Vicor Corp (VICR) 2012 Q3 法說會逐字稿

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

My name is Jody, and I will be your operator for today.

At this time, all participants are in a 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 take this time to turn the conference over to your host for today, Mr. Jamie Simms, CFO; and Dr. Patrizio Vinciarelli, CEO of Vicor Corporation.

Please proceed, sir.

Thank you, Jody.

Good afternoon, everyone, and welcome to our conference call for the third quarter ended September 30.

I'm Jamie Simms, Chief Financial Officer; and with me here in Andover is Patrizio Vinciarelli, Vicor's Chief Executive Officer.

Today we issued a press release summarizing our financial results for the third 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 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 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 of the call will be available beginning at midnight tonight through November 7. The replay dial-in number is 888-286-8010 and the listener pass code is 36807908.

In addition, a webcast replay of the conference call will be available on the IR page of our website.

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

Patrizio?

Good afternoon and welcome to our third quarter earnings call.

As set forth in this afternoon's press release, Vicor reported third quarter net income of $191,000, essentially, breaking even on a per share basis versus $220,000, which trended up to $0.01 per diluted share for the second quarter of 2012.

For the third quarter 2011, we had $1,082,000, or $0.03 per diluted share.

Third-quarter performance was in line with recent expectations and consistent with last quarter's results reflecting ongoing weakness in certain markets and geographies and slower than expected growth from new initiatives and new opportunities.

As I've communicated throughout the year in prior earnings conference calls and at our annual shareholders meeting in June, we are committed to our strategy despite economic challenges that have led to our fourth consecutive quarter of essentially break-even performance.

We are staying our strategic course as we are confident that our assumptions are correct and present headwinds are temporary.

In the interim, our financial performance has been supported by the stability of our traditional brick business, which is driven by diverse global customer base and a highly-efficient (inaudible) manufacturing process.

Third quarter was similar to the second quarter in that incremental progress was made with major new OEM customers in terms of finalizing new design wins and for some OEMs for which the new product designs are progressing, negotiating supply agreements.

We have received initial orders associated with the first Intel VR12 datacenter opportunity and expect to start shipping these products in volume starting in 2015 when order volume should begin a sustained ramp.

This direct 48 volt to processor VI chip solution consisting of a PRM regulator and a VTM current multiplier delivers 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 three times smaller than competitive solutions.

We expect this application to be a meaningful source of revenue for 2015 and to pave the way for similar solutions involving other customers.

Designing activity associated with other new products, notably our intermediate bus converters, is picking up and other business development activities in new markets such as communications, automotive and lighting gained momentum within the quarter, providing confidence in forecast for improved bookings and shipments starting in 2015.

During the quarter, we added personnel and infrastructure to our new footprints in Shanghai, China, and Bangalore, India.

Success in Asia and particularly in China and India is critical for our OEM-based strategy and we're focusing resources across the region.

Also during the quarter, we made progress toward the release of several important new products and anticipate important announcements through the coming months and quarters.

Our push to complete development of new AC to DC products using our double-chip PFM is approaching closure.

Recall that the double-chip PFM is an isolated converter with power factor correction and an early entry in a long-term product strategy to provide unprecedented performance from the wall plug to the point of load.

While we suffer setbacks in bringing this first AC to DC power component to market, we have made progress with other PFMs in panel molded chip packages and are confident in long-term value proposition of our highly anticipated AC to DC product line.

We also continue to make progress with an expanding range of DCM DC to DC converters addressing broad market requirements for input voltages ranging up to 430 volts.

I've spoken to the opportunity in low electric or hybrid vehicles about which Vicor remains enthusiastic with a dedicated industry team focused on OEMs and their Tier 1 suppliers.

We're also pursuing development of multiplicity of DCM platform variants using a new panel molded packaging technology capable of differentiating the performance in applications across our new target markets as well as our established markets including industrial and transportation.

Speaking of panel molding, we have provided engineers samples of DCM VI chips in this new packaging technology and they are aggressively pursuing completion or development of large and small platforms supporting PFM, BCM, VTM, and DCM functionalities.

As I previously highlighted, panel molded packages enable unprecedented levels of performance in terms of both power density and high efficiency while providing a level of manufacturing cost effectiveness necessary for Vicor to succeed in cost-sensitive high-volume applications.

Panel molded DCM, PFM, BCM and VTM designs will be important contributors to the realization of our strategy.

Vicor had an exciting quarter creating market awareness, initial momentum for its first product line of [system based] point-of-load regulators.

Industry trade publications have given the new Cool-Power System-in-Package, or SiP, regulators extensive coverage given the substantial pro forma differentiation.

Our distribution partners are receiving strong interest in these products which as standard products are well suited for the distribution channel.

At the upcoming Electronica trade show held in Munich this November, Vicor anticipates introducing its next wave of regulator products in the Cool-Power line, which we expect to be expanded throughout 2015.

