Q1 2024 Vicor Corp Earnings Call
Okay.
Speaker Change: Good day, everyone and thank you for standing by welcome to the Q1 2020 for a bike or earnings conference call.
Speaker Change: At this time all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session.
Speaker Change: So lots of question during that session you will need to press star one one on your telephone you will then hear a message advising your hands is raised to withdraw the question simply press Star one again please.
Speaker Change: Please be advised that today's conference is being recorded.
Speaker Change: Now like to hand, the Congress to Jim Schmidt Chief Financial Officer. Please go ahead.
James F. Schmidt: Thank you good afternoon, and welcome to <unk> Corporation's earnings call for the first quarter ended March 31 2024.
James F. Schmidt: Jim Schmidt, Chief Financial Officer, and I am in Andover, with Bill Davis, Vice President of global sales and marketing.
James F. Schmidt: Patricio Vince you rarely Chief Executive Officer is joining the call from Washington D. C ahead of the upcoming patent infringement trial before the International Trade Commission.
After the market closed today, we issued a press release summarizing our financial results for the three months ending March 31.
James F. Schmidt: This press release has been posted on the Investor Relations page of our website.
James F. Schmidt: WWE Xicor power Dot com.
James F. Schmidt: We also filed a form 8-K today related to the issuance of this press release.
James F. Schmidt: A mind 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 <unk>.
James F. Schmidt: 995.
James F. Schmidt: Except for historical information contained in this call the matters discussed on this call, including any statements regarding current and planned products.
James F. Schmidt: 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.
James F. Schmidt: In light of these risks and uncertainties, we can offer no assurance that any forward looking statement will in fact prove to be correct.
James F. Schmidt: Actual results may differ materially from those explicitly set forth in or implied by any of our remarks today.
The risks and uncertainties uncertainties, we face are discussed in item one a of our 2023 Form 10-K, which we filed with the SEC on February 28 2024.
James F. Schmidt: This document is available via the Edgar system on the SEC website.
Operator: Good day, everyone, and thank you for standing by. Welcome to the Q1 2024 Vicor Earnings Conference Call. At this time, all participants are in a listen only mode.
James F. Schmidt: Please note the information provided during this conference call is accurate only as of today Tuesday April 23, 2024, <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.
Operator: After the speaker's presentation, there will be a question and answer session. To ask a question during that session, you will need to press star one one on your telephone. You will then hear a message advising that your hand is raised. To withdraw the question, simply press star one one again.
James F. Schmidt: A webcast replay of today's call will be available shortly on the Investor Relations page of our website.
Speaker Change: I'll now turn it over.
Speaker Change: View of our Q1 financial performance after which Bill will review recent market developments and pet treats youll, Phil and I will take your questions.
Operator: Please be advised that today's conference is being recorded. I would now like to hand the conference to James Schmidt, Chief Financial Officer. Please go ahead.
Speaker Change: In my remarks, I will focus mostly on the sequential quarterly change for P&L and balance sheet items as well as year over year changes and refer you to our press release or our upcoming Form 10-Q for additional information.
James F. Schmidt: Thank you. Good afternoon, and welcome to Vicor Corporation's earnings call for the first quarter ended March 31, 2024. I'm Jim Schmidt, Chief Financial Officer, and I am in Andover with Bill Davies, Vice President, Global Sales & Marketing. Patrizio Vinciarelli, Chief Executive Officer, is joining the call from Washington, D.C. ahead of the upcoming patent infringement trial before the International Trade Commission. After the market closed today, we issued a press release summarizing our financial results for the three months ending March 31st.
Speaker Change: As stated in today's press release FICO recorded total revenue for the first quarter of $83 9 million.
Speaker Change: Down nine 5% from the fourth quarter total of $92 7 million and down 14, 3% from the first quarter 2023 total of $97 8 million.
Speaker Change: Brick products revenue declined 11, 7% sequentially, while advanced products revenue declined seven 3% from the fourth quarter.
James F. Schmidt: This press release has been posted on the investor relations page of our website, www.vicorpower.com. We also filed a Form 8K today related to the issuance of this press release. I remind listeners this conference call is being recorded and is the copyrighted property of Vicor Corporation. I also remind you that 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.
Speaker Change: Shipments to stocking distributors increased 21, 8% sequentially.
Speaker Change: Exports for the first quarter decreased sequentially as a percentage of total revenue to approximately 42, 6% from the prior quarter's 56, 5%.
Speaker Change: For Q1 advanced products share of total revenue increased to 51, 6% compared to 54% for the fourth quarter with brick product share correspondingly decreasing to 48, 4% of total revenue.
Speaker Change: Turning to Q1 gross margin we recorded a consolidated gross profit margin of 53, 8%, increasing approximately two 7% from the prior quarter.
James F. Schmidt: 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, involve risk and uncertainty. 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.
Speaker Change: A number of factors contributed to the sequential increase in gross margin percentage, including increased royalty income improved sales mix reductions in tariff spending and lower freight costs.
I'll now turn to Q1 operating expenses.
Speaker Change: Total operating expenses increased 10, 1% from the fourth quarter or $4 million.
Speaker Change: With the increase being primarily due to legal expenses incurred ahead of the trial and our patent infringement case before the ITC.
Speaker Change: Move outs of total equity based compensation expense for Q1.
James F. Schmidt: The risk and uncertainties we face are discussed in Item 1A of our 2023 Form 10-K, which we filed with the SEC on February 28, 2024. This document is available via the EDGAR system on the FCC's website. Please note the information provided during this conference call is accurate only as of today, Tuesday, April 23, 2024. RICOR undertakes no obligation to update any statements, including forward-looking statements, made during this call, and you should not rely upon such statements after the conclusion of this call. A webcast replay of today's call will be available shortly on the Investor Relations page of our website.
Speaker Change: SG&A and R&D was 754000.
Speaker Change: 1.919 million and $1 million 107000, respectively totaling approximately $3 8 million.
Speaker Change: For Q1, we recorded operating income of $1 1 million, representing an operating margin of one 3%.
Speaker Change: Turning to income taxes, we recorded a tax provision for Q1 of approximately $1 2 million, representing an effective tax rate for the quarter of 31, 3%.
Speaker Change: Net income for Q1 totaled $2 6 million.
Speaker Change: GAAP diluted earnings per share was <unk> <unk>.
Speaker Change: Based on a fully diluted share count of $45 million 31000 shares.
James F. Schmidt: I'll now turn to a review of our Q1 financial performance, after which Phil will review recent market developments, and Patrizio, Phil, and I will take your questions. In my remarks, I will focus mostly on the sequential quarterly change for P&L and balance sheet items, as well as year-over-year changes, and refer you to our press release for our upcoming Form 10-Q for additional information. As stated in today's press release, Vicor recorded total revenue for the first quarter of $83.9 million, down 9.5% from the fourth quarter total of 92.7 million and down 14.3% from the first quarter 2023 total of 97.8 million.
Speaker Change: Turning to our cash flow and balance sheet.
Speaker Change: Cash and cash equivalents totaled $239 2 million at Q1.
Speaker Change: Accounts receivable net of reserves totaled $57 6 million at quarter end.
Speaker Change: With Dsos for trade receivables at 47 days.
Inventories net of reserves increased five 4% sequentially to $112 3 million.
James F. Schmidt: BRIC product revenue declined 11.7% sequentially, while advanced product revenue declined 7.3% from the fourth quarter. Shipments to stocking distributors increased 21.8% sequentially. Exports for the first quarter decreased sequentially as a percentage of total revenue to approximately 42.6% from the prior quarter's 56.5%.
Speaker Change: Annualized inventory turns decreased sequentially to $1 71.
Operating cash flow totaled approximately $2 7 million for the quarter.
Speaker Change: Capital expenditures for Q1 totaled $7 4 million.
Speaker Change: We ended the quarter with our construction in progress balance primarily for manufacturing equipment of approximately $13 6 million and with approximately $17 $17 8 million remaining to be spent.
Speaker Change: I will now address bookings and backlog Q1 book to Bill payment below one and with one year backlog decreased six 5% from the prior quarter closing at $150 3 million.
James F. Schmidt: For Q1, the advanced product share of total revenue increased to 51.6% compared to 50.4% for the fourth quarter, with BRIC product share correspondingly decreasing to 48.4% of total revenue. Turning to Q1 gross margin, we recorded a consolidated gross profit margin of 53.8 percent, increasing approximately 2.7 percent from the prior quarter. A number of factors contributed to the sequential increase in growth margin percentage, including increased royalty income, reductions in tariff spending, and lower freight costs.
Speaker Change: As stated in our earnings call in February.
Speaker Change: 2024 is a year of uncertainty and opportunity.
Today, the quarterly and annual outcome in terms of topline and Bottomline remains subject to a wide range of scenarios.
Speaker Change: Given the wide range of possible outcomes.
Speaker Change: We're unable to provide quarterly guidance until we are further along resolving uncertainties and capitalizing on opportunities.
Speaker Change: With that Phil will provide an overview of recent market developments and then for <unk>, Phil and I will take your questions.
I ask that you limit yourself to one question and a related follow up so that we can respond to as many of you as we can in the limited time available.
James F. Schmidt: I'll now turn to Q1 Operating Expenses. Total operating expenses increased 10.1 percent from the fourth quarter, or $4 million, with the increase being primarily due to legal expenses incurred ahead of trial in our patent infringement case before the ITC. The amounts of total equity-based compensation expense for Q1 and Q2 goods, SG&A, and R&D were $754,000, $1,919,000, and $1,107,000, respectively, totaling approximately $3.8 million.
Speaker Change: Do you have more than one topic to address please get back in the queue.
Speaker Change: Phil.
Phil: Thank you Jim.
Phil: My remarks, this quarter will build on <unk> comments in the press release that we issued earlier today.
Phil: As a reminder, <unk> commented as.
Phil: As we confront challenges and pursue opportunities 2024 will be seen as the year in which our product strategy selective licensing of intellectual property and clarity of purpose secured <unk> future growth and profitability.
James F. Schmidt: For Q1, we recorded operating income of $1.1 million, representing an operating margin of 1.3%. Turning to income taxes, we recorded a tax provision for Q1 of approximately $1.2 million, representing an effective tax rate for the quarter of 31.3%. Net income for Q1 totaled $2.6 million, and Gap diluted earnings per share by 6 cents, based on a fully diluted share count of $45,031,000.
Phil: So let's look at this from the point of view of our four business units and the growth opportunities each of them has with our top 100 customers.
Phil: The current base of our business lies with the industrial business unit and the aerospace and defense business unit.
Phil: This year, we will release to production over 20, new high power density products that leverage our new chip fab capabilities.
Phil: These products utilize advances in our topologies control systems components and packaging to raise the bar on power density and performance.
James F. Schmidt: Turning to our cash flow and balance, cash and cash equivalents totaled $239.2 million in Q1. Accounts receivable net of reserves totaled $57.6 million at quarter end, with DSOs for trade receivables at 47 days. Inventory's net reserves increased 5.4% sequentially to $112.3 million. Annualized inventory turns decreased sequentially to 1.71, operating cash flow totaled approximately $2.7 million for the
From high power regulated on fixed ratio of DC DC converters to new AC to DC products aimed at the aerospace industry to a new family of radiation tolerant factories power products for both Leo and MEO satellite constellation deployments.
Phil: Customers from our top 100, and now designing advanced power systems for exciting new product launches that leverage electrification and autonomy in their systems.
James F. Schmidt: Capital expenditures for Q1 totaled $7.4 million. We ended the quarter with a construction-in-progress balance primarily for manufacturing equipment of approximately $13.6 million and with approximately $17.8 million remaining. Oh no, address bookings and doctor... Q1 book to bill came in below 1, and with one year's backlog decreasing 6.5% from the prior quarter, closing at $150.3 million. As stated in our earnings call, and so forth. 2024 is a year of uncertainty and opportunity.
Phil: As part of our industrial and aerospace and defense strategies. We have also consolidated our distribution channel partners to large global distributors, who have the customer base will reach in the market status needed to achieve our broad market growth goals.
Phil: Our global Channel partners Arrow, and Avnet, I'll now, placing a higher focus on power conversion and power management as a strategic business and a major growth driver due to the electrification trends and broad industrial and transportation markets.
James F. Schmidt: As of today, the quarterly and annual outcomes, in terms of top line and bottom line, remain subject to a wide range of scenarios. Given the wide range of possible outcomes, we are unable to provide quarterly guidance until we are further along in resolving uncertainties and capitalizing on opportunities. With that, Phil will provide an overview of recent market developments, and then Patrizio, Phil, and I will take your questions. I ask that you limit yourself to one question and a related follow-up so that we can respond to as many of you as we can in the limited time available. If you have more than one topic to address, please get back in the queue. Thank you, Jim.
They clearly recognize the advantages and differentiation that our high density power modules bring to their customer base.
Phil: This quarter, we concluded a series of meetings with both channel partners jointly laying out plans strategies and targets for growth by focusing on specific vertical markets with a clear set of identified target customers globally that map to the numerous new products that we will launch in 2024.
Phil: Technology licensing will become an expanding segment of our business portfolio.
Phil: And an important parallel cost to our product revenues across our four business units.
Philip D. Davies: My remarks this quarter will build on Patrizio's comments in the press release that we issued earlier today. As a reminder, as we confront challenges and pursue opportunities, 2024 will be seen as the year in which our product strategy, selective licensing of intellectual property, and clarity of purpose secure Vicor's future growth and profitability. So let's look at this from the point of view of our four business units and the growth opportunities each of them has with our top 100 customers. The current base of our business lies in the Industrial Business Unit and the Aerospace and Defense Business Unit.
Phil: The licensing will enable more rapid scaling of our automotive market opportunity as we expand our relationships with Oems on automotive tier one suppliers.
Phil: The automotive market in particular is aggressively looking for new technologies for both 48 volt zonal architectures onboard charging and 800 to 48 volt powertrain conversion systems, which deliver high power density and low weight for electric vehicles.
Phil: OEM technology licensing partnerships are a way to monetize on rapidly scale this business.
Phil: On HBC customer engagements continue to expand with a set of customers with target production dates now for new innovative and higher performance AI processes that will take full advantage of our generation five vertical power delivery chipset.
Philip D. Davies: This year, we will release to production over 20 new high power density products that leverage our new chip fab capability. These products utilize advances in our topology, control systems, components, and packaging to raise the bar on power density and performance. From high power regulated and fixed ratio DC-DC converters to new AC-DC products aimed at the aerospace industry, to a new family of radiation tolerant factorized power products for both LEO and MEO satellite constellation deployment.
Phil: The PD is very strategic and achieving the power delivery low power losses and performance required.
Phil: Electrical and thermal models, representing the Gen. Five chips are now being delivered to leading customers, enabling their system simulations at process occurrence up to 2000 amps.
We are on track to deliver evaluation systems and power module samples in Q2 and Q3, respectively.
Philip D. Davies: Customers from our top 100 are now designing advanced power systems for exciting new product launches that leverage electrification and autonomy in their systems. As part of our industrial, airspace, and defense strategies, we have also consolidated our distribution channel partners to large global distributors who have the customer base, the reach, and the market status needed to achieve our broad market growth goals. Our global channel partners, Arrow and Avnet, are now placing a higher focus on power conversion and power management as a strategic business and a major growth driver due to the electrification trends in broad industrial and transportation markets.
Phil: Q2 will be very busy for our automotive business unit as we host that the current count six customers at our new facility in Andover, Massachusetts.
Phil: New collaborations and design ins continue with significant new engagements with Oems and tier ones in the Asia Pacific region, where investments in electric vehicles, and 48 volt zonal architectures are leading the rest of the world.
Phil: The team had a very successful <unk> in Detroit once again this year with four technology papers that showcased our power module based policy system value propositions for 800 volt 48 volt powertrains.
Phil: The new 48 volt zonal architecture will provide both product and OEM licensing revenue opportunities.
Philip D. Davies: They clearly recognize the advantages and differentiation that our high-density power modules bring to their customers. This quarter, we concluded a series of meetings with both channel partners, jointly laying out clear strategies and targets for growth by focusing on specific vertical markets with a clear set of identified target customers globally that map to the numerous new products that we will launch in 2024. Technology licensing will become an expanding segment of our business portfolio and an important parallel path to our product revenues across our four businesses. Licensing will enable more rapid scaling of our automotive market opportunity as we expand our relationships with OEMs and automotive Tier 1 suppliers. The automotive market, in particular, is aggressively looking for new technologies for both 48-volt zonal architectures, on-board charging, and 800-to 48-volt powertrain conversion systems, which deliver high power density and low weight for electric vehicles.
Speaker Change: Thank you and with that we will now take your questions.
Speaker Change: Thank you and as a reminder, press star one one to get in the queue and wait for your name to be announced to remove your question simply press Star One line again.
Speaker Change: Please standby, while we compile the Q&A roster.
Speaker Change: One moment for our first question.
Speaker Change: It comes from the line of Quinn Bolton with Needham <unk> Company. Please proceed.
Nathaniel Quinn Bolton: Hey, guys I was wondering if you could start with <unk>.
I think the ITC case is going to be heard next week, but I was hoping you could give us just sort of an update on the.
Speaker Change: See schedule and what you expect to happen next week and then.
Speaker Change: What would you expect to sort of follow over the summer until the expected.
Speaker Change: Decision date, which I believe is in early October, but anything you could sort of provide us on that.
Philip D. Davies: OEM technology licensing partnerships are a way to monetize and rapidly scale this business. Our HPC customer engagements continue to expand, with a set of customers with target production dates now for new, innovative, and higher-performance AI processes that will take full advantage of our Generation 5 vertical power delivery chipsets. VPD is very strategic in achieving the power delivery, low power losses, and performance required. Electrical and thermal models representing the Gen 5 chips have now been delivered to leading customers, enabling their system simulations at processor currents up to 2,000 amps.
Speaker Change: What the next key milestones in the ITC case or would be would be helpful.
Speaker Change: So to your point.
Speaker Change: The proceedings remain on schedule.
Speaker Change: It is going to be a trial.
Next week.
The decision by the administrative law judge.
Speaker Change: <unk>.
Speaker Change: In September with a deadline of October.
Speaker Change: We look forward to an outcome that we expect to be parallel to <unk>.
Speaker Change: Outside of the issues.
Our opponents.
Speaker Change: The downsize of the issues and that's clear.
Speaker Change: It would be good to everybody.
Philip D. Davies: We are on track to deliver evaluation systems and power module samples in Q2 and Q3, respectively. Q2 will be very busy for our automotive business unit as we host, at the current count, six customers at our new facility in Andover, Massachusetts. New collaborations and design-ins continue, with significant new engagements with OEMs and Tier 1s in the Asia-Pacific region, where investments in electric vehicles and 48-volt zonal architectures are leading the rest of the world. The team had a very successful WCX in Detroit once again this year, with four technology papers that showcased our power module-based power system value propositions for 800 volt and 48 volt power.
