Vicor (VICR) Q1 2026 Earnings Transcript

Image source: The Motley Fool.

Date

Tuesday, April 21, 2026 at 8 a.m. ET

Call participants

• Chairman and Chief Executive Officer — Patrizio Vinciarelli
• President — Philip D. Davies
• Chief Financial Officer — James F. Schmidt

Need a quote from a Motley Fool analyst? Email pr@fool.com

Takeaways

• Revenue -- $113 million, up 5.3% sequentially and 20.2% year over year.
• Advanced Products revenue -- $64.9 million, increased 3.7% sequentially.
• Brick Products revenue -- $48 million, up 7.7% sequentially.
• Shipments to stocking distributors -- Up 0.5% sequentially and 63.6% year over year.
• Gross margin -- 55.2%, down 20 basis points sequentially; up 800 basis points year over year.
• Operating expenses -- $45.5 million, 4% sequential increase, including higher IP-related legal expenses.
• Equity-based compensation -- Approximately $3.9 million for the quarter, spread across cost of goods, SG&A, and R&D.
• Tax benefit -- Approximately $300,000, effective tax rate of minus 1.3%, driven by stock option exercises.
• Net income -- $20.7 million, resulting in GAAP diluted EPS of $0.44 on a diluted share count of 47.3 million.
• Cash & cash equivalents -- $404.2 million, increased $1.4 million sequentially.
• Accounts receivable -- $67.4 million; DSO of 42 days.
• Inventory -- $94.8 million, up 3.8% sequentially; annualized inventory turns of 2.1.
• Operating cash flow -- Outflow of $3.9 million, which includes $28.6 million litigation settlement payment.
• Capital expenditures -- $12.4 million for the quarter.
• Construction-in-progress -- $10.7 million, primarily for manufacturing equipment; $33.9 million remaining spend.
• Book-to-bill ratio -- Above 2.0, with one-year backlog up 70% sequentially to $300.6 million.
• 2026 guidance -- Anticipates fiscal Q2 revenue near $126 million and fiscal full-year revenue near $570 million, with margin expansion expected.
• Licensing assumptions -- Guidance assumes no new licensing agreements until the second ITC case concludes in 2027; existing agreements included in outlook.
• First fab capacity -- Pathway to expand from $1 billion to at least $1.5 billion annual revenue capacity, driven by process improvements and externalizing certain steps.
• Second fab strategy -- Shifted focus toward acquiring existing buildings, expediting capacity ramp versus greenfield development.
• Process outsourcing -- Select manufacturing steps to be moved to interim facilities, providing "cushion" on timing for new capacity.
• New equipment -- Purchase of a second 3DI interconnect line, to be installed in the second half of the year, is part of capacity plan.
• Book-to-bill and backlog -- Current backlog expected to roll over the next twelve months; company always quotes backlog on a one-year basis.
• Advanced product mix -- Advanced Products represented 57.5% of revenue compared to 58.4% previously; Brick Products at 42.5%.
• Exports -- Exports comprised 48.9% of total revenue, slightly down from last quarter's 49.3%.
• VPD technology -- Second-generation VPD solution achieves "3 amps per square millimeter current density and a current multiplication factor of up to 40 in a 1.5 millimeter-thin package," per Philip D. Davies.
• Operational model -- Vinciarelli emphasized, "we expect to remain capacity constrained for a substantial timeframe," prioritizing strategic customer selection.
• Royalty revenue -- Existing royalty streams included in full-year outlook; no expectation of new licenses prior to resolution of ongoing litigation.
• Tax rate outlook -- Schmidt stated ongoing effective tax rate should trend near 20%, excluding discrete, non-recurring benefits.
• Defense and aerospace -- Davies confirmed, "we can meet the needs of the defense market with the capacity that we have."
• Licensing practice -- Vinciarelli reconfirmed the strategy to develop both module sales and IP licensing, noting licensing is "nearly 100% margin in terms of profitability."