Picor's point of load strategy is a very important element of our overall growth strategy.

We are selling Picor regulators and VI chip converters as stand-alone products as well as incorporating them into complete power system solutions.

We believe an important element of our own value proposition is the value-add to the customer providing solutions ranging from stand-alone power conversion building blocks to complete turnkey power system solutions thereby expediting the design process and leveraging Vicor VI chip and Picor performance [differentiations].

To conclude my prepared remarks, I ask the investors to take the same pragmatic perspective [way of] regarding near-term performance.

Vicor is transitioning from a strategy focused on serving relatively less cost sensitive, low-volume, high-mix applications to more cost sensitive, high-volume OEM applications.

With the low cost structure of our new power components we're deploying a broad capability that leverages the flexibility of our unique power system methodology so there is large growth opportunities.

This will take time to come to full fruition.

When we first decided a new strategy course for Vicor, we understood that there would be market challenges as we started to establish ourselves with new customers in new markets.

We knew product development takes longer than planned as the innovative technologies of manufacturing processes that we were developing were not without risk.

Yes, we have traction in these new markets, but we have not yet generated bookings we have expected.

We have experienced some delays in new product introduction and given the sales cycles for new products, these delays have caused us to miss certain opportunities.

However, recent disappointments have largely been the consequence of generally soft economic conditions globally and the baseless legal claims of a competitor which has inhibited the growth of one of our most promising family of new products.

(inaudible) using telecom applications.

Weak demand across markets and geographies is likely to continue to handicap near-term performance.

We have the technology, the products and the product roadmap necessary to serve the needs of our targeted customers.

We have redefined our go-to-market infrastructure, expanding our internal capabilities and partnering with well-positioned distributors.

Jamie will share numbers with you that point to initial traction being gained with global distribution.

Unfortunately, we have encountered strong economic headwinds, just as we started expanding our strategy course.

We remain confident 2013 will be an improved year for us, supported by the visibility we have into customers' plans for uptake of existing and new products.

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

Jamie?

Thank you, Patrizio.

As disclosed, Vicor's consolidated revenue for the third quarter decreased to $53 million, compared to $55.5 million for the second quarter, representing a sequential decline of 4.5%.

The third-quarter figure compares to a revenue of $58.6 million for the third quarter of 2011, representing a decline of 9.6%.

International revenue increased 2.9% quarter to quarter, as an increase in BBU exports of modules primarily to Asia was offset by lower V-I Chip shipments also to Asia.

International revenue represented just over 52% of total revenue, up from 48.4% for the second 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 continues to be positive.

Recognized sell-through revenue totaled $745,000 for the third quarter compared to $367,000 for the second quarter, a sequential increase of over 100%.

Consolidated gross margin at 43.4% was essentially unchanged sequentially compared to 41.7% for the third quarter of 2011.

The year-over-year increase reflects the shift in relative mix made up of a higher percentage of higher-margin bricks as VI-Chip shipments declined.

As we've discussed, VI-Chip has increased efficiencies and lowered material cost, contributed to potentially higher product gross margins at sustained high volumes.

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

With the anticipated volumes of Q4 and 2013, we expect VI-Chip gross margins to improve somewhat.

In addition, our new panel molded packaging process should begin contributing to improved VI-Chip gross margins in late 2013 when volumes of panel molded products are expected to begin to ramp.

Consolidated operating expenses for the third quarter declined sequentially, largely reflecting lower variable costs associated with lower revenue.

Compensation, by far our largest expense, increased on a year-over-year basis reflecting the added headcount and activity in marketing and sales, but actually was lower sequentially due to a reduction in stock-option activity and associated compensation charges.

Total headcount at 1,044 was unchanged quarter to quarter.

Audit tax and related fees increased largely due to the timing of these efforts.

As earlier reported, net income for the third quarter was $191,000 compared to $220,000 for the second quarter of 2012.

Due to rounding, the third-quarter figure rounded down to zero while the second-quarter figure rounded up to $0.01.

The fully diluted share count at quarter-end was 41,815,000, up slightly from the prior quarter's 41,812,000.

Total one-year backlog at the end of the third quarter was $42.9 million compared to $42.2 million at the end of the second quarter.

Backlog schedule for shipment in Q4 at the end of Q3 totaled $33.5 million or 78% of total in contrast to the comparable second-quarter figure of $32.9 million, also representing 78% of total backlog.

BBU bookings were flat sequentially with improved orders and modules and activity in Japan offset by a decline in custom systems.

Our Vicor Custom Power business continues to experience uncertain and irregular order flow as a result of Pentagon budget issues.

Europe represents another area of weakness as the economic conditions in the region are now being felt in our order flow, which have been relatively resilient to the bad news coming out of the region.

