Vicor Corporation (VICR) Earnings Call Transcript & Summary

Hello, and welcome to the Vicor Corporation Annual Stockholders' Meeting. Please note, today's meeting is being recorded. Also note, all parties will be in a listen only mode for the entirety of the meeting. During the meeting, we'll have 2 question-and-answer sessions, 1 after the formal business meeting and a second at the conclusion of management's presentation. Stockholders who have earlier registered with Computershare may ask questions at any time during the meeting by clicking on the Q&A tab shown on the screen. Management reserves the right to consolidate certain questions in its sole discretion, if the questions cover similar or overlapping topics. Management also reserves the right to not respond to questions it considers also in its sole discretion, inappropriate for the purposes of Annual Stockholders Meeting. It is now my pleasure to turn today's meeting over to James F. Schmidt, Chief Financial Officer of Vicor Corporation. Mr. Schmidt, the floor is yours.

Thank you. Good morning. The Board of Directors of Vicor Corporation welcome you to the 2022 Annual Shareholders Meeting. This year's meeting is being conducted over the Internet as a webcast of our presentation material accompanied by an audio feed. There is no live video feed. I'm Jim Schmidt, Chief Financial Officer, Secretary and Treasurer of Vicor. As provided for under Article 1, Section 8 of the corporation's bylaws, I will serve as Chairman of this meeting as well as recording secretary. Proxy materials and invitations to attend today's meeting in person were mailed to stockholders of record as of April 29, 2022. Those proxy materials disclosed this meeting would be held in virtual format only. As set forth in the proxy materials, a stockholder, whether a direct holder of record or a beneficial holder through his or her broker, who intended to vote his or her shares change a previously submitted vote, review the stockholder list and/or ask questions should have followed the instructions therein to register for full access to the meeting via the Internet. Any stockholder proposals to be considered at this meeting should have been submitted earlier following the procedures set forth in our bylaws. At this time, I have not received any such proposal. We will be providing 2 opportunities for Q&A. The first opportunity will occur at the conclusion of the formal business meeting. Questions at that time should be limited to addressing topics related to the formal business purpose of the meeting. The second opportunity will occur at the conclusion of management's presentations. As the operator stated, submissions of questions by registered stockholders may be made by clicking on the Message icon on your screen. Registered stockholders will be asked to identify themselves when submitting a question, and I will identify the stockholder when reading the questions received so that my colleagues may answer the question. On the screen before you, all participants will see hyperlinks to our proxy materials and annual report on Form 10-K. On the screen is a comprehensive safe harbor statement comparable to the language we include in our other public statements regarding the company's financial or operational performance, such as our filings, press releases and our quarterly earnings calls. I will not recite the full text, but I remind you various remarks we make -- may make today may constitute forward-looking statements for purposes of the safe harbor provisions under the Private Securities Litigation Reform Act of 1995. Also note, as shown on the screen, Vicor is in its quiet period for the second quarter of 2022. And as such, we will not comment on specific elements of financial or operational performance for the second quarter or any forward period. Second quarter performance will be addressed during our upcoming earnings call, which we anticipate will be taking place on Thursday, July 21. On the screen is the agenda for today's webcast. As shown, we'll conduct a formal business meeting reviewing the 1 proposal before stockholders. After we take care of formal business, Phil Davies will provide an overview on the company's growth strategy, followed by Mike McNamara, Head of Operations, who will briefly comment on the expansion of our Andover manufacturing facility. Finally, I will review our long-term financial model. After that, management will take your questions regarding the company's business and products. Again, we cannot answer questions regarding our financial or operational performance for the second quarter of 2022. As this has been the case in the past, we'll be posting the audio portion of today's meeting on the Investor Relations page of our website. The slides also will be posted separately on that page. I'll now introduce the 10 members of the corporation's Board of Directors and 2 nominees. Our independent directors are, in alphabetical order, Sam Anderson, CEO of IceMOS Technology Limited, a supplier of high-quality fixed film bonded silicon on insulator wafers based in Belfast, Northern Ireland. Sam is the former CEO of Great Wall Semiconductor Inc, an important component supplier to Vicor in which we held an investment in nonvoting convertible preferred stock. Great Wall was acquired in September 2015 by Intersil Corporation. Michael Ansour, as managing partner of March Partners Limited, an event-driven investment firm based in New York, New York. Michael was also a Director of The Hertz Foundation, a nonprofit organization that awards fellowships to PhD students in the applied physical, biological and engineering sciences, for which he also serves as Chairman of the Foundation's Investment Committee. Michael previously served on Vicor's Board of Directors from 1993 to 2007. Jason Carlson, former CEO of congatec AG, headquartered in Deggendorf, Germany from 2015 to 2021. Congatec is a leader in the industrial embedded computing field. He is the former President of Semtech Corporation, a leader in analog and mixed-signal semiconductors as well as holding other positions of leadership in the electronics industry. Jason chairs both our Audit Committee and Compensation Committee. Estia Eichten is an original investor in the company and has been since 1989, a senior scientist in Fermi National Accelerator Laboratory in Batavia, Illinois, outside of Chicago, which he joined in 1981, the same year he joined our Board. Based on the assumed results of the shareholder vote to occur at this meeting, our inside directors for the forward term will be Phil Davies, who has served as our