Vicor Corp Q1 FY2026 Earnings Call

Good day, and thank you for standing by. Welcome to the Vicor First Quarter 2026 Earnings Conference Call. 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.

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 8-K today related to the issuance of this press release. I remind listeners this conference call is being recorded and is the copyrighted property of 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 risks and uncertainties. In light of these risks and uncertainties, we can offer no assurance that any forward-looking statement will, in fact, prove to be correct. Actual results may differ materially from those explicitly set forth in or implied by any of our remarks today. The risks and uncertainties we face are discussed in Item 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. Vicor undertakes no obligation to update any statements, including forward-looking statements made during this call, and you should not rely upon such statements after the conclusion of this call. A webcast replay of today's call will be available shortly on the Investor Relations page of our website. I'll now turn to a review of Q1 financial performance, after which Phil will review recent market developments, and Patrizio, Phil, and I will take your questions. In my remarks, I will focus mostly on the sequential quarterly changes for profit and loss and balance sheet items and refer you to our press release or our upcoming Form 10-Q for additional information. As stated in today's press release, Vicor recorded 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 Products share of total revenue decreased to 57.5% compared to 58.4% for the fourth quarter of 2025, with Brick Products 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 our intellectual property. The amounts of total equity-based compensation expense for Q1 included in cost of goods, selling, general & administrative, and research & development was $836,000, $1.000959 million and $1.057 million, 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 $0.44 based on a fully diluted share count of 47,254,000 shares. Turning to our cash flow and balance sheet. Cash and cash equivalents totaled $404.2 million in Q1, an increase of $1.4 million sequentially. Accounts receivable net of reserves totaled $67.4 million at quarter end, with days sales outstanding for trade receivables at 42 days. Inventories net of reserves increased 3.8% 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 in 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 2 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 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.

Thank you, Jim. With a book-to-bill above 2, Q1 bookings were strong across our high-performance computing, industrial, and aerospace and defense markets. They remained strong in the 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 CoWoS packages for AI chiplet solutions are uniquely enabled by vertical power delivery. Further advances in AI performance are about to be enabled by Vicor's second-generation VPD solution with 3 amps per square millimeter current density and a current multiplication factor of up to 40 in the 1.5 millimeter thin package. Through 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 4 market segments. Future growth opportunities will require capacity expansion, including a second fab. Our combinatorial strategy of being the power system technology innovator and an IP licensing company is delivering results. With that, we'll take your questions.

Our first question comes from the line of Quinn Bolton with Needham & Company.

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. It 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 million guidance?

The $570 million guidance includes royalties, which would increase somewhat based on existing licensing agreements. But in terms of providing safe guidance, we thought it would be best to set aside any opportunity regarding 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 a further decline on our second case next year, but it could be that we do get some ahead of that timeframe.

And then, Patrizio, last quarter, you seemed pretty confident that the utilization in Andover would approach 80% by the end of '26 or early 2027. It 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?

Yes. In absolute terms with respect to product revenues, what has transpired since we last spoke on this topic is that we actually have a significant level of elasticity with respect to expansion capacity within the Federal Street 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 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 Street facility. So that gives us cushion regarding timing, which we're putting to good use in terms of the choice of location. And to give you a little bit more flavor regarding that, we've also come out focusing on existing buildings as opposed to pieces of land because with an existing building, we can execute much more rapidly in terms of capacity expansion. And part of the strategy regarding getting more out of the Federal Street 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 regarding both the capacity utilization and the plans with respect to capacity expansion.

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

It would be to an interim location for the second chip fab. This will still be totally under Vicor control. But there are process steps that can be easily located in a nearby building. And that is part of the plan to extend the capacity of the Federal Street facility.

Our next question comes from the line of Justin Clare with ROTH Capital Partners.

So 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 so trying to get a sense for when the potential orders with additional customers could be and what the revenue timing might be?

Yes, the generational transition we are discussing will take place in the second half of this year. We anticipate starting the ramp-up before the year ends concerning the next-generation capability with our lead customer. Following that, we plan to onboard additional customers for the second-generation VPD solution. As Phil mentioned earlier, we are preparing for the extra capacity we will have to support long-term strategic opportunities, similar to our lead customer. Despite our capacity expansions, we expect to remain capacity constrained for a significant period. Therefore, we aim to choose the right companies and applications where we can make a substantial impact on performance and have the potential to capture significant market share.

In Q1, the backlog rose significantly to just over $300 million. Could you share your thoughts on how quickly you expect to convert that? As the business continues to grow, how should we consider the lead times and conversion of that backlog? Additionally, how much backlog do you believe will be necessary to achieve the $800 million run rate you've mentioned before?

Well, so starting with Q2, the bookings are just as strong as they were in Q1. So we expect to, once again in Q2, we 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, 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...

Yes, yes.

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

Got it. Okay. And then maybe just one more on the capacity. So you're talking about expanding capacity at Fab 1. 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?

