Quarter 1
Q1 2026 Earnings Call — April 21, 2026
Quinn Bolton (Needham & Company):
Our first question comes from the line of Quinn Bolton with Needham & Company. Hey, guys. Congratulations on the nice results and outlook. I guess I wanted to start with just the assumptions you're making around 2026 for the IP licensing business. Looks like royalty revenue in Q1 was about $15 million or about $60 million annualized. I know you're not assuming any additional or new licenses signed, but where do you see royalty or licensing revenue this year as part of that 570 guidance?
Management: The 570 guidance includes royalties, which would increase somewhat based on existing licensing agreement. In terms of providing, in effect, safe guidance, we thought it would be best to set aside any opportunity with respect to, if you will, early deals relating to current actions. So our working assumption for guidance purposes is that we're not going to have any until we get to further demination or a second case next year, but it could be that we do get some ahead of that timeframe.
Quinn Bolton (Needham & Company): Understood. And then, Patricio, last quarter, you seemed pretty confident that the utilization in Andover would approach 80% by the end of 26 or early 2027, looks like you're on a strong product ramp, but are you still sort of comfortable or still expecting utilization to sort of achieve those levels that you discussed last quarter?
Management: Yes, in absolute terms with respect to product revenues, what has transpired since we last spoke on this topic is that we actually have significant level of elasticity with respect to expansion capacity within the fellow seed facility that's giving us a little bit more flexibility with respect to the timing and choice of the location for the second fab. So to get a little bit more specific we've seen an opportunity for a relatively significant expansion in capacity. It could be as much as 50% above what had been planned to be supported in terms of annual revenues out of the federal state facility. So that gives us caution with respect to timing, which we're putting to good use in terms of the choice of a location. And to give you a little bit more flavor with respect to that, we've also come around to focusing on existing buildings as opposed to a piece of land because of the fact that with an existing building, we can execute much more rapidly in terms of capacity expansion. And part of the strategy with respect to getting more out of the federal state facility is to selectively source outside of that facility some of the process steps that can be more easily relocated. So that should give you the picture with respect to both the capacity utilization and the plants with respect to capacity expansion.
Quinn Bolton (Needham & Company): Sorry, Patricio, just a quick clarification. Did you say that in the first handover facility, you would be outsourcing some manufacturing steps either to third parties, or would that be to the second chip fab?
Management: It would be to an interim location for the second chip fab. But this would still be totally within VIGO control. But there are process steps that can be easily located in a nearby building. And that's part of the plan to extend capacity of the LFL State Facility. Understood. Thank you. I'll get back and keep.
Justin Clair (Ross Capital Partners):
Our next question comes from the line of Justin Clair with Ross Capital Partners. Hi. Good morning. Thanks for the questions here. I think first off, you mentioned engagement with additional VPD customers I think could follow the generational transition for the lead customer from Gen 4 to Gen 5. I was wondering if you could just provide an update on the anticipated timing of that transition. I think you had previously been looking for the second half of 2026, and then trying to get a sense for when the potential orders with additional customers could be and what the revenue timing might be.
Management: Yeah, so the generation transition we're referring to here, it will be enabled in the second half of this year, and we expect a ramp to begin before the end of this year with respect to that next generation capability with the lead customer. And we will follow that with additional customers for second gen VPD solution. As Phil pointed out earlier, we are planning for the increments of capacity that we're going to have available to support opportunities that are, as in the case of a lead customer, long-term strategic to Viagra. And fundamentally, in spite of capacity expansions, we expect to remain capacity constrained for a substantial timeframe. And that leads us to want to pick the right timeframes companies, the right applications, where as in the case of the lead customer, we can make a very substantial difference with respect to levels of performance and opportunity to win substantial market share.
Justin Clair (Ross Capital Partners): Got it. Okay. And then just on the backlog, so in Q1 backlog increased significantly here to just over 300 million. wondering if you could speak to, you know, how quickly you anticipate turning that over. And then, you know, assuming you get to, well, and then I guess just as the business continues to scale, how do we think about the lead times and the conversion of that backlog? And then maybe how much backlog you think may be necessary in order to support the $800 million run rate that you have previously talked about?
Management: Well, so starting with Q2, the bookings are just as strong as they were in Q1. So we expect to, once again in Q2, have a very strong book-to-bill. So the backlog is going to keep building up as we step up the revenue levels and capacity utilization as the year progresses.
Management: Phil, do you have...
Management: No, I think the question was the existing backlog. I mean, that rolls pretty much over the next 12 months. That's how we recognize it. So, yeah.
Justin Clair (Ross Capital Partners): Got it. Got it. Okay. Justin, in any backlog we quote, the bookings we quote, it's always a 12-month window. Got it. Okay. And then maybe just one more on the capacity. So you're talking about expanding capacity at FAB1?
Management: Yes.
Justin Clair (Ross Capital Partners): How much capacity do you anticipate adding? What level of revenue do you think could be supported by the first FAB? And then I think you had talked about this a little bit in terms of the potential size of FAB 2, but I'm not sure I caught it. So maybe just what revenue level could be supported by the second FAB?
Management: So you might recall in the past we had earmark capacity out of FAB 1 at roughly a billion dollar per year run rate. We see a way to get that to at least one and a half billion at this point. And that's coming out of a combination of initiatives we've identified with certain process steps that have been historically capacity limiting overall. opportunities to get to a shorter cycle time and increase capacity with those steps. So that's a key element of this capacity expansion plan. To complement that, as I mentioned earlier, we see opportunities with process steps that are not as critical and which can be easily redeployed. an opportunity to redeploy them in an existing neighboring facility. Again, as a stepping stone to the second FAB, which has got a longer lead time in terms of what it takes to bring it to fruition. So we believe this approach gives us a lot more flexibility it will improve our opportunity for significant margin expansion because we will not be incurring for a certain level of total capacity as much in terms of additional equipment and depreciation. And overall, it's a plan that meets the combination of objectives that we sell ourselves and the need to support a variety of market opportunities, not just in the computer space, but in the other markets where we're seeing considerable strength.
