0.010.010.010.01false2020Q30000751978--12-31The deferred tax assets associated with cumulative foreign currency translation gains and cumulative unrealized gains on available-for-sale securities are completely offset by a tax valuation allowance as of September 30, 2020 and 2019. Therefore, there is no income tax benefit (provision) recognized for the three and nine months ended September 30, 2020 and 2019.Denominator represents weighted average number of shares of Common Stock and Class B Common Stock outstanding.Options to purchase 265,725 and 130,027 shares of Common Stock for the three and nine months ended September 30, 2020, respectively, and 171,499 and 138,251 shares of Common Stock for the three and nine months ended September 30, 2019, respectively, were not included in the calculations of net income per share as the effect would have been antidilutive. 0000751978 2020-09-30 0000751978 2019-12-31 0000751978 2020-07-01 2020-09-30 0000751978 2019-07-01 2019-09-30 0000751978 2020-01-01 2020-09-30 0000751978 2019-01-01 2019-09-30 0000751978 2018-12-31 0000751978 2019-09-30 0000751978 2019-06-30 0000751978 2020-06-30 0000751978 us-gaap:AuctionRateSecuritiesMember 2020-09-30 0000751978 us-gaap:FairValueInputsLevel1Member 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Table of Contents
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
 
 
FORM
10-Q
 
 
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2020
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________________________
Commission File Number
0-18277
 
 
VICOR CORPORATION
(Exact name of registrant as specified in its charter)
 
 
 
Delaware
 
04-2742817
(State of Incorporation)
 
(I.R.S. Employer Identification No.)
25 Frontage Road, Andover, Massachusetts 01810
(Address of Principal Executive Office)
(978)
470-2900
(Registrant’s telephone number)
 
 
Securities registered pursuant to Section 12(b) of the Act:
 
Title of each class
 
Trading
Symbol(s)
 
Name of each exchange
on which registered
Common Stock, par value
 
$0.01 per share
 
VICR
 
The NASDAQ Stock Market LLC
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   
 
 Yes  
    No  ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation
S-T
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☑    No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule
12b-2
of the Exchange Act.
 
Large accelerated filer      Smaller reporting company  
Accelerated filer      Emerging growth company  
Non-accelerated
filer
      
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2
of the Exchange Act).    Yes  ☐    No  
The number of shares outstanding of each of the issuer’s classes of Common Stock as of
October
26
, 2020
was:
 
Common Stock, $.01 par value
     31,517,044  
Class B Common Stock, $.01 par value
     11,758,218  
 
 
 

Table of Contents
VICOR CORPORATION
INDEX
 
 
  
Page
 
Part I — Financial Information:
  
     
Item 1—Financial Statements (Unaudited)
  
     
  
 
1
 
  
 
2
 
  
 
3
 
  
 
4
 
  
 
5
 
  
 
7
 
  
 
20
 
  
 
34
 
  
 
34
 
  
     
  
 
36
 
  
 
36
 
  
 
37
 
  
 
39
 
  
     
  
     
  
     
  
     

Table of Contents
VICOR CORPORATION
Part I – Financial Information
Item 1 – Financial Statements
Condensed Consolidated Balance Sheets
(In thousands)
(Unaudited)
 
     September 30, 2020     December 31, 2019  
Assets
    
Current assets:
    
Cash and cash equivalents
   $  203,605   $ 84,668
Accounts receivable, less allowance of $82 in 2020 and $59 in 2019
     41,136     38,115
Inventories, net
     58,169     49,187
Other current assets
     6,872     7,096
  
 
 
   
 
 
 
Total current assets
     309,782     179,066
Long-term deferred tax assets, net
     189     205
Long-term investments, net
     2,591     2,510
Property, plant and equipment, net
     65,780     56,952
Other assets
     1,777     1,994
  
 
 
   
 
 
 
Total assets
   $  380,119   $  240,727
  
 
 
   
 
 
 
Liabilities and Equity
    
Current liabilities:
    
Accounts payable
   $ 11,911   $ 9,005
Accrued compensation and benefits
     13,248     10,410
Accrued expenses
     2,417     2,690
Short-term lease liabilities
     1,563     1,520
Sales allowances
     736     741
Income taxes payable
     62     57
Short-term deferred revenue and customer prepayments
     8,061     5,507
  
