# Vicor Corp: Form 10-Q for the period ended Sep 30, 2024

- Company: [Vicor Corp](/companies/vicr.md) (CIK 751978)
- Form: 10-Q
- Filed: 2024-10-30
- Accepted by EDGAR: Oct 30, 2024, 13:34 ET
- Period: 2024-09-30
- Accession: 0000950170-24-118784
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/751978/000095017024118784/vicr-20240930.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/751978/000095017024118784/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2024-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2024-07-01 to 2024-09-30 | $93.2m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2024-01-01 to 2024-09-30 | $262.9m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2024-07-01 to 2024-09-30 | $47.4m | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 9 months, 2024-01-01 to 2024-09-30 | $129.3m | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2024-07-01 to 2024-09-30 | $45.7m | us-gaap:GrossProfit |
| Gross profit | 9 months, 2024-01-01 to 2024-09-30 | $133.6m | us-gaap:GrossProfit |
| Research and development | 3 months, 2024-07-01 to 2024-09-30 | $17.0m | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 9 months, 2024-01-01 to 2024-09-30 | $51.9m | us-gaap:ResearchAndDevelopmentExpense |
| Selling, general and administrative | 3 months, 2024-07-01 to 2024-09-30 | $23.4m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months, 2024-01-01 to 2024-09-30 | $72.7m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2024-07-01 to 2024-09-30 | $5.4m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2024-01-01 to 2024-09-30 | −$10.5m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2024-07-01 to 2024-09-30 | −$2.5m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2024-01-01 to 2024-09-30 | $2.8m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2024-07-01 to 2024-09-30 | $11.6m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2024-01-01 to 2024-09-30 | −$4.1m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2024-07-01 to 2024-09-30 | $0.26 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2024-01-01 to 2024-09-30 | −$0.09 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2024-07-01 to 2024-09-30 | $0.26 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2024-01-01 to 2024-09-30 | −$0.09 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2024-07-01 to 2024-09-30 | 45,174,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2024-01-01 to 2024-09-30 | 44,829,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2024-01-01 to 2024-09-30 | $40.7m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2024-01-01 to 2024-09-30 | $21.9m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Share repurchases | 9 months, 2024-01-01 to 2024-09-30 | $497.0k | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2024-09-30 | $267.6m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2024-09-30 | $450.8m | us-gaap:AssetsCurrent |
| Total assets | at 2024-09-30 | $632.8m | us-gaap:Assets |
| Current liabilities | at 2024-09-30 | $70.4m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2024-09-30 | $77.9m | us-gaap:Liabilities |
| Shareholders' equity | at 2024-09-30 | $554.6m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 35,852 characters.

