Vicor Corp (VICR) 2009 Q4 法說會逐字稿

Good day, ladies and gentlemen and welcome to the Vicor earnings results for the fourth quarter and year end December 31st 2009 conference call.

I will be your operator for today.

At this time, all participants are in listen-only mode.

Later we will conduct a question-and-answer session.

(Operator Instructions).

As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the conference over to your host for today, James Simms, Chief Financial Officer.

Please proceed.

Thank you, Jennifer.

Good afternoon and welcome to Vicor's earnings conference call for the period ended December 31st, 2009.

I am Jamie Simms, Chief Financial Officer and with me today is our Chairman, President and Chief Executive Officer, Patrizio Vinciarelli, and Dick Nagel, our Chief Accounting Officer.

Earlier this afternoon, we issued the press release outlining our financial results for fiscal year 2009 and the fiscal fourth quarter.

This press release is available on the investor page of our website, VicorPower.com.

We also have filed a Form 8-K with the Securities and Exchange Commission in association with issuing this press release.

Before we begin, I remind all of you today's conference call is being recorded and is the copyrighted property of Vicor Corporation.

Any rebroadcast, reproduction or other transmission of this conference call in whole or in part without the prior written consent of Vicor is prohibited.

In addition, as always, I also remind you various remarks we may make during this call about future expectations, trends, plans and prospects for the Company and its businesses constitute forward-looking statements for purposes of the Safe Harbor Provisions under the Private Securities Litigation Reform Act of 1995.

Forward-looking statements are denoted by such words as will, would, believe, should, expect, outlook, estimate, plan, anticipate and similar expressions that look toward future events or performance.

These forward-looking statements merely reflect our current beliefs, expectations and estimates which we share with you during our quarterly conference calls.

Forward-looking statements are based on current information that by its nature is dynamic and subject to rapid and even abrupt changes.

Our forward-looking statements are subject to risks and uncertainties which may cause actual results to differ materially from those projected or implied in our statements.

Such risks and uncertainties are discussed in today's press release as well as our most recent reports on form 10-K and 10-Q filed with the SEC.

A replay of this conference call will be available beginning shortly upon its conclusion through March 24th, 2010 by calling 888-286-8010 and using the passcode 78714591.

In addition, a webcast replay of the conference call will be available on the investor relations page of our website beginning shortly upon its conclusion.

This replay will also be available through March 24th, 2010.

Please note the information provided during this conference call is accurate only as of the date of the call.

Vicor undertakes no obligation to update any of the statements made during this call and you should not rely upon them after the conclusion of this call.

Patrizio and I each have prepared remarks after which we will each take your questions.

Patrizio.

Thank you, Jamie.

Good afternoon, everyone and welcome to our earnings call for the year and quarter ended December 31st, 2009.

I am pleased to report that Vicor's revenue and income grew from the third to the fourth quarter and that our profitability has improved for three consecutive quarters, reflecting improved efficiencies.

Despite continued economic uncertainty worldwide, we exited the year with momentum in all of our business segments and are looking forward to 2010.

Jamie will address the specifics of our consolidated income statement and balance sheet in his remarks.

I will now address briefly the performance of our three primary business units.

For the fourth quarter, the big business unit revenues totaled $46.6 million, representing an increase of 5.1% on a sequential quarterly basis.

We experienced strength in our [brake] power components business with growing revenues in bookings and encouraging strength arising from the recovery in Asia.

For the year, our [parts] systems business grew almost 20% offsetting weakness elsewhere.

Subject to sustained recovery in the general economy, the outlook for 2010 is positive.

Turning to V-I Chip, fourth quarter revenues before inter company [nation] declined to $3.8 million from $4.5 million for the third quarter.

As previously discussed, V-I is in its early stages of market adoption with new customers and applications ramping into production in ways that make comparison of quarter-to-quarter performance less predictable.

However, V-I Chip's demand for 2010 is expected to rise by substantial multiple and this is justified a major expansion in factory capacity.

Capital expenditures incurred during the second half of 2009 [were also shaded] with a nearly threefold increase in V-I manufacturing capacity.

This additional equipment is now in place and will be used to meet anticipated volumes later this year.

V-I Chip's outlook for growth rate in 2010 is strong.

