from vendor in Europe for the last major piece of equipment.

Being a federal state in apples, so that's really only two months away.

Which implies.

Yes.

Is that a lot of them.

I'm not trying to be a wise guy, but we've kind of heard that before.

It's getting a little unnerving as an investor that there seems to be a delay a delay a delay and like when you won't talk about Nvidia, but and video seems to be working through their inventory and ramping up in all areas AI has been a real buzzword over the last couple of weeks I know you guys are involved with AI as an investor Im getting a little nervous that.

The rates it started and you guys are following behind no matter how good your technology.

Olympic is an execution machine and they keep talking all sorts of stress across the board, but they are executing I'm just getting a little nervous that you guys have fallen behind.

I am not.

And.

Look I can't.

I cant blame you for getting nervous.

Yes, he frontloading issues I might add.

Being delays with respect to.

The first fab four chips.

And I don't mean to make excuses for the delays, but we've advanced a number of equipment vendors involved.

Across the globe from Japan to Europe to the U S.

<unk>.

Some piece of equipment if taken.

Some number of months beyond the expectations. So I don't think you've heard me say before that we are in February .

The last piece of equipment as you too.

We delivered the <unk> sky either but.

Yes.

I hope that I'm through.

Well because I also go back to so it's purely equipment delivery that's been delayed because I remember you talking about the outsourcing process on the plating process that you guys were at the Outsourcers.

<unk> mastering the process that you planned on bringing efficiencies that you thought you could improve upon the process. When you brought it in house. So it's not like it's not like a training issue it strictly equipment there.

Right yes.

So in large equipment is being delivered has been qualified the soft on running and as Jim pointed out earlier, we're already using it is beginning to reflect itself in greater capacity and greater visibility with respect to cycle time and lead times.

If you piece of equipment.

Our steel to be delivered but we are very close to that being delivered then the SSA.

<unk>.

Very little time left the degree of instability guests to be greater so I'd be very surprised if the work to be.

Further delays I think we are a line of sight to being vertically integrated.

With that can I.

And I'll finish with a positive I greatly appreciate that you guys attended the Needham conference because it's sort of what we talked about last year, we want to hear the story. We think it's a great story, we want to be in contact with you guys and I hope that continues this year and I'll get back in the queue.

Thank you.

Thank you. Our next question noise and then your line is open.

Yes, good afternoon.

I'm going to approach that little differently and the last question.

It seems like the gating factor.

Your revenues.

Drilling again has been one that's saving into the <unk>.

<unk> technology products.

Can we expect once the paintings done can we expect.

The step up in revenues by.

By the way and then <unk>.

One of those coming out and what can we expect from that.

So we expect.

We have let me start with what has already been done.

<unk> began to expose.

Hygiene capabilities.

To a very very.

<unk>.

Limited.

Test case of customers.

Very few instances and.

In a very controlled way.

Two.

In effect get.

Market values action four are being aligned with.

Needs the timing.

Wei with.

Further advances seen in cereal lithography and general market trends.

What I can tell you is that.

We're getting great traction.

With respect to five G providing.

Providing what past similar scenario was that free cash in <unk>.

<unk> need and our <unk>.

Going to need over years to come so I am very very comfortable with respect to the fact that.

No.

It has happened before.

We've had the vision to anticipate what the market is going and what is needed in order to enable.

Four months out of critical obligations.

We have.

Some five G.

Molecules.

Operating on the bench the full complement of capabilities.

He is coming together with the availability of sand control silica.

This is taking place. So then I saw a months and we expect to be able to.

The stock Saffian cash summers in Q4 of this year.

Yes.

Get further along with.

<unk>.

Going to expose the capabilities to our growing list of customers.

<unk> unique tools that are being developed.

To some degree been developed already.

In April .

Customers too.

<unk>.

The driver's seat with respect to controlling their destiny.

With.

CCM solutions and PGN methodologies that.

Meet to their real requirements. So we feel very good about this and.

This is a.

23.

<unk>.

Okay.

Development with respect to the <unk> technology coming together and I think was particularly noteworthy is that in terms of.

Resetting the level of resetting the bar of expectation in terms of power density current advanced <unk> and the clinical needs.

In.

Computing automotive and other.

Sure.

Major our free cash outs.

I think as well beyond the step up in performance that <unk> was able to achieve with power generation of products.

These are coming together.

And a lot of technologies.

With respect to unique components.

<unk>.

The packaging technology.

The power distribution architecture, all playing together for the first time to deliver a major step up in performance. So we're very excited about that.

Do you think customers are.

Perhaps delaying until they get.

The hands on packaging.

No.

No that's not the way it works it trains leaves this fashion.

On.

The best case that can be achieved.

<unk> done all it is to say if not all of the capability set in place they still have to leave.

The <unk> the <unk>.

Thanks.

Follow the earlier ones. So there is an opportunity to intersect with five G.

From a designing process perspective is starting.

This year, we're already engaged in in a few instances with the kinds of customers that we can be engaging.

At this stage of it.

Five <unk> capability, which is really steel.

Preliminary because while we do have targets specs are far away.

Comprehensive product.

Prop portfolio.

The <unk> or not.

Final yet while we're way.

Some of the lost elements, enabling <unk> to fall in place.

So.

Apology is ramping right now with the five nanometer nodes.

Earlier multiple.

