VICOR CORP (VICR)

Management’s Discussion and Analysis of

Financial Condition and Results of Operations

June 30, 2026

Overview

We design, develop, manufacture, and market modular power components and power systems for converting electrical power for use in electrically-powered devices. Our competitive position is supported by innovations in product design and achievements in product performance, largely enabled by our focus on the research and development of advanced technologies and processes, often implemented in proprietary semiconductor circuitry, materials, and packaging. Many of our products incorporate patented or proprietary implementations of high-frequency switching topologies enabling power system solutions that are more efficient and much smaller than conventional alternatives. Our strategy emphasizes demonstrable product differentiation and a value proposition based on competitively superior solution performance, advantageous design flexibility, and a compelling total cost of ownership. While we offer a wide range of alternating current (“AC”) and direct current (“DC”) power conversion products, we consider our core competencies to be associated with 48V DC distribution, which offers numerous inherent cost and performance advantages over lower distribution voltages. However, we also offer products addressing other DC voltage standards (e.g., 380V for power distribution in data centers, 110V for rail applications, 28V for military and avionics applications, and 24V for industrial automation).

Based on design, performance, and form factor considerations, as well as the range of evolving applications for which our products are appropriate, we categorize our product portfolios as either “Advanced Products” or “Brick Products.” The Advanced Products category consists of our more recently introduced products, which are largely used to implement our proprietary Factorized Power Architecture™ (“FPA”), an innovative power distribution architecture enabling flexible, rapid power system design using individual components optimized to perform a specific conversion function.

The Brick Products category largely consists of our broad and well-established families of integrated power converters, incorporating multiple conversion stages, used in conventional power systems architectures. Given the growth profiles of the markets we serve with our Advanced Products line and our Brick Products line, our strategy involves a continuing transition in organizational focus, emphasizing investment in our Advanced Products line and targeting high growth market segments with a low-mix, high-volume operational model, while maintaining a profitable business in the mature market segments we serve with our Brick Products line with a high-mix, low-volume operational model.

The applications in which our Advanced Products and Brick Products are used are typically in the higher-performance, higher-power segments of the market segments we serve. With our Advanced Products, we generally serve large Original Equipment Manufacturers (“OEMs”), Original Design Manufacturers (“ODMs”), and their contract manufacturers, with sales currently concentrated in the data center and hyperscaler segments of enterprise computing, in which our products are used for power delivery on server motherboards, in server racks, and across datacenter infrastructure. We have established a leadership position in the emerging market segment for powering high-performance processors used for acceleration of applications associated with artificial intelligence (“AI”). Our customers in the AI market segment include the leading innovators in processor and accelerator design, as well as early adopters in cloud computing and high performance computing. We also serve applications in aerospace and aviation, defense electronics, satellites, factory automation, instrumentation, test equipment, transportation, telecommunications and networking infrastructure, and vehicles (notably in the autonomous driving, electric vehicle, and hybrid vehicle niches of the vehicle segment). With our Brick Products, we generally serve a fragmented base of large and small customers, concentrated in aerospace and defense electronics, industrial equipment, instrumentation and test equipment, and transportation (notably in rail and heavy equipment applications). With our strategic emphasis on larger, high-volume customers, we expect to experience over time a greater concentration of sales, including from intellectual property licensing, among relatively fewer customers.

Our quarterly consolidated operating results can be difficult to forecast and have been subject to significant fluctuations. We plan our production and inventory levels based on management’s estimates of customer demand, customer forecasts, and other information sources. Customer forecasts, particularly those of OEM, ODM, and contract manufacturing customers to which we supply Advanced Products in high volumes, are subject to scheduling changes on short notice, contributing to operating inefficiencies and excess costs. In addition, external factors such as supply chain uncertainties, which are often associated with the cyclicality of the electronics industry, regional macroeconomic and trade-related circumstances, and force majeure events, have caused our operating results to vary meaningfully. Supply chain disruptions, including those associated with our reliance on outsourced package process steps that are essential in the production of some of our Advanced Products, and those relating, for example, to the procurement of raw material, have in the past negatively impacted and may in the future negatively impact our operating results. We have taken steps to mitigate the impact of supply chain disruptions by, among other things and in varying degrees, moving outsourced manufacturing steps in-house to the Company, ordering supplies with extended lead times, paying higher prices for certain supplies or outsourced production, and expediting deliveries at a cost premium. The resulting impact of the steps taken to mitigate supply chain disruptions

