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VICOR CORP - Quarter Report: 2023 March (Form 10-Q)

Table of Contents

 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
 

FORM
10-Q
 

 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2023
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from
                    
Commission File Number 0-18277
 

VICOR CORPORATION
(Exact name of registrant as specified in its charter)
 

 
Delaware
 
04-2742817
(State of Incorporation)
 
(I.R.S. Employer
Identification No.)
25 Frontage Road, Andover, Massachusetts 01810
(Address of Principal Executive Office)
(978)
470-2900
(Registrant’s telephone number)
Securities registered pursuant to Section 12(b) of the Act:
 
Title of each class
 
Trading
Symbol(s)
 
Name of each exchange
on which registered
Common Stock, par value $0.01 per share
 
VICR
 
The NASDAQ Stock Market LLC
 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation
S-T
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule
12b-2
of the Exchange Act.
 
Large accelerated filer
 
  
Smaller reporting company
 
Accelerated filer
 
  
Emerging growth company
 
Non-accelerated filer
 
  
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2
of the Exchange Act).    Yes  ☐    No  ☒
The number of shares outstanding of each of the issuer’s classes of Common Stock as of April 24, 2023 was:
 
Common Stock, $.01 par value
  
 
32,471,065
 
Class B Common Stock, $.01 par value
  
 
11,743,218
 
 
 


Table of Contents

VICOR CORPORATION

INDEX

 

     Page  

Part I — Financial Information:

  

Item 1 - Financial Statements (Unaudited)

  

Condensed Consolidated Balance Sheets at March 31, 2023 and December 31, 2022

     1  

Condensed Consolidated Statements of Operations for the three months ended March 31, 2023 and 2022

     2  

Condensed Consolidated Statements of Comprehensive Income for the three months ended March 31, 2023 and 2022

     3  

Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2023 and 2022

     4  

Condensed Consolidated Statements of Equity for the three months ended March 31, 2023 and 2022

     5  

Notes to Condensed Consolidated Financial Statements

     6  

Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations

     16  

Item 3 - Quantitative and Qualitative Disclosures About Market Risk

     24  

Item 4 - Controls and Procedures

     24  

Part II — Other Information:

  

Item 1 - Legal Proceedings

     26  

Item 1A - Risk Factors

     26  

Item 6 — Exhibits

     26  

Signature(s)

     27  

EX-31.1 SECTION 302 CERTIFICATION OF CEO

  

EX-31.2 SECTION 302 CERTIFICATION OF CFO

  

EX-32.1 SECTION 906 CERTIFICATION OF CEO

  

EX-32.2 SECTION 906 CERTIFICATION OF CFO

  


Table of Contents
VICOR CORPORATION
Part I – Financial Information
Item 1 – Financial Statements
Condensed Consolidated Balance Sheets
(In thousands, except share data)
(Unaudited)
 
 
  
March 31, 2023
 
 
December 31, 2022
 
Assets
  
 
Current assets:
  
 
Cash and cash equivalents
   $ 192,897     $ 190,611  
Accounts receivable, net
     61,061       65,429  
Inventories
     107,382       101,410  
Other current assets
     5,030       5,154  
    
 
 
   
 
 
 
Total current assets
     366,370       362,604  
Long-term deferred tax assets, net
     280       280  
Long-term investment, net
     2,631       2,622  
Property, plant and equipment, net
     167,812       166,009  
Other assets
     7,162       5,386  
    
 
 
   
 
 
 
Total assets
   $ 544,255     $ 536,901  
    
 
 
   
 
 
 
Liabilities and Equity                 
Current liabilities:
                
Accounts payable
   $ 16,790     $ 22,207  
Accrued compensation and benefits
     11,324       10,849  
Accrued litigation
     6,500       6,500  
Accrued expenses
     4,769       8,613  
Short-term lease liabilities
     1,459       1,450  
Sales allowances
     2,389       1,661  
Accrued severance and other charges
     13       —    
Income taxes payable
     663       72  
Short-term deferred revenue and customer prepayments
     9,765       13,197  
    
 
 
   
 
 
 
Total current liabilities
     53,672       64,549  
Long-term deferred revenue
     2,183       145  
Long-term income taxes payable
     869       862  
Long-term lease liabilities
     6,872       7,009  
    
 
 
   
 
 
 
Total liabilities
     63,596       72,565  
Commitments and contingencies (Note 10)
            
Equity:
                
Vicor Corporation stockholders’ equity:
                
Class B Common Stock: 10 votes per share, $.01 par value, 14,000,000 shares authorized,
11,743,218 shares issued and outstanding in 2023 and 2022
     118       118  
Common Stock: 1 vote per share, $.01 par value, 62,000,000 shares authorized 44,104,331
 
shares
 

issued and 32,469,525 shares outstanding in 2023; 43,976,336
 
shares issued and
 
32,341,530
shares outstanding in 2022
     442       441  
Additional
paid-in
capital
     365,442       360,365  
Retained earnings
     254,323       243,079  
Accumulated other comprehensive loss
     (993     (988
Treasury stock at cost: 11,634,806 shares in 2023 and 2022
     (138,927     (138,927
    
 
 
   
 
 
 
Total Vicor Corporation stockholders’ equity
     480,405       464,088  
Noncontrolling interest
     254       248  
    
 
 
   
 
 
 
Total equity
     480,659       464,336  
    
 
 
   
 
 
 
Total liabilities and equity
   $ 544,255     $ 536,901  
    
 
 
   
 
 
 
See accompanying notes.
 
-1-

VICOR CORPORATION
Condensed Consolidated Statements of Operations
(In thousands, except per share amounts)
(Unaudited)
 
     Three Months Ended
March 31,
 
     2023     2022  
Net revenues
   $ 97,816     $ 88,282  
Cost of revenues
     51,282       50,681  
    
 
 
   
 
 
 
Gross margin
     46,534       37,601  
Operating expenses:
                
Selling, general and administrative
     20,223       18,568  
Research and development
     15,869       14,253  
    
 
 
   
 
 
 
Total operating expenses
     36,092       32,821  
    
 
 
   
 
 
 
Income from operations
     10,442       4,780  
Other income (expense), net:
                
Total unrealized gains (losses) on
available-for-sale
securities, net
     9       (103
Less: portion of (gains) losses recognized in other comprehensive income
     (9     104  
    
 
 
   
 
 
 
Net credit gains recognized in earnings
     —         1  
Other income, net
     1,950       161  
    
 
 
   
 
 
 
Total other income, net
     1,950       162  
    
 
 
   
 
 
 
Income before income taxes
     12,392       4,942  
Provision (benefit) for income taxes
     1,141       (48
    
 
 
   
 
 
 
Consolidated net income
     11,251       4,990  
Less: Net income (loss) attributable to noncontrolling interest
     7       (9
    
 
 
   
 
 
 
Net income attributable to Vicor Corporation
   $ 11,244     $ 4,999  
    
 
 
   
 
 
 
Net income per common share attributable to Vicor Corporation:
                
Basic
   $ 0.25     $ 0.11  
Diluted
   $ 0.25     $ 0.11  
Shares used to compute net income per common share attributable to Vicor Corporation:
                
Basic
     44,162       43,952  
Diluted
     44,907       44,954  
See accompanying notes.
 