Justin Clair (Ross Capital Partners): Got it. Okay. Thank you. I appreciate it.
John Tenwanting (CJS Securities):
Our next question comes from the line of John Tenwanting with CJS Securities. Good morning. Thank you for taking my questions, and congrats on the next quarter and the strong orders and outlook. My first question is, Patrizio, you mentioned you expect to be capacity constrained before you expect the new FRAD to come up, and I don't know if the expansions will occur before that as well, but what does that mean for your customers and their sourcing strategies? Do they need to turn to your competitors, or do you have some kind of licensing strategy that you may employ or have in mind to help them avoid that constraint? Just help me understand, you know, what the timing is around their growth trajectory is and what you expect your capacity to be underlying that.
Management: So, first of all, we purchased a second 3DI or three-dimensional interconnect line that's going to be installed in the Q3, Q4 timeframe. So, that in and of itself is an element of the capacity expansion plan. Second, as I mentioned earlier, within each of the 3D interconnect lines, we have identified ways to reduce cycle time and increase capacity in inverse proportion. Beyond that, we have expansion plans outside of the federal seed facility, and we are engaged in discussions that could lead to another source for a second-gen VPD technology, which we believe is going to be in great demand for a variety of reasons in years to come. Because fundamentally, it is the only way we know how to address the current demands processors with all of the right attributes. The way it is done with competitive alternatives that to some degree build upon what we call a first generation of EPD technology is, as suggested in the earlier remarks, challenged in a number of respects because of the, in other words, current density. is fundamentally a dominant effect. In other words, current density forces stacking of the elements of the solution.
The stacking has mechanical complexity and terminal challenges because the heat gets trapped within the stack. It's fundamentally inept at keeping up with escalating current density needs in future generation of processors. So even though we have ambitious capacity expansion plans, we see an alternate source playing a key role in years to come in terms of achieving greater overall penetration and win-win opportunities in the marketplace.
John Tenwanting (CJS Securities): Got it. Thank you. Could you also talk about the upcoming 800-volt data center architecture and the potential for transition to like a six volt intermediate bus and where your 48 to 12 volt systems sit within that? Do you expect maybe the NBM market to continue to grow as those architectures take share or is there a transitory period where maybe that falls off and maybe transitions to your VPD technology and licensing and royalties on that side?
Management: So we believe the initiative to go directly from 800 volt to 6 volt is frankly ill-conceived. It's internally inconsistent, and it's relatively easy to understand why. The logic of bussing power at 800 volt is predicated on that power distribution being at a higher voltage, more efficient. And there is an opportunity to improve efficiency by a few percentage points through the use of an undervolt bus. But inheriting that is the opposite effect at the other end of that proposed bus conversion step. Because going all the way down to 6 volts, as you can imagine, relative to 48 volt, the ratio being essentially 8 to 1. You have to square that. So the square of 8 is 64x. So the position of changing power distribution next to the point of load down to 6 volts is fundamentally challenged by the extreme inefficiency of distributing any amount of significant power at six volts. You can only go short distances and retain some level of efficiency. But to some extent, that's incompatible with an undervolt bus not being safe, right? Because it can give rise to hazards. So there's a lot of challenges with that whole concept.
And fundamentally, it's is a change in direction away from where the forward should be, which is at the point of load with respect to vertical power delivery. That's where the core challenge technically resides. And going off and trying to figure out how to save a few points out of 800 volts particularly when you combine that with a step all the way down to six volts is, in my opinion, a bad idea. But time will tell. And by the way, Vigo has provided technology other than the volt. We did a lot of pioneering developments with respect to bus conversion from 800 volt. And should that be successful to any degree, there's going to be issues with respect to IP there too. But in terms of your question as to what we expect to happen with that, we expect it to move forward, but we think it's a diversion from the real challenge, which is at the point of load. Any particular points of note with respect to vertical power delivery?
John Tenwanting (CJS Securities): Got it. Very helpful. Thank you, Patricio. Good luck.
John Dillon (D&B Capital):
Our next question comes from the line of John Dillon with D&B Capital. Your line is now open. Hi. Yes, guys. First of all, congratulations, especially on the bookings. Looks really good. Hey, I just wanted to go back to capacity for a minute. I want to make sure my numbers are right. If I heard correctly, you've got about a billion in capacity in your current FAB. You can add another half a billion. But on top of that, you have BRICS. And I would guess your BRICS would be at least 250 million. So am I right in assuming that your capacity with this expansion in the current area is about 1.75 billion?
Management: No. So the BRICS are part of it. I don't think they're quite at the level of 250. And, you know, as we've been saying for quite some time, you know, before too long, they're practically irrelevant. We shouldn't be thinking about breaks. And in effect, part of our strategy with respect to the expansion or capacity of Federal Street is to minimize the footprint taken up by legacy products that don't have the growth opportunity of advanced products, in particular second-gen VPD. So the number I quoted earlier is a step up in our capacity plan for Federal Street from one to one and a half billion. That's an all-inclusive number. Now, that all-inclusive number could potentially go further up but it wouldn't be because of the big contribution. It would be because of more opportunity for a special capacity of advanced products.
John Dillon (D&B Capital): Got it. So you see you could get above $1.5 billion. Excellent.
Management: Yes. We feel comfortable with a $1.5 billion target at this point in time, and again, the same process that has led us to identify opportunities to set capacity up measured in revenues per year from one to one and a half billion may have yet some further opportunity. Again, the logic behind it is to give ourselves more runway with respect to the next set of steps which include a variety of strategic choices ranging from the second FAB to alternate sourcing.
