Vicor Corp (VICR) 2012 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Vicor earnings results for the three and six months ended June 30, 2012 conference call.

My name is Jody, and 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, Mr. James Simms, CFO of Vicor Corporation.

Mr. Simms, please proceed.

Thank you, Jody.

Good afternoon, and welcome to our conference call for Vicor Corporation's second quarter ended June 30, 2012.

I am Jamie Simms, Chief Financial Officer; and with me here in Andover is Patrizio Vinciarelli, Vicor's Chief Executive Officer; and Dick Nagel, our Chief Accounting Officer.

Today we issued a press release summarizing our financial results for the second quarter.

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

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

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

I also remind you various remarks we may 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.

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

Such risks and uncertainties are discussed in our most recent Forms 10-K and 10-Q filed with the SEC.

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 the call.

A replay will be available beginning at midnight tonight through August 7, 2012.

The replay dial-in number is 888-286-8010 and the listener pass code is 37541014.

In addition, a webcast replay of the conference call will be available on the Investor Relations page of our website beginning shortly after this call's conclusion.

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

Patrizio?

Good afternoon and welcome to our second quarter earnings call.

As set forth in this afternoon's press release, Vicor reported second quarter earnings of $0.01 per share, unchanged from first quarter earnings of $0.01 per share, but a decline from the $0.07 per share we earned for the second quarter 2011.

This quarter's performance was in line with recent expectations, given ongoing weakness in certain applications, markets, and geographies, and slower than expected growth from new opportunities.

As communicated in my remarks at our recent annual shareholders meeting, we are staying the strategic course despite headwinds, as we believe current conditions are temporary and our strategy remains solid.

Jamie will provide segment information, as well as income statement and balance sheet specifics, so I will focus my remarks to updating listeners on where we stand with our growth oriented new product initiatives.

As highlighted at our shareholders meeting, we have numerous new products in our pipeline.

We made two product announcements this month, and we expect to be sampling other significant products later this year.

Of particular note, we formally announced early this month at the Techno-Frontier conference in Tokyo, our direct 48 volt to processor VI chip solution for datacenter, cloud computing and telecom markets.

Compliant with Intel's VR12 voltage regulation specification, our PRM regulator and VTM current multiplier deliver the most efficient power conversion solution for Intel processor applications from a 48 volt input source, yielding more than 5% greater overall efficiency in a package that is three times smaller than competitive offerings.

This efficiency gain can reduce per-processor power loss by about 10 watts, or upwards of 30%, which can yield annual electricity savings of approximately $0.5 million across a datacenter with 30,000 on-site processors.

This is a valuable solution that goes beyond the typical cents per watt metric by which commodity power conversion solutions are traditionally measured.

This PRM, VTM capability, introduced for general availability at Techno-Frontier, is at the heart of our previously disclosed design-win in the datacenter segment.

We anticipate initial production on this later this year, with volumes ramping in 2015.

A week later, earlier this month, Vicor formally introduced the first product in its new line of high-integrated Cool-Power System-in-Package, or SiPS, point of load regulators.

I have spoken frequently about Picor's silicon-centric strategy and am particularly pleased to see that the concerted effort of the Picor team has resulted in a compelling product capability that should significantly contribute to Picor's merchant product strategy.

This initial family includes so-called back, or step-down, point of load regulators, integrating our proprietary Zero-Voltage switching control system.

These six products, the only standard back regulators on the market utilizing our unique switching technology, offer best in class density and up to 98% peak efficiency.

Picor's initial regulator line provides significant performance advantages over larger and less efficient modules offered from any of the established semiconductor vendors in the power management space.

This initial commercial release of step-down regulators will be followed in coming quarters by complementary step-up, or so-called boost, and buck-boost regulators, all expected to set new industry benchmarks in conversion efficiency and power density.

I regard the Cool-Power point of load strategy as a very important element, overall growth strategy.

This device is our general-purpose standard products, which are easy to use and offer very clear performance advantages.

As mentioned, we anticipate more important product introductions in coming months and quarters.

The design of the double chip PFM, which was necessary to their certain limitations, is nearing completion.

Later this year, we expect to be introducing a new PFM product line, including PFM's in so-called, power module chip packages, as components of a broad and far-reaching power component methodology.

Recall that the PFM is an isolated AC-DC converter with power factor correction.

Unlike low frequency AC-DC front ends using a PFC boost stage and a DC-DC down converter, the PFM converter provides isolation, voltage transformation, and PFC regulation in a single stage using advanced, high-frequency soft switching technology.

The PFM's very thin profile liberates system architects from the dimensional constraints of bulky power supplies.