Dr. <unk> power architectures on bus can grow there. So the <unk> is ramping through this year.

Hit some peaks next year then.

Google nanometer, but we've got good design ends on the <unk> stuff and there'll be opportunities to pick up other five nanometer nodes as as I've mentioned to get the performance out of those so is using what we're calling lateral vertical with our <unk> technology. So so that all happens before transit.

<unk>.

Okay.

Do you think <unk> will significantly expand your market.

Absolutely absolutely.

Absolutely, yes, both in terms of higher cost and even lower costs I mean it goes.

<unk> is going to go all fine so we're going to.

Not only take the 15 onto that for 2000 and <unk>, but we're also going to take the 100 <unk>.

Okay, and finally back on the plating.

Do you expect that.

The step up in revenue.

Get that completed.

This step up in.

But.

Alicia log jam.

More shipments.

And housekeeping.

Yes, so as suggested earlier as suggested in the press release.

Of this moment, we are not capacity constrained with respect to revenue.

As of now.

We are limited by <unk> bookings and backlog.

Tom.

Okay.

Basically flat.

This next quarter and possible.

Second quarter.

In the second half.

No.

CRE production or near term.

Again, I don't mean to be a wise guy.

We just want to be sure that we are.

Very clear with respect to.

It was to effect and not.

Encourage any.

Potentially misleading expectation.

Okay. Thank you very much.

Yes.

Thank you, everyone and operator, I think we could.

I think we have time for maybe one more question.

Thank you. The next question is coming from Quinn Bolton Your line is open.

Thanks for squeezing. This last question, Phil I guess, the latter vertical ramping with your <unk> technology does that does that start this year or is that more of a 2024 event based on sort of your current expectations.

Our goal is to have that ramping this year.

Perfect. Okay. Thank you.

Okay.

Thank you everyone. Operator, I think we are ready to close the call now.

Thank you. Thank you.

Everyone that concludes your conference call for today you may now disconnect. Thank you for joining and enjoy the rest of your day.

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Good day, everyone and welcome to <unk> earnings results or just luck.

Andy you Sandler Thank you.

2020, Q conference call hosted by James Smith, Chief Financial Officer.

And on your operator today.

During the presentation. Your lines you may now listen only.

If you require assistance at any time, Please press star zero on your Chinese food and the coordinator will be happy to do that thank you.

I would like to advise all parties this.

This call is being recorded.

I would like to hand over to Jim. Please go ahead.

Thank you.

Good afternoon, and welcome to <unk> Corporation's earnings call for the fourth quarter and year ended December 31, 2022, and Jim Schmidt, Chief Financial Officer, and I'm in and over with <unk>, Chief Executive Officer, and Phil Davies, Vice President Global sales and marketing.

After the markets closed today, we issued a press release summarizing our financial results for the three months and year ending December 31.

This press release has been posted on the Investor Relations page of our website Www Dot <unk> power Dot Com. We also filed a form 8-K today related to the issuance of this press release.

I remind listeners this conference call is being recorded and is the copyrighted property of <unk> Corporation.

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 1095.

Except for historical information contained in this call the matters discussed on this call, including any statements regarding current and planned products current and potential customers potential market opportunities expected events and announcements at our capacity expansion as well as management's expectations for sales growth spending and profitability.

Our 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 in or implied by any of our remarks today the risks and uncertainties. We face are discussed in item <unk> of our 2021 Form 10-K, which we file.

With the SEC on March one 2022. This document is available via the Edgar system on the SEC's website. Please note. The information provided during this conference call is accurate only as of today Thursday February 23, 2023, very core 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 March 10 2023.

The replay dial in number is 8882868010, followed by the passcode 990 813 $94 seven.

This dial in and passcode also are set forth in today's press release and.

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.

I will now turn to a review of our Q4 and full year financial performance after which Bill will review recent market developments and Patricio, Phil and I will take your questions. In my remarks, I will focus mostly on the sequential quarterly change for P&L and balance sheet items as well as full year on year changes and refer you to our press.

Lease for our upcoming Form 10-K for additional information.

As stated in today's press release <unk> recorded total revenue for the fourth quarter of $105 5 million up two 3% from the third quarter total of $103 1 million and up 16, 8% from the fourth quarter 2021 total of $90 3 million revenues for the year ended December 31 2022 inch.

<unk> 11, 1% to $399 1 million from $359 4 million for the prior year advanced product revenue Rose 737, 3% sequentially, while brick products revenue declined four 4% from the third quarter revenues for advanced products for the year ending 2022.

<unk> 42, 9% to $243 3 million from $172 million a year before.

Shipments to stocking distributors increased 16, 4% sequentially and three 4% year over year.

Exports for the fourth quarter decreased sequentially as a percentage of total revenue to approximately 59, 8% for the prior from the prior quarter, 71%.

On a year over year basis exports increased as a percentage of total revenue to approximately 67, 6% from the prior year a 67%.

For Q4 advanced products share of total revenue increased to 62% compared to 57, 4% for the third quarter with brick product share correspondingly decreasing to 39, 8% of total revenue.

Turning to Q4 gross margin we recorded a consolidated consolidated gross profit margin of 46, 6%, which is approximately a 100 basis point increase from the prior quarter.

For the full year 2022 gross margin declined to 45, 2% from 49, 6% in the prior year.