John Dillon (D&B Capital): Excellent. And with this expansion capacity, will you be able to satisfy the OEM and the hyperscaler customers you talked about in Q3 that came to you back in Q3 conference call? You mentioned those two. And I'm wondering if this expansion capacity will be able to satisfy them.
Management: Yes. Excellent. Thank you. I'll get back in the queue.
Richard Shannon (Craig Callum Capital Group, LLC):
Our next question comes from the line of Richard Shannon with Craig Callum Capital Group, LLC. Well, hi, guys. Thanks for letting me ask a couple of questions. I guess my first is a simple one here. The backlog has risen very nice, I think 70% sequentially. If you could characterize the sources of that increase here, whether it's from the lead VPD customer or anyone else in the kind of high-performance computing space and all other markets, if you could characterize between those three, that would be helpful. Thanks.
Management: Yeah. Hi, Richard. It's Phil. So in high performance compute, yeah, it was the lead customer and the hyperscaler customers that we have. But we also saw some really good lift in industrial and the defense aerospace markets, as I commented. It was really strength across the board, you know, broad markets as well as in high performance compute with a few lead customers.
Richard Shannon (Craig Callum Capital Group, LLC): Okay, great. Thanks for that. My follow-on question is, and apologies if I missed something, I had a couple interruptions here, but wondering if you could discuss the engagement or even design win status with follow-on, you know, VPD customers here. Sounds like, if I heard correctly, you're talking about strategic reservations on either capacity in the first FAB or the proposed second one here. Wondering if you can discuss the dynamics around those follow-on customers.
Management: So I suggested earlier, Richard, we're very much focused on competing readiness with respect to starting a generational change with a lead customer and with some other opportunities relating to that. I guess a way to think about this is that, in spite of the capacity expansion that we are pursuing, we see ourselves being essentially sold out in terms of capacity for the foreseeable future. And that gives us... the opportunity to be very selective with respect to new engagements in terms of their strategic significance and alignment of interests for the medium to long term. So in a way analogous to the comments I made earlier regarding expansion of capacity coming out of federal seat, first of all, giving us more time and opportunity with respect to, you know, parallel initiatives. On the front end of the business, just like the back end of the business, the fact that we're going to be enjoying strong bookings and strong backlog, and we have a near-term capacity nearly sold out, gives us an opportunity to align ourselves with the right applications and the right customers going forward. So we don't have to feel a sense of urgency because of where we stand in terms of the demand side.
Quinn Bolton (Needham & Company):
Thank you.
Our next question is a follow-up from Quinn Bolton with Needham & Company. Your line is now open. Hey, guys. Thanks for the follow-up questions. Patricio, just a quick clarification on the capacity expansion in Andover. When would you expect to reach that $1.5 billion of capacity? Is that end of 26? Is it going to take until sometime in 2027? And then I've got a follow-up.
Management: Well, so I don't think we want to be that specific at this point in time. As I'm sure you know, because of changing circumstances, we achieved the necessary comfort level to provide guidance for revenues for this year. But as we get past that, there are still so many different scenarios that it would be unwise to become very specific. Beyond saying that we have a plan to step up the capacity further, and we believe there is the market demand to use that expanded capacity as we get into 27 and beyond.
Quinn Bolton (Needham & Company): Got it. Okay, that's understandable. And then I just wanted to come back. I think, Phil, it was Phil that mentioned on the second-gen VPD, your solutions are one and a half millimeters high. I just wanted to clarify that. And if that's the case, I guess at the recent APEC conference, there were a ton of presentations on vertical power with folks like NVIDIA and Google asking suppliers to hit three millimeters or below. It sounds like you may be well below that threshold already. And so just wondering if you can talk about the interest you're seeing on the VPT products, because it does sound like you may have a major advantage in package height versus the competition.
Management: We do. And actually, it is even bigger than you might think for reasons I'm going to explain in a moment. It's not just that our solution is one and a half millimeter thin, but as Phil pointed out in his prepared remarks, it's that combined with the fact that our solution provides 40x current multiplications. And it does all of that with 3 amps per square millimeter current density. You need to really, in order to assess the figure of merit of a technology, you need to look at these three elements in combination. You can't just look at one. As an example, so-called integrated voltage regulators, IVRs, they can be even thinner than 1.5 millimeter, but they don't provide any meaningful current multiplication. They only step up the current by 2x, which is, practically speaking, useless in terms of efficient power delivery to the point of load. Because in order to deliver, let's say, 0.6, 0.7 volt, 2,000 amp, that would require a 1,000 amp feed, which is obviously extremely problematic. So it's not just thickness, it's thinness combined with current density and, most importantly, current multiplication. Because in order to have a VPD solution that is capable of supporting a wafer scale or other kinds of advanced compute capabilities, you really need the combination of all these elements, not just one of them.
Quinn Bolton (Needham & Company): Understood. Thank you, Patricio. Thank you.
John Tenwanting (CJS Securities): Our next follow-up comes from the line of John Tenwanting with CJS Security. His line is now open. Hi. Thanks for the follow-up. Jim, can you touch on the taxes in the quarter? What went into that tax rate, and then what rate can we expect going forward? And then I have a follow-up after that.
Management: Yeah, so when we closed fourth quarter, we reversed a significant portion of the valuation allowance, and our expectation was more or less that we would be in the range of 20% in terms of an effective tax rate. What happened, John, in Q1 is that there was a substantial pent-up demand in terms of stock options that got exercised that a nice spread between strike and exercise price. And that's a tax benefit for us. So that's a, that's a one time discreet item, um, that doesn't get baked into the effective tax rate. And our feeling is that going forward, you know, there'll still be that effect, which is a positive effect for us, but, um, but planning can be more in the line with a 20% kind of a rate.
