UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
 
 
FORM
10-Q
 
 
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended JuneSeptember 30, 2022
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________________________
Commission File Number
0-18277
 
 
VICOR CORPORATION
(Exact name of registrant as specified in its charter)
 
 
 
Delaware
 
04-2742817
(State of Incorporation)
 
(I.R.S. Employer
Identification No.)
25 Frontage Road, Andover,
, Massachusetts 01810
(Address of Principal Executive Office)
(978)
470-2900
(Registrant’s telephone number)
Securities registered pursuant to Section 12(b) of the Act:
 
Title of each class
 
Trading
Trading
Symbol(s)
 
Name of each exchange
on which registered
Common Stock, par value
$0.01 per share
 
VICR
 
The NASDAQ Stock Market LLC
Indicate by
check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes
  ☑Yes  ☒    No  ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation
S-T
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).     
Yes
  ☑
  ☒    No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule
12b-2
of the Exchange Act.
Large accelerated filer 

  Accelerated filer 
    
Non-accelerated filer   Smaller reporting company 
    
     Emerging growth company 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2
of the Exchange Act).     Yes  ☐    No  
The number of shares outstanding of each of the issuer’s classes of Common Stock as of JulyOctober 25, 2022 was:
 
Common Stock, $.01 par value
   32,225,59432,305,315 
Class B Common Stock, $.01 par value
   11,758,21811,743,218 
 
 
 

Table of Contents
VICOR CORPORATION
INDEX
 


VICOR CORPORATION

INDEX

   
Page
 

  

  

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   1918 

   31 

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33

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35

EX-31.1 SECTION 302 CERTIFICATION OF CEO

  

  

  

  


Table of Contents
VICOR CORPORATION
Part I – Financial Information
Item 1 – Financial Statements
Condensed Consolidated Balance Sheets
(In thousands, except share data)
(Unaudited)
 
  June 30, 2022 December 31, 2021   September 30, 2022 December 31, 2021 
Assets
        
Current assets:
          
Cash and cash equivalents  $187,677  $182,418   $182,098  $182,418 
Short-term investments   19,921   45,215    19,949   45,215 
Accounts receivable, net   54,536   55,097    56,287   55,097 
Inventories   83,055   67,322    94,336   67,322 
Other current assets   7,142   6,708    5,483   6,708 
  
 
  
 
        
Total current assets   352,331   356,760    358,153   356,760 
Long-term deferred tax assets, net
   266   208    260   208 
Long-term investment, net
   2,552   2,639    2,552   2,639 
Property, plant and equipment, net
   156,815   115,975    163,198   115,975 
Other assets
   1,392   1,623    2,939   1,623 
  
 
  
 
        
Total assets  $513,356  $477,205   $527,102  $477,205 
  
 
  
 
        
Liabilities and Equity
          
Current liabilities:
        
Accounts payable  $32,032  $21,189   $24,004  $21,189 
Accrued compensation and benefits   13,128   12,660    13,070   12,660 
Accrued litigation   6,500   —   
Accrued expenses   4,011   4,158    5,754   4,158 
Short-term lease liabilities   1,572   1,551    1,449   1,551 
Sales allowances   1,006   1,464    1,427   1,464 
Accrued severance and other charges   0—     93    —     93 
Income taxes payable   2   66    7   66 
Short-term deferred revenue and customer prepayments   7,702   7,912    12,148   7,912 
  
 
  
 
        
Total current liabilities   59,453   49,093    64,359   49,093 
Long-term deferred revenue
   270   413    1,833   413 
Long-term income taxes payable
   577   569    529   569 
Long-term lease liabilities
   7,952   3,225    7,520   3,225 
  
 
  
 
        
Total liabilities   68,252   53,300    74,241   53,300 
Commitments and contingencies (Note 10)
          
Equity:
        
Vicor Corporation stockholders’ equity:
        
Class B Common Stock: 10 votes per share, $.01 par value, 14,000,000 shares authorized, 11,758,218 shares issued and outstanding in 2022 and 2021
   118   118 
Common Stock: 1 vote per share, $.01 par value, 62,000,000 shares authorized 43,885,382 shares
issued and 32,220,576 shares outstanding in 2022; 43,789,528 shares issued and 32,154,722 shares outstanding in 2021
   440   439 
Class B Common Stock: 10 votes per share, $.01 par value, 14,000,000 shares authorized, 11,758,218 shares issued and outstanding in 2022 and 2021
   118   118 
Common Stock: 1 vote per share, $.01 par value, 62,000,000 shares authorized 43,923,786 shares issued and 32,288,980 shares outstanding in 2022; 43,789,528 shares issued and 32,154,722 shares outstanding in 2021
   440   439 
Additional
paid-in
capital
   352,253   345,664    357,255   345,664 
Retained earnings   233,225   217,633    235,017   217,633 
Accumulated other comprehensive loss
   (2,246  (1,328   (1,279  (1,328
Treasury stock at cost: 11,634,806 shares in 2022 and 2021
   (138,927  (138,927   (138,927  (138,927
  
 
  
 
        
Total Vicor Corporation stockholders’ equity   444,863   423,599    452,624   423,599 
Noncontrolling interest
   241   306    237   306 
  
 
  
 
        
Total equity   445,104   423,905    452,861   423,905 
  
 
  
 
        
Total liabilities and equity  $513,356  $477,205   $527,102  $477,205 
  
 
  
 
        
See accompanying notes.
 
-1-

Table of Contents
VICOR CORPORATION
Condensed Consolidated Statements of Operations
(In thousands, except per share amounts)
(Unaudited)
 
   Three Months Ended
June 30,
  Six Months Ended
June 30,
 
   2022  2021  2022  2021 
Net revenues
  $102,186  $95,376  $190,468  $184,172 
Cost of revenues
   55,337   45,505   106,018   89,601 
   
 
 
  
 
 
  
 
 
  
 
 
 
Gross margin
   46,849   49,871   84,450   94,571 
Operating expenses:
                 
Selling, general and administrative
   20,035   16,589   38,603   33,543 
Research and development
   15,516   13,273   29,769   26,299 
   
 
 
  
 
 
  
 
 
  
 
 
 
Total operating expenses
   35,551   29,862   68,372   59,842 
   
 
 
  
 
 
  
 
 
  
 
 
 
Income from operations
   11,298   20,009   16,078   34,729 
Other income (expense), net:
                 
Total unrealized gains (losses) on
available-for-sale
securities, net
   16   20   (87  44 
Less: portion of (gains) losses recognized in other comprehensive income
   (15  (19  89   (42
   
 
 
  
 
 
  
 
 
  
 
 
 
Net credit gains recognized in earnings
   1   1   2   2 
Other income (expense), net
   83   372   244   603 
   
 
 
  
 
 
  
 
 
  
 
 
 
Total other income (expense), net
   84   373   246   605 
   
 
 
  
 
 
  
 
 
  
 
 
 
Income before income taxes
   11,382   20,382   16,324   35,334 
Provision for income taxes
   802   999   754   856 
   
 
 
  
 
 
  
 
 
  
 
 
 
Consolidated net income
   10,580   19,383   15,570   34,478 
Less: Net loss attributable to
                
noncontrolling interest
   (13  (11  (22  (8
   
 
 
  
 
 
  
 
 
  
 
 
 
Net income attributable to Vicor Corporation
  $10,593  $19,394  $15,592  $34,486 
   
 
 
  
 
 
  
 
 
  
 
 
 
Net income per common share attributable to Vicor Corporation:
                 
Basic
  $0.24  $0.45  $0.35  $0.79 
Diluted
  $0.24  $0.43  $0.35  $0.77 
Shares used to compute net income per common share attributable to Vicor Corporation:
                 
Basic
   43,973   43,553   43,963   43,504 
Diluted
   44,866   44,841   44,910   44,841 
   Three Months Ended  Nine Months Ended 
   September 30,  September 30, 
   2022  2021  2022  2021 
Net revenues
  $103,118  $84,911  $293,586  $269,083 
Cost of revenues
   56,148   42,098   162,166   131,699 
                  
Gross margin
   46,970   42,813   131,420   137,384 
Operating expenses:
                 
Selling, general and administrative
   22,719   17,322   61,322   50,865 
Research and development
   14,747   13,519   44,516   39,818 
Litigation-related
   6,500   —     6,500   —   
                  
Total operating expenses
   43,966   30,841   112,338   90,683 
                  
Income from operations
   3,004   11,972   19,082   46,701 
Other income (expense), net:
                 
Total unrealized gains (losses) on
available-for-sale
securities, net
   —     37   (87  81 
Less: portion of losses (gains) recognized in other comprehensive income
   1   (36  90   (78
                  
Net credit gains recognized in earnings
   1   1   3   3 
Other income (expense), net
   (569  393   (325  996 
                  
Total other income (expense), net
   (568  394   (322  999 
                  
Income before income taxes
   2,436   12,366   18,760   47,700 
Provision for income (benefit) taxes
   641   (886  1,395   (30
                  
Consolidated net income
   1,795   13,252   17,365   47,730 
Less: Net income (loss) attributable to noncontrolling interest
   3   (7  (19  (15
                  
Net income attributable to Vicor Corporation
  $1,792  $13,259  $17,384  $47,745 
                  
Net income per common share attributable to Vicor Corporation:
                 
Basic
  $0.04  $0.30  $0.40  $1.10 
Diluted
  $0.04  $0.29  $0.39  $1.06 
Shares used to compute net income per common share attributable to Vicor Corporation:
                 
Basic
   44,031   43,710   43,986   43,573 
Diluted
   44,898   45,034   44,906   44,905 
See accompanying notes.
 
-2-

Table of Contents
VICOR CORPORATION
Condensed Consolidated Statements of Comprehensive Income
(In thousands)
(Unaudited)
 
   Three Months Ended
June 30,
  Six Months Ended
June 30,
 
   2022  2021  2022  2021 
Consolidated net income
  $10,580  $19,383  $15,570  $34,478 
Foreign currency translation losses, net of tax (1)
   (385  (10  (579  (271
Unrealized losses on
available-for-sale
securities, net of tax (1)
   (66  (231  (382  (359
   
 
 
  
 
 
  
 
 
  
 
 
 
Other comprehensive loss
   (451  (241  (961  (630
   
 
 
  
 
 
  
 
 
  
 
 
 
Consolidated comprehensive income
   10,129   19,142   14,609   33,848 
Less: Comprehensive loss attributable to noncontrolling interest
   (42  (12  (65  (29
   
 
 
  
 
 
  
 
 
  
 
 
 
Comprehensive income attributable to Vicor Corporation
  $10,171  $19,154  $14,674  $33,877 
   
 
 
  
 
 
  
 
 
  
 
 
 
   Three Months Ended  Nine Months Ended 
   September 30,  September 30, 
   2022  2021  2022  2021 
Consolidated net income  $1,795  $13,252  $17,365  $47,730 
Foreign currency translation losses, net of tax (1)   (94  (12  (672  (283
Unrealized income (loss) on
available-for-sale
securities, net of tax (1)
   1,054   (215  671   (574
                  
Other comprehensive income (loss)   960   (227  (1  (857
                  
Consolidated comprehensive income   2,755   13,025   17,364   46,873 
Less: Comprehensive loss attributable to noncontrolling interest   (4  (7  (69  (36
                  
Comprehensive income attributable to Vicor Corporation  $2,759  $13,032  $17,433  $46,909 
                  
 
(1)
The deferred tax assets associated with foreign currency translation losses and unrealized losses on
available-for-sale
securities are completely offset by a tax valuation allowance as of
June September 30,
2022
and 2021. Therefore, there is 0no income tax benefit (provision) recognized for the three and sixnine months ended
June September 30,
2022 and 2021.
See accompanying notes.
 
