VICR earnings call analysis

NASDAQ:VICR Q1 2026 Earnings Call Transcript Generated on 6/6/2026 Operator | Conference Operator: Good day, and thank you for standing by. Welcome to the VICOR first quarter 2026 earnings conference call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Jim Schmidt, Chief Financial Officer.

Please go ahead. Jim Schmidt | Chief Financial Officer

Thank you. Good morning, and welcome to Vicor Corporation's earnings call for the first quarter ended March 31, 2026. I'm Jim Schmidt, Chief Financial Officer, and I'm in Andover with Patrizio Vinciarelli, Chief Executive Officer, and Phil Davies, Corporate Vice President, Global Sales and Marketing. Earlier this morning, we issued a press release summarizing our financial results for the three months ended March 31, 2026. This press release has been posted on the investor relations page of our website, www.vicorpower.com. We also filed a form 8K today related to the issuance of this press release. I remind listeners this conference call is being recorded and is the copyrighted property of Vicor Corporation. I also remind you various remarks we make during this call may constitute forward-looking statements for the purposes of the safe harbor provisions under the Private Securities Litigation Reform Act of 1995. Except for historical information contained in this call, the matters discussed on this call, including any statements regarding current and planned products, current and potential customers, potential market opportunities, 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 uncertainties. In light of these risk and uncertainties, we can offer no assurance that any forward-looking statement will, in fact, prove to be correct. Actual results may differ materially from those explicitly set forth in or implied by any of our remarks today. The risk and uncertainties we face are discussed in item 1A of our 2025 Form 10-K, which we filed with the SEC on March 2, 2026. This document is available via the EDGAR system on the SEC's website. Please note the information provided during this conference call is accurate only as of today, Tuesday, April 21, 2026. VICE Corps 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. I'll now turn to a review of Q1 financial performance, after which Phil will review recent market developments, and Patricio, Phil, and I will take your questions. In my remarks, I will focus mostly on the sequential quarterly 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, BICOR recorded product and royalty revenue for the first quarter of $113 million, up 5.3% sequentially from the fourth quarter of 2025, total of $107.3 million, and up 20.2% from the first quarter of 2025, total of $94 million. Advanced products revenue increased 3.7% sequentially to $64.9 million. And brick products revenue increased 7.7% sequentially to $48 million. Shipments to stocking distributors increased 0.5% sequentially and increased 63.6% year over year. Exports for the first quarter decreased sequentially as a percentage of total revenue to approximately 48.9% from the prior quarter's 49.3%. For Q1, advanced product share of total revenue decreased to 57.5%, compared to 58.4% for the fourth quarter of 2025, with brick product share correspondingly increasing to 42.5% of total revenue. Turning to Q1 gross margin, we recorded a consolidated gross profit margin of 55.2%, a 20 basis point decrease from the prior quarter, Q1 gross margin increased 800 basis points from the same quarter last year. I'll now turn to Q1 operating expenses. Total operating expense increased 4% sequentially from the fourth quarter of 2025 to $45.5 million. This increase included higher legal expenses related to enforcement of RIP. The amounts of total equity-based compensation expense for Q1 included in cost of goods, SG&A, and R&D was $836,000, $1,959,000, and $1,057,000, respectively, totaling approximately $3.9 million. Turning to income taxes, we recorded a tax benefit for Q1 of approximately $0.3 million, representing an effective tax rate for the quarter of minus 1.3%. The company's tax provision and effective tax rate for the quarter ended March 31, 2026, was positively impacted by stock options exercised in the quarter. Net income for Q1 totaled $20.7 million. GAAP diluted income per share was 44 cents, based on a fully diluted share count of 47,254,000 shares. Turning to our cash flow and balance sheet, Cash equivalents totaled $404.2 million at Q1, an increase of $1.4 million sequentially. Accounts receivable net of reserves totaled $67.4 million at quarter end, with DSOs for trade receivables at 42 days. Inventories net of reserves increased 3.8 percent sequentially to $94.8 million. Annualized inventory turns were 2.1, Cash flow used for operating activities totaled $3.9 million for the quarter, which was net of a litigation settlement payment of $28.6 million. Capital expenditures for Q1 totaled $12.4 million. We ended the quarter with a construction and progress balance primarily for manufacturing equipment of approximately $10.7 million, and with approximately $33.9 million remaining to be spent. I'll now address bookings and backlog. Q1 book to bill came in above two, and one year backlog increased 70% from the prior quarter, closing at $300.6 million. 2026 is a year of great opportunity for VICOR. We expect Q2 revenues of nearly $126 million, and 2026 revenues of nearly $570 million. This guidance is based on conservative assumptions about our licensing practice. specifically that we will not enter into new licensing agreements until our second ITC case gets to its final determination in 2027. Additional exclusion orders further restricting importation of infringing computing systems will provide motivation to close new licensing deals on the right terms. Along with revenue growth in 2026, we expect margin expansion. Phil?

Phil Davies | Corporate Vice President, Global Sales and Marketing

Thank you, Jim. With the book to bill above two, Q1 bookings were strong across our high-performance computing, industrial, and aerospace and defense markets. They remain strong in this second quarter, and I'll discuss each of them in turn. Our lead computing customer is continuing a steep production ramp of its wafer-scale engine with best-in-class AI inference performance. Wafer-scale engines and future embedded multi-die and co-wash packages for AI chiplet solutions are uniquely enabled by vertical power delivery. Further advances in AI performance are about to be enabled by VICO's second-generation VPD solution, with 3 amps per square millimeter current density and a current multiplication factor of up to 40 in a 1.5 millimeter thin package. Per my Q4 comments, engagement with other HPC customers for second generation VPD solutions will follow the generational transition by our lead customer. With capacity in our first chip fab earmarked for existing strategic customers, we will continue to be selective as we add additional customers. On the VPD front, competition is handicapped by a multiplicity of issues, including inadequate current density, and stacked packages that are not mechanically and thermally adept. That's because competition copied a first-generation VPD solution whose pioneering aspects are still immature and at risk of continuity of supply challenges caused by patent infringement. Our broad industrial market, which is supported by our global distribution partners, had a strong first quarter, and our top 100 industrial OEMs in the automated test and semiconductor manufacturing equipment markets continue to benefit from the AI data center build out with strong order placement. We are also winning next generation platforms with earlier generation and new factorized power system solutions. Our current multipliers supplying high power to ASIC and memory test heads and pin electronics remain unchallenged in terms of current density low noise, and thin packages. Geopolitical developments have been a key driver of our aerospace and defense business in recent quarters. Increases in spending as a percentage of GDP and replenishment of defensive and offensive systems supports the growth of this market. Our objectives, goals, and strategies for 2026 remain unchanged with a focus on a portfolio of 100 customers globally across four market segments. Future growth opportunities will require capacity expansion, including a second FAB. A combinatorial strategy of being the power system technology innovator and an IP licensing company is delivering results. With that, we'll take your questions.

Operator | Conference Operator

Thank you. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Our first question comes from the line of Quinn Bolton with Needham & Company. Your line is now open.

Quinn Bolton | Analyst, Needham & Company

Hey, guys. Congratulations on the nice results and outlook. I guess I wanted to start with just the assumptions you're making around 2026 for the IP licensing business. Looks like royalty revenue in Q1 was about $15 million or about $60 million annualized. I know you're not assuming any additional or new licenses signed, but where do you see royalty or licensing revenue this year as part of that 570 guidance?

Patrizio Vinciarelli | Chief Executive Officer

The 570 guidance includes royalties, which would increase somewhat based on existing licensing agreement. In terms of providing, in effect, safe guidance, we thought it would be best to set aside any opportunity with respect to, if you will, early deals relating to current actions. So our working assumption for guidance purposes is that we're not going to have any until we get to further demination or a second case next year, but it could be that we do get some ahead of that timeframe.

Quinn Bolton | Analyst, Needham & Company

Understood. And then, Patricio, last quarter, you seemed pretty confident that the utilization in Andover would approach 80% by the end of 26 or early 2027, looks like you're on a strong product ramp, but are you still sort of comfortable or still expecting utilization to sort of achieve those levels that you discussed last quarter?

Patrizio Vinciarelli | Chief Executive Officer

Yes, in absolute terms with respect to product revenues, what has transpired since we last spoke on this topic is that we actually have significant level of elasticity with respect to expansion capacity within the fellow seed facility that's giving us a little bit more flexibility with respect to the timing and choice of the location for the second fab so to get a little bit more specific we've seen an opportunity for a relatively significant expansion in capacity. It could be as much as 50% above what had been planned to be supported in terms of annual revenues out of the federal state facility. So that gives us caution with respect to timing, which we're putting to good use in terms of the choice of a location. And to give you a little bit more flavor with respect to that, We've also come around to focusing on existing buildings as opposed to a piece of land because of the fact that with an existing building, we can execute much more rapidly in terms of capacity expansion. And part of the strategy with respect to getting more out of the federal state facility is to selectively source outside of that facility some of the process steps that can be more easily relocated. So that should give you the picture with respect to both the capacity utilization and the plants with respect to capacity expansion.

