QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
(State of Incorporation) |
(I.R.S. Employer Identification No.) |
Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered | ||
$0.01 per share |
The |
☒ |
Smaller reporting company |
|||||
Accelerated filer |
☐ |
Emerging growth company |
||||
Non-accelerated filer |
☐ |
Common Stock, $.01 par value |
|||
Class B Common Stock, $.01 par value |
Page |
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1 |
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2 |
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3 |
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4 |
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5 |
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6 |
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20 |
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33 |
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33 |
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35 |
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35 |
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35 |
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36 |
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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 |
September 30, 2019 |
December 31, 2018 |
|||||||
Assets |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | $ | ||||||
Accounts receivable, less allowance of $ |
||||||||
Inventories, net |
||||||||
Other current assets |
||||||||
Total current assets |
||||||||
Long-term deferred tax assets, net |
||||||||
Long-term investments, net |
||||||||
Property, plant and equipment, net |
||||||||
Other assets |
||||||||
Total assets |
$ | $ | ||||||
Liabilities and Equity |
||||||||
Current liabilities: |
||||||||
Accounts payable |
$ | $ | ||||||
Accrued compensation and benefits |
||||||||
Accrued expenses |
||||||||
S hort-term |
— |
|||||||
Sales allowances |
||||||||
Accrued severance and other charges |
— |
|||||||
Income taxes payable |
||||||||
Short-term de revenue ferred |
||||||||
Total current liabilities |
||||||||
Long-term deferred revenue |
||||||||
Contingent consideration obligations |
||||||||
Long-term income taxes payable |
||||||||
Long-term lease liabilities |
||||||||
Total liabilities |
||||||||
Commitments and contingencies (Note 12) |
||||||||
Equity: |
||||||||
Vicor Corporation stockholders’ equity: |
||||||||
Class B Common Stock |
||||||||
Common Stock |
||||||||
Additional paid-in capital |
||||||||
Retained earnings |
||||||||
Accumulated other comprehensive loss |
( |
) | ( |
) | ||||
Treasury stock, at cost |
( |
) | ( |
) | ||||
Total Vicor Corporation stockholders’ equity |
||||||||
Noncontrolling interest |
||||||||
Total equity |
||||||||
Total liabilities and equity |
$ | $ | ||||||
Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
2019 |
2018 |
2019 |
2018 |
|||||||||||||
Net revenues |
$ | |
$ | |
$ | |
$ | |
||||||||
Cost of revenues |
|
|
|
|
||||||||||||
Gross margin |
|
|
|
|
||||||||||||
Operating expenses: |
||||||||||||||||
Selling, general and administrative |
|
|
|
|
||||||||||||
Research and development |
|
|
|
|
||||||||||||
Severance and other charges |
— |
( |
) | — |
|
|||||||||||
Total operating expenses |
|
|
|
|
||||||||||||
Income from operations |
|
|
|
|
||||||||||||
Other income (expense), net: |
||||||||||||||||
Total unrealized gains on available-for-sale securities, net |
|
|
|
|
||||||||||||
Less: portion of gains recognized in other comprehensive income |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
Net credit gains recognized in earnings |
|
|
|
|
||||||||||||
Other income (expense), net |
|
|
|
|
||||||||||||
Total other income (expense), net |
|
|
|
|
||||||||||||
Income before income taxes |
|
|
|
|
||||||||||||
Less: Provision for income taxes |
|
|
|
|
||||||||||||
Consolidated net income |
|
|
|
|
||||||||||||
Less: Net (loss) income attributable to noncontrolling interest |
( |
) | |
|
|
|||||||||||
Net income attributable to Vicor Corporation |
$ | |
$ | |
$ | |
$ | |
||||||||
Net income per common share attributable to Vicor Corporation: |
||||||||||||||||
Basic |
$ | |
$ | |
$ | |
$ | |
||||||||
Diluted |
$ | |
$ | |
$ | |
$ | |
||||||||
Shares used to compute net income per common share attributable to Vicor Corporation: |
||||||||||||||||
Basic |
|
|
|
|
||||||||||||
Diluted |
|
|
|
|
Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
2019 |
2018 |
2019 |