Corporate Vice President, Global Sales and Marketing since February 2011. He was appointed to the Board in 2019. Mike McNamara, who has served as our Corporate Vice President, General Manager, Operations since 2015. He also was appointed to the Board in 2019. Claudio Tuozzolo, who has been with Vicor since 2001, serves in a leadership role spanning R&D and sales and marketing. Claudio has been a Director since 2007. Patrizio Vinciarelli, Chairman of the Board, President and CEO, who founded the company in 1981. And myself, I joined Vicor in June of 2021 as Chief Financial Officer, Secretary and Treasurer, and was appointed as a Director of the meeting of the Board of Directors immediately following last year's annual meeting. Andrew D'Amico has been in the role of General Counsel for intellectual property matters for Vicor since 2006. Prior to his engagement with Vicor, Andrew had 18 years of private practice experience in the field of patent law, including patent litigation, patent licensing and patent prosecution as well as counseling and diverse technological areas well with Fish & Richardson P.C. Zmira Lavie has been a Partner of M&T Semiconductor, a consulting firm serving professionals and organizations throughout the semiconductor ecosystem since January 2020. Previously, Ms. Lavie was with Tower Semiconductor, a manufacturer of integrated circuits using specialty process technologies from 1988 to 2019. Zmira has over 30 years of experience within the semiconductor industry, including leading diverse business initiatives, R&D, complex projects and processes development. John Shen has been a Professor and Director at the School of Mechatronic Systems Engineering of Simon Fraser University in British Columbia, Canada, since January 2022. Previously, John had been the Grainger Endowed Chair Professor of the Illinois Institute of Technology from January 2013 to December 2021. John has 32 years of academic, industrial and entrepreneurial experience in power electronics, power semiconductor devices, renewable energy systems, microgrids, transportation electrification, sensors and actuators. With us here in Andover is Stephen Briggs, a partner from KPMG LLP, our independent registered public accounting firm. We're also joined today by our outside counsel, Gabor Garai, who chairs Foley & Lardner's private equity and venture capital practice among other responsibilities with the firm. Also attending by telephone is Harold Murphy, representing Computershare Trust Company, the corporation's transfer agent. Harold has been appointed to act as inspector of election, also known as the teller for the formal business portion of the meeting. Thanks to everyone for attending. Turning to the formal portion of the agenda. I now call the 2022 Annual Meeting of Stockholders to order. On the screen is the agenda for the official business portion of today's meeting. As stated, proxy materials and an invitation to the meeting were sent to all stockholders recorded as of the close of business on April 29, 2022, the record date. Only stockholders of record on that date are entitled to vote at this meeting, either by proxy or by in-person ballot, subject to the registration process discussed earlier. The affidavit of mailing the notice of meeting has been delivered by the teller to me and will be filed with the minutes and records of today's meeting. Our proxy statement was filed with the SEC on April 29, 2022, and mailed to stockholders shortly thereafter that sets forth the proposal for 1 stockholder vote here today. The Board recommends stockholders vote in favor of the proposal. While Rule 14a-8 under the Exchange Act provides for the inclusion in our proxy statement of appropriately submitted proposals from eligible shareholders, in my capacity as Corporate Secretary, I confirm we did not receive any such proposals to be included in our proxy statement. This slide sets forth the number of shares of common stock and shares of Class B stock outstanding as of the prior 2 year-ends and the record date. As shown as of the record date, April 29, 2022, our outstanding shares consisted of 32,211,064 shares of common stock and 11,758,218 shares of Class B stock. I remind you our outstanding Class B shares possess 10 votes per share, although they are exchangeable only on a one-for-one basis for shares of common stock. As shown holders of our Class B shares, of which there are 13 possessed as of the record date, 78.5% of the cumulative voting power of the 149,793,244 votes eligible as of the record date. As of the record date, Dr. Vinciarelli beneficially owned 29.9% of common stock shares outstanding and 93.8% of Class B shares outstanding representing 79.9% of total voting power, giving him control overall governance matters. Assuming full conversion of Dr. Vinciarelli's Class B shares on a one-for-one basis, as of the record date, his holdings represented 48% of share ownership. Because of Dr. Vinciarelli's voting control under the corporate governance requirements of NASDAQ Rule 5600, we are considered a controlled company, which is defined as a listed entity for which more than 50% of the voting power for the election of directors is held by an individual or an identified group. As such, we rely on certain exemptions under Rule 5600 and do not have a Board consisting of a majority of independent directors nor is our nominating process the sole responsibility of independent directors. We do not utilize the available exemption from independent director oversight of executive compensation, but instead, maintain a compensation committee comprised solely of independent directors. Of course, there is no exemption from maintaining an audit committee comprised solely of independent directors, which we do. Directors Ansour, Carlson and Eichten will be the sole members of our Board's Compensation and Audit Committees for the 2022 term. Returning to procedure. Our first order of business shall be to determine whether the shares represented at the meeting, either by proxy or by those held by stockholders, who have electronically indicated their intent to vote for the first time or to change a previously submitted vote are sufficient to constitute a quorum for the purpose of transacting business. I earlier introduced Computershare's, Harold Murphy, who has been appointed to serve as inspector of election, having pledged to perform those duties under Delaware law to support me in the conduct of this meeting. His pledge will be filed with the minutes and records of this meeting. I now ask the inspector of elections to inform us whether a quorum is present.