-2-

VICOR CORPORATION
Condensed Consolidated Statements of Comprehensive Income
(In thousands)
(Unaudited)
 
     Three Months Ended
March 31,
 
     2023     2022  
Consolidated net income
   $ 11,251     $ 4,990  
Foreign currency translation losses, net of tax (1)
     (15     (194
Unrealized income (loss) on
available-for-sale
securities, net of tax (1)
     9       (316
    
 
 
   
 
 
 
Other comprehensive loss
     (6     (510
    
 
 
   
 
 
 
Consolidated comprehensive income
     11,245       4,480  
Less: Comprehensive income (loss) attributable to noncontrolling interest
     6       (23
    
 
 
   
 
 
 
Comprehensive income attributable to Vicor Corporation
   $ 11,239     $ 4,503  
    
 
 
   
 
 
 
 
(1)
The deferred tax assets associated with foreign currency translation losses and unrealized
income (loss)
on
available-for-sale
securities are completely offset by a tax valuation allowance as of March 31, 2023 and 2022. Therefore, there is no income tax benefit (provision) recognized for the three months ended March 31, 2023 and 2022.
See accompanying notes.    
 
-3-

VICOR CORPORATION
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
 
 
  
Three Months Ended
March 31,
 
 
  
2023
 
 
2022
 
Operating activities:
                
Consolidated net income
   $ 11,251     $ 4,990  
Adjustments to reconcile consolidated net income to net cash provided by operating activities:
                
Depreciation and amortization
     4,199       3,296  
Stock-based compensation expense
     2,817       1,994  
Increase (decrease) in long-term deferred revenue
     2,038       (81
Increase in other assets
     33       62  
Increase in long-term income taxes payable
     7       5  
Deferred income taxes
     —         2  
Credit gain on
available-for-sale
securities
     —         (1
Change in current assets and liabilities, net
     (10,232     (5,682
    
 
 
   
 
 
 
Net cash provided by operating activities
     10,113       4,585  
Investing activities:
                
Sales or maturities of short-term investments
     —         25,000  
Additions to property, plant and equipment
     (10,089     (22,683
    
 
 
   
 
 
 
Net cash (used for) provided by investing activities
     (10,089     2,317  
Financing activities:
                
Proceeds from employee stock plans
     2,261       1,810  
    
 
 
   
 
 
 
Net cash provided by financing activities
     2,261       1,810  
Effect of foreign exchange rates on cash
     1       (80
    
 
 
   
 
 
 
Net increase in cash and cash equivalents
     2,286       8,632  
Cash and cash equivalents at beginning of period
     190,611       182,418  
    
 
 
   
 
 
 
Cash and cash equivalents at end of period
   $ 192,897     $ 191,050  
    
 
 
   
 
 
 
See accompanying notes.
 
-4-
VICOR CORPORATION
Condensed Consolidated Statements of Equity
(In thousands)
(Unaudited)
 
 
  
Class B

Common

Stock
 
  
Common

Stock
 
  
Additional

Paid-In

Capital
 
  
Retained

Earnings
 
  
Accumulated

Other

Comprehensive

Loss
 
 
Treasury

Stock
 
 
Total

Vicor

Corporation

Stockholders’

Equity
 
 
Noncontrolling

Interest
 
 
Total

Equity
 
Three months ended March 31, 2023
                                                                            
Balance on December 31, 2022
   $ 118      $ 441      $ 360,365      $ 243,079      $ (988   $ (138,927   $ 464,088     $ 248     $ 464,336  
Issuance of Common Stock under employee stock plans
              1        2,260                                 2,261               2,261  
Stock-based compensation expense
                       2,817                                 2,817               2,817  
Components of comprehensive income, net of tax:
                                                                            
Net income
                                11,244                        11,244       7       11,251  
Other comprehensive loss
                                         (5             (5     (1     (6
                                                        
 
 
   
 
 
   
 
 
 
Total comprehensive income
                                                         11,239       6       11,245  
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Balance on March 31, 2023
   $ 118      $ 442      $ 365,442      $ 254,323      $ (993   $ (138,927   $ 480,405     $ 254     $ 480,659  
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
                   
   
Class B

Common

Stock
    
Common

Stock
    
Additional

Paid-In

Capital
    
Retained

Earnings
    
Accumulated

Other

Comprehensive

Loss
   
Treasury

Stock
   
Total

Vicor

Corporation

Stockholders’

Equity
   
Noncontrolling

Interest
   
Total

Equity
 
Three months ended March 31, 2022
                                                                            
Balance on December 31, 202
1
   $ 118      $ 439      $ 345,664      $ 217,633      $ (1,328   $ (138,927   $ 423,599     $ 306     $ 423,905  
Issuance of Common Stock under employee stock plans
              1        1,809                                 1,810               1,810  
Stock-based compensation expense
                       1,994                                 1,994               1,994  
Components of comprehensive income (loss), net of tax:
                                                                            
Net income (loss)
                                4,999                        4,999       (9     4,990  
Other comprehensive loss
                                         (496             (496     (14     (510
                                                        
 
 
   
 
 
   
 
 
 
Total comprehensive income (loss)
                                                         4,503       (23     4,480  
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Balance on March 31, 2022
   $ 118      $ 440      $ 349,467      $ 222,632      $ (1,824   $ (138,927   $ 431,906     $ 283     $ 432,189  
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
See accompanying notes.
 
-5-

VICOR CORPORATION
Notes to Condensed Consolidated Financial Statements
March 31, 2023
(unaudited)
 
1.
Basis of Presentation
The accompanying unaudited Condensed Consolidated Financial Statements of Vicor Corporation and its consolidated subsidiaries (collectively, the “Company”) have been prepared in accordance with generally accepted accounting principles for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Accordingly, these interim financial statements do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2023 are not necessarily indicative of the results that may be expected for any other interim period or the year ending December 31, 2023. The balance sheet at December 31, 2022 presented herein has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. For further information, refer to the consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form
10-K
for the year ended December 31, 2022 filed by the Company with the SEC on February 28, 2023 (“2022 Form
10-K”).
 
2.
Inventories
Inventories were as follows (in thousands):
 
 
  
March 31, 2023
 
  
December 31, 2022
 
Raw materials
   $ 85,833      $ 82,181  
Work-in-process
     12,101        10,456  
Finished goods
     9,448        8,773  
    
 
 
    
 
 
 
     $ 107,382      $ 101,410  
    
 
 
    
 
 
 
 
3.
Long-Term Investments
As of March 31, 2023 and December 31, 2022, the Company held one auction rate security with a par value of $3,000,000 and an estimated fair value of approximately $2,631,000 and $2,622,000, respectively, purchased through and held in custody by a broker-dealer affiliate of Bank of America, N.A., that has experienced failed auctions (the “Failed Auction Security”) since February 2008. The Failed Auction Security held by the Company is Aaa/AA+ rated by major credit rating agencies, is collateralized by student loans, and is guaranteed by the U.S. Department of Education under the Federal Family Education Loan Program. Management is not aware of any reason to believe the issuer of the Failed Auction Security is presently at risk of default. Through March 31, 2023, the Company has continued to receive interest payments on the Failed Auction Security in accordance with the terms of its indenture. Management believes the Company ultimately should be able to liquidate the Failed Auction Security without significant loss primarily due to the overall quality of the issue held and the collateral securing the substantial majority of the underlying obligation. However, current conditions in the auction rate securities market have led management to conclude the recovery period for the Failed Auction Security exceeds 12 months. As a result, the Company continued to classify the Failed Auction Security as long-term as of March 31, 2023.
 