So you might recall in the past, we had earmarked capacity out of Fab 1 at roughly $1 billion per year run rate. We see a way to get that to at least $1.5 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 toll capacity as much in terms of additional equipment and depreciation. And overall, it's a plan that meets the combination of objectives that we set ourselves and the need to support a variety of market opportunities, not just in the compute space, but in the other markets where we're seeing considerable strength.

Our next question comes from the line of Jon Tanwanteng with CJS Securities.

Congrats on the nice 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 fab 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 what the timing is around their growth trajectory is and what you expect your capacity to be underlying that?

So first of all, we purchased a second 3D 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 Street facility. And we are engaged in discussions that could lead to an open source for our 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 of processors with all of the right attributes. The way it is done with competitive alternatives to some degree builds upon our first-generation VPD technology, which is, as suggested in the earlier remarks, challenged in a number of respects because of the inadequate current density. So it's fundamentally a domino effect. In other cases, current density forces stacking of the elements of the solution. The stacking creates mechanical complexity and thermal challenges because the heat gets trapped within the stack, making it fundamentally incapable of keeping up with escalating current density needs in future generations 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.

Could you also talk about the upcoming 800-volt data center architecture and the potential for transition to like a 6-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?

So we believe the initiative to go directly from 800 volts to 6 volts is frankly ill conceived. It's internally inconsistent, and it's relatively easy to understand why. The logic of busing power at 800 volts is predicated on that power distribution being at a higher voltage, more efficient. There is an opportunity to improve efficiency by a few percentage points through the use of an 800-volt bus. But inherent in 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 volts, the ratio being essentially 8 to 1. You have to square that. So the square of 8 is 64x. So the proposition 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 6 volts. You can only go short distances and retain some level of efficiency. But to some extent, that's incompatible with an 800-volt bus not being safe, right, because it can give rise to hazards. So there are a lot of challenges with that whole concept. And fundamentally, it's a change in direction away from where the power 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-volt distribution, particularly when you combine that with a step all the way down to 6 volts, is, in my opinion, a bad idea. But time will tell. And by the way, Vicor has proprietary technology at 800 volts. We did a lot of pioneering developments regarding bus conversion from 800 volts. And should that be successful to any degree, there are going to be issues with respect to intellectual property 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 and in particular, the point of load with respect to vertical power delivery.

Our next question comes from the line of John Dillon with DNB Capital.

First of all, congratulations, especially on the bookings. It looks really good. 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 $1 billion in capacity in your current fab. You can add another $0.5 billion. But on top of that, you have bricks. And I would guess your bricks 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?

No. So the bricks are part of it. I don't think they're quite at the level of $250 million. And as we've been saying for quite some time, before too long, they will not be practically relevant. We shouldn't be thinking about bricks. And in effect, part of our strategy regarding the expansion of capacity at 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 as a step-up in our capacity plan for Federal Street from $1 billion to $1.5 billion is 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 special capacity of advanced products.

So you could get above $1.5 billion, which is excellent.

Yes, 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 $1 billion to $1.5 billion may have yet some further opportunity. Again, the logic behind it is to give ourselves more runway regarding the next set of steps, which include a variety of strategic choices ranging from the second fab to alternate sourcing.

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?

Yes.

Our next question comes from Richard Shannon with Craig-Hallum Capital Group LLC.

I guess my first is a simple one here. The backlog has risen very nicely, 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 the high-performance computing space and in all other markets. If you could characterize between those three, that would be helpful.

Richard, it's Phil. So in high-performance compute, yes, 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 in our broad markets as well as in high-performance compute with a few lead customers.

My follow-on question is, and apologies if I missed something, I had a couple of interruptions here. But wondering if you could discuss the engagement or even design win status with follow-on VPD customers here. It 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.

So as 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 regarding new engagements in terms of their strategic significance and alignment of interest for the medium to long term. So in a way analogous to the comments I made earlier regarding the expansion of capacity coming out of Federal Street, first of all, giving us more time and opportunity regarding 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 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.

Our next question is a follow-up from Quinn Bolton with Needham & Company.

Patrizio, 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 some time in 2027? And then I've got a follow-up.

Well, so I don't think we want to be that specific at this point in time. As I'm sure you noted, 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.

That's understandable. I wanted to revisit something Phil mentioned regarding the second-generation VPD, which has solutions that are 1.5 millimeters high. I wanted to clarify this point. At the recent APAC conference, there were many presentations on vertical power, with companies like NVIDIA and Google asking suppliers to keep their solutions at 3 millimeters or below. It seems you may already be well under that threshold. Could you share your thoughts on the interest in the VPD products? It appears you might have a significant advantage in package height compared to the competition.

