Vicor (NASDAQ:VICR) held its first-quarter earnings conference call on Tuesday. Below is the complete transcript from the call.
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Summary
Vicor reported Q1 2026 revenues of $113 million, a 5.3% increase sequentially and a 20.2% increase year-over-year.
Gross profit margin for Q1 stood at 55.2%, a slight decline from the previous quarter but an increase of 800 basis points from the same period last year.
The company expects Q2 revenues of nearly $126 million and full-year 2026 revenues of approximately $570 million.
Vicor is undertaking capacity expansion efforts, aiming to increase the capacity of its first fab to support $1.5 billion in annual revenue, with plans to explore a second fab.
Bookings were strong in high-performance computing, industrial, aerospace, and defense markets, with a book-to-bill ratio above 2.
Management highlighted ongoing strategic focus on vertical power delivery (VPD) technology, with advancements aimed at dominating the AI and computing markets.
The company anticipates continued growth in its licensing business, expecting it to become a significant portion of its revenue.
Vicor faced legal expenses related to intellectual property enforcement but expects these efforts to drive future licensing opportunities.
Full Transcript
OPERATOR
Good day and thank you for standing by. Welcome to the Vicor first quarter 2026 earnings conference call. At this time, all participants are in listen only mode. After the speaker's presentation, there will be a question and answer session. To ask the question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised to withdraw your question. Please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today. Jim Schmidt, Chief Financial Officer. Please go ahead.
Jim Schmidt (Chief Financial Officer)
Thank you. Good morning and welcome to Vicor Corporation's earnings call for the first quarter ended March 31, 2026. I'm Jim Schmidt, Chief Financial Officer and I'm in Andover with Patrizio Vinciarelli, Chief Executive Officer and Phil Davies, Corporate Vice President, Global Sales and Marketing. Earlier this morning we issued a press release summarizing our financial results for the three months ended March 31, 2026. This press release has been posted on the investor Relations page of our website, www.vicorpower.com. we also filed a Form 8K 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 risk 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 2025 Form 10K, which we filed with the SEC on March 2, 2026. This document is available via the EDGAR system on the SEC's website. Please note, the information provided during this conference call is accurate only as of today, Tuesday, April 21, 2026. Vicor undertakes no obligation to update any statements, including forward looking statements made during this call and you should not rely upon such statements after the conclusion of this call. A 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 Q1 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 and L and balance sheet items and refer you to our press release or our upcoming Form 10Q for additional information. As stated in today's press release, VICOR recorded product and royalty revenue for the first quarter of $113 million, up 5.3% sequentially from the fourth quarter of 2025 total of $107.3 million and up 20.2% from the first quarter of 2025 total of $94 million. Advanced products revenue increased 3.7% sequentially to $64.9 million, and brick products revenue increased 7.7% sequentially to $48 million. Shipments to stocking distributors increased 0.5% sequentially and and increased 63.6% year over year. Exports for the first quarter decreased sequentially as a percentage of total revenue to approximately 48.9% from the prior quarter's 49.3%. For Q1 advanced product share of total revenue decreased to 57.5% compared to 58.4% for the fourth quarter of 2025, with brick products share correspondingly increasing to 42.5% of total revenue. Turning to Q1 gross margin, we recorded a consolidated gross Profit margin of 55.2%, a 20 basis point decrease from the prior quarter. Q1 gross margin increased 800 basis points from the same quarter last year. I'll now turn to Q1 operating expenses. Total operating expense increased 4% sequentially from the fourth quarter of 2025 to $45.5 million. This increase included higher legal expenses related to enforcement of RIP. The amounts of total equity based compensation expense for Q1 included in cost of goods, SGA and R&D was 836,000 1,959 and 1,057,000 respectively, totaling approximately $3.9 million. Turning to income taxes, we recorded a tax benefit for Q1 of approximately $0.3 million, representing an effective tax rate for the quarter of -1.3%. The company's tax provision and effective tax rate for the quarter ended March 31, 2026 was positively impacted by stock options exercised in the quarter. Net income for Q1 totaled $20.7 million. GAAP diluted income per share was $0.44 based on a fully