Mr. Chairman, I can report as of the record date, April 29, 2022, 32,211,064 shares of common stock and 11,758,218 shares of Class B stock were outstanding, representing an eligible total of 149,793,244 possible votes as shown. Given our receipt of Dr. Vinciarelli's proxy, representing 79.9% of eligible votes far more than the simple majority of eligible votes required for a quorum are represented here today. As you have just indicated, we have received no new ballots. A complete list of stockholders as of the record date compiled and certified by Computershare is open for examination at this meeting by a registered stockholder, who clicks on the designated hyperlink on the page by which registered stockholders access this meeting.

Thank you. I, therefore, declare a quorum, the polls are now open and will remain open until the matters before the meeting have been presented and the Inspector of Elections confirms no new additional votes have been cast electronically. We will now proceed with the discussion and voting on the proposal set forth in the proxy statement. Since the proposal was addressed in detail in the proxy statement and since 90.2% of shares eligible to vote are represented by proxy at this meeting, we will dispense with the formal motions and balloting for the proposal. Further, as mentioned, Dr. Vinciarelli's proxy, representing 79.9% of eligible votes, has been received and voted in favor of each of the nominees and fixing the number of directors at 12. Therefore, the proposal received prior to today's meeting more than enough votes for approval. Each stockholder was entitled to vote for a maximum of 12 nominees. Cumulative voting was not permitted. I now will offer a final opportunity for registered stockholders to electronically submit a question regarding the size of the Board and the election of nominees. I see no questions regarding the size of the Board and the election of the nominees have been submitted by the registered stockholders via the Computershare website. Accordingly, I now formally close the polls. Based on the vote totals previously provided by Computershare, reported by the Inspector of Elections, the next slide sets forth the voting results, indicating the passage of the proposal. As shown, all 12 directors standing for reelection or election received an affirmative vote of at least 95.4% of the total amount of votes cast, representing at least 90.2% of shares entitled to vote. Therefore, all 12 nominees are hereby elected. The final results of today's ballot will be reported in detail on or before Thursday, June 30, via filing of a Form 8-K with the SEC. There being no other business to come before the formal business meeting, I will entertain a motion to adjourn.

So moved.

Thank you. Given the virtual nature of this meeting, the impracticality of an electronic voice vote of all registered stockholders listening and the presence of Dr. Vinciarelli, who holds 79.9% of voting control, I ask him if he is in favor of adjournment.

I vote to adjourn.