-3-

Table of Contents

VICOR CORPORATION
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
 
   Six Months Ended
June 30,
 
   2022  2021 
Operating activities:
         
Consolidated net income
  $15,570  $34,478 
Adjustments to reconcile consolidated net income to net cash provided by operating activities:
         
Depreciation and amortization   6,665   5,618 
Stock-based compensation expense   4,616   3,138 
Decrease in long-term deferred revenue   (143  (160
Decrease in contingent consideration obligations   —     (74
Gain on disposal of equipment   —     106 
Increase in other assets   133   37 
Increase in long-term income taxes payable   8   6 
Deferred income taxes   (58  5 
Credit gain on
available-for-sale
securities
   (2  (2
Change in current assets and liabilities, net   (11,381  (13,037
   
 
 
  
 
 
 
Net cash provided by operating activities   15,408   30,115 
Investing activities:
         
Purchases of short-term investments   —     (50,706
Sales or maturities of short-term investments   25,000   30,000 
Additions to property, plant and equipment   (36,878  (15,782
Other   —     (106
   
 
 
  
 
 
 
Net cash used for investing activities   (11,878  (36,594
Financing activities:
         
Proceeds from employee stock plans   1,974   4,751 
Payment of contingent consideration obligations   —     (107
   
 
 
  
 
 
 
Net cash provided by financing activities   1,974   4,644 
Effect of foreign exchange rates on cash
   (245  (144
   
 
 
  
 
 
 
Net increase (decrease) in cash and cash equivalents
   5,259   (1,979
Cash and cash equivalents at beginning of period
   182,418   161,742 
   
 
 
  
 
 
 
Cash and cash equivalents at end of period
  $187,677  $159,763 
   
 
 
  
 
 
 
   Nine Months Ended 
   September 30, 
   2022  2021 
Operating activities:
         
Consolidated net income  $17,365  $47,730 
Adjustments to reconcile consolidated net income to net cash provided by operating activities:         
Depreciation and amortization   10,250   8,564 
Stock-based compensation expense   7,445   5,005 
Litigation-related
 
expense
   6,500   —   
Increase (decrease) in long-term deferred revenue   1,420   (240
Amortization of bond premium   1,027   —   
Decrease in contingent consideration obligations   —     (74
(Decrease) increase in other assets   (1,451  56 
Decrease in long-term income taxes payable   (40  (79
Deferred income taxes   (52  5 
Credit gain on
available-for-sale
securities
   (3  (3
Provision for doubtful accounts   5   —   
Change in current assets and liabilities, net   (20,456  (20,737
          
Net cash provided by operating activities   22,010   40,227 
Investing activities:         
Purchases of short-term investments   —     (50,706
Sales or maturities of short-term investments   25,000   50,000 
Additions to property, plant and equipment   (51,279  (30,942
          
Net cash used for investing activities   (26,279  (31,648
Financing activities:         
Proceeds from employee stock plans   4,147   8,621 
Payment of contingent consideration obligations   —     (153
          
Net cash provided by financing activities   4,147   8,468 
Effect of foreign exchange rates on cash   (198  (126
          
Net (decrease) increase in cash and cash equivalents   (320  16,921 
Cash and cash equivalents at beginning of period   182,418   161,742 
          
Cash and cash equivalents at end of period  $182,098  $178,663 
          
See accompanying notes.
 
-4-

Table of Contents
VICOR CORPORATION
Condensed Consolidated Statements of Equity
(In thousands)
(Unaudited)
                         
Total
        
                   
Accumulated
     
Vicor
        
   
Class B
       
Additional
       
Other
     
Corporation
        
   
Common
   
Common
   
Paid-In
   
Retained
   
Comprehensive
  
Treasury
  
Stockholders’
   
Noncontrolling
  
Total
 
   
Stock
   
Stock
   
Capital
   
Earnings
   
Income (loss)
  
Stock
  
Equity
   
Interest
  
Equity
 
Three months ended September 30, 2022
                                          
Balance on June 30, 2022
 $118  $440  $352,253  $233,225  $(2,246 $(138,927 $444,863  $241  $445,104 
Issuance of Common Stock under employee stock plans
          2,173               2,173       2,173 
Stock-based compensation expense
          2,829               2,829       2,829 
Components of comprehensive income (loss), net of tax:
                                    
Net income
              1,792           1,792   3   1,795 
Other comprehensive income (loss)
                  967       967   (7  960 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total comprehensive income (loss)
                          2,759   (4  2,755 
                                     
Balance on September 30, 2022
 $118  $440  $357,255  $235,017  $(1,279 $(138,927 $452,624  $237  $452,861 
                                     
 
   
Class B
Common
Stock
   
Common
Stock
   
Additional
Paid-In

Capital
 �� 
Retained
Earnings
   
Accumulated
Other
Comprehensive
Loss
  
Treasury
Stock
  
Total
Vicor
Corporation
Stockholders’
Equity
  
Noncontrolling
Interest
  
Total
Equity
 
Three months ended June 30, 2022
              
Balance on March 31, 2022
  $118   $440   $349,467   $222,632   $(1,824 $(138,927 $431,906  $283  $432,189 
Issuance of Common Stock under employee stock plans
             164                 164       164 
Stock-based compensation expense
             2,622                 2,622       2,622 
Components of comprehensive income
(loss), net of tax:
                                         
Net income (loss)
                  10,593            10,593   (13  10,580 
Other comprehensive loss
                       (422      (422  (29  (451
                               
 
 
  
 
 
  
 
 
 
Total comprehensive income (loss)
                               10,171   (42  10,129 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Balance on June 30, 2022
  $118   $440   $352,253   $233,225   $(2,246 $(138,927 $444,863  $241  $445,104 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
                         
Total
        
                   
Accumulated
     
Vicor
        
   
Class B
       
Additional
       
Other
     
Corporation
        
   
Common
   
Common
   
Paid-In
   
Retained
   
Comprehensive
  
Treasury
  
Stockholders’
   
Noncontrolling
  
Total
 
   
Stock
   
Stock
   
Capital
   
Earnings
   
Income (loss)
  
Stock
  
Equity
   
Interest
  
Equity
 
Nine months ended September 30, 2022
                                          
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
      1   4,146               4,147       4,147 
Stock-based compensation expense
          7,445               7,445       7,445 
Components of comprehensive income (loss), net of tax:
                                    
Net income (loss)
              17,384           17,384   (19  17,365 
Other comprehensive income (loss)
                  49       49   (50  (1
                                     
Total comprehensive income (loss)
                          17,433   (69  17,364 
                                     
Balance on September 30, 2022
 $118  $440  $357,255  $235,017  $(1,279 $(138,927 $452,624  $237  $452,861 
                                     
 
   
Class B
Common
Stock
   
Common
Stock
   
Additional
Paid-In

Capital
   
Retained
Earnings
   
Accumulated
Other
Comprehensive
Loss
  
Treasury
Stock
  
Total
Vicor
Corporation
Stockholders’
Equity
  
Noncontrolling
Interest
  
Total
Equity
 
Six months ended June 30, 2022
              
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
        1    1,973                 1,974       1,974 
Stock-based compensation expense
             4,616                 4,616       4,616 
Components of comprehensive income (loss), net of tax:
                                         
Net income (loss)
                  15,592            15,592   (22  15,570 
Other comprehensive loss
                       (918      (918  (43  (961
                               
 
 
  
 
 
  
 
 
 
Total comprehensive income (loss)
                               14,674   (65  14,609 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Balance on June 30, 2022
  $118   $440   $352,253   $233,225   $(2,246 $(138,927 $444,863  $241  $445,104 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
                         
Total
       
                   
Accumulated
     
Vicor
       
   
Class B
       
Additional
       
Other
     
Corporation
       
   
Common
   
Common
   
Paid-In
   
Retained
   
Comprehensive
  
Treasury
  
Stockholders’
  
Noncontrolling
  
Total
 
   
Stock
   
Stock
   
Capital
   
Earnings
   
Loss
  
Stock
  
Equity
  
Interest
  
Equity
 
Three months ended September 30, 2021
                                         
Balance on June 30, 2021
 $118  $436  $336,278  $195,494  $(813 $(138,927 $392,586  $306  $392,892 
Issuance of Common Stock under employee stock plans
      1   3,869               3,870       3,870 
Stock-based compensation expense
          1,867               1,867       1,867 
Components of comprehensive income (loss), net of tax:
                                    
Net income (loss)
              13,259           13,259   (7  13,252 
Other comprehensive loss
                  (227      (227  
  
   (227
                                     
Total comprehensive income (loss)
                          13,032   (7  13,025 
                                     
Balance on September 30, 2021
 $118  $437  $342,014  $208,753  $(1,040 $(138,927 $411,355  $299  $411,654 
                                     
 
   
Class B
Common
Stock
   
Common
Stock
   
Additional
Paid-In

Capital
   
Retained
Earnings
   
Accumulated
Other
Comprehensive
Loss
  
Treasury
Stock
  
Total
Vicor
Corporation
Stockholders’
Equity
  
Noncontrolling
Interest
  
Total
Equity
 
Three months ended June 30, 2021
              
Balance on March 31, 2021
  $118   $435   $333,011   $176,100   $(573 $(138,927 $370,164  $318  $370,482 
Issuance of Common Stock under employee stock plans
        1    1,700                 1,701       1,701 
Stock-based compensation expense
             1,567                 1,567       1,567 
Components of comprehensive income (loss), net of tax:
                                         
Net income (loss)
                  19,394            19,394   (11  19,383 
Other comprehensive loss
                       (240      (240  (1  (241
                               
 
 
  
 
 
  
 
 
 
Total comprehensive income (loss)
                               19,154   (12  19,142 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Balance on June 30, 2021
  $118   $436   $336,278   $195,494   $(813 $(138,927 $392,586  $306  $392,892 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
-5-

VICOR CORPORATION
Condensed Consolidated Statements of Equity
(In thousands)
(Unaudited)
 
  
Class B
Common
Stock
   
Common
Stock
   
Additional
Paid-In

Capital
   
Retained
Earnings
   
Accumulated
Other
Comprehensive
Loss
 
Treasury
Stock
 
Total
Vicor
Corporation
Stockholders’
Equity
 
Noncontrolling
Interest
 
Total
Equity
                       
Total
     
Six months ended June 30, 2021
              
                  
Accumulated
   
Vicor
     
  
Class B
       
Additional
       
Other
   
Corporation
     
  
Common
   
Common
   
Paid-In
   
Retained
   
Comprehensive
 
Treasury
 
Stockholders’
 
Noncontrolling
 
Total
 
  
Stock
   
Stock
   
Capital
   
Earnings
   
Loss
 
Stock
 
Equity
 
Interest
 
Equity
 
Nine months ended September 30, 2021
              
Balance on December 31, 2020
  $118   $433   $328,392   $161,008   $(204 $(138,927 $350,820  $335  $351,155  $118  $433  $328,392  $161,008  $(204 $(138,927 $350,820  $335  $351,155 
Issuance of Common Stock under employee stock plans
      3    4,748           4,751     4,751   4   8,617   8,621   8,621 
Stock-based compensation expense
         3,138           3,138     3,138   5,005   5,005   5,005 
Components of comprehensive income (loss), net of tax:
                        
Net income (loss)
            34,486        34,486   (8  34,478   47,745   47,745   (15  47,730 
Other comprehensive loss
               (609    (609  (21  (630  (836  (836  (21  (857
                  
 
  
 
  
 
          
Total comprehensive income (loss)
                   33,877   (29  33,848   46,909   (36  46,873 
  
 
   
 
   
 
   
 
   
 
  
 
  
 
  
 
  
 
                            
Balance on June 30, 2021
  $118   $436   $336,278   $195,494   $(813 $(138,927 $392,586  $306  $392,892 
Balance on September 30, 2021
 $118  $437  $342,014  $208,753  $(1,040 $(138,927 $411,355  $299  $411,654 
  
 
   
 
   
 
   
 
   
 
  
 
  
 
  
 
  
 
                            
See accompanying notes.
 