-6-

VICOR CORPORATION
Notes to Condensed Consolidated Financial Statements
March 31, 2023
(unaudited)
 
Details of our investments are as follows (in thousands):
 
 
  
March 31, 2023
 
 
  
Cash and

Cash

Equivalents
 
  
Long-Term

Investment
 
Measured at fair value:
  
  
Available-for-sale
debt securities:
  
  
Money market funds
   $ 144,725      $ —    
Failed Auction Security
     —          2,631  
    
 
 
    
 
 
 
Total
     144,725        2,631  
     
Other measurement basis:
                 
Cash on hand
     48,172        —    
    
 
 
    
 
 
 
Total
   $ 192,897      $ 2,631  
    
 
 
    
 
 
 
   
    
December 31, 2022
 
    
Cash and

Cash

Equivalents
    
Long-Term

Investment
 
Measured at fair value:
                 
Available-for-sale
debt securities:
                 
Money market funds
   $ 143,274      $ —    
Failed Auction Security
     —          2,622  
    
 
 
    
 
 
 
Total
     143,274        2,622  
 
 
 
 
 
 
 
 
Other measurement basis:
                 
Cash on hand
     47,337        —    
    
 
 
    
 
 
 
Total
   $ 190,611      $ 2,622  
    
 
 
    
 
 
 
The following is a summary of the
available-for-sale
securities (in thousands):
 
March 31, 2023
   Cost      Gross
Unrealized
Gains
     Gross
Unrealized
Losses
     Estimated
Fair
Value
 
Failed Auction Security
   $ 3,000        —          369      $ 2,631  
 
-7-

VICOR CORPORATION
Notes to Condensed Consolidated Financial Statements
March 31, 2023
(unaudited)
 
December 31, 2022
   Cost      Gross
Unrealized
Gains
     Gross
Unrealized
Losses
     Estimated
Fair
Value
 
Failed Auction Security
     3,000        —          378        2,622  
As of March 31, 2023, the Failed Auction Security had been in an unrealized loss position for greater than 12 months.
The amortized cost and estimated fair value of the
available-for-sale
securities on March 31, 2023, by type and
contractual maturities, are shown below (in thousands):

 
     Cost     Estimated
Fair Value
 
Failed Auction Security:
                 
     
Due in twenty years
   $ 3,000      $ 2,631  
    
 
 
    
 
 
 
 
4.
Fair Value Measurements
The Company accounts for certain financial assets at fair value, defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. As such, fair value is a market-based measurement that should be determined based on assumptions market participants would use in pricing an asset or liability. A three-level hierarchy is used to show the extent and level of judgment used to estimate fair value measurements.
Assets and liabilities measured at fair value on a recurring basis included the following as of March 31, 2023 (in thousands):
 
 
  
Using
 
  
 
 
 
  
Quoted Prices
in Active
Markets
(Level 1)
 
  
Significant
Other
Observable
Inputs
(Level 2)
 
  
Significant
Unobservable
Inputs
(Level 3)
 
  
Total Fair
Value as of
March 31, 2023
 
Cash equivalents:
  
  
  
  
Money market funds
   $ 144,725      $ —        $ —        $ 144,725  
Long-term investment:
                                   
Failed Auction Security
     —          —          2,631        2,631  
 
-8-

VICOR CORPORATION
Notes to Condensed Consolidated Financial Statements
March 31, 2023
(unaudited)
 
Assets and liabilities measured at fair value on a recurring basis included the following as of December 31, 2022 (in thousands):
 
 
  
Using
 
  
 
 
 
  
Quoted Prices
in Active
Markets
(Level 1)
 
  
Significant
Other
Observable
Inputs
(Level 2)
 
  
Significant
Unobservable
Inputs
(Level 3)
 
  
Total Fair
Value as of
December 31, 2022
 
Cash equivalents:
  
  
  
  
Money market funds
   $ 143,274      $ —        $ —        $ 143,274  
Long-term investment:
                                   
Failed Auction Security
     —          —          2,622        2,622  
The change in the estimated fair value calculated for the investment valued on a recurring basis utilizing Level 3 inputs (i.e., the Failed Auction Security) for the three months ended March 31, 2023 was as follows (in thousands):
 
Balance at the beginning of the period
   $ 2,622  
Credit gain on
available-for-sale
security included in Other income (expense), net
     9  
    
 
 
 
Balance at the end of the period
   $ 2,631  
    
 
 
 
Management utilized a probability weighted discounted cash flow model to determine the estimated fair value as of March 31, 2023.
 
-9-

VICOR CORPORATION
Notes to Condensed Consolidated Financial Statements
March 31, 2023
(unaudited)
 
5.
Revenues
The following tables present the Company’s net revenues disaggregated by geography based on the location of the customer, by product line (in thousands):
 
 
  
Three Months Ended March 31, 2023
 
 
  
Brick Products
 
  
Advanced Products
 
  
Total
 
United States
   $ 21,256      $ 13,710      $ 34,966  
Europe
     7,546        4,027        11,573  
Asia Pacific
     16,847        33,444        50,291  
All other
     876        110        986  
    
 
 
    
 
 
    
 
 
 
     $ 46,525      $ 51,291      $ 97,816  
    
 
 
    
 
 
    
 
 
 
   
     Three Months Ended March 31, 2022  
     Brick Products      Advanced Products      Total  
United States
   $ 14,061      $ 10,626      $ 24,687  
Europe
     7,042        2,768        9,810  
Asia Pacific
     13,521        39,495        53,016  
All other
     733        36        769  
    
 
 
    
 
 
    
 
 
 
     $ 35,357      $ 52,925      $ 88,282  
    
 
 
    
 
 
    
 
 
 
 
-10-

VICOR CORPORATION
Notes to Condensed Consolidated Financial Statements
March 31, 2023
(unaudited)
 
The following tables present the Company’s net revenues disaggregated by the category of revenue, by product line (in thousands):
 
 
  
Three Months Ended March 31, 2023
 
 
  
Brick Products
 
  
Advanced Products
 
  
Total
 
Direct customers, contract manufacturers and
non-stocking
distributors
   $ 30,486      $ 42,013      $ 72,499  
Stocking distributors, net of sales allowances
     15,737        5,052        20,789  
Non-recurring
engineering
     302        2,128        2,430  
Royalties
     —          2,020        2,020  
Other
     —          78        78  
    
 
 
    
 
 
    
 
 
 
     $ 46,525      $ 51,291      $ 97,816  
    
 
 
    
 
 
    
 
 
 
   
     Three Months Ended March 31, 2022  
     Brick Products      Advanced Products      Total  
Direct customers, contract manufacturers and
non-stocking
distributors
   $ 24,401      $ 47,471      $ 71,872  
Stocking distributors, net of sales allowances
     10,764        3,744        14,508  
Non-recurring
engineering
     192        1,386        1,578  
Royalties
     —          306        306  
Other
     —          18        18  
    
 
 
    
 
 
    
 
 
 
     $ 35,357      $ 52,925      $ 88,282  
    
 
 
    
 
 
    
 
 
 
The following table presents the changes in certain contract assets and (liabilities) (in thousands):
 
 
  
March 31, 2023
 
  
December 31, 2022
 
  
Change
 
Short-term deferred revenue and customer prepayments
   $ (9,765    $ (13,197    $ 3,432  
Long-term deferred revenue
     (2,183      (145      (2,038
Deferred expenses
     98        577        (479
Sales allowances
     (2,389      (1,661      (728
Deferred expenses are included in Other current assets in the accompanying Condensed Consolidated Balance Sheets.

The Company records deferred revenue, which represents a contract liability, when cash payments are received or due in advance of performance under a contract with a customer. The Company recognized revenue of approximately $
1,609,000
and $
155,000
for the three months ended March 31, 2023 and 2022, respectively, that was included in deferred revenue at the beginning of the respective period.
 
