Q2 2024 Vicor Corp Earnings Call

July 23, 2024

Bye.

Operator: by and welcome to Vicor's second quarter 2024 earnings conference call. At this time, all participants are in a listen-only mode.

Speaker Change: Thank you for standing by and welcome to Vicor's second quarter 2024 earnings conference call.

Operator: After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you will need to press star 1-1. To remove yourself from the queue, you may press star 1-1 again.

Speaker Change: At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session.

Speaker Change: To ask a question during the session, you will need to press star 11. To remove yourself from the queue, you may press star 11 again. I would now like to hand the call over to Jim Schmidt, Chief Financial Officer. Please go ahead.

Operator: I would now like to hand the call over to Jim Schmidt, Chief Financial Officer. Please, go ahead. Thank you. Good afternoon, and welcome to Vicor Corporation's earnings call for the second quarter ended June 30, 2024. I'm Jim Schmidt, Chief Financial Officer, and I am in Andover with Patrizio Vinciarelli, Chief Executive Officer. Phil Davies, Corporate Vice President, Global Sales and Marketing, is joining us remotely.

James F. Schmidt: After the markets closed today, we issued a press release summarizing our financial results for the three and six months ended June 30th. 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 that 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: Thank you.

James F. Schmidt: Good afternoon and welcome to Vicor Corporation's earnings call for the second quarter ended June 30, 2024. I'm Jim Schmidt, Chief Financial Officer, and I am in Andover with Patrizio Vinciarelli, Chief Executive Officer.

Speaker Change: Bill Davies, Corporate Vice President, Global Sales and Marketing, is joining remotely.

Speaker Change: After the markets closed today, we issued a press release summarizing our financial results for the three and six months ended June 30th.

Speaker Change: 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.

Speaker Change: I remind listeners this conference call is being recorded and is the copyrighted property of Vicor Corporation.

Speaker Change: I also remind you various remarks we make during this call may constitute forward-looking statements for purposes of the safe harbor provisions under the Private Securities Litigation Reform Act of 1995.

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.

Speaker Change: Except for historical information contained in this call, the matters discussed on this call, including any statements regarding current and planned products.

Speaker Change: Current and Potential Customers, Potential Market Opportunities, Expected Events and Announcements, and our Capacity Expansion, as well as Management's Expectations for Sales Growth, Spending, and Profitability, our Forward-Looking Statements involving Risk and Uncertainties.

Speaker Change: In light of these risks and uncertainties, we can offer no assurance that any forward-looking statement will, in fact, prove to be correct.

Speaker Change: Actual results may differ materially from those explicitly set forth in or implied by any of our remarks today.

James F. Schmidt: The risks 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, July 23, 2024. Vicor undertakes no obligation to update any statements, including forward-looking statements made during this call, and you should not rely upon such statements after the conclusion of this call. A webcast replay of today's call will be available shortly on the Investor Relations page of our website.

Speaker Change: The risks 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.

Speaker Change: Please note the information provided during this conference call is accurate only as of today, Tuesday, July 23, 2024.

Speaker Change: 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.

Speaker Change: 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 Q2 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 changes for P&L and balance sheet items and refer you to our press release or our upcoming Form 10-Q for additional information. As stated in today's press release, Vicor recorded total revenue for the second quarter of $85.9 million, up 2.4% sequentially from the first quarter of 2024 total of $83.9 million, and down 19.6% from the second quarter of 2023 total of $106.7 million. Advanced product revenue increased 7.1% sequentially to 46.4 million, while BRIC product revenue decreased 2.7% sequentially to 39.5 million. Shipments to stocking distributors decreased 5.2% sequentially and increased 33.1% year-over-year.

Speaker Change: I'll now turn to a review of our Q2 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 changes for P&L and balance sheet items.

Speaker Change: and refer you to our press release or our upcoming Form 10-Q for additional information.

Speaker Change: As stated in today's press release, Vicor recorded total revenue for the second quarter of $85.9 million, up 2.4% sequentially from the first quarter of 2024, total of $83.9 million.

Speaker Change: and down 19.6% from the second quarter of 2023, total of $106.7 million.

Speaker Change: Advanced product revenue increased 7.1% sequentially to $46.4 million. While product revenue decreased 2.7% sequentially to $39.5 million.

Speaker Change: Shipments to stocking distributors decreased 5.2% sequentially and increased 33.1% year-over-year.

James F. Schmidt: Exports for the second quarter increased sequentially as a percentage of total revenue to approximately 43.3 percent from the prior quarter's 42.6 percent. For Q2, the advanced product share of total revenue increased to 54 percent, compared to 51.6% for the first quarter of 2024, with BRIC products share correspondingly decreasing to 46% of total revenue. Turning to Q2 Gross Margin, we recorded a consolidated gross profit margin of 49.8%, which is a 400 basis point decrease from the prior quarter, primarily due to a change in product metrics. Additionally, during the quarter, we recovered approximately $662,000 in duty drawback of previously paid tariffs. Tariff expense net of duty drawback was approximately zero in Q2.

Speaker Change: Exports for the second quarter increased sequentially as a percentage of total revenue to approximately 43.3 percent from the prior quarter's 42.6 percent.

Speaker Change: For Q2, advanced product share of total revenue increased to 54%, compared to 51.6% for the first quarter of 2024, with BRIC product share correspondingly decreasing to 46% of total revenue.

Speaker Change: Turning to Q2 gross margin, we recorded a consolidated gross profit margin of 49.8 percent, which is a 400 basis point decrease from the prior quarter, primarily due to a change in product mix.

Speaker Change: During the quarter, we recovered approximately $662,000 in duty drawback of previously paid tariffs. Tariff expense net of duty drawback was approximately zero in Q2.

James F. Schmidt: I'll now turn to Q2 operating expenses. Total operating expenses decreased 30.5% sequentially from the first quarter of 2024 to $42.6 million. The sequential decrease was primarily due to a reduction in legal fees and expenses.

Speaker Change: I'll now turn to Q2 Operating Expenses.

Speaker Change: Total operating expense decreased 30.5% sequentially from the first quarter of 2024.

Speaker Change: to $42.6 million.

Speaker Change: The sequential decrease was primarily due to a reduction in legal fees and expenses. The amounts of total equity-based compensation expense for Q2 included in cost of goods, SG&A, and R&D was $744,000.

James F. Schmidt: The amounts of total equity-based compensation expense for Q2 included in cost of goods, SG&A, and R&D were $744,000, $1,757,000, and $930,000, respectively, totaling approximately $3.4 million. Turning to income taxes, we recorded a tax provision for Q2 of approximately $4.2 million. The company's tax expense and the rate for the quarter were impacted by the capitalization of R&D expenses under Section 174, as well as the full valuation allowance we carry against deferred tax assets. The net loss for Q2 totaled $1.2 million. Gap's diluted loss per share was $0.03 based on a fully diluted share count of 44,855,000 shares.

Speaker Change: $1,757,000 and $930,000 respectively, totaling approximately $3.4 million.

Speaker Change: Turning to income taxes, we recorded a tax provision for Q2 of approximately $4.2 million.

Speaker Change: The company's tax expense and the rate for the quarter has been impacted by the capitalization of R&D expenses under Section 174, as well as the full valuation allowance we carry against deferred tax assets.

Speaker Change: Net loss for Q2 totaled $1.2 million. Gap diluted loss per share was $0.03, based on a fully diluted share count of 44,855,000 shares. Turning to our cash flow and balance sheet,

James F. Schmidt: Turning to our cash flow and balance, Cash and Cash Equivalents totaled $251.9 million in Q2. Accounts Receivable Net of Reserves totaled $54.9 million at quarter end, with DSOs for trade receivables at 45 days. Inventory's net of reserves decreased 2.9% sequentially to $109.1 million.

Speaker Change: Cash and cash equivalents totaled $251.9 million at Q2, accounts receivable net of reserves totaled $54.9 million at quarter end, with DSOs for trade receivables at 45 days.

Speaker Change: Inventory's net of reserves decreased 2.9% sequentially to $109.1 million. Annualized inventory returns were $1.7 million. Operating cash flow totaled $15.6 million for the quarter.

James F. Schmidt: Annualized inventory terms were $1.7. Operating cash flow totaled $15.6 million for the quarter. Capital expenditures for Q2 totaled $6.1 million.

Speaker Change: Capital expenditures for Q2 totaled $6.1 million.

James F. Schmidt: We ended the quarter with a construction and progress balance, primarily for manufacturing equipment, of approximately $12.6 million, and with approximately $15.8 million remaining to be spent. I'll now address bookings and backlog. Q2 book-to-bill came in above one, and one-year backlog increased 2.3% from the prior quarter, closing up $153.8 million.

Speaker Change: We ended the quarter with a construction and progress balance, primarily for manufacturing equipment of approximately $12.6 million, and with approximately $15.8 million remaining to be spent.

Speaker Change: I'll now address bookings and backlog. Q2 book-to-bill came in above 1, and one-year backlog increased 2.3% from the prior quarter, closing up $153.8 million.

James F. Schmidt: As we said on last quarter's earnings call, 2024 is a year of uncertainty and opportunity. As of today, the quarterly and annual outcome, in terms of top line and bottom line, is subject to a relatively 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.

Speaker Change: As we said on last quarter earnings call, 2024 is a year of uncertainty and opportunity. As of today, the quarterly and annual outcome, in terms of top line and bottom line, is subject to a relatively wide range of scenarios.

Speaker Change: Given the wide range of possible outcomes, we are unable to provide quarterly guidance until we are further along resolving uncertainties and capitalizing on opportunities.

Speaker Change: With that, Phil will provide an overview of recent market developments, and then Patrizio, Phil, and I will take your questions.

James F. Schmidt: 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 possible in the limited time available. If you have more than one topic to address, please get back in the queue. Thank you, Jim.

Speaker Change: 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 possible in the limited time available.

Speaker Change: If you have more than one topic to address, please get back in the queue.

Philip D. Davies: It was good to see our book get above one for the first time in eight quarters, driven by stronger demand in our industrial and aerospace and defense markets and ramping new programs in high-performance computing. As we discussed at our annual shareholders meeting a few weeks ago, our HPC business is in transition to our Gen5 Factor X power technology, whose high current density enables scalable VPD solutions. The AI market is forecast to continue its remarkable growth, providing significant business opportunities for the leading GPU company and all of its aspiring competitors focused on taking a share of the sizable opportunities.

Speaker Change: Phil?

Phil: Thank you, Jim.

Phil: It was good to see our book market get above one for the first time in eight quarters, driven by stronger demand in our industrial and aerospace and defense markets, and ramping new programs in high-performance computing.

Phil: As we discussed at our annual shareholders meeting a few weeks ago, our HPC business is in transition to our Gen5 Factor X power technology, whose high current density enables scalable VPD solutions.

Speaker Change: The AI market is forecast to continue its remarkable growth, providing significant business opportunities for the leading GPU company and all of its aspiring competitors.

Philip D. Davies: We are currently working with customers wishing to capture the value proposition of cutting PDN power loss and gaining a competitive edge by moving to scalable vertical power delivery, VPD, for new higher-power GPUs and network processors, and also with wafer scale and chiplet-based AI processor designs, utilizing advanced packaging technology. Our Gen 5 current multipliers occupy one-third of the footprint and are three times thinner than stacked package multi-phase solutions. Stacked multi-phase VPD solutions are challenged mechanically, thermally, and, last but not least, from the IP perspective.

Speaker Change: focused on taking a share of the sizable opportunity.

Speaker Change: We are currently working with customers wishing to capture the value proposition of cutting PDN power loss and gaining a competitive edge by moving to Scalable Vertical Power Delivery VPD for new higher power GPUs and network processors.

Speaker Change: and also with wafer scale and chiplet based AI processor designs utilizing advanced packaging technologies.

Speaker Change: Our Gen 5 current multipliers occupy one-third of the footprint and are three times thinner than stacked package multiphase solutions.

Speaker Change: Stacked, multi-phase VPD solutions are challenged mechanically, thermally, and last but not least, from the IP perspective.

Philip D. Davies: Preparations for the introduction of our Gen 5 chipset are progressing, and we have powered up our first Gen 5 Customer Evaluation Board. A broad business portfolio is necessary to provide greater stability to our business by focusing on 100 customers globally across 4 main markets and a product development strategy of leveraging technologies and products developed for our HPC and automotive markets for industrial and aerospace and defense customers. We believe that we are well positioned.

Speaker Change: Preparations for the introduction of our Gen 5 chipset are progressing, and we have powered up our first Gen 5 Customer Evaluation Board.

Speaker Change: A broad business portfolio is necessary to provide greater stability to our business.

Speaker Change: by focusing on 100 customers globally across four main markets and a product development strategy of leveraging technologies and products developed for our HPC and automotive markets for the industrial and aerospace and defense customers.

Philip D. Davies: We have also partnered with top distributors globally in supply and logistics support for our broad market business, which further amplifies our capabilities and opportunities. At the ASM, we outlined our goal of doubling revenues in our industrial and aerospace and defense markets.

Speaker Change: We believe that we are well positioned.

Speaker Change: We have also partnered with top distributors globally in supply and logistics support for our broad market business that further amplifies our capabilities and opportunities.

Speaker Change: At the ASM, we outlined our goal of doubling revenues in our industrial and aerospace and defense markets.

Speaker Change: New AC to DC and DC to DC converter power modules.

Philip D. Davies: Utilizing advanced packaging technologies from our new ChipFab and advances in control systems and components, they enable a two to three times higher power density and are being sampled to our top 100 customers in these markets. The movement of automotive OEMs to a 48-volt-based zonal architecture has diversified our opportunity base from the BEV market into mild and plug-in hybrid powertrain applications, and we are seeing an increase in new business opportunities across EMEA, Japan, and Asia Pacific.

Speaker Change: utilizing advanced packaging technologies from our new ChipFab and advances in control systems and components enable a two to three times higher power density and are being sampled to our top 100 customers in these markets.

Speaker Change: The movement of automotive OEMs to a 48-volt based zonal architecture has diversified our opportunity base from the BEV market into mild and plug-in hybrid powertrain applications.