A number of factors contributed to the year on year decline in gross margin percentage, including less factory utilization associated with lower brick volume increasing startup costs incurred as we equip our in house vertically integrated manufacturing facility.

Outsourced manufacturing costs during the year and higher freight and tariff costs.

I'll now turn to Q4 operating expenses total operating expense decreased six 7% from the third quarter.

For the full year 2022, total operating expense as a percent of revenue increased to 38, 4% from 34, 1% in the prior year.

The amounts of total equity based compensation expense for Q4 included in cost of goods SG&A and R&D was 486000 1.551 million.

And 781000, respectively totaling approximately $2 8 million.

For Q4, we recorded operating income of $8 1 million, representing an operating margin of seven 7%.

For the full year 2022, operating income totaled $27 2 million or six 8% of revenue compared to $55 6 million or 15, 5% of revenue in the prior year.

Turning to income taxes, we recorded a tax provision for Q4 of approximately $1 9 million.

Representing an effective tax rate for the quarter of 18, 8% the tax provision for the full year 2022 was approximately $3 3 million, representing an effective tax rate for the year of 11, 4%.

Net income for Q4 totaled $8 1 million GAAP diluted earnings per share was <unk> 18.

Based on a fully diluted share count of $44 million 859000.

For the full year 2022, net and net income decreased to $25 5 million from $56 6 million in the prior year and 2022 fully diluted earnings per share declined from the prior year decreasing to 57 from $1 26.

Turning to our cash flow and balance sheet cash and cash equivalents totaled $190 6 million in Q4 accounts receivable net of reserves totaled $65 4 million at quarter end with deals Dsos for trade receivables at 40 days inventories net of reserves increased seven five sequentially 745%.

<unk> $101 4 million.

Annualized inventory turns were approximately flat sequentially at $2 $5 nine operating.

Operating cash flow totaled $929000 for the quarter.

Capital expenditures for Q4 totaled $12 7 million.

We ended the quarter with the construction in progress balance primarily for manufacturing equipment of approximately $60 4 million and with approximately $26 million remaining to be spent.

I'll now I'll now address bookings and backlog.

Q4 book to Bill came in far below one and with one year backlog decreasing 18, 1% from the prior quarter and 11, 9% from the same period last year closing at $3 million to $4 million at yearend.

Q4 bookings included cancellations cancellation of orders as well as new orders for our next generation program and our high performance compute business.

The net effect was a reduction in backlog of $15 million, which contributed to the $18 one sequential decline in total backlog.

Turning to our factory expansion our manufacturing team is working diligently to bring our in house vertically integrated advanced products factory fully online.

While we have begun to benefit from the use of certain process steps in the fabrication of our advanced products. We are not yet self sufficient in our key plating process operations installation and startup of this process equipment has been delayed due to resource and material constraints of the equipment manufacturer from the first quarter of this year to what is now expected to be the second quarter.

As we near the completion of our vertically integrated U S based fab for advanced products. We are looking forward to the substantial reduction in cycle time improved manufacturing efficiency and full manufacturing control that this facility will allow.

And we are anxious to leverage the imminent completion of our factory to provide shorter and more consistent lead times to our customers.

Turning to the fourth first quarter of 2023, we expect results to be approximately flat to Q4, we expect operating expenses to decline modestly sequentially and a tax rate on the order of 15% to 20% in 2023.

With that Phil will provide an overview of recent market developments and then for <unk> 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. If you have more than one topic to address please get back in the queue. So thank.

Thank you Jim.

Although order rate for the second half of 2022, and specifically in Q4 continued to reflect the backlog that we've built in prior quarters and the transitions that are occurring to next generation processor platforms, a type of scalar and <unk> customers.

While a number of processor chip companies and Hyperscale is with internal ASIC developments are about to launch five nanometer based products with FPGA solutions and bus converters from <unk>. The next generation R&D is focused on three nanometer technology.

This process node will drive chip current requirements, even higher closer to 2000 amps and at the same time reduced co voltages down to zero point 45 volts.

Prediction about the future of power delivery is playing out in real time.

High performance processors and clustered processor raise will soon require vertical power delivery bpd and current multiplication both proprietary vehicle technologies.

Instead of voltage averaging <unk> chips uniquely enabled processes to meet the performance requirements.

In Q4, we initiated discussions with several major Oems on how to best intersect the three nanometer products with our next generation <unk> solutions.

Our SBA solutions provided the highest performance in terms of current density low noise on overall power system efficiency.

And our generation five technology will as I have said in previous calls via a game changer in cloud computing and machine learning with the three X step up in current density.

The journey to smaller geometries to support ever expanding AI processor performance requirements fully aligns to vehicles proprietary technology.

Our competitive position in HBC is growing stronger and as a result, my confidence in our HBC market position and in the customers that we have worked hard to develop in recent years is increasing.

Our industrial and defense and aerospace businesses remained stable in Q4 and pass a new orders with our global distributors remained strong the.

The addition of Avnet as a globally franchise distributor will add strength to our broad market efforts.

And support the identification and engagement with new customers developing advanced electrified systems across a broad set of applications.

I expect the revenues from these two business units to grow in 2023 as a result of design wins in emerging high growth markets that are being driven by the electrification automation and autonomy.

These target markets represent over $2 billion and Sam for vehicle.

One exciting new opportunity spans the entire battery ecosystem that includes forming and testing cells testing packs using packs in the electrified applications and battery recycling.