Its small size, coupled with secondary-side energy storage at 48 volt, allows greater flexibility and creativity to design slim products with competitive advantages.

Similarly, we continue to make progress with an expanding range of DCM DC\DC converters.

Recall the DCM began as did the PFM, essentially as a double chip converter.

Our first commercial release DCM base product, announced in Q4 of 2011, was a 48 volt input V-I brick for telecom applications.

It was rated at 430 watts and over 800 watts per cubic inch power density.

In Q4 of 2012, we deliver prototype DCM units to an automotive OEM for use in pure electric and hybrid vehicles.

This DCM solution will be the building block of [318 to 14 volt] automotive power systems providing a greater than five-fold reduction in size and weight, versus existing competitive solutions offered by traditional automotive electronics vendors.

We have received strong interest from automotive OEMs and tier one automotive suppliers and continue work closely with interested parties.

During the first and second quarters, we continued the developmental range of DCM variance, capable of addressing improved market requirements for input voltages ranging from 6 volt to 430 volt.

More recent efforts have been in exploiting the benefits of the latest innovation in packaging technology to maximize the potential of our DCM engine.

As this (inaudible) shareholders' communications, we are getting close to introducing our first modules, utilizing a new packaging technology, which we previously referred to as panel molding.

In addition to attaining unprecedented levels of performance, in terms of power density and high efficiency, panel molded modules should provide the manufacturing cost effectiveness needed to succeed in cost sensitive high volume applications.

Panel molded DCM, PFM, BCM, and VTM modules will be important contributors in the realization of this strategy.

Expect to see these products used in commercial production in the coming quarters.

We anticipate these new products, as well as complementary Picor products, to begin to contribute to revenues starting in 2015, with robust growth anticipated for the following years.

We will be selling power regulators and VI chip converters as standalone products, and, along with other power management components incorporating them into larger Vicor power systems.

Remember that an important element of our overall value proposition is the value-added to the customer of providing solutions ranging from standalone power conversion building blocks to complete turnkey power system solutions, thereby expediting the design process and leveraging its yield of Picor, V-I Chip, and Vicor core competencies.

As I said before, these capabilities will expand our reach from relatively low volume, high mix applications to high volume OEM customers.

With the performance and cost effectiveness of our new power components, we are now putting in place a product offering that leverages the flexibility of our factorized power approach, and this will allow us to serve larger power growth opportunities with global OEMs.

As stated in today's press release, we remain confident 2015 will be an improved year for us.

The visibility we have into customers plans for uptake of existing and new products supports our confidence in the opportunities we have envisioned for some time.

But our realization of these opportunities has been set back by difficult economic environment, specifically in the case of defense electronics government budget limitations, and in the case of our IBC's, baseless legal challenges.

As already indicated, expected growth has also been pushed out due to product development delays, as certain products we had expected to make substantial contribution to revenues have been delayed, most notably the PFM.

However, we are making progress and are well-positioned for the market opportunities we have long anticipated.

Having mentioned our IBC power line, I should point out there have been no new developments in the legal front since we last updated our shareholders.

Our legal team continues to focus on these initiatives within the patent and trademark office and has thus far succeeded in having all of SynQor's asserted claims declared invalid on reexamination.

While SynQor is expected to appeal the decisions of each of four different patent office examiners, it is our view that SynQor's parent position is baseless, and in any case, not infringed by any of our products.

To conclude my initial remarks, I reiterate my dissatisfaction with recent performance.

However, I also reiterate my confidence in a bright future.

Some of the markets on which we historically focus are in recession.

And at least one, defense electronics, is suffering from budget constraints over known regulation.

The reasons for lower bookings and shipments are well understood.

And, we are seeking to address circumstances we believe we can influence.

However, until capital spending in our traditional industrial instrumentation, transportation, and defense markets recovers, we anticipate our core brake and configural business will be flat.

Given our understanding of softened demand in certain target markets for V-I Chip, notably the supercomputing market, we also expect V-I Chip revenues to be down through the balance of this year, despite the potential impact of new orders from the datacenter computing customer we have highlighted.

In terms of geographies, we are monitoring European conditions closely.

New order activity declined noticeably in Q2.

Similarly we are watching the Asia-Pacific region, particularly China, as many anticipate DCM growth in that geography.

To my fellow investors, I repeat my message of patience.

Vicor is executing on its strategy, albeit at a slower pace than hoped for.

However, we are increasingly well-positioned to take market share from competitors as we have a differentiated, compelling value proposition, based on expanding range of superior products and solutions.

I will now turn the call over to Jamie, who will provide specifics for the quarter.

Jamie?

Thank you.

I will now review our quarterly financial performance, providing some background and business unit specifics.