-11-

VICOR CORPORATION
Notes to Condensed Consolidated Financial Statements
March 31, 2023
(unaudited)
 
6.
Stock-Based Compensation
The Company uses the Black-Scholes option pricing model to calculate the fair value of stock option awards, whether they possess time-based vesting provisions or performance-based vesting provisions, and awards granted under the Vicor Corporation 2017 Employee Stock Purchase Plan (“ESPP”), as of their grant date. Stock-based compensation expense was as follows (in thousands):
 
     Three Months Ended
March 31,
 
     2023      2022  
Cost of revenues
   $ 486      $ 251  
Selling, general and administrative
     1,520        1,207  
Research and development
     811        536  
    
 
 
    
 
 
 
Total stock-based compensation
   $ 2,817      $ 1,994  
    
 
 
    
 
 
 
Compensation expense by type of award was as follows (in thousands):
 
     Three Months Ended
March 31,
 
     2023      2022  
Stock options
   $ 2,496      $ 1,759  
ESPP
     321        235  
    
 
 
    
 
 
 
Total stock-based compensation
   $ 2,817      $ 1,994  
    
 
 
    
 
 
 
 
7.
Rental Income
Income, net under the Company’s operating lease agreement, for its owned facility leased to a third party in California, was approximately $198,000 for the three months ended March 31, 2023 and 2022.
 
8.
Income Taxes
The provision (benefit) for income taxes is based on the estimated annual effective tax rate for the year, which includes estimated federal, state and foreign income taxes on the Company’s projected
pre-tax
income.
 
-12-

VICOR CORPORATION
Notes to Condensed Consolidated Financial Statements
March 31, 2023
(unaudited)
 
The provision (benefit) for income taxes and the effective income tax rates were as follows (dollars in thousands):
 
 
  
Three Months Ended
March 31,
 
 
  
2023
 
 
2022
 
Provision (benefit) for income taxes
   $
1,141
    $ (48
Effective income tax rate
     9.2     (1.0 )% 
The effective tax rates were lower than the statutory tax rates for the three months ended March 31, 2023 and 2022 primarily due to the Company’s full valuation allowance position against domestic deferred tax assets. The provision (benefit) for income taxes for the three months ended March 31, 2023 and 2022 included estimated federal, state and foreign income taxes in jurisdictions in which the Company does not have sufficient tax attributes.
As of March 31, 2023
,
the Company has a valuation allowance of approximately $47,413,000
against all net domestic deferred tax assets for which realization cannot be considered more likely than not at this time. Management assesses the need for the valuation allowance on a quarterly basis. In assessing the need for a valuation allowance, the Company considers all positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies, and past financial performance. Despite recent positive operating results, the Company faces uncertainties in forecasting its operating results due to supply and factory capacity constraints, certain process issues with the production of Advanced Products and the unpredictability in certain markets. This operating uncertainty also makes it difficult to predict the availability and utilization of tax benefits over the next several years. As a result, management has concluded, as of March 31, 2023, it is more likely than not the Company’s net domestic deferred tax assets will not be realized, and a full valuation allowance against all net domestic deferred tax assets is still warranted as of March 31, 2023. The valuation allowance against these deferred tax assets may require adjustment in the future based on changes in the mix of temporary differences, changes in tax laws, and operating performance. If the positive operating results continue, and the Company’s concerns about industry uncertainty and world events, supply and factory capacity constraints, and process issues with the production of Advanced Products are resolved, and the amount of tax benefits the Company is able to utilize to the point that the Company believes future taxable income can be more reliably forecasted, the Company may release all or a portion of the valuation allowance in the near-term. If and when the Company determines the valuation allowance should be released (i.e., reduced), the adjustment would result in a tax benefit reported in that period’s Condensed Consolidated Statements of Operations, the effect of which would be an increase in reported net income.
The Company was informed in September 2021 by the Internal Revenue Service of their intention to examine the Company’s 2019 Federal income tax return. The IRS is in the process of closing examination of the 2019 tax year with no material adjustments. There are no other audits or examinations in process in any other jurisdiction.
 
-13-

VICOR CORPORATION
Notes to Condensed Consolidated Financial Statements
March 31, 2023
(unaudited)
 
9.
Net Income per Share
The following table sets forth the computation of basic and diluted net income per share (in thousands, except per share amounts):
 
    
Three Months Ended
March 31,
 
 
  
2023
 
  
2022
 
Numerator:
                 
Net income attributable to Vicor Corporation
   $ 11,244      $ 4,999  
    
 
 
    
 
 
 
Denominator:
                 
Denominator for basic net income per share-weighted average shares (1)
     44,162        43,952  
Effect of dilutive securities:
                 
Employee stock options (2)
     745        1,002  
    
 
 
    
 
 
 
Denominator for diluted net income per share – adjusted weighted-average shares and assumed conversions
     44,907        44,954  
    
 
 
    
 
 
 
Basic net income per share
   $ 0.25      $ 0.11  
    
 
 
    
 
 
 
Diluted net income per share
   $ 0.25      $ 0.11  
    
 
 
    
 
 
 
 
 
(1)
Denominator represents the weighted average number of shares of Common Stock and Class B Common Stock outstanding. 
(2)
Options to purchase 1,035,618 and 291,880 shares of Common Stock for the three months ended March 31, 2023 and 2022, respectively, were not included in the calculations of net income per share as the effect would have been antidilutive.
 
10.
Commitments and Contingencies
At March 31, 2023, the Company had approximately $19,325,000 of cancelable and
non-cancelable
capital expenditure commitments, principally for manufacturing equipment, and approximately $2,083,000 of capital expenditure items which had been received and included in Property, plant and equipment in the accompanying Condensed Consolidated Balance Sheets, but not yet paid for.
The Company is the defendant in a patent infringement lawsuit originally filed on January 28, 2011 by SynQor, Inc. (“SynQor”) in the U.S. District Court (the “District Court”) for the Eastern District of Texas. The complaint, as amended, alleged that the Company’s unregulated bus converters used in intermediate bus architecture power supply systems infringed SynQor’s U.S. patent numbers 7,072,190, 7,272,021, 7,564,702, and 8,023,290 (“the ‘190 patent”, “the ‘021 patent”, “the ‘702 patent”, and “the ‘290 patent”, respectively, and collectively the “SynQor Patents”). The Company asserted counterclaims against SynQor alleging unfair competition and tortious interference with business relations (the “Counterclaims”). As a result of certain actions by the United States Patent and Trademark Office (“USPTO”) and the District Court, SynQor’s infringement allegations regarding the ‘021 patent and the ‘290 patent were dismissed from the case prior to the beginning of trial. Specifically, the USPTO invalidated all the asserted claims of the ‘021 patent and that decision was upheld on appeal on August 30, 2017. In addition, on October 5, 2022, the District Court issued
 