Again, we're going to trial prepared call.
Speaker Change: Yes.
Speaker Change: What's the outcome.
Speaker Change: Okay, Great and then.
Speaker Change: You had mentioned both in the press release and the prepared script.
That royalty revenue has continued to increase in the March quarter, just wondering if you might be able to quantify that.
Speaker Change: How much of it uptick did you see in March and then would you expect that royalty line to continue to grow through the remaining quarters of 2024.
Speaker Change: So generally we expect that at all.
Speaker Change: <unk> contribution to our revenues and bottom line.
Speaker Change: To continue to expand.
Speaker Change: As far as we can see.
Philip D. Davies: The new 48-volt zonal architecture will provide both product and OEM licensing revenue opportunities. Thank you, and with that, we will now take your questions. Thank you, and as a reminder, press star 11 to get in the queue and wait for your name to be announced. To remove your question, simply press star 11 again.
Speaker Change: And maybe.
Speaker Change: All right.
Speaker Change: Events that occur at certain points in time.
Speaker Change: But to be clear, we're taking a very long term view with respect to the opportunity.
Speaker Change: And.
Speaker Change: In approaching it with that.
Speaker Change: Balance in terms of.
Operator: Please stand by while we compile the Q&A roster. One moment for our first question, which comes from the line of Quinn Bolton with Medium & Company.
Speaker Change: If iqos interest as well as the interest so Oems.
Speaker Change: I'd like to take a license as opposed to potentially be confronted with.
Speaker Change: Laying down situations.
Speaker Change: Following squeeze out.
Nathaniel Quinn Bolton: Please proceed. Hey guys, I was wondering if you could start with, I think the ITC case is going to be heard next week, but I was hoping you could give us just sort of an update on the ITC schedule, what you expect to happen next week, and then what you expect to sort of follow over the summer until the expected decision date, which I believe is in early October, but anything you could sort of provide us on what the next key milestones in the ITC case So, to your point, um... The proceedings remain on schedule. There's going to be a trial next week and a decision by the amended law judge in September with the deadline of early October.
Got it I'll go back in the queue. Thank you.
Speaker Change: You.
Speaker Change: Thank you one moment for our next question. Please.
Speaker Change: Okay.
Speaker Change: And it comes from the line of Richard Shannon with Craig Hallum. Please proceed.
Hi, guys. Thanks for taking my questions.
Richard Cutts Shannon: I guess I've got a couple of inter interlocking questions on your <unk> second Gen. PPD product here I guess I wanted to get a sense of kind of the milestones that we should expect to see over the next coming quarters.
Richard Cutts Shannon: Towards getting bookings and eventual revenues here I think in the past you've talked about models and tool delivery, which I think I heard some detailed did I missed some of that.
Richard Cutts Shannon: Last quarter, you talked about some maybe some more equipment needs to be delivered to support that and then anything about manufacturing experience required for essentially the larger customers have confidence in the ramp here kind of detail that we should be looking for this year that'd be great.
Patrizio Vinciarelli: We look forward to an outcome that we expect to be favorable to VIGOR. We are on the right side of the issues, and our opponents are on the wrong side of the issues. And that's clear, should be clear to everybody. But again, we're going to trial prepared, confident, or possibly not. Great. And then you mentioned both in the press release and the prepared script that royalty revenue continued to increase in the March quarter. Just wondering if you might be able to quantify that; how much of an uptick did you see in March?
Speaker Change: Sure. So let me start with <unk>.
Speaker Change: The revenue opportunity I think as we made clear in prior calls.
Speaker Change: <unk> is not in 2020 for revenue opportunity et cetera, and you continue to stop these strengths anytime.
Speaker Change: Is this a year of delivery.
Speaker Change: Bob.
Speaker Change: Solutions to initial key customers.
Speaker Change: And we're far along.
Speaker Change: With one.
Speaker Change: Before too long with more.
Speaker Change: So I will look again at 2024 is bringing this development effort to fruition setting the stage.
Patrizio Vinciarelli: And then, you know, would you expect that royalty line to continue to grow through the remaining quarters of 2024? So, generally, we expect that all the contributions to our revenues and bottom line will continue to expand as far as we can see. And there may be a set of events that occur at certain points in time, but to be clear, we're taking a very long-term view with respect to the opportunity and addressing it with the right balance in terms of VIGOR's interest as well as the interest of OEMs that, you know, elect to take a license as opposed to potentially being confronted with lying down situations following exclusion. Got it. I'll go back in the queue.
Speaker Change: Some leading customers.
Speaker Change: Before we get into production volumes next year.
Speaker Change: Okay, Let me follow up and kind of looking at the <unk> opportunity in a different way and certainly understand it.
Said last quarter that this is not the year for <unk> revenues at all here, but I guess do you expect to be able to intersect with the first generation of three nanometer accelerators Cpus Gpus whatever is out there.
Speaker Change: It could be ready by then or is that something you might be lagging and leading edge there.
Speaker Change: I would say that.
Speaker Change: We.
Speaker Change: I asked the fashions.
Both premise on hot capability.
Speaker Change: The much higher <unk> density.
Speaker Change: The other performance attributes of our <unk>.
Speaker Change: <unk> solution.
Speaker Change: Which is.
Speaker Change: What we call a second injection bpd.
Speaker Change: Distinct from the especially at Ash on Baidu itself by year end balances.
Nathaniel Quinn Bolton: Thank you. Thank you. Thank you. One moment for our next question, please. And it comes from the line of Richard Shannon with Craig Holland.
Speaker Change: <unk> changed the practice by competitors with a good deal difficulty.
Speaker Change: From the performance perspective from a reliability perspective, and last but not least from the intellectual property perspective.
Richard Cutts Shannon: Please proceed. Well, hi guys, thanks for taking my questions. I guess I've got a couple of interlocking questions on your 5G second-gen PPD product here. I guess I want to get a sense of the kind of the milestones that we should expect to see over the next coming quarters towards, you know, getting bookings and eventual revenues here. I think in the past, you've talked about models and tool delivery, which I think I heard some detail that I missed some of that.
Speaker Change: So we believe that.
Speaker Change: Customers with the visibility to all of the issues and we're engaged with some of them.
Speaker Change: I understand that to get to reliable scalable and.
Richard Cutts Shannon: I think last quarter, you talked about maybe some more equipment needing to be delivered to support that. And then anything about manufacturing experience required for, you know, essentially the larger customers to have competence on the ramp here, kind of detail about what we should be looking for this year. Sure, so let's start with the revenue opportunity. I think, as we made clear in prior calls.
Speaker Change: Not challenged.
Speaker Change: Challenged by intellectual property issues.
Speaker Change: <unk> is the source.
Speaker Change: At this point in time no other source.
Speaker Change: PPD system that works well then scalable.
Speaker Change: And there is not devoid of intellectual property challenges.
Speaker Change: Yes.
Speaker Change: Okay fair enough. Thank you.
Speaker Change: Thank you one moment for our next question. Please.
Patrizio Vinciarelli: 5G is not a 2024 revenue opportunity; it's a revenue opportunity starting in 2025. This is a year of delivery of solutions to initial key customers, and we're far along, particularly with one, and before too long, with more. So I will look again at 2024 as bringing this development effort to fruition, you know, setting the stage with some leading customers before we get into production volumes next year. Okay, let me follow up by kind of looking at this 5G opportunity in a different way and certainly understanding that, as you said last quarter, that this is not the year for 5G revenues at all here.
Speaker Change: Alright, one moment.
Speaker Change: It comes from the line of John Tom Welton with C. J S Securities. Please proceed.
Speaker Change: Hi, good afternoon, and thank you for taking my questions. I was wondering if you could give us an update on the.
The potential for that old vertical products shipping.
Speaker Change: If that might contribute to 'twenty four 'twenty five.
Speaker Change: And if theres active programs in the pipeline for that.
Speaker Change: Okay.
Speaker Change: I'm, sorry, I missed the potential for which if you pause on that lateral vertical products sort of in between.
Speaker Change: Product.
Speaker Change: Yes so.
Speaker Change: As it turns out the potential.
Is limited.
Speaker Change: I will let Phil.
Phil: I mean with more color on these with a global view because it depends on which particular end market were looking for shale.
Phil: Sure.
Patrizio Vinciarelli: But I guess, do you expect to be able to intersect with the first generation of three nanometer accelerators, GPUs, TPUs, whatever is out there, to be ready by then? Or is that something where you might be lagging and on the leading edge there? I would say that.
Phil: Yes, so we do have still have engagement with customers on lateral vertical.
Phil: <unk> designs.
Phil: We've also seen lateral vertical be used.
Phil: With some reference designs for the network.
Phil: Communications market for the.
Patrizio Vinciarelli: We have high expectations, both premised on our capability, the much higher current density, and the other performance attributes of our 5G VPD solution, which is what we call a second-generation VPD, distinct from the first-generation, which was pioneer and talented, and which is being practiced by competitors with a great deal of difficulty from the performance perspective, from the reliability perspective, and last but not least, from the intellectual property perspective.
Phil: The Broadcom Marvell type of processes from some of the contract manufacturers in Asia.
Phil: So there could still be some revenues on lateral vertical or towards the end of this year early next year.
Phil: So that's still a potential for us.
Speaker Change: Got it. Thank you and then so you mentioned something about them.
Speaker Change: Licensing and enabling more rapid scaling automotive are you, allowing your partners there to produce your designs or is it something more similar to the current status quo of where you are on <unk>.
Speaker Change: <unk> people to use your IP.
Speaker Change: From different vendors.
Speaker Change: Got it that's happening in HCC markets.
Speaker Change: Okay.
So we are open to the opportunity for selective licensing in among others, the automotive market and theres been some expression of interest with respect to that.
Patrizio Vinciarelli: Customers who have visibility to all the issues and have been engaged with some of them understand that to get to reliable, scalable, and not challenged by intellectual property issues, VIGOR is the source, and there's, at this point in time, no other source for a VPD system that works well, that is scalable, and that is not devoid of intellectual property. Okay, fair enough.
Speaker Change: <unk>.
Speaker Change: Could you get it done does it seem to attribute some of our solutions.
Speaker Change: I'm, referring to solutions involve being put under vaults with Vantiv ball.
Speaker Change: Bus conversion.
Speaker Change: As well as you know.
Speaker Change: Other solutions, including.
Speaker Change: So called Zonal architecture.
Speaker Change: Once again sampling of the <unk>.
Speaker Change: Conceived of.
Speaker Change: 10 years ago, and with respect to which we have intellectual property.
Operator: Thank you. Thank you. One moment for our next question, please. All right, one moment.
Speaker Change: So we have a number of opportunities in India. The more you add in particular.
Speaker Change: There are some that are now beginning to develop also related to ACM AC.
Operator: It comes from the line of Jonathan Tanwanteng with CJS Securities. Please proceed. Hi, good afternoon.
Speaker Change: I do expect that debt.
Over time some of these opportunities may terminate two licensing deals.
Jonathan E. Tanwanteng: Thank you for taking my questions. I was wondering if you could give us an update on the potential for lateral vertical products, if that might contribute to 24, 25, and if there are active programs in the pipeline. I'm sorry, I missed the potential for which, if you could... Oh, lateral-vertical products, so the in-between products. Yes, so I think, as it turns out, the potential is limited. I will let Phil fill in with more color on this from a global view because the answer depends on which particular end market we're looking for.
Speaker Change: Okay, great. Thank you and then finally could you Jim could you break out the legal expense in the quarter and what you expect over the next two to three years.
Speaker Change: <unk> ramps up.
James F. Schmidt: Like we said on the.
James F. Schmidt: <unk> prepared remarks legal expense was the primary driver over the $4 million of incremental Opex.
James F. Schmidt: Stop short of trying to predict the future on that John.
James F. Schmidt: <unk> per <unk> comment as well because he's obviously been very close to all of it.
Speaker Change: Yes, so to Jim's point.
Speaker Change: Last quarter, there wasn't a significant setback for ammonia relating to.
Speaker Change: Preparations for the upcoming trial next week.
Speaker Change: We are not in a position to forecast.
Philip D. Davies: Yes, so we still have engagement with customers on lateral vertical designs. We've also seen lateral vertical be used with some reference designs for the network communications market for the, You know, the Broadcom, and Marvell type of processes from some of the contract manufacturers in Asia. There could still be some revenues from lateral vertical towards the end of this year, early next year, so that's still a potential for us.
Sean legal expenses frankly.
Speaker Change: They could keep stepping up that could level off or come down depending on a variety of scenarios.
Speaker Change: So.
Speaker Change: I think Ken if you wanted to pick one among those three scenarios.
Ken: Keeping it pretty much level would be call. It the middle of the road alternative but.
Ken: Set up again because of additional actions we might take.
Ken: Understood. Thank you.
Thank you one moment for our next question. Please.
Philip D. Davies: Thank you. And then you mentioned something about licensing and enabling more rapid scaling and automotive. Are you allowing your partners there to produce your designs, or is it something more similar to the current status quo where you are allowing people to use your IP, you know, from different vendors?
Donald Brian McKenna: And comes from the line of Don Mckenna of DB Makena and company. Please proceed.
Donald Brian McKenna: Thank you Patricio.
The comments that on future of.
Donald Brian McKenna: Sales opportunities again, a pretty pretty positive.
Donald Brian McKenna: And with the exception of last quarter.
Patrizio Vinciarelli: Like, like, it's happening to HPC more and more. So we're open to the opportunity for selective licensing in, among others, the automotive market. And there's been some expression of interest with respect to that. It's predicated on the distinct attributes of our solutions. And I'm referring to solutions involving 400 volts with 100 volts, you know, bus conversion, as well as, you know, other solutions, including civil zone architecture, which is, once again, something that LIGO conceived of 10 years ago and with respect to which we have intellectual problems. So, we have a number of opportunities in the automotive area, in particular. There are some that are now beginning to develop also related to ACVC.
Donald Brian McKenna: The outlook has always been quite positive and if you go back and read the transcripts.
Donald Brian McKenna: Obvious that the potential markets that you envisioned in the superior products that you're offering just haven't produced the result, you you would hope for.
Donald Brian McKenna: And I'm wondering.
Donald Brian McKenna: What you've learned from.
Donald Brian McKenna: That failure to capture the potential.
Donald Brian McKenna: And what changes you've made in your approach to improve the sales and profitability.
Speaker Change: So as suggested in our in my calls we believe we are executing well.
With a clear vision.
Speaker Change: What.
Speaker Change: Challenges and opportunities and frankly.
Speaker Change: I think it is a big part of the answer to your question the vessel due with the vagaries.
Patrizio Vinciarelli: I do expect that over time, some of these opportunities may turn into licensing deals. Okay, great. Thank you. And then finally, could you, Jim, could you break out the legal expense in the quarter and what you expect from the next two or three of the ITC case reps? Like we said in prepared remarks, legal expense was the primary driver of the $4 million incremental law tax.
Speaker Change: What has been going on.
Speaker Change: Certain leading Oems.
Speaker Change: Where is their priorities have taken them in terms of product development.
Speaker Change: And to keep it very high in general level, I would say that from obviously ability.
Speaker Change: Our unique perspective with respect to the evolution of power system requirements.
Some of the choices that we made with.
James F. Schmidt: I would stop short of trying to predict the future on that, John, and I might let Patrizio comment as well because he's obviously been very close to all of us. Yeah, so to Jim's point, in the last quarter, there was a significant step up, primarily relating to your preparations for the economics trial next week. We are not in a position to forecast the evolution of legal expenses, you know, frankly. They could keep rising.
Speaker Change: With certain Oems.
Speaker Change: Are going to get those Oems into a real bind.
Speaker Change: Both in terms so the performance of their platforms and more importantly, the competitive standing relative to other companies are fighting to capture market share and they see the opportunity of leveraging is would be a policy some technology from <unk>.
Speaker Change: So I guess I'm not apologetic with respect to how we got to where we are we don't control our destiny in every respect obviously, we make it.
James F. Schmidt: They could level off, or they come down depending on a variety of scenarios, so I think if you wanted to pick one among those three scenarios, keeping it pretty much level would probably be the middle-of-the-road alternative.
Speaker Change: All decisions with respect to <unk>.
Speaker Change: How we're going to make the most of the opportunity both in terms of fab of hygiene technology and importantly, our intellectual property.
Patrizio Vinciarelli: But it could step up again because of additional actions we might take. Understood. Thank you. Thank you. One moment for our next question, please, which comes from the line of Adon McKenna of DB McKenna and Company. Please proceed.
Speaker Change: <unk>.
Speaker Change: I will say that I'm quite satisfied with.
Speaker Change: We got to where we are and I think we have tremendous opportunity.
Speaker Change: It takes perseverance.
Speaker Change: Our vision for <unk>, we have all of those.
Speaker Change: All trades and we expect to before too long capitalized on the opportunity.
Donald Brian McKenna: Thank you. Patrizio, you know, the comments that on future... sales opportunities are again pretty positive. And with the exception of the last quarter, the outlook has always been quite positive.
Yes.
Speaker Change: I realize it's very difficult for you to try to.
Speaker Change: Make any projections on the short term.
Speaker Change: Can you give us some kind of a feel for where you would expect revenues as a percentage increase over current.
Let's say three years down the road, what would you be satisfied with.
Patrizio Vinciarelli: And if you go back and read the transcripts, it's obvious that the potential markets that you envisioned, and the superior products that you're you're offering, just haven't produced the results you you would hope for. And I'm wondering what you've learned from, you know, that failure to capture the potential, and what changes you've made in your approach to improve the sales and profitability. So, as suggested in my quotes, we believe we are executing well with a clear vision of what challenges and opportunities are, and frankly, I think it is a big part of the answer to your question that has to do with the vagaries, of what has been going on with certain leading OEMs, where their priorities have taken them in terms of product development, and to keep it at the very high and general level, I would say that from our visibility, a unique perspective with respect to the evolution of power system requirements.
Speaker Change: Hi.
Speaker Change: I don't know that.
Speaker Change: Honest to give you numbers.
Johnny's protections.
Speaker Change: Without a substantial risk.
In either direction.
Speaker Change: I think I can say that we do expect to fill our fab.
Speaker Change: As we know the fab has got a $1 billion.
Speaker Change: Worth of capacity and maybe more than that.
Speaker Change: We're going to be able to feel desktop with opportunities realizing too.
Speaker Change: <unk> in AI.