VI-Chip bookings for the third quarter recovered somewhat, improving 33% over the very low second-quarter figure.

Bookings remain under the average quarterly level of 2011, reflecting the absence of orders from the canceled Blue Waters project and continued delays in orders associated with other supercomputer projects reliant on uncertain government funding.

We did receive some long-awaited orders from customers in the enterprise server and defense electronics fields during the quarter.

Vicor had 27% higher bookings for the third quarter, but activity remains low as Vicor's existing merchant offerings have often been sold side-by-side with VI-Chip products.

Given the strong reception of the Cool-Power line and point of load regulators with potential customers and the trade press, we are expecting bookings for these products to increase considerably in the new year.

Quarterly pre-tax income, including interest income and net effect of accounting for certain changes in the value of our investments, totaled $366,000, representing 0.7% of revenue versus the second quarter's $791,000, which represented 1.4% of revenue.

Our consolidated effective tax rate for the third quarter fell below the statutory level to 23.5% for the quarter.

It was 48.3% for the year-to-date period ended September 30.

The calculation of our tax provision and the derivation of our effective tax rate is made complex by our organizational structure.

We calculate each quarter's book provision for income tax expense on a year-to-date basis reflecting our assumptions for the full-year pre-tax income.

As of the second quarter, we were projecting higher full-year income which drove the second-quarter tax provision much higher.

We have reduced our forecast for the full year based on current performance and have factored this into our new books calculation.

I should note the calculation does not include any assumed benefit from current year's 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 cannot be certain Congress will do so before year-end.

To date, we estimate the loss of this credit has reduced our 2012 net income by approximately $200,000.

Quarterly cash flow from operations fell to $1.4 million from the prior quarter's $5.4 million, reflecting a net increase in working capital associated with an increase in accounts receivable.

Capital expenditures remain largely at the maintenance level of prior quarters, but did increase from $1.5 million to $2.1 million.

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

Cash increased by $2.5 million for the quarter.

Turning to the balance sheet, our receivables portfolio remains in excellent shape although days sales did increase to 51 days, up from the second quarter's level of 46 days.

However, this DSO increase was associated with a customer-specific accommodation, not with the deterioration of our overall receivables portfolio.

Consolidated inventories quarter to quarter were stable, increasing only $32,000, reflecting current booking and shipment activity.

Annualized inventory turns stood at 3.9, down slightly from 4.2 for the second quarter.

As of September 30, we had $84.8 million in cash and equivalents.

We also hold long-term investment securities carried at a book value of $6.9 million.

Included in this long-term total are auction rate securities with a par value of $6.1 million, carried at a book value of $5.1 million, representing 82.8% of par.

During the third quarter, we received redemptions at par, totaling $3 million.

So we have reduced our holdings of auction rate securities down to just two issues.

To date, we have received over $32 million of redemptions at par value and are confident the remaining balance will in time be also redeemed at par value.

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

I'll conclude with a brief update on our insurance litigation, which has come to a close.

After the third quarter ended in early October, Vicor settled its lawsuit against its insurance carriers and we received $1.975 million in cash in exchange for releasing carriers from further claims.

This amount will be recorded as a gain from litigation-related settlement in the fourth quarter of the year.

This concludes our prepared remarks and now we'll take questions.

Operator, Jody?

(Operator Instructions) John Dillon.

Hi, Patrizio.

I've got a question on the Intel VR opportunity.

I was wondering if you can just give us a little more color on that.

You said you've got some initial bookings on that.

Was that for production unit and was that in last quarter or is that -- did that come in October?

And how do you see this going forward, a little more granularity on that, if that's possible?

We expect it to start ramping early in 2013.

I think we're still in initial phase.

I don't know [if they cut as it is] full production, it's not.

I think it's preproduction, but full production is expected to start relatively soon.

Okay.

Okay.

Good.

And on the IBCs, is there anything new on the lawsuit?

You said they were picking up again.

Can you give us just a little more color on that?

So in the patent office, I believe at this point, all of the SynQor patents that have been asserted against us have been rejected, [those are effectively invalid] by each of, I think, four different examiners.

Some of this patents are already coming up for appeal by SynQor and that appeal would be heard by the patent board in due course.

There have been some [foul] developments involving the defendants in the earlier litigations called Artesyn litigation to fill out circuit, has taken on a review and has held in our argument regarding the appeal from the earlier [root] case, district court case.

So there is a lot of moving pieces.

But to boil it down to the key points what confidence that that all of the SynQor patents will be found to be invalid as all of the examiners that involved in each of four different reexaminations have found them to be -- we have very powerful arguments, stronger than the arguments that were advanced by the earlier defendants and we believe that on the strength of those arguments there will not be any balance.

Okay.

And it sounded like, you said in your opening remarks that the IBCs are picking up.

So I guess does that mean you're still getting new designs for them, but they haven't gone into production, is that what we can draw from that?

