Hello, and welcome to Vicor's Second Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask the question during the session, you will need to press star 11 on your telephone. You may then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. I would now like to turn the conference over to Jim Schmidt, Chief Financial Officer. You may begin.

Welcome to Vicor Corporation's earnings call for the second quarter ended June 30, 2025. 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. 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 investment relations page of our website, www.vicorpower.com. We also filed a Form 8K today related to the issuance of this press release. To remind listeners, this conference call is being recorded and as the copyrighted property of Vicorp I want to remind you various remarks we make during this call may constitute forward-looking statements for purposes, pay for provisions, litigation reform act of 1995 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 uncertainty. In light of these risks and uncertainties, we can offer no assurance that any forward-looking statement will and may differ materially from those explicitly set forth in our remarks today. The risk and uncertainties we face are discussed in item 1A of our 2024 Form 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, Tuesday, July 22, 2025. BICOR undertakes no obligation to update any statement, including cold-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 investment relations page of our website. I'll now turn to a review of our Q2 financial performance, after which Phil will review recent market developments and Patricio 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 10-Q for additional information. As stated in today's press release, MICOR recorded product revenues, licensing income, and a patent litigation settlement for the second quarter of $141 million, up 50.1% sequentially from the first quarter of 2025, total of $94 million, and up 64.3% in the second quarter, a total of $85.9 million. Product revenue increased 1.2% sequentially to $60.6 million. And brick product revenue increased 4% sequentially to 35%. Shimmons to stocking distributors increased 18.9% sequentially and decreased 14.3% year-over-year. Exports for the second quarter decreased sequentially as a percentage of total revenue to approximately 51.9% from the prior quarter 60.8%. For Q2, advanced product share of total revenue decreased to 63.1% compared to 63.7% for the first quarter of 2025, with this product share correspondingly increasing to 36.9% of total evidence. Turning to Q2 gross margin, we recorded a consolidated gross profit margin of 65.3 percent, which is an 1810 basis point increase for the entire quarter, primarily due to patent litigation settlement within the quarter. Tariff expense was approximately two million dollars. We'll now turn to Q2 operating expenses. Total operating expense increased five percent sequentially from the first quarter of 2025 to 46.7 million dollars. The sequential increase was primarily due to an increase in selling, general, and administrative 1 million dollars of incentive legal fees associated with the patent litigation settlement. Amounts of total equity-based compensation expense for Q2 including SG&A and R&D was 900,000, $1,790,000, and $1,020,000, respectively, totaling approximately $3.7 million. Turning to income taxes, we recorded a tax provision for C2 of approximately 7.8 million, representing an effective tax rate for the quarter of 16%. Net income for Q2 totaled $41.2 million. dollars. Gap diluted income per share was 91 cents based on the fully diluted share count of 45,077,000 shares. Loyalties, legal expenses, and income from patent litigation have become part of VICOR's ordinary course of business. I will point out that without the patent litigation settlement, net Q2 revenue would have increased by approximately $2 million. Gross margin would increased by approximately 200 basis points, operating expenses would have declined by approximately three million dollars, and income before taxes would have increased from approximately three million dollars in Q1 to approximately nine million dollars in Q2. Turning to our cash flow and balance sheet, cash and cash equivalents totaled 338.5 million dollars in Q2, an increase of 42.4 million dollars sequentially and net of approximately seventeen point five million dollars in share repurchases during the course receivable that of reserves 55.1 million dollars equivalent the DSOs for trade receivable is 31 days inventories net of reserves decreased 3.1 percent sequentially to ninety five point five million dollars annualized inventory turns were 1.6 Operating cash flow totaled $65.2 million for the total expenditures for Q2 totaled. We ended the quarter with a construction and progress balance primarily for manufacturing equipment of approximately $11.8 million and with approximately $3.1 million remaining to best bookings and backlog. Q2 booked a bill came in below one, and one-year backlog decreased 9.6% for the entire quarter, closing at $155.2 billion. As we said on last quarter, earnings fall 2025 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. We are unable to provide quarterly guidance until we are further along resolving uncertainties and capitalizing on opportunity. We will provide an overview of Asian market developments, and then patricio full 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 possible in the limited time available if you have more than one topic to address please get back in the