John Tenwanting (CJS Securities): Perfect. Thank you. And then Patricio, could you talk a little bit more or maybe feel just about the demand from the defense? and semi-test businesses, what percentage of revenue are they, number one? And number two, just with regards to defense piece specifically, are you able to meet the critical defense needs that the U.S. has with the upcoming capacity constraints that you're modeling?
Management: I'm sorry, some of your words are metal. Can you repeat the first question?
John Tenwanting (CJS Securities): Yeah, first, the percentage of semi-test and defense in the revenue today, and second, can you meet defense demand as it grows? you know, given that it's critical, given the capacity constraints that you're modeling going forward.
Management: Yes. So, John, as Phil, we don't break those things out, but the answer to
the question is we can meet the needs of the defense market with the capacity that we have.
John Tenwanting (CJS Securities): Okay, great. Thank you.
John Dillon (D&B Capital): Our next follow-up comes from the line of John Dillon with D&B Capital. Your line is now open. Thank you. Hi, yeah, I was just wondering, does ViCore have any vertical power licensing agreements that will generate revenue this year?
Management: So there may be opportunity of alternate sourcing of the second gen VPD technology, but this is not something that we're prepared to talk about today.
John Dillon (D&B Capital): Okay. And, Phil, on the bookings, can we assume a bookings run rate of what we saw today for the rest of the year?
Management: So, John, I think the bookings are going to be well above one, like Patricio talked about. But, you know, they're lumpy, so I don't want to be pegged to a particular ratio. But they're very strong going into Q2, and we'll say well above one.
John Dillon (D&B Capital): Thank you very much.
Don McKenna (DB McKenna and Company Inc.):
Our next question comes from the line of Don McKenna with DB McKenna and Company Inc. Your line is now open. Yeah, Phil, could you give us an idea of what percentage of the backlog is attributable to your lead customer?
Management: Again, we don't break that out. They're an important lead customer for us, but they're not, you know, the only major one. We've got a hyperscaler and big customers across industrial and defense and aerospace that are ramping, as well as just the broad market. So it's just general strength right now that's really good that we're benefiting from.
Neil Gore (Shareholder): Okay, thank you.
Neil Gore (Shareholder): In the past, you said you expect that royalty income could grow to as much as 50% of product revenue. Do you still have that expectation?
Management: The expectation of the licensing as a percentage of product revenues, we've talked as much as 50%. The question was, can we Do we still hold to that? Yeah, we feel very good about a licensing practice. We are investing heavily in it. It would be investing in it at an escalating rate because we see that business as being both a high growth business in terms of its top line and needs to say, is nearly 100% margin in terms of profitability. We anticipate, as discussed in prior meetings, that there will be a time in the not-too-distant future when OEMs and hyperscalers will be vital with only perhaps rare exceptions. We see that dynamic progressing, and we think we're pretty close to a crossing of the chasm with respect to the industry wanting to be protected in terms of a license to enable power system technology from Weigel.
Neil Gore (Shareholder): Thank you. Do you expect that some of the other lawsuits that you have had for violating your patents, has anyone approached you to settle after the big settlement you received earlier last year?
Management: So we carried the first ITC case to a successful conclusion. And to be clear, that conclusion doesn't mean that there isn't ongoing opportunity relating to the first ITC case. In fact, there is an action pending a customs as we speak relating to that first exclusion order. While we're working with the case we brought earlier this year, for which the ADC once again chose to issue an investigation to get that to its final determination, which should result in a second exclusion order. And this may not be the end of the road. I mean, in Italy, we are saying that there is no two without three. So there's been two thus far. Don't be surprised if you see a third one. And so this, again, part of a very comprehensive campaign. You know, Weigel has been the pioneer in the power system industry, always very much in the forefront of very high power density and performance for nearly 40 years as a longstanding pioneer in the industry. We got into places well ahead of any competitor in scouting these new landscapes with respect to power distribution architecture, power conversion engines, control system, advanced power conversion components.
You know, we have consistently pursued an extensive... protection through many patents. And lo and behold, the industry, given demands in AI and with respect to other electronic systems, now is very much in need of those kinds of technologies that Viagra pioneers. So licensing is going to be an expanding portion of our business. a very significant one in its own right beyond our module maker through, again, unique FABs revenue capability.
Neil Gore (Shareholder): Okay, and next question on that. Are there any expenses affiliated with licensing revenue? Is it part of your SG&A perhaps? Any expenses associated with licensing revenue?
Management: Of course, the lease. Yes. So we have partnered with law firms that have a share of the interest in the outcome, you know, subject to caps and so on and so forth. So as we record the licensing income, we record the operating expense for the share of the proceeds from the litigation that led to the licensing deal owed to our partners.
Justin Clare (Ross Capital Partners): Thank you. Thank you.
Justin Clare (Ross Capital Partners):
Our next question is a follow-up from Justin Clare with Ross Capital Partners. Your line is now open. Hey, thanks for taking the follow-up. So this one here, so we did see a large transaction announcement between OpenAI and a wafer scale supplier last week. And just wondering against that backdrop, can you share how your visibility into demand has evolved over the last quarter? And then maybe if you could comment on the size of the opportunity you're seeing with your lead customer for vertical power and how that compares to the visibility you had last quarter.
Management: Well, I think we felt very strongly about a lead customer technology and their market opportunity. And frankly, for a number of years, I was confronted with a degree of skepticism by investment bankers and the like who didn't share the same level of confidence that Weigel had in a lead customer. And so that's been proven out to be the right expectation. We think they have a real opportunity technological advantage at least for a certain class of AI applications and that will translate into share market share growth and we believe substantial success in years to come and that's an opportunity for us to say as we have with the AI market in general.
Richard Shannon (Craig Hallam Capital Group): Appreciate it. Thank you.
