Good day, and welcome everyone to the Weicker Earnings Results for the Second Quarter and the June 30, 2019 Conference Call. Hosted by Doctor. Patricio with CRLi and James Simms. My name is Matt and I am your event manager. During the presentation, your lines will remain on listen only.
I'd like to advise all parties this conference is being recorded for replay purposes. And with that, like to hand over to James. Please go ahead, sir.
Thank you, Matt. Good afternoon, and welcome to Vicor Corporation's earnings call for the 2nd quarter ended June 30, 2019. I'm Jamie Simms, Chief Financial Officer and with me here in Andover, is Patrizio Vinciarelli, our Chief Executive Officer. After the markets closed today, we issued a press release summarizing our financial results for the 3 month period ended June 30. This press release has been posted on the Investor Relations page of our website, licorepower.com, We also filed a Form 8 K today related to the issuance of this press release.
I remind listeners that this conference call is being recorded and it is the copyrighted property of Vic Corporation. I also remind you various remarks we make during this call may constitute forward looking statements for purposes of Safe Harbor provisions under Private Securities Litigation Reform Act of 1995. Except for historical information contained in 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, planned capacity expansion, as well as forecast sales growth, spending and profitability are forward looking statements involving risks and uncertainties. In light of these risks and uncertainties, we can offer no assurance that any forward looking statement will in fact prove to be correct. Actual results may differ materially from those explicitly set forth in or implied by any of our remarks today.
The risks and uncertainties we face are discussed in Item 1A of our 28 18 Form 10 K, which we filed with the SEC on February 28, 2019. Please note the information provided during this conference call is record only as of today, Thursday, July 25, 2019. 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 replay of today's call will be available beginning at midnight tonight through August 9. 2868010 followed by the passcode 9 130 3034.
In addition, a webcast replay of today's call will be available shortly on the Investor Relations page of our website. I'll start this afternoon's discussion with a review of our financial performance for the second quarter, and Patricia will follow with his remarks, after which we will take your questions. In the interest of time and providing everyone who wants to ask a question and opportunity to do so, we ask that you limit yourselves to one question and a related follow-up If you have more questions, you may recorded total revenue the quarter 2018 revenue of $74,200,000. Q2 'nineteen revenue was expected to have represented a sequentially improved or serving our OEM customers. Near term visibility, whether for advanced products in the data center or BRIC products in China, remains clouded.
Patricia will comment on this further in his remarks. Reflecting these circumstances, Advanced Products revenue for Q2 seen declined 19.5% sequentially and was approximately 40% lower than the level recorded for the second quarter of 2018. In contrast, Q2 twenty nineteen BRIC product revenue increased 3% sequentially and was essentially unchanged in comparison to the total for the second quarter 2018. Turns volumes were not a meaningful contributor to quarterly revenue. For the second quarter, the BRIC Advanced revenue split was 76% Brick Products and 24% Advanced Products in contrast to 70.30 for the first quarter.
International revenue declined 11.5 percent sequentially, reflecting the decline in Advanced Products shipped to Offshore Contract Manufacturers and slowed activity in Japan. International revenue fell to 51 percent of revenue for Q2 from 56% for Q1. Consolidated gross margin as a percentage of revenue declined to 46% for Q2 from 47.3% for Q1. The Q2 decline largely reflects reduced absorption due to lower production and continued Section 301 tariff charges. We have retained consultants to assist us in establishing a duty drawback program, and we are expecting this program to be functioning shortly with some degree of tariff rebate occurring before even though our annual merit increases for compensation were implemented during the quarter, reflecting the decline in revenue and gross margin, Quarterly operating income declined to $2,400,000 or 3.8 percent of revenue in contrast to the prior quarter's $4,500,000 representing an operating margin of $3,000,000, representing an operating margin of 11.2%.
