Vicor(VICR) - 2024 Q2 - Quarterly Report

Part I — Financial Information This section presents the company's unaudited condensed consolidated financial statements and management's discussion and analysis Item 1 - Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements, including balance sheets, statements of operations, comprehensive (loss) income, cash flows, and equity, along with detailed notes explaining accounting policies, inventory, investments, revenue, stock-based compensation, income taxes, and contingencies Condensed Consolidated Balance Sheets Summarizes the company's financial position, including assets, liabilities, and equity, at specific dates Metric (in thousands) | Metric (in thousands) | June 30, 2024 | December 31, 2023 | | :-------------------- | :------------ | :---------------- | | Total Assets | $613,234 | $594,887 | | Total Liabilities | $75,777 | $53,781 | | Accrued Litigation | $26,212 | $6,500 | | Total Equity | $537,457 | $541,106 | Condensed Consolidated Statements of Operations Details revenues, expenses, and net income/loss over specified periods Metric (in thousands, except per share) | Metric (in thousands, except per share) | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :-------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net Revenues | $85,854 | $106,747 | $169,726 | $204,563 | | Gross Margin | $42,771 | $55,173 | $87,894 | $101,707 | | Income (loss) from operations | $214 | $17,863 | $(15,901) | $28,305 | | Litigation-contingency expense | $2,300 | $— | $19,500 | $— | | Net (loss) income attributable to Vicor Corporation | $(1,196) | $17,101 | $(15,669) | $28,345 | | Basic EPS | $(0.03) | $0.39 | $(0.35) | $0.64 | | Diluted EPS | $(0.03) | $0.38 | $(0.35) | $0.63 | Condensed Consolidated Statements of Comprehensive (Loss) Income Presents net income/loss and other comprehensive income/loss components Metric (in thousands) | Metric (in thousands) | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Consolidated net (loss) income | $(1,195) | $17,102 | $(15,657) | $28,353 | | Foreign currency translation losses, net of tax | $(185) | $(175) | $(411) | $(190) | | Other comprehensive loss | $(207) | $(215) | $(341) | $(221) | | Consolidated comprehensive (loss) income | $(1,402) | $16,887 | $(15,998) | $28,132 | Condensed Consolidated Statements of Cash Flows Outlines cash flows from operating, investing, and financing activities Metric (in thousands) | Metric (in thousands) | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :-------------------- | :----------------------------- | :----------------------------- | | Consolidated net (loss) income | $(15,657) | $28,353 | | Net cash provided by operating activities | $18,148 | $29,153 | | Net cash used for investing activities | $(13,411) | $(18,627) | | Net cash provided by financing activities | $5,138 | $2,722 | | Net increase in cash and cash equivalents | $9,665 | $13,218 | | Cash and cash equivalents at end of period | $251,884 | $203,829 | Condensed Consolidated Statements of Equity Details changes in total equity and noncontrolling interests over reporting periods Metric (in thousands) | Metric (in thousands) | June 30, 2024 | December 31, 2023 | | :-------------------- | :------------ | :---------------- | | Total Vicor Corporation Stockholders' Equity | $537,239 | $540,869 | | Noncontrolling interest | $218 | $237 | | Total Equity | $537,457 | $541,106 | - Net (loss) income attributable to Vicor Corporation for the six months ended June 30, 2024, was $(15.67) million, a significant decrease from $28.35 million in the prior year[14] - Issuance of Common Stock under employee stock plans provided $5.14 million for the six months ended June 30, 2024, compared to $2.72 million in the prior year[14] Notes to Condensed Consolidated Financial Statements This section provides detailed explanations and disclosures for the condensed consolidated financial statements, covering accounting policies, inventory, long-term investments, fair value measurements, revenue disaggregation, stock-based compensation, rental income, income taxes, net (loss) income per share, commitments and contingencies, impact of new accounting standards, and