Vicor Corporation (NASDAQ:VICR) Q1 2024 Earnings Call Transcript

Vicor Corporation (NASDAQ:VICR) Q1 2024 Earnings Call Transcript April 23, 2024

Vicor Corporation isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good day, everyone and thank you for standing by. Welcome to the Q1 2024 Vicor Earnings Conference Call. [Operator Instructions] Please be advised that today’s conference is being recorded. I would now like to hand the conference to Jim Schmidt, Chief Financial Officer. Please go ahead.

Jim Schmidt: Thank you. Good afternoon and welcome to Vicor Corporation’s earnings call for the first quarter ended March 31, 2024. I am Jim Schmidt, Chief Financial Officer and I am in Andover with Phil Davies, Vice President, Global Sales and Marketing. Patrizio Vinciarelli, Chief Executive Officer is joining the call from Washington DC ahead of the upcoming patent infringement trial before the International Trade Commission. After the markets closed today, we issued a press release summarizing our financial results for the 3 months ending March 31. This press release has been posted on the Investor Relations page of our website, www.vicorpower.com. We also filed a Form 8-K today related to the issuance of this press release.

I remind listeners this conference call is being recorded and it’s the copyrighted property of Vicor Corporation. I also remind you various remarks we make during this call may constitute forward-looking statements, for purposes of the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995. Except for historical information contained in this call, the matters discussed on this call, including any statements regarding current and planned products, current and potential customers, potential market opportunities, expected events and announcements, and our capacity expansion, as well as management’s expectations for sales, growth, spending, and profitability are forward-looking statements involving risk and uncertainties.

In light of these risk and uncertainties, we can offer no assurance that any forward-looking statement will, in fact, prove to be correct. Actual results may differ materially from those explicitly set forth and/or implied by any of our remarks today. The risk and uncertainties we face are discussed in Item 1A of our 2023 Form 10-K, which we filed with the SEC on February 28, 2024. This document is available via the EDGAR system on the SEC’s website. Please note the information provided during this conference call, is accurate only as of today, Tuesday, April 23, 2024. Vicor undertakes no obligation to update any statements, including forward-looking statements, made during this call and you should not rely upon such statements after the conclusion of this call.

A webcast replay of today’s call will be available shortly on the Investor Relations page of our website. I’ll now turn to a review of our Q1 financial performance, after which Phil will review recent market developments and Patrizio, Phil and I will take your questions. In my remarks, I will focus mostly on the sequential quarterly change for P&L and balance sheet items as well as year-over-year changes and refer you to our press release for our upcoming Form 10-Q for additional information. As stated in today’s press release, Vicor recorded total revenue for the first quarter of $83.9 million, down 9.5% from the fourth quarter total of $92.7 million and down 14.3% from the first quarter 2023 total of $97.8 million. Brick Products revenue declined 11.7% sequentially, while Advanced Products revenue declined 7.3% from the fourth quarter.

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Q&A Session

Shipments to stocking distributors increased 21.8% sequentially. Exports for the first quarter decreased sequentially as a percentage of total revenue to approximately 42.6% from the prior quarter’s 56.5%. For Q1, Advanced Products share of total revenue increased to 51.6% compared to 50.4% for the fourth quarter, with Brick Products share correspondingly decreasing to 48.4% of total revenue. Turning to Q1 gross margin, we recorded a consolidated gross profit margin of 53.8%, increasing approximately 2.7% from the prior quarter. A number of factors contributed to this sequential increase in gross margin percentage including increased royalty income, improve sales mix, reductions in tariff spending and lower freight costs. I will now turn to Q1 operating expenses.

Total operating expenses increased 10.1% from the fourth quarter or $4 million, with the increase being primarily due to legal expenses incurred ahead of trial in our patent infringement case before the ITC. The amounts of total equity based compensation expense for Q1 included in cost of goods. SG&A and R&D was $754,000, $1,919,000 and $1,107,000 respectively, totaling approximately $3.8 million. For Q1, we reported operating income of $1.1 million, representing an operating margin of 1.3%. Turning to income taxes. We recorded a tax provision for Q1 of approximately $1.2 million, representing an effective tax rate for the quarter of 31.3%. Net income for Q1 totaled $2.6 million. GAAP diluted earnings per share was $0.06 based on a fully diluted share count of 45,031,000 shares.