Quarter 2
Q4 2025 Earnings Call — February 19, 2026
Analyst Gwen Bolton (Needham & Company): Hey, guys. Congratulations on 2025 and the record outlook for 2026. Patricio or Phil, I wanted to start with your lead customer. It sounds like you're seeing a pretty strong ramp from that customer, and you mentioned that Andover is getting filled. Can you talk, is Andover being filled largely from your lead customer, or do you have other significant Gen 4, Gen 5 customers that are contributing to that growing utilization in the Andover facility?
Executive Name (Title): It's a combination of demand, increasing demand on a number of fronts. Not just hand computing, where there is a multiplicity of factors at play with respect to increasing demand on capacity, but also in test equipment, as Phil mentioned in his remarks, and some of the other animals.
Analyst Gwen Bolton (Needham & Company): Got it. Okay. Thank you. And then I guess maybe follow up on the IP licensing in the press release. You talked about seeing record revenue from the IP licensing business this year. Just wanted to clarify, does that include or exclude the $45 million patent litigation settlement that was part of the 2025 revenue stream as we think about 2026?
Executive Name (Title): We see our licensing business expanding. As Jim suggested earlier, the timing of elements contributing to the expansion is somewhat unpredictable, but as we look at the predicament that OEMs and hyperscalers face in terms of potential exclusion orders, we see a major opportunity for us to grow our licensing business considerably. As we have discussed in our last quarterly call, we see that business expanding greatly in the last couple of years. I think what has transpired since then suggests that those are conservative estimates. And, Quinn, just to clarify the number for you, the royalty revenue I quoted in my prepared remarks of $57.4 million in 2025 does not include that litigation settlement. That's royalty revenue. It was up 23.2% from $46.6 million in 2025.
Analyst Gwen Bolton (Needham & Company): Just to clarify, Jim, when the comment in the press release about the business, the licensing business will expand, are you looking at the 57.4 as the 2025 base, or should we be thinking about that base being $102 million, which would include that $45 million patent settlement as part of the base?
Executive Name (Title): So for one thing, there's going to be more patent settlements. And for another, the one patent settlement from last year, in terms of the outlook for licensing business, it doesn't really make a substantial difference with respect to the upside with respect to this part of our business. We expect hundreds of millions of dollars worth of revenues from licensing. And the 47 million event last year is, in hindsight, going to be rather up in the bucket, to be sure, but not over significant.
Analyst Gwen Bolton (Needham & Company): Understood. Okay. Thank you.
Analyst John Teng-Wen Tang (CGA Securities): Hi, thank you for taking my questions, and also congratulations on a good year. I was wondering if you could give us a little bit more detail on the launch customer for VPT. You mentioned that they were going with a Gen 4 product. Could you talk about the decision that went into that and why they aren't starting with Gen 5 and kind of how that happened?
Executive Name (Title): Well, so the Gen 4 system is mature. It's one that's got a track record of success that is expanding in terms of its opportunity in order to get to the next generation system, mature design, mature system. It isn't quite there yet. It will be there soon, and that will lead to the next set of opportunities. But to be clear, with our lead customer, we're seeing a significant share of our capacity being utilized as we get towards the end of this year on the earlier generation system. The next generation system will provide an additional layer of user capacity as we get into next year.
Analyst John Teng-Wen Tang (CGA Securities): Understood. Thank you. And then when you start, sorry, you're considering a new facility. I was just wondering if you're planning to build that yourself or you're still planning to work with partners to do that perhaps in a capital-like fashion. And, you know, just wondering what kind of capacity a new facility would have.
Executive Name (Title): So we've made two offers on, you know, area where we could build. The lead time associated with that, though, is one and a half to two years when everything is sent down. We are also looking at existing buildings within a 30-mile radius of Andover to the north and the west, and we haven't decided yet which of these alternatives we're going to close on. But again, we've had two offers. No deal done yet, but I would expect that we're likely to do something on this general front very soon.
Analyst John Teng-Wen Tang (CGA Securities): Okay, great. Thank you. I'll jump back in queue.
Analyst Rich Chan (Craig Island Capital Group): Well, thanks, Patricia, Phil, and Jim for taking my questions. All of a sudden, my congratulations on a really good last year. My first question is on royalties and licensing here. As you mentioned, there's some questions here in the Q&A about growth in this business. I guess I wanted to triangulate it differently from how you've talked about in the past where you're hoping to get a roughly $300 million revenue stream. I know that's not entirely royalties, maybe some product in there, but talking about $300 million bogey between 24 and 26. And by my numbers, at least, that require a fair amount of growth, like doubling or so of your royalty revenues from 25 to 26. But you didn't talk about it that way this quarter. Can you maybe talk about it in those terms here? Is that a number that we should continue to expect, better or worse, just to help us triangulate those things?
Executive Name (Title): Yeah, so... We have two major licenses. We expect to have a lot more. And future contribution from those two should become quite a bit larger. So I think in one way of looking at it, in IAM computing AI, systems are, from the power system perspective, are IP. And to the extent that in order to be able to deploy those systems, a license would become necessary. That defines the opportunity. As you can see, the opportunity far exceeds what we've harnessed thus far. There's a lot more to be captured in years to come. Number, we see a point that involves contributions from royalties and business licenses. It's not a long-term goal. It is a relatively near-term goal. Not for this year, to be clear, but as we have said last year, in a couple of years' time frame. But we can see going beyond that.
Analyst Rich Chan (Craig Island Capital Group): My follow-on question is on second-gen BPD engagements. You already talked about your lead customer today and in past quarters, but last quarter you also mentioned engagements that didn't seem to be early-stage ones with a hyperscaler and an OEM. And I didn't hear any comments on the prepared remarks, although I was a little bit late. So I'm wondering if you can comment on the progress of those and any other ones you've added to the pipeline. Thank you.