Quinn Bolton | Analyst, Needham & Company

Sorry, Patricio, just a quick clarification. Did you say that in the first handover facility, you would be outsourcing some manufacturing steps either to third parties, or would that be to the second chip fab?

Patrizio Vinciarelli | Chief Executive Officer

It would be to an interim location for the second chip fab. But this would still be totally within VIGO control. But there are process steps that can be easily located in a nearby building. And that's part of the plan to extend capacity of the LFL State Facility.

Quinn Bolton | Analyst, Needham & Company

Understood. Thank you.

I'll get back and keep. Operator | Conference Operator

Thank you. Our next question comes from the line of Justin Clair with Ross Capital Partners. Your line is now open.

Justin Clair | Analyst, Ross Capital Partners

Hi. Good morning. Thanks for the questions here. I think first off, you mentioned engagement with additional VPD customers I think could follow the generational transition for the lead customer from Gen 4 to Gen 5. I was wondering if you could just provide an update on the anticipated timing of that transition. I think you had previously been looking for the second half of 2026, and then trying to get a sense for when the potential orders with additional customers could be and what the revenue timing might be.

Patrizio Vinciarelli | Chief Executive Officer

Yeah, so the generation transition we're referring to here, it will be enabled in the second half of this year, and we expect a ramp to begin before the end of this year with respect to that next generation capability with the lead customer. And we will follow that with additional customers for second gen VPD solution. As Phil pointed out earlier, we are planning for the increments of capacity that we're going to have available to support opportunities that are, as in the case of a lead customer, long-term strategic to Viagra. And fundamentally, in spite of capacity expansions, we expect to remain capacity constrained for a substantial timeframe. And that leads us to want to pick the right timeframes companies, the right applications, where as in the case of the lead customer, we can make a very substantial difference with respect to levels of performance and opportunity to win substantial market share.

Justin Clair | Analyst, Ross Capital Partners

Got it. Okay. And then just on the backlog, so in Q1 backlog increased significantly here to just over 300 million. wondering if you could speak to, you know, how quickly you anticipate turning that over. And then, you know, assuming you get to, well, and then I guess just as the business continues to scale, how do we think about the lead times and the conversion of that backlog? And then maybe how much backlog you think may be necessary in order to support the $800 million run rate that you have previously talked about?

Patrizio Vinciarelli | Chief Executive Officer

Well, so starting with Q2, the bookings are just as strong as they were in Q1. So we expect to, once again in Q2, have a very strong book-to-bill. So the backlog is going to keep building up as we step up the revenue levels and capacity utilization as the year progresses.

Phil Davies | Corporate Vice President, Global Sales and Marketing

Phil, do you have... No, I think the question was the existing backlog. I mean, that rolls pretty much over the next 12 months. That's how we recognize it. So, yeah.

Justin Clair | Analyst, Ross Capital Partners

Got it.

Got it. Jim Schmidt | Chief Financial Officer

Okay. Justin, in any backlog we quote, the bookings we quote, it's always a 12-month window.

Got it. Okay. Justin Clair | Analyst, Ross Capital Partners

And then maybe just one more on the capacity. So you're talking about expanding capacity at FAB1? Yes. How much capacity do you anticipate adding? What level of revenue do you think could be supported by the first FAB? And then I think you had talked about this a little bit in terms of the potential size of FAB 2, but I'm not sure I caught it. So maybe just what revenue level could be supported by the second FAB?

Patrizio Vinciarelli | Chief Executive Officer

So you might recall in the past we had earmark capacity out of FAB 1. at roughly a billion dollar per year run rate. We see a way to get that to at least one and a half billion at this point. And that's coming out of a combination of initiatives we've identified with certain process steps that have been historically capacity limiting overall. opportunities to get to a shorter cycle time and increase capacity with those steps. So that's a key element of this capacity expansion plan. To complement that, as I mentioned earlier, we see opportunities with process steps that are not as critical and which can be easily redeployed. an opportunity to redeploy them in an existing neighboring facility. Again, as a stepping stone to the second FAB, which has got a longer lead time in terms of what it takes to bring it to fruition. So we believe this approach gives us a lot more flexibility it will improve our opportunity for significant margin expansion because we will not be incurring for a certain level of total capacity as much in terms of additional equipment and depreciation. And overall, it's a plan that meets the combination of objectives that we sell ourselves and the need to support a variety of market opportunities, not just in the computer space, but in the other markets where we're seeing considerable strength.

Justin Clair | Analyst, Ross Capital Partners

Got it. Okay.

Thank you. I appreciate it. Operator | Conference Operator

Thank you. Our next question comes from the line of John Tenwanting with CJS Securities. Your line is now open.

John Tenwanting | Analyst, CJS Securities

Good morning. Thank you for taking my questions, and congrats on the next quarter and the strong orders and outlook. My first question is, Patrizio, you mentioned you expect to be capacity constrained before you expect the new FRAD to come up, and I don't know if the expansions will occur before that as well, but what does that mean for your customers and their sourcing strategies? Do they need to turn to your competitors, or do you have some kind of licensing strategy that you may employ or have in mind to help them avoid that constraint? Just help me understand, you know, what the timing is around their growth trajectory is and what you expect your capacity to be underlying that.

Patrizio Vinciarelli | Chief Executive Officer

So, first of all, we purchased a second 3DI or three-dimensional interconnect line that's going to be installed in the Q3, Q4 timeframe. So, that in and of itself is an element of the capacity expansion plan. Second, as I mentioned earlier, within each of the 3D interconnect lines, we have identified ways to reduce cycle time and increase capacity in inverse proportion. Beyond that, we have expansion plans outside of the federal seed facility, and we are engaged in discussions that could lead to another source for a second-gen VPD technology, which we believe is going to be in great demand for a variety of reasons in years to come. Because fundamentally, it is the only way we know how to address the current demands processors with all of the right attributes. The way it is done with competitive alternatives that to some degree build upon what we call a first generation of EPD technology is, as suggested in the earlier remarks, challenged in a number of respects because of the, in other words, current density. is fundamentally a dominant effect. In other words, current density forces stacking of the elements of the solution. The stacking has mechanical complexity and terminal challenges because the heat gets trapped within the stack. It's fundamentally inept at keeping up with escalating current density needs in future generation of processors. So even though we have ambitious capacity expansion plans, we see an alternate source playing a key role in years to come in terms of achieving greater overall penetration and win-win opportunities in the marketplace.

John Tenwanting | Analyst, CJS Securities

Got it. Thank you. Could you also talk about the upcoming 800-volt data center architecture and the potential for transition to like a six volt intermediate bus and where your 48 to 12 volt systems sit within that? Do you expect maybe the NBM market to continue to grow as those architectures take share or is there a transitory period where maybe that falls off and maybe transitions to your VPD technology and licensing and royalties on that side?

Patrizio Vinciarelli | Chief Executive Officer

So we believe the initiative to go directly from 800 volt to 6 volt is frankly ill-conceived. It's internally inconsistent, and it's relatively easy to understand why. The logic of bussing power at 800 volt is predicated on that power distribution being at a higher voltage, more efficient. And there is an opportunity to improve efficiency by a few percentage points through the use of an undervolt bus. But inheriting that is the opposite effect at the other end of that proposed bus conversion step. Because going all the way down to 6 volts, as you can imagine, relative to 48 volt, the ratio being essentially 8 to 1. You have to square that. So the square of 8 is 64x. So the position of changing power distribution next to the point of load down to 6 volts is fundamentally challenged by the extreme inefficiency of distributing any amount of significant power at six volts. You can only go short distances and retain some level of efficiency. But to some extent, that's incompatible with an undervolt bus not being safe, right? Because it can give rise to hazards. So there's a lot of challenges with that whole concept. And fundamentally, it's is a change in direction away from where the forward should be, which is at the point of load with respect to vertical power delivery. That's where the core challenge technically resides. And going off and trying to figure out how to save a few points out of 800 volts particularly when you combine that with a step all the way down to six volts is, in my opinion, a bad idea. But time will tell. And by the way, Vigo has provided technology other than the volt. We did a lot of pioneering developments with respect to bus conversion from 800 volt. And should that be successful to any degree, there's going to be issues with respect to IP there too. But in terms of your question as to what we expect to happen with that, we expect it to move forward, but we think it's a diversion from the real challenge, which is at the point of load. Any particular points of note with respect to vertical power delivery?

John Tenwanting | Analyst, CJS Securities

Got it. Very helpful. Thank you, Patricio.

Good luck. Operator | Conference Operator

Thank you. Our next question comes from the line of John Dillon with D&B Capital. Your line is now open.

John Dillon | Analyst, D&B Capital

Hi. Yes, guys. First of all, congratulations, especially on the bookings. Looks really good. Hey, I just wanted to go back to capacity for a minute. I want to make sure my numbers are right. If I heard correctly, you've got about a billion in capacity in your current FAB. You can add another half a billion. But on top of that, you have BRICS. And I would guess your BRICS would be at least 250 million. So am I right in assuming that your capacity with this expansion in the current area is about 1.75 billion?