We have important design wins with leading customers in all of these high growth markets for our high voltage modules with early revenues in 2023.

Our progress in the automotive market remains very positive with three successful OEM audits in the past six months, resulting in approval of <unk> as an automotive supplier.

We expect to be IAA TFS certified in Q2, 2023, and we will pay our top III flagship advanced products in Q2 with additional products to follow in Q3 and Q4.

OEM and tier one engagements are strong and we expect further NRG funded collaborations in 2023.

As in our HBC market automotive customers are valuing the modularity and power density that veeco modules bring to their powertrain system designs and the competitive advantage that we enable for their vehicles.

As our new factory comes online and we released our new <unk> modules into production this year.

Front end team is laser focused on our top 100 customers securing design and production wins that will put us on track to achieve our Northstar goal of $1 billion in revenues and 65% gross margins.

Thank you Patricio, Jim and I will now take your questions.

So operator, we're ready for questions now.

Thank you everyone in the question and answer session will now begin if you wish to ask a question. Please on mute your phones and press Star then one on your device.

Please proceed with your question just press Star two.

We have been advised to ask your question and the other lines will remain on listen only so just to remind everyone. If you wish to ask a question. Please press star one.

Yes.

Okay.

And I can see four questions in the queue right now.

The first one is coming from John Donovan London.

Please go ahead your line is open.

Hi, good afternoon, and thank you for taking my question.

My first one is.

<unk> could you give us any more color on the low orders in the quarter and the cancellation.

Maybe just a bit on both first time clients.

Clients simply digesting the long lead time order data ready please.

Or is it more of a supply and ramp concern with the new factory.

Being able to get that up on time, but supporting new product ramp.

Just on the order rate number one and number two on the cancellations with what's going on there. If you have any more color that'd be great.

Yeah.

I think as Phil pointed out.

We are seeing the effects.

FX of.

The long lead times.

Yeah.

Growth in the base.

Yes.

A year ago.

Some key cash some of ours.

Being concerned with respect to.

Being able to get enough product and auditing I had.

Two ensuing events involving <unk>.

If youre factors from.

The exclusion of shutdown for all of us from the Chinese market too.

The setbacks that.

Yes.

Industry, our largest safford with respect to.

Contraction in the <unk>.

While our level of activity.

So that capital with.

Josh I'll transition, so with respect to older products being faced out and newer products of being.

Throw that in.

The right sequence.

S led to the party here.

Changes that have taken place with respect to our backlog in the last quarter.

Okay, great. Thank you and then you gave some interesting stats on three nanometer and the current requirements there.

I was wondering if you could give us some indication as to the level of participation you are having.

Or perhaps the relative market share you're having it at five nanometers today on AI GPU compute.

We know that there is a lot of frenzy around.

Damian.

Had been obtained at GBT and similar and models.

The general requirement to train such large language models and similar things.

Are you does that change that discussion at all with your customers and are you able to participate in that this year or is that something that's going to have to wait for the next generation.

No I think that what we've spoken about in the past is that the the five nanometer nodes that have the significantly high occurrence.

<unk> <unk>.

Power architecture has significant benefits, we've got about five or six companies.

<unk> with five nanometer nodes.

In 2023.

We've also got other customers that have started out with <unk> architectures.

48 volts down to 12, and then multi phase that.

Seeing that these architectures are actually not giving them the maximum amount of performance that they can get from their processes and are looking at even re spins, possibly of those boards to two.

Something that will lower the PVM.

Voltage drops and power losses.

That's also a factor a solution. So we're also engaged with two or three other customers on that.

Sort of upgrades, if you like to get the best processor performance John out of their five nanometer node. So we see both of those going on.

When you get the three nanometers, that's a completely different area for the high current so low voltages and we feel very strongly that the <unk> technology.

<unk> and vertical power delivery is going to do extremely well.

That starts to happen then the interest is very high in the market and vertical power delivery from vehicles. So that's what we were talking about in the.

In the prepared remarks here.

Just to quantify that value proposition looking.

Looking at the test case.

For icon.

Process so.

Routes.

With a target.

Our comp for.

Requirement.

And the one passes SaaS and NPR range, depending on whether you look at it in terms of.

Steady state on the.

The current requirements.

The value proposition of.

Although our stock price power solution.

Lateral vertical solution.

Is a net reduction in <unk>.

Just PD and loss that is the power distribution laptop in the copper.

From.

About 121 down to pretty close to 50 watts.

Yes.

Definitely the actual doesn't account other reductions and Paul will also take place within the ceiling on itself is due to a major reduction in the voltage differentials within the <unk> field that within.

The <unk>.

<unk> that.

Our by each of the multiplicity of rails. So and this is already the case in our five nanometer.

All type of free cash.

To Phil's earlier point.

This kind of a challenge guests.

Elevated to a new level.

Paul.

Difficulty.

Going down to three nanometer.

With lower voltages, and even our crops where fundamentally.

<unk> solutions, the multi phase multi soar solution is up against.

In terms of servicing these things.

Got it I have a lot more but I'll jump back in queue. Thank you.

Thank you and the next question is coming from Boston Your line is open.

Hey, guys I wanted to follow up on the <unk>.

Last question <unk> response to that.

So perhaps trying to be a little bit more direct your largest GPU customer last night.

