Good day, ladies and gentlemen, and welcome to the Vicor Earnings Results for the Fourth Quarter and Year Ended December 31, 2012. My name is Karis, and I will be your coordinator for today. [Operator Instructions] As a reminder, this call is being recorded for replay purposes. And I would now like to hand the call over to your host for today, Dr. Patrizio Vinciarelli, CEO; and Mr. Jamie Simms, CFO. Please proceed.

Good afternoon, everyone, and welcome to our conference call for the fourth quarter and year ended December 31, 2012. I am Jamie Simms, Chief Financial Officer, and with me here, as noted, is Patrizio Vinciarelli, our CEO. Today, we issued a press release summarizing our financial results for the fourth quarter and all of 2012. This press release is available on the Investor page of our website, vicorpower.com. We have also filed a Form 8 K and our amendment to our scheduled TO with the Securities and Exchange Commission in association with issuing this press release. I remind all of you today’s conference call is being recorded and is the copyrighted property of Vicor Corporation. I also remind you various remarks we may make during this call may constitute forward looking statements for purposes of the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995. Our forward looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those explicitly set forth or implied in our statements. Such risks and uncertainties are discussed in our most recent forms 10 K and 10 Q filed with the SEC. Please note the information provided during this conference call is accurate only as of the date of the call. Vicor undertakes no obligation to update any of the statements made during this call and you should not rely upon them after the conclusion of the call. A replay will be available beginning at midnight tonight through March 13. The replay dial in number is 888 286 8010 and the listener pass code is 17127574. In addition, a webcast replay of the call will be available on the Investor Relations page of our website beginning shortly after its conclusion. I will start this evening’s call…

Thank you, Jamie. As stated in this afternoon’s press release, our reported fourth quarter financial performance reflects depressed bookings in the second half of 2012. While we had forecast a lower loss from operations primarily due to anticipated weakness in V*I chip with its relatively long lead times, we had not anticipated the slowness experienced by the BBU, which relies on a higher percentage of intra quarter turns volume. Some of the overall decline can be attributed to the uncertainty of customers over the fact that defense spending fell more in the fourth quarter than any quarter to quarter period in 4 decades. Certainly, the cloud of the potential sequestration hung over the quarter, but we also experienced weakness in our industrial and transportation segments. Recessionary conditions in Europe and Japan were also a factor. Let me address recent bookings trends by business unit. Total bookings in the fourth quarter declined 27% sequentially and were 22% lower than the levels seen for the fourth quarter 2011. BBU bookings uncharacteristically fell 21% due to lower orders domestically and from our Chinese distribution network, where we are transitioning to new distribution relationships to reflect our emphasis on larger OEMs and their contract manufacturers. V*I chip bookings fell by 2/3 as both supercomputing and high-end defense electronics order flow nearly stopped in the second half of 2012. Vicor, which often books orders in tandem with V*I chip for certain applications, so a similar decline, albeit on a smaller base of business. As a result, we entered 2013 with a relatively low one year consolidated backlog of $31 million, $22 million of which was carried for the level in the first quarter 2013. Based on this low backlog and an anticipated partial recovery in first quarter bookings, we are expecting first quarter revenue to…

[Operator Instructions] And your first question comes from the line of Alan Hicks with Ainsley Capital Management.

I am just wondering about your end markets. Military has come down. Of the other markets, new markets and new products you are addressing, how fast can we expect them to gain traction?

Well, I guess not fast enough as we like, but there is progress being made on a variety of fronts. The predicament we are in is what I think has been described the fastest, so the perfect storm in terms of the supercomputing applications and defense applications coming to a screeching halt, and to some extent, there is interdependence between those 2. Unfortunately, new applications, particularly involving new products, have a long recession period. So, we are going to have to be patient for the long haul.

Do you see the supercomputing and military stabilizing, any indication of stabilizing?

I am not sure I am smart enough to be able to make a very educated guess with respect to that. Obviously, we all watch the headlines with respect to that and time will tell.

Okay. But just quickly, you see the uptick in orders this quarter, what market is that coming from?

Well, it’s come from -- it's strategically broad based, it’s to be clear, not to the levels of past quarters, but it is a marked improvement over the depressed level of activity of the fall quarter. So, it is, at least at this moment, a reversing trend that we are taking to heart. But we’ll have to wait and see with respect to where it goes from here. In the short term, we are obviously challenged by recent bookings performance and the backlog being as low as it has been at the end of the year. And hopefully, we are going to see the improvement in bookings translate in sales in a reversal of the revenue decline and the earnings decline starting later in the year.