 
 
   
 
 
 
Total current liabilities
     37,998     29,930
Long-term deferred revenue
     813     1,054
Contingent consideration obligations
     265     451
Long-term income taxes payable
     575     567
Long-term lease liabilities
     2,880     2,855
  
 
 
   
 
 
 
Total liabilities
     42,531     34,857
Commitments and contingencies (Note 11)
   
Equity:
    
Vicor Corporation stockholders’ equity:
    
Class B Common Stock: 10 votes per share, $.01 par value, 14,000,000 shares authorized, 11,758,218 shares issued and outstanding in 2020 and 2019
     118     118
Common Stock: 1 vote per share, $.01 par value,
62,000,000
shares authorized 43,146,143 shares issued and 31,511,337 shares outstanding in 2020; 40,403,058 shares issued and 28,768,252 shares outstanding in 2019
     433     405
Additional
paid-in
capital
     326,026     201,251
Retained earnings
     149,815     143,098
Accumulated other comprehensive loss
     (203     (383
Treasury stock at cost: 11,634,806 shares in 2020 and 2019
     (138,927     (138,927
  
 
 
   
 
 
 
Total Vicor Corporation stockholders’ equity
     337,262     205,562
Noncontrolling interest
     326     308
  
 
 
   
 
 
 
Total equity
     337,588     205,870
  
 
 
   
 
 
 
Total liabilities and equity
   $  380,119   $  240,727
  
 
 
   
 
 
 
See accompanying notes.
 
-1-

Table of Contents
VICOR CORPORATION
Condensed Consolidated Statements of Operations
(In thousands, except per share amounts)
(Unaudited)
 
     Three Months Ended     Nine Months Ended  
     September 30,     September 30,  
     2020     2019     2020     2019  
Net revenues
   $ 78,112   $ 70,772   $ 212,274   $ 199,852
Cost of revenues
     44,765     37,770     121,278     106,647
  
 
 
   
 
 
   
 
 
   
 
 
 
Gross margin
     33,347     33,002     90,996     93,205
Operating expenses:
        
Selling, general and administrative
     15,212     15,443     47,036     45,846
Research and development
     12,032     11,507     38,197     34,433
  
 
 
   
 
 
   
 
 
   
 
 
 
Total operating expenses
     27,244     26,950     85,233     80,279
  
 
 
   
 
 
   
 
 
   
 
 
 
Income from operations
     6,103     6,052     5,763     12,926
Other income (expense), net:
        
Total unrealized gains on
available-for-sale
securities, net
     36     11     81     50
Less: portion of gains recognized in other comprehensive income
     (35     (10     (78     (47
  
 
 
   
 
 
   
 
 
   
 
 
 
Net credit gains recognized in earnings
     1     1     3     3
Other income (expense), net
     333     145     712     670
  
 
 
   
 
 
   
 
 
   
 
 
 
Total other income (expense), net
     334     146     715     673
  
 
 
   
 
 
   
 
 
   
 
 
 
Income before income taxes
     6,437     6,198     6,478     13,599
Less: Provision (benefit) for income taxes
     651     266     (249     805
  
 
 
   
 
 
   
 
 
   
 
 
 
Consolidated net income
     5,786     5,932     6,727     12,794
 
Less: Net income (loss) attributable to noncontrolling interest
     1     (5     10     8
  
 
 
   
 
 
   
 
 
   
 
 
 
Net income attributable to Vicor Corporation
   $ 5,785   $ 5,937   $ 6,717   $ 12,786
  
 
 
   
 
 
   
 
 
   
 
 
 
Net income per common share attributable to Vicor Corporation:
        
Basic
   $ 0.13   $ 0.15   $ 0.16   $ 0.32
Diluted
   $ 0.13   $ 0.14   $ 0.15   $ 0.31
Shares used to compute net income per common share attributable to Vicor Corporation:
        
Basic
     43,164     40,332     41,814     40,279
Diluted
     44,743     42,194     43,567     41,435
See accompanying notes.
 
