Vicor(VICR) - 2023 Q4 - Annual Report

Interest Rate and Currency Exposure - The company estimates a $30,000 change in annual interest income for every 100 basis point change in interest rates in 2023[212] - A 10$48,000 as of December 31, 2023[213] - The company's functional currency for most subsidiaries is the U.S. Dollar, except for VJCL, which operates in Japanese Yen[213] - Foreign currency losses were $(336,000) in 2021,$(653,000) in 2022, and $(161,000) in 2023[251] Investments and Financial Instruments - The company holds a long-term investment portfolio with a single auction rate security valued at$3,000,000, which has experienced failed auctions since February 2008[211] - The company's cash and cash equivalents are primarily in cash accounts, money market securities, and U.S. Treasury securities, with limited exposure to interest rate fluctuations[211] - The Company holds a long-term investment in a Failed Auction Security with a par value of $3,000,000 and an estimated fair value of$2,530,000 as of December 31, 2023[302][306] - The Failed Auction Security had an unrealized loss of $470 thousand as of December 31, 2023, compared to$378 thousand in 2022[308] Inventory and Valuation - Approximately 83% ($88.7 million) of the company's total inventory balance is comprised of raw materials[223] - The company's inventory valuation process considers backlog, historical consumption, and expected market conditions to assess net realizable value[223] - Inventories are valued at the lower of cost (FIFO method) or net realizable value, with excess, obsolete, or unmarketable inventory written down to net realizable value[263][264] - The Company's inventories as of December 31, 2023, totaled$106,579 thousand, with raw materials accounting for $88,716 thousand, work-in-process at$10,525 thousand, and finished goods at $7,338 thousand[301] Tax and Valuation Allowances - The company has a valuation allowance of$52.3 million against domestic deferred tax assets due to uncertainty in realization[227] - The Company recorded an Other current asset of $13,248 thousand for the Advanced Manufacturing Investment Tax Credit (ITC) receivable, expected to be received as a cash refund after filing the 2023 tax return[320] Financial Performance and Metrics - Total assets increased to$594.9 million in 2023 from $536.9 million in 2022, reflecting growth in cash and cash equivalents, inventories, and other current assets[232] - Net revenues for 2023 were$405.1 million, a slight increase from $399.1 million in 2022, with a gross margin of$204.9 million, up from $180.6 million in 2022[235] - Consolidated net income for 2023 was$53.6 million, significantly higher than $25.4 million in 2022, driven by improved operational efficiency and reduced litigation-contingency expenses[235] - Cash and cash equivalents rose to$242.2 million in 2023, up from $190.6 million in 2022, supported by strong operating cash flow of$74.5 million[241] - Research and development expenses increased to $67.9 million in 2023 from$60.6 million in 2022, reflecting continued investment in innovation and new technologies[235] - Total liabilities decreased to $53.8 million in 2023 from$72.6 million in 2022, primarily due to reductions in accounts payable and short-term deferred revenue[232] - Net cash provided by operating activities in 2023 was $74.5 million, a significant improvement from$22.9 million in 2022, driven by higher net income and better working capital management[241] - Property, plant, and equipment investments totaled $33.5 million in 2023, down from$64.0 million in 2022, indicating a shift in capital expenditure priorities[241] - Basic net income per share attributable to Vicor Corporation increased to $1.21 in 2023 from$0.58 in 2022, reflecting stronger profitability[235] - Comprehensive income attributable to Vicor Corporation was $53.3 million in 2023, up from$25.8 million in 2022, driven by higher net income and improved foreign currency translation impacts[237] - Net income for 2023 was $53.595 million, compared to$25.446 million in 2022 and $56.625 million in 2021[244] - Total comprehensive income for 2023 was$53.299 million, compared to $25.728 million in 2022 and$55.472 million in 2021[244] - Stock-based compensation expense increased to $12.869 million in 2023, up from$10.264 million in 2022 and $7.035 million in 2021[244] - Total equity increased to$541.106 million in 2023, up