Speaker Change: And we are seeing an increase in new business opportunities across EMEA, Japan, and Asia Pacific.

Philip D. Davies: I am pleased that in Q2, we were awarded an additional program for on-board charging at a leading high-end automotive OEM, which will begin to ramp in 2026. Overall, our automotive pipeline, which currently stands at $1.3 billion, continues to grow, and we are quickly regaining the momentum lost due to the slowdown in new platform development during COVID. Thank you. And with that, we'll now take your questions. Okay, operator.

Speaker Change: I am pleased that in Q2 we were we were rewarded an additional program for an onboard charging at a leading high-end automotive OEM which will begin to ramp in 2026.

Speaker Change: Overall, our automotive pipeline, which currently stands at $1.3 billion, continues to grow. And we are quickly regaining the momentum lost due to the slowdown in new platform development during COVID.

Speaker Change: Thank you. And with that, we'll now take your questions.

Operator: We're ready for questions. Thank you. As a reminder, to ask a question, you will need to press star 11 on your telephone.

Speaker Change: Okay, operator, we're ready for questions. Thank you. As a reminder, to ask a question, you will need to press star 1-1 on your telephone. Please stand by while we compile the Q&A roster.

Operator: Please stand by while we compile the Q&A roster. Our first question comes from the line of Quinn Bolton of Needham & Company. Hey guys, congratulations on the first positive book to bill in several quarters. I guess Patrizio or Phil wanted to ask at the internal shareholder meeting you guys sort of gave a roadmap for the sampling of the Gen 5 technology and wanted just to double check that everything's still on track for first customer samples beginning to ship next month in August. Is that still on track?

Speaker Change: Our first question.

Speaker Change: comes from the line of Quinn Bolton of Needham & Company.

Quinn Bolton: Hey guys, congratulations on the first positive book to bill in several quarters. I guess Patrizio or Phil wanted to ask...

Speaker Change: At the annual shareholder meeting, you guys sort of gave a roadmap for the sampling of the Gen 5 technology and wanted just to double check that everything's still on track for first customer samples beginning to ship next month in August . Is that still on track?

Patrizio Vinciarelli: Demo system display to some select customers towards the end of August. That's what we currently expect. Perfect, perfect.

Speaker Change: Demo system display to some select customers towards the end of August . That's what we currently expect.

Philip D. Davies: And then I guess maybe just, you know, looking at the mix of business, can you give us some sense? I think there may be a misperception, you know, in terms of Vicor's current revenue split between your four targeted end markets. Can you give us a sense of how much of the revenue comes from sort of industrial versus A&D versus HPC versus automotive? I think there's perhaps a misperception out there that you guys are still pretty heavily driven by HPC.

Speaker Change: Perfect, perfect. And then I guess maybe just, you know, looking at the mix of business, can you give us some sense, I think there may be a misperception, you know, in terms of Vicor's current revenue split between your four targeted end markets. Can you give us a sense?

Speaker Change: How much of the revenue comes from sort of industrial versus A&D versus HPC versus automotive? I think there's a perhaps misperception out there that you guys are still pretty heavily driven by HPC. And I think at the annual shareholder meeting,

Philip D. Davies: And I think at the annual shareholder meeting, you were saying that the aerospace and defense and industrial markets might be a much higher percentage of current revenue than investors may expect. And so I just wondered if you could sort of touch on revenue by end market. Field, do you want to take that?

Speaker Change: You were saying that the aerospace and defense and industrial markets might be a much higher percentage of current revenue than investors may expect, and so I was just wondering if you could sort of touch on revenue by end market.

Philip D. Davies: Sure, yes. So I guess with the decline in our Gen 4 HPC business, the industrial and aerospace business, which has been a very good growth rate for us over the past, you know, five to 10 years, actually, it's almost doubled each of those market segments, started to take a bigger share. And so we don't typically break things down, Quinn, as you know.

Field: Field, do you want to take that?

Field: Sure, yeah, so I guess with the, you know, with the decline in our Gen 4 HPC business, the industrial and aerospace business, which has been on a very good growth rate for us.

Speaker Change: over the past, you know, five to 10 years, actually, it's almost doubled each of those market segments, started to take a bigger share.

Philip D. Davies: So I will say that aerospace and defense plus industrial is a larger share of our business today than HPC was going back a year and a half. Perfect. And then maybe a last question on gross margins. It looks like you had a mix shift that accounted for margins being down. Wondering if there's any more color you could give us in terms of that mix shift.

Speaker Change: And so we don't typically break things down, Quinn, as you know, so I will say that aerospace and defense plus industrial is a larger share of our business today than HPC was going back a year and a half.

Quinn Bolton: Perfect. And then just maybe a last question on gross margins. It looks like you had a mix shift that accounted for margins being down. Wondering if there's any more color you could give us in terms of that mix shift.

Speaker Change: And then I know you'll give us the royalty number in the queue when it's filed, but wondering if you might be able to comment just directionally, was the royalty payment received in the June quarter, was that flat up or down from the level in March? Thank you.

Speaker Change: So the...

Speaker Change: The shift in the mix had primarily to do with

Speaker Change: Significant shipments within the past quarter of Legacy, HPC.

Speaker Change: system with relatively low margins. So that brought the margins down somewhat.

Philip D. Davies: And just to add to what Patrizio said there, Quint, I would also say there was an A&D revenue stream in Q1, a higher A&D, high-margin revenue stream in Q1. Relative to royalties, you're right, you'll see it in the Q, but we're putting together, you know, quarters now of sequential increases that are double digits, so it's positive. Perfect. I'll get back to you.

Speaker Change: And just to add to what Patrizio said there, Quint, I would say also there was an A&D revenue stream in Q1, a higher A&D, high margin revenue stream in Q1. Relative to royalties, you're right, you'll see it in the Q.

Speaker Change: But we're putting together, you know, quarters now of sequential increases that are double digits, so it's positive.

Quint: Perfect. I'll get back. Thank you. Thank you.

Operator: Thank you. Thank you. Thank you. Our next question comes from the line of John Tanwanteng of CJS Security. Hi, good afternoon.

Quint: Thank you.

Speaker Change: Our next question comes from the line of John Tanwanteng of CJS Securities.

Jonathan E. Tanwanteng: Thank you for taking my questions and also congrats on the positive book to bill. I was wondering if you could talk a little bit more about the mixed orders you saw in the quarter where you saw the most strength. I think you mentioned several buckets, but I was wondering which was the strongest, which surprised you, and if that included, you know, HPC orders that were, I guess, of the current generation, last generation, I guess, if you could break up more colors, we hope, the field.

Jonathan E. Tanwanteng: Hi, good afternoon. Thank you for taking my questions and also congrats on the positive book to bill. I was wondering if you could talk a little bit more about the mixed orders you saw in the quarter where you saw the most strength.

Speaker Change: I think you mentioned several buckets, but I was wondering which was the strongest, which surprised you, and if that included, you know, HPC orders that were, I guess, of the current generation, last generation, I guess, if you could break up more color, it would be helpful.

Philip D. Davies: You all take that. Sure. So no real surprises, John. I would say we've seen the industrial market in recent years growing nicely. Aerospace and defense is a great business for us, particularly in North America and Europe. We've got some wonderful customers, long-term customers for over 30 plus years who continue to grow themselves and award Vicor new business as we've moved along. So I wouldn't say anything surprising in the quarter other than, you know, continued strength in industrial, aerospace, and defense, which we are planning on.

Speaker Change: Phil, you are back there.

Phil: Sure, so no real surprises, John . I would say we've seen the industrial market in recent years growing nicely. Aerospace and defense is a great business for us.

Speaker Change: Particularly with North America and Europe , we've got some wonderful

Phil: Customers, long-term customers over 30 plus years.

Speaker Change: who continue to grow themselves and award Vicor new business as we've moved along. So I wouldn't say anything surprising in the quarter other than, you know, continued strength in industrial and aerospace and defense, which we are planning on.

Philip D. Davies: As I said in my remarks, doubling over the next five to seven years once again. Okay, great. And then can you talk about the margins that you're seeing going forward, just given the rising concentration, I guess, of this industrial and aerospace? Is it going to be another headwind on mixed earnings just compared to what you've seen in the past? Or should there be a reversion?

Speaker Change: As I said in my remarks, doubling over the next, you know, five to seven years once again.

Speaker Change: Okay, great. And then can you talk about the margins that you're seeing going forward just given the rising concentration, I guess, of this industrial and aerospace? Is it going to be another headwind on mix just compared to what you've seen in the past, or should there be a reversion?

Philip D. Davies: You know, John, I think I would just go back to the prepared remarks and say that we're just not going to offer guidance at this point, given, you know, the range of outcomes that we could experience over the coming quarters for a variety of reasons, some of which are going to be fairly sizable and significant, potentially, so we just don't provide that guidance right now. Okay, fair enough. I'll jump back in the queue.

Speaker Change: You know, John , I think I would just go back to the prepared remarks and say that we're just not going to offer guidance at this point given, you know, the range of outcomes that we could experience over the coming quarters for a variety of reasons, some of which are going to be

Speaker Change: You know, fairly sizable and significant potentially, so we just don't provide that guidance right now.

Operator: Thank you. Thank you. Thank you.

Speaker Change: Okay, fair enough. I'll jump back in queue. Thank you.

Richard Cutts Shannon: Our next question comes from the line of Richard Shannon of Craig Harlem Capital Group. Well, thanks, guys, for taking my questions. Maybe I'll follow up on a prior question here. Patrizio, when you talked about delivery of I think it was demo systems or samples kind of late in August, what do you think about the timeframe by which customers make decisions? And is there going to be any difficulty in timeframes hitting their market timing windows in order to do that?

Speaker Change: Thank you.

Speaker Change: Our next question comes from the line of Richard Shannon of Craig Harlem Capital Group.

Richard Cutts Shannon: Well, thanks guys for taking my questions. Maybe I'll follow up on a prior question here. Patrizio, when you talked about delivery of I think it was demo systems or samples kind of late in August .

Speaker Change: What do you think about the time frame by which customers make decisions and is there going to be any difficulty in time frames hitting their market timing windows in order to do that?

Patrizio Vinciarelli: So the development is primarily driven by where we see the application landing over the next few years. As you know, at any one point in time, with different customers, so potential customers, there are opportunities that, in some cases, may not line up perfectly with our...

Patrizio: So the development is primarily driven by where we see the applications.

Speaker Change: landing over the next few years. As you know, at any one point in time,

Speaker Change: with different customers or potential customers.

Speaker Change: There are opportunities that, in some cases, may not line up perfectly with our

Patrizio Vinciarelli: Capabilities. I mean, certainly within the last couple of years, given how things evolved with respect to The Market Opportunity for Early Generation-Based Solutions Involving Lateral and Vertical, We did not have... in alignment that we might have had under different scenarios. But getting back to upcoming opportunities and, you know, how we're going to be able to address them with our 5G chipset, given the much higher current density, much higher power density, both in terms of footprint, thickness, and ability to provide scalable VPD solutions that are cost effective, inherently robust, and thermally adapted.

Speaker Change: Capabilities, I mean certainly within

Speaker Change: The last couple of years, given how things evolved with respect to

Speaker Change: The market opportunity for early generation-based solutions involving lateral or lateral vertical, we did not have.

Speaker Change: in alignment that we might have had under different scenarios, but getting back to upcoming opportunities and

Speaker Change: You know how we're going to be able to address them with our 5G chipset

Speaker Change: given the much higher crowd density.

Speaker Change: Much higher power density.

Speaker Change: both in terms of footprint, thickness, ability to provide scalable VPD solutions that are cost effective, inherently robust.

Patrizio Vinciarelli: We think we have a unique capability that is very well aligned with the developing Macanese. Now, different customers all have different agendas when it comes to this, and some that have been in the forefront, all might, given the challenges presented by conventional or earlier generation, I would say, VPD solutions, might choose to wait for that technology to mature.

Speaker Change: We think we have a unique ability that is very well aligned with developing market needs. Now different customers

Speaker Change: All have different agendas when it comes to this and and some

Speaker Change: that have been in the forefront, it might...

Speaker Change: given the challenges presented by conventional or earlier generation, I would say, VPD solutions.

Speaker Change: may choose to wait for that technology to mature. We think with the VPD capability that 5G chipset enables,

Patrizio Vinciarelli: We think with the VPD capability that 5G chipset enables, we're going to be providing those customers that are aligned with us a significant competitive advantage. Okay, thanks for those thoughts, Petruchio.

Speaker Change: We're going to be providing those customers that are aligned with us a significant competitive advantage.

Petruchio: Okay, thanks for those thoughts, Petruchio.

Richard Cutts Shannon: Let me follow up with a question that might overlap this topic somewhat here, but when you're talking with customers about your 5G products. And as you've talked about in the last generation, you saw a change in mindset from customers moving from performance-oriented solutions to one that prioritizes supply chain certainty. To what degree are you seeing the tone and tenor of those conversations changing here, particularly as you bring your 5G solutions to them? mature or have enough volume there?

Speaker Change: Let me follow up with a question that might overlap this topic somewhat here, but as you're talking with customers about your 5G products.

Speaker Change: And as you've talked about in the last generation here, you saw a change in mindset from customers moving from performance oriented solutions to one that prioritizes supply chain certainty here.

Speaker Change: To what degree are you seeing the tone and tenor of those conversations changing here, particularly as you bring your 5G solutions to them? Are they changing? Are they contingent on other...

Speaker Change: Actions like what you have going on in the legal realm or waiting on manufacturing to

Patrizio Vinciarelli: What are the kind of things that build into the change in approach from the last generation to what you hope will be a performance-oriented one going forward? So to your point, the priorities as of..., a few years ago, for leading customers in AI switched between the two. Scalability in Supply Chain, Multisourcing, Commoditization, with respect to that particular case, but we don't see a change taking place in the near term.

Speaker Change: mature or have enough volume there? What are kind of, what are the things that build into the change in approach from the last generation to what you hope will be a performance-oriented one going forward?

Speaker Change: So, to your point, the priorities, as of a few years ago,

Speaker Change: for leading customers in AI, switch the two.