#### Cautionary Note Regarding Forward-Looking Statements

The Company’s consolidated operating results are affected by a wide variety of factors that could materially and adversely affect revenues and profitability, including the risk factors described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023. As a result of these and other factors, the Company may experience material fluctuations in future operating results on a quarterly or annual basis, which could materially and adversely affect its business, consolidated financial condition, and operating results, and the share price of its Common Stock. This document and other documents filed by the Company with the Securities and Exchange Commission (“SEC”) include forward-looking statements regarding future events and the Company’s future results that are subject to the safe harbor afforded under the Private Securities Litigation Reform Act of 1995 and other safe harbors afforded under the Securities Act of 1933 and the Securities Exchange Act of 1934. All statements other than statements of historical fact are statements that could be deemed forward-looking statements. Forward-looking statements are based on our current beliefs, expectations, estimates, forecasts, and projections for the future performance of the Company and are subject to risks and uncertainties. Forward-looking statements are identified by the use of words denoting uncertain, future events, such as “anticipate,” “assume,” “believe,” “continue,” “could,” “estimate,” “expect,” “future,” “goal,” “if,” “intend,” “may,” “plan,” “potential,” “project,” “prospective,” “seek,” “should,” “target,” “will,” or “would,” as well as similar words and phrases, including the negatives of these terms, or other variations thereof. Forward-looking statements also include, but are not limited to, statements regarding: our ability to address certain supply chain risks; our ongoing development of power conversion architectures, switching topologies, materials, packaging, and products; the ongoing transition of our business strategically, organizationally, and operationally from serving a large number of relatively low-volume customers across diversified markets and geographies to serving a small number of relatively large volume customers; our intent to enter new market segments; the levels of customer orders overall and, in particular, from large customers and the delivery lead times associated therewith; anticipated new and existing customer wins; the financial and operational impact of customer changes to shipping schedules; the derivation of a portion of our sales in each quarter from orders booked in the same quarter; our intent to expand the percentage of revenue associated with licensing our intellectual property to third parties; our plans to invest in expanded manufacturing capacity, including the introduction of new manufacturing processes, and the timing, location, and funding thereof; our belief that cash generated from operations together with our available cash and cash equivalents will be sufficient to fund planned operational needs and capital equipment purchases, for the foreseeable future; our outlook regarding tariffs and the impact thereof on our business; our belief that we have limited exposure to currency risks; our intentions regarding the declaration and payment of cash dividends; our intentions regarding protecting our rights under our patents; and our expectation that no current litigation or claims will have a material adverse impact on our financial position or results of operations. These forward-looking statements are based upon our current expectations and estimates associated with prospective events and circumstances that may or may not be within our control and as to which there can be no assurance. Actual results could differ materially from those implied by forward-looking statements as a result of various factors, including but not limited to those described above, as well as those described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 under Part I, Item 1 — “Business,” under Part I, Item 1A — “Risk Factors,” under Part I, Item 3 — “Legal Proceedings,” and under Part II, Item 7 — “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and those described in this Quarterly Report on Form 10-Q, particularly under Part I, Item 2 – “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” The discussion of our business contained herein, including the identification and assessment of factors that may influence actual results, may not be exhaustive. Therefore, the information presented should be read together with other documents we file with the SEC from time to time, including our Annual Reports on Form 10-K, our Quarterly Reports on Form 10-Q and our Current Reports on Form 8-K, which may supplement, modify, supersede, or update the factors discussed in this Quarterly Report on Form 10-Q. Any forward-looking statement made in this Quarterly Report on Form 10-Q is based on information currently available to us and speaks only as of the date on which it is made. We do not undertake any obligation to update any forward-looking statements as a result of future events or developments, except as required by law.

September 30, 2024

### Overview

We design, develop, manufacture, and market modular power components and power systems for converting electrical power for use in electrically-powered devices. Our competitive position is supported by innovations in product design and achievements in product performance, largely enabled by our focus on the research and development of advanced technologies and processes, often implemented in proprietary semiconductor circuitry, materials, and packaging. Many of our products incorporate patented or proprietary implementations of high-frequency switching topologies enabling power system solutions that are more efficient and much smaller than conventional alternatives. Our strategy emphasizes demonstrable product differentiation and a value proposition based on competitively superior solution performance, advantageous design flexibility, and a compelling total cost of ownership. While we offer a wide range of alternating current (“AC”) and direct current (“DC”) power conversion products, we consider our core competencies to be associated with 48V DC distribution, which offers numerous inherent cost and performance advantages over lower distribution voltages. However, we also offer products addressing other DC voltage standards (e.g., 380V for power distribution in data centers, 110V for rail applications, 28V for military and avionics applications, and 24V for industrial automation).

Based on design, performance, and form factor considerations, as well as the range of evolving applications for which our products are appropriate, we categorize our product portfolios as either “Advanced Products” or “Brick Products.” The Advanced Products category consists of our more recently introduced products, which are largely used to implement our proprietary Factorized Power Architecture™ (“FPA”), an innovative power distribution architecture enabling flexible, rapid power system design using individual components optimized to perform a specific conversion function.

The Brick Products category largely consists of our broad and well-established families of integrated power converters, incorporating multiple conversion stages, used in conventional power systems architectures. Given the growth profiles of the markets we serve with our Advanced Products line and our Brick Products line, our strategy involves a transition in organizational focus, emphasizing investment in our Advanced Products line and targeting high growth market segments with a low-mix, high-volume operational model, while maintaining a profitable business in the mature market segments we serve with our Brick Products line with a high-mix, low-volume operational model.

The applications in which our Advanced Products and Brick Products are used are typically in the higher-performance, higher-power segments of the market segments we serve. With our Advanced Products, we generally serve large Original Equipment Manufacturers (“OEMs”), Original Design Manufacturers (“ODMs”), and their contract manufacturers, with sales currently concentrated in the data center and hyperscaler segments of enterprise computing, in which our products are used for power delivery on server motherboards, in server racks, and across datacenter infrastructure. We have established a leadership position in the emerging market segment for powering high-performance processors used for acceleration of applications associated with artificial intelligence (“AI”). Our customers in the AI market segment include the leading innovators in processor and accelerator design, as well as early adopters in cloud computing and high performance computing. We also serve applications in aerospace and aviation, defense electronics, satellites, factory automation, instrumentation, test equipment, transportation, telecommunications and networking infrastructure, and vehicles (notably in the autonomous driving, electric vehicle, and hybrid vehicle niches of the vehicle segment). With our Brick Products, we generally serve a fragmented base of large and small customers, concentrated in aerospace and defense electronics, industrial equipment, instrumentation and test equipment, and transportation (notably in rail and heavy equipment applications). With our strategic emphasis on larger, high-volume customers, we expect to experience over time a greater concentration of sales among relatively fewer customers.