Patrizio Vinciarelli | Chief Executive Officer

No. So the BRICS are part of it. I don't think they're quite at the level of 250. And, you know, as we've been saying for quite some time, you know, before too long, they're practically irrelevant. We shouldn't be thinking about breaks. And in effect, part of our strategy with respect to the expansion or capacity of Federal Street is to minimize the footprint taken up by legacy products that don't have the growth opportunity. of advanced products, in particular second-gen VPD. So the number I quoted earlier is a step up in our capacity plan for Federal Street from one to one and a half billion. That's an all-inclusive number. Now, that all-inclusive number could potentially go further up but it wouldn't be because of the big contribution. It would be because of more opportunity for a special capacity of advanced products.

John Dillon | Analyst, D&B Capital

Got it. So you see you could get above $1.5 billion.

Excellent. Neil Gore | Shareholder

Yes.

Patrizio Vinciarelli | Chief Executive Officer

We feel comfortable with a $1.5 billion target At this point in time, and again, the same process that has led us to identify opportunities to set capacity up measured in revenues per year from one to one and a half billion may have yet some further opportunity. Again, the logic behind it is to give ourselves more runway with respect to the next set of steps which include a variety of strategic choices ranging from the second FAB to alternate sourcing.

John Dillon | Analyst, D&B Capital

Excellent. And with this expansion capacity, will you be able to satisfy the OEM and the hyperscaler customers you talked about in Q3 that came to you back in Q3 conference call? You mentioned those two. And I'm wondering if this expansion capacity will be able to satisfy them.

Patrizio Vinciarelli | Chief Executive Officer

Yes.

John Dillon | Analyst, D&B Capital

Excellent. Thank you. I'll get back in the queue. Yeah, go ahead.

Go ahead. Operator | Conference Operator

Thank you. As a reminder, to ask a question at this time, please press star 11 on your touchstone telephone. Our next question comes from the line of Richard Shannon with Craig Callum Capital Group, LLC. Your line is now open.

Richard Shannon | Analyst, Craig Hallum Capital Group

Well, hi, guys. Thanks for letting me ask a couple of questions. I guess my first is a simple one here. The backlog has risen very nice, I think 70% sequentially. If you could characterize the sources of that increase here, whether it's from the lead VPD customer or anyone else in the kind of high-performance computing space and all other markets, if you could characterize between those three, that would be helpful.

Thanks. Phil Davies | Corporate Vice President, Global Sales and Marketing

Yeah. Hi, Richard. It's Phil. So in high performance compute, yeah, it was the lead customer and the hyperscaler customers that we have. But we also saw some really good lift in industrial and the defense aerospace markets, as I commented. It was really strength across the board, you know, broad markets as well as in high performance compute with a few lead customers.

Richard Shannon | Analyst, Craig Hallum Capital Group

Okay, great. Thanks for that. My follow-on question is, and apologies if I missed something, I had a couple interruptions here, but wondering if you could discuss the engagement or even design win status with follow-on, you know, VPD customers here. Sounds like, if I heard correctly, you're talking about strategic reservations on either capacity in the first FAB or the proposed second one here. Wondering if you can discuss the dynamics around those follow-on customers.

Patrizio Vinciarelli | Chief Executive Officer

So I suggested earlier, Richard, we're very much focused on competing readiness with respect to starting a generational change with a lead customer and with some other opportunities relating to that. I guess A way to think about this is that, in spite of the capacity expansion that we are pursuing, we see ourselves being essentially sold out in terms of capacity for the foreseeable future. And that gives us... the opportunity to be very selective with respect to new engagements in terms of their strategic significance and alignment of interests for the medium to long term. So in a way analogous to the comments I made earlier regarding expansion of capacity coming out of federal seat, first of all, giving us more time and opportunity with respect to, you know, parallel initiatives. On the front end of the business, just like the back end of the business, the fact that we're going to be enjoying strong bookings and strong backlog, and we have a near-term capacity nearly sold out, gives us an opportunity to align ourselves with the right applications and the right customers going forward. So we don't have to feel a sense of urgency because of where we stand in terms of the demand side.

Operator | Conference Operator

Thank you. Our next question is a follow-up from Quinn Bolton with Needham & Company. Your line is now open.

Quinn Bolton | Analyst, Needham & Company

Hey, guys. Thanks for the follow-up questions. Patricio, just a quick clarification on the capacity expansion in Andover. When would you expect to reach that $1.5 billion of capacity? Is that end of 26? Is it going to take until sometime in 2027? And then I've got a follow-up.

Patrizio Vinciarelli | Chief Executive Officer

Well, so I don't think we want to be that specific at this point in time. As I'm sure you know, because of changing circumstances, we achieved the necessary comfort level to provide guidance for revenues for this year. But as we get past that, There are still so many different scenarios that it would be unwise to become very specific. Beyond saying that we have a plan to step up the capacity further, and we believe there is the market demand to use that expanded capacity as we get into 27 and beyond.

Quinn Bolton | Analyst, Needham & Company

Got it. Okay, that's understandable. And then I just wanted to come back. I think, Phil, it was Phil that mentioned on the second-gen VPD, your solutions are one and a half millimeters high. I just wanted to clarify that. And if that's the case, I guess at the recent APEC conference, there were a ton of presentations on vertical power with folks like NVIDIA and Google asking suppliers to hit three millimeters or below. It sounds like you may be well below that threshold already. And so just wondering if you can talk about the interest you're seeing on the VPT products, because it does sound like you may have a major advantage in package height versus the competition.

Patrizio Vinciarelli | Chief Executive Officer

We do. And actually, it is even bigger than you might think for reasons I'm going to explain in a moment. It's not just that our solution is one and a half millimeter thin, but as Phil pointed out in his prepared remarks, it's that combined with the fact that our solution provides 40x current multiplications. And it does all of that with 3 amps per square millimeter current density. You need to really, in order to assess the figure of merit of a technology, you need to look at these three elements in combination. You can't just look at one. As an example, so-called integrated voltage regulators, IVRs, they can be even thinner than 1.5 millimeter, but they don't provide any meaningful current multiplication. They only step up the current by 2x, which is, practically speaking, useless in terms of efficient power delivery to the point of load. Because in order to deliver, let's say, 0.6, 0.7 volt, 2,000 amp, that would require a 1,000 amp feed, which is obviously extremely problematic. So it's not just thickness, it's thinness combined with current density and, most importantly, current multiplication. Because in order to have a VPD solution that is capable of supporting a wafer scale or other kinds of advanced compute capabilities, you really need the combination of all these elements, not just one of them. Understood. Thank you, Patricio.

Operator | Conference Operator

Thank you. Our next follow-up comes from the line of John Tenwantang with CJS Security. His line is now open.

John Tenwanting | Analyst, CJS Securities

Hi. Thanks for the follow-up. Jim, can you touch on the taxes in the quarter? What went into that tax rate, and then what rate can we expect going forward? And then I have a follow-up after that.

Jim Schmidt | Chief Financial Officer

Yeah, so when we closed fourth quarter, we reversed a significant portion of the valuation allowance, and our expectation was more or less that we would be in the range of 20% in terms of an effective tax rate. What happened, John, in Q1 is that there was a substantial pent-up demand in terms of stock options that got exercised that a nice spread between strike and exercise price. And that's a tax benefit for us. So that's a, that's a one time discreet item, um, that doesn't get baked into the effective tax rate. And our feeling is that going forward, you know, there'll still be that effect, which is a positive effect for us, but, um, but planning can be more in the line with a 20% kind of a rate.

John Tenwanting | Analyst, CJS Securities

Perfect. Thank you. And then Patricio, could you talk a little bit more or maybe feel just about the demand from the defense? and semi-test businesses, what percentage of revenue are they, number one? And number two, just with regards to defense piece specifically, are you able to meet the critical defense needs that the U.S. has with the upcoming capacity constraints that you're modeling?

Patrizio Vinciarelli | Chief Executive Officer

I'm sorry, some of your words are metal. Can you repeat the first question?

John Tenwanting | Analyst, CJS Securities

Yeah, first, the percentage of semi-test and defense in the revenue today, and second, can you meet defense demand as it grows? you know, given that it's critical, given the capacity constraints that you're modeling going forward.

Phil Davies | Corporate Vice President, Global Sales and Marketing

Yes. So, John, as Phil, we don't break those things out, but the answer to the question is we can meet the needs of the defense market with the capacity that we have. Okay, great.

Thank you. Operator | Conference Operator

Thank you. Our next follow-up comes from the line of John Dillon with D&B Capital. Your line is now open.

Thank you. John Dillon | Analyst, D&B Capital

Hi, yeah, I was just wondering, does ViCore have any vertical power licensing agreements that will generate revenue this year?

Patrizio Vinciarelli | Chief Executive Officer

So there may be opportunity of alternate sourcing of the second gen VPD technology, but this is not something that we're prepared to talk about today.

