Vicor Corporation — Q1 2012 Form 10-Q
Reporting period: Three months ended March 31, 2012; unaudited. Vicor designs and sells modular power components and power systems through its Brick Business Unit (BBU), VI Chip, and Picor segments.
Financial performance and liquidity
| Metric | Q1 2012 | Q1 2011 |
|---|---|---|
| Revenue | $59.7 million | $70.5 million |
| Gross profit / margin | $24.5 million / 41.0% | $30.5 million / 43.2% |
| Operating income / margin | $0.5 million / 0.8% | $6.4 million / 9.1% |
| Net income attributable to Vicor | $0.3 million; $0.01 diluted EPS | $4.0 million; $0.10 diluted EPS |
| Operating cash flow | $7.5 million | $9.9 million |
- Cash and cash equivalents were $78.3 million at March 31, up $6.3 million from year-end. Current assets were $146.0 million, current liabilities $19.7 million, and working capital $126.3 million; the current ratio was 7.4:1.
- Total assets were $208.4 million and total equity $185.4 million. The balance sheet lists no borrowings; the filing does not report a debt balance.
- Capital expenditures were $1.3 million, compared with $3.0 million a year earlier. Capital expenditure commitments were approximately $0.9 million.
Changes versus comparable periods
- Revenue fell 15.3% year over year, while increasing 1.9% sequentially from Q4 2011. Orders rose 2.3% sequentially but were 22.8% below Q1 2011; backlog declined to $45.8 million from $54.2 million at year-end.
- BBU revenue fell 19.2% to $44.9 million, primarily reflecting lower Vicor Custom Power defense bookings, completion of two programs, and lower component revenue. VI Chip revenue rose 3.2% to $13.8 million; Picor revenue fell 38.3% to $0.9 million.
- Gross margin declined to 41.0%, attributed chiefly to lower revenue and a mix shift toward lower-margin VI Chip products, alongside lower volumes of higher-margin BBU products.
- Operating expenses were nearly flat at $24.0 million, but represented 40.2% of revenue versus 34.1% a year earlier. The earnings decline chiefly reflected lower gross profit.
- Inventory decreased 11.9% from year-end to $31.5 million, as the company managed raw materials in light of reduced bookings. No cash dividend was reported for Q1 2012; Q1 2011 dividends were $0.15 per share.
Outlook, risks, and unusual items
- Management expected VI Chip and Picor revenue growth to decline in 2012. No quantified full-year revenue or earnings guidance was provided. Management stated cash, cash generation, and cash equivalents should fund planned operations and equipment purchases for the foreseeable future.
- Vicor held $9.1 million par value of illiquid auction rate securities, carried at an estimated fair value of $7.7 million. The $1.4 million unrealized loss included $0.3 million of estimated credit loss and $1.1 million of temporary impairment. Management said it did not expect the lack of liquidity to disrupt its operating plan, but further market or credit deterioration could cause additional, potentially material impairment charges. The valuation relies on Level 3 assumptions; a 1 percentage-point change in the assumed liquidity premium would change estimated fair value by about $0.4 million.
- Patent litigation with SynQor over power converters continued; Vicor disputes infringement and is defending the claims. Separately, in March 2012 an appeals court vacated a prior judgment in Vicor’s favor in its insurance-reimbursement dispute over the Ericsson settlement and remanded the case. Management said it did not expect current litigation or claims to materially affect financial position or results, but outcomes are uncertain.
- A New York tax audit was settled in April 2012 for approximately $49,000, to be recorded in Q2. The company also reported a $10.3 million valuation allowance against certain deferred tax assets.
- Management identified risks including customer order levels and shipping changes, ability to convert design wins into sales, product development and market acceptance, manufacturing efficiency, and protecting intellectual property. Disclosure controls were assessed as effective at a reasonable assurance level; no material change in internal control over financial reporting was reported.
Important facts for investors to verify
- Whether bookings and backlog stabilize or continue to weaken, particularly in BBU and defense-related programs.
- Whether revenue mix, production volumes, and operating costs support gross-margin recovery.
- Whether the auction rate securities’ estimated value and liquidity assumptions remain supportable, and whether further impairment is required.
- Developments and potential financial exposure in the SynQor litigation and the remanded insurance-reimbursement case.
- Whether the stated cash runway and capital spending plans remain consistent with operating cash flow and future demand.