Vote is in favor of adjournment. This concludes the formal portion of our meeting. At this time, I turn the virtual meeting -- virtual podium over to Phil Davies, who will offer remarks on strategy. Phil?

Good morning, and thank you for joining us. It's clear that Vicor's major growth driver at the moment is the high-performance computing market, which is exploding with opportunities, as data centers all over the world are accelerated or specifically built to enable numerous machine learning applications. To reach our goal of $1 billion in revenues with 65% gross margins, however, we will need a portfolio of markets and applications that when combined meet our revenue and profitability objectives. For the past 6 months, Vicor's senior management team has been refining our objectives, goals, strategies and measures to align our plans for the next 5 years. Our portfolio will be based around 4 markets: the aforementioned HPC market plus automotive, industrial and aerospace and defense. The power electronic TAM within these markets is tens of billions of dollars, but not all submarkets and applications are right for us. We have decided that for the next 5 years, we will be laser focused on a set of about 100 customers globally, who have leadership market positions, value our technology and how modular power solutions can unlock their innovations to achieve a competitive advantage in their markets. This target customer set will be handled directly by Vicor's global sales, marketing and applications engineers to build strategic long-term relationships with technology road maps in sync to maximize R&D productivity and time-to-market objectives. We will also continue to build a strong global distribution network to serve the many thousands of customers, who are also moving to a modular power system design methodology. Our commitment to innovation and high performance will accelerate to achieve an even greater margin in performance to our closest competitors, who are all focused on improving 50-year-old commoditized technologies and controlled systems and who are trying to compete with a better power switch. Modern-day power delivery networks require far more than this, and that's why Vicor has 4 main pillars of innovation that working together bring major advances in power system performance. Later this year, we will be sampling new power modules that feature our fifth generation of control ASICs that enable another significant step-up in power density, current density and cost effectiveness. Gen 5 performance advances when combined with our new ChiP fabrication facility creates a much stronger position to service demanding, high-volume innovative customers, who are looking for not only the best technologies, but also a reliable high-volume supplier. We estimate that our focused portfolio of markets with its target 100 customers gives us a combined available market of $11 billion by 2026, and we are already engaged in established long-term relationships or early development of new power systems with all 100 customers. Vicor's innovative and proprietary modular power solutions are getting more attention and becoming, in many cases, a necessity to solve ever-increasing power delivery challenges. The pace of increasing power requirements and need for smaller, more efficient and lower weight power delivery networks is accelerating. Customers are facing the challenge of adding new functions and features while powering legacy loads. We are seeing a mix of 48- and 12-volt systems in HPC and a very complicated 800, 400, 48 and 12-volt set of networks in automotive. Front-end power conversion has been traditionally achieved with large custom silver box discrete component designs. As space becomes limited in thermal management and more significant challenge, customers are looking for dense liquid cooled AC front-end converters in HPC, communications infrastructure and industrial applications and low-profile power solutions for edge computing applications. The advantages of high-density modular power-based approach to solving these challenges is gaining significant momentum, and this is especially true in our target set of 100 customers. Let's look at our existing high-performance computing business and its future. This is a very exhilarating time to be in high-performance computing. We are at the very beginning of a global build-out of machine learning that will change how we work, play, live our lives and manage our environment. The specialized processors and the HPC systems that are built for data centers to enable acceleration and machine learning are rapidly advancing, and they will all require increasing power with every future generation. There's no one better to listen to about the future of high-performance computing than Jensen Huang. So as Jensen pointed out in his Bank of America fireside chat a couple of weeks ago, as the 4 current data center classes continue their acceleration build-outs to support new machine learning capabilities and applications, 2 new classes of data center are emerging, AI factories and edge computing. Vicor is aligned with all of the major global silicon and system providers to these data centers as well as the data center companies themselves, who are developing their own advanced CPU-based servers, AI processors and rack power systems. The growth at the global HPC market will see over the next decade will be enormous and will continue to be a major growth driver for Vicor and our unique modular power solutions. The GPUs and ASICs that enable acceleration and machine learning are very hungry for more and more current. We now regularly see current levels from 1,000 to 2,000 amps. Additionally, new forms of high-density clustered computers are being developed that provide the compute density needed in many data centers. Lateral current delivery is just not practical for high current processor rails or tightly packed processor arrays. To deliver this high level of current, the future is all about vertical current delivery. We are currently in production with our target customers using lateral power solutions, but we are now engaging our next-generation lateral vertical and pure vertical solutions for 2023 and 2024 deployment. Our current multiplier technology has the lowest profile, highest current density, lowest noise and easiest thermal management by far. And these criteria are critical to processor and system performance, and we are increasing these key performance metrics with our Gen 5 solutions. Data center companies want their compute racks to be full of compute systems and not power systems. As power levels and data center racks increases and is now in the range of 40 kilowatts to over 100 kilowatts per rack, incumbent suppliers of AC-DC silver box converters are taking up very valuable real estate. With the move to liquid cool data centers, there are large opportunities emerging for new high-density AC-DC power solutions. We are now delivering prototype units to lead customers and expanding our SAM by $1 billion in the HPC space. Now bridging solutions that enable the 12- to 48-volt conversion necessary to support new 48-volt accelerators and legacy 12-volt rack infrastructures has been ramping through 2022, and we will be in production with a new 2-kilowatt NBM module, the [ 3523 ] in 2023. Data center companies deploying the latest low-power CPU servers in their 48-volt racks are using our NBM for bridging 48 to 12 volts for downstream commodity multiphase converters. This market is starting to ramp now, but will hit volume production in 2023. In 2021, a new market started to emerge for high-powered networking ASICs developed to address the challenge of data center traffic growth, these high-speed ASICs occurrence up to 2,000 amps and limited space for power delivery. This application is a perfect fit for our factorized power architecture and current multiplier technology. The opportunity here is