Vicor Corporation — Q1 2014 Form 10-Q
Business context and period. Unaudited results for the three months ended March 31, 2014. Vicor designs, manufactures and sells modular power components and power systems. Its businesses include the Brick Business Unit (BBU), VI Chip and Picor.
Financial performance
| Metric | Q1 2014 | Q1 2013 |
|---|---|---|
| Revenue | $53.233 million | $41.946 million |
| Gross profit / margin | $22.792 million / 42.8% | $16.607 million / 39.6% |
| Operating expenses | $28.231 million | $25.103 million |
| Operating loss | $(5.439) million | $(8.496) million |
| Net loss attributable to Vicor | $(5.378) million; $(0.14) per share | $(4.990) million; $(0.12) per share |
| Cash used in operations | $(4.480) million | $(1.681) million |
| Capital expenditures | $1.554 million | $1.171 million |
Revenue increased 26.9% year over year, but declined 3.7% sequentially from Q4 2013. Gross margin improved year over year and was 42.4% in Q4 2013. Q1 2014 bookings rose 3.5% year over year and 8.6% sequentially; quarter-end backlog scheduled for shipment within 12 months was $41.562 million, down from $44.659 million at Q4 2013 end.
Revenue by business line, as presented in management’s discussion, was BBU $43.689 million, VI Chip $8.584 million and Picor $0.960 million. BBU grew 14.4% and VI Chip 177.2% year over year; Picor grew 48.4%. These figures sum to reported consolidated revenue.
Financial position and liquidity
- Cash and cash equivalents were $50.307 million at March 31, 2014, down $6.032 million from year-end. Current assets were $117.037 million and current liabilities $23.284 million; working capital was $93.753 million and the current ratio 5.0:1.
- Total assets were $163.088 million; total liabilities were $25.824 million. The balance sheet lists no borrowings or debt; the filing does not separately discuss a debt facility.
- Cash used in investing activities was $1.584 million, mainly capital expenditures. Financing activities provided $0.005 million. Net cash decreased $6.032 million.
- Capital expenditure commitments were approximately $1.538 million. Management said cash and expected operating cash flows should fund planned operations and equipment purchases for the foreseeable future.
Changes, outlook and material risks
- Operating loss narrowed year over year, but net loss increased to $5.378 million from $4.990 million, partly because Q1 2013 included a $3.495 million tax benefit. In Q1 2014 the tax provision was $0.017 million; a valuation allowance against domestic deferred tax assets prevented recognition of tax benefits on most losses.
- Operating expenses rose 12.5% year over year. SG&A increased by $4.093 million, including $2.995 million of additional legal fees, primarily associated with SynQor litigation. Q1 2013 included a $1.361 million severance charge; there was no corresponding charge in Q1 2014.
- Management cited macroeconomic weakness, particularly in defense electronics and Europe, customer concentration, slower-than-anticipated adoption of new products, and high litigation costs. The shift toward fewer, larger customers leaves Vicor exposed to demand swings while adoption remains limited. No quantified revenue or earnings guidance was provided.
- Vicor held failed-auction securities with $6.000 million par value, carried at $4.864 million as long-term investments. Their $1.136 million unrealized loss includes a $0.395 million estimated credit loss and $0.741 million temporary impairment. These Level 3 valuations depend on significant assumptions; a 1 percentage-point change in the modeled liquidity premium could change fair value by about $0.400 million. Management does not expect their illiquidity to disrupt operations, but further market or credit deterioration could cause additional losses or impairment.
- SynQor alleges patent infringement and seeks unspecified damages and other relief. Vicor disputes the claims and does not consider a loss probable, but cannot estimate a possible loss or range. The trial date was moved to after September 2014; a motion to reconsider the severance of the case was pending.
- The IRS was auditing Vicor’s 2010 and 2011 federal tax returns. The filing reports no other material change in the risk factors from the 2013 Form 10-K.
Most important facts for investors to verify
- Whether bookings, backlog and customer adoption convert into sustained revenue, especially given customer concentration and the sequential revenue decline.
- Whether operating cash use and the cash balance remain consistent with management’s liquidity expectations and planned manufacturing investment.
- Developments in the SynQor patent case, including any potential financial exposure, and the associated legal costs.
- Changes in failed-auction securities’ valuation, liquidity and credit assumptions, and any resulting impairment.
- Progress in addressing domestic profitability and the tax valuation allowance, including the IRS audit outcome.