diluted share count of 47,254,000 shares. Turning to our cash flow and balance sheet, cash and Cash equivalents totaled $404.2 million at Q1, an increase of $1.4 million sequentially. Accounts receivable net of reserves totaled $67.4 million at quarter end, with DSOs for trade receivables at 42 days. Inventories net of reserves increased 3.8% sequentially to $94.8 million. Annualized inventory turns were 2.1. Cash flow used for operating activities totaled $3.9 million for the quarter, which was net of a litigation settlement payment of 28.6 million. Capital expenditures for Q1 totaled $12.4 million. We ended the quarter with a construction in progress balance primarily for manufacturing equipment of approximately $10.7 million and with approximately $33.9 million remaining to be spent. I'll now address bookings and backlog Q1 book to Bill came in above 2 and 1 year backlog increased 70% from the prior quarter, closing at $300.6 million. 2026 is a year of great opportunity for Vicor. We expect Q2 revenues of nearly 126 million and 2026 revenues of nearly 570 million. This guidance is based on conservative assumptions about our licensing practice, specifically that we will not enter into new licensing agreements until our second ITC case gets to its final determination in 2027. Additional exclusion orders further restricting importation of infringing computing systems will provide motivation to close new licensing deals on the right terms. Along with revenue growth in 2026, we expect margin expansion.
Phil Davies (Corporate Vice President, Global Sales and Marketing)
Phil thank you Jim. With the book to bill above, two Q1 bookings were strong across our high performance computing, industrial and aerospace and defense markets. They remain strong in the second quarter and I'll discuss each of them in turn. Our lead computing customer is continuing a steep production ramp of its wafer scale engine with best in class AI inference performance. Wafer scale engines and future embedded multi die and COAS packages for AI Chiplet solutions are uniquely enabled by vertical power delivery. Further advances in AI performance are about to be enabled by Vicor's second generation VPD solution with 3amps per square millimeter current density and a current multiplication factor of up to 40 in a 1.5 millimeter thin package. Per my Q4 comments, engagement with other HPC customers for second generation VPD solutions will follow the generational transition by our lead customer with capacity in our first chip fab earmarked for existing strategic customers. We will continue to be selective as we add additional customers on the VPD front, competition is handicapped by a multiplicity of issues including inadequate current density and stacked packages that are not mechanically and thermally adept. That's because competition copied a first generation VPD solution whose pioneering aspects are still immature and at risk of continuity of supply challenges caused by patent infringement. Our broad industrial market, which is supported by our global distribution partners, had a strong first quarter and our top 100 industrial OEMs in the automated test and semiconductor manufacturing equipment markets continue to benefit from the AI data center buildout with strong order placement. We are also winning next generation platforms with earlier generation and new factorized power system solutions. Our current multipliers supplying high power to ASIC and memory test heads and pin electronics remain unchallenged and in terms of current density, low noise and thin packages, geopolitical developments have been a key driver of our aerospace and defence business in recent quarters. Increases in spending as a percentage of GDP and replenishment of defensive and offensive systems supports the growth of this market. Our objectives, goals and strategies for 2026 remain unchanged, with a focus on a portfolio of 100 customers globally across four market segments. Future growth opportunities will require capacity expansion, including a second fab Our combinatorial strategy of being the power system technology innovator and an IP licensing company is delivering results. With that, we'll take your questions.
OPERATOR
Thank you. As a reminder to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Our first question comes from the line of Quinn Bolton with Needham and Company. Your line is now open.
Quinn Bolton (Equity Analyst)
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 and 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?
Patrizio Vinciarelli (Chief Executive Officer)
The 570 guidance includes royalties, which would increase somewhat based on existing licensing agreement, but in terms of providing, in effect, safe guidance, we thought it would be best to set aside any opportunity with respect to, in other words, 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 diminution on our second case next year, but it could be that we do get some ahead of that time frame. Understood.