And your next question comes from line of [indiscernible] with DMB Capital.

In previous conference calls, you’ve talked about the Intel based server opportunities. I am just wondering if you can give us an update and some more color on that.

Amplify the question a little for me. I’m not sure I’m...

You talked that an opportunity with V*I Chips that will get you into an Intel based server opportunity. You talked about an 8 figure opportunity?

Yes. So, that’s progressing. It’s not surprisingly, one might say, it’s taking longer than projected for the customer to come to fruition, and the volumes are not quite at the level that the customer they had forecasted at one point in time. So, the good news is that it’s progressing along well. The bad news is that in the near term, it’s not going to be as significant as we were led to believe.

So, are you seeing actual production quantity deliveries to that market, then, or to that customer?

We are beginning to engage on that Java front. So, there is this progress, and that’s all I can say at this point.

Okay, before you qualified it as an 8 figure opportunity. Is it still and 8 figure opportunity?

Let’s it’s an evolving opportunity. It is going to be significant. It is I would say very hard to forecast, obviously, the early forecasts at some level of our opportunities, but it is evolving in a positive direction, so I am reserving judgment with respect to the long term prospects. But it’s obviously a very exciting opportunity for us.

Okay, good. Would this be able to get you into other Intel based opportunities? Are you now at a point where you have the cost benefit analysis where you might be able to crack some of the more commodity type servers?

Generally speaking, yes. Again, we are going to have to be patient with respect to that. That’s not going to be an overnight affair. I think that with new Vicor products and new V*I Chip products, we’re going to be able to address a much broader array of, generally speaking, lower power, more cost sensitive, higher volume opportunities. But as we’ve seen with respect to the application and nameless customer, you were increasingly referencing a minute ago, these things take time to truly come to fruition. So, the work is progressing, but it is not going to make a substantial difference for a few quarters.

On your high end service, like I understand how the super computer market can be. It can be very fickle and one day it’s hot, the next it’s not, but are you still doing well in the high end server market?

Yes, I can say that we have strong volume proposition there. It’s, as with everything, it's obviously a complex task and that there are commodity forces at play, as with other markets. And progress may involve taking a step back before we can take a couple of steps forward. And that’s as far as I can go with respect to that. But if the color of your question is do I believe the technology has got a strong and growing proposition in that market, the answer is a definite yes. But patience is the operative word.

Right. And kind of in the same line of questioning there, what I’m wondering is, you had some really good success in the high end servers. I am just wondering the companies that used your V*I chips in their servers, when they come out with their next generation version of that server, are you still in those particular models?

Not necessarily and not across the board. And that’s what I was referencing a moment ago with respect to recession trends. So, what I can say in this regard is that with large companies that may be different coincidences with different agendas and different times, different considerations will prevail. So, it is not going to be a uniform constant motion the right direction. There is going to be steps back, but we believe the overall trend is forward because our value proposition is very compelling, getting more so with the new packaging and more highly integrated products, leveraging intergenerational silicon.

What I think I’m hearing is that you've had some setbacks, but you've got some new products and you’ve got a new strategy that you plan to still grow in that marketplace?

Absolutely.

And then one more question, I will get back in the queue. Usually when I think of orders being down, always like to hear about design wins. So, I am wondering are you seeing an uptick in design wins. Are you seeing more design wins? Are you seeing them across more markets? Can you give us a little bit more color on what are you seeing as far as design wins are concerned?

So, our challenge is not to be confronted with enough opportunities. Our challenge is to pick those opportunities that make the most sense. So, the applicability of our methodology is broad enough that in all the markets that we're cited as being strategic markets for future growth, we are seeing more and more opportunities and a very strong customer interest in getting us involved in maturation solutions. And to a higher degree, as that progresses, we’re picking and choosing those opportunities that make the most sense from a business perspective.

So, again, to make sure I understand, it sounds to me like you have plenty of opportunities, the trick is really to prioritize them and close them and then go up the ones that makes the more sense for Vicor?

Yes. The challenging aspect of this, given the business model, how much of a role levers technological development plays in the business model is that because of some new level of uncertainty with respect to development cycle, there is some degree of unpredictability with respect to timelines. And that’s an unfortunate attribute of the model. We’re getting better at it. We aren't being perfect. It is a source of frustration. But realistically, we can’t, in effect, expect to have our cake and eat it too. You need, I think, the level of innovation that we pursue is some uncertainty in the timeline.