We have had growing level of production.

It has been muted by SynQor's concerted efforts to confuse and scare customers across the globe in this country, in Europe, in Asia.

We are documenting this evidence, and in due course we are going to bring to bear with respect to the damages caused to us.

So the effect has been a significant delay with respect to converting some interesting products [that are truly differentiated] and clearly different, non-infringing and superior in respect, efficiency, density the key attributes.

So the competitor, SynQor has been using a portfolio pattern that really boils down to a common denominator specification which did not project the capabilities they are now claiming.

They are asserting it in a way that we believe is holding appropriate, but in spite of that in part I believe because of their initial preliminary success against others, they have been really effective in scaling off some customers, but as we discussed in prior calls with the passage of time, I think more and more customers are seeing that the end product is more close and their pressing needs for density and efficiency are driving them to our differentiated solutions.

So back to the question of, you are still seeing new designs then even with this--

Yes, we are getting new designs and some of the design activity that have been going on earlier on that was put on hold is converting into programs that are going into production.

So, we're expecting to see a significant pickup in activity in 2013.

Unfortunately -- 2013, it could have been 2011, in terms of level of revenues and profits derived out of this product line.

Don McKenna.

Good afternoon.

I wanted to ask you, I have been hearing what I thought was 2015, then Jamie was using 2013.

Patrizio, am I misunderstanding you, were you talking of 2013, 1-3 in your prepared remarks?

2013, yes.

Apologies for the Italian Accent.

That -- it's okay, it's my ears.

The other thing I wanted to ask too was that in one of your recent press releases, it looks like you were preparing something with Emerson.

Is the Emerson a partner now?

I've always [felt them] as a competitor.

I don't that I would characterize this activity in any particular way other than there was a collaboration for a specific purpose that generated significant interest of the recent [shop].

Are they a customer?

I'm not going to say anything more than what I just said about that.

Okey-dokey.

Thank you.

Thank you.

Jim Bartlett.

Just getting back to John's question on IBC, there's one very large customer with that product, where do they stand?

Well, I think potentially, there is multiplicity of very substantial customers and I'm not going to provide any detailed information with respect to any one of them beyond giving you an overall perspective on IBC power line.

The revenues to date have been very disappointing for the reasons that we've discussed.

However, with the delay caused by the issues that I have summarized earlier in this call, we are seeing growing traction and we're expecting I think with the delay of a couple of years to start seeing the ramp that we anticipated beginning in 2011.

So this will have obviously a major impact with respect to the value and the position in terms of revenues and bottom line because as we all know revenues deferred is more than the impact of the revenues at a particular time.

It has the effect of shifting the whole revenue curve to the right.

So it's been a significant impact in terms of what we expected to be able to accomplish.

But at least with a significant delay, we're now seeing it beginning to get accomplished.

On the Intel VR12, you have one customer there.

What are the chances of getting more customers for that product?

The chances are very good.

I think it's a compelling solution that has a significant advantage in terms of reduction in energy cost and overall cost effectiveness accounting for all of the key considerations.

It's a high-performance solution.

It is a solution that enables efficient power distribution within [server firm] that can be achieved using 48 volt bus which is much more efficient than lower voltage buses.

We have seen a good deal of interest in it.

There has been a good deal of effort internally to [sky dive] in terms of projecting it to other customers in Asia and other parts of the world.

So we see a significant long-term opportunity in (inaudible).

You also mentioned the opportunity in automotive and the hybrids and (inaudible) could you sort of expand on the potential there and the timing?

So we are in a phase two contract with -- one customer having gone through phase one.

We have a lot of interest to buy other customers and potential customers.

We're also having discussion with suppliers who -- automotive OEMs.

So it's a multifaceted activity that involves a group, a team effort in the front end of the business as well as in terms of engineering activities with respect to taking DCMs as the building blocks of the power system into a complete power system for use in particular vehicles and also there is ongoing activity with respect to refining the performance of the core DCM building blocks.

So we invest a significant effort in this initiative because we see tremendous opportunity with it.

It is an area where our solution is differentiated in a number of key attributes including modularity, scalability, density, efficiency and overall cost-effectiveness.

So given those attributes, it represents a compelling alternative to traditional power systems that are anchored in older technology, custom developments that tend to be very bulky, not scalable, more unpredictable in a variety of ways.

So we're taking it to new potential customers and looking to build momentum over the next six to 12 months.

Would there be anything meaningful in terms of orders or revenues in 2013 or is this more 2014?

I think this is more of a 2014 and to be more specific about that probably second half of 2014.

Thank you.

(Operator Instructions) At this present time, gentlemen, you have no further questions.

Very well.

Thanks very much.

Talk to you in a few months.

Ladies and gentlemen, that concludes today's conference.

Thank you for your participation.

You may now disconnect.

Have a great day.