10-Q

Large accelerated filer

Smaller reporting company

Accelerated filer

Emerging growth company

Non-accelerated
filer

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, 2021

☐	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.

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 19, 2021 was:


Common Stock, $.01 par value			31,764,120
Class B Common Stock, $.01 par value			11,758,218

Table of Contents

VICOR CORPORATION

INDEX


	Page
Part I — Financial Information:
Item 1 - Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets at March 31, 2021 and December 31, 2020		1
Condensed Consolidated Statements of Operations for the three months ended March 31, 2021 and 2020		2
Condensed Consolidated Statements of Comprehensive Income for the three months ended March 31, 2021 and 2020		3
Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2021 and 2020		4
Condensed Consolidated Statements of Equity for the three months ended March 31, 2021 and 2020		5
Notes to Condensed Consolidated Financial Statements		6
Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations		19
Item 3 - Quantitative and Qualitative Disclosures About Market Risk		28
Item 4 - Controls and Procedures		28
Part II — Other Information:
Item 1 - Legal Proceedings		30
Item 1A - Risk Factors		30
Item 6 - Exhibits		30
Signature(s)		31
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)

(Unaudited)


	March 31, 2021			December 31, 2020
Assets
Current assets:
Cash and cash equivalents	$	127,411		$	161,742
Short-term investments		95,719			50,166
Accounts receivable, less allowance of $82 in 2021 and 2020		47,697			40,999
Inventories, net		54,256			57,269
Other current assets		6,954			6,756

Total current assets		332,037			316,932
Long-term deferred tax assets, net		224			226
Long-term investments, net		2,541			2,517
Property, plant and equipment, net		81,124			74,843
Other assets		1,695			1,721

Total assets	$	417,621		$	396,239

Liabilities and Equity
Current liabilities:
Accounts payable	$	16,365		$	14,121
Accrued compensation and benefits		14,485			14,094
Accrued expenses		3,153			2,624
Short-term lease liabilities		1,571			1,629
Sales allowances		1,253			597
Income taxes payable		43			139
Short-term deferred revenue and customer prepayments		6,008			7,309

Total current liabilities		42,878			40,513
Long-term deferred revenue		653			733
Contingent consideration obligations		181			227
Long-term income taxes payable		648			643
Long-term lease liabilities		2,779			2,968

Total liabilities		47,139			45,084
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, 11,758,218 shares issued and outstanding in 2021 and 2020		118			118
Common Stock: 1 vote per share, $.01 par value, 62,000,000 shares authorized 43,397,118 shares issued and 31,762,312 shares outstanding in 2021; 43,204,671 shares issued and 31,569,865 shares outstanding in 2020		435			433
Additional paid-in capital		333,011			328,392
Retained earnings		176,100			161,008
Accumulated other comprehensive loss		(573	)		(204	)
Treasury stock at cost: 11,634,806 shares in 2021 and 2020		(138,927	)		(138,927	)

Total Vicor Corporation stockholders’ equity		370,164			350,820
Noncontrolling interest		318			335

Total equity		370,482			351,155

Total liabilities and equity	$	417,621		$	396,239

See accompanying notes.

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VICOR CORPORATION

Condensed Consolidated Statements of Operations

(In thousands, except per share amounts)

(Unaudited)


	Three Months Ended March 31,
	2021			2020
Net revenues	$	88,796		$	63,401
Cost of revenues		44,096			36,070

Gross margin		44,700			27,331
Operating expenses:
Selling, general and administrative		16,954			16,369
Research and development		13,026			13,335

Total operating expenses		29,980			29,704

Income (loss) from operations		14,720			(2,373	)
Other income (expense), net:
Total unrealized gains on available-for-sale securities, net		24			47
Less: portion of gains recognized in other comprehensive income		(23	)		(46	)

Net credit gains recognized in earnings		1			1
Other income (expense), net		231			147

Total other income (expense), net		232			148

Income (loss) before income taxes		14,952			(2,225	)
Benefit for income taxes		(143	)		(494	)

Consolidated net income (loss)		15,095			(1,731	)
Less: Net income attributable to noncontrolling interest		3			4

Net income (loss) attributable to Vicor Corporation	$	15,092		$	(1,735	)

Net income (loss) per common share attributable to Vicor Corporation:
Basic	$	0.35		$	(0.04	)
Diluted	$	0.34		$	(0.04	)
Shares used to compute net income (loss) per common share attributable to Vicor Corporation:
Basic		43,455			40,635
Diluted		44,841			40,635

See accompanying notes.

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VICOR CORPORATION

Condensed Consolidated Statements of Comprehensive Income

(In thousands)

(Unaudited)


	Three Months Ended March 31,
	2021			2020
Consolidated net income (loss)	$	15,095		$	(1,731	)
Foreign currency translation (losses) gains, net of tax (1)		(261	)		46
Unrealized (losses) gains on available-for-sale securities, net of tax (1)		(128	)		41

Other comprehensive (loss) income		(389	)		87

Consolidated comprehensive income (loss)		14,706			(1,644	)
Less: Comprehensive (loss) income attributable to noncontrolling interest		(17	)		8

Comprehensive income (loss) attributable to Vicor Corporation	$	14,723		$	(1,652	)

(1)

The deferred tax assets associated with foreign currency translation (losses) gains and unrealized (losses) gains on

available-for-sale

securities are completely offset by a tax valuation allowance as of March 31, 2021 and 2020. Therefore, there is no income tax benefit (provision) recognized for the three months ended March 31, 2021 and 2020.

