Good day, ladies and gentlemen and welcome to the Vicor Earnings Results for the First Quarter Ended March 31, 2017. My name is Katien and I will be your coordinator for today. At this time, all participants are in a listen-only mode. Later, we will facilitate a question-and-answer session. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I will now turn the presentation over to your host for today’s call, Mr. James Simms, CFO; and Dr. Patrizio Vinciarelli, CEO. Please proceed.

Thank you, operator. Good afternoon everyone and welcome to Vicor Corporation’s first quarter 2017 conference call. As stated, I’m Jamie Simms, and here with me here in Andover are Patrizio Vinciarelli, CEO; and Dick Nagel, Chief Accounting Officer. Today, we issued a press release summarizing our financial results for the period ended March 31st. This press release is available on the Investor Relations page of our website, www.vicorpower.com. We also filed a Form 8-K earlier today with the Securities and Exchange Commission related to the issuance of this press release. As always, I remind listeners this 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. Except for historical information contained in this call, the matters discussed on this call including the statements regarding customers, opportunities, 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 or implied by any of our remarks today. The risks and uncertainties we face are discussed in the 2016 Form 10-K we filed with the SEC on March 7, 2017. Please note the information provided during this conference call is accurate only as of today, Tuesday, April 25th. Vicor undertakes no obligation to update any statements including forward-looking statements made during this call and you should not rely upon such statements after the conclusion of the call. A replay of the call will be available beginning at midnight tonight through May 10, 2017. The…

Thank you, Jamie. As Jamie noted, our VR13 business finally started ramping in the first quarter with VI Chip and Picor reporting improved results. Despite the complexity of ramping new products in the midst of new equipment installation for expanded capacity, our factory was able to improve VI Chip margins while increasing our production volumes by nearly 46% and production of VTM Chip for VR13 data center solutions by 66%. As highlighted in today’s press release, we’ve also been preparing from a ramp of AC to 48 and 48 to Power-on-Package PoP solutions for advanced supercomputing selections which is taking place in Q2. Our progress with bookings supports our expectation of improving revenues and profitability as soon as the current quarter. High levels of engagement with customers across market segments, notably data centers, supercomputing, artificial intelligence, machine learning, autonomous driving, and aerospace are expanding. During my Q4 remarks, I mentioned our design wins for powering GPUs and for powering CPUs within the CPU package. Since that time, we’ve expanded the scope of our engagement and believe we have established, strong competitive advantage in the emerging, high-growth market segments for current GPUs, CPUs and ASICs that enable accelerating computing applications including deep learning and artificial intelligence. We expect that this segment will provide significant contribution to our growth over the next several years. We are particularly well-positioned to provide PoP solutions in which our modular current multipliers so-called MCMs, are co-packaged within the ASIC package or on the substrate, next to or under the ASIC, to enable efficient and fast delivery of hundreds of amperes of currents to turbo-charge ASICs. For emerging computing applications, our Factorized Power approach to powering GPUs, CPUs and ASICs within the package is game changing. With power density, efficiency, response speed and tall performance attributes, far…

Thank you. [Operator Instructions]. Your first question comes from the line of Mark Lanier representing Pegasus Capital. Please proceed.

Patrizio, I was interested in the design wins during the quarter and taking your usual steps not to disclose names, and too many specifics, would be interested in where you see these design wins developing? And how it informs your sense of the trajectory of some of the markets on a relative rates of adoption? Thank you.

