☑ | ANNUAL 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 |
Delaware | 04-2742817 | |
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25 Frontage Road, Andover, Massachusetts | 01810 | |
(Address of principal executive offices) | (Zip code) |
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☐
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 ofRegulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of thisForm 10-K or any amendment to thisForm 10-K. ☑
Large Accelerated Filer | Accelerated Filer | Non-accelerated Filer ☐ | Smaller Reporting Company ☐ | |||
Emerging growth company ☐ |
* | Pursuant to SEC guidance, this blank checkbox is included on this cover page but no disclosure with respect thereto shall be made until the adoption and effectiveness of related stock exchange listing standards. |
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Class B Common Stock |
PART I
In this Annual Report onForm 10-K, unless the context indicates otherwise, references to “Vicor®,” “the Company,” “our company,” “we,” “us,” “our,” and similar references, refer to Vicor Corporation and its subsidiaries.subsidiaries, unless otherwise specified.
ThisOur 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 Item 1A of this Annual Report onForm 10-K contains10-K. As a result of these and other factors, we may experience material fluctuations in future operating results on a quarterly or annual basis, which could materially and adversely affect our business, consolidated financial condition, operating results, and the share price of our Common Stock. This document and other documents filed by us with the Securities and Exchange Commission (“SEC”) include forward-looking statements withinregarding future events and our future results that are subject to the meaningsafe harbor afforded under the Private Securities Litigation Reform Act of Section 27A of1995 and other safe harbors afforded under the Securities Act of 1933 as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The words “believes,” “expects,” “anticipates,” “intends,” “estimates,” “plans,” “assumes,” “may,” “will,” “would,” “should,” “continue,” “prospective,” “project,” and1934. All statements other similar expressions identifythan 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 our future performance 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 we have 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 organizationallyoperationally 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, typically concentrated in computing;customers; our intent to enter new market segments; the levellevels 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 ongoing developmentintent to expand the percentage of power conversion architectures, switching topologies, packaging technologies, and products;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 locationfunding thereof; our continued success depending in part on our ability to attract and retain qualified personnel; our belief that cash generated from operations and the total oftogether with our available cash and cash equivalents will be sufficient to fund operationsplanned 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 as to theassociated 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 our ability to: develop and market new products and technologies cost effectively and on a timely basis; leverage our new technologies in standard products to promote market acceptance of our approach to power system architecture; leverage design wins into increased product sales; continue to meet requirements of key customers and prospects; enter into licensing agreements increasing our market opportunity and accelerating market penetration; realize significant royalties under such licensing agreements; achieve sustainable bookings rates for our products across served markets and geographies; improve manufacturing and operating efficiencies; successfully enforce our intellectual property rights; successfully defend outstanding litigation; hire and retain key personnel; and maintain an effective system of internal controls over financial reporting. These and other factors that may influence actual results are described in this Annual Report onForm 10-K, including but not limited to those described 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.” 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 U.S. Securities and Exchange Commission (“SEC”)SEC from time to time, includingForms 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 Annual Report on Form10-K. 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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ITEM 1. | BUSINESS |
Overview
Vicor Corporation designs, develops, manufactures,We design, develop, manufacture, and marketsmarket modular power components and power systems for converting regulating,electrical power (expressed as “watts,” and controlling electric current. We consider power components analogous to building blocks, and our strategy is based largely on products, performing distinct functions, that can be flexibly
combined to enable a complete power system. We serve customers with applications for which the high conversion efficiency (i.e., the ratio of output power in watts to the power consumedrepresented by the component)symbol “W”, with wattage being the product of voltage, expressed as “volts,” and high power density (i.e., the amount of output power in watts dividedrepresented by the volume ofsymbol “V,” and current, expressed as “amperes,” and represented by the component) of our products are well suited. We also offer a range of higher value-added standard products (our “Configurable” product line) and custom system design and manufacturing capabilities. Both our Configurable products and custom systems leverage the superior performance of our modular power components.
In the market segments we serve, we position the Company as a vendor of power components that can be utilized individually, given their market-leading performance, or combined, given their level of integration, to create highly-differentiated power management solutions. We articulate this positioning through our “Power Component Design Methodology,” which is our approach to providing our customers the modular products, design tools, and engineering support to enable the rapid design of comprehensive power conversion and management systems.
Our website, www.vicorpower.com, sets forth detailed information describing our Power Component Design Methodology, all of our products, the applications for which they may be used, and our suite of design tools. The information contained on our website is not a part of, nor incorporated by reference into, this Annual Report onForm 10-K and shall not be deemed “filed” under the Exchange Act.
We are headquartered in Andover, Massachusetts, where our manufacturing facility is located. We conduct business primarily through the activities of our three reporting segments, the Brick Business Unit (“BBU”), established in 2005, and our two operating subsidiaries, Picor Corporation, established in 2001, and VI Chip Corporation, established in 2007. Picor Corporation relocated its headquarters from North Smithfield, Rhode Island, to Lincoln, Rhode Island in January 2017. Picor Corporation also has personnel based in Andover, Massachusetts. VI Chip Corporation is headquartered in Andover, Massachusetts, where its manufacturing facilities areco-located with those of the BBU.
Our Vicor Custom PowerTMlocations are geographically distributed across the United States, and all are incorporated in Delaware. In March 2016, we acquired 100% ownership of certain operating assets and cash of our consolidated subsidiary, Converpower Corporation, in which we held a 49% ownership interest. In December 2015, we completed the statutory merger of one Vicor Custom Power subsidiary, Mission Power Solutions, Inc., with and into another subsidiary, Northwest Power, Inc., after which we closed the Mission Power Solutions location. Also in December 2015, we sold our 49% ownership interest in Aegis Power Systems, Inc. to Aegis Power Systems, thereby ending our formal relationship with thisnow-former subsidiary. The consolidated financial statements presented herein reflect these transactions.
Internationally, we conduct business through subsidiaries incorporated in or branch offices established in individual countries. Vicor Japan Company, Ltd. (“VJCL”), our 92.5%-owned Japanese subsidiary, which is engaged in sales and customer support activities exclusively for the sale of certain products customized by VJCL for the Japanese market, is headquartered in Tokyo, Japan. Vicor B.V., a wholly-owned subsidiary incorporated in the Netherlands, provides logistical and administrative support for a limited volume of orders placed directly with the Company by customers in the European Union. We have established individual subsidiaries or branch offices outside of the United States, Technical Support Centers (“TSCs”), to conduct preparatory and auxiliary services in support of the Company.
VLT, Inc., incorporated in California, is our wholly-owned licensing subsidiary. VICR Securities Corporation, incorporated in Massachusetts, is a subsidiary established to hold certain investment securities.
Our subsidiaries and their legal domicile are set forth in Exhibit 21.1 to this Annual Report on Form10-K. The activities of all of the above named entities are consolidated in the financial statements presented herein.
We were incorporated in Delaware in 1981. Shares of our Common Stock were listed on the NASDAQ National Market System in April 1990 under the ticker symbol VICR, and we completed an initial public offering of our shares in May 1991.
Market Background and Our Strategy
“I”). In electrically-powered devices utilizing alternating current (“AC”) voltage from a primary AC source (for example, a wall outlet), a power system converts AC voltage into the stable direct current (“DC”) voltage necessary to power subsystems and/or individual applications and devices (known as “loads”). In many electronic devices, this DC voltage may be further converted to one or more higher or lower voltages and currents required by a range of loads. In equipment utilizing DC voltage from a primary DC source (for example, a battery) or a secondary source (such as an AC-DC converter), the initial DC voltage similarly may require further conversion. A power system most commonly incorporates four voltage conversion functions: transformation, isolation, rectification, and regulation.
Transformation refers to onethe process of increasing or more voltages.decreasing an AC voltage; isolation refers to the electrical separation, for safety, of primary and secondary voltages in a transformer; rectification refers to the process of converting a voltage from AC to DC and/or from DC to AC; and regulation refers to the process of providing a near constant voltage under a range of line and load conditions. Because numerous applications requiring different DC voltages, currents, and varied currentspower ratings may exist within an electronicelectronically-powered device, and system power architectures themselves vary, we offer an extensive range of products and accessories in numerous application-specific configurations. We believe our product offering is among the most comprehensive in the market segments we serve.
Our strategy, competitive positioning, and product offerings are all based on highly differentiated product performance, reflecting our anticipation of the evolution of system power architectures and customer performance requirements. Since the Company was founded, our product strategy has been driven bywe have pursued continuous innovations in product design and achievements in product performance, largely enabled by our focus on the research and development of differentiatedadvanced technologies and processes, often implemented in proprietary semiconductor circuitry.circuitry, materials, and packaging. Reflecting this strategy, we categorize our offerings as either “Advanced Products” or “Brick Products,” generally based on design, performance, and form factor considerations, as well as the range of evolving applications for which the products are appropriate.
Our competition varies, depending on the market segment and application. Generally, we compete with developers and manufacturers of integrated circuits and semiconductor-based modules when addressing the needs of customers in enterprise computing and other market segments with implementations of our proprietary Factorized Power ArchitectureTM (“FPA”) using Advanced Products. In contrast, we generally compete with manufacturers of integrated power supplies when addressing the needs of customers, across a wide range of market segments, implementing conventional power systems architectures (e.g., Centralized Power Architecture (“CPA”), Distributed Power Architecture (“DPA”), and Intermediate Bus Architecture (“IBA”)) using Brick Products.
Our website, www.vicorpower.com, sets forth detailed information describing our products, the applications for which they may be used, and our suite of design tools. The information contained on our website is not a part of, nor incorporated by reference into, this Annual Report on Form 10-K and shall not be deemed “filed” under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
We are headquartered in Andover, Massachusetts, where our manufacturing facility is located. Our wholly-owned subsidiary, VICR Securities Corporation, also is located in Andover, Massachusetts. Our other domestic offices are located in Santa Clara, California, Lombard, Illinois, and Lincoln, Rhode Island. Our two Vicor Custom Power™ subsidiaries, Freedom Power Systems, Inc. and Northwest Power, Inc., are located in Cedar Park, Texas, and Milwaukie, Oregon, respectively.
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We have established individual subsidiaries or unincorporated branch offices outside of the United States, which we call Technical Support Centers (“TSCs”), to conduct preparatory and auxiliary services in support of the Company. Vicor Japan Company, Ltd. (“VJCL”), our 92.5%-owned Japanese subsidiary, which is engaged in sales and customer support activities exclusively for the sale of certain products customized by VJCL for the Japanese market, is headquartered in Tokyo, Japan.
In August 2020, our subsidiary, VLT, Inc., which was a vehicle for licensing technologies, was merged with and into the Company.
Our remaining subsidiaries and their legal domicile are set forth in Exhibit 21.1 to this Annual Report on Form 10-K. The activities of all of the above named entities are consolidated in the financial statements presented herein.
Vicor was incorporated in Delaware in 1981, and we completed an initial public offering in May 1991. The Company has two classes of common stock outstanding: shares of our “Common Stock,” listed on The NASDAQ Stock Market under the ticker symbol VICR, and shares of our Class B common stock, which are not subject to registration pursuant to the Exchange Act and are not listed on any exchange.
Our Strategy
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 (“TCO”). Since the Company was founded, our competitive position has been maintained by continuous 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, which enable the design of converter modulespower system solutions more efficient and much smaller and more efficient than conventional alternatives. EmphasizingThis efficiency and small size is enabled by our proprietary switching circuitry and magnetic structures, as well as our use of highly differentiated packaging.
Power system performance is based primarily on conversion efficiency (i.e., the superiorratio of output power (i.e., watts) to input power) and power density and performance advantages(i.e., the amount of this technology, our primary product strategy since our founding has been to offer a comprehensive range of component-level building blocks to configure aoutput power system specific to a customer’s needs.
Our strategy, competitive positioning, and product offerings, all based on highly differentiated product performance, have anticipateddivided by the evolution of system power architectures. As system designs advanced, along with the demandsvolume of the loads powered, the inherent limitations of historically accepted system power architectures have caused designerssystem). Higher efficiency and density contribute to seek out improved solutions.
In 1984, we introduced a significant enhancement of the standardizedDC-DC converter: the fully-encapsulated “brick” module. Our innovative, patented technology utilized our implementation of zero current soft switching topology to deliver unprecedentedly high switching frequencies and, in turn, unprecedented power density. Superior conversion efficiency, overall performance improvements, and full encapsulation (which provided shielding from environmental influences) contributed to significant enhancement ofsuperior thermal performance, characteristics, an important competitive advantage. Such thermal performance enhancement has been critical toas the differentiationby-product of our power converters, as theby-product of voltage conversion and distribution is heat, which must be dissipated in order to assure the performance of the converterpower system solution itself and the overall system to which it is delivering power.
The brick module integrated transformation, regulation, isolation, filtering, and/or input protection into a single device, thereby driving Power system performance also is based on the adoptionelectrical characteristics of the Distributed Power Architecturepower system (and their effect on and compatibility with the customer’s application). Important electrical characteristics include transient responsiveness (i.e., the reaction of a power system to a sudden change in voltage or current levels) and noise profile (i.e., the level of electromagnetic interference created by power conversion). We believe the superior performance of our power systems is the most important element of our differentiation strategy.
Our strategy complements performance superiority with design flexibility (i.e., ease of use), as our products can be utilized individually or combined, given their level of integration, to create power system solutions specific to a customer’s precise needs. We articulate this positioning through our “Power Component Design Methodology,” an element of our differentiation strategy, which is our approach to providing our customers the modular products, design tools, and engineering support to enable the rapid design of advanced power system solutions by customers and, thereby, accelerate their own product development cycles. Our value proposition is supported by a compelling TCO, representing the cost of acquiring and operating a power system over its useful life, driven by competitive product pricing, high reliability, and demonstrably lower electricity costs.
Our earliest market focus was on telecommunications infrastructure, which uses a standard DC distribution voltage of 48V (nominally 48V to 54V), the highest distribution voltage that meets Safety Extra-Low Voltage (“DPA”SELV”). The dominant system standard requirements, while leaving sufficient margin for over-voltage protection circuits. While we
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offer products addressing other DC voltage standards (e.g., 380V for power architecture up until that time,distribution in data centers, 110V for rail applications, 28V for military and avionics applications, and 24V for industrial automation) and a broad range of customer requirements, we consider our core competencies to be associated with 48V distribution, which offers numerous inherent cost and performance advantages over lower distribution voltages, while remaining within the Centralized Power Architecture (“CPA”), generates all system voltages centrally and distributes these60V SELV safety limit.
Our product portfolio also includes families of “front-end” devices, which address applications requiring the transformation of AC voltages to loads using individual distribution buses (i.e., a conductive circuit, generally maderegulated DC voltages. Examples of copper). CPA became expensive and impractical for electronic systems increasingly characterized by widely distributed and diverse loads requiring lower voltages, higher currents, and faster responsiveness to rapidly changing power demands of varied loads. DPA, enabled by the brick concept, allows the distribution of one DC voltage system-wide and downstream conversion of that voltage, with a brick, at a specific load. This approach allows electricity to be distributed through a complex system in the most efficient manner, at a uniform higher voltage (typically 48 volts), thereby dramatically reducing distribution and conversion losses, lowering copper consumption, and significantly increasing design flexibility. With patented
advances in switching topology and converter design, Vicor became a leading vendor of brickDC-DC converters in the 1980s and 1990s, particularly within the telecommunications infrastructure segment of the market.
With the advent of enterprise computing in the 1990s, the limitations of DPA became apparent, as the number of different loads on a system board increased beyond the level for which DPA and bricks were well-suited. The Intermediate Bus Architecture (“IBA”), a multi-stage extension of DPA, addressed the space constraints, performance requirements, and cost challenges of highly complex system boards by further separating the functions of DC conversion carried out by the brick, which in IBA is replaced by an isolated bus converter delivering a stepped-down (i.e., reduced), unregulated voltage to anon-isolatedpoint-of-load regulator. For computing and, later, networkingsuch applications IBA was more scalable and cost-efficient, as numerous brickDC-DC converters on a system board were replaced by one brickDC-DC converter, providing one system-wide distributed voltage, accompanied by numerous, lower-cost bus converters providing an intermediate bus voltage, typically from 5 to 14 volts, topoint-of-load regulators.
Two significant industry changes coincided with the broad adoption of IBA in the late 1990s and the early 2000s. The first change was the significant decline of the telecommunications infrastructure segment that represented our primary focus, while the second change was a pronounced shift toward product commoditization, primarily driven by globalization. These two changes had an interrelated impact on our strategy, as the primary driver of IBA adoption was initial cost reduction, not system conversion efficiency. As such, IBA was broadly implemented using 12 volt distribution, not the more efficient 48 volt distribution, our core competency.
Unwilling to pursue rapidly commoditized market opportunities, notably in IBA, and unwilling to relocate our manufacturing to lower-cost countries, we shifted our strategy and operations in the 2000s to emphasize “mass customization,” using highly automated, efficient, domestic manufacturing to serve customers with product design and performance requirements, across a wide range of worldwide market segments, that could not be met by high-volume oriented competitors. We focused on applications, largely implementations of DPA, for which our brickDC-DC legacy products were well-suited, in market segments such as aerospace and defense electronics, industrial automation, industrial equipment, instrumentationinclude powering data center server racks, large-scale LED lighting, specialized laboratory, diagnostic, and test equipment, small-cell wireless base stations, and transportation (e.g., rail). Thishigher power equipment for defense and industrial use.
Reflecting our strategy, has beenwe categorize our offerings as either Advanced Products or Brick Products, generally based on design, performance, and form factor considerations, as well as the basis uponrange of evolving applications for which the BBU has competed since this strategic and operational shift.respective categories are appropriate. The customers served range from independent manufacturers of highly specialized electronic devices to larger original equipment manufacturers (“OEMs”) and their contract manufacturers.
During the 2000s, we embarked on a long-term strategy based on our belief that our competitors’ products and existing system power architectures, notably IBA, would not meet evolving market requirements, notably system conversion efficiency. Over the last decade, we have invested significantly in the development of new power component technologies and product concepts addressing two meaningful market trends, the first toward higher required conversion efficiencies, and the second toward more and diverseon-board voltages, higher current requirements, and the higher performance demands of numerous complex loads. Reflecting the versatile, building block approachAdvanced Products category consists of our Power Component Design Methodology, in 2003 we introducedmost innovative products, which are used to implement our Factorized Power ArchitectureTM (“FPA”), an innovative, component-basedproprietary distribution architecture, FPA, a highly differentiated approach to power distribution that enables flexible, rapid power system design based on separateusing individual components optimized to perform a specific function. FPA increases system conversion efficiency, density, andThe Brick Products category largely consists of integrated power delivery by dedicating regulation and transformation functions into separate power modules. Thisre-partitioning of power conversion enables higher input voltages, 48V as an example, to be converted directly to the point of load reducing the number ofconverters (i.e., “bricks”), incorporating multiple conversion stages, required (i.e., duplicated functions requiring separate components), reducing system distribution losses,used in conventional power systems architectures including CPA, DPA, and reducing power dissipation atIBA.
Given thepoint-of-load. We continue to believe FPA represents growth profiles and performance requirements of the market segments served with Advanced Products and Brick Products, our strategy involves a compelling architectural alternative to other architectural implementations, as it offers superior conversion efficiency, higher power density, improved system responsiveness, and an attractive total cost of ownership, while offering advantageous systemtransition in organizational focus, emphasizing investment in Advanced Products design and board layout flexibility.
To support implementation of FPA, we introduced our initial range of advanced products, our VI Chip modules exploiting our proprietary expertise in soft switching topologies and control, power semiconductors,
materials, and packaging: the PRM®(Pre-Regulator Module),manufacturing, targeting high growth market segments with anon-isolated buck-boost regulator; the BCM® (Bus Converter Module), an isolated, fixed ratio intermediate bus voltage converter; and the VTM® (Voltage Transformation Module), an isolated current multiplier (i.e., voltage converter). The VTM and BCM utilize on our Sine Amplitude ConverterTMswitching topology, a patented fixed-frequency implementation of zero current / zero voltage soft switching,low-mix, high-volume operational model, while the PRM is based on our proprietary implementation of zero voltage soft switching (“ZVS”), which is optimized for buck-boost voltage regulation. All three products incorporate technologies for which we have been issued patents or have patent applications pending.
Beginning in 2011, with an expanded portfolio of advanced products from our VI Chip and Picor subsidiaries, we began to focus our strategic efforts toward higher-volume opportunities with global OEMs and the Original Design Manufacturers (“ODMs”) and contract manufacturers serving these OEMs, as FPA and our advanced products offered superior power density, conversion efficiency, and thermal management characteristics for board-based, rack-mountedpoint-of-load applications, notably for microprocessors requiring tightly regulated, high currents. FPA and our first-generation VI Chip modules were adopted by customers for use in demanding applications, most notably supercomputing, sophisticated test instrumentation, and defense electronics. However, broader adoption was inhibited by cost considerations and, to a lesser extent, our initially limited product range.
In response, we undertook development of a substantially improved product platform, which we introduced in 2013. Our “ChiP” platform (ChiP is an acronym for “Converter housed in PackageTM”) specifically was designed to be a scalable product format, with lower manufacturing costs, which could be leveraged to efficiently and quickly broaden product offerings. ChiPs are offered in the same functional families as the earlier VI Chip modules, using the same advanced switching topologies, but, because of the format’s improved manufacturability and design leveragability, we are able to offer much broader ranges of performance specifications within existing and new functional families. Because ChiPs were designed to be manufactured in volume with lower costs, we are able to profitably sell ChiPs and ChiP-based solutions at competitive prices, on acents-per-watt basis, comparable to prices of alternative commodity products. While our first-generation VI Chip modules were designed to facilitate FPA implementations, ChiP modules support all known power distribution architectures, including FPA, thereby expanding our addressable market opportunity (i.e., the range of customer applications across which our advanced products can be used).
At the same time, we developed a high-performance family ofpoint-of-load regulators, in System in Package (“SiP”) format, to be integrated into our expanding product portfolio, truly enabling comprehensive power management solutions topoint(s)-of-load. These ZVSpoint-of-load regulators have been designed to meet the requirements of high-volume customers for differentiated performance and cost effectiveness.
In 2014, we introduced the “VIA” packaging concept (VIA is an acronym for “Vicor Integrated AdaptorTM”), a rugged, double-sided package for ChiP modules integrating complementary components and circuitry, offering superior thermal management characteristics. The VIA package provides customers an advanced,turn-key solution for their demanding power needs, cost-effectively accelerating design cycles andtime-to-market, while providing superior power density. The VIA package is particularly differentiated for certain applications with challenging form factor and thermal management requirements, such as those often associated with defense electronics. We consider the VIA package to be strategically important, as it has been designed to be used in the widest range of power system architectures and applications, allowing us to target applications ranging from those addressed by our legacy brick products to the most challenging emerging applications.
In 2015, we introduced a family ofnon-isolated, fixed conversion ratio,bi-directional, bus converter modules (the “NBM™” family). Highly differentiated NBMs exploit our latest innovations in magnetics and semiconductors, enabling improved efficiency and power density, and represent, we believe, a competitively important element of our Power Component Design Methodology, complementing other advanced products to expand the range of board-level applications served by our integrated solutions.
In 2017, we introduced a surface mount variant of the ChiP platform, theSM-ChiP, which provides added thermal management and design flexibility in addition to the same performance benefits as the through-hole ChiP platform upon which it is based. The addition of surface mounting both expands the range of applications for which our ChiP products may be used, and affords our customers faster development and lower manufacturing costs, given the absence of mounting pins. The Modular Current Multiplier DriverTM (“MCD”) and Modular Current MultiplierTM (“MCM”), both based on theSM-ChiP platform, are the two modules making up our“Power-on-PackageTM” solution, which we believe will be a source of revenue growth for the Company. Additionally, in 2017, the Company introduced other surface mount derivatives of the ChiP platform, including a surface mount extension of the NBM family.
Since the introduction of our advanced products, we have been executing a transitionalgo-to-market strategy based on our Power Component Design Methodology, exploiting our historical strengths, while addressing both the realities of today’s power conversion marketplace and our vision of its long-term direction. This strategy involves maintaining a profitable legacy business in bricks and brick-based system solutions, while investing in and transitioning our focus to an advanced product portfolio based largely on the ChiP platform, targeting higher growth opportunities.
Today, we target customer applications for which the high conversion efficiency and high power density of our products are well suited within the following commercial and military market segments: aerospace and aviation; defense electronics; enterprise and high performance computing (including large scale datacenters and supercomputers); industrial automation; industrial equipment; instrumentation and test equipment; medical diagnostics; telecommunications and network equipment and infrastructure; transportation infrastructure, and vehicles (including autonomous driving and electric and hybrid electric vehicles). With our advanced products, we also are pursuing opportunities in emerging market segments, including commercial solid state lighting and 380 voltDC-based facility infrastructure (also referred to as “micro-grids”).
Our competitive positioning has been, and will continue to be, supported by our long-standing commitment to research and development of power conversion technologies, advanced packaging and manufacturing, and innovative approaches to solving customer problems. We incurred approximately $44,924,000, $41,848,000, and $41,472,000 in research and development expenses in 2017, 2016, and 2015, respectively, representing approximately 19.7%, 20.9%, and 18.8% of revenues in 2017, 2016, and 2015, respectively.
As stated, our strategy involves maintaining high levels of customer engagement and design and engineering support, which has resulted in significant expansion of our sales and application engineering infrastructure over historical levels, notably in high growth regions of the world such as China, Korea, and India. We incurred approximately $40,438,000, $37,967,000, and $37,336,000 in marketing and sales expenses in 2017, 2016, and 2015, respectively, representing approximately 17.7%, 19.0%, and 17.0% of revenues in 2017, 2016, and 2015, respectively.
We intend to maintain spending in support of research and development and marketing and sales at levels, on an absolute basis, consistent with prior periods. If we successfully execute our strategy, we believe our revenue should increase and, if so, the percentages of revenue represented by spending on research and development and marketing and sales should decline in comparison to historical percentage levels.
Competition
Despite significant consolidation of our competitors in the markets we serve with legacy products, the growth of large-scale,low-cost foreign competitors in the commoditized segments of those markets, and increased application overlap with vendors of solutions based on semiconductors and discrete components in the markets we serve with advanced products, the total global merchant market forAC-DC andDC-DC power conversion solutions remains fragmented, with over 1,000 merchant (i.e.,non-captive) vendors. The markets we
serve, among which some overlap exists for our legacy and advanced products, are made up of many large, diversified manufacturers, as well as many smaller manufacturers focused on specialized products or narrowly defined market segments or geographies. The markets we serve with legacy products, typically through sales representatives and distribution partners, are generally characterized by relatively long (i.e., greater than three years) product life cycles, offset by increasing commoditization and price competition. The markets we serve with advanced products, typically on a direct basis, are generally characterized by relatively short (i.e., less than three years) product life cycles, and competitors that are primarily far larger vendors of integrated circuits and discrete components competing on price.
Although numerous third party industry studies estimate the total global merchant market forAC-DC andDC-DC switching power supplies to exceed $20 billion of annual revenue, representing approximatelytwo-thirds of the total annual consumption of switching power supplies (i.e., the sum of merchant and captive volumes consumed), the Company competes in smaller, well-defined commercial and military market segments and niches within those segments. We believe, based on these third party estimates,AC-DC power supplies represent more than 85% of the total merchant market, reflecting a wide range of battery charging applications, primarily in the consumer, mobile device, and office computing segments (commodity segments in which we currently do not compete, together representing more than 50% of the total merchant market). Based on our own assessment of the segments in which we do compete, we estimate our aggregate addressable market opportunity within theAC-DC portion of the merchant market approaches $1 billion annually, while we estimate our aggregate addressable market opportunity within theDC-DC portion of the merchant market exceeds $3 billion annually. These third party industry studies set forth estimates of varying levels of annual, dollar-based, nominal revenue growth across the merchant market segments in which we compete. These studies indicate most of themature market segments we serve with legacy products have experienced low single-digit growth over the past three years. These studies further indicate most of the market segments we serveBrick Products with advanced products have experienced high single-digit and low double-digit growth over the past three years.
Despite our minor share in the overall merchant market and the competitive presence of numerous, far larger vendors in the market segments and niches we serve with both legacy and advanced products, we believe we maintain an advantageous competitive position in those market segments and niches. Notably, we believe we have the largest share of the 48 Volt topoint-of-load niches within the served segments of the enterprise and high performance computing market. However, numerous competitors across these market segments and niches have significantly greater engineering, financial, manufacturing, and marketing and sales resources, as well as longer operating histories and longer customer relationships, than we do.
The competitive characteristics of market segments we serve with our transitionalgo-to-market strategy may vary. Generally, competition is based on product price, product performance, design flexibility (i.e., ease of use), and product availability. We seek to position ourselves with customers across all market segments served in a manner that reduces our vulnerability to commoditization. With our legacy products, we emphasize our highly differentiated responsiveness to individual customer requirements, enabled by our mass customization capabilities, broad range of solution offerings, and relatively high level of customer engagement. As we shift our strategy, increasing our focus on higher volume, OEM and ODM opportunities, we are emphasizing what we believe are our sustainable competitive advantages going forward: the differentiation of our advanced products’ superior performance and power densities, enabled by our patented and proprietary technologies; a compelling value proposition based on lower total cost of ownership enabled by superior power conversion efficiencies; and the advantageous design flexibility enabled by our advanced products and our Power Component Design Methodology.high-mix, low-volume operational model.
Our Products
Reflecting our Power Component Design Methodology, we offer a comprehensive range of individual, highly-integrated,modular building blocks enabling rapid design of a power system specific to a customer’s precise needs. Since introducing and popularizing the encapsulated brick package format during the 1980s, our product focus
has been on high performanceDC-DC switching converters providing the transformation, regulation, isolation, filtering, and/or input protection necessary to power and protect sophisticated electronic loads. With our development of FPA, significant enhancement of our manufacturing capabilities, and the introduction of an expanding range of advanced products, we believe we offer the most advanced range of high-performance power components in the industry. A secondary and highly complementary product strategy has been to vertically integrate our component-level building blocks into complete power systems representing turnkeyAC-DC andDC-DC solutions for our customers’ power needs.
Reflecting our history and direction, we broadly categorize our products as either “legacy” or “advanced,” generally basedBased on design, performance, and form factor considerations, as well as the range of evolving applications for which the products are appropriate.appropriate, we categorize our product portfolios as either Advanced Products or Brick Products. We also sell a range of electrical and mechanical accessories for use with our products.
LegacyAdvanced Products
We continue to invest in the research and development of power system technologies and product concepts addressing two accelerating trends, the first toward higher required conversion efficiencies, and the second toward more and diverse on-board voltages, higher performance demands of complex loads, and, in particular, higher current requirements of those loads. These trends are most visible in the microprocessor-based applications we target with Advanced Products, for which energy consumption, energy efficiency, processor performance, and computing density are critical priorities. Recognizing the performance and scale limitations of conventional power distribution architectures and products, we introduced FPA and a range of enabling products incorporating our latest advances in power distribution concepts, switching topologies, materials, and packaging.
FPA, which is focused on, but not limited to, 48V DC distribution solutions, increases power system conversion efficiency, density, and power delivery performance by “factorizing” (i.e., separating) the power conversion process into individual components, reducing the design limitations, thermal management challenges, and scaling trade-offs associated with conventional architectures for DC voltage distribution. All such architectures follow a sequence whereby a DC voltage is first transformed, or reduced, and that lower voltage subsequently conducted (i.e., “bussed”) across the circuit to the “load” (i.e., the point of use), where the voltage is regulated and lowered once more, to the required operating voltage of the load. In a FPA implementation, the sequence is reversed. Regulation occurs first, and the regulation module can be placed in the optimal position for
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space utilization and thermal management. A regulated voltage approaching 48V is bussed across the circuit to the transformation module, which performs what we refer to as current multiplication, adjacent to the load. Bussing high voltage minimizes the current levels across the circuit, thereby minimizing the potential for distribution losses and reducing the volume of the conduit (e.g., the copper wire). Placing the relatively low noise, low heat current multiplication module adjacent to the load further minimizes the potential for distribution losses associated with bussing a low operating voltage to the load and reduces the potential influence of the power system on the performance of the load.
A typical FPA implementation for delivering 48V DC from a server backplane to a 1.0V microprocessor would consist of three modules: a PRM™(Pre-Regulator Module) regulator, a VTM™ (Voltage Transformation Module) current multiplier, and a proprietary communications controller. In contrast, a commodity IBA design for delivering 48V DC from a server backplane to a 1.0V microprocessor requires an additional conversion stage, to reduce 48V to 12V, and, at the point of load, a voltage regulation module (i.e., a “VRM” consisting of multiple switching regulators, each representing a phase and consisting of two switching transistors, one or more capacitors, and an inductor, with the transistors switched by pulse width modulation controller). For a 200W two stage, multiphase application, a 12V commodity IBA implementation would require an intermediate bus converter, to reduce 48V to 12V, and a VRM solution consisting of parallel phases (i.e., multiple switching regulators) to reduce and regulate the current for use at 1.0V by the microprocessor. Such a commodity IBA implementation requires a significantly higher component count, consumes more motherboard area, requires more copper conduit, generates more heat due to switching and distribution losses, offers inferior dynamic response, and can be meaningfully less efficient than a 48V FPA implementation.
The following product groups include those that have historically generatedadvantages of FPA over legacy power distribution architectures are most evident in high performance computing applications. Our “Power-on-Package” power system solutions meet the majoritycomputational performance requirements of artificial intelligence (“AI”). The microprocessors typically used in AI, particularly in more computationally demanding “machine learning” or “training” applications, are graphics processing units (“GPUs”) and custom application-specific integrated circuits (“ASICs”). Unlike central processing units (“CPUs”), which are designed for serial execution of complex and broad instruction sets, GPUs and AI ASICs are designed for massively parallel (i.e., concurrent) processing of repetitive transactions or calculations. As such, GPUs and AI ASICs generally operate at processing frequencies requiring the higher levels of average and peak current delivered by our FPA-based solutions. Our most popular Power-on-Package solution, consists of one MCD©(Modular Current Driver) unit, providing high-bandwidth, low-noise regulation, and two MCM© (Modular Current Multiplier) units, providing high performance current multiplication. Power-on-Package delivers unprecedented current levels to GPUs and AI ASICs, in part due to the placement of the MCMs directly on the substrate onto which the processor is mounted, thereby minimizing distribution losses associated with high current levels. Placement of MCM units on the substrate also reduces the number of GPU or ASIC processor substrate pins required for power, allowing for their use by other functions (e.g., memory input/output (“I/O”)). This three-module laterally-mounted Power-on-Package configuration, powering an AI accelerator card requiring 350W, delivers 0.7V, 650A average current, and up to 1,200A peak current to the GPU or AI ASIC.
We are unaware of any competitive solution for AI acceleration offering the power system performance and density of Power-on-Package, as IBA-based solutions must increase the number of conversion phases to reach high current levels, thereby increasing component count and motherboard area used, which contributes to higher switching and distribution losses, inferior dynamic response, and associated heat generation.
Our latest innovation for powering processors is vertical power delivery, which involves mounting our highest-performance solutions on the underside of the motherboard, opposite the GPU or AI ASIC, thereby enabling a further reduction in distribution losses at the load, yielding higher efficiency and unprecedented power density. Vertically-mounting the solution allows unrestricted access to microprocessor input/output I/O pins on the top side of the motherboard, thereby improving I/O speed and memory access, which are a priority for GPUs and AI ASICs in AI applications. We are in the final development stages of our vertical power delivery solutions and shipped prototype products to a certain customer in 2022.
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Our proprietary technologies enable us to offer a range of Advanced Products, in various package formats across functional families, applicable to other market segments and power distribution architectures other than FPA. Within computing, these market segments include AC to DC voltage conversion and DC voltage distribution in server racks and high voltage conversion across datacenter infrastructure. We also offer Advanced Product power system solutions for aerospace and aviation (e.g., for use in satellites, unmanned aerial vehicles, and various airframes, including battery-powered aircraft, for which small size, light weight, and design flexibility are advantageous); defense electronics (e.g., for use in airborne, seaborne, or field communications and radar, for which reliability in harsh environments is a priority); industrial automation, instrumentation, and test equipment (e.g., for use in robotics and semiconductor testing, for which high power levels and precision performance are required); solid state lighting (e.g., for use in large scale displays and signage, for which, again, small size, light weight, and design flexibility are advantageous); telecommunications and networking infrastructure (e.g., for use in high-throughput data distribution and pole-mounted small-cell base stations); and vehicles (e.g., in autonomous driving applications, electric vehicles, and hybrid electric vehicles).
Annual revenue associated with the sale of Advanced Products was approximately 61.0%, 47.4%, and are manufactured by our BBU reporting segment. Some35.8% of our brick product lines have beenthe Company’s consolidated revenue for the years ended December 31, 2022, 2021, and 2020, respectively. Advanced Products revenue grew in production for over a decade, reflecting the long-established relationships we have with many customers2022 primarily due to cloud computing infrastructure growth and the long-standing suitabilityfurther adoption of AI systems within the cloud.
We anticipate the percentage of periodic revenue associated with the sale of Advanced Products will increase in the future, given our products to demanding applications. Their generally long lifecyclesstrategic and well-established shareorganizational focus and the relatively higher expected growth of targetedthe market segments we serve.
Brick Products
Brick-format converters provide the competitive foundationintegrated transformation, rectification, isolation, regulation, filtering, and/or input protection necessary to power and organizational resources for our transitionalgo-to-market strategy.
protect loads, across a range of conventional power architectures. We offer brick modules asa wide range of brick-format DC-DC converters, as well as complementary components providing AC line rectification, input filtering, power factor correction, and transient protection. These products are well-established as important, reliable elements of conventional power systems architectures.