So revenue for its next generation five nanometer GPU exceeded the revenue from its older generation GPU and just the second quarter of shipments. So it's obviously, a very fast ramp of the new generation five nanometer GPU.

Previously stated by core expects to have content on this five nanometer platform has anything changed recently on Vipers opportunity with this new five nanometer GPU.

And if not when would you expect to see meaningful revenue for this program ramping.

So we're not going to make.

Customer specific.

Commentaries.

As you know is the amount of general policy, we don't get into that.

I'll answer your question in General terms, and Phil May supplement to what I have to say.

These statements are what we just said we believe that our competitive position.

Is getting stronger, particularly with <unk>.

Particularly with respect to our unique <unk> architectures.

And the demand for our solutions.

Rising now I cant comment with respect to specific asset specific uptick Ashok so at any one point in time.

Again as a matter of policy.

Yes, I mean in terms of has anything changed though we're confident in the future like you said and we're going to go through the ramps this year with.

With lead customers and some new customers and as I mentioned in my remarks.

My confidence in our position in this market is growing not not reducing.

So it sounds like without speaking to specific customers you feel good that you will participate in five nanometer ramps with multiple customers as I think you just.

Just mentioned, but it sounds like you feel even better positioned as we get to three nanometer next generation architectures, because the current requirements just move more into your sweet spot.

The answer is yes, and also I think that there will be upgrades on five nanometer nodes two they're not getting the performance out of the IPA architectures and as there's more performance to be gained by reducing <unk> and other significant.

Drawback to the to the <unk> architecture and so.

<unk> vertical solutions, and then <unk> solutions from us.

We can intersect in a number of places and improve.

Processor performance, sometimes to two X the levels that they are getting now so so I expect some of that to play out this year as well.

Understood and then the second question I have.

Obviously, I understand youre going through the process of ramping the Andover facility. It sounds like if I listen to comments that you think youll be largely independent of the outsourced.

Provider by the end of the second quarter I, just wanted to confirm that and I guess can you just comment how your yields have progressed.

You've started to ramp this internal capacity have you had any meaningful yield excursions or manufacturing issues that could delay manufacturing ramps of some of these next generation processor designs our current programs.

Yields are getting better so far I volume products typically of a chip is nowadays around 95%.

We have chips or we're targeting raising the bar.

Two the upper nineties.

We're pursuing the steps.

As a dollar tree to accomplish that.

And.

These advances have taken place in spite of the challenges so outsourcing they don't yet reflect the benefits of vertical integration.

And just sorry Jed.

Timing of one year will be largely free of the dependency on third party electroplating.

Partners that is that sort of middle of 'twenty three now.

No I think it's.

Based on the cross carrier deal.

Within.

Q2.

Specifically.

The last major fee, so quick that due to.

B E.

He sold.

In the month of April and coming out shortly after that.

Excellent.

For the detail I'll jump back in queue.

Okay.

Thank you.

The next question is coming from Jon Gruber. Please go ahead. Your line is open.

Good afternoon.

Hum.

And the last caller asked about.

When youre going to have an analyst meeting and I was under the impression.

We're talking about.

This quarter.

And I haven't seen anything about that.

Also when we resume analyst visit communication with them.

Seemed like a real public company and communicate with the analysts and the owners.

We have participated in the Needham Conference January 12, so that was one that we did.

At this point, we Havent decided about in analyst day John .

I think our perspective is we're going to talk again in another couple of months. So its fairly frequent in the short term here and then we're also talking about the shareholder meeting and how to handle that in June .

So those are upcoming.

And what about <unk>.

Melissa visits investor visits to the company.

Which.

Only companies.

Wanted to talk to people.

Yes, I think we do that from time to time.

<unk>.

A process that we take very seriously we want to make sure everybody is treated fairly.

That's kind of the focus we have and provide the same information to everyone. At the same time as our is our objective.

Thank you.

Thank you. The next question is coming from John .

Your line is open.

Hi, everyone. How are you doing.

Good job.

Okay.

Phil.

We're pretty far into the quarter I'm, just wondering how bookings are so far this quarter.

I don't think we can get specific about that right we're talking about.

Halfway through the quarter, yes, but certainly the rates.

So let's not get into.

<unk>.

<unk> policy, we don't get into.

Again.

<unk>.

I think both Phil and I have.

If a sizing in.

The strongest firms.

That we believe we have the winning technology.

Our.

Technology go gap to the competition is widening.

Drinking.

<unk> and <unk> that applies to.

SPC is applies to automotive as we heard earlier from Phil is a surprise to some of the industrial markets and other markets.

So we feel very strongly that we're going to.

Use up the capacity that we're putting in place.

A little longer than anticipated, but it's a major undertaking and we.

We see the returns on that investment.

Taking place in years to come so.

As to what is happening this month with respect to bookings so.

What is going to often this quarter beyond the <unk> guidance.

Jim provided earlier.

I don't see correlate to get into any specifics.

Okay. Thanks, Thanks for that explanation and it actually helps.

And I'm wondering if you can help me with my math, a little bit here, if you still have $300 million in backlog.

It would appear from me from the outside and again I understand the inside but it would appear you would be able to ship more than $105 million a quarter, because youre going to book and ship something during the quarter you can have additional bookings.

You're being Super Conservative with that saying Thats can be revenues can be flat for the near term.

I think thats, the guy to assess over now and I wouldn't characterize it as being conservative or optimistic or anything else that is yes.

