Vicor Corp (VICR) 2025 Q3 法說會逐字稿

Good day, everyone, and welcome to Vicor third-quarter 2025 earnings conference call. (Operator Instructions).Please note that this conference is being recorded.

Now it's my pleasure to turn the call over to the Chief Financial Officer, Jim Schmidt. Please proceed.

Thank you. Good afternoon, and welcome to Vicor Corporation's earnings call for the third quarter ended September 30, 2025. I'm Jim Schmidt, Chief Financial Officer, and I am in Andover with Patrizio Vinciarelli, Chief Executive Officer; and Phil Davies, Corporate Vice President, Global Sales and Marketing.

After the markets closed today, we issued a press release summarizing our financial results for the three and month months ended September 30. This press release has been posted on the Investor Relations page of our website. www.vicorpower.com. We also filed a Form 8-K today related to the issuance of this press release. I remind listeners this conference call is being recorded and as the copyrighted property of Vicor Corporation.

I also remind you various remarks we make during this call may constitute forward-looking statements for the purposes of the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995. Except for historical information contained in this call, the matters discussed on this call, including any statements regarding current and planned products, current and potential customers, potential market opportunities, expected events and announcements and our capacity expansion as well as management's expectations for sales growth, spending and profitability are forward-looking statements involving risks and uncertainties.

In light of these risks and uncertainties, we can offer no assurance that any forward-looking statement will, in fact, prove to be correct. Actual results may differ materially from those explicitly set forth in or implied by any of our remarks today. The risks and uncertainties we face are discussed in Item 1A of our 2024 Form 10-K, which we filed with the SEC on March 3, 2025.

This document is available via the EDGAR system on the SEC's website. Please note this information provided during this conference call is accurate only as of today, Tuesday, October 21, 2025. Vicor undertakes no obligation to update any statements, including forward-looking statements made during this call, and you should not rely upon any such statements after the conclusion of this call.

The webcast replay of today's call will be available shortly on the Investor Relations page of our website. I'll now turn to a review of our Q3 financial performance, after which Phil will review recent market developments, and Patrizio, Phil and I will take your questions.

In my remarks, I will focus mostly on the sequential quarterly changes for P&L and balance sheet items and refer you to our press release for our upcoming Form 10-Q for additional information.

As stated in today's press release, Vicor recorded product revenues and licensing income for the third quarter of $110.4 million, down 21.7% sequentially from the second quarter of '25 total of $141 million which benefited from a $45 million patent litigation settlement and up 18.5% in the third quarter of 2024 total of $93.2 million. Advanced Products revenue increased 8.2% sequentially to $65.5 million and Brick Products revenue increased 26.6% sequentially from $44.9 million.

Shipments destocking distributors increased 39% sequentially and increased 6% year-over-year. Exports for the third quarter decreased sequentially as a percentage of total revenue grew approximately 42.8% from the prior quarter's 51.9%. For Q3, Advanced Products share of total revenue decreased to 59.3% and compared to 63.1% for the second quarter of 2025 with Brick Products share correspondingly increasing to 40.7% of total revenue.

Turning to Q3 gross margin. We recorded a consolidated gross profit margin of 57.5%. A 780 basis points decrease from the prior quarter primarily due to the benefit of the $45 million patent litigation settlement in the second quarter. Q3 gross margin increased 840 basis points from the same quarter last year.

I'll now turn to Q3 operating expenses. Total operating expense decreased 8.9% sequentially from the second quarter of 2025 to $42.6 million. The sequential decrease was primarily due to the increase in selling, general and administrative expenses primarily attributable to $5.1 million of incentive legal fees associated with the patent litigation settlement in the second quarter.

The amounts of total equity-based compensation expense for Q3 included in cost of goods, SG&A and R&D was $1,024,000, $2,117,000 and $1,221,000 respectively totaling approximately $4.4 million.