We currently offer seven families of high power density,component-level DC-DC converters, representing what we believe to be the broadest selection of encapsulatedDC-DC converter modules in the industry: theVI-200TM,VI-J00TM,MI-200TM,MI-J00TM, and the FasTrakTM module line, our highest volume products, made up of the Maxi, Mini, and Micro product families. All of ourDC-DC converters are based on our proprietary approach to resonant soft switching, enabling high efficiencies and power densities. Wide ranges of input voltages, output voltages, and output power are offered, allowing end users to select components appropriate to their individual applications. The products differ in dimensions, temperature grades, maximum power ratings, performance characteristics, pin configuration, and, in certain cases, characteristics specific to the targeted market.
We also offerintegrate these converters and components into complete power systems representing standard or custom AC-DC and DC-DC solutions for our customers’ power needs. We refer to such standard products as our “Configurable” product line, while our two Vicor Custom Power subsidiaries design, sell, and service custom power system solutions.
We market our standard Brick Products emphasizing “mass customization,” using highly automated, efficient, domestic manufacturing to serve customers with product design and performance requirements, across a linewide range of open-frame (i.e.,worldwide market segments, which could not encapsulated) intermediate bus converters (“IBCs”)be met by high-volume oriented competitors. We focus on distributed power implementations, for implementation of multi-stage power conversion. IBCs utilize the same Sine Amplitude Converter switching topology utilizedwhich our brick-format products are well-suited, in many of our advanced products. These low profile, isolated, fixed-ratio bus converters conform to industry standard quarter-brick and eighth-brickpin-compatible dimensions, but offer performance superior to competitive offerings.
Products from our broad line of complementary components are used to condition and/or filter the input and output voltages of the brickDC-DC converter. Generally, these components address customer requirements at the AC current source, upstream from ourDC-DC converters, providing rectification of the AC current, input filtering, inrush limiting, and transient protection. We also offer numerous accessories to meet customer requirements.
These legacy products generally are targeted at applications requiring high performance and reliability in the following market segments:segments such as aerospace and aviation; defense electronics;electronics, industrial automation;automation, industrial equipment;equipment, instrumentation and test equipment; medical diagnostics; telecommunications infrastructure;equipment, and transportation infrastructure,(e.g., rail). Our customers range from independent manufacturers of highly specialized electronic devices to larger original equipment manufacturers (“OEMs”) and vehicles.
We offer a family of isolatedDC-DC converters delivering up to 60 watts in a small (22 x 16.5 x 6.7 mm) surface-mount package. These converters utilize our proprietary ZVS topology to achievehigh-switching
frequencies enablingbest-in-class power density, while reducing input and output filtering requirements. Because these small devices are packaged in an over-molded package, they are able to withstand harsh environments in applications for which space is limited and light weight is advantageous (e.g., aerospace, aviation, and defense electronics). These high density converter modules are offered in three input voltages: 48 volt nominal for communication applications; 28 volt nominal for rugged high temperature or military applications; and 24 volt nominal for industrial applications.
Utilizing our modular brick components to provide system function, we offer numerous higher valued-added standardAC-DC andDC-DC products we configure to a customer’s specific needs, often with multiple voltage outputs. These near-custom products exploit the benefits and flexibilitytheir contract manufacturers. Some of our modular approach to offer higher performance, higher power densities, lower costs, and faster delivery than many competitive offerings. Our configurable products typically are usedBrick Product lines have been in production for over a rangedecade, reflecting the maturity of CPA and distributed power architecture implementations in defense electronics, industrial and transportation applications, as well as medical instrumentation.
Certain customers rely on us to design, develop, and manufacture custom power systems to meet performance and/or form factor requirements that cannot be met with standard products. Theselow-volume, highvalue-add system solutions frequently are designed to function reliably in the harsh environments associated with aerospace, aviation, and defense applications, but also are used in applications ranging from industrial equipment to medical instrumentation. Historically,markets we serve, the long-established relationships we have utilized products from our legacy product portfolio in our custom power systems. However, during 2017, all new custom designs utilized products from our advanced product portfolio, thereby extendingwith many customers, and the advantageslong-standing suitability of our advanced products to the turnkey solutions offered by the Vicor Custom Power organization.demanding applications.
Annual revenue associated with the sale of legacy products representedBrick Products, inclusive of such sales of our Vicor Custom Power and VJCL subsidiaries, was approximately 66.4%39.0%, 75.5%52.6%, and 78.5%64.2% of the Company’s consolidated revenue for the years ended December 31, 2017, 2016,2022, 2021, and 2015,2020, respectively.
Advanced Products
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Customers and Backlog
The following advanced product groups reflectapplications in which our visionAdvanced Products and Brick Products are used are typically in the higher-performance, higher-power segments of the directionmarket segments we serve. With our Advanced Product lines, our customers are 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, although 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 Product lines, we serve 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 a greater concentration of sales among relatively fewer customers.
As of December 31, 2022, the Company’s order backlog was approximately $304,392,000, compared to $345,594,000 as of December 31, 2021. Backlog, as presented here, consists of orders for products for which shipment is scheduled within the following 12 months, subject to our scheduling and cancellation policies.
The lead times between receipt and acceptance of an order and our shipment of the product have increased, largely as a consequence of the COVID-19 pandemic and in particular in 2022, the resulting lock-downs in China associated with its zero-COVID policy. The COVID-19 pandemic has caused widespread delays in production and delivery. In response, during the second quarter of 2021, we extended our quoted lead times for delivery to customers to 26-32 weeks depending on the product family. Customer demand has outstripped capacity and semiconductor suppliers have allocated capacity. In addition, suppliers have increased component pricing. In the second quarter of 2021 and in the first quarter of 2022, we increased our prices in response to component cost increases that could no longer be absorbed.
A portion of our revenue in any quarter is, and will continue to be, derived from “turns” volume, representing either orders booked and shipped in the same quarter or orders for which customers have requested accelerated delivery from a later quarter to the current quarter. This volume generally has been associated with orders for Brick Products. Due to lengthened delivery lead times and supply constraints across the electronics industry, the volume of turns orders has been lower on average in the last few years than in prior years. However, over the same period, the volume of orders for which customers have requested accelerated delivery has increased, which we believe to be a reflection of the demand for our products in key end markets and our limited capacity to meet this demand. An additional influence on turns volume has been our transition to larger OEM customers, which typically schedule large volumes for delivery over multiple quarters and frequently reschedule deliveries for either earlier or later shipment. Average quarterly turns volume was approximately 11% of 2022 revenue, approximately 19% of 2021 revenue, and approximately 14% of 2020 revenue.
In the second half of 2022, the semiconductor industry experienced a slow down due to a number of factors. The order rate from customers declined in this period. We believe the decline in order rate related, in part, to the general slow down in the semiconductor industry. In addition, order rates from contract manufacturing customers that manufacture for a high performance compute OEM declined and we believe this was due, in part, to the substantial backlog we built up earlier in the year, as well as a product transition from one generation to the next.
Competition and Market Characteristics
The competitive characteristics of the markets we serve with Advanced Products and Brick Products can differ significantly. For example, in the higher-performance segments of computing we serve, our Advanced Products most often compete with solutions offered by large integrated device manufacturers (“IDMs”), which offer integrated circuits (“ICs”) and semiconductor-based modules. These IDMs generally offer far broader product portfolios, possess far greater global manufacturing and support resources, and have the ability to aggressively price their products to defend market share. Accordingly, Advanced Products are positioned as
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highly differentiated alternatives to commodity solutions for customers seeking high levels of performance. The customers we serve with Advanced Products, typically on a direct basis, are in market segments generally characterized by an emphasis on product performance differentiation, a compelling TCO, relatively extended and highly competitive design cycles, and product life cycles of generally less than three years. In contrast, the Brick Products competitive landscape is relatively fragmented, with large-scale, low-cost global suppliers of commodity solutions and many smaller manufacturers focused on specialized products or narrowly defined market segments or geographies. The market segments we serve with Brick Products, typically through sales representatives and distribution partners, generally are characterized by relatively short design cycles, relatively long (i.e., greater than three years) product life cycles, and, given the maturity of many market segments and applications, degrees of commoditization and price competition. As such, Brick Products are positioned with an emphasis on mass customization, through which we offer products with specific features and performance profiles typically not available from catalog-oriented competitors.
The size and growth characteristics of the markets we serve with Advanced Products and Brick Products also can differ significantly, and the range and quality of market data is problematic, making summary statements about these markets challenging. We believe our Advanced Products generally compete with power modules and power ICs developed and manufactured by IDMs and other fabless vendors of power semiconductors. We believe our Brick Products generally compete with similarly integrated switching power supply products developed and manufactured by large global competitors and a fragmented group of small regional competitors. The switching power supply market can be segmented by product type (i.e., DC-DC converters, AC-DC converters, and DC-AC inverters), by output power levels, and by numerous vertical markets (i.e., industry-specific applications).
For 2022, exports to China and Hong Kong were approximately $75,194,000, representing approximately 18.8% of total revenue and an approximately 23.8% decrease over the 2021 total of approximately $98,700,000. We believe this decreased volume was primarily associated with the lockdowns in China associated with their zero-COVID policy and related constraints on the Chinese economy. Current exports to China and Hong Kong are heavily oriented toward Brick Products for industrial and rail applications, as well as certain aerospace and defense electronics applications permitted under U.S. export control regulations (our products are designated EAR99 commodities under the Export Administration Regulations of the U.S. Department of Commerce and are not subject to export licenses).
For 2022, exports to Taiwan were approximately $105,226,000, representing approximately 26.4% of total revenue and an approximately 82.3% increase over the 2021 total of approximately $57,711,000. Taiwan is a contract manufacturing site for certain high performance compute OEMs that drove increased demand.
Despite our minor share in the overall merchant market and the competitive presence of numerous, far larger vendors in the market segments we serve with both Advanced Products and Brick Products, we believe we maintain an advantageous competitive position in those market segments. While we believe we have a significant share of 48V power distribution opportunities within the segments of the computing markets we serve, there are numerous competitors across these market segments that have significantly greater engineering, financial, manufacturing, and marketing and sales resources, as well as longer operating histories and longer customer relationships than we do.
Marketing and Sales
We reach and serve customers through several sales channels: a direct sales force; a network of independent sales representative organizations in North America; independent, authorized non-stocking distributors in Europe and Asia; and four authorized stocking distributors world-wide: Arrow Electronics, Inc., Digi-Key Corporation, Future Electronics Incorporated, and Mouser Electronics, Inc. All sales channels are supported by regional TSCs,
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each offering application engineering and sales support for our Power Component Design Methodology. Thesechannel partners. Domestic TSCs are located in: Andover, Massachusetts; Lombard, Illinois; and Santa Clara, California. International TSCs are located in: Beijing, China; Hong Kong, China; Shanghai, China; Shenzhen, China; Munich, Germany; Bangalore, India; Milan, Italy; Tokyo, Japan; Seoul, South Korea; Taipei, Taiwan (Republic of China); and Camberley, United Kingdom. Customers do not place purchase orders with TSCs, but do so directly with the Company or with our channel partners. In Japan, customers place purchase orders with authorized distributors or, for certain custom products, VJCL.
We generally sell our products on the basis of our standard terms and conditions, and we most commonly warrant our products for a period of two years. The warranty period is three years for a range of H Grade, M Grade, and MI Family DC-DC products. In a limited number of circumstances, we have been designed byentered into supply contracts with certain high-volume customers calling for extended warranty terms. With our VI Chip and Picor reporting segments, with VI Chip modules manufactureddistribution partners, we also enter into contracts providing for our product warranties to transfer to the end customer upon final sale of our product(s) by the BBU, and Picor modules manufactured by third parties. Many of these products are targeted toward FPA implementations, but our more recently introduced advanced products are suitable for other distributed architectures.distributor.
Introduced in 2013, the ChiP platform has been designed to be a scalable product format, with lower manufacturing costs, which could be leveraged to efficiently and quickly broaden product offerings. We believe the ChiP platform establishesbest-in-class standards for a new generation of scalable power modules, while expanding our capability range and, in turn, our addressable market opportunity. Combining advanced, proprietary magnetic structures, power semiconductors, and microcontrollers in a high density interconnect substrate, the ChiP platform delivers superior thermal management characteristics, allowing customers to achieve low cost power system solutions with previously unattainable system efficiency, size, and weight. ChiP modules also have lower manufacturing costs than our original VI Chips, thereby allowing us to offer highly differentiated products, not only with superior total cost of ownership over time, but at attractive initial price points. Our goal is to offer ChiP modules and solutions on a cents per watt basis near or equivalent to the prices of competitive product offerings, thereby presenting customers with a compelling value proposition.
ChiPs are produced in the same functional families as our earlier VI Chip FPA modules (i.e., PRM, BCM, and VTM), but today we offer over 100 specific ChiP module variants, reflecting a broad range of configurations based on dimensions, lead formats, and performance specifications, enabled by the flexible module format. As highlighted above, we have introduced, beginning in 2015, products in the NBM family ofnon-isolated, fixed conversion ratio,bi-directional, bus converter modules. Highly differentiated NBMs exploit our latest innovations in magnetics and semiconductors. Based on our current design and development activities, we anticipate further expansionBecause of the range of package sizes, board or chassis mounting alternatives, lead formats, and performance characteristicstechnically complex nature of our ChiP product offerings, notably withinproducts and theSM-ChiP line applications they address, we maintain an extensive staff of surface mount modules. We planField Applications Engineers to target a number of these new product familiessupport our own sales and variants at segments and applications that, if successfully penetrated, should expand the size and rangecustomer support activities, as well as those of our addressable markets.channel partners. Field Application Engineers, based in our TSCs, provide direct technical support worldwide by reviewing new applications and technical matters with our channel partners in support of existing and potential customers. Product Development Engineering is located in our Andover headquarters, where our Product Development Engineers support the Field Application Engineers assigned to all of our TSCs.
ChiP modules are targeted at applications, regardlessOur direct sales force focuses on higher-volume opportunities involving Advanced Products with global OEMs (and the Original Design Manufacturers (“ODMs”) and contract manufacturers serving these OEMs). Because of the power distribution architecture, for which their high level of performanceproduct differentiation and form factor differentiation is appropriate. Across distributedthe increasing complexity and challenges of customer requirements, we have experienced, and may continue to experience, extended design cycles before production orders are received.
We also reach customers through the electronic commerce capabilities of our website, www.vicorpower.com. Registered, qualified customers in the United States, Canada, and certain European countries are able to purchase selected products online.
Our web-based resources are an important element of our efforts to interact with and support customers. Within our website, the Power System Designer workspace of tools and references allow engineers to select, architect, and implement power systems using our products. Our highly differentiated WhiteboardTM tool allows users to configure and analyze their own power system architectures, atdesigns or those from an extensive library of designs addressing a wide range of applications. Users can modify the sophisticated applicationsoperating condition for which ChiPs are appropriate include: aerospaceeach component of their design to match the intended application and aviation (e.g., for use in unmanned aerial vehicles, due to their conversion efficiency, reliability, small form factor, and light weight); computing (e.g., for source topoint-of-load solutions in servers deployed in datacenters, due to their conversionperform efficiency and flexibilityloss analysis of use, which contribute to lower total cost of ownership); defense electronics (e.g., for use in airborne, seaborne, or field radar, due to their high power capabilities, conversion efficiency, ruggedness, and reliability); industrial automation, instrumentation, and test equipment (e.g., for use in semiconductor testing, due to their power density and tight current regulation); telecommunications and networking infrastructure (e.g., for use in pole-mounted small-cell base stations in urban environments, due to their form factor, reliability, and cost/performance profile); and vehicles (e.g., in autonomous driving applications, electric vehicles, and hybrid electric vehicles, due to their form factor, light weight, differentiated performance, and cost/performance profile). As stated, we also are pursuing applications in market segments and niches for which the advantages of ChiPs are most compelling (e.g., solid state signage, for which high performance, small form factor and design flexibility are required).
The VIA platform is a rugged, double-sided, copper-alloy package for ChiP modules, integrating complementaryindividual components circuitry, and superior thermal management through conductive cooling. In 2016, we completed installation of our first dedicated manufacturing line exclusively for the VIA packaging concept. We consider the VIA platform to be important to our transitionalgo-to-market strategy, as it has been designed to enable the use of ChiP modules across the widest range of power system architectures, power levels, and applications. It is aneasy-to-use power management solution, providing customers an advanced,turn-key solution for their demanding power needs, cost-effectively accelerating design cycles andtime-to-market, while providing superior power density. The VIA platform is particularly differentiated by the flexibility it provides designers, as it offers substantial thermal advantages and its form factor allows a broad range of installation options. In numerous applications, the package simplifies thermal design considerations and, in some instances, eliminates the need for a fan for convection cooling, improving overall system reliability and further minimizing the power system footprint.
The VIA platform also facilitates the VIA DCM, which is an important product for executing our strategic transition. We currently offer seven variants of the VIA DCM. The product family integrates filtering, output voltage regulation, circuitry protection, and a control interface, giving the VIA DCM the function of a conventional brickDC-DC converter, while offering higher conversion efficiency, superior power density, and the design flexibility described above. As such, we are positioning the VIA DCM as a successorfull power system. We continue to our legacy brickDC-DC converters, notably in advanced, challenging applications, such as those associated with defense electronics.
Our Cool-Power brand ofnon-isolated,point-of-load regulators consists of an expanding portfolio of buck (i.e., the device steps down voltage)enhance and buck-boost (i.e., the device lowers or increases voltage) regulators, all in surface mount packaging.
We believe Cool-Power buck regulators provide best in class conversion efficiency (up to 98%), allowing customers to deploy more efficient designs, regardless of power system architecture, based on the compatibility of thesepoint-of-load regulators with voltages of 12, 24, or 48 volts. These regulators, based on our patented and proprietary technologies, have been optimized for loads requiring high conversion efficiency, power density, and precise regulation, such as computer and graphic processors and specialized ASICs.
Our success to date with these products has frequently been when they have been part of an integrated FPA solution, delivering a tightly regulated voltage to an upstream VTM serving as a current multiplier, delivering low voltage, high, precisely regulated current to thepoint-of-load. Our 48 volt topoint-of-load solutions for datacenter servers is representative of such an integrated FPA solution.
During 2017, we expandedexpand the range and capabilities of engineering tools we make available online to customers and prospective customers.
As stated, our solutionsstrategy involves maintaining high levels of customer engagement and support for design and engineering, which has resulted in significant expansion of our sales and application engineering infrastructure over historical levels. We incurred approximately $49,708,000, $46,602,000, and $43,396,000 in marketing and sales expenses in 2022, 2021, and 2020, respectively, representing approximately 12.5%, 13.0%, and 14.6% of revenues in 2022, 2021, and 2020, respectively.
Manufacturing, Quality Assurance, and Supply Chain Management
Our manufacturing facility, consisting of approximately 320,000 square feet, is located in Andover, Massachusetts, where we are headquartered. In this facility, we manufacture Brick Products, with the conversionexception of alternating currentscustom products produced by our Vicor Custom Power and VJCL subsidiaries, and Advanced Products, with
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the exception of certain products manufactured, packaged, and tested by third party wafer foundries and packaging contractors in the United States and Asia.
Our primary manufacturing processes involve steps common to direct currents, enhancing our positioning as a supplierautomated assembly of highly-differentiated power management solutions from the AC sourceelectronics devices. We also have developed and employ proprietary manufacturing processes that contribute to the point(s)differentiated performance of load. Such solutions include our ChiP PFMdevices, including the innovative electroplating of our SM-ChiP®© (Power Factor Module) andmodules discussed below. During the VIA PFM. Representingthird quarter of 2020, we began construction of an addition of approximately 90,000 square feet to our existing manufacturing facility. We initially planned on taking occupancy of the addition in the first half of 2021, but due to a significant improvement over our legacyfront-end solutions,variety of factors including the VIA PFM achieves a market-leading power density, supplying from a universal AC input an isolated DC output , with active power factor correction at 93% peak conversion efficiency, which is an unmatched level for anAC-DC convertereffect of the global pandemic, we took occupancy of this size and power density. We pair the VIA PFM with our VIA AIMTM (“AC Input Module”), which provides AC rectification, filtering, transient protection, and inrush limiting capabilities, thereby creating a high-performanceAC-DCfront-end solution of differentiated small size. This solution has been well-received in market segments for which it is especially well-suited, including small-cell base stations and commercial solid state lighting and signage.
During the second half of 2017, we recognized revenue associated with the shipment of significant prototype volumes of our latestfront-end innovation, a three-phasefront-end module (the RFM TM), which provides superior conversion efficiency and unmatched power density. We anticipate formally introducing the new RFM product lineaddition during the first quarterhalf of 2018,2022 and equipment installation and qualification is underway.
As previously disclosed, we partner with specific RFMa highly-specialized third-party developer of electroplating processes and equipment, which performs certain elements of our proprietary manufacturing process using equipment designed by the developer. In 2019 and 2020, we entered into service and equipment purchase agreements with this partner. While commodity electroplating services are available from numerous alternate providers, we entered into these agreements due to the level of our collaboration to date with the partner in the refinement of certain proprietary processes we employ and our joint commitment to environmentally sound manufacturing minimizing toxic waste. We have relied on this partner’s services to meet our requirements for SM-ChiP production to date, but we expect to have fully-operational production capabilities on site. The initial planned installation dates for this equipment in 2021 were, in some cases, delayed due to a variety of factors including the effect of the global pandemic, with the current expectation that the line will be complete in 2023.
Product quality and reliability are critical to our success and, as such, we emphasize quality and reliability in our design and manufacturing activities. We follow industry best practices in manufacturing and are compliant with ISO 9001 certification standards (as set forth by the International Organization for Standardization). Our quality assurance practices include rigorous testing and, as necessary, burn-in and temperature cycling (i.e., extended operation of a product to confirm performance) of our products using automated equipment. Incoming components, assemblies, and other parts are subjected to several levels of inspection procedures, and we maintain robust data on our raw material inventories in order to support our quality assurance procedures.
Components and materials used in our products are purchased from a variety of domestic and international vendors. Generally, the global electronics supply chain continued to be announced throughout 2018.impacted by the COVID-19 pandemic in 2022. Lead times for delivery of certain raw materials remain extended. Most of these raw materials are available from multiple sources, whether directly from suppliers or indirectly through distributors, and, during 2022 we continued to opportunistically expand certain raw material inventories to offset the uncertainties associated with availability and lead times.
Certain Advanced Products and semiconductor devices used in our production are manufactured by a limited number of wafer foundries, with packaging and test services provided by a limited number of third parties. We expectrely on these wafer foundries and packaging and test providers for supply continuity of these critical semiconductor devices. Throughout the RFMmajority of 2022, the semiconductor test and packaging segment of the global electronics supply chain experienced well-publicized capacity constraints, and, as a result, we have continued to experience unpredicted delays in receipt of certain semiconductor components from our packaging and test vendors. To date, these delays have not had a material impact on our ability to meet customer delivery requirements. In response to current schedule uncertainties, we are seeking alternate providers of packaging and test services and may further increase inventory levels for these semiconductor components, when possible. Should these capacity constraints continue or worsen and we are unable to obtain the necessary volumes of required semiconductor components, we may not be able to meet delivery commitments for certain customers and may not be able to reduce delivery lead times for the foreseeable future. In the later part of 2022, the semiconductor industry experienced a downturn, and we believe the resulting reduction in orders on the industry will becomeserve to loosen supply chains, though specific supply constraints on certain components remain a meaningful element of our Power Component Design Methodology, as it represents a highly differentiated solution for enabling fully integrated power conversion and management in the most demanding applications, such as high performance computing and supercomputing.challenge.
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To date, we have not experienced material delays or reduced raw material availability as a result of trade disputes between the U.S. and China, including the imposition in 2018 of import tariffs under the provisions of Section 301 of the Trade Act of 1974 (19 U.S.C. § 2411) (“Section 301 Tariffs”) on certain Chinese goods imported into the United States. For the year ended December 31, 2022, costs associated with tariffs totaled approximately $10,201,000, an increase of 52.8% over the $6,678,000 in costs incurred for the year ended December 31, 2021. We continue to offerassess the first generation of VI Chip PRM, BCM, and VTM modules, in full (32.5 by 22.0 by 6.73 mm) and half (22.0 by 16.5 by 6.73 mm) sizes, targeting FPA implementations. These products remain compelling solutions for certain applications, notably in defense electronics, medical instrumentation, and test and measurement applications.
With the expansion of ChiP product families, we anticipate our sales of the first generation of VI Chips may be limited primarily to shipments to existing customers during the life cycles of the applications into which these products have been designed. However, we expect the life cycles of manyimpact of these costs and are actively evaluating alternative sources of raw materials. We also have filed “duty drawback” applications may continuewith U.S. Customs and Border Protection for several years.
During 2017, the Company discontinued the productionrecovery of tariffs paid on raw materials used to produce products we subsequently exported. We recovered $229,000 and sale of many power path management components, originally developed by our Picor subsidiary, having determined the volumes sold of these
circuit protection products no longer represented a compelling complement to the adoption and sale of our other advanced products. The revenues and profits associated with the sale of such components were not material to the Company’s consolidated results$676,000 for the years ended, December 31, 2017, 20162022 and 2015.
Annual revenue associated with the sale of advanced products, including the power path components referenced immediately above, represented approximately 33.1%, 24.2%, and 21.1% of the Company’s consolidated revenue for the years ended December 31, 2017, 2016,2021, respectively, however, we are not able to estimate the amount or timing of any additional recoveries, and 2015, respectively.there can be no assurance that there will be any additional recoveries.
Patents and Intellectual Property
AnOur competitive positioning has been, and will continue to be, supported by our long-standing commitment to research and development of power distribution architectures, power conversion technologies, advanced packaging and manufacturing, and innovative approaches to solving customer problems. Our research and development activities have resulted in important element of our strategy is to protect our competitive leadership with domestic and foreign patents and patent applications that coverprotecting our products and much of their enabling technologies. We believe our competitive leadership is further protected bytechnologies, as well as proprietary trade secrets associated with our use of certain components and materials of our own design as well as our significant experience withand proprietary manufacturing, packaging, and testing these complex devices.processes. We incurred approximately $60,594,000, $53,114,000, and $50,916,000 in research and development expenses in 2022, 2021, and 2020, respectively, representing approximately 15.2%, 14.8%, and 17.2% of revenues in 2022, 2021, and 2020, respectively.
We believe our patents affordintellectual property affords advantages by building fundamental and multilayered barriers to competitive encroachment upon key features and performance benefits of our principal product families. Our patents cover the fundamental switching topologies used to achieve the performance attributes of our converter product lines; converter array architectures; product packaging design; product construction; high frequency magnetic structures; and automated equipment and methods for circuit and product assembly.
As of December 31, 2017,2022, in the United States, we have been issued 98 total patents. These122 patents havehaving expirations scheduled between 20182023 and 2035. We also2040 and have filed a number of patent applications which are still pending, many of which are expected to issue as patents in the United States and certain countries of Europe and Asia, including applications that would extend the life of current patents.2023. We have vigorously protected our rights under these patents and will continue to do so. Although we believe patents are an effective way of protecting our technology, there can be no assurances our patents will prove to be enforceable in any given jurisdiction.
In addition to generating revenue from product sales, we seek to license our intellectual property. In granting licenses, we generally retain the right to use our patented technologies and manufacture and sell our products in all licensed geographic areas and fields of use. Licenses are granted and administered through our wholly-owned subsidiary, VLT, Inc., which is the assignee for our patents that may be subject to licensing. Revenues from licensing arrangements have not exceeded 10% of our consolidated revenues in any of the last three fiscal years.
CustomersHuman Capital Management
High-caliber employees are important to achieving Vicor’s mission of providing the highest performance power solutions to meet the requirements of the most demanding applications. In order to maintain leadership in power systems design in a highly competitive employment market, attracting and Backlog
The applicationsretaining the best team worldwide is critical. Accordingly, we offer compelling compensation and benefits, foster a culture of innovation in which our productsemployees are usedempowered to do (and are in the higher-performance, higher-power segments of the market segments we serve. With our legacy product lines, we serve customers concentrated in aerospacerewarded for) their best work, and aviation, defense electronics, industrial automation, industrial equipment, medical diagnostics, rail transportation, and test and measurement instrumentation. With our advanced product lines, we serve customers concentrated in the datacenter and supercomputer segments of the computing market, although we also target applications in aerospace and aviation, defense electronics, networking equipment, solid state lighting and signage, test and measurement instrumentation, and vehicles (notably in the autonomous driving, electric vehicle, and hybrid vehicle niches of the vehicle segment). With our strategic emphasis on larger, high-volume customers, we expectseek to experience a greater concentration of sales among relatively fewer customers.
For the years ended December 31, 2017, 2016 and 2015, NuPower Electronic, Ltd., our authorized distributor for China, accounted for approximately 13.0%, 16.4%, and 16.2% of net revenues, respectively, and our five largest customers represented approximately 35.2%, 26.5%, and 33.4% of net revenues, respectively.
International revenues,establish Vicor as a percentage of total revenues, were approximately 63.2%, 59.8%, and 60.0% in 2017, 2016, and 2015, respectively. Net revenues from customers in China, our largest international market, accounted for approximately 35.8% of total net revenues in 2017, approximately 32.1% in 2016, and approximately 34.2% in 2015, respectively. International sales have increased from historical levels primarily due to higher volumes of shipments to foreign ODMs and contract manufacturers, many of which are located in China, utilized by domestic and international OEMs. As we have substantially expanded our sales and customer support activities and resources internationally, particularly in Asia, we expect international sales to continue to increase as a percentage of total revenue. (See Note 16meaningful contributor to the Consolidated Financial Statements for additional information on our reporting segments).communities in which we operate, further strengthening the bonds between employees and the Company.
As of December 31, 2017,2022, we had a backlog1,088 full-time employees, of approximately $73,054,000, compared to $48,371,000 as of December 31, 2016. Backlog, as presented here, consists of orders for products for which shipment is scheduled within the following 12 months, subject to normal customer cancellation policies. A portion of our revenue in any quarter is, and will continue to be, derived from orders booked and shipped989 were in the same quarter. Over the past two years, the portion of sales bookedU.S. and shipped in the same quarter has represented less than one third of our quarterly revenue, as we typically only build products to customer specifications upon receipt and acceptance of a purchase order (i.e., we typically do not maintain significant inventories of finished goods of either legacy or advanced products).
The lead times between receipt and acceptance of an order and our shipment of the product continued to lengthen during 2017, reflecting overall conditions across the global electronics supply chain. As of December 31, 2017, we99 were quoting average lead times to customers of 14 weeks, up from averages, as of December 31, 2016, of four weeks for legacy products and eight weeks for advanced products. We do not expect current supply chain uncertainties to be resolved in the foreseeable future, allowing us to uniformly reduce lead times. Accordingly, we continue to build inventory levels for certain components and raw materials to offset the risks of supply chain uncertainties that might impact our ability to meet customer scheduling requirements.
Sales and Marketing
We reach and serve customers through several channels: a direct sales force; a network of independent sales representative organizations in North America and South America; independent, authorizednon-stocking distributors in Europe and Asia; and three authorized stocking distributors world-wide,Digi-Key Corporation, Future Electronics Incorporated, and Mouser Electronics, Inc. These channels are supported by regional TSCs, each offering application engineering and sales support for our channel partners. Domestic TSCs are located in: Andover, Massachusetts; Lombard, Illinois; and Santa Clara, California. International TSCs are located in: Beijing, China; Hong Kong, China; Shanghai, China; Shenzhen, China; Munich, Germany; Bangalore, India; Milan, Italy; Tokyo, Japan; Seoul, South Korea; Taipei, Taiwan (Republic of China); and Camberley, United Kingdom. Customers do not place purchase orders with TSCs, but do so directly with the Company or with our distributors. In Japan, customers place purchase orders with VJCL or authorized distributors.
Because of the technically complex nature of our products and the applications they address, we maintain an extensive staff of Field Applications Engineers to support our own sales and customer support activities, as well as those of our channel partners. Field Application Engineers, based in our TSCs, provide direct technical support worldwide by reviewing new applications and technical matters with our channel partners in support of existing and potential customers. Product Line Engineers, located in our Andover headquarters, support Field Application Engineers assigned to all of our TSCs.
Vicor also reaches customers through the electronic commerce capabilities of our website, www.vicorpower.com. Registered, qualified customers in the United States, Canada, and certain European countries are able to purchase selected products online. We intend to expand these capabilities to allow for higher-volume purchases.
Ourweb-based resources are an important element of our efforts to interact with and support customers. Within our website,PowerBenchTM is a workspace of tools and references allowing engineers to
select, architect, and implement power systems using Vicor’s products. During 2017, we continued to enhance our highly differentiatedWhiteboardTM tool, which allows users to configure and analyze their own power system designs or those from an extensive library of designs addressing a wide range of applications. Users can modify the operating condition for each component of their design to match the intended application and perform efficiency and loss analysis of individual components and the full power system. We are aggressively expanding the range and capabilities of engineering tools we make available online to customers and prospective customers.
We generally sell our products on the basis of our standard terms and conditions, and we most commonly warrant our products for a period of two years. Effective January 1, 2017, we extended the warranty period to three years for a range of H Grade, M Grade, and MI FamilyDC-DC products sold after that date. In a limited number of circumstances, we have entered into supply contracts with certain high-volume customers calling for extended warranty terms. With our distribution partners, we also enter into contracts providing for our product warranties to transfer to the end customer upon final sale of our product(s) by the distributor.
Manufacturing, Quality Assurance, and Supply Chain Management
Our manufacturing facilities are located in Andover, Massachusetts, where we are headquartered. Products designed and sourced by our Picor subsidiary, given its fabless model, are manufactured, packaged, and tested by third party contractors in the United States and Asia.
Our primary manufacturing processes consist of assembly of electronic components onto printed circuit boards; automatic testing of components; wave, reflow and infrared soldering of assembled components; encapsulation or over-molding of converter subassemblies and assemblies; final environmental stress screening of certain products; and product inspection and testing using automated equipment. These processes are largely automated, but their labor components require relatively high levels of skill and training.
We continue to make investments in automated manufacturing equipment, particularly for our ChiP modules. Based on current estimates of legacy and advanced product manufacturing volumes and our capacity requirements, we do not expect to incur capital expenditures during 2018 significantly higher than we incurred during recent years. However, we have stated publicly our intent to significantly expand our production capabilities through the construction of a new manufacturing facility, dedicated to the ChiP platform. During the fourth quarter of 2017, we concluded our original plan, to construct a facility of approximately 75,000 to 100,000 square feet, starting in 2018, would not be functional in time to meet our short-term requirements or of sufficient scale to meet our longer-term forecast of capacity requirements. As such, we revised our expansion plan at that time, focusing on construction of a larger facility, roughly equal to our current square footage, to meet longer-term forecast capacity requirements. We do not yet have a targeted date for breaking ground on this larger facility, but we anticipate doing so by early 2019.
As stated above, we introduced theSM-ChiP in 2017. This surface mount variant of the ChiP platform requires a number of process steps not included in the manufacture of a through-hole ChiP module. To date, we have relied on several third party contractors to perform such steps in relatively low volumes, thereby limiting our ability to scale production and appropriately control quality and costs. In December 2017, we entered into a production agreement with a highly sophisticated contractor capable of delivering the short term volumes expected, while meeting our quality and cost requirements. We anticipate the agreement will enable us to meet our forecast needs forSM-ChiP production until our planned manufacturing facility is fully functional.
We pursue a manufacturing strategy based upon production flexibility and the continuous improvement of product quality, volume throughput, and reduced manufacturing costs. Product quality and reliability are critical to our success and, as such, we emphasize quality and reliability in our design and manufacturing activities. We follow industry best practices in manufacturing and are compliant with ISO 9001 certification standards (as set forth by the International Organization for Standardization). Our quality assurance practices include rigorous testing and, as necessary,burn-in and temperature cycling (i.e., extended operation of a product to confirm
performance) of our products using automated equipment. Incoming components, assemblies, and other parts are subjected to several levels of inspection procedures, and we maintain robust data on our raw material inventories in order to support our quality assurance procedures.
Components and materials used in our products are purchased from a variety of domestic and international vendors. The global electronics supply chain has been slowed due to capacity constraints, among other influences, and the lead times for delivery of many of the raw materials required for the manufacture of our products substantially lengthened during 2017. Most of these raw materials are available from multiple sources, whether directly from suppliers or indirectly through distributors, and during 2017 we opportunistically expanded certain raw material inventories to offset the uncertainties associated with lengthening lead times.
Our Picor subsidiary, given its fabless model, relies on a limited number of wafer foundries and providers of packaging and test services. Our proprietary switching controllers were designed by and are sourced through Picor, which relies on these wafer foundries and service providers for supply continuity and sufficiency of these critical semiconductor devices. Similarly, many of the proprietary semiconductors we use, for which we have either a manufacturing license or ownership of the designs, are sourced from third parties through Picor.
See Note 16 — Segment Information to the Consolidated Financial Statements for certain financial information associated with the operations and manufacturing activities of our business segments.
Employees
As of December 31, 2017, we had 970 full time employees and 10 part time employees. The number of part time employees varies throughout any year, largely based on the number of production shifts we may require at a particular time, as well as the number of college and graduate students participating in short termco-op programs.locations. None of our employees are subject torepresented by a labor union or covered by a collective bargaining agreement.
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We recruit from colleges and universities, with a focus on specific engineering disciplines. In collaboration with certain universities, we maintain a student “Co-Op” program, whereby qualifying undergraduate and graduate students work at our Andover facilities for one or two semesters, receiving course credit towards their graduation. In recent years, we have had as many as approximately two dozen participants per semester, with a substantial percentage of participants receiving offers of full-time employment.