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VICOR CORPORATION

Management’s Discussion and Analysis of

Financial Condition and Results of Operations

June 30, 2026

have, to varying degrees and at different times, reduced our revenue, gross margin, operating profit and cash flow and may continue to do so in the future. Our quarterly gross margin as a percentage of net revenues may vary, depending on production volumes, licensing income, average selling prices, average unit costs, the mix of products sold during that quarter, and the level of importation of raw materials subject to tariffs. Our quarterly operating margin as a percentage of net revenues also may vary with changes in revenue and product level profitability, but our operating costs are largely associated with compensation and related employee costs, which are not subject to sudden or significant changes.

Summary of Second Quarter 2026 Financial Performance Compared to First Quarter 2026 Financial Performance

The following summarizes our financial performance for the second quarter of 2026, compared to the first quarter of 2026:

•
Total net revenues increased 26.9% to $143,352,000 for the second quarter of 2026, from $112,969,000 for the first quarter of 2026. Net revenues for Brick Products increased 2.4% compared to the first quarter of 2026, primarily due to improved market demand. Advanced Products net revenues increased 45.0% compared to the first quarter of 2026, primarily due to improved market demand and higher royalty revenue.

•
Export sales represented approximately 46.0% of total net revenues in the second quarter of 2026 as compared to 48.9% in the first quarter of 2026.

•
Gross margin for the second quarter of 2026 increased $20,754,000, or 33.3% to $83,120,000 from $62,366,000 for the first quarter of 2026. Gross margin, as a percentage of net revenues and patent litigation settlement, increased to 58.0% for the second quarter of 2026 from 55.2% for the first quarter of 2026. The increase in gross margin dollars and gross margin percentage was primarily attributable to the favorable impact from higher sales volume, including royalty revenue, offset by an increase in freight-in and tariff spending of $704,000 (net of approximately $11,000 in duty drawback recovery in the second quarter of 2026 and $193,000 in duty drawback recovery in the first quarter of 2026 of previously paid tariffs).

•
Backlog, which represents the total value of orders for products for which shipment is scheduled within the next 12 months, was approximately $379,736,000 at the end of the second quarter of 2026, as compared to $300,616,000 at the end of the first quarter of 2026.

•
Operating expenses for the second quarter of 2026 increased $2,760,000, or 6.1%, to $48,242,000 from $45,482,000 for the first quarter of 2026, due to an increase in selling, general and administrative expenses of $4,409,000, offset by a decrease in research and development expenses of $1,649,000.

•
We reported net income for the second quarter of 2026 of $49,772,000, or $1.04 per diluted share, compared to net income of $20,664,000, or $0.44 per diluted share, for the first quarter of 2026. Net income in the first and second quarters of 2026 include tax benefits due to excess deductions related to share-based compensation.

•
For the second quarter of 2026, depreciation and amortization totaled $5,423,000 and capital additions totaled $11,173,000 as compared to depreciation and amortization of $5,337,000 and capital additions of $12,387,000 for the first quarter of 2026.

•
Inventories increased by approximately $9,659,000, or 10.2%, to $104,489,000 at June 30, 2026, compared to $94,830,000 at March 31, 2026, in anticipation of increased volume to fulfill backlog.

Three Months Ended June 30, 2026 Compared to Three Months Ended June 30, 2025

Total net revenues for the second quarter of 2026 were $143,352,000, an increase of $47,306,000, or 49.3%, as compared to $96,046,000 for the second quarter of 2025. Net revenues, by product line, for the three months ended June 30, 2026 and 2025 were as follows (dollars in thousands):

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VICOR CORPORATION

Management’s Discussion and Analysis of

Financial Condition and Results of Operations

June 30, 2026

The increase in net revenues for Advanced Products was primarily due to higher royalty revenue due to a new license agreement entered into during the quarter ended June 30, 2026 and volume increases due to improved market demand. The increase in net revenues for Brick Products was primarily due to improved market demand.