[Operator Instructions] And your next question comes from line of Don McKenna with DB McKenna.

I would like to follow up on the comments you were just making about the numbers of opportunities and prioritizing them. And that’s something you’ve talked about for a number of years, having so much on your plate. It's just matter of which ones you want to go after first. The fact that you have had that for years now and yet we continued to see sales decline. Would that be an indication you have picked the wrong ones to go after?

I wouldn’t say so. So, I think that regarding the comment about the number of years. If we look at the timeframe within which we put in place an expanded marketing and selling infrastructure, that’s an effort that goes back in terms of initiation to less than 2 years ago. And in terms of bringing the complement of talent on board, I would say less than that. And again, I will make the comment, Rome was not built in 1 day. I think we have to be realistic with respect to timeframes. Generally speaking, with respect to the focus on markets and what it takes to make penetration in each of the markets that we have targeted, we think we are on the right track. There has been some fine tuning, as you would expect. I can’t say that everything that was originally targeted is still at the top of the list of priorities. But for the most part, we see in each of the markets that we have identified as being strategic, ranging from one end of the spectrum automotive, which is a very long term market opportunity to the other end of spectrum, let’s say Intel sockets or other several opportunities or communications opportunities. We know these markets, and with all the products needing are to support these market initiatives, we see common delineator characteristics.

Do you still see the goal that you’ve announced probably 3 not 3, but maybe a year and a half ago of tripling sales in the 5 year time period as being capable?

Yes, it will not, clearly at this point, turn out to be achievable in that time framing which we originally targeted that goal, but I firmly believe that we have the technology, the products and the vision and the infrastructure in the front end of the business and back end of the business to deliver that. And it’s unfortunate that we are sitting in a situation where we have setbacks with supercomputing and defense or the near-term market would be looking a lot better than it is.

What would you say your timeframe is now to accomplish it?

Well, obviously, we've got to first of all reverse the revenue trend. It's been heading in the wrong direction, and as you heard me say, as you measure it from the perspective of top line or bottom line, you aren’t going to be seeing that this quarter because the effect the quarter was casting complete based on bookings level in the fourth quarter and the third quarter prior to that, which were very depressed. But if we see a continuing positive trend in terms of the bookings rate and book to bill ratio as the year progresses, we should see deflection point from which that 3x5 reorganization should be measured given where we now are.

And I have one last question for you too, and that’s if you could kind of give us a little bit of the rationale about the stock buyback as opposed to paying out that excess cash in form of the dividend?

Well, obviously, we are not making money. We just lost a pretty substantial chunk of money, and we are going to be losing probably a little more this quarter. So, in my mind, this is not the time to even think about dividends. And regarding the opportunity with the Dutch Auction, simply stated, we see the stock as representing a good, long term investment, and that’s why we made the offer back in November.

And your next question comes from the line of Alan Hicks with Ainsley Capital Management.

Can you give an update on the issues with SynQor and progress you are making with integrated bus converters?

So, we the litigation goes on, and I don’t have any significant update to make with respect to that. But I can say that we are making progress with respect to selling larger quantities of IBCs to a growing customer suite.

Your orders are increasing in that area?

Our orders are increasing in that area. But to be clear, what we have seen in the first couple of years of our effort in that space, particularly in the very early timeframe, and what we are still seeing today has been greatly impacted by SynQor’s activities in the marketplace, meaning the threats to customers, and to some degree misrepresentation of the goodness of their legal position.

So, you think that will have to go to a final trial?

Very likely, yes.

And your next question comes from line of [indiscernible] of DMB Capital.

To kind of follow up on Alan’s question, in the communication market, I understand that the IBCs are being held up by SynQor’s litigation, but I am wondering, are you talking to these same companies about factorized power and are you having any success with that?

Sure. We discussed in earlier conference calls part of our strategy in entering the IBC market was to enter the IBC market and demonstrate by doing that the capability of our technology in an open frame break platform that would enable customers not just to want to buy these products for their obvious clear superiority and differentiation, but also as a way to make clear to customers that it would make sense for them to pursue other solutions with us that involve other power component building blocks, including V*I chips, Picor SIPs, and so on and so forth. And we are seeing that with virtually every customer that has had an interest in IBCs, we are seeing a growing interest with respect to factorized power and other V*I chip and power enabled solutions. So, we are still very much of the opinion that this was a very strategic choice that will have long term value. It’s been, unfortunately, handicapped by the interference that SynQor has played in the marketplace.