-6-

Table of Contents

VICOR CORPORATION
Notes to Condensed Consolidated Financial Statements
JuneSeptember 30, 2022
(unaudited)
1.
Basis of Presentation
The accompanying unaudited Condensed Consolidated Financial Statements of Vicor Corporation and its consolidated subsidiaries (collectively, the “Company”) have been prepared in accordance with generally accepted accounting principles for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Accordingly, these interim financial statements do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three and sixnine months ended JuneSeptember 30, 2022 are not necessarily indicative of the results that may be expected for any other interim period or the year ending December 31, 2022. “Other income
(
expense
)
, net”, includes an immaterial error correction of $990,000 and $834,000 for the three and nine months ended September 30, 2022, respectively, related to the amortization of bond premiums on available for sale securities. The balance sheet at December 31, 2021 presented herein has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. For further information, refer to the consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form
10-K
for the year ended December 31, 2021 filed by the Company with the SEC on March 1, 2022 (“2021 Form
10-K”).
2.
Inventories
Inventories were as follows (in thousands):
 
   June 30, 2022   December 31, 2021 
Raw materials
  $64,978   $51,289 
Work-in-process
   12,735    12,514 
Finished goods
   5,342    3,519 
   
 
 
   
 
 
 
   $83,055   $67,322 
   
 
 
   
 
 
 
   September 30, 2022   December 31, 2021 
Raw materials  $73,940   $51,289 
Work-in-process
   11,967    12,514 
Finished goods   8,429    3,519 
           
   $94,336   $67,322 
           
3.
Short-Term and Long-Term Investments
As of
June September 30, 2022 and December 31, 2021, the Company held $19,921,000$19,949,000 and $45,215,000, respectively, of short-term investments, consisting of obligations of the U.S. Treasury, all of which were debt securities with original maturities greater than three months but less than one year at the time of purchase.
As of
June September 30, 2022 and December 31, 2021, the Company held one auction rate security with a par value of $3,000,000 and an estimated fair value of approximately $2,552,000 and $2,639,000, respectively, purchased through and held in custody by a broker-dealer affiliate of Bank of America, N.A., that has experienced failed auctions (the “Failed Auction Security”) since February 2008. The Failed Auction Security held by the Company is Aaa/AA+ rated by major credit rating agencies, is collateralized by student loans, and is guaranteed by the U.S. Department of Education under the Federal Family Education Loan Program. Management is not aware of any reason to believe the issuer of the Failed Auction Security is presently at risk of default. Through JuneSeptember 30, 2022, the Company has continued to receive interest payments on the Failed Auction Security in accordance with the terms of its indenture. Management believes the Company ultimately should be able to liquidate the Failed Auction Security without significant loss primarily due to the overall quality of the issue held and the collateral securing the substantial majority of the underlying obligation. However, current conditions in the auction rate securities market have led management to conclude the recovery period for the Failed Auction Security exceeds 12 months. As a result, the Company continued to classify the Failed Auction Security as long-term as of JuneSeptember 30, 2022.
 
-7-


VICOR CORPORATION
Notes to Condensed Consolidated Financial Statements
JuneSeptember 30, 2022
(unaudited)

Details of our investments are as follows (in thousands):
 
  
June 30, 2022
   
September 30, 2022
 
  
Cash and
Cash
Equivalents
   
Short-Term
Investments
   
Long-Term

Investment
   
Cash and
Cash
Equivalents
   
Short-Term
Investments
   
Long-Term

Investment
 
Measured at fair value:
               
Available-for-sale
debt securities:
               
Money market funds
  $119,736   $—     $—     $120,217   $—     $—   
U.S. Treasury Obligations
   —      19,921    —      —      19,949    —   
Failed Auction Security
   —      —      2,552    —      —      2,552 
  
 
   
 
   
 
             
Total
   119,736    19,921    2,552    120,217    19,949    2,552 
Other measurement basis:
                  
Cash on hand
   67,941    —      —      61,881    —      —   
  
 
   
 
   
 
             
Total
  $187,677   $19,921   $2,552   $182,098   $19,949   $2,552 
  
 
   
 
   
 
             
 
   
December 31, 2021
 
   
Cash and
         
   
Cash
   
Short-Term
   
Long-Term
 
   
Equivalents
   
Investments
   
Investment
 
Measured at fair value:
               
Available-for-sale
debt securities:
               
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 
                
-8-
   
December 31, 2021
 
   
Cash and
Cash
Equivalents
   
Short-Term
Investments
   
Long-
Term
Investment
 
Measured at fair value:
      
Available-for-sale
debt securities:
      
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 
   
 
 
   
 
 
   
 
 
 

Table of Contents
VICOR CORPORATION
Notes to Condensed Consolidated Financial Statements
September 30, 2022
(unaudited)
The following is a summary of the
available-for-sale
securities (in thousands):
 
June 30, 2022
  Cost   Gross
Unrealized
Gains
   Gross
Unrealized
Losses
   Estimated
Fair
Value
 
      Gross   Gross   Estimated 
      Unrealized   Unrealized   Fair 
September 30, 2022
  Cost   Gains   Losses   Value 
U.S. Treasury Obligations
  $20,083   $—     $162   $19,921   $20,028   $—     $79   $19,949 
Failed Auction Security
   3,000    —      448    2,552    3,000    —      448    2,552 
 
-8-


VICOR CORPORATION
Notes to Condensed Consolidated Financial Statements
June 30, 2022
(unaudited)

December 31, 2021
  Cost   Gross
Unrealized
Gains
   Gross
Unrealized
Losses
   Estimated
Fair
Value
 
U.S. Treasury Obligations
  $45,238   $—     $23   $45,215 
Failed Auction Security
   3,000    —      361    2,639 
       Gross   Gross   Estimated 
       Unrealized   Unrealized   Fair 
December 31, 2021
  Cost   Gains   Losses   Value 
U.S. Treasury Obligations  $45,238   $—     $23   $45,215 
Failed Auction Security   3,000    —      361    2,639 
As of June 
September 30, 2022, the Failed Auction Security had been in an unrealized loss position for greater than 12 months.
The amortized cost and estimated fair value of the
available-for-sale
securities on JuneSeptember 30, 2022, by type and contractual maturities, are shown below (in thousands):
 
  Cost   Estimated
Fair Value
   Cost   Estimated
Fair Value
 
U.S. Treasury Obligations:
        
                              
Maturities greater than three months but less than one year
  $20,083   $19,921   $20,028   $19,949 
  
 
   
 
         
 

   Cost   Estimated
Fair Value
 
Failed Auction Security:
          
Due in twenty years
  $3,000   $2,552 
   
 
 
   
 
 
 
       Estimated 
   Cost   Fair Value 
Failed Auction Security:
    
Due in twenty years  $3,000   $2,552 
           
4.
Fair Value Measurements
The Company
accounts for certain financial assets at fair value, defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. As such, fair value is a market-based measurement that should be determined based on assumptions market participants would use in pricing an asset or liability. A three-level hierarchy is used to show the extent and level of judgment used to estimate fair value measurements.
 
-9-

VICOR CORPORATION
Notes to Condensed Consolidated Financial Statements
JuneSeptember 30, 2022
(unaudited)

Assets and liabilities measured at fair value on a recurring basis included the following as of JuneSeptember 30, 2022 (in thousands):
 
   Using     
   Quoted Prices
in Active
Markets
(Level 1)
   Significant
Other
Observable
Inputs
(Level 2)
   Significant
Unobservable
Inputs
(Level 3)
   Total Fair
Value as of
June 30, 2022
 
Cash equivalents:
        
Money market funds
  $119,736   $—     $—     $119,736 
Short-term investments:
                    
U.S. Treasury Obligations
   19,921    —      —      19,921 
Long-term investment:
                    
Failed Auction Security
   —      —      2,552    2,552 
   Using     
   Quoted Prices
in Active
Markets
(Level 1)
   Significant
Other
Observable
Inputs
(Level 2)
   Significant
Unobservable
Inputs
(Level 3)
   Total Fair
Value as of
September 30, 2022
 
                 
Cash equivalents:
        
Money market funds  $120,217   $—     $—     $120,217 
Short-term investments:                    
U.S. Treasury Obligations   19,949    —      —      19,949 
Long-term investment:                    
Failed Auction Security   —      —      2,552    2,552 
Assets and liabilities measured at fair value on a recurring basis included the following as of December 31, 2021 (in thousands):
 
   Using     
   Quoted Prices
in Active
Markets
(Level 1)
   Significant
Other
Observable
Inputs
(Level 2)
   Significant
Unobservable
Inputs
(Level 3)
   Total Fair
Value as of
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 investment:
                    
Failed Auction Security
   —      —      2,639    2,639 
   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 investment:                    
Failed Auction Security   —      —      2,639    2,639 
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 sixnine months ended JuneSeptember 30, 2022 was as follows (in thousands):
 
Balance at the beginning of the period
  $2,639 
Credit gain on
available-for-sale
security included in Other income (expense), net
   2 
Loss included in Other comprehensive income
   (89
   
 
 
 
Balance at the end of the period
  $2,552 
   
 
 
 
Balance at the beginning of the period  $2,639 
Credit gain on
available-for-sale
security included in Other income (expense), net
   3 
Loss included in Other comprehensive income   (90
      
Balance at the end of the period  $2,552 
      
Management utilized
a probability weighted discounted cash flow model to determine the estimated fair value as of JuneSeptember 30, 2022.
 
-10-


VICOR CORPORATION
Notes to Condensed Consolidated Financial Statements
JuneSeptember 30, 2022
(unaudited)

5.
Revenues
The following tables present the Company’s net revenues disaggregated by geography based on the location of the customer, by product line (in thousands):
 
  Three Months Ended June 30, 2022   Three Months Ended September 30, 2022 
  Brick Products   Advanced Products   Total   Brick Products   Advanced Products   Total 
United States
  $18,668   $12,782   $31,450   $21,559   $9,303   $30,862 
Europe
   5,041    2,229    7,270    7,101    1,954    9,055 
Asia Pacific
   9,846    52,550    62,396    14,800    47,704    62,504 
All other
   968    102    1,070    456    241    697 
  
 
   
 
   
 
             
  $34,523   $67,663   $102,186   $43,916   $59,202   $103,118 
  
 
   
 
   
 
             
 
   Six Months Ended June 30, 2022 
   Brick Products   Advanced Products   Total 
                                                                
United States
  $32,729   $23,408   $56,137 
Europe
   12,083    4,997    17,080 
Asia Pacific
   23,367    92,045    115,412 
All other
   1,701    138    1,839 
   
 
 
   
 
 
   
 
 
 
   $69,880   $120,588   $190,468 
   
 
 
   
 
 
   
 
 
 
   Nine Months Ended September 30, 2022 
   Brick Products   Advanced Products   Total 
United States  $54,288   $32,711   $86,999 
Europe   19,184    6,951    26,135 
Asia Pacific   38,167    139,749    177,916 
All other   2,157    379    2,536 
                
   $113,796   $179,790   $293,586 
                
 
   Three Months Ended June 30, 2021 
   Brick Products   Advanced Products   Total 
                                                                
United States
  $19,708   $14,356   $34,064 
Europe
   10,224    1,285    11,509 
Asia Pacific
   24,045    25,339    49,384 
All other
   375    44    419 
   
 
 
   
 
 
   
 
 
 
   $54,352   $41,024   $95,376 
   
 
 
   
 
 
   
 
 
 
               Three Months Ended September 30, 2021         
   Brick Products   Advanced Products   Total 
United States  $19,741   $12,178   $31,919 
Europe   6,185    1,324    7,509 
Asia Pacific   14,936    29,934    44,870 
All other   582    31    613 
                
   $41,444   $43,467   $84,911 
                
 
   Six Months Ended June 30, 2021 
   Brick Products   Advanced Products   Total 
                                                                
United States
  $38,291   $22,905   $61,196 
Europe
   18,420    2,280    20,700 
Asia Pacific
   51,373    49,992    101,365 
All other
   727    184    911 
   
 
 
   
 
 
   
 
 
 
   $108,811   $75,361   $184,172 
   
 
 
   
 
 
   
 
 
 
   Nine Months Ended September 30, 2021 
   Brick Products   Advanced Products   Total 
United States  $58,032   $35,083   $93,115 
Europe   24,605    3,604    28,209 
Asia Pacific   66,309    79,926    146,235 
All other   1,309    215    1,524 
                
   $150,255   $118,828   $269,083 
                
 
-11-

Table of Contents

VICOR CORPORATION
Notes to Condensed Consolidated Financial Statements
JuneSeptember 30, 2022
(unaudited)

The following tables present the Company’s net revenues disaggregated by the category of revenue, by product line (in thousands):
 
