Vicor Corporation (NASDAQ: VICR) — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021. Unaudited consolidated results; amounts below are in millions of dollars unless otherwise noted.
Business context
Vicor designs and manufactures modular power components and systems. Its Advanced Products primarily serve data-center and high-performance-computing applications; Brick Products serve more established markets, including aerospace and defense, industrial, and transportation. The company is shifting investment toward Advanced Products and larger, higher-volume customers.
Financial performance
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $95.4 | $70.8 | $184.2 | $134.2 |
| Gross profit / margin | $49.9 / 52.3% | $30.3 / 42.8% | $94.6 / 51.3% | $57.6 / 43.0% |
| Operating income (loss) | $20.0 | $2.0 | $34.7 | ($0.3) |
| Net income attributable to Vicor | $19.4 | $2.7 | $34.5 | $0.9 |
| Diluted EPS | $0.43 | $0.06 | $0.77 | $0.02 |
- Revenue mix and momentum: Q2 Advanced Products revenue was $41.0 million, up 68.6% year over year; Brick Products revenue was $54.4 million, up 17.1%. Six-month increases were 78.5% and 18.3%, respectively. Q2 revenue rose 7.4% sequentially from Q1.
- Profitability: Management attributed the gross-margin improvement mainly to higher revenue, favorable product mix, yield improvements, lower cost variances, and lower tariff charges year to date. Q2 operating expenses were $29.9 million, up 5.6% year over year; six-month expenses were $59.8 million, up 3.2%.
- Cash flow and investment: For the first six months, operating cash flow was $30.1 million, investing cash outflow was $36.6 million, and financing cash inflow was $4.6 million. Capital expenditures were $15.8 million. Cash and cash equivalents ended at $159.8 million, down $2.0 million from year-end.
- Liquidity and debt: Short-term investments were $70.5 million; working capital was $299.3 million and the current ratio was 7.0:1. The balance sheet reports no borrowings; lease liabilities totaled $4.0 million ($1.6 million current and $2.4 million long-term).
- Other metrics: Backlog scheduled for shipment within 12 months was $210.6 million at Q2 end, compared with $157.1 million at Q1 end. Inventory was $57.1 million. Asia Pacific generated $49.4 million, or about 52%, of Q2 revenue; exports accounted for 64.3% of revenue.
Material changes versus comparable periods
- Q2 revenue increased 34.8% year over year, and six-month revenue increased 37.3%. Six-month net income attributable to Vicor rose to $34.5 million from $0.9 million.
- Q2 gross margin expanded 9.5 percentage points year over year to 52.3%; six-month gross margin expanded 8.3 points to 51.3%.
- Bookings rose 70.8% year over year in Q2, with Advanced Products bookings up 181.6%; management said bookings also reflected longer lead times. Sequentially, total bookings increased 51.0%, including a 99.3% rise in Advanced Products bookings.
- Property, plant and equipment, net, increased to $93.0 million from $74.8 million at year-end, reflecting investment in manufacturing capacity. Accounts receivable increased $14.0 million, which management primarily attributed to higher recent-period revenue.
Outlook, risks and unusual items
- Outlook: The filing provides no specific revenue or earnings guidance. Management said cash, short-term investments, and expected operating cash flows should fund planned operations, equipment purchases, and construction for the foreseeable future. Backlog and bookings are not guarantees of future revenue.
- Capacity expansion: The company reported $21.5 million of capital expenditure commitments, $8.5 million of received but unpaid capital items, and about $28.0 million of remaining budgeted 2021 spending for a 90,000-square-foot Andover facility addition and production equipment.
- Execution and supply risks: Global semiconductor allocation constraints and internal processing and testing limitations constrained Advanced Products growth. Management also cited supply-chain uncertainty, customer schedule changes, longer lead times, production yields, and market unpredictability. COVID-19-related disruption remained a risk, although current employee absenteeism and factory impact were described as negligible.
- Tax: Vicor maintained a full valuation allowance of approximately $37.9 million against domestic net deferred tax assets. Management said continued earnings and bookings, together with resolution of supply-chain and Advanced Products process concerns, could support a future release, but timing and amount are uncertain.
- Investment valuation: A failed-auction security with $3.0 million par value was carried at $2.6 million and classified as long-term because recovery was expected to exceed 12 months. It had a $0.4 million unrealized loss; further deterioration could lead to additional losses or impairment. Management said it did not expect the security’s illiquidity to impair its operating plan.
- Legal contingency: The long-running SynQor patent dispute remains active. SynQor sought to lift the stayed court case; that motion was pending. Patent reexamination and appeal proceedings continued, with mixed outcomes. Vicor said loss was not probable and it could not estimate a possible loss range.
- Taxes and unusual comparability: The effective tax rate was 2.4% for the first half of 2021; the very large negative comparative 2020 rate reflects a small pretax-income base and tax benefits. Q2 other income included $0.2 million of rental income and $0.3 million of interest income.
Important facts for investors to verify
- Whether elevated bookings and the $210.6 million backlog convert into shipments and revenue, given longer lead times and component shortages.
- Whether internal production, processing, and testing constraints ease enough to support Advanced Products growth and planned capacity expansion.
- Actual timing and total cost of the Andover expansion and equipment program relative to the stated commitments and remaining 2021 budget.
- Developments in the SynQor litigation and related appeals, as well as any change to management’s loss assessment.
- Any changes in the valuation allowance, the failed-auction security’s fair value or liquidity, and the company’s ongoing cash generation.