Our quarterly consolidated operating results can be difficult to forecast and have been subject to significant fluctuations. We plan our production and inventory levels based on management’s estimates of customer demand, customer forecasts, and other information sources. Customer forecasts, particularly those of OEM, ODM, and contract manufacturing customers to which we supply Advanced Products in high volumes, are subject to scheduling changes on short notice, contributing to operating inefficiencies and excess costs. In addition, external factors such as supply chain uncertainties, which are often associated with the cyclicality of the electronics industry, regional macroeconomic and trade-related circumstances, and force majeure events (most recently evidenced by the COVID-19 pandemic), have caused our operating results to vary meaningfully. Supply chain disruptions, including those associated with our reliance on outsourced package process steps that are essential in the production of some of our Advanced Products, and those relating, for example, to the procurement of raw material, have in the past negatively impacted and may in the future negatively impact our operating results. We have taken steps to mitigate the impact of supply chain disruptions by, among other things and in varying degrees, moving outsourced manufacturing steps in-house to the Company, ordering supplies with extended lead times, paying higher prices for certain supplies or outsourced production, and expediting deliveries at a cost premium. The resulting

September 30, 2024

impact of the steps taken to mitigate supply chain disruptions have, to varying degrees and at different times, reduced our revenue, gross margin, operating profit and cash flow and may continue to do so in the future. Our quarterly gross margin as a percentage of net revenues may vary, depending on production volumes, average selling prices, average unit costs, the mix of products sold during that quarter, and the level of importation of raw materials subject to tariffs. Our quarterly operating margin as a percentage of net revenues also may vary with changes in revenue and product level profitability, but our operating costs are largely associated with compensation and related employee costs, which are not subject to sudden or significant changes.

### Summary of Third Quarter 2024 Financial Performance Compared to Second Quarter 2024 Financial Performance

The following summarizes our financial performance for the third quarter of 2024, compared to the second quarter of 2024:

- Net revenues increased 8.5% to $93,166,000 for the third quarter of 2024, from $85,854,000 for the second quarter of 2024. Net revenues for Brick Products increased 10.8% compared to the second quarter of 2024, primarily due to market demand. Advanced Products net revenues increased 6.5% compared to the second quarter of 2024, primarily due to increased royalty revenue in the third quarter of 2024.
- Export sales represented approximately 49.0% of total net revenues in the third quarter of 2024 as compared to 43.3% in the second quarter of 2024.
- Gross margin increased to $45,744,000 for the third quarter of 2024 from $42,771,000 for the second quarter of 2024, with gross margin, as a percentage of net revenues, decreasing to 49.1% for the third quarter of 2024 from 49.8% for the second quarter of 2024. The increase in gross margin dollars was primarily the result of higher sales volume in the third quarter of 2024, including royalty revenue, with the decrease in gross margin percentage primarily attributable to unfavorable product mix and higher supply chain costs, including increased freight-in and tariff spending of $1,153,000 (net of approximately $56,000 in duty drawback recovery in the third quarter of 2024 and $662,000 in duty drawback recovery in the second quarter of 2024 of previously paid tariffs) offset by production efficiencies.
- Backlog, which represents the total value of orders for products for which shipment is scheduled within the next 12 months, was approximately $150,590,000 at the end of the third quarter of 2024, as compared to $153,794,000 at the end of the second quarter of 2024.
- Operating expenses for the third quarter of 2024 decreased $2,199,000, or 5.2%, to $40,358,000 from $42,557,000 for the second quarter of 2024. Litigation-contingency expense related to the litigation with SynQor, Inc. ("SynQor") was $0 for the third quarter of 2024, compared to $2,300,000 for the second quarter of 2024. See Note 10 to the Condensed Consolidated Financial Statements for additional information regarding the litigation with SynQor.
- We reported net income for the third quarter of 2024 of $11,552,000, or $0.26 per diluted share, compared to a net loss of $(1,196,000), or $(0.03) per diluted share, for the second quarter of 2024.
- For the third quarter of 2024, depreciation and amortization totaled $4,741,000 and capital additions totaled $8,455,000 as compared to depreciation and amortization of $4,661,000 and capital additions of $6,141,000 for the second quarter of 2024.
- Inventories decreased by approximately $3,323,000, or 3.0%, to $105,761,000 at September 30, 2024, compared to $109,084,000 at June 30, 2024.