Speaker Change: Scalability in supply chain, multisourcing, commoditization.

Speaker Change: With respect to that particular case, we don't see a change taking place in the near term.

Patrizio Vinciarelli: But we do believe, based on our visibility with respect to our system needs... That is not a viable approach in the long term, but we'll wait to see how things evolve on that general front. With respect to the rest of the world, if you will, looking to catch up, their performance is what it is all about, right?

Speaker Change: But we do believe, based on our visibility with respect to our system needs...

Speaker Change: That is not a viable approach in the long term, but we'll wait to see how things evolve on that general front. With respect to the rest of the world, if you will, looking to catch up.

Speaker Change: Their performance is what it is all about, right? And in effect, the general...

Patrizio Vinciarelli: And in effect, the general... The set of priorities is quite different because competitors are aspiring to compete, particularly on the hardware front, and want to enable the most competitive, and most advanced hardware solutions. And their priority is not necessarily one of multisourcing, commoditization; dispenser performance is performance ahead of desired considerations, particularly since, with our FAB, we now have a level of scalability with the NF-V4. Okay, great. Thanks for all the detail, Patrizio.

Speaker Change: The set of priorities are quite different because competitors are aspiring to compete.

Speaker Change: Particularly on the hardware front.

Speaker Change: want to enable the most competitive, most advanced

Speaker Change: are the solution.

Speaker Change: and their priority is not necessarily one of multi-sourcing.

Speaker Change: I think economization, a dispenser performance, is performance ahead of desired considerations, particularly since...

Speaker Change: With our FAB, we have now a level of scalability with the NFB4.

Pratitya: Okay, great. Thanks for all the detail, Patrizio.

Operator: Thank you. Our next question comes from the line of John Dillon of D&B Capital. Hello, guys. Congratulations on the positive bill to book the bill. Again, that was really good to see.

Speaker Change: Thank you.

Speaker Change: Thank you. Our next question comes from the line of John Dillon of D&B Capital.

John Dillon: Hello guys, congratulations on the positive book-to-bill again, that was really good to see.

John Dillon: Patricio, I have a follow-up question on the answer you just gave on those customers who are looking to look more for performance. Do you have any design wins with any of those guys yet? Or do you expect design wins from them shortly? With the exception of the one customer you've talked about that you've got coming in Q1 2025? So we have,,,,,, Design Wins. But they are not, when it comes to 5G solutions, yet, diversified and across a substantial multiplicity of customers. We have quite a few.

Patrice: Patricio, I have a follow-up question on the answer you just gave. On those customers who are looking more for performance...

Speaker Change: Do you have any design wins with any of those guys yet, or do you expect design wins from them shortly, with the exception of the one customer you've talked about that you've got coming in the Q1 2025?

Patricio: So we have...

Speaker Change: Design wins. They are not, when it comes to 5G solutions, yet.

Speaker Change: Diversified, and across

Speaker Change: Substantial multi-business customers, we have a few primary engagements.

Patrizio Vinciarelli: Primate Engagement, in our view, represents a great deal of opportunity, so we're focused first on servicing their needs. As we get further along, later this year, we're going to be spreading the wing somewhat in terms of involving others. Right, good to hear. My follow-up question is: with the positive outcomes in the court cases against Delta, are other infringers now coming to the table and negotiating with you? So, for a variety of reasons, I'm not going to get into any details regarding the evolving beyond saying that at this point, the first case. It's complete; it's with the administrative law judge.

Speaker Change: that

Speaker Change: In our view, represent a great deal of opportunity.

Speaker Change: So, we're focused first on servicing their needs. As we get further along, later this year, we're going to be

Speaker Change: Spreading a wing somewhat in terms of involving others.

Speaker Change: Right, good to hear. My follow-up is with the legal, with the positive outcomes in the court cases against Delta, are other infringers now coming to the table and negotiating with you?

Speaker Change: So, for a variety of reasons, I'm not going to get into,

Speaker Change: Any details regarding the

Speaker Change: evolving IP issues beyond saying that at this point the first case

Speaker Change: It's complete. It's with the administrative law judge.

Patrizio Vinciarelli: We expect the decision at the beginning of October. And we expect that to be a federal decision that should, before too long, result in an exclusion order. And we'll see where it goes, you know, from there. We cannot, and continue to allow, certain companies within the industry and OEMs that work closely with those companies to misappropriate intellectual property. We are going to be extremely hard-nosed about it.

Speaker Change: We expect the decision at the beginning of October .

Speaker Change: And we expect that to be a favorable decision that should before too long result in an exclusion order. And we'll see where it goes, you know, from there. But fundamentally...

Speaker Change: We can not

Speaker Change: continues to allow

Speaker Change: certain companies within the industry.

Speaker Change: and OEMs that work closely with those companies to misappropriate our intellectual property.

Patrizio Vinciarelli: We have the resources and the ammunition to see to it that... These kinds of abusive practices come to an end, and there may be lying down situations that result as we progress along with our... Campaign. Great. That's good to hear. Thank you very much.

Speaker Change: We're going to be extremely hard-nosed about it. We have the resources and the ammunition to see to it that that...

Speaker Change: These kinds of abusive practices come to an end, and there may be lying down situations that result as we progress along with our campaign.

Speaker Change: Great. That's good to hear. Thank you very much.

Operator: Thank you. Our next question comes from the line of Alan Hicks of Ainslie, Kansas. Yeah, good afternoon.

Speaker Change: Thank you.

Speaker Change: Our next question...

Speaker Change: comes from the line of Alan Hicks of Ainslie Capital.

Alan Hicks: I had a question that's going to follow up on advanced products. Did you say that royalties increased double digits this last quarter? I think I was kind of, that was probably in reference to royalty income.

Alan Hicks: Yeah, good afternoon. I had a question that's going to follow up on advanced products. Did you say that royalties increased double digits this last quarter?

Speaker Change: I think I was kind of, that's probably in reference to royalty income, so that'll, the numbers will be in the 10-Q when it gets filed. It has been increasing.

James F. Schmidt: So that'll, the numbers will be in the 10-Q when it gets filed. It has been increasing. Okay, and then so it sounds like over the products you produced, in fact, you also increased. I'm sorry Alan, I didn't catch that. So, if royalties grew, say to.

Speaker Change: Okay, and then, so it sounds like overall products you produced, in fact, are also increasing.

Alan Hicks: I'm sorry, Alan. I didn't catch that. So, it looks like your advanced products goes by about $3 million. So, if royalties grew, say, to...

Alan Hicks: Roughly a million, and the products you produced are now increasing also, as part of the overall advanced project. Yeah, so legacy products in Q2 declined somewhat. That's right. Okay, but I'm saying if you deduct well from your Net Advanced Product, they would be roughly in the mid to high 30 million level. Let the numbers work out.

Alan Hicks: Roughly a million, and the products you've produced are now increasing also.

Alan Hicks: as part of the overall Advanced Product Revenues.

Alan Hicks: Yeah, so legacy products in Q2 declined somewhat. That's right.

Speaker Change: Okay, but I'm saying if you deduct royalties from it, your net advanced products...

Speaker Change: They would be roughly in the mid to high 30 million level.

Speaker Change: if the numbers work out. Does that sound about right?

Alan Hicks: Do you think that sounds about right? That's about right. Okay. And so then at the annual meeting, you announced a series of new products for industrial aerospace military. Are those released yet? Were they in this last quarter?

Speaker Change: That's about right.

Speaker Change: Okay and so then on the in the annual meeting you announced a series of new products for industrial aerospace military. Are those released yet? Were they in this last quarter? Are they yet to come?

Patrizio Vinciarelli: Are they yet to come? Yeah, so we have products both for point-of-load applications, obviously just within the 5G lineup. We have a new class of so-called PRMs, MCMs, and drivers.

Speaker Change: Yeah, so we have, we have...

Speaker Change: A very deep set of

Speaker Change: products, both for point-of-load applications, obviously just within

Speaker Change: The 5G lineup, you know, we have a new class of so-called PRMs

Patrizio Vinciarelli: It's a complex product landscape to serve a broad set of needs at the point of load in HPC and other applications where very high currents and relatively low voltages are needed in increasingly amounts. Then, on a totally different front, but using the same packaging technology, the same fab, we have power system products that, as Phil suggested earlier, range from very high-power on-board charges for electric or hybrid vehicles to bus converters to CDC converters for automotive applications and industrial applications.

Speaker Change: NCM's, drivers.

Speaker Change: It's a complex product landscape to serve a broad set of needs at the point of load in HPC. And other applications were very high currents, relatively low voltages.

Speaker Change: are needed in escalating amounts. Then on a totally different front, but using the same packaging technology, the same fab, we have our system products.

Speaker Change: that, as Phil suggested earlier, range from

Phil: very high power on-board charges for electric or hybrid vehicles.

Phil: to bus converters, to the CDC converters.

Patrizio Vinciarelli: So it isn't one product; it's a very comprehensive set of products that will continue to expand our capabilities. And it's not one product in any one week or month; again, it's an expanding power portfolio that leverages the converter housing package proprietary technology that we've been developing for many years and the foundry capability that we put in place. Okay, what would you say in this last quarter, the industrial aerospace military with a majority of advanced product sales? I'm not sure I understood the question. Maybe, Phil, if you understand the question, if you can answer it. Yeah, no. I think it's pretty, pretty, pretty close to 50-50.

Speaker Change: for Automotive Applications and Industrial Applications. So it isn't one product, it's a very comprehensive set of products that will be continued to expand.

Speaker Change: our capabilities and it's not...

Speaker Change: One product in any one week or month, again, it's an expanding power portfolio that leverages the converter housing package, proprietary technology that we've been developing over now many years, and the foundry capability that we put in place.

Speaker Change: Okay, what would you say in this last quarter the industrial aerospace military with a majority of advanced product sales?

Speaker Change: I'm not sure I understood the question. Maybe Phil, if you understood the question, if you can answer it.

Phil: Yeah, no, I think it's pretty close to 50-50.

Philip D. Davies: Okay, and then the products you announced at the annual meeting that you announced a series of new products that are coming out? Yeah. Yeah, are those shipping yet?

Speaker Change: Okay, and then the products you announced at the annual meeting that...

Philip D. Davies: Are those yet to come? Those are being sampled to lead customers in our top 100. We expect a general release in Q4, into the industrial market and through our distribution partners. Just to be clear, this is not, you know, the case of some..., a particular event at any one point in time where, you know, 50 new products get announced. A large multiplicity of different devices, either for point of load or for general power system type applications that go through the various phases of our MPI process and that come out when they're ready in a sequence that... you know, as I got this in timescale, one of months, right? So it's not just a Q4 event.

Speaker Change: You announced a series of new products that are coming out? Yep. Yep. Are those shipping yet or are those yet to come?

Speaker Change: Those are being sampled to lead customers in our top 100. We expect a general release in Q4.

Speaker Change: into industrial and through our distribution partners.

Speaker Change: Just to be clear, this is not, you know, the case of some...

Speaker Change: All in all, there's no particular event at any one point in time where, you know, 50 new products get announced.

Speaker Change: A large multiplicity of different...

Speaker Change: devices, either for point of load or for general power system type of applications.

Speaker Change: that come through the various phases of our NPI process and that come out when they're ready in a sequence.

Speaker Change: that, you know, as I got this in timescale, one of months, right? So it's not just a Q4 event. In Q4...

Patrizio Vinciarelli: In Q4, there are certain products of particular interest to certain classes of customers and applications, 823; there's going to be some other things, 821, next year, yet otherwise. It's not one shot in a particular tsunami of products coming out at any one point in time.

Speaker Change: There are certain products of particular interest to certain class of customers and applications. In Q3, there's going to be some other things. In Q1 next year, yet other ones.

Speaker Change: It's not one shot in a tsunami of products coming out at any one point in time.

Patrizio Vinciarelli: The point I'm trying to get at is that you are going to have more stable advanced product revenues across a broader base, and it will increase gradually over time from those industrial aerospace areas. Well, let me address your point in that regard this way: if we look at our factorized power system solutions, leveraging our 5G technology, with the new class of PRMs, MCXs, MCNs that we're bringing to fruition, and we're going to be starting to demonstrate through the RPCard Demo System Board. That's an expansive family of product capabilities. You know, spanning car ranges that are quite broad, all the way up to 1,000 amperes and down to hundreds of amperes.

Speaker Change: The point I'm trying to get at is that you're going to have a more stable advanced product revenues across a broader base and it will increase gradually over time from those industrial aerospace areas.

Speaker Change: Well, let me address your point in that regard this way. If we look at our factorized power system solutions, leveraging our 5G technology with the new class of PRMs, MCXs, MCNs.

Speaker Change: that we're bringing to fruition and we're going to be starting to demonstrate through RPCard Demo System Board. That's an expansive family of product capabilities.

Speaker Change: You know, spanning car ranges that are quite broad.

Speaker Change: All the way up to 1,000 amperes and down to hundreds of amperes.

Patrizio Vinciarelli: And those are going to have a very broad market opportunity, whether they're deployed in lateral, lateral-vertical, or VPD systems. So the total, in the aggregate, number of devices, chips, that are involved in that portfolio is quite large, is a double-digit number of devices that relate to one another through certain scalability protocols that enable us to have fundamentally common denominator scalable capabilities. So it's not one product, one day. It's a class of products that are aimed at a particular market opportunity with broad costs. Okay, so it sounds like. Sandals, Teddy Grubb.

Speaker Change: And those are going to have a very broad market opportunity, whether they're deployed in lateral, lateral-vertical, or VPD systems.

Speaker Change: So the total, in the aggregate, number of devices, chips, that are involved in that portfolio is quite large. It is a double-digit number of devices.

Speaker Change: They relate to one another through certain scalability protocols that enable us to have fundamentally common denominator scalable capabilities.

Speaker Change: So it's not one product, one day. It's a class of products that are aimed at a particular market opportunity with broad coverage.

Speaker Change: Okay, so it sounds like...

Speaker Change: Bandle Teddy grow

Speaker Change: Thank you. Thank you.

Operator: Thank you. Thank you. Our next question is a follow-up from John Tanwanteng of CJS Securities. Hi, guys, thanks for the follow-up. I was wondering if you could break down a little bit more on the licensing and royalties business.