Quinn Bolton (Equity Analyst)
And then Patricia, last quarter you seemed Pretty confident that the utilization in Andover would approach 80% by the end of 26 or early 2027. Look, 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?
Patrizio Vinciarelli (Chief Executive Officer)
Yes, in absolute terms with respect to product revenues. What has transpired since we last spoke on this topic is that we actually have a significant level of elasticity with respect to expansion capacity within the fellow state 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 relatively significant dispatching capacity. It could be as much as 50% above what had been planned to be supported in terms of annual revenues out of the Fellow Street facility. So that gives us cushion with respect to timing, which were put into 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 strategy with respect to getting more out of the Fellow Street facility is to selectively source outside of that facility, you know, 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 plans with respect to capacity expansion.
Quinn Bolton (Equity Analyst)
Sorry, Patrice, just a quick clarification. Did you say that in the first Andover facility you would be outsourcing some manufacturing steps either to third parties or would that be to the second chip fab?
Patrizio Vinciarelli (Chief Executive Officer)
It would be to an interim solution for the second chip fab, but this will 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 fell state facility. Understood. Thank you. I'll get back in queue.
OPERATOR
Thank you. Our next question comes from the line of Justin Claire with Roth Capital Partners. Your line is now open.
Justin Claire (Equity Analyst)
Hey, good morning. Thanks for the questions here. So I think first off, you mentioned engagement with additional VPD customers. I think could follow the generational transition for the lead customer from Gen4 to Gen5. Was wondering if you 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 so trying to get a sense for when the potential orders with additional customers could be and what the revenue timing might be.
Patrizio Vinciarelli (Chief Executive Officer)
Yeah, so the general transition we're referring to here, it will be enabled in the second half of this year and, 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 Vertical Power Delivery (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 vigor. And fundamentally, in spite of capacity expansions, we expect to remain capacity constrained for a substantial time frame. And that leads us to want to pick the right 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. Got it. Okay.
Justin Claire (Equity Analyst)
And then just on the backlog 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?
Patrizio Vinciarelli (Chief Executive Officer)
Well, so starting with Q2, the bookings are just as strong as they were in Q1, so we expect to once again in Q2 we 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. Phil, do you have.
Phil Davies (Corporate Vice President, Global Sales and Marketing)
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, got it, got it. Okay. Justin, in any backlog we quote the bookings we quote, it's always a 12 month window. Just
Justin Claire (Equity Analyst)
Got it. Okay. And then maybe just one more on the capacity. So you've, you're talking about expanding capacity at Fab 1. How much capacity do you anticipate adding? What level of revenue do you think could be supported by the first fabric? 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?
Patrizio Vinciarelli (Chief Executive Officer)
So you might recall in the past we had earmark capacity out of Fab one. 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 toll capacity as much in terms of additional equipment and depreciation. And overall, it's a plan that meets the combination of objectives that we set 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. Got it. Okay, thank you. Appreciate it.
OPERATOR
Thank you. Our next question comes from the line of John 10:1 10 with CJS Securities. Your line is now open.
John Dillon (Equity Analyst)
Good morning. Thank you for taking my questions and congrats on the nice 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 FAB 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 what the timing is around their growth trajectory is and what you expect your capacity to be underlying that.
Patrizio Vinciarelli (Chief Executive Officer)
So, first of all, we purchased a second 3Di or three dimensional interconnector line that's going to be installed in the Q3 Q4 time frame. 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 alliance, 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 an open 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 of processors with all of the right attributes. The way it is done with competitive alternatives to some degree build upon what we call first generation VPD technology is, as suggested in the earlier remarks, challenged in a number of respects because of the inadequate current density. So it's fundamentally a dominant effect. In other words, current density forces stacking of the elements of the solution. The stacking has mechanical complexity and thermal challenges because the heat gets trapped within the stack is 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 Dillon (Equity Analyst)
Got it, thank you. Could you also talk about the upcoming 800 volt data center architecture and the potential for a transition to a 6 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 royalties on that side?