Our compensation program is designed to attract and reward talented individuals who possess the skills necessary to support our business objectives, assist in the achievement of our strategic goals, and create long-term value for our stockholders. We provide employees with compensation packages that include a competitive base salary or wage rate and benefits such as life and health (medical, dental, and vision) insurance, supplemental insurance, paid time off, paid parental leave, and a 401(k) plan (with Company match). Generally (and subject to local laws), new employees are awarded non-qualified options for the purchase of the Company’s common stock. Depending on an employee’s role, he or she may be eligible for annual incentive bonuses and periodic awards of non-qualified options based on the performance of the Company and that of the employee. We believe a compensation program with appropriate long-term incentives aligns employee and stockholder interests in increasing the value of the Company.
We emphasize and encourage employee development and training. To empower employees to reach their potential, we provide a range of development programs and opportunities, including in-house training programs and tuition reimbursement for those pursuing outside certification or degrees.
We seek to support the communities in which we operate and believe this commitment contributes to our continued success depends, in part, on our abilityefforts to attract and retain qualified personnel. Although there is strong demandemployees. We also partner with a range of non-profit organizations and have had notable success in our collaboration for qualified personnel, we have not to date experienced meaningful difficultyover two decades with the Crest Collaborative of Methuen, MA, a local advocacy agency, in attractingproviding enriching employment opportunities for individuals with disabilities.
For more information on our employee and retaining sufficient engineering and technical personnel to meetcommunity initiatives, please see our needs (see Part I, Item 1A — “Risk Factors”)Corporate Social Responsibility webpage at www.vicorpower.com/about-the-company/corporate-social-responsibility.
Available Information
We maintain a website with the address www.vicorpower.com and make available free of charge through this website our Annual Reports onForm 10-K, Quarterly Reports onForm 10-Q, Current Reports onForm 8-K, and amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, as soon as reasonably practicable after we electronically file such material with, or furnish such material to, the SEC. We also make available on our website our Code of Business Conduct, as well as the charters for the Audit and Compensation Committees of our Board of Directors.
While our website sets forth extensive information, including information regarding our products and the applications in which they may be used, such information is not a part of, nor incorporated by reference into, this Annual Report onForm 10-K and shall not be deemed “filed” under the Exchange Act.
ITEM 1A. | RISK FACTORS |
This Annual Report onForm 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act. Actual results could differ materially from those projected in the forward-looking statements as a result of, among other factors, the risk factors set forth below.
Operational Risks
Our future operating results are difficult to predict and are subject to fluctuations.
Our operating results, including revenues, gross margins, operating expenses, and net income (loss), have fluctuated on a quarterly and annual basis. Our strategic focus on higher volume opportunities with OEMs, ODMs, and contract manufacturers has caused the impactactions of a relative few such customers to disproportionately influence our operating results. Unanticipated delays in purchase orders from, and shipments to, thesecertain large customers have resulted in lower revenue, contributingthan expected revenue. Similarly, our strategic focus on the development of market-leading technologies and manufacturing processes, often implemented in proprietary semiconductor circuitry, materials, and packaging, has exposed the Company to ourthe risks and costs of delays in such development and the use of a relatively few number of suppliers of proprietary circuits and materials or providers of proprietary services.
Despite recent operating losses. Despite our results for the fourth quarter of 2017,profitability trends, we cannot predict when, or if we will return tomaintain sustained profitability. Our future operating results may be materially influenced by a number of factors, many of which are beyond our control, including:
• | changes in demand for our products and for our customers’ end-products incorporating our products, as well as our ability to respond efficiently to such changes in demand, including changes in delivery lead times and the volume of product for which orders are accepted and the product shipped within an individual quarter; |
our ability to manage our supply chain, inventory levels, and our own manufacturing capacity or that of third-party partners, particularly in the event of delays or cancellation of significant customer orders;orders or in the event of delays or cost increases associated within our supply chain;
our ability to effectively coordinate changes in the mix of products we manufacture and sell, while managing our ongoing transition in organizational focus and manufacturing infrastructure to Advanced Products from legacy products to advanced products;Brick Products;
our ability to provide and maintain a high level of sales and engineering support to an increasing number of demanding, high volume customers;
the ability of our third party suppliers and service subcontractors and manufacturers to supplyprovide us with sufficient quantities of high quality products, components, and/or services on a timely and cost-effective basis;
the effectiveness of our ongoing efforts to continuously reduce productmanufacturing costs per unit and manage operating expenses;
our ability to absorb and mitigate the impact of inflation on our operating results;
our ability to utilize our manufacturing facilities and personnel at efficient levels, maintaining sufficient production capacity and necessary manufacturing yields;
our ability to plan, schedule, and execute capacity expansion, including the anticipated start up in 2023 of approximately 90,000 square feet to our Andover manufacturing facility;
the timing of our new product introductions and our ability to meet customer expectations for timely delivery of fully qualified products;
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the timing of new product introductions or other competitive actions (e.g., product price reductions) by our competitors;
the ability to hire, retain, and motivate qualified employees to meet the demands of our customers;
intellectual property disputes;
litigation-related costs;costs, which may be significant;
adverse economic conditions in the United StatesU.S. and those international marketsforeign countries in which we operate;operate, as well as our ability to respond to unanticipated developments, such as the imposition of tariffs or trade restrictions;
adverse budgetary conditions within the U.S. government, particularly the Department of Defense, which continue to influence spending on current and anticipated programs into which we sell or anticipate to sell our products;
costs and consequences of disruption by third-parties of our global computer network and related resources; and
• | the effects of events outside of our control, including |
As a result of these and other factors, we cannot assure you we will not experience significant fluctuations in future operating results on a quarterly or annual basis. In addition, if our operating results do not meet the expectations of investors, the market price of our Common Stock may decline.
Our stock price has been volatile and may fluctuate in the future.
Because of the factors set forth below, among others, the trading price of our Common Stock has fluctuated and may continue to fluctuate significantly:
We do not actively communicate with investment analysts and, as a consequence, we are not aware of earnings estimates or supporting investment research coverage of Vicor and our Common Stock. While we seek to be transparent in our financial reporting, public statements, and related disclosures, the absence of research coverage may limit investor interest in our Common Stock. Because our operating results have fluctuated on a quarterly and annual basis, investors may have difficulty in assessing our current and future performance, particularly in light of our strategic transition, as discussed above.
In the past, we have declared and paid cash dividends on our Common Stock. The payment of dividends is based on the periodic determination by our Board of Directors that we have adequate capital to fund anticipated operating requirements and that excess cash is available for distribution to stockholders via a dividend. We have no formal policy regarding dividends and, as such, investors cannot make assumptions regarding the possibility of future dividend payments nor the amounts and timing thereof. As of December 31, 2017, we have no plans to declare or pay a cash dividend.
The ownership of our Common Stock is concentrated between Dr. Vinciarelli and a limited number of institutional investors. As of December 31, 2017, Dr. Vinciarelli owned 9,861,605 shares of our Common Stock, as well as 11,023,648 shares of our unregistered Class B Common Stock (which may only be sold or transferred after required conversion, on aone-for-one basis, into registered shares of Common Stock), together representing 54.0% of our total issued and outstanding shares on a fully converted basis. Accordingly, the market float for our Common Stock and average daily trading volumes are relatively small, which may negatively impact investors’ ability to buy or sell shares of our Common Stock in a timely manner.
Dr. Vinciarelli owns 93.8% of the issued and outstanding shares of our Class B Common Stock, which possess 10 votes per share. Dr. Estia J. Eichten, a member of our Board of Directors, owns the majority of the balance of the Class B Common Stock issued and outstanding. As such, Dr. Vinciarelli, controlling in aggregate 82.5% of our outstanding voting securities, has effective control of our governance.
Global economic uncertaintyand political uncertainties, notably those associated with trade policy, could materially and adversely affect our business and consolidated operating results.
DespiteFor the breadthyears ended December 31, 2022, 2021, and 2020, revenues from sales outside the United States were 67.6%, 67.0%, and 64.4%, respectively, of global economic growthour total revenues. Net revenues from customers in 2017,China and Hong Kong, accounted for approximately 18.8% in 2022, approximately 27.5% in 2021, and approximately 31.4% in 2020, respectively, of total net revenues. We expect international sales, notably in Asia, will continue to be a significant component of total sales, since many of the OEMs and ODMs we target as customers are domiciled offshore, and such customers increasingly utilize offshore contract manufacturers, and rely upon those contract manufacturers to place orders directly with us. We also expect international revenue from our distributors to continue to increase.
To date, we have not experienced material delays or reduced raw material availability as a result of trade disputes between the U.S. and China, including the imposition in 2018 of import tariffs under the provisions of Section 301 of the Trade Act of 1974 (19 U.S.C. § 2411) (“Section 301 Tariffs”) on certain marketsChinese goods imported into the United States. However, the costs of Section 301 Tariffs have had a material impact on our profitability. For the year ended December 31, 2022, Section 301 Tariffs totaled approximately $10,201,000, an increase of 52.8% over the $6,678,000 incurred for 2021. For 2022, 2021 and geographies2020, Section 301 Tariffs totaled approximately 2.6%, 1.9% and 2.4%, respectively, of annual revenue, representing a material reduction in our gross profit margin as a percentage of annual revenue.
We continue to evaluate alternative sources of raw materials, and in 2020, 2021, and 2022 we serve performed below our expectations, asqualified non-Chinese vendors for certain high-volume raw materials and components. We anticipate a reduction in Section 301 Tariffs we incur during 2023, given the levelongoing transition to non-Chinese vendors, but we are not able to estimate the amount of such reduction, if any. Similarly, we cannot predict if or when the U.S. government may reduce or eliminate Section 301 Tariffs.
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We also have filed “duty drawback” applications with U.S. Customs and Border Protection for the recovery of Section 301 Tariffs paid on raw materials and components used to produce products we subsequently exported. We recovered $229,000 for the year ended December 31, 2022, however, we are not able to estimate the amount or timing of capital spending, particularly spending associated with publicly funded projects, remained uncertainany additional recoveries, and difficultthere can be no assurance that there will be any additional recoveries.
In 2019, China implemented reciprocal inbound tariffs of up to forecast. Disruption25% on products exported from the U.S., including all of our products. We do not believe these tariffs, incurred by our Chinese and further deteriorationHong Kong distributors, have had a material impact on the unit volume or dollar value of global economicour exports to China, which we attribute to the differentiated performance of our products in market segments in which we have an established presence. However, we cannot predict the long-term influence of these tariffs on our competitive position in China, especially in light of the increased pressure by the Chinese government on Chinese manufacturers to meet the “China 2025” mandate for targeted development of Chinese technology sectors. Under this mandate, domestic technology vendors are explicitly favored over foreign vendors such as Vicor. We believe we experienced reduced demand in certain segments (e.g., rail), notably in 2019, reflecting the significant role of state-owned enterprises in those segments. We regularly assess the competitive position and profitability of certain product lines sold in China and Hong Kong, and may choose to reduce our product offerings if competitive conditions includingand reduced profitability so warrant.
Uncertain macroeconomic conditions, extended trade disputes, and the relative strength of the U.S. Dollar and rising interest rates, may reduce customerend-demand for our customers’ products and, in turn, their purchases of our products, thereby reducing our revenues and earnings. In addition, such adverse conditions may, among other things, result in increased price competition for our products, notably in Brick Product categories, increased risk of excess and obsolete inventories, increased risk in the collectability of our accounts receivable from our customers, increased risk in potential reserves for doubtful accounts and write-offs of accounts receivable, and higher operating costs as a percentage of revenues.
In October 2022, the U.S. Government instituted export controls of certain semiconductor technologies to China, and subsequent to that action, the U.S. Department of Commerce added certain China-based companies to its entity list, which precludes shipment of semiconductor products to these companies without a license. These restrictions could cause a reduction in demand for our products from contract manufacturing customers that manufacture for high performance compute OEMs, as well as a reduction in exports to customers on the entity list. We compete with many companies possessing far greater resources.
Some of our competitors have far greater financial, manufacturing, technical, and sales and marketing resources than we possess or have access to. We compete with domestic and foreign manufacturers of integrated power supplies and power conversion components. Withcannot be certain what the growth of our advanced product lines, we increasingly are competing with global manufacturers of power management products with far larger organizations and broader semiconductor-based product lines. Competition is generally based on product pricing, availability and capacity, the design and quality of products, and product performance, features and functionality, with the relative importanceultimate impact of these factors varying among products, markets, and customers. Existing or new competitors may develop products or technologies that more effectively address the demands ofexport controls will be on our customers and markets with enhanced performance, features and functionality, or lower cost. If we fail to develop and commercialize leading-edge technologies and products that are cost effective and maintain high standards of quality, and introduce them to the market on a timely basis, our competitive positionbusiness, financial condition, and results of operations could be materially adversely affected.operations.
Our future success depends upon our ability to develop and market differentiated, leading-edge power conversion products for larger customers, potentially contributing to lengthy product development and sales cycles that may result in significant expenditures before revenues are generated. Our future operating results are dependent on the growth in such customers’ businesses and on our ability to profitably develop and deliver products meeting customer requirements.
The power system industry and the industries in which many of our customers operate are characterized by intense competition, rapid technological change, quickened product obsolescence, and price erosion for mature products, each of which could have an adverse effect on our results of operations. We are following a strategy based on the development of differentiated advanced products addressing what we believe to be the long-term limitations of traditional power architectures, while at the same time sustaining sales and profitability of legacy
products. The development of new, innovative products is often a complex, time-consuming, and costly process involving significant investment in research and development, with no assurance of return on investment. Although we have introduced many products over the past three years, there can be no assurance we will be able to continue to develop and introduce new and improved products in a timely or efficient manner. Similarly, there can be no assurance recently introduced or to be developed products will achieve customer acceptance.
Our future success depends substantially upon customer acceptance of our innovative products. As we have been in the early stages of market penetration for these products, we have experienced lengthy periods during which we have focused our product development efforts on the specific requirements of a limited number of large customers, followed by further periods of delay before meaningful purchase orders are received. These lengthy development and sales cycle times increase the possibility a customer may decide to cancel or change product plans, which could reduce or eliminate our sales to that customer. As a result, we may incur significant product development expenses, as well as significant sales and marketing expenses, before we generate the related revenues for these products. Furthermore, we may never generate the anticipated revenues from a product after incurring such expenses if our customer cancels or changes its product plans.
We continue to shift ourgo-to-market strategy to focus on larger opportunities with global OEMs, ODMs, and contract manufacturers. Our growth is therefore dependent on: the pace at which these OEMs and ODMs develop their own new products; the acceptance of our products by these OEMs and ODMs; and the success of the customers’ products incorporating our advanced products. If we fail to anticipate changes in our customers’ businesses and their changing product needs or do not successfully identify and enter new markets, our results of operations and financial position could be negatively impacted. We cannot offer any assurance the markets we serve will grow in the future, our legacy and advanced products will meet the respective market requirements, or we can maintain adequate gross margins or operating profits in these markets.
Our operating results recently have been influenced by a limited number of customers, and our future results may be similarly influenced.
Since the introduction of our advanced products,Advanced Products, the Company has derived a substantial portionthe majority of its revenue from advanced productsAdvanced Products in any given year from either one customer or a limited number of customers, whether through sales directly to the customercustomer(s) or indirectly to the customer’scustomers’ contract manufacturers. This concentration of revenue is a reflection of the relatively early stage of adoption of the advanced productsAdvanced Products and the associated technologies and power system architectures, and our targeting of market leading innovators as initial customers.
Our current sales and marketing efforts are focused primarily on accelerating the adoption of advanced productsAdvanced Products by a diversified customer base, across a number of identified market segments. However,While we believe we have been successful to date in diversifying our Advanced Products customer base beyond early adopters, we cannot assure you our strategy will be successful and suchfurther diversification of customers will be achieved.
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We may not be able to procure necessary key components or raw materials, or we may purchase excess raw material inventory or unusable inventory, which increases the risk of reserve charges to reduce the value of any inventory deemed excess or obsolete, thereby reducing our profitability.
The power systems industry, and the electronics industry as a whole, can be subject to pronounced, lengthy business cycles and otherwise subject to sudden and sharp changes in demand. Our success, in part, is dependent on our ability to forecast and procure inventories of components and materials to match production schedules and customer delivery requirements. Many of our products require raw materials supplied by a limited number of vendors and, in some instances, a single vendor. During certain periods, key components or materials required to build our products may become unavailable in the timeframe required for us to meet our customers’ needs. Our inability to secure sufficient raw materials to manufacture products for our customers has reduced, in the past, our revenue and profitability and could do so again. Over the course of the last few years, there have been circumstances where supply disruptions, often associated with the global pandemic, have impacted our results.
We may choose, and have chosen, to mitigate this riskour inventory risks by increasing the levels of inventory for certain components and materials. Such increased inventory levels may increase the potential risk for excess or obsolete inventories, should our forecasts fail to materialize or if there are negative factors impacting our customers’ end markets, leading to order cancellation. If we identify excess
inventory or determine certain inventory is obsolete (i.e., unusable), we likely will record additional inventory reserves (i.e., expenses representing thewrite-off of the excess or obsolete inventory), which could have an adverse effect on our gross margins and on our operating results.
We rely on third-party vendors and subcontractors for supply of components, assemblies, and services and, therefore, cannot control the availability or quality of such components, assemblies, and services.
We depend on third-party vendors and subcontractors to supply components, assemblies, and services used into manufacture our products, some of which are supplied by a single vendor, andvendor. We have experienced shortages of certain semiconductor components and delays in service delivery, have incurred additional and unexpected costs to address the shortages and delays, and have experienced our own delays in production and shipping.
If suppliers or subcontractors cannot provide their products or services on time or to our specifications, we may not be able to meet the demand for our products and our delivery times may be negatively affected. In addition, we cannot directly control the quality of the products and services provided by third parties. In order to expand revenue, we likely will need to identify and qualify new suppliers and subcontractors to supplant or replace existing suppliers and subcontractors, which may be a time-consuming and expensive process. In addition, any qualification of new suppliers may require customers of our products utilizing products and services from new suppliers and service providers to undergo are-qualification process. Such circumstances likely would lead to disruptions in our production, increased manufacturing costs, delays in shipping to our customers, and/or increases in prices paid to third parties for products and services.
As previously disclosed, we rely on a third-party partner to provide certain manufacturing steps associated with a proprietary Advanced Products packaging process. This process, developed with the third-party partner, involves complex electroplating, performed on equipment developed by the third-party partner. An important, differentiating benefit of this proprietary process is that it does not generate problematic effluent, resulting in an environmentally safe approach to electroplating, with minimal waste. We have entered into agreements with the third-party partner for production and transfer of technologies and process know-how, including the purchase of the enabling equipment developed by the third-party partner.
To date, we have successfully relied upon this third-party partner to perform these manufacturing steps, although we have experienced delivery delays and higher costs associated with the third-party partner’s volume constraints. This experience has caused us to establish our own high-volume capabilities in-house, modifying, in 2020, our construction plans to accommodate a dedicated, on-premises electroplating process facility. We expect
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to rely on our third-party partner for production requirements through the installation and qualification for production of the enabling equipment in the addition to our Andover manufacturing facility. We may also rely on our third-party partner in the future for surge capacity requirements.
If the third-party partner cannot deliver sufficient volumes to us, if we are exposedunable to foreign economic, political,complete our facility expansion in a timely manner, or if we are unable to effectively implement the new manufacturing processes, we may not be able to achieve the expected volumes or production capacity and, other external risks.as a result, may experience reduced manufacturing yields, delays in product deliveries, and/or increased expenses, any of which could negatively influence our financial condition and results of operations.
For the years ended December 31, 2017, 2016,Extended interruption of production at our manufacturing facility in Andover, Massachusetts, could materially reduce our revenue, increase our costs, and, 2015, revenues from sales outside the United States were 63.2%, 59.8%, and 60.0%, respectively,potentially, negatively impact our customers.
The majority of our total revenues. Net revenues frompower components and power systems, whether for direct sale to customers or for sale to our subsidiaries for incorporation into their respective products, are manufactured in China, our largest international market, accounted for approximately 35.8%Andover facility.
Substantial damage to our existing manufacturing facility due to fire, natural disaster, power loss, or other events, including disruptive events associated with our ongoing expansion of total net revenuesthe facility, could interrupt manufacturing, contributing to lengthy shipment delays that could have a negative impact on customers and, in 2017, approximately 32.1%turn, our customer relationships. While we have never experienced any meaningful interruption of manufacturing in 2016, and approximately 34.2% in 2015, respectively. We expect international sales will continueour history, any prolonged inability to beutilize all or a significant componentportion of total sales, since many of the OEMs and ODMs we target as customers are domiciled offshore, increasingly utilize offshore contract manufacturers, and rely upon those contract manufacturers to place orders directly with us. We also expect international revenue from our distributors to increase.
While our currency risks are limited, as our sales are denominated in U.S. Dollars worldwide, with the exception of sales by VJCL (and a residual volume of sales of Vicor B.V.), our international activities expose us to special risks including, but not limited to, regulatory requirements, economic and political instability, transportation delays, foreign currency controls, trade barriers and tariffs, and unfavorable shifts in foreign exchange rates. In addition, our international customers’ business may be negatively affected by economic sanctions, as were imposed in 2014 by the U.S. Department of the Treasury against certain Russian entities to which we had sold products in the past. Sudden or unexpected changes in the foregoingAndover facility could have a material adverse effect on our results of operations.
An extended delay in completing our capacity expansion could have a material adverse effect on our results of operations and negatively impact our ability to execute on our Advanced Products strategy.
We have been making and will continue to make capital investments for the expansion of manufacturing capacity for the production of Advanced Products at our Andover facility.
The addition to our facility includes installation of certain equipment and implementation of certain manufacturing steps associated with Advanced Products manufacturing processes we currently outsource to a third-party partner, as described above. These manufacturing processes are associated with a proprietary packaging approach requiring complex electroplating processes using environmentally safe technologies. Given our volume expectations and the proprietary elements of these processes, we have chosen to accelerate the development of a captive capacity that we expect will exceed the total capacity available from our third-party partner. Today, we own and operate, with our employees, certain equipment on premises at our third-party partner and, as such, have established a level of operational competence we believe will enable us to successfully install and implement these manufacturing processes internally. However, we may experience delays and incur additional costs during 2023 in implementing the manufacturing processes, given the complexity of the installation and qualification of the equipment. An extended delay in completing our capacity expansion (and implementing new manufacturing processes) could have a material adverse effect on our results of operations and negatively impact our ability to execute on our Advanced Products strategy.
Once the facility expansion has been completed and all manufacturing equipment installed and qualified for volume production, we may not achieve the anticipated production volumes and operating efficiencies. As we qualify equipment and bring production online, any delay in achieving anticipated operating efficiencies associated with added capacity may cause manufacturing costs to be higher than expected for some period of time, thereby potentially negatively influencing our operating and financial results.
Disruption of our information technology infrastructure could adversely affect our business.
We depend heavily on our computing and communications infrastructure to achieve our business objectives, particularly for our financial and operational record keeping, our computer-integrated manufacturing processes controlling all aspects of our operations in our manufacturing facility in Andover, Massachusetts, our public
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website, and our email communications. We also rely on trusted third parties to provide certain infrastructure support services to us. If we or a third party service provider encounter a problem that impairs this infrastructure, the resulting disruption could impede the accuracy and timeliness of our financial reporting processes, and our ability to record or process customer orders, manufacture, and ship in a timely manner, or otherwise carry on business in the normal course. Our image and reputation also could be negatively affected by such circumstances. Additionally, we could incur material liabilities associated with the harm such impairment and disruption of our infrastructure may have on third parties including those associated with the unintentional release of confidential information and or sensitive data. While we carry business interruption insurance to offset financial losses from such an interruption, and cyber-risk insurance to address potential liabilities from such circumstances, such insurance may be insufficient to compensate us for the potentially significant costs or liabilities incurred. Any such events, if prolonged, could have a material and adverse effect on our operating results and financial condition.
On December 24, 2019, elements of our network were compromised by a form of malware referred to as “ransomware.” In close collaboration with our service provider, we had restored computing and network functions to full operational status by the afternoon of December 27, 2019. Subsequent analysis by management and the forensic specialists we retained allowed us to conclude the incident had no material impact on our operations, financial condition and performance, or the integrity of our financial reporting systems.
Our systems are designed to protect us from network security incidents and associated disruptions. However, as evidenced by the ransomware incident described above, we remain vulnerable to computer viruses and related software-based challenges to the integrity of our systems, unauthorized or illegal break-ins, or malicious network hacking, equipment or software sabotage, acts of vandalism to our systems by third parties, and, in the extreme, forms of cyber-terrorism. Our security measures or those of our third party service provider detected, but did not prevent, the network security incident and the associated disruptions described above and may not detect or prevent such incidents and disruptions in the future.
The Company provides confidential information to third party business partners and/or receives confidential information from third party business partners in certain circumstances, when doing so is necessary to conduct business, particularly with departments of agencies of the U.S. Government. While we employ confidentiality agreements to protect other sensitive information (i.e., information not considered CUI), our own security measures or those of our third party service providers may not be sufficient to protect such information in the event the computing infrastructure of these third party business partners is compromised. Security incidents involving our computing and communications infrastructure or that of a third party business partner or service provider could result in the misappropriation or unauthorized release of confidential information belonging to us or to our employees, partners, customers or suppliers, which could result in an interruption to our operations, result in a violation of privacy or other laws, expose us to a risk of litigation, or damage our reputation, any of which could have a material and adverse effect on our operating results and financial condition. Our network segmented NIST 800-171 environment was not impacted by the December 2019 ransomware incident, but there can be no assurance that it will not be impacted by similar incidents in the future, which could have a material and adverse effect on our operating results and financial condition for the reasons described above.
We may face legal claims and litigation from product warranty or other claims that could be costly to resolve.
We have in the past and may in the future encounter legal action from customers, vendors, or others concerning product warranty or other claims. We generally offer a two-year warranty from the date title passes from us for all of our standard products. The warranty period is three years for a range of H Grade, M Grade and MI Family DC-DC legacy products. In a limited number of circumstances, we have entered into supply contracts with certain high-volume customers calling for extended warranty terms. With our distribution partners, we also enter into contracts providing for our product warranties to transfer to the end customer upon final sale of our product(s) by the distributor.
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We invest significant resources in the testing of our products; however, if any of our products contain defects, we may be required to incur additional development and remediation costs, pursuant to our warranty policies. These issues may divert our technical and other resources from other product development efforts and could result in claims against us by our customers or others, including liability for costs associated with product returns, which may adversely influence our operating results. If any of our products contain defects, or have reliability, quality, or compatibility problems, the Company’s reputation may be damaged, which could make it more difficult for us to sell our products to existing and prospective customers and could adversely affect our operating results. We are currently party to a limited number of supply agreements with certain customers contractually committing us to warranty and indemnification requirements exceeding those to which we have been exposed in the past. While we maintain insurance coverage for such exposure, we could incur significant financial cost beyond the limits of such coverage, as well as operational disruption and damage to our competitive position and image if faced with a significant product warranty or other claim.
Our ability to successfully implement our business strategy may be limited if we do not retain our key personnel and attract and retain skilled and experienced personnel.
Our success depends on our ability to retain the services of our executive officers. The loss of one or more members of senior management could materially adversely influence our business and financial results. In particular, we are dependent on the services of Dr. Vinciarelli, our founder, Chairman of the Board, Chief Executive Officer, and President. The loss of the services of Dr. Vinciarelli could have a material adverse effect on our development of new products and on our results of operations. In addition, our research and development and marketing and sales activities depend on highly skilled engineers and other personnel with technical skills, who are in high demand and are difficult to replace. Our continued operations and growth depend on our ability to attract and retain skilled and experienced personnel in a very competitive employment market. If we are unable to attract and retain such employees, our ability to successfully implement our business strategy may be harmed. The labor market for skilled and unskilled workers has been very tight over the past year, and at times we have experienced longer than normal times in recruiting necessary resources, and have had to increase compensation to attract and retain employees.
Our operations could be affected by the complex laws, rules and regulations to which our business is subject, and political and other actions may adversely impact our business.
We are subject to laws and regulations domestically and worldwide, affecting our operations in areas including, but not limited to, intellectual property ownership and infringement; taxes; import and export requirements and tariffs; anti-corruption; business acquisitions; foreign exchange controls and cash repatriation restrictions; data privacy requirements; employment; product regulations; cybersecurity; environmental, health, and safety requirements; and climate change. Compliance with such requirements can be onerous and expensive and may impact our business operations negatively. Should any of these laws, rules and regulations be amended or expanded, or new ones enacted, we could incur materially greater compliance costs and/or restrictions on our ability to manufacture our products and operate our business.
Government actions, including trade protection and national security policies of U.S. and foreign government bodies, such as tariffs, import or export regulations, including deemed export restrictions, trade and economic sanctions, decrees, quotas or other trade barriers and restrictions could affect our ability or the ability of our customers and end users to sell products in certain countries and thereby have a material adverse effect on our business, revenue and results of operations. For example, in 2022, the U.S. government imposed additional export controls on certain advanced computing semiconductor chips (chips, advanced computing chips, integrated circuits (“ICs”)), certain semiconductor manufacturing items and transactions for certain IC end use, including supercomputer end uses. Furthermore, the U.S. government has continued to expand, the number of foreign entities on the Entity List (a restricted party list that imposes additional licensing requirements on shipments to listed parties). These recent export controls are, in part, intended to restrict the ability of the People’s Republic of China to obtain advanced computing chips, develop and maintain supercomputers, and
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manufacture advanced semiconductors. The implementation, interpretation and impact on our business of these rules and other regulatory actions taken by the U.S. government is uncertain and evolving, and these rules, other regulatory actions or changes, and other actions taken by the governments of either the U.S. or China, or both, that have occurred and may occur in the future could materially and adversely affect our business, revenue and results of operations.
While we have policies and procedures in place to ensure compliance with sanctions and trade restrictions and other applicable laws, our employees, contractors, partners, and agents may take actions in violation of such policies and applicable law, for which we may be ultimately held responsible. Intentional and unintentional violations of these laws can result in fines and penalties; criminal sanctions against us, our officers, or our employees; prohibitions on the conduct of our business; and damage to our reputation, any of which could have a material and adverse impact on our business, operating results and financial condition.
Global economic uncertainty associated with the COVID-19 pandemic could materially and adversely affect our business and consolidated operating results.
During 2020, global economic conditions varied by region, and were rapidly and significantly influenced by the COVID-19 pandemic. The COVID-19 pandemic and the response of governments worldwide to contain its spread negatively influenced our financial and operational performance for all four quarters of 2020, and in subsequent years including in 2022, and future developments may have a potentially more substantial negative influence on our financial and operational performance over an unknown period of time.
Our deliveries to and orders from North American industrial and defense electronics customers declined sharply at the onset of the pandemic, during the first quarter of 2020, given reduced manufacturing activity and broad uncertainty. The second half of 2020 saw a recovery of North American activity to pre-pandemic levels. Further growth continued through 2021. In 2022, our revenue increased but the order rate declined.
Trading conditions in China (inclusive of Hong Kong), had deteriorated through 2019 due to macroeconomic and trade-related uncertainties. At the beginning of 2020, trading conditions were significantly further affected by the COVID-19 pandemic, with much of the country’s manufacturing disrupted for January and February 2020. By late March 2020, after aggressive measures to contain the coronavirus, the Chinese government quickly implemented economic stimulus measures, and we experienced a rapid recovery of demand from China and Hong Kong. This demand was sustained through the first part of 2021 before subsiding in late 2021. As addressed in our discussion herein of market characteristics, exports to China and Hong Kong for 2022 totaled approximately $75,194,000, representing approximately 18.8% of total revenue for the year, and a reduction from the prior year. It’s not possible for us to predict whether this market will rebound as the Chinese government has eliminated their zero-COVID policy.
We have taken action to protect the health and safety of our workforce and to otherwise minimize the potential impact of the coronavirus on our operations, the costs of which, to date, have not had a material effect on our financial performance. We expect to maintain the measures put in place until we determine the COVID-19 pandemic is adequately contained for purposes of our business, and we may take further actions we consider to be in the best interests of our employees, customers, business partners, and suppliers or in response to government mandate or requirement. Such further actions may have a negative influence on our costs and productivity and, in turn, our financial and operational performance.
Our customers, business partners, and suppliers have been and may continue to be adversely affected by the COVID-19 pandemic, which also may contribute to a negative influence on our future financial and operational performance.
Competitive Risks
We compete with many companies possessing far greater resources.
Some of our competitors have far greater financial, manufacturing, technical, and sales and marketing resources than we possess or have access to. Our Brick Products compete with those products offered by
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domestic and foreign manufacturers of integrated power supplies and related power conversion components. With our Advanced Product lines, we compete with global IDMs and fabless developers of semiconductor-based power management modules and power management ICs. These competitors have far larger organizations and broader semiconductor-based product lines. Competition is generally based on product performance, design flexibility (i.e., ease of use), product price, and product availability, but with the relative importance of these factors varying among products, markets, and customers.
Existing or new competitors may develop products or technologies that more effectively address the demands of our customers and markets with enhanced performance, features and functionality, or lower cost. Larger competitors frequently seek to maintain market share and protect customer relationships through heavily-discounted pricing, which we may not be able to match. If we fail to develop and commercialize leading-edge technologies and products that are cost effective and maintain high standards of quality, and introduce them to the market on a timely basis, our competitive position and results of operations could be materially adversely affected.
Our future success depends upon our ability to develop and market differentiated, leading-edge power conversion products for larger customers, potentially contributing to lengthy product development and sales cycles that may result in significant expenditures before revenues are generated. Our future operating results are dependent on the growth in such customers’ businesses and on our ability to profitably develop and deliver products meeting customer requirements.
The power system industry and the industries in which many of our customers operate are characterized by intense competition, rapid technological change, quickened product obsolescence, and price erosion for mature products, each of which could have an adverse effect on our results of operations. We are following a strategy based on the development of differentiated Advanced Products addressing what we believe to be the long-term limitations of traditional power architectures, while at the same time sustaining sales and profitability of our well-established Brick Products. The development of new, innovative products is often a complex, time-consuming, and costly process involving significant investment in research and development, with no assurance of return on investment. Although we have introduced many Advanced Products over recent years, there can be no assurance we will be able to continue to develop and introduce new and improved products and power system concepts in a timely or efficient manner. Similarly, there can be no assurance recently introduced or to be developed products will achieve customer acceptance.
Our future success depends substantially upon further customer acceptance of our innovative Advanced Products including our Power-on-Package concept for the computing market and Advanced Products supporting the electrification of automobiles.As we have been in the early stages of market penetration for these and other Advanced Products, we have experienced lengthy periods during which we have focused our product development efforts on the specific requirements of a limited number of large customers, followed by further periods of delay before meaningful purchase orders are received. These lengthy development and sales cycle times increase the possibility a customer may decide to cancel or change product plans, which could reduce or eliminate our sales to that customer. As a result, we may incur significant product development expenses, as well as significant sales and marketing expenses, before we generate the related revenues for these products. Furthermore, we may never generate the anticipated revenues from a product after incurring such expenses if our customer cancels or changes its product plans.
In 2022, we continued our expansion of a dedicated sales effort to penetrate the automotive market with our Advanced Products, notably in the electrification of passenger automobiles. Our Power Component Design Methodology provides conversion solutions for 800V, 400V, and 48V within advanced electric vehicles. The automotive market is dominated by relatively few global OEMs and “tiers” of well-established suppliers. Penetrating this market will be challenging and we may not be successful in doing so.
We continue to focus our go-to-market strategy on larger opportunities with global OEMs, ODMs, and contract manufacturers. Our growth is therefore dependent on: the pace at which these OEMs and ODMs develop
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their own new products; the acceptance of our Advanced Products by these OEMs and ODMs; and the success of the customers’ products incorporating our Advanced Products. If we fail to anticipate changes in our customers’ businesses and their changing product needs or do not successfully identify and enter new markets, our results of operations and financial position could be negatively impacted.
We cannot offer any assurance the markets we currently serve will grow in the future, our Advanced Products or Brick Products will meet respective market requirements, or we can maintain adequate gross margins or operating profits in these markets.
Intellectual Property Risks
We may be unable to adequately protect our proprietary rights, which may limit our ability to compete effectively.
We operate in an industry in which the ability to compete depends on the development or acquisition of proprietary technologies that must be protected to preserve the exclusive use of such technologies. We devote substantial resources to establish and protect our patents and proprietary rights, and we rely on patent and intellectual property law to protect such rights. This protection, however, may not prevent competitors from independently developing products similar or superior to our products. We may be unable to protect or enforce current patents, may rely on unpatented technology that competitors could restrict or replicate, or may be unable to acquire patents in the future, all of which may have a material adverse effect on our competitive position. In addition, the intellectual property laws of foreign countries may not protect our rights to the same extent as those of the United States. We have been defending and may need to continue to defend or challenge patents. We have incurred and expect to incur significant financial costs in the defense of our patented technologies and have devoted and expect to devote significant resources to these efforts which, if unsuccessful, may have a material adverse effect on our operating results and financial position.
We face intellectual property infringement claims that could be disruptive to operations and costly to resolve and may encounter similar infringement claims in the future.
The power supply industry is characterized by vigorous protection and pursuit of intellectual property rights. We have in the past and may in the future receive communications from third parties asserting that our products or manufacturing processes infringe on a third party’s patent or other intellectual property rights. Such assertions, if publicly disclosed, have in the past and may in the future inhibit the willingness of potential customers to purchase certain of our products. In the event a third party makes a valid intellectual property claim against us and a license is not available to us on commercially reasonable terms, or at all, we could be forced to either redesign or stop production of products incorporating that technology, and our operating results could be materially and adversely affected. In addition, litigation may be necessary to defend us against claims of infringement, and this litigation could be costly, extend over a lengthy period of time, and divert the attention of key personnel. An adverse outcome in these types of matters could have a material adverse impact on our operating results and financial condition.