Thank you. Well we don't naming names, as attested in the prepared remarks, we're seeing an accelerating rate of interest and outright adoption in some cases, in the general compute space, in its various forms, particularly as suggested in prepared remarks, the demand for very high cost to power low voltage very iconic logic devices is pronounced. So the particular area of incremental excitement and opportunity has to do with a variety of devices that now they are approaching 300-400 amperes of -- an instances continuous power draw with peaks ranging up to, as much as the [indiscernible] amperes. GPUs are an example of this kind of device, but not the only one. There are customized ASICs that also fall in that category. Their application fields are as suggested in the prepared remarks related to the various new fronts in which the compute landscape is emerging to enable very advanced systems, that our table our performing functions of the years ago were unimaginable. Equally unimaginable is challenge of powering the stands of devices, which in particularly instances, well removing costs that were large are within what was envisionable in the hundreds of amperes. Worst of current demand in two [indiscernible] of one form or another that take them up to double the current capability. And you’ve seen that space in particular, that our solutions stand out as being particularly capable and very early differentiated. It is true on the motherboard or our cartridge. It is particularly true on an ASIC substrate. While it's ossible to supply this currant from a motherboard report to the package teams to the ASIC, with our solutions because of it's extremely high density, low noise attributes and dynamic response characteristics, it is also possible for the first time to co-package, become multiplier within the ASIC package itself. So we have first instances of this kind of department. In fact, the supercomputing application referenced in the prepared remarks is an example of this kind of system. This quarter we're shipping nearly 40,000 modular current multipliers to power advanced devices, within the device package, as part of a large supercomputing installation. We see more and more of these kinds opportunities emerging, coming from makers of the CPUs, GPUs and/or users of those kinds of devices being in the U.S., in Asia and particularly in Japan.

Your next question comes from the line of John Dillon representing D&B Capital. Please proceed.

Hi guys. Congratulations on a great good quarter. So Patrizio, I've got a question for you. Right now you are running three shifts for the VI chips. So I am wondering what are you doing to ramp production? It's sounds like you are expecting your bookings and revenue to continue to increase. If you are already running three shifts, how you can get the additional production out?

Well, we have very capable operations team that has proven its capabilities. So this is not something that keeps me up at night. We the stock capacity. I think we -- learning from past experiences that impacted to the earlier days of the company, we learned out to rely on scalable equipment discover processes. And so we have a great deal of elasticity in our manufacturing model. And we look ahead and we make contingency plans that provide for large factors of expansion of capacity, particularly for chips which are going to be at the heart of a lot of the systems that I was referencing earlier, later this year into the next year and the year after that. So lead times for the kind of equipment that we need to scale up capacity are typically measured in six-month range. We believe within a [indiscernible] facility, we have the capacity to at least double the business to be funded, $1 million range and possibly the $6 million range. And beyond that we would be looking at in other facility, possibly in Asia to further capacity. So all this can be done by an effect, expanding the model through the same kinds of sales, the same processes, again with good predictability and scalability. The challenges typically encountered in the very early growing of new products. So over the last year and half in particular there was a great deal of learning with the convert to house in package technology which is from a main time enabling technology for power components. It's the technology that enables modular current multipliers to be co-packaged within ASICs. It's also technology that enables the latest and greatest TRMs and VTMs [ph]. The world is obviously quite a bit of challenge for our operational teams and the engineering teams in the early going. But we've learned a lot and we now have again a great deal of scalability, witness the fact that from last quarter to this quarter, we are going from as suggested earlier very low small quantities of MCMs, early 10s, or few hundred samples to nearly 40,000 units in one quarter. And we would be scaling that up again in the third quarter by I think a factor of four. So we can do the scale up once we have the recipe in place, and we believe we now have for these packages, the recipe in place to do it with.

Wow. So it sounds like you've got capacity for $400 million to $600 million in your current facility and end of your loans?

We have at the space and we have the plans to support the level of capacity. Just to be clear, we're not expecting to be a very great in the very near future but we do see how we can configure our growth facility to support the level of business. And again, depending on how things evolve in the markets that we are addressing, and some of these markets are very dynamic, there may be scenarios where we want to accelerate their expansion of capacity. And we're look at some point that facility have under it.

Great. So it's obviously very dynamic, but you guys in your plan to be able to grow up to $600 million in your current facility?

$500 million to $600 million in our current facility.

Right. So bookings in revenue for the rest of the year, do you still expect sequential increases quarter-to-quarter in each of the quarters?

Yes. And the evidence of that this quarter supports that proposition.

And so your bookings are trending pretty well this quarter already?

