Good day, ladies and gentlemen, and welcome to the Vicor Earnings Results for the Second Quarter ended June 30, 2013 Conference Call. My name is Ashley, and I will be your operator for today. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session. (Operator Instructions) I would now like to turn the conference over to your host for today. We have Jamie Simms, CFO of Vicor Corporation and Dr. Patrizio Vinciarelli, CEO of Vicor Corporation. Please proceed.

Thank you. Good afternoon and welcome to Vicor Corporation’s conference call for the second quarter ended June 30, 2013. I am Jamie Simms, Chief Financial Officer and with me here in Andover are Patrizio Vinciarelli, CEO and Dick Nagel, our Chief Accounting Officer. Today, we issued a press release summarizing our financial results for the quarter. This press release is available on the Investor page of our website, vicorpower.com. Also, we have also filed a Form 8-K with the SEC in association with issuing this press release. As always, 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 August 7, 2013. The replay dial-in number is 888-286-8010 and the pass code is for 73361295. In addition, a webcast replay of the conference call will be available on the Investor Relations page of our website shortly upon our conclusion this afternoon. I will start this evening’s call with a review of our financial performance for the second quarter…

Thank you, Jamie. As Jamie has described the second quarter was characterized by encouraging improvements in orders for in particular V*I Chips powering Intel processors used in large scale datacenters. Our present solution utilizes first generation V*I Chip PRMs and VTMs as components of a factorized power system in having higher efficiency. Next generation V*I Chips and microchips would provide even greater benefits in efficiency, density and cost effectiveness for the coming generations of Intel VI Standards. Well our datacenter volumes present good news, we do not have meaning visibility into demand within the supercomputing segment in which first generation V*I Chips achieved early success. As the federal government is the primary source of funding for supercomputing selections and federal funding remains quite uncertain. Our early adopter customer has no real visibility itself into when demand will resume. Design activity is progressing with well-known large scale enterprise computing manufacturers for both server and datacenter applications. And we expect V*I Chips and our new chips to be designed to platforms that will ramp in the second half of 2014. As a reminder, ChiP is an acronym for Converter housed in a Package, what we earlier referred to as Power Molded packages. The power density or efficiency and scalability of chip modules makes them attractive to market leaders seeking to differentiate their own next generation systems. As we discussed before, we have reorganized our marketing and sales effort around teams focused on industry verticals. We are developing chip based power systems for applications within these verticals including in addition to computing, communications, defense electronics, test and measurement instrumentations as well as automotive. We are working closely with numerous potential customers across these various markets. We are pleased with the inception of recently introduced ChiP packaging technology as received. We have developed an…

(Operator Instructions) Your first question comes from the line of Jim Bartlett with Vicor (sic) Bartlett Investors. Please proceed.

Congratulations on the increase in bookings and backlog if you were to look at those two large orders I guess the datacenter order and the defense electronics order what percentage of the bookings increase would that be?

All of it. That is what we are getting at is that the datacenter orders were staggered over the quarter it wasn’t one simple – single order whereas the defense electronics order was. But between the two opportunities, the sum of all that was more than all of the bookings increase, bookings in the other areas of the business are best characterized as flat.

And could you give some characterization to the design activity which was mentioned to be robust?

Yes, so we are finally seeing traction in the computing space across a much broader customer base. I remember getting questions years ago on these calls with respect to replicating a success story of the leading customer elsewhere we are now seeing that happening with both factorized power system solutions for the point of load as well as front end modules using ChiP technology, so that’s very encouraging. These engagements, all very promising in terms of being as substantial as our first those have their customer in some cases potentially more substantial than that. So, that’s a very exciting area for us. Communications on a smaller scale but still in terms of breadth of customer’s traction interest is progressing well. As are the other targeting markets. I think in a nutshell we are seeing a good deal of interest and excitement to leverage in particular chip products as well as some other more classic first generation V*I Chips and at an earlier stage, but nevertheless quite exciting is also the level of traction that we are getting with SiP regulator products that Vicor is introducing.

And when you stated that the chip the differentiated PFM, DCM, PRM, etcetera make meaningful contributions of revenue by the second half of 2004 would meaningful mean over 10% or can you qualify that?