Please see Part I, Item 3 — “Legal Proceedings”Note 15 – Commitments and Contingencies, to the Consolidated Financial Statements for information regarding current litigation related to our intellectual property.
Any expenses or liability resulting from the outcome of litigation could adversely influence our operating results and financial condition.
From time to time, we may be subject to claims or litigation, including intellectual property litigation as described elsewhere in this Annual Report on Form10-K. Any such claims or litigation may be time-consuming and costly, divert management resources, require us to change our products, or have other adverse effects on our business. Any of the foregoing could have a material adverse effect on our operating results and could require us to pay significant monetary damages.
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The outcomes of legal proceedings and claims brought against us are subject to significant uncertainty. An estimated loss from a loss contingency such as a legal proceeding or claim is accrued by a charge to income if it is considered probable an asset has been impaired or a liability has been incurred and the amount of the loss can be reasonably estimated. Disclosure of a contingency is required if there is at least a reasonable possibility that a loss has been incurred. In determining whether a loss should be accrued, we evaluate, among other factors, the degree of probability of an unfavorable outcome and the ability to make a reasonable estimate of the amount of loss. Changes in these factors could materially impact our financial statements. As of December 31, 2017, our evaluation led us to conclude no accrual of a loss contingency was warranted.
We may face legal claimsPlease see Note 15 – Commitments and litigation from product warranty or other claims that could be costly to resolve.
We have in the past and may in the future encounter legal action from customers, vendors, or others concerning product warranty or other claims. We generally offer atwo-year warranty from the date title passes from us for all of our standard products. Effective January 1, 2017, we extended the warranty period to three years for a range of H Grade, M Grade and MI FamilyDC-DC legacy products sold after that date. In a limited number of circumstances, we have entered into supply contracts with certain high-volume customers calling for extended warranty terms. With our distribution partners, we also enter into contracts providing for our product warranties to transferContingencies, to the end customer upon final sale of our product(s) by the distributor.
We invest significant resources in the testing of our products; however, if any of our products contain defects, we may be required to incur additional development and remediation costs, pursuantConsolidated Financial Statements for information regarding current litigation related to our warranty policies. These issues may divert our technical and other resources from other product development efforts and could result in claims against us by our customers or others, including liability for costs associated with product returns, which may adversely influence our operating results. If any of our products contain defects, or have
reliability, quality, or compatibility problems, the Company’s reputation may be damaged, which could make it more difficult for us to sell our products to existing and prospective customers and could adversely affect our operating results. We are currently party to a limited number of supply agreements with certain customers contractually committing us to warranty and indemnification requirements exceeding those to which we have been exposed in the past. While we maintain insurance coverage for such exposure, we could incur significant financial cost beyond the limits of such coverage, as well as operational disruption and damage to our competitive position and image if faced with a significant product warranty or other claim.Regulatory Risks
Regulations related to conflict minerals could adversely impact our business.
The Dodd-Frank Wall Street Reform and Consumer Protection Act contains provisions to improve transparency and accountability concerning the supply of certain minerals, known as conflict minerals (including gold, tantalum, tin, and tungsten, and their related ores), originating from the Democratic Republic of Congo (“DRC”) and adjoining countries. As a result, in August 2012 the SEC released final rules for annual disclosure and reporting for those companies who use conflict minerals mined from the DRC and adjoining countries in their products. We began to implement processes within our supply chain to comply with these rules beginning in 2012 and filed our initial Form SD in May 2014. There have been and will continue to be costs associated with complying with these disclosure requirements, including due diligence to determine the sources of conflict minerals used in our products and other potential changes to products, processes, or sources of supply as a consequence of such verification activities. The implementation of these rules could adversely affect the sourcing, supply, and pricing of materials used in our products. As there may be only a limited number of suppliers offering “conflict free” conflict minerals, we cannot be certain we will be able to obtain necessary conflict minerals from such suppliers in sufficient quantities or at competitive prices. Also, we may face reputational challenges if we determine that certain of our products contain minerals not determined to be conflict free or if we are unable to sufficiently verify the origins for all conflict minerals used in our products through the procedures we may implement.
Extended interruption of production at our manufacturing facility in Andover, Massachusetts, could materially reduce our revenue and increase costs.
All modular power components, whether for direct sale to customers or for sale to our subsidiaries for incorporation into their respective products, as well as all configurable products, are manufactured at our Andover, Massachusetts, production facility. Substantial damage to this facility due to fire, natural disaster, power loss, or other events could interrupt manufacturing. While we have never experienced any meaningful interruption of manufacturing in our history, any prolonged inability to utilize all or a significant portion of our Andover facility could have a material adverse effect on our results of operations.
Disruption of our information technology infrastructure could adversely affect our business.
We depend heavily on our computing and communications infrastructure to achieve our business objectives, particularly for email communications, financial and operational record keeping, and our computer-integrated manufacturing processes controlling all aspects of our operations in our manufacturing facility in Andover, Massachusetts. If a problem occurs impairing this infrastructure, the resulting disruption could impede our ability to record or process orders, manufacture and ship in a timely manner, or otherwise carry on business in the normal course. Since 2012, we have experienced no interruption of our computing and communications capabilities. While we carry business interruption insurance to offset financial losses from such an interruption, such insurance may be insufficient to compensate us for the potentially significant costs or liabilities incurred. Any such events, if prolonged, could have a material and adverse effect on our operating results and financial condition.
Our systems are designed to protect us from network security breaches and associated disruptions. However, we remain vulnerable to computer viruses and related software-based challenges to the integrity of our systems, unauthorized or illegalbreak-ins or malicious network hacking, equipment or software sabotage, acts of vandalism to our systems by third parties, and, in the extreme, forms of cyberterrorism. Our security measures or those of our third-party service providers may not detect or prevent such network security breaches or associated disruptions.
Also, we provide confidential information to third-party business partners and/or receive confidential information from third-party business partners in certain circumstances when doing so is necessary to conduct business. As of December 31, 2017, we were compliant with the comprehensive requirements for the protection of controlled unclassified information (“CUI”) as set forth in Special Publication800-171 of the National Institute of Standards and Technology. While we employ confidentiality agreements to protect other sensitive information (i.e., information not considered CUI), our own security measures or those of our third-party service providers may not be sufficient to protect such information in the event the computing infrastructure of these third-party business partners is compromised. Security breaches of our computing and communications infrastructure or that of a third-party business partner could result in the misappropriation or unauthorized release of confidential information belonging to us or to our employees, partners, customers or suppliers, which could result in an interruption to our operations, result in a violation of privacy or other laws, expose us to a risk of litigation, or damage our reputation, any of which could have a material and adverse effect on our operating results and financial condition.
If we fail to maintain an effective system of internal controls over financial reporting or discover material weaknesses in our internal controls over financial reporting, we may not be able to report our financial results accurately or timely or detect fraud, which could have a material adverse effect on our business.
An effective internal control environment is necessary for us to produce reliable financial reports and is an important part of our effort to prevent financial fraud. Section 404 of the Sarbanes-Oxley Act of 2002 (“SOX”) requires our management to report on, and our independent registered public accounting firm to attest to, the effectiveness of our internal control over financial reporting.
We have an ongoing program to perform the system and process evaluation and testing necessary to comply with the requirements of the Sarbanes-Oxley ActSOX and to continuously improve and, when necessary, remediate internal controls over financial reporting.
While management evaluates the effectiveness of our internal controls on a regular basis, these controls may not always be effective. There are inherent limitations on the effectiveness of internal controls, including collusion, management override, and failure in human judgment. In addition, control procedures are designed to reduce rather than eliminate business risks. In the event our Chief Executive Officer or Chief Financial Officer, our certifying officers under the Sarbanes-Oxley Act,SOX, or our independent registered public accounting firm determines our internal controls over financial reporting are not effective as defined under Section 404, we may be unable to produce reliable financial reports or prevent fraud, which could materially harm our business. In addition, we may be subject to sanctions or investigation by government authorities or self-regulatory organizations, such as the SEC, the Financial Industry Regulatory Authority, or The NASDAQ Stock Market LLC. Any such actions could affect investor perceptions of the Company and result in an adverse reaction in the financial markets due to a loss of confidence in the reliability of our financial statements, which could cause the market price of our Common Stock to decline or limit our access to capital.
Our abilityRegulations related to successfullyconflict minerals could adversely impact our business.
The Dodd-Frank Wall Street Reform and Consumer Protection Act contains provisions to improve transparency and accountability concerning the supply of certain minerals, known as conflict minerals (including gold, tantalum, tin, and tungsten, and their related ores), originating from the Democratic Republic of Congo (“DRC”) and adjoining countries. As a result, in August 2012 the SEC released final rules for annual disclosure and reporting for those companies who use conflict minerals mined from the DRC and adjoining countries in their products. We began to implement processes within our business strategysupply chain to comply with these rules beginning in 2012, filed our initial Form SD in May 2014, and have filed Form SD annually since then. There have been and will continue to be costs associated with complying with these disclosure requirements, including due diligence to determine the sources of conflict minerals used in our products and other potential changes to products, processes, or sources of supply as a consequence of such verification activities. The implementation of these rules could adversely affect the sourcing, supply, and pricing of materials used in our products. As there may be
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only a limited number of suppliers offering “conflict free” conflict minerals, we cannot be certain we will be able to obtain necessary conflict minerals from such suppliers in sufficient quantities or at competitive prices. Also, we may face reputational challenges if we dodetermine that certain of our products contain minerals not retaindetermined to be conflict free or if we are unable to sufficiently verify the origins for all conflict minerals used in our key personnelproducts through the procedures we may implement.
Risks Related to Share Value
The price of our Common Stock has been volatile and attractmay fluctuate in the future.
Because of the factors set forth above and retain skilledbelow, among others, the trading price of our Common Stock has fluctuated and experienced personnel.may continue to fluctuate significantly:
Our success depends
volatility of the financial markets, notably the equity markets in the U.S.;
uncertainty regarding the prospects of domestic and foreign economies, including the impact of volatile currency exchange rates;
uncertainty regarding domestic and international political conditions, including tax, trade, and tariff policies;
actual or anticipated fluctuations in our operating performance or that of our competitors;
the performance and prospects of our major customers, including their adoption of technologies or standards other than those in which we specialize;
announcements by us or our competitors of significant new products, technical innovations, or litigation;
investor perception of the Company and the industry in which we operate;
the liquidity of the market for our Common Stock, reflecting a relatively low trading float and relatively low average trading volumes;
the uncertainty of the declaration and payment of future cash dividends on our ability to retain Common Stock; and
the servicesconcentration of ownership of our executive officers. The loss of one or more members of senior management could materially adversely influence our business and financial results. In
particular, we are dependent on the services ofCommon Stock by Dr. Vinciarelli, our founder, Chairman of the Board, Chief Executive Officer, and President.
In the past, we have declared and paid cash dividends on our Common Stock. The losspayment of dividends is based on the periodic determination by our Board of Directors that we have adequate capital to fund anticipated operating requirements and that excess cash is available for distribution to stockholders via a dividend. We have no formal policy regarding dividends and, as such, investors cannot make assumptions regarding the possibility of future dividend payments nor the amounts and timing thereof. As of December 31, 2022, we have no plans to declare or pay a cash dividend.
The ownership of our Common Stock is concentrated between Dr. Vinciarelli and a limited number of institutional investors. As of December 31, 2022, Dr. Vinciarelli was the beneficial owner of 9,592,017 shares of our Common Stock, plus 429,371 shares which Dr. Vinciarelli has the right to acquire upon exercise of options to purchase Common Stock within 60 days of December 31, 2022. He also holds 11,023,648 shares of our unregistered Class B Common Stock (which may only be sold or transferred after required conversion, on a one-for-one basis, into registered shares of Common Stock), which together with his ownership of Common Stock, represents 48.1% of our total issued and outstanding shares of capital stock. Accordingly, the market float for our Common Stock and average daily trading volumes are relatively small, which may negatively impact investors’ ability to buy or sell shares of our Common Stock in a timely manner.
Dr. Vinciarelli owns 93.8% of the servicesissued and outstanding shares of our Class B Common Stock, which possess 10 votes per share. Dr. Estia J. Eichten, a member of our Board of Directors, owns the majority of the balance of the Class B Common Stock issued and outstanding. As such, Dr. Vinciarelli, could have a material adverse effect oncontrolling in aggregate 80.0% of our developmentoutstanding voting securities, has effective control of new products and on our results of operations. In addition, our research and development and marketing and sales activities depend on highly skilled engineers and other personnel with technical skills, who are in high demand and are difficult to replace. Our continued operations and growth depend on our ability to attract and retain skilled and experienced personnel in a very competitive employment market. If we are unable to attract and retain such employees, our ability to successfully implement our business strategy may be harmed.governance.
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ITEM 1B. | UNRESOLVED STAFF COMMENTS |
None.
ITEM 2. | PROPERTIES |
Our corporate headquarters building in Andover, Massachusetts, which we own, provides approximately 90,000 square feet of office space for our sales, marketing, engineering, and administrative personnel and is used by and supports all business segments.personnel. We also own a building of approximately 230,000320,000 square feet (which includes the 90,000 square foot expansion described below) in Andover, Massachusetts, which houses all Massachusetts manufacturing activities.
Current capital investments are focused on the expansion of manufacturing capacity for the production of Advanced Products at our Andover facility. During 2020, we began construction of a two-story addition to our Andover manufacturing facility that is intended to expand the Advanced Products production area by approximately 90,000 square feet. Completion of the construction and production have been delayed from 2021 to 2023. We have received an occupancy permit for the addition and equipment installation is underway.
We own and lease a single-story industrial building of approximately 31,000 square feet in Sunnyvale, California, which we lease on a long-term basis to a corporate tenant, whowhich has occupied the building beginning insince June 2016.
All other domestic and foreign facilities are leased from third-party lessors on arms’ length terms. We believe our owned and leased facilities are adequate for our present needs and expect them to remain adequate for the foreseeable future.needs.
ITEM 3. | LEGAL PROCEEDINGS |
On January 28, 2011, SynQor, Inc. (“SynQor”) filed a complaint for patent infringement against Ericsson, Inc. (“Ericsson”), Cisco Systems, Inc. (“Cisco”)See Note 15 — Commitments and Vicor in the U.S. District Court for the Eastern District of Texas (the “Texas Action”). Ericsson and Cisco subsequently settled with SynQor and are no longer partiesContingencies, to the Texas Action. With respect to Vicor, SynQor’s complaint in the Texas Action alleged that our products, including but not limited to unregulated bus converters used in intermediate bus architecture power supply systems, infringe SynQor’s U.S. patent numbers 7,072,190, 7,272,021, and 7,564,702 (“the ‘190 patent”, “the ‘021 patent” and “the ‘702 patent”, respectively). SynQor’s complaint sought an injunction against further infringement and an award of unspecified compensatory and enhanced damages, interest, costs and attorney fees. On September 20, 2011, SynQor filed an amended complaint in the Texas Action that further alleged that our products, including, but not limited to, unregulated bus converters used in intermediate bus architecture power supply systems, infringe SynQor’s U.S. patent number 8,023,290 (“the ‘290 patent”). We responded to SynQor’s amended complaint in the Texas Action by denying our products infringe anyConsolidated Financial Statements for a complete description of the SynQor patents, and asserting that the SynQor patents are invalid. We further alleged that the SynQor ‘290 patent is unenforceable due to inequitable conduct by SynQor or its agents during the examination of the ‘290 patent at the United States Patent and Trademark Office (“USPTO”). We have also asserted counterclaims seeking damages against SynQor for deceptive trade practices and tortious interference with prospective economic advantage arising from SynQor’s attempted enforcement of its patents against us.
We have initiated administrative review proceedings at the USPTO challenging the validity of certain claims of the SynQor patents asserted in the Texas Action, including all claims that were asserted against us by SynQor. Regarding the ‘190 patent, the Patent Trial and Appeal Board (“PTAB”) of the USPTO issued a decision upholding the validity of the ‘190 patent claims. That decision was appealed by us to the United States Court of Appeals for the Federal Circuit (“the Federal Circuit”), which issued a decision on March 13, 2015
reversing the PTAB, determining that certain claims were invalid, and remanding the matter to the PTAB for furtherCompany’s legal proceedings. On May 2, 2016, the PTAB issued a decision determining that all but one of the remaining claims of the ‘190 patent were invalid and remanding the remaining claim to a patent examiner for further examination. On June 22, 2017, the examiner issued a determination under 37 C.F.R. § 41.77(d), finding that the remaining claim of the ‘190 patent was unpatentable. That decision is expected to be further reviewed by the PTAB pursuant to 37 C.F.R. § 41.77(f).
On May 2, 2016, the PTAB also issued decisions finding all challenged claims of SynQor’s ‘021 patent invalid and upholding the validity of all challenged claims of SynQor’s ‘702 and ‘290 patents. On May 23, 2016, the Texas Court issued an order staying the Texas Action until the completion of all of the administrative review proceedings concerning the asserted SynQor patents, including any appeals from such proceedings to the Federal Circuit.
On August 30, 2017, the Federal Circuit issued rulings with regard to PTAB’s reexamination decisions for the ‘021, ‘702 and ‘290 patents. With respect to the ‘021 patent, the Federal Circuit affirmed the PTAB’s determination that all of the challenged claims of the ‘021 patent were invalid. The Federal Circuit remanded the case to the PTAB for further consideration of the patentability of certain claims that had been added by amendment during the reexamination. With respect to the ‘702 patent, the Federal Circuit affirmed the PTAB’s determination that all of the challenged claims of the ‘702 patent were patentable. With respect to the ‘290 patent, the Federal Circuit vacated the PTAB’s decision upholding the patentability of the ‘290 patent claims, and remanded the case to the PTAB for further consideration.
On October 31, 2017, we filed a request with the USPTO for ex parte reexamination of the ‘702 patent, based on different prior art references than had been at issue in the previous inter parte reexamination of the ‘702 patent. On December 6, 2017, the USPTO issued a decision granting our request for ex parte reexamination of the ‘702 patent, finding that the Company’s request was warranted because it raised substantial new questions of patentability of the ‘702 patent.
We continue to believe none of our products, including our unregulated bus converters, infringe any valid claim of the asserted SynQor patents, either alone or when used in an intermediate bus architecture implementation. We believe SynQor’s claims lack merit and, therefore, continue to vigorously defend ourselves against SynQor’s patent infringement allegations. We do not believe a loss is probable for this matter. If a loss were to be incurred, however, we cannot estimate the amount of possible loss or range of possible loss at this time.
In addition to the SynQor matter, we are involved in certain other litigation and claims incidental to the conduct of our business. While the outcome of lawsuits and claims against us cannot be predicted with certainty, we do not expect any current litigation or claims will have a material adverse impact on our financial position or results of operations.
ITEM 4. | MINE SAFETY DISCLOSURES |
Not Applicable.
PART II
ITEM 5. | MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDERMATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
Our Common Stock is listed on The NASDAQ Stock Market LLC, under the trading symbol “VICR.” Shares of our Class B Common Stock are not registered with the Securities and Exchange Commission, are not listed on any exchange nor traded on any market, and are subject to transfer restrictions under our Restated Certificate of Incorporation, as amended.
The following table sets forth the quarterly high and low sales prices for the Common Stock as reported by The NASDAQ Stock Market for the periods indicated:
2017 | High | Low | ||||||
First Quarter | $ | 16.60 | $ | 14.15 | ||||
Second Quarter | 20.30 | 15.60 | ||||||
Third Quarter | 23.60 | 17.05 | ||||||
Fourth Quarter | 24.95 | 20.60 | ||||||
2016 | High | Low | ||||||
First Quarter | $ | 10.60 | $ | 7.19 | ||||
Second Quarter | 11.06 | 8.94 | ||||||
Third Quarter | 12.16 | 9.74 | ||||||
Fourth Quarter | 16.05 | 11.50 |
As of February 28, 2018,16, 2023, there were 13995 holders of record of our Common Stock and 1312 holders of record of our Class B Common Stock. These numbers do not reflect persons or entities that hold their shares in nominee or “street name” through various brokerage firms.
Dividend Policy
We do not have a policy mandating the declaration of cash dividends at any particular time or on a regular basis. We did not pay cash dividends on our Common Stock for the years ended December 31, 2017 or 2016.
Dividends are declared periodically, only at the discretion of our Board of Directors, and any such declaration depends on actual cash from operations, our financial condition and capital requirements, the recommendation of our management, and any other factors the Board of Directors may consider relevant at the time.
From time to time, excess cash held at the subsidiary level is transferred to the Company via cash dividends declared by the subsidiary. During the year ended December 31, 2016, one of our subsidiaries paid a total of $750,000 in cash dividends, all of which was paid to us.
Issuer Purchases of Equity Securities
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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 on its view of economic and financial market conditions.
Month of Fourth Quarter 2022 | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased Pursuant to November 2000 Plan | Remaining Dollar Value of Shares Authorized For Purchase Pursuant to November 2000 Plan | ||||||||||||
October 1 — 31, 2022 | — | $ | — | — | $ | 8,541,000 | ||||||||||
November 1 — 30, 2022 | — | $ | — | — | $ | 8,541,000 | ||||||||||
December 1 — 31, 2022 | — | $ | — | — | $ | 8,541,000 | ||||||||||
Total | — | $ | — | — | $ | 8,541,000 | ||||||||||
Stockholder Return Performance Graph
The graph set forth below presents the cumulative, five-year stockholder return for each of (i) the Company’s Common Stock, (ii) the Standard & Poor’s 500 Index (“S&P 500 Index”), a value-weighted index made up of 500 of the largest, by market capitalization, listed companies, and(iii) the Standard & Poor’s SmallCap 600 Index (“S&P SmallCap 600 Index”), a value-weighted index of 600 listed companies with market capitalizations between $200,000,000 and $1,000,000,000.$1,000,000,000, and (iv) the Standard & Poor’s MidCap 400 Index (“S&P MidCap 400 Index”), a value-weighted index of 400 listed companies with market capitalizations between $3,700,000,000 and $14,600,000,000. Due to the potential growth of the market capitalization of the Company, we were included within the S&P MidCap 400 Index and removed from the S&P SmallCap 600 Index in December 2021.
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The graph assumes an investment of $100 on December 31, 2012,2017, in each of our Common Stock, the S&P 500 Index, and the S&P SmallCap 600 Index, and the S&P MidCap 400 Index, and assumes reinvestment of all dividends. The historical information set forth below is not necessarily indicative of future performance.
Comparison of Five Year Cumulative Return
Among Vicor Corporation, S&P 500 Index,
and S&P SmallCap 600 Index, and S&P MidCap 400 Index
2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | |||||||||||||||||||||||||||||||||
Vicor Corporation | $100.00 | $ | 247.60 | $ | 223.25 | $ | 168.27 | $ | 278.60 | $ | 385.61 | $100.00 | $ | 180.81 | $ | 223.54 | $ | 441.24 | $ | 607.56 | $ | 257.15 | ||||||||||||||||||||||
S&P 500 Index | $100.00 | $ | 132.39 | $ | 150.51 | $ | 152.59 | $ | 170.84 | $ | 208.14 | $100.00 | $ | 95.62 | $ | 125.72 | $ | 148.85 | $ | 191.58 | $ | 156.88 | ||||||||||||||||||||||
S&P SmallCap 600 Index | $100.00 | $ | 141.31 | $ | 149.45 | $ | 146.50 | $ | 185.40 | $ | 209.94 | $100.00 | $ | 91.52 | $ | 112.37 | $ | 125.05 | $ | 158.59 | $ | 133.06 | ||||||||||||||||||||||
S&P MidCap 400 Index | $100.00 | $ | 88.92 | $ | 112.21 | $ | 127.54 | $ | 159.12 | $ | 138.34 |
Our equity plan information required by this item is incorporated by reference to the information in Part III, Item 12 of this Annual Report on Form10-K.
The following selected consolidated financial data with respect to our statements of operations for the years ended December 31, 2017, 2016, and 2015, and with respect to our balance sheet as of December 31, 2017 and 2016, are derived from our audited Consolidated Financial Statements, which appear elsewhere in this Annual Report on Form10-K. The following selected consolidated financial data with respect to our statements of operations for the years ended December 31, 2014 and 2013, and with respect to our balance sheets as of December 31, 2015, 2014, and 2013, are derived from our Consolidated Financial Statements, which are not included herein. The data should be read in conjunction with the Consolidated Financial Statements, related notes and other financial information included herein.
Year Ended December 31, | ||||||||||||||||||||
Statement of Operations Data | 2017 | 2016 | 2015 | 2014 | 2013 | |||||||||||||||
(In thousands, except per share data) | ||||||||||||||||||||
Net revenues | $ | 227,830 | $ | 200,280 | $ | 220,194 | $ | 225,731 | $ | 199,160 | ||||||||||
Loss from operations | (1,360 | ) | (6,314 | ) | (267 | ) | (14,763 | ) | (20,467 | ) | ||||||||||
Consolidated net income (loss) | 258 | (6,261 | ) | 5,159 | (14,070 | ) | (23,504 | ) | ||||||||||||
Net income (loss) attributable to noncontrolling interest | 91 | (14 | ) | 232 | (183 | ) | 136 | |||||||||||||
Net income (loss) attributable to Vicor Corporation | 167 | (6,247 | ) | 4,927 | (13,887 | ) | (23,640 | ) | ||||||||||||
Net income (loss) per share — basic and diluted attributable to Vicor Corporation | 0.00 | (0.16 | ) | 0.13 | (0.36 | ) | (0.60 | ) | ||||||||||||
Weighted average shares — basic | 39,228 | 38,842 | 38,754 | 38,569 | 39,195 | |||||||||||||||
Weighted average shares — diluted | 39,933 | 38,842 | 39,146 | 38,569 | 39,195 | |||||||||||||||
As of December 31, | ||||||||||||||||||||
Balance Sheet Data | 2017 | 2016 | 2015 | 2014 | 2013 | |||||||||||||||
(In thousands) | ||||||||||||||||||||
Working capital | $ | 90,796 | $ | 89,545 | $ | 94,905 | $ | 90,321 | $ | 97,869 | ||||||||||
Total assets | 165,724 | 154,067 | 157,545 | 155,542 | 165,640 | |||||||||||||||
Total liabilities | 29,305 | 23,050 | 21,460 | 24,990 | 23,303 | |||||||||||||||
Total equity | 136,419 | 131,017 | 136,085 | 130,552 | 142,337 |
ITEM 6. | [RESERVED] |
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ITEM 7. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ANDRESULTS OF OPERATIONS |
Overview
A discussion regarding our results of operations for the year ended December 31, 2021, compared to the year ended December 31, 2020, was included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, on pages 33-37 under Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, which was filed with the SEC on March 1, 2022.
We design, develop, manufacture, and market modular power components and power systems for converting regulating,electrical power for use in electrically-powered devices. Our competitive position is supported by innovations in product design and controlling electric current. We also license certain rights toachievements in product performance, largely enabled by our technologyfocus on the research and development of advanced technologies and processes, often implemented in return for recurring royalties. The principal customers forproprietary semiconductor circuitry, materials, and packaging. Many of our products incorporate patented or proprietary implementations of high-frequency switching topologies enabling power converterssystem solutions that are more efficient and systems are large original equipment manufacturersmuch 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 (“OEMs”AC”) and the Original Design Manufacturersdirect current (“ODM”s)DC”) power conversion products, we consider our core competencies to be associated with 48V DC distribution, which offers numerous inherent cost and contract manufacturers serving them,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 smaller, lower volume users. We serve a broad range of market segmentsavionics applications, and geographies worldwide.24V for industrial automation).
We have organized our business segments according to our key product lines. Reflecting our history and direction, we broadly categorize our products as either “legacy” or “advanced,” generally basedBased on design, performance, and form factor considerations, as well as the range of evolving applications for which theour products are appropriate.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 BBUBrick 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 designs, develops, manufacturesfor 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 markets our legacy lines ofDC-DC converters and configurable products,accelerator design, as well as complementary components providing AC line rectification, input filtering, power factor correction,early adopters in cloud computing and transient protection. The BBU segmenthigh performance computing. We also includes the BBU business conducted
through VJCL and our Vicor Custom Power subsidiaries. The BBU has customers concentratedtarget applications in aerospace and aviation, defense electronics, industrial automation, industrialinstrumentation, test equipment, medical diagnostics, rail transportation,solid state lighting, telecommunications and testnetworking infrastructure, and measurement instrumentation.
The VI Chip segment consistsvehicles(notably in the autonomous driving, electric vehicle, and hybrid vehicle niches of the vehicle segment). With our subsidiary, VI Chip Corporation, which designs, develops, manufactures,Brick Products, we generally serve a fragmented base of large and markets many of our advanced power component products. The VI Chip segment also includes the VI Chip business conducted in Japan through VJCL. VI Chip generally targets large, high volumesmall customers, concentrated in the datacenter and supercomputer segments of the computing market, although we also target applications in aerospace and aviation, autonomous driving,
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defense electronics, electric and hybrid vehicles,industrial automation, industrial equipment, instrumentation and test equipment, and networking equipment.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.
The Picor segment consists ofOur quarterly consolidated operating results can be difficult to forecast and have been subject to significant fluctuations. We plan our subsidiary, Picor Corporation, which designs, develops, and markets integrated circuits for use in a variety of power management and power system applications. Picor discontinued the production and saleinventory levels based on management’s estimates of solid-state power management devices during 2017. Picor is a “fabless manufacturer,”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 its products are manufactured, assembled, packaged, and tested by third parties in Asia and the United States. Picor develops integrated circuits for use in our BBU and VI Chip modules, to be sold as complements to our BBU and VI Chip products, or for sale to third parties for separate (i.e., stand-alone) applications, andsupply chain uncertainties, which are often integratedassociated with VI Chip products to represent a customer solution, particularly in the datacenter and supercomputer segmentscyclicality of the computing market.
Our consolidated results for 2017 showed a small profit, driven by an increase in net revenueselectronics industry, regional macroeconomic and improved gross margins, notably in the second half of the year, for VI Chip. Our operating performance, though, continues to reflect the general weakness of demand for our legacy products, as well as increased customer price sensitivity for these products. Customer interest in our expanding portfolio of recently-introduced advanced products continues to increase, astrade-related circumstances, and force majeure events (most recently evidenced by the year’s higher bookings and higheryear-end backlog, both reflecting accelerated market uptakeCOVID-19 pandemic), have caused our operating results to vary meaningfully. Supply chain disruptions, including those associated with lockdowns in China due to their zero-COVID policy, those associated with our reliance on outsourced package process steps that are essential in the production of some of our advanced products, notably our 48 volt topoint-of-load solutionsAdvanced Products, and those relating, for datacenters and supercomputers.
While improved bookings reflected increasing demand for our advanced products, with shipments scheduled well into 2018, global demand for our legacy brick converters, configurable products, and associated components remains at volumes lower than historical trend, which we attributeexample, to the ongoing macroeconomic conditions specificprocurement of raw material, have in the past negatively impacted and may in the 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 industriesCompany, ordering supplies with extended lead times, paying higher prices for certain supplies or outsourced production, and geographiesexpediting 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 serve,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, sporadic disruptions related to shutdowns in China as wella result of their zero-COVID policy, and uncertainty of output from our outsourced manufacturing supplier. Our quarterly gross margin as increased customer price sensitivitya 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 certain industriesrevenue and geographiesproduct level profitability, but our operating costs, aside from recent increases in legal expense associated with the intellectual property litigation with SynQor Inc., are largely associated with compensation and related employee costs, which commoditized products have established a strong competitive position. Our legacy products commonly are used in defense electronics, high-value capital goods, and sizeable infrastructure projects,not subject to sudden or significant changes.
Ongoing / Potential Impacts of the end demand for which has been unpredictable, reflecting budgetary uncertainty andlow-growth economies.COVID-19 Pandemic on the Company
AlthoughAs of the date of this report, the number of identified opportunities for our new products continues to expand, as evidenced by booking patterns,Company employees diagnosed with COVID-19 and the sales cycles associated with these products continue to be longer than we anticipated, in partcorresponding absenteeism due to COVID-19 are negligible. While the same macroeconomic trends and industry-specific conditions influencing bookings and salesproductivity of our legacy product lines. In many mature markets, existing and potential customers remain risk-averse and have slowedfactory is not currently impacted by COVID-19, productivity may be reduced if quarantine rates increase or curtailed their own new product development. We believe such caution has limited their near-term interest in our new products, although we are experiencing increasing interest in our new products as replacements for legacy power modules, whether our own or those of competitors, when customers are refreshing or upgrading existing designs.
In more robust markets, such as those we are targeting with our advanced products, existing and potential customers are actively pursuing their own growth strategies, developing products with higher performance enabled by our new products and the modular component approach of our Factorized Power Architecture. As such, we increasingly are asked by existing and potential customers to collaborate on the development of new or highly modified implementations of our new products. While such collaborations are attractive opportunities to enhance customer relationships and gain competitive advantage, they also are resource and time intensive.
Additionally, when we have successfullydesigned-in our advanced product solutions, we may encounter delays and uncertainty associated with scheduling production of such solutions. For example, we are collaborating with several large-scale OEMs in the hyperscale datacenter segment of the computing market and have been engaged with these potential customers on development and design work for multiple quarters. However, only during the second half of 2017 did we begin to receivepre-production prototype orders or early production orders associated with certain engagements. Further, several additional datacenter OEMs raised their level of engagement with us, placing prototype orders and/ornon-recurring engineering orders. Givenif the number of such opportunitiesemployees 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 progress being made on associated development and design work, we expect to receive more such early-stage orders from additional customers in throughout 2018.Company’s offices.
We believeare closely monitoring the following considerationsoperating 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 influencecontinue to disrupt customer demand and limit our performance in 2018:
Operational Considerations
Market and Macroeconomic Considerations
Customer adoption of certain new products has been delayed by unanticipated influences beyond our control. For example, our leadership position in the transition of datacenter computing to 48 volt to
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Although there is uncertainty regarding the extent to which the pandemic will be adopted in volume by multiple, leading customers. However, we cannot control the actions by, or the timing of,continue to impact our customers, their contract manufacturers, or the significant vendors also participating in the market. Many of these vendors possess resources far greater than Vicor and have operational and financial flexibility we do not.
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We anticipate aggregate demand forare monitoring the mature markets we serve with our legacy products will grow, at most, only at the raterapidly changing circumstances, and may take additional actions to address COVID-19 risks as they evolve. Because much of the overall economy (i.e., inpotential negative impact of the United States, for example, at the rate of growth of gross domestic product) for the foreseeable future. Given our long-standing customer relationships and the statuspandemic is associated with risks outside of our legacy products in long-lived customer applications,control, we anticipate maintainingcannot estimate the extent of such impact on our share in many of these mature markets. While we are pursuing opportunities to replace our legacy products used in existing customers’ applications with advanced products and, similarly, to replace competitors’ products in existing applications, we believefinancial or operational performance, or when such opportunities may not cumulatively contribute to expanding, in 2018, our share of the mature markets we serve with our legacy products.
20172022 Financial Highlights
Net revenues increased 13.8%11.1% to $227,830,000$399,079,000 for 2017,2022, from $200,280,000$359,364,000 for 2016,2021. The increase was primarily in sales of Advanced Products, due to growth in the high performance compute business. Net revenues for Brick Products for 2022 decreased compared to 2021, primarily due to an overall 20.2% increase in bookings in 2017, compared to 2016, with significant increases in Picor and VI Chip bookings, and an encouraging recovery in BBU bookings.unfavorable market conditions.
Export sales, as a percentage of total revenues, represented approximately 63.2%67.6% in 20172022 and 59.8%67.0% in 2016.2021.
Gross margin increased to $101,656,000$180,559,000 for 2017,2022, from $91,209,000$178,200,000 for 2016, primarily due to the increase in net revenues.
Backlog, representing the total of orders received for products received for which shipment is scheduled within the next 12 months, was approximately $73,054,000$304,392,000 at the end of 2017,2022, as compared to $48,371,000$345,594,000 at the end of 2016. The increase in backlog was due to increased bookings across all business units, particularly for the 48 volt topoint-of-load solutions of Picor and VI Chip.
• | Operating expenses for 2022 increased $30,760,000, or 25.1%, to $153,358,000 from $122,598,000 for 2021, due to increases in selling, general, and administrative expenses of $16,780,000 and research and development expenses of $7,480,000. The increase in selling, general, and administrative expenses was primarily due to an increase in legal fees of $11,083,000 and compensation expense of $2,772,000. The increase in research and development expenses was primarily due to increases in compensation expense of $2,540,000, supplies of $1,233,000 and project and pre-production materials of $1,130,000. In addition, litigation-related expense related to the SynQor litigation was $6,500,000 for 2022. See Note 15 to the Consolidated Financial Statements for additional information. |
We reported net income for 20172022 of $167,000,$25,446,000, or $0.00$0.57 per diluted share, compared to a net lossincome of $(6,247,000),$56,625,000, or $(0.16)$1.26 per diluted share, for 2016.2021.
In 2017,2022, as a result of activities associated with our construction and capacity expansion, depreciation and amortization totaled $8,893,000,$13,776,000, and capital additionsexpenditures were $12,545,000,$63,966,000, compared to $8,438,000$11,705,000 and $8,428,000,$47,761,000, respectively, for 2016. The increase in capital spending was largely associated with the purchase and installation of equipment associated withSM-Chip production.2021.