As disclosed, Vicor's consolidated revenue for the second fiscal quarter decreased to $55.5 million, compared to $59.7 million for the first quarter, representing a sequential decline of 7%.

The second quarter figure compares to revenue of $65.4 million for the second quarter of 2011, representing a decline year-over-year of 15.2%.

Both sequentially and year-over-year, revenue declines were spread across all business units.

International revenue fell 15% quarter-to-quarter, primarily due to the lower shipments of V-I Chip and Picor components to Asian contract manufacturers utilized by our significant supercomputing customer.

International revenue represented just over 48% of total revenue, down from 53% for the first quarter.

We experienced another sequential increase in recognized sell-through revenue associated with shipments by our stocking distributors, Future Electronics and Digi-Key.

The absolute figures are relatively small, but the trend is positive.

Sell-through revenue totaled $367,000 for the second quarter, compared to $281,000 for the first quarter, an increase of 31%.

Consolidated gross margin increased to 43.5% for the second quarter, compared to 41% for the first quarter and 41.8% for the second quarter of 2011, reflecting a shift in relative mix made up of a higher percentage of higher margin bricks as V-I Chip shipments declined.

As we have addressed, V-I Chip has made much progress in increasing efficiencies and lowering material costs, contributing to higher product gross margins.

However, at low volumes, overhead absorption is weak and higher incremental cost is reflected in V-I Chip's margins.

With the anticipated volumes of late in the year 2012 and into 2013, we expect V-I Chip will recover.

In addition, the improved manufacturing cost effectiveness of our new panel molding process should begin to be seen in V-I Chip gross margins in 2013, when volumes of panel molded products ramp.

Consolidated operating expenses for the second quarter declined sequentially, largely reflecting the fact that we incurred higher audit and reporting expenses in the first quarter of the year.

Legal fees were flat sequentially.

On a year-over-year basis, higher expenses associated with increased headcount and activity in marketing and sales were offset largely by lower expenses in G&A.

Net income for the second quarter was $220,000, compared to $326,000 for the first quarter of 2012, both representing, as discussed, $0.01 per share.

Net income for the second quarter of 2011 was $3.1 million, or $0.07 per share.

Total backlog at the end of the second quarter was $42.2 million, compared to $45.8 million at the end of the first quarter and $54.2 million at the end of 2011.

I should point out the decline in backlog is exaggerated by the magnitude of individual purchase orders associated with our V-I Chip supercomputer products.

These large orders increased backlog in prior periods, and the push out of new order flow has contributed to a steeper decline in recent quarters.

At the same time, our consolidated turns volume, meaning those orders booked in shipped within the same quarter, has increased over the past few quarters.

Backlog scheduled for shipment in Q3 at the end of Q2 totaled $32.9 million, or 78% of total backlog, in contrast to the comparable first quarter figure of $33.4 million, or 73% of total backlog.

BBU bookings increased almost 6% sequentially, with notable recovery in custom activity.

V-I Chip bookings for the second quarter fell back to the level of the fourth quarter, again reflecting the absence of orders from the canceled blue waters project and delayed order flow associated with other supercomputer projects.

Picor had slightly higher bookings for the second quarter, but activity remained slow as Picor's merchant offerings have often been sold side-by-side with V-I Chip.

Quarterly pretax income, including interest income and the net effect for accounting for certain changes in the value of our investment portfolio, totaled $791,000, representing 1.4% of revenue versus the first quarter's $517,000 which represented 0.9% of revenue.

Our consolidated effective tax rate for the second quarter rose well beyond the statutory level, but recall that our quarterly book provision for income tax expense is calculated on a year-to-date basis, reflecting our assumptions for full-year pretax income.

This higher than statutory rate, 69.2% for the quarter and 55.3% on a year-to-date basis, results from a combination of variables in a complex book tax calculation.

The primary and most simple reason for the unusually high effective rate is the low dollar level of full-year expected pretax income as the denominator in the calculation, which exaggerates the impact of a relatively high tax provision as the numerator.

In part, this relatively high tax provision reflects the complexity of our organization.

Year-to-date, state taxes have contributed to the higher provision as profits within one part of the organization may not be offset by losses in another in certain state income tax calculations.

In addition, we have not incorporated in our 2012 calculations any assumed benefit from current-year federal research and development tax credits, as Congress has yet to renew this credit for 2012, as has been the pattern in prior years, and, we have not be certain Congress will actually do so before year-end.

Another contributor to the high effective tax rate is the lower than expected consolidated pretax income for 2012.

For quarterly reporting, GAAP requires that companies annually estimate their effective tax rates for the year based on the forecast level of taxable income for the year.