Turning to income taxes. We recorded a tax benefit for Q3 of approximately $5 million representing an effective tax rate for the quarter of negative 21.4%. The company's tax provision and effective tax rate for the quarter ended September 30, 2025, was positively impacted by the one Big Beautiful Bill Act back during the quarter, which resulted in the beneficial immediate expensing of domestic research and development investments.

Net income for Q3 totaled $28.3 million. GAAP diluted income per share was $0.63 based on a fully diluted share count of 44,930,000 shares reduced by share repurchases within the quarter.

Turning to our cash flow and balance sheet. Cash and cash equivalents totaled $362.4 million of Q3, an increase of $23.8 million sequentially and net of approximately $15.6 million in share repurchases during the quarter. Accounts receivable, net of reserves, totaled $53.3 million at quarter end, but we have those for trade receivables at 38 days.

Inventories, net of reserves, decreased 3.3% sequentially to $92.3 million. Annualized inventory turns were 1.9%. Operating cash flow totaled $38.5 million for the quarter. Capital expenditures for Q3 totaled $4 million. We entered the quarter with a construction and progress balance primarily for manufacturing equipment of approximately $8.3 million and with approximately $2.4 million remaining to be spent.

I'll now address bookings and backlog. Q3 book-to-bill came in at 0.98 and one-year backlog increased 1.5% from the prior quarter, closing at $152.8 million. As we discussed during the strategy update at our Annual Meeting in June, Vicor's IP licensing is a high-margin, high-growth business. In Q3, we reached a licensing revenue run rate of nearly $90 million per year. Over the next two years, we expect to substantially expand our licensing business.

As Vicor IP is, will be used in most AI application necessitating additional licenses, renewal of existing licenses, more expansion of their schools.

At the core of our IP licensing business, we have a power module business that leverages our investment in the first chip foundry based here in Andover. The challenge of bringing this fab with its unique patented processes, online is now behind us with yields and cycle times at world class levels. While fab utilization remains low, as reflected in low product margins due to under-absorption, we expect that performance levels achieved by fifth-generation chip second-generation VPD will soon bring about substantial capacity utilization.

As we said on last quarter's earnings call, 2025 is a year of uncertainty and opportunity. As of today, the quarterly and annual outcome in terms of top line and bottom line with a record results, profitability and EPS in 2025. Given uncertainty in the timing of additional license deals, we are unable to provide quarterly guidance.

With that, Phil, will provide an overview of recent developments, and then Patrizio, Phil and I will take your questions. I ask that you limit yourselves to one question and a related follow-up. But we can respond to as many of you as possible in the limited time available. If you have more than one topic to address, please get back in the queue. Phil?

Thank you, Jim. My remarks this quarter are focused on data center and AI power system requirements and the market opportunity for Vicor's chips and second-generation vertical power delivery. To support advances in AI capable data centers and specialized AI factories, power delivery networks need to supply hundreds of kilowatts per rack and thousands of amperes for every GPU, TPU and network processing.

Advances in power density measured in kilowatts per cubic inch at the rack level, and advances in current density measured in amperes square millimeter at the processor package level are gated by conventional power distribution architectures, such as the intermediate bus architecture or IBA and voltage regulators, such as VRs and IVRs.

Performance limitations of conventional power system technologies using IBA, VRs and IVRs affecting critical AI metrics of cogens per second and latency as OEMs and hyperscalers have to throttle back processor speeds gated by significantly limited power system technology.

Unable to meet performance expectations, power system engineers at leading OEMs and hyperscalers are working in opposite and inconsistent directions. To provide efficient power distribution within racks, that data center or AI factory, they are raising power distribution voltages to 800 volts. However, to power the processor socket at a core voltage below one volt, they are relying on VRs and IVRs requiring an intermediate bus forage as low as 1.8 volts.

Unlike 800-volt, power distribution at 1.8 volts is inefficient and requires low output voltage bus converters that are also inefficient. Raising the intermediate bus voltage improve bus converter and power distribution efficiency, but it would do so at the expense of VR or IVR efficiency and current density.