Inventories increased by approximately $9,363,000,$34,088,000, or 34.5%50.6%, to $36,499,000$101,410,000 at the end of 2017,2022, as compared to $27,136,000$67,322,000 at the end of 2016. This increase was2021, primarily associated with increases in VI Chip, Picor, and BBU inventoriesconsisting of $5,004,000, $3,578,000, and $781,000 respectively, to meet increased bookings and to ensure adequate levels of key components with long lead times are maintained.raw materials.
The following table sets forth certain items of selected consolidated financial information as a percentage of net revenues for the years shown, ended December 31.31, 2022, 2021, and 2020. This table and the subsequent discussion should be read in conjunction with the selected financial data and the Consolidated Financial Statements and related footnotes contained elsewhere in this report.
Year Ended December 31, | Year Ended December 31, | |||||||||||||||||||||||
2017 | 2016 | 2015 | 2022 | 2021 | 2020 | |||||||||||||||||||
Net revenues | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||||||||||
Gross margin | 44.6 | % | 45.5 | % | 45.2 | % | 45.2 | % | 49.6 | % | 44.3 | % | ||||||||||||
Selling, general and administrative expenses | 25.5 | % | 27.8 | % | 26.5 | % | 21.6 | % | 19.3 | % | 21.3 | % | ||||||||||||
Research and development expenses | 19.7 | % | 20.9 | % | 18.8 | % | 15.2 | % | 14.8 | % | 17.2 | % | ||||||||||||
Loss before income taxes | (0.0 | )% | (3.0 | )% | (0.1 | )% | ||||||||||||||||||
Income before income taxes | 7.2 | % | 15.8 | % | 6.2 | % |
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Critical Accounting Policies and Estimates
Management’s Discussion and Analysis of Financial Condition and Results of Operations is based upon our Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States.States (“U.S. GAAP”). The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses, and related disclosures of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates and assumptions, and our associated judgments, including those related to inventories, income taxes, contingencies, and litigation. We base our estimates, assumptions, and judgments on historical experience, knowledge of current conditions, and on various other factors we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We also have other policies we consider key accounting policies such as our policy for revenue recognition, including the deferral of revenue on sales to distributors until the products are sold(See Note 2 to the end user.Consolidated Financial Statements – Significant Accounting Policies – Impact of recently issued accounting standards). However, the application of these other policies does not require us to make significant estimates and assumptions difficult to support quantitatively.
Inventories
We employ a variety of methodologies to estimate allowances for ourevaluate inventory forthat is estimated obsolescenceto be excess, obsolete or unmarketable, in order to write down that inventory to net realizable value. Our estimation process for assessing net realizable value is based upon our existingforecasted future usage which we derive based on backlog, historical consumption, and assumptions about future demand andexpected market conditions. For BBU products produced at our Andover facility, our principal manufacturing location,both Brick and Advanced product lines, the methodology used compareson-hand quantities to projected demandforecasted usage and historical
consumption, such that amounts of inventory on hand in excess of a three-year projected consumption or three-year historical consumption, whichever is higher,management’s estimate of expected future utility, are fully reserved. VI Chip and Picor usetwo-year projected and historical consumption assumptions. While we have used our best efforts and believe we have used the best available information to estimate future demand, due to uncertainty in the economy and our business and the inherent difficulty in predictingforecasting future demand,usage, it is possible actual demand for our products will differ from our estimates. If actual future demand or market conditions are less favorable than those projected by management, additional inventory reserves for existing inventories may need to be recorded in future periods.
Income Taxes
We make certain estimates, assumptions, and judgments in determining income tax expense for financial statement reporting purposes. These estimates, assumptions, and judgments occur in the calculation of tax credits, benefits, and deductions, and in the calculation of certain assets and liabilities that arise from differences in the timing andEvaluation of the recognitionRealizability of revenue and expense for tax and financial statement purposes, as well as the interest and penalties relating to uncertain tax positions. Significant changes to these estimates, assumptions, and judgments may result in an increase or decrease to our tax provision in a subsequent period.Deferred Tax Assets
Significant management judgment also is required in determining whether deferred tax assets will be realized in full or in part. We assess the need for a valuation allowance on a quarterly basis. We record a valuation allowance to reduce our deferred tax assets to the amount we believe is more likely than not to be realized. In assessing the need for a valuation allowance, we consider all positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies, and past financial performance. Currently, we maintainDespite recent positive operating results, the Company is in a cumulative loss position as of December 31, 2022, primarily due to tax deductions on 2020 and 2021 exercises of stock-based compensation. The Company faces uncertainties in forecasting its operating results due to vendor 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, at this time, 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 net deferred tax assets.assets is still warranted as of December 31, 2022. The valuation allowancesallowance 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 a portion of the valuation allowance in the near-term. Certain state tax credits, though, will
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likely never be released by the valuation allowance. If and when we determinethe Company determines the valuation allowance should be released (i.e., reduced), the adjustment would result in a tax benefit reported in that period’s Consolidated Statements of Operations, the effect of which would be an increase in reported net income.
The amount of any such tax benefit associated with release of our valuation allowance in a particular quarter may be material.
We follow atwo-step process to determine the amount of tax benefit to recognize in our financial statements for tax positions taken on tax returns. The first step is to evaluate the tax position to determine the likelihood it would be sustained upon examination by a tax authority. If the tax position is deemed“more-likely-than-not” to be sustained, the second step is to assess the tax position to determine the amount of tax benefit to recognize in the financial statements. The amount of the benefit that may be recognized is the largest amount that has a greater than 50 percent likelihood of being realized upon ultimate settlement. If the tax position does not meet the“more-likely-than-not” threshold then it is not recognized in the financial statements. We accrue interest and penalties, if any, related to unrecognized tax benefits as a component of income tax expense. If the estimates, assumptions, and judgments made by us change, the unrecognized tax benefits may have to be adjusted, and such adjustments may be material.
On December 22, 2017, the U.S. government enacted comprehensive tax legislation, referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act makes broad and complex changes to the U.S. tax code, including, but not limited to: (1) reducing the U.S. federal corporate tax rate from 35% to 21%; (2) elimination of the corporate alternative minimum tax (“AMT”) and changing how existing AMT credits can be realized; (3) changing rules related to the usage and limitation of net operating loss carryforwards created in tax years beginning after December 31, 2017; and (4) implementing a territorial tax system, which generally eliminates the U.S. federal income tax on dividends from foreign subsidiaries, and imposes aone-time transition tax on certain earnings of foreign subsidiaries previously untaxed in the United States. We recognized the provisional tax impacts related to there-measurement of our deferred tax assets and liabilities, andone-time transition tax, for the year ended December 31, 2017. The ultimate impact may differ from these provisional amounts due to, among other things, additional analysis, changes in interpretations and assumptions we have made, additional regulatory guidance that may be issued, and actions we may take as a result of the Tax Act.
Contingencies
From time to time, we receive notices of product failure claims, notices of infringement of patent or other intellectual property rights of others, or notices associated with other claims. In January 2011, we were named in a lawsuit for patent infringement (See Part I, Item 3 – “Legal Proceedings”) that is ongoing. We assess each notice and associated matter to determine if a contingent liability should be recorded. In making this assessment, we may consult, depending on the nature of the matter, with external legal counsel and technical experts. Based on the information we obtain, combined with our judgment regarding all the facts and circumstances of each matter, we determine whether it is probable a contingent loss may be incurred and whether the amount of such loss can be reasonably estimated. Should a loss be probable and reasonably estimable, we record such a loss (i.e., we establish a loss contingency). In determining the amount of the loss to be recorded, we consider advice received from experts in the specific matter, current status of legal proceedings (if any), prior case history, comparable precedent litigation, and other factors. Should the estimates, assumptions, and judgments made by us change, we may need to record additional losses (i.e., add to our loss contingency) that may be material.
New Accounting Pronouncements
From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”) that we adopt as of the specified effective date. Unless otherwise discussed, we believe the impact of recently issued accounting standards will not have a material impact on our future financial condition and results of operations. See Note 2 —– Significant Accounting Policies – Impact of recently issued accounting standards, to the Consolidated Financial Statements for a description of recently issued and adopted accounting pronouncements, including the dates of adoption and expected impact on our financial position and results of operations.
Revenue Recognition
In May 2014, the FASBOther new pronouncements issued new guidance for revenue recognition, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The new guidance, which includes several amendments, replaces most of the prior revenue recognition guidance under U.S. Generally Accepted Accounting Principles. Our assessment of the new standard’s impact is substantially complete. We will adopt the new guidance as of January 1, 2018 using the modified retrospective method. The most significant impact of the adoption is on the timing of recognition of sales to our stocking distributors. Throughbut not effective until after December 31, 2017, we deferred revenue and the related cost of sales2022 are not expected to have a material impact on shipments to stocking distributors until the distributors resold the products to their customers. Upon adoption, we are no longer permitted to defer revenue until sale by the stocking distributor to the end customer, but rather, are required to estimate the effects of returns and allowances provided to stocking distributors and record revenue at the time of sale to the stocking distributor. The cumulative effect of adopting this guidance, to be recognized as an increase to the balance of retained earnings as of January 1, 2018, is currently estimated to be approximately $3,300,000. The implementation team’s remaining tasks are to complete documentation for the systems and controls to support the revenue recognition and disclosure requirements under the new standard, and to complete the required disclosures in preparation for filing our Form10-Q for the quarter ending March 31, 2018.consolidated financial statements.
Year ended December 31, 20172022 compared to Year ended December 31, 20162021
NetConsolidated net revenues for 20172022 were $227,830,000,$399,079,000, an increase of $27,550,000,$39,715,000, or 13.8%11.1%, as compared to $200,280,000$359,364,000 for 2016.2021.
The components of revenueNet revenues, by product line, for the years ended December 31 were as follows (dollars in thousands):
Increase | ||||||||||||||||
2017 | 2016 | $ | % | |||||||||||||
BBU | $ | 151,702 | $ | 151,429 | $ | 273 | 0.2 | % | ||||||||
VI Chip | 59,017 | 38,369 | 20,648 | 53.8 | % | |||||||||||
Picor | 17,111 | 10,482 | 6,629 | 63.2 | % | |||||||||||
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Total | $ | 227,830 | $ | 200,280 | $ | 27,550 | 13.8 | % | ||||||||
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2022 | 2021 | $ | % | |||||||||||||
Advanced Products | $ | 243,321 | $ | 170,220 | $ | 73,101 | 42.9 | % | ||||||||
Brick Products | 155,758 | 189,144 | (33,386 | ) | (17.7 | )% | ||||||||||
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Total | $ | 399,079 | $ | 359,364 | $ | 39,715 | 11.1 | % | ||||||||
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Changes in our net revenues are primarily attributable to fluctuations in shipment volumes. Our net revenue can be affected by changes in demand for higher priced or lower priced products, which we refer to as changes in the mix of products shipped. The overall increase in consolidated net revenues for Advanced Products was primarily the result of growth in the high performance compute business, in the United States and Asia Pacific markets. The decrease in net revenues for Brick Products was primarily due to an overall 20.2% increase in bookings for the year ended December 31, 2017, compared to the year ended December 31, 2016. BBU, VI Chip, and Picor bookings increased by 6.9%, 54.5% and 57.0%, respectively. In fact, total bookings have increased sequentially each quarter since the first quarter of 2016. The increase in BBU revenues was primarily attributable to an increase in Vicor Custom Power revenues of $3,803,000, partially offset by a decrease in BBU module and configurable product revenues of approximately $3,455,000. Increases in revenues recorded by VI Chip and Picor for the year ended December 31, 2017 were associated largely with fulfillment of increased orders for our 48 volt topoint-of-load solutions. Customer bookings and scheduling patterns continue to be unpredictable, particularly for the VI Chip and Picor segments.unfavorable market conditions.
Gross margin for 20172022 increased $10,447,000,$2,359,000, or 11.5%1.3%, to $101,656,000$180,559,000 from $91,209,000$178,200,000 in 2016. Despite the increase in net revenues, gross2021. Gross margin as a percentage of net revenues decreased to 44.6%45.2% in 20172022 from 45.5%49.6% in 2016, primarily due to a less favorable product mix, most notably a higher proportion of lower2021. The increase in gross margin VI Chip revenues.
Income (loss) from operations by segment for the years ended December 31 were as follows (dollars in thousands):
Increase (decrease) | ||||||||||||||||
2017 | 2016 | $ | % | |||||||||||||
BBU | $ | 5,615 | $ | 11,750 | $ | (6,135 | ) | (52.2 | )% | |||||||
VI Chip | (11,495 | ) | (16,494 | ) | 4,999 | 30.3 | % | |||||||||
Picor | 5,400 | (637 | ) | 6,037 | 947.7 | % | ||||||||||
Corporate | (880 | ) | (933 | ) | 53 | 5.7 | % | |||||||||
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Total | $ | (1,360 | ) | $ | (6,314 | ) | $ | 4,954 | 78.5 | % | ||||||
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The decrease in BBU operating profit in 2017 compared to 2016 was primarily due to adollars and decrease in gross margin despite thepercentage was attributable to favorable higher volumes, offset by production inefficiencies and certain increases in supply chain costs, including an increase of $9,986,000 in revenues,outsourced manufacturing costs of certain Advanced Products, and an increase of $5,799,000 in operating expenses. The primary increases in operating expenses were compensation expensesfreight-in and royalty expenses in connection with a reassessmenttariff (net of our contingent consideration obligations. The decrease in VI Chip operating loss in 2017 compared to 2016 was due to the increase in revenues and the related increase in gross margin, partially offset by increases in operating expenses. The primary increases in operating expenses were compensation expenses and project andpre-production materials expenses. The VI Chip segment continues to incur significant operating losses as revenue volume and related gross margins are not sufficient to cover fixed manufacturing costs and operating expenses, particularly research and development expenses. The improvement in Picor operating results in 2017 compared to 2016 was due to the increase in revenues and the related increase in gross margin. The cash needs for each segment are primarily for working capital and capital expenditures. Positive cash flow from BBU historically has funded, and is expected to continue to fund, VI Chip and Picor operations, as well as the capital expenditures for all segments for the foreseeable future.“duty drawback”) costs.
Selling, general, and administrative expenses were $58,092,000$86,264,000 for 2017,2022, an increase of $2,417,000,$16,780,000, or 4.3%24.1%, as compared to $55,675,000$69,484,000 for 2016.2021. As a percentage of net revenues, selling, general, and administrative expenses decreasedincreased to 25.5%21.6% in 20172022 from 27.8%19.3% in 2016, primarily due to the increase in net revenues.2021.
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The components of the $2,417,000$16,780,000 increase in selling, general, and administrative expenses were as follows (dollars in thousands):
Increase (decrease) | Increase (decrease) | |||||||||||||||
Legal fees | $ | 11,083 | 341.5 | %(1) | ||||||||||||
Compensation | $ | 1,954 | 5.8 | %(1) | 2,772 | 6.2 | %(2) | |||||||||
Royalty expense | 650 | 100.0 | %(2) | |||||||||||||
Advertising expenses | 422 | 18.7 | %(3) | 924 | 27.3 | %(3) | ||||||||||
Depreciation and amortization | 907 | 26.6 | %(4) | |||||||||||||
Travel expense | 894 | 68.5 | %(5) | |||||||||||||
Outside services | 598 | 23.5 | %(6) | |||||||||||||
Audit, tax, and accounting fees | (150 | ) | (7.9 | )%(4) | 447 | 21.2 | %(7) | |||||||||
Depreciation and amortization | (160 | ) | (5.9 | )%(5) | ||||||||||||
Telephone expense | (166 | ) | (14.5 | )%(6) | ||||||||||||
Outside services | (172 | ) | (8.6 | )%(7) | ||||||||||||
Legal fees | (273 | ) | (17.4 | )%(8) | ||||||||||||
Computer and software expense | 293 | 24.2 | %(8) | |||||||||||||
Commissions | (349 | ) | (10.8 | )%(9) | ||||||||||||
Facilities allocations | (845 | ) | (51.9 | )%(10) | ||||||||||||
Other, net | 312 | 3.0 | % | 56 | 2.0 | % | ||||||||||
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$ | 2,417 | 4.3 | % | $ | 16,780 | 24.1 | % | |||||||||
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(1) | Increase primarily attributable to |
(2) | Increase primarily attributable to an increase in |
(3) | Increase primarily |
(4) | Increase attributable to |
(5) | Increase primarily attributable to |
(6) | Increase primarily attributable to |
(7) | Overall increase in audit and tax fees. |
(8) | Increase primarily attributable to an increase in computer and software expenses. |
(9) | Decrease primarily attributable to a decrease in |
Decrease primarily attributable to |
Research and development expenses increased $3,076,000,$7,480,000, or 7.4%14.1%, to $44,924,000$60,594,000 in 20172022 from $41,848,000$53,114,000 in 2016.2021. As a percentage of net revenues, research and development decreasedexpenses increased to 19.7%15.2% in 20172022 from 20.9%14.8% in 2016, primarily due to the increase in net revenues.2021.
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The components of the $3,076,000$7,480,000 increase in research and development expenses were as follows (in(dollars in thousands):
Increase (decrease) | ||||||||
Compensation | $ | 2,121 | 7.3 | %(1) | ||||
Project andpre-production materials | 1,151 | 19.9 | %(2) | |||||
Facilities expenses | 316 | 16.4 | %(3) | |||||
Supplies expense | (167 | ) | (18.4 | )%(4) | ||||
Deferred costs | (213 | ) | (22.7 | )%(5) | ||||
Outside services | (245 | ) | (23.5 | )%(6) | ||||
Other, net | 113 | 2.8 | % | |||||
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$ | 3,076 | 7.4 | % | |||||
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Increase | ||||||||
Compensation | $ | 2,540 | 6.6 | %(1) | ||||
Supplies | 1,233 | 79.4 | %(2) | |||||
Project and pre-production materials | 1,130 | 15.1 | %(3) | |||||
Overhead absorption | 499 | 20.8 | %(4) | |||||
Depreciation and amortization | 332 | 15.8 | %(5) | |||||
Facilities allocations | 320 | 11.7 | %(6) | |||||
Computer and software expense | 316 | 42.3 | %(7) | |||||
Outside services | 219 | 38.1 | % | |||||
Freight | 155 | 60.9 | % | |||||
Travel expense | 130 | 67.1 | % | |||||
Other, net | 606 | 37.5 | % | |||||
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| |||||||
$ | 7,480 | 14.1 | % | |||||
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|
(1) | Increase primarily attributable to an increase in headcount, annual compensation adjustments in May |
(2) | Increase |
(3) | Increase primarily attributable to increased prototype development costs for Advanced Products. |
(4) | Increase primarily attributable to a decrease in R&D personnel incurring time on production activities, compared to R&D activities. |
(5) | Increase attributable to net additions of furniture and fixtures and capitalization of building improvements. |
(6) | Increase primarily attributable to an increase in utilities and building maintenance |
Increase primarily attributable to an increase in |
Litigation-related expense was $6,500,000 for 2022 which related to the SynQor litigation, as compared to $0 for 2021. See Note 15 to the Consolidated Financial Statements for additional information.
The significant changes in the components of “Other income (expense), net” for the years ended December 31 were as follows (in thousands):
2017 | 2016 | Increase (decrease) | ||||||||||
Rental income | $ | 792 | $ | 462 | $ | 330 | ||||||
Foreign currency gains (losses), net | 323 | (268 | ) | 591 | ||||||||
Interest income | 124 | 68 | 56 | |||||||||
Gain (loss) on disposal of equipment | 14 | (4 | ) | 18 | ||||||||
Credit gains onavailable-for-sale securities | 11 | 13 | (2 | ) | ||||||||
Other | (2 | ) | 13 | (15 | ) | |||||||
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| |||||||
$ | 1,262 | $ | 284 | $ | 978 | |||||||
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Increase | ||||||||||||
2022 | 2021 | (decrease) | ||||||||||
Interest income, net | $ | 1,313 | $ | 930 | $ | 383 | ||||||
Rental income, net | 792 | 792 | — | |||||||||
Foreign currency losses, net | (653 | ) | (336 | ) | (317 | ) | ||||||
Other, net | 34 | (183 | ) | 217 | ||||||||
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| |||||||
$ | 1,486 | $ | 1,203 | $ | 283 | |||||||
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During the second quarter of 2016, we began recognizing rental income under a new leasing agreement with a third party for the former Westcor facility. Our exposure to market risk fluctuations in foreign currency exchange rates relate primarilyrelates to the operations of VJCL, for which the functional currency is the Japanese Yen. The functional currency ofYen, and all other subsidiaries in Europe and Asia, for which the functional currency is the U.S. Dollar. While our Vicor B.V. operation also potentially exposes us to exchange rate risk, as that subsidiary’s sales are denominatedThese subsidiaries in EurosEurope and Pounds Sterling, any periodic gains or losses associated withAsia experienced more unfavorable foreign currency exchange rate fluctuations are small, givenin 2022 compared to 2021. “Interest income (expense), net” includes an immaterial error correction of $834,000 related to the small U.S. Dollar valueamortization of shipments we make to Vicor B.V.bond premiums on available for sale securities.
LossIncome before income taxes was $(98,000)$28,687,000 in 2017,2022, as compared to $(6,030,000)$56,805,000 in 2016.2021.
34
The (benefit) provision for income taxes and the effective income tax rate for the years ended December 31 were as follows (dollars in thousands):
2017 | 2016 | 2022 | 2021 | |||||||||||||
(Benefit) provision for income taxes | $ | (356 | ) | $ | 231 | |||||||||||
Provision for income taxes | $ | 3,261 | $ | 176 | ||||||||||||
Effective income tax rate | (363.3 | )% | 3.8 | % | 11.4 | % | 0.3 | % |
In 2017,The effective tax rates were lower than the benefit for income taxes was primarily due to our AMT credit carryforwards of approximately $736,000 becoming fully refundable in future years, due to the repeal of the corporate AMT under the recently enacted Tax Act, discussed below. The provisions for income taxes in each 2017 and 2016 period included estimated foreign income taxes and estimated state taxes in jurisdictions in which we do not have net operating loss carryforwards. Nostatutory tax benefit could be recognized for the majority of our losses during the periods as we maintain a full valuation allowance against all net domestic deferred tax assets due to our inability to project net future taxable income. In addition, in connection with our acquisition of 100% ownership of certain operating assets and cash of our consolidated subsidiary, Converpower Corporation, the related deferred tax liability for unremitted earnings of $55,000 was reversed and recorded as a discrete benefit in the first quarter of 2016 (see Note 9 to the Consolidated Financial Statements). We continue to maintain a full valuation allowance against all domestic net deferred tax assets.
On December 22, 2017, the U.S. government enacted comprehensive tax legislation, referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act makes broad and complex changes to the U.S. tax code, including, but not limited to: (1) reducing the U.S. federal corporate tax rate from 35% to 21%; (2) elimination of the corporate AMT and changing how existing AMT credits can be realized; (3) changing rules related to the usage and limitation of net operating loss carryforwards created in tax years beginning after December 31, 2017; and (4) implementing a territorial tax system, which generally eliminates the U.S. federal income tax on dividends from foreign subsidiaries, and imposes aone-time transition tax on certain earnings of foreign subsidiaries previously untaxed in the United States.
As described in Note 2 — Impact of recently issued accounting standardsto the Consolidated Financial Statements, we adopted new guidance for employee stock-based payment accounting during the first quarter of 2017. The new guidance, among other considerations, requires excess tax benefits and tax deficiencies related to employee stock-based compensation to now be recorded in earnings when the awards vest or are settled, rather than in stockholders’ equity under previous guidance. In addition, it eliminates the requirement that excess tax benefits be realized with the taxing authority before they can be recognized. In connection with the adoption of this new guidance, we recorded a cumulative-effect adjustment as of January 1, 2017 to increase gross deferred tax assets and the related valuation allowance against deferred tax assets by $3,485,000. This amount was allocated and added to deferred tax assets for research and development tax credit carryforwards, net operating loss carryforwards and the alternative minimum tax credit carryforward but, as noted above, was fully offset by a corresponding increase in the valuation allowance against deferred tax assets, resulting in no net effect on our Consolidated Financial Statements.
Net income per diluted share attributable to Vicor Corporation was $0.00rates for the year ended December 31, 2017, compared2022 and 2021 primarily due to a net loss per share of $(0.16)the Company’s full valuation allowance position against domestic deferred tax assets during both years. The provision for the year ended December 31, 2016.
Year ended December 31, 2016 compared to Year ended December 31, 2015
Net revenues for 2016 were $200,280,000, a decrease of $19,914,000, or 9.0%, as compared to $220,194,000 for 2015.
The components of revenueincome taxes for the years ended December 31, were as follows (dollars2022 and 2021 included estimated federal, state and foreign income taxes in thousands):jurisdictions in which the Company does not have sufficient tax attribute, offset by excess tax benefits related to stock based compensation during those periods.
Increase (decrease) | ||||||||||||||||
2016 | 2015 | $ | % | |||||||||||||
BBU | $ | 151,429 | $ | 173,108 | $ | (21,679 | ) | (12.5 | )% | |||||||
VI Chip | 38,369 | 35,198 | 3,171 | 9.0 | % | |||||||||||
Picor | 10,482 | 11,888 | (1,406 | ) | (11.8 | )% | ||||||||||
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Total | $ | 200,280 | $ | 220,194 | $ | (19,914 | ) | (9.0 | )% | |||||||
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|
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The overall year to year decrease in consolidated net revenues was primarily due to an 8.7% decrease in overall BBU bookings for 2016 compared to 2015. While VI Chip and Picor bookings increased year over year, a large portion of their respective bookings in the third and fourth quarter of 2016 was scheduled for shipment in 2017, mitigating the impact of the increased bookings on 2016 revenue. Customer bookings patterns continued to be unpredictable, particularly with the VI Chip and Picor segments. The decrease in BBU revenues was primarily attributable to a decrease in BBU module and configurable product revenues of approximately $18,225,000 and a decrease in Vicor Custom Power revenues of $5,440,000, dueSee Note 14 to the consolidationConsolidated Financial Statements for disclosure regarding our current assessment of operations noted above.
Gross margin for 2016 decreased $8,309,000, or 8.3%, to $91,209,000 from $99,518,000 in 2015. Gross margin as a percentage of net revenues increased to 45.5% in 2016 from 45.2% in 2015. The lower gross margin dollars is primarily due to the lower net revenues, while the higher gross margin percentage was primarily due to a more favorable product mix and lower charges for warranty reserves in 2016 compared to 2015.
Income (loss) from operations by segment for the years ended December 31 were as follows (dollars in thousands):
Increase (Decrease) | ||||||||||||||||
2016 | 2015 | $ | % | |||||||||||||
BBU | $ | 11,750 | $ | 21,743 | $ | (9,993 | ) | (46.0 | )% | |||||||
VI Chip | (16,494 | ) | (21,040 | ) | 4,546 | 21.6 | % | |||||||||
Picor | (637 | ) | (290 | ) | (347 | ) | (119.7 | )% | ||||||||
Corporate | (933 | ) | (680 | ) | (253 | ) | (37.2 | )% | ||||||||
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|
| |||||||||||
Total | $ | (6,314 | ) | $ | (267 | ) | $ | (6,047 | ) | (2264.8 | )% | |||||
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The decrease in BBU operating profit in 2016 compared to 2015 was primarily due to a decrease in revenues and related decrease in gross margin, partially offset by decreases in operating expenses. The primary decreases in operating expenses were compensation expenses, commissions expense, and legal fees. Compensation and other operating expenses have decreased in part due to the Westcor consolidation and the consolidation of our Vicor Custom Power operations discussed above. The decrease in commissions expense is primarily attributable to the decrease in net revenues subject to commissions. Legal fees, which are charged to the BBU segment, are associated with the ongoing patent infringement litigation. The decrease in VI Chip operating loss in 2016 compared to 2015 was due to the increase in revenues and the related increase in gross margin, along with the reversal of approximately $768,000 of stock-based compensation expense related to certain VI Chip performance-based stock options in the third quarter of 2016. The VI Chip segment continued to incur significant operating losses as revenue volume and related gross margins were not sufficient to cover fixed manufacturing costs and operating expenses, particularly research and development expenses. The cash needs for each segment were primarily for working capital and capital expenditures.
Selling, general, and administrative expenses were $55,675,000 for 2016, a decrease of $2,638,000, or 4.5%, as compared to $58,313,000 for 2015. As a percentage of net revenues, selling, general, and administrative expenses increased to 27.8% in 2016 from 26.5% in 2015, primarily due to the decrease in net revenues.
The components of the $2,638,000 decrease in selling, general, and administrative expenses were as follows (dollars in thousands):
Increase (decrease) | ||||||||
Compensation | $ | (1,077 | ) | (3.1 | )%(1) | |||
Commissions expense | (748 | ) | (17.4 | )%(2) | ||||
Legal fees | (734 | ) | (31.9 | )%(3) | ||||
Depreciation and amortization | (148 | ) | (5.2 | )%(4) | ||||
Supplies expense | (138 | ) | (25.3 | )%(5) | ||||
Project expenses | (132 | ) | (73.5 | )%(6) | ||||
Computer expenses | (52 | ) | (5.2 | )% | ||||
Employment recruiting | (40 | ) | (15.3 | )% | ||||
Travel expenses | 300 | 11.3 | %(7) | |||||
Outside services | 362 | 22.1 | %(8) | |||||
Other, net | (231 | ) | (3.0 | )% | ||||
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| |||||||
$ | (2,638 | ) | (4.5 | )% | ||||
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Research and development expenses increased $376,000, or 0.9%, to $41,848,000 in 2016 from $41,472,000 in 2015. As a percentage of net revenues, research and development increased to 20.9% in 2016 from 18.8% in 2015, primarily due to the decrease in net revenues.
The components of the $376,000 increase in research and development expenses were as follows (dollars in thousands):
Increase (decrease) | ||||||||
Project andpre-production materials | $ | 1,214 | 26.5 | %(1) | ||||
Compensation | 502 | 1.8 | %(2) | |||||
Computer expenses | 91 | 22.7 | % | |||||
Outside services | (86 | ) | (9.7 | )% | ||||
Facilities expenses | (221 | ) | (10.2 | )%(3) | ||||
Depreciation and amortization | (357 | ) | (14.8 | )%(4) | ||||
Deferred costs | (774 | ) | (474.7 | )%(5) | ||||
Other, net | 7 | 0.3 | % | |||||
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| |||||||
$ | 376 | 0.9 | % | |||||
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The significant changes in the components of “Other income, net” for the years ended December 31 were as follows (in thousands):
2016 | 2015 | Increase (decrease) | ||||||||||
Rental income | $ | 462 | $ | — | $ | 462 | ||||||
Foreign currency losses, net | (268 | ) | (161 | ) | (107 | ) | ||||||
Interest income | 68 | 47 | 21 | |||||||||
Credit gains onavailable-for-sale securities | 13 | 12 | 1 | |||||||||
(Loss) gain on disposal of equipment | (4 | ) | 60 | (64 | ) | |||||||
Other | 13 | 67 | (54 | ) | ||||||||
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$ | 284 | $ | 25 | $ | 259 | |||||||
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During the second quarter of 2016, we began recognizing rental income under a new leasing agreement with a third party for the former Westcor facility. Our exposure to market risk for fluctuations in foreign currency exchange rates relates primarily to the operations of VJCL, for which the functional currency is the Japanese Yen. The functional currency of the subsidiaries in Europe and other subsidiaries in Asia is the U.S. Dollar. While our Vicor B.V. operation also potentially exposes us to exchange rate risk, as that subsidiary’s sales are denominated in Euros and Pounds Sterling, any periodic gains or losses associated with exchange rate fluctuations are small, given the small U.S. Dollar value of shipments we make to Vicor B.V.
Loss before income taxes was $(6,030,000) in 2016, as compared to $(242,000) in 2015.
The provision (benefit) for income taxes and the effective income tax rate for the years ended December 31 were as follows (dollars in thousands):
2016 | 2015 | |||||||
Provision (benefit) for income taxes | $ | 231 | $ | (401 | ) | |||
Effective income tax rate | 3.8 | % | (165.7 | )% |
For the years ended December 31, 2016 and 2015, no tax benefit could be recognized for the majority of our losses as we maintained a full valuation allowance against all domestic deferred tax assets, due to our inability to project net future taxable income. The tax provision for both years includes estimated federal, state and foreign income taxes and, in 2015, estimated federal and state income taxes for one noncontrolling interest subsidiary. In 2016, in connection with the acquisitionpossible release (i.e., reduction) of 100% ownership of certain operating assets and cash of Converpower Corporation, the related deferred tax liability for unremitted earnings of $55,000 was reversed and recorded as a discrete benefitallowance in the first quarter of 2016 (see Note 9 to the Consolidated Financial Statements). In 2015, we recognized a tax benefit of approximately $555,000 as a discrete item in the fourth quarter of 2015 for the release of certain tax reserves, due to entering into voluntary disclosure agreements with several states. In addition, in connection with the sale of our 49% interest in a noncontrolling interest subsidiary, Aegis Power Systems, Inc., the related deferred tax liability for unremitted earnings of $274,000 was reversed and recorded as a deferred tax benefit in the fourth quarter of 2015 (see Note 9 to the Consolidated Financial Statements). In both years, we continued to maintain a full valuation allowance against all domesticfuture.
We reported net deferred tax assets and the majority of foreign net deferred tax assets. The effective tax rate was lower in 2016 than 2015 as the loss before income taxes and before the gain from sale of equity method investments was significantly higher in 2016 than in 2015.
In September 2015, Intersil Corporation acquired Great Wall Semiconductor Corporation (“GWS”). At that time, our gross investment innon-voting convertible preferred stock of GWS totaled $4,999,719, giving us an approximately 27% ownership interest in GWS. We received cash consideration of $4,999,719 for our investment from Intersil, representing full preference value of our shares ofnon-voting convertible preferred stock of GWS. Since the investment in GWS had previously been written down to zero, the full amount of the consideration was recorded as a gain from sale of equity method investment in the third quarter of 2015. (See Note 8 to the Consolidated Financial Statements for additional information.)
Net loss per share attributable to Vicor Corporation was $(0.16) for the year ended December 31, 2016, compared to net income2022 of $25,446,000, or $0.57 per diluted share, of $0.13as compared to $56,625,000, or $1.26 per diluted share, for the year ended December 31, 2015.2021.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2017,2022, we had $44,230,000$190,611,000 in cash and cash equivalents. The ratio of current assets to current liabilities was 4.2:5.6:1 at December 31, 2017,2022, as compared to 5.0:7.3:1 at December 31, 2016. Working2021. Net working capital increased $1,251,000decreased $9,612,000 to $90,796,000$298,055,000 at December 31, 20172022 from $89,545,000$307,667,000 at December 31, 2016.2021.
The primary working capital changes were due to the following (in thousands):
Increase (decrease) | Increase (decrease) | |||||||
Cash and cash equivalents | $ | (11,940 | ) | $ | 8,193 | |||
Short-term investments | (45,215 | ) | ||||||
Accounts receivable | 9,271 | 10,332 | ||||||
Inventories | 9,363 | 34,088 | ||||||
Other current assets | 366 | (1,554 | ) | |||||
Accounts payable | (1,477 | ) | (1,018 | ) | ||||
Accrued compensation and benefits | (926 | ) | 1,904 | |||||
Accrued expenses | (810 | ) | (4,455 | ) | ||||
Sales allowances | (197 | ) | ||||||
Accrued litigation | (6,500 | ) | ||||||
Short-term lease liabilities | 101 | |||||||
Income taxes payable | (208 | ) | (6 | ) | ||||
Deferred revenue | (2,388 | ) | ||||||
Short-term deferred revenue and customer prepayments | (5,285 | ) | ||||||
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| |||||||
$ | 1,251 | $ | (9,612 | ) | ||||
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The primary uses of cash for the year ended December 31, 2017 was for operating activities of $2,464,000 and the purchase of equipment of $12,545,000. The primary sources of cash for the year ended December 31, 2017 was2022 were $22,939,000 of cash generated from proceedsoperations, $45,000,000 of cash from the sale or maturities of short-term investments, and $4,439,000 of cash 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 associated withunder our 2017 Employee Stock Purchase Plan. The primary use of cash during the exercise of optionsyear ended December 31, 2022 was $63,966,000 for the purchase of shares of our Common Stock of $3,300,000.property and equipment and internal-use software.
35
In November 2000, our Board of Directors authorized the repurchase of up to $30,000,000 of 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 of such repurchases and the number of shares purchased in each transaction are at the discretion of management based on its view of economic and financial market conditions. We did not repurchase shares of Common Stock under the November 2000 Plan during the year ended December 31, 2017.2022. As of December 31, 2017,2022, we had approximately $8,541,000 remaining for share purchases under the November 2000 Plan.
During the year ended December 31, 2016, one of our subsidiaries paid a total of $750,000 in cash dividends, all of which was paid to us.
As of December 31, 2017,2022, we had nooff-balance sheet arrangements.
The table below summarizes our contractual obligations asa total of approximately $24,205,000 of cancelable and non-cancelable capital expenditure commitments, principally for manufacturing and production equipment, which we intend to fund with existing cash, and approximately $4,194,000 of capital expenditure items which had been received and included in Property, plant and equipment in the accompanying Consolidated Balance Sheets, but not yet paid for. As of December 31, 2017 (in thousands):
Payments Due by Period | ||||||||||||||||||||
Contractual Obligations | Total | Less than 1 Year | Years 2 & 3 | Years 4 & 5 | More Than 5 Years | |||||||||||||||
Operating lease obligations | $ | 5,235 | $ | 1,742 | $ | 2,024 | $ | 808 | $ | 661 | ||||||||||
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2022, we had approximately $2,936,000 of remaining capital expenditures expected to be incurred through the remainder of 2023 associated with the construction of a 90,000 sq. ft. addition to the Company’s existing manufacturing facility and the installation of new manufacturing and production equipment. Our primary needs for liquidity needs are for making continuing investments in manufacturing equipment.and production equipment and for funding the construction of the additional manufacturing space adjoining our existing Andover manufacturing facility (as described above), including architectural and construction costs. We believe cash generated from operations and the total oftogether with our available cash and cash equivalents and short-term investments will be sufficient to fund planned operationsoperational needs and capital equipment purchases for the foreseeable future. We have approximately $1,911,000 of capital expenditure commitments, principally for manufacturing equipment, as of December 31, 2017, which we intend to fund with existing cash.