  Three Months Ended September 30, 2022 
  Three Months Ended June 30, 2022   Brick Products   Advanced Products   Total 
  Brick Products   Advanced Products   Total             
Direct customers, contract manufacturers and
non-stocking
distributors
  $23,566   $61,979   $85,545   $29,051   $53,033   $82,084 
Stocking distributors, net of sales allowances
   10,908    3,102    14,010    14,288    2,869    17,157 
Non-recurring
engineering
   49    1,908    1,957    577    2,249    2,826 
Royalties
   —      656    656    —      1,033    1,033 
Other
   —      18    18    —      18    18 
  
 
   
 
   
 
             
  $34,523   $67,663   $102,186   $43,916   $59,202   $103,118 
  
 
   
 
   
 
             
 
   Six Months Ended June 30, 2022 
   
Brick
 
Products
   
Advanced
 
Products
   Total 
Direct customers, contract manufacturers and
non-stocking
distributors
  $47,967   $109,450   
$
 
157,417 
Stocking distributors, net of sales allowances
   21,672    6,846    28,518 
Non-recurring
engineering
   241    3,294    3,535 
Royalties
   —      962    962 
Other
   —      36    36 
   
 
 
   
 
 
   
 
 
 
   $69,880   $120,588   $190,468 
   
 
 
   
 
 
   
 
 
 
   Nine Months Ended September 30, 2022 
   Brick Products   Advanced Products   Total 
             
Direct customers, contract manufacturers and
non-stocking

distributors
  $77,018   $162,483   $239,501 
Stocking distributors, net of sales allowances   35,960    9,715    45,675 
Non-recurring
engineering
   818    5,543    6,361 
Royalties   —      1,995    1,995 
Other   —      54    54 
                
   $113,796   $179,790   $293,586 
                
 
   Three Months Ended June 30, 2021 
   
Brick
 
Products
   
Advanced
 
Products
   Total 
Direct customers, contract manufacturers and
non-stocking
distributors
  $37,614   $32,644   
$
 
70,258 
Stocking distributors, net of sales allowances
   16,634    4,634    21,268 
Non-recurring
engineering
   104    3,726    3,830 
Royalties
   —      3    3 
Other
   —      17    17 
   
 
 
   
 
 
   
 
 
 
   $54,352   $41,024   $95,376 
   
 
 
   
 
 
   
 
 
 
           Three Months Ended September 30, 2021         
   Brick Products   Advanced Products   Total 
             
Direct customers, contract manufacturers and
non-stocking

distributors
  $29,801   $36,066   $65,867 
Stocking distributors, net of sales allowances   11,405    2,075    13,480 
Non-recurring
engineering
   238    3,846    4,084 
Royalties   —      1,462    1,462 
Other   —      18    18 
                
   $41,444   $43,467   $84,911 
                
 
-12-

Table of Contents

VICOR CORPORATION
Notes to Condensed Consolidated Financial Statements
JuneSeptember 30, 2022
(unaudited)

 
   Six Months Ended June 30, 2021 
   Brick Products   Advanced Products   Total 
Direct customers, contract manufacturers and
non-stocking
distributors
  $81,422   $61,701   $143,123 
Stocking distributors, net of sales allowances
   27,181    8,772    35,953 
Non-recurring
engineering
   208    4,797    5,005 
Royalties
   —      56    56 
Other
   —      35    35 
   
 
 
   
 
 
   
 
 
 
   $108,811   $75,361   $184,172 
   
 
 
   
 
 
   
 
 
 
   Nine Months Ended September 30, 2021 
   Brick Products   Advanced Products   Total 
             
Direct customers, contract manufacturers and
non-stocking

distributors
  $111,223   $97,767   $208,990 
Stocking distributors, net of sales allowances   38,586    10,847    49,433 
Non-recurring
engineering
   446    8,643    9,089 
Royalties   —      1,518    1,518 
Other   —      53    53 
                
   $150,255   $118,828   $269,083 
                
The following table presents the changes in certain contract assets and (liabilities) (in thousands):
 
   June 30, 2022   December 31, 2021   Change 
Short-term deferred revenue and customer prepayments
  $(7,702  $(7,912  $210 
Long-term deferred revenue
   (270   (413   143 
Deferred expenses
   559    560    (1
Sales allowances
   (1,006   (1,464   458 
   September 30, 2022   December 31, 2021   Change 
             
Short-term deferred revenue and customer prepayments  $(12,148  $(7,912  $(4,236
Long-term deferred revenue   (1,833   (413   (1,420
Deferred expenses   588    560    28 
Sales allowances   (1,427   (1,464   37 
Deferred expenses are included in Other current assets in the accompanying Condensed Consolidated Balance Sheets.
The Company
records deferred revenue, which represents a contract liability, when cash payments are received or due in advance of performance under a contract with a customer. The Company recognized revenue of approximately $1,136,000$1,149,000 and $931,000$2,015,000 for the three and sixnine months ended JuneSeptember 30, 2022, respectively, and $2,410,000$874,000 and $3,081,000$3,955,000 for the three and sixnine months ended JuneSeptember 30, 2021, respectively, that was included in deferred revenue at the beginning of each respective period.
 
-13-


VICOR CORPORATION
Notes to Condensed Consolidated Financial Statements
JuneSeptember 30, 2022
(unaudited)
(unaudited)

6.
Stock-Based Compensation
The
Company uses the Black-Scholes option pricing model to calculate the fair value of stock option awards, whether they possess time-based vesting provisions or performance-based vesting provisions, and awards granted under the Vicor Corporation 2017 Employee Stock Purchase Plan (“ESPP”), as of their grant date. Stock-based compensation expense was as follows (in thousands):​​​​​​​
 

   Three Months Ended
June 30,
   Six Months Ended
June 30,
 
   2022   2021   2022   2021 
Cost of revenues
  $431   $252   $682   $480 
Selling, general and administrative
   1,440    779    2,647    1,632 
Research and development
   751    536    1,287    1,026 
   
 
 
   
 
 
   
 
 
   
 
 
 
Total stock-based compensation
  $2,622   $1,567   $4,616   $3,138 
   
 
 
   
 
 
   
 
 
   
 
 
 
   Three Months Ended
September 30,
   Nine Months Ended
September 30,
 
   2022   2021   2022   2021 
                 
Cost of revenues  $479   $259   $1,161   $739 
Selling, general and administrative   1,537    1,033    4,184    2,665 
Research and development   813    575    2,100    1,601 
                     
Total stock-based compensation  $2,829   $1,867   $7,445   $5,005 
                     
Compensation expense by type of award was as follows (in thousands):
 
   Three Months Ended
June 30,
   Six Months Ended
June 30,
 
   2022   2021   2022   2021 
Stock options
  $2,351   $1,336   $4,110   $2,667 
ESPP
   271    231    506    471 
   
 
 
   
 
 
   
 
 
   
 
 
 
Total stock-based compensation
  $2,622   $1,567   $4,616   $3,138 
   
 
 
   
 
 
   
 
 
   
 
 
 
   Three Months Ended
September 30,
   Nine Months Ended
September 30,
 
   2022   2021   2022   2021 
                 
Stock options  $2,531   $1,661   $6,641   $4,328 
ESPP   298    206    804    677 
   
 
 
                
Total stock-based compensation  $2,829   $1,867   $7,445   $5,005 
   
 
 
                
7.
Rental Income
Income,
net under the Company’s operating lease agreement, for its owned facility leased to a third party in California, was approximately $198,000 and $396,000 $
198,000
for
both
the three and six months ended JuneSeptember 30, 2022 and 2021 respectively.and
$594,000
for the nine months ended September 30, 2022 and 2021.
8.
Income Taxes
The provision (benefit) for income taxes is based on the estimated annual effective tax rate for the year, which includes estimated federal, state and foreign income taxes on the Company’s projected
pre-tax
income.
 
-14-

Table of Contents
VICOR CORPORATION
Notes to Condensed Consolidated Financial Statements
JuneSeptember 30, 2022
(unaudited)
The provision (benefit) for income taxes and the effective income tax rates were as follows (dollars in thousands):
 
  Three Months Ended
June 30,
 Six Months Ended
June 30,
   Three Months Ended
September 30,
 Nine Months Ended
September 30,
 
  2022 2021 2022 2021   2022 2021 2022 2021 
Provision
for income taxes
  $802  $999  $754  $856 
          
Provision (benefit) for income taxes  $641  $(886 $1,395  $(30
Effective income tax rate
   7.0  4.9  4.6  2.4   26.3  (7.2)%   7.4  (0.1)% 
The effective tax rates were lower than the statutory tax rates for the three and sixnine months ended JuneSeptember 30, 2022 and 2021 primarily due to the Company’s full valuation allowance position against domestic deferred tax assets. The provision (benefit) for income taxes for the three and sixnine months ended JuneSeptember 30, 2022 and 2021 included estimated federal, state and foreign income taxes in jurisdictions in which the Company does not have sufficient tax attributes, offset by excess tax benefits related to stock based compensation during those periods.
As of JuneSeptember 30,
, 2022, the Company has a valuation allowance of approximately $43,329,000
against all net domestic deferred tax assets, for which realization cannot be considered more likely than not at this time. Management assesses the need for the valuation allowance on a quarterly basis. In assessing the need for a valuation allowance, the Company considers all positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies, and past financial performance. Despite recent positive operating results, the Company is in a cumulative loss position as of JuneSeptember 30, 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 supply and factory capacity constraints, certain process issues with the production of Advanced Products and the unpredictability in certain markets. This operating uncertainty also makes it difficult to predict the availability and utilization of tax benefits over the next several years. As a result, management has concluded, as of JuneSeptember 30, 2022, it is more likely than not the Company’s net domestic deferred tax assets will not be realized, and a full valuation allowance against all net domestic deferred tax assets is still warranted as of JuneSeptember 30, 2022. The valuation allowance against these deferred tax assets may require adjustment in the future based on changes in the mix of temporary differences, changes in tax laws, and operating performance. If the positive operating results continue, and the Company’s concerns about industry uncertainty and world events, supply and factory capacity constraints, and process issues with the production of Advanced Products are resolved, and the amount of tax benefits the Company is able to utilize to the point that the Company believes future taxable income can be more reliably forecasted, the Company may release all or a portion of the valuation allowance in the near-term. If and when the Company determines the valuation allowance should be released (i.e., reduced), the adjustment would result in a tax benefit reported in that period’s Consolidated Statements of Operations, the effect of which would be an increase in reported net income.
The Company was informed in September 2021 by the Internal Revenue Service of their intention to examine the Company’s 2019 Federal income tax return. There are no other audits or examinations in process in any other jurisdiction.
 
