VICOR CORP annual report, FY2021

Vicor Corporation — FY2021 Form 10-K Summary

Business context and reporting period

Vicor designs and manufactures modular power components and systems. This annual filing covers the fiscal year ended December 31, 2021; it is not a standalone fourth-quarter report. The company sells Advanced Products, increasingly focused on data centers and high-performance computing, and Brick Products serving more mature markets including defense, industrial and transportation.

Financial performance and liquidity

MetricFY2021FY2020
Revenue$359.4 million$296.6 million
Gross margin$178.2 million; 49.6%$131.4 million; 44.3%
Operating income$55.6 million$17.4 million
Net income attributable to Vicor$56.6 million; $1.26 diluted EPS$17.9 million; $0.41 diluted EPS
Cash from operations$54.4 million$34.7 million
Capital expenditures$47.8 million$28.7 million

At year-end, cash and cash equivalents were $182.4 million and short-term investments were $45.2 million. Working capital was $307.7 million and the current ratio was 7.3, compared with 7.8 a year earlier. Total liabilities were $53.3 million, including lease liabilities; the filing does not report borrowings or other financial debt. Inventory rose 17.6% to $67.3 million. The company generated $6.7 million of operating cash flow in excess of capital expenditures.

Changes versus the prior year

  • Revenue increased 21.2%, driven by Advanced Products, up 60.1% to $170.2 million. Brick Products decreased 0.6% to $189.1 million.
  • Advanced Products represented 47.4% of revenue, versus 35.8% in 2020. Growth reflected data-center and high-performance-computing demand, particularly in the U.S. and Asia Pacific.
  • Gross margin increased 5.3 percentage points, attributed to higher sales, product mix, manufacturing yield improvements and lower tariff costs.
  • Backlog more than doubled to $345.6 million from $147.6 million. Average quarterly “turns” volume was 19% of revenue, versus 14% in 2020.
  • Operating expenses increased 7.5% to $122.6 million, slower than revenue growth.

Outlook, risks and unusual items

  • Management expects China and Hong Kong demand to decline in 2022. That market represented 27.5% of 2021 revenue; total export sales were 67.0% of revenue.
  • Management cited extended supplier lead times, semiconductor packaging and test constraints, and factory-capacity limits as risks to production and deliveries. Customer lead times were extended to 26–32 weeks during 2021.
  • The Andover facility expansion was delayed from 2021 to 2022. Management expected approximately $36.6 million of additional spending through the first half of 2022 for the expansion and production equipment; it anticipated production from new equipment later in 2022.
  • Management expects vertical power delivery products to begin shipping in 2022. No numerical revenue or earnings guidance is provided.
  • Section 301 tariffs cost approximately $6.7 million in 2021, or 1.9% of revenue. Management anticipated a possible reduction in 2022 but could not quantify it.
  • A $43.3 million valuation allowance remained against domestic deferred tax assets. The $0.2 million tax provision and 0.3% effective tax rate reflect, in part, stock-option exercise deductions and the valuation allowance; future release could materially increase reported income.
  • The SynQor patent case remained pending, with a proposed October 2022 trial date. Vicor said it did not believe a loss was probable or reasonably possible and recorded no loss contingency.
  • A long-term auction-rate security had a $2.6 million carrying value and continued to experience failed auctions. The company reported no material impact from its 2019 ransomware incident; management and KPMG concluded internal controls over financial reporting were effective.

Important facts for investors to verify

  • Whether the elevated backlog converts to shipments and cash, given long lead times, customer rescheduling and supply constraints.
  • Whether Advanced Products growth and improved gross margins persist, and whether Brick Products remain profitable.
  • Progress, cost and production yields from the Andover expansion and in-house electroplating capacity.
  • Customer and geographic concentration: one customer accounted for 14.9% of annual revenue, and China/Hong Kong for 27.5%.
  • Inventory realizability and the assumptions supporting the domestic deferred-tax valuation allowance.
  • Developments in SynQor litigation and the status and recoverability of the failed-auction investment.