In other words, VRs and IVR suffer from an inherent tension between conflicting requirements. It is a game of picking your poison without achieving adequate performance. Not surprisingly, VRs and IVRs are current density limited to 1.5 amps per square millimeter while GPU and TPU roadmaps call for current densities above 3 amps per square millimeter.

Because of low current density, first-generation vertical power delivery using VRs necessitates complex stacked assemblies whose mechanical and thermal challenges are compounded by bus converters having to feed kilowatts of power at a low inefficient bus voltage. And of Vicor's second-generation VPD enabled by Vicor's fifth generation current multiplier technology with up to 24 times higher current gain than VRs and IVRs in a 1.5 millimeter thin thermally adept package with up to 5 amperes per square millimeter peak current density.

Thanks to this high current density, Vicor's Gen 5 current multipliers avoid the need for a VPD gearbox, including a stacked layer of capacitors, enabling VPD solutions which are much thinner and lighter, easier to cool, inherently more robust and far more scalable. These figures of merit could not have been achieved without Vicor's unique vision and its ability to overcome technical barriers through innovation and invention, which are also reflected in its first $1 billion chip fab.

I am happy to report that our Gen 5 vertical power delivery solution while Vicor's lead customer has met target specifications and is now progressing to a Q1 2026 production launch. Engagement is starting with selected customers comprising a hyperscaler and OEMs we informed us that Vicor's second-generation VPD is the only solution that can meet their processor requirements.

In view of these developments, our confidence in our business strategy of innovation, customer focus and market focus is higher than it has ever been. We're now ready for your questions.

(Operator instructions) Quinn Bolton, Needham & Company.

Teresa Phil and Jim, congratulations on the nice results and especially on the IT licensing side of the business. I guess I wanted to start there on IP licensing. Royalty revenue more than doubled quarter-on-quarter. And I'm just wondering if you can give us a little bit more detail as to what drove that increase? Did you guys sign additional licenses in the quarter that generated higher royalty?

Were you able to come to terms with one of your existing licensees about royalty payments on their latest generation architecture just -- any color you can give us on what drove that increase would be super helpful. And I guess the follow-up question is, would you expect that royalty revenue to continue to trend up? Or were there perhaps some back quarter payments included in the third quarter licensing?

So to your point, we're able to come to compromise and accommodation with an existing licensee who took an additional license for a time period of two years is some of that two-year time frame, to your point is in the past. So within the quarter, we recorded the payment that includes a catch-up from a few months of the year. There's going to be recurring payments every quarter.

And in terms of answer your question as to where licensing income is going I think as we commented in the press release yesterday, our licensing income is going up substantially, as Jim reported in his prepared remarks, we expect licensing income to grow at the rate that could be of the order of 50% a year. We have line of sight to doubling our licensing business within a couple of years based on a combination of factors and actions that we are preferring to execute.

That's great. I guess the second question for me, just on the licensing or the IP-related royalty. I believe in the past, you've said that certain licensees or certain licenses that you grant may also include product revenue such as your NBM modules as part of the license agreement.

In the press release yesterday, where you talked about the $300 million of IT-related revenue, is that just the litigation settlement plus the royalty income? Or are you including some portion of NBM or product sales in that $300 million related to license agreements?.

In that figure, we're including some of the module business that is in effect related to the licensing deals. So in terms of gauging the licensing business by itself without including the module component, I think we can point to the $90 million run rate achieved in the third quarter as the current level of, if you will.

The licensing business component of Vicor, which at this point in time, I would submit, she no longer be viewed as just a module maker, but should be viewed in terms of assessing its value as the combination of two businesses, the licensing business that is growing very rapidly.

It's got some lumpiness to it, we've got a lot of opportunities upside on the one hand. And a module business supported by $1 billion plus fab, one of it's kind in the universe. That's not been growing, but it will be growing based on the performance levels we achieved with our second-generation VPD, which as Phil reported in his prepared remarks, fits a need, fills a void that is very much a subject of concern a limitation in the AR world.

John Tanwanteng, CJS Securities.