Speaker Change: Thank you.

Speaker Change: Our next question.

Speaker Change: Our next question is a follow-up from John Tanwanteng of CJS Securities.

Jonathan E. Tanwanteng: Is that increasing due to the number of licensees increasing? Or are your current licensees or existing licensees just increasing their volumes? Or, you know, a little bit of both? Which one is actually the stronger driver?

Jonathan E. Tanwanteng: Hi guys, thanks for the follow up. I was wondering if you could break out a little bit more on the licensing and royalties business.

Jonathan E. Tanwanteng: Is that increasing due to the number of licensees increasing or are your current licensees or existing licensees just increasing their volumes? Or, you know, it's a little bit of both, which one is actually the stronger driver of growth there?

Philip D. Davies: So we're not providing that visibility. So fundamentally, what we need to disclose with respect to that facet of our business will be reported when... In the 10Q. In the 10Q. The other this month.

Speaker Change: So we're not, we're not providing that visibility. So fundamentally, what...

Speaker Change: We need to disclose with respect to

Speaker Change: That facet of our business will be reported when... In the 10-Q. In the 10-Q, and please look at that for all the details that we're going to be providing.

Speaker Change: But, you know, for a variety of reasons, we need to keep our licensing engagements.

Speaker Change: from

Speaker Change: A level of visibility is crucially needed that our licensees would not want to have us disclose, and we obviously respect that.

Jonathan E. Tanwanteng: And then, Jim, just a quick question on taxes. What should be the rate we should be looking at going forward? And kind of what was the impact of the evaluations that you took?

Speaker Change: Okay, that's fair. And then, Jim, just a quick question on the taxes. What should be the rate we should be looking at going forward? And kind of what was the impact of the evaluations that you took this quarter?

James F. Schmidt: I would say I can't give any particular guidance about the rate per se. I wouldn't be offering up a change to what we talked about earlier. It has been lumpy.

James F. Schmidt: I would say, I can't give any particular guidance about the rate per se, I wouldn't be offering up a change to what we talked about earlier, it has been lumpy.

James F. Schmidt: We acknowledge that the 174 was a period deductibility limitation. Now it's amortized over five years. Congress may pass a law to reinstate that tax deduction, and then we have a valuation allowance as well.

Speaker Change: We acknowledge that the 174...

Speaker Change: was a period deductibility. Now it's amortized over five years. Congress may pass a law to reinstate that.

James F. Schmidt: So that's a full valuation against the deferred tax asset. So John, it's challenging. I'm sorry to say that, but it's kind of a unique situation we find ourselves in at this point.

Speaker Change: tax deduction and then we have evaluation allowance as well. So that's a full evaluation against a deferred tax asset. So John , it's challenging, I'm sorry to say that but it's kind of the unique situation we find ourselves in at this point.

John: Okay, I hear you. Thank you.

Jonathan E. Tanwanteng: Okay. Thank you. Our next follow-up question comes from Richard Shannon of Craig Harlem Capital Group. Hi guys, thanks for letting me follow up here. I guess my first question is, I think Phil mentioned in his prepared remarks about a $1.2 billion automotive pipeline. I would love to get some sense of what that looks like between EVs versus hybrids and any geographical concentration of that.

John: Thank you.

Speaker Change #100: Our next follow-up question comes from Richard Shannon of Craig Harlem Capital Group.

Richard Cutts Shannon: Hi guys, thanks for letting me follow up here.

Richard Cutts Shannon: I guess my first question is, I think Phil mentioned his prepared remarks about a automotive pipeline of 1.2 billion. Would love to get some sense of what that looks like between, you know, EVs versus hybrids and any geographical concentration of that. And then maybe if you'd like to offer it, if you can, or characterize in any way what that pipeline looks like for HPC customers as well.

Philip D. Davies: And then maybe if you'd like to offer it, if you can, or characterize in any way what that pipeline looks like for HPC customers as well. Thank you. Okay, so regarding the automotive pipeline, we started off really focusing on BEV. So the majority of that pipeline, I would say greater than 50% is definitely BEV powertrains. Recently, we've started to see, as I talked about at the annual shareholders meeting with the 48 Volt Zono, plug-in hybrid and mild hybrid.

Speaker Change #101: Thank you.

Speaker Change #102: Okay, so...

Speaker Change #103: So regarding the automotive pipeline, we started off really focusing on BEV, so the majority of that pipeline, I would say greater than 50% is definitely BEV powertrains.

Speaker Change #103: Recently, we've started to see, as I've talked about at the annual shareholders meeting with the 48-volt Zolno, we've started to see plug-in hybrid and mild hybrid.

Speaker Change #103: Opportunities and also some ice

Speaker Change #103: applications as well, switching to 48-volt zonal architecture. So I would say out of the 1.3 billion, it's probably still 50-60% BEV, and then roughly equally split between mild hybrid, plug-in hybrid, and DICE on 48 volts.

Philip D. Davies: [inaudible] and uh, you had a second question. You had a second question, yeah, just characterizing the pipeline in HPC. What does that look like? Do you want to characterize or quantify in any way? That'd be great, Phil. Yeah, no. I think it's fair to say that with Gen 5, the objective is to rebuild, if you like, the HPC pipeline with, you know, across GPU We talked about network processors; there are some very current network processor companies that we're working with on VPD. And then also some exciting stuff on chip scale, sorry, wafer scale, and chiplet with advanced packaging. You know, down in the APAC area.

Speaker Change #103: And you had a second question? Yeah, just characterize in a pipeline in HPC, what does that look like? If you want to characterize or quantify in any way, that would be great, Phil.

Phil: Yeah, no, I mean, I think it's fair to say that with Gen 5, the objective is to rebuild, if you like, the HPC pipeline with, you know, across GPUs.

Phil: We talked about network processors, there's some very high current network processor companies that we're working with on VPD and then also some exciting stuff on chip scale, I'm sorry, wafer scale and chiplet with advanced packaging.

Philip D. Davies: So I think we're very excited about what we're seeing out there and what we believe Gen 5 is going to be able to bring to our company as we launch it out there in Q3, Q4. Thank you, Phil. Thank you. Again, to ask a question, you may press star 11 on your touchtone telephone. Our next follow-up question comes from the line of John Dillon of D&P Capital. Hey, it's John Dillon. Hey, Phil, I was wondering if the bookings had legs or if this was just a one-quarter anomaly? Can you guys hear me?

Phil: You know, down in the APAC area, so, I think we're excited about what we're seeing out there, and what we believe Gen 5 is going to be able to bring to our company as we launch it out there in Q3, Q4.

Speaker Change #104: Wonderful. Thank you, Phil.

Speaker Change #105: Thank you. Again, to ask a question, you may press star 1 1 on your touchtone telephone.

Speaker Change #105: Our next follow-up question comes from the line of John Dillon of D&P Capital.

Speaker Change #105: Hey, it's John Dillon. Hey, Phil, I was wondering if the bookings have legs or is this a one-quarter anomaly?

Operator: Yeah, I can, John. Sorry, I was on mute. So I think, you know, what we're seeing is the aerospace and defense and industrial markets continue. The variable in the bookings is going to be what happens in HPC and even with some new automotive programs where we can book orders based upon collaborations and payments from automotive OEMs or tier one. So I think the aerospace and industrial markets seem to be continuing their strength, and the variables that we talk about. So we can't provide the guidance that is really all about HPC and what happens there. So it sounds like HPC could go up or down depending on what happens in May. Is that a good assumption or not?

Speaker Change #106: Can you guys hear me?

Speaker Change #107: Yeah, I can, John . Sorry, I was on mute.

Speaker Change #108: So, I think, you know, what we're seeing is aerospace and defense and industrial markets continue. The variable in the bookings is going to be what happens in HPC.

Speaker Change #108: and even with some new automotive programs where we, you know, we can book orders based upon collaborations and payments from automotive OEMs or Tier 1s. So I think the aerospace and industrial markets seem to be continuing their strength.

Speaker Change #108: and the variable that we talk about so we can't provide the guidance is really all about HPC and what happens there for us.

Speaker Change #109: So it sounds like HPC could go up or down depending on what happens in May. Is that a good assumption or?

Philip D. Davies: Unknown AttendeeOr do you see HPC kind of remaining flat and possibly going up? Again, John, my comments are that, you know, that's why we don't provide the guidance. It could go up, it could go down, it could stay flat.

Speaker Change #110: Where do you see HPC kind of remaining flat and possibly going up?

Speaker Change #110: Again, John , my comments are that, you know, that's why we don't provide the guidance. It could go up, it could go down, it could stay flat. I mean, there's lots of variability in that for us right now. And we're very, very focused on Gen 5 and getting as many design ins and design wins with that as we can. That's the way to really build that back up.

Philip D. Davies: I mean, there's lots of variability in that for us right now, and we're very, very focused on Gen 5 and getting as many design-ins and design-wins with that as we can. That's the way to really build that back up.

Philip D. Davies: Correct. Okay, I gotcha. And you are seeing design wins on Gen 5 then for the HPC. We're seeing lots of opportunities, John, where we've still got to get through, you know, that demonstration phase in August and September, and from there, we can start to get design ins, and then secure programs, which are the wins in our pipeline. So it's a, it's going to be a process, but lots of interest. Great. Thank you very much.

John: Correct. Okay, gotcha. And you are seeing design wins on Gen 5 then for the HPC?

Speaker Change #111: We're seeing lots of opportunities, John , but we've still got to get through, you know, that demonstration phase in August , September . And from there, we can start to get design ins, and then secure programs, which are the wins in our pipeline. So it's a, it's going to be a process, but lots of interest.

John: Great. Thank you very much. Congratulations again. Thank you.

John Dillon: Congratulations again. Thank you. Our next question is a follow-up from Quinn Bolton of Needham & Company. Hey guys, I wanted to follow up on Richard's question on the automotive side. I know at the annual shareholder meeting you talked about some of the initial wins being sort of the very high-end vehicles, but you're sort of, you know, looking to try to secure wins with higher volume platforms through 2024. You mentioned, I think, an onboard charger win that you secured this quarter.

John: Thank you.

Speaker Change #112: Our next question is a follow-up from Quinn Bolton of Needham & Company.

Quinn Bolton: Hey guys, wanted to follow up on Richard's question on the automotive side. I know at the annual shareholder meeting you talked about some of the initial wins are sort of the very high-end vehicles, but you're sort of, you know, looking to try to secure wins with higher volume platforms.

Speaker Change #113: through 2024. You mentioned, I think, an on-board charger win that you secured this quarter. Wondering if that's starting to move you into some of those higher volume platforms.

Quinn Bolton: I'm wondering if that's starting to move you into some of those higher volume platforms, and if that particular design doesn't, you know, how are you feeling about your engagements with OEMs or Tier 1s for some of those higher volume platforms you'd referenced at the shareholder meeting? Thank you. So the design wins that we have today are still higher performance vehicles.

Speaker Change #113: And if that particular design doesn't, you know, how are you feeling about your engagements with OEMs or Tier Ones for some of those higher volume platforms you'd referenced at the shareholder meeting? Thank you.

Speaker Change #114: So, the design wins that we have today are still...

Philip D. Davies: I would call the design ins that we are starting to come down into the, if you like, high performance of the next level of platforms down from OEMs globally. So, we're certainly not down into the, you know, 500,000, a million vehicles a year type of platforms where we're still working at the high performance end. And also, then the higher-performance vehicles of big car manufacturers around the world, as they move to 48 volt zonal with applications like active suspension, you know, the onboard charging application that you've talked about there, and, you know, it's really, as I talked about earlier, a really exciting mix of different BEV, mild hybrid, plug-in hybrid, and ICE opportunities now that are starting to develop. But it's still in the higher end, higher performance vehicles, Quinn.

Speaker Change #115: higher performance vehicles.

Speaker Change #116: I would call the design ins that we are starting to come down into the, if you like, the high performance of the next level of platforms down from

Speaker Change #116: from OEMs globally. So, so we're certainly not down into the, you know, 500,000, a million.

Speaker Change #116: vehicles a year type of platforms.

Speaker Change #116: where we're still working at the high-performance end and also then the higher-performing vehicles of

Speaker Change #116: of Big Car Manufacturers around the world as they move to 48-volt zonal with applications like active suspension, the onboard charging application that you've talked about.

Speaker Change #116: there. And, you know, it's really, as I talked about earlier, a really exciting mix of different BEV, mild hybrid, plug-in hybrid, and ICE opportunities now that are starting to develop. But it's still in the higher end, higher performance vehicles, Quinn.

Philip D. Davies: Got it. Thank you, Phil. Thank you. Our next question comes from the line of Don McKenna of D.B. McKenna and Company.

Quinn: Got it. Thank you, Phil.

Quinn: Thank you.

Quinn: Our next question comes from the line of Don McKenna of D.B. McKenna and Company.

Donald Brian McKenna: Patrizio, if my memory is correct, a number of years ago you had a seat at the table for the Open Compute Project. I was curious as to whether or not you're still participating in that. And the second question I had is, what's the current headcount? So I think we're around 1,100 people. Correct. And to be honest with you, I was never really active with respect to OpenCompute.

Speaker Change #118: Patrizio, if my memory is correct, a number of years ago you had a seat at the table for the Open Compute Project.

Speaker Change #119: So I think we're around 1,100 people? Correct. And to be honest with you, I was never...

Speaker Change #120: Active with respect to OpenCompute.

Patrizio Vinciarelli: You know, our general model, um.., of Innovating and Anticipating What the Market Needs is going to be years down the road. It's the beat of the ads with the process of, in effect, evolving the power system solution based on what has been known and what can be seen through the kind of common denominator process that OpenCompute represents, you know, addressing future needs. One, I would say, is trying to anticipate what will work, but primarily based on rearview mirror visibility, whereas our methodology revolves around looking beyond the corner at what is going to be enabling the next generation of solutions.

Speaker Change #121: You know, our general model, um...

Speaker Change #122: of Innovating and Anticipating What the Market Needs.

Speaker Change #123: are going to be years down the road. It's a bit of ads with the process.

