Vicor(VICR) - 2023 Q3 - Quarterly Report

Part I — Financial Information Item 1 - Financial Statements (Unaudited) The unaudited condensed consolidated financial statements present Vicor Corporation's financial position as of September 30, 2023, and its results of operations and cash flows for the three and nine months then ended Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $227,784 | $190,611 | | Inventories | $104,570 | $101,410 | | Total current assets | $398,967 | $362,604 | | Total assets | $584,135 | $536,901 | | Liabilities & Equity | | | | Total current liabilities | $46,533 | $64,549 | | Total liabilities | $55,351 | $72,565 | | Total equity | $528,784 | $464,336 | Condensed Consolidated Statements of Operations Highlights (in thousands, except per share data) | Metric | Q3 2023 | Q3 2022 | 9 Months 2023 | 9 Months 2022 | | :--- | :--- | :--- | :--- | :--- | | Net revenues | $107,844 | $103,118 | $312,407 | $293,586 | | Gross margin | $55,878 | $46,970 | $157,585 | $131,420 | | Income from operations | $15,704 | $3,004 | $44,009 | $19,082 | | Net income | $16,582 | $1,792 | $44,927 | $17,384 | | Diluted EPS | $0.37 | $0.04 | $1.00 | $0.39 | Condensed Consolidated Statements of Cash Flows Highlights (in thousands) | Activity | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $52,994 | $22,010 | | Net cash used for investing activities | ($26,289) | ($26,279) | | Net cash provided by financing activities | $10,503 | $4,147 | | Net increase (decrease) in cash | $37,173 | ($320) | Notes to Condensed Consolidated Financial Statements Key notes to the financial statements detail revenue disaggregation, litigation, and income tax positions Net Revenues by Product Line and Geography (Nine Months Ended Sep 30, 2023, in thousands) | Geography | Brick Products | Advanced Products | Total | | :--- | :--- | :--- | :--- | | United States | $60,764 | $48,426 | $109,190 | | Europe | $24,893 | $15,869 | $40,762 | | Asia Pacific | $46,998 | $112,686 | $159,684 | | All other | $2,536 | $235 | $2,771 | | Total | $135,191 | $177,216 | $312,407 | - The company is a defendant in a patent infringement lawsuit by SynQor, Inc., with a jury awarding SynQor $6.5 million in damages in October 2022, which the company has accrued[56][60][62] - A full valuation allowance of approximately $47.4 million is maintained against net domestic deferred tax assets due to forecasting uncertainties, resulting in a low effective tax rate of 9.5% for the nine months ended September 30, 2023, with potential for release if profitability continues[47][48][51] - As of September 30, 2023, capital expenditure commitments totaled approximately $14.4 million, primarily for manufacturing equipment[55] Item 2 — Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's performance, highlighting a 4.6% year-over-year revenue increase for Q3 2023 to $107.8 million and a 6.4% increase for the nine-month period to $312.4 million - The company's strategy involves transitioning focus to its Advanced Products line for high-growth markets like AI and data centers, while maintaining its established Brick Products business[67][68][69] - Backlog at the end of Q3 2023 was approximately $174.7 million, a decrease from $217.3 million at the end of Q2 2023[76] - The company's liquidity is strong, with $227.8 million in cash and cash equivalents and working capital of $352.4 million as of September 30, 2023, deemed sufficient to fund planned operational needs and capital expenditures[101][106] Results of Operations - Q3 2023 vs Q3 2022 In Q3 2023, net revenues increased 4.6% year-over-year to $107.8 million, driven by a 12.6% increase in Brick Products revenue, while Advanced Products revenue saw a slight 1.3% decline Net Revenues by Product Line (Q3 2023 vs Q3 2022, in thousands) | Product Line | Q3 2023 | Q3 2022 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Advanced Products | $58,412 | $59,202 | ($790) | (1.3)% | | Brick Products | $49,432 | $43,916 | $5,516 | 12.6% | | Total | $107,844 | $103,118 | $4,726 | 4.6% | - Gross margin increased to 51.8% in Q3 2023 from 45.5% in Q3 2022, primarily due to higher sales volume, improved sales mix, and a $2.3 million decrease in outsourced manufacturing costs[79] - R&D expenses increased by 20.4% to $17.8 million, mainly due to a $1.6 million increase in project and pre-production materials for Advanced Products[84] - SG&A expenses decreased by 1.3% to $22.4 million, largely due to a $1.4 million reduction in legal fees related to the SynQor litigation[80][82] Results of Operations - Nine Months 2023 vs 2022 For the nine months ended September 30, 2023, net revenues rose 6.4% to $312.4 million, with Brick Products revenue growing by a strong 18.8% Net Revenues by Product Line (Nine Months 2023 vs 2022, in thousands) | Product Line | 9M 2023 | 9M 2022 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Advanced Products | $177,216 | $179,790 | ($2,574) | (1.4)% | | Brick Products | $135,191 | $113,796 | $21,395 | 18.8% | | Total | $312,407 | $293,586 | $18,821 | 6.4% | - Gross margin for the nine-month period increased to 50.4% from 44.8% year-over-year, driven by higher sales volume, better mix, a $7.8 million reduction in outsourced manufacturing costs, and a $10.2 million net reduction in freight-in and tariff spending, including a $5.7 million duty drawback recovery[91] - SG&A expenses increased by 2.8% to $63.0 million, with increases in compensation, outside services, and advertising partially offset by a $2.6 million decrease in legal fees[92] - R&D expenses rose 13.6% to $50.6 million, primarily due to higher compensation ($2.5 million) and increased spending on project and pre-production materials ($2.9 million)[94] Item 3 — Quantitative and Qualitative Disclosures About Market Risk The company's primary market risks are related to interest rate changes on its investments and foreign currency fluctuations - The company holds one Failed Auction Security with a par value of $3.0 million and an estimated fair value of approximately $2.611 million as of September 30, 2023, whose carrying value could be negatively impacted by continued failed auctions[110] - Exposure to foreign currency exchange rate risk is mainly related to the operations of its Japanese subsidiary, Vicor Japan Company, Ltd. (VJCL), for which the Japanese Yen is the functional currency[111] Item 4 — Controls and Procedures Based on an evaluation as of September 30, 2023, the CEO and CFO concluded that the company's disclosure controls and procedures were effective at a reasonable assurance level - Management, including the CEO and CFO, evaluated disclosure controls and procedures as of September 30, 2023, and concluded they were effective at the reasonable assurance level[114] - No changes occurred in internal control over financial reporting during the quarter ended September 30, 2023, that have materially affected, or are reasonably likely to materially affect, these controls[116] Part II — Other Information Item 1 — Legal Proceedings The company refers to Note 10 of the financial statements for information on legal proceedings, which details the ongoing patent infringement lawsuit with SynQor, Inc - For details on legal proceedings, the report refers to Note 10, which discusses the SynQor patent litigation[118] Item 1A — Risk Factors There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2022 - No material changes in risk factors were reported since the company's 2022 Annual Report on Form 10-K[118] Item 5 — Other Information During the third quarter of 2023, no director or Section 16 officer of the company adopted or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement - No director or Section 16 officer adopted or terminated a Rule 10b5-1 trading arrangement during Q3 2023[119] Item 6 — Exhibits This section lists the exhibits filed with the 10-Q report, including the CEO and CFO certifications under Sarbanes-Oxley Sections 302 and 906, and the Inline XBRL documents - Exhibits filed include CEO and CFO certifications pursuant to Rule 13a-14(a) (Exhibits 31.1, 31.2) and Section 906 of the Sarbanes-Oxley Act (Exhibits 32.1, 32.2)[120]