During the second quarter of 2025, the Company received a patent litigation settlement payment of $45,000,000 (as described in more detail in Note 11 to the Condensed Consolidated Financial Statements).

Gross margin for the second quarter of 2026 decreased $9,008,000, or 9.8%, to $83,120,000, from $92,128,000 for the second quarter of 2025. Gross margin, as a percentage of net revenues and patent litigation settlement, decreased to 58.0% for the second quarter of 2026, compared to 65.3% for the second quarter of 2025. The decrease in gross margin dollars and gross margin percentage was primarily attributable to the $45,000,000 patent litigation settlement payment received by the Company in the second quarter of 2025 offset by the favorable impact from higher sales volume, including higher royalty revenue and the favorabl

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Management’s Discussion and Analysis of Financial Condition and Results of Operations is based upon our Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses, and related disclosures of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates and assumptions, and our associated judgments, including those related to inventories, income taxes, contingencies, and litigation. We base our estimates, assumptions, and judgments on historical experience, knowledge of current conditions, and on various other factors we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We also have other policies we consider key accounting policies (See Note 2 to the Consolidated Financial Statements – Significant Accounting Policies – Impact of newly adopted and recently issued but not adopted accounting standards). However, the application of these other policies does not require us to make significant estimates and assumptions difficult to support quantitatively.

Inventories

We employ a variety of methodologies to evaluate inventory that is estimated to be excess, obsolete or unmarketable, in order to write down that inventory to net realizable value. Our estimation process for assessing net realizable value is based upon forecasted future usage which we derive based on backlog, historical consumption, and expected market conditions. For both our Brick and Advanced Product lines, the methodology used compares on-hand quantities to forecasted usage and historical consumption, such that amounts of inventory on hand in excess of management’s estimate of expected future utility, are fully reserved. While we have used our best efforts and believe we have used the best available information to estimate future demand, due to uncertainty in the economy and our business and the inherent difficulty in forecasting future usage, it is possible actual demand for our products will differ from our estimates. If actual future demand or market conditions are less favorable than those projected by management, additional inventory reserves for existing inventories may need to be recorded in future periods.

Evaluation of the Realizability of Deferred Tax Assets

Significant management judgment is required in determining whether deferred tax assets will be realized in full or in part. We assess the need for a valuation allowance on a quarterly basis. We record a valuation allowance to reduce our deferred tax assets to the amount we believe is more likely than not to be realized. In assessing the need for a valuation allowance, we consider all positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies, and past financial performance. Despite recent positive operating results, we face uncertainties in forecasting our operating results due to the unpredictability of customer orders in certain markets, product transitions, new program introductions and adoption times of new technology offerings. This operating uncertainty also makes it difficult to predict the availability and utilization of tax benefits over the next several years. Prior to December 31, 2025, the Company maintained a valuation allowance against a significant portion of its deferred tax assets, consisting of net operating loss carryforwards, tax credit carryforwards, and deductible temporary differences. Based on the Company's history of cumulative earnings before taxes for financial reporting purposes over a 12-quarter period and expected future taxable income, management determined it was more likely than not a significant portion of the deferred tax assets would be realized. As a result, at December 31, 2025, the Company reversed $43,648,000 of its valuation allowance related to certain deductible temporary differences expected to be realized in future periods. This tax benefit was partially offset by estimated federal, state, and foreign income taxes. As of December 31, 2025, the Company has a remaining valuation allowance of approximately $17,931,000 against certain deferred tax assets, for which realization cannot be considered more likely than not at this time. Such deferred tax assets principally relate to tax credit carryforwards in certain state jurisdictions for which sufficient taxable income for utilization cannot be projected at this time, or the credits may expire without being utilized. If and when management determines the remaining valuation allowance should be released, the adjustment would result in a tax benefit in the Consolidated Statements of Operations and may be material.