both with the ASIC companies with reference designs and working 3-way collaboration agreements with data center and ASIC companies. We estimate the available market opportunity to be around $250 million by 2026. We have been steadily building our customer portfolio in the HPC market, and we are now aligned with a set of customers, who will define our growth in the next 5 years and the opportunity in front of us is very large. We have fought very hard to customer demands through the COVID pandemic and supply chain constraints. Our relationships with our customers remain strong, but can be improved upon. Our new ChiP fab will significantly help as will our new Gen 5 technologies, which will enable our customers to unleash the performance that they desire from their advanced processors. Our customers clearly see the performance and competitive advantages that Vicor brings to the table, and we are committed to executing our operational excellence initiatives in support of our market and customer share objectives in the exciting HPC area. So in summary, the market opportunity in HPC is very large and growing. We have a clear technology advantage that we will expand. We also now have the manufacturing footprint and vertical integration required to succeed. So no excuses. As we grow our high-performance computing business, we are laying the groundwork for the next high-growth market, automotive. We have made major commitments to this market over the past 3 years with significant resource allocation and new product development investments and progress has been above our initial expectations. As part of our constant review of markets, customers and value propositions, we have decided to focus on the plug-in hybrid and pure EV powertrain architectures and their associated OEM platforms. This will focus our resources and product development initiatives on the best opportunities for our power module technologies. The adjusted SAM is now $5 billion for 2026 at the OEM powertrain applications that we are targeting. The long-term SAM is almost the same as the pure EV market is expected to outgrow ex-EVs by almost 5x by the end of the decade. Power levels and new EV platforms are significantly higher than combustion engine vehicles and are based on either 400- or 800-volt battery architectures. Our current OEM engagements are focused on providing solutions that bridge the 800-volt and 400-volt infrastructure compatibility challenges and enable high-density scalable modular power conversion to either 48 or 12 volts from 400- or 800-volt batteries. The reaction to our proposed modular architectures and solutions from OEMs has been extremely positive, leading to funded collaboration agreements to develop solutions with significant density, weight and scalability advantages. Since Vicor is a power module company and does not have a power system manufacturing objective, we require system providers or Tier 1s, who we can partner with, to implement our modular power solutions. These Tier 1s can be either directed by an OEM or in partnership arrangement with Vicor. Either way, our focus is on the OEMs and particularly on the OEMs, who have taken design and power electronic architectures into their own hands. We are also collaborating with suppliers of auxiliary systems to problem solve the complexity and change that electrification brings and to enable them to offer systems with 800-, 400- and 48-volt compatibility. When we entered the automotive market in 2018, we did not fully appreciate how our modular approach to power would be valued by the OEMs. Power density and weight advantages were clear. But as it turned out, modular solutions are very high on the value scale for enabling a common power delivery solution that can be easily and rapidly scaled across vehicles for low- to high-power platforms. As can be seen here with a few common power modules, complete high-voltage to low-voltage power delivery networks can be built. And by adding modules to a power converter design, networks can be easily scaled to higher power. This has major advantages for OEMs, as they move through the turmoil of a new electrification world. One of the largest application opportunities we have in front of us is the 800- to 400-volt bridging application, where vehicle compatibility between different battery charging stations and also powering 400-volt accessory systems from upgraded 800-volt battery power sources has to be accomplished. Vicor's new 800-, 400-volt bidirectional converter is capable of 30 kilowatts, has a 99.3% efficiency rating and can be held in the palm of your hand. This capability is causing quite a stir at OEMs globally. Applications ranging from 15 to 150 kilowatts will make use of the new 9280 module scalability, power density, low noise and ease of use. Our high-voltage converters have a topology and control system that are capable of such high transient response that they outperform any battery in supplying power to accessory 48-volt or 12-volt loads. We have collaborations with OEMs that are called battery delete projects, where a small efficient Vicor bus converter can eliminate an expensive and very heavy battery extending range and performance. For regulated and isolated conversion power systems with either 800- or 400-volt inputs to 48- or 12-volt outputs, our power density is unmatched even went up against silicon carbide or GaN-based hard switch power converters. As can be seen, our nearest competitors are 5x lower in power density. Our collaboration power system is being delivered to a major OEM in the next few weeks. The next phase in these applications will be to develop scalable system packaging with Tier 1 partners to take full advantage that modularity brings. With our focus on powertrain applications in the plug-in hybrid and pure EV markets, our long-term SAM remains almost unchanged due to the dollar content that we can achieve for these higher-end vehicles. With a high-voltage battery architectures at 400 and 800 volts, these vehicle platforms also provide significant bridging opportunities for onboard charging and accessory compatibility. In just 3 years, we have started working with some of the largest global automotive OEMs with fully funded power module and power system developments, as part of collaboration agreements. We expect start of production at the end of 2023 for some OEM projects, but order and revenue growth will really begin at the end of '24 and through 2025. Until then, we will have our hands full with system bring up, testing and power module automotive qualification. Electrification and system autonomy are not just occurring in the automotive market. There are emerging industrial markets that offer high-growth opportunities to Vicor due to our value propositions of high-density, modularity and ease of use. The great aspect of this is that the same power modules that we developed for our 2 highest growth markets can be used directly or with minor modifications to solve power delivery challenges in these emerging markets. With a combined SAM of $650 million by 2026, these markets offer Vicor and our channel partners excellent growth and margin opportunities. These applications are either battery or AC-powered and for Vicor, are important contributors to our overall portfolio. So in summary, we are in the right place at the right time with the most innovative and highest performance power modules and a new vertically integrated high-volume ChiP fab. We have focused our strategy on 4 specific markets and application areas with 100 target customers globally, where Vicor will continue to unlock the potential of their world-changing technologies with the most innovative and highest performance modular power. And in doing so, we will scale our business with operational excellence across all aspects of our company and achieve our $1 billion and 65% gross margin goals. Thank you, and I'll now hand over to Mike McNamara.