Speaker Change: The center type of obligations as well as automotive applications and generally speaking two fields earlier point.
Speaker Change: Our top 100 customers diversified.
Speaker Change: Several markets.
Speaker Change: And would you expect to fill that fab in the next three years.
Speaker Change: I do expect that that will happen I don't know if Phil wants to add some color to this.
Phil: No I would just say that thats. The objective is to is to achieve that.
Patrizio Vinciarelli: Some of the choices that have been made with certain OEMs are going to get those OEMs into a real bind both in terms of the performance of their platforms and, more importantly, their competitive standing relative to other companies that are aspiring to capture market share, and they see the opportunity of leveraging a superior power system technology from Viagra. So, I guess I'm not apologetic with respect to how we got to where we are. We don't control our destiny in every respect.
Phil: And to do it with the broad based market with our distribution channel on the on the broad base level, but also the top 100 focus and we're making great progress across the four we use with the top 100.
Phil: The new products that we're introducing this year not just the.
Phil: The Gen five, but new high power front end.
Phil: Products are getting designed into these top 100 customers that were now focused on so I am confident that we will.
Phil: We will fill the fab and.
Phil: I think that.
Some exciting times are ahead of us.
Speaker Change: Alright, great. Thanks, guys.
Patrizio Vinciarelli: Obviously, we make critical decisions with respect to strategy and how we're going to make the most of the opportunity, both in terms of the fab, of 5G technology, and importantly, our intellectual property. And I would say that I'm quite satisfied with how we got to where we are. And I think we have tremendous opportunity. It takes perseverance, clarity of vision, and persistence.
Speaker Change: Thank you.
Speaker Change: One moment for our next question please.
Speaker Change: It comes from the line of Alan Hicks with Ainsley capital. Please proceed.
Alan Hicks: Yes, good afternoon.
Alan Hicks: I think I heard you say, 48% on <unk> and 50% on a desk.
Alan Hicks: Products was that correct.
Alan Hicks: I'm, sorry could you repeat them at a little bit.
Speaker Change: We kept here with my argue today.
Speaker Change: Oh.
Patrizio Vinciarelli: We have all those traits, and we expect to, before too long, capitalize on the opportunity. Yeah, and I realize it's very difficult for you to try to, you know, make any projections for the short term. Can you give us some kind of a feel for where you would expect revenues as a percentage increase over current levels, let's say three years down the road? What would you be satisfied with? I don't know that I can.
Speaker Change: As a percentage of revenues advanced products I think are a little over 50% and <unk> was a little over 48% was that.
Speaker Change: Correct, that's correct for the for the first quarter Yeah.
The mix between advanced products and brick products changed.
Speaker Change: Okay, so could we assume that royalties or that other 2%.
Speaker Change: I'm, sorry, the royalty as well.
Speaker Change: Yes.
Speaker Change: The differential.
Speaker Change: It added up to 98% roughly so the differential be roughly 2%.
Patrizio Vinciarelli: I can't honestly give you numbers or generous detachments without substantial risk in either direction. But I think I can say that we do expect to fill our family. As we know, DevFab has got a billion dollars worth of capacity, and maybe a little more than that. We're going to be able to fill it with opportunities relating to 5G, AI, the center type of applications, as well as automotive applications. And generally speaking, to Phil's earlier point, our top 100 customers in the diversified sector market. And would you expect to pay that bill in the next three years? I do expect that that will happen. I don't know if Phil wants to add some color to this.
Speaker Change: I wouldn't make that assumption.
Speaker Change: Don't know that I can give you a quantitative met.
Speaker Change: Measure here I know spot.
Speaker Change:
Speaker Change: The reporting and maybe Jim can comment on that you can point you to where you can find additional information.
Speaker Change: Yes.
James F. Schmidt: Alan the better way to think about it as we said 51, 6% advanced 48, four brick which is 100%.
James F. Schmidt: Ed.
Royalty income is associated with advanced product.
Speaker Change: Okay, So but does it last quarter it was $7 million I believe.
Speaker Change: Two to grow significantly from from last quarter.
Speaker Change: Zero.
Speaker Change: Yes, it did grow it stepped up.
Speaker Change: Substantially from last quarter.
Speaker Change: Okay, and then the factory.
Speaker Change: Gross margin is also improving on the factory.
Philip D. Davies: No, I would just say that the objective is to achieve that and to do it with a broad-based market with a distribution channel at the broad-based level, but also the top 100 focus. And we're making great progress across the four BUs with the top 100, and the new products that we're introducing this year, not just the Gen 5, but new high-power front-end products are getting designed into these top 100 customers that we're now focused on. So I'm confident that we'll fill the vat, and I think that some exciting times are ahead. All right, great. Thanks guys.
Speaker Change: So.
Speaker Change: Sorry go ahead for treat Joe.
Okay well.
Speaker Change: So needless to say.
Speaker Change: Capacity utilization in the factory.
Speaker Change: Nishu.
Speaker Change: It wasn't issues in the last quarter, so you're going to have an issue this quarter.
Speaker Change: And.
Speaker Change: The fact that the revenues.
Speaker Change: We are particularly proud revenues.
Speaker Change: Took a step down last quarter that being out but with respect to margins.
<unk>.
Speaker Change: All of the factors that Jim pointed to in his prepared remarks.
Speaker Change: Including beyond licensing income.
Speaker Change: Auction types.
Speaker Change: Changing mix favorable mix.
Speaker Change: Contributing to.
Speaker Change: As significant.
Donald Brian McKenna: Thank you. Thank you. One moment for our next question, please, comes from the line of Alan Hicks with Ainslie Capital. Please proceed. Yeah, good afternoon.
Speaker Change: Improvement in.
Speaker Change: In total gross margins.
Alan Hicks: I think I heard you say 48% for BBU and 50% for advanced products. Was that correct? I'm sorry, could you repeat that? I'm a little bit handicapped here with my audio today. On the percentage of revenues, advanced products, I think, were a little over 50%, and BBU was a little over 48%. Was that correct?
Speaker Change: The trend line.
We are satisfied with I think we represent in the past.
Speaker Change: We have a goal to.
Speaker Change: <unk> substantially higher margins and that goal is supported by salvaging that we're implementing and executing.
Speaker Change: With the mix so that further advances with respect to our product capabilities as well as the.
James F. Schmidt: For the passport, yeah, the mix between advanced products and big products changed. Okay, so could we assume that royalties were that other 2%? Say their royalties what? The differential added up to 98% roughly, so the differential would be roughly 2%. I wouldn't make that assumption.
Speaker Change: The complementary.
Speaker Change: Element of.
Speaker Change: In effect monetizing.
Speaker Change: Some of the value of our IP through selective licensing.
Speaker Change: So I think those gross margins where it is.
Speaker Change: Lee.
Speaker Change: <unk> ahead.
Speaker Change: It was $53 six.
Speaker Change: <unk>.
Speaker Change: I think gross margins for the quarter, Jim, but correct me, if I'm wrong, but 53 and change right.
Alan Hicks: I don't know that I can give you a quantitative measure here, but I know as part of reporting, and maybe Jim can comment on that, he can point you to where you can find additional information. Yeah, Alan, the better way to think about it is we said 51.6% advanced, 48.4 BRIC, which is 100%. And, you know, the realty income is associated with advanced products. Okay, so we did it. Last quarter, it was seven million, I believe. Did it grow significantly from last quarter? It did grow and step up. Statue.
James F. Schmidt: Yes, so I can comment on that Alan actually so 53 eight towards the results last quarter and that was the highest for sure since I've been at <unk>.
Speaker Change: Mhm yeah.
Speaker Change: Going back over 20 years.
Speaker Change: Highest I've ever seen.
Speaker Change: Do you expect that to continue to grow the rest of the year based on royalty increases.
Speaker Change: Again, we're not going to be making detailed quarterly provision in the year, which so much for that.
Speaker Change: So I think we're just going to have to.
Speaker Change: The once upon us.
Speaker Change: <unk>.
Speaker Change: <unk> invested in value growth for the long term.
Speaker Change: Going to look at this I think one of the analyst asked.
Speaker Change: A question in the last call.
<unk>.
Thank you for being quote unquote, the transition year I think at the time.
James F. Schmidt: Okay, and is the factory, are the gross margins also improving on the factory? Unknown Speaker. Good morning.
Speaker Change: I didn't.
Speaker Change: Embrace that companies.
Speaker Change: I think in hindsight.
Patrizio Vinciarelli: Okay, well, so it needs to be said that capacity in the factory is an issue, was an issue in the last quarter, still going to be an issue this quarter, and the fact that revenues, particular car revenues, took a step down last quarter. It didn't help with respect to March, but all the factors that James pointed to in his prepared remarks, including beyond licensing income, and reduction in tariffs.
Speaker Change: Probably the better way of looking at it this is a year of transition which in effect.
Speaker Change: A lot of things are going to change.
Speaker Change: With respect for the better.
Speaker Change: Mhm.
Speaker Change: Okay.
Speaker Change: Well.
Speaker Change: I was at the Nvidia Conference I think.
Speaker Change: It was February or last month.
Speaker Change: And I start by the Delta and <unk>.
<unk> asked about.
Speaker Change: The Nbn.
Speaker Change: <unk>.
Speaker Change: And they showed it to me and said, we're not infringing because.
Speaker Change: We have a different process.
Speaker Change: That's all he said kind of setup.
Speaker Change: Can you comment on that.
Speaker Change: Yeah, the leather BNS come to mind.
Patrizio Vinciarelli: [inaudible] This contributed to a significant improvement in total gross margin. And that's the trend line that we are side-by-side with. I think we've stated in the past that we have a goal to achieve substantially higher margins, and that goal is supported by the strategies that we're implementing and executing with the mix of further advances with respect to our product capabilities, as well as the complementary element of monetizing some of the value or IP through selective licensing. So I think those gross margins were easily the best you've ever had; gift bank was 53.6%.
Speaker Change: The fact is that.
Speaker Change: Is there a copycat products infringes three of our patents.
Speaker Change: <unk>.
Speaker Change: And thus far.
Speaker Change: The proceedings.
Speaker Change: Corroborate that debt is protection, so, let's wait and see what happens.
Speaker Change: They expect to be an exclusion order against them.
Speaker Change: Okay, and just a quick question on that.
Speaker Change: I think it would show that the WCS it had been.
Speaker Change: DC DC converter 150000 lots I think is that for charging stations.
Speaker Change: Phil could you answer that.
Phil: Yes that was.
Phil: PSU petruzziello the demo.
Phil: The five parallel mbm's in the PSU, the 150 kilowatt onboard 800 to 400 volt charger.
Phil: Mhm.
Phil: Demos.
Phil: We added in the case.
Phil: WCS.
James F. Schmidt: I think gross margins for the quarter, Jim, correct me if I'm wrong, 53 and change, right? Yeah, so I can comment on that, Alan, actually. So 53.8 was the result last quarter, and that was the highest for sure since I've been advised. Yeah, I've got going back over 20 years, highest I've ever seen.
Phil: But as the application for charging stations.
Phil: No that's an equity cash and four.
Phil: Fast charging and.
Phil: It's an application where.
Phil: We have.
Phil: In a major way to vantage as well as a major efficiency advantage so that system comprising.
James F. Schmidt: Do you expect that to continue to grow the rest of the year based on royalty increases? Again, we're not going to be making detailed quarterly predictions in a year in which so much could happen, so I think we're just going to have to. The ones among us that are invested in VIGOR for the long term are going to look at this. I think one of the analysts that asked a question in the last call about 2024 being, quote unquote, the transition year. At the time, I didn't embrace that characterization.
Phil: At the moment five of our molecules and in fact, we will be able to get to the 150 kilowatt capability with the reduce number four.
Phil: That system is sports peak efficiency of over 99%.
Phil: And it is strongly got power density meaning.
Phil: Volume measured in meters and weight measured in kilograms, and small fraction of any competitive view on it.
Phil: So that would go in the car and the charging station.
Phil: Now this is a device that certain automakers are going to incorporate.
Patrizio Vinciarelli: I think in hindsight, it's probably the better way of looking at it. This is a year of transition in which, in effect, a lot of things are going to change, and I would expect for the better. Okay, I was at the NVIDIA conference, I think it was February or last month. And I stopped by the Delta Brews booth, and they showed, I asked about their NBM product. And they showed it to me and said, "We're not infringing because we have a different process. That's all they said, and they kind of shut up. Can you comment on that or not? Yeah, the letters B and S come to mind.
Phil: <unk> within <unk>.
Phil: The vehicle to facilitate.
Phil: Our flexible chartering.
Phil: Okay.
How far away are you from design wins there.
Phil: We have design wins with two smaller automakers.
Phil: Okay.
Speaker Change: And then one last question you say, you're going to fill the factory to $1 billion in.
Speaker Change: Three years or whatever so thats in addition to.
Speaker Change: Oems are also manufacturing or licensing of your products.
Speaker Change: Phil I'm, having hard time here with my audio.
Speaker Change: Yes.
Speaker Change: <unk> product revenues out of the factory.
Alan Hicks: The fact is that their copycat product infringes three of our patents, and thus far, the proceedings have corroborated that expectation. So let's wait and see, you know, what happens with what I expect to be an exclusion order against. Okay, and just a quick question on that. There was a product, I think it was shown at the WCX, that had a DC-DC converter, 150,000 watts,
Speaker Change: Patricia said just over $1 billion out of that new fab and.
Speaker Change: OEM licensing active.
Speaker Change: Activities, adding to that yes.
Speaker Change: Okay. Okay. Thank you very much.
Thank you one moment for our next question. Please.
Speaker Change: And it comes from the line of John Dillon with Dnb capital. Please proceed.
John Dillon: Hi, guys. Thanks, a lot for taking my questions I appreciate it.
Patrizio Vinciarelli: Is that for charging stations? Sir, could you answer that? Yeah, that was the PSU, Patrizio, the demo of the five paralleled MBMs in the PSU, the 150 kilowatt onboard 800 to 400 volt charger. That was on demo, well, we had it in the case, not covered up, but WCAG.
John Dillon: Now that your factory is finished and we are seeing processors at 1000 Watson higher coming to the market and also on your.
John Dillon: Fair remarks, I think I heard you say target production dates for HBC.
John Dillon: When will we start seeing evidence of Gpus from major manufacturing factories using the by quarter.
John Dillon: All solutions.
John Dillon: So I think that <unk> talked about the John I think that.
As I mentioned in the prepared remarks, we are delivering electrical.
Philip D. Davies: What is the application for the charging station? That's an application for fast charging, and it's an application where we have a major weight advantage as well as a major efficiency advantage. So that system comprises, at the moment, five of our modules, and in fact, we'll be able to get to the 150 kilowatt capability with a reduced number of four. You know, that system sports a peak efficiency of over 99%. And it has, you know, astronomical power density, meaning its volume, it measures in liters, and weight, measuring kilograms, is a small fraction of any competitive unit.
John Dillon: Mechanical thermal models to leading customers right now.
Speaker Change: We will follow that up.
Speaker Change: Q2, with a demo system that there'll be able to checkout hardware test the models against the demo system and then.
Speaker Change: We will be sampling in the towards the end of Q3, and we expect production probably towards the second half of 2025.
Speaker Change: When we will have vertical power delivery and production.
Speaker Change: Is that with yours.
Speaker Change: There is one notable cast them or build that.
Speaker Change: May well be in production.
Speaker Change:
Speaker Change: The very beginning next year.
Speaker Change: For that kind of some of the hardware.
Speaker Change: These due to be delivered.
Speaker Change: In the summer months.
Alan Hicks: So that would go both in the car and the charging station. Now, this is a device that certain automakers are going to incorporate within the vehicle in order to facilitate, you know, flexible charging. Okay, how far away are you from design wins there? We have designed with two smaller atomizers. And one last question.
Speaker Change: Yes.
Speaker Change: Excellent and Phil is that the target production days that you were talking about or is that something different.
Phil: So that's the target production dates yet.
Phil: Got you and are there current gen four designs in production or about to go into production that will act as a bridge from the Gen five.
Yes, we have some gen four design wins, but.
Phil: Again as Patricio pointed out there have been some market shifts with people changing strategies.
Alan Hicks: You say you're going to fill the fat queue to one billion and three years or whatever. So that's in addition to whatever OEMs are also manufacturing or licensing your product. Phil, I'm having a hard time here with my audio. Could you respond to that?
Phil: Supply chain considerations ahead of performance and technology, but.
Phil: Vertical power delivery comes along.
Phil: We have.
Phil: The Gen five technology.
Credible solution with the current density that we can get to three X over what the competition will be high. So I think there'll be some really hot reassessment being made as we move forward here with the.
Philip D. Davies: Yes, so our goal is product revenues out of the factory, as Patrizio said, just over a billion dollars from that new fab and OEM licensing activities added to that. Okay. Okay. Thank you very much.
Phil: A number of accounts, but we will see that see that happen, but we have some very good interest from the accounts that building really.
Alan Hicks: Thank you. Thank you. One moment for our next question, please. And it comes from the line of John Dillon with DMV Capital. Please proceed. Hi guys, thanks a lot for taking my questions. I appreciate it.
Phil: The big investments into AI and developing their own process of chips on the people that you would expect and we have great engagements with them right now so I'm confident gen. Five is going to be all that it can be nimble.
Phil: We're going to be having a very exciting 2025.
Speaker Change: And you are pretty confident then that the product position schedule will stay on schedule.
John Dillon: Bill, now that your factory is finished, and we're seeing processors at 1000 watts and higher coming to the market, and also in your prepared remarks, I think I heard you say target production dates for HPC. When will we start seeing evidence of GPUs from major manufacturing factories using the BiCore POL solutions? So I think Patrizio talked about that, John.
Speaker Change: I'm personally confident that we show you want to comment on that but.
Speaker Change: Yeah.
Speaker Change: I'm also confident.
Speaker Change: Thank you.
Speaker Change: We're leveraging.
Speaker Change: For the most part processes and equipment.
Speaker Change: We have installed and.
Speaker Change:
Philip D. Davies: I think that, you know, as I mentioned in the prepared remarks, we're delivering electrical, mechanical, and thermal models to leading customers right now. Then we'll follow that up at the end of Q2 with a demo system where they'll be able to check out hardware and test the models against the demo system. And then we'll be sampling towards the end of Q3. And we expect production probably towards the second half of 2025. That's when we'll have vertical power delivery in production. Is that what you were referring to in the summer months?
Speaker Change: <unk>.
Speaker Change: It.
Speaker Change:
Speaker Change: There are.
Speaker Change: Fewer process steps.
Speaker Change: Debt.
Speaker Change: Are going to be used in order to scale up capacity to deliver initial units.
Speaker Change: Our steel.