-2-

Table of Contents
VICOR CORPORATION
Condensed Consolidated Statements of Comprehensive Income
(In thousands)
(Unaudited)
 
 
  
Three Months Ended
September 30,
 
 
Nine Months Ended
September 30,
 
 
  
2020
 
  
2019
 
 
2020
 
  
2019
 
Consolidated net income
  
$
5,786
 
  
$
5,932
 
 
$
6,727
 
  
$
12,794
 
Foreign currency translation gains (losses), net of tax (1)
  
 
84
 
  
 
(11
 
 
110
 
  
 
74
 
Unrealized gains on
available-for-sale
securities, net of tax (1)
  
 
35
 
  
 
10
 
 
 
78
 
  
 
47
 
 
  
 
 
 
  
 
 
 
 
 
 
 
  
 
 
 
Other comprehensive income (loss)
  
 
119
 
  
 
(1
 
 
188
 
  
 
121
 
 
  
 
 
 
  
 
 
 
 
 
 
 
  
 
 
 
Consolidated comprehensive income
  
 
5,905
 
  
 
5,931
 
 
 
6,915
 
  
 
12,915
 
Less: Comprehensive income (loss) attributable to noncontrolling interest
  
 
7
 
  
 
(6
 
 
18
 
  
 
13
 
 
  
 
 
 
  
 
 
 
 
 
 
 
  
 
 
 
Comprehensive income attributable to Vicor Corporation
  
$
5,898
 
  
$
5,937
 
 
$
6,897
 
  
$
12,902
 
 
  
 
 
 
  
 
 
 
 
 
 
 
  
 
 
 
 
(1)
The deferred tax assets associated with cumulative foreign currency translation gains and cumulative unrealized gains on
available-for-sale
securities are completely offset by a tax valuation allowance as of September 30, 2020 and 2019. Therefore, there is no income tax benefit (provision) recognized for the three and nine months ended September 30, 2020 and 2019.
See accompanying notes.
 
-3-

Table of Contents
VICOR CORPORATION
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited
 
     Nine Months Ended  
     September 30,  
     2020     2019  
Operating activities:
    
Consolidated net income
   $ 6,727   $ 12,794
Adjustments to reconcile consolidated net income to net cash provided by operating activities:
    
Depreciation and amortization
     8,175     7,647
Stock-based compensation expense, net
     4,286     2,292
Provision (benefit) for doubtful accounts
     23     (138
Increase (decrease) in long-term income taxes payable
     8     (1
(Decrease) increase in long-term deferred revenue
     (241     902
Gain on disposal of equipment
     (9     (23
Deferred income taxes
     16     24
Credit gain on
available-for-sale
securities
     (3     (3
Change in current assets and liabilities, net
     (3,742     (6,955
  
 
 
   
 
 
 
Net cash provided by operating activities
     15,240     16,539
Investing activities:
    
Additions to property, plant and equipment
     (16,837     (9,122
Proceeds from sale of equipment
     9     23
Decrease (increase) in other assets
     135     (37
  
 
 
   
 
 
 
Net cash used for investing activities
     (16,693     (9,136
Financing activities:
    
Proceeds from employee stock plans
     10,836     3,423
Proceeds from public offering of Common Stock
     109,681     —  
Payment of contingent consideration obligations
     (186     (198
  
 
 
   
 
 
 
Net cash provided by financing activities
     120,331     3,225
Effect of foreign exchange rates on cash
     59     44
  
 
 
   
 
 
 
Net increase in cash and cash equivalents
     118,937     10,672
Cash and cash equivalents at beginning of period
     84,668     70,557
  
 
 
   
 
 
 
Cash and cash equivalents at end of period
   $ 203,605   $ 81,229
  
 
 
   
 
 
 
See accompanying notes.
 
-4-

Table of Contents
VICOR CORPORATION
Condensed Consolidated Statements of Equity
(In thousands)
(Unaudited)
 
Three months ended
September 30, 2020
  
Class B
Common
Stock
 
  
Common
Stock
 
  
Additional
Paid-In

Capital
 
 
Retained
Earnings
 
  
Accumulated
Other
Comprehensive
Income (Loss)
 
 
Treasury
Stock
 
 
Total

Vicor
Corporation
Stockholders’
Equity
 
 
Noncontrolling
Interest
 
  
Total
Equity
 
Balance on June 30, 2020
  
$
118
 
  
$
431
 
  
$
320,988
 
 
$
144,030
 
  
$
(316
 
$
(138,927
 
$
326,324
 
 
$
319
 
  
$
326,643
 
Issuance of Common Stock under employee stock plans
  
     
  
