Vicor Corporation — Q2 2022 Form 10-Q
Business and period: Vicor designs and manufactures modular power components and systems. This unaudited report covers the three and six months ended June 30, 2022; comparisons are with 2021 unless noted. Dollar amounts below are in millions unless stated otherwise.
Financial performance and liquidity
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $102.2 | $95.4 | $190.5 | $184.2 |
| Gross margin | $46.8; 45.8% | $49.9; 52.3% | $84.5; 44.3% | $94.6; 51.3% |
| Operating income | $11.3 | $20.0 | $16.1 | $34.7 |
| Net income attributable to Vicor | $10.6 | $19.4 | $15.6 | $34.5 |
| Diluted EPS | $0.24 | $0.43 | $0.35 | $0.77 |
- Cash flow: Six-month operating cash flow was $15.4, compared with $30.1 in 2021. Capital expenditures were $36.9, versus $15.8. Cash and cash equivalents increased $5.3 to $187.7.
- Liquidity: Short-term investments were $19.9; cash plus short-term investments totaled $207.6. Working capital was $292.9, down from $307.7 at year-end 2021; the current ratio was 5.9, versus 7.3. No borrowings are shown on the balance sheet; lease liabilities totaled $9.5.
- Balance sheet: Total assets were $513.4 and total liabilities $68.3 at June 30, 2022. Inventories rose to $83.1 from $67.3 at year-end, principally raw materials.
Material changes and operating trends
- Q2 revenue increased 7.1% year over year, but gross profit fell 6.1% and net income attributable to Vicor declined from $19.4 to $10.6. For the first half, revenue rose 3.4%, while net income fell from $34.5 to $15.6.
- Product mix shifted sharply: Q2 Advanced Products revenue rose 64.9% to $67.7, while Brick Products revenue fell 36.5% to $34.5. For the first half, Advanced Products rose 60.0% to $120.6 and Brick Products declined 35.8% to $69.9. Advanced Products growth was associated with data center and high-performance computing demand; Brick Products weakness was attributed to market conditions, including in Europe and Asia Pacific.
- Management attributed lower year-over-year gross margin rates to unfavorable product mix, inefficiencies in initial production of new products, and higher supply-chain costs. Q2 SG&A rose 20.8% year over year, including higher legal and compensation costs; R&D rose 16.9%.
- Sequentially, Q2 revenue rose 15.7% from Q1, with Advanced Products up 27.8%; management said growth remained constrained by component availability and internal processing and testing constraints. Gross margin improved sequentially to 45.8% from 42.6%, partly on higher volume and fixed-cost absorption.
Outlook, risks and notable items
- Outlook: The filing provides no specific quantified revenue or earnings guidance. Management reported backlog of approximately $410.0 at quarter-end, down from $423.7 at Q1-end, reflecting higher shipments and lower bookings during the quarter. Backlog represents orders scheduled for shipment within 12 months.
- Capacity investment: The company is expanding its Andover manufacturing facility and installing production equipment. It reported $32.0 of capital expenditure commitments, $10.6 of received but unpaid capital items, and approximately $15.7 of remaining 2022 spending expected for the facility expansion and equipment. Management expects available cash and operating cash generation to fund planned needs for the foreseeable future.
- Execution and supply risks: Semiconductor supply allocation, production capacity, processing and testing constraints, supply-chain costs, customer schedule changes, and uncertain demand may affect results. Management cited uncertainty in forecasting due to these constraints and market unpredictability.
- Tax valuation allowance: Vicor maintained a full valuation allowance of approximately $43.3 against domestic deferred tax assets, citing a cumulative loss position and uncertainty around future taxable income. A future release could increase reported income, but timing and amount are uncertain. The IRS notified Vicor of an intended examination of its 2019 federal return.
- Contingency: In the long-running SynQor patent dispute, a trial was scheduled for October 17, 2022. The company said it does not believe a loss is probable, but cannot estimate a possible loss or range. The patents at issue have expired; proceedings and appeals remained pending as described in the filing.
- Investment risk: A failed-auction security had a $2.6 fair value and remains classified as long-term because recovery is expected to take more than 12 months. Management said it did not believe the decline was other-than-temporary, but continued auction failures could affect carrying value.
- Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter. It reported no material changes to the risk factors in the 2021 Form 10-K.
Important facts for investors to verify
- Whether Advanced Products growth can continue despite component, factory-capacity, processing, and testing constraints—and whether margins recover from the year-over-year decline.
- Backlog conversion, booking trends, customer concentration, and the extent to which large customers change delivery schedules.
- Execution, timing, and total cost of the Andover expansion and associated capital spending.
- Developments in the SynQor litigation and any resulting financial exposure; the filing does not provide a clear estimate of possible loss.
- Future evidence supporting a change in the $43.3 domestic deferred-tax valuation allowance, and developments in the IRS examination.
- Recoverability and fair value of the failed-auction security, and the impact of foreign-exchange movements and supply-chain costs.