Summary

Vicor Corporation (NASDAQ:VICR) reported sequential and year-over-year growth in total revenue and year-over-year growth in gross margin, driven by strong bookings across key customer segments. The company expanded quarterly backlog by 70% to $300.6 million and maintains a book-to-bill ratio above 2.0, signaling continued demand strength and capacity constraint for the near term. Management outlined a clear path to expand current Fab One capacity to at least $1.5 billion in annual revenue, with targeted process outsourcing and plans to acquire existing buildings to accelerate ramp for a second fab. Fiscal full-year 2026 guidance incorporates conservative licensing assumptions by excluding potential new license deals until ongoing ITC litigation concludes, but anticipates margin expansion as capacity improvements and bookings growth progress.

• Management stated the one-year backlog will be recognized over the following twelve months, and always quotes backlog on that basis.
• First fab capacity could grow further beyond $1.5 billion if future process initiatives are realized, though Vinciarelli would not commit to a specific target beyond this level at this time.
• The vertical power delivery (VPD) second-generation solution was positioned as uniquely competitive; Philip D. Davies noted competitor solutions have "inadequate current density and stacked packages that are not mechanically and thermally adept."
• Vinciarelli expects strategic customer alignment due to ongoing supply constraints, with opportunity to be "very selective with respect to new engagements" as demand outpaces immediate capacity expansion.
• The company will record licensing income net of expenses tied to partnered law firms, based on the proceeds from patent settlements and related actions.
• Schmidt explained that the tax benefit from stock options in Q1 was a one-time event; future effective tax rates should return to normalized expectations around 20%.
• The board confirmed the annual meeting is scheduled for Friday, June 19, 2026.

Industry glossary

• VPD (Vertical Power Delivery): A technology that delivers high current directly to advanced processors or chip packages by providing increased current density and current multiplication in a compact, thin module design.
• 3DI (Three-Dimensional Interconnect): A manufacturing process step or equipment enabling multi-layer electrical connectivity, critical for producing advanced power modules.
• CoWoS (Chip-on-Wafer-on-Substrate): An advanced semiconductor packaging approach that stacks multiple dies, including those for AI chiplet solutions, to increase processing power and bandwidth.
• ITC (International Trade Commission): A U.S. government agency involved in patent-related exclusion order litigation, impacting international trade in technology products.
• IVR (Integrated Voltage Regulator): A semiconductor-based, miniaturized voltage regulator built into chip packages, providing limited current multiplication versus VPD solutions.

Full Conference Call Transcript

Earlier this morning, we issued a press release summarizing our financial results for the three months ended 03/31/2026. This press release has been posted on the Investor Relations page of our website, 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, 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 03/02/2026.

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, 04/21/2026. Vicor Corporation 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 page of our website. I will now turn to a review of Q1 financial performance, after which Philip will review recent market developments, and then Patrizio, Philip, and I will take your questions.

In my remarks, I will focus mostly on sequential quarterly changes for P&L and balance sheet items and refer you to our press release or our upcoming Form 10-Q for additional information. As stated in today’s press release, Vicor Corporation recorded product and royalty revenue for the first quarter of $113 million, up 5.3% sequentially from the 2025 total of $107.3 million and up 20.2% from the 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 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 will now turn to Q1 operating expenses. Total operating expense increased 4% sequentially from 2025 to $45.5 million. This increase included higher legal expenses related to enforcement of our IP.

The amounts of total equity-based compensation expense for Q1 included in cost of goods, SG&A, and R&D were $836,000, [inaudible], and $1,057,000, respectively, totaling approximately $3.9 million. Turning to income taxes, we recorded a tax benefit for Q1 of approximately $300,000, 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 03/31/2026 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 million shares.

Turning to our cash flow and balance sheet, cash and 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% 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 will 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 Corporation. 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. Philip?

Operator: Thank you, Jim.

Philip D. Davies: With the book-to-bill above 2, Q1 bookings were strong across our high-performance computing, industrial, and aerospace and defense markets. They remain strong in the second quarter, and I will 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 Corporation’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 is 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 buildout 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 support 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. Our combinatorial strategy of being the power system technology innovator and an IP licensing company is delivering results. With that, we will take your questions.