Our best guidance.

<unk>.

Okay. Okay.

Hey.

And then one last question for Jim You had mentioned that you expect incremental GM improvements.

The factory starts coming online so can we expect to see some GM improvements this quarter.

I would say the guidance is approximately flat.

It could be slightly better, but we'll see.

There is incremental improvements by way of less spending on the outsourced manufacturing side of things real time, so as we bring up the production line that will increase so there's the opportunity for some improvement there.

I think beyond that we're looking for significant efficiency out of our own factory.

Chalk this cycle times much better efficiencies.

Great. Thank you guys very much I'll try and get back in the queue. Thank you.

Thank you. The next question is John Johnson Your line is open.

Hey, guys. Thanks for the follow up.

My question was around the returned inventory and product that you took back last quarter were you able to place that number one was it at a margin of errors.

Yes.

So at satisfactory to you guys or.

Hasn't happened, yet or are you pretty close to doing so.

It's been put back into inventory and some of it has been shipped out.

Okay great.

That's good to hear and then second.

Can you give us a layman you commentary on just the current legal efforts you have the recent decisions that we've seen.

Just tell me where exactly you are and what we can expect next.

Okay.

So.

You are talking about.

Legal activity, yes, yes, correct.

I think as Syncor update.

There's no update there.

Going through the post trial briefing.

Nothing of significance.

Okay great.

And then finally just did that.

Sales in R&D.

Expense jumped up quite a bit in the quarter.

Is that indicative of any new wins or projects that are that are getting closed in the pipeline.

Is that a run rate that we should be using going forward. Jim I think you said you expect a little bit I'm not sure exactly.

Yes, so it might be looking at it without the without including the $6 five litigation related accrual in third quarter. So that the Opex did come up from third quarter. When you exclude that and it was mostly associated actually with legal expense because of the trial and the activity was in fourth quarter.

That caused a piece of the increase in spend R&D expense did increased 9% sequentially in fourth quarter. I think it's important to note that <unk> is increasing the rate of R&D spend and its aimed at new products and it's aimed at getting the factory online.

Got it thank you.

Sure.

You mentioned NRT revenue coming in this year just.

How much of how much do you expect that this one just in terms of the cost development.

Well, that's a factor for again strategically the types of customers, we engage with them we want to engage with on the collaborative efforts of new product development or new systems development in automotive so.

We've got a lot of opportunities to do that so.

We really look to engage with leaders in the marketplace.

These these engagements range from hundreds of thousands of dollars to sometimes millions of dollars, it's difficult to put a number on it John .

Okay, Great last one just any thoughts on the brake and legacy businesses and how you expect those to trend. This year I don't think did you give a split on advanced versus legacy.

I didn't catch it in your prepared remarks.

Yes, I think Tim did the sales of the go forward basis not on a go forward basis with the last quarter you did see some.

Yes, I gave I gave the breakdown of the percentages.

The legacy business isn't going away, but as we've.

<unk> been discussing for quite some time.

It's becoming over time to a greater degree irrelevant. So it wasn't that long ago that it was the majority of our <unk>.

Revenues.

It's reducing minority and.

But it is.

Business fit.

<unk> leave the in terms of LTC timescale for the last 15 or 20 years some of it.

25 years and.

Our past, Switzerland, driving it isn't going to go away next month on Nexium.

Okay.

Okay. Thank you.

Thank you. Our next question is Richard Shannon Richard Your line is now.

Alright, great. Thanks, guys for taking my question.

I think going back to the statement here in the press release about.

Only supporting essentially flat quarterly revenues in the near term, obviously I referred to the March quarter.

It would seem to suggest also beyond that in June or maybe longer maybe if you can give some language to how long you expect that near term flatness to occur or visibility into when that how long that'll take.

Here again.

I don't think we want us to become neck out beyond.

The level.

As reflected in the press release.

I think it's near term and that could be this quarter or it could be also next quarter obviously.

Visibility given a variety of factors at play.

Diminishes as we get further out.

Thus part of the rationale.

To provide guidance.

With the caveat so we should all understand.

Okay.

Is this the timeframe by which you hope to get better visibility is contingent on.

New applications, you are hoping to win or when they get scheduled or is this just potentially contingent on standing up your manufacturing facility, which I think you said youre, hoping to get done sometime in the second quarter.

The farmer to not a lot I think we have a high degree of visibility with respect to the completion of vertical integration the capacity.

<unk>.

Volatility that results from that we have as you might imagine less visibility with respect to.

The timing of new programs and that perhaps frankly.

Given the challenges that Phil described earlier with these programs and.

And the.

Specific technical comment that I made with respect to.

<unk> loss is getting the way of being able to extract out.

The anticipated level of performance out of <unk>.

Even five nanometer as silica.

There is a lot of uncertainty.

With the customers themselves so actually they don't understand.

To a high degree what they've got.

And.

And we're helping them understand what they can get so that's part of the source of uncertainty with respect to timing programs and revenues.

That uncertainty about PD issues here as we go down notes here is that reflecting customers, who haven't yet adopted <unk> solutions are also ones, where who have done it in the past.

Well all of the above and vital solutions.

Moving to <unk>.

The level of capability with respect to these with our invention.

<unk> got 11 of Vertigo.

So.

Part of these advances set to do with advanced city.

All of our molecules that crop density, which.