 
2
 
  
 
3,449
 
 
     
  
     
 
     
 
 
3,451
 
 
     
  
 
3,451
 
Additional expenses associated with issuance of Common Stock in public offering (see Note 5)
  
     
  
     
  
 
(51
 
     
  
     
 
     
 
 
(51
 
     
  
 
(51
Stock-based compensation expense
  
     
  
     
  
 
1,640
 
 
     
  
     
 
     
 
 
1,640
 
 
     
  
 
1,640
 
Components of comprehensive income, net of tax:
  
     
  
     
  
     
 
     
  
     
 
     
 
     
 
     
  
     
Net income
  
     
  
     
  
     
 
 
5,785
 
  
     
 
     
 
 
5,785
 
 
 
1
 
  
 
5,786
 
Other comprehensive income
  
     
  
     
  
     
 
     
  
 
113
 
 
     
 
 
113
 
 
 
6
 
  
 
119
 
 
  
     
  
     
  
     
 
     
  
     
 
     
 
 
 
 
 
 
 
 
  
 
 
 
Total comprehensive income
  
     
  
     
  
     
 
     
  
     
 
     
 
 
5,898
 
 
 
7
 
  
 
5,905
 
 
  
 
 
 
  
 
 
 
  
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
Balance on September 30, 2020
  
$
118
 
  
$
433
 
  
$
326,026
 
 
$
149,815
 
  
$
(203
 
$
(138,927
 
$
337,262
 
 
$
326
 
  
$
337,588
 
 
  
 
 
 
  
 
 
 
  
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
Nine months ended
September 30, 2020
  
Class B
Common
Stock
 
  
Common
Stock
 
  
Additional
Paid-In

Capital
 
  
Retained
Earnings
 
  
Accumulated
Other
Comprehensive
Income (Loss)
 
 
Treasury
Stock
 
 
Total

Vicor
Corporation
Stockholders’
Equity
 
  
Noncontrolling
Interest
 
  
Total
Equity
 
Balance on December 31, 2019
  
$
118
 
  
$
405
 
  
$
201,251
 
  
$
143,098
 
  
$
(383
 
$
(138,927
 
$
205,562
 
  
$
308
 
  
$
205,870
 
Issuance of Common Stock under employee stock plans
  
     
  
 
10
 
  
 
10,826
 
  
     
  
     
 
     
 
 
10,836
 
  
     
  
 
10,836
 
Issuance of Common Stock in public offering, net (see Note 5)
  
     
  
 
18
 
  
 
109,663
 
  
     
  
     
 
     
 
 
109,681
 
  
     
  
 
109,681
 
Stock-based compensation expense
  
     
  
     
  
 
4,286
 
  
     
  
     
 
     
 
 
4,286
 
  
     
  
 
4,286
 
Components of comprehensive income, net of tax:
  
     
  
     
  
     
  
     
  
     
 
     
 
     
  
     
  
     
Net income
  
     
  
     
  
     
  
 
6,717
 
  
     
 
     
 
 
6,717
 
  
 
10
 
  
 
6,727
 
Other comprehensive income
  
     
  
     
  
     
  
     
  
 
180
 
 
     
 
 
180
 
  
 
8
 
  
 
188
 
 
  
     
  
     
  
     
  
     
  
     
 
     
 
 
 
 
  
 
 
 
  
 
 
 
Total comprehensive income
  
     
  
     
  
     
  
     
  
     
 
     
 
 
6,897
 
  
 
18
 
  
 
6,915
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
  
 
 
 
Balance on September 30, 2020
  
$
118
 
  
$
433
 
  
$
326,026
 
  
$
149,815
 
  
$
(203
 
$
(138,927
 
$
337,262
 
  
$
326
 
  
$
337,588
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
  
 
 
 
 
Three months ended
September 30, 2019
  
Class B
Common
Stock
 
  
Common
Stock
 
  
Additional
Paid-In

Capital
 
  
Retained
Earnings
 
  
Accumulated
Other
Comprehensive
Income (Loss)
 