Speaker Change: On some.
Speaker Change: Some level of refinement.
Speaker Change: <unk> speaking.
Speaker Change: The capability using place and.
Speaker Change: And we have.
Speaker Change: If fab with the capacity to build a very very large quantities of panels.
Speaker Change: And system solutions for customers.
Philip D. Davies: There's one notable customer, though, that may well be in production come the very beginning of next year. Absolutely. And for that customer, the hardware is due to be delivered in the summer months. Excellent. And Phil, are those the target production dates that you were talking about? Or is that something different?
Speaker Change: So you guys have working alpha.
Speaker Change: Data.
Speaker Change: Product right now.
Speaker Change: So we have a lead customer that we're going to be delivering a functional systems.
Speaker Change: We started some initial.
Speaker Change: Initial partial delivery, but we're going to be delivering complete <unk> in late June July timeframe.
Philip D. Davies: No, those are the target production dates. Yeah. Gotcha. And are there current Gen 4 designs in production or about to go into production that will act as a bridge for the Gen 5? Yeah, we have some Gen 4 design wins.
Speaker Change: Excellent so the lead up to Gershon.
Speaker Change: To be followed by others as we get into the other parts of the year.
Speaker Change: Excellent I'll get back in the queue. Thank you very much. Thank you.
Speaker Change: Thank you one moment for our next question. Please.
Philip D. Davies: But, you know, again, as Patrizio pointed out, there have been some market shifts with people changing strategies with Supply Chain Considerations ahead of performance and technology, but vertical power delivery comes along. We have, with the Gen 5 technology, an incredible solution with the current density that we can get to, 3x over what the competition will have. So I think there will be some really hard reassessments being made as we move forward here on a number of accounts, but we'll see that happen.
Speaker Change: And it comes from the line of Quinn Bolton with Needham <unk> Company. Please proceed.
Nathaniel Quinn Bolton: Hey, Jim just a question on the royalty how it works.
Nathaniel Quinn Bolton: The royalty revenue recognized in the first quarter is that for shipments of your licensee that took place.
Nathaniel Quinn Bolton: <unk> in a rear so effectively shipments in the fourth calendar quarter of last year or is it is it sort of.
Nathaniel Quinn Bolton: For shipments that took place in <unk> of 24.
Nathaniel Quinn Bolton: It's.
Nathaniel Quinn Bolton: It's real time.
Nathaniel Quinn Bolton: It's based on.
Philip D. Davies: We have some very good interest from the accounts that are building, you know, really big investments into AI and developing their own processor chips, and they're the people that you would expect, and we have great engagements with them right now. So I'm confident Gen 5 is going to be all that it can be, and we're going to have a very exciting 2025. And you're pretty confident then that the productization schedule will stay on schedule? I'm personally confident, Patrizio, you want to comment on that, but I certainly am.
Nathaniel Quinn Bolton: Shipments that basically they take receipt of so but it's not in arrears.
Nathaniel Quinn Bolton: In the quarter.
Speaker Change: Okay, perfect and then.
Speaker Change: Just sort of following up on John's question around that.
Speaker Change: Gen five deliveries.
Speaker Change: The lead customer is for Gen. Five I assume that Thats, a data center or sort of AI or HBC application, but just wondering if you could give us in broad strokes, what sort of the application is for that first gen five customer.
Patrizio Vinciarelli: I'm also confident. I think you were leveraging, for the most part, processes and equipment that we have installed and have fully vetted. There are a few process steps that are going to be used in order to scale up capacity, not to deliver initial units that are still under some level of refinement. But, generally speaking, the capability is in place, and we have a fab with the capacity to build very, very large quantities of panels and systems solutions for cancer.
It's within the confines you just divide but at this point in time.
Speaker Change: We really don't want to be specific when I give.
Speaker Change: This customer.
Speaker Change: The full advantage of being first and.
Speaker Change: Being an element of surprise, but.
Speaker Change: It's within the general.
Speaker Change: Field that you identified.
Speaker Change: Got it got it okay. Thank you.
Thank you one moment for our next question. Please.
Speaker Change: And it comes from the line of Richard Shannon of Craig Hallum. Please proceed.
Richard Cutts Shannon: Hi, guys. Thanks for taking my follow on question here.
Richard Cutts Shannon: I guess, Phil following on your prepared remarks here.
Patrizio Vinciarelli: So you guys have a working alpha or beta product right now? So we have a lead customer that we're going to be delivering a functional system. We started some initial partial delivery, but we're going to be delivering complete systems in late June or July time.
Richard Cutts Shannon: There's probably had as much focus outside of HBC has referred to and some time here.
Richard Cutts Shannon: You kind of alluded to this that your shareholders' meeting last year as well, but in that context can you give us the.
Phil: Some sort of understanding of the split of your advanced products revenues between <unk> and other applications and then also if you might just give us a flavor of how much of that advanced products segment is also point of load versus bridging and other kinds of functionality.
Philip D. Davies: So the LEAD application will be followed by others as we get into the second part of the year. Excellent. I'll get back in the queue.
Phil: Shale.
Shale: So can you hear me.
Shale: Yes, yes.
Shale: So today the advanced product revenues.
John Dillon: Thank you very much. Thank you. Thank you. One moment for our next question, please. Any calls from the line of Quinn Bolton with Needham and Company, please proceed. Hey, Jim, just a question on royalty, how it works.
Shale: The advanced products revenue was last quarter was 51, 6%.
Shale: So 52% of the total company, yes, the bulk.
Nathaniel Quinn Bolton: The royalty revenue you recognized in the first quarter, is that for shipments by your licensee that took place a quarter in a rear, so effectively shipments in the fourth calendar quarter of last year? Or is it is it sort of for shipments that took place in one queue of 24? It's real-time. It's based on... uh... shipments that basically they take receipt of. So, it's not in arrears; it's in the quarters.
Shale: Bulk of that was well done.
Shale: A number of HCC.
Shale: As you can see there is.
Shale: Quite a bit of it's now going in.
Shale: Great.
Shale: And I think it's.
Shale: Based on automotive.
Shale: Okay.
Shale: Let's face it.
Shale: That's.
Shale: Okay.
Shale: A few.
Shale: New electronic warfare.
Shale: And aerospace applications.
Shale: Like the space satellite location that we've been talking about we're getting more design wins there. So it's really spread amongst those three business units excluding automotive Richard.
James F. Schmidt: Okay, perfect. And then just sort of following up on John's question on the Gen 5 deliveries, the lead customer is for Gen 5, I assume that that's a data center or sort of AI or HPC application. But just wondering if you could, in broad strokes, give us what sort of application is for that first Gen 5 customer? It's within the confines you just defined, but at this point in time, we really don't want to be specific.
Richard Cutts Shannon: Okay. That's helpful.
Speaker Change: I would add to that.
Richard Cutts Shannon: The strategy that Phil outlined.
Richard Cutts Shannon: This is to be cash.
Richard Cutts Shannon: Among different end markets with different trace and different sets of opportunities.
Richard Cutts Shannon: That's fully supported by.
A product strategy that Leverages commonality.
Richard Cutts Shannon: <unk>.
Richard Cutts Shannon: Our conversion and James to control systems packaging technology.
So we have both to.
Patrizio Vinciarelli: We want to give this customer the full advantage of being first and having an elemental surprise. But it's within the general field that you identify. Got it. Got it. Okay. Thank you. Thank you. One moment for our next question, please. And he comes from the line of Richard Shannon of Craig Highland.
Address market needs.
In markets and markets that may appear to be some of this stuff like test equipment on the one hand.
Richard Cutts Shannon: Hi comps point of load the bpd to obligations.
Richard Cutts Shannon: Good.
Richard Cutts Shannon: Modules in particular fight Jim type modules, the essentially the same.
Richard Cutts Shannon: And that sets us apart.
Richard Cutts Shannon: In other way relative to.
Richard Cutts Shannon: <unk>.
Richard Cutts Shannon: The competition so to speak.
Nathaniel Quinn Bolton: Please proceed. Hi guys, thanks for taking my follow-on question here. I guess, Phil, following on from your prepared remarks here, which probably have had as much focus outside of HPC as we've heard in some time here, and you kind of alluded to this at your shareholders meeting last year as well, but in that context, can you give us some sort of understanding of a split of your advanced product revenues between HPC and other applications?
Speaker Change: Okay. Thanks for all that detail on quick follow on question corporate treats Hill.
Speaker Change: You talked about.
Speaker Change: From the time that we've covered you and frankly, a lot longer about having a distinct advantage in terms of power delivery at very high current so you talked about delivery.
Speaker Change: Samples or whatever to customers up to 2000 amps.
Speaker Change: I'm wondering if you can characterize the competitive dynamics here in the future with <unk> in.
Speaker Change: In the terms of above what.
Do you think youre going to be the only credible solution out there is that at a 1000 amps or blood at or above that just any characterization. So we can think about this as we see the next generation of accelerators come to market.
Nathaniel Quinn Bolton: And then also, if you might just give us a flavor of how much of that advanced product segment is also point of load versus bridging and other kinds of functionality. So today, yeah, so, can you hear me?
Richard Cutts Shannon: Yeah. Yeah, so today the Advanced Product Revenues are, The advanced products revenue last quarter was 51.6%, so 52% of the total company. Yeah, and the bulk of that was, well, not the bulk of it; a number of it was into HTC.
Speaker Change: So we've enabled.
Systems.
They are already app, but to a few tens of thousands of amperes on a wafer.
Speaker Change: I would say.
Speaker Change: The most.
Speaker Change: A bounce.
Speaker Change:
Philip D. Davies: There's quite a bit of it now going into the industrial sector, and I think that, as everyone knows, aerospace and defense are growing quite rapidly. With the new electronic warfare, defense, and aerospace applications, you know, like the space satellite application that we've been talking about, we're getting more design wins there. So it's really spread amongst those three business units, excluding automotive, Richard. Okay, that's helpful.
Speaker Change: Solution in terms of policy is think of ability.
Speaker Change: And.
Speaker Change: From what I can tell.
Speaker Change: Compute capability.
Speaker Change: In the market.
Speaker Change: So that's obviously cutting edge and.
Speaker Change: Kind of both.
Speaker Change: The more common with those type of free cash flows, which as Phil suggested earlier.
Speaker Change: Our trending app, but to the 2000 app level. So we're involved in.
Speaker Change: One important development.
Speaker Change: Good.
Speaker Change: A major OEM.
Speaker Change: The 2000 amp level.
Patrizio Vinciarelli: I would add to that that, you know, the strategies that feel aligned with better diversification among different time markets with different trades and different sets of opportunities. That's fully supported by a product strategy that leverages commonality of Park Conversion Engines, Control Systems, and Packaging Technology. So we are able to, in effect, address market needs in markets and markets that may appear to be some of these like test equipment on the one hand and, you know, high current point of load, VP data applications, you know, with modules, in particular 5G-type modules that are essentially the same. And that sets us apart in another way relative to, you know, the competition, so to speak.
Speaker Change: At that level for let me say, a unique bpd and you need.
Speaker Change: A in adapt.
Speaker Change: Formal bpd, such as what we call second January PD.
Speaker Change: Yes, you could try to do it with.
This is <unk> bin.
Speaker Change: Colby.
Speaker Change: A high degree.
Speaker Change: By competitors, but what you'd be stack with ease.
His system a power system that these.
Speaker Change: Involves modules very heavy.
Speaker Change: Jake.
Speaker Change: Terminally inapt difficult to cool.
Speaker Change: With very poor yields.
Speaker Change: Family and reliability issues.
Speaker Change: Not to mention the IP issues alluded to earlier.
Speaker Change: We see the market.
Speaker Change: NII, but CEO.
Speaker Change: Quickly getting passed 1000 amp level inflammatory left with.
Speaker Change: <unk> only solutions.
Richard Cutts Shannon: Okay, thanks for all that detail and a quick follow-on question for Patrizio. You talked about, you know, consistently from the time that we've covered you and, frankly, a lot longer about having a distinct advantage in terms of power delivery at very high currents. You talked about delivering samples or whatever to customers up to 2000 amps. I wonder if we can characterize the competitive dynamics here in the future with 5G, in terms of above, what do you think you're going to be the only credible solution up there? Is that at 1000 amps or below that or above that?
Speaker Change: Zero.
Speaker Change: <unk> out.
Speaker Change: Even lateral verse detail, while achieving significant benefits relative to allow though.
Speaker Change: Not as good as.
CEO: But our CEO.
CEO: So let me tell you what's going to be needed is a more advanced version of Bpd does soon.
Being about the stacking challenges back up that is post transaction bvd is like a pioneer of them patented.
Speaker Change: Okay, great. Thank you guys.
Patrizio Vinciarelli: Just any characterization so we can think about this as we see, you know, the next generation of accelerators come to market. So we've enabled systems that are ready up to a few tens of thousands of amperes on a wave. I would say that is the most advanced solution in terms of power system capability and, from what I can tell, compute capability in the market.
Thank you one moment for our next question. Please.
Our last question comes from Jon <unk> with CJS Securities. Please proceed.
Jon: Hi, Thanks for taking one more from me.
Jon: I was wondering if you could update us just on the uptake of automotive and when do you expect to start shipping in volume.
Jon: Alex I think you've said for a number of years now that you expect a 25%.
Jon: To be the year that automotive really starts shipping and making a difference I'm wondering if that remains on track and if that is going to be a good source of growth even before your <unk> products start shipping in the second half of 2005.
Patrizio Vinciarelli: So that's obviously, Cutting Edge and Faribault, of the more common denominator type applications, which as Phil suggested earlier, are trending up to the 2,000 app level, so we're involved in one important development with a major OEM at the 2,000 app level. At that level, fundamentally, you need VPD, and you need an advanced form of VPD, such as what we call second-gen VPD.
Jon: Hi, John This is Phil so so now the timing for automotive.
Phil: Really 'twenty six 'twenty seven from reasonable revenue ramps beginning.
Phil: There may be opportunities in Asia Pacific conversations that we've had in the last six months.
Phil: Pull that in but those are yet to develop so it's too early to talk about those yet but this is really a 'twenty six 'twenty seven storey four for automotive, although we will begin as I mentioned, I think last quarter or even in my remarks the quarter before.
Phil: Production early production at the end of this year.
Patrizio Vinciarelli: Yes, you could try to do it with. The third-gen VPD has been copied to a high degree by competitors, but what you'd be stuck with is a system, a power system that involves modules that are very heavy, very thick, terminally inept, difficult to call, with very poor yields in assembly and reliability issues. Not to mention the IP issues alluded to earlier. So we see the market, in AI in particular, quickly getting past the 1,000 app level and fundamentally left with VPD-only solutions. Lateral is out. Even lateral-vertical, while achieving significant benefits relative to lateral, is not as good as vertical.
Phil: For high performance.
Phil: Applications.
Phil: I think that that's sort of the timeframe that we're on with with automotive.
Phil: Okay got it if you were to characterize what could be a bridge market between then and now which one would be the most likely to drive.
Phil: Some sort of upside.
Phil: <unk> automotive or some of these other applications you are talking about.
Speaker Change: Yes, HBC is definitely number one and I think that we are again as I mentioned seeing very good design ins and wins in industrial defense and aerospace so theres going to be some really good growth at good margins coming from those markets, but HBC in Gen five.
Speaker Change: Just completely dominate that.
Speaker Change: Got it thank you guys.
Speaker Change: Thank you I'm not showing any further questions in the queue. Thank you.
Speaker Change: Okay. Thank you operator, and thank you everyone for joining.
And with that everybody. We appreciate your participation and you may now disconnect.
Patrizio Vinciarelli: And fundamentally, what's going to be needed is a more advanced version of VPD that doesn't bring about the stacking challenges that characterize first-generation VBDs by both pioneers and parents. Okay, great. Thank you guys. Thank you. One moment for our next question, please. All right, our last question comes from Jon Tanwanteng with CJS Securities. Please proceed. Thanks for taking one more for me.
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: [music].
Speaker Change: Okay.
Okay.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: [music].
Jonathan E. Tanwanteng: I was wondering if you could update us just on the uptake of automotive and when you expect to start shipping in volume those products. I think you've said for a number of years now that 25 is the year that automotive really starts shipping and making a difference. I'm wondering if that remains on track and if that's going to be a good source of growth, even before your VPD products start shipping in the second half. Hi John, this is Phil.
Speaker Change: Yes.
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: [music].
Philip D. Davies: So now the timing for automotive is really 26-27 from when reasonable revenue ramps up. There may be opportunities in Asia Pacific, conversations that we've had in the last six months that could pull that in, but those are yet to develop, so it's too early to talk about those yet. But this is really a 26-27 story for the automotive industry, although we will begin, as I mentioned last quarter or even in my remarks the quarter before, production, early production at the end of this year for high-performance applications.
Speaker Change: Okay.
Speaker Change: [music].
Philip D. Davies: So I think that that's sort of the time frame that we're on with automotive. Okay, got it. If you were to characterize, you know, what could be a bridge market between then and now, which one would be the most likely to drive, you know, some sort of upside, whether it be HPC or automotive or some of these other applications you're talking about? Yeah, HPC is definitely number one.
Philip D. Davies: And I think that, you know, we are again, as I mentioned, seeing very good design ins and wins in industrial defense and aerospace. So there's going to be some really good growth at good margins coming from those markets, but HPC and Gen five could just completely dominate that.
Jonathan E. Tanwanteng: Got it. Thank you, guys. Thank you. I'm not showing any further questions in the queue.
Operator: Thank you. Okay, thank you, operator. And thank you, everyone, for joining. And with that, everybody, we appreciate your participation, and you may now disconnect. ??? ??? ??? ??? ??? ??? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? Copyright © 2020 Mooji Media Ltd. All Rights Reserved.
Operator: No part of this recording may be reproduced without Mooji Media Ltd.'s express consent. Welcome to the Q1 2024 Vicor Earnings Conference Call. At this time, all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during that session, you will need to press star 1-1 on your telephone. You will then hear a message advising your hand is raised. To withdraw the question, simply press star 1-1 again.
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Speaker Change: Good day, everyone and thank you for standing by welcome to the Q1 2024 by core earnings Conference call. At this time all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session.
I'll ask a question during that session you will need to press star one one on your telephone you will Dan here message advising your hand is raised to withdraw the question simply press Star one again please.
Speaker Change: Please be advised that today's conference is being recorded.
Speaker Change: I'll now like to hand, the conference to Jim Schmidt Chief Financial Officer. Please go ahead.
James F. Schmidt: Thank you good afternoon, and welcome to <unk> Corporation's earnings call for the first quarter ended March 31 2024.