a subsequent event Note 1. Basis of Presentation This section provides details on note 1. basis of presentation - The unaudited Condensed Consolidated Financial Statements are prepared in accordance with GAAP for interim financial information and SEC rules, and do not include all information required for complete financial statements[19] - Operating results for the three and six months ended June 30, 2024, are not necessarily indicative of results for any other interim period or the full year ending December 31, 2024[20] Note 2. Inventories This section provides details on note 2. inventories Inventory Category (in thousands) | Inventory Category (in thousands) | June 30, 2024 | December 31, 2023 | | :-------------------------------- | :------------ | :---------------- | | Raw materials | $83,240 | $88,716 | | Work-in-process | $16,051 | $10,525 | | Finished goods | $9,793 | $7,338 | | Total Inventories | $109,084 | $106,579 | Note 3. Long-Term Investments This section provides details on note 3. long-term investments - The Company holds one 'Failed Auction Security' with a par value of $3.00 million, classified as long-term due to a recovery period exceeding 12 months[22] Metric (in thousands) | Metric (in thousands) | June 30, 2024 | December 31, 2023 | | :-------------------- | :------------ | :---------------- | | Estimated Fair Value | $2,600 | $2,530 | - The security is Aaa/AA+ rated, collateralized by student loans, and guaranteed by the U.S. Department of Education, with management believing it can be liquidated without significant loss[22] Note 4. Fair Value Measurements This section provides details on note 4. fair value measurements Asset Category (in thousands) | Asset Category (in thousands) | Level 1 (Quoted Prices) | Level 2 (Observable Inputs) | Level 3 (Unobservable Inputs) | Total Fair Value as of June 30, 2024 | | :---------------------------- | :---------------------- | :-------------------------- | :---------------------------- | :----------------------------------- | | Money market funds | $227,455 | $— | $— | $227,455 | | Failed Auction Security | $— | $— | $2,600 | $2,600 | - The fair value of the Failed Auction Security, a Level 3 input, increased by $70 thousand for the three months ended June 30, 2024, and was determined using a probability weighted discounted cash flow model[28] Note 5. Revenues This section provides details on note 5. revenues Net Revenues by Product Line (in thousands): | Product Line | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :----------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Advanced Products | $46,368 | $67,513 | $89,648 | $118,804 | | Brick Products | $39,486 | $39,234 | $80,078 | $85,759 | | Total Net Revenues | $85,854 | $106,747 | $169,726 | $204,563 | - Advanced Products net revenues decreased by 31.3% for the three months and 24.5% for the six months ended June 30, 2024, primarily due to continued softness in underpenetrated markets, partially offset by increased royalty revenue[65][72] - Revenue recognized from deferred revenue was approximately $360 thousand for the three months and $720 thousand for the six months ended June 30, 2024[33] Note 6. Stock-Based Compensation This section provides details on note 6. stock-based compensation Total Stock-Based Compensation (in thousands): | Period | 2024 | 2023 | | :----- | :--- | :--- | | Three Months Ended June 30 | $3,431 | $3,012 | | Six Months Ended June 30 | $7,211 | $5,829 | Compensation Expense by Type of Award (in thousands): | Award Type | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :--------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Stock options | $3,167 | $2,701 | $6,633 | $5,197 | | ESPP | $264 | $311 | $578 | $632 | Note 7. Rental Income This section provides details on note 7. rental income Rental Income (in thousands): | Period | 2024 | 2023 | | :----- | :--- | :--- | | Three Months Ended June 30 | $227 | $198 | | Six Months Ended June 30 | $424 | $396 | - The operating lease agreement for the Company's owned facility in California was extended for an additional 84 months, commencing June 1, 2024, and ending May 31, 2031[36] Note 8. Income Taxes This section provides