Our year to date effective tax rate stands at 7.3%, down from 9% through Q1. Net income attributable to Vicor totaled 2,600,000 for the second quarter representing a diluted EPS of $0.06. This is in contrast to Q1 2019 income of 4,300,000 which represented diluted EPS of 19¢. Our fully diluted share count for Q2 EPS calculation was 41,081,000 shares, which is the sum of both common share classes, representing approximately 29,300,000 registered common shares and diluted stock options and approximately 11,800,000 Class B common shares, which are neither registered nor listed. Turning to our balance sheet, cash and cash equivalents sequentially rose to $71,500,000 largely due to a pause in capital expenditure which totaled just $2,500,000 Trade receivables net of reserves totaled $38,300,000 at quarter end, sequentially down 6 percent with DSOs steady at 46 days and all balances current.
Inventories net of reserves increased roughly 6% sequentially to $54,600,000, reflecting higher finished goods inventories associated with the delayed shipments. Our raw materials balance actually declined another inventory turns fell to just under 3 for the quarter, reflecting the increased total balance and lower volume. However, we have recognized in July a substantial portion of the revenue associated with the rescheduled customer deliveries from June. So our inventory metric have improved from quarter end. Concluding my review of the 2nd quarter, total employee headcount as of June 30, down from 1022 for the prior quarter.
Full time headcount was 987 at the end of Q2, up from 9.85 for Q1, while part time and temporary headcount declined 5, reflecting slowed production activity. I'll now speak to our capacity expansion. We have the approvals to proceed with an approximately 90,000 square foot addition to our Andover facility and have secured a 6 year tax abate which was a factor in deciding to expand our existing facility in Dover before pursuing a larger expansion in capacity down the road. As stated in today's press release, we have committed to acquire land adjacent to our Andover facility and expect that purchase to close shortly. The purchase price is approximately $1,500,000 and the acquired land, some of it already paved for parking, will allow us to expedite before, anticipate internally funding both the construction and the plan 2 phases of equipment installation.
I also want to filing next week. To one integrated business with 2 product categories, advanced products and Brick products. Over the last 12 months, we have merged our 2 operating subsidiaries, PICOR and BI Chip into the parent, consolidating numerous organizations and functions and integrating separate ER and financial reporting activities into 1. We believe this streamlining will improve efficiency. As was the case with the PICOR merger last year, with the VI Chip merger, which closed on June 28, 2019, Vicor assumed the VI Chip subsidiary level stock option plan S8 with the SEC registering the approximately 1,500,000 shares of Vicor common stock that will be available for issuance upon the exercise of options awarded under the assumed VI Chip plan.
While just under half of these options the options to which these shares are available are fully vested. Restrictions limiting the volume but are cautious regarding the timing of the anticipated recovery in data center spending and the negative influence We are forecasting revenue growth for but we do expect to start writing some sizable checks for land and construction.
As stated in today's press release, we're winning every demanding, activation intelligence, ASIC application with lateral or vertical power and package solutions. However, our visibility into data center spending remains clouded, and their bookings and revenues have been affected by the trade dispute with China. We're working to mitigate these issues. And remedied the impact of tariffs on growth and profitability. Bookings for the second quarter totaled 60,200,000 representing a 10% sequential decline.
New orders from Chinese contract manufacturers declined significantly, primarily for the center and AI customers programs, some of which are being relocated or charm. Bookings for distributors were recently stated sequentially for both Advanced And Brick Products. As Jamie mentioned, activity for Brick Products for applications across industrial communications, healthcare and defense electronics is steady with gains in the U. S, partially offsetting declines in Asia and Europe. As communicated at our stockholders meeting last month, we're confident of our position in next generation 48 Volt servers ai Excel radars and supercomputers, which will drive near and long term growth opportunities.
The remarkable early progress we're making in automotive electronics is we believe evidence of a very promising long term opportunity there. The cash generating brick business provides stability in the volatile world, while a finished pace of design in activity with advanced products bodes well for our long term outlook. We're not alone in facing headwinds from China, and we're taking steps to adapt to challenging conditions. We're pursuing strategies to serve the Chinese market and to regain momentum we have established there. We have previously disclosed being approached by parties interested in licensing our proprietary technologies to expand the served addressable market for our products while providing several source capacity.
To that end, We have recently hosted visits from Asian companies, interested in licensing, our power and package technology. We're also discussing opportunities with global companies with an established presence in important vertical markets. Such as Automotive, which would like to partner with Vicor in accelerating adoption of factorized power system solutions in those vertical markets. To conclude my prepared remarks, despite recent challenges and near term uncertainty, we are uniquely well positioned in the and AI applications. We have unprecedented momentum with customers that look to us for the power system performance necessary to enable their products and their strategies.