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VICOR CORPORATION
Notes to Condensed Consolidated Financial Statements
JuneSeptember 30, 2022
(unaudited)

9.
Net Income per Share
The following table sets forth the computation of basic and diluted net income per share (in thousands, except per share amounts):
 
   Three Months Ended
June 30,
   Six Months Ended
June 30,
 
   2022   2021   2022   2021 
Numerator:
                    
Net income attributable to Vicor Corporation
  $10,593   $19,394   $15,592   $34,486 
   
 
 
   
 
 
   
 
 
   
 
 
 
Denominator:
                    
Denominator for basic net income per share-weighted average shares (1)
   43,973    43,553    43,963    43,504 
Effect of dilutive securities:
                    
Employee stock options (2)
   893    1,288    947    1,337 
   
 
 
   
 
 
   
 
 
   
 
 
 
Denominator for diluted net income per share – adjusted weighted-average shares and assumed conversions
   44,866    44,841    44,910    44,841 
   
 
 
   
 
 
   
 
 
   
 
 
 
Basic net income per share
  $0.24   $0.45   $0.35   $0.79 
   
 
 
   
 
 
   
 
 
   
 
 
 
Diluted net income per share
  $0.24   $0.43   $0.35   $0.77 
   
 
 
   
 
 
   
 
 
   
 
 
 
   Three Months Ended
September 30,
   Nine Months Ended
September 30,
 
   2022   2021   2022   2021 
Numerator:
                    
Net income attributable to Vicor Corporation  $1,792   $13,259   $17,384   $47,745 
                     
Denominator:                    
Denominator for basic net income per share-weighted average shares (1)   44,031    43,710    43,986    43,573 
Effect of dilutive securities:                    
Employee stock options (2)   867    1,324    920    1,332 
                     
Denominator for diluted net income per share – adjusted weighted-average shares and assumed conversions   44,898    45,034    44,906    44,905 
                     
Basic net income per share  $0.04   $0.30   $0.40   $1.10 
                     
Diluted net income per share  $0.04   $0.29   $0.39   $1.06 
                     
(1)
Denominator represents the weighted average number of shares of Common Stock and Class B Common Stock outstanding.
(2)
Options to purchase 898,6401,037,640 and 658,014772,240 shares of Common Stock for the three and sixnine months ended JuneSeptember 30, 2022, respectively, and options to purchase 138,12576,114 and 90,339134,822 shares of Common Stock for the three and sixnine months ended JuneSeptember 30, 2021, respectively, were not included in the calculations of net income per share as the effect would have been antidilutive.
10.
Commitments and Contingencies
At
June September 30, 2022, the Company had approximately $32,034,000$27,804,000 of cancelable and
non-cancelable
capital expenditure commitments, principally for manufacturing equipment, and approximately $10,640,000$6,637,000 of capital expenditure items which had been received and included in Property, plant and equipment in the accompanying Condensed Consolidated Balance Sheets, but not yet paid for.
The Company
is the defendant in a patent infringement lawsuit originally filed on January 28, 2011 by SynQor, Inc. (“SynQor”) in the U.S. District Court (the “District Court”) for the Eastern District of Texas (the “Texas Action”).Texas. The complaint, as amended, allegesalleged 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 8,023,290 (“the ‘190 patent”, “the ‘021 patent”, “the ‘702 patent”, and “the ‘290 patent”, respectively). SynQor’s complaint seeks an injunction against further infringementrespectively, and an award of unspecified compensatory and enhanced damages, interest, costs and attorney fees. However, because each ofcollectively the asserted SynQor patents has expired, an injunction is no longer available as relief should SynQor prevail in the Texas Action.“SynQor Patents”). The Company has denied that its products infringe any of the SynQor patents, and has asserted that the SynQor patents are invalid and/or unenforceable. The Company has also asserted counterclaims seeking damages fromagainst SynQor for deceptive trade practicesalleging unfair competition and tortious interference with prospective economic advantage arising from SynQor’s attempted enforcement of its patents against the Company.
-16-


VICOR CORPORATION
Notes to Condensed Consolidated Financial Statements
June 30, 2022
(unaudited)

On November 24, 2015, the District Court ordered the Texas Action stayed pending completionbusiness relations (the “Counterclaims”). As a result of certain inter partes reexamination (“IPRx”) proceedings initiatedactions by the Company at the United States Patent and Trademark Office (“USPTO”). In these IPRx proceedings, the Company challenged the validity of the SynQor patent claims asserted in the Texas Action. On November 16, 2021, and the District Court, issued an order liftingSynQor’s infringement allegations regarding the stay. At a hearing‘021 patent and the ‘290 patent were dismissed from the case prior to the beginning of trial. Specifically, the USPTO invalidated all the asserted claims of the ‘021 patent and that decision was upheld on February 2,appeal on August 30, 2017. In addition, on October 5, 2022, the District Court issued an order denying all pending summary judgment and other
pre-trial
motions without prejudice. The District Court further authorized the Company to file new motions for summary judgment, to be considered on an expedited schedule. The Company filed a motion for summary judgment of
non-infringement
on February 4, 2022. On May 25, 2022, a magistrate judge issued a report and recommendation recommending that the Company’s motion be denied. On June 8, 2022, the Company filed objections to that report and recommendation. The District Court has not yet ruled on those objections.    
On March 1, 2022, the Company also filed a motion for involuntary dismissal ofinvoluntarily dismissing the ‘290 patent frominfringement allegations on grounds of equitable and judicial estoppel, in view of representations by SynQor to the case. On May 25, 2022, a magistrate judge issued a report and recommendation recommending that the Company’s motion be granted. On June 8, 2022, SynQor filed objections to that report and recommendation. The District Court has not yet ruled on those objections. On April 5, 2022,agreeing to such dismissal as a condition of lifting a prior stay of the Court entered a scheduling order setting a trial date of October 17, 2022.lawsuit.
The current status
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VICOR CORPORATION
Notes to Condensed Consolidated Financial Statements
September 30, 2022
(unaudited)
 
‘190 patent: CertainA trial in the District Court began on October 17, 2022 on the asserted claims of the ‘190 patent were found unpatentable byand the ‘702 patent, as well as on the Company’s Counterclaims. The District Court dismissed the Company’s Counterclaims on October 25, 2022. On October 26, 2022, the jury returned a verdict on SynQor’s patent infringement claims, finding that the Company willfully infringed the ‘702 patent, but did not infringe the ‘190 patent. The jury awarded SynQor damages in the amount of $6,500,000 for infringement of the ‘702 patent. All of the SynQor Patents expired in 2018.
The Company anticipates filing a post-trial motion seeking entry of judgment of non-infringement of the ‘702 patent as a matter of law. The Company intends to appeal to the United States Court of Appeals for the Federal Circuit (“Federal Circuit”) in a decision issued on March 13, 2015. The court remanded the remaining claims to the USPTO for further consideration. On February 20, 2019, the Patent Trial and Appeal Board (“PTAB”)construction of claim limitations of the USPTO issued a decision finding that all of the remaining challenged claims were unpatentable. SynQor appealed that decision. On February 22, 2021, the Federal Circuit issued a decision in that appeal. In a
2-1
ruling, the Federal Circuit vacated and remanded the PTAB’s decision, finding that the reasoning the PTAB had relied on in reaching its decision was precluded by certain prior PTAB rulings regarding the ‘290‘190 and ‘702 patents and remanded the case to the PTAB for further proceedings. On April 7, 2021, the Company filed a petition for panel rehearing and rehearing en bancdismissal of the Federal Circuit’s February 22, 2021 decision. The Federal Circuit denied that petition on June 7, 2021. Accordingly,Company’s Counterclaims. SynQor may move the matter was then remandedDistrict Court to increase the PTAB for further proceedings. On January 31, 2022, the PTAB issued a decision that reaffirmed the unpatentability of thejury award and pursue its appellate options with respect to claims of the ‘190 patent that had been found unpatentable by the Federal Circuit in its March 13, 2015 decision, and otherwise upheld the patentability of the remaining challenged claims of the ‘190 patent. On March 30, 2022, the Company filed an appeal of this decision to the Federal Circuit, where it remains pending.
be invalid or not infringed.
‘021 patent: On August 30, 2017, the Federal Circuit issued a final decision upholding a PTAB decision finding all of the asserted claims of the ‘021 patent unpatentable. In addition, SynQor attempted to amend the ‘021 patent to add new claims during the IPRx. Those claims were rejected by the PTAB. SynQor subsequently filed an appealaccordance with the Federal Circuit seeking to vacate that rejection as moot, in view of the expiry of the term of the ‘021 patent. On June 17, 2022, the Federal Circuit issued a decision vacating the PTAB’s rejection as moot.
‘702 patent: On August 30, 2017, the Federal Circuit issued a final decision upholding a PTAB decision finding all of the asserted claims of the ‘702 patent to be patentable.
‘290 patent: On June 16, 2021, the PTAB issued a decision finding all of the claims of the ‘290 patent unpatentable. SynQor has filed an appeal of that decision to the Federal Circuit, where it remains pending.
On January 23, 2018, the
20-year
terms of the ‘190 patent, the ‘021 patent, the ‘702 patent and the ‘290 patent expired. As a consequence of these expirations,applicable accounting standards, the Company cannot be liable under anyhas recorded a litigation related accrual of $6,500,000 in the SynQor patents for allegedly infringing activities occurring after that date. In addition, any amended claims that may issuethird quarter of 2022 as a result of any ofits estimate based on the still-pending IPRx proceedings will have no effective term and cannot be the basis for any liability by the Company. As noted above, the IPRx proceedings relatingjury award, using estimated outcomes ranging from $0 to the asserted claims of the ‘190 and ‘290 patents remain pending before the PTAB or on appeal at the Federal Circuit.
-17-

VICOR CORPORATION
Notes to Condensed Consolidated Financial Statements
June 30, 2022
(unaudited)

The Company continues 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, it 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.
In addition, to the SynQor matter, the Company is involved in certain other litigation and claims incidental to the conduct of its business. While the outcome of such other lawsuits and claims against the Company cannot be predicted with certainty, management does not expect any currentsuch litigation or claims will have a material adverse impact on the Company’s financial position or results of operations.
11.
Impact of Recently Issued Accounting Standards
New pronouncements issued but not effective until after JuneSeptember 30, 2022 are not expected to have a material impact on the Company’s consolidated financial statements.
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VICOR CORPORATION

Management’s Discussion and Analysis of

Financial Condition and Results of Operation

June

September 30, 2022

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

Cautionary Note Regarding Forward-Looking Statements

The Company’s consolidated operating results are affected by a wide variety of factors that could materially and adversely affect revenues and profitability, including the risk factors described in the Company’s Annual Report on Form

10-K
for the year ended December 31, 2021.2021 and the risk factors described in this Quarterly Report on Form 10-Q. As a result of these and other factors, the Company may experience material fluctuations in future operating results on a quarterly or annual basis, which could materially and adversely affect its business, consolidated financial condition, and operating results, and the share price of its Common Stock. This document and other documents filed by the Company with the Securities and Exchange Commission (“SEC”) include forward-looking statements regarding future events and the Company’s future results that are subject to the safe harbor afforded under the Private Securities Litigation Reform Act of 1995 and other safe harbors afforded under the Securities Act of 1933 and the Securities Exchange Act of 1934. All statements other than statements of historical fact are statements that could be deemed forward-looking statements. Forward-looking statements are based on our current beliefs, expectations, estimates, forecasts, and projections for the future performance of the Company and are subject to risks and uncertainties. Forward-looking statements are identified by the use of words denoting uncertain, future events, such as “anticipate,” “assume,” “believe,” “continue,” “could,” “estimate,” “expect,” “future,” “goal,” “if,” “intend,” “may,” “plan,” “potential,” “project,” “prospective,” “seek,” “should,” “target,” “will,” or “would,” as well as similar words and phrases, including the negatives of these terms, or other variations thereof. Forward-looking statements also include, but are not limited to, statements regarding: our expectations that the Company has adequate resources to respond to financial and operational risks associated with the novel coronavirus
(“COVID-19”)
and regarding our and our customers’ ability to effectively conduct business during the pandemic; our ability to address certain supply chain risks; our ongoing development of power conversion architectures, switching topologies, materials, packaging, and products; the ongoing transition of our business strategically, organizationally, and operationally from serving a large number of relatively
low-volume
customers across diversified markets and geographies to serving a small number of relatively large volume customers; our intent to enter new market segments; the levels of customer orders overall and, in particular, from large customers and the delivery lead times associated therewith; anticipated new and existing customer wins; the financial and operational impact of customer changes to shipping schedules; the derivation of a portion of our sales in each quarter from orders booked in the same quarter; our intent to expand the percentage of revenue associated with licensing our intellectual property to third parties; our plans to invest in expanded manufacturing capacity, including the expansion of our Andover facility and the introduction of new manufacturing processes, and the timing, location, and funding thereof; our belief that cash generated from operations together with our available cash and cash equivalents and short-term investments will be sufficient to fund planned operational needs, capital equipment purchases, and planned construction, for the foreseeable future; our outlook regarding tariffs and the impact thereof on our business; our belief that we have limited exposure to currency risks; our intentions regarding the declaration and payment of cash dividends; our intentions regarding protecting our rights under our patents; and our expectation that no current litigation or claims will have a material adverse impact on our financial position or results of operations. These forward-looking statements are based upon our current expectations and estimates associated with prospective events and circumstances that may or may not be within our control and as to which there can be no assurance. Actual results could differ materially from those implied by forward-looking statements as a result of various factors, including but not limited to those described above, as well as those described in the Company’s Annual Report on Form
10-K
for the year ended December 31, 2021 under Part I, Item 1 — “Business,” under Part I, Item 1A — “Risk Factors,” under Part I, Item 3 — “Legal Proceedings,” and under Part II, Item 7 — “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and those described in this Quarterly Report on Form
10-Q,
particularly under Part I, Item 2 – “Management’s Discussion and Analysis of Financial Condition and Results of Operations.Operations” and under Part II, Item 1A – “Risk Factors.” The discussion of our business contained herein, including the identification and assessment of factors that may influence actual results, may not be exhaustive. Therefore, the information presented should be read together with other documents we file with the SEC from time to time, including our Annual Reports on Form
10-K,
our Quarterly Reports on Form
10-Q
and our Current Reports on Form
8-K,
which may supplement, modify, supersede, or update the factors discussed in this Quarterly Report on Form
10-Q.
Any forward-looking statement made in this Quarterly Report on Form
10-Q
is based on information currently available to us and speaks only as of the date on which it is made. We do not undertake any obligation to update any forward-looking statements as a result of future events or developments, except as required by law.