So, we are going to see in the initial contribution starting end of this year, beginning of next year as planned conversions to ChiP based solutions and SiP solutions begin to take price. And as the year progresses we are anticipating significant contributions from other computing customers in server applications and other kinds of applications. So, because of the magnitude of these opportunities, I think it’s and the immediate uncertainty with respect to timing is up to be very specific at this point but there is tremendous potential. And we are seeing a number of other customers so what we have seen and talked about in this call with respect to the reference of the center task.

Thank you.

Your next question comes from the line of (John Dillon with DB Capital). Please proceed.

Hi guys, just wondering, if the bookings increases, are these sustainable, I mean do you see enough new stuff coming in to continue the increase in bookings in the next couple of quarters?

Yes, John, we are anticipating a progression in bookings. We don’t anticipate in the third quarter step up we saw in the second quarter, but we are anticipating progress and the bigger progress in the fourth quarter and into next year.

Okay. So, I wasn’t sure if I caught that, I think what I heard is you do expect your bookings to increase next quarter and then more so in the fourth quarter and then more so by around next year, is that correct?

Yes. So, the sequential pattern is one of increases, a modest increase next quarter followed by greater increase in the fourth quarter and greater increases into next year. And that relates back to the engagements that I was referencing in answer to the earlier question.

Well, that’s good news. And again, congratulations on the bookings increase this quarter. So, I think again what I am hearing is that some of the engagements that you talked about in additional computing environments, so they are not going to wait for the chip technology, you still have some class for V*I Chips stuff that you will be able to deliver to and be a little bit more diversified in the coming two quarters, because you have new customers that you will be getting into, is that correct?

Yes. So, let me answer it this way. We are seeing more diversification taking place with the classic chips, but to be clear, the market opportunity for chips is far, far larger than the first generation of V*I Chip products. And the reason why that is discussed early is to do with the fact that we are raising the bar substantially by in the case of power density a significant multiple, while increasing efficiency and reducing the cents per watt, which is a key figure in terms of penetrating cost-sensitive applications. So, the combined effect of a remarkable increase in power density and increasing efficiency and a remarkable decrease in cents per watt as you might imagine that the right mix in terms of opening up much higher volume, cost-sensitive opportunities that they are still dependent for comparative reasons on performance advantage.

Yes, that sounds pretty good, because I think from before, you have always had a performance advantage, but you never really had the cents per watt and it sounds like now you did better performance, better density, and a better cents per watt, is that correct?

Well, I think the answer to that question needs to be carefully structured. As you might imagine, our cost structure is very much a function, which particular function we are delivering. So, as suggested by the various names, PFMs, DCMs, BCMs, and so on and so forth. Each of these different types of devices perform different functions, and depending on the type of device, the cents per watt figure made can be dramatically different, but I think it’s appropriate to say that at least for certain categories, our structure is well below industry standards, whereas for other categories is a lot more competitive than it is to be.

That’s great. Good news. And years ago, you were looking at the flat panel market and the flat panel TV market, I am wondering of the new chip technology and the cents per watt coming down, do you have any design wins or is there any interest from that market again?

There maybe opportunities, too early to say. But let me put it this way, I’ll answer the question more generally for the PFM break that leverages a V*I Chip inside technology, which was introduced within the last year. We are seeing a lot of traction with that device in spite of the fact that it being based on a classic first generation V*I Chip, it doesn’t have the best or the most cost effective cost structure or cost card. With the eminent deployment of the chip base, the PFMs, we are going to be taking the density to a higher level. We are going to be taking efficiency to a higher level. And most significantly, we are going to take our cost card way down and that will open up a much broader market for AC solutions, including possibly markets, that is the one you referenced, I think they are dependent on very thin low-profile power system solutions.

Excellent. So, congratulations, I’ll get back in the queue. Thank you.

Your next question comes from the line of Don McKenna with D.B. McKenna. Please proceed.

Hi, guys. Nice to have a positive meeting. I wanted to ask you Jamie on the number of shares outstanding earnings for calculated on, is that an average for the quarter or is that the actual at the end of the quarter?

The average.

Okay. And just as a kind of a back-of-the-envelope calculation, would I be right in using something in the range of about $57 million as your breakeven point? And I understand mix will change, but would I be right in the range in there?