Turning to our cash flow and balance sheet. Cash and cash equivalents totaled $239.2 million at Q1. Accounts receivable net of reserves totaled $57.6 million at quarter end, with DSOs for trade receivables at 47 days. Inventories net of reserves increased 5.4% sequentially to $112.3 million. Annualized inventory turns decreased sequentially to $1.71. Operating cash flow totaled approximately $2.7 million for the quarter. Capital expenditures for Q1 totaled $7.4 million. We ended the quarter with a construction in progress balance primarily for manufacturing equipment of approximately $13.6 million and with approximately $17.8 million remaining to be spent. I’ll now address bookings and backlog. Q1 book-to-bill came in below 1 and with 1-year backlog decreasing 6.5% from the prior quarter, closing at $150.3 million.

As stated in our earnings call in February, 2024 is a year of uncertainty and opportunity. As of today, the quarterly and annual outcome in terms of top line and bottom line remains subject to a wide range of scenarios. Given the wide range of possible outcomes, we are unable to provide quarterly guidance until we are further along resolving uncertainties and capitalizing on opportunities. With that, Phil will provide an overview of recent market developments and then Patrizio, Phil and I will take your questions. I ask that you limit yourself to one question and a related follow-up so that we can respond to as many of you as we can in the limited time available. If you have more than one topic to address, please get back in the queue. Phil?

Phil Davies: Thank you, Jim. My remarks this quarter will build on Patrizio’s comments in the press release that we issued earlier today. As a reminder, Patrizio commented, as we confront challenges and pursue opportunities, 2024 will be seen as the year in which our product strategy, selective licensing of intellectual property and clarity of purpose secured Vicor’s future growth and profitability. So, let’s look at this from the point of view of our four business units and the growth opportunities each of them has with our top 100 customers. The current base of our business lies with the Industrial Business Unit and the Aerospace and Defense Business Unit. This year, we will release the production over 20 new high-power density products that leverage our new chip fab capabilities.

These products utilize advances in our topologies, control systems, components and packaging to raise the bar on power density and performance. From high-power regulated and fixed ratio DC/DC converters to new AC to DC products aimed at the aerospace industry to a new family of radiation-tolerant factorized power products for both LEO and MEO satellite constellation deployments. Customers from our top 100 are now designing advanced power systems for exciting new product launches that leverage electrification and autonomy in their systems. As part of our industrial and aerospace and defense strategies, we have also consolidated our distribution channel partners to large global distributors who have the customer base, the reach and the market status needed to achieve our broad market growth goals.

Our global channel partners, Arrow and Avnet are now placing a higher focus on power conversion and power management as a strategic business and a major growth driver due to the electrification trends in broad industrial and transportation markets. They clearly recognize the advantages and differentiation that our high-density power modules bring to their customer base. This quarter, we concluded a series of meetings with both channel partners, jointly laying out clear strategies and targets for growth by focusing on specific vertical markets with a clear set of identified target customers globally that map to the numerous new products that we will launch in 2024. Technology licensing will become an expanding segment of our business portfolio and an important parallel path to our product revenues across our four business units.

Licensing will enable more rapid scaling of our automotive market opportunity as we expand our relationships with OEMs and automotive Tier 1 suppliers. The automotive market, in particular, is aggressively looking for new technologies for both 48-volt zonal architectures, onboard charging and 800 to 48-volt powertrain conversion systems, which deliver high-power density and low weight for electric vehicles. OEM technology licensing partnerships are a way to monetize and rapidly scale this business. Our HPC customer engagements continue to expand with a set of customers with target production dates now from new innovative and higher-performance AI processes that will take full advantage of our Generation 5 vertical power delivery chipset. VPD is very strategic in achieving the power delivery, low power losses and performance required.