2018 |
|||||||||||||
Consolidated net income |
$ | |
$ | |
$ | |
$ | |
||||||||
Foreign currency translation (losses) gains |
( |
) | ( |
) | |
( |
) | |||||||||
Unrealized gains on available-for-sale securities, net of tax (1) |
|
|
|
|
||||||||||||
Other comprehensive (loss) income |
( |
) | ( |
) | |
( |
) | |||||||||
Consolidated comprehensive income |
|
|
|
|
||||||||||||
Less: Comprehensive (loss) income attributable to noncontrolling interest |
( |
) | |
|
|
|||||||||||
Comprehensive income attributable to Vicor Corporation |
$ | |
$ | |
$ | |
$ | |
||||||||
(1) | The deferred tax assets associated with cumulative foreign currency translation gains and cumulative unrealized gains on available-for-sale securities are completely offset by a tax valuation allowance as of September 30, 2019 and 2018. Therefore, there is |
Nine Months Ended September 30, |
||||||||
2019 |
2018 |
|||||||
Operating activities: |
||||||||
Consolidated net income |
$ | |
$ | |
||||
Adjustments to reconcile consolidated net income to net cash provided by operating activities: |
||||||||
Depreciation and amortization |
|
|
||||||
Stock-based compensation expense, net |
|
|
||||||
(Benefit) provision for doubtful accounts |
( |
) | |
|||||
Decrease in long-term income taxes payable |
( |
) | — |
|||||
Increase in other long-term liabilities |
— |
|
||||||
Increase (decrease) in long-term deferred revenue |
|
( |
) | |||||
Gain on disposal of equipment |
( |
) | ( |
) | ||||
Deferred income taxes |
|
|
||||||
Credit gain on available-for-sale securities |
( |
) | ( |
) | ||||
Change in current assets and liabilities, net |
( |
) | ( |
) | ||||
Net cash provided by operating activities |
|
|
||||||
Investing activities: |
||||||||
Additions to property, plant and equipment |
( |
) | ( |
) | ||||
Proceeds from sale of equipment |
|
|
||||||
Decrease in other assets |
( |
) | ( |
) | ||||
Net cash used for investing activities |
( |
) | ( |
) | ||||
Financing activities: |
||||||||
Proceeds from issuance of Common Stock |
|
|
||||||
Payment of contingent consideration obligations |
( |
) | ( |
) | ||||
Net cash provided by financing activities |
|
|
||||||
Effect of foreign exchange rates on cash |
|
( |
) | |||||
Net increase in cash and cash equivalents |
|
|
||||||
Cash and cash equivalents at beginning of period |
|
|
||||||
Cash and cash equivalents at end of period |
$ | |
$ | |
||||
Total |
||||||||||||||||||||||||||||||||||||
Accumulated |
Vicor |
|||||||||||||||||||||||||||||||||||
Class B |
Additional |
Other |
Corporation |
|||||||||||||||||||||||||||||||||
Common |
Common |
Paid-In |
Retained |
Comprehensive |
Treasury |
Stockholders’ |
Noncontrolling |
Total |
||||||||||||||||||||||||||||
Three months ended September 30, 2019 |
Stock |
Stock |
Capital |
Earnings |
Income (Loss) |
Stock |
Equity |
Interest |
Equity |
|||||||||||||||||||||||||||
Balance on June 30, 2019 |
|
$ | $ | |
$ | $ | $ | ( |
) | $ |
( |
) | $ | $ | $ | |||||||||||||||||||||
Sales of Common Stock |
||||||||||||||||||||||||||||||||||||
Stock-based compensation expense |
||||||||||||||||||||||||||||||||||||
Issuances of stock through employee stock purchase plan |
||||||||||||||||||||||||||||||||||||
Components of comprehensive income, net of tax: |
||||||||||||||||||||||||||||||||||||
Net income |
( |
) | ||||||||||||||||||||||||||||||||||
Other comprehensive income |
— |
— |
( |
) | ( |
) | ||||||||||||||||||||||||||||||
Total comprehensive income |
( |
) | ||||||||||||||||||||||||||||||||||
Balance on September 30, 2019 |
$ | $ | $ | $ | $ | ( |
) | $ | ( |
) | $ | $ | $ | |||||||||||||||||||||||
Nine months ended September 30, 2019 |
||||||||||||||||||||||||||||||||||||
Balance on December 31, 2018 |
$ | $ | $ | $ | $ | ( |
) | $ | ( |
) | $ | $ | $ | |||||||||||||||||||||||
Sales of Common Stock |
||||||||||||||||||||||||||||||||||||
Stock-based compensation expense |
||||||||||||||||||||||||||||||||||||
Issuances of stock through employee stock purchase plan |
||||||||||||||||||||||||||||||||||||
Other |
( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||||||||
Components of comprehensive income, net of tax: |
||||||||||||||||||||||||||||||||||||
Net income |
||||||||||||||||||||||||||||||||||||
Other comprehensive income |
||||||||||||||||||||||||||||||||||||
Total comprehensive income |
||||||||||||||||||||||||||||||||||||
Balance on September 30, 2019 |
$ | $ | $ | $ | $ | ( |
) | $ | ( |
) | $ | $ | $ | |||||||||||||||||||||||