Operator: We will now open the call for questions. 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 Nathaniel Quinn Bolton with Needham and Company. Your line is now open.

Nathaniel Quinn Bolton: Hey, guys, congratulations on the nice results and outlook. I wanted to start with the assumptions you are making around 2026 for the IP license business. It looks like royalty revenue in Q1 was about [inaudible], or about $60 million annualized. I know you are 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?

James F. Schmidt: The $570 million guidance includes royalties, which would increase somewhat based on existing licensing agreements. But, in terms of providing, in effect, safe guidance, we thought it would be best to set aside any opportunity with respect to early deals relating to current actions. So our working assumption for guidance purposes is that we are not going to have any new licenses until we get to final determination of our second case next year.

Patrizio Vinciarelli: That said, it could be that we do get some ahead of that timeframe.

Nathaniel Quinn Bolton: Understood. And then, Patrizio, last quarter, you seemed pretty confident that utilization in Andover would approach 80% by 2026 or early 2027. Looks like you are on a strong product ramp. Are you still expecting utilization to achieve those levels that you discussed last quarter?

Patrizio Vinciarelli: 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 facility that is giving us a little bit more flexibility with respect to the timing and choice of the location for the second fab. To get a little bit more specific, we have seen an opportunity for relatively significant expansion capacity. It could be as much as 50% above what had been planned to be supported in terms of annual revenues out of the first facility.

That gives us cushion with respect to timing, which we are putting to good use in terms of the choice of a location. To give you a little bit more flavor with respect to that, we have also come around to focusing on existing buildings as opposed to a piece of land, because with an existing building we can execute much more rapidly in terms of capacity expansion. Part of the strategy with respect to getting more out of the first facility is to selectively source outside of that facility some of the process steps that can be more easily relocated. That should give you the picture with respect to both capacity utilization and the plans for capacity expansion.

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

Patrizio Vinciarelli: It would be to an interim location for the second chip fab, but this will still be totally within Vicor Corporation control. There are process steps that can be easily located in a nearby building, and that is part of the plan to extend capacity of the first facility.

Nathaniel Quinn Bolton: Understood. Thank you. I will get back in queue.

Operator: Thank you. Our next question comes from the line of Justin Clare with Roth Capital Partners. Your line is now open.

Justin Clare: Good morning. Thanks for the questions. First, you mentioned engagement with additional VPD customers could follow the generational transition for the lead customer from Gen4 to Gen5. Could you provide an update on the anticipated timing of that transition? I think you had previously been looking for 2026. And then I am trying to get a sense for when potential orders with additional customers could be and what the revenue timing might be.

Patrizio Vinciarelli: The generational transition we are referring to here 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. We will follow that with additional customers for second-generation VPD solutions. As Philip pointed out earlier, we are planning for the incremental capacity we are going to have available to support opportunities that are, as in the case of the lead customer, long-term strategic to Vicor Corporation.

Fundamentally, in spite of capacity expansions, we expect to remain capacity constrained for a substantial timeframe, and that leads us to pick the right companies and 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 the opportunity to win substantial market share.

Justin Clare: Got it. On the backlog, in Q1 backlog increased significantly to just over $300 million. How quickly do you anticipate turning that over? As the business continues to scale, how should we think about lead times and conversion of that backlog? And how much backlog do you think may be necessary to support the $800 million run rate that you have previously talked about?

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

Philip D. Davies: The existing backlog rolls over the next twelve months. That is how we recognize it.

James F. Schmidt: And any backlog or bookings we quote are always in a twelve-month window.

Justin Clare: Understood. One more on capacity. You are talking about expanding capacity at Fab One. How much capacity do you anticipate adding? What level of revenue do you think could be supported by the first fab? And what revenue level could be supported by the second fab?