We do have a significant advantage, and it's even greater than you might realize for reasons I'll explain shortly. It's not merely that our solution is 1.5 millimeters thick, but as Phil mentioned in his remarks, it's also about the fact that our solution delivers 40 times current multiplication. Additionally, it achieves this with a current density of 3 amps per square millimeter. To accurately evaluate the effectiveness of the technology, you have to consider these three factors together, not individually. For instance, integrated voltage regulators, or IVRs, can be thinner than 1.5 millimeters, but they don't offer meaningful current multiplication, only stepping up the current by 2 times, which is practically ineffective for efficient power delivery at the load point. For example, to provide 0.6 volts or 0.7 volts at 2,000 amps, they would need a 1,000 amp feed, which poses significant issues. Therefore, it's not just about being thin; it's the combination of thinness, current density, and, most importantly, current multiplication. To have a VPD solution that can support advanced compute capabilities at a wafer scale or similar applications, it's essential to have all these elements together, not just one of them.

Our next follow-up comes from the line of Jon Tanwanteng with CJS Securities.

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.

Yes. So when we closed the 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%-ish in terms of an effective tax rate. What happened, Jon, in Q1 is that there was a substantial pent-up demand in terms of stock options that get exercised at a nice spread between strike and exercise price, and that's a tax benefit for us. So that's a one-time discrete item that doesn't get baked into the effective tax rate. Our feeling is that going forward, there'll still be that effect, which is a positive effect for us, but planning can be more in line with a 20% kind of a rate.

Perfect. And then Patrizio, could you talk a little bit more or maybe Phil, 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 the 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?

Yes. So Jon, it's 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.

Our next follow-up comes from the line of John Dillon with DNB Capital.

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

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

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

So John, I think the bookings are going to be above well above 1, like Patrizio talked about, but they're lumpy. So I don't want to be pegged to a particular ratio, but they are very strong going into Q2, and we'll say well above 1.

Our next question comes from the line of Don McKenna with D.B. McKenna & Company, Inc.

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

Again, we don't break that out. They're an important lead customer for us, but they're not 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.

Our next question comes from a 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?

The expectation of the licensing as a percentage of product revenues, we talked... yes.

Yes. We feel very good about our licensing practice. We are investing heavily in it. We'll 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 need to say, it's 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 Vicor licensees 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 enabling power system technology from Vicor.

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?

We successfully concluded the first ITC case. However, this conclusion does not mean there aren't ongoing opportunities related to it. Currently, an action is pending at customs concerning the first exclusion order. We are also working on the case we initiated earlier this year, which the ADC chose to investigate for a final determination that should lead to a second exclusion order. This may not be the end, as we have seen two cases so far, so it's possible a third could emerge. This is part of a comprehensive campaign. Vicor has been a pioneer in the power system industry, leading in high power density and performance for nearly 40 years. As a long-standing industry leader, we have been ahead of competitors in exploring new technologies related to power distribution architecture, power conversion engines, control systems, and advanced components. We have consistently pursued extensive protection through many patents. Given the industry's demands in AI and other electronic systems, there is now a significant need for the technologies Vicor develops. Therefore, licensing is expected to become an expanding and significant part of our business, enhancing our revenue capabilities.

Okay. And next question on, are there any expenses affiliated with licensing revenue as part of your SG&A perhaps?

Any expenses associated with licensing revenue, of course, the legal.

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

Our next question is a follow-up from Justin Clare with ROTH Capital Partners.

I would like to know about the large transaction announcement last week between OpenAI and a wafer scale supplier. Given that context, can you explain how your visibility into demand has changed over the last quarter? Additionally, could you discuss the size of the opportunity you’re seeing with your lead customer for vertical power and how it compares to what you observed last quarter?

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

Our next follow-up comes from the line of Richard Shannon with Craig-Hallum Capital Group.

Let me follow up, kind of a mult-part question around licensing. Maybe you can update us on the number of licensees you currently have generating revenues. And if there's multiple licenses per licensee, that would be probably a good understanding there. And then also wondering if you have any licenses that are expiring and need to be renewed like this calendar year. And then ultimately, 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?

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 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.

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 Patrizio 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 CoWoS 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 1.5 millimeter height packaging greater than 3 amps per millimeter squared current density and 40x the capability of the power delivery to that network.

Current multiplication shows that at 6 volts, power losses are 64 times greater than at 48 volts. At 2 volts, the losses increase to 526 times for an IVR system. This presents significant fundamental challenges, which our second-generation VPD technology aims to address. We are focusing on strategic alignments where the Vicor VPD technology is essential for these future developments.

Our last question comes from the line of Don McKenna with D.B. McKenna & 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 of timing. And I'm hoping that you don't schedule it for the 20th of June this year.

Well, June 20th is a Saturday. I can share that the proxy will be released soon. The annual meeting is scheduled for Friday, June 19.

Okay. Thank you.

This concludes the question-and-answer session. Thank you all for your participation in today's call. This does conclude the conference. You may now disconnect.