Vicor Corporation — FY2013 Form 10-K
Reporting period: Fiscal year ended December 31, 2013; filed March 14, 2014. Vicor designs and sells modular power-conversion components and systems through its Brick Business Unit (BBU), VI Chip, and Picor businesses.
Financial performance and liquidity
| Metric | 2013 | 2012 |
|---|---|---|
| Revenue | $199.2 million | $218.5 million |
| Gross margin | $81.5 million; 40.9% | $91.7 million; 41.9% |
| Operating loss | $20.5 million | $2.8 million |
| Net loss attributable to Vicor | $23.6 million; $0.60 per share | $4.1 million; $0.10 per share |
| Cash from operating activities | $(4.7) million | $17.2 million |
| Capital expenditures | $6.2 million | $7.4 million |
| Cash and cash equivalents | $56.3 million | $84.6 million |
| Working capital | $97.9 million | $128.5 million |
Current assets exceeded current liabilities by 5.7 times at year-end, versus 8.3 times a year earlier. Total liabilities were $23.3 million; the filing’s balance sheet does not show interest-bearing borrowings. Cash fell $28.2 million, including $17.1 million used for tender-offer share purchases. No regular common-stock dividend was declared for 2013 or 2012.
Fourth-quarter revenue was $55.3 million, compared with $50.4 million a year earlier. Vicor’s attributable net loss was $13.1 million, versus $4.8 million in Q4 2012; the 2013 quarter included a $10.1 million increase in the tax valuation allowance.
Changes versus prior periods
- Annual revenue declined 8.9%, following a 13.6% decline in 2012. BBU revenue fell 9.4%, VI Chip revenue 6.0%, and Picor revenue 10.2% year over year.
- Management cited defense-sector weakness, recession in Europe, slower-than-expected growth in certain new products, and lower orders from a limited number of VI Chip and Picor customers. Some large-customer shipments scheduled for Q4 shifted into 2014.
- Fiscal-year orders increased 8.6%, including increases of 82.8% for VI Chip and 23.6% for Picor. Backlog rose to $44.7 million from $31.4 million, but includes orders scheduled for shipment over the next 12 months and remains subject to normal cancellation terms.
- Operating expenses rose 8.0% to $101.9 million, including higher legal and compensation costs. R&D was $39.8 million, or 20.0% of revenue. Vicor recorded $1.36 million in severance charges after a workforce reduction.
Outlook, risks, and unusual items
- Management said operating cash and cash equivalents should fund planned operations and capital spending for the foreseeable future. However, it reported five consecutive quarterly net losses and said it could not predict when profitability would return; it projected continued losses into 2014 for tax-valuation purposes.
- Vicor planned $5–$10 million of 2014 investment to expand ChiP manufacturing capacity. Its first ChiP product was commercially released in January 2014. The filing provides no quantified revenue or earnings guidance.
- BBU generated $12.1 million of segment operating income in 2013; VI Chip and Picor reported operating losses of $28.2 million and $3.3 million, respectively. BBU cash flow has historically funded VI Chip operations and equipment purchases.
- SynQor patent litigation remained unresolved, with trial scheduled for July 2014. Vicor said it did not consider a loss probable, but could not estimate any possible loss. It expected elevated legal fees through 2014; management also said the litigation had inhibited potential sales.
- Vicor held $6.0 million par value of failed-auction securities, valued at $4.8 million and classified as long-term. They were illiquid and valued using Level 3 assumptions; additional impairment could result if market conditions or credit quality deteriorated.
- Two customers represented 10.9% and 10.1% of annual revenue; the five largest accounted for 29.2%. International sales were 59.5% of revenue. Some VI Chip and Picor components rely on single-source suppliers.
- Founder/CEO Patrizio Vinciarelli controlled 83.1% of voting securities, reflecting the ten-votes-per-share Class B stock. Management and the auditor reported effective internal controls over financial reporting; the financial-statement audit opinion was unqualified.
Key facts for investors to verify
- Whether higher orders and backlog converted into shipments and revenue in 2014, particularly for VI Chip, Picor, and deferred customer programs.
- Whether BBU profitability and cash generation can continue to fund losses and planned capacity expansion in the newer businesses.
- The outcome and potential financial exposure of the SynQor litigation, including ongoing legal costs and any effects on customer decisions.
- Recoverability and valuation assumptions for the failed-auction securities, and whether operating cash flow and liquidity stabilized after year-end.
- Whether customer concentration, supplier constraints, and the ChiP product launch affect sales growth, margins, or manufacturing costs.