Good day, welcome everyone to the Vicor earnings results for the second quarter and the June the 30th, 2019 conference call hosted by Dr. Patrizio Vinciarelli and James Simms. My name is Matt, and I am your event manager. During the presentation, your lines will remain on listen only. If you require assistance at any time, please key star zero on your telephone and the coordinator will be happy to assist you. I'd like to advise all parties this conference is being recorded for replay purposes. With that, I'd 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 second quarter ended June 30th, 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 three-month period ended June 30th. This press release has been posted on the investor relations page of our website, vicorpower.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 Vicor Corporation. I also remind you various remarks we make during this call may constitute forward-looking statements for purposes of the safe harbor provisions under the Private Securities Litigation Reform Act of 1995.
Except for historical information contained in this call, the matters discussed on this call, including 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 2018 Form 10-K, which we filed with the SEC on February 28th, 2019. Please note the information provided during this conference call is accurate only as of today, Thursday, July 25th, 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 9th. The replay dial-in number is 888-286-8010, followed by the passcode 91303034. 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 Patrizio will follow with his remarks, after which we will take your questions. In the interest of time, in providing everyone who wants to ask a question an 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 return to the queue.
Beginning with consolidated results, as stated in today's press release, Vicor recorded total revenue for the first quarter, excuse me, second quarter of $63.4 million, representing a 3.6% sequential decline from our first quarter revenue of $65.7 million, and a 14.6% decline from the second quarter 2018 revenue of $74.2 million. Q2 2019 revenue was expected to have represented a sequentially improved quarter, late in the period, we had to reschedule over $5 million of advanced product shipments to major contract manufacturers serving our OEM customers. Near-term visibility, whether for advanced products in the data center or brick products in China, remains clouded. Patrizio will comment on this further in his remarks. Reflecting these circumstances, advanced products revenue for Q2 2019 declined 19.5% sequentially and was approximately 40% lower than the level recorded for the second quarter of 2018.
In contrast, Q2 2019 brick product revenue increased 3% sequentially and was essentially unchanged in comparison to the total for the second quarter of 2018. Turns volumes were not a meaningful contributor to quarterly revenue. For the second quarter, the brick 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% sequentially, reflecting the decline in advanced products shipped to offshore contract manufacturers and slowed activity in Japan. International revenue fell to 51% 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. We are expecting this program to be functioning shortly with some degree of tariff rebate occurring before year-end. Quarterly operating expenses were flat sequentially and approximately 2% lower than Q2 2018 expenses, 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 $2.4 million or 3.8% of revenue, in contrast to the prior quarter's $4.5 million, representing an operating margin of 6.8%. In Q2 2018, operating income was $8.3 million, 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 $2.6 million for the second quarter, representing a diluted EPS of $0.06.
This is in contrast to Q1 2019 income of $4.3 million, which represented diluted EPS of $0.10. For Q2 2018, we recorded net income of $7.9 million in diluted EPS of $0.19. 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 29.3 million registered common shares and diluted stock options and approximately 11.8 million Class B common shares, which are neither registered nor listed. Turning to our balance sheet, cash and cash equivalents sequentially rose to $71.5 million, largely due to a pause in capital expenditures, which totaled just $2.5 million for the quarter. I will return to capital spending and capacity in a moment. Trade receivables, net of reserves, totaled $38.3 million at quarter end, sequentially down 6%, with DSOs steady at 46 days and all balances current.
Inventories, net of reserves, increased roughly 6% sequentially to $54.6 million, reflecting higher finished goods inventories associated with the delayed shipments. Our raw materials balance actually declined another 4% sequentially, and WIP declined 7%. Annualized inventory turns fell to just under three 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 metrics have improved from quarter end. Concluding my review of the second quarter, total employee headcount as of June 30th stood at 1,019, down from 1,022 for the prior quarter. Full-time headcount was 987 at the end of Q2, up from 985 for Q1, while part-time and temporary headcount declined five, reflecting slowed production activity. I'll now speak to our capacity expansion.
We have the approvals to proceed with an approximately 90,000 sq ft addition to our Andover facility and have secured a six-year tax abatement, which was a factor in deciding to expand our existing facility in Andover 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 $1.5 million, and the acquired land, some of it already paved for parking, will allow us to expedite meeting our parking needs for the building addition. We plan to take occupancy in 2020, and as stated before, anticipate internally funding both the construction and the planned two phases of equipment installation.