New families of AC input and DC input to V-I Chip power components to be introduced throughout this year are expected to further advance industry benchmarks for power advancements and efficiency.

These new products will expand the reach of V-I Chip technology across major end markets and plant additional seeds for long-term growth.

Aside from expanding the V-I Chip power component paradigm, these advanced components will also bring about a significant growth opportunity for our brake and configural parts system products which will leverage our V-I Chip in size and strategy by incorporating these components into new [bricks] and system level products.

As we increase volume, we are also focused on gross margins.

We have discussed on earlier calls the expected impact of increased production on V-I Chip margins.

To date, we have been absorbing a great deal of manufacturing overhead across relatively low [spiked up] volumes.

Clearly [averting] low volumes, we have incurred high unit material costs.

We continue to focus on the costs of manufacturing, both in terms of materials and efficiencies of our processes.

As volumes grow through 2010, we expect our efforts to drive efficiencies up and costs down which will result in significant improvement in V-I Chip profitability.

Picor, our fabulous [C-com bay] department components business unit experienced increasing revenues for the fourth quarter and the year.

Picor is still relatively small in absolute terms, but a key element of our overall establishment.

Picor continues to make progress with [hypocar] customers, and with new products due out later this year will also advance key industry benchmarks while expanding a V-I Chip, brick and configurable total power system capabilities.

Vicor's outlook for growth rate in 2010 is also strong.

This concludes my prepared remarks.

I will now turn the call over to Jamie.

Jamie.

Thank you.

As set forth in our press release this afternoon, consolidated revenue for the fourth quarter totaled $49.1 million compared to $47.8 million for the third quarter, representing a sequential increase of approximately 2.9%.

For 2009, revenue totaled $198 million which was a decline of approximately $3.6 million from the $205.4 million generated in 2008.

International sales as a percentage of consolidated revenue were steady year-over-year at approximately 40.5% in 2009 and 41.7% in 2008.

During the fourth quarter, international revenue increased to 45.4% of consolidated revenue, up from 41.8% for the third quarter.

In absolute terms, international revenue increased to 11.9% sequentially from third to fourth quarters.

Recall that we sell in dollars worldwide with the exception of Japan.

Therefore, our international sales can benefit from a weakening dollar.

However, since there was not a pronounced move in the relative value of the dollar during the second half of the year, the increase in international revenue is attributable to recovery in certain markets, notably Asia and to a lesser extent Europe.

Our consolidated book-to-bill ratio for the fourth quarter of 2009 was 1.16 to one compared to 1.19 to one for the third quarter.

Backlog at the end of the fourth quarter was $58.5 million compared to $50.5 million at the end of the third quarter, an increase of 15.8%.

During the fourth quarter, we saw improved conditions in our markets.

The BBUs book-to-bill ratio was steady quarter over quarter while we experienced strong growth in bookings and V-I Chip as customers began to place orders for 2010.

This is not necessarily mean the fourth quarter increase in backlog is representative of a trend.

As discussed during previous conference calls, management does not consider the quarterly book-to-bill ratio nor comparisons of quarter-end backlog to be definitive indicators of the Company's forward revenue, as the timing of large orders and shipments can skew these metrics one way or the other.

Nevertheless, the nature and mix of our order flow for both BBU and V-I Chip during the fourth quarter were encouraging.

Consolidated gross margin as a percentage of revenue increased for the fourth quarter on a sequential basis to 45.8% from 43.3% for the third quarter.

For the full year, our consolidated gross margin rose to 44.2% from the 2008 level of 42%.

Our flexible manufacturing model and our ongoing expense control and efficiency initiatives contribute to our sustained profitability.

The sequential increase in gross margin for the fourth quarter was largely attributable, however, to shifts in product mix.

Consolidated operating income was $2.6 million for the fourth quarter, up from $1.9 million for the third quarter.

Our operating margin was 5.2% for the fourth quarter, up from 4% for the third quarter.

For 2009, operating income totaled $4.8 million, representing 2.4% of revenue.

In 2008, we incurred an operating loss of $1.1 million.

Net income for the fourth quarter was $2.3 million or $0.06 per diluted share, compared to net income of $1.7 million or $0.04 per diluted share for the third quarter of 2009.