Our outlook for the second half reflects steady demand for big products and a resumption of demand for advanced products from expanding lease of AR applications for which there is no viable competitive alternative. I refer you to Field Davis session at the recent Anna shareholders meeting and the other recording of the question and answer session both of which are available on the Investor Relations page of our website as they both provide descriptions of our market opportunity and of our strategy. To one question and related follow-up
you. The first question is coming from the line of John Krueber. Your line is open. Please proceed.
Good afternoon. My question's on the power supply and the chip, the new vertical power delivery. You've you've you've addressed it in in the call. When do you we expect to close on some licensing agreements with, you know, you mentioned auto, but what about AMD until, when do we expect to close on some some agreements in this area?
So there's no the action to AMD or intel regarding the licensing opportunities. As mentioned in prepared remarks, we're having discussions with 2 Asian companies. That have an interest in providing an alternate source for power and package solutions because it provides an opportunity to achieve greater vertical integration in their capabilities. Customers for these solutions involve, OEMs what themselves, users of, ASICs and CPUs and XPUs that may include the likes of MD or Intel, but in general include other types of devices.
And do you expect when do you could we get some of these licensing agreements you've been working on?
I'll be the midst to Comenac with respect to, the timing, it's, fair to say that we're holding discussions. These kinds of developments are inherently involved in many respects, and, they may take quite a bit of time. And that outcome is also uncertain. So, I believe that on the later, there's going to be at least one agreement, but I'm not going to predict the precise timing of that.
My follow on would be, Mike, monolithic power has made a lot of noise in the last 2 months about their 48 volt, they're beating you out in certain areas. Where do they fit in this equation, in this whole 48 volt landscape
Based on information available to us, they do not have a viable competitive alternative. And, I'm choosing my words carefully with respect to that for, for an alternative to be viable, it has to work. It has to have, level performance that does not send in the way of, application requirements. And it's got to be fee of any IP issues. And so what I can say at this point is that there is no viable alternative.
And the best reflection of that perhaps is dispensed that some of us had just within the last 10 days in a trip to the West Coast. This is with, you know, high customers. These are big names, the names you would think of. They're all relying on us for their natural ASIC solutions, with current requirements all the way up to 1000 amps. There is no viable competitive alternative.
And all these solutions are going to 48 volt. Because the alternatives, are again, not viable.
And one last point of clarification. Did the $5,000,000 that you didn't ship to, to the customers and that shipped in early July. Is, is that what you said?
Yes. The cost of my we had shipped the product. The country manufacturers did not take delivery, before the end of the quarter. They took delivery a few days after the end of the second quarter. So those products are now received and effectively shipped from us.
Thank you very much.
The next question is coming from the line of John Tanwanteng. Your line is open Please go ahead.
Good afternoon. Thank you for taking my questions. My first one is you mentioned, you expect Q3 to be up. Did you mean that sequentially? Or year over year and kind of what assumptions are you making about the Chinese trade relations with the U S for that to happen?
Is it stable or does it need to improve?
We're not expecting it to improve in the very near term. Certainly not in a way that would make a positive impact on third quarter performance. So with, with that as the working assumption for, opportunity in China in the near term, which is you know, at a very depressed level relative to, this time last year. With that as the baseline for China, were looking at a pretty appreciable revenue increase this quarter, in low double digits.
And to be clear sequentially.
Sequentially, yes.
Great. Thank you. And then, for my second question, what is, Well, you had some pretty optimistic, I guess, bubbles regarding GPUs and ASICs and data center and customer design wins in your annual meetings slide Page 18, if it's in front of you, heading into 2020, which one of those can you confirm as confirm design wins or which ones are aspirational or still in discussions. Any color on that would be helpful.
So I'm not going to mention specific names. Again, I'll point to the example of the recent visit to the West Coast. And, so without, again, naming names, I can say that one of those programs actually remarkably the most advanced one and the one with the most demanding current requirements. Will go in it's already in limited production with respect to 1st generation implementation, if you will, we're about to deliver a second generation implementation, which doubles the current capability for that customer. And that may go into production as early as the first half of twenty twenty.