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New Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”) that we adopt as of the specified effective date. Unless otherwise discussed, we believe the impact of recently issued accounting standards will not have a material impact on our future financial condition and results of operations. See Note 2 – Significant Accounting Policies – Impact of newly adopted and recently issued but not adopted accounting standards, to the Consolidated Financial Statements for a description of newly adopted and recently issued but not adopted accounting pronouncements, including the dates of adoption and expected impact on our financial position and results of operations.

Other new pronouncements issued but not effective until after December 31, 2025 are not expected to have a material impact on our consolidated financial statements.

Year ended December 31, 2025 compared to Year ended December 31, 2024

Consolidated total net revenues for 2025 were $407,701,000, an increase of $48,643,000, or 13.5%, as compared to $359,058,000 for 2024.

Total net revenues, by product line, for the years ended December 31 were as follows (dollars in thousands):

The increase in net revenues for Advanced Products was primarily due to improved market demand and higher royalty revenue. The decrease in net revenues for Brick Products was primarily due to reduced market demand.

During the year ended December 31, 2025, the Company received a patent litigation settlement payment of $45,000,000 (as described in more detail in Note 16 to the Consolidated Financial Statements).

Gross margin for the year ended December 31, 2025 increased $75,431,000, or 41.0%, to $259,429,000 from $183,998,000 for the year ended December 31, 2024. Gross margin, as a percentage of total net revenues and patent litigation settlement, increased to 57.3% for the year ended December 31, 2025, as compared to 51.2% for the year ended December 31, 2024. The increase in gross margin dollars and gross margin percentage was primarily attributable to the $45,000,000 patent litigation settlement payment received by the Company in the second quarter of 2025 and the favorable impact from higher sales volume and improved sales mix on that revenue, including royalty revenue, when compared to 2024, offset by the unfavorable impact of production inefficiencies including an increase in freight-in and tariff spending of $3,949,000 (net of approximately $907,000 in duty drawback recovery in 2025 and $1,669,000 in duty drawback recovery in 2024 of previously paid tariffs).

Selling, general, and administrative expenses were $99,031,000 for 2025, an increase of $2,145,000, or 2.2%, as compared to $96,886,000 for 2024. As a percentage of total net revenues, selling, general, and administrative expenses decreased to 24.3% in 2025 from 27.0% in 2024.

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The components of the $2,145,000 increase in selling, general, and administrative expenses were as follows (dollars in thousands):

(1)
Increase primarily attributable to annual compensation adjustments in May 2025 and higher stock-based compensation expense associated with stock options awarded in May 2025.

(2)
Increase primarily attributable to an increase in computer software services relating to new internal-use software implementation.

(3)
Increase primarily attributable to an increase in audit and tax fees.

(4)
Increase attributable to net additions of furniture and fixtures and capitalization of building improvements.

(5)
Increase primarily attributable to an increase in post-judgment interest and other costs relating to the litigation-contingency accrual with respect to our litigation with SynQor.

(6)
Decrease primarily attributable to decreases in sales support and marketing expenses.

(7)
Decrease primarily attributable to a decrease in activity related to our litigation with SynQor and other corporate legal matters, including the assertion of our intellectual property rights.

Research and development expenses increased $9,648,000, or 14.0%, to $78,570,000 in 2025 from $68,922,000 in 2024. As a percentage of total net revenues, research and development expenses increased to 19.3% in 2025 from 19.2% in 2024.

The components of the $9,648,000 increase in research and development expenses were as follows (dollars in thousands):

(1)
Increase primarily attributable to an increase in the use of outside service providers for our manufacturing facility.

(2)
Increase primarily attributable to annual compensation adjustments in May 2025 and higher stock-based compensation expense associated with stock options awarded in May 2025.

(3)
Increase in the consumption of materials and supplies used in the engineering process.

(4)
Increase primarily attributable to equipment set-up and calibration for Advanced Products production.

(5)
Increase primarily attributable to lower deferred costs capitalized for certain non-recurring engineering projects for which the related revenues had been deferred.

(6)
Increase primarily attributabl

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