Executive Name (Title): Yeah, so Richard, this is Phil. So maybe I can get a little bit more granular on that. So the next step for us is over the next couple of weeks, we're bringing in our global, you know, FAE team that is dedicated to supporting customers in different locations. We have target hyperscalers and OEM chip companies located. So they will be going through, if you like, a boot camp on Gen 5 VPD, using the demo boards and tools that the central applications group here in Andover have developed for the market. And so that's happening in the next couple of weeks. After we get that in place, as we talked about, we're going to be fairly selective in who we're going to be engaging with. It's very important we do that. And so that's the next step after that. So we'll be here the next couple of weeks, and we're on the way.
Analyst Rich Chan (Craig Island Capital Group): Okay. Thanks for that detail. I'll jump in line.
Analyst Justin Clare (Roth Capital Partners): Hi. Thanks for the time here. So first, I just wanted to follow up on the potential for capacity expansion here. So given the plan to add a second FAB, I was just wondering, you know, how we should think about the ramp in utilization for your existing facility, how we think about that over the next couple of years, and kind of, you know, what utilization thresholds you anticipate reaching, you know, that is necessitating the additional FAB here? And then just if you could talk about, you know, when do you anticipate kind of approaching that optimal utilization for the first FAB?
Executive Name (Title): So based on ramps with customers in different markets, with a strong contribution from my end computing, we see existing FAB being well utilized within a year. And that's obviously prompting the initiative to secure additional capacity both by bringing up a second FAB and by having discussions with potential alternative sources that could provide customers with equivalent solutions using their own capabilities and our technology. In terms of the FABs, as I mentioned earlier, we started exploring the opportunity of being at that, with a large piece of real estate, flexibility to increment capacity in steps. This would be a campus that could support up to half a million square feet of manufacturing space. Just to set things in perspective, the facilities are 300,000, so there would be substantially more in terms of the USAID available for capacity. But also, given the learning that we've done, we think we can achieve more capacity per unit of area in an extra facility. The thinking of late has evolved more toward potentially acquiring a building. There's been no decision with the other yet. It could go either way. But the benefit of doing it with an existing building is that you know, the time to fruition would be a year and a half shorter. So we might go that way. It would be on the same scale, though, in terms of the increment of capacity that we want to bring about with the second plan.
Analyst Justin Clare (Roth Capital Partners): Okay, got it. That's helpful. And then just when we think through this, if you're reaching, you know, close to kind of optimal utilization within a year, I think historically you've talked about, you know, your FAB being able to support a billion dollars in product revenue. So within a year, could you be, you know, close to that level where you're getting to a run rate of a billion dollars in product revenue? And then just curious on the second FAB, how much in CapEx spending you might anticipate in terms of what's required there?
Executive Name (Title): Yes, as a capacity given the dollars per panel and the number of panels they can process within a time to do slightly above the billion dollars in revenues. But you wouldn't want to use 100% of the capacity because by definition it will leave no room for error, right? An 80% capacity reduction is the kind of number that you want to think of in terms of the test or fundamentally having achieved a very good capacity reduction. Now, in terms of the next facility, whether it's by acquiring land, putting up a building, equipping it with what is necessary in order to bring about that relative increment of capacity. This is all in a proposition of the order of $250-$300 million, you know, something that Viagra is the way we go to finance on its own, you know, a cut position and a budget.
Analyst Justin Clare (Roth Capital Partners): I appreciate it. Thanks for the detail.
Analyst John Dillon (DMB Capital): Hi, guys. Thanks a lot for taking my call. And again, congratulations on a good year. Phil, I wanted to go back to the customers you talked about before in Q3 and Q4. I kind of got the impression that your design wins and these customers couldn't find alternative ways to power the new way our processors. So I'm wondering, are those customers still working with you or they, have they gone to other customers? Um, or are you going to be able to meet their time schedule for their new products?
Executive Name (Title): They have a need for a VPD solution in particular that has more of the right trace. And the competitive landscape, it doesn't have that. And that's constrained the market opportunity for VPD to a very limited set of companies that have actually done it while incurring a real pain because of the shortcomings of the power system. So what we bring about with a second-gen VPD and fifth-generation modules is a solution that has a much higher density and much higher grade level of manufacturing quality in terms of the assembly of the whole solution. It doesn't require a stack, as such an actual BPD does. It's much easier to cool. It's more efficient. It has a number of benefits that manifest themselves in many ways. So, as Phil suggested, we're going to be picking those customers that strategically we want to be aligned with. We have a great deal of interest. As an example, we were out in the valley just a few weeks ago, met in the morning with, you know, in other words, a customer with a good deal of interest in, you know, our VPD capability. We haven't decided yet whether or not we want to engage in that particular case.
We will be in a situation like this, in fact, before we get another five in place of deciding which applications make the most sense. And as you say, a lead customer is one that we prioritize. There's going to be more in that league, in that end market. This is my particular tremendous opportunity in terms of volume. That one alone fills two tabs. So we are in a privileged position. We have the technology and the capability. We can leverage our opportunity both by selling products and by collecting licensing. We can also do it by bringing about non-financed works. We're pursuing all these opportunities involved.
Analyst John Dillon (DMB Capital): Got it. So, I just want to make sure I understand. So, the customers that you mentioned before, they're still on the hook. They're still talking to you. They're still engaged with you. They still can't find an alternative source to power their new A processors, but it sounds like it just slipped a bit.
Executive Name (Title): Well, I think if you were to ask them, you know, they would all say that they will find a solution, but not Vigor exists. Nobody will knowledge that they're out of luck without us. And that's not the real world. That's not what we're suggesting. There's always some way of getting something done, but to be clear, that way of getting it done is problematic in terms of the technical trade-offs and technical challenges, whether it's cooling or manufacturability. And then it may also be very much challenged from the IP perspective.
Analyst John Dillon (DMB Capital): Got it. It's a complex landscape. It sounds like it's still a competitive situation then.