Yes.

Okay, good. And the GM's going forward, it sounds like you had -- some of the VI chip revenue was, the GMs were, gross margins were matched because of some issues, but you expected gross margins to continue for the rest of the year then?

Yes from Italy, there are two key elements to improving the gross margin parameter. One is absorption of overhead. We have a large fixed cost infrastructure that we replaced quite some time ago to give us that larger capabilities, the packaging technology, the product mix that is now beginning to bring dividends. As the level already is scaled up, that by itself does the right thing in terms of the margins. But also with Chip technology in particular, we have a very, very cost effective product platform, one that is much more cost effective than the early VR chips that were made if we go back to seven or eight years and quite frankly which IBM was the primary capital for these kinds of products. Those devices were not only crafted on a case-by-case basis, no pun intended with dedicated molding cavities not very scalable capacity. Everything we make today that is best into the markets we're discussing is instead made on support panels in particular. The panels go through a process that is generally referred to as convert the housing package. Within these panels, we can in effect segment small chips, which we can make very large number, let’s say 100 per panel and in that particular instance, they maybe low power devices, that may sell for $10 to $15 or in some instances, less than that. The other end of the spectrum out of the panel, the same kind of power going through the same manufacturing process, we could make as few as a couple of devices, which could process 6 or 7 kilowatts, and those chips go for more money. But whether they are large or small, whether this many of them per panel or just a few, the manufacturing process is exactly the same. And fundamentally a factory, just like a semiconductor wafer foundry is tap to process panels as we would -- it’s all about the factory process wafers. Again, this is unique and very proprietary, and every patented technologies sampling we've been developing again over the last 10 years. So that’s the manufacturing scalability and manufacturing model for the heart of this next schedule.

Your next question comes from the line of Jim Bartlett representing Bartlett Investors. Please proceed.

The current quarter was heavily driven by VR 13. Is it still from VR 12.5 and is that paving and will be ending to?

Yes. There is still some 12.5. It will tail off in mid-year. I think most for the action going forward is going to be the VR 13 for Intel socket. Again, there is going to be action in applications that are not related to power Intel processors. The reference was made in prepared remarks to the end, P9, the productivity nature related to that for variety of reasons, that are proprietary ASICs. Coming back Intel sockets, there are Intel sockets where we power the processor and memory rails that have not yet even started ramping -- that we start ramping in the second half of this year, because Intel processors for those kinds of applications are not quite yet available.

When will they be available?

Based on what we know, second half of this year.

And the significant installation that you would mention, the supercomputer installation, where there was significant shipments. is that just one supercomputer installation, and does that peel off, or there are more -- similar things coming, or could you just help me explain?

Yes. So this first supercomputing selection, that’s pretty large election, but it’s one device that will be compete in a few weeks. So we are -- we're actually shipping into the high rates. We’ll be shipping at earlier rates. So the last couple of weeks to compete our part, the power system or various selection. And to be clear, this is the first installation, where we're not only providing the power components that deliver high current or low voltages to the processors and memory rails of the point of load from a 48-volt bus. But we're also providing the front end power system that takes AC, pre-phase, at megawatts level of power and delivers it to a 48-volt bus within the supercomputing unit. Obviously, we're not doing it in one track. There's a larger way of what we call RFMs or rectified modules. In the first installation, there are a kilowatt devices and there's 400 of them. And this is an installation taking place again in the second quarter. In the third quarter, there will be a larger installation, which is four times the size of the first. The fan [ph] collapsed to 12 kilowatts per device and there will be 2,000 of them. So, and these 2,000 front end devices are going to power a much larger multiplicity of so-called MCDs or modular current drivers and MCMs which are the modular current multipliers that come packaged with the ASICs that provide the compute nodes. So the answer to your question, first significant step up this quarter, a follow on next quarter, up four times the volume and we'll see where it goes from there.

Would you say this paradigm is a significant advantage for the supercomputer manufacturer that could be replicated or by want to be replicated by others?

