Vicor Corporation — Q1 2021 Form 10-Q
Business context and period: Vicor designs, manufactures and sells modular power components and systems. Its portfolio comprises Brick Products and Advanced Products, with a strategic emphasis on Advanced Products and higher-volume markets. This unaudited report covers the three months ended March 31, 2021; year-over-year comparisons are to Q1 2020 unless noted. Dollar amounts below are in millions except per-share data.
Financial performance and liquidity
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Net revenue | $88.8 | $63.4 | +40.1% |
| Gross profit / margin | $44.7 / 50.3% | $27.3 / 43.1% | Margin +7.2 percentage points |
| Operating expenses | $30.0 | $29.7 | +0.9% |
| Operating income (loss) | $14.7 | $(2.4) | Turned profitable |
| Net income (loss) attributable to Vicor | $15.1 | $(1.7) | Turned profitable |
| Diluted earnings (loss) per share | $0.34 | $(0.04) | — |
| Cash from (used in) operations | $17.8 | $(0.9) | Improved |
| Capital expenditures | $9.3 | $3.0 | Higher investment |
- Revenue mix: Brick Products revenue was $54.5 million, up 19.6%; Advanced Products revenue was $34.3 million, up 92.0%. Asia Pacific revenue rose to $52.0 million from $23.0 million; U.S. revenue declined to $27.1 million from $33.6 million.
- Balance sheet at March 31: Cash and cash equivalents were $127.4 million and short-term investments $95.7 million, versus $161.7 million and $50.2 million, respectively, at year-end. Cash plus short-term investments therefore totaled $223.1 million. Working capital was $289.2 million; the current ratio was 7.7:1.
- Cash movements: Cash fell $34.3 million during the quarter, mainly reflecting $50.7 million of short-term investment purchases and $9.3 million of capital spending. This was a reallocation to investments as well as operating cash generation, rather than solely an operating cash outflow.
- Debt and obligations: The balance sheet lists no conventional borrowings. Lease liabilities totaled $4.4 million, and current liabilities were $42.9 million.
Material changes and management commentary
- Year-over-year growth reflected recovery among Asian customers, particularly in China, and comparison with pandemic-affected Q1 2020. Bookings increased 41.2% year over year. Ending backlog scheduled for shipment within 12 months was $157.1 million, up from $147.6 million at Q4 2020.
- Management attributed improved gross margin to higher revenue, better efficiencies and cost variances, and lower tariff charges. Sequentially, revenue increased 5.3% and gross margin rose to 50.3% from 48.0%; Advanced Products shipments were constrained by global semiconductor component allocation.
- Management said pandemic-related production constraints had a reduced impact in Q1 2021 versus 2020, but warned that COVID-19, supply-chain access, transportation disruption, customer scheduling changes and factory absenteeism could still affect operations.
- The company is investing in manufacturing expansion: it had $11.5 million of capital expenditure commitments and approximately $38 million of additional budgeted 2021 spending for a 90,000-square-foot facility addition and equipment. Management expects available cash, short-term investments and operating cash flow to fund planned needs for the foreseeable future.
- No formal earnings or revenue guidance is provided. Management describes future results as difficult to forecast and subject to significant fluctuations.
Risks, contingencies and unusual items
- Tax valuation allowance: Vicor maintained a $37.9 million valuation allowance against domestic deferred tax assets, citing uncertainty in forecasting taxable income, pandemic-related supply-chain effects, Advanced Products production issues and market unpredictability. Management said a future release could increase reported earnings if sustained results and improved visibility support it.
- Failed auction-rate security: A $3.0 million-par security was carried at $2.5 million, with a $0.5 million unrealized loss, including $32,000 identified as credit loss. It has been illiquid since 2008 and is valued using Level 3 inputs. Management does not expect liquidity constraints to affect its operating plan, but further market or credit deterioration could cause additional losses.
- SynQor patent litigation: The long-running case remains stayed while patent proceedings continue; SynQor sought to lift the stay in March 2021. Vicor says a loss is not probable and cannot estimate a possible loss. The patents expired in January 2018, but the case and certain patent proceedings remain unresolved.
- Stock-based compensation increased to $1.6 million from $0.7 million. The company reported an effective tax rate of negative 1.0%, reflecting its domestic deferred-tax valuation allowance.
Investor verification points
- Whether semiconductor supply constraints and Advanced Products production issues ease, and how they affect shipments, margins and backlog conversion.
- Whether bookings and backlog translate into sustained revenue growth, particularly given customer concentration and short-notice schedule changes.
- Execution, timing and funding of the facility expansion and planned capital spending.
- Developments in the SynQor litigation and patent proceedings, including any change in management’s loss assessment.
- Changes in the domestic deferred-tax valuation allowance and the liquidity or valuation of the failed auction-rate security.