For the year, net income totaled $2.8 million, representing earnings of $0.07 per share in contrast to the net loss of $3.6 million for 2008, which represented a loss of $0.09 per share.

For the fourth quarter, Vicor generated crash from operations of approximately $8.8 million, more than twice the $4.3 million generated in the third quarter.

After capital expenditures for the quarter of approximately $6.4 million and various financing and investing transaction and changes in working capital, cash and cash equivalence increased by $4.3 million for the quarter.

Total cash, cash equivalents and short-term investments inclusive of restrictive cash totaled $43.0 million at the end of the third quarter, up from $37 million at the end of the third.

Long-term financial investments, including our portfolio of student loan backed auction rate securities carried at an estimated market value, totaled $31.2 million at quarter end.

All of our auction rate securities continue to pay interest in accord with the terms of their indentures.

We look forward to the beginning of the third quarter of this year when we will execute the rights we have with UBS to receive par value of the $11.2 million of auction rate securities we had purchased through UBS.

Unfortunately, we have no insight into when we might expect to receive par value for the $19.6 million of set securities we purchased through Bank of America.

When Bank of America settled with various states' attorneys general in 2008, the bank repaid at par amounts invested by individuals, charities, government entities and small businesses.

However, large corporate investors were left out of the settlement.

Bank of America pledged to make best efforts to bring liquidity to the auction rate securities market, but we have seen no evidence of such efforts.

We have no debt, own all of our primary facilities and with cash and investments of $74.2 million at quarter end, representing 41% of total assets and 48% of total equity, believe we have more than adequate resources and liquidity to fund our operations.

This concludes management's prepared remarks so we're happy to take your questions.

Jennifer, please open the call for questions.

(Operator Instructions).

And your first question comes from the line of Jim Bartlett from Bartlett Investors.

Please proceed.

Yes, congratulations on a good finish to the year.

You made a reference to the V-I Chip and Picor gearing up to introduce some new [talent] of AC input and DC power components.

You mentioned Picor, said later I believe or maybe in the fourth quarter of the coming year, but could you give us a better understanding of what is happening with the PFM.

I believe you said last time that it was an engineering release in the fourth quarter and an introduction shortly.

Do you feel comfortable enough that that introduction could be in this current quarter?

We are very close, but I expect introduction this quarter.

We will be sampling to customers, alpha level customers in March.

And then we will be waiting a little while to compete certain steps prior to general introduction which should be coming, when it comes to basis line PFM, in or toward the end of the second quarter.

With respect to the outlook for V-I Chip and Picor, to your point, I made reference to exciting new products, in addition to input PFM product that was just referenced.

And focusing on V-I Chip for the moment, we have delivery products or what we call the double big platform that are related to the core PFM product that will address a broad range of DC input applications in a variety of application environments and market segments.

We have a number of those that are approaching engineering status over the next couple of months.

Picor is progressing with respect to an exciting prior road map with some very exciting new products coming to fruition in various ways later this year.

They are also enjoying some significant growth rates due to seeds planted in years' past with some of the early products.

For that reason, both Picor and V-I are looking forward to 2010 as being a significant year in terms of percentage growth rates.

Thank you.

Thank you.

Your next question comes from the line of [Ken Carona] from Wells Fargo Securities.

Please proceed.

Patrizio, you indicated that the rich gross margins were from a positive business mix.

I wonder if you could tell us what the current mix of products is.

Is it the same rich mix, so to speak?

I'm not sure that I would categorize it as you just have categorized it.

The progress in the margins to date is the south of continued focus on efficiencies and cost reductions, particularly on the [BBU] side of the enterprise, within the big business unit where actually we have enjoyed for quite some time relatively larger volumes in the economies of scale.

As suggested earlier through continuing efficiency improvements, we have been able to reduce the cost of the product with relatively stable average selling prices, leading to some margin expansion in gross margins.

When it comes to V-I Chip, as suggested earlier, we are now with a significant ramp in volume facing us this year, looking at significant opportunities for cost reductions arising from some initial economy of scale.

We obviously have had for quite some time the significant fixed costs.

And with that to absorb those costs across a relatively small volume of product in 2010 for the first time, we are going to have the opportunity to incrementally see lower per unit overhead costs and to some degree lower material costs associated with our volumes.