Total |
||||||||||||||||||||||||||||||||||||
Accumulated |
Vicor |
|||||||||||||||||||||||||||||||||||
Class B |
Additional |
Other |
Corporation |
|||||||||||||||||||||||||||||||||
Common |
Common |
Paid-In |
Retained |
Comprehensive |
Treasury |
Stockholders’ |
Noncontrolling |
Total |
||||||||||||||||||||||||||||
Three months ended September 30, 201 8 |
Stock |
Stock |
Capital |
Earnings |
Income (Loss) |
Stock |
Equity |
Interest |
Equity |
|||||||||||||||||||||||||||
Balance on June 30, 2018 |
$ | $ | $ | $ | $ | ( |
) | $ | ( |
) | $ | $ | $ | |||||||||||||||||||||||
Sales of Common Stock |
||||||||||||||||||||||||||||||||||||
Stock-based compensation expense |
||||||||||||||||||||||||||||||||||||
Issuances of stock through employee stock purchase plan |
||||||||||||||||||||||||||||||||||||
Components of comprehensive income, net of tax: |
||||||||||||||||||||||||||||||||||||
Net income |
||||||||||||||||||||||||||||||||||||
Other comprehensive loss |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||||||
Total comprehensive income |
||||||||||||||||||||||||||||||||||||
Balance on September 30, 2018 |
$ | $ | $ | $ | $ | ( |
) | $ | ( |
) | $ | $ | $ | |||||||||||||||||||||||
Nine months ended September 30, 2018 |
||||||||||||||||||||||||||||||||||||
Balance on December 31, 2017 |
$ | $ | $ | $ | $ | ( |
) | $ | ( |
) | $ | $ | $ | |||||||||||||||||||||||
Sales of Common Stock |
||||||||||||||||||||||||||||||||||||
Stock-based compensation expense |
||||||||||||||||||||||||||||||||||||
Issuances of stock through employee stock purchase plan |
||||||||||||||||||||||||||||||||||||
Cumulative effect of adoption of new accounting principle (Topic 606) |
||||||||||||||||||||||||||||||||||||
Other |
( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||||||||
Components of comprehensive income, net of tax: |
||||||||||||||||||||||||||||||||||||
Net income |
||||||||||||||||||||||||||||||||||||
Other comprehensive income |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||||||
Total comprehensive income |
||||||||||||||||||||||||||||||||||||
Balance on September 30, 2018 |
$ | $ | $ | $ | $ | ( |
) | $ | ( |
) | $ | $ | $ | |||||||||||||||||||||||
1. |
Basis of Presentation |
2. |
Recently Adopted Accounting Standard |
3. |
Inventories |
September 30, 2019 |
|
December 31, 2018 |
||||||
Raw materials |
$ | $ | ||||||
Work-in-process |
||||||||
Finished goods |
||||||||
Net balance |
$ | $ | ||||||
4. |
Long-Term Investments |
September 30, 2019 |
Cost |
Gross Unrealized Gains |
Gross Unrealized Losses |
Estimated Fair Value |
||||||||||||
Failed Auction Security |
$ | $ | — |
$ | $ | |||||||||||
December 31, 2018 |
Cost |
Gross Unrealized Gains |
Gross Unrealized Losses |
Estimated Fair Value |
||||||||||||
Failed Auction Security |
$ | $ | — |
$ | $ | |||||||||||
Cost |
|
Estimated Fair Value |
||||||
Due in twenty to forty years |
$ | |
$ | |
||||
2019 |
|
2018 |
||||||
Balance at the beginning of the period |
$ | |
$ | |
||||
Reductions in the amount related to credit gain for which other-than- temporary impairment was not previously recognized |
( |
) | ( |
) | ||||
Balance at the end of the period |
$ | |
$ | |
||||
5. |
Fair Value Measurements |
Using |
||||||||||||||||
Quoted Prices in Active Markets (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
Total Fair Value as of September 30, 2019 |
|||||||||||||
Cash equivalents: |
||||||||||||||||
Money market funds |
$ | |
$ | — |
$ | — |
$ | |
||||||||
Long-term investments: |
||||||||||||||||
Failed Auction Security |
— |
— |
|
|
||||||||||||
Liabilities: |
||||||||||||||||
Contingent consideration obligations |
— |
— |
( |
) | ( |
) |
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, 2018 |
|||||||||||||
Cash equivalents: |
||||||||||||||||
Money market funds |
$ | |
$ | — |
$ | — |
$ | |
||||||||
Long-term investments: |
||||||||||||||||
Failed Auction Security |
— |
— |
|
|
||||||||||||
Liabilities: |
||||||||||||||||
Contingent consideration obligations |
— |
— |
( |
) | ( |
) |
Fair Value |
Valuation |
Unobservable Input |
Weighted Average |
|||||||||
Failed Auction Security |
$ | |
|
|
|
|||||||
|
|
|||||||||||
|
|
|||||||||||
|
|
|||||||||||
|
|
Balance at the beginning of the period |
$ | |
||
Credit gain on available-for-sale securities included in Other income (expense), net |
|
|||
Gain included in Other comprehensive income |
|
|||
Balance at the end of the period |
$ | |
||