details on note 8. income taxes Provision for Income Taxes (in thousands) and Effective Income Tax Rates: | Period | Provision for Income Taxes (2024) | Effective Income Tax Rate (2024) | Provision for Income Taxes (2023) | Effective Income Tax Rate (2023) | | :----- | :-------------------------------- | :------------------------------- | :-------------------------------- | :------------------------------- | | Three Months Ended June 30 | $4,216 | 139.6% | $2,537 | 12.9% | | Six Months Ended June 30 | $5,287 | (51.0)% | $3,678 | 11.5% | - The effective tax rates are significantly impacted by the capitalization of research and development expenses under Section 174 in the U.S. and a full valuation allowance against domestic deferred tax assets[38][39][40] - As of June 30, 2024, the Company had a valuation allowance of approximately $52.29 million against all net domestic deferred tax assets[40] Note 9. Net (Loss) Income per Share This section provides details on note 9. net (loss) income per share Net (Loss) Income per Common Share Attributable to Vicor Corporation: | Period | Basic EPS (2024) | Diluted EPS (2024) | Basic EPS (2023) | Diluted EPS (2023) | | :----- | :--------------- | :----------------- | :--------------- | :----------------- | | Three Months Ended June 30 | $(0.03) | $(0.03) | $0.39 | $0.38 | | Six Months Ended June 30 | $(0.35) | $(0.35) | $0.64 | $0.63 | - Options to purchase 3,083,375 shares of Common Stock for the three and six months ended June 30, 2024, were not included in the calculation of net loss per share as the effect would have been antidilutive[44] Note 10. Commitments and Contingencies This section provides details on note 10. commitments and contingencies - The Company had approximately $14.99 million of cancelable and non-cancelable capital expenditure commitments as of June 30, 2024[46] - An Amended Corrected Final Judgment on May 20, 2024, awarded SynQor, Inc. approximately $26.00 million in a patent infringement lawsuit, which the Company is appealing[47] - The Company recorded total litigation accruals of $26.00 million, including $17.20 million in Q1 2024 and $2.30 million in Q2 2024, related to the SynQor litigation[48] - Two putative class action lawsuits were filed in July 2024 alleging violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934[49] Note 11. Impact of Recently Issued Accounting Standards This section provides details on note 11. impact of recently issued accounting standards - ASU No. 2023-07 (Segment Reporting) and ASU No. 2023-09 (Income Taxes) are expected to impact disclosures but not the Company's consolidated financial statements[51] Note 12. Subsequent Event This section provides details on note 12. subsequent event - In July 2024, the Board of Directors authorized a new stock repurchase program of up to $100.00 million, replacing the previous November 2000 Plan[52] Item 2 — Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition and results of operations, highlighting its strategic focus on Advanced Products, the impact of market demand and supply chain issues, and a detailed comparison of financial performance for the second quarter and first six months of 2024 against prior periods Overview Introduces the company's business model, product categories, strategic focus, and influencing factors - Vicor designs, develops, manufactures, and markets modular power components and systems, with core competencies in 48V DC distribution[56] - Products are categorized as 'Advanced Products' (newer, high-growth markets like AI, data centers) and 'Brick Products' (established, mature markets)[57][58][59] - The Company is strategically transitioning to emphasize investment in Advanced Products for high-growth, low-mix, high-volume markets, while maintaining a profitable Brick Products business[58][59] - Operating results are subject to significant fluctuations due to customer scheduling changes, supply chain uncertainties, and external macroeconomic factors[60] Summary of Second Quarter 2024 Financial Performance Compared to First Quarter 2024 Financial Performance Compares key financial performance metrics for Q2 2024 against Q1 2024 Q2 2024 vs. Q1 2024 Financial Performance (in thousands, except %): | Metric | Q2 2024 | Q1 2024 | Change ($) | Change (%) | | :----- | :------ | :------ | :--------- | :--------- | | Net revenues | $85,854 | $83,872 | $1,982 | 2.4% | | Gross margin | $42,771 | $45,123 | $(2,352) | (5.2%) | | Gross margin % | 49.8% | 53.8% | -4.0 pp | | | Operating expenses | $42,557 | $61,238 | $(18,681) | (30.5%) | | Litigation-contingency expense | $2,300 | $17,200 | $(14,900) | (86.6%) | | Net loss | $(1,196) | $(14,473) | $13,277 | (91.7%) | | Diluted EPS | $(0.03) | $(0.33) | $0.30 | (90.9%) | | Backlog | $153,794 | $150,340 | $3,454 | 2.3% | - Advanced Products net revenues increased 7.1% QoQ due to reduced manufacturing constraints and increased royalty revenue, while Brick Products net revenues decreased 2.7% QoQ due to reduced market demand[62] - The decrease in gross margin percentage was primarily attributable to an overall unfavorable sales mix on slightly higher sales volume[62] Three Months Ended June 30, 2024 Compared to Three Months Ended June 30, 2023 Compares financial performance for Q2 2024 against Q2 2023 Q2 2024 vs. Q2 2023 Financial Performance (in thousands, except %): | Metric | Q2 2024 | Q2 2023 | Change ($) | Change (%) | | :----- | :------ | :------ | :--------- | :--------- | | Net revenues | $85,854 | $106,747 | $(20,893) | (19.6%) | | Advanced Products revenues | $46,368 | $67,513 | $(21,145) | (31.3%) | | Brick Products revenues | $39,486 | $39,234 | $252 | 0.6% | | Gross margin | $42,771 | $55,173 | $(12,402) | (22.5%) | | Gross margin % | 49.8% | 51.7% | -1.9 pp | | | Selling, general and administrative | $23,318 | $20,375 | $2,943 | 14.4% | | Research and development | $16,939 | $16,935 | $4 | 0.0% | | Litigation-contingency expense | $2,300 | $0 | $2,300 | N/A | | Net (loss) income attributable to Vicor | $(1,196) | $17,101 | $(18,297) | (107.0%) | | Diluted EPS | $(0.03) | $0.38 | $(0.41) | (107.9%) | - The decrease in Advanced Products net revenues was primarily due to continued softness in underpenetrated markets, partially offset by increased royalty revenue[65] - Selling, general and administrative expenses increased primarily due to a $3.29 million increase in legal expenses related to corporate legal matters and intellectual property rights[67] - Interest income, net, increased by $1.03 million due to higher balances of cash and cash equivalents[69] Six Months Ended June 30, 2024 Compared to Six Months Ended June 30, 2023 Compares financial performance for H1 2024 against H1 2023 H1 2024 vs. H1 2023 Financial Performance (in thousands, except %): | Metric | H1 2024 | H1 2023 | Change ($) | Change (%) | | :----- | :------ | :------ | :--------- | :--------- | | Net revenues | $169,726 | $204,563 | $(34,837) | (17.0%) | | Advanced Products revenues | $89,648 | $118,804 | $(29,156) | (24.5%) | | Brick Products revenues | $80,078 | $85,759 | $(5,681) | (6.6%) | | Gross margin | $87,894 | $101,707 | $(13,813) | (13.6%) | | Gross margin % | 51.8% | 49.7% | +2.1 pp | | | Selling, general and administrative | $49,317 | $40,598 | $8,719 | 21.5% | | Research and development | $34,978 | $32,804 | $2,174 | 6.6% | | Litigation-contingency expense | $19,500 | $0 | $19,500 | N/A | | Net (loss) income attributable to Vicor | $(15,669) | $28,345 | $(44,014) | (155.3%) | | Diluted EPS | $(0.35) | $0.63 | $(0.98) | (155.6%) | - The decrease in Advanced Products net revenues was primarily due to continued softness in underpenetrated markets, partially offset by increased royalty revenue, while Brick Products decreased due to reduced market demand[72] - The increase in gross margin percentage was primarily attributable to improved sales mix, including royalty revenue, and certain reductions in supply chain costs[73] - Selling, general and administrative expenses increased significantly due to an $8.46 million increase in legal fees related to corporate legal matters[74] Liquidity and Capital Resources Discusses cash position, working capital, and funding strategies for operations and capital expenditures - Cash and cash equivalents totaled $251.88 million as of June 30, 2024[82] - Working capital decreased by $8.70 million to $367.50 million as of June 30, 