We do not consider the impact of inflation and changing prices on our business activities or fluctuations in the exchange rates for foreign currency transactions to have been significant during the last three fiscal years.
ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 7A. | 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, 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, and 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 December 31, 2017,2022, our long-term investment portfolio, recorded on our Consolidated Balance Sheet as “Long-term investments,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 income (loss)”, a component of Vicor Corporation 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 December 31, 2017.2022.
We estimate our annual interest income would change by approximately $30,000 in 20172022 for each 100 basis point increase or decrease in interest rates.
Our exposure to market risk for fluctuations in foreign currency exchange rates relates primarily to the operations of VJCL, for which the functional currency is the Japanese Yen, and changes in the relative value of
36
the Yen to the U.S. Dollar. Relative to our Yen exposure as of December 31, 2017,2022, we estimate a 10% unfavorable movement in the value of the Yen relative to the U.S. Dollar would increase our foreign currency loss by approximately $139,000. As the$30,000. The functional currency of all other subsidiaries in Europe and other subsidiaries in Asia is the U.S. Dollar,Dollar. While we believe risk to fluctuations in foreign currency exchange rates for these subsidiaries is generally not significant, as these operations do not incur materialthey can be subject to substantial currency changes, and therefore foreign exchange exposures.
Boston,
March 9, 2018
2021
2017 | 2016 | |||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 44,230 | $ | 56,170 | ||||
Accounts receivable, less allowance of $159 in 2017 and $153 in 2016 | 34,487 | 25,216 | ||||||
Inventories, net | 36,499 | 27,136 | ||||||
Other current assets | 3,616 | 3,250 | ||||||
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| |||||
Total current assets | 118,832 | 111,772 | ||||||
Long-term deferred tax assets | 210 | 38 | ||||||
Long-term investments, net | 2,525 | 2,508 | ||||||
Property, plant and equipment, net | 41,356 | 37,574 | ||||||
Other assets | 2,801 | 2,175 | ||||||
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| |||||
Total assets | $ | 165,724 | $ | 154,067 | ||||
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| |||||
LIABILITIES AND EQUITY | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 9,065 | $ | 7,588 | ||||
Accrued compensation and benefits | 9,891 | 8,965 | ||||||
Accrued expenses | 2,989 | 2,179 | ||||||
Income taxes payable | 300 | 92 | ||||||
Deferred revenue | 5,791 | 3,403 | ||||||
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| |||||
Total current liabilities | 28,036 | 22,227 | ||||||
Long-term deferred revenue | 303 | 374 | ||||||
Contingent consideration obligations | 678 | 253 | ||||||
Long-term income taxes payable | 195 | 196 | ||||||
Other long-term liabilities | 93 | — | ||||||
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|
| |||||
Total liabilities | 29,305 | 23,050 | ||||||
Commitments and contingencies (Note 15) | ||||||||
Equity: | ||||||||
Vicor Corporation stockholders’ equity: | ||||||||
Preferred Stock, $.01 par value, 1,000,000 shares authorized; no shares issued | ||||||||
Class B Common Stock: 10 votes per share, $.01 par value, 14,000,000 shares authorized, 11,758,218 shares issued and outstanding in 2017 and 2016 | 118 | 118 | ||||||
Common Stock: 1 vote per share, $.01 par value, 62,000,000 shares authorized 39,324,029 shares issued and 27,652,543 shares outstanding (38,922,489 shares issued and 27,251,003 shares outstanding in 2016) | 401 | 397 | ||||||
Additionalpaid-in capital | 181,395 | 176,344 | ||||||
Retained earnings | 93,605 | 93,438 | ||||||
Accumulated other comprehensive loss | (478 | ) | (561 | ) | ||||
Treasury stock at cost: 11,671,486 shares in 2017 and 2016 | (138,927 | ) | (138,927 | ) | ||||
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| |||||
Total Vicor Corporation stockholders’ equity | 136,114 | 130,809 | ||||||
Noncontrolling interest | 305 | 208 | ||||||
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| |||||
Total equity | 136,419 | 131,017 | ||||||
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| |||||
Total liabilities and equity | $ | 165,724 | $ | 154,067 | ||||
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|
2022 | 2021 | |||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 190,611 | $ | 182,418 | ||||
Short-term investments | — | 45,215 | ||||||
Accounts receivable, less allowance of $87 in 2022 and $ 82 in 2021 | 65,429 | 55,097 | ||||||
Inventories | 101,410 | 67,322 | ||||||
Other current assets | 5,154 | 6,708 | ||||||
Total current assets | 362,604 | 356,760 | ||||||
Deferred tax assets | 280 | 208 | ||||||
Long-term investment, net | 2,622 | 2,639 | ||||||
Property, plant and equipment, net | 166,009 | 115,975 | ||||||
Other assets | 5,386 | 1,623 | ||||||
Total assets | $ | 536,901 | $ | 477,205 | ||||
LIABILITIES AND EQUITY | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 22,207 | $ | 21,189 | ||||
Accrued compensation and benefits | 10,849 | 12,753 | ||||||
Accrued litigation | 6,500 | — | ||||||
Accrued expenses | 8,613 | 4,158 | ||||||
Sales allowances | 1,661 | 1,464 | ||||||
Short-term lease liabilities | 1,450 | 1,551 | ||||||
Income taxes payable | 72 | 66 | ||||||
Short-term deferred revenue and customer prepayments | 13,197 | 7,912 | ||||||
Total current liabilities | 64,549 | 49,093 | ||||||
Long-term deferred revenue | 145 | 413 | ||||||
Long-term income taxes payable | 862 | 569 | ||||||
Long-term lease liabilities | 7,009 | 3,225 | ||||||
Total liabilities | 72,565 | 53,300 | ||||||
Commitments and contingencies (Note 15) | ||||||||
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 2022; 14,000,000 shares authorized, 11,758,218 shares issued and outstanding in 2021 | 118 | 118 | ||||||
Common Stock: 1 vote per share, $ .01 par value, 62,000,000 shares authorized 43,976,336 shares issued and 32,341,530 shares outstanding in 2022; 43,789,528 shares issued and 32,154,722 shares outstanding in 2021 | 441 | 439 | ||||||
Additional paid-in capital | 360,365 | 345,664 | ||||||
Retained earnings | 243,079 | 217,633 | ||||||
Accumulated other comprehensive loss | (988 | ) | (1,328 | ) | ||||
Treasury stock at cost: 11,634,806 shares in 2022 and 2021 | (138,927 | ) | (138,927 | ) | ||||
Total Vicor Corporation stockholders’ equity | 464,088 | 423,599 | ||||||
Noncontrolling interest | 248 | 306 | ||||||
Total equity | 464,336 | 423,905 | ||||||
Total liabilities and equity | $ | 536,901 | $ | 477,205 | ||||
notes
2020
2017 | 2016 | 2015 | ||||||||||
Net revenues | $ | 227,830 | $ | 200,280 | $ | 220,194 | ||||||
Cost of revenues | 126,174 | 109,071 | 120,676 | |||||||||
|
|
|
|
|
| |||||||
Gross margin | 101,656 | 91,209 | 99,518 | |||||||||
Operating expenses: | ||||||||||||
Selling, general and administrative | 58,092 | 55,675 | 58,313 | |||||||||
Research and development | 44,924 | 41,848 | 41,472 | |||||||||
|
|
|
|
|
| |||||||
Total operating expenses | 103,016 | 97,523 | 99,785 | |||||||||
|
|
|
|
|
| |||||||
Loss from operations | (1,360 | ) | (6,314 | ) | (267 | ) | ||||||
Other income (expense), net: | ||||||||||||
Total unrealized gains (losses) onavailable-for-sale securities, net | 17 | (18 | ) | (49 | ) | |||||||
Portion of (losses) gains recognized in other comprehensive income (loss) | (6 | ) | 31 | 61 | ||||||||
|
|
|
|
|
| |||||||
Net credit gains recognized in earnings | 11 | 13 | 12 | |||||||||
Other income (expense), net | 1,251 | 271 | 13 | |||||||||
|
|
|
|
|
| |||||||
Total other income (expense), net | 1,262 | 284 | 25 | |||||||||
|
|
|
|
|
| |||||||
Loss before income taxes | (98 | ) | (6,030 | ) | (242 | ) | ||||||
Less: (Benefit) provision for income taxes | (356 | ) | 231 | (401 | ) | |||||||
Gain from sale of equity method investment, net of tax | — | — | 5,000 | |||||||||
|
|
|
|
|
| |||||||
Consolidated net income (loss) | 258 | (6,261 | ) | 5,159 | ||||||||
Less: Net income (loss) attributable to noncontrolling interest | 91 | (14 | ) | 232 | ||||||||
|
|
|
|
|
| |||||||
Net income (loss) attributable to Vicor Corporation | $ | 167 | $ | (6,247 | ) | $ | 4,927 | |||||
|
|
|
|
|
| |||||||
Net income (loss) per common share attributable to Vicor Corporation: | ||||||||||||
Basic | $ | 0.00 | $ | (0.16 | ) | $ | 0.13 | |||||
Diluted | $ | 0.00 | $ | (0.16 | ) | $ | 0.13 | |||||
Shares used to compute net income (loss) per common share attributable to Vicor Corporation: | ||||||||||||
Basic | 39,228 | 38,842 | 38,754 | |||||||||
Diluted | 39,933 | 38,842 | 39,146 |
2022 | 2021 | 2020 | ||||||||||
Net revenues | $ | 399,079 | $ | 359,364 | $ | 296,576 | ||||||
Cost of revenues | 218,520 | 181,164 | 165,129 | |||||||||
Gross margin | 180,559 | 178,200 | 131,447 | |||||||||
Operating expenses: | ||||||||||||
Selling, general and administrative | 86,264 | 69,484 | 63,163 | |||||||||
Research and development | 60,594 | 53,114 | 50,916 | |||||||||
Litigation-related | 6,500 | — | — | |||||||||
Total operating expenses | 153,358 | 122,598 | 114,079 | |||||||||
Income from operations | 27,201 | 55,602 | 17,368 | |||||||||
Other income (expense), net: | ||||||||||||
Total unrealized (losses) gains on available-for-sale | (17 | ) | 122 | 7 | ||||||||
Portion of losses (gains) recognized in other comprehensive income | 20 | (118 | ) | (3 | ) | |||||||
Net credit gains recognized in earnings | 3 | 4 | 4 | |||||||||
Other income (expense), net | 1,483 | 1,199 | 1,089 | |||||||||
Total other income (expense), net | 1,486 | 1,203 | 1,093 | |||||||||
Income before income taxes | 28,687 | 56,805 | 18,461 | |||||||||
Less: Provision for income taxes | 3,261 | 176 | 539 | |||||||||
Consolidated net income | 25,426 | 56,629 | 17,922 | |||||||||
Less: Net (loss) income attributable to noncontrolling interest | (20 | ) | 4 | 12 | ||||||||
Net income attributable to Vicor Corporation | $ | 25,446 | $ | 56,625 | $ | 17,910 | ||||||
Net income per common share attributable to Vicor Corporation: | ||||||||||||
Basic | $ | 0.58 | $ | 1.30 | $ | 0.42 | ||||||
Diluted | $ | 0.57 | $ | 1.26 | $ | 0.41 | ||||||
Shares used to compute net income per common share attributable to Vicor Corporation: | ||||||||||||
Basic | 44,005 | 43,651 | 42,186 | |||||||||
Diluted | 44,894 | 44,966 | 43,869 | |||||||||
2020
2017 | 2016 | 2015 | ||||||||||
Consolidated net income (loss) | $ | 258 | $ | (6,261 | ) | $ | 5,159 | |||||
Foreign currency translation gains (losses), net of tax benefit (1) | 83 | 52 | (52 | ) | ||||||||
Unrealized gains (losses) onavailable-for-sale securities, net of tax (1) | 6 | (31 | ) | (59 | ) | |||||||
|
|
|
|
|
| |||||||
Other comprehensive income (loss) | 89 | 21 | (111 | ) | ||||||||
|
|
|
|
|
| |||||||
Consolidated comprehensive income (loss) | 347 | (6,240 | ) | 5,048 | ||||||||
Less: Comprehensive income (loss) attributable to noncontrolling interest | 97 | (9 | ) | 227 | ||||||||
|
|
|
|
|
| |||||||
Comprehensive income (loss) attributable to Vicor Corporation | $ | 250 | $ | (6,231 | ) | $ | 4,821 | |||||
|
|
|
|
|
|
2022 | 2021 | 2020 | ||||||||||
Consolidated net income | $ | 25,426 | $ | 56,629 | $ | 17,922 | ||||||
Foreign currency translation (losses) gains, net of tax benefit (1) | (519 | ) | (425 | ) | 200 | |||||||
Unrealized gains (losses) on available-for-sale | 821 | (732 | ) | (6 | ) | |||||||
Other comprehensive income (loss) | 302 | (1,157 | ) | 194 | ||||||||
Consolidated comprehensive income | 25,728 | 55,472 | 18,116 | |||||||||
Less: Comprehensive (loss) income attributable to noncontrolling interest | (58 | ) | (29 | ) | 27 | |||||||
Comprehensive income attributable to Vicor Corporation | $ | 25,786 | $ | 55,501 | $ | 18,089 | ||||||
(1) | The deferred tax assets associated with cumulative foreign currency translation (losses) gains available-for-sale |
2020
2017 | 2016 | 2015 | ||||||||||
Operating activities: | ||||||||||||
Consolidated net income (loss) | $ | 258 | $ | (6,261 | ) | $ | 5,159 | |||||
Adjustments to reconcile consolidated net income (loss) to net cash (used for) provided by operating activities: | ||||||||||||
Depreciation and amortization | 8,893 | 8,438 | 9,142 | |||||||||
Stock-based compensation expense | 1,735 | 506 | 1,782 | |||||||||
Increase in refundable income taxes | (736 | ) | — | — | ||||||||
Increase in contingent consideration obligations | 650 | — | — | |||||||||
(Decrease) increase in long-term income taxes payable | (1 | ) | 4 | (675 | ) | |||||||
Deferred income taxes | (172 | ) | (78 | ) | (183 | ) | ||||||
Decrease in long-term deferred revenue | (71 | ) | (94 | ) | (139 | ) | ||||||
Increase in other long-term liabilities | 93 | — | — | |||||||||
(Gain) loss on disposal of equipment | (14 | ) | 4 | (60 | ) | |||||||
Provision (benefit) for doubtful accounts | 6 | (22 | ) | (18 | ) | |||||||
Credit gain onavailable-for-sale securities | (11 | ) | (13 | ) | (12 | ) | ||||||
Gain from sale of equity method investment | — | — | (5,000 | ) | ||||||||
Increase in other assets | — | (505 | ) | — | ||||||||
Gain from disposition of consolidated subsidiary | — | — | (28 | ) | ||||||||
Change in current assets and liabilities, net | (13,094 | ) | (1,435 | ) | 1,499 | |||||||
|
|
|
|
|
| |||||||
Net cash (used for) provided by operating activities | (2,464 | ) | 544 | 11,467 | ||||||||
Investing activities: | ||||||||||||
Additions to property, plant and equipment | (12,545 | ) | (8,428 | ) | (9,090 | ) | ||||||
Proceeds from sale of equipment | 14 | 2 | 60 | |||||||||
Increase (decrease) in other assets | 5 | (93 | ) | (204 | ) | |||||||
Sales and maturities of investments | — | — | 360 | |||||||||
Proceeds from sale of equity method investment | — | — | 5,000 | |||||||||
Deconsolidation of subsidiary | — | — | (392 | ) | ||||||||
|
|
|
|
|
| |||||||
Net cash used for investing activities | (12,526 | ) | (8,519 | ) | (4,266 | ) | ||||||
Financing activities: | ||||||||||||
Proceeds from issuance of Common Stock | 3,300 | 1,584 | 820 | |||||||||
Payment of contingent consideration obligations | (225 | ) | (99 | ) | — | |||||||
Deconsolidation of subsidiary | — | (372 | ) | — | ||||||||
Acquisition of noncontrolling interest | — | — | (216 | ) | ||||||||
|
|
|
|
|
| |||||||
Net cash provided by financing activities | 3,075 | 1,113 | 604 | |||||||||
Effect of foreign exchange rates on cash | (25 | ) | 52 | (12 | ) | |||||||
|
|
|
|
|
| |||||||
Net (decrease) increase in cash and cash equivalents | (11,940 | ) | (6,810 | ) | 7,793 | |||||||
Cash and cash equivalents at beginning of year | 56,170 | 62,980 | 55,187 | |||||||||
|
|
|
|
|
| |||||||
Cash and cash equivalents at end of year | $ | 44,230 | $ | 56,170 | $ | 62,980 | ||||||
|
|
|
|
|
| |||||||
Change in current assets and liabilities, excluding effects of disposition of consolidated subsidiary: | ||||||||||||
Accounts receivable | $ | (9,210 | ) | $ | 780 | $ | 2,201 | |||||
Inventories, net | (9,309 | ) | (3,677 | ) | 1,880 | |||||||
Other current assets | (357 | ) | (158 | ) | (111 | ) | ||||||
Accounts payable and accrued liabilities | 3,186 | 339 | (1,301 | ) | ||||||||
Accrued severance charges | — | (195 | ) | (1,709 | ) | |||||||
Income taxes payable | 208 | 61 | (10 | ) | ||||||||
Deferred revenue | 2,388 | 1,415 | 549 | |||||||||
|
|
|
|
|
| |||||||
Change in current assets and liabilities, net | $ | (13,094 | ) | $ | (1,435 | ) | $ | 1,499 | ||||
|
|
|
|
|
| |||||||
Supplemental disclosures: | ||||||||||||
Cash paid during the year for income taxes, net of refunds | $ | 373 | $ | 230 | $ | 675 |
2022 | 2021 | 2020 | ||||||||||
Operating activities: | ||||||||||||
Consolidated net income | $ | 25,426 | $ | 56,629 | $ | 17,922 | ||||||
Adjustments to reconcile consolidated net income to net cash provided by operating activities: | ||||||||||||
Depreciation and amortization | 13,776 | 11,705 | 11,056 | |||||||||
Stock-based compensation expense | 10,264 | 7,035 | 5,883 | |||||||||
Litigation-related expense | 6,500 | — | — | |||||||||
Decrease in long-term deferred revenue | (268 | ) | (320 | ) | (321 | ) | ||||||
Amortization of bond premium | 1,056 | — | — | |||||||||
(Decrease) increase in other assets | (692 | ) | (43 | ) | 182 | |||||||
Increase (decrease) in long-term income taxes payable | 293 | (74 | ) | 76 | ||||||||
Deferred income taxes | (72 | ) | 18 | (21 | ) | |||||||
Provision for doubtful accounts | 5 | — | 23 | |||||||||
Credit gain on available-for-sale | (3 | ) | (4 | ) | (4 | ) | ||||||
Decrease in contingent consideration obligations | — | (74 | ) | — | ||||||||
Change in current assets and liabilities, net | (33,346 | ) | (20,428 | ) | (54 | ) | ||||||
Net cash provided by operating activities | 22,939 | 54,444 | 34,742 | |||||||||
Investing activities: | ||||||||||||
Purchases of short-term investments | — | (70,900 | ) | (50,166 | ) | |||||||
Additions to property, plant and equipment and internal-use software | (63,966 | ) | (47,761 | ) | (28,653 | ) | ||||||
Sales and maturities of short-term investments | 45,000 | 75,000 | — | |||||||||
Net cash used for investing activities | (18,966 | ) | (43,661 | ) | (78,819 | ) | ||||||
Financing activities: | ||||||||||||
Proceeds from employee stock plans | 4,439 | 10,243 | 11,585 | |||||||||
Proceeds from public offering of Common Stock | — | — | 109,681 | |||||||||
Payment of contingent consideration obligations | — | (153 | ) | (224 | ) | |||||||
Net cash provided by financing activities | 4,439 | 10,090 | 121,042 | |||||||||
Effect of foreign exchange rates on cash | (219 | ) | (197 | ) | 109 | |||||||
Net increase in cash and cash equivalents | 8,193 | 20,676 | 77,074 | |||||||||
Cash and cash equivalents at beginning of year | 182,418 | 161,742 | 84,668 | |||||||||
Cash and cash equivalents at end of year | $ | 190,611 | $ | 182,418 | $ | 161,742 | ||||||
Change in current assets and liabilities: | ||||||||||||
Accounts receivable | $ | (10,586 | ) | $ | (14,301 | ) | $ | (2,816 | ) | |||
Inventories, net | (34,204 | ) | (10,134 | ) | (8,049 | ) | ||||||
Other current assets | 1,547 | 10 | 369 | |||||||||
Accounts payable and accrued liabilities | 4,399 | 2,503 | 8,668 | |||||||||
Accrued severance and other charges | (93 | ) | 93 | — | ||||||||
Short-term lease payable | 103 | 4 | 34 | |||||||||
Income taxes payable | 6 | (73 | ) | 82 | ||||||||
Deferred revenue | 5,482 | 1,470 | 1,658 | |||||||||
Change in current assets and liabilities, net | $ | (33,346 | ) | $ | (20,428 | ) | $ | (54 | ) | |||
Supplemental disclosures: | ||||||||||||
Cash paid during the year for income taxes, net of refunds | $ | 1,263 | $ | 645 | $ | 79 |
2020
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 | ||||||||||||||||||||||||||||
Balance on December 31, 2014 | $ | 118 | $ | 393 | $ | 171,901 | $ | 94,758 | $ | (471 | ) | $ | (138,927 | ) | $ | 127,772 | $ | 2,780 | $ | 130,552 | ||||||||||||||||
Sales of Common Stock | 2 | 818 | 820 | 820 | ||||||||||||||||||||||||||||||||
Acquisition of noncontrolling interest | (144 | ) | (144 | ) | (216 | ) | (360 | ) | ||||||||||||||||||||||||||||
Disposition of consolidated subsidiary | (5 | ) | (5 | ) | (1,737 | ) | (1,742 | ) | ||||||||||||||||||||||||||||
Stock-based compensation expense | 1,782 | 1,782 | 1,782 | |||||||||||||||||||||||||||||||||
Net settlement stock option exercises | (22 | ) | (22 | ) | (22 | ) | ||||||||||||||||||||||||||||||
Other | 7 | 7 | 7 | |||||||||||||||||||||||||||||||||
Components of comprehensive income, net of tax | ||||||||||||||||||||||||||||||||||||
Net income | 4,927 | 4,927 | 232 | 5,159 | ||||||||||||||||||||||||||||||||
Other comprehensive loss | (106 | ) | (106 | ) | (5 | ) | (111 | ) | ||||||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Total comprehensive income | 4,821 | 227 | 5,048 | |||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Balance on December 31, 2015 | 118 | 395 | 174,337 | 99,685 | (577 | ) | (138,927 | ) | 135,031 | 1,054 | 136,085 | |||||||||||||||||||||||||
Sales of Common Stock | 2 | 1,587 | 1,589 | 1,589 | ||||||||||||||||||||||||||||||||
Acquisition of noncontrolling interest | (81 | ) | (81 | ) | (837 | ) | (918 | ) | ||||||||||||||||||||||||||||
Stock-based compensation expense | 506 | 506 | 506 | |||||||||||||||||||||||||||||||||
Net settlement stock option exercises | (5 | ) | (5 | ) | (5 | ) | ||||||||||||||||||||||||||||||
Components of comprehensive income, net of tax | ||||||||||||||||||||||||||||||||||||
Net income | (6,247 | ) | (6,247 | ) | (14 | ) | (6,261 | ) | ||||||||||||||||||||||||||||
Other comprehensive income | 16 | 16 | 5 | 21 | ||||||||||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Total comprehensive income | (6,231 | ) | (9 | ) | (6,240 | ) | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Balance on December 31, 2016 | 118 | 397 | 176,344 | 93,438 | (561 | ) | (138,927 | ) | 130,809 | 208 | 131,017 | |||||||||||||||||||||||||
Sales of Common Stock | 4 | 3,296 | 3,300 | 3,300 | ||||||||||||||||||||||||||||||||
Stock-based compensation expense | 1,735 | 1,735 | 1,735 | |||||||||||||||||||||||||||||||||
Other | 20 | 20 | 20 | |||||||||||||||||||||||||||||||||
Components of comprehensive income, net of tax | ||||||||||||||||||||||||||||||||||||
Net income | 167 | 167 | 91 | 258 | ||||||||||||||||||||||||||||||||
Other comprehensive income | 83 | 83 | 6 | 89 | ||||||||||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Total comprehensive income | 250 | 97 | 347 | |||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Balance on December 31, 2017 | $ | 118 | $ | 401 | $ | 181,395 | $ | 93,605 | $ | (478 | ) | $ | (138,927 | ) | $ | 136,114 | $ | 305 | $ | 136,419 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 | ||||||||||||||||||||||||||||
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 | 10 | 11,575 | 11,585 | 11,585 | ||||||||||||||||||||||||||||||||
Issuance of Common Stock in public offering, net | 18 | 109,663 | 109,681 | 109,681 | ||||||||||||||||||||||||||||||||
Stock-based compensation expense | 5,883 | 5,883 | 5,883 | |||||||||||||||||||||||||||||||||
Other | 20 | 20 | 20 | |||||||||||||||||||||||||||||||||
Components of comprehensive income, net of tax | ||||||||||||||||||||||||||||||||||||
Net income | 17,910 | 17,910 | 12 | 17,922 | ||||||||||||||||||||||||||||||||
Other comprehensive income | 179 | 179 | 15 | 194 | ||||||||||||||||||||||||||||||||
Total comprehensive income | 18,089 | 27 | 18,116 | |||||||||||||||||||||||||||||||||
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 | 6 | 10,237 | 10,243 | 10,243 | ||||||||||||||||||||||||||||||||
Stock-based compensation expense | 7,035 | 7,035 | 7,035 | |||||||||||||||||||||||||||||||||
Components of comprehensive income, net of tax | ||||||||||||||||||||||||||||||||||||
Net income | 56,625 | 56,625 | 4 | 56,629 | ||||||||||||||||||||||||||||||||
Other comprehensive loss | (1,124 | ) | (1,124 | ) | (33 | ) | (1,157 | ) | ||||||||||||||||||||||||||||
Total comprehensive income (loss) | 55,501 | (29 | ) | 55,472 | ||||||||||||||||||||||||||||||||
Balance on December 31, 2021 | 118 | 439 | 345,664 | 217,633 | (1,328 | ) | (138,927 | ) | 423,599 | 306 | 423,905 | |||||||||||||||||||||||||
Issuance of Common Stock under employee stock plans | 2 | 4,437 | 4,439 | 4,439 | ||||||||||||||||||||||||||||||||
Stock-based compensation expense | 10,264 | 10,264 | 10,264 | |||||||||||||||||||||||||||||||||
Components of comprehensive income, net of tax | ||||||||||||||||||||||||||||||||||||
Net income (loss) | 25,446 | 25,446 | (20 | ) | 25,426 | |||||||||||||||||||||||||||||||
Other comprehensive income (loss) | 340 | 340 | (38 | ) | 302 | |||||||||||||||||||||||||||||||
Total comprehensive income (loss) | 25,786 | (58 | ) | 25,728 | ||||||||||||||||||||||||||||||||
Balance on December 31, 2022 | $ | 118 | $ | 441 | $ | 360,365 | $ | 243,079 | $ | (988 | ) | $ | (138,927 | ) | $ | 464,088 | $ | 248 | $ | 464,336 | ||||||||||||||||
Revenue recognition
Product revenue is recognized in the period when persuasive evidence of an arrangement with a customer exists, the products are shipped and title has transferred to the customer, the price is fixed or determinable, and collection is considered probable.
The Company defers revenue and the related cost of sales on shipments to stocking distributors until the distributors resell the products to their customers. The agreements with these stocking distributors allow them to receive price adjustment credits or to return qualifying products for credit, as determined by the Company, in order to reduce the amounts of slow-moving, discontinued, or obsolete product from their inventory. These stocking distributors are also granted price adjustment credits in the event of a price decrease subsequent to the date the product was shipped and invoiced to the stocking distributor. Given the uncertainties associated with the levels of price adjustment credits to be granted to stocking distributors, the sales price to the stocking distributor is not fixed or determinable until the stocking distributor resells the products to its customers. Therefore, the Company defers revenue and the related cost of sales on shipments to stocking distributors until the stocking distributors resell the products to their customers. Accordingly, the Company’s revenue fully reflectsend-customer purchases and is not impacted by stocking distributor inventory levels. Agreements with stocking distributors limit returns of qualifying product to the Company to a certain percentage of the value of the
VICOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Company’s shipments to that stocking distributor during the prior quarter. In addition, stocking distributors are allowed to return unsold products if the Company terminates the relationship with the stocking distributor. Title to the inventory transferred to the stocking distributor at the time of shipment or delivery to the stocking distributor, as well as payment from the stocking distributor, are due in accordance with the Company’s standard payment terms. These payment terms are not contingent upon the stocking distributors’ sale of the products to theirend-customers. Upon title transfer to stocking distributors, the Company reduces inventory for the cost of goods shipped, the margin (i.e., revenues less cost of revenues) is recorded as deferred revenue, and an account receivable is recorded. As of December 31, 2017, the Company had gross deferred revenue of approximately $4,659,000 and gross deferred cost of revenues of approximately $2,135,000 under agreements with stocking distributors ($3,337,000 and $1,445,000, respectively, as of December 31, 2016).
The Company evaluates revenue arrangements with potential multi-element deliverables to determine if there is more than one unit of accounting. A deliverable constitutes a separate unit of accounting when it has standalone value and there are no customer-negotiated refund or return rights for the undelivered elements. The Company enters into arrangements containing multiple elements that may include a combination ofnon-recurring engineering services (“NRE”), prototype units, and production units. The Company has determined NRE and prototype units represent one unit of accounting and production units represent a separate unit of accounting, based on an assessment of the respective standalone value. The Company defers revenue recognition for NRE and prototype units until completion of the final milestone under the NRE arrangement, which is generally the delivery of the prototype. Recognition generally takes place within six to twelve months of the initiation of the arrangement. Revenue for the production units is recognized upon shipment, consistent with other product revenue summarized above. During 2017, 2016, and 2015, revenue recognized under multi-element arrangements accounted for less than 3% of net revenues.
License fees are recognized as earned. The Company recognizes revenue on such arrangements only when the contract is signed, the license term has begun, all obligations have been delivered to the customer, and collection is probable.
are highly liquid investments with insignificant interest rate risk and maturities of 90 days or less at the time of acquisition. Cash and cash equivalents include funds held in disbursement (i.e., checking) and money market accounts, certificates of deposit, and debt securities with maturities of less than three months at the time of purchase. Cash and cash equivalents are valued at cost, approximating market value. The Company’s money market securities which are classified as cash equivalents on the balance sheet, are purchased and redeemed at par value. Their estimated fair value is equal
VICOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Long-term investments
The Company’s
The amortized cost of debt securities is adjusted for amortization of premiums and accretion of discounts to maturity, the net amount of which, along with interest and realized gains and losses, is included in “Other income (expense), net” in the Consolidated Statements of Operations.
Level 1 | Inputs used to measure fair value are unadjusted quoted prices available in active markets for the identical assets or liabilities as of the reporting date. |
Level 2 | Inputs used to measure fair value, other than quoted prices included in Level 1, are either directly or indirectly observable as of the reporting date through correlation with market data, including quoted prices for similar assets and liabilities in active markets and quoted prices in inactive markets. Level 2 also includes assets and liabilities valued using models or other pricing methodologies that do not require significant judgment since the input assumptions used in the models, such as interest rates and volatility factors, are corroborated by readily observable data from actively quoted markets for substantially the full term of the financial instrument. | |
Level 3 | Inputs used to measure fair value are unobservable inputs supported by little or no market activity and reflect the use of significant management judgment. These values are generally determined using pricing models for which the assumptions utilize management’s estimates of market participant assumptions. |
VICOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Allowance for doubtful accounts
The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments, based on assessments of customers’ credit-risk profiles and payment histories. If the financial condition of the Company’s customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. The Company does not require collateral from its customers, although there have been circumstances when the Company has required cash in advance (i.e., a partial down-payment) to facilitate orders in excess of a customer’s established credit limit. To date, such amounts have not been material.
The Company provides reserves for inventories
VICOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
electronics, networking equipment, solid state lighting, testtelecommunications and measurement instrumentation,networking infrastructure, and transportation (electricvehicles (notably in the autonomous driving, electric vehicle, and hybrid vehicles and autonomous vehicles)vehicle niches of the vehicle segment). While, overall, the Company has a broad customer base and sells into a variety of industries, VI Chip and Picor have derived a substantial portion of theirthe Company’s revenue from its Advanced Products line has been derived from a limited number of customers. This concentration of revenue is a reflection of the relatively early stage of adoption of the technologies, architectures and products offered by these subsidiaries,in the Advanced Products line, and theirthe Company’s strategy of targeting of market leading innovators as initial customers.customers for its Advanced Products. Concentrations of credit risk with respect to trade accounts receivable are limited due to the number of entities comprising the Company’s customer base. As of December 31, 20172022 and 2016, 2021,
Advertising expense
service.
VICOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
January 1, 2017, the Company extended the warranty period to three years for certain military grade products sold after that date. The Company provides for the estimated cost of product warranties at the time product revenue is recognized. Factors influencing the Company’s warranty reserves include the number of units sold, historical and anticipated rates of warranty returns, and the cost per return. The Company periodically assesses the adequacy of warranty reserves and adjusts the amounts as necessary. Warranty obligations are included in “Accrued expenses” in the accompanying Consolidated Balance Sheets.
Net income (loss) per common share
2017 | 2016 | 2015 | ||||||||||
Numerator: | ||||||||||||
Net income (loss) attributable to Vicor Corporation | $ | 167 | $ | (6,247 | ) | $ | 4,927 | |||||
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Denominator: | ||||||||||||
Denominator for basic net income (loss) per share-weighted average shares (1) | 39,228 | 38,842 | 38,754 | |||||||||
Effect of dilutive securities: | ||||||||||||
Employee stock options (2) | 705 | — | 392 | |||||||||
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Denominator for diluted net income (loss) per share — adjusted weighted-average shares and assumed conversions (3) | 39,933 | 38,842 | 39,146 | |||||||||
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Basic net income (loss) per share | $ | 0.00 | $ | (0.16 | ) | $ | 0.13 | |||||
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Diluted net income (loss) per share | $ | 0.00 | $ | (0.16 | ) | $ | 0.13 | |||||
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Stock-based compensation
2022 | 2021 | 2020 | ||||||||||
Numerator: | ||||||||||||
Net income attributable to Vicor Corporation | $ | 25,446 | $ | 56,625 | $ | 17,910 | ||||||
Denominator: | ||||||||||||
Denominator for basic net income per share - weighted average shares (1) | 44,005 | 43,651 | 42,186 | |||||||||
Effect of dilutive securities: | ||||||||||||
Employee stock options (2) | 889 | 1,315 | 1,683 | |||||||||
Denominator for diluted net income per share - adjusted weighted-average shares and assumed conversions (3) | 44,894 | 44,966 | 43,869 | |||||||||
Basic net income per share | $ | 0.58 | $ | 1.30 | $ | 0.42 | ||||||
Diluted net income per share | $ | 0.57 | $ | 1.26 | $ | 0.41 | ||||||
(1) | Denominator represents weighted average number of Common Shares and Class B Common Shares outstanding. |
(2) | Options to purchase 879,228, 60,736 and 181,196 shares of Common Stock in 2022, 2021, and 2020, respectively, were not included in the calculation of net income per share as the effect would have been antidilutive. |
(3) Denominator represents weighted average number of Common Shares and Class B Common Shares outstanding for the year, adjusted to include the dilutive effect, if any, of outstanding op tio ns. |
In August 2016, the FASB issued guidance to clarify how certain cash receipts and cash payments should be presented in the statement of cash flows. These include debt prepayment, settlement ofzero-coupon debt instruments, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, proceeds from the settlement of corporate-owned life insurance policies, distributions received from equity method investees and beneficial interests in securitization transactions. The new guidance is effective for interim and annual reporting periods beginning after December 15, 2017, with early adoption permitted. The Company has not yet determined the impact this new guidance will have on its consolidated financial statements and related disclosures.
VICOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In June 2016, the FASB issued new guidance which will require measurement and recognition of expected credit losses on certain types of financial instruments. It also modifies the impairment model foravailable-for-sale debt securities and provides for a simplified accounting model for purchased financial assets with credit deterioration since their origination. The new guidance is effective for interim and annual reporting periods beginning after December 15, 2019, with early adoption permitted. It is required to be applied on a modified-retrospective approach with certain elements being adopted prospectively. The Company has not yet determined the impact this new guidance will have on its consolidated financial statements and related disclosures.
In March 2016, the FASB issued new guidance for employee stock-based payment accounting, which makes several modifications to existing guidance related to the accounting for forfeitures, employer tax withholding on stock-based compensation and the financial statement presentation of excess tax benefits or deficiencies. This new guidance also clarifies the statement of cash flows presentation for certain components of stock-based awards. In terms of the accounting for forfeitures, the new guidance allows an option for them to either be estimated, as currently required, or recognized when they occur. The Company will continue to estimate forfeitures. The Company adopted the new standard on January 1, 2017. (See Note 14 – Income Taxes for additional details on the impact of adoption).