John Dillon | Analyst, D&B Capital

Okay. And, Phil, on the bookings, can we assume a bookings run rate of what we saw today for the rest of the year?

Phil Davies | Corporate Vice President, Global Sales and Marketing

So, John, I think the bookings are going to be well above one, like Patricio talked about. But, you know, they're lumpy, so I don't want to be pegged to a particular ratio. But they're very strong going into Q2, and we'll say well above one.

Thank you very much. Operator | Conference Operator

Thank you. Our next question comes from the line of Don McKenna with DB McKenna and Company Inc. Your line is now open.

Don McKenna | Analyst, DB McKenna and Company

Yeah, Phil, could you give us an idea of what percentage of the backlog is attributable to your lead customer?

Phil Davies | Corporate Vice President, Global Sales and Marketing

Again, we don't break that out. They're an important lead customer for us, but they're not, you know, the only major one. We've got a hyperscaler and big customers across industrial and defense and aerospace that are ramping, as well as just the broad market. So it's just general strength right now that's really good that we're benefiting from.

Don McKenna | Analyst, DB McKenna and Company

Okay, thank you.

Operator | Conference Operator

Thank you. As a reminder, to ask a question at this time, please press star 11 on your touchstone telephone. Our next question comes from the line of Neil Gore, shareholder. Your line is now open.

Neil Gore | Shareholder

In the past, you said you expect that royalty income could grow to as much as 50% of product revenue. Do you still have that expectation?

Phil Davies | Corporate Vice President, Global Sales and Marketing

The expectation of the licensing as a percentage of product revenues, we've talked as much as 50%. The question was, can we Do we still hold to that?

Patrizio Vinciarelli | Chief Executive Officer

Yeah, we feel very good about a licensing practice. We are investing heavily in it. It would be investing in it at an escalating rate because we see that business as being both a high growth business in terms of its top line and needs to say, is nearly 100% margin in terms of profitability. We anticipate, as discussed in prior meetings, that there will be a time in the not-too-distant future when OEMs and hyperscalers will be vital with only perhaps rare exceptions. We see that dynamic progressing, and we think we're pretty close to a crossing of the chasm with respect to the industry wanting to be protected in terms of a license to enable power system technology from Weigel.

Neil Gore | Shareholder

Thank you. Do you expect that some of the other lawsuits that you have had for violating your patents, has anyone approached you to settle after the big settlement you received earlier last year?

Patrizio Vinciarelli | Chief Executive Officer

So we carried the first ITC case to a successful conclusion. And to be clear, That conclusion doesn't mean that there isn't ongoing opportunity relating to the first ITC case. In fact, there is an action pending a customs as we speak relating to that first exclusion order. While we're working with The case we brought earlier this year, for which the ADC once again chose to issue an investigation to get that to its final determination, which should result in a second exclusion order. And this may not be the end of the road. I mean, in Italy, we are saying that there is no two without three. So there's been two thus far. Don't be surprised if you see a third one. And so this, again, part of a very comprehensive campaign. You know, Weigel has been the pioneer in the power system industry, always very much in the forefront of very high power density and performance for nearly 40 years as a longstanding pioneer in the industry. We got into places well ahead of any competitor in scouting these new landscapes with respect to power distribution architecture, power conversion engines, control system, advanced power conversion components. You know, we have consistently pursued an extensive... protection through many patents. And lo and behold, the industry, given demands in AI and with respect to other electronic systems, now is very much in need of those kinds of technologies that Viagra pioneers. So licensing is going to be an expanding portion of our business. a very significant one in its own right beyond our module maker through, again, unique FABs revenue capability.

Neil Gore | Shareholder

Okay, and next question on that. Are there any expenses affiliated with licensing revenue? Is it part of your SG&A perhaps?

Jim Schmidt | Chief Financial Officer

Any expenses associated with licensing revenue?

Patrizio Vinciarelli | Chief Executive Officer

Of course, the lease. Yes. So we have partnered with law firms that have a share of the interest in the outcome, you know, subject to caps and so on and so forth. So as we record the licensing income, we record the operating expense. for the share of the proceeds from the litigation that led to the licensing deal owed to our partners.

Operator | Conference Operator

Thank you. Thank you. Thank you. Our next question is a follow-up from Justin Clare with Ross Capital Partners. Your line is now open.

Justin Clair | Analyst, Ross Capital Partners

Hey, thanks for taking the follow-up. So this one here, so we did see a large transaction announcement between OpenAI and a wafer scale supplier last week. And just wondering against that backdrop, can you share how your visibility into demand has evolved over the last quarter? And then maybe if you could comment on the size of the opportunity you're seeing with your lead customer for vertical power and how that compares to the visibility you had last quarter.

Patrizio Vinciarelli | Chief Executive Officer

Well, I think we felt very strongly about a lead customer technology and their market opportunity. And frankly, for a number of years, I was confronted with a degree of skepticism by investment bankers and the like who didn't share the same level of confidence that Weigel had in a lead customer. And so that's been proven out to be the right expectation. We think they have a real opportunity technological advantage at least for a certain class of AI applications and that will translate into share market share growth and we believe substantial success in years to come and that's an opportunity for us to say as we have with the AI market in general.

Justin Clair | Analyst, Ross Capital Partners

Okay.

Appreciate it. Thank you. Patrizio Vinciarelli | Chief Executive Officer

Thank you.

Operator | Conference Operator

Our next follow-up comes from the line of Richard Shannon with Craig Hallam Capital Group. Your line is now open.

Richard Shannon | Analyst, Craig Hallum Capital Group

Well, hi, guys. Thanks for letting me follow up. Kind of a multi-part question here on licensing. Maybe you can update us on the number of licensees you currently have generating revenues and if there's multiple licenses you know, licenses per licensee would be probably a good understanding there. Then also wondering if you have any licenses that are expiring and need to be renewed like this calendar year. And then ultimately, you know, you talked about the ability or the belief in growth in this business here. To what degree do we need to see growth in licensees versus number of licenses, or can you grow at a rate that you're expecting without any growth in those numbers?

Thank you. Patrizio Vinciarelli | Chief Executive Officer

So I view our business model as being very resilient, very redundant because we have great opportunities as a module maker and we have great opportunities as a licensor of enabling technology. And those two opportunities are very synergistic because in our licensing deals, we provide incentives for OEMs, hyperscalers, to be more than licensees, to be customers of our modules and advanced technology power system solutions. So we feel, I feel, speaking for myself, very confident we're going to be very successful on each of those two fronts. And again, they reinforce each other in pretty much every way.

Phil Davies | Corporate Vice President, Global Sales and Marketing

Richard, maybe I can also, if you don't mind, I'll add a little bit to that. So if you look at products that are getting launched later this year, maybe early next year from different GPU companies or even hyperscalers, A lot of them are going lateral and vertical because they can't really solve the full vertical problem, the vertical challenge, because of what Patricio has talked about, lack of current density, mechanical issues. And so you'll see a little bit of lateral with a bit of vertical. And that vertical, as we talked about, copies our first generation VPD. If you go to what Cerebras and the wafer scale companies do, You've got a challenge there of bandwidth, which they solve through their wafer scale engine. Everybody now is starting to look at the co-wash packaging, the packaging that Intel has brought to market with multi-die chiplet. The only way to power that stuff to solve the memory bandwidth problem is pure vertical power delivery. And that's where you need one and a half millimeter height packaging, greater than 3 amps per millimeter squared current density, and 40 times, if you like, the capability of the power delivery to that network. Current multiplication. Current multiplication, where at 6 volts, you've got 64 times the power losses than at 48 volts. And at 2 volts, you've got 526 times the power losses for an IVR system. So you start to run into real fundamental issues here where the VPD technology, our second generation VPD technology for these future technologies where we're going to focus on these strategic alignments where they really need the VICO VPD, that's where we're headed.

Patrizio Vinciarelli | Chief Executive Officer

Again, the competition tends to focus on one element, like kernel density, and they can make you know, some headway with respect to that element, but inherent in the architecture is a conflict among key elements of the solution where fundamentally you got to take off one to make it a little better for the other when the right solution, the necessary solution must involve all of these ingredients, high carbon density, high carbon multiplication, in a solution that is relatively thin. And by the way, we're not stopping at one and a half millimeter. We're going thinner. Because as we get to power and package, it will need to be thinner. And with our technology, we can go a lot thinner.

Operator | Conference Operator

Thank you. Our last question comes from the line of Don McKenna with DB McKenna and Company. Your line is now open.

Don McKenna | Analyst, DB McKenna and Company

This is a simple one, guys. I haven't been able to attend the annual meeting for the last few years because of a conflict in timing. And I'm hoping that you don't schedule it for the 20th of June this year.

Jim Schmidt | Chief Financial Officer

Well, the 20th of June is a Saturday, and so I'll let the cat out of the bag. The proxy is coming out soon. The annual meeting is Friday, June 19th.