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-19-

Table of Contents

VICOR CORPORATION

Management’s Discussion and Analysis of

Financial Condition and Results of Operation

June

September 30, 2022

Overview

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

Based on design, performance, and form factor considerations, as well as the range of evolving applications for which our products are appropriate, we categorize our product portfolios as either “Advanced Products” or “Brick Products.” The Advanced Products category consists of our more recently introduced products, which are largely used to implement our proprietary Factorized Power Architecture

(“FPA”), an innovative power distribution architecture enabling flexible, rapid power system design using individual components optimized to perform a specific conversion function.

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

low-mix,
high-volume operational model, while maintaining a profitable business in the mature market segments we serve with our Brick Products line with a
high-mix,
low-volume
operational model.

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

Our quarterly consolidated operating results can be difficult to forecast and have been subject to significant fluctuations. We plan our production and inventory levels based on management’s estimates of customer demand, customer forecasts, and other information sources. Customer forecasts, particularly those of OEM, ODM, and contract manufacturing customers to which we supply Advanced Products in high volumes, are subject to scheduling changes on short notice, contributing to operating inefficiencies and excess costs. In addition, external factors such as supply chain uncertainties, which are often associated with the cyclicality of the electronics industry, regional macroeconomic and trade-related circumstances, and

force majeure
events (most recently evidenced by the
COVID-19
pandemic), have caused our operating results to vary meaningfully. Supply chain disruptions, including those associated with 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,

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VICOR CORPORATION

Management’s Discussion and Analysis of

Financial Condition and Results of Operation

September 30, 2022

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

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Table of Contents
VICOR CORPORATION
Management’s Discussion and Analysis of
Financial Condition and Results of Operation
June 30, 2022

Ongoing / Potential Impacts of the

COVID-19
Pandemic on the Company

As of the date of this report, the number of Company employees diagnosed with

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

We are closely monitoring the operating performance and financial health of our customers, business partners, and suppliers, but an extended period of operational constraints brought about by the pandemic could cause financial hardship within our customer base and supply chain. Such hardship may continue to disrupt customer demand and limit our customers’ ability to meet their obligations to us. Similarly, such hardship within our supply chain could continue to restrict our access to raw materials or services. Additionally, restrictions or disruptions of transportation, such as reduced availability of cargo transport by ship or air, couldhave resulted and may continue to result in higher costs and inbound and outbound delays. We have taken steps to address certain supply chain risks, and we believe our actions have mitigated those risks to date; however, there are no assurances that those steps will continue to mitigate risks in the remainder of 2022 and beyond.

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

We are monitoring the rapidly changing circumstances, and may take additional actions to address

COVID-19
risks as they evolve. Because much of the potential negative impact of the pandemic is associated with risks outside of our control, we cannot estimate the extent of such impact on our financial or operational performance, or when such impact might occur.

Changes from Previously Disclosed Results

As discussed below, we reported net income for the third quarter of 2022 of $1,792,000, or $0.04 per diluted share, compared to $13,259,000, or $0.29 per diluted share, for the third quarter of 2021. Initially, in our earnings release issued on October 25, 2022, we had disclosed net income for the third quarter of 2022 of $8,091,000, or $0.18 per diluted share. On October 26, 2022, after the earnings release and related earnings call, the jury in the patent litigation with SynQor, Inc. (“SynQor”) awarded SynQor damages in the amount of $6,500,000 for infringement of a SynQor patent. The Company anticipates filing a post-trial motion seeking entry of judgment of non-infringement of the SynQor patent as a matter of law. The Company intends to appeal to the United States Court of Appeals for the Federal Circuit the construction of claim limitations of the SynQor patents and the dismissal of the Company’s counterclaims against SynQor. In light of the jury award, the Company has recorded a litigation related accrual of $6,500,000 in the third quarter of 2022, resulting in the decrease in our reported net income and net income per share from the amounts previously disclosed in our earnings release, as well as a corresponding $6,500,000 increase in operating expenses to $43,966,000 from the previously disclosed $37,466,000. See Note 10 to the Condensed Consolidated Financial Statements for additional information regarding the SynQor litigation related accrual.

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VICOR CORPORATION

Management’s Discussion and Analysis of

Financial Condition and Results of Operation

September 30, 2022

Summary of SecondThird Quarter 2022 Financial Performance Compared to FirstSecond Quarter 2022 Financial Performance

The following summarizes our financial performance for the secondthird quarter of 2022, compared to the firstsecond quarter of 2022:

Net revenues increased 15.7%0.9% to $103,118,000 for the third quarter of 2022, from $102,186,000 for the second quarter of 2022, from $88,282,000 for the first quarter of 2022. Net revenues for Brick Products decreased 2.4%increased 27.2% compared to the firstsecond quarter of 2022, primarily due to the ability to shift manufacturing resources to focus on available backlog, as well as, favorable market conditions in North America and Europe and in the Asia Pacific region.for Brick Products. Advanced Products net revenue rose 27.8% sequentiallydecreased 12.5% compared to the firstsecond quarter of 2022. This growth, though, continued to be constrained by limited component availability2022 primarily due to global semiconductorcontinued supply allocation issues experienced duringconstraints leading to longer cycle-times and schedule delays, as well as, the impact of issuing a return material authorization in the third quarter along with certain internal processing and testing constraints.for approximately $6,000,000.

Export sales represented approximately 69.2%70.1% of total net revenues in the secondthird quarter of 2022 as compared to 72.0%69.2% in the firstsecond quarter of 2022.

Gross margin increased to $46,970,000 for the third quarter of 2022 from $46,849,000 for the second quarter of 2022, from $37,601,000 for the first quarter of 2022, andbut gross margin, as a percentage of net revenues, increaseddecreased to 45.5% for the third quarter of 2022 from 45.8% for the second quarter of 2022 from 42.6% for the first quarter of 2022. Both the increaseThe decrease in gross margin dollarspercentage was primarily a net result of favorable overhead absorption offset by increased tariff costs and gross margin percentage were primarily due to the increase in net revenues and improved absorption of fixedhigher processing costs due to increased volumes.at outside vendors.

Backlog, which represents the total value of orders for products for which shipment is scheduled within the next 12 months, was approximately $371,637,000 at the end of the third quarter of 2022, as compared to $410,015,000 at the end of the second quarter of 2022, as compared to $423,738,000 at the end of the first quarter of 2022. The decrease in backlog was primarily due to an increase in net revenues combined with a decline in bookings during the quarter as a result of securing bookings in prior quarters that now form a large part of our backlog.

Operating expenses for the third quarter of 2022 increased $8,415,000, or 23.7%, to $43,966,000 from $35,551,000 for the second quarter of 2022. Selling, general, and administrative expenses increased approximately $2,684,000, primarily due to an increase in legal fees. Research and development expenses decreased approximately $769,000, primarily due to a decrease in project and pre-production materials. Litigation-related expense related to the SynQor litigation was $6,500,000 for the third quarter of 2022. See Note 10 to the Condensed Consolidated Financial Statements for additional information.

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Table of Contents
VICOR CORPORATION
Management’s Discussion and Analysis of
Financial Condition and Results of Operation
June 30, 2022
Operating expenses for the second quarter of 2022 increased $2,730,000, or 8.3%, to $35,551,000 from $32,821,000 for the first quarter of 2022. Selling, general, and administrative expenses increased approximately $1,467,000, primarily due to increases in legal fees and compensation expense. Research and development expenses increased approximately $1,263,000, primarily due to increases in project and
pre-production
materials and compensation expense.

We reported net income for the secondthird quarter of 2022 of $10,593,000,$1,792,000, or $0.24$0.04 per diluted share, compared to net income of $4,999,000,$10,593,000, or $0.11$0.24 per diluted share, for the firstsecond quarter of 2022.

For the secondthird quarter of 2022, depreciation and amortization totaled $3,369,000$3,585,000 and capital additions totaled $14,195,000$14,401,000 as compared to depreciation and amortization of $3,296,000$3,369,000 and capital additions of $22,683,000$14,195,000 for the firstsecond quarter of 2022.

Inventories increased by approximately $9,194,000,$11,281,000, or 12.4%13.6%, to $94,336,000 at September 30, 2022, compared to $83,055,000 at June 30, 2022, compared to $73,861,000 at March 31, 2022, primarily consisting of raw materials, to support higher planned revenues later in the year.materials.

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VICOR CORPORATION

Management’s Discussion and Analysis of

Financial Condition and Results of Operation

September 30, 2022

Three Months Ended JuneSeptember 30, 2022 Compared to Three Months Ended JuneSeptember 30, 2021

Net revenues for the secondthird quarter of 2022 were $102,186,000,$103,118,000, an increase of $6,810,000,$18,207,000, or 7.1%21.4%, as compared to $95,376,000$84,911,000 for the secondthird quarter of 2021. Net revenues, by product line, for the three months ended JuneSeptember 30, 2022 and 2021 were as follows (dollars in thousands):

           Increase (decrease) 
   2022   2021   $   % 
Brick Products
  $34,523  $54,352  $ (19,829)    (36.5)% 
Advanced Products
   67,663   41,024   26,639   64.9
  
 
 
   
 
 
   
 
 
   
Total
  $102,186  $95,376  $6,810   7.1
  
 
 
   
 
 
   
 
 
   

           Increase 
   2022   2021   $   % 

Brick Products

  $43,916  $41,444  $2,472   6.0

Advanced Products

   59,202   43,467   15,735   36.2
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $103,118  $84,911  $18,207   21.4
  

 

 

   

 

 

   

 

 

   

 

 

 

The increase in net revenues for Advanced Products was primarily the result of growth in the data center and high performance computing business. The decreaseincrease in net revenues for Brick Products was primarily due to unfavorablefavorable market conditions in North America and Europe and a rebound in the Asia Pacific region.

business after several quarters of declining revenues.

Gross margin for the secondthird quarter of 2022 decreased $3,022,000,increased $4,157,000, or 6.1%9.7%, to $46,849,000,$46,970,000, from $49,871,000$42,813,000 for the secondthird quarter of 2021. Gross margin, as a percentage of net revenues, decreased to 45.8%45.5% for the secondthird quarter of 2022, compared to 52.3%50.4% for the secondthird quarter of 2021. The decreaseincrease in gross margin dollars andwas due to the increase in net revenues. The decrease in gross margin percentage was primarily due to unfavorable changes in product mix, a negative impact from production inefficiencies associated with initial production volumes of new products, and certain supply chain cost increases.

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Table of Contents

VICOR CORPORATION

Management’s Discussion and Analysis of

Financial Condition and Results of Operation

June

September 30, 2022

Selling, general, and administrative expenses were $20,035,000$22,719,000 for the secondthird quarter of 2022, an increase of $3,446,000,$5,397,000, or 20.8%31.2%, from $16,589,000$17,322,000 for the secondthird quarter of 2021. Selling, general, and administrative expenses as a percentage of net revenues increased to 19.6%22.0% for the secondthird quarter of 2022 from 17.4%20.4% for the secondthird quarter of 2021. The components of the $3,446,000$5,397,000 increase in selling, general and administrative expenses for the secondthird quarter of 2022 from the secondthird quarter of 2021 were as follows (dollars in thousands):

   Increase (decrease) 
Legal fees
  $1,534   204.9%(1) 
Compensation
   1,466   13.6%(2) 
Outside services
   278   51.1%(3) 
Travel expense
   251   97.9%(4) 
Computer and software expense
   125   40.5
Facilities allocations
   (127   (33.0)% 
Other, net
   (81   (2.2)% 
  
 
 
   
  $3,446   20.8
  
 
 
   

   Increase (decrease) 

Legal fees

  $3,538   399.4%(1) 

Compensation

   694   6.3%(2) 

Advertising

   546   68.7%(3) 

Depreciation and amortization

   300   36.3%(4) 

Audit and accounting fees

   236   48.1%(5) 

Travel expense

   235   67.4%(6) 

Other, net

   (152)    (5.1)
  

 

 

   
  $5,397   31.2
  

 

 

   

(1)

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

(2)

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

(3)

Increase primarily attributable to an increaseincreases in the use of outside service providers at our Andover, MA facility.

sales support expenses, direct mailings, and advertising in trade publications.