-14-

VICOR CORPORATION
Notes to Condensed Consolidated Financial Statements
March 31, 2023
(unaudited)
 
an order involuntarily dismissing the ‘290 patent infringement allegations on grounds of equitable and judicial estoppel, in view of representations by SynQor to the District Court agreeing to such dismissal as a condition of lifting a prior stay of the lawsuit. On January 18, 2023, the United States Court of Appeals for the Federal Circuit issued a decision upholding a decision of the Patent Trial and Appeal Board of the USPTO invalidating all claims of the ‘290 patent
.
A trial in the District Court began on October 17, 2022 on the asserted claims of the ‘190 patent and the ‘702 patent, as well as on the Company’s Counterclaims. The District Court dismissed the Company’s Counterclaims on October 25, 2022. On October 26, 2022, the jury returned a verdict on SynQor’s patent infringement claims, finding that the Company willfully infringed the ‘702 patent, but did not infringe the ‘190 patent. The jury awarded SynQor damages in the amount of $6,500,000 for infringement of the ‘702 patent. All of the SynQor Patents expired in 2018.
On December 23, 2022, SynQor filed in the District Court (a) a motion for judgment as a matter of law that the Company infringed the ‘190 patent, (b) a motion requesting the District Court to award SynQor treble damages, as well as
pre-
and post-judgment interest, (c) a motion requesting the District Court to award SynQor its attorneys’ fees, and (d) a motion for a new trial. On December 23, 2022, the Company filed in the District Court (a) a motion requesting judgment as a matter of law that it did not infringe the ‘702 patent, and (b) a motion requesting judgment with respect to its defenses of equitable estoppel and waiver. The Court has not yet acted on any of these motions. To the extent that the District Court ultimately rules against the Company with respect to any of the aforementioned motions, the Company anticipates appealing those rulings to the United States Court of Appeals for the Federal Circuit. The Company similarly anticipates appealing the District Court’s order dismissing the Company’s Counterclaims against SynQor.
In accordance with applicable accounting standards, the Company recorded a litigation related accrual of $6,500,000 in the third quarter of 2022 as its estimate based on the jury award, using estimated outcomes ranging from $0 to treble damages plus attorney fees.
In addition, the Company is involved in certain other litigation and claims incidental to the conduct of its business. While the outcome of such other lawsuits and claims against the Company cannot be predicted with certainty, management does not expect such litigation or claims will have a material adverse impact on the Company’s financial position or results of operations.
 
11.
Impact of Recently Issued A
ccou
nting Standards
New pronouncements issued but not effective until after March 31, 2023 are not expected to have a material impact on the Company’s consolidated financial statements.
 
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Table of Contents

VICOR CORPORATION

Management’s Discussion and Analysis of

Financial Condition and Results of Operation

March 31, 2023

Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations

Cautionary Note Regarding Forward-Looking Statements

The Company’s consolidated operating results are affected by a wide variety of factors that could materially and adversely affect revenues and profitability, including the risk factors described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 and the risk factors described in this Quarterly Report on Form 10-Q. As a result of these and other factors, the Company may experience material fluctuations in future operating results on a quarterly or annual basis, which could materially and adversely affect its business, consolidated financial condition, and operating results, and the share price of its Common Stock. This document and other documents filed by the Company with the Securities and Exchange Commission (“SEC”) include forward-looking statements regarding future events and the Company’s future results that are subject to the safe harbor afforded under the Private Securities Litigation Reform Act of 1995 and other safe harbors afforded under the Securities Act of 1933 and the Securities Exchange Act of 1934. All statements other than statements of historical fact are statements that could be deemed forward-looking statements. Forward-looking statements are based on our current beliefs, expectations, estimates, forecasts, and projections for the future performance of the Company and are subject to risks and uncertainties. Forward-looking statements are identified by the use of words denoting uncertain, future events, such as “anticipate,” “assume,” “believe,” “continue,” “could,” “estimate,” “expect,” “future,” “goal,” “if,” “intend,” “may,” “plan,” “potential,” “project,” “prospective,” “seek,” “should,” “target,” “will,” or “would,” as well as similar words and phrases, including the negatives of these terms, or other variations thereof. Forward-looking statements also include, but are not limited to, statements regarding: our expectations that the Company has adequate resources to respond to financial and operational risks associated with the novel coronavirus (“COVID-19”) and regarding our and our customers’ ability to effectively conduct business during the pandemic; our ability to address certain supply chain risks; our ongoing development of power conversion architectures, switching topologies, materials, packaging, and products; the ongoing transition of our business strategically, organizationally, and operationally from serving a large number of relatively low-volume customers across diversified markets and geographies to serving a small number of relatively large volume customers; our intent to enter new market segments; the levels of customer orders overall and, in particular, from large customers and the delivery lead times associated therewith; anticipated new and existing customer wins; the financial and operational impact of customer changes to shipping schedules; the derivation of a portion of our sales in each quarter from orders booked in the same quarter; our intent to expand the percentage of revenue associated with licensing our intellectual property to third parties; our plans to invest in expanded manufacturing capacity, including the expansion of our Andover facility and the introduction of new manufacturing processes, and the timing, location, and funding thereof; our belief that cash generated from operations together with our available cash and cash equivalents will be sufficient to fund planned operational needs, capital equipment purchases, and planned construction, for the foreseeable future; our outlook regarding tariffs and the impact thereof on our business; our belief that we have limited exposure to currency risks; our intentions regarding the declaration and payment of cash dividends; our intentions regarding protecting our rights under our patents; and our expectation that no current litigation or claims will have a material adverse impact on our financial position or results of operations. These forward-looking statements are based upon our current expectations and estimates associated with prospective events and circumstances that may or may not be within our control and as to which there can be no assurance. Actual results could differ materially from those implied by forward-looking statements as a result of various factors, including but not limited to those described above, as well as those described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 under Part I, Item 1 — “Business,” under Part I, Item 1A — “Risk Factors,” under Part I, Item 3 — “Legal Proceedings,” and under Part II, Item 7 — “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and those described in this Quarterly Report on Form 10-Q, particularly under Part I, Item 2 – “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and under Part II, Item 1A – “Risk Factors.” The discussion of our business contained herein, including the identification and assessment of factors that may influence actual results, may not be exhaustive. Therefore, the information presented should be read together with other documents we file with the SEC from time to time, including our Annual Reports on Form 10-K, our Quarterly Reports on Form 10-Q and our Current Reports on Form 8-K, which may supplement, modify, supersede, or update the factors discussed in this Quarterly Report on Form 10-Q. Any forward-looking statement made in this Quarterly Report on Form 10-Q is based on information currently available to us and speaks only as of the date on which it is made. We do not undertake any obligation to update any forward-looking statements as a result of future events or developments, except as required by law.

 

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Table of Contents

VICOR CORPORATION

Management’s Discussion and Analysis of

Financial Condition and Results of Operation

March 31, 2023

 

Overview

We design, develop, manufacture, and market modular power components and power systems for converting electrical power for use in electrically-powered devices. Our competitive position is supported by innovations in product design and achievements in product performance, largely enabled by our focus on the research and development of advanced technologies and processes, often implemented in proprietary semiconductor circuitry, materials, and packaging. Many of our products incorporate patented or proprietary implementations of high-frequency switching topologies enabling power system solutions that are more efficient and much smaller than conventional alternatives. Our strategy emphasizes demonstrable product differentiation and a value proposition based on competitively superior solution performance, advantageous design flexibility, and a compelling total cost of ownership. While we offer a wide range of alternating current (“AC”) and direct current (“DC”) power conversion products, we consider our core competencies to be associated with 48V DC distribution, which offers numerous inherent cost and performance advantages over lower distribution voltages. However, we also offer products addressing other DC voltage standards (e.g., 380V for power distribution in data centers, 110V for rail applications, 28V for military and avionics applications, and 24V for industrial automation).

Based on design, performance, and form factor considerations, as well as the range of evolving applications for which our products are appropriate, we categorize our product portfolios as either “Advanced Products” or “Brick Products.” The Advanced Products category consists of our more recently introduced products, which are largely used to implement our proprietary Factorized Power Architecture (“FPA”), an innovative power distribution architecture enabling flexible, rapid power system design using individual components optimized to perform a specific conversion function.

