Vicor Corporation — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021. Vicor designs, manufactures and sells modular power components and power systems. Its product lines are Advanced Products, focused largely on its Factorized Power Architecture and higher-volume markets such as data centers, and Brick Products, serving more established applications.
Financial performance and position
- Q3 revenue: $84.9 million, up 8.7% year over year but down 11.0% sequentially. Advanced Products revenue rose 42.9% year over year to $43.5 million; Brick Products fell 13.1% to $41.4 million.
- Q3 profitability: Gross margin was $42.8 million, or 50.4% of revenue, versus $33.3 million and 42.7% a year earlier. Operating income was $12.0 million versus $6.1 million. Net income attributable to Vicor was $13.3 million, or $0.29 diluted EPS, compared with $5.8 million, or $0.13.
- First nine months: Revenue was $269.1 million, up 26.8%; gross margin was $137.4 million, or 51.1%, versus $91.0 million, or 42.9%. Operating income was $46.7 million versus $5.8 million; net income attributable to Vicor was $47.7 million, or $1.06 diluted EPS, versus $6.7 million, or $0.15.
- Cash flow and investment: Nine-month operating cash flow was $40.2 million, compared with $15.4 million. Capital expenditures were $30.9 million, compared with $16.8 million. Cash and cash equivalents ended the period at $178.7 million; short-term investments were $50.2 million.
- Liquidity and debt: Working capital was $307.4 million and the current ratio was 8.2:1. Total liabilities were $47.2 million, including lease liabilities; the balance sheet does not list borrowings or other interest-bearing debt.
- Balance sheet changes: Total assets increased to $458.8 million from $396.2 million at year-end 2020, driven in part by $29.6 million of net additions to property, plant and equipment. Inventory rose to $63.4 million from $57.3 million.
Material changes and management commentary
- Year-to-date revenue growth was led by Advanced Products, up 63.6% to $118.8 million, supported by data-center and high-performance-computing demand. Brick Products increased 7.6% to $150.3 million over the same period.
- Management attributed year-to-date gross-margin expansion to higher revenue, improved product mix, process-yield improvements and lower tariff charges. Sequentially, Q3 margin declined from Q2’s 52.3% to 50.4%, primarily because of lower revenue and overhead absorption.
- Q3 Advanced Products growth was constrained by global semiconductor allocation issues and internal processing and testing constraints. Brick Products revenue fell sequentially, primarily due to market conditions in Europe and Asia Pacific. Management cited supply-chain disruption and production delays as factors in Q3 results.
- Backlog scheduled for shipment within 12 months was approximately $295.7 million at quarter-end, compared with $210.6 million at the end of Q2. Management said lead times had increased 20%–30% for Brick and Advanced Products, respectively, contributing to higher bookings.
- Vicor plans approximately $20 million of additional budgeted capital expenditures through the first half of 2022 for a 90,000-square-foot facility expansion and production equipment. It also reported $22.0 million of capital-expenditure commitments and $6.6 million of received capital items not yet paid. Management expects available liquidity and operating cash flows to fund planned needs for the foreseeable future.
Outlook, risks and contingencies
- The filing provides no specific revenue or earnings guidance. Management cautioned that quarterly results can fluctuate with customer order timing, product mix, production volumes, supply availability and other factors.
- Supply-chain constraints, limited component availability, production-process issues affecting Advanced Products, and COVID-19-related risks could disrupt output, demand or transportation. Management said mitigation measures had helped to date, but could not assure they would remain effective.
- A full valuation allowance of approximately $37.9 million remained against domestic deferred tax assets. Management cited forecasting uncertainty, including supply-chain effects and Advanced Products process issues; a future release could increase reported net income. The IRS notified Vicor of its intent to examine the 2019 federal tax return.
- Vicor continues to defend a long-running SynQor patent case. The company stated it does not consider a loss probable but cannot estimate a possible loss. Related patent proceedings and SynQor’s motion to lift the court stay remained pending.
- A failed-auction security had a $3.0 million par value and a $2.6 million carrying value, including a $0.4 million unrealized loss. It remains illiquid; management did not expect to be required to sell it, but further market or credit deterioration could lead to additional losses.
- Management reported disclosure controls were effective and no material change in internal control over financial reporting during the quarter. The filing stated there were no material changes to the risk factors in the 2020 Form 10-K.
Important facts for investors to verify
- Whether Advanced Products can convert strong backlog and bookings into shipments as component shortages and processing constraints persist.
- Whether backlog, customer lead times and the shift toward larger customers translate into sustainable revenue and margins, given customer concentration and scheduling variability.
- Progress, cost and timing of the Andover expansion and related capital spending, and the effect on operating cash flow.
- Updates on the SynQor litigation and the IRS examination, including any change in the company’s assessment of contingencies.
- Changes in the domestic deferred-tax valuation allowance and the fair value or liquidity of the failed-auction security.