That's the next opportunity in terms of margin expansion.

Thank you.

And your next question is a follow-up question from Jim Bartlett.

Please proceed.

Yes.

The R&D was -- ticked up in the fourth quarter.

Is this a new level or could you just give us some guidelines on what the outlook for R&D expenditures in the coming year would be?

It would be relatively level.

We feel we are at the point where we have transitioned from R&D, big R, small D.

In years' past to -- starting last year R&D with a big D and a small R.

That R&D is much more productive in terms of the resources be able to generate a much larger number of new products.

We are comfortable with, in effect, being able to do a lot more in terms of new models, new entries within existing powerlines as well as the introduction of brand-new powerlines such as the PFM.

And the new product line we will be talking about in the next conference call, that further expands, as I suggested earlier, the overall rich applicability of the V-I Chips, both in existing markets and brand-new markets.

Leveled at the fourth quarter rate of $8.5 million?

I wouldn't put a lot of significance into relatively random changes from quarter to quarter.

There's not at this point a major trend up or down in terms of our R&D expenditures.

I think they are going to remain relatively flat in gross terms.

We are not looking to add a significant number of new people because, again, it was just a moment ago we think that with the resources we have, we are going to be able to now do a lot more.

Now, that's the comment there, but if we focus on V-I Chip, I think we (inaudible) somewhat different there, there might be significant addition to personnel.

But because of the fact of our obvious cap, this is a smaller gain fashion, it should not have an impact at the job offer level.

Last conference call you had mentioned that you were really prepared for every scenario on the ramp-up of orders because there is always a heightened degree of uncertainty with this type of major step-up.

How do you feel about that now?

I feel the same way.

Obviously, some time has gone by and the good news is that the equipment is in, it's been sold, it's functional.

We have been ramping production and making new record production rates per day for a while.

This (inaudible) to that extent and we are looking forward at the balance of the year as being a very exciting year.

And you said last time that you hoped to have 100% qualified by the end of the quarter, the old equipment that you had put in.

Is that the case?

Well, 100% is a big word.

It is essentially there.

I cannot say that everything is in place.

There is some relatively minor components that are still in the process of being installed, but for the most part, the major expansion relay out of the floor, additional capital equipment is second place.

As suggested earlier, we are ready now for sometime within the first quarter, taking advantage of it in terms of increased production rates.

Thank you.

Thank you.

And your next question comes from the line of John Dillon.

Please proceed.

Hi, Patrizio.

Congratulations on a good quarter.

Thank you.

A follow-on to the PFM questions.

What markets will be sampling the PFM?

They include consumer.

I'm not prepared to specifically answer that question, but in general terms, I will tell you that we have a handful of customers that are targeted for initial sampling.

Okay.

Before, we have talked about the LCD marketplace and some of that's gone away, but it sounded like you still had some opportunities in the high end.

Is this market going to be one of the markets that will be sampling?

Yes.

Okay.

You still feel that there's potential in the high-end LCD market for the Vicor chips?

Yes.

I will say that I am not at all concerned about the market opportunity for the PFM.

I'm not alone.

I think everybody that I have spoken to within the V-I chip organization feels that this is a very important product.

And likewise within BBU, it is felt that this is a key product in terms of expanding not just the V-I Chip, our component paradigm, but the brick and configural parts system paradigm.

We have a number of opportunities, both at the V-I Chip level and at the higher level of bricks and systems that can leverage the PFM in a variety of ways.

Yes, I agree, the market could definitely use a smaller, lighter AC to DC product, that's for sure.

What about -- we've talked in previous conference calls about possibility of the PFM and some laptop opportunities with the fast charging.

Is that still on?

I don't want here to get any more specific than I have in the past with respect to market opportunities for the PFM.

I think it's enough to say, to your point, that the electronic systems at large, mobile system or not, for the most part rely on AC power in order to operate.

The AC market is very substantial, is considerably larger than the DC market.

As we've discussed in the past, it's also important to look at these from the perspective of what I refer to as connectivity from the wall plugs to the points of load.

In other words, the V-I Chip capability is further enhanced by enabling customers to solve their par system requirements, not just in terms of point-to-load solution with the DC/DC power products, but also in terms of AC to DC solutions in the front end of the system.