The Brick Products category largely consists of our broad and well-established families of integrated power converters, incorporating multiple conversion stages, used in conventional power systems architectures. Given the growth profiles of the markets we serve with our Advanced Products line and our Brick Products line, our strategy involves a transition in organizational focus, emphasizing investment in our Advanced Products line and targeting high growth market segments with a low-mix, high-volume operational model, while maintaining a profitable business in the mature market segments we serve with our Brick Products line with a high-mix, low-volume operational model.

The applications in which our Advanced Products and Brick Products are used are typically in the higher-performance, higher-power segments of the market segments we serve. With our Advanced Products, we generally serve large Original Equipment Manufacturers (“OEMs”), Original Design Manufacturers (“ODMs”), and their contract manufacturers, with sales currently concentrated in the data center and hyperscaler segments of enterprise computing, in which our products are used for voltage distribution on server motherboards, in server racks, and across datacenter infrastructure. We have established a leadership position in the emerging market segment for powering high-performance processors used for acceleration of applications associated with artificial intelligence (“AI”). Our customers in the AI market segment include the leading innovators in processor and accelerator design, as well as early adopters in cloud computing and high performance computing. We also target applications in aerospace and aviation, defense electronics, industrial automation, instrumentation, test equipment, solid state lighting, telecommunications and networking infrastructure, and vehicles (notably in the autonomous driving, electric vehicle, and hybrid vehicle niches of the vehicle segment). With our Brick Products, we generally serve a fragmented base of large and small customers, concentrated in aerospace and defense electronics, industrial automation, industrial equipment, instrumentation and test equipment, and transportation (notably in rail and heavy equipment applications). With our strategic emphasis on larger, high-volume customers, we expect to experience over time a greater concentration of sales among relatively fewer customers.

Our quarterly consolidated operating results can be difficult to forecast and have been subject to significant fluctuations. We plan our production and inventory levels based on management’s estimates of customer demand, customer forecasts, and other information sources. Customer forecasts, particularly those of OEM, ODM, and contract manufacturing customers to which we supply Advanced Products in high volumes, are subject to scheduling changes on short notice, contributing to operating inefficiencies and excess costs. In addition, external factors such as supply chain uncertainties, which are often associated with the cyclicality of the electronics industry, regional macroeconomic and trade-related circumstances, and force majeure events (most recently evidenced by the COVID-19 pandemic), have caused our operating results to vary meaningfully. Supply chain disruptions, including those associated with our reliance on outsourced package process steps that are essential in the production of some of our Advanced Products, and those relating, for example, to the procurement of raw material, have in the past negatively impacted and may in the

 

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Table of Contents

VICOR CORPORATION

Management’s Discussion and Analysis of

Financial Condition and Results of Operation

March 31, 2023

 

future negatively impact our operating results. We have taken steps to mitigate the impact of supply chain disruptions by, among other things and in varying degrees, moving outsourced manufacturing steps in-house to the Company, ordering supplies with extended lead times, paying higher prices for certain supplies or outsourced production, and expediting deliveries at a cost premium. The resulting impact of the steps taken to mitigate supply chain disruptions have, to varying degrees and at different times, reduced our revenue, gross margin, operating profit and cash flow and may continue to do so in the future. While we continue to make progress in moving outsourced manufacturing steps in-house to the Company, we are still experiencing long lead times on certain raw material components, and uncertainty of output from our outsourced manufacturing supplier. Our quarterly gross margin as a percentage of net revenues may vary, depending on production volumes, average selling prices, average unit costs, the mix of products sold during that quarter, and the level of importation of raw materials subject to tariffs. Our quarterly operating margin as a percentage of net revenues also may vary with changes in revenue and product level profitability, but our operating costs are largely associated with compensation and related employee costs, which are not subject to sudden or significant changes.

Ongoing / Potential Impacts of the COVID-19 Pandemic on the Company

As of the date of this report, the number of Company employees diagnosed with COVID-19 and the corresponding absenteeism due to COVID-19 are negligible. While the productivity of our factory is not currently impacted by COVID-19, productivity may be reduced if quarantine rates increase or if the number of employees diagnosed with COVID-19 requires further implementation of restrictive health and safety measures, including factory closure. We continue to operate with three shifts in our factory, and, with few exceptions, our engineering, sales, and administrative personnel are working from the Company’s offices.

We are closely monitoring the operating performance and financial health of our customers, business partners, and suppliers, but an extended period of operational constraints brought about by the pandemic could cause financial hardship within our customer base and supply chain. Such hardship may continue to disrupt customer demand and limit our customers’ ability to meet their obligations to us. Similarly, such hardship within our supply chain could continue to restrict our access to raw materials or services. Additionally, restrictions or disruptions of transportation, such as reduced availability of cargo transport by ship or air, have resulted and may continue to result in higher costs and inbound and outbound delays.

Although there is uncertainty regarding the extent to which the pandemic will continue to impact our operational and financial results in the future, the Company’s high level of liquidity, flexible operational model, existing raw material inventories, and increased use of second sources for critical manufacturing inputs together support management’s belief the Company will be able to effectively conduct business until the pandemic passes.

We are monitoring the rapidly changing circumstances, and may take additional actions to address COVID-19 risks as they evolve. Because much of the potential negative impact of the pandemic is associated with risks outside of our control, we cannot estimate the extent of such impact on our financial or operational performance, or when such impact might occur.

Summary of First Quarter 2023 Financial Performance Compared to Fourth Quarter 2022 Financial Performance

The following summarizes our financial performance for the first quarter of 2023, compared to the fourth quarter of 2022:

 

   

Net revenues decreased 7.3% to $97,816,000 for the first quarter of 2023, from $105,493,000 for the fourth quarter of 2022. Net revenues for Brick Products increased 10.9% compared to the fourth quarter of 2022, primarily due to the ability to shift manufacturing resources to focus on available backlog, as well as favorable market conditions. Advanced Products net revenue decreased 19.3% compared to the fourth quarter of 2022 primarily due to continued supply constraints leading to longer cycle-times and schedule delays.

 

   

Export sales represented approximately 64.3% of total net revenues in the first quarter of 2023 as compared to 59.8% in the fourth quarter of 2022.

 

   

Gross margin decreased to $46,534,000 for the first quarter of 2023 from $49,139,000 for the fourth quarter of 2022, but gross margin, as a percentage of net revenues, increased to 47.6% for the first quarter of 2023 from 46.6% for the fourth

 

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Table of Contents

VICOR CORPORATION

Management’s Discussion and Analysis of

Financial Condition and Results of Operation

March 31, 2023

 

 

quarter of 2022. The decrease in gross margin dollars and the increase in gross margin percentage were primarily a result of the unfavorable impact from lower sales volume offset by reduced freight-in and tariff spending of $3,927,000 (net of approximately $3,000,000 in duty drawback recovery of previously paid tariffs).

 

   

Backlog, which represents the total value of orders for products for which shipment is scheduled within the next 12 months, was approximately $271,283,000 at the end of the first quarter of 2023, as compared to $304,392,000 at the end of the fourth quarter of 2022.

 

   

Operating expenses for the first quarter of 2023 decreased $4,928,000, or 12.0%, to $36,092,000 from $41,020,000 for the fourth quarter of 2022. Selling, general, and administrative expenses decreased approximately $4,719,000, primarily due to a decrease in legal fees. Research and development expenses decreased approximately $209,000, primarily due to a decrease in engineering supplies.