See accompanying notes.

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VICOR CORPORATION

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)


	Three Months Ended March 31,
	2021			2020
Operating activities:
Consolidated net income (loss)	$	15,095		$	(1,731	)
Adjustments to reconcile consolidated net income (loss) to net cash provided by (used for) operating activities:
Depreciation and amortization		2,806			2,711
Stock-based compensation expense, net		1,571			710
Provision for doubtful accounts		—			43
Increase in long-term income taxes payable		5			4
Decrease in long-term deferred revenue		(80	)		(80	)
Deferred income taxes		2			(1	)
Credit gain on available-for-sale securities		(1	)		(1	)
(Increase) decrease in other assets		(26	)		75
Change in current assets and liabilities, net		(1,599	)		(2,639	)

Net cash provided by (used for) operating activities		17,773			(909	)

Investing activities:
Purchases of short-term investments		(50,706	)		—
Sales or maturities of short-term investments		5,000			—
Additions to property, plant and equipment		(9,264	)		(2,999	)

Net cash used for investing activities		(54,970	)		(2,999	)

Financing activities:
Proceeds from employee stock plans		3,050			2,061
Payment of contingent consideration obligations		(46	)		(89	)

Net cash provided by financing activities		3,004			1,972
Effect of foreign exchange rates on cash		(138	)		19

Net decrease in cash and cash equivalents		(34,331	)		(1,917	)
Cash and cash equivalents at beginning of period		161,742			84,668

Cash and cash equivalents at end of period	$	127,411		$	82,751

See accompanying notes.

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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 Income (Loss)			Treasury Stock			Total Vicor Corporation Stockholders’ Equity			Noncontrolling Interest			Total Equity
Three months ended March 31, 2021
Balance on December 31, 2020	$	118	$	433	$	328,392	$	161,008		$	(204	)	$	(138,927	)	$	350,820		$	335		$	351,155
Issuance of Common Stock under employee stock plans				2		3,048											3,050						3,050
Stock-based compensation expense						1,571											1,571						1,571
Components of comprehensive income, net of tax:
Net income								15,092									15,092			3			15,095
Other comprehensive loss											(369	)					(369	)		(20	)		(389	)

Total comprehensive income (loss)																	14,723			(17	)		14,706

Balance on March 31, 2021	$	118	$	435	$	333,011	$	176,100		$	(573	)	$	(138,927	)	$	370,164		$	318		$	370,482


	Class B Common Stock		Common Stock		Additional Paid-In Capital		Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Treasury Stock			Total Vicor Corporation Stockholders’ Equity			Noncontrolling Interest			Total Equity
Three months ended March 31, 2020
Balance on December 31, 2019	$	118	$	405	$	201,251	$	143,098		$	(383	)	$	(138,927	)	$	205,562		$	308		$	205,870
Issuance of Common Stock under employee stock plans				2		2,059											2,061						2,061
Stock-based compensation expense						710											710						710
Components of comprehensive income, net of tax:
Net loss								(1,735	)								(1,735	)		4			(1,731	)
Other comprehensive income											83						83			4			87

Total comprehensive income (loss)																	(1,652	)		8			(1,644	)

Balance on March 31, 2020	$	118	$	407	$	204,020	$	141,363		$	(300	)	$	(138,927	)	$	206,681		$	316		$	206,997

See accompanying notes.

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VICOR CORPORATION

Notes to Condensed Consolidated Financial Statements

March 31, 2021

(unaudited)

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, 2021 are not necessarily indicative of the results that may be expected for any other interim period or the year ending December 31, 2021. The balance sheet at December 31, 2020 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, 2020 filed by the Company with the SEC on March 1, 2021 (“2020 Form

10-K”).

Inventories

Inventories are valued at the lower of cost (determined using the

first-in,

first-out

method) or net realizable value. Fixed production overhead is allocated to the inventory cost per unit based on the normal capacity of the production facilities. Abnormal production costs, including fixed cost variances from normal production capacity, if any, are charged to cost of revenues in the period incurred. All shipping, handling and customs (e.g., tariff) costs incurred in connection with the sale of products are included in cost of revenues.

Inventory that is estimated to be excess, obsolete or unmarketable is written down to net realizable value. The Company’s estimation process for assessing net realizable value is based upon management’s estimate of expected future utility which is derived based on backlog, historical consumption and expected market conditions. If the Company’s estimated demand and/or market expectation were to change or if product sales were to decline, the Company’s estimation process may cause larger inventory reserves to be recorded, resulting in larger charges to cost of revenues.