At the other end of the spectrum, with respect to the customers we received last week, in the FPGA field, we're looking at programs that are not going into production till the 2021, 2022 timeframe. So that's more of a longer term opportunity, but a very substantial one. In the GPU space with other AI ASICs is somewhere in between those time frames. Some going into production early next year. Other ones later in 2020 or early 2021.
So there's a range of timelines depending on the specifics of the application. But, certainly, and keeping my eye on that ball, and it's a big one. That's where the action is going to be.
Okay. And if
I may, just a quick clarification on the sequential improvement. If you didn't have that $5,000,000 push out, would you have, still expect the Q3 to increase either sequentially year over year?
So I think without the family of the leadership in, in Q2 and ended up in effect it actually physically shipped in Q2, but was not received by the customer until early Q3. Without that, the increase in revenue in Q3 would be that much lower, but still there would be, an appreciable increase at this risk of saying the obvious, bookings is Jimmy's founder saying, said repeatedly in past conference calls are the precursor to revenues it's not a mystery that our book to bill has been disappointing over the last few quarters. I think what we can note is that, in the second half of last year and leading up to that, bookings had been very strong, the book to bill been very strong. We've built up a very substantial backlog. We've been working down that backlog to some degree.
We still have a very substantial backlog position, bookings are expected to start, stepping up again this quarter. And that will be a precursor to higher revenues and even higher bookings in the 4th quarter.
Great. Thank you very much.
The next question is coming from the line of Gus Richard. Please go ahead.
Yes, thanks for taking my question. Could you help characterize the revenue per socket that you get and on a unit basis, for instance, in AI ASIC, you're powering it 500 amps. What sort of, revenue per shift do you typically get? A range would be fine.
Yes. So for competitive reasons, I'm not going to quantify, what we usually characterize as cents per amp. I would say that in DI field, there's a broad range of requirements per system, up to one end of the spectrum, that was in other ways referencing earlier. Our value content just at the point of load in one of the systems is close to $10,000 per system. At the other end of the spectrum, it could be a few $100.
So, a very wide range of opportunity in terms of revenue, per trip or system depending on the specifics of the system, some of these systems are at the low end so to speak of the current requirement, which could be something like 400 amps for a primary output are at the other end of the spectrum. We have solutions that range to tens of thousands of amperes. And obviously, those are the ones that come out a bigger overall price tag.
Great. Thank you. That's very helpful. And then in terms of a licensing deal, can you just walk me through how you get paid, is it just a straight licensing fee and, royalty per sale, or how does the economics for you all work?
Well, it will be a function of the face of the license, we are aiming to achieve an early capability, which may involve Vico providing a part of the solution, the licensee providing the balance and So the opportunity in phase 1 is different from the opportunity in follow on phases, but generally speaking, we have a very substantial investment in the technology. As you know, we've invested at this point around $400,000,000, in the last 10, 15 years in developing a pilot portfolio or 100 patents and technology at this point is proven to be, without equal. And enabling technology that customers aiming to compete with each other in DI space in particular. And in other fields like autonomous driving and other areas need to have in order to realize their, capabilities. And, there's a big value associated with that and there's I think a big opportunity to expand the market and enjoy in partnership with a licensee or licensees a growing and very significant market opportunity.
We are not interested in, entering into licenses that don't provide direct hand opportunity for Viator and for the licensing.
Got it. Thank you.
The next question is coming from the line of John Dillon. Your line is open. Please go ahead.
Hi, Patricia. You mentioned a couple, I think it was last quarter that you're targeting a $100,000,000 bookings number for the fourth quarter. So I'm wondering, is that still on, or has that pushed out a quarter or 2? And if you could give us a little bit of color on that?
Yes. So given what's transpired in the last, several months, we've revised our target for the balance of the year down. We expect it to be in the low 80s for bookings in Q4. That's going to be obviously dependent on events as they unfold. Again, in the short term, we're looking at the China situation as not improving or improving quickly enough to have an impact on on the next couple of quarters, even though we could be pleasantly surprised on that front, this also there's been a significant slowdown caused by a variety of factors with some of our high volume data center applications, lack of availability of CPUs meeting certain requirements.