Executive Name (Title): Well, it's always been an issue of competitive situation.
Analyst John Dillon (DMB Capital): Yeah, got it. So my follow-on question is, are you seeing any AI processor designs with horizontal or horizontal vertical besides your lead customer?
Executive Name (Title): So I think if you look at, as Patricio actually said, there's one very, very large company that's using vertical power delivery today in very high volume, and that's increasing year on year. In terms of anybody else really in high volume production, it's vertical power delivery, John, it's fairly limited right now. They're all trying to get Gen 1 VPD to work in some fashion. But to date, I'm not hearing anybody that's buying that in volume. They're trying. They're working on it. But I think when we come out with our Gen 5 and launch it and selectively launch it, as we've talked about, we're going to have some winners on our hands.
Analyst John Dillon (DMB Capital): Got it. I saw a picture of a new AI processor that's coming out that had a, it looked like a gold bar on the top. And that's why I ask about horizontal. I'm wondering if you have any upcoming horizontals or horizontal verticals besides your lead customer, because I know they're different.
Executive Name (Title): So I don't think we're going to make comments specifically about that stuff. I think, you know, what do you all say about that? We do have Gen 4 questions. Customers using our gold bars as it were laterally. But I don't think the visibility to a gold bar is really what's fundamentally an issue at this point. I think my way of looking at it is that we have tremendous opportunity and we have the technology that matches the needs of the marketplace. Again, going back to the earlier question, it's not that if our solution didn't exist, there wouldn't be a solution. The authentic solution, which is really a common denominator to all the competitors that tend to do pretty much the same thing with the only slight difference is that they look over each other's shoulder to, you know, make incremental steps down an old road. It carries a lot of baggage in a number of respects, technical, and when it comes to VPD, also IP challenges.
Analyst John Dillon (DMB Capital): Excellent. Okay, listen, thank you very much. I might get back in the queue. Thank you again.
Analyst John Teng-Wen Tang (CJS Securities): Hi, thank you for taking my follow-up. Earlier, you mentioned that you were taking capacity reservations for your facility. I was wondering what the financials of that look like. Is there an upfront payment? Are there contract terms for minimums or something like that? Just how are you approaching those reservations?
Executive Name (Title): So, in terms of revenue recognition, that would happen... you know, as shipments take place. Obviously, there is a cash component that would show up in Arbashi, but there is no acceleration of revenue that comes from the capacity reservation. Revenues get recorded as product ship covered by only that reservation.
Analyst John Teng-Wen Tang (CJS Securities): Okay, got it. And then can you talk a little bit more about the 800 volt data center opportunity and if you are seeing any traction there or are you seeing any orders ahead of that and I'm specifically talking about, you know, products that are outside, you know, the vertical or lateral power or the MDMS that you have today?
Executive Name (Title): We have technology there too, you know, virus pioneered high density a bus conversion from 800 volts and 400 volts for many, many years. We have relevant AP. We have products. We have more products in the pipeline that will come out later this year. Frankly, though, I would say that there is quite a bit of hype about this 800 volt. I think that it's to some degree missing the point with respect to what the real issues are. It's a diversion. The reason why generations of GPUs have not been able to meet expectations with respect to performance having to do with the power system gating the GPU performance. It has nothing to do with 4k volts or 800 volts. It has to do with what goes on at the point of load. And the fact that multi-phase mainstream types of solutions are handicapped. That's where the problem should be. So obviously we operating industry that goes through phases of focus and potential.
Without question, there is value to an 800-volt bus, but that value, if you measure it in terms of efficiency, it's measured in a few percent. It gets lost in inferior point of load solution is 15 or 20 points. So I personally wonder why anybody would worry about capturing the 3% improvement in another volt power distribution when they're missing 15 or 20% in the point of load. They can't call or deliver the power they need in order to achieve the level of performance they targeted. But in respect of how these things evolve, we have the technology, we have the AP, and we're going to make the most of the opportunity. But frankly, I think there's going to be a lot of hype related to 800 volts. And that could lead to problems, because if people are focused on the wrong problem, which is not really much of a problem, they're going to have to be solving the real problems.
Analyst John Teng-Wen Tang (CJS Securities): Understood. Thank you for that insight.
Analyst Glenn Bolton (Needham & Company): Hey, guys. Thanks for taking my follow-up. Patricio, I guess I just wanted to sort of make sure everybody on the line is sort of thinking about the revenue ramp the same way. You have an obviously guided revenue for 26th, but you've given us sort of three, you know, kind of guideposts, which are you expect Andover to become, you know, or to approach full utilization over the next year. You've sort of said full utilization, you know, would be around 80%. Otherwise, you know, you don't leave a lot of room for error. And you've said at 100% utilization, the FAB would be able to produce a billion in revenue. And so when I put all that together, it sort of sounds like you're pointing revenue could approach an $800 million product revenue, could approach an $800 million run rate over the next year, and that would be more than double what you did on a product revenue front in calendar 25. I know you're not giving guidance, but some of those guideposts, you know, pointed to very significant revenue growth. And I just want to make sure to the extent that you think that interpretation of the comments you've made is too aggressive. I just wanted to see if you would correct any of those thoughts or if that's the right way to be thinking about sort of the data points you've suggested.
Executive Name (Title): I think your analysis is on point. Obviously, key to that is run rate. It is distinct from revenues for this year, 26. So we see the demand getting to a run rate that would utilize 80% or so of the capacity in the end of the fiscal year. Another way of, in fact, tagging this is that we see this year as being one major increase in product revenue relative to the rate of last year and at a level that we haven't enjoyed for quite some time. And that's pretty much baked in at this point based on bookings that we've received and additional bookings to come away as the year progresses.
Analyst Glenn Bolton (Needham & Company): Got it. Thank you very much.