### Three Months Ended September 30, 2024 Compared to Three Months Ended September 30, 2023

Net revenues for the third quarter of 2024 were $93,166,000, a decrease of $14,678,000, or 13.6%, as compared to $107,844,000 for the third quarter of 2023. Net revenues, by product line, for the three months ended September 30, 2024 and 2023 were as follows (dollars in thousands):

|  | 2024 | 2023 | Decrease $% |  |
| --- | ---: | ---: | ---: | ---: |
| Advanced Products | $49,402 | $58,412 | $(9,010) | (15.4)% |
| Brick Products | 43,764 | 49,432 | (5,668) | (11.5)% |
| Total | $93,166 | $107,844 | $(14,678) | (13.6)% |

- 18-

September 30, 2024

The decrease in net revenues for Advanced Products was primarily due to continued softness in underpenetrated markets, partially offset by increased royalty revenue in the quarter. The decrease in net revenues for Brick Products was primarily due to reduced market demand.

Gross margin for the third quarter of 2024 decreased $10,134,000, or 18.1%, to $45,744,000, from $55,878,000 for the third quarter of 2023. Gross margin, as a percentage of net revenues, decreased to 49.1% for the third quarter of 2024, compared to 51.8% for the third quarter of 2023. The decrease in gross margin dollars and gross margin percentage was primarily attributable to lower sales volume and unfavorable sales mix on that volume, offset by higher royalty revenue and improved production efficiencies and supply chain costs, including lower freight-in and tariff spending of $430,000 (net of approximately $56,000 in duty drawback recovery in the third quarter of 2024 and $0 in duty drawback recovery in the third quarter of 2023 of previously paid tariffs).

Selling, general and administrative expenses were $23,398,000 for the third quarter of 2024, an increase of $976,000, or 4.4%, from $22,422,000 for the third quarter of 2023. Selling, general and administrative expenses as a percentage of net revenues increased to 25.1% for the third quarter of 2024 from 20.8% for the third quarter of 2023. The components of the $976,000 increase in selling, general and administrative expenses for the third quarter of 2024 from the third quarter of 2023 were as follows (dollars in thousands):

|  | Increase (decrease) |  |  |
| --- | ---: | ---: | ---: |
| Legal | $1,312 | 44.1% | (1) |
| Compensation | 440 | 3.6% | (2) |
| Litigation, other | 377 | 100.0% | (3) |
| Project Materials | 149 | 100.0% |  |
| Outside services | (474) | (33.9)% | (4) |
| Commissions | (963) | (100.0)% | (5) |
| Other, net | 135 | 2.6% |  |
|  | $976 | 4.4% |  |

(1) Increase primarily attributable to an increase in activity related to corporate legal matters, including the assertion of our intellectual property rights.

(2) Increase primarily attributable to higher stock-based compensation expense associated with stock options awarded in May 2024.

(3) Increase primarily attributable to an increase in post-judgment interest relating to the SynQor litigation-contingency accrual.

(4) Decrease primarily attributable to a decrease in the use of consultants.

(5) Decrease primarily attributable to the fact that the Company no longer uses outside sales representatives.

September 30, 2024

Research and development expenses were $16,960,000 for the third quarter of 2024, a decrease of $792,000, or 4.5%, compared to $17,752,000 for the third quarter of 2023. As a percentage of net revenues, research and development expenses increased to 18.2% for the third quarter of 2024 from 16.5% for the third quarter of 2023. The components of the $792,000 decrease in research and development expenses for the third quarter of 2024 from the third quarter of 2023 were as follows (dollars in thousands):

|  | Increase (decrease) |  |  |
| --- | ---: | ---: | ---: |
| Project and pre-production materials | $(1,343) | (41.8)% | (1) |
| Supplies | (448) | (58.1)% | (2) |
| Deferred costs | 129 | 100.0% |  |
| Facilities allocations | 179 | 22.5% |  |
| Overhead absorption | 207 | 77.1% | (3) |
| Compensation | 325 | 3.0% | (4) |
| Other, net | 159 | 6.6% |  |
|  | $(792) | (4.5)% |  |

(1) Decrease primarily attributable to decreased prototype development costs for Advanced Products.

