Vicor Corporation — Q1 2015 Form 10-Q
Reporting period: Three months ended March 31, 2015. Unaudited results; amounts below are in millions except per-share data. Vicor designs and sells modular power components and systems through its BBU, VI Chip, and Picor product segments.
Financial performance and position
| Metric | Q1 2015 | Q1 2014 |
|---|---|---|
| Revenue | $64.017 | $53.233 |
| Gross margin | $28.891; 45.1% | $22.792; 42.8% |
| Operating income (loss) | $3.610 | $(5.439) |
| Net income (loss) attributable to Vicor | $3.371; $0.09 per diluted share | $(5.378); $(0.14) per share |
| Operating cash flow | $5.070 | $(4.480) |
| Capital expenditures | $1.469 | $1.554 |
- Revenue increased 20.3% year over year and 5.4% sequentially from Q4 2014. Gross margin rose to 45.1% from 42.8% a year earlier.
- Operating expenses fell 10.4% to $25.281 million, chiefly because SG&A declined $3.118 million, including $2.755 million less in legal fees. R&D increased 1.6% to $10.419 million.
- Cash and cash equivalents were $59.322 million at quarter-end; working capital was $95.527 million. Current assets were $120.211 million versus current liabilities of $24.684 million, a 4.9-to-1 current ratio. The filing reports no interest-bearing debt.
- Total assets were $161.273 million and total liabilities $26.458 million. Cash increased $4.135 million during the quarter.
- Backlog scheduled for shipment within 12 months was $49.838 million, down from $54.249 million at Q4 2014. Inventories declined 5.7% from year-end to $24.837 million.
Changes, outlook, and key risks
- Vicor said this was its first profitable quarter since Q3 2012. Q1 bookings were up 18.5% year over year but down 4.5% sequentially; bookings had declined sequentially for a second consecutive quarter. Management described the near-term outlook as uncertain and provided no specific financial guidance.
- Revenue growth was driven mainly by VI Chip and Picor, reflecting earlier bookings, particularly from a major datacenter customer. BBU revenue increased more modestly. Customer booking patterns remain unpredictable, and the company is shifting toward fewer, higher-volume customers, increasing exposure to demand swings among early adopters.
- Management cited weakness in defense electronics and European demand. It said cash and expected operating cash flow should fund planned operations and capital spending for the foreseeable future; capital expenditure commitments were approximately $0.960 million.
- SynQor patent litigation: The company continues to contest infringement claims, does not consider a loss probable, and cannot estimate any possible loss. A March 2015 appellate ruling invalidated certain claims of one asserted patent; other patent challenges and litigation remain pending. Company trial pre-trial conferences were set for January 2016. Legal costs declined because of trial delays.
- Illiquid investment: A failed-auction student-loan security had a $3.000 million par value and a $2.560 million estimated fair value, including a $0.440 million unrealized loss. It is valued using Level 3 assumptions and classified long-term because management expects recovery to take more than 12 months. Further market deterioration or credit-rating declines could cause additional losses or impairment; management said it did not expect the security’s liquidity limits to disrupt its operating plan.
- Taxes and other items: A full valuation allowance of approximately $25.776 million remained against domestic deferred tax assets. An Italian tax inspection covering 2009–2013 was unresolved; management said it was too early to assess the potential liability but did not expect a material impact. The remaining accrued severance liability from the 2014 Westcor manufacturing consolidation was $1.313 million.
- The company held approximately 27% of Great Wall Semiconductor Corporation and reported a zero carrying value for the equity-method investment. Q1 purchases from GWS were approximately $1.057 million; the related-party relationship and supply arrangements are disclosed.
Important facts for investors to verify
- Whether sequential booking and backlog declines continue, and how much revenue depends on a small number of large customers.
- Developments in the SynQor case, including rulings on pending motions, trial timing, and any change in the company’s loss assessment or ability to estimate exposure.
- Changes in the failed-auction security’s fair value, recovery assumptions, and potential impairment exposure.
- Whether operating cash flow and profitability are sustained, alongside spending needs and execution of the company’s manufacturing and product strategy.
- Potential outcomes of the Italian tax matter and any future change to the domestic deferred-tax valuation allowance.