I also want to highlight we have completed our transition to a one-business segment structure, which will be reflected in our second quarter 10-Q, expected to be ready for filing next week. In recent years, we have consolidated and simplified our operations and organizational structure, transitioning to one integrated business with two product categories, advanced products and brick products. Over the last 12 months, we have merged our two operating subsidiaries, Picor and VI Chip, into the parent, consolidating numerous organizations and functions and integrating separate ERP and financial reporting activities into one. 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 28th, 2019, Vicor assumed the VI Chip subsidiary-level stock option plan and all outstanding options thereunder.
In the not-too-distant future, we expect to file a Form S-8 with the SEC registering the approximately 1.5 million 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 the options to which these shares are available are fully vested, the terms of the assumed option plan call for the shares to be subject to multi-year transfer restrictions, limiting the volume of shares that can be sold in any single year. Turning to the third quarter, we remain positive about our near-term prospects but are cautious regarding the timing of the anticipated recovery in data center spending and the negative influence of tariffs and trade disputes on our business in China. We are forecasting revenue growth for Q3 with profitability improvement based on higher volumes.
Operating cash flow should remain stable, but we do expect to start writing some sizable checks for land and construction. With that, I'll turn the call over to Patrizio.
Thank you, Jamie. As stated in today's press release, we're winning every demanding artificial intelligence ASIC application with lateral or vertical power and package solutions. However, our visibility into data center spending remains clouded, and our bookings and revenues have been affected by the trade dispute with China. We're working to mitigate these issues and remedy the impact of tariffs on growth and profitability. Bookings for the second quarter totaled $60.2 million, representing a 10% sequential decline. New orders from Chinese contract manufacturers declined significantly, primarily for data center and AI customers' programs, some of which are being relocated out of China. Bookings for distributors were reasonably steady 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 accelerators, 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 a volatile world, while a feverish 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 previously disclosed being approached by parties interested in licensing our proprietary technologies to expand the served addressable market for our products while providing second 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 emerging transition to 48 volt for data centers, supercomputing, 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 brick products and a resumption of demand for advanced products from an expanding list of AI applications for which there is no viable competitive alternative.
I refer you to Philip Davies' presentation at the recent Annual 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 our strategy. Let's now open the call. As stated, we ask that you limit yourself to one question and a related follow-up question. Operator?
Ladies and gentlemen, if you wish to ask a question, please key star, then one on your telephone. If you then decide to withdraw your question, simply key star two. Please note that only one question and one follow-up question will be addressed. Thank you. The first question is coming from the line of John Gruber. Your line is open. Please proceed.
Good afternoon. My question's on the power supply and the chip, the new vertical power delivery. You addressed it in the call. When do we expect to close on some licensing agreements with, you mentioned auto, but what about AMD, Intel? When do we expect to close on some agreements in this area?
There is no direct connection to AMD or Intel regarding the licensing opportunities. As mentioned in prepared remarks, we're having discussions with two 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, who are themselves users of ASICs and CPUs and XPUs that may include the likes of AMD or Intel, but in general include other types of devices.
Do you expect, when could we get some of these licensing agreements you've been working on?
I'd be remiss to stick out my neck 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 their outcome is also uncertain. I believe that sooner or later, there's going to be at least one agreement, but I'm not going to predict the precise timing of that.
Thank you. My follow-on would be, Monolithic Power has made a lot of noise in the last two months about their 48 volt. They're beating you out in certain areas. Where do they fit into the equation, in this whole 48 volt landscape?
Based on information available to us, they do not have a viable competitive alternative. I'm choosing my words carefully with respect to that. For an alternative to be viable, it has to work, it has to have a level of performance that does not stand in the way of application requirements, and it's got to be free of any IP issues. What I can say at this point is that there is no viable alternative. The best reflection of that, perhaps, is the experience that some of us had just within the last 10 days in a trip to the West Coast. We visited with high customers. These are big names, the names you would think of. They're all relying on us for their next-generation ASIC solutions with current requirements all the way up to 1,000 amps. There is no viable competitive alternative.
All these solutions are going to 48 volt because the alternatives are, again, not viable.
One last point of clarification. Did the $5 million you didn't ship to the customer, and that shipped in early July, is that what you said?