In February 2016, the FASB issued new guidance for lease accounting, which will require lessees to recognize leases on the balance sheet and disclose key information about leasing arrangements. The new guidance establishes aright-of-use model (“ROU”) that will require a lessee to recognize a ROU asset and a lease liability on the balance sheet for all leases with a term longer than twelve months. Leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement. For lessors, the guidance modifies the classification criteria and accounting for sales-type and direct financing leases. The majority of the Company’s leases are for certain of its office and manufacturing space. The Company is currently developing an implementation plan and gathering information, including compiling an inventory of all leasing arrangements, to assess the impact of the new standard on its financial statements. The new standard is effective for interim and annual periods beginning after December 15, 2018, with early adoption permitted. The Company plans to adopt the new guidance effective January 1, 2019. The new standard must be adopted using a modified retrospective transition which includes certain practical expedients. The Company has not yet determined the impact this new guidance will have on its consolidated financial statements and related disclosures.
In May 2014, the FASB issued new guidance for revenue recognition, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The new guidance, which includes several amendments, replaces most of the prior revenue recognition guidance under U.S. Generally Accepted Accounting Principles (“U.S. GAAP”). The Company’s assessment of the new standard’s impact is substantially complete. The Company will adopt the new guidance as of January 1, 2018 using the modified retrospective method.2021. The most significantadoption did not have a material impact of the adoption is on the timing of recognition of sales to its stocking distributors. Through December 31, 2017, the Company deferred revenueCompany’s consolidated financial statements and the related cost of sales on shipments to stocking distributors until the distributors resold the products to their customers. Upon adoption, the Company is no longer permitted to defer revenue until sale by the stocking distributor to the end customer, but rather, is required to estimate the effects of returns and allowances provided to stocking distributors and record revenue at the time of sale to the stocking distributor. The cumulative effect of adopting this guidance, to be recognized as an increase to the balance of retained earnings as of January 1, 2018, is currently estimated to be approximately $3,300,000. The implementation team’s remaining tasks are to complete documentation for the systems and controls to support the revenue recognition and disclosure requirements under the new standard, and to complete the required disclosures in preparation for filing the Company’s Form10-Q for the quarter ending March 31, 2018.
VICOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2022 | 2021 | |||||||
Raw materials | $ | 82,181 | $ | 51,289 | ||||
Work-in-process | 10,456 | 12,514 | ||||||
Finished goods | 8,773 | 3,519 | ||||||
$ | 101,410 | $ | 67,322 | |||||
December 31, 2022 | ||||||||||||
Cash and Cash Equivalents | Short-Term Investments | Long-Term Investments | ||||||||||
Measured at fair value: | ||||||||||||
Available-for-sale | ||||||||||||
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 | ||||||
December 31, 2021 | ||||||||||||
Cash and Cash Equivalents | Short-Term Investments | Long-Term Investments | ||||||||||
Measured at fair value: | ||||||||||||
Available-for-sale | ||||||||||||
Money Market Funds | $ | 94,282 | $ | — | $ | — | ||||||
U.S. Treasury Obligations | — | 45,215 | — | |||||||||
Failed Auction Security | — | — | 2,639 | |||||||||
Total | 94,282 | 45,215 | 2,639 | |||||||||
Other measurement basis: | ||||||||||||
Cash on hand | 88,136 | — | — | |||||||||
Total | $ | 182,418 | $ | 45,215 | $ | 2,639 | ||||||
December 31, 2022 | Cost | Gross Unrealized Gains | Gross Unrealized Losses | Estimated Fair Value | ||||||||||||
Failed Auction Security | $ | 3,000 | $ | — | $ | 378 | $ | 2,622 | ||||||||
December 31, 2021 | ||||||||||||||||
U.S. Treasury Obligations | $ | 45,238 | $ | — | $ | 23 | $ | 45,215 | ||||||||
Failed Auction Security | 3,000 | — | 361 | 2,639 |
Failed Auction Security: | ||||||||
Cost | Estimated Fair Value | |||||||
Due in twenty years | $ | 3,000 | $ | 2,622 | ||||
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 investments: | ||||||||||||||||
Failed Auction Security | — | — | 2,622 | 2,622 |
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, 2021 | |||||||||||||
Cash equivalents: | ||||||||||||||||
Money market funds | $ | 94,282 | $ | — | $ | — | $ | 94,282 | ||||||||
Short-term investments: | ||||||||||||||||
U.S. Treasury Obligations | 45,215 | — | — | 45,215 | ||||||||||||
Long-term investments: | ||||||||||||||||
Failed Auction Security | — | — | 2,639 | 2,639 |
Balance at the beginning of the period | $ | 2,639 | ||
Credit gain on available-for-sale | 3 | |||
Loss included in Other comprehensive income | (20 | ) | ||
Balance at the end of the period | $ | 2,622 | ||
2022 | 2021 | |||||||
Land | $ | 3,600 | $ | 3,600 | ||||
Buildings and improvements | 73,520 | 50,138 | ||||||
Machinery and equipment | 271,021 | 247,926 | ||||||
Furniture and fixtures | 15,297 | 9,825 | ||||||
Construction in-progress and deposits | 52,937 | 48,088 | ||||||
416,375 | 359,577 | |||||||
Accumulated depreciation and amortization | (258,570 | ) | (248,226 | ) | ||||
Right of use asset — net | 8,204 | 4,624 | ||||||
Net balance | $ | 166,009 | $ | 115,975 | ||||
2022 | 2021 | |||||||
Patent costs | $ | 1,030 | $ | 1,686 | ||||
Accumulated amortization | (772 | ) | (1,354 | ) | ||||
$ | 258 | $ | 332 | |||||
2022 | 2021 | 2020 | ||||||||||
Balance at the beginning of the period | $ | 292 | $ | 308 | $ | 372 | ||||||
Accruals for warranties for products sold in the period | 376 | 158 | 366 | |||||||||
Fulfillment of warranty obligations | (131 | ) | (151 | ) | (398 | ) | ||||||
Revisions of estimated obligations | (40 | ) | (23 | ) | (32 | ) | ||||||
Balance at the end of the period | $ | 497 | $ | 292 | $ | 308 | ||||||
Year Ended December 31, 2022 | ||||||||||||
Brick Products | Advanced Products | Total | ||||||||||
United States | $ | 76,306 | $ | 53,116 | $ | 129,422 | ||||||
Europe | 27,856 | 10,522 | 38,378 | |||||||||
Asia Pacific | 49,076 | 179,259 | 228,335 | |||||||||
All other | 2,520 | 424 | 2,944 | |||||||||
$ | 155,758 | $ | 243,321 | $ | 399,079 | |||||||
Year Ended December 31, 2021 | ||||||||||||
Brick Products | Advanced Products | Total | ||||||||||
United States | $ | 74,280 | $ | 44,360 | $ | 118,640 | ||||||
Europe | 32,762 | 5,145 | 37,907 | |||||||||
Asia Pacific | 80,344 | 120,459 | 200,803 | |||||||||
All other | 1,758 | 256 | 2,014 | |||||||||
$ | 189,144 | $ | 170,220 | $ | 359,364 | |||||||
Year Ended December 31, 2020 | ||||||||||||
Brick Products | Advanced Products | Total | ||||||||||
United States | $ | 80,065 | $ | 25,493 | $ | 105,558 | ||||||
Europe | 23,491 | 6,641 | 30,132 | |||||||||
Asia Pacific | 83,985 | 73,899 | 157,884 | |||||||||
All other | 2,715 | 287 | 3,002 | |||||||||
$ | 190,256 | $ | 106,320 | $ | 296,576 | |||||||
Year Ended December 31, 2022 | ||||||||||||
Brick Products | Advanced Products | Total | ||||||||||
Direct customers, contract manufacturers and non-stocking distributors | $ | 102,905 | $ | 216,685 | $ | 319,590 | ||||||
Stocking distributors, net of sales allowances | 51,819 | 13,831 | 65,650 | |||||||||
Non-recurring e ngineering | 1,034 | 9,933 | 10,967 | |||||||||
Royalties | — | 2,801 | 2,801 | |||||||||
Other | — | 71 | 71 | |||||||||
$ | 155,758 | $ | 243,321 | $ | 399,079 | |||||||
Year Ended December 31, 2021 | ||||||||||||
Brick Products | Advanced Products | Total | ||||||||||
Direct customers, contract manufacturers and non-stocking distributors | $ | 139,099 | $ | 144,180 | $ | 283,279 | ||||||
Stocking distributors, net of sales allowances | 49,359 | 14,123 | 63,482 | |||||||||
Non-recurring engineering | 686 | 10,027 | 10,713 | |||||||||
Royalties | — | 1,819 | 1,819 | |||||||||
Other | — | 71 | 71 | |||||||||
$ | 189,144 | $ | 170,220 | $ | 359,364 | |||||||
Year Ended December 31, 2020 | ||||||||||||
Brick Products | Advanced Products | Total | ||||||||||
Direct customers, contract manufacturers and non-stocking distributors | $ | 160,004 | $ | 91,405 | $ | 251,409 | ||||||
Stocking distributors, net of sales allowances | 29,411 | 8,510 | 37,921 | |||||||||
Non-recurring engineering | 841 | 6,181 | 7,022 | |||||||||
Royalties | — | 152 | 152 | |||||||||
Other | — | 72 | 72 | |||||||||
$ | 190,256 | $ | 106,320 | $ | 296,576 | |||||||
December 31, 2022 | December 31, 2021 | Change | ||||||||||
Short-term deferred revenue and customer prepayments | $ | (13,197 | ) | $ | (7,912 | ) | $ | (5,285 | ) | |||
Long-term deferred revenue | (145 | ) | (413 | ) | 268 | |||||||
Deferred expenses | 577 | 560 | 17 | |||||||||
Sales allowances | (1,661 | ) | (1,464 | ) | (197 | ) |
Picor Corporation (“Picor”),grant and have
Amended and Restated 2001 Stock Option and Incentive Plan (the “2001 Picor Plan”) — Under the 2001 Picor Plan, the Board of Directors of Picor may grant equity-based awards associated with Picor Common Stock, including stock options, restricted stock, or unrestricted stock. Awards may be granted to employees and other key persons, includingnon-employee directors and full or part-time officers. No incentive stock options have been granted since November 11, 2011, and no such options were outstanding as of December 31, 2017.Non-qualifying stock options may be granted to employees at a price at least equal to the fair market value per share of Picor Common Stock, based on judgments made by Picor’s Board of Directors on the date of grant. All stock option awards must be approved by both the Picor Board of Directors and the Compensation Committee of the Company’s Board of Directors. A total of 20,000,000 shares of Picor Common Stock have been reserved for issuance under the 2001 Picor Plan. The
VI Chip Corporation (“VI Chip”), a privately held, majority-owned subsidiary of Vicor, currently grants stock options under the following equity compensation plan that has been approved by its Board of Directors:
Amended and Restated 2007 Stock Option and Incentive Plan (the “2007 VI Chip Plan”) — Under the 2007 VI Chip Plan, the Board of Directors of VI Chip may grant equity-based awards associated with VI Chip Common Stock, including stock options, restricted stock, or unrestricted stock. Awards may be granted to employees and other key persons, includingnon-employee directors and full or part-time officers. No incentive stock options have been granted since November 11, 2011, and no such options were outstanding as of December 31, 2017.Non-qualifying stock options may be granted to employees at a price at least equal to the fair market value per share of the VI Chip Common Stock, based on judgments made by VI Chip’s Board of Directors on the date of grant. All stock option awards must be approved by both the VI Chip Board of Directors and the Compensation Committee of the Company’s Board of Directors. A total of 14,000,000 shares of VI Chip Common Stock have been reserved for issuance under the 2007 VI Chip Plan. The period of time during which an option may be exercised and the vesting periods are determined by the VI Chip Board of Directors. The term of each option may not exceed 10 years from the date of grant.
VICOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
All time-based (i.e.,non-performance-based) options for the purchase of Vicor common stock are granted at an exercise price equal to or greater than the market price for Vicor Common Stock at the date of the grant. All time-based (i.e.,non-performance-based) options for the purchase of VI Chip or Picor Common Stock are granted at an exercise price equal to or greater than the estimated fair market value of the respective share price, based on a value calculated using a discounted cash flow model at the date of grant consistent with the requirements of Section 409A of the Internal Revenue Code (“the Code”).
On December 31, 2010, the Company granted 2,984,250non-qualified stock options under the 2007 VI Chip Plan with performance-based vesting provisions tied to achievement of certain margin targets by VI Chip. As of December 31, 2010, the Company determined it was probable the margin targets would be achieved and, accordingly, began recording stock-based compensation expense relating to these options beginning January 1, 2011. During the third quarter of 2016, the Company determined the margin targets would not be met prior to the expiration date of the corresponding options, as VI Chip’s revenue growth had been below levels necessary to achieve the targets. As a result, the Company reversed approximately $768,000 of previously recorded stock-based compensation expense in the third quarter of 2016, representing all expense taken for these performance-based options through June 30, 2016. This resulted in decreases in cost of revenues of $86,000, selling, general and administrative expense of $516,000, and research and development expense of $166,000 in the third quarter of 2016.
On April 26, 2017, the Company’s Board of Directors approved the
2017 | 2016 | 2015 | ||||||||||
Cost of revenues | $ | 187 | $ | 95 | $ | 230 | ||||||
Selling, general and administrative | 1,125 | 412 | 1,246 | |||||||||
Research and development | 423 | (1 | ) | 306 | ||||||||
|
|
|
|
|
| |||||||
Total stock-based compensation | $ | 1,735 | $ | 506 | $ | 1,782 | ||||||
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|
|
|
|
The increase in stock-based compensation expense in 2017 compared to 2016, and the decrease in 2016 compared to 2015, was primarily due to the reversal of previously recorded stock-based compensation for VI Chip performance-based options in 2016, as described above.
VICOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2022 | 2021 | 2020 | ||||||||||
Cost of revenues | $ | 1,648 | $ | 1,000 | $ | 934 | ||||||
Selling, general and administrative | 5,735 | 3,873 | 3,164 | |||||||||
Research and development | 2,881 | 2,162 | 1,785 | |||||||||
Total stock-based compensation | $ | 10,264 | $ | 7,035 | $ | 5,883 | ||||||
2017 | 2016 | 2015 | ||||||||||
Stock options | $ | 1,546 | $ | 506 | $ | 1,782 | ||||||
ESPP | 189 | — | — | |||||||||
|
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|
|
| |||||||
Total stock-based compensation | $ | 1,735 | $ | 506 | $ | 1,782 | ||||||
|
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|
2022 | 2021 | 2020 | ||||||||||
Stock options | $ | 9,093 | $ | 6,122 | $ | 4,982 | ||||||
ESPP | 1,171 | 913 | 901 | |||||||||
Total stock-based compensation | $ | 10,264 | $ | 7,035 | $ | 5,883 | ||||||
Vicor: | 2017 | 2016 | 2015 | |||||||||
Risk-free interest rate | 2.1 | % | 1.5 | % | 2.0 | % | ||||||
Expected dividend yield | — | — | — | |||||||||
Expected volatility | 43 | % | 45 | % | 51 | % | ||||||
Expected lives (years) | 7.1 | 7.2 | 7.2 | |||||||||
VI Chip: | 2017 | 2016 | 2015 | |||||||||
Risk-free interest rate | 1.9 | % | 1.7 | % | 2.1 | % | ||||||
Expected dividend yield | — | — | — | |||||||||
Expected volatility | 32 | % | 34 | % | 37 | % | ||||||
Expected lives (years) | 6.5 | 6.5 | 6.5 | |||||||||
Picor: | 2017 | 2016 | 2015 | |||||||||
Risk-free interest rate | 1.9 | % | 1.5 | % | 1.9 | % | ||||||
Expected dividend yield | — | — | — | |||||||||
Expected volatility | 48 | % | 42 | % | 41 | % | ||||||
Expected lives (years) | 6.5 | 6.5 | 6.5 |
2022 | 2021 | 2020 | ||||||||||
Risk-free interest rate | 2.8 | % | 0.8 | % | 0.5 | % | ||||||
Expected dividend yield | — | — | — | |||||||||
Expected volatility | 51 | % | 49 | % | 48 | % | ||||||
Expected term (years) | 4.4 | 4.9 | 6.1 |
Vicor —
Picor and VI Chip — Picor and VI Chip use the yield to maturity of a seven-year U.S. Treasury bond, as it most closely aligns to the expected exercise period.
Vicor —
Picor and VI Chip — Picor and VI Chip have not and do not expect to declare and pay dividends in the foreseeable future. Therefore, the expected dividend yield is not applicable.
VICOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Vicor —
Picor — As Picor is a nonpublic entity, historical volatility information is not available. An industry sector index of six publicly traded fabless semiconductor firms was developed for calculating historical volatility for Picor. Historical prices for each of the companies in the index based on the market price of the shares on each day of trading over the expected term were used to determine the historical volatility.
VI Chip — As VI Chip is a nonpublic entity, historical volatility information is not available. An industry sector index of 11 publicly traded fabless semiconductor firms was developed for calculating historical volatility for VI Chip. Historical prices for each of the companies in the index based on the market price of the shares on each day of trading over the expected term were used to determine the historical volatility.
Vicor —
Picor and VI Chip — Due to the lack of historical information, the “simplified” method as prescribed by the Securities and Exchange Commission is used to determine the expected term.
Vicor — The Company currently expects, for Vicor options, based
Vicor Stock Options
Options Outstanding | Weighted- Average Exercise Price | Weighted- Average Remaining Contractual Life in Years | Aggregate Intrinsic Value | |||||||||||||
Outstanding on December 31, 2016 | 1,696,222 | $ | 8.82 | |||||||||||||
Granted | 96,322 | $ | 18.41 | |||||||||||||
Forfeited and expired | (25,087 | ) | $ | 10.92 | ||||||||||||
Exercised | (401,540 | ) | $ | 8.21 | ||||||||||||
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Outstanding on December 31, 2017 | 1,365,917 | $ | 9.63 | 6.21 | $ | 15,409 | ||||||||||
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Exercisable on December 31, 2017 | 707,244 | $ | 8.01 | 5.82 | $ | 9,116 | ||||||||||
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Vested or expected to vest as of December 31, 2017(1) | 1,332,671 | $ | 9.54 | 6.19 | $ | 15,161 | ||||||||||
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Options Outstanding | Weighted- Average Exercise Price | Weighted -Average Remaining Contractual Life in Years | Aggregate Intrinsic Value | |||||||||||||
Outstanding on December 31, 2021 | 1,677,661 | $ | 33.48 | |||||||||||||
Granted | 568,727 | $ | 61.72 | |||||||||||||
Forfeited and expired | (94,807 | ) | $ | 59.78 | ||||||||||||
Exercised | (126,917 | ) | $ | 12.87 | ||||||||||||
Outstanding on December 31, 2022 | 2,024,664 | $ | 41.48 | 4.05 | $ | 42,160 | ||||||||||
Exercisable on December 31, 2022 | 1,046,092 | $ | 18.26 | 2.44 | $ | 40,376 | ||||||||||
Vested or expected to vest as of December 31, 2022(1) | 1,928,480 | $ | 40.20 | 3.95 | $ | 42,057 | ||||||||||
(1) | In addition to the vested options, the Company expects a portion of the unvested options to vest at some point in the future. The number of options expected to vest is calculated by applying an estimated forfeiture rate to the unvested options. |
2027.
VICOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Picor Stock Options
A summary of the activity under the 2001 Picor Plan as of December 31, 2017 and changes during the year then ended, is presented below (in thousands except for share and weighted-average data):
Options Outstanding | Weighted- Average Exercise Price | Weighted- Average Remaining Contractual Life in Years | Aggregate Intrinsic Value | |||||||||||||
Outstanding on December 31, 2016 | 9,530,987 | $ | 0.62 | |||||||||||||
Granted | 673,000 | $ | 0.62 | |||||||||||||
Forfeited and expired | (126,000 | ) | $ | 0.73 | ||||||||||||
Exercised | (12,000 | ) | $ | 0.41 | ||||||||||||
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Outstanding on December 31, 2017 | 10,065,987 | $ | 0.62 | 3.80 | $ | 493 | ||||||||||
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Exercisable on December 31, 2017 | 8,384,987 | $ | 0.61 | 3.31 | $ | 400 | ||||||||||
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Vested or expected to vest as of December 31, 2017(1) | 9,996,810 | $ | 0.62 | 3.78 | $ | 492 | ||||||||||
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As of December 31, 2016 and 2015, Picor had options exercisable for 7,915,219 and 8,053,490 shares, respectively, for which the weighted average exercise prices were $0.62 and $0.64, respectively.
During the years ended December 31, 2017, 2016 and 2015, the total intrinsic value of Picor options exercised was $3,000, $24,000 and $72,000, respectively. The total amount of cash received by Picor from options exercised in 2017, 2016 and 2015 was $5,000, $17,000 and $14,000, respectively The total grant-date fair value of stock options that vested during the years ended December 31, 2017, 2016, and 2015 was approximately $180,000, $155,000, and $39,000, respectively.
As of December 31, 2017, there was $322,000 of total unrecognized compensation cost related to unvested share-based awards for Picor. That cost is expected to be recognized over a weighted-average period of 3.1 years for all Picor awards. The expense will be recognized as follows: $117,000 in 2018, $83,000 in 2019, $61,000 in 2020, $45,000 in2022, 2021, and $16,000 in 2022.
The weighted-average fair value of Picor options granted was $0.27 in 2017, $0.26 in 2016, and $0.48 in 2015.
VICOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
VI Chip Stock Options
A summary of the activity under the 2007 VI Chip Plan as of December 31, 2017 and changes during the year then ended, is presented below (in thousands except for share and weighted-average data):
Options Outstanding | Weighted- Average Exercise Price | Weighted- Average Remaining Contractual Life in Years | Aggregate Intrinsic Value | |||||||||||||
Outstanding on December 31, 2016 | 9,933,750 | $ | 1.00 | |||||||||||||
Granted | 9,771,500 | $ | 0.96 | |||||||||||||
Forfeited and expired | (6,613,000 | ) | $ | 1.00 | ||||||||||||
Exercised | — | $ | — | |||||||||||||
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Outstanding on December 31, 2017 (1) | 13,092,250 | $ | 0.97 | 5.78 | $ | — | ||||||||||
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Exercisable on December 31, 2017 | 810,700 | $ | 1.00 | 4.46 | $ | — | ||||||||||
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Vested or expected to vest as of December 31, 2017(2) | 11,210,701 | $ | 0.97 | 5.67 | $ | — | ||||||||||
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As of December 31, 2016 and 2015, VI Chip had options exercisable for 7,074,650 and 7,042,600 shares, respectively, for which the weighted average exercise price was $1.00.
There were no VI Chip options exercised in 2017 and 2016. The total intrinsic value of VI Chip options exercised in 2015 was zero. The total amount of cash received by VI Chip from options exercised in 2015 was $1,000. The total grant-date fair value of stock options that vested during the years ended December 31, 2017, 2016, and 2015 was approximately $2,900,000, $0, and $1,000, respectively.
As of December 31, 2017, there was $2,395,000 of total unrecognized compensation cost related to unvested share-based awards for VI Chip. That cost is expected to be recognized over a weighted-average period of 4.0 years for all VI Chip awards. The expense will be recognized as follows: $603,000 in 2018, $544,000 in 2019, $503,000 in 2020, $483,000 in 2021, and $262,000 in 2022.
The weighted-average fair value of VI Chip options granted was $0.29, $0.01, and $0.01 in 2017, 2016, and 2015, respectively.
4. LONG-TERM INVESTMENTS
The following is a summary ofavailable-for-sale securitiesfollows (in thousands):
December 31, 2017 | Cost | Gross Unrealized Gains | Gross Unrealized Losses | Estimated Fair Value | ||||||||||||
Failed Auction Security | $ | 3,000 | $ | — | $ | 475 | $ | 2,525 | ||||||||
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December 31, 2016 | Cost | Gross Unrealized Gains | Gross Unrealized Losses | Estimated Fair Value | ||||||||||||
Failed Auction Security | $ | 3,000 | $ | — | $ | 492 | $ | 2,508 | ||||||||
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2023 | $ | 1,245 | ||
2024 | 1,786 | |||
2025 | 1,448 | |||
2026 | 1,094 | |||
2027 and beyond | 4,538 | |||
Total lease payments | $ | 10,111 | ||
Less: Imputed interest | 1,652 | |||
Present value of lease liabilities | $ | 8,459 | ||
The amortized cost and estimated fair value ofavailable-for-sale securities onadditional interest factor, which was generally 1.25%.
Cost | Estimated Fair Value | |||||||
Due in twenty to forty years | $ | 3,000 | $ | 2,525 | ||||
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Based on the fair value measurements described in Note 5, the fair value of the Failed Auction Security on2022 and December 31, 2017, with a par value of $3,000,000, was estimated by2021, the Company to bepaid approximately $2,525,000.$2,183,000 and $1,876,000, respectively, for amounts included in the measurement of lease liabilities through operating cash flows. The gross unrealized lossCompany obtained approximately $2,941,000 and $2,267,000 in ROU assets in exchange for $3,040,000 and $2,256,000 of $475,000 on the Failed Auction Security consists of two types of estimated loss: an aggregate credit loss of $48,000 and an aggregate temporary impairment of $427,000. In
VICOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 (see Note 5).
The following table represents a rollforward of the activity related to the credit loss recognized in earnings onavailable-for-sale auction rate securities held by the Companynew operating lease liabilities for the years ended December 31, (in thousands):
2017 | 2016 | 2015 | ||||||||||
Balance at the beginning of the period | $ | 59 | $ | 72 | $ | 84 | ||||||
Reductions in the amount related to credit gain for which other-than-temporary impairment was not previously recognized | (11 | ) | (13 | ) | (12 | ) | ||||||
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Balance at the end of the period | $ | 48 | $ | 59 | $ | 72 | ||||||
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At this time, the Company has no intent to sell the Failed Auction Security2022 and does not believe it is more likely than not the Company will be required to sell the 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 Consolidated Statement of Operations, and any such impairment adjustments may be material.
Based on the Company’s ability to access cash and cash equivalents 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.
5. 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 December 31, 2017 (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, 2017 | |||||||||||||
Cash equivalents: | ||||||||||||||||
Money market funds | $ | 9,279 | $ | — | $ | — | $ | 9,279 | ||||||||
Long-term investments: | ||||||||||||||||
Failed Auction Security | — | — | 2,525 | 2,525 | ||||||||||||
Liabilities: | ||||||||||||||||
Contingent consideration obligations | — | — | (678 | ) | (678 | ) |
Assets measured at fair value on a recurring basis included the following as of December 31, 2016 (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, 2016 | |||||||||||||
Cash equivalents: | ||||||||||||||||
Money market funds | $ | 10,114 | $ | — | $ | — | $ | 10,114 | ||||||||
Long-term investments: | ||||||||||||||||
Failed Auction Security | — | — | 2,508 | 2,508 | ||||||||||||
Liabilities: | ||||||||||||||||
Contingent consideration obligation | — | — | (253 | ) | (253 | ) |
As of December 31, 2017, there was insufficient observable auction rate security market information available to determine the fair value
The significant unobservable inputs used in the fair value measurement of the Company’s Failed Auction SecurityCalifornia are the cumulative probability of earning the maximum rate until maturity, the cumulative probability of principal return prior to maturity, the cumulative probability of default, the liquidity risk premium, and the recovery rate in default. Significant increases (decreases) in any of those inputs in isolation would result in changes in fair value measurement. Significant increases (decreases) in the cumulative probability of earning the maximum rate until maturity, the cumulative probability of principal return prior to maturity, and the recovery rate in default would result in a higher (lower) fair value measurement, while increases (decreases) in the cumulative probability of default and the liquidity risk premium would result in a (lower) higher fair value measurement.
VICOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Generally, the interrelationships are such that a change in the assumption used for the cumulative probability of principal return prior to maturity is accompanied by a directionally similar change in the assumption used for the cumulative probability of earning the maximum rate until maturity and a directionally opposite change in the assumptions used for the cumulative probability of default and the liquidity risk premium. The recovery rate in default is somewhat independent and based upon the securities’ specific underlying assets and published recovery rate indices.
Quantitative information about Level 3 fair value measurements as of December 31, 2017 are as follows (dollars in thousands):
Fair Value | Valuation Technique | Unobservable Input | Weighted Average | |||||||||||
Failed Auction Security | $ | 2,525 | | Discounted cash flow | | Cumulative probability of earning the maximum rate until maturity | 0.06 | % | ||||||
Cumulative probability of principal return prior to maturity | 93.71 | % | ||||||||||||
Cumulative probability of default | 6.24 | % | ||||||||||||
Liquidity risk premium | 5.00 | % | ||||||||||||
Recovery rate in default | 40.00 | % |
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 year ended December 31, 2017 was as follows (in thousands):
Balance at the beginning of the period | $ | 2,508 | ||
Credit gain onavailable-for-sale security included in Other income (expense), net | 11 | |||
Gain included in Other comprehensive income (loss) | 6 | |||
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Balance at the end of the period | $ | 2,525 | ||
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2023 | $ | 955 | ||
2024 | 402 | |||
Total lease payments to be received | $ | 1,357 | ||
The change in the estimated fair value calculated for the liabilities valued on a recurring basis utilizing Level 3 inputs (i.e., the Contingent consideration obligations) for the year ended December 31, 2017 was as follows (in thousands):
Balance at the beginning of the period | $ | 253 | ||
Increase in estimated contingent consideration obligations (see Note 9) | 650 | |||
Payments | (225 | ) | ||
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Balance at the end of the period | $ | 678 | ||
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There were no transfers between Level 1 and Level 2 of the fair value hierarchy during the year ended December 31, 2017.
VICOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. INVENTORIES
Inventories as of December 31 were as follows (in thousands):
2017 | 2016 | |||||||
Raw materials | $ | 27,400 | $ | 18,648 | ||||
Work-in-process | 3,596 | 3,361 | ||||||
Finished goods | 5,503 | 5,127 | ||||||
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Net balance | $ | 36,499 | $ | 27,136 | ||||
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7. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost and are depreciated and amortized over a period of three to 39 years generally under the straight-line method for financial reporting purposes and accelerated methods for income tax purposes.
Property, plant and equipment as of December 31 were as follows (in thousands):
2017 | 2016 | |||||||
Land | $ | 2,089 | $ | 2,089 | ||||
Buildings and improvements | 45,147 | 43,950 | ||||||
Machinery and equipment | 243,392 | 237,434 | ||||||
Furniture and fixtures | 6,320 | 5,656 | ||||||
Constructionin-progress and deposits | 4,120 | 2,471 | ||||||
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301,068 | 291,600 | |||||||
Accumulated depreciation and amortization | (259,712 | ) | (254,026 | ) | ||||
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Net balance | $ | 41,356 | $ | 37,574 | ||||
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Depreciation expense for the years ended December 31, 2017, 2016 and 2015 was approximately $8,763,000, $8,304,000, and $9,028,000 respectively. As of December 31, 2017, the Company had approximately $1,911,000 of capital expenditure commitments.
8. OTHER INVESTMENTS
In September 2015, Intersil Corporation (“Intersil”) acquired, through a statutory merger, Great Wall Semiconductor Corporation (“GWS”), in which the Company heldnon-voting convertible preferred stock. GWS and its subsidiary designed and sold semiconductors, conducted research and development activities, and developed and licensed patents. A director of the Company was the founder, Chairman of the Board, President and Chief Executive Officer (“CEO”), as well as the majority voting shareholder, of GWS. The Company accounted for its investment in GWS under the equity method. The Company determined, while GWS was a variable interest entity, the Company was not the primary beneficiary. The key factors in the Company’s assessment were that the CEO of GWS had: (i) the power to direct the activities of GWS that most significantly impact its economic performance, and (ii) an obligation to absorb losses or the right to receive benefits from GWS, respectively, that could potentially be significant to GWS.
At the time of the merger transaction, the Company’s gross investment totaled $4,999,719. However, during the fourth quarter of 2008, the Company determined a decline in value judged to be other-than-temporary had
VICOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
occurred and, as such, the investment’s recorded value on the Consolidated Balance Sheet, as of December 31, 2008, was reduced to zero. Management’s decision to reduce the remaining investment balance to zero at that time was based on GWS’ continued operating losses, the impact of the global economic crisis on the current and short-term outlook for its operations, a negative working capital position as of December 31, 2008, and a valuation based on discounted cash flows. Under the terms of the merger agreement between GWS and Intersil, and in accordance with the terms of the shareholder agreement under which the Company made its investments, all preferred stock was redeemed at full preference value (i.e., purchased for cash equal to the original investment amount). Therefore, the Company’s gross investment value of $4,999,719 was recorded as a Gain from sales of equity method investment, net of tax in the Consolidated Statements of Operations.
The Company and GWS were parties to an intellectual property cross-licensing agreement, a license agreement, and two supply agreements, under which the Company purchased certain components from GWS. Intersil, through the merger transaction, has assumed all of GWS’ rights and obligations under these agreements. Company purchases from GWS totaled approximately $1,662,000 for the nine months ended September 30, 2015, the approximate time of the sale.
9. NONCONTROLLING INTEREST TRANSACTIONS
On March 30, 2016, the Company acquired 100% ownership of certain operating assets and cash of its consolidated subsidiary, Converpower Corporation (“Converpower”), in which it held a 49% ownership interest. The operating assets and cash were acquired in exchange for the Company’s common shares representing that 49% interest and the aggregate dollar amount of royalty payments to be made by the Company to Converpower. The transaction was executed through a newly-formed, wholly-owned subsidiary, Granite Power Technologies, Inc. (“GPT”), the business operations of which had formerly existed as a division of Vicor Corporation. The shares of Converpower common stock held by the Company were contributed to GPT prior to the transaction. At the same time that it entered into the Asset Purchase Agreement associated with this transaction, the Company and Converpower entered into a license agreement providing the Company the right to continue manufacturing certain Converpower products in exchange for payment of royalties, quarterly through June 30, 2021, equal to a percentage of the revenue generated by the manufacture and sale of these products by GPT. The estimated present value of total future royalties, included in “Contingent consideration obligations” in the accompanying Consolidated Balance Sheet as of December 31, 2017, is $478,000 (initially $208,000, as of March 31, 2016). The Company increased the liability by approximately $448,000 in 2017 based on a reassessment of the total obligation through the end of license agreement. The amount was included in selling, general, and administrative expenses. Although the Company exchanged its shares representing its 49% equity interest in Converpower, it acquired 100% control of the business operations. Accordingly, this transaction was accounted for as an acquisition of a noncontrolling interest (i.e., an equity transaction). As such, the noncontrolling interest balance in equity associated with Converpower was reduced to zero, and the additionalpaid-in capital account was reduced by $208,000, the estimated present value of total future royalties as of March 31, 2016. As a result of the transactions associated with the consolidation of the Converpower operation into GPT, the Company’s aggregate balance of cash, short-term interest receivable, and long-term investments on its Consolidated Balance Sheet as of March 31, 2016, declined by approximately $718,000. No amounts were recorded in the Consolidated Statement of Operations related to these transactions.
On December 28, 2015, the Company sold its 49% ownership interest in Aegis Power Systems, Inc. (“APS”) to the 51% noncontrolling interest holder for approximately $1,698,000. The amount of the proceeds approximated the Company’s share of the net equity of APS, resulting in a gain of approximately $28,000, which was recorded in Other income (expense), net in the accompanying Consolidated Statements of Operations. As a result of the transaction, cash of approximately $2,090,000 and other net assets of approximately $1,317,000 of
VICOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
APS were fully deconsolidated from the Company’s consolidated balance sheet as of December 31, 2015. After the sale, APS operates independently from the Company, and may purchase the Company’s products going forward, on an arms-length basis.
Also on December 28, 2015, the Company acquired the noncontrolling interest holder’s 18% ownership interest in Mission Power Solutions, Inc. (“MPS”) for approximately $216,000, which equaled the noncontrolling interest holder’s share of the net equity of MPS. This transaction was achieved through a statutory merger of MPS with and into an existing Vicor Custom Power wholly-owned subsidiary, Northwest Power, Inc. (“NPI”). In addition to the payment noted above, the selling principal will be eligible to receive quarterly royalty payments through June 30, 2021 equal to a percentage of the revenue generated by the sale of certain MPS legacy products to be manufactured by NPI going forward. The estimated obligation for total future royalties, recorded as Contingent consideration obligation in the accompanying Consolidated Balance Sheets as of December 31, 2017 is $200,000 (initially $144,000 as of December 31, 2015). The Company increased the liability by approximately $202,000 in 2017, based on a reassessment of the total obligation under the royalty arrangement. The amount was included in selling, general, and administrative expenses. The acquisition of the noncontrolling interest holder’s 18% ownership interest was accounted for as an equity transaction, and therefore, the noncontrolling interest balance in equity for this subsidiary was reduced to zero. The excess of the acquisition amount, which is inclusive of the cash paid and the value of the contingent consideration obligation, over the noncontrolling interest balance in equity, was recorded as a charge to additionalpaid-in capital.
The respective noncontrolling interest holders of APS, Converpower, and MPS served as key employees of each company prior to the transactions described above.
10. INTANGIBLE ASSETS
Patent costs, which are included in other assets in the accompanying Consolidated Balance Sheets, as of December 31 were as follows (in thousands):
2017 | 2016 | |||||||
Patent costs | $ | 2,093 | $ | 2,427 | ||||
Accumulated amortization | (1,386 | ) | (1,598 | ) | ||||
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$ | 707 | $ | 829 | |||||
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Definite lived intangible assets, such as patent rights, are amortized and tested for impairment if a triggering event occurs.