Thank you, Phil. At this time, I would like to provide an update on our ChiP fab status. We have moved into our final phase of vertical integration of our ChiPs packaging process steps, also referred to as PPS. The facility expansion is complete. The majority of equipment has been installed. We are now focused on our final phase of the process, qualifying and scaling up into production. For each major PPS process, there is a schedule to qualify, release into shared volume production with our subcontractor and then final released a high-volume production in Andover. These steps are designed to eliminate risk and maintain business continuity. When complete, we will have the capacity to catch up to our late backlog and maintain the needed capacity ahead of increasing future demand. Cycle times for our fab will be measured in hours not in weeks, as it currently is measured. Leveraging our existing operational overhead in Andover's automation protocols, we expect to increase repeatable quality and overall reduction in fabrication costs. We are scheduled to be vertically integrated early Q4 of 2022. The completion of the fab expansion not only supports package process steps to be controlled in Andover on the upper level of the new expanded building, we have also provided floor space for non-PPS capacity to support our Advanced Products on the first floor. We have already installed and released into high-volume production and new high-speed SMT line in the new space. We plan additional capacity investments ongoing throughout 2022 to increase and match the needed capacity of the PPS. Operations team remains focused on increasing factory overall efficiency to maintain the needed throughput with predictability, highest quality levels and focus on operational excellence. In summary, Vicor has and will continue to make the needed investment in capital equipment and technical resources to meet the capacity ramp of Advanced Products. Vertical integration is being implemented to catch up with the demand and provide capacity needed to enable future growth. As you can see from the chart provided below, Vicor has been able to grow Advanced Products revenues quarter-over-quarter in spite of a complex multiplicity of supply chain and outsourced process step challenges. With vertical integration within our fab, we expect to be able to overcome recent operational limitations. As I stated last year at the Annual Shareholders Meeting with the investments made, the factory has demonstrated our ability to transition to a high-volume, low-mix business model. Thank you. And I'll turn it back over to Jim.