The contract manufacturer, we had shipped the product. The contract manufacturers did not take delivery before the end of the quarter. They took delivery a few days after the end of the second quarter. Those products are now received and effectively shipped from us.
Thank you very much.
The next question is coming from the line of Jon 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? 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. With that as the working assumption for opportunity in China in the near term, which is at a very depressed level relative to this time last year. With that as the baseline for China, we're looking at a pretty appreciable revenue increase this quarter, in low double digits.
To be clear, sequentially.
Sequentially, yeah.
Great. Thank you. For my second question, you had some pretty optimistic, I guess, bubbles, regarding GPUs and ASICs and data center, and customer design wins in your annual meeting slide, page 18, if it's in front of you. Heading into 2020, which one of those can you confirm design wins or which ones are aspirational or still in discussions? Any color on that will be helpful.
I'm not going to mention specific names. Again, I'll point to the example of the recent visit to the West Coast. 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, it's already in limited production with respect to a first-generation implementation, if you will. We're about to deliver a second-generation implementation, which doubles the current capability for that customer. That may go into production as early as the first half of 2020. At the other end of the spectrum, with respect to the customers we visited last week, in the FPGA field, we're looking at programs that are not going into production until the 2021, 2022 timeframe. That's more of a longer-term opportunity, but a very substantial one.
In the GPU space, with other AI ASICs, it's somewhere in between those timeframes. Some going into production early next year, other ones later in 2020 or early 2021. There's a range of timelines depending on the specifics of the application. Certainly, I'm keeping my eye on that ball, and it's a big one. That's where the action is going to be.
Okay. If I may, just a quick clarification on the sequential improvement. If you didn't have that $5 million pushout, would you have still expected Q3 to increase either sequentially or year-over-year?
I think without the $5 million that didn't ship 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. Still, there would be an appreciable increase. This risk of saying the obvious, bookings, as [Jamie has often 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, leading up to that, bookings had been very strong. The book-to-bill had been very strong. We had 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 fourth quarter.
Great. Thank you very much.
You're welcome.
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 in on a unit basis? For instance, an AI ASIC, you're powering it at 500 amps. What sort of revenue per chip do you typically get? A range would be fine.
So for competitive reasons, I'm not going to quantify what we usually characterize as cents-per-amp . I would say that in the AI field, there's a broad range of requirements per system. Up to one end of the spectrum, that I 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 hundred dollars. There's a very wide range of opportunity in terms of revenue per chip 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.
At the other end of the spectrum, we have solutions that range to tens of thousands of amperes. Obviously those are the ones that command a bigger overall price tag.
Great. Thank you. That's very helpful. In terms of a licensing deal, can you just walk me through how you get paid? Is it just a straight licensing fee and a royalty per sale, or how does the economics for you all work?
Well, it will be a function of the phase of the license. We are aiming to achieve an early capability, which may involve Vicor providing a part of the solution, the licensee providing the balance. The opportunity in phase one is different from the opportunity in follow-on phases. Generally speaking, we have a very substantial investment in the technology. As you know, we've invested, at this point, around $400 million in the last 10, 15 years in developing a patent portfolio of over 100 patents. Technology, at this point, is proven to be without equal, and enabling technology that customers aiming to compete with each other in the AI space in particular, and in other fields like autonomous driving and other areas, need to have in order to realize their capabilities.
There's a big value associated with that, and there is, 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 licensees that don't provide the right kind of opportunity for Vicor and for the licensee.
Got it. Thank you.
The question is coming from the line of John Dillon. Your line is open. Please go ahead.
Hi, Patrizio. You mentioned a couple, I think it was last quarter, that you're targeting $100 million bookings number for the fourth quarter. I'm wondering, is that still on or has that pushed out a quarter or two? If you could give us a little bit of color on that?
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 the next couple of quarters, even though we could be pleasantly surprised on that front. 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 generation to the next. Those factors will relieve themselves over the next quarter, and that's part of this potential for improvement, starting this quarter and into Q4.
My follow-up question.
Getting to the $100 million milestone with respect to bookings, is something that we expect is going to happen at this point in 2020 or in the first half of 2020. We need to take a bit of a wait and see attitude with 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 a surprise. Part of this is obviously market conditions, particularly with respect to the cloud computing data center space. There's another 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 developers, the designing activity that is going on, that is going to change as we get into 2020 and beyond. 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 past its peak, and it's a very mature business. It's very reliable, very statistical, doesn't offer growth opportunity. With advanced products, there's tremendous growth opportunity, but the level of predictability 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.