(2) Decrease in engineering supplies.

(3) Increase primarily attributable to a decrease in research and development personnel incurring time on production activities, compared to research and development activities.

(4) Increase primarily attributable to higher stock-based compensation expense associated with stock options awarded in May 2024.

The significant components of ''Other income (expense), net'' for the three months ended September 30, 2024 and 2023 and the changes between the periods were as follows (in thousands):

|  | 2024 | 2023 | Increase (decrease) |
| --- | ---: | ---: | ---: |
| Interest income, net | $3,032 | $1,989 | $1,043 |
| Rental income | 284 | 198 | 86 |
| Foreign currency gains (losses), net | 404 | (273) | 677 |
| Other, net | (7) | 3 | (10) |
|  | $3,713 | $1,917 | $1,796 |

Our exposure to market risk fluctuations in foreign currency exchange rates relates to the operations of Vicor Japan Company, Ltd. (“VJCL”), for which the functional currency is the Japanese Yen, and all other subsidiaries in Europe and Asia, for which the functional currency is the U.S. Dollar. These subsidiaries in Europe and Asia experienced favorable foreign currency exchange rate fluctuations in the third quarter of 2024 compared to the third quarter of 2023. Interest income for the three months ended September 30, 2024 increased due to higher balances of cash and cash equivalents held by the Company.

Income before income taxes was $9,099,000 for the third quarter of 2024, as compared to $17,621,000 for the third quarter of 2023.

The (benefit) provision for income taxes and the effective income tax rates for the three months ended September 30, 2024 and 2023 were as follows (dollars in thousands):

|  | 2024 | 2023 |
| --- | ---: | ---: |
| (Benefit) provision for income taxes | $(2,455) | $1,038 |
| Effective income tax rate | (27.0)% | 5.9% |

- 20-

September 30, 2024

For the three months ended September 30, 2024, the Company calculated the income tax provision using the discrete method as this was more appropriate given the facts and circumstances. The Company determined that the application of the estimated annual effective tax rate method generally required by FASB ASC 740, Income Taxes, results in a disproportionate tax provision (benefit) for income taxes for the quarter relative to the expected provision for the full year.

The effective tax rates differ from the statutory tax rates for the three months ended September 30, 2024 and 2023 primarily due to the Company’s full valuation allowance position against domestic deferred tax assets. The (benefit) provision for income taxes for the three months ended September 30, 2024 and 2023 included estimated federal, state and foreign income taxes in jurisdictions in which the Company does not have sufficient tax attributes.

The Company’s tax expense and rate for the three months ended September 30, 2024 continues to be negatively impacted by the capitalization of research and development expenses under Section 174 in the U.S., which given the Company’s close to breakeven performance, is having an outsized impact on the rate by effectively moving from a book loss to a taxable income position, which causes a significant tax expense. This is further compounded by the Company not recording a deferred tax benefit from temporary differences due to the full valuation allowance on domestic deferred tax assets.

See Note 8 to the Condensed Consolidated Financial Statements for disclosure regarding our current assessment of the valuation allowance against all domestic deferred tax assets, and the possible release (i.e., reduction) of the allowance in the future.

We reported net income for the third quarter of 2024 of $11,552,000, or $0.26 per diluted share, compared to net income of $16,582,000, or $0.37 per diluted share, for the third quarter of 2023.

### Nine Months Ended September 30, 2024 Compared to Nine Months Ended September 30, 2023

Net revenues for the nine months ended September 30, 2024 were $262,892,000, a decrease of $49,515,000, or 15.8%, from $312,407,000 for the nine months ended September 30, 2023. Net revenues, by product line, for the nine months ended September 30, 2024 and the nine months ended September 30, 2023 were as follows (dollars in thousands):

|  | 2024 | 2023 | Decrease $% |  |
| --- | ---: | ---: | ---: | ---: |
| Advanced Products | $139,050 | $177,216 | $(38,166) | (21.5)% |
| Brick Products | 123,842 | 135,191 | (11,349) | (8.4)% |
| Total | $262,892 | $312,407 | $(49,515) | (15.8)% |

The decrease in net revenues for Advanced Products was primarily due to continued softness in underpenetrated markets, partially offset by increased royalty revenue. The decrease in net revenues for Brick Products was primarily due to reduced market demand.