Speaker Change #123: of the

Speaker Change #123: In effect, evolving the power system solution based on what has been known and what can be seen through the kind of common denominator process that open compute represents.

Speaker Change #124: It's fundamentally different.

Speaker Change #124: Approach to, you know, addressing future needs. One, I would say, is

Speaker Change #124: trying to anticipate what will work, but primarily based on rear-view mirror visibility, whereas our methodology revolves around looking beyond the corner at what is going to be

Speaker Change #124: enabling the next generation of solutions. The two are somewhat at odds with one another.

Patrizio Vinciarelli: Some well-allows with warm, Okay, and how about the current head count? Can somebody give me a number on that? Around 1100 people.

Speaker Change #125: Okay, and how about the current headcount? Can somebody give me a number on that? Around 1100 people.

Speaker Change #126: Thank you.

Speaker Change #127: Thank you.

Speaker Change #128: Our next question comes from the line of Al Doyle of Vicor.

Speaker Change #128: Hello.

Speaker Change #129: All right. Your line is open. Oh, he's actually left. All right. Ladies and gentlemen, that does conclude today's conference call. Thank you for participating. You may now disconnect.

Speaker Change #129: Thank you. Thank you, everyone. Take care.

Speaker Change #130: which are the very best students in the world. And I'm so proud to say that you're a great teacher. I love you. I love you. I love you. I love you. I love you. I love you. I love you. I love you. I love you. I love you. I love you.

Speaker Change #131: , , , , , , , , , , , , , ,

Patrizio Vinciarelli: Thank you. Our next question comes from the line of Al Doyle of Vicor. All right, your line is open. Oh, he's actually left.

Speaker Change #132: Thank you for standing by and welcome to Vicor's second quarter 2024 earnings conference call.

Speaker Change #133: At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session.

Speaker Change #133: To ask a question during the session, you will need to press star 1 1. To remove yourself from the queue, you may press star 1 1 again. I would now like to hand the call over to Jim Schmidt, Chief Financial Officer. Please go ahead.

Operator: All right, ladies and gentlemen, that does conclude today's conference call. Thank you for participating. You may now disconnect.

James F. Schmidt: Thank you.

Speaker Change #134: After the markets closed today, we issued a press release summarizing our financial results for the three and six months ended June 30th.

Speaker Change #135: This press release has been posted on the Investor Relations page of our website, www.vicorpower.com.

Speaker Change #135: We also filed a Form 8K today related to the issuance of this press release.

Operator: Thank you. Thank you, everyone. Take care. ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? Thank you for standing by and welcome to Vicor's second quarter 2024 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one one to remove yourself from the queue.

Speaker Change #136: I remind listeners this conference call is being recorded and is the copyrighted property of Vicor Corporation.

Operator: You may press star one one again. I would now like to hand the call over to Jim Schmidt, Chief Financial Officer. Please go ahead. Thank you. Good afternoon, and welcome to Vicor Corporation's earnings call for the second quarter ended June 30, 2024. I'm Jim Schmidt, Chief Financial Officer, and I am in Andover with Patrizio Vinciarelli, Chief Executive Officer. Phil Davies, Corporate Vice President of Global Sales and Marketing, is joining us remotely.

Speaker Change #136: I also remind you various remarks we make during this call may constitute forward-looking statements for purposes of the safe harbor provisions under the Private Securities Litigation Reform Act of 1995.

Speaker Change #136: Except for historical information contained in this call, the matters discussed on this call, including any statements regarding current and planned products.

Speaker Change #136: Current and Potential Customers, Potential Market Opportunities, Expected Events and Announcements, and our Capacity Expansion, as well as Management's Expectations for Sales Growth, Spending, and Profitability, our Forward-Looking Statements involving Risk and Uncertainties.

Speaker Change #136: In light of these risks and uncertainties, we can offer no assurance that any forward-looking statement will, in fact, prove to be correct.

Speaker Change #136: Actual results may differ materially from those explicitly set forth in or implied by any of our remarks today.

James F. Schmidt: The risks 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, July 23, 2024. Vicor undertakes no obligation to update any statements, including forward-looking statements, made during this call, and you should not rely upon such statements after the conclusion of this call. A webcast replay of today's call will be available shortly on the Investor Relations page of our website.

Speaker Change #136: The risks 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.

Speaker Change #136: Please note the information provided during this conference call is accurate only as of today, Tuesday, July 23, 2024.

Speaker Change #136: 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.

Speaker Change #136: 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 Q2 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 changes for P&L and balance sheet items and refer you to our press release or our upcoming Form 10-Q for additional information. As stated in today's press release, Vicor Corp recorded total revenue for the second quarter of $85.9 million, up 2.4 percent sequentially from the first quarter of 2024 total of $83.9 million, and down 19.6 percent from the second quarter of 2023 total of $106.7 million. Advanced product revenue increased 7.1% sequentially to 46.4 million, while BRIC product revenue decreased 2.7% sequentially to 39.5 million. Shipments to stocking distributors decreased 5.2% sequentially and increased 33.1% year-over-year.

Speaker Change #137: I'll now turn to a review of our Q2 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 changes for P&L and balance sheet items.

James F. Schmidt: Exports for the second quarter increased sequentially as a percentage of total revenue to approximately 43.3 percent from the prior quarter's 42.6 percent. For Q2, the advanced product share of total revenue increased to 54 percent, compared to 51.6 percent for the first quarter of 2024, with BRIC product share correspondingly decreasing to 46 percent of total revenue. Turning to Q2 Gross Margin, we recorded a consolidated gross profit margin of 49.8%, which is a 400 basis point decrease from the prior quarter, primarily due to a change in product mix.

Speaker Change #136: and refer you to our press release or our upcoming Form 10-Q for additional information.

Speaker Change #138: As stated in today's press release, Vicor recorded total revenue for the second quarter of $85.9 million.

Speaker Change #138: Up 2.4% sequentially from the first quarter of 2024 total of $83.9 million and down 19.6% from the second quarter of 2023 total of $106.7 million.

Speaker Change #139: Advanced product revenue increased 7.1% sequentially to $46.4 million, while BRIC product revenue decreased 2.7% sequentially to $39.5 million.

Speaker Change #139: Shipments to stocking distributors decreased 5.2% sequentially and increased 33.1% year-over-year.

Speaker Change #139: Exports for the second quarter increased sequentially as a percentage of total revenue to approximately 43.3% from the prior quarter's 42.6%.

Speaker Change #139: For Q2, advanced product share of total revenue increased to 54%, compared to 51.6% for the first quarter of 2024, with BRIC product share correspondingly decreasing to 46% of total revenue.

Speaker Change #140: Turning to Q2 gross margin, we recorded a consolidated gross profit margin of 49.8 percent, which is a 400 basis point decrease from the prior quarter, primarily due to a change in product mix.

James F. Schmidt: During the quarter, we recovered approximately $662,000 in duty drawback of previously paid tariffs. Care of expense, net of duty drawback, was approximately zero in Q2. I'll now turn to Q2 operating expenses. Total operating expense decreased 30.5% sequentially from the first quarter of 2024 to $42.6 million. The sequential decrease was primarily due to a reduction in legal fees and expenses.

Speaker Change #140: During the quarter we recovered approximately $662,000 in duty drawback of previously paid tariffs.

Speaker Change #140: Tariff expense net of duty drawback was approximately zero in Q2.

James F. Schmidt: The amounts of total equity-based compensation expense for Q2 included in cost of goods, SG&A, and R&D were $744,000, $1,757,000, and $930,000, respectively, totaling approximately $3.4 million. Turning to income taxes, we recorded a tax provision for Q2 of approximately $4.2 million. The company's tax expense and the rate for the quarter were impacted by the capitalization of R&D expenses under Section 174, as well as the full valuation allowance we carry against deferred tax assets. The net loss for Q2 totaled $1.2 million. The cap diluted loss per share was $0.03 based on a fully diluted share count of 44,855,000 shares.

Speaker Change #140: I'll now turn to Q2 Operating Expenses.

Speaker Change #140: Total operating expense decreased 30.5% sequentially from the first quarter of 2024.

Speaker Change #140: to $42.6 million.

Speaker Change #140: The sequential decrease was primarily due to a reduction in legal fees and expenses. The amounts of total equity-based compensation expense for Q2 included in cost of goods, SG&A, and R&D was $744,000.

Speaker Change #140: $1,757,000 and $930,000 respectively, totaling approximately $3.4 million.

Speaker Change #140: Turning to income taxes, we recorded a tax provision for Q2 of approximately $4.2 million.

Speaker Change #140: The company's tax expense and the rate for the quarter has been impacted by the capitalization of R&D expenses under Section 174, as well as the full valuation allowance we carry against deferred tax assets.

Speaker Change #140: Net loss for Q2 totaled $1.2 million.

Speaker Change #140: Gap diluted loss per share was 3 cents based on a fully diluted share count of 44,855,000 shares.

James F. Schmidt: Turning to our cash flow and balance, cash and cash equivalents totaled $251.9 million in Q2. Accounts receivable net of reserves totaled $54.9 million at quarter end, with DSOs for trade receivables at 45 days. Inventory's net of reserves decreased 2.9% sequentially to $109.1 million.

Speaker Change #140: Turning to our cash flow and balance sheet.

Speaker Change #140: Cash and cash equivalents totaled $251.9 million at Q2. Accounts receivable net of reserves totaled $54.9 million at quarter end, with DSOs for trade receivables at 45 days.

Speaker Change #140: Inventory's net of reserves decreased 2.9% sequentially to $109.1 million.

James F. Schmidt: Annualized inventory terms were $1.7. Operating cash flow totaled $15.6 million for the quarter. Capital expenditures for Q2 totaled $6.1 million.

Speaker Change #140: Annualized inventory terms were 1.7. Operating cash flow totaled $15.6 million for the quarter.

James F. Schmidt: We ended the quarter with a construction and progress balance, primarily for manufacturing equipment, of approximately $12.6 million, and with approximately $15.8 million remaining to be spent. I'll now address bookings and backlog. Q2 book to bill came in above one, and one year backlog increased 2.3 percent from the prior quarter, closing up $153.8 million.

Speaker Change #140: Capital expenditures for Q2 totaled $6.1 million.

Speaker Change #140: We ended the quarter with a construction and progress balance, primarily for manufacturing equipment of approximately $12.6 million, and with approximately $15.8 million remaining to be spent.

Speaker Change #140: I'll now address bookings and backlog.

Speaker Change #140: Q2 book-to-bill came in above 1, and 1-year backlog increased 2.3% from the prior quarter, closing up $153.8 million.

James F. Schmidt: As we said on last quarter's earnings call, 2024 is a year of uncertainty and opportunity. As of today, the quarterly and annual outcome, in terms of top line and bottom line, is subject to a relatively wide range of scenarios. Given the wide range of possible outcomes, we are unable to provide quarterly guidance until we are further along resolving uncertainties and capitalizing on opportunities. With that, Phil will provide an overview of recent market developments, and then Patrizio, Phil, and I will take your questions.

Speaker Change #140: As we said on last quarter earnings call, 2024 is a year of uncertainty and opportunity. As of today, the quarterly and annual outcome, in terms of top line and bottom line, is subject to a relatively wide range of scenarios.

Speaker Change #140: Given the wide range of possible outcomes, we are unable to provide quarterly guidance until we are further along resolving uncertainties and capitalizing on opportunities.

Speaker Change #140: With that, Phil will provide an overview of recent market developments, and then Patrizio, Phil, and I will take your questions.

Speaker Change #141: 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 possible in the limited time available.

Speaker Change #141: If you have more than one topic to address, please get back in the queue.

Philip D. Davies: It was good to see both get above one for the first time in eight quarters, driven by stronger demand in our industrial and aerospace and defense markets and ramping new programs in high-performance computing. As we discussed at our annual shareholders meeting a few weeks ago, our HPC business is in transition to our Genified Factorized Power Technology, whose high current density enables scalable VPD solutions. The AI market is forecast to continue its remarkable growth, providing significant business opportunities for the leading GPU company and all of its aspiring competitors focused on taking a share of the sizable opportunities.

Speaker Change #141: Phil?

Phil: Thank you, Jim.

Phil: It was good to see our book market get above one for the first time in eight quarters, driven by a stronger demand in our industrial and aerospace and defense markets, and ramping new programs in high-performance computing.

Phil: As we discussed at our Annual Shareholders Meeting a few weeks ago, our HPC business is in transition to our Gen5 Factorized Power Technology, whose high current density enables scalable VPD solutions.

Speaker Change #142: The AI market is forecast to continue its remarkable growth, providing significant business opportunities for the leading GPU company and all of its aspiring competitors.

Speaker Change #142: focused on taking a share of the sizable opportunity.

Speaker Change #142: We are currently working with customers wishing to capture the value proposition of cutting PDN power loss and gaining a competitive edge by moving to scalable vertical power delivery, VPD, for new higher power GPUs and network processors.

Speaker Change #142: and also with wafer scale and chiplet based AI processor designs utilizing advanced packaging technologies.

Speaker Change #142: Our Gen 5 current multipliers occupy one-third of the footprint and are three times thinner than stacked package multi-phase solutions.

Speaker Change #142: Stacked, multi-phase VPD solutions are challenged mechanically, thermally, and last but not least, from the IP perspective.

Philip D. Davies: Preparations for the introduction of our Gen 5 chipset are progressing, and we have powered up our first Gen 5 Customer Evaluation Board. A broad business portfolio is necessary to provide greater stability to our business by focusing on 100 customers globally across four main markets and a product development strategy of leveraging technologies and products developed for our HPC and automotive markets for industrial and aerospace and defense customers. We believe that we are well positioned.

Speaker Change #142: Preparations for the introduction of our Gen 5 chipset are progressing and we have powered up our first Gen 5 customer evaluation board.

Speaker Change #142: A broad business portfolio is necessary to provide greater stability to our business.

Speaker Change #142: by focusing on 100 customers globally across four main markets and a product development strategy of leveraging technologies and products developed for our HPC and automotive markets for the industrial and aerospace and defense customers.

Speaker Change #142: We believe that we are well positioned.