Balance at the beginning of the period |
$ | |
||
Payments |
( |
) | ||
Balance at the end of the period |
$ | |
||
6. |
Revenues |
Three Months Ended September 30, 2019 |
||||||||||||
Brick Products |
Advanced Products |
Total |
||||||||||
United States |
$ | |
$ | |
$ | |
||||||
Europe |
|
|
|
|||||||||
Asia Pacific |
|
|
|
|||||||||
All other |
|
|
|
|||||||||
$ | |
$ | |
$ | |
|||||||
Nine Months Ended September 30, 2019 |
||||||||||||
Brick Products |
Advanced Products |
Total |
||||||||||
United States |
$ | |
$ | |
$ | |
||||||
Europe |
|
|
|
|||||||||
Asia Pacific |
|
|
|
|||||||||
All other |
|
|
|
|||||||||
$ | |
$ | |
$ | |
|||||||
Three Months Ended September 30, 2018 |
||||||||||||
Brick Products |
Advanced Products |
Total |
||||||||||
United States |
$ | |
$ | |
$ | |
||||||
Europe |
|
|
|
|||||||||
Asia Pacific |
|
|
|
|||||||||
All other |
|
|
|
|||||||||
$ | |
$ | |
$ | |
|||||||
Nine Months Ended September 30, 2018 |
||||||||||||
Brick Products |
Advanced Products |
Total |
||||||||||
United States |
$ | |
$ | |
$ | |
||||||
Europe |
|
|
|
|||||||||
Asia Pacific |
|
|
|
|||||||||
All other |
|
|
|
|||||||||
$ | |
$ | |
$ | |
|||||||
Three Months Ended September 30, 2019 |
||||||||||||
Brick Products |
Advanced Products |
Total |
||||||||||
Direct customers, contract manufacturers and non-stocking distributors |
$ | $ | |
$ | ||||||||
Stocking distributors, net of sales allowances |
||||||||||||
Non-recurring engineering |
( |
) | ||||||||||
Royalties |
||||||||||||
Other |
— |
|||||||||||
$ | $ | $ | ||||||||||
Nine Months Ended September 30, 2019 |
||||||||||||
Brick Products |
Advanced Products |
Total |
||||||||||
Direct customers, contract manufacturers and non-stocking distributors |
$ | $ | $ | |||||||||
Stocking distributors, net of sales allowances |
||||||||||||
Non-recurring engineering |
||||||||||||
Royalties |
||||||||||||
Other |
— |
|||||||||||
$ | $ | $ | ||||||||||
Three Months Ended September 30, 2018 |
||||||||||||
Brick Products |
Advanced Products |
Total |
||||||||||
Direct customers, contract manufacturers and non-stocking distributors |
$ | $ | $ | |||||||||
Stocking distributors, net of sales allowances |
||||||||||||
Non-recurring engineering |
||||||||||||
Royalties |
||||||||||||
Other |
— |
|||||||||||
$ | $ | $ | ||||||||||
Nine Months Ended September 30, 2018 |
||||||||||||
Brick |
Advanced |
Total |
||||||||||
Direct customers, contract manufacturers and non-stocking distributors |
$ | $ | $ | |||||||||
Stocking distributors, net of sales allowances |
||||||||||||
Non-recurring engineering |
||||||||||||
Royalties |
||||||||||||
Other |
— |
|||||||||||
$ | $ | $ | ||||||||||
September 30, 2019 |
December 31, 2018 |
Ch ange |
||||||||||
Accounts receivable |
$ | $ | $ | ( |
) | |||||||
Short-term deferred revenue |
( |
) | ( |
) | ( |
) | ||||||
Long-term defer red revenue |
( |
) | ( |
) | ( |
) | ||||||
Deferred expenses |
||||||||||||
Customer prepayments |
( |
) | ( |
) | ( |
) | ||||||
Sales allowances |
( |
) | ( |
) | ( |
) |
7. |
Product Warranties |
Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
2019 |
2018 |
2019 |
2018 |
|||||||||||||
Balance at the beginning of the period |
$ |
$ |
$ |
$ |
||||||||||||
Accruals for warranties for products sold in the period |
||||||||||||||||
Fulfillment of warranty obligations |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
Revisions of estimated obligations |
— |
( |
) | — |
( |
) | ||||||||||
Balance at the end of the period |
$ | $ | $ | $ | ||||||||||||
8. |
Stock-Based Compensation |
Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
2019 |
2018 |
2019 |
2018 |
|||||||||||||
Cost of revenues |
$ | $ | $ |
$ | ||||||||||||
Selling, general and administrative |
||||||||||||||||
Research and development |
||||||||||||||||
Total stock-based compensation |
$ | $ | $ | $ |
||||||||||||
Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
2019 |
2018 |
2019 |
2018 |
|||||||||||||
Stock options |
$ | $ | $ |
$ | ||||||||||||
ESPP |
||||||||||||||||
Total stock-based compensation |
$ | $ | $ | $ |
||||||||||||
9. |
Leases |
2019 |
$ | |||
2020 |
||||
2021 |
||||
2022 |
||||
2023 |
||||
Thereafter |
||||
Total lease payments |
$ | |||
Less: Imputed interest |
||||
Present value of lease liabilities |
$ | |||
2019 |
$ | |||
2020 |
||||
2021 |
||||
2022 |
||||
2023 |
||||
Thereafter |
||||
Total lease payments to be received |
$ | |||
10. |
Income Taxes |
Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
