Vicor Corporation — Q1 2018 Form 10-Q
Reporting period: Three months ended March 31, 2018; balance-sheet figures are as of March 31, 2018, compared with December 31, 2017. Vicor designs and manufactures modular power components and systems, and licenses technology. Its segments are BBU, VI Chip and Picor.
Financial results and liquidity
| Metric | Q1 2018 | Q1 2017 / comparison |
|---|---|---|
| Net revenue | $65.269 million | $54.462 million; up 19.8% |
| Gross margin | $30.211 million; 46.3% of revenue | $23.652 million; 43.4% |
| Operating income (loss) | $3.686 million | $(1.378) million |
| Net income (loss) attributable to Vicor | $3.943 million; $0.10 per diluted share | $(0.974) million; $(0.02) per share |
| Operating cash flow | $(0.812) million | $(1.347) million |
| Capital expenditures | $1.858 million | $2.648 million |
- Operating expenses were $26.525 million, up 6.0%; SG&A was $15.399 million and R&D was $11.126 million.
- Cash and cash equivalents were $42.678 million, down $1.552 million from year-end. Working capital was $100.893 million and the current ratio was 4.9:1.
- Total liabilities were $27.275 million. The balance sheet presents no borrowings; the filing does not provide a separate debt metric.
- Accounts receivable was $41.634 million and inventory was $38.959 million. Inventory rose 6.7% from year-end.
Changes and business developments
- Bookings increased 41.5% year over year; reported backlog was $89.975 million at quarter-end, versus $73.054 million at the end of Q4 2017.
- VI Chip revenue rose 62.1% to $20.139 million, largely from 48-volt-to-point-of-load solutions. BBU revenue increased 8.3% to $40.637 million; Picor revenue was nearly flat at $4.493 million.
- Management attributed stronger gross margin to increased revenue and production volumes, favorable product mix and improved pricing. The company reported nine consecutive quarters of sequential booking increases.
- Revenue recognition standard Topic 606 was adopted on January 1, 2018 using the modified retrospective method. It changed the timing of revenue recognition for stocking-distributor sales and produced a $3.67 million increase to opening retained earnings. Q1 2017 comparatives were not restated. For Q1 2018, reported revenue was $0.804 million higher than it would have been without adoption; the effect on cash flows was not material.
Outlook, risks and unusual items
- No numerical revenue or earnings guidance was provided. Management said cash, cash equivalents and expected operating cash flows should fund planned operations and capital equipment purchases for the foreseeable future; capital-expenditure commitments were approximately $1.649 million.
- Management sees growing interest and orders for advanced products, particularly datacenter and supercomputer solutions, but said customer adoption and shipment timing are outside its control and competition is increasing. Legacy-product demand remained below historical trends, which management linked to price sensitivity, commoditization and uncertain end-market demand.
- Profitability depends on sustained production volumes to absorb fixed manufacturing overhead. Risks include raw-material shortages and long supply-chain lead times, elevated operating expenses, and the ability to turn design wins and backlog into shipments and sales.
- A $3.0 million-par auction-rate security was carried at $2.548 million as a long-term investment. Auctions had failed since 2008; its valuation uses Level 3 assumptions. Management did not expect its illiquidity to impair the operating plan, but further market deterioration or credit changes could cause additional losses.
- Patent litigation with SynQor remains ongoing. The Texas case is stayed pending patent proceedings; the company said it believes its products do not infringe and that a loss is not probable, but it cannot estimate a possible loss. The USPTO issued a non-final action finding challenged claims of one patent unpatentable; further review remains possible.
- The IRS is examining Vicor’s 2015 federal return, and New York selected 2014–2016 returns for audit. Management reported no material change to previously disclosed risk factors. Disclosure controls were assessed as effective at a reasonable-assurance level.
Important facts for investors to verify
- Whether rising bookings and backlog convert into shipments and sustainable revenue, particularly for advanced products and large customers.
- How Topic 606 affects revenue, distributor allowances and period-to-period comparisons; 2017 figures were not restated.
- Production-volume, inventory and supply-chain trends, and whether gross-margin gains persist as volume and product mix change.
- The valuation and liquidity of the auction-rate security, and developments in the SynQor litigation and tax audits.
- Capital spending, operating cash generation and cash balances, given negative operating cash flow in Q1 despite reported net income.