Patrizio Vinciarelli: You might recall in the past we had earmarked capacity out of Fab One at roughly a $1 billion per year run rate. We see a way to get that to at least $1.5 billion at this point. That is coming out of a combination of initiatives we have identified with certain process steps that have been historically capacity-limiting overall and opportunities to get to a shorter cycle time and increase capacity with those steps.

To complement that, as I mentioned earlier, we see opportunities with process steps that are not as critical and can be easily redeployed—an opportunity to redeploy them in an existing neighboring facility as a stepping stone to the second fab, which has a longer lead time in terms of what it takes to bring it to fruition. We believe this approach gives us a lot more flexibility and 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.

Overall, it is a plan that meets the combination objectives we set ourselves and the need to support a variety of market opportunities, not just in the compute space but in other markets where we are seeing considerable strength.

Justin Clare: Got it. Thank you. Appreciate it.

Operator: Thank you. Our next question comes from the line of Jonathan E. Tanwanteng with CJS Securities. Your line is now open.

Jonathan E. Tanwanteng: Good morning. Thank you for taking my questions, and congrats on the nice quarter and the strong orders and outlook. My first question: Patrizio, you mentioned you expect to be capacity constrained before the new fab comes up. 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 to help them avoid that constraint? Help me understand the timing around their growth trajectories and what you expect your capacity to be underlying that.

Patrizio Vinciarelli: First of all, we purchased a second 3DI—three-dimensional—interconnect line that is going to be installed in the Q3–Q4 timeframe. That is itself an element of the capacity expansion plan. Second, with the initial 3D interconnect lines, we have identified ways to reduce cycle time and increase capacity. Beyond that, we have expansion plans outside of the first facility. We are engaged in discussions that could lead to an alternate source for our second-generation 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 that to some degree build upon what we call our first-generation VPD technology is challenged in a number of respects because of inadequate current density. Fundamentally, lower current density forces stacking of the elements of the solution. The stacking has mechanical complexity and thermal challenges because the heat gets trapped within the stack. It is fundamentally inept at 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.

Jonathan E. Tanwanteng: Got it. Thank you. Could you also talk about the 800-volt data center architecture and the potential for transition to a 6-volt intermediate bus, and where your 48-to-12-volt systems sit within that? Do you expect the NBM market to continue to grow as those architectures take share, or is there a transitory period where that falls off and transitions to your VPD technology and licensing royalties on that side?

Patrizio Vinciarelli: We believe the initiative to go directly from 800 volts to 6 volts is ill-conceived and internally inconsistent. The logic of passing power at 800 volts is predicated on that power distribution being at a higher voltage and more efficient, and there is an opportunity to improve efficiency by a few percentage points through the use of a higher-voltage bus. Inherent in that scheme, however, is the opposite effect at the other end of that proposed bus conversion. Going all the way down to 6 volts—relative to 48 volts, the ratio is essentially 8 to 1—you have to square that, so the square of 8 is 64x.

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 significant power at 6 volts. You can only go short distances and retain some level of efficiency, and to some extent that is incompatible with a low-voltage bus not being safe because it can give rise to hazards. There are a lot of challenges with that whole concept. Fundamentally, it is a change in direction away from where the focus should be, which is at the point of load with respect to vertical power delivery. That is where the core technical challenge resides.

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. Time will tell. By the way, Vicor Corporation has provided technology other than 48-volt; we did a lot of pioneering developments with respect to bus conversion from higher voltages, and should that be successful to any degree, there are going to be issues with respect to IP there, too.

We expect that effort to move forward, but we think it is 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.

Jonathan E. Tanwanteng: Got it. Very helpful. Thank you, Patrizio. Good luck.

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

John Dillon: Yes, guys, first of all, congratulations on the bookings. It looks really good. I wanted to go back to capacity for a minute to make sure my numbers are right. If I heard correctly, you have about a billion in capacity in your current fab and you can add another half billion. But on top of that, you have bricks, and I would guess your bricks would be at least $250 million. Am I right in assuming that your capacity with this expansion in the current area is about $1.75 billion?