And other factors, transitions from one project rational to the next. So, those factors will relieve themselves, over the next quarter. And that's part of this protection for improvement starting this quarter and into Q4. We're just getting to the $100,000,000. Milestone with respect to bookings, is something that we expect is going to happen in at the point in 2020, offering in the first half of twenty twenty.
But, we need to take a bit of a wait and see out respect to that because obviously what has happened in the last several months has been in a couple of different ways with China and with some of the volume applications is also surprise. I mean, part of this is obviously market conditions, particularly with respect to the cloud computing in the center space. This is not a part of it, which I referenced in the past, which has had to do with the lack of a statistical foundation to our Advanced Products business base. In other words, dependency up to this point on a relatively small number of significant applications. With all the developments, the designing activity is going on, that is going to change as we get into 2020 beyond.
And at that point in time, it's going to become much easier to, in effect, predict the bookings going forward because we'll have, as we've had now for quite some time, a statistical business base as we do with our brick business. Obviously, the brick business at this point is passed speak and it's a very mature business. It's very live or very statistical. It doesn't offer growth opportunity. With Advanced Products, the tremendous growth opportunity, but the level of profitability we've had in recent quarters obviously needs to be dealt with and the way we're going to deal with it is by having a lot more customers and a lot more applications.
And the emerging field of AI, which is a great, match up for our unique technological capabilities, it will give us the customer base. And longer term, the automotive market will also give us a very significant base. We're making a great size on that front We've we've, we're far along with more than 1 customer with specific programs, specific solutions, specific building blocks like the NBM, and some of our high voltage, front end type of products. So, I think we need to be a little patient with respect to building a statistical base of advanced products, but once that happens, we're going to get both a very much more predictable business with significant growth coming from Advanced Products.
Great, great. Hi. My follow-up question is, you've mentioned before and you mentioned in this call how the revenues can follow the bookings and that sometimes can be two quarters. Well, if we take that out to the 4th quarter, that would indicate a $60 plus 1,000,000 revenue number for the 4th quarter, but I don't think that's what you forecasting. Can you give us a little more color on what you're expecting for the fourth quarter?
Are your demand in turns going to go up or are you going to be eating some of the backlog? And what is your target for the fourth quarter for the, for the revenue?
So as suggesting an answer to an earlier question, we're expecting a step up this quarter, in the low teens slightly above 10%, 10%, 15% in that ballpark. And we're expecting a further step up in Q4. A part of it is the backlog position we've had close to $100,000,000, which historically is very high for us.
Thank you. That's good. So it's 10% to 15% for the following to the next two quarters is what the expectation
I think for the present quarter, that's our current forecast.
I'll get back in the queue.
Your next question is coming from the line of Alan Hicks. Please go ahead.
Yeah, good afternoon. I was wanting to know about your order flow for supercomputing applications.
It's very strong. And let me be more specific with respect to that. We've had some bookings the imminent demand appears to be quite strong because of programs that have been in the works for quite some time. And the economies to fruition, including U. S.
Government type of programs and other initiatives The super compute space is one of the areas where we have unique enabling technology and where customers look to us and that's only really for, supporting their demanding needs. I would rank generally speaking, supercomputing, be behind. AI, which is going to be a huge market for us, that sets the space in general. Eventually automotive will be a very significant market, but we are very well aligned terms of technical capabilities to the requirements of supercomputers.
Will you expect the order flow to pick up in the next site for the 18 months in supercomputing?
Yes. I think we have a very significant programs with key customers whose name you recognize, that are going into production late this year, early next year. So we expect to see, bookings to begin to flow in earnest. We've had some bookings in Q1 with one of these programs, but there are a relatively small initial level larger increments will come later this year and in 2020.
The next question is coming from the line of John Dillon. Please go ahead.
Sorry, I wasn't expecting to get back on this quick. Okay. So, Patricia, I wonder if you can talk about the MBMs. I wonder if can talk about the MBMs and RFMs a little bit more. When will you start shipping in production on both those products?