case thank you jim our second quarter book to bill ratio came in below one due to order cancellations from customers in china and widespread order placement hesitancy around tariffs VICO has instituted a 10% tariff surcharge applicable to all new orders and customer backlog shipping after July 2nd. This tariff surcharge is now in effect. Earlier this year, we brought to fruition our first ITC action, which has resulted in cease and desist orders against the named respondents and an exclusion order against their customers, both OEM and hyperscalers. We are pursuing additional actions against companies who are knowingly infringing RIP while playing a game of catch me if you can. At the annual shareholders meeting on June 20th, I presented an update on our business strategy, which is fundamentally centered around our top 100 customers, enabling high performance modular power. At the meeting, we showcased next-generation products providing significant advances in power and current density at levels far beyond our nearest competitors. These next-generation products are being sampled to lead customers across our four target markets, and customer engagements are expected to expand in Q3. I am pleased to announce that our Gen 5 vertical power delivery solution to a lead customer is coming to fruition with a current density exceeding its original target specification. Higher current density, thermally adapt, and scalable VTD will enable us to engage with hyperscalers, AI processor, and network processor companies to deliver solutions with superior performance and cost effectiveness. These engagements will begin with the delivery of VPD evaluation boards and online selection and simulation tools. As discussed at the ASM, we're also focused on the future AI megawatt rack, which will require 800 volt DC power delivery and conversion to 48 volts. It's pioneered high density non-isolated 400 volt to 800 volt an isolated 800-volt to 48-volt bus converters, a new 800-volt power module, which will deliver 10 kilowatts at 48 volts in a package smaller than an iPhone, will begin sampling AQ4. Michael will be uniquely positioned to offer front-end 800-volt to 48-volt bus converters and direct BPD 48-volt to sub-1-volt solutions, enabling a high-efficiency, high-density power delivery network for our customers. The market SAM for these solutions is expected to exceed $5 billion by 2027. Opportunities continue to grow in our automotive business. We have just concluded a successful audit with a large European OEM for initial low-volume project, and we are now preparing for an audit by a large ASEAN OEM MQ3. It is very clear that 48-volt zonal architectures are the highest growth opportunity in automotive, followed by 800-volt to 48-volt conversion technologies across our AI and automotive market. The pipelines in our industrial and aerospace and defense businesses are healthy and growing. Our new product introductions will strengthen these businesses and put them firmly on a path to doubling in four to six years, respectively. As presented at the ASM, we remain confident in our business strategy of innovation, customer focus, market focus, and a successful technology licensing practice. Thank you. We will now take your question.

Thank you. As a reminder, ladies and gentlemen, to ask the question, please press star 1-1 on your telephone, then wait for your name to be announced. To withdraw your question, please press star 1-1 again. Please limit yourself to one question and one follow-up. You may return to the queue for additional questions. Please stand by while we compile the Q&A roster. Our first question comes from the line of Quinn Bolton with Needleman Company. Your line is open.

Hey, guys. Congratulations on the patent litigation settlement. That's a very nice amount. Wanted to kind of start there. And at the annual shareholder meeting in late June, you guys talked about, you know, a return on the money spent on the ITC case, somewhere in the, you know, round number $200 million range. And I'm just kind of curious, you know, as you look at that, you know, kind of return. I assume that that includes the patent litigation settlement that you just announced, but also just wanted to check, does that include the royalties from the OEM, the hyperscaler licenses, just in 2025 and 26, or does that include what you also recognized in 2024? Just want to make sure I've got the time frame right on that $200-ish million return,

and then I've got a follow-up. So that's the approximate amount that we have locked in. So far, $3.26.