I’ll jump in the middle of that then let’s not get pinned down. Let’s put this way. I think, if you give look at where we have been and where we are going, but in terms of thresholds for profitability and bookings and revenue growth trends, I think we can all see the light at the end of this tunnel, and we are all excited about that, but whether it’s going to be $55 million, $57 million, or $59 million, I think it’s the TBD.

That’s fine. That kind of range I can live with any day. And the capital expenditures you are planning on the $5 million or so, I assume that’s on the V*I Chip line?

Specifically, in order to bring about the significant the chip production on capacity.

Yes. How much of an increase in capacity would that result in?

I don’t want to put specific number at this point. We are still fine-tuning a plan. As I mentioned in the prepared remarks, this is going to be two phases. And we might be able in the next conference call to provide the more clearly with respect to capacity by each of the two phases. But I think it’s fair to say that we are putting in place the capacity needed to support the demand, which over the next year, particularly in the chip front, is expected to be growing significantly to the point to where chip capacity or chip demand will across past the V*I Chip production rates within the next 12 months. So, to say that of course, we are putting in place the capacity necessary to support production rates or chips in excess of post-production rates of V*I Chips.

And in the existing lines, that we are also far below capacity at this point, aren’t they?

Well, obviously, they comeback somewhat from being at extremely depressed level that there is still capacity to be had there on those lines, yes.

But we should emphasize the capacity isn’t exclusive to one line or the other?

Well, so to Jamie’s point, there is a great deal of commonality with respect to most manufacturing process steps for V*I Chips and ChiPs. Even though ChiPs, because of the unique packaging technology have certain processing steps that require additional equipment, but we are obviously looking to reuse and recycle all of the equipment that we have as the mix shifts from being dominated by first generation V*I Chips to being dominated by ChiPs in years to come.

Okay. Well, I am glad I wasn’t able to participate in the last call, because in the back of my mind I did have a question that I was going to ask you, Patrizio and that was which of us was the more delusional, me in my continued faith or you and obviously that’s not a question that needs to be answered at this point in time. Congratulations on the nice quarter.

But rhetorically asked.

Well, let’s hope so. Thank you.

Your next question comes from the line of (John Dillon with DB Capital). Please proceed.

I have three today. I have the same question as Jim there, but I wanted to make sure I understood your answer. What I think I heard was you’re expecting to build capacity for the new ChiP technology that will exceed the V*I Chip capacity, is that what I heard?

Yes, we’re going to be installing chip capacity through the first two phases of capacity expansion to support volumes of chips that are going to cross over the V*I Chip run rate within the next 12 months.

Wow, that looks pretty significant. I mean you’re at the height of your V*I Chips, you are doing about $50 million, $60 million of V*I Chips and so this will be greater capacity than that?

Let’s not get that specific and obviously the comment I make here refers to the run rate of V*I Chip, not of the peak of past capacity, but as we saw over the next 12 months.

Okay, okay, I get you.

Over the next 12 months is a progressive transition with chips in effect taking over. We’re still getting, as suggested earlier in the discussion, we’re still getting new opportunities and new design wins for the old first generation chips. Those are not going to go away. But I suggested earlier that performance cost metrics don’t create nearly the level of market opportunity that chips represent. And so we’re going to be seeing a transition to chip-based solutions that will get to a level of significance towards the middle of next year with chips overtaking the run rate of V*I Chips.

Okay, great. And back to the (indiscernible) increase in activity and design wins in the computers, it seemed like mostly the V*I Chips were really seen as the high-end computers and the people looking for the performance. That’s where you seem to be successful and what I think now is that you’re broadening your market, it’s been getting into more commodity computers, is that correct?

We are...

Not commodity computers.

Yes. So, let me answer it this way. We are, as suggested earlier, with ChiP Technology enabling much more cost-effective applications. And when I say much more cost-effective to quantify it, depending on the application of the particular function, the cost per watt could be half, or potentially even less than half of a solution implemented using first generation V*I Chips. So, that given market velocity factors can bring about significant opportunity in terms of being able to penetrate a more cost sensitive applications.

Okay, so, not commodity computers, but more the high-end computers but not the highest like you were in before?