 

   

We reported net income for the first quarter of 2023 of $11,244,000, or $0.25 per diluted share, compared to net income of $8,062,000, or $0.18 per diluted share, for the fourth quarter of 2022.

 

   

For the first quarter of 2023, depreciation and amortization totaled $4,199,000 and capital additions totaled $10,089,000 as compared to depreciation and amortization of $3,526,000 and capital additions of $12,687,000 for the fourth quarter of 2022.

 

   

Inventories increased by approximately $5,972,000, or 5.9%, to $107,382,000 at March 31, 2023, compared to $101,410,000 at December 31, 2022, primarily consisting of raw materials.

Three Months Ended March 31, 2023 Compared to Three Months Ended March 31, 2022

Net revenues for the first quarter of 2023 were $97,816,000, an increase of $9,534,000, or 10.8%, as compared to $88,282,000 for the first quarter of 2022. Net revenues, by product line, for the three months ended March 31, 2023 and 2022 were as follows (dollars in thousands):

 

                   Increase (decrease)  
     2023      2022      $      %  

Advanced Products

   $ 51,291    $ 52,925    $ (1,634      (3.1 )% 

Brick Products

     46,525      35,357      11,168      31.6
  

 

 

    

 

 

    

 

 

    

Total

   $ 97,816    $ 88,282    $ 9,534      10.8
  

 

 

    

 

 

    

 

 

    

The decrease in net revenues for Advanced Products was primarily due to manufacturing constraints and schedule delays. The increase in net revenues for Brick Products was primarily due to the ability to shift manufacturing resources to focus on available backlog, as well as favorable market conditions.

Gross margin for the first quarter of 2023 increased $8,933,000, or 23.8%, to $46,534,000, from $37,601,000 for the first quarter of 2022. Gross margin, as a percentage of net revenues, increased to 47.6% for the first quarter of 2023, compared to 42.6% for the first quarter of 2022. The increase in gross margin dollars and gross margin percentage was primarily due to favorable higher sales volume, improved production efficiencies, and reduced freight-in and tariff spending of $3,791,000 (net of approximately $3,000,000 in duty drawback recovery of previously paid tariffs), partially offset by an unfavorable sales mix.

 

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Table of Contents

VICOR CORPORATION

Management’s Discussion and Analysis of

Financial Condition and Results of Operation

March 31, 2023

 

Selling, general, and administrative expenses were $20,223,000 for the first quarter of 2023, an increase of $1,655,000, or 8.9%, from $18,568,000 for the first quarter of 2022. Selling, general, and administrative expenses as a percentage of net revenues decreased to 20.7% for the first quarter of 2023 from 21.0% for the first quarter of 2022. The components of the $1,655,000 increase in selling, general and administrative expenses for the first quarter of 2023 from the first quarter of 2022 were as follows (dollars in thousands):

 

     Increase  

Compensation

   $ 542      4.6     (1

Advertising

     361      55.1     (2

Commissions

     306      47.9     (3

Legal fees

     277      25.6     (4

Other, net

     169      3.8  
  

 

 

      
   $ 1,655      8.9  
  

 

 

      

 

(1)

Increase primarily attributable to an increase in headcount, annual compensation adjustments in May 2022, and higher stock-based compensation expense associated with stock options awarded in April 2022.

(2)

Increase primarily attributable to increases in sales support expenses, direct mailings, and advertising in trade publications.

(3)

Increase primarily attributable to an increase in net revenues subject to commissions.

(4)

Increase primarily attributable to an increase in activity related to the SynQor litigation (see Note 10 to the Condensed Consolidated Financial Statements) and for certain corporate legal matters.

 

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Table of Contents

VICOR CORPORATION

Management’s Discussion and Analysis of

Financial Condition and Results of Operation

March 31, 2023

 

Research and development expenses were $15,869,000 for the first quarter of 2023, an increase of $1,616,000, or 11.3%, compared to $14,253,000 for the first quarter of 2022. As a percentage of net revenues, research and development expenses increased to 16.2% for the first quarter of 2023 from 16.1% for the first quarter of 2022. The components of the $1,616,000 increase in research and development expenses were as follows (dollars in thousands):

 

     Increase (decrease)        

Compensation

   $ 1,062      10.8     (1

Project and pre-production materials

     692      37.8     (2

Outside services

     121      72.5  

Overhead absorption

     (539      (161.0 )%      (3

Other, net

     280      10.3  
  

 

 

      
   $ 1,616      11.3  
  

 

 

      

 

(1)

Increase primarily attributable to an increase in headcount, annual compensation adjustments in May 2022, and higher stock-based compensation expense associated with stock options awarded in April 2022.

(2)

Increase primarily attributable to increased prototype development costs for Advanced Products.

(3)

Decrease primarily attributable to an increase in R&D personnel incurring time on production activities, compared to R&D activities.

The significant components of “Other income (expense), net” for the three months ended March 31, and the changes between the periods were as follows (in thousands):

 

     2023      2022      Increase
(decrease)
 

Interest income (expense), net

   $ 1,732    $ 142    $ 1,590

Rental income

     198      198      —  

Foreign currency gains (losses), net

     19      (207      226

Other, net

     1      29      (28
  

 

 

    

 

 

    

 

 

 
   $ 1,950    $ 162    $ 1,788
  

 

 

    

 

 

    

 

 

 

Our exposure to market risk fluctuations in foreign currency exchange rates relates to the operations of Vicor Japan Company, Ltd. (“VJCL”), for which the functional currency is the Japanese Yen, and all other subsidiaries in Europe and Asia, for which the functional currency is the U.S. Dollar. These subsidiaries in Europe and Asia experienced more favorable foreign currency exchange rate fluctuations in the first quarter of 2023 compared to the first quarter of 2022.

Income before income taxes was $12,392,000 for the first quarter of 2023, as compared to $4,942,000 for the first quarter of 2022.

 

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VICOR CORPORATION

Management’s Discussion and Analysis of

Financial Condition and Results of Operation

March 31, 2023

 

The provision (benefit) for income taxes and the effective income tax rates for the three months ended March 31, 2023 and 2022 were as follows (dollars in thousands):

 

     2023     2022  

Provision (benefit) for income taxes

   $ 1,141   $ (48

Effective income tax rate

     9.2     (1.0 )% 

The effective tax rates were lower than the statutory tax rates for the three months ended March 31, 2023 and 2022 primarily due to the Company’s full valuation allowance position against domestic deferred tax assets. The provision (benefit) for income taxes for the three months ended March 31, 2023 and 2022 included estimated federal, state and foreign income taxes in jurisdictions in which the Company does not have sufficient tax attributes.

See Note 8 to the Condensed Consolidated Financial Statements for disclosure regarding our current assessment of the valuation allowance against all domestic deferred tax assets, and the possible release (i.e., reduction) of the allowance in the future.

We reported net income for the first quarter of 2023 of $11,244,000, or $0.25 per diluted share, compared to $4,999,000, or $0.11 per diluted share, for the first quarter of 2022.

Liquidity and Capital Resources

As of March 31, 2023, we had $192,897,000 in cash and cash equivalents. The ratio of total current assets to total current liabilities was 6.8:1 as of March 31, 2023 and 5.6:1 as of December 31, 2022. Working capital, defined as total current assets less total current liabilities, increased $14,643,000 to $312,698,000 as of March 31, 2023 from $298,055,000 as of December 31, 2022.