2019 |
2018 |
2019 |
2018 |
|||||||||||||
Provision for income taxes |
$ | $ | $ | $ | ||||||||||||
Effective income tax rate |
% | % | % | % |
11. |
Net Income per Share |
Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
2019 |
2018 |
2019 |
2018 |
|||||||||||||
Numerator: |
||||||||||||||||
Net income attributable to Vicor Corporation |
$ | $ | $ | $ | ||||||||||||
Denominator: |
||||||||||||||||
Denominator for basic net income per share-weighted average shares (1) |
||||||||||||||||
Effect of dilutive securities: |
||||||||||||||||
Employee stock options (2) |
||||||||||||||||
Denominator for diluted net income per share – adjusted weighted-average shares and assumed conversions |
||||||||||||||||
Basic net income per share |
$ | $ | $ | $ | ||||||||||||
Diluted net income per share |
$ | $ | $ | $ |
(1) | Denominator represents weighted average number of shares of Common Stock and Class B Common Stock outstanding. |
(2) | Options to purchase s of net income per share as the effect would have been antidilutive. |
12. |
Commitments and Contingencies |
13. |
VI Chip Merger |
14. |
Segment Information |
15. |
Impact of Recently Issued Accounting Standards |
• | We operate a highly automated electronics manufacturing facility in Andover, Massachusetts, and our profitability is closely aligned with production unit volumes. We have invested significantly in state-of-the-art systems, equipment, and robotics, which allow us to generate relatively higher profitability when operating at or near factory capacity, even with a high mix of products produced. However, periods of low volume production and/or brief, low volume production runs contribute to lower profitability, largely due to lower absorption of relatively high manufacturing overhead costs associated with our manufacturing model. While direct labor and associated variable costs generally correlate with volume, manufacturing overhead costs are inflexible and, therefore, problematic during periods of low volume or brief production runs. |
• | We continue to invest in the production capacity to meet our internal volume projections, and believe these projections are reasonable and our investment will be adequate. However, if sustained, uniform, high volume production levels are not achieved, notably in Advanced Products, our product-level profitability likely will not reach the levels necessary to cover our fixed spending, consisting of manufacturing overhead costs and operating costs. |
• | Current capital investments are focused on the expansion of manufacturing capacity for the production of Advanced Products at our Andover facility. Based on our extended long-term volume forecast, we anticipate substantial additional capacity will be required to meet expected requirements. We believe the most appropriate manner of meeting our long-term capacity requirements will be to initially expand the production area of our Andover facility by approximately 87,100 square feet, through the addition of a two story wing. We have completed the design and permitting phase for this project, have entered into an agreement to acquire approximately three acres adjacent to our facility, and expect to begin construction of this new addition to our existing plant in the spring of 2020 and take occupancy later in the year. We also are proceeding with the evaluation of alternative projects for the addition of another, larger manufacturing facility, should we anticipate the need based on our forecasts for capacity beyond 2021. Construction activity can be difficult to schedule, and construction sites can present management and operational challenges. As such, given the proximity of the addition to our existing operations, this construction activity has the potential to disrupt our current operations, which could cause production to be delayed and costs to increase. |