So, let me put it this way. Another way to approach this is in terms as we discussed in the past, differentiating between let’s say the end processors on the one hand which could be characterized as you know particular niche within the market and Intel processors which needless to say are mainstream. So, we are already – and we’ve been for a few months in production for applications involving the current generation Intel processors, we expect to be, it used to come expanding our reach into future generations of Intel processors which needless to say, go into applications that are much more cost sensitive than we’ve been able to address in the past with V*I Chips.

That’s great. That’s good news. Thank you very much.

Your next question comes from the line of Jim Bartlett with Vicor (sic) Bartlett Investors. Please proceed.

Yes, could you give us some guidance or help in looking at the run rate for both the R&D line and the SG&A line going forward, you highlighted some $800,000 I believe of special expenses that were in the SG&A line this quarter. What does it look on sort of steady operating base going forward in the third and fourth quarter?

Well, what are you specifically – are you looking for a percentage or a number?

No, no, just from the current dollar level in the second quarter, should we be looking for increases in the SG&A line going forward of the significant amount or?

We are hoping that the third quarter will be free of unusual or non-recurring charges or accruals, and as such, we are anticipating a decrease in our OpEx on an absolute basis.

Because the number would be at roughly $800,000 of special items in the second quarter?

No, more than that.

With the $800,000 plus what else?

There were various elements, but let’s put it this way. Setting aside non-recurring charges, which hopefully will be non-recurring. We anticipate that we will not need for the next few quarters to significantly expand the investment in terms of either the front end of the business or R&D activities as we come into fruition with investment phase that started quite sometime ago. So, as we drive toward profitability and before too long robust profitability, we are going to be managing the operating expanse level, leveraging the investments that we already made. We don’t anticipate having to hire lots of people or incur operating expenses that have not been with us over the last several quarters.

Keep in mind, the story has not changed. We are still very much driven by headcount and the associated compensation.

Right, right.

So, when you back out a lot of these unusual charges, whether it be because of these transactions we have undertaken or whether it be for special initiatives, we don’t anticipate any of those for the coming quarters. And as such, you should expect that not only will the absolute dollar amount fall, but we are also being far more attentive, or let’s just put it, we are being very attentive to expenses going forward.

And so what were the total value of the special items in SG&A in the second quarter?

Well, I mentioned in the discussion that we had...

I got $800,000 there.

Adding up...

There were a couple of items that are $800,000, but you are saying it’s more than that. I certainly could have missed that.

Well, it’s tough to characterize one type of expense as non-recurring when I don’t want to get in a position, where I am getting into a lot of detail, giving you very specific numbers, Jim.

Okay, fair enough, fair enough. I got a feeling for what’s going on in there. And could you give me a little better feel, I mean, there is obviously a big bounce back in the future in DigiKey, a better understanding of what the outlook is there going forward?

Well, we think of that and as fact that with the introduction of Vicor SiPs and ChiPs and the various products that we referenced, which represents a very good match in terms of channel capability that we are going to see a significant growth phase through our channel partners that are very well suited for projecting those kinds of products and more so than, let’s say, classic bricks.

Just a final question, could you tell me what’s happening in the auto sector for you?

Well, we are continuing to make investments as discussed several times in the past. We don’t view our engagement in the automotive market as representing a short-term revenue opportunity, it’s a longer term revenue opportunity, but it is in the long-term a major market, if not the most significant market. So, our strategy in the short-term remains focused when it comes to revenue growth on the computing segment, the communications segment. The other segments other than automotive that we referenced were – there is an opportunity to convert excitement with respect to new products into orders on a time scale of typically 12 months. The corresponding time scale in the automotive space is far longer than that. Even though with the event and growing traction from hybrids and (indiscernible), some of those time scales are getting at least with some potential customers to be shorted, then there will be historically in the automotive space at large. But I think we should all be clear about fact that, that’s not where the action is going to be over the next 18 to 24 months. The action is going to be in computing, communications and some of the other markets that we are in.

And finally, could you give us update on what’s happening in the bus converters space?

I don’t really have anything significant to say beyond the remarks after the annual meeting which I think you can access through.

Yeah. There is an audio cast on the website.

Nothing much has changed with respect to that. And I think you can get the current assessment of our expectations and position based on listening to that audio.

But certainly nothing has changed in the month since we…

Thank you.

Any more questions?

At this time, there are no further questions in the queue.