The emerging field of AI, which is a great match up for our unique technological capabilities, will give us the customer base. In longer term, the automotive market will also give us a very significant base. We're making great strides on that front. We're far along with more than one customer with specific programs, specific solutions, specific building blocks like the NBM, and some of our high voltage front-end type of products. I think we need to be a little patient with respect to building a statistical base of advanced products. Once that happens, we're going to get both a much more predictable business with significant growth coming from advanced products.
Great. My follow-up question is, you've mentioned before, and you mentioned in this call how the revenue is going to follow the bookings, and that sometimes can be two quarters. If we take that out to the fourth quarter, that would indicate a $60-plus million revenue number for the fourth quarter. I don't think that's what you're 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? What is your target for the fourth quarter for the revenue?
As Justin answered an earlier question, we're expecting a step up this quarter in the low teens, slightly above 10%, 10%-15% in that ballpark. We're expecting a further step up in Q4. A part of it is the backlog position we've had, close to $100 million, which historically is very high for us.
Thank you. That's good. It's 10% to 15% for the next two quarters is what the expectations are?
I think for the present quarter, that's our current forecast.
Okay, thank you. I'll get back in the queue.
The 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. Let me be more specific with respect to that. We've had some bookings. The immediate demand appears to be quite strong because of programs that have been in the works for quite some time, and are coming to fruition, including U.S. government type of programs, and other initiatives. The supercomputer space is one of the areas where we have unique enabling technology and where customers look to us, and us only, really, for supporting their demanding needs. I would rank, generally speaking, supercomputing behind AI, which is going to be a huge market for us, the data center space in general. Eventually, automotive will be a very significant market, but we are very well-aligned in terms of technical capabilities to the requirements of supercomputers.
Do you expect the order flow to pick up in the next, say, 12-18 months in supercomputing?
Yes. I think we have very significant programs with key customers whose name you recognize, that are going into production late this year, early next year. We expect to see bookings to begin to flow in earnest. We've had some bookings in Q1 with one of these programs, but at a relatively small initial level. Larger increments will come later this year and in 2020.
Okay. Thank you very much.
You're welcome.
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.
You must be dancing.
Okay. Patrizio, I wonder if you can talk about the NBMs. Get you off the speakerphone here. I wonder if you can talk about the NBMs and RFMs a little bit more. When will you start shipping and production on both those products?
We are shipping in production to a number of different applications. Going back to the automotive opportunities, we recently have started developing an opportunity that will use a large multiplicity of NBMs to convert 48 to 12 volt within next-generation automobiles. That's a very exciting program with very large opportunities for the NBM in particular. With RFMs, we have 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 second-generation control system. We're actually now powering up a 4G, a much more advanced implementation that will turn the Power Tablet into something akin to a phone in terms of size. A much smaller device, much lighter, more efficient, lower cost in terms of cents-per-watt , high efficiency, more scalable.
We expect that the fourth-generation control system with its PFC control chip and more advanced power train implementation will open up huge opportunities for us in front ends, particularly three-phase front ends for 48-volt systems. Again, in the data 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.
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 92 millimeter by 70 millimeter fourth-generation device with five, six 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. The passion to take full advantage of their capabilities. We are making progress with smaller accounts and in early implementations, particularly with the 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 several times more advanced than anything else out there. Those are the lower volume opportunities.
Some relate to cryptocurrency type of opportunities, which I'm not sure we can take to the bank. Be that as it may, we see a lot of opportunities, generally speaking, for RFMs, particularly as we start sampling customers on the fourth-generation devices that leverage more advanced control and powertrain implementation, and the advanced packaging that we have with our SM-ChiP packages.
The follow-up on that is with the new products, all the new products, really, how many total new customers do you have? 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 $10,000 to $20,000 order type things?
We frankly have more opportunities than we can support. We're being selective. We've recently instituted a practice of requiring no recurring 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. 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. We have no shortage of opportunities.
To the contrary, we have far more opportunities than we can properly support with our current infrastructure and making good progress in terms of leveraging scalability with the solutions we have, very focused on the issue of scalability in both application engineering, the architecting of the solution, so that customers can, before too long, do more of the application development on their own with our tools without as much technical support, which is, at the end of the day, not all the scalability itself, right? There's a lot of focus on scaling up our capabilities by way of enabling customers to go very far in terms of implementing their own solutions using our modular building blocks.