Thanks, Mike. Our long-term financial model intends to grow sales at double-digit rates while managing the shift in product mix from Brick to Advanced Products. Additionally, we intend to expand gross margin to approximately 65%, hold the high rate of R&D investment at approximately 15% of sales and grow SG&A expense lower than sales and thereby reduce SG&A to approximately 15% of sales. We expect our long-term model to yield operating profits at approximately 35% of sales. At this time, management will take your questions. I again remind everyone, we are in our Q2 quiet period. And accordingly, we will not be commenting on current operational or financial performance. Please keep in mind, Vicor is targeting Thursday, July 21, for releasing its Q2 results and holding our quarterly conference call with investors. During the Q&A portion of that call, investors will have direct access to management for asking questions. As stated by the operator at the beginning of the meeting, management reserves the right to consolidate certain questions in its sole discretion, if those questions cover similar or overlapping topics. Management also reserves the right to not respond to questions or comments it considers also in its sole discretion and appropriate for the purposes of the Annual Stockholders Meeting. We've already received several questions, so I'll proceed with reading these questions to my colleagues while monitoring the Computershare website for others as they are submitted.

So this is 1 for Patrizio from John Dillon. Patrizio, can you give us some basic details on how the Vicor Advanced Products are superior to the competition, starting with the designs, materials, magnetics and packaging and anything else that separates Vicor from their competitors?

Well, we have a very comprehensive set of advantages that start at the architectural level. As Phil outlined earlier in AI and data centers is -- current demands are making it very challenging, if not before too long, impossible to supply current hungry ASICs with the requisite power delivery through lateral power delivery systems or power delivery networks. Vicor's unique technology enabling a lot of vertical systems as well as 2 different kinds of vertical power delivery systems, both of which set us apart from any competitor. So that's an artifactual advantage. We have unique power conversion engines, proprietary engines just like the power distribution architecture of proprietary that enable much our current density, better efficiency, lower noise, fast transient response, all of which are key attributes of the kind of our system that is required to enable advanced solutions. We have unique control systems. And last but not least, we have a very unique and I will submit superior packaging technology. Our packaging technology, which enables us to manufacture power modules in a wafer foundry like fab, has scalability, cost effectiveness and ultimately, performance attributes for customers that sets us apart from anything else. So those are some of the key pillars of distinction [indiscernible]. We also have a unique proprietary components that we're beginning to deploy as part of our fifth generation systems later this year. So it's a portfolio that is very comprehensive and is a result of a holistic approach to the overall power system challenge, which uniquely sets us apart from each and every competitor.

Thanks, Patrizio. There's another one here that's, I think, for you as well. So from Ken Hirschberg, how much of a competitive threat the silicon carbide technology represent?

Not much. I would say, not at all. To be clear, I mean, silicon carbide and other [indiscernible] semiconductors such as GaN provide for more ideal switching elements. What's commonly misunderstood though is how far these switching elements by themselves can enable the kinds of our systems, the customers in key markets, including data center, AI and automotive require. And without question, silicon carbide is enabling technology for electric models and propulsion in electric values and will gain traction of unintended with most companies competing in that general space. But to be clear, silicon carbide does not enable higher switching frequencies. On the scale of what's necessary in order to achieve the power density is that these primary markets require when it comes to power conversion as opposed to moderate. In power conversion, the level of density is required the current density for AI applications or power density for automotive applications. Those requirements cannot be satisfied with power system technology that can switch in the frequency range of megahertz. And even though silicon carbide switches are ideal switches, they're actually limited to operation frequencies that are mildly lower. So as such, the simply cannot, in terms of compete power system, enable high-density solution.

Thank you, Patrizio. As it appears there are no more questions, I will adjourn the 2022 Annual Stockholder Meeting, and thank you for attending.

This concludes the 2022 Vicor Corporation Annual Stockholders' Meeting. You may now disconnect.