James F. Schmidt: Jim Schmidt, Chief Financial Officer, and I am in Andover, with Bill Davis, Vice President Global sales and marketing.
James F. Schmidt: Patricio Vince you rarely Chief Executive Officer is joining the call from Washington, DC ahead of the upcoming patent infringement trial before the International Trade Commission.
James F. Schmidt: After the market closed today, we issued a press release summarizing our financial results for the three months ending March 31.
James F. Schmidt: This press release has been posted on the Investor Relations page of our website.
James F. Schmidt: WWE <unk> dot Ticor power Dot com.
James F. Schmidt: We also filed a form 8-K today related to the issuance of this press release.
James F. Schmidt: I remind listeners this conference call is being recorded and is the copyrighted property of <unk> Corporation.
James F. Schmidt: 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 <unk>.
995.
James F. Schmidt: Except for historical information contained in this call the matters discussed on this call, including any statements regarding current and planned products current.
James F. Schmidt: 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.
James F. Schmidt: In light of these risks and uncertainties, we can offer no assurance that any forward looking statement will in fact prove to be correct.
James F. Schmidt: Actual results may differ materially from those explicitly set forth in or implied by any of our remarks today.
The risks and uncertainties uncertainties, we face are discussed in item one a of our 2023 Form 10-K, which.
James F. Schmidt: Which we filed with the SEC on February 28 2024.
James F. Schmidt: This document is available via the Edgar system on the SEC website.
James F. Schmidt: Please note the information provided during this conference call is accurate only as of today Tuesday April 23, 2024, <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.
James F. Schmidt: A webcast replay of today's call will be available shortly on the Investor Relations page of our website.
James F. Schmidt: I'll now turn to a review of our Q1 financial performance after which Bill will review recent market developments and pet treats youll, Phil and I will take your questions.
James F. Schmidt: Please be advised that today's conference is being recorded. I would now like to hand the conference to James Schmidt, Chief Financial Officer. Please go ahead.
In my remarks, I will focus mostly on the sequential quarterly change for P&L and balance sheet items as well as year over year changes and refer you to our press release or our upcoming Form 10-Q for additional information.
James F. Schmidt: Thank you. Good afternoon, and welcome to Vicor Corporation's earnings call for the first quarter ended March 31, 2024. I'm Jim Schmidt, Chief Financial Officer, and I am in Andover with Bill Davies, Vice President, Global Sales & Marketing. Patrizio Vinciarelli, Chief Executive Officer, is joining the call from Washington, D.C. ahead of the upcoming patent infringement trial before the International Trade Commission. After the market closed today, we issued a press release summarizing our financial results for the three months ending March 31st.
James F. Schmidt: As stated in today's press release FICO recorded total revenue for the first quarter of $83 9 million.
James F. Schmidt: Down nine 5% from the fourth quarter total of $92 7 million and down 14, 3% from the first quarter 2023 total of $97 8 million.
James F. Schmidt: Brick product revenue declined 11, 7% sequentially, while advanced products revenue declined seven 3% from the fourth quarter.
James F. Schmidt: This press release has been posted on the investor relations page of our website, www.vicorpower.com. We also filed a Form 8K today related to the issuance of this press release. I remind listeners this conference call is being recorded and is the copyrighted property of Vicor Corporation. I also remind you that 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.
James F. Schmidt: Shipments to stocking distributors increased 21, 8% sequentially.
James F. Schmidt: Exports for the first quarter decreased sequentially as a percentage of total revenue to approximately 42, 6% from the prior quarter's 56, 5%.
For Q1 advanced products share of total revenue increased to 51, 6% compared to 54% for the fourth quarter with brick products sure correspondingly decreasing to 48, 4% of total revenue.
Turning to Q1 gross margin we recorded a consolidated gross profit margin of 53, 8%, increasing approximately two 7% from the prior quarter.
James F. Schmidt: Except for historical information contained in this call, the matters discussed in this call, including any statements regarding current and planned products, current and potential customers, potential market opportunities, expected events and announcements, and our capacity expansion, as well as management's expectations for sales growth, spending, and profitability, are forward-looking statements involving risk and uncertainty. 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.
James F. Schmidt: A number of factors contributed to the sequential increase in gross margin percentage, including increased royalty income improved sales mix.
James F. Schmidt: <unk> and tariff spending and lower freight costs.
James F. Schmidt: I will now turn to Q1 operating expenses total operating expenses increased 10, 1% from the fourth quarter or $4 million.
James F. Schmidt: With the increase being primarily due to legal expenses incurred ahead of the trial and our patent infringement case before the ITC.
James F. Schmidt: Gave us a total equity based compensation expense for Q1.
James F. Schmidt: The risk and uncertainties we face are discussed in Item 1A of our 2023 Form 10-K, which we filed with the SEC on February 28, 2024. This document is available via the EDGAR system on the SEC's website. Please note the information provided during this conference call is accurate only as of today, Tuesday, April 23, 2024. RECCWR undertakes no obligation to update any statements, including forward-looking statements, made during this call, and you should not rely upon such statements after the conclusion of this call. A webcast replay of today's call will be available shortly on the investor relations page of our website.
James F. Schmidt: SG&A and R&D was 754000.
James F. Schmidt: 1.919 million and $1 million 107000, respectively totaling approximately $3 8 million.
James F. Schmidt: For Q1, we recorded operating income of $1 1 million, representing an operating margin of one 3%.
James F. Schmidt: Turning to income taxes, we recorded a tax provision for Q1 of approximately $1 2 million.
James F. Schmidt: Presenting an effective tax rate for the quarter of 31, 3%.
James F. Schmidt: Net income for Q1 totaled $2 6 million.
James F. Schmidt: GAAP diluted earnings per share was <unk> <unk> based on a fully diluted share count of $45 million 31000 shares.
James F. Schmidt: I'll now turn to a review of our Q1 financial performance, after which Phil will review recent market developments, and Patrizio, Phil, and I will take your questions. In my remarks, I will focus mostly on the sequential quarterly change for P&L and balance sheet items, as well as year-over-year changes, and refer you to our press release for our upcoming Form 10-Q for additional information. As stated in today's press release, Vicor recorded total revenue for the first quarter of $83.9 million, down 9.5% from the fourth quarter total of 92.7 million and down 14.3% from the first quarter 2023 total of 97.8 million.
James F. Schmidt: Turning to our cash flow and balance sheet.
James F. Schmidt: Cash and cash equivalents totaled $239 2 million at Q1.
James F. Schmidt: Accounts receivable net of reserves totaled $57 6 million at quarter end.
James F. Schmidt: With Dsos for trade receivables at 47 days.
James F. Schmidt: Inventories net of reserves increased five 4% sequentially to $112 3 million.
James F. Schmidt: Annualized inventory turns decreased sequentially to $1 71.
James F. Schmidt: Operating cash flow totaled approximately $2 7 million for the quarter.
Capital expenditures for Q1 totaled $7 4 million.
James F. Schmidt: BRIC product revenue declined 11.7% sequentially, while advanced product revenue declined 7.3% from the fourth quarter. Shipments to stocking distributors increased 21.8% sequentially. Exports for the first quarter decreased sequentially as a percentage of total revenue to approximately 42.6% from the prior quarter's 56.5%.
James F. Schmidt: We ended the quarter with our construction in progress balance primarily for manufacturing equipment of approximately $13 6 million or approximately $17 $17 8 million remaining to be spent.
Speaker Change: I will now address bookings and backlog.
Speaker Change: One book to Bill payment below one and with one year backlog decreased six 5% from the prior quarter closing at $150 3 million.
James F. Schmidt: For Q1, the advanced product share of total revenue increased to 51.6% compared to 50.4% for the fourth quarter, with brick product share correspondingly decreasing to 48.4% of total revenue. Turning to Q1 gross margin, we recorded a consolidated gross profit margin of 53.8 percent, increasing approximately 2.7 percent from the prior quarter. A number of factors contributed to the sequential increase in gross margin percentage, including increased royalty income, and reductions in tariff spending and lower freight costs.
Speaker Change: As stated in our earnings call in February.
Speaker Change: 2024 is a year of uncertainty and opportunity.
Speaker Change: As of today, the quarterly and annual outcome in terms of topline and Bottomline remains subject to a wide range of scenarios.
Speaker Change: Given the wide range of possible outcomes.
Speaker Change: We are unable to provide quarterly guidance until we are further along resolving uncertainties and capitalizing on opportunities.
Phil: With that Phil.
We'll provide an overview of recent market developments, and then Petruzziello, Phil and I will take your questions.
That you limit yourself to one question and a related follow up so that we can respond to as many of you as we can in the limited time available.
James F. Schmidt: I'll now turn to Q1 Operating Expenses. Total operating expenses increased 10.1 percent from the fourth quarter, or $4 million, with the increase being primarily due to legal expenses incurred ahead of trial in our patent infringement case before the ITC. The amounts of total equity-based compensation expense for Q1 and Q2 goods, SG&A, and R&D were $754,000, $1,919,000, and $1,107,000, respectively, totaling approximately $3.8 million.
If you have more than one topic to address please get back in the queue.
Phil: Phil.
Phil: Thank you Jim.
Phil: My remarks, this quarter will build on <unk> comments in the press release that we issued earlier today.
Phil: As a reminder, <unk> commented as.
Phil: As we confront challenges and pursue opportunities 2024 will be seen as the year in which our product strategy selective licensing of intellectual property and clarity of purpose secured <unk> future growth and profitability.
James F. Schmidt: For Q1, we recorded operating income of $1.1 million, representing an operating margin of 1.3%. Turning to income taxes, we recorded a tax provision for Q1 of approximately $1.2 million, representing an effective tax rate for the quarter of 31.3%. Net income for Q1 totaled $2.6 million, and Gapped eluded earnings per share by 6 cents, based on a fully diluted share count of $45,031,000.
Phil: So let's look at this from the point of view of our four business units and the growth opportunities each of them has with our top 100 customers.
Phil: The current base of our business lies with the industrial business unit and the aerospace and defense business unit.
Phil: This year, we will release to production over 20, new high power density products that leverage our new chip fab capabilities.
These products utilize advances in our topologies control systems components and packaging to raise the bar on power density and performance.
James F. Schmidt: Turning to our cash flow and balance, Cash and cash equivalents totaled $239.2 million in Q1. Accounts receivable net of reserves totaled $57.6 million at quarter end, with DSOs for trade receivables at 47 days. Inventory's net reserves increased 5.4% sequentially to $112.3 million. Annualized inventory turns decreased sequentially to 1.71, operating cash flow totaled approximately $2.7 million for the
Phil: From high power regulated on fixed ratio of DC DC converters to new AC to DC products aimed at the aerospace industry to a new family of radiation tolerant factories power products for both Leo and MEO satellite constellation deployments.
Phil: Customers from our top 100, now designing advanced power systems for exciting new product launches that leverage electrification autonomy in their systems.
James F. Schmidt: Capital expenditures for Q1 totaled $7.4 million. We ended the quarter with a construction and progress balance primarily for manufacturing equipment of approximately $13.6 million and with approximately $17.8 million remaining. Oh no, address bookings, and doc... Q1 booked a bill payment below one, and with one year's backlog decreasing 6.5% from the prior quarter, closing at $150.3 million. As stated in our earnings call and subord. 2024 is a year of uncertainty and opportunity.
Phil: As part of our industrial and aerospace and defense strategies. We have also consolidated our distribution channel partners to large global distributors, who have the customer base will reach in the market status needed to achieve our broad market growth goals.
Our global Channel partners Arrow, and Avnet are now, placing a higher focus on power conversion and power management as a strategic business and a major growth driver due to the electrification trends in broad industrial and transportation markets.
James F. Schmidt: As of today, the quarterly and annual outcomes, in terms of top line and bottom line, remain subject to a wide range of scenarios. Given the wide range of possible outcomes, we are unable to provide quarterly guidance until we are further along in resolving uncertainties and capitalizing on opportunities. With that, Phil will provide an overview of recent market developments, and then Patrizio, Phil, and I will take your questions. I ask that you limit yourself to one question and a related follow-up so that we can respond to as many of you as we can in the limited time available.
Phil: They clearly recognize the advantages and differentiation that our high density power modules bring to their customer base.
Phil: This quarter, we concluded a series of meetings with both channel partners jointly laying out plans strategies and targets for growth by focusing on specific vertical markets with a clear set of identified target customers globally that map to the numerous new products that we will launch in 2024.
Phil: Technology licensing will become an expanding segment of our business portfolio.
Phil: And an important parallel cost to our product revenues across our four business units.
Philip D. Davies: If you have more than one topic to address, please get back in the queue. Thank you, Jim. My remarks this quarter will build on Patrizio's comments in the press release that we issued earlier today. As a reminder, as we confront challenges and pursue opportunities, 2024 will be seen as the year in which our product strategy, selective licensing of intellectual property, and clarity of purpose secure Vicor's future growth and profitability.
Licensing will enable more rapid scaling of our automotive market opportunity as we expand our relationships with Oems on automotive tier one suppliers.
The automotive market in particular is aggressively looking for new technologies for both 48 volt zonal architectures onboard charging and 800 to 48 volt powertrain conversion systems, which deliver high power density and low weight for electric vehicles.
Philip D. Davies: So let's look at this from the point of view of our four business units and the growth opportunities each of them has with our top 100 customers. The current base of our business lies in the Industrial Business Unit and the Aerospace and Defense Business Unit. This year, we will release to production over 20 new high power density products that leverage our new chip fab capability. These products utilize advances in our topology, control systems, components, and packaging to raise the bar on power density and performance, from high-power regulated and fixed-ratio DC-DC converters to new AC-DC products aimed at the aerospace industry to a new family of radiation-tolerant, factorized power products for both LEO and MEO satellite constellation deployment.
Phil: OEM technology licensing partnerships are a way to monetize on rapidly scale this business.
Phil: On HBC customer engagements continue to expand with a set of customers with target production dates now for new innovative and higher performance AI processes that will take full advantage of our generation five vertical power delivery chipset.
Phil: The PD is very strategic and achieving the power delivery low power losses and performance required.
Phil: Electrical and thermal models, representing the Gen. Five chips have now been delivered to leading customers, enabling their system simulations at process occurrence up to 2000 amps.
Phil: We are on track to deliver evaluation systems and power module samples in Q2 and Q3, respectively.
Philip D. Davies: Customers from our top 100 are now designing advanced power systems for exciting new product launches that leverage electrification and autonomy in their systems. As part of our industrial, airspace, and defense strategies, we have also consolidated our distribution channel partners to large global distributors who have the customer base, the reach, and the market status needed to achieve our broad market growth goals. Our global channel partners, Arrow and Avnet, are now placing a higher focus on power conversion and power management as a strategic business and a major growth driver due to the electrification trends in broad industrial and transportation markets.
Q2 will be very busy for our automotive business unit as we host that the current count six customers at our new facility in Andover, Massachusetts.
Phil: New collaborations and design ins continue with significant new engagements with Oems and tier ones in the Asia Pacific region.
Phil: Our investments in electric vehicles, and 48 volt zonal architectures are leading the rest of the world.
The team had a very successful <unk> in Detroit once again this year with four technology papers that showcased our power module based power system value propositions for 800 volt 48 volt powertrains.
Phil: The new 48 volt zonal architecture will provide both product and OEM licensing revenue opportunities.
Philip D. Davies: They clearly recognize the advantages and differentiation that our high-density power modules bring to their customers. This quarter, we concluded a series of meetings with both channel partners, jointly laying out clear strategies and targets for growth by focusing on specific vertical markets with a clear set of identified target customers globally that map to the numerous new products that we will launch in 2024. Technology licensing will become an expanding segment of our business portfolio and an important parallel path to our product revenues across our four businesses. Licensing will enable more rapid scaling of our automotive market opportunity as we expand our relationships with OEMs and automotive Tier 1 suppliers. The automotive market, in particular, is aggressively looking for new technologies for both 48-volt zonal architectures, on-board charging, and 800-to 48-volt powertrain conversions, which deliver high power density and low weight for electric vehicles.
Speaker Change: Thank you and with that we will now take your questions.
Speaker Change: Thank you Ann as a reminder, press star one one to get in the queue and wait for your name to be announced to remove your question simply press Star one again.
Speaker Change: Please standby, while we compile the Q&A roster.
Speaker Change: One moment for our first question.
Speaker Change: It comes from the line of Quinn Bolton with Needham <unk> Company. Please proceed.
Speaker Change: Okay.
Nathaniel Quinn Bolton: Hey, guys I was wondering if you could start with <unk>.
Nathaniel Quinn Bolton: I think the ITC case.
Nathaniel Quinn Bolton: It's going to be heard next week, but I was hoping you could give us just sort of an update on the.
Nathaniel Quinn Bolton: See schedule and what you expect to happen next week and then.
Nathaniel Quinn Bolton: What would you expect to sort of follow over the summer until the expected.
Nathaniel Quinn Bolton: Decision date, which I believe is in early October, but anything you could sort of provide us on that.
Philip D. Davies: OEM technology licensing partnerships are a way to monetize and rapidly scale this business. Our HPC customer engagements continue to expand, with a set of customers with target production dates now for new, innovative, and higher-performance AI processes that will take full advantage of our Generation 5 vertical power delivery chipsets. VPD is very strategic in achieving the power delivery, low power losses, and performance required. Electrical and thermal models representing the Gen 5 chips have now been delivered to leading customers, enabling their system simulations at processor currents up to 2,000 amps.
What the next key milestones in the ITC case or would be would be helpful.
Speaker Change: So to your point.
Speaker Change: The proceedings remain on schedule.
Speaker Change: There's going to be a trial.
Speaker Change: Next week.
Speaker Change: And this is shown by the administrative law judge.
Speaker Change: In September with a deadline already October.
Speaker Change: We look forward to an outcome that we expect to be parallel to <unk>.
Speaker Change: The right side of the issues are.
Speaker Change: Opponents.
Speaker Change: On the wrong side of the issues and that's clear.
Speaker Change: Good day to everybody, but.
Philip D. Davies: We are on track to deliver evaluation systems and power module samples in Q2 and Q3, respectively. Q2 will be very busy for our automotive business unit as we host, at the current count, six customers at our new facility in Andover, Massachusetts. New collaborations and design-ins continue, with significant new engagements with OEMs and Tier 1s in the Asia-Pacific region, where investments in electric vehicles and 48-volt zonal architectures are leading the rest of the world. The team had a very successful WCX in Detroit once again this year, with four technology papers that showcased our power module-based power system value propositions for 800 volt and 48 volt power.
Again, we're going to trial prepared call.
Or a positive outcome.
Okay, Great and then.
You had mentioned both in the press release and the prepared script.
Speaker Change: That royalty revenue has continued to increase in the March quarter, just wondering if you might be able to quantify that.
