Vicor Corporation — Q1 2016 Form 10-Q
Reporting period: Three months ended March 31, 2016. Unaudited consolidated results; comparisons are with Q1 2015 unless otherwise noted. Vicor designs, manufactures and markets power-conversion components and systems, and licenses technology for royalties.
Financial results
| Metric | Q1 2016 | Comparison / context |
|---|---|---|
| Revenue | $46.0 million | Down 28.1% year over year and 10.4% sequentially from Q4 2015 |
| Gross profit / margin | $19.3 million / 42.0% | Down from $28.9 million / 45.1%; lower volume weakened overhead absorption |
| Operating expenses | $24.7 million | Down 2.1%; lower SG&A partly offset by higher R&D |
| Operating loss | $5.4 million | Compared with $3.6 million operating income |
| Net loss attributable to Vicor | $5.4 million; $0.14 per share | Compared with net income of $3.4 million, or $0.09 per diluted share |
| Operating cash flow | $(0.8) million | Compared with $5.1 million generated in Q1 2015 |
| Cash and cash equivalents | $59.7 million | Down $3.3 million from December 31, 2015 |
| Current assets / liabilities | $110.3 million / $20.6 million | Current ratio 5.4; working capital $89.7 million |
| Capital expenditures | $1.9 million | Capital expenditure commitments were $1.8 million |
The balance sheet reports no borrowings; total liabilities were $21.6 million. Inventories were $24.2 million, up 3.0% from year-end. Backlog scheduled for shipment within 12 months was $42.1 million, versus $39.1 million at the end of Q4 2015.
Changes and business drivers
- Revenue declined across all three product segments. Management attributed the decline to weaker bookings, lower demand for legacy products, and continued delays in customer orders for advanced 48-volt datacenter solutions.
- Reported segment revenue was $36.9 million for BBU, $7.3 million for VI Chip, and $1.8 million for Picor. BBU revenue fell 17.8%, VI Chip 47.1%, and Picor 65.5% year over year.
- Management said lower production volumes and shorter production runs reduced gross margin. Supplier delivery delays also constrained shipments.
- R&D increased 3.0% to $10.7 million as Vicor continued investing in advanced products; SG&A fell 5.7% to $14.0 million, including lower litigation-related legal fees.
- On March 30, Vicor consolidated Converpower operations into wholly owned Granite Power Technologies and acquired control of the operating business. The transaction included future royalties; no income-statement impact was recorded.
Outlook, risks and unusual items
- The filing provides no numerical earnings or revenue guidance. Management expects BBU demand to remain relatively flat until macroeconomic conditions improve, while noting that advanced-product opportunities may take time to reach sustained volume. Customer orders and adoption timing remain uncertain.
- Management expects supplier delays may continue to affect production. It also cited the risk that low utilization and largely fixed personnel costs will pressure profitability.
- Vicor stated that cash and expected operating cash flows should fund planned operations and capital purchases for the foreseeable future. Planned investment needs include manufacturing equipment.
- A $3.0 million-par failed-auction student-loan security was carried at $2.6 million as a long-term investment, using Level 3 valuation inputs. Management did not expect to need to sell it, but further market deterioration or credit-rating changes could lead to additional losses or impairment.
- In the SynQor patent litigation, the case against Vicor was stayed pending patent-review matters. Vicor said it believes the claims lack merit and a loss is not probable; it could not estimate a possible loss amount or range.
- A full valuation allowance against domestic deferred tax assets meant Vicor recognized no tax benefit for most of its Q1 loss. The reported tax provision was $22,000.
- Management reported disclosure controls and procedures were effective at the reasonable-assurance level and no material change in internal control over financial reporting during the quarter. No material risk-factor changes were reported.
Important facts for investors to verify
- Whether bookings and backlog convert into shipments, particularly for VI Chip and Picor advanced datacenter products.
- Whether production volumes, supplier performance and customer adoption improve enough to restore margins and profitability.
- Cash use, planned manufacturing investment and the sufficiency of liquidity if operating losses persist.
- The valuation and recoverability of the failed-auction security, and any developments in the SynQor litigation.
- The impact of ongoing R&D spending and Converpower royalty obligations on future results.