 
Treasury
Stock
 
 
Total

Vicor
Corporation
Stockholders’
Equity
 
  
Noncontrolling
Interest
 
 
Total
Equity
 
Balance on June 30, 2019
  
$
118
 
  
$
403
 
  
$
196,698
 
  
$
135,849
 
  
$
(278
 
$
(138,927
 
$
193,863
 
  
$
453
 
 
$
194,316
 
Issuance of Common Stock under employee stock plans
  
     
  
 
1
 
  
 
1,715
 
  
     
  
     
 
     
 
 
1,716
 
  
     
 
 
1,716
 
Stock-based compensation expense
  
     
  
     
  
 
753
 
  
     
  
     
 
     
 
 
753
 
  
     
 
 
753
 
Components of comprehensive income, net of tax:
  
     
  
     
  
     
  
     
  
     
 
     
 
     
  
     
 
     
Net income
  
     
  
     
  
     
  
 
5,937
 
  
     
 
     
 
 
5,937
 
  
 
(5
 
 
5,932
 
Other comprehensive loss
  
     
  
     
  
     
  
     
  
     
 
     
 
 
—  
 
  
 
(1
 
 
(1
 
  
     
  
     
  
     
  
     
  
     
 
     
 
 
 
 
  
 
 
 
 
 
 
 
Total comprehensive income
  
     
  
     
  
     
  
     
  
     
 
     
 
 
5,937
 
  
 
(6
 
 
5,931
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
Balance on September 30, 2019
  
$
118
 
  
$
404
 
  
$
199,166
 
  
$
141,786
 
  
$
(278
 
$
(138,927
 
$
202,269
 
  
$
447
 
 
$
202,716
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
-5-

Table of Contents
VICOR CORPORATION
Condensed Consolidated Statements of Equity
(In thousands)
(Unaudited)
 
Nine months ended
September 30, 2019
  
Class B
Common
Stock
 
  
Common
Stock
 
  
Additional
Paid-In

Capital
 
 
Retained
Earnings
 
  
Accumulated
Other
Comprehensive
Income (Loss)
 
 
Treasury
Stock
 
 
Total Vicor
Corporation
Stockholders’
Equity
 
 
Noncontrolling
Interest
 
  
Total
Equity
 
Balance on December 31, 2018
  
$
118
 
  
$
402
 
  
$
193,457
 
 
$
129,000
 
  
$
(394
 
$
(138,927
 
$
183,656
 
 
$
434
 
  
$
184,090
 
Issuance of Common Stock under employee stock plans
  
     
  
 
2
 
  
 
3,421
 
 
     
  
     
 
     
 
 
3,423
 
 
     
  
 
3,423
 
Stock-based compensation expense
  
     
  
     
  
 
2,292
 
 
     
  
     
 
     
 
 
2,292
 
 
     
  
 
2,292
 
Other
  
     
  
     
  
 
(4
 
     
  
     
 
     
 
 
(4
 
     
  
 
(4
Components of comprehensive income, net of tax:
  
     
  
     
  
     
 
     
  
     
 
     
 
     
 
     
  
     
Net income
  
     
  
     
  
     
 
 
12,786
 
  
     
 
     
 
 
12,786
 
 
 
8
 
  
 
12,794
 
Other comprehensive income
  
     
  
     
  
     
 
     
  
 
116
 
 
     
 
 
116
 
 
 
5
 
  
 
121
 
 
  
     
  
     
  
     
 
     
  
     
 
     
 
 
 
 
 
 
 
 
  
 
 
 
Total comprehensive income
  
     
  
     
  
     
 
     
  
     
 
     
 
 
12,902
 
 
 
13
 
  
 
12,915
 
 
  
 
 
 
  
 
 
 
  
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
Balance on September 30, 2019
  
$
118
 
  
$
404
 
  
$
199,166
 
 
$
141,786
 
  
$
(278
 
$
(138,927
 
$
202,269
 
 
$
447
 
  
$
202,716
 
 
  
 
 
 
  
 
 
 
  
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
See accompanying notes.
 