Speaker Change: How much of it uptick did you see in March and then would you expect that royalty line to continue to grow through.
Speaker Change: The remaining quarters of 2024.
Speaker Change: So generally we expect that at all.
Speaker Change: <unk> contribution to our revenues and bottom line.
Speaker Change: To continue to expand.
Speaker Change: As far as we can see.
Philip D. Davies: The new 48-volt zonal architecture will provide both product and OEM licensing revenue opportunities. Thank you. And with that, we will now take your questions. Thank you, and as a reminder, press star 11 to get in the queue and wait for your name to be announced. To remove your question, simply press star 11 again.
Speaker Change: And they may be.
Speaker Change: Set up.
Speaker Change: Events that occur at certain points in time.
Speaker Change: But to be clear, we're taking a very long term view with respect to the opportunity.
Speaker Change: And.
Speaker Change: In approaching it with that.
Speaker Change: Right balance in terms of.
Operator: Please stand by while we compile the Q&A roster. One moment for our first question, which comes from the line of Quinn Bolton with Needham and Company.
Speaker Change: If I go see interest as well as the interest so Oems.
Speaker Change: I'd like to take a license as opposed to potentially be confronted with.
Speaker Change: Laying down situations.
Speaker Change: Following an exclusion.
Speaker Change #100: Got it I'll go back in the queue. Thank you.
Speaker Change #100: You.
Speaker Change #101: Thank you one moment for our next question. Please.
Nathaniel Quinn Bolton: Please proceed. Hey guys, I was wondering if you could start with, I think the ITC case is going to be heard next week, but I was hoping you could give us just sort of an update on the ITC schedule, what you expect to happen next week, and then what you expect to sort of follow over the summer until the expected decision date, which I believe is in early October, but anything you could sort of provide us on the, you know, what the next key milestones So to your point, um... The proceedings remain on schedule.
Speaker Change #101: And it comes from the line of Richard Shannon with Craig Hallum. Please proceed.
Richard Cutts Shannon: Hi, guys. Thanks for taking my questions.
Richard Cutts Shannon: I guess I've got a couple of inter interlocking questions on your <unk> second Gen. PPD product here I guess I wanted to get a sense of kind of the milestones that we should expect to see over the next coming quarters.
Richard Cutts Shannon: Towards getting bookings interventional revenues here I think in the past you've talked about the models and tool delivery, which I think I heard some detailed did I missed some of that.
Patrizio Vinciarelli: There's going to be a trial next week and a decision by the Amin Sayed Law Judge in September with a deadline of early October. We look forward to an outcome that we expect to be favorable to VIGOR. We are on the right side of the issues, and our opponents are on the wrong side of the issues. And that's clear, and should be clear to everybody. But again, we're going to trial prepared, confident, or possibly not.
Richard Cutts Shannon: Last quarter, you had talked about some maybe some more equipment needs to be delivered to support that and then anything about manufacturing experience required for essentially the larger customers have confidence in the ramp here kind of detail that we should be looking for this year that'd be great.
Speaker Change #102: Sure. So let me start with <unk>.
Speaker Change #102: The revenue opportunity I think as we made clear in prior calls.
Speaker Change #102: <unk> is not a 2020 for revenue opportunity several opportunities southeast.
Speaker Change #102: Hi.
Speaker Change #102: This is a year of delivery.
Patrizio Vinciarelli: And then you mentioned both in the press release and the prepared script that royalty revenue continued to increase in the March quarter. Just wondering if you might be able to quantify that, how much of an uptick did you see in March?
Speaker Change #102: <unk>.
Speaker Change #102: Solutions to initial key customers.
Speaker Change #102: And we're far along.
Speaker Change #102: With one.
Speaker Change #102: Before too long with more.
Speaker Change #102: All of them.
Speaker Change #102: So I would look again at the 2020 call is bringing this development effort to fruition setting the stage.
Patrizio Vinciarelli: And then, you know, would you expect that royalty line to continue to grow through the remaining quarters of 2024? So, generally, we expect the royalty contribution to our revenues and bottom line to continue to expand as far as we can see. And there may be a set of events that occur at certain points in time, but to be clear, we're taking a very long-term view with respect to the opportunity and addressing it with the right balance in terms of VIGOR's interest as well as the interest of OEMs that, you know, elect to take a license as opposed to potentially being confronted with lying down situations following exclusion. Got it. I'll go back in the queue.
Speaker Change #102: Some leading cash somewhere.
Speaker Change #102: Before we get into production volumes next year.
Speaker Change #102: Okay.
Speaker Change #103: Okay, Let me follow up and kind of looking at the <unk> opportunity a different way and certainly understanding that as you said last quarter that this is not the year for <unk> revenues at all here, but I guess do you expect to be able to intersect with the first generation of three nanometer accelerators Gpus Cpus whatever is out there.
Speaker Change #103: To be ready by then or is that something that you might be lagging and leading edge there.
Speaker Change #104: I will say that.
Speaker Change #104: We.
Speaker Change #104: I used the fashions.
Speaker Change #104: Both premise on a capability.
Speaker Change #104: The much higher <unk>.
Speaker Change #104: The other performance attributes of our strategy.
Speaker Change #104: <unk> solution.
Speaker Change #104: Which is.
Speaker Change #104: What we call a second Jeff Schoen Bpd.
Distinct from the first international Baidu itself by year end balances.
Nathaniel Quinn Bolton: Thank you. Thank you. Thank you. One moment for our next question, please. And it comes from the line of Richard Shannon with Craig Holland.
And which is being practiced by competitors with a good deal difficulty.
Speaker Change #104: From the performance perspective from a reliability perspective, and last but not least from the intellectual property perspective.
Richard Cutts Shannon: Please proceed. Well, hi guys. Thanks for taking my questions. I guess I've got a couple of interlocking questions on your 5G second-gen PPD product here. I guess I want to get a sense of kind of the milestones that we should expect to see over the next coming quarters, towards, you know, getting bookings and eventual revenues here. I think in the past, you've talked about models and tool delivery, which I think I heard some detail that I missed some of that.
Speaker Change #104: So we believe that.
Speaker Change #104: <unk> with the visibility to all of the issues.
Speaker Change #104: And we're engaged with some of them.
Speaker Change #104: I understand that debt to get to reliable scalable and.
Not.
Speaker Change #104: Challenged by intellectual property issues.
Speaker Change #104: <unk> is the source.
At this point in time no other source.
Speaker Change #104: PPD system that works well those scalable.
Speaker Change #104: And there is not devoid of intellectual property challenges.
Speaker Change #104: Okay.
Speaker Change #105: Okay fair enough. Thank you.
Richard Cutts Shannon: I think last quarter, you talked about maybe some more equipment needing to be delivered to support that. And then anything about manufacturing experience required for, you know, especially the larger customers to have competence on the ramp here, kind of detail about what we should be looking for this year. Sure, so let's start with the revenue opportunity. I think, as we made clear in prior calls.
Speaker Change #106: Thank you one moment for our next question. Please.
Patrizio Vinciarelli: 5G is not a 2024 revenue opportunity; it's a revenue opportunity starting in 2025. This is a year of delivery of solutions to initial key customers, and Wolfgang Long, particularly with one and before too long with more. So I will look again at 2024 as bringing this development effort to fruition, you know, setting the stage with some leading customers before we get into production volumes next year. Okay, let me follow up by kind of looking at this 5G opportunity in a different way and certainly understanding that, as you said last quarter, that this is not the year for 5G revenues at all here.
Speaker Change #107: Alright, one moment.
Speaker Change #108: It comes from the line of John Tom Welton with C. J S Securities. Please proceed.
Hi, good afternoon, and thank you for taking my questions. I was wondering if you could give us an update on the.
Speaker Change #109: The potential for that old vertical products shipping.
Speaker Change #110: If that might contribute to 'twenty four 'twenty five.
Speaker Change #111: And if those active programs in the pipeline for that.
Speaker Change #111: Okay.
Speaker Change #112: Im sorry, I missed the potential for which if you could on that lateral vertical products sort of in between.
Speaker Change #112: Product.
Speaker Change #113: Yes so.
Speaker Change #113: As it turns out the potential.
Speaker Change #113: Is limited.
I will let Phil.
Phil: I mean with more color on these with a global view because it depends on which particular end market were looking for sale.
Patrizio Vinciarelli: But I guess, do you expect to be able to intersect with the first generation of three nanometer accelerators, GPUs, TPUs, whatever is out there, to be ready by then? Or is that something you might be lagging behind and on the leading edge there? I would say that.
Phil: Phil.
Yes, so we do have still have engagement with customers on lateral vertical.
Phil: <unk> designs.
Phil: We've also seen lateral vertical be used.
With some reference designs for the network.
Phil: Communications market for the.
Patrizio Vinciarelli: We have high expectations, both premised on our capability, the much higher current density, and the other performance attributes of our 5G VPD solution, which is what we call a second-generation VPD, distinct from the first-generation, which was pioneer and talented, and which is being practiced by competitors with a great deal of difficulty from the performance perspective, from the reliability perspective, and last but not least, from the intellectual property perspective. Unknown Attendee.
Phil: The Broadcom Marvell type of processes from some of the contract manufacturers in Asia.
Phil: So.
Phil: Could still be some revenues on lateral vertical or towards the end of this year early next year.
Phil: So that's still a potential for us.
Speaker Change #114: Got it. Thank you and then so you mentioned something about them.
Speaker Change #114: Licensing and enabling more rapid scaling automotive are you, allowing your partners there to produce your designs or is it something more similar to the current status quo of where you are on <unk>.
Speaker Change #114: <unk> people to use your IP.
Speaker Change #114: From different vendors.
Speaker Change #114: Got it that's happening HBC markets.
Okay.
Speaker Change #114: So we are open to the opportunity for selective licensing in among others, the automotive market and there's been some expression of interest with respect to that.
Unknown Attendee: Customers who have visibility to all the issues and have been engaged with some of them understand that to get to reliable, scalable, and not challenged by intellectual property issues, VIGOR is the source, and there's, at this point in time, no other source for a VPD system that works well, that is scalable, and that is not devoid of intellectual property. Okay, fair enough. Thank you. Thank you. One moment for our next question, please. All right, one moment.
<unk>.
Can you get it done does it seem to attribute so all of our solutions.
Speaker Change #114: Im referring to solutions involving 400 volts with Thunderbolt.
Speaker Change #114: Bus conversion.
As well as.
Speaker Change #114: Other solutions, including so.
Speaker Change #114: So called Zonal architecture.
Speaker Change #114: Once again sampling of the <unk>.
Speaker Change #114: Ill conceived of.
Speaker Change #114: 10 years ago, and with respect to which we have intellectual property.
Speaker Change #114: So we have a number of opportunities in.
Speaker Change #114: And the other more you're at a party here.
Speaker Change #114: There are some that are now beginning to develop also related to ACM AC.
Operator: It comes from the line of Jonathan Tanwanteng with CJS Securities. Please proceed. Hi, good afternoon.
Speaker Change #114: I do expect that debt.
Over time some of these opportunities May turn me two licensing deals.
Jonathan E. Tanwanteng: Thank you for taking my questions. I was wondering if you could give us an update on the potential for lateral vertical products, if that might contribute to 24, 25, and if there are active programs in the pipeline. I'm sorry, I missed the potential for which if you could have lateral vertical products, so the in between products. Yes, but I think, as it turns out, the potential is limited. I will let Phil fill in with more color on this from a global view because the answer depends on which particular end market we're looking for.
Speaker Change #115: Okay, great. Thank you and then finally could you Jim could you break out the legal expense in the quarter and what you expect over the next two or three of the <unk>.
Speaker Change #115: <unk> ramps up.
James F. Schmidt: Like we said on the.
James F. Schmidt: <unk> prepared remarks legal expense was the primary driver of the $4 million of incremental Opex.
I'll stop short of trying to predict the future on that John.
James F. Schmidt: <unk> comment as well because he's obviously been very close to all of it.
Speaker Change #116: Yes, so to Jim's point.
Speaker Change #116: Last quarter, there wasn't a significant step patrimony relating to.
Preparations for the upcoming trial next week.
Speaker Change #116: We are not in a position to forecast that the evolution of legal expenses frankly.
Patrizio Vinciarelli: Yes, so we still have engagement with customers on lateral vertical designs. We've also seen lateral vertical be used with some reference designs for the network communications market for the, You know, the Broadcom, and Marvell type of processes from some of the contract manufacturers in Asia. There could still be some revenues from lateral vertical towards the end of this year, early next year, so that's still a potential for us.
Speaker Change #116: They could keep stepping up that could level off or come down depending on a variety of scenarios.
Speaker Change #116: So.
Speaker Change #117: I think Ken if you wanted to pick one amongst those three scenarios keep.
Ken: Pretty much level would be call it the middle of the road alternative but.
Ken: It could step up again because of additional actions we might take.
Ken: Understood. Thank you.
Speaker Change #118: Thank you one moment for our next question. Please.
Patrizio Vinciarelli: Thank you. And then you mentioned something about licensing and enabling more rapid scaling and automotive. Are you allowing your partners there to produce your designs, or is it something more similar to the current status quo where you are allowing people to use your IP, you know, from different vendors?
Donald Brian McKenna: And comes from the line of Don Mckenna of DB Makena and company. Please proceed.
Donald Brian McKenna: Thank you Patricia.
Donald Brian McKenna: The comments that.
Donald Brian McKenna: Future.
Donald Brian McKenna: <unk>.
Donald Brian McKenna: Sales opportunities again are pretty pretty positive.
Donald Brian McKenna: With the exception of last quarter.
Patrizio Vinciarelli: Like, like, it's happening to HPC more and more. So we're open to the opportunity for selective licensing in, among others, the automotive market. And there's been some expression of interest with respect to that. It's predicated on the distinct attributes of our solutions. And I'm referring to solutions involving 400 volts with 100 volts, you know, bus conversion, as well as, you know, other solutions, including the so-called zone architecture, which is, once again, something that LIGO conceived of 10 years ago, with respect to which we have intellectual problems. So we have a number of opportunities in the automotive area, in particular. There are some that are now beginning to develop also related to ACVC.
Donald Brian McKenna: The outlook has always been quite positive and if you go back and read the transcripts, it's obvious that the <unk>.
Donald Brian McKenna: Potential markets that you envisioned in the superior products that you're offering just haven't produced the result, you you would hope for.
Speaker Change #119: I am wondering what you've learned from that.
Speaker Change #119: That failure to capture the potential and what changes you've made in your approach to improve the sales and profitability.
So.
Speaker Change #119: Yes.
Speaker Change #119: In in my calls, we believe we are executing well with a clear vision.
Speaker Change #119: What challenges and opportunities.
Speaker Change #119: <unk>.
Speaker Change #119: There is a big part of the answer to your question the best.
Speaker Change #119: We will do with the vagaries.
Patrizio Vinciarelli: I do expect that over time, some of these opportunities may turn into licensing deals. Okay, great. Thank you. And then, finally, could you, Jim, could you break out the legal expense in the quarter and what you expect over the next two or three as the ITC case wraps up? Like we said in prepared remarks, legal expense was the primary driver of the $4 million incremental legal fix.
Speaker Change #119: What has been going on.
Speaker Change #119: Certain leading Oems.
Speaker Change #119: We're therefore, you already has taken them in terms of product development.
Speaker Change #119: And to keep it very high in general level, I would say that from our visibility.
Speaker Change #119: Our unique perspective with respect to the evolution of power system requirements.
Some of the choices to be made.
James F. Schmidt: I would stop short of trying to predict the future on that, John, and I might let Patrizio comment as well because he's obviously been very close to all of this. Yeah, so to Jim's point, in the last quarter, there was a significant step up, primarily relating to your preparations for the economics trial next week. We are not in a position to forecast the evolution of legal expenses, you know. They could keep rising, they could level off, or they could come down, depending on a variety of scenarios. So... I think if you wanted to pick one among those three scenarios, keeping it pretty much level would probably be the middle-of-the-road alternative, but it could step up again because of additional actions we might take.
Speaker Change #119: With certain Oems.
Speaker Change #119: We're going to get those Oems into a real bind.
Speaker Change #119: Both in terms so the performance of their platforms and more importantly, the competitive standing relative to other companies are fighting to capture market share and they see the opportunity of leveraging is would be a policy some technology from <unk>.
Speaker Change #119: I guess I'm not apologetic with respect to how we got to where we are.
Speaker Change #119: We don't control our destiny, Nevertheless, stacked obviously, we make it.
Speaker Change #119: PDL decisions with respect to <unk>.
Speaker Change #119: And how we're going to make the most of the opportunity both in terms of fab <unk>.
Speaker Change #119: <unk> technology, and importantly, our intellectual property.
Speaker Change #119: <unk>.
Speaker Change #120: I will say that.
Speaker Change #120: Say side with how we got to where we are and I think we have tremendous opportunity.
Patrizio Vinciarelli: Understood. Thank you. Thank you. One moment for our next question, please, which comes from the line of Adon McKenna of DB McKenna and Company. Please proceed.
Speaker Change #120: It takes perseverance clarity of vision system, we have all of those.
Speaker Change #120: And we expect to before too long capitalized on the opportunity.
Donald Brian McKenna: Thank you. Patrizio, you know, the comments that on future... sales opportunities are again pretty positive. And with the exception of the last quarter, the outlook has always been quite positive.
Speaker Change #121: Yes, I realize it's very difficult for you to try to make any projections on the short term.
Speaker Change #122: Can you give us some kind of a feel for where you would expect revenues as a percentage increase over current.
Speaker Change #122: Let's say three years down the road, what would you be satisfied with.
Speaker Change #122: Hi.
Speaker Change #123: I don't know that.
Patrizio Vinciarelli: And if you go back and read the transcripts, it's obvious that the potential markets that you envisioned and the superior products that you're offering just haven't produced the results you would hope for. And I'm wondering what you've learned from that failure to capture the potential and what changes you've made in your approach to improve sales and profitability. So, as suggested in my quotes, we believe we are executing well with a clear vision of what the challenges and opportunities are.
Speaker Change #123: Ken.
Speaker Change #123: Okay.
Ken: Honestly give you numbers.
Ken: Johnny's protections.
Ken: Without a substantial risk.
Ken: In either direction.
Ken: I think I can say that we do expect to fill our fab.
Ken: As we know the fab has got a $1 billion.
Ken: Worth of capacity and maybe more than that.
Ken: We're going to be able to feel desktop with opportunities relating to.