Gross margin for the nine months ended September 30, 2024 decreased $23,947,000, or 15.2%, to $133,638,000 from $157,585,000 for the nine months ended September 30, 2023. Gross margin, as a percentage of net revenues, increased to 50.8% for the nine-month period ended September 30, 2024, as compared to 50.4% for the nine-month period ended September 30, 2023. The decrease in gross margin dollars was primarily the result of lower sales volume in the first nine months of 2024, with the increase in gross margin percentage primarily attributable to higher royalty revenue and improved production efficiencies compared to the first nine months of 2023 along with certain reductions in supply chain costs, including a reduction of $2,108,000 in outsourced manufacturing costs partially offset by incremental costs of bringing production in-house for certain Advanced Products, offset by slightly unfavorable sales mix and an increase in freight-in and tariff spending of $1,502,000 (net of approximately $717,000 in duty drawback recovery in the first nine months of 2024 and $5,715,000 in duty drawback recovery in the first nine months of 2023 of previously paid tariffs).

Selling, general and administrative expenses were $72,715,000 for the nine months ended September 30, 2024, an increase of $9,695,000, or 15.4%, compared to $63,020,000 for the nine months ended September 30, 2023. Selling, general and administrative expenses as a percentage of net revenues increased to 27.7% for the nine months ended September 30, 2024 from 20.2% for the nine

September 30, 2024

months ended September 30, 2023. The components of the $9,695,000 increase in selling, general and administrative expenses for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 were as follows (dollars in thousands):

|  | Increase (decrease) |  |  |
| --- | ---: | ---: | ---: |
| Legal fees | $9,772 | 188.3% | (1) |
| Compensation | 1,325 | 3.6% | (2) |
| Litigation, other | 615 | 100.0% | (3) |
| Advertising | 140 | 3.9% |  |
| Consultants | 109 | 205.1% |  |
| Commissions | (2,531) | (92.6)% | (4) |
| Other, net | 265 | 1.8% |  |
|  | $9,695 | 15.4% |  |

(1) Increase primarily attributable to an increase in activity related to corporate legal matters, including the assertion of our intellectual property rights.

(2) Increase primarily attributable to annual compensation adjustments in May 2024 and higher stock-based compensation expense associated with stock options awarded in May 2024.

(3) Increase primarily attributable to an increase in post-judgment interest relating to the SynQor litigation-contingency accrual.

(4) Decrease primarily attributable to a reduced use of outside sales representatives.

Research and development expenses were $51,938,000 for the nine months ended September 30, 2024, an increase of $1,382,000, or 2.7%, from $50,556,000 for the nine months ended September 30, 2023. As a percentage of net revenues, research and development expenses increased to 19.8% for the nine months ended September 30, 2024 from 16.2% for the nine months ended September 30, 2023. The components of the $1,382,000 increase in research and development expenses for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 were as follows (dollars in thousands):

|  | Increase (decrease) |  |  |
| --- | ---: | ---: | ---: |
| Overhead absorption | $1,530 | 81.3% | (1) |
| Compensation | 803 | 2.4% | (2) |
| Facilities allocations | 293 | 12.6% | (3) |
| Depreciation and amortization | 261 | 12.6% | (4) |
| Outside services | 202 | 29.7% | (5) |
| Gases | 189 | 28.1% |  |
| Supplies | (964) | (47.9)% | (6) |
| Project and pre-production materials | (1,161) | (13.2)% | (7) |
| Other, net | 229 | 8.0% |  |
|  | $1,382 | 2.7% |  |

(1) Increase primarily attributable to a decrease in research and development personnel incurring time on production activities, compared to research and development activities.

(2) Increase primarily attributable to annual compensation adjustments in May 2024 and higher stock-based compensation expense associated with stock options awarded in May 2024.

(3) Increase primarily attributable to an increase in utilities and building maintenance expenses.

(4) Increase attributable to net additions of furniture and fixtures and capitalization of building improvements.

(5) Increase primarily attributable to an increase in the use of consultants.

(6) Decrease in engineering supplies.

September 30, 2024

(7) Decrease primarily attributable to decreased prototype development costs for Advanced Products.

Litigation-contingency expense was $19,500,000 for the nine months ended September 30, 2024 which related to the SynQor litigation, as compared to $0 for the nine months ended September 30, 2023. See Note 10 to the Condensed Consolidated Financial Statements for additional information regarding the SynQor litigation.