We are shipping in production to a number of different applications. Going back to the other module opportunities, we recently started developing an opportunity that will use a large multiplicity of NPMs convert 48 to 12 volt within, next generation automobiles. So that's a very exciting program. With very large opportunities for the NVMe in particular. With RFMs, we have the the power tablet, which you can see on our website, as I might have mentioned in the past, that's reflective of our 2G or 2nd generation control system.
We're actually now powering up a 4G much more advanced implementation that will turn the power tablet into sampling akin to a phone in terms of size, a much smaller device, much lighter. More efficient, lower cost in terms of sets per watt, higher efficiency, more scalable We expected that the 4th generation control system, with its PFC control chip and more advanced powertrain implementation will open up huge opportunities for us in in front ends, particularly 3 phase front ends for 48 volt systems. Again, into the center space in supercomputing, and potentially in the automotive market as well.
On the RFMs on the iPhone size product, you've mentioned before that there might be one customer that could actually take basically all your capacity. I'm wondering if you visited this customer recently and if there's any update on that at all?
Yes. So I think we're quoting, in fact, one of these customers, we're quoting high volume, for the power tablet, the existing RFM, We're also quoting, the, so called 9270, which is 922 millimeter by 17 millimeter for generation device with 5, 6 kilowatt capability. That's the iPhone size, so to speak. I think with respect to volume production of these RFM solutions, we're still quite a distance away. They require, in effect, some architectural adaptation to take for advantage of their capabilities But we are making progress with smaller accounts and, in early implementations, particularly with existing power tablet, again, relying on an older generation control system, but still very advanced relative to anything else in the marketplace.
In terms of achieving power density or several times more events than anything else out there. So those are the lower volume opportunities, some relate to cryptocurrency type of opportunities, which, I'm not sure we can take to the bank, but bid SMA, we see a lot of opportunities John speaking for RFMs, particularly as we start sampling customers on the 4th generation devices that leverage more advanced control and powertrain implementation. And the advanced packaging that we have with our SM chip packages. And
the follow-up on that is with the new products, all the new products really, how many total new customers do you have? I mean, we've talked a lot about the big customers, but What about the total number of new customers? Are you growing your customer base and are you getting your statistical base up and customers in the 10 to $20,000 order type things?
So we frankly have more opportunities then we can, support. So we're being selective. We've recently issue the practice of requiring, Nordic Care Engineering to support engagements with many of these customers. Because of the fact that we want the customers to have skin in the game. And they're willing to do that because of what our products and solutions can do for their system.
And that's a way to in effect, ensure that the solutions that we're investing in enabling have a good likelihood of turning into significant volumes. So we have no shortage of opportunities to the contrary. We have far more opportunities, then we can properly support with our current infrastructure. And making good progress in terms of leveraging scalability with the solutions we have. Are very focused on the issue of scalability in both application engineering of the architecting of the solution so that, customers can be far too long do more of, the application development on their own with our tools without this much taking a support, which is at the end of the day, not all the scalability itself, right?
So, there's a lot of focus on, scaling up our capabilities by way of in having customers to, go very far in terms of implementing their own solutions using our modular building blocks.
Thank you very much.
You're welcome. If there's another question,
Yes. The next question is coming from the line of John Cooper. Please proceed.
This is a very pedestrian question, but, the old established company, Texas Instruments, huge company, a few days ago reports beats expectations for guidance. Same thing tonight, Intel beats expectations, yet Vicor doesn't why the disconnect? What why do you why do you see, you know, they're they're subject to some of the same issues you are?
So I think both of those companies have a very large and statistical based on customers and applications.
Correct. Yes.
We don't. So, as suggested in an earlier question, when it comes to our advanced products, the roosterocustomers and applications thus far has been relatively small. And if those customers have unique issues at any point in time. And we've had that happen in the last 6 months that sending the way of their scaling up the data centers or at least doing it with, you know, CPUs that are available and meet the requirements then we, we catch a cold with respect to that being a significant to us whereas with Texas Instrument or Intel, the exposure because of the base that is basis business. Now imagine, both Texas Instruments and Intel may have seen the effect of the Chinese trade situation.
But, perhaps not to the extent or close to the extent that we've seen it.
Thank you very much. The next question is coming the line of John Tanwant.
Just a quick follow-up on the orders that were pushed out into Q3. What would have earnings or margins look like if that had made it into the quarter? Number 1, and a couple of housekeeping questions after that.