Patrizio Vinciarelli: And frankly, I think it is a big part of the answer to your question that has to do with the vagaries of what has been going on with certain leading OEMs, where their priorities have taken them in terms of product development. And to keep it at a very high and general level, I would say that from our visibility, our unique perspective with respect to the evolution of power system requirements. Some of the choices that have been made with certain OEMs are going to get those OEMs into a real bind both in terms of the performance of their platforms and, more importantly, their competitive standing relative to other companies that are aspiring to capture market share, and they see the opportunity of leveraging a superior power system technology from Vibe. So, I guess I'm not apologetic with respect to how we got to where we are. We don't control our destiny in every respect.
Ken: <unk> in AI.
Ken: The center type of obligations as well as automotive applications and generally speaking two fields earlier point.
Ken: Our top 100 customers diversified.
Ken: Several markets.
Ken: And would you expect to fill that fab in the next three years.
Speaker Change #124: I do expect that that will happen I don't know if Phil wants to add some color to this.
Phil: No I would just say that thats. The objective is to is to achieve that.
Speaker Change #125: And to do it with the broad based market with our distribution channel on the broad base level, but also the top 100 focus and we're making great progress across the four be used with the top 100.
Speaker Change #125: The new products that we're introducing this year not just the.
Speaker Change #125: The Gen five, but new high power front end.
Speaker Change #125: Products are getting designed into these top 100 customers that we are now focused on so I am confident that we will.
We will fill it in.
Speaker Change #125: I think that.
Speaker Change #125: Some exciting times are ahead of us.
Patrizio Vinciarelli: Obviously, we make decisions with respect to strategy and how we're going to make the most of the opportunity, both in terms of the fab, of 5G technology, and importantly, our intellectual property. And I will say that I'm quite satisfied with how we got to where we are. And I think we have tremendous opportunity. It takes perseverance, clarity of vision, and persistence.
Speaker Change #126: Alright, great. Thanks, guys.
Speaker Change #127: Thank you.
Speaker Change #128: One moment for our next question please.
Speaker Change #128: It comes from the line of Alan Hicks with Ainsley capital. Please proceed.
Alan Hicks: Yes, good afternoon.
Alan Hicks: I think I heard you say, 48% on <unk> and 50% advanced products was that correct.
Alan Hicks: I'm, sorry could you repeat them at a little bit.
Speaker Change #129: The cap here with my argue today.
Patrizio Vinciarelli: We have all those traits, and we expect to, before too long, capitalize on the opportunity. Yeah, and I realize it's very difficult for you to try to make any projections in the short term. Can you give us some kind of a feel for where you would expect revenues as a percentage increase over current levels, let's say three years down the road? What would you be satisfied with? I don't know that I can.
Okay.
Speaker Change #129: As a percentage of revenues advanced products I think are a little over 50% and <unk> was a little over 48% was that.
Correct, that's correct for the for the first quarter.
The mix between advanced products and brick products changed.
Speaker Change #129: Okay. So could we assume that royalties were the other 2%.
Speaker Change #130: I am sorry, the royalty as well.
Speaker Change #130: The differential.
Speaker Change #130: Added up to 98% roughly so the differential would be roughly 2%.
Patrizio Vinciarelli: I can't honestly give you numbers or generalist attachments without substantial risk in either direction. But I think I can say that we do expect to fill our fam. As we know, DevFab has got a billion dollars worth of capacity, and maybe a little more than that. We're going to be able to fill it with opportunities relating to 5G, AI, data center-type applications, as well as automotive applications. And generally speaking, to Phil's earlier point, our top 100 customers in the UC5, and several more. And would you expect to pay that bill in the next three years? I do expect that that will happen. I don't know if Phil wants to add some color to this.
Speaker Change #131: I wouldn't make that assumption I don't know that I can give you a quantitative.
Measure here I know spot.
Speaker Change #131: Hum.
Speaker Change #131: Parsing and maybe Jim can comment on that you can point you to where you can find additional information.
Speaker Change #131: Yes.
James F. Schmidt: Alan the better way to think about it as we said 51, 6% advanced 48, four <unk>, which is 100%.
Ed.
Royalty income.
James F. Schmidt: <unk> is associated with advanced product.
Okay, So but does it last quarter it was $7 million I believe.
James F. Schmidt: Did that grow significantly from from last quarter.
Zero.
Speaker Change #132: Yes, it did grow it stepped up.
Speaker Change #132: Substantially from last quarter.
Speaker Change #132: Okay, and then the factory.
Speaker Change #132: The gross margin is also improving on the factory.
Philip D. Davies: No, I would just say that the objective is to achieve that and to do it with a broad-based market with a distribution channel at the broad-based level, but also the top 100 focus. And we're making great progress across the four BUs with the top 100, and the new products that we're introducing this year, not just the Gen 5, but new high-power front-end products are getting designed into these top 100 customers that we're now focused on. So I'm confident that we'll fill the vat, and I think that some exciting times are ahead. All right, great. Thanks guys.
So.
Speaker Change #133: Sorry go ahead for treatment.
Speaker Change #134: Okay well.
Speaker Change #134: Needless to say.
Capacity utilization in the factory.
Speaker Change #134: He's nishu.
Speaker Change #134: Wasn't issues in the last quarter.
Speaker Change #134: Going to be an issue this quarter.
Speaker Change #134: And.
Speaker Change #134: The fact that the revenues.
Okay, particularly proud revenues.
Speaker Change #134: <unk> stepped down last quarter that being out but with respect to margins.
Speaker Change #134: But.
Speaker Change #134: All of the factors that Jim pointed to in his prepared remarks.
Speaker Change #134: Beyond licensing income these action types.
Speaker Change #134: Changing mix favorable mix.
Speaker Change #134: This contributed to his.
Speaker Change #134: As significant.
Donald Brian McKenna: Thank you. Thank you. One moment for our next question, please, comes from the line of Alan Hicks with Ainslie Capital. Please proceed. Yeah, good afternoon.
Speaker Change #134: Improvement in.
Speaker Change #134: In total our gross margins.
Alan Hicks: I think I heard you say 48% on BBU and 50% on advanced products. Was that correct? I'm sorry, could you repeat that? I'm a little bit handicapped here with my audio today.
Speaker Change #134: The trend line.
Speaker Change #135: We are satisfied with I think we represent in the past is it.
Speaker Change #135: We have a goal to achieve.
Speaker Change #135: Achieve substantially higher margins.
Speaker Change #135: That goal is supported by SaaS <unk> that we're implementing and executing.
Alan Hicks: On the percentage of revenues, advanced products, I think, were a little over 50%, and BBU was a little over 48%. Was that correct? That's correct. For the passport, yeah, the mix between advanced products and big products changed. Okay, so could we assume that royalties were that other 2%? Say their royalties what? The differential added up to 98% roughly, so the differential would be roughly 2%.
Speaker Change #135: With the mix so that further advances with respect to our product capabilities as well as the complementary.
Speaker Change #135: Element of.
Speaker Change #135: Effect.
Speaker Change #135: <unk>.
Speaker Change #135: Some of the value of our IP through selective licensing.
Speaker Change #135: Yeah.
Speaker Change #135: So I think those gross margins were easily the best you've ever had.
Speaker Change #135: It was $53 six.
Percent.
Speaker Change #136: I think gross margins for the quarter, Jim, but correct me, if I'm wrong, but 53 and change right.
Alan Hicks: I wouldn't make that assumption. I don't know that I can give you a quantitative measure here. I know as part of our reporting, and maybe Jim can comment on that, he can point you to where you can find additional information. Yeah, Alan, the better way to think about it is we said 51.6% advance, 48.4% BRIC, which is 100%. And, you know, the realty income is associated with advanced products. OK, so we did it last quarter. It was 7 million, I believe.
James F. Schmidt: Yes, so I can comment on that I'll, let actually so 53 eight towards the results last quarter and that was the highest for sure since I've been at <unk>.
James F. Schmidt: Mhm.
James F. Schmidt: Yes.
Speaker Change #137: Going back over 20 years.
Highest I've ever seen.
Speaker Change #137: Do you expect that to continue to grow the rest of the year based on royalty increases.
Speaker Change #138: Again, we're not going to be making detailed quarterly provision in the year, which so much good afternoon.
Speaker Change #138: <unk>.
I think we're just going to have to.
Speaker Change #138: Once upon us that.
Alan Hicks: Did it grow significantly from last quarter? It did grow and step up. Unknown Speaker....................... Okay, and is the factory, are the gross margins also improving on the factory? Unknown Speaker. Good morning.
Speaker Change #138: Our investment in <unk> for the long term are going to look at these I think one of the analyst asked.
Speaker Change #138: <unk> in the last call.
Speaker Change #138: Any forward being quote unquote the transition year.
At the time.
Speaker Change #138:
Didn't.
Embrace that companies that have shown I think in hindsight.
Unknown Speaker: Sorry. Okay, well, so it needs to be said that capacity utilization in the factory is an issue, was an issue in the last quarter, still going to be an issue this quarter, and the fact that revenues, particularly private revenues, took a step down last quarter. It didn't help with respect to March, but all the factors that James pointed to in his prepared remarks, including beyond licensing income, and reduction in tariffs.
Speaker Change #138: The better way of looking at it this way.
Speaker Change #138: A year of transition which in effect.
Speaker Change #138: A lot of things are going to change.
Speaker Change #138: With respect for the better.
Speaker Change #138: Mhm.
Speaker Change #138: Okay.
Speaker Change #138: Well.
Speaker Change #138: I was at the Nvidia Conference I think.
Speaker Change #138: It was February or last month.
Speaker Change #138: And I stopped by the Delta booths and they should asked about.
Speaker Change #138: The Nbn project.
Speaker Change #138: And they showed it to me and said, we're not infringing because we have a different process.
Speaker Change #138: That's all they said when they kind of setup.
Speaker Change #139: Can you comment on that.
Speaker Change #140: Yeah, the leather BNS come to mind.
Patrizio Vinciarelli: [inaudible] This contributed to a significant improvement in total gross margin. And that's the trend line that we are side-by-side with. I think we represent the past in that we have a goal to achieve substantially higher margins, and that goal is supported by the strategies that we're implementing and executing, with the mix of further advances with respect to our product capabilities, as well as the complementary element of, in effect, monetizing some of the value or IP through selective licensing. So I think those gross margins were easily the best you've ever had. I think it was 53.6%.
Speaker Change #140: The fact is that it.
Speaker Change #140: Is there a copycat product infringes three of our patents.
Speaker Change #140: And.
Speaker Change #140: And thus far.
The proceedings corroborated that.
Speaker Change #140: <unk>, so, let's wait and see what happens so while they expect to be an exclusion order against them.
Speaker Change #141: Okay, and just a quick question on that.
I think in Brazil that the WCS that we had.
Speaker Change #141: Please see DC converter 150000 lots I think is that for charging stations.
Speaker Change #141: Phil could you answer that.
Phil: Yes that was the PSU petruzziello the demo.
Phil: A parallel mbm's in the PSU the $1 50 kilowatt onboard 800 to 400 volt charger.
Phil: Okay.
Phil: Demos.
Speaker Change #142: We added in a case.
James F. Schmidt: I think gross margins for the quarter, Jim, correct me if I'm wrong, 53 and change, right? Yeah, so I can comment on that, Alan, actually. So 53.8 was the result last quarter, and that was the highest, for sure, since I've been advised. Yeah, I've got going back over 20 years, highest I've ever seen.
Speaker Change #142: WCS.
Speaker Change #142: But as the application for charging stations.
No.
And our free cash flow.
Speaker Change #142: Fast charging and.
It's an application where we have.
Speaker Change #142: A major way to vantage as well as a major efficiency advantage so that system comprising.
James F. Schmidt: Do you expect that to continue to grow the rest of the year based on royalty increases? Again, we're not going to be making detailed quarterly predictions in a year in which so much could happen, so I think we're just going to have to. The ones among us that are invested in VIGOR for the long term are going to look at this. I think one of the analysts asked a question on the last call about 2024 being, quote unquote, the transition year. I think at the time... I didn't embrace that characterization,
Speaker Change #142: At the moment five of our molecules and in fact, it will be able to get to the 150 kilowatt capability with the reduce number for.
That system is parts peak efficiency of over 99%.
Speaker Change #142: And it is strong we got power density, meaning it's volume measured in meters and weight measuring kilograms small fraction of any competitive view on it.
Speaker Change #142: So that would go in the car and the charging station.
Speaker Change #142: Now this is a device that certain automakers are going to incorporate.
Speaker Change #142: Within <unk>.
Speaker Change #142: The vehicle to facilitate.
Patrizio Vinciarelli: I think in hindsight, it's probably a better way of looking at it. This is a year of transition in which, in effect, a lot of things are going to change, and we expect for the better. Okay, I was at the NVIDIA conference, I think it was February or last month. And I stopped by the Delta Brews booth, and they showed, I asked about their NBM product. And they showed it to me and said, "We're not infringing because we have a different process. That's all they said, and they kind of shut up. Can you comment on that? Yeah, the letters B and S come to mind.
Speaker Change #142: Our flexible chartering.
Speaker Change #142: Okay.
Speaker Change #142: How far away are you from design wins there.
Speaker Change #142: We have design wins with two smaller automakers.
Speaker Change #142: Okay.
Speaker Change #143: And then one last question you say, you're going to fill the factory to 1 billion.
Speaker Change #143: Three years or whatever so thats in addition to.
Speaker Change #143: Never Oems are also manufacturing on licensing your products.
Speaker Change #144: Feel I'm, having hard time here with miles.
Yes.
Speaker Change #144: <unk> product revenues out of the factory.
Speaker Change #144: Patricia said just over $1 billion out of that new fab and.
Alan Hicks: The fact is that their copycat product infringes three of our patents, and thus far, the proceedings have corroborated that expectation. So let's wait and see, you know, what happens with what I expect to be an exclusion order again. Okay, and just a quick question on that. There was a product, I think it was shown at the WCX, that had a DC-DC converter, 150,000 watts,
Speaker Change #144: OEM licensing active.
Speaker Change #144: Activities, adding to that yes.
Speaker Change #145: Okay. Okay. Thank you very much.
Speaker Change #146: Thank you one moment for our next question. Please.
Speaker Change #146: And it comes from the line of John Dillon with Dnb capital. Please proceed.
John Dillon: Hi, guys. Thanks, a lot for taking my questions I appreciate it.
Unknown Speaker: Is that for charging stations? Is that here? Could you answer that?
John Dillon: Now that your factory is finished and we are seeing processors at 1000 Watson higher coming to the market and also on your.
John Dillon: Fair remarks, I think I heard you say target production dates for HCC.
Philip D. Davies: Yeah, that was the PSU, Patrizio, the demo of the five paralleled MBMs in the PSU, the 150 kilowatt onboard 800 to 400 volt charger. That was on demo, well, we added it to the case, not covered up, but WCAG. Is there an application for the charging station?
When will we start seeing evidence of Gpus from major manufacturing factories using the <unk>.
John Dillon: All solutions.
John Dillon: So I think Patricio talked about John I think that.
John Dillon: As I mentioned in the prepared remarks, we are delivering electrical.
John Dillon: Mechanical thermal models to leading customers right now.
Patrizio Vinciarelli: That's an application for fast charging, and it's an application where we have a major weight advantage as well as a major efficiency advantage. So that system comprises, at the moment, five of our modules. And in fact, we'll be able to get to the 150 kilowatt capability with a reduced number of four. And that system has a peak efficiency of over 99%. And it has, you know, astronomical power density, meaning its volume, measured in liters, and weight, measured in kilograms, are a small fraction of any competitive unit.
John Dillon: We will follow that up.
Q2, with a demo system that there'll be able to checkout hardware test the models against the demo system and then.
John Dillon: We will be sampling in the towards the end of Q3, and we expect production probably towards the second half of 2025.
John Dillon: When we will have vertical power delivery and production.
Speaker Change #147: Is that would you.
Speaker Change #147: There's one notable cast them or build that.
Speaker Change #147: May well be in production.
Speaker Change #147: The very beginning of next year.
Dirk has some or the hardware.
Speaker Change #147: These are due to be delivered.
Speaker Change #147: In the summer months.
Alan Hicks: So that would go both in the car and the charging station. Now, this is a device that certain automakers are going to incorporate within the vehicle in order to facilitate, you know, flexible charging. Okay. How far away are you from Design Wins from there? We have design wins with two smaller automates and one last question. You say you're going to fill the fat tube with one billion and three years or whatever. So that's in addition to whatever OEMs are also manufacturing or licensing your product. Phil, I'm having a hard time here with Mario. Could you respond to that?
Okay.
Speaker Change #148: Excellent and Phil is that the target production days that you were talking about or is that something different.
So that's the target production dates yet.
Phil: Got you and are there current gen four designs in production or about to go into production that will act as a bridge from the Gen five.
Phil: Yes, we have some gen four design wins, but.
Again.
Phil: <unk> you pointed out there have been some market shifts with people changing strategies.
Phil: Supply chain considerations ahead of performance and technology, but.
Phil: Vertical power delivery comes along.
Phil: With the Gen five technology.
Phil: An incredible solution with the current density that we can get to three X over what the competition will be so I think there'll be some really hot reassessment being made as we move forward here with us.
Philip D. Davies: Yes, so our goal is product revenues out of the factory, as Patrizio said, just over a billion dollars from that new fab, and OEM licensing activities adding to that. Okay, thank you very much. Thank you. Thank you. One moment for our next question, please. And it comes from the line of John Dillon with DMV Capital.
Phil: A number of accounts, but we will see that see that happen, but we have some very good interest from the accounts that building really.
Phil: The big investments into AI and developing their own process of chips on the people that you would expect and we have great engagements with them right now so I'm confident gen. Five is going to be all that it can be.
Phil: We're going to be having a very exciting 2025.
John Dillon: Please proceed. Hi guys, thanks a lot for taking my questions. I appreciate it.
Phil: And you're pretty confident then that the product position schedule will stay on schedule.
Philip D. Davies: Bill, now that your factory is finished, and we're seeing processors at 1000 watts and higher coming to the market, and also in your prepared remarks, I think I heard you say target production dates for HPC. When will we start seeing evidence of GPUs from major manufacturing factories using the BiCore POL solutions? So I think Patrizio talked about that, Jon.
Speaker Change #149: I'm personally confident that we show you want to comment on that but.
Yeah.
Speaker Change #150: I'm also confident.
Speaker Change #150: Inc.
Speaker Change #150: We're leveraging.
Speaker Change #150: For the most part processes and equipment.
We have installed and.
Speaker Change #150: <unk>.
Philip D. Davies: I think that, you know, as I mentioned in the prepared remarks, we're delivering electrical, mechanical, and thermal models to leading customers right now. Then we'll follow that up at the end of Q2 with a demo system where they'll be able to check out hardware and test the models against the demo system. And then we'll be sampling towards the end of Q3. And we expect production probably towards the second half of 2025.