Yes. I think that the level of the compute density and capability that we're enabling with this first installation is state of the art. The one that we will be enabling with the follow-on installation, which is just a few months later, three or four months later, will raise the bar further. But while this is indicative of what can be done at the supercomputing level, it is also, on a different scale, indicative of the benefits and advantages of the technology, if you will, with each ASIC GPU or CPU that has high current demand, very high current demand. And to be clear here, Intel processors are not in that category. Intel invested a great deal quite some time ago in developing its own on-chip regulator technology. It is proprietary Intel. It is used within Intel devices. And it relaxes the burden in terms of current delivery to an Intel processor, because this internal infrastructure provides a regulation function, which in effect converts specifically 1.8 volts of this input to what would typically be 0.8, 0.9 volts at itself. Again, it’s got capability to deliver a multiplicity of such voltage rails. That’s rather unique to Intel, and with Intel’s competitors, that kind of capability isn’t generally there. But the current needs, in some instances, at the actual point of load are even larger potentially much, much larger. Hence, there’s a void there and there’s a great opportunity to fill that void with our modular current multi product technology, which we believe to be superior to the technology which is embedded within Intel’s package. Superior in terms of being able to multiply the current, not by near factor of two or three, but by factor of 48 or 64, so as to reduce the level of current delivery to the…

How would you rate your opportunity in Intel versus the non-Intel space?

Well, obviously, Intel applications are still the bread and butter of the VI ChiP revenues. And they will continue to be a large portion of our opportunity. But I think it's important to note that there are competing solutions. It's important to be aware that these competing solutions lacking the Intel regulator that Intel has developed, are even more dependent on a very efficient, advanced, fast responding, low noise alternative, and that's what we're providing with MCMs. And just to give you a little bit more of a flavor with respect to what an MCM is. MCMs or MCDs relate to PRMs and VTMs. So there's building blocks or factorized, or proprietary Factorized Power system, but the partitioning of the functions between the PRM and VTM is done in a different way so as to enable a much thinner denser solution that can be much more revenue co-packaged within an ASIC package or GPU package. So just to give you some dimensional points of reference, our voltage transformation modules, which typically power Intel processors on a motherboard or from a motherboard, I should say, those devices are about 5 millimeter thick. MCMs are 2.5 millimeters thick. So they're half the thickness. Also their current density is substantially higher than VTMs. So if you look at the X and Y footprint and the current density capability in terms of X and Y, and also look at the Z or height of the package, you get a factor of two advantage in height, which makes co- packaging within an ASIC package the or bottom of ASIC package much more pragmatic particle. And also you give them more density in terms of actual footprint. And so our MCMs can flank an ASICs on 2 sides. They can be mounted on the opposite side. They can be mounted under the lead of the ASIC. They can be mounted outside of the ASIC. There is a lot of flexibilities with MCMs to enable much higher product devices, particularly where as is often the case with some of these devices, the current role can have instantaneous loads that far exceed the average because both our VTM technology, our MCM technology is capable of burst power delivery without penalty, unlike competitive alternatives, they rely on a multi-phase regulators, so one from another, which are all in effect limited by their serial inductors. Our technology does not involve any serial inductors. There is no energy limitation. The power delivery really only capped by thermal limitation. So with our technology, our timescale of milliseconds -- if the compute node needs to on a short time scale call on extra resources to rapidly solve a challenge, it can do so without concern with respect to power delivery getting in the way of enabling that challenge to be solved.

Thank you. You described it as game changing, and it sounds like it is.

It is.

Your next question comes from the line of Hasnain Karim representing Kilimanjaro Capital. Please proceed.

Just for the first question, in the opening script, you mentioned diversification in terms of bookings. Now I was wondering if you're speaking to diversification within the large cloud providers as well as with regards to Sky Lake introductions, or were you talking more to Intel versus non-Intel processors in terms of bookings growth?