Congrats on the strength in the IP and licensing business. I was wondering if you could talk a little bit more about the strength you saw in the quarter. Was it only from one customer that you came to times what that caused the sequential jump? Or was there other licensees that you signed up and other royalties related to that?

So, I guess as we look back at what has come about this year, on the eve of the nation from the International Trade Commission, our first ITC case, which, as you know, resulted in exclusion order prior to that we signed up a substantial hyperscaler. So that was in general. We then settle dispute with one of the respondents in the ITC case. So that and into our second quarter performance. In the third quarter, we -- as I mentioned earlier, entered into a second license with an existing licensee, the first license. So that's been the progression today.

Okay. Great. That's helpful. And then I was wondering if you could talk just about bookings for the next quarter and a couple of quarters. You had a nice step-up in the book-to-bill, just backing into it. Is that just the catch-up from the tariff headwind that you face? Or is there more organic demand there underlying that?

Well, so depending on end markets, there is a different level of activity. Phil can tell you more about that in a moment. But from my perspective, we've been allowed in terms of growth in product bookings and shipments for a combination of reasons, which effectively addressed the delivery of generation components and second generation vertical power delivery.

So as suggested in Jim's earlier remarks, we expect to fill the fab as we do that and no longer suffer from significant underabsorption having in fact, put a lot of capacity in place in this situation of demand. We're going to see all these parameters grow substantially, starting with bookings, backlog and the top line from (technical difficulty).

Yes, Jon, as I mentioned on the last call, I see the base business, as we call it, industrial, aerospace and defense, I mentioned that I see that strengthening as we go through the year, and that's what happened in Q3.

Richard Shannon, Craig-Hallum Capital Group.

Taking a couple of my questions as well. Maybe I'll address kind of a two-part question here on the IT revenues here. First of all, I'd love to get a sense here of how many customers are -- do you have license now? And I certainly understanding that one of them has two different licenses. How many that you might expect here over the next couple of years or so?

And then last call, you talked about the potential and actually, I think you talked about this in the shareholders' meeting as well. But the potential of seeing as much as $400 million worth of return on litigation investment through the end of 2016. You didn't use that language today, although previous answer from Patrizio suggested that's the case. So I just want to confirm that that's possible?

Okay. Let me start with the last one, and I'll go back to the first. So -- with the progress made as we came through the first, second and third quarter of this year with licensing deals done in every quarter. Our expectation with respect to total returns from what we call WIGO, our first ITC action has been growing. And we've been able to raise our target for returns, not just today, but through the end of next year and after that.

One should understand that the existing exclusion order will remain in effect for the life of the patents. It will affect -- and this is a very important point, not just those parties, which were, in fact, exactly involved in that case. But because of dependency on contract manufacturers that were respondents in those decades, it will affect from the foreseeable future. Any other OEM and upper scale that is dependent on those infringing products.

Let me go to the other part of your question with respect to many licensees that we signed up many do we first by addressing the second part. We expect in the next couple of years to sign up each OEM and each hyper scaler in the as space, in the center space.

Now that's not going to be easy. But given our visibility with respect to the car road maps, the existing solutions, the coverage of our comprehensive plan portfolio over various aspects of bus conversion as bus conversion over a wide range of voltages. All the way to the point of load with respect to federation of VPD, which date invented, but chose not to practice because of it 's limitations.

I don't see any hyperscaler or OEM with a solution being able to do without biopower system -- we have very well to that. And obviously, it's been very effective strategy to assert IP, protect our innovations. And get compensated for it. And I see that they continue to stand in involving the entire marketplace of OEMs and hyperscalers.

Okay. Great. I want to follow up on a response to a prior question here about engagement with second-gen VPD here. And I think if I caught it correctly, you talked about being engaged with an OEM and a hyperscaler. I wonder if you can provide any more details on how long this has been going on applications that you're working with? And how long you expect the qualification process to last?

Richard, it's Phil. So I'll take that one. So we have been very, very laser focused on our lead customer, right, as we brought the technology through. And now we're very close Q1 of next year to production. So we have been talking to pretty much everybody in the industry.