Amortization expense was approximately $130,000, $134,000 and $145,000 in 2017, 2016 and 2015, respectively. The estimated future amortization expense from patent assets held as of December 31, 2017, is projected to be $112,000, $107,000, $102,000, $93,000 and $61,000, in fiscal years 2018, 2019, 2020,2022, 2021 and 2022, respectively.
VICOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
11. PRODUCT WARRANTIES
Product warranty activity for the years ended December 31 was as follows (in thousands):
2017 | 2016 | 2015 | ||||||||||
Balance at the beginning of the period | $ | 214 | $ | 585 | $ | 204 | ||||||
Accruals for warranties for products sold in the period | 346 | 358 | 715 | |||||||||
Fulfillment of warranty obligations | (194 | ) | (527 | ) | (334 | ) | ||||||
Revisions of estimated obligations | (76 | ) | (202 | ) | — | |||||||
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Balance at the end of the period | $ | 290 | $ | 214 | $ | 585 | ||||||
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12. STOCKHOLDERS’ EQUITY
Each share of Common Stock entitles the holder thereof to one vote on all matters submitted to the stockholders.
Each share of Class B Common Stock entitles the holder thereof to ten votes on all such matters.
Shares of Class B Common Stock are not transferable by a stockholder except to or among the stockholder’s spouse, certain of the stockholder’s relatives, and certain other defined transferees. Class B Common Stock is not listed or traded on any exchange or in any market. Class B Common Stock is convertible at the option of the holder thereof at any time and without cost to the stockholder into shares of Common Stock on aone-for-one basis.
In November 2000, the Board of Directors of the Company authorized the repurchase of up to $30,000,000 of the Company’s Common Stock (the “November 2000 Plan”). The plan authorizes the Company to make repurchases from time to time in the open market or through privately negotiated transactions. The timing of this program and the amount of the stock that may be repurchased is at the discretion of management based on its view of economic and financial market conditions. There were no repurchases under the November 2000 Plan in 2017, 2016, and 2015. On December 31, 2017, the Company had approximately $8,541,000 available for share repurchases under the November 2000 Plan.
Dividends are declared at the discretion of the Company’s Board of Directors and depend on actual cash from operations, the Company’s financial condition and capital requirements and any other factors the Company’s Board of Directors may consider relevant at the time. Common Stock and Class B Common Stock participate in dividends and earnings equally.
During the years ended December 31, 2016 and 2015, one subsidiary paid a total of $750,000 and $250,000, in cash dividends, respectively, all of which were paid to the Company.
On December 31, 2017, 2016, and 2015, there were 21,976,340, 14,377,880, and 14,594,805, respectively, shares of Vicor Common Stock reserved for issuance upon exercise of Vicor stock options, upon conversion of Class B Common Stock and under the ESPP.
VICOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2017 | 2016 | 2015 | ||||||||||
Rental income | $ | 792 | $ | 462 | $ | — | ||||||
Foreign currency gains (losses), net | 323 | (268 | ) | (161 | ) | |||||||
Interest income | 124 | 68 | 47 | |||||||||
Gain (loss) on disposal of equipment | 14 | (4 | ) | 60 | ||||||||
Credit gains onavailable-for-sale securities | 11 | 13 | 12 | |||||||||
Other | (2 | ) | 13 | 67 | ||||||||
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$ | 1,262 | $ | 284 | $ | 25 | |||||||
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During
2022 | 2021 | 2020 | ||||||||||
Interest income, net | $ | 1,313 | $ | 930 | $ | 95 | ||||||
Rental income, net | 792 | 792 | 792 | |||||||||
Foreign currency (losses) gains, net | (653 | ) | (336 | ) | 181 | |||||||
Other , net | 34 | (183 | ) | 25 | ||||||||
$ | 1,486 | $ | 1,203 | $ | 1,093 | |||||||
On December 22, 2017, the U.S. government enacted comprehensive tax legislation, referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act makes broad and complex changes to the U.S. tax code, including, but not limited to: (1) reducing the U.S. federal corporate tax rate from 35% to 21%; (2) elimination of the corporate alternative minimum tax (“AMT”) and changing how existing AMT credits can be realized; (3) changing rules related to the usage and limitation of net operating loss carryforwards created in tax years beginning after December 31, 2017; and (4) implementing a territorial tax system, which generally eliminates the U.S. federal income tax on dividends from foreign subsidiaries, and imposes aone-time transition tax on certain earnings of foreign subsidiaries previously untaxed in the United States.
U.S. GAAP requires the impact of tax legislation to be recorded in the period of enactment. The Tax Act, though, did not have a significant impact on the Company’s consolidated financial statements, primarily because it continues to maintain a full valuation allowance against all domestic net deferred tax assets, as discussed below. While the Companyre-measured its net deferred tax assets using the lower U.S. corporate income tax rate at which it is now expected to reverse in the future, the adjustment was offset by a corresponding change in the Company’s valuation allowance. Theone-time transition tax is based on total post–1986 earnings and profits which were not previously subject to U.S. income taxes. While the Company recorded a provisional amount for theone-time transition tax liability for all its controlled foreign corporations, it was fully offset by existing net operating losses in the U.S. The Company did record a benefit in the fourth quarter of 2017 due to the elimination of the AMT, as discussed below.
Certain impacts of the Tax Act would generally require accounting to be completed in the period of enactment. However, in response to the complexities of the Tax Act, the Securities and Exchange Commission (“SEC”) issued guidance through Staff Accounting Bulletin No. 118 to provide companies with relief.
VICOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Specifically, when the initial accounting for items under the Tax Act is incomplete, the guidance allows companies to include provisional amounts when reasonable estimates can be made. The SEC has provided up to aone-year measurement period for companies to finalize the accounting for the impact of the new legislation and the Company expects to finalize the accounting over the coming quarters. The Company has recognized the provisional tax impacts related to there-measurement of its deferred tax assets and liabilities, andone-time transition tax, for the year ended December 31, 2017. The ultimate impact may differ from these provisional amounts due to, among other things, additional analysis, changes in interpretations and assumptions the Company has made, additional regulatory guidance that may be issued, and actions the Company may take as a result of the Tax Act.
2017 | 2016 | 2015 | ||||||||||
Statutory federal tax rate | (34.0 | )% | (34.0 | )% | (34.0 | )% | ||||||
State income taxes, net of federal income tax benefit | 97.2 | 1.9 | 46.4 | |||||||||
Rate change due to tax reform | 3,441.1 | — | — | |||||||||
Tax credits | (1,222.3 | ) | (13.6 | ) | 29.9 | |||||||
Increase (decrease) in valuation allowance | (936.1 | ) | 46.5 | (138.4 | ) | |||||||
Permanent items | (861.2 | ) | 0.9 | 21.2 | ||||||||
Refundable income taxes — AMT credit | (751.0 | ) | — | — | ||||||||
Foreign rate differential and deferred items | (91.8 | ) | (0.8 | ) | (18.2 | ) | ||||||
Decrease in tax reserves | (5.1 | ) | — | (248.6 | ) | |||||||
Capital gain on sale to noncontrolling interest | — | 3.9 | 237.8 | |||||||||
Decrease in unremitted Vicor Custom Power earnings | — | (0.9 | ) | (108.7 | ) | |||||||
Book income attributable to noncontrolling interest | — | 0.1 | 47.0 | |||||||||
Other | (0.1 | ) | (0.2 | ) | (0.1 | ) | ||||||
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(363.3 | )% | 3.8 | % | (165.7 | )% | |||||||
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2022 | 2021 | 2020 | ||||||||||
Statutory federal tax rate | 21.0 | % | 21.0 | % | 21.0 | % | ||||||
State income taxes, net of federal income tax benefit | (2.4 | ) | (4.2 | ) | (0.5 | ) | ||||||
Increase in valuation allowance | 14.5 | 9.2 | 41.2 | |||||||||
Permanent items | (13.8 | ) | (17.9 | ) | (48.7 | ) | ||||||
Tax credits | (9.9 | ) | (5.7 | ) | (11.2 | ) | ||||||
Provision vs. tax return differences | 2.1 | (2.0 | ) | 0.7 | ||||||||
Foreign rate differential and deferred items | (0.2 | ) | — | 0.1 | ||||||||
Other | 0.1 | (0.1 | ) | 0.3 | ||||||||
11.4 | % | 0.3 | % | 2.9 | % | |||||||
In 2017, the benefit for income taxes wasoperating loss carryforwards, primarily due to the Company’s AMT credit carryforwardstax deductions on exercises of stock-based compensation of approximately $736,000 becoming fully refundable in future years, due to the repeal$55,300,000 and $49,500,000,
2017 | 2016 | 2015 | ||||||||||
Domestic | $ | (1,591 | ) | $ | (6,034 | ) | $ | 1,373 | ||||
Foreign | 1,493 | 4 | (1,615 | ) | ||||||||
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$ | (98 | ) | $ | (6,030 | ) | $ | (242 | ) | ||||
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2022 | 2021 | 2020 | ||||||||||
Domestic | $ | 29,157 | $ | 56,620 | $ | 17,688 | ||||||
Foreign | (470 | ) | 185 | 773 | ||||||||
$ | 28,687 | $ | 56,805 | $ | 18,461 | |||||||
2017 | 2016 | 2015 | ||||||||||
Current: | ||||||||||||
Federal | $ | (736 | ) | $ | — | $ | 144 | |||||
State | 156 | 172 | (473 | ) | ||||||||
Foreign | 396 | 137 | 111 | |||||||||
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(184 | ) | 309 | (218 | ) | ||||||||
Deferred: | ||||||||||||
Federal | — | (55 | ) | (274 | ) | |||||||
Foreign | (172 | ) | (23 | ) | 91 | |||||||
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(172 | ) | (78 | ) | (183 | ) | |||||||
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$ | (356 | ) | $ | 231 | $ | (401 | ) | |||||
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As discussed in Note 8, the Company recorded a gain from equity method investment in the third quarter of 2015 for cash consideration received equal to its gross investment in GWS of $4,999,719 for the full preference value of itsnon-voting convertible preferred stock upon GWS’ acquisition by Intersil, as the value of the investment for financial reporting purposes was zero. For income tax purposes, though, the tax basis of the investment was $4,999,719 at the time of the redemption as it was not previously deducted for tax purposes and, therefore, there was no gain or loss on the transaction for income tax purposes.
The Tax Act eliminates the deferral of U.S. income tax on accumulated foreign earnings by imposing aone-time mandatory transition tax on such earnings. As a result, we recorded a provisional amount of approximately $122,000 in additional taxable income related to approximately $813,000 of untaxed accumulated unremitted foreign earnings. As noted above, the additional taxable income of $122,000 was fully offset by existing net operating losses in the U.S. Going forward, the Company intends to continue to reinvest certain of its foreign earnings indefinitely.
VICOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As noted above, the change in the U.S. federal corporate tax rate, which is effective January 1, 2018, is reflected in the Company’s deferred tax table below.
2022 | 2021 | 2020 | ||||||||||
Current: | ||||||||||||
Federal | $ | 2,105 | $ | 1 | $ | 215 | ||||||
State | 955 | (14 | ) | 93 | ||||||||
Foreign | 298 | 171 | 252 | |||||||||
3,358 | 158 | 560 | ||||||||||
Deferred: | ||||||||||||
Foreign | (97 | ) | 18 | (21 | ) | |||||||
(97 | ) | 18 | (21 | ) | ||||||||
$ | 3,261 | $ | 176 | $ | 539 | |||||||
2017 | 2016 | |||||||
Deferred tax assets: | ||||||||
Research and development tax credit carryforwards | $ | 20,019 | $ | 13,967 | ||||
Net operating loss carryforwards | 4,918 | 4,902 | ||||||
Stock-based compensation | 2,793 | 4,066 | ||||||
Investment tax credit carryforwards | 2,181 | 1,576 | ||||||
Inventory reserves | 2,059 | 3,143 | ||||||
Vacation accrual | 1,255 | 1,928 | ||||||
Contingent consideration liabilities | 148 | — | ||||||
Unrealized loss on investments | 135 | 136 | ||||||
Deferred revenue | 79 | 154 | ||||||
Warranty reserves | 45 | 73 | ||||||
Bad debt reserves | 36 | 52 | ||||||
Alternative minimum tax credit carryforward | — | 340 | ||||||
Other | 273 | 331 | ||||||
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Total deferred tax assets | 33,941 | 30,668 | ||||||
Less: Valuation allowance for deferred tax assets | (33,024 | ) | (29,274 | ) | ||||
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Net deferred tax assets | 917 | 1,394 | ||||||
Deferred tax liabilities: | ||||||||
Prepaid expenses | (470 | ) | (654 | ) | ||||
Patent amortization | (161 | ) | (296 | ) | ||||
Depreciation | (76 | ) | (406 | ) | ||||
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Total deferred tax liabilities | (707 | ) | (1,356 | ) | ||||
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Net deferred tax assets (liabilities) | $ | 210 | $ | 38 | ||||
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2022 | 2021 | |||||||
Deferred tax assets: | ||||||||
Research and development tax credit carryforwards | $ | 33,764 | $ | 36,041 | ||||
Net operating loss carryforwards | 22 | 5,985 | ||||||
Stock-based compensation | 3,940 | 2,341 | ||||||
Inventory reserves | 2,303 | 2,268 | ||||||
Investment tax credit carryforwards | 2,461 | 1,928 | ||||||
UNICAP | 1,118 | 1,363 | ||||||
Vacation accrual | 1,248 | 1,338 | ||||||
Lease liabilities | 1,422 | 787 | ||||||
Accrued payroll tax deferral | — | 384 | ||||||
Capitalized research and development | 12,142 | — | ||||||
Other | 2,871 | 1,568 | ||||||
Total deferred tax assets | 61,291 | 54,003 | ||||||
Less: Valuation allowance for deferred tax assets | (47,413 | ) | (43,329 | ) | ||||
Net deferred tax assets | 13,878 | 10,674 | ||||||
Deferred tax liabilities: | ||||||||
Depreciation | (11,396 | ) | (9,048 | ) | ||||
ROU assets | (1,362 | ) | (756 | ) | ||||
Prepaid expenses | (751 | ) | (662 | ) | ||||
Other | (89 | ) | — | |||||
Total deferred tax liabilities | (13,598 | ) | (10,466 | ) | ||||
Net deferred tax assets (liabilities) | $ | 280 | $ | 208 | ||||
VICOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
equity under previous guidance. In addition, it eliminates the requirement that excess tax benefits be realized with the taxing authority before they can be recognized in the financial statements. In connection with the adoption of this new guidance, the Company recorded a cumulative-effect adjustment as of January 1, 2017 to increase gross deferred tax assets and the related valuation allowance against deferred tax assets by $3,485,000. This amount was allocated and added to deferred tax assets for research and development tax credit carryforwards,has no federal net operating loss carryforwards available, and the alternative minimum tax credit carryforward but, as noted above, was fully offset by a corresponding increasehas state net operating losses of approximately $3,607,000, which begin to expire in the valuation allowance against deferred tax assets, resulting in no net effect on the Company’s consolidated financial statements.
2025. The Company has federal and state research and development tax credit carryforwards of approximately $11,711,000$21,949,000 and $11,714,000, respectively,$19,308,000, which will begin to expire beginning in 2018 for state purposes2026 and in 2022 for federal purposes. The Company has federal net operating loss carryforwards of approximately $18,351,000, which expire beginning in 2033, as well as net operating loss carryforwards in certain states of approximately $28,770,000, which expire beginning in 2018 through 2037.
2023, respectively.
2017 | 2016 | 2015 | ||||||||||
Balance on January 1 | $ | 946 | $ | 830 | $ | 1,254 | ||||||
Additions based on tax positions related to the current year | 138 | 125 | 120 | |||||||||
Additions for tax positions of prior years | 29 | — | — | |||||||||
Settlements | (1 | ) | — | (480 | ) | |||||||
Lapse of statute | (8 | ) | (9 | ) | (64 | ) | ||||||
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Balance on December 31 | $ | 1,104 | $ | 946 | $ | 830 | ||||||
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2022 | 2021 | 2020 | ||||||||||
Balance on January 1 | $ | 3,246 | $ | 2,297 | $ | 2,070 | ||||||
Additions based on tax positions related to the current year | 319 | 625 | 244 | |||||||||
Additions (reductions) for tax positions of prior years | (54 | ) | 393 | (13 | ) | |||||||
Lapse of statute | (37 | ) | (69 | ) | (4 | ) | ||||||
Balance on December 31 | $ | 3,474 | $ | 3,246 | $ | 2,297 | ||||||
VICOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Company’s subsidiary in Italy, Vicor Italy S.r.l. (“Vicor Italy”), underwent during 2014 a tax inspection for tax years 2009 through 2013, covering corporation, regional and value added taxes. Vicor Italy received a preliminary tax audit report dated June 30, 2014.
In May 2017, the Company received notice fromSeptember 2021 by the Internal Revenue Service that its federal corporateof their intention to examine the Company’s 2019 Federal income tax return forreturn. The IRS is in the process of closing the examination of the 2019 tax year 2015 had been selected for examination. The examination is ongoing. In January 2018, the Company received notice from the New York State Department of Taxation and Finance that its New York State tax returns for tax years 2014 through 2016 were selected for audit. On site fieldwork for this audit will take place in March 2018.
with no material adjustments. There are no other income taxaudits or examinations or audits currently in process.
process in any other jurisdiction.
Year | ||||
2018 | $ | 1,742 | ||
2019 | 1,152 | |||
2020 | 872 | |||
2021 | 467 | |||
2022 and thereafter | 1,002 |
Rent expense was approximately $1,889,000, $1,866,000 and $1,902,000 in 2017, 2016 and 2015, respectively. The Company also pays tenant-related executory costs such as taxes, maintenance, and insurance.
Ona patent infringement lawsuit originally filed on January 28, 2011 by SynQor, Inc. (“SynQor”) filed a complaint for patent infringement against Ericsson, Inc. (“Ericsson”), Cisco Systems, Inc. (“Cisco”) and the Company in the U.S. District Court (the “District Court”) for the Eastern District of Texas (the “Texas Action”). Ericsson and Cisco subsequently settled with SynQor and are no longer parties to the Texas Action. With respect to the Company, SynQor’sTexas. The complaint, in the Texas Actionas amended, alleged that the Company’s products, including but not limited to unregulated bus converters used in intermediate bus architecture power supply systems infringeinfringed SynQor’s U.S. patent numbers 7,072,190, 7,272,021, 7,564,702, and 7,564,7028,023,290 (“the ‘190 patent”, “the ‘021 patent” and, “the ‘702 patent”, respectively). SynQor’s complaint sought an injunction against further infringement and an award of unspecified compensatory and enhanced damages, interest, costs and attorney fees. On September 20, 2011, SynQor filed an amended complaint in the Texas Action that further alleged that the Company’s products, including, but not limited to, unregulated bus converters used in intermediate bus architecture power supply systems, infringe SynQor’s U.S. patent number 8,023,290 (“the“the ‘290 patent”, respectively, and collectively the “SynQor Patents”). The Company responded to SynQor’s amended complaint in the Texas Actionasserted counterclaims against SynQor alleging unfair competition and tortious interference with business relations (the “Counterclaims”). As a result of certain actions by denying its products infringe any of the SynQor patents, and asserting that the SynQor patents are invalid. The Company further alleged that the SynQor ‘290 patent is unenforceable due to inequitable conduct by SynQor or its agents during the examination of the ‘290 patent at the United States Patent and Trademark Office (“USPTO”). The Company also asserted counterclaims seeking damages against SynQor for deceptive trade practices and tortious interference with prospective economic advantage arisingthe District Court, SynQor’s infringement allegations regarding the ‘021 patent and the ‘290 patent were dismissed from SynQor’s attempted enforcementthe case prior to the beginning of its patents against the Company.
VICOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Company initiated administrative review proceedings attrial. Specifically, the USPTO challenginginvalidated all the validity of certainasserted 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 an order involuntarily dismissing the ‘290 patent infringement allegations on grounds of equitable and judicial estoppel, in view of representations by SynQor patents asserted into the Texas Action, including all claims that were asserted againstDistrict Court agreeing to such dismissal as a condition of lifting a prior stay of the Company by SynQor. Regardinglawsuit. (On January 18, 2023, the ‘190 patent,United States Court of Appeals for the Federal Circuit issued a decision upholding a decision of the Patent Trial and Appeal Board (“PTAB”) of the USPTO issued a decision upholdinginvalidating all claims of the validity‘290 patent.)
On May 2, 2016, the PTAB also issued decisions finding all challenged claims of SynQor’s ‘021 patent invalid and upholding the validity of all challenged claims of SynQor’s ‘702 and ‘290 patents. On May 23, 2016, the Texas Court issued an order staying the Texas Action until the completion of all of the administrative review proceedings concerning the asserted SynQor patents, including any appeals from such proceedings to the Federal Circuit.
On August 30, 2017, the Federal Circuit issued rulingsCompany’s Counterclaims against SynQor.
On October 31, 2017,applicable accounting standards, the Company filedhas recorded a request withlitigation related accrual of $6,500,000 in the USPTO for ex parte reexaminationthird quarter of the ‘702 patent,2022 as its estimate based on different prior art references than had been at issue in the previous inter parte reexamination of the ‘702 patent. On December 6, 2017, the USPTO issued a decision granting the Company’s request for ex parte reexamination of the ‘702 patent, finding that the Company’s request was warranted because it raised substantial new questions of patentability of the ‘702 patent.
The Company continuesjury award, using estimated outcomes ranging from $0 to believe none of its products, including its unregulated bus converters, infringe any valid claim of the asserted SynQor patents, either alone or when used in an intermediate bus architecture implementation. The Company believes SynQor’s claims lack merit and, therefore, continues to vigorously defend itself against SynQor’s patent infringement allegations. The Company does not believe a loss is probable for this matter. If a loss were to be incurred, however, the Company cannot estimate the amount of possible loss or range of possible loss at this time.
treble damages plus attorney fees.
VICOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
16. SEGMENT INFORMATION
The Company has organized its business segments according to its key product lines. The BBU segment designs, develops, manufactures, and markets the Company’s modularDC-DC converters and configurable products, and also includes the entities comprising Vicor Custom Power and the BBU operations
The Company’s Chief Executive Officer (i.e., the chief operating decision maker) evaluates performance and allocates resources based on segment revenues and segment operating income (loss). The operating income (loss) for each segment includes selling, general, and administrative and research and development expenses directly attributable to the segment. Certain of the Company’s indirect overhead costs, which include corporate selling, general, and administrative expenses, are allocated among the segments based upon an estimate of costs associated with each segment. Assets allocated to each segment are based upon specific identification of such assets, which include accounts receivable, inventories, fixed assets and certain other assets. The Corporate segment consists of those operations and assets shared by all segments. The costs of certain centralized executive and administrative functions are recorded in this segment, as are certain shared assets, most notably cash and cash equivalents, deferred tax assets, long-term investments, the Company’s facilities in Massachusetts, real estate, and other assets. The Company’s accounting policies and method of presentation for segments are consistent with that used throughout the Consolidated Financial Statements.
The following table provides significant segment financial data as of and for the years ended December 31 (in thousands):
BBU | VI Chip | Picor | Corporate | Eliminations | Total | |||||||||||||||||||
(1) | ||||||||||||||||||||||||
2017: | ||||||||||||||||||||||||
Net revenues | $ | 151,789 | $ | 61,330 | $ | 26,297 | $ | — | $ | (11,586 | ) | $ | 227,830 | |||||||||||
Income (loss) from operations | 5,615 | (11,495 | ) | 5,400 | (880 | ) | — | (1,360 | ) | |||||||||||||||
Total assets | 232,255 | 34,809 | 13,509 | 59,550 | (174,399 | ) | 165,724 | |||||||||||||||||
Depreciation and amortization | 3,907 | 2,782 | 747 | 1,457 | — | 8,893 | ||||||||||||||||||
2016: | ||||||||||||||||||||||||
Net revenues | $ | 151,428 | $ | 39,947 | $ | 16,684 | $ | — | $ | (7,779 | ) | $ | 200,280 | |||||||||||
Income (loss) from operations | 11,750 | (16,494 | ) | (637 | ) | (933 | ) | — | (6,314 | ) | ||||||||||||||
Total assets | 196,987 | 21,389 | 8,583 | 73,253 | (146,145 | ) | 154,067 | |||||||||||||||||
Depreciation and amortization | 4,258 | 2,235 | 545 | 1,400 | — | 8,438 | ||||||||||||||||||
2015: | ||||||||||||||||||||||||
Net revenues | $ | 173,064 | $ | 36,688 | $ | 17,304 | $ | — | $ | (6,862 | ) | $ | 220,194 | |||||||||||
Income (loss) from operations | 21,743 | (21,040 | ) | (290 | ) | (680 | ) | — | (267 | ) | ||||||||||||||
Total assets | 170,939 | 15,577 | 5,369 | 81,824 | (116,164 | ) | 157,545 | |||||||||||||||||
Depreciation and amortization | 4,538 | 2,740 | 442 | 1,422 | — | 9,142 |
VICOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
During 2017, 2016, and 2015, one customer accounted for approximately 13.0%, 16.4%, and 16.2% of net revenues, respectively, which were included in all three business segments in each of the three years.
Net revenues from unaffiliated customers by country, based on the location of the customer, for the years ended December 31 were as follows (in thousands):
2017 | 2016 | 2015 | ||||||||||
United States | $ | 83,871 | $ | 80,603 | $ | 88,136 | ||||||
Europe | 24,078 | 22,495 | 29,686 | |||||||||
Asia Pacific | 114,365 | 91,848 | 94,845 | |||||||||
All other | 5,516 | 5,334 | 7,527 | |||||||||
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$227,830 | $200,280 | $220,194 | ||||||||||
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Net revenues from customers in China (including Hong Kong), our largest international market, accounted for approximately 35.8% of total net revenues in 2017, 32.1% in 2016 and 34.2% in 2015, respectively.
17. QUARTERLY RESULTS OF OPERATIONS (Unaudited)
The following table sets forth certain unaudited quarterly financial data for the years ended December 31 (in thousands, except per share amounts):
First | Second | Third | Fourth | Total | ||||||||||||||||
2017: | ||||||||||||||||||||
Net revenues | $ | 54,462 | $ | 57,709 | $ | 56,888 | $ | 58,771 | $ | 227,830 | ||||||||||
Gross margin | 23,652 | 25,930 | 25,143 | 26,931 | 101,656 | |||||||||||||||
Consolidated net income (loss) | (954 | ) | (445 | ) | 38 | 1,619 | 258 | |||||||||||||
Net income attributable to noncontrolling interest | 20 | 14 | 49 | 8 | 91 | |||||||||||||||
Net income (loss) attributable to Vicor Corporation | (974 | ) | (459 | ) | (11 | ) | 1,611 | 167 | ||||||||||||
Net income (loss) per share attributable to Vicor Corporation: | ||||||||||||||||||||
Basic and diluted | (0.02 | ) | (0.01 | ) | (0.00 | ) | 0.04 | 0.00 |
First | Second | Third | Fourth | Total | ||||||||||||||||
2016: | ||||||||||||||||||||
Net revenues | $ | 46,027 | $ | 52,941 | $ | 53,227 | $ | 48,085 | $ | 200,280 | ||||||||||
Gross margin | 19,316 | 24,471 | 25,923 | 21,499 | 91,209 | |||||||||||||||
Consolidated net income (loss) | (5,376 | ) | (550 | ) | 2,351 | (2,686 | ) | (6,261 | ) | |||||||||||
Net income (loss) attributable to noncontrolling interest | (25 | ) | (6 | ) | 15 | 2 | (14 | ) | ||||||||||||
Net income (loss) attributable to Vicor Corporation | (5,351 | ) | (544 | ) | 2,336 | (2,688 | ) | (6,247 | ) | |||||||||||
Net income (loss) per share attributable to Vicor Corporation: | ||||||||||||||||||||
Basic and diluted | (0.14 | ) | (0.01 | ) | 0.06 | (0.07 | ) | (0.16 | ) |
ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
None.
ITEM 9A. | CONTROLS AND PROCEDURES |
Attached as exhibits to this Annual Report onForm 10-K are certifications of our CEO and Chief Financial Officer (“CFO”), which are required in accordance withRule 13a-14 of the Exchange Act. This “Controls and Procedures” section includes information concerning the controls and controls evaluation referred to in the certifications.
(a) Evaluation of disclosure controls and procedures
As required byRule 13a-15 under the Exchange Act, management, with the participation of our CEO and CFO, conducted an evaluation regarding the effectiveness of our disclosure controls and procedures, as of the end of the last fiscal year. The term “disclosure controls and procedures,” as defined inRules 13a-15(e) and15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that 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 that information required to be disclosed by a company in the reports that 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. We recognize any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and we necessarily apply our judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of the Company’s disclosure controls and procedures as of December 31, 2017,2022, the CEO and CFO concluded, as of such date, the Company’s disclosure controls and procedures were effective at the reasonable assurance level.
(b) Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Internal control over financial reporting includes those policies and procedures;procedures: (a) pertaining to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets; (b) providing reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of our management and Board of Directors; and (c) providing reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on our financial statements.
Management assessed our internal control over financial reporting as of December 31, 2017,2022, the end of our fiscal year. Management based its assessment on criteria established inInternal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Management’s assessment included evaluation of such elements as the design and operating effectiveness of key financial reporting controls, process documentation, accounting policies, and our overall control environment.
Based on our assessment, management has concluded that our internal control over financial reporting was effective as of December 31, 2017.2022.
The effectiveness of our internal control over financial reporting as of December 31, 20172022 has been audited by KPMG LLP, our independent registered public accounting firm, as stated in their report which is included immediately below.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMReport of Independent Registered Public Accounting Firm
TheTo the Stockholders and Board of Directors and Stockholders
Vicor Corporation:
Opinion on Internal Control Over Financial Reporting
We have audited Vicor Corporation and subsidiaries’ (the “Company”)Company) internal control over financial reporting as of December 31, 2017,2022, based on criteria established in Internal Control —– Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017,2022, based on criteria established in Internal Control –Integrated– Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”)(PCAOB), the consolidated balance sheets of the Company as of December 31, 20172022 and 2016,2021, the related consolidated statements of operations, comprehensive income, (loss), cash flows, and equity for each of the years in the three-year period ended December 31, 2017,2022, and the related notes and the financial statement schedule listed in Item 15(a)(2) (collectively, the “consolidatedconsolidated financial statements”)statements), and our report dated March 9, 2018February 28, 2023 expressed an unqualified opinion on those consolidated financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed 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. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ KPMG LLP
Boston, Massachusetts
March 9, 2018February 28, 2023
(c) Inherent Limitations on Effectiveness of Controls
The Company’s management, including the CEO and CFO, does not expect that our disclosure controls or our internal control over financial reporting will prevent or detect all errors and all fraud. 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. The design of a control system must reflect the fact that 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 that 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 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 evaluation of controls 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.
(d) 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 December 31, 2017,2022, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
ITEM 9B. | OTHER INFORMATION |
None.
ITEM 9C. | DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS |
Not applicable.
PART III
ITEM 10. | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE |
Incorporated by reference from the Company’s Definitive Proxy Statement for its 20182023 annual meeting of stockholders.
ITEM 11. | EXECUTIVE COMPENSATION |
Incorporated by reference from the Company’s Definitive Proxy Statement for its 20182023 annual meeting of stockholders.
ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT ANDRELATED STOCKHOLDER MATTERS |
Incorporated by reference from the Company’s Definitive Proxy Statement for its 20182023 annual meeting of stockholders.
ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE |
Incorporated by reference from the Company’s Definitive Proxy Statement for its 20182023 annual meeting of stockholders.
ITEM 14. | PRINCIPAL ACCOUNTANT FEES AND SERVICES |
Incorporated by reference from the Company’s Definitive Proxy Statement for its 20182023 annual meeting of stockholders.
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PART IV
ITEM 15.EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
ITEM 15. | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES |
(a) (1) Financial Statements
See index in Item 8.
(a) (2) Schedules
Schedule II Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted.
(b) Exhibits
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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.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 |
* | Indicates a management contract or compensatory plan or arrangement required to be filled pursuant to Item 15(b) of Form10-K. |
** | Filed with this Annual Report on Form 10-K for the year ended December 31, 2022are the following documents formatted in iXBRL (Inline Extensible Business Reporting Language): (i) the Consolidated Balance Sheets for the years ended December 31, 2022 and 2021; (ii) the Consolidated Statements of Operations for the years ended December 31, 2022, 2021 and 2020; (iii) the Consolidated Statements of Comprehensive Income for the years ended December 31, 2022, 2021 and 2020; (iv) the Consolidated Statements of Cash Flows for the years ended December 31, 2022, 2021 and 2020; (v) the Consolidated Statements of Equity for the years ended December 31, 2022, 2021 and 2020; and (vi) the Notes to Consolidated Financial Statements. |
(1) | Filed as an exhibit to the Company’s Annual Report onForm 10-K filed on March 29, 2001 and incorporated herein by reference. |
(2) | Filed as an exhibit to the Company’s Registration Statement on Form 10, as amended, under the Securities Exchange Act of 1934 (FileNo. |
(3) | Filed as an exhibit to the Company’s Registration Statement onForm S-8, as amended, under the Securities Act of 1933(No. 333-61177), and incorporated herein by reference. |
(4) | Filed as Appendix A to the Company’s Definitive Proxy Statement on Schedule 14A filed with the SEC on May 1, 2017 (FileNo. 000-18277), and incorporated herein by reference. |
(5) | Filed as an exhibit to the Company’s Quarterly Report onForm 10-Q filed on November 4, 2004 (FileNo. |
(6) | Filed as an exhibit to the Company’s Annual Report onForm 10-K filed on March 16, 2005 (FileNo. |
(7) | Filed as an exhibit to the Company’s Annual Report onForm 10-K filed on March 14, 2006 (FileNo. |
(8) |
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. |
(9) | Filed as an exhibit to the Company’s Current Report on Form 8-K, dated June 6, 2007 (FileNo. |
(10) | Filed as an exhibit to the Company’s Current Report andForm 8-K, dated March 6, 2008 (FileNo. |
(11) |
Filed as Appendix B to the Company’s Definitive Proxy Statement on Schedule 14A filed with the SEC on May 1, 2017 (FileNo. 000-18277), and incorporated herein by reference. |
Filed as Appendix C to the Company’s Definitive Proxy Statement on Schedule 14A filed with the SEC on May 1, 2017 (FileNo. 000-18277), and incorporated herein by reference. |
Filed as Appendix D to the Company’s Definitive Proxy Statement on Schedule 14A filed with the SEC on May 1, 2017 (FileNo. 000-18277), and incorporated herein by reference. |
(14) | Filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on June 5, 2018 (File No. 000-18277), and incorporated herein by reference. |
ITEM 16. FORM10-K SUMMARY
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(15) | Filed as Exhibit 10.1 to the Company’s Registration Statement on Form S-8, under the Securities Act of 1933 (No. 333-232864), and incorporated herein by reference. |
(16) | Filed as an exhibit to the Company’s Annual Report on Form 10-K filed on March 1, 2021 (File No. 000-18277) and incorporated herein by reference. |
(17) | Filed as an exhibit to the Company’s Current Report on Form 8-K filed on May 13, 2021 (File No. 000-18277) and incorporated herein by reference. |
(18) | Filed as an exhibit to the Company’s Annual Report on Form 10-K filed on March 1, 2022 (File No. 000-18277) and incorporated herein by reference. |
(19) | Filed herewith. |
ITEM 16. | FORM 10-K SUMMARY |
None.
Description | Balance at Beginning of Period | Charge (Recovery) to Costs and Expenses | Other Charges, Deductions (1) | Balance at End of Period | ||||||||||||
Allowance for doubtful accounts: | ||||||||||||||||
Year ended: | ||||||||||||||||
December 31, 2017 | $ | 153,000 | $ | 6,000 | $ | — | $ | 159,000 | ||||||||
December 31, 2016 | 171,000 | (22,000 | ) | 4,000 | 153,000 | |||||||||||
December 31, 2015 | 183,000 | 18,000 | (30,000 | ) | 171,000 |
Description | Balance at Beginning of Period | Charge (Recovery) to Costs and Expenses | Other Charges, Deductions (1) | Balance at End of Period | ||||||||||||
Allowance for doubtful accounts: | ||||||||||||||||
Year ended: | ||||||||||||||||
December 31, 2022 | $ | 82,000 | $ | 5,000 | $ | — | $ | 87,000 | ||||||||
December 31, 2021 | 82,000 | — | — | 82,000 | ||||||||||||
December 31, 2020 | 59,000 | 23,000 | — | 82,000 |
(1) | Reflects uncollectible accounts written off, net of recoveries. |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 | ||
By: | /s/ James | |
James | ||
Vice President, Chief Financial Officer |
Date: March 9, 2018February 28, 2023
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the dates indicated.
Signature | Title | Date | ||
/s/ Patrizio Vinciarelli Patrizio Vinciarelli | President, Chief Executive Officer and Chairman of the Board (Principal Executive Officer) | |||
/s/ James James | Chief Financial Officer, (Principal Financial Officer and Principal Accounting Officer) | |||
/s/ Estia J. Eichten Estia J. Eichten | Director | |||
/s/
| Director | |||
/s/ Samuel J. Anderson Samuel J. Anderson | Director | |||
/s/ Claudio Tuozzolo Claudio Tuozzolo | Director | |||
/s/ Jason L. Carlson Jason L. Carlson | Director | |||
/s/
| Director | |||
/s/
| Director | |||
/s/ M. Michael Ansour M. Michael Ansour | Director | February 28, 2023 | ||
/s/ Zmira Lavie Zmira Lavie | Director | February 28, 2023 | ||
/s/ John Shen John Shen | Director | February 28, 2023 |
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