Okay, $3.26. Got it. Okay, perfect. And then either Patricia or Phil, book-to-bill was below one in the June quarter. I think you mentioned some hesitancy around the tariff surcharge and just general tariff uncertainty in the business, as well as some cancellations in China. Do you sort of feel like the bookings activity has reached a minimum? Have you seen any improvements in July on the bookings trend and any evidence that book-to-build might be getting back above 1-to-1 in the September quarter, or do you see this tariff uncertainty continuing? I know August 1st is an important date for reciprocal tariffs, so just kind of wondering if that tariff uncertainty has continued here in the July timeframe.

So, Quinn, this is Phil. So, we think that the hesitancy around Paris is now behind us. It's very clear now what we're doing. Customers are working with that expectation, and I think that, as I said, that's behind us now, and it's on to future quarters.

Perfect. I'll get back in the queue. Thank you.

Thank you. Please stand by for our next question. Our next question comes from the line of John Tangwanting with CJS. Your line is open.

Hi, good afternoon. Thank you for taking my question, and congratulations on a nice settlement. I was wondering if you could talk a little bit more about the cancellations that you saw with what end markets those are in. Was that HPC or something else, industrial, automotive, aerospace? Any help there would be appreciated.

Most, John, this is Phil, mostly from the industrial market in China. We have customers there for many, many years using a lot of older products as well as some of our advanced products. It was widespread. It came through distribution channels sort of across the board because the tariff there was pretty high initially. So we had some order pushouts and some cancellations. It was a mix.

Understood. And second, just on the royalty streams that you're seeing, Are you expecting to continue growing those licensing streams into the future quarters? Is that part of the engagement that you're talking about, or is that mostly stable for now?

We did with the ADC issues earlier this year. Let's still reprint the supply chain, adding additional action to make it so good. There's going to be a lot more of what has happened.

Okay, great. Thank you. I'll jump back in queue.

Thank you. Please stand by for our next question. Our next question comes from the line of Richard Shannon with Craig Hallam. The line is open.

Well, thanks, guys, for letting me ask you a question. My first one is going to be on this new license settlement. Congratulations on what seems like a very nice win here. Maybe you can describe this in a few different ways for us to the extent you're allowed or able to. Is this settlement, will we see any ongoing royalties from this customer, or is it fully paid up in any manner? Can you describe who this is, either by name or kind of a company, OEM, Hyperscaler, et cetera? I guess let's just start with that one, please.

Thanks. So I cannot disclose any of the details that you're looking for. I stated at the show this meeting that there's been no license in connection with this particular So we should not assume that the parties who were involved got a license and by mutual license are able to keep doing what may have been subject to exclusion order and potentially other actions.

Just as a heads up for actually for all of you, I'm getting a little bit of scratchiness from the line here. I'm not sure I'm hearing everything here, but I think I caught most of it. And with that said, I'll follow up with my second question here, which is to kind of understand the dynamics going forward regarding the licensing and certainly understand that you're not able to fully lay out your strategy here. But as I think Phil said in his prepared remarks about trying to play the infringers or providing or doing a catch me if you can strategy here, and obviously it seems like this patent settlement is one example of success there. I guess I'd love to understand the degree to which you think this is an example of that and we'll stop others Or are we going to see some back and forth here? Like what we saw last quarter with the licensee coming off Thank you

So I can describe the strategy and I think we've we've made history of it strategy is to protect IP enforcing it selectively smartly by fundamentally going after the supply chain that in the price industry, as I mentioned earlier, rely that that's been possible called the ecosystem. It's an ecosystem that for the most part in our players that don't innovate, they tend to copy each other. And when a successful product come to market, and hyperscalers or OEMs with commodity, out to the top with the enablers, they enable copycat products, then they incorporate them in much higher value assemblies, and then further down in the supply chain, OEMs and hyperscalers are committed to bringing this practice, at least insofar as LIGOR IP is concerned, to an abrupt end. And that will entail, in some instances, problems going lying down, because they know about their IP. They should have seen consequences, and that's what's happened with our first action, there's more of that coming.

