Vicor Corporation (NASDAQ: VICR) — FY 2018 Form 10-K
Reporting period: Year ended December 31, 2018; filed February 28, 2019. This is an annual report, not a standalone Q4 filing. The company designs and manufactures modular power components and systems. Its strategy shifts investment toward Advanced Products, including 48V power conversion solutions, while maintaining its Brick Products business.
Financial performance and position
| Metric | FY 2018 | FY 2017 |
|---|---|---|
| Revenue | $291.2 million | $227.8 million |
| Gross profit / margin | $139.0 million / 47.7% | $101.7 million / 44.6% |
| Operating income (loss) | $32.1 million | $(1.4) million |
| Net income attributable to Vicor | $31.7 million | $0.2 million |
| Diluted earnings per share | $0.78 | $0.00 |
| Cash from operating activities | $36.2 million | $(2.5) million |
| Capital expenditures | $18.2 million | $12.5 million |
- Revenue rose 27.8%; management attributed growth to higher bookings and shipments across product lines, including initial second-half shipments of its Power-on-Package solution. Advanced Products were 35.9% of revenue, up from 33.4%.
- Gross margin improved on higher production volumes and overhead absorption, favorable product mix, and improved pricing. Operating expenses increased 3.8% to $106.9 million, but declined as a share of revenue.
- Cash and cash equivalents were $70.6 million at year-end, versus $44.2 million. Working capital was $129.1 million and the current ratio was 4.6:1. Total liabilities were $37.0 million; the balance sheet reports no borrowings. Operating lease obligations totaled $5.4 million.
- Inventories increased 29.8% to $47.4 million, largely to support higher bookings and buffer long-lead-time components. Accounts receivable increased to $43.7 million.
- Backlog rose to $103.0 million from $73.1 million. Orders booked and shipped in the same quarter accounted for about 20% of 2018 quarterly revenue, down from 36% in 2017.
Material changes and unusual items
- FY 2018 bookings increased approximately 27% year over year, but weakened in Q4. Q4 revenue was $73.7 million and net income attributable to Vicor was $6.9 million; Q4 shipments fell short of expectations after one customer rescheduled significant deliveries.
- Adoption of the new revenue standard (Topic 606) increased opening retained earnings by $3.7 million. The company reported 2018 revenue of $291.2 million; it estimated revenue would have been $287.3 million without the new standard. Prior-year comparisons were not restated.
- The closure of Granite Power Technologies generated $402,000 of severance and other charges. Picor was merged into Vicor in May 2018; reported Picor operations remain a segment.
- The income tax provision was $1.1 million (3.3% effective rate). Vicor retained a full valuation allowance against domestic net deferred tax assets, while noting it could release some or all of it if earnings continue.
Outlook, commentary, and principal risks
- No specific numerical revenue or earnings guidance was provided. Management described customer interest and design wins for 48V and Power-on-Package solutions as strong, but cautioned that Q4 customer uncertainty—particularly around China and high-performance computing spending—could delay 2019 orders and affect expansion plans.
- Capacity investment is substantial: equipment expected to raise Advanced Products capacity by about 35% was being installed for anticipated qualification in Q1 2019. A planned 85,000-square-foot facility addition was targeted for occupancy in 2020, with further capacity additions planned for 2020–2021.
- Management expects certain component availability and lead times to remain uncertain in 2019. U.S.-China tariffs had not materially affected costs through 2018; the company expected to absorb added tariff costs for the foreseeable future, while retaining the option to impose surcharges if costs rose materially.
- Key risks include reliance on a limited number of large customers, customer order timing and rescheduling, concentrated China exposure (37.4% of 2018 revenue), supply constraints and inventory obsolescence, intense competition, execution and funding of capacity expansion, and the uncertain adoption and profitability of Advanced Products.
- Vicor is defending a long-running SynQor patent lawsuit. The case remained stayed pending patent proceedings; several relevant patents had expired, but proceedings concerning patent validity continued. Management said a loss was not probable and could not estimate a possible loss. No loss-contingency accrual was recorded.
- One auction-rate security remained illiquid, carried at $2.5 million against $3.0 million par value, with a $474,000 unrealized loss. Management did not consider the decline other-than-temporary and said liquidity was adequate without selling it.
Most important facts for investors to verify
- Whether 2019 bookings, shipments, and customer schedules recover after the Q4 slowdown, especially for Power-on-Package and 48V solutions.
- Whether growth converts into cash and sustainable margins, given the sharp inventory build, capital spending, and customer concentration.
- Whether planned manufacturing capacity is qualified and completed on schedule, within budget, and supported by realized demand.
- The financial effect of Topic 606 when comparing 2018 with prior periods, which were not restated.
- Developments in the SynQor litigation and USPTO proceedings, and the liquidity and valuation of the auction-rate security.
- Governance and trading considerations: the CEO controlled 81.9% of voting securities, and the filing states no cash dividend was planned as of December 31, 2018.