Vicor Corporation — Q2 2017 Form 10-Q
Business context and period. Unaudited results cover the three and six months ended June 30, 2017, compared with the same 2016 periods. Vicor designs, manufactures and sells modular power components and systems, and licenses technology for royalties. Its segments are Brick Business Unit (BBU), VI Chip and Picor.
Key financial results
| Metric | Q2 2017 | Q2 2016 | Six months 2017 | Six months 2016 |
|---|---|---|---|---|
| Revenue | $57.7 million | $52.9 million | $112.2 million | $99.0 million |
| Gross margin | $25.9 million; 44.9% | $24.5 million; 46.2% | $49.6 million; 44.2% | $43.8 million; 44.2% |
| Operating loss | $0.5 million | $0.6 million | $1.9 million | $6.0 million |
| Net loss attributable to Vicor | $0.5 million; $0.01/share | $0.5 million; $0.01/share | $1.4 million; $0.04/share | $5.9 million; $0.15/share |
| Operating cash flow | Not provided for quarter | $(0.7) million | $(4.0) million |
At June 30, cash and cash equivalents were $51.4 million, down $4.7 million from year-end 2016. Current assets were $119.9 million and current liabilities $30.8 million; the current ratio was 3.9:1 and working capital was $89.1 million. Total liabilities were $31.5 million. The balance sheet presents no borrowings as a separate line item.
Six-month capital expenditures were $5.6 million, versus $4.6 million a year earlier; remaining capital expenditure commitments were $5.5 million. Inventory was $30.5 million, up $3.4 million from year-end, while accounts receivable rose $8.9 million to $34.1 million.
Material changes and segment trends
- Revenue increased 9.0% in Q2 and 13.3% for the first half. Management attributed growth primarily to higher bookings, particularly in VI Chip and Picor, and shipments of 48-volt-to-point-of-load products.
- Q2 revenue by segment: BBU $39.1 million, down 3.7%; VI Chip $14.5 million, up 44.1%; Picor $4.1 million, up 79.6%. For the first half, BBU revenue fell 1.1%, while VI Chip rose 54.7% and Picor 109.8%.
- Q2 gross margin percentage declined to 44.9%, mainly from less favorable product mix; first-half margin held at 44.2%. Operating expenses rose 5.6% in Q2, driven largely by higher R&D spending on project and pre-production materials.
- Backlog scheduled for shipment within 12 months was $53.2 million at quarter-end, up from $51.7 million at the end of Q1. Six-month bookings rose 15.5% year over year, but management noted that order and delivery schedules remain unpredictable.
Outlook, risks and unusual items
- No specific revenue or earnings guidance was provided. Management said cash and expected operating cash flows should fund planned operations and capital equipment purchases for the foreseeable future.
- Management highlighted weak and unpredictable demand for legacy products, longer-than-expected sales cycles for new products, customer scheduling delays, and the risk that production volumes may not absorb fixed manufacturing overhead. Engineering and sales spending is expected to remain relatively high as a percentage of revenue.
- Management sees growing interest in advanced products, especially 48-volt data-center solutions, but cautioned that adoption depends on customer timing and faces a more competitive landscape. Supply shortages, customer concentration, and the ability to convert design wins into sustained sales are also risks.
- Other income was $0.36 million in Q2 and $0.69 million for the first half, including rental income and foreign-currency gains; these items helped reduce pretax losses.
- The company held a failed-auction-rate security with $3.0 million par value, carried at $2.6 million using Level 3 valuation inputs. It continued to receive interest and did not expect the illiquidity to disrupt its operating plan, but further market or credit deterioration could cause additional losses.
- SynQor patent litigation remained stayed pending patent-review appeals. Vicor said it did not believe a loss was probable, but could not estimate a possible loss or range. The IRS had opened a preliminary examination of the 2015 federal tax return. No material risk-factor changes from the 2016 Form 10-K were reported.
- New revenue-recognition guidance is scheduled for adoption January 1, 2018. Vicor expected a significant effect on timing for sales to stocking distributors, with revenue recognized at shipment rather than when distributors resell products; the ultimate financial impact was still under evaluation.
Important facts for investors to verify
- Whether higher VI Chip and Picor bookings and backlog convert into timely shipments and recurring revenue.
- Whether product mix, manufacturing utilization and fixed-cost absorption improve enough to restore profitability.
- How growth in receivables and inventory compares with collections, demand and future shipments.
- Any changes in the auction-rate security valuation, liquidity outlook or impairment assessment.
- Developments in the SynQor appeals and any resulting change to the litigation contingency assessment.
- The quantified transition effect of the new revenue-recognition standard on distributor sales and retained earnings.