Patrizio Vinciarelli (Chief Executive Officer)
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 busing 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 the undervolt bus. But inherent in that it is the opposite effect at the other end of that proposed bus conversion step. Because going all the way down to 6 volt 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 v is fundamentally challenged by the extreme inefficiency of distributing any amount of significant power at 6 volts. You can only go short distances and retain some level of efficiency. But to some extent that's incompatible with an undervoltage 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 a change in direction away from where the fogger 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 volt distribution, particularly when you combine that with a step all the way down to 6v is in my opinion a bad idea. But time will tell. By the way, Vicor has proprietary technology at EDAN involved. We did a lot of pioneering developments with respect to bus conversion from a down revolt. 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 load with respect to vertical power delivery?
John Dillon (Equity Analyst)
Got it. Very helpful. Thank you. Prodigio. Good luck.
OPERATOR
Thank you. Our next question comes from the line of John Dillon with D and B Capital. Your line is now open.
John Dillon (Equity Analyst)
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 bricks 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?
Patrizio Vinciarelli (Chief Executive Officer)
No. So the BRICs are part of it. I don't think they're part of the level of 250. And you know, as we've been saying for quite some time, you know, before too long they're practically relevant. We shouldn't be thinking about brics. And in effect part of our strategy with respect to the expansion or capacity of fellow state 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 as a step up in our capacity plan for Federal fleet from 1 to 1.5 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 expansion capacity of vast products. Got it. So you see, you could get above 1.5 billion. Excellent. 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 1 to 1.5 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 (Equity Analyst)
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.
OPERATOR
Excellent. Thank you. I'll get back in the queue. Go ahead, go ahead. Thank you. As a reminder to ask a question at this time, please press star 11 on your Touchstone telephone. Our next question comes from the line of Richard Shannon with Craig Hallum Capital Group llc. Your line is now open.
Richard Shannon (Equity Analyst)
Well, hi guys. Thanks for letting me ask a couple 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 in all other markets, if you can characterize between those three, that'd be helpful. Thanks.
Phil Davies (Corporate Vice President, Global Sales and Marketing)
Hi Richard, it's Phil. So in high performance compute, yeah, I was the lead customer and the hyperscaler customers that we had 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 in our broad markets as well as in high performance compute with a few lead customers.
Richard Shannon (Equity Analyst)
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 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. Wondered if you can discuss the dynamics around those follow on customers.
Patrizio Vinciarelli (Chief Executive Officer)
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 you know, alignment of interest for the medium to long term. So in a way, in a way analogous to the comments I made earlier regarding you know, expansion of capacity coming out of fellow seat. First of all, giving us more time and opportunity with respect to 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 some bookings and some 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.
OPERATOR
Thank you. Our next question is follow up from Quinn Bolton with Needham and company. Your line is now open.
Quinn Bolton (Equity Analyst)
Thanks for the follow up questions. Patricia. 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 into sometime in 2027? And then I've got a follow up.
Patrizio Vinciarelli (Chief Executive Officer)
Well, so I don't think we want to be that specific at this point in time. As I'm sure you noted because of, you know, 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 (Equity Analyst)
Got it. Okay. That's understandable. And then I just wanted to come back. I think Phil, it was Phil that mentioned on the 2nd gen VPD your solutions are 1 1/2 millimeters high. 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 End, Nvidia and Google asking suppliers to hit 3 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.
Patrizio Vinciarelli (Chief Executive Officer)
We do. And actually it is even bigger than than you might think, for reasons I'm going to explain in a moment. It's not just that Our solution is 1 1/2 millimeter thin, but as Phil pointed out in his prepared remarks, is that combined with the fact that our solution provides 40x current multiplication and it does all of that with 3amps 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 0.6.7 volt 2000amp, they would require a 1000amp 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 wafer scale or other kinds of advanced compute capabilities, you really need the combination of all of these elements, not just one of them.