• | Our ability to achieve sustained, high volume production levels is tied to our ability to forecast manufacturing requirements for, and the availability of, a range of inputs, notably raw material inventories. Because we utilize a number of components and other materials of proprietary design, our ability to sustain targeted production schedules and meet customer delivery requirements has been vulnerable to delays or shortages of such inventories, which often cause prices of these components and materials to rise. With the implementation in 2018 of Section 301 Tariffs on certain Chinese goods imported into the United States, we are now exposed to potentially higher costs on certain electronic components and devices we import from China for use in the manufacture of our products. For the third quarter of 2019, costs associated with duties and tariffs totaled approximately $1,504,000 (approximately $3,934,000 for the nine months ended September 30, 2019). We continue to assess the impact of these costs and are actively evaluating alternative sources of raw materials. We also have engaged a consultant to assist us with implementing a “duty drawback” process, by which we may file with U.S. Customs and Border Protection for the recovery of tariffs paid on raw materials used to produce products we subsequently exported. At this time, we are not able to estimate the amount of such recovery or the timing thereof. |
• | To mitigate supply chain risks, we focus on identifying and reducing potential vulnerabilities to stock-outs, vendor shortages, and similar disruptions. We maintain safety-stock programs for certain critical components and materials, and these programs recently have contributed to increased levels of raw material inventory, primarily for Advanced Products. We also have established second-source supply relationships, in order to reduce exposure to material shortages. Although the global electronics supply chain has generally stabilized, we continue to experience lengthened lead times for certain product categories, and our product-level profitability and overall performance could be negatively influenced by an unplanned shortage of a particular component or material. We anticipate availability of certain commodity components will remain uncertain through 2019. |
• | Net revenues decreased 9.3% to $70,772,000 for the third quarter of 2019, from $78,035,000 for the third quarter of 2018, primarily due to an overall decline in 2019 bookings compared to 2018. Bookings decreased 28.0% for the nine months ended September 30, 2019, compared to the same period in 2018. |
• | Net revenues for the nine months ended September 30, 2019 decreased by 8.1% to $199,852,000 from $217,500,000 for the nine months ended September 30, 2018, primarily due to the decrease in bookings noted above. |
• | Export sales, as a percentage of total revenues, represented approximately 58.2% in the third quarter of 2019 and 62.2% in the third quarter of 2018. Export sales, as a percentage of total revenues, for the nine months ended September 30, 2019 and 2018 were approximately 55.0% and 62.5%, respectively. |
• | Gross margin decreased to $33,002,000 for the third quarter of 2019 from $39,004,000 for the third quarter of 2018, and gross margin, as a percentage of net revenues, decreased to 46.6% for the third quarter of 2019 from 50.0% for the third quarter of 2018, both primarily due to the decrease in net revenues. |
• | Gross margin decreased to $93,205,000 for the nine months ended September 30, 2019 from $105,098,000 for the nine months ended September 30, 2018, and gross margin, as a percentage of revenues, decreased to 46.6% for the nine months ended September 30, 2019, compared to 48.3% for the nine months ended September 30, 2018, both primarily due to the decrease in net revenues. |
• | Backlog, representing the total of orders for products received for which shipment is scheduled within the next 12 months, was approximately $90,088,000 at the end of the third quarter of 2019, as compared to $100,665,000 at the end of the second quarter of 2019 and $102,963,000 at the end of 2018. The decrease was primarily due to the lower bookings. |
• | Operating expenses for the third quarter of 2019 increased $989,000, or 3.8%, to $26,950,000 from $25,961,000 for the third quarter of 2018, due to an increase in research and development expense of $816,000 and an increase in selling, general, and administrative expenses of $163,000. |
• | Operating expenses for the nine months ended September 30, 2019 increased $226,000, or 0.3%, to $80,279,000 from $80,053,000 for the nine months ended September 30, 2018, due to an increase in research and development expense of $1,213,000 and the severance charge noted below, partially offset by a decrease in selling, general, and administrative expenses of $647,000. In addition, we recorded a severance charge of $350,000 during the second quarter of 2018 in connection with the planned closure of one of our Vicor Custom Power subsidiaries, Granite Power Technologies, Inc. (“GPT”), as part of our ongoing initiative to streamline operations and improve our cost structure. The closure was completed by the end of 2018. |