The significant components of ''Other income (expense), net'' for the nine months ended September 30, 2024 and the nine months ended September 30, 2023 and the changes from period to period were as follows (in thousands):

|  | 2024 | 2023 | Increase (decrease) |
| --- | ---: | ---: | ---: |
| Interest income, net | $8,625 | $5,500 | $3,125 |
| Rental income | 708 | 594 | 114 |
| Foreign currency losses, net | (60) | (466) | 406 |
| Other, net | (29) | 15 | (44) |
|  | $9,244 | $5,643 | $3,601 |

Our exposure to market risk fluctuations in foreign currency exchange rates relates to the operations of VJCL, for which the functional currency is the Japanese Yen, and all other subsidiaries in Europe and Asia, for which the functional currency is the U.S. Dollar. These subsidiaries in Europe and Asia experienced less unfavorable foreign currency exchange rate fluctuations in the first nine months of 2024 compared to the first nine months of 2023. Interest income for the nine months ended September 30, 2024 increased due to higher balances of cash and cash equivalents held by the Company.

(Loss) income before income taxes was $(1,271,000) for the nine months ended September 30, 2024, as compared to $49,652,000 for the nine months ended September 30, 2023.

The provision for income taxes and the effective income tax rates for the nine months ended September 30, 2024 and 2023 were as follows (dollars in thousands):

|  | 2024 | 2023 |
| --- | ---: | ---: |
| Provision for income taxes | $2,832 | $4,716 |
| Effective income tax rate | (222.8)% | 9.5% |

The effective tax rates differ from the statutory tax rates for the nine months ended September 30, 2024 and 2023 primarily due to the Company’s full valuation allowance position against domestic deferred tax assets. The provision for income taxes for the nine months ended September 30, 2024 and 2023 included estimated federal, state and foreign income taxes in jurisdictions in which the Company does not have sufficient tax attributes.

The Company's tax expense and the rate for the nine months ended September 30, 2024 continues to be negatively impacted by the capitalization of research and development expenses under Section 174 in the U.S., which given the Company's nine month performance, is having an outsized impact on the rate by effectively moving from a book loss to a taxable income position, which causes a significant tax expense. This is further compounded by the Company not getting a deferred tax benefit from temporary differences due to the full valuation allowance on domestic deferred tax assets.

See Note 8 to the Condensed Consolidated Financial Statements for disclosure regarding our current assessment of the valuation allowance against all domestic deferred tax assets, and the possible release (i.e., reduction) of the allowance in the future.

We reported a net loss for the nine months ended September 30, 2024 of $(4,117,000), or $(0.09) per diluted share, as compared to net income of $44,927,000, or $1.00 per diluted share, for the nine months ended September 30, 2023.

September 30, 2024

#### Liquidity and Capital Resources

As of September 30, 2024, we had $267,605,000 in cash and cash equivalents. The ratio of total current assets to total current liabilities was 6.4:1 as of September 30, 2024 and 9.5:1 as of December 31, 2023. Working capital, defined as total current assets less total current liabilities, increased $4,256,000 to $380,453,000 as of September 30, 2024 from $376,197,000 as of December 31, 2023.

The changes in working capital from December 31, 2023 to September 30, 2024 were as follows (in thousands):

|  | Increase (decrease) |
| --- | ---: |
| Cash and cash equivalents | $25,386 |
| Accounts receivable | 5,894 |
| Inventories | (818) |
| Other current assets | (4) |
| Accounts payable | (3,624) |
| Accrued compensation and benefits | (1,214) |
| Accrued expenses | (1,344) |
| Accrued litigation | (20,050) |
| Short-term deferred revenue | (1,041) |
| Other | 1,071 |
|  | $4,256 |

The primary sources of cash for the nine months ended September 30, 2024 were $40,725,000 generated from operations and $7,047,000 received in connection with the exercise of options to purchase our Common Stock awarded under our stock option plans and the issuance of Common Stock under our 2017 Employee Stock Purchase Plan. The primary uses of cash during the nine months ended September 30, 2024 were for the purchase of property and equipment of $21,866,000.

In November 2000, our Board of Directors authorized the repurchase of up to $30,000,000 of our Common Stock (the “November 2000 Plan”). In July 2024, our Board of Directors authorized the repurchase of up to $100,000,000 of our Common Stock (the “New Repurchase Authorization”). The New Repurchase Authorization replaces the November 2000 Plan in its entirety and no further repurchases will be made pursuant to the November 2000 Plan. As of September 30, 2024, we had approximately $99,503,000 remaining available for repurchases of our Common Stock under the New Repurchase Authorization.