Quinn Bolton (Equity Analyst)
Understood. Thank you, Patricia.
John Dillon (Equity Analyst)
Thank you. Our next follow up comes from the line of John 10 won tang with CJS security. Your line is now open.
Jim Schmidt (Chief Financial Officer)
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. 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% ish percent 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 get exercised at a nice spread between strike and exercise price. And that's a tax benefit for us. So that's a one time discrete item that doesn't get baked into the effective tax rate. And our feeling is that going forward there'll still be that effect, which is a positive effect for us, but planning can be more in line with 20% kind of a rate.
John Dillon (Equity Analyst)
Perfect, thank you. And then Patrizio, could you talk a little bit more or maybe Phil, 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 US has with the upcoming capacity constraints that you're modeling? I'm sorry, some of your words are metal. Can you repeat the first question? 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.
Phil Davies (Corporate Vice President, Global Sales and Marketing)
Yes. So, John is. 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.
OPERATOR
Okay, great. Thank you. Thank you. Our next follow up comes from the line of John Dillon with DNB Capital. Your line is now open. Hi.
John Dillon (Equity Analyst)
Yeah, I was just wondering, does Viacor have any vertical power licensing agreements that will generate revenue this year?
Phil Davies (Corporate Vice President, Global Sales and Marketing)
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 (Equity Analyst)
Okay. And Phil, on the bookings, can we assume a bookings run rate of what we saw today for the rest of the year?
Phil Davies (Corporate Vice President, Global Sales and Marketing)
So, John, I think the bookings are going to be well above one, like Patrizio 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 Well above one.
OPERATOR
Thank you very much. Thank you. Our next question comes from the line of Don McKenna with DB McKenna Co. Inc. Your line is now open.
Don McKenna (Equity Analyst)
Yeah. Phil, could you give us an idea of what percentage of the backlog is attributable to your lead customer?
Phil Davies (Corporate Vice President, Global Sales and Marketing)
Again, we don't break that out. They're an important lead customer for us, but they're not 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.
OPERATOR
Okay, thank you. Thank you. As a reminder to ask a question at this time, please press star11 on your touchtone telephone. Our next question comes from the line of Neil Gore, shareholder. Your line is now open.
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?
Phil Davies (Corporate Vice President, Global Sales and Marketing)
The expectation of the licensing as a percentage of product revenues? We've talked as much as 50%. Question was, can we. Do we still hold to that?
Patrizio Vinciarelli (Chief Executive Officer)
Yeah, we feel very good about a licensing practice we are investing heavily in. Will 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 is to say it's nearly, 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 IPS callis will be Vigor licensees 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 enabling power system technology from Vigo.
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?
Patrizio Vinciarelli (Chief Executive Officer)
So we carried the first ATC 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 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 IDC once again chose to institute an investigation to get that to its final determination, which should result in a second exclusion order. And this may not be the end. 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. So this again part of a very comprehensive campaign. Vigo 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 long standing pioneer in the industry, we got into places well ahead of any competitor and 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 Vigo pioneer. 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 fads revenue capability. Okay, and next question on. Are there any expenses affiliated with licensing revenue? This is a part of your sga, perhaps any expenses associated with licensing revenue. 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 an operating expense for the share of the proceeds from
Neil Gore (Shareholder)
the that led to the licensing deal owed to our partners. Thank you, thank you, thank you.
OPERATOR
Our next question is a follow up from Justin Claire with Ross Capital Partners. Your line is now open.
Justin Claire (Equity Analyst)
Hey, thanks for taking the follow Up. So just wanted to hear. So we did see a large transaction announcement between OpenAI and a wafer scale support 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.