• | We reported net income for the third quarter of 2019 of $5,937,000, or $0.14 per diluted share, compared to net income of $13,012,000, or $0.32 per diluted share, for the third quarter of 2018. |
• | We reported net income for the nine months ended September 30, 2019, of $12,786,000, or $0.31 per diluted share, compared to net income of $24,815,000, or $0.61 per diluted share, for the nine months ended September 30, 2018. |
• | For the nine months ended September 30, 2019, depreciation and amortization totaled $7,647,000, and capital additions totaled $9,122,000, compared to $6,870,000 and $6,894,000, respectively, for the nine months ended September 30, 2018. |
• | Inventories increased by approximately $2,318,000, or 4.9%, to $49,688,000 at September 30, 2019, compared to $47,370,000 at December 31, 2018. |
Decrease |
||||||||||||||||
2019 |
2018 |
$ |
% |
|||||||||||||
Brick Products |
$ | 46,482 |
$ | 51,026 |
$ | (4,544 |
) | (8.9 |
)% | |||||||
Advanced Products |
24,290 |
27,009 |
(2,719 |
) | (10.1 |
)% | ||||||||||
Total |
$ | 70,772 |
$ | 78,035 |
$ | (7,263 |
) | (9.3 |
)% | |||||||
Increase (decrease) |
||||||||
Compensation |
$ | 578 |
7.5 |
%(1) | ||||
Project and pre-production materials |
242 |
18.9 |
%(2) | |||||
Supplies expense |
91 |
32.3 |
% | |||||
Deferred costs |
81 |
28.7 |
% | |||||
Outside services |
(115 |
) | (54.2 |
)%(3) | ||||
Other, net |
(61 |
) | (3.9 |
)% | ||||
$ | 816 |
7.6 |
% | |||||
(1) | Increase primarily attributable to annual compensation adjustments in May 2019 and increased stock-based compensation expense. |
(2) | Increase primarily attributable to increased spending for new product development of Advanced Products. |
(3) | Decrease in use of outside service providers in Andover. |
2019 |
2018 |
Increase (decrease) |
||||||||||
Rental income |
$ | 198 |
$ | 198 |
$ | — |
||||||
Interest income |
74 |
68 |
6 |
|||||||||
Gain on disposals of equipment |
1 |
29 |
(28 |
) | ||||||||
Credit gains on available-for-sale securities |
1 |
2 |
(1 |
) | ||||||||
Foreign currency losses, net |
(142 |
) | (66 |
) | (76 |
) | ||||||
Other, net |
14 |
1 |
13 |
|||||||||
$ | 146 |
$ | 232 |
$ | (86 |
) | ||||||
2019 |
2018 |
|||||||
Provision for income taxes |
$ | 266 |
$ | 227 |
||||
Effective income tax rate |
4.3 |
% | 1.7 |
% |
Increase (decrease) |
||||||||||||||||
2019 |
2018 |
$ |
% |
|||||||||||||
Brick Products |
$ | 141,112 |
$ | 140,012 |
$ | 1,100 |
0.8 |
% | ||||||||
Advanced Products |
58,740 |
77,488 |
(18,748 |
) | (24.2 |
)% | ||||||||||
Total |
$ | 199,852 |
$ | 217,500 |
$ | (17,648 |
) | (8.1 |
)% | |||||||
Increase (decrease) |
||||||||
Compensation |
$ | (464 |
) | (1.6 |
)%(1) | |||
Legal fees |
(373 |
) | (27.1 |
)%(2) | ||||
Audit, tax, and accounting fees |
(255 |
) | (14.1 |
)%(3) | ||||
Bad debt expense |
(231 |
) | (248.5 |
)%(4) | ||||
Advertising expenses |
137 |
6.5 |
% | |||||
Facilities allocations |
176 |
16.0 |
% | |||||
Outside services |
236 |
17.0 |
%(5) | |||||
Depreciation and amortization |
239 |
13.1 |
%(6) | |||||
Other, net |
(112 |
) | (1.5 |
)% | ||||
$ | (647 |
) | (1.4 |
)% | ||||
(1) | Decrease primarily attributable to decreased stock-based compensation expense, partially offset by annual compensation adjustments in May 2019. The decrease in stock-based compensation expense was due to decreased expense in 2019 for certain Vicor stock options held by a non-employee. |
(2) | Decrease attributable to a decrease in corporate legal matters. |
(3) | Decrease primarily attributable to changes in the timing of the 2019 audit process, compared to the 2018 audit. |
(4) | Decrease attributable to favorable historical collections experience over the period analyzed. |
(5) | Increase in use of outside service providers in Andover. |
(6) | Increase attributable to an increase in additions of furniture and fixtures and building improvements. |
Increase (decrease) |
||||||||
Compensation |
$ | 1,215 |
5.1 |
%(1) | ||||
Project and pre-production materials |
482 |
11.3 |
%(2) | |||||
Facilities allocations |
179 |
10.3 |
%(3) | |||||
Depreciation and amortization |
(133 |
) | (9.0 |
)% | ||||
Overhead absorption |
(208 |
) | (37.2 |
)%(4) | ||||
Deferred costs |
(326 |
) | (39.0 |
)%(5) | ||||
Other, net |
4 |
0.2 |
% | |||||
$ | 1,213 |
3.7 |
% | |||||
