Vicor Corporation (NASDAQ: VICR) — Q2 2019 Form 10-Q
Reporting period: Three and six months ended June 30, 2019. Financial figures below are in U.S. dollars; amounts are in millions unless otherwise noted. Vicor designs and manufactures modular power components and systems. It now reports as one segment, with Advanced Products and Brick Products as product lines.
Financial performance
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Revenue | $63.4 | $74.2 | $129.1 | $139.5 |
| Gross profit / margin | $29.1 / 46.0% | $35.9 / 48.4% | $60.2 / 46.6% | $66.1 / 47.4% |
| Operating income | $2.4 | $8.3 | $6.9 | $12.0 |
| Net income attributable to Vicor | $2.6 | $7.9 | $6.8 | $11.8 |
| Diluted EPS | $0.06 | $0.19 | $0.17 | $0.29 |
- Q2 revenue declined 14.6% year over year and 3.6% sequentially. Advanced Products revenue fell 40.6% year over year to $15.4 million; Brick Products decreased 0.7% to $48.0 million.
- First-half revenue declined 7.4% year over year: Advanced Products fell 31.8% to $34.5 million, while Brick Products grew 6.3% to $94.6 million.
- Bookings declined 31.1% year over year in Q2 and 25.1% for the first half. Q2 bookings were down 9.6% sequentially. Backlog was $100.7 million at quarter-end, versus $103.8 million at Q1-end.
- Cash and cash equivalents were $71.5 million, up $0.9 million from year-end 2018. Current assets were $169.6 million and current liabilities $33.2 million; the current ratio was 5.1 and working capital $136.5 million.
- First-half operating cash flow was $5.2 million, capital expenditures were $5.9 million, and cash from financing activities was $1.6 million. Inventory increased $7.2 million, or 15.2%, to $54.6 million, mainly as customers delayed shipments.
- No conventional borrowings are reported on the balance sheet. Operating lease liabilities totaled $4.1 million, including $1.7 million current. Capital expenditure commitments were $3.4 million.
Changes, outlook and risks
- Management attributed weaker results to reduced bookings, customer rescheduling of Advanced Products shipments, lower manufacturing-overhead absorption and tariffs. Tariff costs were approximately $1.3 million in Q2 and $2.4 million for the first half.
- Management emphasized investment in Advanced Products and high-volume growth markets, while seeking to maintain a profitable Brick Products business. It cited customer interest and design wins for 48V, datacenter, and AI-related power solutions, but noted limited customer visibility and uncertainty in datacenter demand. The filing provides no numeric revenue or earnings guidance.
- Capacity expansion plans include an approximately 87,100-square-foot addition to the Andover facility, with construction planned to begin in 2019 and occupancy expected in 2020. Management also said further capacity may be needed beyond 2021. Construction could disrupt operations; delayed or uneven production volumes could pressure profitability.
- Supply-chain lead times, component shortages, tariffs, customer schedule changes, export-market weakness and competition are risks. Management was evaluating alternative sourcing and possible tariff drawback recovery, but could not estimate the amount or timing of any recovery.
- Vicor adopted lease accounting in 2019, recognizing lease assets and liabilities; management said adoption did not materially affect operations or cash flows. VI Chip merged into Vicor on June 28, 2019 with no net consolidated financial-statement impact. The company also changed to one reportable segment.
- A $3.0 million-par auction-rate security was valued at $2.6 million and remains illiquid after failed auctions since 2008. Management does not expect the liquidity issue to affect its operating plan, but further market or credit deterioration could cause losses.
- A long-running SynQor patent dispute remains pending, including patent reexaminations and appeals. Vicor said a loss was not probable but could not estimate a possible loss. Management reported no material changes to previously disclosed risk factors.
- A $30.0 million valuation allowance remains against domestic net deferred tax assets. Management said sustained positive earnings could lead to a partial or full release, which would increase income in the period recognized.
Important facts for investors to verify
- Whether Advanced Products bookings, customer shipment schedules and backlog recover, especially given limited datacenter-market visibility.
- Whether margins stabilize as revenue and factory utilization change, and the ongoing effects of tariffs and supply constraints.
- Actual timing, cost and funding of the Andover capacity expansion, alongside the company’s capital spending and cash generation.
- Developments in the SynQor litigation and the valuation/liquidity of the auction-rate security.
- Whether operating performance supports release of the domestic deferred-tax valuation allowance.