Patrizio Vinciarelli (Chief Executive Officer)
Well, I think we, 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. Would you share the same level of confidence Vigor had in our lead customer? And so that's been proven out to be the right expectation. We think they have a real 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 just to say as we have with the AI market in general.
Justin Claire (Equity Analyst)
Okay, appreciate it. Thank you. Thank you.
OPERATOR
Our next follow up comes from the line of Richard Shannon with Craig Hallam Capital Group. Your line is now open.
Richard Shannon (Equity Analyst)
Well, hi guys. Thanks. Let me follow up, kind of a multi part question around licensing. Maybe you can update us on the number of licensees you currently have generated revenues and if there's multiple licenses per licensee, that would be probably a good understanding there. Then also wondering if you have any licenses that are expiring and need to be renewed like this calendar year. And then ultimately, you know, you talked about the ability or the belief in growth in this business here. To what degree do we need to see growth in licensees versus number of licenses? Or can you grow at a rate that you're expecting without any growth in those numbers?
Patrizio Vinciarelli (Chief Executive Officer)
Thank you. So I view our business model as being very resilient, very redundant because we have great opportunities as a module maker and we have great opportunities as a licensed saw of enabling technology. And those two opportunities are very synergistic because in licensing deals we provide incentives for OEMs, hyperscalers to be more than licensees, to be customers of our modules and advanced technology power system solutions. So we feel, I feel, speaking for myself, very confident we're going to be very successful on each of those two fronts. And again they reinforce each other in pretty much every way.
Phil Davies (Corporate Vice President, Global Sales and Marketing)
Richard, maybe I can also, if you don't mind, I'll add a little bit to that. So if you look at products that are getting launched later this year, maybe early next year from different GPU companies, Or even hyperscalers. A lot of them are going lateral and vertical because they can't really solve the full vertical problem. The vertical challenge because of what Patrizio's talked about, lack of current density, mechanical issues. And so you'll see a little bit of lateral with a bit of vertical. And that vertical, as we talked about, copies our first generation vpd. If you go to what Cerebras and the wafer scale companies do, you've got a challenge there of bandwidth which they solve through their wafer scale engine. Everybody now is starting to look at the co ops packaging, the packaging that intel has brought to market with multi die chiplet. The only way to power that stuff to solve the memory bandwidth problem is pure vertical power delivery. And that's where you need 1 1/2 millimeter height packaging greater than 3amps per millimeter squared current density and 40 times if you like the capability of the power delivery to that network. Current multiplication where you at 6 volts you've got 64 times the power losses than at 48 volts and at 2 volts you've got 526 times the power losses for an IVR system. So you start to run into real fundamental issues here where the VPD technology, our second generation VPD technology for these future technologies where we're going to focus on these strategic alignments where they really need the Vico vpd, that's where we're headed again. The competition tends to focus on one element like current density and they can make, you know, some headway with respect to that element. But in year end in the architecture is a conflict among key elements of the solution where fundamentally you got to trade off one to make it a little better for the other. When the right solution, the necessary solution must involve all of these ingredients. High current density, high current multiplication in a solution that is relatively thin. And by the way, we're not stopping at 1.5 millimeter, we're going thinner because as we get to power and package it will need to be thinner. And with that technology we can go a lot thinner.
OPERATOR
Thank you. Our last question comes from the line of Don McKenna with D.B. mcKenna Company. Your line is now open.
Don McKenna (Equity Analyst)
This is a simple one, guys. I haven't been able to attend the annual meeting for the last few years because of a conflict in timing. And I'm hoping that you don't schedule it for the 20th of June this year.
Jim Schmidt (Chief Financial Officer)
Well, the 20th of June is a Saturday and so it's, it's, I'll let the cat out of the bag. The proxy is coming out soon. The annual meeting is Friday, June 19th.
Don McKenna (Equity Analyst)
19th. Okay. Thank you very much. Okay. Thank you.
OPERATOR
Thank you. This concludes the question and answer session. Thank you all for your participation on today's call. This does conclude the conference. You may now disconnect.
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