Analyst Richard Chan (Craig Island Capital Group): Well, hey, guys, thanks for letting me ask a couple of follow-on questions here. My first one is on licensing here. Matricio, following up on an answer to one of the prior questions here you mentioned about having a couple or specifically two licensees so far. As we think about growing the licensing revenue stream this year, and if you can comment beyond that, that'd be great in terms of your general expectations. But how do we think about adding to the customer list here versus number of licensees or licenses per licensee or other dynamics that help us think about this? And I guess specifically, if you could address, you know, if things went well for you, what's the kind of number of major licensees would you have? I don't know if this is three or five or eight, but if you can just characterize that in any way, that'd be helpful. Thanks.
Executive Name (Title): In the AI market, I think in terms of base substantial licensees, it would be up to that. So three times as many as we currently have in that market. A reminder was on top of that. And by the way, if the focus has been and the actions of the ATC thus far have been focused on IAM computing, but there's information going on in other markets as well. So there is a lot of opportunity, not just for DMVM technology, but what other technologies?
Analyst Richard Chan (Craig Island Capital Group): Okay. My follow-on question is wondering if there's any way that you can help us think about, for specifically about your second-gen VPD technology, how do we think about content per XPU. And I'm going to offer a couple ways maybe to think about this. I know you're not going to quantify in a specific way, but I think a lot of us who cover this name for a while have a decent idea of what that content looked like a few years ago in your last really high volume or potential high volume win that you had in point of load. But also since that time, the level of power and the level of current in leading XPUs, particularly getting to reticle limit, are increasing a lot here. So do we think about the kind of the content opportunity now as kind of being proportional to power current? And how do we think, how would you have somebody think about what that might look like on a per unit basis? Thank you.
Executive Name (Title): So as I look back at, you know, a high power system for GPUs a number of years ago, that was, in one way of looking at it, about $100 million per year type of opportunity and rising. We are locked into an opportunity that will double that. And to Phil's earlier point, there is a hyperscale with an opportunity that could be another magnitude. I don't know if that answers your question. Mine was really more on content per XPU, but the way you characterize it is also helpful. But anyways, you might think about it on a per XPU basis would be helpful, too. Thank you.
Executive Name (Title): Yeah, so do you want to take that? Yeah, I think, Richard, to your point, it really depends on the current, that XPU, the number of rails, that type of thing. So I think that the opportunity for us would be somewhere between $200 to $400 per XPU. But it very much depends. So, make that with a grain of salt.
Analyst Richard Chan (Craig Island Capital Group): Understood. Getting it to half order magnitude is very helpful. So, thank you very much for that. So, Richard, just to clarify, it's about like a 2,000 amp up to a 4,000 amp type of product.
Executive Name (Title): Got it. Okay. Great. Thank you.
Analyst A. Hicks (NC Capital Management): Yeah, good afternoon. I just wanted to confirm. It's a billion dollars capacity now.
Executive Name (Title): Yes, we are very confident that we can generate upwards of a billion dollars worth of revenue.
Analyst A. Hicks (NC Capital Management): Okay, because I'm looking at what your sales were just for advanced products, not without royalties for the year was around $200 million.
Executive Name (Title): Yes.
Analyst A. Hicks (NC Capital Management): Okay, so you're saying within a year or so, you could be at $800 million in advanced products?
Executive Name (Title): It's suggesting an earlier question than confirmed by me.
Analyst A. Hicks (NC Capital Management): Okay, and then on the BRICS, the original BRICS fab, could that be converted in the future to advanced products?
Executive Name (Title): So no, the bricks are much older products. They've got a very stable, if you like, customer base. So some of those customers are moving to advanced products, and we've had quite a bit of success of that in recent years in some higher volume end markets. But aerospace and defense and some very broad-based industrial, they like the bricks. They're going to stay with the bricks. So the brick piece will be fairly stable over the next few years. I don't really play a role with respect to capacity. They become, you know, they become.
Analyst A. Hicks (NC Capital Management): Okay. But you're also adding capacity to this first FAB. Is that correct also?
Executive Name (Title): Yes, we are.
Analyst A. Hicks (NC Capital Management): Yeah. So that's right. We're adding capacity to the existing footprint.
Analyst A. Hicks (NC Capital Management): Okay. And then, did you say you're in discussions with a partner to have them produce products themselves?
Executive Name (Title): Yeah, so we are having discussions, so this may take some time because it's an important decision selection. We have customers that want us to have an alternative source. We see the benefit of an out there source in terms of expanding the market opportunity. If you just look at AI, there is so much of a market opportunity that frankly there is no way that BlackRock alone could do it alone. Even with the second or third fab. So we need to in effect look at making the most out of the opportunity as opposed to limiting the scope of the opportunity by wanting to do it alone.
Analyst A. Hicks (NC Capital Management): Then I was just kind of curious, how many panels can you produce in a day out of the factory you have now?
Executive Name (Title): I'm not going to quantify that for competitive reasons. I will just say that in terms of the revenue opportunity of the FAB, FAB 1 is slightly above a billion dollars a year.
Analyst A. Hicks (NC Capital Management): Okay. Okay. Thank you very much.
Analyst John Dillon (DMB Capital): Hi, guys. I'll make this quick because I know we're up against the timeline. First of all, Patricio, thank you for answering Quinn's question. That was one of my follow-up questions also, and I appreciated that answer. Another one is just a quick one. We're halfway through the quarter, and I'm just wondering how bookings are looking so far this quarter.
Executive Name (Title): I mentioned in my prepared remarks, John, that book the bill was 1.2 in Q4, and we're above that already in Q1.
Analyst John Dillon (DMB Capital): Excellent. Thank you very much. Congratulations, guys.
Executive Name (Title): Thank you.
Executive Name (Title): This concludes the question and answer session. Thank you for your participation in today's conference. This concludes the program. You may now disconnect.