But what we've done now in terms of the second phase of our VPD launch is to really focus in on two or three companies, hyperscaler and a couple of OEMs that offer major, major growth. They have huge potentials because of their scale in terms of both the hyperscale and their reach as OEM sort of chip manufacturers.

And we've been talking to them for a while. And they have obviously been working with others in the industry, looking at their VPD solutions, infringing VPD solutions albeit, but they have not been able to meet the specifications that they've put forward to the competitors so-called competitors of Vicor.

So they're very, very excited now that we're ready to engage -- and Q4, we'll see that happen in earnest. And in terms of when I believe we will get to market in terms of sort of pre production, it's probably the second half of next year. And towards the end of Q3 going into Q4.

John Dillon, DMB Capital.

Congratulations. It's really good news all around. Phil, I've got a follow-up question to Richard. And that's the second-gen VPD deliveries to your lead customer. Have you achieved the 133% solution yet? Or when do you expect to.

I'll take that one. So to date, we delivered units to the regional target. We're working on the 13%. We just taped out a device that will enable us to get there. We're going to have initial samples of that device in January. So we're a way to the set goal of 13%. But thus far, we met the goal of the current requirement.

And then John, let me just add to that, that the -- even the 100% goal that we fit with our lead customer is significant enough to get design wins with these other customers I'm talking about, all right? So we're so far ahead even of the competition -- that they're looking at Vical because it's not just current density, I mentioned the thinness of the package. They're also telling us they need solutions below 3 millimeters in height, and no one is able to do that. They're all at about 5 millimeters.

So that's a critical spec as well. We hit that 50% smaller than what they want. So Again, they're very excited. And what we've got is good enough to get going. And then we'll just up the bar as we bring the 33% through.

Let me add a comment to that regarding thickness, right? So VR solutions with gearboxes and so on and so forth are quite big, several millimeters, quite clumsy, thermally act as opposed to that, very difficult to thermally marge very costly, not in unity reliable. There are IVRs, which are and are capable of up to about 1.5 amps per square millimeter current density.

But they are challenging in other respects, which is in order to achieve the labor density, they need to be supplied with 1.8-volt, which at high power levels implies a huge currency the need to get delivered at such a low voltage, very close to the point of load. And that was one of the points that feelings prepared remarks May.

So the predicament for any customer seeking a VPD solution and looking at conventional approaches ranging from traditional VRs to IVRs, which is, in a way, a renewed attempt a debt which entail did with fiber many, many, many years ago, right, with very mixed results.

They have relative to one another, certain advantages and disadvantages in particular, the VRs are typically power nowadays from 5 or 6 volts. So power delivery to a VR is not quite as challenged as 1.8 volt. But then the VRs are thicker in terms of our solution, they must run at a much lower frequency they've put due this age.

So that's feels point with respect to peak poison. If you want to raise the intermediate bus voltage in order to get somewhat more efficient power distribution, your challenge in the voltage regulator, which works on an average in principle, it's dividing a voltage by fundamentally mixing a dead voltage source with ground. And as you raise the level of ages as the upper voltage gets close to ground, you have to operate with a very low duty cage, which is inefficient.

Or in the alternative, you make the recycle efficient, 50% or so by going to an IVR, but then the problem is you can't efficiently feed the IVR. And fundamentally, the issue is that whether it's VR or IVRs, donator game. And they insert a loss in the case of IVRs, which is upwards of 10%.

And for that loss, you only get factor to target, which is nothing if the GPU, TPU is thousands of on peers, right? I think it's been noted that the typical house power inlet is 150 apps. Obviously, it's a much higher voltage and that you can power hole us.

But the challenges of distributing a 1.8-volt are a significant handicap with respect to IVR. So they all have their trade-offs they're all fundamentally constrained by the same laws of physics, which are lacking car game, make them somewhat handicap with respect to keeping up with processor road maps and process of current density requirements.