Yes, it seems like with the 48 volts, that’s a real sweet spot for you, and it’s been a couple of years now. So, are you seeing anyone getting close to adopting a factorized power solution or using the V*I chips or the Picor SIPs in their architecture? Are you starting to see any kind of production orders from that market?

Yes, we're starting to see some production orders from that market outside of the supercomputing space.

And that’s not with the IBCs, but with the V*I chips and the SIPs and all?

It’s with the factorized power solution that involves in effect PRM building block followed by a current multiplier VTM.

That’s real good news. When do you think you will see something significant? Will we see something later this year, hopefully, in that or…

Yes, I think talking about to some degree, the same kind of opportunity that was the subject of an earlier question and earlier answer. So, as I mentioned earlier, once again we were confronted with a situation where the actual timeframe and volumes turned out to be not as good as they once appeared to be. On the other hand, there is a lot of incremental activity taking place. And we’ll see how that turns out, but I am optimistic with respect to that coming to fruition.

So, it sounds like things are going, I mean, I hate to say this, but it sounds like they are going pretty well as far as activity, design wins, opportunities. It's just that it sounds like people are they are not taking what you thought they would and things are getting pushed back and you have the lawsuit, am I hearing that right?

Yes. If we could ignore financial reporting, we would be looking pretty good.

Well, that’s important. Because, obviously, we have been with you a long time because we believe in your strategy and in your products, and it’s important for us to hear that. So, to the Dutch Auction for a second, from the numbers that we have seen, it looks like you are not going to get close to the amount of stock you would like to buy. My question is if you do not get the amount of stock that you would like to buy, will you continue to buy stock on the open market after the closing of the Dutch Auction?

I am not going to speculate with respect to that. I think we made a decision late last year, in November. We, obviously, given changing demand and the worsening picture, we deemed appropriate to expand the expiration date. I doubt there is going to be further expansions, and we will see where we go from here.

When you say further expansions, though, you have put a number out there. Was it $20 million? And so if you don’t get your $20 million, are you still going to be inclined to spend that $20 million or I mean if things are going relatively well with the exception of the financials, I mean wouldn't it make sense for the company to continue to buy their stock as you have already said that you are willing to spend that much or aren’t? Help me out a little. I am just trying to understand what the logic would be.

Well, I think the logic was, as in November, that the potential acquisition of $20 million worth of Vicor stock in the price range that we had targeted, that would be a good long term investment, and that was the basis for making the offer. And then again, subsequent development causes to expand the expiration date, and so here we are, and we will see where we go from there.

Okay, 1 last question on your capital additions, you went from Q2 of $1.5 million to Q3 to $2 million, the $2.5 million in Q4, so your capital expenditures, they keep going up while your bookings and revenue are going down. You would not expect to see that. Now, I heard Jamie say a lot of that was for maintenance, but it still seems like are you building up for something, is there something that you are expecting or is there...

At this point, we really -- we have, as I mentioned in my remarks, plenty of capacity, so capacity is not a short term challenge. Demand creation and demand realization are the short term challenges. And once we get further along with that, then we will start worrying about capacity again. So, I am glad that we didn’t do anything premature about further capacity expansion in the timeframe a year ago or earlier than that when it appeared that we might need it. And at this point, in the recent past, the investments have been made, they, as Jamie suggested, really maintenance type investments. So, that’s not on our -- capacity expansion is not on our near term radar screen.

A $0.5 million sounds a lot for maintenance. Is there is this going to be a recurring thing that we are going to see? Is that what your run rate is for maintenance on your cap now?

Frankly I don’t have in front of me details of what went into that. It is not a huge amount given what we already saw in terms of capital equipment. And I can’t tell you whether that’s a number that might go up or down a little bit over the next few quarters, but I can say that we should not expect to see anything major in terms of capital equipment investment taking place for a while.

And the next question from the line of Don McKenna with DB McKenna.

I wanted to ask you about the head count reduction of 50, is that primarily direct labor?

It’s to a high degree direct labor, not exclusively. There were some other changes made, consolidation of some infrastructure to achieve greater economies. But there was a significant component of direct labor.

The beefing up that you did couple of years ago on the sales and marketing and bringing in some higher powered folks, their compensation is largely based on stock incentives. Have they -- have you been able to retain all those or have they moved on at all?

No, they are here. There are believers, as I am. So, I am frankly not concerned with respect to that.

And at this time, there are no further questions in queue.

Thank you very much. We’ll be talking to you in a few months.

And ladies and gentlemen, that does conclude today’s conference. Thank you for your participation. You may now disconnect. Have a wonderful day.