As being ahead of the pack by a certain percentage of with <unk>.

Advance is becoming three times greater.

But it's not just a module density conveyance VFR velocity play it's also a.

Part of distribution architecture, all play in.

For a variety of reasons that constrained some of the competitive alternatives with respect to what they can do.

In terms, so power distribution networks.

One of our greater opportunities aside from again the density of the mall deals.

The advantages of high price power F to do with <unk>.

Enabling ways to deliver that power that bring about much greater efficiency in the power distribution. These the copper layers, so lets say within a board.

And related to that the much greater control of the voltages within domains in the silicon itself, which.

She is an issue that frankly, many customers don't yet fully appreciate that.

They see the ceiling on running rather have they see themselves being able to deliver the law for farmers.

There was anticipated it is because of the handicap of.

The power system in particular.

The product distribution network and is both direct and indirect.

Both in terms of the drops take place within.

The copper.

And within the silicon itself.

This.

<unk>.

A process.

The cassia.

Sure.

Challenges associated with carrying.

This process to fruition because track fleet.

The level of understanding.

Well it could be and.

And it's incumbent on us in particular to work with our cash similar to ours.

Alicia the full potential of their silicon.

Okay. Thanks for that detail I will have to review that.

Just to unpack that retention. Thanks for that maybe the last question I will jump out of line here related the automotive opportunity I think earlier. This year, you stated a bit of a delay from prior expectations and kind of ramping around the middle of next year. When do you expect to get.

Orders and maybe more detailed forecast to help you understand what that could look like for next year.

That's towards the end of this year, which are.

Really the ramps for that stuff is towards.

The middle of 'twenty, four I mentioned, there's there'll be some delays because of COVID-19.

Issues that hit a lot of the R&D teams in different Oems and tier ones. So so I would think this is probably more of a.

And a 24 early 'twenty slides.

Ramp for us.

Okay.

Perfect. That's all for me thank you.

Okay.

Thank you our next question or Dr. Campbell Your line is open.

Yes, hi, guys.

If you could clarify.

Back in my notes in my thoughts.

It was probably the end of Q2 last year, we talked about 80% to 90% fully integrated vertically integrated at the new warehouse.

The new manufacturing plant by the end of December of last year.

It seems here.

They get pushed out in last week. There was some speculation that you guys had some contamination issue if you could kind of clear that up.

And then I'll follow up with that.

Can you just be a little more specific about the delays in the fab.

Fab two fab plant going up.

So suggestions by competitors.

As shown are.

Pure bullshit.

With respect I just wanted to hear.

Okay, well, that's what it is and.

With respect to.

The timing of bringing the <unk>.

The vertically integrated facility to Felicia.

Sure.

There've been some delays.

<unk> kept your appraised of.

Sure.

What is being app inning with respect to this.

Complex and.

<unk> again.

Not to overstate the complexity, but in one way of looking at these.

What we're bringing together is the first fab four chips is in convert us as in package a unique Viva technology heavily protected.

First of its kind.

And the fab to make these kinds of products with vertically integrated processes as GAAP.

A number of novel Toussaint complexities that we're bringing together for the first time.

I guess Eni side, the fact that.

The delivery of some of this equipment.

Get delayed by I think.

Five or six months.

All told given the cycle time for developing the equipment and manufacturing.

It may not be all that surprising is the good news is that is.

But it is earlier in answer to an earlier question.

We're now in the <unk>.

As of February and we're looking.

The Alaska meet a trauma vendor in Europe for the last major piece of equipment.

Being a philosophy in apples, so that's really only two months away.

Which implies yes.

They've got a lot of them.

I'm not trying to be a wise guy, but we've kind of heard that before so it is getting a little unnerving as an investor.

There seems to be a delay a delay a delay and like when you won't talk about Nvidia, but and video seems to be working through their inventory and ramping up in all areas AI has been a real buzzword over the last couple of weeks I know you guys are involved with AI as an investor Im getting a little nervous that the.

Youre right. It started and you guys are following behind no matter how good your technology.

Monolithic as an execution machine and they keep talking all sorts of stress across the board, but they are executing so I am just getting a little nervous that you guys have fallen behind.

I am not.

And.

Look I can't.

I cant blame you for getting nervous I.

I guess, you're frontloading issues by might that.

Been delays with respect to.

The first fab four chips.

And I don't mean to make excuses for the delays, but we advanced a number of equipment vendors involved.

Across the globe from Japan to Europe to the U S and.

Some piece of equipment if taken.

Some number of months beyond expectations. So I don't think you've heard me say before that were in February .

The last piece of equipment is Youtube.

Yes, it will be delivered in April I don't mean to be sky either but.

Yes.

I hope to have them through.

Well because I also go back to so it's purely equipment delivery that's been delayed because I remember you talking about the outsourcing process and the planning process that your guys were at the Outsourcers.

Likely mastering the process that you planned on bringing efficiencies that you thought you could improve upon the process. When you brought it in house. So it's not like it's not like a training issue it strictly equipment not there.

That's right yes.

So in large equipment has been delivered has been qualified software running in as Jim pointed out earlier, we're already using it and it's beginning to reflect itself in greater capacity and greater visibility with respect to cycle time and lead times.

If you would.

So equipment.

Our steel to be delivered but we are very close to that being delivered in the SSA.

<unk>.