Yes, I get that. Because homes law, the low voltage is really going to be a handicap for them, and they're going to have incredible transmission losses and extra heat that they've got to remove. So I get that. It's good. That's a great explanation.

It's not just Amselo.It's kickoff lows. There's a few roles at play. But the bottom line is the up against those are physics which are not changing, right? Italy, they can make a trade-off or make a different trade-off. The gain in one respect, but then they losing another. And that's the dilemma that is ongoing with respect to that approach to powering AI.

Got it. My follow-up question is pretty simple. It's -- I thought I heard earlier that you said production quantities in Q1 for your lead customer. But then later on, I heard Q3 or Q4. So I'm wondering if you could just clarify, I don't think I've heard that correctly.

I think we're talking about different capital -- (multiple speakers)

Customer. Yes. So lead customer is Q1, John, and I now was talking about other customers next year in the second half, end of Q3, Q4 for other customers. For production -- .

How are you getting from prototype to production so quickly? That's incredible. I mean that's really fast.

Okay. Well, so the pro metrics with respect to current multipliers, a tire or lower current levels is extremely scalable. We're going to have compete make up ready for sampling. And then when it comes to the adoption time line, it's to a high degree, accelerated by the need for a solution lacking acceptable alternative solution based on conventional technology, again, VR, IVRs and an IP architecture. That's handycapping solutions.

I can tell you that even though subsequent generations of have used blacker technology, at least for bus conversion, now then as in terms of its power system, deliver the requisite power car level that the silicon team had targeted. And this is compromise that is very challenging, clearly, particularly as the space gets more competitive with, obviously, some increase in credible threat of competitive alternatives.

Yes, John, I'd also like to say there's lots of stuff going on in parallel, and there's nothing like having your own vertically integrated chip fab. We are in full control with short cycle times, right? So there's a lot of other things going into that and are advantageous for us getting to production include next year. --

I'd just like to add to what Phil has said, which is the cycle time and it might be an opportune time to mention how different Vicor is now compared to a couple of years ago. So we have an internalized fab. We have very, very short cycle times. We have great yield fantastic inventory control, quality control, and on-time delivery, all the metrics that you care about operationally are really now in a place that we're very, very happy about. It's a big deal for Vicor.

And I think that at 1 point, I made in my prepared reabsorption on the product revenue side is suppressing what would otherwise even be higher margins for the company. We make great standard margins because the pricing captures value but because we're not lowering the factory, we're curbing under absorption variances. So that's a future state for us to all be very optimistic about.

Patrick Corners, Ajax Capital.

Congratulations on a good quarter. I know defending your IP has been a slugfest. So congratulations on the hard work. As you go into production in Q1 for your lead customer and a potential large hyperscaler in the horizon, are there any concerns about deploying the second source or had any pushback from your current clients or future clients about not having a second source? And how are you addressing that?

So there's always been an issue. And will remain an issue. We have ways to deal with that. Obviously, a licensing practice provides opportunity for multisourcing, but to itself doesn't give rise to the know-how and core technology. It is just fundamentally a covenant not to sue a license that ensures that the supply chain is not going to be interrupted by injunction or exclusion order.

But we're open as needed to different business arrangements, including fabs that could be owned with shared ownership and other ways to accomplish what you identified as an issue that has been there and will remain there. So we are prepared to deal with these needs. We understand given the pace of growth in AI that there is a need for multisourcing. You can't have total dependency on any one source.

And we're prepared to enable that through the licensing model, which provides flexibility with respect to as well as with respect to the fab that could be replicated in other parts of the world with the lead time of about a year.

Okay. One quick question is you quoted 98% yields right now. Is that at size right now? I mean, I don't know how you measure that. Can you give us some kind of clues would that satisfy your lead customer?

Yes, that's a very good yield in this industry. It's a record year for us. It's a great deal. We had to be clear that's for particular model that we make upwards of 100,000 a month. So that will not be applicable to devices that are not in mass production.

Quinn Bolton, Needham & Company.