Don McKenna | Analyst, DB McKenna and Company

19th. Okay.

Thank you very much. Patrizio Vinciarelli | Chief Executive Officer

Okay.

Thank you. Operator | Conference Operator

Thank you. This concludes the question and answer session. Thank you all for your participation on today's call. This does conclude the conference. You may now disconnect. jsPDF 3.0.3 D:20260606090530-00'00'

NASDAQ:VICR Q4 2025 Earnings Call Transcript Generated on 6/6/2026 Operator | Conference Operator: Good day, and thank you for standing by. Welcome to the VICOR 4th Quarter 2025 Earnings Conference Call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. Please advise that today's conference is being recorded. I would like to hand the conference over to your first speaker today, Jim Smith. Chief Financial Officer, please go ahead.

Jim Smith | Chief Financial Officer

Thank you. Good afternoon, and welcome to Bicorp Corporation's earnings call for the fourth quarter and year-ended, December 31, 2025. I'm Joe Schmidt, Chief Financial Officer, and I'm in Andover with Patricia Vinciarelli, Chief Executive Officer, and Phil Davies, Vice President of Global Sales and Marketing. After the markets closed today, we issued a first release summarizing the financial results for the three-month and year-ending December 31st. This press release has been posted on the Investor Relations page of our website, www.vicorpowers.com. We also filed a Form 8-K today relating to the issuance of this press release. I remind listeners this conference call is being recorded and is the copyrighted property of Vicor Corporation. I also remind you various remarks we make during this call may constitute forward-looking statements purposes of the Safe Harbor provision under the Private Security and Litigation Reform Act of 1995. Except for historical information contained in this call and matters discussed on this call, including any statements regarding cons and planned products, 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 uncertainties. In light of these risks and uncertainties, we can offer no assurance that any forward-looking statement will, in fact, prove to be correct. Actual results may differ materially from those explicitly set forth in or implied by any of our remarks today. The risks and uncertainties we face are discussed in Item 1A, of our 2024 Fall 10-K, which we filed with the SEC on March 3, 2025. This document is available via the EDGAR system on the SEC's website. Please note the information provided during this conference call is accurate only as of today, Thursday, February 19, 2026. RICOR undertakes no obligation to update any statements, including forward-looking statements, made during this call and you should not rely upon such statements after the conclusion of this call. A webcast replay of today's call will be available shortly on the Investor Relations page of our website. I'll now turn to a review of our Q4 and full-year financial performance, after which Bill will review recent market developments, and Patricio, Bill, and I will take your questions. In my remarks, I will focus mostly on the sequential overly-changed P&L and balance sheet items as well as full year-on-year changes, and refer you to our press release for our upcoming Form 10-K for additional information. As stated in today's press release, NYCO recorded product revenue for the fourth quarter of $92.7 million, up 4.5% from the third quarter total of $88.7 million, and up 15.3% from the fourth quarter total of $80.4 million. Realty revenue for the fourth quarter totaled $14.5 million, a 33.1% decrease from $71.7 in the third quarter, and a 7.8% decrease from $15.8 million in the fourth quarter of 2024. The sequential decrease in realty revenue was the result of a catch-up amount that was included in the Q3 results. Product revenues for the year ended December 31, 2025 increased 12.1% to $350.3 million from $312.5 million for the prior year. Royalty revenue for the year ended December 31, 2025 totaled $57.4 million, a 23.2% increase from $46.6 million for the year ended December 31, 2024. Total product revenue and royalty revenue including a $45 million capital litigation settlement received for the year end of December 31, 2025, increased 26.1% to $452.7 million from $359.1 million for the prior year. Advanced product revenue, which includes royalty revenue, decreased 4.4% sequentially, which was the result of the catch-up amount of royalty revenue in 2000. Brick products revenue declined 0.6% in the third quarter. Revenues for advanced products for the year ending 2025 increased 26% to $248.6 million and $197.3 million the year before. Revenues for brick products for the year ending 2025 decreased 1.6% to $159.1 million, $161.7 million the year before. Commits to stocking distributors decreased 11.1% but increased 5.3% year-over-year. Exports for the fourth quarter increased sequentially as a percentage of total revenue to approximately 49.3% from the prior quarter of 42.8%. On a year-over-year basis, exports increased as a percentage of total revenue to approximately 50.8% from the prior year of 48.2%. Q4, advanced product share total revenue, including royalty revenue, decreased to 58.1% compared to 59.2% for the third quarter, with peak product share correspondingly increasing to 48.6% of total revenue. Turning to Q4 gross margin, we recorded a consolidated gross profit margin of 55.4%, Approximately 2.1% less than the prior quarter as a result of the roll and catch up amount in Q3. For the full year 2025, gross margin rose by 6.1% to 57.3% from 51.2% in the prior year. I'll now turn to Q4 operating expense. Total operating expense increased 2.7% from the third quarter. For the full year 2025, total operating expenses, percent of revenue, and patent litigation settlement decreased to 39.2% from 51.6% in the prior year. The amounts of total equity-based compensation expense for Q4 included in cost of goods, SG&A, and R&D was $1,008,000, $2,206,000, and $1,153,000, respectively, totaling approximately $4.4 million. For Q4, we recorded operating income of $15.7 million, representing an operating margin of 14.6%. For the full year 2025, operating income totaled $81.8 million, or 18.1% of revenue in patent litigation settlement, compared to operating loss of $1.3 million, or minus 0.4% of revenue in the prior year. Turning to income taxes, He recorded a tax benefit in Q4 of approximately $27.3 million, representing an effective tax rate for the quarter of minus 142%. As a result of the tax benefit, there's a partial recognition of certain default tax assets in the period. The tax benefit for the full year 2025 was approximately $4 million, representing an effective tax rate for the year minus 25.4%. That income for Q3 totaled $46.5 million. That diluted earnings per share was $1.01. Based on a fully diluted share count of $46,297,000, for the full year 2025, that income increased to $118.6 million from $6.1 million of the prior year. In 2025, fully diluted earnings per share increased to $2.61. from 14 cents in the prior year. Turning to our cash flow and balance sheet, cash and cash equivalents totaled $402.8 million in Q4. Accounts receivable, net of reserves totaled $60.7 million in Q4. With DSOs for trade receivable was 84 days. Inventories, net of reserves decreased 1% sequentially to $91.3 million. Annualized inventory terms were approximately flat sequentially at 1.96. Operating cash flow totaled approximately $15.7 million per quarter. Capital expenditures were Q4 totaled $5.5 million. We ended the quarter with a construction in progress balance primarily for manufacturing equipment of approximately $7.8 million, with approximately $6.9 million remaining to be spent. I'll now address bookings and backlog. Q4 booked the bill, improving sequentially, came in well above one, and with one-year backlog increasing 15.8% from the prior quarter, closing at $176.9 million. 2026 is a year of great opportunity for Vicol. We are working to deliver on the opportunities. However, given that we cannot predict with certainty timing or amounts of outcomes relating to our licensing practice, we will not provide quarterly guidance. With that, Bill will provide an overview of the development and then Patricio, Bill and I will take your questions. I ask that you limit yourselves to one question and a related follow-up so that we can respond to as many of you as we can in the limited time available. If you have more than one topic to address, please get back in the queue.

Bill | Market Developments Presenter

Thank you, Jim. At the beginning of 2025, we talked about the year ahead being one of challenges and opportunities. As we look back, 2025 met those expectations with improvements in product bookings and revenues in Q4 and our IP licensing practice becoming a major contributor to our top and bottom lines. As we exited 2025, the bill ratio increased over 1.2 in Q4 and has continued to increase in Q4. At the start of 2026, we can say that this will be a year of different challenges and greater opportunities. They should result in record bookings, revenues, and profitability, and significantly higher utilization of our first chip crab. As Patricio commented in today's press release, The United States International Trade Commission has instituted a second investigation into illegal importation of power modules and computing systems, infringing WICO's IP to non-isolated bus converters. By now, it should be clear that WICO will methodically and relentlessly enforce its intellectual property to the many inventions it pioneered and that suppliers of infringing systems putting themselves and their customers at risk, including unlicensed OEMs and hyperscalers. Following the example set by licensed OEMs and hyperscalers, companies with an ethical backbone should do the right thing, avoiding infringement by taking a license to secure their supply chain. A lead customer for VPD solutions is ramping a Gen 4 factorized power system before transitioning to a Gen 5-based solution with higher current density and performance. This transition is expected to start in the second half of this year, while production of the Gen 4 system will continue to ramp at a steep rate at the end of 2026. Engagement with other Gen 5 VPD customers will be selective, as capacity in our existing first chip is getting earmarked for strategic customers, and additional capacity from our second chip cap may not be available until 2028. Our industrial and aerospace and defense business outlook for 2026 is strong, particularly in the automatic test equipment market, which is seeing substantial growth and projecting high growth for the next several years. Given our power density advantage, which is of paramount importance to our customers, I am confident that we can double the revenues in these markets over the next four to six years respectively. As we approach high utilization of our first chip lab, we are beginning to engage customers in capacity reservation agreements to secure their supply needs. While in the planning stages of a second chip lab to expand the market opportunity, we are having discussions with candidates an alternate source of high current density Gen5 VPD solution. An alternate source will give licensed OEMs and hyperscalers broader access to best-in-class power system technology. In view of these developments, we remain confident in our business strategy of innovation, customer focus, and market focus. With that, we'll now take your questions.