Thank you.

Please stand by for our next question. Our next question comes from the line of John Dillon with D&B Capital. Your line is open.

Hi, guys. Congratulations on a nice settlement. Really nice to see. Phil, my question for you is at the annual shareholder meeting, you presented a chart that shared a timeline when you're going to be delivering Gen 5 vertical to your lead customer. So I'm wondering, is that still on target? Are you still going to meet all those dates? Does it still look solid? And I have a follow-up question after that.

So I'll take that. So things are progressing well, both with respect to the multiplier piece that had been, you know, challenging because of its very, very high current density, as well as the other building walls. So we're still, as you know, as this counselor showed this meeting, very much focused on addressing the needs of a lead customer. We're keeping our palate dry with respect to engaging with other venture customers, satisfying the very accurate necessity need. We'll be ready with demo system boards, audio tools to see database scalable adoption side.

so i think the question sorry john that we show we're still on target with that slide that we

showed john yeah okay so did you deliver the 83 solution then uh yes we we have um provided uh relatively significant quantities a percent solution which by the way was um the backstop agreed upon with the customer to begin with and and went our way making good progress with this expected to 100% and 133%.

Excellent. Then my follow-up question would be, when do you expect to have a fully productized product that you can produce in quantities for the general market?

I'm going to not spell that out. Again, as suggested earlier, John, we want to stay very, very focused on taking care of our lead counselor, and that's at this point in time. That's not to say that we're not preparing for a general market introduction. As I mentioned earlier, we made great size demo system goals. General market, I need to pull the figure on that once we're done with 100% targeted just before.

Excellent. Okay, I got you.

John, if I could just add to that just a little bit. And that's not to say that, you know, the front-end team is engaging with customers from a perspective of understanding their loads. So anybody that's looking at VPD, we're talking to them about their new next-generation processes, networking chips, so forth. So it's not that there's not any work going on. It's just that the front-end team isn't involved in, if you like, the development of the product for the lead customer. So we're able to have the resources available to talk and gather information such that when we do launch that out to the general market, you know, we're ready to hit those customers, you know, very, very quickly with solutions that they need. So that work is ongoing, and we've got a lot of engagement with anybody looking at EPD right now.

Will your lead customer be able to ship the product that you're shipping them to their customers? Is the quality going to be good enough that they can actually use it to ship to their customers? Are they still in the kind of evaluation stage?

I can't give you details for obvious reasons, but the customer is considering prioritizing the platform that our objective is to enable a hire and to do so as a target market introduction date.

Excellent. Thank you very much. It's very helpful. And again, congratulations.

Thank you. Please stand by for our next question. We have a follow-up question from the line of Quinn Bolton with Needleman Company. Your line is open.

Hey, Patricia, at the annual shareholders meeting, you were asked, is your outlook for 2025 to be still a record year. I think at the annual shareholder meeting, you had referenced some increased uncertainty around tariffs, but you still thought you got there. Obviously, with the June quarter results and the $45 million patent litigation settlement, it certainly looks like you're tracking to a record year in 2025, but wondering if you had any updated thoughts on whether 2025 is a record year for revenue, and then I've got another follow-up.

Yeah, it's suggested, I think, for a couple of quarters, we do expect 25 to be a revenue.

Excellent. Okay. And then the follow-up question, I know you don't provide quarterly guidance, but just wondering if you could directionally, you know, give some comments. Your royalty revenue was on a very nice upward trajectory through 2024. in March and June, you sort of pulled back to the roughly $10 million level. And I think you'd mentioned that one of the OEM licenses wasn't paying on a new generation product, but it looks like that royalty income level has stabilized. I'm just wondering, as you look into the back half of the year, would you generally expect royalty to begin to increase again? Or does it stay in this $10-ish million range, could you give any sort of qualitative comment on how you think the royalty portion of the revenue stream might trend over the next couple of quarters?