So if the family owned debt shipped but was not received had been received and it had been part of the Q2 revenue. Obviously, the revenue would have been higher by that amount. And if you apply the margins with some increment associated with those incremental revenues, that margin would have largely dropped to the bottom line pretax given that the operating expenses would have been the same. So the math is pretty simple.
Okay, fair enough. And then just you mentioned, you've been doing a lot of work to consolidate the results. And the operations. Can we still expect a breakout of, the break at advanced operating metrics in your queues? Will you be about that in future calls?
Or
Yes, absolutely. Yes, because that's the fundamental, the Mccashional line within, within our business, our strategy, obviously, the bricks represent the past, the Advanced products represent the future. In through many years of fundamental technological development, we had pipe coating via chip as a separate entities for good purpose in terms of August the R and D in the perspective core competencies to contribute the broad IP portfolio and product capability that we developed. But within the last couple of years, it became evident that in terms of providing a path to liquidity for the option holders in both PAGR and VHF and in terms of our operational efficiency as a company, it would make sense to consolidate and that's what we've done. And starting with Tiger last year and within the last few months with VHF.
So at this point, I think it's appropriate to say that we have, all of our key employees aligned in their individual interests with the company's interest to deliver the goods grow the revenues, grow the bottom line and make happy shareholders.
Okay, great. And then just could you break out the depreciation and amortization in the quarter so that we can calculate EBITDA?
So I'll turn that over to Jamie. He was basically looking through the stack of paper.
Depreciation was $2,600,000 for the quarter.
The next question is coming from the line of Gus Richard Please go ahead.
Yes, thanks for taking the follow on. Just quickly, when you ramp your new advanced products like the vertical power Are there any impacts to gross margins in terms of early ramp and then Can you just talk about the relative margins of, Brick versus Advanced Products?
The impact of ramping new products, is, generally speaking, is the first a positive impact because we still have a a model that in effect suffers from a substantial amount of fixed costs, particularly when it comes to the infrastructure to support advanced products. The scale is not yet large enough to come close absorbing the fixed costs that we have in supporting advanced products. So in general, scaling up advanced products will result in improved margins and improve bottom line. Having said that, as with all new products, yields do not immediately get to the high 90s, it takes usually a few months of volume production. So at the very beginning, of the scale app of a new product, there could be some inefficiencies but that works itself out relatively quickly in our experience.
And the dominant effect is utilizing a greater share of our total capacity is a good thing. For the gross margins and for the ball 1. You're welcome. If there's one more question before we close this call,
Yes. The last question is coming from the line of Alan Hicks. Please proceed.
Yes. Could you talk a little bit about the You said, like, Constellation business. Is that that new for you? I know you're in military Aerospace for a long time, but are these commercial applications brand new? And do you expect to get a high percentage of that business?
Yes. So we're going to start shipping solutions into in our space applications in the fourth quarter of this year. This is expected to be high margin business. We won an initial program. We are now looking for other opportunities in that general space is your question suggests the satellite market is undergoing some fundamental changes relating to scale up or capabilities with a much larger quantity of devices or different sizes and different orbits.
With different requirements going up in space in years to come, to support global internet and other capabilities. Products because of their attributes, particularly high power density, high efficiency, very low noise, Once again, well suited for the application requirements of satellite electronics, particularly where very low noise is a distinguishing attribute. And that's an area that we've made some significant investment in preparing for and tooling, and we look over the next several years to having a significant contribution from, to be clear, the opportunity up there maybe in the tens of 1,000,000 of dollars per year over time, not on the scale of, the center space by far AI by far or the automotive space in particular by far. But it fits in the mix because with our packaging technology, our engines, our control systems, we have an and there is a way to pursue this satellite constellation opportunities with the forward states required to properly support them without distracting from the much higher volume opportunities in commercial markets. And they have some good distinguishing attributes in terms of, in particular, high margin.
So it's part of the mix, not what will make Viger, the much larger company was part to be. And with that, Thank you. And we'll be talking to you in 3 months. Have a good day.
Ladies and gentlemen, that concludes your conference call for today. You may now disconnect. Thank you for joining. Enjoy the rest of your day.