Operator | Conference Operator

Thank you. At this time, we'll conduct a question and answer session. As a reminder to ask a question, you'll need to press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. Please stand by while we compile the Q&A roster. And our first question comes from the line of Gwen Bolton of Needham & Company. Your line is now open.

Gwen Bolton | Analyst, Needham & Company

Hey, guys. Congratulations on 2025 and the record outlook for 2026. Patricio or Phil, I wanted to start with your lead customer. It sounds like you're seeing a pretty strong ramp from that customer, and you mentioned that Andover is getting filled. Can you talk, is Andover being filled largely from your lead customer, or do you have other significant Gen 4, Gen 5 customers customers that are contributing to that growing utilization in the Andover facility?

Patricia Vinciarelli | Chief Executive Officer

It's a combination of demand, increasing demand on a number of fronts. Not just hand computing, where there is a multiplicity of factors at play with respect to increasing demand on capacity. but also in test equipment, as Phil mentioned in his remarks, and some of the other animals.

Gwen Bolton | Analyst, Needham & Company

Got it. Okay. Thank you. And then I guess maybe follow up on the IP licensing in the press release. You talked about seeing record revenue from the IP licensing business this year. Just wanted to clarify, does that include or exclude the $45 million patent litigation settlement that was part of the 2025 revenue stream as we think about 2026?

Patricia Vinciarelli | Chief Executive Officer

We see our licensing business expanding. As Jim suggested earlier, the timing of elements contributing to the expansion is somewhat unpredictable, but as we look at the predicament that OEMs and hyperscalers face in terms of potential exclusion orders, we see a major opportunity for us to grow our licensing business considerably. As we have discussed in our last quarterly call, we see that business expanding greatly in the last couple of years. I think what has transpired since then suggests that those are conservative estimates.

Jim Smith | Chief Financial Officer

And, Quinn, just to clarify the number for you, the royalty revenue I quoted in my prepared remarks of $57.4 million in 2025 does not include that litigation settlement. That's royalty revenue. It was up 23.2% from $46.6 million in 2025.

Gwen Bolton | Analyst, Needham & Company

Just to clarify, Jim, when the comment in the press release about the business, the licensing business will expand, are you looking at the 57.4 as the 2025 base, or should we be thinking about that base being $102 million, which would include that $45 million patent settlement as part of the base?

Patricia Vinciarelli | Chief Executive Officer

So for one thing, there's going to be more patent settlements. And for another, the one patent settlement from last year, in terms of the outlook for licensing business, it doesn't really make a substantial difference with respect to the upside with respect to this part of our business. We expect hundreds of millions of dollars worth of revenues from . And the 47 million event last year is, in hindsight, going to be rather up in the bucket, to be sure, but not over significant.

Understood. Okay. Thank you. Operator | Conference Operator

Thank you. One moment for our next question. And our next question comes from the line of John Teng-Wen Tang of CGA Securities. The line is now open.

John Teng-Wen Tang | Analyst, CGA Securities

Hi, thank you for taking my questions, and also congratulations on a good year. I was wondering if you could give us a little bit more detail on the launch customer for VPT. You mentioned that they were going with a Gen 4 product. Could you talk about the decision that went into that and why they aren't starting with Gen 5 and kind of how that happened?

Patricia Vinciarelli | Chief Executive Officer

Well, so the Gen 4 system is mature. It's one that's got a track record of of success that is expanding in terms of its opportunity in order to get to the next generation system, mature design, mature system. It's not just the power systems, the system as a whole needs to come to fruition. It isn't quite there yet. It will be there soon. and that will lead to the next set of opportunities. But to be clear, with our lead customer, we're seeing a significant share of our capacity being utilized as we get towards the end of this year on the earlier generation system. And the next generation system will provide an additional layer of user capacity as we get into next year.

John Teng-Wen Tang | Analyst, CGA Securities

Understood. Thank you. And then when you start, sorry, you're considering a new facility. I was just wondering if you're planning to build that yourself or you're still planning to work with partners to do that perhaps in a capital-like fashion. And, you know, just wondering what kind of capacity a new facility would have.

Patricia Vinciarelli | Chief Executive Officer

So we've made two offers on, you know, area where we could build. The lead time associated with that, though, is one and a half to two years when everything is sent down. We are also looking at existing buildings within a 30-mile radius of Andover to the north and the west, and we haven't decided yet which of these alternatives we're going to close on. But again, we've had two offers. No deal done yet, but I would expect that we're likely to do something on this general front very soon.

John Teng-Wen Tang | Analyst, CGA Securities

Okay, great. Thank you.

I'll jump back in queue. Operator | Conference Operator

Thank you. One moment for our next question. And our next question comes from the line of Rich Chan of Craig Island Capital Group. Your line is now open.

Rich Chan | Analyst, Craig Island Capital Group

Well, thanks, Patricia, Phil, and Jim for taking my questions. All of a sudden, my congratulations on a really good last year. My first question is on royalties and licensing here. As you mentioned, there's some questions here in the Q&A about growth in this business. I guess I wanted to triangulate it differently from how you've talked about in the past where you're hoping to get a roughly $300 million revenue stream. I know that's not entirely royalties, maybe some product in there, but talking about $300 million bogey between 24 and 26. And by my numbers, at least, that require a fair amount of growth, like doubling or so of your royalty revenues from 25 to 26. But you didn't talk about it that way this quarter. Can you maybe talk about it in those terms here? Is that a number that we should continue to expect, better or worse, just to help us triangulate those things?

Patricia Vinciarelli | Chief Executive Officer

Yeah, so... We have two major licenses. We expect to have a lot more. And future contribution from those two should become quite a bit larger. So I think in one way of looking at it, in IAM computing AI, systems are, from the power system perspective, are IP. And to the extent that In order to be able to deploy those systems, a license would become necessary. That defines the opportunity. As you can see, the opportunity far exceeds what we've harnessed thus far. There's a lot more to be captured in years to come. Number, we see a point that involves contributions from royalties and business licenses. It's not a long-term goal. It is a relatively near-term goal. Not for this year, to be clear, but as we have said last year, in a couple of years' time frame. But we can see going beyond that.

Rich Chan | Analyst, Craig Island Capital Group

My follow-on question is on second-gen BPD engagements. You already talked about your lead customer today and in past quarters, but last quarter you also mentioned engagements that didn't seem to be early-stage ones with a hyperscaler and an OEM. And I didn't hear any comments on the prepared remarks, although I was a little bit late. So I'm wondering if you can comment on the progress of those and any other ones you've added to the pipeline.

Thank you. Bill | Market Developments Presenter

Yeah, so Richard, this is Phil. So maybe I can get a little bit more granular on that. So the next step for us is over the next couple of weeks, we're bringing in our global, you know, FAE team that is dedicated to supporting customers in different locations. We have target hyperscalers and OEM chip companies located. So they will be going through, if you like, a boot camp on Gen 5 VPD, using the demo boards and tools that the central applications group here in Andover have developed for the market. And so that's happening in the next couple of weeks. After we get that in place, as we talked about, we're going to be fairly selective in who we're going to be engaging with. It's very important we do that. And so that's the next step after that. So we'll be here the next couple of weeks, and we're on the way.

Rich Chan | Analyst, Craig Island Capital Group

Okay. Thanks for that detail. I'll jump in line. Thank you, guys.

Operator | Conference Operator

Thank you. One moment for our next question. Our next question comes from the line of Justin Clare of Roth Capital Partners. Your line is now open.

Justin Clare | Analyst, Roth Capital Partners

Hi. Thanks for the time here. So first, I just wanted to follow up on the potential for capacity expansion here. So given the plan to add a second FAB, I was just wondering, you know, how we should think about the ramp in utilization for your existing facility, how we think about that over the next couple of years, and kind of, you know, what utilization thresholds you anticipate reaching, you know, that is necessitating the additional FAB here? And then just if you could talk about, you know, when do you anticipate kind of approaching that optimal utilization for the first FAB?

Patricia Vinciarelli | Chief Executive Officer

So based on ramps with customers in different markets, with a strong contribution from my end computing, we see existing FAB being well utilized within a year. And that's obviously prompting the initiative to secure additional capacity both by bringing up a second FAB and by having discussions with potential alternative sources that could provide customers with equivalent solutions using their own capabilities and our technology. In terms of the FABs, as I mentioned earlier, we started exploring the opportunity of Being at that, with a large piece of real estate, flexibility to increment capacity in steps. This would be a campus that could support up to half a million square feet of manufacturing space. Just to set things in perspective, the facilities are 300,000, so there would be substantially more in terms of the USAID available for capacity. But also, given the learning that we've done, we think we can achieve more capacity per unit of area in an extra facility. The thinking of late has evolved more toward potentially acquiring a building. There's been no decision with the other yet. It could go either way. But the benefit of doing it with an existing building is that you know, the time to fruition would be a year and a half shorter. So we might go that way. It would be on the same scale, though, in terms of the increment of capacity that we want to bring about with the second plan.