The changes in working capital from December 31, 2022 to March 31, 2023 were as follows (in thousands):

 

     Increase
(decrease)
 

Cash and cash equivalents

   $ 2,286

Accounts receivable

     (4,368

Inventories

     5,972

Other current assets

     (124

Accounts payable

     5,417

Accrued compensation and benefits

     (475

Accrued expenses

     3,844

Short-term deferred revenue

     3,432

Other

     (1,341
  

 

 

 
   $ 14,643
  

 

 

 

The primary sources of cash for the three months ended March 31, 2023 were $10,113,000 generated from operations, and $2,261,000 received in connection with the exercise of options to purchase our Common Stock awarded under our stock option plans and the issuance of Common Stock under our 2017 Employee Stock Purchase Plan. The primary uses of cash during the three months ended March 31, 2023 were for the purchase of property and equipment of $10,089,000.

In November 2000, our Board of Directors authorized the repurchase of up to $30,000,000 of our Common Stock (the “November 2000 Plan”). The November 2000 Plan authorizes us to make such repurchases from time to time in the open market or through privately negotiated transactions. The timing and amounts of Common Stock repurchases are at the discretion of management based

 

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VICOR CORPORATION

Management’s Discussion and Analysis of

Financial Condition and Results of Operation

March 31, 2023

 

on its view of economic and financial market conditions. We did not repurchase shares of Common Stock under the November 2000 Plan during the three months ended March 31, 2023. As of March 31, 2023, we had approximately $8,541,000 remaining available for repurchases of our Common Stock under the November 2000 Plan.

As of March 31, 2023, we had a total of approximately $19,325,000 of cancelable and non-cancelable capital expenditure commitments, principally for manufacturing and production equipment, which we intend to fund with existing cash, and approximately $2,083,000 of capital expenditure items which had been received and included in Property, plant and equipment in the accompanying Condensed Consolidated Balance Sheets, but not yet paid for. Our primary needs for liquidity are for making continuing investments in manufacturing and production equipment and for funding the construction of the additional manufacturing space adjoining our existing Andover manufacturing facility, including architectural and construction costs. We believe cash generated from operations together with our available cash and cash equivalents will be sufficient to fund planned operational needs, capital equipment purchases, and the planned construction, for both the short and long term.

We do not consider the impact of inflation or fluctuations in the exchange rates for foreign currency transactions to have been significant during the last three fiscal years.

Critical Accounting Policies and Estimates

There have been no material changes in our judgments and assumptions associated with the development of our critical accounting estimates during the period ended March 31, 2023. Refer to the section entitled “Critical Accounting Policies and Estimates” in Part II, Item 7 – “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

 

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Vicor Corporation

March 31, 2023

Item 3 — Quantitative and Qualitative Disclosures About Market Risk

We are exposed to a variety of market risks, including changes in interest rates affecting the return on our cash and cash equivalents, our short-term investments and fluctuations in foreign currency exchange rates. As our cash and cash equivalents and short-term investments consist principally of cash accounts, money market securities, and U.S. Treasury securities, which are short-term in nature, we believe our exposure to market risk on interest rate fluctuations for these investments is not significant. As of March 31, 2023, our long-term investment portfolio, recorded on our Condensed Consolidated Balance Sheet as “Long-term investment, net”, consisted of a single auction rate security with a par value of $3,000,000, purchased through and held in custody by a broker-dealer affiliate of Bank of America, N.A., that has experienced failed auctions (the “Failed Auction Security”) since February 2008. While the Failed Auction Security is Aaa/AA+ rated by major credit rating agencies, collateralized by student loans and guaranteed by the U.S. Department of Education under the Federal Family Education Loan Program, continued failure to sell at its periodic auction dates (i.e., reset dates) could negatively impact the carrying value of the investment, in turn leading to impairment charges in future periods. Periodic changes in the fair value of the Failed Auction Security attributable to credit loss (i.e., risk of the issuer’s default) are recorded through earnings as a component of “Other income (expense), net”, with the remainder of any periodic change in fair value not related to credit loss (i.e., temporary “mark-to-market” carrying value adjustments) recorded in “Accumulated other comprehensive loss”, a component of Stockholders’ Equity. Should we conclude a decline in the fair value of the Failed Auction Security is other than temporary, such losses would be recorded through earnings as a component of “Other income (expense), net”. We do not believe there was an “other-than-temporary” decline in value in this security as of March 31, 2023.

Our exposure to market risk for fluctuations in foreign currency exchange rates relates to the operations of VJCL, for which the functional currency is the Japanese Yen, and changes in the relative value of the Yen to the U.S. Dollar. The functional currency of all other subsidiaries in Europe and other subsidiaries in Asia is the U.S. Dollar. While we believe the risk of fluctuations in foreign currency exchange rates for these subsidiaries is generally not significant, they can be subject to substantial currency changes, and therefore foreign exchange exposures.

Item 4 — Controls and Procedures

 

(a)

Disclosure regarding controls and procedures.

As required by Rule 13a-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), management, with the participation of our Chief Executive Officer (“CEO”) (who is our principal executive officer) and Chief Financial Officer (“CFO”) (who is our principal financial officer), conducted an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the last fiscal quarter (i.e., March 31, 2023). The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure information required to be disclosed by a company in the reports it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of March 31, 2023, our CEO and CFO concluded, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Accordingly, management, including the CEO and CFO, recognizes our disclosure controls or our internal control over financial reporting may not prevent or detect all errors and all fraud. The design of a control system must reflect the fact there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the

 

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Table of Contents

Vicor Corporation

March 31, 2023

 

likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any control’s effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.

 

(b)

Changes in internal control over financial reporting.

There was no change in our internal control over financial reporting that occurred during the fiscal quarter ended March 31, 2023, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

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Table of Contents

Vicor Corporation

Part II – Other Information

March 31, 2023

Item 1 — Legal Proceedings

See Note 10. Commitments and Contingencies in the Notes to Condensed Consolidated Financial Statements in Part I, Item 1 – “Financial Statements.”

Item 1A — Risk Factors

There have been no material changes in the risk factors described in Part I, Item 1A – “Risk Factors” of the Company’s Annual Report on Form10-K for the year ended December 31, 2022.

Item 6 — Exhibits

 

Exhibit
  Number  

  

Description

    3.1    Restated Certificate of Incorporation, dated February 28, 1990 (1)
    3.2    Certificate of Ownership and Merger Merging Westcor Corporation, a Delaware Corporation, into Vicor Corporation, a Delaware corporation, dated December 3, 1990 (1)
    3.3    Certificate of Amendment of Restated Certificate of Incorporation, dated May 10, 1991 (1)
    3.4    Certificate of Amendment of Restated Certificate of Incorporation, dated June 23, 1992 (1)
    3.5    Bylaws, as amended (2)
  31.1    Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Exchange Act.
  31.2    Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Exchange Act.
  32.1    Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
  32.2    Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS    Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH    Inline XBRL Taxonomy Extension Schema Document.
101.CAL    Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF    Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB    Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE    Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104    Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

 

(1)

Filed as an exhibit to the Company’s Annual Report on Form 10-K filed on March 29, 2001 (File No. 000-18277) and incorporated herein by reference.

(2)

Filed as an exhibit to the Company’s Current Report on Form 8-K filed on June 4, 2020 (File No. 000-18277) and incorporated herein by reference.

 

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

    VICOR CORPORATION
Date: May 3, 2023     By:  

/s/ Patrizio Vinciarelli

      Patrizio Vinciarelli
      Chairman of the Board, President and
      Chief Executive Officer
      (Principal Executive Officer)
Date: May 3, 2023     By:  

/s/ James F. Schmidt

      James F. Schmidt
      Vice President, Chief Financial Officer
      (Principal Financial Officer)

 

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