I think it's all of the above. And the other element in the mix, which is believed to play a role this quarter more so next quarter and going further into the future is the AC to 48. So again, Vicor is, because of our technology, both the power conversion engines, the packaging technology, uniquely equipped to address our system needs from the source to point of load. And part of the justification strategy is to combine point of load sales with power system sales in the front end, because typically customers require both. Historically, those needs have been addressed through different vendors with this spread in technologies and without the opportunistic comp from a grander vision and a more genius capability, which is what we're beginning to deliver. So in the short term, the diversification is going to come primarily from expanding a footprint in the center space, cloud computing, supercomputing or one form or another. But longer term, it is also going to come from power system solutions that are not the point of load devices that may comp in the short-term revenue outlook.

Okay. If you look at a few quarters, by the end of the year, when Sky Lake is in general availability, do you expect to be shipping to at least two or three of the top five cloud vendors in the world?

So I’m not going to be specific with this fact to that beyond the prepared remarks. I can say that we see traction across a broad end spectrum. As suggested in the prepared remarks, as recently as a year ago, in March, I think, when Google made its announcement at Open Compute 2016, they were the only customer for the 48-volt solutions. As you’ve heard, a lot has changed in the last year. But to be clear, as pointed out in the prepared remarks, we’ve gone from being a curiosity to being a lot more than curiosity, more early adopters getting involved in. But we’re still scratching the surface of the opportunity. There’s no doubt in my mind that given all of the benefits of a 48-volt infrastructure, which you know, many people don’t fully yet appreciate, given the many benefits, it’s only a matter of time before this conversion is going to be very progressive. But it is not going to be an overnight change. These are infrastructure changes that on the part of major cloud providers require a fundamental change in their power system architecture, sampling that obviously, requires private detailed preparation and time to deployment. And so it will take time, it will take years. This is not a timescale of months, it’s a timescale of years. But what I can predict is that, the ones that are going to make a judicious change sooner are going to reap those benefits earlier as Google itself has advertised.

Okay. So is it fair to say, I mean, a couple quarters of ago, last call, I think, your prognostication was small changes in bookings, but still double-digit at times to both the fourth quarter and the first quarter? And then as Intel starts production of Sky Lake, you expected a step up in bookings and backlog in the June or October quarter. Is that still how you see slope of growth?

Yes, we see more tonic growth. I think at the rates of growth from quarter-to-quarter may be different. I think we may be able to do better this quarter than the last quarter, but we’ll have to wait and see until the end of the quarter. And what the third quarter brings about, what the fourth quarter brings about, let’s wait and see. But our forecast shows continuing improvements in preparation for what should be also very exciting 2018.

Okay. Just last question from me. With regards to the gross margin, you mentioned that some of the headwinds this quarter was start-up costs. As you see revenues getting to about $60 million or so, I guess, in the second quarter maybe, if you can talk about it, are most of the start-up costs done with at this point or do you still expect some sort of increased costs with regards to gross margin as you ramp in Q2 and Q3?

So this quarter as mentioned earlier, we are in fact executing very well, I would add or as well as could be expected. It's that function from very little to tens of thousands of MCMs, MBDs and commensurate quantities of RFMs. This is taking place this month into early next month before we start waiting for the next wave of these kinds of devices. I would expect that the efficiency of making these particular products will come to the floor as we get past this first wave and begin to execute on the next wave. Yields are getting to the right place, but inevitably, in this kind of a ramp, there’s a price to be paid for some level or novelty in the products themselves. So I wouldn’t predict, at least, for those products, the kinds of efficiencies we're going to have starting in the third quarter until the third quarter. With respect to other products, I think that, high volumes would bring about again greater efficiency. I would say that the demands on operations theme to really step up to the bar, are in terms of addressing these novelties, are largely behind us at this point. And that while not causing, don’t get me wrong, I think it should become more routine and more efficient to deal with the volumes coming around for these kinds of device and other devices in the second half of this year.

Okay. Maybe if I can just add one more.

Sure.

What – where would do you think, or I should ask, how you guys are thinking about licensing your technology as the TAM grows broader and customers beyond the initial early adopters ask for the second source vendors?