2024, primarily due to an increase in accrued litigation[82] - Primary sources of cash for the six months ended June 30, 2024, were $18.15 million from operations and $5.14 million from employee stock plans[82] - In July 2024, the Board authorized a new $100.00 million stock repurchase program, replacing the previous plan[84] - The Company believes existing cash and cash equivalents, along with cash generated from operations, will be sufficient to fund planned operational needs and capital equipment purchases for the foreseeable future[85] Critical Accounting Policies and Estimates Addresses significant accounting policies and estimates requiring management's judgment - There have been no material changes in critical accounting policies and estimates during the period ended June 30, 2024[86] Item 3 — Quantitative and Qualitative Disclosures About Market Risk This section discusses the company's exposure to market risks, primarily related to interest rate fluctuations and foreign currency exchange rates, and the potential impact on its long-term investment - Exposure to market risk from interest rate fluctuations on cash and short-term investments is not significant due to their short-term nature[88] - The long-term investment, a 'Failed Auction Security' with a par value of $3.00 million, carries a risk of impairment if its fair value decline is deemed 'other than temporary'[88] - Foreign currency exchange rate risk relates to operations of Vicor Japan Company, Ltd. (Japanese Yen functional currency) and other subsidiaries in Europe and Asia (U.S. Dollar functional currency)[89] Item 4 — Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective at a reasonable assurance level as of June 30, 2024, and reported no material changes in internal control over financial reporting during the quarter - The CEO and CFO concluded that the Company's disclosure controls and procedures were effective at the reasonable assurance level as of June 30, 2024[92] - No material changes in internal control over financial reporting occurred during the fiscal quarter ended June 30, 2024[94] - Management recognizes that any control system provides only reasonable, not absolute, assurance and can be circumvented[93] Part II — Other Information Provides additional non-financial disclosures and other relevant information Item 1 — Legal Proceedings This section refers to Note 10 of the financial statements for detailed information regarding the company's legal proceedings, including the SynQor patent infringement lawsuit and recently filed class action lawsuits - Refer to Note 10, 'Commitments and Contingencies,' in the Notes to Condensed Consolidated Financial Statements for information on legal proceedings[96] Item 1A — Risk Factors This section states that 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, 2023 - No material changes in the risk factors described in Part I, Item 1A of the Company's Annual Report on Form 10-K for the year ended December 31, 2023[96] Item 5 — Other Information This section confirms that no Rule 10b5-1 or non-Rule 10b5-1 trading arrangements were adopted or terminated by directors or Section 16 officers during the second quarter of 2024 - No director or Section 16 officer adopted or terminated a 'Rule 10b5-1 trading arrangement' or 'non-Rule 10b5-1 trading arrangement' during the three months ended June 30, 2024[97] Item 6 — Exhibits This section lists all exhibits filed with the Form 10-Q, including corporate organizational documents, CEO and CFO certifications, and Inline XBRL interactive data files - Includes certifications from the Chief Executive Officer (EX-31.1, EX-32.1) and Chief Financial Officer (EX-31.2, EX-32.2) as required by the Exchange Act and Sarbanes-Oxley Act[98] - Includes Inline XBRL Instance Document and Taxonomy Extension Documents (Schema, Calculation, Definition, Label, Presentation Linkbase Documents)[98] Signatures Formally attests to the accuracy and completeness of the report by authorized officers - The report was signed on July 31, 2024, by Patrizio Vinciarelli, Chairman of the Board, President and Chief Executive Officer, and James F. Schmidt, Vice President, Chief Financial Officer[101]