Patrizio Vinciarelli: No. The bricks are part of it, but I do not think they are quite at the level of $250 million, and as we have been saying for quite some time, before too long, their relevance will gradually diminish. We should not be thinking about bricks as driving capacity. Part of our strategy with respect to the expansion of capacity of the first facility is to minimize the footprint taken up by legacy products that do not have the growth opportunity of Advanced Products, in particular second-generation VPD. The number I put out earlier as a step up in our capacity plan for the first fab—from $1 billion to $1.5 billion—that is an all-inclusive number.

That all-inclusive number could potentially go further up, but it would not be because of a big contribution from bricks. It would be because of more opportunity for additional capacity of Advanced Products.

John Dillon: Got it. So you see you could get above $1.5 billion. Excellent.

Patrizio Vinciarelli: We feel comfortable with a $1.5 billion target at this point in time. The same process that has led us to identify opportunities to step capacity up, measured in revenues per year, from $1 billion to $1.5 billion may have further opportunity. 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: With this expansion capacity, will you be able to satisfy the OEM and the hyperscaler customers you talked about in Q3?

James F. Schmidt: Yes.

John Dillon: Excellent. Thank you. I will get back in the queue.

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

Richard Cutts Shannon: Hi, thanks for letting me ask a couple of questions. My first is a simple one. The backlog has risen nicely, I think 70% sequentially. Can you characterize the sources of that increase—whether it is from the lead VPD customer or anyone else in high-performance computing versus other markets?

Philip D. Davies: In high-performance compute, 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 and aerospace markets as I commented. It was really strength across the board—broad markets as well as high-performance compute with a few lead customers.

Richard Cutts Shannon: Great, thanks. My follow-on question: Could you discuss the engagement or even design-win status with follow-on VPD customers? It sounds like you are talking about strategic reservations on capacity in the first fab or the proposed second one. Can you discuss the dynamics around those follow-on customers?

Patrizio Vinciarelli: As I suggested earlier, we are very much focused on competing readiness with respect to starting the generational change with the lead customer and with some other opportunities relating to that. A way to think about this is that, in spite of the capacity expansion we are pursuing, we see ourselves being essentially sold out in terms of capacity for the foreseeable future. That gives us the opportunity to be very selective with respect to new engagements in terms of their strategic significance and alignment of interest for the medium to long term.

On the front end of the business, just like the back end, the fact that we are going to be enjoying strong bookings and strong backlog and have near-term capacity nearly sold out gives us an opportunity to align ourselves with the right applications and the right customers going forward. We do not have to feel a sense of urgency because of where we stand on the demand side.

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

Nathaniel Quinn Bolton: Thanks for the follow-up. Patrizio, a quick clarification on the capacity expansion in Andover. When would you expect to reach that $1.5 billion of capacity? Is that 2026, or is it going to take into sometime in 2027?

Patrizio Vinciarelli: I do not think we want to be that specific at this point in time. Because of changing circumstances, we achieved the necessary comfort level to provide guidance for revenues for this year. As we get past that, there are still many different scenarios, so it would be unwise to become very specific beyond saying that we have a plan to step up capacity further and we believe there will be market demand to use that expanded capacity as we get into 2027 and beyond.

Nathaniel Quinn Bolton: Got it. I also wanted to come back to second-gen VPD. I think it was mentioned your solutions are 1.5 millimeters high. If that is the case, at the recent APAC conference there were many presentations on vertical power with folks asking suppliers to hit 3 millimeters or below. It sounds like you may be well below that threshold already. Can you talk about the interest you are seeing on the VPD product and the potential advantage in package height?

Patrizio Vinciarelli: We do have an advantage, and it is even bigger than you might think. It is not just that our solution is 1.5 millimeters thin, but, as Philip pointed out in his prepared remarks, that thinness is combined with a solution that provides 40x current multiplication and does all that with 3 amps per square millimeter current density. To assess the figure of merit of the technology, you need to look at these three elements in combination—you cannot just look at one. As an example, so-called integrated voltage regulators (IVRs) can be even thinner than 1.5 millimeters, but they do not provide any meaningful current multiplication.