The timing and amounts of Common Stock repurchases under the New Repurchase Authorization are at the discretion of the Company’s President and Chief Executive Officer based upon economic and financial market conditions.

As of September 30, 2024, we had a total of approximately $14,073,000 of cancelable and non-cancelable capital expenditure commitments, principally for manufacturing and production equipment, which we intend to fund with existing cash, and approximately $2,976,000 of capital expenditure items and internal-use software which had been received and included in Property, plant and equipment, net in the accompanying Condensed Consolidated Balance Sheets, but not yet paid for. Our primary needs for liquidity are for making continuing investments in manufacturing and production equipment. We believe cash generated from operations together with our available cash and cash equivalents will be sufficient to fund planned operational needs and capital equipment purchases, for both the short and long term.

We do not consider the impact of inflation or fluctuations in the exchange rates for foreign currency transactions to have been significant during the last three fiscal years.

September 30, 2024

#### Critical Accounting Policies and Estimates

There have been no material changes in our judgments and assumptions associated with the development of our critical accounting estimates during the period ended September 30, 2024. Refer to the section entitled “Critical Accounting Policies and Estimates” in Part II, Item 7 – “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.

September 30, 2024

## Market risk

As filed, 2,677 characters.

We are exposed to a variety of market risks, including changes in interest rates affecting the return on our cash and cash equivalents, our short-term investments and fluctuations in foreign currency exchange rates. As our cash and cash equivalents and short-term investments consist principally of cash accounts, money market securities, and U.S. Treasury securities, which are short-term in nature, we believe our exposure to market risk on interest rate fluctuations for these investments is not significant. As of September 30, 2024, our long-term investment portfolio, recorded on our Condensed Consolidated Balance Sheet as “Long-term investment, net”, consisted of a single 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. While the Failed Auction Security is Aaa/AA+ rated by major credit rating agencies, collateralized by student loans and guaranteed by the U.S. Department of Education under the Federal Family Education Loan Program, continued failure to sell at its periodic auction dates (i.e., reset dates) could negatively impact the carrying value of the investment, in turn leading to impairment charges in future periods. Periodic changes in the fair value of the Failed Auction Security attributable to credit loss (i.e., risk of the issuer’s default) are recorded through earnings as a component of “Other income (expense), net”, with the remainder of any periodic change in fair value not related to credit loss (i.e., temporary “mark-to-market” carrying value adjustments) recorded in “Accumulated other comprehensive loss”, a component of Stockholders’ Equity. Should we conclude a decline in the fair value of the Failed Auction Security is other than temporary, such losses would be recorded through earnings as a component of “Other income (expense), net”. We do not believe there was an “other-than-temporary” decline in value in this security as of September 30, 2024.

Our exposure to market risk for fluctuations in foreign currency exchange rates relates to the operations of VJCL, for which the functional currency is the Japanese Yen, and changes in the relative value of the Yen to the U.S. Dollar. The functional currency of all other subsidiaries in Europe and other subsidiaries in Asia is the U.S. Dollar. While we believe the risk of fluctuations in foreign currency exchange rates for these subsidiaries is generally not significant, they can be subject to substantial currency changes, and therefore foreign exchange exposures.

September 30, 2024

## Controls and procedures

As filed, 3,826 characters.

(a) Disclosure regarding controls and procedures.

As required by Rule 13a-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), management, with the participation of our Chief Executive Officer (“CEO”) (who is our principal executive officer) and Chief Financial Officer (“CFO”) (who is our principal financial officer), conducted an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the last fiscal quarter (i.e., September 30, 2024). The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure information required to be disclosed by a company in the reports it files or submits under the Exchange Act is accumulated and communicated to the company's management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of September 30, 2024, our CEO and CFO concluded, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Accordingly, management, including the CEO and CFO, recognizes our disclosure controls or our internal control over financial reporting may not prevent or detect all errors and all fraud. The design of a control system must reflect the fact there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any control’s effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.

(b) Changes in internal control over financial reporting.

There was no change in our internal control over financial reporting that occurred during the fiscal quarter ended September 30, 2024, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Part II – Other Information

September 30, 2024

## Risk factors

As filed, 183 characters.

There have been no material changes in the risk factors described in Part I, Item 1A – “Risk Factors” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.

Filed Oct 30, 2024.
Source: SEC EDGAR, the filing index for accession 0000950170-24-118784. Last ingested by Listed: Oct 26, 2026, 09:30 ET. No prices; not investment advice.