We're not going to commit to any specific level, but as evidenced by the results in Q2, I think it's safe to say that in any one quarter, there is a great deal of upside on a bigger scale than what happened in the future. And that's the reason, frankly, why there's a good deal of variance in different scenarios. And I should say, given a strategy and commitment for CIP, we don't want to be, in effect, committed, hooked on any particular target in any one for the last step to drive us the leverage we need in successful in uh being about the right as you can imagine creates uncertainty which is at this point in time you know part we get to business is going to become no more predictable at that point in time the kind of challenging forecasting that we personally face will no

Maybe just, Patricia, I understand that patent litigation settlements are difficult to forecast timing and probably the signing of new licenses to the extent they include a license payment is a little bit less predictable. But royalty payments, I would think, on existing licenses might be a little bit more predictable. And I guess that's what I was asking about. I know you had, again, talked about some, you know, sort of headwinds in that royalty income with the OEM license. And I'm just kind of wondering at this level, do you think that those headwinds are now largely behind the company on the existing licenses? I'm not trying to get you to comment on new licenses or, you know, patent litigation settlement, you know, in the future. Just more kind of wondering if that OEM license headwind that you had previously talked about might be behind you at this point.

It's not behind us, you know, we are enforcing the existing exclusion order and we're looking at additional actions for, in effect, making sure that the use of RIP does not go without appropriate not paying royalties when they were due.

Understood. Thank you.

Thank you. Please stand by for our next question. Our next question comes from the line of James Lieberman with American Trust Investment Services. Your line is open.

Thank you. Great results. It's good to see the licensing and the settlement income coming in. You mentioned the automotive area, an event with a company in Europe and Asia. and in the past you've mentioned you're seeing some continuing strength in the electric vehicle market in China. Can you give a little bit better overall color to how you see that playing out?

Yeah, so the automotive market, I mentioned at the annual shareholders meeting. It's pretty obvious to people that have dealt with the automotive market. You don't just enter that market. It's a hard slog. It's a grind. you have to really prove yourself as a supplier. So typically starting out with lower volume programs and platforms and then expanding the business from there once you've proven yourself. The critical steps through that are sort of collaborations on different power delivery networks with E1s and OEMs, which we've established. We're now going through the audit phase with a number of customers. That's a very critical step where they have teams that come in and look at all our quality systems and manufacturing systems and product development systems. So we're going through those now. So we're well on the journey, no pun intended, to becoming established at least as a lower volume smartphone supplier,

but those do expand then fairly quickly after that.

So we're very early days still. I think there's still a ways to go before that becomes a significant piece of our revenue, probably out in the 29, 30, 2030 timeframe. But we are excited about, you know, the activity that's going on there.

Thank you very much for that at this time.

Thank you. Please stand by for our next question. Our next question comes from a follow-up question from John Tanwantang with CJS. Your line is open.

Hi. Thanks for the follow-up. A couple months ago, the largest chip designer in the AI space disclosed their plans for 800-volt servers and the architectures they plan to use. They named a lot of partners in the press release there. And I was wondering, since you weren't on the list that was announced, if there's an opportunity there at all, does that shut you out? Or is there still a way to participate in that ecosystem, either with this designer or with others, with the products that you have?

In Phil's prepared remarks, we have a history of pioneering high voltage bus conversion with or without isolation, DLLIP, at various levels. I think anybody now pursuing high-density power system solutions involving bus conversion from 800 volt to 48 volt or in the general is going to be NRIP in terms of inferior power. As Phil mentioned, we're bringing to fruition a new high-fowl module that is a good fit for a lot of these requirements in a 10 kilowatt block, which is very, very small. It's a small fraction size of any competitive alternative that, to our knowledge, is being developed. So, here again, we have leading technology, leading density capability, and last but not least, a lot of significant IP that we think is going to become necessary for high-performance solutions.