Very little time left the degree of instability gets to be greater so I'd be very surprised if the work to be.

Further delays I think we our line of sight to being vertically integrated.

With that ill turn it.

And I'll finish with a positive I greatly appreciate that you guys attended the Needham conference because it's sort of what we talked about last year, we want to hear the story. We think it's a great story, we want to be in contact with you guys and I hope that continues this year and I'll get back in the queue.

Thank you.

Yes.

Thank you our next.

Questionnaires.

Your line is open.

Yes, good afternoon.

I'm going to approach that little differently and the last question.

It seems like the gating factor.

Getting your revenues growing.

Again has been one that's trading.

To the <unk> technology products.

Can we expect once the paintings done can we expect.

The step up in revenues.

And then do you have.

When are those coming out and what can we expect from that.

So we expect.

We have let me start with what has already been done we have began to expose.

<unk> capabilities.

Two a very very.

Ltd.

<unk> case of customers.

Very few instances and in.

In a very controlled way.

Two.

In effect get.

Market validation for our being aligned with.

Needs the timing.

Wei with.

Further our balance is seen in cereal lithography and general market trends.

What I can tell you is that.

We're getting great traction.

With respect to five G.

Providing what past similar scenario was that free cash.

A need and a.

Going to need over the years to come so I am very very comfortable with respect to the fact that.

No.

It has happened before.

We've had the vision to anticipate what the market is going and what is needed in order to enable.

Four months out of critical obligations.

We have.

Some five G.

Molecules.

Operating on the bench the full complement of capabilities.

He is coming together with the availability of sand control silica.

This is taking place. So then I saw a months and we expect to be able to.

The stock SAPIEN cash summers in Q4 of this year.

Yes.

Get further along with.

<unk>.

Going to expose the capabilities to our growing list of customers.

Unique tools that are being developed and to some degree been developed already.

In April .

Customers to in effect get behind.

The driver's seat with respect to controlling their destiny.

With.

CCM solutions and PGN methodologies that.

Meet to their real requirements. So we feel very good about this.

This is a.

23.

Okay.

Development with respect to the <unk> technology.

Together.

And I think was particularly noteworthy is that in terms of.

Resetting the level setting the bar of expectation in terms of power density current advanced <unk> and the clinical needs.

In.

Computing automotive and other.

Sure.

Measure of free cash outs.

I think as well beyond the step up in performance that <unk> was able to achieve with powered Josh also our products.

These are coming together.

A lot of technologies.

With respect to unique components.

<unk>.

The packaging technology.

The power distribution architectures, all playing together for the first time to deliver a major step up in performance. So we're very excited about that.

Okay do you think customers are.

Perhaps delaying until they get.

But handguns hygiene.

No.

No that's not the way it works it trains leaves this fashion.

On.

The best case that can be achieved.

<unk> done all it is to say if not all of the capability set in place so they still have to leave.

The session.

Trains.

Follow the earlier ones. So there is an opportunity to intersect with five G.

From a designing process perspective.

Starting.

This year, we're already engaged in in a few instances.

With the kinds of customers that we can be engaging.

Sage of.

Five <unk> capability, which is really steel.

Preliminary because while we do have targets specs for weight.

<unk>.

Portfolio.

The Tigers fast.

Final yet while we're weight.

Some of the lost LMS, enabling alum is set to fall in place.

So.

Technology is ramping right now with the five nanometer nodes.

Fourth point earlier, both form factor.

Dr. Raj power architectures on bus can grow there. So the <unk> is ramping through this year it will hit.

Some peaks next year.

<unk> nanometer, but we've got good design ins on the <unk> stuff and there'll be opportunities to pick up other five nanometer nodes as as I've mentioned to get the performance out of those so is using.

Calling lateral vertical with our <unk> technology. So so that all happens before transitioning quite a few.

Okay.

Do you think <unk> will significantly expand your market.

Absolutely absolutely, yes, both in terms of higher price and even lower cost because <unk> is going to go all fine. So we're going to now.

Not only take the 15 onto that for 2000 and <unk>, but we're also going to take the 100 <unk>.

Okay, and finally back on the plating.

Do you expect it.

The step up in revenue.

That completed.

This step up in.

But.

Unleashed a log jam.

More shipments.

And housekeeping.

Yes, so as suggested earlier suggested in the press release.

At this moment, we are not capacity constrained with respect to revenue.

As of now.

We are limited by <unk> bookings and backlog.

Tom.

Okay.

Basically flat.

This next quarter and possible.

Second quarter.

In the second half.

Sure.

CRE production or near term.

Again, I don't mean to be a wise guy.

We just want to be sure that we are.

Very clear with respect to.

It was to effect and not.

Encourage any.

Potentially misleading.

Sure.

Okay. Thank you very much.

Thank you.

Yes.

Thank you, everyone and operator, I think we could.

I think we have time for maybe one more question.

Thank you. The last question is coming from Queen Goldman Your line is open.

Thanks for squeezing. This last question, Phil I guess, the latter vertical ramping with your <unk> technology does that does that start this year or is that more of a 2024 event based on sort of your current expectations.

Our goal is to have that ramping this year.

Perfect. Okay. Thank you.

Okay.

Thank you everyone. Operator, I think we're ready to close the call now.

Thank you. Thank you.

Everyone that concludes your conference call for today you may now disconnect. Thank you for joining and enjoy the rest of your day.