Just wanted to come back on the licensing or the royalty revenue to date. Can you give us a sense, is all of the licensing revenue today just from your power module patents? Or have you started on the two or the licenses you have in hand, does that include vertical power or not?

It does not include vertical power. It only stems from the assertion of IP to a few -- certain patents that we have to a VM technology. We have added Pars. We have lots of with respect to VPD power package. Now these have been asserted yet.

Now as I mentioned earlier, the first lead or the first leader exclusion or there with respect to those parts or how to change is going to be enforced for many, many years. And it's going to be enforced more broadly as an gone and we identify the customs US customs pinging products manufactured by contract manufacturers, particularly the ones that were respondents in our first ITC case.

And again, that can affect other customers of those contracts. And in fact, it's not these kind of developments that led us to the license that was entered into in the third quarter. But all the actions absolutely has been revolving around the very first case.

That's fair for. So a short summary, you will have another opportunity to go back to customers to license the vertical power at the point you choose to serve those patents in the future?

Absolutely. So the hyperscalers OEMs that we've been communicated with over time, in some cases, for three years or more. They understand how our licensing practice works. The cost of license in terms of royalty rates is at the level that is very attractive relative to taking a license at a later stage. And we have seven stages ranging from a stage where there's been no complaint filed, no litigation, rates are attractive to what we go page 7, which is after the injection or customs stop importation of infringing products into the US.

There is every incentive for OEMs and hyperscalers to take a license proactively, right? As opposed to playing a game of cash, if you can because if they play that game, I think we already demonstrated well cut, and that's going to be very, very expensive.

Got it. And then a quick one for Jim. Jim, you mentioned the one big beautiful bill as a pretty nice tax benefit in the third quarter. Can you give us some assistance on what we should be thinking about for future tax rates in Q4 heading into next year? I think previously it may have been in the mid-teens percentage rate. But any help you can give us to the tax rate given the one Big Beautiful Bill?

Yes. So Quinn, I can't really say much about next year right now, but I can tell you that fourth quarter would be low single-digit expectation.

(Operator instructions) Mr. Neil Gore.

Well, great quarter, guys. On your licensing deals, are they similar to most licensing deals where you get money upfront granting the license then on an ongoing basis, you get a small percentage of the sales?

We actually don't look for money upfront. Obviously, we have all cash and the caseservice are growing, even though we've been buying stock. So we make it easy for OEMs and hyperscalers to. They don't have to put up any money up front that we have to commit to using the license, they are fee to, in effect, pay as you go in one licensing structure depending on the use they make of the technology.

Okay. And the companies that have been licensing from you for more than a year, is there revenue growing on a regular basis? Or is it pretty flat?

So I think we have examples of both. So we have one example with a hyperscaler where the royalty rates increased at about 3% per month. We have another example where the royalty is fixed by quarter for a number of quarters.

So -- and this reflects in effect, the fact that depending on the OEM, the hyperscaler, the issues might be different. We're very flexible, not rigid with respect to, in fact, enabling what works best for that particular licensee to be turned into a license.

Okay. And one last thing. About two years ago, you said you planning to be a $1 billion company. Most companies have five-year plans. Are you want to track to achieve what your plan was initially set out far within the time frame that you thought you were going to achieve it?

Yes. So we are almost half of the way there, right? This year is going to be quite good. You can separate to the end of the year at this point given the track record of the last three quarters. I think, as suggested in answer to questions, going back to maybe about this time last year when I think I stuck my neck out indicating that this was going to be a record year for Vicor going out, as Jim summarized earlier to be a record year in all respects, top line, the bottom line, EPS.

But we are not quite half of the way there to $1 billion. So what's going to get us there? Well, filling the fab by itself would get us just on for revenues past $1 billion. Because actually, the capacity of that fab has been going up, particularly with fifth generation products, our second-generation VPD devices, which being thinner have a faster cycle time and higher capacity per pound through the fab.