(4)

Increase attributable to net additions of furniture and fixtures and capitalization of building improvements.

(5)

Overall increase in audit and tax fees.

(6)

Increase primarily attributable to an increase in travel by the Company’s sales and marketing personnel.

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Table of Contents

VICOR CORPORATION

Management’s Discussion and Analysis of

Financial Condition and Results of Operation

June

September 30, 2022

Research and development expenses were $15,516,000$14,747,000 for the secondthird quarter of 2022, an increase of $2,243,000,$1,228,000, or 16.9%9.1%, compared to $13,273,000$13,519,000 for the secondthird quarter of 2021. As a percentage of net revenues, research and development expenses increaseddecreased to 15.2%14.3% for the secondthird quarter of 2022 from 13.9%15.9% for the secondthird quarter of 2021. The components of the $2,243,000$1,228,000 increase in research and development expenses were as follows (dollars in thousands):

   Increase 
Compensation
  $818   8.6%(1) 
Overhead absorption
   373   47.5%(2) 
Supplies
   297   74.3%(3) 
Project and
pre-production
materials
   226   10.0
Depreciation and amortization
   106   21.4
Facilities allocations
   99   15.6
Deferred costs
   88   46.8
Travel expense
   59   182.7
Other, net
   177   18.7
  
 
 
   
  $2,243   16.9
  
 
 
   

   Increase (decrease) 

Compensation

  $654    6.7%(1) 

Supplies

   348    91.8%(2) 

Facilities allocations

   139    19.8

Computer and software expense

   136    74.1

Depreciation and amortization

   116    22.9

Outside services

   96    82.6

Overhead absorption

   (146   (28.7)% 

Project and pre-production materials

   (387   (19.7)%(3) 

Other, net

   272   56.8
  

 

 

   
  $1,228   9.1
  

 

 

   

(1)

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

(2)
Increase primarily attributable to a decrease in research and development (“R&D”) personnel incurring time on production activities, compared to R&D activities.
(3)

Increase in engineering supplies.

(3)

Decrease primarily attributable to decreased prototype development costs for Advanced Products.

Litigation-related expense was $6,500,000 for the third quarter of 2022 which related to the SynQor litigation, as compared to $0 for the third quarter of 2021. See Note 10 to the Condensed Consolidated Financial Statements for additional information.

The significant components of ‘‘Other“Other income (expense), net’’net” for the three months ended JuneSeptember 30, and the changes between the periods were as follows (in thousands):

   2022   2021   Increase
(decrease)
 

Foreign currency losses, net

  $(453  $(110  $(343

Interest income (expense), net

   (315   267   (582

Rental income

   198   198   —  

Other, net

   2   39   (37
  

 

 

   

 

 

   

 

 

 
  $(568  $394  $(962
  

 

 

   

 

 

   

 

 

 

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   2022   2021   Increase
(decrease)
 
Interest income
  $274  $276  $(2
Rental income
   198   198   —  
Foreign currency losses, net
   (397   (12   (385
Other, net
   9   (89   98
  
 
 
   
 
 
   
 
 
 
  $84  $373  $(289
  
 
 
   
 
 
   
 
 
 


VICOR CORPORATION

Management’s Discussion and Analysis of

Financial Condition and Results of Operation

September 30, 2022

Our exposure to market risk fluctuations in foreign currency exchange rates relates to the operations of Vicor Japan Company, Ltd. (“VJCL”), for which the functional currency is the Japanese Yen, and all other subsidiaries in Europe and Asia, for which the functional currency is the U.S. Dollar. These subsidiaries in Europe and Asia experienced more unfavorable foreign currency exchange rate fluctuations in the secondthird quarter of 2022 compared to the secondthird quarter of 2021.

“Interest income (expense), net” includes an immaterial error correction of $990,000 related to the amortization of bond premiums on available for sale securities.

Income before income taxes was $11,382,000$2,436,000 for the secondthird quarter of 2022, as compared to $20,382,000$12,366,000 for the secondthird quarter of 2021.

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Table of Contents
VICOR CORPORATION
Management’s Discussion and Analysis of
Financial Condition and Results of Operation
June 30, 2022

The provision (benefit) for income taxes and the effective income tax rates for the three months ended JuneSeptember 30, 2022 and 2021 were as follows (dollars in thousands):

   2022  2021 
Provision for income taxes
  $802 $999
Effective income tax rate
   7.0  4.9

   2022  2021 

Provision (benefit) for income taxes

  $641 $(886

Effective income tax rate

   26.3  (7.2)% 

The effective tax rates were lower than the statutory tax rates for the three months ended JuneSeptember 30, 2022 and 2021 primarily due to the Company’s full valuation allowance position against domestic deferred tax assets. The provision (benefit) for income taxes for the three months ended JuneSeptember 30, 2022 and 2021 included estimated federal, state and foreign income taxes in jurisdictions in which the Company does not have sufficient tax attributes, offset by excess tax benefits related to stock based compensation during those periods.

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

We reported net income for the secondthird quarter of 2022 of $10,593,000,$1,792,000, or $0.24$0.04 per diluted share, compared to $19,394,000,$13,259,000, or $0.43$0.29 per diluted share, for the secondthird quarter of 2021.

Six

Nine Months Ended JuneSeptember 30, 2022 Compared to SixNine Months Ended JuneSeptember 30, 2021

Net revenues for the six

ninemonths ended JuneSeptember 30, 2022 were $190,468,000,$293,586,000, an increase of $6,296,000,$24,503,000, or 3.4%9.1%, from $184,172,000$269,083,000 for the sixnine months ended JuneSeptember 30, 2021. Net revenues, by product line, for the sixnine months ended JuneSeptember 30, 2022 and the sixnine months ended JuneSeptember 30, 2021 were as follows (dollars in thousands):
           Increase (decrease) 
   2022   2021   $   % 
Brick Products
  $69,880  $108,811  $(38,931   (35.8)% 
Advanced Products
   120,588   75,361   45,227   60.0
  
 
 
   
 
 
   
 
 
   
Total
  $190,468  $184,172  $6,296   3.4
  
 
 
   
 
 
   
 
 
   

           (Decrease) increase 
   2022   2021   $   % 

Brick Products

  $113,796  $150,255  $(36,459   (24.3)% 

Advanced Products

   179,790   118,828   60,962   51.3
  

 

 

   

 

 

   

 

 

   

Total

  $293,586  $269,083  $24,503   9.1
  

 

 

   

 

 

   

 

 

   

The increase in net revenues for Advanced Products was primarily the result of growth in the data center and high performance computing business. The decrease in net revenues for Brick Products was primarily due to unfavorable market conditions.conditions in the Asia Pacific region and a shift in resource allocation to the Advanced Products.

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VICOR CORPORATION

Management’s Discussion and Analysis of

Financial Condition and Results of Operation

September 30, 2022

Gross margin for the sixnine months ended JuneSeptember 30, 2022 decreased $10,121,000,$5,964,000, or 10.7%4.3%, to $84,450,000$131,420,000 from $94,571,000$137,384,000 for the sixnine months ended JuneSeptember 30, 2021. Gross margin, as a percentage of net revenues, decreased to 44.3%44.8% for the sixnine month period ended JuneSeptember 30, 2022, as compared to 51.3%51.1% for the sixnine month period ended JuneSeptember 30, 2021. The decrease in gross margin dollars and gross margin percentage was primarily due to unfavorable changes in product mix, a negative impact from production inefficiencies associated with initial production volumes of new products, and certain supply chain cost increases.

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Table of Contents
VICOR CORPORATION
Management’s Discussion and Analysis of
Financial Condition and Results of Operation
June 30, 2022

Selling, general and administrative expenses were $38,603,000$61,322,000 for the sixnine months ended JuneSeptember 30, 2022, an increase of $5,060,000,$10,457,000, or 15.1%20.6%, compared to $33,543,000$50,865,000 for the sixnine months ended JuneSeptember 30, 2021. Selling, general and administrative expenses as a percentage of net revenues increased to 20.3%20.9% for the sixnine months ended JuneSeptember 30, 2022 from 18.2%18.9% for the sixnine months ended JuneSeptember 30, 2021. The components of the $5,060,000$10,457,000 increase in selling, general and administrative expenses for the sixnine months ended JuneSeptember 30, 2022 compared to the sixnine months ended JuneSeptember 30, 2021 were as follows (dollars in thousands):

   Increase (decrease) 
Legal fees
  $2,025   151.1%(1) 
Compensation
   1,951   8.9%(2) 
Outside services
   770   69.3%(3) 
Depreciation and amortization
   432   26.5%(4) 
Travel expense
   387   80.6%(5) 
Computer and software expense
   143   23.6
Commissions
   (284   (16.5)%(6) 
Facilities allocations
   (285   (35.3)%(7) 
Other, net
   (79   (2.1)% 
  
 
 
   
  $5,060   15.1
  
 
 
   

   Increase (decrease) 

Legal fees

  $5,562   250.0%(1) 

Compensation

   2,645   8.0%(2) 

Outside services

   804   45.0%(3) 

Depreciation and amortization

   732   29.8%(4) 

Travel expense

   621   75.1%(5) 

Advertising

   522   21.8%(6) 

Commissions

   (365   (13.9)%(7) 

Other, net

   (64   (1.2)% 
  

 

 

   
  $10,457   20.6
  

 

 

   

(1)

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

(2)

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

(3)

Increase primarily attributable to an increase in the use of outside service providers at our Andover, MA facility.

(4)

Increase attributable to net additions of furniture and fixtures and capitalization of building improvements.

(5)

Increase primarily attributable to an increase in travel by the Company’s sales and marketing personnel.

(6)

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

(7)

Decrease primarily attributable to a decrease in net revenues subject to commissions.

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(7)
Decrease primarily attributable to a decrease in utilities and building maintenance expenses.


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Table of Contents

VICOR CORPORATION

Management’s Discussion and Analysis of

Financial Condition and Results of Operation

June

September 30, 2022

Research and development expenses were $29,769,000$44,516,000 for the sixnine months ended JuneSeptember 30, 2022, an increase of $3,470,000,$4,698,000, or 13.2%11.8%, from $26,299,000$39,818,000 for the sixnine months ended JuneSeptember 30, 2021 As a percentage of net revenues, research and development expenses increased to 15.6%15.2% for the sixnine month period ended JuneSeptember 30, 2022 from 14.3%14.8% for the sixnine month period ended JuneSeptember 30, 2021. The components of the $3,470,000$4,698,000 increase in research and development expenses for the sixnine months ended JuneSeptember 30, 2022 compared to the sixnine months ended JuneSeptember 30, 2021 were as follows (dollars in thousands):

   Increase 
Compensation
  $1,211   6.4%(1) 
Overhead absorption
   560   42.8%(2) 
Supplies
   473   68.6%(3) 
Project and
pre-production
materials
   187   4.5
Depreciation and amortization
   181   17.9
Facilities allocations
   132   9.7
Deferred costs
   124   43.7
Travel expense
   106   195.1
Computer and software expense
   83   22.0
Other, net
   413   31.2
  
 
 
   
  $3,470   13.2
  
 
 
   

   Increase 

Compensation

  $1,865   6.5%(1) 

Supplies

   821   76.8%(2) 

Overhead absorption

   413   22.8%(3) 

Depreciation and amortization

   297   19.6%(4) 

Facilities allocations

   271   13.1%(5) 

Computer and software expense

   219   39.2%(6) 

Travel expense

   156   143.8

Deferred costs

   140   29.2

Other, net

   516   6.3
  

 

 

   
  $4,698   11.8
  

 

 

   

(1)

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

(2)

Increase in engineering supplies.