From the bad debt.
Speaker Change #150: <unk>.
Speaker Change #150: There are.
Speaker Change #150: Fewer process steps.
Speaker Change #150: Debt.
Speaker Change #150: Are going to be used in order to scale up capacity now to deliver initial units.
Speaker Change #150: Steel.
Speaker Change #150: There are some level of refinement.
Speaker Change #150: But generally speaking the <unk>.
Speaker Change #150: <unk> using place.
Speaker Change #150: And we have some.
Speaker Change #150: <unk> with the capacity to build a very very large quantities of panels.
Speaker Change #150: And system solutions for customers.
Philip D. Davies: That's when we'll have vertical power delivery in production. Is that what you were referring to when you were talking about... So, there's one notable customer, though, that may well be in production come the very beginning of next year. And for that customer, the hardware is due to be delivered in the summer months.
Speaker Change #151: So you guys have working alpha or beta.
Speaker Change #151: Product right now.
Speaker Change #151: So we have a lead customer that we're going to be delivering a functional systems.
We started some.
Speaker Change #151: Initial partial delivery, but we're going to be delivering complete <unk> in late June July timeframe.
Philip D. Davies: Excellent. And Phil, are those the target production dates that you're talking about? Or is that something different?
Speaker Change #152: Excellent so the lease obligation.
Philip D. Davies: No, those are the target production dates. Yeah. Gotcha. And are there current Gen 4 designs in production that are about to go into production that will act as a bridge to the Gen 5? Yeah, we have some Gen 4 design wins.
Speaker Change #152: To be followed by others.
Speaker Change #152: We get into the other parts of the year.
Speaker Change #153: Excellent I'll get back in the queue. Thank you very much. Thank you.
Speaker Change #154: Thank you one moment for our next question. Please.
Philip D. Davies: But, you know, again, as Patrizio pointed out, there have been some market shifts with people changing strategies with Supply Chain Considerations ahead of performance and technology, but vertical power delivery comes along. We have, with the Gen 5 technology, an incredible solution with the current density that we can get to, 3x over what the competition will be at. So I think there will be some really hard reassessments being made as we move forward here on a number of accounts, but we'll see that happen.
Speaker Change #154: And it comes from the line of Quinn Bolton with Needham <unk> Company. Please proceed.
Nathaniel Quinn Bolton: Hey, Jim just a question on the royalty how it works.
Nathaniel Quinn Bolton: The royalty revenue recognized in the first quarter is that for shipments of your licensee that took place.
Nathaniel Quinn Bolton: Order in a rear so effectively shipments in the fourth calendar quarter of last year or is it is it sort of.
Nathaniel Quinn Bolton: For shipments that took place in <unk> of 24.
Nathaniel Quinn Bolton: It's.
Nathaniel Quinn Bolton: It's real time.
Nathaniel Quinn Bolton: It's based on.
Philip D. Davies: We have some very good interest from the accounts that are building, you know, really big investments into AI and developing their own processor chips, and they're the people that you would expect, and we have great engagements with them right now. So I'm confident Gen 5 is going to be all that it can be, and we're going to have a very exciting 2025. And you're pretty confident then that the productization schedule will stay on schedule? I'm personally confident. Patrizio, do you want to comment on that? But I certainly am.
Nathaniel Quinn Bolton: Shipments that basically they take receipt, so but it's not in arrears.
In the quarter.
Speaker Change #155: Okay, perfect and then.
Speaker Change #156: Just sort of following up on John's question around that.
Speaker Change #156: Gen five deliveries.
Speaker Change #157: The lead customer is for Gen. Five I assume that that's a data center or sort of AI or HBC application, but just wondering if you could give us in broad strokes, what sort of the application is for that first gen five customer.
Speaker Change #157: It's within the confines you just divide but at this point in time.
Patrizio Vinciarelli: I'm also confident. I think you were leveraging, for the most part, processes and equipment that we have installed and have fully vetted. There are a few process steps that are going to be used in order to scale up capacity, not to deliver initial units, that are still under some level of refinement. But, generally speaking, the capability is in place, and we have a fab with the capacity to build very, very large quantities of panels and see some solutions for cancer.
Speaker Change #158: We really don't want be specific when I give this customer.
Speaker Change #158: The full advantage of being first.
Speaker Change #158: An element of surprise, but.
Speaker Change #158: Within the general.
Speaker Change #158: That you identified.
Speaker Change #159: Got it got it okay. Thank you.
Speaker Change #160: Thank you one moment for our next question. Please.
Speaker Change #160: And it comes from the line of Richard Shannon.
Richard Cutts Shannon: Craig Hallum. Please proceed.
Richard Cutts Shannon: Hi, guys. Thanks for taking my follow on question here.
Richard Cutts Shannon: I guess, Phil following on your prepared remarks here.
Patrizio Vinciarelli: So you guys have a working alpha or beta product right now? So we have a lead customer that we're going to be delivering a functional system. We started some initial partial delivery, but we're going to be delivering complete systems in late June or July time.
Richard Cutts Shannon: It probably had as much focus outside of HBC has occurred and some time here.
Richard Cutts Shannon: I've alluded to this at your shareholders' meeting last year as well, but in that context can you give us the.
Richard Cutts Shannon: Some sort of understanding of the split of your advanced product revenues between HBC.
And other applications and then also if you might just give us a flavor of how much of that advanced products segment is also point of load versus bridging and other kinds of <unk>.
Philip D. Davies: So the lead application will be followed by others as we get into the second part of the year. Excellent. I'll get back in the queue.
Richard Cutts Shannon: Analogy.
Richard Cutts Shannon: Scale.
Richard Cutts Shannon: So can you hear me.
Speaker Change #161: Yes, yes.
Speaker Change #162: Yes, so today the advanced product revenues.
John Dillon: Thank you very much. Thank you. Thank you. One moment for our next question, please. Any calls from the line of Quinn Bolton with Needham and Company, please proceed. Hey, Jim, just a question on royalty, how it works.
Speaker Change #162: Thanks.
Speaker Change #162: The advanced products revenue was last quarter was 51, 6%.
Speaker Change #162: 52% of the total company.
Nathaniel Quinn Bolton: The royalty revenue you recognized in the first quarter, is that for shipments by your licensee that took place a quarter in the rear, so effectively shipments in the fourth calendar quarter of last year? Or is it, is it sort of for shipments that took place in one queue of 24? It's. It's real-time.
Speaker Change #163: That was well done.
A number of in Brazil.
Speaker Change #163: HCC.
Speaker Change #163: Quite a bit of it's now growing in industrial.
Speaker Change #163: Great.
Speaker Change #163: And I think that.
Speaker Change #163: Based on automotive.
Speaker Change #163: Okay.
Speaker Change #163: Let's face it.
Speaker Change #163: That's.
Speaker Change #163: Great.
Speaker Change #163: A few.
Speaker Change #163: New.
Speaker Change #163: Got it.
James F. Schmidt: It's based on... uh... shipments that basically they take receipt of, so it's not in arrears, it's in the quarter. Okay, perfect. And then just sort of following up on John's question on the Gen 5 deliveries, the lead customer is the offer for Gen 5, I assume that that's a data center or sort of AI or HPC application. But just wondering if you could, in broad strokes, give us what sort of application is for that first Gen 5 customer? It's within the confines you just defined, but at this point in time, we really don't want to be specific.
Speaker Change #163: And aerospace applications.
Speaker Change #163: Like the space satellite location that we've been talking about we're getting more design wins there. So it's really spread amongst those three business units excluding automotive Richard.
Richard Cutts Shannon: Okay. That's helpful.
Speaker Change #164: I would add to that.
The strategy that <unk> outlined.
Richard Cutts Shannon: With the cash.
Richard Cutts Shannon: Among different end markets with different trace and different sets of opportunities.
Richard Cutts Shannon: That's fully supported by.
Richard Cutts Shannon: A product strategy that Leverages commonality.
Richard Cutts Shannon: Power conversion and James to control systems packaging technology.
Richard Cutts Shannon: So we have both to.
Patrizio Vinciarelli: We want to give this customer the full advantage of being first and having a lot of mental surprise. But it's within the general field that you identify. Got it. Got it.
Address market needs.
Richard Cutts Shannon: In markets and markets that may appear to be some of these like test equipment on the one hand.
Richard Cutts Shannon: Hi comps point of load the bpd to obligations.
Richard Cutts Shannon: <unk>.
Richard Cutts Shannon: Modules in particular, a fight Jim type modules the essentially the same.
Nathaniel Quinn Bolton: Okay. Thank you. Thank you. One moment for our next question, please, and he comes from the line of Richard Shannon of Craig Highland.
And that sets us apart.
Richard Cutts Shannon: In other way relative to.
Richard Cutts Shannon: Please proceed. Hi guys, thanks for taking my follow-on question here. I guess, Phil, following on from your prepared remarks here, which probably have had as much focus outside of HPC as we've heard in some time here, and you kind of alluded to this at your shareholders meeting last year as well, but in that context, give us some sort of understanding of a split of your advanced product revenues between HPC and other applications.
Richard Cutts Shannon: <unk>.
The competition so to speak.
Speaker Change #165: Okay. Thanks for all that detail on quick follow on question corporate retail.
Speaker Change #165: You talked about.
Speaker Change #165: From the time that we've covered you and frankly, a lot longer about having a distinct advantage in terms of power delivery at very high current so you talked about delivery.
Speaker Change #165: Samples or whatever to customers up to 2000 amps.
Richard Cutts Shannon: And then also, if you might just give us a flavor of how much of that advanced product segment is also point of load versus bridging and other kinds of functionality. So today, yeah, so, can you hear me?
I'm wondering if you could characterize the competitive dynamics here in the future with <unk> and.
Speaker Change #165: In the terms of above what.
Speaker Change #165: Do you think youre going to be the only credible solution out there is that at a 1000 answer a lot of that or does that just any characterization. So we can think about this as we see the next generation of accelerated kind of the market.
Philip D. Davies: Yeah. Yeah, so today the Advanced Product Revenues are, The advanced product revenue last quarter was 51.6%, about 52% of the total company. Yeah, and the bulk of that was, well, a lot of it was into UTC.
Speaker Change #165: So we've enabled.
Speaker Change #165: Systems.
Speaker Change #165: They are already app, but to a few tens of thousands of amperes on a wafer.
Speaker Change #166: I would say.
Speaker Change #166: The most.
A bounce.
Philip D. Davies: There's quite a bit of it now going into the adjusted. And I think that in the early days in the automotive industry, we didn't even know, so we just left it at that. But aerospace and defense, that's growing quite rapidly with the new electronic warfare and defense and aerospace applications. You know, like the space satellite application that we've been talking about.
Speaker Change #166: Solution in terms of policy think of ability.
Speaker Change #166: And.
Speaker Change #167: From what I can tell.
Speaker Change #167: Compute capability.
In the market.
Speaker Change #167: So that's obviously cutting edge and.
Speaker Change #167: Kind of both.
Speaker Change #167: The more common than when you have those type of free cash flows, which as Phil suggested earlier.
Philip D. Davies: We're getting more design wins there, so it's really spread amongst those three business units, excluding automotive, Richard. Okay, yeah, that's helpful. I would add to that the strategies that feel aligned with better diversification among different time markets with different trades and different types of opportunities.
Speaker Change #167: Our trending app, but to the past in 2000 app level. So we're involved in.
Speaker Change #167: One important development.
Speaker Change #167: Good.
Speaker Change #167: A major OEM.
Speaker Change #167: The 2000 amp level.
Speaker Change #167: At that level for let me say you need bpd and you need.
A in adapt.
Speaker Change #167: Formal bpd, such as what we call second Gen. <unk>, Yes, you could try to do it with.
Patrizio Vinciarelli: That's fully supported by a product strategy that leverages the commonality of Park Conversion Engines, Control Systems, and Packaging Technology. So we are able to, in effect, address market needs in markets and markets that may appear to be some of these like test equipment on the one hand and high current points of load for the VP data applications, you know, with modules, in particular 5G-type modules that are essentially the same. And that sets us apart in another way relative to, you know, the competition, so to speak.
Speaker Change #167: <unk> bin.
Speaker Change #167: Colby.
A high degree.
Speaker Change #167: By competitors, but.
Speaker Change #167: Would you be stack with ease.
Speaker Change #167: His system a power system that these.
Speaker Change #167: Involves modules very heavy.
Speaker Change #167: Jake.
Speaker Change #167: Terminally inapt difficult to call.
Speaker Change #167: With very poor yields.
Speaker Change #167: Family and reliability issues.
Speaker Change #167: Not to mention the IP issues alluded to earlier.
Speaker Change #167: We see the market.
NII, but CEO.
Speaker Change #167: Quickly getting passed 1000 amp level and calamity wood.
Speaker Change #167: <unk> only solutions.
Richard Cutts Shannon: Okay, thanks for all that detail and a quick follow-on question for Patrizio. You talked about, you know, consistently from the time that we've covered you and, frankly, a lot longer about having a distinct advantage in terms of power delivery at very high currents. You talked about delivering samples or whatever to customers up to 2000 amps. I wonder if we can characterize the competitive dynamics here in the future with 5G, in terms of above, what do you think you're going to be the only credible solution up there, is that at a thousand amps or below that or above that, just any characterization so we can think about this as we see the next generation of accelerators on the market.
Speaker Change #167: Zero.
Speaker Change #168: <unk> out.
Speaker Change #168: Even lateral verse detail, while achieving significant benefits relative to allow that.
Speaker Change #168: Not as good as.
Speaker Change #168: But our scale.
Speaker Change #168: So let me tell you what's going to be needed is a more advanced version of bpd.
Speaker Change #168: Jim.
Speaker Change #168: Being about to the stacking challenges back up that is post transaction bvd is like a pioneer of them patented.
Speaker Change #169: Okay, great. Thank you guys.
Speaker Change #170: Thank you one moment for our next question. Please.
Richard Cutts Shannon: So we've enabled systems that are ready for up to a few tens of thousands of amperes on a wave. I would say that it is the most advanced solution in terms of power system capability and, from what I can tell, compute capability in the market. So that's obviously cutting edge and far above the more common denominator type applications, which, as Phil suggested earlier, are trending up to the 2,000 app level. So we're involved in one important development with a major OEM at the 2,000 app level. At that level, fundamentally, you need VPD, and you need an advanced form of VPD, such as what we call second-gen VPD. Yes, you could try to do it with them.
Speaker Change #170: Our last question comes from Jon <unk> with CJS Securities. Please proceed.
Jon: Hi, Thanks for taking one more from me.
Jon: I was wondering if you could update us just on the uptake of automotive and when do you expect to start shipping in volume.
Jon: Alex I think you've said for a number of years now that you expected 25%.
Jon: To be the year that automotive really start shipping and making a difference I'm wondering if that remains on track and if that is going to be a good source of growth.
Before your <unk> products start shipping in the second half of 2005.
Jon: Hi, John This is Phil so so now the timing for automotive.
Phil: Really 'twenty six 'twenty seven from reasonable revenue ramps beginning.
Phil: There may be opportunities in Asia Pacific conversations that we filed in the last six months that could pull.
Phil: Pull that in but those are yet to develop so it's too early to talk about those yet but this is really a 'twenty six 'twenty seven storey four for automotive, although we will begin as I mentioned, I think last quarter or even in my remarks the quarter before.
Phil: Production early production at the end of this year.
Phil: For high performance applications.
Patrizio Vinciarelli: The third-gen VPD has been copied to a high degree by competitors, but what you'd be stuck with is a system, a power system that involves modules that are very heavy, very thick, terminally inept, difficult to call, with very poor yields in assembly and reliability issues. Not to mention the IP issues alluded to earlier. So we see the market, in AI in particular, quickly getting past the 1,000 app level and fundamentally left with VPD-only solutions. Lateral is out.
Phil: Applications.
Phil: I think that that's sort of the timeframe that we're on with with automotive.
Phil: Okay got it if you were to characterize what could be a bridge market between then and now which one will be the most likely to drive.
Phil: Some sort of upside.
Phil: <unk> automotive or some of these other applications you are talking about.
Speaker Change #171: Yes, HBC is definitely number one.
Speaker Change #171: I think that we are again as I mentioned seeing very good design ins and wins in industrial defense and aerospace so theres going to be some really good growth at good margins coming from those markets, but HBC in Gen five.
Speaker Change #171: Just completely dominate that.
Speaker Change #172: Got it thank you guys.
Speaker Change #173: Thank you I'm not showing any further questions in the queue. Thank you.
Patrizio Vinciarelli: Even lateral-vertical, while achieving significant benefits to the market, is not as good as vertical. And fundamentally, what's going to be needed is a more advanced version of VPD that doesn't bring about the stacking challenges that characterize first-generation BBDs by both pioneers and parents. Okay, great. Thank you, guys. Thank you. One moment for our next question, please. All right, our last question comes from Jon Tanwanteng with CJS Securities. Please proceed. Thanks for taking one more for me.
Okay. Thank you operator, and thank you everyone for joining.
Speaker Change #174: And with that everybody. We appreciate your participation and you may now disconnect.
Jonathan E. Tanwanteng: I was wondering if you could update us just on the uptake of automotive and when you expect to start shipping those products in volume. I think you've said for a number of years now that 25 is the year that automotive really starts shipping and making a difference. I'm wondering if that remains on track and if that's going to be a good source of growth, even before your VPD products start shipping in the second half. Hi John, this is Phil.
Philip D. Davies: So now the timing for automotive is really 26-27 from when reasonable revenue ramps up. There may be opportunities in Asia Pacific, conversations that we've had in the last six months that could pull that in, but those are yet to develop, so it's too early to talk about those yet. But this is really a 26-27 story for the automotive industry, although we will begin, as I mentioned last quarter or even in my remarks the quarter before, production, early production at the end of this year for high-performance applications.
Philip D. Davies: So I think that that's sort of the time frame that we're on with automotive. Okay, got it. If you were to characterize, you know, what could be a bridge market between then and now, which one would be the most likely to drive, you know, some sort of upside, whether it be HPC or automotive or some of these other applications you're talking about?
Philip D. Davies: Yeah, HPC is definitely number one. And I think that, as I mentioned, we are again seeing very good design ins and wins in industrial defense and aerospace. So there's going to be some really good growth at good margins coming from those markets, but HPC and Gen five could just completely dominate that.
Jonathan E. Tanwanteng: Got it. Thank you guys. Thank you. I'm not showing any further questions in the queue. Thank you. Okay, thank you, operator. And thank you, everyone, for joining. And with that, everybody, we appreciate your participation, and you may now disconnect.