Vicor Corporation — FY2015 Form 10-K
Business and period: Vicor designs and manufactures modular power-conversion components and systems. This filing covers the fiscal year ended December 31, 2015; quarterly figures are unaudited. The company is transitioning from a broad base of lower-volume customers toward larger OEMs and higher-volume opportunities, while sustaining its legacy brick business.
Financial performance and liquidity
| Metric | FY2015 | FY2014 |
|---|---|---|
| Revenue | $220.2 million | $225.7 million |
| Gross margin | $99.5 million; 45.2% | $97.1 million; 43.0% |
| Operating income (loss) | $(0.3) million | $(14.8) million |
| Net income (loss) attributable to Vicor | $4.9 million; $0.13 per diluted share | $(13.9) million; $(0.36) per diluted share |
| Cash from operating activities | $11.5 million | $2.2 million |
| Capital expenditures | $9.1 million | $7.1 million |
- FY2015 net income included a $5.0 million gain from the sale/redemption of Vicor’s Great Wall Semiconductor investment. Excluding that gain, Vicor reported a pretax loss of $0.2 million; the filing does not provide a corresponding adjusted net-income measure.
- Revenue declined 2.5%, but gross margin dollars and rate improved, which management attributed to better average selling prices, lower unit costs, a higher mix of VI Chip and Picor products, and benefits from the Westcor manufacturing consolidation.
- Cash and cash equivalents were $63.0 million, working capital was $94.9 million, and the current ratio was 5.6 at year-end. Total liabilities were $21.5 million; the presented balance-sheet data does not separately identify a funded-debt balance.
- Backlog fell to $39.1 million from $54.2 million a year earlier. Inventories declined to $23.4 million from $26.3 million. The company reported no off-balance-sheet arrangements.
- FY2015 fourth-quarter revenue was $51.4 million, versus $60.7 million in Q4 2014. Vicor-attributable net loss was $1.8 million, versus approximately break-even in the prior-year quarter.
Material changes and management outlook
- Bookings were 13.2% lower for 2015 year over year and 24.1% lower in the second half. Management said a transition to a new datacenter voltage-regulation standard delayed bookings and shifted revenue timing. It expected that transition to approach or reach completion during 2016, potentially supporting more orders, but described the near-term outlook as uncertain.
- BBU revenue decreased 6.0% to $173.1 million; VI Chip revenue increased 6.9% to $35.2 million; and Picor revenue increased 38.6% to $11.9 million. VI Chip continued to generate substantial operating losses: $21.0 million in 2015. BBU generated $21.7 million of operating income.
- Vicor plans to continue substantial investment in product development and customer support. R&D expense was $41.5 million (18.8% of revenue); management intended to maintain spending at levels consistent with recent periods. It anticipated additional ChiP product expansion in 2016.
- Management believed operating cash flow and cash on hand would fund planned operations and capital equipment purchases for the foreseeable future. Capital expenditure commitments were approximately $1.1 million at year-end. Management did not expect 2016 capital spending to be materially higher than recent years.
- In December 2015, Vicor sold its 49% interest in Aegis Power Systems and merged Mission Power Solutions into Northwest Power, closing the Mission location. It also reported that Converpower ceased operations; a formal transaction was expected in Q1 2016. Further consolidation of custom-power operations remained possible if performance did not improve.
- The SynQor patent case remained unresolved. The court stayed Vicor’s case pending patent-review matters; Vicor said a loss was not probable but could not estimate a possible loss or range. The filing reported no accrual for this contingency.
- Vicor held an illiquid auction-rate security with $3.0 million par value and $2.5 million estimated fair value; auctions had continued to fail. Management said it did not expect the liquidity limitation to affect operations, but further deterioration could cause additional losses.
Principal risks and other items
- Customer and market concentration: one customer represented 16.2% of 2015 revenue; the five largest represented 33.4%. International sales were 59.6% of revenue, including 21.8% from Hong Kong and 12.4% from China.
- Results are exposed to customer order timing, new-product adoption and long sales cycles, intense price competition, defense-market weakness, and the company’s ability to scale manufacturing and diversify customers.
- Vicor relies on third parties for some components and Picor manufacturing services; certain key VI Chip and Picor components have limited or single-source supply. Other stated risks include intellectual-property disputes, product warranty claims, foreign-market exposure, and dependence on key personnel.
- No cash dividends were paid in 2015 or 2014. The board has no regular dividend policy. The CEO and Chairman controlled approximately 82.9% of voting securities at year-end through the dual-class share structure.
- KPMG issued unqualified opinions on the financial statements and internal controls; management reported disclosure controls and internal control over financial reporting effective at year-end.
Important facts for investors to verify
- Whether the datacenter standard transition concluded as expected in 2016 and whether bookings, backlog, and large-customer orders recovered.
- Whether growth in ChiP, VIA, and Picor products improved VI Chip’s operating losses and supported sustainable consolidated profitability apart from the one-time investment gain.
- How customer concentration and the significant share of international revenue evolved, especially exposure to key customers and Asian markets.
- Developments in the SynQor litigation and related patent reviews, including any change in the estimated likelihood or potential cost of loss.
- Whether the auction-rate security was liquidated or suffered further impairment, and whether reported cash generation remained sufficient to fund operations and capital spending.