Speaker Change #142: We have also partnered with top distributors globally in supply and logistics support for our broad market business that further amplifies our capabilities and opportunities.

Speaker Change #142: At the ASM, we outlined our goal of doubling revenues in our industrial and aerospace and defense markets.

Speaker Change #142: New AC to DC and DC to DC converter power modules.

Speaker Change #142: utilizing advanced packaging technologies from our new ChipFab and advances in control systems and components enable a two to three time higher power density and are being sampled to our top 100 customers in these markets.

Speaker Change #142: The movement of automotive OEMs to a 48-volt-based zonal architecture has diversified our opportunity base from the BEV market into mild and plug-in hybrid powertrain applications.

Speaker Change #142: And we are seeing an increase in new business opportunities across EMEA, Japan, and Asia Pacific.

Speaker Change #142: I am pleased that in Q2 we were we were rewarded an additional program for an onboard charger at a leading high-end automotive OEM which will begin to ramp in 2026.

Speaker Change #142: Overall, our automotive pipeline, which currently stands at $1.3 billion, continues to grow. And we are quickly regaining the momentum lost due to the slowdown in new platform development during COVID.

Speaker Change #143: Thank you. And with that, we'll now take your questions.

Operator: We're ready for questions. Thank you. As a reminder, to ask a question, you will need to press star 11 on your telephone.

Speaker Change #144: Okay operator, we're ready for questions. Thank you. As a reminder, to ask a question, you will need to press star one one on your telephone. Please stand by while we compile the Q&A roster.

Speaker Change #145: Our first question.

Speaker Change #146: comes from the line of Quinn Bolton of Needham & Company.

Quinn Bolton: Hey you guys, congratulations on the first positive book to Bill in several quarters. I guess Patrizio or Phil wanted to ask...

Quinn Bolton: I guess Patrizio or Phil wanted to ask at the annual shareholder meeting you guys sort of gave a roadmap for the sampling of the Gen 5 technology and wanted just to double check that everything's still on track for first customer samples beginning to ship next month in August. Is that still on track? Demo system display to some select customers towards the end of August. That's what we currently expect. Perfect, perfect.

Speaker Change #147: At the annual shareholder meeting, you guys sort of gave a roadmap for the sampling of the Gen 5 technology and wanted just to double check that everything's still on track for first customer samples beginning to ship next month in August . Is that still on track?

Speaker Change #148: Demo system display to some select customers towards the end of August . That's what we currently expect.

Patrizio Vinciarelli: And then I guess maybe just, you know, looking at the mix of business, can you give us some sense? I think there may be a misperception, you know, in terms of Vicor's current revenue split between your four targeted end markets. Can you give us a sense of how much of the revenue comes from sort of industrial versus A&D versus HPC versus automotive? I think there's perhaps a misperception out there that you guys are still pretty heavily driven by HPC.

Speaker Change #149: Perfect, perfect. And then I guess maybe just, you know, looking at the mix of business, can you give us some sense, I think there may be a misperception, you know, in terms of Vicor's current revenue split between your four targeted end markets, can you give us a sense

Speaker Change #150: Yeah, how much of the revenue comes from sort of industrial versus A&D versus HPC versus automotive? I think there's a perhaps misperception out there that you guys are still pretty heavily driven by HPC and I think at the annual shareholder meeting

Speaker Change #151: You were saying that the aerospace and defense and industrial markets might be a much higher percentage of current revenue than investors may expect, and so I was just wondering if you could sort of touch on revenue by end market.

Patrizio Vinciarelli: And I think at the annual shareholder meeting, you were saying that the aerospace and defense and industrial markets might be a much higher percentage of current revenue than investors may expect. And so I just wondered if you could sort of touch on revenue by end market.

Philip D. Davies: Do you want to take it? Sure, yes. So I guess with the, you know, decline in our Gen 4 HPC business, the industrial and aerospace business, which has been a very good growth rate for us over the past, you know, five to 10 years, actually, it's almost doubled each of those market segments, started to take a bigger share. And so we don't typically break things down, Quinn, as you know.

Speaker Change #151: Phil, do you want to take that?

Phil: Sure, yeah, so I guess with the, you know, with the decline in our Gen 4 HPC business, the industrial and aerospace business, which has been on a very good growth rate for us,

Phil: over the past, you know, five to 10 years, actually, it's it's almost doubled each of those market segments.

Phil: started to take a bigger share.

Phil: And so we don't typically break things down, Quinn, as you know, so I will say that aerospace and defense plus industrial is a larger share of our business today than HPC was going back a year and a half.

Patrizio Vinciarelli: And then I know you'll give us the royalty number in the queue when it's filed, but I was wondering if you might be able to comment just directionally, was the royalty payment received in the June quarter flat up or down from the level in March? Thank you. The shift in the mix had primarily to do with significant shipments within the past quarter of, you know, a legacy HPC. [inaudible] And just to add to what Patrizio said there, Quint, I would also say there was an A&D revenue stream in Q1, a higher A&D, high-margin revenue stream in Q1. Relative to royalties, you're right, you'll see it in the Q, but we're putting together, you know, quarters now of sequential increases that are double digits, so it's positive. Perfect. I'll get back to you.

Quinn: Perfect. And then just maybe a last question on gross margins. It looks like you had a mix shift that accounted for margins being down. Wondering if there's any more color you could give us in terms of that mix shift.

Speaker Change #152: And then I know you'll give us the royalty number in the queue when it's filed, but wondering if you might be able to comment just directionally, was the royalty payment received in the June quarter, was that flat up or down from the level in March? Thank you.

Speaker Change #153: So the

Speaker Change #154: The shift in the mix had primarily to do with

Speaker Change #155: Significant shipments within the past quarter of Legacy, HPC.

Speaker Change #156: system with relatively low margins. So that brought the margins down somewhat.

Speaker Change #157: And just to add to what Patrizio said there, Quint, I would say also there was an A&D revenue stream in Q1, a higher A&D, high margin revenue stream in Q1. Relative to royalties, you're right, you'll see it in the Q, but we're putting together, you know, quarters now of sequential increases that are double digits, so it's positive.

Quint: Perfect. I'll get back. Thank you. Thank you.

Quinn Bolton: Thank you. Thank you. Thank you. Our next question comes from the line of John Tanwanteng of CJS Security. Hi, good afternoon.

Speaker Change #158: Thank you.

Speaker Change #158: Our next question comes from the line of John Tanwanteng of CJS Securities.

Jonathan E. Tanwanteng: Thank you for taking my questions and also congrats on the positive book to bill. I was wondering if you could talk a little bit more about the mixed orders you saw in the quarter where you saw the most strength. I think you mentioned several buckets, but I was wondering which was the strongest, which surprised you, and if that included HPC orders that were, I guess, of the current generation, last generation, I guess, if you could break up more colors, we hope, field. You are like that.

John Dillon: Hi, good afternoon. Thank you for taking my questions and also congrats on the positive book to bill.

Jonathan E. Tanwanteng: I was wondering if you could talk a little bit more about the mixed orders you saw in the quarter where you saw the most strength. I think you mentioned several buckets, but I was wondering which was the strongest, which surprised you, and if that included HPC orders that were, I guess, of the current generation, last generation, I guess.

Speaker Change #159: If you could break up more color it would be helpful.

Philip D. Davies: Sure. So there will be no real surprises, John. I would say we've seen the industrial market in recent years going nicely. Aerospace and defense is a great business for us, particularly in North America and Europe. We've got some wonderful customers, long-term customers for over 30 plus years who continue to grow themselves and award Vicor new business as we move along. So I wouldn't say anything surprising in the quarter other than continued strength in industrial and aerospace and defense, which we are planning on. As I said in my remarks, doubling over the next five to seven years once again.

Speaker Change #159: Phil, do you want to take that?

Phil: Sure. So, no real surprises, John . I would say we've seen the industrial market in recent years going nicely. Aerospace and defense is a great business for us.

Phil: Particularly with North America and Europe , we've got some wonderful

Phil: Customers, long-term customers over 30 plus years.

Phil: who continue to grow themselves and award Vicor new business as we've moved along. So I wouldn't say anything surprising in the quarter other than, you know, continued strength in industrial and aerospace and defense, which we are planning on.

Phil: As I said in my remarks, doubling over the next five to seven years once again.

Philip D. Davies: Okay, great. And then can you talk about the margins that you're seeing going forward, just given the rising concentration, I guess, of this industrial and aerospace? Is it going to be another headwind on mixed just compared to what you've seen in the past?

Speaker Change #160: Okay, great. And then can you talk about the margins that you're seeing going forward, just given the rising concentration, I guess, of this industrial and aerospace? Is it going to be another headwind on mixed just compared to what you've seen in the past? Or should there be a reversion? Unknown Attendee

Philip D. Davies: Or should there be a, You know, John, I think I would just go back to the prepared remarks and say that we're just not going to offer guidance at this point, given, you know, the range of outcomes that we could experience over the coming quarters for a variety of reasons, some of which are going to be fairly sizable and significant, potentially, so we just don't provide that guidance right now. Okay, fair enough. I'll jump back in the queue.

Speaker Change #160: You know, John , I think I would just go back to the prepared remarks and say that we're just not going to offer guidance at this point, given, you know, the range of outcomes that we could experience over the coming quarters for a variety of reasons, some of which are going to be.

Speaker Change #160: You know, fairly sizable and significant potentially, so we just don't provide that guidance right now.

Jonathan E. Tanwanteng: Thank you. Thank you. Thank you.

John: Okay, fair enough. I'll jump back in queue. Thank you.

Operator: Our next question comes from the line of Richard Shannon of Craig Harlem Capital Group. Well, thanks, guys, for taking my questions. Maybe I'll follow up on a prior question here. Patrizio, when you talked about delivery of I think it was demo systems or samples kind of late in August, what do you think about the timeframe by which customers make decisions? And is there going to be any difficulty in timeframes hitting their market timing windows in order to do that?

John: Thank you.

Speaker Change #161: Our next question comes from the line of Richard Shannon of Craig Harlem Capital Group.

Speaker Change #162: What do you think about the time frame by which customers make decisions and is there going to be any difficulty in time frames hitting their market timing windows in order to do that?

Richard Cutts Shannon: So the development is primarily driven by where we see it landing over the next few years. And as you know, at any one point in time, with different customers or potential customers. There are opportunities that, in some cases, may not line up perfectly with our... capabilities. I mean, certainly within the last couple of years, given how things evolved with respect to [inaudible] We did not have the... in alignment that we might have had under different scenarios.

Patrizio: So the development is primarily driven by where we see the applications

Patrizio: landing over the next few years. As you know, at any one point in time,

Speaker Change #163: with different customers or potential customers. There are opportunities that, in some cases, may not line up perfectly with our...

Speaker Change #163: Capabilities, I mean certainly within

Speaker Change #163: The last couple of years given how things evolved with respect to

Speaker Change #163: The market opportunity for early generation-based solutions involving lateral or vertical, we did not have.

Speaker Change #163: [inaudible]

Speaker Change #163: in alignment that we

Patrizio Vinciarelli: But getting back to upcoming opportunities and, you know, how we're going to be able to address them with a 5G chipset, given the much higher crown density, much higher power density, both in terms of footprint, thickness, and ability to provide scalable VPD solutions that are cost effective, inherently robust, and thermally adapted. We think we have a unique ability that is very well aligned with developing Macau and now different customers, all have different agendas when it comes to this, and some that have been in the forefront, all. It might, given the challenges presented by conventional or earlier generation, I would say, VPD solutions, choose to wait for that technology to mature.

Speaker Change #163: might have had under different scenarios.

Speaker Change #163: But getting back to upcoming opportunities and

Speaker Change #163: You know how we're going to be able to address them with a 5G chipset

Speaker Change #163: given the much higher current density.

Speaker Change #163: Much higher power density, both in terms of footprint, thickness, ability to provide scalable VPD solutions that are cost effective, inherently robust.

Speaker Change #163: We think we have a unique capability that is very well aligned with developing market needs. Now, different customers...

Speaker Change #163: have different agendas when it comes to this, and some that have been in the forefront. It might...

Speaker Change #163: Given the challenges presented by conventional or earlier generation, I would say, VPD solutions.

Speaker Change #163: may choose to wait for that technology to mature. We think with the VPD capability that 5G chipset enables,

Speaker Change #163: [inaudible]

Speaker Change #163: We're going to be providing those customers that are aligned with us a significant competitive advantage.

Petruchio: Okay, thanks for those thoughts, Petruchio.

Speaker Change #164: Let me follow up with a question that might overlap this topic somewhat here, but as you're talking with customers about your 5G products.

Speaker Change #165: And as you've talked about in the last generation here, you saw a change in mindset from customers moving from performance oriented solutions to one that prioritizes supply chain certainty here.

Speaker Change #165: To what degree are you seeing the tone and tenor of those conversations changing here, particularly as you bring your 5G solutions to them? Are they changing? Are they contingent on other...

Speaker Change #166: Actions like what you have going on in the legal realm or waiting on manufacturing to

Speaker Change #167: mature or have enough volume there? What are kind of, what are the things that build into the change in approach from the last generation to what you hope will be a performance-oriented one going forward?

Speaker Change #168: So, to your point, the priorities, as of a few years ago,

Speaker Change #169: for leading customers in AI, switch the two.

Speaker Change #169: Scalability in the supply chain, multisourcing, commoditization, and with respect to that particular customer, we don't see a change taking place in the near term.

Patrizio Vinciarelli: But we do believe, based on our visibility with respect to our system needs, that this is not a viable approach in the long term, but we'll wait to see how things evolve on that general front, with respect to the rest of the world, if you will, looking to catch up. Their performance is what it is all about, right?

Speaker Change #169: But we do believe, based on our visibility with respect to our system needs...

Speaker Change #169: That is not a viable approach in the long term.

Speaker Change #169: But we'll wait to see how things evolve on that front.

Speaker Change #169: with respect to the rest of the world, if you will, looking to...