So needless to say, if we were to fill the fab would be just on the prior revenues beyond $1 billion. The licensing business as a snapshot in the third quarter is at $90 million run rate. I can't tell you what's going to happen next quarter, the quarter after that. There could be additional licensing deals that may not yet happen. But I can tell you that there's going to be a lot more over the next couple of years as we get additional exclusion orders. And the industry gets realized that if products use Vicor IP they need to license.

So those products aren't going to share. So the licensing business by itself, as suggested earlier, from $90 million can get to a couple of $100 million dollars. We have line of sight to that within a couple of years. And that's not the end of that growth opportunity. I think it can go well beyond that level.

John Dillon, DMB Capital.

Yes. Guys, I've seen reports that future AI manufacturers, including NVIDIA, are planning processors that will require 6,000 to 7,000 amps. And you're saying that a lot of the power supply companies are having issues with 2,000 amps. So my question is there anything on the horizon that can power a 6,000 processor besides Vicor?

Well, I frankly believe that even at the 2000 level, VRs and IVRs and bus converters delivering the kind of power kilowatts, either at 5, 6 volts, okay, so VR 1.8 volt. Those things are fundamentally challenged. I think if we look at -- GBU companies. They haven't been able to go to VPD because it's really not practical, it's mature. Because it's first generation of VPD, and it's got the complexities that feel summarized in prepared remarks, it requires lots of layers Hard to put together, have to assemble on the back of processor heat getting trapped, lots of issues, even at the level of 8,000 amps, never mind 2,000 or more.

Now there is one large hyperscaler that has gone very far with respect to the VPD. But again, suffering from the same kinds of challenges and difficulty seeing how the GPU, TPU road map in future years is going to be supported by power system capabilities that are already available from multisources.

It sounds like there's nothing out there that we'll be able to handle 6,000 amps. So (multiple speakers)

It all depends on us have to be put into perspective, right, for it to be meaningful because to be clear, with our lead customer, we've been supplying tens of thousands of amperes for years, but that's the wafer scale Andrew call engine as of course. Yes. So 6,000 as, if we scale engine will be solving it right there, we're now at the level of 50,000 amps. And in the future, it's going to be higher than that. So it's all relative, right?

All these things, there's no try magic about 1,000 apps, 2,000 amps or 6,000 amps or 50,000 amps. I think the more relevant metric, right? The figure that matters is the current density. And relating to that, the con multiplication what you need not to get in the way of AI processor road maps is you have to have very high corn density, i.e., several amps per square millimeter and rising number one, and you have to have high can multiplication because if you have iron multiplication, then you're stuck at the entry point to the point of load process, which is fundamentally the ligament of IVRs.

Yes. And that's my point. It sounds like Vicor is the only one who's going to be able to handle these new processors that are going to be running at these kind of amperes.

I'm not good enough to know it's dangerous to make absolute statements, right? Understand.

We don't know, what we don't know.

Not aware of any other company that can address the road map requirements in terms of high enough front density within a multiplication. Vicor is the only company with that technology pioneer that, heavily palate, many, many different perspectives and have just begun to show the industry that anybody chasing our track is going to have serious problem. You might recall me sin in the past that our time portfolio is land mine. We began to see the effect of people stepping over the perimeter of that land on field.

I get it. And then, Phil, you had answered a question about the NBM sales as a result of licensing contracts with their incentives to take product. What I was wondering is, are we going to start seeing an increase in NBN sales in the next quarter or two?

Well, I think that the NBMs that we have are super for a lot of different applications. But the focus for us, John, is really as Patricio pointed out, bus converters are useful in a number of applications, but the future isn't bus converters. We'll sell a lot of them going forward, but it's really about BPD and coming in 48 volts to our VPD solution and current multiplication at the point of load, as Patricio just explained. That's the future. That's the growth for the company.

I get that. But I was just wondering, as a result of these contracts, do you expect to see some NBM increases in NBM sales on the next couple.

Yes, we will see some point nice. -- (multiple speakers) It's not that the car the strategy.

And ladies and gentlemen, with that, we conclude our Q&A session and conference for today. Thank you all for participating, and you may now disconnect. Everyone, have a great day.

Thank you.