Okay, 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? Why do you see they're subject to some of the same issues you are?
I think both of those companies have a very large and statistical base of customers and applications.
Correct.
We don't. As suggested in answer to an earlier question, when it comes to our advanced products, the roster of customers and applications thus far has been relatively small. If those customers have unique issues at any point in time, and we've had that happen in the last six months, that stand in the way of their scaling up their centers or at least doing it with CPUs that are available and meet the requirements, then we catch a cold with respect to- that being a significant issue to us, whereas with Texas Instruments or Intel, there isn't the exposure because of the very statistical base of business.
Thank you.
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.
You're welcome.
The next question is coming from the line of Jon Tanwanteng. Thank you. Please go ahead.
Hi, just a quick follow-up on the orders that were pushed out into Q3. What would earnings or margins look like if that had made it into the quarter? Number one. A couple of housekeeping questions after that.
If the $5 million that shipped but was not received, had been received and 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 largely drop to the bottom line pre-tax, given that the operating expenses would have been the same. The math is pretty simple.
Okay, fair enough. 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 brick and advanced operating metrics in your 10-Qs? Will you be talking about that in future calls?
Yeah, absolutely. Yeah. That's the fundamental demarcation line within our business, our strategy. Obviously, the bricks represent the past, the advanced products represent the future. Through many years of fundamental technological development, we had Picor and VI Chip as separate entities for good purpose in terms of focus the R&D in the respective core competencies to contribute the broad IP portfolio and product capability that we developed. Within the last couple of years, it became evident that in terms of providing a path to liquidity for the option holders in both Picor and VI Chip, and in terms of our operational efficiency as a company, it would make sense to consolidate, and that's what we've done. Starting with Picor last year and within the last few months with VI Chip.
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 their revenues, grow the bottom line, and make happy shareholders.
Okay, great. Just could you break out the depreciation and amortization in the quarter so that we can calculate EBITDA?
I'll turn that over to James, who's basically looking through a stack of paper.
We had just closed my notebook. Depreciation was $2.6 for the quarter.
Great. Thank you so much.
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? Can you just talk about the relative margins of brick versus advanced products?
The impact of ramping new products is, generally speaking, as a first order impact, a positive impact because we still have a model that, in effect, suffers from a substantial amount of fixed costs, particularly when it comes to the infrastructure to support advanced products. Their scale is not yet large enough to come close absorbing the fixed costs that we have in supporting advanced products. In general, scaling up advanced products will result in improved margins and improved bottom line. Having said that, as with all new products, yields do not immediately get to the high nineties. It takes usually a few months of volume production. At the very beginning of the scale-up of a new product, there could be some inefficiencies, but that works itself out relatively quickly in our experience.
The dominant effect is utilizing a greater share of our total capacity is a good thing for the gross margins and for the bottom line.
Got it. Thanks so much.
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.
Yeah. Could you talk a little bit about the satellite constellation business? Is that new for you? I know you were in military aerospace for a long time, but are these commercial applications brand new? Do you expect to get a high percentage of that business?
Yeah. We're going to start shipping solutions in aerospace applications in the fourth quarter of this year. This is expected to be high-margin business. We won initial program. We are now looking for other opportunities in that general space, as your question suggests. The satellite market is undergoing some fundamental changes relating to scale-up or capabilities with a much larger quantity of devices of different sizes and different orbits, with different requirements going up in space in years to come, to support global internet and other capabilities. Our products, because of their attributes, particularly high power density, high efficiency, very low noise, are once again well-suited for the application requirements of satellite electronics, particularly where very low noise is a distinguishing attribute.
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 may be in the tens of millions of dollars per year over time, not on the scale of the data center space by far, AI by far, or the automotive space in particular, by far. It fits in the mix, because with our packaging technology, our engines, our control systems, we have an opportunity to share a lot of capabilities. There is a way to pursue these satellite constellations opportunities with the focus that is required to properly support them without detracting from the much higher volume opportunities in commercial markets. They have some good distinguishing attributes in terms of, in particular, high margins.
It's part of the mix, not what will make Vicor the much larger company we aspire to be. With that, thank you, and we'll be talking to you in three 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.