Inventories were as follows (in thousands):


	March 31, 2021		December 31, 2020
Raw materials	$	39,924	$	42,556
Work-in-process		9,271		7,424
Finished goods		5,061		7,289

	$	54,256	$	57,269

Short-Term and Long-Term Investments

As of March 31, 2021, the Company held $95,719,000 of short-term investments, consisting of obligations of the U.S. Treasury, all of which were debt securities with original maturities greater than three months but less than one year at the time of purchase.

As of March 31, 2021 and December 31, 2020, the Company held one 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. 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

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VICOR CORPORATION

Notes to Condensed Consolidated Financial Statements

March 31, 2021

(unaudited)

Security is presently at risk of default. Through March 31, 2021, 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, 2021.

Details of our investments are as follows (in thousands):


	March 31, 2021
	Cash and Cash Equivalents		Short-Term Investments		Long-Term Investments
Measured at fair value:
Available-for-sale debt securities:
Money Market Funds	$	43,728	$	—	$	—
U.S. Treasury Obligations		—		95,719		—
Failed Auction Security		—		—		2,541

Total		43,728		95,719		2,541

Other measurement basis:
Cash on hand		83,683		—		—

Total	$	127,411	$	95,719	$	2,541


	December 31, 2020
	Cash and Cash Equivalents		Short-Term Investments		Long-Term Investments
Measured at fair value:
Available-for-sale debt securities:
Money Market Funds	$	69,493	$	—	$	—
U.S. Treasury Obligations		19,998		50,166		—
Failed Auction Security		—		—		2,517

Total		89,491		50,166		2,517

Other measurement basis:
Cash on hand		72,251		—		—

Total	$	161,742	$	50,166	$	2,517

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VICOR CORPORATION

Notes to Condensed Consolidated Financial Statements

March 31, 2021

(unaudited)

The following is a summary of the

available-for-sale

securities (in thousands):


March 31, 2021	Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
U.S. Treasury Obligations	$	95,716	$	3	$	—	$	95,719
Failed Auction Security		3,000		—		459		2,541


December 31, 2020	Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
U.S. Treasury Obligations	$	70,172	$	—	$	8	$	70,164
Failed Auction Security		3,000		—		483		2,517

As of March 31, 2021, 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, 2021, by type and

contractual maturities, are shown below (in thousands):


	Cost		Estimated Fair Value
U.S. Treasury Obligations:

Maturities greater than three months but less than one year	$	95,716	$	95,719

	$	95,716	$	95,719


	Cost		Estimated Fair Value
Failed Auction Security:

Due in twenty to forty years	$	3,000	$	2,541

Based on the fair value measurements described in Note 4, the fair value of the Failed Auction Security on March 31, 2021, with a par value of $3,000,000, was estimated by the Company to be approximately $2,541,000. The gross unrealized loss of $459,000 on the Failed Auction Security consists of two types of estimated loss: an aggregate credit loss of $32,000 and an aggregate temporary impairment of $427,000. In determining the amount of credit loss, the Company compared the present value of cash flows expected to be collected to the amortized cost basis of the security, considering credit default risk probabilities and changes in credit ratings as significant inputs, among other factors.

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VICOR CORPORATION

Notes to Condensed Consolidated Financial Statements

March 31, 2021

(unaudited)

The following table represents a rollforward of the activity related to the credit loss recognized in earnings on the Failed Auction Security for the three months ended March 31 (in thousands):


	2021			2020
Balance at the beginning of the period	$	33		$	37
Reductions in the amount related to credit gain for which other-than- temporary impairment was not previously recognized		(1	)		(1	)

Balance at the end of the period	$	32		$	36

At this time, the Company has no intent to sell the impaired Failed Auction Security and does not believe it is more likely than not the Company will be required to sell this security. If current market conditions deteriorate further, the Company may be required to record additional unrealized losses. If the credit rating of the security deteriorates, the Company may be required to adjust the carrying value of the investment through impairment charges recorded in the Condensed Consolidated Statements of Operations, and any such impairment adjustments may be material.

Based on the Company’s ability to access cash and cash equivalents, its short-term investments and its expected operating cash flows, management does not anticipate the current lack of liquidity associated with the Failed Auction Security held will affect the Company’s ability to execute its current operating plan.

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, 2021 (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, 2021
Cash equivalents:
Money market funds	$	43,728	$	—	$	—		$	43,728
Short-term investments:
U.S. Treasury Obligations		95,719		—		—			95,719
Long-term investment:
Failed Auction Security		—		—		2,541			2,541
Liabilities:
Contingent consideration obligations		—		—		(181	)		(181	)

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VICOR CORPORATION

Notes to Condensed Consolidated Financial Statements

March 31, 2021

(unaudited)

Assets and liabilities measured at fair value on a recurring basis included the following as of December 31, 2020 (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, 2020
Cash equivalents:
Money market funds	$	69,493	$	—	$	—	$	69,493
U.S. Treasury Obligations		19,998		—		—		19,998
Short-term investments:
U.S. Treasury Obligations		50,166		—		—		50,166
Long-term investment:
Failed Auction Security		—		—		2,517		2,517

SEC Form 10-Q filed by Vicor Corporation