from $464.336 million in 2022 and$423.905 million in 2021[244] - Retained earnings grew to $296.674 million in 2023, compared to$243.079 million in 2022 and $217.633 million in 2021[244] - Accumulated other comprehensive loss was$(1.273 million) in 2023, $(988,000) in 2022, and$(1.328 million) in 2021[244] - Issuance of common stock under employee stock plans totaled $10.602 million in 2023,$4.439 million in 2022, and $10.243 million in 2021[244] - Net income attributable to Vicor Corporation was$53,595,000, $25,446,000, and$56,625,000 for the years ended December 31, 2023, 2022, and 2021, respectively[293] - Basic net income per share was $1.21,$0.58, and $1.30 for the years ended December 31, 2023, 2022, and 2021, respectively[293] Revenue Recognition and Customer Concentration - Revenue from Advanced Products is concentrated among a limited number of customers, with one customer accounting for 12.0$7,568,000 and $5,328,000 in revenue from deferred revenue during the years ended December 31, 2023 and 2022, respectively[284] Warranty and Advertising Expenses - The company offers a two-year warranty for most products, with extended warranties for certain products, and provides for estimated warranty costs at the time of revenue recognition[275] - Advertising expenses were$3,730,000, $3,786,000, and$2,994,000 in 2023, 2022, and 2021, respectively[288] Property, Plant, and Equipment - Property, plant, and equipment investments totaled $33.5 million in 2023, down from$64.0 million in 2022, indicating a shift in capital expenditure priorities[241] - The Company's property, plant, and equipment had a net balance of $157,689 thousand as of December 31, 2023, with depreciation expense of$17,174 thousand for the year[317] Intangible Assets and Software Costs - The Company's intangible assets, including patent costs, totaled $192 thousand as of December 31, 2023, with amortization expense of$66 thousand for the year[321][323] - The Company had $11,712 thousand of capitalized internal-use software costs as of December 31, 2023, which have not yet been amortized[322] - The company capitalizes internal-use software costs, with$11,712,000 and $3,202,000 in capitalized costs as of December 31, 2023 and 2022, respectively[274] Stock-Based Compensation and Options - Outstanding stock options as of December 31, 2023, totaled 2,555,242 with a weighted-average exercise price of$43.51 and a weighted-average remaining contractual life of 3.90 years[352] - The total intrinsic value of outstanding options as of December 31, 2023, was $27,948,000[352] - The weighted-average fair value of Vicor options granted in 2023 was$19.56, compared to $26.53 in 2022 and$39.27 in 2021[355] - The total intrinsic value of Vicor options exercised in 2023 was $14,396,000, with$7,798,000 in cash received from exercises[354] - The total grant-date fair value of stock options granted in 2023 was $17,957,000[354] - Unrecognized compensation cost related to unvested awards as of December 31, 2023, was$23,179,000, expected to be recognized over a weighted-average period of 2.1 years[355] - The company applied an annual forfeiture rate of 5.00% in 2023, estimating approximately 86% of options would vest[351] Leases and Legal Matters - The company's leases have remaining terms ranging from less than one year to just over 11 years, with no variable payments or residual value guarantees[361] - The District Court denied SynQor's motion for judgment as a matter of law and the company's motion for judgment with respect to its defenses of equitable estoppel and waiver[384] Internal Controls and Audits - The company's internal control over financial reporting was audited and received an unqualified opinion as of December 31, 2023[219] - The company's consolidated financial statements for 2023 were audited and found to be in conformity with U.S. GAAP[218] - The company's disclosure controls and procedures were deemed effective as of December 31, 2023, at the reasonable assurance level[390] Government Grants and Market Focus - Government grants are recognized when the company has reasonable assurance of compliance and receipt, with asset-based grants reducing future depreciation and income-based grants reducing related costs[265] - The company's principal markets are large OEMs, ODMs, and their contract manufacturers, as well as smaller, lower volume users distributed across several major market areas[247]