Vicor Corporation — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. Vicor designs and manufactures modular power components and systems. Financial amounts below are in U.S. dollars; unless noted, figures are in millions.
Financial results
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Revenue | $88.3 | $88.8 | Down 0.6% |
| Gross profit / margin | $37.6 / 42.6% | $44.7 / 50.3% | Down $7.1; margin down 7.7 points |
| Operating income / margin | $4.8 / 5.4% | $14.7 / 16.6% | Down $9.9 |
| Net income attributable to Vicor | $5.0 | $15.1 | Down 66.9% |
| Diluted EPS | $0.11 | $0.34 | Down $0.23 |
| Operating cash flow | $4.6 | $17.8 | Down $13.2 |
| Capital expenditures | $22.7 | $9.3 | Up $13.4 |
Revenue mix and material changes
- Advanced Products revenue rose 54.1% year over year to $52.9 million, driven principally by data center and high-performance computing demand, including in the U.S. and Asia Pacific.
- Brick Products revenue declined 35.1% to $35.4 million, which Vicor attributed primarily to unfavorable market conditions in the U.S. and Asia Pacific.
- Gross margin pressure reflected product mix, production inefficiencies associated with initial volumes of new products, and higher supply-chain costs. Operating expenses increased 9.5% for SG&A and 9.4% for R&D.
- Sequentially, revenue declined 2.2% from Q4 2021; Advanced Products grew 3.0%, while Brick Products fell 9.1%. Management cited component availability and internal processing and testing constraints on Advanced Products.
- Backlog scheduled for shipment within 12 months increased to approximately $423.7 million from $345.6 million at year-end, primarily due to higher bookings. Backlog is not a guarantee of future revenue.
Liquidity, cash flow and investment
- At March 31, cash and cash equivalents were $191.1 million and short-term investments were $20.0 million. Working capital was $295.0 million; the current ratio was 7.0:1.
- Operating cash flow was $4.6 million, while capital spending was $22.7 million, resulting in approximate free cash flow of negative $18.1 million. Cash increased $8.6 million during the quarter, including $25.0 million from sales or maturities of short-term investments.
- Inventory rose 9.7% from year-end to $73.9 million, primarily in raw materials. Management cited production delays from component and capacity issues and inventory support for planned higher revenues later in the year.
- The balance sheet reports no borrowings; lease liabilities totaled $7.9 million. Total liabilities were $57.2 million.
- Capital expenditure commitments were approximately $32.3 million, principally for manufacturing equipment; $6.8 million of received capital items remained unpaid. Vicor expected a further $19.1 million of spending through the rest of 2022 for a 90,000-square-foot facility addition and manufacturing equipment.
- Management said cash, investments and expected operating cash generation should fund planned operations, equipment purchases and construction for the foreseeable future.
Outlook, risks and unusual items
- The filing provides no formal revenue or earnings guidance. Management noted uncertainty from supply and factory capacity constraints, component allocation, production-process issues for Advanced Products, customer scheduling changes, and market variability. These factors may affect output, costs and timing of shipments.
- Vicor is shifting strategic emphasis toward Advanced Products and larger, higher-volume customers. Management expects customer concentration to increase over time.
- COVID-19-related absenteeism was negligible at quarter-end, although January absenteeism was higher. The company cited possible risks to factory productivity, suppliers, customers and transportation; it said mitigation steps had helped to date but were not assured to remain effective.
- A full valuation allowance of approximately $43.3 million remained against domestic deferred tax assets. Management cited a cumulative loss position and uncertainty in forecasting taxable income; a future release could increase reported net income, but timing and amount are uncertain.
- A $2.5 million failed-auction security remained classified as a long-term investment; its fair value was below its $3.0 million par value. Auctions have failed since 2008, and management said recovery may take more than 12 months, while stating it did not believe the decline was other-than-temporary.
- The long-running SynQor patent litigation remained active. A trial was scheduled for October 17, 2022; Vicor said it believed the claims lacked merit and did not consider a loss probable or reasonably possible, but could not estimate a potential loss if incurred.
- Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter. The filing stated there were no material changes to previously disclosed risk factors.
Important facts for investors to verify
- Whether component supply, factory capacity and Advanced Products process constraints improve enough to convert higher bookings and backlog into shipments and revenue.
- Whether the sharp year-over-year gross-margin decline persists as product mix, new-product production efficiency and supply costs evolve.
- Whether planned facility and equipment spending stays within expectations and is supported by operating cash flow and available liquidity.
- Developments in the SynQor litigation and related appeals, including any change in potential exposure or legal costs.
- Management’s future assessment of domestic deferred tax asset realizability and the failed-auction security’s value and recovery period.