Justin Clare | Analyst, Roth Capital Partners

Okay, got it. That's helpful. And then just when we think through this, if you're reaching, you know, close to kind of optimal utilization within a year, I think historically you've talked about, you know, your FAB being able to support a billion dollars in product revenue. So within a year, could you be, you know, close to that level where you're getting to a run rate of a billion dollars in product revenue? And then just curious on the second FAB, how much in CapEx spending you might anticipate in terms of what's required there?

Patricia Vinciarelli | Chief Executive Officer

Yes. as a capacity given the dollars per panel and the number of panels they can process within a time to do slightly above the billion dollars in revenues. But you wouldn't want to use 100% of the capacity because by definition it will leave no room for error, right? An 80% capacity reduction is the kind of number that you want to think of in terms of the test or fundamentally having achieved a very good capacity reduction. Now, in terms of the next facility, whether it's by acquiring land, putting up a building, equipping it with what is necessary in order to bring about that relative increment of capacity. This is all in a proposition of the order of $250-$300 million, you know, something that Viagra is the way we go to finance on its own, you know, a cut position and a budget.

Justin Clare | Analyst, Roth Capital Partners

Okay. I appreciate it.

Thanks for the detail. Operator | Conference Operator

Thank you. One moment for our next question. And our next question comes from the line of John Dillon of DMB Capital. Your line is now open.

John Dillon | Analyst, DMB Capital

Hi, guys. Thanks a lot for taking my call. And again, congratulations on a good year. Phil, I wanted to go back to the customers you talked about before in Q3 and Q4. I kind of got the impression that your design wins and these customers couldn't find alternative ways to power the new way our processors. So I'm wondering, are those customers still working with you or they, have they gone to other, other customers? Um, or are you going to be able to meet their time schedule for their, for their new products?

Patricia Vinciarelli | Chief Executive Officer

Uh, they have a need for a VPD solution in particular that, uh, has more of the right trace. And, uh, The competitive landscape, it doesn't have that. And that's constrained the market opportunity for VPD to a very limited set of companies that have actually done it while incurring a real pain because of the shortcomings of the power system. So what we bring about with a second-gen VPD and fifth-generation modules is a solution that has a much higher density and much higher grade level of manufacturing quality in terms of the assembly of the whole solution. It doesn't require a stack. as such an actual BPD does. It's much easier to cool. It's more efficient. It has a number of benefits that manifest themselves in many ways. So, as Phil suggested, we're going to be picking those customers that strategically we want to be aligned with. We have a great deal of interest As an example, we were out in the valley just a few weeks ago, met in the morning with, you know, in other words, a customer with a good deal of interest in, you know, our VPD capability. We haven't decided yet whether or not we want to engage in that particular case. We will be in a situation like this, in fact, before we get another five in place of deciding which applications make the most sense. And as you say, a lead customer is one that we prioritize. There's going to be more in that league, in that end market. This is my particular tremendous opportunity in terms of volume. That one alone fills two tabs. So we are in a privileged position. We have the technology and the capability. We can leverage our opportunity both by selling products and by collecting licensing. We can also do it by bringing about non-financed works. We're pursuing all these opportunities involved.

John Dillon | Analyst, DMB Capital

Got it. So, I just want to make sure I understand. So, the customers that you mentioned before, they're still on the hook. They're still talking to you. They're still engaged with you. They still can't find an alternative source to power their new A processors, but it sounds like it just slipped a bit.

Patricia Vinciarelli | Chief Executive Officer

Well, I think if you were to ask them, you know, they would all say that they will find a solution, but not Vigor exists. Nobody will knowledge that they're out of luck without us. And that's not the real world. That's not what we're suggesting. There's always some way of getting something done, but to be clear, that way of getting it done is problematic in terms of the technical trade-offs and technical challenges, whether it's cooling or manufacturability. And then it may also be very much challenged from the IP perspective.

Operator | Conference Operator

Got it.

Patricia Vinciarelli | Chief Executive Officer

It's a complex landscape.

John Dillon | Analyst, DMB Capital

It sounds like it's still a competitive situation then.

Patricia Vinciarelli | Chief Executive Officer

Well, it's always been an issue of competitive situation.

John Dillon | Analyst, DMB Capital

Yeah, got it. So my follow-on question is, Are you seeing any AI processor designs with horizontal or horizontal vertical besides your lead customer?

Bill | Market Developments Presenter

So I think if you look at, as Patricio actually said, there's one very, very large company that's using vertical power delivery today in very high volume, and that's increasing year on year. In terms of anybody else really in high volume production, it's vertical power delivery, John, it's fairly limited right now. They're all trying to get Gen 1 VPD to work in some fashion. But to date, I'm not hearing anybody that's buying that in volume. They're trying. They're working on it. But I think when we come out with our Gen 5 and launch it and selectively launch it, as we've talked about, we're going to have some winners on our hands.

John Dillon | Analyst, DMB Capital

Got it. I saw a picture of a new AI processor that's coming out that had a, it looked like a gold bar on the top. And that's why I ask about horizontal. I'm wondering if you have any upcoming horizontals or horizontal verticals besides your lead customer, because I know they're different.

Patricia Vinciarelli | Chief Executive Officer

So I don't think we're going to make comments specifically about that stuff. I think, you know, what do you all say about that?

Bill | Market Developments Presenter

We do have Gen 4 questions. customers using our gold bars as it were laterally.

Patricia Vinciarelli | Chief Executive Officer

But I don't think the visibility to a gold bar is really what's fundamentally an issue at this point. I think my way of looking at it is that we have tremendous opportunity and we have the technology that matches the needs of the marketplace. Again, going back to the earlier question, it's not that if our solution didn't exist, there wouldn't be a solution. The authentic solution, which is really a common denominator to all the competitors that tend to do pretty much the same thing with The only slight difference is that they look over each other's shoulder to, you know, make incremental steps down an old road. It carries a lot of baggage in a number of respects, technical, and when it comes to VPD, also IP challenges.

John Dillon | Analyst, DMB Capital

Excellent. Okay, listen, thank you very much. I might get back in the queue.

Thank you again. Operator | Conference Operator

Thank you. We'll move it for our next question. And our next question comes on the line of John Tengwintang of CJS Securities. Your line is now open.

John Teng-Wen Tang | Analyst, CGA Securities

Hi, thank you for taking my follow-up. Earlier, you mentioned that you were taking capacity reservations for your facility. I was wondering what the financials of that look like. Is there an upfront payment? Are there contract terms for minimums or something like that? Just how are you approaching those reservations?

Patricia Vinciarelli | Chief Executive Officer

So, in terms of revenue recognition, that would happen... you know, as shipments take place. Obviously, there is a cash component that would show up in Arbashi, but there is no acceleration of revenue that comes from the capacity reservation. Revenues get recorded as product ship covered by only that reservation.

John Teng-Wen Tang | Analyst, CGA Securities

okay got it and then um can you talk a little bit more about the 800 volt data center opportunity and if you are seeing any traction there or are you seeing any orders ahead of that and i'm specifically talking about you know products that are outside you know the vertical or lateral power or the mdms that you have today so we have technology there there too you know virus pioneered um high density Patricia Vinciarelli | Chief Executive Officer: a bus conversion from 800 volts and 400 volts for many, many years. We have relevant AP. We have products. We have more products in the pipeline that will come out later this year. Frankly, though, I would say that there is quite a bit of hype about this 800 volt. I think that it's to some degree missing the point with respect to what the real issues are. It's a diversion. The reason why generations of GPUs have not been able to meet expectations with respect to performance having to do with the power system gating the GPU performance. It has nothing to do with 4k volts or 800 volts. It has to do with what goes on at the point of load. And the fact that multi-phase mainstream types of solutions are handicapped. That's where the problem should be. So obviously we operating industry that goes through phases of focus and potential . Without question, there is value to an 800-volt bus, but that value, if you measure it in terms of efficiency, it's measured in a few percent. gets lost in inferior point of load solution is 15 or 20 points. So I personally wonder why anybody would worry about capturing the 3% improvement in another volt power distribution when they're missing 15 or 20% in the point of load. They can't call or deliver the power they need in order to achieve the level of performance they targeted. But in respect of how these things evolve, we have the technology, we have the AP, and we're going to make the most of the opportunity. But frankly, I think there's going to be a lot of hype related to 800 volts. And that could lead to problems, because if people are focused on the wrong problem, which is not really much of a problem, they're going to have to be solving the real problems.

John Teng-Wen Tang | Analyst, CGA Securities

Understood.