They only step up the current by 2x, which is practically useless in terms of efficient power delivery to the point of load. In order to deliver, say, 0.6–0.7 volts at 2,000 amps, they would require a 1,000-amp feed, which is obviously extremely problematic. It is not just thickness; it is thinness combined with current density and, most importantly, current multiplication. In order to have a VPD solution capable of supporting wafer-scale or other kinds of advanced compute capabilities, you really need the combination of all these elements, not just one of them.

Operator: Thank you. Our next follow-up comes from the line of Jonathan E. Tanwanteng with CJS Securities. Your line is now open.

Jonathan E. Tanwanteng: Thanks for the follow-up. Jim, can you touch on the taxes in the quarter—what went into that tax rate—and what rate we can expect going forward?

James F. Schmidt: When we closed fourth quarter, we reversed a significant portion of the valuation allowance, and our expectation was we would be in the range of roughly 20% in terms of an effective tax rate. What happened in Q1 is that there was substantial pent-up demand in terms of stock options that got exercised at a nice spread between strike and exercise price, and that is a tax benefit for us. That is a one-time discrete item that does not get baked into the effective tax rate. Our feeling is that, going forward, there may still be that effect, which is positive for us, but for planning, think more in line with a 20% kind of rate.

Jonathan E. Tanwanteng: Perfect. Thank you. And then, Patrizio or Philip, could you talk a bit more about the demand from the defense and semitest businesses? What percentage of revenue are they? And, with regard to defense specifically, are you able to meet critical defense needs with the upcoming capacity constraints you are modeling?

Philip D. Davies: We do not 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.

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

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

Patrizio Vinciarelli: There may be an opportunity of alternate sourcing of the second-gen VPD technology, but this is not something we are prepared to talk about today.

John Dillon: And, Philip, on the bookings, can we assume a bookings run rate of what we saw today for the rest of the year?

Philip D. Davies: Bookings are going to be well above one, as Patrizio talked about, but they are lumpy. I do not want to be pegged to a particular ratio, but they are very strong going into Q2, and we will say well above one.

Operator: Thank you. Our next question comes from the line of Donald Brian McKenna with D. B. McKenna and Company Inc. Your line is now open.

Donald Brian McKenna: Philip, could you give us an idea of what percentage of the backlog is attributable to your lead customer?

Philip D. Davies: We do not break that out. They are an important lead customer for us, but they are not the only major one. We have a hyperscaler and big customers across industrial and defense and aerospace that are ramping, as well as the broad market. It is general strength right now that we are benefiting from.

Operator: Thank you. Our next question comes from an Analyst. Your line is now open.

Analyst: 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?

Patrizio Vinciarelli: The expectation of licensing as a percentage of product revenues—we have talked about as much as 50%. We feel very good about our licensing practice. We are investing heavily in it and will be investing at an escalating rate because we see that business as being both a high-growth business in terms of its top line and, needless to say, 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 Corporation licensees, with only perhaps rare exceptions.

We see that dynamic progressing, and we think we are 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 Corporation.

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

Patrizio Vinciarelli: We carried the first ITC case to a successful conclusion. To be clear, that conclusion does not mean there is not ongoing opportunity relating to the first ITC case. In fact, there is an action pending at Customs as we speak relating to that first exclusion order, while we are working with the case we brought earlier this year, for which the ITC once again chose to institute an investigation, to get that to final determination, which should result in a second exclusion order. This may not be the end of the road. In Italy, we say there is no two without three. There have been two thus far; do not be surprised if you see a third one.

This is part of a very comprehensive campaign. Vicor Corporation has been the pioneer in the power system industry, very much in the forefront of very high power density and performance for nearly forty years. As a long-standing pioneer in the industry, we got into places well ahead of any competitor, scouting new landscapes with respect to power distribution architecture, power conversion engines, control systems, and advanced power conversion components. We have consistently pursued extensive protection through many patents. The industry, given demands in AI and with respect to other electronic systems, is now very much in need of those technologies that Vicor Corporation pioneered.