(1) | Increase primarily attributable to annual compensation adjustments in May 2019 and increased stock-based compensation expense. |
(2) | Increase primarily attributable to increased spending for new product development of Advanced Products. |
(3) | Increase primarily attributable to an increase in utilities and building maintenance expenses. |
(4) | Decrease primarily attributable to a decrease in Picor research and development (“R&D”) personnel incurring time on production activities, compared to R&D activities. |
(5) | Decrease primarily attributable to an increase in deferred costs capitalized for certain non-recurring engineering projects for which the related revenues have been deferred. |
2019 |
2018 |
Increase (decrease) |
||||||||||
Rental income |
$ | 594 |
$ | 594 |
$ | — |
||||||
Interest income |
236 |
177 |
59 |
|||||||||
Foreign currency losses, net |
(202 |
) | (217 |
) | 15 |
|||||||
Gain on disposals of equipment |
23 |
45 |
(22 |
) | ||||||||
Credit gains on available-for-sale securities |
3 |
6 |
(3 |
) | ||||||||
Other, net |
19 |
13 |
6 |
|||||||||
$ | 673 |
$ | 618 |
$ | 55 |
|||||||
2019 |
2018 |
|||||||
Provision for income taxes |
$ | 805 |
$ | 724 |
||||
Effective income tax rate |
5.9 |
% | 2.8 |
% |
Increase (decrease) |
||||
Cash and cash equivalents |
$ | 10,672 |
||
Accounts receivable |
(3,686 |
) | ||
Inventories, net |
2,318 |
|||
Other current assets |
1,654 |
|||
Accounts payable |
5,820 |
|||
Accrued compensation and benefits |
1,109 |
|||
Accrued expenses |
296 |
|||
Short-term lease liabilities |
(1,580 |
) | ||
Sales allowances |
(528 |
) | ||
Accrued severance charge |
234 |
|||
Income taxes payable |
653 |
|||
Short-term deferred revenue |
(774 |
) | ||
$ | 16,188 |
|||
Exhibit Number |
Description | |||
31.1 |
||||
31.2 |
||||
32.1 |
||||
32.2 |
||||
101.INS |
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 |
XBRL Taxonomy Extension Schema Document. | |||
101.CAL |
XBRL Taxonomy Extension Calculation Linkbase Document. | |||
101.DEF |
XBRL Taxonomy Extension Definition Linkbase Document. | |||
101.LAB |
XBRL Taxonomy Extension Label Linkbase Document. | |||
101.PRE |
XBRL Taxonomy Extension Presentation Linkbase Document. | |||
104 |
Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) |
VICOR CORPORATION | ||||||
Date: October 29, 2019 |
By: |
/s/ Patrizio Vinciarelli | ||||
Patrizio Vinciarelli | ||||||
Chairman of the Board, President and | ||||||
Chief Executive Officer | ||||||
(Principal Executive Officer) | ||||||
Date: October 29, 2019 |
By: |
/s/ James A. Simms | ||||
James A. Simms | ||||||
Vice President, Chief Financial Officer | ||||||
(Principal Financial Officer) |
Exhibit 31.1
CHIEF EXECUTIVE OFFICER CERTIFICATION
I, Patrizio Vinciarelli, certify:
1. | I have reviewed this quarterly report on Form 10-Q of Vicor Corporation; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): |
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Dated: October 29, 2019 | /s/ Patrizio Vinciarelli | |||
Patrizio Vinciarelli | ||||
Chief Executive Officer | ||||
(Principal Executive Officer) |
Exhibit 31.2
CHIEF FINANCIAL OFFICER CERTIFICATION
I, James A. Simms, certify:
1. | I have reviewed this quarterly report on Form 10-Q of Vicor Corporation; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): |
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Dated: October 29, 2019 | /s/ James A. Simms | |||
James A. Simms | ||||
Vice President, Chief Financial Officer | ||||
(Principal Financial Officer) |
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Vicor Corporation (the Company) on Form 10-Q for the period ended September 30, 2019 as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Patrizio Vinciarelli, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
(2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
/s/ Patrizio Vinciarelli |
Patrizio Vinciarelli |
President, Chairman of the Board and |
Chief Executive Officer |
October 29, 2019
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Vicor Corporation (the Company) on Form 10-Q for the period ended September 30, 2019 as filed with the Securities and Exchange Commission on the date hereof (the Report), I, James A. Simms, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
(2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
/s/ James A. Simms |
James A. Simms |
Vice President, Chief Financial Officer |
October 29, 2019
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.