While we have revised our full-year 2012 forecast to reflect currently weak performance, reflecting lower full-year pretax income than originally expected, the very involved calculation of our interim tax provision resulted in the exaggerated effective tax rate we have reported.

Cash flow from operations totaled $5.4 million for the second quarter, down from the first quarter $7.5 million, reflecting a net reduction in working capital that was $2 million lower than that experienced in the first quarter.

Capital expenditures remained at the maintenance level of prior quarters, totaling $1.5 million.

We do not anticipate a meaningful change in our capital expenditures in the coming quarters.

Cash increased by $4 million for the quarter.

Turning to the consolidated balance sheet, our receivables portfolio remains in excellent shape, with day sales at 44 days, up slightly from the first quarter's level of 44.

Consolidated inventories quarter-to-quarter declined $759,000, reflecting management of raw materials in light of reduced bookings.

Annualized inventory turns stood 4.0, down slightly from 4.2 for the first quarter.

As of June 30, we had $82.2 million in cash and equivalents, up from the first quarter-end figure of $78.3 million.

We also hold long-term investment securities carried at a book value of $9.6 million.

Included in this long-term total are auction rate securities with a par value of $9.1 million, carried at a book value of $7.7 million, representing 84.5% of par, unchanged from the first quarter.

Since the failure of the auctions by which these securities were priced in February of '08, we have received over $29 million in redemptions at par and are confident the remaining balance will, in time, be redeemed at par.

In the meantime, we receive interest at rates more favorable than we would otherwise obtain in the open market.

Final note, an update on insurance litigation.

As disclosed last quarter, on March 16, 2012, the US Court of Appeals vacated a 2009 judgment in our favor associated with our lawsuit against certain of our insurance carriers with respect to the Ericsson settlement.

We had been awarded approximately $16.5 million in the original ruling, which the insurers appealed.

The appeals court has remanded the case for a new trial.

We continue to evaluate circumstances and alternatives available to us.

This concludes management's prepared remarks, and we will now take questions from the listeners.

Jodi?

(Operator Instructions)

Jim Bartlett, Bartlett Investors.

Yes, could you give us some indication of the level of your defense business now and, on a relative base, what is happening so far this year in comparison to last year?

I will not quantify the percentage, but in relative terms, it has been under pressure.

And that pressure is not about to relent until there is a solution to the budget constraints, particularly related to this whole cliff that is forthcoming.

So, we don't see any near-term relief likely not until after the upcoming elections.

In that regard the outlook for new defense electronics orders that might help out in some your defense business.

What is the outlook there, either later this year or early next year?

Until the general cloud that they reference lifts, and certainly will have to lift, given the ramifications of that constraint.

It is hard to have a specific forecast.

I think in general terms, we are continue to do well in terms of penetration with our traditional bricks, early generations of products which have a very pervasive acceptance in the defense market.

We are also doing well with V-I Chip designing and activity.

We won some significant programs using higher density high-efficiency V-I Chip based solutions and that activity is ongoing.

So, it is hard for us, obviously, to predict the evolution of the market, particularly in the very short term.

But from a different perspective, with respect to market share, I will say that our market share is expanding, particularly as we more and more effectively deploy next generation solutions leveraging the more advanced technology of V-I Chips and eventually Picor products.

Could you give some sort of a size of the buck regulator market of what kind of opportunity of this is that where you might hope to sell in buck regulators both earlier and later, and the type of products that you would be displacing?

Yes, that opportunity is very substantial.

It is quite substantial, let's say, on the scale of Vicor as a whole.

It is particularly substantial when you look at the aggregate opportunity that goes beyond the specific reference you made to buck regulators.

You'll recall that the complete and comprehensive offering that Picor is executing on and about to deliver involves more than buck regulators, involves buck devices as the six devices that we recently introduced.

Boost devices, buck-boost devices, and it involves entries with voltage capability beyond the voltage capability of the initial family of products that were very recently introduced.

So, as we look at that all capability, at high voltages, lower voltages with the ability to regulate up and down and sideways, and the differentiation of these products and their objective figures are met and the ability to compete against the established competitors, such as [Alliant] Technology, TI, and others that have historically played the major role in this market.

We see tremendous opportunity, and we see the opportunity furthering by the ability to deliver a power solution that go beyond the point of load where these kinds of regulators typically operate because unlike the competitors I referenced, we will have a wherewithal that spans the power processing requirements from the wall plug to the point of load.

And, that is a very unique value proposition to customers.

Thank you.

(Operator Instructions)

At the present time, you have no more questions.

Very well.

Thank you very much.

We will be talking to you in three months.

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.