Vicor Corporation (NASDAQ: VICR) — 2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020. This annual filing also reports fourth-quarter results. Vicor designs and manufactures modular power components and systems; its strategy is to grow higher-volume Advanced Products while maintaining its Brick Products business.
Financial performance
| Metric | FY 2020 | FY 2019 | Change |
|---|---|---|---|
| Revenue | $296.6 million | $263.0 million | +12.8% |
| Gross profit / margin | $131.4 million / 44.3% | $123.0 million / 46.8% | Profit +6.9%; margin down 2.5 points |
| Operating income | $17.4 million | $13.8 million | +25.7% |
| Net income attributable to Vicor | $17.9 million | $14.1 million | +27.0% |
| Diluted earnings per share | $0.41 | $0.34 | Up $0.07 |
| Operating cash flow | $34.5 million | $22.2 million | +$12.3 million |
| Capital expenditures | $28.7 million | $12.5 million | +$16.2 million |
Revenue mix: Advanced Products revenue rose 41.6% to $106.3 million, or 35.8% of sales. Brick Products revenue increased 1.3% to $190.3 million. Bookings rose 28.6%, including an 80.9% increase in new Advanced Products orders.
Fourth quarter: Revenue was $84.3 million, gross profit $40.5 million, and net income attributable to Vicor $11.2 million ($0.25 diluted EPS). Revenue and earnings increased from the third quarter’s $78.1 million and $5.8 million, respectively.
Liquidity, capital and balance sheet
- Cash and cash equivalents were $161.7 million and short-term investments $50.2 million at year-end, together $211.9 million.
- Working capital was $276.4 million, versus $149.1 million in 2019; the current ratio was 7.8, versus 6.0.
- Total liabilities were $45.1 million. The filing does not report conventional borrowings or a debt balance; liabilities include operating lease obligations.
- Cash increased $77.1 million during the year. Financing included $109.7 million of net proceeds from a June stock offering and $11.6 million from employee stock plans. Investing used $78.6 million, including $50.2 million for Treasury investments and $28.7 million for property and equipment.
- Inventory rose 16.4% to $57.3 million, primarily from higher raw-material holdings. Year-end order backlog was $147.6 million, up from $104.2 million.
Changes, outlook and notable items
- Revenue recovery was led by Advanced Products and demand from AI-system vendors and hyperscalers. Gross margin nevertheless declined, attributed to product mix, initial production inefficiencies and cost variances, pandemic-related supply constraints, and higher tariffs.
- COVID-19 disrupted operations and customer demand during 2020, though the company reported operating near full manufacturing capacity. Quoted delivery lead times were extended beyond 20 weeks; management intended to maintain them while pandemic and supply-chain uncertainty persisted.
- China and Hong Kong represented 31.4% of 2020 revenue, compared with 22.1% in 2019. Management attributed the increase principally to Chinese stimulus, while noting some orders may have been accelerated amid U.S.-China trade concerns. Section 301 tariff costs rose 37% to $7.3 million.
- Management expected 2021 demand from China and Hong Kong to approximate recent quarterly levels, assuming the pandemic was substantially contained. No specific consolidated revenue or earnings guidance was provided.
- Construction was underway on a 90,000-square-foot Andover manufacturing expansion, with occupancy expected in the first half of 2021. Management planned substantial capacity investment and anticipated approximately $63.8 million of budgeted expansion-related capital expenditures, in addition to $13.1 million of existing capital commitments.
- Packaging and testing capacity constraints for semiconductor components had caused delays, not yet materially affecting customer deliveries. Continued constraints could impair delivery commitments and limit lead-time reductions. Vicor also depended on a third party for specialized manufacturing steps pending installation and qualification of in-house equipment.
- A $37.9 million valuation allowance remained against domestic deferred tax assets. Management said improved earnings and bookings could support a future release if uncertainties ease; any release could materially increase reported income.
- The company remained a defendant in SynQor patent litigation. It said a loss was not probable and could not estimate a possible loss; a February 2021 appellate ruling remanded a patent-review decision. The patents at issue expired in January 2018, limiting potential liability for later activity.
- After year-end, CFO James A. Simms gave notice of resignation effective June 30, 2021; a successor search had begun. The June 2020 share offering and employee option exercises increased shares outstanding.
- Auditors issued unqualified opinions on the financial statements and internal control over financial reporting. Management also reported effective disclosure controls and internal controls.
Investor verification priorities
- Assess whether Advanced Products growth and the higher backlog convert into shipments and recurring demand, particularly given customer concentration and longer lead times.
- Track gross-margin recovery, production yields, tariff exposure, and the effects of product mix and new-product ramp costs.
- Verify semiconductor packaging/test supply availability and progress, cost, timing, and output from the Andover expansion and vertical integration.
- Monitor China/Hong Kong demand, trade-policy developments, and whether 2020 orders reflected sustainable end-demand or order acceleration.
- Review inventory quality and the $37.9 million domestic deferred-tax valuation allowance, as well as developments in the SynQor matter.
- Consider dilution from the public offering and employee equity awards, CFO succession, and the company’s concentrated voting control.