To say it in different words, by enabling customers to solve through a V-I Chip to power component paradigm, the power system requirement from the start to the end, it gives them greater flexibility, greater performance, greater opportunity to achieve a competitive advantage, vis-a-vis their competition.

These products are not only the most advanced in terms of watts per cubic inch, but they are also the thinnest in terms of partial foot at the 30-watt level in a quarter inch thick device.

They offer a great deal again of flexibility and opportunity for OEMs in a variety of end markets.

And then, it's been delayed a couple of times.

I'm just wondering, are there any show stoppers at all or is there any --

No.

We are there.

We are just crossing out all of the check points.

At this point, we are just validating, going through a final comprehensive list of checks.

We've achieved our efficiency targets.

We have achieved other key targets that had eluded us in the past.

We are quite happy with the performance of the platform.

To the point that I suggested earlier, we have already invested significant amount of engineering in creating delivery products that -- both in terms of high input voltage DC to a variety of DC voltages and also in terms of further ability with lower input voltage applications in the same general package with the same control system architecture, same magnetics, same rolls of interfaces, further expand the market of opportunity for this (inaudible) technology beyond the base line of AC to DC applications.

And to be clear, that's not to take away from the key market opportunity associated with AC to DC.

It's to compliment it with other opportunities that are relatively DC derivatives from the engineering and development perspective.

Sounds great.

I can't wait to see it.

We are pretty much into the first quarter now.

I'm wondering if you can comment a little bit about your bookings.

How are you seeing your bookings so far?

They have remained strong.

To be honest with you, I'm frankly, impressed by the apparent strength of the recovery.

As you asked me some months ago, how confident I was with respect to the sustainability of the recovery, I would have been very skeptical.

That skepticism has not totally evaporated, but I must acknowledge the fact that so far, so good.

There hasn't been any sign of a slowdown in the rate of improvement.

Increased capacity for the for 3X, when do you expect those bookings to start hitting?

Have they started to hit yet or will they hit this quarter or next quarter?

Bookings, as implied by the book-to-bill late last year -- the second half of last year, third quarter, fourth quarter and so far this quarter.

The sum book-to-bill is clearly suggestive of a pickup in our business, so --

Yes.

I wasn't clear if that was in the brick orders or the V-I Chips because it seems like your capacity expansion was geared much towards the V-I Chip stuff.

It sounds like you're looking for really big server orders coming and I'm wondering if those have come yet.

We have had particularly in V-I Chip and Vicor not as much in absolute terms, but in relatively terms.

These are smaller gain sessions even though V-I Chip as this year progresses will get to be relatively speaking a lot more significant.

By the same token, the BBU order pattern has been as good as suggested in my prepared remarks.

I expect these to be a positive year, in terms of some modest revenue growth for BBU which is remarkable, given the longevity of that product line.

That's in effect before we get to see a significant impact from V-I Chip in size value that will not be all that significant until next year.

I think that a modest revenue growth for BBU this year, without much contribution from V-I Chip inside, would be a remarkable accomplishment.

But perhaps more importantly, planting this year the seeds for future growth -- for significant growth to V-I Chip strategy in some ways would be even more important.

And then you expect obviously a very big pickup in the V-I Chip business also on top of that, is what I think I'm hearing?

That's correct.

Great.

Thank you, Patrizio.

Thank you.

And your next question comes from the line of [Bruce Beatty from Tsarion Capital].

Please proceed.

My question has been asked already.

Thank you.

Thank you.

And your next question comes from the line of Ron Opel from [Mottside] Capital Management.

Please proceed.

Patrizio, do you expect that the lead -- the design-in times for the new AC/DC products will be similar to the design-in times for your traditional products?

They could be somewhat shorter depending on the application because of the nature of AC/DC power systems that tend to be in effect less embedded than the DC/DC products which tend to require a longer-term architectural designing.

That's not necessarily the case with the different systems.

But to be clear, we are not looking -- this is industrial product with relatively long gestation period.

I would not want you to expect immediate glorification.

I think it will take some time to see significant revenues, but it may be somewhat less than for the DC/DC products.

Six months plus or something like that?