-6-

Table of Contents
VICOR CORPORATION
Notes to Condensed Consolidated Financial Statements
September 30, 2020
(Unaudited)
1.
Basis of Presentation
The accompanying unaudited Condensed Consolidated Financial Statements of Vicor Corporation and its consolidated subsidiaries (collectively, the “Company”) have been prepared in accordance with generally accepted accounting principles for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Accordingly, these interim financial statements do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended September 30, 2020 are not necessarily indicative of the results that may be expected for any other interim period or the year ending December 31, 2020. The balance sheet at December 31, 2019 presented herein has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. For further information, refer to the consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form
10-K
for the year ended December 31, 2019 filed by the Company with the SEC on February 28, 2020 (“2019 Form
10-K”).
2.
Inventories
Inventories are valued at the lower of cost (determined using the
first-in,
first-out
method) or net realizable value. Fixed production overhead is allocated to the inventory cost per unit based on the normal capacity of the production facilities. Abnormal production costs, including fixed cost variances from normal production capacity, if any, are charged to cost of revenues in the period incurred. All shipping, handling and customs (e.g., tariff) costs incurred in connection with the sale of products are included in cost of revenues.
Inventory that is estimated to be excess, obsolete or unmarketable is written down to net realizable value. The Company’s estimation process for assessing net realizable value is based upon forecasted future usage which is derived based on backlog, historical consumption and expected market conditions. If the Company’s estimated demand and/or market expectation were to change or if product sales were to decline, the Company’s estimation process may cause larger inventory reserves to be recorded, resulting in larger charges to cost of revenues.
Inventories were as follows (in thousands):
 
     September 30, 2020      December 31, 2019  
Raw materials
   $ 43,165    $ 35,901
Work-in-process
     8,090      5,184
Finished goods
     6,914      8,102
  
 
 
    
 
 
 
   $ 58,169    $ 49,187
  
 
 
    
 
 
 
3.
Long-Term Investments
As of September 30, 2020 and December 31, 2019, the Company held one auction rate security with a par value of $3,000,000, purchased through and held in custody by a broker-dealer affiliate of Bank of America, N.A., that has experienced failed auctions (the “Failed Auction Security”) since February 2008. The Failed Auction Security held by the Company is Aaa/AA+ rated by major credit rating agencies, is collateralized by student loans, and is guaranteed by the U.S. Department of Education under the Federal Family Education Loan Program. Management is not aware of any reason to believe the issuer of the Failed Auction Security is presently at risk of default. Through September 30, 2020, the Company has continued to receive interest payments on the Failed Auction Security in accordance with the terms of its indenture. Management believes the Company ultimately should
 
-7-

Table of Contents
VICOR CORPORATION
Notes to Condensed Consolidated Financial Statements
September 30, 2020
(Unaudited)
 
be able to liquidate the Failed Auction Security without significant loss primarily due to the overall quality of the issue held and the collateral securing the substantial majority of the underlying obligation. However, current conditions in the auction rate securities market have led management to conclude the recovery period for the Failed Auction Security exceeds 12 months. As a result, the Company continued to classify the Failed Auction Security as long-term as of September 30, 2020.
The following is a summary of the
available-for-sale
security (in thousands):
 
September 30, 2020
  
Cost
 
  
Gross
Unrealized
Gains
 
  
Gross
Unrealized
Losses
 
  
Estimated
Fair
Value
 
Failed Auction Security
  
$
3,000
 
  
$
—  
 
  
$
409
 
  
$
2,591
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
 
December 31, 2019
  
Cost
 
  
Gross
Unrealized
Gains
 
  
Gross
Unrealized
Losses
 
  
Estimated
Fair
Value
 
Failed Auction Security
  
$
3,000
 
  
$
—  
 
  
$
490
 
  
$
2,510
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
As of September 30, 2020, the Failed Auction Security had been in an unrealized loss position for greater than 12 months.
The amortized cost and estimated fair value of the Failed Auction Security on September 30, 2020, by contractual maturity, are shown below (in thousands):
 
 
  
Cost
 
  
Estimated
Fair Value
 
Due in twenty to forty years
  
$
3,000
 
  
$
2,591
 
 
  
 
 
 
  
 
 
 
Based on the fair value measurements described in Note 4, the fair value of the Failed Auction Security on September 30, 2020, with a par value of $3,000,000, was estimated by the Company to be approximately $2,591,000. The gross unrealized loss of $409,000 on the Failed Auction Security consists of two types of estimated loss: an aggregate credit loss of $34,000 and an aggregate temporary impairment of $375,000. In determining the amount of credit loss, the Company compared the present value of cash flows expected to be collected to the amortized cost basis of the security, considering credit default risk probabilities and changes in credit ratings as significant inputs, among other factors.
 