Speaker Change #170: catch-up, their performance is what it is all about, right, and in effect the general

Patrizio Vinciarelli: And in effect, the set of priorities is quite different because competitors aspiring to compete, particularly on the hardware front, want to enable the most competitive, most advanced hardware solution. And their priority is not necessarily one of multi-sourcing, commoditization, a dispenser, we have now a level of scalability with the NIV4. Okay, great. Thanks for all the detail, Patrizio.

Speaker Change #170: The set of priorities are quite different because competitors are aspiring to compete, particularly on the hardware front.

Speaker Change #170: want to make, want to enable the most competitive, the most advanced.

Speaker Change #170: Hardware Solutions.

Speaker Change #170: and their priority is not necessarily one of multi-sourcing.

Speaker Change #171: After such a demoralization our expensive performance is performing ahead of the site considerations, particularly since

Pratitya: Okay, great. Thanks for all the detail, Patrizio.

Operator: Thank you. Our next question comes from the line of John Dillon of D&B Capital. Hello, guys. Congratulations on the positive bill to book the bill. Again, that was really good to see.

Speaker Change #172: Thank you.

Speaker Change #172: Thank you. Our next question comes from the line of John Dillon of D&B Capital.

John Dillon: Hello guys, congratulations on the positive bill to book the bill again that was really good to see.

John Dillon: Patricio, I have a follow-up question on the answer you just gave on those customers who are looking to look more for performance. Do you have any design wins with any of those guys yet? Or do you expect design wins from them shortly? With the exception of the one customer you've talked about that you've got coming in Q1 2025? So we have, http://TheBusinessProfessor.com, Design wins. But they are not, when it comes to 5G solutions, diversified, and across substantial multi-business year customers.

Patricia: Patricio, I have a follow-up question on the answer you just gave. On those customers who are looking to, looking more for performance...

Speaker Change #174: Do you have any design wins with any of those guys yet, or do you expect design wins from them shortly, with the exception of the one customer you've talked about that you've got coming in the Q1 2025?

Patricio: So we have...

Speaker Change #175: Design wins.

Speaker Change #176: They are not, when it comes to 5G solutions, yet.

Speaker Change #176: Diversified, and across

Patrizio Vinciarelli: We have a few, which in our view represent a great deal of opportunity, so we're focused first on servicing their needs. As we get further along, later this year, we're going to be spreading a wing somewhat in terms of involving others. Great, good to hear. My follow-up question is on the legal front; with the positive outcomes in the court cases against Delta, are other infringers now coming to the table and negotiating with you? So, for a variety of reasons, I'm not going to get into... any details regarding the Unknown Attendee.

Speaker Change #177: We have a substantial multi-business year customers, we have a few

Speaker Change #178: Primate Engagements.

Speaker Change #178: that

Speaker Change #178: In our view, represent a great deal of opportunity. So we're focused first on servicing their needs. As we get further along, later this year, we're going to be

Speaker Change #178: Spreading a wing somewhat in terms of involving others.

Speaker Change #179: Right, good to hear. My follow-up is with the legal, with the positive outcomes in the court cases against Delta, are other infringers now coming to the table and negotiating with you?

Speaker Change #180: So, for a variety of reasons, I'm not going to get into,

Speaker Change #180: Any details regarding the

Speaker Change #181: evolving IP issues beyond saying that at this point the first case

Patrizio Vinciarelli: , beyond saying that at this point, the first case is complete, and the administrative law judge is deciding it. We expect the decision at the beginning of October, and we expect that to be a federal decision that should, before too long, result in an exclusion order.

Speaker Change #182: It's complete, it's with the administrative law judge.

Speaker Change #182: We expect the decision at the beginning of October .

Speaker Change #182: And we expect that to be a favorable decision that should before too long result in an exclusion order. And we'll see where it goes, you know, from there. But fundamentally...

Patrizio Vinciarelli: And we'll see where it goes, you know, from there. But fundamentally, we cannot, and continue to allow certain companies within the industry, and OEMs that work closely with those companies, to misappropriate our intellectual property. We were going to be extremely hard-nosed about it.

Speaker Change #182: We can not...

Speaker Change #182: continues to allow

Speaker Change #182: certain companies within the industry.

Speaker Change #182: and OEMs that work closely with those companies to misappropriate our intellectual property. We're going to be extremely hard-nosed about it. We have the resources and the administration to see to it that

Patrizio Vinciarelli: We have the resources and the ammunition to see to it that these kinds of abusive practices come to an end, and there may be lined-down situations that result as we progress along with our... [inaudible] Great. That's good to hear. Thank you very much.

Speaker Change #182: These kinds of abusive practices come to an end, and there may be lying down situations that result as we progress along with our campaign.

Speaker Change #183: Great. That's good to hear. Thank you very much.

John Dillon: Thank you. Our next question comes from the line of Alan Hicks of Ainslie, California. Yeah, good afternoon.

Speaker Change #184: Thank you.

Speaker Change #184: Our next question

Speaker Change #185: comes from the line of Alan Hicks of Ainslie Capital.

Alan Hicks: I had a question that kind of followed up on advanced products. Did you say that wealth increased double digits this last quarter? I think I was kind of that's probably in reference to royalty income. So that'll the numbers will be in the 10 Q when it gets filed.

Alan Hicks: Yeah, good afternoon. I had a question about, can I follow up on advanced products? Did you say that royalties increased double digits this last quarter?

Speaker Change #186: I think I was kind of that's probably in reference to royalty income so that that'll the numbers will be in the 10-q when it gets filed it has been increasing

James F. Schmidt: It has been increasing. Okay, and then so it sounds like the overall products you produce, in fact, you're also increasing. I'm sorry Alan, I didn't catch that. So, if royalties grew, Satan. Roughly a million.

Speaker Change #187: Okay, and then, so it sounds like overall products you produced, in fact, you're also increasing.

Alan Hicks: I'm sorry, Alan. I didn't catch that. So, it looks like your advanced products goes by about $3 million. So, if royalties grew, say, to...

Alan Hicks: And the products you produced are now increasing also, as part of the overall advanced product. Yeah, so legacy products in Q2 declined somewhat. That's right. Okay, but I'm saying if you did that well to some extent... your Net Advanced Product would be roughly in the mid to high 30 million level, to get the numbers to work out. Does that sound about right?

Alan Hicks: Roughly a million, and the products you produced are now increasing also.

Alan Hicks: as part of the overall Advanced Projects Revenues.

Speaker Change #188: Yeah, so legacy products in Q2 declined somewhat. That's right.

Speaker Change #189: Okay, but I'm saying if you deduct royalties from your net advanced products...

Speaker Change #190: They would be roughly in the mid to high 30 million level.

Speaker Change #191: If the numbers work out. Does that sound about right?

Alan Hicks: That's about right. Okay. And so then, at the annual meeting, you announced a series of new products for industrial aerospace military. Are those released yet? Were they in this last quarter?

Speaker Change #192: That's about right.

Speaker Change #193: Okay and so then on the in the annual meeting you announced a series of new products for industrial aerospace military. Are those released yet? Were they in this last quarter? Are they yet to come?

Patrizio Vinciarelli: Are they yet to come? Yeah, so we have: We have. We have. We have.

Speaker Change #194: Yeah, so we have, um, we have, uh,

Speaker Change #194: A very deep set of

Patrizio Vinciarelli: Products, both for point-of-load applications, obviously just within the 5G lineup, we have a new class of so-called PRMs, MCMs, and drivers. It's a complex product landscape to serve a broad set of needs at the point of load in HPC and other applications where very high currents at relatively low voltages are needed in escalating amounts.

Speaker Change #194: products, both for point-of-load applications, obviously just within the 5G lineup, you know, we have a new class of so-called PRMs.

Speaker Change #195: MCMs, Drivers.

Speaker Change #195: It's a complex problem landscape to serve a broad set of needs at the point of load in HPC and other applications where very high currents at relatively low voltages.

Patrizio Vinciarelli: Then, on a totally different front, but using the same packaging technology, the same fab, we have power system products that, as Phil suggested earlier, range from very high-power on-board charges for electric or hybrid vehicles to bus converters to CDC converters for automotive applications and industrial applications. So it isn't just one product; it's a very comprehensive set of products that will continue to expand our capabilities. And it's not just one product in any one week or month; again, it's an expanding power portfolio that leverages the converter housing package, proprietary technology that we've been developing for now many years, and the foundry capability that we put in place.

Speaker Change #195: are needed in escalating amounts. Then on a totally different front, but using the same packaging technology, the same fab, we have power system products that, as Phil suggested earlier, range from

Phil: Very high power onboard charges for electric or hybrid vehicles.

Phil: to bus converters, to the CDC converters.

Phil: for Automotive Applications and Industrial Applications. So it isn't one product, it's a very comprehensive set of products that will continue to expand

Speaker Change #198: Our capabilities, and it's not...

Speaker Change #196: One product in any one week or month, again, it's an expanding power portfolio that leverages the converter housing package, proprietary technology that we've been developing over now many years, and the foundry capability that we put in place.

Patrizio Vinciarelli: Okay, what would you say in this last quarter, the industrial aerospace military with a majority of advanced product sales? I'm not sure I understood the question. Maybe, Phil, if you understand the question, if you can answer it. Yeah, no, I think it's pretty, pretty, pretty close to 50-50.

Speaker Change #197: Okay, well, what did you say in this last quarter, the industrial aerospace military with a majority of advanced product sales?

Speaker Change #197: I'm not sure I understood the question. Maybe, Phil, if you understood the question, if you can answer it.

Phil: Yeah, no, I think it's pretty close to 50-50.

Philip D. Davies: Okay, and then the products you announced at the annual meeting that you announced a series of new products that are coming out? Yeah. Yeah, are those shipping yet, or are they yet to come?

Speaker Change #199: Okay, and then the products you announced at the annual meeting that...

Speaker Change #201: You announced a series of new products that are coming out. Yep. Yep. Are those shipping yet? Or are those yet to come? Those are being sampled to lead customers in our top 100. We expect a general release in Q4.

Philip D. Davies: These are being sampled to lead customers in our top 100. We expect a general release in Q4, into industrial, and through our distribution partners. Just to be clear, this is not, you know, the case of some..., a particular event at any one point in time where, you know, 50 new products get announced. A large multiplicity of different devices, either for point of load or for your general power system type of applications that come through the various phases of our NPI process and that come out when they're ready in a sequence that, You know, as I got this in timescale, one of So it's not just a Q4 event in Q4.

Speaker Change #199: into industrial and through our distribution partners.

Speaker Change #200: Just to be clear, this is not, you know, the case of some...

Speaker Change #200: A particular event at any one point in time where, you know, 50 new products get announced. It is...

Speaker Change #200: A large multiplicity of different...

Speaker Change #200: devices, either for point of load or for general power system type of applications.

Speaker Change #200: that come through the various phases of our NPI process and then come out when they're ready in a sequence.

Speaker Change #200: that, you know, as I got this in timescale, one of months, right? So it's not just a Q4 event. In Q4...

Philip D. Davies: There are certain products of particular interest to certain classes of customers and applications. In Q3 there's going to be some other things. In Q1 of next year, yet other ones. It's not one shot in a particular tsunami of products coming out at any one point in time.

Speaker Change #202: There are certain products of particular interest to certain class of customers and applications. In Q3, there's going to be some other things in Q1 next year, yet other ones.

Speaker Change #202: It's not one shot and a tsunami of products coming out at any one point in time.

Patrizio Vinciarelli: But the point I'm trying to get at is that you are going to have more stable advanced product revenues across a broader base, and they will increase gradually over time from those industrial aerospace areas. Well, let me address your point in that regard this way: if we look at our factorized power system solutions, leveraging our 5G technology, with the new class of PRMs, MCXs, MCNs that we're bringing to fruition, and we're going to be starting to demonstrate through the RPCard Demo System Board.

Speaker Change #202: The point I'm trying to get at is that you're going to have a more stable advanced product revenues across a broader base and it will increase gradually over time from those industrial aerospace areas.

Speaker Change #203: Well, let me address your point in that regard this way. If we look at our factorized power system solutions, leveraging our 5G technology with the new class of PRMs, MCXs, MCMs.

Speaker Change #203: that we're bringing to fruition and we're going to be starting to demonstrate through RPCard Demo System Board. That's an expansive family of product capabilities.

Patrizio Vinciarelli: That's an expansive family of product capabilities, you know, spanning car ranges that are quite broad, all the way up to 1,000 amperes and down to hundreds of amperes, and those are going to have a very broad market opportunity, whether they're deployed in lateral, lateral-vertical, or VPD systems.

Speaker Change #203: You know, spanning car ranges that are quite broad.

Speaker Change #203: All the way up to 1,000 amperes and down to hundreds of amperes.

Speaker Change #203: And those are going to have a very broad market opportunity, whether they're deployed in lateral, lateral-vertical, or VPD systems.

Patrizio Vinciarelli: So the total, in the aggregate, number of devices, chips, that are involved in that portfolio is quite large, is a double-digit number of devices that relate to one another through certain scalability of protocols that enable us to have fundamentally common denominator scalable capability. So it's not one product, one day. It's a class of products that are aimed at a particular market opportunity with broad costs.

Speaker Change #203: So the total, in the aggregate, number of devices, chips, that are involved in that portfolio is quite large. It is a double-digit number of devices.

Speaker Change #203: They relate to one another through certain scalability protocols that enable us to have fundamentally common denominator scalable capabilities.

Speaker Change #203: So it's not one product, one day. It's a class of products that are aimed at a particular market opportunity with broad coverage.

Speaker Change #204: Okay, so it sounds like...

Speaker Change #205: Pandle Teddy Grubb

Speaker Change #206: Thank you. Thank you.

Speaker Change #206: Thank you.

Operator: Okay, so it sounds like this. Thank you. Our next question is a follow-up from John Tanwanteng of CJS Securities. Hi Guys, thanks for the follow up. I was wondering if you could break down a little bit more on the licensing and royalties business. Is that increasing due to the number of licensees increasing? Or are your current licensees or existing licensees just increasing their volumes? Or, you know, a little bit of both. Which one is actually the stronger driver?

Speaker Change #207: Our next question.

Speaker Change #208: Our next question is a follow-up from John Tanwanteng of CJS Securities.