(3)

Increase primarily attributable to a decrease in R&D personnel incurring time on production activities, compared to R&D activities.

(3)(4)

Increase in engineering supplies.

attributable to net additions of furniture and fixtures and capitalization of building improvements.

(5)

Increase primarily attributable to an increase in utilities and building maintenance expenses.

(6)

Increase primarily attributable to an increase in computer and software expenses.

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VICOR CORPORATION

Management’s Discussion and Analysis of

Financial Condition and Results of Operation

September 30, 2022

Litigation-related expense was $6,500,000 for the nine months ended September 30, 2022 which related to the SynQor litigation, as compared to $0 for the nine months ended September 30, 2021. See Note 10 to the Condensed Consolidated Financial Statements for additional information.

The significant components of ‘‘Other“Other income (expense), net’’net” for the sixnine months ended JuneSeptember 30, 2022 and the sixnine months ended JuneSeptember 30, 2021 and the changes from period to period were as follows (in thousands):

   2022   2021   Increase
(decrease)
 
Interest income
  $415  $469  $(54
Rental income
   396   396   —  
Foreign currency losses, net
   (604   (174   (430
Other, net
   39   (86   125
  
 
 
   
 
 
   
 
 
 
  $246  $605  $(359
  
 
 
   
 
 
   
 
 
 

   2022   2021   Increase
(decrease)
 

Foreign currency losses, net

  $(1,057  $(285  $(772

Rental income

   594   594   —  

Interest income (expense), net

   107   757   (650

Other, net

   34   (67   101
  

 

 

   

 

 

   

 

 

 
  $(322  $999  $(1,321
  

 

 

   

 

 

   

 

 

 

Our exposure to market risk fluctuations in foreign currency exchange rates relates to the operations of VJCL, for which the functional currency is the Japanese Yen, and all other subsidiaries in Europe and Asia, for which the functional currency is the U.S. Dollar. These subsidiaries in Europe and Asia have experienced more unfavorable foreign currency exchange rate fluctuations in 2022 compared to 2021.

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Table “Interest income (expense), net” includes an immaterial error correction of Contents
VICOR CORPORATION
Management’s Discussion and Analysis$834,000 related to the amortization of
Financial Condition and Results of Operation
June 30, 2022
bond premiums on available for sale securities.

Income before income taxes was $16,324,000$18,760,000 for the sixnine months ended JuneSeptember 30, 2022, as compared to $35,334,000$47,700,000 for the sixnine months ended JuneSeptember 30, 2021.

The provision (benefit) for income taxes and the effective income tax rates for the sixnine months ended JuneSeptember 30, 2022 and 2021 were as follows (dollars in thousands):

   2022  2021 
Provision for income taxes
  $754 $856
Effective income tax rate
   4.6  2.4

   2022  2021 

Provision (benefit) for income taxes

  $1,395 $(30

Effective income tax rate

   7.4  (0.1)% 

The effective tax rates were lower than the statutory tax rates for the sixnine months ended JuneSeptember 30, 2022 and 2021 primarily due to the Company’s full valuation allowance position against domestic deferred tax assets. The provision (benefit) for income taxes for the sixnine months ended JuneSeptember 30, 2022 and 2021 included estimated federal, state and foreign income taxes in jurisdictions in which the Company does not have sufficient tax attributes, offset by excess tax benefits related to stock based compensation during those periods.

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

We reported net income for the sixnine months ended JuneSeptember 30, 2022 of $15,592,000,$17,384,000, or $0.35$0.39 per diluted share, as compared to $34,486,000,$47,745,000, or $0.77$1.06 per diluted share, for the sixnine months ended JuneSeptember 30, 2021.

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VICOR CORPORATION

Management’s Discussion and Analysis of

Financial Condition and Results of Operation

September 30, 2022

Liquidity and Capital Resources

As of JuneSeptember 30, 2022, we had $187,677,000$182,098,000 in cash and cash equivalents and $19,921,000$19,949,000 of highly liquid short-term investments. The ratio of total current assets to total current liabilities was 5.9:5.6:1 as of JuneSeptember 30, 2022 and 7.3:1 as of December 31, 2021. Working capital, defined as total current assets less total current liabilities, decreased $14,789,000$13,873,000 to $292,878,000$293,794,000 as of JuneSeptember 30, 2022 from $307,667,000 as of December 31, 2021.

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VICOR CORPORATION
Management’s Discussion and Analysis of
Financial Condition and Results of Operation
June 30, 2022

The changes in working capital from December 31, 2021 to JuneSeptember 30, 2022 were as follows (in thousands):

   Increase
(decrease)
 
Cash and cash equivalents
  $5,259
Short-term investments
   (25,294
Accounts receivable
   (561
Inventories
   15,733
Other current assets
   434
Accounts payable
   (10,843
Accrued compensation and benefits
   (468
Accrued expenses
   240
Sales allowances
   458
Short-term lease liabilities
   (21
Income taxes payable
   64
Short-term deferred revenue
   210
  
 
 
 
  $(14,789
  
 
 
 

   Increase
(decrease)
 

Cash and cash equivalents

  $(320

Short-term investments

   (25,266

Accounts receivable

   1,190

Inventories

   27,014

Other current assets

   (1,225

Accounts payable

   (2,815

Accrued compensation and benefits

   (410

Accrued expenses

   (1,596

Accrued litigation

   (6,500

Short-term deferred revenue

   (4,236

Other

   291
  

 

 

 
  $(13,873
  

 

 

 

The primary sources of cash for the sixnine months ended JuneSeptember 30, 2022 were $25,000,000 from the sale or maturities of short-term investments, $15,408,000$22,010,000 generated from operations, and $1,974,000$4,147,000 received in connection with the exercise of options to purchase our Common Stock awarded under our stock option plans and the issuance of Common Stock under our 2017 Employee Stock Purchase Plan. The primary uses of cash during the sixnine months ended JuneSeptember 30, 2022 were for the purchase of property and equipment of $36,878,000.

$51,279,000.

In November 2000, our Board of Directors authorized the repurchase of up to $30,000,000 of our Common Stock (the “November 2000 Plan”). The November 2000 Plan authorizes us to make such repurchases from time to time in the open market or through privately negotiated transactions. The timing and amounts of Common Stock repurchases are at the discretion of management based on its view of economic and financial market conditions. We did not repurchase shares of Common Stock under the November 2000 Plan during the sixnine months ended JuneSeptember 30, 2022. As of JuneSeptember 30, 2022, we had approximately $8,541,000 remaining available for repurchases of our Common Stock under the November 2000 Plan.

As of JuneSeptember 30, 2022, we had a total of approximately $32,034,000$27,804,000 of cancelable and

non-cancelable
capital expenditure commitments, principally for manufacturing and production equipment, which we intend to fund with existing cash, and approximately $10,640,000$6,637,000 of capital expenditure items which had been received and included in Property, plant and equipment in the accompanying Condensed Consolidated Balance Sheets, but not yet paid for. As of JuneSeptember 30, 2022, we had approximately $15,661,000$7,627,000 of remaining capital expenditures expected to be incurred through the remainder of 2022 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 are for making continuing investments in manufacturing and production equipment and for funding the construction of the additional manufacturing space adjoining our existing Andover manufacturing facility (as described above), including architectural and construction costs. We believe cash generated from operations together with our available cash and cash equivalents and short-term investments will be sufficient to fund planned operational needs, capital equipment purchases, and the planned construction, for the foreseeable future.

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VICOR CORPORATION

Management’s Discussion and Analysis of

Financial Condition and Results of Operation

September 30, 2022

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.

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Table of Contents
VICOR CORPORATION
Management’s Discussion and Analysis of
Financial Condition and Results of Operation
June 30, 2022

Critical Accounting Policies and Estimates

There have been no material changes in our judgments and assumptions associated with the development of our critical accounting estimates during the period ended JuneSeptember 30, 2022. Refer to the section entitled “Critical Accounting Policies and Estimates” in Part II, Item 7 – “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of the Company’s Annual Report on Form

10-K
for the year ended December 31, 2021.

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Vicor Corporation

June

September 30, 2022

Item
3 — Quantitative and Qualitative Disclosures About Market Risk

Item 3 — Quantitative and Qualitative Disclosures About Market Risk

We are exposed to a variety of market risks, including changes in interest rates affecting the return on our cash and cash equivalents, our short-term investments and fluctuations in foreign currency exchange rates. As our cash and cash equivalents and short-term investments consist principally of cash accounts, money market securities, and U.S. Treasury securities, which are short-term in nature, we believe our exposure to market risk on interest rate fluctuations for these investments is not significant. As of JuneSeptember 30, 2022, our long-term investment portfolio, recorded on our Condensed Consolidated Balance Sheet as “Long-term investment, net”, consisted of a single auction rate security with a par value of $3,000,000, purchased through and held in custody by a broker-dealer affiliate of Bank of America, N.A., that has experienced failed auctions (the “Failed Auction Security”) since February 2008. While the Failed Auction Security is Aaa/AA+ rated by major credit rating agencies, collateralized by student loans and guaranteed by the U.S. Department of Education under the Federal Family Education Loan Program, continued failure to sell at its periodic auction dates (i.e., reset dates) could negatively impact the carrying value of the investment, in turn leading to impairment charges in future periods. Periodic changes in the fair value of the Failed Auction Security attributable to credit loss (i.e., risk of the issuer’s default) are recorded through earnings as a component of “Other income (expense), net”, with the remainder of any periodic change in fair value not related to credit loss (i.e., temporary

“mark-to-market”
carrying value adjustments) recorded in “Accumulated other comprehensive loss”, a component of Stockholders’ Equity. Should we conclude a decline in the fair value of the Failed Auction Security is other than temporary, such losses would be recorded through earnings as a component of “Other income (expense), net”. We do not believe there was an “other-than-temporary” decline in value in this security as of JuneSeptember 30, 2022.

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

Item 4 — Controls and Procedures

Item(a)
4 — Controls

Disclosure regarding controls and Procedures

procedures.

(a) Disclosure regarding controls and procedures.

As required by

Rule 13a-15
under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), management, with the participation of our Chief Executive Officer (“CEO”) (who is our principal executive officer) and Chief Financial Officer (“CFO”) (who is our principal financial officer), conducted an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the last fiscal quarter (i.e., JuneSeptember 30, 2022). The term “disclosure controls and procedures,” as defined in
Rules 13a-15(e)
and
15d-15(e)
under the Exchange Act, means controls and other procedures of a company that are designed to ensure information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure information required to be disclosed by a company in the reports it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of JuneSeptember 30, 2022, our CEO and CFO concluded, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

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

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Vicor Corporation

June

September 30, 2022

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

(b) Changes in internal control over financial reporting.

(b)

Changes in internal control over financial reporting.

There was no change in our internal control over financial reporting that occurred during the fiscal quarter ended JuneSeptember 30, 2022, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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Table of Contents

Vicor Corporation

Part II – Other Information

June

September 30, 2022

Item 1 — Legal Proceedings

See Note 10.

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

Item 1A — Risk Factors

There have been no material changes in the risk factors described in Part I, Item 1A – “Risk Factors” of the Company’s Annual Report on Form

10-K
for the year ended December 31, 2021.2021, except for the following additional risk factor, which supplements and updates those risk factors discussed in our Form 10-K.

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 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.

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Vicor Corporation

Part II – Other Information

September 30, 2022

Item 6 — Exhibits

Exhibit Number

  

Description

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

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

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

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

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(1) Filed as an exhibit to the Company’s Annual Report on Form
10-K
filed on March 29, 2001 (File
No. 000-18277)
and incorporated herein by reference.
(2) Filed as an exhibit to the Company’s Current Report on Form
8-K
filed on June 4, 2020 (File
No. 000-18277)
and incorporated herein by reference.


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Table of Contents

SIGNATURES

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

 VICOR CORPORATION
Date: AugustNovember 3, 2022 By: 

/s/ Patrizio Vinciarelli

  Patrizio Vinciarelli
  Chairman of the Board, President and
  Chief Executive Officer
  (Principal Executive Officer)
Date: AugustNovember 3, 2022 By: 

/s/ James F. Schmidt

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

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