-8-

Table of Contents
VICOR CORPORATION
Notes to Condensed Consolidated Financial Statements
September 30, 2020
(Unaudited)
 
The following table represents a rollforward of the activity related to the credit loss recognized in earnings on the Failed Auction Security for the nine months ended September 30 (in thousands):
 
     2020      2019  
Balance at the beginning of the period
   $ 37    $ 41
Reductions in the amount related to credit gain for which other-than- temporary impairment was not previously recognized
     (3      (3
  
 
 
    
 
 
 
Balance at the end of the period
   $ 34    $ 38
  
 
 
    
 
 
 
At this time, the Company has no intent to sell the impaired Failed Auction Security and does not believe it is more likely than not the Company will be required to sell this security. If current market conditions deteriorate further, the Company may be required to record additional unrealized losses. If the credit rating of the security deteriorates, the Company may be required to adjust the carrying value of the investment through impairment charges recorded in the Condensed Consolidated Statements of Operations, and any such impairment adjustments may be material.
Based on the Company’s ability to access cash and cash equivalents and its expected operating cash flows, management does not anticipate the current lack of liquidity associated with the Failed Auction Security held will affect the Company’s ability to execute its current operating plan.
4.
Fair Value Measurements
The Company accounts for certain financial assets at fair value, defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. As such, fair value is a market-based measurement that should be determined based on assumptions market participants would use in pricing an asset or liability. A three-level hierarchy is used to show the extent and level of judgment used to estimate fair value measurements.
Assets and liabilities measured at fair value on a recurring basis included the following as of September 30, 2020 (in thousands):
 
     Using         
     Quoted Prices
in Active
Markets
(Level 1)
     Significant
Other
Observable
Inputs
(Level 2)
     Significant
Unobservable
Inputs
(Level 3)
     Total Fair
Value as of
September 30, 2020
 
Cash equivalents:
           
Money market funds
   $ 9,677    $ —        $ —        $ 9,677
Long-term investments:
           
Failed Auction Security
     —          —          2,591      2,591
Liabilities:
           
Contingent consideration obligations
     —          —          (265      (265
 
-9-

Table of Contents
VICOR CORPORATION
Notes to Condensed Consolidated Financial Statements
September 30, 2020
(Unaudited)
 
Assets and liabilities measured at fair value on a recurring basis included the following as of December 31, 2019 (in thousands):
 
     Using         
     Quoted Prices
in Active
Markets
(Level 1)
     Significant
Other
Observable
Inputs
(Level 2)
     Significant
Unobservable
Inputs
(Level 3)
     Total Fair
Value as of
December 31, 2019
 
Cash equivalents:
           
Money market funds
   $ 9,630    $ —        $ —        $ 9,630
Long-term investments:
           
Failed Auction Security
     —          —          2,510      2,510
Liabilities:
           
Contingent consideration obligations
     —          —          (451      (451
As of September 30, 2020, there was insufficient observable auction rate security market information available to determine the fair value of the Failed Auction Security using Level 1 or Level 2 inputs. As such, the Company’s investment in the Failed Auction Security was deemed to require valuation using Level 3 inputs. Management, after consulting with advisors, valued the Failed Auction Security using analyses and pricing models similar to those used by market participants (i.e., buyers, sellers, and the broker-dealers responsible for execution of the Dutch auction pricing mechanism by which each issue’s interest rate was set). Management utilized a probability weighted discounted cash flow (“DCF”) model to determine the estimated fair value of this security as of September 30, 2020. The major assumptions used in preparing the DCF model were similar to those described in Note 5—Fair Value Measurements in the Notes to the Consolidated Financial Statements contained in the Company’s 2019 Form
10-K.
Quantitative information about Level 3 fair value measurements as of September 30, 2020 is as follows (dollars in thousands):
 
 
  