So we are open-minded with respect to that. We’ve done that kind of thing in the past. We’re prepared to do it. Remarkably, there hasn’t been that much pressure for the [Indiscernible] outsource. And I rationalize this reality by virtue of the compelling competitive advantage that we offer. It’s not unusual in our industry for customers to want to capture the benefits of a technology though its proprietary and single source. So contrary to what I may have feared, I see more and more substantial customers willing to go single source with us because they've visited our factory, they become very confident with our capabilities. You know, we've been around now for quite some time. We have a good reputation. We don't let customers down, and we live up to our obligations. So, all of those considerations coupled with the benefit that our products offer in terms of enabling our customers to get a leg up in their competitive challenges with their competitors, it's been working wonders. And we haven't really been muscled into any alternate source arrangement. But we're open minded. We recognize that our objective is to make the most of the opportunity. As you might have heard from past conference calls, we've invested, I think, this count is probably close to $300 million in developing this technology. And the money part is, in some respects not doing justice to the swap, the ingenuity, the effort over the last dozen years. So we don't want to limit the opportunity of what we've invested by being too possessive of it, but as good businessman, we do want to make the most of the opportunities. So should the opportunity arise, when the opportunity arises, we'll be very open to the right kinds of arrangements to further accelerate the market uptake of our technology.

The next question comes as a follow-up from the line of John Dillon representing DNB Capital. Please proceed.

Patrizio, you mentioned before you have a $75 million target or plan for the fourth quarter this year. Is that still on track?

Pretty much. I'm not going to spell out a number, but as suggested earlier, we look at improvements in the 5% to 10% range taking place this quarter, and as a ballpark, next quarter and the quarter after that.

Great. And in your remarks, you mentioned, WINWIN [ph] and I think you mentioned Microsoft. I wasn't sure if you meant that you had a design win with Microsoft through WINWIN [ph] or was that some other reference?

No. I think that the remark is the way it was framed. WINWIN [ph] happens to be a substantial supplier to Microsoft and WINWIN [ph] took the initiative of developing a solution 48-volt base with our building blocks. What WINWIN [ph] does with that solution, I can't comment on. And you shouldn't infer to that, the fact that they happen to be a substantial supplier to the Microsoft, there's any connection with Microsoft, there would not be the right inference. But you know, I think it's either itself is noteworthy that they took the initiative and they're not the only ones. There are many such initiatives with various Asian contract manufacturers doing similar kinds of things with a variety of end customers in mind. So fundamentally, what's behind it is a broadening realization that 48-volt infrastructure is the way of the future, not just in the centers, but in a variety of application environments. And not surprisingly, companies that play the key role in the food chain supporting infrastructures are going to be based on 12 volt will now be on the forefront of the evolution to 48. And with that, we have an opportunity, they have an opportunity and their customers frankly have the biggest opportunity.

So I think the point is, we went into very substantial cloud provider. Microsoft being one of its customers. But on their own dime, they went up and developed this 48-volt technology and are offering it to its customers.

That's correct. That's right. We'll take one more question. We think it's getting late. But

Okay now thank you very much Patrizio. Congratulations again, appreciate everything.

Thank you

Your final question comes as a follow-up from the line of Mark Lanier representing Pegasus Capital. Please proceed.

Patrizio, a number of years ago, as PAGCOR was conceived and developed, you articulated a potential path of Vicor becoming an independent company as I recall. That discussion hasn't been as crucial in the last few years. But I'm wondering, as you take a look at the growth path going forward, the requirements for various markets leveraging manufacturing, I'd be curious to know how your thinking about that has involved?

Well, it hasn't really evolved in that this don’t change with respect to the general plan. We've been able to attract key talent. We've incentivized this key talent through financial goals that are tied to equity ownership in by granting this but we see the light of day in terms of liquidity opportunity. To achieve that it takes critical mass. We haven't had it. We will have it. As soon as we have it, we are going to have the liquidity opportunity.

I appreciate it. Good luck. And look forward to next quarter's conference call. Thank you.

Thank you. Have a good day. Bye.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.