Jonathan E. Tanwanteng: Hi guys, thanks for the follow. I was wondering if you could break out a little bit more on the licensing and royalties business.

Jonathan E. Tanwanteng: Is that increasing due to the number of licensees increasing, or are your current licensees or existing licensees just increasing their volumes? Or, you know, it's a little bit of both. Which one is actually the stronger driver of growth there?

Jonathan E. Tanwanteng: So we're not providing that visibility. So fundamentally, what we need to disclose with respect to that facet of our business will be reported when... In the 10Q. In the 10Q. The other this month.

Speaker Change #209: So we're not, we're not providing that visibility. So fundamentally, what...

Speaker Change #210: We need to disclose with respect to that facet of our business Will be reported when... In the 10Q. In the 10Q. And and you know, please look at that for all the detail that we're going to be providing.

Philip D. Davies: And, you know, please look at that for all the details that we're going to be providing. But, you know, for a variety of reasons, we need to keep our licensing engagements at a level of visibility through the need that our licensees would not want to have us disclose, and we obviously respect that. Okay, that's fair. And then, Jim, just a quick question on taxes. What should be the rate we should be looking at going forward? And kind of what was the impact of the evaluations that you took?

Speaker Change #210: But, you know, for a variety of reasons, we need to keep our licensing engagements in place.

Speaker Change #210: from

Speaker Change #210: A level of visibility is crucially needed that our licensees would not want to have us this close, and we obviously respect that.

Speaker Change #211: Okay, that's fair. And then, Jim, just a quick question on the taxes. What should be the rate we should be looking at going forward, and kind of what was the impact of the evaluations that you took this quarter?

James F. Schmidt: I would say I can't give any particular guidance about the rate per se. I wouldn't be offering up a change to what we talked about earlier. It has been lumpy.

James F. Schmidt: I would say, I can't give any particular guidance about the rate per se, I wouldn't be offering up a change to what we talked about earlier. It has been lumpy.

Speaker Change #212: We acknowledge that the 174...

John: was a period deductibility. Now it's amortized over five years. Congress may pass a law to reinstate that tax deduction, and then we have a valuation allowance as well. So that's a full valuation against the deferred tax assets. So, John , it's challenging. I'm sorry to say that, but...

James F. Schmidt: So that's a full valuation against the deferred tax asset. So, John, it's challenging. I'm sorry to say that, but it's kind of a unique situation we find ourselves in at this point. Okay, thank you. Thank you. Our next follow-up question comes from Richard Shannon of Craig Harlem Capital Group. Hi guys, thanks for letting me follow up here. I guess my first question is, I think Phil mentioned in his prepared remarks about an automotive pipeline of $1.2 billion. I would love to get some sense of what that looks like between, you know, EVs versus hybrids and any geographical concentration of that.

John: It's kind of the unique situation we find ourselves in at this point.

John: Okay, I hear you. Thank you.

John: Thank you.

John: Our next follow-up question comes from Richard Shannon of Craig Holland Capital Group.

Richard Cutts Shannon: Hi guys, thanks for letting me follow up here.

Richard Cutts Shannon: I guess my first question is, I think Phil mentioned his prepared remarks about a automotive pipeline of $1.2 billion. Would love to get some sense of what that looks like between, you know, EVs versus hybrids and any geographical concentration of that. And then maybe if you'd like to offer it, if you can, or characterize in any way what that pipeline looks like for HPC customers as well. Thank you.

Speaker Change #213: Okay, so regarding the automotive pipeline, we started off really focusing on BEVs, so the majority of that pipeline, I would say greater than 50% is definitely BEV powertrains.

Speaker Change #213: Recently, we've started to see, as I've talked about at the annual shareholders meeting with the 48-volt Zolno, we've started to see plug-in hybrid and mild hybrid.

Speaker Change #213: Opportunities, and also some ICE.

Speaker Change #213: applications as well, switching to 48-volt zonal architecture. So I would say out of the 1.3 billion, it's probably still 50-60% BEV and then roughly equally split between mild hybrid, plug-in hybrid, and Dyson 48 volts.

Philip D. Davies: And you had a second question. You had a second question, Richard, I think. Yeah, just characterizing a pipeline in HPC. What does that look like?

Phil: And you had a second question. You had a second question, Richard, I think. Yeah, just characterizing the pipeline in HPC, what does that look like? Do you want to characterize or quantify in any way? That'd be great, Phil.

Philip D. Davies: Do you want to characterize or quantify in any way? That'd be great, Phil. Yeah, no, I mean, I think it's fair to say that with Gen 5, the objective is to rebuild, if you like, the HPC pipeline with, you know, across GPUs. We talked about network processors; there are some very current network processor companies that we're working with on VPD. And then also some exciting stuff on chip scale, sorry, wafer scale, and chiplet with advanced packaging. You know, down in the APAC area.

Phil: Yeah, no, I mean, I think it's fair to say that with Gen 5, the objective is to rebuild, if you like, the HPC.

Phil: pipeline with, you know, across GPUs.

Speaker Change #214: We talked about network processors. There's some very high current network processor companies that we're working with on VPD.

Speaker Change #215: and then also some exciting stuff on chip scale, I'm sorry, wafer scale and chiplet with advanced packaging.

Philip D. Davies: So I think we're excited about what we're seeing out there and what we believe Gen 5 is going to be able to bring to our company as we launch it out there in Q3, Q4. Thank you, Phil. Thank you. Again, to ask a question, you may press star 11 on your touchtone telephone. Our next follow-up question comes from the line of John Dillon of D&P Capital. Hey, it's John Dillon. Hey, Phil, I was wondering if the bookings have legs, or is this just a one-quarter anomaly? Can you guys hear me?

Speaker Change #215: , you know down in the APAC area. So I think we're excited about what we're seeing out there and what we believe Gen 5 is going to be able to bring to our company as we launch it out there in Q3, Q4.

Phil: Wonderful. Thank you, Phil.

Speaker Change #216: Thank you. Again, to ask a question, you may press star 1-1 on your touchtone telephone.

Speaker Change #216: Our next follow-up question comes from the line of John Dillon of D&P Capital.

Speaker Change #216: Hey, it's John Dillon. Hey, Phil, I was wondering if the bookings have legs or was this a one-quarter anomaly?

Speaker Change #217: Can you guys hear me?

Speaker Change #218: Yeah, I can, John . Sorry, I was on mute.

Speaker Change #222: So, I think, you know, what we're seeing is aerospace and defense and industrial markets continue. The variable in the bookings is going to be what happens in HPC.

Speaker Change #217: and even with some new automotive programs where we, you know, we can book orders based upon collaborations and payments from automotive OEMs or Tier 1s. So I think the aerospace and industrial markets seem to be continuing their strength.

Speaker Change #217: and the variable that we talk about so we can't provide the guidance is really all about HPC and what happens there for us.

Speaker Change #219: So it sounds like HPC could go up or down, depending on what happens. Is that a good assumption?

Philip D. Davies: or do you see HPC kind of remaining flat and possibly going up? Again, John, my comments are that, you know, that's why we don't provide the guidance. It could go up, it could go down, it could stay flat.

Speaker Change #220: Or do you see HPC kind of remaining flat and possibly going up?

Speaker Change #220: Again, John , my comments are that, you know, that's why we don't provide the guidance. It could go up, it could go down, it could stay flat. I mean, there's lots of variability in that for us right now, and we're very, very focused on Gen 5 and getting as many design-ins and design-wins with that as we can. That's the way to really build that back up.

Philip D. Davies: Correct. Okay, gotcha. And you are saying design wins on Gen 5 then for the HPC? We're seeing lots of opportunities, John, but we still have to get through, you know, that demonstration phase in August and September.

Speaker Change #221: Correct. Okay, gotcha. And you are seeing design wins on Gen 5 then for the HPC?

John Dillon: And from there, we can start to get design ins, and then secure programs, which are the wins in our pipeline. So it's a, it's going to be a process, but there is lots of interest. Great, thank you very much.

Speaker Change #223: We're seeing lots of opportunities, John , but we've still got to get through, you know, that demonstration phase in August , September . And from there, we can start to get design ins and then secure programs, which are the wins in our pipeline. So it's a, it's going to be a process, but lots of interest.

John: Great. Thank you very much. Congratulations again. Thank you.

Quinn Bolton: Congratulations again. Thank you. Our next question is a follow-up from Quinn Bolton of Needham & Company. Hey guys, wanted to follow up on Richard's question on the automotive side. I know at the annual shareholder meeting, you talked about some of the initial wins being sort of the very high-end vehicles, but you're sort of looking to try to secure wins with higher volume platforms through 2024. You mentioned, I think, an onboard charger win that you secured this quarter.

John: Thank you.

Speaker Change #224: Our next question is a follow-up from Quinn Bolton of Niedermann Company.

Quinn Bolton: Hey guys, wanted to follow up on Richard's question on the automotive side. I know at the annual shareholder meeting you talked about some of the initial wins are sort of the very high-end vehicles, but you're sort of looking to try to secure wins with higher volume platforms.

Speaker Change #225: through 2024. You mentioned, I think, an onboard charger win that you secured this quarter. Wondering if that's starting to move you into some of those higher volume platforms.

Philip D. Davies: I'm wondering if that's starting to move you into some of those higher volume platforms, and if that particular design doesn't, you know, how are you feeling about your engagements with OEMs or tier ones for some of those higher volume platforms you'd referenced at the shareholder meeting? Thank you. The design wins that we have today are still higher performance vehicles.

Speaker Change #226: And if that particular design doesn't, you know, how are you feeling about your engagements with OEMs or tier ones for some of those higher volume platforms you'd referenced at the shareholder meeting? Thank you.

Speaker Change #227: So the design wins that we have today are still...

Philip D. Davies: I would call the design ins that we are starting to come down into the, if you like, high performance of the next level of platforms down from OEMs globally. So, we're certainly not down into the, you know, 500,000, a million vehicles a year type of platforms where we're still working at the high performance end. And also, then the higher-performance vehicles of big car manufacturers around the world, as they move to 48 volt zonal with applications like active suspension, you know, the onboard charging application that you've talked about there, and, you know, it's really, as I talked about earlier, a really exciting mix of different BEV, mild hybrid, plug-in hybrid, and DICE opportunities now that are starting to develop. But it's still in the higher end, higher performance vehicles.

Speaker Change #228: Higher, you know, performance vehicles.

Speaker Change #228: I would call the design-ins that we are starting to come down into the, if you like, the high performance of the next level of platforms down from

Speaker Change #228: from OEMs globally. So, so we're certainly not down into the, you know, 500,000, a million.

Speaker Change #228: Vehicles are your type of platforms.

Speaker Change #228: where we're still working at the high-performance end and also then the higher-performing vehicles of

Speaker Change #228: of Big Car Manufacturers around the world, as they move to 48-volt zonal.

Speaker Change #228: With applications like active suspension, you know, the onboard charging application that you've talked about.

Speaker Change #228: there. And, you know, it's really, as I talked about earlier, a really exciting mix of different BEV, mild hybrid, plug-in hybrid and ICE opportunities now that are starting to develop. But it's still in the higher end, higher performance vehicles, Quinn.

Quinn: Got it. Thank you, Phil.

Donald Brian McKenna: Got it. Thank you, Phil. Thank you. Our next question comes from the line of Don McKenna of DB McKenna and Company. Patrizio, if my memory is correct, a number of years ago you had a seat at the table for the Open Compute Project. I was curious as to whether or not you're still participating in that. And the second question I had was, what's the current headcount? So I think we have around 1,100 people.

Quinn: Thank you.

Speaker Change #229: Our next question comes from the line of Don McKenna of D.B. McKenna and Company.

Speaker Change #230: Patrizio, if my memory is correct, a number of years ago you had a seat at the table for the Open Compute Project.

Donald Brian McKenna: Correct. And to be honest with you, I was never active with respect to OpenCompute. You know, our general model of Innovating and Anticipating What the Market Needs is going to be years down the road. He's the beat of the ads with the process of, in effect, evolving the power system solution based on what has been known and what can be seen through the kind of common denominator process that OpenCompute represents. It's fundamentally different, you know, addressing future needs.

Speaker Change #231: So I think we're around 1,100 people? Correct. And to be honest with you, I was never...

Speaker Change #232: Active with respect to OpenCompute.

Speaker Change #233: You know, I've done a lot of models.

Speaker Change #233: of Innovating and Anticipating What the Market Needs.

Speaker Change #234: are going to be years down the road. It's a bit of ads with the process.

Speaker Change #234: of the

Speaker Change #234: In effect, evolving the power system solution based on what has been known and what can be seen through the kind of common denominator process that open compute represents.

Speaker Change #234: It's fundamentally different.

Donald Brian McKenna: One, I would say, is trying to anticipate what will work, but primarily based on rearview mirror visibility, whereas our methodology revolves around looking beyond the corner at what is going to be enabling the next generation of solutions. And the two are

Speaker Change #234: approach to, you know, addressing future needs. One, I would say, is

Speaker Change #235: We are trying to anticipate what will work, but primarily based on rear-view mirror visibility, whereas our methodology revolves around looking beyond the corner at what is going to be.

Speaker Change #235: enabling the next generation of solutions. The two are somewhat alike with one another.

Patrizio Vinciarelli: Some wells allow with warm weather. Okay, and how about the current head count? Can somebody give me a number on that? Around 1,100 people.

Patrizio Vinciarelli: Thank you. Our next question comes from the line of Al Doyle of Vicor. All right, your line is open. Oh, he's actually left.

Speaker Change #236: Okay, and how about the current headcount? Can somebody give me a number on that? Around 1100 people.

Speaker Change #237: Thank you.

Speaker Change #238: Thank you.

Speaker Change #238: Hello.

Speaker Change #239: All right. Your line is open. Oh, he's actually left. All right. Ladies and gentlemen, that does conclude today's conference call. Thank you for participating. You may now disconnect.

Operator: All right, ladies and gentlemen, that does conclude today's conference call. Thank you for participating. You may now disconnect. Thank you. Thank you, everyone. Take care.

Speaker Change #239: Thank you. Thank you, everyone. Take care.

Speaker Change #240: Go to Beadaholique.com for all of your beading supply needs!

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