Thank you for that insight. Operator | Conference Operator

Thank you. One moment for our next question. And our next question comes from the line of Glenn Bolton of Neiman Company. Your line is now open.

Gwen Bolton | Analyst, Needham & Company

Hey, guys. Thanks for taking my follow-up. Patricio, I guess I just wanted to sort of make sure everybody on the line is sort of thinking about the revenue ramp the same way. You have an obviously guided revenue for 26th. but you've given us sort of three, you know, kind of guideposts, which are you expect Andover to become, you know, or to approach full utilization over the next year. You've sort of said full utilization, you know, would be around 80%. Otherwise, you know, you don't leave a lot of room for error. And you've said at 100% utilization, the FAB would be able to produce a billion in revenue. And so when I put all that together, it sort of sounds like you're pointing revenue could approach an $800 million product revenue, could approach an $800 million run rate over the next year, and that would be more than double what you did on a product revenue front in calendar 25. I know you're not giving guidance, but some of those guideposts, you know, pointed to very significant revenue growth. And I just want to make sure to the extent that you think that interpretation of the comments you've made is too aggressive. I just wanted to see if you would correct any of those thoughts or if that's the right way to be thinking about sort of the data points you've suggested.

Patricia Vinciarelli | Chief Executive Officer

I think your analysis is on point. Obviously, key to that is run rate. It is distinct from revenues for this year, 26. So we see the demand getting to a run rate that would utilize 80% or so of the capacity in the end of the fiscal year. Another way of, in fact, tagging this is that we see this year as being one major increase in product revenue relative to the rate of last year and at a level that we haven't enjoyed for quite some time. And that's pretty much baked in at this point based on bookings that we've received And additional bookings to come away as the year progresses.

Gwen Bolton | Analyst, Needham & Company

Got it. Thank you very much.

Thank you. Operator | Conference Operator

Thank you. One moment for our next question. Again, as a reminder to ask a question, you'll need to press star 1-1 on your telephone. And our next question comes from the line of Richard Chan of Greg Holland Capital Group. Your line is now open.

Rich Chan | Analyst, Craig Island Capital Group

Well, hey, guys, thanks for letting me ask a couple of follow-on questions here. My first one is on licensing here. Matricio, following up on an answer to one of the prior questions here you mentioned about having a couple or specifically two licensees so far, As we think about growing the licensing revenue stream this year, and if you can comment beyond that, that'd be great in terms of your general expectations. But how do we think about adding to the customer list here versus number of licensees or licenses per licensee or other dynamics that help us think about this? And I guess specifically, if you could address, you know, if things went well for you, What's the kind of number of major licensees would you have? I don't know if this is three or five or eight, but if you can just characterize that in any way, that'd be helpful.

Thanks. Patricia Vinciarelli | Chief Executive Officer

In the AI market, I think in terms of base substantial licensees, it would be up to that. So three times as many as we currently have in that market. a reminder was on top of that. And by the way, if the focus has been and the actions of the ATC thus far have been focused on IAM computing, but there's information going on in other markets as well. So there is a lot of opportunity, not just for DMVM technology, but what other technologies ?

spk11

Okay.

Rich Chan | Analyst, Craig Island Capital Group

My follow-on question is wondering if there's any way that you can help us think about, for specifically about your second-gen VPD technology, how do we think about content per XPU. And I'm going to offer a couple ways maybe to think about this. I know you're not going to quantify in a specific way, but I think a lot of us who cover this name for a while have a decent idea of what that content looked like a few years ago in your last really high volume or potential high volume win that you had in point of load. But also since that time, the level of power and the level of current in leading XPUs, particularly getting to reticle limit, are increasing a lot here. So do we think about the kind of the content opportunity now as kind of being proportional to power current? And how do we think, how would you have somebody think about what that might look like on a per unit basis?

Thank you. Patricia Vinciarelli | Chief Executive Officer

So as I look back at, you know, a high power system for GPUs a number of years ago, that was, in one way of looking at it, about $100 million per year type of opportunity and rising. We are locked into an opportunity that will double that. And to Phil's earlier point, there is an hyperscale with an opportunity that could be another magnitude. I don't know if that answers your question.

Rich Chan | Analyst, Craig Island Capital Group

Mine was really more on content per XPU, but the way you characterize it is also helpful. But anyways, you might think about it on a per XPU basis would be helpful, too.

Thank you. Bill | Market Developments Presenter

Yeah, so do you want to take that? Yeah, I think, Richard, to your point, it really depends on the current, that XPU, the number of rails, that type of thing. So I think that the opportunity for us would be somewhere between $200 to $400 per XPU.

Patricia Vinciarelli | Chief Executive Officer

But it very much depends. So, make that with a grain of salt.

Yeah. Rich Chan | Analyst, Craig Island Capital Group

Understood. Getting it to half order magnitude is very helpful. So, thank you very much for that.

Bill | Market Developments Presenter

So, Richard, just to clarify, it's about like a 2,000 amp up to a 4,000 amp type of product.

Rich Chan | Analyst, Craig Island Capital Group

Got it.

Okay. Great. Thank you. Operator | Conference Operator

Thank you. One moment for our next question. Our next question comes from the line of A. Hicks of NC Capital Management. Your line is now open.

A. Hicks | Analyst, NC Capital Management

Yeah, good afternoon. I just wanted to confirm. It's a billion dollars capacity now.

spk11

Hello?

Patricia Vinciarelli | Chief Executive Officer

I think we lost part of your question. I think the question was he wanted confirmation of the billion dollar capacity of one. Was that a question?

A. Hicks | Analyst, NC Capital Management

Yeah, just for advanced products, nothing else.

Patricia Vinciarelli | Chief Executive Officer

Yes, we are very confident that we can generate upwards of a billion dollars worth of revenue.

A. Hicks | Analyst, NC Capital Management

Okay, because I'm looking at what your sales were just for advanced products, not without royalties for the year was around $200 million. Is that for 2025?

Jim Smith | Chief Financial Officer

Yes.

A. Hicks | Analyst, NC Capital Management

Okay, so you're saying within a year or so, you could be at $800 million in advanced products?

Patricia Vinciarelli | Chief Executive Officer

It's suggesting an earlier question than confirmed by me.

A. Hicks | Analyst, NC Capital Management

Okay, and then on the BRICS, the original BRICS fab, could that be converted in the future to advanced products?

Bill | Market Developments Presenter

So no, the bricks are much older products. They've got a very stable, if you like, customer base. So some of those customers are moving to advanced products, and we've had quite a bit of success of that in recent years in some higher volume end markets. But aerospace and defense and some very broad-based industrial, they like the bricks. They're going to stay with the bricks. So the brick piece will be fairly stable over the next few years.

Patricia Vinciarelli | Chief Executive Officer

I don't really play a role with respect to capacity . They become, you know, they become .

Okay. A. Hicks | Analyst, NC Capital Management

But you're also adding capacity to this first FAB. Is that correct also?

Jim Smith | Chief Financial Officer

Yes, we are. Yeah. So that's right. We're adding capacity to the existing footprint.

Okay. A. Hicks | Analyst, NC Capital Management

And then, did you say you're in discussions with a partner to have them produce products themselves?

Patricia Vinciarelli | Chief Executive Officer

Yeah, so we are having discussions, so this may take some time because it's an important decision selection. We have customers that want us to have an alternative source. we see the benefit of an out there source in terms of expanding the market opportunity. If you just look at AI, there is so much of a market opportunity that frankly there is no way that BlackRock alone could do it alone. Even with the second or third fab. So we need to in effect look at making the most out of the opportunity as opposed to limiting the scope of the opportunity by wanting to do it alone.

A. Hicks | Analyst, NC Capital Management

Then I was just kind of curious, how many panels can you produce in a day out of the factory you have now?

Patricia Vinciarelli | Chief Executive Officer

I'm not going to quantify that for competitive reasons. I will just say that In terms of the revenue opportunity of the FAB, FAB 1 is slightly above a billion dollars a year.

A. Hicks | Analyst, NC Capital Management

Okay. Okay.

Thank you very much. Patricia Vinciarelli | Chief Executive Officer

Thank you.

Operator | Conference Operator

Thank you. We'll move on to our next question. Our next question comes from the line of John Dillon of DMV Capital. Your line is now open.

John Dillon | Analyst, DMB Capital

Hi, guys. I'll make this quick because I know we're up against the timeline. First of all, Patricio, thank you for answering Quinn's question. That was one of my follow-up questions also, and I appreciated that answer. Another one is just a quick one. We're halfway through the quarter, and I'm just wondering how bookings are looking so far this quarter.

Bill | Market Developments Presenter

I mentioned in my prepared remarks, John, that book the bill was 1.2 in Q4, and we're above that already in Q1.

John Dillon | Analyst, DMB Capital

Excellent. Thank you very much. Congratulations, guys.

Thank you. Operator | Conference Operator

Thank you. This concludes the question and answer session. Thank you for your participation in today's conference. This concludes the program. You may now disconnect. jsPDF 3.0.3 D:20260606090532-00'00'