John, there's a long way between having a high-voltage discrete GAN or a silicon carbide product to a 800-volt multi-kilowatt rack power system. So there's a lot of announcements there, but there's a long way from that to having a real high-performance, high-efficiency solution, so we shall see.

And also a lot of misconceptions. Just frankly, there is a good deal of naivete when it comes to some of these things. So we've been making 80-volt bus converters for many, many years. We know what it takes, and we're doing it in ways that are in frequency or in order of magnitude greater than what can be done with GAN fasts or C-on-cut by fasts.

Great. Thank you for that, Khaled. That's much appreciated. Last one for Jim, if you could, just any thoughts on OPEX going forward compared to the current quarter that just ended?

Well, I think, you know, we won't guide on that, John, but I will say that as I described in the results, that if you exclude the $5.1 million incentive legal fee, OPEX would have actually dropped sequentially. That would be because, in part, and primarily because of a lull in the other legal expense we've had to incur on some of these cases. So I think we're in a good state right now relative to a nice balance of operating expense and revenue. I think as things heat up and we go forward with other actions, then we'll see. And it will be lumpy, I think, in OPEX. And we've said that is going to be the case.

Thank you. In respect to the first action, in terms of contingency, we are at contingency fees related to the first time.

Understood. Good luck.

Thank you. Please stand by for our next question. Our next question comes from the line of Don McKenna with DB McKenna & Company. Your line is open.

Thank you. I wanted to ask about the settlement payment, if that represents the entirety of the settlement. And secondly, Jim, I thought I heard you say there was some, if that was the case,

can you expand on that a little bit, the numbers of shares?

I think I'll let Patricio comment on the settlement.

Yeah, so I cannot comment on the specific sell-on.

So I think on the share repurchase, I mentioned in the prepared remarks, on the order of $17.5 million worth of share repurchases last quarter, and on the order of $200,000-ish shares repurchased during the period. Thank you.

Thank you. Please stand by for our next question. We have a follow-up from the line of John Dillon with D&B Capital. Your line is open.

my question was uh it was answered so thank you very much thank you please stand by for our next

question we have a follow-up question from the line of richard channon with craig hallam your

line is open great thanks for taking a couple more questions here guys um i'm going to look at a couple of different comments you made both today and in past calls as well as a shareholders meeting. The first one is talking about record results of the year, and I heard your answer today. And then he also talked about a wide range of outcomes. As we look at your results today here, obviously a very large settlement, obviously it creates a very wide range here. But if we just look at your product revenue, how do we think about what can create these wide range of outcomes? And I'd like to take the tariffs off the table. You've talked about that today. But how about maybe discussing and kind of giving some sense of where you see some of these positive outcomes by product as we go through the year that could create a record year even better?

So to be clear, the major source uncertainty in the short term is with respect to licensing and litigation practice. practice. With respect to the product revenue, the near-term sees us still making poor use in terms of commodity recession, which represents obviously burden with respect to margins, and even though we've been making good progress on the front, primarily because of the efficiencies associated time in and greater yields and that all this is on the crowd I think I know that in the crowd front is obviously very important we're very much focused on that those investments in advanced in the self yard are being reflected in a product capable AI but as well as a kind of product superiority technology that will feel the camp it's not going to happen overnight it's something okay and I guess just following up on that Patrizio certainly

would it obviously been talking about second-gen VPD and some of the newer products here but relative to talking about the the record year here doesn't seem like there's enough time for those new products to have that much of an effect to benefit this year, but I just want to make sure that was implied in your comment

there. Thank you. They are not going to move the needle big time, but there's going to be progress and certainly a contribution. Okay, fair enough. I will jump out of line again. Thank you, guys.

Thank you. Ladies and gentlemen, as a reminder to ask the question, please press star 1-1 on your telephone. I'm showing no further questions in the queue. Thank you. Ladies and gentlemen, that concludes today's conference call. Thank you for your participation. You may now disconnect.