Fair Value
 
  
Valuation
Technique
 
  
Unobservable
Input
  
Weighted
Average
 
Failed Auction Security
  
$
2,591
 
  
 
Discounted

cash flow
 
 
  
Cumulative probability of earning the maximum rate until maturity
  
 
0.11
 
  
     
  
     
  
Cumulative probability of principal return prior to maturity
  
 
94.75
 
  
     
  
     
  
Cumulative probability of default
  
 
5.14
 
  
     
  
     
  
Liquidity risk premium
  
 
5.00
 
  
     
  
     
  
Recovery rate in default
  
 
40.00
 
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Table of Contents
VICOR CORPORATION
Notes to Condensed Consolidated Financial Statements
September 30, 2020
(Unaudited)
 
The change in the estimated fair value calculated for the investment valued on a recurring basis utilizing Level 3 inputs (i.e., the Failed Auction Security) for the nine months ended September 30, 2020 was as follows (in thousands):
 
Balance at the beginning of the period
   $ 2,510
Credit gain on
available-for-sale
security included in Other income (expense), net
     3
Gain included in Other comprehensive income
     78
  
 
 
 
Balance at the end of the period
   $ 2,591
  
 
 
 
The Company has classified its contingent consideration obligations as Level 3 because the fair value for these liabilities was determined using unobservable inputs. The liabilities were based on estimated sales of legacy products over the period of royalty payments at the royalty rate, discounted using the Company’s estimated cost of capital.
The change in the estimated fair value calculated for the liabilities valued on a recurring basis utilizing Level 3 inputs (i.e., the Contingent consideration obligations) for the nine months ended September 30, 2020 was as follows (in thousands):
 
Balance at the beginning of the period
   $ 451
Payments
     (186
  
 
 
 
Balance at the end of the period
   $ 265
  
 
 
 
There were
no
transfers between Level 1 and Level 2 of the fair value hierarchy during the nine months ended September 30, 2020.
5.
Stockholders’ Equity
In June 2020, the Company completed an underwritten public offering of its Common Stock, resulting in the issuance of a total of 1,769,231 shares of registered Common Stock and net proceeds of approximately $109.7 million, after deduction of underwriting discounts and offering expenses. The Company intends to use the net proceeds from the offering to expand its manufacturing facilities and for other general corporate purposes.
6.
Revenues
Revenue from the sale of Advanced Products represents the sum of third-party sales of the products sold under the Advanced Products line, which were sold under the former Picor and VI Chip operating segments during periods prior to the second quarter of 2019. Revenue from the sale of Brick Products represents the sum of third-party sales of the products sold under the Brick Products line, which were also sold under the former Brick Business Unit operating segment, inclusive of such sales of our Vicor Custom Power and Vicor Japan Company, Ltd. subsidiaries.
 
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Table of Contents
VICOR CORPORATION
Notes to Condensed Consolidated Financial Statements
September 30, 2020
(Unaudited)
 
The following tables present the Company’s net revenues disaggregated by geography based on the location of the customer, by product line (in thousands):
 
     Three Months Ended September 30, 2020  
     Brick Products      Advanced Products      Total  
United States
   $ 16,905    $ 4,391    $ 21,296
Europe
     4,456      2,050      6,506
Asia Pacific
     25,878      23,926      49,804
All other
     454      52      506
  
 
 
    
 
 
    
 
 
 
   $ 47,693    $ 30,419    $ 78,112
  
 
 
    
 
 
    
 
 
 
 
     Nine Months Ended September 30, 2020  
     Brick Products      Advanced Products      Total  
United States
   $ 57,880    $ 17,205    $ 75,085
Europe
     18,451      5,218      23,669
Asia Pacific
     60,917      50,076      110,993
All other
     2,390      137      2,527
  
 
 
    
 
 
    
 
 
 
   $ 139,638    $ 72,636    $ 212,274
  
 
 
    
 
 
    
 
 
 
 
     Three Months Ended September 30, 2019  
     Brick Products      Advanced Products      Total  
United States
   $ 25,265    $ 4,290    $ 29,555
Europe
     5,577      889      6,466
Asia Pacific
     14,510      18,875      33,385
All other
     1,130      236      1,366
  
 
 
    
 
 
    
 
 
 
   $ 46,482    $ 24,290    $ 70,772