I think that will be at the very short end of a reasonable range.

Yes.

And significant license revenue, your thoughts on that for this year?

I can tell you that we are actively pursuing some new opportunities, as well as waiting to see it turns out the seeds we planted in the past, and that's all I can say at this point.

There is a possibility this year for a significant -- not license revenue, but it won't necessarily be a [fait accompli].

Let me answer it this way.

I am of the belief that V-I Chip will derive very significant revenue over the next five to ten years from licensing income to compliment -- with respect to be strong, trial-based performance.

I think it may take some time to bring that about, but I have no doubt that we have a very significant opportunity there that goes far beyond the opportunity that we enjoyed quite some time ago with the brick power component paradigm and the much smaller part portfolio, intellectual property relating to that.

Here we have (inaudible) technology that is enabling customers in some initial markets to leave their competition behind, and that's being being honest, by their competitors and it's arising interest in taking a technology license.

I think over time the opportunity relating to that is considerably more significant than it was with bricks in the '80s and '90s where we in the aggregate earned many, many times of millions of dollars in licensing income.

I think the magnitude of this I P is significant.

It's full and the impact of the products are beginning to make in the marketplace warrant higher expectations.

Great.

Thanks very much.

And your next question is a follow-up question from John Dillon.

Please proceed.

Patrizio, you were talking earlier about ramping production rates daily and I think I heard the word record in there.

Did I hear right or could you comment on that a little bit more?

Yes.

We have had record production rates which is not unusual.

Obviously this is not in of itself something out of the ordinary.

That's to be expected, given that a lot of additional manufacturing equipment was deployed.

It's enough manufacturing equipment to bring about a threefold increase in capacity.

It doesn't take much of a leap of capabilities to -- with that achieve new production rates for quite some time.

That's pretty much what we expect to see happen over the next few quarters.

Right now, though, you're having production rates and you're shipping these products, too?

They are not sitting on a shelf or anything, it's not test products, it's actually --

Yes, it will not be a prudent thing to make the products and put them on a shelf.

Obviously, we are making them because we have demand for the products and that simply is in the book-to-bill ratio over the next few quarters.

Great.

Thank you very much.

Thank you.

And your next question is a follow-up question from Jim Bartlett.

Please proceed.

Yes.

Give us the revenues for Picor in the quarter?

You gave BBU and V-I Chip.

Okay.

As earlier reported, the BBU revenues were $46.6 million.

The V-I Chip revenues net of reconciliation were $3.8 million.

Intercompany .

I'm sorry?

In a sense the better way to look at this is including intercompany,

$3.8 million.

$3.8 million and do you have a Picor number?

Yes.

With the Picor number, there's also intercompany component to it and that's still relatively small, but growing quite rapidly.

That $3.8 million number is with intercompany, then?

Yes.

That includes sales of --

Right.

V-I Chip that get incorporated into higher level system-type products.

And what was it net?

Net it was about half of that.

$1.9 million.

Yes.

And Picor net then was, well, the balance.

Okay.

Yes.

And what are you expecting for a tax rate in 2010?

Jamie, you want to comment on on that or --

Calculating our division is always a challenge.

We are not in business of giving guidance, but I think that what we are showing for the fourth quarter in the mid-20s, high 20s, in terms of an overall provision rate is consistent with what you might expect by going forward.

For a while.

For a while.

For a while.

Okay.

I'm sorry.

You were interrupted.

Can you repeat?

Just one other question, a follow-up on these -- the new families that you were talking about gearing up to introduce the AC.

Could you give us a little more idea of what these might incorporate?

Not at this time.

We will wait until we have the actual product introductions, but those are forthcoming.

We have the first two to be released at the end of April, and then there's two more in May.

We will have probably introductions following the June release and as of the next conference call, we may be able to tell you quite a bit more.

Thank you.

Sir, there are no more questions at this time.

Thank you.

And we will see you at the upcoming shareholders meeting.

Have a good day.

Ladies and gentlemen, that concludes today's conference.

Thank you for your participation.

You may now disconnect.

Have a great day.

The applicable company has not participated in nor authorized the preparation of this transcript nor reviewed it for accuracy or otherwise and disclaims all responsibility for any inaccuracies that may appear herein.