Licensing is going to be an expanding portion of our business—a very significant one in its own right—beyond our module-maker revenue capability.

Analyst: Are there any expenses affiliated with licensing revenue—perhaps in SG&A?

Patrizio Vinciarelli: We are partnered with law firms that have a share of the interest in the outcome, subject to caps and so on and so forth. As we record licensing income, we record the corresponding expense for the share of the proceeds from the leading action that led to the licensing deal owed to our partners.

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

Justin Clare: Thanks for taking the follow-up. We saw a large transaction announcement between OpenAI and a wafer-scale supplier last week. Against that backdrop, can you share how your visibility into demand has evolved over the last quarter? And can you comment on the size of the opportunity you are seeing with your lead customer for vertical power and how that compares to the visibility you had last quarter?

Patrizio Vinciarelli: We felt very strongly about our lead customer’s technology and their market opportunity. Frankly, for a number of years I was confronted with a degree of skepticism by investment bankers and the like who did not share the same level of confidence Vicor Corporation had in our lead customer. That has been proven 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. We believe in substantial success in years to come, and that is an opportunity for us, just as we have with the AI market in general.

Operator: Thank you. Our next follow-up comes from the line of Richard Cutts Shannon with Craig-Hallum Capital Group. Your line is now open.

Richard Cutts Shannon: Thanks for letting me follow up. A multipart question around licensing. Can you update us on the number of licensees currently generating revenues and whether there are multiple licenses per licensee? Do you have any licenses expiring and needing renewal this calendar year? And to what degree do you need to see growth in licensees versus number of licenses to achieve the growth you expect, or can you grow without growth in those numbers?

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

Philip D. Davies: If you look at products getting launched later this year or early next year from different GPU companies or even hyperscalers, a lot of them are going lateral and vertical because they cannot really solve the full vertical challenge due to what Patrizio has talked about—lack of current density and mechanical issues. You will see a little lateral with a bit of vertical, and that vertical, as we have talked about, copies our first-generation VPD. If you go to what Cerebras and the wafer-scale companies do, you have a challenge of bandwidth, which they solve through their wafer-scale engine. Everybody is now starting to look at the CoWoS packaging—the packaging that Intel has brought to market with multi-die chiplets.

The only way to power that to solve the memory bandwidth problem is pure vertical power delivery, and that is where you need 1.5 millimeter height packaging, greater than 3 amps per square millimeter current density, and 40 times current multiplication. At 6 volts, you have 64 times the power losses than at 48 volts, and at 2 volts you have 526 times the power losses for an IVR system. You start to run into fundamental issues where our second-generation VPD technology is required. That is where we will focus on strategic alignments where they really need the Vicor Corporation VPD.

Patrizio Vinciarelli: The competition tends to focus on one element, like current density, and they can make some headway with respect to that element, but inherent in their architectures is a conflict among key elements of the solution. Fundamentally, you have to trade off one to make another a little better, when the right solution must involve all of these ingredients: high current density, high current multiplication, in a solution that is relatively thin. By the way, we are not stopping at 1.5 millimeters; we are going thinner, because as we get to power-in-package, it will need to be thinner, and with our technology, we can go a lot thinner.

Operator: Thank you. Our last question comes from the line of Donald Brian McKenna with D. B. McKenna and Company. Your line is now open.

Donald Brian McKenna: This is a simple one. I have not been able to attend the annual meeting for the last few years because of a timing conflict. I am hoping that you do not schedule it for June 20 this year.

James F. Schmidt: June 20 is a Saturday. I will let the cat out of the bag: the proxy is coming out soon. The annual meeting is Friday, June 19.

Donald Brian McKenna: Nineteenth. Thank you very much.

Patrizio Vinciarelli: Thank you. That is it.

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.

This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. Parts of this article were created using Large Language Models (LLMs) based on The Motley Fool's insights and investing approach. It has been reviewed by our AI quality control systems. Since LLMs cannot (currently) own stocks, it has no positions in any of the stocks mentioned. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability.

The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.